Murphy v. Inexco Oil Co.

• Decision Date: 08 February 1980
• Docket Number: Nos. 77-1689,77-3254,s. 77-1689
• Citation: 55 A.L.R.Fed. 380,611 F.2d 570
• Parties: J. P. MURPHY, Plaintiff-Appellant, v. INEXCO OIL COMPANY et al., Defendants-Appellees. J. P. MURPHY, Plaintiff-Appellant, v. INEXCO OIL COMPANY et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 570

611 F.2d 570

55 A.L.R.Fed. 380

J. P. MURPHY, Plaintiff-Appellant, v. INEXCO OIL COMPANY et al., Defendants-Appellees.

J. P. MURPHY, Plaintiff-Appellant, v. INEXCO OIL COMPANY et al., Defendants-Appellees.

Nos. 77-1689, 77-3254.

United States Court of Appeals Fifth Circuit.

Feb. 8, 1980.

Sam E. Rowland, Houston, Tex., for plaintiff-appellant.

Frank J. Knapp, Houston, Tex., for Inexco, Westland, August, Tinker & Gill.

Fletcher Etheridge, Arthur S. Berner, Houston, Tex., for Wolf, Land, Wolf & Goodwin.

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

Before FAY, RUBIN and HATCHETT, Circuit Judges.

ALVIN B. RUBIN, Circuit Judge:

An employee's claim that a bonus plan created by his employer violated the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001-1381 (ERISA), was dismissed for want of jurisdiction on the basis that the plan was not within the coverage of ERISA. Because a federal court has jurisdiction to decide whether a claim to ERISA coverage has merit, we reverse the dismissal. However, because the question of ERISA coverage was fully briefed and argued and will doubtless be of key importance in future proceedings, we consider that issue.

I.

Murphy was formerly president of Inexco. While he was a corporate officer, Inexco gave bonuses to selected employees by assigning a specific royalty interest in a drilling prospect ¹ it planned to develop to Westland Royalty Company. Westland would administer that interest for the benefit of the designated employee in accordance with a plan called the Westland Royalty Participation Agreement (Westland Agreement). Under the Westland Agreement, each employee was given "participation units," i. e. rights to receive a fractional portion of any proceeds that might thereafter accrue from the designated project, not from Westland's revenue as a whole.

Royalty payments were made to Westland from production proceeds, not from the employer's funds. Westland in turn paid each participant his share of the oil and gas proceeds annually. Westland held legal title to the royalty interests, but economically this arrangement was the same as though the employees had themselves been given undivided fractional shares in the royalty accompanied by the same restrictions that accompanied the participation units. ²

The assignment of an interest in a prospect was discretionary, based on management's assessment of an employee's contribution to the company, with consideration being given to his length of service and job classification. After the end of a person's employment with the company, by retirement or otherwise, Inexco no longer assigned new participation units to him, but he continued to own those participation units representing interests that had already been assigned. ³

Murphy contends that Inexco diverted money from Westland and violated ERISA reporting requirements, contract provisions concerning consent of the participants to changes in the plan, various unspecified provisions of ERISA and ERISA's predecessor, the Welfare and Pension Plans Disclosure Act, 29 U.S.C. §§ 301-309 (repealed), and its fiduciary duties imposed by state law.

II.

Federal question jurisdiction is predicated upon the assertion of a claim arising under the constitution or laws of the United States. 28 U.S.C. § 1331. However, the assertion that the claim involves such a question must be more than incantation. While jurisdiction does not depend on the contention having ultimate merit, its mere recital cannot confer jurisdiction if the contention is frivolous or patently without merit. Mindes v. Seaman, 453 F.2d 197, 198 (5th Cir. 1971); 13 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3564, at 429-30 (1975). The same criterion applies when jurisdiction is asserted by a claim to ERISA coverage. Here jurisdiction was invoked on the basis that the case involved a federal question, 28 U.S.C. § 1331, and ERISA, 29 U.S.C. § 1132(e). Because Murphy's assertions were not frivolous, the district court had subject matter jurisdiction.

Once jurisdiction is established, the merit of a claim may be tested at the pleading stage by a motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6). Mindes v. Seaman, 453 F.2d 197, 198 (5th Cir. 1971). No such motion was filed, and we cannot consider Inexco's allegation of want of jurisdiction as its equivalent because it was not measured against the bare allegations of the complaint. Instead, the district judge based his disposition in part on the consideration of matters in addition to the complaint, including the defendants' affidavit and accompanying exhibit. The only way to test the merit of a claim if matters outside the bounds of the complaint must be considered is by way of motion for summary judgment. In that event, even if a motion to dismiss has been filed, the court must convert it into a summary judgment proceeding and afford the plaintiff a reasonable opportunity to present all material made pertinent to a summary judgment motion by Fed.R.Civ.P. 56. Arrington v. City of Fairfield, 414 F.2d 687 (5th Cir. 1969); 5 C. Wright & A. Miller, Federal Practice and Procedure § 1366, at 679 (1969). This was not done, and from the record we cannot say beyond peradventure that there is nothing the plaintiff could adduce that would create a genuine issue of material fact. Therefore, we must remand the case for further proceedings.

III.

Because the district court must now consider Murphy's claim to ERISA coverage, an issue that was the basis of the trial court's opinion, has been fully briefed in this court, and, after a wait of two years for a hearing on our crowded docket, argued and submitted, sound judicial administration requires us to discuss the merits of that claim. See United States v. Daniels, 572 F.2d 535, 539 (5th Cir. 1978); Mindes v. Seaman, 453 F.2d 197, 198-99 (5th Cir. 1971). We conclude that, unless Murphy can adduce evidence not now before us that would either require a different result or create a genuine issue of material fact, the Westland Agreement is not an ERISA plan.

As the plan is portrayed in the evidence now before us, contributions to the plan are bonuses; they are discretionary, given in recognition of special service and awarded in addition to regular compensation. Payments to an employee start in the year in which a given prospect begins to produce, a time when the employee ordinarily is in active service with the company, and continue so long as there is production. Therefore, while the primary thrust of the plan is to reward employees during their active years, payments to some employees or their heirs are likely to continue after the employee has retired or ceased work because of death or disability.

Congressional findings and declaration of policy that support the enactment of ERISA are set forth in the first substantial section of the statute. 29 U.S.C. § 1001. Congress found, inter alia, that there was a lack of employee information and of safeguards concerning the operation of employee benefit plans; that many employees with long years of employment were losing anticipated retirement benefits owing to the lack of vesting provisions in such plans; that, owing to the inadequacy of minimum standards for plan operation, the plans might lack funds to pay promised benefits; and that plans might be terminated before necessary funds had been accumulated, depriving employees of promised benefits. ERISA was enacted to "assur(e) the equitable character of such plans and their financial soundness." 29 U.S.C. § 1001(a). The statute attempts to accomplish this by requiring financial disclosure to plan participants, establishing standards of conduct for plan fiduciaries, and by requiring plans to vest accrued benefits to employees with significant periods of service, to meet minimum standards of funding and to maintain plan termination insurance. See 29 U.S.C. §§ 1001(b)-(c).

Congress did not, however, attempt to control every aspect of the employer-employee relationship or every promise made to employees. It sought only to deal with those types of plans that had created the problems it sought to remedy. Thus, by its terms, ERISA applies only to "an employee welfare benefit plan or an employee pension benefit plan or a plan which is both." 29 U.S.C. § 1002(3). Together these are referred to by the single term "employee benefit plan." Id. To establish statutory coverage, Murphy contends that the Westland Agreement is both an employee welfare benefit plan and an employee pension benefit plan.

An employee welfare benefit plan is defined in the statute as any plan "to the extent (it) was established or is maintained For the purpose of providing" medical, unemployment, disability, death, vacation and other specified benefits. 29 U.S.C. § 1002(1) (emphasis supplied). However, merely because the Westland Agreement may in some circumstances continue to pay royalty proceeds after an employee's death or disability does not make it a welfare benefit plan. The statute does not embrace all plans that may incidentally result in the payment of benefits after death or disability but only plans established for the purpose of providing those benefits. It is evident that the primary purpose of the Westland Agreement was to reward employees for their service with present benefits. It was merely an incident of the vesting of economic benefits that participation continued so long as production lasts and so may result in payments after death or disability. The Westland Agreement was patently not established or maintained for that purpose.

The words used in the definition of an employee pension benefit plan are broader. An employee pension benefit plan is defined by 29 U.S.C. § 1002(2) as any program or plan "to the extent that by its express terms or as a result of surrounding circumstances" it:

(A) provides retirement income to employees, or

(B) results in...