Opinion
Case No. 20-cv-06088-JSW
2021-07-20
Dean Luca KRAUSE, Plaintiff, v. MEYER CORPORATION, U.S., et al., Defendants.
Lisa Sharon Serebin, Joseph Andrew Creitz, Creitz & Serebin LLP, San Francisco, CA, for Plaintiff. Harvey L. Rochman, Kate Marie Hammond, Robert Howard Platt, Manatt Phelps & Phillips, LLP, Los Angeles, CA, Kevin Patrick Dwight, Stephanie Anne Roeser, Manatt, Phelps and Phillips LLP, San Francisco, CA, for Defendant Meyer Corporation, U.S.
Lisa Sharon Serebin, Joseph Andrew Creitz, Creitz & Serebin LLP, San Francisco, CA, for Plaintiff.
Harvey L. Rochman, Kate Marie Hammond, Robert Howard Platt, Manatt Phelps & Phillips, LLP, Los Angeles, CA, Kevin Patrick Dwight, Stephanie Anne Roeser, Manatt, Phelps and Phillips LLP, San Francisco, CA, for Defendant Meyer Corporation, U.S.
ORDER GRANTING MOTION TO DISMISS AMENDED COMPLAINT
Re: Dkt. No. 24
JEFFREY S. WHITE, United States District Judge Now before the Court for consideration is the motion to dismiss the first amended complaint submitted by Defendant Meyer Corporation, U.S. ("Defendant" or "Meyer"). The Court has considered the parties' papers, relevant legal authority, and the record in the case, and it finds this matter suitable for disposition without oral argument. See N.D. Civ. L.R. 7-1(b). For the following reasons, the Court GRANTS Defendant's motion.
BACKGROUND
A. Factual Background.
Plaintiff Dean Luca Krause ("Plaintiff") brings this action for declaratory relief, injunctive relief, and other equitable remedies under the Employee Retirement Income Security Act, 29 U.S.C. section 1132(a)(3) ("ERISA").
Plaintiff is a former employee and executive of Defendant. (FAC ¶ 8.) During his employment, Plaintiff participated in the Meyer Corporation Golden Executive Bonus Arrangement (the "Plan"). (Id. ¶¶ 1, 8; see also id. , Ex. A ("Bonus Agreement").) The Plan's stated purpose was to reward Plaintiff for past service and provide additional incentives for future employment. (Id. ¶ 11.) The Plan operated as follows: Plaintiff was permitted to designate a specific amount of income to be withheld from his paycheck and to be paid instead to an annuity policy purchased through Minnesota Life Insurance Company. (Bonus Agreement at § 1; FAC ¶¶ 1, 9.) Defendant agreed to pay Plaintiff an annual bonus, the amount of which was based upon the amounts withheld from Plaintiff's paycheck and paid to the annuity. (Bonus Agreement at § 2.) The annual bonus was intended to cover the state and federal income taxes owed on the amount Plaintiff withheld and invested in his annuity. (Id. ) Defendant deposited the bonus payment directly with state and federal payroll authorities as payroll income tax withholding on behalf of Plaintiff. (Id. )
Plaintiff has attached the Plan to the FAC, and the Court may consider the Plan under the doctrine of incorporation by reference. See Knievel v. ESPN , 393 F.3d 1068, 1076 (9th Cir. 2005).
Pursuant to the Plan, the annual bonus payments were subject to certain repayment obligations. The amount of the repayment obligation depended on the amount of time Plaintiff was employed with Defendant. For example, if Plaintiff terminated his employment with Defendant before he had been employed for ten years, he would be obligated to repay all the bonus payments plus an additional amount of interest. (Bonus Agreement at § 5(a).) If Plaintiff terminated his employment after ten years but before twenty-one years, his repayment obligation would be sixty percent of the bonus payments plus an additional amount of interest. (Id. at § 5(b).) If Plaintiff maintained his employment for twenty years, he would have no obligation to repay any of the bonus payments. (Id. at § 5(c).)
The Plan also outlined the required repayment obligations in the event of specific situations. For example, after the age of 65, no repayment obligations exist. (Id. at § 5(d).) Relatedly, if Plaintiff were offered and accepted early retirement before the age of 65, the repayment obligations would be released according to a set schedule. (Id. at § 8.) The Plan also provided that in the event of Plaintiff's death during employment, his estate and beneficiaries would have no repayment obligations. (Id. at § 5(e).) Similarly, the Plan provided that if Plaintiff were to become totally disabled, he would be released from his repayment obligations. (Id. at § 7.) With regard to termination, if Defendant were to terminate Plaintiff for cause, all applicable repayment obligations based on the length of time of employment apply. (Id. at § 5(f).) If Defendant were to terminate Plaintiff for any reason other than cause, no repayment obligations attach. (Id. )
Plaintiff purchased and owned the annuity. (Bonus Agreement at § 3.) Defendant did not have a right to the funds in the annuity. (See id. ) However, the Plan contained an endorsement of ownership rights, which required Plaintiff to obtain Defendant's consent before exercising certain rights under his annuity. (Bonus Agreement at p. 7.) Specifically, Plaintiff was required to obtain Defendant's consent before he could: "(a) surrender the [annuity], (b) arrange contract loans, (c) make cash withdrawals, (d) change the death benefit, (e) assign the [annuity] as collateral security, (f) change the ownership of the [annuity], (g) pledge or assign the [annuity], or (h) change the [annuity] dividend option." (Id. )
Plaintiff alleges that he sought a distribution from his annuity in January 19, 2020. (FAC ¶ 19.) According to Plaintiff, Defendant refused to provide consent for the distribution on the basis that Plaintiff was terminated for cause and had not satisfied his repayment obligations. (Id. ¶ 20.) Defendant contends that Plaintiff is required to satisfy applicable repayment obligations before it will consent to the distribution. (See id. )
Plaintiff alleges that the Plan is an Employee Pension Benefit Plan within the meaning of ERISA, 29 U.S.C. section 1002(2)(A). (FAC ¶ 1.) Plaintiff alleges that because the Plan is an ERISA plan, the repayment obligations violate ERISA's vesting and forfeiture rules. Plaintiff seeks declaratory relief that the Plan is a defined contribution retirement plan regulated by ERISA, plan reformation striking the repayment obligations as unlawful forfeiture provisions and equitable relief for breach of fiduciary duty under ERISA.
B. Procedural Background.
Plaintiff filed the original complaint in this action on August 28, 2020. (Dkt. No. 1.) Defendant moved to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(6) on the basis that Plaintiff failed to allege the existence of an ERISA plan. (Dkt. No. 14.) On January 12, 2021, the Court issued an order granting Defendant's motion to dismiss. (Dkt. No. 20.) The Court determined that the primary purpose of the Plan was to reward employees for past service and incentivize continued employment—not provide retirement income. The Court also noted that Plaintiff had not sufficiently alleged surrounding circumstances that would establish the Plan as an ERISA-governed plan. The Court also found that Plaintiff had not alleged the existence of an ongoing administrative scheme. The Court permitted Plaintiff leave to amend the complaint.
On February 2, 2021, Plaintiff filed the FAC. (Dkt. No. 21.) Plaintiff now alleges that although the Plan's stated purpose was to reward employees for past service and provide incentives for future employment, the primary function of the Plan was to provide retirement benefits to select employees by allowing deferral of current income into an annuity to facilitate saving for retirement. (FAC ¶ 11.) Plaintiff alleges this is so because the Plan's repayment obligations cease at age 65, and under certain circumstances permit an employee who is offered early retirement to be released from repayment obligations, making the Plan a retirement income vehicle. (Id. ) Plaintiff also now alleges that representatives of Defendant told him the Plan was intended as a vehicle for retirement savings and retirement income. (Id. ¶ 12.) He alleges that he encouraged other executives to participate in the Plan on the basis that it would defer compensation for retirement savings. (Id. )
Plaintiff alleges that the Plan created and imposed an ongoing discretionary administrative scheme. (FAC ¶ 15.) Plaintiff alleges that Defendant had the following administrative obligations: (1) identify which employees would be invited to participate in the Plan; (2) enroll the employees and prepare the documents; (3) calculate and remit employees' deferred income contributions through bi-monthly payroll; (4) determine whether individual employees are eligible for early retirement or release of repayment obligations under the Plan; (5) calculate and remit the bonus to tax authorities on an annual basis; (6) at termination, determine if it is entitled to repayment of Bonus payments; (7) retain the right to monitor access to the Plan. (Id. )
Defendant moved to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) once again arguing that Plaintiff has failed to allege the existence of an ERISA Plan. The motion is fully briefed.
The Court will address additional facts as necessary in the analysis.
ANALYSIS
A. Applicable Legal Standard.
A motion to dismiss is proper under Federal Rule of Civil Procedure 12(b)(6) where the pleadings fail to state a claim upon which relief can be granted. A court's "inquiry is limited to the allegations in the complaint, which are accepted as true and construed in the light most favorable to the plaintiff." Lazy Y Ranch Ltd. v. Behrens , 546 F.3d 580, 588 (9th Cir. 2008). Even under the liberal pleading standard of Federal Rule of Civil Procedure 8(a)(2), "a plaintiff's obligation to provide ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and formulaic recitation of the elements of a cause of action will not do." Twombly , 550 U.S. at 555, 127 S.Ct. 1955 (citing Papasan v. Allain , 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986) ). Pursuant to Twombly , a plaintiff cannot merely allege conduct that is conceivable but must instead allege "enough facts to state a claim to relief that is plausible on its face." Id. at 570, 127 S.Ct. 1955. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ). If the allegations are insufficient to state a claim, a court should grant leave to amend unless amendment would be futile. See, e.g., Reddy v. Litton Indus., Inc. , 912 F.2d 291, 296 (9th Cir. 1990) ; Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv., Inc. , 911 F.2d 242, 246-47 (9th Cir. 1990).
B. Plaintiff Fails to Allege that the Plan Provides Retirement Income or that its Primary Purpose was to Defer Compensation Extending to Termination.
Title I of ERISA applies to "any employee benefit plan." 29 U.S.C. § 1003(a). An employee benefit plan is defined as "an employee welfare benefit plan or employee pension benefit plan or a plan which is both an employee welfare benefit plan and an employee pension benefit plan." 29 U.S.C. § 1002(3). "Pension" benefit plans and "welfare" benefit plans have different definitions, criteria and scope. 29 U.S.C. § 1002(1) - (2)(A). Plaintiff alleges that the Plan is a "pension" benefit plan under 29 U.S.C. § 1002(2)(A).
An ERISA-regulated "employee benefit pension plan" is defined as:
[A]ny plan, fund, or program which was heretofore or hereafter established or maintained by an employer, or by an employee organization or by both, to the extent that by its express terms or as a result of surrounding circumstances such plan, fund or program—
(i) provides retirement income to employees, or
(ii) results in a deferral of income by employees for periods extended to the termination of covered employment or beyond, regardless of the method of calculating the contributions made to the plan, the method of calculating the benefits under the plan or the method of distributing benefits from the plan.
In determining whether an ERISA pension plan exists, the Ninth Circuit looks at the "primary purpose" of the agreement at issue. Rich v. Shrader , 823 F.3d 1205, 1210 (9th Cir. 2016). Here, the Plan states that its purpose is to "reward [e]mployee[s] for past service and provide additional incentives to encourage [e]mployee[s] for continued employment with [Meyer]" through an annual personal tax liability bonus that the employee receives based on the withholding of a designated amount of his paycheck. (Bonus Agreement at p.1.) By its express terms, the Plan operated by allowing Plaintiff to elect to withhold a portion of his paycheck to be paid into an annuity, which Plaintiff owned. Plaintiff would then receive an annual bonus, paid to state and federal payroll authorities, which was intended to cover the income taxes on the withheld income. Under the Plan, the annuity is Plaintiff's property, and Defendant has no rights to the funds in the annuity. The Plan also does not determine the timing of annuity payments or benefits. Plaintiff's compensation was paid as earned, invested into an annuity owned by Plaintiff, and a bonus was paid on an annual basis. Accordingly, as the Court previously found, on its face the Plan neither provides for retirement income nor defers income for periods extended to the termination of covered employment. See Rich , 823 F.3d at 1211 (finding the fact that plan participants could hold their shares until the end of employment insufficient to establish ERISA coverage where the plan's primary purpose was not the deferral of compensation and "the mere possibility that income can be deferred does not mandate ERISA coverage.").
Plaintiff argues that regardless of its stated purpose, the Plan functioned to help Plaintiff save for retirement and provide for early retirement benefits. Plaintiff bases this argument on two provisions of the Plan that address retirement. (See FAC ¶ 11.) The first provision states that no bonus repayment is required once Plaintiff reaches the age of 65. (See Bonus Agreement at § 5(d).) The second provision deals with early retirement and explains that if Plaintiff is offered and accepts early retirement, his bonus payments will not be subject to repayment obligations. (Id. at § 8.) Neither provision, however, establishes that the Plan operated to provide retirement income or defer income to retirement.
Plaintiff's focus on these two provisions ignores numerous other provisions of the Plan, which outline the terms of Plaintiff's bonus repayment obligations and ties those obligations to the length of time Plaintiff maintains employment with Defendant. For example, if a participating employee terminates his employment with Defendant any time after twenty years of service, the employee has no repayment obligation. Additionally, in the event of the employee's death or total disability, no repayment obligations are imposed. And if Defendant asked a participating employee to relocate and the employee decided to terminate his employment instead, repayment obligations would not attach. On the other hand, a participating employee would be obligated to repay the entire bonus if the employee terminates his employment with Defendant before he has been continuously employed for ten years, and would be required to repay a portion of the bonus if the employee terminates his employment with Defendant after ten years of service but before twenty-one years of service.
These provisions do not condition Plaintiff's bonus repayment obligations on retirement. Under the Plan, the obligation to repay portions of the bonus, if any, is based primarily on the passage of fixed periods of time. The longer Plaintiff remained employed with Defendant, the lesser the repayment obligation. This is consistent with the Plan's stated purpose of rewarding past performance and incentivizing continued employment with Defendant. See Emmenegger v. Bull Moose Tube Co. , 197 F.3d 929, 933 (8th Cir. 1999) (finding that although a stock plan's vesting requirement could result in the deferral of payment until termination or retirement, the vesting requirement, "by conditioning awards upon continued service," reinforced the conclusion that the plan was a non-ERISA bonus plan).
Plaintiff also argues that the Plan restricted access to the funds in his annuity to support his argument that the Plan's purpose was to provide retirement income. The endorsement to the Plan requires Plaintiff to obtain Defendant's written consent prior to taking certain actions related to the funds in the annuity, including making a cash withdrawal. However, the endorsement does not require Plaintiff to wait until termination or retirement to request Defendant's consent to make a cash withdrawal. Indeed, Plaintiff alleges that Defendant can withhold consent "if and only if" two conditions are met: Plaintiff is terminated for cause; and Plaintiff fails to satisfy the repayment obligations. (See FAC ¶ 14.) Accordingly, neither the terms of the Plan nor Plaintiff's allegations establish that Defendant would not provide consent to make a cash withdrawal until retirement or termination.
Plaintiff also contends that even if the Plan was not expressly intended to be an ERISA pension plan, the circumstances surrounding the Plan created one. See 29 U.S.C. § 1002(2)(A) ; see, e.g. , DOL ERISA Opinion Letter 90-17A, 1990 WL 263441, 2. However, as with the original complaint, Plaintiff's conclusory allegations that the Plan's primary purpose was to defer compensation into retirement years rather than provide annual bonus payments and provide retirement income are contrary to the express terms of the Plan and unsupported by factual allegations. Manzarek v. St. Paul Fire & Marine Ins. Co. , 519 F.3d 1025, 1031 (9th Cir. 2008) (a court "need not accept as true conclusory allegations that are contradicted by documents referred to in the complaint.").
In the FAC, Plaintiff now alleges that representatives of Defendant informed him that the purpose of the Plan was to defer compensation and provide a vehicle retirement. According to Plaintiff, this allegation alone is sufficient to show that the Plan was marketed as an ERISA plan, thereby creating an ERISA plan. However, Plaintiff offers no facts supporting this conclusory allegation. Moreover, although the FAC alleges that Plaintiff encouraged other executives to participate in the Plan as a retirement vehicle, the Plan does not name other executives, and Plaintiff offers no facts regarding other executives or the Plan's purported operation as to those executives. Plaintiff's bare allegation regarding the Plan's alleged marketing in and of itself is insufficient to establish the existence of an ERISA plan where the express terms of the Plan indicate otherwise. See Vincenzo v. Hewlett-Packard Co. , 2012 WL 4838442, at *4 (N.D. Cal. Oct. 10, 2012) (plaintiff failed to allege surrounding circumstances that the plan "operate[s] as a source of retirement or other deferred income"). Even the district court in Serio v. Wachovia Sec. LLC , on which Plaintiff relies, was "unpersuaded that the promotion of a Plan can alone effectively nullify the express terms of a plan" and emphasized that "the primary consideration for the ‘surrounding circumstances’ test is whether the plan resulted in systematic deferral of payment into the post-employment period." No. 06-cv-4681 (DMC), 2007 WL 2462626 at *6 (D.N.J. Aug. 27, 2007).
Although Plaintiff may have personally intended to use the funds in his annuity to provide retirement income or compensation after his termination, the Plan did not require him to do so, and it was not designed to systematically provide retirement income. See Roderick v. Mazzetti & Assocs., Inc. , No. C 04-2436 MHP, 2004 WL 2554453, at *8 (N.D. Cal. Nov. 9, 2004) (stock purchase agreement was not covered by ERISA where although the plaintiff may have personally intended the stocks as retirement security, the central purpose of the agreement was capital accumulation and ownership control not retirement income).
The Court concludes that Plaintiff has failed to allege that the Plan is an employee pension benefit plan under ERISA. Because Plaintiff has not plausibly alleged that the Plan is an employee pension benefit plan under ERISA, the Court will not address the parties' alternative arguments regarding the ongoing administrative scheme.
CONCLUSION
For the foregoing reasons, the Court GRANTS Defendant's motion to dismiss. The Court previously dismissed Plaintiff's complaint and afforded Plaintiff the opportunity to amend. Given Plaintiff's inability to cure the previously identified deficiencies and the Court's ruling based on the express terms of the Plan, the Court finds further amendment would be futile and grants Defendant's motion WITH PREJUDICE. A separate judgment shall issue, and the Clerk shall close the file.