Dakota, Minnesota & Eastern Railroad v. Schieffer

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 10-2484
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Dakota, Minnesota & Eastern *
Railroad Corporation, *
*
Plaintiff - Appellant, * Appeal from the United States
* District Court for the
v. * District of South Dakota.
*
Kevin V. Schieffer, *
*
Defendant - Appellee. *
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Submitted: February 16, 2011
Filed: August 11, 2011
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Before LOKEN, MELLOY, and SHEPHERD, Circuit Judges.
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LOKEN, Circuit Judge.

Kevin Schieffer became President and CEO of the Dakota, Minnesota &
Eastern Railroad (“DM&E”) in 1996. In December 2004, anticipating a change of
control, Schieffer and DM&E entered into an Employment Agreement to encourage
his ongoing employment and to provide lucrative benefits should he be terminated
without cause or resign for good reason, terms defined in the Agreement. In October
2008, with regulatory approval of a merger imminent, DM&E terminated Schieffer
without cause, triggering the Employment Agreement’s various severance provisions.
Post-merger disputes arose as to the amounts DM&E owed. Schieffer filed a demand
for arbitration under the Employment Agreement’s arbitration provision. DM&E
commenced this action to enjoin the arbitration as preempted by the Employee
Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001 et seq.

DM&E’s complaint alleged (i) federal question jurisdiction under 28 U.S.C.
§ 1331 because the severance dispute “arises out of an [ERISA] employee benefit
plan” and therefore state law claims are preempted, and (ii) supplemental jurisdiction
under 28 U.S.C. § 1367 over non-ERISA claims. Applying our decision in Crews v.
General American Life Insurance Co., 274 F.3d 502 (8th Cir. 2001), the district court
granted Schieffer’s motion to dismiss because the Employment Agreement is not an
ERISA employee benefit plan.1 DM&E appeals, arguing the Agreement is a
severance plan covered by ERISA, like the severance plan in Emmenegger v. Bull
Moose Tube Co., 197 F.3d 929, 934-35 (8th Cir. 1999). Whether a contract is an
ERISA plan is a mixed question of fact and law that we review de novo. Although
we agree with the district court’s resolution of this key issue, we are not convinced
the court had no jurisdiction over DM&E’s complaint and therefore remand.

I.

ERISA provides that a participant or beneficiary may sue in federal court to
recover benefits due under an employee benefit plan. 29 U.S.C. § 1132(a)(1)(B).
ERISA also expressly preempts “any state-law cause of action that duplicates,
supplements, or supplants the ERISA civil enforcement remedy.” Aetna Health Inc.
v. Davila, 542 U.S. 200, 209 (2004); see 29 U.S.C. § 1144(a). Schieffer’s arbitration
demand included a demand for double damages under South Dakota’s failure-to-pay-
wages statute, a remedy that clearly is preempted if the Employment Agreement is an
ERISA plan. See, e.g., Schoedinger v. United Healthcare of the Midwest, Inc., 557
F.3d 872, 875-76 (8th Cir.), cert. denied, 130 S. Ct. 257 (2009). DM&E argues that

1
There is no diversity jurisdiction under 28 U.S.C. § 1332, and the Federal
Arbitration Act is not an independent source of federal jurisdiction.

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the Agreement is an ERISA plan and therefore the district court had subject matter
jurisdiction to enjoin Schieffer’s attempt to invoke preempted state law remedies.

In Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987), the Supreme Court
construed 29 U.S.C. § 1144(a) as not preempting a Maine statute that required
employers to provide one-time severance payments in the event of a plant closing.
The Court explained:

Congress intended pre-emption to afford employers the advantages of
a uniform set of administrative procedures governed by a single set of
regulations. This concern only arises, however, with respect to benefits
whose provision by nature requires an ongoing administrative program
to meet the employer’s obligation. It is for this reason that Congress
pre-empted state laws relating to plans, rather than simply to
benefits. . . . 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.

Id. at 11-12 (emphasis in original). In Kulinski v. Medtronic Bio-Medicus, Inc., 21
F.3d 254, 257 (8th Cir. 1994), we concluded that Fort Halifax “delineated the
standard to be applied” when determining whether an employer’s plan to provide
severance benefits to select employees “falls within ERISA’s ambit.”2 As we
subsequently explained in applying Kulinski’s ruling in Crews, 274 F.3d at 506:

When determining whether payments require an ongoing administrative
scheme, we consider whether the payments are one-time lump sum
payments or continuous payments, whether the employer undertook any
long-term obligation with respect to the payments, whether the

2
The analogy is imperfect because the Supreme Court in Fort Halifax had no
occasion to consider the purposes underlying ERISA remedial preemption -- to avoid
imposing non-uniform liabilities and remedies on plan administrators and fiduciaries
and the limited assets they administer on behalf of all beneficiaries.
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 severance payments come due upon the occurrence of a single, unique
event or any time that the employer terminates employees, and whether
the severance arrangement under review requires the employer to engage
in a case-by-case review of employees.

The district court applied this test in concluding that the Employment
Agreement is not an ERISA employee benefit plan. While we do not disagree with
the district court’s application of the Crews factors, we conclude that the analysis was
unnecessary. Kulinski and Crews involved employer severance benefits made
available to classes of employees. Here, on the other hand, the Employment
Agreement was an individually negotiated contract between DM&E as employer and
Schieffer, a single employee. Whether such a “one-person” contract may be an
ERISA plan is a question of first impression for this court.3

As relevant here, ERISA defines an “employee welfare benefit plan” as “any
plan, fund, or program . . . established or maintained by an employer . . . to the extent
that such plan, fund, or program was established or is maintained for the purposes of
providing for its participants or their beneficiaries . . . (B) any benefit described in
section 186(c) of this title [other than pension benefits].” 29 U.S.C. § 1002(1).
Although severance benefits are clearly among those described in § 186(c), the words
“plan” and “program” in § 1002(1) strongly imply benefits that an employer provides
to a class of employees. Even more significantly, the plain language of this statute --
the reference to “participants or their beneficiaries” -- reflects the congressional intent
that a covered “plan” is one that provides welfare benefits to more than one person.
See Metropolitan Stevedore Co. v. Rambo, 515 U.S. 291, 296 (1995) (“Ordinarily the

3
DM&E argues that the Agreement is a “top-hat” ERISA plan. “A so-called
‘top-hat’ plan is unfunded, provides ‘deferred compensation for a select group of
management or highly compensated employees,’ and is exempted from certain ERISA
requirements.” Emmenegger, 197 F.3d at 932 n.6, citing 29 U.S.C. §§ 1051(2),
1081(a)(3), and 1101(a)(1). “But a ‘top hat’ plan must be an ERISA ‘plan’ in the first
instance.” Id.
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legislature by use of a plural term intends a reference to more than one thing”)
(quotation and citations omitted). Although 1 U.S.C. § 1 provides that “unless the
context indicates otherwise . . . words importing the plural include the singular,” that
statute is only applied where “necessary to carry out the evident intent of the statute.”
First Nat’l Bank in St. Louis v. Missouri, 263 U.S. 640, 657 (1924). Here, Congress’s
use of the plural is evidence of its intent.

We recognize that several circuit court decisions have concluded that a contract
with a single employee to provide post-termination benefits may be a “one-person”
ERISA plan if it satisfies the “administrative scheme” criteria of Fort Halifax. See
Cvelbar v. CBI Illinois Inc., 106 F.3d 1368, 1376 (7th Cir. 1997) (cautioning that
“arrangements that involve a single employee [require] particularly careful scrutiny”);
Biggers v. Wittek Indus., 4 F.3d 291, 297 (4th Cir. 1993); Williams v. Wright, 927
F.2d 1540, 1545-47 (11th Cir. 1991). But the reasoning in these opinions was quite
perfunctory, and none considered the plain language of § 1002(1). Moreover, none
considered the broader context of this preemption issue. Congress in the National
Labor Relations Act broadly preempted state laws that interfere with multi-employee
collective bargaining, and in ERISA broadly preempted state laws that interfere with
multi-employee benefit plans. But Congress has never preempted state laws that
regulate and enforce individual employment contracts between employers and their
executives. That remains an important prerogative of the States, no matter how
complex a contract may be to administer. Neither the administrative nor the remedial
purposes of ERISA preemption apply to the resolution of contractual disputes
between an employer and a single, salaried employee. Considering ERISA’s statutory
language, purpose, and historical context, we conclude that an individual contract
providing severance benefits to a single executive employee is not an ERISA
employee welfare benefit plan within the meaning of 29 U.S.C. § 1002(1).4

4
Apparently, the U.S. Department of Labor has in the past taken inconsistent
positions on this issue. See Cvelbar, 106 F.3d at 1376. ERISA’s predecessor statute,
the Welfare and Pension Plans Disclosure Act, Pub. L. No. 85-836, § 4(b)(4), 72 Stat.
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 II.

Our determination that the Employment Agreement is not an ERISA plan does
not end the subject-matter-jurisdiction inquiry. ERISA preempts all state laws that
“relate to” an employee benefit plan. 29 U.S.C. § 1144(a). Though “relate to” has
generated many difficult interpretive issues, in general the Supreme Court gives it a
“broad common-sense meaning, such that a state law ‘relates to’ a benefit plan in the
normal sense of the phrase, if it has a connection with or reference to such a plan.”
Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47 (1987) (quotations omitted). Here,
further questions arise because the Employment Agreement included two provisions
that may “relate” the Agreement to other DM&E programs that are ERISA plans:

3. Compensation. Compensation shall include Bonus Shares and
the following three components:

* * * * *

(c) Employee Benefits. Executive shall be eligible to participate
in all employee health, welfare, and retirement benefit plans and
programs made available generally to senior executives of the
Company, and to the extent provided in such plans and programs,
the Executive’s spouse and other dependents shall be eligible to
participate therein. In the event the Executive is not permitted to
participate in such plans or programs, whether by law or the terms
thereof, the Company shall periodically pay the Executive, in lieu
of such participation, a cash payment equal to the amount the
Company would have contributed toward the Executive’s
participation in the plan or programs.

998-999 (1958), excluded plans covering less than 26 employees. Although ERISA
lifted this numerical limitation, had Congress intended to expand federal preemption
to include single-employee agreements, we believe it would have done so expressly.
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 5. Termination of Employment

In the event that either Party terminates the Executive’s
employment hereunder . . . . [t]he company shall continue to provide
Executive the Employee Benefits described section 3(c) of this
Agreement for a period of not less than three years from the date on
which the Severance Payment is paid in full . . . .

In October 2008, DM&E elected to pay Schieffer a lump-sum cash severance
payment pursuant to Section 5. Schieffer’s arbitration demand alleged that DM&E’s
lump-sum payment “breached its obligation to provide employee benefits under
[paragraphs 3(c) and 5 of] the Employment Agreement” by (a) terminating health
insurance coverage prematurely; (b) failing to pay life and disability insurance
coverage for the full period required by paragraph 5; (c) miscalculating retirement
benefits due; and (d) failing to pay “vacation accruals and banked vacation cash
compensation payable to terminated employees under the employment benefit
programs.” If these are demands for the payment of benefits under ERISA plans, as
amended by the Employment Agreement, then to that extent all state law remedies are
preempted and the district court has subject matter jurisdiction over portions of
DM&E’s complaint.5 On the other hand, if these are demands under a free-standing
single-employee contract that simply pegged DM&E’s payment obligations to
amounts that would have been due under ERISA plans, there is no preemption -- and
no subject matter jurisdiction. Compare Antolik v. Saks, Inc., 463 F.3d 796, 803 (8th
Cir. 2006), and Johnson v. U.S. Bancorp., 387 F.3d 939, 942 (8th Cir. 2004), with
Gresham v. Lumbermen’s Mut. Cas. Co., 404 F.3d 253, 259 (4th Cir. 2005), Eide v.
Grey Fox Tech. Servs. Corp., 329 F.3d 600, 607 (8th Cir. 2003), and Crews, 274 F.3d

5
The district court would also have discretionary supplemental jurisdiction over
DM&E’s remaining claims. For example, Schieffer’s demand included claims under
a 1994 Consulting Agreement and claims that may require interpretation of an
October 2007 “Gross-Up Agreement” designed to offset his excise tax liability.
While those agreements are not ERISA plans, the court’s supplemental jurisdiction
may include determining whether disputes under those agreements are arbitrable.
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at 505. As neither the parties nor the district court considered this jurisdictional issue,
we must remand.

For the foregoing reasons, the district court’s judgment of dismissal is vacated
and the case is remanded for further proceedings not inconsistent with this opinion.
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