Morgan v. Laborers Pension Trust Fund for N. Cal.

• Decision Date: 08 June 1977
• Docket Number: No. C-76-1250-CBR.,C-76-1250-CBR.
• Citation: 433 F. Supp. 518
• Court: U.S. District Court — Northern District of California
• Parties: Edmon MORGAN, Walter Brice, Gilbert Stone, Jeff Dodson, Individually and on behalf of all others similarly situated, Plaintiffs, v. LABORERS PENSION TRUST FUND FOR NORTHERN CALIFORNIA, Sal Minerva, C. R. Johnson, Jessie O. Payne, John F. Peterson, Phil Thorpe, Morris K. Daley, Wallace Benson, Richard E. Hall, Carl K. Lawrence, Clifford W. Swenson, Individually and in their capacities as trustees of the Laborers Pension Trust Fund for Northern California, Defendants.

433 F. Supp. 518

Edmon MORGAN, Walter Brice, Gilbert Stone, Jeff Dodson, Individually and on behalf of all others similarly situated, Plaintiffs, v. LABORERS PENSION TRUST FUND FOR NORTHERN CALIFORNIA, Sal Minerva, C. R. Johnson, Jessie O. Payne, John F. Peterson, Phil Thorpe, Morris K. Daley, Wallace Benson, Richard E. Hall, Carl K. Lawrence, Clifford W. Swenson, Individually and in their capacities as trustees of the Laborers Pension Trust Fund for Northern California, Defendants.

No. C-76-1250-CBR.

United States District Court, N. D. California.

June 8, 1977.

COPYRIGHT MATERIAL OMITTED

Lee Thomas Surh, Katherine T. Bartlett, Clifford C. Sweet, Legal Aid Society of Alameda County, Les A. Hausrath, Legal Aid Society of Alameda County, Alice M. Beasley, Oakland, Cal., Lowell Johnston, San Francisco, Cal., Charles R. Bush, Marin County Legal Aid, San Rafael, Cal., for plaintiffs.

Charles P. Scully, Donald C. Carroll, Stephen G. Schrey, Johnson & Stanton, Thomas E. Stanton, Jr., San Francisco, Cal., for defendants.

ORDER DISMISSING VARIOUS CLAIMS

RENFREW, District Judge.

This is an action brought against Laborers Pension Trust Fund for Northern California ("Trust Fund")¹ to compel the payment of certain pension benefits heretofore denied to plaintiffs. Plaintiffs, seeking to represent the class of all hourly laborers who are potential beneficiaries of Trust Fund and who have been denied pension benefits for the same reasons as plaintiffs, allege that certain provisions of the Trust Fund agreement and the manner in which they are carried out violate Sections 301 and 302 of the Labor Management Relations Act ("LMRA"), 29 U.S.C. §§ 185 and 186, Section 401 of the Internal Revenue Code, 26 U.S.C. § 401, and the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001 et seq. (Supp. IV 1974). Specifically, plaintiffs allege that defendants have violated their fiduciary duties under the above provisions by (1) applying an arbitrary "break in service" rule;² (2) enforcing arbitrary and discriminatory vesting requirements; (3) using an arbitrary method of calculating credit hours;³ and (4) maintaining inconsistent conflicting, and incomplete records concerning pension credits earned by plaintiffs. Plaintiffs also allege that, by the same actions, defendants have violated their duty of fair representation.

Trust Fund was created by a trust agreement entered into on August 2, 1963, by the Northern California Council of Laborers and the Northern and Central California Chapters of the Associated General Contractors of America, Inc. Prior to the adoption of this agreement, the parties appointed a Joint Committee to work out the details of the initial trust and pension plan. The Joint Committee engaged the consulting services of the Martin E. Segal Company, Inc. ("Segal Company"), in 1962 to aid in drawing up the proposal. The Segal Company supplied the committee with a memorandum dated November 2, 1962, which outlined the basic features of the pension plan, and a detailed Pension Estimate Report dated March 18, 1963. Affidavit of Berton Jacobson, Exhibits A and B (filed Aug. 25, 1976). The Pension Estimate Report summarized employee data from actuarial studies, assumptions used in calculations, alternative pension plans, and the next steps to be taken in developing the program. The Joint Committee tentatively agreed upon a plan on April 2, 1963, and received a revised draft from the Segal Company on August 12, 1963. The Board of Trustees of the Trust Fund ("Board") held its organizational meeting on September 27, 1963, and unanimously adopted the plan approved by the Joint Committee.

The plan adopted in 1963 provided, inter alia, that pension rights would vest when an employee reached age 50 with at least 15 years of service;⁴ that an employee would receive one year of future service credit if he or she worked 1,000 hours in a plan year and would receive ¼ year service credit for each full 250 hours of work; and that, with certain enumerated exceptions, an employee who fails to earn at least ¼ year of pension credit in two consecutive plan years (a break in service) would lose all of his previously accumulated pension credit. Affidavit of Berton Jacobson, supra, Exhibit C at 15b, 10, 13. The vesting provision has since been amended to provide that "effective February 1, 1973, an Employee's Pension Credit is vested if he has accumulated at least 10 years of Pension Credit." Trust Fund Rules and Regulations, Article IV, Section 7 (1974) ("Trust Fund Rules").

On August 25, 1976, defendants moved to dismiss plaintiffs' complaint or, in the alternative, for summary judgment. Defendants admit that the Court has jurisdiction over this action under § 302(e) of the LMRA, 29 U.S.C. § 186(e), but they argue that the Court does not have jurisdiction under ERISA. Defendants contend that (1) the claims of plaintiffs Brice and Dodson are barred by the statute of limitations; (2) plaintiffs Morgan and Stone have failed to exhaust their remedies under the Trust Fund Agreement and Plan; (3) plaintiffs cannot show that the challenged provisions are arbitrary or discriminatory; (4) this Court does not have jurisdiction to review defendants' alleged errors in computation of service credit; and (5) plaintiffs' claim of a breach of defendants' duty of fair representation does not state a claim upon which relief may be granted. A hearing was held on defendants' motion on November 4, 1976. At that time the parties agreed that defendants' motions were, in part, premature. In light of the November 4th hearing, the Court will rule on the applicability of ERISA to this case, whether the claims of plaintiffs Brice and Dodson are barred by the statute of limitations, whether plaintiffs Morgan and Stone have exhausted their internal remedies, and defendants' motion to dismiss plaintiffs' second claim.

I. APPLICABILITY OF ERISA

Plaintiffs seek to invoke jurisdiction under ERISA for two purposes: to test defendants' actions under the fiduciary duties established by §§ 401-413 of ERISA, 29 U.S.C. §§ 1101-1113 (Supp. IV 1974), and "to recover benefits due to plaintiffs under the terms of their plan," pursuant to § 502(a) of ERISA, 29 U.S.C. § 1132(a) (Supp. IV 1974).

A. Fiduciary Duties

Plaintiffs allege that defendants breached their fiduciary duties under ERISA by denying pension benefits as the result of certain Trust Fund Rules. Thus, in order to determine whether ERISA is applicable to plaintiffs' claims, the Court must determine if the denials occurred before or after the effective date of the relevant provisions of ERISA.⁵

For the purposes of this case, the general fiduciary duties established by §§ 401-413 of ERISA became effective as of January 1, 1975.⁶ 29 U.S.C. § 1114(a) (Supp. IV 1974). After examining each plaintiff's Trust Fund record, the Court concludes that plaintiffs Morgan and Stone may challenge their pension denials under the fiduciary provisions of ERISA and that plaintiffs Brice and Dodson may not.

Stone first filed his Request for Pension Fund Information on December 15, 1975,⁷ and was informed through his attorney by letter dated February 26, 1976, that he was not eligible due to a break in service. Since the denial took place after January 1, 1975, it may be examined under ERISA fiduciary standards. This applies to Stone's challenge of how service credits are computed as well as his challenge of the break in service rule.

Morgan's case is more complicated. Morgan first applied for a pension on May 8, 1967. His application was denied on July 20, 1967, on the ground that he did not have enough credits. Morgan periodically corresponded with the Trust Fund between 1967 and 1975, either directly or through his attorney, inquiring whether he was yet eligible for a pension. On April 1, 1975, the Trust Fund informed Morgan that his prior pension credit had been cancelled due to a break in service in the 1972, 1973, and 1974 Plan Years. Morgan filed a new application on August 20, 1975, which was denied on October 21, 1975. Because Morgan's second application was denied after January 1, 1975, due to a break in service occurring after the denial of his first application, he may challenge the break in service rule under the fiduciary provisions of ERISA.

Morgan also contends that the method by which the Trust Fund computes service credit is a breach of fiduciary duty. He may invoke ERISA to challenge the method of computing service credit involved in the Trust Fund's 1975 decision to deny his pension application, but only with regard to hours worked after his pension application was denied in 1967. In other words, if an employee's pension application was denied before January 1, 1975, he may not invoke the fiduciary standards of ERISA to challenge the reasons upon which that denial was based.

An action to recover pension benefits does not accrue until there has been a "clear and continuing repudiation of the right to trust benefits." Kosty v. Lewis, 115 U.S.App.D.C. 343, 319 F.2d 744, 750 (1963), cert. denied, 375 U.S. 964, 84 S.Ct. 482, 11 L.Ed.2d 414 (1964) (footnote omitted). The Trust Fund's policy on computation of hours has always been clear, and there has never been any question whether the Trust Fund would reverse its position on that issue. As a result, Morgan's cause of action to challenge the method of computing service credit earned before the denial of his 1967 application accrued on the date of that denial — before the effective date of ERISA.

This rule may appear harsh, but its alternative would be even less desirable. Anyone who has ever been denied pension benefits would be able to invoke ERISA merely by reapplying and having his application denied again on the same grounds. The resulting litigation would paralyze pension funds and federal courts alike. Congress was very much aware of the potential costs of pension reform and intended to "strike a balance between providing...