2004 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit
10-1-2004 

# H ou s t on v . Ar am a rk P r e c e de n t i al or N on-P r e c e de n t i al : N on-P r e c e de n t i al D ocke t N o . 04-1103

F o l lo w thi s a nd a dd it ion al work s at : h tt p://d i g it alc ommon s .l a w . v i l l a no va . e du/thir dc ir c uit_2004

Thi s de c i sion i s br ou gh t t o you for f r e e a nd ope n a c c e s s b y the O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit at V i l l a no va U nive r sit y S choo l of L a

w Di g it al Re posit or y

. It h as be e n a c c e pt e d for inclusion in 2004 D e c i sion s b y a n author i z e d a dmini s tr at or of V i l l a no va U nive r sit y S choo l of L a

w Di g it al Re posit or y

. F or mor e infor m at ion, p le as e c on t a ct Be n j a min . C a rl s on@l a

w . v i l l a no va . e du . Re c omme nde d C it at ion
" H ous t on v

. Ar a m a rk " (2004). 2004 D e cisio n s . P ape r 263. h tt p://d i g it alc ommon s .l a

w . v i l l a no va . e du/thir dc ir c uit_2004/263NOT PRECEDE NTIAL IN THE UNITED STATES COURT OF APPEALS

FO R T HE TH IRD CIR CU IT Case No: 04-1103 PETE R HOUSTO N, Appellant
v. ARAMARK CORP ORATI ON; 198 4 ST OCK OPTI ON PLAN OF THE ARAMARK C ORPORAT ION; ARAMARK OWNERS HIP PROGRAM AND ARAMARK; BENEF IT PLAN ADMINI STRAT OR

________________ On A ppeal from the Un ited States District Co urt for the Easte rn D istrict of P enns ylvania D.C. No. 03-cv-03646 Distri ct Judge: The Honorable Clare nce C. Newcomer

________________ Su bm itted Pu rsua nt to Th ird C ircu it LA R 3 4.1

September 30, 2004 Be for e: R EN DE LL , FU EN TE S an d S M ITH , Circuit Judges (Fil ed October 1, 2004)

_________________ OPINI ON OF THE COURT

_________________ SM ITH , Circuit

Judge. Retire d employe e Peter Houst on sued the Aramark Corpor ation, its 1984 Stock2

Option Plan, its Ownership Program, and the Aramark Benefi t Plan Admini strator (coll ecti vely , Aramark) af ter Houst on learne d that t he company stock he sold to thenprivatelyheld Aramark roughl y doubl ed in val ue approximatelysix weeks l ater upon t he
cor por at io n’ s a nno unc emen t o f an in itia l p ubl ic off er in g. Hous to n as se rt ed two cl ai ms under the Employ ee Retirement Income Securi tyAct of 1974 (ERISA), 29 U.S.C. §1001 et seq , and one st ate common law clai m. Aramark moved to dis miss Houston’ s amended comp laint pursuant to F ederal Ru le of Civil Pro cedure1 2(b)(6), and the District Cou rt dismis sed allcounts. For the r easons st ated bel ow, we affirm the j udgment of the Dis tri ct Co urt. The Distri ct Court ha d federalquesti on juri sdiction over t he ERISA claims, 28 U.S .C. § 133 1, an d su ppl em enta l juris dicti on o ver the s tate la w c laim , 28 U .S.C . §13 67. See He ngl ein, e t al. v. I nfo rm al P lan for P lan t Sh utd ow n B ene fits for Sal arie d E mp les., 974 F.2d 391 , 397- 98 (3 d C ir. 1992 ) (notin g that o nce f edera l law is in vok ed, the facts alle ged and thei r legalsuffici ency are questions on the merit s, and t hat “after dis posal of a federalclai m, a dist

rict court has discr etion to hear, di smiss, or remand a suppl emental claim for wh ich th ere is no i nde pen den t bas is fo r fed eral s ubj ect m atter juris dicti on” ). We have juris dicti on under 28 U.S.C. §1291. I. Background Ho uston wo rked for A rama rk fo r nearly thirty years b efore retiring f rom his executi ve position in J une 2001. During hi s tenur e, Houston entered into two stock3

option agreements with Aramark, the 1984 Stock Option Pl an (1984 Plan) and the Aramark Ownership Program (I SPO). At the time of his retirement, Houst on had
ama ss ed 117 ,6 02 s ha re s, 18, 224 th ro ughth e 1 984 Pl an an d 10 2, 625 th ro ughth e I SPO. Bo th the 1 984 Plan and th e ISP O w ere inte nded to align the pa rticipan ts’ interes ts with Ara mark ’s. Th e “pe rform ance stock option s” un der the 198 4 Pla n w ere “d esign ed to enab le key A RA ma nag em ent to purchas e shares of ARA Holding Company stock on terms that will gi ve them a direct, sustained, and long-term interest in ARA’s success .” Similarly, the ISPO “ provide[ d] select ed management and other key employ ees opp ortun ities to pa rticipate in the ow nersh ip of A rama rk” an d w ere ge nerally gra nted “ in connecti on with hires, promotions, and other f orms of recogni tion of

performance .” (Emp hasis adde d.) As is common with such pl ans, t he stock options awarded Houst on by the board of directors al lowed him to l ock in a purc hase pri ce for the shares , and thus thei r upside potential, withou t assuming the risk that the shares w ould dep reciate in value. If A ramark prospere d, the value of Houston’ s opti ons would incr ease, and when certai n conditi ons
we re m et, H ous ton cou ld p urc has e the sha res a t the l ow er o ptio ns p rice s et year s be for e. Happilyfor allparti cipant s of the pl ans, Aramark di d in fact prosper, and at the time of hi s r etireme ntHou st on’ s 1 17, 000 sh ar es wer e wo rt h a pproxi matel y $2, 446 ,0 00. As sug ges ted a bov e, oth er p artic ipan ts, bu t no t Ho usto n, w oul d so on b eco me hap pier still. H ou sto n r eti re d o n J un e 1 , 20 01 . A ra m ar k w as th en sti ll a pr iv ate ly h eld co m pa ny,1 Houston had ori ginally pl anned to stop working in March, but to remai n on the payr oll until J une 1, 2001, by appl yi ng his unused va cati on days . When exigenci es kept him working unti l June 1, 2001, Houston expected that his re tirement date would be push ed ba ck un til July 23, 20 01. H ow ever, o n Jun e 1, 20 01, a lu mp sum chec k fo r his unused vacation day s had already be en prepare d. Because undoi ng the error would have been burdensome for

the admini strator r esponsibl e, Houston l et theerror stand, making his re tirem ent e ffe ctive Jun e 1, 2 001
. 4 though going publ ic had often been indi cated as a possibi lit y, in which caseits shares
w ou ld ve ry lik ely a pp re cia te c on sid er ab ly. 1 As part of hi s retirement planning, in May of 2001, Houston had met with Aramark’s Benefits Director , Robert Bevilacqua. In that
mee ting the two discu ssed th e pos sibility of A rama rk go ing p ublic. If he kn ew of it, Be vilac qua did not disc lose that A ram ark wo uld soo n an nou nce its initi al pu blic o ffe ring
. However, Bevilacqua

suggeste d that Houst on could post pone his r etirement a y ear to s ee if Aramark would go publ ic duri ng that t ime. Houston de cline d. Upo n his retirement, the S tockholde rs’ Agree ment, w hich gov erned H ouston’s
ow ner ship of A ram ark stoc k, allo we d A ram ark the r igh t to re pur cha se, o r “ca ll,” Houston’s shares at

their most recent

apprais al pri ce. Aramark cal led Houston’ s stock on June 14, 2001, indicating t he apprai sal price of $20. 80 per shar e, a t otal of $2,446,121. 60 for the 117, 602 shares. On July 17, 2001, Aramark announced i ts i niti al publi c offeri ng, which incre ased the va lue of Aramark stock to $46. 00 per shar e. Sinc e then, inst ead of seeing his $2 .4m c up as over flow ing, H ousto n has view ed his $5.4m cup a s less tha n half full. H ousto n’s ap peal to the P lan A dm inistrator to recalc ulate th e repu rchas e price to $46.00 w as denied, an d Ho uston, believing th at Aram ark breach ed its fiduciary5

obliga tions to him b y withh olding mate rial info rmatio n con cernin g the im pend ing p ublic off erin g, co mm enc ed th is litiga tion
. The Distri ct Court applied t his Court ’s deci sion i n Oatway v. American Inter national Group, Inc. , 325 F.3d 184 ( 3d Cir. 2003) and determined that ERISA does not g over n the s tock o ption p lans at iss ue be caus e the re tireme nt adv antag es of fered in them are onl y i ncident al to t heir s tate d purposes of attr acti ng and retaining key employe es, and of aligni ng parti cipant s’ interest s with those of the c orporation. The Distri ct Court also di smissed t he common law breach of fiduci ary dutyclai m on the gro und s tha t Ho usto n ha d w aive d A ram ark ’s ob ligat ion s by co ntra ct. II . S tandardof

Rev ie w We exerc ise plen ary review in an a ppea l of a D istrict Co urt’s gra nt of a mo tion to dism iss fo r fai lure to sta te a c laim pur sua nt to Fed eral R ule o f C ivil P roc edu re 1 2(b )(6). Bu rns tein v . Re t. Ac cou nt P lan for E mp les. o f Alle ghe ny H ealth Ed uc. a nd R es. F oun d., 334 F.3d 365, 374 ( 3d Cir. 2003) . “A motion t o dismis s pursuant to Rule 12(b) (6) may be granted onl y i f, accept

ing allwell-pl eaded all egati ons in the complaint as true, and viewing the m in the l ight most favorabl e to theplaint

iff, plaint

iff i s not entitl ed to rel ief. ” In re Bu rling ton Co at F acto ry L itig., 114 F.3d 1410, 1420 ( 3d Cir. 1997) . In cons ideri ng this app eal, w e do n ot exa mine wh ether H ousto n w ill ultimate ly prevail, bu t wh ether h e is entit led to off er ev iden ce in sup por t of h is cla ims
. See id.6 III. Discussi on A. ERI

SA Clai ms Ho usto n as serte d tw o ca use s of actio n un der ER ISA : (1) p ursu ant to 29 U .S.C . § 1132(a)( 1)(B), wrongful denia l of cl aimed benefi ts stemming from the Aramark’s Plan Administr ator’ s refusa l to recalcul ate the repurcha se pri ce of Houston’s shares, and (2) pursuan t to 29 U .S.C. § 113 2(a)(3), breach o f fiduciary duty based o n Aram ark’s
non disclos ure o f info rmatio n reg arding the im pend ing an nou ncem ent of an initial p ublic offering. Determini ng whether Houston’ s stock opt ions were i ncenti ve bonuses, or rather , defer

red compensation subj ect t o ERISA, determines Houston’s two causes of actio n un der ER ISA
. ERISA defines “employ ee pension be nefit plan” i n 29 U.S.C. §1002(2) (A) as “any plan, fund, or pr ogram.. .to t he extent that by its express terms or as a resul t of surrounding circumst ances” i t (i ) “provi des retirement income to empl oyees , or ( ii) resul ts i n a deferral of income by employe es for periods extending to t he termi nation of

covered employment or b eyon d... .” By their e xpre ss term s the p lans w ere de signe d to alig n key em ployees’ interests with thos e of Aramark by gi ving the pl ans’ participants a s take i n the company . Houston, theref ore, argues that

the sur rounding circumstance s of the pl ans indi cate that notw ithstand ing the ir stated p urpo se, the 1 984 Plan and th e ISP O n oneth eless f all with in ERISA’s purview because t hey pr ovide ret

irement income or re sult

in income defe rred7

unt il par ticip ants ’ em plo ymen t wi th A ram ark end s or b eyon d. The questi on is one of per specti ve. Houston es senti ally argues that becaus e he intend ed to f und his retirem ent w ith the sto ck pr ocee ds, an d bec ause the pla ns resu lted in a deferral of a port

ion of his income to hi s retirement date and bey ond, the plans meet ERISA’s definition of “employ ee pension be nefit plan. ” This interpret ation c annot st and. As the Fifth Circuit

noted in a

leadi ng case on ERISA’s appli cabil ity to keyemploye e bon us p la ns, “Anyout

ri ght con vey anc e of

pr ope rty to an e mpl oy ee mi ght re sult i n so me payment to him after retirement .” M urp hy v . Ine xco Oil Co ., 611 F .2d 570, 57 5 (5th C ir. 1980). The desi gn of the pl an at i ssue, not the i ndividualparti cipant s’ intended use of the proc eeds , mus t be the persp ective from wh ich the defin ition of “em ployee p ensio n ben efit plan ” is d eterm ined
. See Oa twa y v. A me rica n In tern atio nal Gr oup , Inc ., 325 F.3d 184, 189 (3d Cir. 2003) (“We agree with t he legalanaly sis of Murphy
... and the unbroke n line of cases t

hat have fol lowed Mu rphy’s reasoning .”). So understood, Aramark’s 1984 Plan and ISPO are not ERISA plans under the Dep artment of Labo r’s interpretation, and the plan s fall squarely within this C ourt’s holding i n Oatway . Ac cor di ng t o the De partme ntof Labor re gul at io ns, “the ter ms ‘employ ee pension be nefit plan’ and ‘ pension pl an’ shal l not i nclude pay ments made by an employ er to s ome or allof its employe es as bonuses for work performed, unles s such payment s are sy stemati call y defer red to t he termi nation of

covered employment or beyo nd, o r so a s to p rov ide r etire me nt in com e to e mp loyee s.” 2 9 C .F.R . §25 10.3 -2(c ).2 The facts of t his cas e do not neces sit ate that we determine the pr ecise poi nt at whic h exe rcise d sto ck o ptio ns b eco me “inc om e” u nde r ER ISA
. Oatway suggests , however, that stoc k op tion s are inco me at the time they a re g ran ted. See Oatway , 325 F.3d at 189 (“[The st ock options ] did not resul t in t

he deferral of inc ome even though they could be exe rcise d af ter h e reti red .”). 8 Though A ramark was a privately held corporation, and though the Stockholders’ Agreement place d restrictions on the trans ferabi lit y of s hares, the defer

ral of payment f

or shares f rom exerci sed stoc k options by 1984 Pl an and ISPO parti cipant s was not sys temati c. It

was simplyHouston’s choi ce not t o sellhis 117, 000 shares be fore he retired, as evidenced bythe fact that heindeed sol d over 3,000 s hares i n 1999. That Houston’s r etirement triggered Aramark’s opti on to cal l his shares doe s not change t he analysi s. The Distric t Cou rt’s deter mina tion tha t the pla ns he re are n ot ma terially distinguis hable fr om those in Oatway is co rrec t. Oatway held that an inc entivestock option pl an with a st ated purpos e of “provi ding cert ain keyemploye es.. .with a dditi onal incentive to c ontinue t

heir ef forts on behalf of [t

he defendant cor

porati ons]” was not an ER ISA plan
. Oatway, 325 F.3d at 186, 189. As theywere to Mr. Oatway , the stock options granted Houst on “were discretionary , give n in recogni tion of s pecialservi ce, and awarded in addi tion to his re gular compensation. ” Id. at 189. Though Houston elected not to s ell mo st of h is exer cised s tock o ptions befo re A rama rk calle d them upo n his retirement, the defer

ral was not

sys temati c. 2 Theref

ore, Aramark’ s 1984 Pl an and I SPO are not ERISA pension benefit plans.9

B. Sta te Fid uciar y D uty C laim The wa ivability of f iducia ry duties o we d by a m ajority share hold er to a m inority sharehol der is the is sue that control s the st ate l aw claim. The Dis tri ct Court he ld that by consenting to the Stockholder’s Agreement, Houston waived A ramark’s duty t o disclose fu tu re ev en ts whi ch wou ldim pa ct th e v al ue of

Hou st on’ s s ha re s. Und erDel aware la w, Ar am ark ow ed H ous ton fidu ciary d uties , Ivanhoe Partners v. Newp ort Mining Corp ., 535 A.2 d 13 34, 1 344 (D el. 19 87) , but tho se d uties we re am end able by co ntra ct. See Coleman v. Taub , 638 F.2d 628, 636 (3d Cir. 1981) (noting in t he context

of a corporate merger that a minorit y shareholder

can “bargai n away” hi s int erest s, thus eli minati ng the possibility of a breach of fiduciary duty). Ho usto n ba rga ined aw ay his r igh t to th e inf orm ation spe cific ally at iss ue h ere. Houston was a party t o the Stockhol der’s Agree ment, which s tate s that at thetime a sh ar eh ol de r se lls hi s s ha re s, t he re m ay

be pr opo sed o r pen ding an ev ent or a transa ction th at cou ld affect t he AppraisalPrice of t

he Common Stock, and that the AppraisalPrice of t

he Common Stock (and, accor dingly , the repu rchas e price ) may be subs tantially less tha n the f air market val ue as of the current date, and furthe r acknowledges and agrees that ARA MA RK m ay have valid business reasons, and in anycase shal l not be required to, dis close any event or trans acti on that mayhave occurr ed or be propos ed or pending at thetime of anysuch sal e. It i s diffi cult to imagine a cl earer wai ver of Aramark’s dutyto dis close t he impe ndin g ann oun cem ent of its initial pub lic off ering. T he D istrict Co urt cor rectly10

dismis sed Houston’s breach of duty cl aim. Because we conclude that Houston waived Aramark’s duty t o discl ose future events, we need not addres s the i ssue of the effe ctiven ess of Ho uston ’s releas e inclu ded in the S hare R epur chas e A greem ent.