Kross v. Western Elec. Co., Inc., 80 C 5208.

• Decision Date: 01 February 1982
• Docket Number: No. 80 C 5208.,80 C 5208.
• Citation: 534 F. Supp. 251
• Court: U.S. District Court — Northern District of Illinois
• Parties: William J. KROSS, on behalf of himself and all others similarly situated, Plaintiff, v. WESTERN ELECTRIC COMPANY, INC., Defendant.

534 F. Supp. 251

William J. KROSS, on behalf of himself and all others similarly situated, Plaintiff, v. WESTERN ELECTRIC COMPANY, INC., Defendant.

No. 80 C 5208.

United States District Court, N. D. Illinois, E. D.

February 1, 1982.

Irving Friedman, Michael Erp, Stanley Eisenstein, Katz, Friedman, Schur & Eagle, Ltd., Chicago, Ill., for plaintiff.

Gerald Skoning, Charles Jackson, Mark Casciari, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, Ill., for defendant.

MEMORANDUM OPINION AND ORDER

GETZENDANNER, District Judge.

Plaintiff William Kross brought this action on behalf of himself and all others similarly situated against Western Electric Company, Inc., his former employer, alleging that he and members of the class were discharged from their employment at the company's Hawthorne Division in order to prevent the vesting or continued enjoyment of his and their rights under various employee benefit plans, in violation of Section 510 of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1140.¹

Western Electric has substantially reduced the work force at its Hawthorne Division in the past several years. Kross was 53 years old and had 22 years employment with Western Electric at the time of his termination in September, 1975. To qualify for a service pension at Western Electric, an employee had to be either 55 years old with 20 years of service or 50 years old with 25 years of service. Thus, at termination, Kross was two years shy of qualifying for a service pension, although he does qualify for a deferred service pension. Kross alleges that Western Electric terminated him and the other class members to prevent the vesting of their rights under the service pension plan.

Kross further alleges that as an employee he received certain fringe benefits, including coverage by Company health and welfare, dental, disability and life insurance plans, and he argues that Western Electric terminated him and the other class members to avoid the continued payment for this insurance.

Kross seeks an injunction enjoining defendant from using employment and personnel policies that discriminate in violation of the Act. He further seeks reinstatement for himself and the class and damages in an amount equal to back pay and the other fringe benefits to which he and the class would have been entitled had he and they not been unlawfully discharged.

Western Electric has moved for summary judgment on the ground that Kross failed to exhaust the claim procedures under the benefit and pension plans. The motion is granted for the reasons stated herein.

To resolve the question whether exhaustion is required in this case, an examination of the statutory scheme is necessary. By its express terms, Section 510 incorporates the "provisions" of Section 502 of ERISA. Section 502, in turn, authorizes four types of civil actions, three of which are relevant here:²

(a) A civil action may be brought

(1) by a participant or beneficiary —

* * * * * *

(B) 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 (2) by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title liability for breach of fiduciary duty;

(3) by a participant, beneficiary, or fiduciary

(A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or

(B) to obtain other appropriate equitable relief

(i) to redress such violations or

(ii) to enforce any provisions of this subchapter or the terms of the plan.³

Courts have uniformly held that actions to recover benefits under Section 502(a)(1)(B) require exhaustion of the plan's claim procedures. E.g., Challenger v. Local Union No. 1 of the International Bridge, Structural & Ornamental Ironworkers, 619 F.2d 645 (7th Cir. 1980); Taylor v. Bakery and Confectionary Union, 455 F.Supp. 816 (E.D.N.C.1978). On the other hand, exhaustion is not required in civil actions for breach of fiduciary duty brought under Section 502(a)(2). E.g., Lewis v. Merrill Lynch, Pierce, Fenner & Smith, 431 F.Supp. 271 (E.D.Pa.1977). See also Waits v. Weller, 653 F.2d 1288, 1292 (9th Cir. 1981) (recognizing that a number of authorities have concluded that claims for breach of fiduciary duty are nonarbitrable disputes).

This court's research, however, has disclosed no case that has addressed the question whether exhaustion is required prior to bringing suit under Section 502(a)(3).⁴

Section 510 incorporates the provisions of Section 502, but does not specify whether subsection (a)(1) or (a)(3) governs. The courts that have considered the issue, however, have concluded that subsection (a)(3) applies to actions for violation of Section 510. E.g., McGinnis v. Joyce, 507 F.Supp. 654, 657 (N.D.Ill.1981); Bittner v. Sadoff & Rudoy Industries, 490 F.Supp. 534, 535 (E.D.Wis.1980) ("Suits for redress of violations of 29 U.S.C. § 1140 Section 510 are authorized by 29 U.S.C. § 1132 Section 502(a)(3).")

The question before the court, then, is whether Section 510 claims brought under Section 502(a)(3) are subject to arbitration, like Section 502(a)(1)(B) claims for benefits, or are nonarbitrable, like Section 502(a)(2) claims for breach of fiduciary duty.

The reasons why exhaustion is not required in breach of fiduciary duty cases have no application to claims for breach of Section 510. For example, in Lewis v. Merrill Lynch, Pierce, Fenner & Smith, 431 F.Supp. 271 (E.D.Pa.1977), the court held that a plaintiff alleging trustees' breach of fiduciary duty under Section 409 need not submit his dispute to arbitration in accordance with the claim procedures of the plan. The court reasoned:

Section 409(a) makes fiduciaries liable for breaches of duty, subjecting them to such equitable or remedial relief as the Court may deem appropriate. The procedural vehicle for enforcing this liability is provided by Section 502(a)(2) which grants a civil action for relief under Section 409 .... Since answering a suit under Section 502(a)(2) is a consequence of liability under Section 409(a), it may be said that an arbitration agreement relieves a fiduciary of liability ...." Id. at 276.

Because under Section 410(a) of ERISA, 29 U.S.C. § 1110(a), a fiduciary cannot properly be relieved of liability, the court concluded that arbitration could not be required. No similar provision precludes this court from requiring a plaintiff alleging a breach of Section 510 to exhaust his administrative remedies.

A claim for breach of Section 510, brought under Section 502(a)(3), is a separate and distinct cause of action from a claim to recover benefits under an employee benefits plan.⁵ The cause of action defined in Section 510 is much broader than that delineated in Section 502(a)(1)(B). Some conduct, prohibited under Section 510, does not fall within the purview of Section 502(a)(1)(B). See, e.g., McGinnis v. Joyce, 507 F.Supp. 654 (N.D.Ill.1981). In that case, Count IV of the Amended Complaint alleged that the plaintiff had been physically threatened for prosecuting his suit to enforce his rights under ERISA. Judge Shadur stated:

Section 502(a)(1) is clearly inapplicable to the facts alleged in Count IV. It is rather Section 502(a)(3) that McGinnis seeks to invoke to `enforce ... provisions of this subchapter,' specifically Section 510.

But the conduct challenged in this case is more problematic.

Kross alleges that Western Electric terminated him for two purposes: to avoid paying for his insurance benefits and to prevent his service pension from vesting. The allegation that Western Electric terminated Kross and the other class members to avoid paying further fringe benefits does not state a claim under Section 510. The gist of an action under this section is to prevent retaliation against a plan participant or beneficiary for exercising rights under the plan or to prevent interference with the attainment of any rights to which he or she may become entitled. Dependahl v. Falstaff Brewing Corp., 491 F.Supp. 1188, 1198 (E.D.No.1980), aff'd in part and rev'd in part, 653 F.2d 1208 (8th Cir.), cert. denied, ___ U.S. ___, 102 S.Ct. 512, 71 L.Ed.2d 384 (1981). Kross has not alleged any facts constituting retaliation, cf. Bittner v. Sadoff & Rudoy Industries, 490 F.Supp. 534 (E.D.Wis.1980) (plaintiff fired after bringing suit against employer to recover benefits), and as he was already a participant in the insurance plans, he was not prevented from attaining rights under the plan.

The allegation that Western Electric terminated Kross to prevent his service pension from vesting, however, arguably comes within the scope of both Section 502(a)(1)(B) and Section 510. Cf. Scheider v. U.S. Steel Corp., 486 F.Supp. 211 (W.D. Pa.1980) (unclear from opinion whether action was for recovery of benefits under Section 502(a)(1)(B) or interference with rights under Section 510). Clearly, terminating an employee to prevent the vesting of his pension is actionable under Section 510. And although Kross has deftly avoided asking for his pension in so many words, he seeks "damages" equal to the benefits he would have received had he not been terminated. In other words, he seeks to recover his pension.

In cases such as this, where a claim brought under Section 510 is substantially similar to a claim to recover benefits, the court concludes that exhaustion of the claims procedures for the benefit plans involved is required.⁶ Most of the reasons for requiring exhaustion in ERISA cases brought under Section 502(a)(1)(B) are equally applicable in this case.

First, Congress insisted on the creation of elaborate claim procedures for every employee benefit plan and vested the plan's trustees with broad managerial and administrative discretion to manage pension plans and to resolve benefit claims. See 29 U.S.C. §§ 1101-14 and 29 C.F.R. § 2560.503-1. If the plaintiff had...