United States District Court, D. New Mexico
MEMORANDUM OPINION AND ORDER DENYING DEFENDANT'S
MOTION FOR SUMMARY JUDGMENT
MATTER comes before the Court upon Defendant's Motion for
Summary Judgment, filed February 1, 2018 (Doc.
26). Having reviewed the parties' pleadings and
the applicable law, the Court finds that Defendant's
motion is not well-taken and, therefore, is denied.
Catherine Zaharko worked for San Juan Regional Medical Center
(“Medical Center”) with her last position as
Vice-President of Marketing and Communications for about
twelve years. Plaintiff Douglas Frary worked for Defendant
for almost thirty-three years, with his last position as
Vice-President of Professional and Support Services. Both
plaintiffs seek payment of retirement benefits under the
Employee Retirement Income Security Act of 1974, 29 U.S.C.
§1001, et seq. (“ERISA”).
Plaintiffs were employed at the Medical Center pursuant to
identical other-than-salary-amount employment agreements that
provided for an employment benefit of severance pay equal to
two years of their respective salaries. The relevant clauses
of these employment agreements stated as follows:
If Employer elects to terminate this Agreement, Employee
shall be entitled to continued compensation at the most
recent annual base salary rate but excluding bonus and any
incentive pay for the notice period set forth above, and for
the following additional months depending on the length of
service during the Contract Period. Contract period shall
mean continuous employment from July 1, 2003; Employee hire
date; or the Employee appointment date, whichever is latest.
. . . During the third 12 months of Contract Period and
thereafter = twenty-four (24 months).
Ex. C. (“Section IX”). Each Plaintiff was
entitled to this additional payment for twenty-four months
based on the time they had been employed by the Medical
Center at all times relevant to this Response.
Plaintiff was not entitled to this additional payment of
twenty-four months of base salary if he or she voluntarily
chose to terminate their agreement. The severance package was
available only if the Employer terminated the agreement.
These employment agreements were for a term certain but
renewed automatically each year unless notice of termination
of the agreement was sent per the terms of Section IX of the
employment agreement (“agreement”). In their
declaration, Plaintiffs submit that these employment
agreements originated as a means to retain a select group of
management or highly compensated employees.
Executive Compensation Policy
August 2017, Plaintiff Zaharko and Plaintiff Frary were each
informed by the Jeff Egbert, the interim chief executive
officer ("CEO") of the Medical Center that the
employment of all executives was being transitioned to an
employment at-will arrangement subject to an executive
compensation policy, which necessitated the termination of
the employment agreements for Mr. Zaharko and Mr. Frary. Upon
these agreements being terminated, plaintiffs' employment
would continue if they agreed to be employed under a new
policy affecting senior management that reduced their
severance benefit to one year and made them employees at-will
without a written employment agreement. Agreeing to terminate
their employment agreement and be subject to only the new
policy affecting senior management would cost Catherine
Zaharko $179, 725.20, and Doug Frary $218, 400.00 in
severance money benefits.
Jeff Egbert began work at the Medical Center as the interim
CEO before Jeff Bourgeois became CEO, he believed these
high-level management employment agreements were too
“excessive” or lucrative in the amount of
severance offered and that they were too
“one-sided” in favor of the employee with regard
to an employee's obligations to assist the Medical
Center. Mr. Egbert recommended, and the Medical
Center Board approved, a new executive compensation policy
that would terminate each of these agreements and make each
of those management employees (including Plaintiffs) choose
to become employees at-will, and to reduce the severance
payable from two years to one year only.
choice was unilaterally imposed on each employee by the
Medical Center: quit, and receive the benefits of their
existing contracts or continue under the new policy as
employees at-will with reduced job security and reduced
severance benefits. However, neither Plaintiff had an
expectation or belief that the Medical Center would terminate
employment as an employee under the new policy. Faced with the
loss of their secure employment agreements guaranteeing their
employment absent notice and/or a stated reason for
termination, and the loss of one year's severance going
forward, both refused to agree sign a document memorializing
the mutual termination of the employment agreement and
transition to at-will employment. Ms. Zaharko notified Mr.
Egbert, the interim CEO of the Medical Center of her decision
to resign via email on August 15, 2017.
Medical Center unilaterally terminated Plaintiffs'
Plaintiffs received the additional two-year severance payment
upon their separation from employment at the Medical Center.
In this lawsuit, Plaintiffs seek the benefits of their
deferred compensation retirement plan.
Executive 457(f) Retirement Plan
of Defendant Plan
have brought their claims under the Medical Center Executive
457(f) Retirement Plan (“Defendant Plan” or
“the Plan”). The Plan is a nonqualified deferred
compensation plan that complies with § 457(f) of the
Internal Revenue Code of 1986, as amended (“IRS
Code”). As described by Defendant (and not disputed by
Plaintiff) Defendant Plan is a “top-hat plan, ”
which is an unfunded plan maintained primarily for the
purpose of providing deferred compensation benefits for a
select group of management under §§ 201(2),
301(a)(3) and 401(a)(1) of ERISA. As a top-hat plan, the Plan
is exempt from ERISA's participation, vesting funding,
and fiduciary rules contained in §§ 201, 301, and
401. However, the Plan is subject to ERISA's enforcement
rules, including ERISA §§ 502(a)(1)(B), 29 U.S.C.
Plan is composed of a plan document and an adoption
agreement, and was established effective January 1, 2008
pursuant to an adoption agreement dated April 8, 2008
(“2008 Adoption Agreement”). The Plan was amended
effective January 1, 2008 pursuant to a new adoption
agreement dated April 20, 2009 (“2009 Adoption
Agreement”). Defendant Plan was amended again effective
January 1, 2012 pursuant to a new adoption agreement dated
December 30, 2011 (“2011 Adoption Agreement”).
8.2 of the plan document regarding General Administration of
Defendant Plan provides that:
[A] Committee is responsible for the operation and
administration of Defendant Plan and for carrying out its
provisions. Each of the aforementioned adoption agreements
provide that [the Medical Center] shall serve as the
committee. As a general matter, when such designations are
made, the CEO of [the Medical Center] has authority to act on
Ex. 10 (Bourgeois Aff) & attached Ex. A.
8.2 of the plan document further provides that
. . . the “Committee shall have the full authority and
discretion to make, amend, interpret, and enforce all
appropriate rules and regulations for the administration of
this Plan and decide or resolve any and all questions,
including interpretation of this Plan, as may arise in
connection with this Plan. Any such action taken by the
Committee shall be final and conclusive on any party. To the
extent the Committee has been granted discretionary authority
under the Plan, the Committee's prior exercise of such
authority shall not obligate it to exercise its authority in
a like fashion thereafter.
Ex. 10 & attached Ex. A
2009 Adoption Agreement provided that a plan participant in
the Defendant Plan would vest in his or her account in the
An Active Participant shall be fully vested in their Deferred
Compensation Account upon the first to occur of the following
dates: . . .
(c) The date the Participant attains age 62 and completes 5
years of Service. . . .
(e) The date the Participant has an Involuntarily [sic]
Separation from Service from the ...