United States Court of Appeals United States Court of Appeals For the First Circuit For the First Circuit
No. 95-1440
ALVAN H. WOLF,
Plaintiff, Appellee,
v.
RELIANCE STANDARD LIFE INSURANCE COMPANY,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Charles B. Swartwood, III, U.S. Magistrate Judge]
Before
Torruella, Chief Judge,
Stahl and Lynch, Circuit Judges.
James A. Young with whom Michael J. Burns, Christie, Pabarue,
Mortensen & Young, P.C. and Cheri L. Crow were on brief for appellant.
William E. Bernstein with whom Barbara S. Liftman and Weinstein,
Bernstein & Burwick, P.C. were on brief for appellee.
December 11, 1995
STAHL, Circuit Judge. Plaintiff-appellee Alvan STAHL, Circuit Judge.
Wolf prevailed in his jury-tried contract action against
defendant-appellant Reliance Standard Life Insurance Company
("Reliance") for denial of disability benefits. Reliance
appeals the trial court's ruling that ERISA preemption is an
affirmative defense which Reliance waived by failing to plead
it timely. We affirm.
I. I.
BACKGROUND BACKGROUND
We begin by reciting the facts in the light most
favorable to the verdict. See Aetna Cas. Sur. Co. v. P & B
Autobody, 43 F.3d 1546, 1552 (1st Cir. 1994).
Wolf founded Brookfield Factory Outlet, Inc.
("Brookfield"), a now-defunct chain of shoe stores. During
Brookfield's heyday, Wolf earned approximately $8,000 per
month as its President and Chief Executive Officer. In the
fall of 1988, he was diagnosed with severe depression,
apparently resulting from business and personal difficulties.
In the spring of 1989, Wolf experienced heart problems
requiring a brief hospitalization. Thereafter, Wolf
continued to work until April 24, 1989, when he suffered a
massive heart attack.
From the time of Wolf's depression diagnosis in
1988 until his heart attack in 1989, he actually drew only
$500 per week of his $8,000 per month salary due to
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Brookfield's ongoing financial problems. There was
conflicting testimony at trial as to whether Wolf actually
was entitled to the unpaid remainder of his salary, which
Wolf asserted the company owed him as a debt payable.
The insurance policy under which Wolf sought
recovery took effect on February 1, 1985. The policy
provided a monthly benefit to a disabled employee equal to
sixty percent of "covered monthly earnings," defined as "the
insured's basic monthly salary received from [the employer]
on the day just before the date of total disability." In
September 1990, Wolf filed a claim for disability benefits.
Reliance denied the claim in May 1991, stating that Wolf had
neither proved that he was a full-time employee when he
became disabled nor that he was totally disabled, and that
Wolf was late giving notice of his claim.
In January 1992, Wolf, a Massachusetts citizen,
sued Reliance in Massachusetts state court alleging breach of
contract and unfair trade practices. Reliance, an Illinois
corporation with its principal place of business in
Pennsylvania, removed the suit, based on diversity, to the
United States District Court for the District of
Massachusetts. 28 U.S.C. 1441, 1332.
The parties consented to trial before U.S.
Magistrate Judge Charles B. Swartwood III. On October 25,
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1994, one week before trial, Reliance filed several
motions,1 each asserting, for the first time, that Wolf's
state law claims were preempted by the Employee Retirement
Income Security Act of 1974 ("ERISA"). 29 U.S.C. 1001-
1461. The trial court denied the motions, ruling that ERISA
preemption was an affirmative defense which Reliance waived
by failing to plead it in a timely manner. The trial court
then denied Reliance leave to amend its pleadings, finding
undue delay by Reliance and significant prejudice to Wolf if,
on the eve of trial, Reliance were allowed to change the
entire legal basis for its opposition to Wolf's claim by its
introduction of an ERISA preemption defense.2
The breach of contract claim was tried to a jury
on November 2-4, 1994, resulting in a special verdict for
Wolf. The jury found that Wolf's basic monthly salary was
$8,000 per month on the day before he became totally
disabled. The trial court entered judgment for Reliance on
the unfair trade practices claim, and Wolf does not appeal
from that judgment. In December 1994, the trial court issued
a memorandum decision calculating Wolf's damages to be
1. Specifically, Reliance filed motions to dismiss for failure to state a claim, to strike Wolf's jury trial demand, and to apply an arbitrary and capricious standard of review.
2. The only previous indication of any possible ERISA preemption argument in this litigation was an exchange of letters dated May 31, 1991 and July 29, 1991 between Reliance and Wolf's attorney, each making a single passing reference to ERISA.
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$196,606.72 plus interest and future payments.3 Reliance
then filed a renewed motion for judgment as a matter of law
and, alternatively, a motion for a new trial, and both were
denied. This appeal followed.
II. II.
DISCUSSION DISCUSSION
The principal issue before us is whether ERISA
preemption is jurisdictional, and thus may be raised at any
point in litigation, or an affirmative defense, waivable if
not pleaded timely. A related issue is whether the trial
court abused its discretion in denying Reliance leave to
amend its pleadings to add an ERISA preemption defense.
A. ERISA Preemption
Whether ERISA preemption is jurisdictional or a
waivable affirmative defense is a pure question of law that
we review de novo. See Correa v. Hospital San Francisco, No.
95-1167, 1995 WL 627505, at *6 (1st Cir. Oct. 31, 1995).
Reliance argues that because there is a "compelling
policy" in favor of application of federal ERISA law to this
claim, ERISA preemption is jurisdictional4 and therefore
3. The parties stipulated that if Reliance was found liable to Wolf, the trial court would calculate the damages.
4. We note that although Reliance did not use the term "jurisdictional," that is the thrust of its argument.
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nonwaivable.5 The foundation of the argument is ERISA's
broad preemption provision: ERISA [with a few inapplicable
exceptions] "shall supersede any and all State laws insofar
as they may now or hereafter relate to any employee benefit
plan . . . . " 29 U.S.C. 1144(a). One of Congress's
intentions in enacting ERISA, as divined through legislative
history, was to encourage the growth of private employee
benefit plans by replacing diverse state laws with a
nationally uniform federal common law regulating employee
benefit plans.6 Treating ERISA preemption as non-
jurisdictional and therefore waivable would, so the argument
goes, frustrate that intent, subjecting employee benefit
plans to regulation and litigation under fifty non-uniform
bodies of state law. The costs of adapting to and litigating
under non-uniform state law and the potential for liability
and damages beyond that permitted under ERISA would deter
employers from enacting benefits plans. Thus, courts should
5. See Insurance Corp. of Ireland, Ltd. v. Compagnie des
Bauxites de Guinee, 456 U.S. 694, 702 (1982) (explaining that
subject matter jurisdiction is nonwaivable); see generally
George Lee Flint, Jr., ERISA: Nonwaivability of Preemption,
39 U. Kan. L. Rev. 297 (1991) (arguing that courts should hold ERISA preemption nonwaivable).
6. ERISA's House sponsor, Representative Dent, described the "reservation to Federal authority [of] the sole power to regulate the field of employee benefit plans" as ERISA's "crowning achievement." 120 Cong. Rec. 29197 (1974). Senator Williams commented that ERISA's preemption will have the effect of "eliminating the threat of conflicting or inconsistent State and local regulation of employee benefit plans." Id. at 29933.
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hold that ERISA preemption is jurisdictional and not
waivable, consistent with the congressional intent to create
and apply a uniform federal law regulating employee benefit
plans.
While the foregoing argument is not without merit,
it is precluded by precedent. The Supreme Court analyzed at
length the legislative history behind ERISA's preemption
provision in Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 44-
46, 52-57 (1987), focusing on the civil enforcement scheme of
502(a) of ERISA (29 U.S.C. 1132(a)), under which a plan
participant can bring a suit for benefits due. The Court
concluded that Congress intended to create an exclusive
federal remedy, with a "pre-emptive force . . . modeled after
301" of the Labor Management Relations Act ("LMRA"), 29
U.S.C. 185. Pilot Life, 481 U.S. at 52. Accordingly, the
Court held that ERISA preempts all state law causes of action
for benefits due under an ERISA plan. Id. at 57. Pilot Life
did not present the question whether ERISA preemption was a
jurisdictional matter or a waivable defense, but the Supreme
Court made clear that courts deciding the scope of ERISA
preemption should look to LMRA preemption decisions for
guidance. Id. at 54-55.
The Pilot Life decision explains that ERISA's
preemption clause and civil enforcement scheme entirely
displaced state law causes of action for benefits claims
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under ERISA plans. Id. at 55-57. If state law is
"displaced," then arguably there is no subject matter
jurisdiction over a state law cause of action for benefits
due. Lack of subject matter jurisdiction is, of course, a
nonwaivable defense and may be raised at any time. Insurance
Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee,
456 U.S. 694, 702 (1982). That jurisdictional argument is
unavailing, however, because this Circuit has squarely held
that LMRA preemption is waivable. Sweeney v. Westvaco Co.,
926 F.2d 29, 40 (1st Cir.) (Breyer, C.J.), cert. denied, 502
U.S. 899 (1991). Given that the Supreme Court in Pilot Life
explicitly directed courts to treat ERISA preemption like
LMRA preemption, 481 U.S. 51-56, Judge (now Justice) Breyer's
analysis in Sweeney leads us to conclude that ERISA
preemption is also waivable.
The rationale behind Sweeney's holding that LMRA
preemption is waivable applies with equal force to ERISA
preemption. The Sweeney court began with an analysis of
International Longshoremen's Ass'n v. Davis, 476 U.S. 380
(1986), a National Labor Relations Act ("NLRA") preemption
case. See 29 U.S.C. 157, 158. In Davis, the Supreme
Court held that NLRA preemption is jurisdictional, and
therefore nonwaivable, because NLRA preemption dictates the
choice of forum (i.e., whether a court or the National Labor
Relations Board ("NLRB") has the power to hear the case) as
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opposed to simply the choice of law (i.e., whether state or
federal law applies). See id. at 398-99. Sweeney stressed
that the Supreme Court itself carefully limited its holding
in Davis to 7 and 8 of the NLRA and not other statutes.
Sweeney, 926 F.2d at 38. Those sections evidence a
Congressional intent to "refuse[] to permit parties to submit
such a dispute to the courts even where the parties
themselves wished to do so." Id. at 38-39. In Sweeney, this
court determined that LMRA preemption, unlike NLRA
preemption, "concerns what law a decision maker must apply,
not what forum must decide the dispute." 926 F.2d at 39.
Based on that premise, the panel in Sweeney applied the
converse of the Davis rule, holding that LMRA preemption is
waivable because it affects the choice of law, not the choice
of forum. Id. at 39-40.
Like LMRA preemption, ERISA preemption in a
benefits-due action does not affect the choice of forum,
because ERISA's jurisdictional provision provides that "State
courts of competent jurisdiction and district courts of the
United States shall have concurrent jurisdiction of actions,"
29 U.S.C. 1132(e)(1) (emphasis added), "brought by a
participant or beneficiary to recover benefits due." 29
U.S.C. 1132(a)(1)(B). The plain language of 1132 tells
us that if a plaintiff brought a "benefits-due" action in
state court and the defendant pleaded ERISA preemption, this
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would not deprive the court of jurisdiction over the subject
matter; rather, ERISA preemption in that situation would
dictate the applicable law. Preemption is, as Sweeney says,
ultimately "a matter of Congressional intent, as embodied,
explicitly or implicitly, in a particular federal statute."
Sweeney, 926 F.2d at 38. In considering that intent, we are
guided by a number of factors. It is instructive, though not
necessarily dispositive, that ERISA, like the statute in
Sweeney, is a choice of law rather than a choice of forum
statute. We also believe that the interests in uniformity
which Congress hoped to serve in ERISA did not extend to
permitting defendant corporations, often more sophisticated
about ERISA than individual plaintiffs, to sit on their hands
and not claim the defense until the last minute. Cf.
Williams v. Ashland Eng'g Co., Inc., 45 F.3d 588, 593 (1st
Cir.) (emphasizing the importance of protecting against the
strategic use of a last minute ERISA preemption defense),
cert. denied, 116 S. Ct. (1995). That employers were meant
to enjoy the benefits of uniformity did not mean they could
not forego those benefits.
Other courts, including the Fifth and Ninth
Circuits have held that ERISA preemption is waivable. See
Dueringer v. General Am. Life Ins. Co., 842 F.2d 127, 130
(5th Cir. 1988) (holding that ERISA preemption is waivable);
Gilchrist v. Jim Slemons Imports, Inc., 803 F.2d 1488, 1497
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(9th Cir. 1986) (same); Rehabilitation Inst. of Pittsburgh v.
Equitable Life Assur. Soc'y, 131 F.R.D. 99, 101 (W.D. Pa.
1990) (same), aff'd, 937 F.2d 598 (3d Cir. 1991).
An apparent majority of state courts addressing the
question have reached the same conclusion. See Gorman v.
Life Ins. Co. of N. Am., 811 S.W.2d 542, 546 (Tex.) (holding
that ERISA preemption is waivable when it does not deprive a
state court of jurisdiction), cert. denied, 502 U.S. 824
(1991); Curry v. Cincinnati Equitable Ins. Co., 834 S.W.2d
701, 703 (Ky. Ct. App. 1992) (same); Hughes v. Blue Cross of
N. Cal., 263 Cal. Rptr. 850, 861 (Cal. Ct. App. 1989) (same),
cert. dismissed, 495 U.S. 944 (1990); Associates Inv. Co. v.
Claeys, 533 N.E.2d 1248, 1251 (Ind. Ct. App. 1989). But see
Chestnut-Adams Ltd. Partnership v. Bricklayers and Masons
Trust Funds of Boston, Mass., 612 N.E.2d 236, 238 (Mass.
1993) (holding that the preemption intended by Congress in
enacting ERISA is so broad as to make it jurisdictional and
therefore nonwaivable); Barry v. Dymo Graphic Sys., Inc., 478
N.E.2d 707, 712 (Mass. 1985) (same).7
Accordingly, we hold that ERISA preemption in a
benefits-due action is waivable, not jurisdictional, because
7. We are, of course, not bound by the Massachusetts Supreme Judicial Court's interpretation of a federal statute or the Congressional intent behind it.
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it concerns the choice of substantive law but does not
implicate the power of the forum to adjudicate the dispute.8
We now turn to the question whether ERISA
preemption must be pleaded as an affirmative defense.
Federal Rule of Civil Procedure 8(c) requires that a
responsive pleading set forth certain enumerated affirmative
defenses as well as "any other matter constituting an
avoidance or affirmative defense." Fed. R. Civ. P. 8(c); see
generally 5 Charles A. Wright & Arthur R. Miller, Federal
Practice and Procedure 1271 (1990). The First Circuit test
for whether a given defense falls within the Rule 8(c)
"residuary" clause is whether the defense "shares the common
characteristic of a bar to the right of recovery even if the
general complaint were more or less admitted to." Jakobsen
v. Mass. Port Auth., 520 F.2d 810, 813 (1st Cir. 1975).
ERISA preemption shares this characteristic insofar as it
would bar Wolf from recovering on his state law contract
claim even if Reliance admitted Wolf's allegations.
Therefore we hold that ERISA preemption in a benefits-due
action is an affirmative defense and, as such, it is subject
to waiver if not timely pleaded.
8. Our holding is limited to ERISA preemption of benefits- due actions. ERISA permits several other types of civil actions (e.g., for injunctive relief, for breach of fiduciary duty, etc.) subject to exclusive jurisdiction in the federal courts rather than concurrent jurisdiction. See 29 U.S.C.
1132(a)(1)(A), 1132(a)(2)-(6), 1132(e)(1).
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Several courts, including this Circuit in dictum,
have held that ERISA preemption in benefits-due actions must
be pleaded timely as an affirmative defense. See Williams v.
Ashland Eng'g Co., Inc., 45 F.3d 588, 593 & n.7 (1st Cir.)
(stating, in dictum, that ERISA preemption is an affirmative
defense, but finding no waiver when pleaded six months before
summary judgment), cert. denied, 116 S. Ct. 51 (1995);
Dueringer, 842 F.2d at 129-130 (5th Cir. 1988) (holding that
ERISA preemption must be pleaded as an affirmative defense);
Rehabilitation Inst., 131 F.R.D. at 100-01 (W.D. Pa. 1990)
(same), aff'd, 937 F.2d 598 (3d Cir. 1991); Gorman, 811
S.W.2d at 546 (Tex. 1991) (same); Curry, 834 S.W.3d at 703
(Ky. Ct. App. 1992) (same); but see Chestnut-Adams, 612
N.E.2d at 238 (Mass. 1993) (holding that ERISA preemption is
jurisdictional and therefore not waivable).
B. Amendment of the Pleadings
Having concluded that ERISA preemption is an
affirmative defense, it follows that the trial court
correctly treated Reliance's attempt to raise ERISA
preemption as a motion seeking leave to amend the
pleadings.9 We now address whether the trial court abused
its discretion in denying Reliance leave to amend.
9. At oral argument on the eleventh-hour motions, Reliance conceded the true goal of the motions: "It's not to dismiss the complaint per se, it's just to substitute ERISA for the
breach of contract under state law."
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Whether or not to grant leave to amend the
pleadings is within the discretion of the trial court and the
court's decision will be reversed only upon a showing of
abuse of that discretion. Manzoli v. Commissioner, 904 F.2d
101, 107 (1st Cir. 1990).
Failure to plead an affirmative defense generally
results in waiver of the defense and its exclusion from the
case. Conjugal Partnership v. Conjugal Partnership, 22 F.3d
391, 400 (1st Cir. 1994). An affirmative defense must be
pleaded in the answer in order to give the opposing party
notice of the defense and a chance to develop evidence and
offer arguments to controvert the defense. Knapp Shoes, Inc.
v. Sylvania Shoe Mfg. Corp., 15 F.3d 1222, 1226 (1st Cir.
1994).
Reliance conceded at oral argument that ERISA
preemption was an affirmative defense. It argued, however,
that having raised in its answer a broad "failure to state a
claim upon which relief may be granted" defense, see Fed. R.
Civ. P. 12(b)(6), this defense allowed it to later, a week
before trial, raise the specific defense of ERISA preemption.
Cf. Williams, 45 F.3d at 593. In Williams, this court
enunciated a test to determine when a general, non-specific
defense of failure to state a claim, see Fed. R. Civ. P.
12(b)(6), as Reliance originally filed, is sufficient to
preserve the affirmative defense of ERISA preemption. "[A]n
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inquiring court must examine the totality of the
circumstances and make a practical, commonsense assessment
about whether Rule 8(c)'s core purpose -- to act as a
safeguard against surprise and unfair prejudice -- has been
vindicated." Id. In Williams, the defendant raised ERISA
preemption well before the close of discovery, and six months
prior to the filing of cross-motions for summary judgment.
Id. The issue was briefed by both sides on summary judgment
and thus we found that no "ambush" had occurred. Id. In the
instant case, however, Reliance did not raise ERISA
preemption in its answer, at the pretrial hearings, in the
pretrial memoranda, or at any point during discovery, but
rather raised it only five days before trial.10 As this
Circuit recently said in another case of waiver, "[t]he
chronology of the case speaks volumes about the lack of
timeliness." Correa v. Hospital San Francisco, No. 95-1167,
1995 WL 627505, at *8 (1st Cir. Oct. 31, 1995).
The trial court denied leave to amend because of
the undue delay by Reliance in raising the issue11 and the
10. Reliance argues that the previously referenced exchange of letters was sufficient to put Wolf on notice that Reliance intended to pursue an ERISA preemption defense. See supra
note 2. We cannot agree that the passing references in those letters are the legal equivalent of pursuing a defense in court.
11. When the trial judge asked Reliance at oral argument why ERISA preemption was not raised earlier, counsel explained: "I sat down a couple weeks ago to start doing jury instructions and things in the case and realized that this
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substantial prejudice to Wolf if amendment were allowed. It
is well within a court's discretion to find prejudice where
the amendment "substantially changes the theory on which the
case has been proceeding and is proposed late enough so that
the opponent would be required to engage in significant new
preparation." See 6 Wright & Miller, supra, 1487, at 623.
This is precisely such a case: Reliance sought to change the
theory of the case five days before trial, which would have
forced Wolf to conduct additional discovery, research, and
preparation on the ERISA-related issues.12 We hold that,
based on these considerations, there was no abuse of
discretion in denying leave to amend.
C. Reliance's Other Arguments
We have considered appellant's other assertions of
error and find them to be without merit.
III. III.
CONCLUSION CONCLUSION
For the foregoing reasons, the judgment of the
trial court is Affirmed. Costs to appellees. Affirmed Costs to appellees
was a case that should be done by ERISA . . . . I had made myself . . . knowledgeable about ERISA in the last couple of weeks. It's not an area of my normal practice."
12. Despite the briefing by both parties on the merits of ERISA preemption, we have no occasion to reach the issue, because we find that the argument was waived.
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