Varghese v. Honeywell Intern., Inc.

• Decision Date: 14 September 2005
• Docket Number: No. 04-2271.,04-2271.
• Citation: 424 F.3d 411
• Parties: Thomas VARGHESE, Dr., Plaintiff-Appellee, v. HONEYWELL INTERNATIONAL, INCORPORATED; Honeywell Technology Solutions, Incorporated, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

424 F.3d 411

Thomas VARGHESE, Dr., Plaintiff-Appellee, v. HONEYWELL INTERNATIONAL, INCORPORATED; Honeywell Technology Solutions, Incorporated, Defendants-Appellants.

No. 04-2271.

United States Court of Appeals, Fourth Circuit.

Argued May 25, 2005.

Decided September 14, 2005.

ARGUED:

Michael L. Banks, Morgan, Lewis & Bockius, L.L.P., Philadelphia, Pennsylvania, for Appellants. Eric Kenneth Bachman, Wiggins, Childs, Quinn & Pantazis, P.C., Washington, D.C., for Appellee.

ON BRIEF:

Kathy B. Houlihan, Christine B. Cox, Morgan, Lewis & Bockius, L.L.P., Washington, D.C., for Appellants. Timothy B. Fleming, Wiggins, Childs, Quinn & Pantazis, P.C., Washington, D.C., for Appellee.

Before MOTZ and GREGORY, Circuit Judges, and HAMILTON, Senior Circuit Judge.

Affirmed in part, reversed and vacated in part, and remanded in part by published opinion. Judge GREGORY wrote the majority opinion, in which Judge MOTZ concurred in Parts I and II and Senior Judge HAMILTON concurred in Part III. Judge MOTZ wrote a separate opinion dissenting from Part III. Senior Judge HAMILTON wrote a separate opinion dissenting from Part II.B.

GREGORY, Circuit Judge.

Dr. Thomas Varghese brought suit against Honeywell International Inc., and Honeywell Technology Solutions, Inc.,¹ alleging, among other things, that Honeywell violated Maryland law when it failed to pay him separation benefits and terminated his right to exercise previously granted stock options. A jury returned a verdict for Dr. Varghese on both of these claims, granting Dr. Varghese $337,000 on his stock options claim and $25,571.73 on his separation pay claim. The damages granted to Dr. Varghese on his stock options and separation pay claims were enhanced under the Maryland Wage Payment and Collection Law ("MWP & CL"). Honeywell challenges this result on two grounds. First, Honeywell argues that the stock options were not wages, and therefore not covered by the MWP & CL and subject to an enhancement. Second, Honeywell argues that the separation pay claims are preempted by ERISA.

We find that Honeywell's ERISA preemption argument is not properly before us. However, because we find that the stock options are not in fact "wages" as that term is defined by the MWP & CL, we reverse in part the judgment of the district court, vacate in part the jury's award to Dr. Varghese, and remand to the district court for redetermination.

I.

Dr. Varghese began his employment with Honeywell International Inc.'s predecessor, Bendix Field Engineering Corp., as a Field Engineer in 1983. The terms of Dr. Varghese's employment offer provided him with a monthly salary, a travel and relocation allowance, and various fringe benefits then available to other comparable employees. In early 1998 Dr. Varghese requested, and was granted, a one year unpaid leave of absence to pursue an advanced degree in the executive management program at the Massachusetts Institute of Technology Sloan School of Management. At the time of his leave of absence, Dr. Varghese was a Senior Principal Engineer, a salary band 4 level employee. Although Honeywell paid Dr. Varghese's tuition for the management program and agreed to make every effort to reinstate him to his position or to a comparable position at the end of his leave of absence, the company informed Dr. Varghese that it could not guarantee that he could return to active employment with Honeywell.

Upon the completion of the executive management program in May of 1999, Dr. Varghese requested reinstatement with Honeywell. However, due to substantially changed business conditions, Honeywell did not offer Dr. Varghese a position. On August 21, 1999, Dr. Varghese sent a letter to Honeywell stating: "If there are no opportunities within ATSC, despite waiting for more than 3 months now since the original communication, I am only left with the option of asking for termination of my employment and earned severance." J.A. 361. On October 7, 1999, Honeywell informed Dr. Varghese "that due to current business conditions we are unable to identify a suitable position to which you can be reinstated at this time and have taken action to terminate your employment with ATSC effective May 31, 1999." J.A. 205. On that same day, Honeywell's human resources department completed the necessary paperwork to terminate Dr. Varghese's employment. Importantly, Honeywell classified Dr. Varghese's termination as "voluntary."

During his sixteen-year tenure at Honeywell, Dr. Varghese received 4800 stock options through four separate stock option grants.² Under the Honeywell compensation system, all executive-level employees (i.e., those classified by the corporation as salary band 5 or above) automatically received annual option grants. For non-executive employees (i.e., salary band 4 and below), of which Dr. Varghese was one, option grants were discretionary awards. In granting these awards, Honeywell considered "the duties of the employees and their present and potential contributions to the Company's success." J.A. 188. Importantly, on appeal, Dr. Varghese does not contend that he was ever promised the stock options in question.

After his termination, Dr. Varghese set out to obtain his earned severance benefits and to exercise his stock options. Dr. Varghese's options had fully vested at the time of his termination, entitling him to exercise any or all of them by purchasing the shares at the strike price.³ Dr. Varghese attempted to exercise his options in October and November of 1999. However, because Dr. Varghese's termination was classified as "voluntary" rather than as a "reduction-in-force" he had only three months to exercise his options from his date of termination.⁴ Because Honeywell backdated Dr. Varghese's termination to May 31, 1999, the options had already expired when Dr. Varghese attempted to exercise them.

Additionally, the classification of Dr. Varghese's termination as "voluntary" meant that he was not entitled to separation pay. Under Honeywell's separation plan, separation pay was an element of the Salaried Employees Benefit Plan, applicable to salaried employees otherwise eligible to receive such benefits. Critically, while employees whose separation from the company was due to a "reduction-in-force" were eligible for severance benefits, those who voluntarily separated unrelated to any reduction in force were not. Therefore, because Honeywell coded Dr. Varghese's termination as "voluntary," he was not considered eligible for severance benefits. When no action was taken pursuant to Dr. Varghese's requests to obtain his accrued separation benefits and to exercise his stock options, he brought the instant suit. Through a series of amended complaints Dr. Varghese alleged various claims, including the violation of Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Employee Retirement Income Security Act of 1974 ("ERISA"), and the MWP & CL.

After cross motions for summary judgment, the following claims remained: 1) that Honeywell violated ERISA's notice requirements by not responding to Dr. Varghese's fall of 1999 requests for information about his 401K plan until mid-2000, thereby breaching its fiduciary duty;⁵ 2) that Honeywell's failure to pay Dr. Varghese separation pay constituted a breach of contract in violation of Maryland common law and the MWP & CL;⁶ 3) that Honeywell breached its contractual obligations by retroactively terminating Dr. Varghese's right to exercise his stock options in violation of Maryland common law and the MWP & CL; and 4) that an enforceable contract existed between Dr. Varghese and Honeywell under Honeywell's supplemental savings plan.

These four claims proceeded to trial. At the end of Dr. Varghese's case in chief, Honeywell moved for Judgment as a Matter of Law ("JMOL") pursuant to Fed.R.Civ.P. 50(a)(1) arguing: 1) that a contract for supplemental severance pay never existed; 2) that the stock options in this case do not constitute "wages" under the MWP & CL; and 3) that Honeywell did not breach the stock options contract.⁷ The district court granted the Rule 50 motion with regard to the supplemental severance claim and denied it in all other respects.

On March 26, 2004 the jury returned a verdict for Dr. Varghese, awarding him $337,000 on the stock options claim, $25,571 on the separation pay claim, and $6,711 in prejudgment interest.⁸ Finally, on September 3, 2004, the district court entered an order finding that Honeywell had in fact violated ERISA § 502(a)(1)(A), and awarded Dr. Varghese an additional $2600.00.

From these decisions, Honeywell brings this appeal.

II.

A.

Honeywell first challenges the district court's denial of its motion for judgment as a matter of law on Dr. Varghese's stock option claim. Under Fed.R.Civ.P. 50(a)(1), "[i]f during a trial by jury a party has been fully heard on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue, the court may determine the issue against that party." Fed.R.Civ.P. 50(a)(1). We review the denial of a motion for judgment as a matter of law de novo, viewing the evidence in the light most favorable to the nonmovant, and "draw[ing] all reasonable inferences in her favor without weighing the evidence or assessing the witnesses' credibility." Ocheltree v. Scollon Prod., Inc., 335 F.3d 325, 331 (4th Cir.2003) (quoting Anderson v. G.D.C., Inc., 281 F.3d 452, 457 (4th Cir.2002)). Judgment as a matter of law is proper only if "there can be but one reasonable conclusion as to the verdict." Id. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)).

B.

In its challenge to the district court's denial of its JMOL motion, Honeywell argues that the stock options were not "wages" as that term is defined by the MWP & CL because Dr. Varghese was never promised stock options as remuneration for his labor. As such, Honeywell contends that the jury's...