Reichelt v. Emhart Corp.
| Decision Date | 11 December 1990 |
| Docket Number | D,No. 326,326 |
| Citation | 921 F.2d 425 |
| Parties | , 13 Employee Benefits Ca 1329 Robert REICHELT, Catherine Pelletier, Paul S. Juzwishen, Allen A. Michewich, Frank A. Misiewicz, William J. Mueller, Joseph M. Scavone, Linda A. Shingara, John D. Sweeney, Henry W. Wajdowicz, and All Class members, Plaintiffs-Appellants, v. EMHART CORPORATION, USM Corp., and Royal E. Cowles, Defendants-Appellees. ocket 90-7400. |
| Court | U.S. Court of Appeals — Second Circuit |
David S. Maclay, Bridgeport, Conn. (Marsh, Day & Calhoun, Bridgeport, Conn., on the brief), for plaintiffs-appellants.
Mark S. Dichter, Philadelphia, Pa. (Sarah A. Kelly, Morgan, Lewis & Bockius, Philadelphia, Pa., William G. Bruner, III, The Black & Decker Corporation, Towson, Md., on the brief), for defendants-appellees.
Before FEINBERG, VAN GRAAFEILAND, and KEARSE, Circuit Judges.
Plaintiffs Robert Reichelt et al. appeal from a judgment of the United States District Court for the District of Connecticut, Alan H. Nevas, Judge, dismissing their complaint seeking severance benefits from their former employer, defendant Emhart Corp. ("Emhart"), et al., under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Sec. 1001 et seq. (1988), and under common-law contract principles, in connection with Emhart's sale of the division in which plaintiffs were employed. The district court granted summary judgment dismissing the complaint on the grounds that (1) an employer's refusal to pay severance benefits in connection with the sale of part of the company does not violate ERISA, and (2) ERISA preempted plaintiffs' breach-of-contract claims. On appeal, plaintiffs contend that they were entitled to partial summary judgment in their favor under either ERISA or common-law contract principles. For the reasons below, we reject their contentions and affirm the judgment of the district court.
The pertinent facts are not in dispute. Prior to May 1986, plaintiffs were salaried employees of the Farrel division of defendant USM Corp. ("USM"), which was a wholly-owned subsidiary of Emhart (collectively the "Company"). Plaintiffs were employed in the Company's Ansonia, Connecticut plant in either the "roll shop" or the "machine shop." On average, they had been employed in these operations for approximately 20 years. In 1986, Emhart sold the roll shop to SHW Corporation ("SHW") and sold the machine shop to Liebergesell Group ("LG").
In April 1986, the Company informed roll shop employees by letter that the sale of that shop to SHW was imminent and that upon the sale their employment with the Company would cease. The letter did not mention severance benefits. The sale of the roll shop took place on Friday May 2, 1986. On that day, SHW made written offers of employment to salaried roll shop employees. On the same day, roll shop employees met with Company executives, who formally reported the sale and informed them that if they were offered employment with SHW they would not receive severance pay from Emhart. Thereafter, as discussed in Part I.B. below, Emhart adopted a plan providing that severance benefits could be paid to an employee who was offered employment with SHW only if he or she accepted the offer and SHW terminated the employment before the end of 1986.
The May 2 SHW offers specified that they were to be accepted by the start of business on Monday, May 5. All of the plaintiff roll shop employees accepted and began work with SHW on May 5. Emhart had these employees sign a "Change of Status" form which described their departure as
The salaried machine shop employees were treated similarly. On or about May 12, they received letters from Emhart stating that the sale of that shop to LG was imminent and that their employment with Emhart would be terminated. The letters stated that those offered employment with LG would not receive severance pay; thereafter Emhart adopted a plan that could entitle them to severance benefits if their employment were terminated by LG in 1986. On May 13, all of the plaintiff machine shop employees accepted offers of employment from LG.
Following the sales, plaintiffs' tasks, hours, and salaries with their new employers were the same as they had been with Emhart. Their benefits were slightly different; in particular, the new employers did not give them credit, for severance pay purposes, for their years of employment by the Company. None of the plaintiffs had his or her employment terminated by the purchaser in 1986 and hence none received severance pay from Emhart.
Prior to Emhart's sale of these two shops, various severance pay practices had been followed. Until 1968, the roll and machine shops were owned by Farrel Corporation ("Farrel"), an independent company. In 1968 Farrel was sold to USM, itself then an independent company; no severance benefits were paid to employees who continued to work for USM. In 1976, the stock of USM was sold to Emhart; no severance benefits were paid to employees who continued to work for the Company.
In 1980, Emhart, which had made many corporate acquisitions, began to consider the adoption of a uniform severance policy for all of its subsidiaries and divisions. It considered adopting a written policy that would have, inter alia, specifically excluded from severance pay eligibility those employees who retained their positions when the division in which they were employed was sold as a going concern. In December 1981, the Emhart Corporate Compensation Committee declined to adopt this or any other written severance policy. On one draft severance plan, Emhart's Vice President for Administration, Sherman Carpenter wrote, Carpenter issued a formal memorandum dated December 17, 1981, stating that "all severance policies currently in effect at all U.S. operating units are to be cancelled and eliminated from policy manuals as of December 31, 1981." (Emphasis in original.) The memorandum continued:
As the need arises for severance pay considerations in the future, each respective unit manager should inform group management. Group management should contact the Corporate Vice President Human Resources for final authorization of any severance payments.
No formal plan was adopted, and Emhart did not have a formal written policy at the time of the 1986 sales.
From 1981 to the time of the 1986 sales, it was Emhart's practice to grant some severance pay to employees of the roll and machine shops who were involuntarily terminated for reasons other than cause. The employee's supervisor or the human resources director would recommend severance pay, and the recommendation would be reviewed by defendant Royal E. Cowles, Emhart's Vice President for Human Resources. Between December 17, 1981, and May 1986, Cowles received severance pay recommendations for 29 salaried employees in those Ansonia operations, and in each case he approved a payment. Of those employees, 19 received the equivalent of one week's pay for each year of service; six received more than one week's pay per year of service, and four received less. The record does not indicate that Cowles rejected a recommendation for severance pay for any roll or machine shop employee during this period.
None of the Ansonia employee terminations during the 1981-1986 period resulted from the sale of part of the business as a going concern. During this period Emhart sold many of its other divisions and subsidiaries, however, and its uniform practice in connection with those sales was to adopt a formal, written ERISA plan to cover persons who would become unemployed as a result of the sale, and not to pay severance pay to employees who continued their employment with the purchaser.
In May 1986, Emhart adopted "Supplemental Unemployment Benefits" plans ("SUB" plans) for roll and machine shop employees involuntarily terminated in 1986. In addition to providing for severance pay to employees laid off between February 1 and the dates the shops were sold, the SUB plans principally granted severance benefits to salaried employees still employed by Emhart who were not offered positions by SHW and LG. In addition, these plans provided that those who were offered and accepted positions with SHW and LG could receive severance pay if their employment were terminated by the purchaser in 1986. The SUB plans for roll shop and machine shop employees, respectively, stated that
[a]ny covered Roll Shop employee employed by USM on the date of sale and employed by SHW Incorporated after the date of sale of the Roll Shop, will also be eligible to receive supplemental unemployment benefits if he is permanently laid off by SHW Incorporated during 1986....
and
[a]ny covered Machine Shop employee employed by USM on the date of sale and employed by [LG] after the date of sale of the Machine Shop will also be eligible to receive supplemental unemployment benefits if he is permanently laid off by [LG] during 1986....
The amount of benefits in each case was to be one week's pay for each full year of continuous service with USM, minus any "notification pay."
Beginning in 1986, several of the plaintiffs commenced actions in state court, which were removed to the district court and consolidated into the present action on behalf of some 220 plaintiffs. Plaintiffs contended that under Emhart's pre-1986 policy, they had accrued rights to severance benefits and that Emhart's failure to pay those benefits upon the sale of the roll and machine shops violated their rights under ERISA and under common-law contract principles. Following a period of discovery, defendants moved for summary judgment...
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