Court: District Court, D. Maine; March 1, 2018; Federal District Court
Lawrence Miller filed breach of contract and promissory estoppel claims against Starkey Laboratories, Inc. in state court after his termination. Starkey removed the case to federal court, asserting that the employment contract provisions at issue are part of an Employee Retirement Income Security Act (ERISA) pension benefit plan, thereby preempting Miller's state-law claims. Starkey sought dismissal of the case on these grounds. Miller moved to remand the case back to state court and requested sanctions against Starkey for its removal, claiming that the loyalty provision of his contract does not constitute an ERISA plan but is a standalone contractual term.
The court determined that Starkey failed to demonstrate that the contracts establish an ERISA pension plan, leading to the granting of Miller's Motion to Remand and the denial of Starkey's Motion to Dismiss as moot. However, due to the reasonableness of Starkey's legal position, Miller's Motion for Sanctions was denied. Miller was employed by Starkey from 1987 until his termination on September 8, 2015, and was a Senior Vice President at the time. His claims stem from Starkey's refusal to pay post-separation benefits outlined in his employment contract, which included provisions on termination and a long-term loyalty bonus, the latter being a percentage of his salary paid over six annual installments.
Miller's motion to remand is based on the argument that the loyalty provision in question is not part of an ERISA plan, which raises a jurisdictional issue that the Court must resolve first. If the loyalty provision is determined to be part of an ERISA plan, the Court has jurisdiction to evaluate Starkey's Motion to Dismiss; if not, remand to state court is necessary. Under 28 U.S.C. § 1441, a defendant can remove a case to federal court only if it could have originally been filed there. The plaintiff can seek remand if the court lacks subject matter jurisdiction, and the defendant must prove federal jurisdiction by a preponderance of the evidence. In cases of doubt regarding jurisdiction, the court should favor remand to state court.
The sole basis for jurisdiction in this case is federal question jurisdiction under 28 U.S.C. § 1331, which pertains to actions arising under U.S. laws. The Court follows the "well-pleaded complaint rule," examining only the face of the complaint to determine jurisdiction, and typically cannot establish federal question jurisdiction based on defenses or counterclaims, except in instances of complete preemption. Under 29 U.S.C. § 1132, any claim by a plan participant for relief available under ERISA's civil enforcement provision, even if framed as a state-law claim, is deemed to arise under federal law and thus removable. The Court will analyze whether the essence of Miller's state-law claims aligns with claims that could be brought under ERISA.
ERISA categorizes plans into employee welfare benefit plans and employee pension benefit plans. Starkey contends that the loyalty benefit fits within the pension plan definition as outlined by ERISA, which includes any plan established by an employer or employee organization that provides retirement income or defers income for employees beyond their covered employment.
Starkey contends that the loyalty provision is part of a "Top Hat" plan, which is defined as an unfunded plan maintained by an employer primarily for providing deferred compensation to a select group of highly compensated employees. Such plans are exempt from certain ERISA requirements but not from its enforcement provisions, allowing for claims to enforce them to be completely preempted. Miller does not dispute that the loyalty benefit meets the criteria for a Top Hat plan; however, he argues that the loyalty provision does not meet all ERISA requirements necessary for it to constitute an ERISA plan. Specifically, he claims that the individual contract with Starkey cannot create an ERISA benefit plan due to its nature as a contract with a single employee and that the loyalty benefit lacks an ongoing administrative scheme. Although Miller's argument regarding the individual contract is weakened by similar provisions in other executive contracts, Starkey has failed to prove that an ongoing administrative scheme exists. Consequently, it has not shown that Miller's claims could be brought under ERISA, leading the Court to favor remanding the case to state court.
In the Eighth Circuit, individual contracts providing severance benefits to a single employee do not qualify as ERISA employee welfare benefit plans, as the language in ERISA implies benefits for a class of employees. Although Miller asserts that the Schieffer case supports this view, its holding is limited to welfare benefit plans, and the Eighth Circuit has not extended it to pension plans. Some district courts have found that Schieffer does not apply to pension plans, and Starkey argues that the contracts for senior executives collectively form a program under ERISA. If only Miller's contract were considered, the Schieffer decision would likely lead to doubts about federal jurisdiction justifying remand; however, Starkey's assertion that multiple contracts together constitute a program complicates this issue.
Pension plans can be established based on surrounding circumstances, as defined by 29 U.S.C. 1002(2)(A), which encompasses any plan that provides retirement income or defers income. A limited number of executive contracts can constitute a pension plan, as illustrated by DuBrul v. Citrosuco N. Am. Inc., where five contracts were sufficient at the motion to dismiss stage. Starkey's argument that the contracts form a single ERISA scheme due to their retirement or separation benefits is deemed excessive. Notably, six contracts, including Miller's, offer a related "long-term services and loyalty" benefit, with four specifying annual installment payments and three sharing the same payment schedule. Miller concedes that his contract's loyalty provision meets the criteria for a Top Hat plan, leading the Court to conclude that the circumstances surrounding the three contracts collectively establish a deferred-compensation program under Section 1002(2)(A).
Regarding ongoing administrative schemes, the Supreme Court differentiates between mere benefits and ERISA benefit plans in the context of severance benefits offered to a class of employees, as established in Fort Halifax Packing Co. v. Coyne. Miller argues that the loyalty benefit does not necessitate ongoing administration. The key question is whether the plan requires a separate administrative scheme for benefit administration, with simpler determinations not mandating such a scheme. An administrative system becomes necessary when an employer must analyze individual employee circumstances to ascertain eligibility and benefit levels. The determination of whether ongoing administration is required considers several factors: [1] the nature of payments (lump sum vs. continuous), [2] the employer's long-term obligations regarding payments, [3] whether severance payments are contingent upon unique events or general terminations, and [4] the need for case-by-case employee reviews, as elaborated in Crews v. Gen. Am. Life Ins. Co.
A lump-sum payment does not necessitate an ongoing administrative scheme when the employer has no discretion in the decision-making process, as established in Kulinski. The employee retains the discretion to determine eligibility for benefits, leading to automatic awards if specific termination conditions are met. Conversely, an ongoing scheme is required when the employer must assess whether a termination is with or without cause, particularly for benefits that continue over time, as noted in Petersen. In this case, the first three Crews factors indicate that the loyalty benefit involves ongoing administration, as it is paid in six installments over five years, akin to Petersen's long-term obligations. However, unlike the large plans in Petersen and Emmenegger, this provision applies to a limited number of employees for a shorter duration. The fourth factor suggests that no ongoing administration is necessary since Starkey's calculations for benefit payments do not involve discretion, as the loyalty provision explicitly restricts discretion regarding eligibility. The term "termination" encompasses various forms of employment separation. Consequently, Starkey's lack of discretion outweighs the fact that benefits are distributed over time, leading the Court to conclude that there is no requirement for a separate ongoing administrative scheme. Miller's motion to remand is granted, and costs and fees are denied since Starkey had a reasonable basis for removal based on ERISA preemption arguments.
Miller seeks sanctions against Starkey, arguing that Starkey's removal and Motion to Dismiss violated Rule 11(b)(2) due to a lack of reasonable legal basis for asserting that the loyalty provision is part of an ERISA plan, and violated Rule 11(b)(1) for being filed with the improper intent to cause delay. The court emphasizes that sanctions should be considered carefully, referencing O'Connell v. Champion Int'l Corp., and concludes that Starkey's legal position was not unreasonable or incompetent, leading to the denial of sanctions.
The court orders the following: Miller's Motion to Remand is granted, Starkey's Motion to Dismiss is denied as moot, and Miller's Motion for Sanctions is denied.
Regarding ERISA, the statute permits civil actions by participants or beneficiaries to recover benefits or enforce rights under the plan, as outlined in 29 U.S.C. 1132(a)(1)(B). A reasonable person must be able to ascertain benefits and procedures based on surrounding circumstances (Harris v. Ark. Book Co.). The Eighth Circuit has not specified the required class size for employee plans but noted that ERISA's predecessor law exempted plans with fewer than 26 employees, suggesting that plans must involve at least two employees.
Miller contends the well-pleaded complaint rule prevents consideration of other contracts, but the court clarifies that this rule does not apply in cases of complete preemption, allowing the court to examine matters outside the pleadings for jurisdictional disputes. Starkey asserts that the agreements require determining the reason for employee termination, highlighting a "severance compensation" provision, which differs from the loyalty provision. The court notes that the loyalty provision guarantees benefits regardless of termination cause, indicating that the severance provision only affects the timing of benefit calculations and payments.
