Opinion
No. 3:99-CV-2310-H
June 5, 2000
MEMORANDUM OPINION AND ORDER
Before the Court is Defendants' Motion to Strike Jury Demand, filed February 14, 2000, and all responses and replies thereto. Upon review of the briefs of the parties, as well as the evidentiary submissions, the Court finds that Defendants' Motion should be, and hereby is, DENIED.
I. BACKGROUND
Plaintiff Phil Leamon began his employment with Platinum Technology Inc. in August of 1995. He rose to the executive position of Vice President of business development by February 1997. In August of 1998, when Platinum was aware it may be a takeover candidate, it asked Leamon and other senior executives to sign a Severance Pay Agreement. Approximately 120 of Platinum's 4000 employees were invited to sign this agreement.
The Severance Pay Agreement, which Leamon signed on August 31, 1998, provided that if Platinum was taken over by another company (a so-called "change in control") and Leamon terminated his employment for "good reason," he would receive a year's severance pay based on his salary. Under the Agreement, Leamon could elect a lump sum, or elect a payout period no longer than 12 months. Along with the severance pay, an employee could receive health and welfare benefits for up to one year. The contract stated that it was the entire agreement between the parties, and the contract did not mention ERISA.
On about June 4 of 1999, Computer Associates bought Platinum. Approximately a week later, Leamon resigned from Platinum for what he contends is "good cause" under the Severance Pay Agreement.
At some point after Leamon's exit from Platinum and his lawsuit for severance benefits, Platinum put together a "Executive Level Severance Pay Plan" which they contend is an ERISA plan. It's purpose was to "consolidate" the 120 or so Severance Pay Agreements signed by Platinum executives into an ERISA plan, and it states that the Plan is unfunded. It was made retroactively effective August 1, 1998. Leamon contends he never received a copy of this plan until this litigation was commenced.
Leamon sued for breach of contract in state court when he did not receive his benefits under the Agreement, and requested a jury. Defendants removed the suit to federal court based on diversity jurisdiction, and now move to strike Plaintiff's jury demand.
II. ANALYSIS
The issue before the Court is whether Plaintiff's claim for severance benefits under his Severance Pay Agreement is governed by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq. If Plaintiff's breach of contract claim is governed by ERISA, then he is not entitled to a jury trial. See Borst v. Chevron Corp., 36 F.3d 1308, 1324 (5th Cir. 1994).
Although unfunded single employer severance polices may be benefit plans within the scope of ERISA, a plan must have "some sort of an administrative set up" in order to be covered by ERISA. Whittemore v. Schulemberger Technology Corp., 976 F.2d 922, 923 (5th Cir. 1992). The sine qua non of an ERISA plan is an administrative burden on the employer.
Defendants have failed to demonstrate an administrative burden that would place their Severance Plan within the ambit of ERISA. Defendants' argument for ERISA rests on the face of their Severance Pay Plan (submitted as Defendant's Exhibit C) which purports to require certain administrative tasks by which it is implemented. The Court notes that this document was never signed by or agreed to by Leamon, that the Agreement he did sign stated it was the entire agreement of the parties, and that the ERISA plan did not come into existence until after Leamon's lawsuit was filed. Therefore, Defendants' Exhibit C does little to persuade the Court.
Moreover, any administrative burden present in Defendants' evidence is strongly contradicted by the testimony of the Plan Administrator, Deborah J. Coughlin. As Plan Administrator, Coughlin is responsible for all of the administrative tasks that would make the plan fall under ERISA. Yet Coughlin testified that she did not know how many of the 120 employees received benefits, which employees received benefits, nor how much was paid out to employees. Even more telling, Coughlin stated that "there aren't too many administrative things that need to be done on a day-to day basis" and that other than writing checks and entering names in a health benefit database, there are "probably not too many other things" to be done to administer the benefits. (Coughlin Depo. p. 156, 157-158). Overall, Coughlin's testimony strongly implies there is little administration needed to confer the benefits due to Platinum employees under the Severance Pay Agreements.
The Agreement itself requires very few administrative tasks that Platinum must accomplish. Upon occurrence of a change in control, if the employee is terminated or resigns, the employer must pay in a lump sum (if chosen by the employee) or else over twelve months, an amount equal to a year's salary and bonus. Additionally, the employer must make welfare benefits like medical insurance available for one year.
In this way, the Agreement at issue here is highly analogous to the "golden parachute" at issue in Fontenot v. NL Industries, Inc., 953 F.2d 960 (5th Cir. 1992). In Fontenot, the Fifth Circuit found a severance plan available only to a number of executives was not an ERISA plan. See id. at 961. The terms of the plan were similar to the Platinum plan — if an executive was terminated with two years after a change in control, he would receive a lump sum payment calculated by his previous salary and three years of certain welfare benefits. See id. In Platinum's plan, the executives are entitled to only one year of health benefits, and may elect a lump sum payment.
Also like in Fontenot, there is no requirement that Defendants analyze the circumstances of the employee's termination. Although there is an extensive definition of what may be "good reason" for an executive's resignation, the Agreement states "any good faith determination of `good reason' made by the Executive shall be conclusive." (Agreement § 1(g)). Therefore, there is no need for an administrative scheme to analyze each employees reasons for termination and ensure conformity. In this way, the plan at issue here is distinguishable from the plan in Collins v. Ralston Purina Co., 147 F.3d 592 (7th Cir. 1998) cited by Defendants, which required extensive analysis by an administrator of an ambiguous standard for employee termination.
The Court also notes that the Plan at issue here is effective for a relatively short period of time, and is applicable to a small group of senior executives rather than the employees of Platinum as a whole. Therefore, this case is also distinguishable from Perdue v. Burger King Corporation, 7 F.3d 1251 (5th Cir. 1993) in which the Fifth Circuit found that a plan in effect for three years and applicable to two nationwide personnel reorganizations was governed by ERISA.
The termination of the executives must occur during the first 12 months after the change in control for a 12 month payout, or the first 24 months for an 8 month payout. Plaintiff contends that under the terms of the Agreements, all of the benefits will be paid out by June 2000.
In sum, the Court finds that the Severance Pay Agreement signed by Leamon is not a "plan" governed by ERISA, and thus Leamon is entitled to a jury trial on his breach of contract claim.
SO ORDERED.