Diaz v. Seafarers Intern. Union

• Decision Date: 04 November 1993
• Docket Number: No. 93-1488,93-1488
• Citation: 13 F.3d 454
• Parties: Domingo DIAZ, et al., Plaintiffs, Appellants, v. SEAFARERS INTERNATIONAL UNION, et al., Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 454

13 F.3d 454

Domingo DIAZ, et al., Plaintiffs, Appellants, v. SEAFARERS INTERNATIONAL UNION, et al., Defendants, Appellees.

No. 93-1488.

United States Court of Appeals First Circuit.

Heard Nov. 4, 1993.

Decided Jan. 10, 1994.

Carlos A. Del Valle Cruz, with whom Jose Luis Gonzalez Castaner, was on brief, for plaintiffs, appellants Domingo Diaz.

Mary T. Sullivan, with whom Segal, Roitman & Coleman, and Ellen Silver, Associate Counsel, Seafarers Pension Plan, were on brief, for defendants, appellees.

Before BREYER, Chief Judge, TORRUELLA and BOUDIN, Circuit Judges.

BREYER, Chief Judge.

Domingo Diaz, a retired seaman, brought this lawsuit against the Seafarers International Union and the Union's Pension Plan. He says that the Plan should have provided him a pension of about $450 per month, rather than about $200 per month. The Plan's failure to do so, in Diaz's view, represents an erroneous application of the Plan's own pension-calculation rules and thereby violates federal law. See Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Sec. 1104(a)(1)(D) ("[Plan trustees] shall discharge [their] duties ... in accordance with the documents and instruments governing the plan...."). The district court found that the Plan, through its trustees, did not improperly apply the Plan's rules. We agree, and we affirm the district court's judgment.

I Background

A. Basic Facts. The following key facts are not contested:

1. From 1943 to 1960 Diaz worked on ships whose employees were represented by the Seafarers International Union (SIU). During that period, the SIU had no pension plan.

2. In 1960 Diaz quit. Soon after, he began working on ships whose employees were represented by the National Maritime Union (NMU).

3. In 1961 the SIU developed a pension plan--the Seafarers Pension Plan--covering seafarers who work on SIU-represented ships.

4. In 1968 Diaz, then still working on NMU ships, was injured and stopped working as a seaman altogether.

5. In 1975 Diaz recovered from his injury and began to work again as a seaman, this time on SIU ships.

6. In 1988 Diaz retired, at age 65, having spent the previous 13 years on SIU ships.

B. The Seafarers Pension Plan. The Seafarers Pension Plan provides pensions based upon time worked on SIU ships, but not on other ships. It normally permits a seafarer to include, in the pension level calculation, time that he worked even before the plan first came into existence in 1961--even though employers did not contribute before 1961 and the relevant pension funds must therefore come from contributions (and related investment earnings) made in respect to work performed later, and by others.

Despite the ordinary practice of crediting pre-1961 work, the trustees gave Diaz credit only for the 13 years he worked on SIU ships after he recovered from his injury in 1975 and returned to SIU work. They denied him credit for the 17 years he worked on SIU ships before he left SIU employment in 1961 (and before the SIU had any pension plan) because they concluded that, in respect to that work, Diaz suffered a "break in service" under the plan's "break in service" rule. The rule prohibits counting work prior to a "break in service," defined as failure to perform 90 or more days of SIU work in each of three consecutive calendar years between 1968 and 1975 (when ERISA took effect). The rule states specifically:

If during the period from January 1, 1968 to December 31, 1975, an employee received credit for less than 90 days of Service in each of three (3) consecutive calendar years, a Break of Service shall occur.

If such a Break of Service occurs, said employee shall lose all credit for Service prior to and including said three (3) year period....

Seafarers Pension Regulations, Article 2, Section D(1).

The upshot is that Diaz received a pension of about $200 per month (and without certain health benefits) instead of the $450 per month (plus such benefits) to which he believed himself entitled.

C. Procedure. Diaz brought this lawsuit in federal district court under ERISA, 29 U.S.C. Sec. 1132(a)(1)(B), which authorizes an employee action "to recover benefits due to him under the terms of his plan." ERISA requires trustees to follow their own rules, see id. Sec. 1104(a)(1)(D), and Diaz argues that the trustees have failed to do so by misinterpreting the break in service rule in applying it to his situation. The district court found against Diaz.

II Standard of Review

Ordinarily, a court will give trustees considerable leeway to interpret and to apply pension plan rules, setting aside those trustee decisions only if they are arbitrary, capricious, or an abuse of discretion. See, e.g., Lockhart v. United Mine Workers of America 1974 Pension Trust, 5 F.3d 74, 78 n. 6 (4th Cir.1993); Gordon v. ILWU-PMA Benefit Funds, 616 F.2d 433, 439 (9th Cir.1980). Diaz points out, however, that the Supreme Court has said that this deferential standard of review is appropriate only where the "benefit plan" itself gives the trustees

discretionary authority to determine eligibility for benefits or to construe the terms of the plan.

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 956-57, 103 L.Ed.2d 80 (1989); see also Allen v. Adage, Inc., 967 F.2d 695, 697-98 (1st Cir.1992). Diaz says that the version of the benefit plan in effect when he applied for a pension did not provide the trustees with the "discretionary authority" to determine eligibility or construe the terms of the plan. Hence, we must review trustee decisions de novo.

Diaz's argument is unconvincing, however. Firestone concerned certain terms ("reduction in work force") set forth in what was in effect the basic trust instrument, which terms the trustees had construed against the employees. The argument in the case before us focuses on the application (and implicit interpretation), not of terms contained in the basic trust instrument, but of rules promulgated by the trustees pursuant to powers delegated by that instrument. And, the distinction is important.

The Firestone opinion turned on the traditional legal doctrine that trustee powers are

determined by the rules of law that are applicable to the situation ... and by the terms of the trust as the court may interpret them, and not as they may be interpreted by the trustee himself....

3 W. Fratcher, Scott on Trusts Sec. 201, at 221 (emphasis added); see Firestone, 489 U.S. at 112, 109 S.Ct. at 955. That is to say, courts ordinarily interpret (independently) the trust's terms. The Firestone Court concluded that, since

there is no evidence that under [the benefit plan] the administrator has the power to construe uncertain terms [i.e., terms of the trust ] or that eligibility determinations are to be given deference,

the proper standard of review is de novo. 489 U.S. at 111, 109 S.Ct. at 955.

Traditional trust law, however, does not suggest that courts normally should, or do, substitute their judgment for reasonable trustee interpretations of trustee rules promulgated pursuant to powers that the trust instrument grants to those trustees. To the contrary, one would ordinarily assume that a trust instrument's grant of power to make rules and to apply rules carries with it (to avoid unnecessary administrative complexity) an implied power to interpret those rules reasonably and consistently with the instrument and other provisions of law. Cf. Lockhart v. United Mine Workers of America 1974 Pension Trust, 5 F.3d 74, 78 n. 6 (4th Cir.1993) ("Given that the Trustees have the authority to formulate the rules and regulations that implement the Plan ..., it is not subject to question that the Trustees have the ... discretion to interpret these rules and regulations....") (citations omitted) (emphasis added). And, courts would presumably review any such exercise of delegated rule-interpretive power as they would any other exercise of delegated power, i.e., with a degree of interpretive leeway that reflects the trustees' likely better understanding of how they intended their own rules to apply. Cf. Restatement (Second) of Trusts Sec. 187 ("Where discretion is conferred upon the trustee with respect to the exercise of a power, its exercise is not subject to control by the court, except to prevent an abuse by the trustee of his discretion.")

In this case, the terms of the trust itself are not in issue. The trust document, at the time of Diaz's application, gave the trustees broad, discretionary, authority to make, and to apply, rules governing eligibility for pensions. The document specifically said:

The Trustees shall without limitation have the power ... to ... [f]ormulate and adopt a pension program ... and promulgate and establish rules ... for ... [its] operation ... and in pursuance thereto (but without intent to limit such authority) formulate and establish conditions of eligibility ... and all other matters which the Trustees in their discretion may deem necessary or proper to effectuate the purposes and intent of the pension program.

Seafarers Pension Agreement and Declaration of Trust, Article III, Section 1 (emphasis added). It added a general clause stating:

The [T]rustees are empowered to do all acts whether or not expressly authorized herein, which the [T]rustees may deem necessary to accomplish the general purposes of the Trust.

Id. Section 5 (emphasis added).

This language demonstrates broad trustee authority to determine the content of the rules they promulgate. The document provides no reason for finding any significant difference between 1) determining content through promulgating new rules, and 2) determining content by interpreting old ones. Hence, consistent with our discussion above, we interpret the document's explicit, and broad, power to create "rules" governing "conditions of eligibility" as carrying with it a similarly broad implied power to interpret those rules. And, the existence of...