9th Circuit Holds San Francisco Ordinance Not Preempted: Is There a Conflict in the Circuits?

Today's decision on the merits by the 9th Circuit in the Golden Gate Restaurant Association v. San Francisco case upholding the employer spending requirements of the San Francisco ordinance as not preempted by ERISA is a most interesting read. 

For most of the decision, the unanimous three-judge panel methodically describes and then disposes of all the arguments made by the GGRA and its numerous amici (including the Department of Labor) in favor of preemption.  The opinion is written as if the court is perfectly aware that its decision is likely to wind up on the steps of the Supreme Court and therefore the court is careful to leave no "t" uncrossed and no "i" undotted.  And yet the final portion of the opinion when the court addresses the 4th Circuit's decision which came to a contrary conclusion regarding the Maryland law (RILA v. Fielder) seems to go in the other direction. 

ERISA preemption groupies will remember that in January when the same panel of the 9th Circuit granted the City's motion to stay pending appeal the District Court's judgment holding the ordinance preempted and ordered the ordinance to go into effect, it was roundly criticized by many commentators for ignoring the impact of the Fielder case.  These commentators obviously expected that the court would fall into line and adopt the 4th Circuit reasoning that an employer expenditure requirement was the same as a benefit mandate (such as that required under the Washington statute found in Egelhoff, one of the key Supreme Court cases that the majority of the 4th Circuit relied on in holding the Maryland law preempted).  However, this time in addressing the merits of the case, the 9th Circuit panel did not ignore the Fielder case. 

GGRA had contended that if the 9th Circuit upheld the San Francisco ordinance, it would create a split among the circuits.  Not so, says the 9th Circuit, the 4th Circuit's analysis is not inconsistent with its analysis of the San Francisco ordinance.  "We neither adopt or reject the analysis of the Fourth Circuit in Fielder.  ... But even under the reasoning of the panel majority, San Francisco's Ordinance is valid."  What distinguishes the Maryland statute from the San Francisco ordinance in the eyes of the 9th Circuit is that "The Maryland law gave nothing in return - either to an employer or its employees - for the employer's payment to the State."  In Maryland, the taxes collected would have gone to the State Medicaid program and presumably only those employees of covered employers (ostensibly Wal-Mart) who were Medicaid beneficiaries would benefit. By contrast, any uninsured individual, including employers who chose not to have ERISA plans, would be covered under the San Francisco program and employees whose employers chose to pay into the program would be eligible for free or discounted enrollment in the HAP (health access plan). 

What do you think of this argument and does the 9th Circuit decision create a conflict in the circuits or not?

For those of you who have not yet listened to the oral argument in this case and want to, you can find it on the 9th Circuit's website - one way to locate it is to know that the argument was held on April 17, 2008 - and this "no conflict in the circuits" question was addressed by the City Attorney during that argument.

Phyllis Borzi

Comments

[Andrew Oringer]

Many pay-or-play efforts are laudable in their good intentions, but, notwithstanding Golden Gate, the preemption arguments seem quite strong. While the courts understandably don't want to stand in the way of efforts by legislators to address problems with medical coverage for employees, the fact of the matter is that we are heading towards just the "patchwork quilt" that Congress was trying to prevent with ERISA. Maybe all of these local efforts are great so long as they're (i) carefully constructed, (ii) appropriate, by who knows what standard, (iii) relatively consistent with each other, (iv) not overly onerous, (v) and otherwise workable. But what happens when they're (i) sloppy, (ii) wrong-headed, (iii) wildly inconsistent, (iv) oppressive, and (v) flat-out unworkable? If preemption loses out here, the centralized referee will be gone, and, if local laws are upheld, a host of different approaches will be intact. While certain factors could here and there lead to a preemption determination even for a court inclined to allow local regulation, there would ultimately be no way generally to unstitch the quilt. We're not talking about 50 or so potential iterations; we're talking about as many as you can imagine, in that municipalities and other localities (Suffolk County, San Francisco, etc.) can all get into the act. Congress may not always get the substantive ERISA rules right, but, in this critical area so directly affecting interstate commerce, the decisions arguably shouldn't be left to the local laboratory. We can argue long and hard about whether the federal government should be the final arbiter of certain things; however, it is hard to imagine how multistate companies could reasonably proceed in this complex world without a level playing field regarding employee benefits. Under that view, it would be left to Congress to fill whatever perceived coverage voids need to be filled - or to leave the voids open, if the political process can't get its act together. In any event, though, it is submitted here that the dreaded patchwork quilt may well not be the answer.

[Jay McElligott]

The Ninth Circuit panel's attempt to distinguish RILA v Fielder undermines the panel's attempt to avoid preemption. The panel says that, unlike the Maryland statute in RILA, employers who chose not to have ERISA plans would be covered under the San Francisco program and employees whose employers chose to pay into the program would be eligible for free or discounted enrollment in the HAP (health access plan). However, that's an employer provided plan under ERISA, as the briefs seeking and supporting en banc review (including the DOL's) point out. The DOL brief has it right. The panel butchers the law in reading Fort Halifax and Ninth Circuit precedents.

[Tom Green]

No decision of the Ninth Circuit should surprise anyone since that appeals court reversed itself in Albertson's--obviously under political pressure from the Treasury Department. Anyone reading both the first and second opinions in Albertson's witnessed the most embarrassing prose ever issued by so high a court. Once again, the Ninth Circuit seems to have elevated politics over a reasonable interpretation of the law. An independent judicial body it is not.

[Richard J. Remley]

I practice employee benefits law in the San Francisco Bay Area.

Given the members of this three-judge panel and its earlier decision in granting the stay of the district court's decision, yesterday's Ninth Circuit decision should be a surpise to no one. For me, it was a foregone conclusion.

It is also probably of little relevence.

This issue is very likely to be resolved at either the en banc or Supreme Court level. In fact, the membership of the panel probably greatly increases the likelihood of en banc and/or Supreme Court review.