Reply Brief — Long Island Jewish Medical Center v. Schonholz

fp Supreme Court, U.S.

4) FILED

No. 96-485 v NOV 5S 1996

IN THE CLERK

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

PETITIONER’S REPLY BRIEF

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

oF ae

TABLE OF CONTENTS

SA UP AAFP R EES Citic csticmnicinn

I. This Court Should Grant The Petition To

Correct The Second Circuit's Misconstruction

Of The Fort Halifax Test And To Remove

Confusion Among The Circuits As To The

Appropriate Legal Standard ........................0...

II. Plaintiff's Promissory Estoppel Claim Is The

Precise Claim That Has Split The Circuits......

Se MT biipllihintdadiiniin cecnlechnineaninpendiesoehdiitinnacasees

Page

TABLE OF AUTHORITIES

Cases:

Alday v. Container Corp. of America, 906 F.2d 660

(11th Cir. 1990), cert. denied, 498 U.S. 1026

INI thieiiciiindankintiehvesenssaesbminnidinbstensidaseossotenstnccoaroese

Belanger v, Wyman-Gordon Co., 71 F.3d 451 (ist

liek tatlia been hheiciscieaidhapiignboansoosiaséinnes

Bogue v. Ampex Corp., 976 F.2d 1319 (9th Cir.

1992), cert. denied, 507 U.S. 1031 (1993) ............

Degan v. Ford Motor Co., 869 F.2d 889 (Sth Cir.

PUNT iidiclashiniels ansaks dieeahicdevunpabhuatibdinaibiabteensencacehanee

Delaye v. Agripac, Inc., 39 F.3d 235 (9th Cir.

1994), cert. denied, 115 S. Ct. 1402 (1995)...........

Devoll v. Burdick Painting, Inc., 35 F.3d 408 (9th

Cir. 1994), cert. denied, 115 S. Ct. 1381 (1995)...

Fontenot v. NL Indus., Inc., 953 F.2d 960 (Sth Cir.

ESR STEERER a at

James v. Fleet/Norstar Fin.Group, Inc., 992 F.2d

is ciak decinecbinbiigipetanhinineesancies

Kulinski v. Medtronics Bio-Medicus, Inc., 21 F.3d

a itd ieskieshinintignidcscosisioconcteesvenaseces

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

Rs SUE eusalllthsbelestidccdlanpuansbidnicasctllasicababbaksscevesensnesss

Pane v. RCA Corp., 868 F.2d 631 (3d Cir. 1989)......

2, 4,5

Cases: Page

Simas v. Quaker Fabric Corp., 6 F.3d 849 (1st Cir.

5 FA} srikiakisntuineicacoseealeastidebuilacimouscuinihesininaiads 5

Wells v. General Motors Corp., 881 F.2d 166 (Sth

CAs, Beier oe corcscmsnensancueimecnpnrcissmesonttulensionaionioician 2

No. 96-485

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

PETITIONER’S REPLY BRIEF

I. The Court Should Grant The Petition To

Correct The Second Circuit’s Misconstruc-

tion Of The Fort Halifax Test And To Re-

solve Confusion Among The Circuits As To

The Appropriate Legal Standard.

In her opposition brief, Schonholz fails to reconcile the two

divergent approaches to determining when an offer of sever-

ance benefits constitutes an ERISA “plan” that have emerged

since this Court’s decision in Fort Halifax Packing Co. v.

Coyne, 482 U.S. 1 (1987). The first approach adheres to the

Fort Halifax test and focuses the inquiry on whether an

“ongoing administrative program” is required. See, e.g.,

Belanger v. Wyman-Gordon Co., 71 F.3d 451, 455 (1st Cir.

1995)(focusing on whether severance offers required compli-

cated administrative apparatus either to calculate or distribute

promised benefits); Angst v. Mack Trucks, Inc., 969 F.2d

1530 (3d Cir. 1992)(focusing on whether offer required crea-

tion of new administrative scheme); Wells v. General Motors

Corp., 881 F.2d 166 (Sth Cir. 1989) (same). '

The second approach, taken in Bogue v. Ampex Corp., 976

F.2d 1319 (9th Cir. 1992), cert. denied, 507 U.S. 1031 (1993),

and Pane v. RCA Corp., 868 F.2d 631 (3d Cir. 1989), and

pushed to a new extreme by the Second Circuit here, improp-

erly equates the need for any discretionary decision-making

with the existence of an “ongoing administrative program.”

Schonholz tries to make much of the fact that in some of

the cases in which the first approach has been followed (e.zg.,

Kulinski and Fontenot), the courts have distinguished prior

cases in part on the absence of discretionary decision-making.

Schonholz misses the point. LIJ does not contend that it is

improper for courts to consider the extent to which discretion-

ary decisions must be made as a factor in determining whether

an ERISA plan exists. What is improper, though, is for courts

to equate the need or even the potential for the exercise of

discretion with the existence of, let alone the requirement for,

an ongoing administrative program, as the Secord Circuit did

here, and as the courts did in Pane and Bogue.

Schonholz also argues that this more expansive approach

is consistent with this Court’s holding in Fort Halifax.

' See also Delaye v. Agripac, Inc., 39 F.3d 235 (9th Cir. 1994), cert. de-

nied, 115 S. Ct. 1402 (1995); Kulinski v. Medtronics Bio-Medicus, Inc.,

21 F.3d 254 (8th Cir. 1994); James v. Fleet/Norstar Fin.Group, Inc., 992

F.2d 463 (2d Cir. 1993); Fontenot v. NL Indus. Inc., 953 F.2d 960 (Sth

Cir. 1992).

? The exercise of discretion, potential or actual, may implicate, for exam-

ple, the task of computing eligibility or aggregate compensation for a

body of employees and still not require an ongoing administrative pro-

gram (and, hence, not be under ERISA). James v. Fleet/Norstar Fin.

Group, Inc., 992 F.2d 463 (2d Cir. 1993).

3

Schonholz is again mistaken.’ The Fort Halifax test is rooted

in the purpose of pre-emption: to “‘eliminat[e] the threat of

conflicting and inconsistent State and local regulation.’” Fort

Halifax, 482 U.S. at 9 (quoting 120 Cong.Rec. 29197 (1974)).

Thus, the inquiry must focus not on whether some admini-

stration is required, but rather on whether, in order to maintain

a benefits plan, an employer must implement an ongoing

administrative apparatus that requires protection from a

“patchwork scheme of regulation.” /d. at 11. Otherwise, any

offer of severance benefits could be construed as an ERISA

plan; a proposition that is unsupported by the statute and was

flatly rejected by this Court as imposing an unintended burden

(one that might persuade employers not to grant benefits). See

Fort Halifax, 482 U.S. at 11-12. The courts in Schonholz, Bo-

gue and Pane completely disregarded this reasoning and, as a

consequence, developed a conflicting legal standard.

Here, for example, no administrative apparatus was ever

established, as Schonholz concedes (Opp. Br. at 8, n. 5).

Schonholz argues vociferously that “Fort Halifax and its

progeny look to the need for an administrative program, not to

its implementation,” implying that at some future unspecified

time, LIJ would have been required to develop an administra-

tive apparatus. Jd. (Emphasis in original, citations omitted.)

Yet, Schonhoiz fails to recognize that by the time the May 3

Memorandum was revoked, it had (according to Schonholz)

been in effect for almost two years. Further, (again, according

to Schonholz), LIJ had already made one of the two

“managerial assessments and decisions inherent in the terms

of the Severance Plan” (Opp. Br. at 8) that might have been

3 LIJ does not contend, as Schonholz erroneously suggests, that the Sec-

ond Circuit’s decision dramatically alters this Court’s precedent because it

makes all of ERISA’s substantive and procedural requirements applicable

to all severance offerings (Opp. Br. at 4). Rather, the Second Circuit's

decision dramatically alters the Fort Halifax test by equating the need for

discretionary decision-making with the existence of an ongoing adminis-

trative program. By doing so, the Second Circuit's decision will make

ERISA applicable to severance offerings that are not properly ERISA

plans and force employers to comply with all relevant requirements.

4

required; namely, determining whether Schonholz was being

terminated for cause. Still, as Schonholz concedes, no admin-

istrative apparatus had been established. The second of these

“managerial assessments” -- a determination as to whether

Schonholz, after a year, should have been entitled to an addi-

tional six months of benefits -- might never have been re-

quired. Even if the issue had arisen, making such a

momentary determination would not have required an admin-

istrative program in any sense of the term, never mind a pro-

gram that required protection from a patchwork scheme of

regulation. See Fort Halifax, 482 U.S. at 13-15. Cf James,

992 F.2d at 466.

In finding that the need for such limited discretionary deci-

sion-making transformed the May 3 Memorandum into an

ERISA plan, the Second Circuit misconstrued this Court’s

test. * This is the same approach followed by the courts in

Bogue and Pane.’ The confusion this approach has sown is

exacerbated by the fact that conflicts exist within the same

Circuits, making it impossible for an employer to gauge

which approach will be applied. Compare James, 992 F.2d at

* While Schonholz contends that managerial discretion was only one fac-

tor examined by the Court, the second proffered factor -- “whether the

employer was required to analyze the circumstances of each employee’s

termination separately in light of certain criteria” (Opp. Br. at 7, n. 4; A-7)

-- ultimately focuses on the same issues involved in the managerial dis-

cretion analysis. As to the third stated factor -- whether a “reasonable

employee would perceive an ongoing commitment by the employer to

provide employee benefits” -- it is unclear how this factor is probative of

whether the offer of severance benefits implicates an administrative appa-

ratus. A single employment contract with the promise of severance pay in

the event of termination could justify such a perception, yet would not

give rise to an ERISA plan.

* Schonholz also attempts to make much of the fact that the courts in

Schonholz, Pane and Bogue properly identified the Fort Halifax test by

name, and criticizes LIJ for “merely ... focusing on the results” of these

cases (Opp. Br. at 7, n. 4). It seems that Schonholz has it backwards: a

court’s mere incantation of a test does not mean the court has it right; it is

the “result,” as reflected in the court’s analysis and holding, that is proba-

tive of whether the court is applying the proper legal standard.

5

466, with Schonholz; Belanger, 71 F.3d at 455-56, with Simas

v. Quaker Fabric Corp., 6 F.3d at 849 (ist Cir. 1993); Angst,

969 F.2d at 1539-41, with Pane, 868 F.2d at 635; and Delaye

39 F.3d at 237-38, with Bogue, 976 F.2d at 1323. Such intra-

circuit conflicts, and the attendant uncertainties, are precisely

what ERISA pre-emption was intended to avoid.

Accordingly, review of this case is necessary to correct the

Second Circuit’s misconstruction of the Fort Halifax test and

to provide clarification to the Circuits.

Il. Plaintiff's Promissory Estoppel Claim Is

The Precise Claim That Has Split The

Circuits

In its Petition, LIJ demonstrated that the Fifth, Ninth, Tenth

and Eleventh Circuits have held that courts may not fashion a

federal common law cause of action for promissory estoppel

under ERISA, while the Second, Third and Seventh Circuits

have recognized such a claim. Schonholz does not directly

dispute this, because she cannot. Instead, she focuses this

Court on irrelevant issues.°

Schonholz’s opposition is based on her contention that

there are two instances in which the use of estoppel principles

under ERISA is appropriate. The first, according to Schon-

holz, is when a plaintiff seeks to use equitable estoppel with

regard to statements allegedly made by an employer that pur-

port to interpret an ambiguous provision of an ERISA plan.

® Schonholz’s strategy is bold and relies on misdirection. Schonholz ad-

mits that the courts in 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 Co., 869 F.2d 889 (Sth Cir.

1989), properly refused to recognize a claim for promissory estoppel

(Opp. Br. at 5, 10). She then seeks to avoid the implication of that admis-

sion by suggesting that her case is factually distinguishable from those

cases. As shown below, it is not. Her claim is the precise type of claim at

issue in all of the cases cited by LIJ in its Petition.

6

Whether the use of equitable estoppel is appropriate in such a

case is irrelevant. As Schonholz herself acknowledges, that

was not the circumstance presented in the cases cited by LIJ,

nor is it the circumstance presented here. Rather, in the instant

case as well as in all of the cases cited by LIJ, a plaintiff, who,

but for an alleged promise, would be ineligible for benefits,

seeks to use promissory estoppel to create a claim under

ERISA.

In Devoll v. Burdick Painting, Inc., 35 F.3d 408 (9th Cir.

1994); cert. denied, 115 S. Ct. 1381 (1995), for example, the

plaintiff alleged that his employer had promised to maintain

his enrollment in a plan that provided a certain level of bene-

fits. The employer allegedly breached this promise by enroll-

ing the plaintiff in a plan that provided an inferior level of

benefits. There was no ambiguity in the plan. Plaintiff sued to

enforce the employer’s alleged promise.

Similarly, in Miller v. Taylor Insulation Co., 39 F.3d 755

(7th Cir. 1994), the employer allegedly breached its promise

to maintain plaintiff's enrollment in a particular medical re-

imbursement plan. Again, the case did not involve an alleged

representation regarding an ambiguous provision of a plan but

rather an action to enforce the employer's alleged promise.

Here, as in Devoll and Miller, Schonholz is not seeking to

use equitable estoppel with regard to a proffered interpretation

of an ambiguous provision of a plan. Indeed, Schonholz nei-

ther alleges the existence of an ambiguity nor contends that

the clear terms of the May 3 Memorandum limited LIJ’s right

to revoke the severance benefits. Rather, as in Devoll and

Miller, Schonholz seeks to use promissory estoppel to enforce

an alleged promise on the part of LIJ to extend her severance

benefits. This is made clear by Second Circuit’s analysis (e.g. :

“[a]ssuming that the jury concludes that LIJ promised to ex-

tend Schonholz’s benefits, that LIJ should have known that

Schonholz would rely, that Schonholz 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 contend that an injustice would

result if the promise is not enforced”). A-14.

7

The Second, Third and Seventh Circuits recognize such a

claim. The Fifth, Ninth, Tenth and Eleventh do not.

The second instance that Schonholz contends permits the

use of estoppel principles is “when an employer makes a

written promise that is at the same level of formality as a plan

creation document which lacks an amendment procedure and

an employee reasonably and detrimentally relies on that

promise.” Opp. Br. at 10. Schonholz even goes so far as to

characterize this as the holding of the Second Circuit. /d.

Schonholz’s argument is disingenuous. The Second Circuit

found that Schonholz stated two distinct claims under ERISA:

(1) a contractual vesting claim, and (2) a promissory estoppel

claim. To be cognizable, the contractual vesting claim re-

quires a finding that the alleged “vesting” document is of the

same level of formality as the alleged “plan creation docu-

ment.” The promissory estoppel claim, on the other hand, has

nothing to do with the relative levels of formality of the May

3 Memorandum and the December 18 letter. Again, this is

evident from the Second Circuit’s decision. The court ana-

lyzed the claim based on the four traditional elements of

promissory estoppel: a promise, reliance, injury and injustice

(A-12). There is nothing in the court’s opinion to suggest that

its recognition of a promissory estoppel claim was contingent

on a finding that the December 18 letter was of the same level

of formality as the May 3 Memorandum.

Schonholz cannot escape the fact that her claim for promis-

sory estoppel is the precise claim which has split the Circuits.

Schonholz, herself, has admitted that it is inappropriate for

federal courts to fashion this type of relief, and does not dis-

pute the importance of having a uniform body of law under

ERISA. Accordingly, the Petition should be granted to permit

review of this important issue.

CONCLUSION

For the foregoing reasons, the petition for a writ of certio-

rari should be granted.

(Um submitted,

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