UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
July 12, 1982
CALHOON, et al., Respondents/Plaintiffs,
BONNABEL, et al., Petitioners/Defendants
The opinion of the court was delivered by: LOWE
MEMORANDUM OPINION AND ORDER
MARY JOHNSON LOWE, D.J.
This case presents a mixed question of procedure and substantive law which, though often probed, has produced no consistent answer nor a uniform doctrinal approach among the federal courts. Broadly framed, the question is whether the general removal statute codified at 28 U.S.C. § 1441
permits a state court defendant to remove an action to federal district court on the sole ground that the state claims (causes of action) are wholly preempted by federal law? More specifically, this Court must determine whether it has removal jurisdiction over the present action, which states a claim under N.Y. Labor Law § 198-c 1 and 2 (McKinney Supp. 1980-81)
for unpaid, overdue contributions to benefit plans, where it is claimed by petitioners that the entire complaint is preempted by the Employee Retirement Income and Security Act of 1974, as amended ("ERISA"), 29 U.S.C. § 1144 (1975).
The present action was commenced on March 10, 1982 in the Supreme Court for New York County. It was removed pursuant to § 1441 on April 2, 1982. Respondents then moved to remand the matter to state court pursuant to 28 U.S.C. § 1447(c).
On May 28, 1982, oral argument was heard by the Court. Upon further review of the pleadings and judicial authority, the Court concludes that it does have removal jurisdiction over the complaint and therefore denies the motion to remand. The rationale supporting this conclusion is discussed below.
Respondents -- plaintiffs in the state proceeding -- include sixteen Trustees of the following employee benefit plans: the Marine Engineers' Beneficial Association ("MEBA") Pension Trust, the MEBA Medical & Benefits Plan, the MEBA Training Plan, the MEBA Vacation Plan, the Joint Employment Committee, and the Joint Maritime Congress (hereinafter referred to as the "MEBA Plans").
Petitioners (defendants) are the executive officers of the American Coastal & Foreign Shipping Co., Inc., ("American Coastal"), a New York corporation which employs members of the National MEBA and District No. 1 -- Pacific Coast District, MEBA, AFL-CIO (hereinafter referred to as the "Union"), and which has a collective bargaining agreement with the Union. That agreement includes a provision requiring American Coastal to make payments to the MEBA Plans on behalf of its employees.
Defendants admittedly are in default for contributions due January 1 and February 1, 1982, totalling $105,328.69.
On March 2, 1982, the respondents herein commenced a federal action against American Coastal pursuant to ERISA, 29 U.S.C. §§ 1145, 1132(a) (3). Their complaint, currently pending before this Court, alleges that American Coastal failed to make payments to the MEBA Plans due January 1 and February 1, 1982, totalling $105,328.69. The complaint requests an award of damages, costs and attorney's fees, as well as an order directing American Coastal to comply with its obligations under the MEBA Plans.
Shortly after the initiation of the federal lawsuit, respondents commenced this action under the New York labor law against the company's officers.
The relief sought includes the overdue payments to the MEBA Plans, unpaid interest, costs and attorney's fees. Petitioners promptly removed the state action, claiming:
The above described action is a civil action of which this court has original jurisdiction under the provisions of Title 28, United States code, Section 1331, and is one which may be removed to this court by the petitioner, defendant therein, pursuant to the provisions of Title 28, United States Code, Section 1441 in that the Plaintiffs are identical in both actions and the defendants in the Supreme Court actions . . . are the officers and the directors of the defendant corporation . . . in the District Court action.
Petition for Removal, filed April 2, 1982, at 2.
B. General Principles
Congress has provided in § 1441 that the federal district courts may assume jurisdiction over an action commenced in state court if, inter alia, that action could have been commenced by the (plaintiffs) in federal court under the court's original jurisdiction.
Before approving a petition for removal, the court must be satisfied that 1) the court from which the action has been removed acquired both subject matter and personal jurisdiction,
and 2) the subject matter of the removed action is within its original jurisdiction. The second requirement must be satisfied by review of the allegations in the state court complaint, uncolored by potential or asserted defenses or counterclaims of the (defendants). As explained by the court in Committee of Interns and Residents v. N.Y. State Labor Relations Board, 420 F. Supp. 826, 831 (S.D.N.Y. 1976):
There can be no removal on the basis of a federal question asserted for the first time in defendant's answer or petition for removal. [citation] These principles were succinctly summarized in Gully v. First National Bank in Meridian, 299 U.S. 109, 112-113, 57 S. Ct. 96, 97-8, 81 L. Ed. 70 (1936) which holds:
"To bring a case within the statute, a right or immunity created by the Constitution or laws of the United States must be an element and an essential one of the plaintiff's cause of action. . . . The right or immunity must be such that it will be supported if the Constitution or laws of the United States are given one construction and defeated if they receive another. . . . A genuine and present controversy not merely possible or conjectural one, must exist with reference thereto . . ., and the controversy must be disclosed on the face of the complaint, unaided by the answer or the petition for removal."
See also Westmoreland Hospital Association v. Blue Cross of Western Pennsylvania, 605 F.2d 119, 122 (3d Cir. 1979), cert. denied, 444 U.S. 1077, 62 L. Ed. 2d 759, 100 S. Ct. 1025 (1980); 14 Wright, Miller & Cooper, Federal Practice and Procedure § 3721 at 530 (1976).
The rule that the essence of the controversy must be determined from the perspective of the plaintiff, whose interests in control over his litigation and in his choice of forum must be respected, does not limit the reviewing court to the words on the face of the complaint or to plaintiff's characterization of his claims. Cf. Gully v. First National Bank in Meridian, 299 U.S. 109, 113, 81 L. Ed. 70, 57 S. Ct. 96 (1936) ("the complaint itself will not avail as a basis of jurisdiction in so far as it goes beyond a statement of the plaintiff's cause of action and anticipates or replies to a probable defense."). Instead:
The court must ascertain from the complaint whether federal law is a pivotal issue in the case, one that is basic in the determination of the conflict between the parties. Gully v. First National Bank, 299 U.S. 109, 117-18, 57 S. Ct. 96, 81 L. Ed. 70 (1936); Ivy Broadcasting Co. v. AT&T, 391 F.2d 486, 489 (2d Cir. 1968). However, the lack of any reference to federal law in the complaint is not controlling. Sylgab Steel & Wire Corp. v. Strickland Transportation Co., 270 F. Supp. 264, 267 (E.D.N.Y. 1967); 1A Moore's Federal Practice P 0.160 at 185-87 (2d ed. 1974).
North American Phillips Corp. v. Emery Air Freight Corp., 579 F.2d 229, 233 (2d Cir. 1978). Accord State of New York v. Local 144, Hotel, Nursing Home and Allied Health Services Union, 410 F. Supp. 225, 226-27 (S.D.N.Y. 1976) ("inquiry must be made as to whether, regardless of artful pleading, in fact the action is one governed by federal law.").
The deceptively obvious distinction between claims asserted by plaintiffs on the one hand, and defenses raised by defendants on the other, breaks down when a state defendant removes the proceeding to federal court on the ground that the state law under which a plaintiff is claiming relief is preempted by federal statute.
Some courts have viewed preemption merely as a defense to claims under state law, and therefore have remanded actions removed under a theory of preemption.
For example, in Long Island Railroad Co. v. United Transportation Union, 484 F. Supp. 1290 (S.D.N.Y. 1980), former Chief Judge MacMahon remanded an action in which defendant argued that plaintiff's claims under New York's Taylor Law, N.Y. Civil Service Law §§ 201 et seq. (McKinney 1973), were preempted by the Federal Railway Labor Act, 45 U.S.C. §§ 151 et seq. After noting that the Railway Labor Act, if it applied, would prohibit plaintiff's suit for injunctive relief against the union's threatened strike, Judge MacMahon wrote:
We do not believe this is a case where the plaintiff has skillfully avoided mentioning the federal right upon which it relies. The complaint is clearly drawn only in terms of New York's Taylor Law; moreover, even if we assume arguendo that state law is preempted by the Railway Labor Act, this is by itself no reason to assume that LIRR's complaint can thereby somehow be said to "arise under" federal law, since in that event plaintiff would evidently be left with no remedy whatsoever. "It is illogical to say that the litigant's claim is really predicated on a body of law which grants him no rights." New York v. Local 1115, supra, 412 F. Supp. 720, 723.
Id. at 1293. He therefore concluded that the controversy did not "arise under an act of Congress" so as to confer removal jurisdiction, despite defendant's preemption claims.
Other courts have reached a different conclusion.
A recent, illustrative case is Billy Jack I. There, the court's explication of the preemption concept and its import in the removal context is particularly illuminating, and bears quoting at length:
Federal preemption is not, by its nature, an affirmative defense to a state law cause of action. In the Court's view, it is wiser to view the preemption doctrine as being analogous to a choice--of--law principle. That is, preemption analysis simply tells the court what law, state or federal, should be referred to in order to determine the plaintiff's right to relief in a given case. As in any other choice-of-law context, the two potentially available bodies of law may differ as to whether they afford the plaintiff a remedy, so that a finding of preemption may indeed have the ultimate consequence of causing the plaintiff's defeat. This does not mean, however, that preemption is in any sense an "affirmative defense" as that term is normally understood. For in many cases, and the instant case may well be an example, a finding of preemption provides no "defense" against the plaintiff's claim because the preemptive federal law also provides a remedy to the plaintiff. As is noted below, the fundamental question in preemption analysis is whether Congress intended to supplant, not whether Congress desired to overrule, state law. Thus, the doctrine of preemption is basically not concerned with guiding the substantive outcomes of cases, although it may often have an outcome-determinative effect. Instead, it really exists to determine the body of substantive law that governs a particular dispute.
In a case of preemption, then, federal law, by definition, provides the only basis for the plaintiff to gain the relief that it seeks, meaning that any time a court finds preemption it should conclude that the action arises under federal law. The Court finds nothing "illogical" in holding that preemption always creates "arising under" jurisdiction, even in a case where the preemptive federal law provides the plaintiff with no right to relief. The reports are certainly well stocked with cases where the plaintiff maintained an action under federal law only to discover to its chagrin that federal law afforded no remedy. Surely there is nothing illogical in describing such cases as having arisen under federal law. Accordingly, no illogic inheres in first using preemption analysis to conclude that federal law governs the dispute before the court, meaning that the action arises under federal law, and then proceeding to determine whether the preemptive federal law affords a basis for awarding relief. . . .
511 F. Supp. at 1187 (footnote omitted). E.g., Salveson v. Western States Bankcard Association, 525 F. Supp. 566, 572 (N.D.Calif. 1981); Gunter v. AGO International B.V., 533 F. Supp. 86, 88 (N.D.Fla. 1981).
This Court is not prepared to endorse the extreme position that "preemption always creates 'arising under' jurisdiction." While it agrees that logic does not preclude that position, it believes that the language of § 1441, as interpreted by the courts, may require a more conservative stance. It is well established that district courts are courts of limited jurisdiction, and that the removal statute must be "strictly construed against removal jurisdiction, doubt being resolved in favor of remand." Salveson v. Western States Bankcard Association, 525 F. Supp. at 571 (and cases cited therein). Thus, when it appears that federal preemption has been asserted by defendants as a defense against the alleged state claims, courts have disclaimed jurisdiction.
While the distinction between preemption as a defense and as a choice-of-law rule may be illusory, as suggested in Billy Jack I, that distinction has substantial support in the reported decisions.
It is not necessary for the Court to commit itself to either camp in the jurisdictional skirmish at this time because even the preemption-as-defense advocates recognize an "artful pleading" exception to the rule that jurisdiction must be established on the face of plaintiff's complaint.
This exception was stated in Salveson v. Western States Bankcard Association, 525 F.2d at 572:
An exception to the rule limiting the court's examination to the face of the complaint arises in cases in which plaintiff seeks to conceal the federal nature of his claim by fraud or obfuscation. Although the court is not free to second-guess the plaintiff's chosen form of pleading, it is entitled to assure itself that the plaintiff has not by "artful pleading" sought to defeat defendant's right to a federal forum. [citations] In those circumstances, it is proper for the court to examine the record to determine if the real nature of the claim is federal, notwithstanding plaintiff's characterization to the contrary.
Thus, if after examining the record in this case the Court is persuaded that the rights plaintiffs seek to vindicate are controlled by federal substantive law, and that state law does not exist as an independent source of individual rights, it should not remand simply because the complaint alludes only to a state statute as the basis for liability.
Removal jurisdiction exists if "the action, though ostensibly grounded solely on state law, is actually grounded on a claim in which federal law is the exclusive authority." Federated Department Stores, Inc. v. Moitie, 452 U.S. 394, 408, 69 L. Ed. 2d 103, 101 S. Ct. 2424 (1981) (Brennan, J., dissenting on other grounds). See also id. at 397 n.2 (Rehnquist, J., Opinion of the Court).
C. Application of General Principles
Respondents (plaintiffs) contend that this action is not a civil action arising under the laws of the United States and therefore was improvidently removed.
"A review of plaintiffs' complaint establishes that plaintiffs rely solely upon a body of state law, rather than federal law."
The Court disagrees. Instead, it finds that the claims asserted under N.Y. Labor Law § 198-c are wholly controlled by ERISA and that the state court proceeding is an imaginative attempt by plaintiffs to conduct preempted litigation in state court parallel to that initially commenced in this Court.
Since federal law must be applied to the present claims, removal jurisdiction may be invoked by petitioners under § 1441.
In addition to arguing that preemption, in general, may not provide the basis for removal under § 1441, plaintiffs contend that the claims asserted against these defendants under § 198-c of the labor code are not preempted by ERISA. This argument finds support in a line of New York cases commencing with Goldstein v. Mangano, 99 Misc.2d 523, 417 N.Y.S.2d 368 (Kings Co. 1978).
There, plaintiff, the president of a union local and trustee of its pension and retirement funds, sued the vice-president of the corporate employer for damages under § 198-c. Plaintiff alleged that the employer had failed to make contributions to the Funds, and that the vice-president was aware of the failure to turn over funds due. When the defendant moved to dismiss the suit against him, the court held that an implied civil remedy exists under § 198-c -- a criminal statute -- for members of the class sought to be protected by the statute. 417 N.Y.S.2d at 372-73. Addressing the question of preemption, the court noted that "ERISA's preemption is nearly total and that . . . ERISA effectively excludes all state participation in the regulation of employee benefit plans." Id. at 374. It further found that ERISA's failure to provide a remedy against corporate officers "does not exempt this case from the preemption provision." Id.
The court, however, held that the implied civil cause of action under § 198-c was not preempted, due to exception (4) of the ERISA preemption clause for any "generally applicable criminal law of a State." With little explanation, the court concluded:
It is clear that § 198-c falls within the ERISA exemption as a statute affecting all employees within the state, thus permitting the assessing of liability against Mangano under that statute.
Id. at 375.
This conclusion is at odds with the clear language of ERISA, its legislative history, and its construction by the courts. Recently, after observing that "ERISA is a 'comprehensive and reticulated statute,' which Congress adopted after careful study of private pension plans[,]" the Supreme Court discussed the question of federal preemption under ERISA:
In this instance, we are assisted by an explicit congressional statement about the pre-emptive effect of its action. The same chapter of ERISA that defines the scope of federal protection of employee pension benefits provides that "the provisions of this subchapter . . . shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan. . . ." This provision demonstrates that Congress intended to depart from its previous legislation that "envisioned the exercise of state regulation power over pension funds," . . ., and meant to establish pension plan regulation as exclusively a federal concern.
Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 510, 522-23, 68 L. Ed. 2d 402, 101 S. Ct. 1895 (1981) (footnote and citation omitted). It ultimately found that a New Jersey statute was preempted.
It is of no moment that New Jersey intrudes indirectly, through a workers' compensation law rather than directly, through a statute called "pension regulation." ERISA makes clear that even indirect state action bearing on private pensions may encroach upon the area of exclusive federal concern.
Id. at 525 (emphasis added). See also Delta Air Lines, Inc. v. Kramarsky, 650 F.2d 1287, 1303 (2d Cir. 1981) (the legislative history of § 1441 "leads us to conclude that the statute is as sweeping as it seems."); Stone & Webster Engineering Corp. v. Ilsley, 518 F. Supp. 1297, 1300 (D. Conn. 1981).
Assuming, without deciding, that § 198-c is a state criminal statute of general applicability, the Court is persuaded that an implied civil cause of action against corporate officers is contrary to Congress' intent in adopting § 1144.
Indeed, the very liberal test articulated by the Goldstein court for implying a civil remedy from a state criminal statute suggests the ease with which states could circumvent Congress' decision that ERISA supersede "any and all State" regulation of employee benefit plans. Therefore, the criminal law exemption to § 1144 cannot be interpreted to permit implied civil actions or remedies which otherwise would be preempted.
The Court finds that petitioners properly removed this action from state court, and therefore denies respondents' motion to remand under 28 U.S.C. § 1447. Respondents' complaint, though facially stating a claim under a New York labor statute, is predicated on rights and duties governed exclusively by ERISA. Since ERISA has preempted all laws relating to any employee benefit plan, and since respondents here are seeking to recover overdue payments to employee benefit funds, the controversy "arises under" federal law within the intendment of 28 U.S.C. §§ 1331, 1441.
In view of the Court's determination that the claims under state law are preempted by ERISA, that respondents have a prior action already pending before the Court which involves the same transactions and occurrences alleged in the present complaint, and that ERISA provides no remedy against the corporate officers who are the defendants herein, the present complaint is dismissed.
It Is So Ordered.