Kifafi v. Hilton Hotels Ret. Plan

• Decision Date: 07 September 2010
• Docket Number: Civil Action No. 98-1517 (CKK)
• Citation: 736 F.Supp.2d 64
• Parties: Jamal J. KIFAFI, individually and on behalf of all others similarly situated, Plaintiff, v. HILTON HOTELS RETIREMENT PLAN, et al., Defendants.
• Court: U.S. District Court — District of Columbia

736 F.Supp.2d 64

Jamal J. KIFAFI, individually and on behalf of all others similarly situated, Plaintiff,

v.HILTON HOTELS RETIREMENT PLAN, et al., Defendants.

Civil Action No. 98-1517 (CKK).

United States District Court, District of Columbia.

Sept. 7, 2010.

Stephen Robert Bruce, Allison C. Pienta, Stephen R. Bruce Law Offices, Washington, DC, for Plaintiff.

Robert N. Eccles, O'Melveny & Myers LLP, Andrew M. Lacy, Simpson Thacher & Bartlett, LLP, Washington, DC, Amiad Kushner, Hiral D. Mehta, Jonathan K. Youngwood, Thomas C. Rice, Simpson, Thatcher & Bartlett, Karen M. Wahle, O'Melveny & Myers, LLP, New York, NY, for Defendants.

MEMORANDUM OPINION

COLLEEN KOLLAR-KOTELLY, District Judge.

This action is brought by Plaintiff Jamal J. Kifafi, on behalf of himself and similarly situated individuals, to recover for violations of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), 29 U.S.C. § 1001, et seq., in the Hilton Hotels Retirement Plan (the "Plan"). Defendants are the Plan, the individual members of the Committee of the Plan, the Hilton Hotels Corporation, and individual Hilton officers or directors (collectively, "Defendants" or "Hilton"). On May 15, 2009, this Court granted-in-part Plaintiff's motion for summary judgment, finding that Defendants had violated ERISA's anti-backloading provision, 29 U.S.C. § 1054(b)(1)(C), and had violated the Plan's vesting provisions with respectto the rights of four certified subclasses. See Kifafi v. Hilton Hotels Retirement Plan, 616 F.Supp.2d 7 (D.D.C.2009) ( Kifafi II ). Having found that Defendants violated ERISA, the Court requested that the parties submit briefs regarding the equitable relief appropriate to remedy the violations. Plaintiff filed a [211] Brief on Equitable Relief, to which Defendants filed a [219] Response Brief on Equitable Relief, and Plaintiff filed a [223] Reply Brief on Equitable Relief. Defendants have filed a [224] Motion for Leave to File Sur-Reply on Equitable Relief and for Expert Discovery in Advance of Remedies Hearing, to which Plaintiff has filed an Opposition, and Defendants have filed a Reply.

The parties' briefs on equitable relief reflect a number of significant disagreements about the proper scope of equitable relief that should be ordered by the Court. The parties have filed competing proposals to remedy the benefit accrual and vesting violations previously found by the Court, and the parties also dispute how each party's proposal should be applied to the certified classes. This Memorandum Opinion sets forth the Court's ruling as to a number of the issues disputed by the parties. However, a final order of equitable relief cannot be issued until the parties further confer about the proper means of implementing this Court's rulings and a hearing is held to resolve certain disputed factual issues.

As explained below, the Court shall generally endorse Defendants' proposal for remedying the backloading violations, but the Court rejects Defendants' contention that relief should be limited to participants who separated from service after 1987. With respect to Defendants' failure to credit union service for purposes of vesting, the Court shall order Defendants to credit union but not other non-participating service; the Court shall require Hilton to search its corporate records for information relating to class members' union service and permit class members to submit claims based on union service not reflected in records. With respect to Defendants' violation of the 1000 hours of service standard, the Court shall adopt the parties' proposal to apply the 870/750 hours worked standard with hours equivalencies but reject Plaintiff's proposal to apply equivalencies to periods of time for which there are no records of hours of service. With respect to Defendants' failure to credit the first year of participation, the Court shall reject Plaintiff's proposal to credit participants with a year of service for the first year in which there is any record of participating service. With respect to Defendants' failure to credit leaves of absence, the Court shall not order additional discovery of corporate records as requested by Plaintiff. The Court declines to order additional discovery of Hilton's records except with respect to union service, as mentioned above. The Court also does not see the need to appoint a class action administrator to oversee the implementation of final relief, but the parties should develop a more limited mechanism for monitoring Hilton's implementation of remedies. The Court shall not approve lump sum payments in lieu of future benefits owed to participants, nor shall it include a cy pres provision in its final order. Other disputed issues of fact, such as the alleged application of unlawful equivalencies or elapsed time methods and discrepancies between versions of the Plan's database, shall be decided at a final remedies hearing.

I. BACKGROUND

The factual and procedural history of this case was thoroughly discussed by the Court in its Memorandum Opinion issued on May 15, 2009. See 616 F.Supp.2d at 10-21. The Court incorporates that discussionherein and assumes familiarity with that opinion. Nevertheless, the Court shall briefly summarize its prior ruling and the relevant background facts.

The Hilton Hotels Retirement Plan (the "Plan") is a defined benefit pension plan subject to ERISA. Benefits under the Plan accrue according to a formula based on an employee's average compensation and years of service, with an offset for the employee's Social Security benefits. See 616 F.Supp.2d at 13-14. ERISA prevents employers from "backloading" benefits, i.e., using a benefit accrual formula that postpones the bulk of an employee's accrual to his later years of service. Id. at 11. In order to prevent backloading, ERISA requires defined benefit plans to satisfy one of three alternative minimum accrual rules, known as the "3% rule," the "133 1/3% rule," and the "fractional rule." Id. at 11-12; see 29 U.S.C. § 1054(b)(1). Beginning in 1976 and continuing until 1999, the Plan contained an accrual schedule that was supposed to comply with ERISA's "133 1/3% rule." 616 F.Supp.2d at 14. In 1999, after this lawsuit was filed, Hilton amended the Plan's benefit accrual formula seeking to comply with the fractional rule. Id. at 16. The 1999 amendment (Amendment 1999-1) also changed two unrelated aspects of the Plan that lowered benefits for participants. Id. Following briefing on summary judgment, this Court held that the pre-amendment Plan failed to comply with any of the three minimum accrual rules and that the pre-amendment Plan was required to comply with the 133 1/3% rule. Id. at 24. The Court concluded that "the Plan's participants are entitled to receive the benefits they would have accrued had the Plan complied with the 133 1/3% rule." Id. at 24. The Court also concluded that the 1999 amendment to the Plan did not moot the ERISA violation found by the Court. Id. at 25-28. The Court's ruling applies to a certified class of current and former Hilton employees (the "benefit-accrual class").¹

The Court also found that Defendants had violated ERISA with respect to the vesting of benefits under the Plan, i.e., the time of service required for an employee to obtain a right to his or her accrued benefits.² Employees who terminated after January 1, 1989 need five years of service to become vested; employees who terminated prior to that date needed ten years of service. ERISA requires employers to count all of an employee's years of service for calculating his or her years toward vesting, even if they occur prior to participation in the retirement plan. 29 U.S.C. § 1053(b)(1); 616 F.Supp.2d at 12. ERISA generally requires an employee with 1000 hours of service during a twelve-month period to be credited with one yearof service. 29 C.F.R. § 2530.200b-1. In calculating the 1000 hours of service, the employer must count not only hours worked but also hours "during which no duties are performed ... due to vacation, holiday, illness, incapacity ... layoff, jury duty, military duty or leave of absence." Id. § 2530.200b-2(a). If an employer's existing records do not allow it to properly calculate an employee's hours of service, the employer may "use a permitted equivalenc[y]." Id. § 2530.200b-3(a). One such equivalency focuses on "hours worked," in which an employee who works 870 hours is credited with 1000 hours of service. Id. § 2530.200b-3(d).

Beginning in 1976 and continuing until the Plan was amended in December 2002, Hilton applied the 1000 hours standard for calculating employees' years of service. 616 F.Supp.2d at 29. By its terms, the Plan required all periods of employment between the date of hire and the date of termination to be taken into account, including leaves of absences and union service. Id. at 14. The Court found that Defendants had violated the Plan's vesting provisions with respect to four certified subclasses: (1) they failed to credit employees' union service for purposes of vesting ³; (2) they failed to properly apply the 1000 hours standard because they kept inadequate records; (3) they failed to credit employees' leaves of absence; and (4) they failed to count the year in which employees became participants in the Plan for vesting purposes. 616 F.Supp.2d at 29-32. Accordingly, the Court ruled that the members of these vesting subclasses should be awarded the vesting credit to which they are entitled.

II. LEGAL STANDARD

Section 502(a)(1)(B) of ERISA allows a participant or beneficiary to bring a civil action "to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." 29 U.S.C. § 1132(a)(1)(B). Pursuant to this provision, the Court may order that participants' benefits be recalculated consistent with the terms of the Plan. See Frommert v. Conkright, 433 F.3d 254, 270 (2d Cir.2006) ("The...