Grey v. Forescout Technologies, Inc.

• Court: District Court, N.D. California
• Decided: March 16, 2022
• Docket: 5:21-cv-04555
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 SAN JOSE DIVISION 7 8 HOLLY GREY, Case No. 5:21-cv-04555-EJD

9 Plaintiff, ORDER GRANTING MOTION TO REMAND 10 v.

11 FORESCOUT TECHNOLOGIES, INC., Re: Dkt. Nos. 17, 18, 23 Defendant. 12

13 On April 23, 2021, Plaintiff Holly Grey filed suit in the Superior Court of the State of 14 California, County of Santa Clara, alleging breach of contract and violations of California Labor 15 Code. See Complaint (“Compl.”), Dkt No. 1, Ex. A. Defendant Forescout Technologies, Inc. 16 (“Forescout”) removed the action from state court to federal court. See Dkt. No. 1. Plaintiff seeks 17 to remand the action back to the Santa Clara County Superior Court. See Plaintiff’s Memorandum 18 of Law in Support of Motion to Remand (“Mot. to Remand”), Dkt. No. 18. On July 13, 2021, 19 Defendant filed an opposition to Plaintiff’s motion to remand, to which Plaintiff filed a reply. See 20 Opposition to Plaintiff’s Motion to Remand (“Opp. re Remand”), Dkt. No. 21; Reply Brief in 21 Support of Plaintiff’s Motion to Remand (“Reply re Remand”), Dkt. No. 22. For the foregoing 22 reasons, the Court GRANTS Plaintiff’s motion to remand.1 23 I. BACKGROUND 24 Plaintiff joined Forescout in November 2013 as its Vice President of Finance, after which 25 she was promoted to Senior Vice President of Finance. Compl. ¶ 5. During 2017, Forescout 26

27 1 On November 22, 2021, the Court found this motion appropriate for decision without oral argument pursuant to Civil Local Rule 7-1(b). See Dkt. No. 27. 1 began working toward an initial public offering and it was anticipated that another entity would 2 acquire a controlling interest in Forescout. Compl. ¶ 7. To give its management employees job 3 security and encourage them to remain with the company in the event of such an acquisition, 4 Forescout offered members of its management group certain change of control severance benefits 5 that would trigger under certain circumstances. Compl. ¶ 7. On or about June 23, 2017, Forescout 6 offered Plaintiff an amendment to her Employment Offer that provided for such change of control 7 severance benefits (the “Change of Control Amendment”). Compl. ¶ 7. Plaintiff accepted this 8 amendment. 9 Under the Change of Control Amendment if a change in ownership of Forescout occurred, 10 Plaintiff would be entitled to severance compensation and acceleration of her unvested awards if 11 she was terminated without “cause” or if she terminated her own employment for “Good Reason.” 12 Compl. ¶ 8. Specifically, the Change of Control Amendment provided:

13 ln addition, during the Change of Control Period, you will receive (1) a cash severance payment equal to 100% of your then-current base 14 salary plus 100% of your target annual incentive compensation and (2) a lump sum cash amount equal to the product of 12 months, 15 multiplied by the monthly premium pursuant to COBRA, that you would be required to pay to continue the group health coverage in 16 effect on the date of your termination for [ ] you and any of your eligible dependents (which amount will be based on the premium for 17 the first month of COBRA coverage) if (a) the Company is subject to a Change of Control of the Company before your service with the 18 Company terminates and (b) you are subject to a termination without cause or terminate your own employment for Good Reason; 19 In addition, during the Change of Control Period, 100% of the 20 unvested portion of all of your equity awards shall immediately accelerate and become fully exercisable or non-forfeitable as of the 21 date of your termination if (a) the Company is subject to a Change of Control before your service with the Company terminates and (b) you 22 are subject to a termination without cause or terminate your own employment for Good Reason. For purposes of the foregoing, to the 23 extent that any equity award was eligible to vest in full or in part based on performance, the performance component shall be deemed to have 24 been achieved at target and; in addition, if any equity award will not continue through assumption or substitution after the Change of 25 Control, such award will be fully vested immediately prior to the Change of Control. 26 See Compl., Ex. 2. 27 1 Among the definitions set forth in the Change of Control Amendment, “Good Reason” was 2 specifically defined as:

3 Good Reason. For the purpose of this offer of employment, “Good Reason” shall mean the occurrence of any of the following events, 4 without your written consent:

5 (a) a material reduction of your base salary;

6 (b) a material reduction of your target cash incentive opportunity as set forth herein or as increased during the course of your employment 7 with the Company;

8 (c) a material reduction in your duties, authority, reporting relationship or responsibilities; 9 (d) a requirement that you relocate to a location more than fifty (50) 10 miles from your then-current office location;

11 (e) a material violation by the Company of a material term of any employment, severance or change of control agreement between you 12 and the Company; or

13 (f) a failure by any successor entity to the Company to assume the terms of this offer of employment. 14 A termination by you for Good Reason will not be deemed to have 15 occurred unless you give the Company written notice of the condition within ninety (90) days after the condition comes into existence, the 16 Company fails to remedy the condition within thirty (30) days after receiving the written notice (the "Cure Period"), and you terminate 17 your employment with the Company within ninety (90) days following the expiration of the Cure Period. 18 See Compl., Ex. 2. 19 The Parties agree that a “Change of Control” event occurred when Forescout was acquired 20 by Advent International (“Advent”) on or about August 17, 2020. Compl. ¶ 10. Prior to the 21 acquisition by Advent, Forescout was a publicly traded corporation, listed on the Nasdaq stock 22 exchange. Compl. ¶ 11. After the acquisition, Forescout was de-listed and became a privately 23 held corporation. Compl. ¶ 11. Plaintiff alleges that the change in ownership resulted in a 24 “material reduction in duties” and thus constituted “Good Reason” for Plaintiff to terminate her 25 own employment and trigger the severance and benefits under the Change of Control Amendment. 26 Compl. ¶ 11 (alleging that Plaintiff experienced a decrease in responsibilities following the change 27 1 of control). Plaintiff provided Forescout with written notice of the conditions of employment that, 2 in her mind, constituted a change in employment within the 30-day notice period. Compl. ¶ 12. 3 However, Forescout disagreed with Plaintiff that there were circumstances giving rise to a change 4 in conditions. Compl. ¶ 15. Subsequently, Plaintiff submitted her resignation on or about October 5 14, 2020, and terminated her employment. Compl. ¶ 18. Thereafter, Forescout refused to pay 6 Plaintiff the cash severance payment provided by the Change of Control Amendment and refused 7 to accelerate the vesting of Plaintiff’s equity awards. Compl. ¶ 19. 8 On April 2023, 2021, Plaintiff sued Forescout in Santa Clara County Superior Court to 9 recover severance benefits owed to her under the Change of Control Amendment. Plaintiff asserts 10 six causes of action, all based on the Change of Control Amendment: (1) violation of Cal. Labor 11 Code §§ 201–203 for “wages wrongfully withheld,” Compl. ¶¶ 20–25; (2) violation of Cal. Labor 12 Code § 221 for “unlawful wage forfeiture,” Compl. ¶¶ 26–31; (3) breach of contract, Compl. 13 ¶¶ 32–37; (4) breach of the covenant of good faith and fair dealing, Compl. ¶¶ 38–42; and (5) 14 conversion, Compl. ¶¶ 43–46. Plaintiff also seeks a declaratory judgment that, among other 15 things, her resignation was for “Good Reason.” Compl. ¶¶ 47–50. 16 On June 14, 2021, Forescout removed this action to this Court based on federal question 17 jurisdiction. Forescout argues the severance plan, which benefits not only Plaintiff but also other 18 upper-level managers, requires an ongoing administrative scheme to administer and is thus 19 governed by the Employee Retirement Income Security Act of 1974 (“ERISA”). Forescout argues 20 that ERISA completely preempts Plaintiff’s state-law causes of action. 21 II. LEGAL STANDARD 22 28 U.S.C. § 1447(c) provides,“If at any time before final judgment it appears that the 23 district court lacks subject matter jurisdiction, the case shall be remanded.” The party seeking 24 removal bears the burden of establishing jurisdiction. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th 25 Cir. 1992). The Court strictly construes the removal statute against removal jurisdiction. Id. 26 Federal jurisdiction must be rejected if there is any doubt as to the right of removal in the first 27 instance. Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1064 (9th Cir. 1979). Indeed, 1 federal courts are “particularly skeptical of cases removed from state court.” Warner v. Select 2 Portfolio Servicing, 193 F. Supp. 3d 1132, 1134 (C.D. Cal. 2016) (citing Gaus, 980 F.2d at 566). 3 “If at any time before final judgment it appears that the district court lacks subject matter 4 jurisdiction, the case shall be remanded.” 28 U.S.C. § 1447(c). 5 III. DISCUSSION 6 ERISA preemption allows lawsuits involving employee benefit plans to be removed to 7 federal court. See 29 U.S.C. § 1144(a). Because ERISA preemption is the sole basis of federal 8 jurisdiction, this Court must decide whether the “Change of Control” Amendment is an “employee 9 benefit plan” within the meaning of 29 U.S.C. § 1003(a). If ERISA applies, the Court will have 10 subject-matter jurisdiction and remand must be denied. However, if ERISA does not apply, the 11 Court must remand this action for lack of subject-matter jurisdiction. The question the Court must 12 answer is whether the plan in question “‘require[s] an administrative scheme’ because ‘the 13 circumstances of each employee’s termination [have to be] analyzed in light of [certain] criteria.’” 14 Bogue, 976 F.2d at 1323 (quoting Fontenot v. NL Indus., Inc., 953 F.2d 960, 962–63 (5th Cir. 15 1992)). 16 ERISA preemption is “notoriously broad,” but it is not unlimited. Several recent cases 17 have held that it has “reasonable limits.” See Bogue v. Ampex Corp., 976 F.2d 1319, 1322 (9th 18 Cir. 1992). For example, in Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1 (1987), the 19 Supreme Court held that ERISA did not preempt a state plant-closure law that provided for a lump 20 sum severance payment, triggered by a single event that may never occur. Such a law “simply 21 creates no need for an ongoing administrative program for processing claims and paying benefits.” 22 Fort Halifax, 428 U.S. at 12. Plaintiff contends that the Change of Control Amendment should be 23 similarly exempt from ERISA preemption. She points out that the Amendment had a very short 24 term (15 months); it applied only contingently, if a change of control occurred, and if the 25 employee were terminated without cause or self-terminated for Good Reason; and it applies to a 26 small group of employees. Forescout contends that the program requires the sort of discretionary 27 decision-making by an administrator that is the hallmark of an ERISA plan. The Court disagrees. 1 The Change of Control Amendment, like the statute at issue in Fort Halifax, neither 2 establishes, nor requires an employer to maintain, an employee benefit plan. The Amendment 3 does not require Forescout to “assume[] . . . responsibility to pay benefits on a regular basis” and 4 thus it creates “no periodic demands on [Forescout’s] assets that create a need for financial 5 coordination and control.” Id. Rather, Forescout’s obligation is predicated on the occurrence of a 6 single contingency (termination) that could have never materialized. Like Fort Halifax, once the 7 benefit arises, satisfaction of the benefit requires “only making a single set of payments.” Id. “To 8 do little more than write a check hardly constitutes the operation of a benefit plan.” Id. Indeed, 9 once the single payment is over, Forescout has no further responsibility and so the possibility of a 10 one-time obligation “creates no need for an ongoing administrative program for processing claims 11 and paying benefits.” Id. 12 This point is underscored by comparing the consequences of the Change of Control 13 Amendment with Bogue. Bogue involved a program whereby an employer would provide certain 14 executives severance benefits in the event the employees were not offered “substantially 15 equivalent employment” once the employer was sold to another company. 976 F.2d at 1321. The 16 program designated the buying company as the entity that would determine whether the 17 employment offered to any given executive was substantially equivalent to the position the 18 executive previously held. Id. Even though the plan was triggered by a single event, that event 19 would occur more than once, at different times for each employee, and required the program 20 administrator to make a “case-by-case discretionary application of” the program’s terms. Id. at 21 1323. Thus, because there was no way to administer the program without an administrative 22 scheme, an ERISA plan existed. Id. 23 The Ninth Circuit later clarified Bogue’s requirement of discretion in a case where 24 severance benefits depended on whether the employee was terminated “for cause”:

25 Here, as in Delaye [v. Agripac, Inc., 39 F.3d 235 (9th Cir.1994)], the employer was simply required to make a single arithmetical 26 calculation to determine the amount of the severance benefits. While in both cases, a “for cause” termination would change the benefits due 27 to the employee, the Delaye court did not deem this minimal quantum of discretion sufficient to turn a severance agreement into an ERISA 1 plan. Contrary to PACE’s assertions, the key to our holding in Bogue was that there was “enough ongoing, particularized, administrative 2 discretionary analysis,” 976 F.2d at 1323 (emphasis added), to make the plan an “ongoing administrative scheme,” not that the agreement 3 simply required some modicum of discretion. The level of discretion, if any, which PACE was required to exercise in implementing the 4 agreement was slight. It failed to rise to the level of ongoing particularized discretion required to transform a simple severance 5 agreement into an ERISA employee benefits plan. 6 Velarde v. PACE Membership Warehouse, Inc., 105 F.3d 1313, 1316 (9th Cir. 1997).2 7 Against this backdrop, the Court must conclude that the Change of Control Amendment 8 does not constitute an ERISA plan, but rather is an employment contract arrangement governed by 9 state law. First, under the terms of the plan, and in contrast to the plan at issue in Bogue, the 10 Change of Control Amendment does not assign an administrator the task of determining whether 11 “Good Reason” exists. Instead, it seems to place the burden on the employee to determine 12 whether “Good Reason” for termination exists. See Compl., Ex. 2 (allowing the employee to 13 terminate employment if employer does not cure the identified problem). Second, the amount and 14 duration of payments are fixed, and the amount does not depend on a discretionary decision. 15 Likewise, the deferred compensation agreements do not reference administrative procedures that 16 must be followed. Third, because the Change of Control Amendment defines what constitutes 17 “Good Reason,” the determination is more like the “for cause” term in the Velarde employment 18 contract than the “substantially equivalent employment” term in the Bogue ERISA plan. The level 19 of discretion, if any, which Forescout was required to exercise in implementing the agreement was 20 slight and fails to rise to the level of ongoing, particularized discretion required to transform a 21 severance agreement into an ERISA employee benefits program. Finally, even if the triggering 22 events here are like the ones at issue in Bogue in that they “would occur more than once, at a 23 different time for each employee,” 976 F.2d at 1323, and different from the one in Fort Halifax in 24

25 2 The Court is troubled that Velarde was not discussed in Forescout’s brief during its discussion of Bogue. Velarde analyzes a severance agreement that included mandatory benefits unless an 26 employee was terminated for cause. This is a case that analyzes Bogue’s limitations and offers analysis as to why the Change of Control Amendment is not an ERISA plan. The Court reminds 27 counsel of its duty to disclose to the tribunal legal authority known to counsel to be directly adverse to the position of its client. Cal. Rule of Prof’l Conduct 3-3. 1 that the triggering event may never occur, 482 U.S. at 12, the events do not require significant, 2 || particularized, and ongoing discretion as the events can be easily ascertained. 3 As in Velarde, the Change of Control Amendment is not a “plan” for purposes of ERISA 4 || preemption because it necessitates no “ongoing administrative scheme.” To qualify for severance, 5 || Plaintiff only needed to provide “Good Reason” as defined by the Amendment. Because the 6 || Change of Control Amendment is not a “plan” for purposes of ERISA, this Court lacks subject- 7 || matter jurisdiction and must remand the action pursuant to 28 U.S.C. § 1447(c). 8 IV. CONCLUSION 9 For the foregoing reasons, the Court GRANTS Plaintiff's motion to remand. The Clerk is 10 || DIRECTED to REMAND this case to the Santa Clara County Superior Court and close the file.? 11 IT IS SO ORDERED. a 12 Dated: March 16, 2022 EDWARD J. DAVILA 15 United States District Judge 16

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4 18 19 20 21 22 23 24 25 26 || 3? Because the Court GRANTS Plaintiff's motion to remand, it TERMINATES Forescout’s motion to dismiss, Dkt. No. 18. Additionally, because the Court did not rely on the portion of 27 Plaintiffs reply that Forescout objects to in its administrative motion for court approval to file a sur-reply, the Court DENIES Forescout’s motion to file a sur-reply, Dkt. No. 23. 28 || Case No.: 5:21-cv-04555-EJD ORDER GRANTING MOTION TO REMAND