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October 15, 1992

JACK ADLER, et. al. Plaintiffs, against AZTECH CHAS. P. YOUNG COMPANY, et. al., Defendants.


The opinion of the court was delivered by: KIMBA M. WOOD



 Defendants move pursuant to F.R.Civ.P. 12(b)(6) to dismiss both counts of this ERISA and fraud action. Alternatively, they move, pursuant to Rule 9(b), to dismiss plaintiffs' fraud claim for failure to plead fraud with sufficient particularity, and, pursuant to Rule 12(f), to strike plaintiffs' requests for punitive damages and a jury trial on the ERISA cause of action. For the reasons explained below, I deny defendants' motion to dismiss the ERISA claim in its entirety, but grant defendants Devon's and Koch's motion to dismiss the ERISA claim against them, without prejudice to plaintiffs amending their complaint on that issue. I grant defendants' motion to dismiss the fraud claim for failure to state a claim and therefore need not reach their motion to dismiss for failure to plead fraud with sufficient particularity. Because plaintiffs apparently requested punitive damages only on their fraud claim, I grant defendants' motion to strike plaintiffs' request for punitive damages. Finally, I grant defendants' motion to strike plaintiffs' request for a jury trial without prejudice.


 A. The Events Precipitating This Action

 Plaintiffs are former employees of defendants Aztech Chas P. Young Company and KAR Financial Printing of New Jersey, Inc. (collectively referred to as "the companies"). They are suing their former employers because, they allege, defendants improperly failed to provide them with severance pay when the companies terminated plaintiffs' employment between April 1991 and May 1991. They are also suing Devon Group, Inc., Aztech's majority stock holder, and Bruce K. Koch, who served as both KAR's Chief Executive Officer and Aztech's Chief Executive Officer and as one of Devon's executive officers. Plaintiffs give the following account of the relevant events leading up to their termination. *fn1"

 Throughout most of plaintiffs' tenure at Aztech and KAR, those companies maintained both a written severance plan and a more generous, unwritten severance plan. According to plaintiffs, the unwritten severance plan always ruled, a fact that was well known to all company employees. See Amended Complaint PP 9, 13. In December 1990, with the companies in financial difficulty and management attempting to find buyers for them, the companies notified all employees via a memorandum that the written severance policy was no longer effective and that the companies were reserving the discretion to pay or not to pay severance benefits to any employee terminated thereafter. Id. at PP 15-16. A short while later, however, the company distributed a severance plan providing for severance pay that conformed to the earlier unwritten policy. Id. at P 17-l8. While this new policy purported to leave management with discretion to pay or not to pay severance benefits, the company paid all employees terminated in December 1990 and January 1991 in accordance with the new policy's formula, and, more importantly for the current cause of action, management orally assured all remaining employees that this new formula would continue to govern employees' severance benefits until the companies' sale or closure. Id. at P 19. Based on these assurances, plaintiffs remained in the companies' employ. Id. at P 20. Nevertheless, when the companies ultimately terminated plaintiffs' employment in April and May 1991, they refused to give plaintiffs any severance pay. Id. at P 20.

 B. The Complaint and the Motions to Dismiss and to Strike

 Plaintiffs' amended complaint asserts two causes of action, one under the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1132(e) et. seq. ("ERISA"), and one for common law fraud. The ERISA cause of action, although not pleaded with great clarity, apparently alleges that the companies' post-December 1990 oral representations, combined with the December memorandum, established a new employee welfare plan; that the companies did not comply with ERISA requirements for administering that plan; and that defendants arbitrarily and capriciously refused to pay plaintiffs the severance benefits owed them under the plan, in breach of their ERISA-imposed fiduciary duties to plaintiffs. The fraud cause of action, which is pled more clearly and succinctly than the ERISA claim, alleges that despite the written December termination of the companies' severance policy, defendants induced plaintiffs to remain in the companies' employ by falsely promising that severance benefits would continue in accordance to the old formula. In an apparent intermingling of the two causes of action, plaintiffs request punitive damages because "Defendants willfully and maliciously denied plaintiffs their severance pay and egregiously violated their fiduciary duties to plaintiffs under 29 U.S.C. § 1104(a)." Amended Complaint P 36. Plaintiffs request as damages the severance pay denied them and prejudgment interest, a declaration that "all severance rights are nonforfeitable and that the purported termination of the severance pay is ineffective and void as a matter of law," attorneys fees, and punitive damages. They also request a jury trial "on all issues so triable."

 Defendants move to dismiss the amended complaint on a number of grounds and to strike plaintiffs' demands for punitive damages and a jury trial. Regarding the ERISA claim, Defendants argue that ERISA allows employers unfettered discretion to terminate severance benefit plans at any time and thus leaves plaintiffs without a cause of action. Alternatively, even if the amended complaint does state a claim against KAR and Aztech, they assert, I should still dismiss the action against defendants Devon and Koch because neither of those defendants had any relationship with plaintiffs upon which ERISA predicates liability. As for the fraud cause of action, they request dismissal because ERISA preempts common law fraud actions, and, alternatively, because plaintiffs have failed to comply with F.R.Civ.P. 9(b)'s mandate to plead fraud with particularity. Finally, they move to strike plaintiffs' demand for punitive damages under ERISA based on that statute's prohibition of extra-contractual damages, and to strike plaintiffs' demand for a jury trial, because they allege that the relief plaintiffs seek is essentially equitable in nature. I will address each of these arguments in turn.


 A. Defendants' Motion to Dismiss the ERISA Claim

 1. Against All Defendants

 Defendants first argue that I should dismiss plaintiffs' ERISA claim against all defendants. Their argument has two subparts, each of which responds to different, possible interpretations of the complaint's ERISA allegations. First, to the extent that plaintiffs allege that defendants improperly terminated the severance plan, defendants argue for dismissal because ERISA allows employers to terminate severance plans at will. Because the companies' December memorandum clearly terminated the severance plan, they argue, plaintiffs' ERISA claim does not state a cause of action. Second, to the extent that plaintiffs claim, not that defendants could not terminate the plan, but instead that defendants' oral promises altered the severance plan, defendants ...

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