GEHRMAN et al v. TWIN RIVERS PAPER COMPANY
FINDINGS OF FACT AND CONCLUSIONS OF LAW denying 63 Motion in Limine to Exclude Certain Evidence and on 66 Bench Trial. By MAGISTRATE JUDGE JOHN C. NIVISON. (CWP)
UNITED STATES DISTRICT COURT
DISTRICT OF MAINE
JAMES GEHRMAN, et al.,
TWIN RIVERS PAPER COMPANY,
FINDINGS OF FACT AND CONCLUSIONS OF LAW1
In this action, Plaintiffs James Gehrman, Michael Reider, and Ronald Guay allege that
Defendant Twin Rivers Paper Company breached their employment contracts by failing to make
payments pursuant to a severance agreement.2 The Court held a three-day trial, and the parties
subsequently filed written closing arguments.
FINDINGS OF FACT
Based on the evidence at trial, the Court finds the following facts:
1. In 2006, Fraser Papers Inc. (Fraser) developed a severance policy for its employees
known as the Fraser Papers Inc. Severance Pay Guidelines (Fraser Papers Guidelines).
2. The Fraser Papers Guidelines provide for a lump sum severance payment to eligible
The parties have filed a consent authorizing the undersigned to conduct any and all proceedings and to enter a final
order and judgment in this matter. (ECF No. 44.)
In the alternative, Plaintiffs assert claims of quasi-contract and unjust enrichment, and violations of the Employee
Retirement Income Security Act and related regulations. Plaintiffs also asserted a claim under Maine’s unpaid wages
statute, 26 M.R.S. § 626, which claim the Court dismissed for failure to state a claim. (Report and Recommended
Decision on Defendant’s Motion to Dismiss, ECF No. 21; Order Affirming the Recommended Decision, ECF No. 24.)
3. In April 2010, Twin Rivers Paper Company (Twin Rivers or Defendant) acquired
Fraser’s assets. Following the acquisition, Twin Rivers continued to employ many
former Fraser employees.
4. Twin Rivers operates a pulp plant in Edmundston, New Brunswick, Canada, a paper
manufacturing facility in Madawaska, Maine, and various saw mills and wood
processing plants in New Brunswick and Maine.
5. Plaintiffs are former management-level employees of Twin Rivers. Twin Rivers
terminated Plaintiffs’ employment as of June 7, 2013.
6. After Twin Rivers’ acquisition of Frasers’ assets, Twin Rivers used the Fraser Papers
Guidelines terms to pay severance to its employees, including former Fraser employees.
In or about February or March 2011, Twin Rivers paid a former Fraser employee in a
lump sum the full extent of the severance benefits payable under the Fraser Papers
7. In May 2011, Twin Rivers modified the Fraser Papers Guidelines to provide that the
former Fraser employees would be paid four additional weeks of severance rather than
receiving a credit for the length of the employees’ prior service with Fraser.
8. At the time Twin Rivers acquired Fraser’s assets, Twin Rivers’ controlling shareholder
was Brookfield Asset Management (Brookfield). Brookfield’s principal location is
9. After the acquisition of Fraser, Brookfield attempted to sell Twin Rivers or,
alternatively, sell its interest in Twin Rivers.
10. At the time Brookfield was marketing Twin Rivers, Plaintiffs were members of Twin
Rivers’ management team. As an incentive to retain Plaintiffs’ employment while
Brookfield attempted to sell Twin Rivers, Twin Rivers proposed and Plaintiffs accepted
the terms of a Change of Control agreement, which provided in pertinent part:
In the event of a Change of Control of Twin Rivers Paper Company (defined as a
person or entity other than a current shareholder acquiring control over greater than
fifty per cent (50%) of the equity of the Company) and:
a. You are not offered employment on substantially the same terms and conditions,
commencing forty-five (45) days after the Change of Control and lasting for a
period of thirty (30) days thereafter, you will be entitled to resign your
employment and receive a lump sum payment equal to fifteen (15) months of
your base salary; or
b. You are not offered employment after the Change of Control, you will be
entitled to receive a lump sum payment equal to fifteen (15) months of your
11. The terms of the Change of Control agreement did not provide that the payment upon
a change of control would be in lieu of or would substitute for any severance benefits
to which Plaintiffs might be entitled. When presented with the draft Change of Control
agreement for his review, Bill Peterson, Twin Rivers’ human resources manager, asked
company officials whether they wished to include such language. After considering
the issue, company officials decided to proceed without any preclusion language in the
Change of Control agreement.
12. Brookfield entered into negotiations in May and June 2013 with a buyer for its
controlling interest in Twin Rivers. As the result of the negotiations, Brookfield sold
its interest in Twin Rivers to private equity firms Atlas Holding and Blue Wolf Capital
Partners. After the sale, on June 7, 2013, Plaintiffs’ employment with Twin Rivers was
13. On June 6, 2013, the day before Plaintiffs’ employment was terminated, upon Plaintiff
Reider’s request for a copy of the severance policy, Kim Lavoie, the Director of
Corporate Human Resources for Twin Rivers, and the person responsible for the
administration of and distribution of the company’s policies, sent Plaintiff Reider a
copy of the Fraser Papers Guidelines with a note that read: “Twin Rivers continues to
use the severance pay guidelines that were established in 2006. In addition to the
attached guidelines, for those that were employed by Fraser Papers they are entitled to
an additional 4 weeks of severance pay.”
14. Upon termination of their employment, Plaintiffs were paid the benefit to which they
were entitled under the Change of Control agreement.
15. Twin Rivers’ human resources manager, Bill Peterson, was responsible for updating
the company’s severance policy.
16. Mr. Peterson drafted a document entitled Twin Rivers Paper Company Severance
Benefit Plan and Summary Plan Description (the Summary Plan) in May 2011.
17. Mr. Peterson shared with management a draft of the Summary Plan. Mr. Peterson
intended to draft the Summary Plan to be a plan under the Employee Retirement
Income Security Act (ERISA). The Summary Plan included the following provision:
Benefits under this Plan are not intended to duplicate such benefits as
workers’ compensation, wage replacement benefits, disability benefits, severance
pay, or similar benefits under other benefit plans, severance programs, employment
contracts, or applicable laws, such as the WARN Act. Should such other benefits
be payable, the benefits under this Plan will be reduced accordingly or, alternatively,
benefits previously paid under this Plan will be treated as having been paid to
satisfy such other benefit obligations. In either case, the Plan Administrator will
determine how to apply this provision, and may override other provisions in this
Plan in doing so.
If an eligible employee has executed an employment or severance
agreement with the Company which expressly provides for severance pay, the
employee shall be entitled to the greater of the benefits under this Plan or the
benefits under the agreement; you shall not be eligible to receive benefits under
18. The Summary Plan was circulated among management personnel to solicit comment.
After receiving comments, in June 2011, Mr. Peterson forwarded a copy of the draft to
Pierre McNeil of Brookfield. Mr. McNeil reported that the draft was fine.
19. In or around July 2011, the word “FINAL” was placed on the draft prepared by Mr.
Peterson. The plan with the word “FINAL” was included among the documents in the
data room for review by potential purchasers of Twin Rivers.3
20. Certain email communications among some of the members of the management of
Twin Rivers in 2011 included a copy of the Summary Plan with the designation of
“FINAL,” but the substance of the email communications demonstrates the Summary
Plan had not been adopted at that time despite the “FINAL” designation. The email
communications were evidently part of the discussion regarding the status of the
21. Under Twin Rivers’ policy, Mr. Guay’s signature was required on the Summary Plan
for its adoption. Mr. Guay never signed the Summary Plan.
22. When Mr. Peterson resigned from Twin Rivers on July 29, 2011, Twin Rivers had not
adopted the Summary Plan.
23. The Summary Plan was not included within a folder of the Twin Rivers’ approved
policies as of August 2011.
24. In January 2012, in a written policy inventory, Twin Rivers described the Summary
Plan as in the “final stage.” Some of the other policies listed in the inventory were
described as “finalized”.
At trial, Plaintiffs moved orally to exclude certain evidence related to and foreclose Defendant from making an
argument regarding the information in the data room because the evidence was not disclosed earlier. The Court
concludes the information is not inconsistent with other information produced in discovery and that any delay in the
production of the information was not deliberate. The Court, therefore, denies the motion. (ECF No. 63.)
25. Twin Rivers’ Board of Directors did not vote to approve the Summary Plan prior to the
termination of Plaintiffs’ employment.
26. Twin Rivers did not publish the Summary Plan to its employees prior to the termination
of Plaintiffs’ employment.
27. Plaintiffs requested, but were denied severance benefits under the Fraser Papers
Guidelines. When Twin Rivers denied Plaintiffs’ requests, Twin Rivers cited the
language in the Summary Plan that provided an employee was not entitled to recover
severance benefits if the employee received benefits under another severance plan.
28. When Twin Rivers terminated the employment of one of its employees, Twin Rivers
required the employee to execute a Severance Agreement and General Release. Twin
Rivers did not require Plaintiffs to sign a Severance Agreement and General Release
when they received their payment under the Change of Control agreement.
29. On forms filed with the Maine Department of Labor in connection with the applications
of Plaintiffs Guay and Reider for unemployment compensation benefits after the
termination of Plaintiffs’ employment, which forms included a line on which
Defendant could enter the amounts paid to Plaintiffs Guay and Reider for severance,
Defendant did not identify the payment made pursuant to the Change of Control
agreement as severance. The forms list the following types of income: vacation pay,
severance, wages in lieu of notice, holiday pay, bonus and “other.” Defendant did not
list any income for severance. Instead, under “other,” Defendant wrote “Change in
Control” and listed the amount paid to Plaintiffs Guay and Reider.
30. Under the framework of the Fraser Papers Guidelines as applied by Defendant before
the termination of Plaintiffs’ employment, Plaintiff Gehrman would be entitled to
severance in the amount of $115,384.61; Plaintiff Reider would be entitled to severance
in the amount of $94,230.76; and Plaintiff Guay would be entitled to severance in the
amount of $47,538.46.4
CONCLUSIONS OF LAW
Plaintiffs assert they are entitled to payment of severance, regardless of which severance
policy applied, and payment under the terms of the Change of Control agreement. Defendant
contends Plaintiffs are not entitled to receive a severance payment separate from the payment due
under the Change of Control agreement. In support of its argument, Defendant cites the terms of
the Summary Plan, which provide that the benefits under the Plan, including severance, are not
intended to duplicate severance benefits otherwise payable to a terminated employee. Finally,
Defendant maintains the Summary Plan is a qualified ERISA plan.
The case thus potentially presents the following issues: (1) which severance plan or policy
governs Twin Rivers’ obligation to Plaintiffs upon the termination of Plaintiffs’ employment in
June 2013; (2) how the Change of Control agreement relates to Twin Rivers’ severance obligation
to Plaintiffs; and (3) is the applicable plan or policy an ERISA plan, and, if so, does the
administrative record require supplementation.5
A. The Fraser Papers Guidelines and the Summary Plan
Plaintiffs in essence argue Defendant breached its contract with them to pay severance
benefits. As the parties asserting breach of contract, Plaintiffs must demonstrate the existence of
an agreement to pay severance. Aquila, LLC v. City of Bangor, 640 F. Supp. 2d 92, 97–98 (D. Me.
Plaintiffs would be entitled to the same amount under the Summary Plan if it applied and if the Summary Plan did
not, as Defendant asserts, preclude recovery for the benefits under both the Change of Control agreement and the
In the Report of Final Pretrial Conference and Order, the Court advised the parties that, “[i]n the event the Court
determines after trial that the applicable plan is an ERISA plan, the Court will afford the parties the opportunity to
supplement the administrative record before the Court determines whether Plaintiffs are entitled to benefits under
the ERISA plan.” (ECF No. 53 at 1.)
2009); Gray v. TD Bank, N.A., 2012 ME 83, ¶ 14, 45 A.3d 735, 740. Plaintiffs have established
that Defendant was obligated to pay severance benefits. In fact, Defendant does not contest that it
was contractually obligated to pay severance benefits upon the termination of Plaintiffs’
The parties disagree, however, as to which severance plan or policy governs the benefits
to which Plaintiffs are entitled. Plaintiffs maintain the Fraser Papers Guidelines as modified in
2011 (i.e., four additional weeks of severance for former Fraser employees rather than credit for
the length of their service) governs their entitlement to severance. 6 Defendant contends Plaintiffs’
entitlement to severance benefits is governed by the Summary Plan. Although the amount of the
severance benefit would be the same under both policies, Defendant argues that under the terms
of the Summary Plan, Plaintiffs cannot recover both the benefits under the Change of Control
agreement and the Summary Plan.
In the absence of an express assignment of employment agreements, whether a successor
through an asset purchase assumes existing employment agreements when it retains existing
personnel is generally determined based on the instruments executed by the parties, and from
surrounding circumstances. Chemetall GMBH v. ZR Energy, Inc., 320 F.3d 714, 721 (7th Cir.
2003) (applying Illinois law); Eagle-Picher Indus., Inc. v. Liberty Mut. Ins. Co., 682 F.2d 12, 18
(1st Cir. 1982) (“the primary goal of contract interpretation is to ascertain the intentions of the
Although Defendant contends that it never adopted the Fraser Papers Guidelines, the
circumstances of the sale and Defendant’s conduct following the sale demonstrate Defendant’s
intent to assume Fraser’s employment agreements, including Fraser’s obligation to pay a severance
Plaintiffs do not contest Defendant’s modification of the Fraser Papers Guidelines to provide for an additional four
weeks of severance for former Fraser employees in lieu of payment for the entire length of their service.
benefit. Following the sale, Defendant continued to employ the Fraser employees. When
Defendant acquired Fraser’s assets in 2010, the Summary Plan did not exist. Consistent with the
lack of any other potential severance policy, and in accordance with its decision to continue to
employ Fraser employees, in or about February or March 2011, Defendant used the Fraser Papers
Guidelines to calculate the severance benefit payable to a former Fraser employee. Subsequently,
Defendant modified the Fraser Papers Guidelines to provide for the payment of an additional four
weeks of severance for former Fraser employees in lieu of credit under the Guidelines for the entire
length of the employees’ service with Fraser. Particularly given this history, Defendant’s attempt
to characterize the use of the Fraser Papers Guidelines to calculate the severance to be paid to an
employee in or about March 2011 as “a temporary expedient”7 is unavailing. The credible record
evidence establishes that Defendant adopted, modified and used the Fraser Papers Guidelines to
determine eligibility for and the payment of severance after Defendant acquired Fraser’s assets.
The credible evidence includes the explicit acknowledgement in 2013 by Defendant’s Director of
Corporate Human Resources that Defendant continued to use the Fraser Papers Guidelines at the
time Defendant terminated Plaintiffs’ employment.
Defendant nevertheless contends that subsequent to the purchase of Fraser’s assets,
Defendant adopted the Summary Plan and that the terms of the Summary Plan control. In other
words, Defendant maintains that it further modified the terms of Plaintiffs’ employment and
adopted a new severance plan. When an employer modifies the terms of employment to add new
terms that materially alter its employees’ rights and benefits, logic suggests the intent to do so must
be apparent and that the change must be communicated to the employees. Otherwise, an employer
could unilaterally alter the terms of employment for unknowing employees who might decline
Defendant’s post-trial brief at page 17. (ECF No. 77.)
other employment opportunities for employment on their incorrect understanding of their
employment terms. Snow v. BE & K Constr. Co., 126 F. Supp. 2d 5, 13 (D. Me. 2001) (explaining
that an employer can unilaterally change the terms of employment contract, provided that “the
normal rules of contract law” are satisfied, including a “manifestation of mutual assent”); Taliento
v. Portland W. Neighborhood Planning Council, 705 A.2d 696, 701 (Me. 1997) (Lipez, J.,
dissenting) (explaining that language in an employee handbook can constitute an offer when
communicated through dissemination of the handbook, and that the employee’s retention of
employment with knowledge of language that modifies existing terms of employment can
In this case, although Defendant initiated the process to modify the severance policy,
Defendant did not complete the process. Defendant argues in part that Defendant’s inclusion of
the Summary Plan with the word “FINAL” in the data room for potential purchasers to review
demonstrates Defendant adopted the Summary Plan. The document in the data room, however,
was not signed as required for adoption. In addition, a “final” designation does not equate with
the adoption of a policy set forth in a document. Email communications within Twin Rivers in
2011, by which emails the Summary Plan with the “FINAL” designation was circulated as part of
a discussion regarding the status of the Summary Plan, demonstrate the Summary Plan had not
been adopted despite the “FINAL” designation.
Furthermore, in January 2012, in a written policy inventory intended to describe the status
of the company’s policies, the Summary Plan was described as in the “final stage.” Some of the
other policies listed in the inventory were described as “finalized”.
distinguished between “final stage” and “finalized”. One can reasonably conclude that more work
or action was necessary for a policy in the “final stage” to be finalized and adopted. Placement of
the word “FINAL” on the document is not inconsistent with a draft in the final stage, but not yet
adopted. In fact, if the plan were adopted, there would be no need to designate the document as
“FINAL”. The record suggests that none of the other Twin Rivers’ approved policies contained
the “FINAL” designation. Indeed, while the Summary Plan was apparently designated as “FINAL”
by July 2011, the Summary Plan was not in an August 2011 folder of “approved policies”. In sum,
the designation of the Summary Plan as “FINAL” does not establish that Defendant adopted the
The objective and most persuasive evidence in fact established that Defendant did not adopt
the Summary Plan. The Twin Rivers Board of Directors never voted to adopt the Summary Plan
(i.e., the modification of the severance policy), the Summary Plan was not signed by Plaintiff Guay
as required of an approved plan, Twin Rivers never published to all applicable employees the
Summary Plan as the governing plan, and when asked in June 2013 for a copy of the severance
plan, Defendant’s Director of Corporate Human Resources, and the person responsible for the
administration of and distribution of the company’s policies, sent Plaintiff Reider a copy of the
Fraser Papers Guidelines with a note that read: “Twin Rivers continues to use the severance pay
guidelines that were established in 2006. In addition to the attached guidelines, for those that were
employed by Fraser Papers they are entitled to an additional 4 weeks of severance pay.”
In short, neither the designation of the Summary Plan as “FINAL”, nor any of the other
evidence of record establishes that Defendant had adopted the Summary Plan at the time Defendant
terminated Plaintiffs’ employment.8 The credible and persuasive evidence establishes that at the
In support of its contention that it adopted the Summary Plan, Defendant also notes that between January 2012 and
May 2013, it terminated the employment of seven salaried employees and paid severance by salary continuation for
six of the employees (consistent with the Summary Plan) and lump sum for one of the employees (consistent with the
Fraser Papers Guidelines). (Defendant’s Post-trial Brief at 10, ECF No. 77.) The fact that other employees might
have accepted salary continuation as a means of severance does not establish that Defendant adopted the Summary
Plan. In other words, Defendant cannot agree with some of the employees to alter the terms of employment for all of
the employees. Furthermore, Defendant’s lump sum payment to one of the employees suggests Defendant did not
adopt the Summary Plan as a severance policy applicable to all employees.
time Defendant terminated Plaintiffs’ employment, Defendant had not adopted the Summary Plan.
Accordingly, any argument that Plaintiffs’ employment terms had been further modified to include
the Summary Plan fails. Plaintiffs’ entitlement to severance benefits is thus governed by the Fraser
Papers Guidelines as modified by Defendant in 2011 (i.e., four additional weeks of severance for
former Fraser employees rather than credit for the length of their service).
B. Applicability of ERISA
Through a motion to dismiss, Defendant argued the Fraser Papers Guidelines were subject
to ERISA and thus Plaintiffs’ right to severance would be governed by ERISA. Noting the need
for a factual record, the Court denied Defendant’s motion to dismiss based on ERISA preemption.
Although Defendant did not argue in its post-trial submission that the Fraser Papers Guidelines
constituted an ERISA plan, because Defendant raised the issue earlier in the case, an assessment
of the issue is appropriate. 9
“Employers or other plan sponsors are generally free under ERISA, for any reason at any
time, to adopt, modify, or terminate welfare plans.” Curtiss–Wright Corp. v. Schoonejongen, 514
U.S. 73, 78 (1995). Significantly, if the applicable severance program was a “welfare benefit plan”
for purposes of ERISA, then Plaintiffs’ state law contract, quasi-contract, and tort claims10 are all
preempted by ERISA and Plaintiffs must pursue their severance benefits (and related remedies)
through their ERISA claims (Second Am. Complaint, Count V – XII). See 29 U.S.C. § 1144(a);
Gross v. Sun Life Assur. Co. of Canada, 734 F.3d 1, 6 (1st Cir. 2013).
Because the Court concludes that Plaintiffs’ entitlement to severance benefits is based on the framework of the Fraser
Papers Guidelines, and that Defendant did not adopt the Summary Plan, the Court will not address Defendant’s
contention that the Summary Plan is an ERISA plan.
Plaintiffs’ state law claims are breach of contract (Count I), breach of quasi-contract (Count II), and unjust
enrichment (Count III). (Second Am. Compl., ECF No. 35.) The Court previously dismissed Plaintiffs’ claim for
unpaid wages under 26 M.R.S. § 626 (Count IV). (Report and Recommended Decision on Defendant’s Motion to
Dismiss, ECF No. 21; Order Affirming the Recommended Decision, ECF No. 24.)
Because ERISA preemption is an affirmative defense to Plaintiffs’ state law claims,
Tompkins v. United Healthcare of New England, Inc., 203 F.3d 90, 97 (1st Cir. 2000), the burden
rests with Defendant to demonstrate that the applicable severance benefit was an ERISA plan.
Bruesewitz v. Wyeth LLC, 562 U.S. 223, 251 n.2 (2011) (“Federal preemption is an affirmative
defense upon which the defendants bear the burden of proof.” (quotation marks and brackets
ERISA defines welfare benefit plan to mean, inter alia, “any plan, fund, or program …
established or maintained by an employer … to the extent that such plan, fund, or program was
established or is maintained for the purpose of providing for its participants or their beneficiaries,
through the purchase of insurance or otherwise, … benefits in the event of … unemployment ….”
29 U.S.C.A. § 1002(1). “Severance pay arrangements” are expressly included in the list of
employee benefits potentially subject to ERISA regulation as an employee benefit plan. Id. §
1002(2)(B)(i), (3). Furthermore, subject to exceptions that do not exist here, ERISA applies “to
any employee benefit plan if it is established or maintained – (1) by any employer engaged in
commerce.” Id. § 1003(a)(1).
Federal courts have concluded that severance pay arrangements are not subject to ERISA
unless the severance pay is provided through a plan “established or maintained” by the employer.
For example, in Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1 (1987), the United States
Supreme Court held that claims brought pursuant to a Maine statute that required the payment of
a severance benefit in the event of a plant closure were not preempted by ERISA because the
statute did not impose on the employer the obligation to establish or maintain a plan. Id. at 6. The
Court reasoned that “[t]he words ‘benefit’ and ‘plan’ are used separately throughout ERISA, and
nowhere in the statute are they treated as the equivalent of one another.” Id. at 8. According to
the Court, regulation of every employee benefit would not serve the purpose behind ERISA – i.e.,
to preempt the field of employee benefit plan regulation – unless the benefit is provided through
an employee benefit plan. Consequently, ERISA preemption only applies “with respect to benefits
whose provision by nature requires an ongoing administrative program to meet the employer’s
obligation.” Id. at 11.
Consistent with Fort Halifax, the First Circuit has determined that courts “evaluating
whether a given program falls under ERISA,” must look to “the nature and extent of an employer’s
benefit obligations.” O’Connor v. Commonwealth Gas Co., 251 F.3d 262, 266 – 67 (1st Cir. 2001).
If the employer’s obligations “require an ongoing administrative scheme that is subject to
mismanagement, then they will more likely constitute an ERISA plan; but if the benefit obligations
are merely a one-shot, take-it-or-leave-it incentive, they are less likely to be covered.” Id. at 267.
“Where subjective judgments would call upon the integrity of an employer’s administration, the
fiduciary duty imposed by ERISA is vital. But where benefit obligations are administered by a
mechanical formula that contemplates no exercise of discretion, the need for ERISA’s protections
is diminished.” Id.
“The question of whether an ERISA plan exists is a question of fact, to be answered in light
of all the surrounding facts and circumstances from the point of view of a reasonable person.”
Wickman v. Nw. Nat’l. Ins. Co., 908 F.2d 1077, 1082 (1st Cir. 1990) (quotation marks omitted).
“[A] welfare benefit plan under ERISA requires five essential constituents.” Id. The constituents
(1) a plan, fund or program (2) established or maintained (3) by an employer or by
an employee organization, or by both (4) for the purpose of providing medical,
surgical, hospital care, sickness, accident, disability, death, unemployment or
vacation benefits, apprenticeship or other training programs, day care centers,
scholarship funds, prepaid legal services or severance benefits (5) to participants or
Id. (quoting Donovan v. Dillingham, 688 F.2d 1367, 1370 (11th Cir.1982) (en banc)). As to the
second element – i.e., that the plan, fund or program be “established or maintained” – the issue is
“whether from the surrounding circumstances a reasonable person can ascertain the intended
benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits.”
Id. (quoting Donovan, 688 F.2d at 1373). See also Gross, 734 F.3d at 6 – 7.
Through several decisions, the First Circuit has addressed whether employer-provided
severance benefits were plans subject to ERISA despite the absence of formal ERISA plan
documents.11 See O’Connor, 251 F.3d 262; Rodowicz v. Mass. Mut. Life Ins. Co., 192 F.3d 162,
170 (1st Cir. 1999); Belanger v. Wyman-Gordon Co., 71 F.3d 451, 454 (1st Cir. 1995); Simas v.
Quaker Fabric Corp. of Fall River, 6 F.3d 849, 854 (1st Cir. 1993).
In Simas, the First Circuit considered a Massachusetts “tin parachute” statute that required
employers to make certain severance payments to employees terminated following corporate
takeovers. 6 F.3d at 851. The statute imposed various administrative burdens to determine
qualification for severance and provided that the statute would not apply if the employee was
otherwise covered by a more generous severance plan. Id. Concluding that the Massachusetts
statute was more burdensome than the Maine statute at issue in Fort Halifax, the First Circuit held
that ERISA preempted enforcement. Id. at 853. The First Circuit’s comparison of the two statutes
The Maine statute starts and ends with a single, once and for all event, the plant
closing, after which all payments are due. The Massachusetts statute, by contrast,
is triggered separately for each three-year employee by the individual termination
of that employee within one of several alternative time periods, either before or
after the takeover. More important, whether a payment is due depends in
Massachusetts not merely on the employee’s status as a three-year employee but on
The distinction regarding formalized ERISA plan documents is material. For example, where severance benefits
are provided through ERISA plans, ERISA clearly applies. See, e.g., Niebauer v. Crane & Co., 783 F.3d 914, 917
(1st Cir. 2015); Liston v. Unum Corp. Officer Severance Plan, 330 F.3d 19 (1st Cir. 2003).
whether the employee is also eligible for unemployment compensation under
Massachusetts law. This is effectively a cross-reference to other requirements,
most importantly that the employee not have been discharged for cause.
Mass.Gen.L. ch. 151A, § 25(e)(2) (“deliberate misconduct” or “knowing violation”
of employer rule or policy).
Thus, the Maine employer on closing its plant need do little more than write a check
to each three-year employee. The Massachusetts employer, by contrast, needs
some ongoing administrative mechanism for determining, as to each employee
discharged within two years after the takeover, whether the employee was
discharged within the several time frames fixed by the tin parachute statute and
whether the employee was discharged for cause or is otherwise ineligible for
unemployment compensation under Massachusetts law. The “for cause”
determination, in particular, is likely to provoke controversy and call for judgments
based on information well beyond the employee’s date of hiring and termination.
Id. at 853. The First Circuit thus placed significant weight on the fact that the Massachusetts
statute could involve more than “straightforward” eligibility determinations. Id. Additionally, the
Court noted that eligibility disputes could require the employer to participate in state agency
proceedings. Id. The two-year monitoring period also imposed sufficient record-keeping burdens
to be considered an ERISA plan from an administrative standpoint. Id. In effect, where “the time
period is prolonged, individualized decisions are required, and at least one of the criteria is far
from mechanical,” a program is likely to be deemed a plan for purposes of ERISA. Id. at 854.
In Belanger, the Court considered the “contention that a series of four early retirement
offers … over a four-year period constitute an ERISA plan.” 71 F.3d at 452. The defendant, a
downsizing company, offered in sequence four early retirement lump-sum payments, over and
above the regular retirement benefit, to induce voluntary departures. Id. The plaintiffs, who opted
for early retirement under the third offer, sued when the fourth offer provided better terms, arguing
that their payment was made pursuant to an ERISA plan and that they should benefit from any
favorable amendment. Id. at 453. The First Circuit affirmed the determination that the benefit
was not conferred through an ERISA plan because the benefit did not satisfy the Fort Halifax
requirement that a plan involve “the undertaking of continuing administrative and financial
obligations.” Id. at 454. In particular, the First Circuit emphasized that “the early retirement offers
involve[d] precisely the kind of one-time, lump-sum payment that the Fort Halifax Court clearly
excluded from the pantheon of ERISA plans.” Id. at 455. Material to the determination was the
“purely mechanical determination of eligibility” and the absence of any “complicated
administrative apparatus either to calculate or to distribute the promised benefit.” Id. The First
Circuit further held that the existence of a series of offers over four years did not change the
analysis where the evidence did not suggest any need for “nonmechanical decisionmaking” or a
“prearranged design” involving ongoing obligations. Id. at 456.
In Rodowicz, the plaintiffs alleged the employer falsely denied the existence of a
forthcoming retirement option, causing them to retire under less favorable terms. 192 F.3d at 166.
The Court held that the option, essentially a severance program, did not amount to an ERISA plan.
Citing Fort Halifax, the First Circuit concluded that the severance package “was so simple as to
fall outside of ERISA.”
Id. at 170.
The Court’s determination was based on multiple
considerations, including that the package (1) called for a “one-time bonus offered for [a] twomonth period” and therefore “required little in the way of administrative burden or expense,” (2)
“did not require that the Company make a long-term financial commitment to any employee who
chose to participate,” (3) did not impose an overly complicated standard to deny the benefit based
on involuntary termination, which was authorized “for any reason or no reason at all,” (4) “did not
require the administrator to make exclusion determinations over an extended period of time,” and
(5) “imposed no ongoing administrative burdens or financial obligations on the Company.” Id. at
171. The Court reached this conclusion even though the package permitted employees to appeal
discretionary decisions to exclude them from participation. Id. at 171 – 72.
Finally, in O’Connor, the First Circuit concluded that a “lump-sum severance package …
was not an ERISA-covered plan.” 251 F.3d at 264. The employer, a newly consolidated entity,
planned to eliminate fifteen percent of its workforce through, inter alia, a “personnel reduction
program” that provided a “severance bonus” and was available “to all non-officer employees
during a fifteen-week period,” subject to various conditions. Id. at 265. While the First Circuit
suggested that certain aspects of the overall program likely fell within ERISA’s protection, it
concluded that the severance benefit did not because the burden imposed on the employer was to
make a “one-time, lump-sum payment” based on “simple arithmetic.” Id. at 267 – 68. Although
the policy identified some criteria and conditions for eligibility, the Court reasoned that the criteria
and conditions did not create an ERISA plan because they did not constitute “non-mechanical,
subjective criteria that could in their application be subject to employer abuse.” Id. at 268.
In summary, the First Circuit has consistently found that where an employee asserts state
law claims for benefits provided outside of a formal ERISA plan, the claims are not subject to
ERISA preemption where (1) eligibility for benefits can be characterized as employing a
mechanical standard that is not subject to abuse; (2) the benefit is provided in a lump sum
calculated by simple arithmetic; (3) the employer is not required to oversee any fund or assume a
long-term financial commitment; and (5) the employer is not otherwise subject to ongoing
In this case, Defendant has not cited any facts that would support a finding that the
Guidelines constitute an ERISA plan. The only evidence regarding the operation of the Fraser
Papers Guidelines is a copy of the Guidelines and some limited calculations of severance benefits
under the Guidelines. “The ‘crucial factor in determining if a “plan” has been established is
whether the [proffering of an employee benefit] constituted an expressed intention by the employer
to provide benefits on a regular and long term basis.’” Belanger, 71 F.3d at 455 (quoting Wickman,
908 F.2d at 1083). A review of the Guidelines establishes that the Guidelines contemplated a lump
sum payment based on a defined computation. Consistent with the language of the Guidelines,
Defendant made a lump sum severance payment pursuant to the Fraser Papers Guidelines when it
terminated the employment of a former Fraser employee in or about February or March 2011.
Defendant did not have ongoing management and administrative burdens in connection with the
payment of severance. In particular, under the terms of the Guidelines, Defendant was not required
to manage a designated severance fund, and Defendant was not required to provide benefits on an
ongoing basis. Under the circumstances, the record does not support a finding that the Fraser
Papers Guidelines constitute an ERISA plan.
C. Relationship of Fraser Papers Guidelines and Change of Control Agreement
Under the Fraser Papers Guidelines, Plaintiffs’ entitlement to severance benefits is not
limited by their receipt of payment under the Change of Control agreement. 12 Similarly, the
Change of Control agreement lacks any language which would suggest that a payment under the
Change of Control agreement precludes Plaintiffs from recovering a severance payment under the
Fraser Papers Guidelines. While the parties could have contracted to limit Plaintiffs to either a
severance payment under the Fraser Papers Guidelines or a payment under the Change of Control
agreement, they did not do so. In fact, the lack of preclusion language in the Change of Control
agreement appears to be deliberate. When presented with the draft Change of Control agreement
for his review, Bill Peterson, Defendant’s human resources manager, asked company officials
whether they wished to include such language. After considering the issue, company officials
decided to proceed without any preclusion language in the Change of Control agreement. Based
Even if the Summary Plan applied, Defendant would not necessarily prevail on its preclusion argument. First,
despite the fact that the Change of Control agreement was in effect at the time the draft of the Summary Plan was
prepared, Defendant did not specifically reference payments under the Change of Control agreement in the “set off”
language of the Summary Plan. Had Defendant intended to exclude from severance eligibility the employees who
were entitled to change of control payments, Defendant could have explicitly done so. In addition, Defendant could
have, but did not, provide in the Change of Control agreement that payment under the Change of Control agreement
was Plaintiffs’ exclusive means of recovery upon a change of control of the company.
on the plain language of the Fraser Papers Guidelines and the Change of Control agreement,
therefore, Plaintiffs are entitled to payment of the severance benefits under the terms of the Fraser
Papers Guidelines as applied by Defendant and payment under the Change of Control agreement.
Such a result is not inconsistent with the purposes of the severance and change of control
agreements. The agreements are not mutually exclusive. Severance pay was a benefit payable to
Plaintiffs and other employees if Defendant terminated their employment regardless of whether
control in Defendant’s management occurred. Indeed, Plaintiffs had the severance benefit before
adoption of the Change of Control agreement. The Change of Control agreement benefit was not
available to all employees. Rather, the benefit was an incentive to convince certain company
executives (e.g., Plaintiffs) to remain with Defendant while Defendant’s owners actively attempted
to sell the business. Without such an incentive, Plaintiffs would understandably be concerned
about their future employment and would reasonably seek other employment opportunities. If
Plaintiffs obtained other employment and left Defendant’s employ while Defendant’s owners were
marketing the company, Defendant’s ability to function effectively and its value to prospective
purchasers could be compromised. The Change of Control agreement is thus consideration for
Plaintiffs’ agreement to stay with Defendant through the sale. Consistent with this distinction, on
forms filed with the Maine Department of Labor in connection with the applications of Plaintiffs
Guay and Reider for unemployment compensation benefits, Defendant specifically did not
characterize the payment under the Change of Control agreement as severance. Rather, although
the forms included a specific line for Defendant to report any severance pay Plaintiffs received,
Defendant did not report any severance income. Instead, Defendant described the payment under
the Change of Control agreement as “other” income.13
On Department of Labor forms, Defendant was asked to provide the income for Plaintiffs Guay and Reider. The
form lists the following types of income: vacation pay, severance, wages in lieu of notice, holiday pay, bonus and
D. Plaintiffs’ Damages
The credible evidence established that under the framework of Fraser Papers Guidelines
employed by Defendant, Plaintiff Gehrman is entitled to severance in the amount of $115,384.61;
Plaintiff Reider is entitled to severance in the amount of $94,230.76; and Plaintiff Guay is entitled
to severance in the amount of $47,538.46.
Based on the foregoing findings and conclusions, Plaintiffs have prevailed on their breach
of contract claim and are entitled to judgment. Accordingly, judgment shall enter in favor of
Plaintiff Gehrman and against Defendant on Count I of the Second Amended Complaint in the
amount of $115,384.61 plus interest and costs; judgment shall enter in favor of Plaintiff Reider
and against Defendant on Count I of the Second Amended Complaint in the amount of $94,230.76
plus interest and costs; and judgment shall enter in favor of Plaintiff Guay and against Defendant
on Count I of the Second Amended Complaint in the amount of $47,538.46 plus interest and
/s/ John C. Nivison
U.S. Magistrate Judge
Dated this 5th day of October, 2016.
“other.” Defendant did not list any income for severance. Instead, under “other,” Defendant wrote “Change in Control”
and listed the amount paid to Plaintiffs Guay and Reider.
Because the Court has concluded that Plaintiffs are entitled to judgment on the breach of contract claims, the Court
does not address and thus moots Plaintiffs’ alternative claims of quasi-contract and unjust enrichment (Counts II and
III of the Second Amended Complaint). Because the Court concludes the applicable severance policy is not an ERISA
plan, Plaintiffs’ ERISA claims (Counts V – XII) are dismissed.
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