MOTEL 6, INC., Defendant and Petitioner, v. The SUPERIOR COURT of the State of California For the County of Santa Barbara, Respondent. David C. SULLIVAN, Plaintiff and Real Party in Interest.
OPINION AND ORDER
We consider here whether claims, premised upon state laws and arising from an employer's agreement within an individually negotiated contract to provide severance pay, are preempted by the Employee Retirement Income Security Act of 1974, 29 United States Code sections 1001 et seq. (ERISA).
This petition arises from a lawsuit filed by David Sullivan, real party herein, against Motel 6. The complaint alleges causes of action for breach of contract, repudiation of a written labor agreement, and for statutory penalties under Labor Code section 203.
Motel 6 demurred to the complaint upon the ground that the action is preempted by provisions of ERISA. It argued that Sullivan's causes of action are no more than claims for benefits under the terms of a severance pay plan, and that they are, therefore, governed by the exclusive provisions of ERISA.
The trial court overruled the demurrer. It determined the severance agreement to be an individually negotiated contract and that, as such, the lawsuit involved an area traditionally within state domain. The court concluded that provisions of ERISA were not at issue in this action. The trial court viewed the present matter to be a garden-variety contract action concerning employee benefits, rather than what it termed a “federal case.”
We conclude that the trial court did not abuse its discretion in refusing to sustain petitioner's demurrer, inasmuch as it could not be determined from the face of the complaint whether the contract in question contained the attributes of a pension contract governed by ERISA.
Motel 6 sought relief by way of a petition for extraordinary writ from this court. On March 12, 1987, we denied the petition upon the ground that petitioner had an adequate remedy at law. (Babb v. Superior Court (1971) 3 Cal.3d 841, 851, 92 Cal.Rptr. 179, 479 P.2d 379.) On May 14, 1987, the Supreme Court granted Motel 6's petition for review, and transferred the case to us, “․ with directions to issue an alternative writ ordering the Superior Court to set aside its order overruling defendant's demurrer and to sustain the demurrer or show cause why it should not be ordered to do so in light of Pilot Insurance Co. v. Dedeaux (1987) 481 U.S. 41 [107 S.Ct. 1549, 95 L.Ed.2d 39].”
Because a demurrer admits all factual allegations contained in a complaint (White v. Davis (1975) 13 Cal.3d 757, 765, 120 Cal.Rptr. 94, 533 P.2d 222), we must assume the truth of those allegations contained in Sullivan's complaint. It appears that, on January 23, 1985, the parties entered into an agreement whereby real party, a prospective employee of Motel 6, would receive severance pay should he be terminated within six years of the date of his employment if not guilty of “gross malfeasance” in the performance of his duties. The purported severance agreement is alleged to have been made during the course of prior negotiations between Sullivan and the chief executive officer of Motel 6, Roger Royce. On January 23, 1985, Sullivan sent Royce a letter to confirm the terms of the severance agreement. It is alleged that Royce acknowledged these terms by signing and returning the letter to Sullivan. The text of the disputed agreement is set forth in the margin.1
Sullivan maintains that Motel 6 did not offer a similar plan to other employees. It is alleged that the agreement was made in order to entice Sullivan to leave his position as counsel for the University of Pittsburgh to be employed by Motel 6. Sullivan claims that, on May 5, 1986, he was fired from his position and Motel 6 has refused to abide by the terms of the severance pay agreement.
In adopting ERISA, Congress was concerned with the mismanagement of funds accumulated to pay pensions, and with the failure to pay employees. (Donovan v. Dillingham (11th Cir.1982) 688 F.2d 1367, 1370; California Hosp. Ass'n v. Henning (9th Cir.1985) 770 F.2d 856, 859, cert. den., 477 U.S. 904, 106 S.Ct. 3273, 91 L.Ed.2d 564.) Uniformity of administration of pension plans is also a principal concern of ERISA. Congress intended “․ to protect employers from conflicting and inconsistent state and local regulation of such plans, [citations]․” (Scott v. Gulf Oil Corp. (9th Cir.1985) 754 F.2d 1499, 1501.) The preemption of inconsistent state laws advances the latter purpose of ERISA. (Shaw v. Delta Airlines (1983) 463 U.S. 85, 98–99, 103 S.Ct. 2890, 2900–2901, 77 L.Ed.2d 490.)
State laws are preempted by ERISA, “insofar as they may now or hereafter relate to any employee benefit plan described in [section 4(a) of ERISA]․” (29 U.S.C., § 1144(a).) Congress intended that the words “relate to” contained in section 1144(a) be given a broad interpretation. (Pilot Life Ins. Co. v. Dedeaux (1987) ––– U.S. ––––, ––––, 107 S.Ct. 1549, 1553, 95 L.Ed.2d 39, 48.) State law causes of action relate to an employee benefit plan if they have “a connection with or reference to such a plan.” (Shaw v. Delta Air Lines, Inc., supra, 463 U.S. at p. 97, 103 S.Ct. at p. 2900.)
Pilot Life involved state common law causes of action for damages for improper processing of a claim for disability insurance benefits under an employee benefit plan. The court ruled that these causes of action related to an employee benefit plan, and, as such, were thereby preempted by ERISA. (Pilot Life Ins. Co. v. Dedeaux, supra, 481 U.S. at p. ––––, 107 S.Ct. at p. 1558, 95 L.Ed.2d at p. 54.)
However, there are limits to the scope of ERISA. ERISA is not to be given so broad an application, that it tear asunder the fabric of state laws governing employee benefits. In Fort Halifax Packing Co. Inc. v. Coyne (1987) 482 U.S. 1, 107 S.Ct. 2211, 96 L.Ed.2d 1, the Supreme Court held that ERISA did not preempt a Maine law that imposed severance pay for employees upon the owners of a closed plant. In arriving at this conclusion the court found it to be the intent of Congress to preempt those state laws governing employee benefit plans. “Congress intended pre-emption to afford employers the advantages of a uniform set of administrative procedures governed by a single set of regulations. This concern only arises, however, with respect to benefits whose provisions by nature requires an ongoing administrative program to meet the employer's obligation. It is for this reason that Congress pre-empted state laws relating to plans, rather than simply to benefits. Only a plan embodies a set of administrative practices vulnerable to the burden that would be imposed by a patchwork scheme of regulation.” (Id., 482 U.S. at p. ––––, 107 S.Ct. at p. 2217, 96 L.Ed.2d at p. 11.) Thus, the court, in Fort Halifax, concluded that the issue of a lack of uniformity arises only if an employer has an “ongoing administrative scheme” for paying severance benefits. (Id., 482 U.S. at p. ––––, 107 S.Ct. at p. 2221, 96 L.Ed.2d at p. 16.)
The question before us is whether the severance agreement constitutes a “plan” as defined in ERISA. (29 U.S.C. § 1002(1).) We approach this task with no statutory guidance inasmuch as “ERISA does not contain a clear definition of the word ‘plan’.” (Scott v. Gulf Oil Corp., supra, 754 F.2d at p. 1503.) Federal courts have held that it matters not whether the disputed employee benefit agreement is written or oral. (Scott v. Gulf Oil Corp., supra, 754 F.2d at p. 1503; Donovan v. Dillingham, supra, 688 F.2d at p. 1372.) Nor do these courts appear to be concerned with the need of the employer to maintain a formal employee benefit plan. (Blau v. Del Monte Corp. (9th Cir.1984) 748 F.2d 1348, 1357, cert. den. 474 U.S. 865, 106 S.Ct. 183, 88 L.Ed.2d 152.) The federal courts have fashioned the following test to determine whether the agreement comes within the province of ERISA: Would a reasonable person, viewing the disputed agreement, be able to ascertain (1) the intended benefits, (2) the intended beneficiaries, (3) the source of financing, and (4) the method of receiving benefits. (Donovan v. Dillingham, supra, 688 F.2d at p. 1373.)
Motel 6 argues that, under the test stated in Dillingham, the disputed severance agreement constitutes an ERISA plan. It cites one case in which an individually negotiated contract has been held to be within the ambit of ERISA. (Hagler v. J.F. Jelenko & Co. (Mo.App.1986) 719 S.W.2d 486.) We have found four cases in which courts have refused to find that individually negotiated pension agreements are governed by ERISA. (Fraver v. North Carolina Farm Bureau Mut. Ins. Co. (4th Cir.1986) 801 F.2d 675, 677–678, cert. den. 480 U.S. 919, 107 S.Ct. 1375, 94 L.Ed.2d 690; McQueen v. Salida Coca–Cola Bottling Co. (D.Colo.1987) 652 F.Supp. 1471, 1472; Jervis v. Elerding (C.D.Cal.1980) 504 F.Supp. 606, 609; O'Hollaren v. Marine Cooks & Stewards Union (1986) 83 Or.App. 133, 137, 730 P.2d 616, 618.)
It has been suggested that an agreement for deferred compensation pursuant to an individual employment contract is not an employee benefit plan for the purposes of ERISA. (Goodman & Stone, “Exempt Compensation Arrangements Under ERISA” (1979) 28 Cath.U.L.Rev. 445, 452–453; accord O'Hollaren v. Marine Cooks & Stewards Union, supra, 83 Or.App. at p. 137, 730 P.2d at p. 618.) Federal courts that have considered this question have refused to adopt a per se rule that ERISA will never apply to an employee pension benefit plan that concerns an individual employee. These courts have looked to the entirety of such agreements and surrounding circumstances to determine whether they come within the province of ERISA. (Fraver v. North Carolina Farm Bureau Mut. Ins. Co., supra, 801 F.2d at pp. 677–678; McQueen v. Salida Coca–Cola Bottling Company, supra, 652 F.Supp. at pp. 1472–1473; Jervis v. Elerding, supra, 504 F.Supp. at p. 609.)
The facts of McQueen are similar to those in the case at the bar. In 1981, McQueen and Salida Coca–Cola entered into a “Deferred Compensation Agreement” ostensibly intended to provide McQueen with income at age 65. The agreement did not extend to other employees. McQueen was fired 11 days before his rights under the agreement were to vest. He brought suit in the federal court for damages under ERISA. The court, in viewing the agreement as a whole, concluded that it “․ did not contain any of the provisions which normally attend the creation and maintenance of an ERISA plan, regardless of the number of employees involved.” (Id. at pp. 1472–1473.) The court held the agreement to be a personal services contract, and dismissed the ERISA claim.
We conclude that, where an agreement has been individually negotiated, the Dillingham test must be tempered to allow the court to consider the contents of the agreement along with the surrounding circumstances under which the agreement was negotiated. Blind adherence to Dillingham in those instances where the employee has individually negotiated a benefit agreement only serves to promote form over substance—it does little to advance goals which led to the enactment of ERISA.
In order to have sustained the demurrer here, the trial court would have had to find upon the face of the pleadings, that Motel 6 maintained an employee benefit plan as defined by ERISA. (29 U.S.C., § 1102.) The test for making such a finding is whether, in considering the fact that the agreement was individually negotiated, a reasonable person would conclude that the agreement contained those provisions normally found in an ERISA plan. (McOueen v. Salida Coca-Cola Bottling Co., supra, 652 F.Supp. at pp. 1472–1473.)
In the early stages of the proceedings, the trial court was in no position to discern whether the agreement contains attributes of typical employee pension benefit plans; e.g., an ongoing administrative program designed to meet Motel 6's purported obligation to pay severance benefits to Sullivan. (Fort Halifax Packing Co. v. Coyne, supra, 482 U.S. at pp. –––– – ––––, 107 S.Ct. at pp. 2220–2221, 96 L.Ed.2d at pp. 15–16.) In question also are the existence of benefit funds being held in trust (29 U.S.C., § 1103(a); Taggart Corp. v. Life and Health Benefits Admin. Inc. (5th Cir.1980) 617 F.2d 1208, 1211, cert. den. 450 U.S. 1030, 101 S.Ct. 1739, 68 L.Ed.2d 225); fiduciaries named to control or manage the operation and administration of the benefit fund, to defray expenses, or to invest or diversify plan assets (29 U.S.C., §§ 1102(a), 1104(a)); a source for financing the benefits; (California Hosp. Ass'n v. Henning, supra, 770 F.2d at p. 859); an agreement to implement procedures for the amendment of the severance benefit plan, allocate duties and responsibilities arising under it, and which specifies the basis on which contributions were to be made (29 U.S.C. § 1102(b)).
The severance agreement in question appears to be a run-of-the-mill employment contract which appoints Sullivan to a position, and sets forth an amount as his compensation. Based upon the bare allegations contained in the complaint, it seems questionable that the parties either intended or created an employee benefit plan subject to ERISA.
Our conclusion is supported by regulations promulgated by the Department of Labor. These regulations provide that a severance benefit plan will be considered to be an employee benefit plan if: (1) the benefits are contingent upon the employee's retirement; (2) the amount of such payments exceeds the equivalent of twice the employee's annual compensation; and (3) all of the benefits are not to be paid within 24 months after termination of the employee's service. (29 C.F.R. § 2510.3–2(b)(1) (1975).) Here, the latter condition does not appear to have been met—the disputed agreement seemingly requires that Sullivan be paid severance benefits upon termination. (Civ.Code, § 1657.)
Moreover, a resolution in favor of preemption would do nothing toward solving those problems that Congress has attempted to solve in enacting ERISA. For example, nothing in the record suggests that Motel 6's agreement with Sullivan would expose it to conflicting laws. (Cf., Pilot Life Ins. Co. v. Dedeaux, supra, 481 U.S. at p. ––––, 107 S.Ct. at pp. 1552–1553, 95 L.Ed.2d at p. 47.) Neither does it appear that there is a chance of a specific risk of loss or nonpayment due to mismanagement of funds. (California Hosp. Ass'n v. Henning, supra, 770 F.2d at p. 859.)
On the other hand, resolution in favor of preemption would have consequences unintended by Congress: that any employer offering severance benefits to an individual employee would become subject to the array of complex reporting and fiduciary requirements imposed by ERISA; that many ordinary employment contract claims, traditionally regulated under state law, would be transformed into federal cases; and, that a flood of trivial cases would be brought into federal courts. (E.g., Jervis v. Elerding, supra, 504 F.Supp. 606; O'Hallaren v. Marine Cooks & Stewards Union, supra, 730 P.2d 616.)
Appellate courts must be ever vigilant against the tendency of taking “too lax a view of the ‘extraordinary’ nature of prerogative writs” (Pacific Tel. & Tel. Co. v. Superior Court (1970) 2 Cal.3d 161, 169, 84 Cal.Rptr. 718, 465 P.2d 854; see also 8 Witkin, California Procedure, supra, Extraordinary Writs, § 140–141, pp. 781–785), otherwise they run the risk of fostering the delay of trials, vexing litigants and trial courts with multiple proceedings, and adding to the delay of judgment appeals pending in the appellate court. (Babb v. Superior Court, supra, 3 Cal.3d at p. 851, 92 Cal.Rptr. 179, 479 P.2d 379; Agassiz v. Superior Court (1891) 90 Cal. 101, 103–104, 27 P. 49.) Pretrial appellate intervention may be necessitated by some, but by no means all, matters bearing upon public weal or having significant legal impact. (Valley Bank of Nevada v. Superior Court (1975) 15 Cal.3d 652, 655, 125 Cal.Rptr. 553, 542 P.2d 977; Babb v. Superior Court, supra, 3 Cal.3d at p. 851, 92 Cal.Rptr. 179, 479 P.2d 379; Hansen v. Dept. of Social Services (1987) 193 Cal.App.3d 283, 287, 238 Cal.Rptr. 232.)
One writer has characterized a writ petition as being a device used to “cut into line” ahead of those litigants awaiting determination of post-judgment appeals. (Davis, “Tips for Obtaining a Civil Writ,” California Lawyer, August 1985, p. 55.) “If reviewing courts made themselves routinely available to intervene by writ whenever a litigant claimed a mistake had been made in the law-and-motion department, trials would be delayed, litigants would be vexed with multiple proceedings, and judgment appeals would be kept waiting.” (Burrus v. Municipal Court (1973) 36 Cal.App.3d 233, 236, 111 Cal.Rptr. 539.) All too often, counsel neglect to realize that the purported error committed by the trial judge may, (1) be cured prior to trial; (2) have little or no effect upon the outcome of trial; or, (3) be properly addressed on appeal. (Hogya v. Superior Court (1977) 75 Cal.App.3d 122, 128, 142 Cal.Rptr. 325.) Consequently, appellate courts do not encourage the use of extraordinary writs as a method of reviewing rulings made in the law and motion department of the trial court. (Continental Life Insurance Co. v. Superior Court (1985) 165 Cal.App.3d 1069, 1072, 212 Cal.Rptr. 140.)
This case illustrates the wisdom of adhering to the policy of allowing appellate review by way of extraordinary relief only when other remedies have been fully exhausted. Presumably, the parties, through the judicious use of discovery, will obtain the answer as to whether the agreement before the court contains any of the characteristics of a “plan, fund or program” under ERISA. At such time, the trial court will be in a position to dispose of any unmeritorious claims, and to decide whether the agreement between Sullivan and Motel 6 falls within the scope of ERISA.
We conclude that the trial court was well within the bounds of its discretion when it overruled Motel 6's demurrer. The alternative writ is discharged, and the petition for writ of mandate is denied.2
1. “This to is confirm my understanding of our prior discussion relating to my employment with Motel 6. You have assured me that as consideration for my acceptance of employment with Motel 6 and my move to Santa Barbara the Company will, in the event of termination of my employment at any time within three years after I join Motel 6, (absent gross malfeasance) pay a severance amount equal to three times my then annual salary, also a severance payment in the same amount will be paid in the event of termination after the first three years or employment greater than three.”
2. The Supreme Court's order directing that an alternative writ be issued constitutes a determination that, in the ordinary course of the law, the petitioner is without an adequate remedy. (Payne v. Superior Court (1976) 17 Cal.3d 908, 925, 132 Cal.Rptr. 405, 553 P.2d 565.) However, such an order does not preclude an appellate court from denying relief. (Charlton v. Superior Court (1979) 93 Cal.App.3d 858, 861, 156 Cal.Rptr. 107; 8 Witkin, supra, Extraordinary Writs, § 107, p. 744.)
ABBE, Associate Justice.
STONE, P.J., and GILBERT, J., concur.