Penedo v. Valeo, Inc. Engine Cooling Automotive Division

Filing 33

ORDER Adopting Report and Recommendation for Granting 11 Motion for Summary Judgment filed by Octavio Penedo, Denying 12 Motion for Judgment, Motion for Summary Judgment filed by Valeo, Inc. Engine Cooling Automotive Division, re 29 Report and Recommendation, Signed by District Judge Sean F. Cox. (JHer)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

Octavio Penedo,
Plaintiff,
v.

Case No. 10-12979

Valero Inc.,

Honorable Sean F. Cox

Defendant.
_________________________________/
ORDER ADOPTING
REPORT AND RECOMMENDATION
Plaintiff Octavio Penedo (“Plaintiff”) filed this ERISA action against his former
employer, Defendant Valeo Inc. (“Valeo”), alleging that Valeo wrongfully denied Plaintiff
severance benefits under Valeo’s Employee Benefit Plan. Thereafter, Plaintiff filed a motion for
summary judgment to reverse the Plan Administrator’s decision and Valeo filed a motion to
affirm the Plan Administrator’s decision. Those motions were referred to Magistrate Judge
Steven Whalen, pursuant to 28 U.S.C. § 636, for issuance of a report and recommendation.
On August 31, 2011, Magistrate Judge Whalen issued his report and recommendation
(“R&R”) (D.E. No. 29), wherein he recommends that the Court grant Plaintiff’s motion for
summary judgment and deny Valeo’s motion for summary judgment. On September 16, 2011,
Valeo filed written objections to the August 31, 2011 R&R. (D.E. No. 30).
For the reasons set forth below, the Court shall ADOPT the report and recommendation
in its entirety.
1

BACKGROUND
Plaintiff was employed as the Tax Director of Mexican affairs for Valeo at their Troy,
Michigan office. Valeo provided Plaintiff a benefits package, which included severance benefits,
pursuant to Valeo’s Employee Benefit Plan (the “Plan”). The Plan booklet provides the
following:
You will be eligible for severance benefits under the Plan if your
employment is permanently and involuntarily terminated because of
one of the following events:
•

a discontinuation or change of organization or
operation where you are employed;

•

the elimination of your job or position;

•

the sale of a facility where you are employed if you
are not offered a comparable or better position with
the buyer or successor employer or with the Company
or an entity related to the Company by common
ownership;

•

any other reason as determined by the Company, in its
sole discretion.

However, even if one of the events described above occurs, you will
not be eligible for severance benefits if:
•

you voluntarily terminate your employment with the
Company . . .

(Record at 57). The Plan also provides that Valeo’s Plan Administrator has full discretionary
authority to administer and interpret the Plan, determine eligibility for and the amount of
benefits, determine the status and rights of participants, and make rulings and factual
determinations. (Record at 42-43). The Plan also states, “The Plan Administrator has the
necessary discretionary authority and control over the Plan to require deferential judicial review
2

pursuant to the U.S. Supreme Court’s decision in Firestone Tire & Rubber Co. v. Bruch (1989).”
(Id.)
In December of 2009, Valeo’s Human Resource Director, Robert Wade, verbally notified
Plaintiff that his job position was being transferred to Mexico, and that he had the option of
transferring to Mexico.1 (Record at 83, 66). After Valeo’s year-end break, Plaintiff did not go in
to work on January 4, 2010 or January 5, 2010. On January 5, 2010, Plaintiff emailed his
supervisor, Francis Curis, asking him to confirm that the position in Mexico would not be paid in
U.S. dollars, that he would not be entitled to receive social security contributions, and that he
would not have access to U.S. healthcare coverage. (Record at 99). In a reply email, Curis
responded, “correct.” (Id.)
On January 7, 2010, Plaintiff wrote the following letter to his supervisor, Francis Curis:
It is with deep regret that I inform you that I will be unable to accept
Valeo mandated transfer to Mexico. I accepted my current position
with the agreement that I would be working in Michigan with a
certain compensation package and benefits.
Unfortunately, Valeo mandated transfer to Mexico is not comparable
to my existing employment terms, among others, on base salary,
benefits, accrued benefits, and working hours week, nor is it offering
to continue making further contributions to the U.S. Social Security
or provide U.S. health coverage. Therefore, given my concern about
Valeo Inc.’s ability to honor my existing employment terms or to
offer me a position with comparable employment terms, I am forced
to look at other options as of January 11, 2010.
1

Although Valeo claims that “the administrative record is devoid of any evidence
suggesting that Valeo advised Plaintiff of an effective date for his transfer,” (Obj. at 3), in a letter
dated February 17, 2010, Robert Wade specifically states, “while you are correct that
arrangements were in process for you to start working in Mexico on Monday, January 11, 2010,
those arrangements were based on your actions to that date.” (Record at 66) (emphasis in
original). This statement is evidence clearly suggesting that there was an effective date in place
for Plaintiff’s transfer.
3

It has been an honor to have been a part of this company for 13 years.
Years in which I raised a family, purchased my first home, became
part of the community and was fortunate to become an American
citizen. I wish the company every success and hope the door remains
open in the future.
In keeping with company policy, I trust that my severance package
will be honored and I thank you for this consideration.
(Record at 63).
In a letter dated January 8, 2010, Valeo’s Human Resources Manager, Andy Lowe,
responded to Plaintiff’s letter, stating:
We received and have accepted your voluntary resignation of
employment effective Friday, January 8th. We certainly wish you
good luck in the options that you are
pursuing as of January 11, 2010.
Also, we want to correct and respond to some of the statements you
made in your January 7th letter. First, at the time you resigned, no
offer had been made to you regarding the potential transfer to its
Mexican operations. Furthermore, in accordance with our policies,
you will be paid all compensation and benefits due to you as of the
day of your resignation, with no additional severance owed.
The purpose of this letter is to confirm the terms of your separation
from Valeo, Inc. effective January 8th, 2010.
(Record at 64).
On January 30, 2010, Plaintiff sent a letter to Wade, responding to Lowe’s letter. In that
letter, Plaintiff stated:
I was very surprised to learn that according to Andy’s letter
presumably ‘no offer had been made’ to me ‘regarding the potential
transfer to its Mexican operations’, when in fact I was scheduled to
start working in Mexico by January 11, 2010 according to various
communications and email records I have on this matter. Moreover,
on December 4, 2009, I was informed by Mrs. France Curis that my
position was being transferred to Mexico and that you had come to
4

my office in the week of December 7, 2009 to personally ask me if
she had conveyed with me Valeo’s decision on such transfer. All of
which evidencing Valeo’s mandated transfer to Mexico and its
readiness to breach my employment terms and benefits.
(Record at 65). Plaintiff concluded, “In addition, I did not submit[] a resignation letter but was
turning down your mandated transfer to Mexico.” (Id.).
Wade responded in a letter dated February 17, 2010, stating:
The position you last occupied was transferred to Mexico as a
wholesale transfer of a position, and not one offered on a temporary
basis that would have entitled you to return to a position to the United
States. Such positions are not subject to expatriate benefits. Valeo
moved the position based on the Company’s business decision to
reorganize its operations on a worldwide basis. A Mexican Controller
was appointed in late 2009 in Mexico, naturally calling for a tax
director for Mexico to be assigned to work with the Controller in
Mexico. Also you were an at-will employee; Valeo had no obligation
to continue the terms of the position you held in the United States
after the job was moved to Mexico.
Furthermore, while you are correct that arrangements were in process
for you to start working in Mexico on Monday, January 11, 2010,
those arrangements were based on your actions to that date. You had
posed a number of questions to the Company. You did not, however,
provide the Company with any options in response to your apparent
non-acceptance of the answers that had been provided; nor did you
timely advise that you were rejecting the position. Instead, before any
confirmed written offer could be presented to you, you chose to
resign. Moreover, you did so without sufficient notice to the
Company, causing us to be unable to timely find a suitable
replacement. You left to pursue other employment and as such Valeo
has no obligation under its policies to pay severance.
(Record at 66).
Plaintiff responded to Wade on April 30, 2010, again denying that he resigned from his
position and reaffirming his position that Valeo decided to eliminate his position in the United
States. (Record at 68). Again, Wade responded to Plaintiff in letter dated May 27, 2010, and
5

stated the following:
First in contrast to your efforts to revise what actually occurred, your
words were clear when we spoke – you were ‘resigning.’ Also,
contrary to your effort to take portions of sentences out of context, we
did not eliminate the U.S. position; we moved it in accordance with
our reorganization. The job of tax director for Mexico was relocated,
logically, to Mexico.
(Record at 69).
On June 16, 2010, Plaintiff’s attorney requested that Valeo’s Plan Administrator review
Valeo’s denial of severance benefits. (Record at 72-73). In the written request, Plaintiff alleged
that he did not voluntarily resign, but rather declined to accept the mandated transfer to Mexico,
and thus should be entitled to severance benefits. (Id.).
On July 2, 2010, Valeo sent a letter to Plaintiff’s counsel that stated, “This letter is the
written decision of the Plan Administrator of the Valeo, Inc. Employee Benefit Plan (the “Plan”)
regarding Octavio Penedo’s claim for Plan severance benefits (the “Claim”) . . . .” (Record at
148). The decision is signed by the Plan Administrator, who happened to be Robert Wade – the
Human Resource Director who notified Plaintiff of the mandated transfer and who initially
determined that he was not eligible for benefits. The letter provides:
Because Mr. Penedo voluntarily resigned his employment with the
Company, there is no other basis on which he qualifies for Plan
severance benefits. The Plan provides that ‘even if one of the events
described above occurs’ a covered employee ‘will not be eligible for
severance benefits’ (emphasis in the Plan document) if the employee
voluntarily terminates his employment with the Company. This
superseding rule is found in the Plan’s ‘Severance Benefit Program’
document at ‘How do I Receive Benefits?’ section on page 2 of that
document. The ‘events described above’ are the Plan’s regular
triggers for severance benefits, e.g., discontinuation or change of
organization or operation where an individual is employed, or
elimination of an individual’s job or position, or not being offered a
6

comparable or better position with the company or an affiliate after
the sale of a company facility where an individual is employed. Refer
to the same cited Plan provision. Accordingly, even if one of the
listed triggers had occurred as to Mr. Penedo, his voluntary
resignation eliminated all of his eligibility for Plan severance benefits
due to the rule cited above.
(Record at 149).
Plaintiff subsequently filed this action on July 27, 2010.
ANALYSIS
Pursuant to FED . R. CIV . P. 72(b), a party objecting to the recommended disposition of a
matter by a Magistrate Judge must file objections to the R&R. “The district judge must
determine de novo any part of the magistrate judge's disposition that has been properly objected
to. The district judge may accept, reject, or modify the recommended disposition; receive further
evidence; or return the matter to the magistrate judge with instructions.” Id.
A.

The Magistrate Judge did not misconstrue the Plan’s eligibility language.
First, Plaintiff objects to the Magistrate Judge’s interpretation of the Plan’s requirements

for severence benefits eligibility. Specifically, the R&R states, “For Plaintiff to be eligible for
severance benefits under Valeo’s Plan, it must be shown that (1) his position or job was
eliminated or there was ‘a discontinuation or change of organization or operation where you are
employed,’ and (2) he did not voluntarily terminate his employment with Valeo.” (R&R at 6)
(emphasis added). Valeo contends that the proper construction of the Plan is that, “Plaintiff’s
employment must have been ‘permanently and involuntary terminated because of . . . a
discontinuation or change of organization or operation where [he was] employed [or] the
elimination of [his] job or position.’” (Obj. at 8). Valeo further contends that the Magistrate

7

Judge’s interpretation of the Plan’s eligibility language “erroneously disregards that such an
initial trigger is required to establish eligibility under the plan.” (Id. at 9)
As stated above, the actual terms of the Plan provide:
You will be eligible for severance benefits under the Plan if your
employment is permanently and involuntarily terminated because of
one of the following events:
•

a discontinuation or change of organization or
operation where you are employed;

•

the elimination of your job or position;

•

the sale of a facility where you are employed if you
are not offered a comparable or better position with
the buyer or successor employer or with the Company
or an entity related to the Company by common
ownership;

•

any other reason as determined by the Company, in its
sole discretion.

However, even if one of the events described above occurs, you will
not be eligible for severance benefits if:
•

you voluntarily terminate your employment with the
Company . . .

(Record at 57).
After reviewing the terms of the Plan, the Court finds that the Magistrate Judge’s
interpretation of the Plan’s eligibility clause is an accurate reflection of the terms of the Plan.
The “trigger” that Valeo is presumably referring to is the clause that states “if your employment
is permanently and involuntarily terminated,” which is just before the enumerated list of events
that must occur for eligibility. The R&R clearly states that, in order to be eligible for severance
benefits one of the requirements Plaintiff must show is that “(2) he did not voluntarily terminate
8

his employment with Valeo.” Thus, the Magistrate Judge specifically included the involuntary
termination requirement in its analysis. Substantively, there is no difference between requiring
“involuntary termination” as a trigger for events that may permit severance benefits, or treating
“voluntarily termination” as a bar to recovery of severance benefits.2 In this case, the Magistrate
Judge found that there was a discontinuation or change of organization or operation where
Plaintiff worked, and that, considering all the circumstances, the evidence weighed in favor of
the fact that Plaintiff did not voluntarily resign. Thus, the Court finds that the Magistrate Judge
properly construed the requirements of the Plan’s Eligibility language.
B.

The Magistrate Judge did not erroneously add a basis for eligibility to the Plan.
Next, Valeo contends that the Magistrate Judge added “constructive discharge” as a basis

for eligibility for severance benefits under the Plan. (Obj. at 9).
The Magistrate Judge found that, in reviewing all the evidence as a whole, Plaintiff’s
termination was more like an involuntary termination. This Court agrees with Plaintiff that the
R&R does not hold that Plaintiff was constructively discharged and that Valeo’s argument to the
2

In addition to there being no substantive difference between the Magistrate Judge’s and
Valeo’s interpretation of the Plan eligibility clause, Valeo blatantly misconstrues its own Plan
Administrator’s conclusion in an attempt to create a material difference. Valeo asserts that the
“if your employment is permanently and involuntarily terminated” clause is the “trigger” clause
upon which the Plan Administrator relied when he held, “Accordingly, even if one of the listed
triggers has occurred as to Mr. Penedo, his voluntary resignation eliminated all of his eligibility
for Plan severance benefits . . ..” (Record at 149). It is clear from the context of his July 2, 2010
decision, however, that the Plan Administrator is referring to one the four enumerated events (in
bullet points) that must occur for Plaintiff to become eligible for benefits. In fact, the Plan
Administrator specifically states, “The ‘events described above’ are the Plan’s regular triggers for
severance benefits, e.g., discontinuation or change of organization or operation where an
individual is employed, or elimination of an individual’s job position, or not being offered a
comparable or better position with the company or an affiliate after the sale of a company facility
where and [sic] individual is employed.” (Id.)
9

contrary is a misrepresentation of the Magistrate Judge’s analysis. The R&R emphasized that
there was no evidence that Valeo gave Plaintiff any other options other than to accept an inferior
position in Mexico. The Magistrate Judge stated:
There is certainly a rational and plausible basis for the Plaintiff’s
contention that he did not do so. His position as Tax Director for
Mexico, which he held in Michigan for some 13 years, was
transferred “wholesale” to Mexico, with a material reduction in pay
and benefits. The Plaintiff was told he had the “option” to transfer to
Mexico (AR 83), but the record does not show that Valeo gave him
any other options. In fact, in his letter of February 17, 2010, Robert
Wade affirmatively stated that “Valeo had no obligation to continue
the terms of the position you held in the United States after the job
was moved to Mexico.” (AR 66). Mr. Wade also made note that
Plaintiff was “an at-will employee,” a statement that, while not
relevant to Plaintiff’s entitlement to severance benefits, tends to
support a finding that the position in Mexico was a take-it-or-leave-it
proposition. Indeed, even after the Plaintiff made it clear that he was
not resigning, but rather declining the transfer to Mexico, Valeo
offered no alternative or equivalent employment. Notwithstanding the
repeated use of the talismanic phrase “voluntary resignation” in its
correspondence, Valeo’s actions could be more accurately viewed as
a constructive discharge.
(R&R at 7).
Indeed, the R&R merely addresses a number of factors that weigh in favor of finding that
Plaintiff’s termination was involuntary. The Magistrate Judge did not hold Plaintiff’s was
constructively discharge. Valeo’s objection on this issue is denied.
C.

The Magistrate Judge applied the proper standard of review and did not erroneously give
too much weight to Valeo’s conflict of interest.
The Court will address Valeo’s next several objections together. Valeo contends that the

Magistrate Judge failed to properly apply the arbitrary and capricious standard of review. (Obj.
at 11). Valeo also contends that “the R&R erroneously gave great weight to a purported conflict

10

of interest and finds that such conflict demonstrates that the denial of benefits was arbitrary and
capricious.” (Id. at 13). Valeo further asserts that Plaintiff’s conflict of interest argument is, in
actuality, a claim of bias, which Plaintiff did not timely raise. Again, this Court disagrees.
“When applying the arbitrary and capricious standard, the Court must decide whether the
plan administrator’s decision was rational in light of the plan’s provisions. Stated differently,
when it is possible to offer a reasoned explanation, based on the evidence, for a particular
outcome, that outcome is not arbitrary or capricious.” Williams v. International Paper Co., 227
F.3d 706, 712 (6th Cir. 2000). A Plan administrators decision will be upheld as long as it was
the “result of a deliberate, principled reasoning process and is supported by substantial
evidence.” Cox v. Standard Ins. Co., 585 F.3d 295, 302 (6th Cir.2009) (quoting DeLisle v. Sun
Life Assur. Co. of Canada, 558 F.3d 440, 444 (6th Cir.2009)).
In this case, the Plan Administrator’s decision was not supported by substantial evidence.
It is true that the R&R provides that, in reading Wade’s January 7, 2010 letter, “if viewed in
isolation, one could perhaps draw a rational conclusion that it was a letter of resignation.” (R&R
at 7) (emphasis added). As stated above, when viewed in the context of all communications
between Plaintiff and Valeo,3 the evidence weighs significantly in favor of the determination that
the Plan Administrator’s decision was arbitrary and capricious, and factors such as the Plan
Administrator’s conflict of interest emphasize that result. Valeo provided no evidence that the

3

In its objections, Valeo quotes segments of the R&R and states, “The R&R even
concedes that the ‘context of all the facts’ supports a ‘permissible’ inference that Plaintiff
voluntarily resigned. (Obj. at 13). In reality, the R&R reads, “Again, in the context of all the
facts, that is not a particularly strong inference, but it is a permissible one.” (R&R at 8). In
reading the R&R as a whole, the Magistrate Judge is clearly conveying that, while it is a
permissible inference, it is not a particularly strong inference in light of all the facts.
11

offer to transfer to Mexico was anything other than a “take it, or leave it” offer. Based upon the
circumstances, interpreting Plaintiff’s January 7, 2010 letter as a resignation letter is quite a
stretch. Valeo attempts to spin Plaintiff’s statements that he “will look at other options as of
January 11, 2010” and that he “wish[ed] the company every success and hope[d] the door
remain[ed] open in the future,” as evidence that Plaintiff resigned. The undertones of Plaintiff’s
January 7, 2010 letter clearly show that Plaintiff felt he had no option but take the position in
Mexico or leave Valeo because his position would no longer exist, and that Plaintiff was simply
attempting to leave the company, where he had worked for more than 12 years, on good terms.
Moreover, based upon Valeo’s own admissions, Valeo moved Plaintiff’s position as a result of a
change of organization or operation. Thus, Plaintiff fulfilled the eligibility requirements of the
Plan’s severance package.
Additionally, the Magistrate Judge did not give too much weight to the Plan
Administrator’s conflict of interest. First, as discussed above, the Magistrate Judge considered
the facts surrounding Plaintiff’s termination as a whole, and contrary to Valeo’s contention, the
conflict of interest is not merely a claim of bias. The record reflects that Robert Wade wore two
hats in the decision making process. Valeo concedes in its objections that Wade served as Plan
Administrator. (Obj. at 14). Thus, not only did Valeo serve as the employer and Plan
Administrator, but the same individual served as Valeo’s Human Resource Director who took the
position that Plaintiff resigned, and served as the Plan Administrator. In his administrative
review as Plan Administrator, Wade goes so far as to reference himself in the third-person,
stating, “The Plan Administrator has also consulted . . . with Robert Wade, Valeo, Inc.’s Human
Resource Director.” (Record at 148). This is sufficient evidence that Wade’s decision as Plan
12

Administrator was, at least in part, motivated by his own prior dealings with Plaintiff as Human
Resource Director. Such a conflict of interest cannot be overlooked.
Accordingly, the Court finds that the Magistrate Judge correctly applied the arbitrary and
capricious standard.
D.

The Magistrate Judge did not consider evidence outside of the record.
In the R&R, the Magistrate Judge stated:
In his May 27, 2010 letter, Robert Wade suggested that the Plaintiff’s
job was not ‘eliminated,’ but rather it was moved to Mexico. While
this argument seems somewhat facile – no U.S. manufacturing jobs
have been eliminated over the past 20 years, they have simply been
moved to cheaper labor markets in other countries – it is not
necessary to resolve this fine semantic distinction, because Valeo
concedes that it “moved the [Plaintiff’s] position based on the
Company’s business decision to reorganize its operations on a
worldwide basis.

(R&R at 6).
Valeo contends that the statement, “no U.S. manufacturing jobs have been eliminated
over the past 20 years, they have simply been moved to cheaper labor markets in other
countries,” is not included in the administrative record and thus the magistrate judge improperly
considered this as evidence. This objection is also without merit. The Magistrate Judge was
simply stating that Valeo’s argument was merely one of semantics. In any event, the Magistrate
Judge specifically stated that it did not consider the issue in its analysis. (R&R at 6).
CONCLUSION
For the reasons set forth above, the Court ADOPTS the August 31, 2011 Report and
Recommendation (D.E. No. 29) in its entirety.
IT IS FURTHER ORDERED that Plaintiff’s motion for summary judgment (D.E. No.
13

11) is GRANTED and Defendant’s motion to affirm the Plan Administrator’s decision (D.E. No.
12) is DENIED.
IT IS SO ORDERED.

S/Sean F. Cox
Sean F. Cox
United States District Judge
Dated: March 26, 2012
I hereby certify that a copy of the foregoing document was served upon counsel of record on
March 26, 2012, by electronic and/or ordinary mail.
S/Jennifer Hernandez
Case Manager

14