Thomas H. Yochum v. Barnett Banks, Inc.

• Court: Court of Appeals for the Eleventh Circuit
• Decided: December 1, 2000
• Docket: 99-13581
• Status: Published

Opinion

PUBLISH

IN THE UNITED STATES COURT OF APPEALS FILED FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS ELEVENTH CIRCUIT _______________ DEC 1 2000 THOMAS K. KAHN CLERK No. 99-13581 _______________

D. C. Docket No. 98-00758-CIV-J-21C

THOMAS H. YOCHUM,

Plaintiff-Appellant,

versus

BARNETT BANKS, INC. SEVERANCE PAY PLAN, EMPLOYEE BENEFITS COMMITTEE OF THE BARNETT BANKS, INC. SEVERANCE PAY PLAN,

Defendants-Appellees.

______________________________

Appeal from the United States District Court for the Middle District of Florida ______________________________ (December 1, 2000)

Before EDMONDSON and BIRCH, Circuit Judges, and BLACKBURN*, District Judge.

* Honorable Sharon Lovelace Blackburn, U.S. District Judge for the Northern District of Alabama, sitting by designation. PER CURIAM:

On this appeal we decide whether, after NationsBank bought Barnett Bank,

NationsBank's oral job offer to an executive of Barnett Bank that gave the

executive more responsibility, but only guaranteed his salary for one year and

eliminated his stock options, constitutes comparable employment under the

meaning of an ERISA severance pay plan. The district court held that the new

offer was comparable, and that by refusing the offer, the bank executive

disqualified himself from receiving severance benefits. We REVERSE and

REMAND to the district court with instructions to enter summary judgment for the

Plaintiff.

I. BACKGROUND

Plaintiff-Appellant, Thomas Yochum, had worked at Barnett Bank for 27

years when the bank was sold to NationsBank.1 NationsBank offered Yochum the

position of Regional President of Operations in central Florida, which would have

increased the number of counties he supervised. However, he was only guaranteed

his salary for one year, and was not offered stock options.2 Yochum rejected this

1 We summarize only the facts relevant to our decision. 2 Yochum also argues that the offer was not sufficient under the Severance Pay Plan because it was made orally, and not in writing as required by the Plan. We decline to decide this issue, as we find for the Plaintiff on other grounds. However, we agree with Yochum that the offer should have been made in writing in order to disqualify him from the Plan. We reject the

2 position and began working for SunTrust Bank after the Barnett Bank/

NationsBank merger became effective on 9 January 1998.

Yochum was covered under the Barnett Banks Inc. Severance Pay Plan

(“Plan”), which is a welfare benefit plan as defined in the Employee Retirement

Income Security Act of 1974 (“ERISA”). See 29 U.S.C. §1002. On 4 May 1998,

Yochum requested that the Employee Benefits Committee (“Committee”3) pay him

the severance benefits due to him under the Plan. On 30 July 1998, he received a

letter from the Committee denying his request for severance benefits because,

according to the Committee, he had rejected a written offer of comparable

employment, which is a disqualifying event under section 2.2 of the Plan.4 This

letter also informed Yochum that he had exhausted his administrative remedies,

and would have to “seek other legal remedies” if he planned to appeal.

On 6 August 1998, Yochum filed a complaint against the Plan and its named

administrator, the Committee. Yochum then moved for summary judgment, and

district court's finding that the Summary of the Plan--which does not require the offer to be in writing--governs, because only the full Plan was before the Committee. R2-52-17. 3 All responsibility for the duties of the Barnett Bank Employee Benefit Committee was legally transferred to the NationsBank Benefits Appeals Committee. See R3-84-3. Therefore, the term “Committee” will be used to refer to both committees. 4 The relevant portion of Section 2.2 of the Plan reads, “Disqualifying Events. An employee who might otherwise qualify for the Severance Pay Plan will be disqualified by any one of the following circumstances: . . . (c) He declines a written offer of comparable employment.” R1-1-B6.

3 the Committee moved for cross-summary judgment. After conducting limited

discovery, Yochum filed an additional motion for summary judgment based on

new facts, which the district court struck on the grounds that it was duplicative.

The district court then granted the Committee's summary judgment motion. The

district court held that comparable employment does not require identical

employment, and commented that granting Yochum severance benefits after he had

already started work with a new company would constitute a windfall for Yochum.

Yochum appeals.

II. DISCUSSION

A. Standard of Review

The district court's grant of summary judgment is subject to plenary review,

and we apply the same standard of review as the district court. See Paramore v.

Delta Air Lines, Inc., 129 F.3d 1446, 1449 (11th Cir. 1997). Summary judgment

shall be granted where “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.” Fed. R. Civ. P.

56(c). We view the facts and all reasonable inferences in the light most favorable

to the non-moving party. See Wideman v. Wal-Mart Stores, Inc., 141 F.3d 1453,

1454 (11th Cir. 1998).

4 There are three standards of review appropriate in ERISA decisions. See

Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 109 S. Ct. 948 (1989)

(comparing ERISA law to trust law and adapting the standards of review from trust

law to fit ERISA cases). Where an ERISA plan does not grant the fiduciary or

plan administrator discretion over distribution of benefits, the court will apply a de

novo standard of review. See Marecek v. BellSouth Serv., Inc., 49 F.3d 702, 705

(11th Cir. 1995). When the plan does grant the fiduciary or plan administrator

such discretion, the “arbitrary and capricious” standard applies, which is analogous

to an abuse of discretion standard. See Marecek, 49 F.3d at 705. Finally, if the

plan grants the fiduciary or administrator discretion, but the court finds a conflict

of interest between the fiduciary or administrator and the company, a heightened

arbitrary and capricious standard applies, and the court will consider this conflict in

its analysis. See Brown v. Blue Cross and Blue Shield of Alabama, Inc., 898 F.2d

1556, 1566 (11th Cir. 1990) (“[W]e hold that when a plan beneficiary demonstrates

a substantial conflict of interest on the part of the fiduciary responsible for benefits

determinations, the burden shifts to the fiduciary to prove that its interpretation of

plan provisions committed to its discretion was not tainted by self-interest.”) It is

important to note that where the district court agrees with the ultimate decision of

the administrator, it will not decide whether a conflict exists. It is only when the

5 court disagrees with the decision that it looks for a conflict and, when one is found,

reconsiders the decision in light of this conflict. See Maracek, 49 F.3d at 705.

The district judge applied the arbitrary and capricious standard, which was

appropriate because the Committee did have discretion over the distribution of

benefits. See R1-37-A3.5 Because the district court agreed with the Committee's

decision to deny Yochum's request for benefits, it was unnecessary to determine

whether a conflict of interest existed between the Committee and NationsBank.

We, however, disagree with the Committee's decision, and must take into account

any potential conflicts of interest while we decide whether the decision was

arbitrary and capricious.

Where the funding for severance plans comes directly from the coffers of a

company, rather than through a trust, there is a conflict of interest. See Brown, 898

F.2d at 1562 (finding that the heightened arbitrary and capricious standard must be

applied when the ERISA plan was administered by an insurance company which

paid benefits directly from its own assets). In this case, we find that there was a

conflict of interest in the benefits decision by the Committee, because severance

5 Yochum argues that the NationsBank Committee did not have authority over his request, because the Plan called for the Barnett Banks Committee to make the decision. However, the record reflects a legal transfer of fiduciary responsibility from the Barnett Banks Employee Benefits Committee to the NationsBank Benefits Appeals Committee; thus, the district court applied the correct standard. See R3-84-7.

6 benefits are paid directly from the coffers of NationsBank, so a decision to award

severance benefits would take money directly away from NationsBank. At the

same time, members of the Committee are NationsBank employees, and their

decision to deny benefits saves NationsBank a large sum of money. NationsBank

had already paid money to Yochum in fulfillment of other contracts, and Yochum

was now working for NationsBank's strongest competitor in the region. Based on

these conflicts of interest, we will apply the heightened arbitrary and capricious

standard, as the district court would have done if necessary.

B. “Comparable” Employment

Under the plain language of the Plan, Yochum would not qualify for

severance payments if he “declined a written offer of comparable employment”

from NationsBank as a result of the merger.6 NationsBank contends that, because

Yochum would have more responsibility in his new position, and because he was

guaranteed the same salary and incentives for one year, the job they offered was

comparable to Yochum's job with Barnett Bank. The Committee contends that

because stock options do not guarantee income, as stocks rise and fall regularly,

6 Section 1.8 of the Barnett Banks Inc. Severance Pay Plan reads, “Comparable Employment means a job with the Company or an Employer or an Affiliated Company that is consistent with the Employee's previous position, experience, education, capabilities and responsibilities, with equivalent compensation and benefits and similar working conditions, which is within the same distance from his or her residence to the former work location or within 35 miles of this residence to the new work location.” R1-1-B3.

7 they are not a necessary part of a benefits package. Finally, they argue that

because “comparable” can be interpreted to mean “substantially equivalent,”

Yochum turned down a comparable offer and is not eligible for benefits.

Yochum disagrees, pointing out that his salary and incentives will decline

one year after he accepts employment with NationsBank, despite the fact that he

has a two-year agreement with Barnett Bank upon a change in control.

Specifically, after one year, his incentive package will decrease to about 25% of

what he received from Barnett Bank. Additionally, it is undisputed that Yochum

will not receive stock options from NationsBank, which were an integral part of his

benefits package at Barnett Bank. We find these arguments persuasive.

We look to the plain language of Yochum's Employment Agreement with

Barnett Banks (“Agreement”) and the Plan to make our determination. See 29

U.S.C. §1104(a)(1)(D) (“[A] fiduciary shall discharge his duties with respect to a

plan solely in the interest of the participants and beneficiaries and . . . in

accordance with the documents and instruments governing the plan insofar as such

documents and instruments are consistent with [ERISA]”); Hunt v. Hawthorne

Associates, Inc., 119 F.3d 888, 892 (11th Cir. 1997) (“Because both the plan

administrator and named fiduciary must discharge their duties in accordance with

the written instrument, we examine the provisions of the Plan in detail”).

8 The purpose behind the Agreement is to “attract and retain well-qualified

executives and key personnel and to assure itself of the continuity of its

management. . . . The Company is concerned that in the event of a possible or

threatened change in control of the Company, uncertainties necessarily arise and

the Executive may have concerns about the continuation of his employment status

and responsibilities and may be approached by others offering competing

employment opportunities, and the Company therefore desires to provide the

Executive assurance as to the continuation of his employment status and

responsibilities in such event.” R2-49-A1. The guarantees in the Agreement are

meant to entice the Executive to stay with the Company, and the provisions should

be read in that light. Section 5(c) of the Agreement guarantees that,

During the Employment Period7, the Executive shall receive the following compensation and benefits: . . . (c) He shall be eligible to participate on a reasonable basis, and to continue his existing participation, in annual incentive, stock option, restricted stock, long- term incentive plan, and any other incentive compensation plan which provides opportunities to receive compensation in addition to his annual base salary which are the greater of (i) the opportunities provided by the Company for executives with comparable duties or (ii) the opportunities under any such plans in which he was participating immediately prior to the Effective Date. Id. at A5.

7 Under §3(b)(ii) of the Agreement, the “Employment Period” is “the period commencing on the Effective Date for the Change in Control and ending upon the last day of the month in which occurs the second anniversary of the Effective Date for the Change in Control.” R2-49- A4.

9 Section 5(c) specifically guarantees that Yochum will receive stock options and

incentives at least equal to what he receives from Barnett Bank for a two-year

period after a change in control.

The Committee cites to a number of cases defining “comparable” to mean

something different than “equivalent compensation and benefits.” However, those

cases are not applicable here, because “comparable employment” is defined in the

language of the Plan itself to mean “equivalent compensation and benefits.”

Where the parties have agreed to the meaning of a word in a contract, and that

word is defined therein, we will not look to case law interpreting other agreements

to impose a different meaning.

Because Yochum would not have received stock options had he accepted the

job with Nations Bank, and because his salary and benefits package would have

decreased after one year, the new job did not provide “equivalent compensation

and benefits” as required. Therefore, by turning down this offer, he did not decline

an offer of “comparable employment.”8

8 The district court also determined that payment of severance benefits would constitute a windfall to Mr. Yochum, as he was never unemployed. This, however, is contrary to Eleventh Circuit precedent. See Bedinghaus v. Modern Graphic Arts, 15 F.3d 1027, 1032 (11th Cir. 1994) (citation omitted) (“[F]ederal courts have established no hard and fast rule that an individual must suffer a period of unemployment to qualify for severance benefits under ERISA. Those courts that have deemed unemployment a prerequisite to such benefits have predicated their decisions on the particular terms of the ERISA plan at issue and its application to the specific facts before them.”); but see Rigby v. Rhodes, Inc., No. 95-1368-CIV-LENARD (S.D. Fla. July

10 C. Arbitrary and Capricious

Because we do not agree with the Committee's decision, we now have to

decide if it was arbitrary and capricious, factoring in the conflict of interest. See

Brown, 898 F.2d at 1570. If the decision were for the benefit of the Plan's

beneficiaries, we might be persuaded to uphold it despite our disagreement with

the result. See Brown, 898 F.2d at 1566-67 (“[A] wrong but apparently reasonable

interpretation is arbitrary and capricious if it advances the conflicting interest of

the fiduciary at the expense of the affected beneficiary or beneficiaries unless the

fiduciary justifies the interpretation on the ground of its benefit to the class of all

participants and beneficiaries.”); 29 U.S.C. §1104(a)(1)(A)(i) (the administrators

of an ERISA plan are to discharge their duties “for the exclusive purpose of

providing benefits to participants and their beneficiaries”). However, there is no

evidence that the denial of benefits to Yochum was made with the best interests of

the Plan's beneficiaries in mind.

The decision itself was arbitrary and capricious. The Committee did not

include Yochum's Employment Agreement in its discussion of his claim, so they

had no true basis upon which to decide that the employment offer was comparable.

They determined that the offer was comparable, despite the fact that Yochum

10, 1996), aff'd, 121 F.3d 722 (11th Cir. 1997).

11 would no longer be receiving stock options, which was an integral part of his

benefits package. When they made this decision, they were operating under the

incorrect information that Yochum's salary and benefits were guaranteed for two

years when, according to a later correction of several affidavits and the amended

minutes of the relevant Committee meeting, they were only guaranteed for one

year. Finally, the Committee denied Yochum the right to appeal their

determination, a right which is guaranteed under the plain language of the ERISA

statute. See 29 U.S.C. §1133(2) (“In accordance with regulations of the Secretary,

every employee benefit plan shall . . . afford a reasonable opportunity to any

participant whose claim for benefits has been denied for a full and fair review by

the appropriate named fiduciary of the decision denying the claim.”). The

Committee denied Yochum this opportunity, and then later asked the court to

ignore several of Yochum's arguments because they had not been raised before the

Committee. The denial of Yochum's claim based on false and incomplete

information was arbitrary and capricious, in that the plain language of the Plan and

the Agreement were violated. Further, the denial of Yochum's right to appeal this

decision to the Committee and the attempt to use that against him later makes the

violation even more egregious.

12 III. CONCLUSION

In order to disqualify Yochum from receiving severance benefits,

NationsBank had to show that he declined a written offer of comparable

employment. Because stock options are an important part of executive

compensation, and because his benefits would have decreased after one year, the

job offer made by NationsBank was not comparable as defined by the Plan. The

denial of Yochum's right to appeal was a further violation of ERISA. The decision

made by the Committee was arbitrary and capricious, and should not be upheld.

Therefore, we REVERSE the judgment of the district court and REMAND to the

district court with instructions to enter summary judgment for the Plaintiff.