Stewart v. National Shopmen Pension Fund

• Decision Date: 30 March 1984
• Docket Number: No. 83-1621,83-1621
• Citation: 235 U.S.App.D.C. 122,730 F.2d 1552
• Parties: , 5 Employee Benefits Ca 1518 George STEWART, et al. v. NATIONAL SHOPMEN PENSION FUND, et al., Appellants.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1552

730 F.2d 1552

235 U.S.App.D.C. 122, 5 Employee Benefits Ca 1518

George STEWART, et al. v. NATIONAL SHOPMEN PENSION FUND, et al., Appellants.

No. 83-1621.

United States Court of Appeals District of Columbia Circuit.

Argued Oct. 20, 1983.

Decided March 30, 1984.

Appeal from the United States District Court for the District of Columbia (Civil Action No. 82-03055).

Thomas J. Hart, Washington, D.C., with whom Lena S. Zezulin, Washington, D.C., was on the brief, for appellants.

Gill Deford, Los Angeles, Cal., with whom Burton D. Fretz, Washington, D.C., was on the brief, for appellees.

Gerald M. Feder and David R. Levin, Washington, D.C., were on the brief for amicus curiae, National Coordinating Committee for Multiemployer Plans, urging reversal.

Before WRIGHT and GINSBURG, Circuit Judges, and MacKINNON, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge MacKINNON.

MacKINNON, Senior Circuit Judge:

This is a class action, brought on behalf of employees and former employees of Anchor Post Products, Inc. ("Anchor"), against the National Shopmen Pension Fund (the "Fund"). ¹ The Fund cancelled certain employee service credits of members of the class, which resulted in a reduction of pension benefits to the class members. The district court found that the Fund's actions violated provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Stewart v. National Shopmen Pension Fund, 563 F.Supp. 773 (D.D.C.1983). We reverse the district court and remand the decision for consideration of other issues in the case.

I.

The National Shopmen Pension Fund is a multi-employer pension fund as defined by ERISA Secs. 3(2), 3(37)(A). ² Its board of trustees is made up of three representatives of the International Association of Bridge, Structural and Ornamental Iron Workers (the "Union") and three representatives of participating employers. The Fund was in existence prior to the enactment of ERISA, and has been modified to comply with the relevant provisions of that statute. The Internal Revenue Service has certified that the Fund is in compliance with applicable ERISA standards (J.A. 203-05).

Most of the facts are stipulated. In 1969, Anchor entered into a collective bargaining agreement with the Union at Anchor's plant in Baltimore, Maryland. The agreement provided, inter alia, that Anchor would begin making pension contributions to the Fund on behalf of its employees, who prior to 1969 had not been enrolled in the Fund.

As was its usual practice, the Fund, in computing pension benefits, granted full credit to all Anchor employees for the years they spent with Anchor prior to enrollment in the pension plan. These pre-enrollment credits are known as "past" or "precontributory" service credits. Service credits earned after an employer has begun contributing are known as "future" or "contributory" service credits. Ordinarily, precontributory and contributory service credits are added together to determine the amount of the individual employee's pension. ³

Anchor continued to make contributions to the Fund until 1979, when it closed its Baltimore plant. The closing terminated Anchor's obligations under its collective bargaining agreement. Anchor stopped making contributions to the Fund and withdrew from all participation in it. To assess the impact of Anchor's withdrawal, the Fund authorized an actuarial study by the Martin E. Segal Company ("Segal"). The Segal study showed that Anchor had, over the ten-year period, contributed $337,129 to the Fund. Its allocated share of Fund assets at termination was $298,912. The total vested liability of the Fund to Anchor employees was $1,049,181. Thus, the total "unfunded liability"--the amount of pension liability for which no one had paid anything into the Fund--was $750,268, or about 1.8 percent of the total assets of the Fund (J.A. 121,207). ⁴

A provision of the Fund's 1976 plan permits the Fund, in cases where unfunded liability is "dumped" into it by an employer, to cancel the precontributory service of present and former employees of that employer. This provision, Sec. 2.09, states:

(a) If an Employer's participation in the Fund with respect to a bargaining unit or group terminates, the Trustees are empowered to cancel any obligation of the Trust Fund that is maintained under the Trust Agreement with respect to that part of any pension for which a person was made eligible on the basis of employment in such bargaining unit or group prior to the Contribution Period with respect to that unit or group. Neither shall the Trustees, the Employers who remain as Contributing Employers, nor the Union be obligated to make such payments.

(J.A. 181.)

On the basis of its study, Segal recommended that the Fund use Sec. 2.09 to cancel the precontributory service credits of the Anchor employees. The Segal report concluded that even if all precontributory service were cancelled, the Fund would still face an unfunded liability of $154,728, which it would have to absorb (J.A. 207). (As of 1980, the Fund had total assets of $40,700,919 (J.A. 121).) The report's recommendation was unanimously adopted by the trustees in March, 1980 (J.A. 210). All precontributory service of Anchor employees was cancelled for purposes of determining benefits.

George Stewart and Lee Roy Warren are two of the affected Anchor employees. Stewart had been an employee of Anchor since 1940. When Anchor joined the Fund, he was granted 23 years of precontributory service for his work prior to 1969. He continued to work for another 2.7 years after Anchor joined the Fund, and then retired. His initial pension, calculated on 25.7 years of total service, was $80 per month (J.A. 114-18). Warren began working for Anchor in 1959. He had earned 10.6 years of precontributory service prior to 1969. He continued working for Anchor until the Baltimore plant closed in 1979, earning 10.4 years of contributory service. He applied for early retirement when the Anchor plant closed (J.A. 119-20), and his pension, if calculated on his 21 years of total service, would have been $89 per month.

When the Fund cancelled the precontributory service, both Stewart and Warren suffered significant pension cuts. Stewart's pension, now calculated solely on his 2.7 years of contributory service, came to only $9 per month. Warren had his pension cut to $45 per month, calculated solely on his 10.4 years of contributory service.

Stewart and Warren brought this class action, seeking to have the Fund's application of Sec. 2.09 declared invalid and to have their full pension benefits restored. The district court held that the trustees' actions violated ERISA. There are two issues. First, as a threshold matter, is the Fund collaterally estopped from arguing the validity of its actions by the Ninth Circuit's decision in Fentron Industries v. National Shopmen Pension Fund, 674 F.2d 1300 (9th Cir.1982)? Second, did the action of the Fund's trustees in cancelling the precontributory service of Anchor employees violate specific procedural requirements of ERISA?

II.

The plaintiffs' collateral estoppel (issue preclusion) claim, which the district court rejected, ⁵ depends upon the effect of the Ninth Circuit's Fentron decision. The plaintiffs argue that the court in Fentron passed on the same section of the same plan, and found it invalid. Hence, they assert, the Fund should be precluded by the Fentron adjudication from arguing here that the provision is valid. The plaintiffs were not parties to the Fentron decision. They seek to use collateral estoppel offensively under the doctrine of Parklane Hosiery Co. v. Shore, 439 U.S. 322, 329-31, 99 S.Ct. 645, 650-52, 58 L.Ed.2d 552 (1979).

Collateral estoppel bars relitigation of issues that were "actually and necessarily determined by a court of competent jurisdiction." Montana v. United States, 440 U.S. 147, 153, 99 S.Ct. 970, 973, 59 L.Ed.2d 210 (1979) (emphasis added). The Restatement phrases it this way:

When an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive ....

Restatement (Second) of Judgments Sec. 27 (1982) (emphasis added). The Fund thus is precluded only from litigating issues that were actually and necessarily decided in Fentron. The plaintiffs assert flatly that "Fentron fully evaluated the identical rule at issue in this case and found it illegal." Brief of Appellee at 36. On the contrary, the Fentron court specifically refrained from holding that Sec. 2.09 was "invalid on its face," holding only that Sec. 2.09 as applied in that case violated ERISA. 674 F.2d at 1306. We therefore must determine the extent to which the acts of the trustees were held to be violations by the Ninth Circuit.

In Fentron, the Fund relied on Sec. 2.09 to cancel precontributory service credits of employees whose employer had effectively withdrawn from the Fund. ⁶ The Fund cancelled the benefits for purposes of both vesting (i.e., the employee's right to receive a pension) and calculation of benefits (i.e., the amount of the pension to which the employee has a right). Thus, if an employer in Fentron had 20 years of precontributory service, and 9 years of contributory service, he would be denied any pension because the Fund requires a minimum of 10 years of service for vesting. All of the employees in Fentron had less than 10 years of contributory service. 674 F.2d at 1306. The Fund's cancellation of benefits for all purposes thus completely divested employees of their vested right to a pension, and deprived them of pension benefits even for their contributory service.

The Ninth Circuit held that such benefit divestiture, although authorized by the Fund's plan, amounted to a "vesting schedule amendment":

Before the cancellation of Past Service Credits, the benefits of all members of the class were vested under the 1969 Plan. The effect of cancelling...