Ingersoll-Rand Co. v. Mcclendon - Oral Argument

Argument of Hollis T. Hurd

Chief Justice Rehnquist: We'll hear argument now in 89-1298, Ingersoll-Rand v. Perry McClendon.

Mr. Hurd, you may proceed whenever you're ready.

Mr. Hurd: Mr. Chief Justice, and may it please the Court:

This is an ERISA preemption case.

The Supreme Court of Texas declared that the State of Texas, quote,

"has an interest in protecting employees' interests in pension plans. "

and held that a terminated employee can recover under the common law of Texas whenever he proves that the principal reason for his termination was the employer's desire to avoid contributing to or paying benefits under the employee's pension fund.

It was a 5 to 4 decision in which the dissenters pointed out that this new common law cause of action under Texas law was preempted by ERISA.

Of course, the question of whether a Federal statute preempts a State law is a question of the intent of Congress.

Petitioner submits that the intent of the 93d Congress in passing ERISA is perfectly clear in every respect.

In the language of ERISA where the express preemption provision preempts any State law that relates to an employee benefit plan, and this law clearly relates to pension plans; from the structure of ERISA, because Congress inserted in ERISA itself a provision which is numbered 510 of ERISA which does essentially the same thing as the Texas law common law cause of action, and which demonstrates that Congress thought that protection against purposeful interference with rights under a plan was not remote, peripheral, or tangential but was central to the business of regulating employee benefit plans.

Next, from the enforcement provisions of ERISA which this Court has held are comprehensive, interrelated and exclusive, and those are the means for enforcing section 510 of ERISA.

Next, from the legislative history of ERISA, which demonstrates clearly as this Court has previously held in the Shaw case that Congress intended to preempt at a minimum all State laws treating the same subjects as ERISA, and the Texas law clearly treats the same subject as ERISA section 510 does; and finally, from the purposes of ERISA preemption.

The purpose of every provision of ERISA is to promote and protect employees' interests in pension plans.

Unknown Speaker: Mr. Hurd, let me just ask you a question if I may.

This is a case in which, as I understand it, the Texas court said that because your opponent's client was terminated allegedly in order to escape a pension fund liability that that's... that ERISA preemption applies.

This exclusive remedy for that kind of termination is Federal.

Is that right?

Mr. Hurd: That's correct, Your Honor.

Unknown Speaker: What if they had had a written contract.

Supposing a man had... an executive had a 20-year written contract that guaranteed him at the end of 20 years participation in the pension fund, maybe a car when he leaves the company and two or three other things, and in the 19th year they fired him in breach of the written contract, and he was able to at least allege and... and prove that the reason they did it, they wanted to escape their pension liability.

Would he have any cause of action in State court for any percent... part of the salary he didn't get for his 19th year and so forth?

Mr. Hurd: In that case, Your Honor, if the employer's motivation is alleged to be a purpose to interfere with the attainment of benefits under a plan--

Unknown Speaker: Right.

Mr. Hurd: --then that would stay a claim under section 510 of ERISA, and that State law, whatever State law was used, contract or misrepresentation and so forth, that State law would be preempted as applied to that cause of action.

Unknown Speaker: Even if his damages that he seeks are the salary for the 19th year... the 20th year of the contract?

Mr. Hurd: That's correct, Your Honor.

Unknown Speaker: Would he have a remedy for those damages in... in Federal court?

Mr. Hurd: Absolutely.

That's my next point.

Under section 510 of ERISA, the lower courts have held that uniformly that the relief available is employment-related relief.

That is to say, the courts can order the individual reinstated to employment.

The courts can also order back pay and front pay and also damages equal to the value of the lost benefits.

In other words, the wrong is... is an employment action, and the remedy is to reverse that employment action.

It's not to award benefits.

Unknown Speaker: And that State rule of law, as you interpret, relates to the plan?

Mr. Hurd: Yes, it does, Your Honor, through the employer's purpose to interfere with rights under the plan.

Our point is that Congress set up the rights and remedies for those who believe that the employer purposefully interfered with our attainment of benefits under a plan, and Congress' scheme is exclusive.

Unknown Speaker: Mr. Hurd, under the Federal cause of action that you say would exist under the circumstances inquired about by Justice Stevens, would there be any right to punitive damages?

Mr. Hurd: Your Honor, the lower courts so far have held that punitive damages are not available in actions--

Unknown Speaker: What about attorneys' fees?

Mr. Hurd: --Under ERISA, Your Honor, attorneys' fees may be granted in the discretion of the court to a prevailing plaintiff.

Unknown Speaker: Counsel, what... what would happen in Justice Stevens' hypothetical if there were three or four independent reasons given for the termination?

One, they tried... they terminated early to avoid having to pay the pension benefits.

Two, because he was allegedly infringing on... ah, exclusive sales territory that the contract promised him.

And any number of different reasons are usually alleged in these wrongful discharge cases.

If... if one of them is the ERISA reason, does that preempt the whole cause of action?

Mr. Hurd: I would say, Your Honor, it preempts the cause of action based on the employer's alleged motivation to deprive the individual of benefits.

Now if the employee--

Unknown Speaker: What you say... if... you said... if one of the motivations?

Mr. Hurd: --That's correct.

The... there is a cause of action for purposeful interference with right to benefits under a plan, and that cause of action is preempted, including other nonpreempted cause of actions in the complaint, doesn't diminish the Federal character of that one.

Unknown Speaker: May I push that just a step further?

Supposing he doesn't allege the reason; he just alleges the written contract.

He was ready, willing and able to perform and they fired him without just cause, period.

And then in defense they come in and say the real reason we did it was this... they go to State law, and they get ready to go to the jury, but their defense is in State cause of action the real reason we did it is we didn't want to pay him a pension.

What do you do with that case if you're a State judge?

Mr. Hurd: If the... if the cause of action alleged by the individual does not reveal that he's relying on an alleged motivation to deprive the individual of benefits, then that does not have any connection with a reference to a plan.

As soon as the element of connection to the plan is introduced, then his claim has a connection with a reference to the plan.

Unknown Speaker: If it comes out on discovery and he then says I didn't know what the reason was but now I realize the real reason was they wanted to save money on the pension, then his case goes out the window as soon as he finds that out?

Is that right?

Mr. Hurd: The case becomes Federal in character.

Congress provided that causes of action under section 510 are to be heard exclusively in the Federal courts.

So when it becomes clear that the complaint states a Federal cause of action, the case could be removed to Federal court.

Also--

Unknown Speaker: Mr. Hurd, suppose an employer induces him to quit by threatening him.

He sends some friends around who say if you don't quit we will break your legs.

And he brings a cause of action for... for assault against the employer.

Is... Is that precluded?

Mr. Hurd: --In your question, Your Honor, I haven't heard any connection with a reference to a plan.

Unknown Speaker: Well, the reason... the reason that they want him to quit is so that he won't... he won't qualify for benefits.

Mr. Hurd: If that--

Unknown Speaker: So... so it is... it is, indeed... it fits within section 110, that they are discriminating against him in order to prevent him from becoming entitled under the plan.

That's precluded.

You couldn't bring a State assault action.

Mr. Hurd: --State law, State criminal laws of general application are expressly--

Unknown Speaker: No, this is... is an assault, civil action for assault, tort.

Mr. Hurd: --Not a civil action.

Unknown Speaker: Couldn't bring a civil action?

Mr. Hurd: There is a section 510 case--

Unknown Speaker: How about a wrongful death action?

They... they actually blow him away in order to... a wrongful death action would not lie, either?

Mr. Hurd: --No, Your Honor.

The examples can get pretty extreme, but the principle is--

Unknown Speaker: Well, but it's testing the principle of whether any State law, no matter how generally applicable, if it happens to overlap in its... in its relief with section 510 is... is invalid.

Mr. Hurd: --Well, our point, Your Honor, is that Congress decided what remedies should be available to someone who believed that the employer discharged, fined, expelled, et cetera, or otherwise discriminated against them.

Unknown Speaker: So what is your answer to the wrongful death?

I didn't get your answer.

You said it was extreme, but... but what is your answer to it?

Mr. Hurd: My answer is that would be preempted.

Unknown Speaker: Oh.

What... you say this... this should be a Federal cause of action.

Of course, the employer denies that he... he fired him for this reason, and so the issue in the Federal case would... would be whether... whether he did it to interfere with the plan; is that it?

Mr. Hurd: That's correct, Your Honor.

Unknown Speaker: Suppose the... suppose the employer wins on that, that it... that he didn't fire him for that reason.

What happens to the employee's State cause of action?

It's probably... is it to be dismissed?

Do you think they should dismiss the State cause of action?

Mr. Hurd: That's a question of Federal courts, Your Honor, after the individual has lost on the merits of his Federal claim what happens to the State--

Unknown Speaker: Well, he loses on it because it really... the employer really didn't interfere with plan benefits.

That's the reason the employer wins.

Mr. Hurd: --That's correct.

Unknown Speaker: So what... but he's nevertheless may have a State claim.

Mr. Hurd: Because the discharge was wrongful for other reasons such as a breach of the common law contract.

Unknown Speaker: Yes, exactly.

Exactly.

Mr. Hurd: That's correct.

Unknown Speaker: So how does he protect himself while this Federal case is dismissed, I mean while the State cause of action is being dismissed?

Can it just... and you say it can't continue to be on file.

Mr. Hurd: The Federal court would have pendent jurisdiction over those purely State law claims while considering the Federal cause of action under section 510.

Unknown Speaker: So he should bring his State law claims with him in the Federal court?

Mr. Hurd: That's correct, Your Honor.

Unknown Speaker: May... may I just add one point to the question Justice Scalia was asking?

Although it sounds farfetched, there is in fact a case under ERISA section 510 where an individual was a participant in a multiemployer pension plan and alleged that the trustees of the plan threatened him that they would break his legs unless he ceased from insisting on receiving information regarding the administration of the plan.

That was held to state a cause of action under section 510 of ERISA, and he prevailed.

I'm sure it did, but the issue here is whether it also states a valid cause of action under State law, and the case did not hold that you couldn't.

Isn't there a difference as to whether, in order to recover under State law you must prove that the purpose was to deprive you of benefits under the plan?

In this case, that that was essential to recovering under the State law, wasn't it?

Mr. Hurd: Absolutely.

Unknown Speaker: That you didn't fire him for no reason at all but precisely in order to prevent his recovering.

Whereas, if someone comes up to me and threatens to break my legs, it really doesn't matter what, you know, what their reason is, does it?

I mean, I have a cause of action for assault.

Or if somebody wrongfully kills me, my... my... you know, there's a wrongful death action, whatever their reason was.

Couldn't you distinguish the situations on that basis and say that only the former are preempted and not the latter?

I wish you would, because I find it very... very upsetting that there's no wrongful death action.

[Laughter]

Mr. Hurd: I suppose so, Your Honor.

The section 510 ERISA relates to employment-type actions, and I think that in your case assault or murder can reasonably regarded as... be regarded as not an employment-type action.

Unknown Speaker: Well, more than that.

You don't have to prove that the reason was to deprive you of benefits under the plan.

It doesn't matter what the reason was.

Mr. Hurd: I'm sorry, Your Honor.

I'm just now catching the drift of your question.

That's completely correct.

The cause of action in order for the individual to prevail doesn't require any connection to a plan.

In that sense, it's not necessarily connected, whereas in this case the cause of action exists only because the employer's conduct is connected to a plan.

Unknown Speaker: Well, an assault doesn't require any particular motive, either.

I mean, the... the touching of the person or the... the attack on the person regardless of the motive with which it's done constitutes an assault.

So do... do you follow the distinctions suggested by Justice Scalia that far?

Mr. Hurd: Yes, Your Honor.

I agree with that distinction.

Unknown Speaker: But if... but if the... but if it's proved in the case that the reason for the assault was to deprive him of pension benefits, then it's preempted?

Is that it?

Mr. Hurd: If he can recover for assault merely because he was in fact assaulted without regard to the reason, then I'd say that his cause of action for assault has no necessary connection to or reference to a plan, and--

Unknown Speaker: Even if it's proven what the real reason was?

Mr. Hurd: --That's correct, because it's not necessary to his recovery, Your Honor.

Mr. Chief Justice, I'd like to reserve the balance of my time for rebuttal.

Unknown Speaker: Mr. Hurd, before you sit down, you probably have answered this but I want to be sure.

Did you raise the defense of ERISA preemption below?

Mr. Hurd: No, Your Honor.

Unknown Speaker: I didn't hear it.

Mr. Hurd: No, Your Honor.

Unknown Speaker: Well, if it's so clear, why didn't you?

Mr. Hurd: The truth of the matter is, Your Honor, that the case was treated as a run-of-the-mill wrongful discharge case from the very beginning.

After Ingersoll-Rand demonstrated to Mr. McClendon that he was in fact vested in his pension and had been vested before he was terminated, that aspect of the case was not pushed by Mr. McClendon, and so Ingersoll-Rand didn't work on a defense.

It was really the Supreme Court of Texas that resurrected that issue and addressed and decided the Federal question that's presented here for this Court's decision.

Unknown Speaker: Thank you, Mr. Hurd.

Mr. Wright, we'll hear now from you.

Argument of Christopher J. Wright

Mr. Wright: Mr. Chief Justice, and may it please the Court:

Let me first say that I... I agree with what I take to be the ultimate resolution of the assault and wrongful death hypothetical situations.

Normally one can prevail in a tort action for assault or for wrongful death without proving why you assaulted or killed the person, and, likewise, it is not a defense in a wrongful death case or in an assault case to say I did it in order to deprive the person of pension benefits.

To the contrary.

Unknown Speaker: What about my... what about my breach of contract case?

Do you agree with your colleague on that one?

Mr. Wright: Yes, and... and in the contract case, as I understand it, there is no question that the person would have a claim under ERISA.

Now the only thing that was... that was left open, I think, in the assault and... ah, wrongful death hypothetical was I wouldn't read the word discriminate, Justice Scalia, normally... normally to cover such extreme situations; but of course, you have in... in a contract case you would have a claim under ERISA.

I might say--

Unknown Speaker: Excuse me.

I don't... I don't understand.

Why... why is firing him discriminating but breaking his legs not?

I... I don't understand--

Mr. Wright: --Well, firing him is discharging him, and discharging him is covered by the statute.

Unknown Speaker: --Oh, okay.

Mr. Wright: The other things in the statute are expel, suspend, discipline and discriminate.

Unknown Speaker: So you're... you're not even sure he'd have a... an ERISA action?

Mr. Wright: I... I don't think he would, probably.

He certainly would in Justice Stevens'--

Unknown Speaker: But in my hypothetical, if the plaintiff proves the breach in the contract but fails to prove that the reason was to terminate, you know, get him out of the pension but, rather, they just... it was other... otherwise a breach of the contract so that the basis for Federal jurisdiction would no longer survive, there would be, I take it, ancillary jurisdiction to grant relief on a State law claim even though it had been preempted?

Mr. Wright: --I assume that that's how they... yes.

Unknown Speaker: So that preemption is kind of an on and off thing?

It's preempted until you decide the merits of the ERISA claim, and if you decide the merits of the ERISA theory adversely to the plaintiff, then the preemption ceases and it's sort of a springing use and the State law cause of action revives?

Mr. Wright: Well, I... I think that this sort of thing happens all the time in these sorts of cases, as... as this one.

The way this one, I think, should have been handled, he argued two very different reasons for why he was discharged.

One was a breach of contract; one was discharge to prevent the attainment of pension benefits.

The... the contract action was actually the focus of the case.

Unknown Speaker: And then your view is that the entire case should have been transferred to the United States District Court, and it would have pendent jurisdiction on the other issues?

Mr. Wright: Yes, Your Honor.

The United States would like to emphasize that Congress specifically intended ERISA's broad preemption provision, section 502, to displace State law.

In Pilot Life, this Court concluded, and I quote,

"The deliberate care with which ERISA's civil enforcement remedies were drafted and the balancing of policies embodied in its choice of remedies argue strongly for the conclusion that ERISA's civil enforcement remedies were intended to be exclusive. "

The Court also recognized--

Unknown Speaker: Of course, this is a remedy against the employer, not against the client.

Mr. Wright: --Justice Stevens, section 510 of ERISA also establishes a remedy against employers, and it is enforceable under section 502(a)(3), one of the six... one of the six provisions that was described in the opinion of the Court in Russell as interlocking, interdependent, and interrelated remedies.

I believe you wrote the opinion for the Court.

Unknown Speaker: Nothing in that opinion says anything about preemption.

Mr. Wright: Well, but the fact remains that this Court has relied on the comprehensive nature of the six remedies considered as a whole.

Now respondent here argues that his claim for benefits is... I'm sorry, his claim for interference with the attainment of benefits is different than a claim for benefits, but we think that there are two sides to the same coin, and we don't think that there is a basis, given this Court's statements in Pilot Life and Russell, for any distinction between a claim arising under section 502(a)(1)(b), the provision involving claims for benefits, and section 502(a)(3), the provision that allows for enforcement of section 510.

Related to this... ah, question, I might say, is... is the suggestion perhaps that section 510 as... as a wrongful discharge remedy is not central to ERISA.

I'd like to say that, to the contrary, Congress recognized and Senator Harkin explicitly stated that if employers could fire employees in order to avoid the payment of pension benefits, then ERISA's vesting provisions which are critical to the statute would be worthless.

And I think that that... that makes sense.

The First Circuit in the Fitzgerald case likewise said that section 510 is essential to the act, and we agree.

Unknown Speaker: That's all a strong argument why you need a Federal remedy.

Nobody's disputing that.

The question is whether the existence of the Federal remedy precludes any kind of State supplementary remedy.

Mr. Wright: We think it shows two things.

We think the existence of section 510 shows that Congress clearly understood that a wrongful discharge remedy relates to ERISA and... and, hence, the State law claim is preempted under 514(a).

We also agree... we also think that consistent to the remedy--

Unknown Speaker: Why does it show that?

Why does it show that it relates, too, within the meaning of the preemption provisions?

I just don't follow that.

Mr. Wright: --Well, it's a very broad preemption provision.

We think the fact that Congress put it in the heart of title I of ERISA shows that it's... it relates to ERISA.

Unknown Speaker: It's a hard argument, yeah.

It's a different argument.

I don't see why the fact that it's an important remedy, an important part of the statute, necessarily means that this particular State law cause of action is a law relating to a plan.

It's relating to a way of getting a remedy when you've been discharged for an impermissible Federal reason.

Mr. Wright: Well, this particular State law remedy is, of course, identical to the remedy Congress provided in ERISA, and we think Congress put that remedy in ERISA because it thought that it relates to ERISA.

And we also think it intended it to be exclusive.

In addition to Pilot Life, we think that this Court's decision in Metropolitan Life v. Taylor is particularly informative.

In that case, Congress held in light of ERISA's comprehensive enforcement provision and its broad express preemption provision that Congress had so completely preempted the field that any complaint raising a claim under ERISA could be removed to Federal court despite the well-pleaded complaint rule.

This Court recognized that this special rule applies only under ERISA section 502(a) and under section 301 of the Labor Management and Relations Act but determined that a special rule was warranted in light of Congress' especially thorough preemption of these two fields.

Respondent cannot explain how it can be that Congress has so displaced State law that the well-pleaded complaint rule has no applicability here, and yet his claim which is identical to a claim that could be raised under ERISA is not preempted.

In our view, both provisions, separately or together, the comprehensive enforcement provision and the broad express preemption provision, make clear that Congress did not leave room for actions parallel to those enforcing section 510 of ERISA.

If there are no questions, I have nothing further.

Argument of John W. Tavormina

Mr. Tavormina: Mr. Chief Justice, and may it please this Honorable Court:

102 years ago, the Texas supreme court came down with the Eastline decision which held unequivocally, without exception, any employer could terminate any employee for no reason at all... the employment-at-will doctrine, or sometimes referred to as the fire-at-will doctrine.

Over the last century, the Texas court has changed and developed that law to take its harsh remedies and look at those harsh remedies in light of the realities of today's environment.

The Texas supreme court has imposed some restrictions on that harsh employment-at-will doctrine.

They have imposed that if the parties contract an employment, a for cause provision will be inferred in all the contracts.

Very recently, the Texas supreme court, based on the public policy of the State, said, if an employee is fired for refusing to commit a crime, well, we can't let the employment-at-will doctrine prevent a cause of action because our State public policy warrants, it mandates, that we can't let that wrong go without redress, and the court carved out another exception to the employment-at-will doctrine and said, if you can prove that the reason this employee was terminated was because he failed to commit a crime, he will have, or she will have, a State cause of action for wrongful termination.

In this case, the McClendon case, the court again looked at the realities of today's employment setting.

Pension benefits, welfare benefits, and health plans are... are so much more an essential element of our employment packages today than they were in 1988, and the court said, we have a public policy.

We have an interest in protecting our employees, our men and women, with respect to their pension benefits, and therefore, because of our public policy, if you prove that a man or a woman is fired for the principal reason of the employer trying to avoid pension obligations, then that person has a State cause of action.

Unknown Speaker: Mr. Tavormina, do you agree that Mr. McClendon also had a cause of action under ERISA, section 510, to compel reinstatement or payment of the benefits?

Mr. Tavormina: Your Honor, he did have a cause of action under ERISA to compel that.

When the suit was first filed, he also had the cause of action for the processing of a claim for his retirement benefits which he did not get.

Once he received those benefits, from that point on, the court... the case took the posture of simply a wrongful termination case.

Unknown Speaker: Well, since he did have a cause of action, doesn't that indicate that the cause of action relates to the terms of the plan?

Mr. Tavormina: No, Your Honor, it does not indicate it relates to the plan.

It relates to the employer's motivation for terminating the employment.

It does not relate at all to the terms or conditions of a plan.

You have... if you take a step back, what do we have?

We have a State law in a traditionally regulated area, wrongful employment termination.

All States have a right to do that, and the State of Texas has said, this is a wrong for which an employee can sue for wrongful termination.

Then we have ERISA.

What was the purpose of ERISA?

ERISA was... ah, passed to promote the interests of employees in pension plans and in benefit plans.

It was--

Unknown Speaker: Certainly all the preemption provisions of ERISA were not necessarily put in to protect employees as opposed to employers?

Mr. Tavormina: --No, Your Honor, but the key element of the preemption provisions were to ensure uniformity to the employers to avoid different processing and different procedures in different States, if they operated across State lines.

That was the key element of the preemption provision, and this cause of action created by the Texas supreme court does absolutely nothing to the uniformity of the structure of ERISA plans.

Unknown Speaker: Well, I thought in Pilot Life the Court held that section 502 of ERISA was the exclusive mechanism for enforcement of obligations just like this one.

Mr. Tavormina: Your Honor, you're exactly right, but Pilot Life was a holding where the Court said, all we're dealing with here is the way a claim should have been processed under a specific plan.

We're... the employee is basically saying the employer did not process the claim properly.

That is not the claim here.

We are not claiming any pension benefits or any pension rights.

We are not claiming anything at all under the plan itself.

Going back to the Justice's contract example for just a second, if I understand what the petitioner and the Government are arguing, if we are to let the provision in ERISA control the damages, then wouldn't every wrongful termination suit that is effected in any way... if part of the element of damages is, well, what did I lose?

I lost my salary, but I lost my pension, for whatever reason... contract or no contract.

Would that mean that in every State, in every cause of action, if an employee sues for everything that he or she lost by the termination... under their rationale, wouldn't every single employment case then automatically be removed to Federal court?

Don't most of us have pensions that are going to vest, or have vested, and if--

Unknown Speaker: No, only if it is alleged and it... it is an essential part of the State cause of action that the reason for the dismissal was specifically to prevent the vesting of the pension.

Mr. Tavormina: --Well, Your Honor, but the way--

Unknown Speaker: I mean, that certainly narrows the category of cases enormously.

Mr. Tavormina: --But under the contract example, if the contract included wages... I'm going to pay a certain amount of money, plus I'm going to vest you in 20 years... and the contract was then terminated after 19 years... breach of contract action, wrongful termination action, what are your elements of damages?

One of them is my pension.

I didn't get it.

Unknown Speaker: It may be an element of damages, but it is not, as it is in this suit, an element of the cause of action.

It is an element of the cause of action here, to establish that the reason the firing occurred was to prevent the vesting, and that is quite different from merely being an element of the damages.

Mr. Tavormina: Sir, it's different, but if you look at the Court's decision in English v. GE, that was the Energy Reorganization Act that was involved in that case.

That act had a similar provision.

That was the case where a woman was fired.

She had reported several times to GE that radioactive waste had not been cleaned up properly, and her warnings were ignored, and she put a big piece of red tape around it to show how absurd things were getting, to point out that things weren't being done in the workplace for safety, and the employer wound up firing her for that.

Well, if you look at that cause, which the Court held the intentional infliction of emotional distress was not preempted--

Unknown Speaker: But there... there you didn't have the express and preemption provisions that you do with ERISA, did you?

Mr. Tavormina: --No... well, Your Honor, you had... you didn't have an express preemption provision, but you had two very similar enforcement statutes, one that said you couldn't discriminate or discharge an employee, and the other that gave specific remedies for any action under that--

Unknown Speaker: I... I think you'll find the Court's treatment of preemption has been quite different in ERISA cases, where you have a broad, statutory preemption provision, as opposed to simply occupation of the field and implied preemption, where they're simply claiming it's the same cause of action.

Mr. Tavormina: --Your Honor, I agree with that, but again, you have the State law and you have the preemption opinion... preemption provision, which, if you look at the definition of State, it says,

"any regulatory agency or any legislative agency that purports, either directly or indirectly, to regulate the terms or conditions of a pension plan. "

What does this State law do to regulate, directly or indirectly, the terms and conditions of any pension plan at all?

It is a broad preemption statute, but if you look at it, this State law has nothing to do with the terms and conditions of Ingersoll-Rand's pension plan.

It has nothing to do with the uniformity of their pension plan.

It only has to do with, why did they terminate them, and the point raised, why wasn't it raised by petitioner in the lower court if it was so obvious, was because it's a different cause of action.

They're going... we're looking to the motivation.

Why were they terminated?

They use an example, petitioner does in its brief, about, well, we're going to... we would have to introduce evidence at trial to show the complicated formula for vesting.

Well, I think that proves that there is no preemption in this case.

Unknown Speaker: You're... You're saying that a cause of action under 510 doesn't relate to ERISA?

Mr. Tavormina: Well, Your Honor, it doesn't relate--

Unknown Speaker: I mean, isn't that... isn't that the effect of your position?

Mr. Tavormina: --It doesn't relate to the terms and conditions of an ERISA plan, and that's what preemption is supposed to go to.

Preemption was made so there could be a uniform scheme that the employers could use and rely upon.

It wasn't so you can take away causes of action, and there are many cases... English v. GE is one, but there are other cases where this Court has held that just because a State court imposes additional liability, or further liability than a Federal action, that is not enough to preempt.

Unknown Speaker: Actually, it doesn't say that.

The statute does not require that it relate to the terms or conditions of an ERISA plan.

The statute simply says,

"relate to any employee benefit plan. "

Mr. Tavormina: Your Honor, I agree with that, but I also go back to the language of the definition of State, where it says,

"regulates directly or indirectly the terms or conditions of a pension plan. "

If you go back to the original premise, you have the State law and you have a Federal act which was meant to protect the interest of employees and protect them from things like fraud and misappropriation, and then Congress said, but we... we have to give something to the employers, and we're going to let them have a uniform plan.

Now, how is that affected by a State cause of action?

Unknown Speaker: Petitioner's explanation, and it strikes me as a good one, is that the definition of the term State to include political subdivisions that purport to regulate is an expansion, so that you qualify as a State even though you... ah... you are not a State in the narrow sense, if you purport to regulate.

But if you are a State, whether you're purporting to regulate the terms and conditions of a plan or not, if you are a State properly speaking, you're... you're bound by 514(a), it seems to me--

Mr. Tavormina: Well, Your Honor, I--

Unknown Speaker: --And the test is whether it relates to the plan.

Mr. Tavormina: --When you say, whether it relates to the plan, you have to go back to the terms and conditions of a plan, or the administration of a plan versus a cause of action for an employer's motivation.

Unknown Speaker: Well, why do you have to do that?

Why, when the statutory language doesn't relate to any employee benefit plan, do you have to go back to the terms and conditions of the plan?

Mr. Tavormina: Because I think if you look at the majority opinion, for instance, in the Halifax case, where the plant closing law came down from the State, and they said so many plants have been closing in Maine, if an employer closes a plant we're going to demand a one-time severance payment.

The Court said well, we're not... anything... severance relates to some kind of employee benefits, but they said, well look at the benefits, not... there's a difference between employee benefits and an employee benefit plan.

The Court made that distinction.

Now, the dissent in that case said, we're dissenting... as I understood it, we're dissenting because we think that the State of Maine actually is creating a pension plan, or a form of pension plan, so the Court concentrated on that in its analysis as well, and here, in the State of Texas, we don't even come as close as Fort Halifax.

We don't even have something that could even look like a plan, or any terms and conditions of a plan.

All we have is the motivation.

What was the motivation for someone to go ahead and terminate?

Finally, I want to... I would like to just talk about the issue of damages.

Just because there is a provision for certain damages in the ERISA statute does not preclude a State cause of action in a traditionally State-regulated field from imposing additional damages, whether they be punitive damages, or whether they be mental anguish.

The issue of punitive damages was really not addressed by the Texas supreme court, and one of the justices said it was an open question, but there are several cases from this Court, including an antitrust case, which was California v. ARC America, where this Court said that just because a State cause of action gives further liability, or additional liability, to a cause of action similar to the Federal cause of action, that's not enough for preemption, and that case... as well, going back to the Halifax case... this Court has said, well, is there any conflict?

Is there a conflict with ERISA with this cause of action?

There is no conflict.

It's consistent, and just as in Fort Halifax, where the Court said, if it's consistent and there's no conflict, we're going to let the State's public policy--

Unknown Speaker: May I interrupt you there for a moment?

You say there's no conflict.

Is it not possible that a very large punitive damages award against employers who are funding their own plans could jeopardize the safety of the financial soundness of the plan and that there is a Federal interest in maintaining the financial soundness which might be inconsistent with awards of... of punitive damages?

Mr. Tavormina: --Well, Your Honor, I would again just go to the Court's opinions in Silkwood, for instance, where the Court said that punitive damages, or the prospect of punitive damages--

Unknown Speaker: Yes, but there, you didn't have a Federal interest in maintaining the financial stability of the employer.

Here you have a financial... a Federal interest in maintaining the soundness and the... the fiscal integrity of... ah, employer-financed plans.

Mr. Tavormina: --Well, Your Honor, you have the plan, and then you have the employer, and this highlights, again, the difference between the two.

It's the employer's conduct, the employer's motivation--

Unknown Speaker: It's his conduct, but that conduct could rub off on a plan if he's responsible there.

We've had cases in which the employers go bankrupt, and that sort of thing, and therefore the plan fails and you've got to get involved in all this insurance, and so forth.

Mr. Tavormina: --Well, Your Honor, that's true, and hopefully that will make employers look at it more closely and focus on not terminating someone's employment whether it be 5, 10, 15, 30, 40 years, and not... not terminate that person's employment for the principal reason of avoiding pension obligations.

Yes, it is a serious remedy, but it's a serious wrong that needs to be remedied.

There--

Unknown Speaker: All I'm suggesting is, there is a Federal interest in... it may not be sufficient to prevail, but there's at least a Federal interest which would support an argument against punitive damages in order to maintain the kind of balance that you've got in ERISA that might not necessarily be available in the State system.

Mr. Tavormina: --I would agree with that, Your Honor, and also, I don't know for sure if ERISA has excluded the idea, or this thing of punitive damages.

I... you know better than I on that point, but I can't answer that question, so--

Unknown Speaker: None of us knows, yet.

Mr. Tavormina: --I don't know if that's ever been ruled upon.

Unknown Speaker: Do you have a jury trial in the ERISA action as compared to the State action?

Mr. Tavormina: Would you, or did we?

Unknown Speaker: Yes.

Would you.

Would you be entitled to a jury trial?

Mr. Tavormina: Not under ERISA.

Unknown Speaker: Would you be entitled to a jury trial under State law?

Mr. Tavormina: Yes, sir.

Unknown Speaker: Well, do you think an employer might be less inclined to set up one of these newfangled pension plans that the Government was trying to encourage if he knew that he'd be subject to a... a jury action in State court for allegedly dismissing people in order to avoid the rights vesting under the plan?

Mr. Tavormina: Well, Your Honor, if we use that logic, then we're basically saying that because ERISA limits the damages... because I think everyone agrees that there's nothing conflicting about the cause of action.

There is a cause of action in ERISA, and there is now, at least at present, a State cause of action in Texas.

So then we'd be saying that the reason that ERISA is preferred is because it has, or might have, less damages--

Unknown Speaker: Right.

Mr. Tavormina: --Than the right to a jury trial.

Unknown Speaker: But isn't that conceivably why the Federal Government put in that provision?

We're going to assure you, up front, what your liability, or the manner in which it will be determined, will be like.

It will not be a jury trial, and it'll be in Federal court.

Isn't... might that not be an attraction to the employer who's thinking of setting up, or not setting up, a pension plan?

Mr. Tavormina: Your Honor, I... that could have been something considered.

I don't remember seeing it in the legislative history.

Unknown Speaker: Well, perhaps--

[Laughter]

Mr. Tavormina: Unless there are further questions, I have nothing further.

Unknown Speaker: Thank you, Mr. Tavormina.

Mr. Tavormina: Thank you.

Unknown Speaker: Mr. Hurd, you have 4 minutes remaining.

Rebuttal of Hollis T. Hurd

Mr. Hurd: I think it's important to understand that, throughout ERISA, Congress was making a delicate balance.

When you talk about promoting and preserving employees' interests in plans, there are two elements.

One is promoting the employees' rights, but the other part of it is promoting the maintenance and establishment of plans themselves.

Section 510 enforced, through the remedies of section 502, are the enforcement mechanism and the remedies that Congress decided were appropriate and struck the right balance between the employee's interest in recovering damages and their desire not to discourage the establishment and maintenance of plans.

To... to take Justice Scalia's question, it's... you can imagine a grocery store with 20 employees in Texas.

Suppose there's high turnover within the first 2 years, but very little turnover of employees after that.

It would make sense for the employer in that case to establish a pension plan with 2-year cliff vesting, so that no one was vested before 2 years, everyone was fully vested after 2 years.

But the first time a jury verdict comes down from the State court in Texas with punitive damages in it, the employer's going to think very seriously about whether he should alter the vesting schedule and make it the maximum permitted by law... 5-year cliff vesting, so as to diminish the credibility of the claims of people who might sue who were let go in the first 2 years.

This, of course, would work to the disadvantage of the other participants in the plan.

Another thing the employer might do in that situation is install full and immediate vesting, so that everyone is vested on the day they walk in, so that once again, there's no risk of an employee who is terminated claiming the termination was for the purpose of interfering with his vesting.

But once again, that would result in giving pensions to people who only worked there for a month, and would diminish, overall, the pool of pension money available to those who really do stay with the employer until retirement.

Congress decided that the balance that they struck in sections 510 and 502 of ERISA was the appropriate balance, so that employees had protections without going so far as to discourage the establishment and maintenance of plans.

In this way, section 510 clearly does relate to plans.

Congress understood that there's really a triangular relationship at work.

You have the plan, the employer, and the employee, and all three sides of that triangle relate to the plan.

The employee versus the plan is vesting claim procedures, and so forth, the employer vis-a-vis the plan is the funding requirements, for example, but equally important is the employer versus the employee, whenever the employer acts for the purpose of interfering with the rights under the plan.

In that case, that aspect of the employment relationship is where it overlaps with the field of employee benefit plans.

When the Congress occupied the field of employee benefit plans, it did occupy that portion of the employment relationship precisely because it does relate to employee benefit plans.

Back on the subject of force or the threat of force, let me just note that the following section of ERISA, section 511, makes it unlawful to employ force, fraud, or the threat of force in order to interfere with someone's right to benefits under a plan.

Unknown Speaker: May... may I just ask this one question?

Am I correct that the Federal claim could be brought in a State court, that would be based on a Federal... based on the Federal cause of action?

Mr. Hurd: No, Your Honor.

Unknown Speaker: It could not?

Mr. Hurd: Claims of violation of section 510 are enforced under section 502(a)(3), of which the Federal courts have exclusive--

Unknown Speaker: There's something in the conference report that's quoted that says that whether it's brought in State or Federal court, it's still a Federal cause of action.

I don't--

Mr. Hurd: --I think that portion of the conference report is referring to claims for benefits under 502(a)(1)(b).

Unknown Speaker: --I see.

Mr. Hurd: Claims for benefits--

Unknown Speaker: Rather than a claim of this kind.

Mr. Hurd: --Can be brought in either State or Federal court, although the law applied is Federal law.

Unknown Speaker: Is Federal law, right.

Mr. Hurd: But under 502(a)(3), which is used to enforce section 510, only the Federal courts have jurisdiction of those actions.

Chief Justice Rehnquist: Thank you, Mr. Hurd.

The case is submitted.