Berlin v. Michigan Bell Telephone Co.

• Decision Date: 03 October 1988
• Docket Number: 87-1478,Nos. 87-1475,s. 87-1475
• Parties: 10 Employee Benefits Ca 1217 Frank M. BERLIN, Plaintiff-Appellant (87-1475), Norbert A. Ogden, Milton A. Hartman, James K. Husk, M. Jean Kazlauskaus, Theodore J. Reuther, Charles G. Cook, William Reno, Oscar L. Cox, Henry Harrower, David R. Henderson, Shirley A. Hunt, Geraldine Rivard, Fred Schmekel, John Dunstone, Theresa Orjada, Chester Schuster, Kenneth Young, Roman S. Grucz, Andrew Lutenski, Herman Stuedemann, Robert Barnes, George Cappell, Ralph J. Banner, Alena Higgins, and Carolyn P. Thiede, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants (87-1478), v. MICHIGAN BELL TELEPHONE COMPANY, a Michigan Corporation, and Dan Grady, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1154

858 F.2d 1154

10 Employee Benefits Ca 1217

Frank M. BERLIN, Plaintiff-Appellant (87-1475),

Norbert A. Ogden, Milton A. Hartman, James K. Husk, M. Jean

Kazlauskaus, Theodore J. Reuther, Charles G. Cook, William

Reno, Oscar L. Cox, Henry Harrower, David R. Henderson,

Shirley A. Hunt, Geraldine Rivard, Fred Schmekel, John

Dunstone, Theresa Orjada, Chester Schuster, Kenneth Young,

Roman S. Grucz, Andrew Lutenski, Herman Stuedemann, Robert

Barnes, George Cappell, Ralph J. Banner, Alena Higgins, and

Carolyn P. Thiede, on behalf of themselves and all others

similarly situated, Plaintiffs-Appellants (87-1478), v. MICHIGAN BELL TELEPHONE COMPANY, a Michigan Corporation, and Dan Grady, Defendants-Appellees.

Nos. 87-1475, 87-1478.

United States Court of Appeals, Sixth Circuit.

Argued July 25, 1988.

Decided Oct. 3, 1988.

Bradley A. Carl, W. Merritt Jones, Jr., Hill, Lewis, Adams, Goodrich & Tait, Detroit, Mich., Robert B. Stevenson (argued), Law Offices of Robert B. Stevenson, Ann Arbor, Mich., Francis M. Fitzgerald, Barbier, Petersmarck, Tolleson, Mead, Paige & Carlin, P.C., Mt. Clemens, Mich., John F. O'Grady, Saginaw, Mich., Theresa Smith Lloyd, Plunkett, Cooney, Rutt, Watters, Stanczyk & Pedersen, Mark R. Ulicny, Detroit, Mich., for plaintiffs-appellants.

Robert Vercruysse, Gloria A. Hage, Constance Ettinger (argued), Butzel, Long, Gust, Klein & Van Zile, Detroit, Mich., for defendants-appellees.

Before LIVELY and MILBURN, Circuit Judges, and CONTIE, Senior Circuit Judge.

MILBURN, Circuit Judge.

Plaintiffs-appellants in No. 87-1478, a class action, appeal the judgment of the district court granting the motion of defendants-appellees Michigan Bell Telephone ("MBT") and Dan Grady, Vice President-Personnel at MBT, for summary judgment on plaintiffs' claims under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Sec. 1001 et seq. Plaintiff-appellant in No. 87-1475, Frank M. Berlin, appeals the summary judgment of the district court entered in favor of MBT and Grady on Berlin's claims under ERISA. As the issues to be decided are identical with one exception (an additional issue in Berlin's case), these appeals have been consolidated. Because we find that genuine issues of material fact exist as to when a fiduciary duty arose under ERISA, 29 U.S.C. Sec. 1104, and we also find that genuine issues of material fact exist as to whether or not there was a breach of a fiduciary duty, we reverse the summary judgments of the district court.

I.

A. No. 87-1478

Plaintiffs in No. 87-1478 commenced their action on February 9, 1983, by filing a class action complaint on behalf of the representative plaintiffs and all other former MBT employees who retired between December 1, 1980, and June 1, 1982, and who would have been eligible for benefits under a special MBT severance plan called the Management Income Protection Plan ("MIPP") had they retired between June 1, 1982, and July 31, 1982. Among other things, plaintiffs allege that they were wrongfully denied retirement benefits in violation of ERISA, 29 U.S.C. Sec. 1001 et seq.

The class plaintiffs are former MBT employees who were not offered severance benefits pursuant to MBT's MIPP severance plan upon their retirement. Plaintiffs initially asserted claims under state law as well as under ERISA; however, plaintiffs' state law claims were dismissed by the district court. See Ogden v. Michigan Bell Tel. Co., 595 F.Supp. 961 (E.D.Mich.1984); 571 F.Supp. 520 (E.D.Mich.1983). The dismissal of the state law claims is not before us on appeal.

After extensive discovery and after plaintiffs amended their complaint three times, defendants on February 27, 1986, moved for summary judgment pursuant to Federal Rule of Civil Procedure 56. Likewise, on the same day, plaintiffs also moved under Rule 56 for summary judgment on their third amended complaint.

After corresponding briefs were filed, the district court on January 27, 1987, issued its memorandum opinion and order granting defendants' motion for summary judgment and denying plaintiffs' motion. On March 31, 1987, the district court issued a superseding memorandum opinion and order withdrawing a portion of its January 27, 1987, opinion but granting defendants' motion and dismissing plaintiffs' entire action with prejudice. Ogden v. Michigan Bell Tel. Co., 657 F.Supp. 328 (E.D.Mich.1987). The district court then entered final judgment the same day in No. 87-1478 in favor of defendants, pursuant to Federal Rule of Civil Procedure 58. The plaintiffs' timely appeal followed.

B. No. 87-1475

In No. 87-1475, plaintiff Frank Berlin commenced his action by filing a complaint on March 2, 1983, alleging that he retired from MBT after December 1, 1980, but before June 1, 1982, and that he would have been eligible for severance benefits under MIPP had he retired between June 1, 1982, and July 31, 1982. The essential difference between the position of plaintiff Berlin and the class plaintiffs is that Berlin alleges that he initially notified MBT that he would retire effective June 7, 1982, which would have enabled him to elect MIPP severance benefits. However, he was urged by a district manager for MBT to change his effective retirement date to May 31, 1982, for administrative accounting convenience. Berlin agreed and retired effective May 31, 1982, which placed him one day outside the MIPP offering in question.

On April 20, 1987, the district court granted defendants' motion for summary judgment against Berlin, relying on the reasoning articulated in the court's March 31, 1987, opinion in No. 87-1478. Plaintiff Berlin's timely appeal followed.

C. Common Factual Allegations

During the time period relevant to this appeal (October 1980 through July 1982), MBT was experiencing financial difficulties, and there was a growing realization at MBT that there existed an overabundance of management-level employees within the company. As a result, MBT officials began to consider options for reducing surplus management, ruling out, however, layoffs which were contrary to the company's basic philosophy. In response to the management surplus problem, MBT officially adopted MIPP on October 1, 1980, as a tool to downsize management. MIPP operated as an incentive package to encourage voluntary terminations or early retirement for individuals affected by what the company denoted as a "resizing opportunity," thereby accelerating the attrition rate among management-level employees.

The availability of the first MIPP offering was from October 1, 1980, through December 1, 1980 (the first MIPP window period or offering). A second MIPP offering covering the period of June 1, 1982, through July 31, 1982 (the second MIPP window period), is what gives rise to the issues in controversy in the present cases.

MIPP operated as an unfunded welfare benefit plan, meaning that no trust corpus existed. See 29 U.S.C. Sec. 1002(1). As an employee welfare benefit plan, MIPP was subject to ERISA. See 29 U.S.C. Sec. 1101(a). Those persons found eligible for MIPP benefits generally could receive, in addition to any pension or other unrelated benefit, a separation pay allowance of 5 per cent annual salary plus 5 per cent for each completed year of net credited service in excess of one year of net credited service (with a maximum of 100 per cent of annual salary) to be paid over a one-year period beginning at retirement. MIPP also provided additional medical insurance coverage. The funds necessary to meet the costs of a MIPP extension were paid directly by MBT based on the actual cost of MIPP.

Both parties concede that MIPP was adopted as a force reduction tool and used by MBT to encourage voluntary terminations or early retirement. J.A. at 865. An offer of MIPP benefits could only occur when the fiduciary named for the MIPP program designated an employee or group of employees as "affected by a resizing opportunity." J.A. at 32. The plan provided that "[t]he Vice President-Personnel shall be the named fiduciary of the Plan." J.A. at 36. ¹ Moreover, the plan states that the decision to implement the plan is to be made by the vice president-personnel. Id. At all relevant times, defendant Grady was the Vice President-Personnel at MBT and the admitted fiduciary under the MIPP plan. MBT, through its agent, Grady, is named as plan administrator. J.A. at 47.

The events giving rise to the present cases occurred between October 1, 1980, when MIPP was first implemented, and July 31, 1982, when it became apparent that the plaintiffs in the present cases would be ineligible for MIPP benefits because they retired after the close of the first MIPP window but before the opening of the second. The district court found that MIPP remained effective during the period from October 1, 1980, through July 31, 1982, since (although not always implemented) MIPP was always a viable work force reduction alternative available to the company.

MIPP could be used by MBT in various ways. For example, MIPP benefits might be offered to a specific individual to encourage that individual's retirement. MIPP also could be applied generally to management-level employees in a certain category. According to a news publication for management personnel at MBT ("News for Management Bulletin" or "NMB" ²):

MIPP was used in Michigan to correct a surplus situation that was not correctable simply by attrition or routine personnel handling. MIPP, under its guidelines, cannot be used to eliminate weak or unsatisfactory performers.

* * * MIPP is used only when there is a surplus condition resulting from three specific situation [sic] (1) a general reduction of management jobs; (2) elimination of specific management jobs; (3) significant changes in specific management jobs; for example, skills and abilities.

J.A. at 867.

As stated earlier, the first general MIPP offering or window period was established from October 1, 1980, to December 1, 1980. Managers designated as eligible for MIPP...