Reynolds v. Bethlehem Steel Corp., Civ. A. No. M-83-115.

• Decision Date: 30 July 1984
• Docket Number: Civ. A. No. M-83-115.
• Citation: 619 F. Supp. 919
• Parties: James J. REYNOLDS v. BETHLEHEM STEEL CORPORATION, et al.
• Court: U.S. District Court — District of Maryland

619 F. Supp. 919

James J. REYNOLDS v. BETHLEHEM STEEL CORPORATION, et al.

Civ. A. No. M-83-115.

United States District Court, D. Maryland.

July 30, 1984.

COPYRIGHT MATERIAL OMITTED

John O. Hennegan and Romadka, Gontrum, Hennegan & Foos, Baltimore, Md., for plaintiff.

Douglas D. Connah, Jr., Barbara E. Schlaff, Elizabeth C. Honeywell and Venable, Baetjer & Howard, Baltimore, Md., for defendants.

MEMORANDUM AND ORDER

JAMES R. MILLER, Jr., District Judge.

The plaintiff, James J. Reynolds, initiated this action against seven defendants¹ alleging, inter alia, violations of the Employee Retirement Income Security Act, 29 U.S.C. § 1132 (ERISA). Bethlehem Steel, one of the defendants, filed a motion to dismiss which was granted as to the common law breach of contract and fraud claims. This court determined that those claims were preempted by ERISA² (Paper No. 18).

The defendants (Paper No. 20) and the plaintiff (Paper No. 21) have filed motions for summary judgment to which each party has replied.³ No hearing is necessary on the motions (Local Rule 6(E)).

I. Factual Background

The plaintiff, an employee of Bethlehem Steel Corporation from May 12, 1942 to January 31, 1982, by virtue of his employment and participation in the pension plan, became entitled to certain benefits under the Pension Plan of Bethlehem Steel Corporation (The Plan). Under the terms of The Plan, an employee can, under certain circumstances, elect to receive a lump-sum payment at the time of retirement in lieu of periodic payments.⁴

Prior to retiring, the plaintiff filed an application for lump sum benefits. Under the terms of The Plan, "a lump sum payment may be made to a participant only ... if the application is accompanied by evidence, satisfactory to the General Pension Board of the good health of the participant ..." (Paper No. 5, Attachment, Pension Plan § 3.12). Mr. Reynolds had provided the appropriate medical documents at the time of his application (Paper No. 20, Kempken affidavit ¶ 24, and Ex. F). Those documents showed that Mr. Reynolds suffered from carcinoma of the vocal cord in 1977, but his doctor had stated he was in good health at the time of his application (Paper No. 20, Ex. F).

Mr. David Kempken, Secretary to the General Pension Board, sent the plaintiff's medical records for evaluation to Dr. John D. Bealer, Bethlehem's Corporate Medical Director (Paper No. 20, Kempken affidavit, ¶ 25). On December 12, 1981, Dr. Bealer informed Mr. Kempken that the plaintiff was not in good health⁵ for the purpose of the lump sum pension payment (Paper No. 20, Ex. G). On December 23, 1981, the plaintiff received a mistakenly sent form letter stating his lump sum payment was approved (Paper No. 20, Ex. H).

On January 12, 1982, Mr. Reynolds applied for his pension (Paper No. 20, Reynolds Dep. at 59), and he retired on January 31, 1982 (Paper No. 20, Reynolds Dep. at 29). The error, granting his lump sum payment, was discovered during the processing of Mr. Reynolds' pension papers. He was notified by David Kempken on February 9, 1982, that based on the medical information he had submitted he was not in good health for the purposes of a lump sum pension distribution (Paper No. 20, Ex. I). That letter informed Mr. Reynolds that he could request review by the General Pension Board (Paper No. 20, Ex. I).

On February 17, 1982, he wrote to Mr. Kempken indicating his disagreement and attaching a copy of a letter from his physician stating that there was no evidence of cancer at the present time (Paper No. 20, Reynolds Dep. Ex. 7). The plaintiff requested a review of the lump sum payment decision.

Pursuant to Plan regulations governing resolutions of disputes of good health, (Paper No. 20, Ex. D, Lump Sum Regulations at 6-7), Mr. Kempken sent Mr. Reynolds' medical records to an independent agency, Aetna Life Insurance Co., for review to determine eligibility for the lump sum payment (Paper No. 20, Kempken affidavit, ¶ 13).

On March 9, 1982, Dr. Malcolm Hunt of Aetna's Medical Department (Aetna) by letter informed Dr. John Bealer of Bethlehem's Medical Department that Mr. Reynolds did not qualify medically for the lump sum payment (Paper No. 20, Ex. L). Dr. Hunt's letter, however, requested further pathology and chemotherapy reports, a review of which "might result in allowing coverage ..." (Paper No. 20, Ex. L).

David Kempken then wrote to Mr. Reynolds requesting that he provide that medical information (Paper No. 20, Ex. M). The plaintiff's doctor submitted the requested pathology and chemotherapy reports to Kempken who forwarded them to Aetna (Paper No. 20, Ex. N).

Based on the additional medical information, Aetna again concluded that Mr. Reynolds was not eligible for lump sum payment (Paper No. 20, Ex. P).

On April 2, 1982, Mr. Kempken advised the plaintiff that he was not eligible for lump sum payment and that he would receive his pension in the regular monthly payments (Paper No. 20, Ex. Q). Soon thereafter, the plaintiff requested a detailed statement of the reasons for the decision that he was not in good health (Paper No. 1, Ex. H). Mr. Kempken responded that "for a further explanation as to the medical reasons for that determination you should have your personal physician write or phone Dr. J.D. Bealer ..." (Paper No. 1, Ex. I).

The plaintiff's doctor wrote to Dr. Bealer on April 28, 1982, requesting "favorable consideration of Mr. Reynolds ..." (Paper No. 1, Ex. J). That letter was answered by David Kempken indicating that Dr. Bealer had reviewed the information in the plaintiff's doctor's letter, but that it provided no reason to alter the decision to deny lump sum payment (Paper No. 1, Ex. K). The plaintiff's doctor again wrote to Dr. Bealer. This time he requested specific reasons why Mr. Reynolds was considered to be not in good health (Paper No. 1, Ex. L).

Finally, plaintiff's counsel wrote to Mr. Kempken demanding the lump sum payment. In response to that letter, in October, 1982, Kathleen Mills, General Counsel for Bethlehem Steel, set forth the history of Mr. Reynolds' case and extended to Mr. Reynolds the option of reinstatement to employment without prejudice to his right to retire voluntarily at a time in the future (Paper No. 20, Attachment A to Memorandum). Mr. Reynolds declined that offer of reinstatement (Paper No. 20, Attachment B to Memorandum) and further declined to receive his monthly pension payments (Paper No. 20, Reynolds Dep. at 33-35).

II. Legal Analysis

On cross motions for summary judgment, all parties assert that they are entitled to summary judgment on the issues of 1) whether the "good health" standard used by The Plan violates public policy; and 2) whether the denial of the lump sum payment was arbitrary and capricious. In addition, the plaintiff requests summary judgment on the basis of equitable estoppel. Finally, the defendants request summary judgment on the issues of whether Bethlehem Steel and certain other defendants are proper parties to this suit and on whether the ERISA notice requirements, 29 U.S.C. § 1133, are applicable in this action.

A. Public Policy

The "good health" standard adopted by The Plan defines good health as "a state of physical and mental well-being from a medical point of view that includes the absence of a disease or condition that, from a medical standpoint, may result in a significant shortening of life expectancy." (Paper No. 20, Ex. B & Ex. C at 2 # 7). According to the defendants, The Plan adopted the good health standard as one method of assuring the fiscal soundness of The Plan.

"ERISA's purpose is to secure guaranteed pension payments to participants by insuring the honest administration of fiscally sound plans." Pompano v. Michael Schiavone & Sons, Inc., 680 F.2d 911, 914 (2nd Cir.), cert. denied, 459 U.S. 1039, 103 S.Ct. 454, 74 L.Ed.2d 607 (1982). Reliance on actuarial assumptions in funding The Plan is required. See 29 U.S.C. § 1082(c)(3); H.R.Rep. No. 93-1280, 93rd Cong., 2d Sess., reprinted in 1974 U.S. Code Cong. & Ad.News 4639, 5038, 5065. The defendants aver that the good health standard was adopted based on actuarial assumptions built into the funding of The Plan (Paper No. 20, Kempken affidavit, at 2-3, ¶¶ 6 & 10). That standard prevents retirees who would not achieve the same longevity as the average Bethlehem pensioner, but whose shorter lives had been factored into The Plan funding method, from taking assets from The Plan which were not accounted for under the funding assumptions and thereby depleting The Plan's assets (Paper No. 20, Kempken affidavit at 2-3, ¶ 6).

Despite the plaintiff's contention that the good health standard amounts to "cold-blooded wagering on the part of The Plan" (Paper No. 21 at 6), and that it creates a discriminatory scheme, this court is convinced that the standard, on its face, does not violate public policy. In fact, it conforms to the purpose behind ERISA to secure fiscally sound plans.

In Pompano v. Michael Schiavone & Sons, Inc., the Second Circuit noted the actuarial implications of granting lump sum payments indiscriminately: 1) Plan assets might have to be sold to pay lump sum amounts; 2) free availability could complicate long term investment strategy; 3) such payments could invalidate long term mortality assumptions. 680 F.2d at 915.

The requirement that a retiree demonstrate good health appears to this court to be related to the actuarial assumptions upon which The Plan funding is based and appears designed to contribute to the fiscal soundness of The Plan.

B. Application of the Standard as Arbitrary and Capricious

The plaintiff asserts that the decision to deny Mr. Reynolds' lump sum payment request was arbitrary and capricious because: 1) the defendants first approved but then rescinded the lump sum payment; 2) the defendants failed to develop fully the evidence regarding the plaintiff's health; and 3) the evidence supported a finding of good health.

The plaintiff first argues that...