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. e du/thir dc ir c uit_2000/110Filed February 29, 2000

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 98-2052

ROBERT J. HARTE, Appellant

v.

BETHLEHEM STEEL CORPORATION; GENERAL PENSION

BOARD OF THE BETHLEHEM STEEL CORPORATION
AND SUBSIDIARY COMPANIES; MICHAEL P. DOPERA, Secretary, Employee Benefits Administration Committ ee

On Appeal From the United States District Court For the Eastern District of Pennsylvania (D.C. Civ. No. 97-cv-06528) District Judge: Honorable Edward N. Cahn

Argued: September 28, 1999

Before: BECKER, Chief Judge, McKEE, and NOONAN* Circuit Judges.

(Filed: February 29, 2000)

DONALD P. RUSSO, ESQUIRE (ARGUED)
60 West Broad Street P.O. Box 1890, Suite 300 Bethlehem, PA 18016

Counsel for Appellant

___________________________________________________ ______________ * Honorable John Noonan, United States Circuit Judg e for the Ninth Circuit, sitting by designation.G. STEWART WEBB, JR., ESQUIRE

(ARGUED)
RANDOLPH STUART SERGENT,
ESQUIRE Venable, Baetjer and Howard, LLP 1800 Mercantile Bank & Trust Bldg. 2 Hopkins Plaza Baltimore, MD 21201

KATHLEEN M. MILLS, ESQUIRE Bethlehem Steel Corporation
Law Department 1170 Eighth Avenue Bethlehem, PA 18016-7699

Counsel for Appellees

OPINION OF THE COURT

BECKER, Chief Judge.

This appeal, arising out of a claim for pension ben efits under ERISA, is set in the familiar factual pattern of an employee's being denied a more advantageous pension because of a minor shortfall in the required period of
service. Robert J. Harte had accrued credit for fou rteen years, eleven months, and eleven days at Bethlehem Steel when the benefits plan administrator terminated his continuous service (for pension purposes) because H arte had been absent from work for two years. When Harte 's service was terminated, he was nineteen days short of eligibility for the "70/80" pension he now seeks. H arte
claims that he did not learn that his service had b een "broken," and hence that he had not accrued the fif teen years required for the pension, until approximately eight years later. After finally being notified of his sh ortfall, Harte sued, raising a host of arguments for why Bethlehem was required to give him the 70/80 pension, including arguments as to why his continuous service should n ever have been severed. The District Court granted summa ry judgment for Bethlehem.

2Harte's strongest claim is a breach of fiduciary du ty

claim. He argues that (1) the plan document was ambiguous about when a break in service would be effected, (2) he reasonably believed that he was st ill employed under the terms of the plan, and therefore (3) Bethlehem, as an ERISA fiduciary, should have at le ast
notified him that it was about to break his service . The primary issue presented by this appeal is whether E RISA requires plan administrators, as fiduciaries, to ti mely inform plan beneficiaries that their service is bei ng broken if the severance is made pursuant to an ambiguous p lan provision that a reasonable person could interpret differently from the administrator. We conclude tha t it does, giving rise to the ancillary issues of whether the plan provision is ambiguous, whether it is material, and whether Harte detrimentally relied on it.

The phrase at issue in this case is "compensable disability." The Bethlehem plan provides that an em ployee may receive a 70/80 pension after fifteen years of "continuous service." It states that although conti nuous service is broken two years after leaving work for a disability, it is not broken if the reason for leav ing is a "compensable disability incurred during course of employment." Bethlehem represents that the plan administrator, within his authority, has consistent ly interpreted this phrase to apply only to work-relat ed disabilities that are compensated by state worker's compensation, which Harte did not receive. However, Harte applied for, received, and continues to receive, compensation for his disability through the company 's long term disability program. On this ground, he contend s that
his service should never have been broken because h e has a "compensable disability incurred during course of employment." He submits that the term "compensable disability" is ambiguous as to whether it comprehen ds long term disability benefits as well as worker's compen sation
benefits.

Although we agree with Bethlehem that the plan administrator had the authority to make the interpr etation that he did and to effect the severance, our preced ent requires us to conclude that the company also had a

3fiduciary duty to timely inform Harte of its interp retation.

We have consistently held that a fiduciary may not make inconsistent or confusing statements or fail to dis close material facts about a plan. It follows that when a material plan provision regarding severance is ambiguous and beneficiaries might predictably rely on an alternat e interpretation, a fiduciary may be held liable for failing to
inform them that their service has been broken at a time at which they could attempt corrective action or seek
alternatives.

In short, a plaintiff may succeed on a claim under S 502(a)(3) of ERISA when he adduces evidence that (1) a plan provision is material; (2) it is susceptible o f multiple reasonable interpretations; (3) the plaintiff relie d on it to his detriment; and (4) the company did not timely notif y the plaintiff of its interpretation. We therefore vacat e the grant of summary judgment and remand the case for further proceedings on the breach of fiduciary duty claim. 1 The District Court properly granted summary judgment fo r Bethlehem on all other issues, and we affirm summar ily with respect to these claims.2

___________________________________________________ ______________

1. Bethlehem argues that Harte should not be allowe d to proceed on this claim because it was inadequately pled. Harte did n ot cite S 502(a)(3) in his complaint, nor did he seek to amend the complai nt. His complaint does, however, allege the lack of notification, and his papers refer to several cases that revolve around S 502(a)(3) claim s. Moreover, the
District Court discussed this claim in the context of one of those cases,
Bixler v. Central Pa. Teamsters Health & Welfare Fu nd, 12 F.3d 1292 (3rd Cir. 1993) (a breach of fiduciary duty case th at we discuss more fully infra Section II). We are satisfied that, giv en our broad notice pleading standards, Harte's breach of fiduciary dut y claim has been adequately pled.

2. Harte contends that, given the ambiguity of the plan provisions, Bethlehem could not interpret the plan in a fashion that inhered to its own benefit. However, under the aegis of Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 114-15 (1989), when an ERIS A plan provides the plan administrator with fiduciary discretion, court s generally use the arbitrary and capricious standard to review the adm inistrator's decisions. Paragraphs 5.3(a) and 8.1 of the Bethleh em plan grant the administrator the discretion to interpret the "cont inuous service" provision. Even where the company is both the plan sponsor and plan

4I.

As far as is pertinent to this appeal, Harte worked at Bethlehem in several capacities between 1973 and 19 86.3 On January 27, 1986, Harte, then a project engineer , left work because of cardiac problems (angina from a pri or anteriolateral myocardial infarction). He did notfi le for, or receive, state worker's compensation benefits. He d id, however, file for, and receive, long term disabilit y (LTD) benefits through the company's benefits program, wh ich he was still receiving as of the date he filed the pre sent lawsuit. On January 27, 1988, after crediting Harte with 14 years, 11 months, and 11 days of "continuous servic e,"
Bethlehem terminated his service. This left Harte n ineteen days short of being eligible for pensions which wou ld provide greater benefits than the deferred vested p ension to which he is currently entitled.

The Bethlehem Plan provides that continuous service breaks two years after active employment ends due t o layoff or a disability, but does not break if an employee leaves active employment due to a "compensable disability incurred during course of employment."4 Michael Do pera,

___________________________________________________ ______________

administrator we have applied the arbitrary and cap ricious standard of Bruch. See Abnathya v. Hoffman-La Roche, Inc., 2 F. 3d 40, 45 n.5 (3d Cir. 1993). Applying that standard, Bethlehem's pla n administrator did
not abuse his discretion when he concluded that Har te did not have a "compensable disability incurred during course of e mployment." Reviewing the documents available to him, there was no clear indication that his disability was work-based, and it was with in the plan
administrator's discretion to conclude that those o n worker's compensation should be credited for continuous serv ice for the time that they were on worker's compensation, while those who left for other disability-based reasons should not be so credited. The issue decided in the text is, of course, a different one.

3. Harte also worked for Bethlehem briefly in 1952 and again between 1962 and 1967. His claim that his previous service must be used to calculate the time he can credit towards his pensio n claims is patently without merit and we reject it without further disc ussion.

4. In section 5.1 the term "continuous service" is defined (emphasis
added):

5plan administrator of the Bethlehem Pension Plan, t estified

by deposition that he broke Harte's continuous serv ice in January 1988, because he left for medical reasons b ut did not have a "compensable disability" within the mean ing of the plan. According to Dopera, "compensable disabil ity incurred during course of employment" has always be en interpreted by his office to apply only to those di sabilities "where the recipient is getting worker's compensati on benefits." Dopera conceded that there was no docume nt available to the employees in which this interpreta tion was

___________________________________________________ ______________

The term "continuous service" as used in thi s Plan means continuous service in the employ of one or m ore of the Employing Companies, except as in this Section 5 other wise provided, prior to retirement calculated from the Employee's la st hiring date (this
means in the case of a break in continuous s ervice, continuous
service shall be calculated from the date of reemployment following
the last unremoved break in continuous servi ce) in accordance with the following provisions; provided, however, that the last hiring

date prior to the effective date of this Plan sha ll be based on the practices
in effect at the time the break occurred:

(a) There shall be no deduction for any time lost which does not constitute a break in continuous service, ex cept that in determining length of continuous service for pension purposes:

(1) that portion of any absence which cont inues beyond two years from commencement of absence due to a layoff or disability shall not be creditable as contin uous service; provided, however, that absence in excess of two years due to a compensable disability incurred during cou rse of employment shall be creditable as continuous service, i f the Employee is returned to work or retires within 30 days a fterfinal payment of statutory compensation for such disabilit y or after the end of the period used in calculating lump sum p ayment

. . .

(b) Continuous service shall be broken by:

(4) absence which continue for more than t wo years, except that (i) absence in excess of two years due to a compensable disability incurred during course of employm ent shall not break continuous service, provided the Emplo yee is returned to work or retires . . . .; (ii) if an Emplo yee is absent on account of layoff or disability in excess of two years . . .

6announced or formalized. Nor did he suggest that th e plan

mandated that interpretation, but rather that the p lan "provides that we have the right to interpret prov isions under the administration section. We interpret the compensable disability occurred during course of employment to mean someone actually getting worker' s compensation payments." (emphasis added).

In November 1995, Harte received a letter stating t hat his continuous employment had been severed as of Januar y 27, 1988, seven years and ten months earlier, and t hat he was eligible for a deferred vested pension. He imme diately objected and wrote several letters to the company. Bethlehem apologized for not informing him earlier, blaming the lack of official notice on a "clerical error." Bethlehem represents that it has a policy of notify ing plan participants that their service has been broken sho rtly after
the severance and there is no evidence that it does not generally do so, or that Bethlehem was acting in ba d faith when it failed to notify Harte in 1988.

Harte filed suit in District Court advancing severa l claims. As far is as is relevant for this appeal, t he Court rejected Harte's contention that Bethlehem had an obligation to notify him when he was severed becaus e: (1)
it concluded that there was no evidence that Bethle hem had acted in bad faith; and (2) it believed that th ere was no fiduciary obligation to inform Harte that his servi ce had broken. The Court granted summary judgment across t he board for Bethlehem, and this appeal followed.5

___________________________________________________ ______________

5. We exercise plenary review over such a decision, see Olson v. General Elec. Astrospace, 101 F.3d 947, 951 (3d Cir. 1996), and apply the same test the District Court should have applied in thef irst instance, see Lawrence v. National Westminster Bank, New Jersey , 98 F.3d 61, 65 (3d Cir. 1996). We must therefore determine whether the record, when viewed in the light most favorable to Harte, shows that there is no genuine issue of material fact and that defendants are entitled to judgment as a matter of law. See Salley v. Circuit City Stores, Inc., 160 F.3d 977, 980 (3d Cir. 1998).

7II.

Harte seeks equitable relief under ERISA S 502(a)(3 ) (codified at 29 U.S.C. S 1132(a)(3)), a"catchall" p rovision, which "act[s] as a safety net, offering appropriate equitable relief for injuries caused by violations that S 502 does not elsewhere adequately remedy," including violations of S 404. Varity v. Howe, 516 U.S. 489, 512 (1996). The alleg ed violation of ERISA involves S 404 (codified at 29 U .S.C. S 1104), which defines fiduciary duties owed by pla n administrators to their beneficiaries.6

In its declaration of policy, ERISA states:

[O]wing to the lack of employee information and adequate safeguards concerning their operati on, it is desirable in the interests of employees and their
beneficiaries . . . that disclosure be made and safeguards be provided with respect to the establishment, operation, and administration of such plans.

. . .

It is hereby declared to be the policy of th is chapter to protect . . . the interests of participants in employee benefit plans and their beneficiaries, by re quiring the disclosure and reporting to participants and
beneficiaries of financial and other informa tion with respect thereto, by establishing standards o f conduct,

___________________________________________________ ______________

6. Section 404(a)(1) provides that:

a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and benefic iaries and--

(A) for the exclusive purpose of:

(i) providing benefits to participants and t heir beneficiaries; and

(ii) defraying reasonable expenses of admini stering the plan;

(B) with the care, skill, prudence, and dili gence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters woul d use in the conduct of an enterprise of a like character and wit h like aims;

. . .

8responsibility, and obligation for fiduciari es of

employee benefit plans, and by providing for

appropriate remedies, sanctions, and ready a ccess to
the Federal courts.

29 U.S.C. SS 1001(a),(b).

In interpreting similar claims, we have looked to t hese statements and noted that ERISA was enacted, in par t, to ensure that employees receive sufficient informatio n about their rights under employee benefit plans to make w ellinformed employment and retirement decisions. See J ordan v. Federal Express Corp., 116 F.3d 1005, 1012 (3rd Cir. 1997). The goals of the "fiduciary duty jurispruden ce" arising out of ERISA are " `to protect and strength en the rights of employees, to enforce fiduciary standards , and to encourage the development of private retirement pla ns.' " Id. at 1014 (quoting In re Unisys Savings Plan Litig., 74 F.3d 420, 434 (3d Cir. 1996)).

These ends are partially served through ERISA's reporting requirements. But the fiduciary duty to d isclose and explain is not achieved solely by technical com pliance with the statutory notice requirements. In In re Un isys Corp. Retiree Med. Benefit "ERISA" Litig. , 57 F.3d 1255 (1995), we stated that

satisfaction by an employer as plan administ rator of its statutory disclosure obligations under ERISA does not foreclose the possibility that the plan admi nistrator may nonetheless breach its fiduciary duty ow ed plan participants to communicate candidly, if the plan administrator simultaneously or subsequently makes material misrepresentations to those whom th e duty of loyalty and prudence are owed.

Id. at 1264.

The contours of these duties must be defined by the courts in "develop[ing] a federal common law of rig hts and obligations under ERISA-regulated plans." Varity, 5 16 U.S. at 497 (citing Firestone Tire & Rubber Co. v. Bruch , 489 U.S. 101, 110-11(1989)). Administrators have a fidu ciary duty "not to misinform employees through material misrepresentations and incomplete, inconsistent or

9contradictory disclosures." Unisys, 57 F.3d at 1264 . Not all

misleading statements or omissions by a fiduciary a re actionable, only those that are material. A represe ntation or
omission is material if "there is a substantial lik elihood that it would mislead a reasonable employee in making an adequately informed retirement decision." Unisys, 5 7 F.3d at 1264. The issue of materiality is a matter for t he factfinder if reasonable minds can differ on whether a misleading statement or omission would affect a rea sonable employee's retirement decision. See Fischer v. Phil adelphia Elec. Co., 994 F.2d 130, 135 (3d Cir. 1993).

This case does not involve affirmative misrepresent ations. However, we have made clear that a fiduciary not on ly has a negative duty not to misrepresent material facts to plan beneficiaries, but also a corresponding affirmative duty to speak "when the trustee knows that silence might be
harmful." Bixler v. Central Pa. Teamsters Health & Welfare Fund, 12 F.3d 1292, 1300 (3rd Cir. 1993). The duty extends to "those material facts, known to thefiduc iary but unknown to the beneficiary, which the beneficiary m ust know for its own protection." Glaziers & Glassworke rs Union Local No. 252 Annuity Fund v. Newbridge Sec., Inc., 93 F.3d 1171, 1182 (3rd Cir. 1996). "The duty to di sclose material information is the core of a fiduciary's responsibility." Id. at 1281 (quoting Bixler, 12 F. 3d at 1300).

In Bixler, a widow sued her husband's former employ er for failing to provide complete and accurate inform ation about her insurance options, a failure which she cl aimed harmed her by leading her not to select a particula r option.
See 12 F.3d at 1296. We held that an ERISA fiduciar y who explains insurance benefits has a "duty to convey c omplete and accurate information," and remanded part of the case to the district court to determine whether material facts
were withheld from her and if the defendant was act ing as a fiduciary. Id. at 1302.

In Jordan v. Federal Express Corp., 116 F.3d 1005, 1006- 10 (3rd Cir. 1997), the plaintiff learned--only aft er retirement and divorce--that he could not transfer the benefits of his plan to his new wife, and that the plan was irrevocable. These details about the plan were in t he plan

10document itself, but Jordan never requested nor rec eived a

complete copy of the plan, and he claimed that he w ould have chosen a different plan had he known. He did r eceive a written summary of his retirement options that di d not include a reference to irrevocability. Nonetheless, we held that a reasonable fact finder could conclude that, despite its full compliance with ERISA and plan-based repor ting requirements, the plan administrator had breached i ts fiduciary duty by failing to provide him this infor mation.
See id. at 1016.

Bethlehem argues that Jordan is distinguishable bec ause in Jordan the plan administrator had already acted and provided incomplete information. See id. at 1016-17 . It contends that sending Jordan information triggered a duty to provide complete information about the plan, and since Bethlehem did not provide any information, a duty o f completeness cannot have been triggered here. This argument fails for two reasons. First, the Jordan p anel did not base the duty to inform completely on the compa ny's prior limited effort at communication. See id. Sec ond, providing a written plan is itself an affirmative a ct. In a plan, as in a summary plan document, beneficiaries have reason to expect that complete information about al l material provisions is available to them when they review the document. Confusing or incomplete information i n a plan is at least as likely to cause reliance on a r easonable misinterpretation as is confusing or incomplete inf ormation in a summary of the plan. Indeed, when a summary pl an or letter includes incomplete information, the employe e retains the possibility of reviewing the entire plan, where as there
are no more authoritative documents to review when the ambiguous provision is in the plan itself.

Therefore, we conclude that there is an incomplete disclosure when, as in this case, a material plan p rovision, easily accessible by a beneficiary, uses terms that are susceptible to reasonable misinterpretation and det rimental reliance thereon. Naturally, in considering the "reasonableness" of a beneficiary's interpretation, the company's own pronouncements and widely-known company practice must be taken into account; if a c ompany adequately informs beneficiaries of its interpretat ion of a

11term (when it retains discretion to interpret), it would be

patently unreasonable to understand it otherwise. 7 The "duty to convey complete and accurate information," Bixler, 12 F.3d at 1302, logically encompasses a duty to us e clear language when describing material terms in a plan, or explain it when it is unclear. The failure to notif y a beneficiary that his or her service is being broken pursuant to an ambiguous provision falls within the category of breaches of duty for "failure to disclose" outlined in Bixler, Jordan, Glaziers, and Unisys.

III.

Applying this framework, we conclude that Bethlehem should not have been granted summary judgment on Harte's breach of fiduciary duty claim. The term "compensable disability incurred during the course of employment" is a material term in the context of th e plan. The meaning of the phrase affects whether one's employment is considered continuous or broken off, and a fiduciary acting with care, skill, and prudence wou ld know that an employee would want--and need--to know whet her his or her disability fell within this category. It is the kind of phrase that is likely to "mislead a reasonable e mployee in making an adequately informed retirement decision." Unisys, 57 F.3d at 1264. If Harte knew that he was not included in this category, he could have tried to r eturn to less strenuous work for at least nineteen days, or attempted to find work, either at Bethlehem or else where, that would allow him to receive better insurance, o r he could have encouraged his wife to seek employment t hat
would better insure them both.

The disputed phrase is:

[A]bsence in excess of two years due to a co mpensable disability incurred during course of employm ent shall
not break continuous service.

___________________________________________________ ______________

7. Although we focus on Bethlehem's failure to noti fy in this case, we note that it could just as easily have fulfilled it s fiduciary duties by using clear language in the plan--i.e., a statement that" compensable disability" only applied to individuals receiving s tate worker's compensation.

12Bethlehem claims that this phrase has consistently been

interpreted to cover only those cases where a parti cipant applied for and received worker's compensation for a workrelated injury. However, Dopera himself called his reading of the phrase an "interpretation," suggesting that the language did not mandate a particular result. Altho ugh the phrase could refer only to those disabilities arisi ng out of work, a reasonable person could also read this phra se to apply to any disability, illness, or injury that ca me upon an employee during the broad time frame of "active employment." Certainly, someone such as Harte who w as actually receiving compensation for his medical con dition through Bethlehem's long term disability program co uld think that he had suffered a "compensable disabilit y."8 There is a genuine issue of material fact as to whe ther the phrase is susceptible of multiple reasonable interp retations.

Of course, this phrase cannot be read in a vacuum, and it is possible that Bethlehem will present evidence at trial that will demonstrate that in the context of employ ment with that company, it was not reasonable to expect that the phrase would be differently interpreted. However, construing the facts in the light most favorable to Harte, as we must at this juncture, we conclude that the phra se was susceptible to at least two reasonable interpretati ons, one of which would cover someone like Harte, who was receiving compensation through long term disability
benefits.

As to the detrimental reliance question, Bethlehem argues that there is insufficient evidence that Har te relied on his misinterpretation of the plan. Therefore, th e argument continues, since no harm flowed from the f ailure of communication, the failure to notify should not be
actionable. Harte counters that had he learned of h is severance, either immediately or within a short tim e afterwards, he would have taken several steps. He s ubmits

___________________________________________________ ______________

8. Harte also claims that his illness was due in pa rt to the stress of work, and adduced evidence that his doctor, at the time he left Bethlehem, concurred in this view. This evidence ad ds weight to his claim that he reasonably believed that his disabili ty was "incurred during the course of his employment."

13that he could have gone back to work for nineteen d ays and

then attempted to join those days to his previous f ourteen odd years (as the plan allows), or, alternatively, he could have applied for different pensions or invested in separate insurance. Although Harte has not put evidence in t he record of alternate pensions for which he could hav e applied, we believe that he could have at least att empted to

return to work.

Bethlehem notes that he had no absolute right to re turn to work, and that Harte was physically infirm and incapable of working according to his own physician

. However, just as we cannot assume that Bethlehem wo uld have accepted a petition for such a brief tour of d uty, we similarly cannot assume that it would not have. Har te had cardiac troubles, and now claims that he has Parkin son's disease. Although these disabilities may be incompa tible with long term labor, Harte might have been able to put in a few weeks of consulting (his work did not require heavy labor) to achieve his desired pension, and Bethlehe m might have accommodated him. Moreover, as noted above, Ha rte could have sought out alternate sources of insuranc e. We are satisfied that although Harte had no absolute r ight to return to work and possibly lacked the ability to d o so, a reasonable jury could conclude, even on this spare record, that had he known that he was no longer receiving c redit
for "continuous service" he could have acted in a w ay to protect himself.9 Now, eight years later, his physi cal condition may have deteriorated such that he can no longer obtain the protections he might previously have sou ght.

___________________________________________________ ______________

9. Bethlehem also argues that even if it had a duty to notify Harte, it would not apply to the moment of discharge, but rat her, as is its policy, "within a reasonable period following a break in se rvice." Therefore,
"[t]he
date on which Plaintiff received a Notice of Deferr ed Vested Pension could not possibly alter the benefits to which he i s entitled under the Plan." However, Bethlehem's internal policy of noti fication does not circumscribe its fiduciary duties under ERISA. If E RISA requires that fiduciaries notify individuals of ambiguities in pl an documents if they might reasonably be respected to rely, to their det riment, on an incorrect reading of an ambiguity, a company may not avoid th is duty by establishing a lesser reporting requirement for its elf.

14It may seem that any one who was away from the

company as long as Harte was would have to know tha t they had been severed. But Harte continued to recei ve long term disability payments, and considered himself a disabled employee, instead of a disabled ex-employee. In sum , we believe that a jury could conclude that Harte was n ot even on constructive notice of Bethlehem's policy of int erpreting the plan provision, or of his own severance.

In view of the foregoing, the judgment with respect to the claim for a breach of fiduciary duty for failure to notify will be vacated, and the case remanded to the District C ourt for further proceedings. In all other respects the judg ment will
be affirmed. Parties to bear their own costs.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

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