Panaras v. Liquid Carbonic Industries Corp.

• Decision Date: 19 January 1996
• Docket Number: No. 95-1784,95-1784
• Parties: Pens. Plan Guide P 23918C Raymond K. PANARAS, Plaintiff-Appellant, v. LIQUID CARBONIC INDUSTRIES CORPORATION and CBI Industries, Incorporated, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 786

74 F.3d 786

Pens. Plan Guide P 23918C

Raymond K. PANARAS, Plaintiff-Appellant, v. LIQUID CARBONIC INDUSTRIES CORPORATION and CBI Industries, Incorporated, Defendants-Appellees.

No. 95-1784.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 22, 1995.

Decided Jan. 19, 1996.

Carey M. Stein (argued), David M. Bagdade, Ashman & Stein, Chicago, IL, for Plaintiff-Appellant.

Robert L. Byman, Kenneth R. Dolin, Jason L. Peltz (argued), Jenner & Block, Chicago, IL, for Defendants-Appellees.

Before BAUER, CUDAHY, and RIPPLE, Circuit Judges.

CUDAHY, Circuit Judge.

Plaintiff Panaras appeals the dismissal of his claims against Liquid Carbonic Industries Corp. and CBI Industries, Inc. (collectively, LCI). His complaint alleged violations of the notice provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and breach of his employment contract. The claims are based on LCI's amending of its severance benefit plan so as to condition benefits on the signing of a release disclaiming most employment-related claims against LCI.

The district court dismissed the action pursuant to LCI's 12(b)(6) motion, finding that the breach of contract claims were preempted by ERISA, that Panaras lacked standing to bring his ERISA claim and that he failed to allege any prejudice resulting from LCI's violations. We find that Panaras did have standing to raise his ERISA complaint. However, we uphold dismissal of the ERISA count because Panaras failed to allege sufficient prejudice resulting from his lack of notice of the changes in the severance plan. We agree with the district court that Panaras' state law claims are preempted by ERISA.

Panaras was employed by LCI for over twenty-six years. During his employment he was aware that LCI provided a program of severance benefits which were paid to employees upon involuntary termination of their employment. On February 1, 1994, LCI altered the terms of its severance benefits plan so as to condition eligibility for benefits on a release of claims against the company. Panaras alleges that he was not informed of this change. In July, 1994 Panaras' employment with LCI was terminated involuntarily. Prior to his termination he had yet to be apprised of the change in the severance plan. Rather than executing the release, Panaras filed this action. He is also pursuing an age discrimination claim in a separate proceeding. Panaras v. Liquid Carbonic Industrial Corp., No. 95 C 2963 (N.D.Ill.) (Holderman, J.).

The ERISA Claim

I. Background

ERISA provides comprehensive regulation of certain employee benefit plans. One of its primary purposes is "to protect interstate commerce and the interests of participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto,...." 29 U.S.C. Sec. 1001(b). See also Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 113-14, 109 S.Ct. 948, 955-56, 103 L.Ed.2d 80 (1989). In accordance with this purpose, ERISA requires that employers provide their employees with summary plan descriptions of covered welfare benefit programs. These plan descriptions must be filed with the Department of Labor. 29 U.S.C. Secs. 1022-1024. A summary of a plan must be furnished both to plan participants, 29 U.S.C. Sec. 1024(b)(1)(B), and to the Department of Labor, 29 U.S.C. Sec. 1024(a)(1)(B), within 120 days after the plan becomes subject to the notification requirement (generally, upon its initial adoption). Thereafter employees must be notified of material modifications of covered benefit plans within 210 days following the plan year in which the modification is made. 29 U.S.C. Sec. 1024(b)(1). Employers are not required to provide severance benefits, and, unless otherwise contractually bound, may modify them at will. Young v. Standard Oil (Indiana), 849 F.2d 1039, 1044-45 (7th Cir.1988), cert. denied, 488 U.S. 981, 109 S.Ct. 529, 102 L.Ed.2d 561 (1988). However, if an employer does provide a severance plan, it is an "employee welfare benefit plan," 29 U.S.C. Sec. 1002(1), and must comply with the ERISA notification requirements. See, e.g., Kreutzer v. A.O. Smith Corp., 951 F.2d 739, 743 (7th Cir.1991).

ERISA expressly provides for civil enforcement of its provisions:

A civil action may be brought--

(1) by a participant or beneficiary--

...

(B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.

29 U.S.C. Sec. 1132.

Panaras' ERISA claim is brought pursuant to this provision. ¹ He argues that he qualifies as a participant in the severance plan because LCI's violation of the ERISA notice requirements invalidates the modification of the plan, at least with respect to him. He thus contends that he should be allowed to recover under the terms of the old severance plan.

Technical violations of ERISA's notification provisions, however, ordinarily do not provide a basis for monetary relief. Monetary relief is available only "in exceptional cases." Specifically, "the employer must have acted in bad faith, actively concealed the benefit plan, or otherwise prejudiced their [sic] employees by inducing their reliance on a faulty plan summary before recovery for procedural violations is warranted." Kreutzer, 951 F.2d at 743. See also Godwin v. Sun Life Assurance Co., 980 F.2d 323, 328 (5th Cir.1992) ("an amendment to a welfare benefit plan is valid despite a beneficiary's lack of personal notice, unless the beneficiary can show active concealment of the amendment, or some significant reliance upon or possible prejudice flowing from the lack of notice"). ² When such exceptional cases arise, however, the court may provide relief by granting the benefits. Veilleux v. Atochem North America, Inc., 929 F.2d 74, 76 (2d Cir.1991) ("Where violations of ERISA disclosure provisions work a substantive harm on plaintiffs who are denied benefits under the improperly disclosed plan, courts may find that these violations sufficiently taint the employer's denial of severance pay so as to warrant ... grant[ing] the benefits." (internal quotations omitted)). This is the relief which Panaras seeks.

Panaras alleges that LCI actively concealed its plan in order to induce employees to remain in its employ; that this concealment constituted bad faith; and that Panaras was prejudiced in his ability to plan his finances and career by his lack of knowledge of the change. The inquiry in this case thus focuses on two questions: First, is Panaras a "participant" with standing to sue within the meaning of Sec. 1132(a)(1)? Second, do the facts alleged in the complaint, if true, suffice to constitute an exceptional case which can provide a basis for the monetary relief requested?

II. Standing as a Participant

The term participant is statutorily defined as "any employee or former employee ... who is or may become eligible to receive a benefit...." 29 U.S.C. Sec. 1002(7). The Supreme Court has construed this definition to cover "either employees in, or reasonably expected to be in, currently covered employment, or former employees who have ... a reasonable expectation of returning to covered employment or who have a colorable claim to vested benefits." Firestone, 489 U.S. at 117-18, 109 S.Ct. at 958 (citations and internal quotation marks omitted). Because Panaras is neither currently employed by LCI nor reasonably expected to be so employed in the future, his claim must rest on "a colorable claim to vested benefits."

The requirement of a colorable claim is not a stringent one. This circuit has noted that "jurisdiction depends on an arguable claim, not on success" and that only if "any claim ... must be frivolous is jurisdiction lacking." Kennedy v. Connecticut General Life Ins. Co., 924 F.2d 698, 700 (7th Cir.1991). See also Sladek v. Bell System Management Pension Plan, 880 F.2d 972, 976-79 (7th Cir.1989) ("Given the fact that a claimant need only have a 'colorable claim' that he might prevail, we believe that the most useful weapon in weeding out frivolous claims is not Rule 12(b)(1) [lack of subject matter jurisdiction] but Rule 12(b)(6).") A claim such as Panaras' which is based on violations of ERISA's disclosure requirements for a welfare benefit plan is clearly "rooted in existing ERISA law." Andre v. Salem Technical Servs., 797 F.Supp. 1416, 1421 (N.D.Ill.1992). Indeed, courts have not infrequently dealt with similar claims involving severance benefits. See, e.g., Arnold v. Babcock & Wilcox Co., 123 Ill.2d 67, 121 Ill.Dec. 253, 525 N.E.2d 59 (1988); Blau v. Del Monte Corp., 748 F.2d 1348 (9th Cir.1984), cert. denied, 474 U.S. 865, 106 S.Ct. 183, 88 L.Ed.2d 152 (1985); Heidgerd v. Olin Corp., 906 F.2d 903 (2d Cir.1990); Howe v. Varity Corp., 36 F.3d 746 (8th Cir.1994), cert. granted, --- U.S. ----, 115 S.Ct. 1792, 131 L.Ed.2d 720 (1995); Hozier v. Midwest Fasteners, Inc., 908 F.2d 1155 (3d Cir.1990); Kreutzer; Veilleux; Young.

Panaras' claim is not frivolous. He argues that he is entitled to severance benefits, in spite of his refusal to sign the release form, because the severance plan was modified without properly notifying him of the change so that he could adapt his financial planning accordingly. This legal theory is "not so bizarre or so out of line with existing precedent--that he necessarily stumbles over the low threshold of the 'colorable' requirement." Andre, 797 F.Supp. at 1421. In this respect Panaras differs entirely from the plaintiffs in Sallee v. Rexnord Corp., 985 F.2d 927 (7th Cir.1993). There the plaintiffs sued for severance benefits in spite of the fact that they had voluntarily quit their employment during a corporate reorganization in order to commence other employment. We ruled in that case that the plaintiffs had no colorable claim to severance benefits for the simple reason that they had left their...