Zipf v. American Tel. and Tel. Co.

• Decision Date: 27 August 1986
• Docket Number: No. 85-3420,85-3420
• Citation: 799 F.2d 889
• Parties: , 7 Employee Benefits Ca 2289, 21 Fed. R. Evid. Serv. 374 Monica M. ZIPF, Appellant, v. AMERICAN TELEPHONE AND TELEGRAPH CO.
• Court: U.S. Court of Appeals — Third Circuit

Page 889

799 F.2d 889

55 USLW 2131, 7 Employee Benefits Ca 2289,

21 Fed. R. Evid. Serv. 374

Monica M. ZIPF, Appellant, v. AMERICAN TELEPHONE AND TELEGRAPH CO.

No. 85-3420.

United States Court of Appeals, Third Circuit.

Argued June 2, 1986.

Decided Aug. 27, 1986.

John E. Quinn (Argued), Evans, Rosen & Quinn, Pittsburgh, Pa., for appellant.

Walter G. Bleil (Argued), Scott F. Zimmerman, Reed, Smith, Shaw & McClay, Pittsburgh, Pa., for appellee.

Before GIBBONS, BECKER, and STAPLETON, Circuit Judges.

OPINION OF THE COURT

STAPLETON, Circuit Judge.

In this appeal we are called upon to decide whether a participant in a federally regulated employee benefits plan must exhaust internal administrative remedies before filing suit in federal court for alleged interference with her statutory rights. We find that no exhaustion is required, and so reverse the judgment of the district court.

I

Monica M. Zipf, appellant, was employed by the American Telephone & Telegraph Company, appellee ("AT & T"), from March 21, 1969 until April 5, 1984. In 1981, Zipf was diagnosed as suffering from rheumatoid arthritis. This illness, and its episodic "flare-ups," occasionally caused Zipf's absence from work. Her medical condition led to her taking a disability leave of absence from her employment, beginning on September 27, 1982. She remained on disability leave, which included a period of maternity leave, until, with the permission of her physician, she returned to work in July 1983. Zipf received disability benefits under the terms of AT & T's Sickness and Accident Disability Benefit Plan ("the plan") for at least part of this period.

After Zipf's return to full-time status, she continued occasionally to miss work on account of her illness. On Friday, March 30, 1984, Zipf's rheumatoid arthritis became aggravated and she began a period of absence that continued until the final day of her employment, Wednesday, April 5, 1984. On that day, Zipf's supervisor visited her at home and informed her that a decision had been made to terminate her because of her "excessive absenteeism."

Zipf alleges that under the terms of AT & T's plan, she would have been entitled to disability benefits beginning on the eighth calendar day of absence from work. As an employee with more than fifteen years of service with AT & T, she was potentially eligible for substantial benefits, in an amount equal to her full rate of pay for up to 26 weeks and at half pay for the following 26 weeks. Moreover, if her disability had thereafter continued to prevent her return to work, she then might have been able to obtain benefits under AT & T's Long Term Disability Plan.

Zipf's eighth day of absence from work as a result of illness would have been April 6, 1984. Zipf asserts that she was terminated on the seventh calendar day of absence, April 5, 1984, to prevent her from potentially qualifying for the substantial benefits for which she would have become eligible on April 6 and to eliminate a "disability problem." Zipf filed a complaint against AT & T in the district court, alleging that she had been fired in violation of state law and Section 510 of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Sec. 1140, the provision of that Act which protects employees from interference with their statutory and plan rights. Zipf sought reinstatement, back-pay, and other equitable restitution.

Following discovery, AT & T moved for summary judgment. It argued that Zipf failed to exhaust the internal administrative remedies made available by the plan and that she should not be permitted to bring this suit until she has done so. Second, AT & T asserted that, because there are no genuine issues of material fact, it was entitled to summary judgment as a matter of law.

The district court granted summary judgment to AT & T on its exhaustion theory, without reaching the company's alternative ground, and dismissed the Section 510 claim without prejudice. The court also dismissed Zipf's pendent state law claim as preempted by ERISA. Zipf has appealed the district court's ruling that the failure to exhaust administrative remedies barred her Section 510 suit. She has not appealed the dismissal of her pendent state claim for wrongful discharge.

The parties agree that Zipf was a participant in the Sickness and Accident Disability Benefit Plan, a plan subject to ERISA. As mandated by ERISA Section 503, 29 U.S.C. Sec. 1133, the plan includes claims and appeals procedures which give participants certain rights regarding the determination of eligibility for disability benefits. ¹ AT &amp T admits that this plan provides disability benefits beginning on the eighth day of a disability only "so long as said employee remain[s] an employee for that eight (8) day period," a condition that Zipf did not satisfy. Zipf did not seek benefits under the plan before bringing this action.

II

Zipf's federal claim is based upon Section 510 of ERISA which provides:

[It is unlawful] for any person to discharge ... or discriminate against a participant or beneficiary ... for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan, this subchapter, or the Welfare and Pension Plans Disclosure Act.... 29 U.S.C. Sec. 1140.

Congress enacted this section to prevent unscrupulous employers from discharging or harassing their employees in order to prevent them from obtaining their statutory or plan-based rights. West v. Butler, 621 F.2d 240, 244-26 (6th Cir.1980). This was done "in order to completely secure the rights and expectations brought into being by this landmark reform legislation." S.Rep. No. 127, 93d Cong., 2d Sess., reprinted in 1974 U.S. Code Cong. & Admin. News 4838, 4872.

This case presents two distinct exhaustion issues. The first is whether Zipf, before seeking judicial relief on her Section 510 claim, was required to submit that claim to the plan. In similar situations, the Seventh and Eleventh Circuits have held that such a submission to the plan should normally be required. Kross v. Western Electric Co., 701 F.2d 1238 (7th Cir.1983) (affirming a district court decision requiring employee first to present his claim of discrimination to the plan); Mason v. Continental Group, Inc., 763 F.2d 1219 (11th Cir.1985), cert. denied --- U.S. ----, 106 S.Ct. 863, 88 L.Ed.2d 902 (1986) (claims grounded in statutory provisions of ERISA should be required first to be brought through plan's appeals procedures). The Ninth Circuit has reached a contrary conclusion. Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir.1984) (claim arising from alleged breach of ERISA Section 510 not subject to exhaustion requirement). The second issue is whether Zipf, before seeking judicial relief on her Section 510 claim, must submit to the plan the question of whether she would have been eligible for benefits had she not been discharged.

The district court in this case resolved the first issue in favor of requiring exhaustion, relying primarily on our decision in Wolf v. National Shopmen, 728 F.2d 182, 185 (3d Cir.1984). We disagree with the district court's reading of that case. In Wolf, we held that a party bringing an action under ERISA section 502(a)(1)(B), 29 U.S.C. Sec. 1132(a)(1)(B), to enforce or clarify the terms of a benefit plan, must exhaust administrative remedies. Wolf does not govern actions, such as Zipf's, which are premised on Section 502(a)(3), 29 U.S.C. Sec. 1132(a)(3) and are brought not to enforce the terms of a plan, but to assert rights granted by the federal statute.

We decline AT & T's invitation to find in ERISA an implied exhaustion requirement applicable to substantive rights conferred by that Act. First, we find no indication in the Act or its legislative history that Congress intended to condition a plaintiff's ability to redress a statutory violation in federal court upon the exhaustion of internal remedies. The provision relating to internal claims and appeals procedures, Section 503, refers only to procedures regarding claims for benefits. ² There is no suggestion that Congress meant for these internal remedial procedures to embrace Section 510 claims based on violations of ERISA's substantive guarantees.

On the contrary, the legislative history suggests that the remedy for Section 510 discrimination was intended to be provided by the courts. 2 Legislative History of the Employee Retirement Income Security Act of 1974, 1641-42 (1976) (remarks of Sens. Hartke and Javits). ³ Indeed, an amendment that would have created an administrative remedy for Section 510 claims, to be established by the Department of Labor, was defeated. See Id., at 1774-75, 1835-37. ⁴

Moreover, we believe this court has heretofore rejected the underlying premise of AT & T's argument in Barrowclough v. Kidder, Peabody & Co., Inc., 752 F.2d 923 (3d Cir.1985). In Barrowclough, while recognizing the strong national policy favoring arbitration, we held that suits alleging violation of substantive rights conferred by ERISA can be brought in a federal court notwithstanding an agreement to arbitrate. We there observed:

With the enactment of ERISA, we must now accommodate its policy of providing federal court access and federal law remedies to pension claimants and their beneficiaries with the federal policy favoring enforcement of arbitral agreements embodied in the Federal Arbitration Act, 9 U.S.C. Secs. 1-13 (1982).

We conclude the most reasonable accommodation is to hold that claims to establish or enforce rights to benefits under 29 U.S.C. Sec. 1132(a) that are independent of claims based on violations of the substantive provisions of ERISA are subject to arbitration, (citations omitted) while claims of statutory violations can be brought in a federal court notwithstanding an agreement to arbitrate. (citations omitted) Under the distinction we make between statutory and contractual claims, ERISA neither completely supplants nor is...