Musmeci v. Schwegmann Giant Super Markets, Inc.

• Decision Date: 11 June 2003
• Docket Number: No. 02-30246.,02-30246.
• Citation: 332 F.3d 339
• Parties: John MUSMECI; Carrol Boudreaux; Willie Blanchard; Melvin Camet, Sr.; Joseph Decuir; Maurice Miranda; Jacqueline S. Palama; Victor Schambra; Bruce Solomons; Joseph T. Spitelera; Audrey Toal; on their own behalf and on behalf of all similarly situated employees; Yvonne White; Cynthia Normand; Charles Carrol Dionne; Joseph O'Neil Dionne, Plaintiffs-Appellees, v. SCHWEGMANN GIANT SUPER MARKETS, INC.; et al., Defendants, Schwegmann Giant Super Markets, Inc.; Schwegmann Giant Super Markets Pension Plan; John F. Schwegmann; G.G. Schwegmann Co.; John Schwegmann, Jr. Trust Estate; United States Fidelity & Guaranty Company, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

332 F.3d 339

John MUSMECI; Carrol Boudreaux; Willie Blanchard; Melvin Camet, Sr.; Joseph Decuir; Maurice Miranda; Jacqueline S. Palama; Victor Schambra; Bruce Solomons; Joseph T. Spitelera; Audrey Toal; on their own behalf and on behalf of all similarly situated employees; Yvonne White; Cynthia Normand; Charles Carrol Dionne; Joseph O'Neil Dionne, Plaintiffs-Appellees, v. SCHWEGMANN GIANT SUPER MARKETS, INC.; et al., Defendants, Schwegmann Giant Super Markets, Inc.; Schwegmann Giant Super Markets Pension Plan; John F. Schwegmann; G.G. Schwegmann Co.; John Schwegmann, Jr. Trust Estate; United States Fidelity & Guaranty Company, Defendants-Appellants.

No. 02-30246.

United States Court of Appeals, Fifth Circuit.

June 11, 2003.

Nancy Picard (argued), Edward K. Newman, Robein, Urann & Lurye, Metairie, LA, for Plaintiffs-Appellees.

Stephen W. Smith (argued), Holly Angela Royce, Fulbright & Jaworski, Houston, TX, Howard Bruce Kaplan, Bernard, Cassissa, Elliott & Davis, Metairie, LA, for U.S. Fid. & Guar. Co.

Jon A. Gegenheimer (argued), Gretna, LA, for Schwegmann parties.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before KING, Chief Judge, DAVIS, Circuit Judge and LITTLE, District Judge.^*

W. EUGENE DAVIS, Circuit Judge:

Defendants, Schwegmann Giant Super Markets, Inc. (SGSM, Inc.), Schwegmann Giant Super Markets Pension Plan (SGSM Pension Plan), John F. Schwegmann, Sr. (Mr. Schwegmann), G.G. Schwegmann Co. (G.G.Schwegmann), John Schwegmann, Jr. Trust Estate (Schwegmann Trust) (collectively the "Schwegmann Defendants"), and United States Fidelity & Guaranty Company (USF&G) (collectively the "Defendants"), appeal the district court's adverse money judgment, in favor of the Plaintiff class, holding, inter alia, that a grocery Voucher Plan established by Schwegmann Giant Super Market Partnership (SGSM) was a pension benefit plan under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001-1461, that the Plaintiffs were entitled to monetary relief, and that a self insured retention (SIR) in a USF&G policy covering SGSM's liability for employee benefits incidents could be applied once to Plaintiffs' claims collectively. We agree with the district court except with respect to defendant USF&G. We conclude that the SIR in USF&G's policy applies to each class member's claim. Because no individual claim exceeds the SIR, we vacate the judgment against USF&G.

I.

Until 1997, SGSM operated a chain of over forty grocery stores, employing over 5000 employees, primarily in the New Orleans, Louisiana area. SGSM is a partnership comprised of SGSM, Inc., G.G. Schwegmann, and Schwegmann Trust. SGSM, Inc. owned a seventy percent interest in the partnership and was its managing partner. Mr. Schwegmann was the majority stockholder of SGSM, Inc. and its chief executive officer. As such, Mr. Schwegmann was responsible for the daily operations of SGSM and was the primary policy maker for the partnership.

Mr. Schwegmann conceived a plan for SGSM to give its retirees groceries and other goods free of charge. Mr. Schwegmann then worked with Mr. Sam Levy, president of SGSM, Inc., and Mr. Joe Warnke, SGSM director of human resources, to create a voucher program for long-term SGSM employees at their retirement. In 1985, SGSM implemented this grocery voucher plan (the "Voucher Plan") designed to supply SGSM retirees with a portion of their monthly food needs. Under this plan, SGSM issued vouchers to retirees, and these vouchers could then be used in lieu of cash to purchase goods in SGSM stores. It is this Voucher Plan which is the subject of this lawsuit.¹

In 1985, Joe Warnke prepared a memorandum memorializing the eligibility requirements for participation in the Voucher Plan.² To qualify for the vouchers, an employee must have completed twenty years of service with SGSM, have reached the age of sixty, and have been employed in a supervisory position for at least one year at the time of retirement. SGSM informed qualifying employees of the program at the time of their retirement. Each month, SGSM sent qualifying employees a set of four vouchers worth a total of $216. These vouchers were valid for a period of thirty days, redeemable only at SGSM stores and could not be transferred. Although SGSM intended the vouchers to be used only for in-kind purchases with no cash redemption, store personnel, including managers, were largely unaware of this proscription, and retirees were often given change in cash when using the vouchers for grocery purchases.

SGSM had no written procedures for administering the Voucher Plan. The Voucher Plan was nonetheless run in a systematic manner. When a manager or supervisor retired, the SGSM human resources department prepared a form with information used to determine whether the employee qualified for the Voucher Plan. The form was then sent to Sam Levy who reviewed the form and decided whether a retiree qualified for the program. Levy would sign the forms of qualified retirees and forward the forms to the SGSM controller, Gene Lemoine, who issued the vouchers. Lemoine performed this task two to three days before the month in which they were to be used. Once used, the vouchers were routed back to Lemoine who retained them for five years.

SGSM did not set up a trust to fund the Voucher Plan. Rather, the Voucher Plan was funded out of the partnership's general revenue. Each year, SGSM deducted the total face value of the vouchers as a business expense on its tax returns under the category of "retirement plans, etc." SGSM also issued an Internal Revenue Service form 1099-R to every retiree receiving vouchers, reflecting the face value of the vouchers received by the retiree that year.

By the early 1990's, SGSM experienced declining profits due to competition from well-financed national supermarket chains. In 1995, Mr. Schwegmann decided to aggressively expand SGSM to compete with these stores. SGSM acquired the 28-store National Tea Company chain and, in doing so, undertook a sizable debt. After this acquisition, SGSM continued to suffer from financial losses, and in 1997, it sold the business. A week before the sale, Mr. Schwegmann sent a letter to all voucher recipients informing them that they would no longer receive vouchers because of the sale of the business. Because Mr. Schwegmann considered the Voucher Plan a gratuity subject to termination at will, he made no provision for the continuation of the Voucher Plan after the sale.

When Mr. Schwegmann sent the letter to the retirees, SGSM was insured under a USF&G excess general liability policy with a self-insured retention (SIR) of $1 million per claim and a premium of $200,000. The policy included Excess Employee Benefits Liability coverage. This policy was not due to expire until July 1997; however, because of the impending sale, the policy was cancelled. In its place, a similar policy was issued to cover SGSM's remaining liability while it was winding up its business. This policy had a lower premium of $25,000 and a lower SIR of $250,000 for each claim. Both policies were "claims made" policies rather than "occurrence" policies.

After being informed of the termination of the Voucher Plan, Plaintiffs filed this suit on behalf of themselves and other similarly situated individuals under ERISA and Louisiana state law claiming that they were vested in a pension benefit plan. Plaintiffs are former employees of SGSM who were adversely affected by the termination of the grocery Voucher Plan when SGSM sold its business in February 1997. The matter was certified as a class action, defining the plaintiff class as:

Those individuals who were SGSM employees and (1) who were retired and receiving grocery vouchers when SGSM stopped the program, or (2) who, although not retired or receiving grocery vouchers at the time SGSM stopped the grocery program, were (i) supervisors for at least one year before retirement and (ii) had at least 20 years experience with SGSM.

After a bench trial, the court dismissed the Plaintiffs' state law claims. After taking the remaining claims under advisement, the court issued findings of fact and conclusions of law, ruling that the grocery Voucher Plan was a pension benefit plan under ERISA, that SGSM breached its fiduciary duty under ERISA, that Mr. Schwegmann was liable as a fiduciary to the plan, that the Plaintiffs were entitled to monetary relief for benefits denied after SGSM's sale, that USF&G's policy covered SGSM's liability, and that the policy's SIR applies once to the Plaintiffs' claims collectively. However, the court requested additional briefing on the issue of class membership. Based on the stipulations of the parties and the evidence presented at the hearing, the district court determined that all but seven individuals filing a notice of claim qualified for class membership. Thereafter, the district court issued a final judgment consistent with its findings.

The Defendants lodged a timely appeal, urging various grounds for reversal. We address each of the Defendants' arguments in turn.

II.

While not disputing the underlying facts, USF&G first argues that the district court committed legal error in concluding that the in-kind Voucher Plan constituted a pension benefit plan under ERISA. The Schwegmann Defendants have adopted USF&G's argument by reference. Specifically, the Defendants contend that ERISA does not apply to any program providing a non-cash benefit. This court reviews legal challenges de novo. Brittan Communications Intern. Corp. v. Southwestern Bell Telephone Co., 313 F.3d 899, 906 (5th Cir.2002).

ERISA does not regulate all benefits paid by an employer, but only those paid pursuant to an "employee benefit plan." Fort Halifax Packing v. Coyne, 482 U.S. 1, 11, 107 S.Ct. 2211, 2217, 96 L.Ed.2d 1 (1987); 29 U.S.C. § 1003. Two different types of benefit programs are regulated by ERISA: welfare plans and pension plans. 29 U.S.C. § 1002....