La Fata v. Raytheon Co.
| Decision Date | 27 August 2002 |
| Docket Number | No. 01 CV 1220.,01 CV 1220. |
| Citation | 223 F.Supp.2d 668 |
| Parties | Michael LA FATA, et al., Plaintiffs, v. RAYTHEON COMPANY, et al., Defendants. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Robert S. Kitchenoff, David H. Weinstein, Weinstein Kitchenoff Scarlato & Goldman, Ltd., Philadelphia, PA, Bryan R. Lentz, Bacheltor & Lentz, Philadelphia, PA, Edward F. Kalman, Philadelphia, PA, for plaintiffs.
Steven K. Ludwig, Fox, Rothschild O'Brien & Frankel, Philadelphia, PA, Richard J. Antonelli, James M. Wilson, Littlker, mendelsohn, Pittsburgh, PA, Gregory C. Broden, H. Douglas Hanson, Michael G. Monnolly, Alston & Bird, LLP, Atlanta, GA, for defendants.
EXPLANATION AND ORDER
Plaintiff Michael La Fata ("La Fata") brings this class action, alleging violations of both federal and state law by defendants in connection with the sale of Raytheon Engineers and Constructors, Inc. ("RE & C") by Raytheon, Inc. ("Raytheon") and Raytheon Engineers and Constructors International, Inc. ("RECI") to Morrison Knudsen Corporation ("MK"), the predecessor to Washington Group International, Inc. ("Washington Group").
This class action challenges the failure to grant severance pay and other benefits to employees of RE & C in connection with the stock sale of RE & C to MK. In particular, plaintiff contends that this transaction terminated the employment of the class members, entitling them to severance pay and accrued vacation pay under the RE & C Severance Pay Policy. Plaintiff, a former employee of RE & C, has sued Raytheon, RECI, RE & C, Raytheon Engineers and Constructors, Inc. Severance Pay Plan ("the Severance Plan Defendant"), United Engineers and Constructors, Inc. ("UE & C"), Raytheon Company 1995 Stock Option Plan, John R. Galvin ("Galvin"), Barbara M. Barrett ("Barrett"), Ferdinand Colloredo-Mansfeld ("Colloredo-Mansfeld"), Alfred M. Zeien ("Zeien"), Daniel P. Burnham ("Burnham"), Shay D. Assad ("Assad"), and Washington Group. Plaintiff has brought claims under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq., the federal securities laws, and state common law.
La Fata alleges that, early in September 1999, executives and directors of Raytheon, RECI and RE & C began attempting to sell RE & C. MK performed some due diligence on RE & C in September 1999, though this fact was concealed from most RE & C employees. La Fata alleges that the defendants actively misrepresented the status of RE & C to these employees by informing them in two letters and through comments by Assad, CEO of RE & C, at a general meeting, that the company was not going to be sold.
In mid-April of 2000, Raytheon, RECI and MK signed an agreement for the sale of the stock of RE & C. During the next few months, the RE & C employees were informed of the impending closing of the sale through meetings, informational "Question and Answer" releases and information posted on MK's website. Among the information revealed during this period was the fact that, after the closing, RE & C would be reorganized from eight divisions to five, with much of the management of RE & C's old divisions being replaced. The sale closed on July 7, 2000 and is alleged to have had a major consequence: La Fata claims that this sale effected an involuntary termination of all RE & C employees, entitling them to severance pay under the RE & C Severance Pay Policy.
In the period leading up to, and possibly following, the stock sale of RE & C to MK, RE & C maintained several benefit programs for its employees. One such plan was the RE & C Termination of Employment Policy ("Termination Policy"), which sets out "fair and uniform standards for the termination of employees." The Termination Policy defines several types of voluntary and involuntary termination of employment, including layoff and reorganization, the two types of involuntary terminations relevant to this case. It also establishes payroll practices at the termination of employment. Article X of the Termination Policy authorizes severance pay for terminations of full-time employees classified as layoff, release or reorganization. This provision constitutes the RE & C Severance Pay Policy ("Severance Policy").
RE & C also maintained the RE & C Welfare Benefits Plan ("Welfare Benefits Plan") during the relevant period of time. This document purports to provide "certain uniform terms for the employee benefit plans" it incorporates. Welfare Benefits Plan § 2.1. The Severance Policy is explicitly incorporated into the Welfare Benefits Plan. See id. at Appendix A. Each term of the Welfare Benefits Plan is considered to apply to all incorporated plans, including the Severance Policy, unless it "conflicts with, contradicts, or renders ambiguous" a term, provision, implication or statement in the incorporated plan. Id. at § 1.5.
La Fata filed the complaint in this class action on March 14, 2001, bringing claims pursuant to the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq. and Pennsylvania common law. He filed an amended complaint on April 11, 2001, adding allegations that defendants violated several provisions of the federal securities laws. See First Amended Complaint, at 45-47. The claims relevant to this opinion are:
1) Count I, a claim for benefits pursuant to § 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132;
2) Count II, a claim for benefits pursuant to § 510 of ERISA, 29 U.S.C. § 1140;
3) Count IX, alleging a state law breach of contract claim;
4) Count XI, alleging a state law breach of fiduciary duty claim;
5) Count XIII, alleging a state law unjust enrichment claim; and
6) Count XVII, alleging a state law breach of good faith and fair dealing claim.
See First Amended Complaint, at 37-58.
On July 9, 2001, La Fata filed a motion for class certification, seeking to certify both a Severance Class and a Stock Option Class. On March 21, 2002, I issued a memorandum and order, partially granting and partially denying plaintiff's motion for class certification. In that order, I certified a class consisting of:
All former employees of RE & C who were involuntarily terminated on or about July 7, 2000 as a result of the sale of RE & C to Washington Group and were entitled to a Final Payment (i.e., accrued severance pay and vacation pay) pursuant to ERISA which was wrongfully withheld and/or denied to them.
Memorandum and Order of March 21, 2002.
On October 29, 2001, defendants Raytheon, RECI, Raytheon Company 1995 Stock Option Plan, Galvin, Barrett, Colloredo-Mansfeld, Zeien, Burnham, and Assad filed a motion for partial summary judgment on counts I, II, IX, XI, XIII, and XVII.1 On May 3, 2002, defendants RE & C, UE & C, Washington Group and the Severance Plan Defendant filed a motion to dismiss counts I, II, IX, XI, XIII, and XVII.2 Further briefing has occurred on both of these motions and the parties assert that both motions are fully briefed. I shall discuss each motion separately.
On May 3, 2002, the Washington Group Defendants filed a motion to dismiss those portions of the amended complaint where plaintiff asserts claims for benefits pursuant to the Severance Policy. These claims include (1) Count I, a claim for benefits pursuant to § 502(a)(1)(B) of ERISA; (2) Count II, a claim for benefits pursuant to § 510 of ERISA; (3) Count IX, alleging a state law breach of contract claim; (4) Count XI, alleging a state law breach of fiduciary duty claim; (5) Count XIII, alleging a state law unjust enrichment claim; and (6) Count XVII, alleging a state law breach of good faith and fair dealing claim. On June 10, 2002, plaintiff filed a brief in opposition to the motion to dismiss. The Washington Group Defendants filed a reply brief on June 19, 2002. For the reasons that follow, defendants' motion to dismiss shall be denied with respect to Count I and Count II and granted with respect to Count IX, Count XI, Count XIII and Count XVII.
Rule 12(b)(6) permits the court to dismiss an action for failure to state a claim upon which relief can be granted. Fed. R.Civ.P. 12(b)(6). The claim may be dismissed only if the plaintiff cannot demonstrate any set of facts in support of the claim that would entitle it to relief. See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Williams v. New Castle County, 970 F.2d 1260, 1266 (3d Cir.1992). In considering the motion to dismiss, the court must accept as true all factual allegations in the complaint and all reasonable inferences that may be drawn therefrom, construing the complaint in the light most favorable to the plaintiff. See Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984); Weiner v. Quaker Oats Co., 129 F.3d 310, 315 (3d Cir.1997).
In Count I of the First Amended Complaint, plaintiff asserts a claim for benefits under the Severance Policy pursuant to § 502(a)(1)(B) of ERISA. The Washington Group Defendants have moved for dismissal of this claim, arguing that (1) the plain language of the Severance Policy requires an "involuntary termination of employment" as a prerequisite for payment of severance benefits and (2) Third Circuit precedent clearly indicates that the stock sale of a wholly-owned subsidiary does not constitute a termination of employment for the subsidiary's employees, regardless of whether they suffer a decrease of benefits as a result of the transaction. Plaintiff disagrees with this characterization of the applicable caselaw, asserting that a drastic reduction of benefits, in connection with a stock sale, constitutes a termination and thus permits him to recover severance benefits under the Severance Policy.
Addressing a severance pay plan under ERISA, the Third Circuit has held that, while severance pay is primarily intended to compensate employees for losses they incur...
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