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FILED


FILED

U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
September 24, 2003
THOMAS K. KAHN
CLERK
[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR TH E ELEV ENTH C IRCUIT
________________________
No. 02-15769
________________________
D. C. Docket No. 01-00564-CV -JOF-1
ROG ER E RVA ST,

Plaintiff- Appe llant,

versus

FLE XIBL E PR ODU CTS COM PAN Y,
RAN DY P ETE RSO N,
DOU G CR UICK SHA NK,


Defen dants-A ppellees.
________________________
No. 02-15941
________________________
D. C. Docket No. 01-00564-CV -JOF-1
ROG ER E RVA ST,

Plaintiff- Appe llee,

versus *
Honorable B. Avant Edenfield, United States District Judge for the Southern District of
Georgia, sitting by designation.
2
FLE XIBL E PR ODU CTS COM PAN Y,
RAN DY P ETE RSO N,
DOU G CR UICK SHA NK,
Defen dants-A ppellants .
________________________
Appeals from the United States District Court
for the N orthern District o f Geor gia
_________________________
(September 24, 2003)
Before BIRCH and HULL, Circuit Judges, and EDENFIELD
*
, District Judge.
BIRCH, Circuit Judge:
This case arose when an employee collected benefits from an Employee
Stock Ow nership Plan (ESO P) at the time of his resignation from the com pany.
The company did not disclose information to him about a potential merger during
the time h e made h is decision to resign . The em ployee cla ims he w as entitled to
the information and seeks damages for the difference in stock price. The issue
before us is whether he will litigate that claim in state court, where he filed the
case, or in federal co urt, wh ere the de fendan ts remov ed it by arg uing co mplete
preemption under the Employee Retirement Income Security Act (ERISA), 29 1
Ervast also directly purchased Flexible stock under the Option Plan. The provisions of
the Option Plan and the disbursement thereunder to Ervast is not at issue before us.
3
U.S.C. § 1001 et seq. We conclude that the district court improperly assumed
removal jurisdiction over this case because plaintiff-appellant Ervasts state law
claims for breach of corporate fiduciary duty are not super preempted by ERISA.
Accor dingly, th e district co urts den ial of Erv asts motio n to rem and the a ction to
state cour t is REV ERS ED, an d the distr ict court is in structed to remand the case to
state court. Thus, we will not reach the merits of appeal No. 02-15941 because the
district courts order denying sanctions was entered without jurisdiction over the
underly ing case.
I. BACKGROUND
A. The ERISA P lan
Flexible Products Company (Flexible) stock was not publicly traded, but
employees could obtain interest in the stock through the two employee incentive
plans, the Employee Stock Ownership Plan (ESOP) and the Long T erm
Incentive Plan (Option Plan).
1
Pursuant to the ESOP, Flexible made
contributions to a trust, which invested primarily in Flexible stock and held the
assets for the bene fit of partic ipants. T he ES OP tru stee main tained a se parate
account for each participant, however, the participants did not directly own the
Flexible stock as s hareho lders. The E SOP provid ed that the separate a ccounts 4
shall not require a segregation of the Trust assets and no Participant shall acquire
any right to or interest in any specific asset of the Trust as a result of the
allocation s provid ed for in the Plan . R5-5 7, Exh . 13 at 13 .
Once a participants employment terminated, he was entitled to a
distribution commencing not later than 120 days after the date the Participant
incurs a One Year Break in Service. Id. at 25. Th e ESO P prov ided for a put
option, which obligated either the trust or Flexible to purchase any or all of
participan ts shares. Id. at 27. Wh en the participan t exercised the pu t, the stocks
price was determined by the most recent annual independent valuation of the
companys stock.
B. Ervasts Resignation and the Dow Merger
Roger E rvast was em ployed w ith Flexible and participated in F lexibles
ESOP and Option Plan, wherein he accumulated significant holdings during the
course o f his emp loymen t. On 4 O ctober 1 999, E rvast tend ered his r esignatio n to
Flexible, effective 15 October. On 5 October, Flexible discovered that E rvast
would be employed with a competitor, Hydroseal, promptly escorted him from
compa ny prop erty becau se he had access to c onfiden tial inform ation, and paid him
two weeks compensation in lieu of notice. Immediately following his 5 October
termination, Ervast exercised his rights under the ESOP and put his shares under 5
the ES OP. O n 12 O ctober, E rvast rece ived his p ayout fro m the E SOP and sold his
stock under the Option Plan. Pursuant to Ervasts instructions, Flexible remitted a
total of $448,648.10 from the Flexible Products ESOP, which was transferred
directly to a rollover individu al retireme nt accou nt (IRA ).
During the fall of 1999, Flexible entertained the idea of selling the company
to an interested buyer, Dow Chemical Company (Dow). In September 1999, the
managers of both companies met to discuss the potential acquisition and negotiated
a confidentiality agreement in exchange for Dows agreement to make a takeout
bid. On 1 October 1999, the parties entered into a confidentiality agreement and
two managers entered into financial payout agreements in the event the merger was
consum mated. On 7 October, the senior management of both companies held a
meeting, after which Dow s Senior Vice President indicated an off er to purchase
Flexible was pe nding. On 26 Octob er, Dow offered a price F lexible w as willing to
consider. On 10 November 1999, Flexible executed a letter of intent with Dow,
authorizing the parties to engage in discussions about a potential merger. In
January 2000, th e merge r was co nsumm ated and the Flex ible ES OP m erged in to
the Dow benefit plan and then ceased to exist. During the pendency of the sale, no
one disc losed to E rvast the e xistence o f the mer ger neg otiations a t the time h e sold
his Flexible stock. After the merger between Flexible and Dow was consummated,
the 26 October 1999 date was selected as the point after which the shareholders 2
Unless required for differentiation purposes, the defendants-appellees collectively will
be referred to as Flexible.
3
The entirety of the district courts discussion regarding ERISA preemption is contained
in two orders: the order denying Ervasts motion to remand, R4-43, and then further elaborated
upon in the order granting Defendants motion for summary judgment, R6-76. We note at the
outset that the district court performed a preemption analysis by only focusing on defensive
preemption pursuant to ERISA § 514(a), 29 U.S.C. § 1144(a), thereafter declaring that super
6
who s old their F lexible sh ares we re to receiv e the high er merg er price b ecause it
was the date Flexible deemed the merger negotiations became material.
C. Procedural History
On 23 January 2 001, Ervast filed suit against Flexible Products C ompany,
Randy Peterson, and Doug Cruickshank
2
in the State Court of Fulton C ounty,
Georgia, alleg ing breach o f fiduciary duty a nd negligen ce resulting from Flexibles
failure to disclose material information that would have affected Ervasts decision
to liquidate his account in Flexible stock in the ESOP. On 28 February 2001,
Flexible removed the case to the federal district court in the Northern District of
Georg ia. On 18 July 2001, Ervast filed a motion to remand the case to state court
for lack o f subject m atter jurisd iction. Th e district co urt denie d Erva sts motio n to
remand, finding that his claims were related to Defendants administration of an
ERISA plan, because the ESOP would have to be referenced to determine the
value the Flexible stock. R4-43 at 5. As a result, the district court determined that
Ervasts claims were super preempted by ERISA, and that federal question
jurisdiction existed over Ervasts claims.
3
preemption was appropriate without performing the requisite super preemption analysis set forth
in Butero v. Royal Maccabees Life Ins., 174 F.3d 1207, 1212 (11th Cir. 1999).
7
During discovery, Flexible filed a mo tion for summary judgm ent and Ervast
filed a motion for partial summary judgment. The district court awarded summary
judgment to Flexible and denied Ervasts motion. Although Ervasts complaint
contained allegations in the rubric of state law, the district court determined that
Ervast n eed not a mend h is comp laint and th e court co nstrued the com plaint to sta te
a claim fo r recove ry of ben efits und er ERI SA § 502(a) (1)(B) , 29 U.S .C. §
1132( a)(1)(B ). The district court then found that, in accordance with the
undisputed facts, there was no evidence that Ervast was denied any benefits under
the ES OP. Because the district court found previously that Ervasts claim was
super p reempte d by ER ISA a s a claim fo r benefits , he could not main tain his claim
for brea ch of fid uciary du ty, despite th e fact that h e continu ally couch ed his
argum ent in suc h terms. Nevertheless, out of an abundance of caution, the
district cou rt addres sed the b reach of fiduciary duty claim under 2 9 U.S .C. §
1132(a)(3), and found that no fiduciary duty existed under ERISA for a plan
adminis trator to d isclose m aterial bus iness dec isions of the com pany. R 6-76 at 1 0.
From this order, Ervas