District court allows union fund to invoke federal preemption rule and recover on bond
June, 2008
The conflicts that occasionally spring from federalism surfaced last week in an opinion handed down in the Western District of Washington. While synthesizing a collage of earlier decisions, the ruling is fundamentally new.
Factually, the case was extremely simple. Lydig, a general contractor, did work on the Snohomish Elementary School. It obtained a statutory bond under RCW 39.08.030, as it had to. Healthy Homes was one of its subs and apparently failed to make certain fringe benefit payments to the Retirement Trust for the Carpenters' Union.
Two days after the claim was presented, Lydig brought a declaratory judgment action in Superior Court against the Trust. It presumably did so because Washington State decisional law deems bond claims like the one at issue to be preempted by ERISA. So in State court, the claim on the bond would not lie.
Not to be outdone, the Trust countered with its own suit in the Western District. There was a definite reason for this. Ninth Circuit law, followed in an unreported Washington federal opinion, holds that there is no statutory preemption. Hence, the claim against the bond could theoretically proceed.
Given these circumstances, the surety asked the Court to decline to exercise its supplemental jurisdictional powers over the non-federal (i.e., non-ERISA) bond claim pursuant to 28 USCA § 1367(a).
The District Court kept the case and entered summary judgment in favor of the bond claimant. In doing so, it had no difficulty in discarding the Washington State preemption doctrine, because it noted that preemption, itself, is a federal question, to be addressed under federal principles. It closed the analytical loop.
The surety also accused the claimant of forum shopping by filing its own (successive) complaint in federal court and thus achieving an entirely different preordained outcome from what would have resulted in the earlier filed State Court matter. While the opinion contains no discussion of the Younger abstention doctrine, the Court found Lydig to have been the "forum shopper" by filing its pre-emptive declaratory judgment action in Superior Court. And even though Healthy Homes was defunct, so that the only claim worth pursuing was the statutory bond claim, the District Court was disinclined to find that state law claims "predominated", to use the actual language of § 1367.
The Bottom Line: The Carpenters' Retirement Trust opinion may not leave much wiggle room, at least in any practical sense, for sureties to take advantage of the Washington State preemption doctrine on statutory bond claims that involve companion ERISA claims. Following this opinion, only the most uninitiated claimants will themselves file in State Court. And if filing its own state court declaratory judgment action will be deemed improper forum shopping, the surety's options may be more apparent than real. However, the case has sparked a lively debate within Bullivant's own surety department.