Brenda J. Johnson v. U.S. Bancorp ( 2004 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 03-2712
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Brenda J. Johnson; Patricia K. Ormston, *
*
Plaintiffs - Appellants, *
* Appeal from the United States
v. * District Court for the
* District of Minnesota.
U.S. Bancorp, et al., *
*
Defendants - Appellees. *
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Submitted: May 14, 2004
Filed: November 2, 2004
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Before LOKEN, Chief Judge, SMITH, Circuit Judge, and DORR,* District Judge.
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LOKEN, Chief Judge.
As mortgage loan officers at U.S. Bancorp in Minneapolis, Brenda J. Johnson
and Patricia K. Ormston were paid a guaranteed base salary plus commissions based
on closed loans. They were also eligible for benefits under the U.S. Bancorp Broad-
Based Change in Control Severance Pay Program (the CIC Program), including
severance benefits if they resigned for “Good Reason.” The written CIC Program
defined Good Reason to include “the occurrence . . . within 24 months following a
Partial Change in Control [of] a reduction by the Employer, by more than 10%, of the
*
The HONORABLE RICHARD E. DORR, United States District Judge for the
Western District of Missouri, sitting by designation.
Covered Employee’s base . . . compensation” unless that base compensation “is
replaced by other guaranteed compensation.”
In February 2001, U.S. Bancorp merged with Firstar Corporation. The merger
was a Partial Change in Control for purposes of the CIC Program. Some months
later, Johnson and Ormston resigned and filed claims for severance benefits. After
U.S. Bancorp’s Severance Administration Committee denied the claims, Johnson and
Ormston filed this lawsuit, asserting a federal law claim for wrongful denial of
benefits under the Employee Retirement Income Security Act (ERISA), see 29 U.S.C.
§ 1132(a)(1)(B), and state law claims for breach of contract and to recover statutory
penalties for the late payment of earned commissions. The district court1 dismissed
the breach of contract claim on the pleadings and granted U.S. Bancorp summary
judgment dismissing the remaining claims. Johnson and Ormston appeal. Reviewing
these issues de novo, we affirm. See Fink v. Dakotacare, 324 F.3d 685, 687 (8th Cir.
2003) (standard of review).
I. The Breach of Contract and ERISA Claims.
Johnson and Ormston allege -- and we assume these allegations are true for
purposes of this appeal -- that they were told before and after the merger, in meetings
and in memoranda, that U.S. Bancorp would change their compensation to Firstar’s
commissions-only plan, and that change-in-control severance benefits would be paid
to those who declined to work under the new compensation plan. Consistent with
these informal communications, on April 2, 2001, U.S. Bancorp distributed a written
2001 Compensation Plan providing no guaranteed base salary. But bank management
apparently revisited the decision to trigger severance pay benefits, because on April
5, a supervisor advised Johnson and Ormston that the new plan would be changed to
1
The HONORABLE PAUL A. MAGNUSON, United States District Judge for
the District of Minnesota.
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include a guaranteed draw, and on April 19, they received an “Addendum One” to the
new plan providing for “guaranteed non-recoverable draws” equal to their prior
guaranteed base salaries.
Six weeks later, Johnson and Ormston resigned and filed claims for severance
benefits, arguing they had Good Reason to resign within the meaning of the CIC
Program because U.S. Bancorp eliminated their guaranteed base salary after a partial
change in control. The Severance Administration Committee denied the claims,
explaining there was no “occurrence” within the meaning of the CIC Program
because “the reduction in base compensation that was communicated . . . was
replaced by a guaranteed, non-recoverable draw in the same amount before [the] base
compensation was ever actually reduced.”
1. As the district court recognized, the heart of this lawsuit is plaintiffs’
alternative claims for breach of an employment contract under state law or for denial
of employee benefits governed by ERISA. Plaintiffs’ Complaint alleged that the CIC
Program “at all relevant times, has been and is now a ‘welfare benefit plan’ under 29
U.S.C. § 1002(1) and an ‘employee benefit plan’ under 29 U.S.C. § 1002(3).’”2 It is
well-established that ERISA’s civil enforcement provisions are the exclusive
remedies for participants seeking to recover benefits under an ERISA plan. See 29
U.S.C. § 1144(a); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 52-56 (1987); Fink,
324 F.3d at 688-89. Thus, the district court properly dismissed the state law breach-
of-employment-contract claim on the pleadings. Plaintiffs’ argument that they were
entitled to discovery on this claim is without merit.
2
The CIC Program is part of the U.S. Bancorp Comprehensive Welfare Benefit
Plan, which expressly incorporates various ERISA provisions and is unquestionably
an “employee welfare benefit plan” covered by ERISA. See Emmenegger v. Bull
Moose Tube Co., 197 F.3d 929, 934-35 (8th Cir. 1999).
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2. As an alternative breach of contract theory, Johnson and Ormston argue that
(i) U.S. Bancorp breached a promise to pay severance benefits if they continued to
work after the merger and if Firstar changed their compensation to a commissions-
only plan, and (ii) this created a free-standing contract unrelated to the CIC Program
and therefore not preempted by ERISA. For support, they cite our recent decision in
Eide v. Grey Fox Technical Services Corp., 329 F.3d 600, 607 (8th Cir. 2003). The
contention is fatally flawed. Unlike the employees in Eide, Johnson and Ormston
remained eligible for CIC Program benefits after the merger. The alleged promise
was that benefits would be paid in accordance with the CIC Program if their
guaranteed base compensation was eliminated after the partial change in control.
This promise, even if it constituted the offer of a unilateral contract under state law,
clearly related to the ERISA plan. An employer’s promise that ERISA plan benefits
will be paid if a future contingency occurs does not create a “free-standing contract”
within the meaning of Eide.
3. Turning to plaintiffs’ federal law claim for the wrongful denial of ERISA
benefits, the district court concluded that Johnson and Ormston did not have Good
Reason to resign within the meaning of the CIC Program because (i) the first post-
merger compensation plan distributed on April 2, 2001, “did not actually affect
Plaintiffs’ compensation,” and (ii) the amended post-merger plan reflected in the
April 19 Addendum One “guaranteed participants the same guaranteed
compensation” in the form of a non-recoverable draw. Accordingly, the court upheld
the Severance Administration Committee’s decision.3
3
The court avoided a dispute over the applicable ERISA standard of review by
reviewing the Severance Administration Committee’s decision de novo. This
obviated the need for discovery regarding the plan administrator’s alleged conflicts
of interest, inconsistent plan interpretation, and bad faith. Thus, the district court did
not abuse its discretion in deciding U.S. Bancorp’s dispositive motions before taking
up plaintiffs’ request for further discovery on these issues.
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On appeal, Johnson and Ormston first argue that they are entitled to CIC
Program benefits because the first post-merger plan stated that it replaced all prior
compensation plans. Therefore, this plan “indisputably” eliminated their guaranteed
base salaries. But the CIC Program requires an “occurrence” to trigger severance
benefits. U.S. Bancorp amended the new plan to provide guaranteed draws before the
end of the April 2001 pay period. It is undisputed that Johnson and Ormston never
received a post-merger paycheck that did not include a guaranteed draw equal to their
prior base salaries. If they had quit on April 3 or April 4, or alleged some form of
detrimental reliance, we might have a different case. But on this record, we agree
with the district court that the Severance Administration Committee’s decision is “the
only reasonable interpretation” of the CIC Program.
Johnson and Ormston further argue that the district court erred in concluding
that the guaranteed draws were “other guaranteed compensation” within the meaning
of the CIC Program because U.S. Bancorp later “recovered” those draws by reducing
their post-termination commission payments. The Committee determined that
reducing post-termination commissions by the amount of a guaranteed draw did not
change the fact that the draw was “other guaranteed compensation.” Like the district
court, we agree with this interpretation of the CIC Program provisions.
II. The State Law Claim for Statutory Penalties.
Under Minnesota law, “wages or commissions earned and unpaid at the time
the employee quits or resigns shall be paid in full not later than the first regularly
scheduled payday following the employee’s final day of employment.” Minn. Stat.
§ 181.14, subd. 1(a). An employer who violates this duty is liable for “civil penalties
or damages.” Minn. Stat. § 181.171, subd. 1. After Johnson and Ormston resigned,
U.S. Bancorp sent them final commission payments, deducting amounts equal to the
guaranteed draws paid under the post-merger plan. When Johnson and Ormston
protested the deductions, U.S. Bancorp paid them the deducted amounts about a
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month later. They claim that statutory penalties are owing because they were not paid
within twenty-four hours of demand, as § 181.14, subd. 2, requires.
Plaintiffs’ pre-merger employment contracts provided that U.S. Bancorp’s
Chairman and Chief Executive Officer must approve the payment of unpaid
commissions to an employee who voluntarily resigns. As no such approval
accompanied the post-termination payments to Johnson and Ormston, the district
court granted summary judgment dismissing this claim because the allegedly late-paid
commissions were not “earned” for purposes of § 181.14. See Holman v. CPT Corp.,
457 N.W.2d 740, 742-43 (Minn. App. 1990).
On appeal, Johnson and Ormston argue that unpaid commissions on loans
closed before they resigned were “earned” because (1) U.S. Bancorp customarily paid
such commissions to loan officers who resigned in good standing, and (2) the
contracts on which the district court relied were superseded by the post-merger
compensation plan. We disagree. First, plaintiffs’ vague assertion of a customary
practice does not provide the clear and convincing evidence required under
Minnesota law to prove a parol modification of an unambiguous written contract. See
Reliable Metal, Inc. v. Shakopee Valley Printing, Inc., 407 N.W.2d 684, 687 (Minn.
App. 1987). Second, Johnson and Ormston never accepted the post-merger
compensation plan, so the district court properly looked to the pre-merger plan to
determine what commissions were earned. Moreover, under the post-merger plan,
U.S. Bancorp was entitled to deduct guaranteed draws from commission payments,
so that plan did not obligate U.S. Bancorp to pay the allegedly tardy commissions.
The judgment of the district court is affirmed.
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