Court Opinion

ID: 9491256
Source: CourtListenerOpinion
Date Created: 2023-08-05 14:08:29.456915+00
Date Added: 2024-06-11T17:54:37.033242
License: Public Domain

ILANA DIAMOND ROVNER, Circuit Judge,
dissenting.
Fort Halifax advises that “ERISA preemption analysis ‘must be guided by respect for the separate spheres of governmental authority preserved in our federalist system.’ ” Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 19, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987) (quoting Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 522, 101 S.Ct. 1895, 68 L.Ed.2d 402 (1981)). When we federalize state law causes of action, we deprive the States of opportunities bo “address uniquely local social and economic problems.” Fort Halifax, 482 U.S. at 19, 107 S.Ct. 2211. Because of this concern, Congress was careful to limit ERISA pre-emption to those instances where employers might be subject to conflicts between the laws of the various States or conflicts between state and federal regulations in relation to benefit plans. See Alessi, 451 U.S. at 522, 101 S.Ct. 1895 (the exercise *601of federal supremacy is not lightly to be presumed; pre-emption of state law by federal statute is not favored in the absence of persuasive reasons).
Fort Halifax teaches that not every benefit constitutes a benefit plan, and that only plans are controlled by ERISA. 482 U.S. at 11, 107 S.Ct. 2211. The reason for ERISA preemption, the Supreme Court explains, is to avoid subjecting an employer to the diverse regulatory requirements of the various States:
An employer that makes a commitment systematically to pay certain benefits undertakes a host of obligations, such as determining the eligibility of claimants, calculating benefit levels, making disbursements, monitoring the availability of funds for benefit payments, and keeping appropriate records in order to comply with applicable reporting requirements. The most efficient way to meet these responsibilities is to establish a uniform administrative scheme, which provides a set of standard procedures to guide processing of claims and disbursement of benefits. Such a system is difficult to achieve, however, if a benefit plan is subject to differing regulatory requirements in differing States.
Id., 482 U.S. at 9, 107 S.Ct. 2211. One of Congress’ concerns was that employers would reduce benefits if faced with the costs of complying with varying requirements by the States. Id., 482 U.S. at 10, 107 S.Ct. 2211.
In Fort Halifax, the Supreme Court deemed not pre-empted a Maine statute that established a severance benefit for employees who lost their jobs due to plant closings or relocations. The Court reasoned that Congress’ concern about subjecting employers to differing regulations arose only “with respect to benefits whose provision by nature requires an ongoing administrative program to meet the employer’s obligation.” 482 U.S. at 11, 107 S.Ct. 2211. ERISA pre-emption thus applies only to plans rather than to benefits because “[o]nly a plan embodies a set of administrative practices vulnerable to the burden that would be imposed by a patchwork scheme of regulation.” 482 U.S. at 11-12, 107 S.Ct. 2211. In the case of the Maine statute, a requirement that an employer provide a severance benefit of one week’s pay for every year of employment was not a plan because it contemplated only a one-time, lump-sum payout, triggered by a single event. The Court noted that the employer assumed no responsibility to pay benefits on a regular basis and faced no periodic demand on its assets that would create a need for financial coordination and control. Further, the benefit was predicated on the occurrence of a contingency that might never occur, that being the closing or relocating of the plant. The Court thus declined to find pre-emption because “the theoretical possibility of a onetime obligation in the future simply creates no need for an ongoing administrative program for processing claims and paying benefits.” 482 U.S. at 12,107 S.Ct. 2211.
The majority here relies on the existence of multiple severance contracts to conclude that Collins’ state law contract action is preempted by ERISA. Yet nothing in the record supports the majority’s conclusion that there are as many as sixty agreements, each requiring consistent discretionary decisions to be made over time. The majority distinguishes the Golden Cat severance agreements from the statutory benefits in Fort Halifax, positing that “Golden Cat faced the prospect of multiple payments to various managers, at different times and under different circumstances.” Supra, at 595. The majority assumes that the company would be expected to process claims like Collins’ in a consistent manner, which in turn would require an administrative scheme of procedures and record keeping. Supra, at 596. The most important distinguishing factor, the majority explains, is not the number of agreements per se, but the fact that Golden Cat executed multiple agreements requiring it to make non-clerical judgment calls. Supra at 597.
But only one contract appears in the record, and that is the contract between Collins and Golden Cat. Both Collins and Golden Cat advert to the existence of other contracts, but neither their number nor their terms are part of the record. The district court noted that, although the defendants claimed in their pleadings that there were sixty agree*602ments, they did not present any evidence of the existence or terms of any agreements other than the one at issue. Collins v. Golden Cat Corp. and Ralston Purina Co., No. 3:95-CV-943RM, slip op. at 9 n. 2 (N.D.Ind. May 2, 1996). The court also pointed out that any admissions by Collins regarding the other agreements were not based on independent knowledge and included no information about the terms of the agreements. Id. That should have been the end of the matter, for it was defendants’ burden to establish the basis for removal of the case from state to federal court and they clearly failed in that burden.1 But venturing beyond’ the record, the district court found that there was a second, “almost identical” agreement between Robert Orr, another key employee, and Golden Cat. Apparently, Mr. Orr had also sued Golden Cat for breach of his severance agreement, and his case had also been assigned to Judge Miller. Based on his awareness of that second contract, Judge Miller found that there were “two, and as many as about sixty, agreements substantially similar to that of Mr. Collins.” Id. The district court premised its determination of pre-emption on that factual finding. Without any evidentiary support in this record, that conclusion was error, an error that is regrettably repeated here by the majority.
At oral argument, Ralston and Golden Cat pointed to other evidence of multiple contracts in the record, all of which came after the trial court decided that jurisdiction existed, and none of which supports them claim that there were sixty “similar” contracts, each requiring consistent discretionary decisions.2 In particular, they cited the trial testimony of three former key employees and executives who testified that they each signed a severance agreement. The testimony of these executives in fact proves that these separate agreements were not meant to be subjected to a single set of administrative procedures, but contained differing terms and conditions for payment. One executive testified that his agreement was “substantially similar” to and “more lucrative” than Collins’ agreement (Tooker, Trial Transcript at 1-58, 1-82), another that his agreement was “different” and “perhaps” more lucrative than Collins’ agreement (Ra-mey, Trial Transcript at 1139), and a third stated that his agreement was “similar” to Collins’ agreement except that it provided a smaller benefit (Brew, Trial Transcript at II-245). At the same time, the terms of all of the agreements were designated confidential by Golden Cat and there was no testimony regarding the terms or conditions under which these employees would receive their severance benefits. As far as we know, the other employees entered into agreements that required no discretionary decisions whatsoever. What is clear, however, is that the contracts vary in their terms and necessarily do not envision consistent outcomes.
As the only agreement included in the record, Collins’ agreement must provide the sole basis for jurisdiction. But nothing in Collins’ agreement implicates the need for an ongoing administrative scheme with a set of procedures to determine payments. Fort Halifax, 482 U.S. at 11, 107 S.Ct. 2211. Nor *603does his agreement create a periodic demand on the company’s assets that would create a need for financial coordination and control. Id., 482 U.S. at 12, 107 S.Ct. 2211. And as in Fort Halifax, the benefit was predicated on the occurrence of a contingency that might never occur, in this case the termination of an employee if and when the company changed hands. This “theoretical possibility of a one-time obligation in the future simply creates no need for .an ongoing administrative program for processing claims and paying benefits,” and thus is not preempted by ERISA. Id. In fact, if the terms of Collins’ agreement are sufficient to establish ERISA pre-emption, then I believe that the line drawn by Fort Halifax has been erased, for any agreement requiring even a single discretionary decision regarding eligibility will trigger preemption, notwithstanding the fact that the contract governs the rights of only one employee.
None of the cases relied upon by the majority involved a single benefits contract between an employer and one employee. The most analogous case cited by the majority is Bogue, where. the employer established a “Special Compensation Program for Designated Key Executives.” 976 F.2d at 1321. Unlike the individual, quite possibly unique agreement between Golden Cat and Collins, the employer in Bogue implemented a single severance plan governing a number of employees. Under the plan, employees who were terminated or not offered “substantially equivalent” employment were eligible for the payments. Id., 976 F.2d at 1323. The Bo-gue court found that the plan required a case-by-case discretionary analysis, and thus an administrative scheme, to determine eligibility. Although Collin’s contract contains a similar contingency, his is the only contract in the record. Thus, unlike the plan in Bo-gue, there is no evident need for an ongoing administrative scheme to handle multiple transactions.3 The Bogue court also noted that the termination event could occur more than once and at a different time for each employee. Id.
Since Bogue, the Ninth Circuit has clarified that not every discretionary decision in a contract is enough to trigger ERISA preemption. Backing off of Bogue’s sweeping language, the court found that a severance contract between an employer and a single employee did not implicate an ongoing administrative scheme, even when the contract required monthly payments over a two-year period. Delaye v. Agripac, Inc., 39 F.3d 235, 237-38 (9th Cir.1994), cert. denied, 514 U.S. 1037, 115 S.Ct. 1402, 131 L.Ed.2d 289 (1995). The contract obligated the employer to pay the employee his regular salary prorated to the date of his termination if he was terminated for cause, or a fixed monthly amount for twelve to twenty-four months based on a formula if he was terminated without cause. Id., 39 F.3d at 237. The court distinguished Bogue by characterizing the terms of payment as a simple clerical determination not requiring an ongoing, particularized, administrative discretionary analysis, and by noting that this contract covered a single employee. Id., 39 F.3d at 238.
In Velarde v. PACE Membership Warehouse, Inc., 105 F.3d 1313 (9th Cir.1997), the Ninth Circuit limited Bogue even further. The court analyzed a severance agreement signed by twenty-five employees, that contained a provision requiring the employer to determine whether the employee was terminated for cause in calculating the size of the payment due. Although this decision required the exercise of managerial discretion, the court noted that “this minimal quantum of discretion [was not] sufficient to turn a severance agreement into an ERISA plan.” 105 F.3d at 1317. Contrary to the employ*604er’s contention • that some “modicum of discretion” was enough to trigger ERISA preemption, the court explained that the “key to our holding in Bogue was that there was ‘enough ongoing, particularized, administrative discretionary analysis,’ ... to make the plan an ‘ongoing administrative scheme.’ ” Id. (emphasis added by Velarde court). The court concluded that the level of discretion necessary to determine whether an employee was terminated for cause was “slight,” and failed to rise to the level of ongoing particularized discretion necessary to transform a simple severance agreement into an ERISA benefits plan. ZdThe instant case requires an exercise of discretion that the Ninth Circuit found sufficient to trigger ERISA preemption only, when it is part of a formal plan covering a large number of employees. Bogue, 976 F.2d at 1323. But Delaye and Ve-larde demonstrate that the need for some exercise of discretion, even when required on multiple occasions (and when payments are made over an extended period of time), is not always enough to trigger ERISA pre-emption.4 Because we have only Collins’ contract to consider, I do not believé we can find- the need for an ongoing administrative scheme.
True, this Court has held that a single agreement can constitute an ERISA plan. See Cvelbar v. CBI Illinois Inc., 106 F.3d 1368, 1376 (7th Cir.1997), cert. denied, - U.S. -, 118 S.Ct. 56, 139 L.Ed.2d 20 (1997). But in the only case in which we have so held, the agreement required monthly payouts over a three-year period following termination, implicating the need for financial oversight and planning. Id., 106 F.3d at 1376-77. The plan also involved a number of discretionary decisions. For example, employees terminated for cause were not eligible for benefits. We know from Delaye and Velarde that the Ninth Circuit does not consider this enough to trigger ERISA preemption. But the contract also required that the employer review the contract annually to determine if the employee was complying with the terms of a non-compete agreement. Moreover, the amount of the payments could not be calculated mechanically but depended on a number of factors that created a need for administrative involvement. In light of all of these factors, including the extended and periodic demand on assets creating a need for financial oversight, and because of the monitoring of the non-compete pact, we held that the agreement implicated an ongoing administrative scheme. Id.
Collins’ agreement, in contrast, required a onetime payout that could be calculated mechanically, similar to the payment in Fort Halifax. The payment would occur, if at all, during a relatively short period of time, because the agreement expired approximately 14 months after it was signed.5 Indeed, as in Fort Halifax, the condition precedent to the payment might never occur. Although Collins’ contract purports to require discretionary decisions, Golden Cat did not retain discretion to interpret or apply plan terms. Thus, the contract terms would be strictly construed against Golden Cat as the drafter of the agreement. Moreover, Collins’ contract contains no reference to the other contracts, or to any standards that would call for discretion and commensurate deference on our part. The defendants have, in effect, contracted themselves out of ERISA. In any event, even if executing the contract involved some discretionary decisions, nothing in the agreement created the need for an ongoing administrative scheme. Golden Cat *605was never in danger of being held to two different sets of standards by two different state regulatory schemes, because execution of Collins’ agreement never required the ongoing administrative scheme envisioned by the Court in Fort Halifax. ERISA preemption is, therefore, inapplicable.
Federal courts are courts of limited jurisdiction, and the party seeking removal to federal court bears the burden of proving that jurisdiction exists. County Collector, 96 F.3d at 895. The defendants here have utterly failed in that burden, and I believe the majority’s reliance on the existence of sixty contracts that do not appear anywhere in the record is misplaced. I would remand for the district court to hold a hearing to determine if the defendants could prove facts in support of jurisdiction. If the defendants put the terms of the alleged sixty contracts into evidence and demonstrated a need for an .ongoing administrative scheme to conduct the plan, I would agree that, as in Bogue, ERISA pre-empts Collins’ state law action. Until Golden Cat presents that evidence, federal jurisdiction is lacking. Therefore, I respectfully dissent.

. We review de novo the propriety of removal of a state action to federal court. Chase v. Shop 'N Save Warehouse Foods, Inc., 110 F.3d 424, 427 (7th Cir.1997); In the Matter of the Application of County Collector of the County of Winnebago, Illinois, 96 F.3d 890, 895 (7th Cir.1996). The party seeking removal has the burden of establishing the jurisdiction of the district court. County Collector, 96 F.3d at 895. Normally, we look no further than the plaintiff’s well-pleaded complaint in determining the presence or absence of "federal question” subject matter jurisdiction. Id. However, a plaintiff may not defeat removal by failihg to plead necessary federal questions in a complaint. Id., 96 F.3d at 896. Known as the "artful pleading doctrine,” this exception to the well-pleaded complaint rule allows courts to look beyond a plaintiff's characterization of a claim to determine whether a claim truly arises under federal law. Id. In this case, even when looking beyond the plaintiff’s well-pleaded complaint, I believe the defendants have not met their burden of showing that Collins’ state law contract claim is pre-empted by ERISA.

. Indeed, the very number of independent contracts suggests that Golden Cat meant to treat each key employee differently based on his or her value to the enterprise. If we knew nothing more of the terms of the agreements, the reasonable inference would be that these were sixty different contracts, each to be administered according to its own unique terms. If Golden Cat intended to treat the employees consistently, it would have implemented a program covering all employees, as the employer did in Bogue.

. Similarly, in Simas, also relied upon by the majority, a Massachusetts "tin parachute” law required employers to make substantial severance payments to employees who lost their jobs within a specified time period before or after a corporate takeover. 6 F.3d at 851. In order to be eligible for payment, each employee was required to meet the standard for unemployment benefits under state law. It is not at all difficult to see how such a scheme would require administrative oversight, and quite possibly subject the employer to differing regulatory requirements in different states. Indeed, the law in Simas seems tailor-made for ERISA pre-emption. In contrast, Collins’ agreement with Golden Cat required no ongoing administrative oversight, and because it applied only to him, there is no possibility that Golden Cat would be held to differing regulatory requirements on the same contract.

. See also James v. Fleet/Norstar Financial Group, Inc., 992 F.2d 463, 466-68 (2d Cir.1993) (employer's promise to pay employees 60 days additional salary following plant closing not an ERISA plan because no ongoing, particularized, administrative discretionary analysis required); Fontenot v. NL Industries, Inc., 953 F.2d 960, 962-63 (5th Cir.1992) (golden parachute plan providing executives terminated within two years of a change in control with a lump-sum cash payment and a three-year continuation of certain benefits not an ERISA plan); Wells v. General Motors Corp., 881 F.2d 166, 175-76 (5th Cir. 1989), cert. denied, 495 U.S. 923, 110 S.Ct. 1959, 109 L.Ed.2d 321 (1990) (severance scheme not an ERISA plan even though employees could elect installment payments over two-year period instead of lump-sum payout).

. The majority refers to an alleged admission by Collins at oral argument that his severance payment would not be due until he left the company, which could be "some time down the road.” Supra, at 597. However, I understood him to constrain that time frame to the length of the agreement.