5th Circuit Panel Affirms Welfare Plan Is Governmental Plan

Mealey's (July 1, 2016, 2:14 PM EDT) -- NEW ORLEANS — A Fifth Circuit U.S. Appeals Court panel on June 28 affirmed that claims alleged under the Employee Retirement Income Security Act by retirees against an employee welfare plan cannot stand because the plan is a governmental plan exempt from ERISA regulations (Mary Smith, et al. v. Regional Transit Authority, et al., No. 15-31001, 5th Cir.; 2016 U.S. App. LEXIS 11841). (Opinion available. Document #54-160713-048Z.) About 40 former employees of New Orleans Public Service Inc. (NOPSI) and retirees of Transit Management of Southeast Louisiana Inc. (TMSEL) sued the Regional Transit Authority (RTA) and TMSEL in the U.S. District Court for the Eastern District of Louisiana, alleging violations of ERISA and the Louisiana Direct Action Statute. Before 1983, the retirees worked for NOPSI, a privately held company that ran the New Orleans transit system. The system transitioned into a publicly held system owned by RTA and operated and managed by TMSEL. Agreement The NOPSI employees became employees of TMSEL, and RTA, TMSEL and NOPSI entered into an agreement that provided that employees transferred from NOPSI to “RTA or TMSEL” would continue to receive the same coverage and benefit levels that they received under NOPSI. The retirees alleged that in the wake of Hurricane Katrina, the defendants stopped providing premium-free medical insurance, quarterly Medicare premiums and deductible reimbursements as guaranteed by their plan. The defendants filed a motion to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). Judge Carl J. Barbier granted the defendants’ motion, holding that the pension benefit plan was a governmental plan exempt from ERISA and, therefore, the court lacked subject matter jurisdiction. On appeal, a Fifth Circuit panel ruled in June 2014 that “a federal district court has jurisdiction to decide whether or not a plan is an ERISA plan as claimed by the plaintiff in the complaint” and that “the proper procedural vehicle to raise the question of whether a purported ERISA plan is a ‘governmental plan’ is either [Federal Rule of Civil Procedure] 12(b)(6) or, if factual information outside the pleadings is needed, [Federal Rule of Civil Procedure] 56 (if factual issues cannot be resolved then, of course, a trial may be needed).” It remanded to the District Court. On Remand On remand, the defendants filed a motion for summary judgment, arguing that the plaintiffs’ claims fail because the plan is a governmental plan excluded from ERISA’s coverage. In opposition, the plaintiffs’ argued that the defendants have the burden of showing that the plan is a governmental plan exempt from ERISA and failed to do so. Judge Barbier granted the motion, determining that the RTA meets the definition of political subdivision as defined in National Labor Relations Board v. Natural Gas Utility District of Hawkins County, Tennessee (402 U.S. 600, 91 S. Ct. 1746, 29 L. Ed. 2d 206 [1971]). On appeal, the retirees challenged the judge’s ruling that the employee welfare plan is a “governmental plan” exempt from ERISA rules and also challenged the dismissal of their successor liability and U.S. Code Section 1983 claims. In an opinion written by Circuit Judge Catharina Haynes, the Fifth Circuit panel agreed that the proper test to determine whether an entity is a political subdivision comes from National Labor Relations Board v. Natural Gas Utility District of Hawkins County, Tennessee, which says that political subdivisions are “entities that are either (1) created directly by the state, so as to constitute departments or administrative arms of the government, or (2) administered by individuals who are responsible to public officials or to the general electorate.” ‘Political Subdivision’ “As the district court determined, the RTA is a political subdivision under either prong of this disjunctive test,” Judge Haynes wrote. The appeals panel agreed with Judge Barbier that under the six-factor test set forth in Internal Revenue Code Revenue Ruling 57-128, the TMSEL, funded exclusively by the RTA and used for a governmental purpose, is either an agency or instrumentality of the RTA. “[W]e hold that the Plan was a governmental plan and thus exempt from ERISA,” Judge Haynes wrote. “Accordingly, the district court did not err by granting summary judgment in favor of Defendants on Plaintiffs’ ERISA claims. This conclusion also disposes of the successor liability claim because successor liability is predicated on the existence of underlying liability.” Judge Haynes said the panel also agreed with Judge Barbier that the retiree’s claims under U.S. Code Section 1983, alleging that the defendants violated their federally protected property rights, are time-barred by the one-year statute of limitations. Circuit Judges Thomas M. Reavley and Stephen A. Higginson concurred. Counsel The retirees are represented by James M. Garner, Joshua Paul Clayton and Martha Y. Curtis of Sher Garner Cahill Richter Klein & Hilbert. The appellees are represented by Howard Shapiro, Robert Wilkinson Rachal and James Robert Sheppard III of Proskauer Rose. All are in New Orleans. (Additional documents available:  Appellant brief.  Document #54-160713-049B.  Appellee brief.  Document #54-160713-050B.)...

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