Darden v. Nationwide Mut. Ins. Co.

• Decision Date: 22 February 1991
• Docket Number: Nos. 89-2759,89-2760,s. 89-2759
• Citation: 922 F.2d 203
• Court: U.S. Court of Appeals — Fourth Circuit
• Parties: , 13 Employee Benefits Ca 1684 Robert T. DARDEN, Plaintiff-Appellee, v. NATIONWIDE MUTUAL INSURANCE COMPANY; Nationwide Mutual Fire Insurance Company; Nationwide Life Insurance Company, Defendants-Appellants. Robert T. DARDEN, Plaintiff-Appellant, v. NATIONWIDE MUTUAL INSURANCE COMPANY; Nationwide Mutual Fire Insurance Company; Nationwide Life Insurance Company, Defendants-Appellees.

Page 203

922 F.2d 203

59 USLW 2560, 13 Employee Benefits Ca 1684

Robert T. DARDEN, Plaintiff-Appellee, v. NATIONWIDE MUTUAL INSURANCE COMPANY; Nationwide Mutual Fire

Insurance Company; Nationwide Life Insurance

Company, Defendants-Appellants.

Robert T. DARDEN, Plaintiff-Appellant, v. NATIONWIDE MUTUAL INSURANCE COMPANY; Nationwide Mutual Fire

Insurance Company; Nationwide Life Insurance

Company, Defendants-Appellees.

Nos. 89-2759, 89-2760.

United States Court of Appeals, Fourth Circuit.

Argued April 3, 1990.

Decided Jan. 7, 1991.

Rehearing and Rehearing En Banc

Denied Feb. 22, 1991.

George Robinson Ragsdale, argued (Craig G. Dalton, Jr., Leboeuf, Lamb, Leiby & Macrae, Raleigh, N.C., Margaret M. Richardson, W. Mark Smith, Sutherland, Asbill & Brennan, Washington, D.C., on briefs), for defendants-appellants.

Marion G. Follin, III, Smith, Patterson, Follin, Curtis, James, Harkavy & Lawrence, Greensboro, N.C., for plaintiff-appellee.

Before HALL, MURNAGHAN, and SPROUSE, Circuit Judges.

SPROUSE, Circuit Judge:

Robert T. Darden, a former insurance agent for Nationwide Mutual Insurance Company (Nationwide), sued Nationwide for payments under the latter's post-employment compensation plan--Agent Security Compensation Plan (the ASCP). Nationwide had refused to pay Darden ASCP benefits after his termination because he had violated his agreement "not to compete" with Nationwide, but Darden contends that the Employee Retirement Income Security Act (ERISA) governs his contract and that the vesting requirements of ERISA prevent enforcement of the ASCP forfeiture provisions against him. The district court held that Darden was an "employee" for purposes of ERISA, but that only part of the ASCP qualified under the ERISA definition of a pension plan. It held Darden could recover that portion of the ASCP. Nationwide appeals and Darden cross-appeals. We affirm.

I.

This case has been in litigation for seven years and we have it now for the second time. The facts were fully related in our first opinion, Darden v. Nationwide Mut. Ins. Co., 796 F.2d 701 (4th Cir.1986) ("Darden I"), and need only be summarized here. Darden worked for Nationwide from September 1960 until November 1980. Darden's contract with Nationwide provided for his participation in a retirement and deferred compensation plan for insurance agents--the ASCP. The ASCP has two components--a Deferred Compensation Incentive Credit Plan and an Extended Earnings Plan. The Deferred Compensation Plan was funded as an agent retirement plan by Nationwide's annual contributions based on an agent's earnings from original and renewal fees for insurance policies. Under the Extended Earnings Plan, Nationwide agreed to pay agents upon their retirement, termination, death or disability, a sum equal to their earnings from renewal fees over the prior twelve months.

The agency agreement, however, provided that Nationwide's obligation to pay benefits under the ASCP would terminate if an agent engaged in certain insurance businesses, in competition with Nationwide, within one year of the cancellation of the agent's agreement with Nationwide and within a twenty-five mile radius of the agent's former business location. Nationwide's obligation would also cease if the agent, at any time after the cancellation of his agency agreement with Nationwide, induced a Nationwide policyholder to cancel an insurance contract with Nationwide. Further, the agency agreement between Nationwide and the agent provided that either party had the right to cancel the agreement at any time after written notice had been given.

Nationwide terminated its agency contract with Darden in November 1980. One month later, Darden opened a new business as an independent insurance agent and proceeded to represent various competitors of Nationwide. Moreover, Darden operated the new business at the same location he had previously used as a Nationwide agent. Consequently, Nationwide notified Darden that it would not pay him any of the benefits to which he otherwise would have been entitled under the ASCP. In November 1983, Darden brought suit under ERISA to recover the benefits.

Under ERISA, benefits from a pension plan become nonforfeitable after the plan has vested. ¹ See 29 U.S.C. Sec. 1053(a); Petr v. Nationwide Mut. Ins. Co., 712 F.Supp. 504, 506 (D.Md.1989). The nonforfeitability provision protects only "employees" and then only if the benefit arrangement is an employee "pension benefit plan." See 29 U.S.C. Secs. 1132(a), 1002(2)(A), 1002(7); Wolcott v. Nationwide Mut. Life Ins., 884 F.2d 245, 250 (6th Cir.1989). In May 1985, the district court granted Nationwide's motion for summary judgment on the ground that Darden did not qualify as an "employee" within the scope of ERISA and, therefore, had no enforceable rights against Nationwide under ERISA. On appeal, we vacated the district court's judgment, holding that the traditional common-law test for determining the meaning of "employee," which the district court had applied, was "not the appropriate standard" to apply in a case arising under ERISA. Darden I, 796 F.2d at 706. Our Darden I opinion set forth a three-part test for determining whether an individual is an employee as contemplated by ERISA. To qualify as an "employee," a claimant must establish: (1) that he had a reasonable expectation that he would receive the benefits, (2) that he relied on this expectation, and (3) that he lacked the economic bargaining power to contract out of the forfeiture provisions. Id. at 706-07. We held that the first prong of the three-part test had been satisfied, concluding that by "establishing a comprehensive retirement benefits program for its insurance agents, Nationwide created a reasonable expectation on Darden's part that benefits would ultimately be paid to him." Id. at 707. However, the case was remanded for further factual findings relating to the second and third prongs.

On remand, the district court found that Darden both relied on the benefits plan and lacked sufficient economic bargaining power to contract out of the forfeiture clauses. It concluded that Darden was an "employee" under ERISA. The district court also found that the Deferred Compensation Plan was a "pension plan" for purposes of ERISA and awarded Darden the benefits he had accrued under that component of the ASCP. The court, however, in a summary judgment ruling held that the Extended Earnings Plan was not a "pension plan" and accordingly denied Darden those benefits.

II. Darden's Status as an Employee

Since we had determined in Darden I that Darden had satisfied the first prong of the three-part "employee" test, the chore on remand was to decide if Darden satisfied the other two prongs of the Darden I definition of "employee." Our Darden I opinion, however, did not leave the page on the remainder of the definition completely blank. We outlined the parameters of the reliance requirement, stating that persons within the protected class must have relied on that expectation of retirement payments by remaining for " 'long years,' or a substantial period of time, in the 'employer's' service, and by foregoing other significant means of providing for their retirement." Darden I, 796 F.2d at 706. We found that Darden's many years of service and his having foregone equity (since upon his termination all rights revert back to Nationwide) evidenced his reliance. Darden I, 796 F.2d at 707. However, we also stated that there was no indication in the record as to whether Darden pursued other methods of providing for his retirement which would have significantly reduced his reliance on the Nationwide benefit plan or whether a failure to make such alternative provisions would have been reasonable in light of the common practices of other Nationwide insurance agents. Id.

The district court found that Darden had pursued alternative means of providing for his retirement. Darden had eight life insurance contracts worth $22,300 in 1980 and he had approximately $60,000 in mutual funds and cash deposits. Finally, Darden had an annuity with a cash surrender value in 1980 of $9,400 and IRA investments totalling $8,402. However, the district court concluded that the these amounts "did not significantly reduce [Darden's] reliance" on the benefits plan and that Darden satisfied the second prong of the definition because he had relied on his benefit plan.

The district court also found that Nationwide explicitly encouraged its agents to rely on the ASCP as a means for providing for their retirement. An audio-visual program, prepared by Nationwide in 1980 to explain the ASCP to its agents, stated:

Your [Deferred Compensation Plan] is a foundation upon which to build a total retirement plan. Along with such plans as HR-10's and IRA's, it can provide a more-than-adequate retirement income. The other part of the foundation is Extended Earnings.

The court found that Darden, like most Nationwide agents, did not invest in the Nationwide Retirement Plan (the HR-10 Plan) and that over forty percent of Nationwide agents had neither an IRA nor an HR-10 Plan. It concluded that, in light of Nationwide's explicit encouragement and the common practices of other Nationwide agents, Darden's reliance on the ASCP was "reasonable."

On appeal, Nationwide argues that the three-prong test outlined in Darden I is inappropriate and that this court, like other courts of appeals have done, should determine an employee's status under ERISA according to common-law principles. See Wolcott v. Nationwide Mut. Ins. Co., 884 F.2d 245, 250-51 (6th Cir.1989); Holt v. Winpisinger, 811 F.2d 1532, 1538 n. 44 (D.C.Cir.1987). That, however, is an argument wasted on this panel, for Darden I is, of course, controlling precedent in this circuit.

Nationwide also contends that the district court's finding that Darden relied on the plan was clearly erroneous. It argues that Darden was a self-reliant entrepreneur, wholly responsible for his current income,...