Opinion
CV 01-982-BR
October 29, 2002
LINDA L. MARSHALL, Lake Oswego, OR, Attorney for Plaintiff.
CAROLINE R. GUEST, JENNA L. MOONEY, Davis Wright Tremaine LLP, Portland, OR, Attorneys for Defendant.
OPINION AND ORDER
This matter comes before the Court on Plaintiff's Motion for Remand (#34). For the reasons that follow, the Court DENIES Plaintiff's Motion to Remand.
BACKGROUND
On June 1, 2001, Plaintiff filed this action in the Circuit Court for the State of Oregon in and for Multnomah County alleging claims for unpaid compensation in the form of severance and vacation pay and for penalty wages. Plaintiff alleges New American Healthcare Corporation (New American) hired Plaintiff as the chief operating officer of Eastmoreland Hospital and Woodland Park Hospital (Hospitals) on May 7, 1999. Plaintiff further alleges he became eligible for one year of severance pay under the New American Healthcare Corporation Severance Guidelines (Severance Guidelines) implemented on December 2, 1999. Plaintiff attached a copy of the Severance Guidelines to his Complaint as Exhibit A. Their stated objective is
[t]o establish guidelines for payment of a severance benefit to New American Healthcare Corporation employees who are terminated as a result of the elimination of their position due to reorganization, sale of an individual hospital, sale of the corporation, or restructuring.
Compl. Ex. A at 2. The Severance Guidelines apply to all full-time, corporate payroll employees and hospital-based employees on the corporate payroll. Covered employees, however, are not eligible for severance pay in the following circumstances:
1. An employee who voluntarily resigns is not eligible.
2. An employee who is terminated for poor performance and/or cause is not eligible.
3. An employee whose job is eliminated but who fails to work until the date of the job elimination is not eligible.
4. An employee whose job is eliminated and who is offered a similar position by New American Healthcare Corporation or a successor owner will not be eligible for a severance benefit.
The Severance Guidelines define a similar position as "a position with similar duties and scope of responsibilities and salary at least equal to current compensation." A position that requires the employee to relocate more than 50 miles, however, is not a similar position.
Plaintiff alleges New American filed for protection under the bankruptcy code on April 19, 2000. Plaintiff further alleges Defendant purchased the Hospitals from New American in August 2000. According to Plaintiff, on September 1, 2000, Defendant assumed control of the Hospitals and
continued the Hospitals' business, retaining essentially the same hospital workforce, in the same hospital facilities, with essentially the same equipment, doing the same jobs under the same hospital administrator, providing the same general services, and holding itself out to the public as Eastmoreland Hospital and Woodland Park Hospital.
Compl. at ¶ 7. Plaintiff asserts his position as chief operating officer was not eliminated with the sale of the Hospitals. Plaintiff also alleges he did not experience any change in duties, responsibilities, working conditions, or supervisory relationships throughout the bankruptcy or the subsequent sale.
Plaintiff further asserts Defendant is the "bona fide successor employer" to Defendant and Defendant had notice of New American's severance liability to Plaintiff. Nonetheless, Plaintiff contends Defendant wrongfully failed to pay Plaintiff the full year of severance pay owed to Plaintiff under the Severance Guidelines when Defendant eliminated Plaintiff's position on October 23, 2000.
In addition, Plaintiff also alleged Defendant failed to pay Plaintiff for 11 days of earned but unpaid vacation leave. The parties agree this claim does not give rise to federal question subject matter jurisdiction and, therefore, is not at issue at this time.
On June 26, 2001, Defendant removed this action to federal court on the basis of federal question jurisdiction. Specifically, Defendant asserted the following basis for removal:
The severance plan upon which plaintiff bases his claims has a claims procedure under Employment Retirement Income Security Act ("ERISA") and therefore the determination of whether plaintiff is entitled to any severance requires interpretation of that ERISA plan.
ERISA completely preempts all state causes of action where resolution requires interpretation of the ERISA plan.
Because of this complete preemption, plaintiff asserts a cause of action that must be decided under the statutes and laws of the United States, and this court has original jurisdiction under 28 U.S.C. § 1331.
Def.'s Notice of Removal at ¶¶ 5-7.
On February 15, 2002, Defendant filed a Motion for Summary Judgment (#8). Defendant did not mention ERISA, the alleged ERISA plan and/or claims procedures, or the appropriate ERISA standard of review in their Memorandum in Support of the Motion for Summary Judgment or their Reply Memorandum. Defendant also failed to provide a copy of the alleged ERISA plan. Instead Defendant argued there were no genuine issues of material fact and it was entitled to judgment as a matter of law on Plaintiff's severance pay claim because: (1) Plaintiff's severance pay claim is not proper under Or. Rev. Stat. § 652.140, (2) Plaintiff is not entitled to severance pay under the applicable Severance Guidelines; and (3) Defendant is not liable for payments under the Severance Guidelines because it purchased the predecessor corporation free of all claims and liens.
Plaintiff also failed to discuss ERISA in his Memorandum in Opposition to Defendant's Motion. Plaintiff first explained his severance pay claim is based on Oregon contract law rather than Or. Rev. Stat. § 652.140. Plaintiff then argued a genuine dispute of material fact exists that precludes summary judgment: that is, whether Plaintiff is entitled to recover under the Severance Guidelines in light of the facts that Plaintiff continued to perform the same duties after the sale and his job was never "eliminated" until his termination after completion of the sale. In addition, Plaintiff argued Defendant's obligations to Plaintiff under the Severance Guidelines were not abrogated by New American's bankruptcy because the Severance Guidelines constituted an executory contract that survived the bankruptcy rather than a "lien, claim, interest or encumbrance" on Defendant's property that was extinguished by the bankruptcy. Plaintiff also contended the bankruptcy court entered an order that preserved the Severance Guidelines. Plaintiff further asserted Defendant's representatives expressly promised Plaintiff to maintain the status quo and to honor existing policies such as the Severance Guidelines. At a minimum, Plaintiff argued the Court should estop Defendant from arguing that it purchased the Hospitals without assuming the obligations of the Severance Guidelines in light of the oral promises made by Defendant's representatives.
As a result of the parties' failure to address ERISA preemption and to offer into evidence any actual plan documents as part of their summary judgment materials, the Court questioned whether it had subject matter jurisdiction over this matter. On May 17, 2002, the Court issued an Order in which it directed the parties to meet and to confer on the issue of jurisdiction. The Court also ordered Defendant to submit a supplemental memorandum if it intended to maintain its position that federal subject matter jurisdiction existed. The Court directed Defendant to address both the basis for jurisdiction and the appropriate standard of review under ERISA. The Court granted Plaintiff leave to respond to Defendant's supplemental brief.
On June 7, 2002, Defendant filed a supplemental brief in which it contended Plaintiff's state law claim relating to the Severance Guidelines was preempted completely by ERISA. Defendant argued Plaintiff's severance pay claim relates to an ERISA plan because Plaintiff "relies specifically on the Severance Guidelines to bring his unpaid compensation and penalty claims." Defendant further argued Plaintiff's severance pay claim falls within the scope of ERISA's civil enforcement provision because Plaintiff seeks to recover benefits allegedly due him under the terms of an ERISA plan. In addition, Defendant contended the Court should apply an abuse of discretion standard of review to the "plan administrator's decision to deny benefits" to Plaintiff.
Defendant also attempted to place in the record a copy of a document titled "New American Healthcare Corporation Severance Pay Plan and Summary Plan Description." Defendant merely attached the document to an Affidavit of Defendant's counsel in which she testified she had personal knowledge that the document was a true and correct copy of the Severance Pay Plan. Plaintiff objected to the admissibility of the document identified as the Severance Pay Plan because defense counsel lacked the personal knowledge necessary to authenticate it properly. Plaintiff, however, stated Defendant agreed to submit an affidavit that properly authenticated the document immediately. Defendant then filed, without leave of court, a second Affidavit of counsel that purported to authenticate the Affidavit of Michael R. Hill. In his Affidavit, Hill conclusorily states the documents identified as the Severance Pay Plan are exact duplicates of the original Severance Pay Plan previously submitted to the bankruptcy court for approval. Nothing in Hill's Affidavit indicates how he obtained personal knowledge of either the bankruptcy court proceedings or the contents of the Severance Pay Plan that was implemented by New American and applicable to Plaintiff. As the Court previously indicated to counsel, the document identified as the Severance Pay Plan was not and has not been authenticated properly. The Court, therefore, will not consider the Severance Pay Plan. See Orr v. Bank of America, 285 F.3d 764, 773 (9th Cir. 2002).
In his Supplemental Memorandum, Plaintiff argued his severance pay claim is a state law claim separate from and outside of the scope of ERISA and "should be remanded to state court." In particular, Plaintiff argued:
Plaintiff's severance claim is not based on Plaintiff's relationship with New American, New American's Guidelines, or any ongoing administrative scheme. Plaintiff contends HealthMont is a successor employer to New American. However, the claim for severance pay is not strictly for successorship liability, because it is not claimed that HealthMont is liable for a New American debt. Rather, the claim is based on HealthMont's own implied promise that HealthMont would continue the severance policy initiated by New American in the Guidelines.
Pl.'s Supple. Mem. at 3. Plaintiff, however, conceded the Severance Guidelines are an ERISA plan: "If the Court determines plaintiff's claim is based directly on the Guidelines, then ERISA applies and the Court has jurisdiction." Pl.'s Supple. Mem. at 5. Plaintiff also argued the Court should apply a de novo standard of review to Defendant's decision to deny benefits under the plan if the Court determined it had jurisdiction to address Defendant's Motion for Summary Judgment.
After the parties submitted their supplemental briefs, the Court held a telephone conference on July 3, 2002, to discuss the status of this matter. The Court expressed its concern that the parties' supplemental briefs did not adequately address the jurisdictional issue. The Court also noted Plaintiff asked the Court to remand the matter to state court as part of his supplemental memorandum, but he did not file a formal motion. The Court invited Plaintiff to file a Motion to Remand for lack of subject matter jurisdiction so the parties could fully address the issues raised in the Court's Order and the parties' supplemental briefs. The Court denied Defendant's Motion for Summary Judgment because the Court could not determine whether it had subject matter jurisdiction based on the record before it. The Court also denied Defendant's Motion to Strike portions of Plaintiff's Declaration as moot. On July 31, 2002, Plaintiff filed a Motion to Remand.
STANDARDS
Pursuant to 28 U.S.C. § 1441(b), an action filed in state court may be removed to federal court if the federal court would have had original subject matter jurisdiction over the action. Federal courts have original jurisdiction over "all civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331.
Removal is proper only if original jurisdiction existed at the time of the removal. Sparta Surgical Corp. v. Nat'l Ass'n of Secs. Dealers, Inc., 159 F.3d 1209, 1211 (9th Cir. 1998). Accordingly, "jurisdiction must be analyzed on the basis of the pleadings filed at the time of the removal without reference to subsequent amendments" or pleadings. Id. at 1213. A plaintiff may not compel remand under 28 U.S.C. § 1441(b) by amending a complaint to eliminate the federal question on which the notice of removal was based. Id.
To determine whether an action is removable under § 1441(b), a court generally must apply the "well-pleaded complaint rule." Toumajian v. Frailey, 135 F.3d 648, 652 (9th Cir. 1998) (citing Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987)). Under this rule, a claim arises under federal law only when the plaintiff's well-pleaded complaint raises issues of federal law. Id. Removal is appropriate only if a federal question appears on the face of the complaint. Id. (citing Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 9-10 (1983)).
A corollary to the well-pleaded complaint rule is the doctrine of complete preemption. Id. The complete preemption doctrine provides, "on occasion . . . the pre-emptive force of a statute is so extraordinary that it converts an ordinary state common-law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule." Rutledge v. Seyfarth, Shaw, Fairweather Geraldson, 201 F.3d 1212, 1215 (9th Cir.), as amended by 208 F.3d 1170 (9th Cir.), cert. denied, 531 U.S. 992 (2000). Such claims are recharacterized as federal claims for purposes of determining removal jurisdiction notwithstanding the absence of a federal cause of action on the face of the complaint.
A motion to remand is the proper procedure for challenging removal. See Northern Cal. Dist. Council of Laborers v. Pittsburgh-Des Moines Steel Co., 69 F.3d 1034, 1038 (9th Cir. 1995). The removal statute is strictly construed, and any doubt about the right of removal is resolved in favor of remand. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992) (citations omitted). The presumption against removal means "the defendant always has the burden of establishing that removal is proper." Id. (citations omitted).
DISCUSSION
Although Defendant's Notice of Removal is not a model of clarity, the Court construes the basis for removal is complete preemption of Plaintiff's severance pay claim by ERISA. A defendant can remove an action on the basis of complete preemption if the plaintiff's state law claim (1) "relates to" an ERISA plan within the meaning of 29 U.S.C. § 1144(a) and (2) can be "reasonably characterized" as a claim within the scope of ERISA's civil enforcement provision, 29 U.S.C. § 1132(a). Toumajian, 135 F.3d at 654.
Defendant actually asserted ERISA completely preempts all state causes of action in which resolution requires interpretation of the ERISA plan. As described more fully below, the scope of the complete preemption doctrine is not as broad as Defendant contends. Nonetheless, Defendant properly raised the issue of complete preemption, and the Court will address that basis for removal.
I. Section 1144(a)
ERISA's preemption clause provides:
[T]he provisions of this subchapter . . . shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.29 U.S.C. § 1144(a). ERISA's preemption clause is "conspicuous for its breadth," and it preempts every state law that directly or indirectly relates to an employee benefit plan governed by ERISA. WSB Elec., Inc. v. Curry, 88 F.3d 788, 791 (9th Cir. 1996), cert. denied, 519 U.S. 1109 (1997). To determine whether ERISA preempts a state law, a court must first decide whether an employee benefit plan governed by ERISA is implicated. If an ERISA plan is at issue, then the court must decide whether the state law "relates to" that ERISA plan.
A. ERISA plan
ERISA preempts only state laws regarding "employee benefit plans" rather than all laws regarding "employee benefits." Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1, 8 (1987). ERISA defines an employee welfare benefit plan as "any plan . . . or program . . . maintained by an employer . . . for the purpose of providing" those benefits described in 29 U.S.C. § 186(c). 29 U.S.C. § 1002(1)(B). Section 186(c) includes in its list of benefits the money paid by an employer to a trust fund for severance benefits. The Supreme Court, however, has suggested a plan that pays severance benefits out of the general assets of the company rather than a trust fund also may be an ERISA plan. See id. at 17-18 n. 11.
The Ninth Circuit applies a "relatively simple test" to determine whether a particular severance pay plan is covered by ERISA: "Does the benefit package implicate an ongoing administrative scheme?" Delaye v. Agripac, Inc., 39 F.3d 235, 237 (9th Cir. 1994), cert. denied, 514 U.S. 1037 (1995). If the employer is "obligated to apply enough ongoing, particularized, administrative, discretionary analysis," the program is a plan for ERISA purposes. Bogue v. Ampex Corp., 976 F.2d 1319, 1323 (9th Cir. 1992). The employer's discretion "must rise to the level of ongoing particularized discretion . . . to turn a simple severance agreement into an ERISA employee benefits plan." Velarde v. Pace Membership Warehouse, Inc., 105 F.3d 1313, 1317 (9th Cir. 1997). It is not sufficient, however, if the program merely requires "some modicum of discretion" on the part of the employer. Id.
In Bogue, the severance pay program provided that an employee was entitled to severance benefits if he was terminated and neither the employer nor the new owner of the business offered the employee "substantially equivalent" employment. 976 F.2d at 1323. The Ninth Circuit held the severance pay program in this instance required "enough" ongoing administrative discretion to qualify as an ERISA plan. Id. On the other hand, in Delaye, the Ninth Circuit concluded a program that provided for a certain level of severance benefits if the employee was terminated for cause and another level of benefits if the employee was terminated without cause did not qualify as an ERISA plan. 39 F.3d at 237. The court found such a plan did not implicate an ongoing administrative scheme because there was "nothing discretionary about the timing, amount, or form of the payment." Id. The court distinguished the nondiscretionary determination of whether the employee was fired with or without cause from the discretionary determination of whether the employee was offered substantially similar employment. Id. at 238. The court also distinguished the contract in Delaye, which covered only a single employee, from the program in Bogue, which covered ten executives and, therefore, would require ten separate discretionary determinations. Id. See also Velarde, 105 F.3d at 1317 (a "Stay On Letter" that required the employer to pay its employees a bonus and severance pay if they continued to work for the company until a certain date and were not terminated for cause before that date was not an ERISA plan because the employer "was simply required to make a single arithmetical calculation to determine the amount of the severance benefits.").
As noted above, Plaintiff concedes the Severance Guidelines are an ERISA plan. The Severance Guidelines require the plan administrator to analyze the circumstances of each covered corporate employee to determine whether an employee's new position is a "similar position." To make that determination, the plan administrator has to determine whether the scope of the responsibilities and duties of the new position is similar to those of the original position. This is a discretionary decision that must be applied to multiple employees much like the plan in Bogue.
Based on the foregoing, the Court finds the Severance Guidelines implicate an ongoing administrative scheme that requires the plan administrator to exercise its discretion to determine eligibility for benefits. The Court, therefore, concludes the Severance Guidelines are also an ERISA plan.
B. "Relates to"
As the Ninth Circuit has acknowledged, "[d]eveloping a rule to identify whether ERISA preempts a given state law — the first step in determining whether ERISA completely preempts the law — has bedeviled the Supreme Court." Rutledge, 201 F.3d at 1216. The Court has held a "law `relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan." Shaw v. Delta Airlines, Inc., 463 U.S. 85, 96-97 (1983). A state law has "a reference to" an ERISA plan if the state law "acts immediately and exclusively upon ERISA plans" or "the existence of ERISA plans is essential to the law's operation." Cal. Div. of Labor Standards v. Dillingham, 519 U.S. 316, 325 (1997). The Supreme Court, however, has not similarly defined what it means to have "a connection with" an ERISA plan. Instead the Supreme Court merely requires a court to consider ERISA objectives and the nature of the state law's effect on ERISA plans as guides to understanding the proper scope of ERISA preemption. Id.
In Rutledge, the Ninth Circuit also acknowledged ERISA preemption law has confounded it as well and referred to this area of law as the "veritable Sargasso Sea of obfuscation." Id. (internal quotations and citations omitted).
The Ninth Circuit itself has not formulated a single test or formula for determining the scope of ERISA preemption. State laws that provide "alternative enforcement mechanisms" for ERISA claims, however, clearly are preempted. Dishman v. UNUM Life Ins. Co. of Am., 269 F.3d 974, 980 (9th Cir. 2001). ERISA "supplants a variety of state law causes of action for the wrongful denial of benefits," including tortious breach of contract, breach of fiduciary duty, and fraud in the inducement. Id. In other words, "[c]laimants simply cannot obtain relief by dressing up an ERISA benefits claim in the garb of a state law tort." Id.
Plaintiff's severance pay claim as pleaded in his Complaint is based solely on Defendant's assumption of New American's obligations under the Severance Guidelines as an alleged bona fide successor employer. Plaintiff's severance pay claim directly relates to an ERISA plan and, in fact, depends on that plan. Plaintiff's claim pursuant to the Severance Guidelines, therefore, appears to be "an ERISA benefits claim in the garb of a state law tort."
In Plaintiff's Supplemental Memorandum regarding jurisdiction, however, he states his claim for severance pay is "not strictly for successorship liability because it is not claimed that HealthMont is liable for a New American debt." Plaintiff instead argues he is entitled to relief on the basis of Defendant's own implied/oral promise to continue to honor New American's Severance Guidelines. This characterization of Plaintiff's claim, however, cannot be reconciled with the allegations in his Complaint or his argument in his Memorandum in Opposition to Defendant's Motion for Summary Judgment. Plaintiff did not allege a contract or estoppel theory in his Complaint, but relied solely on successor liability as the factual basis for his claim. It appears, therefore, Plaintiff might be abandoning his original theory. As explained above, however, removability is determined at the time the notice of removal is filed, and any subsequent amendments to the complaint or changes in the parties' positions are irrelevant to the issue of removal jurisdiction. See Sparta, 159 F.3d at 1211.
In his Memorandum in Opposition to Defendant's Motion for Summary Judgment, Plaintiff argued Defendant did not purchase the Hospitals free and clear of New American's severance pay obligations despite that company's bankruptcy because the Severance Guidelines constitute an executory contract. As in the Complaint, Plaintiff continued to argue Defendant's status as a successor employer that had notice of the previous employer's severance pay obligations created liability separate from any liability arising from Defendant's own implied or oral promises.
Nonetheless, subsequent amendments to a complaint that eliminate any federal question from the matter may be considered a basis for the court to exercise its discretion to remand the action pursuant to 28 U.S.C. § 1441(c).
Based on the foregoing, the Court concludes Plaintiff's state law severance pay claim as alleged in his Complaint relates to an ERISA plan within the meaning of 29 U.S.C. § 1144(a).
II. Section 1132
"[E]ven if a defendant has a substantial and persuasive argument that the state law claim asserted in the complaint is preempted by § 1144(a) of ERISA . . . as long as the claim is not capable of characterization as an ERISA claim, removal is improper." Toumajian, 135 F.3d at 655. 29 U.S.C. § 1132, the ERISA civil enforcement provision, sets out "the exclusive claims that are available under ERISA, as well as by whom and against whom such claims may be brought." Abraham, 265 F.3d at 823. Section 1132(a)(1)(B) provides a participant or beneficiary of a plan may bring a civil action
to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.
As explained above, Plaintiff's severance pay claim is directly based on the Severance Guidelines, which are an ERISA plan. Plaintiff alleges he is entitled to one year of severance pay "under the severance guidelines." Plaintiff further asserts Defendant is liable for that severance pay obligation because it is the bona fide successor employer to New American. Accordingly, Plaintiff's severance pay claim as expressed in his Complaint is a claim to recover benefits owed to him under the terms of an ERISA plan.
Plaintiff, nonetheless, argues in his Reply Memorandum in Support of his Motion to Remand that his severance pay claim falls outside of the scope of the ERISA civil enforcement statute because "Plaintiff could not have alleged that HealthMont was an employer under ERISA." The Court, however, finds Plaintiff's argument fails because he, in effect, alleged just that when he asserted Defendant was his bona fide successor employer for purposes of liability under the Severance Guidelines originally implemented by New American.
Although ERISA does not discuss whether the liability it creates may be passed to successor employers, the Ninth Circuit has extended ERISA liability to successor employers under a federal common law successorship doctrine. See Trustees for Alaska Laborers-Construction Industry Health Sec. Fund v. Ferrell, 812 F.2d 512 (9th Cir. 1987) (an individual member of a joint venture who continued to operate the same business with the same employees and equipment after the joint venture ceased operations was a successor employer for purposes of ERISA liability). Under the federal common law as applied to ERISA claims, an employer is liable for a previous employer's obligations under an ERISA plan if the subsequent employer is a bona fide successor and had notice of the potential liability. See Steinbach v. Hubbard, 51 F.3d 843, 845-46 (9th Cir. 1995) (applied the "same basic standard" of successor liability to a Fair Labor Standards Act claim that applies in ERISA and other employment contexts). A subsequent employer is a successor employer if it hires most of its employees from the previous employer's work force and conducts essentially the same business as its predecessor without a fundamental change in working conditions. Trustees, 812 F.2d at 515.
Plaintiff's allegations in his Complaint mirror the requirements for successor liability in an ERISA context. Although Plaintiff now appears to argue he cannot recover against Defendant on a successor liability theory, the allegations in his Complaint can be "reasonably characterized" as constituting an ERISA successor liability claim.
Based on the foregoing, the Court finds Plaintiff's severance pay claim falls within the scope of ERISA's civil enforcement statute as that provision has been interpreted by the Ninth Circuit. The Court, therefore, concludes Plaintiff's severance pay claim is completely preempted by ERISA. Accordingly, the Court also concludes Defendant's removal of this action to federal court on the basis of complete preemption was proper.
CONCLUSION
For these reasons, the Court DENIES Plaintiff's Motion to Remand (#34).
IT IS SO ORDERED.