Threadgill v. Prudential Securities Group, Inc.

Decision Date26 June 1998
Docket NumberNo. 97-30764,97-30764
Citation145 F.3d 286
Parties22 Employee Benefits Cas. 1353, Pens. Plan Guide (CCH) P 23943T Richard A. THREADGILL, Sr., Plaintiff-Appellee, v. PRUDENTIAL SECURITIES GROUP, INC., et al., Defendants, Graham Energy Services Inc. Executive Compensation Plan; Braeloch Holdings Inc. Executive Compensation Plan, Defendants-Appellants. Joseph KILCHRIST, Plaintiff-Appellee, v. PRUDENTIAL SECURITIES GROUP, INC., et al., Defendants, Graham Energy Services Inc. Executive Compensation Plan; Braeloch Holdings Inc. Executive Compensation Plan, Defendants-Appellants. Michael R. STEWART, Plaintiff-Appellee, v. PRUDENTIAL SECURITIES GROUP, INC., et al., Defendants, Graham Energy Services Inc. Executive Compensation Plan; Braeloch Holdings Inc. Executive Compensation Plan, Defendants-Appellants.
CourtU.S. Court of Appeals — Fifth Circuit

James F. Willeford, New Orleans, LA, Jacques F. Bezou, Harry C. Graham, III, Bezou & Mattew, Covington, LA, for Plaintiffs-Appellees.

Howard Shapiro, Edward F. Harold, McCalla, Thompson, Pyburn, Hymowitz & Shapiro, New Orlenas, LA, for Defendants-Appellants.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before DAVIS, WIENER and PARKER Circuit Judges.

WIENER, Circuit Judge:

Defendants-Appellants Graham Energy Services Inc. Executive Compensation Plan and BraeLoch Holdings Inc. Executive Compensation Plan (collectively, "the Plans") appeal the district court's grant of partial summary judgment in favor of Plaintiffs-Appellees Richard Threadgill, Joseph Kilchrist, and Michael Stewart ("the Beneficiaries")--all former Graham Energy Services Inc. ("GESI") employees and participants in its executive compensation plan--on the Beneficiaries' claims against the Plans for "Change of Control" pension benefits. Concluding that the district court erred in reversing the plan administrator's decision denying these benefits, we reverse the district court and reinstate the ruling of the plan administrator.


BraeLoch Holdings Inc. ("BraeLoch") and affiliated companies worked with Prudential Bache Energy Production Co. ("Prudential-Bache") in managing oil and gas limited partnerships and selling interests in them as investments to Prudential-Bache's customers. GESI, a Louisiana corporation, was a wholly-owned subsidiary of BraeLoch. On May 7, 1993, BraeLoch and Prudential-Bache agreed to sell all of the partnership BraeLoch was a party, however, to another contemporaneously executed contract, the Stock Purchase Agreement, in which BraeLoch Successor Corp. ("Successor Corp.") contracted with BraeLoch and a Prudential-Bache affiliate--Prudential Securities Inc. 1 --to purchase all capital stock in BraeLoch. According to the Beneficiaries, Successor Corp. was a Prudential-Bache shell corporation, and the two May 7 contracts--the Agreement and Plan of Merger and the Stock Purchase Agreement--were entered into simultaneously for the purpose of liquidating Prudential-Bache's oil and gas investment business and the BraeLoch companies as well.

interests to Parker and Parsley Acquisition Co. ("Parker"). The transaction was memorialized in an Agreement and Plan of Merger, under which Parker agreed to merge with the partnerships. The obligation to merge was expressly contingent on, inter alia, the success of a tender offer to be made by Parker to the partnerships' limited partners: If the tender offer failed to achieve its stated goals, the prospective merger partners would not be obligated to merge. Although the partnerships were clients of GESI, neither GESI nor BraeLoch was a party to the Agreement and Plan of Merger.

The Beneficiaries were executive employees of BraeLoch's Louisiana subsidiary, GESI. As GESI officers, they participated in the Graham Energy Services Inc. Executive Compensation Plan ("the GESI Plan"), which provided, inter alia, "Change of Control" benefits. The GESI Plan defined Change of Control, in pertinent part, as follows:

A Change of Control shall be deemed to have occurred upon the earlier of:

(a) the dissolution, liquidation, winding up the affairs of [BraeLoch] or the sale or transfer of all, or substantially all, of the assets of BraeLoch; provided, however, no such events shall be deemed to occur (i) in the event of an insolvency or bankruptcy of BraeLoch or (ii) in the event of the transfer of assets of BraeLoch to an affiliate of BraeLoch provided such affiliate assumes the obligations of the Plan and agrees to continue uninterrupted the rights of Participants under the Plan[.]

The GESI Plan vested BraeLoch's Board of Directors with the absolute right to amend the Plans at any time prior to the occurrence of a Change of Control:

The Board of Directors shall have the right, in its absolute discretion, at any time and from time to time, to modify or amend, in whole or in part, any or all of the provisions of this Plan, or suspend or terminate it entirely; provided that no such modification, amendment, suspension or termination may reduce the amount of benefits or adversely affect the manner of payment of benefits of (1) any Participant or Beneficiary then receiving benefits in accordance with the terms of Article III or (2) any Participant or Beneficiary entitled to benefits as a result of the occurrence of a Change of Control as described in Article IV prior to or concurrent with a termination of the Plan. The provisions of this Article V shall survive a termination of the Plan unless such termination is agreed to by the Participants.

On May 20, less than two weeks after the two agreements were signed, BraeLoch's Board convened and formally adopted a resolution to amend the GESI Plan to eliminate the Change of Control benefit. The Board also adopted a resolution to transfer participants in the GESI Plan to the BraeLoch Plan, which was itself amended to (a) eliminate its own Change of Control benefits provision and (b) replace it with an annuity benefit. Formal plan amendments were executed on June 10 (GESI Plan) and June 14 (BraeLoch Plan). The amendment to the GESI Plan provided, in pertinent part:

Article IV of the [GESI] Plan is hereby deleted in its entirety and shall have no application or effect with respect to the * * *

Plan, Graham Energy Services Inc. Executive Compensation Trust No. 1 ("Trust No. 1") or the Participants. There have not been and there shall be no consequences of a Change of Control. Specifically, but not by way of limitation, the transfer of voting shares of [BraeLoch] to [Successor Corp.], a Delaware Corporation, and any transactions in connection with such sale shall not result in any benefits under Article IV as in effect prior to its deletion hereby. All references to Article in the Plan and in Trust No. 1 are hereby deleted and any consequences related to Article IV of the Plan shall not result or be applicable.

All participants in the Plan as of the date hereof have become participants in the BraeLoch Plan. As provided in Section 2.1(c) of the Plan, each such Participant shall no longer be a participant in the Plan. Instead, such Participant shall be a Participant in the BraeLoch Plan and all benefits to such Participants shall be paid solely from the BraeLoch Plan.

At a time in May, subsequent to the execution of the two May 7 contracts, the Beneficiaries signed an enhanced severance separation agreement which provided each of them with specified benefits in the event his employment should terminate after the sale of BraeLoch to Successor Corp. was complete. This severance agreement contained an express release by the Beneficiaries of all claims against, inter alia, GESI and its corporate affiliates. Subsequently, each of the Beneficiaries accepted the annuity benefit established in the same amendment that had eliminated the Plans' Change of Control benefits. Two of the Beneficiaries--Kilchrist and Stewart--signed additional instruments in which they expressly consented to that plan amendment.

On June 24, BraeLoch, Successor Corp., and Prudential Securities Inc. 2 executed an Amended and Restated Stock Purchase Agreement. That same day, Successor Corp. purchased BraeLoch's stock, closing the transaction contemplated in the Stock Purchase Agreement as thus amended and restated.

In July, the tender offer required by the other May 7 contract, the Agreement and Plan of Merger, achieved its goal. Subsequent to satisfaction of that prerequisite, Parker merged with the oil and gas partnerships (not with either BraeLoch or GESI). Each of the Beneficiaries' employment with GESI had terminated prior to the Parker merger with the partnerships: Threadgill's on August 31; Kilchrist's and Stewart's on September 30. Each received all benefits provided for in his separation agreement, as well as his annuity under the BraeLoch Plan.

Nevertheless, in May of the following year, Threadgill filed suit in state court against Prudential, First National Bank of Commerce, BraeLoch, and Successor Corp., seeking the Change of Control benefits once contained in the Plans but deleted by the board resolution of the previous May. Stewart and Kilchrist filed similar lawsuits. The defendants removed Threadgill's case to federal court and filed a motion to dismiss his action on the grounds that (1) the corporate defendants were not proper parties to the suit as it sought benefits under an ERISA plan, and (2) Threadgill had failed to exhaust the administrative remedies expressly provided in the Plans. Because Kilchrist's and Stewart's claims were substantially identical to Threadgill's, the parties voluntarily consolidated the cases, agreeing that the outcome of the motion to dismiss in the Threadgill suit would be controlling in the Stewart and Kilchrist actions.

The district court granted the defendants' dismissal motion, so the Beneficiaries filed administrative claims for Change of Control benefits with the plan administrator of the Plans. The Beneficiaries contended that, by...

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