Antolik v. Saks, Inc.

463 F.3d 796

Michelle ANTOLIK, et al., Plaintiffs-Appellees/Cross-Appellants, v. SAKS, INCORPORATED, doing business as Younkers, Inc., Defendant-Appellant/Cross-Appellee.

No. 06-1046.

No. 06-1047.

No. 06-1141.

United States Court of Appeals, Eighth Circuit.

Submitted: June 12, 2006.

Filed: September 14, 2006.

COPYRIGHT MATERIAL OMITTED

Dennis W. Johnson, argued, Des Moines, Iowa, for appellant.

George A. LaMarca, argued, Des Moines, Iowa, for appellee.

Before LOKEN, Chief Judge, ARNOLD, Circuit Judge, and DOTY,^* District Judge.

LOKEN, Chief Judge.

Many salaried employees of Younkers, a department store division of Saks, Incorporated, lost their jobs in October 2002 when Saks consolidated the Younkers division into its Carson Pirie Scott division. Though Saks paid severance benefits, fifteen former Younkers employees commenced this class action in state court seeking additional severance benefits allegedly promised in an October 27, 2000, letter Saks distributed when it adopted an employee welfare plan entitled the 2000 Change of Control and Material Transaction Severance Plan (the "COC Plan"). Saks removed the case. When the district court ruled that the Employee Retirement Income Security Act ("ERISA") governs the COC Plan and preempts plaintiffs' state law claims, they asserted claims for relief under ERISA, 29 U.S.C. §§ 1001 et seq.

The district court certified the class and denied Saks's motion for summary judgment on plaintiffs' claims to recover benefits under the COC Plan and for appropriate equitable relief. See 29 U.S.C. §§ 1132(a)(1)(B), (a)(3). After a bench trial, the court ruled that the letter was a faulty summary plan description (SPD) that contradicted the COC Plan by promising benefits if Saks internally consolidated two operating divisions. Therefore, the court awarded plaintiffs the severance benefits promised in the letter and $301,110 in attorneys' fees and costs. Antolik v. Saks, Inc., 391 F.Supp.2d 771 (S.D.Iowa 2005). Saks appeals the judgment; plaintiffs cross appeal the court's preemption and set-off rulings. We review the district court's findings of fact for clear error and its legal conclusions de novo. Koons v. Aventis Pharm., Inc., 367 F.3d 768, 774 (8th Cir.2004). We conclude that the letter was neither an SPD nor a free-standing promise of benefits. Accordingly, we reverse.

I.

Beginning in 1989, Saks grew by acquiring a number of department store enterprises including Saks Fifth Avenue in the mid-1990's. In July 2000, with weak sales and declining profits from its traditional department store chains such as Younkers, Proffitt's, and Carson Pirie Scott, Saks announced that it would spin off the Saks Fifth Avenue, Saks Direct, and Saks Off Fifth stores to an independent company. This fueled rumors that Saks or its various department store groups were likely acquisition targets for larger competitors. In addition, Saks had recently consolidated the home office of its Herberger's division into the home office of Carson Pirie Scott in Milwaukee, and the home office of McCrae's into the home office of Proffitt's. The rumors and consolidations particularly concerned salaried employees at the Younkers home office in Des Moines because Younkers was now the smallest independent department store division.

In the fall of 2000, Saks sought to quiet these concerns, raise morale, and energize its salaried work force with a three-part package of incentives: a revised bonus plan offering the promise of fourth quarter bonuses in a slow year; new stock options geared to Saks's depressed share price; and the COC Plan to quell fears of unprotected job losses. The package was explained to affected Younkers employees at an October 27 meeting conducted by Mark Barkley, the vice president of human resources for the Younkers division. To explain the COC Plan, Barkley read an October 27 letter from Saks's CEO to eligible employees. The letter stated:

The Board of Directors of Saks Incorporated has adopted a change of control severance plan for certain salaried associates. We want to explain the reason for the plan and what it means to you. The Company (including the individual divisions that comprise it) is not for sale and we do not anticipate any circumstances leading to a change of control. However, some of you have suggested that we have associates who are distracted by the thought of such an event. The Board wants each key associate's full attention on achieving our plans and building a great enterprise. To support this goal and diffuse further concerns, the Board has provided a plan that functions as an associate insurance policy, protecting against an unlikely but worrisome event.

For you personally, were there to be a change of control or sale of a major business unit that caused the elimination of your position, a reduction in your pay, or a change of your location greater than 50 miles, you would be entitled to 26 weeks of salary.¹

Building and maintaining focus and commitment is critically important to our success. We are optimistic about the balance of this year and our prospects for 2001 and beyond. Neither the Corporation nor any of its divisions are for sale nor do we expect this to occur. This Company's leadership and its Board of Directors are fully committed to the business and believe that we can and will achieve our plans and create substantial long term value. Thanks for your commitment.

At trial, many plaintiffs testified that they left the meeting believing that the COC Plan would apply to internal consolidations, such as Herberger's and Carson Pirie Scott. Plaintiffs recalled no discussion of that issue at the meeting. On the other hand, Barkley testified that he was asked the question and told the group that the COC Plan would apply only to a change of control of Saks resulting from an external takeover, or to a sale by Saks of one of its major business units. Barkley described the COC Plan's severance benefits as unusually generous. As explained to him by an in-house attorney, the COC Plan was a form of "poison pill" intended by Saks to deter unwanted acquiring companies. But that intent was not disclosed to employees, nor did Saks disseminate any document clarifying that "change of control" under the COC Plan was limited to changes of control of the parent company.

The fourteen-page COC Plan declared that it "is intended to qualify as an unfunded welfare plan under" ERISA. The Plan stated that a participant will be entitled to severance pay and other Plan benefits if, within two years of a change of control, the participant is terminated or relocated more than fifty miles. "Change of control" was defined as the acquisition of voting control or majority ownership of Saks securities, or a shift in the controlling majority of its Board of Directors. In other words, change of control did not include internal consolidations of Saks divisions or affiliates. The COC Plan was not distributed to employees at the meeting or at any time thereafter. The district court found that "[i]t was the intent of Saks Inc. not to provide the Class Plaintiffs with" the COC Plan. Antolik, 391 F.Supp.2d at 777.

Two years later, Saks consolidated the Younkers home office into the Carson Pirie Scott home office. Saks paid severance benefits and "cooperation bonuses" to terminated Younkers' employees, as it had following prior internal consolidations. However, the amounts paid were substantially less than what class members would have received had the COC Plan applied to the consolidation. This lawsuit followed.

The district court held that the class plaintiffs are entitled to recover $1,661,317 in benefits due under the COC Plan. It is undisputed that plaintiffs are due no benefits under the terms of the Plan, which unambiguously provided that "change of control" did not include the internal consolidation of Younkers and Carson Pirie Scott. However, the court concluded that plaintiffs are entitled to recover COC Plan benefits because the October 27, 2000, letter was a faulty SPD that conflicted with the COC Plan by unambiguously promising severance benefits under the Plan to eligible Younkers employees who lost their jobs as a result of this internal consolidation. This legal conclusion regarding the letter's status under ERISA is the crux of these appeals.

II.

Adequate disclosure of employee benefits is an important ERISA principle. To this end, the statute provides that an ERISA plan administrator (here, Saks) shall furnish a "summary plan description" to plan participants and beneficiaries within 120 days after the plan becomes subject to ERISA. See 29 U.S.C. §§ 1022(a), 1024(b)(1)(B). An SPD "shall be written in a manner calculated to be understood by the average plan participant, and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan." 29 U.S.C. § 1022(a). Both the statute and the Secretary of Labor's implementing regulations contain detailed provisions specifying the types of information that must be disclosed in an SPD. See 29 U.S.C. § 1022(b); 29 C.F.R. § 2520.102-2, 102-3.

The district court correctly noted that, "[b]ecause of the importance of disclosure to the statutory regime, an SPD provision prevails if it conflicts with a provision of a plan." Jensen v. SIPCO, Inc., 38 F.3d 945, 952 (8th Cir.1994), cert. denied, 514 U.S. 1050, 115 S.Ct. 1428, 131 L.Ed.2d 310 (1995); see Koons, 367 F.3d at 775. This rule applies even if the SPD is "faulty"—that is, does not contain all the information required by the statute and regulations—provided the plan claimant proves reliance on or prejudice from the faulty SPD. See Marolt v. Alliant Techsys., Inc., 146 F.3d 617, 621 (8th Cir.1998). However, the rule does not apply if the conflicting document on which the claimant relies "was so thoroughly lacking in the required detail that it cannot be deemed even a faulty SPD." Palmisano...