Gritzer v. CBS Inc., 01-1979

Citation275 F.3d 291
Decision Date03 January 2002
Docket NumberNo. 01-1979,01-1979
Parties(3rd Cir. 2002) JOHN F. GRITZER; DONALD J. LEONARD; CRAWFORD WILLIAMS; JOHN PALACKI; DONALD S. MAJORSKY; KEN SMETAK; TOM MCCHESNEY; THOMAS CAWOSKI, FOR THEMSELVES AND OTHERS SIMILARLY SITUATED v. CBS, INC; WESTINGHOUSE PENSION PLAN JOHN F. GRITZER, DONALD J. LEONARD, CRAWFORD WILLIAMS, JOHN PALACKI, DONALD MAJORSKY, KEN SMETAK, TOM MCCHESNEY, AND THOMAS CAWOSKI, APPELLANTS
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

[Copyrighted Material Omitted] William T. Payne, Esq. (Argued), Schwartz, Steinsapir, Dohrmann & Sommers 1007 Mount Royal Boulevard Pittsburgh, Pa. 15223. John Stember, Esq. Suite 1705 429 Forbes Avenue Allegheny Building Pittsburgh, Pa. 15219. John T. Tierney, III, Esq., Goldberg, Persky, Jennings & White 1030 Fifth Avenue, 3rd Floor Pittsburgh, Pa. 15219. Daniel P. McIntyre, Esq. P.O. Box 190952 Miami Beach, Fl. 33119, Attorneys for Appellants.

Before: Mansmann, Alito, and Barry, Circuit Judges

OPINION OF THE COURT

Barry, Circuit Judge

This case, at bottom, is about whether the word "may" means "may" or whether it means "must." We are also called upon to determine the appropriate standard of review where a pension plan allows for discretion but discretion is not exercised. The District court granted the defendants' motion for summary judgment. We have jurisdiction under 28 U.S.C. S 1291 and will affirm.

I.

In spite of the voluminous record and the lengthy briefs, this is, again at bottom, a contract interpretation class action with some ERISA bells and whistles. Appellants are a group of employees who worked at Westinghouse Electric Corporation's industrial ceramics plant in Derry, Pennsylvania. Appellants enjoyed coverage under the Westinghouse Pension Plan ("Plan") and purport to represent all employees from the 53 different facilities that were transferred by Westinghouse to successor companies and were extended at least some benefits under the Plan for time spent with the respective successors.

In December 1985, Westinghouse sold the Derry facility to Industrial Ceramics, Inc. ("Ceramics"). 1 As part of that transaction, the Derry employees, including appellants, were transferred to Ceramics. This employee transfer forced Westinghouse to decide how it wanted to treat these employees' service with Ceramics for purposes of the Plan. Westinghouse executed a reciprocal service agreement ("RSA") with Ceramics.2 The RSA provided, in pertinent part, that Westinghouse would grant transferred employees "service credit for their service with [Ceramics] for the purpose of pension eligibility under any applicable [Westinghouse] pension plan in which the employes [sic] may have been participating, but not for purposes of pension benefit accrual thereunder." JA 1030,P 8.8. The notices provided to appellants stated that they would "CONTINUE TO ACCRUE ELIGIBILITY SERVICE UNDER THE . . . PLAN FOR AS LONG AS [THEY WERE] CONTINUOUSLY EMPLOYED BY [CERAMICS]. SUCH ELIGIBILITY SERVICE WILL . . . DETERMINE WHEN YOU BECOME ELIGIBLE FOR EARLY OR SELECTED RETIREMENT." JA 1568. Under the RSA, therefore, Westinghouse agreed to credit its former employees with Eligibility Service time under the Plan for the years subsequently spent with Ceramics.

Ten years later, appellants were engaged in a protracted strike at the Derry plant. Apparently at least in part as a result of the strike, Ceramics closed the plant and terminated appellants. It is undisputed that at the time of the Derry plant closure in 1995, each appellant was more than 50 years old and had 25 years of service with Westinghouse/Ceramics. Accordingly, appellants met the age and years of service requirements for the Plan's"Special Retirement Provisions" benefits ("50/25 benefits"). As discussed below, however, there is a significant dispute over whether appellants met the additional requirement of being terminated by an "Employer."

Following the plant closure, appellants inquired about their pensions. Alarmed by the lower-than-expected dollar amounts because 50/25 benefits begin earlier than the benefits which were extended and are not actuarially reduced, appellants began their quest for 50/25 benefits. After several unsuccessful inquiries, appellants filed a claim letter with the Plan Administrator. The Plan Administrator failed to respond within 90 days and appellants' claim was thereby deemed "denied." Based on this denial, appellants filed suit in the U.S. District Court for the Western District of Pennsylvania. Nearly five months later, Westinghouse finally responded to appellants' claim and denied it on the merits for essentially the same reasons that Westinghouse invokes here.

The complaint before the District Court -- the Second Amended Complaint -- set forth two counts, but only Count I is relevant here. Count I alleged that appellants were entitled under the Plan to 50/25 benefits and that the failure to award 50/25 benefits violated ERISA. The District Court certified the class, finding, as appellants contended, that the "common questions" as to Count I were (1) whether Westinghouse was obligated to award 50/25 benefits when it treated service with a successor company as service with Westinghouse, and (2) whether a successor's termination of class members was equivalent to a Westinghouse termination, thus amounting to a "Permanent Job Separation" such that whenever Westinghouse entered into an RSA treating service with a successor company as service with Westinghouse, it was necessarily including the 50/25 benefits in that RSA, regardless of whether the RSA said so and even if it expressly excluded such benefits. It is not disputed that what was at issue before the District Court and what is at issue before us is the meaning of the Plan language regarding eligibility service, job separation benefits, and a sale of assets. As Westinghouse puts it, "there is no claim in this case that the various, differently worded RSA agreements themselves entitle the class to [50/25] benefits; on the contrary, this class action claims that the Plan itself entitled [the] Gritzer class to these benefits, and that the various RSAs unlawfully failed to provide those benefits." Appellees' Br. at 20.

With these common class questions in mind, the parties cross-moved for summary judgment. The District Court granted Westinghouse's motion because the Plan's definition of "Permanent Job Separation" unambiguously requires termination by an "Employer" and Ceramics concededly did not meet this definition, and because the language of S 14(F)(1) of the Plan -- and more about that later -- did not require Westinghouse to offer all of its Plan benefits whenever it chose to offer some of those benefits as part of a RSA. In reaching this conclusion, the District Court reviewed Westinghouse's denial of benefits under a heightened standard of deferential review and declined to consider the extrinsic evidence proffered by appellants in construing the relevant provisions of the Plan.

II.

Before turning to the contractual issues in this case, and particularly whether "may" means "may," it is appropriate to address a predicate issue: whether the District Court utilized the correct standard of review when considering Westinghouse's denial of 50/25 benefits. Our review of the District Court's decision in this regard is plenary.

Appellants contended before the District Court, and contend before us, that de novo review was appropriate. Westinghouse, not surprisingly, argued -- and argues here -- for an arbitrary and capricious standard. The District Court disagreed with both sides and held that a heightened arbitrary and capricious standard was applicable--"arbitrary and capricious" because Westinghouse had unfettered discretion to interpret the Plan and"heightened" because it was operating under a financial conflict of interest when it denied the 50/25 benefits. Had discretion in fact been exercised in the course of denying benefits we would agree, but it was not. We, thus, conclude that the District Court erred and that the denial of benefits should have received de novo review.

The Supreme Court has held that denials of benefits challenged under 29 U.S.C. S 1132(a), like the denials challenged here, are to be reviewed de novo unless the plan under consideration gives the administrator discretionary authority to determine eligibility for benefits or to construe the terms of the plan, in which case an arbitrary and capricious standard applies. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). In dicta, the Court noted that if a plan permitted an administrator to exercise discretion and the administrator was operating under a conflict of interest, that conflict must be weighed as a factor in applying the arbitrary and capricious standard. Id. 3

It is undisputed that Westinghouse funds the Plan and that the Plan gives Westinghouse essentially unfettered discretion to interpret the Plan and to determine entitlement to its various benefits. So far, so good. Here, however, Westinghouse apparently never made any effort to analyze appellants' claims much less to advise them of what that analysis disclosed until after this litigation was filed.4 As appellants note, "[i]n these circumstances, there simply is no analysis or `reasoning' to which the Court may defer under the arbitrary and capricious standard." Appellants' Reply Br. at 7.

The District Court summarily rejected this contention, holding that Firestone precluded de novo review whenever a plan simply allows for discretion, regardless of whether such discretion was exercised. This reads Firestone too narrowly. It is important to...

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