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MERTENS v. KAISER STEEL RETIREMENT PLAN

July 7, 1992

WILLIAM J. MERTENS, et al., Plaintiffs,
v.
KAISER STEEL RETIREMENT PLAN, et al., Defendants. WILLIAM J. MERTENS, et al., Plaintiffs, v. HEWITT ASSOCIATES, an Illinois Partnership, et al., Defendants.


PATEL


The opinion of the court was delivered by: PATEL

Plaintiffs, former employees of Kaiser Steel Corporation ("Kaiser Steel") and participants in its ERISA qualified pension plan filed this action against defendant Hewitt Associates ("Hewitt") on December 18, 1989, alleging Hewitt's failure to comply with its "professional obligations" under both ERISA and California common law. On August 9, 1990, this court granted Hewitt's motion to dismiss plaintiffs' complaint in its entirety. On appeal, the Ninth Circuit reversed the dismissal of plaintiffs' state law professional negligence claim. On March 26, 1992, Hewitt filed its answer to plaintiffs' state law claim, pleading preemption by Section 514(a) of ERISA, 29 U.S.C. § 1144(a), as an additional defense. Hewitt is now before the court on its motion for summary judgment on the ERISA preemption issue. Plaintiffs oppose Hewitt's motion on the grounds that ERISA does not preempt a state law professional malpractice action. *fn1" Having considered the submissions of the parties, and for the following reasons, the court holds that ERISA does not preempt Hewitt's state law claim. Accordingly, the court DENIES Hewitt's motion for summary judgment. Because the court finds that there is no ERISA preemption, it need not reach the issue of whether Hewitt has waived its preemption defense. The court chooses to retain jurisdiction over Hewitt's state law claim under the pendent jurisdiction doctrine of United Mine Workers v. Gibbs, 383 U.S. 715, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966), and its progeny. *fn2"

 BACKGROUND

 For the purposes of this motion, the parties have stipulated to the allegations of plaintiffs' Complaint against Hewitt. Letter of May 14, 1992 from Karen B. Ksander to Alfred H. Sigman, attached as Appendix A to Plaintiffs' Opposition to Hewitt's ERISA Preemption Motion. *fn3" Accordingly, the background facts for this motion are taken from plaintiffs' Complaint. From 1978 to 1986, Kaiser Steel Retirement Plan ("Plan") retained Hewitt to perform various actuarial services. Complaint P 9. Commencing 1980, Kaiser Steel began a corporate restructuring which virtually eliminated its steelmaking operations. Id. P 10. One of the effects of the restructuring was a substantial increase in the number of Plan participants who retired; these participants had an entitlement to unreduced early retirement benefits under the Plan. Id. P 11.

 The sharp increase in early retirements resulted in material increases in the Plan's funding costs. These increases were not reflected in the actuarial assumptions developed by Hewitt for the Plan. Id. P 12. Hewitt failed to change its actuarial assumptions to reflect the increases in the Plan's funding costs. Id. P 13. Had Hewitt employed proper actuarial assumptions, Kaiser Steel would have been obligated to make substantially higher annual contributions in order to fund the Plan properly. Id. P 14.

 As a consequence of Hewitt's acts and omissions, the Plan's assets became insufficient to satisfy its benefit commitments, including its commitments to pay plaintiffs and members of their class their fully vested pensions. Id. P 18. In October, 1986, the Pension Benefit Guaranty Corporation ("PBGC") determined that the Plan was severely underfunded. Id. P 19. The PBGC terminated the Plan under the distress termination procedures of ERISA, 29 U.S.C. § 1341, and began paying plaintiffs' benefits. Id. P 20.

 Plaintiffs' complaint further alleges that Hewitt performed actuarial work for Kaiser Steel at the same time as it performed services for the Plan. Hewitt disclosed neither the fact of this work for Kaiser Steel nor the potential conflicts it raised. Id. PP 15, 16.

 On March 7, 1990, Hewitt moved to dismiss plaintiffs' complaint under Fed. R. Civ. P 12(b)(6), arguing that plaintiffs had failed to state a cognizable cause of action under ERISA and that the applicable statute of limitations barred plaintiffs' state malpractice claim. This court granted Hewitt's motion. Holding that Hewitt was not a fiduciary under ERISA, the Ninth Circuit affirmed the dismissal of plaintiffs' ERISA claims alleging breach of fiduciary duty and participation in breach of fiduciary duty. The Ninth Circuit also dismissed plaintiff's claim for non-fiduciary ERISA violations, brought under 29 U.S.C. § 1132(a)(3). The court reasoned that the equitable relief which could be recovered under this section was not applicable since no unjust enrichment had been alleged. Mertens, et al. v. Hewitt Associates, 948 F.2d 607, 610-612 (9th Cir. 1991).

 The appeals court reversed this court's dismissal of plaintiffs' pendent state professional malpractice claim. Id. at 612-613. Citing United States Mine Workers of America v. Gibbs, 383 U.S. 715, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966), the Ninth Circuit stated that this court had discretion to allow plaintiffs to pursue their pendent claim or to dismiss it. Mertens, et al., 948 F.2d at 614. On remand, Hewitt filed an answer to plaintiffs' complaint, alleging the affirmative defense of preemption. Hewitt now moves for summary judgment on the ground that plaintiffs' state law claim is preempted by Section 514(a) of ERISA, 29 U.S.C. § 1144(a). Plaintiffs counter that the claim is not preempted. Alternatively, they argue that Hewitt has waived the preemption defense.

 LEGAL STANDARD

 Under Federal Rule of Civil Procedure 56, summary judgment shall be granted "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial . . . since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). See also T.W. Elec. Serv. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987) (the nonmoving party may not rely on the pleadings but must present specific facts creating a genuine issue of material fact); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986) (a dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.").

 The court's function, however, is not to make credibility determinations. Anderson, 477 U.S. at 250. The inferences to be drawn from the facts must be viewed in a light most favorable to the party opposing the motion. T.W. Elec. Serv., 809 F.2d at 631.

 DISCUSSIO ...


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