Jung v. FMC Corp.

• Decision Date: 12 March 1985
• Docket Number: No. 83-2083,83-2083
• Citation: 755 F.2d 708
• Parties: 6 Employee Benefits Ca 1485 Harry JUNG, individually and on behalf of all other persons similarly situated, Plaintiffs-Appellants, v. FMC CORPORATION, a Delaware Corporation, Defendant-Appellee. C.A.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 708

755 F.2d 708

6 Employee Benefits Ca 1485

Harry JUNG, individually and on behalf of all other persons similarly situated, Plaintiffs-Appellants, v. FMC CORPORATION, a Delaware Corporation, Defendant-Appellee.

C.A. No. 83-2083.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 14, 1984.

Decided March 12, 1985.

Mark H. Lipton, Lipton & Lipton, San Jose, Cal., for plaintiffs-appellants.

James R. Renfroe, Chicago, Ill., Craig E. Epperson, D. Ward Kallstrom, Lillick, McHose & Charles, San Francisco, Cal., for defendant-appellee.

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

Before FAIRCHILD, ^* Senior Circuit Judge, and GOODWIN and BOOCHEVER, Circuit Judges.

FAIRCHILD, Senior Circuit Judge:

Plaintiff-appellant Harry Jung, individually and on behalf of all persons similarly situated, brought this class action against defendant-appellee FMC Corporation (FMC) to enforce rights to severance pay under an FMC policy which constitutes an employee welfare benefit plan under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. Secs. 1001 et seq. This action is authorized by 29 U.S.C. Sec. 1132(a)(1)(B) and jurisdiction is conferred by 29 U.S.C. Sec. 1132(e).

The district court granted summary judgment in favor of appellee FMC. We affirm.

FACTS

Plaintiffs in this class action are all former salaried employees of the Engineered Systems Division of FMC. Plaintiffs rely on language in a Policy Guide, more fully described later, which in substance provided that when "a lack of work situation occurs," there will be an effort to place the affected employee in other FMC locations, and if that is not accomplished, the employee is entitled to severance pay. The amount is one week's pay for each year of service, but no more than twelve weeks' pay.

As of June 1, 1981 FMC sold the Engineered Systems Division to ESD Corporation (ESD), a corporation wholly owned by Nesco. As part of the sale ESD agreed to offer employment to all salaried employees of the division at "comparable salary" and to establish fringe benefit programs (including severance pay) that would provide "a substantially comparable level of benefits" to those provided by FMC. ESD agreed to accord full credit for past FMC employment for the purpose of computing severance pay. Presumably ESD's assumption of this obligation was reflected in the purchase price negotiated by FMC.

Although the contract of sale permitted ESD to modify benefit programs, once established, as FMC might have done, ESD had not made changes in severance pay by the time the facts were presented on motion for summary judgment. In fact 24 of the approximately 200 transferred salaried employees had been laid off at various dates from June 1, 1981 to March 4, 1983, and ESD had made severance payments computed on the basis of full FMC-ESD employment. ¹

Plaintiffs were advised of the sale after it had been agreed upon, advised of their right to continue their employment with ESD, and told they would not receive severance pay as a result of the sale. All salaried employees of FMC's Engineered Systems Division were transferred from FMC's payroll to ESD's payroll simultaneously with ESD's acquisition of the assets and good will of the Division.

Plaintiffs then brought this action, alleging that as a result of the sale of the Division FMC terminated their employment and wrongfully deprived them of severance pay benefits due under the policy guide in violation of ERISA. Both sides moved for summary judgment. Plaintiffs made no showing that ESD has not or will not continue the severance pay policy, nor that it lacks capacity to perform in the future. The district court granted summary judgment in favor of the defendant, FMC Corporation, concluding that the clear language of the plan did not entitle plaintiffs to severance pay and that the defendant's interpretation of the plan was in good faith and consistent with ERISA. Plaintiffs appeal.

STANDARD OF REVIEW

Summary judgment is proper if there is no genuine issue of material fact and the moving party should prevail as a matter of law. F.R.Civ.P. 56(c); Gould v. Mutual Life Ins. Co. of New York, 735 F.2d 1165, 1166 (9th Cir.1984). Review of a summary judgment is de novo. Taylor v. Sentry Life Ins. Co., 729 F.2d 652, 656 (9th Cir.1984) (per curiam ). On this appeal we review the decision of the welfare benefit plan administrator, applying to it the same standard of review as the district court has done. Blau v. Del Monte Corp., 748 F.2d 1348, 1352 (9th Cir.1984).

The parties agree that the FMC policy guide is an "employee welfare benefit plan" within the meaning of ERISA. ² The plan is not funded, nor required to be. 29 U.S.C. Sec. 1081(a)(1). FMC was the administrator, 29 U.S.C. Sec. 1002(16), and as such a fiduciary ibid. (14). Under Sec. 404(a)(1) of ERISA, 29 U.S.C. Sec. 1104(a)(1), a fiduciary must discharge his or her duties with respect to the plan "solely in the interest of the participants ... and ... in accordance with the documents and instruments governing the plan...." This court has held that trustees' actions are subject to the same standard of review under ERISA's fiduciary obligation as they are under the Labor Management Relations Act (LMRA). ³ See Music v. Western Conference of Teamsters Pension Trust Fund, 712 F.2d 413, 418 (9th Cir.1983). Under that standard trustees' decisions "may be reversed only where they are arbitrary, capricious or made in bad faith, not supported by substantial evidence, or erroneous on a question of law." Music, 712 F.2d at 418; Elser v. IAM National Pension Fund, 684 F.2d 648, 654-56 (9th Cir.1982), cert. denied, --- U.S. ----, 104 S.Ct. 67, 78 L.Ed.2d 82 (1983); Fentron Industries v. National Shopmen Pension Fund, 674 F.2d 1300, 1307 (9th Cir.1982); Smith v. CMTA-IAM Pension Trust, 654 F.2d 650, 654-55 (9th Cir.1981); Gordon v. ILWU-PMA Ben. Funds, 616 F.2d 433, 438 (9th Cir.1980). Those cases deal with trustees under a funded plan. Here we are dealing with the interpretation by an employer-administrator of the terms of the employer's unfunded welfare benefit plan. We see no reason why ERISA calls for a different standard of review here. Courts have applied that standard of review to actions administering unfunded employee welfare benefit plans like this one. Sly v. P.R. Mallory & Co., Inc., 712 F.2d 1209 (7th Cir.1983). See also Blau v. Del Monte Corp., 748 F.2d at 1353. Where the language used by the employer in holding out the plan is open to a construction supporting denial of a claim, the court should decide whether the choice of that construction is arbitrary or capricious.

At the district court and in their briefs to this court both parties agreed that the arbitrary and capricious standard should be applied in reviewing FMC's decision. Subsequently the appellants brought to the court's attention Struble v. N.J. Brewery Emp. Welfare Trust Fund, 732 F.2d 325 (3rd Cir.1984). Struble involved a fund into which employers paid at a rate agreed upon with the Union. By reason of favorable experience, a surplus arose. The Employer Trustees voted to reduce employer contributions rather than increase the level of benefits, as favored by the Union Trustees. The dispute was submitted to an Umpire who decided in favor of the reduction of contributions. The Third Circuit declined to apply the arbitrary and capricious standard of review to the votes of the Employer Trustees, apparently concluding that that standard applies where a decision on a claim for benefits for an individual or class of individuals involves a balancing of the interests of present alleged beneficiaries against the interest of future beneficiaries. 732 F.2d at 333. Where the decision involves conflict between beneficiaries and non-beneficiaries, the Third Circuit concluded that a different standard of review must be applied. As we understand Struble, the court must independently determine whether the "Trustees acted with the requisite prudence and with complete and undivided loyalty to the beneficiaries." 732 F.2d at 334. ⁴

Struble involved an existing trust fund, and a rejection by employer-selected trustees of a proposed increase in benefits in favor of reducing the contributions the employers had agreed to dedicate. Plans like the one before us have no arrangement for funding, the employer has formulated the terms under which benefits will be paid, benefits are paid directly by the employer, and the employer makes all decisions on claims. Whatever may be the appropriate standard of review in cases like Struble, the arbitrary and capricious standard seems adequate for the purposes of ERISA in the situation before us. Where, as here, the employer's denial of benefits to a class avoids a very substantial outlay, the reviewing court should consider that fact in applying the arbitrary and capricious standard of review. Less deference should be given to the trustee's decision. The district court applied the correct standard in this case.

ANALYSIS

Under ERISA, as under the Labor-Management Relations Act, "[W]here the rules are susceptible to more than one reasonable interpretation, the court may not substitute its judgment for that of the trustees." Gordon v. ILWU-PMA Ben. Funds, 616 F.2d at 439; Smith v. CMTA-IAM Pension Trust, 654 F.2d at 655.

Appellants point out that the sale of the division terminated their employment relationship with FMC, and they argue that a termination which was involuntary on their part, and not for cause, entitled them to severance pay. The Policy Guide on which they rely clearly did not say that, and did not require that reading.

The Policy Guide was a five page document entitled "Termination of Salaried Employees." It described procedures applicable generally to employees upon termination, including exit interviews, information concerning benefits, and leave of absence. Under a heading "Voluntary Termination," it...