Hampers v. W.R. Grace & Co. Inc.

• Decision Date: 07 October 1999
• Docket Number: No. 99-1362,99-1362
• Citation: 202 F.3d 44
• Parties: (1st Cir. 2000) CONSTANTINE L. HAMPERS, M.D., PLAINTIFF, APPELLANT, v. W.R. GRACE & CO., INC., W.R. GRACE & CO.-CONN., INC., NATIONAL MEDICAL CARE, INC., FRESENIUS NATIONAL MEDICAL CARE HOLDINGS, INC., DEFENDANTS, APPELLEES. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 44

202 F.3d 44 (1st Cir. 2000)

CONSTANTINE L. HAMPERS, M.D., PLAINTIFF, APPELLANT, v. W.R. GRACE & CO., INC., W.R. GRACE & CO.-CONN., INC., NATIONAL MEDICAL CARE, INC., FRESENIUS NATIONAL MEDICAL CARE HOLDINGS, INC., DEFENDANTS, APPELLEES.

No. 99-1362.

U.S. Court of Appeals, First Circuit.

Heard Oct. 7, 1999.

Decided January 28, 2000.

APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS. Hon. W. Arthur Garrity, Jr., Senior U.S. District Judge.

D. Lloyd Macdonald, with whom Andrew C. Glass and Kirkpatrick & Lockhart, Llp were on brief for appellant.

Michael R. Pontrelli, with whom Thomas Elkind, Lawrence M. Kraus, and Epstein, Becker and Green, P.C. were on brief for appellees.

Before Stahl, Circuit Judge, Cyr, Senior Circuit Judge, and Lipez, Circuit Judge.

Lipez, Circuit Judge.

This appeal requires us to decide whether the Employee Retirement Income Security Act of 1974 ("ERISA") as amended, 29 U.S.C. § 1001 et. seq., preempts a common law cause of action for lump sum contract damages where the alleged breach involves the failure of a former employer to enroll the plaintiff in an ERISA-regulated employee pension benefit plan. The plaintiff, Dr. Constantine Hampers, demanded a jury trial on his common law breach of contract claims against defendants, W.R. Grace and Company, W.R. Grace and Company-Connecticut, (collectively, "Grace"), National Medical Care, Inc. ("NMC"), and Fresenius National Medical Care Holdings, Inc. ("Fresenius"). The district court rejected his demand, finding that ERISA preempted Hampers's state law claims. On appeal, Hampers argues that, with respect to defendant Grace, the trial court erred in finding his claim preempted. For the reasons stated below, we affirm.

I. BACKGROUND

In 1968, as an associate professor at the Harvard Medical School and a nephrologist specializing in end-stage renal disease, Hampers co-founded NMC, a company that provides dialysis treatment to patients through private clinics. In a series of transactions between 1984 and 1989, Grace purchased a 100 percent equity interest in NMC, and began operating it as a wholly-owned subsidiary. In 1989, Hampers negotiated an employment agreement that, among other things, provided for his participation in the National Medical Care, Inc., Retirement Plan (the "NMC qualified plan"). ¹

In 1990, J.P. Bolduc became president and chief operating officer of Grace, and he invited Hampers to become an executive vice president of Grace and director of its health care group, which included NMC. On February 22, 1991, Bolduc sent a letter to Hampers proposing terms for a new employment agreement with Grace that was to include membership in the W.R. Grace & Co. Retirement Plan for Salaried Employees (the "Grace qualified plan") and the W.R. Grace & Co. Supplemental Executive Retirement Plan (the "Grace SERP"). ² This agreement provided Hampers with more benefits than he was previously entitled to under the NMC qualified plan because at that time NMC did not have a supplemental executive retirement plan (SERP) of its own.

Hampers and Bolduc decided that the February 22 letter would be the basis of their agreement, and they turned the drafting over to their attorneys. Before the agreement was executed, however, Grace identified a problem with the proposed benefit scheme: Hampers's participation in the Grace qualified plan could jeopardize the plan's tax-preferred status. Accordingly, Grace's lawyers redrafted the agreement, providing Hampers with a cash benefit equal to what they estimated he would have received under the Grace qualified plan and Grace SERP.

Although these changes were acceptable to Hampers, Grace's Salary, Incentive Compensation and Employee Benefits Committee found the terms too rich and refused to approve them. Instead, the compensation committee, and ultimately Grace's board of directors, approved a modified version of the agreement which capped Hampers's retirement benefits at $300,000 per year. Hampers reluctantly accepted the modified terms, and Grace's lawyers reduced them to writing, providing that Hampers's pension

shall be equal to the amount by which (a) the lesser of (i) three times the actual pension benefit payable to him under NMC's retirement plan (beginning in the year in which he terminates employment with Grace) or (ii) $300,000 exceeds (b) the amount of the actual pension benefit payable to him under NMC's retirement plan at that time.

In July 1991, Hampers and Bolduc executed the agreement (the "1991 Agreement").

Four years later, NMC's earnings had skyrocketed, and NMC employees demanded a richer benefits package. In response, Grace's board created in November 1995 the "National Medical Care, Inc. Supplemental Executive Retirement Plan" (the "NMC SERP"). ³ In 1996, Grace transferred ownership of NMC to Fresenius. On June 14, 1996, Hampers retired. Upon retirement, Hampers inquired about his retirement benefits. He learned from Grace that he was not a participant in the NMC SERP. He also learned that if he had been a participant in the NMC SERP, his aggregate retirement annuity (from the combined NMC qualified plan and NMC SERP) would have totaled more than $500,000. On January 2, 1997, Hampers filed the present suit, asserting that he was wrongly denied participation in the NMC SERP.

In his complaint, Hampers contended that "when a SERP for NMC senior executives . . . was created in or about November 15, 1995, Grace caused Dr. Hampers to be excluded from the NMC SERP, and NMC so excluded Dr. Hampers." According to Hampers, this exclusion was a breach of the 1991 Agreement because under that agreement he was "entitled to the full pension benefits of the NMC retirement plan as it existed on the date of his retirement, specifically including such benefits under the NMC qualified plan and the NMC SERP." In his view, the reference in the 1991 Agreement to "NMC's retirement plan" entitled him to participate, not only in the NMC qualified plan, which existed at the time of contracting, but also in any additional retirement benefits that Grace might establish for NMC in the future.

In a count of the complaint titled "ERISA: The NMC SERP," Hampers asserted that the "NMC SERP is an 'employee benefits plan' under ERISA," and Grace "exercised and exercise[s] discretion and authority or control respecting the management, disposition and administration of the NMC SERP, including but not limited to, the discretion of who is to be included for participation in the NMC SERP." Thus, Hampers contended, "[b]y virtue of the terms of the 1991 Agreement," Grace had a "duty to include Dr. Hampers as a participant in the NMC SERP," and "breached the duty."

Hampers sought a declaration that he is a participant in the NMC SERP and an order directing his enrollment in the NMC SERP with annuity disbursements adjusted to reflect such participation. Hampers also requested "damages for the loss caused by [the defendants'] illegal conduct, including interest, costs and attorneys [sic] fees pursuant to 29 U.S.C. § 1132(g) [ERISA § 502(g)] and other applicable provisions of law." Finally, Hampers demanded a jury trial on all matters triable before a jury.

The defendants moved for summary judgment on the grounds that the 1991 Agreement contained no promise of participation in any future NMC SERP. In opposition to the motion, Hampers argued that the term "NMC retirement plan" in the 1991 Agreement could not be construed to leave out future participation in the NMC SERP, as "[b]y its very terms, the NMC SERP is inextricably linked to and dependent on the Qualified Plan." Indeed, he argued, eligibility for the NMC SERP depends on a formula that includes benefit accrual under the NMC qualified plan. As the only purpose of the SERP is to confer enhanced benefits on highly compensated executives without contravening the limits on qualified plans set by the tax code, Hampers contended that the two plans must be construed together to comprise one seamless retirement package. In the end, the district court denied summary judgment, finding that there was "more than one reasonable construction of the term 'NMC retirement plan.'"

The defendants then moved to strike Hampers's demand for a jury trial on the grounds that the NMC SERP was an ERISA plan and that ERISA preempted Hampers's state law cause of action. Characterizing the issue as a "close question," the district court granted the defendants' motion, ruling that ERISA preempted Hampers's state law contract claims.

The court then conducted a ten day bench trial at which the defendants disputed Hampers's reading of the 1991 Agreement, arguing that the term "NMC retirement plan" referred to the NMC qualified plan, the plan that existed at the time of contracting, and did not promise inclusion in a future NMC SERP as Hampers contended. At the conclusion of the trial, the district court, invoking principles of New York state contract law, found no evidence that the parties intended Hampers's retirement benefits to include benefits under the NMC SERP, and entered a judgment in favor of the defendants. On appeal, Hampers does not contest the district court's application of contract law; rather, he argues that the trial court erred in denying his demand for a jury trial on his claim for lump sum contract damages against defendant Grace. Because the district court's denial of Hampers's request for a jury trial resulted from its legal ruling that his claim was preempted by ERISA, we review the trial court's decision de novo. See Golas v. Homeview Inc. 106 F.3d 1, 4 (1st Cir. 1997) (Bownes, J., concurring); Carlo v. Reed Rolled Thread Die Co., 49 F.3d 790, 792-93 (1st Cir. 1995).

II. ERISA PREEMPTION

A. General Principles

As noted, this case requires us to decide whether ERISA's preemption clause applies to Hampers's state law cause of action. ⁴ That preemption clause, section 514(a), 29 U.S.C. § 1144(a), provides:

Except as provided in subs...