Kifafi v. Hilton Hotels Ret. Plan

• Decision Date: 14 December 2012
• Docket Number: Nos. 11–7113,11–7151.,s. 11–7113
• Citation: 701 F.3d 718
• Parties: Jamal J. KIFAFI, individually, and on behalf of all others similarly situated, Appellee v. HILTON HOTELS RETIREMENT PLAN, et al., Appellants.
• Court: U.S. Court of Appeals — District of Columbia Circuit

701 F.3d 718

Jamal J. KIFAFI, individually, and on behalf of all others similarly situated, Appellee

v.HILTON HOTELS RETIREMENT PLAN, et al., Appellants.

Nos. 11–7113, 11–7151.

United States Court of Appeals,District of Columbia Circuit.

Argued Sept. 21, 2012.

Decided Dec. 14, 2012.

Appeals from the United States District Court for the District of Columbia (No. 1:98–cv–01517).

Thomas C. Rice argued the cause for appellants-cross appellees. With him on the briefs were Andrew M. Lacy and Jonathan K. Youngwood.

Stephen R. Bruce argued the cause for appellee-cross appellant. With him on the briefs was Allison C. Pienta.

Before: SENTELLE, Chief Judge, BROWN and KAVANAUGH, Circuit Judges.

Opinion for the Court filed by Circuit Judge BROWN.

BROWN, Circuit Judge:

In the late 1990s, Jamal Kifafi, an erstwhile Hilton employee and participant in Hilton's retirement plan (“Plan”), noticed a problem with the benefits calculation on his statement of benefits. Concluding the Plan violated the Employee Retirement Income Security Act (“ERISA”) in a number of ways, he sued. Now, almost fifteen years and twelve district court opinions later, we join the fray and force the parties a little closer to final resolution of their dispute. The district court found that the Plan was impermissibly backloaded and that Hilton failed to calculate participants' vesting credit properly, and it imposed relief accordingly. We affirm because the district court's handling of the case was well within its discretion.

I

ERISA guarantees neither a particular benefit nor a particular method for calculating the benefit. Alessi v. Raybestos–Manhattan, Inc., 451 U.S. 504, 511–12, 101 S.Ct. 1895, 68 L.Ed.2d 402 (1981). Yet employers do not have carte blanche.

ERISA defines the universe of permissible benefit-accrual rates by requiring defined benefit plans to satisfy one—and only one—of three rules designed to prevent backloading, which occurs when a plan awards benefits to employees in later years of service at a rate disproportionately higher than the rate for employees in earlier years of service. See29 U.S.C. § 1054; H.R. REP. NO. 93–807, at 21 (1974), reprinted in 1974 U.S.C.C.A.N. 4670, 4688 (defining “backloading”). The three rules contained in this antibackloading provision are known as the 3% rule, the fractional rule, and the 133 1/3% rule. The 3% rule “prescribes a minimum percentage of the total retirement benefit that must be accrued in any given year.” Alessi, 451 U.S. at 512 n. 9, 101 S.Ct. 1895. The fractional rule is “essentially a pro rata rule under which in any given year, the employee's accrued benefit is proportionate to the number of years of service as compared with the number of total years of service appropriate to the normal retirement age.” Id. The 133 1/3% rule, meanwhile, “permits the use of any accrual formula as long as the accrual rate for a given year of service does not vary beyond a specified percentage from the accrual rate of any other year under the plan.” Id. Specifically, the “rate of benefit accrual in any future year may not be more than one-third greater than the rate in the current year.” Lonecke v. Citigroup Pension Plan, 584 F.3d 457, 464 (2d Cir.2009).

ERISA circumscribes pension plans in other ways as well, such as by setting minimum vesting standards. Where accrual relates to “the amount of the benefit to which the employee is entitled,” vesting relates to when an employee has a right to the accrued benefit. Holt v. Winpisinger, 811 F.2d 1532, 1536 (D.C.Cir.1987) (quoting Stewart v. Nat'l Shopmen Pension Fund, 730 F.2d 1552, 1562 (D.C.Cir.1984)) (internal quotation marks omitted). Benefit accrual and vesting are not coextensive concepts, so an employee might “earn credit toward vesting without accumulating any pension benefits.” Id. at 1537. Because vesting is tied to length of employment, this would happen if an employee works without participating in the plan (“nonparticipating service”), although the benefits do not actually vest until the employee begins participating in the plan. ERISA generally requires employers to count all of an employee's years of service when calculating vesting credit, including years completed before the employee began participating in the plan. See29 U.S.C. § 1053; Holt, 811 F.2d at 1536–37.

This appeal implicates both rules.¹ In his complaint, Kifafi alleged that the Plan's benefit accrual formula was impermissibly backloaded and that Hilton, the Plan sponsor and administrator, violated both ERISA and the Plan by failing to credit certain years of service when calculating employees' vesting credit.

Unfortunately, the parties were not content to let the district court decide (relatively) straightforward issues of law. Instead, as the district court later put it, they “shifted their burden to the Court to determine which facts are in dispute between the parties” and they “repeatedly shifted their arguments such that the Court has consistently been presented with moving targets.” Kifafi v. Hilton Hotels Ret. Plan, 616 F.Supp.2d 7, 22 (D.D.C.2009) (“Kifafi I ”). This included changing the facts of the case.

Before Kifafi filed suit,² the Plan calculated normal retirement benefits as a function of participants' compensation and years of service, less the participant's “integrated benefits,” that is, benefits payable to that participant under another pension plan or government-sponsored system to which Hilton contributed (including half of the participant's social security benefits). This calculation guaranteed, at a minimum, 2% of the participant's average monthly compensation multiplied by the participant's years of service up to twenty-five years, plus 0.5% of the average monthly compensation for each year after twenty-five years, minus the integrated benefits offset. The Plan also included the following language in a separate article titled “Limitation on Benefits and Payments”: “The method of computing a Participant's accrued benefit under the provisions of Article IV is intended to satisfy the requirements of the 133–1/3 rule provided in Section 411(b)(1)(B) of the [Internal Revenue] Code.”

After Kifafi moved for class certification (but before the district court ruled on the motion), Hilton amended the Plan (“1999 Plan”) to eliminate “any controversy regarding the proriety [sic] of the rate of benefit accruals under the Plan.” The 1999 Plan modified the benefit accrual formula using a “greater of” approach: Plan participants would receive the greater of the benefit determined under the old Plan or the benefit determined under the 1999 Plan's modified accrual formula, which, as the IRS subsequently determined, satisfied the fractional rule. The 1999 Plan also made two other retroactive changes: first, it decreased the relevant percentage of employees' average monthly compensation during the first twenty-five years of service from 2% to 1.33%; and second, it increased the social security offset.

The district court ultimately certified Kifafi's proposed “benefit-accrual class” for the backloading claim—all former and current Hilton employees whose pension benefits “have been, or will be, reduced” because of the backloading—but not Kifafi's proposed class for the vesting claim. Four years later, after the parties completed discovery, Kifafi renewed his motion to certify the vesting claim and sought to include as class representatives three class members he hoped would cure any deficiencies in the original class certification motion. This time, the court granted the certification motion (though it denied the motion to intervene), certifying for class treatment Kifafi's claim that Hilton “failed to credit employees with years of union service for vesting purposes.” The court ultimately granted summary judgment to Kifafi on both claims and, eventually, ordered Hilton (1) to amend the Plan's benefit accrual formula by capping the social security offset, thereby bringing the Plan into retroactive compliance with the 133 1/3% rule, and (2) to administer a claim procedure for crediting participants' years of union service for vesting purposes. Both parties appealed.

II

As an initial matter, Hilton claims the 1999 Plan mooted Kifafi's backloading claim, an argument this Court assesses de novo. Del Monte Fresh Produce Co. v. United States, 570 F.3d 316, 321 (D.C.Cir.2009). ³ As most of the issues in this case presuppose a live controversy over the backloading claims, Hilton's victory on this point would resolve those other issues quite tidily. Unfortunately for Hilton, its arguments do not persuade us. See Honeywell Int'l, Inc. v. NRC, 628 F.3d 568, 576 (D.C.Cir.2010) (explaining that the party asserting mootness carries a “heavy burden”).

Mootness doctrine “limits federal courts to deciding actual, ongoing controversies.” Am. Bar Ass'n v. FTC, 636 F.3d 641, 645 (D.C.Cir.2011) (internal quotation marks omitted). A case is moot when the court's decision “will neither presently affect the parties' rights nor have a more-than-speculative chance of affecting them in the future.” Id. (internal quotation marks omitted). Accordingly, a court must dismiss a properly-brought case if it is subsequently rendered moot. Honeywell Int'l, 628 F.3d at 576. Hilton marshals three arguments to show that happened here: the district court relied on bad law, the 1999 Plan did not violate ERISA's “anti-cutback” provision, and the backloading was eliminated and would not likely recur.

There are problems with each argument, but at bottom, the issue comes down to whether a party can deprive a court of jurisdiction with a wave of its hand.⁴ It cannot, no matter how contritely it apologizes for the conduct giving rise to the litigation. “It is well settled that the voluntary cessation of allegedly unlawful conduct does not moot a case in which the legality of that conduct is challenged.” Christian Legal Soc'y Chapter of the Univ. of California, Hastings Coll. of the Law v. Martinez, –––U.S. ––––,...