Taylor v. BAKERY & CONFECTIONARY UNION, ETC.

• Decision Date: 13 July 1978
• Docket Number: No. 77-65-Civ-8.,77-65-Civ-8.
• Citation: 455 F. Supp. 816
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: Henry Marvin TAYLOR, Plaintiff, v. BAKERY AND CONFECTIONARY UNION AND INDUSTRY INTERNATIONAL WELFARE FUND, Defendant.

455 F. Supp. 816

Henry Marvin TAYLOR, Plaintiff, v. BAKERY AND CONFECTIONARY UNION AND INDUSTRY INTERNATIONAL WELFARE FUND, Defendant.

No. 77-65-Civ-8.

United States District Court, E. D. North Carolina, Wilson Division.

July 13, 1978.

Milton P. Fields, Fields, Cooper & Fields, Rocky Mount, N. C., D. Edward Wilson, Jr., Morgan, Lewis & Bockius, Washington, D. C., for plaintiff.

William L. Thorp, Thorp & Anderson, Raleigh, N. C., for defendant.

MEMORANDUM OF DECISION

DUPREE, District Judge.

This action was removed from the Superior Court of Nash County, North Carolina pursuant to 28 U.S.C. § 1441 because it pertains to the recovery of benefits under a plan established in conformity with the Employee Retirement Income Security Act of 1974 (ERISA), as amended, 29 U.S.C. §§ 1001, et seq. The United States district courts are given original jurisdiction over such actions by 29 U.S.C. § 1132(e)(1).

Both parties have filed summary judgment motions and they are now ripe for decision. The crucial facts, as delineated in the plaintiff's responses to defendant's request for admissions, are as follows.

Plaintiff, Henry Marvin Taylor, is a member of Local 503A of the Bakery and Confectionary Workers International Union and is employed by American Bakeries Company (ABC) in Rocky Mount, North Carolina. The Local has a collective bargaining agreement with ABC, thereby making plaintiff a beneficiary of the Bakery and Confectionary Union and Industry International Welfare Plan, founded and administered under the ERISA guidelines. Plaintiff's entitlement to benefits is governed solely by the Plan C-051 (Plan) provisions.

On or about May 24, 1974, plaintiff Taylor injured his back while working at American Bakeries Company. He received North Carolina Workmen's Compensation for this injury and returned to work, but re-injured his back, while at work, about November or December, 1975.

On October 21, 1976, the plaintiff entered into an "Agreement of Final Settlement and Release" with ABC and its insurers, Continental Casualty Company and Liberty Mutual Insurance Company, compromising any liability his employer would have had under the state Workmen's Compensation Act. In consideration for relinquishing his Workmen's Compensation rights, the plaintiff received $1,500.00 and had all his injury-related medical bills paid.

On February 23, 1977, plaintiff filed a claim with the Fund stating he had injured his back on December 19, 1975 while working in the garage of ABC.¹ The Fund considered his claim and issued a notice of denial on March 11, 1977 stating that benefits are not payable for an occupational disability. The Fund's notice further stated that "if you have any questions, please feel free to contact us the Fund office."

The present action was filed on November 22, 1977, and Mr. Taylor admits that the injury described in, and covered by, the settlement agreement of October, 1976 is the same injury which is the subject of this lawsuit.

The defendant contends that summary judgment should be granted in its favor because (1) the plaintiff did not exhaust his inter-Fund remedies, and (2) he does not meet the Fund's criteria for entitlement to benefits. Both of these arguments are convincing, but the court does not need to reach the defendant's second argument because the first is dispositive.

Plaintiff referred in his complaint to plan N-10 as the contract which the Fund allegedly violated. The court therefore assumes that Mr. Taylor had a copy of the Plan, now designated as C-051, in his possession before filing suit. He further admits that the substantive provisions of the Plan govern his benefit rights.

Found on page thirty-two of the Plan (defendant's Exhibit B) is a section entitled "Denial of Claim and Appeal Therefrom". It specifies a claims procedure which complies with the requirements of 29 U.S.C. § 1133 that every employee welfare plan:²

"(1) provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant, and

"(2) afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim."

Pursuant to these statutory requirements, the defendant Fund sent Mr. Taylor a notification of claim denial and stated that he should contact the Fund office if he had any questions concerning his denial. The appeals procedure, Section II(1), notes that a written appeal is to be made to the Board of Trustees within ninety days of the denial. Although this was a "reasonable opportunity"³ for the plaintiff to have his claim reviewed, he instead filed a suit some six months later challenging the denial. Mr. Taylor, presumably, had a copy of Plan C-051; he admits that those Plan provisions were and are binding; and he was represented by counsel in his dealings with the Fund as early as October 7, 1976 (see defendant's Exhibit I). The effect of plaintiff's failure to exhaust his inter-Fund appeal remedy thus becomes the central issue in the court's inquiry.

Although no federal statutory provision deals directly with this question, the federal courts, under ERISA's legislative history, are empowered to evolve rules of law and procedure to govern various aspects of the employee benefit field. The House Conference Report accompanying Pub.L. 93-406 specifies that ERISA civil actions, whether filed in state or federal courts, "are to be regarded as arising under the laws of the United States in similar fashion to those brought under Section 301 of the Labor-Management Relations Act of 1947." 1974 U.S.Code Cong. & Admin. News, pp. 4639, 5106-07. The courts have long fashioned federal common law relating to collective bargaining under LMRA § 301, 29 U.S.C. § 185. See Textile Workers Union v. Lincoln Mills, 353 U.S. 448, 457, 77 S.Ct. 912, 1 L.Ed.2d 972 (1957). Speaking on behalf of the conference version of ERISA, Senator Javits noted this law-making function as follows:

"In view of Federal preemption, State laws compelling disclosure from private welfare or pension plans, imposing fiduciary requirements on such plans, imposing criminal penalties on failure to contribute to plans — unless a criminal statute of general application — establishing State termination insurance programs, et cetera, will be superseded. It is also intended that a body of Federal substantive law will be developed by the courts to deal with issues involving rights and obligations under private welfare and pension plans." 120 Cong.Rec. at 29942 (Daily Ed. Aug. 22, 1974). (Emphasis added.)

See In re C. D. Moyer Company Trust Fund, 441 F.Supp. 1128, 1131 (E.D.Pa.1977), citing Wayne Chemical, Inc. v. Columbus Agency Service Corporation, 426 F.Supp. 316 (N.D.Ind.1977), modified on other grounds, 567 F.2d 692 (7th Cir. 1977). Therefore, the rules of law effectuating ERISA must be evolved in conformity with the Act's underlying policies and the standards developed by the courts under LMRA § 301, 29 U.S.C. § 185.

The ERISA legislative history and its "Fiduciary Responsibility" provisions, 29 U.S.C. §§ 1101-1114, indicate that Congress intended benefit fund trustees to possess broad managerial and administrative discretion in the operation of their funds.⁴ One important area for the exercise of this discretion, is in claims resolution. 29 U.S.C. § 1133 requires a claim/appeals procedure for every certified plan, and the Labor Department's ERISA Guidelines, 29 C.F.R. § 2560.503-1 (1977), carefully explicate those procedures.

The federal courts have implemented an equally broad form of fiduciary discretion in the LMRA context (§§ 301 and 302) by applying an "arbitrary and capricious" standard of review to the decisions of private fund trustees. The Ninth Circuit, in Rehmar v. Smith, 555 F.2d 1362, 1371 (1976), has written:

"To give meaning to the rights of beneficiaries involved in any fiduciary relationship, the courts have always found it necessary to subject the conduct of the fiduciaries to judicial review and correction. Where, however, the instrument defining the fiduciaries' duties gives them broad discretion, as is generally the case with welfare and pension trusts, the courts limit their review and intervene in the fiduciaries' decisions only where `they have acted arbitrarily or capriciously towards one of the persons to whom their trust obligations run.' We find this standard of judicial review, which leads neither to abdication of traditional judicial control of fiduciaries nor to excessive judicial intervention in trust operations, in harmony with federal labor policy. Accordingly, if the Danti v. Lewis, 114 U.S. App.D.C. 105, 312 F.2d 345 (1962) standard is a statement of state law, or general common law, it is a standard we adopt." (Citations and footnote omitted.)

See also Phillips v. Kennedy, 542 F.2d 52, 55 (8th Cir. 1976); Johnson v. Botica, 537 F.2d 930, 935 (7th Cir. 1976); and Connell v. United States Steel Corporation, 516 F.2d 401, 407, n. 8 (5th Cir. 1975). This arbitrary and capricious review standard governs the judicial supervision of all benefit fund trustees, regardless of the origin of their fiduciary duties. Morgan v. Laborers Pension Trust Fund for Northern California, 433 F.Supp. 518, 524 (N.D.Cal.1977).

An examination of the underlying ERISA policies, interpreted analogously to the development of federal law under LMRA § 301, leads the court to conclude that Congress intended a claimant to exhaust his interfund remedies before seeking federal court ...