Opinion
Civil Action No. 03-CV-04848.
September 27, 2006
JOSEPH M. TODDY, ESQUIRE, MICHAEL S. MISHER, ESQUIRE, On behalf of Plaintiff.
ELLEN E. BOSHKOFF, ESQUIRE, On behalf of Defendant.
ADJUDICATION
This matter is before the court after non-jury trial held March 1, 2, 3, 4, 7 and 8, 2005. Closing arguments were conducted on November 22, 2005. Defendants' Post-Trial Brief was filed February 17, 2006. On February 27, 2006 Plaintiff, Kevin Schwing's Post-trial Brief was filed.
The issues before the court include plaintiff's entitlement to benefits pursuant to the Employee Retirement Income Security Act of 1974, ("ERISA") under The Lilly Severance Pay Plan, The Eli Lilly and Company Holiday and Vacation Plan, The Eli Lilly and Company Health Care Flexible Spending Plan, the Lilly Global Shares Stock Option Plan and a pendent state law claim for breach of contract regarding plaintiff's final expense report.
29 U.S.C. §§ 1001- 1461.
At trial, three witnesses testified. Plaintiff Kevin Schwing testified on his own behalf. In addition, plaintiff called as of cross-examination Sandra J. Sommers, Esquire, in-house counsel for defendant Eli Lilly and Company. Defendants called Lisa Ann Schlehuber, Chief Executive Officer of the Eli Lilly Federal Credit Union. Plaintiff introduced 32 exhibits and defendant introduced 4 exhibits into evidence at trial.
Ms. Schlehuber testified that in her previous position as Director of Global Compensation and Benefits for Eli Lilly and Company, she was a member of the defendant Employee Benefits Committee.
In addition to the exhibits offered at trial, the parties jointly offered portions of certain depositions and the pertinent exhibits referenced in those depositions. Specifically, the parties offered portions of the June 16, 2004 deposition of plaintiff Kevin Schwing; the June 24, 2004 and August 4, 2004 depositions of Lisa A. Schlehuber; the August 5, 2004 and October 15, 2004 depositions of Sandra J. Sommers, Esquire; the September 13, 2004 deposition of Jeffrey Hallinin (plaintiff's former supervisor); and the August 3, 2004 deposition of Valerie Martin (the Human Resources Department Representative present at plaintiff's termination).
We find in favor of plaintiff Kevin Schwing and against defendants Eli Lilly and Company, The Lilly Severance Pay Plan and The Employee Benefits Committee in the amount of $102,130 on plaintiff's claim under the severance pay plan.
We find in favor of defendants Eli Lilly and Company, The Eli Lilly and Company Holiday and Vacation Plan and The Employee Benefits Committee and against plaintiff Kevin Schwing on plaintiff's claim for vacation benefits.
We find in favor of defendants Eli Lilly and Company, The Eli Lilly and Company Health Care Flexible Spending Plan and The Employee Benefits Committee and against plaintiff Kevin Schwing on plaintiff's claim for medical benefits.
On March 2, 2005 during the second day of trial, plaintiff withdrew his claim for benefits under The Eli Lilly and Company Health Care Flexible Spending Plan. See Notes of Testimony of the non-jury trial held before the undersigned ("N.T.") on March 2, 2005 at page 114.
We find in favor of defendants Eli Lilly and Company, the Lilly Global Shares Stock Option Plan and The Employee Benefits Committee and against plaintiff Kevin Schwing on plaintiff's claim for stock options.
On Page 12 of Plaintiff's Answer to Defendants' Memorandum of Law in Support of Defendants' Motion for Summary Judgment filed December 15, 2004, plaintiff stated: "Plaintiff has no objection to the dismissal of the claim for stock options in Count IV of the Complaint." Plaintiff's reference to Count IV of plaintiff's Complaint was incorrect because the claim for stock options was contained in Count VI. However, based upon plaintiff's statement, we grant judgment in favor of defendants and against plaintiff on the claim for stock options.
Finally, we find in favor of defendant Eli Lilly and Company and against plaintiff Kevin Schwing on plaintiff's claim for reimbursement of his final expenses.
FINDINGS OF FACT
Based upon the testimony and evidence adduced at trial, the stipulations of the parties, the agreements of counsel, the pleadings, record papers and the parties' post-trial submissions, we make the following Findings of Fact.
Our Findings of Fact reflect our credibility determinations regarding the testimony and evidence presented at trial. Credibility determinations are within the sole province of the finder of fact, in this case the court. Fed.R.Civ.P. 52; See, e.g. Icicle Seafoods, Inc. v. Worthington, 475 U.S. 709, 715, 106 S.Ct. 1527, 1530, 89 L.Ed.2d 739, 745 (1986). Implicit in our findings is the conclusion that we found the testimony of witnesses credible in part, and have rejected portions of each of their testimony as more fully explained in our discussion.
Plaintiff's Employment
1. Plaintiff Kevin Schwing ("Schwing") worked for defendant The Eli Lilly and Company ("Lilly") from July 4, 1980 until his discharge on August 22, 2001.2. Beginning in 1991, Schwing was employed by Lilly as a retail sales representative for their pharmaceutical products.
3. On January 1, 2001, Jeffrey Hallinin ("Hallinin") took over as the Harrisburg District Sales Manager, and was Schwing's immediate supervisor.
4. At the time of his discharge, Schwing was a retail sales representative in the Sigma/Neuroscience ("Sigma") sales division and reported to Hallinin.
August 22, 2001 Meeting
5. On August 21, 2001 Hallinin requested Schwing to attend a meeting the next day, August 22, 2001, at the Four Points Sheraton hotel, in Harrisburg, Pennsylvania.
6. Prior to the August 22, 2001 meeting, Hallinin discussed his concerns about plaintiff's call reporting and performance with Hallinin's supervisor Valerie Hobson and Valerie Martin ("Martin"), a representative of the Human Resources Department.
7. Martin contacted numerous persons and departments prior to the August 22, 2001 meeting. These included the legal department, the EEOC compliance department and upper management including Val Hobson, the Sales Director.
8. Prior to the August 22, 2001 meeting a script was prepared by Martin and Hallinin to direct the conversation with Schwing. One section of the script included a statement that Schwing was terminated.
Plaintiff's Exhibit 4.
9. When Hallinin asked Schwing to attend the August 22, 2001 meeting, he did not inform Schwing what the substance of the meeting would be.
10. On August 22, 2001 Hallinin and Martin met with Schwing.
11. During the August 22, 2001 meeting, Hallinin and Martin confronted Schwing about sales call data for a six-month period from January 2001 through June 2001.
12. Schwing was specifically confronted with sales call data regarding two medical group practices, Good Hope Family Practice and Middletown Family Practice.
13. Schwing denied intentionally fabricating sales call data.
14. At the meeting and in support of his allegations against Schwing, Hallinin stated that he called the two practices and inquired if certain doctors were "on the schedule" on certain days. Hallinin was advised that some of the doctors that Schwing reported meeting with were not on the schedule on those days.
15. During the meeting, Schwing asked Hallinin to call back Good Hope Family Practice and Middletown Family Practice and ask if the doctors were in the office on the days he reported meeting with them, rather than if they were on the schedule that day.
16. Hallinin refused to call back Good Hope Family Practice and Middletown Family Practice. Hallinin claims that Schwing admitted falsifying the call reports regarding these practices and that is the reason he did not call back these two practices.
On the issue of whether Mr. Schwing admitted falsifying call reports, we find the trial testimony of Mr. Schwing credible that he never admitted to falsifying call reports.
17. During the meeting, Martin took three pages of handwritten notes that were subsequently destroyed. Martin used the original handwritten notes to create a second version of the notes.
18. At the conclusion of the August 22, 2001 meeting, Schwing's employment was terminated by Lilly. The stated reason for the termination was misconduct by falsifying call reports.
19. Plaintiff's computer, vehicle, product samples and certain written materials were returned to Lilly by plaintiff the same day as his termination.
20. Lilly did not have any policy that would permit plaintiff to appeal his termination.
Employee Benefits Committee
21. Lilly sponsors numerous employee benefit plans. The plans relevant to this matter include The Eli Lilly and Company Holiday and Vacation Plan ("Vacation Plan") and The Lilly Severance Pay Plan ("Severance Plan").22. The Employee Benefits Committee reviews all claims under the various employee benefit plans, is the named fiduciary for purposes of ERISA, and has certain powers granted to it.
Section 4.03 of the Eli Lilly and Company Employee Welfare Plan provides in pertinent part:
In addition to any implied powers and duties that may be needed to carry out the provisions of this instrument, the Employee Benefits Committee shall have the following specific powers and duties with respect to the Welfare Plan, and with respect to any Component Plan (or portion thereof) that the Employee Benefits Committee administers:
(a) To make and enforce such rules and regulations as it shall deem necessary or proper for the efficient administration of the Component Plans;
(b) To interpret this Welfare Plan instrument and any Component Plan instrument, and to decide any and all matters arising thereunder, including the right to remedy possible ambiguities, inconsistencies or omissions;
Plaintiff's Exhibit 57 at page 6.
23. Members of the Employee Benefits Committee ("EBC") are sent for training prior to adjudicating claims before the EBC. Attorney Sommers generally gives that training.
Attorney Sommers developed a powerpoint presentation to advise members of their duties and responsibilities as members of the EBC. See Plaintiff's Exhibit 82.
24. Members of the EBC are not specifically advised about their duty of loyalty to plan participants.
N.T., March 8, 2005, at page 47, lines 13-18.
25. Before Schwing's claim for severance benefits, the EBC never had a claim for benefits under the Severance Plan.
26. The EBC relied on Lilly's investigation of Schwing's conduct, the "process" and the input of in-house counsel to make its decision on Schwing's severance benefits.
Lisa Schlehuber testified at her deposition on June 24, 2004 that the company process relied upon by the EBC was a process that "included line management, line HR, human resources, the Affirmative Action/EEO group, that they followed their normal procedures in determining the cause of misconduct." June 24, 2004 Deposition of Lisa Schlehuber at 75; See also N.T., March 8, 2005, at 96.
N.T., March 8, 2005, at 80.
Schwing Benefits Claim Severance Benefit Claim
27. The Severance Plan and Summary Plan description for the Severance Plan were in effect at the time of Schwing's termination on August 22, 2001.
28. At the time of Schwing's termination, Section 3.01 of the Severance Plan provided as follows:
Subject to the discretion of the Employer, and subject to the provisions of subsection 3.02 and . . . Section 4 hereof, an Employee shall be eligible to receive from his employer a severance benefit in the amount calculated in accordance with subsection 3.02 hereof upon termination of the Employee's employment with the Employer for the following reasons:
(a) Discharge, or resignation in lieu of discharge, for reasons other than those specified in subsection 4.03 hereof. . . .
See Plaintiff's Exhibit 56.
29. At the time of Schwing's termination and during the time he was requesting benefits, the Severance Plan was unfunded. No assets were set aside in a special trust specifically for payment of severance benefits.
30. Severance payments come directly from the corporate cash of Lilly.
31. As of August 22, 2001, Schwing's monthly income was $7,295.
32. By letter dated September 28, 2001, Schwing, through his attorney, Elliott Strokoff, Esquire, made a formal claim for severance benefits under the Severance Plan.
Plaintiff's Exhibit 10.
33. In the September 28, 2001 letter, plaintiff contended that the allegations against him were "fabricated and pretextual" and that he was not discharged "for any of the reasons disqualifying him from receiving severance pay under the Severance Plan."
34. In response to the September 28, 2001 letter, Sandra J. Sommers, Esquire, Associate General Counsel of Human Resources for Lilly and counsel to the Employee Benefits Committee, sent a letter informing Attorney Strokoff that the EBC would consider Schwings's claim on November 9, 2001 and that Mr. Schwing could provide the EBC with additional information to support his claim.
Plaintiff's Exhibit 13.
Consideration of Initial Claim for Severance Benefits
35. Prior to the November 9, 2001 EBC meeting, Attorney Sommers requested information from Hallinin and Martin concerning plaintiff's termination.36. Based upon the request of Attorney Sommers, Hallinin drafted two documents entitled "Employee Background" and "Summary of August 22, 2001 Meeting" for use by the EBC in reviewing plaintiff's claim for severance benefits.
Defendants' Exhibit 6.
37. Based upon the request of Attorney Sommers, Martin drafted a document entitled "Meeting Summary with Kevin Schwing August 22, 2001."
Id.
38. The typed summaries provided by Hallinin and Martin were created specifically in response to Schwing's claim to the EBC for severance benefits.
39. On November 7, 2001 each member of the EBC was sent an agenda for the November 9, 2001 meeting by electronic mail ("e-mail").The agenda included a recommendation from Attorney Sommers that Schwing's claim for severance benefits be denied.
40. On November 8, 2001 the EBC members were sent an e-mail of materials submitted to the EBC members for review prior to their November 9, 2001 meeting. The pre-read materials included the summaries created by Hallinin and Martin.
41. Neither plaintiff nor his counsel, Attorney Strokoff were provided the Hallinin and Martin summaries prior to the November 9 meeting.
42. On November 8, 2001 Attorney Strokoff faxed a letter to Attorney Sommers responding to Attorney Sommers' letter dated October 26, 2001. This letter was not provided to the EBC for the November 9 meeting.
43. The EBC was provided with neither the handwritten notes of Martin, nor the script used by Martin and Hallinin during the August 22, 2001 meeting with Schwing.
44. The EBC met on November 9, 2001. Attorney Sommers acted as presenter, delivered a powerpoint presentation to the EBC related to Schwing's claim, and answered questions posed by members of the EBC. Moreover, Attorney Sommers took a major role in determining the content of the pre-read materials.
45. The minutes of the EBC meeting on November 9 state: "The Committee reviewed the facts in the case and denied the claim based upon the language under the Plan stating that termination for misconduct is not severance-eligible."
46. After the November 9 meeting, Attorney Sommers returned to her office and found the November 8, 2001 letter submitted on plaintiff's behalf by Attorney Strokoff.
47. The November 8 letter from Attorney Strokoff stated, among other things, that the allegations against Schwing were fabricated and pretextual; that he was a loyal 21-year employee who was never told the reason for his termination; that during the August 22 meeting, Hallinin and Martin conceded that Schwing was at the group practices at the days and times entered; and that he was "not truly fired for misconduct or dishonesty, but rather as payback for having filed a grievance. . . ."
Plaintiff's Exhibit 15.
48. Prior to submitting Attorney Strokoff's letter to the EBC, Attorney Sommers contacted Hallinin, Martin and Melissa Popa ("Popa") of the Human Resources Department to have them respond to plaintiff's allegations.
49. Based upon the responses of Hallinin, Martin and Popa, Attorney Sommers produced a document that contained both plaintiff's averments together with the responses and forwarded that document to the EBC members for their consideration. Attorney Sommers did not submit the document to plaintiff's counsel.
50. The EBC was unaware that plaintiff was provided neither the Hallinin or Martin summaries, nor the responses they both made to Attorney Strokoff's November 8 letter.
N.T., March 8, 2006, at 109.
51. The EBC reconsidered its November 9 decision in light of the information provided on behalf of plaintiff and again voted to deny Schwing's claim.
52. By letter dated November 30, 2001, the EBC notified Attorney Strokoff that it had denied Schwing's claim under the severance plan.
Appeal of Denial of Severance Benefits
53. By letter dated December 10, 2001, Schwing, through his attorney, appealed the denial of his severance claim and requested that the EBC provide him with additional information about the reasons for the denial of his claim.
54. On January 25, 2002 Attorney Sommers responded to the December 10, 2001 letter from Attorney Strokoff and provided the information which the EBC considered in reviewing Schwing's claim for severance benefits. The letter further advised that Schwing had until February 28, 2002 to provide any additional information for the next EBC meeting on March 5, 2002.
55. By letter dated February 28, 2002, Attorney Strokoff submitted additional information to the EBC. In addition, the letter requested a hearing to permit plaintiff to present the doctors in question who according to plaintiff were prepared to testify on his behalf and to resolve the credibility determinations which the matter required.
Plaintiff's Exhibit 30.
56. On March 2, 2002 Schwing sent a letter to the severance committee outlining additional information for the EBC's review and specifically addressing the contentions of Mr. Hallinin's summaries and his responses to the November 8, 2001 letter from Attorney Strokoff.
57. The EBC did not meet as scheduled on March 5, 2002.
58. On March 29, 2002 Charles A. Grandy, an attorney in Attorney Sommers group, sent a memorandum by e-mail to the EBC members regarding plaintiff's appeal of the denial of severance benefits. The e-mail contained a statement by John Purcell, Manager of the Employee Benefits and Services Department at Lilly, recommending that Schwing's appeal be denied. The e-mail further asked each member to review the submitted materials and notify EBC Secretary Kimberly Peterson of their vote.
59. The EBC never met to discuss Schwing's appeal. The matter was decided on a "consent to action".
60. The EBC claims it never received the March 2, 2002 letter sent Schwing, and did not consider it.
61. On April 15, 2002 Schwing sent two letters dated April 9 and 13, 2006 to Laura Lemmons, a paralegal in Attorney Sommers department, in support of his claim for severance benefits.
Plaintiff's Exhibits 36 and 37.
62. Attorney Sommers did not forward the April 9, 2002 and April 13, 2002 letters from Schwing to the EBC.
63. By letter dated April 22, 2002 plaintiff was notified that the EBC denied his appeal for severance benefits.
64. The EBC did not conduct a hearing on either plaintiff's original claim for severance benefits or his appeal.
65. The EBC was empowered to conduct a hearing on plaintiff's claim for severance benefits.
See Plaintiff's Exhibit 57 at page 7. (Claims Review Procedure Section 4.07(4)).
66. The EBC did not issue a decision on plaintiff's appeal within the time required by the Severance Plan.
The Severance Plan incorporates the Claims Review Procedure set forth in the Eli Lilly and Company Employee Welfare Plan. Section 4.07(4) of the Welfare Plan provides in pertinent part:
The decision by the Employee Benefit Committee with respect to review [of the denial of a claim] will be given within 60 days after receipt of the request, unless special circumstances require an extension (such as a hearing). In no event will the decision be delayed beyond 120 days after receipt of the request for review.
In this case, plaintiff's appeal letter was dated December 10, 2001 and was received on December 17, 2001. The EBC did not issue the ruling on the denial of the appeal until April 22, 2002, 126 days after the receipt of the appeal.
Plaintiff's Vacation Pay Claim
67. Pursuant to its standard practice, Lilly paid Schwing his normal monthly salary on August 15, 2001 for the entire month of August 2001.68. Lilly terminated Schwing's employment on August 22, 2001.
69. Schwing had accrued 13 vacation days as of August 22, 2001.
70. Schwing used eight vacation days prior to August 22, 2001, leaving five accrued vacation days.
71. Because Lilly paid Schwing for the entire month on August 15, 2001 and terminated him on August 22, 2001, Lilly's last paycheck to Schwing overpaid him for seven days.
72. Schwing did not make a claim to the EBC for vacation pay under the Vacation Plan.
73. Schwing did not exhaust administrative remedies under the vacation plan regarding any vacation pay claim.
Breach of Oral Contract
75. As a matter of business practice, Lilly does reimburse its sales representatives for specific expenses incurred in carrying out Lilly's business.76. Lilly requires sales representatives to submit their expenses in accordance with Lilly guidelines.
77. Hallinin gave Schwing a final expense report form.
79. Schwing submitted his final expense report to Hallinin.
80. Plaintiff's final expense report contained expenses for a large event that was not pre-approved by Hallinin.
81. Plaintiff was explicitly told that he would not be reimbursed for this large event expense.
82. It is Lilly's practice to deny any expense report in whole when any individually claimed expense is denied.
83. Plaintiff's final expense report contained an individually claimed expense that was denied.
83. Plaintiff never followed up on seeking reimbursement for his final expense report.
CONCLUSIONS OF LAW
1. The decision of the Employee Benefits Committee denying plaintiff's claim for severance benefits was arbitrary and capricious.
2. The Employee Benefits Committee did not give plaintiff a full and fair review of his severance claim.
3. Attorney Sommers' conduct in this matter constitutes a conflict of interest.
4. Plaintiff is entitled to judgment for the severance benefit he is due in the amount of $102,130.
5. Counsel for plaintiff are entitled to attorneys' fees as the prevailing party on plaintiff's claim for severance benefits.
6. Plaintiff has not proven by a preponderance of the evidence that he is entitled to any unpaid vacation time.
7. Plaintiff has not proven by a preponderance of the evidence that he is entitled to any reimbursement for final expenses.
DISCUSSION Standard of Review
Under ERISA a beneficiary of a benefits plan may bring an action to recover benefits due to him under the plan. 29 U.S.C. § 1132(a)(1)(B); Poehlmann v. Deutsche Bank Americas Severance Pay Plan, 2005 U.S. Dist. LEXIS 16118 at *13 (E.D.Pa. Aug. 8, 2005) (Schiller, J.). However, ERISA is silent on the proper standards by which the district court should review fact findings made by plan administrators. Luby v. Teamsters Health, Welfare Pension Trust Funds, 944 F.2d 1176, 1179 (3d Cir. 1991).
In Firestone Tire and Rubber Company v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), the United States Supreme Court held that courts must review a denial of ERISA benefits under a de novo standard of review unless the "benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." When the plan confers such discretion, courts are to apply an arbitrary and capricious standard of review. Smathers v. Multi-Tool Inc./Multi-Plastics, Inc. Employee Health and Welfare Plan, 298 F.3d 191, 194 (3d Cir. 2002); Doyle v. Nationwide Insurance Companies Affiliates Employee Health Care Plan, 240 F.Supp.2d 328, 335 (E.D.Pa. 2003).
In this case, the Lilly Employee Welfare Plan ("Welfare Plan"), of which the Severance Plan is a component part, grants broad discretion to the Employee Benefits Committee. Section 4.03 of the Welfare Plan specifically authorizes the EBC to "interpret" the terms of the plan and the terms of each component plan and "to decide any and all matters arising thereunder, including the right to remedy possible ambiguities, inconsistencies or omissions."
We conclude that the grant of authority to the EBC to construe the terms of the plan and decide all matters arising thereunder confers the necessary discretion to take the this matter out of the de novo standard of review. Accordingly, we conclude that a de novo standard of review is not appropriate.
However, this does not end our inquiry. As an alternative to de novo review, plaintiff seeks to have the court utilize a heightened arbitrary and capricious standard of review pursuant to the decision of the United States Court of Appeals for the Third Circuit in Pinto v. Reliance Standard Life Insurance Company, 214 F.3d 377 (3d Cir. 2000). This heightened standard is a sliding scale which enables the court to review the merits of the determination of the EBC to determine if it is "consistent with an exercise of discretion by a fiduciary acting free of the interests that conflict with those of beneficiaries." 241 F.3d at 391.
"[W]hen a court is deciding what standard of review to employ — arbitrary and capricious review, or some higher standard under Pinto — it may consider evidence of potential biases and conflicts of interest that is not found in the administrator's record." Kosiba v. Merck Company, 384 F.3d 58, 67 n. 5 (3d Cir. 2004), cert denied 544 U.S. 1044, 1255 S.Ct. 2252, 161 L.Ed.2d 1079 (2005). The burden of proof is on plaintiff to show that a heightened standard of review is appropriate. Schlegel v. Life Insurance Company of North America 269 F.Supp.2d 612, 617 (E.D.Pa. 2003).
In this case, as more fully explained below, we conclude that Attorney Sommers, in-house counsel for defendant Eli Lilly and Company, was operating under a serious conflict of interest and that the structural relationship of her role as counsel for both Lilly and the EBC tainted the review process. Accordingly, based upon the conflict of interest of Attorney Sommers, we conclude that plaintiff has satisfied his burden, and we must apply a heightened arbitrary and capricious standard.
Conflict of Interest
Plaintiff contends that in her role as counsel for the EBC, Attorney Sommers had a fiduciary duty to plaintiff. In this regard, plaintiffs rely on the case of Koch v. Exide Corporation, 1989 U.S. Dist. LEXIS 5083 (E.D.Pa. May 9, 1989) (Hewitt, J.).
On the contrary, defendants contend that under ERISA, an employee(including an attorney) of a plan's sponsor can advise the plan's fiduciary on benefit claims. Defendants rely on the decision of the United States Court of Appeals for the Third Circuit in Ashenbaugh v. Crucible, Inc., 1975 Salaried Retirement Plan, 854 F.2d 1516 (3d Cir. 1988). For the following reasons, we agree in part with plaintiff and in part with defendants.
In Koch, the court stated: "When an attorney advises a fiduciary about a matter dealing with the administration of an employees' benefit plan, the attorneys' client is not the fiduciary personally but, rather, the trust's beneficiaries." This general proposition has been applied in numerous courts in the context of the attorney-client privilege.
Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970); In re Unisys Corporation Retiree Medical Benefits ERISA Litigation, 1994 U.S. Dist. LEXIS 1344 (E.D.Pa. Jan. 5, 1994) (Cahn, C.J.); Washington-Baltimore Newspaper Guild Local 35 v. The Washington Star Company, 543 F.Supp. 906 (D.D.C. 1982);Riggs National Bank of Washington D.C. v. Zimmer, 355 A.2d 709 (Del.Ch. 1976).
None of the cases applying this concept have declared that a fiduciary relationship exists between the attorney and the beneficiary. Thus, we disagree with plaintiff's contention that a fiduciary relationship existed between Attorney Sommers and Mr. Schwing in this case. Moreover, we agree with defendants that there is nothing inherently improper with Attorney Sommers providing advice to the EBC. See Ashenbaugh, supra. However, it is illogical to conclude that in the context of the attorney-client privilege, the relationship between counsel for the fiduciary and the beneficiary is one of attorney and client but that attorney-client relationship does not exist in any other circumstance.
More specifically, as counsel to the EBC, Attorney Sommers represented the EBC and all the beneficiaries of the plan, including Mr. Schwing. In that regard, Attorney Sommers could give legal advice and opinions to EBC members regarding their duties and responsibilities as fiduciaries, give guidance on the meaning of terms contained in plan documents or answer questions EBC members may have had.
In this regard, we conclude that Attorney Sommers is free to act as counsel for the EBC, but is not free to also act as counsel for the company at the same time. We conclude that this is exactly what happened in this case.
Furthermore, we conclude that Attorney Sommers was not required to act as actual counsel or as an advocate for Mr. Schwing, (he had his own counsel Mr. Strokoff), but Attorney Sommers could not act against Mr. Schwing's interests because he is also her client for purposes of her representation of the EBC.
To adhere to her obligations to as counsel for the EBC, Attorney Sommers was obligated to exhibit neutrality, and she failed to do so. Rather, what Attorney Sommers did was act as both counsel for Lilly and for the EBC at the same time. Attorney Sommers' actions in this case created a serious conflict of interest and denied plaintiff a full and fair review by the EBC.
Attorney Sommers acted as gatekeeper for the documents that the EBC would consider. Specifically, she requested that Mr. Hallinin and Ms. Martin provide summaries of the events concerning plaintiff's termination of employment. However, Attorney Sommers did not provide those summaries to plaintiff or his counsel before the appeal process. In addition, Mr. Hallinin's "Employee Background" summary included information that was not part of the decision to fire Mr. Schwing, and was relevant for no other purpose than to hold Mr. Schwing in a bad light.
Moreover, when Attorney Strokoff submitted his November 8, 2001 letter on behalf of plaintiff, Attorney Sommers contacted Mr. Hallinin, Ms. Martin and Ms. Popa and requested that they respond to plaintiff's allegations. Once again, these responses were not provided to plaintiff until after the EBC ruled on his original claim for benefits.
All of Attorney Sommers actions were consistent with her role as in-house counsel for Lilly, not as counsel for the EBC and certainly not in the interests of Mr. Schwing. In addition, Attorney Sommers included in her presentation to the EBC a recommendation that Mr. Schwing's claim for severance benefits be denied. This was clearly against Mr. Schwing's interest.
Finally, with regard to plaintiff's appeal of the original determination by the EBC to deny benefits, Attorney Sommers kept from the EBC certain documents sent by plaintiff after the February 28, 2002 deadline for submission of materials, but before the April 22, 2002 decision by the EBC to deny plaintiff's appeal. We conclude that this act was done to plaintiff's detriment.
However, as noted above, Attorney Sommers had previously solicited responses to plaintiff's contentions from Mr. Hallinin, Ms. Martin and Ms. Popa after the deadline for submissions. Moreover, Hallinin and Martin were permitted to respond to Mr. Strokoff's February 28, 2002 letter after the February 28, 2002 deadline and these responses were never sent to plaintiff or his counsel.
Attorney Sommers actions evidences an arbitrary exercise of discretion in favor of the company. As noted earlier, when Attorney Sommers is acting in her role as counsel for the EBC, she may not also simultaneously act as counsel for the company. She must divorce herself from the company when acting as counsel for the EBC. To do otherwise enables the company to improperly dominate the decisions of the EBC.
For all the foregoing reasons, we conclude that Attorney Sommers operated under a serious conflict of interest which denied plaintiff the full and fair review that is required under ERISA and the Severance Plan, her actions tainted the entire process and created an unfair advantage for the company. Accordingly, applying a heightened arbitrary and capricious standard to the decisions of the EBC, we conclude that plaintiff is entitled to benefits under the Severance Plan.
Arbitrary and Capricious Review
In the event that we are mistaken in our analysis above, we review the decision of the EBC under the traditional arbitrary and capricious standard of review as well.
The arbitrary and capricious standard is deferential to the decisionmaking of the EBC and is akin to the abuse of discretion standard commonly utilized by courts. See Abnathya v. Hoffman-La Roche, Inc., 2 F.3d 40 (3d Cir. 1993). In reviewing a matter under the arbitrary and capricious standard, a district court "may overturn a decision of the Plan administrator only if it is without reason, unsupported by substantial evidence or erroneous as a matter of law." 2 F.3d at 45. The decision of the plan administrator is supported by substantial evidence "if there is sufficient evidence for a reasonable person to agree with the decision." Courson v. Bert Bell NFL Player Retirement Plan, 214 F.3d 136, 142 (3d Cir. 2000).
In analyzing the reasonableness of the EBC's decisions, we must examine the record before the EBC as a whole. We must not substitute our own judgment for that of the EBC in determining whether to award benefits. Poehlmann, 2005 U.S. Dist. LEXIS at *20.
The "task as a reviewing court is to determine first, whether the administrator considered all the relevant factors, and second, whether the decision constituted a clear error of judgment. Daniels v. Anchor Hocking Corporation, 758 F.Supp. 326, 331 (W.D.Pa. 1991). Accordingly, unless the decisions of the EBC were not rational, we must uphold its decisions. Shiffler v. Equitable Life Assurance Society, 838 F.2d 78 (3d Cir. 1988).
EBC Review of Plaintiff's Initial Claim
In our review of the decisions of the EBC, we do not address the conduct of Attorney Sommers. Rather, we look solely at the documents that were submitted to the EBC for their consideration.
In its initial determination, the EBC had before it the following documents: (1) the Employee Background summary prepared by Jeff Hallinin; (2) the Summary of August 22, 2001 Meeting prepared by Jeff Hallinin; (3) the Summary of August 22, 2001 Meeting prepared by Valerie Martin; (4) the November 8, 2001 Letter from Attorney Strokoff with the superimposed responses from Mr. Hallinin, Ms. Martin and Ms. Popa; and (5) the presentation slides from the November 9, 2001 meeting of the EBC prepared by Attorney Sommers.
We do not address the documents the EBC had before it on November 9, 2001 because the EBC reconsidered its November 9, 2001 decision after Attorney Sommers resubmitted the matter for consideration upon receipt of the November 8, 2001 letter from Attorney Strokoff.
Plaintiff's Exhibit 6.
Plaintiff's Exhibit 7.
Plaintiff's Exhibit 9.
Defendants' Exhibit 9.
Defendants' Exhibit 9.
A review of the materials submitted to the EBC reveals that there are conflicting explanations of the events between the pertinent individuals. Specifically, Mr. Hallinin and Ms. Martin alleged that Mr. Schwing knew the reasons for his termination. Plaintiff disputed this. In addition, Mr. Hallinin and Ms. Martin asserted that when the calls were placed by Mr. Hallinin to the Good Hope Family Practice and the Middletown Family Practice they were told that some of the doctors plaintiff reported seeing on certain days were not in the office that day.
Plaintiff contended to the contrary, that according to Jeannie, the receptionist at Good Hope Family Practice, the question asked by Mr. Hallinin was whether the doctors were "on the schedule" on a given day? Plaintiff contended that was not the correct question. Rather, the correct question should have been whether the doctors were "in the office" on a particular day, notwithstanding whether or not they were on the schedule.
Plaintiff further asserted that the doctors were in the office on the days in question and that he saw all of the doctors which he reported seeing. Moreover, plaintiff asserted that Mr. Hallinin and Ms. Martin conceded at the August 22, 2001 meeting that Mr. Schwing was present at the group practices and that he possessed written confirmation of his presence.
Next, plaintiff asserted to the EBC his belief that the actions of Mr. Hallinin and Ms. Martin were in retaliation for a prior grievance he filed involving Sales Manager Val Hobson. Mr. Hallinin and Ms. Martin denied that there was any retaliation.
Ms. Schlehuber testified that the EBC relied on the company "process" in making its decision; that it was not the role of the EBC to review the reasons or rationale for the termination of plaintiff's employment; that the EBC did not debate the actual actions of the company which resulted in the determination to fire Mr. Schwing; that the EBC relied on the investigation of the company; and that it took the statements of Mr. Hallinin and Ms. Martin at face value.
N.T., March 8, 2005, at 96.
June 24, 2004 Deposition of Lisa Schlehuber, at 125.
June 24, 2004 Deposition of Lisa Schlehuber, at 127.
N.T., March 8, 2005, at 116.
N.T., March 8, 2005, at 117.
Based upon all of Ms. Schlehuber's statements about what the EBC did and did not do in this matter, we conclude that plaintiff was denied a full and fair review of his severance claim because the EBC "wholly abdicated its responsibility to make even a cursory investigation into Plaintiff's claim, and thereby unreasonably concluded that Plaintiff's claim should be denied."Poehlmann, 2005 U.S. Dist. LEXIS at *26.
In general, the EBC was not required to conduct an evidentiary hearing. The EBC has no affirmative duty to gather information in making its determination. See Doyle, 240 F.Supp.2d at 340, (citing Pinto, 214 F.3d at 394 n. 8; see also Friess v. Reliance Standard Life Insurance Insurance Company, 122 F.Supp.2d 566, 573 (E.D. Pa. 2000). However, the EBC did have an affirmative duty to take into account all comments, documents, records, and other information submitted by the claimant relating to the claim. 29 C.F.R. 2560.503-1(h)(2)(iv).
The EBC owed plaintiff a fiduciary duty of loyalty. The EBC was not aware of this duty. By simply crediting the statements, investigation and conclusions of the company representatives, the EBC breached its duty of loyalty to plaintiff. Moreover, it was unreasonable to simply credit the averments of the company representatives in the face of a serious challenge to these averments. Poehlmann, 2005 U.S. Dist. LEXIS at *27.
Varity Corporation v. Howe, 516 U.S. 489, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996).
See Finding of Fact 24.
We conclude that the EBC completely abdicated its responsibilities in this case and in doing so, its decision on the initial claim was arbitrary and capricious. Had the EBC done more than just simply credit the investigation and conclusions of the company in this matter, it may well have determined that plaintiff had not committed misconduct. The failure to engage in any independent analysis with conflicting accounts presented to it is what makes the EBC's determination unreasonable, and thus, arbitrary and capricious.
EBC Review of Plaintiff's Appeal
In its review of plaintiff's appeal of the initial denial of his claim for severance benefits, the EBC was presented with all the documents reviewed on the initial appeal together with the February 28, 2002 letter from Attorney Strokoff and responses to that letter by Mr. Hallinin and Ms. Martin.
The EBC did not actually meet regarding plaintiff's appeal. Rather, they individually reviewed the documents and consented to issue a decision without a meeting.
We note that Attorney Strokoff's letter provided additional information indicating conflict between the accounts of Mr. Hallinin and Ms. Martin and that of plaintiff. The plaintiff's averment that he never admitted falsifying any records of client calls is significant in this regard.
Moreover, plaintiff pointed out to the EBC that there may be handwritten notes of the August 22, 2001 meeting which were not been produced by the company. In addition, plaintiff alleged that both Mr. Hallinin and Ms. Martin acknowledged that they knew of plaintiff's prior grievance. Finally, plaintiff questioned how the EBC could come to its decision on his claim for severance benefits without conducting an investigation or holding a hearing to resolve the numerous factual differences.
The responses of Mr. Hallinin and Ms. Martin attempted to refute plaintiff's assertions. However, what those responses reveal is that there were considerable differences between their version and Mr. Schwing's version of the events. The credibility of a person cannot be determined on a cold record. Moreover, in light of the divergent accounts given by the company representatives and Mr. Schwing, it appears that the EBC came to its determination by simply crediting the company process and witnesses. As noted above, that is improper and a complete dereliction of its duties under the Severance Plan and under ERISA. Poehlmann, supra.
Accordingly, based upon all the foregoing, we conclude that the decision of the Employee Benefits Committee to deny plaintiff severance benefits was arbitrary and capricious. Therefore, plaintiff is entitled to severance benefits in the amount of $120,130.
The $120,130 figure is determined by multiplying plaintiff's final monthly salary by fourteen based upon the number of years of service (21 years but less than 22 years). See Plaintiff's Exhibit 56 (The Lilly Severance Pay Plan at Section 3.02(a)).
Vacation Claim
Plaintiff seeks compensation for vacation days accrued but not taken prior to his termination of employment. Specifically, plaintiff seeks $4,851.17 for eleven unused vacation days.In response, defendants assert that plaintiff is not entitled to any vacation pay. Defendants contend that plaintiff accrued vacation time each month. Specifically, plaintiff had accrued 13 vacations days as of August 22, 2001 when his employment was terminated. Moreover, defendants note that plaintiff testified that he had already used one week of vacation and an additional two or three days prior to his firing.
In addition, defendants contend that because plaintiff was paid monthly on the 15th day of each month (representing two weeks compensation for past work, and two weeks for future work), plaintiff was paid for seven days on which he did not work (because of his termination). Defendants argue that plaintiff's receipt of seven days pay for work plaintiff did not perform offsets the company's obligation to compensate plaintiff for seven days of unused vacation.
Defendants assert that after deducting those seven days from plaintiff's accrued 13 vacation days, plaintiff was entitled to 6 vacation days during that period. However, plaintiff took seven or eight vacation days prior to being fired. Therefore, plaintiff is not entitled to any additional vacation benefits. We agree.
Finally, defendant contends that plaintiff never made a claim with the EBC under The Eli Lilly and Company Holiday and Vacation Plan for these vacation benefits and is barred by ERISA from seeking those benefits now for failure to exhaust his administrative remedies.
In response to the exhaustion requirement, plaintiff contends that he is excused from exhausting administrative procedures under ERISA if it would be futile to do so. Harrow v. Prudential Insurance Company of America, 279 F.3d 244, 249 (3d Cir. 2002). However, we do not need to address the exhaustion issue because we conclude that plaintiff is not entitled to any vacation time for the following reasons.
Specifically, based upon the testimony of plaintiff, we conclude that he used either seven or eight vacation days prior to the termination of his employment. Moreover, plaintiff does not dispute that he was paid for the entire month of August 2001, that he was fired on August 22, 2001 and that therefore, he was paid for an additional seven days after his termination.
This computation results in plaintiff either using or being paid for at least fourteen and possibly fifteen days of vacation time. Plaintiff had only accrued 13 days vacation at the time of his dismissal. Therefore, we conclude that plaintiff has not proven by a preponderance of the evidence that he is entitled to any remaining vacation time that he has not otherwise used or been compensated for.
Accordingly, notwithstanding the fact that plaintiff never submitted a claim for vacation benefits, we conclude that he is not entitled to any further vacation compensation.
Breach of Contract
Plaintiff asserts a cause of action for breach of an oral contract related to his final expense report. In this regard, plaintiff contends that he submitted a final expense report in the amount of $2,033.09 on the form provided by his supervisor, Mr. Hallinin, and was not paid for those expenses.
In response to plaintiff's claim, defendants contend that Mr. Schwing never submitted a proper expense report. Specifically, defendants contend that the expense report submitted by plaintiff contained claims for improper expenses. Moreover, defendants contend that the Lilly company policy in effect at the time was that if any claimed expense were denied, the entire expense report would be denied with leave to resubmit without the denied expense.
Defendants contend that when Mr. Schwing submitted his final expense report it contained an expense for a program for physician assistants that Mr. Schwing had been told by Mr. Hallinin would not be reimbursed because of budget restraints.
Plaintiff contends that the physician assistant program was very important to his business, was scheduled prior to the new guidelines for these types of programs, and that Mr. Hallinin agreed that he would be reimbursed. Therefore, plaintiff asserts that he and Mr. Hallinin had an oral contract regarding payment of this expense. Moreover, plaintiff contends that Mr. Hallinin never denied any previous expense prior to his employment being terminated.
For the following reasons, we conclude that plaintiff has not proven the existence of an oral contract by a preponderance of the evidence. Furthermore, plaintiff has not proven by a preponderance of the evidence what, if any, expenses submitted to Lilly are proper.
Plaintiff's Exhibit 60 is a copy of Mr. Schwing's final expense report. It contains request for reimbursement of certain business meals or entertainment, a claim for mileage and expenses for his home telephone and cellular phone. It is clear from the testimony adduced at trial that the charge for Leeds Bar and Grill in the amount of $1,067 was disputed by defendant Lilly. However, it is unclear whether any other charge was disputed. Plaintiff did not offered any testimony or evidence in support of any other claimed expense on the report beyond the Leeds Bar and Grill expense.
Plaintiff contends that he and Mr. Hallinin entered into an oral contract whereby Mr. Schwing would be reimbursed for the physician assistant program at Leeds Bar and Grill in Harrisburg, Pennsylvania. However, Mr. Schwing admitted that Mr. Hallinin advised him that this expense would not be approved. Mr. Schwing contends that this oral agreement was contingent on Mr. Schwing increasing his sales of the drug Zyprexa.
We did not find Mr. Schwing's testimony regarding this oral agreement credible. Moreover, we conclude that this alleged oral agreement was too speculative to be enforceable. There was no indication by Mr. Schwing how much of an increase in sales he would have to attain to qualify for the reimbursement. Moreover, there is no indication that Mr. Hallinin had the authority to bind defendant Lilly to such an agreement.
It seems that at best, Mr. Schwing had an agreement from Mr. Hallinin that if Mr. Schwing's sales of Zyprexa increased to some unknown number, Mr. Hallinin might talk to his supervisor about getting Mr. Schwing reimbursed for this expense. This is not an enforceable contract for reimbursement by Lilly.
In addition, while plaintiff submitted his final expense report into evidence, he did not explain or justify any other charge on the expense report other than the Leeds Bar and Grill expense. Moreover, plaintiff conceded that he never followed up with the Human Resources Department at Lilly to ascertain whether he could be reimbursed for any other expenses.
Based upon the evidence before the court, it is impossible to determine what, if any, expenses contained on plaintiff's final expense report are legitimate. Accordingly, we conclude that plaintiff has not satisfied his burden of proving his claim by a preponderance of the evidence.
Accordingly, plaintiff's claim for breach of oral contract and his concurrent claim for reimbursement of his final expenses is denied.
Attorneys' Fees
Both parties have requested attorneys' fees pursuant to 29 U.S.C. § 1132(g) in this matter. Plaintiff prevailed on his claim for severance benefits and may be entitled to attorneys' fees as the prevailing party. Defendants contend that they are entitled to counsel fees for having to defend a number of meritless claims originally filed and subsequently withdrawn by plaintiff including: The Lilly Health Plan; The Eli Lilly and Company Life Insurance and Death Benefit Plan; The Eli Lilly and Company Healthcare Flexible Spending Plan; The Eli Lilly and Company Dependent Daycare Flexible Spending Plan; The Lilly Dentalplus Plan; PCS Pharmacy Benefits Management Service Program; The Lilly Employee Savings Plan; The Lilly Retirement Plan; and The Lilly Global Shares Stock Option Plan. We make no determination on any award of counsel fees by any party at this time. We will permit any party to file a proper fee petition on or before November 15, 2006.
CONCLUSION
For the reasons expressed above, we find in favor of plaintiff Kevin Schwing and against defendants Eli Lilly and Company, The Lilly Severance Pay Plan and The Employee Benefits Committee in the amount of $102,130 on plaintiff's claim under the severance pay plan.
We find in favor of defendants Eli Lilly and Company, The Eli Lilly and Company Holiday and Vacation Plan and The Employee Benefits Committee and against plaintiff Kevin Schwing on plaintiff's claim for vacation benefits.
We find in favor of defendants Eli Lilly and Company, The Eli Lilly and Company Health Care Flexible Spending Plan and The Employee Benefits Committee and against plaintiff Kevin Schwing on plaintiff's claim for medical benefits. We find in favor of defendants Eli Lilly and Company, the Lilly Global Shares Stock Option Plan and The Employee Benefits Committee and against plaintiff Kevin Schwing on plaintiff's claim for stock options.
And we find in favor of defendant Eli Lilly and Company and against plaintiff Kevin Schwing on plaintiff's claim for reimbursement of his final expenses.
Finally, all parties have until November 15, 2006 to file a fee petition pursuant to 29 U.S.C. § 1132(g).
VERDICT
NOW, this 29th day of September, 2006, upon consideration of the non-jury trial held March 1, 2, 3, 4, 7 and 8, 2005 and November 22, 2005; after closing arguments; upon consideration of the testimony and evidence adduced at trial; upon consideration of the pleadings and record papers; upon consideration of the parties' post-trial submissions; and for the reasons expressed in the accompanying Adjudication, including Findings of Fact, Conclusions of Law, and Discussion:We find in favor of plaintiff Kevin Schwing and against defendants Eli Lilly and Company, The Lilly Severance Pay Plan and The Employee Benefits Committee in the amount of $102,130 on plaintiff's claim under the severance pay plan.
We find in favor of defendants Eli Lilly and Company, The Eli Lilly and Company Holiday and Vacation Plan and The Employee Benefits Committee and against plaintiff Kevin Schwing on plaintiff's claim for vacation benefits.
We find in favor of defendants Eli Lilly and Company, The Eli Lilly and Company Health Care Flexible Spending Plan and The Employee Benefits Committee and against plaintiff Kevin Schwing on plaintiff's claim for medical benefits.
We find in favor of defendants Eli Lilly and Company, the Lilly Global Shares Stock Option Plan and The Employee Benefits Committee and against plaintiff Kevin Schwing on plaintiff's claim for stock options.
Finally, we find in favor of defendant Eli Lilly and Company and against plaintiff Kevin Schwing on plaintiff's claim for reimbursement of his final expenses. IT IS FURTHER ORDERED that judgment is granted in favor of plaintiff Kevin Schwing and against defendants Eli Lilly and Company, The Lilly Severance Pay Plan and The Employee Benefits Committee in the amount of $102,130 on plaintiff's claim under the severance pay plan.
IT IS FURTHER ORDERED that judgment is granted in favor of defendants and against plaintiff Kevin Schwing on all remaining claims.
IT IS FURTHER ORDERED that the Clerk of Court shall enter judgment in favor of plaintiff Kevin Schwing against defendant Eli Lilly and Company in the amount of $102,130. IT IS FURTHER ORDERED that the parties shall have until on or before November 15, 2006 to file a petition for counsel fees pursuant to 29 U.S.C. § 1132(g).
It is the sense of this Order that because The Lilly Severance Pay Plan is unfunded and the payment of any severance benefit is ultimately the responsibility of defendant Eli Lilly and Company, we have directed the Clerk of Court to enter judgment only against Eli Lilly and Company.
IT IS FURTHER ORDERED that the Clerk of Court shall mark this matter closed for statistical purposes.