Stone v. Unocal Termination Allowance Plan, 08-20254.

• Citation: 570 F.3d 252
• Decision Date: 28 May 2009
• Docket Number: No. 08-20254.,08-20254.
• Parties: Bradford STONE, Plaintiff-Appellant, v. UNOCAL TERMINATION ALLOWANCE PLAN; UNOCAL Employee Redeployment Plan; UNOCAL Retirement Plan, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

570 F.3d 252

Bradford STONE, Plaintiff-Appellant, v. UNOCAL TERMINATION ALLOWANCE PLAN; UNOCAL Employee Redeployment Plan; UNOCAL Retirement Plan, Defendants-Appellees.

No. 08-20254.

United States Court of Appeals, Fifth Circuit.

May 28, 2009.

Anthony P. Griffin (argued), Anthony P. Griffin, Inc., Galveston, TX, for Plaintiff-Appellant.

John F. Easton, Vincent E. Morgan, Pillsbury Winthrop Shaw Pittman, Houston, TX, Frederick Arthur Brodie (argued), Pillsbury Winthrop Shaw Pittman, LLP, New York City, for Defendants-Appellees.

Appeal from the United States District Court for the Southern District of Texas.

Before GARWOOD, DENNIS and PRADO, Circuit Judges.

GARWOOD, Circuit Judge:

Plaintiff-appellant, Bradford Stone (Stone), sued defendants-appellees, UNOCAL Termination Allowance Plan, UNOCAL Employee Redeployment Plan, and UNOCAL Retirement Plan (collectively, defendants), alleging that defendants' actions resulted in his constructive discharge and violated the Employee Retirement Income Security Act (ERISA), specifically 29 U.S.C. § 1132(a)(1)(B), because he was denied unemployment benefits. The district court granted summary judgment for the defendants after determining that the defendants did not abuse their discretion in denying Stone's benefits claim. Stone v. Unocal Termination Allowance Plan, 542 F.Supp.2d 605 (S.D.Tex.2008). Stone now appeals. For the following reasons, we affirm.

FACTS AND PROCEEDINGS BELOW

On August 10, 2005, Chevron Corporation (Chevron) acquired Unocal Corporation (Unocal).¹ Stone was employed by Unocal at the time as a Senior Staff Machinery Engineer. Upon acquiring Unocal, Chevron extended Stone two different job offers—each with identical compensation packages.

Chevron offered Stone a base pay equal to his base pay at Unocal. Additionally, Chevron's Success Sharing program (CSS) replaced the Annual Incentive Program (AIP) in which Stone participated as a Unocal employee. Under CSS, Stone potentially qualified for a target bonus equaling 20% of his base pay, while under the AIP, Stone was only eligible for a target bonus of 17.5% of his base pay. Further, Chevron matched 8% of Stone's 401(k) contributions, compared to Unocal's 6% match. Chevron also recognized Stone's years of service and preserved his Unocal pension benefits. Though Chevron established a plan equivalent to Unocal's Long Term Incentive Plans (LTIP), Stone was not eligible for the plan, and thus lost his Long Term Incentive award (LTI). To offset this reduction, Chevron provided Stone with a continuation bonus equal to 10% of his base pay, so long as he remained employed through March 1, 2006. This bonus exactly matched the discretionary award of restricted stock and stock options Stone would have received under Unocal's LTIP.

Stone accepted a position with Chevron as a Senior Staff Machinery Engineer. He conditioned his acceptance on a review of the offer, which he believed might not provide benefits and compensation equivalent to those he received while employed at Unocal. In October 2005, Stone received a 5% raise in his base pay.

Chevron's acquisition of Unocal constituted a change of control for purposes of any employee arrangement and for all other company benefit plans. Former Unocal employees could qualify for special, enhanced change of control benefits if, within twenty-four months of the acquisition, the employee was either involuntarily terminated or resigned within sixty days after the occurrence of a "constructive discharge" event. The Unocal Retirement Plan, in Article 16(E), defined constructive discharge as follows:

"[A]n Employee's resignation of employment with a Participating Company, with a Controlling Entity, or with a Successor Entity within 60 days of the occurrence of any of the following events, provided that such event was initiated by a Participating Company, a Controlling Entity, or a Successor Entity:

(1) A reduction in the Employee's base pay.

(2) A reduction in the Employee's annual incentive target award(s) under an applicable annual cash bonus program in which the Employee participates, which is included as Earnings under Section 1.17 [of the Unocal Retirement Plan]. (3) A reduction in the Employee's eligibility for or amount of benefits available to the Employee under this Article 16, or under the Change of Control Event provisions of any other benefit plan of the Company, or the Employee's annual incentive target amount under the Change of Control Event provisions of any stock-based or annual incentive compensation program of the company. (4) A reduction in the benefits or perquisites available to the Eligible Employee or his dependents as of the day immediately before the Change of Control .... Benefits include, without limitation, qualified or nonqualified defined benefit or defined contribution pension benefits; stock-based or annual incentive compensation programs.... However, a reduction in benefits or perquisites shall not include a modification of benefits or perquisites which results from a change effected in the ordinary course of business which is applicable to all similarly-situated employees of the Controlling Entity or the Successor Entity and which does not result in a material reduction in the aggregate value of benefits and perquisites available to the Eligible Employee...."

In January 2006, Stone submitted a Constructive Discharge Application to Chevron's Change of Control Administrator (Administrator). He alleged the following constructive discharge events under Article 16.1(E): (1) Chevron's job offer eliminated his LTI award, resulting in a reduction in benefits under Article 16.1(E)(3); (2) the one-time continuation bonus offered by Chevron was insufficient and reduced the benefits previously available to Stone; and (3) Chevron's offer disregarded his annual lump sum increase (LSI) payment, resulting in a reduction in base pay and establishing constructive discharge under Article 16(E)(1) & (2). To satisfy eligibility requirements for change of control benefits, Stone resigned from his position at Chevron on February 28, 2006.²

On February 24, 2006, the Administrator denied Stone's claim. The Administrator found that the elimination of the LTI did not reduce Stone's eligibility for benefits under Article 16.1(E)(3), which applied only to change of control benefits. The Administrator explained that under the LTI change of control provisions, upon a change of control event, Stone's LTI awards vested and became immediately exercisable. The Administrator explained that Chevron executed the LTIP change of control provisions; thus, Stone received his benefits for 2005 and did not qualify for a constructive discharge under Article 16.1(E)(3).

The Administrator also found that the elimination of LTI did not materially reduce Stone's benefits as required by Article 16.1(E)(4). The Administrator explained that, as a prerequisite to eligibility under Article 16.1(E)(4), Stone must have suffered a material reduction in aggregate benefits. The Administrator compared the value of benefits to which Stone was entitled the day preceding the change of control and the aggregate value of benefits to which he was entitled the day after the alleged constructive discharge events and determined that the continuation bonus offset the elimination of Stone's LTI for 2006. Thus, the Administrator concluded, Stone did not experience a material reduction in benefits for 2006. The Administrator declined to speculate about material reductions in future years.

Finally, the Administrator found that Stone's LSI loss did not constitute constructive discharge under Article 16.1(E). The Administrator noted that Stone did not qualify for constructive discharge under Article 16.1(E)(2) because Stone received a higher target bonus under Chevron's cash program. The Administrator also found Article 16.1(E)(1) inapplicable to the elimination of LSI because under Unocal's policies LSI did not constitute base pay. Lastly, the Administrator found Article 16.1(E)(4) inapplicable. The Administrator compared the base pay increase Stone received from Chevron with his LSI loss, and because Stone's salary increases exceeded any LSI reduction, the Administrator held that a material reduction did not occur.

Stone appealed the Administrator's decision to the Change of Control Appeals Committee (Committee), which had exclusive and final discretionary authority to interpret and apply Plan provisions. Stone argued that the Administrator wrongfully denied his claim concerning the loss of LTI and argued that Article 16.1(E)(4) requires the Administrator to account for future losses. The Committee reviewed the eight-page decision provided by the Administrator but did not defer to his determination. The Committee, like the Administrator, interpreted the provision to require consideration of potential benefits available the day before the change of control and the day constructive discharge is claimed; thus, speculative future losses would not be considered when making the comparison. The Committee denied Stone's appeal.

Neither the Administrator nor the Committee inquired into or considered the cost of granting or denying constructive discharge benefits. The Committee's compensation was not affected by the number of appeals granted or denied. It did not report, directly or indirectly, to the Chevron employee with corporate responsibility for constructive discharge claims. All members of the Committee were knowledgeable professionals with experience in human resources and employee benefits, and they had independent counsel to assist them in fulfilling their responsibilities.

Stone filed suit in federal district court seeking to overturn the Committee's determination. Stone alleged that he was unlawfully denied plan benefits in violation of ERISA, specifically 29 U.S.C. § 1132(a)(1)(B). The district court granted summary judgment for the defendants, holding that the Administrator and...