Wells v. U.S. Steel & Carnegie Pension Fund, Inc., 90-5957

• Decision Date: 30 January 1992
• Docket Number: No. 90-5957,90-5957
• Citation: 950 F.2d 1244
• Parties: Clarence WELLS, et al., Plaintiffs-Appellants, v. UNITED STATES STEEL & CARNEGIE PENSION FUND, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1244

950 F.2d 1244

Clarence WELLS, et al., Plaintiffs-Appellants, v. UNITED STATES STEEL & CARNEGIE PENSION FUND, INC., Defendant-Appellee.

No. 90-5957.

United States Court of Appeals Sixth Circuit.

Argued March 26, 1991.

Decided Dec. 13, 1991.

Rehearing and Rehearing En Banc

Denied Jan. 30, 1992.

Mark David Goss, briefed, Eugene Goss, argued, Goss & Goss, Harlan, Ky., for Clarence Wells.

Mark David Goss, Goss & Goss, Harlan, Ky., for all other plaintiffs-appellants.

William A. Rice, Rice, Huff & Hendrickson, Harlan, Ky., James T. Carney (argued & briefed), USX Corp., Pittsburgh, Pa., for defendant-appellee.

Before KENNEDY and RYAN, Circuit Judges, and FEIKENS, Senior District Judge. ^*

RYAN, Circuit Judge.

The plaintiffs, retirees of United States Steel Corporation, appeal the grant of summary judgment in favor of the defendant, United States Steel and Carnegie Pension Fund ("Fund"), in this case brought under the Employees Retirement Income and Security Act (ERISA), 29 U.S.C. § 1132. There are three issues:

1. Whether the district court applied the appropriate standard in reviewing the Fund's interpretation of the Plan's workers' compensation offset provision;

2. Whether the district court properly upheld the Fund's interpretation of the workers' compensation offset provision; and

3. Whether the district court properly entered judgment in favor of the Fund on its counterclaim for overpayment?

We hold that although the district court applied the proper standard, the Fund's interpretation of the Plan language was arbitrary and capricious. We agree with the district court that the Plan language permitted recovery on the defendants' counterclaim for overpayment.

Consequently, we shall reverse, in part, and remand for further proceedings.

I. The Facts

The plaintiffs are thirty-one former employees of United States Steel Corporation who suffer from black lung disease due to their coal mine employment. Upon retirement, they began drawing pension benefits pursuant to the United States Steel Corporation Plan for Employee Pension Benefits ("Plan"). Under the Plan, they receive a contributory and noncontributory pension. They also receive Kentucky workers' compensation benefits, federal black lung benefits, and Kentucky Special Fund benefits.

The noncontributory pension was always subject to an offset for Kentucky workers' compensation benefits. The offset is designed to preclude "double dipping"--receiving both a generous pension from the company to support the employee in his retirement and a liberal workers' compensation payment also financed by the company. Workers' compensation is designed to compensate employees for earnings lost due to a disabling injury but, in the case of a retired employee, it is, in many instances, simply another pension financed by the company.

The Plan also offsets federal black lung trust benefits against the noncontributory pension. This policy also prevents double-dipping because federal black lung benefits are paid from a government-sponsored fund financed by an excise tax on coal production. The offset is made because the noncontributory pension rules and the general provisions of the Plan require an offset against noncontributory pensions for a benefit that is "paid directly or indirectly by an Employing Company." Government funds financed from general revenues would not be offset as this type of arrangement does not "double dip" into employer pockets. Prior to 1976, the Plan provided that "[a]ny amount paid to ... any participant on account of injury or occupational disease ... whether pursuant to workmen's compensation, occupational disease or similar statutory law ... shall be deducted from or charged against" the noncontributory pension. Federal Black Lung Benefits were at that time paid out of general revenues. USX did not seek to offset those benefits since it was not paying for them. In 1976, to reflect this position, it changed the language of the Plan to limit offsets to amounts paid "directly" or "indirectly" by an Employing Company. The Plan substituted the following provision:

Notwithstanding anything to the contrary contained in this Plan, workers' compensation, occupational disease benefits and other similar benefits payable with respect to a disability in the nature of a permanent disability will be taken into account in the calculation of pension only if such benefits are paid directly or indirectly by an Employing Company.

(Emphasis added.) Thus, the "directly," "indirectly" language was adopted as a limitation on reimbursement.

Thereafter, financing for Federal Black Lung Benefits was changed to an excise tax on coal, and the Plan sought to offset these benefits in their entirety. In Teer v. United States Steel & Carnegie Pension Fund, No. CV 82-P-2379-S (N.D.Ala. May 9, 1983), the court determined that the offset of federal funds is permitted under the "directly" or "indirectly" provision of the Plan, but that USX could only offset that portion attributable to employment with USX. Since that percentage attributable to employment with USX was also roughly the percentage paid indirectly by USX, USX was not financing duplicate benefits.

The current dispute involves the Plan's policy of offsetting Kentucky Special Fund benefits against the noncontributory pension. The Kentucky Special Fund is a state-sponsored fund, financed by employer taxes, which compensates victims of black lung disease. The Special Fund benefits are paid in two parts: the first part, 25% of the total payment, is paid directly to the retiree by United States Steel, and the second part, 75% of the total payment, is paid by the Special Fund. This case involves only the offset of the 75% paid by the Special Fund.

In 1986, Anthony Kuchta, the Fund's new case supervisor, learned from the Special Fund director that the Special Fund benefits were financed by special employer taxes. ¹ Kuchta concluded that such benefits should be offset under the Fund's general provisions. Kuchta notified the plaintiffs that pursuant to section 8 of the Plan's general provisions, their pension benefits would be reduced or terminated until alleged overpayments of $6,000-$50,000 per person were recouped. The reduction and termination of benefits adversely affected all of the plaintiffs who, due to old age and incapacity from black lung disease, depended on their fixed income.

The plaintiffs sought a declaratory judgment that the Plan administrator could not offset against their pensions those portions of Special Fund benefits for which the fund and not the company is liable, and that the company was precluded under both equity and state law from recouping any payments already made to the plaintiffs. The Fund counterclaimed for judgment against each plaintiff for recoupment of the erroneous payments.

On December 14, 1987, the trial court entered summary judgment against the plaintiffs. The court found that the Fund's interpretation of the Plan and its method of recoupment were reasonable and rejected the plaintiffs' equitable arguments since the administrator acted quickly upon discovery of the overpayment. The plaintiffs appealed to this court which held that since the district court had not adjudicated the defendant's counterclaim and the issue that had been decided had not been certified for interlocutory appeal, the trial court's order was not appealable as a final order. 842 F.2d 334. On June 22, 1990, the trial court granted the defendant's motion for summary judgment and awarded them $683,429.12 against plaintiffs as recoupment of the overpaid sums. This appeal followed.

II.

A. Standard of Review on Appeal

The district court's grant of summary judgment is reviewed de novo. EEOC v. University of Detroit, 904 F.2d 331, 334 (6th Cir.1990). Thus, we must determine whether the pleadings, depositions, answers to interrogatories, and admissions on file "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Canderm Pharmacal, Ltd. v. Elder Pharmaceuticals, Inc., 862 F.2d 597, 601 (6th Cir.1988).

B. Standard of Review Used by District Court

The pensioners contend that the district court erred in applying the "arbitrary and capricious" standard of review to the plaintiffs' challenge to the Fund's interpretation of the Plan language. This court has held, however, that "the arbitrary and capricious standard applies to decisions by plan administrators under ERISA to deny benefits to particular claimants." Varhola v. Doe, 820 F.2d 809, 813 (6th Cir.1987). In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), the Supreme Court departed from this rule and announced that a de novo standard applies when the employer administers the plan and denies benefits based on an interpretation of the plan. However, the Supreme Court held that no change in the former rule is necessary where "the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Id. at 115, 109 S.Ct. at 956. In such a case, "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 is an abuse of discretion.' " Id. (quoting Restatement (Second) of Trusts § 187 Comment d (1959)). We have held that where a plan gives an administrator discretion to interpret the plan, the arbitrary and capricious standard still applies. Davis v. Kentucky Fin. Cos. Retirement Plan, 887 F.2d 689, 694 (6th Cir.1989), cert. denied, --- U.S. ----, 110 S.Ct. 1924, 109 L.Ed.2d 288 (1990).

The Plan granted the administrator discretion to interpret its provisions. Section 7.1(a) of the pension rules provided that "[t]he Pennsylvania Corporation [the Pension Fund] shall administer these Pension Rules and shall decide all questions...