Nancy J. Johnson v. U.S. Bancorp

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 04-2656
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Nancy J. Johnson, *
*
Appellee, *
* Appeal from the United States
v. * District Court for the
* District of Minnesota.
U.S. Bancorp Broad-Based Change *
In Control Severance Pay Program; *
Severance Administration Committee, *
*
Appellants. *
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Submitted: May 11, 2005
Filed: September 9, 2005
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Before WOLLMAN, BYE, and COLLOTON, Circuit Judges.
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COLLOTON, Circuit Judge.
U.S. Bancorp Comprehensive Welfare Benefit Plan/Broadbased Change in
Control Severance Pay Program and its administrator, the Severance Administration
Committee (“Committee”), appeal from the district court’s order granting summary
judgment in favor of Nancy Johnson on her claim for benefits under the Plan. The
Committee argues that the district court erred in granting summary judgment because
the Committee’s determination that Johnson was fired for cause was not an abuse of
discretion. We agree, and therefore reverse.
I.
Johnson had been a long-time employee of U.S. Bancorp when her employment
was terminated in April 2002. She was fired after viewing computer files in a folder
maintained by her supervisor, Kathy Ashcraft. The path to the folder containing the
files was “\\INCFIN01\vol2:\Shared\CAP\KathyAshcraft\personnel.” One of the files
accessed by Johnson, labeled “2002 Performance Goals,” contained performance
information regarding other employees and information on future organizational
changes. Three of the files, entitled “Please join us for our Wedding Rehearsal,”
“direction,” and “G guestlist,” were of a personal nature, and contained an invitation
to Aschraft’s wedding, directions to the event, and a guest list, respectively.
Around the time of Johnson’s termination, U.S. Bancorp was involved in a
merger with Firstar Corporation. U.S. Bancorp, in an effort to retain a number of
valued employees in the face of the uncertainty caused by the pending merger, offered
certain of them a severance plan (the “Plan”) providing for severance pay in the event
they were terminated as a result of the merger. The Plan provided that employees
terminated for “Cause” would not receive severance pay under the Plan. Cause was
defined in relevant part as follows:
[G]ross and willful misconduct during the course of employment . . .
including, but not limited to, theft, assault, battery, malicious destruction
of property, arson, sabotage, embezzlement, harassment, acts or
omissions which violate the Employer’s rules or policies (such as
breaches of confidentiality), or other conduct which demonstrates a
willful or reckless disregard of the interests of the Employer or its
Affiliates . . . . Circumstances constituting Cause shall be determined
in the sole discretion of [U.S. Bancorp].
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Employees who were terminated without cause within twenty-four months of the
merger were eligible for severance payments of up to the equivalent of 104 weeks’
salary.
U.S. Bancorp had several policies in place governing employees’ use of
computer technology at the time Johnson accessed Ashcraft’s files. One policy,
entitled “Computer and Information Security,” directed employees to “[e]nsure that
all of your computer access is on a need-to-know basis and is limited to the
information required to perform your job.” (Appellant’s App. at 77). This policy also
emphasized that “[i]t is important to be familiar with all policies concerning computer
systems, information and privacy. These policies are available on the intranet or from
your manager or supervisor and should be reviewed carefully.” (Id.). The policy also
exhorted employees to “[e]nsure information is treated as a valuable Company asset
and is disclosed only on a need-to-know basis,” and to “not attempt to access data that
you are not authorized to access.” (Id.). Another policy on “Use of U.S. Bancorp
Technology” required “[a]ll employees who use U.S. Bancorp’s technology resources
[to] become familiar with and understand the U.S. Bancorp Information Security
Services policies and standards and support their enforcement.” (Id. at 76).
In April 2002, an employee notified management at U.S. Bancorp that rumors
about organizational changes resulting from the pending merger with Firstar were
circulating in the Finance Division. U.S. Bancorp’s Information Security division
investigated whether employees had accessed computer files that would have
contained such information. The investigators determined that several employees,
including Johnson, had accessed the computer file entitled “2002 Performance
Goals.” When confronted by a Human Resources representative about accessing the
files in Ashcraft’s directory, Johnson admitted that she “had no business reason for
accessing and viewing the files in question.” U.S. Bancorp’s Controller, Terrance
Dolan, then made the decision to fire Johnson. Johnson was presented with a “Notice
of Termination” stating that her termination was “deemed a termination for cause” as
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defined in the Plan, and that she therefore would not receive severance pay. The
Notice cited “unethical conduct” that violated U.S. Bancorp’s Code of Conduct as the
basis for Johnson’s termination.
Despite the Notice’s disclaimer, Johnson applied for severance pay under the
Plan on June 25, 2002, arguing that her termination was not for cause. The
Committee denied her request on August 26, 2002, reasoning that Johnson’s conduct
in accessing the personnel information in Ashcraft’s directory “violated U.S.
Bancorp’s policies in its Employee Handbook.” (Appellant’s App. at 87). The policy
provisions violated, according to the Committee, included the Computer and
Information Security policy, which mandates that all employee “computer access is
on a need-to-know basis and is limited to information required to perform your job,”
and the Code of Ethics and Conduct on the Job, which requires that “[t]he use of any
information stemming from your employment shall be restricted to that which is
absolutely necessary for the legitimate and proper business purposes of U.S.
Bancorp,” that “employee information . . . be treated as highly confidential in all
cases,” and that “employees treat all company resources with the respect befitting a
valuable assert [sic] and . . . that such resources should never be used in ways that
could be interpreted as imprudent or improper.” (Appellant’s App. at 87).
Johnson appealed for reconsideration of the Committee’s determination, but
in a decision issued on October 29, 2002, the Committee upheld its earlier
determination. The Committee rejected Johnson’s argument that she did not know
the files she accessed were confidential, reasoning that the location of the files in
Aschcraft’s personnel file and the labels on these files made it “obvious” that Johnson
was not authorized to view them. (Appellant’s App. at 130). The Committee wrote
that in addition to viewing Johnson’s conduct as “gross and willful misconduct,” it
believed that her actions “demonstrated a willful or reckless disregard of U.S.
Bancorp’s interests.” (Id.).
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Following the Committee’s denial of her appeal, Johnson brought a civil action
in the District of Minnesota pursuant to 29 U.S.C. § 1132(a)(1)(B), alleging that the
Committee had abused its discretion in denying Johnson severance pay. The district
court agreed, granting summary judgment for Johnson on August 11, 2003. On June
15, 2004, the district court awarded Johnson $122,399.18 in severance wage benefits
plus interest, $20,211.75 for welfare benefits, and $42,090.00 in pre- and post-
judgment attorney’s fees.
II.
ERISA permits a participant in an ERISA-regulated plan to bring a civil action
“to recover benefits due to [her] under the terms of [her] plan, to enforce [her] rights
under the terms of the plan, or to clarify [her] rights to future benefits under the terms
of the plan.” 29 U.S.C. § 1132(a)(1)(B). The district court’s review of plan
determinations is de novo, unless the plan grants discretionary authority to the plan
administrator “to determine eligibility for benefits or to construe the terms of the
plan.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). In such a
case, the district court is required to review the plan administrator’s interpretation of
the terms of the plan for abuse of discretion. Id. U.S. Bancorp’s Plan gives the
Committee full discretion to “interpret and administer the terms and conditions of the
Plan, decide all questions concerning the eligibility of any persons to participate in
the Plan, [and] grant or deny benefits under the Plan,” (Appellant’s App. at 35), so the
district court was required to review the Committee’s interpretation of the Plan for
abuse of discretion. See Firestone, 489 U.S. at 115; King v. Hartford Life & Accident
Ins. Co., 414 F.3d 994, 999 (8th Cir. 2005) (en banc). The Committee’s application
of the plan to Johnson’s factual situation is reviewed to determine whether it is
supported by substantial evidence, that is, “such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion.” Id. (internal quotation
omitted).
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In its Memorandum Opinion and Order, the district court acknowledged that
the Committee’s decision should be reviewed for abuse of discretion. The court,
however, concluded that no reasonable person could have found that U.S. Bancorp
had cause to terminate Johnson’s employment. It reasoned that because U.S. Bancorp
had “absolutely no safeguards in place to prevent Johnson from viewing the so-called
‘confidential information,’” the information could not have been confidential. (Add.
at 8). The court also concluded that Johnson was authorized to access the files she
viewed because “nothing prevented her access whatsoever.” (Id.). The court held
that while Johnson “may have been nosy, and her common sense should have
prevented her access,” her conduct did not amount to gross and willful misconduct
under the Plan, and that Johnson was therefore terminated without cause. (Add. at
8-9). On de novo review of the district court’s decision, see Hebert v. SBC Pension
Benefit Plan, 354 F.3d 796, 798 (8th Cir. 2004), we hold that the district court erred
in ordering an award of benefits, and that judgment should be entered for the
Committee.
A plan administrator’s interpretation of a plan does not constitute an abuse of
discretion so long as it is “‘reasonable,’ even if the reviewing court disagrees with the
interpretation.” Neumann v. AT&T Communications, Inc., 376 F.3d 773, 781 (8th
Cir. 2004). “Cause” is defined under U.S. Bancorp’s Plan to include “gross and
willful misconduct during the course of employment.” (Appellant’s App. at 43). The
Plan further defines “gross and willful misconduct” to “includ[e] . . . acts or
omissions which violate the Employer’s rules or policies (such as breaches of
confidentiality).” (Id.). Because “gross and willful misconduct” is a term specifically
defined in the Plan, the administrator was not bound to apply definitions of that
phrase that govern in other contexts. See Jackson v. Metropolitan Life Ins. Co., 303
F.3d 884, 888-89 (8th Cir. 2002) (considering plan’s “highly-specific definition of
‘disabled,’” and holding that administrator was not bound by determination that
participant was “disabled” under similar, but different, definition employed by Social
Security Administration); Lickteig v. Business Men’s Assurance Co. of Am., 61 F.3d
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579, 583-85 (8th Cir. 1995) (rejecting contention that trustee could construe term
“active employee” based on “ordinary understanding” of “actively at work” when
“active employee” was specifically defined in the plan). Nor do we discern a “federal
common law” that requires an administrator with discretion to apply a particular
definition of “gross and willful misconduct” under this Plan. Interpretations of that
phrase as it appears in federal statutes, or even interpretations of this very Plan that
a court might adopt on de novo review, do not bind an administrator with discretion
to interpret uncertain terms in a plan, so long as the administrator’s interpretation is
reasonable. King, 414 F.3d at 999.
Given the specific definition of “gross and willful misconduct” in the Plan, the
Committee reasonably interpreted “Cause” to include violations of U.S. Bancorp’s
policies forbidding an employee to “access data that you are not authorized to
access,” and requiring an employee to “[e]nsure that all of your computer access is
on a need-to-know basis and is limited to the information required to perform your
job,” at least where such violations are knowing and willful. On its face, the Plan
defines “Cause” and “gross and willful misconduct” to include all violations of
company policy, regardless of the employee’s knowledge or intent. The absence of
any limitation on which violations of company policy constitute “gross and willful
misconduct” leaves uncertain the precise contours of the defined term in this Plan.
In this instance, the administrator found that Johnson acted both knowingly and
willfully when she violated company policy, thus applying the standard more
narrowly than the plain language of the Plan might suggest. We think this was a
reasonable exercise of the administrator’s discretion in applying uncertain terms of
the Plan, and we find no basis in the language of the plan, or the federal common law
of ERISA, to require the administrator to narrow the definition further based on the
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meaning of “gross” misconduct in other contexts, particularly given the lack of a
generally applicable interpretation of that rather nebulous term.1
Substantial evidence also supported the Committee’s determination that
Johnson’s actions violated those policies, and that her actions were knowing and
willful, as those terms are reasonably construed. The evidence considered by the
Committee included testimony that Johnson, when confronted about accessing the
files, admitted to having no “business reason” for accessing and viewing them.
Johnson, moreover, does not deny accessing the files and admits “the inapplicable
nature of the information to her job duties.” (Appellee’s Br. at 14). It was reasonable
for the Committee to conclude that Johnson acted knowingly, because a reasonable
mind could conclude that the name and location of the file concerning performance
goals indicated that it was not a document to which Johnson required access to
perform her job, and when interviewed about the incident, Johnson never asserted
lack of knowledge as a defense. There also was ample evidence to support the
Committee’s conclusion that Johnson voluntarily and intentionally accessed the files,
thus establishing willful conduct, as opposed to accidental or negligent acts. See
Black’s Law Dictionary 1593 (7th ed. 1999) (defining “willful” as “voluntary and
intentional,” but not necessarily malicious); United States v. Murdock, 290 U.S. 389,
394 (1933) (explaining that the word willfully “often denotes an act which is
intentional, or knowing, or voluntary, as distinguished from accidental”), overruled
in part on other grounds, Murphy v. Waterfront Com’n, 378 U.S. 52 (1964). The
record shows that to access the files, Johnson had to take several discrete and
deliberate steps, and that she could not have viewed them by way of an accidental
click of her computer equipment.
1
Our holding that the Committee acted within its discretion to find “Cause” in
the case of a knowing and willful violation of company policy does not, of course,
speak to whether it would be reasonable for the Committee to reach the same
conclusion in the case of an inadvertent and unknowing violation. Cf. post, at 10.
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In our view, the district court’s determination that “Johnson was authorized to
access the files,” because “nothing prevented her access whatsoever,” mistakenly
equated ability to access a file with authorization to access the file. This
interpretation effectively imposed an extralegal requirement that U.S. Bancorp secure
confidential information from employees by affirmatively preventing access through
technological means, rather than through written policies. U.S. Bancorp employees
are responsible under the company’s policies for maintaining appropriate limits on
their computer use. Johnson’s ability to access the personnel file thus does not
indicate that she was authorized to do so. Indeed, the policy instructing an employee
to limit computer access to information that is required to perform her job seems to
presume that access to other information is possible, but prohibited.
Johnson’s brief explains that she was a long-term employee who received many
favorable performance reviews over the years. Whether her conduct in accessing
these computer files warranted discharge is debatable as a matter of business
judgment. But we are not empowered to make that sort of business judgment,
deciding in the first instance whether Johnson deserved to be terminated under all of
the circumstances. In the context of review of an ERISA plan administrator’s
discretionary decision, we are limited to determining whether a reasonable person
could have interpreted and applied the ERISA plan in the way that the administrator
did, and here the answer is yes.
Accordingly, we reverse the judgment of the district court and remand for entry
of judgment in favor of the appellants.
BYE, Circuit Judge, dissenting.
I respectfully dissent. I believe the Severance Administration Committee
(Committee) clearly abused its discretion when it determined Nancy Johnson's
conduct in accessing files located on a shared computer drive constituted "cause"
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under the terms of the severance plan (Plan). I would therefore affirm the district
court's grant of summary judgment in favor of Nancy Johnson.
To constitute "cause," the Plan required Johnson's misconduct to be both "gross
and willful." Glaringly lacking from the Committee's determination is any discussion
of how Johnson's conduct constituted "gross" misconduct. While the Plan defines
"gross and willful" misconduct to include "acts or omissions which violate the
Employer's rules policies," it cannot follow that every violation of a rule or policy
constitutes "gross and willful" misconduct. Otherwise, inadvertent rule violations
would be considered "willful" violations, and the Plan's inclusion of the word
"willful" would be rendered meaningless. By the same token, the word "gross" is
rendered meaningless if minor rule violations constitute "gross" misconduct.
The Court contends the Committee was not bound to apply a definition of the
term "gross and willful misconduct" which might govern in other contexts. While I
agree, I do not view that as the relevant inquiry. The relevant inquiry is whether the
Committee neglected to give any meaning to the term "gross" in the Plan. When
reviewing the Committee's decision we must necessarily consider whether its
"interpretation renders any language in the Plan meaningless or internally
inconsistent." Torres v. UNUM Life Ins. Co. of Am., 405 F.3d 670, 680 (8th Cir.
2005) (citing Shelton v. ContiGroup Cos., Inc., 285 F.3d 640, 643 (8th Cir.2002)).
An ERISA fiduciary abuses its discretion when it renders Plan language meaningless.
Id.
The Court's conclusion the Committee was free to interpret "gross and willful"
misconduct to include all violations of company policy necessarily renders the terms
"gross" and "willful" meaningless, and offends my sense of justice. To call every
inadvertent or unknowing violation a "willful" violation is absurd. Likewise, it is
absurd to call every violation, no matter how trivial or insignificant, a "gross"
violation. For example, the same area of the Employee's Handbook containing the
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Computer and Information Security policy relied upon by the Committee to deny
Johnson's substantial severance benefits also contains a policy on Business
Appearance. The Business Appearance policy requires employees "to use good
judgment and dress in a professional manner that is appropriate to your work
surroundings and suited to your particular job." Under the Court's view, the
Committee would not have abused its discretion if it determined any and all
violations of the Business Appearance policy to constitute "gross and willful
misconduct" which that would justify a denial of severance benefits.
In my view, because the Plan does not specifically define a "gross" rule
violation, the term should be given its ordinary meaning. Mansker v. TMG Life Ins.
Co., 54 F.3d 1322, 1327 (8th Cir. 1995). In interpreting the meaning of an ERISA
plan, we should also look to the "federal common law." Reid v. Connecticut Gen.
Life Ins. Co., 17 F.3d 1092, 1098 (8th Cir. 1994). Turning to analogous federal
statutes which employ the undefined terms is "surely a promising source in a search
for the federal common law." Camelot Care Ctrs., Inc. v. Planters Lifesavers Co., 836
F. Supp. 545, 548 (N.D. Ill. 1993).
There is a relatively large source of federal common law interpreting what
constitutes "gross misconduct." Under the Consolidation Omnibus Budget
Reconciliation Act of 1985, a covered employer has an obligation to provide an
employee with continued health care coverage unless the employee is terminated for
"gross misconduct." 29 U.S.C. § 1163(2). Because § 1163(2) does not otherwise
define what constitutes "gross misconduct," courts have had to fashion "federal
common law" to address the issue.
While there is no generally applicable or binding judicial interpretation of gross
misconduct, Bryant v. Food Lion Inc., 100 F. Supp. 2d 346, 375 (D. S.C. 2000), the
courts agree mere lapses in good judgment on isolated occasions cannot constitute
gross misconduct. See Richard v. Indus. Commercial Elec. Corp., 337 F. Supp. 2d
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279, 282 (D. Mass. 2004) (indicating gross misconduct to be something "flagrant and
extreme" and "out of all measure; beyond allowance; not to be excused; flagrant;
shameful" and something "more than that conduct which comes about by reason of
error of judgment or lack of diligence.") (internal citations omitted); Cotte v.
Cooperativa de Ahorro y Credito Yabucoena, 77 F. Supp. 2d 237, 241 (D. P.R. 1999)
("[G]ross means outrageous, extreme or unconscionable, conduct is gross misconduct
if it is so outrageous that it shocks the conscience.") (internal citation and quotations
omitted); Zickafoose v. UB Services, Inc., 23 F. Supp. 2d 652, 656 (S.D. W. Va.
1998) (indicating misconduct is not "gross" unless "the employee intended harm to
the employer [and] the nature of the conduct itself is reasonably outrageous to the
employer."); Collins v. Aggreko, Inc., 884 F. Supp. 450, 454 (D. Utah 1995) ("Gross
misconduct may be intentional, wanton, willful, deliberate, reckless or in deliberate
indifference to an employer's interest. It is misconduct beyond mere minor breaches
of employee standards, but conduct that would be considered gross in nature.").
In Paris v. F. Korbel & Bros., Inc., 751 F. Supp. 834 (N.D. Cal. 1990), the court
addressed a breach of confidentiality somewhat similar to Johnson's conduct. Leigh
Paris worked for a winery and was given access to the "poolhouse," a place where
executives met and sometimes discussed employees. Paris was instructed whatever
she may overhear in the poolhouse was confidential, and she was not to share it. On
one occasion, she heard executives discussing a particular employee who had asked
to work part time for personal reasons. Paris, who happened to be friends with the
employee's wife, told her friend the company was going to allow her husband to work
part time. The executives discovered the employee was upset with his boss for
sharing his personal information. Paris was identified as the source of the leak, and
terminated. Paris, 751 F. Supp. at 835-36.
When Paris applied for COBRA benefits under § 1163(2), the issue was
whether her breach of confidentiality should be considered "gross misconduct" which
would disqualify her for continuing health care coverage. The court said no,
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concluding gross misconduct required a showing Paris "had an 'evil design' to injure
Korbel" and exercising "poor judgment" on one occasion was not enough. Id. at 839.
Similarly, here, Johnson may have shown poor judgment in briefly peeking at the files
located on the shared computer drive. But there was no evidence Johnson even
shared this information with other employees. Her isolated instance of poor judgment
evinced no "evil design" to injure U.S. Bancorp, and was clearly not flagrant,
extreme, all out of measure, or so outrageous it shocks the conscience.
The federal common law governing ERISA plans mandates an employee's
misconduct must be severe, i.e, flagrant, extreme, all out of measure, or so outrageous
it shocks the conscience, to be considered "gross." Isolated lapses of judgment which
do not have a significant impact on the employer clearly do not suffice. No
reasonable person would conclude Johnson's conduct amounted to anything more
than a minor rule violation, with little or no adverse impact on U.S. Bancorp. Her
conduct clearly was not outrageous or conscience-shocking. To the contrary, what
does shock my conscience is that the Plan would insist upon enforcing such a minor
rule violation so as to justify it precluding this long-term, exemplary employee a
financial benefit of approximately $150,000 in severance pay.
I respectfully dissent.
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