Berman v. Tyco International Ltd.

11-1757-cv
Berman v. Tyco
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
Rulings by summary order do not have precedential effect. Citation to a summary order filed on or after January 1,
2007, is permitted and is governed by Federal Rule of Appellate Procedure 32.1 and this court=s Local Rule 32.1.1.
When citing a summary order in a document filed with this court, a party must cite either the Federal Appendix or an
electronic database (with the notation Asummary order@). A party citing a summary order must serve a copy of it on
any party not represented by counsel.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the Daniel
Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New York, on the 16th day
of July, two thousand twelve.
PRESENT:
PETER W. HALL,
SUSAN L. CARNEY,
Circuit Judges,
RICHARD M. BERMAN,*
District Judge.
_____________________________________________
JOSHUA M. BERMAN,
Plaintiff-Appellant,
v. No. 11-1757-cv
TYCO INTERNATIONAL LTD., a Bermuda Corporation, and
TYCO INTERNATIONAL (US) INC., a Nevada Corporation,
Defendants-Appellees.
______________________________________________
FOR APPELLANT: BARRY J. FRIEDBERG, Trachtenberg Rodes & Friedberg
LLP, New York, New York.
FOR APPELLEES: JOHN H. KAZANJIAN (Edward M. Grauman, John H. Paul,
on the brief), Beveridge & Diamond, New York, New
York.
* The Honorable Richard M. Berman of the United States District Court for the Southern District of New York sitting by
designation.
Appeal from a judgment of the United States District Court for the Southern District of New
York (Batts, J). UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,
AND DECREED the judgment of the district court is VACATED and REMANDED.
Plaintiff-Appellant, Joshua Berman, initiated this action in New York Supreme Court alleging
that his former employer, defendants-appellees, Tyco International Ltd. and Tyco International (US) Inc.
(together “Tyco”), failed to pay his salary for a five-month period in 2002 and failed to pay him
severance benefits associated with his termination. Berman seeks damages for unpaid salary and
severance pay under theories of breach of contract, promissory estoppel, quantum meruit, unjust
enrichment, and the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. §§ 1001 et seq.
Tyco removed the action to federal court and moved for partial summary judgment on Berman’s ERISA
claim and his state law breach of contract claim concerning his severance benefits. In that motion, Tyco
asserted that Berman was not a covered beneficiary of Tyco’s severance plan, that he waived his right to
receive severance under the terms of his employment agreement, and that he voluntarily resigned and
was therefore ineligible for severance benefits. Tyco also argued that its severance plan is not governed
by ERISA. The district court concluded that Berman voluntarily terminated his employment agreement
with Tyco and had presented no evidence to suggest that he was constructively discharged, and
therefore, Berman had failed to demonstrate a material issue of fact with respect to the voluntariness of
his termination. We assume the parties’ familiarity with the factual background, procedural history,
and the issues presented on appeal. We elaborate only as necessary to explain our decision to vacate the
district court’s grant of partial summary judgment and remand for further proceedings.
I. Jurisdiction
This is an appeal from a grant of partial summary judgment, which, in the usual course, would
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preclude our exercise of jurisdiction. See Petrello v. White, 533 F.3d 110, 113-14 (2d Cir. 2008). For
reasons that follow, however, the unusual posture of this case in the district court permits us to exercise
jurisdiction on appeal. On March 31, 2011, the district court determined that Berman’s separation from
Tyco was voluntary and thus granted Tyco’s motion for partial summary judgment on Berman’s breach
of contract and ERISA claims concerning his demand for severance pay. The district court stated that
“[i]t is not clear if the Severance Plan constitutes a plan falling under ERISA’s ambit, but even [if] it did,
Plaintiff’s voluntary resignation would preclude recovery.” Although Berman’s state law claims
regarding unpaid salary remained undecided, Berman appealed the grant of partial summary judgment.
The Notice of Appeal was filed on April 27, 2011, and the record was transmitted shortly thereafter. On
May 10, 2011, however, the district court, having dismissed Berman’s ERISA claim, concluded that it
lacked any basis for original jurisdiction because Berman is a domiciliary of Switzerland and therefore
not a citizen of any state for the purposes of diversity jurisdiction under 28 U.S.C. § 1332. Accordingly,
the district court exercised its discretion and remanded to the state court Berman’s remaining claims. In
doing so, the district court effectively ended the life of the matter in federal court. Thus the district
court’s grant of a partial summary judgment has become a final judgment for our purposes. See
generally Bouboulis v. Transport Workers Union of America, 442 F.3d 55, 60 (2d Cir. 2006) (noting that
a premature notice of appeal may ripen into a valid notice of appeal if the district court subsequently
dismisses the plaintiff’s action in its entirety and that the failure of the Clerk to enter a separate judgment
does not require us to dismiss the appeal.)
II. Berman’s Termination
The standards for review of an order granting summary judgment are well known. Reviewing
the record in the light most favorable to Berman, we note the following.
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With respect to Berman’s claimed entitlement to benefits, we note that the status of the
Severance Plan under ERISA appears to be a threshold inquiry which should be decided by the district
court. See Mullins v. Pfizer, 23 F.3d 663, 666 (2d Cir. 1994) (finding that “[b]ecause the district court
erred in basing summary judgment on the lack of constructive discharge, a number of significant issues
were not decided or even considered below,” and that, “at the outset, the district court will have to
determine whether ERISA applies to the [plan]”). If it is an ERISA plan, there may well be a
preemption of Berman’s state law contract claim. See Paneccasio v. Unisource Worldwide, Inc., 532
F.3d 101, 114 (2d Cir. 2008) (“ERISA preempts those [state common law claims] that seek to rectify a
wrongful denial of benefits promised under ERISA-regulated plans.”).
Berman’s relationship with Tyco does not bear the usual hallmarks of traditional employment.
As an attorney in private practice, Berman began working on Tyco-related matters in 1965. In 1997, he,
purportedly for foreign regulatory purposes, became, in name only, Vice President of Tyco. The Vice
President position involved no substantive responsibilities, and Berman remained employed at his law
firm. The arrangement ended in February 2002 when Berman withdrew from private practice and,
pursuant to an oral employment agreement with Tyco’s then-Chairman and Chief Executive Officer
Dennis Kozlowski, became a full-time employee of Tyco in the capacity of Vice President. A few
months later, in June 2002, Tyco’s Board of Directors, of which Berman was also a member, began to
question the propriety of certain transactions authorized by Kozlowski. Kozlowski resigned shortly
thereafter and was ultimately indicted and convicted in New York State Supreme Court, New York
County, for activities relating to his tenure at Tyco. After Kozlowski’s resignation, Tyco hired the law
firm of Boies Schiller to conduct an independent review of Tyco’s transactions with its officers and
directors. Berman learned, at this point, that Tyco had classified him as a “consultant,” not an
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employee, and he in turn sought clarification about his status with Tyco from then-Chairman of the
Compensation Committee, Stephen Foss.
On June 25, 2002, the Board of Directors met and voted to classify Berman’s status as a
“vice-president” and “employee.” The minutes of this meeting (which were drafted by Berman) note
that he “has since 1 March 2000 been employed by the Company to render legal, regulatory and other
professional services” and that Berman’s compensation should “. . . be paid to him as an employee and
Vice President of the Company . . ..” Berman and Tyco agreed that his compensation would continue as
had been arranged with Kozlowski and Berman would be eligible for other benefits but would waive his
employee rights to certain specified benefits. These terms were memorialized in a July 31, 2002 Letter
Agreement (“Letter Agreement”).
On August 12, 2002, Berman alleges that an attorney with Boies Schiller, Paul Verkuil,
conveyed to Berman that Tyco’s newly appointed Chief Executive Officer, Edward Breen, expressed
concern about the pending public disclosure of the Letter Agreement in light of an ongoing Manhattan
District Attorney (“District Attorney”) investigation into Tyco’s transactions with its executives.
Berman testified that Verkuil asked that the agreement be terminated and that he, Berman responded
“I’ll do whatever Ed Breen wants me to do.” Berman agreed, at that time, to continue to serve on the
Board and to terminate the Letter Agreement until matters related to the District Attorney’s investigation
were “clarified.” Berman further testified that Tyco proposed to declare in its SEC filing that Berman
had, on July 31, 2002, terminated his employment and compensation arrangement but that he had
objected to this characterization of his separation from Tyco. Furthermore, notwithstanding that he was
no longer employed as Vice President or receiving compensation, Berman continued to perform work
for Tyco.
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In September 2002, Tyco’s Board of Directors voted that each of the directors who had served
during the Kozlowski era would not be renominated for election at the next annual shareholders’
meeting. According to Berman, “[a] number of directors, including Berman, agreed that as new
directors were identified and recruited, [the] remaining directors would resign to make way for their
replacements.” Around this time, Tyco also learned that the District Attorney was no longer concerned
about Berman’s role at Tyco. Berman then approached Breen and fellow board member, John A. Krol
(“Krol”), to discuss what he, Berman, could do for Tyco. He suggested to Krol and Breen that he could
continue to work at Tyco to assist with legal and regulatory issues that required some degree of
institutional knowledge. Berman noted that Breen and Krol were “noncommittal” regarding any future
position for him at the company and “it was clear to [him] that Breen did not wish Berman to have any
continuing role as a Vice President or employee of Tyco.” Thus, it had become apparent to Berman,
that, although he had agreed to leave for the limited purpose of assisting Tyco with the District Attorney
investigation and SEC filing, Berman had in fact been forced out of Tyco. On December 5, 2002,
Berman resigned from the Board. Berman then initiated this action.
Rejecting Berman’s argument that his resignation was conditional and premised on the
understanding that he would resign “until matters are clarified” with respect to the District Attorney’s
investigation, the district court concluded that Berman had voluntarily terminated his employment with
Tyco on August 12, 2002, and was therefore ineligible for severance benefits. We disagree.
Termination can be actual or constructive. See generally Chertkova v. Connecticut General Life. Ins.
Co., 92 F.3d 81 (2d Cir. 1996). Actual discharge or termination “occurs when the employer uses
language or engages in conduct that would logically lead a prudent person to believe his tenure has been
terminated.” Id. at 88 (quoting NLRV v. Trumbull Asphalt Co., 327 F.2d 841, 843 (8th Cir. 1964)
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(internal quotation marks omitted). Here, the record evidence, construed in the light most favorable to
Berman, would support a reasonable jury finding the following facts. Tyco’s outside counsel, Verkuil,
suggested that Berman terminate his letter agreement with Tyco until the District Attorney’s
investigation ended. The qualifier “until” suggested to Berman that his resignation, although voluntary
on its face, was conditional and would last only “until matters are clarified.” Once the District Attorney
concluded its investigation involving Berman’s employment, Breen’s and Krol’s rejection of Berman’s
efforts to have an ongoing role as an employee of Tyco, coupled with Tyco ceasing to compensate
Berman, would logically lead Berman to perceive that his employment had in fact been involuntarily and
unconditionally terminated. See id.To the extent that Tyco argues that there is no evidence to suggest that Verkuil was relaying a
request from Tyco or otherwise acting on Tyco’s behalf in asking Berman to resign, the record, read in
the light most favorable to Berman, belies such an assertion. Indeed, Berman testified that Verkuil
prefaced his request that Berman resign with the statement that Breen was concerned about how
Berman’s letter agreement would be received in the August 14, 2002 SEC filing. Furthermore, when
Berman responded that he would do “whatever Ed Breen wants me to do,” Verkuil did not, at that point,
clarify that it was he, and not Tyco, who was asking Berman to resign. Nor did Tyco, upon learning of
Berman’s resignation raise any question about the resignation or otherwise indicate to Berman that it had
not sought his resignation. With respect to Tyco’s suggestion that the termination arranged by Verkuil
was not a conditional temporary one, that argument too is belied by the facts viewed in the light most
favorable to Berman. According to Berman’s testimony, Tyco continued to direct Tyco-related work
matters to Berman ― a fact suggestive of Tyco’s intention to not fully sever its relationship with
Berman. Under the circumstances and in light of the turmoil at Tyco during the relevant period, a jury
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could conclude that Berman reasonably relied on Verkuil’s representation that Berman’s termination
was conditional and only in effect as necessary until “matters [were] clarified” and Tyco, by continuing
to funnel work to Berman, misled Berman as to the accuracy of Verkuil’s representation. See Stichting
Ter Behartiging Van de Belangen Van Oudaandeelhouders in Het Kapitaal Van Saybolt Int’l B.V. v.
Schreiber, 407 F.3d 34, 56 (2d Cir. 2005) (stating that “[a] principal may be bound by the actions of an
agent on the basis of apparent authority only where it is shown that the third party – here [Berman] –
reasonably relied upon the misrepresentation of the agent because of some misleading conduct on the
part of the principal.”) (quoting Hallock v. State, 64 N.Y. 2d 224, 231 (1984) (internal quotations and
emphasis omitted and alteration added)).
Because the record is sufficient to support a jury finding that Berman’s termination was actual
and involuntary, we need not reach whether Berman was, in the alternative, constructively terminated,
and we leave for the district court to consider, in the first instance, whether the Severance Plan is an
ERISA plan and whether Berman waived, by signing the Letter Agreement, his participation in the
Severance Plan. The district court’s grant of partial summary judgment is VACATED and
REMANDED for proceedings consistent with this ruling. The district court’s remand order, dated May
10, 2011, is also VACATED “so that the district court may, in its discretion, exercise supplemental
jurisdiction.” Kruse v. Wells Fargo Home Mortg., Inc., 383 F.3d 49, 62 (2d Cir. 2004).
FOR THE COURT:
Catherine O=Hagan Wolfe, Clerk
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