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Harvey Knoll, An Individual v. Moreton Insurance of Idaho

May 22, 2012




Plaintiff Harvey Knoll's motion to remand this matter is before the Court. (Dkt. 11.) The parties have had an opportunity to submit written briefs, and the matter is ripe for the Court's review. On May 8, 2012, the Court conducted a hearing during which the parties appeared and presented oral argument. After carefully considering the parties' written submissions, relevant authorities and arguments, the Court will deny Knoll's motion to remand. At least one of his claims against his former employer arises under the Employee Retirement Income Security Act ("ERISA"), and is therefore preempted by federal law and a proper basis for removal.


Harvey Knoll, a former executive of Defendant Moreton Insurance of Idaho Inc. ("Moreton"), filed suit against the company in Idaho state court on August 26, 2011, alleging that Moreton failed to pay wages owed upon termination of his employment in breach of his employment contract. Knoll's second amended complaint, filed on September 23, 2011, seeks unpaid wages under Idaho's Wage Claim Act, Idaho Code §§45-601 et. seq., and damages for the alleged breach of his employment contract and the covenant of good faith and fair dealing. On December 16, 2011, Moreton removed the lawsuit to this Court.

Moreton asserts that jurisdiction is proper in this Court under ERISA, because some of Knoll's claims for unpaid wages are based upon an agreement that constitutes an employee welfare benefit plan under ERISA. The second amended complaint alleges that Moreton failed to pay Knoll the deferred compensation or severance due to him pursuant to a Deferred Compensation Agreement (the "Agreement") executed in November of 2007. It is this Agreement that Moreton alleges is a plan under ERISA. (Decl. of Tingey Dkt. 14-1; Decl. of Knoll Dkt. 12.) Knoll disputes that the Agreement constitutes a plan governed by ERISA, and contends that his claims all arise under state law, specifically Idaho's Wage Claim Act, pursuant to which Knoll seeks treble damages.

According to the record, Knoll was the only employee of Moreton that had such an agreement. The Agreement was negotiated between the then President of Moreton, William Moreton, and Knoll directly, both of whom signed the Agreement. (Decl. of Knoll ¶2-4, Dkt. 12.) The Agreement indicates Moreton agreed to pay a "deferred compensation benefit" to Knoll, and states that Moreton intended the Plan to be "an unfunded plan that is wholly or partially exempt under ERISA." Three types of benefits were established pursuant to the Agreement: death benefits, retirement benefits, and severance benefits. Knoll claims that, because his employment was terminated, the provision regarding severance benefits applies. According to the Agreement, the severance benefit consists of monthly installment payments in the gross amount of $2,083.33, beginning one month after the termination of employment. The number of months over which the severance benefit would be payable is determined based upon a mathematical calculation equal to the difference between 180 months and the number of months remaining between the date of termination of employment and the date that Knoll would have attained the age of 65 years. The monthly benefit was payable from Moreton's general assets, and no trust or fund was established.


1.Right to Removal

A defendant has a right to remove a case from state to federal court if the plaintiff's cause of action arises, in whole or in part, under federal law. 28 U.S.C. § 1441(b). Moreton argues that Knoll's claims for severance benefits under the Agreement, although premised upon a claim for failure to pay wages and breach of contract, are preempted by ERISA and, therefore, federal jurisdiction is proper. ERISA authorizes plaintiffs to sue to "recover benefits due to [them] under the terms of [their] plan." See 29 U.S.C. § 1132(a)(1)(B). Further, ERISA preempts a state law cause of action if it "relates to" an employee benefit plan. 29 U.S.C. § 1144(a); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47 (1987). "A law relates to an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan." Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138 (1990).

The parties dispute whether the Agreement constitutes a plan under ERISA. If it is, then Knoll's action comes within the scope of Section 1132(a)(1)(B) and is governed by Section 1144(a) of ERISA, and the action is removable to federal court. If not, removal was improper. Moreton bears the burden of establishing that removal is proper. Abrego v. The Dow Chemical Co. 443 F.3d 676, 686 (9th Cir. 2006). The Court therefore must answer the question whether the Agreement constitutes an ERISA Plan, or is simply an employment agreement not covered by ERISA.

2.Whether the Agreement Constitutes an ERISA Plan

ERISA recognizes two types of plans---"employee welfare benefit plans" and "employee pension benefit plans." 29 U.S.C. § 1002(1), (2). A plan can exhibit aspects of both a welfare benefit plan and a pension benefit plan. 29 U.S.C. § §1002(3).*fn1 An ERISA plan exists "if from the surrounding circumstances a reasonable person can ascertain the intended benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits." Parrino v. FHP, Inc., 146 F.3d 699, 703 (9th Cir. 1998), superseded by statute on other grounds, and quoting Carver v. Westinghouse Hanford Co., 951 F.2d 1083, 1086 (9th Cir. 1991); see also Donovan v. Dillingham, 688 F.2d 1367, 1373 (11th Cir. 1982).

Moreton argues that the Agreement is an example of a special type of ERISA plan commonly referred to as a "top hat" plan. Top hat plans are referenced in ERISA at 29 U.S.C. § 1051(2), and are exempt from the fiduciary, funding, participation and vesting requirements applicable to other employee benefit plans. Gilliam v. Nevada Power Co., 488 F.3d 1189, 1192-93 (9th Cir. 2007). Only plans that are unfunded and maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees are exempt from the requirements applicable to other ERISA plans. 29 U.S.C. § 1051(2). Knoll counters that Moreton's analysis is deficient, because the Agreement must qualify first as an ERISA plan before considering whether it is a certain type of ERISA plan. See Guiragoss v. Khoury, 444 F.Supp.2d 649, 655 (E.D. Va. 2006) ("The threshold question is ...

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