Inter-Modal Rail Employees Ass'n v. Atchison, Topeka & Santa Fe Railway Co.

Citations: 80 F.3d 348; 96 Cal. Daily Op. Serv. 2039; 35 Fed. R. Serv. 3d 279; 96 Daily Journal DAR 3461; 1996 U.S. App. LEXIS 5630; 1996 WL 135257Docket: Nos. 93-56400, 94-55188

Court: Court of Appeals for the Ninth Circuit; March 26, 1996; Federal Appellate Court

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Inter-Modal Rail Employees Association and five members appeal the dismissal of their complaint under ERISA and FELA, which was dismissed for failing to state a claim. The complaint involves the transfer of cargo handling work from Santa Fe Terminal Services, a subsidiary of Atchison, Topeka and Santa Fe Railway Company, to an independent corporation, resulting in job losses for the Association’s members. The plaintiffs allege violations of Section 510 of ERISA, claiming the transfer was intended to deprive them of pension and welfare benefits, and assert FELA violations due to hazardous working conditions.

The court found that the Association lacks standing to sue on behalf of its members, as individual participation is necessary to establish personalized damages. However, the plaintiffs sought class certification for the individual members if the Association was deemed an improper party.

Regarding ERISA claims, the plaintiffs were entitled to retirement benefits under the Railroad Retirement Act and collective bargaining agreements. They allege a conspiracy by the defendants to transfer work to avoid contributions to the Railroad Retirement Fund. The court determined that the plaintiffs adequately stated a claim for interference with Teamster pension benefits under Section 510 of ERISA, as motivations are not to be resolved at the pleading stage. Conversely, the claim regarding interference with welfare benefits was dismissed, as the law permits employers to modify or eliminate welfare benefits without regard for employees' interests, as these benefits do not vest.

No legal action can be taken under section 510 for an employer's refusal to hire employees of its predecessor based on demands for maintaining prior benefit levels, as employees lack a present "right" to anticipated future welfare benefits. Claims regarding interference with benefits under the Railroad Retirement Act of 1974 were dismissed because ERISA's section 1003(b) excludes governmental plans, including those governed by the Railroad Retirement Acts of 1935 and 1937. Plaintiffs contended that since section 1002(32) does not mention the 1974 Act, it should not be excluded from ERISA. However, it was concluded that all Railroad Retirement Act plans are exempt from ERISA to align with Congressional intent, as these plans are already under federal oversight and do not face the issues intended to be addressed by ERISA. The 1974 Act improved the stability and regulation of Railroad Retirement plans, further reducing the need for ERISA oversight. The omission of the 1974 Act from ERISA's section 1003 was attributed to the timing of ERISA's enactment, which occurred just before the 1974 Act became law. Thus, the 1974 Act, which integrated earlier acts, does not warrant separate exemption consideration under ERISA, and the statutory language does not prevent interpreting section 1002(32) as excluding plans under the 1974 Act. The language emphasizes the Railroad Retirement Act as a whole rather than distinct earlier versions, supporting the conclusion that these plans are exempt from ERISA.

Congress's legislative history on ERISA's exemption provisions indicates that plans under any Railroad Retirement Act are exempt from ERISA coverage, favoring a broad interpretation of section 1003. The district court ruled against plaintiffs' FELA claims, asserting that class actions are not permissible under FELA as a matter of law, without addressing class certification criteria under Federal Rule of Civil Procedure 23. There is no legal prohibition against class certification for FELA claims, despite the implications of the Employer’s Liability Act regarding damages. The district court improperly dismissed the FELA claim under Rule 12(b)(6) before allowing discovery or a proper evaluation of class certification.

Regarding attorneys' fees, the district court initially denied fees against the plaintiffs' attorneys under 28 U.S.C. 1927, citing a lack of recklessness or bad faith, but later awarded fees without justification. This necessitates a remand for appropriate findings on the attorneys' conduct. The court affirmed dismissal of the ERISA count, except for allegations concerning Teamster pension benefits, reversed the dismissal of FELA claims for reconsideration of class treatment, and vacated the attorneys' fees award pending factual findings. Additionally, Santa Fe Pacific Corporation is implicated for its management role over Santa Fe Railway Company. The defendants' late statute of limitations defense for the ERISA claims was not considered.

An appellant typically cannot raise arguments in the Court of Appeals that were not properly presented in the lower court. The court rejects In-Terminal Services’s claim that section 510 does not allow a cause of action against a non-employer for conspiring with an employer to interfere with ERISA-protected benefits. Citing Tingey v. Pixley-Richards West, Inc., it affirms that section 510 can impose liability on any person, including insurers who coerce employers to terminate employees. The court finds no distinction between coercive insurers and entities like In-Terminal that conspire to interfere with ERISA rights. Although other circuits have disagreed, the validity of a section 510 claim relies on the purpose of the discharge rather than whether benefits are vested. Section 510 aims to prevent interference with a participant’s ability to obtain benefits or to punish them for exercising rights under an employee benefit plan. Defendants assert that retirement plans under the Railroad Retirement Act are not employee benefit plans, but the definition in section 1003(b) explicitly includes these plans, affirming their coverage under ERISA. The lack of litigation may explain Congress's failure to amend section 1002(32) of ERISA for two decades. Additionally, McDonnell Douglas Corp. v. United States District Court limits certification under certain Rule 23 subdivisions for individual tort claimants, while class treatment under subdivision (b)(3) remains permissible for certain tort plaintiffs.