Matthews v. Swift and Company

• Decision Date: 18 October 1972
• Docket Number: No. 71-2623.,71-2623.
• Citation: 465 F.2d 814
• Parties: Billy MATTHEWS, Plaintiff-Appellee, v. SWIFT AND COMPANY and Globe Life Insurance Company, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

465 F.2d 814 (1972)

Billy MATTHEWS, Plaintiff-Appellee, v. SWIFT AND COMPANY and Globe Life Insurance Company, Defendants-Appellants.

No. 71-2623.

United States Court of Appeals, Fifth Circuit.

August 31, 1972.

Rehearing Denied October 18, 1972.

Tabor R. Novak, Jr., Fred S. Ball, Jr., Ball, Ball & Matthews, Montgomery, Ala., for defendants-appellants.

James W. Cameron, Cameron & Cameron, Montgomery, Ala., for plaintiff-appellee.

Before RIVES, BELL and MORGAN, Circuit Judges.

RIVES, Circuit Judge:

Matthews sued Swift and its wholly owned subsidiary, Globe, claiming that Swift had wrongfully terminated his employment instead of granting him a disability retirement, and that as a result he had suffered interrelated items of damage, consisting of: (1) loss of the disability pension to which he was entitled under Swift's Pension Plan; (2) reduction of his coverage under a group life insurance policy issued by Globe and covering Swift's employees;¹ (3) cancellation of a medical certificate of group insurance issued by Globe on which premiums were paid by Swift;² and (4) Globe's refusal to honor the provisions of two life insurance policies issued to Matthews, each in the face amount of $7500.00, and each containing provisions for waiver of premiums in the event Matthews became totally disabled.

The complaint prayed that the court required Swift either to place Matthews on disability pension or to grant him damages in the amount of $50,000.00 for terminating his employment without the benefits of such pension. The complaint further prayed that the court require Globe to reinstate his group life insurance to the full amount of $15,000.00; to reinstate his major medical group insurance; and still further to grant him waiver of premium benefits as called for in the two $7500.00 life policies, or in the alternative to enter a judgment against Globe for $15,000.00 for its breach of contract by its failure to honor the provisions for waiver of premium benefits.

Federal jurisdiction was based on diversity of citizenship which requires that "the matter in controversy exceeds the sum or value of $10,000, exclusive of interest and costs." 28 U.S.C. § 1332. Swift and Globe each moved to dismiss because the jurisdictional amount was not involved, claiming that the pension and insurance benefits claimed by Matthews did not exceed the sum or value of $10,000.00 and that the alternative claims for money damages did not suffice to invoke federal jurisdiction. The district court denied the motions to dismiss. On appeal, neither Swift nor Globe insists on its claim of lack of federal jurisdiction. We agree with the result of the district court's decision denying dismissal for lack of federal jurisdiction.

I. The Pension Plan

Its motion to dismiss having been denied, Swift next moved for summary judgment claiming that its Pension Plan is merely a gratuity, that it confers no contractual rights, that the Pension Board alone has the discretion to grant a pension for disability and that any decision of the Pension Board is final and conclusive. Swift's motion for summary judgment was supported by an affidavit of K. W. Schuberth, Secretary of Swift's five-member Pension Board, to which was attached a copy of Swift's current Pension Plan dated January 1, 1966, as amended to August 22, 1968 (App. 1937).³ The Plan is financed entirely by Swift and its subsidiary corporations. Article X of the Plan provides in part that:

"NO CONTRACTUAL RIGHTS CONFERRED

"The establishment of this Pension Plan, the Pension Trust, or the Trust Fund, the granting of a pension, or any other action at any time taken by the Board of Directors of Swift & Company, the Pension Board or by the Trustee, or by their authority, shall not constitute any contract with or confer any legal or equitable right upon any employee, pensioner or other person whomsoever, as against the Company or any of its subsidiary (covered or noncovered) or affiliated corporations * * *."

(App. 34.)

A pension trust fund is provided of which Bankers Trust Company is Trustee. Administration of the Pension Plan is vested in a Pension Board consisting of five members appointed annually by Swift's Board of Directors, which Board also has power to remove any member of the Pension Board and to fill any vacancy.

Article III, paragraphs 5 and 6 provide in part:

"5. The Pension Board shall have the sole power, duty and responsibility to direct the administration of the Pension Plan in accordance with the provisions herein set forth, and shall act as the majority of its members shall decide.

"6. All decisions of the Pension Board as to the facts of any case and the meaning and intent of any provision in this Plan or of its application to any case shall be final and conclusive * * *"

(App. 23.)

The Pension Plan contains provisions establishing requirements for employees to be eligible for pensions, for the granting of pensions to widows and dependent children of employees, and for computing the amount of pensions.

Swift's Board of Directors retains power to amend and to terminate the Plan. Among other provisions we mention two particularly pertinent to the present case. Article VIII provides:

PERMANENT DISABILITY

"Any employe under normal retirement age who shall become disabled, other than temporarily, so as to be unable to perform the duties of any job available for him at the unit where employed, as determined in the sole discretion of the Pension Board, shall, if such employe has completed ten (10) years or more of credited service prior to such disability, be entitled to a disability retirement pension to commence upon retirement."

(App. 34.)

Article XVI, paragraph 1 provides:

"1. The validity and construction of this Pension Plan shall be determined according to the laws of the State of New York, and all the provisions hereof shall be administered according to the laws of said State."

(App. 37.)

Mr. Schuberth's affidavit in support of Swift's motion for summary judgment concluded:

"The question of whether an employee is disabled is a matter within the sole discretion of the Pension Board.

"Said Board has not determined that the plaintiff is disabled so as to be unable to perform the duties of any job available for him at the unit where employed."⁴

(App. 16.)

In its order denying Swift's motion for summary judgment, the district court commented:

"Finally, defendant Swift & Company argues that its pension plan is merely a gratuity and that the Pension Board\'s decision with regard to disability is conclusive. While defendant\'s pension plan may not expressly confer any contractual rights, this Court is clear to the conclusion that an employee\'s rights under a non-contributory retirement plan are contractual. Furthermore, the Pension Board\'s finding cannot be sustained if it is arbitrary, if it is a product of bad faith, or if it is based on insufficient evidence."

(App. 45.)

In our opinion the district court properly denied Swift's motion for summary judgment. There has been noted

"an increasing trend to hold that private noncontributory pension and retirement plans create a contractual obligation in which the promise to pay benefits is made in consideration of the continued faithful service of the employee for the requisite period. These courts take the view that a retirement pension is pay withheld to induce continued faithful service, amounting to delayed compensation for services rendered. The rationale of some such holdings is that the pension plan is the offer of a unilateral contract which is accepted by full performance by the employee, whereupon his previously inchoate rights vest and become legally enforceable. The right which thus vests is the right to receive payments in an amount computed in accord with the conditions and provisions of the whole contract. * * *"

60 Am.Jur.2d, Pensions and Retirement Funds § 74, pp. 950-951.⁵

As has been noted, Swift's Pension Plan provides that the laws of New York should control in determining the validity and construction of the Pension Plan and also in its administration. Alabama, along with most other states, recognizes the right of parties to choose the law of another state to govern their contractual rights and duties.⁶ Such a provision in a contract will not, however, be given effect if its consequences are likely to be contrary to the law or public policy of the forum.⁷ In the absence of a showing of such conflict between the laws of New York and the law or public policy of Alabama, the laws of New York control as provided in Article XVI, paragraph 1 of the Swift Pension Plan.

A similar pension plan was involved in Gitelson v. DuPont, 1966, 17 N.Y.2d 46, 268 N.Y.S.2d 11, 215 N.E.2d 336. There the plan provided for no employee contributions and the fund was administered by a three-man board on which three DuPont partners sat. The Court of Appeals of New York held that "* * * an employee's right to receive payment under the plan is a conditional contract right and when the plaintiff became a party to the contract by taking employment under it he was bound by these conditions." 268 N.Y.S. 2d at 13, 215 N.E.2d at 338. There the Board was vested with the sole authority to determine all matters relating to an employee's right to receive retirement payments. The New York Court of Appeals held the decision of the Board to be "final and conclusive" unless the claimant met the burden to show that the Board's ruling was motivated by bad faith or arrived at by fraud or arbitrary action. In short, as expressed by the New York Court of Appeals, "The rights of the plaintiff under the plan are contract rights and are limited to the provisions of the contract." 268 N.Y.S.2d at 13, 215 N.E.2d at 336, 337.

Article III, paragraphs 5 and 6 of the Pension Plan, heretofore quoted in pertinent part, vest in the Board "the sole power, duty and responsibility to direct the administration of the Pension Plan." They require that the Board ...