Hudson v. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, 17009.

• Decision Date: 28 February 1963
• Docket Number: No. 17009.,17009.
• Citation: 314 F.2d 16
• Parties: Edward M. HUDSON, Twyman Dew, and Chester L. Williams, on Behalf of Themselves, and Members of Class or Classes Represented by Them, Appellants, v. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY and Capitol Transit Company, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

314 F.2d 16 (1963)

Edward M. HUDSON, Twyman Dew, and Chester L. Williams, on Behalf of Themselves, and Members of Class or Classes Represented by Them, Appellants, v. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY and Capitol Transit Company, Appellees.

No. 17009.

United States Court of Appeals Eighth Circuit.

February 28, 1963.

James E. Youngdahl, Little Rock, Ark., and Eugene F. Mooney, Jr., University of Arkansas, Fayetteville, Ark., for appellants. McMath, Leatherman, Woods & Youngdahl, Little Rock, Ark., were with them on the brief.

Bruce T. Bullion, Little Rock, Ark., for appellee Capitol Transit Co.

William M. Clark, Little Rock, Ark., for appellee John Hancock Mut. Life Ins. Co.

Before SANBORN and BLACKMUN, Circuit Judges, and REGISTER, District Judge.

BLACKMUN, Circuit Judge.

This diversity suit, in the nature of interpleader, is a controversy over the disposition of approximately $185,000 in credits on the books of a mutual insurance company which issued a contributory group annuity contract to an employer whose active business has now ceased. Jurisdiction is established. The opposing claimants to the credits are, on the one hand, the employer and, on the other, its former covered employees. The insurer, although it is the instigator of the litigation and a vitally interested participant, is essentially a stakeholder. By its suit the insurer seeks a declaratory judgment and other relief. The case was tried to the court upon admissions in the pleadings and stipulated facts. It resulted in a judgment favorable to the employer. Certain of the employees have appealed.

The insurer-plaintiff is John Hancock Mutual Life Insurance Company. The employer-defendant is Capitol Transit Company. The individual defendants represent stated classes of former employees most of whom were also members of a labor union which was the designated collective bargaining agent for Capitol's operating and maintenance employees. That union, Local 704, Amalgamated Association of Street, Electric Railway & Motor Coach Employees of America, is a "labor organization", within the meaning of § 2(5) of the National Labor Relations Act, as amended, 29 U.S.C. § 152(5). The appellants here are the representatives of that class of former Capitol employees whose employment ceased about June 22, 1955, and who at that time had not completed the continuous service period (20 years) required under the contract in order for them to receive the entire benefit of Capitol's contributions to the plan.

Capitol, from and after its formation in 1952, was engaged in the business of public transportation under municipal franchises in the Cities of Little Rock and North Little Rock, Arkansas. The group annuity contract in question, No. 142, had been issued by Hancock in December 1944 (effective December 31, 1943) to Capital Transportation Company, the predecessor of Capitol Transit Company.¹ Its purpose was to provide retirement annuities and death and termination-of-employment benefits for Capitol's employees. Under the contract Capitol made to Hancock monthly payments which were made up of sums furnished through payroll deductions by the eligible employees of Capitol and of other sums provided by Capitol itself.

Capitol and Local 704 negotiated a series of collective bargaining agreements covering a period from prior to 1944 until June 1955. In several of these negotiations Capitol referred to the annuity plan as a cost factor to it. The plan, however, was not stressed as an item of company cost of doing business any more than any other operating cost. None of the bargaining agreements contained any provision or reference concerning the annuity contract.

The following events then took place:

1. On June 22, 1955, operating and maintenance employees of Capitol, under union sponsorship, walked off their jobs, refused to work, established a picket line in front of Capitol's general offices, and announced that they were on strike. The strikers included a large number but not all of the employees who were covered by the annuity contract.

2. Within 24 hours Capitol gave written notice to each striking employee that his refusal to work was in violation of the labor contract and that unless he reported for work immediately he would be regarded as having quit his employment as of June 22. None of the strikers returned. Capitol thereupon considered each striker's employment terminated as of June 22, 1955, and notified Hancock.

3. Capitol then proceeded to hire operating and maintenance personnel to replace those terminated. These new employees were not covered by the annuity contract until they met its eligibility requirements; among these was the completion of one year of continuous service with Capitol.

4. Some months prior to March 1956 the picket line was withdrawn.

5. Capitol continued to provide public transportation until about March 1, 1956, a date less than a year after the strike began. It then surrendered its franchises and in a short time went into the business of truck and vehicle repair and maintenance for various customers.

6. Citizens Coach Company, a new corporation, was formed in February 1956. It was financed in part through contributions or stock purchases by union members terminated by Capitol in June 1955. Citizens went into the urban transit business in the Little Rock area, succeeding Capitol in so doing, and for its operating and maintenance personnel employed union members who had worked for Capitol and had not found employment elsewhere.

7. Those Capitol employees who were covered under the annuity contract prior to the strike and who, after it began, continued to work for Capitol kept up their monthly contributions due under the contract. Capitol also continued its required payments.

8. On October 31, 1956, Capitol ceased its truck and vehicle repair and maintenance business. Since that date it "has not been actively engaged in business activities". However, from time to time it has disposed of tangible assets and has discharged fixed liabilities. It terminated its remaining employees on that date and has had no employee on its payroll since then. Hancock was notified accordingly. The last payment under the annuity contract for or on account of any employee was that made for the month of October 1956.

The group contract seems to us not to be extraordinary and conforms generally in content with the usual group annuity policy issued on a contributory basis. We summarize its pertinent provisions as best we can in non-technical terms and without reference to numerous exceptions and special situations not of particular pertinence here:

1. Hancock agrees to pay each eligible employee a retirement annuity for life in an amount based on stated rates and schedules and to pay a determinable amount in case of pre-retirement death or pre-retirement termination of employment.

2. The employee, to be eligible for coverage, must be a full-time permanent employee, must have completed at least one year of continuous service, must have attained age 30, and must not have attained age 65.

3. The employee's normal retirement date is the first day of the calendar month following the attainment of his 65th birthday.

4. The employee contributes monthly during the period of his eligibility an amount equal to 3% of his compensation. Capitol, as the employer, similarly makes a monthly payment for each covered employee. The amount of Capitol's payment depends on age, sex, and the employee's own required contribution.

5. Capitol also contributes an agreed amount with respect to each qualified old employee for service rendered prior to the effective date of the contract.

6. The first annuity payment to an employee is made on his normal retirement date. The payments continue monthly during his lifetime and cease with the last one prior to his death. Other optional methods of payment are available under stated conditions.

7. If a covered employee dies prior to his annuity date, Hancock pays his beneficiary a lump sum equal to the total of the employee's contributions (but excluding Capitol's contributions) plus accumulated interest. If death occurs after the annuity date, Hancock pays the beneficiary in a lump sum the amount, if any, equal to the excess of his contributions, as computed just prior to retirement, over the annuity payments already made.

8. If employment is terminated before retirement, the employee within 90 days may exercise an option to take a cash surrender value equal to his (but not Capitol's) contributions already made plus accumulated interest, or a normal retirement annuity based upon his own contributions, or, if he has served 10 years continuously, one based, as well, upon a specified percentage of Capitol's contributions with respect to him. Where the employee serves more than 20 years continuously, all the employer's contributions are devoted to this annuity; if his service exceeds 10 years but is less than 20 years, only a stated percentage thereof is so applied.

9. "Employer's Surrender Values" may arise upon termination of employment prior to retirement. These are "credits to Capitol". They come about when a terminated employee elects to receive the lump sum cash equal to his contributions or when he elects the annuity but has less than 20 years of continuous service. In either case, all or part of the employer's contributions are not available for the employee or for his benefit. The Employer's Surrender Values, however, arise only if the effective date of termination is prior to the liquidation, dissolution, bankruptcy or receivership of Capitol and prior to written notice of discontinuance of the plan.

10. The Employer's Surrender Values "shall be applied toward the payment" of amounts thereafter falling due from Capitol under the contract. Article IV, Section 7, further provides, "There shall not be any surrender value to the Employer on the death of an employee nor shall there be any surrender value to...