Cooke v. Lynn Sand & Stone Co.

• Decision Date: 30 November 1994
• Docket Number: Civ. A. No. 85-2474-NG.
• Citation: 875 F. Supp. 880
• Parties: James H. COOKE, Plaintiff, v. LYNN SAND & STONE CO., et al., Defendants.
• Court: U.S. District Court — District of Massachusetts

875 F. Supp. 880

James H. COOKE, Plaintiff, v. LYNN SAND & STONE CO., et al., Defendants.

Civ. A. No. 85-2474-NG.

United States District Court, D. Massachusetts.

November 30, 1994.

Ralph D. Gants, Palmer & Dodge, Michael J. Liston, Glass, Seigle & Liston, Boston, MA, for plaintiff James H. Cooke.

Robert M. Gault, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., Boston, MA, for defendants Lynn Sand & Stone Co., Trimount Bituminous Products Co., Stuart Lamb, Louis E. Guyott.

AMENDED MEMORANDUM AND ORDER¹

GERTNER, District Judge.

I. INTRODUCTION

This is an action brought under Section 502(a)(1)(B) 29 U.S.C. § 1132(a)(1)(B) of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. (as amended), by James H. Cooke, a participant in the Lynn Sand Pension Plan ("the Plan"). Mr. Cooke challenges various determinations made by the trustees of the Plan² ("the Plan trustees") with respect to the valuation of his pension benefits.³ Before the Court for a second time is plaintiff's Motion for Summary Judgment. In an opinion dated July 18, 1986, Judge Wolf granted partial summary judgment to defendants on certain of Mr. Cooke's claims, denied summary judgment on the remaining claims, and ordered the parties to take further discovery on the unresolved issues. See Cooke v. Lynn Sand & Stone Co., 673 F.Supp. 14 (D.Mass. 1986). The parties have apparently settled certain of those issues; only one issue remains.

Briefly stated, the parties' dispute arises out of the decision by the Plan trustees to terminate the Plan in late 1983, and to distribute to all Plan participants and beneficiaries their accrued benefits. Mr. Cooke was offered the option of receiving his accrued benefit in the form of an annuity, or as a lump-sum payment. The trustees determined the value of the lump-sum payment by calculating the present value of the annuity to which Mr. Cooke was otherwise entitled.

Mr. Cooke contends that the trustees erred in calculating the size of his lump-sum payment. In making their calculation, the trustees used an "interest rate assumption" (or "IRA") of 9.5%, a rate found in actuarial tables prepared by the Pension Benefit Guarantee Corporation ("PBGC"). Using this rate, the Plan trustees determined that Mr. Cooke was entitled to $58,987.98. Mr. Cooke maintains that under the terms of the Plan, the trustees were required to utilize a pre-retirement IRA of 6% and a post-retirement rate determined by the Mutual Benefit Life Insurance Company. Accordingly, he claims that his lump-sum payment should have been at least $30,000 higher.

For the reasons stated below, the Court GRANTS plaintiff's Motion for Summary Judgment.

II. FACTS

The record reveals the following undisputed facts.⁴ On August 12, 1980, Lynn Sand & Stone Co. ("Lynn Sand") established the Plan to provide pension benefits for its managerial employees. At the time, Lynn Sand was a closely held business owned by the plaintiff James Cooke and other members of his family. Mr. Cooke was the President, Treasurer, a member of the Board of Directors and a minority shareholder of Lynn Sand. When the Plan was established, Mr. Cooke and his father were appointed as the administrators and trustees of the Plan.

On May 18, 1983, Trimount Bituminous Products Company ("Trimount") purchased all of Lynn Sand's common stock. The new owner proceeded to remove all of the previous management from positions of authority. On July 8, 1983, Mr. Cooke was removed from his employment with Lynn Sand and replaced by defendant Stuart Lamb as President and defendant Louis E. Guyott II as Treasurer. Mr. Lamb and Mr. Guyott are also officers of Trimount. On September 7, 1983, Lynn Sand's Board of Directors removed Mr. Cooke from his positions as trustee and administrator of the Plan, replacing him with Messrs. Lamb and Guyott. Shortly thereafter, in November, 1983, the new Plan administrator notified the PBGC that Lynn Sand intended to terminate the Plan.⁵ On December 10, 1983, the trustees notified Mr. Cooke that the Plan would be terminated as of the end of the calendar year. On September 25, 1984, the PBGC issued a "Notice of Sufficiency" to the Plan, certifying that the Plan's assets were sufficient to pay all vested benefits which the PBGC had guaranteed.⁶

On May 1, 1984, the trustees wrote to Mr. Cooke, offering him an election between receiving a fully paid-up annuity or a lump sum distribution of his pension benefits. Under the annuity option, Mr. Cooke would receive $1,856.93 per month starting at age 65, with such payments continuing for 120 months or until his death, whichever came first. Under the lump-sum option, Mr. Cooke would immediately receive a single payment of $58,987.98. The letter informed Mr. Cooke that if he did not choose an option, he would be given the annuity.

Mr. Cooke's attorneys wrote to the Plan's counsel contesting the Plan trustees' determination of his lump-sum amount as well as other issues not presently before the Court. After an exchange of correspondence, the parties were unable to agree on the correct amount of the lump-sum payment. On June 14, 1985, after exhausting his appeals to the Plan trustees, Mr. Cooke filed the instant action.

III. LEGAL STANDARDS

A. Summary Judgment Standard

A motion for summary judgment will be granted when all the relevant pleadings, viewed in the light most favorable to the non-moving party, present no genuine issue of material fact such that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Aponte-Santiago v. Lopez-Rivera, 957 F.2d 40, 41 (1st Cir.1992); Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 7-8 (1st Cir.1990); Griggs-Ryan v. Smith, 904 F.2d 112, 115 (1st Cir. 1990).

B. Standard of Review of the Trustees Determination

In Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 956-957, 103 L.Ed.2d 80 (1989), the Supreme Court held that "a denial of benefits challenged under 29 U.S.C. § 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 to construe the terms of the plan." Prior to the Firestone decision, many courts, including the courts of this Circuit, had applied an "arbitrary and capricious" standard in reviewing benefit determinations under ERISA. See, e.g. Jestings v. New England Tel. and Tel. Co., 757 F.2d 8, 9 (1st Cir.1985). Under that standard, the reviewing court was required to defer to the trustees' determination of an employee's benefits under a plan, so long as that determination was based on a "rational" interpretation of the plan, (id.), and was not made in bad faith. Miles v. New York State Teamsters Conference Pension Fund, 698 F.2d 593, 599 (2d Cir.) cert. den., 464 U.S. 829, 104 S.Ct. 105, 78 L.Ed.2d 108 (1983).

Applying this rule in the earlier summary judgment motion, Judge Wolf denied summary judgment to both parties on the interest rate question. Although he found the trustees' justification for their choice of IRA to be "reasonable,"⁷ 673 F.Supp. at 22, he denied defendants' summary judgment motion on this issue because he found that plaintiff had raised an issue of fact as to whether the trustees had been motivated by "bad faith" in choosing the rate that they did. 673 F.Supp. at 24.

With the Firestone opinion, three years after Judge Wolf's decision, the Supreme Court dramatically altered the standard of judicial review of benefit determinations under ERISA. The reviewing court must first determine whether the Plan document gives the Plan administrator "discretionary authority to determine eligibility for benefits or to construe the terms of the plan." 489 U.S. 101, 115, 109 S.Ct. 948, 956-957. Such discretionary authority is not inherent in the role of a plan trustee or administrator (489 U.S. at 112-113, 109 S.Ct. at 955-956), and must be "clearly" granted in the plan document. Rodriguez-Abreu v. Chase Manhattan Bank, 986 F.2d 580, 583 (1st Cir.1993). If such authority is not granted, the reviewing court must independently determine the benefits to which the employee is entitled under the Plan, applying both trust and contract principles under federal common law. Id. at 585.

The parties have referred to the following three sections of the Plan document as setting forth the scope of the Plan trustees' and administrator's authority with respect to the determination of benefits.⁸

(1) Article XI, ¶ 7, which gives the Plan administrator "exclusive control and authority over the administration of the Plan,"

(2) Article XI, ¶ 17, which permits the trustee to "consult with legal counsel with respect to the construction of this Agreement,"

and

(3) Article XI, ¶ 22, which provides that the administrator "shall make all determinations as to the right of any person to a benefit."

While each of these provisions describes certain duties or powers of the Plan trustees and administrator, none "clearly" imbues them with any special discretionary authority with respect to the determination of Plan benefits.

Article XI, ¶ 7, perhaps the most broadly worded of the three provisions, does little more than indicate the party (in this case the Plan administrator) who has legal authority to manage and administer the Plan's assets. Nothing in the paragraph suggests how those assets are to be administered, and in particular whether the administration may be done with discretion, or merely in a ministerial fashion. Compare Luby v. Teamsters Health, Welfare, and Pension Trust Funds, 944 F.2d 1176, 1180-1181 (3rd Cir.1991) (broad grant of administrative power does not imply discretion in determining the right to benefits under plan) with Guy v. Southeastern Iron Workers' Welfare Fund, 877 F.2d 37, 39 (11th Cir.1989) (finding discretion where plan documents gives trustees "full power to construe the provisions" of the trust, and "full and exclusive authority to determine all...