Michelle Antolik, Plaintiffs-Appellees/cross-Appellants v. Saks, Incorporated, Doing Business as Younkers, Inc., Defendant-Appellant/cross-Appellee
Docket: 06-1046, 06-1047, 06-1141
Court: Court of Appeals for the Eighth Circuit; September 14, 2006; Federal Appellate Court
In the case Antolik v. Saks, Inc., 463 F.3d 796, fifteen former salaried employees of Younkers, a division of Saks, Incorporated, initiated a class action lawsuit after losing their jobs due to the consolidation of Younkers into the Carson Pirie Scott division in October 2002. The plaintiffs sought additional severance benefits they believed were promised in an October 27, 2000 letter related to the 2000 Change of Control and Material Transaction Severance Plan (the "COC Plan"). After Saks removed the case to federal court, the district court determined that the Employee Retirement Income Security Act (ERISA) governed the COC Plan, preempting state law claims. The court certified the class and denied Saks's summary judgment motion regarding the plaintiffs' claims for benefits under the COC Plan and equitable relief.
Following a bench trial, the district court ruled that the letter constituted a faulty summary plan description (SPD) that contradicted the COC Plan by suggesting benefits would be available if Saks consolidated divisions internally. Consequently, the court awarded the plaintiffs the promised severance benefits and $301,110 in attorneys' fees and costs. Saks appealed this judgment, while the plaintiffs cross-appealed the rulings on preemption and set-off. The Eighth Circuit reviewed the district court's findings and legal conclusions and ultimately determined that the letter was neither an SPD nor a standalone promise of benefits, leading to a reversal of the lower court's decision.
Background context highlights Saks's acquisitions beginning in 1989 and the financial struggles leading to the consolidation and subsequent employee concerns, which prompted the introduction of the COC Plan as part of a three-part incentive package to reassure employees.
The Board of Directors of Saks Incorporated established a change of control (COC) severance plan aimed at ensuring key associates remain focused on company goals amidst concerns about potential changes in control. Although the company does not foresee any such change and is not for sale, the plan serves as a protective measure, offering 26 weeks of salary if an employee’s position is eliminated, pay is reduced, or they are relocated more than 50 miles due to a change of control or sale of a major business unit.
Despite the board's intentions, many employees interpreted the COC Plan as applicable to internal consolidations, such as those involving Herberger's and Carson Pirie Scott, although this was not explicitly discussed. Barkley, a company representative, clarified that the plan was designed to apply only to external takeovers or sales. The COC Plan, characterized as a "poison pill" to deter unwanted acquisitions, was not disclosed to employees, nor was it made clear that the term "change of control" excluded internal consolidations.
The COC Plan, classified as an unfunded welfare plan under ERISA, defines "change of control" as the acquisition of majority ownership or control of Saks securities or board membership, explicitly excluding internal consolidations. The plan was not presented to employees during meetings. Following a consolidation of the Younkers home office with Carson Pirie Scott, Saks provided severance and bonuses to affected Younkers employees, but these were significantly lower than what would have been offered under the COC Plan. This discrepancy led to the subsequent lawsuit.
The district court determined that the class plaintiffs are entitled to recover $1,661,317 in benefits under the Change of Control (COC) Plan, despite the Plan's terms stating that the internal consolidation of Younkers and Carson Pirie Scott does not trigger such benefits. The court's ruling hinged on a flawed Summary Plan Description (SPD) dated October 27, 2000, which conflicted with the COC Plan by explicitly promising severance benefits to eligible Younkers employees affected by the consolidation. This issue regarding the SPD's status under the Employee Retirement Income Security Act (ERISA) is central to the appeals.
ERISA mandates that plan administrators, such as Saks, provide a summary plan description to participants within 120 days of the plan's ERISA applicability, ensuring it is understandable and accurately informs participants of their rights and obligations. The court recognized that if an SPD conflicts with the plan, the SPD prevails, even if it is deemed faulty, provided the claimant can demonstrate reliance on it. However, a document that is "hopelessly inadequate" and lacks essential details cannot serve as a faulty SPD and will not override the plan's provisions. This principle is based on ERISA's prohibition against informal plan amendments. For a document to function as an SPD and confer benefits inconsistent with the plan, it must substantially comply with ERISA's formal requirements.
Saks moved to dismiss based on ERISA preemption, while plaintiffs contended their state law claims should not be preempted due to the non-disclosure of the COC Plan document. Saks claimed that the October 27, 2000 letter constituted a Summary Plan Description (SPD) required by ERISA. The district court initially determined that the letter was a “woefully inadequate” SPD, failing to meet essential disclosure requirements, including detailed eligibility provisions, benefits, claims procedures, and participant rights under ERISA. However, in a later ruling, the court recharacterized the letter as a faulty SPD that met some requirements from a prior decision but did not reference any other documents.
The October 27 letter itself did not indicate it was an SPD; its purpose was described as explaining the plan's reason and implications. It did not adequately detail the COC Plan’s complex provisions or participant rights to access plan documents. The letter was primarily an informal morale-boosting description rather than a compliant SPD. The court's emphasis on the potential ERISA violation by Saks was noted, but it was clarified that such a violation does not grant participants benefits not stipulated in the plan.
Consequently, the appellate court reversed the district court's decision regarding the plaintiffs’ claims for benefits under the COC Plan based on the October 27 letter. It also disagreed with the district court's interpretation of "change of control" in the letter as unambiguous, suggesting it could refer to either corporate or employment contexts. The court criticized Saks for using ambiguous language that could mislead employees, yet concluded there was no actionable misrepresentation or reasonable reliance by employees regarding the severance benefits.
Plaintiffs in their cross appeal present two main arguments for relief. First, they contend that the district court incorrectly determined their state law claims were preempted by ERISA. They assert that the letter at issue was not an ERISA plan but rather a standalone promise for a one-time severance benefit, lacking the need for an ongoing administrative program. However, the district court found that the COC Plan is an ERISA plan since eligibility requires an individual review based on specific criteria, thus preempting related state law claims. The letter’s purpose was to clarify severance benefits under the COC Plan, and promises regarding ERISA benefits do not constitute a free-standing contract.
Second, plaintiffs seek to reinstate their claim for equitable relief under 29 U.S.C. 1132(a)(3) if the court overturns the district court's benefits ruling under 1132(a)(1)(B). This argument is dismissed as meritless since adequate relief through the claim for benefits under 1132(a)(1)(B) precludes a separate action under 1132(a)(3)(B).
Given that the plaintiffs are not entitled to additional severance pay, their cross appeal regarding the district court's offset ruling is rendered moot. The award of attorneys' fees is also reversed due to the plaintiffs' status as non-prevailing parties, although the court notes that, due to Saks' potential deceptive practices, some modest fee award may still be appropriate, leaving that decision to the district court's discretion. Consequently, the judgment is reversed, favoring Saks, and the case is remanded for further consideration of the attorneys' fees issue.
