McCormack v. Computer Sciences

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
JACQUES E. MCCORMACK, 
Plaintiff-Appellee,
v.
COMPUTER SCIENCES CORPORATION;  No. 03-2095
POLICY MANAGEMENT SYSTEMS
CHANGE IN CONTROL SEVERANCE PAY
PLAN FOR SELECT EMPLOYEES,
Defendants-Appellants.

Appeal from the United States District Court
for the District of South Carolina, at Columbia.
Cameron McGowan Currie, District Judge.
(CA-01-3009-3)
Argued: February 25, 2004
Decided: April 29, 2004
Before NIEMEYER, LUTTIG, and WILLIAMS, Circuit Judges.
Affirmed in part, reversed in part by unpublished opinion. Judge Nie-
meyer wrote the opinion, in which Judge Luttig and Judge Williams
joined.
COUNSEL
ARGUED: Mason Gardner Alexander, Jr., ELLZEY & BROOKS,
L.L.C., Charlotte, North Carolina, for Appellants. Henry Scarborough
Knight, Jr., CONSTANGY, BROOKS & SMITH, Columbia, South
2 MCCORMACK v. COMPUTER SCIENCES CORP.
Carolina, for Appellee. ON BRIEF: C. Frederick W. Manning, II,
ELLZEY & BROOKS, L.L.C., Charlotte, North Carolina, for Appel-
lants.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
NIEMEYER, Circuit Judge:
Following the December 2000 merger of Policy Management Sys-
tems Corporation ("PMSC") and Computer Sciences Corporation
("Computer Sciences"), Jacques McCormack, an officer of PMSC,
terminated his employment by reason of a change in control of PMSC
and claimed severance benefits available to him in such circum-
stances. He also claimed a bonus under a stock plan. While Computer
Sciences tendered a severance payment to McCormack, McCormack
disputed the amount, as well as Computer Sciences’ refusal to tender
any benefit under the stock plan.
Because the parties were unable to resolve their differences
through internal procedures, McCormack commenced this action for
(1) the larger severance payment to which he claimed entitlement and
(2) a stock bonus under the stock plan. Following a bench trial, the
district court awarded McCormack $359,550 in additional severance
pay, plus interest and attorneys fees. It also determined that McCor-
mack was entitled to the stock bonus.
On this appeal, we affirm the district court’s judgment insofar as
it awards severance benefits to McCormack, but we reverse its award
of bonus stock to McCormack. Our reasons follow.
I
McCormack began his employment with PMSC in 1997 as a
Senior Vice President and Controller of the company, and he became
MCCORMACK v. COMPUTER SCIENCES CORP. 3
a participant in the company’s "Change in Control Severance Pay
Plan" ("Severance Plan"). The purpose of the Severance Plan was to
provide qualifying employees with severance benefits in the event
that the employees suffered a constructive termination by PMSC as
a result of a change in control of the company. Among other benefits,
the Severance Plan provided three components for calculating an eli-
gible employee’s severance. First, paragraph 7(i) provided that an
employee would receive three times his annual base salary at the time
of termination. Second, paragraph 7(ii) provided that the employee
would receive three times the greater of his target bonus for the year
of termination or the actual bonus he had received during the previous
year. Finally, paragraph 8(c)(ii) provided that the employee was enti-
tled to the greater of the accrued annual bonus for the year of termina-
tion or a pro-rata amount of the target bonus for the period of such
year through the date of termination.
McCormack also became a participant in PMSC’s Restricted Stock
Ownership Plan ("RSOP"). The RSOP required that participating
executives own an amount of company stock consistent with an indi-
vidualized annual guideline target. If an executive did not reach his
target, one-half of his annual bonus was paid in the form of restricted
company stock. In addition, under the RSOP, an executive would
receive a stock "uplift," which amounted to additional stock equal to
25% of his bonus.
PMSC did not pay any bonuses in 1999. But in 2000, it targeted
McCormack’s bonus at $76,125, amounting to 35% of his $217,500
salary. The record contains no evidence that an actual bonus for
McCormack for 2000 was ever calculated.
During the summer of 2000, PMSC entered into an agreement to
merge with Computer Sciences, and the merger was consummated on
December 27, 2000, when Computer Sciences purchased all of
PMSC’s outstanding stock. The closing of the merger constituted a
"change in control," as defined in the Severance Plan, and amounted
to a constructive termination event upon which participants in the
Severance Plan could act to terminate their employment and receive
benefits. The consummation of the merger, however, ended the
RSOP.
4 MCCORMACK v. COMPUTER SCIENCES CORP.
On December 29, 2000, two days after the merger, McCormack
wrote Pete Boykin, the President of Computer Sciences, and notified
him that the acquisition of PMSC worked a "change in control,"
which, under the Severance Plan, constituted a "constructive termina-
tion event." McCormack further informed Boykin:
[T]his letter is provided solely to establish and preserve my
rights under the Plan, by notifying you that I consider the
above described "constructive termination event" to have
terminated my employment effective December 27, 2000.
Without waiving any of my rights under the Plan I am
pleased to provide services during the thirty day cure period
set forth in the plan.
McCormack made himself available, as promised, and continued to
assist Computer Sciences in the transition. On January 11, 2001,
Computer Sciences advised McCormack that his services would no
longer be needed beyond January 19, 2001.
On February 1, 2001, Computer Sciences tendered McCormack a
check in the sum of $879,550, which it claimed fully satisfied its obli-
gation to McCormack under the Severance Plan. McCormack dis-
puted the amount of the severance payment, stating that it was
miscalculated under the terms of the Severance Plan. McCormack
noted that because he was constructively terminated on December 27,
2000, his severance payment should have been computed on the fol-
lowing basis: three times his annual salary, per paragraph 7; plus three
times his targeted 2000 bonus, per paragraph 7(ii); plus a pro-rata por-
tion of his 2000 targeted bonus, per paragraph 8(c)(ii). Instead, Com-
puter Sciences had taken the position that McCormack was
terminated on January 19, 2001 and therefore that his severance pay-
ment should be calculated with respect to the 19 days that McCor-
mack had worked in 2001, not the 360-odd days that McCormack had
worked in 2000. McCormack also disputed the fact that Computer
Sciences provided no benefit under the RSOP.
Because the parties were unable to resolve their differences,
McCormack commenced this action against Computer Sciences under
the Employee Retirement Income Security Act of 1974 ("ERISA") for
benefits to which he claimed he was entitled. See 29 U.S.C.
MCCORMACK v. COMPUTER SCIENCES CORP. 5
§ 1132(a)(1)(B) (affording participants in a qualified plan a private
right of action to enforce their rights under the plan). In the course of
the proceedings, the parties stipulated that Computer Sciences’ acqui-
sition of PMSC worked a "change in control" on December 27, 2000,
and that, because McCormack suffered a material reduction in his
responsibilities and authority, he had experienced a "constructive ter-
mination event." The parties continued to dispute, however, whether
McCormack’s termination occurred on December 27, 2000, as he
claimed in his December 29 letter to Computer Sciences, or on Janu-
ary 19, 2001, as claimed by Computer Sciences when it indicated it
would no longer need his services.
The district court determined that McCormack was entitled to date
his constructive termination as of December 27, 2000. It also ruled
that, because the RSOP’s lapse occurred simultaneously with the
"constructive termination event," McCormack was entitled to the "up-
lift" bonus of stock under the RSOP. The court included in its judg-
ment a monetary award in favor of McCormack in the amount of
$359,557.60 in unpaid severance benefits, $127,482.24 in interest,
and $123,096.27 for attorneys fees.
This appeal followed.
II
We review a district court’s interpretation of an ERISA plan de
novo and its findings of fact for clear error. See Johannssen v. Dist.
No. 1 - Pac. Coast Dist., MEBA Pension Plan, 292 F.3d 159, 168 (4th
Cir. 2002).
The issue on the claim for Severance Plan benefits reduces to the
question of whether McCormack’s employment with Computer Sci-
ences terminated in December 2000, when he sent his notice of termi-
nation to Computer Sciences, or on January 19, 2001, when Computer
Sciences no longer needed McCormack’s services, as it had stated on
January 11, 2001. For the reasons that follow, we conclude that
McCormack’s letter of December 29 effectively terminated his
6 MCCORMACK v. COMPUTER SCIENCES CORP.
employment and that that termination date provided the date for com-
puting McCormack’s severance benefits.*
The Severance Plan provides unequivocally that severance benefits
are payable, based on the date of a "covered termination":
The severance payment to be made shall be paid to the Eli-
gible Employee in a single lump sum cash payment, net of
any required tax withholding, within fifteen (15) calendar
days after the date of the Eligible Employee’s Covered Ter-
mination.
Severance Plan, ¶ 7 (emphasis added). McCormack asserts that the
termination effected by his December 29 letter was a "covered termi-
nation" and that severance benefits therefore are payable within 15
days after that date. Computer Sciences, however, contends that
McCormack continued working after December 29 and that he was
not terminated until January 19, 2001, when the company told him his
services would no longer be needed. In addition, Computer Sciences
argues that even if the December 29 date were used, the effective date
of a covered termination must be pushed back 30 days after the
notice-of-termination date in order to permit Computer Sciences to
"cure" the facts giving rise to the covered termination — in this case,
a change of control. In essence, Computer Sciences argues that the
30-day cure period postpones the date from which severance pay-
ments are computed because only after the 30-day period can it be
concluded that a termination was a "covered termination."
While Computer Sciences’ position is not frivolous, we believe that
the better reading holds that the cure period established in the Sever-
ance Plan is a condition subsequent that determines whether a "con-
structive termination event" qualifies to make the employee’s
termination a "covered termination." In providing a cure period, how-
*The district court found that McCormack’s termination was on
December 27, the date on which McCormack said his termination was
effective. Because McCormack did not give notice of termination until
December 29 and because the constructive termination event of Decem-
ber 27 was not self-actuating, however, we conclude that McCormack’s
employment terminated on December 29.
MCCORMACK v. COMPUTER SCIENCES CORP. 7
ever, the Severance Plan does not purport to change the actual date
of termination. Paragraph 7 says that benefits are payable 15 days
after the date of a covered termination. A "covered termination" is a
defined term, to which paragraph 6 of the Severance Plan is devoted.
Consequently, whatever is written in paragraph 6 determines whether
the employee’s termination was a "covered termination," but it does
not, for purposes of the severance payment provided by paragraph 7,
change the "date" from which severance payments are payable.
Under paragraph 6 of the Severance Plan, a termination is a "cov-
ered termination" if it follows a "constructive termination event," and
a "constructive termination event" is defined as, among other things,
a "material reduction in an Eligible Employee’s title, position, report-
ing relationship, responsibilities or authority." In order for a "con-
structive termination event" to be treated as one under paragraph 6,
the employer must have a 30-day period within which to cure the
events giving rise to a "constructive termination event" — in this
case, the change in McCormack’s authority. Only after the cure
period has been allowed may the "constructive termination event" be
"treated" as a "constructive termination event" for purposes of quali-
fying a termination as a "covered termination," and, consequently, not
until 30 days have elapsed can one know whether a termination quali-
fies as a "covered termination." But waiting this 30-day period does
not postpone the date of the termination that an employee has posited
as a "covered termination." It is only a condition subsequent that must
be fulfilled before the original "constructive termination event" can be
"treated" as one.
In the facts of this case, the merger between PMSC and Computer
Sciences on December 27, 2000 was a "constructive termination
event," and the parties have so stipulated. McCormack’s letter of
December 29, 2000 was a termination of his employment which he
posited as a "covered termination" because it followed a "constructive
termination event." Accordingly, under paragraph 7 of the Severance
Plan, he would be entitled to severance pay as of that notice letter if
it turned out that he was correct that his termination was a "covered
termination." Because a constructive termination event could not be
"treated" as one until the 30-day cure period elapsed, McCormack
could not know on December 29 whether his termination was a cov-
ered termination. But by the end of January 2001, when the 30-day
8 MCCORMACK v. COMPUTER SCIENCES CORP.
cure period elapsed, he was able to know that his termination on
December 29 was a "covered termination." Nothing in paragraph 6 of
the Severance Plan, describing how a termination qualifies as a cov-
ered termination, purports to state that McCormack is denied the ben-
efit of the termination date that was established by his letter of
termination. Because his letter of December 29 terminated his
employment, which by the passage of time could be treated as a cov-
ered termination, McCormack became entitled to severance benefits
from December 29, not from some date in January 2001.
Accordingly, we affirm the district court’s judgment insofar as it
awards McCormack severance benefits.
III
Computer Sciences argues that even if it owes severance benefits
as of December 29, 2000, it has no liability under the RSOP because
that plan ended when all of the PMSC stock was acquired by Com-
puter Sciences on December 27, 2000. We agree. With the termina-
tion of the RSOP in the merger documents and the transfer of all of
PMSC’s stock to Computer Sciences, the plan no longer existed and
could no longer function.
Accordingly, we reverse the district court’s judgment insofar as it
awards benefits under the RSOP.
AFFIRMED IN PART, REVERSED IN PART