Opinion
00 CIV. 9568 (DLC)
August 8, 2001
Thomas S. Howard, Kirsch, Gartenberg Howard, Hackensack, N.J., For Plaintiffs.
Andrew S. O'Connor, New York, NY, For Defendant.
OPINION AND ORDER
The employment of plaintiffs Richard A. Kraemer ("Kraemer") and George M. Kondos ("Kondos") was terminated at the end of their three-year employment agreements. They filed this action on December 18, 2000, against defendant HSBC USA Inc. ("HSBC") pursuant to the Employment Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., to challenge the denial of benefits under defendant's severance plan. The defendant contends that the plaintiffs are not covered by the defendant's severance plan. The parties having filed cross-motions for summary judgment, defendant's motion is granted.
BACKGROUND
The following facts are undisputed unless otherwise noted.
Defendant HSBC is a bank holding company formerly known as Republic New York Corporation ("Republic"). In 1995, Kraemer and Kondos were employed by Brooklyn Bancorp, Inc. and its wholly owned subsidiary, CrossLand Federal Savings Bank. Pursuant to an Agreement and Plan of Merger dated September 23, 1995, between Republic, LRNY (a wholly owned subsidiary of Republic), and Brooklyn Bancorp, Inc. (the "Merger Agreement"), Republic acquired Brooklyn Bancorp, Inc.
In connection with this merger, Republic entered into an employment agreement with Kraemer and Kondos. Each employment agreement was dated October 31, 1995, and provided for three years of employment. It stated:
[Republic] employs the Executive, and the Executive hereby agrees to remain in the employ of [Republic] subject to the terms and conditions of this Agreement, for the period commencing on the Effective Time and ending on the third anniversary of the Effective Time ("Employment Period").
(emphasis supplied). The "Effective Time" in each agreement was February 29, 1996. On March 1, 1996, Kraemer began work as a Vice Chairman of Republic, and on the same day, Kondos began work as an Executive Vice President of Republic's principal subsidiary, Republic National Bank of New York.
The "Effective Time" is defined in the Merger Agreement as the "time on which the Certificate of Merger has been duly filed with the Secretary of the State of Delaware." The Certificate of Merger was filed on February 29, 1996.
Several years later, in connection with the restructuring of Republic and certain of its subsidiaries and affiliates (the "Reorganization"), Republic established the Republic 1999 Reorganization Severance Plan (the "Plan"). The Plan became effective as of January 31, 1999, although the title page of the Plan shows that it was "Amended and Restated through February 8, 1999."
The Plan is an employee welfare benefit plan within the meaning of ERISA. The Plan provides severance benefits to certain employees whose employment by Republic or one of its subsidiaries was involuntarily terminated in connection with the Reorganization. These benefits are available only to "Eligible Employees." The Plan defines an "Eligible Employee" as:
any person who, as of the Effective Date [January 31, 1999]: (i) is a regular, full-time, salaried employee of an Employer, and (ii) does not have a contract for a definite term of employment with such Employer, and who receives written notice on or before April 30, 1999 that his or her employment is or will be terminated as a result of the Reorganization at a specified Termination Date.
(emphasis supplied). The Plan defines "Employer" to include Republic and Republic National Bank of New York.
Under the Plan, the Plan Administrator — defined as Republic's Human Resources Officer — "has complete authority, in such person's sole and absolute discretion, to construe the terms of this Plan (and any related or underlying documents or policies) and . . . to make any determinations with respect to the eligibility for, and amount of, benefits due under the Plan."
The Plan further provides that "[a]ll such determinations of the Plan Administrator (whether of fact or law) shall be final and binding upon all parties and persons affected thereby."
By letters dated February 5, 1999, Republic informed Kraemer and Kondos that their employment would terminate on March 1, 1999. The letters stated:
We refer to the Employment Agreement (the "Agreement") dated as of October 31, 1995 between you and Republic New York Corporation ("RNYC") and to the fact that the Employment Period, as such term in defined in the Agreement, ends on the third anniversary of the Effective Time, as such term is also defined in the Agreement.
This letter shall serve as notification that your employment by RNYC will terminate on March 1, 1999.
Plaintiffs' last day of work was March 1, 1999. Plaintiffs contend that they worked a full day on March 1, 1999.
By letter dated May 24, 1999, plaintiffs inquired as to their eligibility for benefits under the Plan. Republic denied plaintiffs' claims for benefits on the ground that they are not "Eligible Employees" within the meaning of the Plan.
Specifically, Republic stated that "[b]oth Messrs. Kraemer and Kondos were parties to written employment agreements with [Republic], dated October 31, 1995. Paragraph 1 in both agreements provides for a definite term of employment."
Plaintiffs then asserted that "the most reasonable interpretation of the events leading up to the termination of employment of Messrs. Kraemer and Kondos and of the relevant law is that they should be included under the Severance Plan." By letter dated August 30, 1999, Republic's Plan Administrator, who treated the assertion as an appeal from Republic's prior decision, reaffirmed that plaintiffs are not eligible for benefits under the Plan.
The Plan Administrator explained, among other things, that plaintiffs "were employees who had contracts for a definite term of employment with Republic."
Plaintiffs state that they sent another letter to Republic on May 12, 2000, and asked Republic to reconsider its denial of benefits to them, but received no response. Defendant states it has no record of the May 12, 2000 letter.
DISCUSSION
A threshold issue is whether the Plan Administrator's decision is subject to de novo review, or review under an "arbitrary and capricious" standard. A decision to deny benefits "`is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.'" Kinstler v. First Reliance Standard Life Ins. Co., 181 F.3d 243, 249 (2d Cir. 1999) (quoting Firestone Tire Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989)). Where the administrator or fiduciary has such discretionary authority, "denials are subject to the more deferential arbitrary and capricious standard, and may be overturned only if the decision is `without reason, unsupported by substantial evidence or erroneous as a matter of law.'" Id. (citation omitted). De novo review is also appropriate where a plan administrator has a conflict of interest, and is in fact influenced by that conflict in its decision making. See Pulvers v. First Unum Life Ins. Co., 210 F.3d 89, 92 (2d Cir. 2000).The defendant bears the initial burden of showing that the Plan vests authority to make benefit determinations in the Plan Administrator, so that deferential review is warranted. See Kinstler, 181 F.3d at 249. The burden of showing that a Plan Administrator was influenced by a conflict of interest rests on the party seeking benefits. See Pulvers, 210 F.3d at 92. Here, the Plan vests discretionary authority in the Plan Administrator, including discretion to make "determinations" regarding eligibility. Compare O'Shea v. First Manhattan Co. Thrift Plan Trust, 55 F.3d 109, 112 (2d Cir. 1995) (arbitrary and capricious standard appropriate where plan asserted that trustees "shall determine any questions" arising in the "application of the Plan").
Plaintiffs argue that de novo review is appropriate, both because the Plan Administrator had a conflict of interest and because his decision rested on a question of law, to wit, whether the employment agreements were for a definite term of employment.
Because the interpretation of plaintiffs' employment agreements required resolution of a question of law, de novo review is necessary. Weil v. Retirement Plan Admin. Comm. of the Terson Co., Inc., 913 F.2d 1045, 1049 (2d Cir. 1990), aff'd in part and vacated in part on other grounds, 933 F.2d 106 (2d Cir. 1991); Stang v. American Express Co., No. 93 Civ. 6615 (JFK), 1998 WL 118160, at *6 (S.D.N.Y. Mar. 16, 1998).
Applying the de novo standard of review, plaintiffs' application for severance benefits was properly denied. Under the terms of their employment agreements, Kraemer's and Kondos' "Employment Period," began on February 29, 1996, the "Effective Time," and ended on the third anniversary of the "Effective Time," or February 28, 1999. This was an unambiguous and a definite term of employment and makes the plaintiffs ineligible for the Plan, which excludes from its coverage employees with a "definite term of employment."
Plaintiffs point out that they worked on March 1, 1999. This one day difference is not material to the analysis.
Plaintiffs argue that, while the terms of their employment agreements were to expire on the third anniversary of the Effective Time, their actual employment was not for a definite term. In other words, plaintiffs contend that they could have continued working at HSBC after March 1, 1999, as "at will" employees, and that the February 5, 1999 termination letters would not have been necessary if their employment automatically terminated on March 1, 1999.
When contract language "has a definite and precise meaning, unattended by danger of misconception in the purport of the contract itself, and concerning which there is no reasonable basis for a difference of opinion," then, as a matter of law, no ambiguity exists and liability may be assessed on the basis of the contract's definite terms. Sayers v. Rochester Tel. Corp., 7 F.3d 1091, 1095 (2d Cir. 1993) (citation omitted) (applying New York law). Under New York law, employment is "at will" unless the duration of the employment is explicit. Wright v. Cayan, 817 F.2d 999, 1002 (2d Cir. 1987); Scott v. Health Care Plan, Inc., 668 N.Y.S.2d 841, 842 (App.Div. 1998).
While the parties have not addressed the choice of law on this or any other issue, plaintiffs' employment agreements state that they are governed by New York law, the defendant corporation conducts business in New York, and the events at issue took place primarily in New York. Accordingly, New York law applies.
The language of plaintiffs' employment agreements is both definite and precise. Plaintiffs' "Employment Period" was from the "Effective Time" to the "third anniversary of the Effective Time." Pursuant to the terms of their employment agreements, plaintiffs started working for Republic on March 1, 1996, and finished working on March 1, 1999. This "Employment Period" is sufficiently definite to constitute a "definite term of employment." See, e.g., Cement and Concrete Workers Dist. Council Welfare Fund v. Frascone, 68 F. Supp.2d 166, 176 (E.D.N.Y. 1999); Rooney v. Tyson, 91 N.Y.2d 685, 694 (N.Y. 1998).
Additionally, even when analyzed under a de novo standard of review, the plaintiffs are not "Eligible Employees" under the Plan because they did not receive the "written notice" that their employment was being terminated "as a result of the Reorganization," as required by the Plan. Plaintiffs' attempt to infer from the timing of their termination letters that their termination was a result of the Reorganization is unsuccessful.
The Plan explicitly requires written notice that the plaintiffs did not receive. Thus, plaintiffs were not "Eligible Employees" under the Plan, and the Plan Administrator's denial of severance benefits to plaintiffs was correct.
Attorney's Fees
Defendant moves for expenses, including attorney's fees, pursuant to 29 U.S.C. § 1132(g)(1). Under ERISA,
[i]n any action under this subchapter . . . by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney's fee and costs of action to either party.29 U.S.C. § 1132(g)(1). The decision of whether to award attorney's fees is ordinarily based on five factors:
(1) the degree of the offending party's culpability or bad faith, (2) the ability of the offending party to satisfy an award of attorney's fees, (3) whether an award of fees would deter other persons from acting similarly under like circumstances, (4) the relative merits of the parties' positions, and (5) whether the action conferred a common benefit on a group of pension plan participants.
Salovaara v. Eckert, 222 F.3d 19, 27-28 (2d Cir. 2000). "Although [this] test applies to both plaintiffs and defendants in ERISA actions, courts have cautioned that the five factors `very frequently suggest that attorney's fees should not be charged against ERISA plaintiffs.'" Id. at 28 (citation omitted).
Defendant has not presented any argument as to why it should be awarded attorney's fees, and instead requests a hearing to determine the amount of expenses and fees. There is no need for a hearing. Although plaintiffs did not succeed in this ERISA action, there has been no showing that this action was brought in bad faith. Further, because plaintiffs' claims were based on facts related to their individual employment contracts, it is unlikely that an award of attorneys' fees would deter future plaintiffs from bringing similar lawsuits, or if successful would have conferred a benefit on a group of plan participants. No party has offered any evidence as to whether plaintiffs could satisfy an award of attorney's fees. Finally, while the merits clearly favor defendant as the prevailing party, this factor alone does not support an award of attorney's fees.
CONCLUSION
For the reasons stated, defendant's motion for summary judgment is granted, but its request for attorney's fees is denied. Plaintiffs' motion is denied. The Clerk of Court shall enter judgment for the defendant and close the case.
SO ORDERED: