Cassidy v. Akzo Nobel Salt, Inc.

• Decision Date: 21 October 2002
• Docket Number: No. 01-1580.,01-1580.
• Citation: 308 F.3d 613
• Parties: Louise CASSIDY, et al., Plaintiffs-Appellants, v. AKZO NOBEL SALT, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

308 F.3d 613

Louise CASSIDY, et al., Plaintiffs-Appellants, v. AKZO NOBEL SALT, INC., Defendant-Appellee.

No. 01-1580.

United States Court of Appeals, Sixth Circuit.

Argued: September 19, 2002.

Decided and Filed: October 21, 2002.

Steven Z. Cohen (briefed), Joshua A. Lerner (argued), Cohen, Lerner & Rabinovitz, Royal Oak, MI, for Plaintiffs-Appellants.

Timothy H. Howlett (argued and briefed), D. Lee Khachaturian (briefed), Dickinson, Wright, PLLC, Detroit, MI, for Defendants-Appellees.

Before KENNEDY and MOORE, Circuit Judges; DOWD, District Judge.^*

OPINION

KENNEDY, Circuit Judge.

Plaintiffs-appellants Louise Cassidy, et al., appeal the district court's summary judgment for defendant, Akzo Nobel Salt, Inc., ("ANSI"), on plaintiffs' claim that they are contractually entitled to benefits under ANSI's severance pay plan. Jurisdiction is based on diversity of citizenship.

ANSI's termination plan states that regular full time employees who are "released" will receive severance pay. The policy defines "release" as follows:

Release is a permanent separation initiated by the company due to lack of work, an economic reduction in the work force, the employee's inability to perform satisfactorily the duties of the position, incompatibility, etc. Lack of work may occur as the result of reorganization, job abolishment, etc.

In April of 1997, ANSI sold its assets to Cargill, Inc., with a promise that Cargill would employ substantially all the employees of ANSI. Plaintiffs are all ANSI employees who accepted offers for substantially similar positions with Cargill. All continue to work for Cargill. They allege that under the terms of ANSI's severance plan, their transfer from employment with ANSI to Cargill was a "release" entitling them to severance benefits from ANSI. They claim breach of contract for ANSI's failure to make those payments.

The district court granted ANSI's motion for summary judgment, holding that the plain and unambiguous language of the plan did not entitle plaintiffs to severance benefits because their transfer of employment to Cargill was not due to "lack of work" or an "economic reduction in the workforce" as specifically required by the terms of the plan.¹

Plaintiffs raise two issues on appeal: (1) whether the severance plan is a welfare benefit plan under the Employment Retirement Income Security Act, 29 U.S.C. § 1001 et seq., triggering federal common law rather than state contract law principles; (2) whether there is a genuine issue of material fact as to the proper interpretation of the contract.

I.

The district court did not decide whether or not the severance plan is a employee welfare benefit plan under ERISA, reasoning that "general rules" of contract interpretation apply regardless. This is an imprecise statement. When interpreting ERISA plans, federal courts apply "general rules" of contract law as part of the federal common law. See, e.g., Hunter v. Caliber System, Inc., 220 F.3d 702, 712 (6th Cir.2000); Perez v. Aetna Life Ins. Co., 150 F.3d 550, 556 (6th Cir. 1998). The federal common law may draw upon state law principles, but state law is not controlling authority. Interpreting a non-ERISA contract claim requires federal courts to look only to state law principles, and has nothing to do with federal common law. Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Because the fundamental legal framework differs for ERISA and non-ERISA plans, the question of whether the ANSI severance pay benefit is part of an ERISA plan should be decided.

ERISA defines an "employee welfare benefit plan" as "any plan ... established or maintained by an employer ... for the purpose of providing for its participants... (A) benefits in the event of ... unemployment... or (B) any benefit described in section 186(c) of this title." 29 U.S.C. § 1002(1).

Severance plans are included in the definition of 29 U.S.C. § 1002(1)(B). Shahid v. Ford Motor Co., 76 F.3d 1404, 1409 (6th Cir.1996). Section 302(c) of the Labor-Management Relations Act ("LMRA"), 29 U.S.C. § 186(c), refers to severance benefits, and § 1002(1)(B) incorporates that reference into ERISA's definition of "employee welfare benefit plan." Additionally, the Supreme Court has specifically noted that "plans to pay employees severance benefits, which are payable only upon termination of employment, are employee welfare benefit plans." Massachusetts v. Morash, 490 U.S. 107, 116, 109 S.Ct. 1668, 104 L.Ed.2d 98 (1989).

Nonetheless, this circuit has held that not all severance pay plans are ERISA plans. We have looked to the nature of the plan to distinguish ERISA from non-ERISA plans. Swinney v. General Motors Corp., 46 F.3d 512, 517 (6th Cir.1995) ("The hallmark of an ERISA benefit plan is that it requires `an ongoing administrative program to meet the employer's obligation.'") (quoting Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1, 11-12, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987)). The degree of discretion retained by the employer over distribution of benefits is one important factor in deciding whether a severance plan is an ERISA plan. For example, plans in which benefits are predetermined or which involve "[s]imple or mechanical determinations" have been found not to be ERISA plans. Sherrod v. General Motors Corp., 33 F.3d 636, 638-39 (6th Cir.1994). On the other hand, if to determine benefits the employer must "analyze each employee's particular circumstances in light of the appropriate criteria," the severance plan is probably an ERISA plan. Id. Another important factor is whether the delivery of benefits creates an on-going demand on employer assets. A plan may be an ERISA plan if the employer "assumes ... responsibility to pay benefits on a regular basis, and thus faces ... periodic demands on its assets that create a need for financial coordination and control." Fort Halifax, 482 U.S. at 12, 107 S.Ct. 2211. In Shahid v. Ford Motor Co., 76 F.3d 1404 (6th Cir.1996), for example, we held that Ford's severance pay plan, which included continuation of medical benefits, professional re-employment assistance, and retirement "grow-in" provisions, was an ERISA plan. Id. at 1410. By contrast, in Sherrod, we noted that one-time lump sum distribution of severance benefits is not consistent with ERISA's definition of a welfare benefit plan. 33 F.3d at 639.

The ANSI severance plan reveals a degree of discretion, periodic demands on assets, and an administrative burden that ERISA's definition contemplates.² The original severance policy generally provided for lump sum payment based on the employee's tenure with ANSI, "unless an alternate arrangement is approved by the company." (J.A. at 43). As amended in 1997, some employees were permitted to choose between lump sum payment and a two-year salary continuation period. (J.A. at 132). If alternate arrangements for installment payments were approved, continuation of benefits had to be negotiated at the discretion of ANSI. (J.A. at 44). Although benefits were generally formulaic, the company president had discretion to approve a larger amount in some cases. Id. Employees with five or more years of service could choose between normal severance payment and a series of monthly payments that began at retirement age. (J.A. at 45).³ The employee had to submit a written application in order to receive this retirement benefit, although it is not clear whether ANSI retained discretion to deny any application. Id. Released employees were also permitted to extend their medical, dental and life insurance benefits, and were entitled to career transition services. (J.A. at 44, 132). On the whole, this severance benefits scheme displays a degree of administrative complexity that more closely resembles plans which we have included in ERISA's scope.⁴

In light of these facts, we hold that ANSI's severance plan is an ERISA plan, and that the district court did not err in applying federal common law precedents to interpret the contractual language.⁵

II.

Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate when there is no genuine issue of material fact for trial, and the moving party is entitled to judgment as a matter of law. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The question of whether this ERISA-governed severance benefit plan's contractual language is ambiguous is a question of law requiring de novo review. Wulf v. Quantum Chemical Corp., 26 F.3d 1368, 1376 (6th Cir.1994).

As the district court noted, the sole question in this case is whether plaintiffs' transfer of employment from ANSI to Cargill was a "release" as defined by the ANSI severance plan. In order to qualify as a "release" in this context, plaintiffs must have been permanently separated due to "lack of work," an "economic reduction in the workforce," or some other reason covered by the plan's use of the term "etc."

Courts should interpret ERISA plan provisions "according to their plain meaning, in an ordinary and popular sense." Perez v. Aetna Life Ins. Co., 150 F.3d 550, 556 (6th Cir.1998). In applying this "plain meaning analysis," the court "must give effect to the unambiguous terms of an ERISA plan." Lake v. Metropolitan Life Ins. Co., 73 F.3d 1372, 1379 (6th Cir.1996). The district court found that no plausible reading of this particular plan's definition of "release" supports plaintiffs' claims for severance benefits. We agree.

A. Lack of Work

The plain meaning of "lack of work" does not encompass plaintiffs' situation. The plaintiffs are presently doing the same or substantially similar work as they did for ANSI before the asset sale. The transfer of employment from ANSI to Cargill was not caused by a lack of work at ANSI, but rather by the sale of all of ANSI's assets to Cargill. This common sense reading is consistent with the common sense we and sister circuits have applied in other cases. See Garavuso v....