Rinaldi v. Ccx
| Decision Date | 16 July 2010 |
| Docket Number | 3:05-cv-00108-RJC-DSC,No. 09-1671,No. 09-1622,09-1622,09-1671 |
| Parties | RICHARD A. RINALDI, Plaintiff - Appellee, v. CCX, INCORPORATED, Defendant - Appellant, and BARRY SILVERSTEIN; DENNIS MCGILLICUDDY, Defendants. |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: John Robbins Wester, Kate E. Payerle, ROBINSON, BRADSHAW & HINSON, PA, Charlotte, North Carolina, for Appellant/Cross-Appellee.
Kenneth Todd Lautenschlager, JOHNSTON, ALLISON & HORD, Charlotte, North Carolina, for Appellee/Cross-Appellant.
ON BRIEF: John C. Lindley III, JOHNSTON, ALLISON & HORD, Charlotte, North Carolina, for Appellee/Cross-Appellant.
UNPUBLISHED
Appeals from the United States District Court for the Western District of North Carolina, at Charlotte. Robert J. Conrad, Jr., Chief District Judge.
Before DUNCAN and KEENAN, Circuit Judges, and Arthur L. ALARCON, Senior Circuit Judge of the United States Court of Appeals for the Ninth Circuit, sitting by designation.
Affirmed in part, reversed in part, and remanded with instructions by unpublished opinion. Judge Keenan wrote the opinion, in which Judge Duncan and Senior Judge Alarcon joined.
Unpublished opinions are not binding precedent in this circuit.
This is an appeal of a judgment entered after a bench trial in an action brought under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001-1461. The defendant, CCX, Inc. (CCX), appeals from the district court's award of severance benefits to Richard Rinaldi, CCX's former president and chief executive officer (CEO). Rinaldi has filed a crossappeal, primarily challenging the district court's denial of his request for attorneys' fees and costs. For the reasons stated below, we affirm the district court's award of severance benefits and its order denying Rinaldi's request for attorneys' fees. However, we reverse the district court's order denying Rinaldi's request for costs and remand the case for reconsideration of an award of costs.
The evidence at trial showed that CCX, a privately held Delaware corporation, manufactures metal and fiberglass screening mesh for use in windows, doors, and other building products. In May 1991, CCX hired Rinaldi as its president and CEO. Almost three years later, Rinaldi and CCX entered into the "First Amendment to Employment Agreement" (the Employment Agreement), which remained in effect during the remainder of Rinaldi's employment with CCX. The Employment Agreementprovided that Rinaldi was entitled to certain severance benefits, including salary, term life insurance, and medical insurance, if his employment was terminated involuntarily "[o]ther than for cause," or if CCX sold substantially all its assets.
As CEO, Rinaldi was required to "report and be responsible to" CCX's board of directors. Dennis McGillicuddy was the chairman of the board, which included Rinaldi and three other directors. According to McGillicuddy, Rinaldi "had done an exceptional job running the company."
In early 2004, CCX began efforts to sell its Mesh Division, a business unit that represented about ninety percent of CCX's assets and employed a majority of the company's personnel. Rinaldi sent McGillicuddy a letter stating that a sale of the Mesh Division would activate the terms of the Employment Agreement granting Rinaldi severance benefits, if he chose to end his employment on completion of the sale. Despite McGillicuddy's understanding that Rinaldi likely would leave CCX and be entitled to severance benefits if the Mesh Division were sold, CCX proceeded with its plans to sell that unit.
Rinaldi led CCX's negotiating team for the sale of the Mesh Division. He was assisted in his efforts by McGillicuddy and Barry Silverstein, who owned a total of eighty percent of CCX'sstock. McGillicuddy and Silverstein also hired other persons to help Rinaldi effect a sale.
By October 2004, a conflict had developed between Rinaldi and other members of the negotiating team regarding Rinaldi's negotiating tactics and strategic approach. One team member informed McGillicuddy and Silverstein about concerns regarding Rinaldi's approach, and suggested that Rinaldi be removed as lead negotiator or be discharged from the company.
The tension between Rinaldi and other members of CCX's leadership culminated in an October 6, 2004 telephone conversation involving McGillicuddy, Silverstein, and Rinaldi. During this conversation, Silverstein told Rinaldi that he was not satisfied with Rinaldi's efforts to sell the Mesh Division. The parties dispute the exact words of Rinaldi's response, 1 but McGillicuddy and Silverstein allegedly understood Rinaldi's statement as announcing his resignation. McGillicuddy and Silverstein immediately drafted severance documents reflecting Rinaldi's purported action. The locks on the doors of CCX'sheadquarters were changed the next day, and Rinaldi was denied entry to his office.
Following the telephone conversation at issue, Rinaldi repeatedly stated that he had not resigned, and he took immediate steps to correct any possible misunderstanding to the contrary. Nevertheless, CCX denied Rinaldi severance benefits based on CCX's determination that he voluntarily ended his employment.
Rinaldi filed a complaint against CCX in the district court, initially alleging breach of contract and a violation of the North Carolina Wage and Hour Act, N.C.G.S. §§ 95-25.1 to-25.25. The district court later entered an order converting Rinaldi's state law claims to an ERISA claim, pursuant to Singh v. Prudential Health Care Plan, Inc., 335 F.3d 278, 290 (4th Cir. 2003).
The case proceeded to a bench trial, in which CCX raised two main issues: (1) whether Rinaldi voluntarily resigned or was terminated from his employment without cause; and (2) if Rinaldi was discharged, whether his employment otherwise would have been terminated for misconduct because of his questionable travel reimbursement requests allegedly discovered after his departure.2
After hearing the testimony of several witnesses, including testimony by Rinaldi, McGillicudy, and Silverstein, the district court found that Rinaldi did not resign voluntarily but was terminated from his employment. The district court concluded that even under McGillicuddy and Silverstein's version of the October 6, 2004 telephone conversation, Rinaldi's statement did not constitute an offer of resignation. Moreover, the district court reasoned, Rinaldi's conduct following that phone call, as well as the financial motivations of McGillicudy and Silverstein, supported the conclusion that Rinaldi was involuntarily terminated from his employment.
Critically, in deciding the issue whether Rinaldi departed voluntarily, the district court found that "several aspects of Silverstein and McGillicuddy's testimony [were] not credible." The district court also found that McGillicuddy and Silverstein "seized upon an opportunity to remove" Rinaldi once they concluded that the sale of the Mesh Division could occur more quickly without Rinaldi's involvement. In finding the testimony of McGillicuddy and Silverstein not credible, the district court relied in part on its observation of these witnesses' demeanor while testifying, as well as the district court's conclusion that McGillicuddy and Silverstein's version of the events was implausible.
After rejecting CCX's contention that Rinaldi resigned voluntarily, the district court considered CCX's after-acquired evidence defense. According to CCX, it first became aware during discovery in this case that Rinaldi sometimes used "frequent flyer miles" for business travel, but later sought and obtained cash reimbursement from CCX for the listed cost of those trips. Rinaldi engaged in this practice seventeen times during his six-year tenure as CEO, and received about $22,000 in "reimbursements" for alleged expenses that he did not actually incur.
Rinaldi testified that he selectively used his frequent flyer miles in this manner for "very rich reward situation[s]," such as expensive flights from Charlotte, North Carolina to Pittsburgh, Pennsylvania. For ten such trips between Charlotte and Pittsburgh, Rinaldi sought cash reimbursement from CCX despite having used frequent flier miles, and received, on average, $877.42 for each of these trips. Rinaldi also used frequent flyer miles, but sought cash reimbursement, for trips to Milan, Italy, and Cologne, Germany, obtaining reimbursements of $4,089.37 and $5,226.55, respectively.
Rinaldi did not dispute that he engaged in this practice, but instead claimed that he discussed the practice with company auditors and with CCX's Chief Financial Officer (CFO). However, Rinaldi did not report these payments as taxable income to the Internal Revenue Service (IRS). After reviewing this evidence, the district court found that Rinaldi's "frequent flyer scheme is dishonest on its face." The district court also rejected Rinaldi's explanation regarding why he did not report this income to the IRS, finding Rinaldi's testimony on this issue "not credible."
Upon agreement of the parties, the district court applied a test requiring that CCX prove its claim of after-acquired evidence by establishing the following three elements:
(1) Rinaldi was guilty of some misconduct of which CCX was unaware;
(2) the misconduct constitutes "acts of dishonesty" in connection with CCX's business, "gross neglect" of his obligations, or "illegal acts;" and
(3) []CCX would have discharged Rinaldi for cause had it known of the misconduct.
The district court held that CCX failed to establish the first and third elements of this test. The district court concluded that CCX failed to prove the first element, because CCX did not show that it was unaware of Rinaldi's travel reimbursement requests before CCX discharged him. The district court based this conclusion on its finding that the CFO had knowledge of Rinaldi's travel reimbursement requests, and that the CFO's knowledge was imputed to CCX.
The district court...
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