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John W. Comrie v. Ipsco

February 18, 2011

JOHN W. COMRIE, PLAINTIFF-APPELLANT,
v.
IPSCO, INCORPORATED, ET AL., DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 08 C 3060-John W. Darrah, Judge.

The opinion of the court was delivered by: Easterbrook, Chief Judge.

ARGUED JANUARY 6, 2011

Before EASTERBROOK, Chief Judge, and CUDAHY and ROVNER, Circuit Judges.

In 2005 IPSCO Enterprises, Inc., established a supplemental pension plan for top executives. This plan (the IPSCO Enterprises, Inc. U.S. Supplemental Executive Retirement Plan, which the parties call "the SERP" and we call "the Plan") offers benefits exceeding those eligible for tax deferral under the Internal Revenue Code. Known colloquially as top- hat plans, such supplemental plans are unfunded (so there is no trust account; benefits come from the employer's coffers). Feinberg v. RM Acquisition, LLC, No. 10-1890 (7th Cir. Jan. 6, 2011), slip op. 2, describes a similar plan. IPSCO's Plan had two golden-parachute features. First, any executive whose employment is involuntarily terminated within two years of a change of control is eligible for benefits without regard to a cap that other-wise would apply. Second, the Plan defines "involuntary termination" as any material change in the executive's "position, reporting relationship, overall responsibilities or authority". A termination can be "involuntary" under this definition even if the executive quits to take a better offer elsewhere-or quits just to lock in the Plan's extra benefits.

In 2007 SSAB Svenskt St l AB, a Swedish firm, acquired a controlling interest in IPSCO through a friendly transaction. John W. Comrie, IPSCO's Chief Legal Officer, was part of the negotiating team. Shortly after the transaction closed, IPSCO promoted Melanie Klebuc-Simes over Comrie and named her "Vice President and General Counsel." Comrie, who used to report to IPSCO's CEO, now reported to Klebuc-Simes. Comrie resigned and asked for his benefits under the Plan to be paid as a lump sum. IPSCO accepted Comrie's contention that he had been "involuntarily terminated" but did not accept his proposed calculation of benefits. The parties' positions are about $2.5 million apart, and the difference led to this litigation. (Comrie is entitled to benefits under other pension plans, including a §401(k) defined-contribution plan, but there's no disagreement about them.)

Benefits under the Plan are based on the number of years the executive has worked at IPSCO (about 27 for Comrie) times 2% of the executive's average compensation in the five years before departure. Comrie is entitled to an annual pension under the Plan worth about 54% of his compensation. The source of the disagreement between the parties is a clause in the Plan providing that a "bonus" is not included in compensation. The bulk of Comrie's income came in the form of stock options or other stock-linked payments. His best year was 2005, when his base pay was $140,000 and he received benefits worth $109,484 under the "Management Incentive Program" and $851,792 under the "Long-Term Incentive Plan." These are the amounts reported to the IRS on Comrie's W-2 form; he may have enjoyed other tax-deferred benefits, but he concedes that unless an amount was reported to the IRS in any given year it does not count as "compensation" for the purpose of the Plan. Comrie received cash payments expressly designated "bonuses"; he contends that these, and only these, are "bonuses" under the Plan. The committee administering the Plan, by contrast, concluded that all stock-linked compensation is a "bonus" under the Plan, even though for its own purposes IPSCO had not used the word "bonus" when dealing with executives' stock-linked payments.

The district court concluded that the Plan's decision must stand unless arbitrary or capricious, for the Plan expressly confers interpretive discretion on the administrative committee. After considering at some length the language of the Plan, the §401(k) plan, the Summary Plan Description for the §401(k) plan, and the minutes of the Board meeting at which the Plan was adopted, the district judge concluded that the committee's decision was reasonable and entered summary judgment in defendants' favor. 2010 U.S. Dist. LEXIS 46988 (N.D. Ill.

May 12, 2010). The judge also dismissed claims that Comrie presented under the law of Canada. We discuss those toward the end of this opinion.

Comrie asks us to disregard the language of the Plan that confers interpretive discretion on the administrative committee. He gives two reasons: that members of the committee labored under a conflict of interest, see Metropolitan Life Insurance Co. v. Glenn, 554 U.S. 105 (2008); Marrs v. Motorola, Inc., 577 F.3d 783 (7th Cir. 2009), and that the administrator of a top-hat plan is not a "fiduciary" as ERISA (the Employee Retirement Income Security Act) uses that term. The first of these is backward. True, one could say that members of the committee will try to protect IPSCO's interests (the Plan is unfunded, after all), but the committee's members are in the same position as Comrie: most, if not all, are executives who have received some stock-linked benefits and would have been better off had they accepted Comrie's interpretation of the "bonus" exclusion; their interests are aligned with his. There is no reason to suspect that the decision against his position was based on anything other than an honest belief that stock-linked remuneration is a "bonus" as the Plan uses that word.

As for the fact that the administrator of a top-hat plan is not an ERISA fiduciary: One circuit has held that inter- pretations by a non-fiduciary must be ignored, and that courts must make independent decisions, no matter what a plan's governing documents say. Goldstein v. Johnson & Johnson, 251 F.3d 433, 442--43 (3d Cir. 2001). Another has adopted an intermediate standard divorced from contractual language. Craig v. Pillsbury Non-Qualified Pension Plan, 458 F.3d 748, 752 (8th Cir. 2006). We don't get it. When the Supreme Court held in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), that judges presumptively make independent decisions (often, though misleadingly, called "de novo review", see Krolnik v. Prudential Insurance Co., 570 F.3d 841, 843 (7th Cir. 2009)), about claims to benefits under ERISA, it derived this conclusion from an analogy to trust law. The Court understood trust law to call for a non-deferential judicial role. ERISA fiduciaries are like common-law trustees, the Justices thought, so judges normally should make independent decisions in ERISA litigation. In Firestone's framework, deferential review is exceptional, authorized only when the contracts that establish the pension or welfare plan confer interpretive discretion in no uncertain terms. 489 U.S. at 111. See also, e.g., Diaz v. Prudential Insurance Co., 424 F.3d 635 (7th Cir. 2005).

Under Firestone, fiduciary status leads to independent judicial decisions, unless the contract specifies otherwise. To hold, as Goldstein does, that non-fiduciary status requires independent judicial decisions, despite a contract, is to turn Firestone on its head. Firestone tells us that a contract conferring interpretive discretion must be respected, even when the decision is to be made by an ERISA fiduciary. It is easier, not harder as Goldstein thought, to honor discretion-conferring clauses in contracts that govern the actions of non-fiduciaries.

What rule of federal law do such clauses violate? Neither Craig nor Goldstein identified one. When a federal statute such as ERISA does not specify a rule of decision, contracts govern-especially so when no fiduciary duty is in play. Hughes Aircraft Co. v. Jacobson, 525 U.S. 432 (1999); Lockheed Corp. v. Spink, 517 U.S. 882 (1996); Johnson v. Georgia-Pacific Corp., 19 F.3d 1184 (7th Cir. 1994). IPSCO was free to set benefits at 2% times years of service times top compensation; it was free to exclude bonuses from that base; a federal court would not dream of devising a different formula more favorable to employees. Just so with other contractual terms. This is why in Olander v. Bucyrus-Erie Co., 187 F.3d 599, 607 (7th Cir. 1999), we applied deferential review to a decision under a top-hat plan that provided its administrator with interpretive discretion. Comrie asks us to overrule Olander, but for the reasons we have given we conclude that its approach is correct. We use deferential review today.

The Plan's administrators did not act arbitrarily or capriciously in concluding that stock-linked compensation is a form of bonus. In the business world, a "bonus" is understood to be a discretionary component of compensation. If Comrie had a contractual entitlement to a specific number of vested stock options annually, then he might have a persuasive argument that the stock-linked income, though variable (it depends on how IPSCO's stock fares in the market), was not a "bonus." But at oral argument Comrie's lawyer told us that, although Comrie was entitled to some options, how many he received each year was discretionary. That makes the stock-linked income look like a bonus, just as the Plan concluded.

Comrie's principal argument to the contrary rests on language in the summary plan description of IPSCO's ยง401(k) pension plan. This document tells participants that contributions to that plan depend on their "compensation," which "includes your base salary, bonuses, incentive pay, overtime and commissions". By listing "bonuses" and "incentive pay" separately, Comrie ...


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