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Pactiv Corp. v. Rupert

United States Court of Appeals, Seventh Circuit

August 1, 2013

Pactiv Corporation and Pactiv Corporation 2010/2011 Severance Benefits Plan, Plaintiffs-Appellants, Counterdefendants-Appellees,
v.
Chad Rupert, Defendant-Appellee, Counterplaintiff-Appellant.

Argued May 28, 2013

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 11 C 7247 — William T. Hart, Judge.

Before Easterbrook, Chief Judge, and Williams and Hamilton, Circuit Judges.

Easterbrook, Chief Judge.

Reynolds Group Holdings acquired Pactiv Corp. in 2010. The acquisition agreement, which made Pactiv a wholly owned subsidiary, calls for severance pay to any non-union employee let go without cause, within a year, as a result of the transaction.

After the closing, Pactiv established a severance-pay plan. The clause in the acquisition agreement was skeletal; the plan itself contained many implementing terms, including a requirement that the departing worker execute a "separation agreement", "in a form acceptable to the Company, " releasing all other claims against Pactiv.

Within a year of the acquisition Pactiv directed Chad Ru- pert to move to a new city. He declined, and Pactiv acknowl-edged that this entitled Rupert to severance pay under the plan. It sent him a separation agreement—which contained some unwelcome terms. Pactiv demanded that Rupert promise that for the next year he would not work for any of its rivals in research and development, solicit the sale of any competing goods and services, or try to hire any of Pactiv's staff. Observing that he had not previously been subject to a restrictive covenant, and contending that he should not be required to submit to one under the severance plan, Rupert declined to sign. Pactiv withheld the severance benefits, and Rupert sued. So did Pactiv, seeking a declaration that its decision is lawful.

The district court held that Rupert is entitled to the benefits because the formal plan, governed by ERISA (the Employee Retirement Income Security Act), lacks any language conditioning severance pay on signing a restrictive covenant. 2012 U.S. Dist. Lexis 158413 (N.D. Ill. Nov. 1, 2012). Plans and their material terms must be in writing. 29 U.S.C. §1102(a)(1); Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 83 (1995). This plan contemplates a separation agreement "acceptable to the Company" but does not say or imply that Pactiv can use this as a hook to add any limit it wants. Then the benefits staff could use the lure of severance pay to demand that the worker hand over the deed to the worker's vacation home or promise to run errands for the staffer's family. Perhaps it would be within the scope of this plan to use the separation agreement to obtain a departing employee's promise to honor the terms of a covenant already signed; the plan itself makes benefits contingent on keeping Pactiv's secrets confidential; but the agreement tendered to Rupert demanded more on his part. ERISA's writing requirement prevents the employer from making greater demands as a matter of discretion. Cirulis v. UNUM Corp. Severance Plan, 321 F.3d 1010 (10th Cir. 2003), holds exactly this about a situation similar to Rupert's.

As it happens, however, Rupert did not ask the district judge to award benefits under Pactiv's plan. He did not rely on §1102(a)(1) or Cirulis. Instead he asked for benefits under the acquisition agreement. He repeatedly told the district court that the plan is irrelevant to his claim and that he does not seek benefits under it. We asked Rupert's lawyer at oral argument whether he had ever reserved reliance on the plan as a fallback position; counsel said no. The district court rejected the theory that Rupert actually advanced (we discuss it below) but nonetheless decided in his favor on the theory that he abjured.

Judges sometimes have the authority to relieve parties of their forfeitures (though Rupert never asked), but if they do this they must notify the other side, so that it can meet the argument. For its part, Pactiv moved for summary judgment under ERISA, contending that despite appearances some of the language in the plan does allow it to insist on restrictive covenants. Since Rupert had foresworn any argument based on the plan, Pactiv did not elaborate—and the district judge, taking up the subject without the benefit of briefs from either side, did not discuss any of the language from the "Return of Severance Payments" section of the plan that Pactiv has brought to our attention and would have brought to the district judge's, had it known that a claim based on the plan was about to be adjudicated.

Many decisions in this circuit hold that a district judge must notify the litigants, and invite the submission of evidence and legal arguments, before resolving a case on a ground the parties have bypassed or using a procedure they did not propose. See, e.g., Goldstein v. Fidelity & Guaranty Insurance Underwriters, Inc., 86 F.3d 749 (7th Cir. 1996); Choudhry v. Jenkins, 559 F.2d 1085 (7th Cir. 1977). See also Celotex Corp. v. Catrett, 477 U.S. 317, 326 (1986) ("district courts are widely acknowledged to possess the power to enter summary judgments sua sponte, so long as the losing party was on notice that she had to come forward with all of her evidence"). The norm is that judges must not take litigants by surprise. The 2010 amendment to Rule 56(f) makes this explicit:

After giving notice and a reasonable time to respond, the court may:
(1) grant summary judgment for a nonmovant;
(2) grant the motion on grounds not raised by ...

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