The 2nd U.S. Circuit Court of Appeals, in a 2-1 decision, held that U.S. District Judge Samuel Conti of the U.S. District Court for the Southern District of New York was right when he ruled that any misrepresentations made to plaintiff Diana Bell about her ability to exercise her stock options were only in the realm of the non-ERISA benefits program. Bell had argued the stock information given to her dealt with an ERISA plan.
Circuit Judge Ralph K. Winter, writing for the majority, argued that the appellate court would be going against Congressional intent in passing ERISA by forcing sponsors to assume fiduciary duty responsibilities for non-ERISA plans. “In essence, Bell seeks to extend the ERISA fiduciary duty to unintentional misstatements regarding collateral, non-ERISA plan consequences of a retirement decision,” Winter wrote. “The language of the statute weighs against such an extension.”
In particular, Winter contended, doing so would jack up the employer cost of running benefit programs – precisely what lawmakers were trying to avoid with the ERISA statute.
“The extension of liability to all facts material to retirement decisions would expand the potential costs of ERISA plans, thereby reducing the number created and the benefits provided in those that are created,” Winter wrote. “Extending ERISA liability to unintentional misstatements regarding non-plan consequences of retirement decisions would run counter to these goals.”
According to the appellate ruling, Bell left Pfizer on May 31, 2003, after asking Pfizer HR personnel about her eligibility to retire under the Pfizer Retirement Annuity Plan, including the treatment of her stock options if she left the company. She had amassed the stock options under Pfizer’s Stock and Incentive Plan (SIP), a non-ERISA plan.
Bell contended in her subsequent lawsuit that she had gotten assurances that her stock options would remain exercisable for the remainder of the grant period if she left Pfizer. But, in mid August 2003, according to the ruling, Bell was informed by Pfizer that certain of her stock options had been cancelled and that others would be cancelled on September 1, 2003.
The ruling said that according to the terms of the SIP, an employee’s stock options terminated when the employee leaves the company “for any reason including retirement.” The only instance where there was not true was when the employee had retired or is eligible for retirement under specific sections of the Pfizer retirement program, the ruling said. Bell was not eligible for those provisions.
The 2nd Circuit ruling is here.
« CalPERS Former Board Member Refuses to Talk about Alleged Bribes