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Board of Trustees of Operating Engineers Local 825 Fund Service Facilities v. L.B.S. Const. Co.

April 9, 1997

BOARD OF TRUSTEES OF OPERATING ENGINEERS LOCAL 825 FUND SERVICE FACILITIES, PLAINTIFF-RESPONDENT,
v.
L.B.S. CONSTRUCTION CO., INC.; AND "A" COMPANY,; AND "B" COMPANY, FICTITIOUS COMPANIES, DEFENDANTS, AND FIRST INDEMNITY OF AMERICA INSURANCE COMPANY, A CORPORATION, DEFENDANT-APPELLANT. (A-72); BOARD OF TRUSTEES OF OPERATING ENGINEERS LOCAL 825 FUND SERVICE FACILITIES, PLAINTIFF-RESPONDENT, V. INTERNATIONAL FIDELITY INSURANCE COMPANY, A CORPORATION, DEFENDANT-APPELLANT. (A-73)



On certification to the Superior Court, Appellate Division, whose opinion is reported at 287 N.J. Super. 498, 671 A.2d 596 (1996).

The opinion of the Court was delivered by O'hern, J. Chief Justice Poritz and Justices Handler, Garibaldi, Stein and Coleman join in Justice O'HERN's opinion. Justice Pollock did not participate.

The opinion of the court was delivered by: O'hern

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

Board of Trustees of Operating Engineers Local 825 v. L.B.S. Construction Co. (A-72-96)

and

Board of Trustees of Operating Engineers Local 825 v. International Fidelity Insurance (A-73-96)

Argued January 6, 1997 -- Decided April 9, 1997

O'HERN, J., writing for a unanimous Court.

These appeals concern the liability of a surety company to pay contributions into fringe benefit plans for employees on public works projects when the employer-principal defaults on its payments to the plans. The issue is whether the federal Employee Retirement Income Security Act (ERISA), preempts provisions of the New Jersey Public Works Bond Act (Bond Act) that require contractors to post bonds for payment for labor performed on public works projects.

The Board of Trustees of Operating Engineers, Local 825 (Local 825), had collective bargaining agreements with construction companies requiring the construction companies to make contributions, on behalf of members of Local 825 whom they employed, to various pension, health, and welfare funds established pursuant to ERISA. The construction companies defaulted on certain contributions, and, after demands by Local 825, failed to cure the defaults. Local 825 filed actions against the companies' sureties, claiming that under the bonds issued by the sureties to the construction companies pursuant to the Bond Act, the sureties were responsible for paying the contributions that the construction companies failed to make to the funds.

The sureties filed motions to dismiss on the basis that ERISA preempts the Bond Act and therefore prevents a surety from being liable for a contractor's delinquent payment of fringe benefit contributions. The Law Division granted the sureties' motions. The Appellate Division consolidated the cases and reversed. It reasoned that although the trial courts' opinions had been in accord with the weight of authority at the time they were issued, a new group of cases had been decided in the previous year that clarified the reach of ERISA preemption to sureties' liability under bonds issued to a contractor. This Court granted the sureties' petitions for certification.

HELD: ERISA does not preempt suits by union trust funds against sureties that have issued bonds to employers for public works projects pursuant to the Bond Act.

1. ERISA is a comprehensive regulatory scheme that Congress enacted after years of studying private employee benefit plans. To guarantee uniformity in the enforcement of employee benefit plans, ERISA contains a sweeping preemption provision. ERISA preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." 29 U.S.C. § 1144(a). In Shaw v. Delta Airlines, Inc., 463 U.S. 85, 103 S. Ct. 2890, 77 L. Ed. 2d 490 (1983), the United States Supreme Court gave this preemption provision broad effect. This Court has addressed the preemptive effect of ERISA on New Jersey laws in several cases and, consistent with Shaw, has interpreted the preemption provision to give full effect to ERISA's purposes. However, when a State law that may have the potential to interfere with ERISA is designed to address a unique local problem, or when Congress has not provided correlative federal standards, this Court has found State laws to survive ERISA preemption. (pp. 6-9).

2. There is a trend in recent federal precedent that has qualified the broad language of Shaw and has limited ERISA preemption of state laws. The major case elaborating on this trend is New York Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 115 S. Ct. 1671, 131 L. Ed. 2d 695 (1995) (New york law that imposed surcharges on patients covered by commercial insurers and certain HMO's according to number of Medicaid recipients enrolled was not preempted). In Travelers, the United States Supreme Court rejected the argument that laws indirectly affecting ERISA plans, without more, could be preempted. Several lower federal courts have applied Travelers to the issue of employee fringe benefit bonds and found no preemption. This is the prevailing view in the Third Circuit of the Court of Appeals, although the Court acknowledges the existence of other federal precedent finding preemption of actions by unions against sureties for payments to fringe benefit funds. Several state courts have found no preemption of claims for employee fringe benefits in circumstances similar to those presented here. (pp. 9-17).

3. The sureties argued in this case that because the bonds were issued pursuant to a statutory requirement, and the causes of action arose from legislation instead of common-law breaches of contract, the federal cases finding no preemption do not apply. The Court finds the distinction unconvincing. The analysis of the federal courts does not turn on the possible difference between a publicly-required bond and one entered into voluntarily. Moreover, the lawsuits here are common-law actions on contracts the employer made as a condition for obtaining a public construction contract. The Bond Act does not, by its terms, require the payment of fringe benefits, since a contractor can employ nonunion labor. Thus, it is the contractor who has created the obligation. The Bond Act is both ERISA-neutral and union-neutral. It does not frustrate ERISA's goal of uniform plan administration, make reference to ERISA, conflict with ERISA enforcement mechanisms, or touch on any of the rights or duties incident to ERISA plans. That the Bond Act may cause the cost of doing business in New Jersey to be different from the cost in other states is not inconsistent with the goal of uniform supervision of employee benefit plans. (pp. 18-21).

4. The Appellate Division found that the obligations of the sureties include fringe benefits for the union members. The sureties argue that this is unfair, because they did not bargain with the unions and the language of the bonds did not include fringe benefit payments. The Court hesitates to address the issue in generalities, noting that the trial court did not reach this issue. (pp. 21-23)

Judgment of the Appellate Division is AFFIRMED.

CHIEF JUSTICE PORITZ and JUSTICES HANDLER, GARIBALDI, STEIN and COLEMAN join in JUSTICE O'HERN's opinion. JUSTICE POLLOCK did not participate.

The opinion of the Court was delivered by

O'HERN, J.

These appeals concern the liability of a surety company to pay contributions into fringe benefit plans for employees on public works projects when the employer-principal defaults on its payments to the plans. The primary issue is whether federal employee benefit law preempts provisions of the New Jersey Public Works Bond Act, N.J.S.A. 2A:44-143 to 147 (Bond Act or Act) that require contractors to post bonds for payment for labor performed on public works projects.

We discuss the facts of each case separately before proceeding to an analysis ...


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