Plaintiff Burgio & Campofelice, Inc. ("B&C"), a general contractor, seeks to enjoin the defendant New York State Department of Labor ("DOL") from enforcing the State's prevailing benefit supplement laws against B&C for benefit supplements which B&C's subcontractor, Shared Management Group, Ltd., allegedly failed to pay. The plaintiff claims that such state laws are preempted by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001, et seq.
B&C entered into a public works construction contract on February 4, 1992, in the amount of $ 8,130,273, to build a new middle school for the Williamsville Central School District. One month later, B&C subcontracted the masonry for the project to Division 4 Masonry, Inc., at a cost of $ 2,398,000. The masonry work began in the spring of 1992, and continued until the middle of December, 1992. On December 18, 1992, the president of Division 4 Masonry informed B&C that Division 4 Masonry had not paid certain union-related benefit funds to its workers. On December 30, 1992, B&C was served with a notice of levy by the Internal Revenue Service that listed two names: Shared Management, Inc., and Division 4 Masonry.
B&C learned that Division 4 Masonry had further subcontracted its portion of the contract to Shared Management, Inc. B&C never entered into any kind of agreement with Shared Management, nor did it employ any of the workers hired under the sub-sub-contract. On January 8, 1993, Division 4 Masonry stopped its work on the project, and B&C was forced to find another subcontractor to finish the masonry work.
On February 12, 1993, the Department of Labor issued a notice pursuant to § 220 of the New York Labor Law directing the Williamsville School District to withhold $ 350,900.00 in payments to B&C. This amount represented wages, wage supplements, interest, and penalties. On May 3, 1993, the Department of Labor clarified the amount and provided a detailed break down of the amounts: $ 191,845 in wage supplements, $ 27,467.36 in wages, $ 35,090.11 in interest, and $ 63,600.83 in penalties, for a total of approximately $ 318,000. The plaintiff now seeks to enjoin the withholding of these payments as well as a declaratory judgment that the state law is preempted.
The defendants originally moved to dismiss the complaint on three grounds. They first argued that the court lacked subject matter jurisdiction over DOL, which, as an agency of New York State, is immune from suit under the Eleventh Amendment to the U.S. Constitution. Secondly, the defendants claimed that the second cause of action should be dismissed because the Eleventh Amendment bars plaintiffs from suing state officials for violations of state law in federal district court. Finally, the defendants contended that the plaintiff had no standing to bring suit under ERISA because it is not an employer, beneficiary, or trustee of an ERISA plan.
In its decision and order of January 12, 1995, the court struck the Department of Labor from the complaint and dismissed the plaintiff's second cause of action for lack of subject matter jurisdiction. The court found that plaintiff did have the requisite standing to maintain its complaint against the defendant state officials for its first cause of action.
Plaintiff's remaining claim is that ERISA preempts defendants from holding plaintiff liable for a subcontractor's underpayments of non-wage supplements subject to ERISA by virtue of the Supremacy Clause of the United States Constitution.
1. New York Labor Law §§ 220 and 223 are preempted by ERISA as they relate to plaintiff's claim.
The fundamental question in the present case is the nature and source of the liability at issue. The parties agreed at oral argument that when an employer defaults on payments owed an ERISA benefits plan, the Department of Labor cannot pursue an alternative state law enforcement mechanism because the state statute is preempted by ERISA. If however, the employer is liable for any other kinds of payments, the Department of Labor can pursue alternative enforcement mechanisms, and can hold the employer to state statutory wage and supplement obligations.
Plaintiff, therefore, argues that the liability at issue in this case was incurred by the defaulting subcontractor who failed to make payments into a union-sponsored ERISA plan. Defendants argues that the plaintiff is liable independently of any ERISA obligation of the defaulting subcontractor, under New York State Labor Law § 223.
These arguments are complicated by the fact that there is no bright-line test for determining whether a state law claim is preempted by ERISA. Section 514(a) of ERISA reads:
Except as provided in subsection (b) of this section, the provisions of [ERISA] shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title.
29 U.S.C. § 1144(a)(1994) (emphasis added).
Section 514(a) was intended to have a "sweeping preemptive effect in the employee benefit plan field." American Progressive Life and Health Ins. Co. v. Corcoran, 715 F.2d 784, 786 (2d Cir. 1983). Congress intended ERISA to "preempt all state laws that relate to employee benefit plans and not just state laws which purport to regulate an area expressly covered by ERISA." Wadsworth v. Whaland, 562 F.2d 70, 77 (1st Cir. 1977), cert. denied, 425 U.S. 980 (1978).
A state law "relates to" employee benefit plans when it has "connection with or reference to" such plans, Gilbert v. Burlington Indus., Inc., 765 F.2d 320, 327 (2d Cir. 1985), aff'd sum., 477 U.S. 901 (1986) (quoting Shaw v. Delta Air Lines, 463 U.S. 85, 97, 77 L. Ed. 2d 490, 103 S. Ct. 2890 (1983), or "whenever it 'purports to regulate, directly or indirectly, the terms and conditions of employee benefit plans.' 29 U.S.C. 1144(c)(2) (1976)." Stone & Webster Engineering Corp. v. Ilsley, 690 F.2d 323, 329 (2d Cir. 1979), aff'd sum. sub nom. Arcudi v. Stone & Webster Engineering Corp., 463 U.S. 1220, 77 L. Ed. 2d 1405, 103 S. Ct. 3564 (1983).
But while state actions "relate to" ERISA plans when they have a connection with or reference to such plans, some state actions may affect employee benefit plans in "too tenuous, remote or peripheral a manner" to warrant a finding that the law "relates to" the plan. Shaw, 463 U.S. at 100, n.21.
New York Labor Law § 220(3) provides that wages and supplements paid on public works shall not be less than the prevailing wage rates as defined by the statute. Section 220(4)(b) defines supplements to include all remuneration other than wages. New York Labor Law § 223 makes a contractor monetarily liable for noncompliance or evasion on the part of a subcontractor, even where there are no other grounds on which to hold the contractor liable.
In General Electric Co. v. New York State Department of Labor, 891 F.2d 25 (2d Cir. 1989) (hereinafter "GE I"), the Second Circuit noted that the requisite "connection exists where a state statute prescribes either the type and amount of an employer's contributions to a plan, the rules and regulations under which the plan operates, or the nature and amount of the benefits provided thereunder." Id. at 29 (citations omitted). After analyzing New York Labor Law §§ 220(3) and 220(5), the court stated that "section 220 intrudes into all three of these preempted areas," id., holding that "the above described provisions of section 220 clearly relate to the ERISA plans of ex-locality employers and are preempted by the federal statute." Id. at 30.
In a subsequent decision in the same case, the Second Circuit modified its position by drawing a distinction between the non-ERISA supplements provisions of § 220 and the ERISA supplements provisions. General Electric Co. v. New York State Department of Labor, 936 F.2d 1448 (2d Cir. 1991) (hereinafter "GE II"). The court affirmed the holding of the district court that the supplement provisions of § 220 were valid to the extent they applied to [plaintiff's] non-ERISA benefits, such as, for example, vacation and holiday pay, even though such benefits could have been included in an ERISA plan. Id. The Court of Appeals held that although the distinction might lead to some "curious" outcomes, the New York State legislature would have preferred severance of the non-ERISA supplements provisions to the invalidation of all supplements provisions. Id.
In the present case, plaintiff relies principally on GE I to argue that ERISA's enforcement scheme is exclusive and preempts alternative enforcement mechanisms, including § 220 as it applies to the facts of this case. Therefore, plaintiff argues, the Department of Labor cannot require plaintiff to pick up where the defaulting subcontractor, Shared Management Group, left off in its obligations to fund benefit plans. Item 27, p. 4.
In support of the GE I holding, plaintiff refers to Bricklayers and Allied Craftsman International Union Local 33 Benefit Funds v. America's Marble Source, Inc., 950 F.2d 114 (3d Cir. 1991). In that case, the Third Circuit found that the New Jersey Fringe Benefit Act impermissibly supplemented ERISA's comprehensive enforcement scheme by creating a cause of action against, and imposing liability upon, entities that were not parties to a collective bargaining agreement requiring them to contribute to a fringe benefit fund. 950 F.2d at 118. Specifically, the court noted:
By creating a new cause of action and imposing liability upon project owners and prime contractors who have not agreed to make contributions, the Fringe Benefit Act regulates how ERISA plans are funded. Consequently the Fringe Benefit Act 'relate[s] to' an area already regulated by the provisions of ERISA that address the nonpayment of contributions by employers to employee benefit plans."
Plaintiff also cites Gilbert v. Burlington Industries, Inc., 765 F.2d 320 (2d Cir. 1985), aff'd mem. 447 U.S. 901 (1986). The Gilbert court found that employees cannot bring state law claims to enforce the direct liability of employers for promised wages and benefits, when those employees also have the right, as plan beneficiaries, to sue their employee benefit plan under ERISA. The Gilbert court found that to hold otherwise would undermine the uniformity of plan administration that ERISA was designed to promote. 765 F.2d at 327-28.
Defendants distinguish the present case from the courts' holdings in Gilbert and Bricklayers by arguing that New York Labor Law § 223 has nothing to do with ERISA plans. Unlike the statutes in Gilbert and Bricklayer, defendants maintain that:
Section 223 makes no reference to ERISA plans, evidences no design to affect such plans by providing for collection of delinquent plan contributions or bestowal of denied benefits, let alone purport to regulate areas that ERISA regulates. All that section 223 does is make the contractor on a public work contract responsible for a subcontractor's failure to comply with the statutory provisions of the prevailing wage law.