Opinion ID: 66439
Heading Depth: 3
Heading Rank: 2

Heading: Fair Reading

Text: Stone also argues that the Administrator and Committee did not give Article 16.1(E) a fair reading. In particular, he argues that the Committee misread Article 16.1(E)(3) to only apply in the event that a change of control provision was triggered, refused to consider future losses under Article 16.1(E)(3) and (4), and misinterpreted the elimination of his LSI under plan provisions.5 Again, whether the administrator gave the plan a fair reading is the most important factor. Crowell, 541 F.3d at 313. Under any ERISA plan, the eligibility for benefits “is governed in the first instance by the plain meaning of the plan language.” Id. at 314 (quoting Tucker v. Shreveport Transit Mgmt. Inc., 226 F.3d 394, 398 (5th Cir. 2000)). ERISA plans are interpreted in their “ordinary and popular sense as would a person of average intelligence and experience.” Id. (same). Thus, plan provisions must be interpreted as they are “likely to be ‘understood by the average plan participant, consistent with the 5 Stone lists these complaints as evidence of an abuse of discretion; however, they relate chiefly to plan interpretation. 11 statutory language.’” Id. (same). Stone first claims that the elimination of his LTI award constitutes a constructive discharge under the plain meaning of Article 16.1(E)(3), and the Administrator and Committee misinterpreted the meaning of that provision in order to deny his claim. Article 16.1(E)(3) defines a constructive discharge as: “A reduction in the Employee’s eligibility for or amount of benefits available to the Employee under this Article 16, or under the Change of Control Event provisions of any other benefit plan of the Company, or the Employee’s annual incentive target amount under the Change of Control Event provisions of any stock-based or annual incentive compensation program of the Company.” (emphasis added) By these terms, Article 16.1(E)(3) is expressly limited to reductions in the Change of Control benefits provided by Unocal. Specifically, Article 16.1(E)(3) protects only against reductions in (1) benefits available under Article 16, entitled “special Provisions Regarding Change of Control,” (2) benefits available under Change of Control Event provisions of other Unocal plans, and (3) incentive target amounts under the Change of Control Event provisions of the stock-based or annual incentive compensation programs like the LTI plan. Stone’s LTI benefits were protected by a change of control provision. After the merger, Chevron complied with these change of control provisions. Because Stone received all the benefits to which he was entitled “under the Change of Control Event provisions” of the LTI Plan, the Committee determined he was not constructively discharged under Article 16.1(E)(3). Stone argues, however, that Article 16.1(E)(3) provides for the continuation of his LTI award. As discussed above, this reading is inconsistent with a plain reading of the Plan. To agree with Stone’s interpretation would require this court to overlook the grammatical structure of Article 16.1(E)(3), which clearly delineates, through the use of commas, that a change of control provision must 12 be affected in order to trigger a constructive discharge under this subsection. Further, Stone’s allegations that Committee members “admitted” to not interpreting Article 16.1(E)(3) according to its plain meaning is simply a mischaracterization of their testimony. Two Committee members testified that Article 16.1(E)(3) dealt with benefits to which employees were eligible following a change of control; thus, the Committee interpreted subsection 3 to apply only when a benefit’s change of control provision was triggered. Stone seems to equate this testimony to an admission because it contradicts his own misinterpretation of the Plan. Instead, this explanation is consistent with the Plan’s plain meaning because Article 16.1(E)(3) is limited specifically to change of control provisions and provides for constructive discharge when benefits are altered in a manner contrary to those provisions.6 Stone also contests the Administrator and Committee’s refusal to consider future losses. Specifically, he argues that his continuation bonus was limited to 2006 and, thus, could not offset future losses. These future losses, according to Stone, constitute a material reduction in aggregate benefits under Article 16.1(E)(4). For an applicant to be eligible for benefits, Article 16.1(E) requires that an employee file his application “within 60 days of the occurrence of any of the [specified constructive discharge] events.” Additionally, Article 16.1 provided only a twenty-four month protected period after the change of control. Stone estimated his future losses from 2007–2011 because the one-time continuation bonus he received offset his lost LTI benefits only for 2006. The Committee determined that because he had been made whole for 2006, no 6 Stone also argues that the Committee admitted that it did not consider any claims under Article 16.1(E)(3). Again, this is a mischaracterization—the Committee did consider the applicability of the subsection but found it inapplicable because Chevron had adhered to the LTIP’s change of control provisions. 13 constructive discharge event had “occurred.” The Administrator and Committee agreed, however, that nothing prevented Stone from filing a constructive discharge application at a later time, should he not receive an offsetting continuation bonus or additional benefits for 2007. Based upon the Plan’s plain language, a constructive discharge event must occur prior to the employee becoming eligible for benefits. Stone applied for constructive discharge on January 1, 2006, but his continuation bonus had made him whole for that year. Still, Stone alleges a constructive discharge event had “occurred” because the reduction in benefits made him subject to future losses. Stone resigned prior to becoming eligible for a 2007 bonus, and he has failed to show he would not have received adequate compensation in 2007 to offset any benefits lost due to the merger event. As to 2008 and beyond, though Chevron inferentially admits it would not have provided Stone with additional compensation to make him whole, the merger agreement imposed no obligation to protect compensation and benefits beyond the twenty-four month protected period. Because Stone’s alleged future losses are highly speculative and extend beyond the protected period, it was reasonable and consistent with a plain reading of the provision to disregard those claims. Finally, Stone argues that the Committee ignored the loss of his LSI and refused to consider it as a reduction in base pay under Article 16.1(E)(1). Unocal’s LSI was a discretionary award, made in a single payment, with no resulting incremental increase in the employee’s base pay and was not considered “pay” for benefit plans and related purposes. Because the LSI was not a part of base pay, its loss could not constitute a reduction in base pay as required by Article 16.1(E)(1). Thus, the Administrator and Committee properly considered the loss of the LSI award as a “benefit” under Article 16.1(E)(4). The LSI equaled 3.5% of Stone’s base pay. In October 2005, Stone received a 5% raise in base pay. 14 This raise resulted in an increase in Stone’s base pay, which thereby increased his Savings Plan matching contributions, his Retirement Plan pensionable salary, his cash incentive target bonus, and his continuation bonus. Even without the LSI bonus, Chevron’s compensation package was valued at over $7,000 more than what he received from Unocal. Thus, the Administrator and Committee engaged in a fair reading of the plan and properly concluded that Stone had not been constructively discharged as defined by Article 16.1(E). Based upon the above reasoning, the Administrator and Committee’s interpretation of the plan was legally correct, and they could not have abused their discretion in denying Stone’s benefits claim.7