Opinion ID: 392372
Heading Depth: 1
Heading Rank: 2

Heading: the plan interpretation issue

Text: 12 Our well-established rule is that the decisions of those empowered with the administration of an employee pension trust shall be sustained unless arbitrary or capricious or contrary to law. Ponce v. Const. Laborers Pension Trust, 628 F.2d 537, 541-42 (9th Cir. 1980); Gordon v. ILWU-PMA Benefit Funds, 616 F.2d 433, 437-38 (9th Cir. 1980); Aitken v. IP & GCU-Employer Retirement Fund, 604 F.2d 1261, 1264 (9th Cir. 1979); Rehmar v. Smith, 555 F.2d 1362, 1371 (9th Cir. 1976); Giler v. Board of Sheet Metal Workers of So. Cal., 509 F.2d 848, 849 (9th Cir. 1975)(per curiam); accord, Bayles v. Central States, Southeast & Southwest Areas Pension Fund, 602 F.2d 97, 99-100 (5th Cir. 1979); Bueneman v. Central States, Southeast & Southwest Areas Pension Fund, 572 F.2d 1208 (8th Cir. 1978); Riley v. MEBA Pension Trust, 570 F.2d 406, 412 (2d Cir. 1977). This is especially true where, as here, the trust instrument confers broad power on the administrators to determine eligibility for benefits under the plan. Aitken v. IP & GCU-Employer Retirement Fund, supra, 604 F.2d at 1264; Bayles v. Central States, Southeast & Southwest Areas Pension Trust, supra, 602 F.2d at 100; Riley v. MEBA Pension Trust, supra, 570 F.2d at 410. 13 Appellant argues that the trustees' interpretation of the Plan is incorrect because the Plan's provision for accrual of additional benefits would be rendered meaningless unless employment with a participating employer is construed to mean employment for which contributions are made. He also asserts that their interpretation works an injustice by allowing the Plan to deny benefits to an otherwise eligible member while failing to credit him with additional service units. In support of his argument, appellant refers us to the 1960 Explanation of Plan Provisions which states that the suspension provision does not apply if you work for a participating employer in other than covered employment and that covered employment is work in a job classification for which a participating employer has agreed to make contributions to the Plan. He acknowledges that the 1960 Plan Explanation does not control his rights, but insists that when its provisions differ from the trustees' interpretation of the Plan an ambiguity arises that should be resolved in his favor. 14 We disagree. None of appellant's contentions require that the trustees' actions be characterized as arbitrary or capricious. In Rehmar v. Smith, supra, this court explicitly rejected the principle that an ambiguity in a plan should be interpreted in favor of coverage and held that where a collectively bargained pension plan gives the fiduciaries broad discretion, the courts should limit their review to whether the fiduciaries' decisions are arbitrary or capricious. 555 F.2d at 1371. Consistent with this approach we have held that when the administrators of a labor-management pension fund have been given authority to determine eligibility under the Plan, their reasonable resolutions of any ambiguities in the Plan's language will be sustained by this court. Gordon v. ILWU-PMA Benefit Funds, supra, 616 F.2d at 439; Aitken v. IP & GCU-Employer Retirement Fund, supra, 604 F.2d at 1266. Also where the rules are susceptible to more than one reasonable interpretation, we have said that the court may not substitute its judgment for that of the trustees. Gordon v. ILWU-PMA Benefit Funds, supra. Other courts employ the same approach. Thus, the Second Circuit has observed that the trustees' interpretation need not be the one this court would have reached, but only an interpretation which has rational justifications. See Riley v. MEBA Pension Trust, supra, 570 F.2d at 412. 15 In this case the trustees' interpretation is neither arbitrary nor capricious. Appellees have provided ample justification to support their determination that an otherwise eligible plan member is ineligible for benefits while he continues to work for an employer contributing to the Plan. Thus, failure of the Plan to suspend benefits to members who retired and then went to work outside the IAM bargaining unit for either the same or a different contributing employer would cause an anomalous situation to arise in which two co-workers, both vested Plan members and over 62 years old, would receive different retirement coverage. Specifically, a Plan member who remains with the same employer at the same job would clearly be prohibited from receiving payments, while his fellow worker would be drawing benefits from the Plan simply because he left a work position within the union's jurisdiction. A reasonable way to ameliorate this inequality is to interpret the suspension clause to require withholding of retirement benefits from an otherwise eligible member so long as he is employed by an employer making contributions into the Plan, regardless of whether the employer makes such contributions specifically on behalf of the applicant. 16 Moreover, appellant's employer, Owens, is clearly a participating employer. The Plan is unambiguous. Section 6.1 of the Plan defines a participating employer as any employer which qualified as such prior to April 1, 1972, and any employer which contributes to the Trust after that date....  (italics added). It is undisputed that Owens made contributions to the Plan after April 1, 1972. The trustees' determination that Owens was a participating employer was certainly a reasonable, if not compelled, decision. 3 17 Finally, there is no inconsistency between the suspension clause and the Plan's provision for accrual of additional benefits during a suspension period. The credit accrual clause does not state that a retirement age plan member who works for a participating employer must receive additional credits during the period he is suspended. Rather, the clause merely refers to the limited circumstances under which an early retiree may earn additional credits, i. e., when he works for a participating employer that makes contributions to the Plan on his behalf. 4 18 The Plan has been consistently interpreted so as to suspend benefits to Plan members working for employers contributing to the Plan. Appellant does not contend otherwise. This is a reasonable interpretation and cannot be considered as either arbitrary or capricious. THE ERISA CLAIM 19 Appellant's ERISA claim presents a more difficult problem. We must decide whether the suspension clause as interpreted violates federal law under ERISA § 203(a), 29 U.S.C. § 1053(a), which provides in part: Each pension plan shall provide that an employee's right to his normal retirement benefit is nonforfeitable upon the attainment of normal retirement age .... 5 A plan's failure to make payments to an eligible participant constitutes an impermissible forfeiture under the Act unless the conditions described in section 203(a)(3) are met. 6 Appellant's position is that the Plan's suspension clause violates ERISA's nonforfeiture rule and falls within no exception. Appellees contend that section 203(a) does not apply in this case, and, in any event, the suspension clause is permissible under section 203(a)(3) (B)(ii). We address the applicability issue first. 20 A. Applicability of ERISA § 203(a) to the Determination of Appellant's Pension Rights 21 The various sections of ERISA became effective at differing times; section 203(a) became applicable to plans in existence on January 1, 1974 at the commencement of their plan years beginning after December 31, 1975. 29 U.S.C. § 1061(b)(2). Congress did not intend for ERISA to apply retroactively. City of Los Angeles Dept. of Water and Power v. Manhart, 435 U.S. 702, 721 n.40, 98 S.Ct. 1370, 1382 n.40, 55 L.Ed.2d 657 (1978). 7 Accordingly, in Ponce v. Const. Laborers Pension Trust, supra, 628 F.2d at 541, this court refused to apply ERISA's mandatory vesting provisions so as to reinstate pension rights which had been forfeited pursuant to a pre-ERISA break-in-service rule because none of the appellants worked for employers contributing to appellee's multi-employer plan in 1976. See id. at 541. Likewise, the Seventh Circuit has held that a former employee could not rely on ERISA to prevent the operation of a bad boy forfeiture clause because he was not employed by the company maintaining the plan on the effective date of section 203. See Fremont v. McGraw-Edison Company, 606 F.2d 752, 755, 758 (7th Cir. 1979), cert. denied, 445 U.S. 951, 100 S.Ct. 1599, 63 L.Ed.2d 786; accord, Giler v. Board of Sheet Metal Workers of So. Cal., supra, 509 F.2d at 849 n.1; Davis v. Central States, Southeast and Southwest Areas Pension Plan, 460 F.Supp. 926, 928 (E.D.Tenn.1978). 22 However, contrary to appellees' argument, neither Ponce nor Fremont stand for the proposition that section 203(a) is applicable to the pension rights of Plan members only if contributions were being made on their behalf on that section's effective date. The issue in both Ponce and Fremont was whether ERISA should retroactively apply so as to vest rights otherwise previously forfeited by former employees under valid pre-1976 plan. To give effect to ERISA in such situations would be tantamount to giving the section retroactive effect. This is precisely the situation Congress intended to prevent by delaying the effective date of section 203 until the 1976 commencement date of plan years. In contrast, the issue in this case is whether a plan member who not only was working for a participating employer on April 1, 1976, the date section 203 became effective with respect to his plan, but also acquired vested pension rights on that date, is entitled to certain benefits of that section. We hold that Congress did not intend to exclude a plan participant in appellant's position from all benefits of the section. 8 23 Appellees also argue that section 203(a) is totally inapplicable in this case because the suspensions commenced prior to April 1, 1976 pursuant to a valid pre-ERISA suspension clause. We see no reason, however, why the operative effect of post-effective date suspension should be the same as that of pre-effective date suspensions. Although section 203(a) should not be retroactively applied to affect any monthly payments suspended prior to April 1, 1976, we hold that each monthly suspension subsequent to that date must satisfy the requirements stated in section 203(a). As we see it, the fact that the initial suspension occurred prior to 1976 does not mean that the trustees may continue to suspend monthly payments in violation of ERISA after section 203(a) became effective. See Riley v. MEBA Pension Trust, supra, 570 F.2d at 411. A contrary conclusion would encourage an employee in appellant's position to waste time and effort in avoiding its consequences. Specifically, if appellant had retired from employment on April 1, 1976, received one month's pension payment, and then returned to work at Owens in May, 1976, a decision to suspend his benefits at that time clearly would have been reviewable under ERISA § 203(a). See id. at 411-12; cf. Morgan v. Laborers Pension Trust Fund for No. Cal., 433 F.Supp. 518, 522 (N.D. Cal. 1977) (trustees' decision to deny benefits subsequent to ERISA effective date reviewable under ERISA's fiduciary duties provisions while trustees' earlier decision to deny benefits on similar ground subject to review only under pre-ERISA standards). We should not assume that Congress intended to encourage such avoidance techniques. Appellant, therefore, is entitled to the benefit of ERISA § 203(a) from April 1, 1976, the date section 203(a) became applicable to the Plan, until April 1, 1978, the date the Plan commenced paying him benefits. 24 B. ERISA § 203(a)(3)(B)(ii) Exception to the Nonforfeiture Rule 25 In the context of this appeal, dismissal of appellant's ERISA claim from April, 1976 until April, 1978 cannot be affirmed unless appellant's complaint liberally construed in his favor nonetheless indicates that the suspensions in question were permissible under some exceptions to ERISA's nonforfeiture rule. See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957). The exception most relevant to this case appears at ERISA § 203(a)(3) (B), 29 U.S.C. § 1053(a)(3)(B): 9 26 A right to an accrued benefit derived from employer contributions shall not be treated as forfeitable solely because the plan provides that the payment of benefits is suspended for such period as the employee is employed... 27 (ii) in the case of multiemployer plan, in the same industry, in the same trade or craft, and the same geographic area covered by the plan, as when such benefits commenced. 28 The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subparagraph.... 10 29 The trustees' decision to suspend appellant's benefits was not based on his fulfillment of the three prerequisites described in section 203(a)(3)(B)(ii). Rather, appellant's benefits were suspended because the trustees determined he was employed in the metal trades industry and for a participating employer either of which type of employment was an independent ground for suspension under the Plan. Suspensions, however, that are not expressly permitted by section 203(a)(3)(B) are unlawful even though permitted by the Plan. Thomson v. I.A.M. National Pension Fund, 616 F.2d 343, 346 (7th Cir. 1980) (per curiam). 30 While it is undisputed that appellant's work at Owens was in the same geographic area as that covered by the Plan, the parties disagree as to whether appellant's employment between April 1, 1976 and April 1, 1978 qualifies as employment in the same industry and in the same craft or trade. Appellant claims he was not working in the same industry because Owens, his employer at the time he reached age 62, manufactured glass. Bacon, on the other hand, was engaged in unrelated activities and was not a glass manufacturer. Appellant, therefore, insists that the same industry requirement was not met. We disagree. 31 In the case of multiemployer plans such as the one here, it is unlikely that all employers who maintain the plan will be involved in similar business activities. Indeed, a single employer may engage in more than one type of enterprise and many employers although engaged in different enterprises may use similar types of skilled labor. In order to determine whether a potential retirement benefit recipient is employed in the same industry within the meaning of section 203(a)(3)(B)(ii), the industrial activities of all employers who maintain the plan for employees employed in such activities at the time the applicant becomes eligible for benefits must be considered. The applicable proposed regulations so provide. 11 So long as an employee serves in the business activities of an employer who, with other employers, maintains the plan to which the employee looks for benefits, the employee serves in the same industry. This is a reasonable interpretation of section § 203(a)(3) (B)(ii). 32 Whether appellant was employed in the same trade or craft covered by the Plan presents a more difficult issue. Appellant alleged below that he was employed as a machinist at Bacon whereas he worked as a forklift operator and warehouseman at Owens. Without a more detailed description of his duties at both jobs, we cannot determine whether appellant's respective employments involved overlapping skills. 12 Our reluctance to pass on this issue on the basis of the present record is strengthened because the district court indicated that, while it did not pass on the issue, it believed appellant was not engaged in the metal trades industry while employed at Owens. 1 R.T. 18. Although the court was not referring to the same trade or craft condition stated in ERISA but rather to one of the Plan's ground for suspension, the Plan's definition of what constitutes employment in the metal trades industry is even more inclusive than what could properly be called the same trade or craft under section 203(a)(3)(B)(ii). 13 33 Since appellant's pleading on its face states a valid claim under ERISA § 203(a) for the period between April 1, 1976 and April 1, 1978, the dismissal of this part of his complaint is reversed. C. The State Claim 34 The IAM Plan provides that its terms shall be subject to the laws of the State of California. Appellant argues that the Plan's suspension clause violates Cal.Bus. & Prof. Code § 16600 which states that every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void. 14 He relies on three California cases for support: Muggill v. Reuben H. Donnelley Corp., 62 Cal.2d 239, 398 P.2d 147, 42 Cal.Rptr. 107 (1965); Frame v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 20 Cal.App.3d 668, 97 Cal.Rptr. 811 (1971); and Ware v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 24 Cal.App.3d 35, 100 Cal.Rptr. 791 (1972), affirmed, 414 U.S. 117, 94 S.Ct. 383, 38 L.Ed.2d 348 (1973). 35 These cases pertain to pension or profitsharing plans drafted, established, and controlled by the employer-defendants; the plans involved in Muggill, Frame and Ware each provided that an employee member would lose all rights to benefits if he engaged in any work which the plan's Administrative or Retirement Committee considered to be in competition with the employer's business enterprises. The California courts voided the forfeiture clauses in all three cases pursuant to section 16600. Although we are obligated to interpret state law as would the California courts (see Aitken v. IP & GCU Employment Retirement Fund, supra, 604 F.2d at 1269), these cases do not support appellant's position. In Muggill, Frame and Ware, the state court voided the forfeiture clauses because the employees' loss of rights were absolute and the employers' motive behind including such provisions was to limit business competition. In contrast, the California courts have not considered that application of section 16600 or similar sections in the same chapter was justified in situations where an alleged restraint is limited in nature and furthers sound public policies. See, e. g., Monogram Ind., Inc. v. Sar Ind., 64 Cal.App.3d 692, 697-98, 134 Cal.Rptr. 714 (1976) (section 16600 should be viewed in light of the chapter it is part of, i. e., prevention of covenants not to compete except where fairness requires a limit on competition); Buskuhl v. Family Ins. Co., 271 Cal.2d 514, 76 Cal.Rptr. 602, 607-08 (1969) (contract providing for loss of otherwise payable commissions when employee leaves employ and then solicits company's customers or employees not void under section 16600); see also Gordon v. Wasserman, 153 Cal.App.2d 328, 314 P.2d 759 (1957); Muggill v. Reuben H. Donnelley Corp., supra, 398 P.2d at 147. 36 The Plan's suspension clause in this case neither led to forfeiture of all appellant's pension rights nor was implemented in order for an employer to inhibit possible business competition. Rather, this suspension clause not only was limited in time and scope, but also was part of a collective bargaining agreement implemented in order to further fairness in allocation of retirement benefits as well as to serve the public policies articulated in the discussions regarding appellant's other claims. We are confident California courts would not apply section 16600 to void the limited benefit suspension involved in this case. D. The Excluded Affidavit Issue 37 The court below did not err in refusing to consider the affidavit submitted by appellant. Even if the motion to dismiss is treated as one for summary judgment in favor of appellees, the district court was correct. Appellant filed his own motion for summary judgment over two weeks before hearing. Consequently, he had notice that a summary judgment might be granted but still failed to comply with the local court rules. The district court acted properly.