Petition for Writ of Certiorari — Long Island Jewish Medical Center v. Schonholz
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Supreme GOourt, U.>
FILED
96 485 SEP 2 419%
Nq@PRMR O§ INE CLEAR
IN THE
Supreme Court of the United States
OCTOBER TERM, 1996
LONG ISLAND JEWISH MEDICAL CENTER,
Petitioner,
VS.
GLENISS S. SCHONHOLZ,
Respondent.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
PETITION FOR A WRIT OF CERTIORARI
CHARLES G. MOERDLER
Counsel of Record
ALBERT M. APPEL
BURTON N. LIPSHIE
JAMES M. MCGOVERN
STROOCK & STROOCK & LAVAN
Seven Hanover Square
New York, New York 10004
(212) 806-5400
Counsel for Petitioner
QUESTIONS PRESENTED
1. Whether an employer’s undertaking to provide
severance benefits to a limited number of senior executives --
an undertaking that neither required nor resulted in the
establishment of an “ongoing administrative program” of any
kind -- constituted an ERISA “plan” simply because the
exercise of discretion might be implicated in determining
whether or not to extend benefits to an individual employee,
an issue as to which the circuits have expressed confusion and
disagreement with respect to the interpretation of this Court's
decision in Fort Halifax Packing Company v. Coyne, 482
U.S. 1 (1987).
2. Whether a federal court may create a federal common
law remedy based on promissory estoppel to create a claim to
benefits under ERISA where, by its terms, ERISA would
otherwise not be applicable, an issue as to which the circuits
are in conflict.
ee
RULE 29.1 STATEMENT
Petitioner is a New York not-for-profit corporation, which
has no parent company. It has one subsidiary, Transitions of
Long Island, Inc., a New York Corporation.
iii
TABLE OF CONTENTS
Page
QUESTIONS PRESENTED.............0.ccccccccssssscsesesseess i
SURPEME AN SPEER EINE cnscenssecesconscaracscasoveseccosscees ii
DPBS CE PUTT EIT oo xecsescescsssnesoscscnsesevecsseces \
a I asin si csshadicnechewseonesennons l
I ola, 2 cnaininantnbaciachacedacoonsuan 2
STATUTORY PROVISIONS INVOLVED.............. 2
SLATEMENT OF THE CASE. ..............cccccceccsccesssss: 3
The Severance Memorandum.....................0.00000-«- 4
Schonholz’ Termination.................ccccc.ccc0ceeeeeeeeee0e. 5
The LIJ Board Learns of the May 3 Memorandum 7
ih EAE STE Ni Ra ee 8
REASONS FOR GRANTING THE PETITION....... 1]
I. Review of This Case is Necessary to Correct
the Second Circuit’s Misconstruction of the
Fort Halifax Test and to Provide Much
Needed Clarification to the Circuits .............. 12
II. Review of the Second Circuit’s Decision is
Necessary to Resolve a Split in the Circuits
on the Issue of Whether a Federal Common
Law Cause of Action for Promissory
Estoppel Exists Under ERISA .............0.0000000. 18
cilia iia hislccasiunirinidanianasensemabecin 26
v
TABLE OF AUTHORITIES
Cases: Page
Ackner v. Lenox, Inc),-782-F. Supp. 267 (S.D.N.Y.
PPR vsioeasiseienieteiignstedisnedinptk aaabiiiiidiabadibaitatdetiyiadsicntaei: 14
Alday v. Container Corp. of America, 906 F.2d 660
(11th Cir. 1990), cert. denied, 498 U.S. 1026
{2} SRERE ERNE HEN MRE ESR CON 5 Se eee ate 19, 21
Angst v. Mack Trucks, 969 F.2d 1530 (3d Cir. 1992) 14, 16
Armistead v. Vernitron Corp., 944 F.2d 1287 (6th
Ss IPI D vesclaniendipatcndehidcehsaviamselilihtebtantaiinsieartiaddiahsciashie 23
Belanger v. Wyman-Gordon Company, 71 F.3d 451
lg Se son ihckaieshcacicbadndihiinhahaidaaaebtenknannies 14, 16
Bogue v. Ampex Corp., 976 F.2d 1319 (9th Cir.
1992), cert. denied, 507 U.S. 1031 (1993) ............ 14, 15
DeVoll v. Burdick Painting, Inc., 35 F.3d 408 (9th
Cir. 1994), cert. denied, 115 S. Ct. 1381 (1995)... 19, 20
Degan v. Ford Motor Company, 869 F.2d 889 (Sth
CPR Si iisitiecs sctiestcsenvcenivindonabicealacniaetinnensiniinnense 19, 20, 21
Delaye v. Agripac, Inc., 39 F.3d 235 (9th Cir.
1994), cert. denied, 115 S.Ct 1402 (1995)............. 14, 16
Firestone Tire & Rubber Co. v. Bruch, 489 U.S.
RE Cb Pe Packsibsssasaitnstcottinsssebdepmdasideddemsstecicanceinels 19, 22
Fontenot v. NL Industries, 953 F.2d 960 (Sth Cir.
ESD sccisseiileetcclrs adeinaNedeabnnaniscnticennsbeescsactanieak niall 14
Fort Halifax Packing Company v. Coyne, 482 U.S.
BEIT bi citalincniipitncscitntesistailicheebinisiatagiemieniinlinnsdaioncsic passim
In re Unisys Corp. Retiree Medical Benefit
“ERISA ” Litigation, 58 F.3d 896 (3d Cir. 1995) .. 22
Ingersoll-Rand Co. v. McClendon, 498 U.S. 133
SITU Bick vicskicksiacssciciticneiseseclabiuasehsvumdioeche hoabeotciis ah hliciateciiin 24
vi
Cases:
James v. Fleet/Norstar Fin Group, Inc., 992 F.2d
GS COR Cae NE tisticiisersaciesbiceaneiianaiiaaeneniinn
Kane v. Aetna Life Ins., 893 F.2d 1283 (1 ith Cir.
1990), cert. denied, 498 U.S. 890 (1990) ..............
Kulinski v. Medtronics Bio-Medicus, Inc., 21 F.3d
a CR CG BOD Giisticcasvcehestthasinssubdvutideerasatnlonite
Law v. Ernst & Young, 956 F.2d 364 (ist Cir. 1992)
Lee v. Burkhart, 991 F.2d 1004 (2d Cir. 1993) .........
Massachusetts Mut. Life Ins. Co. v. Russell, 473
RJotie 2a (0 ele Dincacincsssascndienssenssesnmiaeiionagelaeinnmraiincsis
Mertens v, Hewitt Assocs., 508 U.S. 248 (1993).......
Miller v. Coastal Corp., 978 F.2d 622 (10th Cir.
1992), cert. denied, 507 U.S. 987 (1993) ..............
Miller v. Taylor Insulation Co., 39 F.3d 755 (7th
OOP, RE csseniscdincinarsadp sivtatenadiemaabshehaumbieneaine
Mullins v. Pfizer, 23 F.3d 663 (2d Cir. 1994)............
Olson v. General Dynamics Corp., 960 F.2d 1418
(9th Cir. 1991), cert. denied, 504 U.S. 986 (1992)
Pane v. RCA Corporation, 667 F. Supp. 168 (D.N.J.
1987), aff'd, 868 F.2d 631 (3d Cir. 1989) .............
Pane v. RCA Corporation, 868 F.2d 631 (3d Cir.
EDP) vcesisnciisdansicebianvahantaacsidiaiaiaasibdlabseighiahasbaobcitiniois
Schonholz v. Long Island Jewish Medical Center,
858 F. Supp. 350 (E.D.N.Y. 1994) oo. eceeseeee
Schonholz v. Long Island Jewish Medical Center,
889 F. Supp. 610 (E.D.N.Y. 1995) 0...
Schonholz v. Long Island Jewish Medical Center,
FE CO 7a COR Gale TROD Vnikcinencitacpinniniinss
15
2,9
2
|
7
j
ee
Vii
Cases: Page
Simas v. Quaker Fabric Corp., 6 F.3d 849 (1st Cir.
2) BRSRE REIS aI EGY seater (RE ERR 14, 15, 16
Singer v. Black & Decker Corp., 964 F.2d 1449 (4th
SiN UTI us Goeschnaensaceibsneceissicabeitapiisiiaummelinsiatcncsdinnas 25
Slice v. Sons of Norway, 34 F.3d 630 (8th Cir. 1994) 21
Straub v. Western Union Telegraph Co., 851 F.2d
SE II GaN UTED cacishanicscananaslicapieptiatsuansbieckon 21
Statutes:
AE Ue CED Stason sothavicideneiniisineiccdnsnteictdienhbaiibhacee 2
IE BB ciialicedntckccnsasinsssentetibideteninbisstraciunnsaes 4,8
Oe ad EO IO 5s ccs setdichssecniniiniacienennbesaiins 3
29 U.S.C. §§ 1021-1025, 1102-1105, 1109.00.00... 17
Fe is Be 6 IEE Pbstisiniccrncncecnesictesenpanichieanniseinns 2,19
eae TE A RITE TD passhscnsesthctssessasonussicitioiancanceniees 2, 19
SUR EWE IR cis taccscdecnts gsanen otoaphaceiacnbedanasdoesicaas 4,8
Fe EE Te iithiicitiarcesendsnnniticcodecniiceinanvinds 18
Se EE BO hiniebicschictupabcidinsibcsenichosinhcisbiasinpninan 17
Be SIs ARI sieves oskhtcdavsbabartiscisctidas canvases a ae
— Retirement Income Security Act, 88 Stat. :
No.
IN THE
Supreme Court of the United States
OCTOBER TERM, 1996
LONG ISLAND JEWISH MEDICAL CENTER,
Petitioner,
vs.
GLENISS S. SCHONHOLZ,
Respondent.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
PETITION FOR A WRIT OF CERTIORARI
Long Island Jewish Medical Center (“LIS”) respectfully
petitions that a writ of certiorari issue to review the judgment
of the United States Court of Appeals for the Second Circuit.
OPINIONS BELOW
The opinion and order of the Court of Appeals for the Sec-
ond Circuit is reported at Schonholz v. Long Island Jewish
Medical Center, 87 F.3d 72 (2d Cir. 1996), and reproduced at
pages A-1 to A-15 of the accompanying Appendix. The
opinion and order of the District Court for the Eastern District
of New York, granting LIJ’s motion for summary judgment,
is reported at 889 F. Supp. 610 (E.D.N.Y. 1994), and is re-
produced at pages A-16 to A-23 of the Appendix. The opinion
and order of the District Court for the Eastern District of New
York, denying in part and granting in part LIJ’s motion to
dismiss, is reported at 858 F. Supp. 350 (E.D.N.Y. 1994), and
is reproduced at pages A-24 to A-32 of the Appendix.
JURISDICTION
The Court of Appeals entered its judgment on June 26,
1996. A-33 to A-34. The jurisdiction of this Court is invoked
under 28 U.S.C. § 1254(1).
STATUTORY PROVISIONS INVOLVED
29 U.S.C. § 1144(a) provides, in relevant part:
Except as provided in subsection (b) of this section,
the provisions of this subchapter and subchapter III
of this chapter shall supersede any and all State laws
insofar as they may now or hereafter relate to any
employee benefit plan described in section 1003(a)
of this title and not exempt under section 1003(b) of
this title.
29 U.S.C. § 1102(a)(1) provides:
(1) Every employee benefit plan shall be established
and maintained pursuant to a written instrument.
Such instrument shall provide for one or more
named fiduciaries who jointly or severally shall
have authority to control and manage the operation
and administration of the plan.
29 U.S.C. § 1102(6)(3) provides, in relevant part:
Every employee benefit plan shall --
> * *
(3) provide a procedure for amending such plan, and
for identifying the persons who have authority to
amend the plan.
3
STATEMENT OF THE CASE
Following declaration of his intention to retire, the Presi-
dent of LIJ, Dr. Robert Match, issued a two-page memoran-
dum awarding generous “golden parachute” severance
benefits to his Chief Operating Officer, plaintiff-respondent
Gleniss Schonholz, in the event her at-will employment was
later terminated for reasons other than cause.’ A-35-37.
Though the two-page Severance Memorandum stated that
seven other members of Match’s inner management circle fell
within its ambit, only Ms. Schonholz, who had reviewed the
Memorandum prior to its issuance, claims to have benefitted
thereunder. By its terms, the Memorandum granted specified
benefits for a specified term.
The Severance Memorandum was not submitted to LIJ’s
Board of Trustees for review, much less approval. R. 453,
484-86, 502. Indeed, it did not come to the Board’s attention
until after Dr. Match and Ms. Schonholz exchanged letters
requesting and submitting her resignation. R. 1429-31. Sig-
nificantly, at that point in time, Ms. Schonholz had already
requested an executive search firm to find her another posi-
tion, even including one in another field. A-38.
The LIJ Board, upon finally learning of the Severance
Memorandum, and prior to the effective date of Ms.
' The factual statement largely presupposes the facts are as asserted by
plaintiff-respondent. For convenience, “LIJ” refers to the petitioner-
defendant, Long Island Jewish Medical Center. The term “ERISA” refers
to the Employee Retirement Income Security Act, 88 Stat. 832, as
amended, 29 U.S.C. § 1001, et seg. The “Severance Pay Memorandum,”
“Severance Memorandum,” or “Program” all refer to the alleged sever-
ance arrangement at issue herein, purported to have been estabiished in
the May 3, 1991 memorandum to the members of the President’s Council
from Dr. Match. The “May 3 Memorandum” refers to that same May 3,
1991 memorandum.
* Citations to the accompanying appendix will take the form “A. ” Ci
tations to the joint appendix that constituted the record before the Court of
Appeals will take the form “R.__.”
4
Schonholz’ resignation, immediately reyoked the Memoran-
dum as unauthorized. R. 352-62, 633-34."
Ms. Schonholz was employed by LIJ from 1980 until April
1, 1993. R. 25-26. From 1987 until April 1, 1993, Ms. Schon-
holz was a Senior Vice-President and Chief Operating Officer
of LIJ. Jd. Schonholz was also a member of LIJ’s “President’s
Council,” a body established by Dr. Match, consisting of Dr.
Match and his eight most senior managers. /d., R. 883.
Prior to this litigation, when a senior manager was involun-
tarily terminated by LIJ, LIJ would decide what benefits, if
any, the manager would receive on a discretionary, ad hoc
basis. The discretionary decision as to whether to grant a
senior manager any benefits upon involuntary termination,
and in what amount, rested, ultimately, with Dr. Match. R.
1090-92, 743-44.
The Severance Memorandum
In early 1991, Dr. Match was importuned by his inner cir-
cle either to develop employment contracts for them or to
institute a severance policy because “they were concerned
about the possibility that if they were asked to leave, they had
no protection whatsoever....” R. 447. On or about May 3,
1991, following review by Ms. Schonholz, Dr. Match circu-
lated a two-page internal memorandum -- prominently la-
belled as “Confidential” -- to the members of the President’s
Council. A-35-37.
The May 3 Memorandum purported to establish a
“severance pay program” for the eight officials, including Ms.
Schonholz, to whom the Memorandum was sent. Dr. Match
never forwarded a copy of the May 3 Memorandum or
> The sole ground for federal court subject matter jurisdiction alleged by
plaintiff-respondent is jurisdiction through ERISA, pursuant to 29 U.S.C.
§ 1132 and 28 U.S.C. § 1331. The jurisdictional issue is central to this
Petition, as LIJ contends that the Second Circuit erred in finding an
“ERISA plan” and, as a consequence, federal court jurisdiction existed.
i
7
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5
disclosed its contents to the LIJ Board of Trustees. R. 453.
484-86, 502.
The May 3 Memorandum provided, in pertinent
part:
Under the terms of this program, any member of the
President’s Council who is involuntarily terminated
or removed from his position, for other than illegal
conduct or for substantially deficient performance
which is detrimental to LIJ, shall be entitled to re-
ceive his regular weekly salary, in effect as of the
day before his termination for the specified period
of time outlined below ....
A-35. The May 3 Memorandum included a table indicating
the amount of severance an employee would receive based on
years of service. For example, an employee with more than
ten years of experience would receive one year of severance,
plus an additional six months if the employee could not find
employment commensurate with his or her former position
within one year, provided the employee had made a good
faith effort to find such employment.
LIJ took no steps toward establishing any administrative
mechanism related to the severance policy as articulated in
the May 3 Memorandum. No funds were set aside, no finan-
cial projections were made, no filings were prepared or made
and no procedures were established for monitoring the avail-
ability of funds or for handling potential claims. From an
administrative perspective, there was no change from the
prior, unwritten, purely ad hoc approach. R. 1387-1389, 477-
79.
Schonholz' Termination
Dr. Match and Ms. Schonholz have testified that some time
before December 18, 1992, Ms. Schonholz was informed of
Dr. Match’s intention to request her resignation effective
April 1, 1993. Jd, R. 565-67, 1049-50. When a high level LIJ
administrator was fired, it was the usual practice for the em-
ployee’s supervisor to inform the employee of the
6
termination, but to allow the employee to submit his or her
resignation voluntarily. R. 1136-37. The “resignation” process
was followed as an accommodation to the person being ter-
minated in order to facilitate the employee’s reemployment
efforts. R. 1148-49.
By letter dated December 18, 1992 (the “December 18
Letter”), Dr. Match requested Ms. Schonholz’ resignation ef-
fective April 1, 1993. A-39. The letter stated that:
the terms of your severance will be governed by the
LIJ Medical Center personnel policies applicable to
members of the President’s Council, including the
Severance Pay Program dated May 3, 1991. At your
option, the initial twelve months of severance pay
may be taken in one lump-sum payment on the day
of your termination of [sic] bi-weekly over the
twelve months after your termination.
Id° By letter dated December 22, 1992, Ms. Schonholz
submitted her letter of resignation effective April 1, 1993. R.
125.
* Ms. Schonholz has admitted that, notwithstanding the fact that the ad-
ministrator was allowed to submit a resignation, at the time the employee
was asked to resign, the person would know that he or she was fired. The
employee thus lacked the “leverage” to bargain, negotiate or the like -- the
termination terms, if any, were a matter of grace. In the words of Ms.
Schonholz, once the resignation was requested, “it was over.”
Ms. Schonholz testified that she resigned because she had no other choice
and because it would make her employment search easier. She did not
attempt to bargain or negotiate with Dr. Match, or to in any way to change
his mind. The existence of the severance pay program was therefore ir-
relevant to her decision to “resign.” R. 1090-1093.
* Dr. Match’s December 18 letter offer of a “lump sum payment” to
Schonholz is revealing. A-39. The May 3 Memorandum -- the claimed
severance plan predicate -- did not so provide; it provided, instead that
severance benefits “shall be paid on a biweekly basis ....” A-36. Dr. Match
explained that he unilaterally determined to vary the May 3 Memorandum
to conform to what he understood had been done in other
(Footnote continued)
NR ae
7
Significantly, however, even before the conversation be-
tween Ms. Schonholz and Dr. Match and their exchange of
resignation letters, Ms. Schonholz had been in communication
with an executive search firm soliciting its assistance in find-
ing a new job. A-38. Stating that she had already determined
to leave LIJ, Ms. Schonholz expressed her willingness to
consider employment even in an unrelated field. Jd
The LIJ Board Learzs of the May ? Memorandum
Almost two years after issuance of the Severance Memo-
randum and some three months after the resignation letter ex-
change between Dr. Match and Ms. Schonholz, in March
1993, LIJ’s Board of Trustees learned for the first time of the
May 3 Memorandum (R. 1429-31), as well as the December
1992 exchange of correspondence between Dr. Match and
Schonholz (R. 627). At its next regular meeting -- on March
23, 1993 -- the LIJ Board was presented with and considered
the May 3 Memorandum. R. 1431. The Trustees, who were
shocked to learn of the existence of the purported severance
program and the December exchange of correspondence be-
tween Ms. Schonholz and Dr. Match (R. 1429), adopted, by
an overwhelming vote, a resolution declaring the May 3
Memorandum null and void, and revoking it as unauthorized
and invalid. R. 352-62, 633-34.°
Ms. Schonholz received notice, both orally and in writing,
of the revocation from Dr. Match prior to her termination. R.
instances (involving the ad hoc procedures, individuals and events pre-
dating the May 3 Memorandum). R. 622-24.
* The minutes of that March 23 meeting indicate, that, after considerable
discussion:
[uJpon motion duly made, seconded and adopted, the Board
declared that the purported May 1991 severance pay policy
for members of the President’s Council is declared invalid,
null and void and never to have been effective...
R. 361.
1179-80, 635-636, 1202-03.’ Having revoked the purported
severance program on March 23, 1993, the Board indicated
that it would evaluate to what extent and under what circum-
stances Ms. Schonholz would be provided any severance
benefits in a fashion similar to prior (and subsequent) termi-
nation cases (i.e., on a discretionary case-by-case basis, with
the discretion being exercised by the Board’s Compensation
Committee or a Committee drawn largely therefrom). R. 721,
417.
History of the Action
On or about June 11, 1993, Ms. Schonholz commenced this
action against LIJ and various individual defendants who
served as uncompensated members of LIJ’s Board of Trus-
tees, alleging jurisdiction under 28 U.S.C. § 1331 and 29
U.S.C. § 1132. R. 32-40. Ms. Schonholz sought to recover
from LIJ and the individual defendants severance benefits al-
legedly due her, as well as punitive damages and attorneys’
fees. Thereafter, in addition to this litigation, Schonholz also
commenced proceedings against LIJ before the U.S. Equal
Employment Opportunity Commission (Charge No.
60940066) charging age discrimination. That action was
dismissed by the Commission on a finding that Ms. Schon-
holz had, in fact, resigned. Ms. Schonholz did not appeal or
seek review of that determination.
” On March 29, 1993, Dr. Match wrote the following letter to Schonholz
and to each of the eight recipients of the May 3 Memorandum:
It has recently come to the attention of the Board of Trustees
of the Medical Center that a memorandum was circulated to
the members of the President’s Council in 1991 which pur-
ported to establish a severance pay program for these employ-
ees. Please be advised that this severance pay program was
never approved or adopted by the Board and is deemed inva-
lid and null and void and never to have been effective. The
Medical Center will not be bound by its provisions.
R. 127.
SS eT a en ae
9
On or about July 30, 1993, defendants moved to dismiss
the complaint in its entirety, under FRCP Rule 12(b)(6), for
failure to state a claim upon which relief may be granted. By
memorandum and order dated February 18, 1994, the District
Court granted in part and denied in part LIJ’s motion to dis-
miss. A-24-32. Ms. Schonholz’ claims against the individual
defendants were dismissed with prejudice, as were her claims
for punitive damages. The District Court also dismissed the
second cause of action (based on estoppel), but granted Ms.
Schonholz leave to amend to specify with particularity her
reliance claims. Given the state of the pleadings and the scope
of a Rule 12(b)(6) motion, the District Court denied the mo-
tion to dismiss the first cause of action (the claim to enforce
the May 3 Memorandum under ERISA) simply because LIJ’s
pleading failed to aver that Ms. Schonholz received notice of
the Board’s revocation of the May 3 Memorandum.
On or about March 7, 1994, Ms. Schonholz filed the
Amended Complaint, which now involved only two parties
(Ms. Schonholz and LIJ) and two causes of action (ERISA
and estoppel). R. 24-31.
On August 30, 1994, LIJ moved for an order granting it
summary judgment, dismissing Ms. Schonholz’ claims for
lack of subject matter jurisdiction and for failure to state a
claim. R. 46-47. On or about September 16, 1994, Ms.
Schonholz cross-moved for summary judgment, arguing that
all of the facts necessary to decide in her favor had been es-
tablished and that she was entitled to summary judgment as a
matter of law. R. 56-57.
By Memorandum-Decision and Order dated February 3,
1995, Judge Bartels (1) denied LIJ’s motion for summary
judgment for lack of subject matter jurisdiction; (2) granted
LIJ’s motion for summary judgment for failure to state a
claim; (3)denied Schonholz’ cross-motion for summary
judgment; and (4) dismissed the action in its entirety. A-16-
23.
Judge Bartels granted LIJ’s motion for summary judgment
on Ms. Schonholz’ first cause of action under ERISA. He
10
based this decision on the undisputed fact that “LIJ had es-
tablished that its revocation of the Program was in writing and
plaintiff admits that she had both oral and written notification
of the LIJ Board’s revocation of the Program prior to the ef-
fective date of her termination.” A-19. In addition, Judge
Bartels completely rejected Ms. Schonholz’ bad faith and fi-
duciary duty theory, holding that the single case Ms. Schon-
holz cited in support of this theory stood “against the weight
of authority.” A-19-21.
Turning to Ms. Schonholz’ common law claims, Judge
Bartels likewise granted LIJ’s summary judgment motion.
Judge Bartels rejected Ms. Schonholz’ contractual vesting
theory, based on Dr. Match’s letter, on two grounds. First, he
held that, “although an employer may establish by contract
that certain benefits are vested, it may only do so in formal
plan documents,” and “[c]learly Dr. Match’s [December 18,
1992] letter is not a formal plan document.” A-21-22. There-
fore, Dr. Match’s letter could not contractually vest the Pro-
gram’s benefits. Secondly, Judge Bartels held that “even if the
Court were to consider Dr. Match’s letter to be a Plan docu-
ment, the letter does not explicitly waive LIJ’s rights to ter-
minate benefits.” Jd.
Finally, Judge Bartels rejected Ms. Schonholz’ promissory
estoppel theory on the ground that she could not demonstrate
any detrimental reliance or injury. A-23.
The United States Court of Appeals for the Second Circuit
affirmed the district court’s finding that the Program consti-
tuted an ERISA welfare benefits plan for ERISA pre-emption
purposes. A-6. The court, however, reversed the district
court’s grant of summary judgment, finding several triable
issues of fact existed. Specifically, the court reversed the dis-
trict court’s holding regarding the contractual vesting issue
and held that the December 18 letter could be found by a trier
of fact to constitute a sufficiently formal promise on the part
of LIJ to bind LIJ under a contractual vesting theory.
The Second Circuit agreed with the district court that a
cause of action for promissory estoppel exists under ERISA.
11
A-12. The Second Circuit, however, reversed the district
court’s dismissal of the promissory estoppel claim. The court
found that, even though Ms. Schonholz was involuntarily
terminated, a trier of fact could find that she relied on Dr.
Match’s December 18 letter in deciding to resign. The Second
Circuit also held that a trier of fact could reasonably find that,
by agreeing to resign, Ms. Schonholz forfeited something,
and, as a result, was injured by virtue of her reliance. Accord-
ingly, the Second Circuit remanded the case to the district
court.
Thus, the Court of Appeals held that the federal courts have
subject matter jurisdiction of this case because it comes
within ERISA, and that Schonholz’s claim of promissory es-
toppel stated a claim under that statute. Petitioner seeks cer-
tiorari to review those conclusions.
REASONS FOR GRANTING THE PETITION
The Second Circuit’s decision in this case dramatically al-
ters the test for determining ERISA pre-emption as set out by
this Court in Fort Halifax Packing Co. v. Coyne, 482 U.S. 1
(1987). According to the Second Circuit’s formulation, when-
ever an employer’s offer of severance benefits -- no matter
how limited in scope -- allows for the exercise of any discre-
tion on the employer’s part, the employer must comply with
all of ERISA’s substantive and procedural requirements --
regardless of whether any plan or administrative program is
implicated. That is not what this Court held in Fort Halifax.
This case will permit this Court to correct the Second Cir-
cuit’s misstatement of the law and to provide much needed
clarification of the Fort Halifax test as to which the circuits
have expressed confusion and disagreement.
In addition, by recognizing a cause of action for promissory
estoppel under ERISA, the Second Circuit exacerbated a split
among the circuits on the issue of whether such a cause of ac-
tion exists. The existence of such a split undermines the pur-
pose of ERISA pre-emption -- to provide a consistent,
uniform set of requirements and rules. This case, then,
12
provides this Court with an opportunity to resolve that confu-
sion and disagreement as well.
I. Review of This Case is Necessary to Correct
the Second Circuit’s Misconstruction of the
Fort Halifax Test and to Provide Much
Needed Clarification to the Circuits
In Fort Halifax, this Court held that the term “employee
welfare benefit plan” -- the jurisdictional nexus under
ERISA -- does not apply to every undertaking by an employer
to provide employees with severance benefits; instead, it ex-
tends only to those undertakings which require the creation of
an “ongoing administrative program.” 482 U.S. at 16.
Fort Halifax involved a Maine statute that required em-
ployers, in the event of a plant closing, to provide a one-time
severance payment to employees who were not covered by a
contract that dealt with the issue of severance pay. In holding
that ERISA did not pre-empt the Maine statute, this Court fo-
cused on both the statutory language and the policy behind
ERISA pre-emption.
Thus, this Court noted that ERISA’s pre-emption provision
specifically refers to “employee benefit plans,” not simply to
“employee benefits,” and that the terms “plan” and “benefits”
are used distinctly throughout the statute. Jd. at 7-8 (quoting
29 U.S.C. § 1144(a), adding emphasis). The Court then
looked to the purpose behind ERISA pre-emption and the
regulatory scheme as a whole to conclude that the hallmark of
an ERISA “plan” -- as contrasted with “benefits” -- is that a
plan requires an “ongoing administrative program.” /d. at 11-
12. “Only ‘plans,’” this Court held, “involve administrative
activity potentially subject to employer abuse.” Jd. at 16. The
severance pay scheme in Fort Halifax, however, did not in-
volve a “plan” because it
generates no such activity. There is no occasion to
determine whether a “plan” is “operated” in the in-
terest of its beneficiaries, because nothing is
“operated.” No financial transactions take place that
Leal tea ten eS
wage ae Cee cae aentiing t ‘
ee as
FE eT Tn ye ee ee ee ee ae ee ee eT
13
would be listed in an annual report, and no further
information regarding the terms of the severance
pay obligations is needed because the statute itself
makes these terms clear. It would make no sense for
pre-emption to clear the way for exclusive federal
regulation, for there would be nothing to regulate.
Id. at 16.
Pre-emption, this Court concluded, was intended to
eliminat[e] the threat of conflicting and inconsistent State
and local regulation.’” Jd. at 9 (quoting 120 Cong.Rec. 29197
(1974)). An employer that commits to paying certain benefits
on a systematic basis “undertakes a host of obligations” and
the most efficient method for an employer to meet its respon-
sibilities is by establishing a “uniform administrative scheme,
which provides a set of standard procedures to guide the proc-
essing of claims and disbursement of benefits.” Jd. However,
employers would, as this Court observed, have great difficulty
establishing such a scheme if they were subject to differing
obligations and regulations imposed by different States.
oe
A plan would be required to keep certain records in
some States but not in others; to make certain
benefits available in some States but not in others:
to process claims in a certain way in some States
but not in others; and to comply with certain fiduci-
ary standards in some States but not in others.
Id. If employers were subject to such a “patchwork scheme of
regulation,” they would encounter serious inefficiencies in
operating benefit plans, and those with existing plans might
choose to reduce benefits, and those without plans might re-
frain from adopting them. /d. at 11.
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 respect to
benefits whose provision by nature requires an on-
going administrative program to meet the
14
employer’s obligation. It is for this reason that Con-
gress pre-empted state laws relating to plans, rather
than simply to benefits. Only a plan embodies a set
of administrative practices vulnerable to the burden
that would be imposed by a patchwork scheme of
regulation.
Id. at 11-12. (Emphasis in original.) Thus, this Court ruled,
ERISA did not pre-empt the Maine statute, since “[nJeither
the possibility of a one-time payment in the future, nor the act
of making such a payment, in any way creates the potential
for the type of conflicting regulations of benefit plans that
ERISA pre-emption was intended to prevent.” Jd. at 14.
The Fifth and Eighth Circuits have consistently adhered to
the Fort Halifax analysis, looking to the existence of an
“ongoing administrative program” as the determinant of
ERISA pre-emption, and rejecting arguments that schemes
involving a handful of “beneficiaries,” or single or formulated
payment approaches constituted cognizable “plans” requiring
the imposition of ERISA’s burdens and regulatory oversight,
as well as attendant pre-emption’. The Second Circuit was in
accord until the decision here sought to be reviewed.”
Other courts, however, have openly struggled to find a
more elastic basis for invoking pre-emption. See Simas v.
Quaker Fabric Corp., 6 F.3d 849 (1st Cir. 1993); Pane v.
RCA Corporation, 868 F.2d 631 (3d Cir. 1989); Bogue v.
Ampex Corp., 976 F.2d 1319 (9th Cir. 1992), cert. denied,
507 U.S. 1031 (1993). But cf, Belanger v. Wyman-Gordon
Company, 71 F.3d 451 (1st Cir. 1995), with Simas, 6 F.3d at
854; Angst v. Mack Trucks, 969 F.2d 1530 (3d Cir. 1992),
with Pane, 868 F.2d at 635; and Delaye v. Agripac, Inc., 39
* See, e. g., Kulinski v. Medtronics Bio-Medicus, Inc., 21 F.3d 254 (8th Cir.
1994); Fontenot v. NL Industries, 953 F.2d 960 (Sth Cir. 1992).
3 Compare Schonholz, supra, with James v. Fleet/Norstar Financial
Group, Inc., 992 F.2d 463 (2d Cir. 1993). See also Mullins v. Pfizer, 23
F.3d, 663-666 (2d Cir. 1994); Ackner v. Lenox, Inc., 782 F. Supp. 267
(S.D.N.Y. 1992).
Eee lat Sad eas i, ai EPA a egal a DRS rte Pate aan Rd
15
F.3d 235 (9th Cir. 1994), cert. denied, 115 S. Ct. 1402 (1995),
with Bogue, 976 F.2d at 1323.
Generally, without regard to the existence of any “ongoing
administrative program,” much less focusing upon the dis-
tinction between “plans” and “benefits,” the courts advocating
a more expansive approach have largely settled upon an alter-
native standard, finding ERISA pre-emption applies where
any managerial “discretion” exists or may arise in determin-
ing severance benefits. '°
To illustrate, in Pane, ERISA pre-emption was invoked
when the employer refused to grant a single employee a sev-
erance agreement. The district court held that, because the
employer had discretion to determine whether to grant the
employee a severance agreement, which, if granted, might
equate him with a potential class of other participants, an on-
going administrative program would then be required, which
in turn implicated ERISA. Pane, 667 F. Supp. 168, (D.N.J.
1987), aff'd, 868 F.2d 631 (3rd Cir. 1989).
A similar approach was utilized in Bogue. There, as an in-
cident of a corporate merger, the employer told a handful of
senior executives that, if the successor entity did not offer
“substantially equivalent” employment --a defined term --
and their employment was terminated, they would then re-
ceive specified severance benefits for a finite period of time.
The employee accepted a new position with the successor
entity. However, claiming that the new position that he had
accepted was not “substantially equivalent” to his former job,
he also sought the severance benefit. Holding that application
of the defined term “substantially equivalent” involved
“discretion,” the Third Circuit sustained ERISA pre-emption
on the theory that such discretionary act now implicated
ERISA’s regulatory and filing requirements. Bogue, 976 F.2d
at 1323. See also Simas, 6 F.3d at 854 (applying Bogue
'° See Pane, 868 F.2d at 635, affirming, Pane v. RCA Corporation, 667 F.
Supp. 168, 170-171 (D.N.J. 1987), and Bogue, supra, 976 F.2d at 1322-
24.
16
analysis to find ERISA pre-empted Massachusetts “tin para-
chute” statute on ground that statute required non-mechanical
decision-making).
Significantly, in more recent decisions, the First, Third and
Ninth Circuits have all taken pains to distinguish their prior
decisions in Simas, Pane and Bogue, thus exacerbating the
confusion over the test to be applied. '!
A similar conflict occurs in the Second Circuit. In James,
supra, multiple employees were to receive severance pay-
ments over extended time periods. The Second Circuit, how-
ever, held that this did not meet the “ongoing administrative
program standard under Fort Halifax in that the employer's
need to make simple arithmetical calculations as to benefits
amounts did not require ‘establishment of a uniform adminis-
trative scheme, which provides a set of standard procedures to
guide processing of claims and disbursement of benefits’
(Fort Halifax 482 U.S. at 9), the protection of which is the
purpose of ERISA pre-emption.” James, 992 F.2d at 466. See
also Mullins, 23 F.3d at 666.
The instant case, however, places the Second Circuit in the
intra-circuit conflict column. Here, the retiring President of a
not-for-profit hospital issued a memorandum and referring to
some eight managers appointed as his inner circle of advisers,
but which in fact has implicated only one, provided that
specified and finite benefits would be awarded on termination
for other than cause -- the “golden parachute.” No adminis-
trative program was contemplated or resulted; no financial
statements were considered or prepared, no moneys set aside,
no filings made, no further information distributed; nothing
further was done. Indeed, the Board of Directors of the hospi-
tal-employer was not even told what had transpired (much
'' Compare Belanger v. Wyman-Gordon Company, 71 F.3d 451 (ist Cir.
1995), with Simas, 6 F.3d at 854; Angst v. Mack Trucks, 969 F.2d 1530
(3d Cir. 1992), with Pane, 868 F.2d at 635; and Deiaye v. Agripac, Inc.,
39 F.3d 235 (9th Cir. 1994), cert. denied, 115 S. Ct. 1402 (1995), with
Bogue, 976 F.2d at 1323.
17
less asked to approve the scheme) until after the single em-
ployee had sought benefits. Nonetheless, the Second Circuit
here holds that ERISA attaches -- and with it the burdens of
employer filings and the like -- where the determination as to
whether benefits will or will not be granted “necessitated both
managerial discretion and a separate analysis of each em-
ployee in light of certain criteria.” A-7-8.
The issue here tendered is important and of considerable
reach.
ERISA imposes extensive and ongoing fiduciary obliga-
tions and compliance requirements on employers.'* In Fort
Halifax, this Court held that those burdensome obligations
were not Congressionally intended to be and should not be
imposed absent the need for an “ongoing administrative pro-
gram,” something (i.e., a plan) that calls for regulation and
can be regulated. And the rationale expressed is that, because
an “ongoing administrative program,” with all of its burden-
some trappings is thus required, pre-emption is required in the
interest of regulatory consistency and to ease the undue em-
ployer burden.
Neither the holding nor the reasoning of Fort Halifax sup-
ports the test applied by the Second Circuit here. The mere
possibility that a manager may have to exercise discretion in
determining whether to extend an offer of benefits does not,
without more, transform an offer of severance “benefits” into
an ERISA “plan.” Certainly, if the Second Circuit’s holding is
to govern, then in all but a handful of instances where sever-
ance can be claimed (a) the employer will run the risk of
having omitted to comply with ERISA, and (b) a simple con-
tract issue will be subject to federal jurisdiction and the com-
mon law it will develop:'* This was not Congress’s intent.
" See, e.g., 29 U.S.C. §§ 1021-1025, 1102-1105, 1109.
"It will also implicate ERISA’s attorneys fee proviso [29 U.S.C.
§ 1132(g)], and thus provide an added layer of cost.
18
In any event, if this more elastic view -- which focuses
upon whether discretion exists to award benefits, even to a
single employee, or to make mathematical or like computa-
tions -- is to be the rule, then employers should know, so that
they can properly weigh the burdens imposed by ERISA
against the appropriateness of granting or continuing sever-
ance approaches. See Fort Halifax, 482 U.S. at 11. Otherwise,
unsuspecting employers run the risk of being in default in
failing to comply with ERISA. Employers may not only find
themselves embroiled in federal court litigation with, as here,
its creation of a body of law that is at variance with the com-
mon law of that state or jurisdiction, but, in some instances at
least, face potential $1,000 per day fines for failure to comply
with ERISA’s annual reporting requirements. See 29 U.S.C.
§ 1132(c)(2).
This Court in Fort Halifax noted:
Some severance benefit obligations by their nature
necessitate an ongoing administrative scheme, but
others do not. Those that do not...simply do not in-
volve a state law that “relate(s) to” an employee
benefit “plan.”
482 U.S. at 19. If the availability of discretion whether to
grant or withhold benefits is now to be the determinant as to
whether a plan exists and an ongoing administrative program
is implicated -- rather than the Fort Halifax standard that the
Second Circuit viewed as “opaque” -- then employers, em-
ployees and the courts should know that from this Court,
rather than continue the conflicts that now exist.
II. Review of the Second Circuit’s Decision is
Necessary to Resolve a Split in the Circuits
on the Issue of Whether a Federal Common
Law Cause of Action for Promissory
Estoppel Exists Under ERISA
Federal circuit courts are divided on the recurring issue of
whether a federal common law cause of action for promissory
estoppel exists under ERISA. That division extends beyond
19
severance and increasingly embraces a variety of employee
benefits.
Thus, the Second Circuit’s decision in this matter conflicts
with decisions of the Fifth, Ninth, Tenth and Eleventh Cir-
cuits, which have all refused to recognize a claim for promis-
sory estoppel under ERISA. In addition to the Second Circuit,
the Seventh Circuit and Third Circuit have recognized a claim
based on promissory estoppel under ERISA. This Court has
never addressed the issue.
The majority of jurisdictions have found no cause of action
for promissory estoppel under ERISA. See DeVoll v. Burdick
Painting, Inc., 35 F.3d 408 (9th Cir. 1994), cert. denied, 115
S. Ct. 1381 (1995); Miller v. Coastal Corp., 978 F.2d 622
(10th Cir. 1992), cert. denied, 507 U.S. 987 (1993); Alday v.
Container Corp. of America, 906 F.2d 660 (11th Cir. 1990),
cert. denied, 498 U.S. 1026 (1991); Degan v. Ford Motor
Company, 869 F.2d 889 (Sth Cir. 1989).
These courts have noted that ERISA’s comprehensive re-
medial scheme does not provide a cause of action for promis-
sory estoppel. They have further noted that, while this Court
has sanctioned the development of federal common law to fill
interstitial gaps in the statutory scheme [see, e.g., Firestone
Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110, (1989)], the
“we
authority to develop common law is “‘not the authority to
revise the text of the statute.’ DeVoll, 35 F.3d at 412, quot-
ing Mertens v, Hewitt Assocs., 508 U.S. 248, 259, (1993).
ERISA’s express requirements that every employee benefit
plan “be established and maintained pursuant to a written in-
struinent” (29 U.S.C. § 1102(a)(1)), and that the written plan
“provide a procedure for amending such plan, and for identi-
fying the persons who have authority to amend the plan” (29
U.S.C. § 1102(b)(3)), provide evidence that Congress did not
intend to permit plans to be informally modified or amended
based on promises of employers or plan administrators. See,
e.g., Alday, 906 F.2d at 665; Degan, 869 F.2d at 895. Thus, to
recognize claims based on promissory estoppel would be to
revise the statute.
20
In addition, courts that have refused to recognize a claim
for promissory estoppel have cited the following policy con-
cern: permitting informal modifications to a plan based on
representations made by an agent of the employer or plan may
threaten the integrity of the plan at the expense of other par-
ticipants or beneficiaries. As the court in Degan stated:
Applying the common-law concept of estoppel
would mean presenting retirement plan administra-
tors with claims for payment from individuals, oth-
erwise ineligible, who were parties to oral
agreements that, like the one before us, have lain
unsuspected and inert for years. That prospect
would threaten the stability and solvency of many
plans upon which so many other employees are de-
pendent.
869 F.2d at 895.
In Devoll, for example, plaintiff claimed that when the
company for which he worked opted out of a collective bar-
gaining agreement and became a non-union employer, its
president assured him and other employees that they would
continue to receive the same level of benefits they had re-
ceived as union workers. Sometime later, the company
changed its medical benefits plan. When plaintiff was denied
coverage for a procedure that would have been covered under
the previous union plan, he brought an action asserting among
other things, a claim based on promissory estoppel.
The Ninth Circuit held that plaintiff's state law claim based
on promissory estoppel was pre-empted and declined plain-
tiffs invitation to fashion a federal common law claim under
ERISA based on promissory estoppel. The court cited to this
Court’s decision in Mertens v. Hewitt Assocs., supra, for the
proposition that the authority to create federal common law
under ERISA is not the authority to revise the statute, and to
Olson v. General Dynamics Corp., 960 F.2d 1418 (9th Cir.
1991), cert. denied, 504 U.S. 986 (1992), for the proposition
that Congress, not the courts, is properly charged with filling
gaps in the statute.
21
Similarly, in Miller v. Coastal Corp., supra, plaintiff al-
leged that, when he accepted a position as a salaried em-
ployee, he was assured that, for purposes of calculating his
pension benefits, the company would treat his years of service
as a union employee as if he had been a salaried employee.
For a period of ten years, plaintiff received written statements
that calculated his benefits in a manner consistent with the
assurances he had received. Upon plaintiff's retirement, how-
ever, defendants refused to treat plaintiff's time as an hourly
union employee as if he had been a salaried employee.
The Tenth Circuit refused to recognize plaintiff's estoppel-
based claim, even though in this instance it was based on
written statements. The court stated:
As we indicated in [Straub v. Western Union Tele-
graph Co., 851 F.2d 1262 (10th Cir. 1988)], we will
not import notions of promissory estoppel into
ERISA . ... We hold that there is no liability under
ERISA for purported informal written modifications
to an employee benefit plan.
978 F.2d at 625. (Citations omitted.) See also Alday, 906 F.2d
at 666 (no federal common law right to promissory estoppel
in Eleventh Circuit); Degan, 869 F.2d at 895 (“Hence, we join
the other circuits that have held, consistently with the words
of the statute, that ERISA precludes oral modifications to
benefit plans and that claims of promissory estoppel are not
er in suits seeking to enforce rights to pension bene-
ts.”
'* In addition, other circuits (e.g., the First and Eighth Circuits), while
falling short of holding that no claim for promissory estoppel exists under
ERISA, have recognized estoppel-based claims only when (a) the terms of
the plan are ambiguous, and (b) the alleged representation at issue consti-
tutes an interpretation of the ambiguity. See Slice v. Sons of Norway, 34
F.3d 630, 634 (8th Cir. 1994); Law v. Ernst & Young, 956 F.2d 364, 367-
68 (Ist Cir. 1992). The Ninth and Eleventh Circuits also recognize the use
of equitable estoppel under those limited circumstances. See Devoll, 35
F.3d at 412; Kane v. Aetna Life Ins., 893 F.2d 1283 (11th Cir. 1990}, cert.
denied, 498 U.S. 890 (1990).
22
In addition to the Second Circuit in this case, the Seventh
Circuit and Third Circuit have recognized a federal common
law cause of action under ERISA based on promissory estop-
pel. Miller v. Taylor Insulation Co., 39 F.3d 755 (7th Cir.
1994); In re Unisys Corp. Retiree Medical Benefit “ERISA”
Litigation, 58 F.3d 896, 907-08 (3d Cir. 1995)(claims for es-
toppel may exist under “extraordinary circumstances”).
In Miller v. Taylor, for example, the Seventh Circuit found
a federal common law cause of action for promissory estoppel
based on written promises regarding the plaintiff's right to
participate in defendant’s plans. When the plaintiff in Miller
v. Taylor retired from the defendant company, he entered into
a ten-year “Consultation and Non-Competition Agreement,”
which provided, among other things, that, for the period the
agreement was in effect, plaintiff would be entitled to partici-
pate in the medical reimbursement plan that was in effect at
the time of his retirement. With two years remaining on the
ten-year agreement, the defendant switched insurance carriers,
and plaintiff was not listed as a participant under the new
medical plan.
The Seventh Circuit held that plaintiff had stated a cogni-
zable cause of action for promissory estoppel under ERISA,
noting:
Promissory estoppel is, in the view of this circuit at
any rate, a part of the common law that we have
been told (for example in Firestone Tire & Rubber
Co. v. Bruch, 489 U.S. 101, 110, 109 S. Ct. 948,
954, 103 L. Ed.2d 80 (1989)) to create in order to
plug gaps in ERISA.
39 F.3d at 758. (Additional citations omitted.) The court ac-
knowledged that, in a sense, “using promissory estoppel to
allow into a written plan someone excluded by its terms
amounts to an oral modification of the terms of a written
plan.” Jd. at 759. The court articulated the policy against oral
modifications as follows:
23
The main objection to oral modifications, however,
is that they would enable the plan’s integrity and
possibly its actuarial soundness, to be eroded by
relatively low-level employees who in response to
inquiries about the scope of coverage advise partici-
pants that a particular medical procedure is covered,
even though the plan is explicit that it is not cov-
ered.
39 F.2d at 759. However, the court reasoned that the concern
for protecting the integrity of an ERISA plan is diminished
when the representation at issue goes to whether a particular
individual is a participant in the plan, as contrasted with a rep-
resentation regarding the coverage afforded by a plan, as a
promise regarding participation is less likely to come from a
low-level employee. '*
ERISA is a “comprehensive and reticulated statute” that
provides a detailed remedial scheme. Massachusetts Mut. Life
Ins. Co. v. Russell, 473 U.S. 134, 146 (1985). ERISA does
not, by its terms, provide a cause of action based on promis-
sory estoppel. Furthermore, its requirements that plans be in
writing and include amendment procedures evidence Con-
gress’s intent that courts not permit modifications of plans
based on alleged promises that conflict with the plan. While
this Court has authorized courts to fashion federal common
law to fill interstitial gaps, recognizing a cause of action for
* The Sixth Circuit has incorporated equitable estoppel principles into the
federal common law of contracts, and in Armistead v. Vernitron Corp.,
944 F.2d 1287 (6th Cir. 1991), the Court held that the defendant company
was estopped from exercising its right to terminate certain retiree insur-
ance benefits because of certain representations it had made indicating
that the benefits would continue to be provided. The court noted that the
concern for protecting a fund’s integrity is not present when dealing with
retiree insurance benefits because the company’s obligation is to pay
premiums, not to maintain a fund from which retirees or their dependents
are compensated in the event of death or illness.
24
promissory estoppel goes beyond gap filling and threatens to
revise the statute. '°
The Court of Appeals’ decision in this case offers no
analysis to support its recognition of a claim for promissory
estoppel. The court merely noted that it had previously held
that claims for promissory estoppel were cognizable under
“extraordinary circumstances,” citing Lee v. Burkhart, 991
F.2d 1004, 1009 (2d Cir. 1993), but gave no indication as to
what may constitute “extraordinary circumstances,” and made
no effort to reconcile its holding with the statutory language
or contrary case law.”
There is, therefore, no rational basis for carving out an ex-
ception to ERISA’s written amendment requirements for
promises that pertain to vesting and participation. Indeed, the
December 18 letter at issue here could very well represent the
type of “side agreement” that ERISA’s amendment require-
ments were intended to prevent. Permitting a claim based on
the alleged promise would benefit the party to the agreement
at the expense of other employees -- the precise result that
ERISA’s requirements were intended to avoid.
A clear division exists among the circuits as to whether
courts may fashion a federal common law remedy based on
promissory estoppel under ERISA. The importance of a de-
finitive resolution of that division is readily demonstrable.
ERISA’s pre-emption provision, which directs that ERISA
“shall supersede any and all state laws insofar as they may
now or hereafter relate to any employee benefit plan” (29
U.S.C. § 1144(a)), has been described as “conspicuous for its
breadth.” Ingersoll-Rand Co. v. McClendon, 498 U.S. 133,
138 (1990). (Citations omitted.) Congress’s intent, as this
Court has noted, was “to ensure that plans and plan sponsors
'® Cf Varity Corp. v. Howe, 116 S. Ct. 1065 (1996).
” Lee provides no further illumination, as the Court there simply held that
the plaintiff had not alleged facts establishing extraordinary circum-
stances.
25
would be subject to a uniform body of benefits law.” Jd. at
142. See also Fort Halifax, 482 U.S. at 9.
Given Congress’s intent to achieve uniformity and to avoid
the development of inconsistent bodies of law under ERISA,
it is axiomatic that federal common law should be consistent.
See Singer v. Black & Decker Corp., 964 F.2d 1449 (4th Cir.
1992). Otherwise, the same employer may find itself subject
to different rules in different jurisdictions -- one of the evils
Congress sought to avoid. See Fort Halifax, 482 U.S. at 9.
In light of the existing conflict among the circuits on the
issue of promissory estoppel, certain employees of a multi-
state company may have a cause of action based on alleged
promises made by agents of the employer, but other employ-
ees of the same company may find themselves with no cause
of action simply by virtue of their being in a different circuit.
Additionally, such divisions and the attendant confusion and
disparities will necessarily enhance employer burdens (and,
concomitantly, lessen the inclination to grant or continue
employee benefits), which, as this Court noted in Fort Hali-
fax, Congress sought to avoid.
Therefore, in order to effectuate the intent of Congress, this
Court should grant certiorari in this case and resolve the ex-
isting conflict and confusion.
26
CONCLUSION
The petition for a writ of certiorari should be granted.
cffully S| Q
hieig Bice ween” —_——
‘ CHARLES G. MOERDLER
Counsel of Record
ALBERT M. APPEL
BURTON N. LIPSHIE
JAMES MCGOVERN
STROOCK & STROOCK & LAVAN
Seven Hanover Square
New York, New York 10004
(212) 806-5400
Counsel for Petitioner-Defendant
APPENDIX
A-1
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
No. 234 -- August Term 1995
(Argued October 20, 1995 Decided June 26, 1996)
Docket No. 95-7269
:
: PRA HSE EHEAAERREEGASOCR ARE RNEBASEK BASS SHES X
GLENISS S. SCHONHOLZ,
Plaintiff-Appellant,
:
| LONG ISLAND JEWISH MEDICAL CENTER,
| Defendant-Appellee.
Be ee a ra eee Ae eld on Cae eRe “
Before: MESKILL, MAHONEY, and WALKER, Circuit
Judges.
Appeal from a judgment of the United States District Court
for the Eastern District of New York (Bartels, J.), reported at
889 F. Supp. 610 (E.D.N.Y. 1995), finding that the district
court had subject matter jurisdiction over plaintiff's claims
‘ under the Employee Retirement Income Security Act,
29 U.S.C. §§ 1001 et seqg., but granting defendant summary
judgment on those same claims.
LALO AD LE EL SS
Affirmed in part, vacated in part, and remanded.
ee Me ee oe
ANTHONY M. RADICE, New
York, NY (William E.
Zuckerman, Morrison &
Foerster, New York, NY, on the
brief), for Plaintiff-Appellant.
A-2
CHARLES G. MOERDLER,
New York, NY (Albert M.
Appel, Sandra Jefferson
Grannum, Robert C. Kern, Jr.,
Stroock & Stroock & Lavan,
New York, NY on the brief),
for Defendant-Appellee.
WALKER, Circuit Judge:
Plaintiff Gleniss S. Schonholz appeals from a judgment of
the United States District Court for the Eastern District of
New York (John R. Bartels, District Judge) in favor of defen-
dant Long Island Jewish Medical Center (“LIJ”) in her suit for
severance benefits under the Employee Retirement Income
Security Act (“ERISA”), 29 U.S.C. §§ 1001 ef seg. For the
reasons stated below, we affirm in part, vacate in part, and
remand.
BACKGROUND
On May 3, 1991, Dr. Robert K. Match, then-President of
LIJ, announced in a memorandum to senior employees the
details of a severance pay program (the “Severance Plan”)
that provided for payments to senior-level employees upon
their involuntary discharge. Payments under the Severance
Plan were to be based upon both the length of the time the
employee held his position and his prospects for reemploy-
ment, but they would be made only if the employee dispiayed
a reasonable and good faith effort to obtain a position com-
mensurate with his former level of responsibility. In addition,
the employee would not be eligible for payments under the
Severance Plan if the termination was for either illegal con-
duct or substantially deficient performance. The Severance
Plan provided that the terminated employee would continue to
receive other benefits, and contained no provision for its ter-
mination or amendment. Apart from those discussed below,
LIJ neither created nor circulated any documents purporting
to amend, modify, or terminate the Severance Plan.
A-3
Schonholz was Senior Vice President and Chief Operating
Officer of LIJ between 1987 and April 1, 1993. Schonholz’s
departure was precipitated by continuing disagreements in
late 1992 between Schonholz and Irving Schneider, who at
the time was Chairman of LIJ. Sometime between Decem-
ber 10 and December 18, 1992, Match informed Schonholz
that he was going to ask for her resignation in the near future.
Schonholz agreed that she would submit her resignation, to be
effective April 1, 1993. This request was formalized in a letter
from Match to Schonholz, dated December 18, 1992, which
also stated:
Of course, the terms of your severance will be gov-
erned by the LIJ Medical Center personnel policies
applicable to members of the President’s Council,
including the Severance Pay Program dated May 3,
1991. At your option. the initial twelve months of
severance pay may be taken in one lump-sum pay-
ment on the day of your termination or bi-weekly
over the twelve months after your termination.
Please arrange to meet with the Vice-Presidents of
Finance and Human Resources to discuss and ar-
range the details.
The letter indicated that Match’s request was due to changes
in hospital management connected with his upcoming retire-
ment and was unrelated to Schonholz’s performance of her
duties. In compliance with the request contained in the De-
cember 18 letter, Schonholz formally submitted her resigna-
tion, effective April 1, 1993, in a letter dated December 22,
1992.
On March 23, 1993, LIJ’s Board of Trustees first became
aware of the Severance Plan, the December 18 letter, and the
December 22 letter. At a meeting that day, the Board of
Trustees voted to revoke the Severance Plan. Match told
Schonholz about the Board’s decision the next day, March 24,
and added that he thought that she would be contacted by LIJ
shortly to discuss her severance arrangements. On March 29,
Match wrote Schonholz to the effect that the Board had never
A-4
approved or adopted the Severance Plan, that the Severance
Plan was “deemed invalid and null and void and never to have
been effective,” and that LIJ was not bound by the Severance
Plan’s provisions. In the letter, Match made no mention of
alternative severance arrangements for Schonholz. No one
from LIJ contacted Schonholz thereafter about her situation.
On June 11, 1993, Schonholz commenced this ERISA ac-
tion below against LIJ and several individuals. LIJ and the
other defendants moved to dismiss the case for failure to state
a claim. In a memorandum and order, the district court dis-
missed the claims against the individual defendants without
leave to amend, dismissed the ERISA-based promissory es-
toppel claim against LIJ with leave to amend, and struck the
request for punitive damages. Schonholz v. Long Island Jew-
ish Medical Ctr., 858 F.Supp. 350 (E.D.N.Y. 1994)
(“Schonholz I’).
Following discovery and the filing of an amended com-
plaint, LIJ and Schonholz cross-moved for summary judg-
ment. The district court held that the Severance Plan was an
employee welfare benefit plan within the meaning of ERISA,
and that therefore federal subject matter jurisdiction existed.
See Schonholz v. Long Island Jewish Medical Ctr., 889
F. Supp. 610 (E.D.N.Y. 1995) (“Schonholz IT’). However, the
district court held that Schonholz’s claims under
§ 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B), were
without merit as a matter of law. From this ruling Schonholz
now appeals.
On appeal, Schonholz challenges the grant of summary
judgment in LIJ’s favor on the ERISA claims, and LIJ argues
that the district court erred in finding subject matter jurisdic-
tion. We turn to the jurisdictional issue first.
DISCUSSION
I. ERISA Subject Matter Jurisdiction
ERISA grants federal district courts concurrent jurisdiction
over all claims by an “employee welfare benefit plan” bene-
ficiary who seeks to “recover benefits due to him under the
A-5
terms of his plan, to enforce his rights under the terms of the
plan, or to clarify his rights to future benefits under the terms
of the plan.” 29 U.S.C. § 1132(a)(1)(B) & (e)(1). LIJ contends
that the Severance Plan does not constitute an employee wel-
fare benefit plan under ERISA and that, therefore, the district
court lacked subject matter jurisdiction over Schonholz’s
claims.
The term “employee welfare benefit plan” is defined by
ERISA to include
any plan, fund, or program which was heretofore or
is hereafter established or maintained by an em-
ployer . . . to the extent that such plan, fund, or pro-
gram was established or is maintained for the
purpose of providing for its participants or their
beneficiaries ... (A) medical, surgical, or hospital
care or benefits, or benefits in the event of sickness,
accident, disability, death or unemployment, or va-
cation benefits, apprenticeship or other training pro-
grams, or day care centers, scholarship funds, or
prepaid legal services.
29 U.S.C. § 1002(1); see 29 U.S.C. § 1002(3). Because the
district court held that the Severance Plan was within the
definition of “employee welfare benefit plan” and thus de-
termined jurisdiction as a matter of law, we review its finding
de novo. Shapiro v. Republic of Bolivia, 930 F.2d 1013, 1016-
17 (2d Cir. 1991).
The term “employee welfare benefit plan” has been held to
apply to most, but not all, employer undertakings or obliga-
tions to pay severance benefits. Yet, both the Supreme Court
and this court have emphasized that ERISA applies only
' LUJ did not cross-appeal from the district court’s decision. Nonetheless,
because we may raise the issue of subject matter jurisdiction sua sponie,
United Food & Commercial Workers Union, Local 919 v. Centermark
Properties Meriden Square, Inc., 30 F.3d 298, 301 (2d Cir. 1994), we
reach LIJ’s argument.
A-6
where such an undertaking or obligation requires the creation
of an ongoing administrative program. For instance, in Fort
Halifax Packing Co. v. Coyne, 482 U.S. 1, 12 (1987), the Su-
preme Court, faced with whether ERISA preempted” a Maine
statute that required employers to make a one-time severance
payment to employees upon a plant closing, held that the
Maine statute did not create an employee welfare benefit plan
and thus was not preempted. The Court stated: “The theoreti-
cal possibility of a one-time obligation in the future simply
creates no need for an ongoing administrative program for
processing claims and paying benefits.” Jd.
Similarly, in James v. Fleet/Norstar Financial Group, Inc.,
992 F.2d 463 (2d Cir. 1993), we addressed whether an em-
ployer’s undertaking to give employees severance pay was an
employee welfare benefit plan. The employer had announced
that one of its offices would be closed but told the workers in
that office that, if they stayed on until the closing, they would
receive sixty-days additional pay. In our view, the employer’s
promise did not constitute an employee welfare benefit plan
because “the nature of the payments did not require an ongo-
ing administrative employer program to effectuate them.” /d.
at 467. Other courts have reached a similar conclusion. See,
e.g., Belanger v. Wyman-Gordon Co., 71 F.3d 451, 454 (lst
Cir. 1995) (ERISA implicated only if there are “continuing
administrative and financial obligations”); Simas v. Quaker
Fabric Corp., 6 F.3d 849, 853-54 (1st Cir. 1993) (courts do
not apply Fort Halifax where the state statute or employer
promise creates “ongoing obligations”); Bogue v. Ampex
Corp., 976 F.2d 1319, 1323 (9th Cir. 1992) (adopting ap-
proach that ERISA requires “administrative scheme”), cert.
denied, 507 U.S. 1031 (1993); Fontenot v. NL Indus., Inc.,
? Section 514(a) of ERISA, 29 U.S.C. § 1144(a), states that ERISA “shall
supersede any and all State laws insofar as they may now or hereafter re-
late to any” employee welfare benefit plan. Thus, if the federal courts
have jurisdiction over claims for recovery from a benefit plan, state law is
preempted as to that plan.
A-7
953 F.2d 960, 962-63 (Sth Cir. 1992) (same); Pane v. RCA
Corp., 868 F.2d 631, 635 (3d Cir. 1989) (same).
But while it is plain that ERISA subject matter jurisdiction
depends upon the need for an administrative program, the test
for deciding which employer obligations and undertakings
require such a program is opaque. See Simas, 6 F.3d at 854. In
James, although the employer’s payments to its employees
would have to be calculated individually (because the cir-
cumstances of each employee differed as to eligibility, termi-
nation, and deductions), we said that the “need to make such
simple arithmetical calculations did not” mean that the sever-
ance payment program was an employee welfare benefit plan.
992 F.2d at 467. However, deciding what is not an ongoing
administrative program does not aid our determination of
which obligations are complex enough to require such a pro-
gram.
Other courts facing this same issue have looked to a variety
of factors, including whether the employer’s undertaking or
obligation requires managerial discretion in its administration,
Bogue, 976 F.2d at 1323; whether a “reasonable employee
would perceive an ongoing commitment by the employer to
provide employee benefits,” Belanger, 71 F.3d at 455; and
whether the employer was required to analyze the circum-
stances of each employee’s termination separately in light of
certain criteria, Fontenot, 953 F.2d at 963 (citing Pane v. RCA
Corp., 667 F. Supp. 168, 170-71 (D.N.J. 1987), aff'd, 868
F.2d 631 (3d Cir. 1989)). We need not decide today which
one or more of these factors will be determinative in every
case because, in this case, we conclude that all of them favor
Schonholz. Cf Belanger, 71 F.3d at 455 (“There is no
authoritative checklist that can be consulted to determine
conclusively if an employer’s obligations rise to the level of
an ERISA plan.”).
The Severance Plan required much more than the simple
arithmetical calculations we held to be insufficient in James.
The Severance Plan necessitated both managerial discretion
and a separate analysis of each employee in light of certain
A-8
criteria. LIJ would have had to determine whether the em-
ployee was involuntarily terminated, and thus qualified for the
Severance Plan; whether the termination was for either illegal
conduct or substantially deficient performance; whether the
employee was making a reasonable and good faith effort to
obtain suitable employment elsewhere; and whether, if other
employment had been found, it was commensurate with the
employee’s former organizational level and scope of respon-
sibility.
There is also little doubt that a reasonable employee would
have believed that the Severance Plan evidenced an ongoing
commitment to provide severance benefits. Unlike the em-
ployer’s obligation in Fort Halifax and the promise in James,
the Severance Plan was not limited either to a single payment
or to a short span of time upon a plan or office closing. The
Severance Plan’s effective period was unlimited and would
have reasonably been perceived by an employee as an ongo-
ing commitment. Cf. Belanger, 71 F.3d at 455 (finding no
such commitment). Because all factors point to a finding that
the Severance Plan is covered by ERISA, we affirm the dis-
trict court’s holding that it had subject matter jurisdiction.
Il. ERISA Claims
Schonholz alleges that LIJ’s refusal to pay her severance
benefits violated § 1132(a)(1)(B) under two theories. Schon-
holz’s first theory is that LIJ’s December 18 letter and her
December 22 response created a binding contract that vested
her benefits. Her second theory is that LIJ was barred by
promissory estoppel from denying her benefits.
The district court based its grant of summary judgment
upon its belief that the letters between Schonholz and Match
could not result in contractual vesting because they were only
“informal communications” and not formal plan documents.
In addition, the district court found that Schonholz’s promis-
sory estoppel claim failed because she could not demonstrate
any injury.
A-9
It is well-settled that our review of the grant of a summary
judgment motion is de novo, and reversal is required if “there
are any genuine factual issues that properly can be resolved
only by a finder of fact because they may reasonably be re-
solved in favor of either party.” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 250 (1986); see Hanson v. McCaw Cellu-
lar Communications, Inc., 77 F.3d 663, 667 (2d Cir. 1996).
Because we find that genuine issues of material fact do exist
as to both theories advanced by Schonholz, we vacate the
district court’s order and remand for further proceedings.
A. Contractual Vesting
Under ERISA it is the general rule that an employee wel-
fare benefit plan is not vested and that an employer has the
right to terminate or unilateraliy to amend the plan at any
time. Reichelt v. Emhart Corp., 921 F.2d 425, 429-30 (2d Cir.
1990), cert. denied, 501 U.S. 1231 (1991). Nothing in ERISA,
however, forbids or prevents an employer from agreeing to
vest employee welfare benefits or from waiving its ability to
terminate or amend unilaterally a plan, and several of our sis-
ter circuits have held that such agreements or waivers will be
enforced. For instance, the Seventh Circuit has held that an
agreement to vest employee welfare benefits will be upheld.
Bidlack v. Wheelabrator Corp., 993 F.2d 603, 604-05 (7th
Cir.) (en banc), cert. denied, 114 S. Ct. 291 (1993); see id. at
616 (Easterbrook, J. dissenting) (agreeing that parties may
elect to vest employee welfare benefits by contract); see also
Wise v. El Paso Natural Gas Co., 986 F.2d 929, 937 (Sth Cir.)
(employer may waive. right to modify or terminate a plan),
cert. denied, 114 S. Ct. 196 (1993); Anderson v. John Mor-
rell & Co., 830 F.2d 872, 876-77 (8th Cir. 1987) (employer
may, under certain conditions, contract to vest employee wel-
fare benefits); Jn re White Farm Equip. Co., 788 F.2d 1186,
1193 (6th Cir. 1986) (same). We agree that there is nothing in
ERISA preventing an employer from contracting to vest em-
ployee welfare benefits.”
*LU argues that Schonholz never asserted a contractual vesting argument
below and that it is therefore barred on appeal. Amended Brief for
(Footnote continued)
A-10
Not all undertakings by an employer to provide employee
welfare benefits result in vesting, however. We previously
have noted that ERISA was designed to “ensure[]} that plans
be governed by written documents filed under ERISA’s re-
porting requirements and that [summary pian descriptions],
drafted in understandable language, be the primary means of
informing participants and beneficiaries.” Moore v. Metro-
politan Life Ins. Co., 856 F.2d 488, 492 (2d cir. 1988). Courts
that have allowed contractual vesting have required, at a
minimum, that the employer’s intent to vest the benefits be
contained in a written document, although the employer’s in-
tent need not be stated unambiguously. See Bidlack, 993 F.2d
at 608 (benefits could be vested by ambiguous language in a
collective bargaining agreement when supported by extrinsic
evidence); Anderson, 830 F.2d at 877 (rejecting oral “policy”
statement as evidence of vesting of benefits and requiring in-
stead a specific, if not written, expression of employer’s intent
to be bound). Other courts have gone further, requiring that
the employer’s decision to vest benefits be set forth clearly in
the plan documents. See Wise, 986 F.2d at 937; see also In re
White Farm, 788 F.2d at 1193 (“[T]he parties may themselves
set out by agreement or by private design, as set out in plan
documents, whether retiree welfare benefits vest, or whether
they may be terminated.”). LIJ contends that because the al-
leged contractual vesting was not part of any “formal plan
document,” Schonholz’s claim must fail.
In each case cited by LIJ for the proposition that vesting
must be included in formal plan documents, the employer had
created such documents and distributed summary plan de-
scriptions to the employees. But, in this case, LIJ created no
Defendant-Appellee at 33. We disagree. The allegations in Schonhoiz’s
amended complaint can be read to set forth exactly such a theory even if it
was not explicitly argued in the district court. In any event, we are not
prevented from considering a new legal theory on appeal if, as with
Schonholz’s contractual vesting theory, we are not required to engage in
additional factfinding. See Readco, Inc. v. Marine Midland Bank, 81 F.3d
295, 302 (2d Cir. 1996).
PANS eis weet Incl Ae TOD Teta
Mallen. Foil Ain Bates Se
A-ll
such formal documents for the Severance Plan and, as LIJ
notes, Department of Labor regulations do not require that the
Severance Plan be maintained with the same level of formal-
ity that is required of most other employee welfare benefit
plans. See 29 C.F.R. § 2520.104-24(a)(1). To require that
LIJ’s decision to vest the Severance Plan be included in the
“formal plan documents,” would also mean that LIJ and its
employees would have to have memorialized that decision by
amending formal plan documents that do not exist.
The Supreme Court has clarified that such an adherence to
formalities is not mandated by the statute. Instead,
“ERISA ... follows standard trust law principles in dictating
only that whatever level of specificity a company ultimately
chooses, in an amendment procedure or elsewhere, it is bound
to that level.” Curtiss-Wright Corp. v. Schoonejongen, 115 S.
Ct. 1223, 1231 (1995). Therefore, any agreement to vest
Schonholz’s benefits would only have to be memorialized at
the same level of formality that LIJ chose in promulgating the
Severance Plan in the first place. In this case, the alleged
promise was memorialized not in a formal plan document, but
in the 1991 memorandum that Match sent to senior employ-
ees. We easily conclude that the December 18 and Decem-
ber 22 letters are at least as formal as the 1991 memorandum
and that, therefore, the district court erred in concluding that
Schonholz’s claim is barred because “Match’s letter is not a
formal plan document.” Schonholz II, 889 F. Supp. at 614.
We also disagree with the district court’s holding that LIJ’s
commitment to vest Schonholz “must be in ‘precise language
denying the right to withdraw benefits.’” Jd. at 615 (quoting
Wise, 986 F.2d at 938). We do not think, at least in this case,
that Schonholz is required tc point to unambiguous language
to support her claim. See Bidlack, 993 F.2d at 608-09. It is
enough if she can point to written language capable of rea-
sonably being interpreted as creating a promise on the part of
LIJ to vest her severance benefits. Because the December 18
letter may be so interpreted by a trier of fact, we remand the
contractual vesting claim to the district court.
A-12
B. Promissory Estoppel
We have previously held that the principles of estoppel can
apply in ERISA cases under extraordinary circumstances. Lee
v. Burkhart, 991 F.2d 1004, 1009 (2d Cir. 993). The Second
Restatement of Contracts defines promissory estoppel as “[a]
promise which the promisor should reasonably expect to in-
duce action or forbearance on the part of the promisee or a
third person and which does induce such action or forbear-
ance.” Restatement (Second) of Contracts § 90(1) (1979). The
Restatement further provides that such a promise is enforce-
able “if injustice can be avoided only by enforcement of the
promise.” /d. The First Restatement’s formulation was simi-
lar: “A promise which the promisor should reasonably expect
to induce action or forbearance of a definite and substantial
character on the part of the promisee and which does induce
such action or forbearance is binding if injustice can be
avoided only by enforcement of the promise.” Restatement of
Contracts § 90 (1932); see also 28 Am. Jur. 2d Estoppel &
Waiver § 48 (1966) (“[A]n estoppel may arise from the mak-
ing of a promise . . . if it was intended that the promise should
be relied upon and in fact it was relied upon, and if a refusal
to enforce it would .. . result in . . . injustice.”).
The basic elements of promissory estoppel therefore are
(1) a promise, (2) reliance on the promise, (3) injury caused
by the reliance, and (4) an injustice if the promise is not en-
forced. LIJ argues, however, that to prevail, Schonholz must
show that the promise contained in the first element is clear
and unambiguous. It is true that New York law requires a
clear and unambiguous promise, see e.g., Readco, Inc. v. Ma-
rine Midland Bank, 81 F.3d 295, 301 (2d Cir. 1996) (applying
New York law), but courts elsewhere in this circuit, relying
on the Restatement, have formulated the first element in a dif-
ferent manner. The Supreme Court of Connecticut has re-
quired only the existence of “a clear and definite promise,”
i.e., one which if “judged by an objective standard,” the de-
fendant had reason to expect reliance by the plaintiff.
D'Ulisse-Cupo v. Board of Directors of Notre Dame High
Sch., 202 Conn. 206, 213 (1987). The Supreme Court of
ME ene en eee eee ee eee
A-13
Vermont has articulated the test as whether the plaintiff has
shown a promise which the promisor should reasonably ex-
pect to induce reliance. Stacy v. Merchants Bank, 144 Vt. 515,
521 (1984). Outside this circuit, the New Jersey Appellate
Division has similarly required only “a clear and definite
promise made with the expectation that the promisee will
rely.” Spaulding v. Hussain, 229 N.J. Super. 430, 438 (App.
Div. 1988).
ERISA is a federal law regime for regulating employee
benefits designed to eliminate the threat of conflicting state
and local regulation of benefit plans. Fort Halifax, 482 U.S.
at 9. We are not bound by New York law and therefore see no
reason to apply New York’s formulation of the first element
of promissory estoppel. In accordance with the unifying
theme of the statute, we prefer the language of the present
Restatement and require, for purposes of ERISA, only that
Schonholz demonstrate a promise that LIJ reasonably should
have expected to induce action or forbearance on her part.
Under this standard, we conclude that a trier of fact reasona-
bly could conclude that Schonholz has met her burden on the
“promise” element; a jury properly could infer from the De-
cember 18 letter a promise on which LIJ should have ex-
pected that Schonholz would rely in tendering her resignation.
We have no difficulty in concluding that Schonholz has
shown evidence of the second element of promissory estop-
pel -- reliance on the alleged promise. Schonholz’s submis-
sion of her resignation just four days after the December 18
letter is, by itself, enough to create a triable issue as to reli-
ance.
We also part company with the district court’s finding that
Schonholz is unable to demonstrate injury based on her reli-
ance. Schonholz II, 889 F. Supp. at 615. Although LIJ was
free to terminate the Severance Plan at any time absent any
promise to vest Schonholz, the fact alone is not enough to de-
feat Schonholz’s claim. If LIJ had not transmitted the Decem-
ber 18 letter, Schonholz might never have submitted her
resignation. LIJ then would have had to choose between firing
A-14
Schonholz and keeping her on for an undetermined period.
Each option presumably entailed disadvantages to LIJ be-
cause LIJ chose neither. For instance, firing Schonholz might
have affected employee morale at LIJ and could have led to a
very abrupt and turbulent transition from Schonholz to a new
Chief Operating Officer, while permanent retention of Schon-
holz would most probably have resulted in a continuation of
the same antagonism between Schonholz and Schneider that
had precipitated the decision to ask for Schonholz’s_resigna-
tion in the first place. In other words, by agreeing to leave
amicably, Schonholz conferred a benefit on LIJ, one that may
be quantifiable. If Schonholz’s cooperation until the end of
March 1993 had been of no value to LIJ, Schonholz might
have been terminated without any bargaining. Just as a benefit
to LIJ is implicit in the bargaining that led to Schonholz’s
submission of her resignation letter, so also is a corresponding
detriment to Schonholz in the form of the power to withhold
that benefit -- something she gave up, presumably because
severance benefits were being offered to her in exchange. It is
this possibility of loss that a jury should be permitted to con-
sider as injury to Schonholz in satisfaction of the third ele-
ment of promissory estoppel.
Finally, we note that Schonholz must show “that enforce-
ment of the promise must be necessary to avoid an injustice,
presumably caused by the reliance.” 4 Richard A. Lord, Wil-
liston on Contracts § 8:5 (4th ed. 1992). The district court did
not address this element below, but we conclude that if
Schonholz is able to prevail on the other three elements of
promissory estoppel, she may prevail on this one as well. Cf
C & K Eng’g Contractors v. Amber Steel Co., 23 Cal.3d 1, 11
(1978) (task of considering element of injustice is equitable
one for court and not jury). Assuming that the jury concludes
that LIJ promised to extend Schonholz’s benefits, that LIJ
should have known that Schonholz would rely, that Schon-
holz did in fact rely, and that Schonholz was injured by that
reliance, it is clear to us that she will be able at least to con-
tend that an injustice would result if the promise is not en-
forced.
A-15
Because we find that there are genuine issues of material
fact on this claim, we remand it to the district court.
CONCLUSION
For the reasons stated above, we affirm the district court’s
exercise of subject matter jurisdiction, we vacate the district
court’s grant of summary judgment, and we remand the case
for proceedings not inconsistent with this opinion.
A-16
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
x
GLENISS S. SCHONHOLZ,
Plaintiff, :
- against - : 93 CV 2549
LONG ISLAND JEWISH MEDICAL
CENTER,
Defendant.
Xx
Bartels, U.S. District Judge.
MEMORANDUM-DECISION AND ORDER
Defendant Long Island Jewish Hospital (“LIJ”) and plain-
tiff Gleniss $. Schonholz cross-move under Rule 56(c) of the
Federal Rules of Civil Procedure for summary judgment.
Schonholz brought this action pursuant to the Employment
Retirement Income Security Act (“ERISA”), 29 U.S.C.
§ 1132(a)(1)(B), to recover benefits allegedly owed to her un-
der her former employer’s severance benefit plan. LIJ seeks
dismissal of Schonholz’s claims for lack of jurisdiction and
for failure to state a claim. Schonholz cross-moves for sum-
mary judgment, arguing that all of the facts necessary to de-
cide in her favor have been established and that she is:entitled
to summary judgment as a matter of law.
BACKGROUND
Gleniss S. Schonholz was employed by the Long Island
Jewish Medical Center from 1980 until 1993. Hired as a Di-
visional Administrator, by 1987, Schonholz had been pro-
moted to the position of Senior Vice President and Chief
Operating Officer of LIJ. During 1991 and 1992, hospital
management changed and a new LIJ Board Chairman was
A-17
appointed. Due to the incompatibility of Schonholz and the
new Chairman, the President and CEO of LIJ, Dr. Robert K.
Match, determined that it was in the best interest of the hospi-
tal for Schonholz to resign. Dr. Match and Schonholz met
some time between December 10 and December 18, 1992,
and agreed that Schonholz would submit her resignation to
become effective April 1, 1993. He formalized his request in a
letter dated December 18, 1992. In his letter, Dr. Match ex-
plicitly stated that Schonholz would be eligible for severance
pay benefits as detailed in a memorandum dated May 3, 1991.
As requested, by letter dated December 22, 1992, Schonholz
submitted her resignation. Nine days before the effective date
of Schonholz’s termination, on March 23, 1993, the LIJ
Board revoked the severance pay program (the “Program”.
On June 11, 1993, Schonholz commenced this action against
LIJ to recover severance benefits.
DISCUSSION
I. Subject Matter Jurisdiction
LIJ challenges the sole basis of this Court’s jurisdiction,
asserting that the LIJ Program was not an “employee welfare
benefit plan” within the meaning of ERISA. Severance
benefit programs generally are covered by ERISA as they are
expressly included in the definition of “employee welfare
benefit plan” under 29 U.S.C. 1002(1). See Bradwell v. GAF
Corp., 954 F.2d 798, 800 n. 1 (2d Cir. 1992). LIJ argues,
however, that the LIJ Program falls within the exception es-
tablished by the Supreme Court in Fort Halifax Packing Co.
v. Coyne, 482 U.S. 1, 107 S. Ct. 2211 (1987), where the Court
held that a single lump-sum severance payment payable only
on the occurrence of a single event did not implicate ERISA.
In order to fall within ERISA preemption, a benefit plan must
require ongoing administration separate from other benefit
plans administered by the employer.
LIJ argues that, because Dr. Match offered Schonholz a
lump-sum payment of twelve months’ salary in lieu of bi-
weekly installments as provided by the Program, the Program
falls within the Fort Halifax exception and no longer qualifies
A-18
as an ERISA plan. This argument, however, ignores other
provisions of the Program. In addition to the first twelve
months’ salary, the Program provided another six months of
salary for terminated employees with Schonholz’s length of
service who had not yet found “commensurate” employment
after a year. The last six months’ salary was to be paid bi-
weekly until commensurate employment was found or the
additional six months had expired, whichever occurred first.
The Program defines commensurate employment as employ-
ment placing her at “h[er] former organizational level and
scope of responsibility.”
In determining what is and what is not an ERISA plan,
courts have looked to the degree of managerial discretion in
the award of benefits. See, e.g., James v. Fleet/Norstar Fi-
nancial Group, Inc., 992 F.2d 463 (2d Cir. 1993) (automatic
lump-sum payment of 60 days of salary to employees termi-
nated due to consolidation not an ERISA plan); Fontenot v.
NL Industries, 953 F.2d 960 (Sth Cir. 1992) (single lump-sum
payment of 3 years’ salary to executives terminated following
takeover not an ERISA plan). Compare Bogue v. Ampex
Corp., 976 F.2d 1319, 1321 (9th Cir. 1992), cert. denied, 113
S.Ct. 1847 (1993) (severance benefits payable to 10 key em-
ployees if not offered “substantially equivalent” employment
by buyer is plan governed by ERISA). “To do little more than
write a check hardly constitutes the operation of a benefit
plan.” Fort Halifax, 482 U.S. at 12, 107 S.Ct. 2218. The LiJ
Program, had it not been revoked prior to Schonholz’s termi-
nation, indisputably would have required its administrator to
do more than cut a single severance check. As in Bogue, even
though the potential number of participants was small, and its
activation uncertain’, the Program’s administration would
' The Program was only available to members of the President’s Council
who would be involuntarily terminated. LIJ makes much of the fact that
no financial projections had been made prior to the Program’s promulga-
tion, nor were any administrative procedures put in place following the
distribution of the May 3, 1991 memorandum. Once esiablished, however,
ERISA protects an employee's interest in a welfare benefit plan regardless
of whether the employer complies with the administrative and reporting
(Footnote continued)
A-19
have required “a case-by-case, discretionary application of its
terms.” Bogue, 976 F.2d at 1323. The Court finds that the LIJ
Program was an employee welfare benefit plan within the
meaning of ERISA. Accordingly, the Court has jurisdiction
over this action.
II. Schonholz’s ERISA Claims
This Court denied LIJ’s prior Rule 12(b)(6) motion to
dismiss on this court solely because LIJ had failed to allege
that LIJ had revoked the Program in writing. Schonholz v.
Long Island Jewish Medical Ctr., 858 F. Supp. 350, 353
(E.D.N.Y. 1993). LIJ now has established that its revocation
of the Program was in writing and Schonholz admits that she
had both oral and written notification of the LIJ Board’s revo-
cation of the Program prior to the effective date of her termi-
nation. As stated in this Court’s prior opinion, severance plans
are not vested under ERISA. Jd. Thus, the Board’s revocation
was effective and Schonholz may not recover pursuant to this
theory.
a. Breach of Fiduciary Duties under
ERISA
As a second theory, Schonholz argues that she is entitled to
recover because the LIJ Board revoked the Program in bad
faith and in violation of its fiduciary duty to Schonholz as a
beneficiary of the Program. She contends that she is entitled
to recover severance benefits because the discontinuation of
the Program was not a business decision but was punitive and
directed against her individually. Schonholz cites a single
case, Dependahi v. Falstaff Brewing Corp., 491 F. Supp.
1188 (E.D. Mo. 1980), aff'd in part. rev'd in part, 653 F.2d
1208 (8th Cir. 1981), for the proposition that an employee
may recover benefits where an employer modifies or termi-
nates its benefit plan in light of an impending personnel ac-
tion, thus depriving an employee of benefits to which she
requirements detailed under ERISA. Blau v. Del Monte Corp., 748 F.2d
1348 (9th Cir. 1984), cert. denied, 474 U.S. 865, 106 S. Ct. 183 (1985).
A-20
otherwise would be entitled. In Dependahi, the court held that
an employer violated his fiduciary duty to his employees
when he eliminated a severance plan in contemplation of a
mass firing.
Dependahi stands against the weight of authority. An em-
ployer unilaterally may amend or eliminate a severance plan
at any time without violating ERISA requirements. Young v.
Standard Oil (Indiana), 849 F.2d 1039, 1045 (7th Cir.), cart.
denied, 488 U.S. 981, 109 S.Ct. 529 (1988). Moreover, it may
do so without consideration of its employees’ interests.
“Virtually every circuit has rejected the. proposition that
ERISA’s fiduciary duties attach to an employer’s decision
whether or not to amend an employee benefit plan.” Hozier v.
Midwest Fasteners. Inc., 908 F.2d 1155, 1161 (3d Cir. 1990).
Additionally, the Supreme Court has held that an action for
breach of fiduciary duties imposed on plan administrators
may be brought only on behalf of a plan itself and not, as
Schonholz has here, for the benefit of an individual benefici-
ary. Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S.
134, 105 S. Ct. 3085 (1985); Schonholz, 858 F. Supp. at 354.
III. Schonholz’s Common Law Claims
Section 514(a) of ERISA explicitly preempts “any and all
State laws insofar as they may now or hereafter relate to any
employee benefit plan.” 29 U.S.C.A. § 1144 (1985). This pre-
emption provision has been broadly construed and generally
precludes common law actions which “relate to” employee
pension and benefit programs. See, e.g., Smith v. Dunham-
Bush, Inc., 959 F.2d 6 (2d Cir. 1992) (ERISA preempts em-
ployee’s breach of contract and promissory estoppel claims
regarding oral promise of increased pension benefits);
Reichelt v. Emhart Corp., 921 F.2d 425, 431 (2d cir. 1990),
cert. denied, 501 U.S. 1231, 111 S. Ct. 2854 (1991) (“ERISA
preempts civil actions against employers for severance pay
predicated on common law contract principles”).
A-21
a. Contractual Vesting
LIJ objects to the consideration of Schonholz’s contract
claim as this theory of relief was not articulated in plaintiff's
amended complaint nor at any time prior to this motion.
Without providing specifics, LIJ urges that Schonholz should
not be allowed to pursue her contract argument as it would
prejudice LIJ. Pleading in federal court, however, only re-
quires a “short plain statement of the claim showing that the
pleader is entitled to relief,” Fed. R. Civ. P. 8, and it is not
required for the plaintiff to identify a legal theory under which
relief is sought. Brock v. Superior Care. Inc., 840 F.2d 1054
(2d Cir. 1988); Siegelman v. Cunard White Star, 221 F.2d
189, 196 (2d Cir. 1955). Further, the Court can see no preju-
dice to LIJ since, as LIJ itself notes, Schonholz’s contract the-
ory is merely a variant of her second cause of action for
promissory estoppel. Therefore, Schonholz’s contract claim
has been adequately pleaded and is properly before the court.
Schonholz argues that the circumstances of her case fall
within a line of cases which recognizes that, under ERISA, an
employer contractually may waive its statutory right to mod-
ify or terminate benefits. Moore v. Metropolitan Life Ins. Co.,
856 F.2d 488 (2d Cir. 1988); see also Wise v. El Paso Natural
Gas Co., 986 F.2d 929 (Sth Cir.), cert. denied, US. _,
114 S. Ct. 196 (1993); Aldav v. Container Corp. of America,
906 F.2d 660, 665 (11th Cir. 1990), cert. denied, 498 U.S.
1026, 111 S. Ct. 675 (1991). Schonholz contends that Dr.
Match’s letter was such a waiver and that, as a result, her sev-
erance benefits vested at the time she tendered her resignation
in December 1992.
However, Congress has mandated that, although an em-
ployer may establish by contract that certain benefits are
vested, it may only do so in formal plan documents. Informal
communications between an employer and its employees can-
not modify the terms of an ERISA plan. 29 U.S.C. §
1102(b)(3). See also Moore, 856 F.2d at 492 (“an ERISA wel-
fare plan is not subject to amendment as a result of infor-
mal communications between an employer and plan
A-22
beneficiaries”). Clearly, Dr. Match’s letter is not a formal plan
document.
Further, even if the Court were to consider Dr. Match’s
letter to be a plan document, the letter does not explicitly
waive LIJ’s right to terminate benefits’. In order to override
the statutory scheme which allows the employer an unquali-
fied right to amend or terminate employee welfare benefits,
any extra-ERISA commitment must be in “precise language
denying the right to withdraw benefits.” Wise, 986 F.2d at
938. Such is not the case here. Schonholz’s claim amounts to
an alternative theory of recovery under state common law and
is, therefore, preempted by ERISA.
b. Promissory Estoppel
Alternatively, Schonholz argues that LIJ should be es-
topped from denying her severance pay benefits because she
reasonably believed and detrimentally relied on Dr. Match’s
representation regarding severance pay.
The Court of Appeals for the Second Circuit has recog-
nized estoppel as a cause of action under ERISA in
“extraordinary circumstances.” Lee v. Burkhart, 991 F.2d
1004, 1009 (2d Cir. 1993) (citing, inter alia, Chambless v.
Masters, Mates & Pilots Pension Plan, 772 F.2d 1032, 1039
(2d Cir. 1985), cert. denied, 475 U.S. 1012, 106 S. Ct. 1189
(1986)). Promissory estoppel requires (1) a clear and unambi-
guous promise, (2) reasonable and foreseeable reliance by the
party to whom the promise is made, and (3) an injury sus-
tained by the party asserting the estoppel by reason of her re-
liance. See Arcadian Phosphates, Inc. v. Arcadian Corp., 884
F.2d 69, 73 (2d Cir. 1989); Aquilio v. Police Benev. Assn. of
N.Y. State Troopers, 857 F. Supp. 190, 199 (N.D.N.Y. 1994).
> The December 18, 1992 letter stated that “the terms of [Schonholz’s]
severance will be governed by the LIJ Medical Center personnel policies
applicable to members of the President’s Counsel, including the Sever-
ance Pay Program, dated May 3, 1991.”
A-23
While Schonholz is able to show an unambiguous promise
and reasonable, foreseeable reliance, she cannot demonstrate
injury. Plaintiff argues that, in complying with Dr. Match’s
request to resign, she did not: (1) challenge her termination,
(2) negotiate a more advantageous effective date for her ter-
mination, or (3) negotiate for more attractive payment and
benefit terms. Schonholz was an employee at-will and, as
such, had little or no leverage to challenge her termination or
negotiate its terms. Moreover, although Schonholz contends
in her brief that she was injured by submitting her resignation
and agreeing to stay with LIJ for an additional three months,
in her deposition she acknowledged that this practice was for
the benefit of terminated employees to help them to secure
employment elsewhere. She further contends that, had she not
relied on Dr. Match’s assurance of benefits under the LIJ Pro-
gram, she would have negotiated a severance package as oth-
ers had before her. LIJ states that they had been willing to
negotiate an individual severance package with Schonholz
after the Program was terminated but she chose to pursue this
action instead. Even if one does not credit LIJ’s statement, its
past practice of paying severance to terminated employees did
not bind LIJ to pay Schonholz severance. Schonholz’s expec-
tation of benefits under the LIJ Program and disappointment
at its termination are not sufficient to constitute detrimental
reliance.
CONCLUSION
There being no question of material fact, LIJ’s motion for
summary judgment for lack of subject matter jurisdiction is
DENIED. Its motion for summary judgment for failure to
state a claim is GRANTED and this action is DISMISSED in
its entirety. Schonholz’s cross-motion is DENIED.
SO ORDERED.
Dated: Brooklyn, New York
February 3, 1995
/s/ J.R. Bartels
United States District Judge
A-24
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
X
GLENISS S. SCHONHOLZ,
Plaintiff,
- against - MEMORANDUM
LONG ISLAND JEWISH MEDICAL ee nts
CENTER, IRVING SCHNEIDER, 93 CV 2549
ELIHU MODLIN, LEONARD (JRB)
NADEL, STANLEY GREY,
MICHAEL FELDMAN and IRVING
WHARTON, JOHN and JANE DOES
1-15,
Defendant.
Bartels, U.S. District Judge.
Plaintiff brings this action pursuant to the Employee Re-
tirement Income Security Act [“ERISA”], 29 U.S.C.
§ 1132(aX1)(B), to recover benefits owed under her former
employer’s severance benefit plan. Defendants have moved to
dismiss under Federal Rule of Civil Procedure [“Rule”]
12(b)(6) for failure to state a claim upon which relief may be
granted. In addition, plaintiff and defendants have each
cross-moved for Rule 11 sanctions. For reasons more fully
explained herein, defendants’ motion to dismiss is granted in
part and denied in part, and the cross-motions for sanctions
are denied.
FACTS
Plaintiff Gleniss Schonholz was employed by Long Island
Jewish Medical Center [“LIJ”] as Chief Operating Officer. On
May 3, 1991 LIJ implemented a severance pay program for
senior management personnel who would be involuntarily
terminated or removed from their positions. By letter dated
December 18, 1992, LIJ’s President and Chief Executive
a errr a
A-25
Officer, Dr. Robert K. Match, requested that plaintiff submit
her resignation effective April 1, 1993. Dr. Match indicated in
his letter that the request for plaintiff's resignation was due to
a change in hospital management, and was in no way related
to her job performance. Further, Dr. Match’s letter explicitly
stated that plaintiff would be eligible for benefits under the
May 3, 1991 severance pay program.
On December 22, 1992, plaintiff submitted her resignation
effective April 1, 1993. It is undisputed that LIJ has not paid
plaintiff severance benefits under the May 3, 1991 program.
Plaintiff claims that ERISA guarantees her the right to pay-
ment under the severance pay program, and that defendants
are estopped from denying her benefits based on Dr. Match’s
representations. However, defendants argue that ERISA
permitted them to amend or terminate the severance program,
and that plaintiff has not properly stated a claim of estoppel.
DISCUSSION
I. STANDARD OF REVIEW
The court may grant a motion to dismiss pursuant to
Rule 12(b)(6) only where it is beyond doubt that the plaintiff
cannot prove any set of facts supporting entitlement to relief.
H.J. Inc. v. Northwestern Bell Telephone Company, 492 U.S.
229, 249-50 (1989); Conley v. Gibson, 355 U.S. 41, 45-46
(1957). In deciding the motion, the court must accept as true
the material facts alleged in the complaint, LaBounty v. Adler,
933 F.2d 121, 123 (2d Cir. 1991), and must construe all rea-
sonable inferences in favor of the plaintiff. Scheuer v. Rhodes,
416 U.S. 232 236 (1974).
In addition, the court is not permitted to consider factual
matters submitted outside of the complaint unless the parties
are given notice that the motion to dismiss is being converted
to « motion for summary judgment under Rule 56 and are af-
forded an opportunity to submit additional affidavits. See
Festa v. Local 3 International Brotherhood of Electrical
Workers, 905 F.2d 35, 38 (2d Cir. 1990) (“this provision .. .
is mandatory with respect to motions pursuant to
A-26
Rule 12(b)(6)”); Wiener v. Napoli, 760 F. Supp. 278, 282
(E.D.N.Y. 1991). In this case, plaintiff has submitted her own
affidavit, sworn to September 2, 1993, in opposition to the
motion to dismiss, and the affidavit of Dr. Robert K. Match,
sworn to October 22, 1993, in sur-reply to the motion to dis-
miss. Similarly, defendants have made factual representations
in their memoranda of law in an effort to refute the allegations
of the complaint. However, since the parties have not had an
opportunity to submit all of the pertinent material for a sum-
mary judgment motion’, the court will not consider these affi-
davits and additional factual material in assessing the
sufficiency of the complaint.
II. COUNT ONE - ERISA
It is well settled that severance pay policies are employee
welfare plans governed by ERISA. See Bradwell v. GAF
Corp., 954 F.2d 798, 800 n.1 (2d Cir. 1992); Garrett v. Veter-
ans Memorial Medical Center, 821 F. Supp. 838, 840 (D.
Conn. 1993). Further, under ERISA, severance benefits are
not vested; an employer has the right to amend or eliminate a
severance pay plan at any time. See Landy Michaels Realty
Corp. v. Local 32B-32J, Service Employees International
Union, 954 F.2d 794, 801 (2d Cir. 1992); Reichelt v. Emhart
Corp., 921 F.2d 425, 430 (2d Cir. 1990) (citing cases), cert.
denied, 111 S.Ct. 2854 (1991). Accordingly, plaintiff may
only recover benefits under ERISA § 1132(a)(1)(B) pursuant
to the May 3, 1991 severance pay program if this plan was in
effect at the time her employment with LIJ terminated.
According to the complaint, plaintiff was employed by LIJ
until April 1, 1993. See § 9. Although plaintiff argues that she
was “terminated” by LIJ in December 1992 when Dr. Match
requested her resignation, the severance pay program clearly
contemplates the payment of benefits only after the cessation
of regular employment. Plaintiff further alleges that
' Moreover, the court declines to convert this motion to dismiss to a
Rule 56 motion because significant factual discovery which would make
this case ripe for a summary judgment motion has yet to be completed.
A-27
defendants revoked the severance pay program “after the
termination of the plaintiff's employment”. See 4 15. In this
reply memorandum of law in support of the motion to dis-
miss, defendants claim that the May 3, 1991 severance pay
program was revoked at a meeting of LIJ’s Board of Trustees
held on March 23, 1993, prior to the termination of plaintiff's
employment. However, the court is not permitted to consider
factual matters outside of the complaint in deciding a motion
to dismiss. Plaintiff alieges that she has not been paid benefits
according to the severance pay program in effect at the time
her employment terminated; these allegations are sufficient to
state a claim under ERISA and therefore to withstand a mo-
tion to dismiss.
Moreover, ERISA requires every employee benefit plan to
be established and maintained pursuant to a written instru-
ment. 29 U.S.C. § 1102. An employee benefit plan cannot be
unilaterally amended or superseded by an employer by oral
modification. See Hozier v. Midwest Fasteners, Inc., 908 F.2d
1155, 1163-64 (3d Cir. 1990) (citing cases); Adler v. Aztech
Chas P. Young Co., 807 F. Supp. 1068, 1071 (S.D.N.Y.
1992). See also Moore v. Metropolitan Life Insurance Co.,
856 F.2d 488, 492 (2d Cir. 1988). There is no allegation in the
complaint that defendants revoked the severance pay program
in writing. Therefore, defendants’ alleged revocation of the
May 3, 1991 severance pay program would not have been ef-
fective to deprive plaintiff of her benefits if the revocation
was not reduced to writing prior to the termination of plain-
tiffs employment.
For all of the foregoing reasons, defendants’ motion to
dismiss plaintiff's first cause of action under ERISA is de-
nied.
Ill. COUNT TWO - PROMISSORY
ESTOPPEL
Plaintiff's second cause of action alleges that defendants
are estopped from denying her severance benefits because
Dr. Match’s letter seeking plaintiff's resignation explicitly
stated that she would receive benefits under the May 3, 1991
A-28
severance pay program. The Second Circuit has held that es-
toppel principles can apply in ERISA under “extraordinary
circumstances”. See Lee v. Burkhart, 991 F.2d 1004, 1009 (2d
Cir. 1993). In order to state a claim for promissory estoppel,
plaintiff must allege: (1)a material misrepresentation,
(2) reliance, and (3) damages. Jd.
The complaint in this case alleges damage to plaintiff in the
amount of the benefits she would have received under the_
severance pay program. The complaint also alleges a material
misrepresentation by Dr. Match on behalf of LIJ. Defendants
argue that Dr. Match’s letter promised plaintiff no more than
the benefits provided under LIJ’s severance policy in effect on
the date her employment terminated. The court disagrees.
Dr. Match’s letter states, in relevant part:
“the terms of [plaintiff's] severance will be gov-
erned by the LIJ Medical Center personnel policies
applicable to members of the President’s Council,
including the Severance Pay Program dated May 3,
199]. At your option, the initial twelve months of
severance pay may be taken in one lump-sum pay-
ment on the day of your termination or bi-weekly
over the twelve months after your termination.”
Dr. Match’s letter is unambiguous in referring to the May 3,
1991 severance pay program. In addition, the letter goes on to
explicitly describe the benefits plaintiff would receive under
that program. Therefore, the court finds that Dr. Match’s letter
constitutes an alleged material misrepresentation for purposes
of a motion to dismiss. Accordingly, plaintiff has sufficiently
plead the first and third elements of her estoppel claim.
However, the complaint fails to allege the second element
of estoppel, actual reliance. Plaintiff does not allege that she
resigned relying on the fact that she would receive severance
benefits; she states instead that she resigned upon the request
of LIJ in connection with a change in hospital administration.
Nor does the complaint describe any other actions taken by
plaintiff in reliance on Dr. Match’s statements. Accordingly,
defendants’ motion to dismiss plaintiff's second cause of
A-29
action is granted without prejudice, and plaintiff is granted
leave to amend the complaint and replead her estoppel claim.
IV. CLAIMS AGAINST THE INDIVIDUAL
DEFENDANTS
Plaintiff brings suit against defendants Irving Schneider,
Leonard Nadel, Stanley Grey, Michael Feldman and Irving
Wharton, members of LIJ’s Board of Trustee’s Compensation
Committee, and defendant Elihu Modlin, a member of the
Board’s Legal Committee, alleging that they breached fiduci-
ary duties as administrators of LIJ’s severance plan. However,
the complaint fails to allege specific facts which, if proven,
would constitute a breach of fiduciary duty on the part of any
of the defendants. Plaintiff's general allegations that these de-
fendants “were responsible for the decision not to pay any
severance benefits to plaintiff and for the attempt to revoke
LIJ’s severance benefit plan retroactively” are insufficient to
state a cause of action against any individual defendant.
Moreover, the Supreme Court has held that thee fiduciary
duties imposed by ERISA on plan administrators run only to
the plan itself, not individual beneficiaries. Massachusetts
Mutual Life Insurance Co. v. Russell, 473 U.S. 134, 144
(1985). See also Lee v. Burkhart, 991 F.2d at 1009; Donnelly
v. Bank of New York Company, Inc., 801 F. Supp. 1247,
1253-54 (S.D.N.Y. 1992). Plaintiff argues that the individual
defendants are proper parties to this action, citing Hozier v.
Midwest Fasteners, Inc., 908 F.2d 1155 (3d Cir. 1990). Al-
though Hozier holds that plan administrators owe a fiduciary
duty to plan participants, the Third Circuit specifically rec-
ognized that any liability accrues to the benefit of the plan
only, not participants seeking to recover damages in their in-
dividual capacities. 908 F.2d at 1162 n. 7.
Accordingly, defendants’ motion to dismiss the complaint
against the individual defendants is granted, with prejudice.
Plaintiff will not be granted leave to file an amended com-
plaint against the individual defendants as such filing would
be futile. See, e.g., Kaster v. Modification Systems, Inc., 731
F.2d 1014, 1018 (2d Cir. 1984); Jenkins v. Sea-Land Service,
A-30
Inc., 1993 U.S.Dist. LEXIS 11580 at *15 (S.D.N.Y. August
19, 1993).
Vv. CLAIM FOR PUNITIVE DAMAGES
In Massachusetts Mutual Life Insurance Co. v. Russell, the
Supreme Court held that extra-contractual compensatory or
punitive damages are not available in an action for breach of
fiduciary duty under § 409 of ERISA, 29 U.S.C. § 1109. 473
U.S. at 147-48. Although the Supreme Court declines to de-
termine the availability of punitive damages under other sec-
tions of ERISA and the Second Circuit has not yet addressed
the issue, virtually every court to face the question has de-
cided that punitive damages are not available under ERISA.
See McRae v. Seafarers’ Welfare Plan, 920 F.2d 819, 821
(11th Cir. 1991); Reinking v. Philadelphia American Life In-
surance Co., 910 F.2d 1210, 1219-20 (4th Cir. 1990); Pane v.
RCA Corporation, 868 F.2d 631, 635 n.2 (3d Cir. 1989);
Drinkwater v. Metropolitan Life Insurance Co., 846 F.2d 821,
825 (ist Cir.), cert. denied, 488 U.S. 909 (1988); Sage v.
Automation, Inc. Pension Plan and Trust, 845 F.2d 885, 888
n.2 (10th Cir. 1988); Varhola v. Doe, 820 F.2d 809, 817 (6th
Cir. 1987); Sokol v. Bernstein, 803 F.2d 532, 534 (9th Cir.
1986) (damages for emotional distress); Sommers Drug Stores
Co. Employee Profit Sharing Trust v. Corrigan Enterprises,
Inc., 793 F.2d 1456, 1464-65 (Sth Cir. 1986), cert. denied,
479 U.S. 1034 (1987); Swanson v. U.A. Local 13 Pension
Pian, 779 F. Supp. 690, 700 n.4 (W.D.N.Y.), aff'd, 953 F.2d
636 (2d Cir. 1991); Lawford v. New York Life Insurance Co.,
739 F. Supp. 906, 914 (S.D.N.Y. 1990); Giuntoli v. Garvin
Guybutler Corp., 726 F. Supp. 494, 509-10 (S.D.N.Y. 1989).
But see Reeves v. Continental Equities Corporation of Amer-
ica, 767 F. Supp. 469, 474 (S.D.N.Y. 1991) (declining to
strike plaintiff's claim for punitive damages on a motion to
dismiss).
In light of the overwhelming weight of authority supporting
defendants’ position that punitive damages are not available
to plaintiff, the motion to dismiss the punitive damages claims
is granted with prejudice.
VI. RULE ll
The Federal Rules place an affirmative obligation on par-
ties and their counsel to make an objectively reasonable in-
quiry into the facts and the law and not to conduct a lawsuit
for an improper purpose. See Rule 11; Calloway v. Marvel
Entertainment Group, 854 F.2d 1452, 1470 (2d Cir. 1988),
rev ‘don other grounds sub nom Pavelic & LeFlore v. Marvel
Entertainment Group, 493 U.S. 120 (1989). The “key to
Rule 11 lies in the certification flowing from the signature to
a pleading, motion, or other paper in a lawsuit.” Oliveri v.
Thompson, 803 F.2d 1265, 1274 (2d Cir. 1986), cert. denied,
480 U.S. 918 (1987). See also Coltrade International, Inc. v.
United States, 973 F.2d 128, 131 (2d Cir. 1992). Accordingly,
sanctions may not be imposed based on broad findings of bad
faith or frivolous litigation; rather, the court must identify
particular papers certified to a federal court by specific indi-
viduals. Jd.; McMahon v. Shearson/American Express, Inc.,
896 F.2d 17, 22 (2d Cir. 1990).
When Rule 11 is violated, the court must impose sanctions.
Eastway Construction Corp. v. City of New York, 762 F.2d
243, 254 (2d Cir. 1985), modified, 821 F.2d 121 (2d Cir.),
cert. denied, 484 U.S. 918 (1987); Mars v. Anderman, 136
F.R.D. 351, 353 (E.D.N.Y. 1989). However, the court should
resolve all doubts in favor of the signer and avoid using hind-
sight. Oliveri v. Thompson, 803 F.2d at 1275. The standard
under Rule 11 is an objective test, based on what a reasonably
competent attorney would believe under the circumstances,
consistent with minimal standards of professional compe-
tence. Greenberg v. Hilton International, Inc., 870 F.2d 926,
934 (2d Cir. 1989); Krauss v. Bowen, 738 F. Supp. 648, 653
(E.D.N.Y. 1990).
Defendants argue that plaintiff violated Rule 11 by submit-
ting a sur-reply in opposition to the motion to dismiss, and by
asserting factual matters beyond the scope of the complaint.
The filing of a sur-reply, while not explicitly authorized by
the Federal or Local Rules, does not in itself constitute a fail-
ure to inquire into the facts or law. In addition, defendants are
A-32
equally guilty of injecting into the motion to dismiss factual
matters outside of the complaint allegations.
On the other side, plaintiff claims defendants are liable for
sanctions based on counsel’s frivolous and unsworn allega-
tions of fraud and misuse of Rule 11. The court is inclined to
agree that defendants’ allegations regarding a concealed
scheme by Dr. Match to raid the hospital’s strained coffers for
the benefit of his intimate friends appear to be lacking in fac-
tual support. However, although these statements come dan-
gerously close to a Rule 11 violation, the court has resolved
all doubts in favor of defendants and declines to impose sanc-
tions at this time.
CONCLUSION
For all of the foregoing reasons, defendants’ motion to
dismiss is GRANTED in part and DENIED in part. The mo-
tion to dismiss plaintiff's first cause of action under ERISA is
DENIED. The motion to dismiss plaintiff's second cause of
action based on estoppel is GRANTED, with leave to amend.
The motion to dismiss plaintiff's claims against the individual
defendants and for punitive damages is GRANTED with
prejudice. The cross-motions for Rule 11 sanctions are DE-
NIED.
SO ORDERED.
Dated: Brooklyn, New York
February 18, 1994
/s/ John R. Bartels
United States District Judge
A-33
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
UNITED STATES COURT HOUSE
40 FOLEY SQUARE
NEW YORK 10007
BKNY
MANDATE 93-CV-2549
GEORGE LANGE III BARTELS
CLERK
At a Stated Term of the United States Court of Appeals for
the Second Circuit, held at the United States Courthouse,
Foley Square, in the City of New York, on the 26th day of
June, one thousand nine hundred and ninety-six.
PRESENT: — HON. Thomas J. Meskill
HON. J. Daniel Mahoney
HON. John M. Walker, Jr.
Circuit Judges
UNITED STATES
COURT OF APPEALS
FILED
JUN 26 1996
‘eoookttt hen ith,
‘ ia
Docket No: 95-7484 SPERNH bIBELT
GLENISS S. SCHONHOL4,
plaintiff-Appellant,
me
LONG ISLAND JEWISH MEDICAL
CENTER,
pefendant-Appellee.
Appeal from thé United States District Court for the Eastern
District of New York.
A-34
This cause came on to be heard on the transcript of record
from the Eastern District of New York and was argued by
counsel.
ON CONSIDERATION WHEREOF, it is now hereby
ORDERED, ADJUDGED and DECREED that the judg-
ment of said district court be and it hereby is affirmed in part,
vacated in part, and remanded to the said district court for
further proceedings in accordance with the opinion of this
court.
For the Court
GEORGE LANGE III, Clerk
By:
/s/ Arthur M. Heller
Arthur M. Heller
Administrative Attorney
A TRUE COPY
GEORGE LANGE III, CLERK
/s/ George Lange III
ISSUED AS MANDATE. JUL 11 1996
A-35
LONG ISLAND JEWISH MEDICAL CENTER
MEMORANDUM
To: Members of President’s Date: May 3, 1991
Council
From: Robert K. Match, MD Subject: Severance
President Pay Program
Confidential
In order to deal effectively with the ever changing and chal-
lenging health care environment of the 1990s and beyond, it is
essential that LIJ be able to recruit and retain the services of
high level senior management personnel.
In light of the fact that we do not provide Employment Con-
tracts but wish to encourage continued professional career de-
velopment at LIJ, I have decided to implement for all
members of the President’s Council a severance pay program.
Under the terms of this program, any member of the Presi-
dent’s Council who is involuntarily terminated or removed
from his position, for other than ‘lle al conduct or for sub-
stantially deficient perfortnance which is detrimental to LI,
shall be etititled to receive His teptilat Weekly salaty, ih effect
a8 Of tHe diy — His tettHiHAHOH fit the specified BeHdd uf
HHHE BHHIHed RelA Ww:
Veare at bimplayment ab bid Severance Payment
()- 2 years None;
More than 2 yearsandupto § 6 months plus up to an
5 years additional 3 months in the
event the individual has not
found employment;
More than 5 years and up to 1 year plus up to an
10 years additional 3 months in the
event the individual has not
found employment;
A-36
10 years and beyond 1 year plus up to an
additional 6 months in the
event the individual has not
found employment.
The initial severance pay entitlement of six months or one
year, depending upon years of service at the time of termina-
tion, shall be paid on a biweekly basis and for the full term
regardless of whether the individual seeks or obtains other
employment during this period.
RECEIVED
OFFICE OF THE
ADMINISTRATOR
HILLTOP HOSPITAL
LONG ISLAND JEWISH
MEDICAL CENTER
Should he still be seeking employment commensurate with
his former organizational level and scope of responsibility,
after the initial severance pay entitlement period has expired,
he shall then cotitinue to receive a regular weekly salary,
provided he is eligible by letipth of service, until such em-
ployiett is bbtHiHed bt the AdditdHAl HibtHths have expired,
WHIGHEVEF BebHEA SHAHEt, SHEH EXHHHHAHBH is dependent is
HEHEHHBH HBHE He HH idl HHH i 4 t#H8onable and good
HH SHAE IA QRIAIA SHER SHRIAYSAT.
in addition to these severance payments, he will also receive
at the time of termination all of his accrued but unused vaca-
tion, holiday and personal time as per the then existing Medi-
cal Center policy. LIJ will also continue to Pay for health, life
and disability insurance benefits, and retirement pian benefits.
as they existed on the day before termination until the ndi-
vidual obtains another job or upon the compjetion of his en-
tire severance program entitlement period, Vjpichever occurs
first. An Outplacement Service of his choice wil] be made
available at Medical Center expense.
A-37
I trust that this program will help engender a sense of stability
among our senior management staff. In addition, this program
should help to demonstrate LIJ’s appreciation of your dedi-
cated service.
/s/ RK Match, MD
RKM:sx
Distribution:
Seymour Cohen, MD
Martin Fink
I. Sanford Forman
Stephen Grabel
Henry Hoffman
Harold Hogstrom
Christine Pappas, RN, MA
Gleniss S. Schonholz
A-38
December 2, 1992
Mr. Mike Caver
Heidrick & Struggles
125 South Macker Drive
Chicago, IL 60606-4590
Dear Mr. Caver:
As a follow up to our telephone conversation, I am enclosing
my resume.
The imminent retirement of our Medical Center’s C.E.O. plus
the likelihood of a lengthy and undefined transition period are
factors in my decision to consider leaving the Hospital. In
addition, a search committee has not yet been formed.
It might be helpful if you iiad an idea of the type of position
that would be of interest to me. I am not wedded to remaining
in a hospital environment. An opportunity for a senior man-
agement position outside the health care field would be of in-
terest.
For example, as a patron of both the Metropolitan Museum of
Art and the Metropolitan Opera, I have become familiar with
their organizations and have observed that there are many
similarities in regard to operational issues, e.g. emphasis on
program development, market share, obtaining political sup-
port and funding. In fact, the CFO of the Metropolitan Mu-
seum was previously employed at the Health and Hospitals
Corporation.
Relocation would not be an option for me at this time, how-
ever, one hour’s travel to from Manhattan would be accept-
able.
Since I have not publicized my intention to leave the Medical
Center it is important that confidentiality be maintained.
Please contact me if you require any additional information at
this time.
Sincerely
Enclosure
A-39
December 18, 1992
Mrs. Gleniss S. Schonholz
Senior Vice President/C.O.0.
Long Island Jewish Medical Center
New Hyde Park, NY 11042
Dear Gleniss:
As a result of the announcement of my retirement in 1993, I
anticipate there will be changes in senior management of the
LIJ Medical Center. This letter will confirm my request that
you submit your resignation effective April 1, 1993. I have
recently had discussions with the Chairman of the Board of
Trustees and other Board members and they concur with this
request.
I want to assure you that this decision is in no way related to
your performance as Senior Vice-President. I believe it is
necessary in order to provide my successor maximum flexi-
bility in selecting his principal deputy.
Of course, the terms of your severance will be governed by
the LIJ Medical Center personnel policies applicable to mem-
bers of the President’s Council, including the Severance Pay
Program dated May 3, 1991. At your option, the initial twelve
months of severance pay may be taken in one lump-sum pay-
ment on the day of your termination of bi-weekly over the
twelve months after your termination.
Please arrange to meet with the Vice-Presidents of Finance
and Human Resources to discuss and arrange the details.
I know you intend to seek other employment; if I can be of
any assistance to you in your search for future employment
please do not hesitate to call upon me.
Thank you for all your efforts and years of dedicated service.
Sincerely,
Robert K. Match, MD
President
A-40
December 22, 1992
Robert K. Match, MD
President
Long Island Jewish Medical Center
New Hyde Park, NY 11042
Dear Bob,
In accordance with your request, I am submitting my resigna-
tion effective April 1, 1993.
The twelve years I have worked at LIJ under your leadership
have been professionally rewarding.
Sincerely,
Gleniss S. Schonholz
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.