BUNNION v. CONSOLIDATED RAIL CORP.

The opinion of the court was delivered by: Bartle, District Judge.

This is a class action lawsuit under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq. The plaintiffs, former employees of the defendant, Consolidated Rail Corporation ("Conrail"), challenge the legality of certain actions Conrail took with respect to its employee pension plan, and more specifically with respect to its voluntary separation program, which the plaintiffs accepted in 1996.*fn1 There are also age discrimination and pendant state law claims. Presently before the court are plaintiffs' motion for summary judgment as to Counts II and XIV, defendants' motions for summary judgment as to all Counts,*fn2 and defendants' motion for additional discovery pursuant to Rule 56(f) of the Federal Rules of Civil Procedure.

After granting in part and denying in part successive motions to dismiss the complaint and amended complaint, we certified a plaintiff class of "all persons formerly employed by Conrail at any Conrail location who separated from Conrail as part of the March 1, 1996 Conrail Voluntary Separation Program" with respect to the ERISA claims in Counts I, II, III, and VI and the fraud claims in Count IV, the negligent misrepresentation claim in Count V, and the estoppel claim in Count XIV. Bunnion v. Consolidated Rail Corp., No. CIV. A. 97-4877, 1998 WL 372644 (E.D.Pa. May 14, 1998); see also Bunnion (E.D.Pa. May 18, 1998); Bunnion, (E.D.Pa. March 23, 1998); Bunnion, 1998 WL 32715 (E.D.Pa. Jan. 6, 1998). We also certified one subclass of "those VSP participants who returned to work for Conrail in positions of employment which Conrail designated as non-employee status" with respect to the ERISA claims in Counts VIII, IX, and XIII, and another subclass of "those class members over 40 years of age who were returned to work into non-employee status" with respect to the age discrimination claim in Count VII. Bunnion, 1998). WL 372644 (E.D.Pa. May 14, 1998).

We may grant summary judgment only if there is no genuine issue of material fact and the moving party is entitled to summary judgment as a matter of law. See Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). We review all evidence and make all reasonable inferences from the evidence in the light most favorable to the non-movant. See Wicker v. Consolidated Rail Corp., 142 F.3d 690, 696 (3d Cir.), cert. denied, 525 U.S. 1012, 119 S.Ct. 530, 142 L.Ed.2d 440 (1998).*fn3

I.

The following facts are undisputed. Conrail maintained a benefit plan for its employees known as the Matched Savings Plan/Employee Stock Ownership Plan ("MSP/ESOP"). The MSP/ESOP was comprised of both an Employee Stock Ownership Plan ("ESOP") and a "cash or deferred arrangement within the meaning of Code section 401(k)." Conrail Matched Savings Plan, Introduction. We previously described this plan in our decision in Bennett v. Conrail Matched Sav. Plan Admin. Comm., Nos. CIV. A. 97-4535, 97-5017, 97-5345, 1997 WL 700538 (E.D.Pa. Oct. 30, 1997), aff'd, 168 F.3d 671 (3d Cir. 1999). The plan is governed by ERISA, 29 U.S.C. § 1001 et seq., and is a "defined contribution plan," also known as an "individual account plan." 29 U.S.C. § 1002(34). Such a pension plan "provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant's account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which may be allocated to such participant's account." Id. Under the terms of Conrail's MSP/ESOP, upon termination of employment or retirement, disability, death, or certain financial hardships, an individual was entitled to distributions of up to the total amount which had been allocated to his or her individual account.

The balance in each individual's MSP/ESOP account included the amount the individual contributed from his or her own earnings plus matching contributions of up to 100% of the individual's annual contribution.*fn4 The source of the matching funds was a combination of direct contributions from Conrail and its "participating affiliates" and stock released from the MSP/ESOP "Unallocated Stock Account." Conrail Matched Savings Plan, §§ 4.1, 4.4. The MSP/ESOP could borrow money in order to purchase certain Conrail securities. The stock acquired with the borrowed funds was kept in the Unallocated Stock Account, which was separate from the individual participants' accounts. Each year, a portion of the stock in this account was to be released for allocation to participants' accounts. See id. at § 7.2. Any remainder built up in the Unallocated Stock Account.

In the mid-1990's, Conrail management began to do annual studies to compare the company, its functions, and its level of efficiency to other railroads throughout the nation. These studies also explored whether Conrail should change any of its operations. As a result, Conrail decided it needed to reduce its expenses by $30-60 million dollars. On February 21, 1996, the President and CEO of Conrail, David LeVan, wrote to the company's employees, "Conrail is announcing early retirement and voluntary separation programs that we hope will reduce our non-agreement workforce by 900 employees by 1998. . . . [W]e are seeking first to reduce our non-agreement workforce though voluntary programs that provide a transition into retirement or another career." An e-mail entitled "Conrail Newswire, Special Edition" disseminated later that same day told employees, "If the 900-position goal is not achieved through the voluntary programs, Conrail expects to achieve the additional reductions through non-voluntary separation programs."

In early March, 1996, Conrail distributed written materials to eligible employees to explain the voluntary separation program ("VSP"). Included was a March 1 letter from the Assistant Vice President of Compensation and Benefits, which stated, "As Dave LeVan told all of us in his announcement on February 21st, Conrail intends to reduce its non-agreement workforce by approximately 900 people over the next couple of years." The letter announced that the process Conrail would use to reach the 900-person reduction goal was comprised of four components. The first two, which Conrail would offer concurrently, were the VSP and the Voluntary Retirement Program. The other two components, to be offered concurrently and "as deemed necessary by management after completion of the voluntary offerings," were an "Involuntary Staff Rationalization," and a "Workforce Redeployment Program." While these components were not explained in detail in the record, they involved mandatory terminations and reassignments.

The VSP was generally open to all non-union employees who had completed fifteen or more years of Conrail service. It provided for a separation payment of at least two years' salary,*fn5 an expense allowance of $5,000, and in some instances a relocation allowance. Eligible employees interested in participating in the VSP were required to submit an application, including a signed "general release." The deadline for doing so was April 23, 1996. The VSP plan description materials provided that an employee could unilaterally revoke his or her application during the seven days after it was submitted. While Conrail reserved the right to accept or reject each application, it had to notify by April 29, 1996 all employees whose applications had been rejected. Conrail also reserved the right to delay an accepted applicant's termination date until, at the latest, April 30, 1997. Unless they received a directive from Conrail about a delayed termination date, accepted applicants were terminated effective April 30, 1996. After acceptance into the VSP but the before the employee's termination date, the employee could rescind participation in the VSP, but only if it was agreeable to Conrail.

Conrail held informational meetings to explain the VSP program to eligible employees. At these meetings, attendees were given the opportunity to ask questions. Conrail also made use of a "SepINFO bulletin board," an e-mail distribution system, to disseminate information about the VSP and to allow employees to ask questions. None of the parties has explained how the SepINFO bulletin board worked or how many Conrail employees had access to it.

On March 8, 1996, at a general VSP informational meeting with approximately 100 people in attendance, a Conrail employee asked what effect VSP participation would have on one's right to share in any distribution of the unallocated ESOP surplus if the MSP/ESOP should happen to be terminated. The Director of Compensation and Benefits, who was also a plan administrator for the MSP/ESOP, told the questioner and the audience she did not know the answer but would obtain it. On March 19, the Director distributed an e-mail message to employees via the SepINFO Bulletin Board in the form of a question and answer. That e-mail provided:

Each of the plaintiffs applied for and was accepted into the VSP. Because Conrail delayed the termination of some of the plaintiffs, their last dates as employees varied. Some of the plaintiffs, after their termination dates passed, returned to work in what Conrail designated as "independent contractor" or "leased" employee positions. In this new status, they did not receive the fringe benefits to which regular, full-time Conrail employees were entitled. Certain of those individual performed the same duties as they performed prior to their VSP termination dates.

Months after the April 30 VSP deadline passed, Norfolk Southern Corporation and CSX Corporation agreed to acquire Conrail. A new entity formed by these two companies made a successful tender offer in the spring of 1997 for Conrail's outstanding stock. See Bennett, 1997 WL 700538, at *2. Effective June 2, 1997, the jointly owned company merged with Conrail. See id. Shortly before, on May 20, 1997, Conrail "terminated" the MSP/ESOP, effective May 22.*fn6 Conrail then amended the plan on July 15, 1997, to provide for allocation of its unallocated assets. Individuals remained entitled to distributions of all amounts credited to their accounts. Stock held in the Unallocated Stock Account was converted to cash, and a method of allocating that surplus to individual accounts was established. The cash proceeds were to be dispersed first to satisfy all outstanding ESOP loans and then to make any matching contributions required up until April 30, 1997. What remained was to be allocated to individual accounts based on employees' earnings, as defined in the plan, for the years 1996, 1997, and for each subsequent year until the account was depleted. Earnings, for the purpose of these calculations, excluded any amounts earned as "independent contractors" or "leased" employees.

Plaintiffs contend that $539 million of unallocated assets were left over after the plan's loans were satisfied. Because none of the plaintiffs was discharged earlier than April 30, 1996, presumably they received a portion of the allocations of the MSP/ESOP surplus based upon at least four months of 1996 income. Those plaintiffs whose termination was delayed remained regular status Conrail employees for a longer period. Accordingly, they received allocations from the MSP/ESOP surplus based on more than four months of 1996 income and, in some instances, on income up until April 30, 1997. Plaintiffs assert, however, that because Conrail violated ERISA and other federal and state laws in securing their participation in the VSP, they did not receive the full amount of surplus to which they were entitled. They aver that they have lost collectively over $49 million in MSP/ESOP allocations.

II.

Defendants first argue in support of their motion for summary judgment that the general release the plaintiffs signed as part of their VSP applications bars the claims in Counts I, II, III, IV, V, VI, XII, and XIV.*fn7 See Def's Mem. of Law in Support of Mot. for Sum.J. on all Counts other than Count VII, p. 12 n. 11. The general release provided in relevant part:

We recently discussed this same release in Buxton v. Consolidated Rail Corp., Civ. A. No. 98-2409, 1999 WL 46610, at *3 (E.D.Pa. Jan. 6, 1999). As explained in Buxton, the release bars all claims the employee may have had "from all time up to the date on which . . . [he or she] signed this General Release." (emphasis added). Although the second sentence may appear to bar "all claims relating in any way" to the VSP, when the first and second sentences are read together, it is clear that the second sentence is merely an illustration of the types of claims included within the first sentence. "[U]nder Pennsylvania law it is well settled that `releases are strictly construed so as not to bar the enforcement of a claim which had not accrued at the date of the execution of the release.'" Youngren v. Presque Isle Orthopedic Group, Inc., 876 F. Supp. 76, 79 (W.D.Pa. 1995) (quoting Vaughn v. Didizian, 436 Pa. Super. 436, 648 A.2d 38, 40 (1994)). Thus, the only claims barred by the plain language of the release are those which accrued before the plaintiffs signed the releases.

The defendants, who bear the burden of establishing that the releases bar plaintiffs' claims, have not come forward with any evidence indicating when any of the plaintiffs signed the releases. The application materials were distributed to employees in early March, 1996. Therefore, it is possible that plaintiffs could have signed the releases at any time between early March and April 23. Construing the evidence in favor of the non-movants, we will assume plaintiffs executed their releases on March 1. As to those claims that challenge actions which took place after March 1, 1996, defendants have not established as a matter of law that they are entitled to judgment. Nor have defendants convinced us that any of the claims accrued before that date. See id. Defendants,' motion for summary judgment on Counts I, II, III, IV, V, VI, XII, and XIV on the ground that they are barred by signed releases will be denied.

III.

Count II of plaintiffs' amended complaint, on which both sides seek summary judgment, is a claim that defendants breached the fiduciary duties imposed by ERISA § 404(a), 29 U.S.C. § 1104(a). ERISA is a comprehensive framework enacted "to promote the interests of employees and their beneficiaries in employee benefit plans." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983). ERISA § 404(a) requires the fiduciary of a plan governed by ERISA to "discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries . . . [and] with the care, skill, prudence, and diligence . . . that a prudent man acting in a like capacity . . . would use." 29 U.S.C. § 1104(a)(1).*fn8 A fiduciary breaches these obligations if it makes affirmative material misrepresentations to plan participants or beneficiaries about the terms of the plan. See In re Unisys Corp. Retiree Medical Benefit ERISA Litig., 57 F.3d 1255, 1264 (3d Cir. 1995); Curcio v. John Hancock Mut. Life Ins. Co., 33 F.3d 226, 238 (3d Cir. 1994); Fischer v. Philadelphia Elec. Co., 994 F.2d 130, 135 (3d Cir. 1993). "Put simply, when a plan administrator speaks, it must speak truthfully." Fischer, 994 F.2d at 135. A fiduciary may also breach its duties if it fails to provide material information to plan participants or beneficiaries when it knows its silence might cause them harm. See Unisys, 57 F.3d at 1264; Bixler v. Central Pennsylvania Teamsters Health & Welfare Fund, 12 F.3d 1292, 1300 (3d Cir. 1993). In order to prove a claim of breach of fiduciary duty, plaintiffs must establish four elements: (1) the defendants' fiduciary status; (2) material misrepresentations; (3) defendants' knowledge of the confusion among beneficiaries; and (4) resulting harm to plaintiffs. See Unisys, 57 F.3d at 1265; Fischer, 994 F.2d at 135.

Plaintiffs first maintain that some of the defendants breached their fiduciary duties by misrepresenting that Conrail intended to eliminate 900 jobs and that if a sufficient number did not chose to participate in the VSP, Conrail would achieve its goal through involuntary discharges. This alleged misrepresentation was intended, according to plaintiffs, to induce employees to accept the VSP out of fear of involuntary termination with fewer accompanying severance benefits. As it turned out, Conrail never resorted to involuntary terminations, and no evidence exists that they were necessary in light of the number of those who elected the VSP. Nonetheless, plaintiffs maintain that despite Conrail's statements to the contrary, it never intended to eliminate 900 employees unless it could do so through voluntary means.

The statements to which plaintiffs refer include President LeVan's February 21, 1996 announcement, the news bulletin posted on Conrail's SepINFO bulletin board the same day,*fn9 and the March 1 letter that accompanied the VSP informational materials. However, there is no evidence that these statements which warned of involuntary terminations were anything but honest declarations of Conrail's present intent to do a future act if a precondition (900 reductions via the voluntary programs) did not occur. Even if the voluntary programs cut less than 900 employees, a later decision by Conrail not to resort to the involuntary separations does not raise a genuine issue of material fact that the earlier declarations were misrepresentations. Cf. Frahm v. Equitable Life Assurance Soc'y, 137 F.3d 955, 961 (7th Cir.) (Easterbrook, J.), cert. denied, 525 U.S. 817, 119 S.Ct. 55, 142 L.Ed.2d 43 (1998).

Plaintiffs' reliance on Conrail's own financial studies does not raise a genuine issue of material fact. Plaintiffs argue that defendants' statements about involuntary reductions were misrepresentations because Conrail's financial studies demonstrated that it would not achieve as large a cost reduction if it resorted to involuntary terminations as it would if it obtained voluntary terminations.*fn10 However, evidence showing that Conrail may have been able to save more through voluntary separations does not mean that it would not have undertaken involuntary terminations to reach its 900-person reduction goal. It strains credulity to say that if the VSP failed to achieve satisfactory results, Conrail would have given up completely and not have tried to achieve a portion of its savings goal through mandatory separations.

In further support of their claim that Conrail falsely threatened involuntary terminations, plaintiffs maintain that, during March and April, 1996, defendants misrepresented to some of the individual plaintiffs that the facilities and departments in which they worked were in danger of closure. For example, plaintiff Frances Bronson testified at her deposition that during a meeting held at the Island Avenue facility, she heard from an unidentified source "the Island Avenue might be closed. . . . [t]hat the building would close, would probably not be there in January of 1997." (emphases added). Then, there is plaintiff John Hollner. He attended a meeting with Mr. Poff and Mr. McCarthy, whose positions at Conrail have not been identified. According to Hollner, the two men "indirectly" encouraged him to participate in the VSP because "they figured that I would possibly be out of a job in a year's time." (emphasis added). Class representative John Bunnion testified at his deposition that he "heard from Andrew Mancini that Vice President Passa said that the Island Avenue facility would be closed if Conrail did not get enough people to participate in the voluntary separation."*fn11 Bunnion also recounted that he discussed with Mr. Schimmel, Conrail's Secretary and Assistant Vice President, his concern about the closure of Island Avenue. According to Bunnion, Schimmel then made a phone call to Senior Vice President Jim McKelvey, after which he told Bunnion, "I'd advise you to apply for the VSP because of what I just heard from McKelvey because there will be mass layoffs, and what Passa told Mancini was probably true." (emphasis added).

There is no indication that these statements about what "might" or what "possibly" or "probably" could happen were untrue when made. Moreover, the only evidence that plaintiffs have presented to show that these were misrepresentations is the fact that the facilities or departments in question were not ultimately closed. Plaintiffs' argument with respect to these statements fails for the same reasons as noted earlier. Merely because the facilities and departments continued to operate, without more, does not raise a genuine issue of material fact that the earlier statements were false at the time they were made. Cf. Frahm, 137 F.3d at 961.

In addition to the purported misrepresentations about involuntary terminations, plaintiffs contend, in support of their ERISA breach of fiduciary claim, under § 404(a), that certain of the defendants misled them into believing that if they signed up for the VSP, they would have an opportunity to participate in potential future allocations of the unallocated surplus in the MSP/ESOP. They assert that these misrepresentations also were made to induce them to accept the VSP. Plaintiffs focus on the March 19, 1996 e-mail from the Director of Compensation and Benefits. As noted above, the e-mail provided, in relevant part:

As we stated previously, plaintiffs have not directed us to anything in the record as to who had access to the SepINFO bulletin board system and who read this message. For the purposes of our discussion, however, we will assume that this e-mail was read by a wide audience.

As a starting point, we must emphasize that there is absolutely no evidence before us that Conrail had given any consideration whatsoever, on or before the April 23, 1996 VSP application deadline, to terminating the plan. Conrail stated in the question framed in the e-mail that termination of the MSP/ESOP was an "unlikely event." At the time, that was true. Plaintiffs argue, however, that the defendant spoke falsely when it said "one of the alternatives" would be to distribute any unallocated surplus to "all participants (anyone who has an account balance in the Plan at the time of the distribution.)." Again, plaintiffs have produced no facts to support their contention.

Plaintiffs direct our attention to Article II of the MSP/ESOP, which reads, "A Participant shall cease to participate in the Plan as of . . . the first day in which his employment with Conrail and Participating Affiliates ceases . . ." They claim that this provision shows that terminated employees, even those with account balances, could not be participants and thus could not share in allocations of the surplus. Plaintiffs fail to note, however, that the MSP/ESOP provided that the group of those treated as participants is broader than the group defined in Article II:

The second sentence of this definition states that someone whose Conrail employment had been terminated but who maintained a balance in their MSP/ESOP account after termination would "continue to be treated as a Participant" until he or she had withdrawn his or her total individual account balance. Therefore, consistent with the March 19 e-mail, it was possible that such individuals would be treated as participants for the purpose of allocating the unallocated surplus if the plan were to be terminated.

The MSP/ESOP also contained an unambiguous right-to-amend clause which permitted Conrail's board of directors to amend the plan "at any time and in any manner, without prior notification, consultation, or bargaining with any Employee or representative of Employees." Conrail Matched Savings Plan, § 14.1. An ERISA defined contribution plan, such as the MSP/ESOP, "provides . . . for benefits based solely upon the amount contributed to the participant's account." 29 U.S.C. § 1002(34). The plaintiffs here are not arguing that they have not received or will not receive all of what was allocated to their individual accounts. As for the unallocated surplus, we previously concluded and the Court of Appeals agreed that it was a plan asset, and individual participants did not have any entitlement to it under ERISA. See Bennett, 1997 WL 700538, at *5; Bennett, 168 F.3d at 676-78. "Unallocated assets are not the same as accrued benefits. ERISA protects only anticipated benefits, not surplus assets." Bennett, 168 F.3d at 676. Regardless of how the plan defined participants in March and April, 1996, Conrail could amend the plan to dispose of the surplus by allocating it to a different class of "participants" or, for that matter, to no participants at all. In short, Conrail had at its disposal at that time a potentially infinite number of options for disposing of the unallocated surplus, including the one mentioned in the March 19, 1996 e-mail.

Plaintiffs contend that defendants admitted liability for breach of fiduciary duty. In their memorandum in opposition to plaintiffs' motion, defendants wrote, "There was absolutely no provision in the then-existing version of the Matched Savings Plan [as of March 1996] for the allocation of surplus ESOP assets. . . . That allocation could only have been accomplished by plan amendment." Plaintiffs' argument is off the mark. The March 19 e-mail spoke about possible future events. The fact that the plan in effect on March 19 did not have a clause regarding allocation of the plan's surplus upon termination does not bear on the accuracy of the e-mail's statement about what might happen in the future if Conrail decided to terminate the plan.

Plaintiffs further argue that Conrail admitted liability when its benefits attorney testified at his deposition, "The plan [in effect on March 19, 1996] states that once you cease employment you cease participation in the plan, so I don't think someone who left under the . . . VSP would be a participant. . . . [S]ince they would not still be considered participants they would not be entitled to an allocation." (emphasis added). Plaintiffs have cited no case law to advance their position that the deposition testimony of an inside attorney of Conrail at his level binds it for purposes of this litigation. In any event, regardless of whether he was correct about who was a participant, the attorney's salient point was that those who accepted the VSP were not "entitled" to an allocation of the unallocated surplus at the time of their termination. About this he was correct, but this does not advance the ball for plaintiffs because the e-mail did not speak of entitlement. It spoke only of potential future occurrences and options. There was nothing in the terms of the plan in effect on March 19 which precluded Conrail, in the event of plan termination, from allocating the surplus to those employees who had elected the VSP. The attorney said nothing to the contrary.

In summary, the March 19 e-mail clearly spoke about plan termination as an "unlikely event." It is undisputed that this was accurate at the time it was sent. The e-mail explained that the unallocated surplus would first be used to pay off the ESOP loans. This was also accurate. Even if termination occurred and unallocated surplus existed at that time, Conrail did not falsely promise in the e-mail that VSP participants would share in it. Conrail simply said it was one of any number of options that Conrail might elect. Again, there is nothing inaccurate about this.

In order to make out an ERISA claim for breach of fiduciary duty under § 404(a), plaintiff must be able to establish that any misrepresentation was material. See Unisys, 57 F.3d at 1264; Curcio, 33 F.3d at 238; Fischer, 994 F.2d at 135. "[A] misrepresentation is material if there is a substantial likelihood that it would mislead a reasonable employee in making an adequately informed decision about if and when to retire." Fischer, 994 F.2d at 135. Summary judgment based on the issue of materiality is appropriate "only if `reasonable minds cannot differ.'" Id. (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 450, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976)).

Even assuming that the March 19 e-mail was somehow inaccurate about whether those accepted into the VSP continued to be participants, any inaccuracy was not material. The question that was presented in the March 19 e-mail asked Conrail to make a prediction about what might happen if a presently unplanned event (plan termination) occurred under circumstances in which the plan had an unallocated surplus. "ERISA does not impose a `duty of clairvoyance' on fiduciaries. . . . An ERISA fiduciary is under no obligation to offer precise predictions about future changes to its plan." Fischer, 994 F.2d at 135 (quoting Berlin v. Michigan Bell Tel. Co., 858 F.2d 1154, 1164 (6th Cir. 1988)).

We cannot be blind to common sense.*fn12 Conrail employees are real people immediately concerned about providing for themselves and their families. Like most working individuals, they have mouths to feed and mortgages or other bills to pay. No reasonable Conrail employee who faced a decision in March and April, 1996 on whether to elect the VSP would have considered an unlikely future event (with no date suggested by which that event might occur) involving an unknown quantity of money to be a material consideration in making that decision. The hypothetical and conditional question and answer in the e-mail could hardly have misled a reasonable employee ...