266 F.3d 622 (7th Cir. 2001), 00-1851, Bowles v Quantum Chemical Co.

Docket Nº:00-1851, 00-1932
Citation:266 F.3d 622
Party Name:WILLIAM A. BOWLES, Plaintiff-Appellee, Cross-Appellant, v. QUANTUM CHEMICAL COMPANY, a division of QUANTUM CHEMICAL CORPORATION, a Hanson Company, Defendant-Appellant, Cross-Appellee.
Case Date:September 11, 2001
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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266 F.3d 622 (7th Cir. 2001)

WILLIAM A. BOWLES, Plaintiff-Appellee, Cross-Appellant,

v.

QUANTUM CHEMICAL COMPANY, a division of QUANTUM CHEMICAL CORPORATION, a Hanson Company, Defendant-Appellant, Cross-Appellee.

Nos. 00-1851, 00-1932

In the United States Court of Appeals, For the Seventh Circuit

September 11, 2001

ARGUED FEBRUARY 27, 2001

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 95 C 2719--Rudy Lozano, Judge.

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Before COFFEY, RIPPLE and EVANS, Circuit Judges.

RIPPLE, Circuit Judge.

William Bowles left his management position at Quantum Chemical Company ("Quantum") after Quantum was acquired by Hanson PLC ("Han son"). Dr. Bowles sued Quantum to recover severance benefits allegedly due to him under Quantum's severance protection plan ("the severance plan"). Following a bench trial, the district court determined that there was a diminution in Dr. Bowles' authority, duties, responsibilities, and status, which entitled Dr. Bowles to benefits under the severance plan. The court awarded Dr. Bowles $195,390, plus attorneys' fees and prejudgment interest. Quantum appeals that award. Dr. Bowles cross-appeals on the grounds that (1) he also is entitled to a supplemental bonus that the district court did not award him and (2) the court's award of attorneys' fees was too low. For the reasons set forth in the following opinion, we affirm the district court's award of severance benefits as well as its denial of the supplemental bonus. We vacate and remand the issue of attorneys' fees to the district court for reconsideration.

I

BACKGROUND

A. Facts

Dr. Bowles, who holds a Ph.D. in Chemistry, was employed by Quantum or one of its predecessors from June 1976 until the time he left his position on September 30, 1994. At the time he terminated his employment, Dr. Bowles was serving as Quantum's director of polyolefins1 research and technology acquisition, which was a senior-level management position.

At trial, Dr. Bowles testified as to the nature of his job prior to September 30, 1993. According to Dr. Bowles, he was responsible for planning, organizing, and supervising the major polyolefins research projects at Quantum. Approximately 200 people reported to him, roughly half of whom were degreed professionals. Dr. Bowles reported directly to Dr. Michael Baldwin, the vice president of research and development, who in turn reported directly to Dr. Ronald Yocum, Quantum's president. The total corporate research budget was approximately $44 million, and approximately $29 million of that was allocated to Dr. Bowles' department. Dr. Bowles had a particular interest in the Q Technology project, the purpose of which was to find ways of making Quantum less dependent on its competitors' technology. He had spent anywhere between twenty and fifty percent of his time on that project since its inception in the early 1990s.

As a senior-level manager, Dr. Bowles was eligible for certain bonuses and benefits. Pursuant to its senior manager performance plan ("the SMPP"), Quantum gave annual incentive bonuses2 to certain employees if the company and the employee met or exceeded business goals. These bonuses were a certain percentage of the employee's base salary. Dr. Bowles was

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slated to receive target bonuses in 1993 and 1994, and, although the testimony on this point was conflicting, it appears that those bonuses should have been thirty percent of his base salary. Although Quantum did not pay out target bonuses in 1993, Dr. Bowles received a target bonus of $37,551.60 in 1994.

Additionally, Dr. Bowles was eligible to participate in Quantum's incentive award deferral plan ("the deferral plan"). The deferral plan allowed Dr. Bowles to invest all or part of the bonuses he received in the company's general fund. The money earned interest at a favorable rate, and Dr. Bowles did not have to pay taxes on it until the funds were paid out to him at a time he specified, presumably during his retirement when he would be in a lower tax bracket. The deferral plan contained a provision that required the company to pay out any and all funds in the plan thirty days after a change in control. This provision was designed to ensure that employees who had invested in the fund would not lose their money if the corporation became insolvent following a takeover. During the course of his employment at Quantum, Dr. Bowles invested approximately $191,000 in the deferral plan.

In the early 1990s, Quantum began experiencing serious financial difficulties. Quantum's senior management actively sought out another entity that could help Quantum get its financial affairs back on track. At the same time, the company revised its severance plan "to protect certain key managers from the effects of an actual or possible Change in Control." R.149, Pl.'s Ex.1 at 1. Under the revised severance plan, an employee who suffered a "loss of his or her employment within one year following a Change in Control" was entitled to receive severance benefits. Id. As is relevant here, there were two circumstances in which an employee could initiate the termination of his employment and still receive severance benefits for having suffered a loss of employment. First, an employee would receive benefits if he resigned following "a diminution of [his] authority, duties, responsibilities or status" ("the diminution trigger"). Id. at 3. Alternatively, the employee would receive severance benefits if he resigned following the acquiring company's

failure to provide [him] with the opportunity to participate, on terms no less favorable than those existing immediately prior to the Change in Control, in any incentive bonus, savings, pension or other employeebenefit plan of Quantum in effect immediately prior to the Change in Control (or plans and benefits which are, in the aggregate, no less favorable to [him] than those in effect six months prior to the Change in Control) [("the loss-of-benefits trigger")].

Id. The occurrence of either trigger was sufficient for an employee to receive benefits under the severance plan.

An employee entitled to receive benefits under the severance plan also was entitled to receive an annual incentive bonus award. The drafter of the severance plan, C. William Carmean, testified by deposition that the purpose of this bonus provision was to ensure that an employee who had earned a bonus prior to a change in control still would be paid that bonus following the change in control. The rel evant provision of the severance plan provides:

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Each eligible employee who becomes entitled to benefits under the Plan shall be paid an annual incentive bonus award, as described below, with respect to each year or portion thereof during the period beginning the first full year preceding a Change in Control and ending on the date such employee loses his or her employment. The annual incentive bonus award with respect to such year or portion thereof shall be the greater of (a) the amount of any such award actually granted to such employee with respect to such period, and (b) the amount of the award, if any, that would have been granted to such employee with respect to such period under the Senior Manager Performance Plan . . . as such plan was in effect with respect to bonuses granted for the full year preceding the Initial Year (the "Prior Year") and based upon such employee's target bonus for the Prior Year . . . .

Id. at 1-2. Lastly, the severance plan provided that "Quantum shall also pay all legal fees and expenses incurred by an eligible employee as a result of such employee's seeking to obtain or enforce any right or benefit" under the plan. Id. at 4.

On September 30, 1993, Quantum was acquired by Hanson. This acquisition constituted a change in control that triggered Quantum's obligation to pay severance benefits, provided that the employee also suffered a loss of employment within the meaning of the severance plan. Dr. Bowles testified at trial that, in his opinion, Hanson's acquisition of Quantum significantly diminished his authority, duties, responsibilities, and status. Dr. Bowles believed that the most significant change in his job following the acquisition was the termination of the Q Technology project. According to Dr. Bowles, the company's decision to discontinue the Q Technology project "[b]asically gutted [his job]. It ripped the heart out of it." R.169-I at 38. Dr. Bowles perceived the termination of the project as an indication that the company no longer was going to pursue researching and developing its own technology. Not only did Dr. Bowles believe that this decision signified a decline in the importance of independent research to the company, he thought it was detrimental to the company's future.

Dr. Bowles also explained that, in his view, the restructuring inserted an extra layer of management between himself and the company president. Dr. Bowles' direct superior, Baldwin, who used to report directly to President Yocum, now reported to Gene Allspach, the vice president of manufacturing and technology. According to Dr. Bowles, this change in the hierarchy detrimentally affected his own position because Allspach, unlike Baldwin, did not have a research background. Consequently, Dr. Bowles had to spend a significant amount of time educating Allspach about research, whereas that process was unnecessary when Baldwin could go straight to Yocum on Dr. Bowles' behalf.

Dr. Bowles also described other deleterious changes to his job, such as a lower research budget, lower expenditure authorizations for him and his subordinates, and the loss of approximately twenty people in his...

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