New York Law Review

Tag: ERISA Preemption

  • Harvey v. Members Employees Trust for Retail Outlets, 98 N.Y.2d 103 (2002): State Regulation of MEWA Benefits & ERISA Preemption

    Harvey v. Members Employees Trust for Retail Outlets, 98 N.Y.2d 103 (2002)

    ERISA does not preempt New York Insurance Law § 3221 and 11 NYCRR 52.16(c) as applied to self-insured MEWAs (Multiple Employer Welfare Arrangements), allowing states to regulate the content of health benefits, even if it creates disuniformity, as long as the state law isn’t directly inconsistent with a specific ERISA provision.

    Summary

    The New York Court of Appeals addressed whether ERISA preempts New York Insurance Law regarding mandated health coverage for alcohol-related illnesses in a self-insured MEWA. Edward Harvey, a liquor store employee, had health coverage through METRO, a MEWA. After METRO denied coverage for Harvey’s alcohol-related illnesses, his estate sued. The Court held that ERISA does not preempt New York’s insurance regulations in this context, affirming the Appellate Division’s decision. The Court reasoned that while ERISA generally preempts state laws relating to employee benefit plans, the MEWA exception allows state insurance regulation unless directly inconsistent with ERISA, and no such inconsistency existed here.

    Facts

    Edward J. Harvey, Sr., a shareholder in a retail liquor store, was covered by a medical reimbursement plan provided by Members Employees Trust for Retail Outlets (METRO), a self-insured health benefit plan and a MEWA.
    Harvey suffered from illnesses due to alcohol abuse, including cirrhosis. He was hospitalized twice in 1994 and died from complications related to liver failure.
    METRO denied coverage, citing a plan exclusion for illnesses arising from alcohol use.

    Procedural History

    Harvey’s estate sued METRO seeking a judgment declaring METRO obligated to cover the medical bills.
    Supreme Court denied the estate’s motion for summary judgment and granted METRO’s cross-motion, dismissing the complaint.
    The Appellate Division reversed, granting summary judgment to the estate, holding that the Insurance Law and its regulations applied and were not preempted by ERISA.
    The New York Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether New York Insurance Law and its implementing regulations permit a self-insured health benefit plan to exclude coverage for medical conditions that develop as a consequence of alcohol use.
    2. Whether ERISA preempts the application of New York Insurance Law and regulations to a self-insured MEWA regarding mandated coverage for alcohol-related illnesses.

    Holding

    1. No, because the applicable regulation explicitly prohibits excluding coverage by type of illness, and the exception for alcoholism is inapplicable here, as it only allows insurers to exclude coverage for the diagnosis and treatment of alcoholism itself, not illnesses arising from alcohol use.
    2. No, because the MEWA exception to ERISA’s Deemer Clause allows state regulation of insurance for self-insured MEWAs unless that regulation is directly inconsistent with a specific provision of ERISA, and no such direct inconsistency exists here.

    Court’s Reasoning

    The Court addressed METRO’s argument that Insurance Law § 3221 (Z) (6) (A) and 11 NYCRR 52.16 (c) allowed the exclusion of coverage for illnesses arising from alcohol use. The Court rejected this argument, clarifying that the Insurance Law doesn’t mandate coverage for alcoholism but requires insurers to make available the option to purchase additional coverage for its diagnosis and treatment.

    The Court found that the regulation prohibits excluding coverage by type of illness, making the exception for alcoholism inapplicable to illnesses arising from alcohol use. The court pointed out that the drafters of the regulation could have used the phrase illnesses “arising out of” alcoholism if that had been their intent, as they did in other parts of the regulations.

    Turning to the ERISA preemption argument, the Court acknowledged ERISA’s broad preemptive scope but emphasized the Insurance Savings Clause, which preserves state insurance regulation. However, the Deemer Clause generally prevents states from deeming self-funded ERISA plans as insurance companies. Because METRO is a MEWA, the MEWA exception to the Deemer Clause applies, allowing state regulation unless it’s inconsistent with ERISA.

    The Court found no direct conflict between the state mandate for health benefit coverage and any specific ERISA provision. METRO’s argument that the state regulation conflicts with ERISA’s goal of national uniformity was rejected. The Court emphasized that Congress knowingly allowed for disuniformity to preserve local insurance regulation and made a policy decision to permit such disuniformity with MEWAs.

    As the Court noted, “Congress itself made the policy determination that the objective of national uniformity in the administration of employee benefit plans must yield to its concomitant ‘decision to ‘save’ local [substantive content-based as well as procedural] insurance regulation,’ knowing full well that it would perpetuate ‘disuniformities’”. The court concluded that the state law was not preempted.

  • Morgan Guaranty Trust Co. v. Tax Appeals Tribunal, 80 N.Y.2d 41 (1992): ERISA Preemption of State Tax Laws Affecting Benefit Plans

    Morgan Guaranty Trust Co. v. Tax Appeals Tribunal, 80 N.Y.2d 41 (1992)

    A state tax law of general application is preempted by ERISA if it has more than a tenuous, remote, or peripheral connection to employee benefit plans, considering the structural, administrative, and economic impact of the tax on the plan.

    Summary

    Morgan Guaranty Trust Co., as trustee for an employee benefit plan, challenged New York’s real property transfer gains tax, arguing ERISA preemption. The plan sold property to comply with ERISA’s prohibited transaction rules and incurred a $205,262 tax. The Court of Appeals held that the tax was preempted because it directly affected the plan’s investment strategy, imposed administrative burdens, and depleted funds otherwise available for benefits. The court emphasized that ERISA aims to establish uniform federal regulation of benefit plans, and the tax’s direct impact on plan assets was inconsistent with this goal. The decision highlights the broad preemptive scope of ERISA over state laws that significantly impact employee benefit plans.

    Facts

    In 1965, the American Motors Corporation Union Retirement Income Plan purchased real property in Greenburgh, NY, and leased it back to an affiliate. In 1983, counsel advised American Motors that the lease was a prohibited transaction under ERISA due to lagging market rates. The plan sold the property in June 1984 to another affiliate for $2,775,640 to avoid tax penalties under ERISA.

    Procedural History

    Morgan Guaranty Trust Co. paid the New York gains tax of $205,262 on the property transfer. Morgan filed a refund claim, arguing ERISA preemption, which the Department of Taxation and Finance denied. The Administrative Law Judge granted Morgan’s administrative petition. The Tax Appeals Tribunal reversed, finding the tax’s impact too tenuous. The Appellate Division annulled the Tribunal’s determination, holding the tax was preempted. The New York Court of Appeals then reviewed the case.

    Issue(s)

    Whether a state tax law of general application, specifically New York’s real property transfer gains tax, is preempted by ERISA when applied to the sale of real property by a qualified employee benefit plan.

    Holding

    Yes, because the gains tax has more than a tenuous, remote, or peripheral connection to employee benefit plans, considering the structural, administrative, and economic impact of the tax on the Plan.

    Court’s Reasoning

    The court began by noting ERISA’s broad preemption clause, stating that all state laws are superseded insofar as they relate to any employee benefit plan. It cited 29 U.S.C. § 1144(a) and emphasized that this clause was designed to establish exclusive federal regulation of pension plans. The court acknowledged that while certain state laws may affect employee benefit plans in too tenuous a manner to warrant preemption, this was not such a case. The court analyzed the structural, administrative, and economic impact of the tax on the Plan, concluding that it was significant. The court reasoned that the gains tax would influence the Plan’s investment strategy, requiring fiduciaries to consider the state law’s impact, thus making real estate investments in New York less attractive. The court stated, “As the Supreme Court has made clear, it is undesirable to require plans and employers to tailor their conduct ‘to the peculiarities of the law of each jurisdiction.’” The court also highlighted the favorable tax treatment given to benefit plans under the Internal Revenue Code, noting that the gains tax depletes funds otherwise available for providing benefits. “Unlike other forms of general State regulation that may have only incidental effect on plan resources, the gains tax ‘directly depletes the funds otherwise available for providing benefits’ and flies ‘in the face of ERISA’s goal of assuring the financial soundness of such plans.’” Finally, the court distinguished this tax from others that have been allowed, such as taxes on employees’ income or withholding procedures on payments to beneficiaries, because this tax directly depletes Plan assets. The court emphasized that it is a direct tax on plan profits and concluded that because it affects the structure, administration, and economics of a covered plan, it relates to it in more than a tenuous way.

  • Planned Consumer Marketing, Inc. v. Coats and Clark, Inc., 71 N.Y.2d 442 (1988): ERISA Preemption and Fraudulent Conveyances

    Planned Consumer Marketing, Inc. v. Coats and Clark, Inc., 71 N.Y.2d 442 (1988)

    ERISA does not preempt state laws aimed at preventing fraudulent conveyances, even when the assets are deposited into an ERISA-qualified plan, if the plan itself is used as a vehicle for fraud.

    Summary

    Coats and Clark (C&C) obtained a judgment against Planned Consumer Marketing (PCM). Suspecting PCM was shielding assets, C&C discovered PCM deposited funds into an ERISA-qualified profit-sharing plan. C&C sued, alleging PCM fraudulently conveyed assets into the plan to avoid paying the judgment, violating state debtor-creditor laws, business corporation laws, and EPTL. The New York Court of Appeals held that ERISA does not preempt state laws that seek to prevent fraudulent conveyances, even when the assets are in an ERISA plan, if the plan itself is the tool of fraud. The court reasoned that Congress did not intend ERISA to shield fraudulent activity.

    Facts

    PCM contracted with C&C to promote products but C&C refused full payment, leading PCM to sue for breach of contract.
    C&C counterclaimed, alleging inadequate performance and seeking recovery of prior payments; C&C won a judgment of $72,838.75 in 1981.
    PCM claimed it had no employees and was inactive since 1977/1978, unable to satisfy the judgment.
    C&C discovered PCM, through its president Edwin Lee, deposited over $200,000 into accounts in the name of the Planned Consumer Marketing Profit Sharing Plan (the Plan).
    The Plan, established in 1974, was ERISA-qualified, with beneficiaries being Edwin Lee, his brother, and his secretary; Edwin Lee and his brother were trustees.

    Procedural History

    C&C initiated a special proceeding under CPLR Article 52 to compel the banks to turn over the funds in the Plan to satisfy the judgment.
    PCM and Lee moved to dismiss, asserting lack of subject matter jurisdiction due to ERISA preemption and the anti-alienation provisions of ERISA.
    The Supreme Court denied the motion.
    The Appellate Division modified, dismissing some causes of action as ERISA-related but upholding others based on state fraud laws.
    The Court of Appeals granted leave to appeal, certifying the question of whether the Appellate Division’s order was properly made.

    Issue(s)

    Whether ERISA preempts state laws, such as the Debtor and Creditor Law, Business Corporation Law, and EPTL, when those laws are applied to funds deposited in an ERISA-regulated trust where the cause of action alleges fraudulent conveyance into the plan to avoid creditors.
    Whether the application of state fraudulent conveyance laws conflicts with ERISA’s anti-alienation clause.

    Holding

    No, because ERISA does not preempt state laws aimed at preventing fraudulent conveyances when the ERISA plan is used as a tool of fraud, as these laws do not directly or indirectly regulate the terms and conditions of employee benefit plans.
    No, because the application of state laws voiding conveyances made in defraud of creditors does not impermissibly conflict with the purposes of ERISA’s anti-alienation provision.

    Court’s Reasoning

    The court distinguished this case from Retail Shoe Health Commn. v Reminick, where the claims directly related to fiduciary duties established by ERISA. Here, the causes of action allege the Plan was used to shield assets from creditors, not to challenge the administration or terms of the Plan.
    State laws like the Debtor and Creditor Law aim to prevent fraudulent conveyances and protect creditors. They do not regulate ERISA plans nor do they prohibit or permit any method of administering an ERISA plan or calculating benefits. C&C is not seeking to enforce rights under the Plan.
    Regarding the Business Corporation Law claim, the court noted corporations are creatures of state law, and the law at issue here furnishes a means of redressing wrongful disposition of corporate assets.
    Regarding the EPTL claim, the court found that Lee’s interest in the ERISA account may be reached if he created the trust for his own benefit to defraud creditors, as EPTL 7-3.1(a) provides that a disposition in trust for the use of the creator is void against creditors.
    The court noted a later amendment to EPTL 7-3.1 specifically stated that conveyances to retirement plans are not exempt from judgment satisfaction if deemed fraudulent conveyances under the Debtor and Creditor Law.
    Addressing the anti-alienation clause, the court distinguished Helmsley-Spear, Inc. v Winter and Ellis Natl. Bank v Irving Trust Co., because in those cases, the fraud was independent of the ERISA plan, while here, the creation and enhancement of the trust were alleged to be in defraud of creditors.
    The court stated that purposes of the antialienation clause include protecting spendthrift employees and preventing involuntary levies. These purposes do not conflict with the prevention of debtor fraud, a field traditionally within the power of the states to police. The court emphasized that C&C only seeks to reach Lee’s interest in the plan, and those funds may not be shielded simply because they are in an ERISA trust.
    The court quoted Shaw v. Delta Air Lines noting that some state actions “may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law ‘relates to’ the plan”.

  • Sasso v. Vachris, 66 N.Y.2d 26 (1985): State Law Imposing Shareholder Liability is Not Preempted by ERISA

    66 N.Y.2d 26 (1985)

    A state law that imposes personal liability on shareholders for a corporation’s failure to make required contributions to employee benefit plans is not preempted by the Employee Retirement Income Security Act (ERISA) because it provides a remedial enforcement mechanism rather than regulating the terms and conditions of the benefit plan itself.

    Summary

    The trustees of a union welfare and pension fund sued the shareholders of a construction company to recover unpaid contributions to the fund, pursuant to New York Business Corporation Law § 630, which allows employees to recover unpaid wages and benefits from the ten largest shareholders of a closely held corporation. The New York Court of Appeals held that ERISA did not preempt this state law. The court reasoned that § 630 provides a mechanism to enforce existing obligations, not to dictate the terms of the employee benefit plan, and therefore only has a “tenuous, remote, or peripheral” effect on the plan, which is insufficient for preemption.

    Facts

    Local Union 282 established a welfare and pension trust fund. Vacar Construction Company was obligated under collective bargaining and trust agreements to contribute to this fund for its Local 282 employees. Vacar failed to make the required contributions between May 1978 and February 1979. Vacar then filed for bankruptcy, thwarting the fund’s initial attempts to recover the unpaid amounts.

    Procedural History

    The trustees sued Vacar’s shareholders under Business Corporation Law § 630 and Vacar’s officers under Labor Law § 198-c. Special Term granted summary judgment for the plaintiffs on the Labor Law claim but dismissed the claim against Helen Vachris (not an officer) and dismissed the Business Corporation Law claim as preempted by ERISA. The Appellate Division modified, dismissing the Labor Law claim entirely, finding no private right of action under that statute. The plaintiffs appealed the dismissal of the Business Corporation Law claim.

    Issue(s)

    Whether Business Corporation Law § 630, which imposes personal liability on the ten largest shareholders of a closely held corporation for wages and salaries (including benefit contributions) owed to the corporation’s employees, is preempted by ERISA.

    Holding

    No, because Business Corporation Law § 630 is a remedial statute that provides an additional enforcement mechanism for collecting delinquent contributions and does not regulate the terms and conditions of employee benefit plans.

    Court’s Reasoning

    The court began by noting the broad preemption clause in ERISA, which supersedes state laws that “relate to” any employee benefit plan. However, the court also acknowledged that this clause is not unlimited, and only state laws that “regulate, directly or indirectly, the terms and conditions of employee benefit plans” are preempted. State laws with only a “tenuous, remote, or peripheral” effect are not preempted.

    The court found that Business Corporation Law § 630 is remedial, providing an additional enforcement mechanism for collecting delinquent contributions that are already owed under existing collective bargaining and trust agreements. It does not dictate what benefits must be provided or how they are calculated. The court distinguished § 630 from state laws that the Supreme Court had previously found to be preempted, such as those requiring specific benefits or practices in employee benefit plans.

    The court likened § 630 to a garnishment statute or a law imposing liability on corporate officers, which have been found not to be preempted because their effect on employee benefit plans is only indirect. The court also noted that the 1980 amendments to ERISA, which added specific provisions dealing with delinquent contributions, were intended to supplement, rather than supersede, existing state remedies like § 630.

    “Under ERISA [as originally enacted] delinquent contributions were enforced by an action founded either on state law, the collective bargaining agreement between the parties or the trust agreement.”

    Ultimately, the court concluded that Congress intended ERISA’s civil remedies to merely supplement, rather than supersede, existing state remedies for collecting delinquent employer contributions to employee benefit plans.

  • Retail Shoe Health Comm. v. Reminick, Aarons & Co., 62 N.Y.2d 173 (1984): ERISA Preemption of State Law Claims Against Fiduciaries

    Retail Shoe Health Comm. v. Reminick, Aarons & Co., 62 N.Y.2d 173 (1984)

    ERISA preempts state law claims for contribution or indemnity against employee benefit plan fiduciaries based on breaches of their fiduciary duties, vesting exclusive jurisdiction in federal courts.

    Summary

    This case addresses whether ERISA preempts state law claims against trustees of an employee welfare benefit plan. The Retail Shoe Health Commission sued its accountants for failing to detect misappropriations by the fund’s administrator. The accountants then filed a third-party complaint against the trustees for contribution or indemnity, alleging the trustees’ breach of fiduciary duties contributed to the losses. The New York Court of Appeals held that ERISA’s preemption provisions govern such claims, precluding state court actions. The court reasoned that ERISA vests exclusive jurisdiction over these matters in federal courts, superseding state laws regarding fiduciary duties related to ERISA plans.

    Facts

    The Retail Shoe Health Commission (Fund), a multiemployer welfare fund, sued its accountants, Reminick, Aarons & Company, for failing to detect the administrator’s misappropriation of $675,000. Reminick filed a third-party complaint against the Fund’s individual trustees and Tolley International Corporation (the Fund’s actuarial and consulting service), seeking contribution or indemnity. Reminick alleged that the trustees’ negligence in supervising the administrator contributed to the loss. Tolley filed counterclaims and crossclaims against Reminick, the Fund, and the trustees, also seeking contribution or indemnity.

    Procedural History

    The individual trustees moved to dismiss Reminick’s third-party complaint and Tolley’s claims, arguing that the court lacked subject matter jurisdiction under ERISA. The Supreme Court denied the motion, finding ERISA did not preempt state law in this instance. The Appellate Division affirmed without opinion, granting the trustees leave to appeal to the New York Court of Appeals. The Court of Appeals then reversed the lower courts’ decisions.

    Issue(s)

    Whether ERISA preempts state law claims for contribution or indemnity against the individual trustees of an employee welfare benefit plan, when those claims are based on alleged breaches of the trustees’ fiduciary duties.

    Holding

    Yes, because ERISA’s provisions supersede all state laws relating to employee benefit plans, and ERISA vests exclusive jurisdiction in federal courts for civil actions arising under the Act involving breaches of fiduciary duty by plan trustees.

    Court’s Reasoning

    The court emphasized ERISA’s broad preemption clause, which supersedes state laws relating to employee benefit plans. The court stated that “the Federal law pre-empts State regulation of ERISA employee benefit plans. The Act provides expressly that its provisions shall supersede all State laws insofar as they may relate to any employee benefit plan within its embrace.” The trustees are fiduciaries under ERISA, and Reminick’s and Tolley’s claims allege breaches of those fiduciary duties. ERISA §§ 404, 405, and 409 govern the duties and liabilities of these trustees. The court noted that ERISA § 502(e) vests exclusive jurisdiction in federal district courts over civil actions arising under ERISA. The court rejected the argument that because Reminick and Tolley are not among those listed in ERISA § 502(a) as parties who can bring a civil action, ERISA should not preclude their claims. The court stated, “Inasmuch as ERISA preempts all claims based on alleged breach of fiduciary duty on the part of ERISA trustees and vests jurisdiction for their enforcement exclusively in the Federal courts, the circumstance that persons in the outboard position of Re-minick and Tolley may have no statutory standing to bring such an action under the Federal regulatory scheme is merely an aspect of that scheme.” The court also held that claims for contribution and indemnity under state law (e.g., CPLR art 14; Dole v Dow Chem. Co.) are superseded by ERISA. Finally, the court addressed Tolley’s argument regarding pre-ERISA transactions, stating that while ERISA preemption does not apply to acts or omissions before January 1, 1975, Tolley had not pleaded such claims separately. However, the dismissal was without prejudice, allowing Tolley to seek leave to replead claims based on pre-1975 transactions.

  • Westinghouse Electric Corporation v. State Human Rights Appeal Board, 469 N.E.2d 572 (N.Y. 1984): ERISA Preemption of State Human Rights Laws

    Westinghouse Electric Corporation v. State Human Rights Appeal Board, 469 N.E.2d 572 (N.Y. 1984)

    The Employee Retirement Income Security Act of 1974 (ERISA) preempts state human rights laws only to the extent that the state law prohibits practices that are lawful under federal law.

    Summary

    Westinghouse Electric Corporation appealed a decision by the Appellate Division that found the New York State Human Rights Law was not preempted by ERISA. The Court of Appeals reversed and remitted the case, holding that ERISA preempts state human rights laws only insofar as they prohibit practices lawful under federal law. This decision aligned with the Supreme Court’s ruling in Shaw v. Delta Air Lines, clarifying the scope of ERISA preemption and requiring state agencies to determine if employment practices are prohibited by Title VII before applying state law.

    Facts

    The specific facts underlying the human rights claim are not detailed in this decision. The appeal concerned the broader legal question of whether ERISA preempted New York’s Human Rights Law.

    Procedural History

    The case originated before the State Human Rights Appeal Board. The Appellate Division ruled against Westinghouse, concluding that ERISA did not preempt the State’s Human Rights Law. Westinghouse appealed to the New York Court of Appeals. The Court of Appeals initially affirmed, but following the Supreme Court’s decision in Shaw v. Delta Air Lines, it granted reargument and reversed the Appellate Division’s order, remitting the case for reconsideration.

    Issue(s)

    Whether the Federal Employee Retirement Income Security Act of 1974 (ERISA) preempts New York State’s Human Rights Law (Executive Law, § 296).

    Holding

    Yes, ERISA preempts the New York Human Rights Law, but only to the extent that the state law prohibits practices that are lawful under federal law, because the Supreme Court in Shaw v. Delta Air Lines clarified that state laws are preempted only when they conflict with federal law under Title VII.

    Court’s Reasoning

    The Court of Appeals relied heavily on the Supreme Court’s decision in Shaw v. Delta Air Lines. The Supreme Court articulated a partial preemption standard. According to the Court, state laws are preempted only to the extent they permit what federal law prohibits. The Court of Appeals directly quoted the Supreme Court, stating: “Courts and state agencies, rather than considering whether employment practices are unlawful under a broad state law, will have to determine whether they are prohibited by Title VII. If they are not, the state law will be superseded and the agency will lack authority to act.” This effectively requires state agencies to first assess whether an employment practice violates Title VII before applying state law. If Title VII does not prohibit the practice, then the state law is preempted. The New York Court of Appeals therefore reversed the Appellate Division’s decision and remitted the case for reconsideration in light of Shaw, instructing the lower court to apply this partial preemption standard.