Grun v. Pneumo Abex Corp.

• Decision Date: 05 January 1999
• Docket Number: No. 97-1410,97-1410
• Citation: 163 F.3d 411
• Parties: 22 Employee Benefits Cas. 2188 William F. GRUN, Plaintiff-Appellant, v. PNEUMO ABEX CORP., PA Holdings Corp., and The Henley Group, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 411

163 F.3d 411

22 Employee Benefits Cas. 2188

William F. GRUN, Plaintiff-Appellant, v. PNEUMO ABEX CORP., PA Holdings Corp., and The Henley Group, Inc., Defendants-Appellees.

No. 97-1410.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 26, 1997.

Decided Nov. 24, 1998.

Rehearing and Suggestion for Rehearing

En Banc Denied Jan. 5, 1999.

Paul K. Vickrey, Niro, Scavone, Haller & Niro, Chicago, IL, John C. Sciaccotta, Jill A. Dougherty (argued), Richard H. Ferri, Kelly Olson, Rogan & Siepker, Chicago, IL, Robert E. Campbell, Cadwalader, Wickersham & Taft, Los Angeles, CA, for Plaintiff-Appellant.

Gary S. Kaplan, O. Michael Osanloo, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, IL, William R. Sullivan, Jr. (argued), Franczek Sullivan, Chicago, IL, Hope A. Jacobson, Los Angeles, CA, for Defendants-Appellees.

Before CUMMINGS, COFFEY and EVANS, Circuit Judges.

COFFEY, Circuit Judge.

William F. Grun ("Grun") brought suit against Pneumo Abex in April 1990, alleging Pneumo Abex breached both a Severance Compensation Agreement ("SCA") and a separate "Management Incentive Compensation Plan" ("MICP"). Grun also brought suit against PA Holdings Corp. and The Henley Group, Inc., alleging intentional interference with contractual relations. ¹ After extensive discovery, the trial court denied Grun's motion for summary judgment on his claim that Pneumo Abex breached the SCA, denied Pneumo Abex's motion for summary judgment on Grun's claim that Pneumo Abex breached the MICP, and granted defendants' motion for summary judgment on Grun's intentional interference claim. Thereafter, the court scheduled the case for a September 14, 1993 trial on Grun's two breach of contract claims.

Neither party appeared on the trial date, and the court dismissed Grun's case because of his failure to appear. The court sent notices of dismissal, but Grun states that he did not receive the notice. Grun filed a motion to advance his case for trial three years later, still unaware of the dismissal order. The district court denied the motion and suggested that Grun file a motion for relief from the dismissal order under Federal Rule of Civil Procedure 60(b). Grun did so and the court denied the motion, holding that the dismissal was not void under Rule 60(b)(4). In the alternative, the court dismissed the case for want of prosecution. The court entered final judgment against Grun on December 17, 1996, and docketed it three days later, on December 20, 1996. On January 14, 1997, Grun filed a notice of appeal challenging (1) the district court's decision denying Grun's motion for summary judgment on his claim that Pneumo Abex breached the SCA, (2) the district judge's denial of his Rule 60 motion for relief from judgment, and (3) the trial court's alternative dismissal for want of prosecution. We reverse and remand with instructions that the district court enter summary judgment for Grun on his claim for breach of the SCA and determine the amount of compensation to which Grun is entitled, and for a trial on Grun's claim for breach of the MICP.

I. BACKGROUND

A. Pneumo Abex's Alleged Breach of the SCA.

In October of 1987, Grun was President and General Manager of NWL Control Systems, ² a division of Pneumo Abex located in Kalamazoo, Michigan. At that time, Grun's personal business office was also located in Kalamazoo. On October 21, 1987, during the course of his employment, Grun entered into a SCA with Pneumo Abex ("the Company") due to the likelihood that the Company would be sold in the near future. ³ The SCA contained two stated purposes: to "reinforce and encourage [Grun's] continued disinterested attention and undistracted dedication to his duties in the potentially disturbing circumstances of a possible change in control of the Company by providing some degree of personal financial security;" and to "induce [Grun] to remain in the employ of the Company." To achieve these purposes, the SCA provided that Grun would be entitled to a designated amount of severance compensation if two events occurred: (1) there was a "change in control" of the Company while Grun was still an employee (SCA, § 2(a)) and (2) Grun chose to terminate his own employment for any one of ten "good reasons," including "a relocation of the Company's principal executive offices or [Grun's] relocation to any place other than the location at which [he] performed [his] duties prior to a change in control of the Company." The SCA further provided that "[n]o provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by [Grun] and the Company."

On March 25, 1988, approximately five months after Grun's SCA was signed by the parties, Norman J. Ryker, president and chief executive officer of Pneumo Abex, wrote a letter to Grun, apparently in an effort to explain the purpose of the SCA. Mr. Ryker stated that the SCA was to provide Grun with certain protections if a change in control occurred and Grun's position or compensation were substantially adversely affected. Mr. Ryker admitted that a change in the location of Grun's personal office was a potential adverse effect, but went on to explain that:

[f]or holders of [SCAs] who do not work at the Company's [Boston] headquarters, a relocation of [the Company's] principal executive offices [in Boston] is not an adverse event. Inasmuch as you do not work at the Company's headquarters, this letter is to advise you that the Company did not intend for you to become entitled to termination compensation under Section 3(e)(vi) of the Agreement by virtue of the relocation of the Company's principal executive offices unless there is also a relocation of your present office. (Emphasis in original).

On April 5, 1988, Grun responded to Ryker's letter writing that:

I cannot agree with [your] interpretation of the [SCA] which is contained in your letter of 3/25/88. My family and I consider a change in the location of the principal executive offices from the Boston area, which we consider to be our home, as one of the potential adverse effects of a change in control of the Company.

That same month, a prospective buyer signed a letter of intent to purchase Pneumo Abex, and the anticipated sale of Pneumo Abex was completed on August 29, 1988. Both parties agree this constituted a "change in control" under § 2(a) of the SCA.

In April of 1989, the Company announced that various corporate functions, formerly handled at Pneumo Abex's corporate headquarters in Boston, would be divided among several other offices: the consolidation, tax, and treasury functions moved to New Hampshire; the legal and security functions moved to Newton, Massachusetts; the human resources and benefits functions were absorbed into various operating divisions; and a corporate office was established in Chicago. In addition, the Company closed its principal executive offices in Boston.

On August 31, 1989, Grun tendered his resignation seeking severance compensation under the terms of the SCA. He alleged (1) that the Company had undergone a "change in control;" and (2) that the move of the executive offices out of Boston constituted a "good reason," thereby allowing him to terminate his employment and entitling him to compensation. Specifically, Grun pointed to § 3(e)(vi) of the SCA which listed, as one good reason, "a relocation of the Company's principal executive offices or [Grun's] relocation to any place other than the location at which [he] performed [his] duties prior to a change in control of the Company." (SCA, § 3(e)(vi)). The Company reviewed Grun's request. It decided Pneumo Abex had undergone a "change in control," but that Grun did not have "good reason" to resign because his Kalamazoo office had not been relocated. Accordingly, the Company denied Grun's claim to severance compensation. As a result, Grun decided to withdraw his resignation until the dispute surrounding the SCA was resolved. On October 15, 1989, however, Pneumo Abex terminated Grun's employment.

Grun filed the instant action on April 4, 1990, in the United States District Court for the Northern District of Illinois, Eastern Division. He alleged, among other things, that Pneumo Abex breached the SCA when it failed to pay him severance compensation as required by the SCA. Extensive discovery followed, and the parties filed cross motions for summary judgment. The district court referred the motions to magistrate judge Lefkow pursuant to 28 U.S.C. § 636(b)(1).

On October 1, 1992, the magistrate judge submitted her Report and Recommendation to the trial court and recommended, in part, that Grun's motion for summary judgment be granted on his claim for breach of the SCA because all of the events necessary to trigger Grun's rights to severance compensation under the SCA had occurred. Specifically, the magistrate found that the SCA is an employee benefits plan governed by ERISA. Next, the magistrate noted that:

the parties agree that a change in control, as contemplated by the SCA, occurred in August, 1989. Additionally, there is no dispute that Pneumo Abex's offices in Boston, Massachusetts were relocated in the fall of 1989. The parties' disagreement, then, is limited to whether p 3(e)(vi) of the SCA was intended to trigger entitlement to severence (sic) compensation absent any relocation of the office where Grun worked.

The court held:

it is apparent that the intention of the parties, at the time the contract was made, was to allow Grun to recover under the SCA if he terminated his employment within two years following a change in control and either Pneumo Abex's principal executive offices were relocated out of Boston, Massachusetts or his own place of work was relocated. The plain language of p 3(e)(vi), when all of its words are taken in their ordinary sense, evidences this intention. (Emphasis in original).

As such, continued the magistrate judge, "all the events necessary to establish...