F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
JAN 23 2001
FOR THE TENTH CIRCUIT
PATRICK FISHER
Clerk
MARK LETTES,
Plaintiff - Appellant,
v. No. 00-1057
(D.C. No. 98-S-1899)
KINAM GOLD INC., a Delaware (D. Colo.)
Corporation, formerly known as Amax
Gold, Inc.; AMAX GOLD, INC.,
SEPARATION PLAN FOR KEY
EMPLOYEES; AMAX GOLD, INC.,
BENEFITS COMMITTEE; KINROSS
GOLD CORPORATION BENEFITS
COMMITTEE; KINROSS GOLD
CORPORATION,
Defendants-Appellees.
ORDER AND JUDGMENT *
Before BALDOCK , ANDERSON , and HENRY , Circuit Judges.
After examining the briefs and appellate record, this panel has determined
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument.
Mark Lettes appeals from an order dismissing his state law claims against
appellees as preempted by the Employee Retirement Income Security Act,
29 U.S.C. §§ 1001-1461 (ERISA) but allowing amendment of his complaint to
allege ERISA violations . He also appeals from a second order granting summary
judgment in favor of appellees on the ERISA claims. Our jurisdiction arises
under 28 U.S.C. § 1291, and we reverse and remand with instructions to remand
to state court.
I. Background facts and proceedings
The relevant facts are undisputed. Mr. Lettes was employed by AMAX
Gold, Inc. (AGI) as a “key employee.” In 1997, in anticipation of a pending
merger with Kinross Gold Corporation, AGI adopted a “Separation Plan for Key
Employees” (the plan) that provided an additional, one-time “golden parachute”
monetary payment apart from, and independent of (but reduced by any amount
paid under), the company’s general severance plan. Appellant’s App. at 689-705.
The additional payment became owing upon a key employee’s separation from
service after a “change of control” as defined in the plan, id. at 694, and the plan
automatically terminated at the close of business on December 31, 1999. Id. at
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703. Nine key employees were eligible to participate in the plan. Id. at 115. AGI
named itself as the administrator of the plan and initially delegated its duties
under the plan to its benefits committee consisting of three members. Two of
those members were eligible key employees. See id. at 699-700; 115-16. The
committee, in turn, appointed another AGI employee as plan administrator. Id. at
116.
Just before the merger agreement was executed, in February 1998 the plan
was amended to redefine the meaning of “Separation from Service” to include
termination without cause within twelve months of the merger or by the eligible
employee quitting for “Good Reason.” Id. at 740. The amendment added
definitions for “Cause” 1
and “Good Reason,” 2
id. at 740-41, and omitted the
former requirement that, in order to receive the golden parachute, the eligible
employee also had to meet the terms and conditions of the general severance plan,
id. at 741, 694. The plan further provided that an eligible employee was not
1
The plan defined “Cause” as “(i) substantial and continued failure by the
Eligible Employee to perform his services and duties to the Company . . . (ii) any
act of fraud or embezzlement against the Company . . . or (iii) the conviction, or
pleading guilty or no contest, to a felony.” Appellant’s App. at 740.
2
The plan defined “Good Reason” to mean “any of the following events:
(i) material reduction in the Eligible Employee’s compensation, benefits, title or
duties, or (ii) a change in the Eligible Employee’s principal place of employment
which is more than 35 miles away from the Eligible Employee’s pre-Change of
Control place of employment, and more than 35 miles away from the Eligible
Employee’s primary residence.” Appellant’s App. at 741.
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entitled to benefits if he had been offered “Comparable Employment,” as defined
by the plan, by AGI or its successor. Finally, the plan specifically limited
benefits to eligible employees who had performed their job assignments
satisfactorily and to the best of their ability before separation; who had abided by
the terms of confidentiality and noncompetition agreements; and who had
executed a general release of claims in a form AGI prescribed. Id. at 695. Thus,
under the express terms of the plan, an eligible employee was entitled to receive
golden parachute benefits after separation from service unless he had been
terminated with cause, as defined by the plan, or quit without good reason, as
defined by the plan, as long as he also complied with prior agreements with the
company and signed the release.
The plan provided a formula for benefit based on the employee’s salary
grade and target bonus. Id. at 696-99. Upon merger with Kinross in June 1998,
golden parachute benefits were automatically paid without separate request or
action of the benefit committee to seven of the nine “key employees.” See id. at
117. One key employee apparently resigned and accepted a job with another
company before the change of control. Id. Thus, Mr. Lettes was the only key
employee in June 1998 who had not already been paid the severance benefit.
Before the merger, Mr. Lettes was offered a position at Kinross that AGI
and Kinross believed to be “comparable employment” as defined by the plan. Mr.
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Lettes disagreed, arguing that the proffered job did not provide him with the same
level of autonomy, duties, or potential compensation. He requested, but AGI and
then Kinross denied, the golden parachute benefits under the separation plan.
Mr. Lettes brought suit in Colorado state court, claiming that the appellees
unlawfully refused to pay separation benefits to which he was entitled. Appellees
removed the case to federal court under 28 U.S.C. § 1331, alleging federal
question jurisdiction under ERISA. The district court then granted appellees’
motion to dismiss Mr. Lettes’ state law claims as preempted by ERISA. Because
federal jurisdiction rests on whether ERISA controls the plan, we must answer
that question first. See Steel Co. v. Citizens for a Better Env’t , 523 U.S. 83,
101-02 (1998).
II. Discussion
“[C]ommon law tort and breach of contract claims are preempted by
ERISA if the factual basis of the cause of action involves an employee benefit
plan.” Milton v. Scrivner, Inc. , 53 F.3d 1118, 1121 (10th Cir. 1995) (quotation
omitted). We review de novo the district court’s preliminary determination that
ERISA preempted Mr. Lettes’ state law claims. Pacificare of Okla., Inc. v.
Burrage , 59 F.3d 151, 153 (10th Cir. 1995).
“ERISA was passed by Congress in 1974 to safeguard employees from the
abuse and mismanagement of funds that had been accumulated to finance various
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types of employee benefits.” Massachusetts v. Morash , 490 U.S. 107, 112
(1989). “To that end, it established extensive reporting, disclosure, and fiduciary
duty requirements to insure against the possibility that the employee’s
expectation of the benefit would be defeated through poor management by the
plan administrator.” Id. at 115. Although an agreement to pay severance benefits
may constitute an employee welfare benefit plan subject to ERISA’s regulation,
the agreement is subject to ERISA’s control only if it creates benefits requiring
“an ongoing administrative program to meet the employer’s obligation.” Fort
Halifax Packing Co. v. Coyne , 482 U.S. 1, 11 (1987) (emphasis added). To
further explain the meaning of the term “ongoing,” the Court held that, if under
the agreement, the employer has not assumed a responsibility to process claims
and pay benefits “on a regular basis,” it “faces no periodic demands on its assets
that create a need for financial coordination and control,” and a benefit plan
subject to ERISA has not been established. Id. at 12. The Court in Fort Halifax
found that a statute requiring employers to pay as severance a “one-time, lump-
sum payment triggered by a single event” did not create a benefit plan subject to
ERISA’s control. Id.
In Siemon v. AT&T Corp. , we stated that the Fort Halifax decision was
primarily based on the fact that “only a one-time event would trigger the
payment,” noting that the Court distinguished the severance benefit from death
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payment benefit plans that create an ongoing need for an administrative scheme to
process claims and pay out benefits. 117 F.3d 1173, 1178 (10th Cir. 1997) .
Thus, we have decided that the hallmarks of an ERISA plan are whether the plan
pays benefits triggered by several events, as opposed to a one-time event, and
whether it requires regular periodic payments.
The district court in this case concluded that the language giving the plan
administrator “complete and discretionary authority to construe and interpret the
Plan, correct defects, supply omissions, and reconcile inconsistencies and
ambiguities in and with respect to the Plan” also gave the administrator
significant discretion in deciding whether a change of control had occurred,
whether eligible employees were entitled to benefits, whether eligible employees
had been offered comparable employment, and whether they had performed their
jobs satisfactorily and had abided by the terms of all agreements after separation. 3
Appellant’s App. at 228 (quotation omitted). Citing a Second Circuit case and
focusing on its conclusion that “the making of severance payments . . . requires
3
Although the plan administrator had discretion to interpret ambiguities in
the plan, the language setting out eligibility requirements was explicit and
absolute, thus significantly limiting the administrator’s discretion. The plan set
out four specific components for the administrator to use in determining whether
an eligible employee had good reason to refuse an offer of employment:
“material reduction” in either compensation, benefits, title, or duties. Appellant’s
App. at 435. The administrator’s only discretion lay in determining whether a
reduction in any of those four areas was “material.”
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the ‘exercise of managerial discretion,’” the court concluded that “sufficient
indicia of an ongoing administrative scheme to be governed by ERISA” therefore
existed. Id. (citing James v. Fleet/Norstar Fin. Group, Inc. , 992 F.2d 463, 468
(2d Cir. 1993)). Apparently, the district court found the key factor to be
considered was whether a plan required a “‘case-by-case, discretionary
application of its terms.’” Id. at 229 (quoting Bogue v. Ampex Corp. , 976 F.2d
1319 , 1323 (9th Cir. 1992)). We read our precedent, however, to require
consideration of additional factors.
In Bogue , the court found an “ongoing” scheme to exist solely because the
administrator had discretion in determining eligibility. There, a limited severance
program similar to the one in the case at bar was created for several executives if
they were not offered “substantially equivalent” employment after a merger. 976
F.2d at 1321. The employer argued that discretionary decision making was the
“hallmark of an ERISA plan,” and the court agreed. Id. at 1322. The Bogue court
stated that it chose to follow the approach of Pane v. RCA Corp. , 868 F.2d 631
(3d Cir. 1989), and Fontenot v. NL Industries, Inc. , 953 F.2d 960 (5th Cir. 1992),
in determining what constitutes an ERISA plan. 976 F.2d at 1323.
We conclude, however, that the cases Bogue relied upon poorly support its
analysis. For example, the plaintiff in Pane based federal jurisdiction on ERISA
but then argued that ERISA did not preempt his state law claims, which is an
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inconsistent stance. Pane , 868 F.2d at 634-35. Without analysis, the court stated
only that Fort Halifax “suggests” that the plan at bar was an ERISA plan because
it required an administrative scheme. Id. at 635.
Bogue further proposed that the Fontenot court based ERISA control on
whether “the circumstances of each employee’s termination [had] to be analyzed
in light of certain criteria.” 976 F.2d at 1323 (quotations omitted). Our review of
Fontenot leads to a different conclusion. In Fontenot , the plaintiff asserted that
the golden parachute plan at issue was an ERISA plan, apparently arguing that all
employee benefits requiring administrative schemes are ERISA plans and relying
on Pane v. RCA Corp. , 667 F. Supp. 168 (D.N.J. 1987), aff’d 868 F.2d 631 (3d
Cir. 1989). See Fontenot , 953 F.2d. at 962-63. Fontenot distinguished Pane by
noting that the plan in its case required no administrative scheme whatsoever and
stated only that Pane did not stand for the proposition that every golden parachute
is an ERISA plan. Id. at 963. The Fontenot court did not, as Bogue suggests,
hold that the hallmark of an ERISA plan is whether an individualized
discretionary eligibility decision must be made by a plan administrator, although
that factor entered into the court’s analysis.
Whether a plan administrator has discretion in determining eligibility for
benefits may be one factor to be considered in deciding whether an administrative
scheme for processing claims is necessary, but it says nothing about whether the
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plan is sufficiently “ongoing” to trigger ERISA regulation. The fact that an
administrator has even unfettered discretion in determining eligibility for benefits
does not mean that the employer has assumed a “responsibility to pay benefits on
a regular basis,” thus causing it to face “periodic demands on its assets that create
a need for financial coordination and control.” Fort Halifax , 482 U.S. at 12.
The district court focused on AGI’s discretion in determining eligibility
without examining whether the benefit also necessitated an ongoing scheme to
coordinate and control monies that would fund the regular distribution of
payments, as required by Siemon. See 117 F.3d at 1178-79 (noting that focus of
Fort Halifax decision was the one-time event that triggered single payment); see
also Belanger v. Wyman-Gordon Co. , 71 F.3d 451, 454 (1st Cir. 1995) (stating
that “an employee benefit may be considered a plan for purposes of ERISA only if
it involves the undertaking of continuing administrative and financial obligations
by the employer”) (emphasis added).
The golden parachute agreement in this case was unfunded, contingent on a
one-time event that might never happen, and expressly limited to a narrow time
period. It involved only nine specific employees and the benefit was to be paid
in a lump sum based on a mathematical formula. Although there are factual
differences between the statutorily-required severance payments in Fort Halifax
and the supplemental severance payments that AGI proposed to make to its key
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employees, the reasoning of Fort Halifax is equally applicable to the present case
and requires the same conclusion: AGI’s agreement providing for a lump-sum
payment in the event of a separation after a change of control during a limited
time period did not constitute an employee welfare benefit “plan” within
ERISA’s ambit. Federal jurisdiction based upon § 1331 therefore must fail.
The judgment of the United States District Court for the District of
Colorado is REVERSED. The order dismissing Mr. Lettes’ state law claims is
reversed. ERISA preemption is the sole basis of federal jurisdiction in this case.
Therefore, the order granting summary judgment on the ERISA claims is vacated,
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and we remand with instructions to remand the case to state court.
Entered for the Court
Robert H. Henry
Circuit Judge
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