Orozco v. United Air Lines, Inc.

• Citation: 887 F.2d 949
• Decision Date: 16 October 1989
• Docket Number: Nos. 88-2923,88-15697,s. 88-2923
• Parties: , 11 Employee Benefits Ca 1904 Richard OROZCO, Plaintiff-Appellee, v. UNITED AIR LINES, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 949

887 F.2d 949

58 USLW 2276, 11 Employee Benefits Ca 1904

Richard OROZCO, Plaintiff-Appellee, v. UNITED AIR LINES, INC., Defendant-Appellant.

Nos. 88-2923, 88-15697.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted June 6, 1989.

Decided Oct. 16, 1989.

William J. Dritsas and Tyler A. Brown, Seyfarth, Shaw, Fairweather & Geraldson, San Francisco, Cal., Kathleen Katovich, United Airlines Counsel, Chicago, Ill., for defendant-appellant.

David H. Fielding, Bushnell, Caplan & Fielding, San Francisco, Cal., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of California.

Before CHOY, ALARCON and LEAVY, Circuit Judges.

PER CURIAM:

United Airlines, Inc. ("United") filed these consolidated appeals from the district court's entry of summary judgment in favor of Richard Orozco ("Orozco") and from the district court's order awarding Orozco attorney's fees and costs. 698 F.Supp. 196. Orozco, a former employee of United, brought this action in California Superior Court alleging breach of contract and related claims arising from United's failure to pay additional benefits Orozco claimed were due under United's Termination Incentive Program ("TIP").

United removed the action to federal district court on the basis of diversity jurisdiction, 28 U.S.C. Sec. 1332 (1982). ¹ The parties and the district court, however, treated the action as arising under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.A. Secs. 1001-1461 (West 1985 & Supp.1989). The district court held that United's decision to reduce its payment to Orozco under TIP was arbitrary and capricious and that Orozco had not waived his right to receive additional benefits by accepting the reduced amount offered by United. The district court then awarded Orozco attorney's fees and costs. We reverse.

FACTS

In the fall of 1983, United instituted and funded TIP as an employee benefit program to encourage voluntary reduction in staffing. Employees who opted to participate in TIP received one lump sum cash settlement which was calculated on the basis of employment status. Regular, full-time employees received a lump sum equal to 100 percent of their annual pay; regular, part-time employees received 50 percent of Orozco began working for United in 1973 as a full-time Customer Service Clerk. In 1976, he was promoted to a position as a full-time Customer Service Agent. He held this position until September, 1980, when he was furloughed as part of a reduction in work force by United. He was recalled from furlough on August 29, 1983, and resumed work as a full-time Customer Service Agent.

their annual pay. United employees received notice of the availability of TIP benefits through a brochure which set forth the guidelines under which employees would receive TIP benefits.

Prior to returning to work, Orozco requested that he be placed on part-time status at United's San Jose facility upon his return because he wanted to attend school in San Jose while he worked. There were no appropriate part-time positions available so Orozco returned to work as a full-time employee. In September, 1983, Orozco again asked to be transferred to part-time status. Because United still had no openings, Orozco's status remained unchanged but, pursuant to United's policy, the company kept Orozco's request on file until an opening as a part-time employee became available or Orozco withdrew his request.

On October 13, 1983, Orozco suffered a back injury and was placed on disability leave. On November 19, 1983, United approved Orozco's request for a change to part-time status and implemented the transfer. Orozco was still absent from work due to his back injury but United approved the change in status to preserve the part-time position for him. On or about November 19, Orozco's supervisor notified Orozco by telephone that if Orozco could get medical clearance, the part-time status transfer was approved. A few days later, Orozco picked up a copy of his transfer form which was marked "accepted" by United.

On January 15, 1984, Orozco was placed on extended illness status because his sick leave eligibility had expired. In April 1984, Orozco underwent a medical examination and was authorized to return to work subject to certain medical restrictions. When Orozco informed his supervisors of the medical restrictions, the supervisors told him that he would be unable to work as a Customer Service Agent given his physical limitations. At that time, Orozco had the option to remain on extended illness status for up to two years. Instead, he chose to participate in TIP.

Orozco executed his first TIP election form on March 30, 1984. Previously, United had notified Orozco that the company intended to pay Orozco benefits on the basis of part-time status because Orozco was a part-time employee as of the TIP eligibility date of December 31, 1983. Orozco wrote on the form that his signature did not constitute a waiver of any claim for full-time benefits under TIP. United's personnel department refused to accept the modified election form. Orozco executed a second form without the modification on April 18, 1984, and initiated each of the explanatory paragraphs setting forth the terms under which he accepted TIP benefits. When he signed the second form, Orozco gave United a letter from Orozco's attorney notifying United that Orozco intended to pursue his right to full-time benefits. Orozco received $14,232 from United.

STANDARD OF REVIEW

This court reviews de novo the grant of summary judgment. Bonner v. Lewis, 857 F.2d 559, 561 (9th Cir.1988). Summary judgment is appropriate if, viewing the evidence in the light most favorable to the party opposing the motion, the court finds that there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Lundy v. Union Carbide Corp., 695 F.2d 394, 396 (9th Cir.1982). The district court's determination regarding attorney's fees is reviewed under an abuse of discretion standard. Blanton v. Anzalone, 760 F.2d 989, 992 (9th Cir.1985).

DISCUSSION

I. Applicability of ERISA

The parties and the district court treated this action as arising under ERISA even though the causes of action in Orozco's complaint were based on state law. ERISA clearly governs this action. ERISA applies to any "employee benefit plan" established or maintained by an employer engaging in commerce. 29 U.S.C. Sec. 1003 (1982). The TIP benefit is very similar to severance pay, which has been included within the category of employee welfare benefits to which ERISA applies. Scott v. Gulf Oil Corp., 754 F.2d 1499, 1502-03 (9th Cir.1985); see also Ridens v. Voluntary Separation Program, 610 F.Supp. 770, 775-76 (D.Minn.1985) (Voluntary Separation Program set up by Texaco was an employee benefit plan subject to ERISA). United allegedly failed to comply with ERISA's procedural requirements when it set up the TIP plan. Yet, compliance with ERISA's procedural requirements for setting up an employee benefit plan is not a prerequisite to ERISA coverage. Scott, 754 F.2d at 1503-04. TIP is an employee benefit plan and, therefore, ERISA preempts Orozco's state law causes of action for breach of contract, bad faith breach of contract, and failure to pay wages pursuant to Cal.Labor Code Sec. 203 (West Supp.1989). 29 U.S.C. Sec. 1144 (1982 & Supp. IV 1986); see also Scott, 754 F.2d at 1504 (ERISA preempts "claims brought under state-law doctrines that do not explicitly refer to employee benefit plans ... when the claims arise from the administration of such plans.").

Orozco's suit falls under section 502(a)(1)(B) of ERISA, which authorizes civil actions by plan participants to recover benefits due under the terms of the plan. 29 U.S.C. Sec. 1132(a)(1)(B) (1982). Thus, to uphold the district court's entry of summary judgment in favor of Orozco, we must determine whether Orozco was entitled to part- or full-time benefits under the terms of the plan.

II. United's Decision to Grant Part-Time Benefits

United determined that under the TIP plan, Orozco was entitled only to part-time TIP benefits because Orozco's employment status as of December 31, 1983, was listed as part-time in United's employment records. The district court held that United's determination was an arbitrary and capricious interpretation of the plan's terms.

A. Applicable Standard of Review

Before the Supreme Court's decision in Firestone Tire & Rubber Co. v. Bruch, --- U.S. ----, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), a plan administrator's decision to deny benefits was reviewed under an arbitrary and capricious standard in suits under 29 U.S.C. Sec. 1132(a)(1)(B). That standard required that the administrator's interpretation of a plan be upheld unless "arbitrary, capricious, made in bad faith, not supported by substantial evidence, or erroneous on a question of law." Malhiot v. Southern Calif. Retail Clerks Union, 735 F.2d 1133, 1135 (9th Cir.1984), cert. denied, 469 U.S. 1189, 105 S.Ct. 959, 83 L.Ed.2d 965 (1985).

In Bruch, the Supreme Court held that benefit determinations are to be reviewed under a de novo standard in section 1132(a)(1)(B) suits, unless the terms of the benefit plan give the administrator of the plan discretionary authority to determine eligibility for benefits. 109 S.Ct. at 956. Under de novo review, the court independently construes the terms of the plan document in light of other evidence of the parties' intent to determine whether the administrator's decision regarding benefits was proper. Id. at 955.

Retroactive Application of Bruch

Since the TIP brochure does not expressly grant discretionary authority to United, the de novo standard would apply here. United contends, however, that Bruch should not be applied retroactively to this case or to any other case involving a decision by an administrator which predates the decision in Bruch. To determine whether a case should be applied only prospectively,...