Commissioner of Labor v. Chubb Group of Insurance Companies

Filing 50

ORDER granting Defendants' Motion to Dismiss (Doc. No. 23 ). Signed by Judge Alvin W. Thompson on 08/15/2012. (Giering, A)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
--------------------------------x
STATE OF CONNECTICUT
:
COMMISSIONER OF LABOR,
:
:
Plaintiff,
:
:
v.
:
:
CHUBB GROUP OF INSURANCE
:
COMPANIES,
:
:
Defendant.
:
--------------------------------x

CASE NO 3:11CV00997(AWT)

RULING ON MOTION TO DISMISS
The plaintiff, State of Connecticut Commissioner of
Labor (the “Commissioner”), acting under the authority
conferred upon him by Conn. Gen. Stat. § 31-72, brought
this civil wage enforcement action against the defendant,
Chubb Group of Insurance Companies (“Chubb”), in
Connecticut Superior Court.

In his complaint, the

Commissioner set forth claims for unpaid earned “wages” as
defined in Conn. Gen. Stat. § 31-71a(3) (First Count),
unjust enrichment (Second Count), civil penalties pursuant
to Conn. Gen. Stat. § 31-69a (Third Count), common law
failure to pay wages (Fourth Count), and quantum meruit
(Fifth Count).

Chubb removed the case to this court

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pursuant to 28 U.S.C. § 1332, 1441 and 1446.1

Chubb moves

to dismiss plaintiff‟s complaint in its entirety under Fed.
R.

Civ. P. 12(b)(6).

For the reasons set forth below, the

motion is being granted.
I.

FACTUAL ALLEGATIONS
Chubb is an insurance corporation chartered in Indiana

with its principal place of business in New Jersey.

Chubb

maintained an office in New Haven, Connecticut and employed
Sean McMahon (“McMahon”) of Shelton, Connecticut.
McMahon‟s employment with Chubb ended on or about February
26, 2009.

On July 20, 2010, McMahon filed a complaint with

the Commissioner alleging that Chubb had failed to pay him
$37,700 in performance-based incentive wages under Chubb‟s
Annual Incentive Compensation Plan (The Chubb Corp. Ann.
Incentive Comp. Plan (Doc. No. 23-1) (the “Plan”)) for his
work for Chubb in 2008.
The Commissioner alleges that Chubb failed to pay
McMahon performance-based incentive wages for 2008 pursuant
to the Plan.

Under the Plan, the Organization and

Compensation Committee of Chubb‟s Board of Directors “may
reduce or eliminate any Award under the plan, . . . .”
(Plan ¶ 5.)
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The court has previously determined that the Commissioner is bringing
this suit as parens patriae for Sean McMahon and is not the real party
in interest. (See Am. Ruling on Mot. To Remand (Doc. No. 36-1).)

2

II.

LEGAL STANDARD
When deciding a motion to dismiss under Rule 12(b)(6),

the court must accept as true all factual allegations in
the complaint and must draw inferences in a light most
favorable to the plaintiff.
232, 236 (1974).

Scheuer v. Rhodes, 416 U.S.

Although a complaint “does not need

detailed factual allegations, a plaintiff‟s obligation to
provide the „grounds‟ of his „entitle[ment] to relief‟
requires more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not
do.”

Bell Atl. Corp. v. Twombly, 550 U.S. 550, 555 (2007)

(citing Papasan v. Allain, 478 U.S. 265, 286 (1986)) (on a
motion to dismiss, courts “are not bound to accept as true
a legal conclusion couched as a factual allegation”).

“Nor

does a complaint suffice if it tenders naked assertions
devoid of further factual enhancement.”

Ashcroft v. Iqbal,

129 S.Ct. 1937, 1949 (2009)(quoting Twombly, 550 U.S. at
557).

“Factual allegations must be enough to raise a right

to relief above the speculative level, on the assumption
that all allegations in the complaint are true (even if
doubtful in fact).”

Id. (internal citations omitted).

However, the plaintiff must plead “only enough facts to
state a claim to relief that is plausible on its face.”
Id. at 1974.

“The function of a motion to dismiss is

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„merely to assess the legal feasibility of the complaint,
not to assay the weight of the evidence which might be
offered in support thereof.‟”

Mytych v. May Dept. Store

Co., 34 F. Supp. 2d 130, 131 (D. Conn. 1999) (quoting Ryder
Energy Distrib. v. Merrill Lynch Commodities, Inc., 748
F.2d 774, 779 (2d Cir. 1984)).

“The issue on a motion to

dismiss is not whether the plaintiff will prevail, but
whether the plaintiff is entitled to offer evidence to
support his claims.”

United States v. Yale New Haven

Hosp., 727 F. Supp. 784, 786 (D. Conn. 1990) (citing
Scheuer, 416 U.S. at 232).
In its review of a motion to dismiss for failure to
state a claim, the court may consider “only the facts
alleged in the pleadings, documents attached as exhibits or
incorporated by reference in the pleadings and matters of
which judicial notice may be taken.” Samuels v. Air Transp.
Local 504, 992 F.2d 12, 15 (2d Cir. 1993).
III. DISCUSSION
A. The Bonus At Issue Does Not Fall Within the
Statutory Definition of Wages.
The defendant argues that plaintiff‟s First and Third
claims must be dismissed because an award under the Plan
does not fall within the definition of wages under Conn.
Gen. Stat. § 31-71a(3).

Based on three recent Connecticut

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Supreme Court cases construing this definition, the court
agrees.
In Weems v. Citigroup, Inc., 289 Conn. 769, 782
(2008), the Connecticut Supreme Court held that “bonuses
that are awarded solely on a discretionary basis, and are
not linked solely to the ascertainable efforts of the
particular employee, are not wages under § 31-71a(3).”
Then, in Ziotas v. Reardon Law Firm, P.C., 296 Conn. 579,
588-89 (2010), the payment of a bonus was not discretionary
but the amount of the bonus was discretionary.

The court

held:
Although the plaintiff is correct that
neither Weems nor the cases that we
cited in that decision address the
situation in which the payment of a
bonus was contractually required and
only the amount of the bonus was
discretionary, we conclude for the
following reasons that such a bonus
does not constitute wages under 3171a(3).
First, our reasoning in Weems
also
applies
when
an
employee
is
contractually entitled to a bonus, but
the
amount
is
indeterminate
and
discretionary. . . .
Ziotas, 296 Conn. 579 at 588-89.
Finally the Connecticut Supreme Court distinguished
Weems and Ziotas in Ass‟n Res., Inc. v. Wall, 298 Conn.
145, 176 (2010), where it found bonuses constituted “wages
as defined by § 31-71a(3) because, under the employment

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agreement, they were entirely nondiscretionary, both as to
whether they would be awarded and the amount thereof.”
Based on the analysis in these three cases, in order
to establish that a bonus is wages under Conn. Gen. Stat.
§ 31-71a(3), a plaintiff must show that the bonus was
entirely nondiscretionary, both as to whether it would be
awarded and, if so, the amount of the award.

Under that

standard, McMahon‟s unpaid bonus does not fall within the
statutory definition of wages.

The Plan explicitly

provided that the committee may reduce or eliminate any
award under the Plan.

This language makes the bonus

discretionary, both as to whether it should be awarded and,
if so, the amount to be awarded.
The Commissioner contends that the fact that the Plan
had a provision concerning compliance with Section 162(m)
of the Internal Revenue Code operates to make McMahon‟s
unpaid bonus wages under § 31-71a(3).

The Plan provides:

COMPLIANCE WITH 162(m). With regard to
all Covered Employees, the Plan shall
for all purposes be interpreted and
construed in accordance with Section
162(m) of the Code.
Unless otherwise
specifically
determined
by
the
Committee, if any provision of the Plan
would cause the Awards granted to a
Covered Employee to fail to qualify for
the
“performance-based
compensation”
exception under Section 162(m) of the
Code, that provision, insofar as it
pertains to the Covered Employee, shall

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be severed from, and shall be deemed
not to be a part of this Plan, but the
other provisions hereof shall remain in
full force and effect.
(Plan ¶ 11.)

The Plan defines “Covered Employee” as “an

Employee who is a „covered employee‟ as defined in Section
162(m) of the Code.”

(Id. ¶ 2.)

Section 162(m) provides,

in pertinent part:
(1) In general.--In the case of any
publicly held corporation, no deduction
shall be allowed under this chapter for
applicable employee remuneration with
respect to any covered employee to the
extent
that
the
amount
of
such
remuneration for the taxable year with
respect
to
such
employee
exceeds
$1,000,000.
(3) Covered employee.--For the purposes
of this subsection, the term “covered
employee” means any employee of the
taxpayer if--(A) as of the close of the
taxable year, such employee is the
chief executive officer of the taxpayer
or is an individual acting in such a
capacity, or (B) the total compensation
of such employee for the taxable year
is
required
to
be
reported
to
shareholders
under
the
Securities
Exchange Act of 1934 by reason of such
employee being among the 4 highest
compensated officers for the taxable
year (other than the chief executive
officer).
I.R.C. § 162(m).
The Commissioner argues:
The Plan incorporates Section 162(m) of
the
Internal
Revenue
Code.
The
Defendant argues that Section 162(m)

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only applies to the five highest paid
employees and does not, therefore apply
to McMahon.
The Defendant has missed
the
point.
The
Internal
Revenue
Service‟s [sic] has ruled that to
qualify
for
the
corporate
tax
exemption, the corporate taxpayer must
see to it that each and every bonus
plan that one or more of the five top
earners could or do qualify for treats
each and every dime of bonus pay as an
earned incentive wage payment.
Each
bonus
plan
must
be
completely
performance based. Paragraph eleven of
the plan mandates that, with regard to
all covered employees, the Plan shall
be
interpreted
and
construed
in
accordance with Section 162(m). . . .
(Pl.‟s Mem. of Law in Opp‟n to Def.‟s Mot. to Dismiss (Doc.
No. 26, 3-4.)

The Commissioner cites no authority in

support of his representation concerning the ruling by the
Internal Revenue Service.

In any event the court finds the

Commissioner‟s argument unpersuasive because the court
agrees with Chubb‟s analysis:
Chubb has pointed out that Section
162(m) modifies the Plan only with
respect to “Covered Employees,” i.e.,
the
four
(4)
highest
compensated
officers for the taxable year, other
than the chief executive officer.
The
language of the Plan supports Chubb‟s
interpretation
and
contradicts
Plaintiff‟s.
The Plan states that it
will be construed as consistent with
Section 162(m) only “[w]ith regard to
all
Covered
Employees”
and
only
“insofar as it pertains to the Covered
Employees.”
(Plan, Section 11.)
The
Plan states that “the other provisions
hereof shall remain in full force and

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effect.”
Id.
There is no language in
the Plan suggesting that Section 162(m)
modifies the Plan with respect to
employees other than Covered Employees.
Plaintiff
is
arguing
for
an
interpretation of the Plan that is
simply contrary to its wording.
(Mem. of Law in Supp. Of Mot. to Dismiss (Doc. No. 23), 3.)
Because the unpaid bonus does not constitute wages
under Conn. Gen. Stat. § 31-71a(3), the motion to dismiss
is being granted as to the First and Third Counts
B. The Commissioner Lacks the Authority to Bring the
Remaining Claims
The Commissioner contends that even if the bonus does
not constitute wages under Conn. Gen. Stat. § 31-71a(3),
the Commissioner is given the authority under Conn. Gen.
Stat. § 31-72 to bring common law claims as well.

The

Commissioner points to the “any legal action necessary”
clause in § 31-72 and relies on Comm‟r of Labor v. C.J.M.
Servs., Inc., 268 Conn. 283 (2003), for this proposition.
Section 31-72 provides in pertinent part that: “[T]he Labor
Commissioner may bring any legal action necessary to
recover twice the full amount of unpaid wages, payments due
to an employee welfare fund or arbitration award, . . . .”
Conn. Gen. Stat. § 31-72.

In C.J.M. Servs., the

Commissioner sued a general contractor on behalf of
employees of a subcontractor to collect unpaid wages

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pursuant to his authority under Conn. Gen. Stat. § 31-72.
The Commissioner brought an action against the general
contractor pursuant to Conn. Gen. Stat. §§ 49-41 and 49-42.
The Connecticut Supreme Court affirmed the Appellate
Court‟s decision “that the commissioner had authority under
§ 31-72 to bring any legal action necessary to recover the
lost wages on behalf of the subcontractor‟s employees,
including any action against the general contractor and its
surety on the payment bond pursuant to General Statutes §§
49-41 and 49-42.”

Id. at 288-91 (footnotes and citation

omitted; emphasis added).
Here, the Commissioner alleges he is bringing common
law claims “pursuant to his statutory authority under Conn.
Gen. Stat. § 31-72, wherein said commissioner is authorized
to pursue any actions to collect any and all unpaid wages.”
(Compl. ¶ 1.)

While the Commissioner properly refers to

the “any legal action necessary” clause in § 31-72, he
ignores the fact that the authority granted in § 31-72 is
only with respect to unpaid wages.

In C.J.M. Servs., the

commissioner was authorized by Conn. Gen. Stat. § 31-72 to
bring an action pursuant to Conn. Gen. Stat. §§ 49-41 and
49-42 because he was suing to recover unpaid wages.

In

this case, however, the bonus at issue does not fall within
the statutory definition of “wages” in § 31-71a(3), so the

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Commissioner is not authorized by § 31-72 to bring “any
legal action,” common law or otherwise, with respect to it.
Because the Commissioner brought each of the remaining
counts “pursuant to his statutory authority under Conn.
Gen. Stat. § 31-72,” the remaining counts, i.e., the
Second, Fourth and Fifth Counts, must also be dismissed.
IV. CONCLUSION
For the reasons set forth above, the Defendants‟
Motion to Dismiss (Doc. No. 23) is hereby GRANTED.

The

Clerk shall enter judgment in favor of the defendants and
close this case.
It is so ordered.
Dated this the 15th day of August 2012, at Hartford,
Connecticut.
/s/
Alvin W. Thompson
United States District Judge

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