Hahn v. National Bank, N.A., CV 00-452.

• Decision Date: 12 June 2000
• Docket Number: No. CV 00-452.,CV 00-452.
• Citation: 99 F.Supp.2d 275
• Parties: Barbara HAHN, Armand Ehrlein, Roberta Hayes, Brett Smith and Michael F. Kaczynski, on behalf of themselves and others similarly situated, Plaintiff, v. NATIONAL WESTMINSTER BANK, N.A. t/a Fleet Bank of New York, N.A., Defendant.
• Court: U.S. District Court — Eastern District of New York

99 F.Supp.2d 275

Barbara HAHN, Armand Ehrlein, Roberta Hayes, Brett Smith and Michael F. Kaczynski, on behalf of themselves and others similarly situated, Plaintiff, v. NATIONAL WESTMINSTER BANK, N.A. t/a Fleet Bank of New York, N.A., Defendant.

No. CV 00-452.

United States District Court, E.D. New York.

June 12, 2000.

Bracken & Margolin, LLP, by Linda U. Margolin, Islandia, NY, for Plaintiff.

Cleary, Gottleib, Steen & Hamilton, by Richard F. Ziegler, Carmine D. Boccuzzi, New York City, for Defendant.

MEMORANDUM AND ORDER

WEXLER, District Judge.

Plaintiffs commenced this case seeking to recover the full value of benefits they claim as former employees of National Westminster Bank, N.A. The complaint, which was originally commenced in the state court and thereafter removed, contains two causes of action — one for breach of contract and a federal claim brought pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA").

Presently before the court is Defendant's motion to dismiss the ERISA cause of action for failure to state a claim as well as Plaintiff's motion for class certification. For the reasons that follow, Defendant's motion to dismiss is granted. As the ERISA claim was the sole basis for federal jurisdiction, the court declines to exercise jurisdiction over the state court breach of contract claim. The court also declines to reach the issue of the propriety of class certification with respect to this remaining state law claim. Because this case was originally commenced in the State Court, the court remands this action, pursuant to 28 U.S.C. § 1447(c), to the Supreme Court of the State of New York, County of Suffolk.

BACKGROUND

I. The Parties

Plaintiffs are individuals who were employed by National Westminster Bancorp, Inc. ("Bancorp"). In this lawsuit, Plaintiffs seek to enforce their rights (alleged to be both contractual and pursuant to ERISA) under a plan known as the "Phantom Stock Appreciation Plan of National Westminster Bancorp as Amended and Restated April 1994" (hereinafter the "Plan," the "Phantom Stock Plan" or the "PSP").

Plaintiffs received payments which came due under the PSP after a merger (the "Merger") that resulted in the sale of Bancorp's assets and business to Fleet Bank of New York, N.A. ("Fleet").¹ Essentially, Plaintiffs argue that the payments received were improperly valued. According to the complaint, Plaintiffs' shares should have been valued at approximately $108.00 per share and were instead, valued at only $37.00 per share. They seek here the difference between these two values as well as costs and attorneys' fees pursuant to ERISA.

II. The Phantom Stock Plan

The Phantom Stock Plan is properly before the court in the context of this Rule 12 motion. See Albers v. The Guardian Life Ins. Co. of America, 1999 WL 228367 *2 (April 19, 1999) ("[w]here the record contains the undisputed terms of the disputed plan ... a Court may decide the applicability of ERISA as a matter of law" in the context of a Rule 12(b)(6) motion), quoting, Foster v. Bell Atlantic Tricon Leasing Corp., 1994 WL 150830 (S.D.N.Y. April 20, 1994). The Plan provides, in pertinent part, as follows.

The purpose of the Phantom Stock Plan, as stated therein, was to "provide key employees with financial incentives for improving the long-term performance" of Bancorp and "increasing the value" of the institution to its parent company. To these ends, the PSP provided that "Phantom Stock" would be issued to employees who "significantly affect the long-term performance [of Bancorp] and is intended to provide, in combination with other forms of compensation and benefits, a total compensation program which is competitive with the reward programs of other similar financial institutions."

The PSP set the value of shares of "Phantom Stock Awards" and defined the individuals eligible to receive such awards. Those who were eligible to receive Phantom Stock Awards were executive officers or other key employees of Bancorp. Individuals receiving Phantom Stock Awards were referred to as "Participants," under the PSP. The decision to issue Phantom Stock Awards was placed in the discretion of the Compensation Committee of the Board of Directors of Bancorp.

Each Phantom Stock Award represented the right to receive, as payment, an amount in cash equal to any appreciation in the "Fair Market Value of one Unit" (as defined in the PSP) between the date of grant of the Phantom Stock Award and the date of its exercise. In the event of a change in control of Bancorp, the PSP provided that the valuation of Phantom Stock Awards was to "reflect the purchase price for Bancorp."

The PSP set a schedule for when Phantom Stock Awards could be turned in for cash payments or "exercised." One-third of the Award was allowed to be exercised on or after one year of the date of grant, two-thirds of the Award was allowed to be exercised on or after two years from the date of the grant and the Award could be exercised in full on or any time after three years from the date of the grant.

Certain eventualities altered these time frames and the right to exercise Phantom Stock Awards under the PSP. For example, if a Participant was terminated for "cause," (including termination for a felony conviction), that employee's Phantom Stock Awards were automatically cancelled. If a Participant retired, those Phantom Stock Awards that were not exercisable as of the date of retirement become automatically vested and could be exercised three years after retirement.

If a Participant's employment with Bancorp was terminated for any reason not set forth specifically in the PSP, his Phantom Stock Awards that were not exercisable as of the date of termination were to be automatically cancelled. Those Awards that were exercisable as of the termination were automatically exercised ninety days after the termination date unless exercise was requested prior to that date.

III. The Merger and its Effect on PSP Participants

As noted above, Bancorp ceased to exist as an entity once the Merger was consummated. In a memorandum dated January 19, 1996, Participants in the Bancorp PSP were advised as to the implication of the Merger on their shares of Phantom Stock Awards. Participants were advised that when the sale to Fleet became final, the PSP would cease to exist. The final valuation of Phantom Stock Awards was stated to depend upon the precise value of the sale of Bancorp at its closing and was estimated, at the time, to be between $37.00 and $38.00 per share.

In March of 1996, the PSP was amended to allow Participants to elect to defer compensation previously payable only in cash when exercising Phantom Stock Awards. Specifically, the PSP was changed, as of March 1996, to allow the Award payments to be deferred into a trust under Bancorp's Deferred Compensation Plan.

In a memorandum dated April 5, 1996, Participants were advised of the deferral right created by the March amendment to the PSP. That memorandum informed Participants that they could participate in the NatWest Deferred Compensation Plan "in connection with your forthcoming distribution form the Phantom Stock Appreciation Plan." Participants were advised that they could elect to voluntarily defer cash to be received from the exercise of Phantom Stock Awards. The memorandum included a description of the five different investment options offered through the Deferred Compensation Plan and included forms to be filled out to exercise the rights described therein.

IV. Plaintiffs' Claims and Defendant's Motion

Plaintiffs were all Participants under the PSP. Each received Phantom Stock Awards under the PSP prior to 1996. After the Merger, Plaintiffs' Awards were exercised at the rate of $37.00 per unit. As noted above, Plaintiffs allege that the proper value of their Awards should have been approximately $108.00 per unit. They seek the difference between these amounts as damages under their breach of contract and ERISA claims. Alleging that they are part of a large class of similarly situated individuals, Plaintiffs also seek class certification.

Defendant contends that the PSP is not a "plan" under ERISA and accordingly, seeks dismissal of this sole federal claim.

DISCUSSION

I. Legal Principles: Defining an ERISA Employee Pension Benefit Plan

Plaintiffs alleged that the PSP is an employee pension benefit plan subject to regulation under ERISA.² ERISA defines such plans as "any plan ... established or maintained by an employer ... [which] by its express terms or as a result of surrounding circumstances ...

(1) provides retirement income to employees, or

(2) results in a deferral of income to employees, for periods extending beyond the termination of covered employment or beyond."

29 U.S.C. § 1002(2)(A).

Regulations promulgated by the Department of Labor clarify the limits of ERISA coverage and identify certain plans that do not constitute employee benefit pension plans for ERISA purposes. See 29 C.F.R. § 2510.3-2(a). Relevant here is the Department of Labor regulation that excludes from the definition of employee benefit plans those that involve payments made to employees "as bonuses for work performed." 29 C.F.R. § 2510.3-2(c) (hereinafter the "Regulation"); see Emmenegger v. Bull Moose Tube Co., 197 F.3d 929, 932 (8th Cir.1999); Murphy v. Inexco Oil Co., 611 F.2d 570, 574 (5th Cir.1980); Foster v. Bell Atlantic Tricon Leasing Corp., 1994 WL 150830 *2 (S.D.N.Y. April 20, 1994). A bonus plan excluded from ERISA will be found where payments made are not to "provide retirement income," but, instead, serve some other purpose, such as providing increased compensation as an incentive or reward for a job well done. See International Paper Co. v. Suwyn, 978 F.Supp. 506, 510-11 (S.D.N.Y. 1997); see also Murphy, 611 F.2d at 575.

Despite the regulation excluding bonus payments from ERISA coverage, such payments may fall within the ERISA definition of employee pension benefit plans if: (1)...