Dеnice LESSARD, Plaintiff-Appellant, v. APPLIED RISK MANAGEMENT; MMI Companies; Professional Risk Management, Defendants-Appellees.
No. 01-15648.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted April 12, 2002. Filed Oct. 3, 2002.
307 F.3d 1020
Carolyn A. Knox, San Francisco, CA, for the defendant-appellee.
Stephen C. Tedesco, San Francisco, CA, for defendant-appellee Prof. Risk Management.
Before: SCHROEDER, Chief Judge, B. FLETCHER and KOZINSKI, Circuit Judges.
Plaintiff-Appellant Lessard appeals a grant of summary judgment on hеr claim that Defendants Appellees Applied Risk Management, Inc. (ARM), its successor, Professional Risk Management (PRM), and the parent of PRM, MMI Companies, Inc. (MMI), violated section 510 of the Employee Retirement Income Security Act of 1974 (ERISA),
I. FACTUAL BACKGROUND
Denice Lessard began working as a workers’ compensation analyst for ARM in February 1996. In the course of her employment with ARM, Lessard enrolled in a self-funded employee welfare benefits plan, thе Group Benefit Plan (Plan), administered by ARM. As a Plan participant, Lessard was entitled to participate in the medical portion of the Plan. Following a work-related injury to her spine, Lessard left active employment in October 1996 on workers’ compensation leave while maintaining her coverage under the Plan. She has not returned to active employment status since May 1997, and she has not sought employment since her spinal fusiоn surgery in January 1998.
On February 1, 1999, ARM entered into an agreement with PRM, a subsidiary of MMI, for the sale of ARM‘s assets to PRM/MMI. Under the Agreement, ARM was required to continue funding the Plan through February 28, 1999, when its Plan was finally terminated. Pursuant to conditions that are the subject of this lawsuit, ARM employees were automatically transferred to active employment with PRM/MMI coincident with the execution of the sale. Transfer of the seller‘s labor force permitted the purchaser tо acquire the seller‘s assets without a break in business operations. ARM employees transferred to employment with the new company were covered under its welfare benefits plan without an interruption in coverage since they were covered under the new plan upon the termination of the ARM plan.
In the Agreement, ARM and PRM/MMI attached one condition to each employee‘s automatic transfer to emplоyment with the latter company: In order to be eligible for transfer, the employee had to be actively employed by ARM (i.e., “at work“) on the day of the sale or on non-medical, non-extended leave from active employment. However, the Agreement excepted from the condition employees who were on vacation or who had taken a personal day and thus were not “at work” on February 1. If an emplоyee was on medical, disability, workers’ compensation or other extended leave at the time of the sale, such employee would become eligible for transfer only “if and when he or she returns to active employment.”1 Section 7.2(a) of the Agreement in fact provided a separate transfer “schedule”2
PRM/MMI has stipulated that if any of these employees were to return to wоrk, that employee would be given a position with PRM including full medical benefits. Lessard understood that she could become an employee of PRM/MMI if she were released to work. However, as of September 29, 2000, Lessard still had not been released to return to work by any physician, and the prognosis for her future return to full-time employment is poor.
Lessard commenced this action in state court, bringing claims under state law and the Americans with Disabilities Act (ADA),
II. STANDARD OF REVIEW
We review the district court‘s order granting summary judgment de novo. See Clicks Billiards Inc. v. Sixshooters Inc., 251 F.3d 1252, 1257 (9th Cir. 2001). Summary judgment is appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fаct and that the moving party is entitled to a judgment as a matter of law.”
It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right tо 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....
The facts of this case are not typical since both a buyer and a seller are involved. There would be no question of ARM‘s liability if, without selling its assets to PRM/MMI, ARM had simply decided to retain the plan but terminate six of its employees absent for rеasons of injury or illness on February 1, 1999, terminate their benefits, and attach as a condition of the reinstatement of their benefits that they return to full-time, active employment. As section 510 clearly states, it is a violation of federal law for an employer to “discharge” an employee or otherwise to “discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan.”
Defendants argue that the asset sale was in itself a neutral action, and that the injury of which Lessard complains was caused by her own refusal or inability to return to work. In short, defendants deny that Lessard has put forth sufficient evidence to establish their “specific intent to interfere with [her] benefit rights.” Ritter v. Hughes Aircraft Co., 58 F.3d 454, 457 (9th Cir. 1995); Kimbro v. Atl. Richfield Co., 889 F.2d 869, 881 (9th Cir. 1989). In making this argumеnt, the defendants conflate the plaintiff‘s burden to show a causal connection between her exercise of protected rights and the employer‘s reprisal in a case involving circumstantial evidence of discrimination with her burden of proof where the evidence of discrimination is direct. Following the Second Circuit‘s decision in Dister v. Continental Group, Inc., 859 F.2d 1108, 1111-12 (2d Cir. 1988), we have adopted the McDonnell Douglas burden-shifting framework for assessing an employer‘s liаbility for discriminatory interference with a plaintiff‘s exercise of protected rights under section 510.3 Ritter, 58 F.3d at 457-58. In Dister, the Second Circuit noted that the employer‘s discriminatory intent “is seldom the subject of direct proof.” 859 F.2d at 1111. It is in such a circumstance that the burden-shifting framework of McDonnell Douglas provides the plaintiff‘s principal means of establishing liability. But we do not require a plaintiff to comply with McDonnell Douglas where the evidence of discrimination is direct. Cordova v. State Farm Ins. Cos., 124 F.3d 1145, 1148 (9th Cir. 1997) (“A plaintiff can also establish a prima facie case of disparate treatment without satisfying the McDonnell Douglas test, if she provides evidence suggesting that the ‘employment decision was based on a discriminatory criterion illegal under [Title VII].’ ” (quoting Int‘l Bhd. of Teamsters v. United States, 431 U.S. 324, 358 (1977))).
Here, Lessard‘s proof of discrimination is direct and uncontroverted. Section 7.2(a) of the Agreement facially discriminates against employees who were on disability, workers’ compensation, and any
The fact that Lessard, by returning to work, could have reinstituted her coverage under the new PRM/MMI plan is of no moment. Whether Lessard or defendants are more liable for the permanence of her predicament does not change the fact that she was placed in this predicament by the defendants’ conduct. Whether there were any other former employees of ARM who were high-rate users of Plan benefits before the sale and who were automatically transferred to work for PRM/MMI is also inconsequential, because the fact that defendants may not have discriminated against other high-rate users of Plan benefits does not excuse their intentional discrimination against Lessard. Again, Lessard‘s case does not rely upon circumstantial evidence from which a causal connection must be deduced. Absence from work due to disability or medical leave is a clear, even if incomplete, proxy for high rate of use of health benefits. The fact that the companies could have been more inclusive in their targeting of high-rate users does not make them any less liable here.
Defendants argue in the alternative that they cannot be held liable for a termination of benefits thаt occurred incident to a corporate reorganization. Our decision in West v. Greyhound Corp., 813 F.2d 951 (9th Cir. 1987), might appear to lend support to their argument. In that case, we held that ” ‘a purchaser of assets is under no obligation to hire employees of a predecessor and is free to set the initial terms of employment for these employees should it decide to hire them.’ ” Id. at 955 (quoting Bellingham Frozen Foods, Inc. v. NLRB, 626 F.2d 674, 678 (9th Cir. 1980)). West concerned a challenge by former employees оf Greyhound who, following a sale of Greyhound‘s assets that resulted in their termination, claimed that they had been discriminated against because the new employer refused to hire them subject to the plaintiffs’ condition that they be enrolled in a welfare benefits plan at least equal in value to the one under which they were previously covered in the course of their employment with Greyhound. Id. at 953. We concluded that “no violation of section [510] of ERISA is shown where the seller of a business terminates employment under the provisions of a collective bargaining agreement and the purchaser refuses to hire any of the employees because they refuse to accept a reduction of unaccrued employee benefits.” Id. at 955.
Following the Supreme Court‘s admonition in Inter-Modal Rail, 520 U.S. at 515, we do not read West to permit two or more companies incident to an asset sale to take joint action that violates the express terms of the statute. As stated above, we find that section 510 is violated when an employer selects for presumptive termination and denial of benefits specifically those employees presently on medical or disability leave. Our holding in West that the purchasing company in an asset sale has a right to set the level of benefits available to transferred employees is inapposite. Defendants here would have been permitted under West to transfer all former ARM employees to PRM/MMI subject to a reduction in benefits for all employees; but they were not permitted to exclude a select group of employees from immediate transfer because they were not “at work” on the day of transfer for health-related reasons. These employ-
We are, furthermore, unpersuaded by defendants’ argument that our holding them liable for violating section 510 contradicts the holding of the D.C. Circuit in Andes v. Ford Motor Co., 70 F.3d 1332 (D.C. Cir. 1995). In Andes, sixty former employees of Dealer Computer Services (“DCS“), a subsidiary of Ford Motor Company, were given the option of aсcepting employment with DCS‘s successor “at 100% of their Ford salaries, excluding benefits, or lose their jobs,” as a result of Ford‘s sale of DCS to Universal Computer Services. Id. at 1333. The plaintiffs argued that they should be permitted to “grow into” early retirement benefits under the Ford General Retirement Plan, even though they were no longer Ford employees after the asset sale. Id. The court construed the plaintiffs’ section 510 claim to assert that “a firm viоlates § 510 when it fails to take a step that would give a set of employees substitutes for benefits that they would have had under the company plan in the absence of the basic corporate sale.” Id. at 1339. The court disagreed that the plaintiffs’ theory properly stated grounds for liability under section 510, because it would mean that “any downsizing firm would always have to give employees the expected value of their plan benefits,” in effect amending the plan in favor of the employees. Id. Andes is inapposite to the case at bar for two reasons. First, Ford did not select which employees would lose benefits on the basis of their use of medical leave; it simply gave all former DCS employees the option of transferring to the new company under the condition that they lose pension benefits that had not yet vested under the Ford plan. Second, Lessаrd does not claim to have been discriminated against by a reduction in benefits below what she would have received under the ARM Plan. She claims a violation of the statute based on the fact that, because she was on medical leave on the date of the asset sale, she has lost all her benefits coverage while employees who were at work or merely on vacation on that day were transferred with full benefits undеr the PRM/MMI plan.
Even the Andes court recognized that, following a corporate asset sale, “determinations as to which individuals, if any, are to be retained by the selling company might implicate § 510.” Id. at 1339. We find the present case a prime example of such a circumstance, and we hold against the defendants. The only question that remains is the extent of each defendant‘s liability. Ordinarily “a corporation which purchases the assеts of another corporation does not thereby become liable for the selling corporation‘s obligations.” Harry G. Henn & John R. Alexander, Laws of Corporations 967 (3d ed. 1983). However, courts make exceptions for corporate mergers fraudulently executed to avoid the predecessor‘s liabilities, id., or for transactions where the purchaser has specified which liabilities it intends to assume, see Chaveriat v. Williams Pipe Line Co., 11 F.3d 1420, 1425 (7th Cir. 1993). On remand, the district сourt is directed to award judgment in favor of Lessard, the extent of each defendant‘s liability and the amount of damages to be determined in further proceedings.
REVERSED AND REMANDED WITH DIRECTION.
KOZINSKI, Circuit Judge, concurring:
This ploy to dump workers on long-term disability violates ERISA for the reasons cogently explained in Judge Fletcher‘s opinion, plus one more: It runs afoul of the “too clever by half” doctrine. See, e.g., Foster v. Dalton, 71 F.3d 52, 56 (1st Cir. 1995) (Selya, J.); Sisters of the Third Order of St. Francis v. SwedishAmerican Group Health Benefit Trust, 901 F.2d 1369, 1372-73 (7th Cir. 1990) (Easterbrook, J.). Parties acting in concert can‘t get away with what they couldn‘t do separately. See Maj. Op. at 1023. The lawyers who papered this transaction should have advised against it, and the clients should have heeded the warning. One hopes, perhaps in vain, that future lawyers and clients will know better.