Ziaee v. Vest
| Decision Date | 21 November 1990 |
| Docket Number | 89-3699,Nos. 89-3621,s. 89-3621 |
| Citation | 916 F.2d 1204 |
| Parties | 12 Employee Benefits Ca 2748 Mahmoud ZIAEE and John L. Sherlock, Plaintiffs-Appellees, v. T. Bruce VEST, et al., Defendants-Appellants. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Scott Hendricks, Mark C. Goldenberg, Goldenberg & Hendricks, Granite City, Ill., for plaintiffs-appellees.
Steven H. Akre, David H. Wendt, Clayton, Mo., Richard J. Pautler, Ian P. Cooper, Peper, Martin, Ensen, Maichel & Hetlage, St. Louis, Mo., for defendants-appellants.
Before FLAUM, EASTERBROOK, and KANNE, Circuit Judges.
Vest Medical Consultants, Ltd., is a small firm of radiologists with two pension plans. From July 1977 through June 1985 Vest Medical Consultants (VMC) employed Mahmoud Ziaee and John L. Sherlock. Promptly after they left the firm, VMC tendered cashier's checks for their interests in VMC's two pension plans: $96,119 for Ziaee and $94,397 for Sherlock. T. Bruce Vest, the sole stockholder of VMC and administrator of the pension plans, gave Ziaee and Sherlock statements showing how he calculated these sums and a letter informing them that the amounts for Plan 2 would be recalculated by an actuary, with any differences to be remitted later.
Ziaee and Sherlock neither cashed nor returned the checks. In September 1985 Vest sent them the calculations performed by the Massachusetts Mutual Insurance Company, together with checks for an additional $136,716 (Ziaee) and $45,871 (Sherlock) as final payment. This time Vest asked for a release of further claims, including claims to salary or other compensation from VMC. Ziaee and Sherlock did not respond until November, when they offered to accept Vest's original calculations of the benefits under Plan 1 if Vest would accept the computations a second actuary had made under Plan 2 and issue new checks--checks Ziaee and Sherlock thought necessary to avert substantial tax liabilities. (The Internal Revenue Code allows only 60 days to roll over retirement funds into new plans free of tax on the initial distribution, 26 U.S.C. Sec. 402(a)(5); Ziaee and Sherlock thought, whether rightly we need not decide, that new checks would restart the time.) The difference between the two computations for Plan 2 was about $6,817 for Ziaee and $508 for Sherlock. Vest declined unless Ziaee and Sherlock would settle any outstanding dispute about salary. There the matter stood: Ziaee and Sherlock had checks, which they neither cashed nor returned, and VMC was unwilling to pay extra.
This dispute about $7,325 has led to a net judgment of $268,500. After a bench trial in this ERISA suit, the district judge awarded Ziaee and Sherlock benefits exceeding by $22,600 (Ziaee) and $8,500 (Sherlock) the amounts VMC tendered. (We discuss below why these sums exceed the gap between the positions in 1985.) The court tacked on $49,120 in statutory penalties, after concluding that VMC tarried in responding to the plaintiffs' requests for documents, and $125,000 in prejudgment interest. To top things off, the court ordered VMC to pay more than $65,000 in attorney's fees. Defendants' appeal contests every aspect of this award.
Relying on Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), the district judge construed and applied VMC's pension plan de novo. VMC contends that it is entitled to deference because
Trust principles make a deferential standard of review appropriate when a trustee exercises discretionary powers.... A trustee may be given power to construe disputed or doubtful terms, and in such circumstances the trustee's interpretation will not be disturbed if reasonable.
Firestone, 489 U.S. at 111, 109 S.Ct. at 954. VMC identifies two sections of the plan document that, it believes, give the trustee the "power to construe disputed or doubtful terms":
If after review [of a denial of benefits] the [plan's] Administrator concludes that the denial of benefits was erroneous or contrary to this Plan or the law, the Administrator shall take such action as shall be appropriate to provide such benefit.
The Trustees shall determine, in view of the current circumstances and needs of the Plan, the portion of contributions and funds held under the Plan to be allocated to and invested in the General Investment Account and such Pooled Separate Investment Account pursuant to the terms of the Conversion Account Agreement. Unless the Employer directs otherwise, the Trustees shall have the right and power to invest Plan funds in an Investment Fund to be administered by the Trustees.
The second of these provisions creates discretion over investment strategies but does not affect the computation of benefits due, given the strategy selected. Ziaee and Sherlock do not contest the plans' investment strategies. The first section decides who within the plans' structure (employer, trustee, administrator) has final authority over benefits. It does not create a "power to construe disputed or doubtful terms"; it does not mention construction.
Cases in this circuit have considered a number of variations on the theme of discretion. We have decided, for example, that a grant of power to "construe and interpret" the plan requires deferential review, see Fuller v. CBT Corp., 905 F.2d 1055, 1058 (7th Cir.1990), cf. Sisters of the Third Order of St. Francis v. SwedishAmerican Group Benefit Trust, 901 F.2d 1369 (7th Cir.1990), but that a grant of power to make "final and binding" decisions does not imply discretion to construe terms, Petrilli v. Dreschel, 910 F.2d 1441 (7th Cir.1990). See also Exbom v. Central States Health & Welfare Fund, 900 F.2d 1138, 1141-42 (7th Cir.1990); Michael Reese Hospital v. Solo Cup Employee Health Benefit Plan, 899 F.2d 639 (7th Cir.1990); Bali v. Blue Cross & Blue Shield Ass'n, 873 F.2d 1043, 1047-48 (7th Cir.1989). VMC's plans give the Administrator power to decide but do not imply discretion to construe. They are on the Petrilli side of the line, and the district judge properly reached his own decision about the plans' meaning.
The portion of the plan in dispute provides that VMC This is a corporate resolution, not part of the plan documents, but the parties treat it as if it were part of the plan (as shall we, without deciding whether the treatment is appropriate). The district court concluded that this language requires Plan 1 to guarantee the participants a 7% annual return. If the plan's earnings fall short of 7% in any year, VMC must top it up; if earnings exceed 7%, the participants keep the surplus. VMC contends that the resolution does not create an annual accounting period, so that returns over 7% in some years must be netted against shortfalls in others before determining how much if anything the corporation must add. A third reading is possible: the resolution sets the return at exactly 7%, because any "change other than the 7% (seven) return ... will be retained by the corporation". But VMC does not argue for this reading.
If the choice is between an annual accounting period and one measured by the life or employment of the participant, the district judge was entitled to choose the former. It is implied by the 7% figure, which must refer to an annual rate of return. VMC argues that the resolution "makes no express reference to an 'annual ' return on investments" (emphasis in original). True, the reference is not "express", but this is not Argentina. The 7% is not a daily or weekly or monthly rate of return. Returns on pension plans (or other investments) always depend on the choice of accounting period, and the only one implied by this language is the year.
Plan 2 is another matter. The district judge did not identify any error VMC made, equivalent to its omission of the 7% annual minimum for Plan 1. Three computations for Plan 2 were offered into evidence. One was performed by Matt Fischer, the actuary from Massachusetts Mutual. Although VMC hired Fischer, his calculation was independent of any interest Vest had in reducing the payout from his firm's pension fund. Another was performed by Frederick Reed, an expert plaintiffs retained. The third came from Lannert & Wagner (L & W), the firm that drafted VMC's plans. Their calculations were:
L & W Fischer Reed
Ziaee $170,843.61 164,026.48 165,843.46
Sherlock 59,380.16 58,871.89 56,962.47
Reed admitted that Fischer used an appropriate methodology, and the two came within 1% of agreement. L & W's calculation is higher than both Reed's and Fischer's, in large measure because it computed the value of Ziaee and Sherlock's interests as of September 30, 1985, while Reed and Fischer used June 23, 1985. About half of the difference between the L & W and Fischer computations may be attributed to the time value of the money in the interim.
Neither Lannert nor Wagner testified. The record contains a one-page letter stating the results of the calculation but not the method. L & W does not explain why its results differ from Reed's and Fischer's by more than the rate of return during the intervening months. The district judge found no flaw in Fischer's calculations. The court's entire explanation for choosing L & W's calculation is: "The Court concludes that [L & W's] calculations ... are the correct figures because [t]his firm ... dealt most extensively with the VMC pension plans and served as plan actuary for a number of years." L & W's experience with VMC's plans may have helped it reach a correct conclusion, but it is not a reason why the particular conclusion it reached is correct, and Fischer's wrong.
Despite its name, "de novo" review does not imply that the judge...
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