Varhola v. Doe

Citation820 F.2d 809
Decision Date22 June 1987
Docket Number86-3021,Nos. 85-4057,s. 85-4057
PartiesAlbert R. VARHOLA; Joseph Bradshaw; Curtis Darnell; Carlos E. Elrod; Frank P. Iovino; E. Jack Maynard; Curtis W. Phipps; Teresa Price, Executrix of the Estate of Earl Price, deceased; Stephen E. Sexton; William Vanderpool; Leslie L. Wilson; Claude Wright, Plaintiffs- Appellees, Cross-Appellants, v. John DOE, et al., Defendants, Cyclops Corporation; Pension Plan for Salaried Employees of Cyclops Corporation; William D. Dickey; Robert A. Kushner; Donald E. Mitchell; Program of Hospital Medical Benefits for Eligible Pensioners and Surviving Spouses of Cyclops Corporation--Salaried Employees, Defendants-Appellants, Cross-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)

Jack F. Fuchs, Daniel O. Berger, Paxton & Seasongood, Cincinnati, Ohio, Donald E. Seymour, argued, Kirkpatrick & Lockhart, Pittsburgh, Pa., for defendants-appellants, cross-appellees.

Don Aspaugh, Columbus, Ohio, Richard C. Graham, argued, Isaac, Brant, Ledman & Becker, Paul H. Tobias, Tobias & Kraus, Cincinnati, Ohio, for plaintiffs-appellees, cross-appellants.

Pension Benefit Guar. Corp., Edward R. Mackiewicz, Robert Furst, Roger J. Lerner, Legal Dept., Washington, D.C., Chamber of Commerce of the United States, William F. Hanrahan, E. Calvin Golumbic, Arent, Fox, Kintner, Plotkin & Kahn, Washington, D.C., amicus curiae in support of defendants-appellants.

United Steelworkers of America, William T. Payne, Asst. Gen. Counsel, Pittsburgh, Pa., amicus curiae in support of plaintiffs-appellees.

Before KEITH, KENNEDY and RYAN, Circuit Judges.

CORNELIA G. KENNEDY, Circuit Judge.

Defendants 1 appeal and plaintiffs cross-appeal the summary judgment for plaintiffs in this action involving pension liability under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Sec. 1001 et seq. We hold that the "arbitrary and capricious" standard of review applies to decisions by plan administrators to deny benefits to particular claimants. Because we find that there are factual issues which need to be resolved, we remand this case to the District Court for determination as to whether the plan administrator in this case acted arbitrarily and capriciously in denying "shutdown pensions" to plaintiffs. We affirm the District Court's rulings that there is no evidence that defendants engaged in unlawful discrimination in violation of 29 U.S.C. Sec. 1140 and that plaintiffs are not entitled to punitive or compensatory damages. We express no opinion on the other issues raised by the parties, but rather remand those issues to the District Court for further proceedings.

I.

Cyclops Corporation ("Cyclops") is engaged, among other things, in the production of steel. Before November 22, 1980, Cyclops owned and operated steel-making and related production facilities near Portsmouth, Ohio ("the Portsmouth facility"). This facility included an operating coke plant, blast furnace, and open hearth furnaces. The twelve plaintiffs in this case were salaried employees of Cyclops and worked at the Portsmouth facility.

In early 1980, Cyclops decided to close down its operations at the Portsmouth facility. After failing to sell the entire facility as a "going concern," it shut down the blast furnace and open hearth furnaces completely, but continued the coke plant operations until August while attempting to find a buyer for the coke plant as a "going concern." On August 25, 1980, the coke ovens were put into a "hot idle" condition, which means that production was stopped but that the temperature of the ovens was maintained, since cooling would damage the refractory lining of the ovens. Although Cyclops ceased producing coke at the coke plant on this date, plaintiffs' employment with Cyclops was not interrupted. On November 21, 1980, Cyclops sold the coke plant assets to New Boston Coke Corporation ("New Boston"), which was then a wholly-owned subsidiary of McLouth Steel Corporation. (The remaining land and buildings at the Portsmouth facility were sold to an unrelated purchaser.) All of the stock of New Boston is now held by a Trustee in Bankruptcy appointed by the United States Bankruptcy Court for the Eastern District of Michigan.

Cyclops had a pension plan in effect for its salaried employees as of November, 1980 ("the Salaried Plan"). Among the special retirement benefits were the "70/80 Retirement" and the "Rule of 65 Retirement" provisions, 2 which provide accelerated pension benefits to participants whose continuous service is broken because of certain events, including "a permanent shutdown of a division, plant, office or department, or subdivision of any of them," provided that their years of service and age meet the requirements of the Plan ("shutdown pensions"). These provisions allow an eligible participant to receive a full retirement benefit, payable immediately upon the shutdown. The parties do not dispute that each of the twelve plaintiffs would qualify for one of the two retirement plans if his continuous service had been broken by a permanent shutdown of a division, plant, office, or department. Eligible Cyclops employees whose employment with Cyclops was terminated because of the shutdown of the open hearth and the blast furnace operations were granted plant shutdown pensions.

However, New Boston wanted experienced workers to run the coke operations. Cyclops provided it with a list of twenty-eight salaried employees, who were designated to work for New Boston following the sale. Each of the plaintiffs was on this list. Plaintiffs were told that if they refused to work for New Boston they would not receive shutdown pensions, but would be eligible only for deferred vested pensions upon reaching normal retirement age. Each of the plaintiffs went to work for New Boston.

As part of the sales agreement, New Boston agreed to assume all accrued (vested and unvested) pension liabilities of the twenty-eight employees, and Cyclops agreed to transfer $60,521 in trust assets from the Salaried Plan to the trustee of the plan which New Boston agreed to develop.

After the Pension Board denied plaintiffs' applications for shutdown pensions, plaintiffs filed suit in the United States District Court for the Southern District of Ohio, alleging sixteen counts in their Amended Complaint. Five counts were dismissed by a Joint Stipulation of the parties on July 29, 1985. The remaining eleven counts were submitted to the court below on cross-motions for summary judgment after the parties entered into a Fact Stipulation and separate Document Stipulations. The District Court issued an Order on November 26, 1985, granting plaintiffs' motion with respect to Count Two (entitlement to shutdown pensions) and Count Ten (entitlement to participation in the Medical Program coinciding with the Count Two pension benefits). The Order granted defendants summary judgment on all remaining counts.

Defendants appeal the District Court's Order with respect to Counts Two and Ten. Defendants concede that the result in Count Ten follows necessarily from the result in Count Two, and so present only Count Two for review. Plaintiffs cross-appeal from the District Court's judgment for defendants on the remaining nine counts.

II.

The first issue raised by the parties on appeal is a procedural one: what is the standard of review applicable under ERISA to decisions by plan administrators to deny benefits to particular claimants? Defendants argue that the court can look only to see whether the administrator's decision was "arbitrary and capricious." Plaintiffs contend that a stricter standard of review should be applied. They argue that it is inconsistent to apply the arbitrary and capricious standard when ERISA specifically imposes upon plan administrators a fiduciary duty to act "solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits" to such parties "in accordance with the documents and instruments governing the plan...." 29 U.S.C. Sec. 1104(1)(A) and (D). Plaintiffs contend that where, as here, they are essentially suing on a contract they should not have to overcome the heavy burden imposed upon them by the use of such a deferential standard. Further, they argue, the arbitrary and capricious standard is particularly inappropriate to the Salaried Plan because the plan administrator--the Pension Board--consists of three Cyclops executives. Plaintiffs assert that Cyclops will benefit from the denial of retirement benefits to plaintiffs, and that the Board thus suffers from an inherent conflict of interest.

This Court has in the past applied an "arbitrary and capricious" standard to the review of decisions by plan administrators under ERISA to deny benefits to particular claimants. See Moore v. Reynolds Metals Co. Retirement Program for Salaried Employees, 740 F.2d 454, 457 (6th Cir.1984), cert. denied, 469 U.S. 1109, 105 S.Ct. 786, 83 L.Ed.2d 780 (1985) ("[R]eview ... is limited to a determination of whether the trustees' actions in administering or interpreting a plan's provisions are arbitrary and capricious."); Van Gunten v. Central States, Southeast & Southwest Areas Pension Fund, 672 F.2d 586, 587 (6th Cir.1982). In fact, this Court has already applied this standard of review to this very Plan. See Cook v. Pension Plan for Salaried Employees of Cyclops Corp., 801 F.2d 865, 869-870 (6th Cir.1986).

Plaintiffs argue that In re White Farm Equip. Co., 788 F.2d 1186 (6th Cir.1986), overruled sub silencio earlier cases employing the arbitrary and capricious standard. This assertion is incorrect. White Farm involved an employer in bankruptcy who, under the process of reorganization in bankruptcy, attempted to terminate certain insurance benefits under a welfare benefit plan for retired employees. The issue presented on appeal was "whether under ERISA an employer may lawfully exercise a reserved power to...

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