State law tortious interference claim was not completely preempted by ERISA

A state law claim for tortious interference with a contract that happened to be a pension plan subject to ERISA was not “completely preempted” by ERISA §502(a)(1)(B), according to the U.S. Court of Appeals at Cincinnati (CA-6). Hence, the district court lacked jurisdiction over the case and the case was remanded to the state court.

An investment firm agreed to sell its interest in an automotive supplier to a second investment firm. However, the seller failed to disclose the fact that the automotive supplier would owe certain former executives approximately $13 million as a result of the sale. This obligation arose under a change-of-control provision in the supplier’s Supplemental Executive Retirement Plan (SERP) in which the former executives were participants. The SERP was a plan subject to ERISA. The second investment firm threatened to back out of the deal when it found out about the $13 million SERP obligation. In response, the supplier’s board of directors simply declared the SERP invalid. The deal then closed about a month later. A month after the deal closed, the auto supplier notified the former executives that it had invalidated the SERP. In response, the former executives filed a suit in Michigan state court, against the first investment firm and the current executives of the auto supplier for tortious interference with contractual relations.

Complete preemption

The defendants moved the case to federal court contending that the claim was completely preempted under ERISA. The federal district court found that it was and dismissed the action. On appeal, the Sixth Circuit reviewed the district court’s dismissal de novo.

ERISA §502(a)(1)(B) provides that a civil action may be brought by a participant or beneficiary to recover benefits due to him under the terms of the plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan. The Supreme Court has said that this provision is part of a civil enforcement scheme whose comprehensive and carefully integrated character provides “strong evidence that Congress did not intend to authorize other remedies that it simply forgot to incorporate expressly.”

Thus, when a state law claim by its nature falls within the scope of ERISA §502(a)(1)(B), two consequences follow: (1) the claim is deemed to be a federal claim for purposes of federal question jurisdiction and thus removal and (2) the claim is preempted.

The issue in this case was whether the state law claim was within the scope of ERISA §502(a)(1)(B) for purposes of this rule. A claim is within the scope of ERISA §502(a)(1)(B) for this purpose if two requirements are met: (1) the plaintiff complains about the denial of benefits to which he is entitled “only because of the terms of a ERISA-regulated employee benefit plan” and (2) the plaintiff does not allege the violation of any legal duty independent of ERISA or the plan terms.

The appellate court focused on the second requirement. It noted that the defendants’ duty not to interfere with the SERP agreement arose under Michigan tort law, not under the terms of the SERP itself. And this duty was not derived from or conditioned upon the terms of the SERP. “Nobody needs to interpret the plan to determine whether that duty exists,” the court said. Thus, the court ruled that the plaintiffs’ claim was based upon a duty that is independent of ERISA and the plan terms.

Since the second requirement for preemption was not met, the appellate court ruled that the district court lacked jurisdiction over the case. Hence, the district court’s holding was reversed and the case was remanded to the state court.

Source: Gardner v. Heartland Industrial Partners (CA-6).

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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