Peter Schuman v. Microchip Technology Incorporated

Background

The plaintiffs were a certified class of 220 former employees of Atmel Corporation. Atmel created the U.S. Severance Guarantee Benefit Program in July 2015. The plan provided severance and related benefits if specified conditions occurred, including an initial triggering event before November 1, 2015, a change of control, and termination without cause within 18 months of the relevant agreement.

Atmel first entered an agreement under which Dialog Semiconductor would acquire it, but later entered a new agreement with Microchip Technology in January 2016. The merger closed in April 2016. After the merger, Microchip stated that the Atmel plan had expired and would not be honored. It offered terminated employees reduced severance benefits in exchange for signing releases. Of the 220 class members, 215 signed releases.

The operative claims were for breach of fiduciary duty under the Employee Retirement Income Security Act (ERISA), denial of plan benefits, and related equitable relief. The plaintiffs sought, among other things, an injunction preventing enforcement of the releases. The defendants moved for summary judgment, which asks whether the undisputed evidence requires judgment as a matter of law.

Releases

The defendants argued that the releases barred the plaintiffs’ claims. The plaintiffs argued that the defendants had waived reliance on the releases because the plan administrator had denied their benefit claims based on the plan’s alleged expiration rather than the releases.

The court rejected the waiver argument. It held that the defendants could assert the releases as an affirmative defense even though the plan administrator had not relied on them during the administrative process. The court distinguished between the merits of a claim for ERISA benefits and the separate question whether a plaintiff may bring an ERISA action in court. The court found the releases’ language broad enough to cover the plaintiffs’ claims if the releases were enforceable.

The court applied a heightened-scrutiny standard to determine whether the releases were knowing and voluntary. The court considered the totality of the circumstances, including the plaintiffs’ education and sophistication, the parties’ roles in creating the release, the clarity of the agreement, the time available for review, access to independent advice, and the consideration received.

As to named plaintiffs Peter Schuman and William Coplin, the court found the releases were knowingly and voluntarily entered. The record showed that they understood the releases were intended to resolve the dispute over their rights under the Atmel plan. They had time to review the offers, and Schuman consulted a lawyer. They also received reduced severance payments and other benefits in exchange for signing. The court therefore granted summary judgment as to the two named plaintiffs.

The court did not decide whether the releases signed by the other class members were enforceable. It found insufficient evidence to apply the six-factor analysis to those individuals. Because that analysis required individualized consideration, the court ordered the parties to show cause why the class should or should not be decertified.

Breach of Fiduciary Duty and Equitable Relief

The plaintiffs alleged that the defendants violated ERISA fiduciary duties by failing to provide complete information, failing to investigate the intended meaning of the plan, and offering reduced benefits in exchange for releases. The defendants argued that their interpretation of the plan was reasonable and therefore could not support a fiduciary-duty claim.

The court denied summary judgment on the alleged breach. It explained that an earlier appellate decision in a related proceeding had found the plan language ambiguous and had ruled that discovery was warranted; that decision did not definitively resolve the plan’s meaning or decide that a fiduciary-duty claim based on an alleged misinterpretation necessarily failed. The court found a material factual dispute about what the defendants knew or should have known concerning the plan’s meaning and intended interpretation.

The plaintiffs limited their requested equitable relief to an injunction preventing enforcement of the releases. The defendants argued that the request was barred by the earlier related proceeding. The court rejected that argument because the defendants had not adequately shown the required identity or legal relationship between the parties, and because the plaintiffs in this case largely differed from the plaintiffs in the earlier proceeding in that most of them had signed releases.

The court did not decide whether the requested injunction would ultimately be available or adequately supported. It denied summary judgment on this basis, while noting that the defendants could raise the issue again if any non-named plaintiffs who signed releases continued to seek that relief after the class-certification proceedings.

Denial-of-Benefits Claim

The defendants preserved an argument that summary judgment should be entered on the plaintiffs’ ERISA claim for benefits. The court continued to find that material factual disputes prevented summary judgment and denied the motion on this basis.

Disposition

The court granted the motion for summary judgment as to the two named plaintiffs, Peter Schuman and William Coplin, but otherwise denied the motion. It also ordered simultaneous briefing on whether the class should or should not be decertified because individualized inquiry was necessary to assess whether the releases were knowingly and voluntarily obtained.