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December 3, 1999


The opinion of the court was delivered by: Castillo, District Judge.

                             MEMORANDUM OPINION
                                 AND ORDER

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 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 the SERP.

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 beneficiaries 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 compensation.

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. Standard of Review

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 ...

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