Opinion
C.A. No. 01-033-GMS
February 5, 2002
MEMORANDUM AND ORDER
I. INTRODUCTION
On January 17, 2001, the plaintiff, Derek J. Oatway ("Oatway"), filed a complaint in the above-captioned action. He amended his complaint on February 13, 2001. In his amended complaint, he alleges that American International Group, Inc. ("AIG") wrongfully denied him benefits under the 1987 Employee Stock Option Plan (the "Plan"). He now seeks to recover those benefits pursuant to section 502(a)(1)(B) of the Employee Retirement Income Security Act of 1974 ("ERISA"). See 29 U.S.C. § 1132(a)(1)(B). He further claims that AIG, as the Plan administrator, breached its fiduciary duties by failing to properly administer the Plan in violation of 29 U.S.C. § 1133. Finally, Oatway asserts state law claims against AIG based on breach of contract and estoppel.
Presently before the court are the defendants' motion to dismiss Oatway's amended complaint on the grounds that it fails to state a claim under ERISA and Oatway's motion for summary judgment. For the following reasons, the court will grant the defendants' motion to dismiss.
II. BACKGROUND
Oatway was employed by AIG until approximately August 26, 1992. On various occasions from 1983 through 1990, AIG and Oatway entered into written Incentive Stock Option Agreements (the "Agreements"). These Agreements granted Oatway the right to purchase certain numbers of shares of AIG common stock at set exercise prices per share. Specifically, on January 18, 1990, AIG granted Oatway an Incentive Stock Option to purchase 200 shares at $96 per share. On October 11, 1990, AIG granted Oatway an Incentive Stock Option to purchase 200 shares at $58.625 per share. These options were granted under the AIG Plan in consideration of Oatway's performance as an employee of AIG. AIG's Plan provides selected employees of AIG, including its parent or subsidiary corporations, with the options to purchase shares of AIG common stock. The purpose of the Plan is:
Oatway refers to the terms of the January 18, 1990 and October 11, 1990 Incentive Stock Option Agreements and the 1987 Employee Stock Option Plan throughout his Amended Complaint. He has therefore incorporated these documents by reference into his pleading. The court may rely on such documents in deciding a motion to dismiss. See In re Rockefeller Ctr. Properties, Inc. Securities Litig., 184 F.3d 280, 287 (3d Cir. 1999) (noting that, on a motion to dismiss, "a court can consider a document integral to or explicitly relied upon in the complaint."). Neither party objects to the court relying on these documents.
[T]o advance the interests of American International Group, Inc. ("AIG") by providing certain of the key employees of AIG and of any parent or subsidiary corporation of AIG, upon whose judgment, initiative and efforts the successful conduct of the business of AIG largely depends, with an additional incentive to continue their efforts on behalf of such corporations, as well as to attract to such corporations people of training, experience and ability.
Options granted under the Plan may normally be exercised beginning one year after they are granted, in set installments. AIG's board of directors determine the amount of the installments at the time of the grant. To the extent that an optionee does not purchase the maximum number of shares permitted under an option in any one year, he or she may purchase such shares in a subsequent year during the term of the option. Each of the option grants at issue provided that it expired ten years from the date of its issuance. Each of the option grants further specified that, in the event of termination of employment prior to the normal retirement age, the option must be exercised within three months after such termination.
On or about August 26, 1992, Oatway retired from AIG. Since he retired prior to the normal retirement age, AIG advised him that he was required to exercise all his remaining stock options by November 1992. Oatway alleges that after he complained about being denied the ten-year period to exercise his options, AIG agreed to allow him to exercise the options over the ten-year period, rather than within three months of his retirement.
On or about January 25, 2000, Oatway discovered that the option exercise date under the January 18, 1990 Incentive Stock Agreement had already expired. He claims that he immediately notified AIG via facsimile of his "intention and desire" to exercise this grant. AIG refused to allow him to do so.
On October 1, 2000, Oatway finally "exercised" the options under both the January 18, 1990 and October 11, 1990 Incentive Stock Option Agreements, but AIG refused to accept either exercise. He asserts that he appealed the denial to AIG as the "Plan Administrator." AIG rejected his appeal.
Oatway subsequently filed this complaint on January 17, 2001. On March 13, 2001, the defendants filed a motion to dismiss Oatway's Amended Complaint. On April 10, 2001, Oatway filed a motion for summary judgment.
III. STANDARD OF REVIEW: MOTION TO DISMISS
A motion to dismiss pursuant to the provisions of Rule 12(b)(6) should not be granted unless, accepting all allegations in the complaint as true and viewing them in a light most favorable to the plaintiff, the court rules that the plaintiff is not entitled to relief as a matter of law. In re Fruehauf Trailer Corp., 250 B.R. 168, 183 (D. Del 2000) (citing In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir. 1997); see also Trump Hotels Casino Resorts, Inc. v. Mirage Resorts, Inc., 140 F.3d 478, 483 (3d Cir. 1998) ("A complaint should be dismissed only if, after accepting as true all of the facts alleged in the complaint, and drawing all reasonable inferences in the plaintiff's favor, no relief could be granted under any set of facts consistent with the allegations of the complaint."). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." In re Burlington, 114 F.3d at 1420.
IV. DISCUSSION
ERISA gives federal courts subject matter jurisdiction over claims brought pursuant to 29 U.S.C. § 1132(a)(1)(B). This section authorizes a cause of action for benefits due under an employee benefit plan. See 29 U.S.C. § 1132(a)(1)(B). Because an ERISA "plan" is necessary before ERISA's provisions apply, the court must first determine whether AIG's 1987 Plan is, in fact, an ERISA "employee welfare benefit plan." See Long v. Excel Telecommunications Corp., 2000 WL 1562808, at *2 (N.D.Tex. Oct. 18, 2000). If the answer to this threshold question is no, then the court may dismiss the plaintiff's claims that he is entitled to benefits under ERISA. See Henglein v. Informal Plan for Plant Shutdown Benefits for Salaried Employees, 974 F.2d 391, 395 (3d Cir. 1992) (noting that a plaintiff's failure to prove the existence of an employee benefit plan, though it results in the dismissal of the claim, does not deprive the district court of subject matter jurisdiction to enter a judgment on the merits.")
A. Is the 1987 Plan an Employee Welfare Benefit Plan Under ERISA?
Oatway contends that the 1987 Plan is an "employee welfare benefit plan" under which he is entitled to benefits pursuant to 29 U.S.C. § 1132(a)(1)(B). The court disagrees. ERISA defines an "employee welfare benefit plan" as:
[A]ny plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care, or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services or (B) any benefit described in section 186(c) of this title (other than pensions on retirement or death, and insurance to provide such pensions).
Section 186(c) includes within the definition of "employee welfare plan" those plans which provide holiday and severance benefits, and benefits which are similar. See 29 C.F.R. § 2510.3-1(a)(3).
See 29 U.S.C. § 1002(1).
To constitute an employee welfare plan, a plan "must be designed specifically to provide employees with medical, unemployment, disability, death, vacation, or other specified benefits or to provide income following retirement in order to come within the purview of ERISA." Long, 2000 WL 1562808, at *4; see also 29 U.S.C. § 1002(1) (requiring that an ERISA plan be "established or maintained . . . for the purpose of providing" the benefits listed in the statute.). The statutory definition does not embrace plans that may incidentally result in payment of benefits after retirement, death or disability. See Long, 2000 WL 1562808, at *2; Hagel v. United Land Co., 759 F. Supp. 1199, 1203 (E.D.Va. 1991). Thus, merely because a plan "may in some circumstances continue to pay . . . proceeds after an employee's death or disability does not make it a welfare benefit plan." Murphy v. Inexco Oil Co., 611 F.2d 570, 574 (5th Cir. 1980).
Furthermore, these holdings are consistent with congressional findings and the declaration of policy that supported ERISA's enactment. In enacting ERISA, Congress did not intend "to control every aspect of the employer-employee relationship or every promise made to employees." Murphy, 611 F.2d at 574. Rather, Congress "intended to protect employees with many years of service who were losing anticipated retirement benefits because of inadequate vesting provisions, lack of funding, or other problems." Long, 2000 WL 1562808, *2. Because Congress "sought only to deal with those types of plans that had created the problems it sought to remedy . . . by its terms, ERISA applies only to "an employee welfare benefit plan or to an employee pension benefit plan or a plan which is both." See Murphy, 611 F.2d at 574 (quoting 29 U.S.C. § 1002(3)).
Although the Third Circuit has not addressed the issue of whether an incentive stock option plan is an employee benefit plan within the meaning of ERISA, other courts that have considered the question have uniformly held that it is not. See Long, 2000 WL 1562808, at *3-4; Hahn v. National Westminster Bank, N.A., 99 F. Supp.2d 275, 279-280 (E.D.N.Y. 2000); Goodrich v. CML Fiberoptics, Inc., 990 F. Supp. 48, 49-50 (D.Mass. 1998). In Long, a former employee claimed that his employer terminated him for the purpose of depriving him of benefits under the company's stock option plan in violation of ERISA. 2000 WL 1562808, at *2. The court granted the former employer's motion for summary judgment, holding that the company's stock plan was not a benefit plan under ERISA. See id. at *3-4. In its holding, the court examined the purpose of the company's stock option plan, which was:
[t]o provide a means by which selected Employees of and Consultants to the Company and its Affiliates may be given an opportunity to purchase stock of the Company. The Company, by means of the Plan, seeks to retain the services of the persons who are now Employees of or Consultants to the Company and its Affiliates, to secure and retain the services of new Employees and Consultants, and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates.
See id. at *3. The court further noted that, "[n]owhere does [the company's] Stock Option Plan indicate that its purpose is to defer compensation. In fact, the plan itself indicated that it was intended to operate as an incentive and bonus program. See id.
Finally, the Department of Labor, which is the agency charged with interpreting and enforcing ERISA, has also recognized that stock option plans are not necessarily employee welfare benefit plans. See U.S. Dep't of Labor Opinion Letter 79-80A, 1979 WL 7016 (Nov. 13, 1979) (stating that stock option plans were not employee welfare benefit plans within the meaning of ERISA § 3(1) because they were not established or maintained for the purpose of providing any of the benefits listed in § 3(1) or 302(c) of the Labor Management Relations Act, 1947).
The court finds that the Plan at issue here does not meet the statutory definition of an employee welfare plan. The Plan was not created for the purpose of providing retirement income. Rather, the stated purpose of the 1987 Plan is:
to advance the interests of American International Group, Inc. ("AIG") by providing certain of the key employees of AIG and of any parent or subsidiary corporation of AIG, upon whose judgment, initiative and efforts the successful conduct of the business of AIG largely depends, with an additional incentive to continue their efforts on behalf of such corporations, as well as to attract to such corporations people of training, experience and ability.
Therefore, under the plain language of the Plan, its purpose is not to provide severance, retirement, death or disability benefits. Instead, its purpose is to provide a financial incentive for employees to remain with AIG and to improve their performance at AIG. Although the Plan provided that upon retirement, death, or disability, the option could still be exercised, subject to time restrictions, any payment of benefits at that time were merely incidental. Furthermore, it is clear that "plans that might incidentally result in payment of benefits after retirement, death or disability . . . only fall under ERISA if they were established or maintained for the express purpose of doing so." Long, 2000 WL 1562808, at *2 (citing Murphy, 611 F.2d at 574-75).
Accordingly, because the Plan itself is clearly an incentive plan, it is not an employee welfare benefit plan within the meaning of ERISA.
B. Is the 1987 Plan an Employee Pension Benefit Plan Under ERISA?
Oatway suggests that the Plan "can also be characterized under ERISA as a pension plan or an employee pension benefit plan." ERISA pension plans include any plan established or maintained by an employer that, by its express terms "results in a deferral of income by employees for periods extending 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." 29 U.S.C. § 1002(2)(A)(ii).
The Department of Labor has interpreted ERISA pension plans to exclude bonuses for work performed, unless such bonuses are "systematically deferred to termination of covered employment or beyond, or so as to provide retirement income to employees." 29 C.F.R. § 2510.3-2(c). By the express purpose of the Plan itself, it is clear that this is a bonus plan. Although Oatway alleges that his ability to exercise his options continued after his retirement from AIG, this does not transform the bonus plan into "one whose payments are systematically deferred to the termination of employment or one whose purpose is to provide retirement income." See Hahn v. National Westminster Bank, N.A., 99 F. Supp.2d 275, 276 (E.D.N.Y. 2000). Rather, this is a plan were "post-retirement payments [are] only incidental to the goal of providing current compensation." See Hahn, 99 F. Supp.2d at 279. Thus, the court recognizes that, while Oatway may have been individually permitted to exercise his options subsequent to retirement, the primary purpose of the Plan as a whole was to provide additional benefits to employees during the course of their employment. See Lafian v. Electronic Data Systems Corp., 856 F. Supp. 339, 345 (E.D.Mich. 1994).
Accordingly, the court finds that the Plan at issue here is not an employee pension benefit plan within the meaning of ERISA.
C. Does the Plan Administrator Owe Oatway a Fiduciary Duty Under ERISA?
Oatway next alleges that AIG, as the Plan's administrator, breached its fiduciary duties under ERISA § 503. See 29 U.S.C. § 1133. The basis for this claim is that AIG failed to set forth adequate factual reasons why it denied his benefits appeal. Oatway further claims that AIG failed to advise him of what further information he needed to meet options pay status requirements under the Plan.
As the court discussed at some length above, the Plan does not fall within the definition of a qualified ERISA plan. Therefore, the court finds that AIG could not owe Oatway any ERISA fiduciary duties under the Plan.
D. State Law Claims
Oatway next asserts state law claims for breach of contract and estoppel. He notes that, "[i]f the [c]ourt were to determine that there is an ERISA plan, then this [c]ourt's supplemental jurisdiction over Count III is appropriate." However, because this Plan is not covered by ERISA, there is no federal question jurisdiction under ERISA. Moreover, the court has merely focused on the jurisdictional issues presented by these claims, and has not devoted any resources to the merits of the claims. See Voege v. The Magnavox, Co., 439 F. Supp. 935, 943 (D.Del. 1977). The court, therefore, declines to exercise supplemental jurisdiction over Oatway's remaining state law claims. See 28 U.S.C. § 1367(c)(3). Accordingly, the court will dismiss them for lack of subject matter jurisdiction.
V. CONCLUSION
For the foregoing reasons, IT IS HEREBY ORDERED that:
1. The Defendants' Motion to Dismiss (D.I. 7) is GRANTED; and
2. Oatway's Motion for Summary Judgment (D.I. 10) is declared MOOT.