Kenneth Pearson v. Voith Paper Roll , 656 F.3d 504 ( 2011 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 09-3884
K ENNETH P EARSON,
Plaintiff-Appellant,
v.
V OITH P APER R OLLS, INC.,
Defendant-Appellee.
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 08 C 114—William C. Griesbach, Judge.
A RGUED S EPTEMBER 27, 2010—D ECIDED A UGUST 25, 2011
Before R OVNER, E VANSΠand W ILLIAMS, Circuit Judges.
R OVNER, Circuit Judge. When Kenneth Pearson was
terminated from his position at Voith Paper Rolls, Inc.
(“Voith Paper”), he negotiated a severance package
based, in part, on his belief that he would be receiving
Œ
Circuit Judge Evans died on August 10, 2011, and did not
participate in the decision of this case, which is being
resolved by a quorum of the panel under 28 U.S.C. § 46(d).
2 No. 09-3884
a pension in a certain amount from the Voith Paper
Rolls, Inc. Salaried Pension Plan (“the Plan”). Unfortu-
nately, the administrator for the Plan (who was also
the Human Resources manager for Voith Paper) miscalcu-
lated some of Pearson’s projected pension numbers.
After signing off on the severance agreement, Pearson
learned of the error and brought an estoppel claim
against the Plan. We have not yet recognized estoppel
claims in this context, and we need not decide here
whether such claims exist as a matter of law. Because
Pearson’s claim fails for lack of evidence of intentional
misrepresentation or detrimental reliance, we affirm
the district court’s grant of summary judgment in favor
of the Plan.
I.
Pearson worked for Voith Paper for approximately
fourteen years before the company decided to terminate
his employment. The specific facts of the termination
are largely unimportant to the claim at issue in this
appeal, with one exception: at the time of his termination,
Pearson had a colorable claim against Voith Paper for
age discrimination. As a result, Voith Paper negotiated
a severance package with Pearson, offering him certain
benefits in exchange for a release from claims related
to the termination. Joseph Booth was both the manager
of Voith Paper’s Human Resources Department and
also the administrator of the Plan. As Booth prepared
to conduct severance negotiations with Pearson in his
capacity as Human Resources manager, he decided to
No. 09-3884 3
provide Pearson with information about his pension
benefits under the terms of the Plan. In advance of a
termination meeting with Pearson, Booth asked Tyler
Wiggs, a Human Resources generalist at Voith Paper,
to calculate Pearson’s retirement benefits under the
Plan. Wiggs prepared the benefits calculation and
Booth then reviewed and approved it. Wiggs then used
the numbers to create a pension benefit election form
that Booth provided to Pearson at the termination
meeting on September 20, 2006.
The election form presented five options for the
payout of retirement benefits. In general, a Plan bene-
ficiary may choose between a lump sum payment or one
of four different variations of payments over time. 1 In
the normal course of business, all five options are calcu-
lated to be actuarially equivalent. In this case, though,
Wiggs correctly calculated the lump sum payment but
substantially overstated the benefits provided in the
four options for payment over time. Pearson was not
old enough at termination to receive full pension
benefits, but he was eligible for reduced early retire-
ment benefits. Wiggs erred by entering his early retire-
ment data in the part of the spreadsheet related to the
lump sum payout and failing to enter that same infor-
mation into the area of the spreadsheet used to calculate
the four options for payouts over time. As a result, the
1
The four options for payments over time included Five Year
Certain, 50% Joint & Survivor, 100% Joint & Survivor, and
Straight Life.
4 No. 09-3884
spreadsheet correctly calculated the reduced lump sum
benefit Pearson would receive on early retirement,
but calculated the other four options as if Pearson was
eligible for full retirement.
At the beginning of severance negotiations, Booth
provided Pearson with the erroneous calculations. Pearson,
who wished to select the “50% Joint & Survivor” option,
negotiated his severance benefits believing that he
would receive $1156.89 per month for the remainder of
his life, and that his wife would then receive half that
amount per month for the remainder of her life.
He signed a severance agreement with Voith Paper on
November 14, 2006, and submitted his completed
pension benefits election form on December 29, 2006.
On receipt of Pearson’s election form in early Janu-
ary 2007, Wiggs, per her regular practice, double-checked
her original calculations. During this review, Wiggs
realized that she had failed to enter the early retirement
information into the part of the spreadsheet used to
calculate payments over time. She immediately recalcu-
lated Pearson’s benefits using the correct early retire-
ment information and prepared a new election form
with the corrected numbers. The lump sum payout
was nearly identical; it changed only slightly from
the original calculation to account for the passage of
the few months between the calculations. The amounts
for the payouts over time, however, were all sub-
stantially reduced. For the 50% Joint & Survivor option
that Pearson originally selected, the monthly payout
dropped from $1156.89 per month to $706.74 per
month, a reduction of $450.15 per month. The original
No. 09-3884 5
election form had overstated by nearly 64% the actual
benefits for the option Pearson had selected.
Pearson never returned the recalculated election form
to the Plan and consequently has not yet received any
of his pension benefits. Instead, he filed suit against
the Plan, alleging in the first count a claim for pension
benefits under the Employee Retirement Income
Security Act (“ERISA”), 29 U.S.C. § 1001 et seq., and
asserting in the second count a claim for promissory
estoppel. Pearson subsequently voluntarily dismissed
the claim for ERISA benefits and all that remains is
the estoppel claim. In that claim, Pearson alleges that
Booth, the Plan administrator, had simultaneously pro-
vided him with a written promise of pension benefits
and a proposed severance agreement. Pearson asserts
that he relied on the written promise of pension
benefits when he was negotiating the terms of his sever-
ance agreement. In particular, he contends that he relied
on the amounts stated on the original election form
when he made certain concessions in the severance agree-
ment regarding Voith Paper’s payment of his health
insurance premiums. His complaint asks the court to
estop the Plan from paying him anything other than
the amount stated in the original election form because
he had relied upon those terms to his detriment when
negotiating his severance agreement.
In considering the Plan’s motion for summary judg-
ment, the district court noted that this court has not
yet recognized a claim for estoppel against a single-em-
ployer, funded pension plan such as the Plan here. To the
6 No. 09-3884
extent courts had allowed any claims for estoppel
against ERISA plans, the district court noted that state-
ments or conduct by individuals implementing the
plan may estop enforcement of the plan’s written
terms only in extreme circumstances. Additionally,
to prevail, a plaintiff must demonstrate a knowing misrep-
resentation, made in writing, and reasonable reliance
on that misrepresentation by the plaintiff, to the plain-
tiff’s detriment. In this instance the district court
found that Pearson had not shown a knowing misrepre-
sentation, detrimental reliance or extraordinary circum-
stances. At most, the court found, Pearson had demon-
strated negligence by Wiggs and Booth in presenting
the incorrect amounts in the original election form.
The court also concluded that Pearson failed to show
any economic harm as a result of the error because
his claim that he would have negotiated better
severance terms for himself was entirely speculative.
Finally, the court concluded that if anyone misrepre-
sented the amounts, it was the employer rather than
the Plan. The Plan, after all, had nothing to gain from
misrepresenting the benefits to which Pearson was
entitled. The court therefore granted judgment in favor
of the Plan. Pearson appeals.
II.
On appeal, Pearson asks us first to recognize a claim
for estoppel against a funded, single-employer pension
plan. He then contends that he presented sufficient evi-
dence on the issues of knowing misrepresentation and
No. 09-3884 7
detrimental reliance to survive summary judgment on
such a claim. The Plan would also like us to resolve
whether an estoppel claim is viable against a defined-
benefit, funded pension plan. Of course, the Plan
would prefer that we hold that such a claim is not a
valid cause of action because recognizing estoppel
claims would undermine the actuarial soundness of
such plans. There is no need for us to decide in this
case whether an estoppel claim may be raised against a
funded, single-employer pension plan; Pearson has
failed to raise a genuine issue of material fact regarding
at least two elements of the proposed claim. We decline
to resolve the question of the viability of the claim
until we are presented with a case where the answer
is necessary to the outcome of the case, and we offer
no opinion at this time on whether such a claim is
legally cognizable.2 We will assume only for the pur-
2
We held in Black v. TIC Inv. Corp., 900 F.2d 112, 115 (7th Cir.
1990), that “estoppel principles are applicable to claims for
benefits under unfunded single-employer welfare benefit plans
under ERISA.” We expressed no opinion as to the application
of estoppel principles in situations involving funded plans or
multi-employer plans. Later, in Russo v. Health, Welfare &
Pension Fund, Local 705, Int’l Bhd. of Teamsters, 984 F.2d 762, 767
(7th Cir. 1993), we declined to answer the question of whether
estoppel principles could be applied beyond the context
defined in Black. We noted, though, as we had in Black, that
allowing estoppel claims against funded, multi-employer
plans may undermine the actuarial soundness of the plans.
Russo, 984 F.2d at 767 n.4. And in Coker v. Trans World Airlines,
(continued...)
8 No. 09-3884
poses of this appeal that the claim is viable, and we will
analyze it under the usual summary judgment standards.
Our review of the district court’s grant of summary
judgment is de novo. Norman-Nunnery v. Madison Area
Technical Coll., 625 F.3d 422, 428 (7th Cir. 2010); Gunville
v. Walker, 583 F.3d 979, 985 (7th Cir. 2009); George v.
Walker, 535 F.3d 535, 538 (7th Cir. 2008). Ordinarily, the
written plan document governs ERISA plan administra-
tion. Kannapien v. Quaker Oats Co., 507 F.3d 629, 636
(7th Cir. 2007). Statements or conduct by individuals
implementing the plan may estop the employer from
enforcing a plan’s written terms only in extreme circum-
stances. Kannapien, 507 F.3d at 636; Vallone v. CNA Fin.
Corp., 375 F.3d 623, 639 (7th Cir. 2004); Sandstrom, 214
2
(...continued)
Inc., 165 F.3d 579, 585 (7th Cir. 1999), we observed that we had
repeatedly declined to decide whether estoppel reached
beyond the limitations we expressed in Black. See also, Krawczyk
v. Harnischfeger Corp., 41 F.3d 276, 280 (7th Cir. 1994) (declining
to address whether estoppel principles apply to funded
ERISA plans because the plaintiff had failed to establish the
elements of estoppel); Shields v. Local 705, Int’l Bhd. of Teamsters
Pension Plan, 188 F.3d 895, 900 (7th Cir. 1999) (same); Downs
v. World Color Press, 214 F.3d 802, 806 (7th Cir. 2000) (same);
Sandstrom v. Cultor Food Science, Inc., 214 F.3d 795, 797 (7th Cir.
2000) (finding that statements or conduct by bureaucrats
implementing a plan do not estop the employer to enforce
the plan’s written terms, but also noting that, although we
have not barred the door on estoppel claims, we have made
clear that only extreme circumstances justify estoppel).
No. 09-3884 9
F.3d at 797. A plaintiff demonstrating extreme circum-
stances must also show (1) a knowing misrepresenta-
tion; (2) made in writing; (3) reasonable reliance on
that misrepresentation by the plaintiff; and (4) that the
reliance was to the plaintiff’s detriment. Kannapien, 507
F.3d at 636; Vallone, 375 F.3d at 639; Coker, 165 F.3d at
585. Negligence is not sufficient to meet the standard for
a knowing misrepresentation. Kannapien, 507 F.3d at 636(inadvertent mistakes and clerical errors are not
knowing misrepresentations); Downs, 214 F.3d at 806(negligence or bureaucratic sloppiness is not sufficient
to demonstrate intentional misrepresentation); Coker,
165 F.3d at 585-86 (negligent misrepresentations and
innocent errors will not support a claim for estoppel in
the ERISA context).
Pearson contends that there is no dispute regarding
the charge that the Plan misrepresented his pension
benefits in writing and that he reasonably relied upon
that misrepresentation. As for the remaining elements
of the claim, Pearson asserts that he has raised a
genuine issue of material fact on whether the misrepre-
sentation was intentional and whether his reliance on
the misrepresentation was detrimental.
Pearson first asserts that Booth feared that Pearson
would leverage his potential age discrimination claim
to negotiate a more favorable severance package for
himself. Booth admitted that he did not usually provide
detailed pension numbers during severance negotia-
tions. Pearson contends that the numbers provided for
four of the pension payment options were significantly
10 No. 09-3884
overstated, and Booth, as severance negotiator for Voith
Paper, had an economic incentive to save money for his
employer and negotiate a lower severance package. By
leading Pearson to believe his pension would be higher
than it actually was, Booth was able to negotiate more
favorable terms for Voith Paper. None of this evidence,
however, demonstrates an intentional misrepresenta-
tion by the Plan. First, in every ERISA estoppel claim
filed by an employee, the error will always be in the
employer’s favor. An employee is unlikely to ask a court
to estop a plan from paying more than the employee is
entitled to under the written terms of a pension plan.
The mere fact that there is an error that is in the
employer’s favor tells us nothing about the intent of the
party making the error. Second, although Pearson’s
employer, Voith Paper, had an incentive to negotiate
a lower severance package with Pearson, the Plan had
no incentive at all to provide incorrect information
to Pearson as a Plan participant. True, Booth served both
as Voith Paper’s Human Resources manager and as the
Plan’s administrator, but only in his capacity as Voith
Paper’s manager did he have any reason to provide
inflated pension numbers to Pearson.
Pearson next points to Booth’s contradictory state-
ments regarding whether Booth knew Pearson’s age at
the time of his termination. Reading the evidence in a
light most favorable to Pearson, Booth asserted he did not
know whether Pearson was eligible for early retirement
at the same time he encouraged Pearson to apply for
early retirement benefits. Booth also signed off on a
document prepared by Wiggs that stated that Pearson’s
No. 09-3884 11
age was “57 years, 6 months.” Pearson cites this as clear
evidence that Booth in fact knew Pearson’s age and
knew he was not eligible for full retirement benefits.
Pearson also points out that the numbers were highly
overstated and that a person of Booth’s experience
should have recognized that there was a problem. This
evidence arguably demonstrates that Booth was lying
about his knowledge of Pearson’s age and eligibility
for early retirement, and that he should have noticed
that something was amiss with Wiggs’ calculations.
As with the other evidence, though, the Plan had no
incentive to provide Pearson with inflated numbers.
Only in his capacity as a manager for Voith Paper did
Booth have a motive to overstate Pearson’s pension
benefits. But Pearson is not suing Voith Paper for
estoppel; he is suing the Plan. And an ERISA plan is an
entity legally separate from the employer. See Helfrich v.
Carle Clinic Ass’n, P.C., 328 F.3d 915, 916 (7th Cir. 2003)
(under ERISA, a plan is a separate trust, distinct from
the employer). We have no reason here to attribute the
motive of the employer to the Plan. Finally, we note
that Pearson’s claim that the misrepresentation was
intentional is seriously undermined by the fact that
the numbers given for the lump sum payout were
always accurate. It is difficult to conceive why Booth
would try to trick Pearson into accepting a lower
severance package by overstating four of the five
pension payout options. Because the options were sup-
posed to be calculated to be actuarially equivalent,
Booth had an incentive to overstate all of the payment
options. Booth, after all, did not know until after Pearson
12 No. 09-3884
signed the severance agreement which pension option
he would select. Recall that Pearson signed the severance
agreement in November 2006 and submitted his
pension election form approximately one month later. It
seems exceedingly unlikely that Booth, if he was truly
trying to deceive Pearson, would risk giving Pearson an
option for an accurate lump sum payment that would
have nullified any negotiating advantage. In the
aggregate, none of Pearson’s evidence points to anything
more than an inadvertent mistake or negligence by the
Plan. As we noted above, mistakes and negligence are
not sufficient to meet the standard for a knowing misrep-
resentation. See Kannapien, 507 F.3d at 636; Downs, 214
F.3d at 806; Coker, 165 F.3d 585-86. That Booth, on behalf
of Voith Paper, may have intentionally misled Pearson
in order to gain an advantage in severance negotiations
is irrelevant in an action against the Plan. See Helfrich,
328 F.3d at 918 (“documents prepared by an employer
do not supersede those documents that establish the
terms of a pension plan”). Pearson’s evidence against
the Plan on the issue of intent is insufficient to create
a genuine dispute.
Nor has Pearson produced sufficient evidence on the
issue of detrimental reliance. Pearson alleges that Voith
Paper initially agreed to pay seventy-five percent of his
health insurance premiums for seventy-eight months
following his termination. He calculates the value of
this offer to be more than $40,000. As negotiations pro-
gressed, however, Voith Paper withdrew this offer and
Pearson became liable for one hundred percent of the
premiums. Pearson asserts that he would not have
No. 09-3884 13
agreed to this concession had he not relied on Booth’s
written representation that he would be receiving $1,156.89
per month in pension benefits. Because of his reliance
on Booth’s misrepresentation, he asserts that he lost
the opportunity to negotiate for $40,000 in assistance
with health insurance premiums. There are a number
of flaws in Pearson’s argument. First, detrimental
reliance in the ERISA estoppel context requires a
showing of economic harm. Bock v. Computer Assocs. Int’l,
Inc., 257 F.3d 700, 711 (7th Cir. 2001). Pearson’s claim that
he lost an opportunity to bargain for a better severance
deal is insufficient to demonstrate economic harm
unless he can also show that he had any realistic chance
of striking a better deal. He has made no attempt to
show that he would have done any better in the
severance negotiations than the deal he ultimately
signed. His claim for economic harm is entirely specula-
tive on the record as it now stands. If anything, the
record demonstrates that Pearson’s severance negotia-
tions with Voith Paper were hard-fought on both sides;
although Pearson lost the $40,000 insurance benefit,
he gained other concessions from Voith paper.
Second, Pearson agreed at his deposition that he
had no desire to rescind his severance agreement and
renegotiate the terms. Rather, he wanted the Plan to pay
him the amounts stated in the original election form.
His current argument that he relied on the misstated
pension numbers in deciding to sign the severance agree-
ment is undermined by his admission that he does not
wish to rescind the severance agreement. What he wants
is the full benefit of the severance agreement and also
14 No. 09-3884
the inflated pension benefits. What he is legally entitled
to is the full benefit of the severance agreement and the
correctly calculated pension amounts. His quarrel is not
with the Plan; it is with his former employer.
In sum, Pearson has not presented the extraordinary
circumstances necessary for the court to entertain a
claim for estoppel against this ERISA Plan. He has
also failed to produce sufficient evidence of intentional
misrepresentation by the Plan or detrimental reliance
on any misrepresentation. The judgment of the dis-
trict court in favor of the Plan is therefore
A FFIRMED.
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