728 F.3d 444 (5th Cir. 2013), 12-20294, Cantrell v. Briggs & Veselka Co.
|Citation:||728 F.3d 444|
|Opinion Judge:||EMILIO M. GARZA, Circuit Judge:|
|Party Name:||CAROL A. CANTRELL, Plaintiff -- Appellant v. BRIGGS & VESELKA COMPANY, A Professional Corporation, Defendant -- Third Party Plaintiff -- Appellee v. CANTRELL & COWAN, P.L.L.C., Third Party Defendant -- Appellant; W. PATRICK CANTRELL, Plaintiff -- Appellant v. BRIGGS & VESELKA COMPANY; A Professional Corporation, Defendant -- Appellee|
|Attorney:||For CAROL A. CANTRELL, Plaintiff - Appellant: Charles Alfred Sturm, Esq., Steele Sturm, P.L.L.C., Houston, TX. For W. PATRICK CANTRELL, Plaintiff - Appellant: Michael Brooks Lee, Litigation Counsel, Cokinos, Bosien & Young, P.C., Houston, TX. For BRIGGS & VESELKA COMPANY, A Professional Corporati...|
|Judge Panel:||Before JOLLY, GARZA, and OWEN, Circuit Judges. OWEN, Circuit Judge, dissenting. OWEN OWEN, Circuit Judge, dissenting:|
|Case Date:||August 27, 2013|
|Court:||United States Courts of Appeals, Court of Appeals for the Fifth Circuit|
Appeal from the United States District Court for the Southern District of Texas.
This case arises out of an employment dispute between Carol and Patrick Cantrell and their former employer, Briggs & Veselka Company (" B& V" ). The district court held the Cantrells' deferred compensation arrangements in their Employment Agreement contracts with B& V constitute a plan under the Employment Retirement Income Security Act (" ERISA" ), 29 U.S.C. § 1001 et seq . We REVERSE and REMAND with instructions to remand to the state court.
The Cantrells owned a CPA firm, P. Cantrell & Company, P.C., which they combined with B& V in 2000 in a tax-free merger, with the merged entity retaining the Briggs & Veselka name. The original B& V shareholders received approximately 80% of the shares of the merged entity, and the Cantrells received approximately 20%.
As part of the merger, the Cantrells executed Stock Redemption Agreement and Employment Agreement contracts with B& V. The Stock Redemption Agreement provides for redemption of the Cantrells' stock upon the occurrence of death, long-term disability, resignation or other termination of employment, disposition of the shares to a third party, or divorce. The redemption price is calculated using the cash-basis book value of the combined entity. When apportioning the shares during the merger, B& V was valued at $4.9 million and P. Cantrell & Company was valued at $1.2 million, though the redemption value of the Cantrells' stock was only about $57,000.
The Employment Agreements outline the terms and scope of the Cantrells' employment with B& V, describe the Cantrells' compensation and benefits packages, and contain noncompete and nondisclosure
clauses. The identical noncompete clauses prohibit the Cantrells from competing with B& V by participating in any entity engaged in the same business as B& V within fifty miles of B& V's location during the period of employment and for one year following the termination of employment. The clauses also prohibit the Cantrells from soliciting B& V clients or disclosing B& V's confidential information during the same period.
In addition, the Employment Agreements provide for deferred compensation, the focus of this litigation. The relevant paragraphs state:
6.1 Deferred Compensation.
Upon occurrence of the Termination Event, the Employer agrees to pay the Employee the Deferred Compensation Amount in forty (40) equal installments (the " Installment Amount" ), payable on the fifteenth of the month following the end of each calendar quarter during the Pay-Out Period; provided, however, in no event may the Employer's Aggregate Quarterly Deferred Compensation Payment in any quarter exceed twenty five percent (25%) of the Employer's Adjusted Net Profit for the previous fiscal year ended September 30 divided by four (4) (the " Limitation Amount" ). If the Aggregate Quarterly Deferred Compensation Payment for any quarter would exceed the Limitation Amount, the Employee's Installment Amount shall be reduced to an amount equal to her proportionate share of the Employer's Aggregate Quarterly Deferred Compensation Payment for such quarter times the Limitation Amount. In the event the Employee's Installment Amount is reduced by application of previous sentence, such reduced amount shall be added to the Employee's Installment Amount due in subsequent quarters until paid, provided that each subsequent quarter's payment will also be subject to the Limitation Amount.
6.2 Termination Event.
The Termination Event shall be the first of the following events to occur:
(a) The Retirement of the Employee;
(b) The Disability of the Employee while employed; (c) The death of the Employee while employed; or (d) The termination of the Employee's employment with the Employer by a majority vote of the Board of Directors for any reason other than With Cause. 6.3 Deferred Compensation Amount.The Deferred Compensation Amount shall be equal to the product of four (4) times the Employee's Average Compensation multiplied by her Vested Percentage. The Employee's Vested Percentage and Average Compensation shall be determined as of the date of the Termination Event and shall not be affected by the subsequent occurrence of the other events listed in Section 6.2. After serving twenty (20) years of Creditable Service, the Employee's Vested Percentage shall be eighty percent (80%), and her Vested Percentage shall increase an additional ten percent (10%) for each of the following two (2) years at which time the Employee's Vested Percentage shall be one hundred percent (100%). However, if during the Period of Employment the Employee dies or incurs a Disability, the Employee's Vested Percentage shall immediately become one hundred percent (100%).
6.4 Pay-Out Period.The Pay-Out period shall begin on the fifteenth day of the month following the end of the calendar quarter in which the Termination Event occurs and shall end ten (10) years later; provided, however, in the event there is any remaining balance on
the Deferred Compensation Amount due at the end of the Pay-Out Period, the Pay-Out Period shall continue until such balance is paid, subject to the limitations contained in Section 6.1, and such remaining balance shall be treated as if it were the Employee's Installment Amount.
6.7 Forfeiture Upon Competing With the Employer or Terminated With Cause.If during the Pay-Out Period the Employee competes . . . with the Employer . . . within fifty (50) miles . . . the Employee forfeits all remaining balance of the Deferred Compensation Amount outstanding as of the date he begins engaging in such competition, and the Employer is relieved of its obligation to make future payments to the Employee under this Article . . . . Furthermore, if the Employee is terminated With Cause . . . the Employee forfeits all rights he may otherwise have under this Article . . . .
Under their respective agreements, Carol received ten and Patrick received thirteen years of " Creditable Service" for Vested Percentage purposes.
At the time of the merger, the other seven B& V employee-shareholders also entered into employment agreements with B& V, and eight additional employee-shareholders have since entered into similar agreements. Thus, a total of seventeen current and former B& V employee-shareholders have deferred compensation arrangements. When the nine original employees entered into their agreements, B& V notified the Department of Labor it had nine separate ERISA plans, each involving one employee.
The agreements of the other employee-shareholders contain deferred compensation arrangements similar to those in the Cantrells' agreements. The primary difference in the Cantrells' agreements is in the calculation of the vested percentages.1 Additionally, the Cantrells' agreements, along with that of one other employee, calculate the Limitation Amount based on 25% of net profit, while the remaining agreements calculate the Limitation Amount based on 5% of gross revenue.2
Patrick retired from B& V in December 2007 and began practicing law. Due to the thirteen years of credit he received at the time of the merger and the seven years he worked at B& V, he met the twenty-year vesting requirement, and B& V began paying his deferred compensation in January 2008. Carol remained employed at B& V, and in May 2011 she formed a law firm, Cantrell & Cowan, P.L.L.C. (" C& C" ) with Patrick and another partner.
On November 11, 2011, Carol gave B& V notice of her retirement, effective January 15, 2012. Due to the ten years of credit she received at the time of the merger and the approximately eleven years she worked at B& V, she expected to meet the twenty-year vesting requirement. B& V then received a copy of a C& C
invoice and payment for C& C services from a B& V client. Based on this invoice and some of Carol's emails from her B& V email account, B& V sent Carol a letter on January 3 notifying her that she may be in breach of her Employment Agreement and requesting a meeting to discuss a possible resolution. Carol then notified B& V of an accelerated retirement date of January 3. On January 13, B& V rejected Carol's accelerated retirement and terminated Carol " with cause" for allegedly violating the noncompete clause in her Employment Agreement. Because she was terminated with cause, B& V determined Carol forfeited her deferred compensation and did not make any payments. B& V also stopped its quarterly payments to Patrick in January 2011 and notified him...
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