Petition for Writ of Certiorari — Cvelbar v. CBI-Illinois, Inc.

; Supreme Court, U.s

[ ) FILED

961854 may 19 1997

No, OFFICE OF THE CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1996

ANTHONY W. CVELBAR,

Petitioner,

Vv.

CBI-ILLINOIS, INC.,

a Delaware corporation,

Respondent.

On Petition for Writ of Certiorari to the United

States Court of Appeals for the Seventh Circuit

PETITION FOR WRIT OF CERTIORARI

JULIAN E. CANNELL

. Counsel of Record

7 KAVANAGH, SCULLY, SUDOW,

WHITE & FREDERICK, P.C.

301 Southwest Adams Street

Suite 700

Peoria, Illinois 61602-1574

(809) 676-1381

Attorney for Petitioner

Midwest Law Printing Co., Chicago 60610, (812) 321-0220

i

QUESTION PRESENTED FOR REVIEW

Whether a one-person employment agreement which

provides severance benefits is an ERISA Plan.

‘i

TABLE OF CONTENTS

PAGE

QUESTION PRESENTED FOR REVIEW .... i

TABLE OF CITED AUTHORITIES .......... iii

CITATIONS TO THE OFFICIAL AND UN-

OFFICIAL REPORTS OF THE OPINIONS AND

ORDERS ENTERED IN THIS CASE BY

COURTS OR ADMINISTRATIVE AGENCIES . 1

STATEMENT OF THE BASIS FOR JURISDIC-

SOU SOE BMD GHEE 6 6500s su ccenwedbenenees

STATUTES INVOLVED IN THIS CASE ....

STATEMENT OF THE CASE ...............

REASONS FOR GRANTING THE WRIT ....

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a> » WO PY

APPENDIX—Anthony W. Cvelbar v. CBI-Illinois,

Inc., United States Court of Appeals for the

Seventh Circuit, Case No. 96-1669, Opinion decided

POREWIEY BG, TOF oc iiccncccnccdeguacanewueaune infra

TABLE OF CITED AUTHORITIES

Cases: PAGE

Fraver v. North Carolina Farm Bureau Mutual

Insurance Co., 801 F.2d 675 (4th Cir. 1986) .. 5

Jervis v. Elerding, 504 F.Supp. 606 (C.D. Cal.

ee Se Usa ea vek bakes se decnvias s

Lo |

eee ALAS G64 Vin bN as 56550 Sans wes o's 5

Nagy v. Riblet Products Corporation, 79 F.3d 572

Re ee 4,5

Nechero v. Provident Life & Accident Insurance

Co., 795 F.Supp. 374 (D.N.M. 1992)........ 5

United States Statutes:

eos ky bso 0 64 ves 006000 3, 4

rs ack Vnbeicya ene ds 00806940 1

eas ou sie odie Saecesde vances 3

Ee cana acc testes seaessaceveses 3

I Oe cas ese scecesesuceens 3

EE, ee 2

ESR ee 2

Miscellaneous:

H.R. Rep. No. 93-533, 98d Cong., 2d Sess. .... 5

a

CITATIONS OF THE OFFICIAL

AND UNOFFICIAL REPORTS OF THE OPINIONS

AND ORDERS ENTERED IN THIS CASE

BY COURTS OR ADMINISTRATIVE AGENCIES

Anthony W. Cvelbar v. CBI-Illinois, Inc., United States

Court of Appeals for the Seventh Circuit, Case No. 96-

1669, Opinion decided February 14, 1997.

Anthony W. Cvelbar v. CBI-Illinois, Inc., a Delaware cor-

poration, United States District Court for the Central Dis-

trict of Illinois, Case No. 95-1127, Final Order entered

February 27, 1996.

Anthony W. Cvelbar v. CBI-Illinois, Inc., a Delaware cor-

poration, United States District Court for the Central

District of Illinois, Case No. 95-1127, Memorandum Opin-

ion dated February 7, 1996 denying Plaintiff's Motion to

Amend.

Anthony W. Cvelbar v. CBI-Illinois, Inc., a Delaware cor-

poration, United States District Court for the Central Dis-

trict of Illinois, Case No. 95-1127, Order entered January

16, 1996 granting Defendant’s Motion for Partial Summary

Judgment and Denying Plaintiff’s Motion for Partial Sum-

mary Judgment and Plaintiff’s Motion to Strike.

STATEMENT OF THE BASIS

FOR JURISDICTION IN THIS COURT

On February 14, 1997, the United States Court of Ap-

peals for the Seventh Circuit decided its Case No. 96-1669,

and on the same date entered its Opinion and Order,

which Opinion and Order the Plaintiff-Petitioner seeks this

Court to review and reverse.

The statutory provision believed to confer on this Court

jurisdiction to review the above Opinion and Order on a

Writ of Certiorari is 28 U.S.C. §1254.

iin

STATUTES INVOLVED IN THIS CASE

29 U.S.C. § 1182.

$1132. Civil enforcement

(a) Persons involved to bring a civil action

A civil action may be brought—

(1) by a participant or beneficiary—

(a) for the relief provided for in subsection c of

this section, or

(b) vo recover benefits due to him under the

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. § 1002.

§1002. Definitions

For purposes of this subchapter:

(1) The terms “employee welfare benefit plan” and “wel-

fare plan” mean any plan, fund, or program which was

heretofore or is hereafter established or maintained by

an employer or by an employee organization, or by both,

to the extent that such plan, fund, or program was estab-

lished or is maintained for the purpose of providing for

its participants or their beneficiaries, through the purchase

of insurance or otherwise, (A) medical, surgical, or hospital

care or benefits, or benefits in the event of sickness, ac-

cident, disability, death or unemployment or vacation bene-

fits, apprenticeship or other training pro or day care

centers, scholarship funds, or pre-paid legal services, for

(B) any benefit described in section 186(c) of this title

(other than pensions on retirement or death and insurance

to provide such pensions) .. .

(2) ..

(3) The term “employee benefit plan’ or “plan” means

an employee welfare benefit plan or an employee pension

benefit plan or a plan which is both an a. welfare

benefit plan and an employee pension benefit plan.

|

<i

STATEMENT OF THE CASE

This Petition seeks review of a judgment of the United

States Court of Appeals for the Seventh Circuit. The basis

of federal jurisdiction in the court of first instance, the

United States District Court for the Central District of

Illinois, Peoria Division, was 28 U.S.C. §1381, relying upon

ERISA (29 U.S.C. §1001, et seg.) as the law of the United

States.

Plaintiff entered into an Agreement with his employer

on March 22, 1990 which provided for severance benefits

upon separation from employment for any reason.

On February 7, 1995, Plaintiff filed a two count Com-

plaint in the Circuit Court of the Tenth Judicial Circuit

of Illinois claiming that the Defendant had violated an

Employer-Employee Agreement (hereinafter “Agreement”’)

by wrongfully terminating the monthly payments due Plain-

tiff. Count I alleged that the termination of payments vio-

lated ERISA; Count II alleged a common law breach of

contract claim.

On March 28, 1995, the Defendant removed the claim

to the United States District Court for the Central Dis-

trict of Illinois, Peoria Division, pursuant to 28 U.S.C.

§1441. On March 29, 1996, the Defendant filed a Motion

to Dismiss the ERISA claim on the ground that the Agree-

ment does not qualify as a ERISA Plan.

The District Court ruled that the Agreement qualified

as an ERISA Plan, and both parties subsequently filed

Motions for Partial Summary Judgment on the issue of

whether the Agreement was a “golden parachute” under

26 U.S.C. §280G. On January 16, 1996, the District Court

granted Defendant’s Motion for Partial Summary Judg-

ment.

On February 7, 1996, the District Court ordered the

parties to file status reports indicating what issues remain

ws

to be litigated. Plaintiff claimed that, even if any part of

the payments he received under the Agreement were para-

chute payments under §280G, the Court must determine

the value of a covenant not to compete because such amount

is due Plaintiff under the Agreement regardless of the

299% limitation under §280G. This issue was not raised

by either party’s Motion for Partial Summary Judgment.

Defendant claimed there were no remaining issues. The

District Court entered final judgment on February 27,

1996 in favor of the Defendant.

Plaintiff appealed to the United States Court of Appeals

for the Seventh Circuit on various issues, including the

question presented in this Petition for Writ of Certiorari.

The Seventh Circuit decided, on February 14, 1997, to

affirm the District Court completely, including holding

that the one person Agreement is an ERISA Plan.

REASONS FOR GRANTING THE WRIT

The question presented is whether a one-person employ-

ment agreement which provides for severance benefits is

an ERISA Plan.

The Petition for Writ of Certiorari should be allowed

for two reasons. First, a United States Court of Appeals

has entered a decision in conflict with the decision, not

only of itself, but of another United States Court of Ap-

peals on the same important issue. Second, the United

States Court of Appeals has decided an important ques-

tion of federal law that has not been, but should be,

settled by this Court in order to provide uniformity among

the judiciary.

In holding that the Agreement is an ERISA Plan, the

Seventh Circuit directly contradicted its own holding in

Nagy v. Riblet Products Corporation, 79 F.3d 572 (7th

—~5—

Cir. 1996), and contradicted the holding of the Fourth Cir-

cuit Court of Appeals in Fraver v. North Carolina Farm

Bureau Mutual Insurance Co., 801 F.2d 675 (4th Cir.

1986), and decisions by District Courts in the Ninth and

Tenth Circuits in Jervis v. Elerding, 504 F.Supp. 606

(C.D. Cal. 1980), Nechero v. Provident Life & Accident

Insurance Co., 795 F.Supp. 374 (D.N.M. 1992) and Lakey

v. Whitehall Corp., 704 F.Supp. 201 (D. Kan. 1988). The

cases cited above hold that a one person employment

agreement which provides for post termination severance

benefits is not an ERISA Plan, and thus any dispute in-

volving such an agreement is not governed by ERISA.

Because the decision by the Seventh Circuit in the pres-

ent case holding that a one-person employment agreement

is an ERISA Plan is in conflict with the cases cited above,

this Court should review the Seventh Circuit’s holding

on this issue on the present Petition for Writ of Cer-

tiorari.

Furthermore, this Court should review the Seventh Cir-

cuit decision because the present issue is an important

question of federal law that has not yet been, but should

be, settled by this Court in order to establish uniformity

for the benefit of the judiciary and parties dealing in this

area. H.R. Rep. No. 93-533, 98d Cong., 2d Sess. states

Congress enacted ERISA to “. . . protect working men

and women from abuses in the administration and invest-

ment of private retirement plans and employee welfare

plans.” Congress did not intend to burden the federal gov-

ernment with the administration of individual employment

contracts providing for severance benefits, most of which

are between corporations and sophisticated highly com-

pensated employees, such as the Petitioner in this case.

ERISA was not meant to govern these types of contracts,

and the federal government should not be burdened with

enforcing and administering these types of contracts.

=

CONCLUSION

WHEREFORE, Petitioner prays this Court grant the

Petition for Writ of Certiorari.

Respectfully submitted,

JULIAN E. CANNELL

Counsel of Record

KAVANAGH, SCULLY, SUDOW,

WHITE & FREDERICK, P.C.

301 Southwest Adams Street

Suite 700

Peoria, Illinois 61602-1574 |

(309) 676-1381

Attorney for Petitioner

APPENDIX

App. 1

IN THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

No. 96-1669

ANTHONY W. CVELBAR,

Plaintiff-Appellant,

v.

CBI ILLINOIS INCORPORATED,

Defendant-Appellee.

Appeal from the United States District Court

for the Central District of Illinois, Peoria Division.

No. 95 C 1127—Michael M. Mihm, Chief Judge.

ARGUED SEPTEMBER 11, 1996—DECIDED FEBRUARY 14, 1997

Before COFFEY, RIPPLE and EVANS, Circuit Judges.

RIPPLE, Circuit Judge. Anthony W. Cvelbar signed an

agreement with his employer that extended benefits to

him in the event of his termination. His employer later

merged with the appellee, CBI Illinois Incorporated

(“CBI”), which agreed, as part of the merger agreement,

to honor the contract. Mr. Cvelbar subsequently was

terminated. After paying benefits for some time, CBI

invoked the limitation provision of the contract and dis-

continued the benefits. Mr. Cvelbar brought suit in state

court alleging that he was entitled to continued pay-

ments under the Employee Retirement Income Security

Act (“ERISA”), 29 U.S.C. §§ 1001 et seg. After removal,

the district court held that the decision to terminate the

App. 2

benefits was not arbitrary or capricious and entered

summary judgment in CBI’s favor. Mr. Cvelbar now

appeals that decision. We conclude that the district court

had subject matter jurisdiction and affirm its judgment.

I

BACKGROUND

A. Facts

Anthony W. Cvelbar was employed as the Executive

Vice President of The First National Bank of Peoria. In

March 1990, he entered into an Employer-Employee

Agreement (“Agreement”) with the bank. That Agree-

ment provided that the bank would pay Mr. Cvelbar

severance benefits in the event he was terminated, vol-

untarily or involuntarily, for any reason other than

death, retirement, or the commission of a felony or fraud.

The Agreement further provided that Mr. Cvelbar would |

not compete with First Peoria by accepting employment |

with a competitor institution for three years following |

termination. First Peoria entered into similar agree-

ments with four other employees.

Central to this appeal is the interpretation of several

provisions of the Agreement. We therefore shall set forth

those provisions in more detail. The Agreement stated

that its purpose is “to encourage the continued dedica- |

tion of the management of the Company and its subsid-

iaries, including [Mr. Cvelbar], to the business of the |

Company and to discourage [Mr. Cvelbar] from seeking |

employment with a competitor.” R.7, Ex.A at 1. Encour-

aging loyalty from managers such as Mr. Cvelbar was

deemed essential because of such managers’ “intimate

knowledge of the products, operating procedures and

customers” of First Peoria. Id.

The three benefits that would be provided to Mr.

Cvelbar should he be terminated are enumerated in the

third paragraph of the contract:

—

App. 3

(i) The Company shall make available to the Em-

ployee and his dependents coverage under the group

medical plan on the same terms and conditions as

are then available to a retiree of the First Peoria

Corp. Retirement Plan in effect at that time.

(ii) The Company shall pay the Employee a lump

sum severance payment equal to the lesser of (a)

200% of the Employee’s last five-year average annual

compensation including any bonuses and director’s

fees, or (b) 50% of the number of years, or fraction

thereof, remaining until the Employee’s normal re-

tirement date under the First Peoria Corp. Retire-

ment Plan times the Employee’s last five-year aver-

age annual compensation including any bonuses and

director’s fees.

(iii) The Company shall pay the Employee a month-

ly payment of an amount equal to the deferred

pension amount payable under the First Peoria Corp.

Retirement Plan at age 65, assuming a life only

option, from the date of termination of the Employ-

ee’s employment until he attains the age of 65 or

until he begins receiving benefits under the First

Peoria Corp. Retirement Plan, whichever occurs first.

R.7, Ex.A at 3 J 3. Paragraph four placed a limitation on

the payment of any benefits that may become due under

the Agreement. The provision, entitled “Limitation on

Amounts Payable,” provided:

Notwithstanding anything contained in this Agree-

ment to the contrary, in the event any payment to be

made or benefit to be provided to the Employee

pursuant to this Agreement is deemed, in the sole

opinion of Company’s counsel, to be contingent on a

“change in ownership or control” or otherwise would

be subject to the provisions of Section 280G of the

_ Internal Revenue Code of 1986, as amended (the

Code), then the total amount of payments or benefits

= i a eee ery mats een ov > er

App. 4

to be provided to the Employee pursuant to this

Agreement shall be reduced so that the aggregate

present value of all said payments does not exceed

299% of the Employee’s Average Annual Compensa-

tion as defined in the Code.

R.7, Ex.A at 3-4 7 4.A. In addition, First Peoria promised

to use its best efforts to require any successor to assume

expressly the obligations of the Agreement. Mr. Cvelbar’s

right to payments was to vest at the time of his termina-

tion, and Judith A. Cvelbar was to receive the benefits in

the event that Mr. Cvelbar died after termination with

benefits remaining.

On June 1, 1992, the bank merged with CBI Illinois,

Inc. As a result of the merger, CBI assumed the bank’s

duties under the Employer-Employee Agreement.’ CBI

terminated Mr. Cvelbar in October 1992. In his affidavit,

Peter W. Callow, the President of CBI, testified that he

made the decision to terminate because Mr. Cvelbar

“exhibited a negative attitude toward the new ownership

at Commerce Bank after the merger which took place on

June 1, 1992.” R.19 at 2. After Mr. Cvelbar’s termina- |

tion, CBI made payments under the Agreement until

December 1994. At that time, CBI’s counsel, James L. |

Swarts, determined that, because some of the payments |

made to Mr. Cvelbar were “contingent on a ‘change in

ownership or control’ or otherwise . . . subject to the

* Paragraph 12.10 of the merger contract between CBI and |

First Peoria effected the assumption: “[T]he Surviving Corpo-

ration shall honor{ ] the obligations of [First Peoria] under the

five written Employer-Employee Agreements ... .” R.34, Ex.1.

This paragraph also provided that CBI would seek a letter rul-

ing from the Internal Revenue Service “with respect to certain

legal issues concerning payments” to be made under the Em-

ployer-Employee Agreements. Jd. First Peoria and CBI

to accept the resolution of the issues as determined by the

App. 5

provisions of Section 280G,” the limitation provision

contained in paragraph four applied.” Therefore, counsel

decided, Mr. Cvelbar no longer deserved benefits because

he already had been paid more than 299% of his Average

Annual Compensation.

B. Proceedings in the District Court

Mr. Cvelbar filed an action in state court alleging that,

under ERISA and state contract law, he was due contin-

ued benefits. After removal, the district court granted

partial summary judgment to CBI and denied partial

summary judgment to Mr. Cvelbar. Prior to the district

court’s grant of partial summary judgment, a magistrate

judge, in a report and recommendation to the district

court, had concluded that, under the four-part test of

Diak v. Dwyer, Costello & Knox, P.C., 33 F.3d 809 (7th

Cir. 1994), the Agreement is an ERISA plan, the rights

under which can be litigated in federal court. The mag-

istrate judge reasoned that a reasonable person reading

? Swarts relied on the legislative history of § 280G, the pro-

posed regulations interpreting § 280G, and the advice of

outside counsel. In addition, before making his determination,

Swarts reviewed paragraph 12.10 of the merger contract be-

tween First Peoria and CBI, see supra note 1. He also re-

viewed the request for a letter ruling that had been prepared

in accordance with paragraph 12.10, along with the IRS’s re-

sponse to the request.

The request for a letter ruling dated April 10, 1992 asked

whether the payments to be made under the five Employer-

Employee Agreements, including Mr. Cvelbar’s, would qualify

as “parachute payments” under § 280G of the Internal Reve-

nue Code of 1986. In a private letter ruling dated January 8,

1993, the IRS replied that “a reasonable value attributable to

th{e] refraining from performing services [under the Agree-

ments’ covenants not to compete] will not be a parachute pay-

ment under section 280G(b\2\XA).” R.34, Ex.3.

App. 6

the Agreement “‘could ascertain the intended benefits,

beneficiaries, source of financing, and procedures for

receiving the benefits.’” R.5 at 3 (quoting Diak, 33 F.3d

at 812). Before the district court, neither party objected

to the magistrate judge’s determination, and the district

court did not address independently the issue of subject

matter jurisdiction.

With respect to the merits, the parties contested

whether the benefit payments qualify as “parachute

payments” under 26 U.S.C. § 280G. Mr. Cvelbar urged

that, because the payments did not constitute such

payments, the limitation provision of the Agreement did

not apply, and he was entitled to continued payments.

However, the district court agreed with CBI that wheth-

er the payments to Mr. Cvelbar were actually parachute

payments is irrelevant because the Agreement gives dis-

cretion to CBI’s counsel to resolve that matter. There-

fore, the controlling issue, according to the court, was

whether CBI’s counsel’s determination that the pay-

ments were contingent on a change in ownership or

control was arbitrary or capricious. See Firestone Tire &

Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). The court

held that CBI’s interpretation was reasonable in light of

the IRS’s Proposed Regulations.

In its order rendering partial summary judgment, the

district court ordered the parties to submit status reports

detailing the issues, if any, that remained to be litigated.

In his status report, Mr. Cvelbar submitted that the

court ought to determine “what part of the payments

{[Mr. Cvelbar] received are ‘parachute payments.’” R.41.

Referring to its earlier order, the district court concluded

that this assertion failed to raise issues that were rele-

vant to Mr. Cvelbar’s ERISA claim because he had not

established that the action of the administrator in

terminating payments was arbitrary or capricious. The

court then determined that its earlier grant of partial

summary judgment had resolved all of the issues be-

App. 7

tween the parties and entered final judgment in favor of

CBI.

II

DISCUSSION

On appeal, Mr. Cvelbar suggests for the first time that

his Agreement is not a “plan” within the meaning of

ERISA. He contends that individual contracts between

individual employees and employers providing for post-

termination benefits do not qualify as “plans” under

ERISA. He also maintains that the Agreement does not

satisfy our Diak test because a reasonable person read-

ing the three benefits-providing clauses could not ascer-

tain the source of funding or the procedures for receiving

the benefits. CBI responds that the Agreement is a “top-

hat” plan, an ERISA plan that provides benefits for a

select group of highly-paid managers.

After studying the briefs of the parties and hearing

oral argument, the court invited the Secretary of Labor

to submit a brief, as amicus curiae, addressing whether

the district court had subject matter jurisdiction.* In his

submission, to which the parties had the opportunity to

respond, the Secretary submits that the Agreement is a

plan, meeting the requirements of Fort Halifax Packing

Co. v. Coyne, 482 U.S. 1 (1987) and Diak. The Secretary,

° The Secretary has been charged by Congress with respon-

sibility for interpreting and enforcing the definitional, cover-

age, reporting and disclosure, and fiduciary responsibility pro-

visions of Title I of ERISA. See 29 U.S.C. §§ 1132, 1135. The

Secretary therefore has a substantial interest in the proper

interpretation of the provisions of ERISA that are at issue in

this case.

The court expresses its appreciation to the Secretary for

accepting the court’s invitation to submit a brief as amicus

curiae.

App. 8

although pointing out that CBI had agreements similar

to Mr. Cvelbar’s with five other employees, maintains

that an ERISA plan can cover a single employee.

Mr. Cvelbar next asserts that, even if the Agreement

is a plan, CBI’s termination of benefits was based on an

arbitrary or capricious interpretation of the Agreement’s

limitation provision. Mr. Cvelbar further submits that

extrinsic evidence, including the requested letter ruling

in which the IRS opined that the part of Mr. Cvelbar’s

benefits that could be allocated to the covenant not to

compete was not covered by § 280G, establishes that

counsel’s interpretation was unreasonable. CBI, on the

other hand, believes that the terms of the Agreement are

clear and support the decision of the district court.

We must deal with two issues. First, we must decide

whether the federal courts have subject matter jurisdic-

tion over this case on the ground that the Agreement is

a “plan” under ERISA. Second, if we determine that

ERISA controls, we must determine whether CBI’s de-

cision that some of Mr. Cvelbar’s benefit payments were

contingent on a change in ownership or control or other-

wise were covered by 26 U.S.C. § 280G was arbitrary or

capricious.

A. Subject Matter Jurisdiction

“(T]he existence of an ‘ERISA-governed plan’ is an

essential precursor to federal jurisdiction.” UJU Sever-

ance Pay Trust Fund v. Local Union No. 18-U, United

Steelworkers of America, 998 F.2d 509, 510 n.2 (7th Cir.

1993). Therefore, if Mr. Cvelbar’s agreement is not an

ERISA “plan,” the district court had no subject matter

jurisdiction. It is not fatal that Mr. Cvelbar contended in

theedistrict court that his agreement is a plan. Nor is it

fatal that neither party objected to the magistrate

judge’s conclusion that the district court had subject

matter jurisdiction. Subject matter jurisdiction “cannot

—

App. 9

be waived or be overcome by an agreement of the

parties.” Mitchell v. Maurer, 293 U.S. 237, 244 (1934). A

challenge to subject matter jurisdiction can be raised at

any time. Indeed, had Mr. Cvelbar not raised the issue

in this appeal, we would have had an independent duty

to assess sua sponte our jurisdictional power. See id.;

Stearnes v. Baur’s Opera House, Inc., 3 F.3d 1142, 1144

(7th Cir. 1993).

In assessing whether the district court had jurisdiction,

we must determine whether the Agreement between Mr.

Cvelbar and CBI is an ERISA plan. We begin with the

text of the statute. ERISA section 502(aX1\B) states

that “[a] civil action may be brought—{1) by a par-

ticipant or beneficiary—(B) to recover benefits due

to him under the terms of his plan [or] to enforce his

rights under the terms of the plan ....” 29 U.S.C.

§ 1132(a)(1)B) (bold face omitted). Section 3(3), in turn,

states that “‘plan’ means an employee welfare benefit

plan or an employee pension benefit plan or a plan which

is both... .” 29 U.S.C. § 1002(3). An “employer welfare

benefit plan” is “any plan, fund, or program .. . estab-

lished or maintained by an employer . . . for the purpose

of providing ... medical, surgical, or hospital care or

benefits, or benefits in the event of sickness, accident,

disability, death or unemployment.” 29 U.S.C. § 1002(1).*

* 29 U.S.C. § 1002(1) provides in full:

The terms “employee welfare benefit plan” and “welfare

plan” mean any plan, fund, or program which was hereto-

fore or is hereafter established or maintained by an em-

ployer or by an employee organization, or by both, to the

extent that such plan, fund, or program was established or

is maintained for the purpose of providing for its partic-

ipants or their beneficiaries, through the purchase of in-

surance or otherwise, (A) medical, surgical, or hospital

care or benefits, or benefits in the event of sickness, acci-

dent, disability, death or unemployment, or vacation bene-

(continued...)

App. 10

An “employee pension benefit plan” is “any plan, fund, or

program ... established or maintained by an employer

... that ... provides retirement income to employees,

or ... results in a deferral of income.” 29 U.S.C.

§ 1002(2)A).° Whether we have jurisdiction over this

case turns, therefore, on whether the Agreement is a

“plan, fund, or program.” As the Supreme Court noted in

Fort Halifax, these statutory definitions are tautological.

482 U.S. at 8. The statute’s definitions of “plan,” “em-

ployee welfare benefit plan” and “employee pension bene-

fit plan” all contain the word “plan” within their defini-

tions. To complete our analysis, therefore, we must look

* (...continued)

fits, apprenticeship or other training programs, or day care

centers, scholarship funds, or prepaid legal services, or (B)

any benefit described in section 186(c) of this title (other

than pensions on retirement or death, and insurance to

provide such pensions).

Id.

® 29 U.S.C. § 1002(2\A) provides in full:

Except as provided in subparagraph (B), the terms “em-

ployee benefit plan” and “pension plan” mean any plan,

fund, or program which was heretofore or is hereafter

established or maintained by an employer or by an em-

ployee organization, or by both, to the extent that by its

express terms or as a result of surrounding circumstances

such plan, fund, or program—

(i) provides retirement income to employees, or

(ii) results in a deferral of income by employees for

periods extending to the termination of covered em-

ployment or beyond,

regardless of the method of calculating the contributions

made to the plan, the method of calculating the benefits

under the plan or the method of distributing benefits from

the plan.

Id.

App. 11

beyond the language of the statute; the precedents of the

Supreme Court, this court, and the other circuits provide

additional guidance. Those cases teach that an ERISA

plan requires an ongoing administrative scheme, id. at

12, and that its terms must be reasonably ascertainable,

Diak v. Dwyer, Costello & Knox, P.C., 33 F.3d 809, 812

(7th Cir. 1994).

1. Ongoing Administrative Scheme

a.

In Fort Halifax, the Supreme Court considered a

Maine statute that required employers who terminate or

relocate operations to pay a lump-sum payment to their

employees. The Court held that the Maine statute did

not establish, or require employers to maintain, an

ERISA plan:

The requirement of a one-time, lump-sum payment

triggered by a single event requires no administra-

tive scheme whatsoever to meet the employer’s ob-

ligation. The employer assumes no responsibility to

pay benefits on a regular basis, and thus faces no

periodic demands on its assets that create a need for

financial coordination and control. Rather, the em-

ployer’s obligation is predicated on the occurrence of

a single contingency that may never materialize. The

employer may well never have to pay the severance

benefits. To the extent that the obligation to do so

arises, satisfaction of that duty involves only making

a single set of payments to employees at the time the

plant closes. To do little more than write a check

hardly constitutes the operation of a benefit plan.

Once this single event is over, the employer has no

further responsibility. The theoretical possibility of a

one-time obligation in the future simply creates no

need for an ongoing administrative program for proc-

essing claims and paying benefits.

App. 12

482 U.S. at 12 (footnote omitted). The lump-sum nature

of the Maine obligation weighed heavily in the Court’s

analysis because an ongoing administrative program

typically is required in instances in which there are

“ongoing benefits to be paid,” id. at 14-15 n.9, and if

there is a “regularity of payment,” id. at 18 n.12.

Fort Halifax does not define comprehensively the pre-

cise contours of an “ongoing administrative program.”

The subsequent case law of the circuits, however, has

provided significant guidance. For instance, our col-

leagues in the Eighth Circuit have set forth in a helpful

manner the difference between the situation in Fort

Halifax and those situations that require the implemen-

tation of an administrative scheme:

The pivotal inquiry is whether the plan requires the

establishment of a separate, ongoing administrative

scheme to administer the plan’s benefits. Simple or

mechanical determinations do not necessarily require

the establishment of such an administrative scheme;

rather, an employer’s need to create an administra-

tive system may arise where the employer, to deter-

mine the employee’s eligibility for and level of bene-

fits, must analyze each employee’s particular circum-

stances in light of the appropriate criteria.

Kulinski v. Medtronic Bio-Medicus, Inc., 21 F.3d 254, 257

(8th Cir. 1994).

The distinction between situations such as the one

confronted by the Supreme Court in Fort Halifax and

those that are characterized properly as plans is neces-

sarily a “matter of degrees but under Fort Halifax

degrees are crucial.” Simas v. Quaker Fabric Corp., 6

F.3d 849, 853 (1st Cir. 1993). As the Secretary of Labor

notes, when, as in this case, the judicial task is to

distinguish between individual severance benefit con-

tracts and those situations that constitute ERISA plans,

some “difficult line-drawing problems” can result. Amicus

App. 13

Br. at 13. For instance, our case law in this area has

noted that there can be severance agreements that are

properly characterized as simple contracts between an

employee and employer and do not constitute plans

under ERISA. These contractual arrangements often

bind an employer to enroll, or to keep enrolled, an em-

ployee in a pension or welfare benefit plan but do not in

and of themselves constitute a benefit plan.® Other cir-

cuits have encountered similar situations.’ In the case

before us, for the reasons set forth in the following para-

graphs, we agree with the Secretary that, when assessed

in its totality, the arrangement before us does constitute

a plan. We cannot accept Mr. Cvelbar’s claim that the

° See Dranchak v. Akzo Nobel Inc., 88 F.3d 457, 459 (7th Cir.

1996) (noting that it is possible to draft severance agreements

that are “unrelated” to a “plan,” but noting that contract spe-

cifying how much to disburse from pension and welfare trusts

in event of discharge is covered by ERISA); Nagy v. Riblet

Prods. Corp., 79 F.3d 572 (7th Cir. 1996) (holding suit as to

whether employee was discharged for “cause” is a state law

based employment action despite presence of provision re-

quiring that employee continue to receive all salaries, benefits,

bonuses, and other direct and indirect forms of compensation

in case of discharge without cause); Miller v. Taylor Insulation

Co., 39 F.3d 755 (7th Cir. 1994) (discussing contract that

required participation in benefit plans as “related” to ERISA

plan but not constituting distinct benefit plan).

” See Delaye v. Agripac, Inc., 39 F.3d 235 (9th Cir. 1994)

(holding that contract calling for the continuation of pay at one

of two set formulas depending upon reason for termination

and for the continuation of insurance and vacation benefits

was not a plan because sending a single employee a check

every month and continuing to pay his insurance benefits for

a time specified in the contract does not rise to the level of an

ongoing scheme), cert. denied, 115 S. Ct. 1402 (1995); Angst v.

Mack Trucks, Inc., 969 F.2d 1530 (3d Cir. 1992) (holding that

promise to pay lump sum and a year of continuing benefits in

exchange for an employee’s voluntary departure did not con-

stitute a plan).

Se ME thn” ep ee ee ek ge ee

App. 14

Agreement is a contract between an employer and indi-

vidual employee providing for post-retirement or post-

termination in-kind compensation that falls outside the

definitional framework of ERISA.

b.

In the determination of whether an ERISA plan exists,

arrangements that involve a single employee quite un-

derstandably have been met with a particularly careful

scrutiny. In such situations, it is often more difficult to

discern the sort of ongoing administrative management

that Congress intended to subject to the regulation of

ERISA. At the outset, therefore, we think that it is

worth noting that it is not at all clear that it is appropri-

ate to characterize the situation before us as a “one-per-

son” plan. From Mr. Cvelbar’s own affidavit, it appears

that First Peoria signed similar contracts with four other

top employees as part of an effort to retain top manage-

ment during uncertain economic times. Indeed, the intro-

duction of the Agreement states that its purpose is to

obtain the loyalty of management-level employees. When

counsel requested an opinion from the IRS about the tax

treatment of Mr. Cvelbar’s benefits, he referred to four

similar contracts. The same mention was made in the

First Peoria-CBI merger agreement and in the minutes

of meetings of the First Peoria Board of Directors.

Even if we must characterize the arrangement before

us as a one-person plan, we have no difficulty in holding

that it is possible for a one-person arrangement to qual-

ify as an ERISA plan. Certainly, the plain language of

ERISA in no way excludes from coverage those situations

in which only one employee is extended benefits. See

Williams v. Wright, 927 F.2d 1540, 1545 (11th Cir. 1991)

(also noting that ERISA’s predecessor statute expressly

excluded plans covering less than 25 employees). “ERISA

is clearly a statute of general application, one that en-

App. 15

visions inclusion within its ambit as the norm.” Smart v.

State Farm Ins. Co., 868 F.2d 929, 933 (7th Cir. 1989).

Moreover, the Department of Labor, although apparently

taking a different position in the early days of its ad-

ministration of the statute,* has concluded, and, indeed,

reasserts as amicus curiae in this case, that a contract

between one employee and an employer can be an em-

ployee benefit plan. See Biggers v. Wittek Indus., 4 F.3d

291, 298 (4th Cir. 1993) (citing U.S. Dep’t of Labor Op.

Letter 91-20 A (July 2, 1991) and holding ERISA plan

covered one employee); 29 C.F.R. § 2510.3-3(b) (“[A]

Keogh plan under which one or more common law em-

ployees, in addition to the self-employed individuals, are

participants covered under the plan, will be covered

* See U.S. Dep’t of Labor Op. Letter 76-110 (Sept. 28, 1976)

(stating that individual contract to provide personal services

did not constitute a pension benefit plan under ERISA); U.S.

Dep't of Labor Op. Letter 76-79 (May 25, 1976) (stating that

the contract under consideration was an employment agree-

ment, not an ERISA plan); Jervis v. Elerding, 504 F. Supp.

606, 608 (C.D. Cal. 1980); see also Fraver v. North Carolina

_ Farm Bureau Mut. Ins. Co., 801 F.2d 675, 677-78 (4th Cir.

' 1986) (citing Jervis and holding that the buy-out agreements

at issue “were simply employment or agency contracts” that do

not pay retirement income), cert. denied, 480 U.S. 919 (1987);

Nechero v. Provident Life & Accident Ins. Co., 795 F. Supp.

374, 377 (D.N.M. 1992) (citing Jervis and stating that “ERISA

does not reach purely individual contracts”); Lackey v. White-

hall Corp., 704 F. Supp. 201, 204 (D. Kan. 1988) (citing Jervis

and holding that contract’s “deferred compensation provisions

are terms included as part of the employment agreements with

select individuals, and not an ERISA covered benefit plan”),

amended by Civ. A. No. 85-2639-S, 1989 WL 21008 (D. Kan.

Feb. 23, 1989); McQueen v. Salida Coca-Cola Bottling Co., 652

F. Supp. 1471, 1472 (D. Colo. 1987) (citing Jervis and holding

that, although Jervis did not establish a per se rule that an

ERISA plan can never cover just one employee, the deferred

compensation agreement at issue was a “personal services con-

tract,” not an ERISA plan).

ee

p

;

y

7

App. 16

under Title I [of ERISA].”). Although the position of the

Secretary, even when contained in an opinion letter of

the Department, is not binding upon this court, the

views of the agency charged with the administration of

the statute carry considerable weight. See Williams, 927

F.2d at 1544. We therefore agree with the courts that

have decided that, as long as the benefits program meets

the other requirements of an ERISA plan—namely, an

ongoing administrative scheme and reasonably ascertain-

able terms—the program does not fall outside the ambit

of ERISA merely because it covers only a single employ-

ee. See id. at 1545 (“[W]e conclude that a plan covering

only a single employee, where all other requirements are

met, is covered by ERISA.”) (footnotes omitted); cf.

Duggan v. Hobbs, 99 F.3d 307, 312 (9th Cir. 1996)

(holding that contract between one top executive and

company established a “top-hat” plan). Because we have

concluded that the Agreement in this case meets those

requirements, its status as an ERISA plan does not

evaporate just because the Agreement is a contract be-

tween Mr. Cvelbar and the company.

Cc.

When we turn to a scrutiny of the entire arrangement

that Mr. Cvelbar had with his employer, we must con-

clude that the Agreement constituted a plan to admin-

ister the benefits provided. Under the Agreement, the

severance benefits were to be provided for three years

following termination. Although triggered by the single

event of Mr. Cvelbar’s termination, the benefits extended

to Mr. Cvelbar are not similar to the “one-time, lump-

sum payment” considered in Fort Halifax, 482 U.S. at 12.

CBI assumed a “responsibility to pay benefits on a reg-

ular basis” and faced “periodic demands on its assets

that create a need for financial coordination and control.”

Id. During the three-year period after termination, the

Agreement required that CBI process medical claims,

App. 17

pay medical benefits to Mr. Cvelbar and his dependents,

and make a monthly payment. Moreover, the contract in

this case placed on First Peoria and CBI an ongoing

responsibility to review the contract annually, while Mr.

Cvelbar was still employed and the benefits had not yet

vested, in order to decide whether to extend its terms for

additional years. The companies thus undertook an on-

going responsibility different from that considered in

Fort Halifax and similar to those the Supreme Court

described as requiring an ongoing administrative pro-

gram. In sum, to carry out the obligations assumed

under Mr. Cvelbar’s contract, CBI and First Peoria had

to do more than merely “write a check.” Jd.

One factor to be considered in deciding “which obliga-

tions are complex enough to require” an ongoing admin-

istrative program, Schonholz v. Long Island Jewish Med.

Center, 87 F.3d 72, 76 (2d Cir.), cert. denied, 117 S. Ct.

511 (1996), is “whether the employer's undertaking or

obligation requires managerial discretion in its adminis-

tration.” Id. (citing Bogue v. Ampex Corp., 976 F.2d 1319,

1323 (9th Cir. 1992), cert. denied, 507 U.S. 1031 (1993));

see James v. Fleet/Norstar Fin. Group, Inc., 992 F.2d 463,

468 (2d Cir. 1993). Mr. Cvelbar’s agreement required the

exercise of such discretion. CBI initially had to deter-

mine the reason for Mr. Cvelbar’s termination. He

° See Schonholz, 87 F.3d at 76 (holding that the plan at issue

required more than “simple arithmetical calculations” and

necessitated managerial discretion because company had to

determine, inter alia, “whether the employee was involuntarily

terminated” and “whether the termination was for either ille-

gal conduct or substantially deficient performance”); Simas v.

Quaker Fabric Corp., 6 F.3d 849, 853-54 (1st Cir. 1993) (hold-

ing that whether an employee was fired “for cause” is a non-

mechanical criterion which created the need for administrative

obligations); Bogue, 976 F.2d at 1323 (similar); Fontenot v. NL

Indus., 953 F.2d 960, 963 (5th Cir. 1992) (noting that an ad-

(continued...)

App. 18

would not have been eligible for benefits if he had, for

example, retired or willfully engaged in fraud. Moreover,

the company had to monitor whether Mr. Cvelbar com-

peted against the company within three years of termi-

nation. If Mr. Cvelbar breached the covenant not to com-

pete, he would lose the right to benefits and would have

to refund any payments that had been made under the

Agreement.’° Once the payments were underway, CBI

had to monitor the amount paid to Mr. Cvelbar. If, in the

sole opinion of CBI’s counsel, any of the payments due

under the Agreement were parachute payments, the

payments to Mr. Cvelbar were limited to 299% of his

® (...continued)

ministrative scheme is required to analyze the circumstances

of employee’s discharge in light of criteria, but holding that

program at issue did not require administrative scheme be-

cause employees were to receive benefits regardless of reason

for termination).

© Paragraph 2 of the Agreement provided:

The Employee agrees that for a period of three years

from the date of termination, the Employee will not

become employed as an agent, consultant, employee, offi-

cer or director of (i) a commercial bank, savings and loan

association, savings bank or trust company with an office

located in the Standard Metropolitan Statistical Area en-

compassing the City of Peoria, Illinois, as such area is

defined by the U.S. Office of Management and Budget (the

Peoria SMSA) or (ii) a bank holding company (as defined

in the Bank Holding Company Act, 12 U.S.C. sec. 1841)

which has an office, or has a subsidiary with an office,

located in the Peoria SMSA.

If the Employee breaches the terms of this paragraph,

this Agreement shall terminate, no payments or benefits

shall become payable thereafter, and all payments made

under this Agreement shall be refunded by the Employee

to the Company.

R.7, Ex.A at 2 ¥ 2.

App. 19

Average Annual Compensation. The company also had to

reevaluate the Agreement every year to determine

whether it should be extended another year. All of these

tasks required the exercise of managerial discretion."

The payments to be made to Mr. Cvelbar could not be

determined by simple arithmetical computations.’ The

medical benefits would vary over time, depending on the

health needs of Mr. Cvelbar and his dependents. In

addition, the contract extended medical coverage “under

the group medical plan on the same terms and conditions

as are then available to a retiree of the First Peoria

Corp. Retirement Plan in effect at that time.” R.7, Ex.A

at 3 { 3(i). Likewise, Mr. Cvelbar’s monthly payments

were to be “equal to the deferred pension amount pay-

able under the First Peoria Corp. Retirement Plan at age

65, assuming a life only option.” Jd. at 3 4 3(iii). The

payments were to be made “from the date of termination

.. . until [Mr. Cvelbar] attain[ed] the age of 65 or until

he begian] receiving benefits under the First Peoria

Corp. Retirement Plan, whichever occur[red] first.” Id. To

determine Mr. Cvelbar’s eligibility and level of benefits,

the company had to analyze his circumstances in light of

First Peoria’s existing retirement plan. The benefits to be

paid Mr. Cvelbar therefore could not be calculated mech-

anically without administrative involvement.” By refer-

'' See, e.g., Pane v. RCA Corp., 868 F.2d 631, 635 (3d Cir.

1989) (holding that severance agreements with small number

of executives constituted an ERISA plan because it required

an administrative scheme).

12 See James v. Fleet/Norstar Fin. Group, Inc., 992 F.2d 463,

468 (2d Cir. 1993) (holding that “simple arithmetical calcu-

lations and clerical determination” did not require an adminis-

trative plan).

'° See Kulinski, 21 F.3d at 255, 257-58 (noting that analyzing

employee’s circumstances in light of criteria may necessitate

(continued...)

App. 20

encing the First Peoria Corp. Retirement Plan, the

Agreement not only required that the existing plan be

maintained, but it required the company to make admin-

istrative determinations about coverage and eligibility,

determinations that were not simple mechanical calcu-

lations.

2. Reasonably Ascertainable Terms

We have determined that the Agreement necessitated

the establishment and maintenance of an ongoing ad-

ministrative program. -n addition, “{iln determining

whether a plan, fund or program (pursuant to a writing

or not) is a reality a court must determine whether from

the surrounding circumstances a reasonable person could

ascertain the intended benefits, beneficiaries, source of

financing, and procedures for receiving benefits.’” Diak

v. Dwyer, Costello & Knox, P.C., 33 F.3d 809, 812 (7th

Cir. 1994) (quoting Donovan v. Dillingham, 688 F.2d

1367, 1373 (11th Cir. 1982) (en banc))."* Although the

concerns underlying Diak are more acute when no writ-

ing exists to evidence the plan, a writing, standing alone,

is not enough to convert a contract into an ERISA plan.

3 (...continued)

an administrative scheme and holding that agreements that

were “entirely self-contained—{they] included no references to

any outside criteria or standards’—were not ERISA plans);

Simas, 6 F.3d at 853 (noting that discretion was involved in

statute that cross-referenced other provisions that required

the employer to determine whether the employee was fired for

cause).

4 Every circuit has adopted the Donovan approach for deter-

mining whether an ERISA plan has been created. See Grimo

v. Blue Cross/Blue Shield, 34 F.3d 148, 151 (2d Cir. 1994);

Kenney v. Ronald Parson Contracting Corp., 28 F.3d 1254,

1257-58 (D.C. Cir. 1994) (collecting cases from the First, Third,

Fourth, Fifth, Sixth, Eighth, Ninth and Tenth Circuits).

App. 21

Some of these criteria are not in serious dispute in this

case. A reasonable person easily could ascertain the

benefits and beneficiaries of the Agreement. The benefits

are listed explicitly in the Agreement. Mr. Cvelbar was

to receive medical benefits, a lump-sum payment and a

monthly payment. Similarly, the beneficiaries are explicit

in the Agreement. The Agreement listed Mr. Cvelbar, his

dependents and Judith Cvelbar as beneficiaries.

Mr. Cvelbar nevertheless insists that the source of

financing and the procedures for receiving benefits are

not reasonably ascertainable. We cannot agree. We held

in Diak that the “payment of benefits out of general

funds satisfies the requirement of an ascertainable

source of funding.” 33 F.3d at 813. As in Diak, a reason-

able reading of the Agreement in this case leads to the

conclusion that the medical benefits, lump sum and

monthly payments were to be paid out of CBI’s general

funds. Moreover, because the Agreement references First

Peoria’s existing retirement plan, an examination of that

plan would reveal the source of funds for the program

upon which Mr. Cvelbar’s terms were based.

Lastly, the procedures for Mr. Cvelbar’s obtaining

benefits were reasonably clear. By the terms of the

Agreement, for him to become eligible and for his bene-

fits to vest, Mr. Cvelbar would have to be terminated,

voluntarily or involuntarily, as conditioned by the con-

tract. He was entitled to a lump sum at the time of his

termination. The medical coverage was to be made avail-

able at that time, and the terms and conditions of such

coverage were contained in the First Peoria Corp. Re-

tirement Plan. In addition, upon termination, he was to

receive a payment each month. Consequently, a reason-

able person could ascertain the procedures for receiving

the Agreement’s benefits.

App. 22

B. CBI’s Decision to Terminate Payments

Mr. Cvelbar challenges CBI’s decision to invoke the

limitation provision of the Agreement, thereby terminat-

ing Mr. Cvelbar’s benefits. His “claim for severance

benefits is a matter of contract interpretation.” Hickey v.

A.E. Staley Mfg., 995 F.2d 1385, 1389 (7th Cir. 1993). In

interpreting the Agreement, the district court was under

a duty to determine whether the limitation provision was

ambiguous. Jd. If no ambiguity exists, extrinsic evidence

should not be considered, and summary judgment is

appropriate. Ryan v. Chromalloy American Corp., 877

F.2d 598, 602 (7th Cir. 1989). “A term is ambiguous if it

is subject to reasonable alternative interpretations.”

Taylor v. Continental Group Change in Control Severance

Pay Plan, 933 F.2d 1227, 1232 (3d Cir. 1991).

The limitation provision in this case provided that the

present value of the benefits to Mr. Cvelbar would not

exceed 299% of his Average Annual Compensation if, “in

the sole opinion of Company’s counsel,” “any payment”

provided under the Agreement was “contingent on a

‘change in ownership or control’ or otherwise . . . subject

to the provisions of Section 280G of the Internal Revenue

Code of 1986.” R.7, Ex.A at 3-4 4 4.A. CBI’s counsel

decided that some of the payments to Mr. Cvelbar were

so contingent. The district court correctly concluded that

the limitation provision was not ambiguous. By its

terms, it vests sole discretion in company counsel to

determine whether any of Mr. Cvelbar’s payments were

parachute payments and therefore subject to the limita-

tion provision.

Because the plan vests this discretion in its adminis-

trators to construe the limitation provision’s terms, “the

arbitrary and capricious standard of review is proper.”

Loyola Univ. of Chicago v. Humana Ins. Co., 996 F.2d

895, 898 (7th Cir. 1993); Allison v. Dugan, 951 F.2d 828,

832 (7th Cir. 1992); see Firestone Tire & Rubber Co. v.

Bruch, 489 U.S. 101, 115 (1989). “Under the arbitrary

App. 23

and capricious standard, a denial of benefits will not be

set aside if the denial was based upon a reasonable

interpretation of the plan documents.” Loyola Univ. of

Chicago, 996 F.2d at 898. “If the administrator makes an

informed judgment and articulates an explanation for it

that is satisfactory in light of the relevant facts, then the

administrator’s decision is final.” Id. We emphasize that,

in reviewing the determination of CBI’s counsel, it is not

our function to assess definitively whether we, if faced

directly with the § 280G-coverage issue, would reach the

same conclusion or even rely on the same authority. We

need not decide whether any of Mr. Cvelbar’s payments

were actually parachute payments; we must decide mere-

ly whether such a determination is reasonable and there-

fore not arbitrary or capricious. It matters not whether

counsel’s interpretation of the tax laws was actually

correct, but whether that interpretation was reasonable.

Cf. Brown v. Rauscher Pierce Refsnes, Inc., 994 F.2d 775,

781 (11th Cir. 1993) (“For an [arbitration] award to be

vacated as arbitrary and capricious, the Panel’s award

must contain more than an error of law or interpreta-

tion.”). Without passing on the question whether any of

Mr. Cvelbar’s payments were parachute payments, we

hold that CBI’s counsel’s determination to that effect was

not arbitrary or capricious.

CBI’s counsel’s determination that some of the benefit

payments to Mr. Cvelbar were contingent on a change in

ownership or control or otherwise subject to § 280G of

the Internal Revenue Code was reasonable. Section 280G

defines a “parachute payment” as “any payment in the

nature of compensation . . . if—{i) such payment is

contingent on a change—{I) in the ownership or effective

control of the corporation, or (II) in the ownership of a

substantial portion of the assets of the corporation, and

(ii) the aggregate present value of the payments .. .

exceeds” a certain amount. 26 U.S.C. § 280G(bX2)A)

(bold face omitted). The legislative history of the section,

App. 24

found in the House Conference Report, contains exam-

ples of parachute payments. One of the examples of a

payment that is contingent on a change in ownership or

control reads:

Assume that a contract provides for payments to a

disqualified individual contingent upon termination

of his employment. A change of control occurs, and

thereafter, as a result of the change, the employment

of the individual is terminated. Payments under the

contract are to be treated as contingent on the

change in control.

H.R. Conf. Rep. No. 98-861, at 850-51 (1984), reprinted

in 1984 U.S.C.C.A.N. 1445, 1539. This legislative history

supports CBI’s interpretation of Mr. Cvelbar’s payments.

His contract made his payments contingent upon his

termination. A change in control, a merger, occurred. Mr.

Cvelbar’s termination resulted because, according to

CBI’s president, he did not get along with the post-

merger management. CBI’s interpretation of the Agree-

ment’s benefits, therefore, reasonably is supported by the

House Conference Report, a document upon which we

have relied as an authority in another case, see Cline v.

Commissioner, 34 F.3d 480, 486 (7th Cir. 1994).

In addition to the House Conference Report, the Pro-

posed Regulations provide support for counsel’s interpre-

tation of Mr. Cvelbar’s benefits. One Proposed Regulation

states:

A payment is also generally treated as contingent on

a change of ownership or control if—({1) The payment

is contingent on an event that is closely associated

with a change in ownership or control, (2) A change

in ownership or control actually occurs, and (3) The

event is materially related to the change in owner-

ship or control.

Prop. Treas. Reg. § 1.280G-1, Q&A-22(b). The Proposed

Regulation lists the termination of employment as an

App. 25

example of “an event that is closely associated with a

change in ownership or control.” This Proposed Regula-

tion reasonably supports counsel’s decision that some of

Mr. Cvelbar’s payments were contingent on a change in

ownership or control: His benefits were contingent on his

termination, an event the Proposed Regulation classifies

as one closely associated with a change in control. The

change actually occurred in the form of a merger.

Because Mr. Cvelbar’s termination occurred within one

year of the merger, according to the Proposed Regulation,

it is presumed to be “materially related” to the change in

control. Id. Apart from the presumption, his termination,

in fact, may have been “materially related” to the change

in control insofar as Mr. Cvelbar was unhappy with the

new management that resulted from the merger."®

In his affidavit, CBI’s counsel stated that he also relied

on the merger contract between CBI and First Peoria,

the request for an IRS letter ruling and the letter ruling

itself in arriving at his conclusion to terminate Mr.

Cvelbar’s benefits. The merger agreement required CBI

to obtain a ruling from the IRS. That ruling stated that

a portion of Mr. Cvelbar’s benefits, the portion that could

be allocated to the covenant not to compete, was not a

parachute payment. Counsel’s determination is consis-

tent with the requested letter ruling. The ruling stated

that a portion of the payments was not covered by

§ 280G. The limitation provision of the Agreement

arplies, however, if “any payment” to Mr. Cvelbar was

covered by § 280G. Therefore, our conclusion that coun-

sel’s actions were reasonable is not affected by the

merger agreement or the letter ruling. Indeed, that coun-

sel examined these documents before coming to a de-

‘See also Prop. Treas. Reg. § 1.280G-1, Q&A-22(e) (stating,

as an example, a situation resembling Mr. Cvelbar’s and not.

ing that such payments are presumed to be contingent on a

change in control). ;

App. 26

cision bolsters our conclusion that his decision was an

informed judgment.

Conclusion

For the foregoing reasons, the judgment of the district

court is affirmed.’

AFFIRMED

A true Copy:

Teste: .

Clerk of the United States Court of

Appeals for the Seventh Circuit

6 Mr. Cvelbar also submits that the district court entered

summary judgment “sua sponte.” The district court, after

granting partial summary judgment to CBI, requested that the

parties present a statement to the court detailing which issues

remained to be litigated. In response, Mr. Cvelbar’s only sub-

mission was that the court needed to decide “what part of the

payments [Mr. Cvelbar] received are ‘parachute payments.’ ”

R.41. The district court correctly decided that this submission

was irrelevant. Counsel’s determination that “any payment”

was contingent on a change in ownership or control activated

the limitation provision. Therefore, it mattered not what

specific portion of Mr. Cvelbar’s benefits could be allocated to

parachute payments as opposed to payments for the covenant

not to compete. Under the plain language of the plan, if any

payment was a parachute payment, the total amount of pay-

ments was governed by the 299% limit. Because Mr. Cvelbar

failed to raise a genuine issue of material fact, summary

judgment was appropriate. See Fed. R. Civ. P. 56; Chicago

Observer, Inc. v. City of Chicago, 929 F.2d 325, 329 (7th Cir.

1991) (“Once it becomes clear that additional proceedings are

pointless, the court should bring the case to a close.”). The

district court’s entry of final judgment, in response to Mr.

Cvelbar’s failure, was not erroneous.

_—

App. 27

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

April 10, 1997.

Before

Hon. JOHN L. Correy, Circuit Judge

Hon. KENNETH F. RIPPLE, Circuit Judge

Hon. TERENCE T. Evans, Circuit Judge

ANTHONY W. CVELBAR,

Plaintiff-Appellant,

No. 96-1669 v.

CBI ILLINOIS INCORPORATED,

a Delaware Corporation,

Defendant-Appellee.

Appeal from the United States District Court

for the Central District of Illinois, Peoria Division.

No. 95 C 1127—Michael M. Mihm, Chief Judge.

ORDER

On consideration of the petition for rehearing and sug-

gestion for rehearing en banc filed on February 27, 1997

by plaintiff-appellant, no judge in active service has re-

quested a vote thereon, and the judges on the original

panel have voted to deny the petition. Accordingly,

IT IS ORDERED that the petition for rehearing and sug-

gestion for rehearing en banc be, and the same is hereby

DENIED.