Guiragoss v. Khoury, CIV.A. 1:06CV187.

• Decision Date: 10 August 2006
• Docket Number: No. CIV.A. 1:06CV187.,CIV.A. 1:06CV187.
• Citation: 444 F.Supp.2d 649
• Parties: Suzane GUIRAGOSS, Plaintiff, v. Fouad KHOURY and Khoury Brothers Ltd. t/a Khoury Bros. Jewelers and Khoury Bros. Jewelers, Inc. Defendants.
• Court: U.S. District Court — Eastern District of Virginia

444 F.Supp.2d 649

Suzane GUIRAGOSS, Plaintiff, v. Fouad KHOURY and Khoury Brothers Ltd. t/a Khoury Bros. Jewelers and Khoury Bros. Jewelers, Inc. Defendants.

No. CIV.A. 1:06CV187.

United States District Court, E.D. Virginia, Alexandria Division.

August 10, 2006.

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David H. Dickieson, Buchanan Ingersoll PC, Washington, DC, for Plaintiff.

Sally Ann Hostetler, Odin Feldman & Pittleman PC, Fairfax, VA, for Defendants.

MEMORANDUM OPINION

ELLIS, District Judge.

At issue on summary judgment in this ERISA¹ and common law breach of contract and fraud case brought by a former salesclerk of a jewelry store against the jewelry store and store owner are the following questions:

1. Is the pension benefits agreement between the plaintiff salesclerk and her employer a plan governed by ERISA?

2. If the Plan is governed by ERISA, are plaintiff's state law claims preempted?

3. If the Plan is governed by ERISA, is it a "top hat" plan, exempt from ERISA's fiduciary and funding requirements, such that plaintiff has no legal claims against the employer?

I.²

Plaintiff, Suzanne Guiragoss, was an employee of Khoury Brothers Jewelers ("Khoury Bros.") from 1994 to 2004. In 1994, Khoury Bros. hired her as a salesclerk for its retail store in Tysons Corner, Virginia. Although never an officer of the company, she eventually attained "keyholder" status, meaning she was a salesclerk entrusted to open and close the store according to the company's security policies. Defendant, Khoury Bros., is a small, family-owned business incorporated in Maryland that operates jewelry retail stores in Maryland and Virginia. Defendant, Fouad Khoury, is an owner of Khoury Bros. and acted as Guiragoss' supervisor for the duration of her employment. He is also the administrator of the Khoury Bros.' deferred compensation plan ("Plan").

Although the record is unclear on the precise genesis of the plan, it appears it was created in 1992 and applies only to employees at the Khoury Bros.' store in Tysons Corners, Virginia. It also appears that the first Plan member in 1992 was Brian Widdowson, a full-time salesclerk. Guiragoss was not given the option of joining the Plan when she was hired in 1994. The following year, however, in April 1995, Khoury invited Guiragoss to enroll in the Plan by signing (i) the deferred compensation agreement; (ii) a non-compete agreement; and (iii) an employment agreement. Guiragoss declined to sign the non-compete and employment agreements, but she did sign the deferred compensation agreement and thus became a Plan participant in 1995.

Although the Plan was presented to potential participants as an individual agreement between the employee and Khoury Bros., each individual agreement was identical in form, that is, they contained the same terms, designated the same plan administrator, and established the same claims procedure. Khoury contends he extended the offer of Plan participation to select individuals, chosen for their current and potential contributions to the success of Khoury Bros.; he intended the Plan to serve as a means of rewarding and retaining these valuable employees. Guiragoss disputes this assertion. She contends, instead, that the Plan was offered to all employees.³ Moreover, she points out that, as a mere salesclerk, she possessed no unique skills enabling her to make a major contribution to Khoury Bros.' success.

In 1995, at the time Khoury offered Guiragoss the opportunity to participate in the Plan, Guiragoss had been working as a salesclerk for just under a year and her salary was commensurate with the salaries of Khoury Bros.' other full-time salesclerks. In 1994, she earned $16,800 for nine months of work. When adjusted to reflect twelve months of work, it appears that she received the eighth or ninth highest salary of Khoury Bros.' twelve full-time employees. In 1995, when Guiragoss enrolled in the Plan, she earned $32,950, the fifth highest salary of Khoury Bros.' eleven full-time employees. At that time, the only other Plan participant was Brian Widdowson, another salesclerk, who enrolled in October 1992, at which time his was the seventh highest salary of eleven full-time employees.

The Plan's membership increased to three in 1997. Yet, the following year-1998-Plan membership fell to one—Guiragoss. This drop in Plan membership apparently occurred because in 1998 Khoury Bros. established a § 401(k) plan that allowed employees to make contributions to their own retirement funds. In any event, no employees joined the Plan after 1998, leaving Guiragoss as the Plan's sole member from 1998 through 2004. It is also undisputed that Khoury Bros. made no additional contributions to Guiragoss' account after 1997.

The Plan agreement Guiragoss signed specifies that the Plan is unfunded and that Khoury Bros. has sole discretion to credit, or not credit, monies to participant accounts.⁴ Furthermore, the Plan agreement provides that monies in participant accounts would vest according to the employee's years of service. Thus, 10% of the money credited to an employee account would vest after three years of employment, with an additional 10% vesting each year thereafter, and after ten years, participants could receive 100% of the money credited to their accounts. Khoury Bros. did not establish or maintain separate accounts for contributions made to Guiragoss' or other employees' pensions under the Plan. Instead, they merely denoted a contribution to the employee's "special fund" in the company's general records. Each year, in February or March, employees (including Guiragoss) received a report that stated (i) their salary for the preceding year; (ii) any bonuses they received; and (iii) if they were Plan participants, any amount credited to their "special fund." Yet, importantly, these credits to the special fund did not reflect actual transfers of money, as Khoury Bros. maintained no separate Plan accounts and instead kept all company funds in one general asset pool.

Despite the Plan language, Guiragoss had a different understanding of the Plan agreement, based largely on the oral representations she alleges Khoury made. She understood that the Plan was a way to defer taxation on her bonus payments and to provide for a retirement next egg. To that end, Khoury allegedly told Guiragoss that Khoury Bros. would credit 50% of her bonuses to her deferred compensation account. Relying on this, Guiragoss remained at Khoury Bros. for ten years, the period required under the Plan for her rights in all monies credited to her account to vest. Guiragoss further avers that throughout this ten-year period Khoury consistently confirmed that Khoury Bros. was placing an amount equal to her bonuses in her Plan account. As such, in 2004, after nearly ten years of employment, she was shocked to learn that Khoury Bros. had credited almost no money to her retirement account. On October 18, 2004, she resigned.

In January 2005, Guiragoss submitted a written request to Khoury Bros. seeking payment of $169,942.50 (her claimed benefits under the Plan), copies of all Plan documents, and any records concerning her account. Khoury Bros. then issued a check to Guiragoss for $4,617.60, reflecting the actual amount it had credited to her "special fund" minus FICA taxes. Guiragoss refused to accept this check because it included a notation stating that endorsement and acceptance would constitute a waiver of all future claims under the Plan. Khoury Bros. did not provide Guiragoss any Plan documents or records of her account. It now argues, somewhat inconsistently, that it did not maintain separate records for the Plan and that, if it did have any records, they were destroyed when flooding in Khoury's basement ruined many company records.

On February 21, 2006, Guiragoss filed an action in federal court for three counts arising under ERISA and three state common law claims. Specifically, Guiragoss asserted a claim for breach of fiduciary duty under 29 U.S.C. § 1104(a)(1)(D), a claim for breach of cofiduciary duty under 29 U.S.C. § 1105, and a claim for injunctive relief under 29 U.S.C. §§ 1132(a)(3), (f), (g), as well as two claims for breach of contract and one claim of common law fraud under Virginia state law. On June 30, 2006, Khoury Bros. filed a motion for summary judgment on two grounds. First, that the Plan is a "top hat" plan exempt from ERISA's fiduciary and funding requirements, thus plaintiff's ERISA claims should be dismissed. Second, because the Plan is covered by ERISA Guiragoss' state law claims are preempted and likewise should be dismissed.

The issues now ripe for disposition on summary judgment are first, whether the Plan agreement between Guiragoss and Khoury Bros. is governed by ERISA; second, if so, whether the state law claims are preempted; and third, whether the Plan is a "top hat" plan exempt from ERISA's fiduciary and funding requirements.

II.

The threshold question is whether the Plan is governed by ERISA. The principles that determine whether ERISA governs a pension or benefit plan are well settled. To begin, it is settled that ERISA broadly applies to "any employee benefit plan established or maintained by an employer or employee organization engaged in commerce or in any industry or activity affecting commerce." 29 U.S.C. § 1003(a). The statutory phrase "employee benefit plan," specifically encompasses employee welfare benefit plans, employee pension benefit plans, and plans that are combinations of both. 29 U.S.C. § 1002(3). At issue here is an employee pension benefit plan, which is defined by ERISA as "any plan, fund, or program" that is "established or maintained by an employer or by an employee organization" and "provides retirement income to employees, or results in a deferral of income by employees for periods extending to the termination of covered employment or beyond." 29 U.S.C. § 1002(2)(A). And, a pension plan is deemed "established" under ER...