19.3 Procedural Issues

• Library: Employment Law in Virginia (Virginia CLE) (2020 Ed.)

19.3 PROCEDURAL ISSUES

19.301 Exclusivity of Remedy. Statutory rights under ERISA and benefit rights under the terms of an ERISA employee benefit plan may be enforced only under section 502(a) (29 U.S.C. § 1132(a)). ³⁹⁶

19.302 Standing.

A. In General. Under section 502(a), "[a] civil action may be brought under ERISA only by a plan 'participant,' 'beneficiary,' 'fiduciary' or the Secretary of Labor." ³⁹⁷ This list of potential plaintiffs is "both a standing and a subject matter jurisdictional requirement." ³⁹⁸

B. Participants and Beneficiaries. ERISA participants and beneficiaries have standing (i) to recover or clarify the rights to benefits due under the terms of their plan; (ii) to enjoin acts that violate title I of ERISA; (iii) to obtain equitable relief to enforce title I of ERISA; and (iv) to obtain relief against ERISA fiduciaries. ³⁹⁹

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Participants do not lose standing to sue for breach of fiduciary duty merely because the plan has terminated and the Pension Benefit Guaranty Corporation (PBGC) has been appointed the statutory trustee. ⁴⁰⁰

In Harley v. 3M, ⁴⁰¹ the Eighth Circuit ruled that although the 3M pension plan lost $20 million in an allegedly imprudent investment in a hedge fund, the plan had "surplus assets" of $683 million; therefore, the participants suffered no harm and lacked Article III standing to sue for breach of fiduciary duties. Likewise, the Fourth Circuit in David v. Alphin ⁴⁰² held that plan participants lacked Article III standing to assert ERISA claims on behalf of a pension plan because the plan was overfunded.

C. Department of Labor. The Department of Labor (DOL) has standing to bring the same actions as a participant, except a suit for benefits. The DOL may also sue for civil penalties for COBRA notice violations, for failure to comply with requests for information, and for failure to file an annual report. ⁴⁰³ The Eleventh Circuit has held that a settlement entered into by beneficiaries of an employee stock ownership plan does not bar a subsequent action by the DOL challenging the plan's purchase of stock that was essentially worthless. ⁴⁰⁴ The court held that the DOL was not barred from suing because it was not a party to the settlement and because ERISA addresses public interests that are not necessarily shared by private litigants. The court also held that nonfiduciaries could be sued for equitable relief for transactions prohibited by ERISA. ⁴⁰⁵

D. Fiduciaries. In general, a fiduciary may sue for the same remedies as a participant, except for benefits. ⁴⁰⁶

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19.303 Jurisdiction. Federal and state courts have concurrent jurisdiction over suits for benefits under section 502(a)(1)(B) and 502(a)(7). ⁴⁰⁷ Federal courts have exclusive jurisdiction over other ERISA claims. ⁴⁰⁸

The Fourth Circuit held that ERISA's civil enforcement provision provided federal subject matter jurisdiction under section 502(a)(3) to entertain a company's suit to enjoin the California Department of Industrial Relations from enforcing a California law precluding the forfeiture of vacation pay. ⁴⁰⁹ The company argued that the California law was preempted by ERISA and thus unenforceable. The court also ruled, however, that the federal AntiInjunction Act barred the company from obtaining an injunction against the department because a California proceeding was pending at the time the district court acted on the request for injunctive relief.

The fact that a pension plan is a "qualified" retirement plan under the I.R.C. does not automatically create federal court jurisdiction. In Morgan County War Memorial Hospital v. Baker, ⁴¹⁰ the court held that there was no federal jurisdiction over a suit seeking a declaratory ruling that the plaintiff hospital had authority to terminate its pension plan and retain the residual assets. ERISA does not apply to government plans, and no other issue of federal law was dispositive of the plaintiff's claim.

19.304 Venue. ERISA actions may be brought where the plan is administered, where the breach occurred, or where the defendant resides or may be found. ⁴¹¹

When a plan administrator sued to enjoin enforcement of a California law allegedly preempted by ERISA, the Fourth Circuit found that a South Carolina district could exercise personal jurisdiction over the California Labor Commissioner. ⁴¹² Section 502(e)(2) of ERISA authorizes nationwide service of process permitting an ERISA enforcement action to be brought in federal court in a district "where the plan is administered."

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In Quesenberry v. Volvo Group North America, Inc., ⁴¹³ the employer issued notice of changes to its retiree health plan on the same day the employer filed suit in the Middle District of North Carolina seeking a declaratory judgment that the proposed changes did not violate the employer's fiduciary duties. Three weeks later retirees filed a class action in the Western District of Virginia under ERISA and section 301 of the Labor Management Relations Act ⁴¹⁴ seeking declaratory and injunctive relief enjoining changes to retiree health benefits. The magistrate judge in the Western District of Virginia recommended against transfer of the case to North Carolina, rejecting the employer's claim that the "first-to-file" rule should control. The magistrate concluded that the employer's preemptive suit deprived retirees (the "natural plaintiffs") of the opportunity to choose the forum. The magistrate further found that, although venue would be proper in the Middle District of North Carolina, the balance of factors favored the Virginia forum. The district court accepted the magistrate's report and issued an order accordingly. ⁴¹⁵

19.305 Service of Process. ERISA provides for nationwide service of process. ⁴¹⁶ In a suit by a plan administrator to enjoin enforcement of a California law allegedly preempted by ERISA, the Fourth Circuit found that a South Carolina district court had personal jurisdiction over the California Labor Commissioner because section 502(e)(2) authorizes process to be "served in any other district where a defendant resides or may be found." ⁴¹⁷

19.306 Removal. Together with claims preempted by section 301 of the Labor Management Relations Act, ⁴¹⁸ ERISA claims fit within the "complete preemption" corollary of the "well-pleaded complaint" rule. ⁴¹⁹

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Congress has clearly manifested an intent to make causes of action within the scope of the civil enforcement provisions of § 502(a) removable to federal court. . . . [A suit within the scope of ERISA section 502(a),] though it purports to raise only state law claims, is necessarily federal in character by virtue of the clearly manifested intent of Congress. ⁴²⁰

In McWilliams v. Metropolitan Life Insurance Co., ⁴²¹ the Fourth Circuit Court of Appeals held that where the plaintiff filed a state law breach of contract claim to recover benefits under a long-term disability plan, removal was proper because the claim was preempted by ERISA.

In Marks v. Watters, ⁴²² the Fourth Circuit affirmed removal of a plaintiff's state law claims that a preferred provider organization (PPO) utilization reviewer engaged in medical malpractice in referring a plan participant to outpatient psychiatric care. The court found that the utilization reviewer's responsibilities were limited to determining plan coverage and did not include determining what type of treatment should be rendered. The court, in summarizing ERISA preemption rules, stated:

[U]nder the scheme established by Congress, ERISA § 514 [29 U.S.C. § 1144] preempts a field defined by claims relating to employee benefit plans regulated by ERISA that are not otherwise subject to ERISA's saving clause and, once having occupied that field, limits civil enforcement to claims provided in § 502(a). Any claim falling within the field but not within the scope of § 502(a) is preempted and must be dismissed, and any claim falling within the scope of § 502(a) becomes exclusively a federal cause of action. Thus, simple preemption under § 514 precludes prosecution of the preempted state-law claim, but "complete preemption" exists when the preempted state-law claim falls within the scope of the exclusive civil enforcement mechanism of § 502, in which

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case the state-law claim is converted into a federal cause of action removable to federal court. ⁴²³

Where a plaintiff does not allege that ERISA benefit plans were improperly administered but makes a breach of contract claim against the employer, the state law breach of contract claim is not a basis for removal. ⁴²⁴

The Supreme Court's decision in Aetna Health Inc. v. Davila ⁴²⁵ will make it much more difficult to avoid removal by pleading a state law cause of action when ERISA benefit plans are involved. The Court explained that "the ERISA civil enforcement mechanism is one of those provisions with such 'extraordinary preemptive power' that it 'converts an ordinary state common law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule.' . . . Hence, 'causes of action within the scope of the civil enforcement provisions of § 502(a) [are] removable to federal court.'" ⁴²⁶

19.307 Exhaustion of Administrative Remedies. The Fourth Circuit, in Makar v. Health Care Corp., ⁴²⁷ noted:

ERISA does not contain an explicit exhaustion provision. Nonetheless, an ERISA claimant generally is required to exhaust the remedies provided by the employee benefit plan in which he participates as a prerequisite to an ERISA action for denial of benefits under 29 U.S.C. § 1132. This exhaustion requirement rests upon the Act's text and structure as well as the strong federal interest encouraging private resolution of ERISA disputes. ⁴²⁸

ERISA is characterized by Congress's "desire not to create a system that is so complex that administrative costs, or litigation expenses, unduly

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discourage employers from offering welfare benefit plans in the first place." ⁴²⁹ For this reason, Congress...