Opinion ID: 754147
Heading Depth: 2
Heading Rank: 1

Heading: Who Possessed the Authority to Amend the Plan?

Text: 19
20 Because it is tacitly conceded that the board possessed the authority to amend the Plan, see 8 Del.Code Ann. § 141(a), but never actually undertook such an amendment, we pause to address the plaintiffs' argument that only the board of directors had authority to adopt amendments to the Plan in this case. The answer must be that unless otherwise provided by the certificate of corporation and subject to the limitations set forth in 8 Del.Code Ann. § 141(c), the board may freely delegate the authority to manage the business and affairs of the corporation. See 1 R. Franklin Balotti & Jesse A. Finkelstein, The Delaware Law of Corporations & Business Organizations § 4.17, at 32 (collecting cases). Indeed, the ability to delegate is the essence of corporate management, as the law does not expect the board to fully immerse itself in the daily complexities of corporate operation. See Grimes v. Donald, 673 A.2d 1207, 1215 (Del.1996) (The board retains the ultimate freedom to direct the strategy and affairs of the Company.); Cahall v. Lofland, 114 A. 224, 229 (Del.Ch.1921) (The duties of directors are administrative, and relate to supervision, direction and control, the details of the business being delegated to inferior officers, agents and employees. This is what is meant by management.); 1 Balotti & Finkelstein, supra, § 4.17. The record does not suggest that the board's delegation of the administration or amendment of the Plan would violate CW's certificate of corporation or the specific prohibitions embodied in section 141(c) of the Delaware code. 21 Nor do we agree with the plaintiffs' assertion that the delegation of Plan matters, including its amendment, to a corporate officer or agent would necessarily constitute an abdication of managerial duties. The business decision of appointing a corporate officer to manage retirement health benefits for the corporation does not have the effect of removing from directors in a very substantial way their duty to use their own best judgment on management matters. Abercrombie v. Davies, 123 A.2d 893, 899 (Del.Ch.1956), rev'd on other grounds, 36 Del.Ch. 371, 130 A.2d 338 (1957). Moreover, nothing in the record demonstrates that a delegation of authority in this context would formally preclude the ... board from exercising its statutory powers and fulfilling its fiduciary duty. Grimes, 673 A.2d at 1214 (citation omitted). The board's 1976 resolution with respect to the Plan's self-insurance illustrates this conclusion. Therefore, contrary to the plaintiffs' contentions, the board could freely delegate its authority to administer and amend CW's retirement benefits plan appropriately. 22
Board Delegation 23 Beyond the board of directors, the corporation may validly act through its directors and officers as authorized corporate agents. In general, an officer's powers stem from the organic law of the corporation, or a board delegation of authority which may be express or implied. 2 William M. Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 434, at 339 (perm.rev. ed.1992). Express authority to act on behalf of the corporation is usually manifested through a statute, the certificate of corporation, the by-laws, or a board or shareholder action. Id. § 434, at 339-40; Petition of Mulco Prods., 123 A.2d 95, 103 (Del.Super.Ct.), aff'd sub nom., Mulco Prods., Inc. v. Black, 127 A.2d 851 (1956). Implied actual authority, which is express authority circumstantially proved, may be found through evidence as to the manner in which the business has operated in the past, the facts attending the transaction in question, circumstantial evidence of board declarations surrounding the given transaction, or the habitual usage or course of dealing common to the company. 2 Fletcher, supra, § 437.2, at 353; Mulco, 123 A.2d at 103. Similarly, authority will be implied when it is reasonably necessary and proper to effectuate the purpose of the office or the main authority conferred. 2 Fletcher, supra, § 434, at 340. 24 Pursuant to these principles of corporate law, the undisputed facts show that Mr. Berner, the CEO and President of CW possessed the express authority to amend the Plan without the board's prior approval. The corporate by-laws, adopted by the board, affirmatively bestow on the CEO the authority to take general and active control of [the corporation's] business and affairs, which specifically includes the power to fix employee compensation. App. at 441-43. Delaware courts have held that attendant to this unqualified grant of authority, the president as general manager commands the power to do anything the corporation could do in the general scope and operation of its business. Phoenix Finance Corp. v. Iowa-Wisconsin Bridge Co., 16 A.2d 789, 793 (Del.Super.Ct.1940); see also Mulco, 123 A.2d at 104. It certainly follows that the broad power to fix employee compensation subsumes the authority to amend a specific type of compensation--retirement health benefits governed by ERISA--and logic would consequently dictate that the board expressly approved the CEO's authority to create, administer, or amend CW's retirement plan. Indeed, Delaware courts have been receptive to this line of reasoning, and have generally upheld a general manager's action on behalf of the corporation unless it is unusual or extraordinary. See 1 Ernest L. Folk, Folk on the Delaware General Corporation Law § 142.6, at 6-7 (3d ed.1997). 25 We once again pause to address plaintiffs' arguments against finding express authority vested in Mr. Berner pursuant to an express delegation by the board. Plaintiffs assert that although Mr. Berner expressly commands the authority to fix employee compensation, the termination of medical benefits would be an extraordinary exercise of authority that would require explicit board approval. Plaintiffs do not point to any record support for this contention other than the allegation that it would be outside the ordinary course of business for the CEO to undertake such an action. This argument is unavailing particularly in view of the board mandate allowing the CEO to fix employee compensation and the complete absence of any suggestion that the board intended Plan amendments to be subject to its prior approval. In fact, the board adopted the by-laws well before the Plan's creation and acted in a manner perfectly consistent with the assumption that the Plan was valid. If the board had considered the Plan's creation as a reasonable act without its prior authorization, then surely the board would not have considered the Plan's amendment to be so extraordinary that it was outside Mr. Berner's authority. 26
27 As the record demonstrates, however, Mr. Berner did not amend the Plan, which leaves us with the necessity to decide whether another corporate officer or agent possessed the requisite amendatory authority. It is, of course, firmly established that an officer broadly charged with managing the affairs of a corporation impliedly possesses the authority to appoint subordinate agents under his control to act on behalf of the corporation. See 2 Fletcher, supra, § 503, at 598. Delaware is no stranger to this rule. See 8 Del.Code § 122(5); 1 Balotti & Finkelstein, supra, § 4.17. Nevertheless, the power of delegation is not without limits, and the language of case law generally focuses on whether the delegated authority involves ministerial functions or acts that require the exercise of discretion by the subagent. See 2 Fletcher, supra, § 503, at 598. As the very term management connotes, however, corporate officers and subordinate agents must be afforded some level of discretion when faced with the demands of supervising a modern corporation. Thus, given the necessities of the case and usage, corporate law recognizes that many discretionary acts will be carried out by officers and other subordinates. 1 Balotti & Finkelstein, supra, § 4.17, at 35 (citing 2 Fletcher, supra, § 495, at 580); see also Kelly v. Bell, 254 A.2d 62, 72 (Del.Ch.1969), aff'd, 266 A.2d 878 (Del.1970). The critical factors are often the complexity of the corporation, see Kelly, 254 A.2d at 72, the intent of the board, and the corporation's implied course of conduct. See 1 Balotti & Finkelstein, supra, § 4.17, at 35 (citing 2 William F. Fletcher, supra, §§ 494-95). 28 These principles of corporate law, when applied to the record before us, lead us to conclude that Mr. Berner properly delegated to Mr. Ehinger, one of CW's Executive Vice Presidents, the authority to amend the Plan. It is not disputed that CW is a large, complex corporation with operations well beyond its facilities in New Jersey. While plaintiffs assert that the power to amend the Plan was outside Mr. Berner's authority to delegate because it was not routine, we do not find this to be the case. To be sure, the Plan's amendment required some level of discretion on Mr. Ehinger's part, but this would not defeat a proper delegation by Mr. Berner in view of his authority. The bylaws specifically vest Mr. Ehinger, as Executive Vice President, with the authority to perform all such duties and exercise all such powers as may be provided by ... the President. App. at 443. Certainly, such a duty would include significant changes to the Plan's retirement health benefits and there is no indication on the record that the board limited the Vice President's authority to routine matters that would not include significant Plan amendments. Moreover, the prior course of dealings between Mr. Berner, Mr. Ehinger, and the board--none of which are disputed by the plaintiffs--all show that Mr. Berner and the board were well aware that Mr. Ehinger established and administered the current Plan. In light of these undisputed facts, we conclude that the validity of the Plan's amendment did not depend upon the prior express approval of Mr. Berner in his capacity as CW's President and CEO. 29 The district court refused to find such a delegation of authority to Mr. Ehinger in fact at the summary judgment stage. It did so because, in its view, issues of credibility remain as to Mr. Ehinger's deposition testimony that he had received an oral authorization by Mr. Berner to manage employee benefits. We therefore face the inescapable issue of deciding whether there is a genuine issue of material fact surrounding the delegation of amendatory authority from Mr. Berner to Mr. Ehinger. Fed.R.Civ.P. 56(c). A fact is material if, under the substantive law of the case, it is outcome determinative. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986). A genuine issue is one where a reasonable jury, based on the evidence presented, could hold in the nonmovant's favor with regard to that issue. Id. This formulation reflects the same standard as is applied in a directed verdict motion under Fed.R.Civ.P. 50(a), where the court inquires whether reasonable minds may differ as to the verdict. Id. at 250, 106 S.Ct. at 2511. Once the moving party has demonstrated that there is no genuine issue of material fact, the nonmoving party must come forward with specific facts showing that there is a genuine issue for trial. Fed.R.Civ.P. 56(e); Matsushita Elec. Indus. Co. v. Zenith Radio Co., 475 U.S. 574, 586, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986). Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial. Id. (citation omitted). 30 Notwithstanding this well settled law, federal courts have found difficulty in applying the summary judgment standard when faced with certain questions of credibility. See 10A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 2726, at 115 (2d ed.1983). It is by now axiomatic that a nonmoving party ... cannot defeat summary judgment simply by asserting that a jury might disbelieve an opponent's affidavit to that effect. Williams v. Borough of West Chester, 891 F.2d 458, 460 (3d Cir.1989) (citing Liberty Lobby, 477 U.S. at 256-57, 106 S.Ct. at 2514-15); see also Hozier v. Midwest Fasteners, Inc., 908 F.2d 1155, 1165 (3d Cir.1990). On the other hand, certain scenarios may arise where a material fact cannot be resolved without weighing the credibility of a particular witness or individual--such as when the defendant's liability turns on an individual's state of mind and the plaintiff has presented circumstantial evidence probative of intent. Williams, 891 F.2d at 460. In such a case, we have said that summary judgment is inappropriate because there is a sufficient quantum of evidence on either side for reasonable minds to differ and therefore the issue is genuine. Id. at 461; see also Hozier, 908 F.2d at 1165 ([N]othing in Rule 56 prevents [the nonmoving party] from creating a genuine issue of material fact by pointing to sufficiently powerful countervailing circumstantial evidence.). Indeed, the Advisory Committee notes to the federal rules mirror this result. See Advisory Committee Notes, 1963 Amendment to Fed.R.Civ.P. 56(e). But, as the Advisory Committee notes also indicate, it is important to emphasize that issues of credibility only defeat summary judgment [w]here an issue of material fact cannot be resolved without observation of the demeanor of witnesses in order to evaluate their credibility. Id. (emphasis added). By logical implication from this rule, if a moving party has demonstrated the absence of a genuine issue of material fact--meaning that no reasonable jury could find in the nonmoving party's favor based on the record as a whole--concerns regarding the credibility of witnesses cannot defeat summary judgment. Instead, the nonmoving party must present affirmative evidence in order to defeat a properly supported motion for summary judgment. Liberty Lobby, 477 U.S. at 256-57, 106 S.Ct. at 2514 (citation omitted). Thus, summary judgment is particularly appropriate where, notwithstanding issues of credibility, the nonmoving party has presented no evidence or inferences that would allow a reasonable mind to rule in its favor. In this situation, it may be said that the record as a whole points in one direction and the dispute is not genuine. Matsushita, 475 U.S. at 586, 106 S.Ct. at 1355-56. 31 The record here is replete with evidence showing that Mr. Berner had in fact orally delegated the authority to amend and administer the Plan to Mr. Ehinger, even apart from Mr. Ehinger's own testimony to that effect. Mr. Sprigle, CW's other Executive Vice President, testified under oath that based on his experience in the corporation Mr. Berner had divided responsibilities among Vice Presidents and that Mr. Ehinger was delegated matters relating to human resources and plan administration. App. at 249. Similarly, Mr. Carr, the corporation's labor counsel, submitted an affidavit showing that he always understood Mr. Ehinger to command operating authority with respect to Plan amendments, based on a delegation from Mr. Berner. App. at 420. Moreover, it is undisputed that both the human resources department and welfare benefits group reported directly to Mr. Ehinger and not to Mr. Berner. App. at 109-10. It is also not disputed that Mr. Ehinger had previously amended the Plan and reported to Mr. Berner about Plan administration. App. at 207. 32 Against all these affidavits, deposition testimony, and undisputed facts, the plaintiffs, who would bear the burden of proof on this issue at trial, 5 have not set forth even the slightest quantum of evidence or reasonable factual inference to support a jury finding that Mr. Ehinger had no authority to amend Plan benefits. Nor does the record reflect any reasonable inference, whether through circumstantial evidence or otherwise, that Mr. Ehinger did not act under Mr. Berner's oral delegation of authority. While the plaintiffs argue that the absence of a written delegation creates an inference against authority, corporate law clearly allows for oral delegations of authority, see 2 Fletcher, supra, § 444, at 398 (citing Hessler, Inc. v. Farrell, 226 A.2d 708 (Del.1967)), and the plaintiffs have offered no reason why this lack of writing would seem suspicious. As a result, we conclude that plaintiffs did not raise a genuine issue as to the delegation of authority, even on an implied basis, to Mr. Ehinger regarding Plan amendments. 6 The district court's conclusion that the evidence of delegated authority to Mr. Ehinger by Mr. Berner consisted solely of Mr. Ehinger's testimony is too narrow a view, based not only on the evidence in the record, but also on the realities of modern corporations and applicable corporate law. 33