2003 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

4-14-2003

Oatway v. Amer Intl Grp Inc

Precedential or Non-Precedential: Precedential

Docket 02-1699

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2003

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 2003 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

Recommended Citation

"Oatway v. Amer Intl Grp Inc" (2003). 2003 Decisions. Paper 589.

http://digitalcommons.law.villanova.edu/thirdcircuit_2003/589
PRECEDENTIAL

Filed April 14, 2003

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 02-1699

DEREK J. OATWAY

Appellant

v.

AMERICAN INTERNATIONAL GROUP, INC., Plan

Administrator of Stock Option Plan; AMERICAN

INTERNATIONAL GROUP, INC., a Delaware Corporation;

1987 EMPLOYEE STOCK OPTION PLAN, an employee

welfare benefit plan

On Appeal From the United States District Court

For the District of Delaware

(D.C. No. 01-cv-00033)

District Judge: Honorable Gregory M. Sleet

Submitted pursuant to Third Circuit LAR 34.1(a)

November 4, 2002

Before: BECKER, Chief Judge,

McKEE and HILL,*Circuit Judges.

* Honorable James C. Hill, United States Circuit Judge for the Eleventh

Circuit, sitting by designation. 
(Filed: April 14, 2003)

JOHN M. STULL, ESQUIRE

1300 North Market Street

P.O. Box 1947

Wilmington, DE 19899

RICHARD R. WIER, JR.

1220 Market Street

Wilmington, DE 19801

Attorneys for the Appellant

STEPHEN E. JENKINS

REGINA A. IORII

CAROLYN S. HAKE

Ashby & Geddes

222 Delaware Avenue, 17th Floor

P.O. Box 1150

Wilmington, DE 19899

Attorneys for the Appellees

OPINION OF THE COURT

HILL, Circuit Judge: 

Appellant Derek J. Oatway appeals the district court

order granting appellees’, American International Group,

Inc., American International Group, Inc., Plan

Administrator, and 1987 Employee Stock Option Plan

(collectively, AIG), motion to dismiss his amended complaint

pursuant to Fed. R. Civ. Proc. 12(b)(6) on the ground that

it fails to state a claim under the Employee Retirement

Income Security Act of 1974 (ERISA), as amended, 29

U.S.C. § 1001 et seq.

1

 Based upon the following, we affirm

the judgment of the district court.

1. We accept all factual allegations in the amended complaint as true

and view them in a light most favorable to the plaintiff. Fed. R. Civ. Proc.

12(b)(6). On a motion to dismiss for failure to state a claim under Rule

12(b)(6), “a court can consider a ‘document integral to or explicitly relied

upon in the complaint.’ ” In re Rockefeller Ctr. Props., Inc. Sec. Litig., 184

F.3d 280, 287 (3d Cir. 1999). 

2
I. FACTUAL AND PROCEDURAL BACKGROUND

Oatway was a full-time employee of AIG from 1983 to

1992. During his employment, in consideration of his

performance as a key employee, Oatway and AIG entered

into two written incentive stock option agreements2 giving

Oatway the right to purchase a set number of AIG common

stock shares at a set price per share as provided for in

AIG’s 1987 Employee Stock Option Plan (1987 Plan). The

first was the January 18, 1990 Incentive Stock Option,

giving Oatway the option to purchase 200 shares at $96 per

share under the 1987 Plan. The second was the October

11, 1990 Incentive Stock Option, giving him the option to

purchase 200 shares at $58.625 per share under the 1987

Plan.3 The agreements were identical in nature. Blank

spaces in the agreements were filled in by the parties to

reflect the particular date of execution, the number of

shares subject to the stock option grant, and the set price

per share. 

The stated purpose of the 1987 Plan was: 

[T]o advance the interest of [AIG] by providing certain

of the key employees of AIG and of any parent or

subsidiary corporation of AIG, upon whose judgment,

initiative and efforts the successful conduct of the

business of AIG largely depends, with an additional

incentive to continue their efforts on behalf of such

corporations, as well as to attract to such corporations

people of training, experience and ability.

2. In general, an incentive stock option enables an executive to delay

exercise of the option while the stock appreciates in value. Executive

Compensation: A 1987 Roadmap for the Corporate Advisor, 43 Bus. Law.

185, 291 (Nov. 1987). The executive can then purchase the stock at what

is, at the time of purchase, a bargain price. In the interim, the executive

has not been at risk if the value of the stock declines. Id. If the value of

the stock does decline, without making any cash outlay, the executive

forgoes the exercise of the option. Id. An incentive stock option

accomplishes its goals by affording the executive the potential for an

equity interest in the corporation, thereby encouraging him to use his

greatest efforts to promote the growth of that corporation. Id.

3. By referring to these documents in his amended complaint, Oatway

has incorporated these documents by reference into his pleading. See

note 1 supra. 

3
(Emphasis added.) 

Under the Plan, each stock option granted to key AIG

employees by its board of directors expired ten (10) years

from the date of its issuance. An option could not be

exercised by an AIG employee until one year after its date

of issuance, and then only in predetermined installments.

Unexercised options rolled over into subsequent years

remaining within the ten-year term. If an employee

terminated his or her employment with AIG prior to

“normal retirement age,” or age 65, then he or she had

ninety days within which to exercise his or her remaining

AIG stock options. 

Oatway retired prior to normal retirement age in 1992.

AIG advised him that he had ninety days, or until

November 1992, within which to exercise all his options.

Oatway alleges that, after he complained to the company

about the short duration of time, AIG relented and

reinstated the original ten year term. 

Eight years passed. Oatway discovered, on or about

January 25, 2000, that his option exercise date under the

January 18, 1990, incentive stock agreement had expired

one week earlier. He claims that he notified AIG by

facsimile of his intent and desire to exercise his January

18, 1990 option, but the company refused to honor his

request. 

Ten more months passed. On October 1, 2000, Oatway

attempted to exercise his options, both under the January

18, 1990, and the October 11, 1990, incentive stock option

agreements. AIG refused his attempt. Oatway appealed the

denial to AIG as “Plan Administrator.” 

AIG rejected his appeal and Oatway filed suit in district

court. The district court granted AIG’s motion to dismiss

Oatway’s amended complaint on the grounds that it lacked

subject matter jurisdiction as none of the three AIG

incentive stock option agreements were ERISA plans. 

This appeal follows.

II. STANDARD OF REVIEW

In reviewing the dismissal of a complaint by a district

court pursuant to Rule 12(b)(6) for failure to state a claim

4
upon which relief may be granted, our review is plenary

and we apply the same test as the district court. Maio v.

Aetna, Inc., 221 F.3d 472, 481-82 (3d Cir. 2000). “A motion

to dismiss pursuant to Rule 12(b)(6) may be granted only if,

accepting all well-pleaded allegations in the complaint as

true, and viewing them in the light most favorable to the

plaintiff, plaintiff is not entitled to relief.” In re Burlington

Coat Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir.

1997). The issue is not whether a plaintiff will ultimately

prevail but whether he or she is entitled to offer evidence to

support the claims. Id.

III. DISCUSSION

A. Introduction

Whether or not the stock options granted to Oatway, as

a key employee, were given as incentive bonuses to

continue employment with AIG, or as deferred

compensation arrangements subject to ERISA, is the issue

that controls the outcome of this appeal.4

Although this issue, whether or not an incentive stock

option plan is an employee benefit plan within the meaning

of ERISA, is not a novel or particularly new issue, it

appears to be an issue of first impression in this circuit. As

will be discussed, most courts have uniformly held that an

incentive stock option plan is not an ERISA plan. 

Interestingly enough, the majority of these courts so

holding have been district courts. Not many other circuit

courts of appeal have addressed the issue, perhaps relying

on the leading case of Murphy v. Inexco Oil Co., 611 F.2d

570 (5th Cir. 1980), addressing bonus programs in general

under ERISA, and its progeny that have followed. 

B. Murphy and Other Circuit Court Cases 

In Murphy, the company gave bonuses to certain key

employees, including Murphy, the president of Inexco, by

assigning a specific royalty interest in a drilling prospect it

planned to develop. Each employee was given participation

4. We affirm all other remaining issues addressed by the district court

without discussion. 

5
units, or rights to receive a fractional portion of any

proceeds that might thereafter accrue from the designated

project. Murphy, 611 F.2d at 572. 

Murphy claimed that this bonus plan violated ERISA. His

complaint was dismissed by the district court for lack of

subject matter jurisdiction on the grounds that the bonus

plan was not subject to ERISA. Id. at 570. The Fifth Circuit

agreed. 

Relying upon 29 U.S.C. § 1002(1), for the ERISA

definition of employee welfare benefit plan,5 29 U.S.C.

§ 1002(2), for the ERISA definition of employee pension

benefit plan,6 and the regulations promulgated thereunder,

29 C.F.R. § 2510.3-2(c),7 the Fifth Circuit reasoned that the

5. ERISA defines an “employee welfare benefit plan” as: 

[A]ny plan, fund, or program which was heretofore or is hereafter

established or maintained by an employer or by an employee

organization, or by both, to the extent that such plan, or program

was established or is maintained for the purpose of providing for its

participants or their beneficiaries, through the purchase of

insurance or otherwise, (A) medical, surgical, or hospital care, or

benefits, or benefits in the event of sickness, accident, disability,

death or unemployment, or vacation benefits, apprenticeship or

other training programs, or day care centers, scholarship funds, or

prepaid legal services or (B) any benefit described in section 186(c)

of this title (other than pensions on retirement or death, and

insurance to provide such pensions). 

29 U.S.C. § 1002(1). 

Section 186(c) includes within the definition of “employee welfare

benefit plan” those plans that provide holiday and severance benefits,

and benefits that are similar. See 29 C.F.R. § 2510.3-1(a)(3). 

6. ERISA defines an “employee pension benefit plan” as any plan

established or maintained by an employer that, by its express terms,

“results in a deferral of income by employees for periods extending to the

termination of covered employment or beyond, regardless of the method

of calculating the contributions made to the plan, the method of

calculating the benefits under the plan or the method of distributing

benefits from the plan.” 29 C.F.R. § 1002(2). 

7. The Department of Labor, in its regulations, has interpreted ERISA

employee pension benefit plans to exclude “payments made by an

employer to some or all of its employees as bonuses for work performed,

unless such payments are systematically deferred to the termination of

covered employment or beyond, or so as to provide retirement income to

employees.” 28 C.F.R. § 2510.3-2(c). 

6
Murphy bonus program was not an ERISA plan because it

“was evidently designed to provide current rather than

retirement income to Inexco’s employees.” Id. at 575-76. In

addition, the Murphy court considered it significant that

contributions were discretionary, given in recognition of

special service, awarded in addition to regular

compensation, and did not result in the deferral of income.

Id. 

The Murphy court reasoned that an ERISA plan is only a

plan “designed for the purpose of paying retirement income

whether as a result of [its] express terms or surrounding

circumstances.” Id. It concluded that the mere fact that

some payments under a plan may be made after an

employee has retired or has left the company does not

result in ERISA coverage by statutory definition. Id. at 576.

See Williams v. Wright, 927 F.2d 1540 (11th Cir. 1991)

(relying on Murphy, where a letter agreement between an

employee and an employer providing $500 per month on

the first of each month was not considered to be an ERISA

plan); Whitt v. Sherman Int’l Corp., 147 F.3d 1325 (11th Cir.

1998) (where a long term incentive plan for senior

executives was not considered to be an ERISA plan);

Mauldin v. Worldcom, Inc., 263 F.3d 1205 (10th Cir. 2001)

(where the court noted its surprise that neither party

argued that the stock option agreements were subject to

ERISA); Kerkhof v. MCI Worldcom, Inc., 282 F.3d 44 (1st

Cir. 2002) (where neither party argued that the MFS plan or

the stock option agreement were governed by ERISA). 

C. The District Court Here 

Using a Murphy analysis, the district court in this case

first determined that the AIG stock option incentive plan

was not an employee welfare benefit plan under ERISA

because its purpose was to operate as an incentive and

bonus program, and not as a means to defer compensation

or provide retirement benefits. Oatway v. American Int’l

Group, Inc., 2002 WL 187512 *3-4 (D. Del. Feb. 05, 2002).

In short, the AIG plan was not designed specifically to

provide employees with medical, unemployment, disability,

death, vacation, or other specified benefits or to provide

income following retirement in order to come within the

purview of ERISA. Id. We agree. See Murphy, 611 F.2d at

7
574; Hagel v. United Land Co., 759 F. Supp. 1199 (E.D. Va.

1991); Long v. Excel Telecoms. Corp., 2000 WL 1562808

(N.D. Tex. Oct. 18, 2000); Hahn v. National Westminster

Bank, N.A., 99 F. Supp. 2d 275 (E.D.N.Y. 2000); Goodrich

v. CML Fiberoptics, 990 F. Supp. 48 (D. Mass. 1998);

Fludgate v. Management Technologies, 885 F. Supp. 645

(S.D.N.Y. 1995). 

The district court went on, also using a Murphy analysis,

to find that the AIG plan was also not an employee pension

benefit plan under ERISA because it was not created for the

purpose of providing retirement income, but rather was an

incentive plan designed to provide a financial incentive for

employees to remain with AIG and improve their

performance there. Oatway, 2002 WL 187512 at *5. We

agree. See Murphy, 611 F.2d at 574. Oatway’s postretirement payments were only incidental to the goal of

providing current compensation. See Hahn, 99 F. Supp. 2d

at 279; Lafian v. Electronic Data Sys. Corp., 856 F. Supp.

339 (E.D. Mich. 1994); Raskin v. Cynet, Inc. 131 F. Supp.

2d 906 (S.D. Tex. 2001); Chambless v. Excel

Communications, Inc., 2002 WL 31990311 (N.D. Tex. July

15, 2002); Kaelin v. Tenneco, Inc., 28 F. Supp. 2d 478 (N.D.

Ill. 1998). 

We agree with the legal analysis of Murphy, as applied by

the district court in this case, and the unbroken line of

cases that have followed Murphy’s reasoning. Here,

Oatway’s stock options were discretionary, given in

recognition of special service, and awarded in addition to

his regular compensation. See Murphy, 611 F.2d at 575-76.

They did not result in the deferral of income even though

they could be exercised after he retired. Id. In short, the

AIG stock option agreements were not ERISA plans. 

IV. CONCLUSION

The order of the district court dismissing Oatway’s

amended complaint is affirmed.

8
A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

9