In re Gulf Pension Litigation, Civ. A. No. 86-4365.

• Decision Date: 10 April 1991
• Docket Number: Civ. A. No. 86-4365.
• Citation: 764 F. Supp. 1149
• Parties: In re GULF PENSION LITIGATION.
• Court: U.S. District Court — Southern District of Texas

764 F. Supp. 1149

In re GULF PENSION LITIGATION.

Civ. A. No. 86-4365.

United States District Court, S.D. Texas, Houston Division.

April 10, 1991.

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H. Lee Godfrey, Evelyn Jo Wilson, Susman Godfrey, Houston, Tex., Charles Plenge, Haynes and Boone, Dallas, Tex., L.M. Boeckman, Karen L. Suhre, Hughes & Luce, Dallas, Tex., Ellen M. Doyle, Berger Kapetan Malakoff & Meyers, P.C., Pittsburgh, Pa., for plaintiffs.

Robert Malinak, Autry Ross, Baker & Botts, Houston, Tex., Jeffrey C. Londa, Hutcheson & Grundy, Houston, Tex., for defendants.

                                              TABLE OF CONTENTS
                                                                                                        Page
                  I. INTRODUCTION....................................................................... 1160
                 II. PARTIAL TERMINATION CLAIMS ........................................................ 1161
                     A. General ........................................................................ 1161
                     B. Vertical Partial Termination ................................................... 1163
                        1. Significant Number or Percent ............................................... 1163
                        2. What Number or Percent is Significant? ...................................... 1164
                        3. How is the Number or Percent Calculated? .................................... 1164
                           a. Vested or Non-Vested Terminations ........................................ 1164
                           b. Employees Who Transferred to a Successor Plan ............................ 1165
                           c. Turnover Rate ............................................................ 1166
                           d. Time Period .............................................................. 1167
                           e. The Relevant Number and Percent .......................................... 1167
                        4. Significant Corporate Event ................................................. 1169
                        5. The Number and Percent are Significant ...................................... 1170
                        6. The IRS Determination ....................................................... 1170
                     C. Horizontal Partial Termination ................................................. 1172
                III. REMEDY FOR PARTIAL TERMINATION .................................................... 1178
                     A. The Gulf Pension Plan .......................................................... 1179
                     B. Remedy Under the Gulf Pension Plan Upon a Partial Termination .................. 1180
                        1. Standard of Review .......................................................... 1181
                        2. The Legally Correct Interpretation .......................................... 1182
                           a. Uniformity of Construction ............................................... 1182
                           b. Fair Reading of § 10.A.2 ............................................ 1182
                              (1) Does § 10.A.2 Apply When the Plan is Overfunded at the
                                  Time of a Partial Termination? ....................................... 1182
                              (2) Does § 18.d of the Chevron Retirement Plan Bar Plaintiffs'
                                  Claims to Surplus Gulf Plan Assets? .................................. 1183
                                  (a) Validity of § 18.d Under ERISA's Exclusive Benefit Rule ..... 1184
                                  (b) Validity of the 1986 Plan Merger Under § 208 of ERISA ....... 1185
                                  (c) Validity of § 18.d Under the A & B Plan, the CRP and the
                                      SAP .............................................................. 1185
                                      (i) The A & B Plan ............................................... 1186
                                      (ii) The CRP ..................................................... 1190
                                      (iii) The SAP .................................................... 1194
                              (3) Can Surplus CRP and SAP Assets be Distributed Under
                                  § 10.A.2 Upon a Partial Termination? ............................ 1196
                              (4) Consequences of a Fair Reading of § 10.A.2 ...................... 1198
                           c. Unanticipated Costs ...................................................... 1198
                        3. Abuse of Discretion ......................................................... 1198
                           a. Internal Consistency ..................................................... 1198
                           b. Relevant Regulations ..................................................... 1199
                           c. Factual Background and Inference of Lack of Good Faith ................... 1199
                           d. Conclusion ............................................................... 1201
                 IV. TERMINATION OF THE CRP AND SAP AS WASTING TRUSTS .................................. 1201
                  V. FIDUCIARY CLAIMS .................................................................. 1205
                     A. Pension Plan Expenses .......................................................... 1205
                     B. Self-Dealing by Chevron ........................................................ 1208
                     C. SRAP ........................................................................... 1211
                     D. AVIS ........................................................................... 1212
                     E. Defendants' Promises to Set Aside Gulf Plan Assets for Plaintiffs'
                        Benefit ........................................................................ 1213
                     F. Other Alleged Fiduciary Breaches ............................................... 1214
                 VI. CONCLUSION ........................................................................ 1214
                

OPINION

LAKE, District Judge.

I. INTRODUCTION

This is a consolidated class action brought by more than 40,000 former participants in the Pension Plan of Gulf Oil Corporation. Defendants are Chevron Corporation, Gulf Oil Corporation, the Chevron Corporation Retirement Plan, the Pension Plan of Gulf Oil Corporation, the Benefits Committee of the Pension Plan of Gulf Oil Corporation and each of its members, and the Pension Committee of the Pension Plan of Gulf Oil Corporation and each of its members.

To understand the case some appreciation of the demise of Gulf Oil Corporation is necessary. On January 1, 1982, Gulf had 29,706 employees covered under the Gulf Pension Plan and was one of the largest integrated oil companies in the United States. Concerned that Gulf's share price did not reflect its true value, Gulf's management began a plan to streamline the company that included substantial reductions in the number of employees. By the end of 1983 Gulf had reduced its work force to 23,054 active Gulf Plan participants, but its share price had still not risen substantially. In January of 1984 Gulf management learned that a hostile tender offer was imminent from a group led by T. Boone Pickens. Gulf sought to interest several other large oil companies, including Chevron Corporation, in a friendly merger to avoid the Pickens' takeover attempt.

In February of 1984 Gulf and Chevron announced a merger, and a merger agreement was signed in March of 1984. For the next year the companies operated independently under a standstill agreement while Gulf divested itself of certain assets required by the FTC and a number of combined Gulf-Chevron working groups determined how to integrate the two companies and their pension and other employee benefit plans. Because Gulf and Chevron were in the same business it became apparent that a number of employees would be redundant in the merged company. Chevron also decided to sell parts of Gulf to help pay the debt it had incurred in making the acquisition. By July 1, 1986, when the Gulf Pension Plan and the Chevron Annuity Plan were merged into the Chevron Retirement Plan, 13,545 former Gulf Pension Plan participants remained on Chevron's payroll. All of the Gulf employees who left between January 1, 1982, and June 30, 1986, were covered by Gulf employee benefit programs, including pension plans.

This action was filed by plaintiffs, Dean Borst, et al., in November 1986. In April of 1987, plaintiffs, Harry Back, et al., filed a similar action in the United States District Court for the Western District of Pennsylvania. On the motion of the defendants, the Back action was transferred to this Court and consolidated with the Borst action. The Court preliminarily certified the case as a class action on November 9, 1987, and appointed the individual plaintiffs as class representatives. After several hearings, on February 26, 1990, the Court certified the consolidated action under Fed. R.Civ.P. 23(b)(2) and defined the main class as

(1) All participants in the Pension Plan of Gulf Oil Corporation or any predecessor plan (sometimes abbreviated as the "Gulf Plan" or "Plan") who terminated employment for any reason after December 31, 1981, and before July 1, 1986, with Gulf Oil Corporation or its successors or affiliates, or any subsidiaries that had adopted the Gulf Plan ("Gulf").

(2) All Gulf Plan participants who were accruing benefits under the Gulf Plan as of June 30, 1986.

(3) All Gulf Plan participants who terminated Gulf employment prior to January 1, 1982, and who were receiving a pension or entitled to an immediate or deferred pension or a refund of accumulated employee contributions under the Gulf Plan as of June 30, 1986.

(4) All Gulf Plan participants who terminated employment with Gulf prior to January 1, 1982, and after December 31, 1975, who were not entitled to any pension benefit under the Gulf Plan at the time of such termination (other than a refund of accumulated employee contributions) but who, if they had been reemployed by Gulf as of June 30, 1986, would have been entitled under the ERISA break-in-service rules to credit for prior service under the Gulf Plan.

(5) All spouses, joint annuitants, or other plan

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