In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 12‐3704 & 12‐3804
PACTIV CORPORATION and PACTIV CORPORATION 2010/2011
SEVERANCE BENEFITS PLAN,
Plaintiffs‐Appellants, Counterdefendants‐Appellees,
v.
CHAD RUPERT,
Defendant‐Appellee, Counterplaintiff‐Appellant.
____________________
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 11 C 7247 — William T. Hart, Judge.
____________________
ARGUED MAY 28, 2013 — DECIDED AUGUST 1, 2013
____________________
Before EASTERBROOK, Chief Judge, and WILLIAMS and
HAMILTON, Circuit Judges.
EASTERBROOK, Chief Judge. Reynolds Group Holdings ac‐
quired Pactiv Corp. in 2010. The acquisition agreement,
which made Pactiv a wholly owned subsidiary, calls for sev‐
erance pay to any non‐union employee let go without cause,
within a year, as a result of the transaction.
2 Nos. 12‐3704 & 12‐3804
After the closing, Pactiv established a severance‐pay
plan. The clause in the acquisition agreement was skeletal;
the plan itself contained many implementing terms, includ‐
ing a requirement that the departing worker execute a “sep‐
aration agreement”, “in a form acceptable to the Company,”
releasing all other claims against Pactiv.
Within a year of the acquisition Pactiv directed Chad Ru‐
pert to move to a new city. He declined, and Pactiv acknowl‐
edged that this entitled Rupert to severance pay under the
plan. It sent him a separation agreement—which contained
some unwelcome terms. Pactiv demanded that Rupert prom‐
ise that for the next year he would not work for any of its ri‐
vals in research and development, solicit the sale of any
competing goods and services, or try to hire any of Pactiv’s
staff. Observing that he had not previously been subject to a
restrictive covenant, and contending that he should not be
required to submit to one under the severance plan, Rupert
declined to sign. Pactiv withheld the severance benefits, and
Rupert sued. So did Pactiv, seeking a declaration that its de‐
cision is lawful.
The district court held that Rupert is entitled to the bene‐
fits because the formal plan, governed by ERISA (the Em‐
ployee Retirement Income Security Act), lacks any language
conditioning severance pay on signing a restrictive covenant.
2012 U.S. Dist. LEXIS 158413 (N.D. Ill. Nov. 1, 2012). Plans
and their material terms must be in writing. 29 U.S.C.
§1102(a)(1); Curtiss‐Wright Corp. v. Schoonejongen, 514 U.S. 73,
83 (1995). This plan contemplates a separation agreement
“acceptable to the Company” but does not say or imply that
Pactiv can use this as a hook to add any limit it wants. Then
the benefits staff could use the lure of severance pay to de‐
Nos. 12‐3704 & 12‐3804 3
mand that the worker hand over the deed to the worker’s
vacation home or promise to run errands for the staffer’s
family. Perhaps it would be within the scope of this plan to
use the separation agreement to obtain a departing employ‐
ee’s promise to honor the terms of a covenant already signed;
the plan itself makes benefits contingent on keeping Pactiv’s
secrets confidential; but the agreement tendered to Rupert
demanded more on his part. ERISA’s writing requirement
prevents the employer from making greater demands as a
matter of discretion. Cirulis v. UNUM Corp. Severance Plan,
321 F.3d 1010 (10th Cir. 2003), holds exactly this about a situ‐
ation similar to Rupert’s.
As it happens, however, Rupert did not ask the district
judge to award benefits under Pactiv’s plan. He did not rely
on §1102(a)(1) or Cirulis. Instead he asked for benefits under
the acquisition agreement. He repeatedly told the district
court that the plan is irrelevant to his claim and that he does
not seek benefits under it. We asked Rupert’s lawyer at oral
argument whether he had ever reserved reliance on the plan
as a fallback position; counsel said no. The district court re‐
jected the theory that Rupert actually advanced (we discuss
it below) but nonetheless decided in his favor on the theory
that he abjured.
Judges sometimes have the authority to relieve parties of
their forfeitures (though Rupert never asked), but if they do
this they must notify the other side, so that it can meet the
argument. For its part, Pactiv moved for summary judgment
under ERISA, contending that despite appearances some of
the language in the plan does allow it to insist on restrictive
covenants. Since Rupert had foresworn any argument based
on the plan, Pactiv did not elaborate—and the district judge,
4 Nos. 12‐3704 & 12‐3804
taking up the subject without the benefit of briefs from either
side, did not discuss any of the language from the “Return of
Severance Payments” section of the plan that Pactiv has
brought to our attention and would have brought to the dis‐
trict judge’s, had it known that a claim based on the plan was
about to be adjudicated.
Many decisions in this circuit hold that a district judge
must notify the litigants, and invite the submission of evi‐
dence and legal arguments, before resolving a case on a
ground the parties have bypassed or using a procedure they
did not propose. See, e.g., Goldstein v. Fidelity & Guaranty In‐
surance Underwriters, Inc., 86 F.3d 749 (7th Cir. 1996);
Choudhry v. Jenkins, 559 F.2d 1085 (7th Cir. 1977). See also Ce‐
lotex Corp. v. Catrett, 477 U.S. 317, 326 (1986) (“district courts
are widely acknowledged to possess the power to enter
summary judgments sua sponte, so long as the losing party
was on notice that she had to come forward with all of her
evidence”). The norm is that judges must not take litigants
by surprise. The 2010 amendment to Rule 56(f) makes this
explicit:
After giving notice and a reasonable time to respond,
the court may:
(1) grant summary judgment for a nonmovant;
(2) grant the motion on grounds not raised by a
party; or
(3) consider summary judgment on its own after
identifying for the parties material facts that may
not be genuinely in dispute.
Fed. R. Civ. P. 56(f) (emphasis added). If judges could decide
suits without warning on the basis of considerations the liti‐
Nos. 12‐3704 & 12‐3804 5
gants were not contesting, litigation would be even less
manageable than it is already. Lawyers would need to sub‐
mit evidence and legal arguments on issues that appeared to
be irrelevant, on the off chance that the judge would second‐
guess the parties’ litigation strategies. That would produce
delay, bloat, and expense. As a norm, waivers are forever. If a
waived or forfeited issue is to come back to life, the revival
must be preceded by notice. Litigants then safely can limit
their submissions to the subjects genuinely in dispute.
In this court Rupert has thought better of the choices he
made earlier. His appellate brief relies heavily on Cirulis. He
insists that he did not need to ask the district court for relief
under the plan, because that issue had been raised in the
pleadings. Yet motions for summary judgment, and respons‐
es to them, supersede the pleadings. A litigant can’t use
pleadings filed on Day 1 to displace choices made on Day 2;
time moves in only one direction. What’s more, even in this
court Rupert does not respond to Pactiv’s argument that
some language in the severance plan allows it to insist on
restrictive covenants. Instead he observes that the language
on which Pactiv relies is missing from the acquisition
agreement. That effectively retreats to his original theory of
liability—that the acquisition agreement between Pactiv and
Reynolds Group entitles him to benefits.
Rupert favors this argument for two reasons: first, the ac‐
quisition agreement lacks any of the qualifications (includ‐
ing the need for a signed separation agreement) found in the
post‐acquisition plan; second, the acquisition agreement has
an attorneys’‐fees clause more favorable to prevailing parties
than the one in ERISA. But the stumbling block, from Ru‐
pert’s perspective, is §9.6(b) of the acquisition agreement,
6 Nos. 12‐3704 & 12‐3804
which provides that the agreement cannot be invoked by
anyone other than Pactiv and Reynolds Group. Section 9.6(b)
has a few exceptions, but §6.4(d), which calls for severance
benefits, is not among them. Relying on both the general dis‐
claimer in §9.6(b) and the absence of §6.4(d) from the listed
exceptions, the district court rejected Pactiv’s claim to be a
third‐party beneficiary of the acquisition agreement.
In the district court, and again on appeal, Rupert con‐
tended that §9.6(b) is ineffectual under Delaware law. (The
acquisition agreement has a choice‐of‐law clause pointing to
Delaware.) It is a poor argument. The Delaware decisions on
which Rupert relies stand for the normal principle that con‐
tracts can create third‐party beneficiaries. None of the deci‐
sions concludes that parties are forbidden to limit the set of
non‐signatories who acquire rights under a contract. Pactiv
and Reynolds Group may have included §6.4(d) because
awarding severance benefits would make the transaction
more valuable to themselves. Merging businesses often fear
that uncertainty will cause essential employees to jump ship.
Promising to compensate workers adversely affected by an
acquisition makes it easier for employees to conclude that
they will be well treated; this improves the chance that peo‐
ple will remain, and improves the morale (and hence the
productivity) of those who do remain. We agree with the
district court that Delaware would not see §6.4(d) as having
value only to workers, and thus as necessarily creating third‐
party benefits despite §9.6(b). (This makes it unnecessary to
decide whether any rule of Delaware law enforcing for
workers’ benefit a promise in corporate documents about
welfare‐benefit plans would be preempted by ERISA. See
Bartholet v. Reishauer A.G., 953 F.2d 1073 (7th Cir. 1992)
Nos. 12‐3704 & 12‐3804 7
(ERISA preempts claims, based on state law, concerning
promises to create welfare‐benefit plans).)
Although Rupert’s main argument is that he is entitled to
benefits as a third‐party beneficiary of §6.4(d), he briefly con‐
tends that §6.4(d) is itself an ERISA plan. If it is, then §9.6(b)
becomes irrelevant. Workers are not third‐party beneficiaries
of a welfare‐benefit plan governed by ERISA. Participants
are the direct beneficiaries.
Pactiv does not contend that Rupert has waived or for‐
feited this possibility. It is a difficult one to evaluate, because
the language in the acquisition agreement is skeletal. Here is
the text of §6.4(d), captioned “Severance Policy”:
1. A Non‐Union Employee terminated without cause
shall be paid, in addition to all amounts accrued or
required by law to be paid, a sum equal to (i) the
number of years such Non‐Union Employee has
been employed by the Company (or its Affiliates,
including entities acquired by the Company),
rounded to the nearest month times two (such
number the “Severance Period”) times (ii) such
Non‐Union Employee’s weekly compensation, pro‐
vided that the amount computed by clause (i) shall
not be less than four nor greater than 26.
2. If such Non‐Union Employee is eligible for an an‐
nual bonus in the year of termination, such person
shall be paid a pro‐rated amount of his or her bo‐
nus, at “target” if such bonus is incentive based, as
well as any accrued but unpaid bonuses.
In contending that this language creates a welfare‐benefit
plan, Rupert relies on Halliburton Co. Benefits Committee v.
8 Nos. 12‐3704 & 12‐3804
Graves, 463 F.3d 360 (5th Cir. 2006), rehearing denied, 479
F.3d 360 (2007).
Halliburton held that language in a merger agreement
amended an existing welfare‐benefit plan. Because the plan
predated the merger, language disclaiming third‐party bene‐
ficiaries did not matter; as we pointed out above, employees
are the direct beneficiaries of ERISA plans. The court made it
explicit, when denying rehearing, that the holding is “lim‐
ited to the specific language used” (479 F.3d at 361) in
amending that particular plan. Pactiv, unlike Halliburton
and its merger partner, did not have a severance plan before
the acquisition. This creates problems, because the acquisi‐
tion agreement lacks many terms that are either mandatory
in all ERISA plans (such as provision for amendment and
identification of the person holding the amending power, 29
U.S.C. §1102(b)(3)) or are needed to make a plan work. Who
is the administrator? How are claims made and resolved?
Are any conditions attached to the benefits? What do
phrases such as “without cause” mean? It is not defined in
the acquisition agreement. Is refusal to accept a reassign‐
ment “cause” for discharge? Who pays the claims, from
what pool of funds? It can be hard to know just how much
may be omitted while creating an ERISA plan. See, e.g., Fort
Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987); Bowles v. Quan‐
tum Chemical Co., 266 F.3d 622, 631–33 (7th Cir. 2001); Collins
v. Ralston Purina Co., 147 F.3d 592, 595–97 (7th Cir. 1998); Do‐
novan v. Dillingham, 688 F.2d 1367 (11th Cir. 1982) (en banc).
We need not decide whether it is proper to treat the
agreement as a stand‐alone plan, because it does not stand
alone. It was implemented after the acquisition by an eight‐
page plan providing the essential details. That Rupert seeks
Nos. 12‐3704 & 12‐3804 9
to recover under a plan (the one he sees in the acquisition
agreement) implies to us that he has not waived his claim
under ERISA, even if his papers in the district court forfeited
the benefits of the completed plan. The district judge
thought it proper to relieve Rupert of that forfeiture, and alt‐
hough we have explained that the court erred by doing this
without notice to Pactiv, the court did not abuse its discre‐
tion by electing not to enforce the forfeiture. After all, Pactiv
itself asked for a decision on the issue (this was what it
sought a declaratory judgment about).
Under the circumstances, the best course is a remand so
that the district court can give the required notice and then
entertain arguments based on the language of the post‐
acquisition plan. It will be necessary to consider the conten‐
tion that the agreement is itself a plan only if the district
judge decides in Pactiv’s favor on the post‐acquisition plan.
VACATED AND REMANDED