Williams v. Caterpillar, Inc.

• Decision Date: 01 November 1991
• Docket Number: No. 89-16353,89-16353
• Citation: 944 F.2d 658
• Parties: 14 Employee Benefits Cas. 1682 Cecil L. WILLIAMS, Joel Morgan Bryan, Peter E. Carnute, William Crum, Richard L. Gonzales, James Moretti, James P. Payton, John L. Tennant, Robert A. Van Buren, and Frederick W. Walker, Plaintiffs-Appellants, v. CATERPILLAR, INC., Caterpillar Retirement Income Plan, Caterpillar Non-Contributory Pension Plan, Caterpillar Group Insurance Plan, Caterpillar Benefit Funds Committee, Keith Wheeler and Jack Ziegler, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 658

944 F.2d 658

14 Employee Benefits Cas. 1682

Cecil L. WILLIAMS, Joel Morgan Bryan, Peter E. Carnute,

William Crum, Richard L. Gonzales, James Moretti, James P.

Payton, John L. Tennant, Robert A. Van Buren, and Frederick

W. Walker, Plaintiffs-Appellants, v. CATERPILLAR, INC., Caterpillar Retirement Income Plan,

Caterpillar Non-Contributory Pension Plan, Caterpillar Group

Insurance Plan, Caterpillar Benefit Funds Committee, Keith

Wheeler and Jack Ziegler, Defendants-Appellees.

No. 89-16353.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 13, 1991.

Decided Sept. 25, 1991.

As Amended Nov. 1, 1991.

Richard K. Grosboll, Maxine Auerbach, Neyhart, Anderson, Reilly & Freitas, San Francisco, Cal., for plaintiffs-appellants.

William J. Dritsas, Seyfarth, Shaw, Fairweather & Geraldson, San Francisco, Cal., for defendants-appellees.

Appeal from the United States District Court for the Northern District of California.

Before GOODWIN, THOMPSON and O'SCANNLAIN, Circuit Judges.

O'SCANNLAIN, Circuit Judge:

Nine former, long-term employees of Caterpillar appeal from the district court's dismissal of their claims. They contend that the company's calculation of their pension and retiree medical benefits constitutes a breach of fiduciary duty under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461 (1988). We now affirm.

I

Each of the appellants has devoted between seventeen and twenty-three years of service to Caterpillar as an employee of the company's original manufacturing plant in San Leandro, California. All began as hourly workers, and at various times, all received promotions to salaried management positions. As a result of economic setbacks and managerial cutbacks, however, all nine men were downgraded back to hourly positions during the early 1980's. According to appellants, the company repeatedly promised that the demotions were only temporary and that they would soon be reinstated as salaried employees, but all nine were either terminated or forced to seek work elsewhere when the company closed the San Leandro plant in April 1985 and declined to grant them transfers.

In March 1987, after it became clear to appellants that they were not receiving the pension and medical benefits to which they believed they were entitled, they filed the present action. In their first three claims, they contended that Caterpillar and its plan managers had breached their fiduciary duties under ERISA by improperly calculating and offsetting appellants' accrued benefits. In their fourth and fifth claims, they contended that the company and its plan managers had breached their fiduciary duties by misrepresenting the effect that the demotions would have on appellants' benefits. In their sixth claim, appellants alleged that appellees had failed to fulfill their duty to provide certain information about the various benefits. And in their seventh claim, appellants claimed that the company had illegally penalized them for and had interfered with the exercising of their ERISA rights.

The district court granted a tentative partial summary judgment for Caterpillar ¹ on the first three claims on November 4, 1988. On January 24, 1989, the court deemed its ruling on those claims final, leaving open for consideration one issue relating to the third claim. The court disposed of that issue with an oral ruling from the bench on July 21, 1989, and on September 5, 1989, the court granted summary judgment for appellees on the remaining four claims. 720 F.Supp. 148. Shortly thereafter, on September 21, the court entered final judgment on the entire action, and appellants then filed this timely appeal.

II

As an initial matter, we must clarify some lingering confusion over our standard of review.

The district court must grant summary judgment if the pleadings and supporting documents, viewed in the light most favorable to the non-moving party, "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986); Tzung v. State Farm Fire & Casualty Co., 873 F.2d 1338, 1339-40 (9th Cir.1989). An award of summary judgment is reviewed de novo. Id. at 1339.

These familiar standards apply as much to an ERISA action as they do to any other civil action. When the Supreme Court recently addressed "the appropriate standard of judicial review" to be applied in ERISA cases, it did not alter--or even address--these familiar standards. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 105, 109 S.Ct. 948, 951, 103 L.Ed.2d 80 (1989). Firestone was concerned with the level of deference to be granted to ERISA fiduciaries upon judicial review in general, not with the level of deference to be granted to district courts upon appellate review. The Court held that an ERISA fiduciary's denial of benefits to an ERISA participant or beneficiary "is to be reviewed under a de novo standard unless 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.

Accordingly, where a court finds that a plan in question leaves no room for fiduciary discretion, it must review a fiduciary's interpretations of eligibility under the plan pursuant to the strict "de novo standard" that applies in the law of trusts. See id. at 110-15, 109 S.Ct. at 953-57; Jones v. Laborers Health & Welfare Trust Fund, 906 F.2d 480, 481 (9th Cir.1990). Where, on the other hand, it finds that a plan contemplates discretionary determinations, it must review a fiduciary's eligibility decisions under the plan for an abuse of discretion. See Firestone, 489 U.S. at 111, 109 S.Ct. at 954; Jones, 906 F.2d at 481.

In short, whether the administration of a benefit plan complies with ERISA is a question of law reviewable de novo, and for purposes of that review, the degree of discretion to be afforded to the plan's fiduciaries is governed by Firestone's two-pronged rule. We must not confuse--as the litigants apparently have--the standards that apply to our review of the lower court's findings with the standards that apply to the lower court's review of appellees' conduct. See Kunin v. Benefit Trust Life Ins. Co., 910 F.2d 534, 536-37 (9th Cir.) (separately discussing these two standards of review), cert. denied, --- U.S. ----, 111 S.Ct. 581, 112 L.Ed.2d 587 (1990); Orozco v. United Air Lines, Inc., 887 F.2d 949, 951-52 (9th Cir.1989) (same).

III

The heart of appellants' first three claims is that Caterpillar's pension program contains an illegal offset provision pursuant to which appellants' benefits were impermissibly reduced. To understand this provision and appellants' objections to it one must first understand how Caterpillar's pension program works.

Employees at Caterpillar's San Leandro facility were eligible for benefits under either of two plans: the Non-Contributory (or "Union") Pension Plan or the Retirement Income (or "Management") Plan. The former was a defined benefit plan for the company's hourly employees, who were represented under a collective bargaining agreement with the International Association of Machinists. The latter was a defined benefit plan for the company's salaried, non-union employees. Originally, appellants were covered by the Union Plan, but after their promotions, their benefits accrued under the Management Plan. When they were demoted in the early eighties, however, they once again fell under the terms of the Union Plan.

To calculate the pension payable to an employee under the Union Plan, one multiplies the employee's years of service by eighteen dollars. Thus, a ten-year wage earner would be entitled to a monthly check of $180 during her retirement. The Management Plan, on the other hand, employs two formulas--the "final earnings formula" and the "credited service formula"--and it offers the participant whichever of the two resulting figures is greater. The parties agree that the final earnings formula produces a higher figure for appellants in this case. Under the pertinent terms of that formula, an employee's monthly pension is equivalent to the product of (a) his years of service "up to the date he was last employed as an Employee covered by the [Management] Plan" and (b) 1.5% of his average monthly compensation during the five of his final ten years for which he was most highly paid. Thus, a salaried employee who had ten years of management service and who had earned $2,500 per month in each of his final ten years would be entitled to receive $375 per month in retirement.

Although one might expect that appellants would receive benefits under the Union Plan for their years of hourly service and benefits under the Management Plan for their years of salaried service, Caterpillar did not structure its plans that way. Rather, the company dovetailed the two plans so that a retired employee would receive whatever benefits he had a right to receive under a single, integrated system. The effect of this dovetailing is the subject of appellants' complaint. Specifically, they challenge section 5.4 of the Union Plan, which states in part:

The amounts otherwise payable to a retired employee pursuant to the [eligibility provisions of this Plan] shall be reduced by ... (a) The retirement income, if any, under the Retirement Income [or Management] Plan, ... to which he is entitled

....

Appellants claim that this provision (and hence, Caterpillar's calculation of their benefits) violates ERISA. In particular, they contend that the offset works an impermissible forfeiture of "nonforfeitable" vested benefits in violation of ERISA's minimum accrual requirements. See 29 U.S.C. § 1002(19) (1988) (defining "nonforfeitable"); id. § 1054 (setting forth minimum accrual requirements).

To understand appellants' complaint,...