Opinion
3:02-CV-0462-L
June 17, 2002
REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
Pursuant to the District Court's Order of Reference filed on April 8, 2002, and the provisions of 28 U.S.C. § 636 (b)(1)(B) and (C) came on to be considered Chris Chambless' ("Chambless" or "Plaintiff") Motion to Remand filed on April 4, 2002 and Excel Communications, Inc. and Excel Management Service, Inc.'s (collectively referred to as "Excel" or "Defendants") response thereto filed on April 23, 2002. The findings, conclusions, and recommendations of the magistrate judge, as evidenced by his signature thereto, are as follows:
FINDINGS AND CONCLUSIONS:
I. Procedural and Factual Background
On March 27, 2000, Chambless and Defendant Excel Communications, Inc. ("Excel") entered into an Executive Retention Agreement ("March Agreement"). App. to Defs.' Response to Pl.'s Motion to Remand ("Def.'s App."), App. 01-2; Def.'s Notice of Removal, Ex. 2 (Pl.'s Original Petition ("Petition") ¶ 4.03). The March Agreement provided that Chambless' employment could only be terminated for "good reason," stating in pertinent part:
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. In the event the Executive terminates for "Good Reason" the Executive shall be entitled to receive (i) severance compensation equal to what would have been his annual Base Salary (12 months) and Incentive Target bonus for completed and/or partially completed plan years in which such termination occurs, payable in a lump sum within 90 days after termination and (ii) other benefits accrued by him hereunder up to and including the date of such termination, payable within ninety (90) days after the date of such termination and (iii) COBRA benefits paid by the Company for a period of six (6) months.
For this purpose, "Good Reason" means (i) a termination by the Executive within ninety (90) days following the Executive 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 or duties or organizational reassignment to Information Services, (iii) The company does not provide by August 1, 2000 the Executive a clear definition of the Executives [sic] role in the development of the e-commerce business, clearly stated objectives and documented governance process.
Id. at 01.
Thereafter, on or about April 12, 2000, the parties entered into a supplemental Executive Retention Agreement ("April Agreement"). Def.'s App. at 03-6; Petition ¶ 4.05. Central to the April Agreement is a clause related to retention pay, which provides in pertinent part:
. . . the Company will pay [Chambless] retention pay in the amount of $200,000.00, less appropriate withholding, according to the following schedule. The purpose of this Agreement is to provide consideration for the liquidation and cancellation of Up2 stock that was granted to [Chambless] through the Up2 [T]echnologies[,] [I]nc. Stock Option Plan and [Chambless'] wavier of any other rights [Chambless] may have under the Up2 Plan including those created by section 5.10. Both of us agree that the value to be used in providing this consideration is $2 per share . . .
The schedule provided for five equal payments of $40,000 disbursed on May 15, 2000, October 15, 2000, May 15, 2001, October 15, 2001, and May 15, 2002.
Id. at 03. The April Agreement also provided for the forfeiture of the various severance and retention benefits included in the March and April Agreements upon termination of Chambless by Defendants for "cause."
The Agreement defined "cause" as the occurrence of various felonious, tortious, or inept conduct on the part of Chambless. See, e.g., id. at App. 05.
During September of 2001, a workforce reduction list which included Chambless' name was created, and, thereafter, reviewed, approved, and disseminated by Defendants. See Petition ¶¶'s 4.09, 4.10. Consequently, Chambless was informed by Executive Senior Vice President Steve Richards that by virtue of the company's approval of the reduction list, Chambless' last work day would be October 19, 2001. Id. ¶ 4.11. Following the publication of the workforce reduction list by Defendants in September, Chambless sought and received an offer of employment with another company, which commenced on October 29, 2001. Id. ¶¶'s 4.12, 4.13. On October 23, Chambless submitted a letter of resignation to Senior Vice President Huntley Bakich. Def.s' App. 10. Thereafter, Defendants refused to pay Chambless the previously agreed to severance amount of approximately $186,000 as well as at least one of the previously agreed to $40,000 retention payments. Petition ¶¶'s 4.14, 4.15, and 5.04.
On February 7, 2002, Plaintiff filed the instant suit in the 162nd Judicial District Court of Dallas County, Texas, alleging (1) that the Defendants breached various provisions of both the original and supplemental Executive Retention Agreements, (2) wrongful discharge, and (3) quantum meruit. See Petition at 5-6.
Following receipt of process in state court, the Defendants, on March 6, 2002, removed Chambless' suit to this court on the basis of federal question jurisdiction pursuant to 28 U.S.C. § 1331 (federal question jurisdiction). See Defs.' Notice of Removal ¶ 4. Specifically, Excel argues that its executive retention agreements require a "case-by-case" 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 Chambless' state law claims are completely preempted thereby. See id.
Plaintiff now moves the court to remand this case to Texas state court pursuant to 28 U.S.C. § 1447(c). Plaintiff claims that his case is purely contractual in nature and in no way implicates ERISA. In conjunction with the instant motion, Plaintiff seeks an award of costs and attorney's fees.
28 U.S.C. § 1447(c) requires that a district court lacking subject matter jurisdiction over a removed case must remand the case to the state court from which it was removed.
The court notes that although Plaintiff has failed to include any dollar amounts to substantiate the outlay of costs and attorney's fees in relation to the Defendants' removal of this action, if necessary, an affidavit indicating such costs and fees should suffice in lieu of a hearing.
The court makes no judgment regarding the viability of Chambless' claims. The only issues before the court are (1) the propriety of this removal and (2) whether Chambless is entitled to costs and attorney's fees if this case is remanded.
II. Analysis a. Federal Question Jurisdiction
It is well settled that a civil action brought in state court may be removed to a federal court only if the federal court could have exercised original jurisdiction over the cause. 28 U.S.C. § 1441. 29 U.S.C. § 1331 provides that "The district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." See id. (emphasis added). The burden is on the party removing the action to establish that federal jurisdiction exists and that removal is proper. See St. Paul Reinsurance Co. v. Greenburg, 134 F.3d 1250, 1235 (5th Cir. 1998). If a plaintiff moves to remand, a defendant retains the burden of demonstrating that removal was proper and establishing that the federal court's jurisdiction over the case. See Winters v. Diamond Shamrock Chem. Co., 149 F.3d 387, 397 (5th Cir. 1998).
"It is well settled that a cause of action arises under federal law when the plaintiff's well-pleaded complaint raises issues of federal law." Heimann v. Nat'l Elevator Indus. Pension Fund, 187 F.3d 493, 499 (5th Cir. 1999). According to the "well-pleaded complaint rule," a court must decide jurisdiction "from what necessarily appears in the plaintiff's statement of [his] own claim in the bill or declaration, unaided by anything alleged in anticipation or avoidance of defenses which it is thought the defendant[s] may interpose." Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U.S. 1, 10, 103 S.Ct. 2841, 2846, 77 L.Ed.2d 420 (1983).
"One oft-cited, yet often confused, corollary to the well-pleaded complaint doctrine . . . is that Congress may so completely preempt a particular area that any civil complaint raising this select group of claims is necessarily federal in character." Heimann, 187 F.3d at 499 (citing Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987) (emphasis added)). This confusion has apparently arisen out of the failure to distinguish between the two types of federal preemption-ordinary and complete.
b. Complete Preemption under ERISA
Ordinary federal preemption is a federal defense derived from either an express statutory term or a direct conflict between federal and state laws. Id at 500. Accordingly, ordinary federal preemption "does not appear on the face of a well-pleaded complaint, and, thus, does not does not authorize removal to a federal court." Id. By way of contrast, complete federal preemption "is jurisdictional in nature rather than an affirmative defense . . .," id, therefore, it serves to convert a state law cause of action in to a federal claim, creating federal question jurisdiction. See Metropolitan, 481 U.S. at 64-67.
As stated previously, Defendants contend that Chambless' state law claims are completely preempted by ERISA. However, the Defendants have wholly failed to address some of the considerations applicable to complete preemption. In Heimann, supra, the Fifth Circuit, noting that the doctrine of complete preemption has historically been narrowly applied, stated:
In Franchise Tax Board, supra, the Supreme Court held that notwithstanding 29 U.S.C. § 1144(a) — ERISA's ordinary preemption provision, which provides that ERISA supercedes any and all state law claims that "relate to any employee benefit plan described in section 1003(a)," — the provision, "without more, does not . . . convert a state claim into an action arising under federal law. . . ." See Heimann, 187 F.3d at 500 (citing Franchise Tax Board, 463 U.S. at 25-27.)
In general, to demonstrate that there has been complete preemption justifying federal removal jurisdiction over an otherwise purely state law claim, a petitioner must show (1) the statute contains a civil enforcement provision that creates a cause of action that both replaces and protects the analogous area of state law[,] (2) there is a specific jurisdictional grant to the federal courts for enforcement of the right[,] and (3) there is clear Congressional intent that claims brought under the federal law be removable.
187 F.3d at 500 (citing Aaron v. National Union Fire Ins. Co., 876 F.2d 1157 (5th Cir. 1989)). Moreover, the court, employing the following two-prong analysis, suggested by the Supreme Court in Franchise Tax Board, held that a cause of action is not completely preempted unless the claim is (1) preempted by 29 U.S.C. § 1144(a) and (2) falls within the scope of 29 U.S.C. § 1132(a)'s enforcement provisions. Id. at 502 (emphasis added); see also McClelland v. Gronwaldt, 155 F.3d 507, 517 (5th Cir. 1998) (the Fifth Circuit held that in order for a Defendant to remove a case based on ERISA preemption, there must be "complete preemption." There is "complete preemption" when the "state law claims fall within the scope of the civil enforcement provisions contained in section [1132(a)]" of ERISA.)
ERISA preempts those laws that "relate to" employee benefit plans. 29 U.S.C. § 1144(a). A law "relates to" an employee benefit plan "if it has a connection with or reference to such a plan." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97, 103 S.Ct. 2890, 2899-2900, 77 L.Ed.2d 490 (1983).
Preliminarily, the court notes that § 1144(a) provides that ERISA preempts state laws insofar as they "relate to" an ERISA employee benefit plan, while § 1132(a)(1)(B) provides that a participant may bring a civil action in federal court to recover benefits due to him or her, to enforce his or her rights, or clarify his or her rights to future benefits, under the terms of an employee benefit plan.
"Participant" is defined by section 1002(7) as "any employee or former employee . . . who is eligible . . . to receive a benefit of any type from an employee benefit plan which covers [such] employee." 29 U.S.C. § 1002(7).
As alluded to previously, the Defendants have only proffered arguments relevant to whether Chambless' state law claims, based solely on Defendants' executive retention agreements, "relate to" an ERISA employee benefit plan pursuant to § 1144(a) (i.e., the first prong) and have wholly failed to discuss whether Chambless' claims falls within the purview of § 1132(a) (i.e., the second prong). Accordingly, the court will address each of these two prongs, in turn, to decide whether or not ERISA completely preempts Chambless' state law claims. If so, then removal was proper. If not, then Defendants' removal was improvident and the case should be remanded to the Texas state court.
With respect to the first prong — the state law claims' relation to an ERISA employee benefit plan under § 1144(a) —, discussed above, the Defendants rely on three cases, two from the Fifth Circuit and one from the Seventh Circuit, which allegedly are analogous to the instant case, and which held that causes of action based on benefit plans similar to Defendants' were preempted by ERISA. Underlying Defendants' position is the Supreme Court's decision in Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 12-14, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987), wherein the Court held, inter alia, that a severance agreement does not constitute an employee welfare 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 payments. Fontenot v. NL Industries, Inc., 953 F.2d 960, 962 (5th Cir. 1992).
In Whittemore v. Schlumberger Tech. Corp., 976 F.2d 922 (5th Cir. 1992), the Fifth Circuit construed provisions of a company's Management Policy Manual, which provided for severance pay in lieu of notice of termination, as constituting an ERISA employee welfare benefit plan. See id. at 923-24. In so doing, the court specifically noted that Schlumberger's plan was not created with a particular facility closing in mind, had been in existence for some time, and required some sort of an administrative set-up to facilitate payments to affected employees, three factors which distinguished the plan from other non-ERISA plans. Id. at 923.
ERISA defines a covered "employee welfare benefit plan" as one that provides "(A) . . . benefits in the event of sickness, accident, disability, death or unemployment . . . or (B) any benefit described in [section 302(c) of the Labor-Management Relations Act]." 29 U.S.C. § 1002 (1) (emphasis added). Benefits under section 302(c) of the Labor-Management Relations Act include ". . . pooled vacation, holiday, severance or similar benefits. . . ." 29 U.S.C. § 186 (c)(6) (emphasis added).
The facts recited in Perdue v. Burger King Corp., 7 F.3d 1251 (5th Cir. 1993), are distinguishable and inapposite to the allegations presented in Chambless' petition. The plaintiff in Perdue was eligible for the defendants' "Burger King Job Elimination Program," which provided certain severance benefits for terminated employees. The parties conceded this plan fell within the purview of section 1132(a)(1)(B) of ERISA. Chambless on the other hand seeks severance compensation based on the terms of the Executive Retention Agreement and the supplement thereto, see p. 1-2, supra, which he entered into with Defendant. Chambless also makes no such concession regarding ERISA.
The facts in Collins v. Ralston Purina Co., 147 F.3d 592 (7th Cir. 1998), more closely approximate the operative facts in the present case — i.e., the plaintiff executed an individual contract or "retention agreement" with his former employer. As in the present case, the former employer entered into multiple "retention agreements" with upper level managers. The majority concluded that the existence of 60+ agreements with managers distinguished the plaintiff's situation from that described in Fort Halifax Packing Co., supra, at 12, 107 S.Ct. 2211, wherein the Court found that Fort Halifax — at most had to issue lump sum disbursements all at once. The court further found that this fact, which created a potential for "periodic demands on [the former employer's] assets which create[d] a need for financial coordination and control." Id. at 596 (internal quotations omitted). Accordingly, the court found that Golden Cat's retention agreements were preempted by ERISA to the extent that they necessitated an ongoing administrative scheme. Id. at 596-97. In dissent, Judge Rovner noted that ". . . only one contract appears in the record, and that is the contract between Collins and [his former employer], Golden Cat." 147 F.3d at 601.
The court noted that at trial, evidence was adduced which suggested that retention agreements were entered into with approximately 60 employees. Id. at 594. The Defendants have pointed out that in the instant case they have similarly entered into more than 50 executive retention agreements. See App. 07 (Affidavit of Jackie Jalomo).
In an attempt to paint their executive retention agreements as an ERISA benefit plan, Defendants contend that their obligations under the agreements, like the one entered into with Chambless, can not be satisfied by a single, lump-sum payment to all executives at a single point in time, and that no single event triggers their obligations to pay. See App. 08 (Affidavit of Jackie Jalomo). Defendants further contend that they may have to make multiple payments to multiple executives on more than one occasion. See App. 08. Consequently, Defendants assert that the administration of the severance provisions in their agreements requires a case-by-case evaluation of whether the executive was terminated with or without cause, or whether the executive resigned with good reason. See id. Defendants contend that this evaluation involves the exercise of the collective judgment of various Excel employees including high-level executives, human resources staff, and in-house legal staff. See id.
The court is mindful that severance plans are generally covered by ERISA. Krug v. Caltex Petroleum Corp., 864 F. Supp. 11, 13 (N.D. Tex. 1994) (citing 29 U.S.C. § 1002 (1)); See also Whittemore v. Schlumberger Technology Corp., 976 F.2d 922, 923 (5th Cir. 1992) ("ordinarily, unfunded single employer severance policies are benefit plans within the Scope of ERISA.") (emphasis added). However, as a judge of this court has previously held, the sine qua non of an ERISA benefit plan is the administrative burden upon the employer. Leamon v. Platinum Technology, Inc., No. 3:99-CV-2310-H, 2000 WL 724053, at *2 (N.D.Tex. June 5, 2000).
Accordingly, with respect to the first prong discussed above — whether Chambless' state law claims "relate to" an ERISA employee benefit plans pursuant to § 1144(a) —, the court must make a threshold determination as to whether the Defendants' executive retention agreements constitute an ERISA employee benefit plan. The court finds Dumas v. Excel Communications, Inc., 2001 WL 1335805, No. 3:01-CV-0956-G (N.D.Tex. October 18, 2001), an unreported decision by Chief Judge Fish, to be particularly instructive on this point.
In Dumas, the court, construing an executive security agreement entered into by Excel Communications, Inc. — one of the Defendants named in the instant case —, which contained provisions which are substantially similar to the provisions contained in the executive retention agreement at issue, especially with respect to the "termination for good reason" and "severance" provisions, found that Excel's obligations under the agreement involved no more than simple arithmetic computations and clerical determinations. Id. at *5. In Dumas, the court found that the agreement did not require the hallmark of an ERISA benefit plan — an ongoing administrative program to satisfy the employer's obligation see id. (citing Fort Halifax, 482 U.S. at 11) —, and, therefore, that the agreement did not constitute an ERISA plan. Thereafter, the court concluded that the plaintiff's state law claim — breach of contract — was not preempted by ERISA.
Although Dumas was an unreported decision, its' guidance is unquestionably pertinent to the resolution of whether the executive retention agreement entered into between Chambless and the Defendants constitutes an ERISA benefit plan. The fact that Dumas dealt with the same company — Excel Communications, Inc. — and a substantially similar agreement with a different name — executive security (vs. retention) agreement — weigh heavily in favor of granting Plaintiff's motion to remand. Likewise, as in Collins' case, if it be found that Defendants did not terminate Chambless for "cause," see n. 2, supra, the retention pay schedule, see n. 1, supra, provides the formula for determining his damages.
Therefore, for the same reasons as those articulated by Chief Judge Fish in Dumas, the magistrate judge is of the opinion that Defendants' executive retention agreements do not necessitate the type of administrative process required of an ERISA benefit plan. As such, Chambless' state law claims are not preempted by ERISA and, therefore, remand of this case to the 162nd District Court of Dallas County, Texas is appropriate.
c. Plaintiff's Request for Costs and Attorney's Fees
In his motion, Chambless seeks reimbursement of his costs and expenses incurred as a result of Defendants' removal. Whether such fees should be awarded is addressed to the court's sound discretion.
Chambless has not submitted any documentary evidence or affidavits from which the § 1447(c) expenses may be derived. The magistrate judge therefore defers to the District Court on whether such fees should be awarded and, if so, the amount of such an award.
If the district court determines that the award of fees and expenses is warranted, it may wish to re-refer the issue of the amount to be awarded to the magistrate judge.
However, the magistrate judge observes that the Defendants are represented by the same law firm and attorney of record that represented Excel Communications, Inc. in the Dumas case, and that removal of this action occurred approximately six months after the Dumas case was remanded to state court. Although Chief Judge Fish's order is not binding precedent in the present case, it arguably put both the Defendants and their counsel on notice that removal of an action such as Chambless' was inappropriate, particularly in light of the Fifth Circuit's authority cited in the Dumas order. On the other hand, it appears that Defendants' argument supporting the exercise of federal court jurisdiction is consistent with the holding of the majority opinion of a Seventh Circuit panel in Collins v. Ralston Purina, Co., supra. But cf. Crews v. General American Life Ins. Co., 274 F.3d 502, 506 (8th Cir. 2001) (holding that benefits plan whereby determination of eligibility was "simple" and "mechanical" did not require an ongoing administrative process and therefore did not implicate ERISA) (quoting Kulinski v. Medtronic Bio-Medicus, Inc., 21 F.3d 254 (8th Cir. 1994)) and Young Wash. Gas Light Co., 206 F.3d 1200, 1203-04 (D.C. Cir. 2000) (holding that ERISA did not apply to a severance plan when "the determinations of eligibility and the amount of the benefits to be paid were purely mechanical" and were triggered solely by the employee's decision to retire pursuant to the terms of the plan, which left the employer with nothing to do but "calculate the amount of the separation payment" pursuant to a set formula)
III. Recommendation
For the foregoing reasons, the magistrate judge recommends that the District Court enter its order GRANTING Plaintiff's Motion to Remand this case to the 162nd District Court of Dallas County, Texas.