Petition for Writ of Certiorari — Delaye v. Agripac, Inc.

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Supreme Caurt, U.S

Ci) riLeeD

941336 FEB 6 1995

No.

“OFROE OF THe CLRR

In The Supreme Court Of The United States

October Term, 1994

DENNIS DELAYE,

Petitioner,

V «

AGRIPAC, INC., an

Oregon corporation,

Respondent.

Petition For Writ Of Certiorari

To The United States Court Of

Appeals For The Ninth Circuit

PETITION FOR WRIT OF CERTIORARI

Richard C. Busse

(Counsel of Record)

Scott N. Hunt

LAW OFFICES OF

RICHARD C. BUSSE

521 American Bank Building

621 SW Morrison Street

Portland, Oregon 97205

(503) 248-0504

Counsel for Petitioner

—_—

QUESTIONS PRESENTED FOR REVIEW

| If an issue is not raised suf-

ficiently for a trial court to rule on it,

can a party raise that issue for the first

time on appeal? If that is the rule in a

circuit can an appellate Court ignore its

own rule?

: Where Congress intended that

severance benefit plans be regulated under

the Employee Retirement Income Security Act

(ERISA), if an agreement provides’ for

severance benefits in the event of termina-

tion, and those benefits are intended to be

part of the inducement to become and remain

employed, should Fort Halifax Packing Co.

v. Coyne, 482 U.S. 1 (1987), be construed

to require an ongoing administrative scheme

beyond that presented in this case?

aaa

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TABLE OF CONTENTS

QUESTIONS PRESENTED FOR REVIEW

TABLE OF AUTHORITIES

OPINIONS BELOW

JURISDICTION

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED .

STATEMENT OF THE CASE

REASONS FOR GRANTING THE WRIT

This Case Presents An

Exceptionally Important Question

That Concerns The Essence Of

Appellate Procedure.

The Dispositive Issue In The

Ninth Circuit Was Raised For

The First Time On Appeal

The Issue Argued In The

Appellate Court By

Respondent That The Contract

Did Not Involve An "Ongoing

Administrative Scheme" Was

Not Raised Sufficiently For

The Trial Court To Rule On

It. ee

A Litigant Is Deprived Justice If

The Appellate Court Allows An

Issue To Be Raised For The First

Time On Appeal. .. .

Page

iii

TABLE OF CONTENTS - Continued

Page

3. The Contract Provisions In

Question Were Part Of The

Inducement To Petitioner To

Become And Remain President, And

They Contained Sufficient

Administration To Constitute An

ee ee 17

a. Fort Halifax Is Not

Controlling For This Did

Not Involve The Mere

Creation Of A Benefit. ... 17

b. Cases Stemming From Fort

Halifax Are Distinguishable

For This Plan Was Not A

TPC MEM—s” « 5 & 6 © «6 e 19

C. To The Extent An "Ongoing

Administrative Scheme" Is

Required To Constitute An

ERISA Plan, The Required

Showing Should Be Minimal. . 20

ee 22

TABLE OF AUTHORITIES

Cases

Angst v. Mack Trucks, Inc.,

969 F.2d 1530 (3rd Cir. 1992)

Delaye v. Agripac, Inc.,

39 F.3d 235 (9th Cir. 1994)

Fontenot v. NL Industries, Inc.,

953 F.2d 960 (5th Cir. 1992)

Fort Halifax Packing Co. v. Coyne,

482 U.S. 1 (1987) 9

In Re E.R. Fegert, Inc.,

887 F.2d 955 (9th Cir. 1989)

Moeller v. Bertrang,

801 F.Supp. 291 (D.S.D. 1992)

Morrow v. Greyhound Lines, Inc.,

541 F.2d 713 (8th Cir. 1976)

Singleton v. Wulff,

26 U.S. i226, 396 81Ct. 2666,

49 L.Ed.2d 826 (1976)

State of Cal., Dept. of Health

Services v. U.S. DHHS.

853 F.2d 634 (9th Cir. 1988)

Wells v. General Motors Corp.,

881 F.2d 166 (5th Cir. 1989),

cert. denied, 495 U.S. 923

(1990) :* te SO oe

Whittaker Corp. v. Execvair Corp.,

953 F.2d 510 (9th Cir. 1992)

Page

6, i7

TABLE OF AUTHORITIES - Continued

Page

Whittemore v. Schlumberger Technology

Corp., 9/6 F.2d 922 (5th Cir.

eens 6.4 ee ee we eee we 19

Williams v. Wright,

94/ F.24G 1540 (lith Cir. 1991) . 20

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_—_

No.

In The Supreme Court Of The United States

October Term, 1994

DENNIS DELAYE,

Petitioner,

VW «

AGRIPAC, INC., an

Oregon corporation,

Respondent.

Petition For Writ Of Certiorari

To The United States Court Of

Appeals For The Ninth Circuit

PETITION FOR WRIT OF CERTIORARI

Petitioner Dennis Delaye ("Petition-

er") respectfully prays that a Writ of

Certiorari issue to review the Judgment and

Opinion of the United States Court of

Appeals for the Ninth Circuit filed on

November 3, 1994.

OPINIONS BELOW

The Opinion of the Ninth Circuit Court

of Appeals was filed on November 3, 1994,

and its denial of a Petition for Rehearing

and Suggestion for Rehearing En Banc was

denied on December 28, 1994. The opinion

and order denying the petition appear in

the appendix. The Opinion is cited at 39

F.3d 235 (9th Cir. 1994). The Opinion of

the Ninth Circuit reversed the April 1,

1993 Judgment of the District Court for the

District of Oregon in Petitioner’s favor,

and the Judgment and Findings of Fact and

Conclusions of Law dated February 8, 1993

appear in the Appendix.

JURISDICTION

The appellate judgment of the Ninth

Circuit Court of Appeals was filed on

November 3, 1994, following its denial of

Petitioner’s Petition for Rehearing and

Suggestion for Rehearing En Banc_ on

December 28, 1994,

This Court’s jurisdiction is invoked

pursuant to 28 U.S.C. § 1254(1).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

Petitioner proceeded under 29 U.S.C.

§ 1002(1)(B), 29 U.S.C. § 186(c)(6), and 29

U.S.C. § 1132(a)(1)(B).

29 U.S.C. § 1002(1)(B) provides, in

part:

(1) The terms "employee

welfare benefit plan" and "wel-

fare plan" mean any plan, fund,

Or program which was heretofore

Or is hereafter established or

maintained by an employer or by

an employee organization, or by

both, to the extent that such

part:

plan, fund, Or program was

established or is maintained for

the purpose of providing for its

participants or their benefi-

ciaries, through the purchase of

insurance or otherwise, *** (B)

any benefit described in section

186(c) of this title (other than

pensions on retirement or death,

and insurance to provide such

pensions).

29 U.S.C. § 186(c)(6) provides,

The provisions of this section

shall not be applicable ... (6)

with respect to money or other

thing of value paid for. the

purpose of pooled vacation,

holiday, severance or similar

benefits, or defraying costs of

apprenticeship or other training

programs

29 U.S.C. § 1132(a)(1)(B) provides,

A civil action may be brought --

(1) by a participant or

beneficiary --

(A) for the relief

provided for in subsection (c) of

this section, or

(B) to recover bene-

fits due to him under the terms

of his plan, to enforce his

rights under the terms of the

plan, or to clarify his rights to

future benefits under the terms

of the plan;

STATEMENT OF THE CASE

Petitioner was first employed . by

Respondent, an agricultural cooperative, as

its Vice-President of Marketing and Sales

in September 1983. In 1988 he was made its

Chief Operating Officer. Petitioner became

its President in 1989.

In 1990 Petitioner signed an Employ-

ment Contract which provided if he were

terminated without cause he would receive

severance benefits, to include amounts

payable over a period based upon his last

two years’ salary and bonus payments, plus

continuing insurance coverage so long as he

. s 1

remained uncovered by other insurance. The

employer, who was also the obligor, was to

a_i et Employee’s employment is ter-

minated pursuant to the terms of paragraphs

6.1.1, 6.1.2, or 6.1.3, or if Employer ter-

mMinates Employee’s employment pursuant to

paragraph 6.1.7, Employee shall receive the

following:

(a) Employer shall pay Employee payments

as provided herein. The annual average of

the base compensation and bonus paid by

Employer to Employee pursuant to paragraphs

3.1 and 3.2 herein for the last two (2)

full contract years prior to Employee’s

termination with Employer shall be divided

by twelve (12). The resulting amount shall

be paid to Employee by Employer on a month-

ly basis for a period of twelve (12) months

plus one (1) month for each month of Em-

ployee’s employment with Employer pursuant

to this Employment Contract up to a maximum

of twenty-four (24) months.

(b) Within thirty (30) days of the date of

Employee’s termination, Employer shall pay

Employee all of Employee’s accrued vaca-

tion.

Employee with the same accident and health

insurance, basic life insurance, additional

life insurance, basic disability insurance,

and additional disability insurance which

was provided to Employee during the term of

Employee’s employment. Employer shall con-

tinue to provide these benefits until Em-

ployee finds other employment, or until the

payments provided in subparagraph 6.2.2(a)

terminate, whichever date first occurs.

;

make the determination whether he was ter-

minated for cause.’ If he were terminated

6.1 Reasons for Termination. Employee’s

employment with Employer shall terminate

upon occurrence of any of the following

events:

6.1.1 Mutual written agreement between Em-

ployer and Employee;

6.1.2 Employee’s death;

6.1.3 Employee shall suffer a permanent

disability. For purposes of this agree-

ment, "permanent disability" shall be

defined as Employee’s inability due to

physical or mental illness, or other cause,

to perform the majority of Employee’s usual

duties for a period of six (6) months or

more;

6.1.4 Employee’s willful and continual

failure and refusal to comply with the

policies, standards, and regulations of

Employer from time to time established or

the terms of this agreement.

6.1.5 Fraud, dishonesty or any other act

of misconduct in the performance of Em-

ployee’s duties on behalf of Employer;

6.1.6 Sale, transfer or other disposition

of all or substantially all the assets of

Employer or the merger of Employer with

another company;

6.1.7 Upon sixty (60) days prior written

notice by either Employee or Employer to

the other.

without cause he would receive according to

the schedule over $350,000.00. If he were

terminated for "willful and continual

failure and refusal to comply with the

policies, standards, and regulations of

Employer form time to time established by

the terms of the agreement" he would re-

ceive nothing.

Petitioner was given performance

appraisals by the Board of Directors of

Respondent in 1990 and again on August 6,

1991 in which he was rated as "generally

competent." However, on November 6, 1991

he was terminated for willful misconduct.

At no time prior to his discharge was he

charged with wilful misconduct. Respondent

refused payment of the contractual sever-

ance amount.

Petitioner brought suit in federal

district court, and joined several federal

and state claims in his complaint. At

trial he dismissed all federal and state

claims except his collection of benefits

Claim under § 502 of ERISA, 29 U.S.C §

1132(a)(1)(B). The District Court had

jurisdiction under 28 U.S.C. § 1331.

At trial Respondent argued that the

Employment Contract was not an ERISA plan

because a single employee cannot constitute

a class under ERISA. It made no other ar-

gument that the provisions of the contract

did not constitute a severance benefit plan

for ERISA purposes. It did not argue that

the contract did not constitute an ERISA

severance benefit plan because it lacked an

Ongoing administrative program or scheme.

The District Court ruled in Petition-—

er’s favor on the only issue raised by

Respondent, and held that a Single persor.

can constitute an ERISA class of benefi-

Ciaries.

Respondent appealed and raised for the

first time on appeal the issue whether the

Provisions of the contract had an ongoing

administrative scheme. The Ninth Circuit

Court of Appeals reversed the District

Court’s opinion and ruled in favor of

Respondent.

REASONS FOR GRANTING THE WRIT

Petitioner contends that if the Ninth

Circuit is allowed to ignore its own prece-

dent and allow Respondent to raise an issue

for the first time on appeal an injustice

will be imposed upon Petitioner and er-

roneous precedent will be established in

the law of the scope of ERISA coverage.

he This Case Presents An Exceptionally

Important Question That Concerns The

Essence Of Appellate Procedure.

a. The Dispositive Issue .In The

Ninth Circuit Was Raised For The

First Time On Appeal.

Never at trial did Respondent ever

suggest to the trial court that it believed

that the Employment Contract did not con-

stitute an ERISA severance plan because it

lacked an ongoing administrative scheme.

The only issue raised by Respondent at

trial as to whether the Employment Contract

was an ERISA severance plan was whether a

Single employee could constitute a class of

beneficiaries under ERISA. That was the

only issue it briefed to the trial court.

That was the only issue it argued to the

trial court. That was the only issue

Petitioner addressed in response. That was

the only issue the Court was called upon to

rule on by Respondent. That is the only

issue that was ruled upon by the trial

court. That issue was decided in Peti-

tioner’s favor. It was only during its

appeal that Respondent raised the "ongoing

administrative scheme" issue.

b. The Issue Argued In The Appellate

Court By Respondent That The

Contract Did Not Involve’. An

"Ongoing Administrative Scheme"

Was Not Raised Sufficiently For

The Trial Court To Rule On It.

The Rule in the Ninth Circuit is that

the appellate court will hear an argument

raised for the first time on appeal only if

the argument was raised sufficiently for

the trial court to rule on it. Whittaker

Corp. v. Execvair Corp., 953 F.2d 510 (9th

Cir. 1992); In Re E.R. Fegert, Inc., 88/7

y.24 955, 957 (Sth Cir. 1989). If this

rule were applied here the Ninth Circuit

never would have reached the dispositive

issue because it is without question that

it was not raised in the trial court.

The Ninth Circuit either ignored its

Own standard of appellate procedure or

believed that when Respondent raised the

generic issue that the contract did not

constitute an ERISA plan for one specific

reason the trial court was put on notice

that it had to rule whether the contract

was such a plan in the face of any objec-

tion Respondent could have but did not

raise. This interpretation of its standard

does violence to the standard itself,

establishes unworkable precedent and has

deprived Petitioner of fundamental fairness

in these proceedings.

In its Opinion the Ninth Circuit over-

stated Respondent’s argument at trial. It

Stated that at trial Respondent "focused"

on whether a one-person contract could be

an ERISA plan. In fact, that was its only

argument at trial. CR 29, CR 23. That is

why that was the only issue addressed by

the District Court in its Findings Of Fact

And Conclusions Of Law. The District Court

held that Petitioner’s claim for severance

pay under the Employment Contract was

Subject to ERISA, because a Single employee

could constitute a beneficiary class. See

30a to 33a.

The rule that an issue will not be

heard for the first time on appeal unless

it was raised Sufficiently for the trial

court to rule on it is a sound rule. Its

purpose is to allow the trial court to

consider and reconsider its rulings and

correct its errors. Morrow v. Greyhound

Lines, Inc., 541 F.2d 713 (8th Cir. 1976).

Trial courts are deprived of that oppor-

tunity if a party fails to raise an issue

Or call upon the court to rule on it.

A generic statement that, for example,

a contract does not constitute an ERISA

plan for one reason does not put before the

court any unstated reasons that would be

so. Therefore, it should be be expected

that a court would only rule on reasons

articulated to support a general proposi-

tion. Indeed, courts cannot be made to

assume the burden of researching and ruling

upon legal points not raised or briefed by

the parties. The particular point raised

by a party, and its submissions to the

court on that issue, should circumscribe

the trial court’s obligation.

Be A Litigant Is Deprived Justice If The

Appellate Court Allows An Issue To Be

Raised For The First Time On Appeal.

In this case Petitioner briefed and

responded to every argument’ raised by

Respondent at trial, only to find that an

issue not raised a trial and a case not

cited by Respondent at trial, Fort Halifax

Packing Co. v. Coyne, is the cause for

reversal on appeal.

A party should at trial be called upon

to meet only those objections that are

raised by its opponent. That is the recog-

nized standard. Yet the decision of the

Ninth Circuit destabilizes the order that

Standard creates. It creates uncertainty

in the course of trial practice. It sug-

gests that a party must anticipate and try

issues not raised. This works against the

Principle of economy in litigation. It

encourages litigation of collateral and

unnecessary issues. It works to prolifer-

ate the issues to be tried in a particular

case. It encourages appellate litigation

because a party would not feel constrained

by the trial record as being a complete

account of the issues in controversy.

In this case Petitioner was denied

justice because the Ninth Circuit failed to

abide by its own precedent that it will not

hear an issue for the first time on appeal

unless the argument was raised sufficiently

for the trial court to rule upon it. See

State of Cal., Dept. of Health Services v.

U.S. DHHS, 853 F.2d 634, 638 (9th Cir.

1988) (a Court of Appeals must ordinarily

follow previous decisions of the court,

absent subsequent change in_ substantive

law); see also Singleton v. Wulff, 428 U.S.

121, 96 S.Ct. 2868, 2877, 49 L.Ed.2d 826

(1976) (explaining the purpose of _ the

general rule against considering an issue

not passed on below is the essential need

to ensure the opportunity to offer evidence

relevant to the issues and in order that

litigants not be surprised on appeal by

decision of issues upon which there had

been no opportunity to introduce evidence

below). Instead, the trial court’s deci-

Sion was reversed for reasons it was never

called upon to address. In the absence of

plain misjustice it was error to consider

the issue of sufficient administrative

scheme for the proper resolution of the

issue is not beyond doubt. Singleton,

Supra, 96 S.Ct. at 2877.

t Fe The Contract Provisions In Question

Were Part Of The Inducement To Peti-

tioner To Become And Remain President,

And They Contained Sufficient Adminis-

tration To Constitute An ERISA Plan.

a. Fort Halifax Is Not Controlling

For This Did Not Involve The

Mere Creation Of A Benefit.

In Fort Halifax Packing Co. v. Coyne,

482 U.S. 1 (1987), this Court held that

plant closure legislation which merely

required that severance benefits be ex-

tended and_ thereby merely created an

obligation to make a one-time payment of

benefits was not an ERISA severance plan.

This case did not involve the legis-

lative enactment of provisions which merely

created a benefit. In this case Respondent

was to:

(1) interpret facts and determine

whether Petitioner was entitled to a bene-

fit;

(2) interpret the language of the

contract and determine what salary and

bonus figures to apply (for bonus calcula-

tion purposes did "last two full contract

years" mean the years the bonuses were

paid, or the years for which the bonuses

were earned?) ;

(3) disburse funds to Petitioner and,

with respect ‘to insurance carriers, to

those providers; and

(4) administer the provisions calling

for a termination of certain benefits upon

reemployment.

Thus, in addition to the creation of

the possibility of a severance benefit,

here the employer was required to make an

initial eligibility decision, interpret the

benefit plan’s provisions, distribute funds

according to a formula and further adminis-—

ter the plan by monitoring the employee’s

work status.

»D. Cases Stemming From Fort Halifax

Are Distinguishable For This Plan

Was Not A "Buyout Plan."

The benefit Petitioner bargained for

was intended to be part of his overall

economic security. It was a plan which,

when it was established, was in contempla-

tion of his continued employment. See e.g.

Whittemore Vv. Schlumberger Technology

Corp., 976 F.2d 922 (Sth Cir. 1992). zt

was not a "buy-out" plan, or one which was

offered to facilitate his removal or ter-

mination of employment. This distinguishes

authority stemming from Fort Halifax,

Supra, on this issue. E.g. Angst v. Mack

Trucks, Ene.» 969 F.2d 1530 (3rd Cir.

1992); Fontenot v. NL Industries, Inc., 953

F.2d 960 (5th Cir. 1992); and Wells v.

General Motors Corp., 881 F.2d 166 (5th

Cir. 1989), cert. denied, 495 U.S. 923

(1990). Therefore, the Ninth Circuit erred

by relying on Fort Halifax, supra, and its

progeny.

cS. To The Extent An "Ongoing Admin-

istrative Scheme" Is Required To

Constitute An ERISA Plan, The

Required Showing Should Be Min-

imal.

To the extent an "ongoing adminis-

trative scheme" is required, that scheme

should be minimal. See Moeller Vv.

Bertrang, 801 F.Supp. 291, 294 (D.S.D.

(1992) (the simplicity of the scheme does

not defeat the existence of a plan); see

also Williams v. Wright, 927 F.2d 1540,

1544-45 (llth Cir. 1991) (letter to one

employee created plan subject to ERISA

protection). After all, the subject is

severance benefits. When Congress stated

it wanted to regulate severance benefits it

did not distinguish between complex benefit

plans and simple benefit plans, it Simply

included all plans included as part of an

employment agreement. Plans offering

severance benefits are typically formula

driven yet simple to compute. Indeed, the

provisions here are more complex than what

one ordinarily would expect to encounter.

If the Ninth Circuit’s Opinion is al-

lowed to stand entire classes of employees

who negotiate individual severance plans

will be excluded from ERISA protection

merely because their individual plan was

not complex enough to require more than the

following aspects of ongoing administration

which are present as part of the severance

package in question: an initial deter-

mination of eligibility; followed by an

initial interpretation of the provision’s

language; followed by a formula driven set

of monthly payments, which continue for a

period of time determined by a different

formula; and which requires ongoing

monitoring of the employee’s work status

because the benefits cease if the employee

is reemployed during the benefit period.

If such a severance plan does not require

sufficient ongoing administration an entire

class of plans has been wrongfully excluded

from ERISA coverage.

CONCLUSION

Respondent should not be allowed to

raise a different theory of a defense for

the first time on appeal where it was not

raised sufficiently for the trial court to

rule on it.

Alternatively, if the issue of ongoing

administration was properly addressec the

Ninth Circuit erred in ruling that this

severance plan for an individual was not

Subject to ERISA protection.

Respectfully submitted,

Richard C. Busse

Scott N. Hunt

LAW OFFICES OF

RICHARD C. BUSSE

921 American Bank Building

621 SW Morrison Street

Portland, Oregon 97205

(503) 248-0504

"BEST AVAILABLE COPY ©

TABLE OF CONTENTS - APPENDIX

Opinion of the United States Court

of Appeals for the Ninth Circuit

filed November 3, 1994

Findings of Fact and Conclusions of

Law in the United States District

Court for the District of Oregon

dated February 8, 1993

Order of the United States Court

of Appeals for the Ninth Circuit

filed December 28, 1994

Page

19a

54a

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Dennis Delaye, Individually

& on behalf of the Agripac,

Inc./Dennis Delaye

"Employment Contract",

Plaintiff-Appellee,

Agripac, Inc., an Oregon

corporation,

Defendant-Appellant.

Dennis Delaye, Individually

& on behalf of the Agripac,

Inc./Dennis Delaye

"Employment Contract",

Plaintiff-Appellee,

Ve.

Agripac, Inc., an Oregon

corporation,

Defendant-Appellant.

Dennis Delaye, Individually

& on behalf of the Agripac,

Inc./Dennis Delaye

"Employment Contract",

Plaintiff-Appellee,

Agripac, Inc., an Oregon

corporation,

Defendant-Appellant.

ee eee ee ee See eee eee eee ee ee ee

— ee eee ee eee ee ee ee ee eee ee

No. 93-35257

D.C. No. CV-

92-00141-OMP

No. 93-35398

D.C. No. CV-

92-00141-OMP

No. 93-35578

D.C. No. CV-

92-00141-OMP

OPINION

Appeals from the United States District

Court for the District Of Oregon

Owen M. Panner, District Judge, Presiding

Argued and Submitted

September 13, 1994--Portland, Oregon

Filed November 3, 1994

Before: Ruggero J. Aldisert,*

William A. Norris and David R. Thompson,

Circuit Judges.

Opinion by Judge Thompson

SUMMARY

Labor and Employment/ERISA/

Termination and Suspension

The court of appeals dismissed an

appeal and remanded a case. The court held

than an employment contract providing that

an employee would receive payments’ upon

termination did not constitute a "plan"

within the meaning of the Employment Re-

tirement and Income Security Act (ERISA).

*Hon. Ruggero J. Aldisert, Senior United

States Circuit Judge for the Third Circuit,

Sitting by designation.

Appellee Dennis Delaye was appellant

Agripac, Inc.’s president and chief ex-

ecutive officer. He and Agripac entered

into a written "Employment Contract," which

provided that if Agripac terminated Delaye

for cause, he would receive only his base

yearly compensation, prorated to the date

of termination. The contract further pro-

vided that if Agripac terminated Delaye

without cause, Agripac would pay him a

fixed amount for 12 to 24 months according

to a set formula. Additionally, if ter-

mination was without cause, Agripac would

pay Delay accrued vacation benefits and

provide him with certain insurance until he

found other employment or Agripac ceased

monthly payments to him according to the

terms of the contract.

Agripac fired Delaye and treated his

termination as a termination for cause.

Agripac tendered Delaye nothing more than

his yearly compensation prorated to the

date of termination. Delaye contended his

termination was without cause, and sued

Agripac in the district court, alleging a

violation of the ERISA.

The district court found Delaye’s

termination was without cause. The court

also found his employment contract was an

ERISA plan, even though the contract ap-

plied only to Delaye and did not cover any

other Agripac employee or class of em-

ployees. The court awarded Delaye sever-

ance benefits, but denied his request for

attorney’s fees. Agripac appealed, con-

tending that Delaye’s contract did not

involve an ongoing administrative scheme,

and therefore was not a "plan" under ERISA.

Delaye cross-appealed from the denial of

his request for attorney’s fees.

[1] Agripac raised the issue whether

Delaye’s employment contract was an ERISA

plan. Although the argument in the dis-

trict court focused on whether a one-person

contract could be a "plan" under ERISA,

this focus did not waive the issue Agripac

raised.

[2] Provisions for severance pay may

constitute an employee welfare benefit plan

within the meaning of the ERISA. {3] How-

ever, Delaye’s contract did not implicate

an ongoing administrative scheme. While

payment could continue for as along as two

years under the contract, there was nothing

discretionary about the timing, amount or

form of the payment. Sending Delaye a

check every month plus continuing to pay

his insurance premiums for the time speci-

fied in the employment contract did not

rise to the level of an ongoing adminis-

trative scheme.

[4] Because Delaye’s employment con-

tract was not a "plan" governed by the

ERISA, his claim that his contract was

breached did not present a federal ques-

tion. The district court lacked jurisdic-

tion to resolve this dispute. Accordingly,

the appeal and cross-appeal were dismissed,

and the case was remanded to the district

court with instructions to vacate the

judgment and dismiss the action, without

prejudice to Delaye bringing suit in state

COuUrtE.

COUNSEL

Charles F. Adams and Jill D. Bowman, Stoel

Rives, Boley, Jones & Grey, Portland,

Oregon, for the defendant-appellant-cross-

appellee.

Richard C. Busse and Scott N. Hunt, Law

Offices of Richard C. Busse, Portland,

Oregon, for the plaintiff-appellee-cross-

appellant.

OPINION

THOMPSON, Circuit Judge:

Agripac, Inc. appeals the district

court’s judgment in favor of Dennis Delaye

in his action brought under the Employee

Retirement Income Security Act (ERISA), 29

U.S.C. §§ 1001-1461 (1985 & Supp. 1993).

Delaye alleges Agripac violated ERISA by

denying him severance benefits when he was

fired. Delaye cross-appeals from the

district court’s denial of his request for

attorney fees.

Delaye predicates federal court juris-

diction on his contention that the ERISA

claim presents a federal question. 28

U.S.C § 1331; 29 U.S.C § 1332(e)(1).

Because we conclude no ERISA plan existed,

the district court lacked subject matter

jurisdiction. Accordingly, we dismiss the

appeal and cross-appeal, and remand to the

district with instructions to vacate its

judgment and dismiss the action.

FACTS

Delaye was Agripac’s president’ and

chief executive officer. In 1990, he and

Agripac entered into a written "Employment

Contract." Section 6 of the contract gov-

erns termination of employment. Paragraph

6.2.1 provides that if Agripac terminates

Delaye for cause, he will receive only his

base yearly compensation ($160,000), pro-

rated to the date of termination. Para-

an 6.2.2 provides that if Agripac

terminates Delaye without cause, Agripac

will pay him a fixed monthly amount for

twelve to twenty-four months according to a

set formula. Additionally, if termination

is without cause, Agripac will pay Delaye

accrued vacation benefits and provide him

with the same accident, health, life and

disability insurance he had during the term

of employment, until he finds other employ-

ment or Agripac ceased monthly payments to

him according to the terms of the contract.

About a year after the contract was

Signed, Agripac fired Delaye. It treated

his termination as a termination for cause

and tendered him nothing more than his

yearly compensation prorated to the date of

termination. Delaye contended his termi-

nation was without cause, and sued Agripac

in the district court, alleging a violation

of ERISA and various pendent state law

Claims.

At trial, Delaye dismissed all of his

claims except his claim under ERISA. The

district court found Delaye’s termination

was without cause. It also found his

employment contract was an ERISA plan, even

though the contract applied only to Delaye

and did not cover any other Agripac em-

ployee or class of employees. The court

awarded Delaye severance benefits, but

denied his request for attorney fees. This

10a

appeal, and Delaye’s cross-appeal, fol-

lowed.’

Although Agripac contended in the

district court that the employment contract

was not an ERISA plan, its argument focused

on whether an employment contract could be

an ERISA plan when it covered only one

person. The district court concluded that

a one-person employment contract could

constitute an ERISA plan. On that basis,

it found the contract was an ERISA plan,

without making findings, as to whether the

contract otherwise qualified as an ERISA

plan--that is, whether it involved an

Ongoing administrative scheme.

{1} In this appeal, Agripac argues

Delaye’s contract does not involve an

1 ‘

Because we conclude Delaye’s claim

is not governed by ERISA, we do not reach

his contention that the district court,

having granted him judgment under ERISA,

erred in denying his request for attorney

fees.

lla

ongoing administrative scheme, and there-

fore is not a "plan" under ERISA.’ Delaye

contends Agripac waived this argument be-

cause it did not present it to the district

court. We disagree. Agripac raised the

issue whether Delaye’s employment contract

was an ERISA plan. The argument in the

district court focused on whether a one-

person contract could be a "plan" under

ERISA, but this focus did not waive the

issue Agripac raised. Moreover, the facts

necessary to resolve the issue are not in

dispute. The record is sufficiently de-

veloped and the question may be decided as

a matter of law. Therefore, we consider

the issue. See Lawyers Title Ins. v.

Honolulu Federal S&L, 900 F.2d 159, 164

(9th Cir. 1990).

Agripac also contends that a one-

person employment contract cannot be an

ERISA plan. We do not decide this ques-

tion.

l2a

{2] ERISA, enacted by Congress in

1974, is designed to protect employees from

losing their pensions and benefits due to

employer mismanagement. Massachusetts v.

Morash, 490 U.S. 107, 112 (1989). Provi- |

sions for severance pay may constitute an

employee welfare benefit plan within the

meaning of ERISA. See Scott v. Gulf Oil

Corp., 754 F.2d 1499, 1503 (9th Cir. 1985).

The question before us is whether the

severance provisions that were part of

Delaye’s employment contract are an employ-

ment benefit plan under ERISA.

We are guided by the Supreme Court in

Fort Halifax Packing Co. V. Coyne, 482 U.S.

1 (1987), which held that the severance

package in that case was not an employee

benefit plan within the meaning of ERISA

and thus state law was not preempted. In

stressing the difference between employee

benefits and employee benefit plans, the

Court recognized that the purpose of ERISA

| -—_ : 4

13a

preemption of state law is to create a

Single set of regulations to govern benefit

plans’ complex and ongoing administrative

activities. Id. at 8-15.

From the fountain of Fort Halifax, and

the stream of circuit court cases that have

flowed from it, a relatively simple test

has emerged to determine whether a plan is

covered by ERISA: does the benefit package

implicate an ongoing administrative scheme?

See Fort Halifax, 482 U.S. at 12 ("The

theoretical possibility of a one-time obli-

gation in the future simply creates no need

for an ongoing administrative program for

processing claims and paying benefits.");

Kulinski v. Medtronic Bio-Medicus, Inc., 21

F.3d 254, 257 (8th Cir. 1994) (holding the

touchstone of determining existence of

ERISA plan is "whether an administrative

scheme is required"); James v. Fleet/

Norstar Fin. Group, Inc., 992 F.2d 463, 466

(2G. ic. 1993) (same); Fontenot v. NL

14a

Industries, Inc., 953 F.2d 960, 962 (5th

Cir. 1992) (same); Angst v. Mack Trucks,

Inc., 969 F.2@ i323@, i382 (34 Cat. 2992)

(same). Our own circuit has employed this

test. Bogue v. Ampex Corp., 976 F.2d 1319,

1323 (9th Cir. 1992) cert. denied, 113

$.Ct. 1847 (i993);

[3] Delaye’s contract does not im-

plicate an ongoing administrative scheme.

Once Agripac decided to terminate Delaye,

the severance calculation became one akin

to that in Fort Halifax--a straightforward

computation of a one-time obligation. The

obligation was either to pay Delaye his

regular salary prorated to the date of his

termination, if he was terminated for

Cause; or pay him a fixed monthly amount

for twelve to twenty-four months according

to a set formula, plus accrued vacation pay

and insurance benefits, if he was termi-

nated without cause. While payment could

continue for as long as two years, there is

15a

nothing discretionary about the timing,

amount or form of the payment. Sending

Delaye, a single employee, a check every

month plus continuing to pay his insurance

premiums for the time specified in the

employment contract does not rise to the

level of an ongoing administrative scheme.

Relying on Bogue, Delaye argues the

severance benefits provided in his contract

meet the ongoing administrative scheme

test. It is true that the severance pack-

age in Bogue is somewhat similar to the

package in this case. See Bogue, 976 F.2d

at i323. Bogue is distinguishable, how-

ever, in two ways. First, the Bogue

severance plan was triggered if the covered

employee was not offered "substantially

Similar" employment. The Bogue court de-

Scribed this condition as requiring de-

cision-making obligating the administrator

to engage in "ongoing, particularized,

administrative, discretionary analysis."

l6a

Id. Here, Delaye’s rights to severance

benefits are set by criteria in his con-

tract. See James, 992 F.2d at 468 (simple

arithmetical calculations and clerical

determination do not require Ongoing,

particularized, administrative, discre-

tionary analysis).

Second, Bogue’s severance package

covered ten top executives. Bogue, 976

P.46 at 1321. Crucial to the analysis in

Bogue was the fact that the employer would

need to make its discretionary determina-

tions ten times, as it considered the

severance benefits in each of the ten top

executives’ contracts. No such ongoing

discretionary analysis is required in the

present case.

Delaye urges us to view Bogue in light

of the holding in Williams v. Wright, 927

F.2d 1540 (9th Cir. 1991). In Williams,

the Eleventh Circuit held "that a plan

covering a single employee, where all other

17a

requirements are met, is covered by ERISA."

Id. at 1545.

Williams is unhelpful to Delaye.

Under Williams, a plan covering a single

employee may be an ERISA plan "where all

other requirements are met." Id. Here,

even if an employment contract covering a

Single employee can be an ERISA plan, a

question we do not decide, all other re-

quirements are not met; the alleged "plan"

does not implicate an ongoing administra-

tive scheme.

[4] Because Delaye’s employment

contract is not a "plan" governed by ERISA,

his claim that his contract was breached

does not present a federal question. The

district court lacked jurisdiction to

resolve this dispute. Accordingly, we

dismiss the appeal and cross-appeal, and

remand to the district court with instruc-

tions to vacate the judgment and dismiss

the action, without prejudice to Delaye

18a

bringing suit in Oregon state court where a

well-developed body of contract law, al-

though perhaps not the ability to recover

attorney fees, awaits him.

Appeal DISMISSED; cause REMANDED.

19a

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

DENNIS DELAYE,

Plaintiff, CV No. 92-141-PA

FINDINGS OF FACT

)

vs )

) AND CONCLUSIONS

)

AGRIPAC, INC., an OF LAW

Oregon corporation,

Defendant.

RICHARD C. BUSSE

521 American Bank Building

621 SW Morrison Street

Portland, OR 97205

Attorney for Plaintiff

MARK H. WAGNER

Hoffman, Hart & Wagner

KOIN Center, Suite 1200

222 SW Columbia

Portland, OR 97201

Attorneys for Defendant

PANNER, J.

Plaintiff Dennis Delaye brings

this action against Agripac, Inc., his

former employer, alleging that defendant

violated the Employee Retirement Income

Security Act (ERISA), 29 U.S.C. § 1132, SY

failing to pay him $358,488.00 in severance

20a

in accordance with a written employment

contract.

These are my Findings of Fact and

Conclusions of Law following the court

trial. Peg. BR. Civs BP. Bete). I conclude

that defendant has violated the provisions

of ERISA by failing to pay plaintiff

severance as required by the contract.

FINDINGS OF FACT

Defendant iS a grower-owned agricul-

tural cooperative with headquarters in

Salem, Oregon. Plaintiff began working for

defendant in 1983 as a vice president in

the area of marketing and sales. He was

promoted to senior vice president in 1987

and was further promoted to the position of

chief operating officer in 1988. On July

1, 1989, defendant’s Board of Directors

(the Board) appointed plaintiff to replace

Paul Solari as defendant’s president and

_ ee ee

2la

chief executive officer. Plaintiff re-

mained in that position until his discharge

on November 6, 1991.

Plaintiff and defendant were parties

to a written employment contract. Para-

graph 6.1.7 of the contract gave defendant

authority to terminate plaintiff’s employ-

ment upon 60 days’ written notice, so long

as it granted plaintiff severance in ac-

cordance with a formula set forth at para-

graph 6.2.2(a). Under paragraph 6.1.4,

however, defendant had authority to dis-

charge plaintiff without severance in the

event of plaintiff’s “willful and continual

failure and refusal to comply with the

policies, standards, and regulations of

Employer from time to time established by

the terms of this Agreement."

Plaintiff received satisfactory per-

formance reviews from the Board during his

first two years as defendant’s president.

He received a "generally competent" rating

22a

on his August 29, 1990, performance eval-

uation, along with favorable recognition of

his management skills and business’ judg-

ment. Plaintiff fared even better on his

August 23, 1991, performance evaluation.

Although his overall rating remained "gen-

erally competent," the evaluation stated

that "Dennis’ overall performance has im-

proved over the past year." Plaintiff also

earned praise for his industry knowledge

and business acumen. The evaluation noted

areas of weakness, such as Board relations,

grower communications, cost reductions, and

Operations, but nevertheless concluded:

. "Generally competent" is defined as

follows: "Employee performs most of the

position objectives and requirements, but

requires more than normal amount of direc-

tion and review of results. Employee may

be new to a position, in a training assign-

ment, or fall short of meeting some key

objectives. Employee usually completes

work within projected time or with reason-

able efficiency, but use of time, methods,

resources and/or level of proficiency

require improvement."

23a

"Dennis is a conscientious and dedicated

employee striving to do his’ best for

Agripac.”

Notwithstanding the generally positive

tone of plaintiff’s August 1991 evaluation,

the relationship between plaintiff and the

board began to sour sometime before the

summer of 1991. Most of the Board’s criti-

cism concerned plaintiff’s performance in

the following key areas: (1) plaintiff’s

alleged failure to prepare for important

contract negotiations with the Birds Eye

Company; (2) plaintiff's alleged failure to

prepare a contingency plan, strategic plan

and plant optimization study; (3) plain-

tiff’s alleged failure to implement cost

reduction measures; and (4) plaintiff’s

alleged failure to communicate effectively

with the Board.

24a

On August 6, 1991, Board Chairman Mike

Calef sent a letter to plaintiff criti-

cizing his relations with the Board and his

management style. The letter stated:

Everyone agrees that you are

doing an excellent job in the

marketing/sales and business

portions of your responsibil-

ities, but there is a_ serious

concern in other areas, such as:

board relations, communications

and certain aspects of your

management methods and “styles.

These issues have been building

for some time and have caused a

deterioration in the Boards’

[sic] confidence .... The Board

expects improvement, will work

with you to achieve it, and will

review progress with you after

three months.

The letter also noted: "A serious concern

was expressed regarding delays in carrying

out Board objectives which you may not have

agreed with “

On August 9, 1991, in response to the

Board’s Criticisms, plaintiff sent the

Board a "“weekly update" of his business

activities. The update focused on opera-

tions, sales/marketing, and other aspects

25a

of defendant’s business. Plaintiff pre-

pared additional updates on August 16,

August 23, September 4, and September 13.

Plaintiff also met or held telephone con-

ferences with tthe Board on August 30,

September 6, and September 20 to discuss

his strategies for the upcoming contract

negotiations with Birds Eye.

Plaintiff’s efforts to communicate

with the Board and prepare for the Birds

Eye talks were not sufficient to restore

confidence in his leadership. At a closed

meeting of the Board held on September 11,

1991, Board member Roger Hildebrandt urged

that Paul Solari, plaintiff’s predecessor,

be appointed a co-leader in the Birds Eye

negotiations. Hildebrandt also proposed

that plaintiff be given until December l,

1991, to improve his performance or face

termination. Both motions were passed

unanimously. The Board minutes state:

Dennis’ handling of the B.E.

negotiations was unsatisfactory,

26a

and was a continuance of a pat-

tern of not following Board

requests in a timely fashion or

delaying action until the last

minute. The importance of the

B.E. negotiations underscored the

unacceptability of Dennis’ method

of operation and constituted, in

the Board’s' view, neglect to

follow the Board’s directives and

requests.

k*k*

The unanimous view of the Board

was that Dennis should be ter-

minated with a majority feeling

that a termination date should be

set by the Board. Only if a

major improvement occurred in the

performance of his duties would a

continuance of employment be

considered.

Chairman Calef advised plaintiff of the

Board’s decisions in letters dated

September 16, 1991, and September 23, 1991.

Following the September 11, 1991,

meeting, the Board took additional steps in

preparation for plaintiff’s termination.

Paul Solari asked defendant’s legal counsel

to draft a proposed motion for the Board

discharging plaintiff based on his "willful

Reaches

27a

and continual failure and refusal to com-

ply" with defendant’s policies. At a

closed meeting on October 16, 1991, the

Board discussed plaintiff's performance

following Chairman Calef’s letter of

September 23. Calef stated that plaintiff

had not responded to the Board’s concerns

and cited, as a primary example, plain-

tiff’s failure to prepare a strategic plan

for presentation at defendant’s November

1991 planning conference. The Board voted

unanimously to terminate plaintiff, but

chose to delay the effective date until the

end of October 1991.

On October 31, 1991, the Board held a

closed meeting and agreed to give plaintiff

the opportunity to resign with a severance

package rather than face termination. The

following day, Chairman Calef and Board

members Solari and Hildebrandt met with

plaintiff and advised him of the Board’s

28a

decision. The notes of that meeting con-

tain a succinct explanation of the Board’s

action:

lack of detailed preparation

on the Birds Eye negotiations,

delay on planning and imple-

menting a cost reduction program,

delay in submitting a contingency

plan and plant consolidation

plan, failure to prepare the new

Strategic plan, no agenda yet

prepared for the November

Planning Conference were all a

part of a continuing and unac-

ceptable pattern.

The Board members informed plaintiff that

they would need a decision on his resig-

nation no later than November 3, 1991.

Plaintiff refused to resign and was ter-

minated from his position effective

November 6, 1991.

LEGAL ISSUES

Plaintiff brings this action under §

502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)

(1)(B), to recover severance pay under the

employment contract. Plaintiff also seeks

an award of attorney fees under § 502(g)(1)

29a

of ERISA, 29 U.S.C. § 1132(g)(1). Defen-

dant contends that the employment contract

is not subject to ERISA. In the alter-

native, it maintains that plaintiff was

discharged for his willful and continual

refusal to comply with its directives and,

therefore, no severance is owing.

This action presents four main issues:

(1) Does the severance provision

of the written employment con-

tract between the parties consti-

tute an employee benefit "plan,

fund Or program" under the

coverage provisions of ERISA?

party bears the burden of proof

concerning plaintiff’s entitle-

ment to severance benefits?

(3) Did defendant breach’ the

employment contract when it

discharged plaintiff without

paying severance?

(4) If defendant breached the

employment contract, thereby

violating ERISA, is plaintiff

entitled to an award of attorney

fees under ERISA?

My conclusions are set forth below.

30a

I. ERISA coverage.

The ERISA statute contains detailed

provisions regulating "employee welfare

benefit plans” and "employee pension bene-

fit plans." 29 U.S.C. § 1002(3). Employee

welfare benefit plans under ERISA include

plans established for the purpose of pro-

viding participants with "severance or

Similar benefits." 29 U.S.C. § 1002(1)(B);

29 U.S.C. § 186(c)(6). The coverage pro-

visions of ERISA are set forth at 29 U.S.C.

§ 1003.

Defendant, although conceding that an

employer’s promise to pay severance is

subject to ERISA, argues that a severance

provision in an employment contract between

an employer and a single employee is not

covered by ERISA. In defendant’s view, the

provisions of ERISA extend only to benefit

plans that cover a "class" of employees.

Defendant relies on O’Hollaren v. Marine

Cooks and Stewards Union, 83 Or. App. 133,

ies

Sete 2

31a

136-37 (1986), in which the Oregon Court of

Appeals held that "[{i]ndividual employment

contracts are not ‘plans’ within’ the

meaning or purpose of ERISA ...." Defen-

dant also relies on U.S. Department of

Labor opinion letters issued in 1976, a

1982 decision of the Eleventh Circuit, and

federal cases from other jurisdictions.

Plaintiff maintains that a "class" for

purposes of ERISA may be comprised of a

single employee and, therefore, the employ-

ment contract in this case falls under

ERISA. Plaintiff relies on Williams v.

Wright, 927 F.2d 1540, 1545 (11th Cir.

1991), in which the Eleventh Circuit ob-

served that "nothing in the ERISA legisla-

tion point[s] to the exclusion of plans

covering only a_ single employee." The

Williams court was also favorably impressed

by a Department of Labor opinion letter

dated October 22, 1989, which states that

ERISA coverage is "not affected by the fact

32a

that the arrangement is limited to covering

a Single employee, [or] is negotiated

between the employer and the employee

Id. Notably, the Williams court expressly

disagreed with the Oregon Court of Ap-

peals’s holding in O’Hollaren. Id. at

1546.

The parties have not cited, nor have I

found, a Ninth Circuit case which defines

the number of persons necessary to comprise

a class under -ERISA. Nevertheless, I am

persuaded by plaintiff’s interpretation of

the statute. Plaintiff’s position that a

"Class of one" is cognizable under ERISA is

entirely consistent with the text of the

applicable ERISA provisions and, in addi-

tion, appears to accord with the most

recent opinion issued by the Department of

Labor. Under the circumstances, I agree

with the Eleventh Circuit’s well-reasoned

holding in Williams that, for purposes of

ERISA, an employee benefit plan can _ be

33a

negotiated between an employer and a lone

employee. Plaintiff’s claim for severance

pay is therefore subject to ERISA.

II. Burden of proof.

Defendant maintains that this is a

Simple benefits case under 29 U.S.C. § 1132

(a)(1)(B) and, therefore, in accordance

with the accepted practice in such cases,

the burden of proof must remain with plain-

tiff at all times. See, e.g., Bueneman v.

Central States, 432 F.Supp. 697 (E.D. Mo.

i977), ae€f'd, S72 F.28 1208 (8th cir.

1978). Plaintiff contends that this is not

a usual case because defendant acted in the

double capacity of employer and plan admin-

istrator. He argues that defendant should

bear the burden of proving that the ter-

mination properly falls under Paragraph

6.1.4 of the employment contract.

In support of the proposed burden-

shifting approach, plaintiff contends that

paragraph 6.1.4 constitutes a forfeiture

34a

clause which should be liberally construed

in his favor and against defendant. See,

e.g., Roth Development, Inc. v. A.R. John

General Contractors, Inc., 263 Or. 561, 568

(1972). In the alternative, plaintiff con-

tends that defendant is required to dispel

an inference of inequitable decision-making

arising from its dual role as employer and

administrator of plaintiff’s severance

plan. I accept the second of plaintiff’s

arguments.

Plaintiff’s conclusory assertion that

Paragraph 6.1.4 constitutes a forfeiture

clause rests on the untenable assumption

that he has an absolute right to severance

pay under the employment contract, and that

a termination under paragraph 6.1.4 would

Operate to deprive him of his entitlement.

Plaintiff’s right to severance under the

contract is neither absolute nor inviolate,

but is entirely dependent on the circum-

stances surrounding the termination of his

35a

employment. A discharge under Paragraph

6.1.4 of the contract carries with it no

right to severance benefits. Paragraph

6.1.4 cannot be transformed into a for-

feiture clause merely because termination

under a different contract provision might

have created an obligation to pay sever-

ance.

Plaintiff’s alternative argument is

more compelling. Plaintiff points out that

this case is similar to ERISA cases that

involve a conflict of interest or breach of

fiduciary duty on the part of plan adminis-

trators. He observes that defendant made

both the decision to discharge him and the

decision to deny him severance benefits.

He also notes that, because any severance

owing to him would be paid out of defen-

dant’s coffers, defendant stands to a :eap

of considerable financial benefit from its

decision to withhold severance pay. In

light of defendant’s dual role, plaintiff

36a

concludes, defendant must prove that its

interpretation of the employment contract

was not tainted by self-interest.

Plaintiff’s argument finds some sup-

port in Firestone Tire & Rubber Co. v.

Bruch, 489 U.S. 101 (1989), in which the

Supreme Court held that an ERISA claimant’s

challenge to a denial of benefits under 29

U.S.C. § 1132(a)(1)(B) must be reviewed

under a de novo standard, rather than an

abuse of discretion standard, unless the

plan administrator is vested with discre-

tionary authority to interpret the plan.

In its discussion of the appropriate

standard of review, the Court cautioned:

if a benefit plan_ gives

discretion to an administrator or

fiduciary who is operating under

a conflict of interest, that

conflict must be weighed as a

"facto[r] in determining whether

there is an abuse of discretion."

Id. at 115 (quoting Restatement (Second) of

Trusts § 187, Comment d (1959)). Plaintiff

also relies on Brown v. Blue Cross & Blue

37a

Shield of Alabama, 898 F.2d 1556 (11th Cir.

1990), cert. denied, 111 S.ct. 712 (1991),

and other Eleventh Circuit cases which

apply a burden-shifting analysis. In

Brown, the court held that the deferential

standard of review ordinarily applied to

the decisions of plan administrators re-

quires modification where "an insurance

company ... as ERISA fiduciary ... ex-

ercis[es] discretion over a situation for

which it incurs ‘direct, immediate expense

as a result of benefit determinations

favorable to [p]Jlan participants." Id. at

1561 (quoting De Nobel v. Vitro Corp., 885

F.2d 1180, 1191 (4th Cir. 1989)). The

burden of proof in such a case must shift

to the ERISA fiduciary, who must then

demonstrate that the decision denying

benefits was not influenced by impermis-

sible motives. Id. at 1566.

38a

I agree that defendant in this case

filled a double role, acting both as plain-

tiff’s employer and as the administrator of

plaintiff’s ERISA plan. Accordingly, I

decline to accept defendant’s contention

that this case involves a run of the mill

challenge to a denial of benefits. The

Ninth Circuit has recognized "that if the

employer is the [plan] administrator, a

conflict ordinarily exists." Eley v.

Boeing Co., 945 F.2d 2/6, 279 (9th Cit.

1991) (citations omitted). In light of

Eley and the Supreme Court’s dicta in

Firestone, I cannot ignore the potential

risks created when plan fiduciaries have a

financial interest in the benefits deci-

Sions entrusted to them.

In addition, the Ninth Circuit has

applied a burden-shifting approach in cases

involving claims for breach of fiduciary

duty. Tafoya v. Western Conference of

Teamsters, 909 F.2d 344, 348 (9th Cir.

tei ene hi a i

39a

1990) (ERISA claimant bears initial burden

to show that plan eligibility rules are

unreasonable); Music v. Western Con. of

Team. Pen. Trust Fund, 712 F.2d 413, 419

(9th Cir. 1983) (where plaintiff shows that

plan eligibility requirements are unreason-—

able, “burden shifts to the trustees ... to

come forward with evidence establishing

reasonableness ...."). Although allega-

tions of breach of fiduciary duty are not

at issue in this action, it would be unwise

to overlook the possibility that a conflict

of interest impaired defendant’s ability to

administer the severance plan fairly.

Under the circumstances, I conclude that

the burden-shifting analysis proposed by

plaintiff is the better approach. Accor-

dingly, defendant must carry the burden of

proof on the conflict of interest issue.

It must be emphasized, however, that the

ultimate burden of establishing an ERISA

violation remains with the plaintiff.

40a

Having determined the appropriate

allocation of the burden of proof, I find

that defendant has met its burden to show

that its decision to withhold plaintiff’s

severance pay was not motivated by economic

self-interest. I note that plaintiff does

not assert a claim for breach of fiduciary

duty, nor has he presented evidence that

defendant’s potential conflict of interest

tainted its decision-making. Therefore, I

am satisfied that defendant’s decision to

terminate plaintiff under Paragraph 6.1.4

was based on its assessment of plaintiff’s

job performance, rather than a desire for

financial gain.

III. Plaintiff’s termination does not fall

under Paragraph 1.6.4.

Defendant has attempted to character-

ize plaintiff as a maverick executive, bent

on pursuing his own private agenda while

intentionally disregarding the Board’s

wishes. This portrayal of plaintiff cannot

ee ea ee ee ee

4la

be reconciled with the evidence. Although

it is apparent that the Board had ample

cause for dissatisfaction with plaintiff's

performance in certain key areas, there is

no convincing evidence that plaintiff

intentionally disregarded the Board’s

directives or disobeyed its orders. There-

fore, I cannot conclude that plaintiff

demonstrated a "willful and = continual

failure and refusal to comply with the

policies, standards, and regulations"

established by defendant.

To begin with, I cannot credit defen-

dant’s assertion that "virtually from the

beginning of his tenure, plaintiff embarked

on a course of his own ... in frank, direct

deviance from the policies ... of the Board

er (Defendant’s Supplemental Trial

Memorandum, p. 6). Although defendant re-

peatedly makes the general allegation that

plaintiff engaged in a "pattern" of in-

subordinate conduct, there is no specific

42a

evidence that plaintiff willfully disre-

garded the Board’s directives at any time

during his first two years as defendant’s

president. To the contrary, plaintiff

earned a "generally competent” rating in

his annual performance evaluations for both

1990 and 1991. Neither evaluation contains

any mention of insubordinate conduct and,

in the August 23, 1991, appraisal, plain-

tiff was praised as "a conscientious and

dedicated employee striving to do his best

for Agripec seek” Both evaluations were

formulated with the input and approval of

the Board and there is no evidence that

either one omits significant information

nor that defendant handles its annual

review process in a casual manner. Under

the circumstances, it is fair to accept the

evaluations at face value and to. hold

defendant to them.

Accordinaly, in evaluating whether

plaintiff’s discharge falls under paragraph

ee eee ee ee ee ee ee ee ae eee

— sa Se ee,

43a

6.1.4 of the employment contract, I am

chiefly concerned with plaintiff’s perfor-

mance and conduct during the two-month

period between the August 1991 performance

evaluation and October 16, 1991, when the

Board arrived at the termination decision.

I conclude that, while plaintiff did not

perform effectively during that period,

defendant has’ failed to identify any

specific orders or directives that he

intentionally disobeyed.

A. The Birds Eye negotiations.

With respect to the Bird Eye contract,

Board members were justifiably concerned

that plaintiff had not taken the time to

prepare adequate proposals and contingency

plans. The criticism that plaintiff failed

to share with the Board important infor-

mation concerning the negotiations was also

legitimate. Nevertheless, the evidence

44a

does not establish that plaintiff "will-

fully and continually" disregarded Board

directives pertaining to the talks.

According to the case summary prepared

by Paul Solari, regarded by defendant as

the definitive statement of its position in

the case, plaintiff was making progress in

his preparations for the Birds Eye talks,

but lacked a cohesive plan. To remedy this

problem, the Board brought in Solari as

co-leader of the negotiating team. Solari

testified that he and plaintiff made every

effort to get along with each other during

negotiations. The evidence therefore

indicates that, at least to the Birds Eye

contract, plaintiff attempted to cooperate

with the Board and Solari. That conclusion

is further supported by the fact that

plaintiff met with the Board several times

in August and September 1991 to discuss the

Birds Eye contract, yet defendant has

produced no minutes or meeting notes which

45a

mention any failure by plaintiff to comply

with the specific Board directives.

B. The contingency plan, strategic

plan, and plant optimization study.

As part of his responsibilities for

the 1991-1992 fiscal year, plaintiff was

expected to prepare (1) a contingency plan

in the event the Birds Eye contract was not

renewed, (2) a strategic plan to ensure

continued profitability for the company,

and (3) a plant consolidation plan ex-

ploring the possible closure of defendant’s

Plant #2. The plans were scheduled to be

presented to the Board at the planning

conference in late November 1991.

Both parties have presented documents

and testimony in an attempt to establish

the amount of work plaintiff had completed

on the plans at the time of his discharge.

Defendant maintains that plaintiff had not

made any meaningful progress and would not

have been prepared for his presentation at

46a

the planning conference. Plaintiff asserts

that the work was progressing well. Based

on the evidence, it is probable that plain-

tiff could have made a presentation at the

planning conference, but that his~ work

would not have met the Board’s expecta-

tions. Nevertheless, I cannot conclude

that plaintiff willfully disregarded the

Board’s wishes merely because his work was

unsatisfactory or was progressing too slow-

ly. Furthermore, given that the termi-

nation decision was made more than one

month before the plans were scheduled for

presentation, it wale be unfair to regard

plaintiff’s failure to complete the assign-

ment as an act of defiance against the

Board. Plaintiff’s delay in preparing for

the November planning conference arguably

reflects on his level of competency, ex-

perience, and motivation, but it does not

establish a basis for termination under

paragraph 6.1.4 of the employment contract.

47a

Cc. Cost reduction.

Plaintiff was also criticized for his

failure to develop a satisfactory cost

reduction program. Board members testified

that plaintiff repeatedly proposed measures

Gesigned to contain costs, but made no

attempt at cost reduction.

Based on the evidence, it appears that

plaintiff and the Board approached the

matter of cutting costs from different

perspectives. As stated in the Solari case

summary, "(i]t was apparent that [plain-

tiff’s] ‘vision’ was to grow the company

and therefore cost reductions were not

necessary." Notwithstanding this dif-

ference in philosophy, however, Solari

acknowledged that plaintiff had discussed

cost reduction with him after receiving

Mike Calef’s August 6, 1991, warning

letter. Solari also testified that he was

pleased to see that plaintiff was taking

48a

action. In addition, Bob Isaacs, defen-

dant’s vice president in charge of opera-

tions, and George Crispin, vice president

of business development, testified that

they were involved in various cost saving

measures during the time plaintiff was

president.

Under the circumstances, I find that

plaintiff made an effort to achieve cost

reductions, but that he failed to produce

the positive results sought by the Board.

As with the other criticisms directed at

plaintiff, the Board’s concerns about cost

reduction relate to the issue of plain-

tiff’s job performance. There is no evi-

dence that plaintiff was insubordinate.

D. Communications with the Board.

Plaintiff also received considerable

Criticism for his failure to communicate

effectively with the Board. However, as

with the Board’s other concerns, the matter

of "Board relations" relates to plaintiff's

£4 Ll oe

49a

job performance. After Plaintiff received

the August 6, 1991, warning letter, he

provided the Board with several written

updates and participated in meetings and

telephone conferences where the Birds Eye

contract was discussed. I must therefore

concluded that, although plaintiff’s ef-

forts to improve his communication skills

did not receive the Board’s approval, there

is no evidence that he wilfully ignored the

Board’s wishes on the subject.

E. Interpretation of the employment

contract.

In analyzing the evidence, I have

borne in mind defendant’s argument that the

language of paragraph 6.1.4 should be

construed in light of the business rela-

tionship between the parties. The argument

is well taken. The success of the rela-

tionship between a company’s president and

its directors may often depend on compli-

mentary management styles and a common

50a

sense of purpose. Nevertheless, I remind

defendant that, under the employment agree-

ment, plaintiff has a right to severance

pay in the event of a termination not

occasioned by his intentional, persistent

refusal to comply with Board directives.

When defendant contracted with plaintiff,

it knowingly assumed the risk that poor

performance, personality conflicts Or

clashing management styles might require

plaintiff’s termination along with payment

of a severance package. Defendant must

abide by the contract as it stands.

Defendant has not established grounds

for termination under paragraph 6.1.4 of

the employment contract. Plaintiff there-

fore has a right to recover severance

benefits under § 502 of ERISA, 29 U.S.C. §

1132(a)(1)(B).

5la

IV. Plaintiff is not entitled to an award

of attorney fees.

Under 28 U.S.C. § 1132(g9)(1), the

court has discretion to award reasonable

attorney fees to the prevailing party. The

propriety of such an award depends on the

following factors:

(1) The culpability or good faith of

the opposing party;

(2) the ability of the opposing party

to pay the fee award;

(3) the degree of deterrence which

would result from an award of fees;

(4) whether the parties requesting

fees sought to benefit all partici-

pants and beneficiaries of an ERISA

plan or resolve a significant ERISA

legal question;

(5) the relative merits of the par-

ties’ positions.

Dytrt v. Mountain State Tel. and Tel. Co.,

921 F.2d 889 (9th Cir. 1990) (citing

Hummell v. S.E. Rykoff & Co., 634 F.2d 446,

453 (9th Cir. 1980)).

52a

Based on the factors enumerate above,

I find that this is not an appropriate case

for an award of prevailing party attorney

fees. Although factor two arguably cuts in

favor of an award, the remaining factors

cut against it. Defendant’s position in

this case was apparently adopted in good

faith, and its legal arguments were not

without merit. In addition, given the

unique circumstances surrounding plain-

tiff’s discharge, an award of fees would

have no deterrence value. Finally, plain-

tiff’s claim was not intended to benefit a

class of beneficiaries, nor has it ad-

dressed a significant legal question under

ERISA. Accordingly, plaintiff’s fee re-

quest is denied.

CONCLUSION

Defendant has violated the provisions

of ERISA by failing to pay plaintiff

severance as required by the employment

contract. Plaintiff is entitled to an

53a

award of severance. Plaintiff’s request

for attorney fees is denied.

DATED this 8 day of Feb » 2993.

/S/ Owen M. Panner

Owen M. Panner

United States District Judge

54a

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Dennis Delaye, Individually

& on behalf of the Agripac,

Inc./Dennis Delaye

"Employment Contract", No. 93-35257

D.C. No. CV-

92-00141-OMP

Plaintiff-Appellee,

Vv.

Agripac, Inc., an Oregon

corporation,

Defendant-—Appellant.

Dennis Delaye, Individually

& on behalf of the Agripac,

Inc./Dennis Delaye

"Employment Contract", No. 93-35398

D.C. No. CV-

92-00141-OMP

Plaintiff-Appellee,

Agripac, Inc., an Oregon

corporation,

Defendant-—Appellant.

Dennis Delaye, Individually

& on behalf of the Agripac,

Inc./Dennis Delaye

"Employment Contract", No. 93-35578

D.C. No. CV-

92-00141-OMP

Plaintiff-Appellee,

Agripac, Inc., an Oregon ORDER

)

}

)

Vv. )

)

corporation, )

)

Defendant-—Appellant.

————————— SS rrrrt—“—C;C~C~CSZ

55a

Before: ALDISERT,* NORRIS and THOMPSON,

Circuit Judges

The panel has voted unanimously to

deny the petition for rehearing. Judge

Thompson has voted to reject the suggestion

for rehearing en banc, and Judges Aldisert

and Norris so recommend.

The full court has been advised of the

suggestion for rehearing en banc and no

judge of the court has requested a vote on

it. Fed. B. Ape. BP. 2319).

The petition for rehearing is denied

and the suggestion for rehearing en banc is

rejected.

* “~ Hon. Ruggero J. Aldisert, Senior

United States Circuit Judge for the Third

Circuit, sitting by designation.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.