LEE H. ROSENTHAL, Chief District Judge.
Charles Duff sued his former employer, Hilliard Martinez Gonzalez, LLP, a law firm in Corpus Christi, Texas, and two partners, Robert Hilliard and Catherine Tobin, who allegedly made the financial decisions for the firm. (Docket Entry No. 1). Duff was hired in August 2010 to serve as the chief financial officer for Hilliard Martinez Gonzales. Id. at ¶ 9. Duff alleges that in April 2015, Robert Hilliard agreed to pay him a bonus of "half a million" for his contributions and service, from money the law firm expected to get from cases it settled with General Motors. Id. Duff alleges that on June 10, 2015, he and Robert Hilliard signed a "deferred compensation agreement," under which the firm would put $800,000 for Duff into an account associated with the agreement in four $200,000 installments. Id. Duff also alleges that the firm agreed to pay him a bonus tied to the General Motors settlement funds, but separate from the contributions-and-service bonus. Id.
In the fall of 2016, Duff was assigned the task of managing the General Motors settlement funds, increasing his workload. He alleges that he accepted the added work because of the bonus he believed he would receive. Id. at ¶ 10. When Duff sought assurance from Robert Hilliard that the deferred compensation agreement was still in force, Robert Hilliard allegedly told Duff, "I will take care of you brother." Id.
Robert Hilliard did not give Duff a bonus in December 2016 or January 2017. Id. That month, Duff brought the bonus issue to Catherine Hilliard's attention. Id. at ¶ 11. Catherine Hilliard told Duff that she and Robert Hilliard had considered paying Duff a bonus but did not do so because they wanted it to be "substantial," which required waiting until after the law firm collected the General Motors funds. Id. Duff alleges that Catherine Hilliard acknowledged that he would also receive $500,000 for his contributions and service to the law firm. Id.
In the spring of 2017, Duff told the Hilliards that the firm had collected most of the General Motors settlement funds. Id. at ¶ 12. Duff alleges that he asked Robert Hilliard to insulate the collected settlement funds from creditors or from bankruptcy, to protect his deferred compensation agreement from what he saw as Robert Hilliard's needless spending. Id. Robert Hilliard allegedly agreed to do so, but he did not. Id. Duff alleges that in July 2017, he asked Robert Hilliard to loan him 90% of his deferred compensation account balance, to protect the funds in the account. Id. at ¶ 13. The loan was not made. Id. Hilliard Martinez Gonzales did not pay Duff $500,000 after the General Motors settlement funds were collected, instead awarding Duff $5,000. Id. at ¶ 14. After Duff retained counsel to enforce the deferred compensation agreement, he was terminated on November 28, 2017. Id.
Duff asserts claims for violations of ERISA, 29 U.S.C. § 1132, and under Texas state law for breach of contract, fraud, breach of fiduciary duty, promissory estoppel, and unjust enrichment. He seeks damages and an injunction. The defendants have moved to dismiss under Rule 12(b)(6), asserting that the complaint fails to state a plausible claim under ERISA and arguing that the court should decline to exercise jurisdiction over the state-law claims if it dismisses the federal ERISA claim. (Docket Entry No. 7). Duff responded, the defendants replied, and Duff sur-replied. (Docket Entries No. 12, 13, 14).
Based on the pleadings, the motion, response, reply, and sur-reply, the record, and the applicable law, the court dismisses the ERISA claim, with prejudice because amendment would be futile, declines to exercise jurisdiction over the state-law claims, and dismisses them, without prejudice, so that they might proceed in the state court. The reasons are explained below.
Rule 12(b)(6) allows dismissal if a plaintiff fails "to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). Rule 12(b)(6) must be read in conjunction with Rule 8(a), which requires "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a) (2). A complaint must contain "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Rule 8 "does not require `detailed factual allegations,' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 555). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556). "The plausibility standard is not akin to a `probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (citing Twombly, 550 U.S. at 556).
To withstand a Rule 12(b)(6) motion, a "complaint must allege `more than labels and conclusions,'" and "a formulaic recitation of the elements of a cause of action will not do." Norris v. Hearst Tr., 500 F.3d 454, 464 (5th Cir. 2007) (quoting Twombly, 550 U.S. at 555). "Nor does a complaint suffice if it tenders `naked assertion[s]' devoid of `further factual enhancement.'" Iqbal, 556 U.S. at 678 (alteration in original) (quoting Twombly, 550 U.S. at 557). "[A] complaint does not need detailed factual allegations, but must provide the plaintiff's grounds for entitlement to relief—including factual allegations that when assumed to be true `raise a right to relief above the speculative level.'" Cuvillier v. Taylor, 503 F.3d 397, 401 (5th Cir. 2007) (quoting Twombly, 550 U.S. at 555). "Conversely, when the allegations in a complaint, however true, could not raise a claim of entitlement to relief, this basic deficiency should be exposed at the point of minimum expenditure of time and money by the parties and the court." Id. (quoting Twombly, 550 U.S. at 558) (internal quotation marks and alteration omitted).
When a plaintiff's complaint fails to state a claim, the court should generally give the plaintiff a chance to amend the complaint under Rule 15(a) before dismissing the action with prejudice, unless it is clear that to do so would be futile. See Carroll v. Fort James Corp., 470 F.3d 1171, 1175 (5th Cir. 2006) (Rule 15(a) "evinces a bias in favor of granting leave to amend"); Great Plains Tr. Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 329 (5th Cir. 2002) ("[D]istrict courts often afford plaintiffs at least one opportunity to cure pleading deficiencies before dismissing a case, unless it is clear that the defects are incurable or the plaintiffs advise the court that they are unwilling or unable to amend in a manner that will avoid dismissal."). A court may deny a motion to amend for futility if the amended complaint would fail to state a claim upon which relief could be granted. Villarreal v. Wells Fargo Bank, N.A., 814 F.3d 763, 766 (5th Cir. 2016) (citing Stripling v. Jordan Prods. Co., LLC, 234 F.3d 863, 873 (5th Cir. 2000)). The decision to grant or deny leave to amend "is entrusted to the sound discretion of the district court." Pervasive Software Inc. v. Lexware GMBH & Co., 688 F.3d 214, 232 (5th Cir. 2012).
The ERISA statute defines the retirement, health, severance, compensation, or other employee benefit plans it covers; with preemptive force. The statute provides that:
29 U.S.C. § 1002(1). Under ERISA, every employee benefit plan must:
29 U.S.C. § 1102.
The cases provide details about the criteria for an ERISA plan:
Crowell, 541 F.3d at 303-04.
A recent Fifth Circuit case adds more details. In Gomez v. Ericsson, Inc., 828 F.3d 367 (5th Cir. 2016), the court analyzed whether ERISA covered a severance plan, as follows:
828 F.3d at 371-372.
In Gomez, the Fifth Circuit held that "administrative activity was abundant" in the plans at issue, which were ongoing on a large scale, covering over 10,000 employees across the country; did not rest on the occurrence of a single event; and required the administrator to exercise discretion, including to determine the eligibility issue of whether there was a good reason for an employee's voluntary resignation, the benefits amount for each employee based not only on years of service but also on applying offsets and deductions, and monitoring obligations over payment. Id. at 373. In contrast, when a deferred compensation arrangement in an employment agreement called for a predetermined benefit or a payment based on a one-time calculation using a fixed formula, even if it was to be paid over time, that did not "amount to an administrative scheme." Cantrell v. Briggs & Veselka Co., 728 F.3d 444, 451 (5th Cir. 2013) (quoting Tinoco v. Marine Chartering Company, Inc., 311 F.3d 617, 622 (5th Cir. 2002)). And because the payment amount was fixed, there was no need for discretionary decisions on the part of the employer or an administrator. A triggering event that can be easily ascertained, or when the basis of the termination would change the benefits due an employee, a minimal quantum of discretion is not enough to turn a severance agreement subject to state law into an ERISA plan. Id. at 453.
Duff argues that the court may not consider the documents the defendants attached as Exhibits A to F to the motion to dismiss, unless the motion is converted into one for summary judgment. (Docket Entry No. 12). The defendants respond by pointing to cases that permit a court to consider, in deciding a Rule 12(b)(6) motion, documents that the plaintiff refers to in its complaint and are central to the claim, and that the defendant attaches to a motion to dismiss. See Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498-99 (5th Cir. 2000). The defendants have the better argument.
As a general rule, a court is limited to considering the contents of the pleadings and attachments thereto in deciding a Rule 12(b)(6) dismissal motion, and the defendants moved only under that Rule, and not also under Rule 12(b)(1). But there is a well-recognized exception that permits courts also to consider "[d]ocuments that a defendant attaches to its motion to dismiss . . . if they are referred to in the plaintiff's complaint and are central to her claim." Id. (quoting Villareal v. Wells Fargo Bank, N.A., 814 F.3d 763, 766 (5th Cir. 2016)). The courts emphasize that the documents may assist the "plaintiff in establishing the basis of the suit, and the court in making the elementary determination of whether a claim has been stated." Collins, 224 F.3d at 499. In ERISA suits in particular, courts consider documents alleged to constitute or show the ERISA plan alleged or referred to in the complaint and attached to a motion to dismiss. See Villareal, 814 F.3d 763, 766-767; Bailey v. CIGNA Ins. Co., 87 Fed. Appx. 347, 348 (5th Cir. 2004) (considering Enrollment Guide and Summary Plan Description in granting a motion to dismiss for failure to state an ERISA claim).
Duff alleges that the June 10, 2015 documents he signed created an ERISA deferred compensation plan. (Docket Entry No. 1 at ¶ 9). He alleges that both before and after that date, the defendants promised him payment under that agreement and promised him a $500,000 bonus. Id. The defendants assert that contrary to Duff's complaint allegations, there is no June 10, 2015 deferred compensation agreement document. (Docket Entry No. 7 at 3). Instead, Hilliard signed three documents on behalf of Robert C. Hillard, LLC on that date: a director's resolution, an adoption agreement, and a benefit class agreement. (Docket Entry Nos. 7-2, 7-3, 7-4). The adoption agreement "adopts" a "Law Firm Prototype Deferred Compensation Plan Document" and proposed to rename it the "Deferred Bonus Plan of Robert C. Hilliard, LLP" and designate it as a "top hat plan." (Docket Entry No. 7-3). Exhibit F is a similar prototype form for the "Optcapital CaR Plan," (Docket Entry No. 7-6), which Duff apparently refers to in his complaint, (Docket Entry No. 1, ¶ 13). Duff himself attaches to his sur-reply a copy of a "Personal Fund Agreement" relating to the Hilliard law firm as a participant in the Optcapital CaR Plan and to Duff as a participant in the "Deferred Bonus Plan of Robert C. Hilliard, LLP." (Docket Entry No. 14-2). This document, however, is signed by Duff, but not by Hilliard or Optcapital, LLC. Id. at 4. The attachment, an investment advisory agreement, is dated March 2014 and is between E&G Advisors, LP and Optcapital, LLC. It does not refer to either Duff or to the Hilliard Martinez Gonzalez law firm. Id. at 5.
Because the documents are referred to in Duff's complaint and are central to his claim, the court may consider them in deciding the motion to dismiss without converting it to one seeking summary judgment. See Villareal, 814 F.3d 766-757; Arnett v. Aetna Life Ins. Co., No. CV H-15-2723, 2016 WL 6883203 at *3 (S.D. Tex. April 14, 2016).
Duff asks for before the court decides the motion to dismiss, if the court considers the documents attached to the motion. (Docket Entry No. 12 at 6). The defendants respond that there is no need for discovery, particularly unspecified discovery, to determine whether there is an ERISA plan. (Docket Entry No. 13 at 3).
The court agrees that discovery is neither required nor helpful. The pleadings, the motion and briefs, the documents properly considered, and the applicable law, together provide the type of record that courts regularly rely on in deciding whether ERISA applies to an employee-benefit scheme. Bailey, 87 F. App'x 347, 348 (5th Cir. 2004); Marrero v. Willbros Grp., Inc., No. 4:13-CV-0243, 2013 WL 5440595, at *3 n.2 (S.D. Tex. Sept. 25, 2013). Duff has not specified what added discovery he might need, or why this case is different. No discovery is needed for the court's decision.
The defendants argue that the promises Duff alleges and the documents he identifies show that the existence and terms of an ERISA plan do not meet the criteria needed for ERISA to apply. The court agrees.
Duff alleges two agreements. In the first, the defendants agreed to pay Duff a bonus of $500,000 for work he completed when the firm settled cases with General Motors. (Docket Entry No. 1 at ¶ 9). In the second, the defendants agreed to pay Duff four $200,000 installments on four different dates over a four-year period. Id.; (Docket Entry No. 7-2). Duff does not allege that the first agreement was memorialized. He alleges that the second agreement was memorialized by the directors' resolution and incorporated documents. (Docket Entry No. 7-2). Because Duff's ERISA claim is based on only the second agreement, (Docket Entry No. 1 at ¶¶ 15-19), the question is whether this second agreement meets the criteria of an ERISA plan.
The director's resolution states that the defendants agree to pay Duff four $200,000 installment payments. (Docket Entry No. 7-2). This document does not meet the criteria of an ERISA plan because it does not create an "ongoing administrative program." Gomez, 828 F.3d at 371 (quoting Fort Halifax, 482 U.S. at 11). It states:
(Docket Entry No. 7-2 at 2). Unlike the plans found to be covered by ERISA in Gomez and similar cases, the directors' resolution does not administer "hundreds of different events" or require an administrator "to exercise a great deal of discretion." Gomez, 828 F.3d at 372. The installment payment provision does not require "continuing monitoring obligations over the payment," the "setoff of severance amounts received against . . . future pay," or the handling of insurance coverage "eligibility, length of coverage, cost, and whether the coverage terminates" issues. Id. at 372. The directors' resolution leaves no room for administrative activity or discretion. It simply requires four lump-sum payments, each triggered by a predetermined date.
Because the specific agreement Duff challenges is not a "plan" under ERISA, Duff cannot bring an ERISA claim to recover the final $200,000 installment that he alleges the defendants refused to pay him as promised. Duff's ERISA claim is dismissed, with prejudice and without leave to amend, because amendment would be futile.
Having dismissed Duff's sole federal law claim, the court must determine whether to exercise supplemental jurisdiction over his remaining state law claims. In making this determination, the court considers the statutory factors in 28 U.S.C. § 1367(c) and the common law factors of judicial economy, convenience, fairness, and comity. Brookshire Bros. Holding v. Dayco Prod., Inc., 554 F.3d 595, 602 (5th Cir. 2009). The statutory factors favor declining supplemental jurisdiction in this case.
Even when, as here, the state-law claims do not raise novel or complex issues of Texas law, supplemental jurisdiction may be declined when "the district court has dismissed all claims over which it has original jurisdiction." 28 U.S.C. § 1367(c)(3). "The general rule is that a court should decline to exercise jurisdiction over remaining state-law claims when all federal-law claims are eliminated before trial. . . ." Brookshire Bros., 554 F.3d at 602. Though this rule "is neither mandatory nor absolute," the common law factors also weigh in favor of declining supplemental jurisdiction.
At this stage of the litigation, "hardly any federal judicial resources, let alone a significant amount of resources, ha[s] been devoted to the district court's consideration of the Texas state law claims (or to any claims)." Enochs v. Lampasas Cty., 641 F.3d 155, 159 (5th Cir. 2011). "There would be no need for either party to duplicate any research, discovery, briefing, hearings, or other trial preparation work, because very little ha[s] been done at [this] point." Id.; Brookshire Bros., 554 F.3d at 603. Because the defendants are not located in Harris County, the convenience factor does not weigh towards keeping the case in Houston. Enochs, 641 F.3d at 160. Because only state-law claims remain, it would not prejudice either party for the court to decline jurisdiction over those claims. Id. Finally, "comity demands that the `important interests of federalism and comity' be respected by federal courts, which are courts of limited jurisdiction and `not as well equipped for determinations of state law as are state courts.'" Id.
Because the common-law factors and the majority of the statutory factors weigh against exercising supplemental jurisdiction, the court declines to exercise supplemental jurisdiction over any state-law claims Duff asserts.
The defendants' motion to dismiss the ERISA claim is granted, with prejudice, and the state-law claims are dismissed without prejudice. An order of dismissal is separately entered.
