Gilman v. Marsh & McLennan Cos.

• Citation: 826 F.3d 69
• Decision Date: 16 June 2016
• Docket Number: Docket No. 15-0603-cvL,August Term, 2015
• Parties: William W. Gilman, Edward J. McNenney, Jr., Plaintiffs–Appellants, v. Marsh & McLennan Companies, Inc., Marsh Inc., Marsh USA Inc., Marsh Global Broking Inc., Michael Cherkasky, Defendants–Appellees.
• Court: U.S. Court of Appeals — Second Circuit

826 F.3d 69

William W. Gilman, Edward J. McNenney, Jr., Plaintiffs–Appellants

v.Marsh & McLennan Companies, Inc., Marsh Inc., Marsh USA Inc., Marsh Global Broking Inc., Michael Cherkasky, Defendants–Appellees.

Docket No. 15-0603-cvL

August Term, 2015

United States Court of Appeals, Second Circuit.

Argued: January 13, 2016

Decided: June 16, 2016

David I. Greenberger (Jeffrey L. Liddle, Blaine H. Bortnick, James W. Halter, on the brief), Liddle & Robinson, LLP, New York, NY, for Plaintiffs–Appellants.

Jonathan D. Polkes (Gregory Silbert, Nicholas J. Pappas, on the brief), Weil, Gotshal & Manges LLP, New York, NY, forDefendants–Appellees Marsh.

James O. Heyworth (Andrew W. Stern, on the brief), Sidley Austin LLP, New York, NY, for Defendant–Appellee Cherkasky.

Before: KEARSE, WINTER, and JACOBS, Circuit Judges.

DENNIS JACOBS

, Circuit Judge:

Faced with the prospect of criminal indictment premised on the actions of two employees, a company demanded that those employees explain themselves under the threat of termination. They refused, were fired, and in this suit seek to recover employment benefits they lost by termination. They appeal from the judgment of the United States District Court for the Southern District of New York (Oetken, J.), dismissing their complaint on summary judgment. We agree with the district court that the defendant company—Marsh (i.e. , Marsh & McLennan Cos., Marsh Inc., Marsh USA Inc., and Marsh Global Broking Inc.)—had cause to fire William Gilman and Edward McNenney, Jr., for refusal to comply with its reasonable order. Accordingly, we affirm.¹

BACKGROUND

In April 2004, the New York Attorney General (the “AG”) began investigating “contingent commission” arrangements by which insurance brokers were thought to be steering clients to particular insurance carriers. Marsh, as one of the brokers under investigation, retained outside counsel, Davis Polk & Wardwell LLP, to conduct an internal investigation of the AG's allegations. The internal investigation included interviews with Gilman and McNenney in the spring and summer of 2004.

The focus of the AG investigation shifted, in September 2004, to an alleged bid-rigging scheme involving Marsh and several insurance carriers. On October 13, 2004, two individuals at American International Group, Inc. (“AIG”) pleaded guilty to felony complaints charging them with participation in a bid-rigging scheme with Marsh. In the allocution of one of the AIG employees, Gilman and McNenney were identified as co-conspirators. The next day, the AG filed a civil complaint against Marsh for alleged fraudulent business practices and antitrust violations.

The fallout from the civil complaint was swift and severe. Marsh's stock price plunged, a raft of private civil suits were filed, and Marsh's directors, clients, and shareholders demanded answers to the bid-rigging allegations. Marsh responded by expanding the ongoing internal investigation; on October 19, 2004, Marsh suspended Gilman and McNenney (with pay). More or less at the same time, Marsh's counsel asked Gilman and McNenney to sit for interviews and warned that failure to comply would result in termination. Gilman was asked to interview with a lawyer from Davis Polk as soon as possible. McNenney alleges that he was asked to submit to an interview with a lawyer from the AG and that he was told to do so without presence of counsel. (Marsh vigorously denies that McNenney was asked to interview with the AG, let alone to do so without counsel.)

On October 25, 2004, the CEO of Marsh's parent company resigned and was replaced by Michael Cherkasky. The same day, Cherkasky met with Eliot Spitzer, then-Attorney General of New York, to discuss the investigation. Gilman and McNenney contend that the upshot of the meeting was that the AG would forgo criminal prosecution of Marsh itself in exchange for its cooperation with the AG's investigation, including waivers of attorney-client privilege and work-product immunity for information developed in the (expanding) internal investigation. That day, an AG press release announced that a civil proceeding would suffice to punish and reform Marsh, and that criminal prosecutions arising out of the alleged bid-rigging scheme would be limited to individuals. This press release was widely understood to mean the AG would indict Gilman and McNenney—as it eventually did.

By the time of the October 25 meeting and agreement between Cherkasky and Spitzer, neither Gilman nor McNenney had complied with Marsh's counsel's requests that they sit for interviews. On October 27, 2004, McNenney's attorney conveyed McNenney's refusal to Davis Polk; Marsh fired him the next day. On October 28, 2004, Gilman's attorney scheduled an interview for his client on November 2. But on November 1, 2004, Gilman submitted paperwork purporting to effectuate an early retirement; later that day, his attorney conveyed Gilman's refusal to be interviewed. Marsh fired Gilman the next day, and did not accept Gilman's purported retirement.

As Marsh employees, Gilman and McNenney were eligible for some valuable employment benefits. Under Marsh's Stock Award Plans, they received grants of stock options, stock bonus units, and/or deferred stock units, some of which they could have been entitled to upon termination if (for example) they had retired or were fired without cause. If, however, they were terminated “for cause,” any unvested stock benefits were forfeited. Under Marsh's ERISA-governed Severance Pay Plan, Gilman and McNenney were entitled to severance if, inter alia , they remained in good standing with Marsh on their last day of work and if their employment terminated (i) because they lacked job skills, or (ii) in connection with a restructuring, or (iii) because Marsh had eliminated their position. An otherwise-eligible employee whose employment was terminated “for cause” was not entitled to severance. Marsh took the position that it fired Gilman and McNenney “for cause,” and denied them unvested, deferred compensation as well as severance.

As relevant here, Gilman and McNenney sued Marsh to obtain the lost employment benefits, alleging violations of ERISA, breach of contract, and breach of the implied covenant of good faith and fair dealing. The district court granted summary judgment in favor of Marsh, concluding that the interview requests were reasonable, that Gilman's and McNenney's refusal to sit for interviews gave Marsh cause for termination, that Marsh did in fact fire them for cause (and did not breach the implied covenant), and that Gilman's purported retirement was ineffective. Gilman and McNenney appeal.

DISCUSSION

We review the grant of summary judgment de novo, construe the evidence in the light most favorable to the non-moving party, and draw all reasonable inferences in its favor. Noll v. Int'l Bus. Mach. Corp. , 787 F.3d 89, 93–94 (2d Cir. 2015)

.

The first question is whether the demand that Gilman and McNenney submit to interviews was reasonable as a matter of law. If so, Marsh had cause to fire them and deny them employment benefits. If not, Gilman's and McNenney's claims against Marsh for benefits should have withstood summary judgment. We conclude that the interview demands were reasonable as a matter of law because at the time they were made, Gilman and McNenney were Marsh employees who had been implicated in an alleged criminal conspiracy for acts that were within the scope of employment and that imperiled the company. The second question is whether there is a triable issue of fact as to whether Marsh fired them for cause. We conclude that there is not and reject the argument that Gilman and McNenney were let go routinely as part of a reduction in force and the argument that Gilman could not be fired because he had preemptively resigned. Finally, we reject Gilman's and McNenney's contention that, in light of Marsh's cooperation with the AG, Marsh's requirement that they answer potentially incriminating questions amounted to state action, and was thus unreasonable. Accordingly, Marsh had cause to fire them, as it did, and Gilman and McNenney are entitled to none of the employment benefits they seek.

I

Under Delaware law, which governs Marsh's employment contracts with Gilman and McNenney, “cause” for termination includes the refusal to “obey a direct, unequivocal, reasonable order of the employer.” Unemployment Ins. Appeal Bd. v. Martin , 431 A.2d 1265, 1268 (Del. 1981)

. Gilman and McNenney do not dispute that Marsh's orders that they sit for interviews were direct and unequivocal. So the decisive issue is whether the orders were reasonable.

When Gilman and McNenney were named as co-conspirators in a criminal bid-rigging scheme for their conduct as Marsh employees , it was obvious (as Gilman and McNenney themselves affirmatively argue) that the AG intended to prosecute them criminally. At that time, Marsh had sufficient basis to act on the allegations, made under oath in open court, and would have had cause to terminate Gilman and McNenney, regardless of the ultimate resolution of the allegations. See Smallwood v. Allied Waste N. Am., Inc. , 2010 WL 5556177, at *2 (Del. Super. Ct. Dec. 30, 2010)

(holding that an employer had “just cause” to fire an employee for allegedly criminal conduct notwithstanding the employee's eventual acquittal on criminal charges). “When an employer, because of an employee's wrongful conduct, can no longer place the necessary faith and trust in an employee, [the employer] is entitled to dismiss such employee without penalty.” Barisa v. Charitable Research Found., Inc. , 287 A.2d 679, 682 (Del. Super. Ct. 1972)

; cf. Moeller v. Wilmington Sav. Fund Soc. , 723 A.2d 1177, 1179 (Del. 1999) (concluding that, for purposes of claiming unemployment benefits, an employer would have “just cause” to terminate employees if they had engaged in illegal or criminal conduct). If Marsh had indeed fired them then, it would have been for cause, and Gilman and McNenney would for that reason have been...