Tinoco v. Marine Chrtg Co Inc

• Court: Court of Appeals for the Fifth Circuit
• Decided: November 19, 2002
• Docket: 01-31004
• Status: Published

Opinion

REVISED NOVEMBER 19, 2002

UNITED STATES COURT OF APPEALS For the Fifth Circuit

No. 01-31004

ALLAN TINOCO; VASSILIOS VOULGARAKIS,

Plaintiffs-Appellees,

VERSUS

MARINE CHARTERING COMPANY, INC., and as successor in interest to Marine Management and Consultant, Ltd.

Defendant-Appellant.

Appeal from the United States District Court For the Eastern District of Louisiana October 31, 2002

Before DeMOSS, STEWART, and DENNIS, Circuit Judges.

DeMOSS, Circuit Judge:

Appellant Marine Chartering Company, Inc. (Marine Chartering)

appeals from a final judgment and order dismissing without

prejudice the action of Appellees, Allan Tinoco (Tinoco) and

Vassilios Voulgarakis (Voulgarakis) (referred to collectively as

"Appellees"), based on the district court's finding that it lacked

subject matter jurisdiction. Marine Chartering also appeals an

order from the district court denying its motion for summary judgment and requests attorney's fees and costs. We AFFIRM the

district court's final judgment and order dismissing without

prejudice the action of Appellees. We do not reach the issues

raised by Marine Chartering concerning the district court's denial

of Marine Chartering's motion for summary judgment or its request

for attorney's fees and costs.

FACTUAL AND PROCEDURAL BACKGROUND

Marine Chartering was in the business of acting as a shipping

agent, broker, and consultant. Marine Management and Consulting

(Marine Management) was in the business of ship management. When

Marine Management's major clients sold their ships, the company was

forced to cease operations and it was liquidated and sold to Marine

Chartering effective March 31, 1998.

Before March 31, 1998, Marine Management maintained a Profit

Sharing Retirement Plan for the benefit of its employees. The

company, however, did not offer or provide any other retirement or

severance benefits to its employees. Similarly, Marine Chartering

had also maintained a Profit Sharing Retirement Plan for the

benefit of its employees.

Previously, on January 1, 1989, Marine Chartering established

an Early Retiree Health Care Plan (ERHCP) “to provide temporary

health-care benefits to Employees who elect Voluntary Early

Retirement from the time of such Voluntary Early Retirement until

the date the Employee becomes eligible for Social Security

2 Benefits.” Marine Chartering's Early Retiree Health Care Plan was

wholly unfunded. The ERHCP was payable entirely out of Marine

Chartering's general assets. Furthermore, the ERHCP did not

require employee contributions, and provided no benefits beyond age

62. In addition, the ERHCP was expressly subject to amendment,

suspension, or termination at any time pursuant to the following

provisions contained in the "Summary Plan Description":

Section 12. Amendment, Suspension or Termination of the Plan:

The Board of Directors may amend, suspend or terminate the Plan at any time, in whole or in part. The Board of Directors specifically reserves the right to terminate benefit payments at any time, even if such benefits are in pay status.

The "Summary Plan Description" also provided: “The Personnel

Committee shall have sole discretion in determining whether an

Employee is eligible to participate in the Plan.” “Personnel

Committee” is defined by the ERHCP as “the named fiduciary with the

discretionary authority to and the responsibility for: (i)

construction of the terms of the Plan, and (ii) determination of

eligibility for benefits.”

At all pertinent times, Appellee Tinoco was Marine

Management's Accountant, Treasurer, and Shareholder. Appellee

Voulgarakis was Marine Management's Technical Marine Engineer, Vice

President, Director and Shareholder. On March 18, 1998, both

Appellees attended Marine Management's annual meeting of the

Shareholders in New Orleans. At that meeting, Marine Management

3 announced that it would cease operations and be liquidated and sold

to Marine Chartering, and that some of its employees would be

terminated. Marine Management also announced that Marine

Chartering's ERHCP would be adopted and that those employees who

had worked for Marine Management for 15 years and who had attained

the age of 55 would qualify for the plan. In addition, the company

announced that the funds in the Marine Management Profit Sharing

Retirement Plan would be rolled over into the Marine Chartering

Profit Sharing Retirement Plan.

Also on March 18, 1998, both Appellees attended a meeting of

the Board of Directors. There, Tinoco learned that he would become

a temporary employee of Marine Chartering until June 30, 1998, or

until completion of accounting work arising out of Marine

Management's liquidation, at which time his employment would be

terminated. Voulgarakis learned he too would become a temporary

employee of Marine Chartering until April 30, 1998, at which time

his employment would be terminated. The Appellees also learned

that Marine Chartering was giving them “special consideration by

making the Early Retiree Health Care Plan available to them as a

severance benefit upon their anticipated retirement or

termination.” Tinoco's temporary employment was terminated by

Marine Chartering on or about December 31, 1998. Voulgarakis was

terminated by Marine Chartering on or about April 30, 1998.

However, Marine Chartering retained Voulgarakis as a consultant

until July 1998.

4 On January 27, 2000, Marine Chartering's Board of Directors

adopted the following resolution: “RESOLVED, That the Early

Retiree Health Care Plan adopted effective January 1, 1989 is

hereby withdrawn, canceled and discontinued as of February 1,

2000.” Both Appellees were notified by letter that their benefits

under the ERHCP had been terminated.

Appellees retained attorney Lloyd N. Frischertz (Frischertz),

who sent a letter to Marine Chartering dated February 18, 2000,

claiming that Appellees were entitled to continue receiving

benefits under the ERHCP even though the Board of Directors had

terminated the plan. Marine Chartering responded to Frischertz's

letter denying the Appellees' claims in a letter dated March 10,

2000, stating:

In both cases, they were given special consideration by [Marine Chartering] to enjoy the benefits of this plan, even though, technically, they were not eligible. This was done in deference to the fact that they would likely have to be released and it was the Company's desire to provide them with as soft a cushion for landing as possible, for as long as possible. This was accomplished through January 31, 2000 when the [Marine Chartering] Board of Directors finally had to enact its right to terminate the benefit, not only for these two employees to whom this special consideration was given, but to all others who were or would be eligible.

As a result of Marine Chartering's response letter, Appellees

filed their Complaint herein alleging in part that "the early

retirement benefits were in a pay-status, that the benefits had

accrued and [Appellees] had become vested and, as such, under

ERISA, Marine Chartering legally could not terminate said

5 benefits." In addition, Appellees claimed "monthly early

retirement benefits . . . together with prejudgment interest and

reasonable attorney's fees." On or about September 26, 2000,

Marine Chartering filed an Answer to Appellees' Complaint denying

the allegations and praying for judgment denying the relief

demanded in the Complaint and requested that reasonable attorney's

fees and costs be awarded to Marine Chartering.

On February 26, 2001, Marine Chartering filed a Motion for

Summary Judgment on the grounds that the benefits offered to and

accepted by Appellees were a non-vested and terminable severance

pay arrangement and, therefore, an employee welfare benefit plan

within the meaning of ERISA. The district court, however,

questioned whether the benefits received by Appellees were actually

subject to ERISA, or whether they instead should be viewed simply

as two isolated agreements to pay Appellees a fixed amount until

their 62nd birthdays. The district court was concerned that in the

latter event, it would lack subject matter jurisdiction over the

case. As a result, the district court denied Marine Chartering's

motion for summary judgment “as premature, without prejudice to be

re-urged at a later date if appropriate,” and ordered the parties

to brief the issue of whether federal subject matter jurisdiction

was present in the case.

After reviewing the briefing on the issue, the district court

entered a Minute Entry finding that: “To the extent that the

continuing nature of the payments in this case might make the issue

6 before it a close call, the Court observes that the litigants, who

appear to consent to federal jurisdiction, have simply failed to

conclusively establish it.” The district court concluded that “it

appears the payments to [Appellees] were not made pursuant to an

ERISA-governed plan.” Therefore, the district court entered

Judgment on August 2, 2001, dismissing the Appellees' suit without

prejudice. The district court noted in a footnote that it was not

ruling on any state law claims such as breach of contract that

Appellees may have.

Marine Chartering now appeals the district court's judgment,

contending that the district court erred in denying its motion for

summary judgment, and that this Court should reverse that ruling

and render judgment granting Marine Chartering's motion. Marine

Chartering also requests this Court to award it reasonable

attorney's fees and costs, an issue which Marine Chartering

contends should be remanded to the district court for determination

of the amounts to be recovered.

DISCUSSION

This Court's review of subject matter jurisdiction is plenary.

Ceres Gulf v. Cooper, 957 F.2d 1199, 1204 (5th Cir. 1992). When a

district court dismisses an action for lack of subject matter

jurisdiction based on the “undisputed facts in the record,” this

Court is limited “to determining whether the district court's

application of the law is correct and whether the facts are indeed

7 undisputed. Our review of the district court's application of the

law is, of course, de novo.” Ynclan v. Department of Air Force,

943 F.2d 1388, 1390 (5th Cir. 1991).

Marine Chartering contends that it set up an administrative

scheme to pay benefits to Appellees on a regular basis, rather than

offering them a one-time, lump-sum payment triggered by a single

event. Marine Chartering, therefore, argues that the Appellees'

severance pay plan under which they claim benefits is an employee

welfare benefit plan within the meaning of ERISA such that federal

subject matter jurisdiction exists. See 29 U.S.C. § 1002(1)

(defining "employee welfare benefit plan").

Appellees, on the other hand, contend that the change of

control of Marine Management was the single event that triggered

Marine Chartering's obligation to pay benefits. Therefore,

Appellees argue there was no need for an ongoing administrative

program to process claims and benefits. Appellees, furthermore,

assert that the simple arithmetical calculations and clerical

determinations that Marine Chartering was required to make under

the ERHCP simply do not amount to the “ongoing, particularized,

administrative, discretionary analysis” contemplated under ERISA.

See Bogue v. Ampex Corp., 976 F.2d 1319, 1323 (9th Cir. 1992).

Congress passed ERISA in 1974 “to safeguard employees from the

abuse and mismanagement of funds that had been accumulated to

finance various types of employee benefits.” Massachusetts v.

8 Morash, 490 U.S. 107, 112 (1989). To accomplish that goal,

Congress “established extensive reporting, disclosure, and

fiduciary duty requirements to insure against the possibility that

the employee's expectation of the benefit would be defeated through

poor management by the plan administrator.” Id. at 115. An

agreement to pay severance benefits may constitute an employee

welfare benefit plan. However, such an agreement is subject to

ERISA's control only if it creates benefits requiring “an ongoing

administrative program to meet the employer's obligation.” Fort

Halifax Packing Co. v. Coyne, 482 U.S. 1, 11 (1987).

In Fort Halifax Packing Co., the Supreme Court held that a

state statute requiring employers who ceased operations to make a

one-time severance payment to employees was not preempted by ERISA.

482 U.S. at 12. The Court reasoned that although the one-time

payment was a benefit, it was not a benefit plan: “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. The Court further noted that “[t]o do little

more than write a check hardly constitutes the operation of a

benefit plan.” Id.

As noted by the district court in the present case, on the

other end of the spectrum lies Bogue in which the Ninth Circuit was

faced with a severance program that provided benefits to executives

who, in the event of a takeover, were not offered “substantially

9 equivalent" employment by the purchasing company. 976 F.2d at

1321. In order to implement the severance program, management was

required to make case-by-case determinations of whether a

complaining employee's job was “substantially equivalent” to his

pre-acquisition job. Id. at 1323. The Ninth Circuit concluded

that the plan was covered by ERISA. The court noted: “Although the

program, like the plan[] in Fort Halifax, . . . was triggered by a

single event, that event would occur more than once, at a different

time for each employee. There was no way to carry out that

obligation with the unthinking, one-time, nondiscretionary

application of the plan [as did the] administrators in Fort

Halifax. . . .” Id. Therefore, the court concluded that the

company “was obligated to apply enough ongoing, particularized,

administrative, discretionary analysis to make the program in this

case a ‘plan.’” Id.

Similarly, in Perdue v. Burger King Corporation, this Court

concluded that the “Burger King Job Elimination Program" was

governed by ERISA because it required an administrative scheme for

it to function. 7 F.3d 1251, 1252 (5th Cir. 1993). Burger King

initiated the elimination program to ease the impact on its

employees as part of an internal reorganization plan to eliminate

several management tiers. Id. The program provided a three-year

period from the date of implementation in which any full-time

employee who lost his job as a result of a job elimination plan or

10 reduction in workforce was entitled to receive certain severance

benefits. Id. This Court concluded that the plan was governed by

ERISA because it was “in effect for three years, applied to two

nation-wide personnel reorganizations, and required an

‘administrative set-up’ to monitor and facilitate provision of

benefits.” Id. at 1253 n.5.

Notably, severance plans that provide certain benefits over a

period of time do not necessarily require an ongoing administrative

scheme. For example, in Fontenot v. NL Industries, Inc., a “golden

parachute” agreement that required payments over a three-year

period rather than a lump-sum payment was found not to be governed

by ERISA. 953 F.2d 960 (5th Cir. 1992). In Fontenot, NL

Industries was the target of a takeover. Id. at 961. In order to

block any takeover attempts, NL Industries instituted the NL Senior

Executive Severance Plan. Id. The plan provided that if an

executive was terminated within two years of a change of control,

the company would pay the executive a lump sum cash payment of

three times his highest annual compensation for the preceding three

years and a three year continuation of “certain” benefits. Id.

Even though the plan required three years of payments, this Court

concluded: “NL Industries' severance plan involves ‘a one-time

lump sum payment triggered by a single event . . . that may never

materialize,’ it ‘requires no administrative scheme whatsoever to

meet the employer's obligation,’ and ‘[t]he employer assumes no

11 responsibility to pay benefits on a regular basis.’” Id. at 962

(quoting Fort Halifax, 482 U.S. at 12).

Furthermore, even though benefit funds are paid out of the

general assets of a company instead of a separate fund, the benefit

plan can still be governed by ERISA. Fort Halifax, 482 U.S. at 17-

18 (citing Holland v. Burlington Indus., Inc., 772 F.2d 1140 (4th

Cir. 1985) and Gilbert v. Burlington Indus.,Inc., 765 F.2d 320 (2d

Cir. 1985)). In Fort Halifax, the Supreme Court indicated that the

inquiry should not necessarily be where the funds are coming from,

but whether severance benefits are being paid pursuant to a plan.

Id. at 18. As the Court stated: “[I]f an employer has an

administrative scheme for paying benefits, it should not be able to

evade the requirements of the statute merely by paying those

benefits out of general assets.” Id.

The district court was correct in concluding that the present

case resembles Fort Halifax more than Bogue. Marine Chartering's

ERHCP offered Appellees the choice of a lump-sum payment or a

stream of payments until they reached the age of 62. Regardless of

how Appellees chose to receive those payments, the total amount to

be paid was based on a one-time calculation using a fixed formula.

Under the formula, age (which must have been a minimum of 55) is

added to the number of years of service (which must have been at

least 15 years). Appellees then received a percentage of what they

would normally receive in Social Security based on the total number

12 arrived at through the above calculation. Significantly, Appellees

provide no evidence that the ERHCP requires an administrative

scheme to make ongoing discretionary decisions based on subjective

criteria. And, as this Court held in Fontenot, simply because

Marine Chartering offered Appellees the option of receiving that

payment over a period of time does not mean that the ERHCP amounts

to an administrative scheme. 953 F.2d at 961; see also James v.

Fleet/Norstar Financial Group, Inc., 992 F.2d 463, 466 (2d Cir.

1993) (finding that employee's option to receive a one-time payment

in bi-weekly installments rather than in a lump sum did not impact

the court's decision that the severance plan was not controlled by

ERISA). To the contrary, writing a check each month is hardly an

administrative scheme. Fort Halifax, 482 U.S. at 12.

The district court, therefore, correctly found that the ERHCP

under which Appellees claim benefits is not governed by ERISA. As

a result, the district court properly concluded that federal

subject matter jurisdiction does not exist: “Where federal subject

matter jurisdiction is based on ERISA, but the evidence fails to

establish the existence of an ERISA plan, the claim must be

dismissed for lack of subject matter jurisdiction.” Kulinski v.

Medtronic Bio-medicus, Inc., 21 F.3d 254, 256 (8th Cir. 1994);

accord Memorial Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d

236, 240 (5th Cir. 1990) (noting the question of whether an ERISA

plan exists is “a jurisdictional one”).

13 CONCLUSION

Accordingly, we AFFIRM the district court's final judgment and

order dismissing without prejudice the action of Appellees.

Because we conclude that there is no federal subject matter

jurisdiction, we need not reach the issues raised by Marine

Chartering concerning whether the district court erred in denying

Marine Chartering's motion for summary judgment or whether Marine

Chartering is entitled to recover reasonable attorney's fees and

costs.

AFFIRMED.