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Frederick L. Adair v. Abbott Severance Pay Plan For Employees of Kos Pharmaceuticals

February 24, 2011

FREDERICK L. ADAIR,
PLAINTIFF,
v.
ABBOTT SEVERANCE PAY PLAN FOR EMPLOYEES OF KOS PHARMACEUTICALS, DEFENDANT.



The opinion of the court was delivered by: Noel L. Hillman, U.S.D.J.

OPINION

APPEARANCES: Andrew P. Campbell, Esquire John J. Delany, III, Esquire Delany & O'Brien 161 N. Broad Street Woodbury, N.J. 08096 Attorneys for Plaintiff Frederick L. Adair James S. Richter, Esquire Jeffrey P. Catenacci, Esquire Winston & Strawn, L.L.P. The Legal Center One Riverfront Plaza 7th Floor Newark, N.J. 07102 Attorneys for Defendant Abbott Severance Pay Plan for Employees of Kos Pharmaceuticals

HILLMAN, District Judge

Plaintiff, Frederick L. Adair, seeks severance benefits, injunctive relief, and damages from Defendant, Abbott Severance Pay Plan for Employees of Kos Pharmaceuticals. The severance plan at issue is an employee welfare benefit plan as described in 29 U.S.C. § 1002(2)(B) of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq. Plaintiff moves for summary judgment. Defendant cross-moves for summary judgment.

For the following reasons, Plaintiff's Motion for Summary Judgment is granted in part and denied in part. Defendant's Cross-motion for Summary Judgment is granted in part and denied in part.

I. JURISDICTION

Plaintiff has brought his claims pursuant to ERISA. This Court has jurisdiction over Plaintiff's federal claims under 28 U.S.C. § 1331 and 29 U.S.C. § 1132(e).

II. BACKGROUND

Kos Pharmaceuticals ("Kos") was a manufacturer, distributor, and seller of specialty pharmaceutical products. In 2006, it adopted the Kos Pharmaceuticals Change in Control Severance Plan, which provided severance benefits to a Kos employee who terminated his or her employment for "Good Reason." (Administrative Record ("AR") at 22). Among the suitable reasons to terminate employment under Kos' severance plan were if the employee suffered a material reduction in the total cash compensation that he or she was eligible to earn, or if the employee's job responsibilities or reporting relationships were significantly reduced or altered, respectively. The actual relevant portion of Section I(o) of the severance plan defined "Good Reason" as:

(i) a greater than 10% reduction of the Participant's annual base salary, or any material reduction in the total cash compensation that the Participant is eligible to earn, from the level in effect immediately prior to December 15, 2006.

(ii) any demotion or other significant reduction in the job responsibilities held by the Participant immediately prior to December 15, 2006, or any significant change to the reporting relationships of the Participant as in effect immediately prior to December 15, 2006[.] (AR 4). Participants of the severance plan could receive cash payments, prorated annual bonuses, and other employee benefits, including health and welfare benefits, even after they terminated their employment for good reason.

In or around 2006, Adair was employed with Kos as an Associate Director of Quality Control. In December 2006, however, Kos was purchased by a larger pharmaceutical company, Abbott Laboratories ("Abbott"). Consequently, all of Kos' former employees, including Adair, became employees of Abbott or one of its subsidiaries. Moreover, pursuant to the parties' transaction agreement, Abbott agreed to maintain and administer severance benefits for any employees who were employed by Kos on December 15, 2006. Under Abbott, the Kos severance plan was renamed the "Abbott Severance Pay Plan for Employees of Kos Pharmaceuticals" ("Severance Plan" or "Plan"). By the Severance Plan's own terms, the administration of the Plan was to be entrusted to the discretion of Abbott's Divisional Vice President, Employee and Labor Relations, who was designated as the Plan Administrator.

In a letter dated September 11, 2007, Adair notified Abbott that he would resign from his position within thirty days. He also explained that, by his estimation, the resignation was for "Good Reason" and entitled him to the severance benefits enumerated in the Plan. (AR 51). In support of his claim, Adair cited a material reduction in the total cash compensation he was eligible to earn, a significant reduction in job responsibilities, and significant changes in his reporting relationships. More specifically, Adair explained that Abbott's buyout of Kos reduced his eligible compensation by restricting merit increases for 2006 performance whereby the payout in April 2007 was not retroactive to January 2007; by prohibiting employees from participating in Abbott's cash profit sharing plan until the transition to Abbott benefits becomes effective on January 1, 2008; by not funding the Abbott Pension Plan for Kos Employees until January 1, 2008; by eliminating the bonus program for Kos Employees in 2007; by not providing bonus award compensation in the form of stock options or restricted stock; and by not having an Employee Stock Purchase Plan. (AR 51). With respect to his job responsibilities, Adair recalled that his unit had been reorganized, a group from his unit being realigned into another unit, and "with the resignation of [his] Senior Manager," Adair's responsibilities became "primarily tactical in function and the reporting structure within the Edison Quality organization [became] a single person, direct line relationship from Manager to Associate Director to Director to Executive Director." (AR 51). In addition, he did not have any input into his employees' bonuses. For those reasons, Adair believed he was entitled to severance benefits.

In a letter dated October 31, 2007, the Abbott Severance Committee ("Committee") responded to Adair's notice and found that he was not entitled to severance benefits because he voluntarily terminated his employment without good reason. (AR 52). With respect to a material reduction in total cash compensation, the Committee explained that "a participant does not experience a material reduction in the total cash compensation that he or she is eligible to earn unless the participant's total cash compensation, measured at target levels, is reduced by at least 10 percent." (AR 53). Further, the total cash compensation that a participant is eligible to earn, the Committee said, includes "base salary and target bonus." (AR 53). Based on those conclusions, the Committee calculated Adair's base salary and bonus for 2007 and found that in comparison to his total compensation for 2006, he actually was earning more in 2007. As for his job responsibilities, the Committee informed Adair: "Up until your resignation your job responsibilities continued to be Quality Assurance Management based at the Edison, NJ manufacturing site. While your assignment at Abbott represents a change in job responsibilities, it does not represent a reduction in job responsibilities nor does it represent a demotion." (AR 54).

Adair appealed the denial of his severance benefits in a letter dated November 11, 2007. (AR 59). He reiterated and bolstered the points he made in his resignation letter and articulated additional arguments. Nevertheless, in a letter dated December 5, 2007, the Plan Administrator affirmed the Committee's decision and denied Adair's appeal. (AR 83). In particular, the Administrator stated:

Section I(o)(i) of the Plan states that any material reduction is based upon total cash compensation eligible to earn, not based upon past actual earnings. Therefore, the Committee appropriately used bonus targets plus base salary as the method for calculating the amount eligible to earn. Additionally, non-cash compensation such as stock options, restricted stock, pension funding, etc., were appropriately not included in the total cash compensation calculation. (AR 84). Consequently, the Administrator accepted the Committee's financial representations and added that Adair did not provide "any additional information that demonstrates that the Committee incorrectly calculated [his] reduction in total cash compensation that [he was] eligible to earn." (AR 85). Moreover, the Administrator found that Adair had not suffered a significant reduction or change in his job responsibilities. According to the Administrator, While there was a reorganization following the acquisition that did not constitute a significant reduction in job responsibilities nor did it constitute a demotion. While I understand that you perceive that the resignation of a subordinate Senior Quality Control Manager had an adverse impact on you, in reality your level of job responsibility, reporting structure, job title and salary were not diminished. (AR 85).

In or around July 2009, Adair filed the present suit in this Court. He moved for summary judgment in April 2010. Abbott then cross-moved for summary judgment.

III. DISCUSSION

A. Standard for Summary Judgment

Summary judgment is appropriate where the Court is satisfied that "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 330 (1986); Fed. R. Civ. P. 56(c).

An issue is "genuine" if it is supported by evidence such that a reasonable jury could return a verdict in the nonmoving party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is "material" if, under the governing substantive law, a dispute about the fact might affect the outcome of the suit. Id. In considering a motion for summary judgment, a district court may not make credibility determinations or engage in any weighing of the evidence; instead, the nonmoving party's evidence "is to be believed and all justifiable inferences are to be drawn in his favor." Marino v. Indus. Crating Co., 358 F.3d 241, 247 (3d Cir. 2004) (quoting Anderson, 477 U.S. at 255).

Initially, the moving party has the burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp., 477 U.S. at 323. Once the moving party has met this burden, the nonmoving party must identify, by affidavits or otherwise, specific facts showing that there is a genuine issue for trial. Id. Thus, to withstand a properly supported motion for summary judgment, the nonmoving party must identify specific facts and affirmative evidence that contradict those offered by the moving party. Anderson, 477 U.S. at 256-57. A party opposing summary judgment ...


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