Pactiv Corp. v. Rupert

• Decision Date: 01 August 2013
• Docket Number: Nos. 12–3704,12–3804.,s. 12–3704
• Citation: 724 F.3d 999
• Parties: PACTIV CORPORATION and Pactiv Corporation 2010/2011 Severance Benefits Plan, Plaintiffs–Appellants, Counterdefendants–Appellees, v. Chad RUPERT, Defendant–Appellee, Counterplaintiff–Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

724 F.3d 999

PACTIV CORPORATION and Pactiv Corporation 2010/2011 Severance Benefits Plan, Plaintiffs–Appellants, Counterdefendants–Appellees,

v.Chad RUPERT, Defendant–Appellee, Counterplaintiff–Appellant.

Nos. 12–3704, 12–3804.

United States Court of Appeals,Seventh Circuit.

Argued May 28, 2013.

Decided Aug. 1, 2013.

Peter J. Rusthoven, Attorney, Barnes & Thornburg LLP, Indianapolis, IN, Norma W. Zeitler, Attorney, Barnes & Thornburg LLP, Chicago, IL, for Plaintiffs–Appellants.

James Bernard Carroll, Attorney, James B. Carroll & Associates, Hickory Hills, IL, Vernon Pellett Squires, Attorney, Bradley & Riley PC, Cedar Rapids, IA, for Defendant–Appellee.

Before EASTERBROOK, Chief Judge, and WILLIAMS and HAMILTON, Circuit Judges.

EASTERBROOK, Chief Judge.

Reynolds Group Holdings acquired Pactiv Corp. in 2010. The acquisition agreement, which made Pactiv a wholly owned subsidiary, calls for severance pay to any non-union employee let go without cause, within a year, as a result of the transaction.

After the closing, Pactiv established a severance-pay plan. The clause in the acquisition agreement was skeletal; the plan itself contained many implementing terms, including a requirement that the departing worker execute a “separation agreement”, “in a form acceptable to the Company,” releasing all other claims against Pactiv.

Within a year of the acquisition Pactiv directed Chad Rupert to move to a new city. He declined, and Pactiv acknowledged that this entitled Rupert to severance pay under the plan. It sent him a separation agreement—which contained some unwelcome terms. Pactiv demanded that Rupert promise that for the next year he would not work for any of its rivals in research and development, solicit the sale of any competing goods and services, or try to hire any of Pactiv's staff. Observing that he had not previously been subject to a restrictive covenant, and contending that he should not be required to submit to one under the severance plan, Rupert declined to sign. Pactiv withheld the severance benefits, and Rupert sued. So did Pactiv, seeking a declaration that its decision is lawful.

The district court held that Rupert is entitled to the benefits because the formal plan, governed by ERISA (the Employee Retirement Income Security Act), lacks any language conditioning severance pay on signing a restrictive covenant. 2012 WL 5974986, 2012 U.S. Dist. LEXIS 158413 (N.D.Ill. Nov. 1, 2012). Plans and their material terms must be in writing. 29 U.S.C. § 1102(a)(1); Curtiss–Wright Corp. v. Schoonejongen, 514 U.S. 73, 83, 115 S.Ct. 1223, 131 L.Ed.2d 94 (1995). This plan contemplates a separation agreement “acceptable to the Company” but does not say or imply that Pactiv can use this as a hook to add any limit it wants. Then the benefits staff could use the lure of severance pay to demand that the worker hand over the deed to the worker's vacation home or promise to run errands for the staffer's family. Perhaps it would be within the scope of this plan to use the separation agreement to obtain a departing employee's promise to honor the terms of a covenant already signed; the plan itself makes benefits contingent on keeping Pactiv's secrets confidential; but the agreement tendered to Rupert demanded more on his part. ERISA's writing requirement prevents the employer from making greater demands as a matter of discretion. Cirulis v. UNUM Corp. Severance Plan, 321 F.3d 1010 (10th Cir.2003), holds exactly this about a situation similar to Rupert's.

As it happens, however, Rupert did not ask the district judge to award benefits under Pactiv's plan. He did not rely on § 1102(a)(1) or Cirulis. Instead he asked for benefits under the acquisition agreement. He repeatedly told the district court that the plan is irrelevant to his claim and that he does not seek benefits under it. We asked Rupert's lawyer at oral argument whether he had ever reserved reliance on the plan as a fallback position; counsel said no. The district court rejected the theory that Rupert actually advanced (we discuss it below) but nonetheless decided in his favor on the theory that he abjured.

Judges sometimes have the authority to relieve parties of their forfeitures (though Rupert never asked), but if they do this they must notify the other side, so that it can meet the argument. For its part, Pactiv moved for summary judgment under ERISA, contending that despite appearances some of the language in the plan does allow it to insist on restrictive covenants. Since Rupert had foresworn any argument based on the plan, Pactiv did not elaborate—and the district judge, taking up the subject without the benefit of briefs from either side, did not discuss any of the language from the “Return of Severance Payments” section of the plan that Pactiv has brought to our attention and would have brought to the district judge's, had it known that a claim based on the plan was about to be adjudicated.

Many decisions in this circuit hold that a district judge must notify the litigants, and invite the submission of evidence and legal arguments, before resolving a case on a ground the parties have bypassed or using a procedure they did not propose. See, e.g., Goldstein v. Fidelity & Guaranty Insurance Underwriters, Inc., 86 F.3d 749 (7th Cir.1996); Choudhry v. Jenkins, 559 F.2d 1085 (7th Cir.1977). See also Celotex Corp. v. Catrett, 477 U.S. 317, 326, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (“district courts are widely acknowledged to possess the power to enter summary judgments sua sponte, so long as the losing party was on notice that she had to come forward with all of her evidence”). The norm is that judges must not take litigants by surprise. The 2010 amendment to Rule 56(f) makes this explicit:

After giving notice and a reasonable time to respond, the court may:

(1) grant summary judgment for a nonmovant;

(2) grant the motion on grounds not raised by a party; or

(3) consider summary judgment on its own after identifying for the parties material facts that may not be genuinely in dispute.

Fed.R.Civ.P. 56(f) (emphasis added). If judges could decide suits without warning on the basis of considerations the litigants were not contesting, litigation would be even less manageable than it is already. Lawyers would need to submit evidence and legal arguments on issues that appeared to be irrelevant, on the off chance that the judge would second guess the parties' litigation strategies. That would produce delay, bloat, and expense. As a norm, waivers are forever. If a waived or forfeited issue is to come back to life, the revival must be preceded by notice. Litigants then safely can limit their submissions to the subjects genuinely in dispute.

In this court Rupert has thought better of the choices he made earlier. His appellate brief relies heavily on Cirulis. He insists that he did not need to ask the district court for relief under the plan, because that issue had been raised in the pleadings. Yet motions for summary judgment, and responses to them, supersede the pleadings. A litigant can't use pleadings filed on Day 1 to displace choices made on Day 2; time moves in only one direction. What's more, even in this court Rupert does not respond to Pactiv's argument that some language in the severance plan allows it to insist on restrictive covenants. Instead he observes that the language on which Pactiv relies is missing from the acquisition agreement. That effectively retreats to his original theory of liability—that the acquisition agreement between Pactiv and Reynolds Group entitles him to benefits.

Rupert favors this argument for two reasons: first, the acquisition agreement lacks any of the qualifications (including the need for a signed separation agreement) found in the post-acquisition plan; second, the acquisition agreement has an attorneys'-fees clause more favorable to prevailing parties than the one in ERISA. But the stumbling block, from Rupert's perspective, is § 9.6(b) of the acquisition agreement, which provides that the agreement cannot be invoked by anyone other than Pactiv and Reynolds Group. Section 9.6(b) has a few exceptions, but § 6.4(d), which calls for severance benefits, is not among them. Relying on both the general disclaimer in § 9.6(b) and the absence of § 6.4(d) from the listed exceptions, the district court rejected Pactiv's claim to be a third-party beneficiary of the acquisition agreement.

In the district court, and again on appeal, Rupert contended that § 9.6(b) is ineffectual under Delaware law. (The acquisition agreement has a choice-of-law clause pointing to Delaware.) It is a poor argument. The Delaware decisions on which Rupert relies stand for the normal principle that...