Stone v. Unocal Termination Allowance Plan
| Decision Date | 14 March 2008 |
| Docket Number | Civil Action No. H-06-2770. |
| Parties | Bradford STONE, Plaintiff, v. UNOCAL TERMINATION ALLOWANCE PLAN, et al., Defendants. |
| Court | U.S. District Court — Southern District of Texas |
Anthony P. Griffin, Attorney at Law, Galveston, TX, for Plaintiff.
John F. Easton, Pillsbury Winthrop et al, Houston, TX, Frederick A. Brodie, Pillsbury Winthrop LLP, New York, NY, for Defendants.
Pending before the court is the motion for summary judgment of the defendants Unocal Termination Allowance Plan, Unocal Employee Redeployment Plan, and Unocal Retirement Plan's (collectively, "Plans").1 Dkt. 40. Having reviewed the motion, the response, the reply, and the applicable law, the court finds that the Administrator and Appeals Committee did not abuse their discretion. Accordingly, the Plans' motion for summary judgment is GRANTED.
On August 10, 2005, Chevron Corporation ("Chevron") contracted to acquire Unocal Corporation ("Unocal"). Dkt. 40 at 2. At the time of the merger, Unocal employed Stone as a Senior Staff Machinery Engineer. Dkt. 23 ¶ 8. Stone had worked for Unocal since 1988. Dkt. 45 at 5 n. 3. Once the entities effected the merger, Chevron extended Stone two different job offers. Dkt. 40, Ex. A at 23-24; Dkt. 40, Ex. B. Both positions entailed identical compensation packages. Dkt. 40, Ex. A at 24.
Chevron offered Stone base pay that equaled his base pay at Unocal. Dkt. 40 at 2. Additionally, Chevron's Success Sharing program ("CSS") replaced the Annual Incentive Program ("AIP") in which Stone participated during his employment at Unocal. Dkt. 40, Ex. A at 46-47. Under CSS, however, Stone potentially qualified for a target bonus equaling 20% of his base pay. Id. Under the AIP, Stone was eligible for a target bonus of 17.5% of his base pay under the AIP. Furthermore, Chevron matched 8% of Stone's 401 (k) contributions, compared to Unocal's 6% match. Id. at 53. Chevron also recognized Stone's years of service and preserved his Unocal pension benefits. Id. at 50. Chevron established a plan equivalent to Unocal's Long Term Incentive Plans ("LTIP")2 but only offered it to employees with pay grades higher than what was offered Stone3 Dkt. 40, Ex. A at 61. Under the LTIP, Stone received discretionary awards of restricted stock and stock options ("LTI") equal to 10% of his base pay. Dkt. 40, Ex. D. To offset this reduction, Chevron provided Stone a continuation bonus equaling 10% of his base pay. Dkt. 40, Ex. B. Stone's eligibility to receive the bonus was contingent on Stone's continual employment through March 1, 2006. Id.
Stone accepted a position as Senior Staff Machinery Engineer. Dkt. 40, Ex. B. Stone conditioned his acceptance on a "review of the offer presented which does not appear to include an equivalent benefits and perquisite compensation when compared to those [he] received at Unocal." Id. On October 31, 2005, Stone received a 5% raise in his base pay. Dkt. 40, Ex. A at 42-45.
At the time of the merger, the Plans' terms and conditions were in effect and applied to Stone and other Unocal employees. Dkt. 23 ¶ 9. Under the Plans, Unocal employees were entitled to enhanced payouts if, during the two-year period following a change of control, they experienced a "constructive discharge." Dkt. 40 at 4. Chevron's acquisition of Unocal constituted a change of control for purposes of any employee arrangement and for all other company benefit plans. Dkt. 45 at 6. The Unocal Retirement Plan ("URP"), in Article 16.1(E), defined constructive discharge4 as follows:
[A]n Employee's resignation of employment with a Participating Company, with a Controlling Entity, or with a Successor Entity within 60 days of the occurrence of any of the following events, provided that such event was initiated by a Participating Company, a Controlling Entity, or a Successor Entity:
(1) A reduction in the Employee's base pay.
(2) A reduction in the Employee's annual incentive target award(s) under an applicable annual cash bonus program in which the Employee participates, which is included as Earnings under Section 1.17 [of the Unocal Retirement Plan].
(3) A reduction in the Employee's eligibility for or amount of benefits available to the Employee under this Article 16, or under the Change of Control Event provisions of any other benefit plan of the Company, or the Employee's annual incentive target amount under the Change of Control Event provisions of any stock-based or annual incentive compensation program of the Company.
(4) A reduction in the benefits or perquisites available to the Eligible Employee or his dependents as of the day immediately before the Change of Control, including without limitation a material increase in the cost to such Eligible Employee or his dependents for such benefits or perquisites. Benefits include, without limitation, qualified or nonqualified defined benefit or defined contribution pension benefits; stockbased or annual incentive compensation programs; medical or dental coverages; disability or life insurance; severance benefits; or sick pay, vacation pay, paid holidays, or paid leave of absence allowances. Perquisites include, without limitation, automobile allowances, financial counseling, educational assistance, executive physical examinations, and expatriate income tax preparation services. However, a reduction in benefits or perquisites shall not include a modification of benefits or perquisites which results from a change effected in the ordinary course of business which is applicable to all similarly-situated employees of the Controlling Entity or the Successor Entity and which does not result in a material reduction in the aggregate value of benefits and perquisites available to the Eligible Employee or his/her dependent. ...
Dkt. 40, Ex. H.
On January 5, 2006, Stone submitted his Constructive Discharge Application to Chevron's Change of Control Administrator ("Administrator"). Dkt. 45, Ex. 8. He amended the application on January 27, 2006. Dkt. 45, Ex. 9. In his application, Stone described several events which he claimed constituted constructive discharge. Dkt. 40, Ex. B. Stone contended that Chevron's job offer eliminated his LTI, resulting in a reduction in benefits under Article 16.1(E)(3) of the URP. Id. Stone also asserted that the one-time continuation bonus offered by Chevron was insufficient and, in accord with Article 16.1(E)(3)5, reduced the benefits previously available to Stone under Unocal's benefit plan. Id. Finally, Stone contended that Chevron's offer disregarded his annual lump sum increase ("LSI") payment,6 resulting in a reduction in base pay and establishing constructive discharge under Article 16.1(E)(1), (2).7 Id. To satisfy eligibility requirements for change of control benefits, Stone resigned from his position at Chevron on February 28, 2006. Dkt. 45, Ex. 1 at 20.
On February 24, 2006, in an eight-page written decision, the Administrator denied Stone's claim. Id. The Administrator found that the elimination of LTI did not reduce Stone's eligibility for benefits under Article 16.1(E)(3). Id. The Administrator noted that under Unocal's LTIP, upon the change of control event, Stone's LTI vested and became immediately exercisable.8 Id. The Administrator also cited a Chevron newsletter informing all Unocal employees that the LTIP change of control provisions had been executed.9 Id. The Administrator equated the execution of these provisions to Stone receiving the benefits for the year 2005, as required by the change of control provisions. Id.
The Administrator also found that the elimination of LTI did not materially reduce Stone's benefits as required by Article 16.1(E) (4) of the URP. Id. The Administrator explained that a "material reduction in the aggregate value of benefits available" was a prerequisite to eligibility under Article 16.1(E)(4). Id. The Administrator then compared the value of benefits to which Stone was entitled the day preceding the change of control and the aggregate value of benefits to which he was entitled the day after the alleged constructive discharge events. Id. The Administrator determined that the continuation bonus offered by Chevron offset the elimination of Stone's LTI in the present year. Id. Thus, the Administrator concluded, Stone did not experience a material reduction in benefits. Id. The Administrator declined to speculate about material reductions in future years. Id.
Finally, the Administrator found that Stone's LSI loss did not constitute constructive discharge under Article 16.1(E) of the URP. Id. The Administrator noted that Stone did not qualify for constructive discharge under Article 16.1(E)(2) because Stone received a higher target bonus under Chevron's cash program. Id. The Administrator also found Article 16.1(E)(1) inapplicable to the elimination of LSI because under Unocal's policies LSI did not constitute base pay. Id. Lastly, the Administrator found Article 16.1(E)(4) inapplicable. Id. The Administrator compared the base pay increase Stone received from Chevron with his LSI loss. Id. Because Stone's salary increase exceeded any LSI reduction, the Administrator held that a material reduction did not occur. Id.
On April 24, 2006, Stone appealed the Administrator's decision. Dkt. 45, Ex. 12. Stone contended that the Administrator wrongfully denied his claim concerning the elimination of LTI. Dkt. 40, Ex. C. Stone argued that Article 16.1(E)(4) requires the Administrator to account for future losses. Id. The Change of Control Appeals Committee ("Appeals Committee") denied Stone's appeal on July 3, 2006. Id. The Appeals Committee interpreted the provision to require consideration of potential benefits available the day before the change of control and the day constructive discharge is...
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Stone v. Unocal Termination Allowance Plan
...after determining that the defendants did not abuse their discretion in denying Stone's benefits claim. Stone v. Unocal Termination Allowance Plan, 542 F.Supp.2d 605 (S.D.Tex.2008). Stone now appeals. For the following reasons, we FACTS AND PROCEEDINGS BELOW On August 10, 2005, Chevron Corp......