E-Alert Case Updates

Indemnity Claims for Damages Incurred as Penalty for Violation of Age Discrimination in Employment Act Are Preempted

Baltimore County v. Buck Consultants, LLC
(March 29, 2016) United States District Court for the District of Maryland
by Matthew J. McCloskey, Associate
Semmes, Bowen & Semmes (www.semmes.com)

Available at: http://www.mdd.uscourts.gov/Opinions/Opinions/Baltimore%20County
%20v.%20Buck%20MEMO%20AND%20ORDER.pdf

In a recent opinion, the United States District Court for the District of Maryland held that a governmental entity’s claim for indemnification related to damages it anticipated incurring as a result of a violation of the Age Discrimination in Employment Act (“ADEA”) was preempted by the ADEA. 

In 1999, Baltimore County entered into a contract with Defendant, Buck Consultants, LLC, for actuarial services in connection with the County’s Employees’ Retirement System (“ERS”).  The contract contained an indemnity provision providing that Defendant would “indemnify and hold harmless the County, its employees, agents and officials from any and all claims, suits, or demands” arising from the work performed under the terms of the contract.  Under the contract, Defendant’s duties included “interpretations of the benefit provisions of the Retirement Code, advice as to the implication of federal legislation, and advice on legal implementations of proposed legislation.”  The same parties also entered into another contract in 2006 pertaining, in part, to the same subject matter, and containing a substantially similar indemnity clause and scope of services.

In 1999 and 2000, two employees of the County filed charges of age discrimination against the County.  After an investigation, the Equal Employment Opportunity Commission (“EEOC”) filed a lawsuit against the County alleging that it violated the ADEA by requiring older individuals to contribute more to the County’s pension plan than younger individuals.  In 2000, in connection with that litigation, the County sought Defendant’s advice.  Defendant responded with a legal analysis letter stating that an “employee benefit plan does not discriminate against older employees, even if older employees must pay more for the benefit, so long as older employees do not have to bear a greater percentage of the cost of the benefit than a younger employee.”  Contrary to Defendant’s position, however, the United States District Court for the District of Maryland ultimately found Baltimore County liable for violations of the ADEA.  The Fourth Circuit affirmed that decision, and remanded the case for consideration of damages.

Subsequently, Baltimore County filed this lawsuit against Defendant, alleging that Defendant “breached its duty to provide competent actuarial and legal advice” to the County.  The County sought a declaratory judgment that Defendant was obligated to “defend, indemnify and hold harmless” the County in the litigation with the EEOC.  Defendant moved to dismiss, arguing that the County’s request was preempted by the ADEA and that the County had not sufficiently alleged that it violated duties Defendant owed to the County.

Judge Richard D. Bennett granted, in part, and denied, in part, Defendant’s motion.  The Court first addressed whether Defendant could be held responsible to “indemnify and hold harmless” the County in the EEOC lawsuit.  In this regard, the Court noted that the Fourth Circuit has not directly addressed whether claims for indemnification are preempted by the ADEA.  Nevertheless, the Fourth Circuit has held that claims for indemnification in other contexts were preempted by federal statutes where the indemnification would frustrate the goal of the federal statute.  For example, in Lyle v. Food Lion, Inc., 954 F.2d 984 (4th Cir. 1992), the Fourth Circuit held that an employer could not be indemnified for its own violation of the Fair Labor Standards Act, as to do so “would undermine employers’ incentives to abide by the Act,” which was a comprehensive statute containing no provision permitting such indemnity.  In other words, where a federal statute provides for monetary penalties as a means of enforcement, indemnity agreements that would apply to those penalties are generally preempted by the statute unless expressly permitted.

Furthermore, the Court cited several cases from other jurisdictions which held that indemnification claims for violations of the ADEA were found to be preempted.  In light of the weight of the foregoing authority, the Court concluded that, to the extent the County sought indemnification for damages it incurred in the lawsuit with the EEOC, the ADEA preempted its claim.

Turning then to whether Defendant was obligated to “defend” the County under the indemnity provision, the Court reached a different conclusion.  Unlike the provisions relating to monetary indemnity, Defendant’s obligation to “defend” the County would not frustrate the goals of the ADEA and thus was not preempted.  Because the County alleged that it relied on Defendant’s review and approval of its ERS plan, the County had sufficiently stated a claim in this regard.  Consequently, the Court denied Defendant’s motion to the extent it sought to dismiss the County’s request for a declaratory judgment that Defendant was required to defend it.

The Court also rejected Defendant’s arguments that: (1) the contracts it entered into with the County did not require it to provide legal advice to the County; and (2) Defendant did not advise the County that the ERS complied with the ADEA.  The Court was persuaded that the plain language of the contract required Defendant to provide “advice on legal implementations of proposed legislation,” which effectively constituted legal advice.  Furthermore, the County alleged that Defendant represented to it that the ERS was “in conformance with all applicable laws.”  Under these circumstances, the County had sufficiently alleged that Defendant advised it that the ERS did not violate the ADEA.