Mallon v. Trust Company of New Jersey Severance Pay Plan

Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit
6-27-2008
Mallon v. Trust Co NJ
Precedential or Non-Precedential: Non-Precedential
Docket No. 07-1087
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 07-1087
___________
SANFORD MALLON; NICHOLAS COTTER;
JAMES OUTWATER; GERALD JACOB; DAVID A. TEPPER,
Appellants
v.
TRUST COMPANY OF NEW JERSEY SEVERANCE PAY PLAN; PLAN
ADMINISTRATOR OF THE TRUST COMPANY OF NEW JERSEY SEVERANCE
PAY PLAN; NORTH FORK BANK
____________________________________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 05-cv-03666)
District Court Judge: Honorable Harold A. Ackerman
____________________________________
Submitted Pursuant to Third Circuit LAR 34.1(a)
June 24, 2008
Before: SLOVITER, BARRY and NYGAARD, Circuit Judges
(filed: June 27, 2008 )
___________
OPINION
___________
PER CURIAM
Appellants challenge the district court’s order granting appellees’ motion for
judgment on the pleadings and denying appellants’ cross-motion for summary judgment.
For the reasons that follow, we will affirm.
I.
We adopt the district court’s recitation of the facts put forth as follows:
On or about January 7, 2003, in anticipation of its merger with
[appellee] North Fork Bank (“North Fork”), Trust Company of New Jersey
(“TCNJ”) adopted the Trust Company of New Jersey Severance Pay Plan
(the “Plan”). The parties agree that the Plan constitutes an employee
welfare benefit plan under the Employee Retirement Income Security Act of
1974 (“ERISA”), 29 U.S.C. § 1001, et. seq. [Appellants] Sanford Mallon,
Nicholas Cotter, James Outwater, Gerald Jacob, and David Tepper were
employees of TCNJ. On May 14, 2004, North Fork completed its
acquisition of TCNJ. North Fork offered employment to all [appellants],
and they became employees of North Fork as of May 14, 2004.
[Appellants] contend that the conditions of their employment
changed substantially and detrimentally post-merger. For example,
[appellant] Mallon claims he was demoted from Senior Vice-President to
Regional Vice-President, and the other [appellants] claim they were
demoted from Regional Sales Managers to Account Executives.
[Appellants] also allege that their managerial and supervisory duties were
significantly reduced. [Appellants] worked in residential mortgage lending,
and they claim that North Fork decided to [de]emphasize that line of
business. Consequently, according to [appellants], their commissions
declined as well. [Appellants] claim that their compensation was largely
determined by commissions, so they argue that this reduction in business
had a serious effect. [Appellees] dispute these contentions, especially with
regard to [appellants’] duties and the reduction in their earned commissions.
In July and August 2004, each [appellant] notified North Fork that
they deemed themselves constructively discharged because, in their view,
North Fork detrimentally changed their “duties, responsibilities, job title[s]
and compensation” such that the changes were “tantamount to termination.”
One day after each [appellant] gave notice of constructive discharge, each
[appellant] filed a claim for severance benefits under the Plan. Each
[appellant] subsequently received a letter dated November 4, 2004[,] from
the Plan Administrator denying each [appellant’s] severance claim because
each [appellant’s] employment was not “involuntarily terminated as
2
required by the Severance Pay Plan as a condition of eligibility for
benefits.” The Plan Administrator issued an amended notice of denial to
each [appellant] on December 10, 2004. This amended notice, which
cancelled and superceded the initial November 4 notice, elaborated upon
the reasons for denial. Each amended notice of denial stated that each
[appellant’s] claim was denied because employment was not involuntarily
terminated and because, “assuming that [] employment was involuntarily
terminated as required, nevertheless [the] claim for benefits is excessive due
to the fact that [] base pay is incorrectly computed as [] compensation was
not entirely base pay.”
All [appellants] filed a timely administrative appeal of the denial and
submitted additional documentation in support of the appeal. By letter to
each [appellant] dated July 11, 2005, the Plan Administrator denied each
appeal.1
1
In each letter, the Plan Administrator stated:
a) that the respective claimants “tendered [their] resignation, which is not a
qualifying event;”
b) that the “Plan does not recognize ‘constructive discharge’ as a qualifying
event;”
c) that “[a]ssuming, arguendo, that such an event were qualifying, no
constructive termination occurred;” because “at the time of the merger
[they] accepted and worked for a substantial period of time in a position of
comparable employment, as defined by the Severance Plan;”
d) that the claims were excessive because they were “based on compensation
other than annualized base salary;”
e) that “[c]ommissions are not to be considered in computing base salary
under Severance Plan Section 2.7, as they constitute a form of ‘overtime,
bonuses, special premium and allowances,’” and
f) that the claims were excessive because each claimant was “not an officer,”
“provided no evidence that [they] were an officer,” and that TCNJ and
North Fork records, including those provided by the claimants, “confirm
3
On July 22, 2005, appellants filed a complaint in the United States District Court
for the District of New Jersey against The Trust Company of New Jersey Severance Pay
Plan, The Plan Administrator of the Trust Company of New Jersey Severance Plan, and
North Fork Bank alleging the wrongful denial of severance benefits under the Plan in
violation of ERISA. Appellees moved for judgment on the pleadings while appellants
filed a motion for summary judgment. On December 12, 2006, the district court granted
appellees’ motion and denied appellants’ motion.
II.
The district court had subject matter jurisdiction over this case under 28 U.S.C. §
1331 because it arose under ERISA. We have appellate jurisdiction under 28 U.S.C. §
1291 over the final judgment of the district court. We exercise plenary review of the
dismissal of a complaint under Federal Rule of Civil Procedure 12(c). See Leamer v.
Fauver, 288 F.3d 532, 535 (3d Cir. 2002); see also Green v. Fund Asset Mgmt., 245 F.3d
214, 220 (3d Cir. 2001). As with a Rule 12(b)(6) motion, we must “view the facts
presented in the pleadings and the inferences to be drawn therefrom in the light most
favorable to the non-moving party.” Green, 245 F.3d at 220. When reviewing a denial of
summary judgment, our scope of review is also plenary. In both cases, we apply the same
test as the district court should have applied initially. See Dewitt v. Penn-Del Directory
that [they] were not [] officer[s].”
4
Corp., 106 F.3d 514, 519 n.4 (3d Cir. 1997).
III.
A. Standard of Review
Appellants first argue that the district court erred in reviewing the Plan
Administrator’s decision too deferentially. In Firestone Tire & Rubber Company v.
Bruch, 489 U.S. 101, 115 (1989), the Supreme Court instructed that, under ERISA §
502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), “if a benefit plan gives discretion to an
administrator or fiduciary who is operating under a conflict of interest, that conflict must
be weighed as a factor in determining whether there is an abuse of discretion.” 2 (citation
and internal quotation marks and brackets omitted); see also Noorily v. Thomas & Betts
Corp., 188 F.3d 153, 159 (3d Cir. 1999). Based upon that instruction, in Pinto v. Reliance
Standard Life Insurance, 214 F.3d 377, 392-93 (3d Cir. 2000), we adopted a sliding scale
approach to cases involving an apparent conflict of interest, “calibrating the intensity of
our [arbitrary and capricious] review to the intensity of the conflict.” For example, we
have held that when an employer is directly funding a portion of a plan and would thereby
stand to benefit financially from the denial of a current employee’s claim, a “somewhat
2
The Plan here grants the Plan Administrator discretion over determining
eligibility for benefits. Section 4.1 of the Plan, titled “ The Plan Administrator,” states
that “[t]he Plan Administrator shall administer this Plan, and furnish all notices and do all
filings, according to law, and shall have the power, in its sole discretion, to implement,
operate and interpret this Plan, to determine all questions relating to eligibility for benefits
under the Plan, and, further, to take such other action as the Plan Administrator deems
equitable under the circumstance in light of the purpose of this Plan.”
5
heightened” standard of review applies. See Smathers v. Multi-Tool, Inc./Multi--Plastics,
Inc. Employee Health and Welfare Plan, 298 F.3d 191, 199 (3d Cir. 2002). Such a case
presents a conflict of interest that, although not extraordinary, warrants a “more
penetrating review of [an] administrator’s decisionmaking process.” 3 Id.The district court plainly stated that it was applying a slightly heightened standard
of review in line with the requirements of cases such as Firestone and Pinto. In arriving
at this conclusion, the district court properly took into account all relevant factors
that—potentially—could have heightened its scrutiny even further. For instance, the
district court noted that the Plan was funded out of North Fork’s operating funds and that
the appellants were former, not current, employees of North Fork. But, as the district
court also noted, there was no evidence to support assertions of procedural anomalies in
the Plan Administrator’s decisions that would have placed this case at the least deferential
end of the range of review. Cf. Pinto, 214 F.3d at 394. Importantly, each of the
appellants was treated in a like fashion under the Plan Administrator’s interpretation.
Given the facts presented here, we find that the standard of review adopted by the district
3
In applying the sliding scale approach, a court may also take into account the
sophistication of the parties, the information accessible to the parties, and the particular
financial arrangement involved. See Pinto, 214 F.3d at 392. It is also relevant whether
the claimant seeking benefits was then the fiduciary’s employee, as to whom there are
conflict-mitigating factors such as loss of morale and higher wage demands, or a former
employee, as to whom those mitigating factors are not present. See Kosiba v. Merck &
Co., 384 F.3d 58, 65 (3d Cir. 2004). Finally, “demonstrated procedural irregularity, bias,
or unfairness in the review of the claimant’s application for benefits” warrants a
heightened standard of review. Id. at 66.
6
court sufficiently accounted for the Plan Administrator’s potential conflicts of interest;
thus, the degree of the scrutiny matched the degree of the conflict presented. See Pinto,
214 F.3d at 392 (“We think the best way to ‘consider’ these potentially relevant factors
(in this case, the structural conflict of interest) is to use them to heighten our degree of
scrutiny, without actually shifting the burden away from the plaintiff”).
B. Plan Administrator’s Decision
Appellants further argue that the Plan Administrator erred in construing the Plan in
such a way that appellants were denied eligibility for severance benefits due to their
resignations. Section 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B), gives a
participant or beneficiary the right to bring a civil action “to recover benefits due to him
under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify
his rights to future benefits under the terms of the plan.” 4 In reviewing the decision of a
Plan Administrator, we consider the following factors: “(1) whether the interpretation is
consistent with the goals of the Plan; (2) whether it renders any language in the Plan
4
As the district court noted, appellants failed to assert that North Fork had forced
them to resign due to an improper motive in violation of ERISA § 510, 29 U.S.C. § 1140.
Thus, our review is confined to whether the Plan Administrator violated the terms of the
Plan itself. See Joyce v. RJR Nabisco Holdings Corp., 126 F.3d 166, 176 (3d Cir. 1997)
(addressing a constructive discharge claim under the auspices of ERISA § 510 which
provides for an “‘objective standard,’ which asks whether the employer ‘created
conditions so intolerable that a reasonable person would resign’”); see also Berger v.
Edgewater Steel Co., 911 F.2d 911, 923 (3d Cir. 1990) (construing the term’s application
under ERISA § 510). We note that our review of the record suggests that, if we were to
reach the question, appellants would have failed to meet this constructive discharge
standard.
7
meaningless or internally inconsistent; (3) whether it conflicts with the substantive or
procedural requirements of the ERISA statute; (4) whether the [relevant entities have]
interpreted the provision at issue consistently; and (5) whether the interpretation is
contrary to the clear language of the Plan.” Moench v. Robertson, 62 F.3d 553, 566 (3d
Cir. 1995); see also Dewitt, 106 F.3d at 520.
We begin with the “words of the Plan.” Bollman Hat Co. v. Root, 112 F.3d 113,
116 (3d Cir. 1997). In pertinent part, the Plan provides the following:
3.1 Eligibility for Severance. Subject to Section 3.2, an Employee
whose employment is involuntarily terminated by the Company because of
permanent layoff, termination other than for Cause (as defined below),
termination for economic reasons, reduction-in-force, facility closing,
reorganization or consolidation, shall be eligible for severance pay
determined in accordance with Section 3.3; provided, however, that an
Employee, who is offered employment by the Company that is comparable
to such Employee’s then current position but who refuses such comparable
employment, shall not be eligible to receive severance pay under this Plan.
For purposes of the foregoing, an offer of employment shall be deemed to
be “comparable” if it is for a position that is similar to the Employee’s then
current position, provides for an annual base salary at least equal to the
Employee’s then current base salary and is located within the State of New
Jersey no more than twenty-five (25) miles from the location of the
Employee’s then current position.5
5
Granting appellees’ motion for judgment, the district court made the following
conclusions concerning the reasonableness of the Plan Administrator’s interpretation:
The provision in Section 3.1 of the Plan precluding eligibility for
otherwise eligible employees who refuse an offer of comparable
employment is not rendered meaningless or internally inconsistent by the
Plan Administrator’s reading of the Plan. The Plan dictates that an eligible
employee becomes ineligible for severance benefits if he or she declines an
offer of comparable employment. However, as [appellees] argue, this
8
We agree substantially with the district court’s opinion. Here, the Plan
Administrator’s interpretation was reasonable as it neither rendered any of the Plan’s
language meaningless or inconsistent nor did it conflict with the plain language of the
Plan. As the district court noted, the Plan Administrator’s determination that the Plan
does not recognize constructive discharge as a qualifying event was not arbitrary or
capricious, even under a heightened standard. Under the terms of the Plan, the Plan
Administrator determined that appellants’ voluntary resignation precluded them from
falling under the terms of § 3.1 because the Plan provides severance benefits to an
employee who “is terminated on or after the Effective Date.” The bulk of appellants’
argument, in fact, is belied by the purpose of the Plan to for “involuntary termina[tion] by
provision does not necessarily mean that an otherwise ineligible
employee—ineligible because the employee tendered his
resignation—becomes eligible if he or she fails to receive an offer of
comparable employment. The Plan only requires consideration of
comparable employment where an employee refused a position with North
Fork, and does not directly contemplate consideration, as [appellants] urge,
of whether an accepted offer constitutes comparable employment.
***
This Court could imagine an interpretation of the Plan that would
allow eligibility for constructive discharge, and might indeed have made
such an interpretation if it were considering the Plan language as a matter of
first impression . . . Even considering the slightly heightened review
applicable here and the more penetrating inquiry it requires, the Plan
Administrator’s interpretation meets the standard outlined by our Circuit in
Dewitt and other cases. This Court concludes that the Plan Administrator’s
interpretation of the Plan to preclude severance benefits eligibility for
constructive discharge was not arbitrary and capricious.
9
the Company.” 6 This interpretation was reasonable. See generally Frank v. Colt Indus.,
Inc., 910 F.2d 90, 101 (3d Cir. 1990) (determining that since requirement for eligibility
for benefits was termination, and employees voluntarily resigned before they were
actually terminated, employees could not be deemed “effectively terminated” and thus
eligible for severance benefits). Further, no Plan participant reading such language would
have been led to believe differently.
Generally, the interpretation of a severance plan is a fact-specific inquiry in which
precedent provides us little guidance. Significantly, however, the Plan here, unlike
severance plans in other cases construing instances of constructive discharge by an
employer, does not provide for termination by an employee due to a significant reduction
in duties or other deleterious circumstance. Cf. Smith v. United Television, Inc. Special
Severance Plan, 474 F.3d 1033, 1035 (8th Cir. 2007) (determining whether resignation
was for “Good Reason” where plan provided for severance due to “reduction in salary or
bonus opportunity”); Marks v. Newcourt Credit Group, Inc., 342 F.3d 444, 458-459 (6th
Cir. 2003) (determining whether actual termination was a condition precedent to
establishing a qualifying termination under a benefits plan recognizing qualifying
terminations by the employee because, among other reasons, the company significantly
6
Involuntary termination under the Plan occurs for one of six specific reasons.
One of these six reasons is “other than for Cause” which could fairly encompass a great
deal of situations. The Plan Administrator’s interpretation, however, renders this term
neither meaningless nor without content.
10
reduced the employee’s duties); Dabertin v. HCR Manor Care, Inc., 373 F.3d 822, 827-28
(7th Cir. 2004) (examining whether job alterations amounted to a reduction in scope of
position where severance plan covered “termination by the Participant for Good
Reason”). We have no authority here to redraft the Plan in an effort to blunt the import of
its language excluding such a provision. It would also strain the confines of our review
here to hold that the Plan Administrator abused its discretion by emphasizing the Plan’s
requirement that a covered termination be “by the Company.”
In addition, appellants had no claim for severance benefits based on “comparable
employment,” or a lack thereof, beyond what was provided for in the Plan. “ERISA
requires ‘that any contractually accrued rights be discernible from the written terms of the
formal ERISA plan documents themselves.’” Hooven v. Exxon Mobil Corp., 465 F.3d
566, 573 (3d Cir. 2006) (quoting Carr v. First Nationwide Bank, 816 F. Supp. 1476, 1490
(N.D.Cal.1993)); see also 29 U.S.C. § 1132(a)(1)(B). “Although we occasionally
employ unilateral contract concepts in ERISA cases, we do so only where ‘the asserted
unilateral contract is based on the explicit promises in the ERISA plan documents
themselves.’” Id. at 573 (quoting Carr, 816 F. Supp. at 1490-91). As the district court
noted, the Plan requires consideration of “comparable employment” only where an
employee declines an offer of continued employment with North Fork.
Thus, under the terms of the Plan, appellants could have claimed benefits for
involuntary termination if they declined an offer that they deemed not comparable and
11
then filed suit. Appellants, however, would have had to refuse employment with North
Fork in order for the courts to question whether the actual offer with Northfork was,
under the terms of the Plan, comparable to their current positions. Cf. Otero Carrasquillo
v. Pharmacia Corp., 466 F.3d 13, 16 (1st Cir. 2006) (assessing whether a rejected offer of
employment was for a “comparable position”); Youchum v. Barnett Banks, Inc.
Severance Pay Plan, 234 F.3d 541, 545-47 (11th Cir. 2000) (determining whether a
rejected written offer of employment was “comparable employment” under the terms of a
severance plan). It was thus reasonable for the Plan Administrator to conclude that
appellants, upon acceptance of their positions with North Fork, relinquished all of their
rights to “comparable positions” under the Plan even though they later became
dissatisfied with their new work at North Fork. By accepting the offers of new positions,
appellants excluded themselves from a potential class of beneficiaries who were
involuntarily terminated and then refused offers of comparable subsequent positions with
North Fork. Such a class of employees would no doubt have been eligible to put forth
“comparable employment” claims under the plan. Cf. Otero Carrasquillo, 466 F.3d at 16.
IV.
As the district court noted, one might disagree with the Plan Administrator’s
interpretation of the Plan. The Plan Administrator’s decision to deny appellants
severance benefits in light of its interpretation of “involuntary termination,” however, was
not arbitrary or capricious. Even under a heightened standard of review, our task is not to
12
substitute our view for that of the Plan Administrator. Thus, we find no error on the part
of the district court and will affirm.