Court: Court of Appeals for the Second Circuit; July 12, 1995; Federal Appellate Court
The appeal centers on whether the severance benefits plan for employees of RCA Global Communications, Inc. (RCAG) was terminated by its corporate sponsor prior to the sale of RCAG to MCI Communications, Inc. (MCIC) on May 16, 1988. The District Court ruled that the plan was never terminated, leading to a judgment in favor of discharged employees seeking benefits under the plan, as provided by the Employees Retirement Income Security Act of 1974 (ERISA).
The RCAG Plan offered severance benefits based on an employee's salary and tenure, with a maximum benefit of 52 weeks' salary. The plan documents designated RCAG as the plan administrator, with the authority to terminate or modify the plan. Before the sale, RCAG was required to withdraw from other benefit plans sponsored by RCA Corporation, GE's parent company, but there was no requirement to terminate the RCAG Plan itself.
No action was taken by RCAG's Board or officers to terminate the RCAG Plan before the sale, as the sale's completion was contingent upon Federal Communications Commission (FCC) approval, which restricted MCIC's control over RCAG until the sale was finalized. Prior to the sale, MCIC established its own severance plan, the MCI Communications Corporation Severance Pay Plan (MCI Plan), which offered lower benefits (capped at 30 weeks) and did not cover RCAG employees until RCAG formally adopted it. Meetings were held to discuss the benefits for non-union employees, but it remains disputed whether the MCI Plan was presented at those meetings, and no written documentation was provided for it.
The appellate court affirmed the lower court's judgment, supporting the conclusion that the RCAG Plan remained in effect at the time of the employees' discharge.
FCC approval for the sale of RCAG was obtained, and the sale closed on May 16, 1988. MCI issued termination letters to non-union employees, including the plaintiffs, informing them of discharges effective May 30, while offering severance benefits under the MCI Plan, limited to 30 weeks of base salaries. On June 28, 1988, the president of MCIC executed a Consent allowing RCAG to adopt the MCI Plan retroactive to May 16, 1988, but RCAG did not take action to adopt the plan. In November 1988, several plaintiffs requested additional severance benefits under the RCAG Plan, but MCI executives stated the RCAG Plan had terminated with the sale, and plaintiffs were covered by the MCI Plan instead.
The plaintiffs filed a lawsuit in District Court against RCAG and MCII, alleging various claims under state law and ERISA. The case was transferred to Magistrate Judge Dolinger, who dismissed all but one claim, which was under ERISA 502(a)(1)(B) for denial of benefits under the RCAG Plan. The District Court granted partial summary judgment to plaintiffs, acknowledging that RCAG had not officially terminated the RCAG Plan. Although unfunded severance plans are generally not bound by ERISA’s stringent rules, the Magistrate Judge found that RCAG did not properly terminate the Plan. He cited two reasons: first, the termination procedures in the RCAG Plan documents did not meet ERISA standards; second, there was no evidence that RCAG's Board or any other entity acted to terminate the Plan. Additionally, the Magistrate Judge identified a genuine dispute regarding the plaintiffs' employment status at the time of discharge and ordered a jury trial to determine whether they were still employed by RCAG and if their transfer to MCII constituted a lay-off from RCAG, which could trigger benefits under the RCAG Plan.
The jury determined that the plaintiffs remained employees of RCAG at the time of their discharge, which occurred shortly after RCAG was sold to MCIC. Following the verdict, defendants sought judgment as a matter of law, arguing that new evidence presented at trial, particularly the June 28 Consent, indicated that the RCAG Plan had been terminated prior to the plaintiffs' discharge. The Magistrate Judge denied this motion, citing two main reasons: defendants were barred from introducing evidence that had been in their control throughout the litigation, and the new evidence did not demonstrate that the June 28 Consent effectively terminated the RCAG Plan for these plaintiffs.
Additionally, defendants contended that the denial of benefits by the RCAG Plan Administrator should be reviewed under a deferential arbitrary and capricious standard, which the Magistrate Judge rejected based on the RCAG Plan’s language. The Magistrate Judge subsequently granted the plaintiffs’ request for attorney’s fees and prejudgment interest.
On appeal, defendants claimed the District Court had erred by ruling that the RCAG Plan was never terminated and that the plan administrator's decisions were not entitled to deference. The appellate court affirmed the District Court's decisions, adopting the well-reasoned opinions of Magistrate Judge Dolinger, but sought clarification regarding the termination of the RCAG Plan. The summary judgment favoring plaintiffs was based on two theories; the first, concerning the invalidity of the amendment provision under ERISA 402(b)(3), was undermined by the Supreme Court's ruling in Curtiss-Wright Corp. v. Schoonejongen, which clarified that an amendment provision allowing "the Company" to amend the plan meets ERISA requirements. The appellate court upheld the alternative theory that there was no evidence of any action taken by RCAG's Board of Directors or otherwise to terminate the RCAG Plan, emphasizing that corporate law principles guide the determination of who has the authority to make decisions on behalf of a company.
Any amendment to a plan must be documented in writing to be valid, as established in multiple case laws and ERISA provisions. The Magistrate Judge found no written approval for the termination of the RCAG Plan by anyone authorized to act on behalf of RCAG. The argument that the sale of RCAG automatically terminated its benefit plans was rejected, as the cited cases involved sales of operating units to new parent corporations, which are not comparable to the current situation. In this case, the RCAG plan was distinct from the old parent corporation’s plans, and the jury found that the plaintiffs were still employed by RCAG at the time of discharge. Consequently, the judgment of the District Court was affirmed. The amendment clause allowed RCAG to amend or terminate the policy at any time without affecting severance allowances granted prior to such changes. The Magistrate Judge dismissed the defendants' motion to strike the jury trial request, and the defendants waived any challenge to this decision on appeal. The June 28 Consent did not adopt the MCI Plan for RCAG nor terminate the RCAG Plan, rendering further consideration of the Magistrate Judge's procedural ruling unnecessary.
