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Frank v. Colt Industries

filed: August 6, 1990.

WILLIAM R. FRANK
v.
COLT INDUSTRIES, INC., COLT INDUSTRIES OPERATING CORPORATION FORMERLY CRUCIBLE, INC., COLT INDUSTRIES OPERATING CORPORATION SEVERANCE PLAN FOR SALARIED EMPLOYEES; PAUL K. SCHAKE, GEORGE W. HENGLEIN, GUS DAUKA, RICHARD B. ANDREWS, THEODORE KRUPA, RALPH ASHENBAUGH, E.E. KNAPEK, ROBERT R. VLAH, THOMAS H. WILLS, EDMUND M. WERRIES, JR., GEORGE BROWN, JOHN MCKAIN, EARL CHAPMAN, WILLIAM L. GLEASON, R.C. YOUNG, JOHN E. GRIMM, KENNETH M. JANKE, HENRY L. TAYLOR, A.H. SHELINE, LOUIS YOUNG, JR., CARL J. MYERS, EARL CHAPMAN, ALBERT MORRISON, J.D. BALSER, A. BARRASSO, C.R. BLAZIER, J.P. BRESSANELLI, E.C. CALVIN, T.M. COSTELLO, H. FARRINGTON, E.R. FINGER, R. FRONKO, E.R. GUERRA, R. HANSEN, D. HELDMAN, R.T. HOPPER, R. JOHNSON, JR., E.T. JONES, R. KAO, P.A. KEYS, W.J. KOFALT, S.W. KOHLER, R.H. LEWIS, M. MITROVICH, M.A. MOLCHAN, C. MURRAY, G.V. PETERSON, W.J. POPP, D.E. POWELL, R.W. PRENTICE, W.C. PRICE, L.E. RAYKOVICS, T.R. REED, J. W. REIDER, K. E. SANDERS, M. SARVER, A. E. SIX, E.H. SPAZIANI, J.R. TICE, D.A. TOWNLEY, R. TRBOVICH, R.T. TURNER, D.W. WARE, J.A. WHITFIELD, T. WILLIAMS, JR., A.J. YANNI, H. YUTE, W.I. ZAZWIRSKY AND ADDITIONAL PLTFS BRESSANELLI, COSTELLO, POPP AND TRBOVICH, ALSO JOIN IN THE ALLEGATIONS MADE UNDER COUNT IX OF THE PENDING COMPLAINT AND JOIN IN THE DEMAND FOR A JUDGMENT AWARDING SEVERANCE PAY J.L. CERASI, S. CHRISTY, A.P. DIMARZIO, N.G. FREDERICK, A.J. GOLUTZ, P. GRUBBS, J.D. HAMACHER, JR., J.K. HILE, H.M. HOWELL, R.W. KNALLAY, T. KOMINITSKY, W. LAKE, D.F. LANEVE, W.R. LIVINGSTON, A.J. LYNN, H. MRAUNAC, M.R. MUCKIAN, D.B. MCCLAIN, G.C. PESCION, J. PRESUTTI, M.J. ROSE, J.W. SCHOLTZ, J.F. SUFFOLETTA, F.S. THORNBERRY, JR. (ADOPT THE ALLEGATIONS OF PARAGRAPHS 1 THRU 3 OF PENDING COMPLAINT AND ALLEGATIONS OF PARAGRAPHS 4 THROUGH 72 OF CTS. I THRU VII OF SAID COMPLAINT AND JOIN IN THE DEMAND FOR JUDGMENT) R.L. APPLEDORN, M.I. HARPHAM, D.P. KERR, A.J. PASKO, JR., W.W. SIMPSON, G.T. WEEKLEY (AS TO PARAS. 1 THRU 3 OF COMPLAINT AND CTS. I - VIII AND CTS. XII AND XIII OF 1ST AMENDED COMPLAINT) L.C. ALBACKER, J.W. BAGOSI, H.W. BIGELMAN, F.C. BUCHOLZ, A.J. DECOSTA, M. DEGRANDE, A. DICICCIO, C.J. DIMARZIO, R.J. DOUGHERTY, M. FERLAINO, J.N. FLARA, R. GOTT, R.S. HOGSETT, P.R. KULLEN, R.A. KIPPERT, J. LUTTON, E.L. MARSH, F. MATSUKAS, H.J. MERCER, A.R. MIDDLETON, L.V. NAGLE, H.W. PEASE III, W.H. STEPHENS, K.E. THOMAS, J.A. NUZZO, K.G. WASSMAN, JR., D.L. WESTFALL (CTS. II, III, VII AND VIII OF FIRST AMENDED COMPLAINT) J.O. BAUER, P. CASTELLANO, L. GORDON, J. HAAF, K. JOHNS, W.H. ORR, M.L. SHERRY, J.E. SMITH (CTS. II, III, IV, AND VII OF 1ST AMENDED COMPLAINT) (ADDITIONAL PLTFS -- JOINED 11/4/86 ADDED ON SEVERANCE PAY COMPLAINT OF 12/29/86 JOHN R. BUTCHKO, JOHN R. KUNDICK AND THEODORE LEHMANN V. COLT INDUSTRIES OPERATING CORPORATION SEVERANCE PLAN FOR SALARIED EMPLOYEES; WILLIAM R. FRANK, PAUL K. SCHAKE, JEROME P. BRESSANELLI, JOHN R. BUTCHKO, THOMAS M. COSTELLO, JOHN E. GRIMM, GEORGE W. HENGLEIN, WILLIAM J. KOFALT, THEODORE R. KRUPA, JOHN R. KUNDICK, THEODORE LEHMANN, ALBERT N. MORRISON, CARL J. MEYERS, ROBERT TRBOVICH, LOUIS H. YOUNG, JR., JESSE PRESUTTI, AND ROBERT R. VLAH, APPELLANTS



On Appeal from the United States District Court for the Western District of Pennsylvania (Pittsburgh); D.C. Civil Action Nos. 83-2510 and 83-2511.

Stapleton, Greenberg, and Garth, Circuit Judges.

Author: Stapleton

Opinion OF THE COURT

STAPLETON, Circuit Judge.

In this case we are presented with a claim by former employees for severance pay pursuant to what they assert is an employee benefit plan covered by the Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat. 829, codified as amended, 29 U.S.C. § 1001 et seq. We have found ourselves visiting this complex area with great frequency recently. See, e.g., Hozier et al. v. Midwest Fasteners, Inc., 908 F.2d 1155 (3d Cir. 1990); Flick et al. v. Borg-Warner Corp., 892 F.2d 285 (3d Cir. 1989); Ulmer v. Harsco Corp., 884 F.2d 98 (3d Cir. 1989). The case currently before us requires us to determine whether the employer's creation of a new benefit to be paid to certain employees upon termination supplants rights they possessed under a previously established severance plan. In the alternative, the employer asks us to find that it permissibly denied severance benefits pursuant to its reservation in the plan documents of complete discretion over the payment or withholding of severance pay. We find that the district court erred in concluding that the employer's institution of "Continuance Bonuses" supplanted the employees' previously established right to severance pay and in granting summary judgment in favor of the defendant on that basis. We also conclude that the defendant waived any argument predicated upon the discretion provision of the severance plan by its failure to raise this argument in prior proceedings, and therefore that the judgment of the district court may note affirmed on this alternative ground. Finally, reviewing the district court's denial of plaintiffs' cross-motion for summary judgment, we conclude that all but three of the plaintiffs are entitled to severance pay as provided by the Plan.

I. Facts and Procedural History

In 1982, Colt Industries Operating Corporation (CIOC), through its subsidiary Crucible, Inc., decided to either sell or close operations at its plant in Midland, Pennsylvania.*fn1 This decision has led to an extraordinary amount of litigation, some of which has made its way to this Court. See Ashenbaugh v. Crucible Inc., 1975 Salaried Retirement Plan, 854 F.2d 1516 (3d Cir. 1988), cert. denied 490 U.S. 1105, 109 S. Ct. 3155, 104 L. Ed. 2d 1019 (1989); Anthuis v. Colt Industries Operating Committee, 789 F.2d 207 (3d Cir. 1986). Indeed, this is the second time the instant case has come before us. In 1987, this case was briefed and argued, but because the district court had applied an "abuse of discretion" standard in reviewing the plan administrator's decision to deny severance pay, and this court had recently announced that a plenary standard is called for, at least when an employer acts as plan administrator, Bruch v. Firestone Tire and Rubber Co., 828 F.2d 134 (3d Cir. 1987), we held the case to await the result of Supreme Court review of that case. The Supreme Court affirmed Bruch with regard to standard of review, holding that "for purposes of actions under [29 U.S.C.] § 1132(a)(1)(B), the de novo standard of review applies regardless of whether the plan at issue is funded or unfunded and regardless of whether the administrator or fiduciary is operating under a possible or actual conflict of interest." Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 109 S. Ct. 948, 956, 103 L. Ed. 2d 80 (1989). We thereafter vacated the order of the district court and remanded the matter for further consideration. In a one paragraph memorandum order, the district court held that "after further review, we find that we reached the correct result under the standard established in Bruch."

Plaintiffs in the instant case once again appeal the district court's summary judgment in favor of the defendant, as well as the denial of summary judgment in their own favor.

The Severance Plans

It is undisputed that prior to the decision to close or sell Midland, Crucible maintained a defined severance policy, consisting of a "Basic Severance Plan" and a "Key Executive Severance Plan." Generally, the basic plan provided for severance pay of between one-half and four months' salary, and the key executives' plan provided for between two and six months' salary, with the precise amount depending upon the employee's years of service at Crucible. Most of the plaintiffs in this case were classified as "key executives." While Colt acknowledges that these policies are employee benefit plans governed by ERISA, it did not realize this was the case at the time the policies were promulgated, and did not comply with the reporting, disclosure, and other requirements imposed by the Act. 29 U.S.C. § 1021 et seq. As a result, it is impossible to identify a single document as "the Plan"; instead, the plan terms are described in a series of documents. The record does not disclose which, if any, of these documents were distributed to the participants. However, the plaintiffs alleged in their complaint that "the provisions of the defendant Plan were published and made known to the plaintiffs," Amended Complaint para. 6, and the defendant in its answer admitted this allegation. Answer to Amended Complaint para. 6.

The most complete plan description is found in a five-page memorandum dated April 29, 1981, titled "Severance and Termination Allowance for Non-Union, Salaried Employees." App. at 164-68. This memo, from E. A. March, Group Vice-President, begins by stating that "this memorandum rescinds my [earlier memo] on this subject." App. at 164. Accordingly, we conclude that the contents of any earlier documents are not relevant in determining the terms of the Plan. The distribution list at the end of the memo indicates that none of the plaintiffs were provided with a copy; indeed, only two people at Midland, Division President Vensel and Division Vice President in Charge of Personnel Roy Barr, received a copy.

The Plan is also described, with slight but significant differences, in a document dated April 20, 1982, titled "Salaried Exempt and Excluded Employees." App. at 170-72. While there is no direct evidence that this document was distributed to employees, the language contained therein strongly suggests that this was the case. In particular, the last paragraph reads: "This information will enable you to start thinking about your various options when your services are terminated. You will, however, have an opportunity to discuss these options in more detail with a personnel representative when the time arrives." App. at 172.

Finally, the record contains an undated memorandum entitled "Summary - Special Midland Salary Non-Union Shutdown Program." App. at 173-176. This document, which does not appear to have been distributed to employees, contains the only description of the distinct -- and more lucrative -- benefits for "key executives."

The parties agree as to the amounts provided by the "Basic Severance Benefit" and the "Key Executive Benefit," as well as which plaintiffs were classified as key executives and which were not.

The Continuance Agreements

When Crucible decided to terminate its Midland operations, it did not abandon the hope that the Midland plant could be sold as an ongoing entity. The attraction of the business naturally would be increased if Crucible could deliver with the physical plant a number of experienced employees; additionally, retention of such employees was necessary to ensure an orderly "winding down" process. Of course, after the closing announcement these employees would be likely to immediately seek new jobs and would resign the moment they found them. Recognizing this, Crucible created an incentive for selected employees to remain for fixed periods of time, by presenting them with documents entitled "Continuance Agreements." While the specific wording of these agreements varied, the following is a representative example:

A Continuance Agreement

Between [name of the employee] and Crucible Stainless and Alloy Division, Crucible, Inc., for the period March 1, 1982 until September 30, 1982 (the "Agreement Period").

It is agreed that should you voluntarily continue full employment at Crucible Stainless and Alloy Division for the Agreement Period, you shall receive your current compensation and benefits and upon September 30, 1982 should separation be necessary, you shall receive an accrued continuance bonus equal to a month's salary for each month of continued employment up to September 30, 1982 (seven (7) months' accrued).

Should a purchaser of Crucible Stainless and Alloy Division continue your employment at any time during this Agreement Period, making separation unnecessary, no accrued continuance bonus shall be provided . . .

Should you be provided a comparable position of employment within another Colt division, wherein no separation is necessary, the ...


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