F I L E D
United States Court of Appeals
Tenth Circuit
MAR 5 2003
PUBLISH
PATRICK FISHER
Clerk
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
DAVID B. CIRULIS,
Plaintiff - Appellant,
v. No. 01-3362
UNUM CORPORATION
SEVERANCE PLAN, UNUM
CORPORATION OFFICER
SEVERANCE PLAN, and ROBERT
CORNETT,
Defendants - Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
(D.C. No. 00-2178-CM)
Patrick K. McMonigle (John F. Wilcox, Jr., with him on the briefs), of Dysart
Taylor Lay Cotter & McMonigle, P.C., Kansas City, Missouri, for Plaintiff-
Appellant.
Morris J. Nunn of Stinson Morrison Hecker, L.L.P., Kansas City, Missouri, for
Defendants-Appellees.
Before HENRY , McWILLIAMS , and LUCERO , Circuit Judges.
LUCERO , Circuit Judge.
This case requires resolution of the following question: Does the Employee
Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq., authorize a
plan administrator to condition payment of severance benefits on an employee’s
assent to a non-solicitation provision not included on the face of a plan? David
B. Cirulis, formerly employed with UNUM Life Insurance Company (“UNUM”),
brought suit to recover severance payments denied to him after he refused to sign
a General Agreement and Release (“Release”) including a non-solicitation clause.
This clause prohibited Cirulis from soliciting UNUM employees or brokers to
terminate their relationships with UNUM or become employed by another
insurance company. 1
The district court granted summary judgment to UNUM,
dismissed Cirulis’s claims, and denied his subsequent motion for rehearing.
Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we reverse.
1
The clause stated:
You further agree that for a period of two years after your employment
termination from UNUM, you will not directly or indirectly solicit,
assist, or induce any of UNUM’s sales representatives, other
employees, or brokers to terminate their relationships with UNUM or
to become employed by or associated with another insurance company.
You acknowledge and agree that UNUM has a valid need to protect its
business by prohibiting such solicitation and that these restrictions are
both reasonable and necessary to protect UNUM’s business.
(1 Appellant’s App. at 109.)
-2-
I
In November 1998, after Cirulis had been employed with UNUM for
approximately thirteen years, UNUM announced a merger. Several years prior to
this, UNUM had established severance plans covering Cirulis. Under the terms of
these plans, the plan administrator, Robert Cornett, retained discretion to
determine benefit rights, eligibility, timing and amount of payments, and to
construe and interpret the terms of the plan. In order to receive benefits,
employees were required to sign a “General Agreement and Release.” Neither
party disputes that the severance plans at issue in this case are governed by
ERISA.
In April 1999, Cirulis learned that his position would be eliminated as a
result of the merger and on July 1, 1999, the effective date of the merger, he was
formally terminated. On June 24, 1999, Cirulis received a copy of the Release for
the first time, which included the non-solicitation clause as well as a waiver of
legal claims. On August 4, 1999, UNUM informed Cirulis that he would be
eligible only for employee-level severance benefits but not for enhanced officer-
level benefits. Cirulis obtained counsel, and repeatedly objected to and requested
negotiations regarding the non-solicitation clause. Eventually, he appealed to the
plan administrator both as to UNUM’s refusal to amend the non-solicitation
-3-
clause and as to the calculation of his benefits. Nonetheless, on February 22,
2000, UNUM accused Cirulis of violating the non-solicitation provision and, on
April 20, informed him that he was no longer eligible for either level of severance
benefits in light of his refusal to sign the Release and alleged violation of its
terms.
In response, Cirulis filed suit in federal district court under 29 U.S.C.
§ 1132, arguing that he was entitled to officer-level benefits notwithstanding his
rejection of the non-solicitation provision and that UNUM’s repeated failure to
provide him with documents relating to the severance plan subjected UNUM to
statutory penalties. On summary judgment, the district court dismissed the
claims, ruling that (1) Cirulis’s failure to sign the Release justified UNUM’s
denial of benefits, (2) conditioning benefits on the non-solicitation provision was
a reasonable exercise of the plan administrator’s discretion, and (3) Cirulis failed
to establish the bad faith required to recover statutory penalties. Cirulis v.
UNUM Corp. Severance Plan , No. 00-2178-CM (D. Kan. Sept. 5, 2001). The
district court declined to address the question of whether Cirulis was entitled to
officer-level benefits rather than employee-level benefits, concluding that his
refusal to sign the Release disqualified him under either plan. Id.
On appeal, Cirulis challenges the district court’s underlying summary
judgment order, arguing that the plan administrator acted arbitrarily and
-4-
capriciously in conditioning the payment of benefits on the non-solicitation
provision and in permitting amendments to the Release for three other employees
while refusing to allow any amendments as to his Release. 2
II
We review the grant of summary judgment de novo, applying the same legal
standard used by the district court. Save Palisade Fruitlands v. Todd, 279 F.3d
1204, 1209 (10th Cir. 2002). When a beneficiary challenges a denial of ERISA
benefits under § 1132(a)(1)(B) and the plan confers discretion on the plan
administrator to determine eligibility and to construe the plan’s terms, as here, 3
the reviewing court applies an arbitrary and capricious standard. Kimber v.
Thiokol Corp., 196 F.3d 1092, 1097 (10th Cir. 1999). “When reviewing under the
arbitrary and capricious standard, . . . [t]he [administrator’s] decision will be
upheld unless it is not grounded on any reasonable basis. The reviewing court
need only assure that the administrator’s decision fall[s] somewhere on a
2
Cirulis also contends that the district court erred in denying his motion
for rehearing under Rule 59(e) because the summary judgment order effectively
denied his statutory right to judicial review. Because, as discussed below, we
decide that the district court erred in granting summary judgment, we need not
address this issue.
3
UNUM’s plan provides: “The Plan Administrator shall have the full
discretion to make determinations as to the right of any person to a benefit in this
Plan. The Plan Administrator shall have the power to construe and interpret the
terms of this Plan, decide all questions of eligibility, and determine the amount
and time of payment of any benefits due under this Plan.” (1 Appellant’s App. at
79.)
-5-
continuum of reasonableness—even if on the low end.” Id. at 1098 (quotations
omitted).
Noting that the non-solicitation clause did not appear on the face of the
severance plan, Cirulis maintains that the plan administrator exceeded the bounds
of his discretion in conditioning payment of benefits on assent to this provision.
ERISA mandates that: “[e]very employee benefit plan shall be established and
maintained pursuant to a written instrument,” 29 U.S.C. § 1102(a)(1), and that
plan administrators provide benefits “in accordance with the documents and
instruments governing the plan,” § 1104(a)(1)(D). “[A] written plan is to be
required in order that every employee may, on examining the plan documents,
determine exactly what his rights and obligations are under the plan.” Curtiss-
Wright Corp. v. Schoonejongen, 514 U.S. 73, 83 (1995) (explaining the rationale
for ERISA writing requirements) (quotation omitted). Consequently, courts have
held that the imposition of new conditions that do not appear on the face of a plan
constitutes arbitrary and capricious conduct. Garratt v. Walker, 164 F.3d 1249,
1255 (10th Cir. 1998); Blau v. Del Monte Corp., 748 F.2d 1348, 1356 (9th Cir.
1985).
UNUM correctly points out that the severance benefits at issue in this case
constitute a welfare-benefit plan rather than a pension plan under ERISA.
Massachusetts v. Morash, 490 U.S. 107, 116 (1989). Although welfare-benefit
-6-
plans are not subject to all ERISA requirements that govern pension plans, Chiles
v. Ceridian Corp., 95 F.3d 1505, 1510 (10th Cir. 1996), we note that both
welfare-benefit and pension plans are subject to the ERISA reporting-and-
disclosure requirements discussed in Curtiss-Wright, 514 U.S. at 83, as well as to
ERISA fiduciary rules and enforcement measures. 29 U.S.C. § 1003 (cross-
referencing §§ 1051, 1081, and 1101, which exempt welfare-benefit plans from
participation and vesting requirements and funding requirements, but not from
reporting and disclosure requirements, fiduciary requirements, and enforcement
measures).
As welfare-benefit plans are exempt from ERISA’s minimum participation,
vesting, and funding requirements, however, employers may unilaterally enact
amendments to them when the face of the plan reserves this authority. Curtiss-
Wright, 514 U.S. at 78. However, an employer seeking to exercise this right must
satisfy two conditions. First, it must do so in accordance with written amendment
procedures provided on the face of the plan. Krumme v. Westpoint Stevens, Inc.,
143 F.3d 71, 84 (2d Cir. 1998); Miller v. Coastal Corp., 978 F.2d 622, 624 (10th
Cir. 1992). Second, it must provide notice of the amendment to participants and
beneficiaries within “210 days after the end of the plan year in which the change
is adopted.” 29 U.S.C. § 1024(b)(1). In this case, however, UNUM does not
argue that the non-solicitation clause constituted an amendment to the original
-7-
plan; rather, it argues that the clause was part of the original plan. In the absence
of briefing by either party on this issue, we decline to hold that the non-
solicitation clause constituted a permissible amendment to the original plan.
Rather, we proceed to inquire whether the severance plan as originally
promulgated conditioned payment of benefits on assent to a non-solicitation
provision. UNUM contends that the plan’s two references to an “Agreement and
General Release” that would need to be signed prior to the receipt of benefits
suffices to incorporate all Release provisions into the severance plan. Page two
of the severance plan states: “If an employee decides not to sign the Agreement
and General Release required under this Plan (see Release below), then that
employee will not be eligible to receive payment or other benefits under this
Plan.” (1 Appellant’s App. at 71.) Page seven of the plan provides: “No
employee will get a payment or other benefit under this Plan unless that employee
signs an Agreement and General Release (‘Release’). That Release includes
important terms that the employee should consider before making the decision to
sign it.” (1 id. at 76.) Beyond these two oblique references, the plan neither
mentions the Release, nor describes its terms.
Cirulis did not become informed of the terms of the Release until June 24,
1999, when he received a copy of it for the first time, two and one-half months
after he learned his position would be terminated and one week before he was
-8-
formally terminated. The Release included a clause prohibiting Cirulis from
soliciting UNUM employees or brokers to terminate their relationships with
UNUM or work for another insurance company. Until he received a copy of the
Release, years after the severance plan had been established, Cirulis had no notice
that severance benefits would be conditioned on this provision. By failing to
provide notice to employees that severance benefits would be conditioned on a
non-solicitation provision, the plan administrator’s conduct in this case
contravenes ERISA’s mandate that employee-welfare plans be written so as to
provide employees with notice of their rights and obligations under the
plan. Curtiss-Wright, 514 U.S. at 83.
Authorities cited by UNUM as providing succor for its position, Lockheed
Corp. v. Spink, 517 U.S. 882 (1996); Burrey v. Pac. Gas & Elec. Co., 159 F.3d
388 (9th Cir. 1998); Jefferson v. Vickers, Inc., 102 F.3d 960 (8th Cir. 1997); and
Friz v. J&H Marsh & McLennan, Inc., 2 Fed. Appx. 277 (4th Cir. 2001), do not
persuade us to adopt a contrary rule. UNUM argues that these cases stand for the
proposition that a plan administrator may condition benefit payments on terms
that do not appear on the face of a benefit plan. Such a rule would defeat the
express purpose of ERISA. “Nothing in ERISA requires employers to establish
employee benefit plans. Nor does ERISA mandate what kind of benefits
employers must provide if they choose to have such a plan. ERISA does,
-9-
however, seek to ensure that employees will not be left empty-handed once
employers have guaranteed them certain benefits.” Lockheed, 517 U.S. at 887
(citations omitted). Each of the four cases is clearly distinguishable from the
present case.
In Lockheed Corp. v. Spink, an employee filed suit under ERISA alleging
that his former employer, Lockheed, violated its fiduciary duties in conditioning
early retirement benefits on his waiver of legal claims. 517 U.S. at 888–90. In an
earlier version of the plan, Lockheed provided no retirement benefits to anyone
hired when they were over age sixty. Id. at 885. In conformity with newly
enacted antidiscrimination laws, however, Lockheed amended its plan in 1988 to
provide retirement benefits regardless of the employee’s age when hired. Id. As
an incentive, however, Lockheed provided enhanced benefits for early retirement,
in exchange for the employee’s waiver of legal claims against Lockheed. Id.
Although Spink was eligible for the early retirement program, he declined to
participate because he did not want to waive his legal claims. Id. at 885–86. On
review, the Supreme Court rejected Spink’s argument that the early retirement
plan violated Lockheed’s fiduciary duty under ERISA: “We thus hold that the
payment of benefits pursuant to an amended plan, regardless of what the plan
requires of the employee in return for those benefits, does not constitute a
-10-
prohibited transaction [within the meaning of ERISA § 406(a)(1)(D)].” Id. at 895.
Lockheed is not implicated in the instant case because nothing in Lockheed
suggests that the challenged provision did not appear on the face of the plan as
properly amended, nor is there any suggestion that Spink had no prior notice of it.
In addition, the Supreme Court’s holding in Lockheed was limited to interpreting
the term “prohibited transaction” as used in § 406(a)(1)(D). In contrast, Cirulis
does not claim that the plan administrator’s inclusion of the non-solicitation
condition constituted a “prohibited transaction” in violation of the administrator’s
fiduciary duties. Rather, he claims that the non-solicitation clause constituted an
impermissible condition to payment of benefits because it was not included on the
face of the plan.
Lockheed differs from the present case in a further respect. Even if the
waiver provision in Lockheed did not appear on the face of the plan, the condition
in Lockheed nevertheless left the standard benefits under the plan intact. Were an
employee to reject the waiver condition, he would remain entitled to the standard
retirement package, although he would not receive enhanced early-retirement
benefits. Id. at 885–86. In the instant case, in contrast, assent to the challenged
conditions was required in order to receive any benefits. 4
4
Lockheed is also distinguishable from the present case in that the
challenged provision in Lockheed involved a waiver of legal claims. In this case,
(continued...)
-11-
UNUM also cites Jefferson v. Vickers, Inc. in support of its position. In
that case, William Jefferson participated in a pension plan established by his
employer, Vickers, which provided for the vesting of pension benefits upon the
employee’s having worked at Vickers for five years. 102 F.3d at 962. When
Jefferson was terminated, he had only been employed by Vickers for four years,
eight months, and fifteen days. Id. Vickers offered to extend Jefferson’s
severance payments, which would permit his pension benefits to vest, in exchange
for Jefferson’s release of any legal claims against Vickers. Id. Jefferson refused
and subsequently filed suit against Vickers, alleging that Vickers intentionally
interfered with his pension rights in violation of section 510 of ERISA. Id. In
concluding that Jefferson failed to establish Vickers’ intent to interfere, the
Second Circuit noted: “An employer does not violate ERISA when it conditions
the receipt of early retirement benefits upon the participants’s waiver of
employment claims.” Id. at 964 (citing Lockheed, 517 U.S. at 894–95).
In Jefferson, the Second Circuit was not faced with and did not discuss the
question presented in this case—whether an employer may condition severance
4
(...continued)
Cirulis challenges not only the waiver in the Release, but also the non-solicitation
provision. Even if we were to accept the proposition that an employer may
condition severance payments on a waiver of legal claims that does not appear on
the face of the plan, it does not necessarily follow that non-solicitation clauses
should be treated identically.
-12-
payments on a non-solicitation provision when the provision did not appear on the
face of the plan. Moreover, in Jefferson, the waiver of legal claims was a
condition for benefits to which Jefferson would not otherwise be entitled, rather
than a condition for benefits that were already promised him. Jefferson may thus
be distinguished from the instant case. 5
Similarly, Burrey v. Pacific Gas & Electric Co. fails to persuade us to adopt
UNUM’s position. In Burrey, clerical workers employed on a temporary basis
with PG&E sued for benefits promised under PG&E’s severance plan. 159 F.3d
at 390–91. In rejecting this claim, the Ninth Circuit held that the employees
lacked standing because they could not show they were beneficiaries to the
severance plan in light of their refusal to sign the required Severance and
Agreement Release. Id. at 395–96. As in the present case, PG&E’s severance
plan indicated that benefits would be conditioned on employees’ signing a release.
Importantly, however, there was nothing to suggest that the Burrey employees
lacked notice of the terms of the release form. Burrey does not discuss whether
an employer may condition benefits on employees’ assent to Release terms when
the employees had no prior notice of these terms.
5
In addition, as in Lockheed, the challenged condition was a waiver of
legal claims, not a non-solicitation clause.
-13-
Finally, UNUM cites an unpublished opinion, Friz v. J&H Marsh &
McLennan, Inc., in which the Fourth Circuit upheld the conditioning of severance
benefits on employees’ assent to a non-solicitation clause. Given that Friz is
unpublished, and that the facts did not present an opportunity for the Fourth
Circuit to indicate how it might rule on the issue squarely before us, we do not
consider it further.
Because we conclude that the plan administrator acted arbitrarily and
capriciously in conditioning payment of severance benefits on assent to a non-
solicitation provision of which employees had no notice, 6 we do not address
6
Although neither party raised the issue in their briefs, we acknowledge
the possibility that the plan administrator’s actions may be subject to the sliding-
scale of deference we articulated in Kimber, 196 F.3d at 1097. In Kimber, we
held that when the plan administrator operates under a conflict of interest,
although “[t]he standard always remains arbitrary and capricious, . . . the amount
of deference present may decrease on a sliding scale in proportion to the extent of
conflict present.” Id. at 1097 (quotation omitted). Evidence of a conflict of
interest requires “proof that the plan administrator’s dual role jeopardized his
impartiality.” Id. (quotation omitted). “[T]he mere fact that the plan
administrator was a [company] employee is not enough per se to demonstrate a
conflict. Rather, a court should consider various factors including whether: (1)
the plan is self-funded; (2) the company funding the plan appointed and
compensated the plan administrator; (3) the plan administrator’s performance
reviews or level of compensation were linked to the denial of benefits; and (4) the
provision of benefits had a significant economic impact on the company
administering the plan.” Id. (quotation and citation omitted).
More recently, in Pitman v. Blue Cross & Blue Shield of Okla., 217 F.3d
1291, 1296 (10th Cir. 2000), we suggested that when the plan administrator and a
third-party insurer are the same entity, this alone may suffice to show a conflict of
(continued...)
-14-
Cirulis’s argument that the plan administrator acted arbitrarily and capriciously in
refusing to negotiate the terms of the Release with Cirulis when he was willing to
do so for three other employees.
III
We REVERSE the grant of summary judgment and REMAND for further
proceedings consistent with this opinion. On remand, the district court must
determine whether Cirulis was entitled to officer-level rather than employee-level
benefits. 7
6
(...continued)
interest. Pitman’s holding was expressly limited to exclude situations in which a
plan is self-funded, i.e., where an employee of the company administers the plan.
Id. at 1296 n.4. Unlike an insurer, an employer (or its agent-employee) does not
usually derive its profit solely from the administration of the benefits plan. Id.
In this case, the plan administrator is an employee of UNUM, rather than a
third-party insurer. This suggests that Pitman may not apply. However, as
UNUM, unlike most other employers, presumably derives profits from
administering employee benefit plans for other companies, it is arguable that the
identity of the plan administrator as a UNUM employee may, standing alone,
provide sufficient evidence of a conflict warranting a reduced level of deference.
Nevertheless, we need not decide this issue, as we conclude that even under the
most deferential version of the standard, the plan administrator’s actions in this
case were arbitrary and capricious.
7
UNUM suggests that Cirulis has waived his claim to officer-level rather
than employee-level benefits due to his failure to present this issue on appeal.
However, Cirulis could not have raised this argument on appeal because the
district court did not address the merits of this claim, reasoning that Cirulis’
refusal to sign the Release disqualified him from either plan.
-15-