Quentin Keefe v. LendUs, LLC

2020 DNH 099

• Court: District Court, D. New Hampshire
• Decided: June 8, 2020
• Docket: 20-cv-195-JD
• Status: Published

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Quentin Keefe

v. Civil No. 20-cv-195-JD Opinion No. 2020 DNH 099 LendUs, LLC

O R D E R

Quentin Keefe brought suit against his former employer,

LendUs, LLC, seeking in part to enforce the terms of the

Executive Incentive Bonus Program under the Employee Retirement

and Income Security Act (“ERISA”). He contends that after his

employment terminated, LendUs failed to pay him the benefits

that were owed to him. LendUs moves to dismiss Counts I, II,

and V on the ground that Keefe has not alleged ERISA claims.

Standard of Review

In considering a motion to dismiss under Federal Rule of

Civil Procedure 12(b)(6), the court accepts the well-pleaded

factual allegations in the complaint as true and construes

reasonable inferences in the plaintiff’s favor. Breiding v.

Eversource Energy, 939 F.3d 47, 49 (1st Cir. 2019). “To

withstand a Rule 12(b)(6) motion, a complaint must contain

sufficient factual matter to state a claim to relief that is

plausible on its face.” Rios-Campbell v. U.S. Dept. of Commerce, 927 F.3d 21, 24 (1st Cir. 2019) (internal quotation

marks omitted). The purpose of the plausibility standard is to

“weed out cases that do not warrant either discovery or trial.”

Id. (internal quotation marks omitted).

Background

Keefe was a co-founder and chief executive officer of

Regency Mortgage Corp. In December of 2014, Keefe sold Regency

to RPM Holdings I, LLC. Keefe was employed by RPM as president

and chief executive officer of Regency. On January 12, 2017,

LendUs became the successor in interest to Regency when Regency

was reincorporated.

Keefe received salary and benefits provided by the

Executive Incentive Bonus Program (“Program”). The Program

states that its purpose is to retain Keefe as an executive

employee of Regency by providing him “with an opportunity to

receive annual bonuses and a long-term interest in the profits

of Regency.” Doc. 11-1, at *2. The Program also was “intended

to be exempt from the reporting and disclosure requirements of

Title I of ERISA because it is an unfunded plan maintained by an

employer for the purpose of providing benefits for a select

group of management or highly compensated employees.” Id.

Article II provides the terms for annual bonuses, and Article

III provides for the settlement of interest in net profits.

2 Keefe contends that his annual bonus for 2018 was at least

$1,027,116 and that he was not paid that amount. He contends

that his interest in net profits, the settlement amount, was 20%

of the net profits of the business, which was payable within

sixty days after the termination of his employment. He states

that the settlement amount is $3,592,471 and has not been paid.

Keefe was an employee of LendUs after Regency was

reincorporated. He attempted to negotiate with the chief

executive officer of LendUs for early retirement but that was

unsuccessful. LendUs terminated Keefe’s employment on December

31, 2018.

When he was unable to obtain the benefits that he believed

he was due, Keefe brought suit. Keefe alleges three claims

under ERISA and also alleges claims for breach of contract and

breach of the covenant of good faith and fair dealing. In the

ERISA claims, he seeks enforcement of the 2018 annual bonus

provision of the Program, Count I; enforcement of the bonus

settlement amount, Count II; and attorneys’ fees, Count V.

Discussion

LendUs moves to dismiss the ERISA claims, Counts I, II, and

V, on the ground that the Program is not an ERISA plan and is

not subject to enforcement under ERISA. Keefe contends that the

Program is a “top hat” plan that is enforceable under ERISA. In

3 reply, LendUs contends that Keefe has not alleged facts to show

that the Program is a top hat plan, and Keefe argues in his

surreply that the bonus settlement amount was a top hat plan

that provided deferred compensation.

A. Legal Framework

Employee benefit plans under ERISA may provide welfare or

pension benefits. 29 U.S.C. §§ 1002(1) & 1002(2)(A); M & G

Ploymers USA, LLC v. Tackett, 574 U.S. 427, 434 (2015). Pension

benefit plans provide retirement income or benefits that result

from a deferral of income. § 1002(2)(A). A top hat plan is an

ERISA plan “which is unfunded and is maintained by an employer

primarily for the purpose of providing deferred compensation for

a select group of management or highly compensated employees.”

29 U.S.C. § 1051(2); Alexander v. Brigham & Women’s Physicians

Org., Inc., 513 F.3d 37, 42 (1st Cir. 2008). Top hat plans are

not subject to the substantive ERISA requirements that are

intended to safeguard employee benefit funds. Id. Top hat

plans, however, are subject to ERISA enforcement provisions.

Hampers v. W.R. Grace & Co., Inc., 202 F.3d 44, 46 n.3 (1st Cir.

2000).

“The fact that a plan is ‘established as a means to retain

valuable employees’ does not disqualify it from top hat status

it otherwise deserves.” Alexander v. Brigham and Women’s

4 Physicians Org., Inc., 467 F. Supp. 2d 136, 142 (D. Mass. 2006)

(quoting Demery v. Extebank Deferred Compensation Plan (B), 216

F.3d 283, 287 (2d Cir. 2000)); accord Tolbert v. RBC Cap. Mkts.

Corp., 2015 WL 2138200, at *4 (S.D. Tex. Apr. 28, 2015). The

use of the term “primarily” in the statute means the primary

benefit of the plan, not the primary use of the plan. Id. at *5

(citing U.S. Dept. of Labor ERISA Opinion 90-14A, at 2). For

that reason, a plan that states a primary purpose of retaining

valuable employees may nevertheless be a top hat plan if the

primary benefit is deferred compensation. Id.

On the other hand, an ERISA plan does not include plans for

payments made as bonuses for work performed, “unless such

payments are systematically deferred to the termination of

covered employment or beyond.” 29 C.F.R. § 2510.3-2(c). An

annual bonus plan, when no annual bonuses have been deferred by

the employer, is not an ERISA top hat plan. Baumgardner v.

Cannon, 2018 WL 2722453, at *4 (D. Colo. June 6, 2018). A plan

whose primary purpose is to provide bonuses rather than deferred

compensation is not an ERISA top hat plan. Emmenegger v. Bull

Moose Tube Co., 197 F.3d 929, 932 (8th Cir. 1999).

B. ERISA Plan

The parties do not dispute that the Program was unfunded

and was intended for a select employee, Keefe, as required for

5 an ERISA top hat plan. LendUs argues that the Program was a

bonus plan intended to retain Keefe as an employee and did not

have as its primary purpose providing deferred compensation.

Keefe contends that the Program was a top hat plan and focuses

on the settlement amount provided in Article III of the Program.

In response, LendUs argues that the settlement amount provided

in Article III, taken by itself, is not an ERISA plan and is

instead a single lump sum payment.

1. Employee Benefit Plan Requirements

To qualify as an ERISA plan, employee benefits must meet

certain criteria. “[A]n 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 to the behoof of employees or their beneficiaries.”

Belanger v. Wyman-Gordon Co., 71 F.3d 451, 454 (1st Cir. 1995).

A one-time lump-sum payment, such as a severance payment, does

not require ongoing administration and, therefore, is not an

ERISA plan. Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S.

1, 12 (1987). In one test for an ERISA plan, the court must

determine whether “(1) the employer has manifested its intention

to provide benefits on a regular and long-term basis; (2) a

reasonable person would be able to ascertain the plan’s intended

benefits, the class of beneficiaries, the source of financing,

6 and the procedures for recovering benefits, and (3) the benefits

are to be provided pursuant to an on-going administrative

scheme.” Simmons v. Serv. Credit Union, No. 17-CV-159-PB, 2018

WL 1251628, at *2 (D.N.H. Mar. 12, 2018).

2. Bonus Plan

Article II of the Program provides for the annual bonuses.

Although the annual bonuses were not paid immediately, they were

not deferred compensation for purposes of providing an employee

pension benefits. The fact that the 2018 bonus has not been

paid does not make the annual bonus provision a deferred income

plan. The purpose of a top hat plan must be to provide deferred

income, and that is not the purpose of the annual bonuses.

3. Settlement Amount

On the other hand, under Article III, the settlement amount

was deferred until the five-year anniversary of the effective

date of the Program (December 1, 2019) or Keefe’s termination,

whichever was later. Therefore, Keefe could not receive the

settlement amount until the termination of his employment. That

arrangement suggests deferred compensation.

A pension or severance plan is an ERISA plan, however, only

if it requires an ongoing administration after employment ends.

Fort Halifax, 482 U.S. at 12. “Simple or mechanical

7 determinations do not necessarily require the establishment of

such an administrative scheme; rather, an employers’ need to

create an administrative system may arise where the employer, to

determine the employees’ eligibility for and level of benefits,

must analyze each employee’s particular circumstances in light

of the appropriate criteria.” Miller v. Starkey Labs., Inc.,

299 F. Supp. 3d 1046, 1053 (D. Minn. 2018). Whether a plan is

an ERISA plan depends on the employer’s obligations in

administering the benefits so that a “one-shot, take-it-or-

leave-it incentive” without an ongoing administrative scheme is

less likely to be an ERISA plan. O’Connor v. Commonwealth Gas.

Co., 251 F.3d 262, 267 (1st Cir. 2001).

LendUs argues that the settlement amount part of the

Program is not an ERISA plan because it is simply a one-time

bonus, in the nature of a severance bonus. LendUs further

argues that the settlement amount does not require any

administration for the payment to be made. Keefe argues that

the settlement amount does require administration, making it an

ERISA plan.

Keefe points to the provisions of the Program for claiming

benefits. Article 3.1 of the Program provides the means for

determining the settlement amount. That process occurs within

sixty days after termination of employment and requires

liquidation of Keefe’s interest in profits based on specified

8 calculation. The present value of Keefe’s interest is to be

determined by an independent accounting firm, which is

acceptable to both Keefe and LendUs. The method of the

appraisal is also provided.

Article VII addresses the administration of the Program.

The Program is to be administered by a designated person.

Disputes may be subject to arbitration. The administrator is

required to keep all necessary records and to furnish

information to Keefe, as the administrator determines is

necessary.

Claims for benefits under the Program are to be submitted

to the administrator. Art. 7.2. Claims must be decided within

90 days of submission unless extended to 120 days. A denied

claim is subject to a review process.

The process provided by the Program for paying the

settlement amount appears to extend beyond a simple one-time

severance payment. Instead, that process requires

administration of the Program to continue after termination.

Based on the motion to dismiss standard, the court cannot

determine as a matter of law that the settlement amount part of

the Program is not an ERISA top hat plan.

9 Conclusion

For the foregoing reasons, the defendant’s motion to

dismiss (document no. 13) is granted as to Count I and denied as

to Counts II and V.

SO ORDERED.

______________________________ Joseph A. DiClerico, Jr. United States District Judge

June 8, 2020

cc: Counsel of record.