The opinion of the court was delivered by: Susan Illston United States District Judge
ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANT'S MOTION TO DISMISS AND MOTION FOR SUMMARY JUDGMENT
The parties have filed cross-motions for summary judgment, and defendant has filed a motion to dismiss. Argument on the matter was heard on July 18, 2008. Having considered the arguments of the parties and the papers submitted, the Court hereby DENIES defendant's motions and GRANTS IN PART plaintiff's motion for summary judgment.
This case raises the question of whether a former employee was properly denied benefits under a plan governed by the Employee Retirement Income Security Act ("ERISA"). The parties do not dispute the following facts. Plaintiff Hugo Sluimer was employed by defendant Verity, Inc., a computer software provider, from 1990 until December 2005, when defendant was acquired by Autonomy
Company. In anticipation of a possible acquisition, defendant Verity created, in April 2005, a "Change in Control and Severance Benefit Plan" ("Plan"), which provided that if a Plan participant experienced a "covered termination" following a change in control, the participant would receive benefits such as a cash severance, accelerated stock option vesting, and continued medical benefits. See generally Kanter Decl. at ex. A. The Plan defined a "covered termination" as either an involuntary termination without cause or a voluntary termination after "a substantial reduction in the Participant's duties or responsibilities." Id. at ex. A, §§ 2(g) & (f). The Plan labeled this latter termination a "constructive termination." Id. On May 4, 2005, defendant informed plaintiff that he would be considered a participant in the Plan. Plaintiff confirmed his participation and both parties signed a notice indicating that plaintiff would not be eligible for any cash severance under the Plan and that his entitlement to a cash severance would be determined under Dutch law "without reference to the Plan." Kanter Decl. at ex. B. After Autonomy acquired defendant Verity, plaintiff was informed that he was at risk of termination unless a suitable alternative position was identified. On January 5, 2006, Autonomy's chief operating officer, Andrew Kanter, contacted plaintiff and informed him that there likely would not be a similar position available for him at Autonomy; a few hours later, plaintiff's access to his company email address was terminated. Plaintiff, however, continued to receive his base salary for the next few months. On March 23, 2006, Kanter sent plaintiff a letter alerting him to an alternative position at Neurodynamics, an entity controlled by Autonomy. The letter did not contain many details about the new position, and over the next month or so plaintiff attempted to learn more about the position to determine whether it was comparable to his former position. Plaintiff now alleges, and defendant does not dispute, that the new position would have meant a significant reduction in the amount of revenue for which plaintiff was responsible, the number of employees plaintiff had managed, and the variety of duties and responsibilities with which plaintiff had been charged. On April 19, 2006, plaintiff filed a lawsuit in a court in the Netherlands seeking a cash severance benefit under Dutch law (not under the Plan).*fn1 On June 7, 2006, the Dutch court issued an order declaring that the new position was not an "alternative suitable position," terminating the employment relationship between plaintiff and defendant, and awarding plaintiff a cash severance of roughly one million euros. During the pendency of the Dutch proceeding, plaintiff sought a determination from the Verity plan administrator that he was entitled to benefits under the Plan. Plaintiff's letter of May 1, 2006, asked for a confirmation that he was entitled to accelerated stock option vesting and medical benefits contemplated by the Plan. This letter was addressed to Jack Landers, who plaintiff believed was the plan administrator. Kanter, not Landers, responded to plaintiff on May 3, 2006, stating that plaintiff was not entitled to benefits under the Plan because he had been offered "immediate reemployment" within the meaning of the Plan, had not confirmed in writing that he would be subject to Autonomy's confidentiality and non-compete agreements, as required by the Plan, and had not executed a waiver andrelease of claims against Autonomy, as required by the Plan. Kanter sent another letter on July 6, 2006, confirming that plaintiff's application for benefits had been denied. This letter stated the same grounds for denial as the May 3rd letter, but also added that plaintiff had not suffered a "constructive termination" within the meaning of the Plan. On July 13, 2006, plaintiff requested a review of this decision and raised arguments regarding each of Kanter's grounds for denying benefits. On September 29, 2006, Kanter announced that he had reviewed the prior decision and that it was upheld. Kanter also informed plaintiff that he had assumed the duties of the plan administrator because Landers had recently eft the company. On February 29, 2008, plaintiff filed the instant action against Verity and the Plan. Plaintiff's complaint argued that he had been constructively terminated and thus entitled to benefits under the Plan, such as the accelerated vesting of stock options and continued medical benefits. Plaintiff also sought statutory penalties under § 502(c)(1) of ERISA for defendant's failure to produce documents related to the plan administrator's decision. Now before the Court are the parties' cross-motions for summary judgment, as well as defendant's motion to dismiss the complaint.
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The moving party, however, has no burden to negate or disprove matters on which the non-moving party will have the burden of proof at trial. The moving party need only point out to the Court that there is an absence of evidence to support the non- moving party's case. See id. at 325. The burden then shifts to the non-moving party to "designate 'specific facts showing that there is a genuine issue for trial.'" Id. at 324 (quoting Fed. R. Civ. P. 56(e)). To carry this burden, the non-moving party must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). "The mere existence of a scintilla of evidence . . . will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party]." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). In deciding a motion for summary judgment, the evidence is viewed in the light most favorable to the non-moving party, and all justifiable inferences are to be drawn in its favor. Id. at 255. "Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge [when she] is ruling on a motion for summary judgment." Id.
Currently before the Court is defendant's motion to dismiss or, in the alternative, motion for summary judgment, as well as plaintiff's motion for summary judgment. Defendant asks the Court to uphold the decision of the plan administrator and deny plaintiff's claims for benefits under the Plan, while plaintiff asks the Court to find that he is eligible and entitled to receive benefits. As an initial matter, the Court DENIES defendant's motion to dismiss. As discussed below, the Court also GRANTS plaintiff's motion for summary judgment and DENIES defendant's motion for summary judgment.
A threshold issue disputed by the parties is whether the Court should review Kanter's decision de novo or under the abuse of discretion standard. The Supreme Court has held that denials of benefits under ERISA are reviewed de novo by the district court "unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). "[F]or a plan to alter the standard of review from the default of de novo to the more lenient abuse of discretion, the plan must unambiguously provide discretion to the administrator." Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 963 (9th Cir. 2006) (en banc) (citing Kearney v. Standard Ins. Co., 175 F.3d 1084, 1090 (9th Cir. 1998)). The parties do not dispute that the plan provides the administrator with discretionary power, see Kanter Decl. at ex. A, § 8(a), and therefore that an abuse of discretion standard would normally apply here.
The abuse of discretion standard, however, can be heightened by the presence of a conflict of interest. Atwood v. Newmont Gold Co., 45 F.3d 1317, 1322 (9th Cir.1995). "A district court, when faced with all the facts and circumstances, must decide in each case how much or how little to credit the plan administrator's reason for denying insurance coverage." Abatie, 458 F.3d at 968. Factors that could show an administrator's self-interest include: evidence of malice, of self-dealing, or of a parsimonious claims-granting history, the administrator provides inconsistent reasons for denial, fails adequately to investigate a claim or ask the plaintiff for necessary evidence, fails to credit a claimant's reliable evidence, or has repeatedly denied benefits to deserving participants by interpreting plan terms incorrectly or by making decisions against the weight of evidence in the record. Id. at 968-69. Recently, the Supreme Court confirmed that a conflict of interest will also be found where the "entity that administers the plan, such as an employer or an insurance company, both determines whether an employee is eligible for benefits and pays benefits out of its own pocket." Metropolitan Life Ins. Co. v. Glenn, 128 S.Ct. 2343, 2346 (2008). Where such conflicts exist, courts must adhere to the abuse of discretion standard -- rather than apply de novo review -- but must "take account of the conflict when determining whether the trustee, substantively or procedurally, has abused his discretion." Id. at 2350. Plaintiff argues that the Court should not defer to Kanter's decision regarding plaintiff's eligibility for benefits because Kanter has a conflict of interest and a personal bias against plaintiff. Defendant does not seriously dispute the existence of some degree of conflict, and the Court agrees with plaintiff that Kanter's roles as chief operating officer of Autonomy and plan administrator create a conflict of interest because Kanter is responsible for determining eligibility under the plan and also serves as a high-level executive and director of the entity that would serve as the source of funding for plaintiff's benefits were plaintiff found eligible. See Metropolitan Life Ins., 128 S.Ct. at 2346. The Court also finds a related, though distinct, conflict of interest inherent in Kanter's dual role as the person offering plaintiff alternative employment and the person evaluating whether that alternative employment is sufficient under the plan to render plaintiff ineligible for benefits. See Kanter Decl. at ex. A, §§ 2(f) & 3(b). Accordingly, although the Court rejects plaintiff's call for de novo review, the Court will consider these conflicts of interest as it evaluates Kanter's decision and will apply a heightened abuse of discretion standard. See generally Abatie, 458 F.3d at 968. Plaintiff also argues the Court owes no deference to Kanter's decision because Kanter was not the plan administrator at the time he made the decision to deny benefits to plaintiff.*fn2 The Plan defines the plan administrator as the Board or any committee duly authorized by the Board to administer the Plan. The Plan Administrator may, but is not required to be, the Compensation Committee of the Board. The Board may at any time administer the Plan, in whole or in part, notwithstanding that the Board has previously appointed a committee to act as the Plan Administrator. Kanter Decl. at ex. A, § 2(l). Kanter claims that he was made plan administrator on or about May 1, 2006, see Kanter Decl. at ¶ 4, and this is confirmed by a member of Verity's board of directors, see Hussain Decl. at ¶ 2. However, Jack Landers, the former plan administrator, testified that he was never informed that he had been relieved as plan administrator. Ehrman Decl. at ex. A (Deposition of Jack Landers at 18-20). In addition, Kanter never identified himself to plaintiff as the plan administrator until September 29, 2006, when Kanter sent plaintiff a letter explaining that "Jack Landers . . . has recently left the company, and as such I have assumed his duties as Plan Administrator within the meaning" of the Plan. Sluimer Decl. at ex. B, HS 65. Thus, the facts are in dispute as to whether Kanter was the plan administrator. However, this dispute is of no relevance because, as explained below, the Court finds it appropriate to overturn Kanter's decision even under heightened abuse of discretion review.
II. Plaintiff's Compliance with the Plan's Notice Requirement
Plaintiff argues that he is entitled to benefits because, although he was offered an alternative position after Autonomy purchased Verity, this position would have resulted in a substantial reduction in his duties and responsibilities and thus should be considered a "constructive termination." See Kanter Decl. at ex. A, § 2(f). Plaintiff's reliance on the constructive termination provision of the Plan poses a second threshold question: whether plaintiff is precluded from seeking benefits because he failed to comply with the notice requirements for constructive termination. The Plan provides that a participant's voluntary termination after a reduction in duties or responsibilities "shall not be deemed a Constructive Termination unless . . . the Participant provides the Company with written notice . . . that the Participant believes that an event described in this Section 2(f) has occurred." Id. Such notice must be provided within three months of the date the constructive termination occurred, and the company has 15 days after receipt of the notice to cure the conduct giving rise to the constructive termination. Id. The parties dispute the date the constructive termination should be deemed to have occurred, and thus when the three-month window for plaintiff's notice would have closed. Defendant argues that Autonomy's decision to place plaintiff on leave should have triggered his notice requirement, resulting in either a March 6, 2006 or a March 29, 2006 deadline for plaintiff to give notice. In response, plaintiff contends that the event triggering his notice requirement could not have occurred until at least April 18, 2006, when plaintiff learned, for the first time, what the alternative position would entail. The Court agrees. It would have been impossible for plaintiff to notify Autonomy that he believed a constructive termination had occurred until he had been provided with sufficient detail about the alternative position to determine whether the position would result in "a substantial reduction in [his] duties or responsibilities." Kanter Decl. at ex. A, § 2(f). The earliest date plaintiff possibly could have been in possession of this information was March 23, 2006, when Autonomy first offered plaintiff an alternative position with Neurodynamics. See Sluimer Decl. at ex. B, HS 35-36. The March 23 letter did not provide any details about the alternative position, and defendant does not appear to dispute that plaintiff did not learn the necessary details until at least April 18, 2006, when plaintiff met with David Humphrey, the would-be supervisor of the position. See Sluimer Decl. at ¶ 9. Accordingly, plaintiff'sconstructive termination notice was due on or before July 18, 2006. Defendant also argues that even if plaintiff's notice was not due until July 18, plaintiff failed to comply with the notice requirement because his correspondence did not clearly notify defendant that he believe a constructive termination had occurred. The Court disagrees. Plaintiff first notified Kanter on April 25, 2008, via email, that "[t]he alternative position that Autonomy offered to me is just not comparable at all to my former job with Verity." Sluimer Decl. at ex. B, HS 54. Later, in a letter sent by email and "registered delivery" on July 13, 2006, plaintiff notified the plan administrator that "I claim, per section 2 (f) 'Constructive Termination' (i) due to a substantial reduction in the Participant's duties and responsibilities." Id. at ex. B, HS 61. In addition, it is clear to the ...