Grabski v. Aetna, Inc.

• Decision Date: 30 March 1999
• Docket Number: No. Civ.A. 98-677.,Civ.A. 98-677.
• Citation: Grabski v. Aetna, Inc., 43 F.Supp.2d 521 (E.D. Pa. 1999)
• Parties: Jenny GRABSKI, et al., Plaintiffs, v. AETNA, INC., Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

Page 521

43 F.Supp.2d 521

Jenny GRABSKI, et al., Plaintiffs, v. AETNA, INC., Defendant.

No. Civ.A. 98-677.

United States District Court, E.D. Pennsylvania.

March 30, 1999.

COPYRIGHT MATERIAL OMITTED

Elizabeth Kase Morelli, Paul R. Ober & Associates, Reading, PA, Bryon M. Yatron, Paul R. Ober & Assoc., Reading, PA, for plaintiffs.

Thomas J. Cole, Pepper Hamilton, LLP, Philadelphia, PA, for defendant.

MEMORANDUM

EDUARDO C. ROBRENO, District Judge.

I. INTRODUCTION

Plaintiffs, Jenny Grabski, Michael Grinnage, Richard Grinnage, Oscar Hernandez, Marco Salinas, Jeffrey Sample, Lillian Suarez and Carmen Velazquez ("Plaintiffs" or "marketing representatives") brought this action against their former employer, defendant Aetna Inc. ("Aetna") seeking severance and salary continuation benefits. Specifically, plaintiffs advance the following three causes of action against Aetna: 1) violation of Pennsylvania's Wage Payment and Collection Law, 43 Pa.Cons.Stat. Ann. § 260.1 et seq., ("WPCL"); 2) nonpayment of benefits under the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq., ("ERISA"); and 3) breach of contract.

Plaintiffs had been employed by Aetna Health Plan of Central and Eastern Pennsylvania, Inc., a subsidiary of Aetna Life and Casualty Company (collectively "Aetna"), as marketing representatives selling products pursuant to a contract Aetna had with Mercy Health Plan ("Mercy"). After some time, Aetna decided to end its contractual relationship with Mercy, and as a result, Aetna was prepared to terminate plaintiffs' employment on the date Aetna's relationship with Mercy ended. Prior to this date, however, Aetna offered each plaintiff the opportunity to continue his or her employment with a successor entity, AmeriHealth HMO, Inc. ("AmeriHealth"). AmeriHealth agreed to offer plaintiffs positions and salaries with incentive compensation opportunities which were comparable to their current positions with Aetna. If plaintiffs accepted the position with AmeriHealth, they simply would have continued selling the same products, under the same terms and conditions, on AmeriHealth's payroll. In light of this, the Administrator of Aetna's Severance and Salary Continuation Benefits Plan ("Plan Administrator") determined that since plaintiffs were given the opportunity to accept positions with AmeriHealth, plaintiffs were not entitled to severance benefits because a "Termination of Employment", as defined in Aetna's Severance and Salary Continuation Benefits Plan ("Plan"), had not occurred.

Defendant moves for summary judgment on the basis that: 1) plaintiffs' WPCL claim and breach of contract claim are preempted by ERISA pursuant to binding Third Circuit precedent and 2) plaintiffs' claims for severance benefits under ERISA fail because the Plan Administrator, who is given the sole power to decide all questions of eligibility and the sole power to interpret the provisions of the Plan, determined that plaintiffs did not suffer a "Termination of Employment" within the meaning of the Plan and that determination must be upheld because it was not arbitrary or capricious.

Plaintiffs contend that summary judgment in defendant's favor is inappropriate because: 1) there is a genuine issue of material fact whether Aetna's Plan Administrator was operating under a conflict of interest and whether the conflict should be weighed as a factor in determining whether there was abuse of discretion; 2) oral representations made by Aetna representatives at a February 19, 1997 meeting, create a genuine issue of material fact whether Aetna orally modified the Plan; and 3) based on the alleged oral modifications, Aetna should be held liable for payments on an equitable estoppel theory.¹ Plaintiffs, however, have not addressed whether the WPCL or the breach of contract claims are preempted by ERISA.

The Court finds that, under Third Circuit law, plaintiffs' WPCL and breach of contract claims are clearly preempted by ERISA. In addition, the Court concludes that the arbitrary and capricious standard is the proper standard of review applicable to this case, since plaintiffs have offered no evidence to show that the Plan Administrator was operating under a conflict of interest. The Court further finds that the Plan Administrator's decision to deny benefits was neither arbitrary nor capricious. Furthermore, the Court concludes that, as a matter of law, plaintiffs cannot rely on an oral modification to change the terms of a plan under ERISA. Finally, the Court finds that plaintiffs have failed to point to any evidence on the record, which would allow them to recover based on an equitable estoppel theory. As a result, summary judgment in favor of Aetna will be granted.

II. FACTS²

In 1988, Aetna, then Freedom Health Care, entered into a contract with Mercy. Pursuant to the terms of the contract with Mercy, Aetna entered into a separate contract with the Commonwealth of Pennsylvania to provide health plan services to Medicaid beneficiaries in Eastern Pennsylvania. Aetna then subcontracted this work for the Commonwealth out to Mercy. Mercy did not contract with the Commonwealth because it did not wish to offer family planning services and did not have the HMO license required by the state.

Under the terms of the agreement between Mercy and Aetna, Mercy administered and was responsible for enrolling eligible Medicaid beneficiaries into the health plan. However, due to insurance and licensing regulations, the marketing representatives had to be employed by Aetna. Mercy in turn reimbursed Aetna for all costs associated with employing those marketing representatives.

Plaintiffs were all employed by Aetna as marketing representative. During the course of plaintiffs' employment at Aetna, the company distributed to each plaintiff, an employee manual which explained the salary continuation and severance benefits policies. Plaintiffs, however, were supervised by and reported to Mercy personnel and Mercy supervisors made salary and bonus decisions regarding plaintiffs.

In 1996, Aetna merged with U.S. Healthcare. During that same year, Mercy entered into a joint venture agreement with Keystone and became affiliated with AmeriHealth and Independent Blue Cross. Also in 1996, Aetna decided to end its contractual relationship with Mercy, effective March 31, 1997. Between December 1996 and March 1997, Aetna worked with Mercy, Keystone, AmeriHealth and the Commonwealth to help AmeriHealth expand its HMO license to cover Eastern Pennsylvania and thus insure the transfer of Medicaid beneficiaries from Aetna's health plan to the AmeriHealth/Mercy health plan.

From the time Aetna decided to end its contractual relationship with Mercy in December of 1996, Aetna and Mercy cooperated so that plaintiffs, who were then employed by Aetna, could be transferred to employment with AmeriHealth/Mercy once AmeriHealth obtained the necessary license and before the contract with Mercy ended in March of 1997. As of February 1997, however, Aetna did not know whether AmeriHealth/Mercy would be able to obtain the necessary license by March 31, 1997. During this time period, Aetna acknowledged that if AmeriHealth did not obtain the license by March 31, 1997, plaintiffs could not be employed by AmeriHealth and would suffer a break in employment.

By February of 1997, plaintiffs were made aware by Aetna representatives that Aetna was ending its contractual relationship with Mercy and of the potential end of their respective employment. As a result, plaintiffs began calling Aetna representatives to determine their employment status. Thereafter, a February 19, 1997 meeting was scheduled to address plaintiffs' concerns.

At the February 19, 1997 meeting, an Aetna representative explained to plaintiffs the following: that Aetna was ending its contractual relationship with Mercy; Aetna did not know whether plaintiffs would receive a job with AmeriHealth/Mercy; that if each plaintiff did not receive a job with AmeriHealth/Mercy by the time the contractual relationship ended on March 31, 1997, they would be terminated by Aetna effective on that date; and Aetna did not know if AmeriHealth/Mercy would obtain the necessary license by March 31, 1997. In addition, at this meeting, Aetna handed out to plaintiffs a document entitled "Summary of Aetna Separation Program," which outlined Aetna's salary continuation and severance policies.

In early March of 1997, AmeriHealth obtained the necessary license it needed to employ plaintiffs. While initially AmeriHealth stated that it would offer plaintiffs comparable positions, however, it would not commit in writing to such an offer. As a result, on March 11, 1997, a conference call involving Aetna, AmeriHealth, Mercy and Keystone management was conducted during which Aetna informed the others that if Aetna did not have written confirmation of the job offers to plaintiffs, they would be entitled to severance benefits under Aetna's plan. Aetna also explained to AmeriHealth, Mercy and Keystone management that, pursuant to the contract between Aetna and Mercy, the costs of those benefits would be charged back to Mercy.

On March 13, 1997, AmeriHealth confirmed in writing to Aetna that it would offer plaintiffs employment with AmeriHealth and that their positions and salaries with incentive opportunities would be comparable to their current position with Aetna. Plaintiffs' employment with AmeriHealth was to start effective Monday, March 17, 1997.

Also, on March 13, 1997, a meeting was held at a Mercy office, where plaintiffs and representatives from Aetna were present. During this meeting, Aetna informed plaintiffs of the following: the date of the termination of plaintiffs' employment with Aetna would be March 14, 1997; Aetna's contract with Mercy expired March 31, 1997; plaintiffs were being terminated due to a transfer of operations; and Aetna would not be paying severance packages and/or salary continuation benefits to plaintiffs.³

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