100 F.3d 62 (7th Cir. 1996), 96-1454, Daill v. Sheet Metal Workers' Local 73 Pension Fund

Docket Nº:96-1454.
Citation:100 F.3d 62
Party Name:Garland F. DAILL, Plaintiff-Appellee, v. SHEET METAL WORKERS' LOCAL 73 PENSION FUND, Defendant-Appellant.
Case Date:November 13, 1996
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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100 F.3d 62 (7th Cir. 1996)

Garland F. DAILL, Plaintiff-Appellee,

v.

SHEET METAL WORKERS' LOCAL 73 PENSION FUND, Defendant-Appellant.

No. 96-1454.

United States Court of Appeals, Seventh Circuit.

November 13, 1996

Argued Sept. 12, 1996.

Tammie R. Grossman (argued), Bernard Shapiro, Prairie State Legal Services, Inc., St. Charles, IL, David Wolowitz, Prairie State Legal Services, Inc., Carol Stream, IL, for Garland F. Daill.

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John J. George, Dennis J. Aukstik, Robert T. Oleszkiewicz (argued), Carolyn S. O'Gara, Michael Daley, Richard Andrew Toth, Chris A. Leach, Catherine S. Wilson, Mark G. Vanecko, Daley & George, Chicago, IL, Michael I. Richardson, Franczek, Sullivan, Mann, Crement, Hein & Relias, Chicago, IL, for Sheet Metal Workers' Local 73 Pension Fund.

Before BAUER, FLAUM, and MANION, Circuit Judges.

MANION, Circuit Judge.

Early in his working career Garland Daill accrued 12- 3/4 pension credits under the sheet metal union's private pension fund. But after 12 years he left the union and worked the next 30 years for the city of Chicago. He then returned to work as a sheet metal worker. Although he had this 30-year break in service, the pension plan enabled participants who forfeited credits to recover them by earning 12 consecutive calendar quarters of pension credit. After his return, Daill never worked 12 consecutive quarters. When the union denied his claim for the forfeited credits, he sued under ERISA to recover the benefits. The district court concluded that the fund's decision not to restore the forfeited credits was arbitrary and capricious, and granted Daill's motion for summary judgment. Because the plaintiff's suit was untimely and the pension fund acted reasonably in denying the participant's pension application, we reverse.

I. Background

Garland Daill was a member of Sheet Metal Workers' Local 73 from 1937 to 1949. As was the case for many workers, his union's private pension fund provided pension benefits during that period. Under the fund's pension plan, a plan participant earned one quarter of pension credit by working 133 hours in a calendar quarter, or a unit of pension credit by working 532 hours in the year. Daill accrued 12- 3/4 pension credits during this period.

Daill left the union in 1949 and worked the next thirty years for the city of Chicago. When Daill left, under the terms of the plan he incurred a "permanent break in service" when six quarters passed without credited service. Accordingly, Daill forfeited all of his pension credits accrued from 1937 to 1949.

The plan trustees (in charge of managing and controlling the plan's assets) amended the plan in 1972 to provide that participants could recover pension credits forfeited due to a permanent break in service. A participant could recover the credits by earning 12 consecutive calendar quarters of pension credit. The "12 consecutive quarter rule" allows the trustees to plan for financial outlays such as pensions. 1

In 1979, after a 30-year absence, Daill returned to "covered work," that is, work as a sheet metal worker with an employer contributing to the fund. From October 1979 through 1981, Daill earned nine consecutive calendar quarters of pension credit. However, Daill incurred a break in service during all four quarters of 1982 and the first two calendar quarters of 1983 by failing to work sufficient hours to earn at least one quarter of a pension credit. Daill claims that this break in service was involuntary because he could not find covered work during that period. Daill earned calendar quarters of pension credit in both the third and fourth quarters of 1983. In addition, he earned a full year of vesting service in 1983 under the terms of the plan by working at least 870 hours in the year. 2

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After being laid off, Daill sent a series of letters to the fund seeking to restore the 12- 3/4 pension credits forfeited by virtue of his permanent break in service. He sent his first letter in January 1982. One month later, he sent another letter, claiming to have regained his forfeited pension credits because he had satisfied the plan's 12 consecutive quarter rule. In May 1982, in a detailed response, the attorney for the fund informed Daill that he was not entitled to a pension. He explained that Daill had forfeited the 12- 3/4 pension credits he had accrued between 1937 and 1949, and that he had returned to work in 1979 for only nine consecutive quarters, three quarters short of the 12 he needed to restore forfeited pension credits. According to the fund, Daill had to start his string of consecutive quarters over again because it had been interrupted. Moreover, the letter explained that the 12 consecutive quarters could not be pieced together by using the plan's grace period provisions, which allow for a one-year break in service under certain conditions. Finally, the letter informed Daill that he could appeal the fund's decision in accordance with the plan's provisions.

Daill appealed the fund's decision in writing. In March 1983, the fund through its attorney denied Daill's appeal. The two-page letter reiterated the original basis for the fund's decision denying Daill a pension: he had not returned to work for 12 consecutive calendar quarters.

Daill earned calendar quarters of pension credit in 1984, 1985, and 1986, but no more than three quarters consecutively. In May 1986, Daill filed a formal application for benefits with the fund, 3 once again claiming his forfeited pension credits. Daill presented the same argument he had made in 1982 (and the fund rejected in 1983), namely, that he could recover his pension credits even though he had not returned to work for 12 consecutive quarters. Soon afterward, the fund administrator responded in writing, explaining to Daill that his application had been denied by the trustees because while he had returned to work for "some quarters," he had not returned for 12 consecutive quarters. Nearly six years later, Daill filed yet another application for pension benefits, which was denied for the same reason.

Daill sued the fund in district court in August 1993 under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001 et seq. Daill promptly moved for summary judgment against the fund for denying his application for pension benefits. The fund filed its own motion for summary judgment on the grounds that Daill's cause of action was barred by Illinois' 10-year statute of limitations for suits pertaining to written contracts because it accrued at the latest in March 1983, when the fund denied Daill's appeal for benefits.

II. The District Court's Decision

The district court denied the fund's motion for summary judgment based on the statute of limitations. While it agreed with the fund that a 10-year limitations period applied to Daill's case, it held that Daill's cause of action did not accrue until he filed a formal application for benefits in 1986. The district court determined that Daill's cause of action did not accrue in May 1983--when the fund denied Daill's appeal--for three reasons: (1) Daill's 1982 claim was not a formal application for benefits; (2) the fund's response to Daill's initial claim was not clear and consistent; and (3) Daill continued to work after the fund denied his 1982 claim, and Daill's 1986 pension claim was based on this additional work.

The district court granted Daill's motion for summary judgment on the merits. It correctly noted that when a pension plan gives the trustees broad discretion to construe the plan's terms and allocate benefits, judicial review is limited to whether their decision was arbitrary and capricious. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 111, 109 S.Ct. 948, 954-55, 103 L.Ed.2d 80 (1989); Russo v. Health, Welfare & Pension Fund, Local 705, Int'l Bhd. of Teamsters, 984 F.2d 762, 765 (7th Cir.1993). The court applied this standard and determined

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that the trustees acted arbitrarily and capriciously by not allowing Daill to restore his forfeited pension credits.

Although it conceded that Daill had not satisfied the strict 12 consecutive quarter rule, the district court held that two other plan provisions should have saved Daill's lost credits. The plan extends grace periods to breaks in service caused by a lack of available employment and lasting up to four consecutive quarters. The court concluded that Daill should have been extended a grace period for his 1982 break in service. Further, the plan states that a one-year break in service can be eliminated if an employee subsequently earns a year of vesting service, i.e., works at least 870 hours during a calendar year. Daill worked over 870 hours during the last two quarters of 1983. The court concluded that this one-year break in service provision eliminated the effects of the 1982 break. It also concluded that the period of January-June, 1983 could not count as a break in service because Daill returned to work and earned a full pension credit for the 1983 calendar year. 4 By using the grace period and break in service rules in this fashion, the district court bridged the six quarters in 1982-83 during which Daill failed to earn any pension credits. It held that the nine consecutive quarters Daill worked from 1979-81, coupled with the three consecutive quarters of work from 1983-84, satisfied the 12 consecutive quarter rule, thus reinstating Daill's 12- 3/4 forfeited pension credits.

The court denied the fund's motion for reconsideration, which purportedly contained no new argument and rehashed the fund's previous positions. The court further sanctioned the fund in the amount of attorneys' fees for filing the motion to reconsider.

III. Analysis

We review a grant of summary judgment de novo. GCIU Employer...

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