Opinion
Case No. 4:02-CV-303
March 17, 2003
Lawrence Jay Friedman of Friedman Feiger, Dallas, TX, Attorneys for Plaintiffs
David R. Deitchman, EDS Legal Affairs, Plano, TX, Attorneys for Defendants
MEMORANDUM OPINION AND ORDER
Plaintiffs Willie Washington, Bobby G. Sullivan, Ronald Paris, Andrew Kolb, David Honan, and Linda Parson (collectively "Plaintiffs") filed this action on September 4, 2002, against Defendant Electronic Data Systems Corporation ("EDS") in the 296th Judicial District Court of Collin County, Texas. Plaintiffs allege claims against Defendant for breach of contract, quantum meruit, negligent misrepresentation, fraud, and breach of the duty of good faith and fair dealing. Defendant removed this action this court on September 27, 2002, asserting federal jurisdiction under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001-1461. Pending before the Court is Plaintiffs' Motion to Remand (Docket No. 6). Also, pending before the Court is Defendant's Motion to Dismiss (Docket No. 4). For the reasons set forth below, the Court DENIES Plaintiffs' Motion to Remand, GRANTS Defendant's Motion to Dismiss, and affords the Plaintiffs the opportunity to plead a claim for relief under ERISA.
BACKGROUND
EDS is in the business of technology services. In 2001, EDS determined that it was necessary to close its Dallas Area Output Processing Center (the "Center") in Plano, Texas. EDS temporarily retained some employees to assist in "winding down" the Center. Plaintiffs, EDS employees at the Center, lost their jobs during the downsizing. Plaintiffs allege that on April 11, 2001, EDS mangers held a "town hall meeting" for EDS employees and reaffirmed that Plaintiffs were entitled to receive a severance package "as set forth in the New Corporate Severance Plan [hereinafter "Severance Plan"] for U.S. Employees published by EDS" if they continued to work for EDS until the Center officially closed. The Severance Plan authorized EDS to give to employees being terminated severance pay equal to two weeks pay for each year they been employed, up to 26 weeks, as well as an addition 60 days pay. Plaintiffs allege that on July 20, 2001, EDS managers held a second "town hall meeting" and reassured Plaintiffs that they would receive the severance pay as set forth in the Severance Plan.
In October 2001, Plaintiff were notified that the Severance Plan had been amended on October 5, 2001 as follows: employees with less than three years of service would receive two weeks of severance pay plus 60 days of addition pay, and those employees with three or more years of service would receive four weeks of severance pay plus 60 days of additional pay. On the basis of the alleged oral representations, Plaintiffs asserted various state law claims against EDS.
In their Motion to Remand, Plaintiffs argue that the Severance Plan is not an "employee welfare benefit plan" under ERISA, and, thus, this Court lacks subject matter jurisdiction. EDS, on the other hand, argues that the Severance Plan is an "employee welfare benefit plan" under ERISA and that this Court has jurisdiction. In its Motion to Dismiss, EDS argues that all of Plaintiffs' state law claims are preempted by ERISA.
FEDERAL JURISDICTION UNDER ERISA
Removal of a state law action to federal court is proper when the complaint falls within the original jurisdiction of the federal district court. See 28 U.S.C. § 1331. Where, as here, there is no diversity of citizenship between the parties, the propriety of removal depends upon the existence of a federal question, i.e., whether any of plaintiffs' claims "arise under" federal law. See 28 U.S.C. § 1331. An action arises under federal law when the face of the "well pleaded complaint" raises a federal issue. Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 9-12 (1983). The well-pleaded complaint rule is qualified, however, by the complete preemption doctrine. As the Supreme Court stated in Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 62-63 (1987), "Congress may so completely pre-empt a particular area that any civil complaint raising this select group of claims is necessarily federal in character." The Supreme Court ruled that ERISA is such an area, and that state law claims are preempted by ERISA provided that they "relate to" an ERISA plan. Id.
Defendants removed this action alleging ERISA preempts Plaintiff's various state law claims, thereby conferring this court with original jurisdiction over the action. The Plaintiff in her motion to remand for improper removal, argues that the Severance Plain is not an "employee welfare benefit plan" and, thus, not subject to ERISA. Accordingly, Plaintiffs argue that the Court does not have subject matter jurisdiction. This Court must address two issues: (1) whether EDS's Severance Plan is an "employee benefit plan" as defined by ERISA; and (2) whether Plaintiffs' claims "relate to" that plan and fall within ERISA's enforcement provision, and thus, are preempted by ERISA.
"EMPLOYEE WELFARE BENEFIT PLAN"
The decision whether a particular plan or program qualifies as an "employee welfare benefit plan" under ERISA requires that the court determine whether a plan: (1) exists; (2) falls within the safe-harbor provision established by the Department of Labor; and (3) satisfies the primary elements of an ERISA "employee benefit plan" established or maintained by an employer or employee organization intending to benefit employees or members. Meredith v. Time Ins. Co., 980 F.2d 352, 355 (5th Cir. 1993). If the Severance Plan satisfies these criteria, it is an employee benefit plan under ERISA. McNeil v. Time Ins. Co., 977 F. Supp. 424, 428-29 (N.D.Tex. 1997).
i. Does a plan exist?
First, the Court must determine whether a Plan exists. "At the outset, any court confronted with the question whether a particular arrangement constitutes an employee welfare benefit plan under ERISA `must first satisfy itself that there is in fact a plan at all.'" Id. at 355. "A formal document designated as `the Plan' is not required to establish that an ERISA plan exists." Memorial Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d 236, 240-41 (5th Cir. 1990). Ultimately, the determination of whether or not the arrangement is an "employee welfare benefit plan" is generally a question of fact governed by a set of well established legal standards. See Gahn v. Allstate Life Ins. Co., 926 F.2d 1449 (5th Cir. 1991).
The Court looks to see if there was a "plan" by inquiring whether "from the surrounding circumstances a reasonable person [could] ascertain the intended benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits." Memorial Hosp. Sys., 904 F.2d at 240 (quoting Donovan v. Dillingham, 688 F.2d 1367, 1373 (11th Cir. 1982) (en banc)). Under this standard, a plan existed. The benefits provided by the Severance Plan were described in the EDS Severance Plan and Summary Plan Description. It is undisputed that EDS's employees, including Plaintiffs, were the beneficiaries of the Severance Plan. Additionally, EDS's general corporate assets provide the Severance Plan's source of funding. Finally, the "Administration and Claims" section details the procedures followed. Based on the record and the applicable law, this Court concludes that a reasonable person can ascertain from the surrounding circumstances that a plan existed.
ii. Does the Plan fall within the safe harbor provision?
Next, the court must apply the safe-harbor provisions established by the Department of Labor regulations to determine whether the program was exempt from ERISA. See McDonald v. Provident Indemn. Life Ins. Co., 60 F.3d 234, 236 (5th Cir. 1995). The Department of Labor regulations provide that the term "employee welfare benefit plan":
shall not include a group or group-type insurance program offered by an insurer to employees or members of an employee organization, under which
(1) No contributions are made by an employer or employee organization;
(2) Participation in the program is completely voluntary for employees or members;
(3) The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues checkoffs; and
(4) The employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs.29 C.F.R. § 2510.3-1(j). If any one of the four factors set out in the regulations is present, the plan is not excluded from ERISA coverage by the safe-harbor provision. The Fifth Circuit has stated "the and connector indicates that the existence of any one of the four criteria listed in the regulation would prevent a group insurance plan, otherwise qualifying as an ERISA plan, from being excluded from coverage under the Act." Memorial Hosp. Sys., 904 F.2d at 241 n. 6. Because EDS did contribute to Plan since it was from the corporate assets that severance was to be paid, it was not excluded from ERISA coverage by the safe-harbor provision. Id. at 241 (citing 29 C.F.R. § 2510.3-1(j)).
iii. Is the Severance Plan "established or maintained for the purpose of providing benefits" under the language of ERISA?
Once the court finds the existence of an "employee benefit plan" and determines that the plan is not excluded from ERISA coverage by the Department of Labor regulations, the court must then determine whether the plan meets the criteria adopted by the Fifth Circuit for plans covered by ERISA. Only those "employee welfare benefit plans" that are "established or maintained" by an employer for the "purpose of providing certain benefits to its employees" are covered by ERISA. 29 U.S.C. § 1002(1). Therefore, under this requirement the "two primary elements of an employee benefit plan [are]: (1) whether an employer established or maintained the plan; and (2) whether the employer intended to provide benefits to the employee." Meredith, 980 F.2d at 355.
a. Established or Maintained
The hallmark of an ERISA benefit plan is that is requires "an ongoing administrative program to meet the employer's obligation." Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1, 11 (1987). The aspects of the Severance Plan reveal an administrative program within the confines of ERISA. First, for every terminated employee, EDS was required to evaluate that employee's eligibility for severance benefits and, if eligible, the amount of those benefits. Second, since EDS, like any large corporation, regularly terminates employees, it is forced to "assume . . . responsibility to pay benefits on a regular basis, and this faces . . . periodic demands on its assets that create a need for financial coordination and control." Fort Halifax, 482 U.S. at 12. Finally, the Severance Plan's appellate process, which includes an Administrative Committee charged with reviewing appeals form those denied severance, exhibits another administrative aspect of the plan. These three facts demonstrate an administrative scheme that constitutes the maintenance of an employee benefit plan.
Plaintiffs attempt to analogize the Severance Plan to two severance packages that the Fifth Circuit found not to be preempted by ERISA. In Fontenot v. NL Industries, Inc., 953 F.2d 960 (5th Cir. 1992), the Fifth Circuit held that a severance package was not governed by ERISA because it provided a one-time, lump-sum payment triggered by a single event. However, the severance package at issue was a "golden parachute" made available to top executives of NL Industries in the event of an anticipated hostile takeover. By contrast, the instant Severance Plan is broadly available to a range of employees terminated in several different reorganizations at EDS.
Plaintiffs also attempt to analogize this case to Wells v. General Motors Corp., 881 F.2d 166 (5th Cir. 1989), cert. denied, 495 U.S. 923 (1990). In Wells, the Circuit held that a one-time payment to employees who agreed to cease working at a particular GM plant was not a "benefits plan" within the meaning of ERISA. Id. at 176. The Court emphasized that the payment in Wells was a single lump sum, requiring no continuing administrative scheme to process claims. Unlike the severance payments in Fontenot and Wells, EDS's Severance Plan is a continuous plan that does require an on-going administration. The Severance has existed since 1999 and has been used by EDS to provide a variety of severance benefits to over 10,000 departing employees. Although the Severance Plan provides each employee with a single payment, the amount is determined based on the employee's years of service. Moreover, the Severance Plan is not triggered by a "one-time event," but rather covers employees terminated during various corporate re-organizations over a long period of time. For these reasons, the Severance Plan is more like the standard severance plans that the Fifth Circuit consistently has found to be governed by ERISA. See, e.g., Perdue v. Burger King Corp., 7 F.3d 1251, 1253 n. 5 (5th Cir. 1993).
b. Intended Benefits
The second element of an ERISA plan is an intent to benefit employees. Here, the Severance Plan was clearly intended to benefit employees by offering them benefits at the time of termination.
In sum, since the plan at issue in this case (1) exists; (2) falls outside the safe-harbor provision established by the Department of Labor; and (3) exhibits two primary elements of an ERISA "employee welfare benefit plan," it is an employee benefit plan within the meaning of ERISA.
ERISA PREEMPTION
Defendants argue that Plaintiffs' state law claims are preempted by ERISA. "ERISA is a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans." Ingersoll-Rand Co. V. McClendon, 498 U.S. 133, 137 (1990) (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 (1983)). ERISA expressly "supercede[s] any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." 29 U.S.C. § 1144(a) (expressly excepting two situations not applicable here). "A state law `relates to' an employee benefit plan `if it has a connection with or reference to such plan.'" Rozzell v. Security Servs., Inc., 38 F.3d 819, 821 (5th Cir. 1994) (quoting Shaw, 463 U.S. at 96-97). It is "well-established that the `deliberately expansive' language of [Section 514(a)] . . . is a signal that it is to be construed broadly." Corcoran v. United HealthCare, Inc., 965 F.2d 1321, 1328 (5th Cir. 1992) (citations omitted). Because of the breadth of the preemption clause and the broad remedial purpose of ERISA "state laws found to be beyond the scope of § 1144(a) are few" Jackson v. Martin Marietta Corp., 805 F.2d 1498, 1499 (11th Cir. 1986).
ERISA preempts a state law claim "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 Ass'n, 42 F.3d 942, 945 (5th Cir. 1995). A suit by a participant or beneficiary to recover benefits from a covered plan falls directly within the civil enforcement provision of ERISA, which provides an exclusive federal cause of action for the resolution of such disputes. See Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 62-63 (citing Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56 (1987)). "It is clear that ERISA preempts a state law cause of action brought by an ERISA plan participant or beneficiary alleging improper processing of a claim for plan benefits." Dowden v Blue Cross Blue Shield of Tex., Inc., 126 F.3d 641, 643 (5th Cir. 1997) (quoting Memorial Hosp. Sys., 904 F.2d at 245). "In short, when beneficiaries seek to recover benefits from a plan covered by ERISA, their exclusive remedy is provided by ERISA." Hansen v. Cont'l Ins. Co., 940 F.2d 971, 979 (5th Cir. 1991).
This action directly affects the relationship between traditional ERISA entities-a beneficiary, Plaintiffs, and a fiduciary, EDS. Further, Plaintiffs' claims arise from the alleged denial of severance pay as given to terminated employees under the Severance Plan. Accordingly, Plaintiffs' action to recover benefits from the fiduciary of a covered plan falls directly within the civil enforcement provision of ERISA, which provides an exclusive federal cause of action for the resolution of such disputes. Because the essence of his suit seeks the recovery of benefits or otherwise relates to an employee benefit plan, Plaintiffs' state law claims are preempted by ERISA and, therefore, are removable to this Court.
CONCLUSION
For the foregoing reasons, the Court finds that the Severance Plan at issue is an employee benefit plan as defined by ERISA and Plaintiffs' state law claims are preempted by ERISA. Therefore, these claims arise under federal law within the meaning of 28 U.S.C. § 1331. Accordingly, Defendant's removal was proper. Therefore, the Court DENIES Plaintiff's Motion to Remand. Because the Plaintiffs' state law claims are completely preempted, Defendant's Motion to Dismiss is also GRANTED. Plaintiffs shall have 30 days from the date this order is filed to file an amended complaint that states a claim against EDS under ERISA. If Plaintiffs opt not to replead, the Court will dismiss this action with prejudice.
T IS SO ORDERED.