Court Finds Employer May Have Misrepresented Benefits Following Sale

December 5, 2005 ( - The US District Court for the Western District of North Carolina denied summary judgment in favor of an employer accused of a breach of fiduciary duties under the Employee Retirement Income Security Act (ERISA) for withholding details of the company's sale.

When P.H. Glatfelter Co. was sold to RFS Ecusta Inc., RFS Ecusta assumed responsibility for paying retiree benefits to former Glatfelter employees.   Glatfelter agreed to provide the benefits if RFS Ecusta became unable to do so.   However, that agreement was contingent on RFS’ ability to reimburse Glatfelter for the cost of the benefits.

Employees of Glatfelter were not informed of this provision of the sale agreement.   When RFS declared bankruptcy, former employees of Glatfelter elected to receive benefits from Glatfelter’s retiree health plan.   However, since RFS was unable to reimburse Glatfelter, Glatfelter notified employees that the plan would be terminated.

Earlier the court dismissed the claim that Glatfelter violated ERISA by terminating the retiree health plan, finding that Glatfelter had reserved the right to terminate the plan in the sale agreement.   The court did not dismiss the fiduciary breach claim.

The court denied Glatfelter’s motion for summary judgment rejecting its argument that it had no obligation to tell its employees of the reimbursement arrangement with RFS because the arrangement was not actually contained in the retiree health plan.   The court also rejected Glatfelter’s argument that it had no duty to disclose the reimbursement arrangement to its employees because it had the right under the plan to terminate retiree benefits at any time.

“While it is true that Defendant had the right to terminate benefits, it did not have the right as an ERISA fiduciary to make material misrepresentations to beneficiaries, or provide incomplete, inconsistent, or contradictory disclosures that misinformed beneficiaries,” the court said.   The court decided that a reasonable jury could find that not informing employees of the reimbursement provision could mislead them in their benefits decisions.

The case is Hensley v. P.H. Glatfelter Co., W.D.N.C., No. 1:04CV200, 11/28/05.