Opinion
File No. 2:98-CV-170
Date January 4, 2000
OPINION
This matter is before the Court on Defendant Upper Peninsula Power Company's motion to strike Plaintiff's jury demand, motion to dismiss state law claims and motion for summary judgment.
I.
Plaintiffs are former salaried management employees of the Upper Peninsula Power Company ("UPPCO"), who were employed at the Presque Isle Generating Station in Marquette, Michigan. Plaintiffs seek severance benefits under UPPCO's Salaried Employee Severance Pay Plan (the "Plan").
The Plan, which was established by Defendant UPPCO in 1984, was an employee welfare benefit plan as defined by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. By letter dated July 7, 1993, UPPCO employees were notified that the Severance Plan would be terminated effective October 1, 1993.
Section 3.01 of the Plan, entitled Eligibility For And Amount Of Severance Pay Benefit, provided that participants who left UPPCO after four years of service were eligible for severance benefits:
A Participant who, for any reason, leaves the Company after completing at least four (4) years of service, shall be entitled to a lump sum severance benefit equal to 1 2/3% of his final annual salary multiplied by his years of service, not to exceed 30 years.
The Summary Plan Description ("SPD") contained the following statement with regard to eligibility:
If you are a participant in the Plan and leave the Company for any reason, including retirement, after completing at least four (4) years of service, you will be entitled to a lump sum severance benefit from the Company.
The Plan expressly reserved to UPPCO the right to amend or terminate the Plan at any time. Section 6.02 of the Plan, entitled Amendment or Termination, provided:
The Board reserves the right to amend or terminate this Plan at any time. Such action by the Board will not, unless required as a result of changes in the law or circumstances outside the control of the Company, result in a forfeiture or reduction of benefits which have become due under Article III, but are unpaid as of the date of amendment or termination of this Plan.
The SPD contained a similar notice of UPPCO's reservation of the right to amend or terminate the Plan:
The Company intends to continue the Plan indefinitely. However, it reserves the right to amend, modify or terminate the Plan at any time.
The SPD also contained the following provision regarding disqualification:
Once you have completed the minimum years of service requirement, you cannot become disqualified for the benefits under the Plan.
On December 31, 1987, UPPCO entered into a Power Plant Operating Agreement with Wisconsin Electric Power Company ("WEPCO"). Pursuant to the Operating Agreement WEPCO paid funds to UPPCO for severance benefits under the Plan from 1988 through 1993 when the Plan was terminated. UPPCO returned the unused funds to WEPCO.
Plaintiffs left their employment with UPPCO after serving four years with UPPCO, and after the Plan was terminated. They were not paid severance benefits.
Plaintiffs did not pursue the Plan's claim and appeal procedure for the resolution of benefit claims. Instead, they filed this action in the Marquette County Circuit Court alleging breach of contract and detrimental reliance. Plaintiffs contend that their right to severance benefits had vested before the Plan was terminated, and that they are accordingly entitled to severance benefits under the Plan. Defendant removed the action to this Court on the basis that Plaintiffs' state law claims were preempted by ERISA. The Court denied Plaintiffs, motion for remand. Thereafter Plaintiffs amended their complaint to include an ERISA claim for breach of fiduciary obligations (Count II) as well as their state law claims for breach of contract and detrimental reliance (Count I).
Section 6.01 of the Plan, entitled Claims Procedures, provides:
The Plan Administrator shall make all determinations as to the right of any person to a benefit under this Plan. Any denial of benefits by the Administrator shall be stated in writing by the Administrator and delivered or mailed to the Participant or Beneficiary and such notice shall include the reasons for denial. In addition, the Administrator shall afford a reasonable opportunity for any person whose claim has been denied to appeal and request a review of such decision.
The SPD also gives notice of the claim and appeal procedure: Filing for Benefits
Although you do not have to make formal application for benefits, you should notify the Employee Benefits Department as early as possible if you intend to leave the Company before retirement in order for the Company to make timely payment. If you disagree with the Company's determination of your benefit, you may appeal to the Plan Administrator in writing within sixty (60) days following the company's denial, stating your reasons and requesting a hearing.
II.
In Count I of their first amended complaint Plaintiffs contend that they were entitled to severance benefits when their employment with Defendant ended because their benefits under the Plan vested upon their completion of four years of continuous service.
Defendant moves for dismissal of Count I on the basis that 1) Plaintiffs' state law claims are preempted by ERISA, 2) Plaintiffs failed to exhaust their administrative remedies, and 3) Defendant is entitled to judgment on the merits of Plaintiffs, breach of contract and detrimental reliance claims.
A. Preemption
Defendant has moved for dismissal of the state law breach of contract and detrimental reliance claims found in Count I of Plaintiffs' first amended complaint on the basis that they are preempted by ERISA.
A dismissal is proper under Rule 12(b)(6) only if it appears beyond doubt that the plaintiffs would not be able to recover under any set of facts that could be presented consistent with the allegations of the complaint. Bower v. Federal Express Corp., 96 F.3d 200, 203 (6th Cir. 1996) (citations omitted).
Plaintiffs in this case do not deny that their breach of contract and detrimental reliance claims are preempted by ERISA. However, Plaintiffs contend that although the allegations in the complaint do not specifically refer to ERISA, they are clearly claims falling within 29 U.S.C. § 1132(a)(1)(B). Section 1132(a)(1)(B) allows a participant to bring a civil action "to recover benefits due to him under the terms of the plan." Plaintiffs contend that because both claims seek to recover benefits due under the terms of the plan, they should be construed as ERISA claims.
This Court agrees. Plaintiffs' request is consistent with the approach taken by the court in Kelly v. Pan-American Life Ins. Co., 765 F. Supp. 1406 (W.D.Mo. 1991). As the Kelly court noted, although the plaintiffs, state law claims were preempted by ERISA
[i]t does not necessarily follow that plaintiffs' breach of contract claim must be dismissed. If plaintiffs state facts which support a cause of action under ERISA, even though titled "breach of contract," and if [the defendant] will not be prejudiced by proceeding with this cause of action, this Court should exercise its jurisdiction over plaintiffs' ERISA claim.
Id. at 1408 (citation omitted).
In this case Defendant UPPCO has fair notice of Plaintiffs' claims and Defendant will not be prejudiced by proceeding with these claims. Accordingly, Defendant's motion to dismiss Plaintiffs, state law claims will be denied. Those claims, however, will be construed as ERISA claims.
B. Exhaustion
To the extent this Court construes Plaintiffs' state law claims as reformulated ERISA claims, Defendant contends they are nevertheless subject to dismissal for failure to exhaust administrative remedies.
Exhaustion of administrative remedies is a prerequisite to filing suit to recover ERISA benefits. Weiner v. Klais and Co., 108 F.3d 86, 90 (6th Cir. 1997). Plaintiffs acknowledge that they did not exhaust the administrative remedy provided by § 6.01 of the Plan. Plaintiffs contend, nevertheless, that the exhaustion of administrative remedies can be waived when administrative review would be an exercise in futility or not provide an adequate remedy. See Constantino v. TRW, Inc., 13 F.3d 969, 974 (6th Cir. 1994).
"The standard for adjudging the futility of resorting to the administrative remedies provided by a plan is whether a clear and positive indication of futility can be made." Fallick v. Nationwide Mut. Ins. Co., 162 F.3d 410, 419 (6th Cir. 1998). "A plaintiff must show that `it is certain that his claim will be denied on appeal, not merely that he doubts that an appeal will result in a different decision.'" Id. (quoting Lindemann v. Mobil Oil Corp., 79 F.3d 647, 650 (7th Cir. 1996)). In Weiner the Sixth Circuit held that dismissal of the plaintiff's action for recovery of ERISA benefits was proper where the plaintiff did not exhaust the administrative remedies provided under the plan and did not allege any factual basis for his claim that exhaustion of his administrative remedies would be futile. 108 F.3d at 91.
Plaintiffs in this case speculate that because they would have had to appeal the determination to Clarence R. Fisher, one of the same persons who took part in terminating the Plan and refusing to pay the severance benefits, his review of the denial of benefits would not have changed the outcome of this matter in any way.
The fact that the appellate reviewer is the same person as the one who initially denied benefits is insufficient as a matter of law to establish futility. Springer v. Wal-Mart Assoc. Group Health Plan, 908 F.2d 897, 901 (11th Cir. 1990). It is not sufficient for Plaintiffs to merely allege that exhaustion would have been futile. Because Plaintiffs have failed to allege any factual basis for their claim of futility, the requirement of exhaustion will not be waived. Plaintiffs' action is subject to dismissal for failure to exhaust administrative remedies.
C. Vesting
Even if the Court were to excuse or ignore Plaintiffs' failure to exhaust administrative remedies, the breach of contract and detrimental reliance claims raised in Count I are nevertheless subject to dismissal on the merits.
Plaintiffs' contract claim is based on their assertion that their right to severance benefits had vested prior to the termination of the Plan.
Under ERISA, "[w]elfare plans are specifically exempted from vesting requirements to which pension plans are subject." Sprague v. General Motors Corp., 133 F.3d 388, 400 (6th Cir. 1998) (en banc) (citing 29 U.S.C. § 1051), cert. denied, 118 S.Ct. 2312 (1998). Severance plans are welfare plans. "The accrued benefits secured by ERISA do not encompass unfunded, contingent early retirement benefits or severance payments. The Act was not designed to prohibit modification of these ancillary benefits." Sutton v. Weirton Steel Div. of Nat. Steel Corp., 724 F.2d 406, 410 (4th Cir. 1983), cert. denied, 467 U.S. 1205 (1984).
[S]everance benefits are unaccrued, unvested benefits. Moreover, severance benefit plans, though subject to certain disclosure ( 29 U.S.C. § 1021-1031) and fiduciary ( 29 U.S.C. § 1101-1114) requirements, are exempt from the more stringent ERISA requirements. 29 U.S.C. § 1051, 1081. An employer may therefore, unilaterally amend or eliminate a severance plan without violating ERISA. This is so because an employer is permitted to act in a dual capacity as both the manager of its business and a fiduciary with respect to unaccrued benefits. An employer is therefore, free to alter or eliminate severance benefits (which are usually solely funded by the employer) without consideration of the employees, interests. In short, an employer does not owe its employees a fiduciary duty when it amends or abolishes a severance benefit plan. Adams v. Avondale Industries, Inc., 905 F.2d 943, 948-49 (6th Cir.), cert. denied, 498 U.S. 984 (1990) (quoting Young v. Standard Oil (Indiana), 849 F.2d 1039, 1045 (7th Cir.) (citations omitted), cert. denied, 488 U.S. 981 (1988)).
To vest benefits is to render them forever unalterable. Congress explicitly exempted welfare plans, as opposed to pension plans, from ERISA's vesting requirements because Congress feared that imposing vesting standards on welfare benefit plans would inhibit the establishment of such plans. Gordon v. Barnes Pumps, Inc., 999 F.2d 133, 136 (6th Cir. 1993).
"Because vesting of welfare plan benefits is not required by law, an employer's commitment to vest such benefits is not to be inferred lightly; the intent to vest `must be found in the plan documents and must be stated in clear and express language.'" Sprague v. General Motors Corp., 133 F.3d 388, 400 (6th Cir. 1998) (en banc) (quoting Wise v. El Paso Natural Gas Co., 986 F.2d 929, 937 (5th Cir.), cert. denied, 510 U.S. 870 (1993)). Plaintiffs bear the burden of proving that UPPCO intended to vest their benefits. Sengpiel v. B.F. Goodrich Co., 156 F.3d 660, 667 (6th Cir. 1998).
In interpreting the Plan the Court follows "the basic principle that each provision of a contract should be interpreted as part of an integrated whole, to the end that all of the provisions may be given effect if possible." Musto v. American General Corp., 861 F.2d 897, 906 (6th Cir. 1988), cert. denied, 490 U.S. 1020 (1989).
In Wulf v. Quantum Chemical Corp., 26 F.3d 1368, 1377 (6th Cir.), cert. denied, 513 U.S. 1058 (1994), the Court held that the employees were vested in their welfare benefits (an employee stock ownership plan) where the plan provided that "[a] member shall become 100% vested in his Account upon his completion of two years of Vesting Service."
In Sengpiel v. B.F. Goodrich Co., 156 F.3d 660 (6th Cir. 1998), the Sixth Circuit affirmed the district court's finding that the employees, welfare benefits were not vested at the time of their retirement. The court rejected the plaintiffs' argument that statements such as "if you retire and are eligible for a pension you shall continue to have the same health coverage," suggested an intent to continue benefits for the retiree's lifetime. Such language neither expressly guaranteed lifetime benefits nor created an ambiguity as to whether such benefits are vested, and fell far short of expressing a clear intent to render such benefits "forever unalterable." Id. at 168.
Plaintiffs assert that the language found in both the Plan and the SPD clearly indicate an intent for the benefits to vest in the employees after four years of service with UPPCO. The Court disagrees. The language at issue in this case falls far short of expressing a clear intent to render the severance benefits forever unalterable.
Section 3.01 of the Plan granted severance benefits to a participant "who, for any reason, leaves the Company after completing at least four (4) years of service." The language of SPD was substantively the same: salaried employees who are participants in the plan are eligible to receive a severance benefit when they meet two conditions: (1) they have completed at least four years of service, and (2) they leave the company. This provision must be read in conjunction with § 6.02 which reserved to UPPCO the right to amend or terminate the Plan at any time. Nothing in the Plan language stated that the employee's right to severance benefits vested, or became forever unalterable after four years. Neither did the Plan contain any language guaranteeing that severance benefits would be available if the individual left the company after the severance plan was terminated. In order to give effect to all the terms of the Plan, the Plan must be interpreted to provide severance benefits only to those who have served the Company for four years and left employment while the Plan was in effect.
Plaintiffs suggest that the language in § 6.02 and in the SPD assuring that there would be no disqualification or forfeiture of benefits suggests that the severance benefits vested after four years.
The Plan language to the effect that any amendments will not "result in a forfeiture or reduction of benefits which have become due under Article III," does not indicate that benefits are vested after four years. Because benefits did not become due until an employee had separated from the company, this language clearly meant that employees who had four or more years and who had separated would receive payment if the Plan were terminated or amended after their employment ended, but prior to their receipt of the severance benefit.
Neither does the language in the SPD to the effect that once you have completed four years of service, "you cannot become disqualified for the benefits" indicate a vesting of benefits. When the Plan is read as a whole, the only reasonable interpretation of the non-disqualification clause in the SPD is that as long as there is a Plan, a participant cannot be denied benefits after completing four years of service and terminating his employment. The existence of the Plan is essential to a Plan participant's right to benefits. Once the Plan was terminated, there was no continuing right to benefits.
Plaintiffs contend that because the Plan contains both a nondisqualification provision and a right to terminate the Plan, the Plan is ambiguous, and the Court should consider extrinsic evidence of what drafters of the Plan understood it to mean.
"Congress intended the plan documents and SPDs exclusively govern an employer's obligations under ERISA plans." Sprague, 133 F.3d at 402 (quoting Moore v. Metropolitan Life Ins. Co., 856 F.2d 488, 492 (2nd Cir. 1988)). The clear terms of a written ERISA plan may not be modified or superseded by oral statements on the part of the employer. Sprague, 133 F.3d at 403. Extrinsic evidence may be considered only if the plan is ambiguous, i.e., subject to two reasonable interpretations. Wulf, 26 F.3d at 1376.
This Court finds no ambiguity in the language of the Plan or the SPDs that would permit the Court to consider extrinsic evidence to aid in the interpretation of the Plan. In Sprague the court rejected the plaintiffs' argument that the plan was ambiguous because it provided benefits for life and also provided that the plan could be terminated: "We see no ambiguity in a summary plan description that tells participants both that the terms of the current plan entitle them to health insurance at no cost throughout retirement and that the terms of the current plan are subject to change." Sprague, 133 F.3d at 401. The Sprague court found the Third Circuit's explanation in a similar case persuasive:
"the promise made to retirees was a qualified one: the promise was that retiree medical benefits were for life provided the company chose not to terminate the plans, pursuant to clauses that preserved the company's right to terminate the plan under which those benefits are provided." Id.
(quoting In re Unisys Corp. Retiree Med, Benefit ERISA Litig., 58 F.3d 896, 904 n. 12 (3rd Cir. 1995)).
The Plan was not required to disclose that plan benefits were not vested. Sprague, 133 F.3d at 401. The Plan provided for a severance benefit to eligible employees who terminated their employment while the Plan was in effect. UPPCO reserved to itself the right to terminate the Plan, and made no promise that the benefit would be provided following the Plan's termination. Based upon the clear and unambiguous clause reserving to UPCCO the right to alter, amend or terminate the plan at any time, Plaintiffs are precluded from establishing that, under the terms of the Plan, Plaintiffs' entitlement to severance benefits vested after four years of service with the Company. Here, as in Sprague, benefits under the Plan were conditioned upon the Plan's continuation. These clear terms of the ERISA Plan may not be modified by alleged oral statements on the part of the employer.
The Court concludes that there was, resting of severance benefits. When Plaintiffs left their employment with UPCCO the Plan was no longer in effect. Accordingly, they were not eligible for severance benefits under the Plan.
D. Detrimental Reliance
Plaintiffs contend that apart from the Plan language they were induced to take salaried positions with UPPCO based upon oral promises that they would receive a severance benefit upon their separation from employment.
Plaintiffs cannot show that they reasonably and detrimentally relied on any statements by the Company. Here, as in Gordon v. Barnes Pumps, Inc., 999 F.2d 133, 137 (6th Cir. 1993), Plaintiffs knew or should have known from the express terms of the Plan that benefits could be altered at any time. Moreover, Plaintiffs were notified by UPPCO that "employees could only reasonably rely upon the written statements of the President and Vice-President Administration in holding the Company responsible for its personnel promises, rather than, for example, the oral statement/promise of subordinate management." Plaintiffs have not identified any written statements of the President or Vice-President-Administration to the effect that they would receive a severance benefit regardless of the termination of the Plan.
For all the reasons stated above, Defendant's motion for summary judgment as to Count I will be granted.
III.
In Count II of their first amended complaint Plaintiffs raise an ERISA breach of fiduciary duty claim. Plaintiffs allege that Defendant breached its fiduciary duty by returning to WEPCO monies which Defendant had received in anticipation of severance benefits that ultimately were never paid out. Plaintiffs contend this action constituted a violation of ERISA § 403, 29 U.S.C. § 1103 (c), which provides that "the assets of a plan shall never inure to the benefit of any employer and shall be held for the exclusive purposes of providing benefits to participants in the plan. . . ."
UPPCO's return of the excess Severance Plan money to WEPCO was merely a function of the Company's decision to terminate the Plan. A company does not act as a fiduciary when it amends or terminates a severance benefit plan. It only has a fiduciary duty to its employees in the manner in which it administers the plan. Musto, 861 F.2d at 911.
An employer may therefore, unilaterally amend or eliminate a severance plan without violating ERISA. This is so because an employer is permitted to act in a dual capacity as both the manager of its business and a fiduciary with respect to unaccrued benefits. An employer is therefore, free to alter or eliminate severance benefits (which are usually solely funded by the employer) without consideration of the employees' interests. In short, an employer does not owe its employees a fiduciary duty when it amends or abolishes a severance benefit plan.
Adams v. Avondale Industries, Inc., 905 F.2d 943, 949 (6th Cir. 1990), cert. denied, 498 U.S. 984 (1990) (quoting Young v. Standard Oil (Indiana), 849 F.2d 1039 (7th Cir.), cert. denied, 488 U.S. 981, 109 (1988) (citations omitted).
The benefits in this case had not accrued to the Plaintiffs because they did not terminate their employment with Defendant during the life of the Plan. Defendant was accordingly permitted to terminate the Plan and return the funds to WEPCO without breaching any fiduciary duties owed to Plaintiffs.
Defendant's motion for summary judgment as to Count II will accordingly be granted.
Because this Court is entering summary judgment in favor of Defendant and dismissing this action in its entirety, Defendant's motion to strike Plaintiffs' jury demand will be denied as moot.
An order and judgment consistent with this opinion will be entered.
ORDER AND JUDGMENT
In accordance with the opinion entered this date,
IT IS HEREBY ORDERED that Defendant Upper Peninsula Power Company's motion to strike Plaintiffs' jury demand (Docket 48) is DENIED AS MOOT.
IT IS FURTHER ORDERED that Defendant's motion to dismiss Plaintiffs' state law claims (Docket 49) is DENIED. The state claims asserted in Count I, however, are construed as ERISA claims.
IT IS FURTHER ORDERED that Defendant's motion for summary judgment (Docket 50) is GRANTED.
IT IS FURTHER ORDERED that JUDGMENT is entered in favor of Defendant Upper Peninsula Power Company and this action is DISMISSED in its entirety.