1 United States Court of Appeals

Fifth Circuit



## FILED

November 22, 2005

Charles R. Fulbruge III

Clerk IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

__________________________

No. 04-60814

__________________________

FRANK MELLO,

Plaintiff-Appellee,

versus

SARA LEE CORPORATION, ET AL.

Defendants-Appellants.

___________________________________________________

Appeal from the United States District Court

for the Northern District of Mississippi

___________________________________________________

Before GARWOOD, SMITH, and CLEMENT, Circuit Judges.

EDITH BROWN CLEMENT, Circuit Judge:

The appellant, Sara Lee Corporati on, appeals the district court’s grant of summary judgment

for the appellee, Frank Mello . The dist rict court applied ERISA-estoppel and found that because

Mello, a Sara Lee employee, relied on the oral assurances of a company executive and on non-binding

monthly pension statements to determine the value of his pension, Sara Lee was estopped f

rom

correcting a clerical error that reduced the amount of his expected benefits significantly. Because

Mello could not have reasonably relied on informal communications to modif y or supersede

unambiguous Plan terms, we reverse the district court’s grant of summary judgment for Mello and1 Lee Kramer became president of the Bil Mar Foods division in 1992 and subsequently

became president of the Bryan Foods division.

2 dismiss the cause of action as a matter of law.

I. FACTS AND PROCEEDINGS

On September 17, 1984, Dr. Frank Mello began working for Bil Mar Foods, Inc. In 1987,

Sara Lee acquired Bil Mar Foods, which became an operating division of Sara Lee. Although Sara

Lee had a benefit pension plan, Bil Mar Foods’ executives, including Mello, were not permitted to

join Sara Lee’s pension plan until 1994. Until that time, Bil Mar maintained its own retirement plan,

in which Mello participated from 1984 to 1994 and from which he remains entitled to receive benefits.

In October of 1994, Sara Lee asked Mello to transfer from Bil Mar Foods to Bryan Foods, another

division of Sara Lee.

A disagre ement aro se between Mello and Sara Lee over whether Mello’s pension benefits

should be calculated using a hire date of September 17, 1984 or October 31, 1994. If the former date

is used, Mello is entitled to $6500 each month in pension benefits; if the latter date is used, he will

only receive $950 a month. Mello avers that Lee Kramer, 1 a Sara Lee vice-president, encouraged him

to transfer and repeatedly assured him that his credited service date wo uld remain September 17,

1984.

Bryan Foods recorded Mello’s hire date on the rate card in his personnel file as October 31,

1994. However, the “original hire date” on his personnel forms was September 17, 1984. Fro m

1995 to 2000, Mello received six annual benefit statements fr o m Sara Lee. Each benefit estimate

included a disclaimer regarding the accuracy of the content therein, an d instructed the recipient to

defer to the terms of Sara Lee’s pension plan. Each statement listed Mello’s “hire date” and “credited3

service date” as September 17, 1984. The statements reflected monthly benefits ranging from $5,378

in 1996 to $6,581 in 2000. In December 2001, Mello’s wife, who also works at Sara Lee, received

an electronic versi o n of her annual benefits while Mello did not. When Mello inquired about his

missing statement, he received a “pension estimate” letter, which stated that his credited service date

was October 31, 1994 and his monthly benefits were approximately $950.

Mello spoke with several Sara Lee o fficials in hopes of reinstating his previous ly quoted

monthly benefits amount. Sara Lee’s Human Resources Department explained that under the terms

of Sara Lee’s pension plan, his credited service date was the date he transferred to Bryan: October

31, 1994. According to Mello , t he President of Bryan Foods and Sara Lee’s Vice President of

Human Resources b o t h assured him that the reduction in benefits was an injustice that could be

rectified by appealing to the corporati on. Sara Lee avers that the Vice President , Karen Walker,

merely reiterated that Mello’s credited service date was in 1994 because Bil Mar Foods was not a

participating employer in the Plan at the time o f his t ransfer and provided him with information

regarding appeal procedures. On April 11, 2002, Mello appealed to the ERISA Appeal Committee,

which denied his petition. The Committee found that Mello was not entitled to credited service for

his years of employment with Bil Mar Foods.

In October 2002, Mello filed suit against Sara Lee and the Sara Lee Pension Plan (collectively

“Sara Lee”) for benefits under ERISA § 1132(a)(1)(B). Both parties filed cross-motions for summary

judgment. On May 27, 2004, the district c o urt grant ed summary judgment against Sara Lee. It

reasoned that “because the Fifth Circuit has not soundly rejected the applicability of ERISA estoppel

. . . , and because allowing ERISA estoppel’s use in the instant case would best comport with the

basic policies undergirding ERISA itself ( i.e.

, to ensur e the security of employee income and2 The district court granted summary judgment for Mello only in part. Sara Lee then moved

for certification under 28 U.S.C. § 1292(b) and to stay proceedings in order to allow it to appeal the

grant of summary judgment on the ERISA-estoppel claim. The district court granted the motion for

certification, and the motion to stay proceedings and this court granted Sara Lee leave to appeal from

the district court’s interlocutory order.

4 retirement benefits), the doctrine of ERISA estoppel

. . . is applicable in this cause of action.”

Applying the t hree elements of ERISA estoppel, the court found that (1) the erroneous benefits

estimates qualified as material misrepresentations, (2) Mello “reasonably and detrimentally relied” on

these representations in making his employment and retirement decisio ns, and (3) Mello’s claim

involved extraordinary circumstances in that his emp lo yer, through written benefit statements and

officers’ oral statements, repeatedly assured Mello over a six-year period that he was entitled to a

monthly amount that was an “extraordina ry” o verstatement. After Mello refused to take any job

offers during the company’s reorganization in 20 01 and 2002, his position was eliminated and he

negotiated a severance agreement. Sara Lee now appeals t he district court’s order granting Mello

summary judgment on his ERISA claim. 2

II. STANDARD OF REVIEW

This court reviews the district court’s grant of summary judgment de novo

. Hodges v. Delta

Airlines, Inc.

, 44 F.3d 334, 335 (5th Cir. 1995) (en banc). Summary judgment is appropriate “if the

pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits,

if any, 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.” F ED

. R. C IV

. P. 56(c); see also Celotex Corp. v. Catrett , 477 U.S.

317, 322-23 (1986).

The parties dispute whether the Committee’s denial of Mello’s claim should be reviewed for

an abuse of discretion. Challenges to an ERISA plan administrator’s denial of benefits are reviewed5

under a de novo standard “unless the benefit plan gives the administrator or fiduciary discretionary

authority to determine eligibilit y for benefits or to construe the terms of the plan.” Firestone Tire &

Rubber Co. v. Bruch

, 489 U.S. 101, 115 (1989). If the plan does grant such discretion, courts review

decisions for abuse of discretion. Id. ; McCall v. Burlington Northern / Santa Fe Co. , 237 F.3d 506,

512 (5th Cir. 2001). Section 9.01 of the Plan states that the Sara Lee Corporati on Employee Benefits

Ad minist rat ive Committee has “discretionary powers, rights, and duties . . . [t]o determine all

questions arising under t he Plan, including the power to determine the rights or eligibility of

Employees or Participants and . . . [t]o enforce the Plan in accordance with its terms . . . .”

Because the application of ERISA-estoppel is a legal theory rather than an interpretation of

the Plan’s terms, it should be reviewed de novo

. See Rhorer v. Raytheon Eng’rs and Const’rs, Inc.

,

181 F.3d 634, 639 (5th

Cir. 1999); Izzarelli v. Rexene Prods. Co. , 24 F.3d 1506, 1514 (5th Cir.

1994) (noting that “in contrast to the great deference we grant the [administrator’s] interpretations

of the Plan, which involve contract interpretation, we accord no deference to [its] conclusions as to

the controlling law”) (quotati ons and citation omitted). Furthermore, the Committee made no finding

as to whether the equities of the situation required Sara Lee to honor any representations it may have

made to Mello. Because Mello’s estoppel claim is not a review of a decision of the Committee, the

district court properly exercised de novo review.

III. DISCUSSION

ERISA preempts state laws that “relate to” an employee benefit plan because Congress was

concerned t hat state laws might interfere with the administration and management of such plans.

Shaw v. Delta Air Lines, Inc

., 463 U.S. 85, 96–97, 105 n.25 (1983). In light of such preemption,

“co urt s are to develop a ‘federal common law of rights and obligations under ERISA-regulat ed3 The Supreme Court, whi ch first enunciated this view of federal courts’ power to create

federal common law under ERISA in Franchise Tax Board v. Construction Laborers Vacation Trust

, 463 U .S. 1 (1983), bases this often repeated assertion upon a statement by Senator Javits, one of

ERISA’s sponsors: “[A] body of Federal substantive law will be developed by the courts to deal with

issues invo lving rights an d o bligat io ns under private welfare and pension plans.” 120 Cong. Rec.

S29942 (daily ed. Aug. 22, 1974) (statement of Sen. Javits). “The Javits statement has become the

single most important, and undoubtedly most cited, source for the asserted authority to create federal

common law under ERISA.” Jeffrey A. Brauch, T he Federal Common Law of ERISA

, 21 H ARV

. J.L.

& P UB

. P OL ’ Y 541, 549 (1998).

4 The majority of other circuits, however, have adopted the theory of ERISA estoppel. S ee

Bonovich v. Knights of Columbus

, 146 F.3d 57, 62–63 (2d Cir. 1998); Smith v. Hartford Ins. Group,

6 F.3d 131, 137 (3d Cir. 1993); Marks v. Newcourt Credit Group, Inc

., 342 F.3d 444, 456 (6th Cir.

2003); V allone v. CNA Fin. Corp

., 375 F.3d 623, 639 (7th Cir. 2004); Jensen v. Sipco

, 38 F.3d 945,

953 (8th Cir. 1994); Pisciotta v. Teledyne Indus., Inc

., 91 F.3d 1326, 1331 (9th Ci r. 1996) (per

curiam); Jones v. Am. Gen. Life & Accident Ins. Co. , 370 F.3d 1065, 1069 (11th Cir. 2004).

6 plans.’” 3 F irestone Tire

, 489 U.S. at 110 (quoting Pilot Life Ins. Co. v. Dedeaux , 481 U.S. 41, 56

(1987)).

This circuit has yet to explicitly adopt ERISA-estoppel as a cognizable legal theory. 4 In the

past, we have considered that the theory could be cognizable given the right set of facts. McCall

, 237

F.3d at 513 (5th Cir. 2000); Weir v. Fed. Asset Disposition Ass’n

, 123 F.3d 281, 290 (5th Cir. 1997).

We now join other circuits in explicitly adopting ERISA-estoppel as a cognizable theory. To establish

an ERISA- estoppel claim, the plaint iff must establish: (1) a material misrepresentation; (2) reasonable

and detrimental reliance upon the representation; and (3) extraordinary circumstances. McCall

, 237

F.3d at 513; Weir , 123 F.3d at 290.

A. Material Misrepresentation

Sara Lee concedes that it erred as to the amount Mello’s benefit statements reflected that he

was due upon retirement. Sara Lee argues, however, that these errors do not constitute material

misrepresentations because the benefit statements are informal communications that cannot be used7

to amend the Plan. In other words, Sara Lee contends that representations are material only if they

are in an official plan

document. Sara Lee also argues that materiality is not in reference to “[w]hat

is material to Mello” but rather “whether the Benefit Estimates are ‘material’ to the interpretation of

the Plan.”

C o nt rary to Sara Lee’s assertions, material misrepresentations can be made in informal

documents. For example, in C urcio

, the Third Circuit concluded that statements in an audio-visual

presentation and pamphlet were material representations. 33 F.3d at 237 (noting, however, that the

company announced its new benefit through a pamph let rat her than by formally amending the

summary plan description). As to whether materiality refers to the representation’s importance to

the plan or to the plaintiff, a “‘misrepresentation is material if there is a substantial likelihood that it

would mislead a reasonable employee in ma king an adequately informed decision.’” Id. (quoting

Fischer v. Philadelphia Elec. Co. , 994 F.2d 130, 135 (3d Cir. 1993)); see also In re Unisys Corp.

Retiree Med. Ben efit “ERISA” Litig., 58 F.3d 896, 907 n.20 (3d Cir. 1995) (“Regarding the

requirement of material representation,

. . . [t]he retirees contend that the record clearly establishes

that many of the retirees . . . relied to their detriment on the company’s misrepresentations because

many employees accelerated their retirement and gave up salary and pension accruals they would have

gained if they had continued to work.”).

Plaint iffs are able to satisfy the material misrepresentation element if their employers

misrepresented a ny pertinent information. S ee Weir

, 123 F.3d at 289–90 (finding the plaint iffappellants unable to satisfy this element where the employer neither misrepresented nor misled the

plaint iff with respect to the plans and made sincere efforts to inform the plaint iff of its interpretation

of the plan). Because there was a substantial likelihood that a reasonable employee would be misled5 The “credited service” provision of the Plan is defined as “a Participant’s number of years

and completed calendar months of employment with an Employer while a Participant with each such

completed calendar month of employment constituting one-twelfth of a year of Credited Service.”

Sara Lee notes that the same section of the Plan “excludes certain employment with the Company

from the definition of Credited Service, including any period of employment as a member of a group

or class of Employees employed by a participating employer prior to the date as of which that group

of class of Employees is designated as a Covered Group.” Exhibit A of the Plan lists the subsidiaries

and divisions that qualify as participating “Employers” under the Plan and specifically provides that

while Bryan Foods has been a participating employer since 19 79, Bil Mar Foods became a

participating employer on July 1, 1994. These unambiguous provisions made it clear that Mello could

not begin earning “credited service” until 1994, when he transferred to Bryan Foods.

8 about making adequately informed decisions by Sara Lee’s benefit statements’ undisputed errors, the

district court correctly concluded that the benefits statements were material misrepresentations.

B. Reasonable and Detrimental Reliance

Mello must demonstrate reliance upon the rep resentations made by Sara Lee. The reliance

must be both reasonable and detrimental. See Curcio

, 33 F.3d at 237. Contrary to the district court’s

conclusion, it was unreasonable for Mello to rely on Sara Lee’s informal material misrepresentations

regarding his benefits and Mello cannot establish his estoppel claim.

ERISA’s policy against informal modifications of plan terms precludes a finding that Mello

reasonably relied on the benefit statements’ pension amounts. Mello does not argue that he relied on

the benefit state ment s and Kramer’s oral representations to help him interpret an ambiguous or

unclear term in the Plan. Rather, he contends that he was reasonable to rely on the benefit statements

and Kramer’s assertions rather than the unambiguous credited service definition in the Plan. 5 Mello’s

claim therefore amounts to an argument that informal written and oral statements amended or

modified the terms of the Plan.

The district court found that despite the benefit statements’ disclaimer that they were “for

illustrative purposes only” and “[t]he Plan documents will govern the determination of any benefits9

you are eligible to receive,” “the substance and impl icat io ns of the written misrepresentations are

enoug h in and o f t hemselves to warrant a finding of reasonable detrimental reliance on material

misrepresentations.” In reaching this conclusion, the district court took into account “the repeated

oral assurances made by Sara Lee via its Vice President Lee K ramer that Mello would retain his

credited service date of September 17, 1987 [sic] upon transfer within Sara Lee.”

However, ERISA-estoppel is not permitted if “based on purported oral modifications of plan

terms.” Wier , 123 F.3d at 289 (citing Rodrigue v. W. and S. Life Ins

. Co.

, 948 F.2d 969, 971 (5th

Cir. 1991); Cefalu v. B.F. Goodrich Co.

, 871 F.2d 1290, 1297 (5th Cir. 1989); Degan v. Ford Motor

Co.

, 869 F.2d 889, 895 (5th Cir.1989)). Such claims are precluded because ERISA provides that

“‘every employee benefit plan shall be established and maintained pursuant to a written instrument.’”

Cefalu

, 871 F.2d at 1296 (quoting 29 U.S.C. § 1102(a)(1)); Rodrigue

, 948 F.2d at 971. As noted in

Cefalu :

The policy behind the “written instrument” clause in ERISA is to prevent collusive or

fraudulent side agreements between employers and employees. But for the “written

instrument” clause, employees could discriminate in favor of certain plan participants

to the detri ment o f o t hers. In addition, the writing requirement gives the plan’s

participants and administrators a clear understanding of their rights and obligations.

Employees who rely on a written benefit plan should not have their benefits eroded

by oral mo difications to the benefit plan. Furthermore, the writing requirement

protects the plan’s actuarial soundness by preventin g plan administrators from

contracting to pay benefits to persons not entitled to such under the express terms of

the plan. The statutory language of § 1102(a)(1) is clear and concise and must be

enforced as written. To hold otherwise would not only thwart congressional purpose

and intent, but would afford less protection to employees and their beneficiaries.

871 F.2d 1290, 1297 (5th Cir. 1989) (noting that the Tenth and Eleventh circuits have

reached similar conclusions). In R odrigue v. Western and Southern Life Insurance Co.

, the

court “adopted the reasoning of the Sevent h and Eighth Circuits that ERISA’s writing

requirement protects the plan’s actuarial soundness by preventing plan administrators from10

contracting to pa y benefit s to persons not entitled to them under the express terms of the

plan.” 948 F.2d 969, 971 (5th Cir. 1991) (affirming C efalu ’s preclusion of ERISA-estoppel

claims based on oral modifications of clear plan terms) ; s ee also Izzarelli

, 24 F.3d at 1517

(“ERISA disfavors generally arguments bas ed on promissory estoppel or on alleged

modifications of plan documents that are no t made via the plan’s internal amendment

process.”)

In Sprague v. GMC

, the Sixth Circuit noted t hat a “party’s reliance can seldom, if

ever, be reasonable or just ifiable if it is inconsistent with the clear and unambiguous terms of

plan documents available to or furnished to the party.” 133 F.3d 388, 404 (6th Cir. 1998).

The court held that allowing “estoppel to override the clear terms of plan documents would

be to enforce something other than the plan documents themselve s. That woul d not be

consistent with ERISA.” Id. I n In re Unisys Corp. Retiree Med. Benefit “ERISA”

Litigations

, which applies the Third Ci rcuit’s estoppel test used in this circuit, the court

emphasized that a basic principle of ERISA is that a plan cannot be modified or superceded

by extrinsic evidence. 58 F.3d 896, 902 (3d Cir. 1995). In U nisys

, a company engaged in a

“systematic campaign of confusion” which led the plaintiff-employees to believe mistakenly

that their benefits continued for life. I d. at 907 n.20. The court “acknowledge[d] that many

retirees may have relied to their detriment o n their interpretation of the summary plan

descriptions as promising vested or lifet ime benefits.” I d. at 907. However, because the

summary plan descriptions contain ed “unambiguous reservation of rights clauses,” the

plaint iffs’ interpretation of the plans as providing lifet ime benefits was unreasonable and their

estoppel claim was precluded. Id. The court summarized:6 In addition, even if the terms of the Plan were ambiguous, Mello could not have reasonably

relied on his extrinsic evidence. First, as previously discussed, oral assurances have low probative

value in ERISA cases. Second, the written benefit statements contained a prominent disclaimer and

contradicted unambiguous terms of the ERISA plan document. The pension estimate stated that

“[e]very effort has been made to ensure the accuracy of the information reported; however, future

changes in Plan provisions or law, or your pay or service cannot be foreseen. Therefore, the actual

benefit paid to you will be determined by the Plan provisions

. . . . The benefits shown here are

estimates for illustrative purposes only. The Plan documents will govern the determination of any

benefits you are eligible to receive.”

11 While our decisions have not required an express finding of plan ambiguity as an

element f o r establishing an estoppel claim, we have required that reliance be

reasonable. Because our decisions require that any det rimental reliance on plan

language also be “reasonable,” our finding that the [terms of the Plan] are

unambiguous undercuts the reasonableness of any detrimental reliance by the retirees.

Accordingly, we hold that t he dist rict court did not err in concluding, on summary

judgment, that the retirees’ estoppel claim failed as a matter of law.

Id. at 908. Mello’s claim cannot surmount the clear and consistent case law forbidding recognizing

reasonable reliance on informal documents in the face of unambiguous Plan terms. 6

Mello argues that C urcio provides support for his reasonable reliance on informal extrinsic

evidence because the plainti ffs relied on misrepresentations in a pamphlet and an audio-visual

presentation. Although the C urcio court did find reasonable reliance based on these material

misrepresentations, the relevant plan term in the summary plan description was unclear. 33 F.3d at

236.

Because Mello’s reliance on the informal benefit statements and oral representati ons was

unreasonable, we need not con sider whether the reliance was detrimental or if extraordinary

circumstances existed.

IV. CONCLUSION

Because Mell o has not satisfied the reasonable reliance, he cannot establish that ERISA-12

estoppel should be applied to preclude Sara Lee from correcting the amount of his pension benefits.

Therefore, the opinion of the district court is REVERSED and this case is remanded for further

proceedings.