Van Boxel v. Journal Co. Employees' Pension Trust

• Decision Date: 12 February 1988
• Docket Number: 87-1214,Nos. 87-1164,s. 87-1164
• Parties: 9 Employee Benefits Ca 1401 Albert VAN BOXEL, Plaintiff-Appellant, Cross-Appellee, v. The JOURNAL COMPANY EMPLOYEES' PENSION TRUST, Defendant-Appellee, Cross- Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1048

836 F.2d 1048

9 Employee Benefits Ca 1401

Albert VAN BOXEL, Plaintiff-Appellant, Cross-Appellee, v. The JOURNAL COMPANY EMPLOYEES' PENSION TRUST Defendant-Appellee, Cross- Appellant.

Nos. 87-1164, 87-1214.

United States Court of Appeals Seventh Circuit.

Argued Oct. 29, 1987.

Decided Dec. 28, 1987.

Rehearing Denied Feb. 12, 1988.

Paul E. Prentiss, Michael Best & Friedrich, Milwaukee, Wis., for plaintiff-appellant, cross-appellee.

Gilbert A. Cornfield, Cornfield & Feldman, Chicago, Ill., for defendant-appellee, cross-appellant.

Before BAUER, Chief Judge, and CUDAHY and POSNER, Circuit Judges.

POSNER, Circuit Judge.

This suit under the Employee Retirement Income Security Act of 1974, 29 U.S.C Secs. 1001 et seq., challenges the denial by a company's pension trust of a claim for a pension. The district court granted summary judgment for the trust but denied its request for an award of attorney's fees. The parties have cross-appealed.

Albert Van Boxel went to work for the Journal Company (the publisher of the Milwaukee Journal ) as a printer in 1951. In 1959 the company granted him a leave of absence, without pay, to enable him to take a full-time position as Secretary-Treasurer of the local of the International Typographical Union that represents the company's printers. (He still holds the position, although he no longer works full time.) A series of six-month extensions of his leave of absence from the Journal Company came to an end in 1963. Although he did not return to work for the company upon the expiration of his last leave of absence, in 1975 the company and the union signed a collective bargaining agreement that required the company to prepare a list of employees who were guaranteed their jobs until they reached the age of 65--and Van Boxel's name appeared on the list and on successive lists prepared in subsequent years. In 1984, exercising his rights under the collective bargaining agreement, Van Boxel returned to work for the Journal Company for the first time since he had left in 1959 (25 years earlier)--though only for one day; the next day he returned to his union job. A year later Van Boxel, who by this time was 53 years old, applied to the Journal Company's pension trust fund for a pension based on his having put in 20 years of service with the company. To get up to 20 years he had to count time during which he was working full time for the union. The trustees refused to let him do this and consequently rejected his claim for a pension. Pursuant to the collective bargaining agreement in force at this time, all the trustees had been appointed by the Journal Company.

The black-letter rule is that a decision by a pension trust to deny benefits to an individual claimant can be set aside in a suit under ERISA only if the decision is "arbitrary and capricious." See, e.g., Pokratz v. Jones Dairy Farm, 771 F.2d 206, 208-09 (7th Cir.1985); Adcock v. Firestone Tire & Rubber Co., 822 F.2d 623, 626 (6th Cir.1987); Varhola v. Doe, 820 F.2d 809, 812-13 (6th Cir.1987); Holland v. Burlington Industries, Inc., 772 F.2d 1140, 1148-49 (4th Cir.1985), aff'd without opinion, --- U.S. ----, 106 S.Ct. 3267, 91 L.Ed.2d 559 (1986); Miles v. New York State Teamsters Conference Pension, Etc., Plan, 698 F.2d 593, 599 (2d Cir.1983); Dennard v. Richards Group, Inc., 681 F.2d 306, 313-14 (5th Cir.1982). In Allen v. United Mine Workers of America 1979 Benefit Plan & Trust, 726 F.2d 352, 354 (7th Cir.1984), we equated this term to "totally unreasonable," and in Teskey v. M.P. Metal Products, Inc., 795 F.2d 30, 32 (7th Cir.1986), to "whimsical, random, or unreasoned." For scholarly discussion and critique see Fischel & Langbein, ERISA's Fundamental Contradiction: The Exclusive Benefit Rule, pt. V (Wkg. Paper 29, Program in Law and Economics, Univ.Chi.Law School, Oct. 1987); Note, Judicial Review of Fiduciary Claim Denials Under ERISA: An Alternative to the Arbitrary and Capricious Test, 71 Cornell L.Rev. 986 (1986); Comment, The Arbitrary and Capricious Standard Under ERISA: Its Origins and Application, 23 Duquesne L.Rev. 1033 (1985).

Van Boxel challenges the "arbitrary and capricious" standard. We are not entirely unsympathetic to the challenge, and notice that although the weight of authority is against him there is growing skepticism about the orthodox approach. The skeptical tendency, illustrated by dicta in Varhola v. Doe, supra, 820 F.2d at 813, has culminated in the Third Circuit's recent decision in Bruch v. Firestone Tire & Rubber Co., 828 F.2d 134, 137-45 (3d Cir.1987), which holds that, whenever someone who is not a plan beneficiary is in a position to benefit from the rejection of a claim--the company, for example--no deference should be given the trustees' decision; the case should be treated as an ordinary contract dispute between the claimant and the trust. See id. at 145. Further muddying the waters, many cases that still adhere to the "arbitrary and capricious" standard add "bad faith" to the grounds for upending the trustees' denial of benefits. See, e.g., Allen v. United Mine Workers of America 1979 Benefit & Trust Plan, supra, 726 F.2d at 354; Sly v. P.R. Mallory & Co., 712 F.2d 1209, 1211 (7th Cir.1983). And some cases, such as Dockray v. Phelps Dodge Corp., 801 F.2d 1149, 1152 (9th Cir.1986) (quoting earlier cases), expand the normal standard even further, to "arbitrary, capricious or made in bad faith, not supported by substantial evidence, or erroneous on a question of law." See also Brown v. Retirement Committee of Briggs & Stratton Retirement Plan, 797 F.2d 521, 525 (7th Cir.1986). And sometimes "arbitrary, capricious or made in bad faith" is defined as lacking substantial evidence or resting on an error of law, see, e.g., Wardle v. Central States, Southeast & Southwest Areas Pension Fund, 627 F.2d 820, 824 (7th Cir.1980); Dennard v. Richards Group, Inc., supra, 681 F.2d at 314, thus seeming to eliminate (but no doubt unintentionally) all judicial deference to the exercise of discretion by the trustees.

The "arbitrary and capricious" standard is familiar from administrative law, where it is used to guide judicial review of discretionary decisions by administrative agencies. See 5 U.S.C. Sec. 706(2)(A) (Administrative Procedure Act). Pension fund trusts are not administrative agencies and most of the decisions they make are not discretionary in the sense, familiar from administrative law, of decisions that make policy under a broad grant of delegated powers. Certainly in a case such as the present one, pension fund trustees are not policy-makers; they are interpreters of contractual entitlements. The closest analogy might seem to be to arbitration. Like arbitrators, pension fund trustees asked to approve an application for a pension are private persons contractually authorized to decide the merits of a claim under a contract. If pension fund trustees can be equated to arbitrators, the arbitrary and capricious standard might be thought to confine their discretion too closely. Decisions by arbitrators can be set aside only for fraud or conflict of interest, or because the arbitrators failed to interpret the agreement they were appointed to interpret and instead embarked on a frolic of their own. See, e.g., Brotherhood of Locomotive Engineers v. Atchison, Topeka & Santa Fe Ry., 768 F.2d 914, 921 (7th Cir.1985). The excruciatingly narrow judicial review of arbitrators' contractual interpretations lends an element of paradox to the Third Circuit's statement in Bruch that "the validity of the claim is likely to turn on a question of law or of contract interpretation. Courts have no reason to defer to private parties to obtain answers to these kinds of questions." 828 F.2d at 144 (emphasis added; footnote deleted).

But how close really is the analogy between arbitrators and pension fund trustees? The fact that often (and here) the trustees are appointed by the company (which is perfectly proper under ERISA, see Brown v. Retirement Committee of Briggs & Stratton Retirement Plan, supra, 797 F.2d at 535) rather than by both the company and the claimant, or by a neutral third party such as the American Arbitration Association, is only superficially inconsistent with the analogy to arbitration. This is not only because standards of neutrality are more relaxed in arbitration than in adjudication, see, e.g., Merit Ins. Co. v. Leatherby Ins. Co., 714 F.2d 673 (7th Cir.1983), and because, as also emphasized in Merit, the underlying relationship is contractual and hence consensual (dramatically so in this case, where the complainant is an official of the union that negotiated the collective bargaining agreement which authorized the company to appoint all the pension fund trustees); it is also because the company really may be neutral, despite appearances. Often, if the applicant's claim for a pension is denied, it is not the company but the pension trust fund that is the richer for the denial; and the company has no access to that fund. However, in the case of defined-benefit pension plans (the vast majority of ERISA plans and the type involved in this case), the company has contractual obligations that it must honor whether or not the pension trust is adequately funded; hence, the wealthier the fund is, the less likely is the company to be called on to ante up pension money out of its own pocket. Moreover, some employee-benefit plans subject to ERISA are unfunded, including one of those in Bruch.

Yet even in such a case, the impact on the company's welfare of granting or denying an individual application for a pension will usually be too slight to compromise the impartiality of the trustees, even if all are appointed by the company. Nor is it in a company's long-run best interest to alienate employees by dealing unfairly with pension claims; for the less an employee's pension rights are worth, the higher are the wages that he will demand (assuming he is rational and well informed) so that ...