ERISA Does Not Preempt State Law Claims

In Abraham v. Norcal Waste Systems, Inc., 9th Cir., No. 99-17040, 9/7/01), an appeals court overruled a lower court's decision that ERISA preempted a claim by shareholders (some of whom were also ESOP participants) against Norcal for defaulting on a loan. The appeals court ruled that the plaintiffs could proceed with their suit under state law. Norcal began its life as a worker cooperative, with ownership eventually ending up in the hands of a large number of current and former workers by the 1980s. In 1986, an ESOP was formed to buy out the owners, some of whom were still employees and became ESOP participants. The buyout was structured so that sellers received both cash (obtained from bank loans) and a note from the Norcal ESOP. Norcal then defaulted on its bank loan, causing it to default on the shareholder notes (Norcal has since recovered financnially). Shareholders sued Norcal, the ESOP, and the banks. The defendants argued the claim was preempted by ERISA. A trial court agreed, but the appeals court reversed the ruling, arguing that just because the plaintiffs were also parties in interest under ERISA, this did not negate their standing separately as shareholders. The ESOP participants in the suit were not suing as participants, but as shareholders, and therefore their claims should stand, the court said.