Sharp v. Navistar International Corporation et al
Filing
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MEMORANDUM Opinion Signed by the Honorable Andrea R. Wood on 9/30/2017 Mailed notice (rth)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
DONALD SHARP,
Plaintiff,
v.
NAVISTAR INTERNATIONAL
CORPORATION and NAVISTAR INC.,
Defendants.
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No. 15-cv-00413
Judge Andrea R. Wood
MEMORANDUM OPINION
Plaintiff Donald Sharp brings this action against Defendants Navistar International
Corporation and Navistar Inc. (collectively, “Navistar”) in connection with his termination from
Navistar, where he served as a Senior Vice President. Sharp contends that Navistar failed to pay
him what he was entitled to under the severance agreement between the parties. Sharp initially
filed suit in the Circuit Court of Cook County, Illinois, Law Division, and Navistar removed the
case to this Court. Before the Court is Sharp’s renewed motion to remand (“Motion”) (Dkt. No.
32). For the reasons stated below, the Court finds that this case was properly removed and
therefore denies the Motion.
BACKGROUND
In his Complaint, Sharp alleges that while serving as a Senior Vice President in Navistar’s
Enterprise Services, he entered into a contract with Navistar concerning the severance payments
and benefits that Navistar would be obligated to pay him in the event that his employment were to
be terminated (the “Executive Severance Agreement” or “ESA”1). (Compl. ¶¶ 4–5, Dkt. No. 1-1.)
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Although Navistar refers generally to the severance agreements that it offers its executives as Executive
Severance Agreements, the particular agreement at issue here is an individual contract concerning only
Under the ESA, the amount of severance due to Sharp would depend on a variety of factors,
including whether he was terminated within the 36 months following a “Change in Control of the
Company.” (Id. ¶¶ 6–8; Notice of Removal ¶ 6, Dkt. No. 1.) In the summer or fall of 2012,
according to Sharp, such a change in control occurred. (Compl. ¶¶ 10–13, Dkt. No. 1-1.) He was
terminated several months later, which he felt entitled him to certain enhanced severance
payments and other benefits under the ESA. (Id. ¶ 14.) Navistar disagreed, and paid him only the
severance he would be due in the absence of a change in control, prompting Sharp to bring suit in
the Circuit Court of Cook County, Illinois, Law Division asserting claims for violation of the
Illinois Wage Payment and Collection Act and breach of contract.
Navistar removed to the case to this Court, asserting that Sharp’s causes of action are
preempted by the Employee Retirement Income Security Act of 1974 (“ERISA”). In particular,
Navistar asserts that Sharp’s claims are preempted because “[u]nder the ESA, Navistar cannot
prepare for one exclusive situation that would trigger its severance liability,” “the ESA requires
Navistar to exercise discretion in determining what its obligations to ESA executives are in the
event they terminate employment,” and Navistar “has an ongoing obligation to monitor its ability
to pay various compensation amounts” and “an ongoing responsibility to pay other benefits ‘on a
regular basis’ even after the executive’s employment is terminated.” (Notice of Removal ¶¶ 20–
25, Dkt. No. 1.) Sharp filed a motion to remand and requested permission to conduct discovery on
the issue of remand, which the Court granted. After that discovery was completed, Sharp filed a
renewed motion to remand, which is the motion currently before the Court.
Sharp’s severance, which the Court refers to as the “ESA.” In addition, although Sharp signed successive
severance agreements during his tenure at Navistar, there appears to be no material difference between the
agreements for purposes of the issue at hand, and the Court will refer to them collectively as the “ESA.”
2
Although the parties have differing positions regarding whether the ESA is an ERISA
plan, the following facts regarding the ESA appear to be undisputed. While Navistar provides
similar severance agreements to its executives, the ESA is an individual contract between Sharp
and Navistar governing only Sharp’s severance, with the particular benefits due to him dependent
upon his executive employment “tier” at termination. (Pl. Mot. at 4–5, Dkt. No. 32; Notice of
Removal ¶¶ 4–5, Dkt. No. 1; Def. Opp’n at 3, Dkt. No. 38.) Aside from this litigation, Navistar
has not explicitly characterized the ESA as an ERISA plan, nor does the ESA make any reference
to ERISA. (Pl. Mot. at 5, Dkt. No. 32; Notice of Removal ¶ 5, Dkt. No. 1; Def. Opp’n at 15, Dkt.
No. 38.) Pursuant to the ESA, if terminated, Sharp would be entitled to lump-sum payments based
on his base salary and his annual target incentive—the portion based on his base salary would be
paid shortly after his termination, and the portion based on his annual target incentive would be
paid at the end of the year in which he is terminated (i.e., when Navistar calculates the incentive
amount due for all of its employees). (Pl. Mot. at 5–6, Dkt. No. 32; Def. Opp’n at 3, 9–10, Dkt.
No. 38; Pl. Reply at 3, Dkt. No. 39.) The amount of the lump sum payments due to Sharp under
the ESA would be dependent on a variety of additional factors, including whether he is terminated
for “good reason” or “for cause,” whether he suffers a “constructive termination” (e.g., a
“material diminution” of authority, duties, or responsibilities), and whether his termination is
within 36 months after a “change in control” on the company’s Board of Directors. (Pl. Mot. at
10, Dkt. No. 32; Notice of Removal ¶¶ 6, 22, Dkt. No. 1; Def. Opp’n at 4, 12, Dkt. No. 38.)
In addition to lump sum payments, the ESA provides that, if terminated, Sharp would
receive 24 months of continued healthcare coverage and life insurance coverage, outplacement
benefits, and other benefits. (Pl. Mot. at 7, Dkt. No. 32; Notice of Removal ¶ 5, Dkt. No. 1; Def.
Opp’n at 3, 10, Dkt. No. 38.) With respect to health insurance, Sharp would be entitled to
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continue his coverage under Navistar’s health insurance program for two years, with one year of
continuing to pay the same percentage of the applicable premium that he was paying while
employed, followed by a year of paying at his own cost. (Pl. Mot. at 7, Dkt. No. 32.) With respect
to outplacement benefits, Sharp would be entitled to accept the services from one of two outside
service providers paid for by Navistar, or instead to receive a direct payment of the amount
Navistar would pay for those services ($19,000). (Pl. Mot. at 8, Dkt. No. 32.) The other benefits
include the right to “grow into” additional benefits under a Navistar retirement plan and
forgiveness of the obligation to repay money that Navistar advanced for “perks” such as country
club memberships. (Pl. Mot. at 8, Dkt. No. 32.)
In light of its obligations under its various severance agreements with executives, Navistar
continuously monitors its ability to pay the severance benefits, which can be substantial—for
example, Sharp received a seven-figure separation payment as a result of his termination. (Pl.
Mot. at 9, Dkt. No. 32; Def. Opp’n at 2, 5, Dkt. No. 38.) In addition, Navistar monitors its former
executives’ post-Navistar employment and the press to determine whether the departed executives
are in violation of any restrictive covenants to which they are bound in connection with their
severance agreements—Sharp is bound by such a covenant. (Pl. Mot. at 7, Dkt. No. 32; Pl. Reply
at 5, Dkt. No. 39; Def. Opp’n at 13, Dkt. No. 38.)
DISCUSSION
“When a plaintiff files suit in state court but could have invoked the original jurisdiction of
the federal courts, the defendant may remove the action to federal court. . . . The party seeking
removal has the burden of establishing federal jurisdiction, and federal courts should interpret the
removal statute narrowly, resolving any doubt in favor of the plaintiff’s choice of forum in state
court.” Schur v. L.A. Weight Loss Ctrs., Inc., 577 F.3d 752, 758 (7th Cir. 2009) (citing 28 U.S.C.
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§ 1441(a)). Navistar, as the party seeking removal, bears the burden of establishing federal
jurisdiction by a preponderance of the evidence. Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d
536, 543 (7th Cir. 2006).
Pursuant to Section 502(e) of ERISA, 29 U.S.C. § 1132(e), federal jurisdiction exist in this
case if the claims at issue fall within the scope of the ERISA statute. “Complete preemption,
really a jurisdictional rather than a preemption doctrine, confers exclusive federal jurisdiction in
certain instances where Congress intended the scope of a federal law to be so broad as to entirely
replace any state-law claim. ERISA is such an area.” Franciscan Skemp Healthcare, Inc. v. Cent.
States Joint Bd. Health & Welfare Trust Fund, 538 F.3d 594, 596 (7th Cir. 2008). “[T]he
preemptive force of ERISA is so powerful that it converts ‘a state law claim into an action arising
under federal law,’ even if the plaintiff does not want relief under ERISA. This is true even
though the same facts might be sufficient to state a state law cause of action.” Jass v. Prudential
Health Care Plan, Inc., 88 F.3d 1482, 1490 (7th Cir. 1996) (quoting Metro. Life Ins. Co. v.
Taylor, 481 U.S. 58, 64 (1987)). To determine whether ERISA preemption applies, courts in the
Seventh Circuit consider: (1) if the claim(s) could have been brought under ERISA
§ 502(a)(1)(B), and (2) whether there is another independent legal duty that is implicated by the
defendants’ actions. Franciscan, 538 F.3d at 597. Here, only the first inquiry is in dispute—
whether the claims stemming from the ESA,2 a severance plan, could have been brought under
ERISA § 502(a)(1)(B). (See Pl. Mot. at 3, Dkt. No. 32.)
As the Seventh Circuit has explained, the inquiry is fact-specific, and it may not be easy to
draw the line in preemption cases, but “[t]here is no middle ground in these cases; either [the]
2
The fact that the ESA governs only Sharp’s termination does not preclude it from constituting an ERISA
plan. Cvelbar v. CBI Illinois Inc., 106 F.3d 1368, 1376 (7th Cir. 1997) abrogated by Int’l Union of
Operating Engineers, Local 150, AFL-CIO v. Rabine, 161 F.3d 427 (7th Cir. 1998) (“[W]e have no
difficulty in holding that it is possible for a one-person arrangement to qualify as an ERISA plan.”).
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plan is preempted by ERISA or it is not.” Collins v. Ralston Purina Co., 147 F.3d 592, 597 (7th
Cir. 1998). For a plan to be preempted by ERISA, it must require an “ongoing administrative
scheme” and its terms must be “reasonably ascertainable.” Cvelbar v. CBI Illinois Inc., 106 F.3d
1368, 1374 (7th Cir. 1997) abrogated by Int’l Union of Operating Engineers, Local 150, AFLCIO v. Rabine, 161 F.3d 427 (7th Cir. 1998). There does not appear to be any meaningful dispute
in this case that the terms of the ESA are reasonably ascertainable.3
To determine whether a plan requires an ongoing administrative program, “[t]he pivotal
inquiry is whether the plan requires the establishment of a separate, ongoing administrative
scheme to administer the plan’s benefits. Simple or mechanical determinations do not necessarily
require the establishment of such an administrative scheme; rather, an employer’s need to create
an administrative system may arise where the employer, to determine the employee’s eligibility
for and level of benefits, must analyze each employee’s particular circumstances in light of the
appropriate criteria.” Id. at 1375 (quoting Kulinski v. Medtronic Bio–Medicus, Inc., 21 F.3d 254,
257 (8th Cir.1994)). Factors that may be relevant include: (1) whether the severance benefits are
paid out in one lump sum or over time; and (2) whether the employer’s payment of benefits
requires managerial discretion in its administration. Id. at 1376–77. “ERISA applies when a
severance plan potentially places periodic demands on [an employer’s] assets that create a need
for financial coordination and control. In contrast, [t]he requirement of a one-time, lump-sum
payment triggered by a single event requires no administrative scheme whatsoever to meet the
employer’s obligation, and ERISA therefore does not apply.” Bowles v. Quantum Chem. Co., 266
3
Although Sharp argues that there is ambiguity with respect to Navistar’s use of “templates” for its
executive severance agreements, Sharp does not argue that this alleged ambiguity renders the terms of the
ESA not reasonably ascertainable (only that it “diminish[es]” the ascertainability of the terms of the
broader executive severance scheme). (Pl. Reply at 1, Dkt. No. 39.)
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F.3d 622, 631 (7th Cir. 2001) (internal citations and quotation marks omitted; substitutions in
original).
The Court notes that Navistar’s failure to explicitly characterize the ESA as an ERISA
plan does not have much bearing on the issue—the actual characteristics of the plan, not any
party’s characterization, determines whether it is an ERISA plan. See Cornell v. BP Am. Inc., No.
14 C 2123, 2015 WL 5766931, at *5–*7 (N.D. Ill. Sept. 30, 2015) (finding that plans constituted
ERISA plans even though the employer admitted its failure to comply with the formal
requirements for ERISA plans). Here, the Court finds that the ESA is an ERISA plan in light of
the managerial discretion required of Navistar to pay the benefits under the plan. In particular,
Navistar would have to exercise a significant amount of discretion under the ESA because in
order to determine the amount of severance due to Sharp, Navistar would have to determine
whether he was terminated “for cause,” whether he suffered a “constructive termination,” and
whether his termination followed a “change in control.”
The ESA is not a plan for which the only obligation would be a one-time payment. See
Collins v. Ralston Purina Co., 147 F.3d 592, 596 (7th Cir. 1998) (distinguishing Fort Halifax
Packing Co. v. Coyne, 482 U.S. 1 (1987)). Nor is this a plan under which the only determination
to be made would be whether Sharp was terminated “for cause.” See Bowles v. Quantum Chem.
Co., 266 F.3d 622, 633 (7th Cir. 2001) (distinguishing Velarde v. PACE Membership Warehouse,
Inc., 105 F.3d 1313, 1317 (9th Cir.1997)); Ankenbruck v. Rochester Midland Corp., No. 1:05-CV86-TS, 2006 WL 2524116, at *4 (N.D. Ind. Aug. 30, 2006); Schwartz v. Opportunity Int’l, Inc.,
No. 14-CV-5775, 2015 WL 300591, at *4 (N.D. Ill. Jan. 21, 2015). Instead, under the ESA,
Navistar would have to maintain an ongoing administrative scheme to make determinations such
as whether Sharp (and other executives) suffered a “material diminution” of authority, duties, or
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responsibilities, and be prepared to potentially face multiple demands by executives who felt they
had suffered such a “constructive termination.” Collins, 147 F.3d at 596 (“Only an ongoing
administrative scheme would allow the company to develop a working definition of ‘substantial
reduction of duties or responsibilities,’ such that it could be consistently applied either to a single
employee on multiple occasions or multiple employees on multiple occasions.”). Furthermore,
Navistar would be faced with the obligation to make such individualized determinations over a
protracted period of time—the obligation would arise only once Sharp was terminated, which
could be at any point during his employment, and an enhanced payment obligation could arise
anytime within 36 months following a “change in control.” See id. at 595–97 (“The individual
retention agreements required the company to budget for the prospect of paying out disbursements
of varying amounts to its managers and at varying times. . . . Prolonged individualized decisionmaking concerning benefits describes a plan subject to ERISA, and preempted by it.”); see also
Cornell, 2015 WL 5766931, at *7. In addition, pursuant to the ESA, Navistar would also have to
monitor Sharp’s compliance with his restrictive covenants—further evidence of the necessity of
an ongoing administrative scheme. Cvelbar, 106 F.3d at 1377.
The Court is unpersuaded by Sharp’s argument that the decisions to be made by Navistar
in connection with his (and other executives’) termination are simple mechanical decisions that
Navistar would make even in the absence of a severance scheme. (See Pl. Mot. at 10–11, Dkt. No.
32.) It is unclear why Navistar would have to undertake determinations as to whether an executive
suffered “constructive termination” or was terminated following a “change in control” outside of
the severance context. That Navistar’s obligations to Sharp under the ESA did not consist of
simple mechanical determinations is only underscored by the fact that Sharp’s termination has
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resulted in this litigation regarding whether there was a “change in control” and what Sharp is
actually due under the ESA.
CONCLUSION
For the foregoing reasons, Navistar has shown that removal of this action was proper and
thus Sharp’s renewed motion to remand (Dkt. No. 32) is denied.
ENTERED:
Dated: September 30, 2017
__________________________
Andrea R. Wood
United States District Judge
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