Gilliam v. Nevada Power Co.

• Decision Date: 31 May 2007
• Docket Number: No. 04-17201.,04-17201.
• Parties: Cynthia K. GILLIAM, Plaintiff-Appellant, v. NEVADA POWER COMPANY; Nevada Power Company Supplemental Executive Retirement Plan; Sierra Pacific Resources; Sierra Pacific Resources Supplemental Executive Retirement Plan, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

488 F.3d 1189

Cynthia K. GILLIAM, Plaintiff-Appellant, v. NEVADA POWER COMPANY; Nevada Power Company Supplemental Executive Retirement Plan; Sierra Pacific Resources; Sierra Pacific Resources Supplemental Executive Retirement Plan, Defendants-Appellees.

No. 04-17201.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 19, 2006.

Filed May 31, 2007.

Daniel Marks, Law Office of Daniel Marks, Las Vegas, NV, argued the cause for the plaintiff-appellant, and filed briefs.

Gerald Mikesell, Nevada Power Company, Las Vegas, NV, argued the cause for the defendants-appellees, and filed a brief.

Appeal from the United States District Court for the District of Nevada; Philip M. Pro, District Judge, Presiding. D.C. No. CV-03-01013-PMP.

Before: MELVIN BRUNETTI, DIARMUID F. O'SCANNLAIN, and STEPHEN S. TROTT, Circuit Judges.

O'SCANNLAIN, Circuit Judge.

We are asked to decide whether severance pay should be included as "earnings" for purposes of calculating an employee's retirement benefits.

I

In 1974 Cynthia K. Gilliam ("Gilliam") began working for Nevada Power Company, an investor-owned public utility that provides electric service to southern Nevada. She ultimately was promoted to Vice President of Retail Customer Operations in 1993, where she remained until 1999.

In 1986, Nevada Power Company established the Nevada Power Company Supplemental Executive Retirement Plan ("NPC Plan"), a non-qualified pension plan intended to provide retirement benefits to certain highly-compensated executives selected by the Board of Directors. In 1989, the Board made Gilliam a participant in the NPC Plan.

In anticipation of a possible merger, Gilliam and Nevada Power Company executed a three-year employment agreement in 1998. The agreement provided that Gilliam would receive severance pay and certain other benefits if her employment was terminated as a result of a "change in control" of the company. Subsequently, Nevada Power Company agreed to merge with Sierra Pacific Resources, an event that qualified as a change in control, as defined in Gilliam's employment agreement.

As part of the merger process, Nevada Power Company and Gilliam executed a voluntary severance agreement that cancelled and replaced her employment agreement. Pursuant to the severance agreement, Gilliam agreed voluntarily to terminate her active employment with the company on April 19, 1999.¹ The severance agreement also provided that Gilliam would receive severance pay in an amount equal to twice her base salary and twice her target bonus for 1999. The agreement specified that Gilliam's retirement benefits under the NPC Plan would fully vest on April 19, 1999, her termination date. In addition, it provided that Gilliam would be entitled to early retirement on September 1, 2003. Finally, the severance agreement stated that Nevada Power Company would pay Gilliam $12,000 in lieu of providing her with outplacement and related services, which would be excluded from the calculation of her retirement benefits. On April 26, 1999, Nevada Power Company paid Gilliam $512,500 as severance pay pursuant to the agreement.

After the merger was complete, the resulting Board of Directors combined the NPC Plan with the Sierra Pacific Resources Supplemental Executive Retirement Plan ("SPR Plan"), effective November 1, 1999. The preamble of the SPR Plan stated in part:

The purpose of this amendment and complete restatement is to integrate the provisions of the predecessor Plan with the provisions of the Nevada Power Supplemental Executive Retirement Plan [the NPC Plan]. Effective November 1, 1999, this Plan [the SPR Plan] shall become the successor to those two predecessor plans and [the Sierra Pacific Company] will become the Plan Sponsor. Unless expressly stated by any amendment to this Plan, benefits for Participants who retire or terminate employment prior to the effective date of any amendment shall not be affected by any such amendment.

Gilliam was never a participant in the SPR Plan, as defined in the plan documents.

In a letter dated February 3, 2003, Gilliam asked Nevada Power Company to confirm the amount of her early retirement benefits under the NPC Plan and informed the company that she would like to begin receiving her benefits on the early retirement date specified in her severance agreement. Relying on the income reported in Box 1 of her federal Form W-2s for the years 1997-1999, the latter year including her $512,500 severance payment, Gilliam claimed that her retirement benefits under the NPC Plan totaled $145,279.56 per year ($12,106.63 per month).

In response, the plan administrator for Sierra Pacific Resources considered Gilliam's letter a claim for benefits and denied it. The plan administrator informed Gilliam that she "mistakenly included" her severance pay in her calculation of retirement benefits, which, the plan administrator contended, "has consistently been excluded from [the NPC Plan] earnings because it is not `wages and salary.'" Excluding Gilliam's severance pay from the calculation, the plan administrator asserted that Gilliam was entitled to receive retirement benefits of only $60,289.56 per year ($5,024.13 per month).

Gilliam appealed the denial of benefits to the Sierra Pacific Benefits Committee, which unanimously upheld the plan administrator's decision. Gilliam then filed suit in district court against Nevada Power Company, Nevada Power Company Supplemental Executive Retirement Plan, Sierra Pacific Resources, and Sierra Pacific Resources Supplemental Executive Retirement Plan (hereinafter collectively "Nevada Power Company"), challenging the denial of her retirement benefits under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1132(a)(1)(B).² On cross-motions for summary judgment, the district court granted summary judgment in favor of Nevada Power Company. Concluding that a de novo standard of review applied to its review of the plan administrator's denial of Gilliam's benefits, the district court held that the plan administrator properly excluded Gilliam's severance pay from the calculation of retirement benefits.

Gilliam timely appealed.

II

As a threshold matter, Nevada Power Company argues on appeal that the district court erred in reviewing the plan administrator's denial of Gilliam's claim de novo rather than for abuse of discretion.³

Gilliam maintained in the district court, and Nevada Power Company conceded, that the NPC Plan is a so-called "top hat" plan under ERISA. The Act defines a top hat plan as 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." 29 U.S.C. §§ 1051(2), 1081(a)(3), 1101(a)(1). This is no small matter. "Because of these limitations, top hat plans form a rare subspecies of ERISA plans, and Congress created a special regime to cover them." In re New Valley Corp., 89 F.3d 143, 148 (3d Cir.1996). ERISA exempts such plans "from the fiduciary, funding, participation and vesting requirements applicable to other employee benefit plans." Duggan v. Hobbs, 99 F.3d 307, 310 (9th Cir.1996) (citing 29 U.S.C. § 1101(a)(1) (exemption from fiduciary responsibilities); id. § 1081(a)(3) (exemption from minimum funding standards); id. § 1051(2) (exemption from participation and vesting requirements)).

Nevertheless, the parties and the district court assumed that the standard-of-review framework set forth in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), applies to top hat plans. There, the Supreme Court held that a court reviews a plan administrator's denial of benefits for abuse of discretion if the ERISA plan unambiguously grants the plan administrator discretionary authority to determine the eligibility for benefits or to construe the terms of the plan. Firestone, 489 U.S. at 115, 109 S.Ct. 948.⁴ On the other hand, if the ERISA plan fails unambiguously to grant the plan administrator such discretionary authority, the Supreme Court held that a court reviews the plan administrator's denial of benefits de novo. Firestone, 489 U.S. at 115, 109 S.Ct. 948. Notably, Firestone involved employee pension benefit plans and employee welfare benefit plans under ERISA, not top hat plans.⁵

We are less certain than the parties that the Firestone standard-of-review framework also applies to top hat plans. The Third Circuit, for one, has held that de novo review applies to top hat plans even when they grant plan administrators discretion because "a top hat administrator has no fiduciary responsibilities" under ERISA. Goldstein v. Johnson & Johnson, 251 F.3d 433, 443 (3d Cir.2001). Recently following suit, the Eighth Circuit concluded that Firestone does not apply to top hat plans, because "the policy considerations relied upon in [that case] to trigger abuse-of-discretion review . . . are simply not present in the case of a top hat plan." Craig v. Pillsbury Non-Qualified Pension Plan, 458 F.3d 748, 752 (8th Cir.2006). The Seventh Circuit, however, assumed without discussion that Firestone applied to top hat plans. See Olander v. Bucyrus-Erie Co., 187 F.3d 599, 606-08 (7th Cir. 1999).

We need not decide as a matter of first impression in this circuit whether the Firestone standard-of-review framework applies to top hat plans or, if it does, whether the district court should have applied an abuse of discretion rather than a de novo standard of review.⁶ The question in this case turns on the interpretation of the term "earnings" under the NPC Plan and we would reach the same conclusion under either standard of review. See Richardson v. Pension Plan of Bethlehem Steel Corp., 112 F.3d 982, 985 (9th Cir.1997) (declining to rule on whether the de novo or abuse of discretion standard of review applied, because the former employees' claims failed even under the more stringent de novo standard).

III

The parties agree...