Dockray v. Phelps Dodge Corp., 85-2504

• Decision Date: 06 October 1986
• Docket Number: No. 85-2504,85-2504
• Citation: 801 F.2d 1149
• Parties: 123 L.R.R.M. (BNA) 2866, 55 USLW 2287, 7 Employee Benefits Ca 2327 Gordon T. DOCKRAY, Plaintiff-Appellee, v. PHELPS DODGE CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1149

801 F.2d 1149

123 L.R.R.M. (BNA) 2866, 55 USLW 2287,

7 Employee Benefits Ca 2327

Gordon T. DOCKRAY, Plaintiff-Appellee, v. PHELPS DODGE CORPORATION, Defendant-Appellant.

No. 85-2504.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 10, 1986.

Decided Oct. 6, 1986.

Sidney L. Kain, Tucson, Ariz., for Dockray.

G. Starr Rounds, Evans, Kitchel, & Jenckes, Phoenix, Ariz., for Phelps Dodge Corp.

Appeal from the United States District Court for the District of Arizona.

Before PREGERSON, POOLE, and NOONAN, Circuit Judges.

PREGERSON, Circuit Judge.

Phelps Dodge Corporation permanently replaced striking employees, including plaintiff Gordon Dockray. Phelps Dodge informed the strikers that they were not working because no work was available for them, rather than because they were on strike. Consequently, Phelps Dodge cancelled the strikers' entitlement to company medical insurance benefits. Dockray then applied to Phelps Dodge's company-administered pension plan for early retirement to which he would be entitled if Phelps Dodge had laid him off for lack of work. The Plan Administrator, who is also Director of Employee Benefits for Phelps Dodge, refused Dockray's early pension claim. Dockray sued to compel payment of his claim. The district court found for Dockray holding that, by its own admission, Phelps Dodge had laid off Dockray for lack of work and that this bound the Plan Administrator in determining Dockray's status for early pension benefits. We reverse and remand for further proceedings.

FACTS

Union employees struck Phelps Dodge's mine in Ajo, Arizona on July 1, 1983. The strike continues. Gordon Dockray has supported the strike throughout and continues to refuse to sign Phelps Dodge's preferential reinstatement list. By signing the list a striker agrees to cross the picket line and return to work as soon as a suitable vacancy arises. Phelps Dodge hired new employees to replace the strikers and, on Accordingly, you are being dropped from the payroll and placed in the status of a permanently replaced economic striker. As such you and your dependents are no longer eligible for coverage or benefits under the Group Insurance Plan, the Group Dental Expense Insurance Plan, or the Vision Care Benefit Plan. In addition, since the reason you are not now working is that there is no work available for you (and not because you are "refraining from work because of a strike"), under the terms of Article III, Section E of the Hospital-Medical-Surgical Benefits Plan, benefits under the Plan will not be available to you or your dependents when the period, if any, for which the Company has accepted monthly premium payments from you has expired, and the Company will not accept any further premium payments from you.

September 9, 1983, notified the strikers, including Dockray, that Phelps Dodge had replaced them permanently. In his letter of notification to Dockray and the other replaced strikers, Carl Forstrom, manager of the Ajo mine, stated:

(Emphasis in original.)

Phelps Dodge's Pension Plan for Day's-Pay Employees ("Plan") includes an early retirement provision ("70/80 Vesting pension"). Any Plan participant who has more than ten years continuous service with Phelps Dodge and is at least fifty-five years of age, and whose age plus service exceeds seventy years, is entitled to an early pension under the Plan if "laid off after June 30, 1980 for lack of work." Dockray's age and seniority qualify him for a 70/80 Vesting pension.

The Plan Administrator, Robert McGowan, is also the Director of Employees Benefits for Phelps Dodge. McGowan denied Dockray's application for a 70/80 Vesting pension. In an affidavit to the district court, McGowan stated that the 70/80 Vesting provision applies only to "employees required by the Company to cease working as a result of lack of work. It does not include employees who resign or stop work temporarily or permanently when they have not been forced to do so by the Company." Thus, McGowan concluded, since Dockray "was not required by the Company to cease working," he is ineligible for a 70/80 Vesting pension. ¹

After exhausting his administrative remedies, Dockray filed a state contract action to recover benefits due to him under the Plan. Phelps Dodge removed the suit to federal court where Dockray filed an amended complaint under 29 U.S.C. Sec. 1132(a)(1)(B) to recover benefits due under a plan covered by the Employee Retirement Income Security Act ("ERISA"). Both parties filed for summary judgment.

The district court granted summary judgment in favor of Dockray, holding that Phelps Dodge was bound by the language in Forstrom's notification letter to Dockray. The court found that Phelps Dodge's intentions, as expressed by the notification letter, were to lay off Dockray. Thus, the court concluded, the decision to deny Dockray a 70/80 Vesting pension was

arbitrary and capricious and plainly wrong as a matter of law.

The plaintiff continued to be an employee while an economic striker. It is the defendant who chose the terminology providing that its employee Dockray could not work at the job for which he was employed because there was no work available for him. The defendant chose to use that language to absolve itself of responsibility in connection with the hospitalization plan. Having elected to do so, it cannot now disavow that language and interpretation to suit yet another purpose advantageous to it.

Phelps Dodge timely appealed. ²

STANDARD OF REVIEW

Summary judgment is proper if there is no genuine issue of material fact and the moving party should prevail as a matter of law. Jung v. FMC Corp., 755 F.2d 708, 710 (9th Cir.1985); Fed.R.Civ.P. 56(c). We review de novo a district court's grant of summary judgment. Id.

Normally, a court will review a decision of an administrator of an employer-administered ERISA fund according to the same standard as it would review a decision of an independent trustee. See id. A court should reverse the decision of the administrator of an employer-administered plan "only where [the decision is] arbitrary, capricious or made in bad faith, not supported by substantial evidence, or erroneous on a question of law." Id. at 711 (quoting Music v. Western Conference of Teamsters Pension Trust Fund, 712 F.2d 413, 418 (9th Cir.1983)). An administrator's decision is not arbitrary or capricious if it is a reasonable interpretation of the plan's terms and was made in good faith. Jung, 755 F.2d at 713. Absent special circumstances, a court should defer to the administrator's "reasonable resolutions of any ambiguities in the Plan's language," rather than construe ambiguities in favor of plan participants. Id. (quoting Smith v. CMTA-IAM Pension Trust, 654 F.2d 650, 655 (9th Cir.1981)).

In Jung, we recognized that, where the administrator's decision presented a serious conflict between the interests of the employer and those of the fund's beneficiaries, a court should give "less deference" than usual, under the arbitrary and capricious standard, to the decision of the administrator of the employer-administered fund. 755 F.2d at 711-12 (decision in beneficiaries' favor would result in "very substantial outlay" by employer). See also Struble v. New Jersey Brewery Employees' Welfare Trust Fund, 732 F.2d 325, 333-34 (3d Cir.1984) (applying less deference to decision of employer trustees because "gravamen of the plaintiff's complaint is not that the trustees have incorrectly balanced valid interests, but rather that they have sacrificed valid interests to advance the interests of non-beneficiaries.").

We think that a lesser degree of deference is also due here to the decision of McGowan, the fund administrator. The conflict facing McGowan is financial, as in Jung and Struble, although the financial interest of Phelps Dodge may not be large because there are apparently relatively few striking Ajo mine employees with sufficient seniority to qualify for a 70/80 Vesting pension. However, the countervailing tugs of divided loyalty pulling at McGowan here are at least as strong as those confronting the fund administrators in either Jung or Struble.

At the time that Administrator/Employee Benefits' Director McGowan denied Dockray's pension application, the strike had entered its third month. ³ The strike had been unusually bitter and violent. The Governor of Arizona had sent National Guardsmen to protect replacement workers as they crossed the lines of massed pickets outside the mine gates. Scuffles, property On remand, the burden of persuasion, of course, remains with Dockray. To prevail, Dockray must show that the Administrator breached his statutory fiduciary duty to act "for the sole and exclusive benefit" of the fund's beneficiaries, including Dockray. 29 U.S.C. Sec. 186(c)(5). The court will weigh the Administrator's rebuttal of Dockray's evidence of bias against the arbitrary and capricious standard. However, the district court should be appreciably more critical of the reasons advanced by the Administrator, and less willing to resolve all ambiguities in the Administrator's favor, than the court would be if the fund were administered by an independent trustee.

damage, vigilante violence, and numerous arrests had attracted national media attention to the dispute. For Dockray to "win" his pension would no doubt have boosted the strikers' morale at a time when Phelps Dodge had apparently succeeded in overcoming the picketing and had fully staffed the mine with replacement workers. Given this highly charged atmosphere, we think it unrealistic to grant the same substantial deference to the consideration of Dockray's application by an administrator who is also a senior member of Phelps Dodge management as we would to the decision of a wholly independent fund trustee in similar circumstances.

ANALYSIS

I

The district court found that Phelps Dodge had laid off Dockray and that to deny him a 70/80 Vesting pension was arbitrary and...