Nachwalter v. Christie

• Decision Date: 09 December 1986
• Docket Number: Nos. 85-5615,85-6001,s. 85-5615
• Citation: 805 F.2d 956
• Parties: , 7 Employee Benefits Ca 2675 George M. NACHWALTER and Steven M. Falk, as Trustees of the Nachwalter, Christie & Falk, P.A. Profit Sharing Plan and Trust, and as Trustees of the Nachwalter, Christie & Falk, P.A., Pension Plan and Trust, Plaintiffs-Counter Defendants-Appellees, v. Joyce Ellen CHRISTIE, individually and as Personal Representative of the estate of Irwin G. Christie, Defendant-Counter Plaintiff-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 956

805 F.2d 956

55 USLW 2351, 7 Employee Benefits Ca 2675

George M. NACHWALTER and Steven M. Falk, as Trustees of the

Nachwalter, Christie & Falk, P.A. Profit Sharing Plan and Trust, and as Trustees of the Nachwalter, Christie & Falk, P.A., Pension Plan and Trust, Plaintiffs-Counter Defendants-Appellees, v. Joyce Ellen CHRISTIE, individually and as Personal

Representative of the estate of Irwin G. Christie,

Defendant-Counter Plaintiff-Appellant.

Nos. 85-5615, 85-6001.

United States Court of Appeals, Eleventh Circuit.

Dec. 9, 1986.

CORRECTED OPINION.

Blank, Rome, Comisky & McCauley, William Berger, Nancy J. Cliff, Stewart A. Merkin, Law Office of Stewart A. Merkin, Miami, Fla., for Christie.

James J. Kenny, Kenny, Nachwalter & Seymour, Miami, Fla., for Nachwalter.

Appeal from the United States District Court for the Southern District of Florida.

Before RONEY, Chief Judge, KRAVITCH, Circuit Judge, and ATKINS ^*, Senior District Judge.

KRAVITCH, Circuit Judge:

The issue before this court is whether the trustees of pension and profit sharing plans governed by the Employment Retirement Income Security Act (ERISA), 29 U.S.C. Secs. 1001 et seq., may be estopped from enforcing the written terms of the plans by oral representations they allegedly made to a beneficiary. We affirm the district court 611 F.Supp. 655 and hold that the written terms of the plans cannot be modified by oral agreements. In addition, we hold that appellees are not entitled to fees on appeal.

I.

This declaratory judgment action was brought by the trustees of two employee benefit plans (the Plans) ¹ that are sponsored by the law firm of Nachwalter, Christie & Falk, P.A. (the Firm) and governed by ERISA, 29 U.S.C. Secs. 1001 et seq. The trustees sued appellant Joyce Christie, individually and as personal representative of the estate of her deceased husband, Irwin G. Christie, a former participant in the Plans, in order to determine the extent of their liability to her.

Irwin was a stockholder, employee, officer and director of the Firm from its inception until November 30, 1980, the effective date of his resignation. Until his resignation, he also was one of the three trustees of the Firm's two employee benefit plans and was one of the principal beneficiaries of the Plans. His interest in the Plans, which is 100% vested, represents approximately 30.35% of the net assets held in trust under the two Plans.

Under the terms of the Plans, the date on which an employee withdraws his funds from the Plans also serves as the date for valuing both the Plans' net assets and the employee's share thereof. The Plans provide employees with some, albeit a limited, ability to select between withdrawal/valuation dates. In particular, Irwin could have requested permission to withdraw his funds from the Plans for their value as of June 30, 1980; whether Irwin would have received the funds based on this date was in the total discretion of the Plan Administrator. The district court found, however, that Irwin did not make this written request for an immediate distribution. Instead, Irwin left his funds in the Plans in order to benefit from the increase in the Plans' value that had occurred since June 30, 1980. Pursuant to the Plans, under these circumstances Irwin was not entitled to remove his funds from the Plans until he became a "Withdrawn Participant." This occurred on June 30, 1982. Therefore, under the Plans, June 30, 1982 should serve as the valuation date for determining Irwin's share.

Joyce Christie alleges, however, that Irwin and the trustees orally agreed that Irwin could remove his assets on June 30, 1981, and argues that this date should be the valuation date. There is nothing in the Plans that would permit use of the June 30, 1981 valuation date. And while the Plans do contain provisions that would have allowed Irwin to request that the Plans be amended to change the valuation date, Irwin did not pursue, and the Firm did not make, such an amendment.

The controversy over the valuation date erupted as a consequence of the trustees' June 30, 1981 investment of a substantial portion of the Plans' funds in marketable securities held in street name by First State Securities Corp. (First State). First State engaged in unauthorized transactions on behalf of the funds between June 30, 1981 and July 24, 1981. As a result, the net assets in the Plans plummeted; Irwin's share fell from $196,770.72 on June 30, 1981 to $83,364.46 on June 30, 1982.

After the drop in the Plans' value, trustees Nachwalter and Falk notified Irwin that he would be paid pursuant to the Plans, with the value of his assets determined as of June 30, 1982. Irwin objected, asserting that the trustees had agreed to the June 30, 1981 valuation date. Irwin died on January 8, 1982. Joyce, Irwin's beneficiary under the Plans in the event of his death, sought to recover the benefits based on the June 30, 1981 valuation date, claiming that the trustees of the two Plans are estopped from enforcing the written terms of the funds by the alleged oral agreement with her husband to employ June 30, 1981 as the valuation date. The trustees claimed that the proper valuation date is June 30, 1982 and brought the instant declaratory judgment action. The district court ruled in the trustees' favor and held that the June 30, 1982 valuation date governs on the ground that under ERISA neither oral agreement nor informal exchange may be used to modify the written terms of the Plans. The court made no findings regarding the existence of the alleged oral agreement. ² Pursuant to a pretrial stipulation, the district court also awarded attorney's fees to the trustees.

II.

The main issue on appeal is whether written employee benefit plans governed by ERISA may be modified by oral agreements. ³ This issue is one of first impression in this circuit; to our knowledge, no other federal circuit court has ruled on this question.

Appellant argues that this court should employ the doctrine of estoppel to enforce the alleged oral modification of the Firm's two ERISA-governed employee benefit plans. Appellant cannot prevail on this claim. Appellant does not cite a single case under either ERISA or a related federal labor law in which a federal circuit court has enforced an oral agreement that modifies the terms of an employee benefit plan. ⁴ In fact, appellant concedes that in this case ERISA preempts state common law doctrines such as estoppel. ⁵ See Phillips v. Amoco Oil Co., 799 F.2d 1464, 1470 (11th Cir.1986) (ERISA preempts state common law causes of action as they relate to employee benefit plans); see also Holland v. Burlington Industries, Inc., 772 F.2d 1140, 1147 (4th Cir.1985); Gilbert v. Burlington Industries, Inc., 765 F.2d 320, 326-28 (2d Cir.1985); Blau v. Del Monte Corp., 748 F.2d 1348, 1356 (9th Cir.1984), cert. denied, --- U.S. ----, 106 S.Ct. 183, 88 L.Ed.2d 152 (1985). Instead, at oral argument appellant contended that since Congress intended the federal courts to fashion a body of federal common law to govern ERISA cases, see Holland, 772 F.2d at 1147 n. 5; Scott v. Gulf Oil Corp., 754 F.2d 1499, 1501-02 (9th Cir.1985), we should create a federal common law doctrine of estoppel which permits oral modification of ERISA-protected Plans.

Appellant's argument fails, however, as it is based on a misunderstanding of the proper use of federal common law. The claim that Congress intended for the federal courts to create a body of federal common law to govern ERISA cases does not, as appellant suggests, give a federal court carte blanche authority to apply any prevailing state common law doctrine it chooses to ERISA cases. A federal court may create federal common law based on a federal statute's preemption of an area only where the federal statute does not expressly address the issue before the court. See C. Wright, Law of Federal Courts Sec. 60, at 283-84 (3d. ed. 1976); see also Textile Workers Union of America v. Lincoln Mills of Alabama, 353 U.S. 448, 456-57, 77 S.Ct. 912, 918, 1 L.Ed.2d 972 (1957). Furthermore, even when it is appropriate for a federal court to create federal common law, it may use state common law as the basis of the federal common law only if the state law is consistent with the policies underlying the federal statute in question; see Lincoln Mills, 353 U.S. at 457, 77 S.Ct. at 918; Scott, 754 F.2d at 1502; federal courts may not use state common law to re-write a federal statute.

Applying these principles, we conclude that we cannot create federal common law in this case because ERISA specifically addresses the issue before this court. ERISA expressly requires that employee benefit plans be "established and maintained pursuant to a written instrument." 29 U.S.C. Sec. 1102(a)(1). We agree with the district court that this requirement that ERISA plans be "maintained" in writing precludes oral modifications of the Plans; the common law doctrine of estoppel cannot be used to alter this result. Cf. Mo-Kan Teamsters Pension Fund v. Creason, 716 F.2d 772, 777 (10th Cir.1983), cert. denied, 464 U.S. 1045, 104 S.Ct. 716, 79 L.Ed.2d 178 (1984) (oral modification of collective bargaining agreement prohibited by Labor Management Relations Act); San Pedro Fishermen's Welfare v. Di Bernardo, 664 F.2d 1344, 1345 (9th Cir.1982) (Labor Management Relations Act's requirement that the terms of a welfare trust fund be set forth in writing precludes oral modification); Lewis v. Seanor Coal Co., 382 F.2d 437, 443-44 (3d Cir.1967) (same), cert. denied, 390 U.S. 947, 88 S.Ct. 1035, 19 L.Ed.2d 1137 (1968). ⁶

The conclusion that under ERISA oral modifications of employee benefit plans are impermissible is buttressed by the observation that Congress expressly prohibited informal written amendments of ERISA plans. ERISA requires that each plan shall "provide a procedure for amending such plan, and for identifying the persons who have authority to amend the plan." 29 U.S.C. Sec. 1102(b)(3). By...