United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
Nos. 03-1494/1495
___________
Daniel William Petersen, *
*
Appellee/Cross-Appellant, *
*
v. * Appeals from the United States
* District Court for the
E.F. Johnson Company, a Minnesota * District of Minnesota.
Corporation; Transcrypt International, *
Inc., also known as EFJ, Inc., *
*
Appellants/Cross- *
Appellees. *
___________
Submitted: February 11, 2004
Filed: April 29, 2004
___________
Before BYE and HEANEY, Circuit Judges, and HOVLAND,1 District Judge.
___________
BYE, Circuit Judge.
This appeal involves a dispute over Daniel Petersen's right to severance
benefits after he was laid off, and eventually terminated, by E.F. Johnson Company.
The dispute arose when the company adopted a new and less-favorable employee
1
The Honorable Daniel L. Hovland, Chief United States District Judge for the
District of North Dakota, sitting by designation.
severance benefits plan between his lay-off and his termination. Petersen believed
he was entitled to benefits under the old plan, while the company believed he was
limited to the new-plan benefits, but only if he agreed to waive his claim for the
former plan benefits. Petersen elected not to waive his claim.
He originally filed this suit as a breach of contract action in state court. The
company removed the case to federal court contending Petersen's right to severance
benefits was governed by the Employment Retirement Income Security Act (ERISA).
The district court determined Petersen's right to severance benefits was governed by
ERISA and denied his motion to remand the case to state court. The district court
further determined Petersen had no right to severance benefits under the old plan (a
determination he does not challenge on appeal), but went on to determine the
company inequitably conditioned Petersen's eligibility for new-plan benefits upon his
execution of a release of the claim for old-plan benefits, and ordered E.F. Johnson to
extend Petersen the more limited benefits available under the new plan.
The company appeals contending it could lawfully condition new-plan
eligibility upon Petersen's release of the claim for old-plan benefits. He cross-appeals
contending the old plan was not governed by ERISA and the district court erred when
it failed to remand the case to state court. We reverse on the main appeal and affirm
on the cross-appeal.
I
We start by addressing Petersen's claim the former benefits plan was not
governed by ERISA. The question whether an employee benefits plan is governed
by ERISA is a mixed question of fact and law which we review de novo. Kulinski
v. Medtronic Bio-Medicus, Inc., 21 F.3d 254, 256 (8th Cir. 1994). We conclude the
former benefits plan was governed by ERISA.
-2-
A plan is established for ERISA purposes when a reasonable person can
ascertain (1) the intended benefits, (2) the class of beneficiaries, (3) a source of
funding, and (4) the procedures for receiving benefits. Bannister v. Sorenson, 103
F.3d 632, 636 (8th Cir. 1996). Here, the former plan specified the benefits (i.e., one-
month salary severance benefit for each full year of service with certain minimums
and maximums, continuation of medical and dental insurance plans, and certain other
benefits not to exceed $5000) and included a list of the positions eligible for the
benefits. In addition, a reasonable person could ascertain the company's general
assets were the source of funding. Finally, a reasonable person could ascertain the
procedure for receiving benefits was to contact the company's Human Resources
Department, and that is in fact the procedure Petersen utilized to make a claim for
benefits under the old plan.
Petersen contends the company failed to comply with certain technical
requirements of ERISA, (i.e., disclosure provisions required by 29 U.S.C. §§ 1021(a),
1022(a) & (b), the requirement of providing participants with a plan summary under
29 U.S.C. § 1024(b)(3), the requirement that plans and annual reports be filed with
governmental authorities, etc.). He argues these technical defects indicate the plan
was not governed by ERISA. We disagree. As the district court noted, "[t]hese
alleged defects are relevant to stating whether the [plan] complies with ERISA and
not whether ERISA applies to the [plan]." Compliance with ERISA's writing and
notice requirements is not a factor in determining whether a plan is governed by
ERISA. See, e.g., Palmisiano v. Allina Health Sys., Inc., 190 F.3d 881, 888 (8th Cir.
1999).
Petersen further contends there is no federal preemption under ERISA because
the old plan did not require an ongoing administrative scheme. See Fort Halifax
Packing Co., Inc. v. Coyne, 482 U.S. 1, 11 (1987) ("Congress intended pre-emption
to afford employers the advantages of a uniform set of administrative procedures
governed by a single set of regulations. This concern only arises, however, with
-3-
respect to benefits whose provision by nature requires an ongoing administrative
program to meet the employer's obligation."). The factors to consider when deciding
whether a plan is part of an ongoing administrative scheme are: (1) whether the
payments are continual and ongoing rather than a one-time lump-sum payment; (2)
whether the employer undertook any long-term obligation with respect to the
payments; (3) whether the severance payments come due any time the employer
terminates an employee rather than upon the occurrence of a single, unique event;
and (4) whether the severance arrangement under review requires the employer to
engage in a case-by-case review of employees. Crews v. Gen. Am. Life Ins. Co., 274
F.3d 502, 506 (8th Cir. 2001).
This plan had all the earmarks of one governed by ERISA. For example, the
benefits were not one-time lump-sum payments, but included such things as the
continuation of medical and dental benefits which were to be paid out over time. In
addition, because the maximum amount of certain benefits was $5000, the company
had to monitor payment of those benefits on an ongoing basis to ensure the total did
not exceed $5000. Thus, it undertook long-term obligations with respect to the
payment of certain severance benefits. Furthermore, there was not a single, unique
event (such as a plant closure, see Fort Halifax, 482 U.S. at 1) triggering payment of
benefits to all participants. Rather, eligible participants would receive a severance
package upon their individual "termination without cause or termination without
cause as a result of change in control." As a result, the plan required the company to
engage in a case-by-case review of employees to determine eligibility for benefits;
that is, E.F. Johnson had to determine whether a particular termination was with or
without cause, and in some circumstances whether a change of control had occurred.
In sum, the plan required an ongoing administrative scheme, it was governed
by ERISA, and therefore the district court did not err in refusing to remand the case
to state court.
-4-
II
Next, we address the company's claim it could condition Petersen's eligibility
for benefits under the new plan upon his execution of a release of claims under the
former plan, and the district court abused its discretion in granting him new-plan
benefits on equitable grounds. The question whether ERISA allows an employer to
condition receipt of benefits upon execution of a release of an existing claim for
benefits is an issue of law, and we review those issues de novo. Nelson v. Ramette
(In re Nelson), 322 F.3d 541, 544 (8th Cir. 2003). The district court's decision to
grant or deny equitable relief under ERISA is reviewed for an abuse of discretion.
Brown v. Aventis Pharm. Inc., 341 F.3d 822, 825 (8th Cir. 2003). "A district court
abuses its discretion if it applies the incorrect law." Smith v. Chem. Leaman Tank
Lines, Inc., 285 F.3d 750, 752 (8th Cir. 2002).
We conclude the company had the right to condition Petersen's receipt of
benefits under the new plan upon his execution of a waiver of his right to claim
potential benefits under the former plan. See Lockheed Corp. v. Spink, 517 U.S. 882,
893-94 (1996) (indicating an employer can permissibly ask an employee to waive
employment-related claims in return for receiving benefits the employer is not
otherwise required to provide); see also Joe v. First Bank Sys., Inc., 202 F.3d 1067,
1071 (8th Cir. 2000) (recognizing an employer's right to condition payment of
benefits upon the signing of a release of other employment-related claims because an
employer has no obligation to offer any benefits whatsoever and therefore has the
"right unilaterally to amend or eliminate a severance plan"); Jefferson v. Vickers, Inc.,
102 F.3d 960, 964 (8th Cir. 1996) ("An employer does not violate ERISA when it
conditions the receipt of early retirement benefits upon the participants' waiver of
employment claims.").
Because E.F. Johnson could lawfully require Petersen to sign the release before
giving him benefits under the new plan, the district court abused its discretion in
-5-
granting benefits to him upon equitable grounds. "A court in equity may not do that
which the law forbids." United States v. Coastal Ref. and Mktg., Inc., 911 F.2d 1036,
1043 (5th Cir. 1990). "[W]herever the rights or the situation of parties are clearly
defined and established by law, equity has no power to change or unsettle those rights
or that situation, but in all such instances the maxim 'equitas sequitur legem' [equity
follows the law] is strictly applicable." Hedges v. Dixon County, 150 U.S. 182, 192
(1893) (internal citation and quotations omitted).
We sympathize with Petersen's dilemma, but the company could have
eliminated the old plan altogether and not offered its employees a new plan. Had that
occurred, he would be in the same position he is now. He would have pursued his
claim for old plan benefits and lost, as he had no accrued right to benefits under the
old plan before it was eliminated. When the company decided to offer its employees
a new plan, Petersen had the choice either to pursue his potential claim for benefits
under the former plan, or accept the less-favorable benefits under the new plan. He
chose to pursue the more-favorable benefits under the old plan, refused to sign the
release, and subjected E.F. Johnson to the expense of the suit it sought to avoid by
requesting the release. As it turns out, hindsight has revealed Petersen should have
signed the release and accepted the reduction in benefits. The end result may seem
unfair from Petersen's point of view, but it is not inequitable under the law because
the company could lawfully ask Petersen to waive his potential claim for old-plan
benefits in exchange for the right to benefits under the new plan.
III
We affirm the district court's denial of Petersen's motion to remand this case
to state court. We reverse the district court's decision to grant him equitable relief in
the form of benefits under the new plan, and remand for further proceedings
consistent with this opinion.
-6-
HEANEY, Circuit Judge, dissenting.
I disagree with the majority insofar as it holds that Petersen is not eligible for
benefits under the new plan. Therefore, I respectfully dissent and would affirm the
district court in its entirety.
The majority cites to several cases which hold that an employer is free to
condition the receipt of severance benefits upon an employee signing a release of
claims. The law is well settled on this point: severance benefits are contingent and
unaccrued, allowing an employer to unilaterally amend or eliminate a plan prior to the
benefits vesting. Joe v. First Bank Sys., Inc., 202 F.3d 1067, 1071 (8th Cir. 2000).
Based on the very unique facts of this case, however, the district court’s finding that
Petersen is still eligible for benefits under the new plan, despite bringing suit, does
not offend this principle of law.
In this case, Petersen was laid off from his job. One month later, E.F. Johnson
implemented a new, and less favorable, severance benefit plan. Shortly after that,
Petersen, believing his rights had vested under the former plan, notified E.F. Johnson
of his intention to commence a lawsuit. Six months after being laid off, Petersen was
automatically terminated in accordance with company policy, and was presented with
the dilemma of signing a release in exchange for a smaller severance package, or
pursuing a lawsuit to claim benefits which he believed already vested.
I agree with the district court that allowing E.F. Johnson to drastically reduce
severance benefits after laying off, but before terminating Petersen, leads to an
inequitable result that should not stand. It is true that Petersen refused to sign the
release when originally presented to him, but when an employer drastically reduces
severance benefits after laying off, but before terminating an employee, and the
employee brings a good faith suit believing that his right to benefits vested prior to
the plan being amended, the employee should not be left without any benefits at all.
-7-
Petersen had a good faith claim that his benefits under the former plan had vested,
which would have meant that E.F. Johnson was not free to change Petersen’s benefit
plan. Petersen brought a claim under the former plan, a claim which was strong
enough to overcome summary judgment and proceed to trial. Based on these facts,
I cannot agree that the district court erred in holding that Petersen is still eligible for
benefits under the new plan.
______________________________
-8-
8