Velarde v. PACE Membership Warehouse, Inc.

• Decision Date: 29 January 1997
• Docket Number: Nos. 95-17190,95-17278,s. 95-17190
• Citation: 105 F.3d 1313
• Parties: 20 Employee Benefits Cas. 2479, 97 Cal. Daily Op. Serv. 679, 97 Daily Journal D.A.R. 1081, Pens. Plan Guide (CCH) P 23,931 Joseph VELARDE; Rene Barreda; Maun Boettcher; Phillip Borboa; Danita Ewing; Jeffrey Fleming; Carlos Gonzales, Jr.; Hernando Hernandez; Matthew Lansbery; James Deon Lennox; Rigoberto Mata; Ines B. Mendez; Perla Mendoza; Steven Miller; Cisco Monteverde; Deborah Morrison; Gerald Ogden, Jr.; Anthony Robb; Robert P. Sahhar; Luis A. Sandoval, Jr.; Sheri Stone; Luis F. Varela and Benjamin R. Winegrad, Plaintiffs-Appellees-Cross-Appellants, v. PACE MEMBERSHIP WAREHOUSE, INC., Defendant-Appellant-Cross-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1313

105 F.3d 1313

20 Employee Benefits Cas. 2479, 97 Cal. Daily

Op. Serv. 679,

97 Daily Journal D.A.R. 1081,

Pens. Plan Guide (CCH) P 23,931

Joseph VELARDE; Rene Barreda; Maun Boettcher; Phillip Borboa; Danita Ewing; Jeffrey Fleming; Carlos Gonzales Jr.; Hernando Hernandez; Matthew Lansbery; James Deon Lennox; Rigoberto Mata; Ines B. Mendez; Perla Mendoza Steven Miller; Cisco Monteverde; Deborah Morrison; Gerald Ogden, Jr.; Anthony Robb; Robert P. Sahhar; Luis A Sandoval, Jr.; Sheri Stone; Luis F. Varela and Benjamin R Winegrad, Plaintiffs-Appellees-Cross-Appellants, v. PACE MEMBERSHIP WAREHOUSE, INC., Defendant-Appellant-Cross-Appellee.

Nos. 95-17190, 95-17278.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 12, 1996.

Decided Jan. 29, 1997.

Amy J. Gittler, Brown & Bain, Phoenix, Arizona, for plaintiffs-appellees-cross-appellants.

Tibor Nagy, Jr., Snell & Wilmer, Tucson, Arizona, for defendant-appellant-cross-appellee.

Appeals from the United States District Court for the District of Arizona, John M. Roll, District Judge, Presiding. D.C. No. CV-94-00198-JMR.

Before: FLETCHER, WIGGINS, and T.G. NELSON, Circuit Judges.

Opinion by Judge FLETCHER.

FLETCHER, Circuit Judge:

PACE Membership Warehouse, Inc. ("PACE") appeals from a district court grant of summary judgment in favor of 25 former PACE employees ("plaintiffs" or "employees") and from an award of treble damages and attorney's fees to the plaintiffs. The employees cross-appeal from the district

court's decision limiting attorney's fees. The district court exercised jurisdiction pursuant to 28 U.S.C. § 1332(a)(1). We have jurisdiction over this timely appeal pursuant to 28 U.S.C. § 1291, and we affirm.

I. BACKGROUND

In November 1993, PACE Membership Warehouse, Inc. in Tucson, Arizona notified its workers that they would be terminated effective January 1, 1994 because the Warehouse was going to be permanently closed. In mid-December 1993, PACE made offers to a number of employees, including the 25 plaintiffs, to become members of the "stay on team." This offer was contained in a letter ("Stay On Letter") which was drafted by PACE and signed by each of the plaintiffs.

The Stay On Letter provided that, if the solicited employee worked through the approximate date of January 18, 1994, ¹ she would receive a "stay on bonus" and severance pay. The stay on bonus totalled 4 weeks of pay at the employee's "rate of base pay as of December 24, 1993." The severance pay was to be computed at the same rate with one week of severance pay for each full year of employment with PACE, with a minimum of 2 years' employment. According to this agreement, the employee would receive the bonus and severance pay unless she was terminated for cause prior to the projected date or she voluntarily separated before that date.

At some point in late December 1993, after making the stay-on offer, and after most of the plaintiffs had accepted the offer, PACE decided not to close the Tucson Warehouse but to sell it to Sam's Club instead. On December 23, 1993, PACE posted a notice to the employees in the Tucson Warehouse announcing this decision. However, not all of the plaintiffs were aware of this announcement.

All of the plaintiffs continued working for PACE until approximately January 14, 1994, the last date PACE owned and operated the warehouse. Sam's Club then purchased the Warehouse and the plaintiffs stayed on to work for Sam's Club in their former capacities. Because they had completed what was required of them in the Stay On Letters, i.e., to continue working for PACE through mid-January, the plaintiffs demanded that PACE pay the stay on bonus and severance pay. PACE, however, refused to pay. The plaintiffs then brought this action for breach of contract. ²

The plaintiffs moved for summary judgment on PACE's liability for breach of contract, treble damages, and attorneys' fees. PACE asserted that the plaintiffs' state law breach of contract claims were preempted by ERISA and, alternatively, that PACE did not breach a contract with the plaintiffs. The district court ruled that ERISA does not apply to this contract. The district court then granted the plaintiffs' motion for summary judgment on the breach of contract claim and awarded the plaintiffs contract damages, including treble damages as authorized under Arizona law when an employer fails to pay wages due. The district court further ordered that, pursuant to Arizona law, as the prevailing party in a contract cause of action the plaintiffs were entitled to attorney's fees. The parties then briefed the proper amount of attorneys' fees. The court granted the plaintiffs attorneys' fees in the amount of $65,000. Although the plaintiffs sought $92,144.50 in attorneys' fees, the district court limited the recovery of attorneys' fees to one-third of the plaintiffs' damages award of $195,000 because the court determined that this was the amount the plaintiffs were required to pay under their contingency fee agreement.

II. ERISA PREEMPTION

As a threshold matter, we consider whether the district court correctly ruled that the plaintiffs' state-law claims are not preempted by the Employee Retirement Income Security Act of 1974 ("ERISA"). ³ Our review is de novo. Inland Empire Chapter of Assoc. Gen. Contractors v. Dear, 77 F.3d 296, 299 (9th Cir.1996).

PACE argues that the Stay On Letter, which provides for severance benefits, is an "employee benefit plan" within the meaning of ERISA and, as such, plaintiffs' state law breach of contract claims are preempted. ERISA preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan...." ERISA § 514(a); 29 U.S.C. § 1144(a). The definition of "employee benefit plan" can include severance benefits. 29 U.S.C. § 1002(1); 29 C.F.R. § 2510.3-1(a)(3); Delaye v. Agripac, Inc., 39 F.3d 235 (9th Cir.1994) (severance pay may constitute plan within the meaning of ERISA), cert. denied, 514 U.S. 1037, 115 S.Ct. 1402, 131 L.Ed.2d 289 (1995); Bogue v. Ampex Corp., 976 F.2d 1319 (9th Cir.1992) (severance pay considered "employee welfare benefit plan" under ERISA), cert. denied, 507 U.S. 1031, 113 S.Ct. 1847, 123 L.Ed.2d 471 (1993); Scott v. Gulf Oil Corp., 754 F.2d 1499 (9th Cir.1985); Blau v. Del Monte Corp., 748 F.2d 1348, 1352 (9th Cir.1984), cert. denied, 474 U.S. 865, 106 S.Ct. 183, 88 L.Ed.2d 152 (1985). "[A] relatively simple test has emerged to determine whether a plan is covered by ERISA: does the benefit package implicate an ongoing administrative scheme? " Delaye, 39 F.3d at 237 (citing Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 12, 107 S.Ct. 2211, 2217-18, 96 L.Ed.2d 1 (1987)) (emphasis added).

Following our holding in Delaye, the district court concluded that the Stay On Letter does not constitute an "employee benefit plan" because it does not require an ongoing administrative scheme. PACE contends that the district court erred because the Stay On Letter created a plan similar to that in Bogue where we found the plan did constitute an employee benefit plan.

In Bogue, we concluded that a special compensation program for 10 key executives was an employee benefit plan under ERISA because the plan involved more than "[t]he theoretical possibility of a one-time obligation in the future." 976 F.2d at 1322 (quoting Fort Halifax, 482 U.S. at 12, 107 S.Ct. at 2217-18). The program provided for severance benefits if the employee was terminated and neither the employer, nor the new owner of the business, offered "substantially equivalent" employment. Id. at 1321. In that situation, the employer "was obligated to apply enough ongoing, particularized, administrative, discretionary analysis to make the program ... a 'plan.' " Id. at 1323.

In Delaye, however, we rejected an employee's argument that a severance benefits package is a "plan" for purposes of ERISA. The contract in Delaye provided that if the employer terminated the employee for cause he would receive only his yearly base compensation. However, if termination was without cause the employee would receive a larger benefits package. The court found that this contract did not implicate an ongoing administrative scheme because "there is nothing discretionary about the timing, amount or form of the payment." Delaye, 39 F.3d at 237. The Delaye court distinguished Bogue in two ways. Id. at 238. First, the severance plan in Bogue went into effect only if the covered employee was terminated and not offered "substantially similar" employment. Id. Determining whether employment was "substantially similar" required "ongoing administrative analysis." Id. Second, Bogue 's severance package covered ten top executives and thus the employer would need to make ten separate discretionary determinations. Id.

PACE argues that the Stay On Letter contained two "eligibility" requirements which create an ongoing administrative scheme, necessitating ongoing particularized discretion, and thereby bringing the severance pay under the definition of a "plan" for purposes of ERISA preemption. These "eligibility" requirements are: (1) that the employees perform their duties in a satisfactory Here, as in Delaye, the employer was simply required to make a single arithmetical calculation to determine the amount of the severance benefits. While in both cases, a "for cause" termination would change the benefits due to the employee, the Delaye court did not deem this minimal quantum of discretion sufficient to turn a severance agreement into an ERISA plan. Contrary to PACE's assertions, the key to our holding in Bogue was that there was "enough ongoing, particularized, administrative discretionary analysis," 976 F.2d at 1323 (emphasis added), to make the plan an "ongoing administrative scheme," not that the agreement simply required some modicum of discretion. The level of discretion, if any, which PACE was required to exercise in implementing the agreement was slight. It failed to rise...