ERISA-Eighth Circuit Rules That Entitlement To Benefits Under An Individual Employment Agreement Does Not Create Jurisdiction For A Federal Court
In Dakota, Minnesota & Eastern Railroad Corporation v. Schieffer, No. 12-1807 (8th Cir. 2013), the following transpired. In December 2004, the Dakota, Minnesota & Eastern Railroad ("DM&E") and its President and CEO, Kevin Schieffer ("Schieffer"), entered into an Employment Agreement to encourage his retention following an anticipated change of control. In October 2008, with a merger imminent, DM&E terminated Schieffer without cause, triggering the Employment Agreement's severance provisions. When disputes arose over the amounts owed, Schieffer filed a demand for arbitration under the Employment Agreement. DM&E then filed this action in federal court to enjoin the arbitration, asserting federal question jurisdiction under 28 U.S.C. § 1331, on the basis that the underlying severance agreement dispute arises out of an employee benefit plan governed by ERISA. The question for the Eighth Circuit Court of Appeals (the "Court"): does a federal court have jurisdiction over this case?
In analyzing this question, the Court noted the rule that, where federal subject matter jurisdiction is based on ERISA, but the evidence fails to establish the existence of an ERISA plan, the claim must be dismissed for lack of subject matter jurisdiction. Here, earlier litigation established that the Employment Agreement is not an ERISA plan. However, parts of the Employment Agreement may be subject to ERISA, and jurisdiction may be had if Schieffer is seeking to recover benefits owed to him under the terms of one or more plans or arrangments subject to ERISA (see 29 U.S.C. § 1132(a)(1)(B)), rather than under an independent contract that is not an ERISA plan.
The Court said that Schieffer's demand for arbitration alleged that DM&E has breached its obligation to provide employee benefits under the Employment Agreement in various respects. None of DM&E's ERISA plans provide benefits to a terminated employee of the nature and extent Schieffer seeks; only the Employment Agreement would allow a judgment for those levels of benefits. As such, Schieffer's arbitration demands are those made under a free-standing single-employee contract that simply pegged DM&E's payment obligations to amounts that would have been due under ERISA plans. Consequently, the Court ruled that there is no ERISA plan involved, and thus no federal subject matter jurisdiction.