Constellation Energy Group sold several of its power plants to Raven Power Holdings LLC. Raven, through its subsidiary, Topaz Power Management, made offers of employment to two Constellation employees, contingent on the closing of the transaction. Constellation had a severance plan that was applicable in the event of a change in control. The benefit was not available to individuals who were offered a position with a “successor.” The employees applied for benefits under the severance plan and were denied benefits by the plan administrator of the Constellation plan. The administrator noted that both employees were hired by Topaz, which, because it was a subsidiary of Raven, the plan administrator deemed to be a successor under the plan terms. The employees filed suit, claiming the successor definition did not include a subsidiary of the actual purchaser. The District Court for the District of Maryland granted Constellation’s motion to dismiss finding that the interpretation employed by the plan administrator to define successor not only to mean Raven but its subsidiary Topaz was reasonable and consistent with other defined terms within the plan.
While the plan administrator’s decision in this case was upheld, severance plans should be reviewed to make certain that the common provision denying benefits where employment is continued with a purchaser clearly includes subsidiaries or other affiliates of the actual party involved in the transaction so that litigation may be avoided. Strauch v. Exelon Corp. (D. Md., 2013)