Court Opinion

ID: 1008961
Source: CourtListenerOpinion
Date Created: 2013-07-04 19:48:14.962399+00
Date Added: 2024-06-11T15:11:58.092064
License: Public Domain

UNPUBLISHED

UNITED STATES COURT OF APPEALS
                 FOR THE FOURTH CIRCUIT

MICHAEL LOMAS,                          
                 Plaintiff-Appellant,
                 v.
                                                  No. 01-2139
RED STORM ENTERTAINMENT,
INCORPORATED,
              Defendant-Appellee.
                                        
           Appeal from the United States District Court
      for the Eastern District of North Carolina, at Raleigh.
             Terrence W. Boyle, Chief District Judge.
                       (CA-01-237-5-BO)

                      Argued: September 23, 2002

                      Decided: October 28, 2002

     Before NIEMEYER, MOTZ, and KING, Circuit Judges.

Vacated and remanded by unpublished per curiam opinion.

                             COUNSEL

ARGUED: Lisa Grafstein, GRAFSTEIN & WALCZYK, P.L.L.C.,
Raleigh, North Carolina, for Appellant. James Benjamin Trachtman,
KILPATRICK STOCKTON, L.L.P., Raleigh, North Carolina, for
Appellee. ON BRIEF: Hayden J. Silver, III, KILPATRICK STOCK-
TON, L.L.P., Raleigh, North Carolina, for Appellee.
2                LOMAS v. RED STORM ENTERTAINMENT
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

                               OPINION

PER CURIAM:

   Michael Lomas appeals the district court’s award of summary
judgment in favor of his former employer, Red Storm Entertainment,
Inc. ("Red Storm"). Lomas sued Red Storm seeking benefits due
under an individual retention/severance agreement (the "Agreement"),1
alleging violations of both the common law and the Employee Retire-
ment Income Security Act of 1974, 29 U.S.C. §§ 1001-1461
("ERISA"). The district court concluded that the Agreement was part
of Red Storm’s Retention and Severance Program (the "RSP"), and
it awarded summary judgment in favor of Red Storm on the basis that
Lomas did not exhaust the remedies provided in the RSP and failed
to show that resort to the internal grievance procedure would have
been futile. See Lomas v. Red Storm Entm’t, Inc., No. 5:01-CV-237-
BO(2), Order (E.D.N.C. Aug. 14, 2001) (the "Order"). As explained
below, we vacate and remand.

                                    I.

                                   A.

  Lomas was initially employed in 1997 by Red Storm, a video game
publisher, as its Vice President of Product Development. He first
worked in the United Kingdom and in 1998 he transferred to North
Carolina.2 In addition to serving as Vice President of Product Devel-
    1
     Red Storm and Lomas entered into the retention/severance agreement
on June 6, 1999; it was subsequently amended on June 14, 2000. We
refer to the retention/severance agreement and its amendment collec-
tively as the "Agreement."
   2
     In reviewing an award of summary judgment, we are obliged to con-
strue the underlying facts in the light most favorable to the party oppos-
ing the motion. Lone Star Steakhouse & Saloon, Inc. v. Alpha of Va., 43
F.3d 922, 928 (4th Cir. 1995).
                LOMAS v. RED STORM ENTERTAINMENT                    3
opment, Lomas was the Secretary of Red Storm’s Board of Directors.
On June 4, 1999, Red Storm established the RSP, which provides dis-
cretionary severance benefits to its employees in the event that their
employment is terminated. On June 6, 1999, Red Storm and Lomas
executed the Agreement, which provides Lomas with specific sever-
ance benefits in the event of termination. In 2000, Red Storm engaged
in negotiations with another software company, Ubi Soft, regarding
a possible acquisition and merger. On June 14, 2000, Red Storm
amended its Agreement with Lomas to provide him greater protection
in the event a corporate merger between Red Storm and Ubi Soft was
consummated. The amendment authorized Lomas to receive sever-
ance benefits not only if he was terminated, but also in the event he
resigned for "good reason" during a specified period surrounding a
change in the control of Red Storm.

   In September of 2000, Red Storm was acquired by Ubi Soft, and
it was subsequently merged with one of Ubi Soft’s subsidiaries, Ubi
Soft Newco 1. Lomas alleges that, following the merger, he experi-
enced a diminution in status. For example, he was no longer involved
in the strategy and direction of Red Storm, he was removed as Secre-
tary of its Board of Directors, and while other staff members received
pay increases, he did not. On October 29, 2000, Lomas sent an e-mail
to his then supervisor, Christine Burgess, outlining his concerns
regarding these changes in his status. In a subsequent conversation
between Ms. Burgess and Lomas, on November 10, 2000, Ms. Bur-
gess agreed that Lomas’s role with Red Storm had been reduced.

   Soon thereafter Lomas spoke with Red Storm’s lawyer and, on
December 15, 2000, the lawyer provided Lomas with a proposed sev-
erance package, as well as a separate consulting agreement. The pro-
posal would have given Lomas benefits that were significantly
reduced from those available to him under the Agreement. Lomas
rejected the proposed severance package and resigned from Red
Storm in January of 2001. He alleges that, in the weeks leading up to
his resignation, both he and his attorney requested that Red Storm pay
the severance benefits due him under the Agreement. In response,
Lomas was advised by Red Storm’s lawyer and its Financial Control-
ler that he would not be paid in accordance with the Agreement.
4                LOMAS v. RED STORM ENTERTAINMENT
                                   B.

   Lomas filed his complaint against Red Storm on February 22,
2001, in the Wake County, North Carolina, Superior Court, alleging
a common law breach of contract and a violation of ERISA. Red
Storm then removed the case to the Eastern District of North Caro-
lina, asserting that Lomas’s claims were governed by ERISA. On
April 19, 2001, Red Storm moved to dismiss Lomas’s complaint for
failure to exhaust the RSP’s remedies, supporting its motion with a
copy of Red Storm’s RSP, Lomas’s resignation letter, and several
affidavits. In response to the motion to dismiss, Lomas also submitted
various supporting documents to the court, including his own affidavit
and his e-mail of October 29, 2000, to Ms. Burgess.

   In its Order of August 14, 2001, the district court observed that Red
Storm had failed to denominate the procedural rule under which its
motion was filed. However, because the parties had presented it with
materials outside the pleading in connection with the motion to dis-
miss, the court converted the motion to dismiss to a motion for sum-
mary judgment.3 Order at 2. The court then determined that the RSP
was governed by ERISA and that the Agreement constituted part of
the RSP. Accordingly, it granted summary judgment in favor of Red
Storm because Lomas had failed to exhaust the remedies provided to
him in the RSP. Id. at 4. Lomas filed a timely notice of appeal, and
we possess jurisdiction pursuant to 28 U.S.C. § 1291.

                                   II.

   This Court reviews de novo a district court’s award of summary
judgment, applying the same legal standards used by the district court
and viewing the facts and inferences drawn therefrom in the light
most favorable to the non-movant. Lone Star Steakhouse & Saloon v.
    3
    Pursuant to Rule 12(b) of the Federal Rules of Civil Procedure, a
court is required to treat a Rule 12(b)(6) motion to dismiss as a summary
judgment motion when "matters outside the pleading are presented to
and not excluded by the court." In such a situation, "the motion shall be
. . . disposed of as provided in Rule 56, and all parties [must] be given
[a] reasonable opportunity to present all material made pertinent to such
a motion by Rule 56."
                 LOMAS v. RED STORM ENTERTAINMENT                     5
Alpha of Va., 43 F.3d 922, 928 (4th Cir. 1995). Summary judgment
is not appropriate unless there is no genuine issue of material fact and
the moving party is entitled to judgment as a matter of law. Celotex
Corp. v. Catrett, 477 U.S. 317, 322 (1986). However, the ultimate
issue of whether an employee benefit plan is governed by ERISA is
a mixed question of fact and law. See Custer v. Pan Am. Life Ins. Co.,
12 F.3d 410, 416 (4th Cir. 1993).

                                  III.

                                  A.

   In order to determine whether Red Storm was entitled to summary
judgment in this case, it is necessary for us to first examine in some
detail the provisions of both the RSP and the Agreement.

   On June 4, 1999, Red Storm established the RSP, which provides
discretionary benefits to Red Storm employees in the event such
employees are terminated. The RSP is plainly regulated by ERISA
because it is an "employee benefit plan" established by an "employer
engaged in commerce." 29 U.S.C. § 1003(a)(1). The RSP allows the
Program Administrator, "in its sole discretion," to award a severance
allowance to an employee. RSP at § 3. Additionally, the RSP permits
Red Storm to "amend or terminate" it at any time, and it also provides
that, except to the extent preempted by ERISA, it is to be "construed
in accordance with the laws of the State of North Carolina." Id. at
§§ 8, 9. Finally, the RSP contains an internal grievance procedure,
pursuant to the requirements of ERISA. See 29 U.S.C. § 1133. This
procedure provides that, when a claimant is unsatisfied with the deci-
sion of the Program Administrator regarding a claim for benefits
under the RSP, he "may appeal the decision . . . by filing a written
request with the Program Administrator." Id. at § 7. Within sixty
days of the filing of the written request, the "claimant shall receive
written notice of the Program Administrator’s final decision." Id.

   The Agreement recites, in its introductory paragraph, that it is
made "pursuant to the terms and conditions" of the RSP, and it speci-
fies the severance benefits due Lomas in the event he resigns for
"good reason" or if he is terminated.4 Agreement at ¶ 5. In addition,
  4
   The Agreement defines "good reason" as including the "termination
of [an] Employee’s employment by Employee within three months prior
6                 LOMAS v. RED STORM ENTERTAINMENT
the Agreement states that it "supersedes all prior agreements and
understandings" and provides that "no change, modification, [or] ter-
mination [will be] binding upon any party . . . unless reduced to writ-
ing and signed by the party against whom enforcement is sought." Id.
at ¶ 4, 5. In contrast to the RSP, which may be terminated by Red
Storm at any time, the Agreement provides that it "shall remain in
effect for the duration of the Employee’s employment with the Com-
pany." Id. at ¶ 1. The choice of law provision in the Agreement makes
no mention of ERISA preemption, and it mandates that the Agree-
ment be construed in accordance with North Carolina law. Id. at ¶ 8.
Finally, the Agreement provides that, in the event Lomas is entitled
to benefits thereunder, he will "not be entitled to benefits under any
other severance plan, policy or arrangement of the Company." Id. at
¶ 10.

                                    B.

    The principal issue in this case is whether the Agreement is gov-
erned by ERISA, either of its own accord or by virtue of its connec-
tion to the RSP. As explained below, we conclude that there are
genuine issues of material fact on both of these points. Specifically,
it is unclear whether the Agreement, on its own, constitutes an "em-
ployee benefit plan" within ERISA; and it is similarly unclear
whether the Agreement is governed by ERISA as part of the RSP.

                                     1.

   First, the fact that the Agreement addresses the issue of severance
benefits is, standing alone and absent some connection to the RSP,
insufficient to bring it under the umbrella of ERISA. In Fort Halifax
Packing Co. v. Coyne, 482 U.S. 1 (1987), the Supreme Court
explained the types of employee benefit arrangements that trigger
ERISA preemption. It pointed to the express language of ERISA,
which calls for the preemption of any state law that "relate[s] to any

to or eighteen months following a Change of Control on account of . . .
a material diminution in status," "a reduction in Base Salary," or "a trans-
fer to a location necessitating a change in his principal residence."
Agreement at ¶ 2(h)(v).
                 LOMAS v. RED STORM ENTERTAINMENT                       7
employee benefit plan." Id. at 8 (quoting 29 U.S.C. § 1144(a))
(emphasis in original). The Court made clear that ERISA regulates
employee benefit plans, not simply employee benefits. The Court
determined that a benefit "plan" is one that "requires an ongoing
administrative program to meet the employer’s obligation." Id. at 11.
The Court went on to conclude that an arrangement requiring a "one-
time, lump-sum payment triggered by a single event," particularly one
that might never occur, is not a "plan" regulated by ERISA. Id. at 12.
In so concluding, the Court emphasized that such a payment "requires
no administrative scheme whatsoever." Id. Thus, if a benefit plan does
not require an administrative scheme in order for an employer to ful-
fill its obligations thereunder, it appears not to be governed by
ERISA.

   In our assessment of this case, we are impressed by and find per-
suasive the decision of one of our sister circuits. In Kulinski v.
Medtronic Bio-Medicus, Inc., 21 F.3d 254 (8th Cir. 1994), the Eighth
Circuit had occasion to assess whether a similar agreement was gov-
erned by ERISA. In so doing, it determined that the terms of that
agreement did not fall within ERISA’s regulatory scope because
"once a . . . takeover occurred and [the employee] resigned his
employment . . . there was nothing for the company to decide, no dis-
cretion for it to exercise, and nothing for it to do but write a check."
Id. at 258.

   A straightforward application of the Fort Halifax and Kulinski
standards to the Agreement between Red Storm and Lomas indicates
that it is not inherently governed by ERISA. The Agreement provides
Lomas with severance benefits if he is terminated, or if he has "good
reason" to end his employment in the three-month period prior to a
change of control, or in the eighteen-month period following a change
of control. The term "good reason" is defined in the Agreement, see
supra note 4, thus leaving Red Storm with no discretion to determine
either (a) whether Lomas was entitled to severance benefits, or (b) the
amount of benefits he was to receive. Therefore, the Agreement, on
its face, is similar to the one in Kulinski; it does not require an admin-
istrative scheme and it does not appear to be an employee benefit plan
as defined by ERISA.
8                LOMAS v. RED STORM ENTERTAINMENT
                                   2.

   We are similarly unconvinced, on this record, that the Agreement
is part of the RSP. As we have pointed out, it is undisputed that the
RSP is an employee benefit plan regulated by ERISA. Therefore, if
the Agreement is part of the RSP, it too is governed by ERISA. As
a result, and as the district court properly recognized, Lomas’s state
law contract claim would be preempted. Unless resort to the internal
grievance procedure would be futile, the court would be required, pur-
suant to ERISA, to dismiss Lomas’s ERISA claim for failure to
exhaust the remedies provided by the RSP. Makar v. Health Care
Corp. of the Mid-Atlantic (Carefirst), 872 F.2d 80, 82 (4th Cir. 1989)
("[A]n ERISA claimant generally is required to exhaust the remedies
provided by the employee benefit plan in which he participates as a
prerequisite to an ERISA action for denial of benefits under 29 U.S.C.
§ 1132.").

   In concluding that the Agreement constituted part of the RSP, the
district court relied exclusively on the Agreement’s introductory para-
graph, which recites that it was "made and entered into . . . pursuant
to the terms and conditions of the [RSP]." However, this introductory
recitation, when read in context with the balance of the Agreement
and the RSP, is hardly dispositive of the ERISA question. For exam-
ple, the Agreement, executed after the RSP was created, specifically
supersedes all prior agreements and understandings between Lomas
and Red Storm on the issue of severance benefits. Agreement at ¶ 4.
This provision could well signify that the Agreement supersedes the
RSP. Supporting this contention, the Agreement provides that
Lomas’s entitlement to benefits thereunder would foreclose his right
to receive benefits under any other severance plan. Id. at ¶ 10. In addi-
tion, the Agreement provides that it "shall remain in effect for the
duration of the Employee’s employment with the Company." Id. at
¶ 1. On the other hand, the RSP makes clear that Red Storm can uni-
laterally terminate the RSP at any time. RSP at § 8. Collectively,
these provisions of the Agreement cast further doubt on the district
court’s conclusion that, as a contractual matter, the Agreement is part
of the RSP. In addition, any ambiguity concerning whether the Agree-
ment constitutes part of the RSP would probably be construed against
Red Storm, as the Agreement’s drafter. See Doe v. Group Hospital-
ization & Med. Servs., 3 F.3d 80, 89 (4th Cir. 1993). Thus, Red Storm
                    LOMAS v. RED STORM ENTERTAINMENT                          9
was not entitled to summary judgment based solely on the introduc-
tory paragraph of the Agreement.

   Red Storm’s contention that the Agreement cannot be read as sepa-
rate and distinct from the RSP is likewise unpersuasive. The RSP,
while available to all employees of Red Storm, does not purport to be
the exclusive means through which those employees may receive sev-
erance benefits; indeed, our review of the RSP indicates that partici-
pation in it, and an employee’s obligation to follow the internal
grievance procedure provided therein, are triggered by the employee’s
decision to become a claimant.5 Because the Agreement provides a
distinct mechanism for triggering Red Storm’s benefits obligation to
Lomas (either termination by Red Storm or Lomas’s written notice of
resignation for "good reason"), it is not clear that the benefits pro-
vided for under the Agreement merely supplement those provided by
the RSP. Indeed, as discussed above, if Lomas is entitled to benefits
under the Agreement, he is foreclosed from accepting benefits under
any other severance agreement, presumably including the RSP.
Agreement at ¶ 10 ("[I]f the Employee is entitled to benefits under
this Agreement, the Employee shall not be entitled to benefits under
any other severance plan, policy, or arrangement of the Company or
its affiliates."). In light of this foreclosure provision, the Agreement
may well provide Lomas with a separate and independent basis for
receiving severance benefits.

  5
   In order for an employee to receive severance benefits under the RSP,
he must first make a written claim with the Program Administrator. Only
after such a claim is made is the employee obligated to follow the inter-
nal grievance procedure provided for in the RSP. More specifically, the
RSP provides:
      A Participant . . . may make a claim for benefits under the Pro-
      gram by filing a written claim with the Program Administrator.
      . . . If a claimant is not satisfied with the decision of the Program
      Administrator . . . the claimant may appeal the decision of the
      Program Administrator by filing a written request with the Pro-
      gram Administrator.
RSP at § 7.
10               LOMAS v. RED STORM ENTERTAINMENT
                                   3.

   Although the district court properly converted Red Storm’s motion
to dismiss into one for summary judgment, to consider "matters out-
side the pleading," the court failed to provide "all parties [a] reason-
able opportunity to present all material made pertinent to such a
motion," as required by Rule 12(b). Because of the apparent ambigui-
ties in the RSP and in the Agreement, there is a genuine issue of
material fact as to whether the Agreement is a part of the RSP and
thus governed by ERISA. The Agreement is governed by North Caro-
lina law and, under applicable North Carolina legal principles, where
"the terms of a written contract or other instrument are susceptible of
more than one interpretation, or an ambiguity arises, . . . parol or
extrinsic evidence may be introduced to show what was in the minds
of the parties at the time of making the contract." Root v. Allstate Ins.
Co., 272 N.C. 580, 587 (1968) (internal quotation omitted). In this
instance, parol evidence may well assist the parties and the court on
the question of whether the Agreement was intended to be part of the
RSP. As a result, the parties should be accorded an opportunity to
conduct any relevant discovery, and they should be permitted to pre-
sent to the court any materials pertinent to the issue.6

                                  IV.

   Pursuant to the foregoing, we vacate the Order granting summary
judgment and we remand for such other and further proceedings as
may be appropriate.

                                        VACATED AND REMANDED
  6
   In light of our disposition here, we need not consider whether resort
to the internal grievance procedure of the RSP would have been futile.