Court Refuses To Dismiss Claim For Additional Compensation

March 31, 2010

In many situations, courts refuse to enforce oral contracts because of state laws known as the “Statute of Frauds.” There are numerous instances, however, where courts will find that the Statute of Frauds does not bar enforcement of an oral agreement. Whether the Statute of Frauds barred an alleged oral agreement was at the heart of this case, which had been initiated by the plaintiffs, who had worked for a financial executive placement company. According to the plaintiffs, SG had orally agreed to pay each plaintiff a compensation package consisting of a fixed salary of $75,000 plus an additional payment based on a certain percentage of the revenues generated for SG from the job placements made by each of the plaintiffs. SG allegedly agreed to pay the additional compensation when revenue was received regardless of whether the plaintiffs were still employed at SG at the time SG received the revenue on account of a placement.

One of the plaintiffs resigned from SG on January 12, 2009. Prior to her resignation, she made placements in the latter part of 2008 that allegedly generated revenues of approximately $6 million. The other plaintiff left SG at about the same time, and alleged that she made placements prior to her departure that generated revenues of approximately $780,000. The plaintiffs alleged that despite due demand, SG refused to make payments to plaintiffs for their pre-resignation placements. The plaintiffs asserted claims against SG for breach of contract; one of the plaintiffs sought damages of at least $1 million and the other sought damages of at least $265,000.

SG moved to dismiss the plaintiffs’ complaint, arguing that the plaintiffs’ breach of contract claim was precluded by the Statue of Frauds because it was based on alleged oral agreements.

In its decision, the New York state court explained that, under applicable New York law, an agreement is not enforceable if it is not in writing and “subscribed by the party to be charged therewith” when the agreement “by its terms is not to be performed within one year from making thereof.” The court added that, as long as the agreement might be fairly and reasonably interpreted such that it might be performed within a year, the Statute of Frauds will not act as a bar no matter how unexpected or unlikely that such performance would occur during that time frame.

Further, the court pointed out, it was well settled law in New York that, absent an agreement establishing a fixed duration, an employment relationship was presumed to be a hiring at will, terminable at any time by either party. Because an at will employment relationship might be freely terminated by either party at any time for any reason or even no reason, the court noted, employment agreements of this type “generally do not fall under the proscription of the Statute of Frauds.”

Here, the court said, nothing in the complaint indicated that the alleged agreements were for a fixed term of months or years, or that they could not be terminated by either party. Therefore, taking the allegations of the complaint as true and resolving all inferences in favor of the plaintiffs, the court found that the alleged employment agreements at issue were at will and not for a fixed term of years. Further, the alleged agreements’ terms neither stated that plaintiffs’ performance in procuring job positions for financial industry professionals could not be completed within a year, nor required that it should be extended beyond one year. Consequently, the court found, the Statute of Frauds did not apply to these alleged agreements.

The court also rejected SG’s contention that the Statute of Frauds barred the plaintiffs’ claim because the calculation of plaintiffs’ additional payments would necessarily occur after the passage of a year. It noted that the New York Court of Appeals, the state’s highest court, had specifically held that “the presence of bonus or salary terms payable after one year” did not bring at will employment contracts within the Statute of Frauds. Accordingly, the court refused to dismiss the plaintiffs’ claims on the ground that the oral agreements violated the Statute of Frauds. [Nichols v. SG Partners Inc., No. 109439/2009 (N.Y. Sup. Ct. N.Y. Co. Jan. 25, 2010).]

 Separation Agreement Does Not Determine Beneficiary Of Deceased Employee’s Retirement Savings and Pension Plan, Court Rules

In September 2003, about a decade after getting married, Karen Wojcik-Hess and Robert Hess permanently separated. On June 16, 2006, they executed a separation agreement, which was notarized and filed with the county clerk’s office in Schenectady, New York, on June 22, 2006. Under the agreement, Karen acknowledged Robert’s retirement savings and pension under a plan administered by his employer, the General Electric Co., and “waive[d] any claim or interest which [she] may have in [Robert’s] retirement savings and pension plan.” She accepted the agreement “in full settlement and satisfaction of any and all claims and rights against [Robert], his estate, his heirs or personal representatives” under the laws of New York or any other jurisdiction. This release included, among other things, claims to “any and all pension, profit sharing, stock options, Keogh, IRA accounts, and testamentary substitutes … or any same or similar item.” Karen received $40,000 as her share of the equitable distribution of the parties’ marital assets. Additionally, Robert promised to maintain Karen on his GE medical insurance plan until they divorced, and pursuant to that promise, Robert agreed not to file for divorce for three and one-half years after June 16, 2006, the date they executed the separation agreement.

Robert died on July 23, 2007. During his employment with GE, Robert accrued approximately $176,140.74 in a GE Savings and Security Program Account (S&SP) and $247,959.06 in a GE Personal Pension Account (PPA). In September 2007, GE disbursed $193,731.83 of the PPA to Karen.

Thereafter, Eric Hess, as executor of Robert’s Estate, filed a lawsuit in state court alleging that Karen had breached the separation agreement with Robert by receiving payments from Robert’s GE PPA and failing to surrender any claims to the funds contained in Robert’s GE S&SP. Eric also alleged that by retaining the pension payments, Karen was unjustly enriched. As part of his action, Eric sought to enjoin and restrain GE from transferring to Karen any remaining proceeds contained in Robert’s GE savings and pension accounts, and to enjoin and restrain Karen from transferring or disposing of the proceeds already received from Robert’s GE PPA. Additionally, Eric sought attorneys’ fees and costs pursuant to the separation agreement, which entitled either party to attorneys’ fees upon bringing a successful action for enforcement of the agreement.

After GE removed the case to federal court, Karen counterclaimed against Eric, contending that ERISA controlled and therefore preempted Eric’s claims for breach of contract and unjust enrichment. Karen additionally filed a counterclaim against GE, seeking disbursement of all funds remaining in Robert’s GE savings and pension accounts. Karen then moved to dismiss Eric’s claims and for summary judgment on her counterclaims against Eric and GE. In response, Eric filed a cross-motion for summary judgment on his claims.

In its decision, the federal district court found that Robert’s S&SP and PPA were employee benefit plans governed by ERISA. Accordingly, it continued, entitlement to the proceeds contained in Robert’s S&SP and PPA was governed exclusively by ERISA, and, it stated, it had to apply the terms of the S&SP and PPA policies in determining the eligible beneficiary.

As the court observed, the plan documents for Robert’s S&SP and PPA expressly provided the manner in which a beneficiary was determined or designated. The S&SP plan stated that “[t]he surviving spouse, if any, of a Participant shall be entitled to receive upon the death of such Participant any Securities or cash to the Participant’s credit under the Program not yet delivered to Participant.” Alternatively, a participant “may designate a beneficiary or beneficiaries other than his or her spouse provided such spouse, if any, consents to any such designation” in writing and with acknowledgment of the effect of the contemplated designation. Upon the participant’s death, the plan documents obligated GE to deliver the contents of the S&SP to the appropriate spouse or beneficiary once it received “proof deemed adequate by [GE] of the identity and existence at the Participant’s death of a spouse or validly designated beneficiary.” As to Robert’s PPA, the plan documents provided that absent a beneficiary designation, “such payment or payments may, in the discretion of the Pension Board, be made to the Employee’s Surviving Spouse or to the legal representative, dependent or relative of either the Employee or spouse.” Further, the plan required that “[i]f a married Employee designated a beneficiary other than his Spouse such beneficiary designation shall be valid only with Spouse’s Consent.”

The court found that Robert’s S&SP and PPA plan documents “clearly” established that the participant’s surviving spouse was the presumptive beneficiary unless the participant filed a written designation naming a new beneficiary. The court found that it was undisputed that Karen was Robert’s surviving spouse and that Eric had never been designated as a beneficiary under Robert’s S&SP or PPA. Therefore, the court found, based on Karen’s status as the surviving spouse and the language contained in the S&SP and PPA plan documents, Karen was the presumptive beneficiary of Robert’s S&SP and PPA.

The court next examined whether the separation agreement between Robert and Karen changed or defeated Karen’s eligibility for the proceeds contained in Robert’s S&SP and PPA, and found that it did not. According to the court, it could not rely on New York State’s law regarding trusts and estates, wills, or domestic relations to determine the beneficiary because the plan documents contained “clear provisions” governing eligibility. The mere existence of a separation agreement was insufficient to alter a beneficiary’s eligibility under ERISA, the court ruled. Accordingly, it concluded, Karen was entitled to payment of the proceeds in Robert’s S&SP and PPA in the manner prescribed in the plan documents. [Hess v. Wojcik-Hess, 2010 U.S. Dist. Lexis 6168 (N.D.N.Y. Jan. 26, 2010).]

Former Employee May Proceed With Claim Alleging Post-Discharge Retaliatory Cancellation Of Health Insurance, New Jersey High Court Decides

In 2003, the plaintiffs in this case, a husband (Fernando) and wife (Liliana) were employed by Gonzalez and Tapanes Foods, Inc. (G&T), dba LAFE Foods (collectively defendants). At that time, their supervisor, Marino Roa (who was Fernando’s brother), was alleged to have been romantically involved with two female subordinates. On Valentine’s Day 2003, one of those women left a gift for him. When Marino’s wife found the gift and confronted him about it, Marino asked Fernando to lie, to claim that the gift was intended for him, and to confirm that Marino was not having an extramarital affair. Although Fernando apparently initially agreed to assist his brother, at some point thereafter, he spoke with Marino’s wife, revealing the true story behind the Valentine’s Day gift.

In response, Marino allegedly began to harass and threaten the plaintiffs, making “life at work miserable.” That harassment included threats to fire both of them. After enduring that treatment for an unspecified amount of time, Fernando spoke with the owner of G&T about Marino’s alleged sexual harassment of the two women with whom he was involved and asked that the owner intervene. The owner allegedly refused to take any action and, following Fernando’s complaint, Marino’s harassment of both of the plaintiffs intensified.

G&T ultimately terminated the plaintiffs’ employment; Liliana’s employment was terminated on or about August 24, 2003, and Fernando’s employment was terminated on or about October 3, 2003. While Fernando was still employed, on October 2, 2003, Liliana underwent surgery, incurring, according to the plaintiffs, approximately $6,000 in medical bills. The plaintiffs expected those bills to be covered by Fernando’s health insurance. But, on or about November 11, 2003, Fernando received a letter from his health insurer informing him that it would not pay for the surgery because Fernando was not covered by the policy at the time the medical services were rendered. (On October 27, 2003, G&T had terminated Fernando’s benefits effective September 30, 2003, while he was still employed.) Eventually, the premature termination of Fernando’s health insurance was corrected to reflect a termination date of October 3, 2003, and the claim was paid around February 2004.

On November 3, 2005, more than two years after their employment had been terminated, the plaintiffs filed a complaint that alleged that G&T had engaged in unlawful retaliation in violation of New Jersey’s Law Against Discrimination (LAD); that Marino aided and abetted in that unlawful conduct (count two); that the defendants’ conduct violated the public policy of New Jersey (count three); and that G&T negligently supervised Marino (count four). In particular, they alleged that they suffered post-termination delay in receiving unemployment and medical benefits, which led to financial problems including a damaged credit rating and constant calls from debt collectors, which caused them a “tremendous amount of stress and anxiety.”

The defendants moved to dismiss the complaint for failure to state a claim, alleging that it was time barred by the two year statute of limitations applicable to violations of the LAD. The trial judge dismissed the complaint in its entirety, with prejudice, reasoning that the retaliatory discharges were time barred, that plaintiffs’ post-employment claims were not adverse “employment” actions, and that because plaintiffs’ terminations were themselves discrete acts, they could not sweep in prior time-barred discrete acts on a “continuing violation” theory.

After an intermediate appellate court affirmed in part and reversed in part, the case reached the New Jersey Supreme Court. There, the defendants argued that, to the extent that Fernando’s retaliation claim was based on his discharge, which occurred more than two years before the filing of the suit, the claim was time barred. They further contended that the post-termination cancellation of Fernando’s health insurance was not independently actionable because it was unrelated to his present or future employment and trivial. Finally, the defendants contended that even if the post-termination conduct was actionable, it would not “sweep in” the termination under the continuing violation doctrine because the termination was an untimely discrete act not subject to that doctrine.

Fernando countered that the post-termination cancellation of his health insurance was independently actionable and timely and that it also constituted the last act in a continuing violation, thus reviving his otherwise moribund termination claim.

In its decision, the New Jersey Supreme Court agreed that Fernando’s retaliatory discharge claim, standing alone, was untimely: he had been discharged on October 3, 2003, more than two years prior to the filing of his complaint. Thus, it stated, unless that claim was salvageable under some other theory, it was barred by the two year statute of limitations for LAD claims.

The court acknowledged that Fernando argued that the continuing violation theory applied; that is, that the discharge was part of a series of retaliatory acts, the last of which was the cancellation of his health insurance. The court rejected that argument. It explained that the continuing violation theory was developed to allow for the aggregation of acts, each of which, in itself, might not have alerted the employee of the existence of a claim, but that together showed a pattern of discrimination. In those circumstances, the last act swept in otherwise untimely prior non-discrete acts.

The doctrine, however, did not permit the aggregation of “discrete discriminatory acts” for the purpose of reviving an untimely act of discrimination that the victim knew or should have known was actionable. In other words, the court stated, when Fernando was fired he clearly knew, or should have known, that he had been the subject of retaliation by defendants, and should have filed his complaint within two years thereof. When he did not do so, the termination, as a claim, was lost and was not subject to a continuing violation analysis, the court ruled.

Significantly, the court ruled that that did not bar Fernando from pursuing a timely claim based on post-discharge retaliation, and it analyzed whether Fernando’s claim regarding the cancellation of his insurance was, in fact, timely. As the court noted, Fernando’s health benefits were canceled on October 27, 2003, which was more than two years prior to the filing of his complaint. However, he contended that the discovery rule saved his claim because he only became aware that his insurance had been canceled on November 11, 2003. If that was the pivotal date, the court declared, then Fernando’s November 3, 2005, complaint was timely.
The court agreed that the application of the discovery rule in these circumstances was fair. Accordingly, it determined that if Fernando unaware of it until November 11, 2003, his claim regarding the cancellation of his insurance was not barred by the statute of limitations.

Moreover, the court rejected the defendants’ argument that because the insurance cancellation did not involve harm to Fernando’s actual employment or proposed employment elsewhere, it was not actionable under the antiretaliation provision of the LAD. It also rejected the defendants’ contention that the insurance cancellation did not rise to the level necessary to invoke the LAD’s protection because it was “trivial.” In the court’s view, Fernando’s claim that the insurance cancellation at least in part caused his wife and him to experience “financial problems, damaged their credit rating, subjected them to constant calls from debt collectors, and caused them a tremendous amount of stress and anxiety” was sufficient to meet the threshold for an independent cause of action under the LAD. [Roa v. Lafe, 2010 N.J. Lexis 3 (Jan. 14, 2010).]

Comment: Importantly, the court’s decision did not result in an award of damages to Fernando; it just permitted his action to proceed. If Fernando is able to persuade a court or jury that the cancellation of his insurance was retaliatory, rather than inadvertent, he may be entitled to an award of damages. In any event, the decision is an important one for employers to keep in mind, and they should carefully ensure that an employer’s health insurance benefits are treated appropriately upon discharge, or otherwise.

Court Upholds Decision Denying Long Term Disability Benefits Based In Large Part On FCE Performed By Plaintiff’s Treating Physician

In this case, the plaintiff worked as a dialysis nurse for Fresenius Medical Care North America from 1991 through 1996 and from 2000 through February of 2004. By virtue of her employment, the plaintiff was a participant in a long term disability plan. In December 2003, the plaintiff submitted a claim for long term disability benefits to the plan. In support of her claim, she stated that she had severe back pain and other pain, fibromyalgia, diabetes, and hypertension and that she had been unable to work since August 26, 2003.

Based on a review of the information the plaintiff submitted and her medical records, Liberty Life Assurance Company of Boston, the claims administrator, determined that the plaintiff qualified as disabled as that term was defined in the plan and approved her initial claim for long term disability benefits. Liberty Life notified the plaintiff of its decision and explained that the plaintiff would begin receiving benefits on February 22, 2004. It further explained that for the first 24 months, her disability would be evaluated relative to her inability to perform the material and substantial duties of her own occupation, but that thereafter her disability would be evaluated relative to her inability to perform her own or any other occupation for which she had the training, education, or experience.

When reevaluating plaintiff’s eligibility for benefits after the initial 24 month period, Liberty Life indicated that it would need the plaintiff to complete a functional capabilities evaluation (FCE). In March 2006, the plaintiff participated in an FCE with Dr. Adams, a rheumatology specialist and one of her treating physicians. The results of the FCE showed that the plaintiff had the ability to engage in activities that allowed her to alternate between sitting and standing. Liberty Life reviewed records from a number of sources concerning the plaintiff’s condition and it concluded that the plaintiff had the ability to perform with reasonable continuity, all of the material and substantial duties of an occupation that was sedentary or required light physical exertion. Furthermore, it found that based on her training, education, experience, and physical restrictions, she had the ability to perform four different nursing occupations: a school nurse, a nurse case manager, a telephonic triage nurse, and an office nurse in a medical practice. Accordingly, Liberty Life notified the plaintiff, in a letter dated March 21, 2006, that she no longer qualified as disabled under the plan and that her long term disability benefits would be discontinued.

On March 22, 2006, an Administrative Law Judge for the Social Security Administration found that the plaintiff was disabled as of August 25, 2003 because of inflammatory arthritis, hypothyroidism, bilateral carpal tunnel syndrome, degenerative joint disease, and status post cervical fusion with residual neck pain. Thereafter, the plaintiff asked Liberty Life to reconsider its decision. Among other things, she complained that the March 2006 FEC was flawed because it was not conducted over more than one day. She explained that she had been uncharacteristically pain free on the date of the FEC, but that she had suffered severe pain and muscle spasms after completing it. She stated that she continued to experience pain in her back and hip from the date of the March FCE to the date of her appeal. She argued that the light duty nursing jobs for which she was found to be qualified did not exist within her immediate geographic area. She complained that the opinions of her treating physicians had been disregarded. She outlined continued health problems from which she suffered. She noted that the Social Security Administration had found her to be totally disabled. She also submitted a letter from Dr. Adams who explained that the plaintiff had stated that she felt terrible after the FCE and opining, based on her complaints, that she was not capable of meaningful gainful employment.

After referring her claim for an outside medical review that found the March 2006 FCE to be valid, Liberty Life affirmed its decision to discontinue the plaintiff’s long term disability benefits. By a letter dated August 1, 2006, Liberty Life communicated this decision to the plaintiff and again noted that it had identified four occupations that she had the ability to perform. Liberty Life informed the plaintiff that she had the right to appeal its decision to her employer, Fresenius.

On November 29, 2006, the plaintiff wrote a letter to Fresenius appealing Liberty’s Life’s decision to discontinue her long term disability benefits and asking Fresenius to help her get her benefits back. Fresenius received this appeal letter on December 8, 2006, and referred it to its Employee Benefits Review Committee. The committee referred the appeal for an independent medical review and ultimately concluded that the plaintiff’s medical condition did not prevent her from performing the material and substantial duties of the four identified occupations: school nurse, nurse case manager, telephonic triage nurse, and office nurse in a medical practice. Consequently, it found that she did not meet the plan definition of disabled for purposes of eligibility for benefits beyond the initial 24 months. Fresenius notified McCormick of its decision by a letter dated September 10, 2007.

On November 24, 2008, the plaintiff filed suit against Liberty Life, alleging that its decision to discontinue her long term disability benefits was a violation of ERISA. The plaintiff also asserted claims against the plan. The plan responded that the plaintiff’s benefits had been discontinued because she was not disabled, and it moved for summary judgment.

The court noted that the plaintiff relied on the fact that the Social Security Administration had determined that she was entitled to disability benefits as evidence that the decision under the plan to terminate her benefits was erroneous. The court found that the SSA’s determination that an individual was or was not disabled under its statutes and regulations did not dictate whether that same individual was disabled under the terms of an ERISA policy.

The plaintiff also contended that the denial of her long term disability benefit’s claim was without a reasonable basis because Liberty Life and Fresenius ignored the uncontroverted opinions of her treating physicians that she was disabled and unable to return to work. The court found, however, that the opinions of the two treating physicians upon which the plaintiff relied were conclusory and failed to provide adequate basis for the conclusion that she was unable to work.

It then ruled that, given the information in the record, it could not find that the plan’s decision to deny benefits was wrong. The court recognized that although the decisions made by Liberty Life determining that the plaintiff was not disabled within the plan’s definition were made in the face of conflicting medical evidence, there existed a reasonable basis for the determination that the plaintiff was able to work in several types of nursing positions. This determination necessarily rested in large part on the FCE, the court declared, and it also pointed out that the independent medical experts who assessed the file both opined that it was a reasonable or valid assessment of her condition and restrictions. Accordingly, the court concluded that the decision regarding the plaintiff’s long term disability benefits was not arbitrary and capricious as a matter of law as it was supported by reliable evidence in the record. [McCormick v. The Fresenius Medical Care North America Short & Long Term Disability Plan, 2010 U.S. Dist. Lexis 56 (M.D. Ala. Jan. 4, 2010).]

Reprinted with permission from the April 2010 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.

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