Ganze v. Dart Industries, Inc., 83-1509

• Citation: 741 F.2d 790
• Decision Date: 17 September 1984
• Docket Number: No. 83-1509,83-1509
• Parties: 5 Employee Benefits Ca 2309 August H. GANZE, Jr., et al., Plaintiffs-Appellees, v. DART INDUSTRIES, INC., Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 790

741 F.2d 790

5 Employee Benefits Ca 2309

August H. GANZE, Jr., et al., Plaintiffs-Appellees, v. DART INDUSTRIES, INC., Defendant-Appellant.

No. 83-1509.

United States Court of Appeals Fifth Circuit.

Sept. 17, 1984.

Kerr, Fitz-Gerald & Kerr, William Monroe Kerr, Midland, Tex., for defendant-appellant.

James Boldrick, Midland, Tex., for plaintiffs-appellees.

Appeal from the United States District Court for the Western District of Texas.

Before BROWN, GEE and RUBIN, Circuit Judges.

JOHN R. BROWN, Circuit Judge:

This case was commenced as a class action in diversity. Plaintiff--a terminated and fully vested former employee of a recently sold Dart division--sought to recover a forty-five cent per share cash quarterly dividend from the Dart Industries' profit sharing trust for himself and all former employees who participated in the pension fund. Plaintiff alleged the trustees acted arbitrarily and inconsistently in administering the plan and that they capriciously treated stock and cash dividends differently. The District Court certified the class action and rendered judgment for the plaintiff. We reverse and hold that the Employee Retirement Income Security Act contemplates a company-wide pension fund which incidentally rewards long term employees and that this permissible incentive, when applied on a consistent basis in the quarterly division of unvested shares is not a violation of trustee's fiduciary duties to terminated employees.

The Pension Vehicle

The Dart Industries' profit sharing retirement plan was created by declaration of trust in 1955. At the end of 1979 it held over $90,000,000 in assets. Briefly, the plan provided for the creation of four separate trust accounts. Employees elected to participate in the fund or funds of their choice. Only one of the funds, designated Fund B, is the concern of this lawsuit. Fund B holds company contributions which are invested in the common stock of Dart Industries. Each fund is valued and profits or losses are allocated to participants at the end of each quarter. The funds are the responsibility of an advisory committee appointed by the Board of Directors of Dart Industries.

The Squeaky Wheel

Plaintiff August H. Ganze, Jr. became a participant in the Dart Industries' pension fund as soon as he became eligible. Pursuant to the agreement executed by all participants, he elected to have his company contributions placed in Fund B. When Mr Ganze was terminated by Dart Industries--after the sale of the division for which he worked to another company--he and all other employees who were not already fully vested became fully vested in their pension monies. Much time was spent in the lower court and at oral argument trying to illumine the meaning of vesting. In essence, vesting means only that an interest is no longer subject to possible forfeiture and an employee becomes entitled to all of the amounts which have been credited to his pension account. For this case, the valuation of a terminated vested employee's aliquot share in Fund B was made on June 30, 1979. ¹

Under the terms of the plan, the quantity of stock and money that is to be distributed to an employee is subject to total or partial forfeiture depending upon the reason for termination. Here, however, all employees were fully vested and they were to receive their contribution as soon as practicable.

The Breakdown

In essence, Ganze complains that he and his fellow vested workers did not receive their aliquot share of a quarterly forty-five cent dividend that was declared on Dart stock on September 14, 1979. He maintains this proposition despite the termination of his employment on August 31, 1979. The bases of his contention are (i) the advisory committee arbitrarily and inconsistently administered the plan, and (ii) capriciously treated stock and cash dividends differently.

The Diagnostic Test

While neither party founded a claim of federal jurisdiction upon the basis of the Employee Retirement Income Security Act of 1974, Pub.L. No. 93-406 (29 U.S.C. Sec. 1001-1381) (ERISA) in the trial court, nor raised the issue in their briefs on appeal, we hold that jurisdiction was proper in the District Court under 29 U.S.C. Sec. 1132. Section 1132(a) provides that a civil action may be brought by a retirement plan participant to recover benefits or to enforce rights under a plan. Section (e)(1) gives the federal District Court concurrent jurisdiction with state courts. Section (f) specifies that the District Court's jurisdiction does not depend upon the amount in controversy. Accordingly, all the hard fought issues in the lower court as to aggregation of the amount in controversy to secure diversity jurisdiction need not trouble us any longer.

Ganze attacks the decision of the trust fund advisory committee not to pay employees terminated in June the September dividend. He points out that Dart Industries distributed the December 1979 dividend to members of the class and maintains that conditions were identical. He also maintains that the trust was arbitrary in treating stock and cash dividends differently. For the foregoing reasons, Ganze argues that the fund trustees violated their fiduciary duties; he also contends that the fund trustees violated their duty of loyalty to the beneficiaries--because their method of allocating dividends after termination of employees gave the trustees an interest adverse to that of the terminated beneficiaries. We will discuss these contentions one at a time under the standard of review adopted by this Court in Dennard v. Richards Group, Inc., 681 F.2d 306, 313-14 (5th Cir.1982).

The District Court in the first instance, and this Court on appeal, in reviewing the actions of administrators of an employee benefit plan, utilize an "arbitrary and capricious" standard of review. Paris v. Profit Sharing Plan for Employees of Howard B. Wolf, Inc., 637 F.2d 357, 362 (5th Cir.), cert. denied, 454 U.S. 836, 102 S.Ct. 140, 70 L.Ed.2d 117 (1981); Bayles v. Central States, Southeast and Southwest Areas Pension Fund, 602 F.2d 97, 99 & 100 n. 3 (5th Cir.1979). "According to the clear weight of federal authority, the actions of the trustees in the administration of the pension plan must be sustained as a matter of law unless plaintiff can prove such activities have been arbitrary or capricious." Bayles, supra. This standard, traditionally used for review of trusts, has been applied by several other circuits. ² Such a standard prevents excessive judicial intervention in trust operations. Rehmar v. Smith, 555 F.2d 1362, 1371 (9th Cir.1976).

Federal courts have applied the arbitrary and capricious standard both to ambiguous and unambiguous terms. A rational and reasonable interpretation of a plan may still be arbitrary and capricious if contrary to the plain meaning of the plan. "Where the trustees impose a standard not required by the pension plan itself, this court has stated that such action 'would result in an unwarranted and arbitrary construction of the Plan.' " Morgan v. Mullins, 643 F.2d at 1321 (8th Cir.1981) (quoting Maness v. Williams, 513 F.2d at 1267). See Richardson v. Central States, Southeast & Southwest Areas Pension Fund, 645 F.2d 660, 663 n. 3 (8th Cir.1981). Another Eighth Circuit opinion, Bueneman v. Central States, Southeast & Southwest Areas Pension Fund, supra, a case also relied on in Morgan, supra, was noted with approval in our decisions in Bayles, supra, and Howard Wolf, supra. The Seventh Circuit, in applying the arbitrary and capricious yardstick, has stated that this standard apparently originated with the District of Columbia Circuit's formulation of "whether the Trustees have acted arbitrarily, capriciously, or in bad faith; that is, is the decision of the Trustees supported by substantial evidence or have they made an erroneous decision on a question of law." Wardle v. Central States, Southeast & Southwest Areas Pension Fund, 627 F.2d at 823.

In Bayles, we indicated certain factors to be considered in applying the arbitrary and capricious standard: (1) unformity of construction; (2) "fair reading" and reasonableness of that reading; and (3) unanticipated costs. We there determined that the pensioner's interpretation of the plan would render another section of the plan meaningless and that "[a] fair reading of the provision" revealed that the language's purpose was that maintained by the trustees. Along with the determination of the "legally" correct meaning of the plan provision in question, we also view as probative of the good faith of a trustee or administrator the following factors: (1) internal consistency of a plan under the interpretation given by the administrators or trustees; (2) any relevant regulations formulated by appropriate administrative agencies; and (3) factual background of the determination by a plan and inferences of lack of good faith, if any. The fact that a trustee's interpretation is not the correct one as determined by a District Court does not establish in itself arbitrary and capricious action, but is a factor in that determination. (emphasis added)

I.

Despite Ganze's claim, Dart Industries' payment of the December dividend is irrelevant to this case. The reason that it is of no significance is because it was paid by the company out of recognition of the consequences for an undue delay in making disbursements from the...