Summary
finding that extraordinary circumstances existed where defendant made a "promise directly to Plaintiff in order to persuade Plaintiff to return to work," and noting that "[t]he case at hand is not one where a general promise was made to a community of individuals, without any expectation that it would affect their behavior"
Summary of this case from Lawler v. Unum Provident CorporationOpinion
01 Civ. 7513 (JSM)
February 8, 2002
OPINION AND ORDER
Plaintiff Moira Patterson brings this action against her former employer, J.P. Morgan Chase, and the J.P. Morgan Chase Severance Pay Policy, alleging age discrimination under federal, state, and municipal law, breach of contract, promissory estoppel, violations of ERISA with respect to discrimination and severance pay, and state law claims for unpaid commissions. Plaintiff seeks numerous forms of actual damages and compensatory damages, as well as punitive damages and attorneys' fees.
Defendants now move for a partial dismissal of the Amended Complaint pursuant to Fed.R.Civ.P. 12(b)(1) and (6), arguing that all claims related to the severance payments should be dismissed because Plaintiff has not exhausted her administrative remedies, that the breach of contract and promissory estoppel claims are preempted by ERISA, that Plaintiff has not made out a prima facie case of discrimination under ERISA, and that punitive damages are not permitted.
FACTS
Taking the facts as stated in the Amended Complaint as true, Plaintiff Moira Patterson, a fifty year old woman, was employed by Defendant J.P. Morgan Chase from in or about March 1971 through March 1986. She was then employed by another bank from March 1986 though 1997. In or about March 1997, Plaintiff returned to work for J.P. Morgan Chase. Prior to commencing employment, she was promised credit for eleven years of previous work with J.P. Morgan Chase. According to Plaintiff, receiving credit for the eleven years was "a material component of Defendant's offer of employment." (Am. Compl. ¶ 21.) In January 2001, Plaintiff received a letter from J.P. Morgan Chase, notifying her that her employment would be terminated on March 19, 2001 due to "changes in business" and "staffing needs." (Patterson Aff. Ex. A.)
In response, Plaintiff's attorney sent a letter to J.P. Morgan Chase, contesting Defendant's determinations with respect to, inter alia, severance pay, outstanding commissions, and bonus pay. As detailed below, Plaintiff's attorney and J.P. Morgan Chase exchanged a number of letters, but Plaintiff's concerns were not satisfied. Plaintiff's last letter was on April 18, 2001. After four months passed and no response was sent by Defendant, Plaintiff brought this action. Defendants now seek partial dismissal of the Amended Complaint on the grounds stated above.
Discussion
I. Exhaustion of Administrative Remedies
Defendants argue that Plaintiff's severance payment claims must be barred because Plaintiff has not exhausted her administrative remedies. The parties agree that Plaintiff has a duty to exhaust administrative remedies with respect to the severance payment claims and that an exception to this duty exists where exhaustion of administrative remedies would be futile. See Kennedy v. Empire Blue Cross and Blue Shield, 989 F.2d 588, 594 (2d Cir. 1993). Plaintiff argues that she has exhausted her administrative remedies, or, in the alternative, that exhaustion would have been futile.
The focal point is an exchange of letters between the Plaintiff and Defendant J.P. Morgan Chase. On January 17, 2001, Jim Casey, a Chase vice president in the human resources department wrote to Plaintiff, informing her of her termination and her twelve week severance package. On January 29, 2001, Plaintiff wrote back to Mr. Casey, objecting to, inter alia, the severance package and requesting that it be adjusted to reflect her fifteen years of service with Chase. A different Chase vice president responded on February 15, 2001, stating, "[I]n response to your letter of January 29, 2001 to Jim Casey, please be advised that I have thoroughly reviewed the issues you have raised. With respect to severance, a review of the [enclosed] policy . . . should answer any questions you may have." (Patterson Aff. Ex. C.) Attached to the letter was a printout of a website, summarizing the severance policy for J.P. Morgan Chase. Plaintiff promptly responded on February 23, 2001, noting that the enclosed policy did not apply to her because it only concerned individuals who worked for both Chase and J.P. Morgan. After receiving no response from the J.P. Morgan Chase human resources department, Plaintiff wrote a final letter to J.P. Morgan Chase's general counsel, outlining Plaintiff's concerns "in an attempt to remedy [the] situation prior to litigation." (Patterson Aff. Ex. E.) The issues are whether by contacting Defendant's human resources department and then protesting its decision, Plaintiff exhausted her administrative remedies, and if not, whether additional attempts by Plaintiff to avail herself of administrative remedies would have been futile.
The primary purposes of the exhaustion requirement are to: "(1) uphold Congress' desire that ERISA trustees be responsible for their actions, not the federal courts; (2) provide a sufficiently clear record of administrative action if litigation should ensue; and (3) assure that any judicial review of fiduciary action (or inaction) is made under the arbitrary and capricious standard, not de novo." Kennedy, 989 F.2d at 594 (quoting Denton v. First Nat'l Bank of Waco, Texas, 765 F.2d 1295, 1300 (5th Cir. 1985)). The exhaustion requirement is intended to "help reduce the number of frivolous lawsuits under ERISA; to promote the consistent treatment of claims for benefits; to provide a nonadversarial method of claims settlement; and to minimize the costs of claims settlement for all concerned." Id. (quoting Amato v. Bernard, 618 F.2d 559, 567 (9th Cir. 1980)). In Ritzer v. Nat'l Org. of Indus. Trade U., 807 F. Supp. 257, 260 (E.D.N.Y 1992), the district court found that the administrative appeal requirement was exhausted where the plaintiff made a written request that the defendant review its denial of a claim and the defendant responded eight weeks later with a release form for plaintiff's attorney so that the attorney could access information about the plaintiff's participation with the defendant's program. Based on this non-responsive reply from the defendant, the plaintiff proceeded to trial. Id.
Here, Plaintiff wrote directly to a vice president in J.P. Morgan's human resources department. Defendants not only replied, but responded directly to Plaintiff's concerns and did not advise Plaintiff that she should have written to a different department or individual. When Plaintiff objected to the appeal procedure provided by Defendants, Defendants remained silent. As in Ritzer, Plaintiff waited for a significant period of time before filing this action. This is not a case where the Plaintiff is filing a frivolous lawsuit to circumvent administrative procedures. Rather, Plaintiff took all reasonable steps to appeal the severance pay determination.
Defendants argue that Plaintiff did not contact the correct individual in the human resources department and therefore did not follow the correct procedure for administrative appeals. Plaintiff should not be faulted for replying directly to Mr. Casey; rather, Defendants should have either forwarded Plaintiff's letters to the correct individual or instructed Plaintiff on where to send such severance payment concerns. Since Plaintiff took reasonable steps to obtain appropriate review of her claim and was never told that she had to seek review from someone other than those with whom she corresponded, Plaintiff did adequately exhaust her administrative remedies.
Mr. Casey's letter states: "If you have any questions regarding the services outlined in this letter or any other questions with which we can help, please call James Casey . . . ." (Patterson Aff. Ex. A.)
Alternatively, where claimants make a "clear and positive showing" that pursuing available administrative remedies would be futile, the purposes behind the exhaustion requirement are no longer served and exhaustion is not necessary. Kennedy, 989 F.2d at 594. The threshold for this exception is high; a plaintiff should not be allowed to take advantage of the exception unless there is an "unambiguous application for benefits and a formal or informal administrative decision denying benefits [such that] it is clear that seeking further administrative review of the decision would be futile." Davenport v. Harry N. Abrams, Inc., 249 F.3d 130, 133 (2d Cir. 2001) (quoting Barnett v. Int'l Bus. Mach. Corp., 885 F. Supp. 581, 588 (S.D.N.Y. 1995)). In keeping with the purposes of the exhaustion doctrine, the futility exception should not be applied where a plaintiff does not follow the formal administrative appeal process and merely claims that the defendant's de facto denial of her informal appeal establishes the futility of filing a formal appeal. Davenport, 249 F.3d at 133-140, Barnett, 885 F. Supp. at 589; Cappiello v. NYNEX Pension Plan, No. 92 Civ. 3896, 1994 WL 30429 (S.D.N Y Feb. 2, 1994).
Accordingly, futility has been found where four written inquiries were made seeking review of a benefits decision, the employer failed to inform the plaintiff of his right to appeal, and the employer did not respond to a letter requesting review. Ludwig v. NYNEX Service Co., 838 F. Supp. 769, 782 (S.D.N Y 1993). But see Kennedy, 989 F.2d at 595 (finding that futility does not exist where the plaintiff has taken no action to seek administrative review); Barnett, 885 F. Supp. at 588 (finding that futility does not exist where the plaintiff has not been denied information about the appeals process); Schein v. News Amer. Pub. Inc., No. 89 Civ. 52, 1989 WL 56255 (S.D.N.Y. May 23, 1989).
Here, Plaintiff made numerous attempts to contest and appeal the severance pay determination. She objected to the severance package and suggested a change. This was denied and she in turn received a copy of a severance pay policy. She objected to this policy, noting that the policy (and its appeal procedures) did not apply to her. Defendants did not reply, compelling Plaintiff to write a final letter which was similarly ignored. In light of Defendants' failure to respond to Plaintiff's letters of February 23, 2001 and April 18, 2001, any further efforts by Plaintiff to exhaust administrative remedies would have been futile.
II. Breach of Contract
Defendant J.P. Morgan Chase argues that Plaintiff's breach of contract claim, the fourth cause of action, is preempted by ERISA and should be dismissed. If the Chase Manhattan Severance Pay Policy ("SPP") is an "employee benefit plan," then the breach of contract cause of action would be preempted by ERISA and is to be construed as a claim for benefits under ERISA § 502(a)(1)(B). See 29 U.S.C. § 1144(a) (providing generally that ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . . ."). Plaintiff claims that her "request for a one time severance payment, which reflects her full term as an employee of defendants," is not governed by the employee benefit plan.
As noted by the Second Circuit, "the term `employee welfare benefit plan' has been held to apply to most, but not all, employer undertakings of obligations to pay severance payments. Yet, both the Supreme Court and this court have emphasized that ERISA applies only where such an undertaking or obligation requires the creation of an ongoing administrative program." Schonholz v. Long Isl. Jewish Med. Ctr, 87 F.3d 72, 75 (2d Cir. 1996). Accordingly, the Supreme Court found that a state statute that required employers to make a one-time severance payment to employees once a plant was closed did not create an employee benefit plan because this one-time obligation "create[d] no need for an ongoing administrative program for processing claims and paying benefits." Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 12, 107 S.Ct. 2211, 2218 (1987). Similarly, the Second Circuit found that an employer's promise to provide sixty-days additional pay to employees who stayed until the closing of an office did not constitute an employee benefit plan because "the nature of the payments did not require an ongoing administrative employer program to effectuate them." James v. Fleet/Norstar Financial Group, Inc., 992 F.2d 463, 467 (2d Cir. 1993). In determining whether a severance pay arrangement constitutes a plan, the relevant factors are: (1) "whether the employer's undertaking of obligation requires managerial discretion in its administration"; (2) "whether a reasonable employee would perceive an ongoing commitment by the employer to provide employee benefits"; and (3) "whether the employer was required to analyze the circumstances of each employee's termination separately in light of certain criteria." Schonholz, 87 F.3d at 76.
Citing Fort Halifax and James, Plaintiff "contends her claims for severance benefits which reflect her full tenure as an employee of defendants can be resolved by one simple calculation, and thus do not fall within the scope of ERISA preemption for `ongoing financial coordination and control.'" (Pl.'s Mem. in Opp. to Def.'s Mtn. Dismiss at 14). However, J.P. Morgan Chase's SPP is not so simple. According to its terms, severance pay can be made in semi-monthly payments or a lump sum, the amount of which is determined according to the length of employee service. (Wikman Aff. Ex. A at 8.) If semi-monthly payments are made, it appears that they could continue for a number of months. Furthermore, if the semi-monthly payment route is elected, participants can elect for continuing medical coverage and the employer will determine how much it will contribute based on the length of employee service. (Id. at 9.) Additionally, payments could be lost if participants engage in disqualifying behavior. (Id. at 10). It is clear that under the SPP, individual assessment must be made with respect to each participant's termination, managerial discretion is necessary in administering the payments, and employees could reasonably anticipate that payments and subsequent benefits would be an ongoing commitment on the employer's part. See Schonholz, 87 F.3d at 76; Tischmann v. ITT/Sheraton Corp., F.3d 561, 566 (2d Cir. 1998).
Despite the nature of the SPP scheme, Plaintiff's arguments impliedly ask the Court to analyze Plaintiff's request for a lump-sum severance payment and how such a payment does not require an ongoing administrative program instead of focusing on whether Defendant's actual policy requires an ongoing administrative program ("Plaintiff does not contend defendant did not maintain an employee welfare benefit plan. Rather plaintiff contends her claims for severance benefits . . . can be resolved by one simple calculation, and thus do not fall within the scope of ERISA preemption . . . ." Pl.'s Mem. at 13 (emphasis added)). Simply because Defendant's plan permits a lump-sum payment option does not mean that it cannot be an employee welfare benefit plan. Tischmann, 145 F.3d at 567. Furthermore, the caselaw makes clear that the determination does not focus on the specifics of Plaintiff's request for severance payments but instead on the operation of the severance plan itself. Thus, Plaintiff's fourth cause of action is dismissed.
III. Promissory Estoppel
Defendant J.P. Morgan similarly argues that Plaintiff's promissory estoppel claim, the fifth cause of action, is preempted by ERISA because it is a state law claim. However, "[u]nder `extraordinary circumstances' principles of estoppel can apply in ERISA cases under the veneer of federal common law." Lee v. Burkhart, 991 F.2d 1004, 1009 (2d Cir. 1993). To avoid preemption, Plaintiff must satisfy the common law elements of estoppel and establish that extraordinary circumstances exist. See Devlin v. Transp. Communications Int'l Union, 173 F.3d 94, 102 (2d Cir. 1999).
The elements of estoppel are (1) material representation, (2) reliance, (3) damage, and (4) an injustice if the promise is not enforced. See Schonholz, 87 F.3d at 80; Lee, 991 F.2d at 1009. As for the first element, Plaintiff states that "[p]rior to recommencing employment with defendants, [she] was promised [her] eleven . . . years of credit due to [her] previous work with defendants." (Patterson Aff. ¶ 6). Accordingly, she "relied on defendants [sic] promise in making [her] decision to return to defendants [sic] employ. But for the existence of this promise, [she] would not have returned to work." (Patterson Aff. ¶ 7). These allegations are sufficient to satisfy the first two elements. See Schonholz, 87 F.3d at 72. That the severance offer did not seem to credit her prior eleven years is similarly a sufficient injury. As to the fourth element, which involves equitable considerations, Plaintiff's decision to return to work for Defendant and the loss of the eleven years credit are both of such weight that injustice would result if the promise was not enforced. See id. at 80 (noting that where a party is able to prevail on the first three elements, the plaintiff will likely prevail on this final element).
Plaintiff must also establish that "extraordinary circumstances" exist in this case which warrant the estoppel claim. Reliance alone does not render a case "extraordinary;" a more "remarkable consideration" is necessary. Devlin, 173 F.3d at 102. The Second Circuit has recognized that "extraordinary circumstances" may exist where a party makes a promise to intentionally induce a particular behavior on the part of the plaintiff before the promise is withdrawn. See id. For example, in Schonholz, the court suggested that the defendant Medical Center intentionally used a promise of severance benefits to induce the Plaintiff to resign, only to renege on that promise once she resigned. See id. Similarly, the Second Circuit has found that a promise of benefits used to lure potential employees away from higher paying jobs does create "extraordinary circumstances." See Devlin v. Empire Blue Cross and Blue Shield, 274 F.3d 76, 86-87 (2d Cir. 2001). By contrast, there were no such extraordinary circumstances where a promise of free, lifetime health benefits (made during employment, and retracted some time after appellants retired) was not made to induce any particular behavior on appellant's part. Devlin, 173 F.3d at 102.
The case at hand is not one where a general promise was made to a community of individuals, without any expectation that it would affect their behavior. Rather, J.P. Morgan Chase made this promise directly to Plaintiff in order to persuade Plaintiff to return to work for Defendant. Thus, Plaintiff has alleged sufficient "extraordinary circumstances" to sustain her claims.
Conclusion
For the foregoing reasons, Defendants' motion is granted in part and denied in part. The fourth cause of action in the Amended Complaint is dismissed. Plaintiff's seventh cause of action (discrimination under ERISA) and her claim for punitive damages are dismissed on consent.
SO ORDERED.