Bruce v. K-Mart Corp., Civ. No. 82-2201.

• Decision Date: 22 July 1983
• Docket Number: Civ. No. 82-2201.
• Parties: Mildred N. BRUCE, Plaintiff, v. K-MART CORPORATION, Defendant.
• Court: U.S. District Court — Western District of Arkansas

568 F. Supp. 378

Mildred N. BRUCE, Plaintiff, v. K-MART CORPORATION, Defendant.

Civ. No. 82-2201.

United States District Court, W.D. Arkansas, Fort Smith Division.

July 22, 1983.

COPYRIGHT MATERIAL OMITTED

Lawrence W. Fitting, of Gean, Gean & Gean, Fort Smith, Ark., for plaintiff.

Robert S. Lindsey and Bruce R. Lindsey, Wright, Lindsey & Jennings, Little Rock, Ark., for defendant.

MEMORANDUM OPINION

H. FRANKLIN WATERS, Chief Judge.

On September 7, 1982, plaintiff, Mildred N. Bruce, initiated the instant action against defendant, K-Mart Corporation, pursuant to 29 U.S.C. §§ 1001 et seq., particularly 29 U.S.C. § 1132(a)(1)(B), (e).

Plaintiff is a citizen of the State of Oklahoma. The defendant is a foreign corporation incorporated in, and with its principal place of business in, a state other than Arkansas. The Court has jurisdiction of the parties and the subject matter and venue is properly laid in this district and division.

In her complaint, plaintiff alleges that defendant adopted the Employees' Retirement Pension Plan as amended February 1, 1978, such plan constituting a benefit plan as defined by 29 U.S.C. § 1002(35). Plaintiff is a claimant under the plan and defendant is the administrator of the plan.

It is undisputed that plaintiff became an employee of defendant on July 14, 1971. On November 8, 1980, plaintiff went on approved medical leave of absence through November 8, 1981, at which time her leave of absence expired in accordance with company policy and her employment was then terminated.

On September 22, 1981, plaintiff was notified that she was not eligible for disability retirement benefits under the plan because "she did not complete 10 years of service with the Company prior to the onset of her disability." (emphasis in original)

Plaintiff appealed to the Director of Employee Benefits to reconsider its decision. The appeal was denied.

The facts disclose that plaintiff was under the care of Dr. William G. Lockhart during her medical leave. On August 27, 1981, Dr. Lockhart wrote a letter to defendant stating that Mrs. Bruce was then "totally disabled" and should seek retirement. As noted, the claim was denied solely because plaintiff allegedly "did not complete 10 years of service ... prior to the onset of her disability."

The pension plan states that disability retirement is available to:

(a) Any employee covered by the Plan who while an Employee becomes totally and permanently disabled after having attained age 50 and completed 10 years of service ... an employee shall be considered totally and permanently disabled if a medical examiner satisfactory to the Company certifies that as a result of mental or physical disability such employee is prevented from engaging in any occupation or employment for wage or profit, and that such disability is likely to be permanent ....

Section III.4(a).

The plan further provides that an employee accrues at least one year of "service" for purposes of determining benefits under Section III when the employee accrues "Employee's Hours of Employment" of 1,000 or more in any year. Section I.19(b), "Hours of Employment," is defined as those hours for which an employee is paid directly or indirectly by the employer and includes paid illnesses, holidays, vacations, and disability. Section I.20(a).

Plaintiff's benefits were denied because, as Mr. Dewenter, Director of Employee Benefits, explained:

These age and service requirements must be met prior to the date the employee ceased working due to the disability for which the benefit is claimed, i.e., before the onset of the disability. Otherwise, a requirement could be met by deferring a disability determination ....

* * * * * *

... Any other method would involve the difficult, if not impossible, task of attempting to determine a precise point in time when a disability becomes total and permanent ....

(Dewenter Affidavit, ¶¶ 4, 5)

The Court advised the parties, by letter of March 14, 1983, that the Court intended to rely upon the above facts.

By letter of March 25, 1983, defendant submitted "observations" and "comments" concerning the above facts. Defendant "suggested" that

K-Mart fails to see the relevance of whether or not the plaintiff continued to accrue service during the term of her medical leave. The K-Mart plan clearly provides that to be eligible for total and permanent disability retirement an employee must complete 10 years of service prior to becoming totally and permanently disabled.¹

The crucial issue quite clearly is at what point plaintiff became permanently disabled, whether prior to July 14, 1981, or after that date. As to this issue, defendant states:

If Mrs. Bruce is totally and permanently disabled, then she has been so disabled since November, 1980, even though Dr. Lockhart states that he "anticipated" that she would recover. The fact that neither she nor her doctors concluded until August, 1981, that her disability was permanent does not now change the fact that it was. If permanency is now present, it was present back in November, 1980, even though not recognized or diagnosed.

Defendant automatically assumes that permanent disability existed as of the first day plaintiff did not work due to her medical leave. This assumption, in light of section III.4, which provides:

An Employee shall be considered totally and permanently disabled if a medical examiner satisfactory to the Company certifies that as a result of mental or physical disability such Employee is prevented from engaging in any occupation or employment for wage or profit, and that such disability is likely to be permanent ...,

creates a "catch-22" situation whereby until one is certified as permanently disabled one is not considered disabled, but as soon as one is certified as permanently disabled, the disability automatically "relates back" to the last day the employee worked, in this case defeating benefits.

In light of the materials submitted, the Court concludes that the decision of the Director of Employee Benefits based upon this assumption (which is nothing more than an irrebuttable presumption) without regard to the facts is arbitrary and capricious.

It is clear and well-settled that judicial review of the actions of trustees of pension plans is limited to determining whether such action has been arbitrary or capricious, or an abuse of discretion. Bueneman v. Central States, Southeast & Southwest Areas Pension Fund, 572 F.2d 1208 (8th Cir.1978). It is also established that it is appropriate to look to the body of federal common law fashioned under section 301 of the Labor Management Relations Act, 29 U.S.C. § 185, for analogies that may be useful for applications of ERISA under 29 U.S.C. § 1132. Toland v. McCarthy, 499 F.Supp. 1183 (D.Mass.1980).

Under section 301 of the Labor Management Relations Act, the parties must exhaust all of their claims and defenses, or show adequate reasons for a failure to do so, before litigating a claim in the federal courts. Rainey v. Missouri Utilities Co., 596 F.2d 310 (8th Cir.1979).

The Court believes it to be the law under 29 U.S.C. § 1132, as it is under section 301 of the Labor Management Relations Act, that exhaustion is not required where such exhaustion would be futile, i.e., where a claimant would not receive a fair hearing. Fizer v. Safeway Stores, Inc., 586 F.2d 182 (10th Cir.1978). A logical corollary of this rule is that a remand will not be ordered where such a remand would be futile. As defendant admits that it unfailingly deems an employee totally and permanently disabled as of the first day the employee takes approved medical leave, an irrebuttable presumption the Court finds to be arbitrary and capricious and without any basis in fact, it would be futile to remand this cause to the trustee for a determination as to when plaintiff became totally and permanently disabled, if indeed she is.

The Court is not aware of any authority which would aid the Court in determining at what point an employee's permanent disability should be deemed to have begun in cases arising under ERISA. However, insurance law can provide a useful guide. As a matter of insurance law, a disability is ordinarily deemed to have its inception when it first becomes manifest or when there is a distinct symptom or condition from which one learned in medicine can with reasonable accuracy diagnose the disease, even though the condition may have been present prior to this determination in a latent or undiscoverable phase. 43 AM. JUR.2d Insurance § 550, pp. 619-20.

We take this general rule of near universal applicability to mean that the permanency of a disability is deemed to have its inception when the permanency first becomes manifest or when one learned in medicine can with reasonable accuracy diagnose the disease as being permanent.

An analogy to the "onset of disability" under the Social Security Act, more particularly, 42 U.S.C. § 423(d)(1)(A), is only partially instructive. The Social Security Act requires only that the disability begin while claimant is insured, not that the disability be diagnosed during the relevant period. Taylor v. Harris, 505 F.Supp. 153 (E.D.Tex.1981). The disability runs from "the day the disability began." Cassel v. Harris, 493 F.Supp. 1055 (D.Colo.1980). However, under the Social Security Act, there is no requirement that the disability be "permanent," but only that the claimant be unable to engage in substantial gainful activity which can be expected to last for a continuous period of at least 12 months. The issues in a Social Security Act proceeding are whether, at the time of application for benefits, the claimant is disabled and, if so, whether the disability is expected to last for 12 months.

Thus, the appropriate analogy to the Social Security Act would require only that plaintiff be permanently disabled as of the date of filing her claim and that the onset of the permanence of the disability manifest itself after the ten-year service...