Hoefel v. Atlas Tack Corp., s. 77-1517

• Decision Date: 09 August 1978
• Docket Number: Nos. 77-1517,77-1519,s. 77-1517
• Parties: 99 L.R.R.M. (BNA) 2070, 84 Lab.Cas. P 10,771 Raymond HOEFEL, Plaintiff, Appellee, v. ATLAS TACK CORPORATION, Defendant, Appellant. Raymond MAHONEY et al., Plaintiffs, Appellees, v. GREAT NORTHERN INDUSTRIES, INC., et al., Defendants, Appellees, Atlas Tack Corporation, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

Page 1

581 F.2d 1

99 L.R.R.M. (BNA) 2070, 84 Lab.Cas. P 10,771

Raymond HOEFEL, Plaintiff, Appellee, v. ATLAS TACK CORPORATION, Defendant, Appellant.

Raymond MAHONEY et al., Plaintiffs, Appellees, v. GREAT NORTHERN INDUSTRIES, INC., et al., Defendants, Appellees, Atlas Tack Corporation, Defendant, Appellant.

Nos. 77-1517, 77-1519.

United States Court of Appeals, First Circuit.

Argued May 3, 1978.

Decided Aug. 9, 1978.

Edward R. Lev, Boston, Mass., with whom Joseph Auerbach, Edward Woll, Jr., and Paulette Kessler, Boston, Mass., were on brief, for appellant.

Alan S. Novick, New Bedford, Mass., with whom Novick & Siegel, New Bedford, Mass., was on brief, for appellees.

Before COFFIN, Chief Judge, CAMPBELL and BOWNES, Circuit Judges.

COFFIN, Chief Judge.

Plaintiff-appellees are ten retired employees of defendant-appellant, Atlas Tack Corporation (Atlas). In two separate actions, ¹ originally commenced in the Massachusetts Superior Court, they sought to recover certain pension benefits allegedly due them under a pension plan in effect during the period of their employment with Atlas. That plan, having been the product of an agreement between Atlas and one of its collective bargaining units, the International Union, United Automobile, Aeropower and Agricultural Implement Workers of America, UAW and its Local 899 (UAW), provided the basis for federal jurisdiction under § 301 of the Labor Management Relations Act, 29 U.S.C. § 185. ² On Atlas' motion, the actions were removed to the United States District Court for the District of Massachusetts. There they were consolidated for trial. At the close of plaintiffs' case, the court dismissed their breach of contract claim, but reserved judgment as to whether they could recover under the doctrine of promissory estoppel. At the end of the three day trial, the court held for plaintiffs upon the latter ground and entered a judgment of $102,791, a sum reflecting the amount necessary to purchase life annuity contracts for each of the plaintiffs yielding a monthly payment equal to the pension each plaintiff had earned.

Subsequently, the court filed a written opinion in which it reaffirmed its decision as to promissory estoppel and also held that, upon reconsideration of the applicable law, plaintiffs had a contractual right to their pensions. Atlas appeals, contesting both its liability and the measure of damages. We agree with the district court that plaintiffs have a contractual right to their pensions and affirm on that ground. ³

In September, 1964, Atlas instituted a pension plan pursuant to a collective bargaining agreement between it and the UAW. Atlas voluntarily extended the plan to cover non-union employees, including the nine plaintiffs in the Mahoney action. ⁴ The plan was also made a part of Atlas' contract with the Tackmakers' Union, thus bringing plaintiff Hoefel under its provisions.

The plan provided that employees who earned a specified number of service credits and reached a specified age would receive upon retirement a monthly pension in an amount determined by the number of credits earned. As originally established, the plan was administered by the Aetna Life Insurance Co. Under its terms, when an employee reached retirement age, Atlas contributed a sum of money sufficient to buy a lifetime annuity contract yielding the monthly pension to which the employee was entitled.

At the time the plan was adopted, each of the plaintiffs was an Atlas employee. Each received a summary of the benefits under the plan. Paragraph 14 of the summary provided:

"The Company fully expects to continue the Plan subject to the terms of its present Pension Agreement with its employees. However, since future changes in conditions cannot be foreseen, the Company necessarily reserves the right to change, suspend or discontinue the Plan at any time. No change, suspension, or discontinuance will adversely affect the pensions already purchased, unless a change is made in the Plan for the purpose of meeting the requirements of the Federal Internal Revenue Code or any other applicable law."

At its inception, the plan provided that employees receive credit for pre-plan service. Because of these credits, the plan began with a large unfunded liability. This deficit increased when benefits were increased in 1966, and increased again as of April 15, 1968, when the group eligible for retirement with pension was enlarged. Another change made in April of 1968 was the conversion of the plan from the Aetna insurance funded plan to a trust funded plan (trusteed plan). Under the new arrangement, Atlas annually contributed an amount sufficient to pay the benefits then due each employee during the year. This change did not purport to affect any employee's entitlement to his pension. It did, however, affect the manner in which Atlas provided for pension payments. Under the insurance plan, when an employee retired, a lifetime annuity contract was purchased for him. Thus, subsequent amendment or discontinuance of the plan could not adversely affect a retiree. Under the trusteed plan, however, benefits came to depend, as the district court described, upon the continuance of the plan and on Atlas' continued solvency.

The change from an insured plan to a trusteed plan was motivated by Atlas' financial difficulties. The costs of the insured plan were substantially higher than the trusteed plan, and Atlas, then suffering economic losses, felt it necessary to reduce the annual amount it was required to pay in benefits. These facts were disclosed to the UAW which then agreed to the change in the plan as to its members. Non-union member employees, such as the plaintiffs, ⁵ were not informed as to the reasons for the change, nor did they consent to it. In fact, soon thereafter, Atlas through its president misled the non-union employees as to the effect of the change. The evidence supported the district court's finding that "Atlas' President became aware of employee concern about the change, and assured the non-union employees that this had made the plan stronger, and was to their benefit. At the time the President of Atlas gave these assurances, he knew that the trusteed plan was not, in fact more reliable, that it was made necessary by economic losses, and that it made the fate of retired employees subject to the vicissitudes of Atlas' future operations. He not only willfully withheld these facts; he deliberately misrepresented the trust."

In February of 1973, Atlas terminated the pension plan. Prior to that time, but after April, 1968, each of the plaintiffs had retired from Atlas' employment. Each had qualified, upon retirement, for a pension and began to receive monthly payments. In fact, each plaintiff, save one, had qualified for a pension prior to the April, 1968, amendments. Because each had retired after the change from the insurance plan to the trusteed plan, however, no annuity contract was ever purchased for any of the plaintiffs. Upon terminating the plan, Atlas ceased to make payments to the plaintiffs.

The district court credited testimony to the effect that plaintiffs reasonably believed that under the plan, upon qualifying, they would receive a pension for life. It also appears to have credited the testimony from several of the plaintiffs that they continued to work for Atlas after 1967-68 in reliance upon the promise of pension benefits. The court held that Atlas' offer of a pension to its employees became a binding unilateral contract as an employee qualified for a pension by rendering the required number of years of service. Further, it held that the termination clause in the plan did not permit Atlas to discontinue payments to the plaintiffs whose rights had already vested.

Through the enactment of the Employment Retirement Income Security Act of 1974, Pub.L. 93-406, 88 Stat. 829, 29 U.S.C. §§ 1001 Et seq., Congress manifested its concern to safeguard the pension rights of American workers from the risks similar to those involved here. That statute, while an expression of national policy, has no direct bearing on pension plans terminated prior to 1974 as was Atlas'. Rather, as the parties concede, the nature of the contractual rights of the parties, if any, is governed by state law. Craig v. Bemis Co., 517 F.2d 677, 680 (5th Cir. 1975); Hurd v. Hutnik, 419 F.Supp. 630, 653 (D.N.J.1976).

The threshold question is whether Atlas' voluntary establishment of a pension plan and the acts of employees to qualify for a pension under the plan constitute a contract between Atlas and those employees whose rights have become vested. While noting that the Massachusetts courts have never squarely faced the question, the district court, relying on the trend of modern authority, answered in the affirmative. Since the district court's opinion, the Supreme Judicial Court decided the case of Balkin v. Frank M. Katz, Inc., Mass.Adv.Sh. 2036, 367 N.E.2d 628 (1977), which tends to confirm that answer. There an employee sued to enforce an oral promise by his employer's president to pay him a pension. The Supreme Judicial Court reversed the dismissal below, which was based upon a finding of lack of consideration, holding that where a pension is promised to encourage faithful service, the offer becomes a binding obligation upon completion of such service if rendered in reliance upon the promised benefit. 367 N.E.2d at 630.

Balkin reflects the Massachusetts court's acceptance of the modern view that the promise of a pension constitutes an offer which, upon performance of the required service by the employee becomes a binding obligation. As stated in Rochester Corp. v. Rochester, 450 F.2d 118, 120-21 (4th Cir. 1971):

"The pension plan provided that all employees of the defendant, if they remained in the employ of the defendant ten or more years would be entitled, on attaining retirement age, to certain specified pension rights. While unilateral, that offer, when accepted by an employee as evidenced...