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Tracey S. Bellapianta | Bloomberg Law Nauman v. Abbott Laboratories, No. 10-CV-2272, 2012 BL 28336 (7th Cir. Feb. 3, 2012) The U.S. Court of Appeals for the Seventh Circuit held that a class of former Abbott Laboratories employees (collectively, plaintiffs) were not entitled to recover on their claims that Hospira, Inc., their current employer, and Abbott (collectively, defendants) interfered with their benefits in violation of § 510 of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1140. The court concluded that plaintiffs failed to prove that defendants acted with the specific intent to interfere with their use of pension benefits when Abbott decided to spin-off Hospira or when defendants adopted reciprocal policies not to hire former employees or retirees for two years after the spin-off. The Court also held that plaintiffs failed to prove that Abbott breached its fiduciary duty in violation of ERISA § 404, 29 U.S.C. § 1104, by deliberately misrepresenting the benefits that former Abbott employees could expect when they were transferred to Hospira.
Abbott Terminates and Transfers Plaintiffs in Hospira Spin-OffIn June 2003, Abbott, a pharmaceutical company, decided to spin-off its Hospital Products Division (HPD) into a separate company on financial advisors' advice that they would be worth more separately. Accordingly, Abbott announced in August 2003, that it was going to spin-off the HPD on April 30, 2004, to a new, freestanding company, ultimately named Hospira. In the spin-off, about 15,000 HPD employees were to be terminated from Abbott, which offered a pension plan, and transferred to Hospira. Abbott informed HPD employees transferring to Hospira that their pay and benefits would remain the same until December 31, 2004. Any nonvested pension rights that Hospira employees had in the Abbott pension plan would be eliminated. Abbott also notified employees that Hospira would determine and announce future benefits at a later date. On the basis of external advice, Abbott and Hospira agreed to certain no-hire policies to try to ensure that new Hospira employees remained at Hospira: Abbott barred HPD employees selected for Hospira to transfer within Abbott and promised not to hire any employees who left Hospira, including retirees, for two years after the spin-off. Similarly, Hospira promised not to hire any employees who left Abbott, including retirees, for two years after the spin-off. To retain certain former HPD executives at Hospira before it was known whether Hospira would similarly provide retiree health benefits, Abbott provided them with retention bonuses in amounts equivalent to their expected future medical claims. After the spin-off, Hospira declined to offer retiree medical benefits or a pension plan, but it offered a generous 401(k) plan.
District Court Rules for DefendantsIn 2004, plaintiffs filed a putative class action against defendants alleging that: (1) Abbott interfered with their benefits in violation of ERISA § 510 by spinning off HPD and instituting the no-hire policy; (2) Hospira interfered with their benefits in violation of ERISA § 510 by instituting the no-hire policy for retired Abbott employees; and (3) Abbott breached its fiduciary duty by failing to disclose the benefits that Hospira employees would receive. The court certified a class consisting of all Abbott employees who were participants in Abbott benefit plans and were terminated because of the spin-off and, as to the interference claim against Hospira, a sub-class of members who also "were eligible for retirement under the Abbott Benefit Plans on the date of their terminations." Nauman v. Abbott Laboratories, No. 04-CV-7199, 2005 BL 68050 (N.D. Ill. Dec. 30, 2005); Nauman v. Abbott Laboratories, No. 04-CV-7199, 2007 BL 242961 (N.D. Ill. Apr. 3, 2007). The district court ruled for defendants after a bench trial. Nauman v. Abbott Laboratories, No. 04-CV-7199, 2010 BL 101325 (N.D. Ill. Apr. 22, 2010), discussed in District Court Holds Abbott Laboratories and Spin-Off Hospira Did Not Interfere With Employee Benefits, Bloomberg Law Reports® - Employee Benefits, Vol. 3, No. 10 (May 10, 2010). Plaintiffs appealed.
Plaintiffs Failed to Prove that Defendants Violated ERISA § 510As the Seventh Circuit stated, ERISA § 510 makes it "unlawful for any person" to terminate or otherwise discriminate against an employee benefit plan participant or beneficiary "for exercising any right to which he is entitled under the provisions of an employee benefit plan . . . or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan." 29 U.S.C. § 1140. The court explained that ERISA § 510 plaintiffs "must demonstrate that their employers [acted] with the specific intent of preventing or retaliating for the use of benefits." Lindemann v. Mobil Oil Corp., 141 F.3d 290, 295 (7th Cir. 1998). Plaintiffs claimed that Abbott sought to reduce its pension liability, so it spun off HPD with the knowledge that Hospira would not provide the same type of plan and that Abbott's no-hire policy would make it impossible for transferred HPD employees to return to Abbott and retain their pension rights. The court emphasized, however, that the district judge found that "employee benefits simply had no part of [the decision to spin HPD]." Although plaintiffs did not directly challenge that finding on appeal, the court concluded that it was not clearly erroneous. The court noted that the district judge made many specific findings that supported its conclusion, such as that every witness at trial testified that the decision to spin-off HPD "had nothing to do with employee benefits." Plaintiffs also contended that Hospira's no-hire policy was intended to interfere with their benefits by deterring retirement-eligible HPD employees from retiring from Abbott to start receiving pension benefits because they could not work at Hospira thereafter. The court concluded that the district judge did not clearly err in finding that the no-hire policy was instituted to foster post-spin-off stability and productivity at both companies, rather than intent to interfere with benefits. The Seventh Circuit noted that, on appeal, plaintiffs asserted that defendants discriminated against them by colluding to prevent their employment at Hospira. As the court stated, defendants instituted the no-hire policies to avoid permitting employees to collect a pension from Abbott while collecting a salary from Hospira because they believed that such double payment might result in productivity issues. Plaintiffs contended that such facts implied discrimination on the basis of a stereotype that retirees are lazy. The court concluded that plaintiffs could not pursue this unusual discriminatory failure-to-hire argument because they did not retire and were hired by Hospira. To the extent that plaintiffs claimed that defendants used the threat of discrimination to deter older HPD employees from retiring, the court concluded that the argument was doomed by the district judge's finding that the no-hire policy was not motivated by an intent to interfere with benefits. The court determined that plaintiffs' claims thus failed because ERISA § 510 requires, but plaintiffs failed to prove, specific intent to interfere with benefits. See Lindemann, 141 F.3d at 295.
Plaintiffs Failed to Show that Abbott Violated ERISA § 404Plaintiffs asserted that Abbott participated in creating the Hospira benefits plan before the spin-off and owed a fiduciary duty to disclose Hospira's plan to employees. Plaintiffs further alleged that Abbott breached such duty by misleading employees into believing that the Hospira plan would offer pension and retiree health benefits as did the Abbott plan. The court concluded that the district court made factual findings fatal to plaintiffs' claims, including that: (1) Abbott informed employees pre-spin-off that the new company would develop its own employee benefits plan which might differ substantially from Abbott's plan; and (2) Hospira did in fact make its own employee benefits plan decisions after the spin-off. The court agreed with the district court that Abbott thus owed plaintiffs no fiduciary duty as to the Hospira plan. The court further concluded that, even if Abbott did owe a fiduciary duty, Abbott did not breach it because its representations regarding Hospira's benefits were truthful. The court rejected plaintiffs' assertion that Abbott's decision to provide retention bonuses to HPD executives equal to their retiree medical benefits, which Hospira later decided not to offer, implied that Abbott knew details about the Hospira plan pre-spin-off.
Further InformationThe court noted that plaintiffs disputed the district court's conclusion that ERISA § 510 requires "but-for causation" pursuant to Gross v. FBL Financial Services, Inc., 129 S. Ct. 2343 (2009), a case which contained claims brought pursuant to the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq.Although the Seventh Circuit declined to reach the issue, it opined that "but-for causation is probably required" because ERISA does not state otherwise. See Fairley v. Andrews, 578 F.3d 518, 525-26 (7th Cir. 2009). Although "specific intent" is a high standard, both the instant decision and the bench trial decision illustrate that it can be very helpful to gather and present substantial documentary evidence and testimony to explain complicated ERISA plan decision-making processes. As a result of this, the district court was able to make specific factual findings that defeated plaintiffs' claims. DisclaimerThis document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.
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