Bannert v. American Can Co.

• Decision Date: 23 October 1975
• Docket Number: No. 74-2365,74-2365
• Citation: 525 F.2d 104
• Parties: Robert C. BANNERT, Plaintiff-Appellee, v. AMERICAN CAN COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 104

525 F.2d 104

Robert C. BANNERT, Plaintiff-Appellee, v. AMERICAN CAN COMPANY, Defendant-Appellant.

No. 74-2365.

United States Court of Appeals Sixth Circuit.

Argued April 16, 1975.

Decided Oct. 23, 1975.

Leslie W. Fleming, Butzel, Long, Gust, Klein & Van Zile, Detroit, Mich., Edward N. Sherry, Griffith B. Price, Jr., Dewey, Ballantine, Bushby, Palmer & Wood, New York City, for defendant-appellant.

Joseph Levin, Dice, Sweeney & Sullivan, Detroit, Mich., for plaintiff-appellee.

Before LIVELY and ENGEL, Circuit Judges, and CECIL, Senior Circuit Judge.

ENGEL, Circuit Judge.

Plaintiff Robert C. Bannert brought suit against defendant American Can Company, seeking relief from the action of the Can Company's Annuity Board permanently terminating his rights to the portion of his retirement benefits contributed by the Can Company. The Annuity Board had terminated the benefits because, upon his voluntary retirement, Bannert had accepted employment with a competitor.

The case, originally brought in the Circuit Court of Wayne County, Michigan, was removed to the district court on the basis of diversity of citizenship. After trial to the court, the district judge entered judgment for plaintiff, determining that Bannert should be fully reinstated under the Can Company's retirement plan whenever he ceased to be engaged or employed with a competitor of the Can Company. The district judge posited two grounds for his decision. First, he found the action of the Annuity Board in fully terminating Bannert's pension benefits instead of merely suspending them was an arbitrary use of power. Second, he held that under Michigan law a permanent forfeiture of Bannert's retirement benefits would be unconscionable.

We reverse. We hold that the district court finding that the Annuity Board's action was arbitrary is clearly erroneous, and further that the district judge misinterpreted Michigan law in holding that action to be unconscionable.

The salient facts are set out in the district judge's opinion filed May 23, 1974:

Plaintiff had been an employee of the defendant since 1950. At the time of his retirement, August 1, 1971, he was the General Manager of the can manufacturing operations of three (3) American Can Company plants. At that time he was fifty-six (56) years of age. His retirement was voluntary and was classified as early retirement under the terms of the pension plan.

The Plan provided for payment to the plaintiff from the date of retirement of $435.60 per month, of which $96.63 was a result of his own contribution and $338.97 as a result of contributions by the defendant. It also provided additional benefits on death in Section VII(2).

Section XII of the Plan provides in pertinent part:

"If the Annuity Board finds that any retired disabled or former Member is engaged or employed in any occupation or in a business which in its opinion is in competition with American Can Company or any Subsidiary and after due notice such member continues to be so engaged or employed, the Annuity Board may suspend or terminate any right or claim of any such Member or his provisional payee to or in respect of any retirement or other benefit under the Plan except to the extent that the same may be provided by such Member's own contributions under the Plan and the Prior Plans plus Credited Interest to the date of his retirement or termination of his employment and except benefits payable under the Metropolitan Contract or the Equitable Contract; in exercising its discretion under this sentence, the Annuity Board shall not discriminate in favor of the group composed of Members who, during employment by the Company, were officers, shareholders, persons whose principal duties consisted in supervising the work of other employees, or highly compensated employees. The acceptance by a retired, disabled or former Member of any benefit under the Plan shall constitute a representation by such Member that he is not engaged or employed in any such competitive occupation or business. The Annuity Board may require each Member eligible for a retirement or disability benefit under the Plan to acknowledge in writing prior to payment of any such benefit that he will accept payment of benefits under the Plan only upon the condition herein above prescribed."

Section XI of the Plan provides in pertinent part:

"The Plan shall be administered by an Annuity Board, the members of which shall be appointed from time to time by the Board.

"The Annuity Board shall have the exclusive right to interpret the terms and provisions of the Plan and to determine any and all matters and questions arising thereunder or in connection with the administration thereof, including without limitation the right to remedy possible ambiguities, inconsistencies or omissions. All interpretations, determinations and decisions of the Annuity Board in respect of any matter or question arising under the Plan shall be final, conclusive and binding for all purposes upon all Employees, Members, provisional payees and beneficiaries. The Annuity Board, from time to time, may establish rules for the administration of the Plan and the transaction of the Annuity Board's business."

In this case the plaintiff accepted a position as Manager Can Fabrication Operation with Pepsico, Inc., at the time of his retirement from the American Can Company, and he has been working since that time for Pepsico, Inc., in that capacity.

The Annuity Board for American Can Company, on September 27, 1971, terminated the plaintiff's benefits paid for by the Can Company as of January 1, 1972 because of "Mr. Bannert's affiliation with Pepsico, Inc. He is engaged or employed in an occupation or business which in the opinion of the Annuity Board is in competition with American Can Company." At a subsequent meeting on December 17, 1971, the Annuity Board "reaffirmed the decision made at the September 27, 1971 meeting". Since January 1, 1972, the plaintiff has been paid only $96.63 a month, the amount due him as a result of his own contributions.

Upon the foregoing facts, the district judge found that Bannert, by accepting employment with Pepsico, Inc., was engaged in an occupation and business in competition with American Can Company. This finding is not disputed on appeal. Nevertheless, the district judge held that a second issue was whether the Board acted in an arbitrary manner in terminating the monthly payments to plaintiff, rather than merely suspending them for the period of Bannert's employment with a competitor.

Since Section XII of the Pension Plan provided that the Board could "suspend or terminate any right or claim of any such Member . . .", the district judge concluded that the Board had an obligation to draw a line and distinguish cases where benefits should be terminated from those where they should be merely suspended. Because the evidence showed the Board had never considered the option of suspension as a possible alternative in Bannert's case, the district court found the Board's action to be an arbitrary use of power, especially in the absence of any showing that, while Bannert was employed by Pepsico, he had abused any confidence or revealed any trade secrets:

In this matter it seems to the court that the board did not act in good faith judgment on reasonable grounds, but indulged in an arbitrary use of power. Hainline v. General Motors Corp., 444 F.2d 1250, 1258 (6th Cir. 1971).

In Hainline v. General Motors Corp., supra, a former General Motors employee brought suit to recover installments of General Motors stock and cash awarded to him as bonuses during his employment pursuant to the General Motors Bonus Plan. Hainline had resigned his job because his daughter's delicate health required that he relocate his family in a warmer climate. The committee which administered the Bonus Plan decided that plaintiff was not entitled to receive any further disbursements of accumulated bonus cash or stock. The district court entered summary judgment for defendant. This court reversed, holding that there was a genuine issue of fact as to whether the committee, in denying plaintiff bonus awards under the plan, exercised a good faith judgment on reasonable grounds or indulged in an arbitrary use of its power. The plan gave the committee "absolute discretion" to determine who was eligible under the plan to receive bonus awards. In responding to the defendant's contention that this provision made the committee's decision conclusive, Judge Miller observed:

In general, the power to exercise discretion is not the power to act arbitrarily; discretion may not be abused by those to whom it is entrusted, and this fact holds true no less in the private than in the public sector. While courts should be wary of interfering with the judgment of corporate executives, it has been held that such judgment cannot stand if fraud or bad faith was shown. 444 F.2d at 1255 (citation omitted).

Hainline quoted with approval the language used by the court in Siegel v. First Pennsylvania Banking and Trust Co., 201 F.Supp. 664 (E.D.Pa.1961), wherein the court stated that the applicable standard of review of the committee's decision was whether the committee was guilty of "fraud or such gross mistakes as imply bad faith or failure to exercise an honest judgment". 201 F.Supp. at 669.

Given this very restrictive standard of review of the Annuity Board's decision, we conclude that the district court finding that the Board's action here was an arbitrary use of power is clearly erroneous. There was no evidence that the Board's action was based upon any personal malice or ill will toward Bannert, nor was there evidence of bad faith or fraud. The crux of the district judge's decision is found in this paragraph of his opinion:

The terms of the contract empower the board to either "suspend" or "terminate" the rights or claims. These are quite different terms. "Suspend" indicates a temporary discontinuance of benefits while "terminate"...