Swaback v. American Information Technologies Corp.

• Decision Date: 20 December 1996
• Docket Number: No. 96-1183,96-1183
• Parties: 20 Employee Benefits Cas. 2543, Pens. Plan Guide P 23930X Gail SWABACK, individually and on behalf of the estate of David Swaback, deceased, Plaintiff-Appellant, v. AMERICAN INFORMATION TECHNOLOGIES CORPORATION, Illinois Bell Company, Ameritech Employees Benefit Committee, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 535

103 F.3d 535

20 Employee Benefits Cas. 2543, Pens. Plan Guide P 23930X

Gail SWABACK, individually and on behalf of the estate of David Swaback, deceased, Plaintiff-Appellant, v. AMERICAN INFORMATION TECHNOLOGIES CORPORATION, Illinois Bell Company, Ameritech Employees Benefit Committee, et al., Defendants-Appellees.

No. 96-1183.

United States Court of Appeals Seventh Circuit.

Argued Sept. 4, 1996.

Decided Dec. 20, 1996.

H. Candace Gorman, argued, Chicago, IL, for Gail Swaback.

Arthur B. Smith, Jr., argued, Murphy, Smith & Polk, Chicago, IL, Paul K. Whitsitt, Ameritech Services, Inc., Hoffman Estates, IL, for American Information Technologies Corp., Illinois Bell Telephone Co., Ameritech Employees Benefit Committee, Illinois Bell Benefit Committee.

Suzanne Windle, Karen L. Handorf, Robin Springberg Parry, argued, Dept. of Labor, Office of the Solicitor, Washington, DC, for Amicus Curiae Robert B. Reich.

Steven S. Zaleznick, Mary E. Signorille, Stephen M. Koslow, American Ass'n of Retired

Persons, Washington, DC, for Amicus Curiae American Ass'n of Retired Persons.

Jeffrey Lewis, Sigman, Lewis & Feinberg, Oakland, CA, for Amicus Curiae Nat. Employment Lawyers Ass'n.

Before RIPPLE, DIANE P. WOOD and EVANS, Circuit Judges.

RIPPLE, Circuit Judge.

From June 20, 1960, until his death from pancreatic cancer on June 14, 1991, David Swaback was an employee of Illinois Bell and was a participant in the Ameritech Management Pension Plan ("AMPP"). The AMPP provides a procedure by which a participant who has a vested pension with a present value of greater than $3,500 can elect a lump sum payout of that pension upon retirement. The plan requires participants to elect this option, in writing, at least thirty days in advance of retiring. The district court found that Mr. Swaback had failed to elect the lump sum payment because he had not given Illinois Bell the requisite notice. Gail Swaback, Mr. Swaback's widow and administratrix for his estate, appeals this decision. For the reasons that follow, we reverse, in part, the judgment of the district court and remand the case with direction to enter judgment for Mrs. Swaback on her section 502(a)(1)(b) ERISA claim.

I BACKGROUND

A. Facts

David Swaback, deceased, had been employed by Illinois Bell ("Bell"), a subsidiary of Ameritech Information Technologies Corporation ("Ameritech"), as a management level employee from June 20, 1960 until his death on June 14, 1991. Bell was a participating company in the AMPP, ¹ which is a "pension plan" under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001 et seq. Under the plan, participating Bell employees are able to file claims for benefits under the AMPP with the Illinois Bell Benefits Committee ("Bell Committee"), and if unsatisfied with the result, may appeal to the Ameritech Benefits Committee ("Ameritech Committee"). The AMPP provides the committees with significant discretion in administering the plan. Both committees are plan fiduciaries.

Mr. Swaback was diagnosed with pancreatic cancer in June 1990. By September, he was no longer able to work for the company and began receiving benefits under Ameritech's Sickness and Accident Disability Benefits Plan ("SADP"). ² At the time of his disability, Mr. Swaback had met the eligibility requirements for a service pension; he had worked for the company for greater than thirty years, which negated any minimum age requirement for the service pension. In April 1991, while still receiving SADP benefits, Mr. Swaback telephoned Wylie Etscheid, his supervisor, to inquire into his retirement options. Etscheid spoke with James Wilkes, a Bell vice-president, about Mr. Swaback's retirement. Etscheid relayed to Mr. Swaback that he qualified for the monthly service pension, but that, under the AMPP, he would have to return to work (which required approval from a Bell physician) to elect the lump sum equivalent of his service pension.

In late April or early May, Annette Goetz, the Bell staff manager for benefits, called Mr. Swaback to discuss his retirement options with him. During this conversation, Mr. Swaback said that he wanted to retire and was interested in the lump sum option. He also indicated that he would prefer that Ms. Goetz bring the pension papers to him for his signature rather than his traveling into Bell's offices. She agreed, and they arranged an appointment for May 8, 1991, at which she would bring the necessary paperwork to his home. The day before the meeting was to take place, however, Ms. Goetz received a note from her supervisor, Don Hattendorf, explaining that the appointment would likely be canceled. It was. ³ Hattendorf, at approximately the same time, phoned Mr. Swaback to make sure he understood that, in order to elect the lump sum retirement, he would need to be medically approved to return to work and to elect this option in writing at least thirty days prior to his retirement date. Hattendorf, after their conversation, made an appointment for Mr. Swaback to see a Bell physician, but the medical exam did not occur. ⁴ In June 1991, Mr. Swaback telephoned Ms. Goetz to set up another meeting to go over his retirement benefits. By June 13, the day of the scheduled appointment, Mr. Swaback was hospitalized, but Ms. Goetz met with Mrs. Swaback. Goetz repeated to Mrs. Swaback that, in order to qualify for the lump sum pension, her husband would have to be medically fit for work and would have to return to work. Mrs. Swaback indicated that she was aware of these requirements. The following day, June 14, Mr. Swaback died. There is no evidence in the record indicating that Bell ever provided him with the necessary forms to elect a lump sum payout before his death.

The following month, Mrs. Swaback filed a claim with the Bell Committee for Mr. Swaback's service pension in the form of a lump sum. On August 20, 1991, the Bell Committee denied Mrs. Swaback's claim because her husband had been on SADP status and had not been medically approved to return to work. According to the Bell Committee, Mr. Swaback, as someone receiving SADP benefits, was in the class of people excluded by section 4, para. 12(b) of the AMPP from choosing the lump sum pension option. Mrs. Swaback appealed this determination to the Ameritech Committee, which similarly denied her claim for the lump sum. The Ameritech Committee reiterated that to choose the lump sum, Mr. Swaback would have needed to return to work, requiring approval from Bell physicians, and to make the lump sum election thirty days prior to his retirement. Mrs. Swaback then filed suit in district court, challenging this interpretation of the AMPP. Her complaint alleged violations of various provisions of ERISA, federal common law violations, and a pendent state law claim.

B. District Court Proceedings

1. Magistrate Judge's Report and Recommendation

On March 24, 1995, the parties filed cross-motions for summary judgment. On June 15, 1995, the magistrate judge issued his Report and Recommendation on these motions. In reviewing the Ameritech and Bell Committees' decisions, he found the AMPP proviso dealing with the lump sum option to be ambiguous. The magistrate judge also determined that the committees reasonably looked to the Summary Plan Description ("SPD") ⁵ and, applying an arbitrary and capricious standard, recommended that Mrs. Swaback's motion for partial summary judgment be denied and that Ameritech's motion for summary judgment be granted. The magistrate judge concluded that the committees had provided a full and fair review and had come to a reasonable decision by denying the claim for a lump sum payment. It was neither arbitrary nor capricious, in the opinion of the magistrate judge, to decide that the lump sum was not available to Mr. Swaback unless he had been medically certified by Ameritech and had returned to work. The magistrate judge's recommendation that the Ameritech Committee's decision be upheld relied upon his finding that an individual, while receiving SADP benefits, is not an employee for purposes of para. 12(b) of the plan. With respect to the federal common law claims and the pendent state law claim, the magistrate judge found that no genuine issue of material fact existed and recommended that summary judgment be granted on these claims for Ameritech. Mrs. Swaback took exception to the magistrate judge's report.

2. District Court Order

The district court disagreed with much of the magistrate judge's analysis. It agreed with Mrs. Swaback that Ameritech should not have relied upon the SPD. The court noted that, in instances in which the SPD and AMPP differ, the SPD explicitly provides that the AMPP is controlling. The district court, in reading the AMPP, viewed the plan as clear and unambiguous. The AMPP, according to the district court, sets out five prerequisites to an employee's election of a lump sum in lieu of a service pension: (1) The present value of the pension is greater than $3,500; (2) the service pension is not one converted from a disability pension; (3) the pension is not payable to someone who could elect a disability pension; (4) the election of the lump sum payment must be in writing; and (5) the written election must be made more than thirty days prior to the retirement date. In the district court's view, the AMPP simply does not contain any requirements that an employee be medically approved before electing the lump sum or that he be on the "active payroll." Further, the district court determined that the magistrate judge was mistaken in concluding that Mr. Swaback was not an employee for purposes of the lump sum proviso. Because he received regular and stated payments--compensation--from Ameritech due to his having worked for Bell, Mr. Swaback was a Bell employee. However, the district court held that Mrs. Swaback was not entitled to the lump sum payment because her late husband had not elected the lump sum payment in writing at least...