McBride v. PLM International, Inc.

ORDER

The Opinion filed in this case on August 20, 1998, is hereby WITHDRAWN. A new Opinion of this appeal is filed with this order.

OPINION

TROTT, Circuit Judge:

OVERVIEW

Kevin McBride appeals the district court’s order granting summary judgment in favor of his employer PLM International, Inc. The district court dismissed his case on the ground that McBride’s discharge in conjunction with the termination of the employee benefit plan left him without the “participant” status required to give him standing to sue under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461 (1994). The district court relied on several Ninth Circuit cases which have held that a claimant’s status is to be evaluated at the time of filing suit. These cases, however, do not control McBride’s claim. Policy considerations stemming from ERISA mandate that participant status and standing under its whistleblower. provision be adjudged at the time of the alleged ERISA violation. To hold otherwise would allow an employer simply by wrongfully firing a whistleblowing employee and then terminating the Plan, wrongfully or otherwise, to deprive that employee of the right to sue the employer for retaliation prohibited by ERISA. Such a holding would undercut the very protections ERISA was designed to afford. We have jurisdiction under 28 U.S.C. § 1291, and we reverse and remand for further proceedings.

BACKGROUND

Kevin McBride was hired by PLM International, Inc. (“PLM”) in March of 1988 to work in its TEC department. Prior to his termination on August 9, 1994, he was promoted twice and received two bonuses in addition to several salary increases. During his employment, McBride’s performance evaluations noted that his work was excellent or outstanding. Letters accompanying the bonuses commended him for his good work and significant contributions to the company.

In early April 1994, McBride met with Robert Tidball, President and CEO of PLM, and Douglas Goodrich, McBride’s supervisor and a PLM Senior Vice President. They informed McBride that he had a bright future with the company and that he was in line for a promotion to the new position of Director of Operations for the TEC department. Also in April of 1994, McBride submitted a written request for payment of commissions earned during the previous three years. He met with his supervisor, Goodrich, to discuss the commissions. Goodrich informed McBride that he did not think PLM had to pay the commissions, but if the legal department believed it must, PLM would pay. The discussion became quite animated, culminating in McBride’s threat to sue PLM if the commissions were not paid. After the meeting, Goodrich wrote a confidential memorandum to the PLM personnel department describing McBride’s conduct and instructing that the letter be placed in McBride’s file. After a few days, McBride apologized to Goodrich for his behavior. Goodrich informed McBride that if he was insubordinate again, he would be terminated. PLM paid the commissions to McBride one month after his written request.

After this incident, Goodrich requested that McBride prepare two reports for him. Goodrich testified that McBride never turned in the reports, only the raw data. McBride testified that he had turned in the two requested reports.

McBride was a participant in and beneficiary of both the PLM International Employee Profit Sharing and Tax Advantaged Savings Plan (“401-K Plan”) and the PLM International Employee Stock Ownership Plan (“ESOP”) (collectively “the Plans”). McBride was also an active member of the Employee ESOP Committee. In the spring of 1994, PLM announced its intention to terminate the ESOP and proposed to convert each share of PLM preferred stock held by the ESOP to one share of PLM common stock. McBride ardently opposed PLM’s proposal and called for a meeting of employees to discuss the ESOP termination. He alleged that the preferred stock had a redemption price or value of $13.00 per share and the common stock had a market price of $3.06 per share. He argued that the conversion of the preferred shares to common stock would result in the loss of the guaranteed dividends payable on the preferred shares and the reduction in value equal to the difference between the redemption price of the preferred stock and the market price of the common stock. McBride expressed his opposition personally to both Tidball and Goodrich.

PLM filed a request with the IRS for a determination of whether the termination of the ESOP would affect the ESOP’s tax status or qualification. In July 1994, McBride and other members of the Employee ESOP Committee sent a letter to the U.S. Department of Labor asking it to submit comments to the IRS on the proposed ESOP termination. In the letter, McBride and other committee members provided information on the ESOP and the effect its termination would have on PLM employees.

PLM management was upset by the committee’s letter and offered to pay for an outside attorney to review the propriety of the ESOP termination if the committee would withdraw the letter to the Labor Department. All committee members, except McBride, agreed to this proposal. They withdrew the letter. On August 9, 1994, less than three weeks after the letter incident, PLM discharged McBride. The proffered reasons were McBride’s insubordinate conduct toward his supervisors and his failure to produce the requested reports.

In January 1995, PLM terminated the ESOP. All participants, including McBride, received a lump sum distribution of their benefits under the Plan. They received the value of the common rather than the preferred stock. Also, after McBride’s termination, Goodrich held an employee meeting in which he allegedly stated that McBride was not discharged because of his opposition to the ESOP termination, but because of his work performance and poor attitude.

In his original complaint, McBride alleged he was terminated by PLM in retaliation for his opposition to the prospective termination of the ESOP and the 401-K Plan. McBride asserted four claims for relief: (1) violation of section 1140 of ERISA, the “whistleblower” section; (2) a supplemental state law claim for wrongful termination in violation of public policy; (3) a supplemental state law claim for defamation arising from PLM’s publication of statements criticizing McBride after his termination; and (4) another state law claim for breach of the covenant of good faith and fair dealing from the terms of the Certificate of Designations, governing the preferred shares of PLM stock held by the ESOP.

PLM successfully moved, under Federal Rule of Civil Procedure 12(b)(6), for dismissal of the fourth cause of action for breach of the covenant of good faith and fair dealing on the basis that the claim was preempted by ERISA. Subsequently, McBride submitted an amended complaint which excluded the fourth cause of action. However, McBride appeals the decision of the district court finding this cause of action preempted by ERISA.

PLM then brought a motion for summary judgment alleging that McBride lacked standing to bring the ERISA claim. The district court granted summary judgment and dismissed the suit, holding that McBride failed to qualify as a “participant” under ERISA at the time of filing the lawsuit and therefore lacked standing to assert a claim for relief in federal court. Further, the court vacated its earlier rulings and dismissed the state claims on the ground that it lacked jurisdiction.

DISCUSSION

Questions of federal subject matter jurisdiction are questions of law reviewed de novo. Kruso v. Int’l Tel. & Tel. Corp., 872 F.2d 1416, 1421 (9th Cir.1989). A grant of summary judgment is reviewed de novo. Covey v. Hollydale Mobilehome Estates, 116 F.3d 830, 834, amended by 125 F.3d 1281 (9th Cir.1997).

A. Standing to Sue Under ERISA

1. Participant Status Under Whistle-blower Provision

ERISA allows a “participant” in an employee benefit plan to bring a civil action to enforce his rights under the terms of the plan or to enforce the provisions of ERISA. Section 1132, the civil enforcement provision of ERISA, provides that a civil action may only be brought by a participant, a beneficiary, a fiduciary, or the Secretary of Labor. See 29 U.S.C. § 1132 (1994). The list of potential claimants in section 1132 is exclusive. Harris v. Provident Life & Accident Ins. Co., 26 F.3d 930, 933 (9th Cir.1994).

ERISA defines the term “participant” to include “any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan.” 29 U.S.C. § 1002(7).

The Supreme Court has defined the term “participant” to mean “either employees in, or reasonably expected to be in, currently covered employment, or former employees who have ... a reasonable expectation of returning to covered employment or who have a colorable claim to vested benefits.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 117, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989) (citations and internal quotation marks omitted). The Court also construed the “may become eligible” for benefits language of section 1002(7) to mean that “a claimant must have a colorable claim that (1) he or she will prevail in a suit for benefits, or that (2) eligibility requirements will be fulfilled in the future.” Id. at 117-18, 109 S.Ct. 948. The Court reasoned that a former employee who has neither a reasonable expectation of returning to covered employment nor a colorable claim to vested benefits, “simply does not fit within the phrase ‘may become eligible.’ ” Id. at 118, 109 S.Ct. 948 (citing Saladino v. I.L.G.W.U. Nat’l Retirement Fund, 754 F.2d 473, 476 (2d Cir.1985)).

PLM argues that McBride lacks standing to sue under ERISA because the statute excludes from the definition of “participant” former employees who have received full distributions of their vested benefits. PLM also argues that McBride has no reasonable expectation of returning to covered employment, as the Plans themselves no longer exist.

The problem with PLM’s arguments is the unusual context in which McBride’s ERISA claim arose. McBride alleged that he was terminated in retaliation for his opposition to PLM’s proposed termination of the ESOP and the 401-K Plan. The ERISA whistleblower provision makes it illegal to discharge an employee for exercising his rights under the benefit program or under ERISA. Section 1140 states:

It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions • of an employee benefit plan.... It shall be unlawful for any person to discharge, fine, expel, or discriminate against any person because he has given information or has testified or is about to testify in any inquiry or .proceeding relating to this chapter.... The provisions of section 1132 of this title shall be applicable in the enforcement of this section.

29 U.S.C. § 1140. “This statute is clearly meant to protect whistleblowers.” Hashimoto v. Bank of Hawaii, 999 F.2d 408, 411 (9th Cir.1993).

The district court in this case felt compelled by precedent to find that McBride lacked standing to sue under ERISA because he was not a participant at the time he filed suit. The district court was rightly concerned, however, that its holding would allow employers unfairly to escape liability for violations of ERISA. The very actions taken by an employer that presumably violated ERISA might, the district court reasoned, simultaneously have the effect of depriving potential employees of standing to sue. In its written decision, the court expressed its apprehension:

The Court is concerned that this could result in an injustice because ah employer could -wrongfully terminate an employee and wrongfully terminate a benefit plan, thereby depriving its former employee and former participant of standing to sue for the wrongdoing under ERISA, a law designed to protect employees.

It is true that in other distinguishable contexts, this court has asserted that standing for former employees is measured at the time of filing suit. See, e.g., Harris, 26 F.3d at 933; Olson v. General Dynamics Corp., 960 F.2d 1418, 1422 (9th Cir.1991). However, none of these cases arose in the context of the whistleblower provisions of ERISA. This court left open the relationship between sections 1140 and 1132 of ERISA, noting that it was “a question we need not decide now.” Hashimoto, 999 F.2d at 411.¹

The concept of measuring ERISA standing at the time an action is filed is a judicially created requirement which is appropriate for most circumstances, but not for the situation we face in this case. Section 1140 forbids employers and other ERISA entities from interfering with certain protected rights and is enforceable through ERISA’s civil enforcement mechanism in section 1132. Depriving a plaintiff of standing to sue under ERISA for his employer’s clear violation of section 1140 would, in effect, make standing contingent upon the occurrence of subsequent events entirely within the control of the employer. “[I]t would seem more logical to say that but for the employer’s conduct alleged to be in violation of ERISA, the employee would be a current employee with a reasonable expectation of receiving benefits, and the employer should not be able through its own .malfeasance to defeat the employee’s standing.” Christopher v. Mobil Oil Corp., 950 F.2d 1209, 1221 (5th Cir.1992) (citing Amalgamated Clothing & Textile Workers v. Murdock, 861 F.2d 1406, 1418 (9th Cir.1988)). Requiring that claimants like McBride be plan participants at the time of suit would create a race to the courthouse. Standing would depend upon which event occurred first: the plan’s termination, or the claimant’s filing of a lawsuit. In this case, McBride alleged that his discharge was caused by his criticism of PLM’s proposed ESOP termination. Ironic it would be indeed to hold that the plan’s termination itself then deprived McBride of standing to sue.

When an individual alleges, as here, that he was discharged in violation of ERISA’s whistleblower provisions, his employer cannot be allowed to evade section 1140 accountability simply by terminating the plan and distributing the benefits. Nothing in Firestone commands such a result. See id. If an employee is a participant at the time of the alleged ERISA violation and alleges that he was discharged or discriminated against because of protected whistleblowing activities, we hold that such an employee has standing to sue under ERISA. To require that the claimant be a participant at the time of filing suit would undermine the very purpose of ERISA’s whistleblower provision: to provide a federal remedy for discrimination against plan participants for exercising their protected rights under ERISA. These protected rights specifically include the right to request comments from the Department of Lab.or on a proposed plan termination. See 29 U.S.C. §§ 1140, 1201.

We reject the argument that to deny participant status to McBride would not leave him without a remedy because ERISA empowers the Secretary of Labor to bring civil actions to redress violations of section 1140. See 29 U.S.C. § 1132(a)(5). To this argument, the Secretary persuasively responds in an amicus brief as follows:

Nor is it sensible to expect the Secretary to bear the sole responsibility for enforcing Section 1140. The Department of Labor has limited resources and rarely litigates matters that directly involve only one person, as is often the case with Section 1140 violations. Private counsel are also better situated to provide full representation to employees who frequently allege, in addition to a Section 1140 violation, that an employer’s actions violate other state and federal laws outside the Secretary’s jurisdiction.

Brief for the Secretary of Labor Amicus Curiae at 10.

We hold that under section 1140, participant status must be adjudged at the time of the alleged ERISA violation. Standing under section 1140 does not depend upon whether the former employee seeks to or could obtain reinstatement to covered employment. The continued existence of a plan is not essential to the enforcement of the goals section 1140 was designed to address. See Christopher, 950 F.2d at 1221.

Our holding is consistent with the Congressional findings and declaration of policy of ERISA: “It is hereby declared to be the policy of this chapter to protect interstate commerce and the interests of participants in employee benefit plans and their beneficiaries, ... by providing for appropriate remedies, sanctions, and ready access to the Federal courts.” 29 U.S.C. § 1001(b) (emphasis added). This court should be guided by Congressional policy and purpose. See Crotty v. Cook, 121 F.3d 541, 546-47 (9th Cir.1997) (holding that the policy and purpose behind ERISA dictated that a claimant did not lose standing to sue by accepting payment of vested benefits during litigation). Furthermore, the legislative history of ERISA indicates that “Congress viewed [the whistleblower provision] as a crucial part of ERISA because, without it, employers would be able to circumvent the provision of promised benefits.” Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 143, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990) (citations omitted).

Because McBride was a “participant” in the ESOP at the time of his allegedly retaliatory discharge, he falls within the scope of protection afforded by the whis-tleblower provision of ERISA. Therefore, he has standing to sue PLM for lost wages and benefits, specifically the loss in value of his proportional share of the ESOP before conversion of the preferred stock. Consistent with his original prayer for relief, McBride also has standing to seek equitable relief to enjoin further violations of ERISA. This may include reinstatement to his former position at PLM and either reinstatement of the ESOP or reconversion of all common shares distributed back to their preferred stock value.

B. ERISA Preemption of Fourth Cause of Action

Because the district court had subject matter jurisdiction to adjudicate McBride’s claims, the court may indeed ■entertain the issue of ERISA preemption. See Curtis v. Nevada Bonding Corp., 53 F.3d 1023, 1027 (9th Cir.1995) (holding that a plaintiffs standing to enforce ERISA is a prerequisite to both subject matter jurisdiction and ERISA preemption).

McBride’s fourth cause of action alleges that PLM entered into a contractual relationship with owners of its preferred stock and breached the covenant of good faith and fair dealing. The contract terms were governed by the Certificate of Designations which enumerated the rights and conditions under Delaware state law attached to ownership of PLM preferred stock. The Certificate provided that preferred stock could only be held by a trustee of the ESOP or some other PLM benefit plan. Upon transfer, the preferred stock would be converted to common stock. McBride alleges that PLM terminated the ESOP and the 401-K. plan to effect an automatic conversion of the preferred shares into common shares. He contends that this action constituted a breach of an implied covenant in the Certificate of Designations. The district court did not err at the outset when it dismissed the Fourth Cause of Action. The cause of action fell within ERISA’s preemptive scope. The district court did err, however, in its final order granting summary judgment to PLM when it stated that, because it did not have jurisdiction over the matter, there could be no preemption under ERISA.

ERISA preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan” governed by ERISA. 29 U.S.C. § 1144(a); Geweke Ford v. St. Joseph’s Omni Preferred Care Inc., 130 F.3d 1355, 1358 (9th Cir.1997). “[A]lthough ERISA’s express preemption is deliberately expansive, the preemption does not extend to state claims that affect employee benefit plans in too tenuous, remote, or peripheral a manner.” Ford, 130 F.3d at 1358 (citations and internal quotation marks omitted). To determine whether an implied covenant of good faith and fair dealing contained in the Certifícate is connected to an ERISA benefit plan, district courts weigh the following factors:

(1) whether the state law regulates the types of benefits of ERISA employee welfare benefit plans;

(2) whether the state law requires the establishment of a separate employee benefit plan to comply with the law;

(3) whether the state law imposes reporting, disclosure, funding, or vesting requirements for ERISA plans; and

(4) whether the state law regulates certain ERISA relationships, including the relationships between an ERISA plan and employer and, to the extent an employee benefit plan is involved, between the employer and employee.

Operating Eng’rs Health & Welfare Trust Fund v. JWJ Contracting Co., 135 F.3d 671, 678 (9th Cir.1998) (quoting Aloha Airlines, Inc. v. Ahue, 12 F.3d 1498, 1504 (9th Cir.1993)).

The district court held that because McBride’s Fourth Cause of Action relates to PLM’s employee benefit plan, the cause of action is preempted. If the district court applied Delaware state law, the court would be directly regulating the types of benefits PLM’s employees would receive. McBride argues the district court should have directed PLM to pay the redemption price for preferred shares of stock held by the ESOP trustee, rather than the conversion price at the common stock value. Because the court’s action would have regulated the types and amount of benefits provided by the ESOP, ERISA preempts the state claim.

In addition, any regulation of an ERISA relationship, whether direct or indirect, is a sufficient basis for preemption. Gibson v. Prudential Ins. Co. of Am., 915 F.2d 414, 416 (9th Cir.1990). “Even claims brought under state-law doctrines that do not explicitly refer to employee benefit plans are preempted when the claims arise from the administration of such plans whether directly or indirectly.” Id. (citing Ellenburg v. Brockway, Inc., 763 F.2d 1091, 1095 (9th Cir.1985)). The Certificate of Designations explicitly regulates the shares of stock under the ESOP and other PLM employee benefits plans. The Certificate was drafted in connection with the ESOP and its related documents. The purpose of the preferred shares as described in the Certificate of Designations was to fund the ESOP. Even McBride acknowledges that the Fourth Cause of Action arose from a purported breach of the covenant of good faith and fair dealing between PLM and the owners of its preferred stock, the employees who were beneficiaries of the ESOP. The Certificate of Designations affects the relationships between the ERISA plan and the employer, as well as the employer and employee. The Certificate is clearly related to an ERISA plan. Therefore, McBride’s claim is preempted by ERISA.

C. Attorneys’ Fees

Both parties request attorneys’ fees for this appeal. Pursuant to 29 U.S.C. § 1132(g)(1), in any action brought by an ERISA participant, the court has the discretion to grant a reasonable attorney’s fee and costs of action to either party. Schultz v. PLM Int’l, Inc., 127 F.3d 1139, 1142 (9th Cir.1997). We consider the following five factors in deciding whether to grant attorneys’ fees:

(1) the degree of the opposing parties’ culpability or bad faith; (2) the ability of the opposing parties to satisfy an award of fees; (3) whether an award of fees against the opposing parties would deter others from acting under similar circumstances; (4) whether the parties requesting fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA; and (5) the relative merits of the parties’ positions.

Hummell v. S.E. Rykoff & Co., 634 F.2d 446, 453 (9th Cir.1980) (citations omitted). In this case, weighing the five factors, we conclude that each party should bear its own fees. See Schultz, 127 F.3d at 1143.

CONCLUSION

When a claimant falls under ERISA’s whistleblower provision, the overriding policy of ERISA mandates that a claimant’s status as a plan participant must be measured at the time of the alleged ERISA violation and not at the time of filing suit. To hold otherwise would allow an employer’s wrongful conduct to immunize it from federal liability. An employer cannot be allowed wrongfully to terminate an employee benefit plan and distribute plan benefits in lump sum before the claimant files suit, and thereby deprive the claimant of standing to sue for the wrongful conduct.

Further, the district court did not err by holding that McBride’s state law claim for breach of the covenant of good faith and fair dealing was preempted by ERISA as the contract was clearly related to the ERISA plan.

With these changes, the petition for rehearing, and the petition for rehearing en banc, are DENIED.

The decision of the district court is REVERSED and REMANDED for disposition in accordance with this opinion.

1 . Although the court in Hashimoto did not decide the question of whether section 1132 limited potential plaintiffs who could file suit under section 1140, the court did conclude that the plaintiff in that case was a fiduciary and therefore had standing to sue. The status of fiduciary was' determined at the time of the alleged violation of ERISA's whistleblower provision, not at the time of filing suit. Hash-imoto was no longer a fiduciary when she filed suit and yet she was "empowered to bring a civil action under § 1132 to enforce § 1140, ERISA's whistleblower provision." Hashimoto, 999 F.2d at 411.