Foster Medical Corp. Employees' Pension Plan v. Healthco, Inc.

• Decision Date: 25 January 1985
• Docket Number: No. 84-1716,84-1716
• Citation: 753 F.2d 194
• Parties: 6 Employee Benefits Ca 1187 FOSTER MEDICAL CORPORATION EMPLOYEES' PENSION PLAN, et al., Plaintiffs, Appellants, v. HEALTHCO, INC. and the Amended and Restated Healthco Employees' Pension Plan, Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

Page 194

753 F.2d 194

6 Employee Benefits Ca 1187

FOSTER MEDICAL CORPORATION EMPLOYEES' PENSION PLAN, et al Plaintiffs, Appellants, v. HEALTHCO, INC. and the Amended and Restated Healthco Employees' Pension Plan, Defendants, Appellees.

No. 84-1716.

United States Court of Appeals First Circuit.

Argued Dec. 3, 1984.

Decided Jan. 25, 1985.

David Wawro, New York City, with whom Haythe & Curley, New York City, Robert S. Frank, Jr., and Choate, Hall & Stewart, Boston, Mass., were on brief, for appellants.

Joel Lewin with whom Peter M. Zuk and Snyder, Tepper & Comen, Boston, Mass., were on brief, for appellees.

Before COFFIN and BREYER, Circuit Judges, and MALETZ, ^* Senior Judge.

MALETZ, Senior Judge.

Plaintiffs appeal from the district court's entry of summary judgment for defendants in a contract and ERISA action. For the reasons that follow, the judgment below is affirmed in part and reversed and remanded in part.

I. Background

The action arises from a so-called "spin-off" transaction, in which defendant Healthco, Inc. (Healthco) sold the assets and liabilities of its Medical Division to Foster Medical Distribution Corporation (Foster)--which is not a party to this action--for approximately $28 million. The sale agreement, which is dated December 31, 1980, provided (1) that employees of Healthco's Medical Division would become employees of Foster and (2) that defendants Healthco and its employees' pension plan (Healthco Plan) would transfer pension assets and liabilities applicable to these employees to plaintiff Foster Medical Corporation Employees' Pension Plan (Foster Plan). Plaintiffs-appellants--the Foster Plan and its Administrative Committee--contend that the pension funds transferred by defendants were insufficient to fulfill their contractual and statutory obligations.

More specifically, in September 1981, defendants-appellees, Healthco and the Healthco Plan, transferred funds in the amount of $1,132,642 to the Foster Plan. As of December 31, 1980, the Healthco Plan's assets were $6,330,076, while its liabilities were only $5,073,846, leaving a surplus, or "overfunding," of $1,256,230. Plaintiffs' primary claim is that they were entitled to a pro rata share of this surplus, amounting to approximately $260,000. This entitlement, they maintain, arises under (1) the December 31, 1980 agreement and (2) the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Secs. 1001-1461 (1982). In addition, plaintiffs claim that defendants are obligated to pay them the sum of $37,104 pursuant to a provision of the sale agreement known as the "full funding warranty," which required Healthco to "fully fund the Healthco Plan Benefits of all the [Medical] Division's employees."

The district court--which had before it plaintiffs' motion for partial summary judgment on the issue of liability and defendants' motion for summary judgment on all issues--held, in an unpublished memorandum and order, that the Healthco defendants had fully satisfied their obligations and therefore entered summary judgment in their favor. This appeal by plaintiffs followed.

The focus of the parties' dispute is section X of the December 1980 agreement, which deals with transfer of pension funds. It provides:

Employees of the Division are covered by the "Amended and Restated Healthco Employee's Pension Plan" (the "Healthco Plan"). The Healthco Plan also covers other employees of the Seller and its subsidiaries. The Seller agrees that, at the request of the Purchaser, it will cooperate in transferring the portion of the assets and liabilities of the Healthco Plan which are attributable to employees of the Division to a new retirement plan (or retirement plans) established by the Purchaser; provided, however, that the Seller shall not be so required to transfer assets or liabilities of the Healthco Plan to the extent prohibited by the Employee Retirement Income Security Act of 1974 or the Healthco Plan (notwithstanding any amendments thereto designed to carry out the intent of this Section X). The Purchaser agrees that each employee of the Division as to whom assets are transferred shall be entitled to receive a benefit (referred to as his "Healthco Plan Benefit") under the new plan in respect of his service with the Seller which is at least equal to the benefit he would have been entitled to receive under the Healthco Plan in respect of such service, and the Seller represents and warrants that the assets so transferred will (under the actuarial assumptions used by the Healthco Plan on December 31, 1979) fully fund the Healthco Plan Benefits of all the Division's employees. (Emphasis added.)

II. Contentions of the Parties

Plaintiffs-appellants contend that the district court erred (1) in failing to consider whether Healthco satisfied section X's warranty that the assets transferred would "fully fund the Healthco Plan Benefits" of the employees; (2) in holding that no part of the Healthco Plan's surplus was "attributable to" Medical Division employees; and (3) in failing to consider whether Healthco's refusal to transfer any portion of the Healthco Plan's surplus violated fiduciary duties under ERISA. In particular, plaintiffs argue (1) that the assets transferred fell $37,104 short of satisfying the full funding warranty; (2) that section X, in using the phrase "attributable to," required defendants to transfer a pro rata share of the Healthco Plan's surplus, in the amount of approximately $260,000, over and above the amount necessary to satisfy the full funding warranty; and (3) that Healthco's refusal to transfer such a pro rata share also violated a fiduciary duty.

Defendants respond (1) that plaintiffs' allegation of a $37,104 shortfall was not timely asserted; (2) that "attributable to" means no more than the amount necessary to fully fund the defined benefits; and (3) that Healthco violated no fiduciary duty.

III. The Full Funding Warranty

The district court's memorandum did not specifically address plaintiffs' contention that the sum transferred by Healthco was $37,104 short of satisfying section X's full funding warranty. Indeed, the court assumed that plaintiffs were satisfied that the $1,132,642 transferred was sufficient "to 'fully fund' liabilities." Plaintiffs argue, to the contrary, that defendants breached the full funding warranty and that the court failed to consider the issue.

Defendants point out that the full funding claim was raised for the first time when plaintiffs filed an opposition to defendants' motion for summary judgment. In support of their contention that the complaint, which was dated March 11, 1983, failed to raise the full funding issue, defendants point to a June 17, 1983 letter to Healthco, in which Foster demanded payment of $37,104 and indicated a willingness to "include the amount in our legal procedures." According to Healthco, plaintiffs' omission in the complaint of a claim for $37,104, coupled with their failure to amend the complaint after the June 17 letter, indicates that the full funding claim was never raised and barred the district court from considering the issue.

For their part, plaintiffs emphasize that the complaint alleged that defendants breached section X of the agreement and their fiduciary duties under ERISA by failing to transfer all assets of the Healthco Plan "attributable to" employees of the Medical Division. Although plaintiffs read more into the words "attributable to" than the district court did, they argue that the district court's understanding of the phrase proves, a fortiori, that the complaint raised the full funding claim. In this respect, while plaintiffs argued to the district court that the phrase "attributable to" indicated an entitlement to a pro rata share of the plan's surplus, the court read the phrase more narrowly and found that the only issue raised by the phrase was whether pension liabilities were fully funded. Without abandoning their argument that "attributable to" has significance over and above the full funding issue, plaintiffs accept the district court's conclusion that, at a minimum, the phrase mandates compliance with the full funding warranty. Thus, in plaintiffs' view, their request that the district court enforce the mandate of "attributable to" necessarily encompassed a request that the court enforce the full funding warranty.

It is true that plaintiffs could have articulated their full funding claim more clearly. Nevertheless, we conclude that the issue is raised implicitly in the complaint and may be gleaned from a reading of its allegations in conjunction with plaintiffs' opposition to defendants' motion for summary judgment. Under modern procedural rules, "[a]ll pleadings shall be so construed as to do substantial justice." Fed.R.Civ.P. 8(f). Since pleadings are to be construed liberally, Hildebrand v. Honeywell, Inc., 622 F.2d 179, 181 (5th Cir.1980), "precision of pleading no longer can be an absolute determinant of either liability or remedy." DeCosta v. Columbia Broadcasting Sys., 520 F.2d 499, 510 (1st Cir.1975), cert. denied, 423 U.S. 1073, 96 S.Ct. 856, 47 L.Ed.2d 83 (1976). What is more, considering that the claim was explicitly raised in plaintiffs' opposition papers, defendants can scarcely claim surprise or prejudice. See Peter Kiewit Sons' Co. v. Summit Constr. Co., 422 F.2d 242, 271 (8th Cir.1969). Cf. Hanson v. Hoffmann, 628 F.2d 42, 53 n. 11 (D.C.Cir.1980) (so long as defendant is not prejudiced, plaintiff is not bound by legal theory on which he originally relied).

Substantively, the record shows a genuine conflict of material fact on the full funding claim and, therefore, summary judgment on the claim was inappropriate. See Hahn v. Sargent, 523 F.2d 461, 464 (1st Cir.1975), cert. denied, 425 U.S. 904, 96 S.Ct. 1495, 47 L.Ed.2d 754 (1976). Accord, e.g., Emery v. Merrimack Valley Wood Prods., Inc., 701 F.2d 985, 990-91 (1st Cir.1983); Maiorana v. MacDonald, 596 F.2d 1072, 1076 (1st Cir.1979). Thus,...