Johnson v. Buckley
| Decision Date | 28 January 2004 |
| Docket Number | No. 02-17094.,02-17094. |
| Parties | Nedra JOHNSON; Deborah Nelson; Michael Friend; Carol Larsen, Plaintiffs-Appellants, v. James BUCKLEY; Charles Carroll; Burt Chase; Ed De Garbolewski; John Sininger; Holly Williams, Defendants, and W.L. Gore & Associates, Inc. Restated Assoc. Stock Ownership Plan, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Susan Martin, Martin & Bonnett, P.L.L.C., Phoenix, AZ, for the plaintiffs-appellants.
Charles F. Knapp, Faegre & Benson LLP, Minneapolis, MN, for the defendant-appellee.
Paul W. Heiring, Faegre & Benson LLP, Minneapolis, MN, for the defendant-appellee.
Appeal from the United States District Court for the District of Arizona, Mary H. Murguia, District Judge, Presiding. D.C. No. CV-99-01699-MHM.
Before: SCHROEDER, Chief Judge, D.W. NELSON, and RYMER, Circuit Judges.
When W.L. Gore & Associates, Inc., (Gore) closed its Phoenix, Arizona, electronic parts plant in 1998, many of its employees lost their jobs before they qualified for an additional year of vesting and benefit accrual credit under Gore's stock ownership and pension benefit plan (Plan). Gore's Plan used the long-standing "elapsed-time method" to calculate vesting and benefit accrual. That method counts the period of time the employee is employed, and not the number of hours an employee has worked during a given twelve-month period.
Two classes of Gore's former Phoenix employees now appeal the final judgment of the district court granting defendants' motion for summary judgment. The five claims presented on appeal center on three arguments. The employees primarily assert that the elapsed-time regulation violates ERISA's vesting and benefit accrual requirements. Subsidiary to that claim, they allege that even if the regulation is lawful, Gore nonetheless violated it. Finally, they allege that Gore violated its own Plan when it interpreted the term "layoff" to mean a temporary absence and not a permanent loss of employment. Because the elapsed-time regulation is valid and because Gore did not violate it or its own Plan, we affirm.
In July 1998, Gore announced that it was closing its Phoenix plant. Gore repeatedly described to its employees, both in oral and written form, that the upcoming loss of employment was a "layoff." However, it also circulated a WARN notice to the affected employees, in accordance with 29 U.S.C. § 2102(a), stating that the Phoenix plant was closing and that "Due to the business relocation, your employment with Gore will be terminated, effective September 26, 1998." There is no dispute that the employees in this suit were in fact permanently terminated from their jobs at the Gore plant.
One of the employees who lost her job due to the plant closing, Nedra Johnson, filed a complaint with the committee that administered the Plan (Committee), seeking credit for an additional year of service. Johnson's benefits had not yet vested under the Plan because she had worked at Gore for more than four years, but less than five. Under the Plan, employees were required to work five years before they vested in the benefits. Each additional year of service, from April 1 to March 31, counted towards the accrual of benefits.
The Committee relied on Plan section 4.5.1 to deny Johnson's request. This section states that:
Your severance from Service will occur on the earlier of:
(1) The date on which you quit, retire, are discharged, or die; or
(2) The first anniversary of the first day of a period during which you remain absent from employment (with or without pay) for any other reason, such as your vacation, holiday, sickness, disability, leave of absence or layoff.
The letter denying Johnson's benefits explained that the term "layoff" refers to a temporary absence as opposed to a permanent severance with the company. The Committee determined that Johnson's termination was permanent and she was, therefore, not eligible for an additional year of credit under Plan section 4.5.1.
Johnson filed a complaint alleging violations of ERISA, 29 U.S.C. §§ 1001 to 1461 (1974), in September 1999. Motions for class certification soon followed. Johnson was named as the representative for Class A plaintiffs: former Gore employees seeking benefits even though they had less than five years of service. Deborah Nelson was named as the representative for Class B plaintiffs: former Gore employees who were already vested, but could not share in Gore's Plan contribution for the year because they lost their jobs prior to the last day of the Plan year.
On November 30, 2000, the district court denied employees' class certification motions without prejudice, and determined that the Committee's denial of benefits should be reviewed for abuse of discretion. Almost three months later, the employees moved to amend the complaint to add individual members of the Committee as defendants. The employees also sought to add counts for alleged violations of ERISA's disclosure, vesting, and benefit accrual requirements, a count for breach of fiduciary duty, and another count for participation in that breach by James Brown, legal counsel for the Plan. The court granted the employees' motion, but refused to add the fiduciary duty claims.
On August 21, 2001, both parties stipulated to a revised second amended complaint. This complaint withdrew Count I, under which the employees had alleged that Gore violated ERISA when it failed to credit class members who had already accumulated 1,000 hours of service in their last Plan year. The employees agreed to withdraw this count because of the potential for intra-class conflict. In other words, some members in Class A or Class B may not have worked 1,000 hours within the Plan year and would therefore not gain, and perhaps lose, credit. Count II, which alleged that Gore had violated the elapsed-time regulation, remained in the complaint.
After Count I was withdrawn, the parties stipulated to the class certification and the district court issued an order certifying both classes of plaintiffs. Shortly thereafter, both parties filed cross-motions for summary judgment. In addition, the employees filed a renewed motion on the standard of review, asking the court to review the Committee's denial of the employees' benefits claims de novo, and not for abuse of discretion. The latter motion was based on an e-mail to Brown that had not been previously disclosed in discovery. The employees alleged that the e-mail proves that the Committee members were influenced by a material conflict of interest, thereby meriting de novo review.
The e-mail at issue reflects a conversation that Holly Williams, a Committee member, had with outside counsel Robert Meyer. In the e-mail, Williams told Brown that Meyer had informed her that Plan section 4.5.1 was typical "Department of Labor language," and that "`leave of absence' and `layoff' are used when the person is expected to return to work." Furthermore, she conveyed that Meyer told her that "if we wanted to stretch it," the Committee could use "leave of absence" as a term code for the Gore employees who lost their jobs because of the closure of the Phoenix plant. Williams expressed in her e-mail to Brown that she was uncomfortable labeling the employees as being on a leave of absence because she wasn't sure how it would affect other benefits and whether non-vested employees would be treated differently than vested employees. She also expressed concern that if the non-vested and vested employees were treated differently, they might receive different benefits because the value of the stock could be higher or lower at the time of the distributions. She concluded by stating that she felt very uncomfortable stretching the definition of "layoff" and "leave of absence," and mentioned that she had not shared any of Meyer's advice with anyone else besides Brown.
The district court denied the employees' renewed motion on the applicable standard of review and granted Gore's motion for summary judgment.
We review the grant of summary judgment de novo. Alford v. DCH Found. Group Long-Term Disability Plan, 311 F.3d 955, 957 (9th Cir.2002). "We also review a district court's choice and application of the standard of review applicable to a claims decision in the ERISA context de novo." Id.
Generally, the elapsed-time regulation allows for the calculation of an employee's "statutory entitlement with respect to eligibility to participate, vesting and benefit accrual .... with reference to the total period of time which elapses while the employee is employed...." 26 C.F.R. § 1.410(a)-7(a)(1)(ii). Upon severance from employment, the employee is no longer capable of accruing time for either vesting or the accrual of benefits. The severance from service provision, which substantially mirrors Gore Plan section 4.5.1, states that:
For purposes of this section, a "severance from service" shall occur on the earlier of —
(i) The date on which an employee quits, retires, is discharged or dies; or
(ii) The first anniversary of the first date of a period in which an employee remains absent from service (with or without pay) with the employer or employers maintaining the plan for any reason other than a quit, retirement, discharge or death, such as vacation, holiday, sickness, disability, leave of absence or layoff.
Id. at § 1.410(a)-7(b)(2)(i-ii).
The elapsed-time regulation was initially promulgated, in temporary form, by the Department of Labor in 1976. See 41 Fed.Reg. 56,484 (1976). In 1980, the Department of the Treasury, to whom some authority over ERISA had been transferred, promulgated the final elapsed-time regulation. See Swaida v. IBM Ret. Plan, 570 F.Supp. 482, 485 (S.D.N.Y.1983), aff'd, 728 F.2d 159 (2d Cir.1984) (per curiam). The...
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