Hozier v. Midwest Fasteners, Inc.

• Decision Date: 24 July 1990
• Docket Number: No. 89-5551,89-5551
• Citation: 908 F.2d 1155
• Parties: 12 Employee Benefits Ca 2449 Robert HOZIER, Ralph Kohart, Peter A. White, Marc Duning and David Carroll, Appellants, v. MIDWEST FASTENERS, INC., KSM Fastening Systems, Inc. t/a Erico Fastening Systems, Inc. and Erico International Corporation.
• Court: U.S. Court of Appeals — Third Circuit

Page 1155

908 F.2d 1155

12 Employee Benefits Ca 2449

Robert HOZIER, Ralph Kohart, Peter A. White, Marc Duning and David Carroll, Appellants, v. MIDWEST FASTENERS, INC., KSM Fastening Systems, Inc. t/a Erico Fastening Systems, Inc. and Erico International Corporation.

No. 89-5551.

United States Court of Appeals Third Circuit.

Argued Nov. 30, 1989.

Decided July 24, 1990.

James Katz (argued), Mark Belland, Tomar, Simonoff, Adourian & O'Brien, Haddonfield, N.J., for appellants.

Steven W. Suflas (argued), Archer & Greiner, P.C., Haddonfield, N.J., for appellees.

Before BECKER and STAPLETON, Circuit Judges, and KELLY, District Judge. ^*

OPINION OF THE COURT

BECKER, Circuit Judge.

Plaintiffs appeal from a grant of summary judgment to the defendant corporations, which formerly employed the plaintiffs and which declined to make certain severance payments to plaintiffs when they were involuntarily terminated. Plaintiffs contend that they are entitled to those payments under the terms of an ERISA welfare plan defendants had created in 1985. Defendants respond that the 1985 plan was amended in 1987, before plaintiffs' termination, and that plaintiffs received all the benefits to which they were entitled under the amended, less generous plan.

Plaintiffs contend that defendants, by unilaterally amending their severance plan in order to deny plaintiffs the additional benefits, violated fiduciary duties imposed on them by ERISA. We agree with defendants that they were not acting in their capacity as an ERISA fiduciary when they sought to promulgate the amendment, and that the amendment therefore cannot be struck down on that basis. However, we agree with the plaintiffs' contention that ERISA precludes oral modification of employee benefit plans. Because defendants concede that the purported 1987 amendment was never reduced to a writing before plaintiffs were terminated, we conclude as a matter of law that the unamended 1985 plan must govern plaintiffs' claims for severance benefits.

Plaintiffs contend that in evaluating their entitlement to benefits under the 1985 plan, the trier of fact must consider not only the terms of that plan, but also the defendants' failure to comply with ERISA's reporting and disclosure provisions. We reject this contention. However, we conclude that the terms of the plan, considered in light of other record evidence bearing on the proper construction of those terms, are sufficiently ambiguous that a reasonable trier of fact could find that plaintiffs are entitled to benefits. Accordingly, we will reverse and remand for a trial on that issue.

I. BACKGROUND

The following facts are essentially undisputed. Prior to July 1985, defendant Erico International Corporation ("EIC") was involved in the stud welding industry through the Erico-Jones Company, a wholly owned subsidiary of EIC. On July 15, 1985, EIC purchased KSM Fastening Systems, Inc. ("KSM"), a competitor of Erico-Jones. EIC then began to consolidate the various operations of Erico-Jones and KSM, eliminating unnecessarily duplicative positions within those companies. Ultimately, EIC planned to merge Erico-Jones and KSM into Erico Fastening Systems, Inc. ("EFS"), a new subsidiary it had created for that purpose.

EIC set up an executive committee to oversee the consolidation. The committee determined to make severance payments to employees laid off as a result of the consolidation, and it developed a formula for calculating those benefits. A six-page document explaining the severance policy was circulated to a select group of EIC's high-level managers. The first page of the document was a memo entitled "Severance Pay Erico Jones-KSM Merger," which was written by Sandra Claflin, Erico-Jones's personnel manager. It states that "[t]he attached severance package ... is to be used for the lay-off of [employees] for the merger of Erico Jones and KSM" and that the package "cancels out any other severance policy for the time frame involved in adjustment of workload and responsibilities that is involved in this merger."

The "package" consisted of three attachments: (1) a table setting out amount of severance pay as an increasing function of the affected employee's age and years of service; (2) a list of various details of the policy (none of which is relevant here); and (3) an outline of a three-page letter drawn up "for the merger" to be given to each covered employee. The letter informs the employee of his impending termination and the amount of his particular severance payment. A copy of the table was again distributed to a select group of executives on August 29, 1986. Attached was a cover letter written on EFS stationery by Annmarie Horan, personnel director first of KSM and later EFS, which described the table as "a copy of EFS' severance pay guidelines."

The consolidation of the respective operations of Erico-Jones and KSM began during late 1985 and continued into 1986. Employees laid off as a result were given severance benefits pursuant to the 1985 package. Details of the package were never disclosed to the employees. The formal merger of Erico-Jones and KSM into EFS did not occur until December 11, 1987.

On December 1, 1986, a group of EIC executives including Richard Craven undertook a leveraged buyout of EIC. As part of the same transaction, these executives caused EIC to sell Erico-Jones, KSM, and EFS to defendant Midwest Fasteners, Inc. ("Midwest"), a corporation wholly owned by one E.B. Neff. Neff installed Thomas Hartmann to run Midwest and its new subsidiaries. Under Neff and Hartmann, Midwest provided severance benefits on a case-by-case basis. Hartmann authorized severance benefits consistent with the terms of the 1985 plan for at least nine employees laid off during his tenure, including one employee terminated as late as May 1987. During the period of Neff's control, Midwest lost some $2 million.

On July 10, 1987, Midwest defaulted on certain of its obligations to EIC. As a result, EIC gained control of Midwest, ousted Neff and Hartmann, and immediately installed Craven as General Manager of Midwest. Soon thereafter, Craven unilaterally instituted a policy under which employees terminated by Midwest would be eligible for only two weeks of severance pay, regardless of their age or years of service. The new policy was implemented immediately, but was never reduced to a writing. Craven also sought to reduce Midwest's sales expenses.

Plaintiffs are five former sales employees who were terminated, effective July 31, 1987, in the layoffs that ensued. Pursuant to Craven's severance policy, plaintiffs each received two weeks of severance pay. Had their payment been calculated under the terms of the 1985 package, each plaintiff would have received a far more generous payment.

Plaintiffs filed a three-count complaint against Midwest and EIC to recover the additional benefits. Count one charged that defendants, in unilaterally amending or terminating the 1985 severance package, violated fiduciary duties imposed on them by ERISA. Count two sought a declaratory judgment that plaintiffs are entitled to benefits because of defendants' violations of ERISA's reporting and disclosure provisions. Count three sought benefits under the terms of the 1985 severance plan. The parties filed cross motions for summary judgment. The district court denied plaintiffs' motion, granted defendants' motion on all counts, and entered judgment for defendants. This appeal followed. ¹

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Asserted disputes of fact are "material" if their resolution could affect the outcome of the case under the applicable substantive law, and are "genuine" if the evidence bearing on the disputed fact is such that a reasonable jury could find for the nonmoving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). Our scope of review is plenary. See, e.g., Erie Telecommunications, Inc. v. City of Erie, 853 F.2d 1084, 1093 (3d Cir.1988).

For ease of exposition, we shall address count one of the complaint first, then count three, then count two.

II. BREACH OF FIDUCIARY DUTY

Count one alleges the breach of fiduciary duties imposed by ERISA. Plaintiffs locate that breach in Craven's decision to amend the terms of the 1985 severance plan, because Craven allegedly failed to administer the plan in accordance with its terms. A proper analysis of this argument must begin with ERISA's statutory scheme regarding fiduciaries and their duties.

Fiduciary duties under ERISA attach not just to particular persons, but to particular persons performing particular functions. Thus, when employers themselves serve as plan administrators, " 'they assume fiduciary status "only when and to the extent" that they function in their capacity as plan administrators, not when they conduct business that is not regulated by ERISA.' " Payonk v. HMW Industries, Inc., 883 F.2d 221, 225 (Garth, J., announcing the judgment of the court) (citation omitted); see also id. at 231 (Stapleton, J., concurring in the judgment) ("Under ERISA the roles of plan administrator and plan sponsor are distinct. The plan administrator owes a fiduciary duty to the plan participants; the plan sponsor, as long as it is not acting as an administrator, generally does not.").

Section 3(21)(A) of ERISA defines when a person acts in a fiduciary capacity. In pertinent part, it provides:

[A] person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice...