Hurn v. Retirement Fund Trust of Plumbing, Heating and Piping Industry of Southern California

• Decision Date: 04 April 1983
• Docket Number: No. 82-5032,82-5032
• Citation: 703 F.2d 386
• Parties: 113 L.R.R.M. (BNA) 2054, 96 Lab.Cas. P 14,186, 4 Employee Benefits Ca 1811 Ellis M. HURN, Plaintiff-Appellant, v. RETIREMENT FUND TRUST OF the PLUMBING, HEATING AND PIPING INDUSTRY OF SOUTHERN CALIFORNIA, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 386

703 F.2d 386

113 L.R.R.M. (BNA) 2054, 96 Lab.Cas. P 14,186,

4 Employee Benefits Ca 1811

Ellis M. HURN, Plaintiff-Appellant, v. RETIREMENT FUND TRUST OF the PLUMBING, HEATING AND PIPING

INDUSTRY OF SOUTHERN CALIFORNIA, Defendant-Appellee.

No. 82-5032.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 7, 1982.

Decided April 4, 1983.

Henry R. Fenton, Los Angeles, Cal., for plaintiff-appellant.

Richard J. Davis, Davis, Frommer & Jesinger, Los Angeles, Cal., for defendant-appellee.

Appeal from the United States District Court for the Central District of California.

Before SNEED and ALARCON, Circuit Judges, and CORDOVA ^*, District Judge.

SNEED, Circuit Judge:

Appellant Ellis Hurn is a retired member of the United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry. His case has been before us once before. In his first complaint he alleged that the Retirement Fund Trust's suspension of his pension benefits violated the vesting provisions in section 203(a) of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. Sec. 1053(a). The district court granted the Fund summary judgment on that claim because Hurn did not meet the normal retirement age of sixty-five, a prerequisite for ERISA nonforfeitability. On appeal we agreed with the court on section 203(a)'s inapplicability, but remanded the case to allow Hurn to file an

                amended complaint under section 302(c)(5) of the Labor Management Relations (Taft-Hartley), 29 U.S.C. Sec. 186(c)(5).   Hurn v. Retirement Fund Trust, 648 F.2d 1252, 1254-55 (9th Cir.1981).  Hurn's second complaint fared no better.  On cross-motions for summary judgment, the district court again granted the Fund's motion.  We again reverse
                

I. STATEMENT OF FACTS AND ISSUES

Hurn began to receive an early retirement service pension in June 1975. He was fifty-eight years old, and had accumulated twenty-five years of credit under the Fund's service retirement plan. On December 1, 1975, he accepted nomination for the presidency of his local, a nonpaying office. He alleges that the local's incumbent business manager, whose opponent Hurn supported, threatened to suspend his pension if he ran for office. He ran anyway, and although he was not elected, the Fund's trustees voted to suspend his benefits from February 1, 1976 to the beginning of October.

Hurn's dispute with the Fund is over the legality of the suspension. Fund Rule 21 dictated suspension for anyone engaging in "employment or activity," including "labor relations," in the building and construction industry. The Fund argues that the Rule encompassed nominees for union office. Hurn, of course, claims that the Rule did not. He also argues that a rule suspending nominees' pension benefits would be arbitrary and capricious, in violation of the fiduciary duties imposed on Fund trustees by section 302(c)(5). Furthermore, he claims that the trustees failed to provide adequate notice of the Rule's content and discriminated in its application, both also in violation of section 302(c)(5).

We shall address only one of these issues, viz., whether Rule 21 as interpreted and applied by the Fund trustees was arbitrary and capricious and thus in violation of section 302(c)(5). Inasmuch as we hold that it was, it is not necessary for us to address Hurn's other arguments. We will assume, arguendo, that Rule 21 encompassed nominees for union office and that the Fund gave adequate notice of its contents and did not discriminate in its application.

II.

REVIEW PURSUANT TO SECTION 302(c)(5)

The Taft-Hartley Act governs the trustees' discretion in structuring pension rules. Section 302(c)(5) requires trustees to act "for the sole and exclusive benefit of the employees." ¹ This section imposes on trustees the burden of fiduciary care, as defined on traditional equitable principles. NLRB v. Amax Coal Co., 453 U.S. 322, 330, 101 S.Ct. 2789, 2794, 69 L.Ed.2d 672 (1981). Each trustee bears an "unwavering duty of complete loyalty" to employees, id. at 329, 101 S.Ct. at 2794, and this duty "to trust beneficiaries must overcome any loyalty to the interest of the party that appointed him," id. at 334, 101 S.Ct. at 2796.

A. The Standard of Review for Rules Established in Collective Bargaining Is Inapplicable

We acknowledge our holding would be otherwise had the details of the Fund been worked out in collective bargaining. The Supreme Court held in UMW Health & Retirement Funds v. Robinson, 455 U.S. 562, 102 S.Ct. 1226, 71 L.Ed.2d 419 (1982), that benefits determined in collective bargaining can be overturned only if in violation of other federal law. See id. at 575-76, 102 S.Ct. at 1234. Variations in benefits in such plans are presumed to be the product of a give and take in which all parties, including the beneficiaries, are represented. The Fund insists that its rules are eligible for protection under Robinson. We do not agree.

In Robinson the Court distinguished provisions that had been the " 'subject of explicit, informed and intense bargaining,' " id. at 569, 102 S.Ct. at 1231 (quoting the district court's unpublished opinion), from those established by trustees with " 'full authority' to determine eligibility requirements and benefit levels," id. at 573, 102 S.Ct. at 1233. The union and mine operators in Robinson had reached an impasse during collective bargaining over rules governing widows' health benefits, and the final provisions were a compromise designed to end a strike. See id. at 567, 102 S.Ct. at 1230. There was every reason to believe that each side had explored the advantages and disadvantages of the alternatives before agreeing on the rules finally adopted. The Court, in shutting off inquiry into the reasonableness of these provisions, noted that "[a]s long as such conditions do not violate federal law or policy, they are entitled to the same respect as any other provision in a collective bargaining agreement." Id. at 575, 102 S.Ct. at 1234.

Nothing in the record suggests that Rule 21 was established in collective bargaining. The trustees enjoyed the initiative on changes in the Fund. The formulation and pre-drafting debate over all rules, including Amendment No. 36-A, which amended Rule 21 to make it embrace "employment or activity" including "labor relations," was their responsibility. Rules did have to be ratified by union and employer representatives before they could be adopted by the trustees. Independent approval by representatives of each side, however, is not the equivalent of collective bargaining. Robinson, therefore, is inapplicable. ²

B. The Arbitrary and Capricious Standard of Review for Discretionary Rules

Our authority to review Rule 21's scheme of distribution, as interpreted by the trustees, is limited to what can be implied from section 302(c)(5)'s mandate that trust rules be in the "sole and exclusive benefit" of employees. ³ To implement section 302(c)(5)'s mandate while respecting the trustees' need for discretion in conceiving a plan to maximize employee welfare, we have traditionally reviewed trust rules to ensure that they are not arbitrary and capricious, unsupported by substantial evidence, instituted in bad faith, or erroneous on a question of law. See Rehmar v. Smith, 555 F.2d 1362, 1371 (9th Cir.1977) (endorsing standard in Danti v. Lewis, 312 F.2d 345 (D.C.Cir.1962)); see, e.g., Elser v. I.A.M. National Pension Fund, 684 F.2d 648, 654 (9th Cir.1982); Miranda v. Audia, 681 F.2d 1124, 1125 (9th Cir.1982); Brug v. Pension Plan, 669 F.2d 570, 573-74 (9th Cir.), cert. denied, --- U.S. ----, 103 S.Ct. 135, 74 L.Ed.2d 116 (1982). Under the "structural defect" test, an employee can show violation of these standards by establishing the exclusion of a large number of employees from benefits for no apparent reason. Burroughs v. Board of Trustees, 542 F.2d 1128, 1131 (9th Cir.1976), cert. denied, 429 U.S. 1096, 97 S.Ct. 1113, 51 L.Ed.2d 543 (1977). The trustees will still prevail if they show a reasonable purpose for their rule. See Miranda, 681 F.2d at 1125-27; Ponce v. Construction Laborers Pension Trust, 628 F.2d 537, 543-45 (9th Cir.1980). ⁴

Violations of the trustees' fiduciary duties may be easiest to see when a group of employees are deprived of benefits, but the structural defect test is not limited to group violations. The test extends to rules that arbitrarily exclude individual employees from their chance at benefits. Thus we have invalidated break-in-employment rules that retroactively cancel past service credit, Burroughs, 542 F.2d 1131; see also Brug, 669 F.2d at 575-76 (recision of amendment making clerical employees beneficiaries arbitrary and capricious as applied to employee otherwise eligible for benefits at time of recision), or divest otherwise vested benefits because of an involuntary break in employment, Lee v. Nesbitt, 453 F.2d 1309, 1311-12 (9th Cir.1972). Rules that deny individual employees benefits for reasons irrational on their face are also inconsistent with the trustees' obligation to administer the trust in the "sole and exclusive benefit" of all employees. The trustees must advance some reason for such rules to surmount the arbitrary and capricious barrier.

C. Application of the Arbitrary and Capricious Standard

The Fund has advanced no such reason. It presents the Rule as "part of an overall regulatory program designed to meet a series of problems and issues." It does not identify these problems and issues, but it claims that they are similar to those that justify suspension of the benefits of employed service retirees or retirees who seek employment by registering in a hiring hall or taking out a state contractor's license. These latter provisions, of course, are not arbitrary. The Fund has a clear interest in not paying benefits to early retirees employed in the industry; they already receive a full income, and the Fund does not want them to compete for jobs with younger workers ineligible for benefits. And it...