[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
U.S. COURT OF APPEALS
___________________________ ELEVENTH CIRCUIT
APRIL 14, 2003
No. 02-14740 THOMAS K. KAHN
___________________________ CLERK
D.C. Docket No. 01-08027-CV-ZLOCH
ROBERT STERN,
Plaintiff-Appellant,
versus
INTERNATIONAL BUSINESS
MACHINES, (IBM), a New York
corporation,
Defendant-Appellee.
___________________________
Appeal from the United States District Court for the
Southern District of Florida
___________________________
(April 14, 2003)
Before HULL, MARCUS and FARRIS*, Circuit Judges.
FARRIS, Circuit Judge:
*
Honorable Jerome Farris, United States Circuit Judge for the Ninth Circuit, sitting by
designation.
Plaintiff Robert Stern, supported by amicus curiae the Secretary of Labor,
contends that this matter was improperly removed to federal court because his
employer’s sickness/accident program is exempted by regulation from being
considered a “welfare benefits plan” under the Employee Retirement Income
Security Act of 1974, 29 U.S.C. § 1001-1461. We agree. We vacate the summary
judgment order, reverse the order denying Stern’s motion to remand, and remand
with an instruction to return this case to the state court.
I
In 1999, Robert Stern, an IBM employee, injured his hand, which rendered
him unable to work. IBM has a “Sickness and Accident Income Plan,” which
provides up to 52 weeks of an employee’s “regular salary” when he is unable to
work due to sickness or an accident. The IBM Program defines “unable to work”
as “unable to perform the duties of the job you held at the time of your sickness or
accident, or the duties of any other job that IBM determines that your are capable
of performing.” IBM makes payments to employees who qualify for the program
out of the company’s general assets.
After IBM discontinued paying him Program benefits, Stern sued in state
court for breach of his employment agreement. IBM removed the case to the
2
federal district court, contending that the IBM Program is an ERISA “welfare
benefit plan.” IBM argued that because the Program constitutes an ERISA welfare
benefits plan, the Act preempts Stern’s state law action. IBM then moved to
dismiss the complaint for failure to state a claim under ERISA.
The district court denied Stern’s motion to remand. Without discussing
whether the Program constitutes a “payroll practice” specifically exempted from
ERISA by 29 C.F.R. § 2510.3-1(b)(2), the court found the IBM Program to be an
ERISA plan. It granted IBM’s motion to dismiss the state complaint and gave
Stern leave to file an amended complaint asserting claims under ERISA. The
court later found that IBM had not violated ERISA and granted summary
judgment in favor of IBM. Stern appeals the court’s denial of his motion to
remand and is supported by amicus curiae the Secretary of Labor. We review de
novo the orders denying Stern’s motion to remand to state court and granting
IBM’s motion for summary judgment. See Henson v. Ciba-Geigy Corp., 261 F.3d
1065, 1068 (11th Cir. 2001) (removal jurisdiction); Waddell v. Valley Forge
Dental Assoc., Inc., 276 F.3d 1275, 1279 (11th Cir. 2001) (summary judgment).
II
ERISA regulates “employee welfare benefit plans,” which include plans that
provide employees “benefits in the event of sickness, accident, [or] disability.” 29
3
U.S.C. § 1002(1). ERISA also broadly preempts state laws relating to any
employee benefit plan. 29 U.S.C. § 1144(a). However, the Secretary of Labor has
promulgated a regulation that excludes certain “payroll practices” from the
application of ERISA. That regulation provides that an “employee benefit welfare
plan” shall not include:
Payment of an employee’s normal compensation, out of the
employer’s general assets, on account of periods of time during which
the employee is physically or mentally unable to perform his or her
duties, or is otherwise absent for medical reasons . . . .
29 C.F.R. § 2510.3-1(b)(2). The sole legal question presented here—one not
considered by the district court—is whether IBM’s Program is a payroll practice
that is exempted from ERISA’s coverage.
Under 28 U.S.C. § 1441(a), subject to certain exceptions that are not
applicable here, “any civil action brought in a State court of which the district
courts of the United States have original jurisdiction[] may be removed by the
defendant” to federal court. In “federal question” cases such as the one at bar, the
“well-pleaded complaint rule” holds that a federal defense to a state law claim
generally is insufficient to satisfy the requirements of 28 U.S.C. § 1331. Instead,
the federal question must “necessarily appear[] in the plaintiff’s statement of his
own claim in the bill or declaration, unaided by anything alleged in anticipation of
4
avoidance of defenses which it is thought the defendant may interpose.”
Oklahoma Tax Comm’n v. Graham, 489 U.S. 838, 841 (1989); see also
Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987); Taylor v. Anderson, 234
U.S. 74, 75-76 (1914); Louisville & N.R. Co. v. Mottley, 211 U.S. 149, 152-54
(1908). As we have said in Whitt v. Sherman Int’l Corp., “a case does not arise
under federal law unless a federal question is presented on the face of the
plaintiff’s complaint.” 147 F.3d 1325, 1329 (11th Cir. 1998) (citing Kemp v. Int’l
Bus. Machs. Corp., 109F.3d 708, 712 (11th Cir. 1997)).
As binding as the “well-pleaded complaint rule” is, however, it permits an
extremely narrow exception in cases implicating the doctrine of complete
preemption. As we recently explained in Geddes v. Am. Airlines, Inc.:
Preemption is the power of federal law to displace state law
substantively. The federal preemptive power may be complete,
providing a basis for jurisdiction in the federal courts, or it may be
what has been called “ordinary preemption,” providing a substantive
defense to a state law action on the basis of federal law. More
specifically, ordinary preemption may be invoked in both state and
federal court as an affirmative defense to the allegations in a
plaintiff’s complaint. Such a defense asserts that the state claims
have been substantively displaced by federal law. Complete
preemption, on the other hand, is a doctrine distinct from ordinary
preemption. Rather than constituting a defense, it is a narrowly
drawn jurisdictional rule for assessing federal removal jurisdiction
when a complaint purports to raise only state law claims. It looks
beyond the complaint to determine if the suit is, in reality, purely a
creature of federal law, even if state law would provide a cause of
5
action in the absence of the federal law, thus creating the federal
question jurisdiction requisite to removal to federal courts.
321 F.3d 1349, 1352-53 (11th Cir. 2003) (internal punctuation and citations
omitted); see also Behlen v. Merrill Lynch, 311 F.3d 1087, 1090 (11th Cir. 2002)
(“Once an area of state law has been completely pre-empted, any claim
purportedly based on that pre-empted state law is considered, from its inception, a
federal claim, and therefore arises under federal law.”); Butero v. Royal
Maccabees Life Ins. Co., 174 F.3d 1207, 1211-12 (11th Cir. 1999) (describing the
doctrine of “complete” or “super preemption”); Whitt, 147 F.3d at 1329-30 (same).
Although the doctrine of complete preemption is extremely limited, and has
been found by the Supreme Court to exist in only two substantive contexts, one of
these is section 502 of ERISA, 29 U.S.C. § 1132(a). See Metropolitan Life Ins.
Co. v. Taylor, 481 U.S. 58, 67 (1987) (“[T]his [ERISA] suit, though it purports to
raise only state law claims, is necessarily federal in character by virtue of the
clearly manifested intent of Congress.”); Anderson v. H & R Block, Inc., 287 F.3d
1038, 1042 (11th Cir. 2002). Accordingly, if Stern “is seeking relief that is
available under 29 U.S.C. § 1132(a),” then the district court was correct to
“recharacterize [his] claim as an ERISA claim, and removal jurisdiction exist[ed].”
Whitt, 147 F.3d at 1330. “Conversely, if [Stern] is not seeking relief that is
6
available under section 1132(a), no federal question jurisdiction exist[ed] and the
district court erred by asserting jurisdiction over this action. Id.
The IBM Program fits within the express terms of the Secretary’s payroll
practices regulation. It pays out of IBM’s general assets an employee’s normal
compensation during periods when the employee is physically or mentally unable
to work. The Secretary is specifically authorized to define ERISA’s “accounting,
technical and trade terms,” 29 U.S.C. § 1135, and her reasonable views are given
deference by the courts. See Chevron U.S.A., Inc. v. Natural Res. Def. Council,
Inc., 467 U.S. 837, 843 (1984). The Secretary contends that the IBM Program is
covered by the payroll practices regulation, a view consistent with numerous
advisory opinions on sick leave and disability plans analogous to the IBM
Program. See Department of Labor Advisory Opinion 93-27A (Oct. 12, 1993);
Department of Labor Advisory Opinion 93-20A (July 16, 1993); Department of
Labor Advisory Opinion 93-02A (Jan. 12, 1993); Department of Labor Advisory
Opinion 92-18A (Sept. 30, 1992). Although such opinion letters are not binding,
the views of the agency entrusted with interpreting and enforcing ERISA carry
considerable weight. See Williams v. Wright, 927 F.2d 1540, 1545 (11th Cir.
1991). Put bluntly, for IBM to prevail, it must show the Secretary’s application of
7
the payroll practices regulation to the Program to be unreasonable.1 See, e.g.,
Massachusetts v. Morash, 490 U.S. 107, 120-21 (1989) (“It is sufficient for this
case that the Secretary’s determination that a single employer’s administration of a
vacation pay policy from its general assets does not possess the characteristics of a
welfare benefit plan constitutes a reasonable construction of the statute.”) This
IBM cannot do.
The Supreme Court has discussed the primary purpose of ERISA:
In enacting ERISA, Congress’ primary concern was with the
mismanagement of funds accumulated to finance employee benefits
and the failure to pay employees benefits from accumulated funds.
To that end, it established extensive reporting, disclosure, and
fiduciary requirements to insure against the possibility that the
employee’s expectation of the benefit would be defeated through poor
management by the plan administrator. Because ordinary vacation
payments are typically fixed, due at known times, and do not depend
on contingencies outside the employee’s control, they present none of
the risks that ERISA is intended to address. If there is a danger of
defeated expectations, it is no different from the danger of defeated
expectations of wages for services performed—a danger Congress
chose not to regulate in ERISA.
Morash, 490 U.S. at 115 (internal citation omitted). Every decision to interpret
the payroll practices regulation since Morash supports the application of § 2510.3-
1(b) to IBM’s Program. In Alaska Airlines, Inc. v. Oregon Bureau of Labor, 122
1
IBM challenges the Secretary’s interpretation of the payroll practices regulation but not
the Secretary’s authority to promulgate it.
8
F.3d 812, 815 (9th Cir. 1997), the Ninth Circuit held that an employer’s payment
of sick leave to its employees, out of the general assets of the corporation,
constituted an exempted “payroll practice” rather than an employee welfare benefit
plan covered by ERISA. See also Funkhouser v. Wells Fargo Bank, N.A., 289
F.3d 1137, 1142 (9th Cir. 2002) (finding sick and vacation policies paid from
general assets to be payroll practices). In McMahon v. Digital Equip. Corp., 162
F.3d 28 (1998), the First Circuit determined that a program that paid an
employee’s salary while he was disabled was an ERISA plan, but only because it
was partially funded from sources outside of the employer’s general assets.
“Where an employer pays occasional, temporary benefits from its general assets,
there is no benefits fund to abuse or mismanage and no special risk of loss or
nonpayment of benefits.” Id. at 36. In Capriccioso v. Henry Ford Health Sys.,
No. 99-1369, 2000 WL 1033030, at *2 (6th Cir. July 17, 2000) (unpublished), the
Sixth Circuit found that a program that paid full salary to disabled employees was
a payroll practice because the salary was paid out of the employer’s general assets.
See also Shea v. Wells Fargo Armored Serv. Corp., 810 F.2d 372, 376 (2d Cir.
1987) (holding, in pre-Morash case, “that from the payment of traditional sick
leave and vacation wages out of an employer’s general operating assets, there do
not arise the evils Congress intended to address”) (internal quotation omitted).
9
The district court found ERISA coverage by relying on a cursory citation to
Donovan v. Dillingham, 688 F.2d 1367 (11th Cir. 1982) (en banc), but that case
does not support IBM’s position in light of the clear applicability of the payroll
practices regulation. In Donovan, this court prescribed general guidelines for
resolving the threshold question about the existence of an ERISA plan: “[A] ‘plan,
fund, or program’ under ERISA is established if from the surrounding
circumstances a reasonable person can ascertain the intended benefits, a class of
beneficiaries, the source of financing, and procedures for receiving benefits.” Id.
at 1373. Donovan provides a useful framework for examining, in light of all
circumstances, whether an ERISA plan exists when that question is in doubt.
However, neither Donovan nor its progeny address the issue here, when a program
would clearly qualify as an ERISA plan but for its specific exemption by a
reasonably justified regulation.
For this reason, IBM’s reliance on Whitt v. Sherman Int’l Corp., 147 F.3d
1325 (11th Cir. 1998), and Williams, 927 F.2d at 11544-45, is unavailing. IBM
argues that these cases noted that “payment of benefits out of an employer’s
general assets does not affect the threshold question of ERISA coverage.” Whitt,
147 F.3d at 1330. However, Whitt focused on the point at which beneficiaries
could have determined their rights, not on the source of funding or an explicit
10
regulatory exclusion. Similarly, although the Williams court found that an
employer cannot circumvent ERISA by paying from its general assets that which
the statute requires be paid from a separate trust, Williams, 927 F.2d at 1544, the
court did not conclude that the payment of benefits from general assets is never
relevant to the question of whether an ERISA plan exists, and did not discuss the
payroll practices exemption.
IBM argues that the Program provides more than “traditional sick leave,”
but fails to offer a persuasive reason for why the Program’s terms do not fit
comfortably within the payroll practices regulation. According to IBM, Morash
stands for the proposition that ERISA coverage would exist for otherwise
exempted practices where “either the employee’s right to a benefit is contingent
upon some future occurrence or the employee bears a risk different from his
ordinary employment risk.” Morash, 490 U.S. at 116. First, this conflates rule
and exception. The question is whether the exception applies, not whether there is
an exception to the exception that would allow the general rule to apply again.
Second, as the Secretary of Labor notes, IBM’s definition of “contingency” would
mean that the inclusion of “sick leave” in the payroll practices regulation is
essentially meaningless. All sick leave policies are “contingent” on an employee’s
inability to work for some medical reason. See Shea, 810 F.2d at 376 (holding that
11
sick leave policy was a payroll practice in part because the employer paid the
leave “without additional conditions or contingencies of any kind”). In Morash,
the Court was not making a broad statement about what constitute
“contingencies”; it was contrasting severance payments (contingent upon
termination, and not explicitly covered by the payroll practices regulation) with
vacation pay benefits (not contingent upon a future event, and explicitly covered
by the regulation). See Morash, 490 U.S. at 115-16.
For the first time on appeal, IBM asserts that it annually files Form 5500
with the Department of Labor and the IRS identifying the Program as an ERISA
plan. IBM offers no supporting documentation and the plaintiff strongly contests
this assertion. The way in which an employer characterizes its plan may be one
factor, among others, in determining ERISA coverage. See, e.g., Whitt, 147 F.3d
at 1331 (“[A]lthough not dispositive of the issue, we note that [the employer]
never made an ERISA filing with the federal government . . . until after [the
employee] was fired.”). Nevertheless, even if IBM has treated the Program as an
ERISA plan with respect to government filings, its mere labeling of the plan
should not determine whether ERISA applies. See McMahon, 162 F.3d at 38.
Allowing this could lead to a form of “regulation shopping.” Id. Where, as here,
an employer pays an employee’s normal compensation for periods of mental or
12
physical disability entirely from its general assets, the program constitutes an
exempted payroll practice under 29 C.F.R. § 2510.3-1(b) and not an ERISA plan.
A defendant may remove a case to federal court only if the district court
would have had jurisdiction over the case had the case been brought there
originally. 28 U.S.C. § 1441. Because the IBM Program is exempted by
regulation from ERISA, the doctrine of complete preemption is inapplicable and
no federal question jurisdiction exists, see Kemp v. Int’l Bus. Machs. Corp., 109
F.3d 708, 712 (11th Cir. 1997), and removal to federal court was improper.
III
We VACATE the order granting summary judgment to the defendant,
REVERSE the order denying plaintiff’s motion to remand, and REMAND with an
instruction to return this case to the state court.
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Robert Stern v. International Business Machines (IBM), a New York Corporation
Court: Court of Appeals for the Eleventh Circuit
Date filed: 2003-04-14
Citations: 326 F.3d 1367
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