Employee Benefit Plan Review – From the Courts – June 2016June 22, 2016 | |
Relying on Dudenhoeffer, Court Dismisses Action Against ERISA Fiduciary Based on Publicly Available Information
The plaintiff in this case was a former employee of J.C. Penney Corporation, Inc., a retail department store, who purchased and held J.C. Penney common stock in her retirement account through the J.C. Penney Savings Profit-Sharing and Stock Ownership Plan. The plaintiff sued Evercore Trust Company, N.A., in its capacity as a fiduciary and investment manager for the assets of the plan, which was governed by the Employee Retirement Income Security Act of 1974 (ERISA).
The plaintiff complained that, in January 2012, following the installation of its new chief executive, J.C. Penney initiated a transformation plan spearheaded by the new chief executive that was intended to improve the company’s performance after the 2008 financial downturn. The transformation plan included eliminating J.C. Penney’s use of “sales, coupons, and rebates” in favor of “a new ‘Fair and Square Pricing’ policy” where three and only three prices would be offered:
- the “everyday” price;
- a month-long “value” price; and
- a “best” price offered on the first and third Fridays of every month.
In addition, the transformation plan sought to change the physical appearance of J.C. Penney stores by implementing a “store within a store” layout to replace the “traditional organization of confusing and seemingly endless racks found in [J.C. Penney] department stores,” changing the selection of brands offered in the stores and updating the company’s logo.
On May 15, 2012, J.C. Penney released its first quarter 2012 financial results, reporting a loss of $163 million, which resulted in the company’s chief operating officer admitting, “We did not realize how deep some of the customers were into [coupons].” J.C. Penney “cancel[ed] its dividend” for only the second time since 2006.
Following this announcement, the company’s performance continued to decline, with double-digit percentage reductions in revenue every quarter from the beginning of 2012 to the middle of 2013. J.C. Penney’s stock price dropped from $36.72 at the end of the first quarter of 2012 to $17.26 a year later, and its stock closed 2013 at $5.92.
The plaintiff contended in her lawsuit against Evercore that because the failure of J.C. Penney’s transformation strategy was evident from publicly available information, “Evercore knew that continued investment in [the company’s] stock was imprudent under its fiduciary obligations imposed by ERISA.” Based on these allegations, the plaintiff claimed that Evercore should be held liable for losses to the plan under ERISA.
Evercore moved to dismiss the plaintiff’s complaint, and the U.S. District Court for the District of Columbia granted its motion.
In its decision, the district court explained that, under the U.S. Supreme Court’s 2014 decision in Fifth Third Bancorp v. Dudenhoeffer, where a stock was publicly traded, “allegations that a fiduciary should have recognized from publicly available information alone that the market was over-or undervaluing the stock [were] implausible as a general rule, at least in the absence of special circumstances” affecting the reliability of the market price as “an unbiased assessment of the security’s value in light of all public information” that would make reliance on the market’s valuation imprudent.
The district court was not persuaded by the plaintiff’s contention that the Supreme Court’s reasoning was only relevant in cases where the stock price was alleged to have been artificially inflated and that, as a result, it did not apply to her complaint because she had not alleged that the J.C. Penney stock price had been artificially inflated. The district court observed that the phrase “artificially inflated” or similar terminology did not appear anywhere in the Dudenhoeffer opinion and, finding no “special circumstances” alleged by the plaintiff, it concluded that the plaintiff’s complaint against Evercore fell “entirely within the ambit of the general rule adopted by the Supreme Court” in Dudenhoeffer. [Coburn v. Evercore Trust Co., N.A., 2016 U.S. Dist. Lexis 18712 (D. D.C. Feb. 17, 2016).]
Son Could Not Sue for Pension Benefits Allegedly Due His Deceased Father, Circuit Court Rules
In 2014, the pro se plaintiff filed a lawsuit against Laneko Engineering Co. Inc. and its principal stockholder to recover pension benefits allegedly due to the plaintiff’s deceased father, who had been employed by Laneko and who had passed away in 2007. The defendants moved for summary judgment, arguing, among other things, that the plaintiff lacked “standing” to pursue an action for the recovery of his father’s alleged pension benefits.
The U.S. District Court for the Eastern District of Pennsylvania granted the defendants’ motion, and the plaintiff appealed.
The U.S. Court of Appeals for the Third Circuit affirmed.
In its decision, it explained that, under the Employee Retirement Income Security Act of 1974 (ERISA), a “participant or beneficiary” could bring a lawsuit to recover benefits due to the participant or beneficiary under the terms of a plan governed by ERISA (such as the Laneko plan). The circuit court observed that a “participant” was “any employee or former employee of an employer . . . who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer . . . or whose beneficiaries may be eligible to receive any such benefit.” It also pointed out that a “beneficiary” was “a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder.”
The Third Circuit said that it was “undisputed” that the plaintiff was not a “participant” under Laneko’s pension plan. It also ruled that he had not presented any evidence that he qualified as a “beneficiary” under the plan. Accordingly, it agreed with the district court that he did not have standing to pursue a claim for the recovery of his father’s pension benefits.
The circuit court concluded by observing that although the plaintiff contended that his mother was entitled to his father’s pension benefits and that she had given him permission to pursue these benefits on her behalf, he could not sue on his mother’s behalf because he was a non-lawyer proceeding pro se. Pursuant to statute, a party only may proceed in federal court “personally or by counsel.” [Robinson v. Laneko Engineering Co. Inc., 2016 U.S. App. Lexis 2359 (3d Cir. Feb. 11, 2016).
Given Procedural Irregularity, Circuit Court Remands Disability Decision to Plan Administrator to Hear a Second-Level Appeal
In this case, the plaintiff, as an employee of McKesson Corporation, received disability insurance coverage under the McKesson Corporation Short Term Disability (STD) Plan and the McKesson Corporation Long Term Disability (LTD) Plan, both of which were administered by Life Insurance Company of North America (LINA).
Under the STD plan, an employee unable to perform all of the material and substantial duties of the employee’s occupation due to sickness or injury was eligible for up to 26 weeks of STD benefits, after which the employee became eligible for LTD benefits.
Plan documents vested LINA with discretionary authority to determine eligibility for STD benefits. If LINA denied an employee’s claim for STD benefits, the plan provided that the employee could appeal the denial through a two-level administrative appeals process. The plan also provided that employees had 180 days to file a first-level appeal and another 180 days to file a second-level appeal after receiving notification of the decision in the first appeal.
The plan required that LINA decide each appeal within 45 days, although those deadlines could be extended in certain circumstances. Beneficiaries were explicitly warned that “[n]o legal action may be taken to gain benefits from the STD plan” until the beneficiary had exhausted both levels of the administrative appeals process.
The plaintiff applied for STD benefits in August 2012. After requesting and receiving additional information from Messick, LINA approved STD benefits for the plaintiff through November 8, 2012, but denied benefits after that date. LINA also informed the plaintiff that it would refer his claim to the LTD department to evaluate his claim for LTD benefits. LINA denied LTD coverage in February 2013.
In July 2013, the plaintiff submitted through counsel a first-level appeal of the STD denial with updated medical records and statements from the plaintiff’s family members. LINA denied the plaintiff’s first-level appeal in September 2013. However, the denial letter was misaddressed and was not received by the plaintiff or his attorney.
Believing that LINA had exceeded the maximum time under the plan for deciding his first-level appeal, the plaintiff filed a lawsuit under the Employee Retirement Income Security Act of 1974 (ERISA), seeking benefits he claimed he was owed.
Thereafter, the plaintiff learned that his first-level appeal actually had been denied. The district court recognized the “procedural irregularity” that had occurred when LINA had misaddressed its denial letter, but ruled that LINA had not acted unreasonably in denying STD benefits to the plaintiff.
The plaintiff appealed to the U.S. Court of Appeals for the Tenth Circuit, which reversed the district court’s decision.
The circuit court explained that LINA’s failure to properly address its denial letter “cut off the administrative process midstream” and that the plaintiff “never filed a second-level appeal because he was never informed of the first-level denial.” This meant that there was no “complete administrative record” for the district court to review, the Tenth Circuit stated.
It pointed out that the plaintiff had asserted that he would be able to “provide meaningful new evidence or raise significant new issues” in a second-level appeal. In particular, the circuit court noted, the plaintiff contended that, had he been notified that his first-level appeal had been denied, he could have submitted an updated neuropsychological evaluation, letters from his physicians refuting the conclusions LINA had made in the first-level denial, and evidence that the material duties of his position required a higher degree of cognitive function than that required for regular activities of daily life.
The Tenth Circuit then ruled that, in light of the procedural irregularity and the resulting incomplete record, the appropriate remedy was a remand to LINA so that the plaintiff could pursue his second-level administrative appeal. [Messick v. McKesson Corp., 2016 U.S. App. Lexis 2904 (10th Cir. Feb. 17, 2016).]
Circuit Court Finds That Plaintiff Had Not Shown That Two Companies’ Employees Should Be Counted Together for His ADEA Lawsuit
The plaintiff sued his former employer, New Holland Logansport, Inc., alleging that he had been fired when he was 61 years old in violation of the federal Age Discrimination in Employment Act (the ADEA), which prohibits employers from discharging individuals because of their age.
New Holland Logansport, an Indiana-based company that sold farm equipment, moved for summary judgment, arguing that it was not subject to the ADEA because it did not meet the definition of “employer” as an entity that had 20 or more employees for each working day, in each of 20 or more calendar weeks, in the calendar year of (or in the year preceding) the allegedly discriminatory act.
The plaintiff contended that New Holland Logansport’s 17 employees had to be counted with the employees from a commonly-owned corporation, New Holland Rochester, which meant that New Holland Logansport was an “employer” with the requisite number of employees for purposes of the ADEA.
New Holland Logansport countered that it and New Holland Rochester operated as separate stores, maintained separate bank accounts, and generated their own invoices. Each company filed its own tax returns (although both used on their respective returns New Holland Rochester’s address, and although tax records for both companies were kept at that location). Store inventories also were maintained individually (although admittedly Rochester employees could view Logansport’s inventory, and vice versa, through a shared computer program).
The plaintiff initially focused on three particular individuals employed by New Holland Rochester – Bob Cannedy, Stacy Conner, and Melinda Straeter – arguing that they also maintained employment relationships with New Holland Logansport, which brought New Holland Logansport within the ADEA’s reach.
The plaintiff pointed out that Straeter coordinated payroll for the two companies; Cannedy did human resources work for both companies (and stored personnel files for employees of both corporations at his office in New Holland Rochester); and Conner did accounting for each. Moreover, the plaintiff noted, workers at both companies were subject to the same personnel policy and enjoyed the same employee benefits, and holiday parties were combined (as were monthly sales meetings and informational meetings about changes in health insurance). Computer training sessions for employees of both companies were held at New Holland Rochester, and New Holland Logansport’s financial records were kept there, as well.
The plaintiff also noted that his paychecks had been sent to him from the New Holland Rochester location.
The U.S. District Court for the Northern District of Indiana concluded that none of the three individuals cited by the plaintiff was employed by New Holland Logansport, and that even if they were, they still could not be counted toward the ADEA’s statutory minimum because they were at most part-time employees. Therefore, the district court granted summary judgment to New Holland Logansport, concluding that it did not have enough employees to qualify as an “employer” under the ADEA.
The plaintiff appealed to the U.S. Court of Appeals for the Seventh Circuit, which affirmed.
In its decision, the circuit court first explained that part-time status did not preclude counting an employee toward the 20-person minimum. It said that whether an individual was “employed” by someone on a particular working day depended not on whether (or the extent to which) the individual actually worked that day, but on whether there was an employment relationship at that time. It then examined whether New Holland Logansport maintained an indirect employment relationship with Cannedy, Conner, or Straeter during the relevant time period such that they were employed jointly by both corporations, and decided that it had not.
In reaching that conclusion, the circuit court examined five factors:
- The extent of the New Holland Logansport’s control and supervision over Cannedy, Conner, and Straeter;
- The kind of occupation and nature of skill required of Cannedy, Conner, and Straeter;
- New Holland Logansport’s responsibility for the costs of operation;
- The method and form of payment and benefits; and
- The length of the job commitment.
With respect to the first factor – which the Tenth Circuit said was “the most important” – the circuit court focused on the extent to which New Holland Logansport had the ability to hire and fire the alleged employees. It noted that New Holland Logansport’s manager, Mike Stephenson, had the authority to hire and fire New Holland Logansport employees. The Tenth Circuit pointed out, however, that Cannedy, Conner, and Straeter were not formally employed by New Holland Logansport and said that it was not clear whether Stephenson could have terminated New Holland Logansport’s relationship with any of them. The circuit court found no evidence that Stephenson dictated these individuals’ duties, set their schedules, or otherwise supervised the performance or execution of their work.
Examining the second and third factors, the circuit court found no evidence that Cannedy, Conner, or Straeter had received any training or instruction from New Holland Logansport. It also said that there was no evidence that New Holland Logansport had provided to these persons any special equipment or materials for their work.
The fourth factor also weighed against a finding that New Holland Logansport had an employment relationship with Conner, Cannedy, or Straeter, according to the circuit court. It pointed out that there was no evidence that New Holland Logansport had ever paid any of these individuals for their work, withheld taxes from their paychecks, or provided any direct benefits to them.
The Tenth Circuit decided that although the final factor might have supported the plaintiff’s position, because a reasonable juror could infer that an ongoing commitment was contemplated, the evidence as a whole did “not permit the conclusion that any of these individuals” was a New Holland Logansport employee.
Finally, the circuit court rejected the plaintiff’s argument that, even if New Holland Logansport was not Cannedy’s, Conner’s, or Straeter’s joint employer, it was covered by the ADEA because, for employee-counting purposes, all of New Holland Rochester’s employees had to be aggregated with New Holland Logansport’s employees. The circuit court said that employee aggregation was “an unusual step” because corporations, even if related to a certain extent, were “separate entities,” and had to be treated accordingly.
The circuit court conceded that New Holland Logansport and New Holland Rochester shared similar names, directors, and certain employees’ services. It declared, however, that the sharing did “not suggest” a misuse of corporate form. In the Tenth Circuit’s view, although board membership overlapped, the two boards were otherwise separate; each company had its own invoices and its own bank account, and filed its own tax returns; the companies operated out of separate locations, maintained separate inventories, and were responsible for their own advertising; and operations also were managed individually – by Stephenson at New Holland Logansport and by Jim Straeter (and Cannedy) at New Holland Rochester.
The Tenth Circuit concluded that the plaintiff had not demonstrated that New Holland Logansport was an “employer” under the ADEA, and summary judgment against the plaintiff was appropriate. [Bridge v. New Holland Logansport, Inc., 2016 U.S. App. Lexis 4403 (7th Cir. March 9, 2016).]
California Appeals Court Upholds Employer’s Calculation of Overtime on Attendance Bonuses
The plaintiff in this case began working as a warehouse associate for Dart Container Corporation of California, a producer of food service products, including cups and plates, in September 2010. The plaintiff was terminated in January 2012.
According to Dart’s written policy, an attendance bonus was payable to any employee who was scheduled to work a weekend shift and who completed the full shift. The bonus was $15 per day, for working a full shift on Saturday or Sunday, regardless of the number of hours worked beyond the normal scheduled length of a shift.
Dart calculated the amount of overtime paid on attendance bonuses during a particular pay period as follows:
- Multiply the number of overtime hours worked in a pay period by the straight hourly rate (straight hourly pay for overtime hours).
- Add the total amount owed in a pay period for (a) regular non-overtime work, (b) for extra pay such as attendance bonuses, and (c) overtime due from the first step. That total amount is divided by the total hours worked during the pay period. This amount is the employee’s “regular rate.”
- Multiply the number of overtime hours worked in a pay period by the employee’s regular rate, which is determined in step 2. This amount is then divided in half to obtain the “overtime premium” amount, which is multiplied by the total number of overtime hours worked in the pay period (overtime premium pay).
- Add the amount from step 1 to the amount in step 3 (total overtime pay). This overtime pay is added to the employee’s regular hourly pay and the attendance bonus.
During the plaintiff’s employment at Dart, he earned attendance bonuses during weeks he worked overtime and sometimes double time.
In August 2012, after he had been fired, the plaintiff filed a complaint for damages and restitution, alleging that Dart had not properly computed his bonus overtime under California law. He contended that his overtime should have been calculated in the following way:
- Multiply regular hours by the employee’s hourly rate (regular pay).
- Multiply overtime hours by the employee’s hourly rate (overtime pay on overtime hours).
- Divide flat sum bonus by regular hours (overtime rate), and multiply by 1.5 (overtime pay on bonus).
- Add pay for regular hours, bonus, overtime pay on overtime hours, overtime pay on bonus (total pay).
Dart moved for summary judgment, arguing that no California law specified a method for computing overtime on flat sum bonuses and that its formula for calculating overtime on the plaintiff’s attendance bonuses complied the federal formula for calculating bonus overtime and, therefore, was lawful.
The trial court granted Dart’s motion for summary judgment, and the plaintiff appealed to an appellate court in California. The appellate court affirmed.
In its decision, the appellate court noted that although Congress specifically has permitted states to enforce overtime laws more generous than the Fair Labor Standards Act of 1938 (FSLA), California has not regulated overtime pay on bonuses. Therefore, the appellate court said that it could not mandate and enforce compliance with the plaintiff’s proposed formula for computing overtime on bonuses because there was “no applicable statute or regulation providing for such a formula.”
The appellate court added that, in the absence of a formula for computing bonus overtime founded on binding state law, there was “no law or regulation the trial court or this court can construe or enforce as a method for computing plaintiff’s overtime bonuses,” other than the federal regulation at 29 Code of Federal Regulations part 778.209(a). That regulation, the appellate court noted, provides only a general formula for bonus overtime:
Where a bonus payment is considered a part of the regular rate at which an employee is employed, it must be included in computing his regular hourly rate of pay and overtime compensation. No difficulty arises in computing overtime compensation if the bonus covers only one weekly pay period. The amount of the bonus is merely added to the other earnings of the employee (except statutory exclusions) and the total divided by total hours worked.
Concluding that Dart had used a lawful formula for computing overtime on the plaintiff’s flat sum bonuses, the appellate court decided that the trial court had properly granted Dart’s motion for summary judgment. [Alvarado v. Dart Container Corp. of California, 243 Cal. App. 4th 1200 (2016).]
Reprinted with permission from the June 2016 issue of the Employee Benefit Plan Review – From the Courts. All rights reserved.