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.