Sullivan v. LTV Aerospace and Defense Co.

• Decision Date: 06 May 1996
• Docket Number: D,No. 757,757
• Citation: 82 F.3d 1251
• Parties: , 20 Employee Benefits Cas. 1161, Pens. Plan Guide P 23920O William J. SULLIVAN, George H. Davidson, Roger A. Witt, Thomas W. Cobb and L. Stuart Penny, Plaintiffs-Appellees, v. LTV AEROSPACE AND DEFENSE COMPANY, The LTV Corporation, LTV Key Employee Retention Plan and Directors of the LTV Corporation, Plan Administrator, Defendants-Appellants. ocket 95-7527.
• Court: U.S. Court of Appeals — Second Circuit

Page 1251

82 F.3d 1251

64 USLW 2764, 20 Employee Benefits Cas. 1161,

Pens. Plan Guide P 23920O

William J. SULLIVAN, George H. Davidson, Roger A. Witt Thomas W. Cobb and L. Stuart Penny, Plaintiffs-Appellees, v. LTV AEROSPACE AND DEFENSE COMPANY, The LTV Corporation, LTV Key Employee Retention Plan and Directors of the LTV Corporation, Plan Administrator Defendants-Appellants.

No. 757, Docket 95-7527.

United States Court of Appeals Second Circuit.

Argued Dec. 18, 1995.

Decided May 6, 1996.

Appeal from a judgment of the United States District Court for the Western District of New York (Skretny, J.) following a jury trial awarding severance benefits to the plaintiffs under their employer's ERISA plan. For the reasons stated below we vacate the judgment and remand the case for further proceedings consistent with this opinion.

Michael J. Dell, Nessen, Kamin & Frankel, New York City (Gregory A. Horowitz, of counsel), for Defendants-Appellants.

Alan J. Bozer, Gary J. Gleba, Albrecht, Maguire, Heffern & Gregg, P.C., Buffalo, for Plaintiffs-Appellees

Before: LEVAL, CALABRESI, Circuit Judges and SPATT, District Judge. ^*

SPATT, District Judge:

This appeal arises from the denial of severance benefits to the plaintiffs under the LTV Key Employee Retention Plan ("KERP" or the "Plan"). The plaintiffs are former employees of the Sierra Research Division ("Sierra") of the LTV Aerospace and Defense Company ("LTV"), who were terminated in November 1990. Sometime thereafter they were informed that they were not entitled to severance benefits under the KERP. They brought suit in the United States District Court for the Western District of New York seeking monetary awards in the amount of the severance benefits to which they were allegedly entitled. After a twelve day jury trial in November 1994, the plaintiffs were awarded the total sum of $960,116.93 in unpaid severance benefits plus interest and $174.382.86 in attorneys' fees.

The defendants appeal from the following decisions and rulings of the district court: (1) denying the defendants' motion for summary judgment; (2) denying the defendants' motion to strike the plaintiffs' jury demand; (3) the jury instructions involving the burden of proof; (4) denying the defendants' post trial motions; (5) granting attorneys' fees; and (6) the final amended judgment.

After the commencement of this lawsuit, the plaintiff, George H. Davidson realized he was only entitled to thirteen weeks of severance benefits because of other compensation he received during the two years after his termination. Based on his limited claim, the jury awarded him the sum of $35,016.32. The defendants do not appeal from this award.

I. Background

In 1987, operating under Chapter 11 of the Bankruptcy Code, LTV obtained permission from the Bankruptcy Court to institute the KERP to provide severance benefits to employees terminated under certain circumstances. The KERP is an unfunded plan. The purpose of the Plan was to attract and retain employees who were concerned about continued employment with a Company having financial difficulties.

According to the provisions of the Plan, KERP benefits would be provided to any participant who is a "Member" and suffers a "Termination of Employment." It is undisputed that the plaintiffs were "Members" of the Plan and that Sierra is an Operating Entity under the Plan. "Termination of Employment" is defined as:

termination by the Corporation of a Member's employment by the Corporation for any reason other than Cause or Disability ... [which] occurs coincident with or within the twenty-four (24) month period immediately following the occurrence of a Benefit Event.

KERP § 2.23 (emphasis supplied). A "Benefit Event" is defined as:

the first to occur of (a) any sale, liquidation, divestiture involving all or any material portion of the stock or assets of, or the downsizing of, the Corporation or the Operating Entity within which such a Member is employed, (b) the consummation of a Plan of Reorganization with respect to the Corporation; (c) the conversion of any Chapter 11 proceedings involving the Corporation to proceedings under Chapter 7 of the Bankruptcy Code, or (d) the appointment of a trustee in proceedings under the Bankruptcy Code with respect to the Corporation. (emphasis supplied)

KERP § 2.03. Downsizing is defined as follows:

a downsizing of the Corporation or Operating Entity within which the Member is employed shall be deemed to have occurred if within any consecutive six (6) month period the number of employees of such Corporation or Operating Entity shall be reduced by more than twenty percent (20%).

KERP § 2.03. KERP essentially provides Members with two years severance pay at one hundred percent of base salary payable at regular intervals, together with certain health and welfare benefits.

The decision to award benefits is made by a Committee (the "Committee") appointed by the Board of Directors (the "Board") and consisting of outside members of the Board. KERP § 2.07. "The administration of the Plan, the exclusive power to interpret it, and the responsibility for carrying out its provisions are vested in the Committee." KERP § 5(a).

The defendants read the above sections of the Plan together as providing that a Member is entitled to benefits if his employment is terminated for any reason other than cause or disability coincident with or within the twenty-four month period immediately following the occurrence of a "Benefit Event" such as a downsizing. Further, a downsizing occurs if within a consecutive six month period the number of employees of the operating entity shall be reduced by more than twenty percent. Applying this interpretation, the Committee denied the plaintiffs' request for severance benefits, reasoning that at the time they were terminated in November 1990, the Company had not yet reduced its workforce by twenty percent. The twenty percent threshold was not reached until January 21, 1991. Rather, at the time the plaintiffs were discharged, the Company had only reduced its workforce by fourteen percent, an amount insufficient to trigger benefit entitlements.

However, the plaintiffs interpret this Plan language as including Members who are discharged during the six month period culminating in the twenty percent downsizing. According to the plaintiffs, these terminations are "coincident with" the Benefit Event, i.e., the twenty percent workforce reduction, and therefore those employees discharged are entitled to severance benefits under KERP. Accordingly, the plaintiffs reason that they were discharged within a six month period during which twenty percent of the workforce was terminated, and therefore, they are entitled to benefits.

On September 29, 1993, the district court denied the defendants' motion for summary judgment on the ground that there were material triable issues of fact as to whether the Committee's decision to deny the plaintiffs benefits was arbitrary and capricious. On April 13, 1994, the district court denied the defendants' motion to strike the plaintiffs' jury demand. After a jury trial in November 1994, the jury returned a verdict in favor of the plaintiffs in the total sum of $960,116.93 plus interest. At the request of the plaintiffs, the district court treated the jury verdict as advisory for the limited purpose of adopting its findings of fact in the event that the Second Circuit were to determine that a jury trial is inappropriate in cases seeking review of a plan administrator's decision to deny benefits to plan participants.

II. Discussion

The substantive issues underlying the parties' dispute are two-fold. First, the Court must determine the proper standard for reviewing the Committee's interpretation of the Plan. Second, the Court must determine whether the district court properly applied this standard.

Any discussion of the appropriate standard of review of a trustee's interpretation of an ERISA benefit plan begins with the seminal case of Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). In Firestone, the Supreme Court recognized that "[a] trustee may be given power to construe disputed or doubtful terms [of a plan], and in such circumstances that trustee's interpretation will not be disturbed if reasonable." Id. at 111, 109 S.Ct. at 954. Further, the Supreme Court held "that a denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary authority to determine eligibility for benefits or to construe the terms of the plan." Id. at 115, 109 S.Ct. at 956-57. Where the administrator is given discretionary authority to interpret the plan, the administrator's interpretation is reviewed for an abuse of discretion. Id. In addition, "if a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a 'facto[r] in determining whether there has been an abuse of discretion.' " Id., quoting, Restatement (Second) of Trusts § 187. Comment d (1959).

In Pagan v, NYNEX Pension Plan, 52 F.3d 438 (2d Cir.1995), a decision which we note was decided after the district court rendered its rulings in this case, this Court held that "[w]here [as here] the written plan documents confer upon a plan administrator the discretionary authority to determine eligibility, we will not disturb the administrator's ultimate conclusion unless it is 'arbitrary and capricious.' " Pagan, 52 F.3d at 441. We enunciated this standard despite the plaintiff's contention that a less deferential standard should be applied where the administrators have a conflict of interest.

In Pagan, notwithstanding that the plaintiff, like our plaintiff, argued conflict of interest, the court applied the abuse of discretion standard and held that "[w]here it is necessary for a reviewing court to choose between two competing yet...