those RCAG employees who were to be retained by MCII and integrated into its staff. These letters advised the employee that he was being hired to work for MCII, specified the person's new MCII job classification and salary and informed him of the name of his immediate supervisor and his work location. (E.g., Pltffs' Exh. 29; Marano Dep. at 52.)
The other type of letter, the so-called termination letter, was delivered to those RCAG employees who were not to be retained by MCII. Each of the plaintiffs was given a termination letter dated either May 17 or May 18, 1988. (See Pltffs' Exh. 27.) They received those letters either on the date of the letter or within a day of two thereafter. The letters, all of which were on MCII letterhead and signed by Nicholas A. Marano, MCII's Director of Human Resources, stated: "I regret to inform you that the Company will be experiencing a reduction in staff in the next few days. As a result of the reduction, your employment with MCI International will be terminated effective May 30, 1988." The letters went on to state that the employees would receive severance benefits calculated under the MCIC severance benefits plan and would also receive extended health and life insurance coverage under the MCI plans. (Id.)
In each instance the individual was instructed that he or she should report for career counselling starting either on May 17 or on May 19, 1988. It is undisputed that none of the plaintiffs was ever classified under the MCII job classification system, and that all were promptly funnelled to the career counselling program. It is also clear that all, with the possible exception of one or two (see Dep. of Wallace Carnegie at 59), were instructed not to report to their regular job stations and never performed any work for MCII or, indeed, for any other entity within the MCI family. There is equally no dispute that none was assigned a new salary or advised of any work station to which to report or given a job supervisor.
As for RCAG itself, it was not dissolved. Rather, it was assigned as a subsidiary of Western Union International, itself a subsidiary of MCII. (See Defts' Reply to Pltffs' Rule 3(g) Statement at P 21.) Indeed, as recently as 1990, RCAG filed at least one corporate document with the New York Secretary of State indicating its continued existence. (Pltffs' Exh. 25.) In addition, it is apparent that as of the closing RCAG and its Board had taken no steps to terminate its own severance benefits plan. (Podmolik Dep. at 118.) There is also no evidence that after the closing either RCAG or anyone on its behalf took any action to terminate the plan.
For the period from May 16 to 30, 1988, all of the plaintiffs were paid at their prior RCAG salary levels. For the week from May 16 through 20, each was paid by check issued by RCAG. (Pltffs' Exh. 33.) For the succeeding time period, through May 30, 1988, they were paid by checks issued by MCII. (Pltffs' Exh. 34.) Corresponding to these payments, the plaintiffs later received W-2 forms from RCAG and from MCIC for the two respective time periods between May 16 and 30, 1988. (Pltffs' Exhs. 33, 35.) As for the corporate documentation of plaintiffs' termination, these entries were made on RCAG forms, although plaintiffs' names also appear on computer printouts reflecting the MCII personnel data base. (Pltffs' Exh. 32 & Defts' Exh. 12.)
Defendants insist that, as of May 16, 1988, plaintiffs ceased to be employed by RCAG and became instead employees of MCII. In explanation of the apparent anomalies in the method of payment and recordkeeping, defendants assert in their reply papers that RCAG paid plaintiffs for the week of May 16 because it was the middle of the MCII pay period and that MCII later reimbursed GE for these payments. (See Affidavit of Jeffrey A. Previte, sworn to April 13, 1993, at P 4; Defts' Reply to Pltffs' Rule 3(g) Statement at P 26) As for the personnel files, MCII asserts that it chose, "as a matter of convenience," to use RCAG forms to record personnel decisions concerning plaintiffs, even though, as of May 16, 1988, plaintiffs were no longer RCAG employees. (Previte Aff. at P 3.)
2. Post-Termination Events
Although plaintiffs ultimately received various MCI benefits, they did not obtain the more lucrative severance payments to which they claimed entitlement under the RCAG severance plan. Accordingly, twelve of them initially hired John Lankenau, Esq. to represent them in dealing with RCAG and MCI. By letter dated November 23, 1988, and addressed to RCAG, Mr. Lankenau requested, on behalf of the twelve individuals that they be paid severance benefits in accordance with the RCAG plan. By the same letter he requested provision "of all plan documents and other plan information." (Pltffs' Exh. 36 at p. 3.) In response, MCII sent counsel a letter dated January 13, 1989 and RCAG responded by letter dated January 16, 1989. (Defts' Exhs. 37, 38.) The January 13 letter, signed on behalf of the MCII Severance Pay Plan Committee,
treated the November 23 letter as a request for additional benefits from MCII and declined the request. In so doing MCII stated that the claimants' "employment with RCA Global Communications, Inc. was terminated" on May 30, 1988, and that they had received all the benefits due under the MCII plan. As for possible entitlement to RCAG benefits, the letter referred claimants to RCAG. MCII also enclosed copies of the MCII Plan and its Summary Plan Description. The January 16 letter, written on RCAG letterhead and on behalf of the RCAG Severance Allowance for Non-Represented Salaried Employees, denied plaintiffs' request for benefits under the RCAG plan. In explanation, RCAG stated that the plan "and claimants' participation in that Policy were terminated on May 16, 1988." Accordingly, it concluded, "at the time of claimants' termination of employment on about May 30, 1988, they were no longer participants in the RCA Severance Policy and had no entitlement to a benefit under that policy." (Pltffs' Exh. 38.) In addition, RCAG enclosed a copy of the RCAG "Procedure" for its severance plan, and requested Mr. Lankenau to specify whether he was seeking any additional documents.
In response to this letter, Mr. Lankenau again wrote to RCAG, on January 25, 1989, seeking a variety of documents for the twelve original claimants and for a thirteenth claimant. (Pltffs' Exh. 44.) These included all documents relating to the claimants' termination and to the termination, if any, of the RCAG severance plan, all filings with the Department of Labor concerning the severance policy and documents reflecting the service credit of each claimant. (Id.)
This letter provoked two responding communications, both dated February 16, 1989, one from MCII and the other from RCAG. The MCII letter (Pltffs' Exh. 39) treated counsel's earlier letter as a request for additional MCII severance benefits for the thirteenth claimant and denied the request without commenting on any possible entitlement to RCAG severance benefits. As for the RCAG letter, it too addressed the request for benefits by the thirteenth claimant and denied it on the basis that the severance plan had been terminated on May 16, 1988 and, hence, the claimant was not a participant as of May 30, 1988, when he was terminated. (Pltffs' Exh. 40.)
On February 28, 1989, Mr. Lankenau again wrote to RCAG, appealing on behalf of the thirteenth claimant and asking for the same documents as previously requested on behalf of the first twelve claimants. (Pltffs' Exh. 43.) By letters dated May 5 and May 8, 1989, MCII and RCAG reiterated their denial of additional benefits to any of the thirteen claimants. (Pltffs' Exhs. 41 & 42.) The MCII letter again stated that claimants had been covered by the MCII plan and paid in accordance with its terms. As for RCAG, it reiterated that its plan had been terminated prior to the claimants' termination and that they were not entitled to any benefits under that plan. As for the document request, RCAG enclosed a copy of the SPD and another copy of the RCA Severance Policy "Procedure." (Pltffs' Exh. 42.)
As noted, plaintiffs seek summary judgment on three of their claims, while defendants move for equivalent relief as to all four asserted claims. Before addressing the merits of those claims, we must first consider a defense -- or more precisely two versions of a defense -- proffered by defendants with respect to the three claims for denial of severance benefits. As argued by defendants, they are entitled to judgment on Counts I, II and IV by virtue of either claim or issue preclusion, an effect that is said to arise from a decision of the Ninth Circuit in a case entitled Pippin v. RCA Global Communications, 979 F.2d 855, No. 91-16282, unpublished Memorandum (9th Cir. Nov. 20, 1992) (text available on Westlaw, 1992 WL 344962). (See Defts' Exh. 25.)
A. The Preclusion Defense
To assess defendants' argument based on the Pippin decision, we must first summarize briefly the pertinent facts on which their analysis turns. As will be seen, their argument is unsupported by the facts and the law.
In April 1989 five former employees of RCAG, all of whom resided in California, filed suit in the Northern District of California against both RCAG and MCII. Each had been terminated in the wake of the stock purchase closing under circumstances apparently comparable to those encountered by the plaintiffs in this case, and thus had been paid only under the less generous terms of the MCI severance plan.
As reflected by the First Amended Complaint in Pippin (Pltffs' Exh. 58), the plaintiffs there asserted eight claims. The first two most closely resembled the issues involved in the Algie case. The first was based on allegations that MCII had determined prior to the closing which RCAG personnel it intended to terminate, and that MCII and RCAG had conspired to deny plaintiffs their benefits under the RCAG plan by the "purported" termination of the RCAG plan at the time of the closing. (First Amended Complaint at P 37.) In reliance on these allegations, the Pippin plaintiffs asserted that defendants had engaged in "an unlawful de facto revision to and unlawful termination of the Globcom plan for the bad faith purpose of denying specified benefits to plaintiffs, in violation of 29 U.S.C. § 1140." (Id. at P 38.) That section prohibits "any person [from] discharging, fining, suspending, expelling, disciplining or discriminating against a participant . . for exercising any right to which he is entitled under the provisions of an employee benefit plan . . . or for the purpose of interfering with the attainment of any right to which each participant may become entitled under the plan [or] this subchapter."
In support of the plaintiffs' second claim, they asserted that they had been terminated by RCAG at the time of the closing and that each had been entitled to RCAG plan benefits. According to plaintiffs, defendants had denied them benefits on the asserted basis that they had been discharged after May 16, 1988, following the termination of the RCAG plan on May 16, 1988. Plaintiffs alleged that this stated "reason was arbitrary and capricious because Globcom knew before May 16, 1988 that plaintiffs' employment would be terminated in conjunction with the sale to MCI." (Id. at P 43.) Based on these allegations, plaintiffs asserted a separate claim for "bad faith" or "arbitrary and capricious" denial of benefits in violation of 29 U.S.C. § 1140. (Id. at P 44.)
Plaintiffs' third claim was for age discrimination under 29 U.S.C. § 626 and California law. The fourth claim, asserted only by one plaintiff, charged discrimination on the basis of national origin, in violation of Title VII, 42 U.S.C. § 2000e-2, and California law. The balance of plaintiffs' complaint in Pippin invoked state law to assert claims of breach of contract (First Amended Complaint at PP 67-70, 72-76), breach of a covenant of good faith and fair dealing (id. at PP 78-80), and violation of section 201 of the California Labor Code. (Id. at PP 82-87.)
In August 1989, the plaintiffs in this case filed their original complaint. As is evident from that pleading, although they too complained of the denial of RCAG severance benefits, they asserted no claim under 29 U.S.C. § 1140 or any state law, but rather pled three ERISA claims, for denial of benefits in violation of 29 U.S.C. 1132(a), for breach of fiduciary duty in violation of 29 U.S.C. § 1104, and for denial of plan information, in violation of 29 U.S.C. § 1024 (b)(4). (Pltffs' Exh. 62.) It also bears emphasis that the record contains no evidence that either the plaintiffs in this case or their attorney, John Lankenau, Esq., were aware at the time of the pendency of the Pippin litigation.
In December 1989 the district court in Pippin granted in part defendants' motion to dismiss. (Defts' Exh. 23.) Judge Smith dismissed the first claim, for bad-faith termination of the RCAG plan, since an employer has the right under ERISA to terminate an employee welfare benefit plan. She also dismissed two state-law claims as preempted by ERISA.
Ultimately the only claim to survive in Pippin was the second, alleging a bad-faith denial of benefits. The parties then cross-moved for summary judgment, and by Memorandum dated Feb. 6, 1991 Judge Smith granted plaintiffs' motion. (Defts' Exh. 24.) Finding that plaintiffs' had been "hired to be fired" (Memorandum at p. 8), the court held "that defendants' conduct toward plaintiffs violated section 1140" since they "structured the employment relationship with plaintiffs, at least in part, 'for the purpose of' depriving them of full severance benefits under the RCAG Plan." (Id. at p. 6.)
The evidence in the record indicates that it was only after the issuance of this decision in Pippin that the Algie plaintiffs' counsel learned of the Pippin litigation, when the attorneys representing the Pippin plaintiffs notified him of the lawsuit and the successful outcome in the district court. (See Affirmation of John C. Lankenau, executed April 16, 1993, at PP 11-19; Reply Affirmation of Wayne N. Outten, Esq., executed April 26, 1993, at P 7.) Based on that decision, which was published at 756 F. Supp. 446, plaintiffs in Algie successfully moved to amend the latest version of their complaint to incorporate, as their fourth claim, the section 1140 claim that Judge Smith had upheld in California. (See Memorandum & Order dated November 25, 1992.)
Subsequently defendants appealed the decision of Judge Smith in Pippin. In an unpublished memorandum decision filed November 20, 1992, the Ninth Circuit reversed and ordered entry of summary judgment for defendants. (Defts' Exh. 25.) In its brief discussion, the Court addressed the second claim as simply one for denial of benefits under 29 U.S.C. § 1132 (a)(1)(B) since plaintiffs had conceded at oral argument that they could not establish the specific intent required by section 1140. (See id. at p. 2.) As for the merits of the recharacterized claim, the Court observed at the outset that "it is not disputed that plaintiffs would have qualified for benefits under RCAG's severance benefits plan had they been discharged twenty-four hours before they were." (Id. at p. 1.) The Court then summarized plaintiffs' theory as being that "they were employees of MCI for twenty-four hours and therefore qualified for, and were entitled to, MCI's severance benefits plan" while at the same time being entitled to RCAG benefits "in addition to the MCI severance benefits because they were discharged by RCAG prior to their employment by MCI." (Id. at pp. 1-2) (emphasis in original.) According to the panel, plaintiffs "argue that the purported transfer from one entity to the other was a sham." (Id. at p. 2.) In disposing of this claim the Court stated:
The defect in plaintiffs' argument is the absence of a triggering event.
Plaintiffs were entitled to severance benefits under the MCI severance benefits plan. They have been paid in full.