O'Connor v. Commonwealth Gas Co

• Decision Date: 09 January 2001
• Docket Number: 00-1799,No. 00-1798,00-1798
• Citation: 251 F.3d 262
• Parties: (1st Cir. 2001) JOSEPH O'CONNOR, Plaintiff, Appellant, PETER HORNING, Plaintiff, v. COMMONWEALTH GAS COMPANY, JOHN WILLIAMS, COMMONWEALTH ENERGY SYSTEM, AND WILLIAM POIST, Defendants, Appellees. JOSEPH O'CONNOR, Plaintiff, PETER HORNING, Plaintiff, Appellant, v. COMMONWEALTH GAS COMPANY, JOHN WILLIAMS, COMMONWEALTH ENERGY SYSTEM, AND WILLIAM POIST, Defendants, Appellees. Heard
• Court: U.S. Court of Appeals — First Circuit

Page 262

251 F.3d 262 (1st Cir. 2001)

JOSEPH O'CONNOR, Plaintiff, Appellant, PETER HORNING, Plaintiff, v. COMMONWEALTH GAS COMPANY, JOHN WILLIAMS, COMMONWEALTH ENERGY SYSTEM, AND WILLIAM POIST, Defendants, Appellees.

JOSEPH O'CONNOR, Plaintiff, PETER HORNING, Plaintiff, Appellant, v. COMMONWEALTH GAS COMPANY, JOHN WILLIAMS, COMMONWEALTH ENERGY SYSTEM, AND WILLIAM POIST, Defendants, Appellees.

No. 00-1798, 00-1799

United States Court of Appeals For the First Circuit

Heard January 9, 2001

Decided May 30, 2001

APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Morris E. Lasker,^* Senior U.S. District Judge] [Copyrighted Material Omitted]

David Miller for appellants.

David S. Rubin, with whom Christopher Novello was on brief, for appellees

Before Selya, Circuit Judge, Coffin, Senior Circuit Judge, and Lipez, Circuit Judge.

COFFIN, Senior Circuit Judge.

This case requires us to revisit the criteria that bring an early retirement incentive plan within the coverage of the Employee Retirement Income Security Act of 1974 (ERISA), codified as amended at 29 U.S.C. §§ 1001-1416 and in scattered sections of Title 26. Appellants O'Connor and Horning, retirees of appellee Commonwealth Gas Company (CGC), appeal from an adverse summary judgment in which the district court held that CGC's 1997 Personnel Reduction Program (PRP), an early retirement incentive, was an ERISA plan that preempted various state law claims.¹ We conclude that, because the PRP was little more than a lump-sum severance package, it was not an ERISA-covered plan. Consequently, we reverse and remand so that the district court may consider whether to assert supplemental jurisdiction and address the state claims.

BACKGROUND

Because our determination turns on a pure question of law, we chronicle the underlying dispute briefly and refer readers to the district court's published ruling for a more detailed recitation of the facts. See O'Connor v. Commonwealth Gas Co., 85 F. Supp. 2d 49, 52-53 (D. Mass. 2000).

In January 1997, CGC decided to merge with its counterpart utility, the Commonwealth Electric Company, which along with CGC was a subsidiary of a common holding company, Commonwealth Energy Systems (CES). The pending consolidation was first disclosed to senior officers of CES and later discussed at a meeting of the CES board as a means of reducing the total workforce. By a letter to employees dated February 6, 1997, the merger was publicly announced, as was CES's intention to eliminate 15 percent of the workforce, which it hoped to accomplish "through attrition and a personnel reduction program [it] plan[ned] to offer to certain employees." The first meeting to develop that plan occurred in February; a draft was created by mid-March and finalized on May 13, the effective date of the PRP.

The PRP contained several benefits for employees who opted to retire: a severance bonus, pension credit, payment of COBRA premiums, and reimbursement for educational assistance and outplacement services. In exchange, employees who elected to step down early were required to sign releases, non-competition and confidentiality agreements, and to forego their annual bonus for the year in which they opted to retire. This deal was offered to all non-officer employees during a fifteen-week period in the summer of 1997. CGC reserved the right to limit participation to 300 employees, and to delay the retirement of any employee who elected to participate for up to one year. Further details of the plan pertinent to our analysis will be outlined in the discussion.

Appellants O'Connor and Horning, both long-time employees of CGC, were denied benefits under the PRP after retiring on February 1 and January 1, 1997, respectively.² They brought this action claiming that material misrepresentations made by agents of CGC misled them into retiring before the effective date of the PRP. The district court found most of the alleged misstatements to be immaterial because they were made before the PRP was under serious consideration.³ See O'Connor, 85 F. Supp. 2d at 59-61. We need not address the timing or materiality of the alleged misrepresentations because our holding that the PRP was not an ERISA plan moots those issues; absent an ERISA plan, CGC owed no fiduciary obligations to appellants under federal law.⁴

After initially dismissing appellants' state common law claims as preempted because both parties agreed at that time the PRP was an ERISA plan, the district court reconsidered that issue at length in its summary judgment ruling, responding to appellants' opposition. See O'Connor, 85 F. Supp. 2d at 53-59. Recognizing that the severance bonus did not implicate ERISA, the court nevertheless held that the "composite" constructed from the other elements of the PRP coupled with CGC's intent made the PRP a covered plan. Id. at 53. Our review leads us to the opposite conclusion.

We review de novo a district court's summary judgment determination that a plan is governed by ERISA. Rodowicz v. Mass. Mut. Life Ins. Co., 192 F.3d 162, 170, amended by 195 F.3d 65 (1st Cir. 1999); New England Mut. Life Ins. Co. v. Baig, 166 F.3d 1, 3 (1st Cir. 1999); cf. Belanger v. Wyman-Gordon Co., 71 F.3d 451, 453-54 (1st Cir. 1995) (applying clear error standard to review of post-trial determination).⁵

DISCUSSION

Before dissecting the constituent elements of the PRP, we review the legal framework. Since the statutory language has proven to be unhelpful,⁶ we have relied on case law to discern when a benefit program constitutes an ERISA plan. In Fort Halifax, the Court made clear that a given plan must be evaluated in light of Congress' purposes in enacting ERISA. 454 U.S. at 8. Paramount among those aims was to safeguard employee interests by reducing the threat of abuse or mismanagement of funds. Massachusetts v. Morash, 490 U.S. 107, 115 (1989) ("In enacting ERISA, Congress' primary concern was with the mismanagement of funds accumulated to finance employee benefits and the failure to pay employees benefits from accumulated funds."); see also Demars, 173 F.3d at 446 ("Congress wanted to safeguard employee interests by reducing the threat of abuse or mismanagement of funds that had been accumulated to finance employee benefits . . . ."); Belanger, 71 F.3d at 454 ("ERISA's substantive protections are intended to safeguard the financial integrity of employee benefit funds, to permit employee monitoring of earmarked assets, and to ensure that employers' promises are kept."); accord Baig, 166 F.3d at 3. It is by gauging the level of employer oversight over pension funds that the "plan" determination must be made.

In evaluating whether a given program falls under ERISA, we have looked to "'the nature and extent of an employer's benefit obligations.'" Rodowicz, 192 F.3d at 170 (quoting Belanger, 71 F.3d at 454). Those obligations are the touchstone of the determination: if they require an ongoing administrative scheme that is subject to mismanagement, then they will more likely constitute an ERISA plan; but if the benefit obligations are merely a one-shot, take-it-or-leave-it incentive, they are less likely to be covered. Particularly germane to assessing an employer's obligations is the amount of discretion wielded in implementing them. Where subjective judgments would call upon the integrity of an employer's administration, the fiduciary duty imposed by ERISA is vital. But where benefit obligations are administered by a mechanical formula that contemplates no exercise of discretion, the need for ERISA's protections is diminished.

The purported "plan" at issue in Fort Halifax is illustrative. It was a one-time, lump-sum severance benefit, which the Court held did not constitute an ERISA plan because it did not implicate the employer's "administrative integrity." Id. at 15 ("The focus of [ERISA] is on the administrative integrity of benefit plans -- which presumes that some type of administrative activity is taking place."); see also Baig, 166 F.3d at 4 ("[W]e will be inclined to find a plan where there are elements that 'involve administrative activity potentially subject to employer abuse.'" (quoting Fort Halifax, 482 U.S. at 16)); Belanger, 71 F.3d at 454 ("[O]ngoing investments and obligations are uniquely vulnerable to employer abuse or employer carelessness, and thus require ERISA's special prophylaxis.").

The Fort Halifax Court also emphasized that "Congress pre-empted state laws relating to plans, rather than simply to benefits." Id. at 11-12 (emphasis in original). It distinguished between plans, under which benefits are distributed, and benefits because "[o]nly 'plans' involve administrative activity potentially subject to employer abuse." Id. at 16. We must therefore evaluate a purported plan like the PRP as a unified whole.

The determination of what constitutes an ERISA plan thus turns most often on the degree of an employer's discretion in administering the plan. Our cases have noted that such determinations are not clear cut and necessarily require line drawing. See Simas v. Quaker Fabric Corp., 6 F.3d 849, 853 (1st Cir. 1993) ("It is a matter of degrees but under Fort Halifax degrees are crucial."); accord Rodowicz, 192 F.3d at 172; Belanger, 71 F.3d at 454. For this reason, our precedents addressing benefits similar to those in the PRP are particularly instructive, and we discuss those cases in the context of detailing the four enhanced retirement benefits offered in the program here. Our examination of the PRP benefits leads us to conclude that the severance provision, which was the primary component of the PRP, does not fall under ERISA. Although other provisions might tend to implicate ERISA, we hold that these bear little weight compared to the non-ERISA nature of the PRP's central severance benefit. Nor does CGC's intent, which was far from unequivocal, factor significantly in the balance in this case.

Severance Bonus

The severance...