McGath v. Auto-Body North Shore, Inc.

• Decision Date: 19 October 1993
• Docket Number: No. 92-2728,AUTO-BODY,92-2728
• Citation: 7 F.3d 665
• Parties: , 17 Employee Benefits Cas. 1804, Pens. Plan Guide P 23886A Lane McGATH, Plaintiff-Appellant, v.NORTH SHORE, INCORPORATED, Louis J. Babbini and Anna M. Babbini, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 665

7 F.3d 665

62 USLW 2259, 17 Employee Benefits Cas. 1804,

Pens. Plan Guide P 23886A

Lane McGATH, Plaintiff-Appellant, v. AUTO-BODY NORTH SHORE, INCORPORATED, Louis J. Babbini and Anna M. Babbini, Defendants-Appellees.

No. 92-2728.

United States Court of Appeals Seventh Circuit.

Argued Jan. 26, 1993.

Decided Oct. 19, 1993.

Scott L. Schroeder (argued), C. James Heft, Constace A. Staaden, Racine, WI, for plaintiff-appellant.

James W. Naisbitt, Albert L. Grasso (argued), Stephen A. Glickman, Chuhak & Tecson, Chicago, IL, for defendants-appellees.

Before POSNER, Chief Judge, RIPPLE, Circuit Judge, and FAIRCHILD, Senior Circuit Judge.

RIPPLE, Circuit Judge.

Lane McGath alleged that amendments made to his employer's pension plan violated Employee Retirement Income Security Act (ERISA) § 510, 29 U.S.C. § 1140, and were made in violation of his employer's fiduciary duties. A magistrate judge granted summary judgment to the defendants. Mr. McGath appeals from that judgment, and we affirm.

I BACKGROUND

A. Facts

Louis and Anna Mae Babbini own and operate Auto Body North Shore, Inc. On July 18, 1983, Lane McGath was hired by Auto Body. Auto Body maintained an ERISA-qualified pension plan for its eligible employees. The Babbinis were designated as the trustees of the plan. At the time Mr. McGath was hired, employees had to satisfy four requirements before their participation in the plan could commence. The plan required an employee to: (1) complete one year of service; (2) be at least twenty-one years of age; (3) be less than fifty years of age at the date of hire; and (4) not be a member of a union that has negotiated for or is providing retirement benefits. R. 1, App. 1 at 8. Mr. McGath was born on January 3, 1934, and thus, at the time he was hired, he was forty-nine years old. Additionally, he was never a member of a collective bargaining unit while employed at Auto Body.

Mr. McGath was slated to complete one year of employment with Auto Body on July 18, 1984, and it appeared that he had satisfied all of the prerequisites for participation in the pension plan. Thus, after July 18, 1984, Mr. McGath became eligible to participate in the plan. The entry dates of the plan, however, were October 1 and April 1. According to the terms of the plan, because Mr. McGath had become eligible to participate on July 18, 1984, his applicable entry date to the plan was October 1.

At some point between July 18, 1984, and September 30, 1984, the Babbinis realized that Mr. McGath had become eligible to enter the plan. They grew concerned that the plan could not financially survive Mr. McGath's entry. To this end, on September 30, 1984, the Babbinis amended the plan to require three years of service before plan eligibility could be satisfied. Thus, the amendment denied plan eligibility to Mr. McGath at that time.

Mr. McGath continued to work for Auto Body, and on July 18, 1986, he completed three years of service with the company. Mr. McGath's applicable entry date was October 1. On September 30, 1986, one day before Mr. McGath would have entered the plan, the Babbinis once again amended the eligibility requirements. The new amendment stated: "Participation in the Plan shall be limited to those Employees who meet the eligibility requirements as of September 30, 1986." R. 1, App. 3. Because Mr. McGath was over fifty years old as of September 30, 1986, the amendment excluded him entirely from plan eligibility.

Mr. McGath worked for Auto Body until September 18, 1989, when he notified the company that he would retire. His employment was then terminated. Believing that he was entitled to pension benefits under the unamended requirements, Mr. McGath claimed benefits under the original plan, but his claim was denied.

B. District Court Proceedings ¹

Mr. McGath then filed suit against Auto Body and the Babbinis in the district court. He alleged that the defendants had interfered with his attainment of pension rights by deliberately discriminating against him in violation of ERISA § 510, 29 U.S.C. § 1140. In support of this claim, Mr. McGath contended that other employees had been allowed to enter the plan even though they had not satisfied the eligibility requirements. He also claimed that the defendants had breached their fiduciary duties in violation of ERISA § 404(a)(1)(D), 29 U.S.C. § 1104(a)(1)(D), ERISA § 406(b)(1), 29 U.S.C. § 1106(b)(1), and sought liability against them pursuant to ERISA § 409(a), 29 U.S.C. § 1109(a). In their depositions in preparation for trial, the Babbinis admitted that they had amended the plan to prevent Mr. McGath from becoming eligible for benefits. They believed that his entry would increase the costs of the plan beyond what they could afford, and this belief was the catalyst for the amendments.

The district court refused to find a violation of § 510. It noted that § 510 protects only against actions that affect the employment relationship in an effort to deny plan rights. Because the Babbinis' amendments affected only the terms of participation in the plan and did not affect Mr. McGath's employment with Auto Body, no violation of the statute had occurred. Moreover, the court found that the defendants had not breached their fiduciary duties. When an employer serves as plan administrator and amends the plan to restrict eligibility, the court found that the employer is not engaging in administration of the plan and thus is not required to act in the best interest of the plan participants and beneficiaries. Accordingly, the court found it unnecessary to address Mr. McGath's allegations that other employees had been allowed to enter the plan in contravention of its eligibility requirements; because Mr. McGath neither demonstrated how their inclusion had injured him nor had alleged that he was led to believe the requirements would be waived for him, the court did not find that his allegations raised any genuine issues of triable fact. The district court entered summary judgment for the Babbinis and Auto Body, and Mr. McGath appeals from that determination. For the reasons that follow, we affirm.

II

ANALYSIS

A. ERISA § 510: Interference with Protected Rights

Mr. McGath first submits that the defendants' plan amendments were in violation of ERISA § 510. That section reads in pertinent part:

It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan, ... or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan....

Mr. McGath contends that he--and he alone--was the object of the defendants' discrimination. He notes that the plan was changed, not once but twice, in order to preclude his participation. He points to the deposition testimony of Louis Babbini that the plan was changed to ensure that he would not be able to participate because, given his age, his participation would cost the plan more money than the company could afford. He also notes that Anna Babbini testified similarly. Furthermore, Mr. McGath submits that other Auto Body employees were allowed into the plan without first satisfying the eligibility provisions.

We turn first to Mr. McGath's contention that § 510 has been violated by the defendants' actions in revising the plan with the specific intent to eliminate his potential participation. Mr. McGath is correct that, while there was passing mention in the deposition testimony that other employees would soon be eligible for the plan and their participation would also spoil its actuarial premises, ² ] it is clear that the plan was amended primarily to prohibit Mr. McGath's participation. ³

In Deeming v. American Standard, Inc., 905 F.2d 1124, 1127 (7th Cir.1990), this circuit determined that the focus of § 510 is not on amendments to the plan itself. Rather, we held that

[i]t is clear from the text of the statute ... that § 510 was designed to protect the employment relationship against actions designed to interfere with, or discriminate against, the attainment of a pension right.... Simply put, § 510 was designed to protect the employment relationship which gives rise to an individual's pension rights.... This means that a fundamental prerequisite to a § 510 action is an allegation that the employer-employee relationship, and not merely the pension plan, was changed in some discriminatory or wrongful way.

Id. (emphasis in original).

While there appear to be some courts that have interpreted § 510 to encompass discrimination in the plan itself rather than the employment relationship, our study of those cases ⁴ has provided us with no basis to depart from the established precedent of this circuit--precedent that, in our view, is supported by the statute's legislative history and the opinions of other courts. As our colleagues in the Sixth Circuit have noted, "Congress designed § 510 primarily to protect the employment relationship that gives rise to an individual's pension rights." West v. Butler, 621 F.2d 240, 245 (6th Cir.1980). As further elaboration, the court noted: "The legislative history reveals that the prohibitions were aimed primarily at preventing unscrupulous employers from discharging or harassing their employees in order to keep them from obtaining vested pension rights." Id. In Gavalik v. Continental Can Co., 812 F.2d 834, 851 (3d Cir.), cert. denied, 484 U.S. 979, 108 S.Ct. 495, 98 L.Ed.2d 492 (1987), the Third Circuit recognized the same basic theme: "Congress enacted § 510 primarily to prevent 'unscrupulous employers from discharging or harassing their employees in order to keep them from obtaining vested pension rights.' " (quoting West, 621 F.2d at 245) (footnote omitted).

Although we believe that the protections of § 510 are properly limited to employment situations that affect pension rights, we do not...