Benefit Interference, Conspiracy Claims Fail Against Railroad, Seventh Circuit Rules

Pension & Benefits Daily™ covers all major legislative, regulatory, legal, and industry developments in the area of employee benefits every business day, focusing on actions by Congress,...

By Jacklyn Wille  

Jan. 27 --A proposed class action alleging that Burlington Northern Santa Fe LLC interfered with union workers' pension benefits in the course of managing a Chicago intermodal facility was properly dismissed by a district court, the U.S. Court of Appeals for the Seventh Circuit held (Teamsters Local 705 v. Burlington N. Santa Fe, LLC, 2014 BL 19820, 7th Cir., No. 11-3705, 1/24/14).

In addition to affirming the dismissal of the workers' claims under Employee Retirement Income Security Act Section 510, Judge Diane S. Sykes, writing for the court in its Jan. 24 opinion, declined to recognize a federal cause of action for conspiracy to interfere with attainment of ERISA benefits.

Sykes also found that the workers' Section 510 claims against the railroad and an unrelated union failed, because those entities didn't have an employment relationship with the workers. However, Sykes emphasized that “[w]e are not saying that only employers can be liable for violating § 510--although some of our opinions can be read to suggest as much.”

Nicholas C. Kefalos, an attorney with Vernor Moran LLC, in Chicago and counsel for the workers, praised this portion of Sykes's ruling.

“The one thing that was a positive out of [the decision] was that it clarified that non-employers can be held liable for ERISA violations,” Kefalos told Bloomberg BNA Jan. 27.

Prior to this ruling, there was “a lot of law in the Seventh Circuit where you could've said the opposite,” Kefalos said.

Moreover, Kefalos said that although Sykes's ruling didn't favor his clients, “what she's written may give us grounds to see if the Supreme Court would be interested in reviewing this.”

Counsel for the railroad praised the court's ruling.

“BNSF is pleased with the result and believes that the court's well reasoned decision speaks for itself,” Donald J. Munro, a partner with Jones Day in Washington, told Bloomberg BNA Jan. 27.

Intermodal Rail Yard

Between 2000 and 2010, BNSF contracted with Rail Terminal Services Inc. (RTS), to operate the Corwith Intermodal Rail Yard in Chicago. RTS's employees were represented by the Teamsters Local Union No. 705, and BNSF made contributions to the union's pension and welfare plan.

In 2010, BNSF moved the Corwith work in-house and entered into a labor agreement with a different union, the Transportation Communications International Union (TCIU). BNSF's agreement with TCIU also required benefit plan contributions, but on less generous terms than those contained in BNSF's agreement with Local 705.

RTS terminated the Corwith workers and informed them that they could reapply to work for the railroad.

Local 705 and six workers then filed a proposed class action against BNSF, RTS and TCIU, alleging multiple violations of ERISA.

In November 2011, the U.S. District Court for the Northern District of Illinois granted BNSF's motion to dismiss the complaint, finding that the union workers failed to demonstrate that BNSF intentionally interfered with the workers' ERISA benefits by changing the manner of its workforce or operations (215 PBD, 11/7/11; 38 BPR 2061, 11/8/11; 52 EBC 2611).

The workers appealed two of the rejected claims--interference with ERISA benefits and a related conspiracy claim--to the Seventh Circuit.

Conspiracy Claim Fails

The Seventh Circuit first examined the workers' claim that the defendants conspired to interfere with their attainment of pension benefits under the Teamsters plan.

Noting that the workers' complaint failed to specify the “legal source” of the conspiracy claim, the Seventh Circuit declined the invitation to recognize a federal cause of action for conspiracy to violate ERISA Section 510.

The court said that ERISA's “comprehensive enforcement scheme” safeguards against benefit interference by providing a civil cause of action “for the private enforcement of the substantive rights conferred by § 510.” Further, the Seventh Circuit said it was “canonical” that Congress's adoption of one method for enforcing a substantive rule suggested that Congress intended that other enforcement methods be precluded.

Finally, the Seventh Circuit said that any theory of conspiracy grounded in Illinois law would fail by operation of ERISA preemption.

Employment Relationship

The Seventh Circuit also affirmed the district court's dismissal of the workers' ERISA Section 510 benefit interference claim against the various defendants. To prevail on a Section 510 claim, the Seventh Circuit said, an ERISA plaintiff must show that the “intent to frustrate the attainment of benefits” was “at least a motivating factor” for the relevant adverse employment action. However, the Seventh Circuit noted that “whether but-for causation is required is a question we can leave for another day.”

Instead, the Seventh Circuit found that because the workers' Section 510 claims rested “entirely on allegations of unlawful discharge,” those claims couldn't succeed against BNSF or TCIU, because neither of those entities had an employment relationship with the workers.

In so finding, the Seventh Circuit stressed that it was “not saying that only employers can be liable for violating § 510.” Rather, the Seventh Circuit said, the Section 510 claim in the instant action failed against BNSF and TCIU, because it rested wholly on claims of discharge and not on claims of other adverse employment actions, such as fines, suspensions, discipline or discrimination.

Prior Decisions 'Dicta.'

On this point, the Seventh Circuit identified three of its decisions from the 1990s that it said “can be read to suggest” that only employers could be liable for Section 510 violations (Andersen v. Chrysler Corp., 99 F.3d 846 (7th Cir. 1996); McGath v. Auto-Body N. Shore Inc., 7 F.3d 665 (7th Cir. 1993); Deeming v. Am. Standard, Inc., 905 F.2d 1124 (7th Cir. 1990)).

The Seventh Circuit said that the language in these three opinions suggesting that Section 510 liability was limited to employers was “dicta,” and that “any assumption that only employers can be liable under § 510 was ill founded.”

This statement builds off the court's 2011 opinion in Feinberg v. RM Acquisition, LLC, 629 F.3d 671, 50 EBC 1682 (7th Cir. 2011).

In Feinberg, the Seventh Circuit explained that Section 510 liability isn't limited to employment relationships, because it also applies to actions that can be taken against participants or beneficiaries who aren't employees, such as retired or former employees (05 PBD, 1/7/11; 38 BPR 59, 1/11/11).

No Benefit Interference

In the instant case, the Seventh Circuit also rejected the Section 510 claim against RTS, despite the existence of an employment relationship between RTS and the workers.

On that point, the Seventh Circuit said that the workers alleged that RTS terminated them “because the Railroad ceased outsourcing the work at the rail yard to it,” and not with the specific intent to interfere with their attainment of pension benefits.

Given these factors, the Seventh Circuit affirmed the district court's dismissal of the workers' complaint.

Judge Joel M. Flaum and District Judge Rudolph T. Randa, sitting by designation from the U.S. District Court for the Eastern District of Wisconsin, joined in the decision.

Local 705 and the workers were represented by Nicholas C. Kefalos of Vernor Moran, Chicago. BNSF was represented by David S. Birnbaum and Donald J. Munro of Jones Day, Chicago and Washington. RTS was represented by Clifford R. Perry III of Laner Muchin, Chicago. TCIU was represented by Jeffrey A. Bartos and N. Skelly Harper of Guerrieri, Clayman, Bartos & Parcelli PC, Washington.

 

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com


Text of the opinion is at http://www.bloomberglaw.com/public/document/Teamsters_Local_Union_No_705_et_al_v_Burlington_Northern_Santa_Fe.