The opinion of the court was delivered by: GERRY
This case concerns the relationship between the preemption clause of the Employment Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1002, and the State of New Jersey's Insolvency and Re-organization "Preference" statute, N.J.S.A. 14A:14-14.
Defendant Carpenters' Health and Welfare Fund of Philadelphia is a trust fund (hereinafter "the Fund") established under an agreement and declaration of trust, and under various collective bargaining accords between the Metropolitan District Council of Philadelphia and Vicinity, United Brotherhood of Carpenters and Joiners of America, and employers in the construction industry. The Fund provides health and welfare benefits to its members, their dependents and beneficiaries. As such, it constitutes an employee welfare benefit plan and a multi-employer plan within the meaning of § 3 of ERISA, 29 U.S.C. § 1002. Crest Con, Inc., now in receivership under plaintiff Deiches, assumed obligations to pay employer fringe benefit contributions into the Fund. Crest Con, Inc. became delinquent on those obligations sometime in 1979 or 1980, in the amount of $17,212.50.
In July 1980, the Funds Collections Manager attempted to collect that delinquency without success. But on or about January 20, 1981, the Fund received in the mail a check from the Fidelity Title Abstract Company in the amount of $17,212.50, in full and final payment and release of Crest Con, Inc. from all claims by the Fund.
As receiver, plaintiff generally has the statutory power, under certain conditions, to recover property transferred by the insolvent corporation within four months of the date of commencement of the receivership action. That is, the receiver may effectively void preferential transfers of property. N.J.S.A. 14A:14-14.
Since Crest Con, Inc. transferred $17,212.50 to the Fund in January of 1981 and the receivership action commenced less than a month later, plaintiff receiver now seeks recovery of those monies, under the State's preference statute.
The Fund moves for summary judgment on several grounds. First, defendant argues that Section 514(a) of ERISA, 29 U.S.C. § 1144(a), preempts the application of the State's preference statute. Alternatively, defendant urges that application of the preference statute would conflict with ERISA, §§ 403, 404, 406 and 515.
Finally, defendant urges that, assuming the applicability of the preference statute, the transfer of monies to the Fund does not constitute a voidable preference.
I. ERISA Preemption Clause: § 514, 29 U.S.C. § 1144.
Section 514 of ERISA reads in relevant part:
(a) . . . the provisions of this Subchapter [ 29 U.S.C. Sections 1301 to 1381 -- Plan Termination Insurance] of this Chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . . . (c) For purposes of this Section: (1) the term "State law" includes all laws, decisions, rules, regulations, or other State action having the effect of law, of any State . . .. (2) the term "State" includes a State, any political subdivision thereof, or any agency or instrumentality of either, which purports to regulate, directly or indirectly, the terms and conditions of employee benefit plans covered by this Subchapter.
Defendant relies principally upon the quoted language to argue that ERISA preempts the New Jersey preference law as it would otherwise apply to a transfer of monies to the Fund, an employee benefit trust under ERISA.
Defendant also highlights several provisions of ERISA -- §§ 403, 404, 406 and 515 -- which appear to conflict with the application of the preference statute in the instant case. Defendant seems to urge that the presence of such conflicts bolsters the view that the preference statute "relates to" an ERISA plan. Moreover, quite apart from the preemption clause in § 514, defendant argues that the presence of assertedly significant conflicts between the federal and state statutes warrant preemption.
Plaintiff for his part, denies that ERISA preempts the New Jersey State preference law; plaintiff contends that the preference statute does not "relate to" an ERISA plan or fund in the sense the statute envisions.
The parties concur that a state law need not on its face or "directly" affect an ERISA plan in order to fall within the preemption of § 514(a). Indeed, for the purposes of the preemption provision, ERISA defines the term "State" to include: "a State, any political subdivision thereof, or any agency or instrumentality of either, which purports to regulate, directly or indirectly, the terms and conditions of employee benefit plans . . . ." 29 U.S.C. § 1144(c)(2) (emphasis added). That is, ERISA precludes the states from avoiding through form the substance of the preemption provision. Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 525, 68 L. Ed. 2d 402, 101 S. Ct. 1895 (1981).
Whatever those outer bounds may be, defendant Fund asserts that the preference statute rests well within their borders, for its application would prevent or frustrate the payment of statutorily-mandated employer contributions in the instant case, run afoul of the Fund's trustee's fiduciary duties, and generally constitute a prohibited transaction under ERISA rules.
Plaintiff, on the other hand, argues that a state law "relates to" an ERISA plan only if that state law purports to regulate, directly or indirectly, the terms and conditions of such plans, as opposed to having a quite indirect and minor effect on the plan's financial fortunes.
In Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 68 L. Ed. 2d 402, 101 S. Ct. 1895 (1981), the Supreme Court held that ERISA preempted a New Jersey statute (N.J.S.A. 34:15-29) that prohibited pension plans from setting off Workman's Compensation payments against retirement payments. The Supreme Court noted that federal law permitted a method for calculation of pension benefits known as "integration"; the integration method, permissible under ERISA, allowed for a reduction in pension benefits based on Workman's Compensation awards. Id. at 517-521. Thus, the New Jersey state law, by forbidding such offsets, interfered with a method of calculation of retirement benefits that ERISA permits.
In reaching the conclusion that the state law "related to" an ERISA plan, the court eschewed any analysis of the purpose of the state statute, and instead focused upon its effect: interference with a method of calculation of benefits permitted by ERISA. Alessi, supra, 451 U.S. at 524-25.
The Alessi decision affirmed the Third Circuit's holding that ERISA preempted the New Jersey statute. Buczynski v. G.M. Corp., 616 F.2d 1238 (3d Cir. 1980). The Third Circuit appeared to base its holding on its conclusion that the New Jersey statute's sole purpose and effect was to set forth an additional requirement for pension plans. The Supreme Court, as noted above, did not focus upon the purpose of the statute, and expressly disavowed the Third Circuit's reasoning. Rather, the Supreme Court relied on the state statute's effect: the statute eliminated an ERISA-sanctioned method of calculating pension benefits, and so "related to" an ERISA plan.
In Alessi, the Court expressly declined to define the outer bounds of ERISA's preemptive language. Alessi, supra, 451 U.S. at 525.
Thus, the Alessi formulation concentrates our attention upon effect, but does not resolve questions about the nature or scope of effect necessary to provoke preemption. For example, Alessi does not decide whether a state statute's effect upon an ERISA plan must be general or common to all pension plans, or whether an effect may trigger preemption if the effect applies to only one or a small number of plans. Neither does Alessi determine whether a state law that interferes with an ERISA fund's ability to retain an employer's contribution into a plan, but does not in any way affect the internal workings of an ERISA plan, fails because of preemption.
A small number of authorities sketch the outlines of what qualifies as an impermissible intrusion on the federal regulatory ERISA scheme.
The original Kramarsky opinion issued before Alessi; upon reconsideration in light of Alessi, the Second Circuit reversed its ground and held the Human Rights Law preempted by ERISA. Delta Air Lines, Inc. v. Kramarsky, 666 F.2d 21 (2d Cir. 1981) ("Kramarsky II"). Observing that ERISA left to employers and collective bargaining agreements the question of disability benefits for pregnancy, the court found that the Human Rights Law requiring the payment of benefits for pregnancy impermissibly intruded upon, and therefore "related to," the federal ERISA scheme and ERISA plans. Id., 666 F.2d at 24-25.
Thus, Alessi preempted a state statute governing calculation of ERISA benefits; Kramarsky preempted a state law that regulated the extent of disability coverage under an ERISA plan. That is to say, the state laws in Alessi and Kramarsky effect, or "related to," the internal workings of a plan. More specifically, they nullified an internal plan rule which ERISA either approved or permitted.
In the instant case, the New Jersey preference law does not have any effect upon the rules, procedures or policies of an ERISA-governed plan. Rather, in the specific case before the court, the state law would merely require the return of certain employer's contributions made to the plan within four months of insolvency to the extent that those payments fit the state law's definition of a "preference."
Defendant invokes the recent decision of the Second Circuit in Stone & Webster Engineering Corp. v. Ilsley, 690 F.2d 323 (2d Cir. 1982), to support its view that the New Jersey preference law sufficiently "relates to" ERISA to suffer preemption under § 515.
In Stone & Webster, an employer challenged the applicability of a Connecticut statute requiring the continuation of employer contributions to an ERISA fund on behalf of employees who were receiving workman's compensation. The relevant collective bargaining agreement did not contain any provision requiring continuing contributions by the employer when an employee is collecting workman's compensation benefits, rather than working. The collective bargaining agreement under which the Fund received employer contributions required the employer to pay into the Fund 75 cents per hour only for hours actually worked by each employee. The parties to the agreement had the power under ERISA to define the employer's contribution obligations. The parties did so, limiting contributions to 75 cents per hour for every hour actually worked. The State of Connecticut's statute, however, imposed a further contributory obligation on the employer for hours not worked by a worker on workman's compensation. Thus, the Connecticut statute directly encroached upon an ERISA benefit plan's method of assessing an employer's contributory obligation; as such, the state law "related to" the plan and was not preempted.
Stone & Webster is, like Alessi, readily distinguishable from the case at bar. The Connecticut statute directly and expressly regulated employer's obligations under ERISA plans. The New Jersey preference law, in contrast, does not directly regulate plans or employer contributions to plans. It neither adds nor subtracts anything from those plans. In § 514 of ERISA, Congress "clearly eliminated the threat of conflicting state and local regulation of employee benefit plans." Stone & Webster, supra, 690 F.2d at 329. But the New Jersey preference statute does not constitute such a regulation, unlike the Connecticut statute in Stone & Webster.