Source: https://law.justia.com/cases/federal/appellate-courts/F2/892/285/72631/
Timestamp: 2019-08-21 02:31:43
Document Index: 489323088

Matched Legal Cases: ['§ 502', '§ 1132', '§ 1132', '§ 331', '§ 1102', '§ 1024', '§ 502', '§ 1132', '§ 3', '§ 1002', '§ 201', '§ 1051', '§ 1132', '§ 1132', '§ 502', '§ 1132']

Alan Flick, Lester H. Bausman, Jr., Michael J. Houtz, Curvint. Kraft, Kenneth J. Peifer, Norman Renier, Marilyn A.sandell, James Spells, Jr., Thomas Harsch, Francis X. Weber,james Knaub, Kenneth Border, Jr., and Jeffrey L. Dressel, Appellants, v. Borg-warner Corporation, Appellee, 892 F.2d 285 (3d Cir. 1990) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Third Circuit › 1990 › Alan Flick, Lester H. Bausman, Jr., Michael J. Houtz, Curvint. Kraft, Kenneth J. Peifer, Norman Reni...
Alan Flick, Lester H. Bausman, Jr., Michael J. Houtz, Curvint. Kraft, Kenneth J. Peifer, Norman Renier, Marilyn A.sandell, James Spells, Jr., Thomas Harsch, Francis X. Weber,james Knaub, Kenneth Border, Jr., and Jeffrey L. Dressel, Appellants, v. Borg-warner Corporation, Appellee, 892 F.2d 285 (3d Cir. 1990)
US Court of Appeals for the Third Circuit - 892 F.2d 285 (3d Cir. 1990)
Argued Sept. 6, 1989. Decided Dec. 19, 1989. Rehearing and Rehearing In Banc Denied Jan. 24, 1990
On May 8, 1987 defendant revised the Plan to provide for payment of benefits upon " [a] divesture, sale or transfer of all or a portion of Transportation Services wherein the employee is not offered employment with the purchaser." Defendant communicated this amendment to Division employees beginning on May 16 through a general letter, a series of meetings, and oral and written question and answer programs.
We have stated on numerous occasions that in the absence of special circumstances, such as a change in the law, we will not consider on appeal an issue that the parties failed to present to the district court. See Halderman v. Pennhurst State School & Hosp., 673 F.2d 628, 639 (3d Cir. 1982) (in banc) (citing Singleton v. Wulff, 428 U.S. 106, 120, 96 S. Ct. 2868, 2877, 49 L. Ed. 2d 826 (1976)), cert. denied, 465 U.S. 1038, 104 S. Ct. 1315, 79 L. Ed. 2d 712 (1984); East Coast Tender Serv., Inc. v. Robert F. Winzinger, Inc., 759 F.2d 280, 284 (3d Cir. 1985). No special circumstances have been presented here.
B. Whether defendant's failure to respond to plaintiffs' attorney's December 7, 1987 letter within the thirty day period noted in ERISA § 502(c) (1), 29 U.S.C. § 1132(c) (1), entitles plaintiffs to any relief under that section.
" [t]he Court of Appeals in Bruch, supra, made it clear that employee benefit plans are not to be treated as 'gratuities.' Rather, they are subject to analysis according to contract principles. Id. at 136-141. [citing Bruch v. Firestone Tire and Rubber, 828 F.2d 134 (3d Cir. 1987) ]. In the case at bar, it is clear that plaintiffs are entitled to establish at a plenary trial the proper interpretation of TIP, and whether defendant breached its fiduciary duty under ERISA by refusing to pay benefits to some employees while paying them to others in the same situation." Plaintiffs' Response at 4.
In its memorandum opinion, the district court concluded that an employer does not owe its employees a fiduciary duty when it amends or abolishes a severance benefit plan, citing Young v. Standard Oil (Indiana), 849 F.2d 1039, 1045 (7th Cir.), cert. denied, 485 U.S. 1022, 109 S. Ct. 529, 102 L. Ed. 2d 561 (1988). We reached an analogous result in a case where the employer refused to permit early retirement, although a plan existed to provide such benefits when it was in the best interest of the company to do so. See Hlinka v. Bethlehem Steel Co., 863 F.2d 279 (3d Cir. 1988). See also Trenton v. Scott Paper Co., 832 F.2d 806 (3d Cir. 1987), cert. denied, 485 U.S. 1022, 108 S. Ct. 1576, 99 L. Ed. 2d 891 (1988).
What plaintiffs are urging on this appeal, however, is not merely a breach of fiduciary duty by the employer acting in its own interest in interpreting a contract, but rather a breach of contract by defendant qua employer. Clearly, plaintiffs did not raise this theory in the district court and we will not entertain that issue on this appeal. We therefore need not determine whether such a breach of contract action is preempted by ERISA. See Pane v. RCA Corp., 868 F.2d 631, 635 (3d Cir. 1989); Gilbert v. Burlington Indus., Inc., 765 F.2d 320 (2d Cir. 1985), aff'd mem., 477 U.S. 901, 106 S. Ct. 3267, 91 L. Ed. 2d 558 (1986). Cf. Ft. Halifax Packing Co. v. Coyne, 482 U.S. 1, 107 S. Ct. 2211, 96 L. Ed. 2d 1 (1987) (state statute requiring single severance payment not preempted).
The district court denied civil penalties in this case for the defendant's alleged delay in responding to requests for information on the ground that plaintiffs were not "participants," and thus, not within the purview of the statutory provision. The district court's ruling was consistent with the Supreme Court's definition of "participant" in Firestone Tire & Rubber Co. v. Bruch, --- U.S. ----, 109 S. Ct. 948, 103 L. Ed. 2d 80 (1989). Van Lines offered plaintiffs employment and plaintiffs thereby became ineligible to receive benefits under the terms of the Plan. They, therefore, were not "participants" under ERISA.
The majority does not fully address the TIP claim because it concludes that the plaintiffs failed to raise in the district court several theories they now advance on appeal. The plaintiffs' brief in this court contains four salient points regarding the TIP claim: (1) the question whether plaintiffs are entitled to benefits under the revised TIP must go to a jury;1 (2) Borg-Warner owed its employees a fiduciary duty of loyalty (which it violated) in deciding whether to revise TIP;2 (3) Borg-Warner violated trust and contract principles incorporated into ERISA under cases like Firestone Tire & Rubber Co. v. Bruch, --- U.S. ----, 109 S. Ct. 948, 103 L. Ed. 2d 80 (1989), when it decided to revise TIP;3 and (4) plaintiffs cannot be held responsible for their inability to prove critical elements of their case relating to the original TIP in light of Borg-Warner's sundry ERISA disclosure violations.4 I agree with the majority insofar as it rejects the first two propositions. However, the majority refuses to address the last two assertions on the ground that the plaintiffs failed to raise them before the district court. I disagree.
It is true, as the majority points out, that the plaintiffs' briefs in the district court focused on their fiduciary duty argument. However, the plaintiffs also mentioned a contract theory, which the majority itself quotes.7 Moreover, nothing in the issue formally stipulated to the district court--" [w]hether the defendant breached the terms and conditions of TIP"--suggests limiting the inquiry into the amendability of the original TIP to the narrow fiduciary duty question. Finally, as noted above, the district court itself recognized the need to venture far beyond that question in order to decide the TIP claim. Under these circumstances, I cannot agree with the majority that the plaintiffs may not present to us all their arguments about the amendability and applicability of the original TIP, which plainly bear on the question that was actually stipulated.
ERISA created a variety of substantive restrictions, disclosure requirements, and remedial provisions "to promote the interests of employees and their beneficiaries in employee benefit plans." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90, 103 S. Ct. 2890, 2896, 77 L. Ed. 2d 490 (1983). One such remedial provision is section 502(a) (1) (B) of ERISA, 29 U.S.C. § 1132(a) (1) (B), which provides an express right of action "by a participant or beneficiary ... to recover benefits due to him under the terms of [an ERISA-covered] plan." ERISA authorizes courts to develop "a federal common law of rights and obligations under ERISA-covered plans." Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 56, 107 S. Ct. 1549, 1557, 95 L. Ed. 2d 39 (1987).
In Firestone Tire & Rubber Co. v. Bruch, --- U.S. ----, 109 S. Ct. 948, 103 L. Ed. 2d 80 (1989), the Supreme Court held that district courts reviewing denials of benefits challenged under section 502(a) (1) (B) must afford no deference to an administrator's or a trustee's interpretation of the relevant plan, unless the plan expressly provides otherwise. The Court's analysis began with the proposition that "ERISA abounds with the language and terminology of trust law." Id. 109 S. Ct. at 954. Therefore, the Court felt "guided by principles of trust law" in general and the Restatement (Second) of Trusts in particular as it began developing a common law to flesh out section 502(a) (1) (B). See id. at 954-57.
I believe that the Bruch Court's approach is entirely appropriate, if not controlling, in the present context. Under trust law, Borg-Warner's power to revise TIP depended entirely on the extent to which the "trust" created by the original TIP was "revocable" by later amendment or revision. Settlors, of course, can create trusts amendable or revocable at their will. However, "the settlor cannot modify the trust if by the terms of the trust he did not reserve a power of modification." Restatement (Second) of Trusts § 331 (1959).8 Thus, under the trust analogy suggested (if not required) by Bruch, Borg-Warner could revise TIP only if it had expressly reserved the power to do so in the original TIP. This conclusion is strengthened by section 402(b) (3) of ERISA, which requires every employee benefit plan to "provide a procedure for amending such plan, and for identifying the persons who have authority to amend the plan." 29 U.S.C. § 1102(b) (3). Section 402(b) (3) is sensibly read as ERISA's analog of Restatement section 331: both provisions require an amendment power to be expressly reserved, or else lost.9
Here, as well as in Bruch, the trust analogy is faithful to two overarching principles of ERISA. On the one hand, ERISA was enacted "to promote the interests of employees and their beneficiaries in employee benefit plans." Shaw, 463 U.S. at 90, 103 S. Ct. at 2896. On the other hand, nothing in ERISA "direct [s] ... employers as to what benefits to grant their employees." Hlinka v. Bethlehem Steel Corp., 863 F.2d 279, 283 (3d Cir. 1989). Trust law honors both these principles: whether the parties are setting a standard of judicial review for denials of benefits (as in Bruch) or defining the scope of an employer's unilateral amendment power (as here), clearly expressed intentions govern (even if pro-employer), but silence or ambiguity is construed in favor of the employee participants.10
The major difficulty with the plaintiffs' case is that the record before us contains almost no evidence about whether they are entitled to benefits under the original TIP,13 or whether the original TIP does, in fact, govern their claim for benefits. Ordinarily, plaintiffs would bear the burden of proof on their TIP claim. Because I would grant summary judgment for Borg-Warner on the issue of whether plaintiffs are entitled to benefits under the revised TIP, meeting such a burden would entail proving both that the original TIP governs their claim for benefits and that they are entitled to benefits under the original TIP. Borg-Warner points out that there is virtually no evidence in the record on either of these points. Therefore, one might think that Borg-Warner is entitled to summary judgment on the ground that the plaintiffs have produced no evidence from which a reasonable jury could find for them on two essential elements of their TIP claim. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986). Under these circumstances, however, I conclude that ERISA requires Borg-Warner, not the plaintiffs, to bear the burden of proof at trial--and therefore the initial burden of production at this stage--on all issues relating to the terms of the original TIP.
The purpose of the ERISA disclosure and recordkeeping provisions is to prevent exactly what has happened in this case. They were designed to ensure that participants and beneficiaries "know [ ] exactly where [they] stand [ ] with respect to the plan," H.Rep. No. 533, 93rd Cong., 2d Sess. 11, reprinted in 1974 U.S.Code Cong. & Admin.News 4639, 4649, and are therefore "armed with enough information to enforce their rights," id. Because plaintiffs' inability to produce the original TIP, despite their best efforts,14 flows so proximately from Borg-Warner's ERISA violations, I believe that Borg-Warner, not the plaintiffs, should suffer the consequences of that inability.15
" [A]n employer's or plan's failure to comply with ERISA's procedural requirements does not entitle a claimant to a substantive remedy." Ashenbaugh v. Crucible Inc., 854 F.2d 1516, 1532 (3d Cir. 1988), cert. denied, --- U.S. ----, 109 S. Ct. 3155, 104 L. Ed. 2d 1019 (1989). Nonetheless, when procedural violations of ERISA become sufficiently serious, "they alter the substantive relationship between employer and employee that disclosure, reporting and fiduciary duties sought to balance somewhat more equally. The quantity of defendants' procedural violations may then work a substantive harm." Blau v. Del Monte Corp., 748 F.2d 1348, 1354 (9th Cir. 1984), cert. denied, 474 U.S. 865, 106 S. Ct. 183, 88 L. Ed. 2d 152 (1985). In this case, Borg-Warner's failure to disclose the terms of the original TIP to its employees in accordance with ERISA requirements has prevented the plaintiffs (and this court) from being able to determine where they stand on the merits. These ("merely" procedural) violations threaten to make a potentially meritorious claim unprovable, and thus might easily work a substantive harm. To prevent this possibility, I believe that Borg-Warner should bear the burden of proving all issues relating to the original TIP, which they never adequately disclosed, and then lost.
Ashenbaugh, expressing discomfort with Blau, refused to infer a substantive violation from a defendant's failure to respond to requests for information. See id. Ashenbaugh, however, is different from this case in three critical respects. First, the procedural violations alleged in Ashenbaugh were "too general and nonspecific to permit evaluation. The plaintiffs d [id] not give any details of requests made by them, of refusals on the part of the fiduciaries to respond, or of the particular information sought." Id. Here, by contrast, a number of quite specific disclosure and recordkeeping violations are deducible from a set of facts to which Borg-Warner itself has stipulated.
Second, the Ashenbaugh plaintiffs' claim for benefits was in no way prejudiced by the disclosure violations: " [d]uring discovery, the plaintiffs' interrogatories were answered and they obtained requested documents pertaining to Plan funding and administration; the plaintiffs d [id] not assert that discovery was insufficient." Id. Here, however, when the plaintiffs sought to discover the critical document that had never been properly disclosed to them, Borg-Warner was unable to produce it. Unlike Ashenbaugh, therefore, this case involves the very harm that ERISA's disclosure provisions were designed to protect against--participants and beneficiaries "with [out] enough information to enforce their rights," H.Rep. No. 533 at 11, 1974 U.S.Code Cong. & Admin.News at 4649.
I believe that Borg-Warner should bear the burden of proving at trial either (1) that the original TIP is inapplicable to the plaintiffs' claims (i.e. that it had in fact reserved a unilateral amendment power) or (2) that the plaintiffs are not entitled to benefits under the original TIP. Under this shifted burden of proof, Borg-Warner's motion for summary judgment on the TIP claim should be denied. A party moving for summary judgment on an issue as to which it bears the ultimate burden of proof must produce evidence that, if uncontroverted, would compel any reasonable jury to find for it on that issue. See Anderson v. Liberty Lobby, 477 U.S. 242, 248-53, 106 S. Ct. 2505, 2510-12, 91 L. Ed. 2d 202 (1986); Celotex, 77 U.S. at 331, 106 S. Ct. at 2556 (Brennan, J., dissenting). On this record--precisely because it does not contain the original TIP--Borg-Warner has failed to meet this threshold burden of production on either issue, at least one of which is essential to its defense. I therefore conclude that Borg-Warner is not entitled to summary judgment on the TIP claim, and I dissent from the majority's judgment of affirmance.18
Section 104(b) (4) of ERISA provides that " [t]he administrator [of a plan] shall, upon written request of any participant or beneficiary, furnish a copy of the latest updated ... plan description." 29 U.S.C. § 1024(b) (4). Moreover, an administrator who fails to do so within 30 days of the request "may in the court's discretion be personally liable to such participant or beneficiary in the amount of up to $100 a day from the date of such failure or refusal." ERISA § 502(c) (1), 29 U.S.C. § 1132(c) (1).
Each plaintiff claims to be a "participant," defined in relevant part as "any employee or former employee ... who is or may become eligible to receive a benefit of any type from an employee benefit plan." Id. § 3(7), 29 U.S.C. § 1002(7).19 Bruch held that this definition includes anyone with "a colorable claim that ... he or she will prevail in a suit for benefits." 109 S. Ct. at 957-58. Because I would hold that the plaintiffs, at least insofar as can be ascertained at this stage of the proceedings, have a colorable claim for benefits, I would find them to be "participants" as that term is used in ERISA. If plaintiffs are indeed "participants," then Borg-Warner's violation of section 104(b) (4) is unquestionable.
Borg-Warner argues that even if it did violate section 104(b) (4), a district court may impose liability under section 502(c) only if the procedural violation at issue harmed or prejudiced the plaintiffs.20 District courts are split on this issue. Compare, e.g., Henne v. Allis Chalmers Corp., 660 F. Supp. 1464 (E.D. Wis. 1987) (plaintiffs seeking civil penalties based on disclosure violations must show possible prejudice flowing from the violations) with, e.g., Porcellini v. Strassheim Printing Co., 578 F. Supp. 605 (E.D. Pa. 1983) (plaintiff need not show harm or prejudice).
The district court failed to consider imposing a fine under section 502(c) because it found no violation of section 104(b) (4) because it mistakenly concluded that the plaintiffs were not "participants" in TIP at the time of their written request for information. I would therefore reverse its judgment on the claim for civil penalties, reject the view that section 502(c) contains an implicit threshold prejudice requirement, and allow the district court on remand to exercise its discretion in deciding whether to impose a civil penalty on Borg-Warner.
As the majority notes, the district court relied heavily on Young v. Standard Oil (Indiana), 849 F.2d 1039 (7th Cir.), cert. denied, --- U.S. ----, 109 S. Ct. 529, 102 L. Ed. 2d 561 (1988). Young did state that "an employer does not owe its employees a fiduciary duty when it amends or abolishes a severance plan." Id. at 1045. However, in language quoted by the district court, Young also endorsed the much broader proposition that " [a]n employer may unilaterally amend or eliminate a severance plan without violating ERISA." Id
See ante at 287 (" ' [E]mployee benefit plans are ... subject to analysis according to contract principles.' " (quoting Plaintiffs' Response to Defendant's Motion for Summary Judgment at 4))
I do not suggest that a violation of section 402(b) (3) would require an employer to maintain the same employee welfare plan in perpetuity. For example, an employee who joins a company after a welfare plan has been amended can hardly assert a legitimate claim to receive benefits as provided in the unamended plan. Moreover, an announced intention to amend a plan at some sufficiently distant future date might reduce the injury to present workers' expectation or reliance interests sufficiently to justify the amendment, especially in light of Congress's determination that only pension benefits must vest. See ERISA § 201(1), 29 U.S.C. § 1051(1) (exempting welfare plans from ERISA's vesting requirements). This case, however, involves an amendment that was applicable to then-current employees, effective as soon as it was announced, and intentionally designed to foreclose claims for benefits that might otherwise have arisen less than three months after the adoption of the amendment. Under these circumstances, I believe that an employer's unilateral decision to amend a severance plan is invalid unless a unilateral amendment power was expressly reserved in the plan itself
See, e.g., 109 S. Ct. at 955 ("ERISA was enacted ... 'to protect contractually defined benefits.' " (citation omitted))
S. Ct. at 955
One may safely infer that plaintiffs sought discovery of the original TIP. See Stipulated Facts p 7 (" [Original TIP] has not been produced in discovery and defendant states that its present whereabouts is unknown.")
ERISA provides two express causes of action by a participant or beneficiary to recover damages. If a participant is claiming a substantive entitlement to benefits, he may sue under section 502(a) (1) (B) "to recover benefits due to him under the terms of his plan." 29 U.S.C. § 1132(a) (1) (B). If, on the other hand, a participant is claiming damages for a disclosure violation, he must sue under section 502(a) (1) (A), 29 U.S.C. § 1132(a) (1) (A), and his recovery is limited to a per diem amount, see id. § 502(c), 29 U.S.C. § 1132(c)
For example, imagine a case involving disclosure violations sufficiently prejudicial to trigger the burden shift that I propose. If the defendant employer could come forward and show that the plaintiff is not entitled to benefits under the relevant plan, I would afford that plaintiff no substantive remedy, regardless of how egregious the disclosure violations. This view, I believe, balances the need to prevent procedural violations from working substantive harms (the point properly recognized in Blau) against our duty to respect the basic architecture of section 502(a), see supra note 16, which counsels against affording substantive remedies for procedural violations (the slightly different point emphasized in Ashenbaugh)
Plaintiffs too moved for summary judgment. In my view, they should not bear the ultimate burden of persuasion on issues relating to the original TIP. When a party moves for summary judgment, it need not always produce evidence, but may argue instead that the record contains no evidence from which a reasonable jury could find for the nonmoving party on any essential element of the claim as to which the nonmoving party bears the burden of proof. See Celotex, 477 U.S. at 322-24, 106 S. Ct. at 2552-53. As noted above, Borg-Warner should bear the burden of proving either (1) that the revised TIP governed or (2) that plaintiffs are not entitled to benefits under the original TIP, and the record contains virtually no evidence about either issue. Thus, shifting the burden of proof with respect to these issues could conceivably make summary judgment appropriate for the plaintiffs on the TIP claim. I need not reach this issue, however, to justify my dissent from the majority's affirmance of summary judgment for defendant Borg-Warner