Carol Cantrell v. Briggs & Veselka Company

Case: 12-20294 Document: 00512354807 Page: 1 Date Filed: 08/27/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
August 27, 2013
No. 12-20294 Lyle W. Cayce
Clerk
CAROL A. CANTRELL,
Plaintiff – Appellant
v.
BRIGGS & VESELKA COMPANY, A Professional Corporation,
Defendant – Third Party Plaintiff –
Appellee
v.
CANTRELL & COWAN, P.L.L.C.,
Third Party Defendant – Appellant
------------------------------------------------------------------------------------------------------------
W. PATRICK CANTRELL,
Plaintiff – Appellant
v.
BRIGGS & VESELKA COMPANY; A Professional Corporation,
Defendant – Appellee
Appeal from the United States District Court
for the Southern District of Texas
Before JOLLY, GARZA, and OWEN, Circuit Judges.
EMILIO M. GARZA, Circuit Judge:
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This case arises out of an employment dispute between Carol and Patrick
Cantrell and their former employer, Briggs & Veselka Company (“B&V”). The
district court held the Cantrells’ deferred compensation arrangements in their
Employment Agreement contracts with B&V constitute a plan under the
Employment Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq.
We REVERSE and REMAND with instructions to remand to the state court.
I
The Cantrells owned a CPA firm, P. Cantrell & Company, P.C., which they
combined with B&V in 2000 in a tax-free merger, with the merged entity
retaining the Briggs & Veselka name. The original B&V shareholders received
approximately 80% of the shares of the merged entity, and the Cantrells received
approximately 20%.
As part of the merger, the Cantrells executed Stock Redemption
Agreement and Employment Agreement contracts with B&V. The Stock
Redemption Agreement provides for redemption of the Cantrells’ stock upon the
occurrence of death, long-term disability, resignation or other termination of
employment, disposition of the shares to a third party, or divorce. The
redemption price is calculated using the cash-basis book value of the combined
entity. When apportioning the shares during the merger, B&V was valued at
$4.9 million and P. Cantrell & Company was valued at $1.2 million, though the
redemption value of the Cantrells’ stock was only about $57,000.
The Employment Agreements outline the terms and scope of the Cantrells’
employment with B&V, describe the Cantrells’ compensation and benefits
packages, and contain noncompete and nondisclosure clauses. The identical
noncompete clauses prohibit the Cantrells from competing with B&V by
participating in any entity engaged in the same business as B&V within fifty
miles of B&V’s location during the period of employment and for one year
following the termination of employment. The clauses also prohibit the
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Cantrells from soliciting B&V clients or disclosing B&V’s confidential
information during the same period.
In addition, the Employment Agreements provide for deferred
compensation, the focus of this litigation. The relevant paragraphs state:
6.1 Deferred Compensation. Upon occurrence of the
Termination Event, the EMPLOYER agrees to pay the EMPLOYEE the
Deferred Compensation Amount in forty (40) equal installments (the
“Installment Amount”), payable on the fifteenth of the month
following the end of each calendar quarter during the Pay-Out
Period; provided, however, in no event may the EMPLOYER’S
Aggregate Quarterly Deferred Compensation Payment in any
quarter exceed twenty five percent (25%) of the EMPLOYER’S
Adjusted Net Profit for the previous fiscal year ended September 30
divided by four (4) (the “Limitation Amount”). If the Aggregate
Quarterly Deferred Compensation Payment for any quarter would
exceed the Limitation Amount, the EMPLOYEE’S Installment Amount
shall be reduced to an amount equal to her proportionate share of
the EMPLOYER’S Aggregate Quarterly Deferred Compensation
Payment for such quarter times the Limitation Amount. In the
event the EMPLOYEE’S Installment Amount is reduced by application
of previous sentence, such reduced amount shall be added to the
EMPLOYEE’S Installment Amount due in subsequent quarters until
paid, provided that each subsequent quarter’s payment will also be
subject to the Limitation Amount.
6.2 Termination Event. The Termination Event shall be the
first of the following events to occur:
(a) The Retirement of the EMPLOYEE;
(b) The Disability of the EMPLOYEE while employed;
(c) The death of the EMPLOYEE while employed; or
(d) The termination of the EMPLOYEE’S employment with the
EMPLOYER by a majority vote of the Board of Directors for any
reason other than With Cause.
6.3 Deferred Compensation Amount. The Deferred
Compensation Amount shall be equal to the product of four (4) times
the EMPLOYEE’S Average Compensation multiplied by her Vested
Percentage. The EMPLOYEE’S Vested Percentage and Average
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Compensation shall be determined as of the date of the Termination
Event and shall not be affected by the subsequent occurrence of the
other events listed in Section 6.2. After serving twenty (20) years
of Creditable Service, the EMPLOYEE’S Vested Percentage shall be
eighty percent (80%), and her Vested Percentage shall increase an
additional ten percent (10%) for each of the following two (2) years
at which time the EMPLOYEE’S Vested Percentage shall be one
hundred percent (100%). However, if during the Period of
Employment the EMPLOYEE dies or incurs a Disability, the
EMPLOYEE’S Vested Percentage shall immediately become one
hundred percent (100%).
6.4 Pay-Out Period. The Pay-Out period shall begin on the
fifteenth day of the month following the end of the calendar quarter
in which the Termination Event occurs and shall end ten (10) years
later; provided, however, in the event there is any remaining
balance on the Deferred Compensation Amount due at the end of
the Pay-Out Period, the Pay-Out Period shall continue until such
balance is paid, subject to the limitations contained in Section 6.1,
and such remaining balance shall be treated as if it were the
EMPLOYEE’S Installment Amount.
....
6.7 Forfeiture Upon Competing With the EMPLOYER or
Terminated With Cause. If during the Pay-Out Period the
EMPLOYEE competes . . . with the EMPLOYER . . . within fifty (50)
miles . . . the EMPLOYEE forfeits all remaining balance of the
Deferred Compensation Amount outstanding as of the date he
begins engaging in such competition, and the EMPLOYER is relieved
of its obligation to make future payments to the EMPLOYEE under
this Article . . . . Furthermore, if the EMPLOYEE is terminated With
Cause . . . the EMPLOYEE forfeits all rights he may otherwise have
under this Article . . . .
Under their respective agreements, Carol received ten and Patrick received
thirteen years of “Creditable Service” for Vested Percentage purposes.
At the time of the merger, the other seven B&V employee-shareholders
also entered into employment agreements with B&V, and eight additional
employee-shareholders have since entered into similar agreements. Thus, a
total of seventeen current and former B&V employee-shareholders have deferred
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compensation arrangements. When the nine original employees entered into
their agreements, B&V notified the Department of Labor it had nine separate
ERISA plans, each involving one employee.
The agreements of the other employee-shareholders contain deferred
compensation arrangements similar to those in the Cantrells’ agreements. The
primary difference in the Cantrells’ agreements is in the calculation of the
vested percentages.1 Additionally, the Cantrells’ agreements, along with that of
one other employee, calculate the Limitation Amount based on 25% of net profit,
while the remaining agreements calculate the Limitation Amount based on 5%
of gross revenue.2
Patrick retired from B&V in December 2007 and began practicing law.
Due to the thirteen years of credit he received at the time of the merger and the
seven years he worked at B&V, he met the twenty-year vesting requirement, and
B&V began paying his deferred compensation in January 2008. Carol remained
employed at B&V, and in May 2011 she formed a law firm, Cantrell & Cowan,
P.L.L.C. (“C&C”) with Patrick and another partner.
On November 11, 2011, Carol gave B&V notice of her retirement, effective
January 15, 2012. Due to the ten years of credit she received at the time of the
merger and the approximately eleven years she worked at B&V, she expected to
meet the twenty-year vesting requirement. B&V then received a copy of a C&C
invoice and payment for C&C services from a B&V client. Based on this invoice
1
Compare Cantrells’ Employment Agreements (providing vested percentage would be
80% after twenty years creditable service and would increase by 10% in each of following two
years), with Remaining Employment Agreements (“After four (4) years of Creditable Service,
the EMPLOYEE’S Vested Percentage shall be twenty percent (20%). The EMPLOYEE shall vest
at five percent (5%) a year thereafter up to twenty years of Creditable Service; provided,
however, the EMPLOYEE shall be subject to a percentage reduction of five percent (5%) a year
prior to age 55, four percent (4%) a year prior to age 60, and three percent a year (3%) prior
to age 65.”).
2
Some originally used 25% of net profit, but they renegotiated their contracts in 2008.
Patrick was already receiving benefits in 2008, and Carol refused to renegotiate.
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and some of Carol’s emails from her B&V email account, B&V sent Carol a letter
on January 3 notifying her that she may be in breach of her Employment
Agreement and requesting a meeting to discuss a possible resolution. Carol then
notified B&V of an accelerated retirement date of January 3. On January 13,
B&V rejected Carol’s accelerated retirement and terminated Carol “with cause”
for allegedly violating the noncompete clause in her Employment Agreement.
Because she was terminated with cause, B&V determined Carol forfeited her
deferred compensation and did not make any payments. B&V also stopped its
quarterly payments to Patrick in January 2011 and notified him that he
forfeited the remainder of his deferred compensation on the grounds that he was
competing with B&V in his work at C&C.
The Cantrells filed separate lawsuits against B&V in Texas state court,
seeking the deferred compensation payments. B&V removed both lawsuits to
federal court on the grounds that the deferred compensation payments in the
Employment Agreements constituted an ERISA plan, preempting the Cantrells’
state law claims. The district court consolidated the lawsuits, B&V filed a
number of counterclaims against the Cantrells, and B&V moved for a temporary
restraining order (“TRO”). The district court granted the TRO, prohibiting Carol
from disclosing or using any information learned while at B&V and from
soliciting or working for B&V clients. The Cantrells moved to remand the
consolidated lawsuit back to Texas state court. The district court denied the
Cantrells’ motion to remand, holding the deferred compensation arrangements
were an employment benefit plan under ERISA, and declined to certify the issue
for interlocutory appeal. The Cantrells filed an emergency motion with this
court to stay the TRO pending appeal, and this court granted the motion. See
Order, Cantrell v. Briggs & Veselka Co., No. 12-20172 (5th Cir. Mar. 21, 2012).
The parties then entered into an agreed temporary injunction, in which the
Cantrells agreed to refrain from certain activities related to B&V’s former or
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current clients, contingent on the district court’s grant of permission to seek an
interlocutory appeal of its denial of the motion to remand. The district court
granted permission, and this appeal followed.
We review the district court’s denial of the Cantrells’ motion to remand de
novo. Woods v. Tex. Aggregates, L.L.C., 459 F.3d 600, 601 (5th Cir. 2006).
II
The Cantrells assert the federal courts lack subject matter jurisdiction
because the deferred compensation arrangements in their Employment
Agreement contracts with B&V do not constitute an ERISA plan. B&V counters
the federal courts do have subject matter jurisdiction because the arrangements
do constitute an ERISA plan.
ERISA “shall supersede any and all State laws insofar as they may now
or hereafter relate to any employee benefit plan described in section 1002(a) of
this title and not exempt under section 1003(b) of this title.” 29 U.S.C. § 1144(a).
To determine whether a particular employee benefit qualifies as an employee
benefit plan under ERISA, we have devised a three-part test in Meredith v. Time
Insurance Company: “[W]e ask 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’—establishment or
maintenance by an employer intending to benefit employees.” 980 F.2d 352, 355
(5th Cir. 1993). Because we hold the deferred compensation arrangements in
the Cantrells’ Employment Agreements do not make out the existence of a plan,
they do not pass the first part of the test and we need not reach the second and
third parts. Whether a plan exists is fact-specific, so we proceed to explain the
case-law backdrop of the inquiry.
In its seminal decision laying out the requirements for the existence of
ERISA plans, Fort Halifax Packing Company, Inc. v. Coyne, the Supreme Court
held that in order to constitute an ERISA plan, a program must necessitate the
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existence of “an ongoing administrative program to meet the employer’s
obligation.” 482 U.S. 1, 11 (1987). In that case, a Maine statute required
employers to make a one-time severance payment to employees working at a
plant in the event the plant closes. Id. at 3. Because “[t]he requirement of a
one-time, lump-sum payment triggered by a single event” did not require the
employer to set up “an administrative scheme to meet its contingent statutory
obligation,” the Court held the Maine statute was not preempted by ERISA. Id.
at 12, 14–15.
In Tinoco v. Marine Chartering Company, Inc., we applied Fort Halifax to
an arrangement for payment to two employees intended to cover health care
benefits until the employees became eligible for social security benefits. 311
F.3d 617, 618–19 (5th Cir. 2002). Upon the employer’s merger with another
company, the payments became explicit severance payments due upon
retirement or termination, and the employees could elect to receive either a
lump-sum payment or a stream of payments. Id. at 619, 622. We explained:
Regardless of how Appellees chose to receive those payments, the
total amount to be paid was based on a one-time calculation using
a fixed formula. Under the formula, age (which must have been a
minimum of 55) is added to the number of years of service (which
must have been at least 15 years). Appellees then received a
percentage of what they would normally receive in Social Security
based on the total number arrived at through the above calculation.
Significantly, Appellees provide no evidence that the ERHCP
requires an administrative scheme to make ongoing discretionary
decisions based on subjective criteria. And, as this Court held in
Fontenot [v. NL Industries, Inc., 953 F.2d 960, 961 (5th Cir. 1992)],
simply because Marine Chartering offered Appellees the option of
receiving that payment over a period of time does not mean that the
ERHCP amounts to an administrative scheme.
Tinoco, 311 F.3d at 622. Concluding that “writing a check each month is hardly
an administrative scheme,” we held the severance payments at issue did not
constitute an ERISA plan. Id. at 623.
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We then held in Peace v. American General Life Insurance Company that
an employer’s one-time payment into an annuity, which was then transferred to
an employee for retirement payments, did not constitute an ERISA plan. 462
F.3d 437, 441 (5th Cir. 2006). After the employer’s payment “there was no
subsequent demand on its assets,” the event triggering payment may never have
materialized, and “the pre-determined benefit, even when paid over time, did not
amount to an administrative scheme.” Id. (citing Tinoco, 311 F.3d at 618–19,
622). Significantly, we rejected the employer’s assertions that it theoretically
could have made various discretionary decisions, as it was the owner of the
annuity for a brief amount of time, because no administrative scheme was
required. Id. at 462 F.3d at 441–42 (“[T]he fact that [the employer] could have
developed an unnecessary administrative scheme or performed unnecessary,
ongoing administrative tasks is irrelevant to our analysis.”).
This circuit has often cited the Ninth Circuit’s decision in Bogue v. Ampex
Corporation, 976 F.2d 1319 (9th Cir. 1992) (Wisdom, J., sitting by designation).
See, e.g., Peace, 462 F.3d at 440 n.6; Tinoco, 311 F.3d at 621. Bogue involved a
program whereby an employer would provide certain executives severance
benefits in the event the employees were not offered “substantially equivalent
employment” once the employer was sold to another company. Bogue, 976 F.2d
at 1321. The program designated the buying company as the entity that would
determine whether the employment offered to any given executive was
substantially equivalent to the position the executive previously held. Id. Even
though the plan was triggered by a single event, that event “would occur more
than once, at a different time for each employee,” “the program’s administration
required a case-by-case, discretionary application of its terms,” and “there was
no way to administer the program without an administrative scheme.” Id. at
1323. Accordingly, Bogue held an ERISA plan existed. Id.9
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The Ninth Circuit later clarified Bogue’s requirement of discretion in a
case where severance benefits depended on whether the employee was
terminated “for cause”:
Here, as in Delaye [v. Agripac, Inc., 39 F.3d 235 (9th Cir.
1994)], the employer was simply required to make a single
arithmetical calculation to determine the amount of the severance
benefits. While in both cases, a “for cause” termination would
change the benefits due to the employee, the Delaye court did not
deem this minimal quantum of discretion sufficient to turn a
severance agreement into an ERISA plan. Contrary to PACE’s
assertions, the key to our holding in Bogue was that there was
“enough ongoing, particularized, administrative discretionary
analysis,” 976 F.2d at 1323 (emphasis added), to make the plan an
“ongoing administrative scheme,” not that the agreement simply
required some modicum of discretion. The level of discretion, if any,
which PACE was required to exercise in implementing the
agreement was slight. It failed to rise to the level of ongoing
particularized discretion required to transform a simple severance
agreement into an ERISA employee benefits plan.
Velarde v. PACE Membership Warehouse, Inc., 105 F.3d 1313, 1316 (9th Cir.
1997).
In Crowell v. Shell Oil Company, we considered “Letters of Agreement”
that required an employer to make a one-time payment to two employees for “the
amount of pension and savings money they would lose as a result of certain tax
regulations” following a change of control at the employer, as well as monthly
pension payments to offset reductions in benefits resulting from tax regulations.
541 F.3d 295, 299 (5th Cir. 2008). Only the one-time payment was at issue. Id.
at 298. We held the letters were distinguishable from the payment required in
Fort Halifax because the one-time payment was “embedded within a letter that
includes a more comprehensive ‘plan,’” requiring monthly pension payments for
life, and because calculating the monthly pensions and one-time payment relied
on calculations made in the employer’s separate underlying employee benefit
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plans. Id. at 305. In addition, the letters explicitly referenced “administrative
procedures” used in the letters and in the separate benefit plans. Id. We held:
Although the individual cash payment in this case does not itself
require continuing administration, the letter of which it is a part
contains other provisions that do. . . . [T]he cash payment . . . relies
upon calculations made under plans that require continuing
administration, and that Letter of Agreement refers specifically to
administrative procedures that must be followed.
Id. at 306. Accordingly, the letters constituted an ERISA plan. Id. at 307.
Against this backdrop, we hold the Cantrells’ deferred compensation
arrangements in their Employment Agreements with B&V do not constitute an
ERISA plan, but rather are employment contract arrangements governed by
state law. There is no necessity for “an ongoing administrative program to meet
the employer’s obligation” to provide deferred compensation. Fort Halifax, 482
U.S. at 11. Like the arrangement in Tinoco, the amount of deferred
compensation B&V is to pay the Cantrells is “based on a one-time calculation
using a fixed formula,” and writing a check each quarter “is hardly an
administrative scheme.” Tinoco, 311 F.3d at 622. In other words, “the pre-
determined benefit, even when paid over time, [does] not amount to an
administrative scheme.” Peace, 462 F.3d at 441.
Unlike the compensation arrangement at issue in Bogue, the Cantrells’
deferred compensation arrangements neither involve discretionary decisions,
such as deciding whether an employment offer is for “substantially equivalent
employment,” nor explicitly give the employer, B&V, authority to make such
discretionary decisions.3 Cf. Bogue, 976 F.2d at 1321. And unlike in Crowell, the
amount and duration of payments here is fixed, the amount due does not depend
3
The only two mentions of the word “discretion” in the deferred compensation section
of Carol’s Employment Agreement occurs in the paragraphs governing severance payment in
the event of termination without cause and payment upon death, and only gives B&V the
discretion to make those payments as a lump sum instead of as installments.
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on decisions made in underlying ERISA plans, and the deferred compensation
agreements do not reference administrative procedures that must be followed.
Cf. Crowell, 541 F.3d at 305–306.
B&V asserts it must perform ongoing discretionary actions and complex
calculations because the compensation formula caps the total amount of
payments each quarter, it must ‘monitor’ its former employees to ensure they do
not compete against B&V during the pay-out period, and it must use discretion
to determine whether a triggering event occurred.
First, the possibility the cap would ever be triggered is remote. Internal
B&V documents, assuming a normal growth rate, show the cap would never be
reached. Even if it were triggered, there is nothing discretionary or complex
about reducing each payee’s amount proportionally and adding the reduction to
future payments. Even if the precise amount to be added to each future
payment involves a “modicum of discretion,” it is simply not “enough ongoing,
particularized, administrative discretionary analysis” to constitute an
administrative scheme as it involves very little discretion, if any at all
(presumably the full amount should be added as soon as possible to future
payment, subject to the cap). Velarde, 105 F.3d at 1316 (quoting Bogue, 976 F.2d
at 1323). And again, it is unlikely the cap will ever be triggered. Though we
recognize our precedents did not directly address the existence of a cap that may
modify the exact disbursement of payments, we do not agree with B&V that the
remote possibility of minor payment redistribution over the payment period
requires such a level of discretion or complex calculations that an ongoing
administrative scheme is necessary, especially where the “total amount to be
paid [is] based on a one-time calculation using a fixed formula.” Tinoco, 311 F.3d
at 622.4
4
The dissent reasons an administrative scheme is necessary because “unless and until
B&V makes the calculation, at least annually, it cannot be determined if the cap is to be
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Second, B&V’s use of Patrick Cantrell’s situation as evidence that it must
‘monitor’ payees illustrates there is no administrative scheme set up. B&V
discontinued Patrick’s payments after discovering Carol’s C&C document in
B&V’s office, not as a result of any ‘monitoring’ on B&V’s part. Nor does B&V
explain what such ‘monitoring’ would constitute or how it would require an
ongoing administrative scheme. Just as we rejected the assertion of the
employer in Peace that it could have set up a hypothetical administrative scheme
to ensure its former employee continually received checks from his annuity,
Peace, 462 at 441–42, we reject B&V’s assertion that it needs a hypothetical
administrative scheme to ‘monitor’ its former employees.
Third, though the triggering events here are like the one at issue in Bogue
in that they “would occur more than once, at a different time for each employee,”
Bogue, 976 F.2d at 1323, and different from the ones in Fort Halifax and Peace,
where the triggering event may never occur, Fort Halifax, 482 U.S. at 12, Peace,
462 F.3d at 441, they simply do not require more than a “modicum of discretion,”
Velarde, 105 F.3d at 1316 (construing Bogue, 976 F.2d at 1323), as they can be
easily ascertained. The employee must retire, become disabled, die, or be
terminated on grounds other than with cause. Though B&V asserts it used
discretion to determine whether Carol was terminated “with cause,” we reject
the notion that this is enough to necessitate an ongoing administrative scheme.
See Velarde, 105 F.3d at 1316 (“While . . . a ‘for cause’ termination would change
the benefits due to the employee, . . . this minimal quantum of discretion [is not]
sufficient to turn a severance agreement into an ERISA plan.”). Even less
applied.” Post at 4. This reasoning would allow a company to transform an employment
contract into an ERISA plan simply by including a hypothetical cap, no matter how unlikely
it is to ever be reached. Here, the only evidence in the record regarding the likelihood of
reaching the cap was generated by B&V and indicates the cap is unlikely to ever be reached.
The inclusion of this cap simply does not necessitate “enough ongoing, particularized,
administrative discretionary analysis” to constitute an administrative scheme. See Velarde,
105 F.3d at 1316 (quoting Bogue, 976 F.2d at 1323).
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plausible is B&V’s assertion that it had to use enough discretion to justify an
ongoing administrative scheme when it decided Patrick’s retirement constituted
a “retirement” triggering event. Cf. Clayton v. ConocoPhillips Co., No. 12-20102,
2013 WL 3357574, at *1 n.2, 13 (5th Cir. July 3, 2013) (forthcoming publication)
(holding discretion exists where plan administrator must decide whether
employee resignation was result of “a substantial reduction of the [employee]’s
position or responsibilities”).
Because the Cantrells’ deferred compensation arrangements do not
necessitate an ongoing administrative scheme, there is no ERISA plan.
Accordingly, the Cantrells’ state law claims are not preempted by ERISA.
“Where federal subject matter jurisdiction is based on ERISA, but the evidence
fails to establish the existence of an ERISA plan, the claim must be dismissed
for lack of subject matter jurisdiction.” Tinoco, 311 F.3d at 623 (quoting Kulinski
v. Medtronic Bio-Medicus, Inc., 21 F.3d 254, 256 (8th Cir. 1994)).
III
For the foregoing reasons, we REVERSE and REMAND with instructions
to remand to the state court.
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OWEN, Circuit Judge, dissenting:
I would affirm the district court’s judgment and hold that the deferred-
compensation provisions in the Cantrells’ Employment Agreements constitute
an ERISA plan.
Based on the Supreme Court’s reasoning in its seminal decision in Fort
Halifax Packing Co. v. Coyne,1 as well as decisions from the Fifth Circuit, the
Cantrells’ deferred-compensation plan is an ERISA plan. In Fort Halifax, the
Supreme Court held that a Maine statute requiring “a one-time, lump-sum
payment triggered by a single event” was not preempted by ERISA because it
“require[d] no administrative scheme.”2 The Court emphasized that the Maine
statute did not require employers to pay benefits on a regular basis, did not place
periodic demands on employers’ assets, and was contingent on a single event
that might never occur.3 The Court subsequently described Fort Halifax as
“constru[ing] the word ‘plan’ to connote some minimal, ongoing ‘administrative’
scheme or practice.”4 Relying on Fort Halifax, this court has held that benefits
are governed by ERISA when they require management to make “case-by-case
determinations”;5 the employer cannot carry out its obligations “with . . .
unthinking, one-time, nondiscretionary application of the plan”6 and therefore
1
482 U.S. 1 (1987).
2
Fort Halifax, 482 U.S. at 12.
3
Id.4
District of Columbia v. Greater Wash. Bd. of Trade, 506 U.S. 125, 130 n.2 (1992)
(emphasis added).
5
Tinoco v. Marine Chartering Co., 311 F.3d 617, 621 (5th Cir. 2002) (citing Bogue v.
Ampex Corp., 976 F.2d 1319, 1323 (9th Cir. 1992)).
6
Id. (quoting Bogue, 976 F.2d at 1323) (internal quotation marks omitted).
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must “make ongoing discretionary decisions based on subjective criteria”;7 and
the benefits create an ongoing demand on the employer’s assets.8 The deferred-
compensation provisions of the Employment Agreements have these attributes.
For the Cantrells, there is a cap on the aggregate quarterly deferred-
compensation benefits that are to be paid by B&V, which is 25% of B&V’s
adjusted net profit for the previous fiscal year.9 For fifteen other employees, the
cap is calculated differently.10 B&V must at least annually calculate the cap
under the Cantrells’ agreements and the cap under the other agreements and to
compare those caps to the aggregate quarterly payment. If additional employees
become eligible to receive benefits during a particular quarter, B&V must repeat
the comparison using the revised aggregate quarterly payment amount. If one
of the caps is triggered, B&V is required to reduce the quarterly payments for
the affected employees. If there are reductions in payments, there is a provision
7
Id. at 622; see also Crowell v. Shell Oil Co., 541 F.3d 295, 307 (5th Cir. 2008) (rejecting
the plaintiffs’ contention that a deferred-compensation scheme was not an ERISA plan because
it “provided no opportunity for any exercise of discretion regarding the determination of
whether an employee would receive compensation . . . or how much compensation would be
received” and noting that the plaintiffs failed “to recognize the discretion required in making
benefits determinations under several portions” of the compensation scheme, including various
calculations of monthly amounts owed and tax limitations); Fontenot v. NL Indus., Inc., 953
F.2d 960, 963 (5th Cir. 1992) (noting that a severance plan might fall under ERISA if “the
circumstances of each employee’s termination [had to be] analyzed in light of [certain] criteria”
but that no administrative scheme is required if the employees “receive benefits upon
termination regardless of the reason for termination” (alterations in original) (quoting Pane
v. RCA Corp., 667 F. Supp. 168, 171 (D.N.J. 1987)) (internal quotation marks omitted)).
8
See Peace v. Am. Gen. Life Ins. Co., 462 F.3d 437, 441 (5th Cir. 2006) (holding that
benefits were not part of an ERISA plan in part because the employer “made a one-time
payment into an annuity, after which there was no subsequent demand on its assets”).
9
Under the Cantrells’ Employment Agreements, “in no event may [B&V’s] Aggregate
Quarterly Deferred Compensation Payment in any quarter exceed twenty five percent (25%)
of [B&V’s] Adjusted Net Profit for the previous fiscal year . . . divided by four (4).”
10
The Employment Agreements of the fifteen other employees provide that “in no event
may [B&V’s] Aggregate Quarterly Deferred Compensation Payments exceed 5% of gross
revenue on a cash basis of accounting for the previous fiscal year.”
16
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No. 12-20294
for carrying forward these amounts and paying them at a later date.11 These are
not uncomplicated calculations, and the caps require B&V to perform repeated
calculations and to monitor aggregate benefit payments.
B&V must also make a number of discretionary decisions under the
deferred-compensation agreements, including decisions about whether an
employee has forfeited her benefits by being terminated with cause or by
competing with B&V.12 Another hallmark of an ERISA plan is present in this
case. Unlike the “one-time, lump-sum payment triggered by a single event” at
issue in Fort Halifax,13 the deferred-compensation benefits owed to the Cantrells
create an ongoing demand on B&V’s general assets over a period of ten years.
Benefit payments can be triggered by any one of a number of events, which are
11
Both the Cantrells’ agreements and the agreements of the other employees provide
that
If the Aggregate Quarterly Deferred Compensation Payment for any quarter
would exceed the Limitation Amount the EMPLOYEE’S Installment Amount
shall be reduced to an amount equal to her proportionate share of the
EMPLOYER’S Aggregate Quarterly Deferred Compensation Payment for such
quarter times the Limitation Amount. In the event the EMPLOYEE’S
Installment Amount is reduced by application of previous sentence, such
reduced amount shall be added to the EMPLOYEE’S Installment Amount due
in subsequent quarters until paid, provided that each subsequent quarter’s
payment will also be subject to the Limitation Amount.
12
The Employment Agreements provide
If during the Pay-Out Period the EMPLOYEE competes, directly or indirectly,
with the EMPLOYER . . . by engaging or participating in any business that is
engaged in the EMPLOYER’s or its Affiliate’s business or proposed business
within fifty (50) miles where the EMPLOYER or its Affiliate engages or
proposes to engage in business at the time of the Termination Event, the
EMPLOYEE forfeits all remaining balance of the Deferred Compensation
Amount . . . . Furthermore, if the EMPLOYEE is terminated With Cause . . .
the EMPLOYEE forfeits all rights [to deferred compensation under the
agreement].
13
Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 12 (1987).
17
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No. 12-20294
likely to occur at different times for individual employees.14 The benefits require
an “an ongoing administrative program” under Fort Halifax and under this
court’s precedent. Our court has held that ERISA governs benefits requiring
less administration than the benefits in this case.15
The majority opinion concludes that the Cantrells’ agreements require
B&V to do nothing more than “writ[e] a check each quarter.”16 This assertion is
not supported by the record. The majority opinion reasons that “the possibility
the cap would ever be triggered is remote” and later opines that it is “unlikely”
that the cap will be reached.17 But that ignores the fact that unless and until
B&V makes the calculation, at least annually, it cannot be determined if the cap
is to be applied. The only evidence in the record to support the majority
opinion’s conclusion regarding the “remote[ness]” of the likelihood that the cap
will limit payments is a draft presentation to shareholders that indicates that
the cap “should never be reached assuming normal growth and therefore
deferred compensation should be payable out of current profits.” Here again,
14
Under the Employment Agreements, employees become eligible for deferred-
compensation payments after a qualifying Termination Event, i.e., retirement, disability,
death of the employee during employment, or termination of the employee by a majority vote
of B&V’s board of directors.
15
See Perdue v. Burger King Corp., 7 F.3d 1251, 1253 & n.5 (5th Cir. 1993) (holding
that the Burger King Job Elimination Program, which provided that employees terminated
as a result of a reduction in workforce were entitled to receive certain severance benefits for
three years, was an ERISA plan because it “was in effect for three years, applied to two nation-
wide personnel reorganizations, and required an administrative set-up to monitor and
facilitate provision of benefits” (internal quotation marks omitted)); Whittemore v.
Schlumberger Tech. Corp., 976 F.2d 922, 923 (5th Cir. 1992) (holding that “a provision of the
company’s management policy manual that . . . provided for severance pay in lieu of notice of
termination” was an ERISA plan because it was “not created with a particular closing in
mind,” “had been in existence for some time,” and “plainly required some sort of an
administrative set-up in order to make payments to employees”).
16
Ante at 11.
17
Ante at 12.
18
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even were this true, the calculation must be performed to determine the
applicability of the cap. Additionally, the draft of the presentation to the board,
assuming it was accurate, is evidence only that the cap “should” not be reached
if B&V continues to grow normally. Any number of events could affect B&V’s
growth over the payout period, and the aggregate quarterly payment will
continue to increase as additional B&V employees become eligible to receive
benefits. The majority opinion’s conclusion that there is no ERISA plan relies,
impermissibly, on the prediction that B&V will remain financially stable and
will experience steady growth through the ten-year duration of the Cantrells’
payments.
This is not only a prediction but an irrelevant prediction. The Employee
Agreements plainly require administration even if B&V continues to grow
normally. For example, B&V must monitor former employees to ensure that
they are not competing with B&V during the payout period and, in the event of
alleged competitive activity, to make discretionary decisions about whether the
employee has forfeited benefits. The majority opinion concludes that B&V’s
handling of Patrick Cantrell’s benefit payments—i.e., that B&V terminated
Patrick’s payments after its fortuitous discovery of Carol’s C&C invoice and not
because B&V independently monitored its employees—“illustrates that there is
no administrative scheme set up.”18 But the inquiry under Fort Halifax is
whether the disputed provisions “require[] an ongoing administrative program
to meet the employer’s obligation,”19 not whether the employer has an adequate
administrative scheme in place.
18
Ante at 13.
19
Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 11 (1987) (emphasis added); see also
Peace v. Am. Gen. Life Ins. Co., 462 F.3d 437, 441 (5th Cir. 2006) (“Halliburton was not
required to create an administrative scheme to provide the annuity benefit.”).
19
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No. 12-20294
The majority opinion cites Peace v. American General Life Insurance Co.20
to support its position, but in Peace the employer purchased a single-premium
annuity and argued that “as owner of the annuity for a brief period of time, it
could have made various discretionary decisions.”21 We rejected that assertion,
holding that “it is insufficient to provide a benefit and then create an
unnecessary administrative scheme around it to invoke ERISA.”22 This court
emphasized in Peace that the activities performed by the employer were
“performed only once or over a brief period of time and never performed again.”23
By contrast, B&V here maintains authority and control over the scheme; it has
not relinquished its responsibility to make ongoing determinations regarding the
Cantrells’ benefits. The fact that B&V may not have yet “set up” competent
monitoring procedures does not detract from the fact that such procedures are
required to administer the benefits in accordance with the Cantrells’
Employment Agreements.24
The majority opinion “reject[s] the notion” that the discretionary
determination of whether an employee was terminated with cause “is enough to
necessitate an ongoing administrative scheme.”25 However, this court recently
held in Clayton v. ConocoPhillips Co.26 that a severance arrangement that
provided benefits to employees terminated after a change in corporate control
20
462 F.3d 437 (5th Cir. 2006).
21
Peace, 462 F.3d at 441.
22
Id.23
Id. at 440.
24
See Fort Halifax, 482 U.S. at 11; Peace, 462 F.3d at 441.
25
Ante at 13.
26
No. 12-20102, 2013 WL 3357574 (5th Cir. July 3, 2013).
20
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No. 12-20294
was an ERISA plan.27 Under the severance provisions, employees were eligible
for benefits if they resigned for “Good Reason,” which was defined in the
provisions as any one of a number of events or conditions.28 An employee who
was denied benefits under the severance provisions contended that the
provisions were not an ERISA plan because they consisted of a “one-time, lump-
sum payment triggered by a single event.”29 Conoco contended that the
provisions fell within ERISA because, inter alia, the trustee had to exercise
discretion in determining whether “Good Reason” existed for a resignation.30 We
agreed that this seemingly limited “claims eligibility discretion” necessitated an
ongoing administrative program.31 Here, as in Clayton, B&V must determine
whether a terminated employee was terminated “with cause.” There is no
principled distinction between this “with cause” determination and the “Good
Reason” determination at issue in Clayton.
The majority opinion cites Velarde v. PACE Membership Warehouse, Inc.,32
in which the Ninth Circuit concluded that the “minimal quantum of discretion”
involved in determining whether an employee was terminated for cause was
insufficient to render severance benefits an ERISA plan.33 Even if we were to
find Velarde’s reasoning persuasive, the Ninth Circuit in that case noted that
“the employer was simply required to make a single arithmetical calculation to
determine the amount of severance benefits” and concluded that the cause
27
Clayton, 2013 WL 3357574, at *11-13.
28
Id. at *1 & n.2.
29
Id. at *12 (quoting Fort Halifax, 482 U.S. at 12) (internal quotation marks omitted).
30
Id.31
Id. at *13.
32
105 F.3d 1313 (9th Cir. 1997).
33
Velarde, 105 F.3d at 1317.
21
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No. 12-20294
determination was not sufficient by itself to bring the benefits within the scope
of ERISA.34 The cause determination, however, is only one feature of the
deferred-compensation provisions that requires B&V to implement an
administrative scheme. B&V must also monitor employees for violations of their
Employment Agreements and make forfeiture determinations when a violation
occurs. Additionally, as already discussed above, although the total amount of
benefits to be paid is calculated only once, B&V is required to make yearly, and
perhaps quarterly, computations to ensure compliance with the cap. If the cap
is triggered, B&V must decrease payments and recalculate the remaining
installments. This is more than the “single arithmetical calculation”
contemplated in Velarde. This case is therefore distinguishable from Velarde.
The Supreme Court has emphasized that ERISA requires “some minimal,
ongoing ‘administrative’ scheme or practice.”35 The provisions in the Cantrells’
Employment Agreements surpass that threshold requirement. Under Fort
Halifax and under this court’s precedent, the Cantrells’ deferred-compensation
benefits fall within the scope of ERISA. I therefore respectfully dissent.
34
Id.35
District of Columbia v. Greater Wash. Bd. of Trade, 506 U.S. 125, 130 n.2 (1992).
22