Kreutzer v. A.O. Smith Corp., 90-3547
| Decision Date | 19 February 1992 |
| Docket Number | No. 90-3547,90-3547 |
| Citation | 951 F.2d 739 |
| Parties | , 14 Employee Benefits Cas. 2177 Ronald J. KREUTZER, Fred Hinze, Alan Allen, John O'Shea, Thomas Veigh, Frank Cartwright and Gary D. Jeske, Plaintiffs-Appellants, v. A.O. SMITH CORPORATION, a foreign corporation, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Bruce J. Landgraf (argued), Kenan J. Kersten, Kersten & McKinnon, Milwaukee, Wis., for plaintiffs-appellants.
Herbert P. Wiedemann (argued), Karl A. Dahlen, Foley & Lardner, Milwaukee, Wis., for defendant-appellee.
Seven employees sued their former employer, A.O. Smith Corporation ("A.O. Smith"), alleging that it violated the Employee Retirement Income Security Act, 29 U.S.C. § 1001-1461 (1988) ("ERISA"), in its computation of severance pay. The parties filed cross-motions for summary judgment. Because we hold that the employees' purported reliance upon an out-dated company handbook was unreasonable, we affirm.
The following facts essentially are undisputed. Ronald Kreutzer, Fred Hinze, Alan Allen, John O'Shea, Thomas Veigh, Frank Cartwright, and Gary Jeske ("the employees") worked as supervisors for A.O. Smith The company's severance formula, in effect since May 1970, is set forth in the Corporation Policy Manual PR-22. A.O. Smith refers to this formula as "Revision 3." The policy provides the following benefits:
Appellants' Appendix at 117. Under this version of the policy, "no deduction for potential unemployment benefits shall be made from the termination pay." The employees claim that their severance pay should be calculated in accordance with a formula in effect from 1965 until 1970, referred to as "Revision 1." 1 Revision 1 appeared in the supervisor's handbook they received when they were promoted to supervisory positions, even though it had been replaced with Revision 3 by that time. The employees assert that they were never notified of the modifications made to Revision 1 of A.O. Smith's severance policy. It provides:
TERMINATION PAY
Under certain conditions non-union salaried employees whose jobs are abolished and who are permanently terminated from the company may receive termination (job abolition) pay. *
Such termination pay is one-fourth of a month's regular salary for each full year of continuous service up to a maximum of 30 years' service. Minimum termination pay is one-half of a month's pay; termination pay is in addition to any vacation pay due the employee.
Appellants' Appendix at 123. Revision 1, however, provided for a deduction for unemployment compensation:
If the applicable state statute permits unemployment compensation during the period covered by termination pay, a deduction from termination pay, equal to potential unemployment compensation, during a period equal to that covered by termination pay, shall be made, subject to the minimum payment provided in D.1.
Appellee's Appendix at 105. The Revision 3 policy had no provision for an unemployment deduction. Despite the deduction for unemployment compensation, Revision 1 is more generous than Revision 3.
The employees were promoted to supervisory positions between 1972 and 1976. During those years, supervisors' duties and benefits were outlined in a large loose-leaf Supervisor Handbook ("the handbook"). The handbook was updated periodically with replacement pages. Apparently through an oversight, the page containing Revision 1 was not replaced when Revision 3 was adopted in 1970. The Revision 1 formula still was included erroneously in Section VIII-5, the "Wage and Salary Administration" section.
In 1976, A.O. Smith replaced the handbook with a pocket-sized "Supervisor's Manual" ("the manual"). This manual contained no information on, or reference to, termination benefits. 2 The introduction explained, however, that The Supervisor's Manual will supplement information in the A.O. Smith Corporation Safety Manual and the A.O. Smith Corporation Policy Manual, both of which are available for supervisor reference. They are located in the offices of the division managers, staff heads (including superintendents) and company officers.
The A.O. Smith Corporation Policy Manual (in effect since 1970) has contained Revision 3 of the severance pay formula. When A.O. Smith distributed the new manuals, it also circulated a newsletter, informing all supervisors that
[A] new AOS Supervisor's Manual will be distributed to replace the Supervisor's Handbook used for the past ten years. The new manual, pocket sized for your convenience, will contain current, valuable information for reference in your day-to-day activities.
In preparation for this distribution, we are collecting the old Supervisor's Handbooks. Please return your copy to the general superintendent in your area.
Upon receiving your new copy, please complete, sign and return the receipt form located inside the front cover. You will be held responsible for maintaining your copy and returning it on request. Any revisions to this manual will be sent to you as required.
Despite the recall of the handbooks, the handbooks were not collected, but were "laying all over" the A.O. Smith facility. Appellants' Brief at 9. All the plaintiff-employees testified in deposition that they were unaware of Revision 3 and the updated policy. They claim they relied upon Revision 1, the formula in the recalled handbooks, and that the new manuals did not put them on notice of the correct policy. As a consequence, they argue, they are entitled to payment under Revision 1. They maintain, however, that they should not be subject to the deduction for unemployment compensation required by Revision 1.
The employees offer two arguments to support their position. First, they contend that, under 29 U.S.C. § 1022(b), any circumstances resulting in a loss of benefits otherwise reasonably expected must be set forth in the Plan document. This argument is unavailing because Revision 1 made an explicit reference to the Corporate Policy Manual (the Plan) which contained the provision regarding unemployment compensation. Second, the employees assert that no unemployment compensation deduction should be made because "the PR-22 corporate policy [Revision 3], at the time that the supervisors were given the handbooks ... excluded a reduction...." Appellants' Brief at 5. In other words, because the policy in effect did not require a deduction, the employees are entitled to the Revision 1 formula without the reduction. This argument seems illogical on its face.
In addition to the mix-up with the handbooks and Revisions, it is undisputed that A.O. Smith failed to comply with ERISA's reporting provisions. It did not provide participants with the required five- and ten-year plan summaries, nor did it make the necessary periodic filings with the Secretary of Labor. See 29 U.S.C. § 1024. The employees initially brought suit in the Milwaukee County Circuit Court in August 1988, alleging that A.O. Smith breached their employment contract because it improperly calculated severance pay, holiday shutdown pay, vacation pay and Christmas bonuses. The case was set for trial, and summary judgment motions were pending, when the trial court granted the employees' motion to amend their complaint. The new count alleged that A.O. Smith's failure to pay severance pay under Revision 1 violated ERISA. A.O. Smith removed the entire action, asserting that the federal courts have original jurisdiction over the ERISA claim under 28 U.S.C. § 1331 (1988). The parties filed summary judgment motions in the federal action, and the district court granted summary judgment in favor of A.O. Smith. The employees appealed.
It is well established that review of a district court's grant of summary judgment is de novo. See, e.g. La Preferida, Inc. v. Cerveceria Modelo, S.A., 914 F.2d 900, 905 (7th Cir.1990). In order to uphold a grant of summary judgment, we must "view the record and all inferences drawn from it in the light most favorable to the party opposing the motion," Lohorn v. Michal, 913 F.2d 327, 331 (7th Cir.1990), and conclude that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). First Wisconsin Trust Co. v. Schroud, 916 F.2d 394, 398 (7th Cir.1990).
The parties do not dispute that A.O. Smith's severance pay plan is an employee welfare benefit plan governed by ERISA. 29 U.S.C. § 1002(1) (1988). Young v. Standard Oil, 849 F.2d 1039, 1045 (7th Cir.1988), Blau v. Del Monte Corp., 748 F.2d 1348, 1352 (9th Cir.1984). ERISA preempts all state law claims for severance benefits. Young, 849 F.2d at 1043. The district court properly found, therefore, that the employees' breach of contract claims are preempted. Kreutzer v. A.O. Smith Corporation, No. 80 C 1122 (E.D.Wis. Oct. 16, 1990).
ERISA imposes certain obligations upon administrators of welfare benefit plans, although they are less rigorous than those imposed upon administrators...
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