By: Ronald J. Kramer and Jim Goodfellow
On March 9, 2012, in Arditi v. Lighthouse International, No. 11-cv-423, the Second Circuit dove into what sometimes can be the murky waters of ERISA preemption, as demonstrated by the dissenting opinion.
Plaintiff Arditi, a former Lighthouse employee with 18.83 years of service in its pension plan (“Plan”), was reemployed by Lighthouse in June 2002. Prior to Arditi’s rehire, Lighthouse had amended the Plan so that an employee could retire and collect pension benefits before turning 65 if the sum of that employee’s age and years of vested service were equal to or greater than 85 (the “Rule of 85”). Arditi signed a written employment agreement that stated: (i) he was reinstated as a Plan member with his prior service credit; (ii) the Plan had added a Rule of 85 provision; and (iii) assuming he worked to age 59, his age and years of service would equal 85, thus, if he retired then he “will receive an unreduced pension benefit.” In June 2007, Lighthouse froze the Plan. As a result, when Arditi retired in 2010 at age 59, he was not eligible to take advantage of the Rule of 85 since he had not received service credit since the freeze.
Arditi filed suit in state court alleging two state law breach of contract claims. Lighthouse removed the suit to federal court and sought to dismiss on ERISA preemption grounds. Arditi moved to remand, arguing that he was not seeking benefits under the Plan. Rather, he sought damages for breach of his employment agreement which contained a promise separate and independent from the Plan — that he could retire at age 59 and receive an unreduced pension benefit. Arditi stated that the Plan need only be used as a benchmark for calculating his damages against Lighthouse. The district court denied Arditi’s motion and dismissed the complaint.
Arditi appealed and the Second Circuit affirmed. The court applied the two-prong test established in Aetna Health Inc. v. Davila, 542 U.S. 200 (2004), and determined that the claims were completely preempted by ERISA. The first prong — whether Arditi, at some point in time, could have brought his claim under ERISA § 502(a)(1)(B) — had been met because Arditi was a Plan participant when he filed his lawsuit, and he sought the Plan’s Rule of 85 benefits. The second prong — whether Lighthouse’s actions implicated no other independent legal duty other than under ERISA — had been met because Lighthouse’s obligations under the employment agreement were “inextricably intertwined” with the interpretation of the Plan. The panel reasoned that Arditi’s employment agreement, by expressly referencing his Plan reinstatement and the new Plan Rule of 85, made it clear that the benefit he would receive at age 59 arose from and was governed by the Plan. In other words, the Plan was something more than a mere “benchmark.” The court also agreed that dismissal was appropriate because Arditi had no basis to dispute Lighthouse’s authority to freeze the Plan.
One judge strongly dissented, stating that preemption does not occur simply because a state law claim may present facts that could also state a claim under ERISA. The dissent argued that the majority improperly collapsed Davila’s two prongs into one. She concluded that preemption was improper as Arditi raised at least a colorable claim that his employment agreement contained an enforceable promise for an unreduced pension upon retirement that was independent of and different from the Plan benefit.
Arditi serves as a reminder to consider ERISA preemption in responding to contract claims involving employee benefit plans. The dissent serves as a good reminder to be careful when drafting employment agreements to insure that the agreement makes clear that certain described employee benefits are governed by their respective employee benefit plans, which may be changed from time to time.