Lund and Claps v. Citizens, et al.

• Court: District Court, D. New Hampshire
• Decided: March 5, 1998
• Docket: CV-97-183-M
• Status: Published

Opinion

Lund and Claps v. Citizens, et al. CV-97-183-M 03/05/98 UNITED STATES DISTRICT COURT

DISTRICT OF NEW HAMPSHIRE

Richard Lund and John L. Claps

v. Civil No. 97-183-M

Citizens Financial Group, Inc. and Citizens Bank New Hampshire

O R D E R

Plaintiffs brought an action in state court to establish

their rights to benefits under a Supplemental Executive

Retirement Plan ("SERP") provided by their former employer. First

New Hampshire Bank. The suit was removed to this court by

defendants, successors to First New Hampshire Bank. Defendants

have filed a motion to dismiss plaintiffs' state law claims, and

their claim for breach of fiduciary duty, asserting federal

preemption under the Employee Retirement Income Security Act

("ERISA"). In response, plaintiffs contend that the SERP is

exempt from ERISA governance and move to remand the case to state

court. For the reasons that follow, each party's motion is

denied without prejudice.

Discussion

A motion to dismiss under Federal Rule of Civil Procedure

12(b)(6) is one of limited inguiry, focusing not on "whether a

plaintiff will ultimately prevail but whether the claimant is

entitled to offer evidence to support the claims." Scheuer v.

Rhodes, 416 U.S. 232, 236 (1974). In considering a motion to dismiss, the court accepts all well-pleaded facts as true and

resolves all reasonable inferences in favor of the nonmoving

party. Washington Legal Found, v. Massachusetts Bar Found. , 993

F.2d 962, 971 (1st Cir. 1993). Documents that are attached to a

complaint may be considered as part of the pleadings in deciding

a motion to dismiss. See Watterson v. Page, 987 F.2d 1, 3-4 (1st

Cir. 1993). "[I]f, under any theory, the allegations are

sufficient to state a cause of action in accordance with the law,

we must deny the motion to dismiss." Vartanian v. Monsanto Co.,

14 F.3d 697, 700 (1st cir. 1994). In considering a motion to

remand, the removing party bears the burden of showing federal

jurisdiction. BIW Deceived v. Local S6, Industrial Union of

Marine and Shipbuilding Workers, 132 F.3d 824, 830 (1st Cir.

1997) .

In this case, resolution of the pending motions depends on

interpretation of the SERP in light of the exemption statutes to

determine whether the defendants' SERP is excluded from the broad

applicability of ERISA to employee benefit plans. Plaintiffs

contend that the SERP is not governed by ERISA due to the

exemption for unfunded excess benefits plans found at 29 U.S.C.A.

§ 1003(b)(5) and § 1002(36). Defendants argue that the SERP is

not exempt from ERISA coverage, but instead is a covered "top

hat" plan, that is, a plan exempted only from ERISA's fiduciary

reguirements pursuant to 29 U.S.C.A. § 1101(a) (1). Otherwise,

defendants assert that ERISA completely preempts plaintiffs'

state law claims for benefits related to the SERP.

2 To be exempt from ERISA governance as an excess benefit

plan, the plan must be unfunded and must meet the statutory

definition of an excess benefit plan. 29 U.S.C.A. § 1003(b) (5) .

An excess benefit plan is defined, in pertinent part, as follows:

a plan maintained by an employer solely for the purpose of providing benefits for certain employees in excees of the limitations on contributions and benefits imposed by section 415 of Title 26 . . . . To the extent that a separable part of a plan (as determined by the Secretary of Labor) maintained by an employer is maintained for such purpose, that part shall be treated as a separate plan which is an excess benefit plan.

29 U.S.C.A. § 1002(36). Section 415 imposes limits on benefits.1

When the employer's plan expressly references section 415 and

states that its sole purpose is to provide benefits in excess of

the limitations set out in section 415, the plan, on its face, is

exempt from ERISA reguirements. See Gamble v. Group

Hospitalization and Med. Serv., Inc., 38 F.3d 126, 129 (4th Cir.

1994). When, however, the plan is not plainly exempt on its

face, it becomes necessary to examine its terms and operation to

determine whether, in practice, — the plan is maintained "solely"

to provide benefits in excess of those permitted in plans

1 Section 415(b) provides the general limitation:

(b) Limitation for defined benefit plans.--

(1) In general.--Benefits with respect to a participant exceed the limitation of this subsection if, when expressed as an annual benefit (within the meaning of paragraph (2)), such annual benefit is greater than the lesser of-- (A) $90,000, or (B) 100 percent of the participant's average compensation for his high 3 years.

3 qualified under section 415. See, e.g., Petkus v. Chicago

Rawhide Mfg. Co., 763 F. Supp. 357 (N.D. 111. 1991); but see

Northwestern Mut. Life v. Resolution Trust Corp., 84 8 F. Supp.

1515, 1519 (N.D. Ala. 1994).

The parties agree that the defendants' SERP is unfunded.

The SERP's purpose is expressed in its preamble as follows: "The

primary objective of this non-qualifled supplemental retirement

plan is to provide those designated Executives a higher level of

retirement benefits than otherwise permitted pension plans

qualifed under Section 401(a) of the Internal Revenue Code of

1986, as amended." (Emphasis added.) Thus, the SERP's stated

objective does not conclusively resolve whether it is maintained

"solely for the purpose of providing benefits for certain

employees in excess of the limitations on contributions and

benefits imposed by section 415 of Title 26" as required by

section 1002(36). (Emphasis added.)

"Solely," in the context of section 1002(36), is best

understood to apply to the purpose of the benefit plan, rather

than to an employer's particular intent in offering the plan to

its employees. Thus, to be exempt from ERISA governance, the

SERP must provide benefits only in excess of those permitted

under section 415 — that is, benefits that supplement the maximum

benefits allowed under section 415. If any benefits may be paid

that are within the limitations of section 415, to that extent at

least, the plan is governed by ERISA. If the excess benefits

part of the plan is not separable from the qualified benefits

4 part, the entire SERP is governed by ERISA. See, e.g., Farr v.

U.S. West, Inc., 815 F. Supp. 1360, 1362-63 (D. Or. 1992), rev'd

on other grounds, 58 F.3d 1361 (9th Cir. 1995) .

In this case, the SERP specifically references section

401(a) of the Internal Revenue Code, rather than section 415.

Section 401(a) includes, explicitly, limitations imposed under

section 415, see section 401(a) (16), but also imposes other

limitations, such as the compensation limitation found in section

401(a) (17). Because section 401(a) includes section 415

limitations, the additional limitations imposed by section 401(a)

do not necessarily defeat the "solely" requirement of section

1002(36), so long as the plan does not offer and will not permit

claims for benefits that do not exceed section 415 limits. See

Petkus, 763 F. Supp. at 359 (considering only "whether this case

could result in a claim for benefits other than any benefits that

may be paid in excess of the Section 415 limitations."); but see

Gamble, 38 F.3d at 129-31 (considering whether plan intended to

provide benefits in excess of state and federal limitations in

addition to section 415) .

_____ As discussed at the hearing, it remains unclear whether the

SERP could provide benefits that are not in excess of the limits

imposed by section 415. The SERP does not state, on its face,

that a participant is entitled to a supplemental benefit only if

the qualified benefit first meets the section 415 limits. Based

on its own terms, therefore, the SERP does not preclude claims

for qualified benefits, that is, those that are less than the

5 lesser of 100% of the employee's salary or $90,000. For example,

if a participant's average salary at retirement was $80,000 and

he or she was entitled to 50%, $40,000, as the qualified benefit,

that qualified benefit would obviously be far less than the

maximum allowable benefit under section 415. The SERP benefit

would be $8,000 less social security. The combined benefit would

be only $48,000, less social security, which is not in excess of

the section 415 limitation. Thus, a claim by a SERP participant

in the hypothetical case described would indeed be governed by

ERISA. It would seem that to provide an excess SERP benefit,

participants qualified under the SERP would have to have earned

an average compensation greater than $150,000. Since the SERP is

primarily intended to provide a higher level of retirement

benefits than would be possible under the limitations imposed by

section 401(a) , it is intended to provide benefits to employees

with annual compensation greater than $150,000. 26 U.S.C.A. §

401 (a) (17) (A) .

The complaint2 does not contain specific financial

allegations with respect to the individual qualified participants

in the SERP, nor does it provide information about benefits to be

paid under the qualified benefit plan. Unfortunately, the

parties have not provided sufficient information to explain the

2 Although the SERP document appended to the complaint states that it is intended to be exempt from ERISA requirements and to be governed by New Hampshire law, the plan is only exempt if it meets the definition of an excess benefit plan under section 1002(36) notwithstanding desires or intentions expressed in the plan.

6 operation of the benefit program. Because the SERP states that

its "primary objective" is to provide benefits in excess of

section 401(a), but does not by its terms limit itself solely to

providing excess benefits, it may be possible that a claim could

arise under the SERP for benefits that are not in excess of those

allowed under section 415. Thus, it is not clear on this record

or from counsel's argument that the SERP is an excess benefit

plan, as defined by section 1002 (36) .

Therefore, on the record presented here, it cannot be

determined conclusively whether plaintiffs' state law claims

relate to an ERISA-governed plan and are therefore preempted by

ERISA, the asserted basis for federal jurisdiction. Defendants

have not suggested any other basis for federal jurisdiction, and

the allegations in plaintiffs' amended complaint seem to

establish the absence of complete diversity of citizenship.

Thus, at this point, defendants have not carried their burden to

show that federal subject matter jurisdiction exists. See BIW

Deceived, 132 F.3d at 830.

Ordinarily, it might be appropriate to remand the case at

this point. 29 U.S.C.A. 1447(c); see Wilbert v. UNUM Life Ins.

C o ., 981 F. Supp. 61, 62 (D.R.I. 1997) ("A court should resolve

any doubt in favor of remand, as the removal statute is to be

narrowly interpreted."). However, because the issue of ERISA

preemption appears to be a legitimate issue, though it cannot be

resolved on the present record, the more efficient course would

be to allow the parties another opportunity to address the

7 question of federal subject matter jurisdiction as clarified in

this order. C f . Bartholet v. Reishauer A.G. (Zurich), 953 F.2d

1073, 1075 (7th Cir. 1992) ("Suits may be trapped in limbo

between state and federal court, each denying its authority, or

may shuttle back and forth as courts disagree about the proper

characterization of the claim. Extended proceedings to determine

where to litigate are seldom worth the cost but are inevitable

under the current rules.").

Conclusion

For the foregoing reasons, defendants' motion to dismiss

(document no. 4) is denied without prejudice. Plaintiffs' motion

to remand (document no. 7) is denied without prejudice. Both

parties are invited to address the subject matter jurisdiction

question that remains unresolved — i.e. whether the SERP at issue

here is or is not exempt from ERISA governance. Perhaps counsel

can resolve the matter between themselves based on the plan's

operation, as discussed above, and stipulate to an appropriate

resolution. If not, perhaps limited discovery and renewed, well-

supported motions would be in order.

SO ORDERED.

Steven J. McAuliffe United States District Judge March 5, 1998

cc: Hamilton R. Krans, Jr., Esq. E. Stephen Murray, Esq. Glenn M. Martin, Esq.