Case Name: Carol A. CANTRELL, Plaintiff-Appellant v. BRIGGS & VESELKA COMPANY, A Professional Corporation, Defendant-Third Party Plaintiff-Appellee v. Cantrell & Cowan, P.L.L.C., Third Party Defendant-Appellant; W. Patrick Cantrell, Plaintiff-Appellant v. Briggs & Veselka Company; A Professional Corporation, Defendant-Appellee
Court: United States Court of Appeals for the Fifth Circuit
Jurisdiction: United States
Decision Date: 2013-08-27
Citations: 728 F.3d 444
Docket Number: No. 12-20294
Parties: Carol A. CANTRELL, Plaintiff-Appellant v. BRIGGS & VESELKA COMPANY, A Professional Corporation, Defendant-Third Party Plaintiff-Appellee v. Cantrell & Cowan, P.L.L.C., Third Party Defendant-Appellant W. Patrick Cantrell, Plaintiff-Appellant v. Briggs & Veselka Company; A Professional Corporation, Defendant-Appellee.
Judges: Before JOLLY, GARZA, and OWEN, Circuit Judges.
Reporter: Federal Reporter 3d Series
Volume: 728
Pages: 444–457

Head Matter:
Carol A. CANTRELL, Plaintiff-Appellant v. BRIGGS & VESELKA COMPANY, A Professional Corporation, Defendant-Third Party Plaintiff-Appellee v. Cantrell & Cowan, P.L.L.C., Third Party Defendant-Appellant W. Patrick Cantrell, Plaintiff-Appellant v. Briggs & Veselka Company; A Professional Corporation, Defendant-Appellee.
No. 12-20294.
United States Court of Appeals, Fifth Circuit.
Aug. 27, 2013.
Charles Alfred Sturm (argued), Esq., Steele Sturm, P.L.L.C., Houston, TX, for Plaintiff-Appellant.
Michael Carter Crow (argued), Attorney, Joy Michele Soloway, Trial Attorney, Fulbright & Jaworski, L.L.P., Houston, TX, for Plaintiff-Appellant.
Michael Brooks Lee, Litigation Counsel, Cokinos, Bosien & Young, P.C., Houston, TX, for Plaintiff-Appellant/Third Party Defendant-Appellant.
Before JOLLY, GARZA, and OWEN, Circuit Judges.

Opinion:
EMILIO M. GARZA, Circuit Judge:
This case arises out of an employment dispute between Carol and Patrick Cantrell and their former employer, Briggs & Veselka Company ("B & V"). The district court held the Cantrells' deferred compensation arrangements in their Employment Agreement contracts with B & V constitute a plan under the Employment Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq. We REVERSE and REMAND with instructions to remand to the state court. .
I
The Cantrells owned a CPA firm, P. Cantrell & Company, P.C., which they combined with B & V in 2000 in a tax-free merger, with the merged entity retaining the Briggs & Veselka name. The original B & V shareholders received approximately 80% of the shares of the merged entity, and the Cantrells received approximately 20%. '
As part of the merger, the Cantrells executed Stock Redemption Agreement and Employment Agreement contracts with B & V. The Stock Redemption Agreement provides for redemption of the Can-trells' stock qpon the occurrence of death, long-term disability, resignation or other termination of employment, disposition of the shares to a third party, or divorce. The redemption price is calculated using the cash-basis book value of the combined entity. When apportioning the shares during the merger, B & V was valued at $4.9 million and P. Cantrell & Company was valued at $1.2 million, though the redemption value of the Cantrells' stock was only about $57,000.
The Employment Agreements outline the terms and scope of the Cantrells' employment with B & V, describe the Can-trells' compensation and benefits packages, and contain noncompete and nondisclosure clauses. The identical noncompete clauses prohibit the Cantrells from competing with B & V by participating in any entity engaged in the same business as B & V within fifty miles of B & V's location during the period of employment and for one year following the termination of employment. The clauses also prohibit the Can-trells from soliciting B & V clients or disclosing B & V's confidential information during the same period.
In addition, the Employment Agreements provide for deferred compensation, the focus of this litigation. The relevant paragraphs state:
6.1Deferred Compensation. Upon occurrence of the Termination Event, the Employer agrees to pay the Employee the Deferred Compensation Amount in forty (40) equal installments (the "Installment Amount"), payable on the fifteenth of the month following the end of each calendar quarter during the PayOut Period; provided, however, in no event may the Employer's Aggregate Quarterly Deferred Compensation Payment in any quarter exceed twenty five percent (25%) of the Employer's Adjusted Net Profit for the previous fiscal year ended September 30 divided by four (4) (the "Limitation Amount"). If the Aggregate Quarterly Deferred Compensation Payment for any quarter would exceed the Limitation Amount, the Employee's Installment Amount shall be reduced to an amount equal to her proportionate share of the Employer's Aggregate Quarterly Deferred Compensation Payment for such quarter times the Limitation Amount. In the event the Employee's Installment Amount is reduced by application of previous sentence, such reduced amount shall be added to the Employee's Installment Amount due in subsequent quarters until paid, provided that each
subsequent quarter's payment will also be subject to the Limitation Amount.
6.2 Termination Event. The Termination Event shall be the first of the following events to occur:
(a) The Retirement of the Employee;
(b) The Disability of the Employee while employed;
(c) The death of the Employee while employed; or
(d) The termination of the Employee's employment with the Employer by a majority vote of the Board of Directors for any reason other than With Cause.
6.3 Deferred Compensation Amount. The Deferred Compensation Amount shall be equal to the product of four (4) times the Employee's Average Compensation multiplied by her Vested Percentage. The Employee's Vested Percentage and Average Compensation shall be determined as of the date of the Termination Event and shall not be affected by the subsequent occurrence of the other events listed in Section 6.2. After serving twenty (20) years of Creditable Service, the Employee's Vested Percentage shall be eighty percent (80%), and her Vested Percentage shall increase an additional ten percent (10%) for each of the following two (2) years at which time the Employee's Vested Percentage shall be one hundred percent (100%). However, if during the Period of Employment the Employee dies or incurs a Disability, the Employee's Vested Percentage shall immediately become one hundred percent (100%).
6.4 Pay-Out Period. The Pay-Out period shall begin on the fifteenth day of the month following the end of the calendar quarter in which the Termination Event occurs and shall end ten (10) years later; provided, however, in the event there is any remaining balance on the Deferred Compensation Amount due at the end of the Pay-Out Period, the Pay-Out Period shall continue until such balance is paid, subject to the limitations contained in Section 6.1, and such remaining balance shall be treated as if it were the Employee's Installment Amount.
6.7 Forfeiture Upon Competing With the Employer or Terminated With Cause. If during the Pay-Out Period the Employee competes . with the Employer . within fifty (50) miles . the Employee forfeits all remaining balance of the Deferred Compensation Amount outstanding as of the date he begins engaging in such competition, and the Employer is relieved of its obligation to make future payments to the Employee under this Article.... Furthermore, if the Employee is terminated With Cause . the Employee forfeits -all rights he may otherwise have under this Article....
Under their respective agreements, Carol received ten and Patrick received thirteen years of "Creditable Service" for Vested Percentage purposes.
At the time of the merger, the other seven B & V employee-shareholders also entered into employment agreements with B & V, and eight additional employee-shareholders have since entered into similar agreements. Thus, a total of seventeen current and former B & V employee-shareholders have deferred compensation arrangements. When the nine original employees entered into their agreements, B & V notified the Department of Labor it had nine separate ERISA plans, each involving one employee.
The agreements of the other employee-shareholders contain deferred compensation arrangements similar to those in the Cantrells' agreements. The primary difference in the Cantrells' agreements is in the calculation of the vested percentages. Additionally, the Cantrells' agreements, along with that of one other employee, calculate the Limitation Amount based on 25% of net profit, while the remaining agreements calculate the Limitation Amount based on 5% of gross revenue.
Patrick retired from B & V-in December 2007 and began practicing law. Due to the thirteen years of credit he received at the time of the merger and the seven years he worked at B & V, he met the twenty-year vesting requirement, and B & V began paying his deferred compensation in January 2008. Carol remained employed at B & V, and in May 2011 she formed a law firm, Cantrell & Cowan, P.L.L.C. ("C & C") with Patrick and another partner.
On November 11, 2011, Carol gave B & V notice of her retirement, effective January 15, 2012. Due to the ten years of credit she received at the timé of the merger and the approximately eleven years she worked at B & V, she expected to meet the twenty-year vesting requirement. B & V then received a copy of a C & C invoice and payment for C & C services from a B & V client. Based on .this invoice and some of -Carol's emails from her B & V email account, B & V sent Carol a letter on January 3 notifying her that she may be in breach of her Employment Agreement and requesting a meeting to discuss a possible resolution. Carol then notified B & V of an accelerated retirement date of January 3. On January 13, B & V rejected Carol's accelerated retirement and terminated Carol "with cause" for allegedly violating the noncompete clause in her Employment Agreement. Because she was terminated with cause, B & V determined Carol forfeited her deferred compensation and did not make any payments. B & V also stopped its quarterly payments to Patrick in January 2011 and notified him that he forfeited the remainder of his deferred compensation on the grounds that he was competing with B & V in his work at C & C.
The Cantrells -filed separate lawsuits against B & V in Texas state court, seeking the deferred compensation payments. B & V removed both lawsuits to federal court on the grounds that the deferred compensation payments in - the Employment Agreements constituted an ERISA plan, preempting the Cantrells' state law claims. The district court consolidated the lawsuits, B & V filed a number of counterclaims against the Cantrells, and B & V moved for a temporary restraining order ("TRO"). The district court granted the TRO, prohibiting Carol from disclosing or using any information learned while at B & V and from soliciting or working for B & V clients. The Cantrells moved to remand the consolidated lawsuit back to Texas state court. The district court denied the Cantrells' motion to remand, holding the deferred compensation arrangements were an employment benefit plan under ERISA, and declined to certify the issue for interlocutory appeal. The Cantrells filed an emergency motion with this court to stay the TRO pending appeal, and this court granted the motion. See Order, Cantrell v. Briggs & Veselka Co., No. 12-20172 (5th Cir. Mar. 21, 2012). The parties then entered into an agreed temporary injunction, in which the Cantrells agreed to refrain from certain activities related to B & V's former or current clients, contingent on the district court's grant of permission to seek an interlocutory appeal of. its denial of the motion to remand. The district court granted permission, and this appeal followed.
We review the district court's denial of the Cantrells' motion to remand de novo. Woods v. Tex. Aggregates, L.L.C., 459 F.3d 600, 601 (5th Cir.2006).
II
The Cantrells assert the federal courts lack subject matter jurisdiction because the deferred compensation arrangements in their Employment Agreement contracts with B & V do not constitute an ERISA plan. B & V counters the federal courts do have subject matter jurisdiction because the arrangements do constitute an ERISA plan.
ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title." 29 U.S.C. § 1144(a). To determine whether a particular employee benefit qualifies as an employee benefit plan under ERISA, we have devised a three-part test in Meredith v. Time Insurance Company: "[W]e ask whether a plan: (1) exists; '(2) falls within the safe-harbor provision established by the Department of Labor; and (3) satisfies the primary elements of an ERISA 'employee benefit plan' — establishment or maintenance by an employer intending to benefit employees." 980 F.2d 352, 355 (5th Cir.1993). Because we hold the deferred compensation arrangements in the Cantrells' Employment Agreements do not make out the existence of a plan, they do not pass the first part of the test and we need not reach the second and third parts. Whether a plan exists is fact-specific, so we proceed to explain the case-law backdrop of the inquiry.
In its seminal decision laying out the requirements for the existence of ERISA plans, Fort Halifax Packing Company, Inc. v. Coyne, the Supreme Court held that in order to constitute an ERISA plan, a program must necessitate the existence of "an ongoing administrative program to meet the employer's obligation." 482 U.S. 1, 11, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987). In that case, a Maine statute required employers to make a one-time severance payment to employees working at a plant in the event the plant closes. Id. at 3, 107 S.Ct. 2211. Because "[t]he requirement of a one-time, lump-sum payment triggered by a single event" did not require the employer to set up "an administrative scheme to meet its contingent statutory obligation," the Court held the Maine statute was not preempted by ERISA. Id. at 12, 14-15, 107 S.Ct. 2211.
In Tinoco v. Marine Chartering Company, Inc., we applied Fort Halifax to an arrangement for payment to two employees intended to cover health care benefits until the employees became eligible for social security benefits. 311 F.3d 617, 618-19 (5th Cir.2002). Upon the employer's merger with another company, the payments became explicit severance payments due upon retirement or termination, and the employees could elect to receive either a lump-sum payment or a stream of payments. Id. at 619, 622. We explained:
Regardless of how Appellees chose to receive those payments, the total amount to be paid was based on a onetime 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). Ap-pellees then received a percentage of what they would normally receive in Social Security based on the total number 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 [u NL Industries, Inc., 953 F.2d 960, 961 (5th Cir.1992)], simply because Marine Chartering offered Ap-pellees the option of. receiving that payment over a period of time does not mean that the ERHCP amounts to an administrative scheme.
Tinoco, 311 F.3d at 622. Concluding that "writing a check each month is hardly an administrative scheme," we held the severance payments at issue did not constitute an ERISA plan. Id. at 623.
We then held in Peace v. American General Life Insurance Company that an employer's one-time payment into an annuity, which was then transferred to an employee for retirement payments, did not constitute an ERISA plan. 462 F.3d 437, 441 (5th Cir.2006). After the employer's payment "there was no subsequent demand on its assets," the event triggering payment may never have materialized, and "the predetermined benefit, even when paid over time, did not amount to an administrative scheme." Id. (citing Tinoco, 311 F.3d at 618-19, 622). Significantly, we rejected the employer's assertions that it theoretically could have made various discretionary decisions, as it was the owner of the annuity for a brief amount of time, because no administrative scheme was required. Id. at 462 F.3d at 441-42 ("[T]he fact that [the employer] could have developed an unnecessary administrative scheme or performed unnecessary, ongoing administrative tasks is irrelevant to our analysis.").
This circuit has often cited the Ninth Circuit's decision in Bogue v. Ampex Corporation, 976 F.2d 1319 (9th Cir.1992) (Wisdom, J., sitting by designation). See, e.g., Peace, 462 F.3d at 440 n. 6; Tinoco, 311 F.3d at 621. Bogue involved a program whereby an employer would provide certain executives severance benefits in the event the employees were not offered "substantially equivalent employment" once the employer was sold to another company. Bogue, 976 F.2d at 1321. The program designated the buying company as the entity that would determine whether the employment offered to any given executive was substantially equivalent to the position the executive previously held. Id. Even though the plan was triggered by a single event, that event "would occur more than once, at a different time for each employee," "the program's administration required a case-by-case, discretionary application of its terms," and "there was no way to administer the program without an administrative scheme." Id. at 1323. Accordingly, Bogue held an ERISA plan existed. Id.
The Ninth Circuit later clarified Bo-gue 's requirement of discretion in a case where severance benefits depended on whether the employee was terminated "for cause":
Here, as in Delaye [v. Agripac, Inc., 39 F.3d 235 (9th Cir.1994) ], the employer was simply required to make a single arithmetical calculation to determine the amount of the severance benefits. While in both cases, a "for cause" termination would change the benefits due to the employee, the Delaye court did not deem this minimal quantum of discretion sufficient to turn a severance agreement into an ERISA plan. Contrary to PACE's assertions, the key to our holding in Bogue was that there was "enough ongoing, particularized, administrative discretionary analysis," 976 F.2d at 1323 (emphasis added), to make the plan an "ongoing administrative scheme," not that the agreement simply required some modicum of discretion. The level of discretion, if any, which PACE was required to exercise in implementing the agreement was slight. It failed to rise to the level of ongoing particularized discretion required to transform a simple severance agreement into an ERISA employee benefits plan.
Velarde v. PACE Membership Warehouse, Inc., 105 F.3d 1313, 1316 (9th Cir.1997).
In Crowell v. Shell Oil Company, we considered "Letters of Agreement" that required an employer to make a one-time payment to two employees for "the amount of pension and savings money they would lose as a result of certain tax regulations" following a change of control at the employer, as well as monthly pension payments to offset reductions in benefits resulting from tax regulations. 541 F.3d 295, 299 (5th Cir.2008). Only the one-time payment was at issue. Id. at 298. We held the letters were distinguishable from the payment required in Fort Halifax because the one-time payment was "embedded within a letter that includes a more comprehensive 'plan,' " requiring monthly pension payments for life, and because calculating the monthly pensions and one-time payment relied on calculations made in the employer's separate underlying employee benefit plans. Id. at 305. In addition, the letters explicitly referenced "administrative procedures" used in the letters and in the separate benefit plans. Id. We held:
Although the individual cash payment in this case does not itself require continuing administration, the letter of which it is a part contains other provisions that do.... [T]he cash payment . relies upon calculations made under plans that require continuing administration, and that Letter of Agreement refers specifically to administrative procedures .that must be followed.
Id. at 306. Accordingly, the letters constituted an ERISA plan. Id. at 307.
Against this backdrop, we hold the Cantrells' deferred compensation arrangements in their Employment Agreements with B & V do not constitute an ERISA plan, but rather are employment contract arrangements governed by state law. There is no necessity for "an ongoing administrative program to meet the employer's obligation" to provide deferred compensation. Fort Halifax, 482 U.S. at 11, 107 S.Ct. 2211. Like the arrangement in Tinoco, the amount of deferred compensation B -& V is to pay the Cantrells is "based on a one-time calculation using a fixed formula," and writing a check each quarter "is hardly an administrative scheme." Tinoco, 311 F.3d at 622. In other words, "the pre-determined benefit, even when paid over time, [does] not amount to an administrative scheme." Peace, 462 F.3d at 441.
Unlike the compensation arrangement at issue in Bogue, the Cantrells' deferred compensation arrangements neither involve discretionary decisions, such as deciding whether an employment offer is for "substantially equivalent employment," nor explicitly give the employer, B & V, authority to make such discretionary decisions. Cf. Bogue, 976 F.2d at 1321. And unlike in Crowell, the amount and duration of payments here is fixed, the amount due does not depend on decisions made in underlying ERISA plans, and the deferred compensation agreements do not reference administrative procedures that must be followed. Cf. Crowell, 541 F.3d at 305-306.
B & V asserts it must perform ongoing discretionary actions and complex calculations because the compensation formula caps the total amount of payments each quarter, it must 'monitor' its former employees to ensure they do not compete against B & V during the pay-out period, and it must use discretion to determine whether a triggering event occurred.
First, the possibility the cap would ever be triggered is remote. Internal B & V documents, assuming a normal growth rate, show the cap would never be reached. Even if it were triggered, there is nothing discretionary or complex about reducing each payee's amount proportionally and adding the reduction to future payments. Even if the precise amount to be added to each, future payment involves a "modicum of discretion," it is simply not "enough ongoing, particularized, administrative discretionary analysis" to constitute an administrative scheme as it involves very little discretion, if any at all (presumably the full amount should be added as soon as possible to future payment, subject to the cap). Velarde, 105 F.3d at 1316 (quoting Bogue, 976 F.2d at 1323). And again, it is unlikely the cap will ever be triggered. Though we recognize our precedents did not directly address the existence of a cap that may modify the exact disbursement of payments, we do not agree with B & V that the remote possibility of minor pay ment redistribution over the payment period requires such a level of discretion or complex calculations that an ongoing administrative scheme is necessary, especially where the "total amount to be paid [is] based on a one-time calculation using a fixed formula." Tinoco, 311 F.3d at 622.
Second, B & V's use of Patrick Cantrell's situation as evidence that it must 'monitor' payees illustrates there is no administrative scheme set up. B & V discontinued Patrick's payments after discovering Carol's C & C document in B & V's office, not as a result of any 'monitoring' on B & V's part. Nor does B & V explain what such 'monitoring' would constitute or how it would require an ongoing administrative scheme. Just as we rejected the assertion of the employer in Peace that it could have set up a hypothetical administrative scheme to ensure its former employee continually received checks from his annuity,- Peace, 462 F.3d at 441^42, we reject B & V's assertion that it needs a hypothetical administrative scheme to 'monitor' its former employees.
Third, though the triggering events here are like the one at issue in Bogue in that they "would occur more than once, at a different time for each employee," Bogue, 976 F.2d at 1323, and different from the ones in Fort Halifax and Peace, where the triggering event may never occur, Fort Halifax, 482 U.S. at 12, 107 S.Ct. 2211, Peace, 462 F.3d at 441, they simply do not require more than a "modicum of discretion," Velarde, 105 F.3d at 1316 (construing Bogue, 976 F.2d at 1323), as they can be easily ascertained. The employee must retire, become disabled, die, or be terminated on grounds other than with cause. Though B & V asserts it used discretion to determine whether Carol was terminated "with cause," we reject the notion that this is enough to necessitate an ongoing administrative scheme. See Velarde, 105 F.3d at 1316 ("While . a 'for cause' termination would change the benefits due to the employee, . this minimal quantum of discretion [is not] sufficient to turn a severance agreement into an ERISA plan."). Even less plausible is B & V's assertion that it had to use enough discretion to justify an ongoing administrative scheme when it decided Patrick's retirement constituted a "retirement" triggering event. Cf Clayton v. ConocoPhillips Co., 722 F.3d 279, 283 n. 2, 295-96 (5th Cir.2013) (forthcoming publication) (holding discretion exists where plan administrator must decide whether employee resignation was result of "a substantial reduction of the [employee]'s position or responsibilities").
Because the Cantrells' deferred compensation arrangements do not necessitate an bngoing administrative scheme, there is no ERISA plan. Accordingly, the Cantrells' state law claims are not preempted by ERISA. "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." Tinoco, 311 F.3d at 623 (quoting Kulinski v. Medtronic Bio-Medicus, Inc., 21 F.3d 254, 256 (8th Cir.1994)).
III
For the foregoing reasons, we REVERSE and REMAND with instructions to remand to the state court.
. Compare Cantrells' Employment Agreements (providing vested percentage would be 80% after twenty years creditable service and would increase by 10% in each, of following two years), with Remaining Employment Agreements ("After four (4) years of Creditable Service, the Employee's Vested Percentage shall be twenty percent (20%). The Employee shall vest at five percent (5%) a year thereafter up to twenty years of Creditable Service; provided, however, the Employee shall be subject to a percentage reduction of five percent (5%) a year prior to age 55, four percent (4%) a year prior to age 60, and- three percent a year (3%) prior to age 65.").
. Some originally used 25% of net profit, but they renegotiated' their contracts in 2008. Patrick was already receiving benefits in 2008, and Carol refused to renegotiate.
. The only two mentions of the word "discretion" in the deferred compensation section of Carol's Employment Agreement occurs in the paragraphs governing severance payment in the event of termination without cause and payment upon death, and only gives B & V the discretion to make those payments as a lump sum instead of as installments.
. The dissent reasons an administrative scheme is necessary because "unless and until B & V makes the calculation, at least annually, it cannot be determined if the cap is to be applied." Post at 4. This reasoning would allow a company to transform an employment contract into an ERISA plan simply by including a hypothetical cap, no matter how unlikely it is to ever be reached. Here, the only evidence in the record regarding the likelihood of reaching the cap was generated by B & V and indicates the cap is unlikely to ever be reached. The inclusion of this cap simply does not necessitate "enough ongoing, particularized, administrative discretionary analysis" to constitute an administrative scheme. See Velarde, 105 F.3d at 1316 (quoting Bogue, 976 F.2d at 1323).