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finding breach of covenant of good faith and fair dealing "completely coextensive" with and therefore preempted by ERISA claim where both claims rest on the alleged wrongful denial of benefits
Summary of this case from Edgar v. MVP Health Plan, Inc.Opinion
01 Civ. 4438 (JGK)
March 28, 2002
OPINION AND ORDER
This is an action arising from an alleged wrongful denial of benefits under an employee benefits plan subject to the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. The defendant has moved to dismiss the complaint in its entirety for failure to state a claim, pursuant to Fed.R.Civ.P. 12(b)(6). For the following reasons, the defendant's motion is granted.
I.
On a motion to dismiss, the allegations in the complaint are accepted as true. See Grandon v. Merrill Lynch Co., 147 F.3d 184, 188 (2d Cir. 1998). In deciding a motion to dismiss, all reasonable inferences must be drawn in the plaintiff's favor. See Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995) Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989). The courts function on a motion to dismiss is "not to weigh the evidence that might be presented at trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). Therefore, the defendant's present motion should only be granted if it appears that the plaintiff can prove no set of facts in support of its claim that would entitle it to relief.See Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Grandon, 147 F.3d at 188; see also Goldman, 754 F.2d at 1065.
In deciding the motion, the court may consider documents referenced in the complaint and documents that are in the plaintiff's possession or that the plaintiff knew of and relied on in bringing suit. See Brass v. American Film Technologies, Inc., 987 F.2d 142, 150 (2d Cir. 1993);Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47-48 (2d Cir. 1991); I. Meyer Pincus Assoc., P.C. v. Oppenheimer Co., Inc., 936 F.2d 759, 762 (2d Cir. 1991); Skeete v. IVF America, Inc., 972 F. Supp. 206, 208 (S.D.N.Y. 1997). See also Vtech Holdings Ltd. v. Lucent Technologies, Inc., 172 F. Supp.2d 435, 437 (S.D.N.Y. 2001).
II.
The complaint alleges as follows. Plaintiff James P. Thompson is an executive with Thomson Consumer Electronics, Inc. ("TCE"). (Compl. ¶ 4.) Prior to January 1, 1999, Thompson was Senior Counsel to GE and RCA Licensing Management Operation, Inc. ("GERLMO"). (Id.) In October of 1990, defendant General Electric Co. ("GE") offered the plaintiff and certain other employees who were "Executive Band and above" the opportunity to participate in the General Electric 1991 Executive Deferred Salary Plan (the "Plan"). (Id. ¶¶ 1, 6.) Under the terms of the Plan, eligible employees were permitted to defer a portion of their 1991 base salary on a pre-tax basis. (Id. ¶ 7.)
According to the Plan, participants who remained employed by GE until December 31, 1995 would receive a 14% fixed annual interest rate on the amount deferred, with payouts beginning on March 1 of the year following the year that employment with GE terminated. (Id.) In addition, participants who terminated their employment with GE "on or after December 31, 1991, but before December 31, 1995 because of retirement, death, disability, or business disposition" (Def. Mem., Ex. C at 3), would also receive a 14% interest rate on the amount deferred, with payouts beginning on March 1 of the year following the year of termination. Participants receiving payouts under either of these provisions could elect to receive them in a lump sum or in 10 to 20 annual installments. (Id. at 2.) In contrast, "[p]articipants who terminate for any reason prior to December 31, 1991 or for reasons other than retirement, death, disability or business disposition prior to December 31, 1995 will receive a lump-sum payment as soon as practical following termination of employment . . . with simple interest credited monthly at a 5% annual rate to the date of termination." (Id. at 3.)
Thompson questioned whether he would benefit from participating in the Plan, because he expected to be transferred from GERLMO to TCE in 1994 under a contract between GE and TCE that existed at the time the Plan was offered. (Compl. ¶ 8.) This contract provided that ownership of the GE subsidiary, RCA Licensing Corporation ("RCAL"). would be transferred to TCE in late 1994 or early 1995. (Id.) This transfer (the "RCAL transition") was "an integral factor for [Thompson] in deciding whether to participate in the Plan, since he did not want to suffer the financial hardship of contributing . . . in 1991 if his payout would begin just four years later." (Id.) Thompson voiced his concerns to Stuart A. Fisher, President and General Manager of GERLMO. In response, Fisher spoke with Jack Peiffer, Senioc Vice President of Corporate Human Resources. (Id. ¶ 9.) On November 2, 1990, Fisher wrote a memorandum to Thompson, in which he indicated that "Peiffer . . . confirmed that should a participant in the plan become a [TCE] employee prior to December 31, 1995 as a result of the RCAL transition, such employment, and only such employment, will be considered an extension of GE employment for purposes of the Plan." (Compl., Ex. A.) Thompson decided to participate in the Plan, and deferred 50% of his base salary in 1991. (Id. ¶ 10.)
In December of 1991, GE renegotiated its contract with TCE, and the RCAL transition was postponed. (Id. ¶ 11.) GE and TCE agreed that the transition would take place on January 1, 1999, on which date Thompson began his employment with TCE. (Id.) In March of 1999, the plaintiff received his first payment under the Plan from GE. (Id. ¶ 12.) Shortly thereafter, Thompson sent a letter offering to return the check and indicating that he should not have received any payment because his employment at TCE was employment with GE for purposes of the Plan. (Id.) The plaintiff's letter was referred to the committee appointed to administer and interpret the Plan (the "Plan Administrator") (Id. ¶ 13.) The Plan Administrator denied Thompson's claim on April 7, 1999 and denied his appeal of that decision on June 25, 1999. (Id.)
The plaintiff alleges that the defendant has wrongfully denied him benefits, thereby breaching the Plan and its fiduciary duties to him, in violation of ERISA and the common law. In essence, the plaintiff argues that his employment by TCE should be considered as continued employment with GE and that he should not receive any payments of his 1991 deferred salary until his employment with TCE terminates. He contends that, instead, his deferred salary should continue to be held and accrue interest at 14% until the termination of his TCE employment. More particularly, the plaintiff asserts the following causes of action: promissory estoppel (first cause of action); breach of contract (second cause of action); breach of the implied covenant of good faith and fair dealing (third cause of action); breach of fiduciary duty in violation of 29 U.S.C. § 1104(a) (fourth cause of action); denial of benefits under the Plan in violation of 29 U.S.C. § 1132(a)(1)(B) and 1132(a)(3) (fifth cause of action) and attorney's fees (sixth cause of action)
III.
The parties dispute whether the district court's review of the Plan Administrator's decision under ERISA should be pursuant to an "arbitrary and capricious" standard or a "de novo" standard. It is undisputed, however, that the Plan provided that the "Committee shall have full power and authority on behalf of the Company to administer and interpret the Plan. All Committee decisions with respect to the administration and interpretation of the plan shall be final and shall be binding upon all persons." (Def. Mem., Ex. A at 2.)
Where, as here, a benefits plan governed by ERISA "confers discretion on its administrators to determine plan eligibility and benefits, we review a decision of the administrators under the arbitrary and capricious standard." Jiras v. Pension Plan of Make-Up Artist Hairstylists Local 798 of the Alliance of Theatrical Stage Employees, 170 F.3d 162, 166 (2d Cir. 1999) (citing Firestone Tire Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989); Pagan v. NYNEX Pension Plan, 52 F.3d 438, 441 (2d Cir. 1995)). Under the arbitrary and capricious standard, the court cannot question the plan administrator's decision except in the case of a "clear error of judgment." Jiras, 170 F.3d 162, 166.
Thompson contends that the de novo review standard should apply because of an alleged conflict of interest that allegedly influenced the decision of the Committee members who administered the Plan. The plaintiff argues that the Plan was unfunded and that the Committee members, as employees of the sponsoring company, had an interest in denying benefits to a former employee.
Thompson relies on Firestone to argue that, because the Plan Administrator was allegedly influenced by a conflict of interest, the court should conduct a de novo review of the Administrator's decision. However, the Court in Firestone held only that de novo review is appropriate where a benefits plan does not expressly invest a plan administrator or fiduciary with the authority to interpret or construe the plan. Firestone, 489 U.S. at 115. The Court went on to explain that where a plan does expressly invest an administrator with discretion, even though the administrator was operating under a conflict of interest, that conflict of interest must be weighed as "a `facto[r] in determining whether there is an abuse of discretion.'" Id. at 115 (quoting Restatement (Second) of Trusts § 187, cmt. d (1959)). "Thus, where otherwise appropriate, courts should apply the arbitrary and capricious standard `regardless of whether the administrator or fiduciary is operating under a possible or actual conflict of interest.'" Dunnigan v. Metropolitan Life Ins. Co., 99 F. Supp.2d 307, 316 (S.D.N.Y. 2000) (quoting Firestone Tire, 489 U.S. at 115); see also Sullivan v. LTV Aerospace and Defense, 82 F.3d 1251, 1255-56 (2d Cir. 1996) (holding that "arbitrary and capricious" standard applies where discretion is expressly given to plan administrator, and where administrator is shown to have a conflict of interest, unless conflict actually influenced decision);Pagan, 52 F.3d at 442. Where the administrator was in fact influenced by the conflict of interest, "the deference otherwise accorded the administrator's decision drops away and the court interprets the plan de novo." Sullivan, 82 F.3d at 1256.
In this case, before any discovery has been had the Court could not determine whether any alleged conflict of interest actually influenced the Plan Administrator's decision. Therefore, on this motion to dismiss the Court will apply the more exacting de novo review standard. Even applying the stricter standard of de novo review, however, it is clear that the Plan Administrator's decision was entirely correct.
Thompson ceased to be an employee of GE in 1998. Under the clear terms of the Plan, that event triggered the payout of the 1991 deferred salary in accordance with the payout method Thompson had selected, namely 20 annual installments commencing the year after termination. (Def. Mem., Ex. D.) The Plan provided: "Payments will be made under the method elected beginning of March 1 of the year following the year of termination of employment." (Def. Mem., Ex. A at 2, § IV.4.) The Plan description also clearly states that "[t]ermination of employment on or after December 31, 1995. for any reason, or on any date on or after December 31, 1991 because of retirement, death, disability, or business disposition will result in payouts based on account accumulation at the 14% interest rate. Payments will be made under the method elected beginning on March 1 of the year following the year of termination." (Def. Mem., Ex. B at 2.) The plaintiff's original deferral election form in 1991 similarly acknowledged that the payout would begin March 1 following the year of termination. (Def. Mem., Ex. D.) There is no question that the defendant's deferred 1991 salary accumulated interest at the rate of 14% and that the remaining installments continue to receive 14% interest under the Plan until the payout is completed. The plaintiff does not dispute the interest rate he has received, only the decision that he was not permitted to defer the beginning of his payout after his employment with GE had terminated. There is nothing in the Plan or Plan description that permitted the plaintiff to defer the beginning of his payout beyond March 1 of the year following his termination from GE. Because that employment terminated in 1998, his payout should have begun and did begin in March, 1999.
The plaintiff argues that the Fisher memorandum should be read to mean that the plaintiff's employment by TCE was a continuation of his employment with GE and therefore his GE employment did not terminate in 1998. This argument is unavailing. First, the Fisher memorandum did not amend the terms of the Plan and the Summary Plan Description. See Moore v. Metropolitan Life Ins. Co., 856 F.2d 488, 492 (2d Cir. 1988) ("absent a showing tantamount to proof of fraud, an ERISA welfare plan is not subject to amendment as a result of informal communications between an employer and plan beneficiaries.") Second, the Fisher memorandum, by its terms, does not support the plaintiff's attempt to defer the payout of his 1991 deferred salary. By its explicit terms, the memorandum stated that "should a participant in the plan become a [TCE] employee prior to December 31, 1995 as a result of the RCAL transition, such employment, and only such employment, will be considered an extension of GE employment for purposes of the plan." (Def. Mem, Ex. E (emphasis added).) It is undisputed that the plaintiff did not become a TCE employee before December 31, 1995, and therefore the memorandum by its terms did not provide that the plaintiff's employment by TCE in 1995 somehow extended his employment with GE. The Plan Administrator's decision that the Fisher memorandum did not apply to the plaintiff because he transferred to TCE after December 31, 1995 was wholly correct, even applying the strict standard of de novo review. Taking all of Thompson's allegations as true, and drawing all factual inferences in favor of him, there is simply no basis on which this Court could reverse the Plan Administrator's decision. Therefore, the plaintiff's claim for denial of benefits under ERISA (fifth cause of action) is dismissed.
IV.
GE argues that Thompson's claim for breach of fiduciary duty under ERISA must be dismissed because the Plan is a "top hat" plan, that is, one which is "unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees," and is therefore exempt from ERISA's fiduciary responsibility provisions. See 29 U.S.C. § 1051(2), 1081(a)(3), 1101(a)(1).
Thompson claims that the Plan is not a "top hat" plan because he was never a management or highly compensated employee, and that there are issues of fact as to whether the Plan was maintained primarily for such employees. It is unnecessary to determine whether the Plan is a "top hat" plan because the plaintiff's claim for breach of fiduciary duty is premised on his claim that the Plan Administrator wrongfully denied him continued participation in the Plan. For the reasons explained above, there is no merit to that claim and therefore the Plan Administrator breached no fiduciary duty by simply applying the terms of the Plan. Accordingly, the claim for breach of fiduciary duty under ERISA (fourth cause of action) must be dismissed.
V.
Thompson also alleges causes of action for breach of contract; and breach of the implied covenant of good faith and fair dealing. These common law claims are preempted pursuant to 29 U.S.C. § 1144(a) because they expressly rely on, and are directly related to, the ERISA claims. The language of the statute is clear: ERISA shall "supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" governed by ERISA. 29 U.S.C. § 1144(a).
The Supreme Court has interpreted ERISA to displace all state laws "within its sphere, even including state laws that are consistent with ERISA's substantive requirements." Metropolitan Life Ins. Co. v. Massachusetts Trevellers Ins. Co., 471 U.S. 724, 739 (1985); Shaw v. Delta Airlines, Inc., 463 U.S. 85, 100 n. 21 (1983); Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 144 (1990) (holding that state law "relates to" an employee benefit plan if it "has a connection with or reference to such plan," whatever the state law's underlying intent); Lopresti v. Terwilliger, 126 F.3d 34, 41 (2d Cir. 1997) (holding that "alternative theor[ies] of recovery for conduct actionable under ERISA" are preempted) "[T]he express preemption provisions of ERISA are deliberately expansive, and designed to `establish pension plan regulation as exclusively a federal concern.'" Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 45-46 (1987) (quoting Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523 (1981)). "The words `relate to' in section [1144(a)] are to be interpreted broadly; ERISA does not preempt only state laws specifically designed to affect employee benefit plans or dealing with the subject matters covered by ERISA — reporting, disclosure, fiduciary responsibility, and the like." Aetna Life Ins. Co. v. Borges, 869 F.2d 142, 144 (2d Cir. 1989).
Thomoson's claims for breach of contract (second cause of action) and breach of the implied covenant of good faith and fair dealing (third cause of action) "relate to" the benefit plan at issue. There is no dispute that the Plan at issue is governed by ERISA. Thompson alleges the same facts in support of these claims as he does in support of those based on ERISA; the breach of contract alleged is the breach of the Plan itself, in the form of wrongful denial of continued participation. The breach of the implied covenant of good faith and fair dealing similarly rests on this allegedly wrongful denial. These claims are completely coextensive with Thompson's ERISA claims and are, therefore, preempted and must be dismissed. Indeed, Thompson conceded at oral argument that these claims are preempted by ERISA.
VI.
Thompson further alleges in his complaint that the defendant is estopped from denying him continued participation in the Plan (first cause of action). If the cause of action for promissory estoppel were viewed as a state law cause of action, it would be barred by preemption, as the defendant argues. However, while the complaint is not wholly clear, construing the allegations in favor of the plaintiff, the claim of promissory estoppel could be viewed as an argument that the defendant should be precluded from denying the validity of the plaintiff's claim for benefits — namely his continued deferral of his salary. The Court of Appeals for the Second Circuit has recognized that the "principles of estoppel can apply in ERISA cases under extraordinary circumstances." Schonholz v. Long Island Jewish Med. Ctr., 87 F.3d 72, 78 (2d Cir. 1996) (citing Lee v. Burkhart, 991 P.2d 1004, 2009 (2d Cir. 1993)). In Schonholz, the Court of Appeals delineated the four basic elements of promissory estoppel: "(1) a promise, (2) reliance on that promise, (3) injury caused by the reliance, and (4) an injustice if the promise is not enforced." Schonholz, 87 F.3d at 79. The Court of Appeals adopted the formulation of the "promise" from the Second Restatement of Contracts: "[a] promise which the promisor should reasonably expect to induce action or forebearance on the part of the promisee or a third person and which does induce such action or forebearance." Restatment (Second) of Contracts § 90(1) (1979), cited in Schonholz, 87 F.3d at 79. In addition to these four basic elements, an ERISA plaintiff must adduce facts that demonstrate "extraordinary circumstances." Aramony v. United Way Replacement Benefit Plan, 191 F.3d 140, 151 (2d Cir. 1999);Devlin v. Transp. Communications Int'l Union, 173 F.3d 94, 102 (2d Cir. 1999).
The promise on which Thompson bases his claim of promissory estoppel is unambiguous: "should a participant in the plan become a Thomson Consumer Electronics employee prior to December 31, 1995 as a result of the RCAL transition, such employment, and only such employment, will be considered an extension of GE employment for purposes of the plan." (Compl., Ex. E (emphasis added).) GE correctly asserts that this language in the Fisher memorandum does not help Thompson, because he indisputably did not become an employee of TCE until January 1, 1999 — a full four years after the date stated the Fisher memorandum.
Neither Fisher nor Thompson could reasonably have interpreted Fisher's memorandum to be a "promise" that TCE employment would constitute GE employment in perpetuity. The Plan documents and the Fisher memorandum could not be clearer; no reasonable person — much less a corporate attorney, such as Thompson — could interpret the Fisher memorandum as such a guarantee.
Furthermore, the date set forth in Fisher's memorandum makes sense in the context of the Plan. Thompson himself concedes that in 1990, he, GE, and TCE all anticipated that the RCAL transition would take place before December 31, 1995. (Compl. ¶ 8.) The Plan states, in relevant part:
Termination of employment on or after December 31, 1995, for any reason, or on any date on or after December 31, 1991 because of retirement, death, disability, or business disposition will result in payouts based on account accumulations at the 14% interest rate . . . under the method elected beginning on March 1 of the year following the year of termination.
. . . .
Termination of employment for any reason prior to December 31, 1991 or for reasons other than retirement, death, disability, or successor employer prior to December 31, 1995 will result in a lump sum payment as soon as practical following termination of employment. Payment will include the amount deferred with simple interest credited monthly at a 5% annual rate to the date of termination.
(Def. Mem., Ex. B at 2 (emphasis added).) In the absence of the Fisher memorandum, it was not clear from the terms of the Plan itself whether a transfer to TCE prior to December 1, 1995 as a result of the RCAL transition would be considered a "business disposition."
Thompson, therefore, had an obvious reason for concern: If he elected to participate in the Plan, and then he transferred to TCE as scheduled (in 1994 or early 1995), his deferred salary might be credited only 5% interest, rather than 14%, and paid out in an immediate lump sum, rather than according to his payout election. Fisher's assurance protected Thompson from this potential downside; he would receive the 14% interest rate, compounded annually on each December 31, even if he left GERLMO prior to December 31, 1995 to work for TCE as a result of the RCAL transition. The memorandum provided comfort to the plaintiff if he left GE to go to TCE prior to December 31, 1995. The memorandum did not apply to the situation where the plaintiff left GE after December 31, 1995, but in that case the Plan provided that he would receive the 14% interest rate, although the payout would begin in March following the year of termination.
It is also clear that this case lacks the "extraordinary circumstances" required for the application of promissory estoppel. The present case is strikingly different from Schonholz, in which the Court of Appeals for the Second Circuit held there was at least a question as to whether "extraordinary circumstances" existed for the purposes of a promissory estoppel claim in the ERISA context:
[T]he remarkable consideration in Schonholz was the defendants' use of promised severance benefits as an inducement to persuade Schonholz to retire. Because the defendant Medical Center was presumably bound by the acts of its agent. Dr. Match, it was as though the Medical Center had intentionally used the promise of severance benefits to win Schonholz's resignation, and then reneged once she resigned.Devlin, 173 F.3d at 102. In this case, however, there are no allegations to support a claim of "extraordinary circumstances." The plaintiff does not claim that the 1990 Fisher memorandum caused him to leave GE in 1998. In fact, Thompson stated in his complaint that he expected he would be going to TCE when the RCAL transition took place — that is precisely what prompted him to ask about the implications of the transfer before he decided to participate in the Plan. Moreover, the plaintiff received protection of accrual at the 14% interest rate if he had left to go to TCE before the end of 1995. There are no extraordinary circumstances in this case to apply promissory estoppel to create a claim for benefits which is not supported in the Plan documents or the Fisher memorandum.
Because there is no merit to any of the plaintiff's claims the plaintiff is not entitled to attorney's fees. See 29 U.S.C. § 1132(g)(1) (award of attorney's fees in ERISA action by participant is in court's discretion).
CONCLUSION
For the foregoing reasons, the defendant's motion to dismiss the complaint pursuant to Fed.R.Civ. p. 12(b)(6) is granted. The Clerk of Court is directed to enter judgment dismissing the complaint and closing the case.SO ORDERED.