Borst v. Chevron Corp.

Decision Date21 October 1994
Docket NumberNo. 91-2747,91-2747
Citation36 F.3d 1308
Parties18 Employee Benefits Cas. 2217 Dean BORST, et al., Plaintiffs-Appellees Cross-Appellants, v. CHEVRON CORP., et al., Defendants-Appellants Cross-Appellees.
CourtU.S. Court of Appeals — Fifth Circuit

Stephen M. Shapiro, James D. Holzhauer, Timothy S. Bishop, Mayer, Brown & Platt, Chicago, IL, for Chevron Corp., et al.

W. Carl Jordan, Vinson & Elkins, Houston, TX, for amicus Texas Employment Law Council.

Evelyn Jo Wilson, H. Lee Godfrey, Susman & Godfrey, Houston, TX, for Dean Borst, et al.

Appeals from the United States District Court for the Southern District of Texas.

Before POLITZ, Chief Judge, and GARWOOD and DAVIS, Circuit Judges.

GARWOOD, Circuit Judge:

This class action, brought under the Employee Retirement Income Security Act of 1974, 29 U.S.C. Secs. 1001 et seq. (ERISA), arose out of the merger of Gulf Oil Corporation (Gulf) and Chevron Corporation (Chevron) in 1984 and the subsequent merger of the pension plans of the two companies in 1986. Plaintiffs, approximately 40,000 former participants of the Pension Plan of Gulf Oil Corporation (Gulf Plan), brought this action complaining of various matters occurring in connection with the merger of the two companies and their respective pension plans. Defendants include Chevron, Gulf, the Gulf Plan, the Chevron Corporation Retirement Plan (Chevron Plan), and the Benefits and Pension Committees of the Gulf Plan, including the members of both committees.

Both parties appeal portions of the district court's decision, In re Gulf Pension Litigation, 764 F.Supp. 1149 (S.D.Tex.1991). Since oral argument before this court, the parties have settled those portions of the district court's rulings which were the subject of Chevron's appeal. Our primary concern is whether the plaintiffs are entitled to the surplus assets in the Gulf Plan upon a partial or full termination of the Plan. 1 We conclude they are not.

Factual Background

We begin with a brief excursion into the history of the Gulf Plan, and the effect on it of Gulf's merger with Chevron. In 1944, Gulf established the Annuities and Benefits Plan of Gulf Oil Corporation (the A & B Plan). The A & B Plan was a defined benefit plan, funded entirely with contributions made by Gulf. 2 Gulf later established two additional pension plans, each a defined contribution plan: the Supplemental Annuity Plan of Mene Grande Oil Company (SAP), established in 1957, and the Contributory Retirement Plan (CRP), established in 1963 (a continuation of the Employees' Savings Plan of Gulf Oil Corporation which had been established in 1950). 3 These latter two plans--the SAP and CRP--were funded with contributions by Gulf as well as with contributions by eligible employees. All three plans were designed to satisfy the qualification requirements of the Internal Revenue Code. 26 U.S.C. Sec. 401(a).

In 1975, Gulf created the Gulf Plan by amending the three former plans to provide for central administration of the plans. 4 Although the Gulf Plan was governed by a single trust agreement beginning in 1979, the trust funds for each plan remained separate, and the benefits under each continued to be calculated independently. The Gulf Plan continued under this arrangement until July 1986, when it was amended to become part of the Chevron Plan, an employer funded defined benefit plan.

In January 1984, Gulf learned that a group led by T. Boone Pickens planned a hostile takeover of the company. Gulf sought protection from the takeover attempt by soliciting a friendly merger with Chevron. The two companies signed a merger agreement in March 1984. During a subsequent two-year interim period the two companies operated independently under a standstill agreement while the Federal Trade Commission and Chevron-Gulf integration teams determined how to complete the merger.

On July 1, 1986, the assets of the Gulf Plan were commingled with those of the 1933 Chevron Corporation Annuity Plan to create the Chevron Plan. At the same time, defendants amended the Gulf Plan to become a supplement to the Chevron Plan. As a result of this amendment, the Gulf Plan became subject to section 18.d of the Chevron Plan, which expressly provided for the reversion of surplus assets to Chevron upon termination of the merged Plan.

In early 1986, participants in the Gulf Plan who had been terminated due to the merger with Chevron, sought confirmation from Chevron that a partial termination of the Plan had occurred, entitling them to benefits under the Plan. These former Gulf employees asked Chevron to allocate and distribute to them their share of the Plan funds, including surplus assets, as though there had been a full termination. Chevron refused both requests.

Proceedings Below

Plaintiffs, Dean Borst, et al., brought the present action in November 1986 in the United States District Court for the Southern District of Texas. Shortly thereafter, in April 1987, plaintiffs Harry Back, et al., filed a similar suit in the United States District Court for the Western District of Pennsylvania. On the defendants' motion, the Back lawsuit was transferred to Texas and consolidated with the Borst action. On February 26, 1990, the district court certified the consolidated suit as a class action pursuant to Federal Rule of Civil Procedure 23(b)(2).

In their lawsuit, plaintiffs sought reimbursement to the Gulf Plan for claimed losses to the Plan as a result of alleged violations of fiduciary duties by Gulf and Chevron. 5 They also alleged that Chevron, during merger negotiations, misrepresented that it would, upon merger of the pension plans, set aside portions of the Gulf Plan assets to establish a reserve for then-existing retiree pensions. Furthermore, they asserted that a partial termination of the Gulf Plan had occurred, entitling them to their share of Plan funds as well as to a pro rata share of the surplus assets of the Gulf Plan.

Following a bench trial, the district court determined that Gulf and Chevron had breached certain fiduciary duties owed to plaintiffs and ordered reimbursement to the Gulf Plan accordingly. The court also agreed with the plaintiffs that a partial termination of the Gulf Plan had occurred as a result of the merger with Chevron. It found that those plaintiffs who were participants in the CRP and SAP, the defined contribution portions of the Gulf Plan, were entitled to the surplus assets of those plans. 6 On the issue of entitlement to the surplus assets of the A & B portion of the Gulf Plan, however, the court ruled that the plaintiffs were not entitled to surplus assets because the Plan provided for reversion of surplus assets to the employer.

Chevron appealed, and plaintiffs cross-appealed. Of the variety of issues raised before the district court, most were settled during and after trial or during the pendency of this appeal. We consider here, inter alia, whether the plaintiffs are entitled to a pro rata share of the surplus assets of the A & B Plan. 7

Discussion
I. Partial Termination of Gulf Plan

Plaintiffs contend that a partial termination of the Gulf Plan occurred during the interim period between March 1984, when Gulf and Chevron signed the corporate merger agreement, and July 1986, when the two pension plans were finally merged. Accordingly, they argue, this partial termination entitled them to a pro rata share of the surplus assets in that Plan. 8

The district court agreed with the plaintiffs that a partial termination had occurred. It concluded that both vertical and horizontal partial terminations of the Gulf Plan occurred during the interim period between March 1984 and July 1986. 9 The court determined however, that the partial termination did not entitle plaintiffs to any part of the A & B Plan surplus assets. As to vesting of benefits, the district court noted regarding the vertical partial termination that Chevron agreed to vest in their then accrued A & B Plan benefits all participants terminated from Gulf employment during that March 1984 to July 1986 period, and regarding the horizontal partial termination the court decreed that all former Gulf employees employed by Chevron on July 1, 1986 were vested in their then accrued A & B Plan benefits. The issues concerning vesting of accrued benefits have been settled between the parties and are not at issue on this appeal, and as a part of the settlement plaintiffs do not defend the district court's finding that horizontal partial termination occurred. Plaintiffs do contend, however, that the district court, having correctly (according to plaintiffs) found a vertical partial termination, erred by holding that those former Gulf employees affected thereby were not entitled to their pro rata share of the A & B Plan's surplus assets.

Chevron had urged us to vacate the district court's ruling that the A & B Plan had partially terminated as unnecessary to the portions of its judgment still in issue because neither ERISA nor the language of the Gulf Plan required distribution of surplus assets to the plaintiffs in the event of either a partial or full termination of the Plan. 10 As discussed below, we conclude that the plaintiffs were not entitled to surplus assets under the A & B Plan whether or not a partial termination, vertical or horizontal, occurred. 11

II. Entitlement to Surplus

Plaintiffs assert that they are entitled to a pro rata share of the surplus assets in the A & B portion of the Gulf Plan. They argue that ERISA prohibits reversion of any plan assets unless the plan language contains an explicit reversion provision. Plaintiffs rely upon ERISA section 403(c)(1), a part of section 403 which is entitled "Establishment of Trust." Section 403(c)(1) directs that "the assets of a plan shall never inure to the benefit of any employer and shall be held for the exclusive purposes of providing benefits to participants in the plan and their...

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