Wildbur v. ARCO Chemical Co.

• Decision Date: 12 October 1992
• Docket Number: No. 91-4255,91-4255
• Citation: 974 F.2d 631
• Parties: 16 Employee Benefits Cas. 1235 KENNETH E. WILDBUR, Sr., et al., Plaintiffs-Appellants, v. ARCO CHEMICAL CO., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 631

974 F.2d 631

16 Employee Benefits Cas. 1235

KENNETH E. WILDBUR, Sr., et al., Plaintiffs-Appellants, v. ARCO CHEMICAL CO., et al., Defendants-Appellees.

No. 91-4255.

United States Court of Appeals Fifth Circuit.

Oct. 12, 1992.

As Modified on Denial of Rehearing and

Denial of Suggestion for Rehearing

En Banc Dec. 7, 1992.

Mark Ostrich, Lafayette, La., for plaintiffs-appellants.

Howard Shapiro, Robert K. McCalla, Pyburn & Ridley, Elvige C. Richards, Heather G. Magier, McCalla, Thompson, Pyburn & Ridley, New Orleans, La., for Atlantic Richfield Retirement.

Appeal from the United States District Court for the Western District of Louisiana.

Before KING and WIENER, Circuit Judges, and LAKE ^*, District Judge.

SIM LAKE, District Judge:

Plaintiffs appeal from a summary judgment denying them benefits under their employer's ERISA plans because the district court concluded that plaintiffs were never terminated from employment. Plaintiffs argue that although the district court properly applied a de novo standard in reviewing the eligibility determinations of the plans' administrator, the court reached the wrong result because it limited its consideration to facts and arguments in the administrative record. Plaintiffs also argue that the court erred in denying them discovery against the attorneys who advised the plans. Defendants reply that the court reached the right result and correctly limited its review to the administrative record, but argue alternatively that because the court erred in applying a de novo standard, its judgment may also be affirmed under the abuse of discretion standard the court should have applied. For the reasons explained below, we VACATE the judgment of the district court and REMAND the case for further consideration.

I. FACTS

Until December 19, 1986, Atlantic Richfield Company ("ARCO") employed Kenneth Wildbur and the other plaintiffs at one of its subsidiaries, ChemLink Petroleum, Inc. Plaintiffs participated in the Atlantic Richfield Retirement Plan ("ARRP"), which is a defined benefit plan under the Employee Retirement Income Security Act of 1974, 88 Stat. 829, as amended, 29 U.S.C. §§ 1001, et seq. ("ERISA"). Plaintiffs also participated in ARCO's Special Termination Allowance Plan ("STAP"). The STAP is an ERISA employee welfare benefit plan that pays severance benefits to eligible employees. ARCO sponsors and administers both plans.

Between 1984 and 1987 ARCO consolidated and reorganized its operations by selling assets and divisions. In May of 1986 ARCO amended the ARRP to add section 35, which provided for special enhanced retirement benefits. A plan member was eligible for these benefits if the member was notified by ARCO between May 6, 1986, and January 31, 1987, that "he or she will be terminated from employment due to the continuing consolidation of [ARCO], with a termination date on or before December 31, 1989, as determined by [ARCO]." If an ARRP member was eligible for special enhanced retirement benefits under section 35, the member's retirement benefits were enhanced by adding five years to the employee's period of service for calculating benefit vesting, eligibility and accrual; by adding five years to the employee's actual age for benefit calculations; and by increasing the employee's average final base pay for benefit calculations.

When ARCO added section 35 to the ARRP it also amended the STAP. Amendment No. 12 to the STAP added Schedule M "Special Benefit Provisions" to provide special severance benefits to employees who were informed between May 6, 1986, and January 31, 1987, of their termination because of ARCO's consolidation and who "terminate employment" on or before December 31, 1989. Schedule M incorporated all of the "rights and benefits" of the STAP, but provided that if a conflict arose between the STAP and Schedule M, Schedule M would control. Paragraph 4.1(b) of the STAP stated that a "termination of employment will not be deemed to have occurred if the Employee continues in the employment of a Company that purchases a Subsidiary or Affiliate, or assets of [ARCO]." ¹ Employees eligible for Section 35 benefits had the option of choosing between enhanced ARRP retirement benefits plus a reduced special payment under the STAP or regular severance payments under the STAP with no enhanced ARRP retirement benefits.

On December 19, 1986, ARCO sold ChemLink and other assets to PONY Industries. The Asset Purchase Agreement stated that PONY will "use reasonable efforts to utilize employees of [ARCO] in the operation of the Purchased Assets after closing. [PONY] will, not later than five days before the Closing Date, specify to [ARCO] the names of employees of the Units whom PONY propose[s] to employ and those whom PONY do[es] not propose to employ after the Closing." The plaintiffs are salaried ChemLink workers whom PONY continued to employ after it purchased ChemLink from ARCO.

After the plaintiffs became PONY employees they requested enhanced retirement benefits under section 35 of the ARRP and special severance benefits under Schedule M of the STAP. Both requests were denied by the plans' administrator, the ARRP committee, which concluded that the plaintiffs had not been terminated from employment. ²

Plaintiffs brought this suit in Louisiana state court in September of 1988 against ARCO, ChemLink, ARRP and the ARRP Trustees to recover benefits under the plans. Defendants removed the case because the plaintiffs' claims were governed by ERISA, and plaintiffs agree that this action is brought under § 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B).

Commencement of this litigation did not abate plaintiffs' efforts to obtain relief via the administrative review procedures provided by the plans. Over the next two years the parties litigated in both forums, and both sides sought to use events in one forum to enhance their position in the other. One result of this dual track litigation was that the district court was in the unenviable position of continually being asked to review an administrative record that was in a state of flux. After ARCO filed its first motion for summary judgment in March of 1989, plaintiffs raised facts in opposition that they had not presented to the ARRP committee. The parties agreed temporarily to stay the litigation so that plaintiffs could obtain and present new evidence to the ARRP and STAP committees, and the district court granted several stays to allow the committees to reconsider the plaintiffs' claims in light of this evidence.

During the second phase of administrative review plaintiffs presented evidence intended to show that when ARCO sold other divisions it had considered employees who continued working in the sold divisions as terminated from employment and eligible for benefits under section 35 of the ARRP. Plaintiffs cited ARCO's sale of its Philadelphia refinery to Transworld Oil, Ltd. and its sale of oil and gas assets to Hondo Oil Co. as examples of ARCO's payment of enhanced retirement benefits under section 35 to former ARCO employees who continued working for those operations after ARCO sold them. Plaintiffs also identified ARCO employees who continued working for ChemLink as PONY employees, but were nevertheless considered terminated and eligible to receive section 35 benefits. Plaintiffs argued that this evidence showed that ARCO did not uniformly interpret section 35, but instead administered the plan to promote its own business purposes. After reviewing the newly presented evidence, the plaintiffs' ARRP and STAP claims were again denied on November 3, 1989. ³

After the second phase of administrative review, the parties again agreed to resort to the administrative process to allow the review committee to consider claims of newly joined plaintiffs. In February of 1990 the new plaintiffs' claims for benefits under section 35 of the ARRP and Schedule M of the STAP were denied.

After the three phases of administrative review were completed, plaintiffs' counsel sought to depose all of the ARRP committee members and ARCO's lawyers. ARCO moved to quash the depositions on grounds of relevance, the attorney work product doctrine, and the attorney-client privilege. The magistrate judge concluded that the discovery could yield evidence of ARCO's uniformity of construction of the plans, the fairness and reasonableness of the administrator's reading of the plans and the anticipated costs of a verdict favorable to the plans, all of which would be relevant under the arbitrary and capricious standard that the magistrate judge concluded would guide the court's review of the merits. ⁴ The magistrate judge allowed plaintiffs to depose the committee members about all phases of the administrative review process and to depose Richard Anderson, an ARCO attorney, about the administration of the plans before September of 1988, when the lawsuit was filed, but quashed the deposition of ARCO's trial counsel, Howard Shapiro. The district court affirmed the magistrate judge's rulings. ⁵

In December of 1990 the parties again filed cross-motions for summary judgment. On February 27, 1991, the district court entered a Memorandum Ruling granting defendants' motion for summary judgment, 765 F.Supp. 891, ⁶ and the following month the court entered a final judgment for defendants after denying Plaintiffs' Motion to Set Aside Ruling and Remand and Plaintiffs' Motion to Reconsider.

The district court concluded that its review of the plan administrator's benefit determinations should be conducted under a de novo standard, but observed alternatively that it would have reached the same result under a more deferential, arbitrary and capricious standard of review. ⁷ With respect to plaintiffs' claim for special severance benefits under Schedule M, the court concluded that p 4.1(b) of STAP was not inconsistent with nor superseded by Schedule M, and that under p 4.1(b) employees such as plaintiffs who continued in the employment of a...