Carlson v. Northrop Grumman Corp.

Citations: 196 F. Supp. 3d 830; 62 Employee Benefits Cas. (BNA) 1921; 2016 U.S. Dist. LEXIS 89083; 2016 WL 3671361Docket: No. 13-CV-02635

Court: District Court, N.D. Illinois; July 11, 2016; Federal District Court

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Plaintiffs Alan Carlson and Peter DeLuca filed a lawsuit against Northrop Grumman Technical Services, Inc. and its parent corporation, Northrop Grumman Corporation, alleging wrongful denial of severance benefits upon their termination after long-term employment. They claim that the denial was motivated by the employer's intent to avoid making longevity-based payments to senior employees, violating the Employee Retirement Income Security Act of 1974 (ERISA). The lawsuit seeks relief under ERISA, with Count I aiming for clarification and recovery of benefits due under 29 U.S.C. § 1132(a)(1)(B), and Count II, against Northrop only, alleging unlawful discrimination under 29 U.S.C. § 1140 for interfering with their plan rights.

The court is currently considering Defendants’ motion to dismiss the First Amended Complaint, Plaintiffs’ motion to exclude a document from Defendants’ motion, and Defendants’ motion to strike references to extrinsic evidence. The court has denied all motions. The background states that Carlson and DeLuca, employed for 35 and 38 years respectively, were eligible for severance benefits under a plan administered by Northrop, which provided benefits based on years of service. However, after a policy change in October 2011, written notifications of eligibility, previously uniformly issued, became selectively applied without informing employees. Neither Carlson nor DeLuca received such notification prior to their terminations, although they did receive health benefits under the severance plan.

Count III alleges that Northrop breached fiduciary duties to prospective plan participants by not informing them of a significant change in the notice provision, which shifted from an administrative step to a substantive disqualification method. Plaintiffs seek to reform the Plan's terms to align with the understanding prior to October 2011 under 29 U.S.C. 1132(a)(3)(B) and are pursuing relief for themselves and a proposed class of employees who did not receive written notifications regarding their eligibility for severance benefits.

There is a dispute over whether the Court should consider Defendants' motion to dismiss. Plaintiffs reference the law of the case doctrine, asserting that a prior ruling by a Magistrate Judge, which denied similar arguments from Defendants, should prevent reconsideration of these issues. Defendants counter that the doctrine is not binding and that a court has discretion to revisit prior decisions if justified by compelling reasons, such as changes in law.

When assessing a complaint under Rule 12(b)(6), the court takes all well-pleaded allegations as true and must determine if the complaint presents a plausible claim. Defendants argue that Plaintiffs lack standing under ERISA, claiming they are neither participants nor beneficiaries because they did not receive the necessary written notice for eligibility. However, under ERISA, a "participant" includes those who might become eligible for benefits, and a plaintiff with a plausible claim for benefits qualifies as a participant. Defendants maintain that Plaintiffs lack a colorable claim because the Plan administrator had discretion over eligibility, which can only be challenged if deemed arbitrary or capricious. Thus, they argue that the denial of benefits cannot be contested in this context.

Plaintiffs dispute that the severance plan terms grant the administrator discretion in eligibility decisions or that such decisions warrant deference under an arbitrary and capricious standard. The parties also contest which documents should be considered in the Court’s analysis. Defendants assert that a 'Wrap Plan' is essential to the severance plan, supporting their claims regarding the administrator's discretion, while Plaintiffs argue against its inclusion. Additionally, Plaintiffs suggest that a severance plan guide and a tax reporting form should be considered to demonstrate that written notice of participation was not properly used to exclude laid-off employees from benefits, a claim that Defendants seek to strike. The Court finds that these disputes do not need resolution at this stage, as Plaintiffs’ complaint survives even under the arbitrary and capricious standard cited by Defendants. Thus, the motions concerning the contested documents are deemed moot, and the Court notes that an employer's denial of ERISA benefits can be reviewed, even under this standard. Key factors include the uniform interpretation of plan rules and the potential conflict of interest when the deciding entity also pays benefits. Plaintiffs allege that Defendants altered their interpretation of the severance plan in October 2011 without notifying employees, which raises plausible claims of arbitrary and capricious benefit denials. Defendants' argument to dismiss the interference claim in Count II is countered by the Seventh Circuit's rejection of limitations on adverse actions within the employment context.

In Feinberg, the Seventh Circuit interpreted 29 U.S.C. § 1140, clarifying that it is unlawful to take adverse actions against participants or beneficiaries of a plan for exercising their rights, regardless of their employment status. This interpretation indicates that plaintiffs do not need to demonstrate adverse employment actions to assert claims under this statute. Count III of the complaint seeks reformation of a severance plan, alleging a breach of fiduciary duty due to the defendants' failure to inform employees about changes in plan administration. A party can be liable for breach of fiduciary duty if they exercise discretionary control over the plan, regardless of formal designation as a fiduciary.

Defendants contend that they did not act as fiduciaries, but the plaintiffs' allegations contradict this claim. At the pleading stage, factual disputes must favor the nonmoving party, so defendants' assertions do not warrant dismissal. Regarding the heightened pleading standards under Federal Rule of Civil Procedure 9(b), defendants argue that Count III, which seeks reformation, must meet these standards due to its connection to fraud, citing CIGNA Corp. v. Amara. However, the court does not interpret Amara as imposing such a requirement, noting it did not address Rule 9(b) and that reformation claims under ERISA do not inherently require allegations of fraud. Consequently, claims of breach of fiduciary duty are not subject to the heightened pleading standards of Rule 9(b), allowing the plaintiffs' complaint to adequately inform defendants of the alleged fiduciary breach without needing a fraud claim. Finally, defendants argue that Count III is duplicative of other counts in the complaint, which the court is asked to consider in its ruling.

In Varity Corp. v. Howe, the Supreme Court established that equitable remedies under 29 U.S.C. § 1132(a)(3) serve as a fallback for injuries inadequately addressed by other ERISA provisions, suggesting that equitable relief is inappropriate when legal remedies are sufficient. Courts in this District have interpreted this ruling to dismiss equitable claims that merely duplicate claims for benefits under § 1132(a)(1). However, claims for equitable relief that are not simply rephrased unpaid benefits claims may be permissible. In the current case, the Plaintiffs' claim for equitable relief is based on the Defendants' failure to communicate their intent to selectively exclude employees, which creates an obligation to restore the Plan's operations to its pre-October 2011 state. This claim is distinct from the wrongful denial of benefits claim, allowing it to survive dismissal. Consequently, the court denied the Defendants’ motion to dismiss and ruled the Plaintiffs’ motion to strike and Defendants’ motion to strike as moot, rejecting the Defendants' argument for re-evaluation of previously dismissed claims.