New York Federal Judge Denies Remand, Rules For Union Fund

Mealey's (July 15, 2016, 8:50 AM EDT) -- ALBANY, N.Y. — A New York federal judge on July 12 denied a motion to remand a case against SEIU Local 200 United Benefit Fund alleging breach of fiduciary duty and granted Local 200’s cross-motion for judgment on the pleadings (Kevin Boyle, et al. v. SEIU Local 200 United Benefit Fund, et al., No. 5:15-cv-517, N.D. N.Y.; 2016 U.S. Dist. LEXIS 89810). (Opinion available. Document #54-160810-013Z.) U.S. Senior Judge Gary L. Sharpe of the Northern District of New York found that the plaintiffs do not have a “cognizable cause of action” and that their claims are preempted by the Employee Retirement Income Security Act. Plaintiffs Kevin Boyle, as trustee and president of the United Public Service Employees (UPSE) Benefit Fund and Union (UPSEU), and Joyce Melfi and Donald Herland, on behalf of themselves and all other members of the Western Regional Off Track Betting Supervisory Bargain Units, sued Local 200 and its trustees in the Onondaga County Supreme Court. The action was removed by Local 200 to federal court on April 28, 2015. Local 200 Fund Melfi and Herland are employees of the Western Regional Off Track Betting (OTB) Corp. and members of the OTB Supervisory Bargaining Units. Boyle is collective bargaining representative of the OTB Supervisory Bargaining Units. Before February 2014, Local 200 represented the plaintiffs as its labor union and jointly administered a benefit fund for which it maintained health reimbursement accounts (HRAs) that provided Melfi, Herland and other employees with payment for medical expenses in retirement. The Local 200 fund was established by a trust agreement. A description of Local 200 fund benefits was found in a summary plan description (SPD), a synopsis of Local 200’s employee benefit plan. On Feb. 28, 2014, union members of the OTB Supervisory Units voted in an election conducted by the New York State Public Employment Relations Board to disaffiliate from Local 200. Members designated the UPSEU as their representative. Afterward, Local 200 removed the members from the Local 200 benefit fund and informed them that they forfeited their individual HRAs to the fund according to the terms of the employee benefit plan. Melfi and Herland asked that Local 200 return their monies from the HRAs, but Local 200 refused and retained all of the contributions. As a result, Melfi and Herland no longer have access to the HRAs in the Local 200 fund. Melfi and Herland requested a partition of the reserves from the fund and a transfer of those contributions to their benefit fund with UPSE. State Court Action Melfi, Herland and UPSE on April 1, 2015, filed the New York state court action, alleging unjust enrichment, wrongful withholding of contractual benefits, conversion and breach of fiduciary duty and sought an equitable division, an accounting and damages. Local 200 removed the action to federal court under federal question jurisdiction on the grounds of preemption by ERISA. The plaintiffs moved to remand the action to state court, alleging that the defendants failed to demonstrate federal question jurisdiction. Local 200 moved for judgment on the pleadings. In their motion for remand, the plaintiffs cited Aetna Health Inc. v. Davila (542 U.S. 200, 124 S. Ct. 2488, 159 L. Ed. 2d 312 [2004]) to rebut that jurisdiction under ERISA Section 1132(a)(1)(B) is established in the case. “However, actions brought under this statutory section typically seek relief from a denial of benefits under an employee benefit plan,” Judge Sharpe wrote. “Here, in contrast, plaintiffs ask the court to direct Local 200 to transfer funds that were contributed on plaintiffs’ behalf to individual HRAs to the fund of plaintiffs’ new union, UPSE. Plaintiffs contend that Local 200 improperly retained these funds. “Accordingly, plaintiffs’ suit is not a claim to recover denied benefits but rather a challenge to Local 200’s administration of plan assets. And thus, although plaintiffs characterize their claims under several state common law theories through artful pleading, the gravamen of their complaint alleges that Local 200 breached its fiduciary duty.” Claims Preempted Judge Sharpe wrote that the applicable ERISA statutory section from which the plaintiffs seek relief is 29 U.S. Code Section 1132(a)(2) and not Section 1132(a)(1)(B). He also wrote that the plaintiffs’ complaint is completely preempted under 29 U.S. Code Section 1144 because they seek relief under common-law theories that have connection with or reference to the SPD. “The terms of plaintiffs’ individual HRAs are explained in the SPD and found in the employee benefit plan, and it is apparent that such plan is governed by ERISA,” Judge Sharpe wrote. “Because plaintiffs allege Local 200 improperly administered HRA assets — a central ERISA function connected with an employee benefit plan governed by ERISA — their claims are preempted. . . . Consequently, plaintiffs’ motion for remand is denied.” Local 200 argued that it was entitled to judgment on the pleadings because the plaintiffs “do not seek remedies on behalf of [the benefit plan] or for the restoration of losses to the [benefit plan], which is required [by 29 U.S. Code Sections 1109(a) and 1132(a)].” It also contends that UPSE and UPSEU lack standing because they are not enumerated parties under ERISA. Judge Sharpe agreed with Local 200 that the plaintiffs do not seek a remedy on behalf of Local 200 fund and therefore cannot recover under 29 U.S. Code Sections 1109(a) and 1132(a). He said Local 200 correctly pointed out that neither UPSE nor UPSEU, as labor unions, have standing to sue for ERISA relief. “Consequently, because plaintiffs do not have a cognizable cause of action, the court grants Local 200’s cross motion for judgment on the pleadings,” Judge Sharpe wrote. Counsel The plaintiffs are represented by Matthew P. Rocco of the Rothman Rocco Law Firm in Elmsford, N.Y., and Richard M. Greenspan of Ardsley, N.Y. The defendants are represented by Brian J. LaClair and Michael R. Daum of Blitman, King Law Firm in Syracuse, N.Y., and Jonathan M. Cerrito of Blitman, King in New York. (Additional documents available:  Removal notice.  Document #54-160810-014N.  Motion to remand.  Document #54-160810-015M.  Cross-motion.  Document #54-160810-016M.)...