Schuman v. Microchip Tech. Inc., Case No.16–cv–05544–HSG

• Decision Date: 06 February 2018
• Docket Number: Case No.16–cv–05544–HSG
• Citation: 302 F.Supp.3d 1101
• Parties: Peter SCHUMAN, et al., Plaintiffs, v. MICROCHIP TECHNOLOGY INCORPORATED, et al., Defendants.
• Court: U.S. District Court — Northern District of California

302 F.Supp.3d 1101

Peter SCHUMAN, et al., Plaintiffs,

v.MICROCHIP TECHNOLOGY INCORPORATED, et al., Defendants.

Case No.16–cv–05544–HSG

United States District Court, N.D. California.

Signed February 6, 2018

Cliff Michael Palefsky, Keith A. Ehrman, McGuinn, Hillsman & Palefsky, San Francisco, CA, Connie K. Chan, Michael Rubin, Raphael N. Rajendra, Altshuler Berzon LLP, San Francisco, CA, William B. Reilly, Law Office of William Reilly, Mill Valley, CA, for Plaintiffs.

Mark E. Schmidtke, Ogletree, Deakins, Nash, Smoak, Stewart, P.C., Valparaiso, IN, Mark Gerard Kisicki, Ogletree Deakins Nash Smoak & Stewart P.C., Phoenix, AZ, Sean Patrick Nalty, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., San Francisco, CA, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS

Re: Dkt. No. 33

HAYWOOD S. GILLIAM, JR., United States District JudgePending before the Court is a motion to dismiss by Defendants Microchip Technology, Inc. ("Microchip"), Atmel Corp. ("Atmel"), and Atmel Corp. U.S. Severance Guarantee Benefit Program ("the Atmel Plan" or "the Plan"). Dkt. No. 33. For the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART the motion.¹

I. BACKGROUND

A. Factual Allegations

Plaintiffs Peter Schuman and William Coplin are former employees of Atmel and Microchip, as well as participants in the Atmel Plan. Dkt. No. 29 ("First Amended Complaint" or "FAC") ¶¶ 13–14. They bring this putative class action under the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq. ("ERISA"). For purposes of this motion, the Court accepts the following as true.

1. The Atmel Plan

Atmel, a supplier of "general purpose microcontrollers," created the Atmel Plan in July 2015 in response to market speculation regarding the company's future and the resulting uncertainty among its approximately 1,800 U.S. employees. See FAC ¶¶ 18–19. The company confirmed to employees "that it was seeking a merger partner" and notified them "that it was rolling out the [Atmel] Plan to encourage all employees to continue working for Atmel and any successor entity despite the uncertainty surrounding Atmel's corporate future." Id. ¶ 19. The Atmel Plan was covered by ERISA. See id. ¶ 15.

Atmel informed its employees of the specifics of the Plan in documents it delivered on July 9, 2015. See Dkt. No. 33–1, Ex. 1. In a letter, Atmel detailed the three primary severance benefits of the Plan: (1) a cash payment of between 25 percent and 50 percent of annual base salary, depending on the class of employee; (2) paid health insurance premiums for between three to six months, again depending on the class of employee; and (3) a prorated portion of the employee's annual incentive bonus for director-level and professional exempt employees. FAC ¶ 21; see also Dkt. No. 33–1, Ex. 1, at 2 (letter from Atmel describing severance benefits) (ECF pagination).

In an addendum to the letter, Atmel set forth the terms of the Plan. First, it would "terminate" on November 1, 2015, "unless an Initial Triggering Event...occurred prior to November 1, 2015, in which event the [Atmel Plan] will remain in effect for 18 (eighteen) months following that Initial Triggering Event." Dkt. No. 33–1, Ex. 1, at 3 (ECF pagination). The addendum defined the "Initial Triggering Event" as the company's "enter[ing] into a definitive agreement...on or before November 1, 2015, that will result in a Change of Control of the Company." Id. Barring such an agreement, the Atmel Plan would "automatically expire," unless the board of directors expressly extended it. Id. If the Initial Triggering Event did occur, participants would be entitled to the Atmel Plan's benefits "if, but only if" (1) a "Change of Control actually occurs"; and (2) "[t]heir employment is terminated without ‘Cause’ by the Company (or its successor) at any time within 18 months of the execution date of the Definitive Agreement." Id. ; see also FAC ¶¶ 21–23.

The addendum also stated:

The [Atmel Plan] will be administered and interpreted by the Company. Any decision made or other action taken by the Company prior to a Change of Control with respect to the [Atmel Plan], and any interpretation by the Company prior to a Change of Control of any term or condition of the [Atmel Plan], or any related document, will be conclusive and binding on all persons and be given the maximum possible deference allowed by law.

Dkt. No. 33–1, Ex. 1, at 4 (ECF pagination); see also FAC ¶ 24.

2. Atmel's Merger with Microchip and Defendants' Pre–Merger Conduct

On September 19, 2015, Atmel and a company named Dialog Semiconductor plc ("Dialog") executed and publicly announced a formal merger agreement. FAC ¶ 28. Afterward Microchip, with whom Atmel had also been in discussions about a potential merger, continued to express interest in a merger or acquisition. Id. ¶ 30. Before the scheduled January 2016 closing date, Microchip "made an offer to acquire Atmel that Atmel's Board of Directors concluded was better than Dialog's offer." Id. After Dialog declined to match or improve upon Microchip's offer, Atmel "withdrew from its agreement with Dialog and entered into a merger agreement with Microchip on or about January 19, 2016." Id. ¶ 36. The merger closed on April 4, 2016. Id. As a result, Atmel became a wholly-owned subsidiary of Microchip. Id. ¶ 50.

Meanwhile, Plaintiffs and other Atmel employees became aware of Microchip's attempt to replace Dialog as Atmel's merger partner in mid–January 2016. Id. ¶ 31. "To alleviate employee concerns," Atmel management

repeatedly assured its employees orally and in writing in January 2016 and thereafter that, even if Microchip replaced Dialog as the acquiring company, any employee terminated without cause after that acquisition and prior to March 19, 2017 [i.e. , 18 months after Atmel and Dialog entered a definitive agreement on September 19, 2015] would still be entitled to receive the severance benefits provided by the [Atmel] Plan, just as if Dialog were the acquiring company, because an Initial Triggering Event had occurred prior to November 1, 2015.

Id. ¶ 32. On January 13, 2016, in a meeting with employees at the Director level and above, Atmel's CEO explained that Microchip had made a better offer, that Dialog would be given four days to make a counteroffer, and "that all severance benefits provided by the [Atmel] Plan would remain available pursuant to the Plan, regardless of whether the ultimate purchaser was Microchip or Dialog." Id. ¶ 33. On January 14, 2016, Atmel's Senior Vice President of Global Human Resources sent a letter to "numerous" employees that acknowledged the speculation regarding the acquisition and confirmed that the Atmel Plan " ‘continues to remain in place,’ and would entitle employees to severance benefits ‘in the event that your employment is involuntarily terminated without Cause in connection with a Change of Control of the company, including an acquisition by Dialog or Microchip.’ " Id. ¶ 34. Between January and April 2016, "many other members of Atmel management similarly encouraged" Plaintiffs and other Atmel employees to remain at Atmel, "by assuring [them] that they were fully covered by the severance benefit guarantees provided by the [Atmel] Plan," regardless of who the ultimate merger partner was. Id. ¶ 35.

Prior to the closing of the merger, Atmel provided Microchip with documentation relating to the Atmel Plan, including summaries and estimates of how much would be owed to Atmel employees under the Plan. Id. ¶ 37. Atmel also "repeatedly communicated to Microchip its interpretation" of the Atmel Plan—namely, that it was in effect until mid–March 2017 because an Initial Triggering Event had occurred in September 2015, regardless of whether Dialog or Microchip was the ultimate merger partner. Id. ¶¶ 37–38. Microchip, in turn, "reviewed and approved" a memorandum that Atmel distributed to employees on February 3, 2016, which affirmed that "Microchip has agreed to honor each of your employment and compensatory contracts (including...severance...agreements) with Atmel, or its subsidiaries, that are in effect immediately prior to the closing of the transaction." Id. ¶¶ 40–41 (ellipses in original). The Proxy Statement that Microchip and Atmel filed with the Securities and Exchange Commission stated the same. See id. ¶ 42.

On February 29, 2016, three senior members of Microchip's finance team, including Chief Financial Officer Eric Bjornholt, met with senior members of Atmel's finance team. Id. ¶ 43. During that meeting, Bjornholt "assured the Atmel employees that, if Microchip acquired Atmel and then terminated Atmel employees, Microchip would honor the Plan." Id. That same morning, in another meeting with Atmel employees, Bjornholt "reiterated...that Microchip would honor the [Atmel] Plan if Microchip later terminated any Atmel employees." Id. ¶ 44.

3. Microchip's Post–Merger Conduct

In the week following the merger's closing, Microchip terminated several Atmel employees without cause, including plaintiff Schuman, id. ¶ 50, and "announced for the first time its position that the [Atmel] Plan had ‘expired’ on November 1, 2015 and therefore it had no obligation to pay, and would not pay, the severance benefits provided by the Plan to any" terminated employees, id. ¶ 53. On April 6, 2016, Microchip sent letters to these terminated employees offering them four to six weeks of salary (or certain restricted stock units) as severance—a "fraction" of the amount they were entitled to under the Atmel Plan—in exchange for releasing all claims against Microchip and Atmel, including those "based on the enforceability of the severance benefit provisions of the Plan." See id. ¶¶ 54–55. Approximately one week later, Microchip delivered a second letter to the terminated employees, increasing its severance offer to 50 percent of the cash salary benefit, the pro-rated bonus payments, and the health insurance premium payments that would be due under the Atmel Plan,...