Opposition Brief — Ingersoll-Rand Co. v. McClendon

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39- 2Zge MAR 16 1990

Lae Oa

JOSEPH F. SAPNIOL, Jf

NO. —

IN THE

Supreme Court of the Mnited States

OCTOBER TERM, 1989

INGERSOLL-RAND COMPANY,

Petitioner,

V.

PERRY McCLENDON,

Respondent.

RESPONDENT’S BRIEF IN RESPONSE TO

PETITIONER’S PETITION FOR A WRIT OF

CERTIORARI TO THE SUPREME COURT

OF THE UNITED STATES

GEORGE E. PLETCHER

(Counsel of Record )

MICHAEL Y. SAUNDERS

JOHN W. TAVORMINA

CARL D. KULHANEK, JR.

Attorneys for Respondent

Of Counsel:

HELM, PLETCHER, HOGAN, BOWEN & SAUNDERS

2700 America Tower

2929 Allen Parkway at Waugh

Houston, Texas 77019-2120

(713) 522-4550

— .

Alpha Law Brief Co., Inc 8748 Westpark — Houston, Texas 770¢ 789-2000

BEST AVAILABLE COPY

QUESTION PRESENTED

Whether the State of Texas may, judicially and/or

legislatively, create a cause of action for an employee

whose employment is subject to termination at the em-

ployer’s will when such employee is terminated in order

for the employer to avoid, among other things, making

future pension plan contributions.

Il

PARTIES TO THE PROCEEDINGS

The parties to the proceedings below were: Perry

McClendon and the Ingersoll-Rand Company. Mr. Mc-

Clendon has no interest in any corporate entity or

partnership.

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

29 USCS § 1140

§$ 1140. Interference with protected rights

It shall be unlawful for any person to discharge, fine,

suspend, expel, discipline, or discriminate against a par-

ticipant or beneficiary for exercising any right to which

he is entitled under the provisions of an employee benefit

plan, this title, section 3001 [29 USCS § 1201], or the

Welfare and Pension Plans Disclosure Act, or for the

purpose of interfering with the attainment of any right

to which such participant may become entitled under the

plan, this title, or the Welfare and Pension Plans Dis-

closure Act. It shall be unlawful for any person to dis-

charge, fine, suspend, expel, or discriminate against any

person because he has given information or has testified

or is about to testify in any inquiry or proceeding relating

to this Act or the Welfare and Pension Plans Disclosure

Act. The provisions of section 502 [29 USCS § 1132]

shall be applicable in the enforcement of this section.

IV Vv

29 USCS § 1144 TABLE OF CONTENTS

§ 1144. Other laws Page

; UGE UTD non vakdn hk cdccccicaccccs

(a) Supersedure; effective date. Except as provided in Q D I

subsection (b) of this section, the provisions of this title PARTIES TO THE PROCEEDINGS ................. n

and title IV shall supersede any and all State laws insofar “aaa AND STATUTORY PROVISIONS

‘ - BEPC erECCc ree TEL CCTCL Tee ee I

as they may now or hereafter relate to any employee Sates aa imine .

benefit plan described in section 4(a) [29 USCS § 1003 d — TE} on 1 TWRERUEEL UT CL TTL TT Vv

(a)] and not exempt under section 4(b) [29 USCS po Ps. Ge eer vil

§ 1003(b)]. This section shall take effect on January 1, ey I eo es Te oe se FO aE EN Saale 1

1975. SURTEIENT GF THE CAME ooo i a ks 2

a SUMMARY OF ARGUMENT ............. 5a dubeatts 3

— . cam dit dias aniaiidii SE an eee aa, 6

finitions. For pu

(c ; — ; I. SINCE RESPONDENT SEEKS LOST FUTURE

(1) The term “State law” includes all laws, deci- WAGES, MENTAL ANGUISH AND PUNITIVE

- : . . DAMAGES AND NOT PENSION BENEFITS,

sions, rules, regulations, or soma yom pn st: ERISA PREEMPTION DOES NOT APPLY. . 6

‘ the Unite _ . ,

the effect of law, of any State. A law o | Il. PREEMPTION OF A STATE LAW IS NOT

States applicable only to the District of Columbia | FAVORED ABSENT PERSUASIVE REASONS,

shall be treated as a State law rather than a law of AND THE REASONS FOR PREEMPTION AR-

; TICULATED BY THE PETITIONER DO NOT

the United States. MEET THIS STANDARD. ................... 10

(2) The term “State” includes a State, any political | Ill. ABSENT A SUIT FOR PENSION BENEFITS

a ili inn ie rs . instrumentalit | OR A SUIT REGARDING THE ADMINISTRA-

subdivisions thereof, or any agency Or In: nd | TION OR REGULATION OF A PENSION PLAN,

of either, which purports to regulate, directly or in- | PREEMPTION DOES NOT APPLY. ..... ais 11

directly, the terms and conditions of employee benefit | IV. ERISA PREEMPTION DOES NOT APPLY

plans covered by this title. SINCE INGERSOLL RAND WILL PAY THE

DAMAGES AND THE DAMAGES WILL NOT

AFFECT THE ADMINISTRATION OF PETI-

TIONER’S PENSION PLAN AND WILL NOT

BE PAID OUT OF PLAN FUNDS BY THE

PLAN FIDUCIARY. BRS eee 12

V. THE YTEXAS SUPREME COURT'S DECISION

IS CONSISTENT WITH THRE CONGRESSION-

AL INTENT REGARDING ERISA PREEMP-

(a a . 14

VI. FEDERAL DISTRICT COURTS HAVE HELD

THAT STATE CAUSES OF ACTION FOR THE

LOSS OF FUTURE OR PROSPECTIVE PEN-

SION BENEFITS ARE NOT PREEMPTED BY

| SPT rrr Titi rrr ete ete ee

VIB. CONCLUSION ..nncccccccccccccscceccccscces

APPENDIX:

Opinion of the Supreme Court of Texas ............

Opinion of 14th Court of Appeals of Texas .........

Page

16

18

la

18a

vil

TABLE OF AUTHORITIES

CASES Page

Aetna Life Insurance Co. v. Borges, 869 F.2d 142 (2d Cir.

RR LASER REAL SRS ENEL SAT e Maha Enes+sen 5,11

Alessi v. Raybestos-Manhattan, Inc., 451 US. 504, 101

SCL. 1005, 6B L.Ed. 2d 402 (1061) 2.2... ccccccccce 11

Authier v. Ginsberg, 757 F.2d 796 (6th Cir. 1985) ....... 12

Chicago & Northwestern Transportation Co. v. Kalo Rie &

Tile Co., 450 U.S. 311, 101 S.Ct. 1124, 67 L.Ed.2d 258

a a i a a ly 10

Dependah! v. Fallstaff Brewing Corp., 653 F.2d 1208 (8th

Sk EE S035 i ca atud ddbale ch bhd ies bbhadaeeennn 11

East Line & R.R.R. Co. v. Scott, 72 Tex. 70, 10 S.W. 99

Th Mt widens veh beeeeadeank ieaed deca bene Keese &

Fairmont Creamery Co. v. Ewing, 43 Ohio App. 191, 182

i OD ddidweinecbedees cb bean nsunedee cane 9

Fitzgerald v. Kodex Corp., 882 F.2d 586 (1st Cir. 1989) .. 12

Florida Lime & Avocado Growers, Inc. v. Pall, 373 U.S. 132,

83 S.Ct. 1210, 10 L.Ed.2d 148 (1963) ............... 10

Fort Halifax Packing Co., Inc. v. Coyne, 482 US. 1, 107

DAA. SEER, GH Eeteenae © CRURED oc cccnccccccvcccces: 6, 8, 10, 14

Franchise Tax Board v. Construction Laborers Vacation

Trust, 463 U.S. 1, 103 S.Ct. 2840, 77 L.Ed.2d 420 (1983) 15

Greenblatt v. Budd Co., 666 F.Supp. 735 (E.D. Pa. 1987) 13

Hovey v. Lutheran Medical Center, 516 F.Supp. 554 (E.D.

De St “ct pei Neemen vets eeS cavk ence onde nein 7

Malone v. White Motor Corp., 435 U.S. 497, 98 S.Ct. 1185,

Pe er CD a6cudViceuneudenéaseaeaewaes 10

Maxfield v. Central States Health, Welfare & Pension Funds,

See ak Rae. COR OE CED: ew wrinsoceceeseecees 12,13

Metropolitan Life Insurance Co. v. Massachusetts, 471 US.

724, 104 S.Ct. 2380, 95 L.Ed.2d 728 (1985) ........ 10

Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 107

DAR COeM, CS Geen SD CITE). cceccccceceseccnes 11

Pizlo v. Bethichem Steel Corp., 884 F.2d 116 (4th Cir.

DE etn nk6$0$esse bh dukdhd eee Cunt ed6606s00ur eee 16,17

Sabine Pilot Service v. Hauck, 687 SW.2d 733 (Tex. 1955) 9 4, 8,9

Savodnic v. Korvettes, Inc., 488 F.Supp. 822 (E.D. N.Y.

SE cuekht hed eud se 6ou eins vk ahd weeeeeeeaew eens ; 7

Schlenz v. United Airlines, Inc., 678 F Supp. 230 (N.D.

i lee siete dekh ai Cole te cee i7

Scott v. Gulf Oil Corp., 754 F.2d 1499 (9th Cir. 1985) 8, 16

Vill

CASES

Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 103 S.Ct. 2890,

77 L.EEA.2d 490 (1GBS) .nccccccccccvccccscccscccees

Totton v. New York Life Insurance Co., 685 F.Supp. 27

CH, Cah: BIBT) cccccccccsecccccccenssseccceccense

UNITED STATES STATUTES

i Ai i ore ekidenindedesse sein

YR TES RESTS RAR eee

OP SEES ARL AS ALE SEE EE AUB fee 8

OTHER AUTHORITIES

120 Cong. Rec. 29932 (1974) 2... cece ccc n nee een e nee

6,14

NO.

IN THE

Supreme Court of the Hnited States

OCTOBER TERM, 1989

INGERSOLL-RAND COMPANY.

Petitioner,

Vv.

PERRY McCLENPON,

Respondent.

RESPONDENT’S BRIEF IN RESPONSE TO

PETITIONER’S PETITION FOR A WRIT OF

CERTIORARI TO THE SUPREME COURT

OF TEE UNITED STATES

Perry McClendon respectfully submits this brief in

Opposition to Ingersoll Rand’s petition for a writ of

certiorari to review the judgment of the Supreme Court

of Texas in this case.

OPINIONS BELOW

The opinion of the Supreme Court of Texas (App.,

infra, at la) is reported at 779 S.W.2d 69 (Tex. 1989).

The opinion of the 14th Court of Appeals of Texas ( App..

infra, at 18a) is reported at 757 S.W.2d 816. The

opinion of the 133rd Judicial District Court of Harris

County, Texas is unreported.

2

STATEMENT OF THE CASE

This is a wrongful employment termination case which

presents no federal question. Respondent makes no claims

for pension benefits and there are no issues with respect

to the administration or regulation of a pension plan.

Shortly after the litigation began, Petitioner, Ingersoll

Rand, vested Mr. McClendon’s pension. Since that time,

Respondent has pursued only his claims for damages

arising out of the wrongful termination of his employment.

Respondent induced Mr. McClendon to uproot his

family to move to a strange city in order to expand

Ingersoll Rand’s sales territory. Once Mr. McClendon

pioneered a new territory and was about to earn sub-

stantial commissions, Ingersoll Rand fired him four months

before his ten year pension vesting anniversary. Suit was

then filed in the 133rd Judicial District Court of Harris

County, Texas, alleging, among other things, a Texas

state cause of action for wrongful employment termina-

tion and breach of good faith and fair dealing. Shortly

after the suit was filed, Ingersoll Rand informed Mr.

McClendon that he was fully vested in his pension bene-

fits. Accordingly, the suit before this Court seeks no

damages for pension benefits and presents no issues with

respect to the administration or regulation of a pension

plan. Rather, the suit seeks lost future wages, mental

anguish and punitive damages engendered by Petitioner’s

wrongful termination of Mr. McClendon’s employment.

The trial court granted a motion for summary judgment,

and that ruling was affirmed by the 14th Court of Appeals.

The appellate court held that Mr. McClendon's employment

3

was an “at will” employment which did not fall within

any of the specific exceptions that prohibited employment

termination in Texas. The appellate court also refused

to apply the doctrine of good faith and fair dealing to

the issue of employment termination.

The Supreme Court of Texas granted writ on the issue

of whether the doctrine of good faith and fair dealing

should apply to the employment setting. The Texas

Supreme Court’s decision, however, did not reach that

issue. Instead, the Court created an additional exception

to the Texas employment-ai-will doctrine and held that

a terminated employee can recover damages in Texas if

the principal reason for the employment terminauon was

the employer’s desire to avoid contributing to, or paying

benefits under, the employee’s pension fund (Opinion

cited in Appendix).

The majority opinion by the Texas Supreme Court

(footnote 3), specifically stated that the wrongful termi-

nation cause of action was not preempted by the Em-

ployee Retirement Income Security Act of 1974 (ERISA).

Each state is entitled to develop its own laws with respect

to wrongful employment termination, and the Texas Su-

preme Court has done so in this case.

SUMMARY OF ARGUMENT

Petitioner has conceded that Mr. McClendon has re-

ceived and will receive all of his pension rights and

benefits. This is not a case seeking any pension rights

or benefits. Rather, it is a case to determine whether

Petitioner’s motives and reasons for terminating Mr.

McClendon’s employment were proper under Texas law.

This is not a federal question and has absolutely nothing

4

to do with the Employment Retirement Income Security

Act of 1974 (“ERISA”), or the administration or regu-

lation of a pension plan. The Texas Supreme Court has

held that a plaintiff can recover damages for employment

termination principally motivated by an attempt to avoid

pension obligations. Those damages are completely sepa-

rate from damages and causes of action sanctioned under

ERISA.

Prior to this latest exception to the employment-at-will

doctrine, the Texas Supreme Court created an exception

whereby a plaintiff could recover damages if he or she

was fired for refusing to commit a crime. Sabine Pilot

v. Hauck, 687 S.W.2d 733 (Tex. 1985). Under Sabine

Pilot, the fact finder must determine whether the employ-

ment termination was motivated by such a refusal. The

crime can be a violation of a federal, state or local law;

the law itself is not the relevant issue. Rather, the

issue is whether the employer’s decision to terminate was

motivated by the refusal to commit the crime. The

McClendon exception to the “at will” doctrine is analogous.

The specific pension plan, its contents or its administra-

tion are uot relevant issues. Rather, the issue is whether

the employer’s decision to terminate was motivated by

the employer’s attempt to avoid its pension obligations.

Consequently, ERISA and Ingersoll Rand’s pension plan

are irrelevant to this case.

Petitioner’s brief does not inform this Honorable Court

that there is no issue as to pension benefits in this case

or that petitioner has admitted that they owe and will

pay those benefits. These crucial facts, however, demon-

strate that the Texas Supreme Court was correct in re-

jecting the preemption argument.

5

The preemption provision of ERISA was included in

that Act to standardize the administration and regulation

of pension plans so that employers would not be subject

to different rules and regulations when they operated

across state lines. The intent of this provision was to

forestall the administrative nightmares that would other-

wise follow and enable these plans to be managed in

a more efficient manner. This Court has stated that per-

mitting a Federal law to preempt a state law is not favored

and will not be done unless Congress has unmistakably

ordained such a result to occur. The present fact situation

is not one to which the ERISA preemption provision was

intended to apply.

It has generally been stated that state laws preempted

by the ERISA preemption provision are those that

(1) provide an alternative cause of action to employees

to collect benefits protected by ERISA; (2) refer specifi-

cally to ERISA plans and apply solely to them; or

(3) interfere with the calculation of benefits owed to an

employee. Aetna Life Insurance Co. v. Borges, 869 F.2d

142, 146 (2d Cir. 1989).

The subject suit seeks damages for breach of employ-

ment contract, lost future wages, mental anguish and

punitive damages. The case has nothing to do with the

collection of benefits protected by ERISA, the interpreta-

tion of a pension plan, or the calculation of pension

benefits. In addition, any and all recovered damages

would be paid by the employer and not the plan or its

fiduciary. Accordingly, this cause of action should not

be preempted by ERISA.

In addition to the specific reasons for the denial of

preemption, the genera! purpose of ERISA mandates that

6

this case remain a state cause of action. ERISA was

originally conceived to safeguard employees from “such

abuses as self-dealing, imprudent investing, and mis-

appropriation of plan funds.” Fort Halifax Packing Co.,

Inc. v. Coyne, 482 U.S. 1, 107 S.Ct. 2211, 96 L.Ed.2d 1

(1987), quoting 120 Cong. Rec. 29932 (1974). It is

clear from the facts that this case has nothing to do with

the operation or administration of Petitioner’s pension

fund. Accordingly, this case has nothing to do with

ERISA and preemption is inappropriate.

ARGUMENT

I.

SINCE RESPONDENT SEEKS LOST FUTURE

WAGES, MENTAL ANGUISH AND PUNITIVE

DAMAGES AND NOT PENSION BENEFITS,

ERISA PREEMPTION DOES NOT APPLY.

Respondent is not seeking any pension benefits. Despite

Petitioner’s attempts to ignore this crucial fact, this fact

alone is sufficient to defeat preemption. In Totton v.

New York Life Insurance Co., 685 F.Supp. 27, 30 (D.

Conn. 1987), the Court stated that preemption is im-

proper if the cause of action has only a tenuous, remote

or peripheral effect on a pension plan. See, also, Shaw

vy. Delta Air Lines, Inc., 463 U.S. 85, 121, n. 21, 103

S.Ct. 2890, 2901, n. 21, 77 L.Ed.2d 490 (1985). In

addition to the Texas Supreme Court, the Eastern District

of New York has twice held that an employee may pursue

a state law cause of action for the tort of wrongful dis-

charge based on allegations that the employee was termi-

7

nated solely because the employer sought to deprive the

employee of his pension benefits. Savodnic v. Korvettes,

Inc., 488 F.Supp. 822 (E.D. N.Y. 1980); Hovey v.

Lutheran Medical Center, 516 F.Supp. 554 (E.D. N.Y.

1981).

In the cases cited by the Petitioner, unlike the case

before the Court, the plaintiffs sought pension benefits

under specific pension plans. Since Mr. McClendon does

not seek any pension benefits, this case is easily dis-

tinguishable from those cited by the Petitioner. This

distinction was also highlighted in the Texas Supreme

Court’s opinion:

Two federal district court cases have held that a

claim for wrongful discharge in order to avoid the

payment of pension funds is preempted by ERISA.

Pratt v. Delta Air Lines, Inc., 675 F.Supp. 991 (D.

Md. 1987); Cahall v. Westinghouse Electric Corp.,

644 F.Supp. 806 (E.D. Penn. 1986). These cases,

however, can be distinguished from the present action

because here the plaintiff acknowledges in his brief

to the court of appeals that he is not seeking lost

pension benefits but is instead seeking lost future

wages, mental anguish and punitive damages as a

result of the wrongful discharge.

779 S.W.2d 69, 71, footnote 3 (Tex. 1989).

Since Respondent seeks no pension benefits in this

Case, preemption is inapplicable.

In addition, the regulation or administration of Inger-

soll Rand’s pension plan is totally irrelevant to this case.

The only question is whether Ingersoll Rand’s principal

motivation for termination was to avoid the payment of

pension benefits. It is clear that the Court must focus

8

upon the conduct to which a law is applied and not on

the form or label of the law. Scott v. Gulf Oil Corp.,

754 F.2d 1499, 1504 (9th Cir. 1985). A proper pre=

emption analysis therefore, requires inquiry into whether

the conduct challenged by a given state law claim was

part of the administration of an employee benefit plan.

Id. at 1505. As stated, Respondent's cause of action has

nothing to do with the regulation or administration of

Ingersoll-Rand’s employee benefit plan. Rather, the cause

of action focuses on Petitioner’s motivation for the termi-

nation of Respondent’s employment. Such a cause of

action cannot be and is not preempted by ERISA.

This Honorable Court has previously stated that

ERISA’s preemption provision does not refer to state

laws relating to “employee benefits,” but to state laws

relating to “employee benefit plans.” Fort Halifax, supra,

at 2215. It is disingenuous, at best, for Petitioner to

assert that this case involves Ingersoll Rand’s employee

benefit plans. Rather, the case creates an exception to

the Texas employment-at-will doctrine in an effort to

protect Texas employees from unwarranted termination.

Texas has long adhered to the employment-at-will doc-

trine, which allows an employer to terminate an employee

for any reason. East Line & R.R.R. Co. v. Scott, 72 Tex.

70, 10 S.W. 99 (Tex. 1888). Although the Texas Supreme

Court has permitted this doctrine to remain virtually intact

for over one century, the Court has recently begun to chip

away at the harshness of the doctrine. In Sabine Pilot Ser-

vice, Inc. v. Hauck, 687 S.W.2d 733 (Tex. 1985), the Texas

Supreme Court recognized a cause of action for plaintiffs

alleging that employment termination was notivated by

the employee’s refusal to perform an illegal act. In basing

its holding on the same public policy rationale included

9

in Hauck, the Texas Supreme Court in this case held that

employment terminations were improper if motivated by

an attempt to avoid pension fund payments.

A comparison of these two recent exceptions to the

Texas at will doctrine points out the weakness of Peti-

tioner’s preemption argument. If an employee is fired

for refusing to commit a crime, it is irrelevant if it is a

state, federal or local crime. The employer’s motivation

is the relevant issue, and the type of crime is irrelevant.

Similarly, if an employee is fired so an employer can

avoid making pension coniributions, the regulation or

administration of the pension plan is irrelevant. Only

the employer’s motivation is relevant, and the substance

or administration of the pension plan is unaffected.

Every state in the union has developed a common

law governing employment terminations, and the states

give employers a vast array of discretion with respect to

employment terminations. For example, the employer and

employee may contractually agree that an employment

relationship may not be terminated without good cause,

subject to whatever requisites are present in a state’s

general common law. See e.g., Fairmont Creamery Co.

v. Ewing, 43 Ohio App. 191, 182 N.E. 883 (1932).

It is axiomatic that each state’s laws affect the employ-

ment relationship between the employer and employee,

including employment terminations. Absent the specific

federal statutes governing employment discrimination

(which do not apply to this case), the sovereign power

of each state enables the state to formulate its own laws.

That is what the Texas Supreme Court has done in this

case. Its ruling has no effect on ERISA or any pension

plan and preemption is not applicable.

10

II.

PREEMPTION OF A STATE LAW IS NOT

FAVORED ABSENT PERSUASIVE REASONS,

AND THE REASONS FOR PREEMPTION AR-

TICULATED BY THE PETITIONER DO NOT

MEET THIS STANDARD.

This Court has stated that preemption of a state law

by a federal statute is not favored “in the absence of

persuasive reasons—either that the nature of the regu-

lated subject matter permits no other conclusion, or that

Congress has unmistakably so ordained.” Chicago &

Northwestern Transportation Co. v. Kalo Rig & Tile Co.,

450 U.S. 311, 317, 101 S.Ct. 1124, 1130 and 67 L.Ed.

2d 258 (1981), quoting Florida Lime & Avocado Grow-

ers, Inc. v. Pall, 373 U.S. 132, 142, 83 S.Ct. 1210, 1217,

10 L.Ed.2d 148 (1963). Since Petitioner has argued that

the ERISA preemption applies to this case, “the purpose

of Congress is the ultimate touchstone” to ascertain

whether in fact Congress intended to preempt the type

of action taken by the Texas Supreme Court. Metro-

politan Life Insurance Co. v. Massachusetts, 471 U.S.

724, 747, 104 S.Ct. 2380, 2393, 95 L.Ed.2d 728 (1985).

Malone v. White Motor Corp., 435 U.S. 497, 504, 98

S.Ct. 1185, 1190, 55 L.Ed.2d 443 (1978).

In Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S.

1, 107 S.Ct. 2211, 2216, 96 L.Ed.2d 1 (1987), this

Court cited the Congressional Record and ascertained

that the ERISA preemption provisions were designed to

standardize the administration and regulation of pension

plans. Neither the administration nor regulation of a

pension plan is involved in this case, and Respondent's

cause of action should not be preempted.

11

III.

ABSENT A SUIT FOR PENSION BENEFITS OR

A SUIT REGARDING THE ADMINISTRATION

OR REGULATION OF A PENSION PLAN, PRE-

EMPTION DOES NOT APPLY.

Generally, the state laws preempted by ERISA are

those that (1) provide an alternative course of action

to employees to collect benefits protected by ERISA;

(2) refer specifically to ERISA plans and apply solely

to them; or (3) interfere with the calculation of benefits

owed to an employee. Aetna Life Insurance Co. v. Borges,

869 F.2d 142, 146 (2d Cir. 1989). All cases cited by

Petitioner in favor of preemption, unlike the present case,

bear some relationship to the administration or regulation

of a pension plan and/or the payment of pension benefits.

A brief summary of the cases cited by the Petitioner

demonstrates each case’s inapplicability to the present

case. Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504,

101 S.Ct. 1895, 68 L.Ed.2d 402 (1981) (state statute

seeking to prevent a procedure known as “integration”

was preempted by ERISA because that statute eliminated

one method for calculating pension benefits that was

otherwise permissible under Federal law); Shaw v. Delta

Airlines, Inc., 453 U.S. 85, 103 S.Ct. 2890, 77 L.Ed.2d

490 (1983) (state law precluding discrimination in em-

ployee benefit programs with respect to pregnant women

was preempted by ERISA); Pilot Life Insurance Co. v.

Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39

(1987) (ERISA preempts any state common law tort

or contract claim asserting improper processing of a claim

for benefits under an ERISA plan); Dependahl v. Fallstaff

Brewing Corp., 653 F.2d 1208 (8th Cir. 1981) (state

12

common law claims resulting from the determination of

severance payments and interference with an ERISA-

covered whole life insurance plan were preempted by

ERISA); Authier v. Ginsberg, 757 F.2d 796 (6th Cir.

1985) (ERISA fiduciary could not bring a state law cause

of action for wrongful discharge from his position as an

ERISA fiduciary under the Act); Pane v. RCA Corp.,

868 F.2d 631 (3d Cir. 1989) (ERISA preempted a

discharged employee from pursuing a state law breach

of contract action to ascertain whether the employee was

entitled to be included in an ERISA-covered plan);

Fitzgerald v. Kodex Corp., 882 F.2d 586 (1st Cir. 1989)

(ERISA preempted a state law action brought by a termi-

nated husband who claimed that his termination was

related to the denial of his wife’s health benefits under

an ERISA plan).

Every one of these cases, unlike the present case, dealt

with pension benefits or the administration or regulation

of a pension plan. Since the present case does not involve

any of those issues, ERISA preemption does not apply.

IV.

ERISA PREEMPTION DOES NOT APPLY SINCE

INGERSOLL RAND WILL PAY THE DAMAGES

AND THE DAMAGES WILL NOT AFFECT THE

ADMINISTRATION OF PETITIONER’S PEN-

SION PLAN AND WILL NOT BE PAID OUT OF

PLAN FUNDS BY THE PLAN FIDUCIARY.

ERISA preemption should be applied sparingly, if at

all, in cases where the employer itself will have to pay

the damages. In Maxfield v. Central States Health, Welfare

13

& Pension Funds, 559 F.Supp. 158 (N.D. Ill. 1982), a

terminated employee sought to recover punitive damages

resulting from an alleged violation of ERISA. The Court

held that ERISA precluded the recovery of punitive dam-

ages for the alleged violations, basing its holding upon

the fact that the pension fund itself would have to pay

these damages. The Court reasoned that such a result

would be contrary to the remedial nature of ERISA.

Maxfield at 160. The Court’s language, however, implies

that an alternate result may have been reached if the

employer and not the pension plan fiduciary would have

been liable for any damages awarded.

Other Federal Courts have held that ERISA does not

preempt a state law cause of action if the employer and

not the pension plan fiduciary, would ultimately be liable

for any damages awarded. For example, in Greenblatt

v. Budd Co., 666 F.Supp. 735 (E.D. Pa. 1987), a termi-

nated employee claimed that misrepresentations were

made about his future pension benefits, and the employee

alleged that he relied upon these misrepresentations to

his detriment. The employer sought to invoke the ERISA

preemption provision. The Court held that the cause of

action was not preempted by ERISA and supported its

holding by stating that the pension plan fiduciary would

not have to pay the damages.

Similarly, in Totton v. New York Life Insurance Co.,

685 F.Supp. 27 (D. Conn. 1987), a terminated employee

brought a breach of contract suit against the employer

and claimed the loss of future pension benefits as one

damage element. The Court held that the cause of action

was not preempted by ERISA. The Totton Court also

held that the recovery of such benefits would not affect

14

the administration of the benefits plan nor would payment

be made by the plan fiduciary.

In the present case, Ingersoll Rand will be liable for

all damages recovered by Respondent. Mr. McClendon

seeks no benefits from the plan; his lawsuit does not affect

the administration of the plan’s benefits; and no payment

would be made by the plan fiduciary. Accordingly, Re-

spondent’s causes of action are not preempted by ERISA.

V.

THE TEXAS SUPREME COURT'S DECISION IS

CONSISTENT WITH THE CONGRESSIONAL

INTENT REGARDING ERISA PREEMPTION.

Petitioner’s argument for ERISA preemption rests pre-

cariously on the incorrect premise that Ingersoll Rand’s

pension plan is affected by the case. Once this incorrect

premise is exposed, it is clear that the Texas Supreme

Court’s decision is consistent with the Congressional in-

tent regarding ERISA and its regulatory concerns.

In Fort Halifax, supra, this Court included a lengthy

discussion upon the regulatory concerns for which ERISA

was enacted. Without repeating the discussion contained

in that opinion, the key motivating factors for this statu-

tory scheme were that Congress desired to safeguard

employees from “such abuses as self-dealing, imprudent

investing and misappropriation of plan funds.” Fort

Halifax, 107 S.Ct. at 2219, quoting 120 Cong. Rec.

29932 (1974). These are ail factors that protect em-

ployees. The Texas Supreme Court’s holding is totally

consistent with this motivation. The Texas Supreme

15

Court’s McClendon exception to the at will doctrine has

absolutely no relationship to the types of abuses from

which ERISA was designed to protect employees. The

holding in no way alters the law with respect to the

commingling of funds, self-dealing, or any other abuse

that would clearly be for ERISA to govern. Rather, this

opinion simply represents one state’s decision to change

its employment law to include a much needed protection

for Texas workers. The opinion has absolutely no effect

on the regulation or administration of any pension funds.

In Franchise Tax Board v. Construction Laborers Va-

cation Trust, 463 U.S. 1, 103 S.Ct. 2840, 77 L.Ed.2d

420 (1983), this Court addressed whether ERISA gen-

erally permits state tax authorities to collect unpaid state

income taxes by levying upon funds held in trust for the

taxpayers under an ERISA covered vacation benefit plan.

This Court held that a state’s right to enforce its tax

levies is not of central concern to the ERISA statute.

That is, even though the California statute would subject

certain funds held in an ERISA plan to a state levy, this

Court still held that a state’s right to enforce its tax levies

is not something about which ERISA is concerned. This

holding clearly impacts upon an ERISA plan with far

more force than does the holding by the Texas Supreme

Court in this case. The Franchise Tax Board holding

enables the state, under the proper circumstances, to

remove certain funds from a pension plan that would

otherwise be available to plan participants. The Texas

Supreme Court's holding, on the other hand, has no effect

on pension plans and would require the employer, not

the pension fund, to compensate the plaintiff.

16

VI.

FEDERAL DISTRICT COURTS HAVE HELD

THAT STATE CAUSES OF ACTION FOR THE

LOSS OF FUTURE OR PROSPECTIVE PENSION

BENEFITS ARE NOT PREEMPTED BY ERISA.

In Scott v. Gulf Oil Corp., 754 F.2d 1499 (9th Cir.

1985), a terminated employee sought to recover, among

other things, lost accumulated and prospective pension

benefits. Although accumulated benefits were preempted

by ERISA, the Court held that the employee's state claim

for the loss of prospective benefits was not preempted

by ERISA. The Court noted that the claim raised no

issue Concerning matters pertaining to the regulation and

administration of the pension plan and stated that the

basic issue involved in this claim is no different from the

issue that would be involved in a claim alleging that the

employer conspired to force the employee to accept

lower wages. Scott at 1515. The Ninth Circuit has clearly

held, therefore, that claims are not preempted by ERISA

unless they involve the regulation or administration of a

pension plan. Based on this analysis, preemption does

not apply to the case before the Court.

The Fourth Circuit adopted a similar analysis in Pizlo

v. Bethlehem Steel Corp., 884 F.2d 116 (4th Cir. 1989).

This case involved a wrongful termination action alleging,

among other things, breach of an employment contract. The

employment termination impacted upon the pension benefits

available to the employee, and the state law cause of

action sought to recover lost prospective benefits as dam-

ages. The Court held that the state law causes of action

relating to loss of prospective pension benefits were not

preempted by ERISA. The Court based this holding on

17

the analysis that the claims would not (1) submit the

employer to conflicting employer obligations and variable

standards of recovery; (2) determine whether any bene-

fits are paid; (3) affect the administration of benefits

under the plan; or (4) be paid by the plan fiduciary

with plan funds. Pizlo at 120.

In Schlenz v. United Airlines, Inc., 678 F.Supp. 230

(N.D. Cal. 1988), a case similar to the present case,

a terminated employee brought a state law cause of action

against the employer alleging that the employer termi-

nated the employment because the employee (1) was

about to vest in a pension plan; (2) was a higher paid

employee because of seniority; and (3) was soon to be

recalled to a higher paying position with the company.

The basis of plaintiffs suit was that the plaintiff sought

to recover damages for the lost opportunity to earn

future benefits, including pension plan benefits, as a

result of the employer’s wrongful conduct. The Court

held that the state law wrongful termination cause of

action was not preempted by ERISA because it was

unrelated to an employee benefit plan and touched, at

best, only peripherally on ERISA.

The present case is more remote from an ERISA claim

than the above cited cases. In this case, the Respondent

seeks absolutely no pension benefits, past or future. Re-

spondent has received his pension benefits. What he did

not receive was continued employment; and the evidence

shows that he was fired because the Petitioner wanted

to avoid its pension obligation. The Texas Supreme Court

has correctly held that the cause of action created by

Petitioner's egregious conduct is a state cause of action

that is not preempted by ERISA.

18

The Texas Supreme Court correctly held that such

employer conduct is against sound public policy. The

Court recognized that the employment-at-will doctrine

should not be used by an employer as a sword to exploit

unfortunate employees and a shield to excuse the avoid-

ance of pension plan obligations. Accordingly, the Su-

preme Court held that an employment termination en-

gendered by an attempt to avoid pension obligations is

actionable in the State of Texas. This holding has ab-

solutely no effect on the regulation or administration of

pension plans. Accordingly, Petitioner’s requests for

preemption and writ should be in all things denied.

VII.

CONCLUSION

The Petition for Writ of Certiorari should be denied.

Respectfully submitted,

GEORGE E. PLETCHER

(Counsel of Record)

MICHAEL Y. SAUNDERS

JOHN W. TAVORMINA

CARL D. KULHANEK, JR.

Attorneys for Respondent

Of Counsel:

HELM, PLETCHER, HOGAN, BOWEN & SAUNDERS

2700 America Tower

2929 Allen Parkway at Waugh

Houston, Texas 77019-2120

(713) 522-4550

APPENDIX

la

Perry McCLENDON,

Petitioner,

V.

INGERSOLL-RAND COMPANY, d/b/a Ingersoll-

Rand Company Construction Equipment Group,

Respondent.

No. C-7973.

Supreme Court of Texas.

Oct. 18, 1989.

Rehearing Denied Nov. 15, 1989.

SPEARS, Justice.

This is a suit for wrongful discharge. Perry McClendon

sued his former employer, Ingersoll-Rand Company. Mc-

Clendon alleged that he was discharged from his employ-

ment so that Ingersoll-Rand could escape its obligation

to contribute to his pension fund. The trial court ren-

dered summary judgment in favor of Ingersoll-Rand. The

court of appeals affirmed. 757 S.W.2d 816 (1988). We

reverse the judgment of the court of appeals and remand

the cause to the trial court.

In August 1972, McClendon began employment with

Ingersoll-Rand as a salesperson and distributor of con-

struction equipment. He was paid on a commission basis

in accordance with the terms of a “Compensation Arrange-

ment” that was to remain in effect through December

1982; however, this “compensation arrangement” did not

specifically dictate the term of McClendon’s employment.

2a

In late 1979, Ingersoll-Rand transferred McClendon

from San Antonio to Dallas so that he could develop a

potentially lucrative market there. McClendon secured a

substantial amount of business in Dallas, and McClendon’s

supervisor later testified that he was satisfied with Mc-

Clendon’s job performance. Nevertheless, Ingersoll-Rand

fired McClendon on November 19, 1982. Ingersoll-Rand

justified McClendon’s termination by claiming that ex-

ternal economic factors mandated a work force reduction

of one salesperson.

McClendon’s termination from employment occurred

after he had accumulated nine years and eight months

of service to Ingersoll-Rand. Further, the termination oc-

curred exactly four months prior to the vesting of Mc-

Clendon’s retirement and pension benefits, at which time

Ingersoll-Rand would have been required to contribute

to McClendon’s pension fund.

In filing suit, McClendon alleged that Ingersoll-Rand

breached its employment contract with him and breached

its duty of good faith and fair dealing in connection with

the employment relationship.’ In addition, McClendon

asserted a cause of action for wrongful discharge and

alleged that Ingersoll-Rand had terminated him to escape

its obligation to contribute to his pension fund*® and to

avoid paying him the commission from a particular sale.

1. Because we have decided this cause on other grounds, we need

not reach the issues relating to the tort duty of good faith and fair

dealing and we express no view on this matter.

2. Although Ingersoll-Rand ultimately allowed McClendon’s pen-

sion to vest, McClendon argues that such subsequent vesting does not

retroactively reverse any bad faith conduct in which Ingersoll-Rand

engaged when it terminated McClendon to avoid pension contribu-

tions. McClendon argues that the pension plan issue is relevant in

order to explain the motivation behind Ingersoll-Rand’s initial termi-

nation of McClendon.

3a

At issue is whether McClendon’s allegations state a

cause of action under Texas law. Texas courts have tradi-

tionally followed the employment-at-will doctrine which

allows that employment for an indefinite term may be

ended at will and without cause. East Line & R.R.R. Co.

v. Scott, 72 Tex. 70, 10 S.W. 99 (1888); Molder v.

Southwestern Bell Tel. Co., 665 S.W.2d 175 (Tex. App.

—Houston [Ist Dist.] 1983, writ ref’d n.r.e.).

Although this doctrine has been widely accepted, nu-

merous exceptions and limitations have been placed on

its application. For example, federal law prohibits the

discharge of an employee because of age, race, religion,

sex, color or national origin. Age Discrimination in Em-

ployment Act of 1967, 29 U.S.C. § 623(d) (1982 &

Supp. III 1985); Title VII, Civil Rights Act of 1964,

42 U.S.C. § 2000e-2(a) (1977). Federal law also pro-

hibits a private employer from discharging an employee

who exercises his rights under the Fair Labor Standards

Act to minimum wage and overtime. 29 U.S.C. § 215

(a)(3) (1977 & Supp. 1982). Similarly, Texas has en-

acted various statutes that restrict an employer’s discre-

tion to terminate the employment relationship. See, e.g.,

Tex. Rev. Civ. Stat. art. 5207a (discharge based on

union membership); Tex. Civ. Prac. & REM. CODE

§ 122.001 (discharge because of jury service); TEx. REV.

Civ. StaT. art. 8307c (discharge for filing a worker’s

compensation claim); TEx. Gov’T Cope § 431.006 (dis-

charge because of active duty in the state military forces);

Tex. REV. Civ. STAT. art. 5221k, § 5.01 (discharge based

on race, color, handicap, religion, sex, national origin or

age).

In addition to state and federal legislation, courts have

developed various common-law restraints on the doctrine

4a

of employment-at-will. In Sabine Pilot Service, Inc. v.

Hauck, 687 S.W.2d 733 (Tex. 1985), this court recog-

nized a cause of action for a plaintiff alleging that he

was discharged for refusing to perform an illegal act.

In creating this exception to the employment-at-will! doc-

trine, we considered the changes in American society and

in the employer/employee relationship over the course of

the past century, and we held that public policy, as ex-

pressed in both state and federal law, required such an

exception. See also Petermann vy. International Brother-

hood of Teamsters, Local 396, 174 Cal. App. 2d 184,

344 P.2d 25 (1959) (recognizing public policy exception

to employment-at-will doctrine in case of employee al-

leging that he was wrongfully discharged for refusing to

perjure himself before a legislative investigative com-

mittee).

Numerous other states have accepted the principle that

public policy can limit an employer’s power to discharge

at-will empioyees. See Kelsay v. Motorola, Inc., 74 Il.

2d 172, 23 Ill. Dec. 559, 384 N.E.2d 353 (1978);

Frampton v. Central Indiana Gas Co., 260 Ind. 249, 297

N.E.2d 425 (1973); Fortune v. National Cash Register

Co., 373 Mass. 96, 364 N.E.2d 1251 (1977): Monge

v. Beebe Rubber Co., 114 N.H. 130, 316 A.2d 549

(1974); Nees v. Hocks, 272 Or. 210, 536 P.2d 512

(1975); Harless v. First Nat'l Bank, 162 W. Va. 116,

246 S.E.2d 270 (1978). More specifically, the Eastern

District of New York has recognized a cause of action

for wrongful discharge when an employee alleges that

he was terminated to deprive him of pension benefits.

Hovey v. Lutheran Medical Center, 516 F.Supp. 554

(E.D.N.Y. 1981). The court expressly recognized the

public policy associated with the preservation of pension

plans for both governmental and private employees. /d.

Sa

at 558; see also Savodnik v. Korvettes, Inc., 488 F.Supp.

822, 826 (E.D.N.Y. 1980) (recognizing strong public

policy “favoring the protection of integrity in pension

plans” and allowing wrongful discharge cause of action

for plaintiff who alleged that employer fired him to avoid

paying pension benefits).

In determining whether McClendon has stated a cause

of action under Texas law, we recognize that the state

has an interest in protecting employees’ interests in pen-

sion plans. Cf. TEx. Rev. Civ. StaT., Title 110B (Vernon

1988) (reflecting state’s interest in preserving pension

plans for public employees). Also, the Employee Retire-

ment Income Security Act (ERISA) makes it unlawful

for any person to discharge, fine, suspend or discriminate

against any empioyee for the purpose of interfering with

that employee’s potential rights under a pension plan.

29 U.S.C. § 1140. The very passage of ERISA demon-

strates the great significance attached to income security

for retirement purposes.

We hold that public policy favors the protection of

integrity in pension plans and requires in this case an

exception to the employment-at-will doctrine. This excep-

tion allows recovery when the plaintiff proves that the

principal reason for his termination was the employer's

desire to avoid contributing to or paying benefits under

the employee’s pension fund.*

3. Two federal district court cases have held that a claim for

wrongful discharge in order to avoid the payment of pension funds

is preempted by ERISA. Pratt v. Delta Air Lines, Inc., 675 F.Supp.

991 (D. Md. 1987); Cahall v. Westinghouse Electric Corp., 644 F.

Supp. 806 (E.D. Penn. 1986). These cases, however, can be distin-

guished from the present action because here the plaintiff acknowl-

edged in his brief to the court of appeals that he is mot seeking lost

pension benefits but is instead seeking lost future wages, mental

anguish and punitive damages as a result of the wrongtul discharge.

6a

We reverse the judgment of the court of appeals and

remand this cause to the trial court for trial.

COOK, J., files a dissenting opinion in which PHIL-

LIPS, C.J., and HECHT, J., join.

GONZALEZ, J., files a dissenting opinion.

COOK, Justice, dissenting.

I dissent. The central issue in this case, as argued and

briefed by the parties, concerns whether the duty or

implied covenant of good faith and fair dealing exists in

the context of an employment-at-will relationship. The

majority opinion not only fails to address this issue, but

also creates a state cause of action based on conduct

already prohibited by federal statute. Given the adverse

impact that the majority opinion will have upon our

court systems, I would affirm the judgment of the court

of appeals.

I. ERISA

The court reminds us that § 510-of the Eraployee Re-

tirement Income Security Act (ERISA) makes it unlawful

for any person to interfere intentionally with impending

pension eligibility. 29 U.S.C. § 1140 (1985). According

to the court, ERISA demonstrates the great significance

attached to income security for retirement.

I agree. ERISA’s $510 is indeed significant, so sig-

nificant that it confers upon employees a federal version

of the cause of action created by this court, confines

litigation of the federal cause of action to the federal

courts, and preempts the state cause of action.

7a

Section 510 of ERISA expressly states that it is “un-

lawful for any person to discharge, fine, suspend, expel,

discipline, or discriminate against a participant or bene-

ficiary for exercising any right to which he is entitled

under the provisions of an employee benefit plan.” /d.

The case law has interpreted § 510 to delineate a cause

of action that applies in precisely the same situations as

the one considered today. See, e.g., Gavalik v. Continental

Can Co., 812 F.2d 834 (3d Cir.), cert. denied, 484 U.S.

979, 108 S.Ct. 495, 98 L.Ed.2d 492 (1987).

Congress provided for the enforcement of § 510 in

§ 502, which comprises the statute’s civil enforcement

provisions. 29 U.S.C. at § 1132. Section 502(e)(1)

confines litigation of certain claims to federal court. Jd.

at § 1132(a)(3). One of those claims is the § 510 action.

Id.; 29 U.S.C. at § 1140. Consequently, an ERISA

claimant who sues for termination resulting from intent

to avoid pension responsibility may sue only in federal

court.

The provisions of §510 do not initially appear to

affect the law set out today. It is, after all, possible for

state and federal law to address the same problem. Section

514 of ERISA, however, makes it clear that duplication

of effort in this area of the law is simply not allowed.

29 U.S.C. § 1144. Under § 514(a) all provisions of the

subchapter in which § 510 is contained preempt state

laws that “relate to” employee benefit plans. /d. at

§ 1144(a). In Pilot Life Ins. Co. v. Dedeaux, 481 US.

41, 57, 107 S.Ct. 1549, 1558, 95 L.Ed.2d 39 (1987),

the United States Supreme Court decided that § 514

superseded a state common law that related to an em-

ployee benefit plan. The powerful effect of § 514(a) was

repeatedly emphasized by the Court, which expressed its

8a

unanimous conviction that Congress intended to establish

pension plan regulation as an exclusively federal concern.

Id. at 45-47, 52-56, 107 S.Ct. at 1551-53, 1555-57.

There can be no doubt that the law created today by

this court relates to a pension plan and directly conflicts

with the specific provisions of § 510 establishing a federal

cause of action under ERISA. Consequently, that section

preempts our new law through § 514(a). See Sorosky

v. Burroughs Corp., 826 F.2d 794 (9th Cir. 1987).

Furthermore, because preemption of the claim at issue

leaves a plaintiff with a cause of action that can be

litigated only in federal court, ERISA preempts the forum

as well as cause of action. Arguably, this simultaneous

affect on forum and claim may deprive the state court

of the power to adjudicate. See International Longshore-

men’s Ass'n v. Davis, 476 U.S. 380, 106 S.Ct. 1964,

90 L.Ed.2d 389 (1986).

Notwithstanding the power of this set of ERISA pro-

visions, a plaintiff might still rely on our decision today

to bring our version of the claim for pension-related

wrongful discharge in a state court. The plaintiff could

purge ERISA from the face of the petition and rely on

the well-pleaded complaint rule to deter removal of the

case to federal court. See Louisville & Nashville R.R. Co.

v. Mottley, 211 U.S. 149, 29 S.Ct. 42, 53 L.Ed. 126

(1908). Under that rule, which states that a petition

that describes only state claims on its face prevents re-

moval by a defendant to federal court, a defendant would

be left with nothing better than the dubious opportunity

to convince a state court that the pertinent ERISA pro-

visions deprive he state court of subject matter jurisdiction.

This procedural block to removal, hewever, no longer

deters the ERISA § 502(a) defendant. In Metropolitan

“=

9a

Life Ins. Co. v. Taylor, 481 U.S. 58, 67, 107 S.Ct. 1542,

1548, 95 L.Ed.2d 55 (1987), the United States Supreme

Court created an exception to the well-pleaded complaint

rule in deciding that these defendants may remove.

Furthermore, the fact that a state court has no jurisdic-

tion over the claim to begin with, which once pro-

hibited removal, restrains defendants no longer. 28 U.S.C.

§ 1441(e) (Supp. 1989). It is clear, therefore, that de-

fendants faced with a petition that states no more than

our new cause of action may remove to federal court,

raise the defense of preemption, and replace the common

law claim.

By creating today’s exception to the employment at

will doctrine, the court misleads employees by providing

them with an imaginary claim. ERISA, on the other hand,

provides them with a real and enforceable claim that they

may bring in federal court and at the same time supersedes

the claim manufactured today. I believe that ERISA’s

provisions make it doubtful that a state court even has

power to adjudicate the new cause of action. In any case,

astute defendants need not wait to find out. They need

only remove to federal court and raise a defense of pre-

emption. I sincerely regret the confusion and prolonged

litigation we have thrust upon employers and employees

in their efforts to resolve disputes concerning their pension

plans.

Il. SUMMARY JUDGMENT

An equally profound implication of the majority opin-

ion concerns the availability of summary judgment pro-

ceedings in wrongful discharge cases. In its motion for

summary judgment, the general supervisor for Ingersoll-

Rand submitted a sworn affidavit stating that Mc-

10a

Clendon’s termination arose as part of a company-wide

reduction of the workforce in response to adverse eco-

nomic conditions. The response by McClendon noted that

his termination occurred four months prior to the vesting

of his pension, at which time the company would have

been required to contribute $3000 to his employee pension

fund. McClendon also relied on comments made by his

supervisor, who stated his general satisfaction with Mc-

Clendon’s job performance, This evidence, according to

the holding of the majority, is sufficient to raise a fact

issue on whether the employer terminated the employee

in part to escape contributions to the employee pension

fund.

This holding, however, raises a question that remains

unanswered: when will the evidence presented on motion

for summary judgment be insufficient to raise an issue

of fact on the employer's intent? The court today finds

a fact question under the evidence presented in this case,

a case in which the termination preceded the vesting of

the benefits by four months; would a fact question also

be raised when the termination preceded the vesting by

five months or nine years and eleven months? The ma-

jority opinion unfortunately fails to provide trial courts

and litigants with the answer to this crucial question.

In the absence of an answer, an employee is presumably

guaranteed a jury trial by merely alleging that the prin-

cipal reason for his termination was the employer’s desire

to avoid contributing to or paying benefits under the

employee’s pension fund.

This approach undercuts the very purpose of summary

judgment proceedings, which are designed to eliminate

patently unmeritorious claims and untenable defenses. See

lla

In re Estate of Price, 375 S.W.2d 900, 904 (Tex. 1964).

The provision for summary judgment proceedings serves

the critical functions of eliminating baseless claims from

congested trial dockets and saving the unwarranted ex-

penses involved in trying such actions. This concern has

likewise been recognized in the context of wrongful dis-

charge actions brought pursuant to ERISA. For example,

an employee must establish more than the mere fact that

the termination of his employment resulted in a monetary

savings to his employer; otherwise, an ERISA violation

would occur every time an employer terminated a vested

employee. See Nixon v. Celotex Corp., 693 F.Supp. 547,

555 (W.D. Mich. 1988); Donohue v. Custom Manage-

ment Corp., 634 F.Supp. 1190, 1197 (W.D. Pa. 1986).

Herein lies the crux of my concern with the majority

opinion. By permitting tort damages in actions based on

the employer’s desire to escape an obligation to contribute

to pension funds and yet failing to deliniate those circum-

stances under which a summary judgment would be ap-

propriate, the court has unduly chilled an employer's right

to terminate an at-will employee with or without cause.

No longer can the vast number of employers rely on a

valid reason in terminating employees without a jury's

scrutinization of their decisions and the possible imposi-

tion of tort damages. By terminating employees at any

point prior to their retirement, employers need only wait

for the court summons to explain and justify their deci-

sions to a jury. The proverbial “floodgates of litigation”

have never been a more appropriate concern than in the

decision reached by this court today. For this reason,

I strongly oppose the majority’s decision to place un-

warranted limitations on the employment-at-will doctrine.

12a

Ii]. BREACH OF GOOD FAITH AND FAIR DEALING

In his arguments presented to this court, McClendon

seeks to hold Ingersoll-Rand to the duty of good faith

and fair dealing in the context of their former employ-

ment relationship. Despite his characterization of this duty

as an “implied covenant,” which suggests an action sound-

ing in contract, McClendon also seeks the recovery of

tort damages such as mental anguish, emotional distress,

and punitive damages. McClendon based his claim for

tort damages on Arnold y. National County Mut. Fire

Ins. Co., 725 §.W.2d 165 (Tex. 1987), a case in which

this court recognized a duty on the part of insurers to

deal fairly anc in good faith with their insureds. This

duty arises from the special relationship that exists in the

insurance context due to an unequal bargaining power

between the parties and the special nature of such con-

tracts. Arnold, 725 S.W.2d at 167. While implied cove-

nants are contractual in nature, the duty of good faith

and fair dealing is imposed by law in insurance relation-

ships. Chitsey v. National Lloyds Ins. Co., 738 S.W.2d

641, 643 n. 1 (Tex. 1987).

Employers, however, do not generally receive economic

benefits by terminating productive employees and—thus

do not require disincentives to terminate employees in

addition to those already imposed by law. Foley v. Inter-

active Data Corp., 47 Cal. 3d 654, 765 P.2d 373, 396,

254 Cal. Rptr. 211, 234 (1988); Epstein, In Defense

of the Contract at Will, 51 U. Cut. L. Rev. 947, 973-74

(1984) (hereinafter Epstein, Contract at Will). Further,

employment relationships do not possess an inequality

in bargaining power as a universal characteristic and thus

cannot be analogized to insurance relationships on this

13a

basis. See Epstein, Contract at Will, 51 U. Cut. L. REv.

at 973-74; see also Note, Defining Public Policy Torts in

At-Will Dismissals, 34 STAN. L. Rev. 153, 165-67 (1981)

(hereinafter Note, Defining Torts).

The employment relationship is also distinguishable on

the basis of the duties owed by the respective parties under

the contract. Employers, unlike insurers, do not owe

similar fiduciary duties to their employees, who are them-

selves agents of the employers and are obligated to act

in their employers’ interests. Foley, 765 P.2d at 395,

254 Cal. Rptr. at 233, (citing Note, Defining Torts, 34

STAN. L. Rev. at 165-67). The duties owed in an em-

ployment-at-will relationship are instead premised on the

mutuality of obligations existing between the employee

and employer, both of whom are able to terminate the

relationship with or without cause. I would therefore

decline to extend the duty articulated in Arnold and its

imposition of tort damages to employment-at-will relation-

ships. There should not be a tort cause of action for a

breach of good faith and fair dealing in an employment-

at-will relationship. I would thus follow the majority of

jurisdictions that have not allowed the recovery of tort

damages for a breach of the duty or implied covenant

of good faith and fair dealing in at-will employment

relationships.

Additionally, McClendon is not entitled to recover

contract damages under an implied covenant of good

faith and fair dealing in this case. According to Mc-

Clendon, the company terminated his employment to

avoid paying any commissions that he would have earned

from future sales. The contractual right to these com-

missions was set forth in a written compensation agree-

l4a

ment, which expressly addressed the commissions to be

earned by McClendon in the event that Ingersoll-Rand

terminated his employment for any reason. McClendon

has not alleged that the company owed any commissions

that had already been earned under the terms of this

agreement at the time of his termination. Instead, Mc-

Clendon apparently seeks the recovery of commissions

that would have eventually been earned from future sales.

McClendon and Ingersoll-Rand contemplated and ex-

pressly set forth the manner by which the commissions

would have been earned in the event of a termination.

Under the express terms of this agreement, the parties

did not create a right on behalf of McClendon to earn

potential commissions. Thus, the covenant of good faith

and fair dealing cannot be implied in this instance to

set aside the express terms of their agreement and permit

McClendon’s recovery of potential commissions. See Willis

v. Champlain Cable Corp., 109 Wash. 2d 747, 759, 748

P.2d 621, 627 (1988).

McClendon further alleges that Ingersoll-Rand termi-

nated his employment in order to prevent the vesting of

his retirement and pension benefits, thereby relieving the

company of its required contribution to his pension fund.

On motion for summary judgment, however, Ingersoll-

Rand presented an uncontroverted affidavit stating that

McClendon’s benefits have in fact vested. Because Mc-

Clendon has received his retirement and pension benefits,

the trial court properly rendered summary judgment with

respect to the recovery of these contractual benefits.

I would accordingly affirm the judgment of the court

of appeals.

15a

PHILLIPS, C.J., and HECHT, J., join in this dissent.

GONZALEZ, Justice, dissenting.

I join with Justice Cook’s conclusions that this cause

of action is preempted by ERISA, and that it will be very

difficult, if not impossible, to filter out meritless cases by

summary judgment as a result of today’s opinion. I write,

however, to emphasize what the court’s decision does not

do. It does not extend the duty of good faith and fair

dealing to the employment-at-will doctrine; and it does

not decide what damages are available for this new cause

of action. I further note that the federal authority that

the court finds persuasive is questionable.

By point of error, McClendon invited us to engraft

the duty of good faith and fair dealing as enunciated in

Arnold v. National County Mutual Fire Ins. Co., 725

S.W.2d 165, 167 (Tex. 1987) on to the employment-at-

will doctrine.’ We refused.

In responding to this point of error, the court instead

created a narrow “exception to the employment-at-will

doctrine.” In creating this exception, the court fails to

give the bench and bar clear guidance as to whether this

“exception” creates a new cause of action sounding in

tort or whether it merely eliminates the doctrine as a

contractual defense. See Brockmeyer v. Dun & Bradstreet,

113 Wis. 2d 561, 335 N.W.2d 834 (1983); see generally,

Annotation, Discharge of At-Will Employees, 12 A.L.R.

4th 544 (1982).

1. We granted McClendon's application for writ of error on points

two and four. Point four contended: ‘The Court of Appeals erred

when it failed to recognize that a covenant of good faith and fair

dealing should be applied to Respondent’s employment relationship

with Petitioner.”

16a

In an attempt to avoid the preemptive effect of ERISA,

the court observes that the plaintiff here is “seeking lost

future wages, mental anguish and punitive damages” as

a result of the alleged wrongful discharge. P. 71 at n. 3.

The court, however, does not resolve whether the plaintiff

is entitled to all damages pleaded. This is essentially an

open question. In Azar Nut Co. v. Caille, 734 S.W.2d

667 (Tex. 1987), we allowed punitive damages, but this

was in a statutorily-created cause of action for which the

right to exemplary damages could reasonably be inferred

from the language of the statute. In Sabine Pilot Service,

Inc. v. Hauck, 687 S.W.2d 733 (Tex. 1985), we recog-

nized a common law exception but did not decide the

question of available damages. /d. at 736 (Kilgarlin, J.,

concurring). As a general rule, the damages available

for common law wrongful termination are contractual in

nature. Greater Fort Worth and Tarrant County Com-

munity Action Agency v. Mims, 627 S.W.2d 149 (Tex.

1982).

Furthermore, the court’s reliance upon two federal dis-

trict court cases, Hovey v. Lutheran Medical Center,

516 F.Supp. 554 (E.D.N.Y. 1981) and Savodnik v.

Korvettes, Inc., 488 F.Supp. 822 (E.D.N.Y. 1980) is

misplaced. Those two courts created a public policy ex-

ception to the employment-at-will doctrine that another

New York federal district court refused to follow, stating:

[A] change in New York’s law such as the recog-

nition of a tort which for the past 90 years has not

been recognized by the New York Court of Appeals,

should not be brought about by a federal district

court deciding issues of state law solely by virtue

of the diversity of citizenship of the parties before

it (citatons omitted). [H]irings for an unspecified or

17a

indefinite period are freely terminable at the will of

either party.

Salanger v. U.S. Air, 560 F.Supp. 202, 205 (N.D.N.Y.

1983). Additionally, one New York intermediate court

of appeals considered and refused to follow the same

cases the court now finds persuasive:

We find no case in this state wherein a cause of

action for abusive discharge based on a violation of

public policy has been sustained and we are unable

to subscribe to such a cause of action in light of

the well-established principle that an at-will employee

may be discharged at any time without cause.

Pavolini v. Bard Air Corp., 88 A.D.2d 714, 715, 451

N.Y.S.2d 288, 289 (1982). The highest court of the

Stat. of New York has declined opportunities to carve

out exceptions to the employment-at-will doctrine. See

Weiner v. McGraw-Hill, Inc., 57 N.Y.2d 458, 443 N.E.

2d 441, 457 N.Y.S.2d 193 (1982); Murphy v. American

Home Products Corp., 58 N.Y.2d 293, 448 N.E.2d 86,

461 N.Y.S.2d 232 (1983); see also Salanger, 560 F.

Supp. at 205; Pairowich v. Chemical Bank, 98 A.D.2d

318, 470 N.Y.S.2d 599 (1984).

For the above reasons, I dissent.

18a

Perry McCLENDON,

Appellant,

V.

INGERSOLL-RAND CO.,

Appellee.

No. C14-87-768-CV.

Court of Appeals of Texas,

Houston (14th Dist.).

July 21, 1988.

Rehearing Denied Aug. 18, 1988.

Before JUNELL, SEARS and CANNON, JJ.

OPINION

JUNELL, Justice.

This is a wrongful discharge case. Appellant Perry

McClendon sued his former employer, Ingersoll-Rand Co.,

after he was released from his position as a salesman.

He alleged that his employment contract was not termin-

able at will. He also alleged that appellee had breached

an implied covenant of good faith and fair dealing, and

that appellee intentionally inflicted emotional distress up-

on him. The trial court rendered summary judgment

against appellant. We affirm.

Appellee had employed appellant for nine years and

eight months at the time of the termination. Appellant

stated in his petition that retirement benefits would have

19a

vested to his benefit if he had continued in appellee’s

employ for four more months. Furthermore, he alleged

that he had laid the ground work for a large transaction

with Trinity Equipment, but that the wrongful discharge

deprived him of commissions from that sale. In support

of his claims that the employment relationship was not

terminable at will, he points to a series of writings which

govern the calculation of such commissions.

At the time of the termination (Nov. 19, 1982) ap-

pellant and his employer determined commissions by

reference to a “Compensation Arrangement.” Each year

the employer promulgated guidelines in such a document

which fixed the sales quota, expense budget, and com-

mission schedules for all sales personnel. The parties dis-

agree over whether the compensation arrangement limited

their ability to end the relationship at will. Although it

does not address the issue directly, the 1982 version of

the “arrangement” provides in part:

TERMINATIONS

When the employment by I-R of a commissioned

Distributor Representative terminates for any reason

before the equipment on which he has been recom-

mended for commission has been invoiced, he is

to be paid one-half (1/2) commission on the sales

credit when the equipment’ is invoiced. In the deter-

mination of commission payable under this para-

graph, only firm orders on which the commissioned

Distributor Representative is recommended for com-

mission and which are received up to the close of the

last full working day of the Distributor Representa-

tive’s actual employment shall be included, provided

such orders are accepted by the Company. Any

monthly commission on Rental Equipment ceases at

the time of termination. Only equipment invoiced

20a

within ninety (90) days from termination date will

qualify for commission.

From the effective date of termination there will be

a thirty (30) day period in which the Distributor

Representative will be required to furnish I-R with

all commissionable sales due him. No commission

request beyond this thirty (30) day period will be

honored.

The Special Commission Schedule for attaining

quotas does not apply if termination occurs prior

to the end of the calendar year.

The document ends by noting that it is subject to change

by appellee at any time, and that in any event it expires

at the end of 1982. Appellant signed the document, as

did a representative of appellee.

The first point of error asserts that the written com-

pensation agreement barred application of the “at will”

employment doctrine. The at will rule, as usually formu-

lated, allows either party to an employment relationship

to dissolve that relationship at any time and for any

reason (or no reason at all). This customary statement

of the rule constitutes a serious misrepresentation of the

law, however, because employers must abide by a host

of restrictions on their discretion.

(1-3] Federal legislation prohibits the firing of an

employee for reasons of race, color, religion, sex, or na-

tional origin. Title VII, Civil Rights Act of 1964, 42

U.S.C. § 2000e-2(a). Federal law likewise bars arbitrary

discharge based on age. Age Discrimination in Employ-

ment Act of 1967, 29 U.S.C. § 623. The Texas Com-

mission on Human Rights Act echoes these restrictions

and additionally outlaws discharge based on handicap.

2la

Tex. Rev. Civ. Stat. art. 5221k § 5.01. Retaliatory dis-

charge is illegal in a number of circumstances. See, e¢.g..

Judiciary and Judicial Procedure Act, 28 U.S.C. § 1875

(jury service); National Labor Relations Act, 29 U.S.C.

§ 158 (union activity); Occupational Safety and Health

Act of 1970, 29 U.S.C. §$ 660 (reporting workplace

hazards); Tex. Rev. Civ. Stat. art. 8307c (filing a work-

er’s compensation claim); see generally Comment, The

At-Will Doctrine: A Proposal to Modify the Texas Em-

ployment Relationship, 36 Baylor L. Rev. 667, 669-70

(1984) (listing other statutory limits).

[4] Texas common law similarly curtails an employer's

ability to terminate an employee when the sole reason

for termination is the employee’s refusal to commit an

illegal act. Sabine Pilot Service, Inc. v. Hauck, 687 S.W.

2d 733 (Tex. 1985).

[5] However, appellant rests his argument not on statu-

tory or common law bases, but on the compensation

arrangement. Ingersoll-Rand convinced the trial court

that the written document merely stated company policy

in the area of sales commissions, and we agree. That the

writing calls itself an agreement is in no way a hindrance

to dissolution of the employment relation. Indeed, the

document’s termination paragraphs plainly contemplate

that termination may occur at any time. Our conclusion

is bolstered by the provision that the “agreement is subject

to change, at any time. by the Company without prior

written notice.”

Appellant relies on Benoit v .Polysar Gulf Coast, Inc.,

728 S.W.2d 403 (Tex. App.—Beaumont 1987, writ ref'd,

n.r.e.) for the proposition that an employer’s right to

terminate an employee is limited when a writing so pro-

22a

vides “in a meaningful and special way.” Id. at 406 (em-

phases in original). Rather than engage in a semantic

dispute over what the Beaumont Court meant, we regard

the quoted phrase simply as a rhetorical flourish on the

more pedestrian expression of the rule in the case it cited,

Webber v. M.W. Kellogg Co., 720 S.W.2d 124, 127 (Tex.

App.—Houston [14th Dist.] 1986, writ ref’d n.r.e.).

Webber states that employment is at will absent a writing

which “specifically” says otherwise. The writing at hand

merely regulates sales commissions. Point of error one

is overruled.

[6] Point of error two claims that the compensation

agreement is ambiguous. Although appellant maintains

in his reply brief that he raised this argument below, his

response to the motion for summary judgment contains

no mention of ambiguity. The only conceivable reference

to ambiguity appears in the response at paragraph VI,

entitled “Burden of Proof.” That paragraph reminds the

court that Ingersoll-Rand assumes the burden of proof

on all elements of its cause of action, including a showing

that the “provision in question is capable of only one

meaning or interpretation.” The next and final sentence

‘States that “Defendants have not met this burden, and

Defendants’ Motion for Sunimary Judgment must be

denied.”

This passing comment does not meet the requirement

that a response expressly present the issue to the trial

court. TEx. R. Civ. P. 166a(c); City of Houston v. Clear

Creek Basin Auth., 589 S§.W.2d 671 (Tex. 1979). On

the contrary, this is no more than a challenge to the legal

sufficiency of the movant’s proof, a challenge which is

available on appeal in any event, regardless of whether

a response has been filed. Appellant’s third point of error

23a

raises just such a challenge. We overrule the second point

of error.

[7] The third point of error asserts that fact issues

exist concerning interpretation of the compensation agree-

ment. We glean no such fact issues from either of the

depositions on file; neither does the instrument itself admit

of any interpretation even remotely supportive of appel-

lant’s position. The third point of error is overruled.

[8] In his fourth point of error, appellant contends

that he substantially performed in regard to the Trinity

Equipment deal. This contention does not appear in his

response to the motion for summary judgment, although

Trinity Equipment is mentioned in paragraph III, entitled

“Plaintiff Was Terminated Without Good Cause.” (We

will address the good cause issue in due course). Appel-

lant’s reference to the Trinity Equipment deal can only

be read as fortifying his argument that good cause was

lacking. Rule 166a(c) does not permit presentation of

the substantial performance argument on appeal. We over-

the fourth point of error.

[9] Point of error five squarely raises the question

whether the parties incorporated a good cause limitation

onto Ingersoll-Rand’s otherwise unfettered discretion to

terminate the relationship. Appellant presented this issue

below, despite appellee’s claims to the contrary, in para-

graph III of his response. Appellant characterizes his

employment relationship as containing an “implied in fact”

agreement that he not be released except for good cause.

This he calls an exception to the at will rule. As evidence

of this limitation he points out that he relocated himself

and his family to Dallas, implicitly relying on Ingersoll-

Rand’s willingness to continue his employment.

24a

As to the existence of an implied in fact agreement,

both sides’ arguments cast more heat than light. The

question is not whether such an “exception” in the con-

tract is real or illusory; rather the question is simply,

what is the scope of the contract? The contract of em-

ployment was never reduced to writing, contained no

specification of duration and lacked any limitation on the

parties’ abilities to go their separate ways. Ingersoll-Rand

presented affidavit testimony which corroborates our read-

ing of the compensation agreement. Accordingly, the com-

mon law rule applies. See East Line & R.R. Ry. Co. v.

Scoit, 72 Tex. 70, 10 S.W. 99 (1888). The fifth” point

of error is overruled.

[10] In point of error six appellant asks us to create

an implied covenant of good faith and fair dealing. The

Starting point in our analysis is Supreme Court precedent.

As recently as five years ago the Supreme Court expressly

rejected an invitation to recognize such a rule. English

v. Fischer, 660 S.W.2d 521, 522 (Tex. 1983). Appellant

regards English, however, as incapable of survival with-

out extraordinary means, in view of Arnold v. National

County Mut. Fire Ins. Co., 725 S.W.2d 165 (Tex. 1987).

In the latter case the Court imposed such a convenant

on insurers because of a special relationship between in-

surers and their insureds. Nevertheless, Arnold furnishes

us no warrant for renouncing a binding precedent and

fashioning a new rule to the contrary.

If we were to recognize the employer-employee rela-

tionship as “special,” that would ve tantamount to putting

every commercial contract under the umbrella of Arnold:

vendor-purchaser, lessor-lessee, lender-borrower. Such an

extension would undermine the very foundation of Arnold

25a

by denying that an insurance relationship is deserving of

any special protection: it would in effect repudiate the

Court’s rationale to confuse the exceptional with the

everyday.

[11] Furthermore, the Supreme Court has gone on

record as disapproving encumbrances on free movement

in the workplace. See Bergman v. Norris of Houston, 734

S.W.2d 673 (Tex. 1987); Hill v. Mobile Auto Trim, Inc.,

725 S.W.2d 168 (Tex. 1987), An employee is as free

to leave the relationship as an employer in a competitive

environment: “it is but a normal effect of a free market

economy.” Hiil v. Mobile, at 172. See also Tex. Const.

art. I, § 26.

Finally, as discussed earlier, there is no want of legis-

iation which restricts an employer's ability to dissolve an

employment contract. It wouid be impertinent for us to

arrogate to ourselves the right to pass additional laws

under the guise of deciding cases. TEx. Const. art. Il,

§ 1. As Chief Justice Guittard said in a wrongful discharge

case virtually identical to this one, “In our system of con-

stitutional government, the primary agency to declare the

policy of the state is the legislature. Although legislative

processes may be imperfect, appeals for judicial legisla-

tion based on legislative inaction betray a loss of faith

in democratic government.” Watson v. Zep Mfg. Co., 582

S.W.2d 178, 180 (Tex. Civ. App.—Dallas 1979, writ

ref'd n.r.e.); accord Molder v. Southwestern Bell Tel. Co.,

665 S.W.2d 175, 177 (Tex. App.—Houston [Ist Dist.]

1983, writ ref'd n.r.e.) (“the legislature is the appropriate

agency for effecting a change in policy regarding the

employer-employee relationship.” ). To say that the at will

doctrine—a misnomer to begin with—was judicially

26a

created and can therefore be judicially abolished is to

misstate history. The at will doctrine was not generated

ex nihilo in 1888 against a backdrop of some contrary

legal regime. See Tex. Civ. Prac. & Rem. Code § 5.001

(adopting the common law of England as the rule of

decision when no local source can be found); Comment,

The At-Will Doctrine: A Proposal to Modify the Texas

Employment Relationship, 36 Baylor L. Rev. 667, 667-68

(1984) (tracing the history of the rule back to England).

The sixth point of error is overruled.

[12] The final point of error assigns error to the

adverse summary judgment on appellant’s claim of inten-

tional infliction of emotional distress. The summary judg-

ment proof establishes beyond dispute that the discharge

of appellant was neither extreme nor outrageous. (Indeed,

appellant incorrectly concluded that being discharged be-

fore ten years of service would prevent him from collect-

ing certain benefits. He was in fact never denied those

benefits). Ingersoll-Rand did nothing more than react to

an economic downturn by reducing its sales force. Such

conduct is in no way actionable. The seventh point of

error is overruled.

The judgment is affirmed.