Souza v. TRUSTEES OF WESTERN CONFERENCE, ETC.

• Decision Date: 16 August 1978
• Docket Number: No. C-73-1589 WHO.,C-73-1589 WHO.
• Citation: 460 F. Supp. 843
• Parties: Frank J. SOUZA, for himself and on behalf of all others similarly situated, Plaintiffs, v. The TRUSTEES OF the WESTERN CONFERENCE OF TEAMSTERS PENSION TRUST, collectively, and as constituted from time to time, Defendants.
• Court: U.S. District Court — Northern District of California

460 F. Supp. 843

Frank J. SOUZA, for himself and on behalf of all others similarly situated, Plaintiffs, v. The TRUSTEES OF the WESTERN CONFERENCE OF TEAMSTERS PENSION TRUST, collectively, and as constituted from time to time, Defendants.

No. C-73-1589 WHO.

United States District Court, N. D. California.

August 16, 1978.

R. J. Wolf, San Rafael, Cal., John A. Cochrane, Cochrane & Bresnahan, St. Paul, Minn., for plaintiffs.

Pillsbury, Madison & Sutro, Noble K. Gregory, Dennis K. Bromley, C. Douglas Floyd, San Francisco, Cal., for defendants.

OPINION

ORRICK, District Judge.

Plaintiff Souza, a member of the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America ("Teamsters"), applied to defendants, The Trustees of the Western Conference of Teamsters Pension Trust ("Trustees"), for retirement benefits. When his application was denied, he filed this class action, alleging that the pension plan's age requirement violated Section 302(c)(5) of the Labor Management Relations Act of 1947 ("LMRA"), 29 U.S.C. § 186(c)(5). This case is now before the Court on defendants' motion for summary judgment. For the reasons that follow, defendants' motion is denied.

I.

The terms of the Teamsters' pension plan specify that before an employee is eligible for vested retirement benefits he must have worked a minimum of 15 years of service and 3,000 covered hours,¹ and must have attained a requisite age of 52² before a break in service.³ If an employee fulfills these requirements, his pension rights will vest and he becomes eligible to receive pension payments at age 60. Plaintiff, at the time of application, had worked 22,848 "covered hours" during a period of time representing more than 22 years of unbroken service, well over the minimum requirements. However, he was denied benefits under the pension plan because he had a break in service at age 48, at a time when the terms of the plan defined age 52 as the requisite age for eligibility.

In this action, plaintiff is challenging the application of the "age-at-break-in-service" requirement to persons who have met the other requirements of the plan. He claims the age requirement is arbitrary and unreasonable, and thus in violation of Section 302(c)(5) of the LMRA. The Court has conditionally certified a class consisting of all former employees with at least 15 years of unbroken service and 3,000 hours of covered employment who were or may be denied vested retirement benefits solely because they had not attained a particular age at the time they suffered a break in their service. Souza v. Scalone, 64 F.R.D. 654 (N.D.Cal. 1974).

II.

Section 302 of the LMRA prohibits an employer from making monetary payments to any representative of its employees, and prohibits labor representatives from accepting such payments. This provision was designed to prevent employers from compromising the loyalty of union officials and to eliminate the opportunity for union extortion of funds from management. Alvares v. Erickson, 514 F.2d 156, 164 (9th Cir. 1975), cert. den., 423 U.S. 874, 96 S.Ct. 143, 46 L.Ed.2d 106 (1975). Section 302(c)(5) contains an important exception to this rule, permitting payments to an employee welfare or pension fund. Thus, the general prohibitions of Section 302 do not apply

"with respect to money or other thing of value paid to a trust fund established by such representative, for the sole and exclusive benefit of the employees of such employer, and their families and dependents * * *." 29 U.S.C. § 186(c)(5) (emphasis added).

Federal district courts have jurisdiction to restrain violations of Section 302. 29 U.S.C. § 186(e).

The "sole and exclusive benefit" phrase contained within Section 302(c)(5) has been the theoretical basis for numerous lawsuits challenging the denial of pension benefits. The above-quoted language has been interpreted so as to give federal courts jurisdiction to determine whether challenged provisions of a given pension fund constitute a "structural defect" in violation of Section 302(c)(5). Burroughs v. Board of Trustees of the Pension Trust Fund for Operating Engineers, 542 F.2d 1128, 1130 (9th Cir. 1976). However, it is also generally agreed that there does not exist a general judicial power to interfere with the day-to-day fiduciary administration of such welfare and retirement funds.⁴See id.; Lugo v. Employees Retirement Fund of the Illumination Products Industry, 529 F.2d 251, 255 (2d Cir. 1976), cert. den. 429 U.S. 826, 97 S.Ct. 81, 50 L.Ed.2d 88 (1976); Bowers v. Ulpiano Casal, Inc., 393 F.2d 421, 424-26 (1st Cir. 1968). It is the trustees of the pension plan who have the authority to set coverage and eligibility rules, and to conduct the fund's business affairs. See Pete v. United Mine Workers of America Welfare & Retirement Fund of 1950, 171 U.S. App.D.C. 1, 517 F.2d 1275, 1283 (1975).

While the foregoing principles are easy to articulate, courts have taken divergent approaches in developing and applying the concept of "structural defect." The most common formulation of the test for "structural defect" is whether the trustees have written unreasonable conditions of eligibility which arbitrarily exclude employees from benefits; or whether the trustees have applied reasonable rules in an arbitrary or capricious manner. See, e. g., Johnson v. Botica, 537 F.2d 930, 935 (7th Cir. 1976); Alvares v. Erickson, supra, 514 F.2d at 166-67; Roark v. Lewis, 130 U.S. App.D.C. 360, 401 F.2d 425, 427 (1968). Because many courts hesitate to intervene into a private contractual relationship and alter the actuarial assumptions upon which such pension plans are based, the above-described test has often proven to be a showing too difficult for plaintiffs to make. For example, in Gaydosh v. Lewis, 133 U.S.App.D.C. 274, 410 F.2d 262 (1969), the challenged pension plan provided that a retiree was eligible for a pension only if he had 20 years of service in the coal industry and had reached age 60. When Gaydosh retired, he had satisfied the 20 years of service requirement, but had not yet reached the vesting age of 60. Subsequently, before plaintiff reached 60, the defendants changed the rules so as to completely disqualify plaintiff for a pension. The D.C. Circuit held that the Trustees' action was not arbitrary or capricious, because plaintiff had not attained age 60 and because such age requirement was reasonable. The court stated, without investigation, that the age 60 vesting requirement was justified by economic considerations:

"The age requirement is not merely a procedural device, arbitrarily set and easily waived. It is something more. Economic reality requires a reasonable cutoff date as to age lest the fund be exhausted by comparatively premature retirement. * * * Equity will not interfere with reasonable applications of the trustees' discretion under the Trust Indenture. The function of the trustees, on the very face of the indenture, is to preserve the vitality of the fund and to effectively apply its worth to the benefit of as many intended employees as is economically possible." Id. 133 U.S.App.D.C. at 277-78, 410 F.2d at 265-66.

If this Court followed such an approach in the instant case, summary judgment for the defendants could be granted without further ado.

However, several courts have suggested a somewhat different test for determining whether a pension plan has a "structural defect," namely, whether the trustees have approved a pension plan which excludes a sizeable number of union members, with no reasonable purposes behind their exclusion. Such a plan has been held structurally defective in violation of the Section 302(c)(5) requirement that the fund be for the "sole and exclusive benefit" of all employees. Mosley v. National Maritime Union Pension & Welfare Plan, 438 F.Supp. 413, 423-24 (E.D.N.Y. 1977); Insley v. Joyce, 330 F.Supp. 1228, 1233 (N.D.Ill. 1971). See also Knauss v. Gorman, 433 F.Supp. 1040, 1045 (W.D.Pa. 1977). The rationale underlying this test is set out in Mosley:

"If available funds are not applied to the benefit of employees who have contributed to the fund, and the economic needs of the fund do not require that they be withheld, the specific language of § 302(c)(5) is violated. There is no significant difference, in terms of complying with the `sole and exclusive benefit' provision, between withholding pension funds for no reason, and applying them for the benefit of persons other than employees. And it follows that § 302(c)(5) requires that the pension funds be applied for the benefit of as many employees as is economically possible. For example, it might be arbitrary and capricious to confer, without economic justification, pension benefits on a very few employees with extremely long service while denying benefits to a great number who worked substantial periods and thus had contributed to the pension fund through their labor. The loss of pension rights by significant numbers of employees with many years of service suggests an imbalance in a pension fund that is amenable to correction under § 302(c)(5)." 438 F.Supp. at 424.

Viewed in one light, this "sizeable exclusion/reasonable justification" test is nothing more than the logical extension of the "arbitrary and capricious" standard. But it should also be evident that the Mosley standard will require more than cursory judicial scrutiny of the numbers of union members excluded from plan benefits and of the economic justification proffered for such exclusions; in the past, courts often assumed automatically that any such eligibility rules were based on sound actuarial calculations.

As is evident from the various comments made by the Mosley court, this definition of "structural defect" would also appear to hold the potential for a more interventionist approach than has generally occurred in the past under the "arbitrary and capricious" standard. See id. at 425-27.

III.

The Ninth Circuit's pronouncements regarding the...