Grun v. Pneumo Abex Corp.

• Decision Date: 18 November 1992
• Docket Number: No. 90 C 5273.,90 C 5273.
• Citation: 808 F. Supp. 632
• Parties: William F. GRUN, Plaintiff, v. PNEUMO ABEX CORPORATION, PA Holdings Corporation and the Henley Group, Inc., Defendants.
• Court: U.S. District Court — Northern District of Illinois

808 F. Supp. 632

William F. GRUN, Plaintiff, v. PNEUMO ABEX CORPORATION, PA Holdings Corporation and the Henley Group, Inc., Defendants.

No. 90 C 5273.

United States District Court, N.D. Illinois, E.D.

November 18, 1992.

Brian D. Gregory, Donovan, Leisure, Newton & Irvine, Los Angeles, CA, for plaintiff.

Gary S. Kaplan, William Robert Sullivan, Jr., Seyfarth, Shaw, Fairweather & Geraldson, Chicago, IL, Hope A. Jacobson, Los Angeles, CA, for defendants.

ORDER

NORGLE, District Judge.

Before the court are plaintiff William F. Grun's ("Grun") motion for summary judgment with respect to Count I of his complaint and defendants' motion for summary judgment with respect to Counts I, II, and III of the complaint. Pursuant to 28 U.S.C. § 636(b)(1), the court referred the motions for summary judgment to Magistrate Judge Joan H. Lefkow. The Magistrate Judge, after review of the record, issued on October 1, 1992 a 19-page Report and Recommendation (the "Report," attached as Exhibit A). For the following reasons, the Report is adopted in part.

FACTS

In January, 1986, Grun became president and general manager of NWL Control Systems ("NWL"), a division of defendant Pneumo Abex Corporation ("Pneumo Abex") headquartered in Kalamazoo, Michigan. In 1987, Grun entered into a severance compensation agreement (the "SCA") with Pneumo Abex. The SCA provided that Grun would be entitled to severance compensation, calculated in accordance with the terms therein, if he terminated his employment for any one of several "good reasons" set forth in the SCA within two years after a change in control of Pneumo Abex. In April, 1988, Pneumo Abex was purchased by PA Holdings Corporation, which constituted a change in control under the SCA. In 1989, Grun resigned from NWL and requested that he be paid in accordance with the terms of the SCA; Grun supported his entitlement to the severance compensation by identifying five "good reasons" under the SCA for his resignation. After reviewing the "good reasons" submitted by Grun, Pneumo Abex determined that Grun did not have reason to terminate his employment and, accordingly, denied compensation under the SCA. Subsequently, Grun initiated the instant suit, seeking to recover benefits from Pneumo Abex, under the SCA and under an executive bonus plan, and punitive damages from PA Holdings Corporation (PA Holdings) and The Henley Group, Inc. (Henley) for contractual interference.

In support of his motion for summary judgment, Grun asserts that the events necessary to trigger his right to receive severance compensation under the SCA have occurred. Pneumo Abex responds that Grun has interpreted the SCA incorrectly and that none of the preconditions set forth in the SCA have been satisfied. The defendants further argue that Count II of Grun's complaint is preempted by the Employment Retirement Income Security Act of 1974 ("ERISA"), and furthermore, that the undisputed facts establish that Grun cannot prevail on the merits of either Count II or III.

Magistrate Judge Lefkow recommended that this court grant Grun's motion for summary judgment with respect to Count I, grant defendants' motion for summary judgment with respect to Count II, and deny defendants' motion with respect to Counts I and III. Both Grun and the defendants have filed objections to the Report, each objecting to the recommended finding of summary judgment against them. The court has completely reviewed the Report and the arguments of counsel on a de novo standard. 28 U.S.C. § 636(b)(1).

DISCUSSION

With respect to Count I, the Magistrate Judge concluded that Grun was entitled to recover severance compensation under ¶ 3(e)(vi) of the SCA. Paragraph 3(e)(vi) provided that Grun would be entitled to severance compensation if, following a change in control of Pneumo Abex, the following occurred: "a relocation of Pneumo Abex's principal executive offices or Grun's relocation to any place other than the location at which Grun performed his duties prior to a Change in Control of Pneumo Abex." (emphasis added). As the Magistrate Judge found, there is no dispute that Pneumo Abex's executive offices in Boston, Massachusetts were closed in the fall of 1989. Magistrate Judge Lefkow thus concluded that all events necessary to establish Grun's rights under the SCA had occurred and recommended that Grun's motion for summary judgment on Count I of the complaint be granted. The court, however, disagrees with the Magistrate Judge's analysis and, accordingly, denies all parties' summary judgment motions with respect to Count I.

Despite Pneumo Abex's concession that ¶ 3(e)(vi) "is awkwardly drafted and seems to make little sense," the terms and meaning of that paragraph are actually straightforward and unequivocal. The plain meaning of this provision is that Grun would be entitled to the SCA benefits if Pneumo Abex's principal executive offices in Boston were relocated; the fact that Grun, who worked in Kalamazoo, Michigan, and lived in Portage, Michigan, would be entitled to a substantial severance benefit because of such a relocation is not contradicted by the terms. Evidently aware of the plain meaning of ¶ 3(e)(vi), Pneumo Abex advised Grun on March 25, 1988, that it "did not intend for Grun to become entitled to termination compensation under Section 3(e)(vi) ... by virtue of the relocation of the Company's principal executive offices unless there is also a relocation of your present office." Thus, whether Grun is entitled to SCA benefits solely because of Pneumo Abex's move from Boston depends on what, if any, effect the March 25, 1988 letter had on the terms of ¶ 3(e)vi).

As the Magistrate Judge concluded, the SCA is an employee benefit plan, the application and interpretation of which is governed by ERISA. Under ERISA, employee benefits are either "welfare" benefits or "retirement or pension" benefits. 29 U.S.C. § 1002(1), (2). Under ERISA, retirement benefit plans are subjected to stringent accrual, vesting, and funding requirements; such requirements, however, are not imposed on welfare benefit plans. 29 U.S.C. §§ 1051, 1081. Severance benefit plans, such as the SCA, are welfare benefit plans. Young v. Standard Oil (Indiana), 849 F.2d 1039, 1045 (7th Cir.), cert. denied, 488 U.S. 981, 109 S.Ct. 529, 102 L.Ed.2d 561 (1988); Holland v. Burlington Indus., Inc., 772 F.2d 1140 (4th Cir.1985) aff'd, 477 U.S. 901, 106 S.Ct. 3267, 91 L.Ed.2d 559, cert. denied, 477 U.S. 903, 106 S.Ct. 3271, 91 L.Ed.2d 562 (1986). Consequently, severance benefits are unaccrued, unvested benefits, and even though subject to certain disclosure (29 U.S.C. §§ 1021-1031) and fiduciary (29 U.S.C. §§ 1101-1114) requirements, are exempt from the more stringent ERISA requirements. Young, 849 F.2d at 1045. Because an employer is permitted to act as both the manager of its business and a fiduciary with respect to unaccrued benefits, an employer is therefore free to alter or eliminate severance benefits without consideration of the employees' interests. Phillips v. Amoco Oil Co., 799 F.2d 1464, 1471 (11th Cir.1986), cert. denied, 481 U.S. 1016, 107 S.Ct. 1893, 95 L.Ed.2d 500 (1987). Accordingly, an employer may unilaterally amend or eliminate a severance plan without violating ERISA. Id.; see also Kreutzer v. A.O. Smith Corp., 951 F.2d 739, 743 (7th Cir.1991) (an employer may change or abolish welfare benefits without violating ERISA); Sejman v. Warner-Lambert Co., 889 F.2d 1346, 1438 (4th Cir.1989) (because severance benefits are contingent and unaccrued, an employer may unilaterally amend or eliminate the provisions of a severance plan).

Although the terms of ERISA would permit Pneumo Abex to unilaterally modify the SCA, Pneumo Abex agreed to forego that right. ERISA requires every employee benefit plan to be created by and maintained pursuant to a written instrument. 29 U.S.C. § 1102(a)(1). Through these instruments, parties are free to subject such benefits to requirements that are not mandated by ERISA, or they may reserve the power to terminate or modify such plans. Ryan v. Chromalloy American Corp., 877 F.2d 598, 603 (7th Cir.1989). The employee benefits which Grun seeks to recover were created and governed by the SCA, with the following provision: "Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by Grun and Pneumo Abex." The March 25, 1988 letter of Pneumo Abex was not signed or agreed to by Grun; therefore, by the terms of the SCA Pneumo Abex's epistolary clarification was not sufficient to modify the express terms of the SCA.

The plain language of ¶ 3(e)(vi) is clear and unambiguous, and as such, the interpretation of this paragraph is a matter of law. The overriding goal of contract interpretation is to give effect to the mutual intent of the parties at the time the contract was made. Lowrance v. Hacker, 888 F.2d 49, 51 (7th Cir.1989). Thus, even though the literal meaning expressed by the language of a contract is usually the best evidence of that intent, even unambiguous language can be disregarded when the parties meant something other than that which was committed to paper. White v. Roughton, 689 F.2d 118, 120 (7th Cir. 1982). The record before the court does not provide an explanation as to why Peumo Abex would agree to compensate Grun with over $800,000 in severance benefits for an office relocation which had minimal, if any, affect on Grun's work-related activities. That Grun is entitled to SCA benefits because of Pneumo Abex's relocation from Boston is a nonsequitur, indicative of a mutual mistake in the contract terms, which raises material issues of genuine facts concerning the SCA's execution.

The intended purpose of the SCA was to induce Grun to remain employed by Pneumo Abex, in the event of a change in control, by providing Grun with certain job assurances. That Grun, a Michigan resident, receive the SCA benefits upon relocation of...