Callahan v. Rouge Steel Co., 90-1654

• Decision Date: 16 October 1991
• Docket Number: No. 90-1654,90-1654
• Citation: 941 F.2d 456
• Parties: 14 Employee Benefits Cas. 1425 John F. CALLAHAN, et al., Plaintiffs-Appellants, v. ROUGE STEEL COMPANY, a Delaware corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 456

941 F.2d 456

14 Employee Benefits Cas. 1425

John F. CALLAHAN, et al., Plaintiffs-Appellants, v. ROUGE STEEL COMPANY, a Delaware corporation, Defendant-Appellee.

No. 90-1654.

United States Court of Appeals Sixth Circuit.

Argued April 1, 1991.

Decided Aug. 13, 1991.

Rehearing and Rehearing En Banc

Denied Oct. 16, 1991.

John R. Runyan, Theodore Sachs (argued and briefed), Sachs, Nunn, Kates, Kadushin, O'Hare, Helveston & Waldman, Detroit, Mich., for plaintiffs-appellants.

Victor G. Marrocco, John M. Thomas (argued and briefed), Richard G. Gwizdz, Ford Motor Co., Dearborn, Mich., for defendant-appellee.

Before MARTIN, GUY and NELSON, Circuit Judges.

BOYCE F. MARTIN, JR., Circuit Judge.

This appeal, proceeding under section 502(a)(1)(B) of ERISA, involves claims made by present and former Great Lakes shipping officers who served aboard ships that provided ore, coal and other supplies to the Rouge Steel Company, a subsidiary of Ford Motor Company in River Rouge, Michigan. The issue before us is whether Rouge Steel's severance plan includes a condition abolishing severance benefits otherwise available to officers of a vessel which is sold by the company. Rouge Steel argues that the plan includes a condition precluding benefits when the officers are employed by a successor corporation, as happened here. The district court accepted this argument and entered summary judgment in favor of Rouge Steel. The shipping officers, on the other hand, assert the district court erroneously allowed this condition to be incorporated by reference into the plan; they argue ERISA requires such a limiting condition to be on the face of the plan itself. The officers allege that the dispute is inappropriate for summary judgment. We agree and remand to the district court.

During the course of the officers' employment for Rouge Steel Company, the company periodically distributed to them its "Marine Officer Policy for All Regular Officers on Vessels Operated by Rouge Steel Company." Rouge Steel last distributed the Policy in September of 1988. Included in the Policy is a provision titled "Separation Allowance," which set forth the procedure for determining when to give and how to calculate separation benefits. The provision states, in relevant part:

B. Separation Allowance

When a vessel is permanently removed from service, a regular marine officer whose employment is terminated either directly or indirectly as a result thereof shall be entitled to Separation Allowance in accordance with the following procedure:

A vessel may be removed from service by sale, by disposing of it and not replacing it, or by laying it up for an indefinite period of time. In any case, the permanent removal of a vessel is at the sole discretion of the Company.

....

The procedure for payment, calculation of payments and applicable administrative guidelines shall be the same as established for other salaried employees except as noted herein.

(emphasis added). The calculation of severance benefits under the Marine Officer Policy is based in part upon the officer's length of service; accordingly, the benefits cushion the financial impact of unemployment and reward past service.

For reasons not explained, Ford and Rouge Steel decided it was time to exit the Great Lakes shipping business and sell or dispose of the large Lakes ships that it owned. It appears that they owned four. In March, 1989, around six months after distributing the latest version of the Marine Officer Policy to the shipping officers, Rouge Steel entered into a contract to sell all of its vessels to Lakes Shipping Company, Inc. The terms of the contract included the sale of assets and a promise by Lakes Shipping to provide the shipping services previously performed by the Rouge Steel fleet for a period of ten years; this was not a stock transaction. Their agreement also included the following provision relating to the policy at issue in this case:

[Lakes Shipping] and [Rouge Steel] intend that [Lakes Shipping] not be obligated to succeed, nor be deemed to be a successor to any collective bargaining agreement or any other express or implied employment related agreement, letter of understanding, plan policy, practice ... which relate to the employees of [Rouge Steel].

Lakes Shipping also agreed to offer employment to each of the officers necessary to operate two of the vessels.

At a meeting on March 13, 1989, Rouge Steel advised the officers that they would receive severance pay if Lakes Shipping did not offer a job but that they would not receive the benefits if Lakes Shipping did offer a job. Nowhere in the language of the Marine Officers Policy is there a provision precluding the granting of benefits when the marine officer is employed by the successor corporation. Rouge Steel based this decision upon the final paragraph of the policy titled Separation Allowance, set forth above, and a provision of the Ford Motor Company Separation Allowance Plan for Salaried Employees (Ford is the 100% owner of Rouge Steel), which states "[y]ou will not receive a Separation Allowance if you ... are released to be employed by a Successor Employer (any firm buying a Ford operation or facility as a going business)."

Rouge Steel contended that the "Successor Employer" provision in the Ford Motor Company Plan was an "applicable administrative guideline," incorporated by reference into the Rouge Steel severance plan. None of the officers had seen or been provided a copy of the Ford plan or a summary of it prior to the March 13 meeting. On the first page of the summary plan description for the Ford plan was a footnote stating, "Part-time employees and Marine Officer Personnel are not included"; Rouge Steel did not give any weight to this footnote.

The officers asserted in the district court, as they do here, that the defendant's "Marine Officer Policy for all Regular Officers on Vessels Operated by Rouge Steel Company" requires that Rouge Steel pay a separation allowance. The district court determined that in order for the separation allowance to be paid two requirements must be met: first, a vessel must be removed from service and second, a marine officer's employment must be terminated by Rouge Steel. The court determined, "it seems clear from the facts in this case that those two criteria were met." However, the court denied benefits, concluding that Rouge Steel, through the last paragraph of the provision on separation allowances, incorporated the provision of the Ford plan abolishing benefits when its employees are given a job by a successor in interest.

Rouge Steel maintains on appeal that the Ford "Successor Employer" provision applies to the officers because the Marine Officer Policy directs that the procedures used for determining the severance benefits of marine officers "shall be the same as established for other salaried employees...." To strengthen this original argument Rouge Steel adds that the Marine Officer Policy incorporated the severance provisions of a Ford Industrial Relations Administration Manual, which specified that certain employees would not receive benefits when they received employment from a successor employer. Rouge Steel made no reference to this five volume manual during the March 13 meeting.

The Supreme Court in Firestone Tire and Rubber, Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), set forth the standard for reviewing denials of benefits under ERISA plans. Relying upon "established principles of trust law," the Court concluded "that a denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or construe the terms of the plan." Id. at 115, 109 S.Ct. at 956. When such discretion is granted, the Court directed review under an arbitrary and capricious standard. Id.

The benefit plan at issue gives discretionary authority to Rouge Steel, the fiduciary in this case. The introductory paragraph to the entire Marine Officer Policy states:

This Statement of present policy, which is not to be considered an agreement, is subject to change or revision by the Company. Final decisions shall be made by the Company as to the interpretation and application of this policy.

(emphasis added). This language, set forth at the beginning of the policy, unequivocally grants to Rouge Steel, the fiduciary, "discretionary authority ... [to] construe the terms of the plan." See Davis v. Kentucky Finance Cos. Retirement Plan, 887 F.2d 689, 694 (6th Cir.1989) (we held that a provision stating "The Retirement Committee shall interpret the Plan and shall determine all questions arising in the administration, interpretation, and application of the Plan" gives the plan administrator "great discretion to interpret."), cert. denied, --- U.S. ----, 110 S.Ct. 1924, 109 L.Ed.2d 288 (1990). Thus, we review Rouge Steel's denial of benefits to the marine officers under the arbitrary and capricious standard.

The Supreme Court in Bruch added an angle to the arbitrary and capricious analysis which is important to consider in this case: "Of course, if a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a 'facto[r] in determining whether there is an abuse of discretion.' Restatement (Second) of Trusts § 187, Comment d (1959)." 489 U.S. at 115, 109 S.Ct. at 956. Rouge Steel is both the fiduciary and the terminating employer in this case, presenting the prototypical situation in which a conflict of interest must be weighed.

Congress enacted ERISA in 1974 after "almost a decade of studying the Nation's private pension plans and other employee benefit plans." Central States Pension Fund v. Central Transport, Inc., 472 U.S. 559, 569, 105 S.Ct. 2833, 2839, 86 L.Ed.2d 447 (1985) (quoting Nachman Corp. v. Pension Benefit Guaranty Corp., 446...