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Board of Trustees of Operating Engineers Local 825 Fund Service Facilities v. First Indem. of America Ins. Co.

February 20, 1996

BOARD OF TRUSTEES OF OPERATING ENGINEERS LOCAL 825 FUND SERVICE FACILITIES, PLAINTIFF-APPELLANT,
v.
FIRST INDEMNITY OF AMERICA INSURANCE COMPANY, DEFENDANT-RESPONDENT, AND L.B.S. CONSTRUCTION CO., INC., DEFENDANTS. BOARD OF TRUSTEES OF OPERATING ENGINEERS LOCAL 825 FUND SERVICE FACILITIES, PLAINTIFF-APPELLANT, V. INTERNATIONAL FIDELITY INSURANCE COMPANY, A CORPORATION, DEFENDANT-RESPONDENT.



On appeal from the Superior Court of New Jersey, Law Division, Essex County.

Approved for Publication February 20, 1996.

Before Judges Dreier, A.m. Stein and Cuff. The opinion of the court was delivered by Dreier, P.j.a.d.

The opinion of the court was delivered by: Dreier

The opinion of the court was delivered by DREIER, P.J.A.D.

Plaintiff appeals from summary judgments in two cases that we consolidate for the purpose of this opinion.

The cases before us present a novel issue for the New Jersey courts: whether the preemption clauses of the Employment Retirement Income Security Act (ERISA), 29 U.S.C.A. §§ 1001 - 1461 foreclose a Law Division action to recover unpaid pension benefits contributed through surety bonds issued under the New Jersey Public Works Bond Act, N.J.S.A. 2A:44-143 to 147.

The plaintiff in both cases is the Board of Trustees of Operating Engineers Local 825 Fund Services Facilities, a union benefits fund. The Union had negotiated collective bargaining agreements with two separate construction contractors requiring each contractor to make contributions on behalf of their union employees to various benefits funds administered by plaintiff. The contractors had been hired for various public-works projects and thus had executed the payment and performance bonds required by the Public Works Bond Act.

When each contractor failed to make all the contribution payments mandated by the collective bargaining agreement, plaintiff in separate actions sued the sureties that had provided the bonds: First Indemnity of America Insurance Company, (First Indemnity) *fn1 and International Fidelity Insurance Company (International). The amounts unpaid were estimated at $73,624.94 and $95,612.53, respectively. In each case, the trial court granted the surety's motion for summary judgment on the ground that the suit was preempted by the ERISA clause providing that the Act supersedes all state laws that "relate to" an ERISA plan. Since ERISA provides no mechanism for recovery against a surety, the courts' rulings left plaintiff with no remedy to recover the unpaid benefits.

ERISA is a comprehensive scheme of federal regulation of employee benefit plans, 29 U.S.C.A. §§ 1001-1461; it includes civil enforcement remedies against the employer. 29 U.S.C.A. § 1132(a). In recognition of Congress's intent that qualifying benefit plans be under uniform federal control, ERISA contains three provisions governing preemption of state laws that might impinge upon this federal scheme. First, the main preemption clause provides that ERISA's provisions "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan " covered by ERISA. 29 U.S.C.A. § 1144(a) (emphasis added). Second, in the so-called "saving clause," the act creates an exception for certain state laws: "nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities." 29 U.S.C.A. § 1144(b)(2)(A). Plaintiff argues that, even if the main preemption clause applies, plaintiff's claim is permitted under this "saving clause." We need not reach this argument as we hold that ERISA does not preempt this State action. The third provision, 29 U.S.C.A. § 1144(b)(2)(B), is not implicated in these appeals.

The New Jersey Public Works Bond Act sets forth the substantive requirements for bonding of contractors hired to perform work on public projects and also prescribes the procedural mechanisms for enforcing such bonds. The necessity for a bond is created by N.J.S.A. 2A:44-143a, reading in part as follows:

a. When public buildings or other public works or improvements are about to be constructed, erected, altered or repaired under contract, at the expense of the State or any county, municipality or school district thereof, the board, officer or agent contracting on behalf of the State, county, municipality or school district, shall require the usual bond, as provided for by law, with good and sufficient sureties, with an additional obligation for the payment by the contractor, and by all subcontractors, for all labor performed or materials, provisions, provender or other supplies, teams, fuels, oils, implements or machinery used or consumed in, upon, for or about the construction, erection, alteration or repair of such buildings, works or improvements.

[Emphasis added.]

The trial Judges reasoned that the Bond Act was "related to" ERISA because, under their views, it created a new substantive cause of action against sureties which did not exist under ERISA. *fn2 In considering the case against First Indemnity, the Judge relied on Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 98, 103 S. Ct. 2890, 2899, 77 L. Ed. 2d 490, 501 (1983) for his threshold assumption that a state law need not be specifically designed to affect ERISA plans to be preempted. However, the Judge's ultimate Conclusion then apparently rested on two cases involving state statutes which, unlike the statute before us, specifically targeted employee benefit plans: Bricklayers Local 33 v. America's Marble Source, 950 F.2d 114, 117 (3d Cir. 1991) (holding that ERISA preempted New Jersey's Fringe Benefit Act which expressly authorized actions to recover unpaid benefit contributions and thereby created substantive rights not otherwise conferred by ERISA), and Minnesota Chamber of Commerce & Industry v. Hatch, 672 F. Supp. 393, 395 (D. Minn. 1987) (Hatch) (finding preemption where statute requiring employers to post surety bonds against payment of employee health benefits sought to exercise state control over the plans' administration, an exclusively federal concern under ERISA).

On the basis of these decisions, the Judge concluded that a law may also be preempted if it regulates matters dealing with the administration of ERISA plans, such as disclosure, funding, reporting, vesting, and enforcement, matters that are regulated by ERISA itself. See 29 U.S.C.A. ยงยง 1021-1031, 1051-1061, 1081-1086, 1131-1145. In the Judge's view, the New Jersey Public Works Bond ...


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