Petrilli v. Drechsel, 89-3170

• Decision Date: 20 August 1990
• Docket Number: No. 89-3170,89-3170
• Citation: 910 F.2d 1441
• Parties: 12 Employee Benefits Ca 2641 Felix PETRILLI, Plaintiff-Appellant, v. David B. DRECHSEL, as Plan Administrator of the Inland Steel Company Pension Plan, and Julius M. Scheffers, as Plan Administrator of the Inland Steel Company Severance Plan, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1441

910 F.2d 1441

12 Employee Benefits Ca 2641

Felix PETRILLI, Plaintiff-Appellant, v. David B. DRECHSEL, as Plan Administrator of the Inland Steel Company Pension Plan, and Julius M. Scheffers, as Plan Administrator of the Inland Steel Company Severance Plan Defendants-Appellees.

No. 89-3170.

United States Court of Appeals Seventh Circuit.

Argued June 13, 1990.

Decided Aug. 20, 1990.

Daniel J. Fumagalli, Chicago, Ill., for plaintiff-appellant.

Lawrence L. Summers, Michael I. Richardson, Vedder, Price, Kaufman & Kammholz, Chicago, Ill., for defendants-appellees.

Before CUMMINGS, COFFEY and RIPPLE, Circuit Judges.

CUMMINGS, Circuit Judge.

The plaintiff, Felix Petrilli, worked for the Inland Steel Company from 1960 until 1986, when he left the company incident to a major corporate reorganization. Following his departure he applied for and was denied pension and severance benefits. The defendants, the administrator of Inland's pension plan and the administrator of Inland's severance plan, each determined that Petrilli had left the company voluntarily and was therefore ineligible for severance or pension benefits. Petrilli then brought this suit in United States District Court alleging wrongful denial of benefits and breach of fiduciary duty against the plan administrators under Sections 502(a)(1)(B) and (a)(3) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Secs. 1132(a)(1)(B) and (a)(3), ¹ and breach of contract against Inland under Illinois law. The district judge dismissed the breach of fiduciary duty and contract claims ² and granted summary judgment to the administrators on the wrongful denial of benefits claims. Petrilli appeals from the district court's dismissal of the breach of fiduciary duty claims and also contends that the district court erroneously applied the "arbitrary and capricious" standard in evaluating the administrators' decisions to deny Petrilli's applications for severance and pension benefits.

We affirm the dismissal of the breach of fiduciary duty claims and remand the denial of benefits claims for reconsideration under a de novo standard of review.

I. Background

In 1985 Inland took steps to implement a reorganization that was to include the elimination of a substantial number of positions at its corporate headquarters. As part of that initiative, defendant Julius Scheffers, who was both General Manager of Human Resources and Development and Administrator of the Inland Severance Plan, asked Petrilli, who was then Director of Corporate Health Services, to prepare plans for the restructuring of the Corporate Health Services Department. Petrilli was told that the restructuring plan should include consideration of whether his own position should be eliminated. Petrilli's plan recommended, among other things, that his duties be transferred to the position of Manager, Human Resources Planning, and that he assume that position. This recommendation was accepted and the transfer occurred. In this new position Petrilli continued to report to Scheffers, and the new position continued to be targeted for possible elimination.

During this period, Scheffers, defendant David Drechsel, who was Manager of Retiree Benefits as well as Administrator of the Inland Pension Plan, and Petrilli were all under the supervision of O. Robert Nottlemann, Vice Chairman of Inland. On February 14, 1986, Petrilli met with Vice Chairman Nottlemann. Accounts of that meeting vary, but at oral argument before this Court the defendants' attorney agreed to be bound by the account of the meeting presented in the plaintiff's affidavit. ³ That affidavit, at paragraphs 11-15, contains the following account of the events leading to Petrilli's departure from Inland. During January 1986, Petrilli was solicited by an executive search firm, interviewed, screened, and subsequently offered a position outside Inland on February 13, 1986. In light of his recent re-assignment and the possibility that his position at Inland would be terminated, Petrilli expressed interest in the offer, but indicated that he would have to discuss the matter with his supervisors at Inland. Consequently he arranged a meeting with Vice Chairman Nottlemann on February 14, 1986. At that meeting, Petrilli told Nottlemann of the offer. Nottlemann confirmed that a detailed study was underway concerning the reorganization of the Human Resources area. Nottlemann further stated that William Gray (another human resources supervisor) and Julius Scheffers had been assigned to this project, and that as a result of the study Petrilli's department would be eliminated, as would his job. Nottlemann made no assurances that Petrilli would be re-assigned or that any re-assignment would entail job responsibilities similar to those Petrilli then exercised. According to his affidavit, Petrilli interpreted Nottlemann's statements to mean that he had no choice but to accept the job offer because termination from Inland was imminent. Petrilli then asked Nottlemann about his severance benefits, to which Nottlemann replied, "You have resigned. Severance benefits are only for those who are involuntarily let go." Upon Petrilli's request, Nottlemann said he would reconsider this position, and promised that Petrilli would be treated no differently than other employees who had recently left Inland.

Shortly thereafter Petrilli took part in the customary formal sign-out process for employees leaving Inland. Petrilli contends that a form labelled "Termination Clearance" was altered after he signed it, by erasing a check mark in a box next to the word "retirement" and inserting a check mark in a box next to the word "resignation." In addition, Petrilli contends that when he refused to check a box marked "quit" on another form, Drechsel checked the "quit" box for him over his objections.

During this period Petrilli was aware that a former employee named Warren Bacon had left the company voluntarily but had received full severance and pension benefits. Later, another former employee, Phil Keckich, told Petrilli that upon learning of the planned termination of his position, Keckich had been permitted to leave the company by way of "layoff," so as to preserve his severance benefit. Approximately a month after leaving Inland, Petrilli arranged to meet with the Chairman of Inland Steel, Frank W. Luerssen, to discuss Petrilli's departure from Inland and to bring to Luerssen's attention the allegedly more favorable severance arrangements offered to other departing employees. A short meeting with Luerssen took place on April 30, 1986. In a letter dated May 16, 1986, Luerssen advised Petrilli that he had reviewed Petrilli's situation and determined that he had been "handled fairly and consistently with policy and practice."

On May 29, 1987, Petrilli formally applied for a Rule-of-65 pension benefit and a severance benefit. ⁴ The Rule-of-65 benefit is available to otherwise qualified employees "whose continuous service [has been] broken by reason of layoff or disability * * * and who has not been offered suitable long-term employment." Inland Pension Plan, Section 2.8. The severance benefit is available to "employees who are terminated as a result of a permanent shutdown of a plant or part of a plant, or a permanent reduction in workforce (job elimination)." Inland Severance Allowance Policy at 1.

Defendants Scheffers and Drechsel, acting in their capacities as severance and pension plan administrators respectively, denied Petrilli's request for severance and Rule-of-65 pension benefits on the grounds that Petrilli had resigned and therefore had not been laid off or terminated. According to their affidavits, Scheffers and Drechsel based their denials on the notations on Scheffers' February 28, 1986, memorandum (see supra note 3), the investigation and conclusions of Chairman Luerssen as reflected in his May 16, 1986, letter to Petrilli, and their reading of the language of the respective benefit plans. Neither Scheffers nor Drechsel claimed to have considered the allegedly disparate treatment of any other former employees nor Petrilli's allegations of the alterations in his sign-out documents.

On September 1, 1987, Petrilli filed a request for a review of the denial. Letters dated October 30, 1987, from Scheffers and Drechsel, informed Petrilli that a review had been conducted and that the denials were affirmed. Petrilli filed the present suit on July 14, 1988. After the suit was filed the Supreme Court handed down its decision in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), which altered the prevailing standard of federal district court review of plan administrators' denials of ERISA benefits. The district court determined that the denial of Petrilli's benefits did not fall within the scope of the Bruch rule. The court therefore evaluated the administrators' decisions under the pre-Bruch arbitrary and capricious standard of review and granted the defendants' motion for summary judgment. Petrilli's primary contention on appeal is that the district court's failure to apply the Bruch standard resulted in an erroneous grant of summary judgment in favor of the defendants. Petrilli therefore asks that the case be remanded for reconsideration under Bruch.

II. Discussion

A. Wrongful Denial of Benefits

1. Bruch

ERISA does not specify a standard of review to be used by the district courts in evaluating benefit denials by plan administrators. Prior to the Supreme Court's opinion in Bruch the majority of the circuits accorded great deference to the decisions of benefit plan administrators, reversing their decisions only if they were "arbitrary and capricious." See, e.g., Pokratz v. Jones Dairy Farm, 771 F.2d 206, 208 (7th Cir.1985), and cases cited therein. In 1986, a case came before the Third Circuit Court of Appeals in which the employer, Firestone Tire & Rubber Company, was itself the administrator of an unfunded...