Duggan v. Hobbs
| Decision Date | 15 August 1996 |
| Docket Number | No. 95-15863,95-15863 |
| Citation | 99 F.3d 307 |
| Parties | 96 Cal. Daily Op. Serv. 7895, 96 Daily Journal D.A.R. 13,071, Pens. Plan Guide P 23928I William DUGGAN, Plaintiff-Appellant, v. Danny HOBBS, individually and as Administrator of the Chemworld Corporation Agreement Plan, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
William J. Hooy, Concord, CA, for plaintiff-appellant.
Danny G. Hobbs, Kelseyville, CA, in propria persona for defendant-appellee.
Appeal from the United States District Court for the Northern District of California, Eugene F. Lynch, District Judge, Presiding. D.C. No. CV-93-00316-EFL.
Before: SNEED, JOHN T. NOONAN, Jr., and THOMPSON, Circuit Judges.
William Duggan entered into a severance agreement with his employer, Chemworld Corporation (the Agreement), under which he was to receive retirement benefits for life. When Chemworld terminated payments due under the Agreement, Duggan sued Chemworld and its President, Danny G. Hobbs, for breach of contract and for violations of the Employee Retirement Income Security Act of 1974 (ERISA).
The district court dismissed the breach of contract claim on the ground that it was preempted by ERISA. After a bench trial on the ERISA claims, the district court entered judgment in favor of Duggan and against Chemworld for (1) benefits due under the Agreement, (2) the present value of future benefits, and (3) attorney fees. The court held that Hobbs, as plan administrator, was not personally liable to Duggan for breaches of ERISA fiduciary obligations because the Agreement constituted a "top-hat" plan and was, therefore, exempt from the fiduciary responsibility provisions of ERISA. See 29 U.S.C. § 1101(a)(1).
On appeal, Duggan contends the Agreement is not a top-hat plan. He contends it did not defer compensation for a select group of highly compensated employees within the meaning of section 1101(a)(1). He also argues the district court erred by failing to make a finding as to whether the identities of Hobbs and Chemworld were sufficiently identical to "pierce the corporate veil" and hold Hobbs personally liable for Chemworld's obligations to Duggan. Finally, Duggan seeks attorney fees on appeal.
We have jurisdiction under 28 U.S.C. § 1291. We affirm the district court's judgment and deny Duggan's request for attorney fees.
Hobbs was president and one of three directors of Chemworld Corp., a closely held corporation in the business of selling janitorial products and restroom sanitation services. He worked full time in the business and supervised its day-to-day operations. He and his family owned a controlling share of the company.
Duggan worked as a salesman for Chemworld from 1975 to 1983. In 1980, Duggan and Chemworld entered into a "Sales Representative Agreement" which provided that Duggan would receive initial and residual commissions on accounts he obtained. The agreement did not provide explicitly for continued residual commissions after termination or retirement.
Three years later, a dispute arose between Hobbs and Duggan over the computation of Duggan's commissions and whether Duggan's four-day work week satisfied the hours requirement of the Sales Representative Agreement. The dispute heated up when Hobbs demanded that Duggan either accept a new commission structure or be terminated. Both parties obtained counsel and attempted to negotiate a resolution. Unable to find a mutually satisfactory employment arrangement, the parties entered into the Agreement, a written severance agreement dated April 22, 1983.
Under the Agreement, Duggan agreed to retire two days later, and Chemworld agreed to pay him $1,056.88 per month for life in retirement benefits and up to $300 per month for life in health insurance benefits. According to the Agreement, these benefits were to be paid to Duggan in consideration for Duggan's (1) years of loyal service, (2) waiver of all claims to any commissions and bonuses he was entitled to receive under previous agreements with Chemworld, (3) waiver of all causes of action against Chemworld, and (4) agreement not to compete with Chemworld in specified locations.
Duggan sought Chemworld's commitment to set aside funds to insure payment of his benefits, but no agreement was ever reached on this point and no funds were ever set aside. Instead, Chemworld drew money from its general account to pay Duggan's benefits under the Agreement.
Chemworld made the required payments to Duggan and his health insurance company for approximately nine years. In 1992, Chemworld ran into financial difficulties and stopped making the payments. Eventually Chemworld became insolvent.
Duggan is the only employee ever to have received retirement benefits from Chemworld. During Duggan's last year at Chemworld, he was one of approximately 23 full-time employees. The average employee salary at Chemworld was less than $12,000 per year. Duggan, however, was Chemworld's top salesman and was earning between $50,000 and $60,000 a year from his sales commissions and residuals. He was the highest paid nonowner employee at Chemworld; he earned almost twice as much as the next highest paid employee.
Duggan brought this action against Chemworld and against Hobbs, individually. The district court ruled against Chemworld and ordered it to pay Duggan the amounts due under the Agreement, the present value of future benefits and attorney fees. On Duggan's claim against Hobbs individually, the district court ruled in favor of Hobbs. The court concluded that the Agreement was a top-hat plan under 29 U.S.C. § 1101(a)(1), it was exempt from ERISA's fiduciary responsibility requirements, and as a result Hobbs had no personal liability to Duggan. Duggan appeals the district court's judgment in favor of Hobbs.
Duggan first challenges the district court's determination that his severance Agreement with Chemworld constituted a top-hat plan under § 1101(a)(1).
ERISA, 29 U.S.C. §§ 1001, et seq., is a comprehensive statute that subjects a wide The key issue is whether the Duggan-Chemworld Agreement qualifies as what is commonly called a "top-hat" plan under 29 U.S.C. § 1101(a)(1). Hobbs's individual liability under ERISA depends on this determination because ERISA exempts top-hat plans from the fiduciary, funding, participation and vesting requirements applicable to other employee benefit plans. See 29 U.S.C. § 1101(a)(1) (); section 1081(a)(3) (); section 1051(2) (). See also Pane v. RCA Corp., 868 F.2d 631, 637 (3rd Cir.1989). If the Agreement qualifies as a top-hat plan, Hobbs is exempt from the fiduciary duties ERISA imposes on plan administrators and he cannot be held personally liable for their breach.
variety of employee benefit plans to complex and far-reaching rules designed to protect the integrity of those plans and the expectations of their participants and beneficiaries. See Scott v. Gulf Oil Corp., 754 F.2d 1499, 1501 (9th Cir.1985). Neither party disputes the district court's determination that the Duggan-Chemworld Agreement is a "plan" covered by ERISA.
A top-hat plan is defined in ERISA as "a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees." 29 U.S.C. 1101(a)(1).
There is no dispute that the Plan is unfunded. Rather, the parties dispute whether, within the meaning of section 1101(a)(1), the plan provides "deferred compensation" and whether Duggan qualifies as a "select group of management or highly compensated employees."
Duggan contends "deferred compensation" within the meaning of section 1101(a)(1) is limited to the typical deferred compensation plan under which an employee, prior to "earning" certain compensation, elects to defer the receipt of that compensation until at least one calendar year after he renders the services for which he is being compensated. Such plans allow employees to defer income tax liability, thus benefitting from lower income tax rates during retirement. The severance payments provided under the Duggan-Chemworld Agreement are not deferred compensation in Duggan's view because the Agreement was not entered into before he rendered the services for which he was to be paid under the Agreement, and the Agreement did not provide for the payment of "earnings" that had been retained by the employer during Duggan's tenure at Chemworld.
Hobbs advocates a more expansive view of deferred compensation. He contends that for purposes of section 1101(a)(1), deferred compensation includes retirement payments where, as here, the right to that income derives from a severance agreement rather than from past earnings that have been retained by the employer by prior arrangement for payment at a later date.
We have never addressed in this circuit the scope of "deferred compensation" under the top-hat exception of section 1101(a)(1). In analyzing this issue, we consider first the policy underlying the top-hat exception. The Department of Labor has explained:
[I]n providing relief for "top hat" plans from the broad remedial provisions of ERISA, Congress recognized that certain individuals, by virtue of their positions or compensation level, have the ability to affect or substantially influence, through negotiation or otherwise, the design and operation of their deferred compensation plan, taking into consideration any risks attendant thereto, and therefore, would not need the substantive rights and protection of Title I.
DOL Opin. Letter 90-14A; See also DOL Opin. Letter 92-13A, n. 1.
We see no reason to treat a select group of highly paid employees, who have the power to influence the design and operation of their deferred compensation plans, differently from Duggan...
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