Not what you're
looking for? Try an advanced search.
Buy This Entire Record For
DABERTIN v. HCR MANOR CARE
December 20, 2001
JUDY DABERTIN, PLAINTIFF,
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.
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
(A) a termination by the Company . . . other than
for Cause, or
(B) a termination by the Participant for Good
Id. ¶ 10. Article 1.8 of the Plan states that "Good Reason"
(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 . . .
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.
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
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.
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
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
Cvelbar v. CBI Ill. Inc., 106 F.3d 1368, 1375 (7th Cir. 1997)
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
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
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
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 ...