The Legal Battle Over Employee Benefits: Kinder Morgan, Inc. v. Crout

In the intricate world of employee benefits and federal jurisdiction, the case of Kinder Morgan, Inc. v. Crout stands out as a compelling narrative of legal contention. This case, decided by the United States Court of Appeals for the Fifth Circuit on May 18, 2020, revolves around the dispute over the rightful beneficiary of accrued benefits under an employee savings plan. The key players in this legal drama are Kinder Morgan, Inc., the employer and plan administrator, Joanne Crout, the surviving spouse, and the Crout children, who are contesting the distribution of benefits.

The Crout Family's Legal Battle

Danny Lee Crout, an employee of Kinder Morgan, Inc., participated in the company's employee savings plan until his death in 2016. The crux of the dispute is whether the benefits accrued under the plan should go to his surviving spouse, Joanne Crout, or to his children, Janille Alyse Crout, Jay Allen Crout, and Danny Lee Crout, Jr., collectively referred to as the Crout children. The plan had specific provisions for the distribution of benefits, depending on whether the participant had designated a beneficiary.

The Plan's Provisions

The plan provided two distinct schemes for the disbursement of accrued benefits upon the death of a participant. The first scheme applied if the participant had designated a beneficiary, while the second scheme applied if no beneficiary was designated. Under the first scheme, a married participant could designate any person as a beneficiary, but if the designated beneficiary was not the spouse, the spouse's written consent was required. This consent had to be witnessed by a notary public or the plan supervisor.

The Legal Proceedings Begin

Following Danny Lee Crout's death, Kinder Morgan, Inc. sought a declaration under the Employee Retirement Income Security Act (ERISA) and Federal Rule of Civil Procedure 22 to determine the lawful beneficiary of the accrued benefits. The Crout children argued that the probate exception to federal jurisdiction and the Burford abstention doctrine should divest the district court of jurisdiction over the case. They also contended that the district court erred in granting summary judgment in favor of Joanne Crout and in denying their post-judgment motion to amend their counterclaim.

Jurisdictional Challenges

The appellate court conducted a de novo review to determine whether the lower court had subject matter jurisdiction. The court found that neither the probate exception nor the Burford abstention doctrine applied in this case. The probate exception, which reserves the probate or annulment of a will and the administration of a decedent's estate to state probate courts, did not apply because the accrued benefits were not in the custody of the state probate court. Additionally, none of the Burford factors, which consider the importance of state policy and the need for a coherent state policy, supported abstention.

Summary Judgment and the Surviving Spouse

The district court granted summary judgment in favor of Joanne Crout, the surviving spouse, based on the plan's provisions. Under the plan, if a participant had not designated a beneficiary, the surviving spouse was the default beneficiary. Joanne Crout demonstrated that she was the surviving spouse and that Danny Lee Crout had not designated a beneficiary by the time of his death. The appellate court reviewed the grant of summary judgment de novo and found no genuine dispute as to any material fact, affirming the district court's decision.

Post-Judgment Motion to Amend

The Crout children also challenged the district court's denial of their post-judgment motion to amend their counterclaim. Generally, a motion for leave to amend falls under Federal Rule of Civil Procedure 15(a), which favors granting leave to amend when justice so requires. However, a post-judgment motion for leave to amend is treated as a motion under Rule 59(e), which governs the amendment of judgments. The appellate court reviewed the district court's denial for abuse of discretion and found that the district court had acted within its limited discretion, considering factors such as undue delay, bad faith, and futility of the amendment.

The Probate Exception and Non-Probate Assets

The appellate court also addressed the probate exception to federal jurisdiction, which has a limited scope. The probate exception reserves the probate or annulment of a will and the administration of a decedent's estate to state probate courts but does not bar federal courts from adjudicating matters outside those confines. In Texas, certain assets, such as those passing at death pursuant to the terms of a contract, are considered non-probate assets. The accrued benefits under the Kinder Morgan plan fell into this category, as they were to be distributed according to the plan's terms, not through the probate process.

Burford Abstention Doctrine

The Burford abstention doctrine, which applies when federal court intervention would disrupt state efforts to establish a coherent policy on a matter of substantial public concern, was also considered. The appellate court applied five factors to determine whether to abstain under Burford: whether the cause of action arises under federal or state law, whether the case requires inquiry into unsettled issues of state law, the importance of the state interest involved, the state's need for a coherent policy, and the presence of a special state forum for judicial review. The court found that none of these factors supported abstention in this case.

ERISA and Federal Jurisdiction

The Employee Retirement Income Security Act (ERISA) grants federal courts exclusive jurisdiction over most types of actions brought under the act. ERISA empowers plan fiduciaries to bring actions to determine the rightful beneficiaries of plan benefits. The appellate court emphasized that ERISA plans generally control the distribution of benefits, and federal courts have exclusive jurisdiction over such matters.

Conclusion

In the end, the appellate court affirmed the district court's judgment, granting summary judgment in favor of Joanne Crout and denying the Crout children's post-judgment motion to amend their counterclaim. The court's decision underscores the importance of adhering to the specific provisions of employee benefit plans and the limited scope of the probate exception to federal jurisdiction. The case of Kinder Morgan, Inc. v. Crout serves as a reminder of the complexities involved in determining the rightful beneficiaries of accrued benefits and the critical role of federal courts in resolving such disputes under ERISA.

References:

• Kinder Morgan, Inc. v. Crout, 814 Fed. Appx. 811 (5th Cir. 2020).
• Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1132.
• Federal Rules of Civil Procedure, Rule 15(a) and Rule 59(e).