Garratt v. Knowles
| Decision Date | 28 March 2001 |
| Docket Number | No. 00-2835,00-2835 |
| Citation | 245 F.3d 941 |
| Parties | (7th Cir. 2001) Reg G. Garratt, Plaintiff-Appellant, v. James E. Knowles, Nancy Knowles, Charles L. Knowles, Katherine Knowles Strasburg, Margaret Knowles Schink, E. Lawrence Keyes, R. Euguene Goodson, Defrees & Fisk and John W. Hupp, Defendants-Appellees |
| Court | U.S. Court of Appeals — Seventh Circuit |
Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 00 C 764--David H. Coar, Judge. [Copyrighted Material Omitted] Before Flaum, Chief Judge, and Ripple and Williams, Circuit Judges.
Reg G. Garratt brought suit in the Circuit Court of Cook County, Illinois, alleging that the Board of Directors of Knowles Electronics, Inc., as well as their attorneys, had violated state law by amending a Supplemental Executive Retirement Plan ("SERP") to escape from paying Garratt approximately $1.85 million. The defendants removed the case to the District Court for the Northern District of Illinois on the ground that Garratt's action was of the type over which the federal courts exercise exclusive jurisdiction under 29 U.S.C. sec. 1132(e)(1). Garratt filed a motion to remand the matter to state court which the district court denied. Thereafter, the district court dismissed Garratt's complaint, noting that under the Employee Retirement Income and Security Act of 1974 ("ERISA"), 29 U.S.C. sec. 1001 et seq., a suit to recover benefits is properly brought only against the plan itself, and not against the individuals who implement the plan. Garratt now appeals the district court's decision not to remand this matter to the state court, arguing that the plan at issue is an unfunded excess benefit plan and thus exempt from the provisions of ERISA in accordance with 29 U.S.C. sec. 1003(b)(5). Garratt further contends that the district court compounded its error by finding that, pursuant to the requirements of ERISA, Garratt had failed to state a proper claim upon which relief could be granted. For the reasons stated herein, we affirm the decision of the district court.
In 1993, Reg. G. Garratt was retained by Knowles Electronics, Inc. ("Knowles") to be its Chief Executive Officer ("CEO"). Four years later, Garratt assumed the role of Chairman of the Board in addition to his post as Knowles' CEO. In his corporate capacities, one of Garratt's charges was to maximize the value and assist in the sale of Knowles for the benefit of the Knowles family. As an incentive for Garratt to perform these duties, on March 15, 1998, Garratt and Knowles mutually agreed to amend the Employment Agreement. Pursuant to the amendment, in consideration for his full cooperation and assistance in furthering the corporation's future sale, Knowles agreed to make a special incentive payment to Garratt in an amount equal to 0.33% of the ultimate sale price.1 The special incentive payment ("success bonus") was to be made to Garratt no later than ten days after the closing.
On March 16, 1998, the Board of Directors of Knowles adopted an unfunded SERP, which, according to its language, was established "solely for the purpose of providing benefits for certain salaried employees and those of its affiliates who participate in the Knowles Electronics Pension Plan in excess of the limitations imposed by the Internal Revenue Code on the benefits available under the Knowles Electronics, Inc. Pension Plan." The amount to be paid to Garratt under the SERP was calculated to be a lump sum payment of $1,349,000 upon Garratt reaching his normal retirement age. However, that figure did not include any portion of the success bonus, as no sale of Knowles was pending. Pursuant to Article 7.1 of the SERP, the Plan was to terminate upon the sale of Knowles, with all benefits to be paid out at that time.
More than one year later, it was decided that Knowles would be sold to Doughty Hanson & Co., with the closing to take place on June 30, 1999. As a result of the impending sale, Knowles had the amount owed to Garratt recalculated, computing the success bonus as earnings under the Knowles Qualified Pension Plan. Thus it was determined that Garratt was entitled to receive $3,200,000. John Hupp, an attorney for Knowles, informed the Board of Directors of the revised amount Garratt would take in, an amount which Hupp deemed to be excessive. At the behest of Hupp the Board then approved a proposal to exclude the success bonus from the SERP calculations. Garratt abstained from the vote where a resolution was passed amending the SERP to provide "that for purposes of this calculation, 'Earnings' as defined in the Qualified Plan shall not include any bonus or incentive payments made by reason of the sale or disposition of the Company under the 1989 Stock Appreciation Plan for Key Employees."
On June 29, 1999, the day before Knowles was sold, Garratt received $1,349,000 under the SERP, prompting him to bring this lawsuit. Garratt's complaint, which was filed in the Circuit Court of Cook County, Illinois, was brought directly against (1) the members of the Knowles family who received the difference between the benefits that would have been paid to Garratt had the amendment not been adopted and the amount Garratt received because of the amendment, (2) the Board of Directors who approved the amendment, and (3) the lawyer and his firm who assisted in implementing the amendment. The complaint alleged three state law causes of action: tortious inference with a prospective economic advantage, civil conspiracy, and unjust enrichment. On February 7, 2000, the defendants filed a notice of removal, grounded under 29 U.S.C. sec. 1132(e)(1), which provides in relevant part that "the district courts of the United States shall have exclusive jurisdiction of civil actions under this subchapter brought by the Secretary or by a participant, beneficiary, fiduciary, or any person referred to in section 1021(f)(1) of this title." Defendants further noted at the time that under the complete preemption doctrine, contained in 29 U.S.C. sec. 1144, all state common law claims falling within the scope of sec. 1132(a)(1)(b) are displaced, because a suit purporting to raise such state law claims is necessarily federal in character. See Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 60, 66 (1987).
After the case was removed to the District Court for the Northern District of Illinois, Garratt filed a motion to remand the matter to state court, arguing that the SERP at issue was an unfunded excess benefit plan which is exempt from the provisions of ERISA under 29 U.S.C. sec. 1003(b)(5).2 The district court did not agree with Garratt's characterization of the SERP, and thus denied his motion to remand. Finding that a dispute regarding benefits owed under Knowles' SERP was guided by the provisions of ERISA, the district court held that Garratt's complaint did not properly state a cause upon which relief could be granted. Specifically, the court held that "ERISA permits suits to recover benefits only against a Plan as an entity," Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482, 1490 (7th Cir. 1996), and Garratt's complaint was brought directly against the Board members and attorneys of Knowles. Thus, on June 13, 2000, the district court granted defendants' motion to dismiss, stating that "[t]his case is dismissed without prejudice to the Plaintiff's right to bring an action against the proper entity under ERISA." Garratt now appeals the district court's decision not to remand this matter to state court. He contends that the court erroneously determined that Knowles' SERP was not an excess benefit plan under sec. 1003(b)(5). As an excess benefit plan, he posits, adjudication of a dispute regarding money owed under this SERP need not be guided by the jurisdictional and procedural limitations of ERISA.
While Garratt's overarching assertion on appeal is that the district court erred in not remanding this matter to state court, at its essence, the parties dispute whether the SERP adopted by Knowles should be considered an unfunded excess benefit plan.3 Garratt contends that the Plan should be construed as such, and that thus ERISA does not apply. See 29 U.S.C. sec. 1003(b)(5). Because ERISA is inapplicable, Garratt submits that the district court did not have jurisdiction over his complaint, which alleges only state law causes of action. In response, the defendants argue that the SERP does not fall within the definition of an excess benefit plan. Rather, they argue the SERP is a "top hat plan,"4 and that our case law holds that suits to recover benefits owed under a top hat plan are governed by ERISA. Therefore, defendants posit that the district court correctly denied the motion to remand.
We review a trial court's ruling denying plaintiff's motion to remand a matter to state court de novo. See Bastien v. AT&T Wireless Serv., Inc., 205 F.3d 983, 987 (7th Cir. 2000). As stated above, ERISA provides that "[e]xcept for actions under subsection (a)(1)(B) of this section, the district courts of the United States shall have exclusive jurisdiction of civil actions under this subchapter brought by the Secretary or by a participant, beneficiary, fiduciary, or any person referred to in section 1021(f)(1) of this title." 29 U.S.C. sec. 1132(e)(1). Yet, ERISA provides that its provisions do not apply to all employee benefit plans. Relevant for our purposes, 29 U.S.C. sec. 1003(b)(5) exempts unfunded excess benefit plans from the reach of ERISA's provisos.5
In determining whether the SERP at issue is an excess benefit plan, we are guided by the definition provided in the Act:
The term 'excess benefit plan' means a plan maintained by an employer solely for the purpose of providing benefits for certain employees in excess of the limitations on contributions and benefits imposed by section 415...
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