Taylor v. Continental Group Change in Control Severance Pay Plan

Decision Date29 May 1991
Docket NumberNo. 90-5556,90-5556
Citation933 F.2d 1227
PartiesDarel TAYLOR and Margaret Taylor Darel Taylor, Appellee, v. The CONTINENTAL GROUP CHANGE IN CONTROL SEVERANCE PAY PLAN, The General Pension Board of the Continental Group, Inc., Robert Adams, "John Doe" Numbers 1-15 and "Mary Moe" Numbers 1-15 (Names Being Fictitious), Continental Group, Inc., Kiewit Continental, Inc., Jet Aviation of America, Inc., Robert Schaeberle, and "Peter Poe" Numbers 1-15 and "Linda Loe" Numbers 1-15 (Names Being Fictitious) The Continental Group Change in Control Severance Pay Plan, Appellant.
CourtU.S. Court of Appeals — Third Circuit

Brian N. Lokker (argued), Hope M. Pomerantz, Williams, Caliri, Miller & Otley, Wayne, N.J., for appellant.

David Tykulsker (argued), Ball, Livingston & Tykulsker, Newark, N.J., for appellee Darel Taylor.

Before MANSMANN and SCIRICA, Circuit Judges, and POLLAK, District Judge *.

OPINION OF THE COURT

SCIRICA, Circuit Judge.

In this action under the Employee Retirement Income Security Act of 1974 (ERISA), The Continental Group Change in Control Severance Pay Plan challenges a grant of partial summary judgment awarding severance benefits to Darel Taylor. Because we find disputed issues of material fact, we will reverse and remand for further proceedings.

I.

Taylor was employed by the Air Transport Division ("Air Transport") of The Continental Group, Inc. for more than 24 years, beginning in 1960. Air Transport was primarily responsible for scheduling and maintaining a fleet of private airplanes. On November 1, 1984, The Continental Group was taken over by Kiewit Continental, Inc. 1 In March, 1985, Continental sold the airplanes belonging to Air Transport. On May 29, 1985, Continental sold Air Transport's remaining assets to Jet Aviation of America, Inc. ("Jet"). At this time, Continental formally terminated all ten of Air Transport's employees, including Taylor. However, as part of its purchase agreement with Continental, Jet obligated itself to offer employment to these people. Taylor accepted employment with Jet. On October 27, 1986, Jet discharged Taylor for unsatisfactory work performance.

This action involves Taylor's claim for benefits under The Continental Group Change in Control Severance Pay Plan ("the Plan"). Continental created the Plan in 1982. In the summer of 1984, fearing a hostile takeover, Continental's Board of Directors adopted amendments to the Plan to provide further protection for all salaried non-unionized employees. The amendments were designed to protect certain employees who were terminated following a change in control of Continental. The stated purpose of the Plan as amended was "to encourage Employees to make and continue careers with The Continental Group, Inc." Defendant's App. at 53. Taylor was covered by the Plan.

The Plan provides that covered employees shall receive severance payments upon "Involuntary Termination." Id. at 57. In Sec. 2.10 of the Plan, Involuntary Termination is defined in relevant part as:

any termination of an Employee's employment by the Company, or by one of its Subsidiaries, within two years after a Change in Control; provided, however, such term shall not include: .... (b) except in the event of an Unapproved Change in Control, a termination by the Company resulting solely from the disposition of any subsidiary or division, other than by dissolution or liquidation.

Id. at 55. The parties agree that the sale of Continental on November 1, 1984 constituted a Change in Control as the Plan defines the term, and that this was not an Unapproved Change. There is also no dispute that the sale of Air Transport to Jet did not constitute a Change in Control.

Taylor claims he is owed severance benefits because he was terminated by Jet within two years after a Change in Control. However, Sec. 2.10 applies only to terminations by the "Company, or by one of its Subsidiaries." The term "Company" is defined as "The Continental Group, Inc. and all Subsidiaries." Id. at 54. "Continental Group" is further defined as "The Continental Group, Inc. and its successors or assigns." Id. The parties dispute whether Jet is considered a "successor" to Continental within the meaning of this term. If Jet is a successor, Taylor is entitled to benefits under this provision. If Jet is not a successor, Taylor is not entitled to benefits.

Before the 1984 change in control, Continental foresaw that employees might find themselves in Taylor's situation. On June 28, 1984, Continental issued a Special Policy that applied "only to an employee employed by a subsidiary or division of the Company which is sold or otherwise disposed of following a Change in Control and who remains in the employ of the successor employer." Id. at 72. The Special Policy provides that:

In the event that such employee is Involuntarily Terminated by the successor employer within two years from the Change in Control or within one year from the sale or other disposition of the subsidiary or division, whichever period ends first, the Company will cover such employee under [various benefits programs, including the Plan] which would have been provided had the employee remained in the employ of the Company or one of its subsidiaries. The terms "Change in Control" and "Involuntary Termination" have the same meanings as under such Policies.

Id. As can be seen, the Special Policy is similar to the Plan, but limits its coverage to terminations occurring within one year after the sale of a subsidiary or division. Taylor is ineligible for benefits under the terms of the Special Policy, because his termination occurred more than one year after the sale of Air Transport. However, the parties dispute whether the Special Policy was intended to supersede or merely supplement the Plan, and whether it would constitute a valid amendment to the Plan if it were intended as such.

As noted above, Jet purchased Air Transport's assets in May, 1985. The asset purchase agreement between Continental and Jet contained the following provision:

In the event of the Involuntary Termination of employment of any salaried Employee, as defined in [the Plan], by [Jet] or any successor thereto within one year from the Closing ("Involuntary Termination"), [Jet] agrees to pay such Employee severance pay and benefits pursuant to the Severance Plan in effect as of the Closing which would have been applicable to such Employee on the date of such termination of employment.

Id. at 117-118. Jet thus obligated itself to pay benefits upon the termination of certain employees if Continental would have been required to do so. Mirroring the terms of the Special Policy, the asset purchase agreement required Jet to compensate only those employees discharged within one year after the purchase of Air Transport. This appeal does not concern Jet's obligations.

Following the sale of Air Transport, Jet employees who had previously worked for Air Transport raised questions about their eligibility under various benefits programs. See Certification of Robert E. Adams, Defendant's App. at 77-78. Continental circulated a response which included a discussion of whether former Continental employees who now worked for Jet were entitled to severance benefits. This response stated that:

The Severance Plan does not apply to employees whose employment is "terminated" solely by reason of the sale of a business of the Company. That type of termination is not considered an "Involuntary Termination" for the purposes of receiving benefits under the Plan.

However, the Company has extended severance benefits under the Severance Plan to employees who are involved in the sale of a business, where such employees are subsequently Involuntarily Terminated, other than for cause, by the new owners of that business within the earlier of October 31, 1986, or a date within one year after the sale of the business unit involved. Therefore, in the case of the Air Transport employees, any employee who is Involuntarily Terminated, other than for cause, by Jet Aviation prior to May 29, 1986, will be eligible for the benefits available under the Continental Change in Control policies as if Continental had laid that person off at that time.

Id. at 90.

Taylor pursued his claim for severance benefits with an internal pension board. In initial correspondence with the board, Taylor argued in part that he was owed benefits because he was terminated within two years after a Change in Control. Plaintiff's App. at 2. However, the only argument pressed in subsequent correspondence was that his job duties had been "materially reduced," and as a consequence he was owed benefits under a different provision of the Plan. See id. at 15-18; Defendant's App. at 56 (material reduction in job duties considered an Involuntary Termination under the Plan). The board rejected Taylor's "material reduction" claim, and did not address any claim regarding the two year termination provision. The "material reduction" claim is not before us on appeal. We note, however, that it appears that any "material reduction" claims are also subject to the two year limitation.

Taylor and his wife then sued the Plan in district court. The district court granted partial summary judgment to Taylor, holding that he was entitled to benefits under the Plan because he was terminated by a "successor" to Continental within two years after a Change in Control. In addition, the court held that the Special Policy could not alter any of Taylor's rights under the Plan because it did not constitute a legally valid amendment to the Plan. The Plan now appeals from this judgment. 2

II.

The Plan is governed by ERISA and this action was brought pursuant to 29 U.S.C. Sec. 1132(a)(1)(B) (1988), which permits suits by beneficiaries to recover benefits. This dispute centers around the proper interpretation of various provisions of the Plan. In particular, the parties differ over whether Jet's purchase of Air Transport makes it a "successor" to...

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