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Case Law Scorecard For In-House Counsel

Below are summaries of important opinions affecting in-house attorneys issued by the U.S. Supreme Court and the 1st and 2nd U.S. Circuit Courts of Appeals from January through March 2003. Readers can access the full text of the opinions at www.newenglandinhouse.com.

U.S. Supreme Court


Failure To Pay Settlement May Mean Debt Is Nondischargeable

If a debtor settles a fraud claim and then files for bankruptcy without paying the settlement, the debt may be nondischargeable.

Archer, et ux. V. Warner. Docket No. 01-1418. Decided March 31, 2003.


IOLTA Not An Unconstitutional Taking

A state law requiring client funds that could not otherwise generate net earnings for the client be deposited in an “interest on lawyers trust account” is not a regulatory taking, but requiring that interest on those funds be transferred to a different owner for a legitimate public use could be a per se taking requiring payment of just compensation to the client in some cases.

Brown, et al. v. Legal Foundation of Washington, et al.. Docket No. 01-1325. Decided March 26, 2003.


Including All Profits Proper When Determining Net Income

When calculating net income, including all profits of a corporation is proper under the tax code.

Boeing Co. v. United States. Docket No. 01-1209. Decided March 5, 2003.


Trademark Dilution Act Requires Actual Harm

The Federal Trademark Dilution Act requires a showing of actual harm from another’s use of a famous trademark rather than just a likelihood of dilution.

Moseley v. V Secret Catalogue. Docket No. 01-1015. Decided March 5, 2003.

1st U.S. Circuit Court Of Appeals


Companies Contesting OSHA Order Failed To Exhaust Administrative Remedies

Where four New Hampshire companies filed suit seeking a judgment declaring that the Occupation Safety and Health Administration acted ultra vires in mandating that the plaintiffs complete a Data Collection Initiative Survey, the complaint was properly dismissed for lack of subject matter jurisdiction in light of the companies’ failure to exhaust their administrative remedies.

Eastern Bridge, LLC, et al. v. Chao, et al.. Docket No. 02-1908. Decided Feb. 14, 2003.


Failure To Request Arbitration Defeats Demand For ADR

Where a plaintiff company sought to have a federal judge compel the defendant to arbitrate a contract dispute, we hold that the judge rightly denied the plaintiff relief because (1) the parties’ arbitration agreement provided that a request for arbitration was a condition precedent to arbitration and (2) evidence showed that the plaintiff had never requested mediation.

HIM Portland, LLC v. DeVito Builders, Inc. Docket No. 02-1955. Decided Jan. 17, 2003.


Res Judicata Bars Corporation’s Claim To Bank Account

An action is barred under the doctrine of res judicata where appellant, acting through its privy and corporate relative, had a full and fair opportunity to litigate a claim involving rights to a bank account standing in the name of a bankruptcy debtor, did so, and lost.

In re Colonial Mortgage Bankers Corp. Docket No. 02-9008. Decided March 26, 2003.


Woman Seeking To Become Pregnant Lacks ADA Standing

Where a plaintiff (1) suffers from rheumatoid arthritis and uses a wheelchair, (2) filed suit under the Americans with Disabilities Act and the Maine Human Rights Act seeking to force the defendant hospital to move certain walls to make the bathroom areas in an after-birth recovery area wheelchair-accessible and (3) was, at the time she filed suit, not pregnant but seeking to become pregnant, a judge acted permissibly in dismissing the suit, without prejudice, due to lack of standing.

McInnis-Misenor, et al. v. Maine Medical Center. (Docket No. 02-2086). Decided Feb. 11, 2003.


Condo Developer Entitled To Profit Apportionment Jury Charge In Copyright Case

A condominium developer that infringed an architect’s copyright by using his plans without permission was entitled to a jury instruction that damages should be apportioned between the value of the infringed plans and the value the developer added to the project.

The defendant developer argued that it had proved apportionment was appropriate and that faulty jury instructions led a jury to award almost all of the profits from its project to the plaintiff architect.

The 1st Circuit agreed, vacating the jury’s damage award and remanding the case for a determination of appropriate damages using the correct standards.

John G. Danielson, Inc. v. Winchester-Conant Properties, Inc., et al. (Docket Nos. 02-1452 and 02-1533). Decided March –, 2003.


Claimant Failed To Show ‘Retaliation’

Where a plaintiff brought a Title VII action asserting that, in retaliation for filing a sexual harassment complaint against the defendant employer, she was subjected to a hostile work and was denied future employment opportunities, a summary judgment for the employer must be affirmed based on the plaintiff’s failure to show that the adverse actions taken against her within the limitations period were retaliatory.

Dressler v. Daniel, et al. Docket No. 01-2569. Decided Jan. 9, 2003.

Employee With Hypertension Not ‘Disabled’

Where a defendant employer was awarded summary judgment on a plaintiff’s complaint under the Americans with Disabilities Act, the judgment should be affirmed on the basis of the plaintiff’s failure to prove his status as disabled under the U.S. Supreme Court’s 2002 decision of Toyota Motor Mfg. v. Williams.

Sheehan v. The City of Gloucester. Docket No. 02-1357. Decided Feb. 25, 2003.

Claimant With Attention Deficit Disorder Not ‘Disabled’

Where a plaintiff, who was terminated from his job following an altercation with co-workers and a supervisor, filed suit charging the defendant employer with handicap discrimination, a summary judgment for the defendant should be affirmed based on the plaintiff’s inability to show that he was disabled and that he was an otherwise qualified individual.

“In the end, [plaintiff Fred J.] Calef [Jr.]’s argument devolves into a claim that [attention deficit hyperactivity disorder] makes it more difficult for him to respond to stressful situations, that when he becomes angry, he sometimes loses control and can neither speak nor think well, and that this constituted a substantial limitation on a major life activity.” The 1st Circuit wrote. “This claim would not, under Toyota [Motor Mfg., Inc. v. Williams, 534 U.S. 184 (2002)], qualify as a substantial limitation on a major life activity. There was no evidence in this record that plaintiff could not perform some usual activity compared with the general population, or that he had a continuing inability to handle stress at all times, rather than only episodically.”

Calef v. The Gillette Co. Docket No. 02-1444. Decided March 11, 2003.


Carrier Has Duty To Defend Consumer Fraud Suit

Where a plaintiff Maine company filed, against a defendant insurance company, a diversity action seeking a declaratory judgment that the defendant has a duty to defend the plaintiff with respect to a pending consumer fraud suit, we hold that a federal judge ruled correctly on the evidence that Maine was the proper venue for the coverage dispute, that Maine substantive law governed it and that, under Maine law, the defendant has a duty to defend the plaintiff.

The trial judge correctly granted the plaintiff an award of attorney’s fees, as the defendant’s duty to defend is clear under Maine law, the 1st Circuit held.

Auto Europe, LLC v. Connecticut Indemnity Co. Docket No. 02-1799. Decided March 4, 2003.

ERISA ‘Overcharge’ Claim Properly Dismissed

Where a complaint was filed alleging that the defendant sponsors of employee health benefit plans violated ERISA, breached their fiduciary duties and committed misrepresentation by charging the plaintiff plan participants prescription drug co-payments that in some cases exceeded the actual cost of the medication to the plan, judgment was properly entered for the defendants on the grounds “that the plans clearly established what beneficiaries had to pay and that there was neither a breach of fiduciary duty nor any affirmative misrepresentation.”

Alves, et al. v. Harvard Pilgrim Health Care, Inc., et al.. Docket No. 02-1817. Decided Jan. 21, 2003.


Grievances Under Separate Contracts – Consolidation

Where (1) a defendant union pursued grievances under three separate contracts for three of the plaintiff employer’s regions, (2) the defendant thereafter brought the grievances to the American Arbitration Association, asking for a single consolidated proceeding, and (3) the plaintiff objected and filed a federal suit seeking a declaratory judgment that the proposed consolidation was impermissible, we hold that a judge acted properly in declining to enter the declaratory judgment sought by the plaintiff.

The question of consolidation was a procedural issue for the arbitrator to decide, according to the court.

“Leaving the decision whether to consolidate the three proceedings in the hands of the arbitrator comports with long-standing precedent resolving ambiguities regarding the scope of arbitration in favor of arbitrability,” the 1st Circuit said.

Shaw’s Supermarkets, Inc. v. United Food and Commercial Workers Union, Local 791, AFL-CIO. Docket No. 02-2032. Decided March 6, 2003.


Arbitration Award Against Company Upheld

Where an arbitration panel ruled that an employer had violated a collective bargaining agreement by assigning certain work to one union local rather than to another, we find no basis on which to vacate the arbitrators’ decision and accordingly we affirm a U.S. District Court order confirming the arbitration award.

JCI Communications, Inc. v. International Brotherhood of Electrical Workers, Local 103. Docket No. 02-2220. Decided March 31, 2003.


Employer Did Not Violate ERISA In Switching To ‘Cash Balance Pension Plan’

A corporation did not violate federal employment laws by restructuring its retirement benefits in a way that adversely impacted an older employee, the 1st U.S. Circuit Court of Appeals has ruled.

The employee, who had been with the company for 37 years, claimed that he lost the potential for an additional $3,000 per year when the company switched from a defined benefit plan to a cash balance plan.

He also claimed that he should have been entitled to severance pay when the company was sold, and that the company’s actions amounted to age discrimination under the Employment Retirement Income Security Act and other statutes.

“[Retirement benefits] already earned under an old plan may not be taken away,” said Judge Sandra L. Lynch, writing for the 1st Circuit, “but benefits expected but not yet accrued are not similarly protected.”

The judge also ruled that the employee was not entitled to severance pay because the company was allowed to exclude employees or modify the plan at any time before severance payments were made.

Campbell v. BankBoston, N.A., et al. Docket No. 02-1695. Decided March 7, 2003.


Claim For Tax Deduction ‘Distorted’

The court affirmed the U.S. Tax Court’s order disallowing a corporation’s claimed deduction of $65,000 for legal and accounting services.

The 1st Circuit found that the claimant had “so lackadaisical in pursuing payment for these alleged debts, it is fair to infer that, to put it mildly, their value was distorted for tax purposes. Moreover, the services … could not reasonably have been valued at $65,000.”

Interex, Inc. v. Commissioner of Internal Revenue. Docket No. 02-1784. Decided Feb. 28, 2003.


Bonuses – Dividends – Accumulated Earnings Tax

Where the IRS found that bonuses paid to a close corporation’s shareholders constituted nondeductible dividends rather than deductible wages, that conclusion was not improper and should be upheld.

The decision of the IRS to impose the accumulated earnings tax was affirmed.

Haffner’s Service Stations, Inc. v. Commissioner of Internal Revenue. Docket No. 02-1761. Decided March 31, 2003.


Housing Court Settlement Didn’t Bar Later Civil Rights Suit

Where a $2.85 million judgment has been entered against two defendants in connection with a complaint filed by a former employee and his family (the plaintiffs) charging the defendants with assault and battery, intentional infliction of emotional distress and civil rights violations, the judgment should be affirmed, as it was amply supported by the evidence and the defendants have been able to point to no reversible error in the trial court’s jury instructions or evidentiary rulings.

The lower court erred, however, in setting aside a $2 million verdict against defendant Karl D. Clemmey, as a waiver executed by the plaintiffs with regard to the settlement of a prior action in Massachusetts Housing Court against Clemmey’s real estate company did not bar them from recovering against Clemmey in this case.

Davignon, et al. v. Clemmey, et al. Docket Nos. 01-1862, 02-1293 and 02-1346. Decided March 4, 2003.

2nd U.S. Circuit Court of Appeals


More Discovery Needed On Case Involving Enforceability of Foreign Arbitration Award

A federal trial court judge in New York should have allowed discovery on key questions involving personal and subject matter jurisdiction of a defendant foreign corporation before dismissing the plaintiff’s suit to enforce a foreign arbitration award.

The case was remanded for further proceedings.

A Cayman Islands corporation filed suit to enforce two arbitration awards issued by a Swedish arbitration panel against two Russian companies. The awards were based on a breach of contract in connection with oil exploration in Siberia.

The contract provide said the parties were to submit any dispute to arbitration in Stockholm under the Arbitration Rules of the Stockholm Chamber of Commerce, and that Swedish law governed the contract.

The plaintiff filed the underlying petition to confirm the arbitral awards pursuant to the Federal Arbitration Act (9 U.S.C. §§201-208). The plaintiff also moved by order to show cause for entry and enforcement of a final judgment under the Federal Rules of Civil Procedure and New York Civil Practice Law and Rules, apparently including the New York Uniform Foreign Money-Judgments Recognition Act (Article 53), or any applicable federal or state statute. In connection with that request, the plaintiff requested an order allowing prejudgment discovery and attachment of assets.

The plaintiff alleged that the defendants had consented, or waived objection, to the jurisdiction of the district court by virtue of the contract, and that it had sufficient contacts for personal jurisdiction.

The district court judge did not order discovery or hold an evidentiary hearing. In an order filed in September 2001, the district court judge concluded that although the FAA conferred federal subject matter jurisdiction over the plaintiff’s complaint to confirm the Swedish arbitral awards, it did not confer personal jurisdiction over the defendants.

The 2nd Circuit noted that it has not ruled on the question of whether a party seeking to enforce a foreign arbitral award under the FAA must establish a basis for exercising personal jurisdiction over the other party, or the property of that party, against whom enforcement is sought.

“The question is a difficult one,” the court said, “and has been the subject of recent decisions in two circuit courts. See Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284 F.3d 1114, 1128 (9th Cir. 2002) (“[T]he Convention and the FAA authorize the exercise of subject matter jurisdiction but not personal jurisdiction. Personal jurisdiction must be based on a defendant’s person or property.”); Base Metal Trading, Ltd. v. OJSC “Novokuznetsky Aluminum Factory,” 283 F.3d 208, 212-13 (4th Cir. 2002) (requiring petitioner to establish personal jurisdiction and finding that “the presence of property alone will not support jurisdiction”).”

But it reserved judgment on that issue since other jurisdictional concerns still needed to be resolved.

The lower court judge should have allowed discovery on the plaintiff’s claims of jurisdiction, including the alleged consent by the defendants in the underlying contract, and overall contacts of the defendants nationwide, the 2nd Circuit held.

Dardana Limited v A.O. Yuganskneftegaz. Docket No. 01-9177. Decided Jan. 15, 2003.

Shareholder Derivative Suit Rejected Despite Claim Of ‘Continuing Wrong’

Shareholders lacked standing to sue a bank for breach of fiduciary duty because they did not purchase shares in the bank until well after most of the alleged wrongdoing had occurred.

The plaintiffs asserted they could sue under the “continuing wrong doctrine” because the bank persisted in systematic wrongdoing after they bought shares.

Federal Rule of Civil Procedure 23.1 and New York Business Corporation Law §626(b) require, as a condition for standing to file a shareholder derivative action, that a plaintiff must have owned stock in the company at the time of the alleged wrongdoing.

The court noted that the primary purpose of the “contemporaneous ownership” rule is to “prevent[] courts from being used to litigate purchased grievances,” and that the continuing wrong doctrine is frequently considered to be an equitable exception to the rule.

“[W]e decline to adopt the expansive definition of the term ‘transaction’ that is inherent in the continuing wrong doctrine,” the court wrote. “Instead, we hold that, in order to invoke derivative standing pursuant to Federal Rule of Civil Procedure 23.1 and New York Business Corporation Law § 626(b), a plaintiff must have owned stock in the corporation throughout the course of the activities that constitute the primary basis of the complaint. A proper plaintiff must have acquired his or her stock in the corporation before the core of the allegedly wrongful conduct transpired.”

In re: Bank of NY Derivative Litigation. Docket No. 01-9470. Decided Feb.12, 2003.


Appointment Of Arbitrator Upheld

A trial judge’s appointment of an arbitrator in a commercial dispute was proper even though no hearing was held on the validity of the arbitration agreement.

The party resisting the arbitration argued that the appointment was invalid in absence of a court hearing on its challenge to the arbitration agreement.

But the 2nd Circuit disagreed.

“[The defendant] argues that where the parties dispute the existence of an agreement to arbitrate, the court must hold a hearing to resolve that dispute before an arbitrator is appointed,” the court wrote. “This might present a strong argument if the issue before us involved an order to compel arbitration under 9 U.S.C. §4. However, at issue is the appointment of an arbitrator, and we find nothing in the [Federal Arbitration Act] or Connecticut law to support [the defendant’s] argument that it is entitled to a hearing on the existence of an agreement to arbitrate before an arbitrator is appointed upon the motion of [the plaintiffs].”

The panel added that appointing an arbitrator does in and of itself compel participation in arbitration.

“If a party refuses to participate in arbitration, precedent suggests that the party would retain the right to challenge the validity of the contract or its arbitration clause after the arbitration is complete,” the court noted.

Acequip Ltd. v. American Engineering. Docket No. 01-9166. Decided Jan. 2, 2003.

IPO Didn’t Violate SEC Rules On Registration Statement

An Internet start-up did not issue a fraudulent prospectus pertaining to its initial public offering despite financial discrepancies in related disclosures.

“In a case such as this one,” the court wrote, “where the only claimed error in an electronically filed prospectus is an inaccurate summary of the graphic, audio, or visual material contained in the printed prospectus, the printed prospectus conforms to the registration statement, and its distribution to investors cannot form the basis for a claim under Section 12(a)(1).”

The court did rule that the class had standing to sue even though they did not purchase the stock in the IPO.

“[A]ftermarket purchasers who can trace their shares to an allegedly misleading registration statement have standing to sue under § 11 of the 1933 [Securities] Act,” the court said.

But the start-up’s failure to include revenue information for the March 1999 quarter did not render the prospectus “materially misleading,” the panel concluded.

“In addition, insofar as liability might be based on the incorrect publishing revenue data included in the EDGAR prospectus, we conclude that the erroneous information would not have misled the average investor in light of the accurate information contained in the prospectus,” the court said.

DeMaria v. Anderson. Docket No. 01-7505. Decided Jan. 28, 2003

SEC Regulations Supersede Sherman Antitrust Claim

A federal trial judge properly dismissed a class action suit alleging that various stock exchanges violated federal antitrust laws on the basis that Securities and Exchange Commission regulations impliedly repealed those laws.

The plaintiffs purchased equity options after Dec. 31, 1994. The defendants are AMEX, the Chicago Board Options Exchange, Inc., the New York Stock Exchange, Inc., the Pacific Stock Exchange, Inc., the Philadelphia Stock Exchange, Inc., and members of the exchanges that acted as market makers and specialists in options trading.

In early 1999, the plaintiffs commenced more than 20 class actions alleging that defendants had conspired to restrict the listing and trading of particular options to one stock exchange at a time, thereby restraining trade in such options in violation of §1 of the Sherman Act. The cases were eventually consolidated.

The SEC’s moratorium on multiple listing was lifted beginning in November 1992. By the end of 1994, all equity options were eligible for multiple listing. The Commission had noted, however, that it retained ultimate authority over such listings.

“In the present case, we agree with the district court’s conclusion that the [1934] Exchange Act impliedly repeals §1 of the Sherman Act with respect to the listing and trading of equity options, because the implied repeal is necessary to preserve the authority of the SEC to regulate that conduct,” the 2nd Circuit wrote.

However, the panel disagreed with the trial judge’s order that he had no jurisdiction to rule on proposed settlements totaling $84 million once he had determined the cases should be dismissed.

In Re: American Stock Exchange. Docket Nos. 01-7371, 01-7580. Decided Jan. 9, 2003.

Stock Fraud Class Action Time-Barred Because Of ‘Storm Warnings’

A group of investors’ stock fraud class action against an insurance company was time-barred because they did not file the suit within a year of readily discernible warning signs concerning the financially troubled company.

The insurance company apparently took increasingly large reserve charges but did not disclose its continuing failure to establish adequate reserves.

Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78i(e)) provides that “[n]o action shall be maintained to enforce any liability created under this section, unless brought within one year after the discovery of the facts constituting the violation and within three years after such violation.”

The 2nd Circuit wrote: “The one-year limitations period applicable to discovery of the violation begins to run after the plaintiff ‘obtains actual knowledge of the facts giving rise to the action or notice of the facts, which in the exercise of reasonable diligence, would have led to actual knowledge.'”

The court found that the “storm warnings” stated in the class action complaint and in related publicly available documents triggered the plaintiffs’ duty of inquiry no later than December 1998.

“The principal warnings were the three substantial reserve charges taken within a brief period of time: $17.5 million in 1994, $40 million in 1997, and $139 million in 1998,” the court said. “Many companies take one-time charges to reflect unanticipated developments without creating any suspicion of impropriety, but a series of three charges in substantial and increasing amounts for the same purpose within four years should alert any reasonable investor that something is seriously wrong.”

The panel added: “The ‘reassuring’ statements by management were mere expressions of hope, devoid of any specific steps taken to avoid under-reserving in the future. In these circumstances, the claimed reassurances are unavailing.”

LC Capital Partners, LP v. Frontier Insurance Group, Inc. Docket No. 02-7155. Decided Jan. 28, 2003.

Stock Fraud Claim Dismissed Because Of Failure To Show Connection With Sale

A lawsuit filed pursuant to Section 10(b) of the Securities and Exchange Act of 1934 should be dismissed because the plaintiffs failed to establish that the alleged fraud occurred in connection with the actual purchase or sale of a security.

Lawrence v. Cohn, Docket No. 02-7642. Decided March 28, 2003.


Laborers’ State Law Wage Claims Impermissible ‘End Run’ Around Davis-Bacon Act

A federal trial judge properly dismissed the private wage claims of various laborers working on federally funded construction projects.

The plaintiffs sued in the United States District Court for the Southern District of New York to recover unpaid prevailing wages and overtime compensation allegedly owed them for their labor on all three projects. The plaintiffs invoked the Fair Labor Standards Act, 29 U.S.C. § 201, et seq., and New York common law.

“At bottom, the plaintiffs’ state-law claims are indirect attempts at privately enforcing the prevailing wage schedules contained in the [Davis-Bacon Act],” the court wrote. “To allow a third-party private contract action aimed at enforcing those wage schedules would be ‘inconsistent with the underlying purpose of the legislative scheme and would interfere with the implementation of that scheme to the same extent as would a cause of action directly under the statute.'”

The Davis-Bacon Act does not permit private enforcement actions.

“The present contracts … were federally funded and, as such, are governed by the prevailing wage requirements set forth in the DBA, not by §220 of the New York Labor Law,” the court continued. “[T]he plaintiffs’ efforts to bring their claims as state common-law claims are clearly an impermissible “end-run” around the DBA.”

The 2nd Circuit also rejected the plaintiffs’ claim that their overtime claims should be assessed at time-and-a-half the prevailing hourly rates, rather than at time-and-a-half the hourly rates the plaintiffs were actually paid.

Grochowski v. AJET Construction. Docket No. 01-7650. Decided Jan. 14, 2003.

Court Rejects Bias Claim Of Woman Denied Coverage For Infertility Treatments

An employer did not violate Title VII or the federal Pregnancy Discrimination Act by denying coverage for certain infertility procedures such as artificial insemination, in vitro fertilization and in utero insemination.

The employer’s plan administrator denied payment because of an express exclusion of coverage in the health policy for surgical impregnation techniques.

The plaintiff alleged that her employer breached its contractual obligations and the plan’s exclusion of coverage for surgical impregnation procedures violates the Americans with Disabilities Act, Title VII, the PDA and the New York Human Rights Law.

The court ruled that the plan’s exclusion of surgical impregnation procedures does not fall within the purview of the PDA and, because it is gender neutral, does not violate Title VII.

“[F]or a condition to fall within the PDA’s inclusion of ‘pregnancy and related medical conditions’ as sex-based characteristics, that condition must be unique to women,” the court noted. But infertility is a medical condition that afflicts men and women with equal frequency, the court said.

Therefore, “including infertility within the PDA’s protection as a ‘related medical condition’ would result in the anomaly of defining a class that simultaneously includes equal numbers of both sexes and yet is somehow vulnerable to sex discrimination,” the court wrote.

And the employer did not violate Title VII, the 2nd Circuit concluded, “because male and female employees afflicted by infertility are equally disadvantaged by the exclusion of surgical impregnation procedures.”

Saks v Franklin Covey Co. Docket No. 00-9598. Decided Jan.15, 2003.

ERISA Complaint Improperly Dismissed

In dismissing an ERISA complaint a federal trial judge incorrectly held that the court lacked subject matter jurisdiction.

The trial judge confused subject matter jurisdiction with whether the plaintiff alleged a valid cause of action, the 2nd Circuit found.

“Whether [the plaintiff] is able to assert a valid claim under ERISA is irrelevant to the question of whether the district court has subject matter jurisdiction over her complaint,” the 2nd Circuit said. “[I]n cases where the asserted basis for subject matter jurisdiction is also an element of the plaintiff’s allegedly federal cause of action, we ask only whether — on its face — the complaint is drawn so as to seek recovery under federal law or the Constitution. If so, then we assume or find a sufficient basis for jurisdiction, and reserve further scrutiny for an inquiry on the merits.”

The court remanded the case for consideration of the merits of the plaintiff’s complaint.

“In determining whether [the plaintiff] can state an ERISA claim against [the defendant], the district court will have to consider several questions, including (1) whether [the defendant] is a proper defendant under ERISA and (2) whether the plan had been terminated at the time [the defendant] allegedly breached its obligation to provide [the plan participant] with the certificate, such that there was no ERISA plan in existence at that time.”

The plaintiff has to demonstrate that the defendant “had actual or constructive knowledge of the circumstances that rendered [its] transaction [with the plan administrator] unlawful,” the court said.

And the plaintiff’s claim must show that the plan hadn’t been terminated at the time of the alleged failure to comply with ERISA regulations, the panel added.

Carlson v. Principal Financial Group. Docket No. 01-9466. Decided Feb.12, 2003.

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