Kolling v. American Power Conv

United States Court of Appeals
For the First Circuit

No. 02-2618

FRED W. KOLLING, III,

Plaintiff, Appellant,

v.

AMERICAN POWER CONVERSION CORPORATION,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Reginald C. Lindsay, U.S. District Judge]

Before

Lynch, Circuit Judge,

Arnold,* Senior Circuit Judge,

and Howard, Circuit Judge.

John J. McNaught, with whom McNaught, Cecere & McNaught, P.C.
were on brief for appellant.
Adam P. Forman, with whom John T. McCarthy, Brian P. Pezza and
Testa, Hurwitz & Thibeault, LLP were on brief for appellee.

October 16, 2003

* of the Eighth Circuit, sitting by designation
 HOWARD, Circuit Judge. Plaintiff-appellant Fred W.

Kolling, III, challenges an adverse summary judgment ruling that

American Power Conversion Corporation's ("APC") denial of his claim

for employee benefits neither violated the Employment Retirement

Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461, nor

breached a contractual obligation owed to him by APC. We affirm.

I. Background

In November 1989, Kolling responded to APC's classified

advertisement seeking candidates for the recently vacated Chief

Financial Officer position ("CFO"). APC's Chief Executive Officer,

Roger Dowdell, subsequently interviewed Kolling as part of APC's

broader CFO search. Although Dowdell did not address the specific

compensation and benefits package Kolling might receive as CFO, he

did discuss the benefits generally available to APC employees, such

as the salary range, an employee stock ownership plan ("ESOP", "the

Plan"), incentive stock options ("ISOs"), a medical plan, and

health insurance. At the close of the interview, Dowdell advised

Kolling that he planned to continue his CFO search, but that APC

had an immediate need for accounting services, which Kolling could

provide on a consultancy basis for $50.00 an hour. At that time,

Dowdell advised Kolling that the parties "could see how it goes and

. . . take it from there."

On November 25, 1989, Kolling began working for APC at

its headquarters in Peace Dale, Rhode Island. From the outset,

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Kolling submitted weekly invoices in which he billed APC for

"consulting services rendered." Kolling reported IRS form 1099

income, not IRS form W-2 wages, and was not on APC's payroll.

After two months, Kolling agreed to have his compensation reduced

to $35 dollars an hour. Dowdell explained that the cutback was

consistent with the salary a CFO might receive. Meanwhile, APC

conducted two additional searches for a CFO.

From 1989 to 1993, Kolling remained a consultant.

During that time, he worked 40 to 80 hours a week for APC,

performing general accounting functions such as SEC reporting and

budget planning.1 Kolling did not participate in APC's employee

benefit or stock option plans but did obtain health insurance

through APC on the condition that he, not APC, pay the premiums.

Although Kolling persistently pressed the issue of his employment

status, APC did not place him on its payroll until May 24, 1993,

when he assumed the position of Director of Finance.2 For purposes

of vacation days and vesting under the ESOP, APC gave Kolling

credit for his service as a consultant.

In July 1995, Kolling resigned from APC to accept another

job. Four years later, in August 1999, Kolling submitted a claim

for benefits seeking contributions under the ESOP for the three-

1
Kolling's yearly consulting fees were $94,360, $119,245, and
$120,540 in 1990, 1991 and 1992, respectively.
2
Kolling received APC's full complement of benefits when APC
placed him on its payroll.

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and-a-half years he had consulted. In October 1999, APC's Plan

administrator wrote Kolling to advise him, inter alia, that he was

not eligible to participate in the ESOP prior to May 1993.

In denying Kolling's claim, the administrator primarily

relied on the fact that Kolling had not been an eligible APC

employee when he had served as a consultant. The Plan defined

eligible employees as "Employees of the Employer" including "leased

employees," but did not further define who was an "Employee of the

Employer." Consistent with APC's business practice, the

administrator applied a "W-2 definition" to the term "employee."

Under this definition, only individuals paid on an IRS form W-2

basis were eligible to receive ESOP contributions. Accordingly,

the administrator denied Kolling's claim.

Kolling appealed, but the Plan administrator stood by his

decision that, from 1989 to 1993, Kolling was ineligible for ESOP

contributions because he was not paid on a W-2 basis. In due

course, Kolling brought this action alleging common law breach of

contract and intentional misrepresentation. He subsequently

amended his complaint to allege a claim for benefits under ERISA,

29 U.S.C. § 1132(b). At the close of discovery, APC moved for

summary judgment. The court granted the motion, reasoning that the

Plan administrator had not acted arbitrarily and capriciously in

denying Kolling ESOP benefits, and that the arrangement between

Kolling and APC was too indefinite to constitute a formal

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employment contract under Rhode Island law. Kolling appeals these

rulings.3

II. Standard of Review

Because the Plan reserves interpretive discretion to its

administrator,4 judicial review of the eligibility determination is

limited to ascertaining whether the administrator acted arbitrarily

and capriciously. See, e.g., Lopes v. Metro. Life Ins. Co., 332

F.3d 1, 4-5 (1st Cir. 2003); Liston v. UNUM Corp. Officer Severance

Plan, 330 F.3d 19, 24 (1st Cir. 2003).5 We review de novo whether

the district court correctly concluded that APC was entitled to

summary judgment under the applicable standard of review. See Pari-

Fasano, 230 F.3d at 418-19. We review the district court's decision

granting summary judgment on the breach of contract claim de novo.

See Thomas v. Metro. Life Ins. Co., 40 F.3d 50, 508 (1st Cir.

1994).

3
The district court also granted summary judgment on
Kolling's intentional misrepresentation claim. Kolling does not
pursue that claim on appeal.
4
The relevant provision of the Plan states that the Plan
administrator

shall determine any questions arising in the
administration, interpretation and application of the
Plan,. . . and the decision of the Administrator shall
be conclusive and binding on all persons.
5
Kolling contends that our review should be less deferential
because the Plan administrator allegedly labored under a conflict
of interest. Circuit precedent precludes this argument. See, e.g.,
Lopes, 332 F.3d at 5; Pari-Fasano v. ITT Hartford Life & Accident Ins.
Co., 230 F.3d 415, 418-19 (1st Cir. 2000).

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 III. Analysis

A. ERISA Claim

Kolling first argues that the Plan administrator acted

unreasonably when he relied on a definition of employee which

defined employee to include anyone who received an IRS form W-2

rather than anyone who met the common law definition of employee.

In Kolling's view, APC's endorsement of the administrator's

interpretation would lead to mischief because an employer could,

with impunity, misclassify a worker for its own financial benefit.

Kolling asserts that the facts presented to the administrator

during the appeals process, and later to the district court,

demonstrate that he was APC's employee even though he was not on

its payroll.6

Relying on Renda v. Adam Meldrum & Anderson Co., 806 F.

Supp. 1071, 1081 (W.D.N.Y. 1992), Kolling claims that because he

qualified as a common law employee he was entitled to benefits

under the ESOP. We disagree. So long as a plan does not

discriminate based on age or length of service, nothing in ERISA

6
Kolling also argues that the district court erroneously
ignored the report and deposition testimony of his expert, Helen
Marmoll. According to Kolling, Marmoll's testimony casts doubt on
APC's classification of Kolling as an independent contractor. But
this evidence was not before the Plan administrator at the time of
his decision. Except for certain sorts of claims, such as a claim
of corruption (not presented here), there is a strong presumption
that judicial review is limited to the evidentiary record presented
to the administrator. See Liston, 330 F.3d at 23-24. Kolling has
not presented any basis for disregarding the presumption here.

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requires a plan to extend benefits to every common law employee.

See Bauer v. Summit Bancorp, 325 F.3d 155, 164 n.19 (3d Cir.

2003)(rejecting Renda's logic); Abraham v. Exxon Corp., 85 F.3d

1126, 1130-31 (5th Cir. 1996)(same); see also, Hensley v. Northwest

Permanente P.C. Ret. Plan & Trust, 258 F.3d 986, 1000-02 (9th Cir.

2001) (ERISA plan is not required to cover all common law

employees); Trombetta v. Cragin Fed. Bank for Sav. Employee Stock

Ownership Plan, 102 F.3d 1435, 1439 (7th Cir. 1996) (same).

Kolling may have a plausible argument that he was a

common law employee of APC, but it is the language of the Plan, not

common law status, that controls. Where, as here, the Plan adopts

a circular definition of employee -- "Employee of the Employer" --

the Plan administrator has the discretion reasonably to determine

the meaning of that phrase. See Trombetta, 102 F.3d at 1439-40

("The phrase 'employed by an Employer' as used in the plan contains

a defined term, and [the administrator] is free to define the terms

in its plan however it wishes.").

According to the administrator, APC intended that only

individuals who received W-2 forms and "leased employees"

participate in the ESOP.7 The administrator permissibly looked to

APC's intention in defining the Plan's scope, see Hensley, 258

F.3d at 1002 (noting that it was reasonable for the plan

7
A leased employee is an individual who performed services
for APC as a result of a contract between APC and a third party.

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administrator to adopt a definition of employee that carried out

the plan's objectives), and the evidence supports the

administrator's determination regarding APC's intention. APC has

consistently declined to extend ESOP benefits to other individuals

who did not receive W-2 forms and were not leased employees. See

Bauer, 325 F.3d at 164 (finding persuasive the fact that the plan

consistently excluded certain classes of individuals for benefits).

Within limits, ERISA affords employers broad discretion

to limit participation in their employee benefit plans -- even

where such an exclusion affects common law employees. See, e.g.,

Wolf v. Coca-Cola Co., 200 F.3d 1337, 1340 (11th Cir. 2000) (noting

that "companies are not required by ERISA to make their ERISA plans

available to all common law employees"); Bronk v. Mountain States

Tel. & Tel., Inc., 140 F.3d 1335, 1338 (10th Cir. 1998) (noting

that "an employer need not include in its [ERISA] plan all

employees who meet the test of common law employees"). Here, the

administrator reasonably determined that APC intended not to offer

Plan benefits to persons in Kolling's situation. No more is

required to comply with the statutory mandate.8

8
Kolling makes a blanket allegation that the Plan
administrator did not consider the information he presented as part
of his administrative appeal. In the letter denying Kolling's
appeal, however, the administrator stated that he had considered
Kolling's submissions as well as his testimony during the hearing.
Kolling presents us with no basis to question this statement.

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 B. Breach of Contract Claim

Kolling's second contention is that statements made to

him by APC representatives established an employment contract

between the parties. Kolling claims that, as a result of this

supposed employment agreement, APC owes him several forms of

compensation that were available to APC employees.9 The district

court held that Kolling and APC had not entered into an employment

agreement. While acknowledging that Kolling had entered into an

agreement with APC to provide consulting services in November 1989,

the court concluded that APC's representations to Kolling,

beginning from his initial interview in November 1989 and

continuing until he assumed the position of APC's Director of

Finance in May 1993, were too indefinite to establish an employment

contract. We agree with the court's analysis.

Because both parties assert that their contract dispute

is governed by Rhode Island law, we will apply that state's law in

analyzing Kolling's claim. See Merchs. Ins. Co. of N.H., Inc. v.

USF&G Co., 143 F.3d 5, 8 (1st Cir. 1998). In Rhode Island, "the

long-recognized essential elements of a contract are competent

parties, subject matter, a legal consideration, mutuality of

agreement, and mutuality of obligation." R.I. Five v. Med. Assocs.

9
Kolling claims entitlement to incentive stock options, FICA
contributions, bonuses, vacation pay, educational pay, and sick
pay.

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of Bristol County, 668 A.2d 1250, 1253 (R.I. 1996) (internal

quotations omitted). For a contract to be binding, the parties

must have settled on the essential terms of the agreement. See

Ross-Simons of Warwick v. Baccarat, Inc., 182 F.R.D. 386, 395

(D.R.I. 1998) ("A court asked to declare a contract binding must

determine that the contract is definite enough that the court can

be 'reasonably certain' of the scope of each party's duties.")

(quoting Downtown Inv. Ass'n v. Boston Metro. Bldgs., Inc., 81 F.2d

314, 319 (1st Cir. 1936)). For an employment contract, "the

essential terms . . . include expressions of definiteness or

certainty as to the parties to be bound by the contract, the

compensation paid and the nature and extent of service to be

performed." Lopez v. Personnel Appeal Bd., No. 99-41551, 2002 WL

393847, at *6 (R.I. Super. Ct. Mar. 4, 2002)(internal quotations

omitted); see Ferrera v. Carpionato Corp., 895 F.2d 818, 822 (1st

Cir. 1990) (applying Rhode Island law, identifying essential

elements of employment contract).

To support his claim, Kolling identifies several

representations made by Dowdell, including statements that (1)

Dowdell would make a decision on Kolling's employment status in a

few more interviews; (2) he would discuss employment with Kolling

"in a week or two"; (3) he would discuss permanent employment with

Kolling "tomorrow, not right now"; and (4) he "would see how [the

consulting work went] and at that point . . . [would] make it

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permanent." To be sure, Dowdell's statements likely encouraged

Kolling to believe that, at some future time, APC would offer him

employment. However, whether taken individually or cumulatively,

these statements are too indefinite to establish an employment

contract under Rhode Island law.

None of Dowdell's representations bound APC to employ

Kolling. The statements merely pushed the time of decision on

Kolling's employment prospects to some future date. See Smith v.

Boyd, 553 A.2d 131, 133 (R.I. 1989) ("in order for an offer . . .

to occur, the party must manifest an objective intent to . . . be

bound"). In addition, Kolling and APC never agreed on a

compensation package, an essential term of an employment contract.

See Ferrera, 895 F.2d at 822. At Kolling's initial interview for

the CFO position, Dowdell and Kolling discussed compensation for

the CFO position generally. They did not agree on a specific

compensation package for Kolling then or during the subsequent

period that Kolling served as a consultant. Indeed, they only

agreed on compensation when APC finally asked Kolling to assume the

position of Director of Finance in May 1993, which is after the

period for which he is now claiming benefits. Because the parties

did not agree on the essential elements of an employment contract

(i.e., that both parties agreed to be bound by the agreement and

the compensation terms) prior to Kolling assuming the Director of

Finance position, APC's previous statements regarding Kolling's

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future employment prospects failed to establish a binding

employment agreement.

C. Common Law Employee Claim

Kolling asserts a final theory for relief. He claims

that regardless whether APC's representations established an

employment contract, his actual relationship with APC qualified him

as a common law employee, which entitled him to employee benefits.

The district court declined to consider this claim and so do we.

In his initial complaint, Kolling pled this "common law

employee claim." However, this claim is conspicuously absent from

Kolling's amended complaint. Kolling's breach of contract claim in

the amended complaint is premised solely upon APC violating its

"continuous representations" of employment. Kolling's amended

complaint completely supersedes his original complaint, and thus

the original complaint no longer performs any function in the case.

See Lopez-Carrasquillo v. Rubianes, 230 F.3d 409, 412 (1st Cir.

2000); 6 Charles Alan Wright, Arthur R. Miller & Mary Kay Kane,

Federal Practice & Procedure § 1476 (2d ed. 1990) ("Once an amended

pleading is interposed, the original pleading no longer performs

any function in the case."). By omitting "the common law employee

claim" from the amended complaint, Kolling abandoned it. See

Cicchetti v. Lucey, 514 F.2d 362, 365 n.5 (1st Cir. 1975); see

also, Carver v. Condie, 169 F.3d 469, 472 (7th Cir. 1999) (holding

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that allegations not included in amended complaint "fell by the

wayside").10

Kolling seeks to avoid this waiver problem by arguing

that he included "the common law employee claim" in his amended

complaint by referencing facts and attaching documents, which

suggest his common law employee status. Nowhere in Kolling's

amended complaint did he clearly explain that these facts were

intended to comprise a theory of recovery separate from the

specified counts. While Kolling could have raised an additional

claim by reference, see Fed. R. Civ. P. 10(c), he was required to

plead the claim with sufficient specificity that APC could have

recognized that an additional claim had been asserted against it.

See 5 Wright & Miller, Federal Practice & Procedure § 1326

("references to prior allegations must be direct and explicit in

order to enable the responding party to ascertain the nature and

extent of the incorporation"). Kolling did not do so.

10
We note that this is not a case in which the district court
dismissed, as a matter of law, Kolling's "common law employee
claim" from the original complaint, which would have made the
waiver issue much more difficult. Compare Marx v. Loral Corp., 87
F.3d 1049, 1055 (9th Cir. 1996) (holding that party waived right to
appeal where district court dismissed claim from original complaint
and party failed to re-plead dismissed claim in amended complaint)
with Davis v. TXO Prod. Corp., 929 F.2d 1515, 1517-18 (10th Cir.
1991) (holding that party could pursue appeal where district court
dismissed claim in original complaint and defendant failed to re-
plead claim in amended complaint because requiring party to re-
plead claim that district court had already dismissed is too
"formalistic").

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Affirmed.

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