Colorado v. Valves

• Decision Date: 27 June 2014
• Docket Number: No. 12–0360.,12–0360.
• Citation: 57 Tex. Sup. Ct. J. 407,432 S.W.3d 885
• Parties: Arsenio COLORADO, et al., Petitioners, v. TYCO VALVES & CONTROLS, L.P. and TV & C GP Holdings, Inc., Respondents.
• Court: Texas Supreme Court

432 S.W.3d 885

57 Tex. Sup. Ct. J. 407

Arsenio COLORADO, et al., Petitioners,

v.TYCO VALVES & CONTROLS, L.P. and TV & C GP Holdings, Inc., Respondents.

No. 12–0360.

Supreme Court of Texas.

Argued Sept. 11, 2013.

Decided March 28, 2014.

Rehearing Denied June 27, 2014.

David C. Holmes, Law Offices of David C. Holmes, Houston, TX, for Petitioners.

James Ronald Staley, Stephen Eric Hart, Ogletree Deakins Nash Smoak & Stewart PC, Houston, Michael W. Fox, Austin, TX, for Respondents.

Justice LEHRMANN delivered the opinion of the Court.

After deciding to close one of its facilities, Tyco Valves & Controls, L.P. (Tyco) offered certain skilled employees retention agreements to encourage them to remain with the company through the facility's closure. These agreements provided that, in consideration for remaining employed during the retention period, the employees would receive (1) a cash bonus, and (2) severance payments in the event they were not offered comparable employment with Tyco. Eventually, Tyco sold one of the production units located in the facility to another company. Seventeen former Tyco employees who had worked in that unit and been denied severance sued Tyco for breach of contract. Eleven of those employees alleged that they were entitled to severance payments under the retention agreements, notwithstanding the fact that the purchasing company had offered them comparable employment commencing immediately upon the employees' termination by Tyco. The other six employees, who had not executed retention agreements, alleged that they were entitled to severance payments under oral agreements with Tyco. After a bench trial, the trial court found for the employees, awarding them severance pay. The court of appeals reversed in a divided opinion and rendered judgment for Tyco. 365 S.W.3d 750.

Three issues are presented for our review. First, we determine whether the employees' breach-of-contract claims are preempted by the Employee Retirement Income and Security Act of 1974 (ERISA).¹ If the claims are not preempted, we must also consider whether legally sufficient evidence exists to prove that (1) Tyco breached the retention agreements by failing to pay severance in light of the purchasing company's offers of comparable employment, and (2) oral agreements to pay severance existed between Tyco and the employees who did not have written agreements. We hold that ERISA preempts the employees' breach-of-contract claims and thus need not reach the remaining issues. Accordingly, we affirm the court of appeals' judgment.

I. Factual and Procedural Background

The plaintiffs in this action (Gimpel Employees) worked in Tyco's Gimpel Unit, which manufactured specialized valves. Along with various other Tyco production units, the Gimpel Unit was located in Tyco's West Gulf Bank facility in Houston. By the summer of 2006, Tyco planned to close the West Gulf Bank facility and relocatethe units housed there. At that time, the Gimpel Employees were covered by Tyco's Severance Plan for U.S. Employees (ERISA Plan), which was undisputedly governed by ERISA and which provided for eligible employees to receive certain severance benefits in the event they were terminated for reasons other than cause. The ERISA Plan excluded from eligibility employees who were terminated as the result of a sale of Tyco's assets and had the opportunity to continue employment with the purchaser. The benefits schedule under the Plan included one week's severance pay for each year of the employee's service, subject to a minimum of two weeks and a maximum of fifty-two weeks (referred to as a “2–and–52” schedule).

In August 2006, while plans for closing the West Gulf Bank facility were underway, Tyco's new human resources director, Holly Kriendler, created a one-page document entitled “Tyco Valves and Controls Severance” that outlined a severance schedule for that facility. Pursuant to this schedule (West Gulf Bank Schedule), eligible hourly employees would receive one week's severance pay for each year of service and eligible salaried employees would receive two weeks' severance pay for each year of service, subject to a minimum of six weeks and a maximum of twenty-six weeks (referred to as a “6–and–26” schedule). In addition to this 6–and–26 schedule, the West Gulf Bank Schedule contained several provisions copied directly from the ERISA Plan, utilizing capitalized terms that were defined only in the ERISA Plan.² It also stated: “This policy shall apply to bands 4–7 and supersede any prior plan, program or policy under which the Company provided severance benefits prior to the Effective Date of the Policy.” ³

In late 2006, Tyco informed the Gimpel Employees of its intention to sell, rather than relocate, the Gimpel Unit. In order to retain its skilled labor force and facilitate the sale, Tyco offered a Retention Incentive Agreement (RIA) to eleven of the Gimpel Employees (RIA Employees).⁴ Each RIA, dated between January 5 and January 15, 2007, was made “by and between Tyco Valves and Controls, its successors and assigns (‘Tyco’ or ‘Company’), and [the respective RIA Employee].” ⁵ The RIAs provided for the payment of a “retention incentive bonus” if the employees remained with Tyco through a specified period, stating in relevant part:

(a) Stay Incentive Bonus. If the Employee has remained an Active Employee of Tyco for the entire Retention Period ... then, as soon as practical following the end of the Retention Period, Tyco will pay the Employee a retention incentive bonus (a “Retention Bonus”) consisting of either:

(i) in the event that the Employee is not offered Comparable Employment with Tyco, an amount equal to [between $2,500 and $10,000, depending on the Employee] (Retention Bonus) plus the standard Severance in accordance to [sic] the severance schedule associated with the closure of this facility.... [or]

(ii) in the event that the Employee is offered Comparable Employment with Tyco, a cash payment of [between $2,500 and $10,000] subject to the Employee's acceptable performance during the Retention Period.

The RIAs defined “Comparable Employment” to mean that “within 30 days after the end of the Retention Period, the Employee is offered employment with the Company of comparable pay, status and skill level at a location that is within 25 miles of Employees [sic] current work location.”

In meetings with the West Gulf Bank facility's acting human-resources manager, conducted either when the RIAs were executed or shortly thereafter, the RIA Employees were orally assured that they would receive severance if the Gimpel Unit were sold. After discussions among management that “confusion” existed with respect to employee communications about severance, the Gimpel Employees were told that they would not be entitled to severance if they were offered a job by the purchaser of the Gimpel Unit. None of the RIA Employees who testified at trial had heard of the ERISA Plan when they signed the RIAs.

On February 27, 2007, Tyco formally amended the ERISA Plan with an effective date relating back to December 1, 2006. Under the amended ERISA Plan, the severance schedule for the West Gulf Bank facility mirrored the 6–and–26 schedule set out in the West Gulf Bank Schedule; the amended Plan did not change the provision relating to employees who were terminated as a result of an asset sale. According to internal e-mails and Kriendler's testimony at trial, at the time the ERISA Plan was formally amended Tyco was already utilizing the 6–and–26 schedule for West Gulf Bank employees who had been terminated in connection with the facility's closure. Kriendler explained that she had believed flexibility existed in the ERISA Plan's severance schedule as it applied to non-executive employees. Thus, although the 6–and–26 schedule had been approved by the company's financial group, Kriendler “didn't realize that there was a separate administrative approval that needed to be done through the plan administrator” to properly utilize a schedule of benefits that differed from the schedule laid out in the ERISA Plan. As noted above, that administrative-approval process was completed on February 27, 2007, with an effective date of December 1, 2006.

In the spring of 2007, Tyco agreed to sell the Gimpel Unit to Dresser–Rand Company. The asset purchase agreement between Dresser–Rand and Tyco required Dresser–Rand to hire all the Gimpel Employees at substantially the same pay rate and seniority level with respect to accrual of and eligibility for non-pension retirement benefits, severance, and vacation. However, Tyco expressly reserved liability for “wages, salary, severance, [and] bonuses,” as well as “any duties, obligations or liabilities arising under any employee benefit plan” and any other amounts owed to the Gimpel Employees as of the closing date.

In accordance with the purchase agreement, Dresser–Rand offered all the Gimpel Employees employment in effectively identical positions, with largely identical pay, benefits, and seniority. The Gimpel Employees commenced working for Dresser–Rand immediately following their termination by Tyco. The Gimpel Unit was moved to a Dresser–Rand facility fewer than twenty-five miles away from the West Gulf Bank facility.

Tyco timely paid the lump-sum cash bonuses to the RIA Employees under the terms of the RIAs, but refused to pay severance to any of the Gimpel Employees because of Dresser–Rand's employment offers. The Gimpel Employees sued Tyco ⁶ for breach of contract, alleging that they were entitled to severance upon the sale of the Gimpel Unit and their termination by Tyco. Six Gimpel Employees who had not executed RIAs (non-RIA Employees) claimed that Tyco had breached oral agreements to pay them severance on the same terms as the RIA Employees.⁷ The Gimpel Employees collectively alleged that they were not offered comparable employment with Tyco upon the sale of the Gimpel Unit and were therefore entitled to severance despite...