                                                                                                                           Opinions of the United
2004 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


1-7-2004

Burns v. JC Penney Co Inc
Precedential or Non-Precedential: Non-Precedential

Docket No. 03-1950




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"Burns v. JC Penney Co Inc" (2004). 2004 Decisions. Paper 1109.
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                                                       NOT PRECEDENTIAL

            UNITED STATES COURT OF APPEALS
                 FOR THE THIRD CIRCUIT
                      ___________

                Nos. 03-1950/1951/1952/1953/1954

                          ___________

                       RONALD BURNS,

                                  Appellant in No. 03-1950

                          JOE GATTO,

                                  Appellant in No. 03-1951

                       CLIFFORD BEISEL,

                                   Appellant in No. 03-1952

                       LARRY BUFALINI,

                                      Appellant in No. 03-1953

                        JACK ROHLAND,

                                      Appellant in No. 03-1954

                                 v.

                 J.C. PENNEY COMPANY, INC.


                   ________________________

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE
           WESTERN DISTRICT OF PENNSYLVANIA

          District Court Judge: The Hon. Arthur J. Schwab
               (No. 02cv0332/0333/0334/0335/0336)
                            ___________
                      Submitted Under Third Circuit L.A.R. 34.1(a)
                                  October 21, 2003

               Before: ALITO, FUENTES, and ROSENN, Circuit Judges.

                             (Opinion Filed: January 7, 2004)
                              ________________________

                               OPINION OF THE COURT
                              ________________________


FUENTES, Circuit Judge:

       In 1988, Defendant-Appellee J.C. Penney (“Penney”) created an ERISA benefits plan

called the Separation Allowance Program (“SAP”), which granted benefits to eligible

employees who lost jobs, salary or status as a result of a “change of control” over Penney.

“Change of control” was a term denoting a change in the majority of Penney’s Board of

Directors or shareholders, i.e., a merger or consolidation. The SAP had a 5-year term, after

which Penney could elect to cancel it, or it would otherwise automatically continue for five

more years. In 1988, Plaintiffs-Appellants were working in Thrift Drug, a division of

Penney; in 1991, however, Thrift Drug was spun off into its own corporation, or became a

wholly owned subsidiary of Penney. In early 1997, Penney acquired Eckerd, a drugstore

chain, through a triangular merger: namely, Eckerd merged into Omega Acquisition, one of

Penney’s wholly owned subsidiaries, and Omega was then renamed “Eckerd.” Thereafter,

Eckerd obtained control of Thrift Drug. In November 1992, less than five years after the

SAP was created, Penney’s Board of Directors terminated the Plan. In April 1997,

Appellants were advised that they would be demoted and receive a pay cut, so they asked for

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SAP benefits. They were told, however, that they were not entitled to SAP benefits because

their demotions at Eckerd were not a result of any change of control over Penney.

       Appellants sued for SAP benefits under ERISA, and the District Court granted

summary judgment to Penney against all Appellants. Specifically, the District Court relied

on District Court Judge Lee’s conclusion in Lettrich v. J.C. Penney Co., Inc., No. 98-137,

that the Eckerd acquisition was not a change in control triggering the SAP. Appellants argue

that the District Court erred in giving Judge Lee’s conclusion preclusive weight, and that the

Eckerd acquisition was indeed a change of control. We agree with the District Court that no

change of control occurred, and therefore affirm.1

       The parties agree that Appellants would not receive SAP benefits unless the 1997

merger was a “change of control” under the SAP, because only a change of control would

trigger such benefits. SAP ¶ 5, App. at 194. Appellants argue that the 1997 merger qualified

as a change of control under the fourth alternate definition given in the SAP, namely: “(d)

a merger or consolidation occurs to which [Penney] is a party, whether or not [Penney] is the

surviving corporation, in which outstanding shares of [Penney] common stock are converted

into shares of another company . . . or other securities (of either [Penney] or another

company) or cash or other property.” App. at 192. Penney responds that neither component

of this definition, Penney being a party nor Penney stock being converted into



       1
        Because we affirm the District Court on the merits of Penney’s motion, it is
unnecessary to reach the issue of whether the District Court gave the Lettrich opinion undue
weight.

                                               -3-
shares/securities, was satisfied by the 1997 merger.

       On the “party” issue, the merger documents support Penney’s assertion. It is true, as

Appellants argue, that the merger agreement was executed by Penney, Omega and Eckerd,

App. at 209, but the actual certificate of merger itself only lists Omega and Eckerd as parties.

App. at 316. Moreover, even the merger agreement’s description of the merger, found at

§2.1, establishes that the merger had only two parties: “Company [Eckerd] shall be merged

with and into Purchaser [Omega] at the Effective Time.” App. at 212. Neither the certificate

of merger nor § 2.1 of the merger agreement, which actually describes the merger, make any

mention of Penney as a party to the 1997 merger. Appellants contend that, even though the

1997 merger was nominally a transaction between Eckerd and Omega, Penney was “a party”

to the 1997 merger because Penney fits the dictionary definition of “party.” Appellants’

reliance on the definition of “party” from Black’s Law Dictionary (7th Ed. 1999) is unavailing

because the definition–“one who takes part in a transaction”–does not provide any guidance:

specifically, it begs the question of whether Penney “took part in” the 1997 merger. The

dictionary definition, therefore, does not disturb the merger documents’ illustration of the

1997 merger as one between Omega and Eckerd, to which Penney was not a party.

       Even if Penney was a party, there was no change of control because Penney stock was

not converted in the manner described in the SAP. In the 1997 merger, Penney bought

common stock from its shareholders, retired (i.e., destroyed) those shares, issued new shares,

and exchanged the new shares for Eckerd common stock. Appellants argue that Penney’s

retirement and issuance of shares amounted to a conversion of Penney common stock for

                                              -4-
Penney common stock, satisfying the conversion element of “change of control.”

Appellants’ argument fails for two reasons. First, Penney did not convert its common stock

into common stock at all; rather, in two separate transactions, Penney destroyed one set of

shares and issued a brand new set of shares.

       Second, even if there was a conversion of sorts, it was not a conversion “into shares

of another company . . . or other securities (of either [Penney] or another company).” App.

at 170. The SAP did not count conversions of Penney stock into shares of Penney as one of

the qualifying conversions; instead, a change of control would only be triggered if Penney

stock was converted into some other company’s stock or into non-stock securities of Penney

or another company.       If the SAP had contemplated Penney-stock-to-Penney-stock

conversions, it would have read “into shares of Penney or another company” rather than “into

shares of another company.” Finally, the purchase of Eckerd shares with Penney shares also

does not qualify the 1997 merger as a change of control: by the end of the transaction when

Eckerd shares had become worthless, Appellee had effectively converted its stock into

nothing of value. In other words, Appellee’s stock was not really converted at all, but used

to purchase control of Eckerd. In short, neither of the elements of change of control were

met by the 1997 merger. Accordingly, we affirm the District Court’s judgment.




TO THE CLERK OF THE COURT:

                                            -5-
Kindly file the foregoing Opinion.



                                           /s/ Julio M. Fuentes
                                               Circuit Judge




                                     -6-
