Opinion ID: 2506837
Heading Depth: 1
Heading Rank: 4

Heading: Was the Pension Plan Terminated?

Text: The hospital argues that the circuit court erred in ruling, as a matter of law, that the hospital's defined benefit pension plan was terminated by the hospital's February 2004 resolution. The hospital's appellate brief poses numerous reasons, which we distill below, for reversing the circuit court's partial summary judgment order. After careful examination, we conclude that the hospital's well-written, 49-page appellate brief is little more than a smorgasbord of red herrings intended to distract from the clear and simple language of the hospital's February 2004 resolution and the language of the pension plan. For example, Section 1.1 of the plan document states that the pension plan is intended to meet the provisions of Section 401(a) of the Internal Revenue Code of 1986, as amended. The appellant hospital argues that what Section 1.1 means is that the federal Internal Revenue Code, Internal Revenue Service regulations, and various Revenue Rulings are incorporated by implication into the pension planand, accordingly, the hospital insists that whether the pension plan was terminated can only be determined by looking to federal tax law. The hospital argues that IRS Revenue Ruling 89-87 sets forth three events that must occur in order for a pension plan to terminate: In order to terminate a qualified plan, the date of termination must be established, the benefits of plan participants and other liabilities under the plan must be determined with respect to the date of plan termination, and all plan assets must be distributed to satisfy those liabilities in accordance with the terms of the plan as soon as administratively feasible after the date of termination. See Rev.Rul. 89-87, 1989-2 C.B. 81. Because all three events have not occurred, the hospital argues that the plan has not been terminated under federal law. However, upon close examination, it is clear that federal tax law has no bearing on whether the hospital's pension plan was terminated or not. The authorities cited by the hospital only apply when assessing whether or not the assets in a terminated plan are free from, or subject to, federal taxation. Revenue Ruling 89-87 is nothing more than a guideline to determine if a pension plan is still a qualified plan under Section 401 of the Internal Revenue Code, where an employer acts to terminate the plan but fails to distribute the assets as soon as administratively feasible. In the instant case, whether or not the hospital's defined benefit pension plan retained its qualified status under federal law, and whether or not the hospital will suffer adverse tax consequences for its actions, has no bearing on the interpretation of the hospital's resolution that terminated the plan in February 2004. The appellant hospital also argues that the February 2004 termination resolution was merely a first step in a lengthy process. The hospital argues that the actual termination of the pension plan was conditioned upon the appellee employees agreeing that the plan could be terminated, and it offers as proof the deposition testimony of various hospital employees and board members who contend that they believed the termination was contingent. The hospital asserts that when the employees refused to consent to the termination of the plan, the hospital was within its rights to rescind the conditional 2004 termination resolution by passing a new resolution in January 2006. We have recognized the general rule that parol evidence is admissible to show conditions precedent which relate to the delivery or the taking effect of a written instrument. Hamon v. Akers, 159 W.Va. 396, 401, 222 S.E.2d 822, 825 (1976). See also, Syllabus Point 2, Miners' and Merchants' Bank v. Gidley, 150 W.Va. 229, 144 S.E.2d 711 (1965) (Parol evidence is always admissible to show the nonexistence of a contract or to show the conditions upon which a writing is to become effective as a contract.). However, the alleged condition precedent cannot be inconsistent with the instrument. Hamon, 159 W.Va. at 401, 222 S.E.2d at 826. See also, Atkinson v. Washington and Jefferson College, 54 W.Va. 32, 48, 46 S.E. 253, 260 (1903) ([I]f a trust is declared in writing, courts never permit parol proof of a trust to contradict an intention expressed upon the face of the instrument, for that would be to allow parol evidence to vary, contradict, or annul a written instrument.). After carefully examining the record, it is clear that the February 2004 resolution by the hospital's board of directors plainly and unconditionally stated that the Plan is terminated[.] In the instant case, the alleged conditions precedent which the hospital later asserted existed were inconsistent with the language of the pension plan and with the hospital's February 2004 resolution terminating the plan. The circuit court therefore properly focused its attention exclusively upon the language in the documents. Another tack taken by the hospital is to assert that a resolution by a board of directors to terminate a pension plan, without more, does not actually terminate the plan. As authority, the hospital cites to one case, Jensen v. Moore Wallace North America, 249 Fed.Appx. 391 (6th Cir.2007), an unpublished decision from the federal Sixth Circuit Court of Appeals. In Jensen, an employer wrote a letter to its employees informing them that it was changing the structure of its pension plan and that the pension plan would terminate at a later date. The employer later changed course, telling the employees it would not terminate the pension plan. The employees sued to compel the termination of the pension plan, and to have surplus assets in the plan paid to the employees. The court of appeals affirmed the district court's ruling in favor of the employer that, under ERISA, the pension plan had not been terminated. The appellant hospital suggests that the Jensen court merely relied on basic principles of contract interpretation, and that this Court should reach the same result. After reading the Jensen decision, we disagree and find Jensen to be both factually and legally distinguishable. First, unlike the hospital's pension plan in the case at bar, the plan at issue in Jensen had been amended by the employer to remove all anti-reversion language, thereby clearly allowing the Jensen employer the right to any surplus funds. As previously noted, that language was not, and could not, be amended into the hospital's defined benefit pension plan. Second, unlike the hospital's February 2004 resolution, the employer in Jensen indicated that the pension plan would be terminated at a future date, and kept revising that date before finally abandoning the effort. Third, and most important, unlike the plan in the instant case, the pension plan in Jensen was controlled by ERISA, which lays out a four-step process for terminating a plan. See 29 U.S.C. § 1341(a)(1) (ERISA is the exclusive means of plan termination.); Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 119 S.Ct. 755, 142 L.Ed.2d 881 (1999) (ERISA supplies the sole avenues for voluntary termination of a plan). The federal court in Jensen concluded that because the employer failed to complete all of the steps that ERISA requires for plan termination, that eliminates as a matter of law any possible claim [the employees] might have stemming from a termination. In the instant case, the parties agree that ERISA has no bearing on our decision, and the federal courts have specifically found that the hospital cannot rely upon ERISA because ERISA does not even apply to governmental plans. Morgan County War Memorial Hospital v. Jennifer Baker, et al., 314 Fed. Appx. 529, 534 (4th Cir.2008) (unpublished). We therefore find that Jensen provides no guidance for our resolution of the instant case. The hospital also asserts that its February 2004 resolution was a mere formality, and should be read in light of its surrounding circumstances, the situation of the parties, and their subsequent conduct. These surrounding circumstances, the hospital argues, should have made it clear to the circuit court that the pension plan was not actually terminated by the February 2004 resolution. As authority for its position that the subsequent actions of the hospital are important to understanding the February 2004 resolution, the hospital cites to Chesapeake & O. Ry. Co. v. Deepwater Ry. Co., 57 W.Va. 641, 50 S.E. 890 (1905), where the Court adopted a rule for interpreting ambiguous corporate resolutions. To understand the Court's decision requires a brief recitation of the facts. In Chesapeake, two railroad companies raced to be the first to build a rail line through the mountains at a place called Jenny's Gap, and questions arose over which railroad had first perfected its right to build in Jenny's Gap. Upon learning that the Chesapeake & Ohio Railway intended to build a rail line through Jenny's Gap, the shareholders for the Deepwater Railway approved a resolution extending the rail line on the most practicable route[.] The Deepwater board of directors then met and adopted a resolution to do all things further that may be necessary to carry out the shareholders' resolution. 57 W.Va. at 647-48, 50 S.E. at 892-93. The Chesapeake & Ohio argued that the two Deepwater resolutions had no effect because they were vague and made no reference to any maps or surveys through Jenny's Gap. The Court conceded that the Deepwater shareholders' and board of directors' resolutions were somewhat ambiguous. 57 W.Va. at 669-674, 50 S.E. at 901-904. However, the Court then examined the actions of the Deepwater Railway before and after the resolutions, including the subsequent filing of surveys, maps and actions to buy land and lay track, and concluded that the true meaning and purpose of the publicized resolutions was to build a rail line through Jenny's Gap. To aid in construing such ambiguous corporate resolutions, the Court held in Syllabus Point 13 of Chesapeake (with emphasis added): To aid in ascertaining the true meaning and purpose of a resolution passed by the board of directors of a corporation, the terms of which are not certain and definite, resort may be had to the circumstances under which it was passed, the situation of the company, the object of the resolution and the meeting at which it was passed, and the contemporaneous and subsequent conduct of the corporate authorities in respect to it, and parol evidence is admissible in applying descriptive terms used to the subject-matter. The Court concluded that under the circumstances, it was clear that the Deepwater Railway was the first to perfect its right to build a railroad through Jenny's Gap. The key to our holding in Syllabus Point 13 of Chesapeake is that before a court may rely upon extrinsic evidence to interpret a corporate resolution, the resolution must be ambiguous and the terms not certain and definite. The Chesapeake decision is thus distinguishable from the instant case. Because the hospital's February 2004 resolution is certain and definite in its expression that the Plan is terminated, it would have been improper for the circuit court to have attempted to give the resolution a new meaning by looking to the subsequent conduct of the hospital. We therefore find that the circuit court properly concluded that no question of material fact remained to be resolved, and properly concluded that the hospital terminated the defined benefit pension plan in its February 2004 resolution. B. Should the Plaintiffs Have Been Awarded the Surplus? The appellant hospital also kvetches that, regardless of whether or not the defined benefit pension plan was terminated, the circuit court erred in awarding the surplus to the plan participants. The hospital contends that the written plan does not require that any surplus be distributed, but says that residual assets may be so distributed. The plan states: Any residual assets may be distributed to the Participants if all liabilities of the Plan to Participants and their Beneficiaries have been satisfied and the distribution does not contravene any provision of law. The hospital asserts that this paragraph preserves the hospital's right to do something else with the surplus, such as transfer the assets to a completely different defined contribution pension plan managed by the hospital for the benefit of the employees. This position is contrary to the hospital's initial position that the surplus funds could be used by the hospital for the construction of new facilities. The word may should be construed as synonymous with the word shall when any other interpretation would manifestly defeat the object of the provisions of an agreement. In re Application for License to Practice Law, 67 W.Va. 213, 224, 67 S.E. 597, 601 (1910). See also, State ex rel. Trent v. Sims, 138 W.Va. 244, 272, 77 S.E.2d 122, 139 (1953) ([T]the word `may' should be read `must' when the intention so requires[.]); Chapple v. Fairmont General Hosp., Inc., 181 W.Va. 755, 760 n. 4, 384 S.E.2d 366, 370 n. 4 (1989) ([W]ithin the context of the collective bargaining agreement, may means must. No other options are available.) Furthermore, our Court held in an early decision that the word may means must or shall  in those instances where the public interest and rights are concerned, and where the public or third persons have a claim, de jure, that the power should be exercised. In re Application for License to Practice Law, 67 W.Va. 213, 222, 67 S.E. 597, 601 (1910). After careful consideration of the language and intent of the plan, we believe that the circuit court fairly concluded that the only permissible option for the surplus assets in the plan is that they be distributed to the plan participants. Shifting the surplus assets from the defined benefit pension plan to a differently funded defined contribution pension plan with new participants might have been an alternative prior to termination; however, once the hospital unilaterally terminated the defined benefit pension plan this was no longer an option. If the hospital truly wished to merge the two plans (assuming such a merger could have been legally accomplished in light of plan language preventing the hospital from seizing any plan assets directly or indirectly), then it should have attempted to do so before adopting its termination resolution in February 2004. It did not. Once the plan was terminated, the only feasible option permitted was to satisfy all liabilities of the plan to the plan participants and their beneficiaries, and to then distribute any residual assets to the participants.