Opinion
CIVIL ACTION NO. 3:01-CV-0056-C.
October 18, 2001.
MEMORANDUM ORDER
Before the court is the motion of the plaintiff Paul A. Dumas ("Dumas") to remand the instant action to the state district court from which it was previously removed. For the reasons stated below, the motion is granted.
I. BACKGROUND
On or about November 30, 1999, Dumas and the defendant Excel Communications, Inc. ("Excel") entered into an Executive Security Agreement ("Security Agreement"). Notice of Removal, Exhibit A, Documents from State Court Action, Exhibit 2, Plaintiff's Original Petition ("Petition") ¶ 6; see also id., Exhibit 1, Executive Security Agreement. On July 7, 2000, the parties amended the Security Agreement. Petition ¶ 7; see also id., Exhibit 2, Amended Executive Security Agreement ("Amended Security Agreement").
Under the Amended Security Agreement, Dumas' employment could be terminated for "good reason." Amended Security Agreement at 2. Specifically, the Amended Security Agreement contained the following clause.
Termination for Good Reason. The Executive's employment under this Agreement and the Term may be terminated by the Executive for "Good Reason" upon thirty (30) days' written notice to the Company. For this purpose, "Good Reason" means (i) the Executive's being required to relocate to an office that is more than 50 miles from the Company's current office in Dallas, Texas, (ii) there is a material diminution in the Executive's authority, salary, bonus opportunity, benefits or duties as the Vice President-Human Resources. (iii) In the event there is a change in reporting structure, specifically any organization reporting other than to Kevin Pennington, EVP-Administration. If the Executive shall terminate this Agreement for "Good Reason," the Executive shall be entitled to receive the same payments and benefits as they would be entitled to receive pursuant to a Termination without Cause.Id.
The Amended Security Agreement provided that an Executive terminated by Excel "without cause" was entitled to the following:
• Severance compensation equal to Executive's annual Base Salary for a period of (12 months) less appropriate withholding.
• Incentive compensation paid on a pro-rated basis equal to the prior year's achievement or 100% of target whichever is greater.
• Executive will be entitled to COBRA reimbursement for a period of twelve months from the date of termination.Id.
On January 12, 2001, Kevin Pennington terminated his employment with Excel, thereby triggering section (iii) of the "Termination for Good Reason." Petition ¶ 9; Plaintiff's Motion to Remand and Supporting Memorandum ("Motion") at 4-5. On March 5, 2001, Dumas tendered his written termination notice to Christina Gold ("Gold"), Excel's CEO, and demanded the compensation specified in his Amended Security Agreement. Petition ¶ 10; see also id., Exhibit 3, Confidential Memorandum from Dumas to Gold dated March 5, 2001; Motion at 1. Two weeks later, Gold rejected Dumas' written notice. Petition ¶ 11. Excel refused to compensate Dumas pursuant to the terms of the Amended Security Agreement. Id.
On April 25, 2001, Dumas filed the instant suit in the 134th Judicial District Court of Dallas County, Texas, alleging breach of contract. See Petition at 3-4. On May 21, 2001, Excel removed Dumas's suit to this court on the grounds of federal question jurisdiction. See Notice of Removal ¶ 3. Specifically, Excel argues that its security agreements require an individualized determination of whether severance payments are due, a decision governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., and that Dumas's breach of contract claim under the Amended Security Agreement is completely preempted by federal law. See id.
II. ANALYSIS A. Contentions of the Parties
Excel maintains that the Amended Security Agreement "is part of an overall executive retention plan that began in mid-1999 and involved similar agreements with approximately 48 other Excel executives." Defendant's Response to Motion to Remand ("Response") at 1. As a result, Excel avers, it must evaluate on a "case-by-case" basis whether an executive was terminated with or without cause, whether he or she resigned for good reason, and whether a particular Excel executive qualifies for severance benefits under his or her agreement. Id.Excel's executive security agreements were not identical, but they typically contained a promise to pay severance benefits if Excel terminated an executive "without cause." Id. at 2. Some of the agreements also included a promise to pay severance benefits if the executive resigned for "good reason." Id. The definition of "good reason" in these agreements often included the following: "(i) the Executive's being required to relocate to an office that is more than 50 miles from the Company's current office in Dallas, Texas, [and] (ii) there is a material diminution in the Executive's authority, salary, bonus opportunity, benefits or duties. . . ." Id; see also Amended Security Agreement at 2. However, no other agreement — except Dumas's Amended Security Agreement — included a definition of "good reason" as follows: "(iii) In the event there is a change in reporting structure, specifically any organization reporting other than to Kevin Pennington, EVP-Administration. If the Executive shall terminate this Agreement for "Good Reason," the Executive shall be entitled to receive the same payments and benefits as they would be entitled to receive pursuant to a Termination without Cause." Response at 2 (emphasis added); see also Affidavit of Jackie Jalomo ("Jalomo Affidavit") ¶ 4, located in Appendix to Defendant's Response to Motion to Remand.
Excel contends that its calculation of these severance benefits under the executive security agreements often involves different amounts and types of benefits over a varying period of time. Response at 1-3. That is, Excel cannot satisfy its obligations under these agreements by making a single lump payment to each executive at one particular point in time, and no single event triggers Excel's obligations to all of the executives or to any one executive. Id. at 3. The calculation of severance payment such as the one which Dumas is seeking would require Excel to perform several tasks under the "Termination without Cause" section of his Amended Security Agreement. Jalomo Affidavit ¶ 6. Excel would have to compute Dumas's bonus amount by comparing his prior year's achievement versus target against 100 percent of the current year's target; make COBRA reimbursement payments in twelve monthly installments during the first year after Dumas's termination of employment; pay Dumas's salary either in a lump sum or in monthly payments over a period of up to 18 months; and deduct any appropriate taxes, FICA, etc. Id. Excel's staff administers the payments. Id.
Dumas alleges that the latter clause regarding the termination of Pennington's employment with Excel makes his contract with Excel critically different that the other security agreements issued to 49 of Excel's other executives. Motion at 2. According to Dumas, the payment of severance benefits to him is triggered by a single, unique event which does not require an ongoing administrative plan under ERISA. Id. at 3.
B. Preemption Standard
The Supreme Court discussed at length the effects of ERISA preemption in Metropolitan Life Insurance Company v. Taylor, 481 U.S. 58 (1987). Specifically, the Court held the ERISA is more than a defense to claims under state law. Id. at 63. Instead, the Court held, the plaintiff's state law cause of action was displaced and recharacterized as a claim arising under federal law. Id. The Court concluded that ERISA preemption serves as an exception to the "well-pleaded complaint" rule and thereby can serve as the basis of removal from state court to federal court. Id. at 63-64.
Generally, under the well-pleaded complaint rule, a case is not removable where the complaint asserts only state law causes of action. Kramer v. Smith Barney, 80 F.3d 1080, 1082 (5th Cir. 1996) (citing Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 10 (1983)). "One corollary of the well-pleaded complaint rule developed in the case law, however, is that Congress may so completely pre-empt a particular area that any civil complaint raising this select group of claims is necessarily federal in character." Metropolitan, 481 U.S. at 63-64. Cases implicating these preempted areas may be removed to federal court "even if the complaint is artfully pleaded to include solely state law claims for relief. . . ." Heimann v. National Elevator Industry Pension Fund, 187 F.3d 493, 500 (5th Cir. 1999).
A court must be careful, however, to distinguish between two types of federal preemption. Ordinary federal preemption is a federal defense to a plaintiff's suit derived from an express statutory term or from a direct conflict between federal and state laws. Because it is simply a defense, ordinary preemption "does not appear on the face of a well-pleaded complaint, and, thus, does not authorize removal to a federal court." Id. "Complete preemption," on the other hand, converts a state law cause of action into a federal claim, resulting in the establishment of federal question jurisdiction. See Metropolitan, 481 U.S. at 64-67. In the instant case, Excel contends that ERISA completely preempts Dumas's state law claim and grants this court federal question jurisdiction. Notice of Removal ¶ 3.
Congressional intent determines whether a federal statute preempts a state cause of action. FMC Corporation v. Holliday, 498 U.S. 52, 56 (1990). Any inquiry into such intent necessarily includes an examination of the statutory language and the structure and purpose of the statute taken in its entirety. Id. at 56-57. ERISA expressly preempts state laws "relating to" employee benefit plans. See 29 U.S.C. § 1144(a); see also McNeil v. Time Insurance Company, 205 F.3d 179, 189 (5th Cir. 2000), cert. denied, ___ U.S. ___, 121 S.Ct. 1189 (2001); McClelland v. Gronwaldt, 155 F.3d 507, 516 (5th Cir. 1998). "A state law `relates to' an employee benefit plan `if it has a connection with or reference to such a plan.'" Rozzell v. Security Services, Inc., 38 F.3d 819, 821 (5th Cir. 1994) (quoting Shaw v. Delta Air Lines, 463 U.S. 85, 96-97 (1983)).
The ERISA preemption clause states, in relevant part:
Except as provided in subsection (b) of this section, the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title. . . .29 U.S.C. § 1144(a) (emphasis added).
It is well settled that § 1144(a) is deliberately broad and expansive in its language and its application. Manning v. Hayes, 212 F.3d 866, 870 (5th Cir. 2000), cert. denied, ___ U.S. ___ 121 S.Ct. 1401 (2001); Corcoran v. United Healthcare, Inc., 965 F.2d 1321, 1328 (5th Cir.), cert. denied, 506 U.S. 1033 (1992). However, the Fifth Circuit has noted that "[the courts] faithfully followed the Supreme Court's broad reading of `relate to' preemption under § 502(a) in its opinions decided during the first twenty years after ERISA's enactment. Since then, in a trilogy of cases, the Court has confronted the reality that if `relate to' is taken to the furthest stretch of its indeterminacy, preemption will never run its course, for `really, universally, relations stop nowhere.'" Corporate Health Insurance, Inc. v. Texas Department of Insurance, 215 F.3d 526, 532 (5th Cir. 2000) (quoting New York State Conference of Blue Cross Blue Shield Plans v. Travelers Insurance Group, 514 U.S. 645, 655 (1995)), pet. for cert. filed, 69 U.S.L.W. 3317 (October 24, 2000).
Causes of action founded on state law are barred by § 1144(a) if (1) the state law claim addresses an area of exclusive federal concern, such as the right to receive benefits under the terms of an ERISA plan; and (2) the claim directly affects the relationship between the traditional ERISA entities — the employer, the plan and its fiduciaries, and the participants and beneficiaries. Hubbard v. Blue Cross Blue Shield Association, 42 F.3d 942, 945 (5th Cir.), cert. denied, 515 U.S. 1122 (1995); Perkins v. Time Insurance Company, 898 F.2d 470, 473 (5th Cir. 1990) (citations omitted). However, § 1144(a) preemption is not without limits.
State law claims that affect ERISA plans in too tenuous, remote, or peripheral a manner are not preempted by § 1144(a). Rokohl v. Texaco, Inc., 77 F.3d 126, 129 (5th Cir. 1996). When analyzing this association, the court must examine how the state law affects relations among ERISA's named entities. Memorial Hospital System v. Northbrook Life Insurance Company, 904 F.2d 236, 249 (5th Cir. 1990). "[C]ourts are more likely to find that a state law relates to a benefit plan if it affects relations among the principal ERISA entities — the employer, the plan, the plan fiduciaries, and the beneficiaries — than if it affects relations between one of these entities and an outside party, or between two outside parties with only an incidental effect on the plan." Id. (quoting Sommers Drug Stores Co. Employee Profit Sharing Trust v. Corrigan Enterprises, Inc., 793 F.2d 1456, 1467 (5th Cir. 1986), cert. denied, 479 U.S. 1034 (1987)).
The task in determining ERISA preemption is to discern precisely when and if a state law claim reaches the level of remoteness which no longer justifies a finding that it "relates to" an ERISA plan. Without expressly offering a three-part test, courts have examined three separate, yet related, indicia: first, as previously mentioned, an analysis to determine if the relationships among the principal ERISA entities (i.e., employer, fiduciaries, the plan, and its beneficiaries) are affected, Perkins, 898 F.2d at 473; see Sommers Drug Stores, 793 F.2d at 1470; second, the necessity of determining the scope of a party's rights or duties under an ERISA plan, see Smith v. Texas Children's Hospital, 84 F.3d 152, 154-55 (5th Cir. 1996); see also Cefalu v. B.F. Goodrich Company, 871 F.2d 1290, 1292-95 (5th Cir. 1989); and third, "the preemption clause of ERISA must be read in context with the Act as a whole, and with Congress's goal in creating an exclusive federal enclave for the regulation of benefit plans." Memorial Hospital, 904 F.2d at 244.
C. Application of Preemption Standard
Under Fort Halifax Packing Company, Inc. v. Coyne, 482 U.S. 1 (1987), and its progeny, a severance agreement does not constitute an employee welfare benefit plan under ERISA if
(1) it simply requires that the employer make a one-time, lump-sum payment triggered by a single event that might never occur,
(2) it does not require an administrative scheme to meet this obligation, and
(3) the employer does not assume responsibility for making regular benefit payments.
See id. at 12; Fontenot v. NL Industries, Inc., 953 F.2d 960, 962 (5th Cir. 1992).
The hallmark of an ERISA benefit plan is that it requires "an ongoing administrative program to meet the employer's obligation." Fort Halifax, 482 U.S. at 11. Dumas relies on Fontenot and Wells v. General Motors Corporation to argue that a plan providing for a one-time severance payment does not require the administrative program that must be present to constitute an ERISA plan. Motion at 5-7. In Fontenot, the court examined a severance plan that required a company to make a one-time lump sum payment triggered by a single event that might never occur. The court held that "[t]his theoretical possibility of a one-time obligation in the future create[s] no need for an on-going administrative program to process claims and pay benefits." Fontenot, 953 F.2d at 962 (quoting district court decision); see also Fort Halifax, 482 U.S. at 12; Smith v. Baker Hughes International Branches, Inc., 131 F. Supp.2d 920, 925 (S.D. Tex. 2001).
881 F.2d 166 (5th Cir. 1989), cert. denied, 495 U.S. 923 (1990).
Based on Excel's obligations under the Amended Security Agreement summarized above, the court concludes that the agreement does not require much more of Excel than the simple arithmetic and clerical determinations involved in Fort Halifax and other cases holding that a particular severance plan was not an employee welfare benefit plan under ERISA. See, e.g., McLemore v. United States Fidelity Guaranty Company, 829 F. Supp. 192, 197 (S.D. Miss. 1993). The court concludes that Dumas's Amended Security Agreement is not an ERISA plan. Accordingly, Dumas's breach of contract claim is not preempted under ERISA.
III. CONCLUSION
For the reasons stated, the doctrine of ERISA preemption, broad though it is, is not applicable to this case. Dumas's motion to remand is GRANTED, and this case is REMANDED to the 134th Judicial District Court of Dallas County, Texas. The clerk shall mail a certified copy of this order to the district clerk of Dallas County, Texas. 28 U.S.C. § 1447(c).