Oatway v. American International Group, Inc. , 325 F.3d 184 ( 2003 )


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  •                                                                                                                            Opinions of the United
    2003 Decisions                                                                                                             States Court of Appeals
    for the Third Circuit
    4-14-2003
    Oatway v. Amer Intl Grp Inc
    Precedential or Non-Precedential: Precedential
    Docket 02-1699
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    Recommended Citation
    "Oatway v. Amer Intl Grp Inc" (2003). 2003 Decisions. Paper 589.
    http://digitalcommons.law.villanova.edu/thirdcircuit_2003/589
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    PRECEDENTIAL
    Filed April 14, 2003
    UNITED STATES COURT OF APPEALS
    FOR THE THIRD CIRCUIT
    No. 02-1699
    DEREK J. OATWAY
    Appellant
    v.
    AMERICAN INTERNATIONAL GROUP, INC., Plan
    Administrator of Stock Option Plan; AMERICAN
    INTERNATIONAL GROUP, INC., a Delaware Corporation;
    1987 EMPLOYEE STOCK OPTION PLAN, an employee
    welfare benefit plan
    On Appeal From the United States District Court
    For the District of Delaware
    (D.C. No. 01-cv-00033)
    District Judge: Honorable Gregory M. Sleet
    Submitted pursuant to Third Circuit LAR 34.1(a)
    November 4, 2002
    Before: BECKER, Chief Judge,
    McKEE and HILL,*Circuit Judges.
    * Honorable James C. Hill, United States Circuit Judge for the Eleventh
    Circuit, sitting by designation.
    2
    (Filed: April 14, 2003)
    JOHN M. STULL, ESQUIRE
    1300 North Market Street
    P.O. Box 1947
    Wilmington, DE 19899
    RICHARD R. WIER, JR.
    1220 Market Street
    Wilmington, DE 19801
    Attorneys for the Appellant
    STEPHEN E. JENKINS
    REGINA A. IORII
    CAROLYN S. HAKE
    Ashby & Geddes
    222 Delaware Avenue, 17th Floor
    P.O. Box 1150
    Wilmington, DE 19899
    Attorneys for the Appellees
    OPINION OF THE COURT
    HILL, Circuit Judge:
    Appellant Derek J. Oatway appeals the district court
    order granting appellees’, American International Group,
    Inc.,    American      International   Group,    Inc., Plan
    Administrator, and 1987 Employee Stock Option Plan
    (collectively, AIG), motion to dismiss his amended complaint
    pursuant to Fed. R. Civ. Proc. 12(b)(6) on the ground that
    it fails to state a claim under the Employee Retirement
    Income Security Act of 1974 (ERISA), as amended, 
    29 U.S.C. § 1001
     et seq.1 Based upon the following, we affirm
    the judgment of the district court.
    1. We accept all factual allegations in the amended complaint as true
    and view them in a light most favorable to the plaintiff. Fed. R. Civ. Proc.
    12(b)(6). On a motion to dismiss for failure to state a claim under Rule
    12(b)(6), “a court can consider a ‘document integral to or explicitly relied
    upon in the complaint.’ ” In re Rockefeller Ctr. Props., Inc. Sec. Litig., 
    184 F.3d 280
    , 287 (3d Cir. 1999).
    3
    I. FACTUAL AND PROCEDURAL BACKGROUND
    Oatway was a full-time employee of AIG from 1983 to
    1992. During his employment, in consideration of his
    performance as a key employee, Oatway and AIG entered
    into two written incentive stock option agreements2 giving
    Oatway the right to purchase a set number of AIG common
    stock shares at a set price per share as provided for in
    AIG’s 1987 Employee Stock Option Plan (1987 Plan). The
    first was the January 18, 1990 Incentive Stock Option,
    giving Oatway the option to purchase 200 shares at $96 per
    share under the 1987 Plan. The second was the October
    11, 1990 Incentive Stock Option, giving him the option to
    purchase 200 shares at $58.625 per share under the 1987
    Plan.3 The agreements were identical in nature. Blank
    spaces in the agreements were filled in by the parties to
    reflect the particular date of execution, the number of
    shares subject to the stock option grant, and the set price
    per share.
    The stated purpose of the 1987 Plan was:
    [T]o advance the interest of [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.
    2. In general, an incentive stock option enables an executive to delay
    exercise of the option while the stock appreciates in value. Executive
    Compensation: A 1987 Roadmap for the Corporate Advisor, 43 Bus. Law.
    185, 291 (Nov. 1987). The executive can then purchase the stock at what
    is, at the time of purchase, a bargain price. In the interim, the executive
    has not been at risk if the value of the stock declines. 
    Id.
     If the value of
    the stock does decline, without making any cash outlay, the executive
    forgoes the exercise of the option. 
    Id.
     An incentive stock option
    accomplishes its goals by affording the executive the potential for an
    equity interest in the corporation, thereby encouraging him to use his
    greatest efforts to promote the growth of that corporation. Id.
    3. By referring to these documents in his amended complaint, Oatway
    has incorporated these documents by reference into his pleading. See
    note 1 supra.
    4
    (Emphasis added.)
    Under the Plan, each stock option granted to key AIG
    employees by its board of directors expired ten (10) years
    from the date of its issuance. An option could not be
    exercised by an AIG employee until one year after its date
    of issuance, and then only in predetermined installments.
    Unexercised options rolled over into subsequent years
    remaining within the ten-year term. If an employee
    terminated his or her employment with AIG prior to
    “normal retirement age,” or age 65, then he or she had
    ninety days within which to exercise his or her remaining
    AIG stock options.
    Oatway retired prior to normal retirement age in 1992.
    AIG advised him that he had ninety days, or until
    November 1992, within which to exercise all his options.
    Oatway alleges that, after he complained to the company
    about the short duration of time, AIG relented and
    reinstated the original ten year term.
    Eight years passed. Oatway discovered, on or about
    January 25, 2000, that his option exercise date under the
    January 18, 1990, incentive stock agreement had expired
    one week earlier. He claims that he notified AIG by
    facsimile of his intent and desire to exercise his January
    18, 1990 option, but the company refused to honor his
    request.
    Ten more months passed. On October 1, 2000, Oatway
    attempted to exercise his options, both under the January
    18, 1990, and the October 11, 1990, incentive stock option
    agreements. AIG refused his attempt. Oatway appealed the
    denial to AIG as “Plan Administrator.”
    AIG rejected his appeal and Oatway filed suit in district
    court. The district court granted AIG’s motion to dismiss
    Oatway’s amended complaint on the grounds that it lacked
    subject matter jurisdiction as none of the three AIG
    incentive stock option agreements were ERISA plans.
    This appeal follows.
    II. STANDARD OF REVIEW
    In reviewing the dismissal of a complaint by a district
    court pursuant to Rule 12(b)(6) for failure to state a claim
    5
    upon which relief may be granted, our review is plenary
    and we apply the same test as the district court. Maio v.
    Aetna, Inc., 
    221 F.3d 472
    , 481-82 (3d Cir. 2000). “A motion
    to dismiss pursuant to Rule 12(b)(6) may be granted only if,
    accepting all well-pleaded allegations in the complaint as
    true, and viewing them in the light most favorable to the
    plaintiff, plaintiff is not entitled to relief.” In re Burlington
    Coat Factory Sec. Litig., 
    114 F.3d 1410
    , 1420 (3d Cir.
    1997). The issue is not whether a plaintiff will ultimately
    prevail but whether he or she is entitled to offer evidence to
    support the claims. 
    Id.
    III. DISCUSSION
    A. Introduction
    Whether or not the stock options granted to Oatway, as
    a key employee, were given as incentive bonuses to
    continue    employment    with    AIG,   or as  deferred
    compensation arrangements subject to ERISA, is the issue
    that controls the outcome of this appeal.4
    Although this issue, whether or not an incentive stock
    option plan is an employee benefit plan within the meaning
    of ERISA, is not a novel or particularly new issue, it
    appears to be an issue of first impression in this circuit. As
    will be discussed, most courts have uniformly held that an
    incentive stock option plan is not an ERISA plan.
    Interestingly enough, the majority of these courts so
    holding have been district courts. Not many other circuit
    courts of appeal have addressed the issue, perhaps relying
    on the leading case of Murphy v. Inexco Oil Co., 
    611 F.2d 570
     (5th Cir. 1980), addressing bonus programs in general
    under ERISA, and its progeny that have followed.
    B. Murphy and Other Circuit Court Cases
    In Murphy, the company gave bonuses to certain key
    employees, including Murphy, the president of Inexco, by
    assigning a specific royalty interest in a drilling prospect it
    planned to develop. Each employee was given participation
    4. We affirm all other remaining issues addressed by the district court
    without discussion.
    6
    units, or rights to receive a fractional portion of any
    proceeds that might thereafter accrue from the designated
    project. Murphy, 
    611 F.2d at 572
    .
    Murphy claimed that this bonus plan violated ERISA. His
    complaint was dismissed by the district court for lack of
    subject matter jurisdiction on the grounds that the bonus
    plan was not subject to ERISA. 
    Id. at 570
    . The Fifth Circuit
    agreed.
    Relying upon 
    29 U.S.C. § 1002
    (1), for the ERISA
    definition of employee welfare benefit plan,5 
    29 U.S.C. § 1002
    (2), for the ERISA definition of employee pension
    benefit plan,6 and the regulations promulgated thereunder,
    
    29 C.F.R. § 2510.3-2
    (c),7 the Fifth Circuit reasoned that the
    5. 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).
    
    29 U.S.C. § 1002
    (1).
    Section 186(c) includes within the definition of “employee welfare
    benefit plan” those plans that provide holiday and severance benefits,
    and benefits that are similar. See 
    29 C.F.R. § 2510.3-1
    (a)(3).
    6. ERISA defines an “employee pension benefit plan” as 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 C.F.R. § 1002
    (2).
    7. The Department of Labor, in its regulations, has interpreted ERISA
    employee pension benefit plans to exclude “payments made by an
    employer to some or all of its employees as bonuses for work performed,
    unless such payments are systematically deferred to the termination of
    covered employment or beyond, or so as to provide retirement income to
    employees.” 
    28 C.F.R. § 2510.3-2
    (c).
    7
    Murphy bonus program was not an ERISA plan because it
    “was evidently designed to provide current rather than
    retirement income to Inexco’s employees.” 
    Id. at 575-76
    . In
    addition, the Murphy court considered it significant that
    contributions were discretionary, given in recognition of
    special   service, awarded     in  addition    to    regular
    compensation, and did not result in the deferral of income.
    
    Id.
    The Murphy court reasoned that an ERISA plan is only a
    plan “designed for the purpose of paying retirement income
    whether as a result of [its] express terms or surrounding
    circumstances.” 
    Id.
     It concluded that the mere fact that
    some payments under a plan may be made after an
    employee has retired or has left the company does not
    result in ERISA coverage by statutory definition. 
    Id. at 576
    .
    See Williams v. Wright, 
    927 F.2d 1540
     (11th Cir. 1991)
    (relying on Murphy, where a letter agreement between an
    employee and an employer providing $500 per month on
    the first of each month was not considered to be an ERISA
    plan); Whitt v. Sherman Int’l Corp., 
    147 F.3d 1325
     (11th Cir.
    1998) (where a long term incentive plan for senior
    executives was not considered to be an ERISA plan);
    Mauldin v. Worldcom, Inc., 
    263 F.3d 1205
     (10th Cir. 2001)
    (where the court noted its surprise that neither party
    argued that the stock option agreements were subject to
    ERISA); Kerkhof v. MCI Worldcom, Inc., 
    282 F.3d 44
     (1st
    Cir. 2002) (where neither party argued that the MFS plan or
    the stock option agreement were governed by ERISA).
    C. The District Court Here
    Using a Murphy analysis, the district court in this case
    first determined that the AIG stock option incentive plan
    was not an employee welfare benefit plan under ERISA
    because its purpose was to operate as an incentive and
    bonus program, and not as a means to defer compensation
    or provide retirement benefits. Oatway v. American Int’l
    Group, Inc., 
    2002 WL 187512
     *3-4 (D. Del. Feb. 05, 2002).
    In short, the AIG plan was not 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. 
    Id.
     We agree. See Murphy, 
    611 F.2d at
                                8
    574; Hagel v. United Land Co., 
    759 F. Supp. 1199
     (E.D. Va.
    1991); Long v. Excel Telecoms. Corp., 
    2000 WL 1562808
    (N.D. Tex. Oct. 18, 2000); Hahn v. National Westminster
    Bank, N.A., 
    99 F. Supp. 2d 275
     (E.D.N.Y. 2000); Goodrich
    v. CML Fiberoptics, 
    990 F. Supp. 48
     (D. Mass. 1998);
    Fludgate v. Management Technologies, 
    885 F. Supp. 645
    (S.D.N.Y. 1995).
    The district court went on, also using a Murphy analysis,
    to find that the AIG plan was also not an employee pension
    benefit plan under ERISA because it was not created for the
    purpose of providing retirement income, but rather was an
    incentive plan designed to provide a financial incentive for
    employees to remain with AIG and improve their
    performance there. Oatway, 
    2002 WL 187512
     at *5. We
    agree. See Murphy, 
    611 F.2d at 574
    . Oatway’s post-
    retirement payments were only incidental to the goal of
    providing current compensation. See Hahn, 
    99 F. Supp. 2d at 279
    ; Lafian v. Electronic Data Sys. Corp., 
    856 F. Supp. 339
     (E.D. Mich. 1994); Raskin v. Cynet, Inc. 
    131 F. Supp. 2d 906
     (S.D. Tex. 2001); Chambless v. Excel
    Communications, Inc., 
    2002 WL 31990311
     (N.D. Tex. July
    15, 2002); Kaelin v. Tenneco, Inc., 
    28 F. Supp. 2d 478
     (N.D.
    Ill. 1998).
    We agree with the legal analysis of Murphy, as applied by
    the district court in this case, and the unbroken line of
    cases that have followed Murphy’s reasoning. Here,
    Oatway’s stock options were discretionary, given in
    recognition of special service, and awarded in addition to
    his regular compensation. See Murphy, 
    611 F.2d at 575-76
    .
    They did not result in the deferral of income even though
    they could be exercised after he retired. 
    Id.
     In short, the
    AIG stock option agreements were not ERISA plans.
    IV. CONCLUSION
    The order of the district court dismissing Oatway’s
    amended complaint is affirmed.
    9
    A True Copy:
    Teste:
    Clerk of the United States Court of Appeals
    for the Third Circuit