Summary
The Ninth Circuit held that enforceability of an ERISA release must be evaluated under the totality of the circumstances, including whether the release was induced by improper fiduciary conduct. The court identified nine non-exhaustive factors and remanded for the district court to apply them. The court dismissed Microchip's cross-appeal for lack of appellate jurisdiction.
Topics
Practice areas
Questions Presented
- What legal test governs whether a release or waiver of ERISA claims was entered knowingly and voluntarily and is enforceable?
- Whether alleged improper fiduciary conduct in obtaining an ERISA release must be considered as part of the totality of the circumstances.
- Whether the district court properly certified its judgment under Federal Rule of Civil Procedure 54(b).
- Whether the Ninth Circuit had appellate jurisdiction over defendants' cross-appeal concerning the effect of the judgment against the named plaintiffs on unnamed class members.
Holdings
- Courts must subject releases and waivers of ERISA claims to special scrutiny designed to prevent potential employer or fiduciary abuse and determine whether the employee entered the release knowingly and voluntarily under the totality of the circumstances.
- The totality-of-the-circumstances inquiry should consider the following non-exhaustive factors: the employee's education and business experience; input in negotiating the settlement; clarity of the release; time for deliberation; whether the employee read and considered it; knowledge of plan rights and relevant facts; opportunity to consult an attorney; whether the consideration exceeded benefits already owed; and whether improper fiduciary conduct induced the release.
- When the district court has found a genuine issue of material fact concerning a fiduciary breach in obtaining the release, the improper-conduct factor warrants serious consideration and may weigh particularly heavily against finding that the release was knowing or voluntary.
- The district court's Rule 54(b) certification was proper because it expressly entered judgment against Schuman and Coplin and expressly found no just reason for delay.
- The Ninth Circuit lacked appellate jurisdiction over defendants' cross-appeal from the denial of summary judgment as to unnamed class members and dismissed that cross-appeal.
Key quotations
“Combining the two sets of factors, we hold that, in evaluating the totality of the circumstances to determine whether the individual entered into the release or waiver knowingly and voluntarily, courts should consider the following non-exhaustive factors:” (15)
“This scrutiny requires courts to consider whether the plaintiff entered into the release knowingly and voluntarily, and will be of particular importance where, as here, there is evidence that the defendant potentially breached its fiduciary duty by or in the course of obtaining a release of ERISA claims.” (20)
Factual background
Atmel Corporation established an ERISA-governed severance plan in anticipation of a potential change in control. After Microchip acquired Atmel, Microchip terminated Schuman and Coplin without cause and offered them substantially reduced severance benefits in exchange for releases of potential claims, informing employees that the plan had expired. Schuman and Coplin signed the releases and later brought claims alleging that Microchip breached its ERISA fiduciary duties by misinterpreting the plan and obtaining releases while employees were allegedly still entitled to plan benefits.
Procedural history
Schuman and Coplin filed a putative class action alleging ERISA violations, including breach of fiduciary duty and denial of benefits, and challenging releases they signed in exchange for reduced severance payments. The district court certified a class, granted summary judgment against the named plaintiffs under a six-factor knowing-and-voluntary test, denied summary judgment as to unnamed plaintiffs, and entered Rule 54(b) judgment. The Ninth Circuit reversed the judgment against Schuman and Coplin, remanded for application of the correct totality-of-the-circumstances test, and dismissed defendants' cross-appeal for lack of appellate jurisdiction.
Remand instructions
Remand to the district court for further proceedings and application of the non-exhaustive totality-of-the-circumstances factors, including alleged improper fiduciary conduct, to determine whether the releases were entered knowingly and voluntarily. The defendants' cross-appeal is dismissed for lack of appellate jurisdiction.