(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).
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.,
103 S. Ct. 2890 (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., 115 S. Ct. 1671 (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.
SUPREME COURT OF NEW JERSEY
A-72/
73 September Term 1997
BOARD OF TRUSTEES OF OPERATING
ENGINEERS LOCAL 825 FUND SERVICE
FACILITIES,
Plaintiff-Respondent,
v. (A-72)
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.
BOARD OF TRUSTEES OF OPERATING
ENGINEERS LOCAL 825 FUND SERVICE
FACILITIES,
Plaintiff-Respondent,
v. (A-73)
INTERNATIONAL FIDELITY INSURANCE
COMPANY, a corporation,
Defendant-Appellant.
Argued January 6, 1997 -- Decided April 9, 1997
On certification to the Superior Court,
Appellate Division, whose opinion is reported
at
287 N.J. Super. 498 (1996).
Thomas J. Demski argued the cause for
appellant International Fidelity Insurance
Company (Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, attorneys; (Mr.
Demski and Mark E. Duckstein, on the briefs).
Joseph C. Glavin, Jr., argued the cause for
appellant First Indemnity of America
Insurance Company.
N. Janine Dickey argued the cause for
respondent Board of Trustees of Operating
Engineers Local 825 Fund Service Facilities
(A-72).
Albert G. Kroll argued the cause for
respondent Board of Trustees of Operating
Engineers Local 825 Fund Service Facilities
(A-73) (Kroll & Heineman, attorneys).
Lauretta A. Rush-Masuret argued the cause for
amicus curiae The Surety Association of
America.
James R. Zazzali argued the cause for amici
curiae New Jersey State Carpenter Benefit
Funds, Carpenter Local No. 6 Benefits Fund,
Laborers Local Nos. 472 and 172 Welfare and
Pension Funds, Teamsters Local 408 Pension
and Welfare Funds, and Laborers Locals Nos.
72, 156, 569 and 711 Welfare and Pension
Funds (Zazzali, Zazzali, Fagella & Nowak,
attorneys; Mr. Zazzali and Kenneth I. Nowak,
on the letter briefs).
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 of the common issues.
Board of Trustees of Operating Engineers, Local 825, had a collective bargaining agreement with J. Gram Construction Co. that required Gram to make contributions, on behalf of the members of Local 825 whom it employed, to various pension, health, and welfare funds established pursuant to the federal Employee Retirement Income Security Act, 29 U.S.C. §1001 to 1461 (ERISA). Local 825 administered the funds on behalf of its members.
Gram hired Local 825 members in connection with various public works projects in which Gram was engaged. Pursuant to the Bond Act, Gram procured surety bonds guaranteeing both performance of the work and the full payment for labor and materials supplied on the jobs. Gram obtained the necessary bonds from International Fidelity Insurance Co. (IFIC).
In January 1994, Local 825 audited Gram's books and discovered that Gram had not paid $95,612.53 in contributions owed to the pension fund. The Local demanded payment by Gram of the past contributions. When Gram failed to pay, Local 825 began an action in the Law Division and obtained a default judgment
against Gram for the amount owed. In January 1995, Local 825
began this action against IFIC, claiming that IFIC is responsible
under the bonds IFIC issued on behalf of Gram to make all
payments that Gram failed to make.
IFIC filed a motion to dismiss on the basis that ERISA
preempts the Bond Act, and prevents a surety from being liable
for a contractor's delinquent payment of fringe benefit
contributions. The Law Division granted IFIC's motion and
dismissed Local 825's complaint.
Local 825 appealed. The Appellate Division consolidated the
case with the First Indemnity matter. It reversed the Law
Division and reinstated Local 825's complaint.
287 N.J. Super. 498 (App. Div. 1996). 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.
We granted IFIC's petition for certification.
146 N.J. 67
(1996).
Local 825 had a collective bargaining agreement with L.B.S. Construction Co., Inc. (LBS) similar to that which it had with Gram. This collective bargaining agreement included various pension, benefit, and welfare funds established pursuant to
ERISA, and required LBS to pay contributions to the various
funds. Pursuant to the Bond Act, LBS obtained bonds for labor
and materials from First Indemnity of America Insurance Co.
An audit by Local 825 of LBS' books revealed a $73,624.94
underpayment of contributions to the trust funds. In August
1992, Local 825 filed a complaint in the Law Division against LBS
for payment of the delinquency. LBS did not file an answer,
apparently because it was involved in bankruptcy proceedings.
Local 825 filed an amended complaint in May 1993, and named
First Indemnity as a defendant. Local 825 alleged First
Indemnity was responsible for contribution to the trust funds
because of LBS' default. First Indemnity moved for summary
judgment on the grounds that ERISA preempted Local 825's cause of
action. In July 1994, the Law Division granted First Indemnity's
motion.
Local 825 appealed. The Appellate Division reversed the Law
Division and reinstated Local 825's complaint on the same basis
as in the International Fidelity matter.
287 N.J. Super. 498
(App. Div. 1996).
We granted First Indemnity's petition for certification.
146 N.J. 68 (1996).
The United States Supreme Court has set forth the history and background of ERISA in several decisions. We provide a brief discussion here.
ERISA is a comprehensive regulatory scheme that Congress enacted after years of studying private employee benefit plans. Nolan v. Otis Elevator Co., 102 N.J. 30, 38, cert. denied, 479 U.S. 820, 107 S. Ct. 84, 93 L. Ed.2d 38 (1986). Congress enacted ERISA in 1974 "to protect participants of employee benefit plans and their beneficiaries from the abuses which previously existed in many retirement plans." Note, ERISA: Preemption of State Health Care Laws and Worker Well-Being, 4 U. Ill. L.F. 825 (1981) (footnotes omitted). The statute imposes participation, funding, and vesting requirements on private employee benefit plans. Employee benefit plans include both pension plans and health and welfare plans. ERISA also sets various uniform standards, including rules concerning reporting, disclosure, and fiduciary responsibility for the plans. In addition, the statute provides civil and criminal penalties. Nachman Corp. v. Pension Benefit Guar. Corp., 446 U.S. 359, 361 n.1, 100 S. Ct. 1723, 1726 n.1, 64 L. Ed.2d 354, 358 n.1 (1980).
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 [covered by
ERISA]."
29 U.S.C. §1144(a).
The leading case interpreting this provision is Shaw v.
Delta Airlines, Inc.,
463 U.S. 85,
103 S. Ct. 2890,
77 L. Ed.2d 490 (1983). In Shaw, the Court held that ERISA preempted certain
sections of New York's antidiscrimination laws concerning
pregnancy benefits. The Court stated that a "law 'relates to' an
employee benefit plan . . . if it has a connection with or
reference to such a plan." Id. at 96-97, 103 S. Ct. at 2900, 77
L. Ed.
2d at 501. The Court further held that state laws
covering subject matters beyond those covered by ERISA could also
trigger preemption. Id. at 98, 103 S. Ct. at 2900, 77 L. Ed.
2d
at 501-02. See also FMC Corp. v. Holliday,
498 U.S. 52, 58,
111 S. Ct. 403, 407,
112 L. Ed.2d 356, 364 (1990) (stating ERISA
preemption provision is "conspicuous for its breadth"). ERISA
preempts state laws even when those laws are not specifically
designed to affect ERISA-covered plans or affects them
indirectly. District of Columbia v. Greater Washington Bd. of
Trade,
506 U.S. 125,
113 S. Ct. 580,
121 L. Ed.2d 513 (1992).
We have addressed the preemptive effect of ERISA on New
Jersey laws in several cases and, consistent with Shaw, have
interpreted the preemption provision to give full effect to
ERISA's purposes. In Nolan, supra,
102 N.J. 30, we held that
ERISA preempted claims of age discrimination in an employee
benefit plan when the employees brought actions under the New
Jersey Law Against Discrimination (LAD) after the federal time
requirement for such actions had not been met. The parties had
agreed that the LAD "related to" an employee benefit plan. The
issue before the Court was whether the age-discrimination claim
fell within an exception to ERISA preemption that prohibits
preemption when enforcement would "impair" a law of the United
States.
29 U.S.C. §1144(d). See Nolan, supra, 102 N.J. at 39.
Although acknowledging the strong state concern for ending age
discrimination, we held that such concern must yield to the
"paramount federal interest" in uniform administration of
employee benefit plans expressed by ERISA and Supreme Court
precedent. Id. at 48.
However, when a state law that may have the potential to
interfere with ERISA is designed to address a unique local
problem, and when Congress is willing to tolerate that potential
interference, we have found state laws to survive ERISA
preemption. In Local 1804, Int'l Longshoremen's Ass'n v.
Waterfront Comm'n,
85 N.J. 606 (1981), the Court held that a
provision of the Waterfront Commission Act defining "convicted"
for misconduct as effective upon a trial court judgment was not
preempted by a similar ERISA provision that defined "convicted"
as effective only after the exhaustion of all appeals. Id. at
616. The Court stated that congressional recognition of New
Jersey's interest in reducing waterfront crime did not conflict
with the uniform protection of benefit plans. Ibid.
More recently, we have suggested that ERISA would not
preempt state law regarding unfunded employee vacation benefits,
because of the "illogic" of finding that Congress intended to
preempt a state law without providing any correlative federal
standards. Erich v. GAF Corp.,
110 N.J. 230, 237 (1988), cert.
denied,
490 U.S. 1034,
109 S. Ct. 1930,
104 L. Ed.2d 402 (1989).
See also In re 1115 Legal Service Care,
110 N.J. 344, 349 n.2
(1988) (stating purpose to preempt state laws tangentially
related to employee benefit plans cannot be found in ERISA).
The Appellate Division correctly perceived a trend in recent
federal precedent that has qualified the broad language of Shaw
and has limited ERISA preemption of generally applicable state
laws. 287 N.J. Super. at 507-08. This trend supports the
reasoning of Local 1804, supra,
85 N.J. 606, and Erich, supra,
110 N.J. 230.
The major case elaborating this trend is New York Conference
of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S.
__,
115 S. Ct. 1671,
131 L. Ed.2d 695 (1995). In Travelers, the
United States Supreme Court interpreted provisions of the New
York Public Health Law that imposed surcharges on patients
covered by commercial insurers (but not those covered by Blue
Cross or Blue Shield plans) and on certain health maintenance
organizations (HMOs) according to the number of Medicaid
recipients each enrolled. The Court held that the laws did not
"relate to" employee benefit plans under ERISA, and so were not
preempted. Travelers, supra, 514 U.S. at __, 115 S. Ct. at 1674,
131 L. Ed.
2d at 701.
The Court stated that although ERISA preemption is "clearly
expansive," to interpret the language to its furthest extent
would render the reach of the provision limitless. Id. at __,
115 S. Ct. at 1677, 131 L. Ed.
2d at 705. The Court determined
that the basic thrust of the preemption provision was to "avoid a
multiplicity of regulation in order to permit the nationally
uniform administration of employee benefit plans." Id. at __,
115 S. Ct. at 1677-78, 131 L. Ed.
2d at 706. The New York public
health law did not promote multiple regulatory schemes or provide
alternate enforcement mechanisms relating to ERISA plans. Id. at
__, 115 S. Ct. at 1678, 131 L. Ed.
2d at 707. The Court rejected
the argument that laws indirectly affecting ERISA plans, without
more, could be preempted. Id. at __, 115 S. Ct. at 1679, 131 L.
Ed.
2d at 708. An indirect economic effect, however, that is so
acute as to force changes in an ERISA plan can trigger
preemption. Id. at __, 115 S. Ct. at 1683, 131 L. Ed.
2d at 713.
Preemption does not occur "`if the state law has only a tenuous,
remote, or peripheral connection with covered plans, as is the
case with many laws of general applicability.'" Id. at __, 115
S. Ct. at 1680, 131 L. Ed.
2d at 708-09 (quoting District of
Columbia, supra, 506 U.S. at __ n.1, 113 S. Ct. at 583 n.1, 121
L. Ed.
2d at 520 n.1).See footnote 1
More recently, in California Div. of Labor Standards
Enforcement v. Dillingham Constr.,N.E., Inc., ___ U.S. ___,
117 S. Ct. 832, ___ L. Ed.2d ___ (1997), the Court reaffirmed the
trend initiated in Travelers. It found that ERISA did not
preempt a California statute permitting contractors to pay
laborers enrolled in an apprentice program less than the
prevailing wage. The Court observed that the statute was enacted
before ERISA and dealt with matters traditionally subject to
local regulation and not within ERISA's concern for reporting,
disclosure, and fiduciary responsibilities. In his concurrence,
Justice Scalia suggested that the time had come to acknowledge
that the criteria used in earlier cases for preemption had been
abandoned, and that "our first take on this statute was wrong;
that the `relate to' clause of the pre-emption provision is
meant, not to set forth a test for pre-emption, but rather to
identify the field in which ordinary [principles of] preemption
[apply]--namely, the field of laws regulating `employee benefit
plans'" described in the statute itself. Id. at ___, 117 S. Ct.
at 843, ___ L. Ed.2d at ___. Any other understanding of the
"related to" language is "doomed to failure, since, as many a
curbstone philosopher has observed, everything is related to
everything else." Ibid.
Several lower federal courts have applied Travelers to the issue of employee fringe benefit bonds. In Greenblatt v. Delta Plumbing & Heating Corp., 68 F.3d 561 (2d Cir. 1995), the union sued a contractor for failing to make timely fringe benefit payments. The contractor (Delta) filed for bankruptcy, and the union amended its complaint to include Delta's surety, which had issued a bond to Delta covering the fringe benefit payments. The Second Circuit held that ERISA did not preempt the union's claim against the surety.See footnote 2
The court found that New York common law concerning surety liability did not mandate employee benefit structures or provide alternate enforcement mechanisms that would trigger preemption under Travelers. New York surety law made no reference to ERISA, did not conflict with any ERISA enforcement mechanism, did not touch on any of the rights or duties incident to the ERISA plan, and did not conflict with any cause of action under ERISA. Greenblatt, supra, 68 F. 3d at 574-75. The union's cause of action against the surety on the bond is "but a 'run-of-the-mill' state law claim," similar to a tort or contract action. Id. at 574 (quoting Mackey v. Lanier Collections Agency & Serv., Inc. 486 U.S. 825, 833, 108 S. Ct. 2182, 2187, 100 L. Ed.2d 836, 846 (1988)). By analogous reasoning, United States District Judge
Whitman Knapp interpreted Travelers and Greenblatt to hold that
ERISA did not preempt claims against a surety that had issued
public improvement payment bonds to a contractor pursuant to a
New York statute. Local 46, Metallic Lathers Union v. Trataros
Constr., Inc.,
920 F. Supp. 55 (S.D.N.Y. 1996). See also Bleiler
v. Cristwood Constr., Inc.,
72 F.3d 13 (2d Cir. 1995) (applying
Greenblatt to surety insuring employer under public bond
statute).
The Third Circuit has reached similar conclusions. United
Wire, Metal & Machine Health & Welfare Fund v. Morristown
Memorial Hosp.,
995 F.2d 1179 (3d Cir. 1993) upheld portions of
the New Jersey Health Care Facilities Planning Act against an
ERISA preemption challenge. The Planning Act was a comprehensive
statute establishing hospital rates. The court held that ERISA
did not preempt the Act, even though the Act would have an
economic effect on the ERISA plans, in the form of increased
costs. Id. at 1193.
In Ragan v. Tri-County Excavating, Inc.,
62 F.3d 501 (3d
Cir. 1995), Judge Garth, writing for the court, found that an
action by a union welfare fund on a privately-arranged bond was
not preempted because its cause of action did not rely on or
single out ERISA plans. Id. at 511. The court stated:
Here, the district court need only determine
[the surety's] obligations under the Bond.
It need make no inquiry into the validity or
status of the funds (or indeed whether they
are ERISA funds), nor need it explore [the
surety's] motives regarding employee
benefits. The fact that the claimant . . .
happens to be an ERISA fund is not the kind
of critical factor in establishing liability
that prompt[s] preemption . . .
[Ibid. (internal quotations and citation
omitted.)]
The Third Circuit distinguished its earlier decision in
Bricklayers Int'l Union, Local 33 Benefits Funds v. America's
Marble Source, Inc.,
950 F.2d 114 (3d Cir. 1991), which found a
portion of the New Jersey Construction Workers' Fringe Benefit
Security Act preempted, because that law was "specifically
designed to affect employee benefit plans." Ragan, supra, 62
F.
3d at 511 n.6 (citing Bricklayers, supra, 950 F.
2d at 117). In
Ragan, the action by the union fund was available to it without
regard to the existence of the ERISA statutory framework.See footnote 3 See
also Keystone Chapter, Associated Builders & Contractors, Inc. v.
Foley,
37 F.3d 945 (3d Cir. 1994) (holding Pennsylvania
Prevailing Wage Act not preempted and could set minimum wages and
option to contribute to employee benefit plans, but may not refer
to ERISA plans or accord them special treatment), cert. denied,
__ U.S. __,
115 S. Ct. 1393,
131 L. Ed.2d 244 (1995).
We acknowledge the existence of other precedent finding
preemption of actions by unions or union benefit plans against
sureties for payments to fringe benefit or wage funds. See,
e.g., Williams v. Ashland Eng'g Co., Inc.,
45 F.3d 588 (1st Cir.)
(preempting Massachusetts public bond law that specifically
referred to ERISA-governed plans and provided a special source of
recovery for unpaid contributions), cert. denied, __ U.S. __,
116 S. Ct. 51,
133 L. Ed.2d 16 (1995); Electrical Workers' Health &
Welfare Trust v. Marjo Corp.,
988 F.2d 865 (9th Cir. 1993)
(disavowing pre-Travelers precedent and stating ERISA preempted
action against surety on bond). Lower federal courts have also
found preemption of laws that mention employee benefit plans or
create causes of action under circumstances ERISA does not
permit. See Plumbing Indus. Bd. v. L & L Masons, Inc.,
927 F.
Supp. 645 (S.D.N.Y. 1996) (invalidating section of New York Lien
Law in action against contractor for subcontractor's default, and
holding Lien Law created ERISA payment obligation and explicitly
mentioned plans); Blackburn v. Iversen,
925 F. Supp. 118 (D.
Conn. 1996) (invalidating Connecticut law making officers and
directors liable for corporate default on employee benefit plan
payments); Burgio & Campofelice, Inc. v. New York State Dep't of
Labor,
914 F. Supp. 931 (W.D.N.Y. 1996) (distinguishing Travelers
and Greenblatt and holding ERISA preempted New York law setting
wage supplements because law holding contractor liable for
subcontractor's default law related to ERISA plans), vacated and
remanded, 1
997 WL 89121 (2d Cir. March 4, 1997); Minnesota
Chamber of Commerce & Indus. v. Hatch,
672 F. Supp. 393 (D. Minn.
1987) (holding Minnesota statute requiring bonds for payment of
employee health benefits preempted because it interfered with
federal control over plan administration).
Several state courts have found no preemption of claims for employee fringe benefits in circumstances similar to those presented here. See Eacott v. Insurance Co. of North America, 673 A.2d 587 (Conn. App. Ct. 1996) (reversing lower court and holding, based on Bleiler, supra, action by union funds against surety based on labor and material payment bond issued pursuant to statute not preempted); Hawaii Laborers' Trust Funds v. Maui Prince Hotel, 918 P.2d 1143 (Haw. 1996) (upholding mechanics' lien law in action by trust funds to collect delinquent contribution because no clear intention in ERISA to preempt traditional areas of state police power); Seaboard Surety Co. v. Indiana State Dist. Council of Laborers & Hod Carriers Health & Welfare Fund, 645 N.E.2d 1121 (Ind. Ct. App. 1995) (rejecting preemption of state law requiring fringe benefit bonds because law was over a century old and was within area of traditional state authority; did not affect relations among parties to ERISA plans; and effect on plans, if any, was incidental); Carpenters' Local 261 Health & Welfare Fund v. National Union Fire Ins., 686 A.2d 1373 (Pa. Commw. Ct. 1996) (following Ragan and holding no preemption of action under public bond law because law not related to ERISA plans or their enforcement). But see Operating Engineers Pension Trust v. Insurance Co. of the West, 42 Cal. Rptr.2d 1 (Cal. Ct. App.) (preempting third-party beneficiary claim against surety based on payment and performance bonds because cause of action merely supplemented ERISA remedies),
cert. denied, __ U.S. __,
116 S. Ct. 569,
133 L. Ed.2d 493
(1995).
Generally, state courts that have found ERISA preemption
have considered laws that create additional causes of action
against parties that have no contractual obligation to ERISA
plans or laws that specifically name ERISA plans. See, e.g.,
Puget Sound Elec. Workers Health & Welfare Trust Fund v. Merit
Co.,
870 P.2d 960 (Wash. 1994) (en banc) (finding preemption of
state statute requiring contractor to guarantee subcontractor's
obligations, because such law potentially funds benefit plans
through additional enforcement mechanism other than ERISA);
Carpenters Southern Cal. Administrative Corp. v. El Capitan Dev.
Co.,
811 P.2d 296 (Cal.) (preempting state law that created liens
on real property in favor of trust funds in amount equal to
fringe benefit contributions owed to funds because law singled
out ERISA funds for special treatment and by regulating ERISA
funds through additional funding mechanism), cert. denied,
502 U.S. 963,
112 S. Ct. 430,
116 L. Ed.2d 450 (1991); Prestridge v.
Shinault,
552 So.2d 643 (La. Ct. App. 1989) (finding preemption
of state law creating cause of action for trustees of benefit
plan to enforce terms of health and welfare benefits plan), writ
denied,
559 So.2d 131 (La. 1990).
There is thus a thin line between claims for payment to
employee fringe benefit plans that are preempted by ERISA and
those that are not. The sureties argued before us that the
bonds were issued pursuant to a statutory requirement, and
therefore Greenblatt and Ragan do not apply because the causes of
action involved there arose from common-law breaches of contract
rather than from legislation requiring that public projects be
bonded.
We find the distinction unconvincing. ERISA does not make
such a distinction, and the analysis of the federal courts does
not turn on the possible difference between a publicly-required
bond and one entered into voluntarily. See Greenblatt, supra, 68
F.
3d at 574 (equating causes of action under state surety law
with common-law actions for purposes of ERISA preemption
analysis); Bleiler, supra, 72 F.
3d at 16 (applying Greenblatt to
Connecticut bond statute).
The lawsuits are common-law actions on contracts the
employer made as a condition for obtaining a public construction
contract. They do not represent actions that undermine the set
of remedies ERISA provides to beneficiaries under its
"comprehensive civil enforcement scheme." Pilot Life Ins. Co. v.
Dedeaux,
481 U.S. 41, 54,
107 S. Ct. 1549, 1556,
95 L. Ed.2d 39,
52 (1987) (preempting common-law claims of tortious interference
and fraud in withholding benefits from plan because such claims
interfered with ERISA civil remedies); Plumbing Indus. Bd.,
supra, 927 F. Supp. at 648 (preempting lien law because it
created obligation for ERISA contributions when no independent
basis for obligation existed).
The State must be neutral concerning the payment of fringe
benefits. New Jersey's Bond Act does not by its terms require
such payments. A contractor may decide to employ union or non-union labor. Tormee Constr., Inc. v. Mercer Cty. Improvement
Auth.,
143 N.J. 143 (1996) (holding public agencies could not
restrict public-construction projects to members of particular
labor unions or to union labor only). In short, it is the
contractor who has created the obligation. The Bond Act is both
ERISA-neutral and union-neutral. Like the vineyard owner in the
parable, the contractor is being asked to pay only what was
promised to the workers. See In re San Juan Dupont Plaza Hotel
Fire Litigation,
56 F.3d 295, 310 (1st Cir. 1995).
To hold otherwise would lead to paradoxical results. For
example, employees paid solely in cash that covered their benefit
needs would be able to recover against the sureties because of
the provisions in the bonds covering labor performed, but those
paid in a combination of cash and fringe benefits would not be
able to recover the latter. Cf. Keystone, supra, 37 F.
3d at 959-60 (noting that allowing preemption under similar circumstances
would create "disincentive" against awarding benefits). Such an
interpretation would also permit nonunion employees, who did not
have a collective bargaining agreement covering ERISA-regulated
plans, to recover against the sureties, but prohibit union
employees from pursuing their claims because they did have such
plans.
We find ourselves in accord with Dillingham, Travelers,
Greenblatt, and Ragan and our own earlier decisions; they
represent the correct interpretation of the ERISA preemption
provision. The Bond Act is a generally applicable law that
functions without any reference to ERISA. See Ingersoll-Rand,
supra, 498 U.S. at 139, 111 S. Ct. at 483, 112 L. Ed.
2d at 484.
It does not frustrate ERISA's goal of uniform plan
administration, make reference to ERISA, conflict with ERISA
enforcement mechanisms, or touch upon any of the rights or duties
incident to ERISA plans. See Greenblatt, supra, 68 F.
3d at 574-75; Blackburn, supra, 925 F. Supp. at 121. Cost-uniformity was
"almost certainly not an object of [ERISA] preemption."
Travelers, supra, 514 U.S. at ___, 115 S. Ct. at 1673, 131 L. Ed.
2d at 709. 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. See United Wire, supra, 995 F.
2d at
1194.
The Bond Act has existed in various forms for almost eighty
years, long before Congress adopted ERISA. See L. 1918, c. 75, §
1. Cf. Seaboard, supra, 645 N.E.
2d at 1127 (finding age of law
to support finding of no preemption). It was designed to protect
public agencies, laborers, and material suppliers who work on
public projects from the insolvency of a general contractor. See
Unadilla Silo Co. v. Hess Bros. Inc.,
123 N.J. 268, 276-77
(1991); Seaboard Sur. Co. v. Board of Chosen Freeholders,
222 N.J. Super. 409, 418 (App. Div.), certif. denied,
111 N.J. 630
(1988). Like the provision in the Waterfront Act, the Bond Act
and ERISA serve different purposes, although they both protect
workers. See Local 1804, supra, 85 N.J. at 616.
We hold that 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. We therefore
affirm the decision of the Appellate Division reinstating Local
825's complaints against IFIC and First Indemnity.
In a brief discussion, the Appellate Division found that
"wages" include fringe benefits and stated, "[w]hen the bond
includes the total of the workers' wages, there is no reason to
require a separate bond for a portion of the same." 287 N.J.
Super. at 509. Before us the sureties argued that this was an
unfair imposition because they had not bargained with the unions
or the trust funds to include fringe benefits and because the
language of the bonds did not include fringe benefit payments.
We hesitate to address the issue in generalities because the
language of the bonds issued by IFIC to Gram differs from the
language of the bonds issued by First Indemnity to LBS.
Generally, both sets of bonds purport to cover the lawful claims
of subcontractors, material suppliers, and laborers for labor
performed or material supplied.
The basic question is whether the "labor performed" clauses
in the bonds issued by First Indemnity and IFIC include payments
into fringe benefit funds on behalf of the laborers. The Bond
Act provides only:
When public buildings or other public works
or improvements are about to be constructed .
. . [the contracting public agency] shall
require the payment and performance bond, as
provided for by law, with an obligation for
the payment by the contractor, and by all
subcontractors, for all labor performed or
materials . . . used or consumed in [the
project].
As noted, the Act is neutral on the question of fringe benefits; it does not explicitly discuss the surety's responsibility to pay fringe benefit contributions. Historically, payments for all "labor performed" have been considered to include more than wages. See United States ex rel. Sherman v. Carter, 353 U.S. 210, 77 S. Ct. 793, 1 L. Ed.2d 776 (1957) (holding Miller Act provision insuring employer payment of "sums justly due" for labor performed not limited to wages). Sureties in New Jersey were aware of a practice of including fringe benefits within the definition of wages. See Newark Laborers Pension-Welfare Funds v. Commercial Union Ins. Co., 126 N.J. Super. 1 (App. Div. 1973) (noting surety had paid benefit contributions owed, and holding that costs and attorney's fees were recoverable against surety in action to collect an employer's delinquent contributions).
In addition, some of the bonds disclaim the creation of third-party rights or any obligation for payment to any party other than the named obligee. The Bond Act provides that only the named obligee, and any subcontractor performing labor or supplying materials to the project, may have a claim against the surety under the bonds. N.J.S.A. 2A:44-143b. Does the Bond Act preclude an action by one other than the named obligee (usually
the contractor or the worker)? If so, would an amended complaint
joining a class representative of the individual workers in the
Local's actions against the sureties satisfy that requirement?
The issues involve the interplay between the Bond Act and
the interpretation of the bonds' terms. In the IFIC matter, the
surety did not file an answer to the complaint, moving instead
for summary judgement on the ground of ERISA preemption. First
Indemnity raised several procedural defenses to the claims.
Because the trial courts held that ERISA preempted the Local's
claims, they did not reach these issues.
The judgment of the Appellate Division reinstating the
complaints is affirmed.
CHIEF JUSTICE PORITZ and JUSTICES HANDLER, GARIBALDI, STEIN
and COLEMAN join in JUSTICE O'HERN's opinion. JUSTICE POLLOCK
did not participate.
NO. A-72/73 SEPTEMBER TERM 1996
ON APPEAL FROM
ON CERTIFICATION TO Appellate Division, Superior Court
BOARD OF TRUSTEES OF OPERATING ENGINEERS
LOCAL 825 FUND SERVICE FACILITIES,
Plaintiff-Respondent,
v.
(A-72)
L.B.S. CONSTRUCTION CO., INC.; et al.,
Defendants,
and
FIRST INDEMNITY OF AMERICA INSURANCE
COMPANY, a corporation,
Defendant-Appellant.
BOARD OF TRUSTEES OF OPERATING ENGINEERS
LOCAL 825 FUND SERVICE FACILITIES,
Plaintiff-Respondent,
v. (A-73)
INTERNATIONAL FIDELITY INSURANCE
COMPANY, a corporation,
Defendant-Appellant.
DECIDED April 9, 1997
Chief Justie Poritz PRESIDING
OPINION BY Justice O'Hern
CONCURRING OPINION BY
DISSENTING OPINION BY
Footnote: 1Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 111 S. Ct. 478, 112 L. Ed.2d 474 (1990) presaged this trend. Although Ingersoll-Rand held that ERISA preempted a wrongful discharge claim because it involved an allegation that the discharge was based on the employer's desire to avoid contributions to an ERISA-regulated fund, the Court stated that the analysis would proceed differently had the claim been based on "a generally
applicable statute that makes no reference to, or indeed functions irrespective of, the existence of an ERISA plan," or when the existence of an ERISA plan was not a "critical factor" in establishing liability. Id. at 139, 111 S. Ct. at 483, 112 L. Ed. 2d at 484. See generally Karen A. Jordan, Traveler's Insurance: New Support for the Argument to Restrain ERISA Pre-emption, 13 Yale J. on Reg. 255 (1996). Footnote: 2 Procedurally, the court, finding no ERISA preemption, held that the district court did not have subject-matter jurisdiction and dismissed the case. Although "counterintuitive," the ERISA preemption provision can create federal jurisdiction. Greenblatt, supra, 68 F. 3d at 571. Footnote: 3Both Greenblatt, supra, 68 F. 3d at 575, and Ragan, supra, 62 F. 3d at 512, found that a surety is not an "employer" as defined by ERISA, and so ERISA requirements for employers to fund benefit plans are not applicable to them and do not provide or negate a cause of action. See 29 U.S.C. §1002 (5) (defining "employer" under ERISA); 29 U.S.C. §1145 (requiring employer to make ERISA benefit payments).