Citigroup Executive Properly Denied Benefits

Citigroup properly exercised its discretion when it denied a terminated executive the right to exercise his unvested shares of stock, cancelled his unvested stock options, and denied benefits to him under its severance, deferred compensation, and supplemental executive retirement plans, rules Judge Naomi Buckwald in granting Citigroup's motion for summary judgment. Welland v. Citigroup, Inc., 2003 WL 22973574 (S.D.N.Y. 12/17/03)

Stanley Welland was employed by Citigroup as a senior vice president and division executive of Citigroup Global Technology. In this capacity, Welland negotiated with vendors and invited bids on contracts for Citigroup. The firm maintained policies regarding the acceptance of gifts or gratuities from vendors. Welland attended a number of events and gatherings, such as the 1999 Super Bowl and 1997 Indianapolis 500, paid for by vendors in violation of Citigroup's policies.

Improper Gratuities

Citigroup's internal investigative division received an anonymous letter accusing Welland of accepting improper gratuities from vendors. Welland was interviewed and the interview was audiotaped. In the interview, Welland admitted to attending vendor-sponsored events and to failing to seek pre-approval for such activities. The next day, Welland changed his story and stated that his supervisor had “cleared” these activities. Welland's supervisor denied that she ever gave him permission for such activities, and Welland was terminated for cause soon thereafter.

Termination Requirements

As the termination was for cause, Citigroup required that Welland forfeit his shares of unvested restricted stock that had been awarded to him as well as unvested stock options. Citigroup also denied Welland any benefits under its supplemental executive compensation plan (SERP), a bonus for his last year of employment, and benefits under the company's deferred compensation plan. In each case, Citigroup's policies and plans provided that benefits are forfeited in the case of a termination for cause or as the result of a violation of company policy.

The Suit

Welland sued for age discrimination and breach of contract. The court dismissed the age claim, finding that Citigroup had a legitimate business reason to terminate his employment and he had failed to produce evidence of pretext. In doing so, the court rejected Welland's claim of “selective enforcement” of Citigroup's policy. The court noted that under Second Circuit law, a plaintiff alleging selective enforcement must show both that the employer's acts were irrational and wholly arbitrary ,and that the disparate treatment was intentional. In this case, Welland pointed to as comparables seven other executives who accepted vendor trips on one or two occasions each. The court noted, however, that Welland admitted to accepting at least 19 such paid trips and thus failed to support his claim of selective enforcement.

Welland's breach of contract claims were addressed to the denial of benefits by Citigroup. The court ruled that Citigroup's severance plan was governed by ERISA as, among other things, Citigroup was required to exercise its discretion in administering the plan. The court then dismissed Welland's severance pay claim on the ground that Welland failed to exhaust his remedies under Citigroup's plan.

The remaining breach of contract claims, the court ruled, were governed by New York common law. As a guiding principle the court ruled that under New York law “an employer's decision regarding non-ERISA benefits may be set aside only where it is made in bad faith, was arbitrary or was the result of fraud.” The court found that Citigroup's decision to terminate Welland's employment for violating company policy was not arbitrary or capricious. The court emphasized that each of the company's plans provided that the plan administrator was vested with the authority to interpret its terms. The court also rejected Welland's claim that the plan administrators breached the terms of the agreements because they did not exercise their discretion to override the forfeiture decision. The court relied on established New York law that provides that an employer's failure to take discretionary action under an agreement cannot constitute a breach of that agreement.

Finally, Welland alleged that he was wrongfully denied his SERP benefits and deferred compensation because the question of just cause was for the finder of fact. The court also rejected this claim, holding that courts in New York “apply a very narrow scope of review to an employer's decision to terminate an employee 'for cause' under an agreement where that term is not defined, reviewing the employer's decision only to determine if it was arbitrary and capricious.” Here, the court reasoned, the plan administrators had a reasonable basis for finding cause for the termination and to withhold benefits and granted summary judgment on these claims as well.

Citigroup properly exercised its discretion when it denied a terminated executive the right to exercise his unvested shares of stock, cancelled his unvested stock options, and denied benefits to him under its severance, deferred compensation, and supplemental executive retirement plans, rules Judge Naomi Buckwald in granting Citigroup's motion for summary judgment. Welland v. Citigroup, Inc., 2003 WL 22973574 (S.D.N.Y. 12/17/03)

Stanley Welland was employed by Citigroup as a senior vice president and division executive of Citigroup Global Technology. In this capacity, Welland negotiated with vendors and invited bids on contracts for Citigroup. The firm maintained policies regarding the acceptance of gifts or gratuities from vendors. Welland attended a number of events and gatherings, such as the 1999 Super Bowl and 1997 Indianapolis 500, paid for by vendors in violation of Citigroup's policies.

Improper Gratuities

Citigroup's internal investigative division received an anonymous letter accusing Welland of accepting improper gratuities from vendors. Welland was interviewed and the interview was audiotaped. In the interview, Welland admitted to attending vendor-sponsored events and to failing to seek pre-approval for such activities. The next day, Welland changed his story and stated that his supervisor had “cleared” these activities. Welland's supervisor denied that she ever gave him permission for such activities, and Welland was terminated for cause soon thereafter.

Termination Requirements

As the termination was for cause, Citigroup required that Welland forfeit his shares of unvested restricted stock that had been awarded to him as well as unvested stock options. Citigroup also denied Welland any benefits under its supplemental executive compensation plan (SERP), a bonus for his last year of employment, and benefits under the company's deferred compensation plan. In each case, Citigroup's policies and plans provided that benefits are forfeited in the case of a termination for cause or as the result of a violation of company policy.

The Suit

Welland sued for age discrimination and breach of contract. The court dismissed the age claim, finding that Citigroup had a legitimate business reason to terminate his employment and he had failed to produce evidence of pretext. In doing so, the court rejected Welland's claim of “selective enforcement” of Citigroup's policy. The court noted that under Second Circuit law, a plaintiff alleging selective enforcement must show both that the employer's acts were irrational and wholly arbitrary ,and that the disparate treatment was intentional. In this case, Welland pointed to as comparables seven other executives who accepted vendor trips on one or two occasions each. The court noted, however, that Welland admitted to accepting at least 19 such paid trips and thus failed to support his claim of selective enforcement.

Welland's breach of contract claims were addressed to the denial of benefits by Citigroup. The court ruled that Citigroup's severance plan was governed by ERISA as, among other things, Citigroup was required to exercise its discretion in administering the plan. The court then dismissed Welland's severance pay claim on the ground that Welland failed to exhaust his remedies under Citigroup's plan.

The remaining breach of contract claims, the court ruled, were governed by New York common law. As a guiding principle the court ruled that under New York law “an employer's decision regarding non-ERISA benefits may be set aside only where it is made in bad faith, was arbitrary or was the result of fraud.” The court found that Citigroup's decision to terminate Welland's employment for violating company policy was not arbitrary or capricious. The court emphasized that each of the company's plans provided that the plan administrator was vested with the authority to interpret its terms. The court also rejected Welland's claim that the plan administrators breached the terms of the agreements because they did not exercise their discretion to override the forfeiture decision. The court relied on established New York law that provides that an employer's failure to take discretionary action under an agreement cannot constitute a breach of that agreement.

Finally, Welland alleged that he was wrongfully denied his SERP benefits and deferred compensation because the question of just cause was for the finder of fact. The court also rejected this claim, holding that courts in New York “apply a very narrow scope of review to an employer's decision to terminate an employee 'for cause' under an agreement where that term is not defined, reviewing the employer's decision only to determine if it was arbitrary and capricious.” Here, the court reasoned, the plan administrators had a reasonable basis for finding cause for the termination and to withhold benefits and granted summary judgment on these claims as well.