462 F.3d 437 (5th Cir. 2006), 05-20195, Peace v. American General Life Ins. Co.

Docket Nº:05-20195.
Citation:462 F.3d 437
Party Name:William H. PEACE, Plaintiff-Appellant, v. AMERICAN GENERAL LIFE INSURANCE COMPANY, et al., Defendants, Halliburton Company, Defendant-Appellee.
Case Date:August 24, 2006
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

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462 F.3d 437 (5th Cir. 2006)

William H. PEACE, Plaintiff-Appellant,



Halliburton Company, Defendant-Appellee.

No. 05-20195.

United States Court of Appeals, Fifth Circuit.

Aug. 24, 2006

Page 438

William David George (argued), Connelly, Baker, Maston, Wotring & Jackson, Houston, TX, for Plaintiff-Appellant.

W. Carl Jordan (argued), Tara Porterfield, Vinson & Elkins, Houston, TX, for Defendant-Appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before GARWOOD, BENAVIDES and OWEN, Circuit Judges.

BENAVIDES, Circuit Judge:

Appellant William H. Peace, a citizen of the United Kingdom, appeals the district court's denial of his summary judgment motion and grant of Appellee Halliburton Company's ("Halliburton") summary judgment motion. The court held that Peace's breach of contract claim was preempted by the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. ("ERISA"). It treated that claim as a nonpayment of benefits under ERISA. We disagree and hold that Peace's claim is not preempted by ERISA. For the reasons set forth below, we vacate the district court's judgment and remand the case.


On January 12, 2004, Peace sued Halliburton and American General Life Insurance Company ("American General") in the state district court of Harris County, Texas for breach of contract. 1 Halliburton subsequently removed the case to the United States District Court for the Southern District of Texas. On November 29, 2004, Peace and Halliburton filed motions for summary judgment. The district court granted Halliburton's and denied Peace's motions for summary judgment. Peace timely appeals.

In 1984, Peace was the general manager of the Westinghouse synthetic fuels division. At that time, Kellogg Rust, Inc. ("Kellogg Rust"), a predecessor in interest of Halliburton, purchased Westinghouse's synthetic fuels division. Peace alleges that Kellogg Rust induced him to remain with the division by agreeing "to purchase an annuity to replace the pension amount" he would lose by leaving Westinghouse. Kellogg Rust purchased a joint, single-premium annuity from American General and

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retained ownership of the annuity until 1987 when ownership was transferred to Peace. Peace claims he was promised a monthly amount of $1155 when he became age sixty-five. Allegedly relying on this agreement, he stayed on as general manager and became vice-president of the division. He attained the age of sixty-five in August 2003. Peace has requested that his monthly payments begin but has not received any money.

The district court held that the annuity was an employee benefit plan under ERISA. Looking to whether a plan existed, the court applied the Supreme Court's ongoing administrative scheme test and concluded that such an administrative scheme existed. See Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987). The court noted that Halliburton (1) considered the type of investment vehicle to utilize; (2) calculated the amount to invest; (3) perused the market; (4) purchased the annuity; (5) monitored the annuity value; 2 and (6) eventually would have had to make regular payments. The court concluded that these activities constituted an administrative scheme on the part of Halliburton in providing the annuity benefit. Looking to the same facts, we come to the opposite conclusion. We hold that no administrative scheme existed, and therefore Peace's claims are not preempted by ERISA.


This Court reviews summary judgments de novo in ERISA cases, applying the same standards as a district court. See Baker v. Metropolitan Life Ins., 364 F.3d 624, 627-28 (5th Cir.2004).


Under ERISA, the terms " 'employee pension benefit plan' and 'pension plan' mean any plan, fund, or program which was ... established or maintained by an employer [that provides] retirement income to employees." 29 U.S.C. § 1002(2)(A). We utilize the three-factor test set out in Meredith v. Time Ins., 980 F.2d 352, 355 (5th Cir.1993), for determining whether an employee benefit arrangement is an ERISA plan. 3 We consider whether: (1) the plan exists; (2) the plan falls within the safe-harbor provision established by the Department of Labor; and (3) the employer established or maintained the plan with the intent to benefit employees. Id. at 355. "If any part of the inquiry is answered in the negative, the submission is not an ERISA plan." Id. Here, we do not proceed further than the first inquiry because we conclude that no plan existed.

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A. Requirement of an Ongoing Administrative Scheme to Effectuate a Benefit Plan

An employee benefit encapsulated in an ERISA plan differs from a stand-alone employee benefit. The Supreme Court created the distinction between mere stand-alone benefits and full-fledged plans after examining the purpose of ERISA. See Fort Halifax, 482 U.S. at 9, 11-12, 107 S.Ct. 2211. According to the Court, Congress implicitly recognized that an employer must "establish a uniform administrative scheme" to effectuate a "host of [employee benefit] obligations." Id. at 9, 107 S.Ct. 2211. ERISA enables an employer to establish and maintain one scheme instead of developing numerous systems, each congruent with individual state regulations. See id. at 9, 11, 107 S.Ct. 2211. Given that purpose, the Court concluded that only when there is an "ongoing administrative program to meet the employer's obligation" does a plan exist under ERISA. Id. at 11, 107 S.Ct. 2211. Where no such administrative scheme exists, preemption is nonsensical because there would be nothing to regulate. See id. at 16, 107 S.Ct. 2211.

B. No Ongoing Administrative Scheme

Following Fort Halifax, we consider whether Halliburton was engaged in an ongoing administrative scheme to determine whether a plan existed. 4 See, e.g., Fontenot v. NL Industries, 953 F.2d 960 (5th Cir.1992). As evidence of ongoing administrative activities, Halliburton states that it: (1) chose a funding mechanism, (2) calculated the required contributions to the annuity, (3) shopped for and purchased the annuity, and (4) ensured the eventual payment of benefits. The first three activities all took place before or at the time of purchase. They were not continually choosing a funding mechanism, calculating required contributions or shopping for and purchasing the annuity. Moreover, Halliburton's discretionary decision-making process for choosing a funding mechanism "has nothing to do with how the 'plan' is administered once the company decides to put it in place." Nelson v. GMC, 1998 WL 415993, 1998 U.S.App. LEXIS 15401 (6th Cir. July 7, 1998) (unpublished). 5 Similarly, the fourth activity was executed only if payment was triggered--i.e., Peace turned sixty-five. Each of these activities was performed only once or over a brief period of time and never performed again. Therefore, these were not part of an ongoing administrative scheme. 6

The lack of ongoing administrative activity makes this single-premium annuity benefit akin to a one-time severance benefit. This Court has held that one-time severance payments do not constitute an employee benefit plan under ERISA. See, e.g., Wells v. General Motors Corp., 881 F.2d 166, 176 (5th Cir.1989) (holding that

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one-time lump payment was not a plan even where employees could elect a two-year installment payment option). We have concluded that a one-time lump sum payment, contingent upon an event that may never materialize, "create[s] no need for an on-going administrative program to process claims and pay benefits" and therefore is not a plan. Fontenot, 953 F.2d at 961. In this case, Halliburton made a one-time payment into an annuity, after which there was no subsequent demand on its assets. Cf. Cassidy v. Akzo Nobel Salt, Inc., 308 F.3d 613, 616 (6th Cir.2002) (holding that a plan may be an ERISA plan if the delivery of its benefits creates an on-going demand on the employer's assets). The eventual payment of the benefit was contingent upon Peace reaching the age of sixty-five-years-old, an event which may not have materialized. See Fontenot, 953 F.2d at 961.

This case most closely resembles Tinoco v. Marine Chartering Co., 311 F.3d 617 (5th Cir.2002). In Tinoco, the company established a health care benefit for employees who elected to voluntarily retire early. Id. at 618. Subsequently, the company was sold, and some employees received the benefit as a severance benefit. Id. at 619. Notably, the benefit was available either as a lump-sum payment or a "stream of payments." Id. at 622. The Tinoco Court held that the pre-determined benefit, even when paid over time, did not amount to an administrative scheme. Id. Here, Halliburton purchased a single-premium annuity, which guaranteed a pre-determined amount after a certain number of years, and it made no additional payments on the annuity. If the trigger event materialized, the benefit was to be paid out by American General (not Halliburton) on a monthly basis. See Fort Halifax, 482 U.S. at 12, 107 S.Ct. 2211 ("To do little more than write a check hardly constitutes the operation of a benefit plan.") In short, the theoretical possibility that Halliburton would "ensure" that American General sent checks each month from the monies accrued on a single-premium annuity does not require the creation of an ongoing administrative program. 7

Halliburton argues that, as owner of the annuity for a brief period of time, it could have made various discretionary decisions. However, it is insufficient to provide a benefit and then create an unnecessary administrative scheme around it to...

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