Lakey v. Remington Arms Co., Inc.
| Decision Date | 10 May 1989 |
| Docket Number | Nos. 88-1860,88-2058,s. 88-1860 |
| Citation | 874 F.2d 541 |
| Parties | Andy L. LAKEY, Jr.; L'Wana J. Rush; George E. Rush; Robert W. Harshner; James A. McCance; Floyd N. Harris; Robert J. Walz; B.L. Johnston; Vida S. Reader on behalf of themselves and all persons similarly situated, Appellants, v. REMINGTON ARMS COMPANY, INC., Appellee. REMINGTON ARMS COMPANY, INC. v. UNITED STATES of America and John O. Marsh, Jr., Secretary of the Army. Andy L. LAKEY, Jr.; L'Wana J. Rush; George E. Rush; Robert W. Harshner; James A. McCance; Floyd N. Harris; Robert J. Walz; B.L. Johnston; Vida S. Reader on behalf of themselves and all persons similarly situated, v. REMINGTON ARMS COMPANY, INC. REMINGTON ARMS COMPANY, INC., Appellant, v. UNITED STATES of America and John O. Marsh, Jr., Secretary of the Army, Appellees. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Larry M. Schumaker, Kansas City, Mo., for appellants.
Jack W.R. Headley, Kansas City, Mo., for appellee.
Before BOWMAN and MAGILL, Circuit Judges, and HANSON, * Senior District Judge.
The question before us is whether the district court 1 was correct in granting the motion of Remington Arms Company, Inc. (RAC) for summary judgment. 2 This litigation arose from an employer's refusal to grant its employees severance pay when it was immediately succeeded by another federal contractor. The employees did not suffer a lack of work as a result of the change in management. Under new standards recently enunciated by the United States Supreme Court in Firestone Tire and Rubber Co. v. Bruch, --- U.S. ----, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), we affirm.
Appellants contend that they were entitled to severance benefits when RAC, their former employer, terminated them en masse in 1985 after it lost its forty-five-year-old operating contract at the government-owned Lake City Army Ammunition Plant in Independence, Missouri. The Army had opened the contract to public bidding, and Olin Manufacturing Co. won the bid.
RAC refused to pay severance benefits after terminating its Lake City employees on November 2, 1985. Basing its refusal on an interpretation of its basic severance pay policy (which was originally drafted and approved by the RAC Board of Directors in 1956), RAC informed its ex-employees that the policy could only be triggered by permanent termination due to "a period of unemployment." 3 Therefore, RAC reasoned, since Olin took over operations at Lake City immediately after RAC's contract expired and offered to rehire all of the ex-RAC employees on terms nearly identical to those under which they had worked for RAC, there was no "lack of work" and hence severance benefits were not warranted. The ex-RAC employees, convinced that the 1984 interpretation was a departure from RAC's earlier construction and application of the policy, protested that RAC's refusal to pay them severance benefits violated the Employee Retirement Income Security Act of 1974 (ERISA). 88 Stat. 829, as amended, 29 U.S.C. Secs. 1001, et seq.
On October 8, 1986, the Lake City employees filed a class action against RAC in the United States District Court for the Western District of Missouri. They sought a declaratory judgment that RAC's refusal to grant severance benefits violated Sec. 1132(a)(1)(B) of ERISA. RAC moved for summary judgment. The district court granted the motion, holding that under Sec. 1132(a)(1)(B), RAC's interpretation of the severance pay policy was lawful because it was not arbitrary and capricious.
On appeal, the ex-RAC employees argue that (1) the district court erred in analyzing the ERISA claim under the arbitrary and capricious standard of review (instead of reviewing the dispute de novo), and (2) even if arbitrary and capricious review were proper, the district court erred in finding that the refusal was not arbitrary and capricious.
The appellants claim that in a 1960 policy guideline document, RAC indicated that terminated employees would be paid severance benefits regardless of whether they immediately obtained comparable employment elsewhere. Appellants further claim that in 1969 when RAC sold its Chicago-based Mall Tool division, RAC paid severance benefits to terminated Mall Tool workers who were immediately rehired by a new employer. Therefore, appellants argue, RAC's refusal to do the same for them in 1985 was inconsistent. In sum, appellants contend that RAC's interpretation of the severance pay policy in 1984 was a pretext. In their view, the interpretation was not a reasonable attempt to construe a longstanding policy; rather, it was an attempt to shield RAC from having to disburse up to $15 million in severance benefits if it lost the bidding competition for the government contract to operate the Lake City plant.
RAC counters that (1) its severance pay policy has been consistent: it denies benefits where terminated workers suffer no lack of work, and (2) the "pretext" argument is specious because the Army, as owner of the Lake City plant, is obligated by a pass-through provision in the federal contract to reimburse the contractor for all severance benefits. Therefore, RAC asserts that it never faced the danger of having to pay $15 million in out-of-pocket funds. As for the argument that the payments of benefits to the Mall Tool employees was inconsistent, RAC states that the Mall Tool incident, which involved a sale, not a loss of a contract through bidding, was not a "similar situation" to the instant action, so it created no precedent that RAC was obliged to follow when dealing with the Lake City employees. RAC emphasizes that "[t]he district court rejected appellants' inconsistency argument." See Lakey v. RAC, Inc., No. 88-1141-CV-W-6, slip op. at 23, 1988 WL 36334 (W.D.Mo. April 13, 1988).
The first issue we examine is the appropriate standard of judicial review of benefit determinations by fiduciaries or plan administrators like RAC under ERISA. The district court followed circuit law and applied the arbitrary and capricious standard. The Supreme Court recently explicated a new "trust law" based standard in Firestone Tire and Rubber Co. v. Bruch, --- U.S. ----, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989).
Bruch stems from the sale of the plastics division of the Firestone Rubber and Tire Company to Occidental Petroleum Company. Occidental rehired, without interruption and at the same rates of pay, most of the employees Firestone had terminated upon the consummation of the sale. Six Firestone employees rehired by Occidental sought severance benefits from Firestone pursuant to Firestone's termination pay plan. Firestone refused to pay the benefits, explaining that the plan was activated by terminations caused by a "reduction in the work force," not by a sale of a division. The employees filed a class action under Sec. 1132(a)(1) of ERISA (). Section 1132(a)(1) provides that a "civil action may be brought * * * by a participant or beneficiary [of a covered plan] * * * (B) to recover benefits due to him under the terms of his plan."
The district court granted summary judgment for Firestone, holding that Firestone had satisfied its fiduciary duty under ERISA because its refusal to pay termination benefits was not arbitrary or capricious. Bruch v. Firestone, 640 F.Supp. 519 (E.D.Pa.1986). The Court of Appeals for the Third Circuit reversed. Bruch v. Firestone, 828 F.2d 134 (3d Cir.1987). While it acknowledged that most federal courts have reviewed the denial of benefits by ERISA fiduciaries and administrators under the arbitrary and capricious standard, it also pointed out that the standard has been softened in cases where fiduciaries and administrators had some bias or adverse interest. In view of the softened standard, the Court of Appeals held that where the employer is itself the fiduciary or administrator of a benefit plan, its decision to deny benefits should be subject to full de novo review, with no presumption that the fiduciary or administrator acted reasonably. The court reasoned that an employer in that situation cannot assure its impartiality, so deference to its decisionmaking is unwarranted.
The Supreme Court granted certiorari to resolve the conflict among the courts of appeals as to the appropriate standard of judicial review of benefit determinations by fiduciaries or plan administrators under Sec. 1132(a)(1)(B) of ERISA. Firestone v. Bruch, --- U.S. ----, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989).
The Court began by pointing out that "ERISA does not set out the appropriate standard of review for actions under Sec. 1132(a)(1)(B)" and that federal courts have often filled the gap in the statute by applying the arbitrary and capricious standard developed under Sec. 302(c) of the Labor Management Relations Act (LMRA). Id., 109 S.Ct. at 953. Firestone argued that Congress intended the LMRA standard to be applied in ERISA cases. The Court disagreed and concluded, inter alia, that "the wholesale importation of the arbitrary and capricious standard into ERISA is unwarranted." Id. The Court stated that in order to determine the proper standard of judicial review in ERISA cases, it is necessary to use principles taken from the law of trusts. After pointing out that "trust law makes a deferential standard appropriate when a trustee exercises discretionary powers," the Court concluded that because Firestone possessed "no powers to construe uncertain terms," it was not entitled to the deference inherent in the arbitrary and capricious standard. Id. at 956.
The Court then held that "a denial of benefits challenged under Sec. 1132(a)(1)(B) of ERISA is to be reviewed under a de novo standard unless the benefit plan 4 gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Id.
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