Foster Rich v. Ralph Shrader , 823 F.3d 1205 ( 2016 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
FOSTER RICH, No. 14-55484
Plaintiff-Appellant,
D.C. No.
v. 3:09-CV-652-AJB-BGS
RALPH W. SHRADER; JOSEPH
E. GARNER; BOOZ ALLEN OPINION
HAMILTON, INC.,
Defendants-Appellees.
Appeal from the United States District Court
for the Southern District of California
Anthony J. Battaglia, District Judge, Presiding
Argued and Submitted March 7, 2016
Pasadena, California
Filed May 24, 2016
Before: Richard R. Clifton and Sandra S. Ikuta, Circuit
Judges, and Frederic Block, District Judge.*
Opinion by Judge Block
*
The Honorable Frederic Block, Senior United States District Judge for
the Eastern District of New York, sitting by designation.
2 RICH V. SHRADER
SUMMARY**
Employee Retirement Income Security Act
The panel affirmed the district court’s judgment in favor
of the defendants on claims under ERISA and California state
law, arising from an employment dispute.
Affirming the district court’s summary judgment, the
panel held that a claim for breach of an employment contract
was barred by the four-year statute of limitations, Cal. Civ.
Proc. Code § 337. The district court did not abuse its
discretion in denying the plaintiff a third opportunity to
amend his complaint.
Affirming the dismissal of ERISA claims, and agreeing
with other circuits, the panel held that the employer’s stock
rights plan did not qualify as an employee pension benefit
plan subject to ERISA under 29 U.S.C. § 1002(2)(A) because
its primary purpose was not to provide deferred compensation
or other retirement benefits.
COUNSEL
Gregory A. Davis (argued), George Brandon, and Gregory T.
Saetrum, Squire Patton Boggs LLP, Phoenix, Arizona, for
Plaintiff-Appellant.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
RICH V. SHRADER 3
J. Scott Ballenger (argued), Everett C. Johnson, Jr., J.
Christian Word, and Sarah A. Greenfield, Latham & Watkins
LLP, Washington, D.C., for Defendants-Appellees.
OPINION
BLOCK, District Judge:
Foster Rich appeals the district court’s dismissal of his
breach-of-contract and Employee Retirement Income
Security Act (“ERISA”) claims against Booz Allen Hamilton,
Inc. (“BAH”), Ralph Shrader, and Joseph Garner, and its
denial of his motion for leave to amend the complaint. We
affirm and write principally to address the proper standard for
evaluating what qualifies as an employee pension benefit plan
under ERISA.
I
Rich began working for BAH in 1987. On September 4,
2003, Rich’s performance was evaluated by BAH.
Ultimately, Rich’s evaluation resulted in a recommendation
that he begin the process of voluntary retirement.1
1
The details of Rich’s evaluation and the evaluation process are
contained in sealed exhibits. Although that information would be relevant
if Rich’s claims were evaluated on the merits, it is not necessary for us to
recount it here because our review of Rich’s claims related to the
evaluation process does not go beyond evaluating whether Rich filed his
claim within the statute of limitations and whether the district court abused
its discretion in denying Rich leave to amend.
4 RICH V. SHRADER
On September 30, 2003, Rich discussed his evaluation
and the recommendation that he retire with a BAH senior vice
president. Rich was surprised by the recommendation, but
facing the choice of retiring or risking termination, Rich
retired from BAH on March 31, 2005.
Throughout his employment, Rich participated in BAH’s
Stock Rights Plan (“SRP”). The SRP operated in the
following manner: BAH granted eligible employees the right
to purchase BAH stock “at such times . . . in such amounts
and to such [employees]” as determined in the “sole
discretion” of the BAH Board of Directors. The receiving
employee was required to exercise the stock rights within
sixty days of the grant by, among other things, purchasing ten
percent of the stock rights. On June 15 of each subsequent
year, the employee would have the opportunity to purchase
another ten percent of the initial grant of stock rights. In the
event the employee failed to exercise the rights within sixty
days of the initial grant or each June 15, “all unexercised
rights that such [employee] may have . . . [would] be
forfeited.” Although SRP participants were “expected to hold
their shares until they leave the firm,” they were “not
precluded from selling paid-up stock back to the Firm at any
time.” Shares earned through the SRP increased in value ten
percent annually. In the event an SRP participant ceased
being an employee of BAH “by virtue of retirement,
disability, or death,” BAH had the right to repurchase that
employee’s shares within twenty-four months after the end of
his or her employment.
By the time of his retirement, Rich had accumulated
30,500 shares of BAH stock. On March 31, 2007, BAH
exercised its right to repurchase all of Rich’s shares for
$4,507,900, or $147.80 per share.
RICH V. SHRADER 5
In July 2008, BAH sold a portion of its business to The
Carlyle Group (the “Carlyle Transaction”). Shareholders of
BAH stock received $763 per share. Because Rich was no
longer a BAH shareholder, he did not receive any
compensation from the Carlyle transaction.
On April 1, 2009, Rich filed his original complaint in the
district court against BAH and several individual defendants.
He alleged RICO violations, securities fraud, breach of
contract, and other claims. Seven months later, the district
court granted Rich leave to file an amended complaint. The
defendants moved to dismiss the first amended complaint,
which the district court granted with prejudice with respect to
some claims, without prejudice to the breach-of-contract
claim and others, and granted Rich another opportunity to
amend his complaint. Rich’s second amended complaint
added causes of action under ERISA related to the SRP.
The defendants again moved to dismiss, which the district
court granted with respect to Rich’s RICO, securities fraud,
and ERISA claims. Regarding the ERISA claims, the district
court determined that the SRP was not an employee pension
plan and thus was not covered by the statute. With respect to
the breach-of-contract claim, the district court noted that the
alleged breach occurred over four years prior—the relevant
statutory period—but the second amended complaint alleged
facts that could allow tolling of the statute of limitations
under the delayed-discovery rule.
Following the completion of discovery, the defendants
moved for summary judgment on the breach-of-contract
claim. Rich argued the claim was not time-barred regardless
of whether the delayed-discovery rule applied because he was
actually asserting a wrongful-termination claim, which under
6 RICH V. SHRADER
California law accrues on the plaintiff’s last date of
employment. The district court rejected this “complete
about-face,” and granted summary judgment to the
defendants because the breach-of-contract claim was time-
barred. The district court subsequently denied Rich’s request
to amend the complaint.
II
We have jurisdiction under 28 U.S.C. § 1291. We review
de novo the district court’s determinations that (1) Rich’s
breach-of-contract claim is time barred, Hernandez v.
Spacelabs Med., Inc., 343 F.3d 1107, 1112 (9th Cir. 2003),
and (2) Rich’s ERISA claims fail because the SRP is not
covered by the statutory scheme. Paulsen v. CNF Inc.,
559 F.3d 1061, 1071 (9th Cir. 2009). The district court’s
denial of Rich’s motion for leave to amend the complaint is
reviewed for abuse of discretion. Chinatown Neighborhood
Ass’n v. Harris, 794 F.3d 1136, 1141 (9th Cir. 2015).
A
Under California law, a breach of a written contract must
be brought within four years of the date of the alleged breach.
Cal. Civ. Proc. Code § 337; Spear v. Cal. State Auto Ass’n,
2 Cal. 4th 1035, 1042 (1992).
The district court held that Rich’s breach-of-contract
claim accrued in September 2003,2 when BAH conducted the
assessment of Rich’s performance that allegedly violated
2
It is not necessary to determine the exact date in September 2003 the
breach occurred, because any date of that month would be outside the
limitations period.
RICH V. SHRADER 7
Rich’s employment contract. Because Rich did not file his
original complaint until April 1, 2009, the district court
considered the breach-of-contract claim untimely.
Rich argues that the statute of limitations should run from
his last date of employment, March 31, 2005.3 The Supreme
Court of California has made clear that when an employee
alleges breach of contract based on a wrongful termination,
the statute of limitations runs from the employee’s last date
of employment. Mullins v. Rockwell Int’l Corp., 15 Cal. 4th
731, 741 (1997); Romano v. Rockwell Int’l, Inc., 14 Cal. 4th
479, 491 (1996).
Here, however, Rich’s second amended complaint alleges
that under the terms of his employment contract, “BAH was
obligated to provide Rich with an assessment of his
performance that was based upon and consistent with the
opinion and recommendation of numerous co-workers,” and
“BAH breached the employment contract by failing to
perform its obligation to provide Rich with an Assessment
Review.” Unlike the plaintiffs in Mullins and Romano, Rich
does not allege that he was wrongfully terminated in breach
of his employment contract. Cf. Mullins, 15 Cal. 4th at 738
(“Mullins alleged that he was constructively discharged in
breach of an implied contract.”); Romano, 14 Cal. 4th at 488
(“[P]laintiff contends that [the] termination of his
employment . . . violated the terms of an implied contract.”).
3
Cesar Chavez Day was celebrated in California on March 31, 2009.
Cal Civ. Proc. Code § 135; Cal. Gov’t Code § 6700(a)(6). Therefore, all
filings due by March 31, 2009, were timely if filed by April 1, 2009. Fed.
R. Civ. P. 6(a)(1)(C), (6)(c).
8 RICH V. SHRADER
Moreover, Rich alleges that due to his negative review,
his reputation was tarnished with both clients and colleagues,
which left him no choice but to take the recommendation to
retire. As a result of retiring he was unable to participate in
the lucrative Carlyle Transaction. Rich’s second amended
complaint specified that these damages are “consequential”
and stem from BAH’s breach “by performing the faulty
assessment process.”
Accordingly, Rich’s cause of action accrued in September
2003 and the filing of his complaint was untimely. Rich’s
breach-of-contract claim is time barred.
B
Although Rich’s claim is time barred, he asserts the
district court abused its discretion by denying him leave to
amend his complaint to properly fashion it as a wrongful
termination claim. He argues that it is well established that
“[a]n amendment should be allowed where the factual
situation is not changed even though a different theory of
recovery is presented.” Heay v. Phillips, 201 F.2d 220, 222
(9th Cir. 1952) (alteration in original). Indeed, the underlying
facts of the complaint would have been unchanged had the
district court granted Rich leave to amend.
However, when the district court has already afforded a
plaintiff an opportunity to amend the complaint, it has “wide
discretion in granting or refusing leave to amend after the
first amendment, and only upon gross abuse will [its] rulings
be disturbed.” Id.; see also Allen v. City of Beverly Hills,
911 F.2d 367, 373 (9th Cir. 1990) (“The district court’s
discretion to deny leave to amend is particularly broad where
plaintiff has previously amended the complaint.”). Rich has
RICH V. SHRADER 9
already been afforded two opportunities to amend and is
unable to show that the district court’s order constitutes
“gross abuse.” Heay, 201 F.2d at 222.
In the first place, Rich’s desire to recast his breach-of-
contract claim in terms of wrongful termination appeared for
the first time in his opposition to the defendants’ motion for
summary judgment—after almost five years of
litigation—and when it was likely apparent to Rich that the
delayed-discovery rule would not apply to his claim. Cf. Mir
v. Fosburg, 646 F.2d 342, 347 (9th Cir. 1980) (“[T]he
dismissal of plaintiff’s amended complaint came after several
years of proceedings. At some point, a party may not respond
to an adverse ruling by claiming that another theory not
previously advanced provides a possible grounds for relief
and should be considered.”). Moreover, Rich has known all
of the underlying facts and theories he now wishes to allege
since the commencement of the litigation. Cf. Kaplan v.
Rose, 49 F.3d 1363, 1370 (9th Cir. 1994) (“[L]ate
amendments to assert new theories are not reviewed
favorably when the facts and the theory have been known to
the party seeking amendment since the inception of the cause
of action.” (alteration in original)).
While Rich did cite Mullins in his opposition papers to the
defendants’ motion to dismiss in February 2011, the district
court made clear in its order denying the motion in part that
without the delayed-discovery rule Rich’s claim would be
time-barred because it accrued in September 2003. To the
extent Rich believed the district court misinterpreted his
breach-of-contract claim, he could have requested the
opportunity to amend his complaint at that time. However,
his motion for reconsideration of that order failed to mention
the issue. Instead, he waited until January 2014, after years
10 RICH V. SHRADER
of discovery and a grant of summary judgment for the
defendants, to request leave to amend his complaint again.
The district court did not abuse its discretion by denying
Rich a third opportunity to amend his complaint.
C
ERISA coverage extends to employee pension benefit
plans. A plan qualifies as an employee pension benefit plan
if “by its express terms or as a result of surrounding
circumstances such plan . . . (i) provides retirement income to
employees, or (ii) results in a deferral of income by
employees for periods extending to the termination of
covered employment or beyond.” 29 U.S.C. § 1002(2)(A).
While what qualifies under § 1002(2)(A) appears to be a
matter of first impression in this circuit, we agree with our
sister circuits that have determined that the paramount
consideration is whether the primary purpose of the plan is to
provide deferred compensation or other retirement benefits.
See Murphy v. Inexco Oil Co., 611 F.2d 570, 575 (5th Cir.
1980) (“The words ‘provides retirement income’ patently
refer only to plans designed for the purpose of paying
retirement income whether as a result of their express terms
or surrounding circumstances.”); see also Oatway v. Am. Int’l
Grp., Inc., 325 F.3d 184, 188–89 (3d Cir. 2003) (holding a
plan was not an ERISA plan “because its purpose was to
operate as an incentive and bonus program, and not as a
means to defer compensation or provide retirement
benefits”); Emmenegger v. Bull Moose Tube Co., 197 F.3d
929, 931–34 (8th Cir. 1999) (focusing throughout its analysis
on the “purpose” of the defendant company’s stock plan).
RICH V. SHRADER 11
The main purpose of the SRP was not to provide
retirement or systematically deferred income. The SRP states
that its purpose is “to provide incentives for [BAH] Officers
to continue to serve as employees of the Company and its
subsidiaries.” A July 1995 memorandum to BAH partners
explained: “[T]he stock program’s purpose is to provide for
the Firm’s capital needs. Stock is not intended to be—and is
not viewed by the Board as in fact being—an alternate form
of compensation.” This is consistent with BAH’s stated
philosophy and objectives regarding the SRP: “Stock is the
single vehicle that provides for the orderly transition of
ownership of [BAH] from one generation of Officers to the
next,” “[t]he long-term capital needs of [BAH] will be
provided for by the Officers,” and “[BAH] will not use other
sources to fund long-term capital requirements.” With
respect to retirement income, BAH communicated to partners
that the SRP “should not be viewed principally as an estate-
building vehicle since equity returns will be modest.
Liquidation of stock at retirement is a return of capital rather
than a source of retirement income.”
Rich attempts to establish that the SRP is a retirement
plan by citing to a 2003 memorandum in which BAH’s Chief
Financial Officer stated: “The primary purpose of the stock
program is to provide capital to the firm. The secondary
purpose is to provide a wealth creation vehicle for the
partners.” But this memorandum does not help Rich. First,
it further shows that the primary purpose of the SRP is not to
provide retirement income or the deferral of compensation.
Second, the memorandum—which was an explanation to SRP
participants why BAH planned to reduce SRP stock
distribution—demonstrates the breadth of discretion BAH
enjoyed to alter the benefits distributed under the SRP.
Indeed, under the terms of the SRP, BAH’s Board of
12 RICH V. SHRADER
Directors held “sole discretion” to “grant Stock Rights in
such amounts and to such Officers as it determines.” BAH’s
discretion further weighs against ERISA coverage. See
Oatway, 325 F.3d at 189 (“Oatway’s stock options were
discretionary, given in recognition of special service, and
awarded in addition to his regular compensation.” (citing
Murphy, 611 F.2d at 575–76)).
Rich also argues that the fact that SRP participants could
hold their shares until the end of employment is “sufficient to
establish ERISA coverage.” He points to a recent Fifth
Circuit opinion in which the court determined that a plan was
covered by ERISA when employees had the “option to defer
receipt of a portion of their compensation to be earned.”
Tolbert v. RBC Capital Mkts. Corp., 758 F.3d 619, 625 (5th
Cir. 2014) (internal quotation marks omitted). But the
Tolbert court did not rely on that fact alone. See id. at
625–26. The plan in that case was referred to by the
defendant company as a “deferred compensation plan” and its
main purpose was to allow for the deferral of compensation.
Id. at 626. Here, unlike in Tolbert, the SRP was never
referred to by BAH as a deferred compensation plan, and its
primary purpose, as discussed above, was not the deferral of
compensation. Moreover, the mere possibility that income
can be deferred does not mandate ERISA coverage. See, e.g.,
Emmenegger, 197 F.3d at 933 (“Though the PSP’s vesting
requirement could result in the deferral of a portion of any
earned incentive until a participant’s termination or
retirement, . . . such a deferral would only occur by
happenstance. In fact, the stated purpose of the vesting
requirement reinforces our conclusion that the PSP is a non-
ERISA bonus plan.”).
RICH V. SHRADER 13
Accordingly, because the SRP was not designed or
intended to provide retirement or deferred income, it is not
covered by ERISA.4
III
The judgment of the district court is
AFFIRMED.
4
Rich appears to assert additionally that the district court abused its
discretion by denying him leave to amend his complaint to bolster his
ERISA claims, but this argument has no merit. As is discussed at length
above, the district court has broad discretion to deny leave to amend a
complaint when leave has already once been given. Even though Rich did
not bring his ERISA claims until his second amended complaint, he was
afforded two opportunities to amend his original complaint.