828 F.2d 134 (3rd Cir. 1987), 86-1448, Bruch v. Firestone Tire and Rubber Co.
|Citation:||828 F.2d 134|
|Party Name:||BRUCH, Richard, Chubb, John R. and Schade, Albert and Schollenberger, Richard and Smith, Ronald R. and Smolinski, Leonard A. In their individual capacities and as representatives of the class of former, salaried, non-union employees of the Firestone Plastics Division which was sold to the Hooker Chemical Division of the Occidental Petroleum Corpora|
|Case Date:||August 31, 1987|
|Court:||United States Courts of Appeals, Court of Appeals for the Third Circuit|
Argued Dec. 19, 1986.
Rehearing and Rehearing In Banc Denied Sept. 25, 1987.
Paula R. Markowitz (argued), Markowitz & Richman, Philadelphia, Pa., for appellants.
Martin Wald (argued), Deena Jo Schneider, Arden J. Olson, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., for appellees.
Before HIGGINBOTHAM and BECKER, Circuit Judges, and DUMBAULD, District Judge. [*]
OPINION OF THE COURT
BECKER, Circuit Judge.
Three classes of former salaried employees of the Plastics Division of defendant Firestone Tire & Rubber Co ("Firestone") allege that the administrator of Firestone's pension and welfare plans improperly denied them various benefits allegedly due under those plans. The "rub" is that the plan administrator is Firestone itself--which is also the sole source of funding for the plan at issue in Count I. To evaluate plaintiffs' claims we must address important questions about the scope of judicial review of decisions by pension plan administrators on plan participants' claims for benefits.
Proceeding individually, the named plaintiffs also contend that the plan administrator did not respond properly to their requests for information. In Count VII of their complaint, these plaintiffs invoke the statutory remedy for that wrong provided in Sec. 502(c) of ERISA, 29 U.S.C. Sec. 1132(c), and ask the court to order defendants to pay each named plaintiff damages of $100 per day.
After concluding that the plan administrator's decision to deny benefits should be reviewed under the deferential arbitrary and capricious standard, the district court granted summary judgment for defendants on all of the counts now before us, 640 F.Supp. 519. We affirm that decision with respect to Counts III and V, but reverse with respect to Counts I and VII.
With regard to Count I, we hold that the decision by Firestone to deny benefits under the Termination Pay plan should be reviewed de novo by the court and that there should be deference to neither the plan administrator's nor the participants' construction of plan terminology. We accordingly remand so that the district court can decide the proper construction of the relevant plan language.
With regard to Count VII, we hold that an individual has standing to request damages pursuant to Sec. 502(c) of ERISA even if he is no longer an employee and is not entitled to any benefits other than those he has already received when he requested information under that provision. Section 502(c) confers wide discretion on the district court, however, to determine how much the claimant should receive in damages. We remand Count VII to permit the district court to exercise that discretion.
I. BACKGROUND FACTS AND STATEMENT OF CONTENTIONS
The three plaintiff classes consist of a total of over 500 former salaried employees of the Plastics Division of defendant Firestone Tire & Rubber Co. When Firestone sold its Plastics Division to the Occidental Petroleum Corporation on November 30, 1980, "most if not all" of the class members were offered the opportunity to continue in the positions they had occupied under Firestone. Most accepted. Firestone maintained three welfare or pension plans which are relevant for present purposes.
First, under the Termination Pay plan Firestone provided severance pay to salaried employees under certain conditions discussed in detail below. After the sale of the Plastics Division, plaintiffs requested benefits pursuant to that plan but Firestone denied them. Plaintiffs challenge that denial in Count I.
Second, under the Retirement Plan, Firestone offered defined retirement benefits if employees retired at age 65; it offered other somewhat smaller benefits if employees took early retirement, which they could do under certain limited circumstances. The Retirement Plan also offered deferred vested benefits, which were smaller than either the regular or the early retirement benefit, to employees who could not meet the conditions for either regular or early retirement but who could meet other less stringent conditions. After the sale of the Plastics Division plaintiffs sought early retirement benefits, but Firestone denied their claims and awarded only the lesser
deferred vested benefit. Plaintiffs challenge this decision in Count III.
Firestone also maintained a Stock Purchase Plan, under which one class of plaintiffs had been accumulating stock. When Firestone sold the Plastics Division some of these class members' accumulated stock rights had not vested pursuant to the Plan. In Count V, plaintiffs contend that the sale of the Plastics Division was a partial termination under ERISA, 26 U.S.C. Sec. 411(d)(3), automatically vesting their rights under the Plan on the date of the sale.
Finally, after the sale several of the named plaintiffs wrote to Firestone to request information about their benefits under each of the above plans. Plaintiffs contend that Firestone failed to respond properly to these requests, as required by section 502 of ERISA. 1 That provision also gives participants and beneficiaries a private right of action for damages against the plan administrator if the administrator does not fulfill his Sec. 502(c) obligations. The named plaintiffs who sought information press that right of action in Count VII.
The district court granted summary judgment for defendants on all of the above claims. The court also dismissed several other counts, but plaintiffs do not appeal these decisions. 2
At the heart of the district court's opinion granting summary judgment on Counts I, III and V was the court's deference to decisions by the plan administrator. In each case the administrator based its denial of claims on a construction of plan language. The district court believed that it could not reverse the administrators' constructions of the plans' terms unless they were arbitrary and capricious, and it felt obliged to uphold the administrator's decisions given that standard of review.
At the core of the plaintiffs' challenge to the district court's decision is their contention that the district court should not have applied the arbitrary and capricious standard in this case. We now address that contention. 3
II. SCOPE OF REVIEW
A. Plaintiffs' Contentions
Plaintiffs argue that both the common law of trusts and federal common law developed pursuant to ERISA counsel against deferring to decisions by fiduciaries with interests adverse to those of the claimants. Such a conflict can occur, for example, if the employer is the plan administrator and the plan provides that the employer's contributions
in a given year are determined by the cost of satisfying plan liabilities in the prior year. Or, as in this case with respect to Count I, a conflict of interest may occur if the plan administrator is also the employer and the plan is unfunded, so that any benefits provided by the plan are paid directly by the employer out of its general corporate funds.
Plaintiffs advance two arguments to justify rejection of the arbitrary and capricious standard, and though these theories are based on different legal principles they produce essentially the same result. First, plaintiffs argue that the principles of trust law should control, that under trust law the plan administrator owes the employees a fiduciary duty, and that courts enforce that duty by construing all plan language "solely in the interest of the beneficiary." Plaintiffs argue further that the sole benefit standard requires courts to construe all ambiguities in plan language in favor of the beneficiaries, and in favor of coverage.
Alternatively, plaintiffs argue that contract law controls, that the welfare plan at issue in Count I is a unilateral contract drafted by defendant Firestone, and that the principles of contract law require that ambiguities be construed against the draftsman. The result under this theory is also to construe ambiguities regarding coverage in favor of the employee or former employee requesting benefits.
B. Current Law on the Scope of Review
The clear weight of authority under ERISA is against the plaintiffs' position. As defendants correctly note in their response to plaintiffs' argument, most courts of appeals have applied the arbitrary and capricious standard when considering challenges to plan administrators' denial of benefits. Kosty v. Lewis, 319 F.2d 744 (D.C.Cir.1963); Miles v. New York State Teamsters Conference, 698 F.2d 593 (2d Cir.1983); Holland v. Burlington Industries, 772 F.2d 1140 (4th Cir.1985), affirmed mem. as Brooks v. Burlington Industries, --- U.S. ----, 106 S.Ct. 3267, 91 L.Ed.2d 559, cert. denied as Slack v. Burlington Industries, --- U.S. ----, 106 S.Ct. 3271, 91 L.Ed.2d 562 (1986); 4 Dennard v. Richards Group, Inc., 681 F.2d 306, 314 (5th Cir.1982); Varhola v. Doe, 820 F.2d 809 (6th Cir.1987); Blakeman v. Mead Containers, 779 F.2d 1146 (6th Cir.1985); Pabst Brewing Co. v. Anger, 784 F.2d 338 (8th Cir.1986) (per curiam); Dockray v. Phelps Dodge Corp., 801 F.2d 1149 (9th Cir.1986)...
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