D'Amico v. Cbs Corp.

• Decision Date: 18 July 2002
• Docket Number: No. 01-3956.,01-3956.
• Citation: 297 F.3d 287
• Parties: Nick J. D'AMICO; Cliff Hollihan; Joseph G. Muto; Kevin Beam, Appellants, v. CBS CORPORATION, f/k/a Westinghouse, Inc; The Westinghouse Electric Company Pension Plan.
• Court: U.S. Court of Appeals — Third Circuit

297 F.3d 287

Nick J. D'AMICO; Cliff Hollihan; Joseph G. Muto; Kevin Beam, Appellants, v. CBS CORPORATION, f/k/a Westinghouse, Inc; The Westinghouse Electric Company Pension Plan.

No. 01-3956.

United States Court of Appeals, Third Circuit.

Argued May 3, 2002.

Filed July 18, 2002.

COPYRIGHT MATERIAL OMITTED

Colleen E. Ramage, Ramage & Valles, Pittsburgh, PA, Gary F. Lynch, New Castle, PA, Theodore Goldberg, David B. Rodes, (argued), John T. Tierney, III, Goldberg, Persky, Jennings & White, P.C., Pittsburgh, PA, for appellants.

Glen D. Nager, Jack W. Campbell, IV, (argued), Jones, Day, Reavis & Pogue, Washington, D.C., Amy E. Dias, Jones, Day, Reavis & Pogue, Pittsburgh, PA, for appellees.

BEFORE: ROTH and STAPLETON, Circuit Judges, POLLAK^*, District Judge.

ROTH, Circuit Judge.

This ERISA case requires us to apply our recent decision in Harrow v. Prudential Ins. Co., 279 F.3d 244 (3d Cir.2002), to determine whether plaintiffs, the D'Amico claimants, must exhaust plan remedies before proceeding with breach of fiduciary duty claims against their former employer, defendant CBS, Inc. See § 404 of ERISA, 29 U.S.C. § 1104(a).

The District Court granted summary judgment dismissing plaintiffs' unexhausted claims. We will affirm that decision. We find that plaintiffs are required to exhaust Plan remedies because their fiduciary allegations, which are based on CBS's failure to comply with a vesting and partial termination provision in its Plan, amount to a claim for plan benefits under Harrow. We also find that plaintiffs have failed to meet their burden of establishing that Plan remedies are futile. Finally, we see no reason to upset the District Court's grant of summary judgment in favor of CBS.

I. Facts

Plaintiffs are a class of former employees of CBS (formerly known as Westinghouse) and participants in the Westinghouse Pension Plan. Section 18.B. of the Westinghouse Pension Plan contains the following provision for termination or partial termination of the Plan:

If the Plan is terminated, or partially terminated, the rights of affected participants to benefits accrued under the Plan shall be nonforfeitable to the extent funded.

This language tracks 26 U.S.C. § 411(d)(3),¹ which, in order for employers to obtain favorable tax treatment for pension plans, requires the employers to include in their plans provisions for vesting upon partial termination.

From 1994 through 2000, Westinghouse implemented a systematic planned reduction of its entire workforce. As part of this downsizing effort, and a concurrent effort to reduce a four billion dollar underfunding of the Plan, the company also amended its Plan in 1994 to eliminate a lump-sum option formerly available to retiring employees.

II. Procedural History

Although the Plan provides a procedure for presenting claims for benefits, none of the plaintiffs attempted to exhaust this Plan remedy before bringing suit. Plaintiffs filed their initial complaint on December 22, 2000, and an amended complaint on July 26, 2001. They allege, inter alia, that the workforce reduction and elimination of future benefit accruals through the 1994 amendment constituted a partial termination that entitled all non-vested participants to become vested. Plaintiffs claim that CBS's failure to provide vesting after these partial terminations constituted a breach of its fiduciary duties under section 404 of ERISA, 29 U.S.C. §§ 1104(a)(1)(A) & (a)(1)(D). The complaint requests damages and declaratory relief to remedy these violations. It also alleges that exhaustion would be futile.

CBS filed a motion to dismiss under Fed.R.Civ.P. 12(b)(1), based on plaintiffs' failure to exhaust Plan remedies. The District Court determined that it was more appropriate to address CBS's motion under Fed.R.Civ.P. 12(b)(6) and converted the motion to dismiss into a motion for summary judgment under Fed.R.Civ.P. 56.

Plaintiffs opposed CBS's motion on the ground that they are not required to exhaust Plan remedies before bringing their suit. The District Court disagreed and granted summary judgment for CBS on the unexhausted claims. It entered an order dismissing the case with prejudice on October 1, 2001. Plaintiffs filed a timely notice of appeal.

III. Jurisdiction and Standard of Review

This case arises under ERISA, 29 U.S.C. § 1001 et seq.; thus the District Court had federal question jurisdiction under 28 U.S.C. § 1331 and 29 U.S.C. § 1132(e). We have appellate jurisdiction under 28 U.S.C. § 1291, as the District Court entered a final and appealable order granting CBS's motion for summary judgment with prejudice.

We exercise plenary review over an appeal from a grant of summary judgment; we review de novo the applicability of exhaustion principles to plaintiffs' claims. Harrow v. Prudential Ins. Co., 279 F.3d 244, 248 (3d Cir.2002). We review for abuse of discretion both the District Court's decision to deny a futility exception to exhaustion principles, see id., and its decision to grant summary judgment rather than entering a stay to allow exhaustion of administrative remedies. St. Surin v. Virgin Islands Daily News, Inc., 21 F.3d 1309, 1313 (3d Cir.1994) (abuse of discretion standard applies when "an order entering summary judgment is attacked as premature"); Lindemann v. Mobil Oil Corp., 79 F.3d 647, 651 (7th Cir.1996) ("decision whether to stay [an ERISA proceeding to allow exhaustion] is entirely within the District Court's discretion").

IV. Discussion

Plaintiffs raise three arguments in their appeal. First, they assert that they are not required to exhaust plan remedies before bringing suit; second, they assert that exhaustion would be futile; and, finally, they argue that the District Court erred when it granted summary judgment rather than staying their case and ordering expedited administrative review. We will explain, below, why none of these arguments merit reversal.

A. Exhaustion of Plan Remedies.

This Circuit requires the exhaustion of Plan remedies in some, but not all ERISA cases.² In Zipf v. AT & T, 799 F.2d 889 (3d Cir.1986), we drew a distinction between claims to enforce the terms of a benefit plan and claims to assert rights established by the ERISA statute. Id. at 891. Exhaustion of Plan remedies is required in the former, but not the latter, category of cases. Id.³ Since Zipf, a vast majority of cases waiving the exhaustion requirement have fallen in two categories: (1) discrimination claims under section 510 of ERISA, or (2) failure to provide plaintiffs with Summary Plan Descriptions, as required by ERISA. Harrow v. Prudential Ins. Co., 279 F.3d 244, 253 (3d Cir. 2002).

More recently, we have also recognized the possibility of waiving exhaustion in cases where statutory rights stem from the fiduciary duties set forth in section 404 of ERISA, 29 U.S.C. § 1104(a). See Harrow, 279 F.3d at 253-54. The exhaustion requirement for these section 404 claims arises from the fact that some of the duties established by section 404 are synonymous with a claim to enforce the terms of a benefits plan. The section describes how a "fiduciary shall discharge his duties with respect to a plan." 29 U.S.C. § 1104(a)(1). It also requires the fiduciary to discharge those duties for the purpose of "providing benefits to participants," and "in accordance with the documents and instruments governing the plan." 29 U.S.C. §§ 1104(a)(1)(A) & (a)(1)(D) (emphases added). Thus, we still require exhaustion in cases where the alleged statutory violation — a breach of fiduciary duty under section 404 — is actually a claim based on denial of benefits under the terms of a plan.

Exhaustion requirements for fiduciary allegations brought under section 404, therefore, hinge on whether the allegations amount to a claim for plan benefits. In Harrow, we explained that alleged fiduciary breaches involve a claim for benefits when "resolution of the claims rests upon an interpretation and application of an ERISA-regulated plan rather than on an interpretation and application of ERISA" itself. 279 F.3d at 253-54 (quoting Smith v. Sydnor, 184 F.3d 356, 362 (4th Cir.1999)). There, we found that a fiduciary claim, brought under section 404 based on an allegedly wrongfully denial of insurance coverage for Viagra, amounted to a claim for benefits. Id. at 254.⁴

Here, plaintiffs allege section 404 fiduciary breaches based on CBS's failure to vest after (1) the elimination of a significant number of Plan participants, which allegedly created a partial termination and required vesting under the Plan and under 26 U.S.C. § 411(d)(3); and (2) a partial termination based on elimination of future benefit accruals under the 1994 amendments to the Plan.⁵ See, e.g., Gluck v. Unisys Corp., 960 F.2d 1168, 1178 (3d Cir.1992) (noting that breach of fiduciary duty theory may apply based on "failure to vest fully the accrued benefits upon partial termination of a plan"). The vesting obligations that form the basis of plaintiffs' fiduciary duty claims arise from § 18.B of the Plan.

Although the language of § 18.B tracks the provisions of 26 U.S.C. § 411(d)(3) and is designed to meet that federal statutory requirement, the terms of section 411 do not provide plaintiffs with a right to vesting independent of the language of the Plan.⁶ It is, instead, the contractual language of § 18.B of the Plan itself which gives rise to Plaintiffs' vesting rights. Indeed, we have on numerous occasions noted that an employee's right to vesting upon partial termination arises from the terms of an ERISA plan. In Vornado, Inc. v. Trustees of the Retail Store Employees Union Local 1262, we stated that the purpose of section 411 "is to force employers to include language favorable to employees in the plan; thus, employees must sue on the plan language, not on the statute." 829 F.2d at 418 n. 2 (emphasis added); see also Bruch v. Firestone Tire & Rubber Co., 828 F.2d 134, 151 (3d Cir.1987) (in order to avoid the severe penalty of loss of section 401 quali...