Rubio v. Full O'Nuts Corp.

• Decision Date: 31 March 2003
• Docket Number: No. 01 Civ. 4328(VM).,01 Civ. 4328(VM).
• Citation: 254 F.Supp.2d 413
• Parties: Mayra RUBIO, Daniel Powers and Darrel Honick, on behalf of themselves and all others similarly situated, Plaintiffs, v. CHOCK FULL O'NUTS CORPORTION, Chock Full O'Nuts Corporation 1988 Severance Policy, Sara Lee Corporation, Sara Lee Corporation Employee Benefits Administrative Committee and Sara Lee Corporation Employee Benefit Appeal Subcommittee, Defendants.
• Court: U.S. District Court — Southern District of New York

Page 413

254 F.Supp.2d 413

Mayra RUBIO, Daniel Powers and Darrel Honick, on behalf of themselves and all others similarly situated, Plaintiffs, v. CHOCK FULL O'NUTS CORPORTION, Chock Full O'Nuts Corporation 1988 Severance Policy, Sara Lee Corporation, Sara Lee Corporation Employee Benefits Administrative Committee and Sara Lee Corporation Employee Benefit Appeal Subcommittee, Defendants.

No. 01 Civ. 4328(VM).

United States District Court, S.D. New York.

March 31, 2003.

COPYRIGHT MATERIAL OMITTED

Ted Poretz, Bingham Dana, L.L.P., New York City, for Plaintiffs.

Terri Lynn Ross, McDermott, Will et ano., New York City, for Defendants.

DECISION AND ORDER

MARRERO, District Judge.

This case is a class action brought on behalf of approximately 250 former employees of Chock Full O'Nuts Corporation ("CFON"), who were involuntarily terminated, other than for cause, disability, sale of a business or death, within two years after the October 18, 1999 acquisition of CFON by Sara Lee Corporation ("Sara Lee"), and who were denied continuing welfare benefits under certain welfare benefit plans established by CFON (the "Class") and administered by various named defendants. The Class was certified by stipulation between the parties, dated December 12, 2001, and So Ordered by the Court on January 28, 2001 pursuant to Fed.R.Civ.P. 23(b)(3). The Class seeks recovery for benefits it alleges defendants wrongfully withheld from its members, and to enforce and clarify its rights to future benefits under the terms of the CFON Severance Policy in accordance with §§ 502(a)(1)(B) and 502(a)(3) of the Employment Retirement Income Security Act of 1974 ("ERISA") and under a pendent state law theory of relief for breach of contract. Plaintiffs Mayra Rubio ("Rubio"), Daniel Powers ("Powers") and Darrel Honick ("Honick"), on behalf of themselves and the Class (collectively, "Plaintiffs" or the "Class"), move for summary judgment pursuant to Rule 56 of the Fed.R.Civ.P. on their claims against all defendants. Defendants CFON, Chock Full O'Nuts Corporation 1988 Severance Policy, Sara Lee, Sara Lee Corporation Employee Benefits Administrative Committee ("EBAC") and Sara Lee Corporation Employee Benefits Appeal Subcommittee ("Appeal Subcommittee") (collectively, "Defendants") cross-move for summary judgment dismissing the claims against them. For the reasons set forth below, Plaintiffs' motion for summary judgment is GRANTED in part and DENIED in part, and Defendants' motion for summary judgment is DENIED in part and GRANTED in part.

I. BACKGROUND

As stipulated, there are no material facts in dispute between the parties. (See Stipulation of Undisputed Facts ("Stipulation"), dated June 26, 2002, signed by both parties and So Ordered by the Court; Defendants' Memorandum of Law in Support of Their Motion for Summary Judgment ("Def.Mem."), dated September 18, 2002, at 1; Plaintiffs' Memorandum of Law in Support of Their Motion for Summary Judgment Against All Defendants ("PI. Mem."), dated September 18, 2002, at 1.) Accordingly, the task before the Court is the proper application of the law to the facts at hand, not deciphering issues of disputed fact. For the purpose of clarity, the Court sets forth the facts of the case it deems most important.¹

CFON created the Chock Full O'Nuts Severance Policy (the "Severance Plan") on May 24, 1998. (See Severance Plan, attached as Exh. C. to the Poretz Aff.) During and following their employment at CFON, the Class members were participants in the Severance Plan, as the term "participant" is defined in ERISA. In addition to the Severance Plan, during their employment at CFON, the Class members were eligible to participate in CFON's Life and Accidental Death & Dismemberment Plan, effective June 1, 1995; the 401(k) Plan, effective May 1, 1996; the Group Benefit Plan, effective June 1, 1998; and the Long-Term Disability Benefit Plan, effective June 1, 1998 and corresponding successor plans sponsored by Sara Lee (collectively, "CFON Welfare Plans"). In fact, many Class members were participants in the CFON Welfare Plans.

The Severance Plan was created by CFON to provide severance benefits for employees whose employment is "involuntarily terminated other than on account of Cause, Disability, Sale of a Business ... or the Employee's death." (Severance Plan § 1.) The essence of the dispute between the parties concerns the interpretation of a specific provision of the Severance Plan, which determines enhanced severance payments and credit for service under the CFON Welfare Plans: An Employee shall be credited with a number of weeks of service equal to the number of weeks of Base Pay he receives or is entitled to receive as a Severance Benefit Payment for the purpose of determining eligibility, vesting and accrual service under all employee benefit plans of the Company, including, but not limited to, group health and life insurance, long-term disability, the Chock Full O'Nuts Corporation Pension Plan, and the Greenwich Mills Company retirement plan.

(Severance Plan § 7.4.) Defendants and Plaintiffs present two distinct interpretations of this provision of the Severance Plan, resulting in different understandings of what benefits the Class is entitled to under the CFON Welfare Plans upon a qualifying termination.²

The Severance Plan provides that "the Board of Directors of the Company, or a committee appointed by the Board shall be responsible for implementing, administering and interpreting the Provisions of this Policy." (Severance Plan § 11.) The term "Company" is defined in the Severance Plan as "[CFON] and any successor thereto, including, without limitation, any person ..., partnership(s) or corporation(s) acquiring directly or indirectly all or substantially all of the business or assets of [CFON]." (Severance Plan § 5.6.) Following the merger between CFON and Sara Lee described below, on February 18, 2000, the Board of Directors of CFON, essentially functioning as a board of directors for a division of Sara Lee, adopted certain resolutions ("CFON Resolutions"), which provided that the Sara Lee EBAC "shall be the plan administrator of the Plans"³ and that the EBAC

shall have all of the powers, rights and duties necessary or advisable in order to fully perform the applicable responsibilities imposed by ERISA upon plan administrators (including the authority to delegate or allocate any of those powers in writing in a prudent and reasonable manner consistent with ERISA); and in the case of any Plan or related Trust which provides that the plan administrator shall be the Company or a committee of this Board, the responsibility of serving as plan administrator and all of said necessary or advisable powers, rights and duties are hereby fully delegated to the [EBAC].

(Stipulation Exh. 0 at 1-2.) Thereby, the EBAC became a committee appointed by the CFON Board of Directors, which, according to the Severance Plan, was authorized to undertake the responsibility of "implementing, administering and interpreting" the provisions of the Severance Plan.

According the testimony of John dousing ("Clousing"), Sara Lee's Director of Employee Benefits and Chairman of the Appeal Subcommittee, the EBAC was appointed by the Sara Lee Board of Directors in the late 1970's to administer Sara Lee ERISA plans. (Deposition of John Clousing ("Clousing Dep."), attached as Exh. N to the Poretz Aff. at 257-258.) However, Defendants indicate that they can not locate the original Board Resolution that created the EBAC. (Def. Mem. at 2 n. 2.) The documentation that is provided concerning the EBAC is more recent. On January 27, 1994, the Board of Directors of Sara Lee adopted certain resolutions ("Sara Lee Resolutions") that detailed the duties and composition of the EBAC, giving the EBAC the same authority and responsibilities as the CFON Board of Directors later conferred upon the EBAC in the CFON Resolutions. (Stipulation Exh. H at 1.)

On August 11, 1993, the EBAC, functioning at that time as the administrator of Sara Lee ERISA plans and having as of yet no relationship to CFON, issued "Committee Resolutions" in which the EBAC delegated certain of its appointed responsibilities to the Appeal Subcommittee. (Stipulation Exh. J.) In particular, the EBAC delegated to the Appeal Subcommittee the authority "to review appeals of decisions denying benefits under any other ERISA plan maintained by Sara Lee Corporation or any of its subsidiaries where the amount of the benefits that are subject of the appeal does not exceed $50,000 and to render final decisions with respect to such appeals...." (Id. at 1.) Thereafter, on February 28, 1997, the EBAC again adopted certain resolutions vesting the Appeal Subcommittee with authority to review appeals of benefit denial claims under Sara Lee's ERISA plans. (Stipulation Exh. K.)

Sara Lee acquired CFON in a hostile takeover that resulted in the merger between CFON and Sara Lee on October 18, 1999 (the "Merger"). On that day, Marvin I. Haas ("Haas"), then CEO of CFON, distributed a memo to all 850 employees covered by the Severance Plan (the "Haas Memo"). (Poretz Aff. Exh. F.) The Haas Memo, dated October 15, 1999, provided official notice to employees of the Merger and explained that the Merger would be characterized as a "Change in Control," entitling terminated employees to enhanced benefits under various CFON benefit plans, including the Severance Plan. The Haas Memo also summarized the enhanced benefits employees would be entitled to in light of the "change in control" situation. Among the other benefits discussed, the Haas Memo sets out in some detail the "Enhanced Severance Benefits" under the Severance Plan, listing conditions entitling the employees to the enhanced severance benefits, indicating certain disqualifying conditions, and explaining the means of calculating the enhanced benefits generally, and by way of two illustrations. (Id. at 1.) The Haas Memo asserts that an employee covered...