Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

DABERTIN v. HCR MANOR CARE

December 20, 2001

JUDY DABERTIN, PLAINTIFF,
V.
HCR MANOR CARE, INC., MANOR CARE, INC. SEVERANCE PLAN FOR SELECTED EMPLOYEES, MANOR CARE, INC., MANOR CARE, INC. SEVERANCE PLAN FOR SELECTED EMPLOYEES COMMITTEE, AND MANOR CARE INC. SEVERANCE PLAN FOR SELECTED EMPLOYEES PLAN ADMINISTRATOR, DEFENDANTS.



The opinion of the court was delivered by: Levin, United States Magistrate Judge.

            MEMORANDUM OPINION AND ORDER

Before the court are the parties cross-motions for summary judgment in the cause.

BACKGROUND FACTS

Defendants Manor Care, Inc. and Health Care and Retirement Corporation ("HCR") Manor Care, Inc. (collectively "Manor Care") operate skilled nursing facilities. See generally, Defs.' 56.1(a)(3) St. In 1998, in preparing for a merger with HCR, Manor Care adopted the Severance Plan for Selected Employees (the "Plan"). Id. ¶ 7. Manor Care selected thirty-nine employees comprised of officers and senior management to participate in the Plan. Id. ¶ 8. The thirty-nine employees were among Manor Care's most highly compensated employees. Id. Plaintiff Judy Dabertin, who was a Vice-President/General Manager of Manor Care, was one of the selected employees. Id.

The Plan provided severance benefits which included a lump-sum payout of benefits, a bonus, insurance coverage, and outplacement services for Manor Care's thirty-nine selected employees. Defs.' 56.1(a)(3) St. ¶ 9. Article III of the Plan provides that employees were eligible for benefits as follows:

A Participant shall be entitled to severance benefits under this Plan if and only if his employment with the Company . . . terminates under either of the following circumstances:
(A) a termination by the Company . . . other than for Cause, or
(B) a termination by the Participant for Good Reason.

Id. ¶ 10. Article 1.8 of the Plan states that "Good Reason" includes:

(i) a significant reduction in the scope of a Participant's authority, position, title, functions, duties or responsibilities . . ., (iii) any reduction in a Participant's base salary, (iv) a significant change in the Company's annual bonus program adversely affecting the Participant, or (v) a significant reduction in the other employee benefits provided to a Participant . . .

Id. ¶ 11.

In accordance with the Plan's provisions, a Committee was appointed by Manor Care's Board of Directors. Defs.' 56.1(a)(3) St. ¶ 12. The Committee had discretion to "interpret the provisions of the Plan and . . . determine all questions arising in the administration thereof, including without limitation the reconciliation of any inconsistent provisions, the resolution of any ambiguities, the correction of defects, and the supplying of omissions." Id. The Plan further provided that "[i]n the event that a claim for a benefit under the Plan has been denied, the decision shall be subject to review by the Committee upon written request of the claimant . . ." Id. ¶ 13. Therefore, "[t]he decision of the Committee upon review shall be final and binding on all persons." Id.

In September, 1998, Manor Care merged with HCR and became a wholly owned subsidiary of HCR. Id. ¶ 29.

Mr. M. Keith Weikel, who had been selected to serve as the Chief Operating Officer of the new entity, asked Plaintiff to continue serving in her role as Vice-President/General Manager. Defs.' 56.1(a)(3) St. ¶ 21. Mr. Weikel told Plaintiff that if she accepted the position she would continue to receive the same salary and she would be assigned to the Western Division of Manor Care. Id. ¶¶ 22, 23. Mr. Weikel informed Plaintiff that she did not need to relocate to the West Coast, but that he wanted her to "be in the facilities between four and five days a week." Id. ¶ 24. Plaintiff accepted Mr. Weikel's job offer to serve as Vice-President/General Manager of the new entity. Id. ¶ 28. In addition, the Board of Directors elected Plaintiff as an officer of both HCR Manor Care and Manor Care. Id. ¶ 30.

Prior to the merger, Vice-Presidents/General Managers generally visited each facility under his or her care once a year and relied on regional directors to take care of routine tasks; such as, quality of care issues, regulatory compliance, staffing issues, and customer satisfaction. Defs.' 56.1(a)(3) St. ¶ 32. Mr. Weikel and Mr. Paul A. Ormond, Manor Care's President, however, believed that Manor Care's top managers could not rely on subordinates to manage the facilities assigned to them. Id. at ¶ 33. Instead, they required that top management be personally involved in the day-to-day operations of the facilities. After the merger, Vice-Presidents/General Managers could no longer delegate work to the regional directors and were required to work in the facilities four to five days a week. Id. ¶¶ 33, 34. The Vice-Presidents/General Managers, however, retained the duties, authority, responsibilities, and functions that they had prior to the merger. Id. ¶ 34.

Plaintiff was assigned to the Central and Western Divisions before the merger. Defs.' 56.1(a)(3) St. ¶ 36. However, because the facilities in the Western Division were geographically dispersed, and there was a vast distance between the facilities in the Central and Western Divisions, Mr. Weikel assigned Plaintiff only the Western Division after the merger so that she could handle her intensified job assignment. Id. The Western Division had a smaller number of facilities, beds, direct reports, and construction projects, and less budgeted revenue and operating profit than the combined Western and Central Divisions. Id. ¶ 37. Plaintiff, however, retained the same scope of duties, responsibilities; functions, and authority in her smaller business unit. Id.

In addition, due to the deteriorating performance of the Western Division's facilities, Manor Care decided to work on improving the performance of its existing facilities and stopped construction development of facilities in the Western Division. Defs.' 56.1(a)(3) St. ¶ 38. Plaintiff, however, continued to be assigned all of the same duties, responsibilities, functions and authority for construction development, even though she spent less time working in that area after the merger. Id. Instead, Mr. Weikel required that Plaintiff focus more time on her duties and responsibilities as they related to the profitability and performance of existing facilities. Id. Plaintiff, thus, retained the same duties, responsibilities, functions and authority that she had prior to the merger. Id.

On October 21, 1998, approximately two months after the merger, Plaintiff resigned from her position at Manor Care. Defs.' 56.1(a)(3) St. ¶ 39. Plaintiff told Mr. Weikel that she was resigning because she was "unhappy with her assignment" and "needing to spend all week, every week 2,000 miles away from home." Id. ¶ 40.

Mr. Weikel denied Plaintiff's claim for benefits. Defs.' 56.1(a)(3) St. ¶ 43. Mr. Weikel sent Plaintiff a letter dated November 16, 1998 in which he explained that "a reduction in the size of the business unit you were assigned to manage [does not] alone constitute[] a reduction in the scope of your authority, functions, duties or responsibilities." Id. He also stated in the letter that "[i]n fact, you continue[d] to have the full range of authority, duties, responsibilities and functions with respect to the facilities in your division as you did prior to the merger." Id.

On November 18, 1998, Plaintiff appealed Mr. Weikel's decision to the Committee. Defs.' 56.1(a)(3) St. ¶ 45. Mr. Weikel recused himself from the review of her claim and the Committee granted Plaintiff an opportunity to make a written submission explaining the basis of her claim. Id. ¶¶ 46, 48. On January 12, 1999, Plaintiff's attorney submitted a twenty-two page single-spaced letter (position paper) explaining her claim. Id. ¶ 49.

On January 14, 1999, Mr. Ormond and three other Committee members met to determine if Plaintiff was entitled to receive benefits under the Plan. Defs.' 56.1(a)(3) St. ¶ 51. The Committee considered her twenty-two page submission, Plaintiff's letter to Mr. Weikel seeking benefits under the Plan, and Mr. Weikel's letter denying her claim. Id. ¶ 50. Mr. R. Jeffrey Bixler also attended the meeting as legal counsel and acted as secretary during the meeting. Defs.' 56.1(a)(3) St. ¶ 54. Mr. Ormond asked Mr. Bixler to prepare a draft of the issues that were discussed by the Committee. Id. ¶ 56.

The Committee accepted the factual allegations in Plaintiff's position paper as true. Defs.' 56.1(a)(3) St. ¶ 65. The Committee, however, decided that even if Plaintiff had correctly stated the facts, she did not have "Good Reason" to resign from her position. Id. Thus, the Committee rejected Plaintiff's allegations that there was a significant reduction in the scope of her authority, position, title, functions, duties, or responsibilities after the merger. Id. ¶ 66. Moreover, the Committee rejected Plaintiff's claim that there was a significant change in Manor Care's bonus program that adversely affected her and that she suffered a significant reduction in employee benefits because she did not receive a stock option grant. Id. ¶¶ 69, 74.

On January 18, 1999, the Committee faxed Plaintiff a copy of the minutes outlining the issues discussed on January 14, 1999 and its decision to deny her claim. Defs.' 56.1(a)(3) St. ¶ 60. The Committee also mailed a copy of its final decision to Plaintiff on January 19, 1999. Id. ¶ 62.

LEGAL STANDARD

Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). See also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party had produced evidence to show that it is entitled to summary judgment, the party seeking to avoid such judgment must affirmatively demonstrate that a genuine issue of material fact remains for trial. LINC Fin. Corp. v. Onwuteaka, 129 F.3d 917, 920 (7th Cir. 1997).

In deciding a motion for summary judgment, a court must "review the record in the light most favorable to the nonmoving party and to draw all reasonable inferences in that party's favor." Vanasco v. National-Louis Univ., 137 F.3d 962, 964 (7th Cir. 1998). See also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Nevertheless, the nonmovant may not rest upon mere allegations, but "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). See also LINC, 129 F.3d at 920. A genuine issue of material fact is not shown by the mere existence of "some alleged factual dispute between the parties," Anderson, 477 U.S. at 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 or by "some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Rather, a genuine issue of material fact exists only if "a fair-minded jury could return a verdict for the [nonmoving party] on the evidence presented." Anderson, 477 U.S. at 252, 106 S.Ct. 2505, 91 L.Ed.2d 202.

ANALYSIS

Plaintiff's threshold argument is that Defendants violated the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq., by wrongfully denying Plaintiff's claim for severance benefits under the Plan. Plaintiff further contends that Defendants (1) failed to comply with ERISA's disclosure requirements, (2) violated ERISA's fiduciary duties, (3) breached its contract with Plaintiff by failing to pay her severance benefits and a bonus, and (4) violated the Illinois Wage Payment and Collection Act by failing to pay her severance benefits and a bonus. See generally, 2d Am. Cmplt.

I. SEVENTH CIRCUIT LAW GOVERNS PLAINTIFF'S ERISA CLAIM.

Plaintiff initially argues that Third Circuit law is applicable to this cause. Pl.'s Mem. at 7. Plaintiff bases her assertion on Article 6.7 (choice of law provision) of the Plan which states that "[t]his Plan shall in all respects be governed by and construed in accordance with the laws of the State of Delaware." Id. Defendant, on the other hand, asserts that Seventh Circuit law is controlling. Defs.' Reply at 3.

Claims that are brought under federal law must be decided under the decisional law of the Circuit in which the claim was filed. In re RealNetworks, Inc., 2000 WL 631341, at *4-5 (N.D.Ill. 2000). In re RealNetworks, Inc., Michael Keel, an intervenor, sought to avoid Seventh Circuit law by asserting that the License Agreement at issue contained a "choice of law provision designating Washington law as governing the License Agreement." Id. at *4. Keel further claimed that the License Agreement "expressly designates the application of Ninth Circuit decisional law to the License Agreement." Id. Judge Kocoras held that the choice-of-law provision meant only that "where application of state or common law is necessary, a court applies Washington law" and found that "there exists no express choice of law provision selecting Ninth Circuit decisional law . . ." Id. at *4-5. Accordingly, this court finds Plaintiff's assertion that Third Circuit law governs this cause unavailing because there is no express choice of law provision in the Plan that selects Third Circuit decisional law. Therefore, Seventh Circuit law is controlling.*fn1

II. ERISA GOVERNS THE PLAN.

A. The Plan Requires An "Ongoing Administrative Scheme."

Plaintiff initially argues that ERISA does not apply to this cause because the Plan does not require an "ongoing administrative scheme" as required by the Fort Halifax test. Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 11, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987); Pl.'s Mem. at 7. Plaintiff asserts that the Fort Halifax test has not been met because it requires claim processing "on a regular basis" and evidence of claim processing "on a regular basis" is absent. Pl.'s Mem. at 7. Plaintiff, further, argues that the Plan's administrative scheme was not "ongoing" because it was terminable after two years. Id. at 8. Defendant, on the other hand, argues that ERISA governs the Plan and that there is sufficient evidence to demonstrate that the Plan does require an "ongoing administrative scheme." Def.'s Mem. at 11-14.

In Fort Halifax, the Court determined that an agreement to pay severance benefits is subject to ERISA's control only if it creates benefits requiring "an ongoing administrative program to meet the employer's obligations." Fort Halifax, 482 U.S. at 11, 107 S.Ct. 2211, 96 L.Ed.2d 1. To further explain the meaning of the term "ongoing," the court held that, if under the agreement, the employer has not assumed a responsibility to process claims and pay benefits "on a regular basis," it "faces no periodic demands on its assets that create a need for financial and control," and a benefit plan subject to ERISA has not been established. Id. at 12, 107 S.Ct. 2211.

When determining whether a plan requires an "ongoing administrative scheme," "[t]he question is not whether the employer put the administrative scheme into place, but whether properly putting the plan into effect would necessitate an ongoing administrative scheme." Bongiorno v. Associates In Adolescent Psychiatry, S.C., 1993 WL 313096, at *5 (N.D.Ill. Aug.13, 1993) (citations omitted); see also Bogue v. Ampex Corp., 976 F.2d 1319, 1323 (9th Cir. 1992) ("[w]hether or not Allied-Signal ever thought it would have to administer an ERISA plan does not matter; there was no way to administer the program without an administrative scheme.") Moreover, properly putting a plan into effect necessitates an "ongoing" administrative scheme when an employer must apply a plan's eligibility criteria to each participant's particular circumstances:

Simple or mechanical determinations do not necessarily require the establishment of . . . an administrative scheme; rather, an employer's need to create an administrative system may arise where the employer, to determine the employee's eligibility for and level of benefits, must analyze each employee's particular circumstances in light of the appropriate criteria.

Cvelbar v. CBI Ill. Inc., 106 F.3d 1368, 1375 (7th Cir. 1997) (quotation omitted).

The Seventh Circuit held that Golden Cat had properly removed the action because ERISA governed the agreements. Collins, 147 F.3d at 595-97. The court found that "the triggering event [a substantial reduction of duties] prompting a payout in this case presupposes . . . an ongoing administrative scheme." Id. at 596. The substantial reduction requirement "sets a standard, but hardly an easily discernible one." Id. The court found that "[t]he result is that Golden Cat had to assess the new job duties of Collins and compare them to his previous responsibilities; even then the company somehow had to determine if the difference between the two was `substantial.'" Id. Because this determination was not mechanical and required the plan administrator to make a particularized discretionary analysis of each claim for benefits, the agreements required an ongoing administrative scheme. Id. at 597; see also Cvelbar, 106 F.3d at 1375.

The Seventh Circuit also found that the agreements required an "ongoing administrative scheme" because "Golden Cat faced a year in which various managers might demand payouts under the individual agreements . . ." Collins, 147 F.3d at 596. Golden Cat could not make a single set of payments to all managers at once; instead, it "faced the prospect of multiple payments to various managers, at different times and under different circumstances." Id. at 595. The court held that a severance plan required an ongoing administrative scheme when an employer is faced with the "prospect of multipl[e]" claims over a one-year period. Id. Moreover, the prospect of periodic demands for benefits created a need for financial coordination and control. Id. at 596.

The court finds Plaintiff's arguments that the Fort Halifax test has not been met because there is no evidence of claim processing "on a regular basis" and the Plan lacks an "ongoing administrative scheme" because it is terminable after two years unavailing. First, Plaintiff, in asserting her claims, relies on a Tenth Circuit, unpublished decision, Lettes v. Kinam Gold, Inc., 2001 WL 55499 (10th Cir. 2001), to support her position. The court finds that the decision in Lettes has no precedential value in this Circuit. See Tenth Cir.R. 36.3(a). Moreover, the court "must follow the decisions of [the Seventh Circuit] even if [it] believes them profoundly wrong." United States v. Burke, 781 F.2d 1234, 1239, n. 2 (7th Cir. 1985); Lashbrook v. Oerkfitz, 1994 WL 369665, at *7 (N.D.Ill. July 8, 1994).*fn2

The court finds that the Plan requires an "ongoing administrative scheme." Like the agreements in Collins, the Plan at issue required payment of severance benefits if a selected employee suffered a "significant reduction in the scope of a Participant's authority, position, title, functions, duties, or responsibilities." Plan § 1.8 (emphasis in original). This triggering event presupposes an "ongoing administrative scheme" because it requires the Committee to make a discretionary analysis of each employee's circumstances in light of the eligibility criteria. Thus, under the Plan, Defendants were required to make individualized determinations regarding employee eligibility for benefits.

The Plan requires an "ongoing administrative scheme" because Defendants were faced with the "prospect of multipl[e]" claims over a two year period. See Collins, 147 F.3d at 595. For instance, the Plan provided for thirty-nine participants who could seek benefits from 1998 through 2000. Id. § 6.8; Defs.' Ex. A. Moreover, because Defendants processed benefit payments for 25 eligible claimants totaling $12,167,098, there was clear evidence of claim processing "on a regular basis." Defs.' 56.1(a)(3) St. ¶ 18; Pl.'s 56.1(b)(3) St. ¶ 18. Each of these 25 claims required financial coordination and control because inter alia payments had to be authorized, checks had to be issued, and insurance coverage had to be arranged. Defs.' 56.1(a)(3) St. ¶ 17; Pl.'s 56.1(b)(3) St. ¶ 17. Accordingly, the court finds that the Plan is governed by ERISA because it requires an "ongoing administrative" scheme.

B. The Plan Has Reasonably Ascertainable Terms.

Defendants assert that the Plan is governed by ERISA because it has reasonably ascertainable terms. Defs.' Mem. at 14. Plaintiff, on the other hand, does not dispute that the Plan has reasonably ascertainable terms. See generally, Pl.'s Mem.

A plan has reasonably ascertainable terms if "a reasonable person could ascertain the intended benefits, beneficiaries, source of financing, and procedures for receiving benefits." Cvelbar, 106 F.3d at 1378 (quotation omitted). Under this standard, the court finds that the benefits, beneficiaries, and benefit procedures are reasonably described in the Plan. Plan (Defs.' Ex. 13) art. IV, at 4-5 (benefits); id. Def.'s Ex. A (beneficiaries); id. § 5.2 (benefits procedures). Moreover, a reasonable reading of the Plan leads to an understanding that its benefits will be paid out of Manor Care's general funds. See Cvelbar, 106 F.3d at 1378. Therefore, this court finds that because the Plan has reasonably ascertainable terms and requires an "ongoing administrative scheme" to implement its benefits, ERISA clearly governs the Plan.

III. THE ARBITRARY AND CAPRICIOUS STANDARD APPLIES HEREIN.

Plaintiff argues that the court should review the Committee's decision de novo because the Plan does not "indicate[] with the requisite . . . clarity that a discretionary determination is envisaged." Pl.'s Mem. at 9 (quoting Herzberger v. Standard Ins. Co., 205 F.3d 327, 331 (7th Cir. 2000)). In addition, Plaintiff argues that de novo review is warranted because there were multiple conflicts of interest. Pl.'s Mem. at 9-13. Defendant, however, asserts that the court should review the Committee's decision under the arbitrary and capricious ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.