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(A revised version of this article appears in The Construction
Lawyer, Volume 21, No. 3, July 2001, published by the
American Bar Association's Forum on the Construction Industry.)
By John W. Ralls
Howrey LLP
A
general contractor on a school district project posted a
payment bond. The general contractor also required the electrical
subcontractor, a joint venture, to post a payment bond to
indemnify the general contractor in the event of default
by the subcontractor. One of the joint venturers making
up the electrical subcontractor signed an collective bargaining
agreement with a local union of the IBEW. Under the collective
bargaining agreement, a portion of the employees' compensation
was paid in the form of contributions to benefit plan trusts.
During construction, the joint venturer became delinquent
in its contributions to the benefit plan trusts.
Pursuant
to California Civil Code §3181, the trusts, as assignees
of the employees, served a stop notice on the school district
for the amount of the delinquent contributions. At the same
time, the trusts made a claim on the payment bonds. The
trusts and the employees sued in U.S. District Court to
collect the delinquent contributions and included state
law causes of action to enforce the stop notice and payment
bonds.
The
school district, the general contractor and the sureties
brought motions to dismiss the stop notice and payment bond
causes of action on the ground that California's stop notice
and payment bond remedies were pre-empted by ERISA. The
District Court found that ERISA pre-empted the stop notice
claim but not the payment bond claim. Both parties appealed.
The Ninth Circuit held that neither remedy is pre-empted
by ERISA. Southern California IBEW-NECA Trust Funds v.
Standard Industrial Electric Co., 2001 U.S. App. LEXIS
6767, 2001 WL 388476 (9th Cir. 2001).
ERISA
pre-empts and supersedes any state law that may "relate
to" an employee benefit plan. 29 USC §1144 (a).
Under New York State Conference of Blue Cross and Blue
Shield Plans v. Travelers Insurance Co., 514 U.S. 645
(1995) ["Travelers"] a state law "relates
to" an employee benefit plan when it has a "connection
with" or a "reference to" the plan. A statute
has an impermissible "connection with" ERISA when
it "jeopardizes national uniformity in benefit plan
administration." "A statute has an impermissible
'reference to' an employee benefit plan if it acts immediately
and exclusively upon the plans or if the plans are essential
to the law's operation."
The
court found that the payment bond remedy, California Civil
Code §3249, had no impermissible connection with or
reference to employee benefit plans. "The payment bond
statute is not necessarily limited to ERISA plans; thus
its inclusion of employee benefit trusts among those who
may enforce a payment bond is not an impermissible reference
to an ERISA plan." The Ninth Circuit also noted that
"California's statute does not require the establishment
of a separate benefit plan and imposes no new reporting,
disclosure, funding or vesting requirements for ERISA plans."
Based
on the same analysis, the court found that the stop notice
claim was not pre-empted by ERISA. In a footnote, the court
also indicated that the same reasoning would apply to California's
mechanic's lien remedy.
The
court distinguished a number of prior cases on the grounds
that the test for ERISA preemption had been modified in
light of the U.S. Supreme Court's decision in Travelers.
"[T]he breadth of federal pre-emption which governed
our decisions prior to Travelers is no longer applicable."
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For more information about the issues covered in this report, please contact John Ralls in our San Francisco office at 415-848-3362 or at rallsj@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
©2001 Howrey LLP
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