The opinion of the court was delivered by: Castillo, District Judge.
Plaintiff James E. Koenig ("Koenig") sued Defendants Waste Management,
Inc. and Waste Management Holdings, Inc., alleging violations of the
Employee Retirement Income Security Act ("ERISA"),
29 U.S.C. § 1001-1461 (1999), and breach of his employment contract.
Koenig, a former corporate executive of Waste Management, seeks payment
of plan benefits earned under an executive compensation plan. Waste
Management has filed a motion to dismiss Koenig's amended complaint for
failure to state a claim. Fed. R.Civ.P. 12(b)(6). For the reasons set
forth below, Defendants' motion is denied.
In 1977, Koenig was hired by Waste Management, Inc. ("Old
he ultimately rose to the level of Chief Financial Officer ("CFO") and
Executive Vice President ("EVP"). In January 1988, Old Waste established
the Supplemental Executive Retirement Plan (the "SERF"), which provided
benefits to certain executive-level employees who had worked at the
company for at least 10 years. Under Section 9 of the SERP, benefits
could be forfeited if a plan participant engaged in competition with the
Company, was discharged for cause, or performed acts of willful
malfeasance or gross negligence. Furthermore, Section 13 of the SERP
prohibited amendments that reduced or impaired the benefits then currently
payable to a plan participant. The Compensation and Stock Options
Committee of Old Waste's Board of Directors administered the SERP, and
Koenig was at all relevant times a participant in the SERP.
In January 1997, Koenig resigned as CFO of Old Waste but retained his
position as EVP until October 31, 1997. At that time, Koenig resigned the
EVP position as well, remaining as an employee of Old Waste without
regularly assigned duties. Koenig was not awarded bonuses or other
incentive compensation in either 1997 or 1998.
In March 1998, Old Waste agreed to merge with a competitor, USA Waste
Services, Inc. ("USA"). As part of a tentative Merger Agreement, USA was
to assume all of Old Waste's liabilities, including Old Waste's
obligations under the SERP. USA and Old Waste agreed to terminate the
SERF as of the effective date of the merger; thus all SERF benefits would
fully vest and be distributed in lump sum payments upon the merger. On
June 9, 1998, approximately five weeks before the effective date of the
merger, USA and Old Waste published, in a Joint Proxy Statement, a
schedule of employees who were entitled to receive benefits under the
SERF termination agreement. The Joint Proxy Statement listed Koenig as an
employee entitled to a SERF payment.
Following publication of the Joint Proxy Statement, several events
occurred that gave rise to the present case. On July 14, two days before
the merger, Old Waste's Board of Directors ("the Board") twice amended
the SERP without notice to Koenig. First, the Board terminated the SERF
effective immediately contingent upon the closing of the merger with
USA. Second, the Board adopted a resolution allowing the Audit Committee
of the Board, and its duly appointed successor, to determine if any
current or former employees had committed acts of gross negligence or
willful malfeasance, thus forfeiting their benefits under Section 9 of
On July 16, 1998, Old Waste and USA completed the merger, and the
merged entity retained the name Waste Management Holdings, Inc. ("New
Waste"). The same day, New Waste's Board of Directors passed an
additional amendment (the "First Amendment") to the SERP that achieved
two' objectives. Initially, the First Amendment created a procedure for
withholding benefits subject to forfeiture under Section 9. If a SERP
participant was under investigation for "gross negligence" or "willful
malfeasance," then his or her benefits would be directed to an
interest-bearing escrow account, subject to forfeiture pending the
conclusion of the investigation. Second, consistent with the premerger
plans to terminate the SERF, the First Amendment authorized lump sum
payments to SERF beneficiaries.
In November 1998, New Waste's Board of Directors took several actions
affecting Koenig's benefits. On November 2, the Board passed a resolution
to place Koenig's SERP benefits, which totaled approximately $2.6
million, into an interest-bearing escrow account. On November 20, New
Waste notified Koenig of its decision to defer payment of, his SERP
benefits "pending the outcome of the Audit Committee's investigation."
(R. 11, Pl.'s Am. Compl. ¶ 32 (internal quotations omitted).) On
December 30, New Waste distributed lump sum payments to all SERF
except Koenig and three other Old Waste executives.
In response, Koenig filed a four-count complaint seeking recovery of
his SERP benefits. In Count I, Koenig charges that the First Amendment's
escrow-account provision violates SERP Section 13, which prohibits
amendments that "reduce or impair" a participant's benefits. In Count
II, Koenig asserts that Waste Management alienated or encumbered his
benefits, in violation of SERP Section 14, by placing the benefits in an
escrow account and denying him access to the money. In Count III, Koenig
sets forth an estoppel claim, arguing that he detrimentally relied on Old
Waste's and USA's statements in both the Joint Proxy Statement/Prospectus
and Merger Agreement that he would receive a lump sum payment. Finally,
Count IV alleges that both Old Waste and New Waste violated the terms of
his employment contract by failing to pay him scheduled bonuses and other
New Waste asks us to dismiss the complaint in its entirety because
Koenig failed to exhaust the administrative remedies available to him
under the SERP. Alternatively, New Waste argues that the First Amendment
did not violate the SERP's original terms. Finally, New Waste asserts
that Koenig's amended complaint fails to state a valid claim for breach
of the employment agreement between Old Waste and Koenig.
A motion to dismiss tests the sufficiency of the complaint, not the
merits of the suit. Weiler v. Household Fin. Corp., 101 F.3d 519, 524 n.
1 (7th Cir. 1996). The court must view all facts alleged in the
complaint, as well as draw any reasonable inferences from those facts, in
the light most favorable to the plaintiff. Doherty v. City of Chicago,
75 F.3d 318, 322 (7th Cir. 1996); Dawson v. General Motors Corp.,
977 F.2d 369, 372 (7th Cir. 1992). Any ambiguities are likewise resolved
in the plaintiffs favor. Dawson, 977 F.2d at 372. A complaint will not be
dismissed for failure to state a claim unless it appears beyond doubt
that the plaintiff can prove no set of facts ...