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HOOVEN v. EXXON MOBIL CORPORATION

March 31, 2004.

JOE A. HOOVEN, MICHAEL AVERSANO, AINARS BLUSS, T.B. BOTTOLFSON, D.R. CLARIZIO, STAN CONLEY, E. CHRISTINE COPLEY, EDMUND E. DAVIS, SR., PAUL E. DOXEY, JACK F. DUNLEAVEY, CHRISTOPHER G. GIBSON, ROGER A. HENDLER, J.K. HOOVEN, ROMULUS VANCE HOUCK, III, TODD HOWARD, D. HRINAK, J.D. HUMPHREYS, E. JACKSON H. J. KLEIN, A.R. KLINE, R. J. KOPCHA, FRANKLIN W. LEE, R.E. LITTLE, JOANNE LIMA, J. LUTZ, E.T. McMURPHY, S.A. MEDOLIA, STEVE MERCURIO, CLARK D. MILLER, MICHAEL L. MILLMAN, G.A. MILNE, DANIEL G. MOORE, B.L. MORGAN, P.S. POROHNAVI, PATRICIA V. ROSE, JEAN VALENZA-RUBINO, SHELLY C. SHARER, JAMES R. SLUSHER, M.W. STUMP, D.M. SULLIVAN, LINDA N. SUTPHIN, DARREL R. RAYLOR, THOMAS P. THOMPSON, JOHN TROY, DONALD A. TWELE, CARROLL S. WAGNER, LAURA WAKS, JOE D. WOODWARD, JOHN H. WOOLFOLK, L. YOUNG, SUZANNE MICHAUD, and WILLIAM HELFRICH
v.
EXXON MOBIL CORPORATION et al



The opinion of the court was delivered by: CYNTHIA RUFE, District Judge

MEMORANDUM OPINION AND ORDER

Before the Court are the claims of fifty-two (52) former employees of Mobil Corporation (collectively "Plaintiffs") against Exxon Mobil Corporation ("Exxon Mobil") and Mobil Corporation Employee Severance Plan (collectively "Defendants").

In December 1998, Plaintiffs were each employees of Mobil Corporation (hereinafter "Mobil") in the Mid-Atlantic Marketing Assets division when Mobil formally announced its planned merger with Exxon Corporation (hereinafter "Exxon") to create Exxon Mobil. At that time, Mobil announced the adoption of a new Enhanced Change-In-Control Retention/Severance Plan ("the CIC Plan"), which provided employees with attractive severance packages in the event they did not ultimately receive jobs with the combined company following the merger. Plaintiffs allege that from the time the proposed merger was announced and to the end of 1999, Mobil, both orally and in writing, assured Plaintiffs that employees who did not obtain employment with Exxon Mobil would receive fair and attractive severance packages.

  In August 1999, Plaintiffs were given a Summary Plan Description ("SPD") setting forth the eligibility requirements for enhanced severance benefits in the event of a change in control. Due to a drafting error, however, the SPD omitted an eligibility exception with respect Page 2 to divestitures that applied to Tier 4 employees, such as Plaintiffs. On November 30, 1999, the Federal Trade Commission approved the merger between Exxon and Mobil. On December 2, 1999, Plaintiffs were first informed that their employment with Mobil was being terminated, and they were not being offered positions with Exxon Mobil. Plaintiffs were also then informed that they were ineligible to receive severance benefits because the enhanced severance package did not apply to employees within their salary group (Tier 4). Although the SPD did not contain this ineligibility provision, the provision was contained in the CIC Plan. The divestiture ineligibility provision was, however, later included in an Errata that was mailed to Plaintiffs in February 2000. Between March and May 2000, Plaintiffs, as a unit, were transferred to Tosco. Corporation (hereinafter "Tosco"), the company which purchased Mobil's Mid-Atlantic Marketing Assets division.

  Plaintiffs advance claims under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1132, pleading claims for breach of fiduciary duty, equitable estoppel, federal common law breach of contract, and procedural and reporting violations.*fn1 On June 5, 2002, the Court denied cross-motions for summary judgment on the ground that genuine issues of material fact existed, including: (1) whether Defendants actively misled Plaintiffs about severance benefits; (2) whether Plaintiffs detrimentally relied upon the representations of Defendants; (3) the terms of any contract between the parties; and (4) whether extraordinary circumstances warranted the imposition of statutory penalties. Hooven v. Exxon Mobil Corp., No. 00-CV-5071, 2002 WL 1277325, 2002 U.S. Dist. LEXIS 10274 (E.D. Pa. June 5, 2002). Page 3 After an 8-day trial during which more than 20 witnesses testified and voluminous records were introduced, the Court allowed additional briefing and took the matter under advisement. The Court now sets forth its Findings of Fact, Discussion, and Conclusions of Law:*fn2

  FINDINGS OF FACT

  1. On June 16, 1998, Mobil CEO Lucio Noto and Exxon CEO Lee Raymond initiated discussions regarding the possibility of a merger. (Trial Ex. P-2.).

  2. Mobil hired a law firm to draft the CIC Plan.

  3. Mobil Attorney Douglas Davies was responsible for ERISA compliance and participated in the drafting of the CIC Plan.

  4. In 1998, Davies conferred with Noto and other members of senior management, addressing the prospect that, in the event of a merger, both tangible assets as well as employees may need to be divested. (Tr. Day 7 at 134-36).

  5. On or about September 25, 1998, the Mobil Board revoked Mobil's prior change in control plan and adopted the CIC Plan. (Trial Ex. P-10). The CIC Plan's provisions for eligibility and the calculation of benefits depended, in part, upon the salary grade of a particular employee. The Plan recognized four salary grades: Tiers 1, 2, 3 and 4. The CIC Plan differed from Mobil's prior plan with regard to divestitures involving Tier 1, 2 or 3 level employees because, unlike the prior plan, divested Tier 1, 2 or 3 level employees were eligible to Page 4 receive severance benefits under the new CIC Plan.*fn3 Under the terms of the CIC Plan, however, Tier 4 employees continued to be ineligible for severance benefits in the event of a divestiture.

  6. Plaintiffs were all Tier 4 employees, which encompassed only employees in salary groups 19 and below.

  7. Section 1.19 of the CIC Plan defines a "severance" as follows:
the termination of an Eligible Employee's employment with the Employer (or, if applicable, a successor to the Employer) on or within two years following the date of a Change in Control, (i) by the Employer other than for Cause, or (ii) by the Eligible Employee for Good Reason. An Eligible Employee will not be considered to have incurred a Severance (i) if his or her employment is discontinued by reason of the Eligible Employee's death or a physical or mental condition causing such Eligible Employee's inability to substantially perform his or her duties with the Employer, including, without limitation, such condition entitling him or her to benefits under any sick pay or disability income policy or program of the Employer or (ii) in case of a Tier 4 Employee, by reason of the divestiture of a facility, sale of a business or business unit, or the outsourcing of a business activity with which the Eligible Employee is affiliated if the Eligible Employee is offered comparable employment by the entity which acquires such facility, business or business unit or which succeeds to such outsourced business activity.
(Trial Ex. P-10) (emphasis added.)

  8. The CIC Plan was not published on Mobil's Intranet site or distributed to Mobil employees when it was adopted. The text of the CIC Plan, however, was available to employees upon request. (Tr. Day 3 at 43-44). Page 5

  9. The CIC Plan had three important objectives: (1) to provide transition income to Mobil employees who lose their jobs after the Exxon Mobil merger or any other "change in control" of Mobil Corporation or any successor company; (2) to encourage employees to stay with the company through the time that their employment was terminated by the company (Trial Ex. P-12); and to retain employees during the merger. (Tr. Day 8 at 72).

  10. On December 1, 1998, the Boards of both Mobil and Exxon officially approved the merger, and Mobil publicly announced to its employees its intent to merge with Exxon. (Tr. Day 3 at 75). That day No to sent a mass e-mail to "All Mobil Employees" announcing the merger, attaching a press release and stating:
But like other mergers, with this announcement, comes the painful reality that some people in each company will lose their jobs. Where similar responsibilities exist today in both companies, only one person with that responsibility may be required in the new company. Where assets, geographic locations or business endeavors overlap, consolidation of positions will occur. In those instances, both Mobil and Exxon have agreed to a cooperative process to select the right people for the remaining positions.
To those of you who do not ultimately remain with the combined company, we will extend a fair and attractive separation compensation and benefit program. Because we are very early in this process many of your questions can not yet be answered. Most details are yet to be worked [out] by a transition team to be established to manage the integration of the two companies. Further information can be found in communications that will be forwarded to you as key decisions are taken.
(Trial Ex. P-14 at D14465).

  11. In the December 1, 1998 e-mail, Noto also informed Mobil employees that the Exxon Mobil merger was expected to yield $2.8 billion in short term cost savings and significant Page 6 long-term, improved profitability. (Trial Ex. P-14 at D14468).

  12. Also on December 1, 1998, pursuant to Note's directive, L.W. Allstadt, a member of Mobil's Executive Committee and the executive in charge of coordinating merger communications, distributed materials to certain Mobil management, including Gene Renna, Robert Amrhein, and Brian Baker, to use while briefing Mobil employees about the merger. The briefing materials included Note's e-mail dated December 1, 1998, the Mobil press release, Employee Q & As, and a Powerpoint presentation. (Trial Exs. P-15 and P-16).

  13. Employee Question 23 asked whether there would be job reduction. The answer to Employee Question 23 stated in part: "Yes. . . . Employees who regrettably will not be asked to join the new company will be offered a fair and attractive separation compensation and benefit program." (Trial Ex. P-15 at D14185).

  14. Employee Question 25 asked how Mobil expected to keep it employees. The answer to Employee Question 25 stated in part: "Special retention compensation arrangements are also being put into place for those who are [not] offered jobs in the merged company." (Trial Ex. P-15 at D14185).

  15. Manager Question 68 asked: "What will be the severance packages for Mobil employees? Are they the same for employees and senior management?" The answer to Manager Question 68 stated in part: "There will be a special severance package for employees who are ultimately not retained by the merged company. For most U.S. employees, it will represent twice the normal severance payment for employees and managers applicable under current Mobil separation and benefit plans. . . ." (Trial Ex. P-16 at D14236). Page 7

  16. Manager Question 73 asked: "How do you expect to keep your employees?" The answer to Manager Question 73 stated in part: "Special retention compensation arrangements are also being put into place." The answer to Manager Question 131A stated in part: "Employees who regrettably will not be asked to join the new company will be offered a fair and attractive separation compensation and benefit program." (Trial Ex. P-16 at D14237).

  17. In conjunction with the merger announcement, Mobil management began holding informational meetings with Mobil employees to announce and discuss the proposed merger with Exxon. During those meetings, Mobil management explained that there would be a selection process to determine which employees would obtain employment with the merged company if the transaction were to be consummated. Mobil management also explained that some employees would lose their jobs because there would be instances where these jobs would overlap with jobs of others at Exxon. Mobil management did not address the issue of divestiture during these informational meetings. (Tr. Day 2 at 29-30; Tr. Day 3 at 76-83). The purpose of these meetings was to communicate information about the merger and the potential effects it would have on employees because the merger would possibly result in the loss of approximately 9,000 to 12,000 jobs. (Tr. Day 3 at 79-80). At the meetings, Mobil employees, including Plaintiffs, were told they would either be offered employment with the new company or they would receive the enhanced severance benefit package. At the meetings, Mobil management encouraged Mobil employees, including Plaintiffs, to work hard, to stay focused, and to maintain a competitive edge while the merger was pending. In addition, many Plaintiffs watched a video made by Mobil CEO Noto discussing the merger and describing the impact the merger would have on employees, shareholders, and the oil industry. (Trial Ex. D-6). Based on the Page 8 representations made by Mobil management while the merger was pending, Plaintiffs generally understood they would either be selected for a job with the newly merged entity or would be eligible for the enhanced severance package. (Tr. Day 2 at 13-14, 108; Tr. Day 4 at 13, 54). Mobil executives made clear, however, that they were not describing all of the details regarding the Plan and that additional information would be provided subsequently. (Tr. Day 1 at 91-92; Tr. Day 4 at 11-12).

  18. Although divestitures were a possibility, including divestiture of employees, and despite Mobil's promise to keep employees informed, Mobil management never orally communicated the existence of the divestiture provision of the CIC Plan or the possibility of divestitures with Mobil employees at any of these company meetings or in any direct correspondence. (Trial Exs. P-14 and D-6; Tr. Day 3 at 34, 81).

  19. Following the December 1998 meetings, Mobil sent an e-mail to all of its employees worldwide about its creation of a website addressing merger-related issues. That e-mail stated:
Employee Questions on the Proposed Exxon Mobil Merger
Mobil has established an "Employee Question and Answer" Web site for you to ask questions regarding the proposed Exxon Mobil merger. The site is located on the Intranet. Questions will remain anonymous. Mobil will post new questions and answers weekly (except during the holidays).
  As you may be aware, 48 hours after Mobil's public announcement of its proposed merger with Exxon (12/1/98), for regulatory reasons, we entered a "quiet period," which severely limits what we can say about the merger both internally and externally. Page 9 Our commitment to you is to communicate as much as we can as soon as possible. Our goal is that every employee is treated equitably and fairly.
 
You can find the new Employee Question and Answer Web site at: www.internal.mobil.com.
(Trial Ex. D-10).

  20. Mobil representatives did not state that the website would serve as a replacement for the traditional manner in which the company communicated information from Mobil, which was by regular mail. (Tr. Day 2 at 146-47; Tr. Day 4 at 15).

  21. In January 1999, Mobil published on the Intranet a summary of the terms of the CIC Plan on its website. The Intranet summary provided as follows:
CHANGE IN CONTROL (CIC) U.S. RETENTION/SEVERANCE DETAILS U.S. SALARY GROUPS 19 AND BELOW
Many of you have been asking for information about the Mobil Corporation Employee Severance Plan (CIC retention/severance package). This communication will give you a brief description of the package for U.S. employees at Salary Groups 19 and below only.
ELIGIBILITY
• You will be eligible to receive the CIC retention/severance package described below if:
  • you are a regular, non-represented employee in salary groups 19 and below on the U.S. payroll who works at least 20 hours per week; and Page 10
 
• your employment is terminated by the Company within two years after the CIC; or
• you are offered a job by the Company within two years after the CIC, but decline because it involves either
? a cut in total annual pay (including target variable pay), or
? a job move of at least 50 miles,
And you are not offered another position or the opportunity to remain in your existing position; and
• you stay until you are released by the Company; and
• you sign a separation agreement.
This package will be in effect for terminations during the two-tear [sic] period following the date of the CIC. CIC does not occur until after all regulatory and shareholder approvals are received and the stock of Mobil is exchanged for the stock of Exxon.
• you will not be eligible to receive the CIC retention/severance package described below if:
• your employment terminates prior to the CIC for any reason; or
• you are represented, temporary, leased or Station Operators, Inc. (SOI) employee, or you are classified as a contractor or consultant not eligible to participate in Mobil's benefit plans, or you are providing services under a written or oral contract; or
  • you are terminated for cause, or separated because of disability or death; or Page 11
 
• you decline a position as a result of a divestiture or outsourcing after the CIC that does not involve:
? a cut in total annual pay (including target variable pay), or
? a job move of at least 50 miles
BENEFITS
If you are eligible and sign a separation agreement, you will receive the following CIC retention/severance package.
• EIGHT-WEEK NOTICE PERIOD
During the eight-week notice period, you will remain on the payroll with your current benefits. You may be required to work during part or all of this period.
• CASH BENEFIT
Four weeks of pay for every year of service, to a maximum of 104 weeks. This is two times. . . .
(Trial Ex. P-76) (footnotes omitted).

  22. The divestiture language included in the Intranet summary posting differs from the divestiture language included in the CIC Plan. The divestiture language included in the Intranet summary posting also differs from the divestiture language included in the Errata (discussed infra) provided to Plaintiffs in February 2000 and the divestiture language included in the prior plan. Moreover, the Intranet summary was not particularly clear or well written and fails to track the structure of the CIC Plan, making it difficult to understand. (Tr. Day 7 at 147). Page 12

  23. The Intranet posting containing the summary of the CIC Plan was not the SPD and therefore not subject to ERISA's statutory requirements. It was not intended by Mobil to replace the company's obligations under ERISA as it had been Mobil's practice to mail summary plan descriptions to employees. (Tr. Day 7 at 149). Moreover, Mobil did not post a summary on the Intranet for employees in Tiers 1, 2 and 3. Instead, Mobil mailed, via first class mail, Tier 1, 2 and 3 employees hard copies of a document summarizing their benefits under the CIC Plan. (Tr. Day 7 at 151-52).

  24. Some Plaintiffs did not access Mobil's Intranet website because they generally do not review information on the web or were otherwise uncomfortable using computers. (Tr. Day 2 at 21-22, 36, 47-48; Tr. Day 5 at 92). Other Plaintiffs did not access Mobil's Q & A website because they were confident they had the information they needed from meetings with Mobil management and from the CIC Plan Summary. (Tr. Day 4 at 60-61). Still other Plaintiffs accessed the Q & A website, but found it contained many questions that did not pertain to them, involved too much scrolling, and was otherwise too time-consuming. (Tr. Day 1 at 158-59; Tr. Day 2 at 47, 147-48; Tr. Day 4 at 15-16, 111; Tr. Day 5 at 22). A few Plaintiffs were truck drivers who did not have access to Mobil's Intranet site at any time. (Tr. Day 4 at 111).

  25. Mobil's Benefits Policy and Communications Department ("Benefits Group"), headed by Patricia Pagano, included a team of professionals dedicated to preparing useful and understandable communications to Mobil employees about Mobil's various benefits plans. (Tr. Day 6 at 101; Tr. Day 7 at 102-05). In January 1999, following the posting of the Intranet summary, Mobil retained Barbara Rineheimer, a consultant with Towers Perrin Forster & Crosby, to prepare an initial draft of the SPD for the CIC Plan. (Tr. Day 6 at 115). Page 13

  26. Mobil's Benefits Group was responsible for drafting an SPD that was clear and understandable. (Tr. Day 6 at 128-29; Tr. Day 7 at 23-24, 118, 148-49). The drafters of the SPD knew they had to set forth the material provisions of the plan regarding "eligibility and ineligibility" in an understandable way. (Tr. Day 7 at 167). Between January and July 1999, the Benefits Group revised the proposed SPD on several occasions.

  27. The divestiture provision was a material provision. (Tr. Day 7 at 167).

  28. Pagano, the primary drafter of the SPD, understood that the CIC Plan differed from previous Mobil severance plans in eligibility requirements. (Tr. Day 6 at 132).

  29. The first draft of the SPD prepared by Rineheimer provided, in relevant part:
Severance benefits are not paid if: . . . [you] are offered but decline another position that does not involve:
a cut in total annual pay, including variable pay, or a job move of at least 50 miles.
(Trial Ex. D-17).
  30. Pagano modified the Rineheimer draft by adding the terms "divestiture" and "outsourcing" to the draft of the SPD (dated January 30, 1999), which provided that an employee was not eligible for benefits if:
[you] are offered but decline another position as a result of a divestiture or outsourcing after the CIC that does not involve:
a cut in total annual pay, including variable pay, or a job move of at least 50 miles.
(Trial Ex. D-17; Tr. Day 6 at 116). Page 14
  31. On February 12, 1999, another draft of the SPD was circulated by Pagano. It provided that an employee was ineligible for benefits if:
you decline a position as a result of a divestiture or outsourcing after the CIC that does not involve:
a cut in total annual pay (including target variable pay), or a job move of at least 50 miles.
(Trial Ex. P-50; Tr. Day 6 at 117-19).
  32. On February 19, 1999, the draft SPD, unchanged in relevant part, continued to provide that an employee was ineligible for benefits if:
you decline a position as a result of a divestiture or outsourcing after the CIC that does not involve:
a cut in total annual pay (including target variable pay), or a job move of at least 50 miles.
(Trial Ex. P-51; Tr. Day 6 at 119-21).
  33. On March 16, 1999, the draft SPD, still unchanged in relevant part, provided that an employee was ineligible for benefits if:
you decline a position offered as a result of a divestiture or outsourcing after the CIC that does not involve:
a cut in total annual pay (including target variable pay), or a job move of at least 50 miles.
(Trial Ex. P-52).

  34. In March 1999, as the SPD was being finalized, the Benefits Group reviewed and redrafted the SPD and determined that the inclusion of the phrase "as a result of a divestiture Page 15 or outsourcing" provided too narrow a description of ineligibility under the CIC Plan, and deleted the phrase. (Tr. Day 6 at 122; Tr. Day 7 at 18-19). The Benefits Group believed that deleting those words would make the terms of ineligibility clearer to employees in Grade 19 and below. (Tr. Day 6 at 18, Tr. Day 7 at 122, 136-37). Also in March 1999, the Benefits Group circulated another SPD for grades 20 and higher. (Tr. Day 7 at 148). The SPD for Grades 20 and higher contained the same language as the SPD for Grades 19 and below regarding ineligibility as the result of obtaining comparable employment, even though the ineligibility as the result of divestiture applied to employees at Grades 19 and below only. (Tr. Day 6 at 21, 46-7; Day 7 at 84-86, 148; Trial Ex. P-34). The modifications were made despite the Benefits Group's intention that Grades 20 and higher should interpret this ineligibility provision as not applicable to a divestiture situation. (Tr. Day 6 at 45-47; Tr. Day 7 at 138-50).

  35. Although the Benefits Group determined that it was inappropriate to refer to a divestiture situation in the SPD, it never revised the Intranet summary, which contained the same provision that was ...


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