Hall v. LSREF4 Lighthouse Corporate Acquisitions, LLC, 6:16–CV–06461 EAW
| Decision Date | 10 November 2016 |
| Docket Number | 6:16–CV–06461 EAW |
| Citation | 220 F.Supp.3d 381 |
| Parties | Kenneth O. HALL, Plaintiff, v. LSREF4 LIGHTHOUSE CORPORATE ACQUISITIONS, LLC, Lighthouse Management Services, LLC, Home Properties, L.P., and Home Properties, Inc., Defendants. |
| Court | U.S. District Court — Western District of New York |
Brendon S. Fleming, Harold A. Kurland, Ward Greenberg Heller & Reidy LLP, Rochester, NY, for Plaintiff.
Carey Ann Denefrio, Margaret A. Clemens, Littler Mendelson, P.C., Fairport, NY, for Defendants.
DECISION AND ORDER
Plaintiff Kenneth O. Hall ("Plaintiff") brings this action for damages relating to an alleged breach of the Amended and Restated Executive Retention Plan (the "Plan") by Defendants LSREF4 Lighthouse Corporate Acquisitions, LLC, Lighthouse Management Services, LLC, Home Properties, L.P., and Home Properties, Inc. (collectively "Defendants"). (Dkt. 1–2 at 10). Plaintiff commenced this litigation in state court, and Defendants removed the action to this Court on the basis that the Plan is covered by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001 et seq. (Dkt. 1–1). Plaintiff has filed a motion seeking remand, contending that the Court lacks subject matter jurisdiction because the Plan is not an ERISA plan. (Dkt. 4; Dkt. 9). Defendants oppose the motion to remand. (Dkt. 8).
As discussed below, Defendants have failed to sustain their burden of establishing that the Plan is governed by ERISA, and as a result, this Court lacks subject matter jurisdiction. Therefore, Plaintiff's motion to remand (Dkt. 4) is granted and the case is remanded to state court.
The following facts are drawn from Plaintiff's Complaint and papers attached thereto and assumed to be true for the purposes of determining the motion to remand.
Home Properties, Inc., a real estate investment trust or REIT, was founded in Rochester, New York, and was later publically traded on the New York Stock Exchange ("NYSE"). (Dkt. 1–2 at ¶¶ 5, 6). In 2015, the private equity firm Lone Star Funds acquired Home Properties, Inc., taking it private and delisting the company from the NYSE. (Id. at ¶ 6). Home Properties, L.P. is the "operating partnership" of Home Properties, Inc., and now operates under the control of Lone Star Funds and Defendants LSREF4 Lighthouse Corporate Acquisitions, LLC, and Lighthouse Management Services, LLC. (Id. at ¶ 7).
Plaintiff was employed by Home Properties, L.P. from June 27, 2005, through October 7, 2015, serving as Vice President and Controller. (Id. at ¶¶ 8, 26). After Lone Star Funds' acquisition, he became employed by Lighthouse Management Services, LLC, until January 8, 2016. (Id. at ¶ 8).
Home Properties, Inc. and Home Properties, L.P. adopted the Plan as of February 12, 2011, which superseded the Executive Retention Plan of February 2, 1999. (Id. at ¶ 9; Id. at 13). The Plan states that it is governed by Maryland law. (Id. at 19 (§ 9)).
The purpose of the Plan is to:
assure that certain of the Company's officers and employees ... will be able to carry out their functions in the best interests of the shareholders of the Company and the partners of the Operating Partnership not distracted by the ongoing consolidation in the REIT industry and notwithstanding the possibility, threat or occurrence of a Change of Control ... of the Company
and to:
diminish the inevitable distractions of the Participants1 because of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Participant's full attention and dedication to Home Properties, Inc. currently and in the event of any threatened or pending Change of Control, and to provide the Participants with compensation and benefits arrangements upon a Change of Control which ensure that (a) such attention and dedication are likely through protecting the compensation and benefits expectations of the Participants, and (b) such arrangements are competitive with those of other entities in the REIT industry.
(Id. at 13). The Plan defines "Change of Control" to include the acquisition of 25% or more of Home Properties, Inc.'s shares of common stock outstanding at the time of the acquisition. (Id. at ¶ 12; Id. at 14). Lone Star Funds' acquisition involved LSREF4 Lighthouse Corporation Acquisitions, LLC acquiring all of Home Properties, Inc.'s outstanding shares of stock, thereby qualifying as a "Change of Control." (Id. at ¶ 28).
In return for attention and dedication, the Plan promised "Corporate Staff" certain compensation in the event of termination under certain circumstances following a "Change of Control." (Id. at ¶¶ 13–14). For instance, as relevant here, a "Corporate Staff" member could terminate his employment at any time within two years of the "Change of Control" with "Good Reason," as defined in the Plan. (Id. at ¶ 14; Id. at 17). The Plan provided:
In the event the employment of a member of Corporate Staff is terminated on or after the Effective Date [of a Change of Control] and during the two-year period following such Effective Date by the Company without Cause or by the Corporate Staff member for Good Reason , the Company shall pay to the Corporate Staff member in a lump sum in cash within 30 days after the Termination Date the aggregate of the following amounts: (i) the Corporate Staff member's Base Salary through the Termination Date to the extent not theretofore paid, (ii) all other amounts earned, accrued or deferred under the Bonus Plan, (iii) two times the Corporate Staff member's Base Salary; and (iv) an amount equal to two times the greater of (y) the Corporate Staff member's target Bonus for services rendered in the year in which the Termination Date occurs; or (z) the average Bonus paid to the Corporate Staff member for services rendered in each of the three years prior to the year in which the Termination Date occurs. In the event that the vesting of equity-based awards as described in Section 4 below, together with all other payments and the value of any benefit received or to be received by the Corporate Staff member would result in all or a portion of such payment being subject to Excise Tax, then the Corporate Staff member's payment shall be either: (a) the full payment; or (b) such lesser amount that would result in no portion of the payment being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state, and local employment taxes, incomes taxes, and the Excise Tax, results in the receipt by the Corporate Staff member, on an after-tax basis, of the greatest amount of the payment notwithstanding that all or some portion of the payment may be taxable under Section 4999 of the Code. All determinations required to be made under this Section shall be made by a nationally recognized accounting firm or such other consultant expert in such calculations as the Company may select immediately prior to the event triggering the payments that are subject to the Excise Tax (the "Accounting Firm").
(Id. at 17 (emphasis added)).
"Cause" is defined under the Plan to include "the willful and continued failure of a Participant to perform substantially the Participant's duties with the Company ... after a written demand for substantial performance is delivered to a Participant ..." or "the willful engaging by the Participant in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company...." (Id. at 14).
"Good Reason" is defined under the Plan to include the following:
(Id. at 16).
Plaintiff alleges that, as Vice President and Controller, he was covered by the Plan (id. at ¶ 27), and he suffered a material reduction of his duties, responsibilities, and authority, without his written consent, as compared to his duties, responsibilities, and authority immediately prior to the "Change of Control" (id. at ¶ 29). Plaintiff alleges that, as Controller, he was one of Home Properties, Inc.'s four senior financial officers, but that after the acquisition, he had no senior financial duties, was stripped of his Vice President title, and was no longer in an officer position. (Id. at ¶ 30). Plaintiff alleges various other purportedly significant alterations to his job responsibilities, which he contends constitute "Good Reason" justifying his decision to terminate his employment under the terms of the Plan. (Id. at ¶¶ 30–35, 38). Similarly, Plaintiff alleges that after the "Change of Control," he suffered a material reduction in his opportunity for incentive compensation, thus serving as further grounds for "Good Reason" to terminate his employment. (Id. at ¶¶ 36–38).
Plaintiff contends that he terminated his employment for "Good Reason" as defined under the Plan by letter dated December 9, 2015, effective January 8, 2016. (Id. at ¶¶ 38–39). The CEO of Lighthouse Management Services, LLC, Daniel E. Earle, informed Plaintiff by letter dated December 15, 2015, that the company did not agree with Plaintiff's characterization of "Good Reason" and informed Plaintiff that Defendants would not pay the termination payment contemplated by the Plan. (Id. at ¶ 40). Plaintiff terminated his employment on January 8, 2016, and Defendants have repeatedly declined to pay Plaintiff the termination payment. (Id. ...
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...are employee welfare benefit plans subject to an ERISA preemption analysis. See Hall v. LSREF4 Lighthouse Corp. Acquisitions, LLC, 220 F.Supp.3d 381, 388 (W.D.N.Y. 2016) (“‘Congress [only] pre-empted state laws relating to plans, rather than simply to benefits' because the concern of provid......