Sedman v. Michigan Bell Telephone Co.

• Decision Date: 01 August 1983
• Docket Number: Docket No. 62555
• Citation: 336 N.W.2d 868,125 Mich.App. 761
• Parties: Millie SEDMAN, Sylvia Sedman, and Miriam Sedman, a minor, by her guardian Millie Sedman, and Millie Sedman, an individual, Plaintiffs-Appellees, v. MICHIGAN BELL TELEPHONE COMPANY, a Michigan corporation, Defendant-Appellant. 125 Mich.App. 761, 336 N.W.2d 868
• Court: Court of Appeal of Michigan — District of US

Page 868

336 N.W.2d 868

Millie SEDMAN, Sylvia Sedman, and Miriam Sedman, a minor, by

her guardian Millie Sedman, and Millie Sedman, an individual, Plaintiffs-Appellees, v. MICHIGAN BELL TELEPHONE COMPANY, a Michigan corporation,

Defendant-Appellant.

Docket No. 62555.

125 Mich.App. 761, 336 N.W.2d 868

Court of Appeals of Michigan.

Submitted Jan. 18, 1983.

Decided May 17, 1983.

Released for Publication Aug. 1, 1983.

[125 MICHAPP 764] Kelman, Loria, Downing, Schneider & Simpson by Ann Curry Thompson, Detroit, for plaintiffs-appellees.

Nancy L. Davis, Detroit, for defendant-appellant.

Before T.M. BURNS, P.J., and MAHER and HOOD, JJ.

T.M. BURNS, Presiding Judge.

On January 25, 1982, the trial judge granted plaintiffs' motion for summary judgment and denied defendant's motion for summary judgment. Defendant appeals as of right.

In 1972, Morton Sedman, a management employee for defendant for the prior 25 years, along with his wife, plaintiff Millie Sedman, sued defendant for medical malpractice. Allegedly, defendant had failed to diagnose Morton's cancer. On June 26, 1972, Morton Sedman died. The suit was settled in 1976 for $200,000.

Eventually, plaintiff Millie Sedman and plaintiffs Sylvia and Miriam Sedman (Morton and Millie's daughters) requested benefits under defendant's "Plan for Employees' Pensions, Disability Benefits and Death Benefits". Section 4, paragraph 3(c) of the provisions of the plan states:

"In the event of the death on or after October 1, 1971, prior to retirement of an employee who is entitled to retire at his own request as specified in Paragraph 1(a) of this Section, and who has a surviving spouse, such surviving spouse shall be entitled to receive the amounts payable to the annuitant as if such employee had been retired on service pension, for reasons other than total disability as a result of sickness or of injury, [125 MICHAPP 765] on the date of his death. Except as provided in this Paragraph 3(c), no pension payment shall be made to the annuitant of an employee if such employee dies prior to retirement."

Section 7, paragraph 2 states:

"In the event of the death of any employee, occurring on or after April 1, 1967, and resulting from sickness as defined in Paragraph 1 of Section 6 of these Regulations, hereinafter referred to as death by sickness, there may be paid (and in the circumstances described in sub-paragraph 4(a) of this Section, there shall be paid) a Sickness Death Benefit which shall not be in excess of Five Hundred Dollars ($500), or twelve (12) months' wages, whichever is greater.

"Payment of the Sickness Death Benefit, subject to the conditions imposed in Paragraph 5 of this Section and elsewhere in these Regulations, shall be made to the employees' beneficiaries, as provided in Paragraph 4 of this Section."

Section 7, paragraph 4(a) states:

"In the event of death on or after October 1, 1971, by accident the maximum Accident Death Benefit specified in Paragraph 1 of this Section, or in the event of death by sickness on or after the above date, the maximum Sickness Death Benefit specified in Paragraph 2 of this Section, shall be paid, subject to the provisions of sub-paragraph (c) of this Paragraph 4, to the spouse of the deceased employee if living with him at the time of his death, or to the child or children of the deceased employee under the age of eighteen years (or over that age if physically or mentally incapable of self-support) who were actually supported in whole or in part by the deceased employee at the time of his death. If the employee leaves both spouse and a child or children, as here described, the Committee, in its discretion, may pay the Death Benefit to or for any one or more of such possible beneficiaries in such portions as it may determine."

[125 MICHAPP 766] However, defendant refused plaintiffs' claim stating that because plaintiffs had sued for malpractice they were not entitled any benefits under the plan. Section 8, paragraph 25 states:

"Should claim other than under these Regulations be presented or suit brought against the Company or against any other company with which arrangements have been made, directly or indirectly, for interchange of benefit obligations, as described in Section 9 of these Regulations, for damages on account of injury or death of an employee, nothing shall be payable under these Regulations on account of such injury or death except as provided in Paragraph 26 of this Section; provided, however, that the Committee may, in its discretion and upon such terms as it may prescribe, waive this provision if such claims be withdrawn or if such suit be discontinued."

Section 8, paragraph 26 states:

"In case any judgment is recovered against the Company or any settlement is made of any claim or suit on account of the injury or death of an employee, and the amount which would otherwise have been payable under these Regulations is greater than the amount paid on account of such judgment or settlement, the difference between the two amounts may, in the discretion of the Committee, be distributed to the beneficiaries who would have received benefits under these Regulations, except that no party to any such suit against the Company shall be entitled to any portion thereof."

The trial court held that section 8, paragraphs 25 and 26 constituted an impermissible forfeiture of the pension rights guaranteed in section 4 because such a forfeiture violates public policy. On the other hand, section 8, paragraphs 25 and 26 constituted a permissible election of remedy provision when applied to section 7. However, because these two paragraphs had just been declared [125 MICHAPP 767] void, the trial court declared that plaintiffs were entitled to recover under both sections 4 and 7. Defendant appeals only the decision that the two paragraphs constitute an impermissible forfeiture. ¹

We agree with the trial judge. In reviewing a pension committee's decision, this Court's review is limited to whether or not the committee's decision is arbitrary or capricious, made in bad faith, not supported by substantial evidence, or erroneous as a matter of law. Harris v. New Haven Foundry, Inc., 120 Mich.App. 629, 327 N.W.2d 540 (1982). In this case, the committee's decision was wrong as a matter of law.

Paragraphs 25 and 26 of section 8 violate public policy. Public policy is derived from constitutions, statutes, and judicial proceedings. St. Helen Shooting Club v. Mogle, 234 Mich. 60, 71-72, 207 N.W. 915 (1926). Even though this case is not governed by ERISA, we find it helpful. In enacting it, Congress recognized that:

"[T]he growth in size, scope and numbers of employee benefit plans in recent years has been rapid and substantial; * * * the continued well-being and security of millions of employees and their dependents are directly affected by these plans; * * * they have become an important factor affecting the stability of employment and the successful development of industrial relations * * *." 29 U.S.C. Sec. 1001(a).

Pension plans constitute enforceable contracts. Psutka v. Michigan Alkali Co., 274 Mich. 318, 264 N.W. 385 (1936); Couch v. Administrative Committee of the Difco Laboratories Inc. Salaried Employees Profit Sharing Trust, 44 Mich.App. 44, 205 N.W.2d [125 MICHAPP 768] 24 (1972). Forfeiture provisions in pension plans are to be liberally interpreted in favor of the employee. Hart v. United Brotherhood of Carpenters & Joiners of America Local No. 626, 352 A.2d 423 (Del.Super.1976); Paddock Pool Construction Co. v. Monseur, 23 Ariz.App. 451, 533 P.2d 1188 (1975). In fact, public policy requires that pension plans be construed, where possible, to avoid forfeiture. Hoefel v. Atlas Tack Corp., 581 F.2d 1 (CA1, 1978), cert. den. 440 U.S. 913, 99 S.Ct. 1227, 59 L.Ed.2d 462 (1979). Furthermore, ERISA has outlawed certain forfeitures. 29 U.S.C. Sec. 1053. ERISA's general objective is to increase the number of people in such plans and to assure that those who are presently participating not lose benefits through unduly restricted forfeiture provisions. In re C D Moyer Co. Trust Fund, 441 F.Supp. 1128 (E.D.Pa.,1977), aff'd 582 F.2d 1273 (CA3, 1978).

The court in Southwestern Bell Telephone Co. v. Gravitt, 551 S.W.2d 421, 425 (Tex.Civ.App.,1976), ² was faced with the same question as this case. In ruling that a contract very similar to the present one violates public policy, the court stated:

"It appears to be well settled that an employer cannot include in a contract of employment a provision relieving him of liability for his wrongful conduct which results in the death of his employee."

In effect, defendant is immunizing itself from its own wrongdoing. The way the contract reads, if one of defendant's employees were to be discriminated against by defendant because of race or religion or even a handicap, the employee would be able to enforce his rights in court only if he decides to forego his pension. Such a result is [125 MICHAPP 769] clearly unjust. Furthermore, what is the difference between a clause which forfeits pension rights and a clause which states that an employee forfeits his right to wages if he has sued the employer for some harm not directly related to the wages themselves? No one would doubt that an employment contract provision providing for the forfeiture of wages upon the bringing of a suit would be unconscionable.

Defendant, on the other hand, argues that the plan is not even a pension plan. Under this plan the benefit is paid to the employee's spouse only when an active employee dies, the employee at the time of his death met certain age and service requirements, and the employee is survived by a spouse who meets certain plan requirements. However, this plan really is a pension. First, the plan itself describes the benefits provided under section 4 as a "service pension". In fact, the full title of the plan is "Plan for Employees' Pensions, Disability Benefits and Death Benefits" (emphasis added)....