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FLUID COMPONENTS INTL. v. CORPORATE BEN. CONSULTAN

July 29, 1997

FLUID COMPONENTS INTL., Plaintiff,
v.
CORPORATE BENEFIT CONSULTANTS; EXECUTIVE STRATEGIES AND INSURANCE SERVICES, INC.; CALIFORNIA CENTRAL TRUST BANK CORPORATION dba CALTRUST; ROGER RENFRO, RENATE RENFRO, AND DOES 1 through 100, inclusive, Defendant(s).



The opinion of the court was delivered by: MOSKOWITZ

 INTRODUCTION

 Plaintiff Fluid Components Intl. ("FCI") is the sponsor of a defined benefit plan (the "Plan") qualified under the Employer Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. (First Amended Complaint ("Complaint") P 10.) Defendants are companies and individuals who acted as professional consultants to FCI in the creation and operation of the Plan. Plaintiffs originally filed this case in state court and Defendants subsequently removed it based on ERISA preemption of Plaintiff's claims. Defendants have made a motion to dismiss on the basis of ERISA preemption. The parties have stipulated that should the Court deny the motion to dismiss, the entire action should be remanded to state court.

 Plaintiff's claims are pleaded as state law claims for negligence, intentional misrepresentation, negligent misrepresentation, breach of common law fiduciary duty and nondisclosure of known facts. The question before the Court is whether ERISA preempts a state law claim for an outside consultant's malpractice based on consulting and administrative services performed for Plaintiff's ERISA plan. While the scope of ERISA preemption is broad, the Court finds that ERISA does not preempt these state law claims. Accordingly, Defendants motion to dismiss is denied and the entire action is remanded to state court.

 II. FACTUAL ALLEGATIONS

 Plaintiff FCI is an employer in San Marcos, California that sponsors and maintains a defined benefit plan for its employees. The Plan was established according to federal law under ERISA. (Complaint P 10.) The purpose of the Plan is to provide Plaintiff's employees with a tax-sheltered retirement income. (Id.) Defendants contributed administrative and consulting services for the Plaintiff's Plan. (Id. P 18.) Plaintiff asserts that some of the Defendants helped organize the Plan and assisted with its initial operation. (Id. P 11.) The complaint also alleges that all Defendants provided consulting and administrative services for the Plan and that Plaintiff relied on Defendants as experts. (Id. PP 11, 12, 13.)

 Plaintiff alleges three main problems with the advice provided to FCI by Defendants. Two of the problems involve advice given in the Plan's operation, while the third concerns incorrect calculations made by Defendants and communicated to and relied upon by Plaintiff. Plaintiff's first claim is that the Defendants advised them to use a sex-distinct mortality table called IAM-71 for purposes of calculating benefits. (Id. P 49) In 1983, the Supreme Court held that the use of sex-distinct mortality tables for benefit calculations resulted in unequal treatment of males and females and was, therefore, forbidden by Title VII of the 1964 Civil Rights Act (42 U.S.C. §§ 2000e et seq.) Arizona Gov. Comm. for Tax Deferred Annuity and Deferred Compensation v. Norris, 463 U.S. 1073, 1095, 77 L. Ed. 2d 1236, 103 S. Ct. 3492 (1983).

 Plaintiff claims that Defendants advised FCI to utilize an Amended Defined Benefit Plan in 1985 which continued to include the mortality table IAM-71. (Id. P 48-49.) Defendants proceeded to calculate benefits based on these sex-distinct tables until 1993. (Id. P 52.) In 1993, Defendants changed their calculation method and decided to calculate benefits for both sexes with reference solely to the male table of IAM-71. (Id. P 53.) Thus, from 1993 to 1996, Defendants calculated all female benefits by using the male mortality table, instead of the female table. (Id. P 54.) This created a problem since the female table required higher payments. (Id.) As a result, Plaintiff contends that all of the benefits paid to females during that time were inadequate, and the Plan was required to compensate those females. (Id.)

 The complaint further alleges that "Defendants advised FCI to have the Plan pay males based upon the male mortality table in IAM-71 and calculate all benefits by males based upon the same table, which was a violation of law." (Id. P 55.) Plaintiff asserts that all of the calculated benefits paid by the Plan to males have not been adequate. (Id.) In its effort to compensate underpaid plan members and correct the problems caused by Defendants' acts, FCI claims it is now forced to contribute the necessary funds to the Plan. (Id. P 61.)

 Plaintiff also claims that starting in 1987, Defendants adopted an improper vesting schedule for the Plan which increased FCI's liability to the Plan. (Id. P 56.) In addition, Plaintiff alleges that Defendants incorrectly calculated the projected benefit obligations of the Plan. (Id. PP 26-30.) "The Projected benefit Obligation is an estimate of the amount which the Plan is likely to be required to pay in the future." (Id. P 23.) As a result of Defendants' miscalculations, FCI asserts that it was forced to freeze the Plan which caused all future Plan obligations to be based on the compensation rates before the Plan was frozen. (Id. P 40.) FCI claims that had it known of the incorrect calculations, it would have revised the Plan to use a single mortality table for all participants, which would have created a smaller liability for FCI resulting in considerable savings. (Id. PP 41, 43.) Plaintiff claims that at all relevant times Defendants knew that the Plan was operating in violation of law by the use of a sex-based mortality table. (Id. P 113.)

 III. DISCUSSION

 ERISA is "a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90, 77 L. Ed. 2d 490, 103 S. Ct. 2890 (1983). Congress sought to eliminate the problem of inconsistent state and local regulation in the area of employee benefit plans by enacting express statutory preemption provisions as part of ERISA. Under 29 U.S.C. § 1144(a), ERISA preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." State law includes "all laws, decisions, rules, regulations or other State action having the effect of law." 29 U.S.C. § 1144(c)(1). "To ensure uniformity and consistency in such laws throughout the states, Congress included within ERISA 'one of the broadest preemption clauses ever enacted by Congress.'" Aloha Airlines Inc., v. Ahue, 12 F.3d 1498, 1501 (1993), (quoting Evans v. Safeco Life Ins. Co., 916 F.2d 1437, 1439 (9th Cir. 1990)).

 A. Supreme Court Case Law on ERISA Preemption


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