Kocan v. ABF Freight System ( 2000 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
DAVID KOCAN; MARYANNE C.
KOCAN; RICHARD E.F. VALITUTTO; R.
JULENE VALITUTTO; KENNETH L.
LONG,
Plaintiffs-Appellants,
v.
No. 99-1504
ABF FREIGHT SYSTEM,
INCORPORATED; ARKANSAS BEST
CORPORATION; CAROLINA FREIGHT
CARRIERS CORPORATION; WORLDWAY
CORPORATION,
Defendants-Appellees.
Appeal from the United States District Court
for the Western District of North Carolina, at Charlotte.
Robert D. Potter, Senior District Judge.
(CA-97-177-3, CA-97-178-3, CA-97-335-3)
JOHN WILLIAM RUDASILL, JR.; VICKIE
COSTNER RUDASILL,
Plaintiffs-Appellants,
v.
WORLDWAY CORPORATION; LARY R.
No. 99-1715
SCOTT; RICHARD F. COOPER; WILLIAM
A. MARGUARD; JOHN R. MEYERS;
JOHN H. MORRIS; DONALD L. NEAL;
R. DAVID SLACK; ROBERT A. YOUNG,
III,
Defendants-Appellees.
Appeal from the United States District Court
for the Western District of North Carolina, at Shelby.
Lacy H. Thornburg, District Judge.
(CA-97-201-T-4)
Argued: May 4, 2000
Decided: August 4, 2000
Before WILKINSON, Chief Judge, and NIEMEYER
and MICHAEL, Circuit Judges.
_________________________________________________________________
Affirmed by unpublished per curiam opinion.
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COUNSEL
ARGUED: Michael L. Minsker, Charlotte, North Carolina, for
Appellants. Debbie Weston Harden, WOMBLE, CARLYLE, SAN-
DRIDGE & RICE, P.L.L.C., Charlotte, North Carolina, for Appel-
lees.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
The cases in this consolidated appeal were brought to recover sev-
erance benefits under the Employee Retirement Income Security Act
(ERISA), 29 U.S.C. § 1001 et seq., and state law. Two district courts,
after bench trials, ruled against the plaintiffs, who now appeal. The
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principal conclusion of each court was the same: the plain language
of the severance plan at issue did not require the payment of benefits.
We agree with the district courts and therefore affirm.
I.
David Kocan, Richard E. F. Valitutto, Kenneth L. Long, and John
William Rudasill (collectively, the "plaintiff-executives") once held
executive positions in trucking subsidiaries controlled by WorldWay
Corporation ("WorldWay"), a company that was acquired through a
friendly takeover in 1995 by Arkansas Best Corporation ("Arkansas
Best"). Shortly after the takeover, Arkansas Best appointed new direc-
tors to the WorldWay board. The newly constituted board promptly
fired the plaintiff-executives. Thereafter, the plaintiff-executives
sought to collect a variety of retirement and severance benefits; they
were unsuccessful in one instance: WorldWay refused to pay them an
accelerated severance benefit. This benefit is the subject of the pres-
ent dispute.
The accelerated severance benefit is part of a larger benefits plan,
the Senior Executive Benefit Plan ("SEBP"), that the plaintiff-
executives entered into with WorldWay.1 The SEBP provided that the
accelerated severance benefit was payable if two conditions were met:
(1) the beneficiary was terminated after a change of control of World-
Way and (2) the beneficiary was terminated without the approval of
the "Incumbent Board of Directors" of WorldWay. We state the issue
now: the plaintiff-executives contend that they were not fired by the
"Incumbent Board" as the term is defined by the SEBP, while the
defendants counter that this is precisely what happened.
The SEBP defines "Incumbent Board" in the context of addressing
termination after a change in control of WorldWay. The first relevant
portion of the plan, paragraph 9(b), reads:
[N]othing in this Agreement shall be construed to obligate
the Company to continue to employ Employee; provided,
however, that in the event such employment relationship is
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1 WorldWay administered the SEBP on behalf of its subsidiaries.
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terminated by the Company or any successor corporation at
any time after a change in control of the Corporation or any
successor corporation, and such termination occurs without
the written approval of a majority of the Incumbent Board
as defined in paragraph 9(c)(2) either before or after such
termination occurs, the Company or its successor corpora-
tion, as the case may be, shall pay to the Employee the bene-
fits provided . . . .
Paragraph 9(c)(2) provides the accompanying definition of "Incum-
bent Board":
provided that any person becoming a director subsequent to
the date hereof whose election, or nomination for election
by the Corporation's [i.e., WorldWay's] shareholders, was
approved by a vote of at least three quarters of the directors
comprising the Incumbent Board (either by a specific vote
or by approval of the proxy statement of the Corporation
[i.e., WorldWay] in which such person is named as nominee
for director, without objection to such nomination) shall be,
for purposes of this clause (c), considered as though such
person were a member of the Incumbent Board.
This version of the SEBP was not the first. The version in effect
immediately prior to the one applicable to the plaintiff-executives did
not have the Incumbent Board mechanism in it. Instead, it simply
relied on a change of control to trigger benefits in the event the bene-
ficiary was fired without the approval of the board:
Nothing in this Agreement shall be construed to obligate the
Company to continue to employ Employee; provided, how-
ever, that in the event such employment relationship is ter-
minated within twenty (20) years of the date of this
Agreement by Company or any successor corporation at any
time after there has been a change in the working control of
the Company or any successor corporation, and such termi-
nation occurs without the approval of the then living mem-
bers of the Board of Directors of the Company as that Board
was composed on (the date of the Agreement), Company or
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its successor corporation, as the case may be[,] is required
to pay the accelerated severance benefit.
WorldWay redrafted the SEBP to include the Incumbent Board
mechanism in order to protect the company from a hostile takeover.2
By the late 1980s WorldWay had become seriously concerned about
the threat of a hostile takeover. Accordingly, the WorldWay board
reevaluated its ability to defend against a takeover attempt and con-
cluded that it should modify the SEBP to impose a penalty on any
buyer who did not first negotiate with the WorldWay board. Thus, the
changes to the SEBP were, in the words of John B. Yorke, Assistant
General Counsel from 1987 to 1993 and General Counsel from 1993
to 1995, "shark repellent" designed "to put a penalty on an unfriendly
takeover candidate." Or, as one longstanding WorldWay board mem-
ber said, "we were afraid [that] someone was trying to circumvent the
board, and that the language was put in there so they could not cir-
cumvent the board, or not without incurring some severe penalties."
By 1995 it appeared that WorldWay had little reason to fear a hos-
tile takeover; it was in such financial straits that bankruptcy was near.
Things were so bad that the company was losing close to a million
dollars per week. Its bankers were about to shut off credit. One board
member assessed the situation as "pretty frightening." Rather fortu-
nately, Arkansas Best offered to purchase WorldWay for $11 per
share, a price that was almost 16 percent higher than WorldWay's
traded share price. The WorldWay board was "ecstatic" at such a
proposition and voted unanimously on July 8, 1995, to recommend a
merger to the shareholders.
Before the merger went through, Arkansas Best's General Counsel,
Richard F. Cooper, considered the costs that would be triggered by
WorldWay's severance plans. According to Cooper, the SEBP did not
provide severance benefits if Arkansas Best negotiated a friendly
takeover of WorldWay. As he put it, the SEBP
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2 An ancillary reason for redrafting the SEBP was the fact that the ear-
lier version did not sufficiently address changes in the board's composi-
tion due to deaths, retirements, and the like.
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was the standard type provision that allowed, if you went to
the board of the company you were trying to acquire and
went through them, then they could deactivate the change in
control provision, the acceleration, by effectively blessing
the deal, and therefore, you wouldn't have to pay any of the
penalty and acceleration.
Further, Cooper noted that several other benefit and severance agree-
ments WorldWay had with its employees "did not have an Incumbent
Board concept in them," a fact which also led him to conclude that
the SEBP was designed as a penalty that could be deactivated by a
friendly takeover. One of these other plans, the 2.99 Severance Pay
Plan, provided a particularly sharp contrast to the SEBP. The 2.99
plan allowed no discretion in the payout of benefits following termi-
nation. The relevant section of the plan reads:
If any of the events described in Section 3 hereof constitut-
ing a change in control of the Company shall have occurred,
you shall be entitled to [specified severance benefits] upon
the termination of your employment within twenty-four (24)
months after such event, unless such termination is (a)
because of your death or Retirement; (b) by the Company
for Cause or Disability; or (c) by you other than for Good
Reason. . . .
The Arkansas Best takeover went forward under a merger agree-
ment that was voted on by WorldWay's directors and shareholders.
Among other things, the merger agreement allowed Arkansas Best to
designate new directors for election to WorldWay's board in propor-
tion to its share of WorldWay stock. The WorldWay directors who
approved of the merger (the "pre-merger directors") were informed of
the names of their proposed replacements, as were the shareholders.
In addition, the pre-merger directors tendered their resignations in
advance and directed WorldWay's general counsel to take steps "nec-
essary and appropriate" to carry out the terms of the merger agree-
ment.
The merger agreement was extremely well received. The World-
Way board unanimously approved it, and the shareholders endorsed
it by tendering 91 percent of WorldWay's shares to Arkansas Best for
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payment. In short order, WorldWay's general counsel, who remained
after the merger as the sole board member, appointed seven new
directors (who had been identified in the merger documents) to the
WorldWay board. In October of 1995 this new WorldWay board (the
"post-merger board") terminated the plaintiff-executives.
The plaintiffs brought four separate cases to recover benefits under
the SEBP or damages for the denial of benefits. David Kocan and his
spouse, Richard E. F. Valitutto and his spouse, and Kenneth L. Long
brought three of the cases. Each of these cases named as defendants
Carolina Freight Carriers Corporation (the subsidiary of WorldWay
that Kocan, Valitutto and Long worked for), WorldWay, Arkansas
Best, and ABF Freight System (an Arkansas Best subsidiary). These
three cases were ultimately consolidated for a bench trial before Judge
Potter. The plaintiffs in the consolidated case asserted a variety of
claims under ERISA as well as under the doctrine of equitable estop-
pel. At the summary judgment stage, the equitable estoppel claim was
dismissed and the number of claims was winnowed to three -- those
for benefits, clarification of rights, and attorney's fees. After a bench
trial, Judge Potter found for the defendants. The fourth case, filed by
John William Rudasill and his spouse, was removed from state court
and assigned to Judge Thornburg. The Rudasills raised several ERISA
and common law claims (including an equitable estoppel claim)
against WorldWay and the individual board members of WorldWay
who refused to pay Mr. Rudasill's SEBP accelerated severance. In the
Rudasill case, all but the ERISA claims for a declaration of rights and
attorney's fees were denied at the motions stage of the proceedings.
After a bench trial, Judge Thornburg found for the defendants on the
ERISA claims.
Both district courts concluded that the SEBP plan unambiguously
established that the plaintiffs were not entitled to benefits. The central
question, according to each district court, was the meaning of the term
"Incumbent Board." If the "Incumbent Board" fired the plaintiff-
executives, then they were owed no benefits. Each court found the
meaning of the term clear; as Judge Potter said,"the language in the
SEBP plan is not ambiguous. It means what it says, and says what it
means." Kocan v. ABF Freight System, Inc., No. 3:97CV177-P, mem.
op. at 21 (W.D.N.C. Jan. 15, 1999). In sum, the district courts decided
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that when the pre-merger board voted to accept the plan of merger,
it thereby voted to appoint Arkansas Best's designees as directors.
The plaintiffs in both cases appeal.
II.
We begin with a brief note about the applicable standards of
review. The district courts' interpretation of the SEBP plan language
is subject to de novo review. See Hendricks v. Central Reserve Life
Ins. Co., 39 F.3d 507, 509 (4th Cir. 1994). The factual determination
of the district courts are reviewed for clear error. See First Federal
Sav. & Loan of South Carolina v. Chrysler Credit Corp., 981 F.2d
127, 129 (4th Cir. 1992). Last, we bear in mind that"[t]he award of
benefits under any ERISA plan is governed in the first instance by the
language of the plan itself." Hickey v. Digital Equip. Corp., 43 F.3d
941, 947 (4th Cir. 1997) (quoting Lockhart v. United Mine Workers
1974 Pension Trust, 5 F.3d 74, 78 (4th Cir. 1993).
The plaintiffs raise three issues on appeal. First, they claim that
paragraphs 9(b) and 9(c)(2) of the SEBP are ambiguous. Second, and
most significantly, they claim they were not fired by the Incumbent
Board. According to them, the "Incumbent Board" was the pre-merger
board. They base this claim on the argument that the post-merger
board of WorldWay was not properly elected and, therefore, could not
have constituted the Incumbent Board of WorldWay. Third, the plain-
tiffs contend that both district courts erred by dismissing their equita-
ble estoppel claims. For the following reasons, we must disagree.
The language of the SEBP is unambiguous and does not provide
for benefits to the plaintiffs. Paragraph 9(b) of the SEBP plainly states
that the Incumbent Board may fire those covered by the plan without
triggering the accelerated severance benefit. As well, paragraph
9(c)(2) of the plan plainly states that the Incumbent Board may
change its makeup so long as new members are added by "a vote of
at least three-quarters of the directors comprising the Incumbent
Board." This is exactly what happened when the pre-merger World-
Way board voted to merge with Arkansas Best on July 8, 1995. At
that time, the entire pre-merger WorldWay board voted to appoint,
from the list of designees provided by Arkansas Best, new directors
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to the post-merger WorldWay board. This action fit the spare, but
specific, language of the SEBP, which allowed the Incumbent Board
to change its makeup (by a three-fourths vote) and still remain the
Incumbent Board. The post-merger board was thus the Incumbent
Board, and the Incumbent Board fired the plaintiff-executives. In
short, we agree with the district courts' interpretation of the SEBP,
which set out a process through which the Incumbent Board could
evolve, as it did here.
The broader factual picture surrounding the change in wording of
the SEBP and Arkansas Best's takeover of WorldWay is instructive.
WorldWay changed the SEBP to allow a new board, constituted in the
wake of a friendly takeover, to fire executives covered by the SEBP
without having to pay accelerated severance. The accelerated sever-
ance package was a penalty designed to protect WorldWay. Although
this point is not dispositive in light of the plain language of the plan,
it does reinforce the conclusion.
There is no merit to the plaintiffs' contention that the post-merger
board was not properly elected, and for this reason, could not consti-
tute the Incumbent Board. Both district courts found, as fact, that the
post-merger board was properly elected according to the bylaws of
WorldWay. The applicable bylaws of WorldWay provide that "[a]ny
vacancy occurring in the Board of Directors . . . may be filled by the
Board" and that "the directors may fill the vacancy by the affirmative
vote of a majority of all directors, or by the sole remaining director,
remaining in office." The voting coincident with the merger agree-
ment fit this bylaw: the pre-merger board unanimously voted to fill
the vacancies that would be generated by the merger. The district
courts did not clearly err in finding (and concluding) that the post-
merger board of WorldWay was properly elected to succeed the pre-
merger board.
The plaintiffs' equitable estoppel claims were properly dismissed
by both district courts. The plaintiffs claim that Arkansas Best should
be estopped from denying them the accelerated severance benefits
because the plaintiffs reasonably believed they were owed these bene-
fits. The estoppel remedy is not appropriate because an ERISA rem-
edy was available here. See Coyne & Delaney Co. v. Blue Cross &
Blue Shield, Inc., 102 F.3d 712, 716 (4th Cir. 1996).
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Last, there was no need to award the plaintiffs attorneys' fees in
this case. The plaintiffs are not due benefits, and there is no evidence
the defendants acted in bad faith. The district courts were well within
their discretion to deny an award of fees. See Metropolitan Life Ins.
Co. v. Pettit, 104 F.3d 857, 865 (4th Cir. 1998).
The judgments are affirmed.
AFFIRMED
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