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DABERTIN v. HCR MANOR CARE

December 19, 2002

JUDY DABERTIN, PLAINTIFF
V.
HCR MANOR CARE, INC., ET AL., DEFENDANTS.



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

MEMORANDUM OPINION AND ORDER

Plaintiff Judy Dabertin ("Dabertin") seeks reversal of Defendant HCR Manor Care, Inc.'s (hereinafter "HCR Manor Care") decision denying her Employee Retirement Income Security Act ("ERISA") severance benefits under the Severance Plan for Selected Employees. For the reasons set forth below, the Court reverses the Committee's decision and enters judgment on the issue of liability in favor of Plaintiff.

BACKGROUND FACTS

Health Care and Retirement Corporation ("HCR") and Manor Care operate skilled nursing facilities. Dabertin v. HCR Manor Care et al., Inc., 177 F. Supp.2d 829, 836 (N.D. Ill. 2001).

Dabertin was a Vice President of Operations of Manor Care at all relevant times hereto, into 1998. In 1998, in contemplation of a merger with a subsidiary of HCR, Manor Care adopted the Severance Plan for Selected Employees (the "Plan"). (PX-16; Transcript of 5/22/02 Hearing ("Tr.") at 28:20-25.) Manor Care designated thirty-nine officers to participate in the Plan. (PX-1 at Ex. A.) Dabertin was one of the selected employees. (Id.)

In accordance with Ormond and Bainum's new operating strategy, the Plan provided that a participant was entitled to severance benefits in only two circumstances:

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.

PX-1 at Article III. The Plan defines "Good Reason" as:

a significant reduction in the scope of a Participant's authority, position, title, functions, duties or responsibilities . . .

Id. ¶ 1.8.

On September 25, 1998, Manor Care merged with HCR and became a subsidiary of HCR. (PX-16 at 1.) At that time, Ormond implemented the planned operational changes in the newly merged entity. (PX-16 at 4; Tr. at 34:5-35:1.) For instance, Ormond first required that the Vice-Presidents of Operations take on the additional role of General Managers. (Id.) Next, as part of their new role, the Vice-Presidents had to adopt a more "hands-on management style" and focus more intensively on the day-to-day operations of the facilities assigned to them. (Id.) The change in operations strategy meant that the Vice-Presidents had to spend significantly more time in the facilities assigned to them. (Id.) The Vice-Presidents had to oversee the day-to-day operations of their facilities which included responsibility in the following areas: workers compensation, staffing levels, accounts receivable, quality of care, and agency utilization. (PX-16 at 4.) Specifically, after the merger, the Vice-Presidents not only retained the authority, functions, duties and responsibilities that they had before the merger, but they also became General Managers with an obligation to fulfill their new authority, functions, duties and responsibilities. (Id.)

Prior to the merger, Dabertin had been assigned to both the Central and Western Divisions of Manor Care. (PX 14 at HCR 0060.) However, unlike the facilities in other Manor Care divisions, the facilities in the Western Division were geographically dispersed covering the states of California, Washington, Utah, Nevada and Arizona. (PX-4 at 1; PX-16 at 4.) Because the facilities in the Western Division were geographically dispersed and the new operating philosophy required that the Vice-Presidents visit their facilities frequently and personally oversee the day-to-day operations, Dabertin was assigned only the Western Division after the merger. (PX-16 at 4.) As a result, Dabertin was assigned a smaller number of facilities, beds, direct reports, construction projects, budgeted revenue and operating profit. (Id.) Dabertin, however, had a similar scope of authority, functions, duties and responsibilities in her smaller business unit that she had previously had for both the Central and Western Divisions. (Id.)

On October 21, 1998, Dabertin resigned from her position as Vice-President of Operations and submitted a claim for benefits to her supervisor, Keith Weikel, Chief Operating Officer. (PX-2; PX-3.) The basis of her claim was that, in accordance with the Plan provisions, she was terminating her employment for "Good Reason" as defined in Section 1.8 of the Plan. (PX-3.) Dabertin asserted that she had "Good Reason" to resign from her position because inter alia the number of facilities, beds, budgeted revenue and operating profit, direct reports, and construction projects assigned to her had decreased. (PX-2.)

On November 16, 1998, Wenkel sent Dabertin a letter denying her claim for benefits under the Plan. (PX-4.) In his letter, 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.) Weikel further stated 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.)

Dabertin appealed Weikel's decision to the Committee*fn1 on November 18, 1998. (PX-5.) Moreover, on January 12, 1999, Dabertin's attorney submitted a twenty-three page single-spaced letter (position paper) explaining her claim. (PX-14.)

On January 14, 1999, Ormond and three other Committee members, Geoffrey Meyers, Wade O'Brien, and Nancy Edwards met to determine if Dabertin was entitled to receive benefits under the Plan.*fn2 (Jr. at 29:9-30:7; O'Brien Dep. at 26:19-27:2; Meyers Dep. at 9:19-10:7.) The Committee discussed Dabertin's claim and twenty-three page letter for more than an hour. (Tr. at 30:8-9, 31:18-32:2.) During the discussion, Ormond told the Committee that he had spoken with Bainum about the purpose and goals of the Plan. (Tr. at 33:9-34:4.) Specifically, he said that the goal of the Plan was to make sure that Dabertin and other executives who were critical to the success of the newly merged entity would not have an incentive to resign from their positions in order to receive severance benefits. (Id.) In particular, the planned operational changes; such as a reduction in facilities assigned to a Vice President, the closing of regional offices and fewer construction projects, would not trigger a right to severance benefits. (Id.)

Ormond, Meyers, O'Brien and Edwards interpreted the provisions of the Plan and decided to deny Dabertin's claim for severance benefits. (PX-16.) Jeff Bixier, who served as the secretary for the meeting, prepared a summary of ...


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