Common use of Rep Clause in Contracts

Rep. NO. 93-807, at 4726 (1974) (“A vested benefit is not to be forfeited because the employee later went to work for a competitor, or in some other way was considered ‘disloyal’ to the employer.”). To that end, the statute expressly provides: “A right to an accrued benefit derived from employer contributions shall not be treated 18In general, the term “vested” means “[having the character or given the rights of absolute ownership; not contingent; not subject to be defeated by a condition precedent.” A “vested” right is one that is “more than a mere expectation based on an anticipation of the continuance of an existing law; it must have become a title, legal or equitable, to the present or future enforcement of a demand, or a legal exemption from the demand of another.” BLACK’S LAW DICTIONARY 1401 (5th ed. 1979). as forfeitable solely because plan amendments may be given retroactive application as provided in section 1082(d)(2).”19 29 U.S.C. § 1053(a)(3)(C). Health and life insurance benefits (“welfare benefits”) are treated slightly differently under ERISA. Unlike pension benefits, welfare benefits are not required to vest unless the plan contract so provides. See 29 U.S.C. § 1051(1); ▇▇▇▇▇▇▇-▇▇▇▇▇▇ Corp. ▇. ▇▇▇▇▇▇▇▇▇▇▇▇▇, 514 U.S. 73, 78 (1995); ▇▇▇▇▇ v. Fiatallis N. Am., Inc., 401 F.3d 779, 783 (7th Cir. 2005). Welfare benefits may, accordingly, vest when employers negotiate privately with their employees. See ▇▇▇▇▇▇▇ v. CNA Fin. Corp., 375 F.3d 623, 632 (7th Cir. 2004) (holding that “if ERISA welfare benefits vest at all, they do so under the terms of a particular contract” (citation omitted)). Through the written instrument required by 29 U.S.C. § 1102(a)(1), “the parties are free to subject such welfare benefits to vesting requirements not provided by ERISA, or they may reserve the power to terminate such plans . . . by private design, as set out in plan documents.” ▇▇▇▇ ▇. Chromalloy Am. Corp., 877 F.2d 598, 603 (7th Cir. 1989) (citing ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Farm Equip. Co., 788 F.2d 1186, 1193 (6th Cir. 1986)); see also ▇▇▇▇▇▇▇ v. Wheelabrator Corp., 993 F.2d 603, 605 (7th Cir. 1993); ▇▇▇▇ v. United Dominion Indus., Inc., 951 F.2d 806, 814 (7th Cir. 1992). Of particular importance in these circumstances are the terms of the ERISA plan; “because vested benefits are forever unchangeable, there is a presumption against vesting if the plan language is silent.” ▇▇▇▇▇ ▇. ▇▇▇▇▇ Co., 622 F.3d 730, 735 (7th Cir. 2010). But this presumption applies only when the plan’s terms are ambiguous—i.e., “if all the court has to go on is silence”—and drops out when objective evidence manifests the parties’ wishes. Rossetto ▇. ▇▇▇▇▇ Brewing Co., 217 F.3d 539, 544 (7th Cir. 2000). The Seventh Circuit “ha[s] also rejected the position that [plan] documents 19Section 1082(d)(2) of ERISA deals with retroactive plan amendments that are inapposite to the set of facts underlying the instant lawsuit. must use the word ‘vest’ . . . or . . . must ‘state unequivocally’ that the employer is creating rights that will not expire.” ▇▇▇▇▇, 401 F.3d at 787 (citing ▇▇▇▇▇▇▇, 993 F.2d at 607). Thus, where, as here, the ERISA plan makes these benefits contractually nonforfeitable, the Court is free to conclude that the benefits in question have vested.20 Because we do hold that ▇▇. ▇▇▇▇▇’▇ ERISA-governed benefits are vested and nonforfeitable, we momentarily turn our attention to the Supreme Court’s holding in Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 511 (1981), which we find especially useful as our analysis proceeds. In Alessi, while continuing its efforts to flesh out ▇▇▇▇▇’s “comprehensive and reticulated” provisions, the Court touched on the scope of vested benefits as follows: [W]hat defines the content of the benefit that, once vested, cannot be forfeited? ▇▇▇▇▇ leaves this question largely to the private parties creating the plan. That the private parties, not the Government, control the level of benefits is clear from the statutory language defining nonforfeitable rights as well as from other portions of ERISA. ERISA defines a “nonforfeitable” pension benefit or right as “a claim obtained by a participant or his beneficiary to that part of an immediate or deferred benefit under a pension plan which arises from the participant’s service, which is unconditional, and which is legally enforceable against the plan.” ▇▇▇▇▇▇, 451 U.S. at 511-12 (quoting 29 U.S.C. § 1002(19)). This principle from ▇▇▇▇▇▇ still guides courts confronting the challenge of resolving ERISA problems. For example, the Seventh Circuit followed the Alessi Court’s guidance recently in ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ & ▇▇▇▇ Pension Plan, 497 F.3d 710 (7th Cir. 2007), when it attempted to define various benefits under retirees’ ERISA plan: So, what is an “accrued benefit” under ERISA? [Here, t]he Plan urges us to interpret “accrued benefit” to mean whatever the particular plan document says it means. Indeed, it finds support for this interpretation in ERISA § 2(23)(A) ERISA itself directs us to look at the individual plan’s terms in order to discern the accrued benefit [and the employee] acknowledges that we must look to the individual plan document to determine what the “accrued benefit” is in any given case. 20“That nonforfeitable in the context of ERISA is synonymous with vested is borne out in other statutes.” United States ▇. ▇▇▇▇▇▇▇▇, 159 F.3d 300, 304 (7th Cir. 1998). ▇▇▇▇▇▇▇▇, 497 F.3d at 712-13 (citing 29 U.S.C. § 1002(23)(A); Alessi, 451 U.S. at 511; Bd. of Trs. of Sheet Metal Workers’ Nat’l Pension Fund v. Comm’r, 318 F.3d 599, 602-03 (4th Cir. 2003)) (emphases added). Given ▇▇▇▇▇▇’▇ continued vitality as the law of the land on this issue, we conclude that Paragraph 12.7 means exactly what it says: all amounts payable to ▇▇. ▇▇▇▇▇ “hereunder,” which is to say “pursuant to the ERISA plan,” comprise ▇▇. ▇▇▇▇▇’▇ “accrued benefit[s].” At this late stage of this lawsuit, we agree with ▇▇. ▇▇▇▇▇’▇ pronouncement that “[t]he Company is in a tight spot.” Def.’s Resp. at 9. Indeed, the Company’s desire to wriggle out of what it views as an undesirable result is obvious in light of its multifaceted attack on contract language drafted by its own counsel. The common thread among these arguments is an appeal to the Court’s sense of fairness and equity. E.g., Pl.’s Post-Trial Br. at 22 (arguing that ▇▇. ▇▇▇▇▇’▇ benefits “are the sort of mistaken payments that equity demands be refunded”); Pl.’s Resp. at 13 (asserting that “equity does not permit a defrauder to receive or keep” benefits); id. at 17 (opining that “▇▇. ▇▇▇▇▇’▇ misconduct justifies the Court’s allowing [equitable] relief.”). To the Company, there is no true dilemma before the Court—▇▇. ▇▇▇▇▇ behaved in a manner unbecoming of a CEO; ergo, his benefits need no longer be deemed “amounts payable by the Company” under his Employment Agreement.21 The crux of the Company’s position is that, 21We note the Company’s reliance on the following excerpt from our order denying summary judgment: “These damages were the result of non-ERISA compensation and benefits that ▇▇. ▇▇▇▇▇ erroneously or wrongfully caused the Company to pay him and arguably far exceeded any entitlement to him under the Agreement.” Docket No. 136 at 14-15. Now, fully armed with all pertinent undisputed facts, we instruct the Company that the phrase “these damages” refers only to damages incurred in ▇▇. ▇▇▇▇▇’▇ breach of the Employment Agreement and fraud. “These damages” must not be construed to mean his base salary and bonus payments, “[s]imply put, the Company seeks to administer the plan exactly as written—the way it would have administered the plan but for ▇▇. ▇▇▇▇▇’▇ fraud.” Id. at 4. Unfortunately (at least from the Company’s perspective), administering the plan “exactly as written” and administering it the way the Company purportedly “would have administered the plan” in alternate circumstances are mutually exclusive courses of action. The Seventh Circuit has unmistakably adopted the same view in similar situations, holding that a district court’s task is “to apply the [p]lan’s actual language rather than the provision that [the employee] wishes the [p]lan had contained. A court can no more rewrite a severance-benefits plan to be more favorable to employees than it could direct [a company] to give its executives eight rather than four weeks of vacation.” ▇▇▇▇▇▇▇▇ v. Interpub. Severance Pay Plan, 523 F.3d 819, 822 (7th Cir. 2008). Moreover, we cannot accommodate the Company’s recurrent entreaties to “enforce” Paragraph 12.7 by proposing some nebulous “equity at large.” ERISA § 502(a)(3) “does not . . . authorize ‘appropriate equitable relief’ at large, but only ‘appropriate equitable relief’ for the purpose of ‘redress[ing any] violations or ... enforc[ing] any provisions’ of ERISA or an ERISA plan.” ▇▇▇▇▇▇ Trust & Sav. Bank ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, Inc., 530 U.S. 238, 246 (2000) (quoting Peacock ▇. ▇▇▇▇▇▇, 516 U.S. 349, 353 (1996)). The equitable relief contemplated by this portion of the statute is designed to “redress[ ] the ‘act or practice’” which violates ERISA. Id. (citing 29 U.S.C. § 1132(a)(3)). Here, the “act or practice” is the Company’s refusal to pay ▇▇. ▇▇▇▇▇’▇ ERISA-governed benefits—even though, as the Company proved by a preponderance of the evidence, ▇▇. ▇▇▇▇▇ breached his contract and committed actual and constructive fraud against his former employer. It is not in any way unfair to insist that the his Salary Continuation Benefit, his lifetime medical benefits, his various forms of insurance coverage, the premiums due on his life insurance policy, or his grossed-up bonus. Company now live with the results of its own contract drafting and honor its payment obligations, despite the unsavoriness of the underlying circumstances. Along these lines, although ▇▇. ▇▇▇▇▇’▇ invocation of the term “hell or high water” is not precisely on point from a purely legal standpoint,22 his word choice is appropriate. Undisputed evidence presented at trial revealed that the Company’s Board was well aware of ▇▇. ▇▇▇▇▇’▇ alleged misconduct at the time it was occurring and prior to his termination, yet opted to terminate his employment “without cause.” At that point, the manner of ▇▇. ▇▇▇▇▇’▇ termination became irreversible. By its own terms, the Employment Agreement required several conditions precedent before terminating ▇▇. ▇▇▇▇▇ for cause,23 none of which were found or even considered germane by the Company with reference to ▇▇. ▇▇▇▇▇’▇ termination; further, as we have previously ruled, ▇▇. ▇▇▇▇▇ in no way induced the Company to elect the “without cause” option. Like it or not, the Company must now live with the 22The Court admits to having harbored curiosity about this term since the inception of its use in this lawsuit. Our research on this subject indicates that courts traditionally encounter “hell or high water” clauses in various finance leases or acquisition contracts. As in the matter before us, these clauses require one party to make payments regardless of any circumstances, even when that party suffers a total loss. Seventh Circuit case law is sparse in this regard, but we find persuasive decisions from courts in the Second, Fourth, Eighth, and Tenth Circuits deeming such provisions logical and supported by cogent public policy concerns. See ▇▇▇▇▇ Fargo Bank, N.A.