Elmore v. Cone Mills Corp
| Decision Date | 06 May 1994 |
| Docket Number | Nos. 92-1362,92-1404 and 92-1482,92-1363,s. 92-1362 |
| Citation | 23 F.3d 855 |
| Parties | -2046, 17 Employee Benefits Cas. 2777 William J. ELMORE; Wayne Comer, individually and as representatives of a class of Plaintiffs similarly situated, Plaintiffs-Appellees, v. CONE MILLS CORPORATION; Cone Mills Acquisition Corporation; Dewey L. Trogdon; Lacy G. Baynes, Defendants-Appellants, and Paul W. Stephanz; Wachovia Bank and Trust Company, N.A., Defendants. Robert B. Reich, Secretary of Labor, Amicus Curiae (Three Cases). William J. ELMORE; Wayne Comer, Individually and as representatives of a class of Plaintiffs similarly situated, Plaintiffs-Appellants, v. CONE MILLS CORPORATION; Cone Mills Acquisition Corporation; Dewey L. Trogdon; Lacy G. Baynes, Defendants-Appellees, and Paul W. Stephanz; Wachovia Bank and Trust Company, N.A., Defendants. Robert B. Reich, Secretary of Labor, Amicus Curiae. |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: John Robbins Wester, Robinson, Bradshaw & Hinson, P.A., Charlotte, NC, for appellants. James R. Gilreath, Greenville, SC, for appellees. Stacey Eden Elias, Trial Atty., U.S. Dept. of Labor, Washington, DC, for amicus curiae. ON BRIEF: David C. Wright, III, Robinson, Bradshaw & Hinson, P.A., Charlotte, NC; Robert O. King, Kristofer K. Strasser, Ogletree, Deakins, Nash, Smoak & Stewart, Greenville, SC; Robert J. Lawing, Jane C. Jackson, Robinson, Maready, Lawing & Comerford, Winston-Salem, NC, for appellants. J. Kendell Few, Greenville, SC; John P. Freeman, Columbia, SC; for appellees. Thomas S. Williamson, Jr., Sol. of Labor, Marc I. Machiz, Associate Sol., Karen Handorf, Counsel Before WIDENER, HALL, PHILLIPS, MURNAGHAN, WILKINS, NIEMEYER, LUTTIG, WILLIAMS, MICHAEL, Circuit Judges, and SPROUSE, Senior Circuit Judge, en banc.
for Special Litigation, U.S. Dept. of Labor, Washington, DC, for amicus curiae.
Affirmed in part, reversed in part, and remanded by published opinion. Judge WILLIAMS wrote the majority opinion, in which Judges WIDENER, K.K. HALL, PHILLIPS, MURNAGHAN, WILKINS, NIEMEYER, LUTTIG and MICHAEL, and Senior Judge SPROUSE concur. Judge MURNAGHAN wrote a separate concurring opinion, in which Judges K.K. HALL and MICHAEL and Senior Judge SPROUSE join. Judge WILKINS wrote a separate concurring opinion, in which Judges NIEMEYER and WILLIAMS join. Judge NIEMEYER wrote a separate opinion concurring in part and dissenting in part, in which Judges LUTTIG and WILLIAMS join.
The primary issue presented by these cross-appeals is whether representations made by Cone Mills prior to the adoption of an Employee Stock Ownership Plan (ESOP), but not incorporated into the formal plan documents, are enforceable against Cone Mills under ERISA. The district court held that the representations were enforceable as part of the 1983 ESOP, an ERISA covered plan, and that Cone Mills and the other Defendants had breached their fiduciary duties to Plaintiffs under ERISA by failing to abide by the representations. In the alternative, and subject to proof of detrimental reliance, the district court held that Plaintiffs could recover under principles of equitable estoppel and as third-party beneficiaries of a contract between Defendants and their banks. 1
A divided panel of this court reversed the judgment of the district court and rejected the alternative theories of recovery in Elmore v. Cone Mills, 6 F.3d 1028 (4th Cir.1993). The original panel majority affirmed the district court's rulings for Defendants on preemption, stock valuation, and other breach of fiduciary duty claims challenged by Plaintiffs in their cross-appeal. Thereafter, a majority of this court granted Plaintiffs' petition for rehearing, ordering that the earlier panel opinion be vacated and the case reheard by the court en banc. Elmore v. Cone Mills, No. 92-1362, 1993 U.S.App. LEXIS 33294 (4th Cir. Dec. 13, 1993). The en banc court now unanimously reverses the judgment of the district court that the representations are enforceable under ERISA as a plan or part of a plan, but, by an equally divided court, affirms the alternative theory of recovery that the representation created an enforceable obligation under a federal common law theory of equitable estoppel, subject to proof of detrimental reliance on remand. In all other respects, the en banc court unanimously affirms the rulings of the district court.
In response to a hostile takeover bid announced on October 31, 1983, a group of senior management employees at Cone Mills Corporation decided to gain control of the company through a leveraged buy-out (LBO), which became final on March 27, 1984. While planning and implementing the LBO, Dewey Trogdon, Cone Mills's Chairman of the Board and Chief Executive Officer, communicated regularly with Cone Mills's employees through various letters, office memoranda, and video presentations. Many of these communications were addressed to concerns expressed by employees regarding the impact the LBO would have on their pension benefits. The recurring themes of these communications were that management would protect the interests of Cone Mills's employees and shareholders and would keep the employees informed of any changes occurring because of the LBO.
The specific representation at issue in this case occurred in a letter sent by Dewey Trogdon to all Cone Mills's salaried employees on December 15, 1983, regarding management's proposed LBO. This letter explained that the Company had over-funded the existing Employee Retirement Plan (ERP), resulting in more funds being in the ERP accounts than were necessary to pay for accrued benefits. By the terms of the ERP, Cone Mills was entitled to any pension reversion surplus. Regarding the expected pension reversion surplus, the letter continued:
[i]f the management and bank proposal to buy the Company is successful, there is agreement among management and the banks that we will contribute the surplus, or its equivalent in Company stock, to the ESOP. When the transaction is executed and the contribution is made, you, I, and all other Cone employees will "take title" to a substantial asset in which we currently have no rights or ownership.
(J.A. at 3700.) On page two of the letter, Trogdon specifically stated: (J.A. at 3701.)
In an earlier December 12, 1983, letter to all Cone Mills employees, Trogdon had stated that their "pension plans [would] be left in place with [their] existing benefits guaranteed by the Company," and that, through the coordination of the 1983 ESOP and the ERP, the employees could "receive no less than the full amount" of their pre-LBO pension benefits. (J.A. at 3695 (emphasis omitted).) This letter also noted that "[t]ogether, the ESOP and your pension plan are expected to provide greater financial security than your present retirement benefits." (Id.) Trogdon estimated in the December 12th letter that over $50 million in stock could be contributed to the 1983 ESOP in the first two years but expressly noted that he could not legally guarantee that amount.
Subsequent to these letters, but prior to the actual vote on the LBO, Cone Mills communicated regarding the 1983 ESOP through a bulletin board notice, a February 1984 video presentation, a February 23 proxy statement to all salaried employees, and a March 15 memorandum from Trogdon. The bulletin board notice outlined the 10%/10%/1% contribution levels for the 1983 and 1984 plan years of the ESOP and emphasized the discretionary nature of additional contributions. The February video presentation referred to an expected contribution amount of over $50 million. A question-and-answer booklet distributed after the video presentation contained the same estimation that (J.A. at 3925.) The question-and-answer booklet further notified the employees in bold-faced type that "[t]he legal documents control, and if this material differs in any way from the legal documents, the correct source of the information is the legal documents." (J.A. at 3911.)
The February 23 proxy statement, sent to salaried employees as participants in the PAYSOP, reiterated the 10%/10%/1% contribution formula as the mandatory ESOP contribution obligation of the Company. In addition, in response to some expressed disappointment and concern of salaried employees regarding the ESOP, Trogdon sent a memorandum to salaried employees on March 15, 1984. In this memorandum, Trogdon referred to the profit sharing potential of the ESOP, but made no guarantee of its success. Trogdon also stated: "I do not believe it is prudent, presently, to guarantee ESOP contributions above the 1% minimum for years 1985 and forward...." (J.A. at 4034.)
The LBO was approved by a nearly unanimous vote of the shareholders on March 26, 1984, and all shares of common stock, including the shares held by the previous employee stock ownership plan (the PAYSOP) 2, were purchased for $70 per share.
The 1983 ESOP plan documents were executed by Lacy Baynes 3 on April 2, 1984. The plan documents required the company to contribute cash, stock or other property worth ten percent of each covered employee's compensation for each of the first two years of the 1983 ESOP's operation and one percent of each employee's compensation for each year thereafter (the 10%/10%/1% formula). The executed documents did not refer to the pension surplus but did provide for discretionary contributions.
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