ERISA Pre-Emption Case Not Headed for Appeals Court
>That’s because both sides in a controversial dispute involving a suit filed under Pennsylvania’s bad faith statute have settled the matter out of court without laying it in the judicial laps of the jurists at the US 3 rd Circuit Court of Appeals, according to The Legal Intelligencer.
>The case of Rosenbaum v UNUM Life Insurance Co captured the fascination of ERISA watchers because it pitted Senior US District Judge Clarence Newcomer against eight other Eastern District federal judges. The issue: Is the Keystone State’s bad-faith statute pre-empted by ERISA or does it fall into ERISA’s savings clause and escape pre-emption?
In July 2002, Newcomer ruled it was not knocked out
by ERISA and that a bad-faith claim could proceed to
trial. Eight of Newcomer’s colleagues ruled in separate
cases that he was wrong, but Newcomer stuck to his guns
(See
Federal Judges
Disagree on ERISA Pre-Emption
). September 8, Newcomer refused to reconsider last
year’s ruling.
The 2002 decision was considered a
huge victory for plaintiffs because it opened the door to
the possibility of both a jury trial and punitive
damages. On the other hand, an ERISA claim must be tried
by a judge without a jury and punitive damages aren’t
provided for. Not surprisingly, Newcomer’s original
Rosenbaum
decision prompted plaintiffs’ lawyers across the state to
amend their ERISA suits to add bad-faith claims.
However,
over the next few months, other
Eastern District jurists rejected the Newcomer view,
handing down a string of decisions that said bad-faith
claims were still foreclosed by ERISA because
Congress intended that ERISA’s remedies be “exclusive.”
Defense lawyers in the Rosenbaum case urged Newcomer to
reconsider.
US Supreme Court Weighs In
But the issue became complicated when
the US Supreme Court handed down its decision last term in
Kentucky Association of Health Plans Inc. v. Miller
.
Newcomer asked for new briefs to address whether
Miller
had announced a new test for deciding when ERISA pre-empts
a state law claim and, if so, whether the Pennsylvania
bad-faith statute survives the new test.
On Sept. 8, Newcomer handed down a
decision saying that he had been right all along and that
the Miller decision proved it.
Miller
, Newcomer said, “dramatically changed the analysis for
determining whether state legislation qualifies for
exemption from express pre-emption under ERISA via ERISA’s
saving clause.” As a result, Newcomer concluded that the
rationale of all his colleagues’ decisions was flawed
because they were relying on faulty dicta from a pair of
earlier US Supreme Court decisions.
Newcomer found that his Eastern District
colleagues relied on flawed dicta in two US Supreme Court
decisions –
Pilot Life Insurance Co. v. Dedeaux
, handed down in 1987, and
Rush Prudential HMO Inc. v. Moran
, handed down in 2002 – in which the justices suggested
that because Congress failed to include certain remedies in
ERISA’s remedial scheme, such remedies were specifically
excluded.
“The problem with such a requirement is
that the courts have taken an implied intent, which was
derived by questionable means, and have interpreted that
implied intent to overrule Congress’ express intent, as
reflected in the saving clause,” Newcomer wrote.