Romney V. Lin: ERISA Preemption of Section 630 of New York's Business Corporation Law

Article excerpt

In 1974, Congress enacted the Employment Retirement Income Security Act ("ERISA")1 to establish a national uniform system of regulating employee benefit plans.2 Widespread abuse by employers of employee benefit plans prompted the need for such regulation.3 By subjecting employers to various and sometimes conflicting regulations, piecemeal regulation of employee benefit plans at the state and federal level proved to be inadequate.4 "In enacting ERISA, Congress was primarily concerned with the mismanagement of funds accumulated to finance employee benefits and the failure to pay employees benefits from accumulated funds."5 In response to these concerns, Congress "established extensive reporting, disclosure, and fiduciary duty requirements to insure against the possibility that the employee's expectation of the benefit would be defeated through poor management by the plan administrator."6

In addition to its regulatory requirements, ERISA contains a comprehensive civil enforcement provision, section 502(a), that allows a plan participant or beneficiary to bring a civil action to recover benefits due, to enforce existing rights, or to clarify rights to future benefits.7 Moreover, to facilitate uniform administration of the law, Congress included a broad preemption provision to "allow a single set of regulations to govern the administration of benefit plans."8 Section 514(a) of ERISA states that, unless specifically exempt,9 ERISA "supersede[s] any and all State laws insofar as they may now or hereafter relate to an employee benefit plan." lo Today, ERISA preemption is one of the most frequently litigated issues under the statute and has resulted in the preemption of various state statutes and common laws. ll

Recently, in Romney v. Lin,l2 the United States Court of Appeals for the Second Circuit addressed the question of whether ERISA preempts section 630 of the New York Business Corporation Law ("BCL").13 Section 630 of the BCL was originally enacted to provide employees with protection in the event of employer insolvency.l" BCL section 630(a) imposes joint and several liability on the ten largest shareholders of a closely-held corporation for specified corporate obligations enumerated in the statute.15 Specifically, the ten largest shareholders are personally liable for "all debts, wages or salaries due and owing to any of its laborers, servants or employees." BCL section 630(b) defines "wages and salaries" to include "employer contributions to or payments of insurance or welfare benefits [and] employer contributions to pension or annuity funds ...Significantly, as it applies to pension plans, the statute imposes liability on shareholders only after the corporate entity fails to satisfy a judgment for delinquent contributions.le After obtaining a judgment against a corporation for failure to make contributions to an employee pension plan, BCL section 630 allows a plan fiduciary or participant to enforce the un-executed judgment against the corporation's ten largest shareholders.l9

In Romney,20 the Second Circuit held that ERISA preempts BCL section 630. 21 In this case, the plaintiff-employee (the "Union") obtained an arbitration award against a closely-held New York corporation ("Goodee Fashions") for failure to make required contributions to four union benefit funds.22 The Supreme Court of New York County confirmed the award and issued a judgment.23 After an unsuccessful attempt to enforce the judgment against the corporation, the Union sued the principal shareholder ("Lin") of Goodee Fashions under BCL section 630 to enforce the judgment.24 Lin removed the action to federal court,25 and the district court dismissed the claim for failure to state a claim upon which relief may be granted.zs The Union's motion to remand was denied, and the Union appealed to the Second Circuit arguing that the district court lacked subject matter jurisdiction over the state law claim.27

The Second Circuit prefaced its ruling on the jurisdiction and removal issues with a discussion of the doctrine of complete preemption. …