Lister v. Stark

Decision Date10 September 1991
Docket NumberNo. 89-3563,89-3563
Citation942 F.2d 1183
Parties14 Employee Benefits Cas. 1939 Arthur LISTER and Harold Quick, Plaintiffs-Appellants, v. H. Allan STARK, James Nugent, Sun Electric Corporation and Sun Electric Pension Trust, Defendants-Appellees.
CourtU.S. Court of Appeals — Seventh Circuit

Terrence Buehler (argued), Arthur T. Susman, Terry Rose Saunders, Susman, Saunders & Buehler, Chicago, Ill., Joseph S. Buehler, Franks & Filler, Marengo, Ill., for plaintiffs-appellants.

Alan S. Gilbert (argued), Jay Conison, Sonnenschein, Nath & Rosenthal, Chicago, Ill., for defendants-appellees.

Before CUMMINGS, WOOD, Jr. and RIPPLE, Circuit Judges.

RIPPLE, Circuit Judge.

Arthur Lister and Harold Quick brought this ERISA action against their former employer, its pension plan, and two managers of the employer (collectively Sun). The district court granted summary judgment in favor of Sun. For the following reasons, we reverse in part and vacate in part the judgment of the district court and remand the case for further proceedings consistent with this opinion.

I BACKGROUND
A. Facts

This case involves the construction of the definition of "compensation" in the Sun Electric Corporation Pension Plan (the Plan). The Plan defined this term as "regular basic compensation, including salary and ordinary commissions, ... excluding bonuses, overtime and other additional compensation." Plan § 2.12. A participant's retirement benefit was calculated via a formula, the details of which are not pertinent to this appeal, based on the participant's highest-paid thirty-six month period of pre-retirement compensation. 1

Prior to their early retirement, plaintiffs Arthur Lister and Harold Quick were employed as regional sales managers by Sun. Each previously had worked as a salesman for Sun. The remuneration of Sun salesmen consisted entirely of commissions. These commissions were treated as compensation for purposes of calculating retirement benefits. As regional sales managers, appellants received a base salary, which was lower than the remuneration they had earned as commissioned salesmen and, at least initially, lower than that earned by many of the salesmen they supervised. Regional sales managers also received two other forms of payment: (1) a percentage of the region's net monthly sales (monthly sales percentage), and (2) a percentage of the region's annual profits (annual profits percentage). The rates at which both the monthly sales percentage and annual profits percentage would be paid were set by Sun and announced at the beginning of each employment year. At least one of Mr. Lister's Employee Status Change forms referred to each of these additional forms of payment as a "commission." Nonetheless, a regional sales manager's pension was calculated on the basis of base salary alone; the monthly sales percentage and annual profits percentage were excluded from such participants' compensation calculation.

The Plan was administered by a committee consisting of defendant Stark (the company's vice president and general counsel) and other company managers (the Committee). Section 7.4 of the Plan provides in pertinent part:

The Committee shall enforce the Plan in accordance with the terms of the Plan and the Trust Agreement and shall have all powers necessary to accomplish that purpose, including but not by way of limitation, the following:

. . . . .

(b) To construe the Plan and Trust Agreement;

(c) To determine all questions arising in its administration, including those relating to the eligibility of persons to become Participants; the rights of Participants, former Participants, Pensioners and Beneficiaries, and Employer Contributions; and its decision thereon shall be final and binding upon all persons hereunder

. . . . .

The Plan required a claimant to file an initial benefits claim in writing. See Plan § 8.1. If a claim was denied in whole or in part, the claimant could seek review of the decision by filing a written request for review. The Committee's final decision on review was to be "final and binding on all persons for all purposes." Id. § 8.2. The Plan included an exhaustion of administrative remedies provision:

If a Claimant shall fail to file a request for review in accordance with the procedures described in Sections 8.1 and 8.2, such Claimant shall have no right to review and shall have no right to bring action in any court and the denial of the claim shall become final and binding on all persons for all purposes.

Id.

In August 1987, Mr. Lister objected to the calculation of his pension benefits being determined only on his base salary as regional sales manager. 2 Mr. Stark then informed him that his objection would be treated as an initial claim for benefits under section 8.1 of the Plan. Mr. Stark decided that the benefits had been calculated correctly, and his decision was endorsed by the Committee. On November 9, 1987, Mr. Stark wrote Mr. Lister to inform him of the Committee's decision. This letter quoted the Plan's definition of "compensation" and indicated that the calculation of Mr. Lister's pension was consistent with that definition. The letter included nothing, beyond this bare assertion, to support the conclusion that a regional sales manager's monthly sales percentage and annual profits percentage did not fit the Plan's definition of "compensation." Mr. Lister sought review of this decision pursuant to section 8.2 of the Plan. Believing that "I had no further information or documents to give to the Committee as they had a more complete file on my employment and the pension plan than I did," R.24 at 5, Mr. Lister submitted no additional materials to the Committee. The Committee then reaffirmed its denial of Mr. Lister's claim for additional benefits.

Mr. Quick had begun to receive his pension benefits in March 1986, prior to Mr. Lister's attempt to have the defendants include all three components of regional sales managers' remuneration when calculating benefits. He never filed a claim for additional benefits with the Committee. When he learned of Mr. Lister's intention to bring this suit, Mr. Quick decided he also was entitled to a larger pension. He did not seek administrative review because he believed such review "would be a waste of time" due to "the fact that Mr. Lister and I were in the same situation and that his claim for additional benefits had been turned down." R.25 at 3.

B. District Court Proceedings

Plaintiffs Lister and Quick filed a complaint on behalf of themselves and similarly situated Sun employees, seeking a declaration that their retirement benefits should be calculated on the basis of their monthly sales percentage and annual profits percentage as well as their base salary. 3

The defendants moved for summary judgment. The district court reviewed the actions of the defendants under a deferential standard, indicating that these actions would be upheld unless they were unreasonable. See Lister v. Stark, 11 Employee Benefits Cas. (BNA) 1611, 1618, 1989 WL 88241 (N.D.Ill.1989). Because the Plan gave the Committee power " '[t]o construe the Plan and Trust Agreement' " and " '[t]o determine all questions arising in its administration, including those relating to the ... rights of Participants, former Participants, Pensioners and Beneficiaries[,]' " the district court rejected use of a stricter de novo standard. Id. (quoting Plan § 7.4(b), (c)). 4

The court concluded that the Committee's interpretation of the compensation provisions of the Plan was reasonable.

Even if one characterized the additional manager payments [other than base salary] as a commission, the Committee could regard them as different from "ordinary commissions" paid to salesmen in lieu of salary.... It is undenied that the Committee always treated such payments as excluded from regular basic compensation.... The fact that company employees may have referred to the payments as commissions does not bind the administrators of the Plan.

Id. The court also found no "abuse of discretion" in the procedures that the Committee followed in denying Mr. Lister's claim. Id. In addition, the court concluded that Mr. Quick's failure to exhaust administrative remedies was "fatal to this suit." Id. (citing Kross v. Western Elec. Co., 701 F.2d 1238, 1244 (7th Cir.1983)). The court rejected Mr. Quick's contention that exhaustion would have been futile because of the denial of Mr. Lister's claim: "Considering the rather skeletal way in which Lister presented his claims, Quick should not be excused from pursuing plan remedies (assuming, arguendo, that such excuse is legally permissible)." Id. at 1618-19.

The court did not, however, immediately grant Sun's motion for summary judgment. The plaintiffs had contended that the court should not review the defendants' actions deferentially because the Committee consisted of company managers "who hold their positions at the will of the company directors." Id. at 1619. The court held that, because ERISA envisions that employers frequently will serve as plan fiduciaries, the composition of the Committee alone was not enough to "create a conflict of interest sufficient to change the standard of review." Id. But the court permitted limited discovery to allow the plaintiffs to determine whether the company would have to increase its contributions to the Plan if the higher benefits sought by this suit were to be granted and whether the compensation of Committee members was linked to the company's potentially greater contributions. Id. After the plaintiffs were unable to substantiate this more specific theory of a conflict of interest, the court granted Sun's motion for summary judgment. The plaintiffs filed a timely notice of appeal.

II ANALYSIS
A. Construction of the Plan's "Compensation" Term
1. Standard of review

It is well established that review of a district court's grant of summary judgment is de novo. See, e.g., Doe v. Allied-Signal, Inc....

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