Blogging Employee Benefits

February 13, 2006

State Contract Claim Not Preempted by ERISA

Filed under: ERISA Preemption, Litigation — Fuguerre @ 2:21 pm

Enforcing the contract between Apogee and Landmark will not create a multiplicity of regulation that would frustrate the nationally uniform administration of employee benefit plans.

Retirees’ state lawsuit to enforce a contract requiring assumption of retiree health benefit obligations is not preempted by ERISA, according to an unpublished 4th Circuit Court of Appeals ruling affirming a district court decision. [Craddock v. Apogee Coal Co., CA4, 05-1352, 2/9/06 (unpublished)]

Under the National Bituminous Coal Wage Agreement of 1993 (NBCWA), a collective bargaining agreement to which both employers involved in this litigation were signatories, an employee’s last signatory employer is to provide the employee’s lifetime health benefits. Under NBCWA, if an employer ceases all business operations and is unable to pay for the benefits, the United Mine Workers of America 1993 Benefit Plan would assume the responsibility. Pointing to the control of the collective bargaining agreement and the involvement of ERISA plans, Apogee argued that a lawsuit brought under state law to enforce a contract regarding retiree health benefits was preempted both by the Labor Management Relations Act and ERISA.

At issue was a 1993 contract between two coal companies, Landmark and Apogee, under which Landmark agreed to hire workers who had been laid off from Apogee. Concerned about NBCWA’s last-signatory rule, Landmark negotiated a contract provision under which Apogee assumed responsibility for post-employment liabilities for the first 20 employees hired under the agreement. As employees covered by the agreement began to retire, the two companies disputed responsibility for retiree health benefits. A West Virginia state court found the contract language “clear and unambiguous,” issuing a permanent injunction holding Apogee responsible. Thereafter, Landmark provided retiree health benefits for the covered employees and submitted invoices to Apogee for reimbursement.

But in March 2000, Landmark ceased operations, filed for bankruptcy, ceased providing benefits to the employees . . . and ceased sending invoices, whereupon Apogee refused to provide further benefits to the employees. Individuals covered by the 1993 contract sued to enforce the state court’s permanent injunction. After Apogee moved the case to federal court and further legal maneuvers clarified jurisdiction and parties to the action, the retirees filed a new complaint asserting a state-law contract claim against Apogee, with an alternative claim under federal law seeking relief against the plan. The district court granted summary judgment for the retirees, concluding that Apogee was responsible for the benefits under its contract with Landmark.

On appeal, Apogee first argued that the district court had erred in concluding that the doctrine of res judicata had barred the federal court from reconsidering the permanent injunction previously issued by the state court. The appellate court found it unnecessary to resolve this particular dispute, since any reconsideration “would reach the same conclusion as the state court.”

Which is not to say that the state court’s permanent injunction settled the current dispute, since the state court had not addressed the key issue that subsequently emerged: did Landmark’s obligation under NBCWA to provide retiree health benefits survive its bankruptcy? If not, then Apogee would have no surviving obligation, since Apogee was obligated only to the extent Landmark was. But having drawn that critical distinction, the court observes that Apogee itself concedes that Landmark’s obligation survived its bankruptcy. Leaving Apogee, in the opinion of the court, with its contractual obligation for the benefits.

As to LMRA preemption, the court stated that since NBCWA had imposed a permanent obligation on Landmark regardless of its bankruptcy, no further analysis of the collective bargaining agreement was necessary to conclude that the contractual claim is not preempted by LMRA. That is, since the terms of the CBA itself were not the subject of the dispute, the state-law claim remained active.

Apogee next argued that since the practical effect of enforcing the contract would be to require coverage of the retirees under its own ERISA plan, the state-law claim should be preempted by ERISA. Concluding that enforcing the contact under state law would not implicate preemption concerns, the appellate court concluded that Apogee’s ERISA preemption claim was without merit.

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