Lenhardt v. Sysco Corporation
ORDER ADOPTING IN PART AND MODIFIED IN PART FINDINGS AND RECOMMENDATIONS. Sysco's request to STAY THE CASE PENDING MANDATORY ARBITRATION IS GRANTED and Motion to Dismiss is DENIED WITHOUT PREJUDICE AND WITH LEAVE TO RENEW FOLLOWING ARBITRATION 12 . Signed by Judge Susan P. Watters on 3/28/2017. (AMC)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONT ANA
Sysco has moved to dismiss Lenhardt's Second Amended Complaint under
Federal Rule of Civil Procedure l 2(b )(6), or in the alternative, to stay the case
pending mandatory arbitration. (Doc. 12). On February 9, 2017, Magistrate Judge
Timothy Cavan issued his Findings and Recommendation recommending that this
Court deny Sysco's motion to dismiss but grant Sysco's motion to stay pending
arbitration. (Doc. 21 ).
When a party timely objects to any portion of the magistrate judge's
Findings and Recommendations, the district court must conduct a de novo review
of the portions of the Findings and Recommendations to which objections are
made. 28 U.S.C. § 636(b)(l)(C); McDonnell Douglas Corp. v. Commodore
Business Machines, 656 F.2d 1309, 1313 (9th Cir. 1981). The district court may
then "accept, reject, or modify the recommended decision, receive further
evidence, or recommit the matter to the magistrate with instructions." 28 U.S.C. §
636(b)(l). The district court is not required to review the factual and legal
conclusions of the magistrate judge to which the parties do not object. United
States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003).
Both parties filed timely objections and responses to Judge Cavan's Findings
and Recommendation. (Docs. 23-26). After independently reviewing and
considering the filings, this Court adopts Judge Cavan's findings and
recommendations in part and modifies them in part, as set out below.
Relevant Background 1
Lenhardt was employed by Sysco. (Doc. 1-2, ~2). During her employment,
Sysco granted Lenhardt certain long term incentives called restrictive stock units
8; Doc. 1-1 at 6-12). In consideration for the RS Us, Lenhardt
agreed to abide by certain restrictive covenants ("Protective Covenants") during
and after her employment with Sysco. (Doc. 1-2 at~ 8). The Protective Covenants
Because the parties are familiar with the procedural and factual background of
this case, it will only be restated as necessary to explain this Court's reasoning.
included a non-compete agreement in which Lenhardt agreed, in pertinent part,
for a period of one year following the end of [her] employment
with [Sysco], [she] will not: accept a job that involves, participate
in, provide, supervise, or manage ... any activities or services
for a [c]ompetitor that are the same as, or similar in function or
purpose to those [she] performed or participated in during the
[two years prior to the end of her employment with Sysco] on
behalf of [Sysco]. This restriction is limited to assisting in the
business activities of a [c]ompetitor within the [geographic area
where she worked].
(Id.; Doc. 1-1 at 22). The Protective Covenants also provide that all disputes
related to enforceability are subject to mandatory arbitration. (Id.; Doc. 1-1 at 1112).
On April 7, 2016, Sysco informed Lenhardt by letter ("termination letter")
that her job would be eliminated on July 2, 2016. (Doc. 7 at iii! 2, 3; Doc. 15-1).
Sysco gave Lenhardt the option of accepting a new position at Sysco effective July
3, 2016, or accepting an involuntary severance benefits package ("Severance
Package."). (Doc. 1-2 at iii! 4-5). According to the termination letter, the
Severance Package was conditioned on Lenhardt executing a "Separation
Agreement and General Release" ("Separation Agreement") at the time of her
termination. (Doc. 7 at iJ 4). Also, according to the letter, the Severance Package
was conditioned on Lenhardt's "adherence to her ongoing obligations to [Sysco],"
including adherence to the non-compete agreement in the Protective Covenants.
(Id. at 115-8). Finally, the termination letter explained that Lenhardt's severance
payment, included as part of the Severance Package, would "be made in
accordance with the terms of the Sysco Involuntary Severance Plan" ("Sysco
Plan"). Lenhardt chose the Severance Package. (Id. at 1114, 16). She did not,
however, execute the Separation Agreement. (Doc. 24 at 11 ).
Lenhardt filed her original complaint in the Montana Thirteenth Judicial
District on June 27, 2016, prior to the effective date of her job elimination, seeking
adjudication of her rights with respect to, and relief from, the non-compete
agreement. (See Doc. 5). Sysco interpreted Lenhardt's lawsuit as a threat to
violate the non-compete agreement and rescinded Lenhardt's Severance Package.
(Doc. 7at110). In response, Lenhardt amended her complaint and requested the
Court enjoin Sysco from (1) enforcing or threatening to enforce the non-compete
agreement and (2) withholding severance benefits, in addition to adjudicating the
parties rights with respect to the non-compete agreement. (See gen. id.). She also
seeks to recover payment of the withheld severance benefits and damages. (Id.).
Sysco removed the action to Federal Court on October 24, 2016. (Doc. 1).
Thereafter, Sysco filed the current motion to dismiss Lenhardt's Second Amended
Complaint under Rule 12(b)(6), or in the alternative, to stay the case pending
mandatory arbitration. (Doc. 12). In his Findings and Recommendations, Judge
Cavan determined that because the Second Amended Complaint did not
incorporate or otherwise refer by reference to the Sysco Plan, he could not consider
it in the motion to dismiss context. (Doc. 21 at 15). Without the Sysco Plan, Judge
Cavan ruled that he did not have enough information to determine ifERISA
preempted Lenhardt's claims. (Id. at 15). Even assuming he could consider the
Sysco Plan, Judge Cavan determined that Sysco and Lenhardt's Separation
Agreement (which the court also does not have) superseded the Sysco Plan and
represented the final say on Lenhardt's benefits. Without the Separation
Agreement, Judge Cavan determined the court still lacked the necessary
information to decide whether the agreement constituted an ERISA plan, so the
court could not conclude that Lenhardt's claims were preempted by ERISA. (Id. at
18). On that basis, Judge Cavan recommended denying Sysco's motion to dismiss.
Next, Judge Cavan addressed Sysco's alternative argument to stay the case
pending mandatory arbitration. (Id. at 19). Judge Cavan determined that the
arbitration clause found in the Protective Covenants encompassed the non-compete
agreement Lenhardt placed at issue in the Second Amended Complaint. (Id. at 20).
Lenhardt did not argue that the arbitration agreement was invalid, nor did she
argue that the present dispute was outside the arbitration agreement. (Id. at 21 ).
Accordingly, Judge Cavan found that§ 3 of the Federal Arbitration Act mandated
that the court stay the action until the parties arbitrated the non-compete
agreement, and recommended the same. (Id. at 21).
In its objection, Sysco argues that Judge Cavan erred by not considering the
Sysco Plan in determining whether ERISA preempted Lenhardt's claims. (Doc. 24
at 6-9). Sysco also argues that neither party executed the Separation Agreement,
so it does not supersede the Sysco Plan, and cannot represent the final agreement
between the parties. (Doc. 24 at 11). Sysco contends that the Court has all the
necessary information before it to determine whether ERISA preempts Lenhardt's
claims. (Id. at 10-11 ).
Lenhardt objected to Judge Cavan's decision to stay the case for mandatory
arbitration because "there is nothing to arbitrate." (Doc. 23 at 1). Lenhardt does
not articulate any particular objection but essentially argues that arbitration is
unnecessary for the same reasons she resists the motion to dismiss. (See gen. Doc.
When considering a Rule l 2(b )(6) motion to dismiss for failure to state a
claim, the court must accept as true all factual allegations in the complaint as well
as all reasonable inferences that may be drawn from such allegations. LSD, Ltd. v.
Stroh, 205 F.3d 1146, 1150 n. 2 (9th Cir. 2000). Such allegations must be
construed in the light most favorable to the nonmoving party. Shwarz v. United
States, 234 F.3d 428, 435 (9th Cir. 2000). In general, the court should only look to
the contents of the complaint during its review of a Rule l 2(b )( 6) motion to
dismiss. However, the court may consider documents attached to the complaint or
referred to in the complaint whose authenticity no party questions. Id.; see
Durning v. First Boston Corp., 815 F.2d 1265, 1267 (9th Cir. 1987).
ERISA is designed to protect employees from losing their pensions and
benefits due to employer mismanagement. De/aye v. Agripac, Inc., 39 F.3d 235,
237 (9th Cir. 1994) (citing Massachusetts v. Marash, 490 U.S. 107, 113 (1989)).
With ERISA, Congress sought to "ensure that plans and plan sponsors would be
subject to a uniform body of benefits law," to mitigate "the burden of complying
with conflicting directives among States or between States and the Federal
Government." Ingersoll-Rand Co. v. McLendon, 498 U.S. 133, 142 (1990).
Severance pay plans or severance agreements may be treated as employee
welfare benefit plans under ERISA. Id. (citing Scott v. Gulf Oil Corp., 754 F .2d
1499 (9th Cir. 1985)). For severance plans to be covered by ERISA, the plans
must "implicate an ongoing administrative program to meet the employer's
obligation[.]" Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 12 (1987) (emphasis
omitted). In Fort Halifax, a Maine statute required employers to provide a one7
time severance payment to employees in the event of a plant closing. Id. at 3. In
finding that ERISA did not preempt the statute, the Supreme Court held that the
severance package in that case, a "one-time, lump sum severance payment
triggered by a single event," was not an employee benefit plan within the meaning
ofERISA because it "require[d] no administrative scheme whatsoever to meet the
employer's obligation." Id. at 12. "To do little more than write a check hardly
constitutes the operation of a benefit plan [under ERIS A]." Id.
Underscoring the difference between employee benefits and employee
benefit plans, the Supreme Court recognized that the purpose ofERISA
preemption of state law is to create a single set of regulations to govern benefit
plans' ongoing administrative activities. Id. Thus, the test to determine whether a
plan is covered by ERISA is whether the benefit package implicates an ongoing
administrative scheme. Id.
ERISA has a "powerful preemptive force." Cleghorn v. Blue Shield of
California, 408 F.3d 1222, 1225 (9th Cir. 2005). Two types ofERISA preemption
exist: complete and express preemption. Id. Complete preemption exists when a
remedy falls within the scope of or is in direct conflict with ERISA § 502(a), and
therefore is within the jurisdiction of federal court. Cleghorn, 408 F.3d at 1225.
Section 502(a) ofERISA provides that "[a] civil action may be brought ... by a
participant or beneficiary ... to recover benefits due to him under the terms of his
plan .... " 29 U.S.C. § l l 132(a)(l)(B). Congress completely preempted this
particular area so that any civil complaint raising this select group of claims is
necessarily federal in character. Cleghorn, 408 F.3d at 1225; see also
Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 64-65 (1987)).
Express preemption exists under section 514(a) ofERJSA. "Unlike the
scope of§ 502(a)(l)(B), which is jurisdictional and creates a basis for removal to
federal court, § 514(a) governs the law that will apply to state law claims,
regardless of whether the case is brought in state or federal court." Id. ERJSA
section 514(a) expressly preempts all state laws that "relate to" any employee
benefit plan, unless the state laws "regulate insurance, banking or securities." Pilot
Life Ins. Co. v. Dedeaux, 481 U.S. 41, 45 (1987); 29 U.S.C. § l 144(b)(2)(A).
The Sysco Plan
As a threshold issue, the Court must determine whether it may consider the
Sysco Plan in ruling on Sysco's motion to dismiss. Generally, in reviewing a
motion to dismiss, the court may consider "documents attached to the complaint,
documents incorporated by reference in the complaint, or matters of judicial
notice-without converting the motion to dismiss into a motion for summary
judgment." United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) (citations
omitted); see also United States v. Corinthian Calls., 655 F.3d 984, 998 (9th Cir.
2011). Information is incorporated into the complaint "where the complaint
necessarily relies upon a document or the contents of the document are alleged in a
complaint, the document's authenticity is not in question and there are no disputed
issues as to the document's relevance." Coto Settlement v. Eisenberg, 593 F.3d
1031, 1038 (9th Cir. 2010). The Ninth Circuit has extended the incorporation by
reference doctrine to include "situations in which the plaintiffs claim depends on
the contents of a document, the defendant attaches the document to its motion to
dismiss, and the parties do not dispute the authenticity of the document, even
though the plaintiff does not explicitly allege the contents of that document in the
complaint." Knievelv. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005).
Here, the Court finds that the Sysco Plan is incorporated by reference into
the Second Amended Complaint because Lenhardt's claims depend on the Sysco
Plan's contents. Sysco provided Lenhardt with the option of accepting an
involuntary severance benefits package. Lenhardt's Second Amended Complaint
alleges that Sysco is wrongfully "withholding from [her] the payment of agreed
upon severance payments and severance benefits ... ," discussed in the termination
letter. (Doc. 7 at iii! 15-16). In the termination letter, the Severance Package Sysco
offered referred to the Sysco Plan. (Doc. 15-1 at 1) ("The Severance Payment will
be made in accordance with the terms of the Sysco  Severance Plan."). As a
result, her claim seeking to enjoin Sysco from withholding her benefits is
predicated upon interpretation of the Sysco Plan and whether she has met her
ongoing obligations under the Sysco Plan. (Doc. 7at11 4, 7, 9; 14 Doc. 14-1;
Doc. 15-1). The Court has to look at the terms of the Sysco Plan to determine
whether Lenhardt is entitled to relief.
The other elements under Knieval are satisfied as well. Sysco attached the
Sysco Plan to its motion to dismiss, (see Doc. 14-1), neither party has disputed its
authenticity, and as evidenced by the allegations in her Second Amended
Complaint, there is no dispute as to the document's relevance. Lenhardt's claims
rest upon the Court's interpretation of her Severance Package, which in tum
references her membership in the Sysco Plan and the Plan's terms, so the Sysco
Plan may be considered in deciding the motion to dismiss. See Parrino v. FHP,
Inc. 146 F.3d 699, 706 (9th Cir. 1998) (When the complaint makes a reference to a
defendant's "group plan" and its "cost containment program[,]," a district court
may properly consider ERISA documents in ruling upon a Rule 12(b)( 6) motion.)
The Sysco Plan qualifies as an ERISA plan.
Lenhardt accepted Sysco's severance package offer, which included abiding
by the Protective Covenants, and receiving benefit payments distributed per the
Sysco Plan. (Doc. 7 at 11 14, 16, 17; Doc. 15-1 ). The Sysco Plan is an ERISA
plan. It provides that it exists to "resolve any possible claims arising out of any
[p]articipant's employment ... by providing severance benefits in exchange for
a complete [w]aiver and [r]elease of liability." (Doc. 14-1 at 1). It explains how
severance benefits are calculated. (Id. at 7). It details who is eligible to receive
benefits and how an individual may make claims for benefits or appeal adverse
decisions. (Id. at 9-12). Importantly, an ongoing administrative scheme exists for
Sysco to make payments under the Sysco Plan. Fort Halifax, 482 U.S. at 11.
The Sysco Plan involves the exercise of significant discretion to detennine if
an employee's actions threaten to violate the plan. The Plan Administrator
determines an employee's eligibility to receive severance payments - including
whether the employee continues to comply with the Plan requirements. (Id. at 6).
Unlike the severance scheme in Fart Halifax which was triggered automatically by
the occurrence of a single event and involved no more than writing one check,
here, for severance benefits to be distributed to Lenhardt, the Plan Administrator
must make "ongoing discretionary decisions based on subject criteria." Fort
Halifax, 482 U.S. at 12. As a consequence, the Court finds the Sysco Plan "by
nature requires an ongoing administrative program to meet the employer's
obligation" and the Severance Package, which incorporates by reference the Sysco
Plan tenns, is covered by ERISA.
Lenhardt's claims may be characterized as ERISA benefits denial
As Judge Cavan noted in his Findings and Recommendations, the precise
tenns of the Severance Package are unclear from the record. What is clear,
however, is that Lenhardt seeks a declaration from the Court that she is not in
violation of the Protective Covenant agreement and a declaration that she is
entitled to benefits which are administered under an ERISA plan. (See Doc. 7).
These claims bear directly on her entitlement to benefits under the Severance
Package, and thus are properly characterized as arising under ERISA. 29 U.S.C. §
1132(a)(l)(B) (ERISA provides a civil enforcement mechanism for denial of
benefits and clarification of rights under a plan). To the extent Lenhardt seeks to
use the Uniform Declaratory Judgment Act under Montana law to obtain benefits
under the Severance Package or to declare the covenants unenforceable, her claims
are preempted for the same reason. See Cleghorn v. Blue Shield a/Cal., 408 F.3d
1222, 1227 (9th Cir. 2005) (dismissing state-law causes of action which arise from
the defendant's denial of benefits under an ERISA plan).
The Court cannot determine the motion to dismiss because the
Arbitration Agreement is triggered.
Because Lenhardt's claims are properly characterized as arising under
ERISA and complete preemption exists, this Court has subject matter jurisdiction.
Cf Blue Cross a/California v. Anesthesia Care Assocs. Med. Grp., Inc., 187 F.3d
1045, 1049 (9th Cir. 1999) (lack of subject matter jurisdiction found where ERISA
did not apply and the only other federal statute invoked in petition was the Federal
Arbitration Act, which does not provide an independent basis for jurisdiction). As
Judge Cavan found, however, a mandatory arbitration provision applies to at least
some ofLenhardt's claims. (Doc. 21 at 21). Lenhardt objects to Judge Cavan's
finding because "there is nothing to arbitrate." (Doc. 23 at 3). Lenhardt is wrong.
In exchange for her RSUs, Lenhardt agreed to arbitrate any claim arising from the
Protective Covenants, including the non-compete agreement. (See Doc. 7 at iii! 3,
8; Doc. 5 at 10-11 ). This agreement survived her termination and has a direct
impact on the Plan Administrator's determination of her benefits eligibility under
the Sysco Plan. Thus, the arbitrator, not the Court, should determine the validity
and enforceability of the non-compete agreement.
Because of the arbitration provision, the Court will refrain from deciding the
motion to dismiss until after arbitration. See Local Union No. 370 ofInt'! Union of
Operating Engineers v. Morrison-Knudsen Co., 786 F.2d 1356, 1358 (9th Cir.
1986) (Once it is determined that the parties are obligated to submit the subject
matter of a dispute to arbitration, questions which grow out of the dispute and bear
on its final disposition should be left to the arbitrator) (internal quotations and
For the reasons set forth above, IT IS ORDERED that the proposed Findings
and Recommendations for disposition of this matter entered by United States
Magistrate Judge Cavan (Doc. 21) are ADOPTED IN PART and MODIFIED IN
IT IS FURTHER ORDERED that Sysco's request to stay the case pending
mandatory arbitration (Doc. 12) is GRANTED. Sysco's Motion to Dismiss (Doc.
12 ) is DENIED without prejudice and with leave to renew following arbitration.
DATED this£!day of March 2017.
' SUSANP. WATTERS
United States District Judge
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