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ESSINGTON METAL WORKS v. RETIREMENT PLAN OF AMERIC

June 5, 1985

ESSINGTON METAL WORKS, INC., et al.
v.
RETIREMENT PLAN OF AMERICA, INC., et al. ESSINGTON METAL WORKS, INC., et al. v. SIDNEY A. FRIEDMAN



The opinion of the court was delivered by: POLLAK

 M E M O R A N D U M

 In December 1981, Retirement Plans of America, Ernest D. Palmarella, Jo-Ann Laverghetta, and Leon L. Levy ("RPA parties") removed to this court a suit which had been filed against them in the Court of Common Pleas for Philadelphia County. That suit had been brought by Essington Metal Works, Inc.; Essington Metal Works, Inc. Pension Plan and Trust; and Essington Metal Works, Inc. Profit Sharing Plan and Trust ("Essington parties"). The complaint set forth a variety of tort causes of action based upon alleged breaches of duty by the RPA parties in preparing and implementing an employee benefits plan for use by the Essington parties. The complaint also set forth a cause of action for breach of contract based upon the same allegations. The suit was recorded on the docket of this court as Civil Action Number 81-5094. The removal petition stated that removal was proper because the complaint included a claim for breach of fiduciary duty which could only be brought under the Employee Retirement Income Security Act, ("ERISA"), 29 U.S.C. §§ 1001 to 1461, a federal statute. See 28 U.S.C. § 1441(a) and (b) (removal of a federal question suit is authorized without regard to the citizenship of the parties).

 On March 24, 1982, Louis Stafford brought suit in this court against one of the Essington parties, Essington Metal Works, Inc. and Fred Hoffken Sr. The suit alleged a claim under ERISA for recovery of employee benefits allegedly due to Mr. Stafford. 29 U.S.C. § 1132(a)(1)(B). The Essington parties thereafter filed a third-party complaint against the RPA parties in the suit filed by Mr. Stafford. The allegations in the third-party complaint paralleled the claims asserted in Number 81-5094 but the third-party complaint sought recovery solely for the damages for which the Essington parties might be liable under the Stafford claim. This suit was assigned Civil Action Number 82-1339.

 In June of 1982, Civil Actions 81-5094 and 82-1339 were consolidated pursuant to the unopposed motion of the RPA parties.

 In November 1982, Sidney A. Friedman removed to this court a suit filed against him in the Court of Common Pleas by the Essington parties. Mr. Friedman is a member of the Board of Directors and shareholder of Retirement Plans of America and was sued on the grounds charged against the RPA parties in the other two actions. Removal of the suit against Mr. Friedman was predicated on diversity of citizenship; Mr. Friedman is a citizen of New Jersey and the Essington parties are citizens of Pennsylvania. This case was assigned Civil Action Number 82-4820 and was consolidated with the other two cases in June 1983.

 An appeal was filed in Stafford and the two other cases were placed in civil suspense pending resolution of the appeal. In May 1984, the Court of Appeals for the Third Circuit affirmed the Stafford judgment. No petition for certiorari was filed.

 On October 30, 1984, the Essington parties moved for leave to amend the complaint in the RPA suit. The motion stated that plaintiffs intended, by means of this amendment, to clarify the nature of the claims asserted. The movants contended that, if the motion to amend was granted, it would be clear from the amended complaint that the Essington parties were alleging only state law claims and did not intend to present a claim for breach of fiduciary duty under ERISA. The RPA parties responded to this motion on November 20, 1984. They argued that an amendment should not be allowed if the only purpose of such an amendment was to oust the federal court of jurisdiction. See generally Westmoreland Hospital Association v. Blue Cross, 605 F.2d 119 (3d Cir. 1979); 1A Moore's Federal Practice P .160[7] (1985); 14A C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3738 at 558-59 (1985). In addition, the RPA parties contended that the amended complaint could also be construed to contain a claim for breach of fiduciary duty and, thus, federal jurisdiction would be proper even if the amendment was allowed.

 Upon review of these submissions, this court entered an Order scheduling oral argument on the motion to amend. In that Order, the court directed the parties to submit further memoranda on the following questions:

 
Bearing in mind the frequently stated principles regarding limitations on federal court jurisdiction of a removed case when the state court from which the case was removed could not have had jurisdiction of the suit, Gleason v. United States, 458 F.2d 171 (3d Cir. 1972); Stapleton v. $2,438,110, 454 F.2d 1210 (3d Cir. 1972); Leddy v. United States Postal Service, 525 F. Supp. 1053 (E.D. Pa. 1981), see 14 C.A. Wright & A. R. Miller, Federal Practice and Procedure, § 3721 at p. 523 and § 3722 at p. 574; 1A Moore's Federal Practice para. 0.157[3], do those principles have relevance to the present action? If so, how should those principles be applied to this litigation? If not, why are they not relevant?

 Essington Metal Works, Inc., et al. v. Retirement Plans of America, et al., No. 81-5094 at 2 (March 22, 1985). The parties have since filed those submissions and oral argument was held on May 3, 1985. For the reasons set forth below, this court concludes that the RPA action must be remanded to the Court of Common Pleas for Philadelphia County.

 The basis for removal of the RPA suit was the inclusion among the claims against RPA of a claim which arguably fell under section 1109 of Title 29 of the United States Code. That provision of ERISA creates liability for breach of fiduciary duty. A civil action may be brought to recover for such a breach under section 1132(a)(2). Jurisdiction to hear such claims is exclusively vested in the federal courts. 29 U.S.C. § 1132(e)(1). *fn1"

 In 1922, the Supreme Court, speaking through Justice Brandeis, established the general principle that:

 Lambert Run Coal Co. v. Baltimore & Ohio RR. Co., 258 U.S. 377, 382, 66 L. Ed. 671, 42 S. Ct. 349 (1922). See Franchise Tax Board of California v. Construction Laborers Vacation Trust for Southern California, 463 U.S. 1, 77 L. Ed. 2d 420, 103 S. Ct. 2841 n. 27 (1983); 1A Moore's Federal Practice para. 0.157[3.-1] to [3.-5] (1985); 14A C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure §§ 3721 and 3722 (1985). This doctrine of "derivative jurisdiction" has been consistently applied by the federal courts as a ...


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