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Lawrence J. Barnett, Christine Cookenback, James M. Defeo and Madlin v. Skf Usa

February 21, 2012


Appeal from the Order of the Superior Court dated July 13, 2009 at No. 282 EDA 2008 affirming the Order of the Court of Common Pleas of Montgomery County, Civil Division, dated October 31, 2007 at No. 93-19687 The opinion of the court was delivered by: Madame Justice Todd


ARGUED: May 10, 2011


In this appeal, we consider whether Section 514(a) of the Employee Retirement Income Security Act of 1974 ("ERISA" or the "Act"),*fn1 29 U.S.C. § 1144(a), preempts the breach of contract claim asserted by Appellees Lawrence J. Barnett, Christine Cookenback, James M. Defeo, and Madlin Laurent against Appellant SKF USA, Inc. ("SKF" or "Company") under Pennsylvania law. For the reasons stated below, we hold that Appellees' claim is preempted, and, accordingly, we reverse the Superior Court's order affirming the trial court's denial of summary judgment in favor of SKF.

At all relevant times, Appellees were salaried, non-unionized, employees of SKF, working in its Philadelphia plant. The Company also employed hourly unionized employees ("union workers") at the plant. In January 1991, SKF announced its decision to shut down the plant and terminate the employment of all those working there in relatively short order. Over the course of the ensuing year, the effect of the closing on employee retirement rights and benefits became a subject of collective bargaining between SKF and its union workers, and a matter of discussion between Appellees and their supervisors.

Appellees' retirement and pension rights were set forth in the "Pension Plan for Salaried Employees of SKF Industries, Inc." (the "Plan"), an ERISA plan,*fn2 which SKF maintained and administered.*fn3 Articles 4 and 5 of the Plan covered "Retirement Dates" and "Retirement Benefits," respectively. Under Section 4.01, a member's "Normal Retirement Date" was the last day of the month during which he or she reached age 65, and, under Section 5.01, a member who retired at that age was entitled to a "Normal Form of Retirement Benefit." Section 4.02(b) provided for "Early Retirement Without Actuarial Reduction" and entitled a member, who was not yet 65 years of age, but whose service with SKF ceased by reason of a permanent plant shutdown, to retire and receive an immediate pension, as long as he or she had a specified number of years of service and had reached a specified age. For the Philadelphia plant, a Section 4.02(b) retirement required 20 years of service and 45 years of age as of the date of the cessation of a member's service. Article 6 covered "Termination of Service" and set forth the benefit rights of a member whose service with the Company terminated for any reason other than death or retirement. Under Section 6.01, a member with at least 10 years of service was entitled to a deferred vested retirement benefit, payable for life, commencing upon his or her normal retirement date at 65 years of age or any month following his or her 55th birthday. If a member elected to receive benefits at any point upon reaching age 55, but before reaching age 65, the benefit amount to be paid was his or her deferred vested retirement benefit multiplied by a factor, ranging from .5000 for a retirement age of 55 to .9333 for a retirement age of 64.

When SKF announced its decision to shut down the Philadelphia plant, each of the Appellees had 20 years of service with the Company, but would not reach 45 years of age by the time of the anticipated closure. Consequently, for Appellees, early retirement under Section 4.02(b) of the Plan would not be available and their rights of retirement would be governed, instead, by Section 6.01.

Appellees became aware that, as a result of collectively bargaining the effects of plant closing, SKF agreed that any union worker with 20 years of service and 45 years of age, as of March 10, 1993, the date on which the collective bargaining agreement then in effect expired, would be entitled to receive an immediate and full pension. This entitlement was referred to as the "creep provision" or "creep benefit" because it permitted certain employees to "creep" into retirement rights and pension benefits that a separate ERISA pension plan SKF maintained and administered for its union workers did not provide. Deposition of John Dobrzanski (Exhibit H to SKF's Renewed Motion for Summary Judgment), at 65. Prior to the plant closing, the pension plan covering SKF's union workers was amended to incorporate the creep provision.

Appellees approached SKF's Director of Human Resources to inquire whether they too would be given the creep provision, since they would satisfy its requirements. According to Appellees, on two occasions, in order to induce them to remain with the Company until the plant closing, the Director of Human Resources orally stated, when asked about the Company's intention regarding the creep provision: "If the Union gets it, you'll get it." Deposition of James M. Defeo (Exhibit B to SKF's Renewed Motion for Summary Judgment), at 33, 42, 51. In a letter dated June 17, 1991, sent to the plant's manager, Appellees stated:

This letter is a request to clarify our status as Salary employees affected by the so-called "Creep Provision" that was offered to the hourly employees. . . . We recognize the fact that we are not a party to the Company/Union agreement, however, we believe that it is morally correct that we receive the same consideration. All of us have been loyal employees of SKF and will have the required 20 years of service and age requirement of 45 years by the end of the labor agreement in March 1993.

Deposition Exhibit Dobrzanski-1 (letter dated June 17, 1991). By September 1, 1991, Appellees' employment with SKF was terminated, and, in December 1991, the Philadelphia plant closed. The Plan was not amended to contain the creep provision.

In January 1992, Appellees Defeo and Barnett both received a letter from SKF's Compensation and Benefits Manager informing them that they met the Plan's requirements for a deferred vested pension. Reflecting the terms of Section 6.01 of the Plan, the letter stated they could each begin receiving their pension on their normal retirement date of age 65, or on their early retirement date of age 55, or on a retirement date in between ages 55 and 65. After advising them of the pension amount they would receive in monthly payments for their lifetimes if they elected to have their pensions start at age 65, the letter stated: "If you elect to have your pension start at age 55, you [will] receive 50% of [that amount]. If you elect to have your pension start between age 55 and age 65, your pension amount [will] be greater than 50%, but less than 100% of [that amount] depending upon your age." Deposition Exhibit Defeo-7 (Letter dated January 23, 1992); Exhibit Barnett-4 of Deposition of Lawrence J. Barnett (Letter dated January 23, 1992) (Exhibits B & D to SKF's Renewed Motion for Summary Judgment). Subsequently, in 2002, Appellees Defeo and Barnett, both 55 years of age, each submitted an "Application for Pension" with SKF. The Applications were consistent with the letters received in 1992 from SKF's Compensation and Benefits Manager and did not contemplate the receipt of a full pension, but, rather, set forth a pension amount that was multiplied by an "actuarial factor of 50%." Appellees' Expert Report (Attachments 1 and 2, Exhibit I to SKF's Renewed Motion for Summary Judgment).

Two years after their employment with SKF was terminated, and prior to the submission of pension applications, on September 29, 1993, Appellees Defeo, Barnett, Cookenback and Laurent commenced a breach of contract action against SKF in the Montgomery County Court of Common Pleas. In their single-count complaint, Appellees alleged that, throughout the course of their employment with the Company, they were employed under the same or better terms and conditions, including "pension eligibility," as SKF's union workers. Complaint at ¶¶ 9-10. Appellees further alleged that SKF promised that they, like certain union employees, "would be allowed to 'creep' [into] full pension benefits upon termination of employment from the plant closing, even though they would not have reached age 45" by that point in time, as long as they remained in the Company's employ. Id. at ¶ 11. Appellees averred that, although they continued with SKF until the plant closure, they were denied that which was given to certain union employees: "credit for services for early retirement under the same 45-20 plan eligibility" and "full pension benefits." Id. at ¶¶ 13, 14. Based on these allegations, Appellees claimed that SKF's conduct constituted a breach of contract. By way of damages, Appellees sought: (1) the pension benefits they lost from September 1, 1991 to December 31, 2002, in not having been paid an immediate and full pension benefit upon their termination as SKF employees in 1991; and (2) the pension benefits they lost after December 31, 2002, which amounted to the difference between the diminished monthly pension benefit they received upon retirement at age 55 and the larger monthly benefit amount receivable under the Plan upon retirement at age 65.*fn4

SKF filed preliminary objections to the complaint, arguing that Appellees' cause of action was preempted by Section 514(a) of ERISA. The trial court denied the preliminary objections on August 2, 1994, and discovery proceeded and closed in 1997. On February 27, 2004, SKF filed a motion for summary judgment on the grounds of ERISA preemption, which was denied.*fn5 On January 30, 2007, SKF renewed its motion raising ERISA preemption, asserting that Hooven v. Exxon Mobil Corp., 465 F.3d 566 (3d Cir. 2006), a decision by the Court of Appeals for the Third Circuit, compelled a finding of ERISA preemption. Again, the trial court denied SKF's motion, concluding Appellees' action was simply a contract dispute between employees and their former employer, the outcome of which would not affect the administration of an ERISA plan or impose any obligations on an ERISA plan or its administrator, and, thus, was not preempted by ERISA. On December 27, 2007, SKF sought permission to file an interlocutory appeal under Pa.R.A.P. 312, which was granted by the Superior Court.

On appeal, a divided panel of the Superior Court affirmed in a published opinion, authored by Judge Jack Panella and joined by Judge Cheryl Allen, holding that the trial court did not err in denying SKF's motion for summary judgment based on ERISA preemption. Barnett v. SKF USA, Inc., 4 A.3d 1057 (Pa. Super. 2009). Observing that Section 514(a) of the Act supersedes state laws insofar as they "relate to" an ERISA plan, the court determined the central question it was required to answer was whether "the state law [in question] does, in fact, relate to an employee benefit plan falling under this section." Id. at 1060 (quoting 29 U.S.C. 1144(a)). Based on this Court's recognition that ERISA "preemption does not occur . . . if the state law has only a tenuous, remote, or peripheral connection with covered plans," id. (quoting Pappas v. Asbel ("Pappas II"), 564 Pa. 407, 412-13, 768 A.2d 1089, 1092 (2001), confirming upon reconsideration, Pappas v. Asbel ("Pappas I"), 555 Pa. 342, 724 A.2d 889 (Pa. 1998)), the Superior Court concluded: "Appellees' cause of action neither impacts upon the Appellees' employee benefit plan at issue here, or ERISA. As such, preemption of Appellees' cause of action under ERISA is clearly not ...

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