Opinion
Civil No. 01-2344 ADM/AJB
May 28, 2002
Matthew P. Lewis, Esq., and Terrence J. Fleming, Esq., Lindquist Vennum, P.L.L.P., Minneapolis, MN, appeared for and on behalf of Plaintiff.
Kathryn A. Mrkonich-Wilson, Esq., and Jeremy D. Sosna, Esq., Littler Mendelson, P.C., Minneapolis, MN, appeared for and on behalf of Defendant.
MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
On April 2, 2002, the Motion to Dismiss [Doc. No. 4] of Defendant St. Paul Fire and Marine Insurance Company ("Defendant" or "St. Paul"), and the Motion to Remand [Doc. No. 11] of Plaintiff Randolph W. Fort ("Plaintiff" or "Employee"), were argued before the undersigned United States District Judge. For the reasons set forth below, the Motion to Dismiss is granted.
II. BACKGROUND
In November, 1999, Plaintiff's 23-year employment with Defendant was terminated as a result of a company-wide reduction in force. Defendant had an existing severance plan for certain employees and affiliates, The St. Paul Companies, Inc. Severance Plan ("Severance Plan"). Plaintiff, however, had executed a Confidential Separation Agreement ("Separation Agreement") with Defendant on November 8, 1999. Plaintiff's Separation Agreement provided that "[t]he severance benefits and payments to be provided under [the Separation Agreement] are in place of, and not in addition to, payments otherwise provided under the Plan or any other St. Paul severance plan." Sosna Aff. Ex. A (Separation Agreement pt. II(A)). The Separation Agreement further stated that it "is a complete agreement and states fully all agreements . . . as between Employee and St. Paul as to the separation of Employee from employment by St. Paul. This [Separation] Agreement supersedes any prior agreements, whether oral or written, between Employee and St. Paul." Id. (Separation Agreement pt. V(H)).
In accordance with the Separation Agreement, Plaintiff was to receive 46 weeks of his base salary in bi-weekly installments, an incentive payment, and continuation of welfare benefits. Id. (Separation Agreement pt. II(A)-(C)). As an Addendum to the Separation Agreement ("Addendum"), Relocation Benefits for Plaintiff were also agreed to:
If Employee was relocated at St. Paul's request within 24 months prior to the Separation Date, St. Paul will provide Employee with relocation benefits of equivalent type and cost to the benefits Employee received in connection with his/her last relocation . . . provided that the [E]mployee relocates . . . within three (3) months of the Separation Date.
Id. (Separation Agreement pt. II(G)). On January 13, 2000, Plaintiff moved from Baltimore, Maryland, to Northville, Michigan. The parties agree that Plaintiff had been relocated at Defendant's request within the previous 24 months, and that the relocation to Michigan occurred within three months after Plaintiff's Separation Date, qualifying Plaintiff for the Relocation Benefits outlined in the Addendum. The parties dispute the extent of the benefits.
In June, 1998, Plaintiff had relocated from St. Paul, Minnesota, to Baltimore, Maryland. As compensation for this move, Defendant paid Plaintiff for his out-of-pocket relocation expenses, as well as a lump sum payment of $40,000 on June 11, 1998. The earnings section of the $40,000 check stub noted the payment was for relocation. Compl. Ex. A. After Plaintiff's January, 2000, relocation to Michigan, Defendant reimbursed Plaintiff for his incurred moving expenses. Plaintiff contends that he is also entitled to a $40,000 relocation payment as part of the "relocation benefits of equivalent type and cost" to the benefits he received in connection with his prior relocation. To that end, Plaintiff's Complaint asserts claims for breach of contract (Count I) and promissory estoppel and quantum meruit (Count II). Compl. ¶¶ 14-21.
Defendant argues that its Severance Plan is an "employee benefit plan" under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1002(1) (3), and that Plaintiff's claims based on the Separation Agreement relate to the Severance Plan. Thus, Defendant argues that Plaintiff's state law claims are preempted by ERISA because they "relate to [an] employee benefit plan" under 29 U.S.C. § 1144(a). See Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 43-45 (1987) (holding that ERISA preempts state common law contract actions relating to employee benefit plans). Plaintiff claims the Separation Agreement is not related to the Severance Plan, and is not itself an employee benefit plan, and thus his claims are not preempted by ERISA.
III. DISCUSSION
A. Rule 12(b)(6) Standard
Claims that are preempted by ERISA are properly dismissed on motions brought under Fed.R.Civ.P. 12(b)(6). See Bomis v. Metropolitan Life Ins. Co., 970 F. Supp. 584 (E.D.Mich. 1997). Rule 12(b)(6) provides that a party may move to dismiss claims for failure to state a claim upon which relief can be granted. In considering a motion to dismiss, the pleadings are construed in the light most favorable to the non-moving party, and the facts alleged in the complaint must be taken as true. Hamm v. Groose, 15 F.3d 110, 112 (8th Cir. 1994); Ossman v. Diana Corp., 825 F. Supp. 870, 879-80 (D. Minn. 1993). Any ambiguities concerning the sufficiency of the claims must be resolved in favor of the non-moving party. Ossman, 825 F. Supp. at 880.
A complaint should be dismissed "only if it is clear that no relief can be granted under any set of facts that could be proved consistent with the allegations." Frey v. City of Herculaneum, 44 F.3d 667, 671 (8th Cir. 1995) (citations omitted); Hafley v. Lohman, 90 F.3d 264, 266 (8th Cir. 1996). "A motion to dismiss should be granted as a practical matter . . . only in the unusual case in which the plaintiff includes allegations that show on the face of the complaint that there is some insuperable bar to relief." Frey, 44 F.3d at 671.
B. ERISA Preemption
The central issue in this case is whether or not the Separation Agreement (with its Addendum) was premised on, or constituted, an employee benefit plan. If so, Plaintiff's action comes within the scope of ERISA and is preempted by § 1144(a), and hence his action was removable to federal court. See Crews v. General American Life Ins. Co., 274 F.3d 502, 505 (8th Cir. 2001). If not, then removal was improper. See id.
Plaintiff does not dispute that the Severance Plan qualifies as an employee welfare benefit plan under ERISA. See Massachusetts v. Morash, 490 U.S. 107, 116 (1989) (holding that plans to pay employees severance benefits upon termination of employment are employee welfare benefit plans within the meaning of ERISA). Plaintiff argues what is in controversy is the Separation Agreement which is a stand-alone contract that does not relate to the Severance Plan.
When state law claims relate to ERISA plans, those claims are transmuted into ERISA claims. Minnesota Chapter of Associated Builders and Contractors, Inc., v. Minnesota Dept. of Public Safety, 267 F.3d 807, 811 (8th Cir. 2001). A law "relates to" an ERISA plan if it has a "connection with" or "reference to" the plan. California Division of Labor Standards Enforcement v. Dillingham Construction, N.A., Inc., 519 U.S. 316, 324 (1997). The deliberately expansive ERISA preemption clause is conspicuous for its breadth, and under its "broad, common-sense meaning," a state law may relate to a benefit plan even if the law is not specifically designed to affect such plans, or the effect is only indirect. Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138-39 (1990). Here, the relevant question is whether or not Plaintiff's breach of contract and promissory estoppel/quantum meruit claims deriving from the Separation Agreement relate to the Severance Plan.
If the Separation Agreement is "simply an attempt to amend the existing plan, then it follows that [it was] based on that plan . . . and would be preempted by § 1144(a)." Id.; Anderson v. John Morrell Co., 830 F.2d 872, 875 (8th Cir. 1987) (holding that ERISA preempts actions to enforce or clarify rights under an existing plan, as well as claims seeking to add additional benefits to an existing plan). However, if the Separation Agreement was not intended to constitute a change in Defendant's existing Plan, but rather was a distinct, free-standing offer of benefits, then it follows that it was not premised on the existing Plan and therefore does not "relate to" it. Crews, 274 F.3d at 505. Defendant argues that "disposition of [Plaintiff's] claims require an interpretation of the Severance Plan and, therefore, necessarily `relates to' the terms of the Severance Plan." Def. Mem. in Supp. at 11. Defendant also asserts that Plaintiff's alleged right to a $40,000 relocation payment is "based directly on the Severance Plan." Id. Finally, Defendant avers that the Separation Agreement "simply provides those benefits to which [Plaintiff] is entitled under the Severance Plan." Def. Reply Mem. at 11.
The position argued by Defendant is belied by the express provisions of the Separation Agreement. The Separation Agreement provided that "[t]he severance benefits and payments to be provided under [the Separation Agreement] are in place of, and not in addition to, payments otherwise provided under the Plan or any other St. Paul severance plan." Sosna Aff. Ex. A (Separation Agreement pt. II(A)). This provision indicates that the Separation Agreement was not an attempt to amend or change the existing Severance Plan, but rather to replace it. The Separation Agreement further stated that it "is a complete agreement and states fully all agreements . . . as between Employee and St. Paul as to the separation of Employee from employment by St. Paul. This [Separation] Agreement supersedes any prior agreements, whether oral or written, between Employee and St. Paul." Id. (Separation Agreement pt. V(H)). Thus, the Separation Agreement is by its own terms a distinct contractual arrangement. The Separation Agreement cannot be construed to be premised on the Severance Plan, nor to require an interpretation of the Severance Plan. Therefore, the Separation Agreement is not "related to" the Severance Plan.
The next question is whether or not the Separation Agreement and its Addendum themselves constitute an ERISA plan. Plaintiff argues that the $40,000 payment allegedly owed by Defendant in accordance with the Addendum does not qualify as an ERISA plan. However, it is not the Addendum alone that is the proper subject of inquiry, but rather the Separation Agreement of which the Addendum is a part. The Addendum is not its own contract, because it was specifically incorporated into the Separation Agreement. The Separation Agreement pt. II is labeled "Consideration" and contains parts A through F. Sosna Aff. The Addendum was labeled "II. Consideration (Addendum)," and contains part G. Id. The formatting of the Separation Agreement and the Addendum establish them as parts of a single contract.
"ERISA was intended to provide for the federal regulation of plans, not merely benefits." Emmenegger v. Bull Moose Tube Co., 197 F.3d 929, 934 (8th Cir. 1999). An employer's decision to extend severance benefits does not, in and of itself, constitute the establishment of an ERISA plan. See Kulinski v. Medtronic Bio-Medicus, Inc., 21 F.3d 254, 256 (8th Cir. 1994). Severance benefits are characterized as a plan when they require an "ongoing administrative program" to meet the employer's obligation. Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 11 (1987); Kulinski, 21 F.3d at 257. When determining whether payments require an ongoing administrative scheme, four factors are relevant: (1) whether the payments are one-time lump sum payments or continuous payments, (2) whether the employer undertook any long-term obligation with respect to the payments, (3) whether the severance payments come due upon the occurrence of a single, unique event or any time that the employer terminates employees, and (4) whether the severance arrangement under review requires the employer to engage in a case-by-case review of employees. Crews, 274 F.3d at 506.
i. Not a Single, Lump Sum Payment
The reimbursement for Plaintiff's out-of-pocket moving expenses is easily characterized as a one-time lump sum payment under the Separation Agreement, and the $40,000 relocation payment made in relation to Plaintiff's move to Baltimore was paid in a lump-sum payment. However, other elements of Plaintiffs severance benefits under the Separation Agreement are not lump-sum payments.
At Plaintiff's election, the "Basic Severance Payment" of two weeks salary for each year of employment was made in 23 bi-weekly installments. Sosna Aff. Ex. A (Separation Agreement pt. II(A)). Defendant provided Plaintiff with continuation of its employee welfare benefits during the period when the installment payments were being made. Id. (Separation Agreement pt. II(B)). Plaintiff also received an incentive payment equal to his 1999 target incentive opportunity, prorated for the number of months actually worked in 1999. Id. (Separation Agreement pt. II(C)). The relocation benefits were contingent on Plaintiff having moved within 24 months prior to his separation date, and again within three months after the separation date. Id. (Separation Agreement pt. II(G)). Thus, the severance benefits as a whole were paid over an extended period of time, and required an administrative analysis of qualifications prior to payment.
ii. Long-Term Obligations
The payment of Plaintiff's severance benefits over the span of 46 weeks required St. Paul to undertake the long-term obligation of making its payments, and providing medical and/or dental coverage and life insurance coverage throughout that time period. In the event of Plaintiff becoming re-employed by Defendant, the unpaid bi-weekly installment payments would be terminated. Id. (Separation Agreement pt. II(D)). This required Defendant to monitor Plaintiff's employment status throughout the time period of entitlement to installment payments. The Separation Agreement also included a confidentiality clause, and two non-solicitation clauses prohibiting Plaintiff from contacting St. Paul's employees or customers for a twelve month period following the end of his employment. Id. (Separation Agreement pt. III(C)-(F)). Defendant had a one-year period of oversight to ensure that Plaintiff complied with the confidentiality and non-solicitation obligations. These elements show that long-term obligations were undertaken by Defendant.
iii. Payment Not Due Upon Single Unique Event
Under the Separation Agreement, no single event triggers a one-time payment of benefits to Plaintiff. Rather, before Plaintiff became entitled to relocation benefits under the Separation Agreement, he must have first been terminated under the appropriate circumstances to be eligible for severance benefits, and then have relocated in accordance with the requirements of the Addendum. This series of occurrences does not constitute a single unique event.
iv. Case-by-Case Review
Where severance payments are not "virtually automatic," or absent proof that the standards set out for determining benefits were in practice disregarded, decisions regarding eligibility for severance benefits and the amount of such benefits are made with the exercise of judgment. Emmenegger, 197 F.3d at 935. Here, severance benefits were not awarded mechanically upon termination, but the decision to pay benefits was made on an individual basis after exercising discretion described in the Separation Agreement. The Separation Agreement requires Defendant to determine whether or not Plaintiff is entitled to severance benefits. "[I]f Employee engages in insubordinate conduct, is disruptive in the workplace, . . . or produces a . . . consistently inferior work product," Defendant retained the right to terminate Plaintiff, disqualifying him from the benefits, depending on the seriousness of the performance issues. Id. (Separation Agreement pt. I(D)(1)). Also, Plaintiff was eligible for benefits after being terminated as part of a reduction in force, but would not have been eligible upon voluntary resignation or abandonment of work duties. Id. (Separation Agreement pt. I(D)(3)). These elements of the Separation Agreement required a case-by-case review by Defendant.
Each of the above four factors weigh in favor of regarding the Separation Agreement as an employee benefit plan under 29 U.S.C. § 1002(1) (3). Therefore, Plaintiff's breach of contract and promissory estoppel/quantum meruit claims based on the Addendum to the Separation Agreement relate to an employee benefit plan under 29 U.S.C. § 1144(a). As such, this action was properly removable to federal court, and Plaintiff's Motion to Remand is denied. Plaintiff's state law claims are preempted by ERISA, and Defendant's Motion to Dismiss is granted.
IV. CONCLUSION
Based on the foregoing, and all the files, records and proceedings herein, IT IS HEREBY ORDERED that:
1. Defendant's Motion to Dismiss [Doc. No. 4] is GRANTED, and
2. Plaintiff's Motion to Remand [Doc. No. 11] is DENIED.
LET JUDGMENT BE ENTERED ACCORDINGLY.