Opinion
Case Nos. 5:99 CV 1068, 5:99 CV 1759, 5:99 CV 1768.
July 17, 2000.
MEMORANDUM OF OPINION AND ORDER RESOLVING DEFENDANTS' MOTIONS TO DISMISS
The above actions represent the claims of three individuals pursuing claims of ERISA violations against their former employer. While the three separate actions have not been consolidated, they will be considered together for purposes of addressing the pending motions.
Case numbers 5:99 CV 1068 and 5:99 CV 1768 were originally assigned to this Court Case number 5:99 CV 1759 was reassigned to this Court by order of transfer by Judge David Dowd "for the purpose of facilitating the coordination among the related actions." (Doc. No. 9).
This matter comes before the Court on the motion of defendants, Rubbermaid Incorporated ("Rubbermaid") and Newell Rubbermaid Inc. ("Newell") (collectively "Defendants"), seeking dismissal of Count 1 presented in the complaints filed by Calvin C. Eller, Russell C. Thomas and Richard D. Gates (collectively "Plaintiffs") for lack of subject matter jurisdiction (Case No. 5:99CV1068, Doc. No. 8; Case No. 5:99CV1759, Doc. No. 4; and Case No. 5:99CV1768, Doc. No. 6, respectively).
In Case No. 5:99 CV 1068, Plaintiff, Calvin C. Eller, is an Ohio resident and has named only Rubbermaid Incorporated (an Ohio corporation) as defendant. Rubbermaid's motion to dismiss is directed to Eller's entire complaint.
In Case Nos. 5:99CV1759 and 5:99CV1768, Plaintiffs, Richard D. Gates and Russell C. Thomas, are not residents of Ohio and have named as defendants both Rubbermaid Incorporated (an Ohio corporation) and Newell Rubbermaid (a Delaware and Illinois corporation). Alternative subject matter jurisdiction is alleged pursuant to 28 U.S.C. § 1332 (diversity). Defendants move to dismiss only Count I of the Complaint (the ERISA claim). With respect to Count II (the breach of contract claim), Defendants have filed an answer.
Plaintiffs bring their actions under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq, claiming that they were denied benefits under an ERISA plan. Specifically, Plaintiffs contend that they were denied payment of the severance pay and benefits to which they were entitled under a Change in Control Employment Agreement ("Agreement") with Rubbermaid, Newell's predecessor. Defendants move to dismiss for lack of subject matter jurisdiction arguing that the Agreement is not an employee welfare benefit plan under ERISA. For the reasons that follow, the Court DENIES the motions to dismiss in Case Nos. 5:99CV1068, 5:99CV1759 and 5:99CV1768.
Plaintiffs allege subject matter jurisdiction under 28 U.S.C. § 1331 (federal question subject matter jurisdiction) and § 1132(e)(2) (ERISA federal court exclusive jurisdiction provision).
I. FACTS
Plaintiff Calvin C. Eller was employed by Rubbermaid from September 1996 to August 28, 1998. Complaint ¶ 5, 10. Richard D. Gates was employed from 1973 until he retired March 6, 1998. Complaint ¶ 12. Plaintiff Russell C. Thomas was employed from July 1995 to April 1, 1998. Complaint ¶ 7, 12. Each of the Plaintiffs were designated by Rubbermaid as "Key Executives," and each were party to a Change in Control Employment Agreement ("Agreement") deemed effective October 21, 1996.
The Agreement provided that if the employee is terminated by Rubbermaid or if he resigned under certain circumstances within two to five yearsafter the occurrence of a "Change in Control" of Rubbermaid, then he would receive a lump-sum severance payment as well as certain employee benefits and protections. See Agreement ¶¶ 1(a)-(b).
The Agreement also provided that any termination or removal from office or position prior to a change in control but "following the commencement of any discussion with a third party that ultimately results in a Change in Control," would trigger a lump-sum severance payment, plus certain benefits, that would be payable after the Change in Control occurred.See Complaint ¶ 10; Agreement ¶ 9. Finally, the Agreement provided that if the employee ceased for any reason to be employed with Rubbermaid prior to the occurrence of a change in control, then the Agreement expired. Agreement ¶ 13.
Calvin Eller's employment with Rubbermaid was terminated on August 28, 1998. RuseIl Thomas' employment was terminated on April 1, 1998, and Richard Gates' employment with Rubbermaid ceased on March 3, 1998.
On October 22, 1998, Rubbermaid and Newell Company announced their merger and the filing of a Form 8-K with the Securities and Exchange Commission disclosing that a change in control of Rubbermaid would occur wherein the companies would merge into Newell Rubbermaid Inc..
While each of the Plaintiffs' employment with Rubbermaid ceased prior to the merger announcement, Plaintiffs contend that the discussions between Rubbermaid and Newell which ultimately led to the merger agreement commenced prior to the termination of their employment. Thus, under the Agreement, Plaintiffs' termination of employment with Rubbermaid constitutes a termination of a key executive after a change in control.
By letter, each of the Plaintiffs made requests to Rubbermaid for payment of their severance allowance and benefits package pursuant to the Agreement. Rubbermaid denied their requests on the basis that the discussions which led to a merger between Rubbermaid and Newell did not commence until after their termination of employment.
Plaintiffs have each filed their actions pursuant to 29 U.S.C. § 1132 (a)(1)(B) alleging that the Agreement constitutes an employee welfare benefits plan governed by ERISA, that they are plan participants, and that they are entitled to recover benefits under the terms of the plan. Plaintiffs maintain that because their cessation of employment was within the prescribed time-frame of an effective "change in control," the terms of the Agreement entitles them to a payment of benefits. Defendants' failure to pay these benefits forms the basis of their alleged ERISA violation.
In the alternative, if it is determined that the Agreement does not constitute an employee welfare benefits plan governed by ERISA, Plaintiffs allege that Defendants are liable for breach of contract (Count II).
II. ANALYSIS
The issue presented is whether the Plaintiffs have pled a federal ERISA claim under 29 U.S.C. § 1132. Section 502(a)(1)(B) of the ERISA statute provides that "[a] civil action may be brought — (1) by a participant or beneficiary — (B) to recover benefits due to him under the terms of his plan [or] to enforce his rights under the terms of the plan . . . " 29 U.S.C. § 1132(a)(1)(B). Section 3(3) defines a "plan" as "an employee welfare benefit plan or an employee pension plan or a plan which is both an employee welfare benefit plan and an employee pension benefit plan." 29 U.S.C. § 1002(3). Thus the Court must now determine whether the Agreement in this case constitutes an employee benefit plan under ERISA.Defendants maintain that the Agreement is not an employee welfare benefit plan, but merely a "Golden Parachute Agreement" which does not satisfy the requirements of an ERISA plan because it is a one-time lump-sum payment which does not implicate an ongoing administrative scheme.
In determining whether or not an employee benefit plan is governed by ERJSA, the Sixth Circuit has adopted the four point test set forth in the seminal case of Donovan v. Dillingham, 688 F.2d 1367, 1373 (11th Cir. 1982). Under Dillingham, an ERISA plan exists if, under the surrounding circumstances, a reasonable person could ascertain: (1) the intended benefits, (2) the intended beneficiaries, (3) the source of financing, and (4) the procedures for receiving benefits. Williams v. WCI Steel Co., Inc., 170 F.3d 598, 602 (6th Cir. 1999) (citing Donovan v. Dillingham, 688 F.2d 1367, 1373 (11th Cir. 1982)). Defendants maintain that the Agreement at issue here fails to satisfy the four point test ofDillingham.
Brown v. Ampco-Pittsburgh Corp., 876 F.2d 546 (6th Cir. 1989).
Moreover, Defendants contend that even if plaintiffs satisfy the four prong test established by Dillingham, that alone is not sufficient to implicate ERISA. Williams v. WCI Steel Company, Inc., 170 F.3d 598, 604 (6th Cir. 1999) (holding Dillingham requires more than just the existence of an administrative scheme (emphasis added)). To be an ERISA plan, courts must also ask, "whether the plan requires the establishment of a separate, ongoing administrative scheme to administer the plan's benefits." Sherrod v. General Motors Corp., 33 F.3d 636, 638 (6th Cir. 1994) (citing Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 11-12 (1987)).
In Fort Halifax, the Supreme Court considered whether a Maine statute that required employers who terminate or relocate their operations to pay a lump-sum payment to their employees was in effect requiring employers to establish or maintain an ERISA plan. In concluding that it did not, the Court held that:
the Maine statute neither establishes, nor requires an employer to maintain, an employee benefit plan. The requirement of a one-time, lump-sum payment triggered by a single event requires no administrative scheme whatsoever to meet the employer's obligation. The employer assumes no responsibility to pay benefits on a regular basis, and thus faces no periodic demands on its assets that create a need for financial coordination and control. Rather, the employer's obligation is predicated on the occurrence of a single contingency that may never materialize. The employer may well never have to pay the severance benefits. To the extent that the obligation to do so arises, satisfaction of that duty involves only making a single set of payments to employees at the time the plant closes. To do little more than write a check hardly constitutes the operation of a benefit plan. Once this single event is over, the employer has no further responsibility. The theoretical possibility of a one-time obligation in the future simply creates no need for an ongoing administrative program for processing claims and paying benefits.Fort Halifax, 482 U.S. at 12. In essence, the statute in that case did not require the company to monitor its budget for future disbursements because an employer could satisfy its duty all at once by making a set of single payments to the employees when the plant closed. There was no need for an ongoing administrative program for processing claims and paying benefits.
The golden parachute agreement here, however, is not one requiring simply the issuance of a single check. The agreement calls for a single payment and continuance of benefits for three years. Citing Cvelbar v. CBI Illinois Inc., 106 F.3d 1368, 1374(7th Cir. 1997), Plaintiffs maintain that the determination and calculation of benefits is complex and cannot be ascertained by simple arithmetical computations, therefore, the Agreement requires an ongoing administrative scheme. InCvelbar, the court held that: "Simple or mechanical determinations do not necessarily require the establishment of such an administrative scheme; rather, an employer's need to create an administrative scheme may arise where the employer, to determine the employee's eligibility for and level of benefits, must analyze each employee's particular circumstances in light of the appropriate criteria." Id. at 1375. Further, the court stated that one factor to be considered in determining when an obligation is complex enough to require an ongoing administrative program is "whether the employer's undertaking or obligation requires managerial discretion in its administration." Id.
Benefits are defined in Section 2(d) of the Agreement as, "perquisites, benefits and service credits for benefits as provided under any and all welfare benefit policies, plans, programs, or arrangements in which the Key Executive is entitled to participate, including without limitation any welfare benefit, pension, deferred compensation, group or other life, health, medical/hospital or other insurance (whether funded by actual insurance or self-insured by Rubbermaid), disability, salary continuation, expense reimbursement and other welfare benefit policies, plans, programs or arrangements that may now exist or any successor policies, plans, programs, or arrangements that may be adopted hereafter, providing perquisites, benefits and service credits for benefits at least as great in the aggregate as are payable thereafter immediately prior to a Change in Control."
Cvelbar involved a virtually indistinguishable Change in Control Agreement from the Agreement at issue here. The Agreement was executed for the purpose of encouraging "the continued dedication of the management of the Company" and provided severance benefits, including continued medical coverage, a lump-sum payment determined pursuant to calculations set forth in the agreement, and monthly payments pursuant to the Company's existing plan. Id. at 1371. In holding that the agreement was a "plan" under ERISA, the court relied, in part, on Fort Halifax and concluded that the agreement required an ongoing administrative scheme. Although a primary benefit under the change in control agreement may have been a one-time lump-sum payment, the plan also (1) required the exercise of managerial discretion and (2) involved ongoing payments that "could not be determined by simple arithmetical computations." Id. at 1377.
Several considerations were taken into account by Cvelbar. First, the agreement's extension of medical benefits required the company periodically to process medical claims and to pay medical benefits to Cvelbar and his dependents. Furthermore, the agreement required the company to review the contract annually and to determine whether to extend the agreement for an additional term. Accordingly, the court held that the company had, through the agreement, "`assumed a responsibility to pay benefits on a regular basis' and faced `periodic demands on its assets that create a need for financial coordination and control.'" Id. at 1376-77 (quoting Fort Halifax, 482 U.S. at 12).
Second, the court held that the Change in Control Agreement required the exercise of managerial discretion because it required an initial determination of the reason for Cvelbar's termination. Id. at 1377. Even though that agreement provided for benefits regardless of whether termination was voluntary or involuntary, no benefits were forthcoming if his termination was the result of retirement, willfully engaging in fraud, or death. Id. at 1377. The court also found that the company's need to determine and monitor both whether Cvelbar violated the agreement's covenant not to compete and the amount paid to Cvelbar for tax purposes necessitated on-going administration.
Finally, the court found that the payments under the Change in Control Agreement involved more than a simple arithmetic computation because the health benefits provision would result in varying levels of benefit payments depending upon the health care needs of Cvelbar and his family. Finally, the court stated that the contract extended medical coverage and pension benefits on the terms and conditions of the bank's retirement plan which required the company to make administrative determinations about Cvelbar's eligibility and level of coverage, determinations that these were not simple mechanical calculations. Id. at 1378. Taken together, the court held that these factors demonstrated that the agreement necessitated the establishment and maintenance of an ongoing administrative program. Id.
In light of Cvelbar, Fort Halifax and Dillingham, the Court finds that the Agreement in this case may very well necessitate the establishment and maintenance of an ongoing administrative program and thereby constitute an ERISA plan.
Ultimately, the existence of an ERISA plan is a question of fact, dependent on the surrounding circumstances. Thompson v. American Home Insurance Co., 95 F.3d 429, 434 (6th Cir. 1996). In Thompson, the Sixth Circuit vacated the district court's grant of summary judgment as to the existence of an ERISA plan, finding that, "the District Court failed to recognize that a genuine issue of material fact was raised as to the existence of an ERISA plan." Id. at 434. Similarly, in Brown v. Ampco-Pittsburgh Corp., 876 F.2d 546 (6th Cir 1989), the Sixth Circuit applied this "question of fact" analysis. In Brown, the Court ordered a remand to the district court which had granted defendant's summary judgment for determination of when the plaintiff/employee's rights under the plan had vested. Id. at 551. Due to the complex nature of the circumstances, a more detailed analysis was required. The Court rationalized that a reasonable person could only determine whether the plan was governed by ERISA by examining in detail the surrounding circumstances, which the district court failed to do. Id. (emphasis by the Court).
Applying these standards to the facts of this case, at this early stage of the litigation and discovery, the Court cannot determine whether the golden parachute benefits herein are governed by ERISA without examining in detail the surrounding circumstances. Under Federal Rule of Civil Procedure 12(b)(6), the Court cannot find that Plaintiffs will be unable to prove any set of facts that will meet the standards ofDillingham or Fort Halifax. Accordingly, the Defendants' Motions to Dismiss are DENIED. Defendants remain free to raise this issue again at a later point in this litigation.
A 12(b)(6) motion can only be granted if"it appears beyond doubt that the Plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Ang v. Procter Gamble Co., 932 F.2d 540, 544(6th Cir. 1991) (citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).
IT IS SO ORDERED.