Opinion ID: 576675
Heading Depth: 1
Heading Rank: 4

Heading: The Trustees' Interpretation

Text: 21 We now turn to the decision of the Trustees. Before examining the Trustees decision that denied Kennedy past service credit for his stint as an apprentice, we must determine the applicable standard of review. The Supreme Court has held that courts should review a denial of benefits challenged under § 1132(a)(1)(B) under a de novo standard unless the benefit Plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the Plan. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). If the benefit Plan gives administrators such authority, then the abuse of discretion standard will be our measuring stick. See Vasseur v. Halliburton Co., 950 F.2d 1002, 1006 (5th Cir.1992); Pierre v. Connecticut Gen. Life Ins. Co., 932 F.2d 1552, 1556 (5th Cir.), cert. denied, --- U.S. ----, 112 S.Ct. 453, 116 L.Ed.2d 470 (1991); Penn v. Howe-Baker Engineers, Inc., 898 F.2d 1096, 1099 (5th Cir.1990). 22 Under the terms of the Plan, the Trustees are vested with the authority to interpret and construe the past service credit provisions: The decision of the Trustees as to the amount of Past Service Credits granted to an Employee shall be final and binding. [Article 3, Section 3.12(a) ]. Further, the Plan provides that [t]he Trustees shall be the sole judges of the standard of proof required in any case and of the application and interpretation of this Plan, and the decisions of the Trustees shall be final and binding on all parties. (Section 6.03). Accordingly, we review the Trustees' interpretation of the provisions governing past service credit for an abuse of discretion. 23 When reviewing the Trustee's decision, Batchelor v. International Brotherhood of Electrical Workers Local 861 Pension & Retirement Fund, 877 F.2d 441 (5th Cir.1989), 6 directs the district court to determine the legally correct interpretation of the Plan's provisions. Id. at 444 (citing Denton v. First National Bank of Waco, 765 F.2d 1295, 1304 (5th Cir.1985)). Then, the court must determine if there has been an abuse of discretion in light of the interpretation given the Plan by the Trustees.
24 In determining the legally correct interpretation of the Plan, we consider three issues: (1) whether the Trustees have given the Plan a uniform construction; (2) whether the Trustees' reading of the Plan is fair and reasonable; and (3) whether the interpretation results in substantial unanticipated costs. Batchelor, 877 F.2d at 444 (citing Dennard v. Richards Group, Inc., 681 F.2d 306, 314 (5th Cir.1982); see also Jordan v. Cameron Iron Works, Inc., 900 F.2d 53 (5th Cir.1990), cert. denied, U.S. ----, 111 S.Ct. 344, 112 L.Ed.2d 308 (1990)).
25 Because Appellants inform us of only two other requests for past service credit that even resemble the request from Kennedy, we have few weights for our construction scale. Appellants refer to a meeting held in July 1987 at which the Trustees allegedly voted to deny two applicants past service credits for apprenticeship service. There is not, however, any evidence presented indicating the rationale for these denials. In contrast to the letters of denial written to Kennedy, the district court was provided no explanation for the Trustees decision to exclude the prior service credit requests of the two applicants. Absent such information, we cannot say that the Trustees have given the Plan a uniform construction. The mere fact that the Trustees have denied three union members past service credits for their apprenticeship service, without evidence of the basis for such denials, does not sufficiently show uniform construction. 26 The facts of this case leave us doubting that the Trustees have given the Plan a uniform construction. In their two denial letters to Kennedy, the Trustees established two different explanations for their decision. The 4 April 1988 letter informed Kennedy that his request had been denied because having status as an apprentice is not, ... 'reasonable evidence of an Employee's dependence upon such Employment,' and because status as an apprentice is not sufficient proof of continuous and successive employment.'  Then, after Kennedy provided documentation evidencing that his work as an apprentice electrician was continuous, that he was dependant for his livelihood on his apprenticeship, and that he worked solely for employers who were members of the collective bargaining unit, the Trustees informed Kennedy in a 3 October 1988 letter that he was denied because he was not a member of Local 995 during his apprentices work. 7 These inconsistent rationale further persuade us that the Trustees have not given the Plan a uniform construction.
27 The district court found it quite apparent that the Trustees' interpretation is in direct conflict with the language of the Plan. Kennedy, 755 F.Supp. at 706. We agree that a fair reading of the controlling language would entitle Kennedy to receive credit for his years as an apprentice. The relevant language from the Plan, as amended in 1976, has been quoted previously in this opinion. A reading of this language does not support Appellants' position that the Plan requires initiation into the Union for entitlement to past service credits. The language plainly states that employees who were active members of the Collective Bargaining Unit in October 1970 will receive past service credit for every year of continuous and unbroken service in the collective bargaining unit. As we read the Plan, Kennedy's continuous membership in the collective bargaining unit between October 1950 and October 1970, entitled him to Plan coverage. 28 There is simply no language in the Plan to support the Trustees' interpretation. Initiation into the Union is not specified as a prerequisite for such credit. Moreover, the language that requires submission of proof of other items (i.e., dependency and successive employment) further demonstrates that the past service credits are not hinged to initiation in the union. 8 It is undisputed that apprentices were members of the collective bargaining unit, and the facts show that Kennedy's membership in the collective bargaining unit (through his employment with participating employers) was continuous and unbroken. For these reasons, we conclude that a fair reading of Section 4.01(b) would entitle Kennedy to past service credits. At least in Kennedy's case, the Trustees reading of the Plan was unfair and unreasonable.
29 An additional factor to consider is whether either party's interpretation of the Plan would give rise to 'substantial unanticipated costs to the Plan.'  Batchelor, 877 F.2d at 445 (citing Lowry v. Bankers Life and Casualty Retirement Plan, 865 F.2d 692, reh'g denied 871 F.2d 522, 524 (5th Cir.1989)). An interpretation that would result in substantial unanticipated costs may be less likely to be legally correct. Id. 30 Appellants argue that if Kennedy is allowed to claim past service credits for his time as an apprentice, as many as 440 current participants might claim similar benefits. Appellants claim that this would cripple the Plan. The Fund's actuary testified that apprentice eligibility could cost the Plan between $849,500 and $3,186,900, amounting to a 2.3% increase in actuarial liability for one additional year of past service credit (granted to all 440 participants) to an 8.7% increase for four years of additional past service credit. The result of such an increase, claims the actuary, would be possibly causing a postponement of benefits for a few years. (Deposition of L. Black, p. 20). 31 Kennedy argues that the actuary's estimates represent an unrealistic worst case scenario. He claims that the actuary had no way of determining whether all 440 participants would be entitled to additional past service credit. Even if a credit would be applicable, not all participants served the same time as an apprentice. Thus, a prediction predicated upon an unknown term (the years of apprenticeship) and an unknown quantity in the set (the number of people serving an apprenticeship before Union initiation), results in a calculation steeped in speculation. Kennedy, on the other hand, presents a graph showing that some of the 440 employees were apprentices for only a matter of months. Finally, Kennedy points out that benefit increases have been postponed in the past--suggesting that even the worst case scenario would not undermine the Plan. 32 Although neither party provides us with definitive guidance on the likely financial impact of implementing Kennedy's interpretation of the Plan, 9 it is clear that the granting of apprenticeship credit could have a substantial impact on the Plan. 10 In this regard, we must contrast the possible costs with the Plan's total assets. Batchelor, 877 F.2d at 445. At the end of 1989, the Fund was worth roughly $36.5 million dollars. Assuming that adoption of Kennedy's interpretation will cost the Plan the mean of the actuary's predictions, or roughly $2 million dollars, 11 such an impact on the fund would be substantial. 12 33 Yet, we are unconvinced that Kennedy's interpretation yields unanticipated cost. The district court held that the 1976 amendment to the Plan was specifically intended to extend prior service credit to apprentices. Kennedy, 755 F.Supp. at 707. Although we have not been provided conclusive evidence as to why the qualifications for past service credit were purposely liberalized in 1976, our reading of Section 4.01(b) compels us to agree with the district court. By requiring membership in the Union for eligibility, the original past service credit provision echoes the Trustees current interpretation of the Plan. As previously discussed, this language was amended in 1976 to require only that all employees be dependant for livelihood on his trade as an Electrician within the jurisdiction of the Union (emphasis added). The membership requirement was obviously omitted. Appellants have not persuaded us that Kennedy's interpretation of the amended language in any way conflicts with the 1976 amendment. 34 We therefore confirm the district court's holding that the plain meaning of the Plan, as amended in 1976, would permit past service credit for apprenticeship service for members of the collective bargaining unit between October 1950 and October 1970. In denying Kennedy the credit, the Trustees have read the Plan unfairly. Moreover, because the language of the Plan was obviously liberalized to grant credit for years of apprentice service, we agree that the Fund will not face substantial unanticipated costs if Kennedy is to prevail.
35 The remaining factor to consider is whether the Trustees interpretation of the Plan, even though legally incorrect, amounts to an abuse of discretion. It is not mere error committed during administrative process that rises to correction by federal courts. The error must be one of an abuse of discretion. In Batchelor we outlined three considerations to guide our inquiry: (1) the internal consistency of the Plan under the interpretation given by the Trustees; (2) any relevant regulations formulated by the appropriate administrative agency; and (3) factual background of the determination and inferences of lack of good faith. Batchelor, 877 F.2d at 444 (citing Dennard, 681 F.2d at 314).
36 As stated by the district court, neither party has presented persuasive evidence that the applicable language (Section 4.01(b)) conflicts with any other provision in the Plan.
37 No relevant regulations have been presented to the court.
38 The district court examined the factual background of this case by noting that the 39 Trustees adopted their construction because it was a very easy and shorthand method of drawing a bright line between eligibility for past service credits and non-eligibility.... [T]he Trustees personally thought they were protecting the assets of the Plan by not extending prior service credit to apprentices and thus they were not individually in bad faith. 40 Kennedy, 755 F.Supp at 707. We agree with the district court that there is no evidence that the Trustees decisions were made in bad faith; and we have already held that the Trustees interpretation was unfair and unreasonable. 41 To find an absence of abuse of discretion, the court must scour the record and the pleadings for any legal basis upon which the Trustees could have based their interpretations. In the light of the scant evidence presented by both parties, the district court was correct in its assessment of the factual background of the Trustees' determination. Appellants have presented no evidence that the Trustees had more than merely a good faith belief that apprenticeship service was not included under the terms of the Plan. 13 Indeed, the deposition testimony submitted by appellants reflects confusion on the part of the Trustees as to their own interpretation of the Plan. Referring to the Trustees' rejection of Kennedy's application, Trustee Mr. Roshto stated: 42 At that time we were working people from all over the country, other people, permit people, ... and we looked very hard to try to find a line that we could be fair and impartial with everyone and a criteria we could use that we would meet everybody.... We looked at all of it close, and there was still some doubts lingering and doubts for others, and we felt like if we strayed off to the policy that we set for everyone we would get off of what's fair and not fair. 43 (Deposition of J. Roshto pp. 7-8). Although it would be incorrect to make an inference of bad faith from the limited factual background presented by the parties, Appellants have simply failed to show that the Trustees' interpretation is legally sound. 44 After an exhaustive examination of the evidence and the briefs submitted by both parties, we find, as did the district court, that the Trustees interpretation of the Plan constituted an abuse of discretion. Under the plain meaning of the language amended to the Plan in 1976, Kennedy was entitled to past service credit for his service as an apprentice. Furthermore, the factual background does not support Appellants' argument that the Trustees properly interpreted the Plan. Consequently, the district court did not err in holding that the Trustees' interpretation of the Plan was an abuse of discretion. 45 For the forgoing reasons, we AFFIRM.