Scott v. Norton Healthcare, Inc.
Filing
22
MEMORANDUM OPINION AND ORDER by Senior Judge Charles R. Simpson, III on 7/31/2013; 17 Motion to Dismiss amended complaint is DENIED.cc:counsel (TLB)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
AT LOUISVILLE
DANNY R. SCOTT
PLAINTIFF
v.
CIVIL ACTION NO. 3:11CV-682-S
NORTON HEALTHCARE, INC.
DEFENDANT
MEMORANDUM OPINION AND ORDER
This matter is before the court on motion of the defendant, Norton Healthcare, Inc., to
dismiss the amended complaint in this case for failure to state a claim upon which relief may be
granted. F.R.Civ.P. 12(b)(6). In addressing such a motion to dismiss, “[f]actual allegations must be
enough to raise a right to relief above the speculative level,...on the assumption that all the
allegations in the complaint are true (even if doubtful in fact).” NicSand, Inc. v. 3M Co., 507 F.3d
442, 461 (6th Cir. 2007)(quoting Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1965 (2007)). The
court may consider all documents attached to the complaint. See Fed.R.Civ.P. 10(c). However, the
court need not accept as true unwarranted factual inferences or legal conclusions. Gregory v. Shelby
County, 220 F.3d 433, 446 (6th Cir. 2000). “To survive a motion to dismiss, a complaint must
contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its
face.’” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009), quoting Bell Atlantic Corp., 550 U.S. at 570.
Stated concisely, Norton Healthcare contends that the claim of the plaintiff, Danny R. Scott,
for wrongful denial of “top hat” ERISA plan benefits is precluded by his settlement of a state court
action brought against him by Norton Enterprises, Inc., an affiliate of Norton Healthcare. The
underlying facts for purposes of the resolution of this motion are undisputed.
This is an action for wrongful denial of benefits under an employee benefit plan, pursuant
to the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1132. Scott was the Chief
Administrative Officer of Norton Cancer Institute (“NCI”), an affiliate of Norton Healthcare, from
2000 to December 31, 2008. During this period, he was offered, and elected to participate in,
Norton Healthcare’s ExecuPlus Capital Accumulation Plan. Norton Healthcare “sponsors the Plan
to provide key employees with supplemental deferred compensation as well as the opportunity to
defer compensation...to encourage continued employment with the Company for a significant period
of time.” ExecuPlus Plan, Art. I, sec. 1.2. Norton Healthcare made contributions of $29,600 in 2007
and $33,600 in 2008 for Scott’s benefit. Am.Compl., ¶ 9. Scott elected to have his benefits paid to
him twenty-four months after the date of his separation from his employment, under the condition
that he refrain from competing with Norton Healthcare during that 24-month period. Am.Compl.,
¶ 10.
In April 2008, Scott announced his intention to retire from his position at NCI at the end of
2008. Scott was offered to “transition” from a full-time employee of Norton Healthcare to a parttime employee of Norton Enterprises, effective January 1, 2009. He was informed by letter that he
would “continue to receive [his] current salary and benefits through December 31, 2008 including
participation in the Norton Healthcare Management Incentive Program. [the “top hat” plan]. For
the [19] month period for [his] part-time role beginning January 1, 2009, [he would] be eligible to
receive salary and benefits outlined in the attached agreement which is reflective of a part-time
employee of Norton Enterprises...” Am.Compl., ¶ 13; Ex. D; Ex. E. Scott entered into the
employment agreement with Norton Enterprises on July 21, 2008. The last deferred compensation
payment was made on his behalf by Norton Healthcare on January 1, 2009. Am.Compl., ¶ 18.
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Scott’s employment with Norton Healthcare ended on December 31, 2008. A dispute
developed in 2009 over Scott’s interest in a management position with Iasis Group, Inc., an entity
that allegedly competes with Norton Enterprises. The details of this dispute are immaterial to the
resolution of the pending motion. Suffice it to say that Norton Enterprises became concerned about
Scott’s activities and sued Scott in March, 2009 in the Jefferson County, Kentucky, Circuit Court
to restrain him from engaging in competing activity and using proprietary or confidential
information.
Norton Enterprises alleged breach of Scott’s employment agreement, unfair
competition, and breach of fiduciary duties he owed to Norton Enterprises. Am.Compl., Ex. H.
On May 7, 2009, Scott entered into a settlement of the state court action with Norton
Enterprises. The settlement stated, in part, that:
Norton [Enterprises] voluntarily terminates [Scott]’s employment with Norton
[Enterprises], pursuant to Section 4.4 of the employment agreement executed by the
parties on July 21, 2008... Norton [Enterprises] shall pay [Scott] his accrued salary,
at the current effective rate through the effective date of termination, plus any other
benefits to which [Scott] currently has a vested right, including any deferred
compensation accrued through December 31, 2008, and payment for any additional
work performed by [Scott] during January and February 2009, supported by proper
documentation, upon review and approval of same by Norton [Enterprises].
Am.Comp. Ex. I. The settlement, among other things, restrained Scott (1) from entering into a
contract of employment with certain enumerated entities for a period of 18 months, (2) from
employing or contracting with anyone who is or was an employee of Norton Enterprises or an
affiliated company for a period of 18 months, and (3) from using, disclosing or destroying
confidential or proprietary information which belongs to Norton Enterprises or an affiliated
company. Id.
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In 2011, Scott sought payment of deferred compensation for 2007 and 2008. His claim for
benefits was denied, and his appeal of the decision was finally denied in 2012. He filed suit against
defendant Norton Healthcare for wrongful denial of benefits. Norton Healthcare has moved to
dismiss Scott’s amended complaint on the ground that “[t]he terms of the Agreed Judgment preempt
the terms of the Plan as a subsequent bilateral and mutual agreement between Norton [Enterprises]
and Scott and are thus, controlling in this action. As a result, Scott has failed to plead facts stating
a claim upon which relief can be granted.” Mo. to Dis., DN 17-1, p. 6. In a footnote, Norton
Healthcare states that “The Agreed Judgment foreclosed application of the twenty-four month
period, because it terminated Scott’s entitlement to any benefits that had not yet vested.” DN 17-1,
p. 7, fn. 5. Norton Healthcare explains that “[because top hat plans are excluded from the vesting
and non-forfeitability requirements of ERISA under U.S.C. § 1051(a), a party can, through
subsequent agreement, forego or forfeit benefits under a plan in certain circumstances. This case
presents such a situation.” DN 17-1, p. 7.
The crux of the matter is that Norton Healthcare seeks dismissal of this action based on a
settlement agreement to which it was not a party. The question to be addressed is whether, in spite
of this fact, Norton Healthcare can establish that the settlement precludes Scott’s claim for deferred
compensation benefits under the Plan.
Despite its attempts to finesse the facts, the documents upon which Norton Healthcare relies
evidence that Scott worked for Norton Healthcare through December 31, 2008 and then was
employed as a “part-time general manager”1 for Norton Enterprises from January 1, 2009 until his
termination on May 7, 2009. Norton Healthcare and Norton Enterprises are affiliated but separate
1
Verified Compl., Jefferson Circuit Court, DN 16-8, p. 1.
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and distinct entities. Norton Healthcare recites preamble language from Scott’s employment
contract with Norton Enterprises that “Norton Healthcare, Inc. and [Scott] desire to continue
[Scott]’s employment....” This provision, in its entirety, reveals, however, that the parties desired
to “continue [Scott]’s employment on a part-time basis in a different capacity and through an
affiliated corporation.” We thus reject Norton Healthcare’s argument that this preamble language
establishes that Scott’s employment with Norton Enterprises “constituted a continuation of his
employment and relationship with Norton [Healthcare], especially for purposes of the Plan...”
Reply, DN 21, p. 2. This argument draws unwarranted conclusions from select portions of the
document. Further, in the letter offer of “transition,” Norton Healthcare made it quite clear that
Scott would be employed by a different entity as of January 1, 2009, indicating that he would
“transition from your Norton Healthcare, Inc. employment, as a full-time employee, to a part-time
employee of Norton Enterprises, Inc. effective January 1, 2009.” DN 16, Ex. D. The court has been
shown no evidence that Scott continued his employment relationship with Norton Healthcare after
December 31, 2008. To the contrary. The evidence indicates that Scott ended his employment with
Norton Healthcare on December 31, 2008 and began employment with Norton Enterprises on
January 1, 2009.
Norton Healthcare argues that the settlement document is replete with references to Norton
Enterprises’ “affiliates,” evidencing that the settlement intended to bind Norton Healthcare and
forfeit Scott’s benefits accrued during his employment with Norton Healthcare. However, the only
references to “affiliates” in the settlement agreement appear in two paragraphs enjoining Scott from
certain conduct. The agreement precludes Scott from soliciting employees of Norton Enterprises
or its affiliates for a period of eighteen months, or using or disclosing proprietary or confidential
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information belonging to Norton Enterprises or its affiliates. Scott agreed to these restrictions in the
employment agreement also. These terms referencing Norton Enterprises’ affiliates in no way bind
Norton Healthcare to any obligations in the agreement. The provisions concerning Scott’s
termination and payment make reference Norton Enterprises only. Additionally, the settlement
agreement begins with the statement that “Norton Enterprises...and...Scott...having agreed to entry
of this Agreed Final Judgment...” Norton Healthcare was not a party to the suit nor to the settlement
agreement.
In a newly minted argument in its reply brief (DN 21), Norton Healthcare refers to Section
11.3 of the Plan which states, in part, with reference to transfers2 of employment to an affiliate, that
“the Participant’s entitlement to benefits under the Plan shall be determined as if the Participant’s
employment with the Affiliate were employment with the Company.” It urges that, in light of this
language, any effect on Scott’s employment with Norton Enterprises, such as the settlement of the
lawsuit, could affect his right to deferred benefits accrued during his employment with Norton
Healthcare. This argument appears to address the merits of Scott’s claim for benefits under the Plan,
rather than the question of the preclusive effect of the settlement agreement on Scott’s claim. As
such, the argument is premature.
Finally, Norton Healthcare argues that if the court finds that the settlement agreement does
not preclude Scott’s claim, the language referring to “deferred compensation accrued through
December 31, 2008” would be rendered meaningless. Norton Healthcare contends that this clear
reference to Scott’s benefits accrued while employed by Norton Healthcare evidences the parties’
intention to settle the issue of Scott’s deferred compensation in conjunction with his termination.
2
We do not address whether “transitions” are “transfers” under the Plan.
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This statement may be true, but it begs the question of who agreed to and who is bound by these
terms. On this point, we are left with the argument that Norton Healthcare should be bound by
Norton Enterprises’ settlement with Scott, but the evidence fails to establish that it is so bound. It
appears to the court that the only way this might be possible would be if the Plan affords this
treatment in determining Scott’s entitlement to benefits, as alluded to by Norton healthcare in regard
to Section 11.3 of the Plan.
In sum, the court concludes that, ultimately, “all roads may lead to Rome.” That is, Scott’s
entitlement to benefits may be affected by matters in his employment with Norton Enterprises, under
the terms of the Plan. However, this is a merits determination which we leave for another day.3
Norton Healthcare’s various arguments that the settlement between Norton Enterprises and Scott
supplanted and precluded any claim for benefits under the Plan are without merit and are therefore
rejected.
Motion having been made and for the reasons set forth herein and the court being otherwise
sufficiently advised, IT IS HEREBY ORDERED AND ADJUDGED that the motion of the
defendant, Norton Healthcare, Inc, to dismiss the amended complaint (DN 17) is DENIED.
IT IS SO ORDERED.
July 31, 2013
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3
In any event, the issue is not fully briefed, as this new argument was raised for the first time in the reply brief.
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