## F I L E D United States Court of Appeals Tenth Circuit 

### MAR 5 2003 

### PATRICK FISHER Clerk PUBLISH UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

DAVID B. CIRULIS, Plaintiff - Appellant,

v. UNUM CORPORATION SEVERANCE PLAN, UNUM CORPORATION OFFICER SEVERANCE PLAN, and ROBERT CORNETT, Defendants - Appellees. No. 01-3362

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF KANSAS (D.C. No. 00-2178-CM)
Patrick K. McMonigle (John F. Wilcox, Jr., with him on the briefs), of Dysart Taylor Lay Cotter & McMonigle, P.C., Kansas City, M issouri, for PlaintiffAppellant. Morris J. Nunn of Stinson Morrison Hecker, L.L.P., Kansas City, Missouri, for Defendants-Appellees.

Before HENRY , McWILLIAMS , and LUCERO , Circuit Judges.

LUCERO , Circuit Judge.1 The clause stated:

You further agree that for a period of two years af ter your employment termination from UNUM, you will not directly or ind irectly solicit, assist, or induce any of UNUM’s sales representativ es, other employees, or brokers to terminate their relationsh ips with UNUM or to become employed by or associated with another in surance company. You acknowledge and agree that UNUM has a valid nee d to protect its business by prohibiting such solicitation and that these restrictions are both reasonable and necessary to protect UNUM’s bus iness. (1 Appellant’s App. at 109.) -2- This case requires resolution of the following ques tion: Does the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq., authorize a plan administrator to condition payment of severanc e benefits on an employee’s assent to a non-solicitation provision not included on the face of a plan? David B. Cirulis, formerly employed with UNUM Life Insura nce Company (“UNUM”), brought suit to recover severance payments denied t o him after he refused to sign a General Agreement and Release (“Release”) includi ng a non-solicitation clause. This clause prohibited Cirulis from soliciting UNUM employees or brokers to terminate their relationships with UNUM or become e mployed by another insurance company. 1 The district court granted summary judgment to UN UM, dismissed Cirulis’s claims, and denied his subseque nt motion for rehearing. Exercising jurisdiction pursuant to 28 U.S.C. § 129 1, we reverse.-3- I In November 1998, after Cirulis had been employed w ith UNUM for approximately thirteen years, UNUM announced a merg er. Several years prior to this, UNUM had established severance plans covering Cirulis. Under the terms of these plans, the plan administrator, Robert Cornett , retained discretion to determine benefit rights, eligibility, timing and a mount of payments, and to construe and interpret the terms of the plan. In o rder to receive benefits, employees were required to sign a “General Agreement and Release.” Neither party disputes that the severance plans at issue in this case are governed by
ERISA. In April 1999, Cirulis learned that his position wo uld be eliminated as a result of the merger and on July 1, 1999, the effec tive date of the merger, he was formally terminated. On June 24, 1999, Cirulis rec eived a copy of the Release for the first time, which included the non-solicitation clause as well as a waiver of legal claims. On August 4, 1999, UNUM informed Cirulis that he wo uld be eligible only for employee-level severance benefits but not for enhanced officerlevel benefits. Cirulis obtained counsel, and repe atedly objected to and requested negotiations regarding the non-solicitation clause. Eventually, he appealed to the plan administrator both as to UNUM’s refusal to ame nd the non-solicitation-4-

clause and as to the calculation of his benefits. Nonetheless, on February 22, 2000, UNUM accused Cirulis of violating the non-sol icitation provision and, on April 20, informed him that he was no longer eligib le for either level of severance benefits in light of his refusal to sign the Releas e and alleged violation of its

terms. In response, Cirulis filed suit in federal districtcourt under 29 U.S.C. § 1132, arguing that he was entitled to officer-lev el benefits notwithstanding his rejection of the non-solicitation provision and that UNUM’s repeated failure to provide him with documents relating to the severanc e plan subjected UNUM to statutory penalties. On summary judgment, the district court dismissed t he claims, ruling that (1) Cirulis’s failure to sign t he Release justified UNUM’s denial of benefits, (2) conditioning benefits on th e non-solicitation provision was a reasonable exercise of the plan administrator’s d iscretion, and (3) Cirulis failed to establish the bad faith required to recover statutory penalties. Cirulis v. UNUM Corp. Severance Plan , No. 00-2178-CM (D. Kan. Sept. 5, 2001). The district court declined to address the question of whether Cirulis was entitled to officer-level benefits rather than employee-level b enefits, concluding that his refusal to sign the Release disqualified him under either plan. Id. On appeal, Cirulis challenges the district court’s underlying summary judgment order, arguing that the plan administratoracted arbitrarily and2 Cirulis also contends that the district court err ed in denying his motion

for rehearing under Rule 59(e) because the summary judgment order effectively denied his statutory right to judicial review. Bec ause, as discussed below, we decide that the district court erred in granting su mmary judgment, we need not address this issue.

3 UNUM’s plan provides: “The Plan Administrator sh all have the full discretion to make determinations as to the right o f any person to a benefit in this Plan. The Plan Administrator shall have the power to construe and interpret the terms of this Plan, decide all questions of eligibi lity, and determine the amount and time of payment of any benefits due under this Plan.” (1 Appellant’s App. at 79.) -5- capriciously in conditioning the payment of benefit s on the non-solicitation provision and in permitting amendments to the Relea se for three other employees while refusing to allow any amendments as to his Release. 2
II We review the grant of summary judgment de novo, applying the same le gal standard used by the district court. Save Palisade Fruitlands v. Todd , 279 F.3d 1204, 1209 (10th Cir. 2002). When a beneficiary ch allenges a denial of ERISA benefits under § 1132(a)(1)(B) and the plan confers discretion on the plan administrator to determine eligibility and to const rue the plan’s terms, as here, 3 the reviewing court applies an arbitrary and capric ious standard. Kimber v. Thiokol Corp. , 196 F.3d 1092, 1097 (10th Cir. 1999). “When revi ewing under the arbitrary and capricious standard, . . . [t]he [adm inistrator’s] decision will be upheld unless it is not grounded on anyreasonable basis. The reviewing court need only assure that the administrator’s decision fall[s] somewhere on a-6-

continuum of reasonableness—even if on the low end. ” Id. at 1098 (quotations omitted). Noting that the non-solicitation clause did not app ear on the face of the severance plan, Cirulis maintains that the plan adm inistrator exceeded the bounds of his discretion in conditioning payment of benefi ts on assent to this provision. ERISA mandates that: “[e]very employee benefit pla n shall be established and maintained pursuant to a written instrument,” 29 U. S.C. § 1102(a)(1), and that plan administrators provide benefits “in accordance with the documents and instruments governing the plan,” § 1104(a)(1)(D). “[A] written plan is to be required in order that every employee may, on examining the plan documents, determine exactly what his rights and obligations a re under the plan.” CurtissWright Corp. v. Schoonejongen , 514 U.S. 73, 83 (1995) (explaining the rationale for ERISA writing requirements) (quotation omitted) . Consequently, courts have held that the imposition of new conditions that do not appear on the face of a plan constitutes arbitrary and capricious conduct. Garr att v. Walker , 164 F.3d 1249, 1255 (10th Cir. 1998); Blau v. Del Monte Corp. , 748 F.2d 1348, 1356 (9th Cir. 1985). UNUM correctly points out that the severance benefi ts at issue in this case constitute a welfare-benefit plan rather than a pen sion plan under ERISA. Massachusetts v. Morash , 490 U.S. 107, 116 (1989). Although welfare-benef it-7-

plans are not subject to all ERISA requirements that govern pension plans, Chiles v. Ceridian Corp. , 95 F.3d 1505, 1510 (10th Cir. 1996), we note thatboth welfare-benefit and pension plans are subject to th e ERISA reporting-anddisclosure requirements discussed in Curtiss-Wright , 514 U.S. at 83, as well as to ERISA fiduciary rules and enforcement measures. 29 U.S.C. § 1003 (crossreferencing §§ 1051, 1081, and 1101, which exempt w elfare-benefit plans from participation and vesting requirements and funding requirements, but not from reporting and disclosure requirements, fiduciary re quirements, and enforcement measures). As welfare-benefit plans are exempt from ERISA’s mi nimum participation, vesting, and funding requirements, however, employe rs may unilaterally enact amendments to them when the face of the plan reserv es this authority. CurtissWright , 514 U.S. at 78. However, an employer seeking to exercise this right must satisfy two conditions. First, it must do so in ac cordance with written amendment procedures provided on the face of the plan. Krumm e v. Westpoint Stevens, Inc. , 143 F.3d 71, 84 (2d Cir. 1998); Miller v. Coastal C orp. , 978 F.2d 622, 624 (10th Cir. 1992). Second, it must provide notice of the amendment to participants and beneficiaries within “210 days after the end of the plan year in which the change is adopted.” 29 U.S.C. § 1024(b)(1). In this case , however, UNUM does not argue that the non-solicitation clause constituted an amendmentto the original-8-

plan; rather, it argues that the clause was part of the original plan. In the absence of briefing by either party on this issue, we decli ne to hold that the nonsolicitation clause constituted a permissible amend ment to the original plan. Rather, we proceed to inquire whether the severance plan as originally promulgated conditioned payment of benefits on asse nt to a non-solicitation provision. UNUM contends that the plan’s two refer ences to an “Agreement and General Release” that would need to be signed priorto the receipt of benefits suffices to incorporate all Release provisions into the severance plan. Page two of the severance plan states: “If an employee deci des not to sign the Agreement and General Release required under this Plan (see R elease below), then that employee will not be eligible to receive payment or other benefits under this Plan.” (1 Appellant’s App. at 71.) Page seven of the plan provides: “No employee will get a payment or other benefit under this Plan unless that employee signs an Agreement and General Release (‘Release’). That Release includes important terms that the employee should consider b efore making the decision to sign it.” (1 id. at 76.) Beyond these two oblique references, the plan neither mentions the Release, nor describes its terms. Cirulis did not become informed of the terms of the Release until June 24, 1999, when he received a copy of it for the first t ime, two and one-half months after he learned his position would be terminated a nd one week before he was-9-

formally terminated. The Release included a clause prohibiting Cirulis f rom soliciting UNUM employees or brokers to terminate t heir relationships with UNUM or work for another insurance company. Until he received a copy of the Release, years after the severance plan had been es tablished, Cirulis had no notice that severance benefits would be conditioned on thi s provision. By failing to provide notice to employees that severance benefits would be conditioned on a non-solicitation provision, the plan administrator’ s conduct in this case contravenes ERISA’s mandate that employee-welfare p lans be written so as to provide employees with notice of their rights and o bligations under the plan. Curtiss-Wright , 514 U.S. at 83. Authorities cited by UNUM as providing succor for i ts position, Lockheed Corp. v. Spink , 517 U.S. 882 (1996); Burrey v. Pac. Gas & Elec. C o. , 159 F.3d 388 (9th Cir. 1998); Jefferson v. Vickers, Inc. , 102 F.3d 960 (8th Cir. 1997); and Friz v. J&H Marsh & McLennan, Inc. , 2 Fed. Appx. 277 (4th Cir. 2001), do not persuade us to adopt a contrary rule. UNUM argues that these cases stand for the proposition that a plan administrator may condition benefit payments on terms that do not appear on the face of a benefit plan. Such a rule would defeat the express purpose of ERISA. “Nothing in ERISA requir es employers to establish employee benefit plans. Nor does ERISA mandate what kind of benefits employers must provide if they choose to have such a plan. ERISA does,-10-

however, seek to ensure that employees will not be left empty-handed once employers have guaranteed them certain benefits.” Lockheed , 517 U.S. at 887 (citations omitted). Each of the four cases is cle arly distinguishable from the present case. In Lockheed Corp. v. Spink , an employee filed suit under ERISA alleging that his former employer, Lockheed, violated its fi duciary duties in conditioning early retirement benefits on his waiver of legal cl aims. 517 U.S. at 888–90. In an earlier version of the plan, Lockheed provided no r etirement benefits to anyone hired when they were over age sixty. Id. at 885. In conformity with newly enacted antidiscrimination laws, however, Lockheed amended its plan in 1988 to provide retirement benefits regardless of the emplo yee’s age when hired. Id. As an incentive, however, Lockheed provided enhanced b enefits for early retirement, in exchange for the employee’s waiver of legal clai ms against Lockheed. Id. Although Spink was eligible for the early retiremen t program, he declined to participate because he did not want to waive his le gal claims. Id. at 885–86. On review, the Supreme Court rejected Spink’s argumentthat the early retirement plan violated Lockheed’s fiduciary duty under ERISA : “We thus hold that the payment of benefits pursuant to an amended plan, re gardless of what the plan requires of the employee in return for those benefi ts, does not constitute a4 Lockheedis also distinguishable from the present case in t hat the

challenged provision in Lockheed involved a waiver of legal claims. In this case, (continued...) -11- prohibited transaction [within the meaning of ERISA § 406(a)(1)(D)].” Id. at 895. Lockheedis not implicated in the instant case because noth ing in Lockheed suggests that the challenged provision did not appe ar on the face of the plan as properly amended, nor is there any suggestion that Spink had no prior notice of it. In addition, the Supreme Court’s holding in Lockhee dwas limited to interpreting the term “prohibited transaction” as used in § 406( a)(1)(D). In contrast, Cirulis does not claim that the plan administrator’s inclus ion of the non-solicitation condition constituted a “prohibited transaction” in violation of the administrator’s fiduciary duties. Rather, he claims that the non-s olicitation clause constituted an impermissible condition to payment of benefits beca use it was not included on the face of the plan. Lockheeddiffers from the present case in a further respect . Even if the waiver provision in Lockheed did notappear on the face of the plan, the condition in Lockheednevertheless left the standard benefits under the plan intact. Were an employee to reject the waiver condition, he would r emain entitled to the standard retirement package, although he would not receive e nhanced early-retirement benefits. Id. at 885–86. In the instant case, in contrast, asse nt to the challenged conditions was required in order to receive any benefits. 44 (...continued)

Cirulis challenges not only the waiver in the Relea se, but also the non-solicitation provision. Even if we were to accept the propositi on that an employer may condition severance payments on a waiver of legal c laims that does not appear on the face of the plan, it does not necessarily follo w that non-solicitation clauses should be treated identically. -12- UNUM also cites Jefferson v. Vickers, Inc. in support of its position. In that case, William Jefferson participated in a pens ion plan established by his employer, Vickers, which provided for the vesting o f pension benefits upon the employee’s having worked at Vickers for five years. 102 F.3d at 962. When Jefferson was terminated, he had only been employed by Vickers for four years, eight months, and fifteen days. Id. Vickers offered to extend Jefferson’s severance payments, which would permit his pension benefits to vest, in exchange for Jefferson’s release of any legal claims againstVickers. Id. Jefferson refused and subsequently filed suit against Vickers, allegi ng that Vickers intentionally interfered with his pension rights in violation of section 510 of ERISA. Id. In concluding that Jefferson failed to establish Vicke rs’ intent to interfere, the Second Circuit noted: “An employer does not violat e ERISA when it conditions the receipt of early retirement benefits upon the p articipants’s waiver of employment claims.” Id. at 964 (citing Lockheed , 517 U.S. at 894–95). In Jefferson , the Second Circuit was not faced with and did notdiscuss the question presented in this case—whether an employermay condition severance5 In addition, as in Lockheed , the challenged condition was a waiver of

legal claims, not a non-solicitation clause. -13- payments on a non-solicitation provision when the p rovision did not appear on the face of the plan. Moreover, in Jefferson , the waiver of legal claims was a condition for benefits to which Jefferson would nototherwise be entitled, rather than a condition for benefits that were already pro mised him. Jefferson may thus be distinguished from the instant case. 5 Similarly, Burrey v. Pacific Gas & Electric Co. fails to persuade us to adopt UNUM’s position. In Burrey , clerical workers employed on a temporary basis with PG&E sued for benefits promised under PG&E’s s everance plan. 159 F.3d at 390–91. In rejecting this claim, the Ninth Circ uit held that the employees lacked standing because they could not show they we re beneficiaries to the severance plan in light of their refusal to sign th e required Severance and Agreement Release. Id. at 395–96. As in the present case, PG&E’s severan ce plan indicated that benefits would be conditioned o n employees’ signing a release. Importantly, however, there was nothing to suggest that the Burreyemployees lacked notice of the terms of the release form. Bu rreydoes not discuss whether an employer may condition benefits on employees’ as sent to Release terms when the employees had no prior notice of these terms.6 Although neither party raised the issue in their briefs, we acknowledge

the possibility that the plan administrator’s actio ns may be subject to the slidingscale of deference we articulated in Kimber , 196 F.3d at 1097. In Kimber , we held that when the plan administrator operates unde r a conflict of interest, although “[t]he standard always remains arbitrary a nd capricious, . . . the amount of deference present may decrease on a sliding scal e in proportion to the extent of conflict present.” Id. at 1097 (quotation omitted). Evidence of a confli ct of interest requires “proof that the plan administrato r’s dual role jeopardized his impartiality.” Id. (quotation omitted). “[T]he mere fact that the pl an administrator was a [company] employee is not enoug h per se to demonstrate a conflict. Rather, a court should consider various factors including whether: (1) the plan is self-funded; (2) the company funding th e plan appointed and compensated the plan administrator; (3) the plan ad ministrator’s performance reviews or level of compensation were linked to the denial of benefits; and (4) the provision of benefits had a significant economic impact on the company administering the plan.” Id. (quotation and citation omitted). More recently, in Pitman v. Blue Cross & Blue Shiel d of Okla. , 217 F.3d 1291, 1296 (10th Cir. 2000), we suggested that when the plan administrator and a third-party insurerare the same entity, this alone may suffice to sho w a conflict of (continued...) -14- Finally, UNUM cites an unpublished opinion, Friz v. J&H Marsh & McLennan, Inc. , in which the Fourth Circuit upheld the conditioni ng of severance benefits on employees’ assent to a non-solicitation clause. Given that Friz is unpublished, and that the facts did not present an opportunity for the Fourth Circuit to indicate how it might rule on the issue squarely before us, we do not consider it further. Because we conclude that the plan administrator act ed arbitrarily and capriciously in conditioning payment of severance b enefits on assent to a nonsolicitation provision of which employees had no no tice, 6 we do not address6 (...continued)

interest. Pitman ’s holding was expressly limited to exclude situati ons in which a plan is self-funded, i.e., where an employee of the company administers the plan. Id. at 1296 n.4. Unlike an insurer, an employer (or i ts agent-employee) does not usually derive its profit solely from the administr ation of the benefits plan. Id. In this case, the plan administrator is an employee of UNUM, rather than a third-party insurer. This suggests that Pitman may not apply. However, as UNUM, unlike most other employers, presumably deriv es profits from administering employee benefit plans for other comp anies, it is arguable that the identity of the plan administrator as a UNUM employ ee may, standing alone, provide sufficient evidence of a conflict warrantin g a reduced level of deference. Nevertheless, we need not decide this issue, as we conclude that even under the most deferential version of the standard, the plan administrator’s actions in this case were arbitrary and capricious.

7 UNUM suggests that Cirulis has waived his claim t o officer-level rather than employee-level benefits due to his failure to present this issue on appeal. However, Cirulis could not have raised this argumen t on appeal because the district court did not address the merits of this c laim, reasoning that Cirulis’ refusal to sign the Release disqualified him from e ither plan. -15- Cirulis’s argument that the plan administrator acte d arbitrarily and capriciously in refusing to negotiate the terms of the Release with Cirulis when he was willing to do so for three other employees.
III
We REVERSE the grant of summary judgment and REMAND for further proceedings consistent with this opinion. On reman d, the district court must determine whether Cirulis was entitled to officer-l evel rather than employee-level benefits. 7