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Southern District of New York Holds Former AIG Vice President Ineligible for Severance Benefits Because He Resigned

Tuesday, September 20, 2011

American International Group, Inc. Amended and Restated Executive Severance Plan v. Guterman, No. 10-CV-9390, 2011 BL 233831 (S.D.N.Y. Sept. 13, 2011) In a declaratory judgment action, the U.S. District Court for the Southern District of New York held that the American International Group, Inc. (AIG) Compensation and Management Resources Committee (Committee), administrator of AIG's Amended and Restated Executive Severance Plan (Plan), did not abuse its discretion in denying severance benefits to Steven Guterman, a former AIG Vice President. The Court concluded that the Committee reasonably determined that Guterman resigned by not accepting the offer of a new position and that the Plan's plain language did not include his resignation as a "Covered Termination." The Court thus granted summary judgment to the Committee and the Plan on Guterman's counterclaim and cross-claim for benefits under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq.

The Plan

The Plan provided for severance benefits for "Covered Termination[s]" of certain highly paid employees. For AIG Vice Presidents such as Guterman, the Plan excluded resignations, including alleged constructive discharges. For Senior Vice Presidents and higher executives, however, the Plan covered resignations for "Good Reason," defined as including a reduction in duties, title, or bonus opportunity.

AIG Offered Guterman a New Position, Which He Did Not Accept

In 2009, AIG restructured the segment of its business that employed Guterman, who was Senior Managing Director, Head of Global Business Development of AIG Global Asset Management Holding Corp. Guterman alleged that, on September 10, 2009, his supervisor, Hans Danielsson, and CEO Win Neuger informed Guterman that his unit was being split into three free-standing divisions and offered him the position of Head of Retail Sales, one of the new divisions. The next day, Danielsson informed him that his salary would remain at $500,000, but his incentive pay would be reduced. Guterman alleged that, on September 14, 2009, he said to Neuger and Danielsson that he thought that the Head of Retail Sales position was redundant and inconsistent with the objectives of the restructuring and that the change was a reduction-in-force that might trigger his Plan coverage. On September 15, Connie Miller, head of human resources, informed Guterman that he would be ineligible for Plan benefits if he declined the job offer. The next day, however, Miller told him that he would be eligible for Plan benefits even if he declined the position and that the elimination of his prior position constituted a termination. He claimed that he sought clarification regarding the calculation of his Plan benefits. At the end of that day, September 16, Neuger notified staff via email that Guterman had "elected to leave the firm." On September 17, Guterman emailed Neuger informing him that he had not resigned or chosen to leave. Neuger told him that he could either choose to accept the Head of Retail Sales position or resign. Miller asked him to let them know by the next day, September 18. Guterman also alleged that Miller told him that AIG wanted the press to report that it denied severance pay to a senior executive. On September 18, Guterman emailed Miller requesting until September 22 to make a decision and for information detailing his severance benefits. Miller replied that the morning of September 22 would be acceptable. On Wednesday, September 23, Miller emailed Guterman to inform him that his separation would be processed effective that day.

The Plan Denied Guterman's Benefits Claim and Sought Declaratory Relief

On September 29, Guterman emailed AIG's CEO claiming that he was entitled to Plan benefits because his former position was terminated and the job offer was not bona fide. In October, Guterman submitted a formal claim to the Plan. The Plan's Claims Administrator denied his claim on the grounds that his refusal to accept the Head of Retail Sales position constituted a resignation, not a Covered Termination under the Plan. On appeal, the Committee upheld the determination, finding that AIG had processed his separation after Guterman had resigned by refusing to accept a new position that AIG had repeatedly offered him, and that such resignation was not a Covered Termination. The Committee further concluded that the Good Reason provision was inapplicable because he was not a Senior Vice President. Guterman informed the Plan that he would proceed to arbitration concerning his severance claims. In response, the Plan sued Guterman seeking a declaratory judgment that he was ineligible for benefits. Guterman counterclaimed against the Plan for severance benefits pursuant to ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), and brought a "cross-claim" against the Committee for Plan benefits. The Plan and the Committee moved for summary judgment.

Conflict of Interest

Guterman claimed that AIG unilaterally decided to terminate him while he was in negotiations concerning whether to accept the new position or leave with severance and that the Committee's determinations that he resigned and that he was not covered under the Plan were arbitrary and capricious. The Court noted that it considered Guterman's allegations that the Committee had a structural conflict of interest as payor and claims fiduciary and that such conflict was amplified by adverse attention from news media concerning AIG's receipt of $182.3 billion in government financial support from 2008 to 2009 and resulting government and public pressure not to award massive executive severance packages.

Guterman Was Not Entitled to Benefits Pursuant to the Plan's Plain Language

The Court emphasized that the Claims Administrator and the Committee found that the Plan's plain language did not apply to resignations or constructive discharges for those in Guterman's position and that the Good Reason provision was inapplicable to him. The Court agreed that such determinations comported with the Plan's plain language. The Court further concluded that substantial evidence supported the Claims Administrator's and Committee's determinations that Guterman's termination resulted from his resignation and was therefore not a Covered Termination. The Court noted that Guterman received a deadline within which to accept the Head of Retail Sales position or resign, that he was granted an extension of such deadline, and that he did not accept the position within the timeframe allotted. The Court opined that he also had indicated to Neuger and Miller that he was not interested in it. The Court concluded that the Committee thus had a sufficient factual basis for finding that he resigned and, that even if he was trying to negotiate a better offer and seek Plan coverage, the Committee's determination was reasonable. Indeed, the Court stated that it was required to uphold the Plan administrator's reasonable interpretation even if there was more than one reasonable interpretation of the facts and Plan terms. See Celardo v. GNY Automobile Dealers Health & Welfare Trust, 318 F.3d 142, 145-46 (2d Cir. 2003). The Court further opined that the structural conflict of interest and Guterman's assertions of external pressure not to award severance payments did not change its conclusion.

Notes

It is unclear whether public pressure on AIG to avoid paying severance benefits affected Guterman's case specifically. AIG and other companies, whether or not they received government bailout funds, have been publicly pressured and rebuked for certain severance packages, bonuses, and other executive compensation perceived as excessively high. To address such concerns, President Obama appointed a special master for executive compensation to oversee such matters. Congress and the executive branch have made changes and have been seeking additional changes to the executive compensation landscape. For more information, please see, e.g., AIG Said to Cut Bonuses by $21 Million to Meet Feinberg Mandate, Bloomberg Law Reports, Executive Compensation, Vol. 3, No. 4 (Apr. 2010); Special Master for TARP Executive Compensation Issues First Rulings and Feinberg Wants All Companies to Adopt Pay-Cut Model, Bloomberg Law Reports, Executive Compensation, Vol. 2, No. 11 (Nov. 2009); Golden Parachute Tax Gross-Ups: Weathering the Storm?, Bloomberg Law Reports, Employee Benefits, Vol. 3, No. 22 (Oct. 25, 2010); What's Next from Washington Regarding Executive Compensation and Employee Benefits: Employers Should be Hearing Alarms – and Acting Now, Bloomberg Law Reports, Employee Benefits, Vol. 2, No. 5 (Mar. 9, 2009); Treasury Issues Guidance on Executive Compensation Reporting under TARP, Bloomberg Law Reports, Employee Benefits, Vol. 2, No. 2 (Jan. 26, 2009). Disclaimer This 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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