Opinion
No. 89 CIV 6083 (LBS).
November 6, 1989.
Sipser, Weinstock, Harper Dorn, New York City (I. Philip Sipser, Jerome Tauber, Seth M. Kupferberg, of counsel), for plaintiffs.
Cahill Gordon Reindel, New York City (Laurence A. Silverman, Eric Hellerman, Jeffrey E. Shapiro, James Sandnes, James Cappio, of counsel), for defendants UCC Investors Holding, Inc., Robert J. Mazaika, and Drexel Burnham Lambert Inc.
Dewey, Ballantine, Bushby, Palmer Wood, New York City (Harvey Kurzweil, Jonathan W. Miller, of counsel), for defendants Avery, Inc., Nelson Peltz, Peter May, Uniroyal Chemical Holding Co., Uniroyal Chemical Acquisition Co., and Uniroyal Chemical Co., Inc.
ORAL OPINION RENDERED IN OPEN COURT OCT. 10, 1989
Plaintiffs seek to enjoin the sale by Avery, Inc., of the stock of its indirectly owned subsidiary Uniroyal Chemical Company, Inc., to a group of management investors. Defendant Avery owns one hundred percent of the stock of Uniroyal Chemical Holding Company, which in turn owns through an intermediate subsidiary all the stock of Uniroyal Chemical.
In the proposed transaction, Avery would sell its stock in Uniroyal Chemical Holding Company, pursuant to a stock purchase agreement approved by Avery's shareholders on September 21, 1989, to UCC Investors Holding, Inc., a new holding company, created by defendant Mazaika and other top executives of Uniroyal Chemical. The proposed transaction is a sale of stock for an approximate price of $800 million.
The named plaintiffs claim to represent a class of present and former salaried employees of Uniroyal Chemical who are beneficiaries of the company's employee benefit plans. Under the plans, certain retired employees are eligible for pension, health and life insurance benefits. Under the Employee Retirement Income Security Act of 1974, as amended, herein after referred to as ERISA, 29 U.S.C. §§ 1001 to 1461 (1982 Supp. V. 1987), Uniroyal Chemical must periodically place funds with a trustee to cover its future pension liabilities. ERISA, however, does not require that vested pension liabilities be fully funded, and Uniroyal Chemical's unfunded pension liability is approximately $37 million. In addition, ERISA does not require any vesting or prefunding for the health and life insurance benefits, and Uniroyal Chemical pays those costs from its current income.
Plaintiffs claim that as beneficiaries of the unfunded pension, health and life insurance obligations, they are entitled to the same statutory and common law protections afforded other creditors of Uniroyal Chemical. Plaintiffs' complaint asserts five causes of action, all arising under New York State law, for fraudulent conveyance, corporate fraudulent transfer, breach of fiduciary duty, corporate waste, and unjust enrichment. As relief, plaintiffs seek to enjoin the sale of Uniroyal Chemical "unless and until such time as a fund is set aside to provide for all unfunded retirement obligations owed to the class." Complaint at 15.
Plaintiffs allege that the actual market value for Uniroyal Chemical is only $700 million, a sum insufficient for Avery to discharge its own debts.
"To solve this problem, Avery effectively bribed the management investors who formed UCC Investors to pay $800 million (including the assumption of Avery debt) for Uniroyal Chemical, by offering them `incentive pay' of $6.6 million if Uniroyal Chemical was sold for at least $800 million. By investing this `incentive pay' in UCC Investors, the management group in effect would wind up with a free twenty-five percent equity interest in Uniroyal Chemical."
Plaintiffs' memorandum in support of motion for preliminary injunction at 2.
Plaintiffs allege that since little or no new equity will be paid into Uniroyal Chemical, and since Uniroyal Chemical's debt burden will increase, the proposed transaction will leave Uniroyal Chemical "seriously undercapitalized and overindebted and unable to meet its future obligations to the plaintiffs as they mature." Complaint, Paragraph 30, at 12.
Plaintiffs provide an affidavit from an expert witness who concludes, "I believe that these retirement benefits will be placed in jeopardy, as the risk is significant that either Uniroyal Chemical or its acquirer, UCC Holding, will be unable to meet the annual costs of these benefits and the future unfunded pension retirement, health, and life insurance obligations as they mature." Affidavit of Carl A. Goldman in support of motion for preliminary injunction, Paragraph 41, at 32.
Defendants respond that Uniroyal Chemical is in full compliance with its obligations to fund its employee benefit plans under the terms of ERISA, and that plaintiffs' claims of future noncompliance are mere speculation. Defendants provide an affidavit from their expert witness to rebut plaintiffs' claims and demonstrate the economic viability of the proposed transaction. See affidavit of Peter H. Rothschild in opposition to plaintiffs' motion for preliminary injunction.
This case was originally filed in state court. The defendants removed this case to federal court, pursuant to 28 U.S.C. Sections 1441 and 1446. And on September 18, 1989, this Court denied plaintiffs' motion to remand. See this Court's oral opinion of September 18, 1989, which we will deem attached as Exhibit A.
The Pension Benefit Guarantee Corporation requested that this Court delay its ruling on the pending motions to enable that agency to review the case and advise the Court of its views. By letter dated October 6th, 1989, received in chambers this morning, the PBGC advises that it takes no view on the merits of the case, but it urges that this Court not rely on the PBGC's limited post-event review of a transaction, such as is proposed here, as an adequate protection for persons in plaintiffs' status. We are so advised.
First, this Court has before it today plaintiffs' motion pursuant to 28 U.S.C. § 1447(c), for reconsideration of its denial of plaintiffs' motion to remand. Plaintiffs argue that two cases not cited in their briefs or in oral argument on the original motion require that this Court grant their motion to remand. On reconsideration, this Court adheres to its previous decision and denies plaintiffs' motion to remand.
In those two cases, Local 445 Welfare Fund v. Wein, 855 F.2d 62 (2d Cir. 1988) and Retirement Fund of the Fur Manufacturing Industry v. Getto Getto, Inc., 714 F. Supp. 651 (S.D.N Y 1989), the courts allowed plaintiffs to use state law procedures to collect debts from defendants who had previously violated ERISA. On the other hand, plaintiffs here seek to use state law claims to ensure the payment in the future of obligations that are not yet due and owing. While ERISA preemption may not extend to state law causes of action to collect an existing debt created by an ERISA obligation, plaintiffs' claims here for payments above ERISA's minimum funding requirements do "relate to" an ERISA plan and are therefore preempted.
After additional briefing and argument, this Court also has before it today plaintiffs' motion for preliminary injunction and defendants' cross motion for dismissal, presumably under Rule 12(b)(6) of the Federal Rules of Civil Procedure.
For the following reasons, plaintiffs' motion for a preliminary injunction is denied, and defendants' motion to dismiss is granted. Plaintiffs, however, are granted leave to further amend their complaint as set forth herein.
This Court held in its September 18th oral opinion and reaffirms today that plaintiffs' state law causes of action are preempted by ERISA under the complete preemption doctrine as explained in two recent Supreme Court cases, Pilot Life Insurance v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987) and Metropolitan Life Insurance v. Taylor, 481 U.S. 58, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987), and the Second Circuit opinion in Aetna Life Insurance v. Borges, 869 F.2d 142 (1989).
Since Congress intended that ERISA's detailed statutory provisions would constitute the exclusive set of rights and remedies governing employee benefit plans, the state law claims in plaintiffs' complaint do not state a legal basis on which relief may be granted. Thus, the motion to dismiss as addressed to the complaint as filed is therefore granted.
However, since this case involves a pending transaction with an imminent closing date, plaintiffs at oral argument of this motion were given an opportunity to amend their complaint without prejudice to their ability to appeal the denial of the motion to remand. This Court therefore deems plaintiffs' complaint amended to incorporate a claim for equitable relief under Section 502 of ERISA, 29 U.S.C. § 1132.
ERISA Section 502(a)(1)(B) provides: "A civil action may be brought — (1) by a participant or beneficiary — (B) to cover benefits due to him under the terms of his plan or to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan."
Section 502(a)(3) provides: "A civil action may be brought — (3) by a participant, beneficiary or fiduciary, (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan."
Plaintiffs argue that since the proposed transaction will result in an imminent violation of ERISA, "Section 502 authorizes the Court to fashion broad equitable remedies to assure the future funding of a plan and to prevent unfunded liabilities." Plaintiffs' supplemental memorandum in support of motion for preliminary injunction at 5.
Defendants argue in their papers that Section 502 does not grant the Court remedial authority to address future or prospective violations of ERISA, only present or past violations. However, this Court is of the view that this contention, initially advanced by defendants, although somewhat modified in their oral presentation to this Court, is inconsistent with the broad scope of remedial powers granted in Section 502.
In making a determination whether injunctive relief is available under Section 502 for the violation of an ERISA right, a federal court is free to draw upon equitable concepts developed in other areas of law to determine whether the action sought to be enjoined is imminent or inevitable and what would be the consequences of that action. Defendants conceded at oral argument, and we agree, that if a fraudulent transaction is about to be consummated, the consequences of which would be a present or imminent violation of ERISA, then a federal court would have the power under Section 502 to enjoin the transaction in order to prevent the harm, assuming, of course, that the other requirements for injunctive relief are satisfied.
For example, if a transaction would involve the certain expenditure for some non-ERISA purpose of funds set aside in trust under ERISA, then the Court could enjoin that transaction before it was consummated. Or, if a payment to the ERISA trust were due tomorrow and the employer was about to make a payment to a third party or distribute a liquidating dividend, which would clearly prevent it from making the required ERISA contribution, then Section 502 would, we believe, permit a court to issue an injunction, even though no ERISA violation had yet occurred.
In other words, applying judicial equitable principles, a federal court may enjoin under Section 502 any transaction which is about to occur, the immediate, foreseeable, indeed, inevitable consequence of which would be an ERISA violation.
In light of this view, this Court must first decide whether the completion of the proposed transaction would prevent Uniroyal Chemical from meeting its future obligations imposed by ERISA, and that this consequence is so certain to occur under the standards the Court has previously stated as to entitle the plaintiffs to relief under Section 502.
When deciding motions to dismiss, the Court should not dismiss the complaint pursuant to Rule 12(b)(6) unless it appears "beyond a reasonable doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Goldman v. Belden, 754 F.2d 1059 (2d Cir. 1985), citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102-103, 2 L.Ed.2d 80.
Applying this concept, this Court grants defendants' motion to dismiss, insofar as it relates to the claims for health and life insurance benefits. The health and insurance plans qualify as "welfare benefit plans" under Section 3(1) of ERISA, 29 U.S.C. § 1002(1).
According to Uniroyal Chemical's "Summary Plan Descriptions," Uniroyal Chemical has reserved the right to amend or terminate its health and insurance plans at any time. Since welfare plans are exempt from ERISA's detailed minimum participation, vesting and minimum funding requirements, plaintiffs have not alleged in their complaint, as we deem it amended, any imminent violation of those plans. See Moore v. Metropolitan Life Insurance Co., 856 F.2d 488 (2d Cir. 1988).
Turning then to the pension benefits, plaintiffs do not allege that Uniroyal Chemical has failed to make any payments to its ERISA pension trust when due. This Court must therefore decide whether the proposed sale of the stock of Uniroyal Chemical would produce an immediate or inevitable violation of ERISA's regulations relating to pension benefits. This Court also concludes that plaintiffs have not shown that an immediate and foreseeable consequence of the proposed leveraged buyout will be the complete inability of Uniroyal Chemical to make future contributions to the pension plan trustee when required by ERISA's minimum funding provisions.
To support their predictions for financial disaster for Uniroyal Chemical if the leveraged buyout is completed, plaintiffs rely principally on two affidavits from Carl A. Goldman. Mr. Goldman predicts that as a result of the transaction debt, the annual interest expense of Uniroyal Chemical will be approximately $112 million. Mr. Goldman's analysis also shows that Uniroyal Chemical's "free cash flow," that is, its earnings before interest and taxes, which presumably already includes Uniroyal Chemical's pension expenses, plus non-cash items, less capital expenditures, equals $125 million in 1988. After making certain assumptions about the business prospects of Uniroyal Chemical and the general state of the national economy, Mr. Goldman concludes that it is unlikely that Uniroyal Chemical will sustain its 1988 earnings level, that its interest expenses will likely exceed its cash flow, and therefore "there is a significant risk that it [Uniroyal Chemical] will be rendered insolvent." Affidavit of Carl A. Goldman, Paragraph 33.
However, it is not enough for Mr. Goldman to convince this Court that the cash flow of Uniroyal Chemical will probably be insufficient to cover its interest expense in the near future. Many successful deals do not initially produce a positive return. Furthermore, even if Uniroyal Chemical were to experience cash flow difficulties, Uniroyal Chemical might not necessarily choose to default on its pension obligations. Other possible remedial measures could include a further infusion of capital, or sale of assets of Uniroyal Chemical.
Rather than focusing simply on the projections for cash flow to determine whether Uniroyal Chemical will have the ability to fund its pension liabilities, this Court must examine the transaction as a whole and determine whether the terms are so unreasonable that as an immediate and foreseeable consequence of its execution, Uniroyal Chemical will be rendered insolvent and unable to meet its pension obligations. Forecasting future business performance is naturally a speculative task, and in cases involving high risk transactions, such as this one, courts will frequently be confronted with affidavits supporting opposite conclusions.
We conclude that the plaintiffs' complaint, as we deem it to have been amended, does not allege sufficient facts to show that an immediate and foreseeable consequence of the proposed leveraged buyout will be Uniroyal Chemical's inability to make its ERISA contributions when due.
Plaintiffs argue that the burden of proof in this case rests with the defendants because the plaintiffs allege that they have engaged in self-dealing. Whether the burden is on the defendants to show the financial adequacy of the transaction or the burden is on the plaintiffs to prove its financial inadequacy, this Court's conclusion would be unchanged.
Because of the extreme time pressures thrust upon this Court, we have utilized the procedure of deeming the plaintiffs' complaint to have been orally amended, and that the orally amended complaint contains all that the plaintiffs have submitted, both in support of the motion for preliminary injunction and in opposition to the motion to dismiss.
This procedure, which we believe was appropriate, does, however, create certain difficulties in dealing with the defendants' motion as a motion to dismiss. Normally, on a motion to dismiss, the Court confines its inquiry to the four corners of the complaint without resort to affidavits. If resort is had to affidavits, the motion is then converted to a motion for summary judgment, the parties are given notice thereof, and the matter proceeds on that basis.
We have for these purposes, as I have stated, assumed that the plaintiffs' complaint has been amended to include all of the factual material which they have presented to the Court. It might however be contended that since this Court recognizes that under some limited circumstances a complaint may be drafted under Section 502 of ERISA to enjoin a proposed transaction, that it would be more appropriate to await the filing by the plaintiffs of an amended complaint, specifically drafted under ERISA, to which amended complaint the defendants would thereafter answer or move.
For that reason, we grant the plaintiffs leave, if they wish to, to file within ten days from today's date an amended complaint, if they believe that they can in good faith frame a complaint which could withstand a motion to dismiss under the legal criteria set forth above. If the plaintiffs choose to file such an amended complaint, defendants would then either answer or move, and the matter would proceed in the usual fashion.
Again, recognizing the exigent nature of the questions presented and the need of the parties for a comprehensive ruling to enable appellate review, this Court has gone on to consider the question whether if one assumes arguendo that the plaintiffs could file an amended complaint which could withstand a motion to dismiss, i.e., a complaint which alleged that the inevitable imminent consequences of the transaction would be to result in an ERISA violation, plaintiffs are entitled to a preliminary injunction.
The standards for granting a preliminary injunction are, of course, well established in this circuit. Plaintiffs must show irreparable harm and either a likelihood of success on the merits, or sufficiently serious questions going to the merits to make them a fair ground for litigation and the balance of the hardships tipping decidedly toward the party requesting preliminary relief.
Plaintiffs have not shown a likelihood of success on the merits. That is fully indicated by the determination to grant defendants' motion to dismiss and the analysis contained in this opinion. Moreover, in determining the appropriateness of preliminary injunctive relief, this Court is, of course, free to consider the affidavits submitted in opposition to the motion. Mr. Peter H. Rothschild's affidavit explains that a substantial portion of the future interest expense will not be payable in cash, but rather in securities. Affidavit of Peter H. Rothschild, Paragraph 12.
For example, Mr. Rothschild projects Uniroyal Chemical's total interest expense in 1990 at $120.7 million, but only $96.8 million will be paid in cash. Therefore, as a result of the proposed transaction, defendants argue, Uniroyal Chemical's cash interest expense will decrease, and it will be less likely that Uniroyal Chemial will experience cash flow problems in the near future.
Thus, plaintiffs cannot show a likelihood of success on the merits. And if one were, arguendo, to consider the other prong of the test, that it is a fair ground for litigation and a balance of the hardships tipping decidedly toward the party requesting preliminary relief, we are of the view that the balance of hardships in this case tilts decidedly towards the defendants. If the transaction does not close as scheduled on October 13th, the defendants will incur $91,000 per day in costs attributable to servicing its debt obligations. Affidavit of Joseph A. Levato, Paragraph 15.
Plaintiffs have advised the Court that they are not prepared to bond in any fashion any loss suffered by defendants if injunctive relief is granted.
If this transaction is not completed by November 1, 1989, the temporary waiver of default and amendment to the indenture of the Avery debentures will expire. And the holders of those debentures could accelerate the payment of the entire $80 million principal amount. Affidavit of Joseph A. Levato in opposition to plaintiffs' motion for preliminary injunction, Paragraphs 11, 14.
The consequences to the defendants of any delay is possible bankruptcy of Avery and loss of the proposed transaction. Given the immediate and specific potential injury to the defendants, as contrasted to the deferred and speculative harm to the plaintiffs, the balance of hardships in this case favors the defendants. Therefore, the motion for a preliminary injunction should be denied, even if this Court were to deny defendants' motion to dismiss, and assume, as we have done in this portion of the opinion, that the plaintiffs could frame a complaint which at least within its four corners could allege an ERISA violation.
In reaching this conclusion, we have recognized that questions of ERISA preemption are often close and difficult ones. We are of the view, however, given the factual situation and the economic analysis, that even were this Court dealing with this matter solely as a question of state fraudulent conveyance law, a preliminary injunction would be inappropriate, given the vagueness of plaintiffs' claim, the remoteness and speculative nature of the potential injury to the plaintiffs, and the immediacy and magnitude of the injury to the defendants, were this Court to enjoin the transaction which is scheduled to close some three days hence.
In sum, the motion to dismiss is granted, with leave to amend as stated herein. The motion for a preliminary injunction is denied.
SO ORDERED.
EXHIBIT A Oral Opinion Rendered in Open Court on September 18, 1989 (Open court)
THE COURT:
I find the question raised by this motion to be a close one and in many respects, at least in this Circuit and in this context, a matter of first impression.
Nevertheless, I do believe that after the very able oral argument and briefing, and the opportunity that I had to review the authorities, I am in a position to resolve the motion, * * * and the following constitutes the order and opinion of the Court:
This action was originally brought in state court by several present and former employees of Uniroyal Chemical Company to enjoin the sale of Uniroyal Chemical Plaintiffs allege that if the proposed sale is concluded, Uniroyal Chemical will "be seriously undercapitalized and overindebted and unable to meet its future obligations to the plaintiffs as they mature."
Plaintiffs' complaint asserts five causes of action, all arising under New York State law, for fraudulent conveyance, corporate fraudulent transfer, breach of fiduciary duty, corporate waste and unjust enrichment.
Plaintiffs seek an "order clarifying and enforcing their rights" and an injunction against the sale of Uniroyal Chemical "until such time as a fund is set aside to provide for all unfunded retirement obligations owed to the class"; the class being defined in the complaint as "all Uniroyal Chemical salaried employees who are eligible to retire under the Uniroyal Chemical Pension Plan . . . and all former salaried employees of Uniroyal Chemical who retired on or after December 3, 1986. . ." Plaintiffs characterize themselves in the complaint as creditors, although ERISA provides that funds need not be set aside to the extent plaintiffs seek in their complaint, and the pension plan in question allows amendment.
Defendants have removed this action to Federal District Court, pursuant to 28 U.S.C. § 1441 and 1446. Plaintiffs now ask by motion brought on by order to show cause that this court issue an order remanding this case to state court.
Under 28 U.S.C. § 1441, actions are removable to federal court if a Federal District Court would have had original jurisdiction over the controversy. In this case, defendants allege that this court has federal question jurisdiction over the suit under 28 U.S.C. § 1331, since "all of the rights sought to be secured to the plaintiffs by this action . . . relate to an employee benefit plan and therefore fall under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001, et seq."
Thus, the issue before the court today is the question of ERISA preemption, an issue which has been the subject of much litigation. The long-settled law in federal court has been that a cause of action arises under federal law only when the plaintiff's well-pleaded complaint raises issues of federal law — that is generally known as the well-pleaded complaint rule.
However, the Supreme Court has recognized in Metropolitan Life Insurance v. Taylor, 481 U.S. 58, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987), a corrolary to that rule, which has become known as the "complete preemption doctrine."
The complete preemption doctrine holds "Congress may so completely preempt a particular area that any civil complaint raising this select group of claims is necessarily federal in character." In such cases "any complaint that comes within the scope of the federal cause of action [created under federal statute] necessarily arise under federal law" for purposes of removal based on federal question jurisdiction.
In Metropolitan Life, the Supreme Court held that the plaintiff's common law contract and tort claims were preempted by ERISA since they sought to recover benefits from a covered employee benefit plan and that the suit therefore was removable to federal court since Congress had so completely preempted the field.
This court must therefore decide whether the state law claims set forth in the complaint are preempted by ERISA. If they are preempted, it is clear from Metropolitan Life that removal to federal court is proper. If the state law causes of action are not preempted, then I must grant the motion to remand.
There is no question but that counsel may cite cases which are close or relevant on their facts to the question before the court going in either direction; that is finding preemption or a lack of preemption.
The recent Second Circuit opinion in Aetna Life Insurance v. Borges, 869 F.2d 142 (1989) sets forth a solid framework for answering the question in this case and generally informs and guides the analysis which forms the basis of this opinion.
In that opinion, Judge Newman noted that while courts have recognized that state laws which "relate to" employee benefit plans had been preempted, Congress did not intend to preempt all state laws having any impact on such plans, no matter how small or inconsequential. The Aetna Life opinion summarizes which state laws have been held to be preempted by ERISA and which have survived challenges on preemption grounds.
The opinion states at 146: "Generalizing from these cases, we find that laws that have been preempted are those that provide an alternative cause of action to employees to collect benefits protected by ERISA, refer specifically to ERISA plans and apply solely to them, or interfere with the calculation of benefits owed to an employee. Those that have not been preempted are laws of general application — often traditional exercises of state power or regulatory authority — whose effect on ERISA plans is incidental."
ERISA is a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans. The statute does not mandate that employers provide any particular benefits. But for employers that do provide any particular benefits. ERISA imposes participation funding and vesting requirements, 29 U.S.C. § 1051-1086, and sets various uniform standards, including rules concerning reporting disclosure and fiduciary responsibility.
The statute also contains an express preemption provision. Section 514(a) of ERISA provides that the statute "shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan covered by the statute."
It is clear that whether or not a state law is preempted by federal law is to be decided by examining Congressional intent. The Supreme Court has examined the scope of ERISA preemption on several occasions. The Supreme Court has stated that "the express preemption provisions of ERISA are deliberately expansive and designed `to establish pension plan regulation as exclusively a federal concern.'" Pilot Life Insurance Company v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 1987.
The court finds particularly applicable to the issue now before it the language of the court in Dedeaux with respect to the intent of Congress in enumerating remedies available in ERISA and in concluding that those remedies should be exclusive.
Justice O'Connor, writing for the court, said at 481 U.S. at 54, 107 S.Ct. at 1556: "In sum, the detailed provisions of Section 502(a) set forth a comprehensive civil enforcement scheme that represents a careful balancing of the need for prompt and fair claims settlement procedures against the public interest in encouraging the formation of employee benefit plans."
"The policy choices reflected in the inclusion of certain remedies, and the exclusion of others under the federal scheme, would be completely undermined if ERISA-plan participants and beneficiaries were free to obtain benefits under state law that Congress rejected in ERISA."
The court then goes on to quote from its earlier decision in Massachusetts Mutual Life Insurance Company v. Russell, 473 U.S. 134, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985), where it wrote at 146, 105 S.Ct. at 3092: "The six carefully integrated civil enforcement provisions found in Section 502(a) of the statute as finally enacted . . . provide strong evidence that Congress did not intend to authorize other remedies that it simply forgot to incorporate expressly."
In other words, Congress decided in ERISA to create certain specific remedies so that an employer, contemplating adoption of a plan would know with reasonable precision what consequences ensued. Creation of additional remedies is a matter of considerable federal interest, especially where, as here, that remedy would subject the employer to second-guessing by ERISA participants and beneficiaries as to the economic bona fides of a contemplated transaction not directly related to the plan itself.
After reviewing the authorities that I have already cited, and others called to my attention by counsel, I conclude that the state law causes of action alleged in the complaint in this case are preempted by ERISA.
Plaintiffs' prayer for relief asks for an injunction against the sale of Uniroyal Chemical "unless and until such time as a fund is set aside to provide for all unfunded retirement obligations owed to the class."
It is a matter of form and not of economic reality whether the reserve fund which plaintiffs would require is a fund administered by the ERISA fiduciary or not. The practical economic consequence of the relief sought by plaintiffs in this action is to require the employer, by virtue of the adoption of the ERISA plan, to create a reserve fund. Thus, plaintiffs are seeking to use state law causes of action to require a company to fund its employee benefit plan in a manner not required by ERISA. ERISA itself clearly has its own regulations for the administration and funding of covered plans, ( 29 U.S.C. § 1082), and has provided its own scheme for enforcement of those requirements.
Section 502(a) allows actions "to recover benefits due . . . under the terms of the plan . . . to enforce . . . rights under the terms of the plan"; "to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan" and "to obtain other appropriate equitable relief . . . to enforce any provision . . . of the plan."
We conclude that the cause of action asserted by the plaintiffs here relates to an employee benefit plan and that this is not a case where the impact of state law is "tenuous, remote, or peripheral." Therefore, since ERISA itself provides regulations for an employer's obligations to fund a covered employee benefit plan, and also provides an exclusive set of remedies for violations of its requirements, the state law claims asserted by the plaintiffs here are preempted. Consequently, following the decision of the Supreme Court in Metropolitan Life v. Taylor, removal to federal court is proper in this case and the motion to remand is denied.
I will endorse the original of the motion papers "Motion denied. See oral opinion this date."
(September 18, 1989)