ERISA-Ninth Circuit Holds That Nevada SB 223, Which Limited Damages That Could Be Imposed On General Contractors, And Imposed Notification Requirements That Must Be Met Before Suit Can Be Brought Against General Contractors, Is NOT Preempted By ERISA

In Board of Trustees of the Glazing Health and Welfare Trust v. Chambers, No. 16-15588 (9th Cir. 2018), vacating the district court’s summary judgment in favor of the plaintiffs, a panel of the Ninth Circuit Court of Appeals (the “Panel”) held that Nevada Senate Bill 223 was a legitimate exercise of Nevada’s traditional state authority and was not preempted by ERISA.

Nevada law holds general contractors vicariously liable for the labor debts owed by subcontractors to subcontractors’ employees on construction projects.  SB 223 limited the damages that can be collected from general contractors and imposed notification requirements on contractors and welfare benefit plans regulated under ERISA before an action could be brought under Nevada law against general contractors.  Plaintiffs, ERISA trusts that managed ERISA plans, claimed that SB 223 was preempted by ERISA because it impermissibly “related to” ERISA plans.

The Panel concluded that the appeal was not moot following the Nevada legislature’s repeal of SB 223 and enactment of SB 338, a replacement that repeats some of the challenged aspects of SB 223.  The Panel held that legislative change in response to an adverse judicial ruling is generally the type of “voluntary cessation” that defeats mootness on appeal.  The Panel concluded that Nevada did not rebut a presumption that its appeal was not moot because it did not demonstrate that the legislature would certainly not reenact the challenged provisions of SB 223.

On the merits, the Panel held that SB 223 was not preempted because it did not intrude on any federally-regulated field, conflict with ERISA’s objectives, or otherwise impermissibly “relate to” ERISA plans.  Instead, it targeted an area of traditional state concern—debt collection—and pared back a state-conferred entitlement to collect unpaid debts from third-party general contractors.  The Panel explained that ERISA empowers ERISA trusts to bring actions against subcontractors for subcontractors’ labor debts, but it does not establish a cause of action for collecting debts from non-parties to an ERISA plan, such as general contractors.  That right exists, if at all, as a matter of state vicarious liability law.

The Panel held that, because SB 223 targeted an area of traditional state regulation, a presumption against preemption applied.  The Panel concluded that SB 223 did not invade the federal field regulated by ERISA or pose an obstacle to ERISA’s objectives; rather, plaintiffs’ obligations under ERISA remained the same with or without SB 223.  Thus, SB 223 had neither an impermissible “connection with” nor did it make an impermissible “reference to” ERISA plans.  The Panel vacated the district court’s grant of summary judgment and remanded for entry of judgment consistent with the Panel’s opinion.

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