Brines, Kelly v. Xtra Corporation ( 2002 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 01-3977
KELLY BRINES, on behalf of herself
and all others similarly situated,
Plaintiff-Appellant,
v.
XTRA CORP.,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Southern District of Illinois.
No. 00 C 495—G. Patrick Murphy, Chief Judge.
____________
ARGUED MAY 24, 2002—DECIDED SEPTEMBER 10, 2002
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Before POSNER, MANION, and DIANE P. WOOD, Circuit
Judges.
POSNER, Circuit Judge. This is a class action under ERISA
on behalf of 55 employees terminated when their employ-
er, XTRA, transferred the part of its business in which they
worked to ContainerPort. They claim that XTRA’s welfare
benefits plan entitled them to severance pay even though
they were offered the same employment by ContainerPort
without a break on essentially the same terms. The dis-
trict judge granted summary judgment for XTRA.
2 No. 01-3977
XTRA’s 1992 plan promised severance pay in a specific
amount “if the Company determines that there should be
a reduction in the workforce for business reasons.” The
following year’s plan, the one applicable to the members
of the plaintiff class, replaced the severance provision in
the previous plan with the following: “The company will
develop and implement an appropriate separation pro-
gram if business and economic conditions necessitate a
reduction in force.” ContainerPort hired all 55 class mem-
bers at the same wages, plus 3 percent, that they had
received from XTRA, with a benefits package similar though
not identical, and in relatively minor respects less gener-
ous, than what they had had at XTRA.
They argue that they were the victims of a reduction
in force, but that is a term used to describe a mass layoff,
Bellaver v. Quanex Corp., 200 F.3d 485, 494 (7th Cir. 2000);
Matthews v. Commonwealth Edison Co., 128 F.3d 1194, 1195,
1197 (7th Cir. 1997); Tiltti v. Weise, 155 F.3d 596, 601 (2d Cir.
1998), rather than the sale of a whole or the part of a busi-
ness. Allen v. Adage, Inc., 967 F.2d 695, 700 (1st Cir. 1992).
The curious logic of their argument is that had XTRA
merely transferred the part of the business they worked
in to a wholly owned subsidiary of which they then be-
came employees, they would be entitled to severance
benefits because they had been terminated by XTRA. But
the problem with the suit goes deeper. The 1993 plan
did not promise severance pay to workers who were ter-
minated, whether because of a reduction in force or other-
wise. The statement in the plan that “The company will
develop and implement an appropriate separation pro-
gram” did not create a legally enforceable promise. Its
vagueness alone would make it impossible for a court to
provide any relief to the members of the class, who are
seeking after all cash rather than the establishment of a
program left to the employer’s discretion to establish
No. 01-3977 3
and define at some undetermined future time. What is an
“appropriate” separation program? The possibilities are
endless. And by when was the company required to de-
velop the program and put it into effect?
A court will not enforce a contract that is so vague that
the court rather than the parties would have to formulate
essential terms. Goldstick v. ICM Realty, 788 F.2d 456, 461
(7th Cir. 1986); Neeley v. Bankers Trust Co., 757 F.2d 621, 627-
28 (5th Cir. 1985); Brookhaven Housing Coalition v. Solomon,
583 F.2d 584, 593 (2d Cir. 1978). And the vagueness of the
“will develop” statement is a strong indication that it was
not intended to be a promise, Western Industries, Inc. v.
Newcor Canada Ltd., 739 F.2d 1198, 1205 (7th Cir. 1984);
Neeley v. Bankers Trust Co., supra, 757 F.2d at 627, but merely
a prediction, which creates no rights. Rexnord Corp. v.
DeWolff Boberg & Associates, Inc., 286 F.3d 1001, 1005-06
(7th Cir. 2002).
The cases say that an ERISA plan need not be in writing
in order to be enforceable. Diak v. Dwyer, Costello & Knox,
P.C., 33 F.3d 809, 811-12 (7th Cir. 1994); Donovan v.
Dillingham, 688 F.2d 1367, 1372-73 (11th Cir. 1982) (en banc);
Kenney v. Roland Parson Contracting Corp., 28 F.3d 1254, 1257-
58 (D.C. Cir. 1994). It just has to exist, in the sense that
its essential terms are ascertainable (so that it doesn’t
flunk on vagueness grounds) and that it “was intended to
be in effect, and not just be something for future adop-
tion.” James v. National Business Systems, Inc., 924 F.2d 718,
720 (7th Cir. 1991). The statute requires plans to be in
writing, 29 U.S.C. § 1102(a)(1); Curtiss-Wright Corp. v.
Schoonejongen, 514 U.S. 73, 83 (1995), but the courts reason
that a failure to comply with that requirement should
not redound to the company’s benefit. Memorial Hospital
System v. Northbrook Life Ins. Co., 904 F.2d 236, 241 (5th Cir.
1990); Brown v. Ampco-Pittsburgh Corp., 876 F.2d 546, 551
4 No. 01-3977
(6th Cir. 1989); Donovan v. Dillingham, supra, 688 F.2d at
1372. And while oral modifications of ERISA plans are
not permitted, Downs v. World Color Press, 214 F.3d 802,
805 (7th Cir. 2000); Bartholet v. Reishauer A.G., 953 F.2d
1073, 1078 (7th Cir. 1992); Nachwalter v. Christie, 805 F.2d 956,
960 (11th Cir. 1986), employers often have different
plans covering different benefits, and it is conceivable that
some might be written and some oral, with the oral en-
forceable so long as they did not (as in Anderson v. Resolu-
tion Trust Corp., 66 F.3d 956, 959-60 (8th Cir. 1995)) contra-
dict the written plan.
What we have been calling an “oral” plan is better termed
an “informal” plan, the term used in such cases as Deboard
v. Sunshine Mining and Refining Co., 208 F.3d 1228, 1238-
39 (10th Cir. 2000); Elmore v. Cone Mills Corp., 23 F.3d 855,
861 (4th Cir. 1994) (en banc), and Henglein v. Informal Plan
for Plant Shutdown Benefits for Salaried Employees, 974 F.2d
391, 400-01 (3d Cir. 1992). For it will usually be pieced out
from documents (though oral testimony may be necessary
to interpret them as constituting a plan), just not set forth
in a nicely wrapped package labeled “employee welfare
benefits plan.” And so “written plan” (in the “written”-
“oral” antithesis) is better termed “express” or “formal”
plan. Even so, if the informal plan, though entirely written,
modifies an existing plan, the modification is an amend-
ment and to be valid must comply with any procedural
requirements for a valid amendment that are set forth in
the formal plan, Downs v. World Color Press, supra, 214
F.3d at 805; Brewer v. Protexall, Inc., 50 F.3d 453, 456-57
(7th Cir. 1995); Coleman v. Nationwide Life Ins. Co., 969 F.2d
54, 58-59 (4th Cir. 1992)—the plan’s counterpart to Article VI
of the U.S. Constitution.
There is a fair bit of judicial skepticism about “informal
plans”—specifically whether by allowing their concoction
by imaginative counsel in litigation employers will actually
No. 01-3977 5
be deterred from offering certain types of benefit. See, e.g.,
Sprague v. General Motors Corp., 133 F.3d 388, 403 (6th Cir.
1998) (en banc); Moore v. Metropolitan Life Ins. Co., 856 F.2d
488, 492 (2d Cir. 1988). Perhaps it would be better to de-
scribe informal plans as simple contracts, enforceable
under state law rather than under ERISA, a distinction
suggested in two of our prior cases. Frahm v. Equitable Life
Assurance Society, 137 F.3d 955, 957-58 (7th Cir. 1998);
Sandstrom v. Cultor Food Science, Inc., 214 F.3d 795, 797-
98 (7th Cir. 2000); cf. Massachusetts v. Morash, 490 U.S. 107,
118-19 (1989). We need not pursue the matter further. Even
if it is open to the plaintiff to argue that XTRA replaced
its discontinued severance plan with an informal one,
see Henglein v. Informal Plan for Plant Shutdown Benefits for
Salaried Employees, supra, 974 F.2d at 400-01; Elmore v.
Cone Mills Corp., supra, 23 F.3d at 861, his effort to show
this falls short.
XTRA’s statement in the 1993 plan of its intention to
create a program of severance benefits could not be the
informal plan that replaced the severance provision in
the 1992 plan, for the reasons that we’ve explained. But
the plaintiff points out that on a number of occasions
after 1992 the company paid severance benefits to dis-
charged workers in accordance with the formula in the
1992 plan, and he argues that this “ongoing practice
and procedure to pay [severance] benefits in the past,
pursuant to XTRA’s standard formula,” constituted a
successor plan. The year before the transfer to Contain-
erPort, XTRA had discussed a possible merger with an-
other company (Apollo) and had informed its employees
that it would provide severance pay if they weren’t of-
fered a permanent comparable position in an affiliate of
XTRA. And executives of XTRA acknowledged that they
would have given the members of the plaintiff’s class
severance pay had they not been offered comparable jobs
6 No. 01-3977
by ContainerPort. (The plaintiff argues that they were not
really comparable, but we need not decide that.) XTRA did
give severance pay—calculated by the standard formula—
to the one employee to whom ContainerPort did not offer
a job.
The company’s statements were not, as the plaintiff
claims, “admissions” that “there was a severance ben-
efit plan.” They were merely descriptions of an acknowl-
edged practice. Practices do sometimes have legal signifi-
cance, however. A practice can be the basis for inferring
a policy that can make a municipality liable for a consti-
tutional tort under the regime of the Monell decision,
Cornfield by Lewis v. Consolidated High School District No. 230,
991 F.2d 1316, 1326 (7th Cir. 1993), or for inferring that
the user of another person’s land has become a licensee.
Wytupeck v. Camden, 136 A.2d 887, 894-95 (N.J. 1958). A little
closer to home, a practice, under the rubric “course
of dealing,” can be evidence of what a contract requires.
See, e.g., UCC § 1-205; Restatement (Second) of Contracts
§ 223 (1981); Frank Novak & Sons, Inc. v. Sommer & Maca
Industries, Inc., 538 N.E.2d 700, 703-05 (Ill. App. 1989). But
the plaintiff in this case wants to use the employer’s prac-
tice of paying severance pay not to explicate a contract
but to create one; and a practice does not create an obliga-
tion under the principles of contract law (the principles
normally and here applicable to teasing out the obliga-
tions created by a pension or welfare plan governed by
ERISA) unless it creates a contract “implied in fact.”
A contract implied in fact is one in which behavior takes
the place of articulate acceptance, as in Hobbs v. Massasoit
Whip Co., 33 N.E. 495 (Mass. 1893) (Holmes, J.), a suit
for the price of eel skins sent by the plaintiff to the
defendant, and kept by the defendant some months,
until they were destroyed. It must be taken that the
plaintiff received no notice that the defendants de-
No. 01-3977 7
clined to accept the skins. . . . The plaintiff was not a
stranger to the defendant, even if there was no con-
tract between them. He had sent eel skins in the same
way four or five times before, and they had been
accepted and paid for. . . . [It] was fair to assume that
if [the defendant] had admitted the eel skins to be
over 22 inches in length, and fit for its business, . . . it
would have accepted them; that this was understood
by the plaintiff; and, indeed, that there was a stand-
ing offer to him for such skins. In such a condition of
things, the plaintiff was warranted in sending the de-
fendant skins conforming to the requirements, and
even if the offer was not such that the contract was
made as soon as skins corresponding to its terms
were sent, sending them did impose on the defendant
a duty to act about them; and silence on its part, cou-
pled with a retention of the skins for an unreason-
able time, might be found by the jury to warrant the
plaintiff in assuming that they were accepted, and
thus to amount to an acceptance. The proposition
stands on the general principle that conduct which
imports acceptance or assent is acceptance or assent,
in the view of the law, whatever may have been the
actual state of mind of the party.
See also A.E.I. Music Network, Inc. v. Business Computers, Inc.,
290 F.3d 952, 956-57 (7th Cir. 2002); Dallis v. Don Cun-
ningham & Associates, 11 F.3d 713, 715-16 (7th Cir. 1993). The
plaintiff in Holmes’s case had by reason of his previous
dealings with the defendant good reason to believe that
the defendant would not destroy the eel skins; indeed,
the plaintiff would not have sent them to the defendant
had he thought there was such a risk. The plaintiff in the
present case, a supplier of labor albeit not of eels, did not
“offer” to work in exchange for a promise of severance
pay, and the defendant did not “accept” the “offer” by
8 No. 01-3977
paying severance pay to other employees. The absence of
an offer makes it impossible to construe the mute practice
as acceptance. The normal understanding of severance
pay (when not provided for in a written plan), as of bo-
nuses, is that it is at the discretion of the employer; there
is nothing here to upset that understanding.
AFFIRMED.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-97-C-006—9-10-02