Court: Court of Appeals for the Eighth Circuit; March 28, 2013; Federal Appellate Court
In December 2004, Dakota, Minnesota, Eastern Railroad (DM E) and its President, Kevin Schieffer, signed an Employment Agreement aimed at retaining Schieffer during a change of control. In October 2008, DM E terminated Schieffer without cause, activating severance provisions in the Agreement. Schieffer sought arbitration for disputes over the owed amounts, prompting DM E to file a federal court action to block the arbitration, claiming jurisdiction under 28 U.S.C. § 1331 due to the involvement of an employee benefit plan governed by the Employee Retirement Income Security Act of 1974 (ERISA). A prior ruling established that the Employment Agreement was not an ERISA welfare benefit plan, but the court remanded for further evaluation of whether some contract demands fell under ERISA jurisdiction, potentially allowing discretionary supplemental jurisdiction over remaining claims.
On remand, the district court dismissed DM E’s complaint for lack of jurisdiction, determining Schieffer’s demands stemmed from a standalone employee contract referencing ERISA plans rather than actual ERISA benefits. DM E appealed, and the appellate court reviewed the dismissal de novo, affirming it. The appeal centered on federal question jurisdiction rather than preemption; if an ERISA plan is not established, the claim must be dismissed. The earlier case focused on the Employment Agreement's ERISA status, which was ruled as not being an ERISA plan. However, the jurisdictional issue remained unresolved, as some aspects of the multi-faceted contract could be governed by ERISA while others by state law. The inquiry included Schieffer's claims regarding health insurance, life and disability insurance, retirement benefits, and vacation compensation. If these claims were linked to ERISA plans, federal jurisdiction would apply; otherwise, state law remedies would prevail, negating federal subject matter jurisdiction.
DM E initiated a declaratory judgment action, necessitating an independent federal jurisdiction basis due to the lack of diversity jurisdiction. The Declaratory Judgment Act does not extend federal court jurisdiction, as established in Bacon v. Neer. Federal courts typically accept original jurisdiction over declaratory judgment actions when a potential coercive action by the defendant would raise a federal question. DM E's suit aims to preemptively counter Schieffer's anticipated action to compel arbitration, which would fall under the Federal Arbitration Act (FAA), but the FAA does not grant federal jurisdiction either.
The jurisdictional question hinges on whether Schieffer seeks to enforce rights under ERISA. The determination does not depend solely on ERISA claims in DM E's complaint or Schieffer's potential FAA action. Instead, it focuses on whether Schieffer is claiming benefits from ERISA plans or merely under an independent contract. Federal courts can assert jurisdiction over colorable ERISA claims but lack jurisdiction if the claims are deemed totally meritless.
The Employment Agreement specifies that DM E must provide Schieffer with employee benefits for at least three years after a severance payment. Schieffer's arbitration demand alleges breaches of this obligation. The district court found that DM E's ERISA plans do not cover the benefits Schieffer seeks, which can only be awarded under the Employment Agreement.
The court determined that Schieffer's arbitration demands pertain to a single-employee contract rather than claims under ERISA plans. The Employment Agreement, which includes provisions for post-termination benefits, is distinct from ERISA plans and does not amend them, as supported by the lack of evidence indicating intent to amend. The district court found that the benefits sought were independent of ERISA plans; they were funded by DM E's general assets and would not disrupt ERISA's uniformity. Consequently, the court affirmed that it lacked federal subject matter jurisdiction to address the arbitration issue or any related matters concerning the Employment Agreement. DM E did not invoke the Federal Arbitration Act (FAA) for relief, as it aimed to enjoin arbitration rather than compel it, which also did not confer federal jurisdiction.
