Paris v. Profit Sharing Plan for Emp. of Howard B. Wolf, Inc.

• Decision Date: 17 February 1981
• Docket Number: No. 79-2286,79-2286
• Citation: 637 F.2d 357
• Parties: 2 Employee Benefits Ca 1244 Ruetta PARIS, Mildred Cawthon and Marge Kane, Plaintiffs-Appellants, v. PROFIT SHARING PLAN FOR EMPLOYEES OF HOWARD B. WOLF, INC. and Eugene K. Friesen, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 357

637 F.2d 357

2 Employee Benefits Ca 1244

Ruetta PARIS, Mildred Cawthon and Marge Kane, Plaintiffs-Appellants, v. PROFIT SHARING PLAN FOR EMPLOYEES OF HOWARD B. WOLF, INC. and Eugene K. Friesen, Defendants-Appellees.

No. 79-2286.

United States Court of Appeals Fifth Circuit.

Feb. 17, 1981.

Rehearing Denied March 24, 1981.

James M. Hurst, Arlington, Tex., Dean Carlton, Dallas, Tex., for plaintiffs-appellants.

Tobolowsky & Schlinger, N. Henry Simpson, III, Dallas, Tex., for defendants-appellees.

Appeal from the United States District Court for the Northern District of Texas.

Before RUBIN, HENDERSON and REAVLEY, Circuit Judges.

HENDERSON, Circuit Judge:

The ultimate issue in this appeal is whether employees who worked for Howard B. Wolf, Inc. or Marcy Lee, Inc. on June 1, 1973, but who resigned or were terminated prior to February 21, 1974, are entitled to benefits under a new profit sharing plan which was adopted on the latter date. The resolution of this issue entails extensive consideration of our jurisdiction in such cases. We conclude that we have jurisdiction, and affirm the district court's determination that the appellants are not entitled to benefits.

In 1960 Howard B. Wolf, Inc. (hereinafter referred to as "the employer") established a "Trusteed Retirement Plan for Employees of Howard B. Wolf, Inc." (hereinafter referred to as "the Retirement Plan"). The employer created the defendant "Profit Sharing Plan for Employees of Howard B. Wolf, Inc." (hereinafter referred to as "the Profit Sharing Plan") on February 21, 1974. The Profit Sharing Plan had a retroactive effective date of June 1, 1973, and the Retirement Plan was retroactively terminated as of that time. "The terms of the Profit-Sharing Plan provided, inter alia, that benefits which had been held under the ... Retirement Plan for Participants under the ... Retirement Plan would be transferred on a fully vested basis to the Profit-Sharing Plan in individual 'former retirement plan accounts' which would be established under the Profit-Sharing Plan." Stipulated Facts P 4.

The plaintiffs are the class of those who were employed by Howard B. Wolf, Inc. and its subsidiary on June 1, 1973, whose employment had been terminated before the adoption date of February 21, 1974. They sued the Profit Sharing Plan and its trustee to recover benefits they claimed under the Profit Sharing Plan. They also allege that during the summer of 1975 certain named plaintiffs requested information about the Profit Sharing Plan, and that the defendant trustee failed to respond within thirty days, in violation of 29 U.S.C.A. § 1132(c). Jurisdiction is predicated on § 502(e) of the Employee Retirement Income Security Act of 1974 (hereinafter referred to as "ERISA"), 29 U.S.C.A. § 1132(e)(1). ¹

The defendants deny that the plaintiffs were entitled to benefits. They do admit that some plaintiffs sought plan information in 1975, but assert that all requests were answered in such a manner as to make clear the claimants were not entitled to benefits. The defendants also dispute ERISA jurisdiction.

All parties filed motions for summary judgment, pursuant to stipulated facts. After the district court notified the parties that the plaintiffs' motion would be granted, the defendants moved the court to reconsider. ² The plaintiffs failed to respond and, on April 3, 1978, the district court granted summary judgment to the defendants without stating reasons for its decision.

A participant in a benefit plan may bring a civil action to recover benefits. 29 U.S.C.A. § 1132(a)(1)(B). State and federal trial courts have concurrent jurisdiction over such suits. 29 U.S.C.A. § 1132(e)(1). ERISA supersedes "all state laws" relating to covered benefit plans, effective January 1, 1975. 29 U.S.C.A. § 1144(a). It further provides that this "section shall not apply with respect to any cause of action which arose, or any act or omission which occurred, before January 1, 1975." 29 U.S.C.A. § 1144(b)(1).

A congressional grant of jurisdiction to the federal courts not based on the citizenship of a party can only encompass "Cases, in Law and Equity, arising under (the) constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority." U. S. Const. art. III, § 2, cl. 1. In Association of Westinghouse Salaried Employees v. Westinghouse Electric Corp., 348 U.S. 437, 75 S.Ct. 489, 99 L.Ed. 510, (1955), Justice Frankfurter, speaking for a plurality, said "(i)f ... Congress merely furnished a federal forum for enforcing the body of contract law which the States provide, a serious constitutional problem would lie at the threshold of jurisdiction," 348 U.S. at 442, 75 S.Ct. at 491, 99 L.Ed. at 515; that is, the case would not be one "arising under" federal law.

With Westinghouse in mind, the First Circuit Court of Appeals reads § 1144 as limiting § 1132 jurisdiction to causes of action originating after January 1, 1975. Cowan v. Keystone Employee Profit Sharing Fund, 586 F.2d 888 (1st Cir. 1978). See also Martin v. Bankers Trust Co., 565 F.2d 1276, 1278 (4th Cir. 1977). Contra, Reiherzer v. Shannon, 581 F.2d 1266 (7th Cir. 1978) (CRITICIZED IN COWAN, 586 F.2D AT 894 N. 13). in post aRgument briEFS The defendants strongly urge that Cowan and Martin require a dismissal of this case for lack of jurisdiction. ³

Because of the difficult constitutional problem that would accompany a conclusion contrary to that reached in Cowan, and because ERISA sets a certain date on which federal law supersedes that of the states, see 29 U.S.C.A. § 1144(b)(1), it falls our lot to determine precisely when the cause of action arose and what acts of the defendants furnished the basis for suit. Assuming Cowan correctly blazed what the court acknowledged was a "tortuous path" leading to the conclusion that ERISA jurisdiction is restricted to cases arising after January 1, 1975, ⁴ we find that the district court had jurisdiction in this case. ⁵

The defendants assert that the governing date is February 21, 1974, when the defendant plan was adopted. They say that any acts or omissions for which they are responsible occurred before the beginning of 1975. They also insist that a cause of action for denial of pension benefits accrues not upon denial of benefits, but rather when the claimant becomes entitled to those benefits. If either position is correct ⁶ we would face the "serious constitutional problem" noted in Westinghouse. Consequently, we consider these two issues separately.

The dilemma stems from the Profit Sharing Plan's retroactive effective date. Section 2.1 of the Profit Sharing Plan provides that "(e)ach employee who is a participant in the trusteed retirement plan will become a participant in the (profit sharing) plan as of the effective date of the plan." In their trial court stipulation, the parties agreed that the controlling issue is whether the plaintiffs were participants "by virtue of the retroactive provisions" of the Profit Sharing Plan. Whatever its meaning may be, no one can, and no one does, seriously deny that the adoption of the Profit Sharing Plan resulted in substantial confusion or that the status of the plaintiffs was fraught with uncertainty.

The defendants maintain that the conduct surrounding adoption of the Profit Sharing Plan must be judged by the legal standards of the time, not by those substituted by ERISA. This is true, but the plaintiffs do not maintain the contrary. The January 1, 1975, effective date of 29 U.S.C.A. § 1144 means that the defendants cannot be held liable for damages arising from acts committed in 1974 so long as those acts comported with state law as it then existed. See also Cowan; Martin.

The plaintiffs do not rest their case on acts or omissions occurring in 1974 (viz. the suit does not challenge the adoption of the Profit Sharing Plan). ⁷ The action the plaintiffs protest, and the one we must review, is the trustee's 1975 interpretation of the Profit Sharing Plan. Only with that decision did it become clear that the plaintiffs would be denied benefits. ⁸ This determination took place in 1975, and, thus, was governed by 29 U.S.C.A. § 1144, and it follows that the federal courts have § 1132 jurisdiction to examine its validity.

The defendants next urge that even if an "essential act" occurred in 1975, the cause of action (if there is one) arose on the adoption date. They reason that a cause of action arises not when an employee is denied benefits, but when he becomes eligible for them. Knauss v. Gorman, 433 F.Supp. 1040, 1042 (W.D.Pa.1977), vacated 583 F.2d 82 (3d Cir. 1978); Keller v. Graphic Systems, 422 F.Supp. 1005, 1008 (N.D.Ohio 1976).

The plaintiffs respond that the cause of action came into existence when the trustee denied the plaintiffs' requests for benefits. There is ample support for that proposition. Cowan, 586 F.2d at 895; Reiherzer v. Shannon, 581 F.2d 1266, 1272 (7th Cir. 1978). If the plaintiffs are right, the cause arose in 1975, and this court has jurisdiction even under the rule announced in Cowan.

According to the terms of the Profit Sharing Plan:

The initial distribution date of a participant who terminates his employment or has his employment terminated by the Employer for any reason other than those specified in (the previous sections, which cover terminations by reasons of retirement, disability or death), shall be the date of termination of his employment even though distribution may be made as of a later date.

Section 6.1(B). ⁹ The defendants use this provision to further support their assertion that the termination date is controlling. Admittedly, if this argument is correct there would be no jurisdiction.

A cause of action accrues when the events upon which it is based occur. See, e. g., Atkins v. Crosland, 417 S.W.2d 150 (Tex.1967). The distinction between eligibility date and the date of denial of benefits was not relevant in any of the cases cited by the defendants...