PEARSON v. VOITH PAPER ROLLS, INC. (August 25, 2011)

Voith Paper Rolls terminated Kenneth Pearson's employment after 14 years on the job. Because Pearson had a potential age discrimination claim against the company, Voith offered to negotiate a severance package with a release. Joseph Booth, Voith's Human Resources Manager and the administrator of the its Pension Plan, conducted the negotiations. At the negotiations, Booth provided Pearson with his benefit calculations and gave him a benefit election form with five options. One option was a lump-sum payment -- the other four options were different variations of payments over time. Unfortunately, the calculations were not entirely accurate. The lump-sum option was stated correctly but the other four options overstated Pearson's pension benefits. Pearson negotiated his severance package with the understanding, based on the inaccurate calculations, that he would receive a monthly pension benefit in excess of $1150. Pearson signed a severance agreement and made his pension benefit election. When the company re-checked the calculations, it caught the error and sent Pearson a new election form with the corrected numbers. The numbers on his option of choice declined from $1150 to approximately $700. Pearson brought suit against the Plan for promissory estoppel. Judge Griesbach (E.D. Wis.) granted summary judgment to the plan, concluding that the Seventh Circuit had never recognized a promissory estoppel claim against a single employer pension plan and that, even if it did, Pearson could not show a knowing misrepresentation, detrimental reliance, or economic harm. The court also concluded that any misrepresentation was made by the company, not the Plan. Pearson appeals.

In their opinion, Seventh Circuit Judges Rovner, Evans (who, due to his death, did not participate in the decision), and Williams affirmed. The Court decided not to resolve whether a promissory estoppel claim can lie against a defined benefit, funded pension plan. Instead, it resolved the appeal assuming that such a claim is viable. Estoppel will only lie in extreme circumstances, which are shown by a knowing misrepresentation in writing that the plaintiff reasonably relied on to his detriment. Here, Pearson fails to make that case. First, the record shows no evidence of the Plan’s intentional misrepresentation. Although Voith may have had an incentive to overstate the pension in order to negotiate a better severance package, the Plan had no such incentive. The Court refused to attribute the employer’s motivation to the Plan. Furthermore, if there was an incentive to overstate the numbers, there was an incentive to overstate all the numbers. The Court found it unbelievable that Booth would overstate four of the five options but communicate the fifth one accurately when he had no idea which option Pearson would elect. The best the evidence supports is negligence, which is not enough for a knowing misrepresentation. The Court also found no evidence of detrimental reliance. Detrimental reliance requires an economic harm. Pearson's contention that he would have achieved a better package had he known the real number is entirely speculative. Furthermore, he testified that he does not want to rescind his severance package and renegotiate it, further supporting the speculative nature of any economic harm.