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ERISA Watch – Sixth Circuit Adopts Boston Harbor Market-Participation Doctrine to ERISA Preemption

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This week’s notable decision is from the land of ERISA preemption:  Allied Constr. Indus. v. City of Cincinnati, No. 16-4248, __F.3d__, 2018 WL 283775 (6th Cir. Jan. 4, 2018).  The City of Cincinnati and Laborers International Union of North America, Local 265 appealed the district court’s decision that three City ordinance provisions concerning bidder specifications for certain City projects were preempted by ERISA. The Sixth Circuit reversed the district court and held that the City was acting as a market participant in enacting the Ordinance, and therefore these provisions are not preempted by ERISA.

By way of background, in Bldg. & Constr. Trades Council of the Metro. Dist. v. Associated Builders & Contractors of Mass./R.I., Inc., 507 U.S. 218, 113 S.Ct. 1190, 122 L.Ed.2d 565 (1993) (“Boston Harbor”), the Supreme Court determined that a state agency’s bidding specifications for selecting contractors for the state-funded clean-up of the Boston Harbor was not preempted by the NLRA because the state acted as a proprietor rather than a regulator in imposing the requirement.  In this case, the City argued that the market-participant doctrine set forth in Boston Harbor should be applied to ERISA.

This case is significant because it is the first time that the Sixth Circuit has considered whether to apply the Boston Harbors market-participation doctrine to ERISA preemption.   The court noted that the Ninth Circuit has applied this doctrine to ERISA and that the Third Circuit has suggested (though not explicitly held) that the doctrine applies.  Following these circuits, the Sixth Circuit determined that where a state or municipality acts as a proprietor rather than a regulator, it is not subject to ERISA preemption.

The court then turned to the question of what municipal conduct qualifies as market participation.  The court adopted the Fifth Circuit’s Cardinal Towing’s two-step framework and joined the Ninth Circuit in treating the two parts disjunctively.  If at step one, the Ordinance essentially reflects the City’s own interest in the efficient procurement of goods and services, as compared to the typical behavior of private parties, the court infers that the conduct was proprietary rather than regulatory.  If not, the court moves to step two and considers whether the Ordinance’s narrow scope nonetheless defeats the inference that the conduct was regulatory.

The provisions of Cincinnati Ordinance No. 282-2012 at issue require certification as to whether the bidder provides certain health, pension, and apprenticeship benefits to the employees working on the project.  Applying Cardinal Towing to the present case, the court concluded that the benefit-certification requirements and the apprenticeship requirements in the Ordinance reflect the City’s interests in the efficient procurement of goods and services. Thus, the City was acting as a market participant in enacting the Ordinance and it is not subject to ERISA preemption.

Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.

Attorneys’ Fees

Fifth Circuit

Victory Med. Ctr. v. CareFirst of Maryland, Inc., No. 15-10053, __F.App’x__, 2018 WL 264794 (5th Cir. Jan. 2, 2018) (Before WIENER, ELROD, and SOUTHWICK, Circuit Judges).  Following motions to dismiss, Plaintiff had one remaining ERISA claim against Defendant (failure to provide information upon request), which it voluntarily dismissed in exchange for Defendant withdrawing its motion to compel.  Defendant sought attorney’s fees, which the district court denied because it could not fairly call the outcome of the litigation some success on the merits without conducting a lengthy inquiry into whether Defendants’ success was not based on a purely procedural victory.  The Fifth Circuit determined that the district court did not abuse its discretion in declining to award attorney’s fees.

Breach of Fiduciary Duty

Fourth Circuit

Greenbrier Hotel Corporation, et al. v. UNITE HERE HEALTH, et al., No. 16-2116, __F.App’x__, 2018 WL 272012 (4th Cir. Jan. 3, 2018) (Before WILKINSON, DUNCAN, and AGEE, Circuit Judges).  The Fourth Circuit affirmed the district court’s judgment that the Fund was required to remit excess assets to the Greenbrier’s new employee welfare trust fund.  However, the court disagreed that Greenbrier presented a cognizable claim under ERISA; rather, the case should have proceeded as a state-law breach-of-contract suit.  The court affirmed on non-ERISA grounds and vacated the district court’s award of attorney’s fees and costs.

Sixth Circuit

Cassell v. Vanderbilt University, et al., No. 3:16-CV-02086, 2018 WL 305747 (M.D. Tenn. Jan. 5, 2018) (Chief Judge Crenshaw).  In one of several filed cases alleging that university retirement plans have not been managed with loyalty or prudence, the court granted in part and denied in part Defendants’ Motion to Dismiss. The court dismissed Plaintiffs’ claims for breach of the duty of loyalty . It also found time-barred all of Plaintiffs’ claims with regard to the initial commitment (“locking in”) with TIAA-CREF. The court also dismissed Plaintiffs’ claim that having too many options was a breach of the fiduciary duty of prudence; Plaintiffs’ claims for failure to monitor fiduciaries; and Plaintiffs’ claims regarding “prohibited transactions”, except as they relate to the Plan’s initial agreements with VALIC, Fidelity and Vanguard, if those agreements were made within the six-year statute of limitations.

Class Actions

Fifth Circuit

Hill, et al. v. Hill Brothers Construction Company, Inc., et al., No. 3:14-CV-213-SA-RP, 2018 WL 280536 (N.D. Miss. Jan. 3, 2018) (Judge Sharion Aycock).  Pursuant to Federal Rule of Civil Procedure 23(a) and (b)(3), the court finally certified the following settlement class:  All participants, beneficiaries, and alternate payees of the ESOP reflected on the records of the ESOP as of August 15, 2013.  The court also granted final approval of the Settlement Agreement, which provides that Defendants shall pay $850,000 total for all claims and payment of notice costs, attorneys’ fees, costs and expenses, incentive awards, and all other items of liability.

Hill, et al. v. Hill Brothers Construction Company, Inc., et al., No. 3:14-CV-213-SA-RP, 2018 WL 280537 (N.D. Miss. Jan. 3, 2018) (Judge Sharion Aycock).  The court awarded Settlement Class Counsel the sum of $283,333.33 as an award of attorneys’ fees to be paid from the Settlement Amount of $850,000.

Disability Benefit Claims

Tenth Circuit

Van Steen v. Life Ins. Co. of N. Am., No. 16-1405, __F.3d__, 2018 WL 256806 (10th Cir. Jan. 2, 2018) (Before MATHESON, McKAY, and McHUGH, Circuit Judges).  In this dispute concerning long-term disability benefits, the Tenth Circuit affirmed the district court’s grant of judgment in favor of Plaintiff and held that LINA’s decision was not based on medical evidence that Plaintiff was capable of performing each and every material duty of his occupation as a systems analyst on a full-time basis, and therefore his benefits had to be reinstated.

ERISA Preemption

Sixth Circuit

Allied Constr. Indus. v. City of Cincinnati, No. 16-4248, __F.3d__, 2018 WL 283775 (6th Cir. Jan. 4, 2018) (Before: BOGGS, BATCHELDER, and KETHLEDGE, Circuit Judges).  The City of Cincinnati and Laborers International Union of North America, Local 265 appealed the district court’s decision that three City ordinance provisions concerning bidder specifications for certain City projects were preempted by ERISA. The Sixth Circuit reversed the district court and held that the City was acting as a market participant in enacting the Ordinance, and therefore these provisions are not preempted by ERISA.

Pension Benefit Claims

Fifth Circuit

Owens v. Western & Southern Life Insurance Company, et al., No. 16-31174, __F.App’x__, 2018 WL 297159 (5th Cir. Jan. 4, 2018) (Before KING, DENNIS, and COSTA, Circuit Judges).  The court held that Plaintiffs violated the forfeiture provision of the retirement plan and they are not entitled to the plan’s post-retirement benefits.  Specifically, they violated § 4.7(b)(1) by engaging in employment competitive with Western & Southern’s business.  Plaintiffs are judicially estopped from arguing that the plan is not a top hat plan.  The court rejected the arguments that the forfeiture provision is unenforceable and that Defendant failed to comply with ERISA’s ordinary disclosure requirements.  The district court decision is affirmed.

Eighth Circuit

Corrado v. Life Inv’rs Ins. Co. of Am., No. 16-3949, __F.3d__, 2018 WL 258431 (8th Cir. Jan. 2, 2018) (Before WOLLMAN, BEAM, and SHEPHERD, Circuit Judges).  In this matter brought by pension plan participants who alleged that the plan sponsor trustees’ actions in deducting funds from their accounts to reimburse the plan for the cost of defense in the participants’ prior suit against it constituted breaches of fiduciary duties and conversion, the Eighth Circuit affirmed the district court’s entry of summary judgment in the trustees’ favor.  The court held that:  1) the plan authorized the trustees to deduct the funds from the participants’ accounts; 2) the transfer of funds from the participants’ accounts did not violate the participants’ vested interest in the trust; 3) the transfer did not deprive participants of their vested interests in trust assets; 4) the trustees did not breach their fiduciary duties by failing to provide participants with notice prior to deducting funds from their accounts; and 5) the trustees did not convert participants’ funds.

Pleading Issues & Procedure

Eighth Circuit

Pacheco v. Honeywell, Int’l Inc., No. CV 17-5048 (SRN/HB), __F.Supp.3d__, 2017 WL 6759098 (D. Minn. Dec. 29, 2017) (Judge Susan Richard Nelson).  In this putative class action alleging breaches of certain collective bargaining agreements, Plaintiffs seek an order prohibiting Honeywell from terminating their healthcare coverage, and their families’ coverage, while this litigation proceeds.  The court granted the preliminary injunction through and including January 31, 2018.  During this time, the court will fully review the record and conflicting legal authorities, however, “based on the Court’s current review of a more limited record, the Court is satisfied that Plaintiffs have met their burden for injunctive relief.”

Ninth Circuit

State of California, et al., v. Health and Human Services, et al., No. 17-CV-05783-HSG, 2017 WL 6731640 (N.D. Cal. Dec. 29, 2017) (Judge Haywood S. Gilliam, Jr.).  In this case brought by Plaintiffs alleging that certain federal agencies issued interim final rules in violation of the Administrative Procedure Act and the United States Constitution, the court granted the Little Sisters’ motion to intervene.  The court determined that permissive intervention was warranted but not intervention as of right.

Tenth Circuit

In re EpiPen (Epinephrine Injection, USP) Mktg., Sales Practices & Antitrust Litig., No. 17-MD-2785-DDC-TJJ, 2018 WL 263239 (D. Kan. Jan. 2, 2018) (Judge Daniel D. Crabtree).  The court denied the consolidation of another case pending in this judicial district, Brannon, et al. v. Express Scripts Holding Co., et al., No. 17-2497-DDC-TJJ, in this MDL.  The court concluded that consolidation of the Brannon case in this MDL is not warranted under local rule, D. Kan. Rule 23-A(e).

Eleventh Circuit

American Family Life Assurance Company of Columbus v. Hubbard, et al., No. 4:17-CV-246 (CDL), 2018 WL 283254 (M.D. Ga. Jan. 3, 2018) (Judge Clay D. Land).  The court determined that Defendants’ ERISA claims arise out of Plaintiff’s alleged misclassification of Defendants as independent contractors instead of employees and that the dispute falls within the scope of the Arbitration Agreement.  The court granted the motion to compel arbitration.

Severance Benefit Claims

Eighth Circuit

Boyd v. ConAgra Foods, Inc., No. 16-1763, __F.3d__, 2018 WL 298705 (8th Cir. Jan. 5, 2018) (Before WOLLMAN, MELLOY, and GRUENDER, Circuit Judges).  Plaintiff alleged that he suffered adverse changes in his employment by being excluded from a senior leadership team meeting, a network optimization meeting, and the decision-making process for the replacement of a plant manager at a plant Plaintiff supervised.  The Eighth Circuit affirmed the district court’s determination that the Plan Administrator did not abuse its discretion in denying Plaintiff’s claim on the ground that he did not have Good Reason to self-terminate.  The court also affirmed Plaintiff’s award of attorney’s fees since the Plan entitles him to recover attorney’s fees incurred in pursuing his claims unless the claims were frivolous, which the court found that they were not.

Subrogation/Reimbursement Claims

Eighth Circuit

Wilson, et al., v. O’Brien & Wolf, LLP, et al., No. 017CV01885SRNSER, 2018 WL 296074 (D. Minn. Jan. 4, 2018) (Judge Susan Richard Nelson).  The Plan filed suit claiming that the plan participant violated the General Plan Provisions by agreeing to pay O’Brien & Wolf its one-third contingency as calculated from his net settlement recovery—the amount left over after reimbursing the Plan—rather than from his gross settlement recovery, which enabled the firm to bring its state action, claiming that it has not been fully compensated for the recovery it helped secure.  Plaintiffs seek a declaration that the participant is obligated to pay attorney’s fees for the entire gross settlement recovery, and that he is obligated to indemnify the Plan against any award that O’Brien & Wolf might win in state court.  Based on stipulations made by O’Brien & Wolk, the court determined that Plaintiffs do not state a plausible claim against the plan participant and dismissed those claims.

Venue

Tenth Circuit

Brannon v. Express Scripts Holding Company, et al., No. 17-2497-DDC-TJJ, 2018 WL 263237 (D. Kan. Jan. 2, 2018) (Judge Daniel D. Crabtree).  The court granted the Moving Defendants’ motion to transfer this case to the District of Minnesota under the first-to-file rule. The court also found the case appropriate for transfer under 28 U.S.C. § 1404(a) since it will serve the convenience of the parties and witnesses and promote the interests of justice.

 

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