Opinion ID: 3013002
Heading Depth: 3
Heading Rank: 2

Heading: Interpretation of the Reciprocal Agreement

Text: The plaintiffs’ second issue on appeal concerns the District Court’s interpretation of the reciprocal agreements between the pension plans of Local 420 and Locals 322 and 121. The parties agree that the plans and agreements, which predated 1984, are subject to the requirements of ERISA, and that courts should apply general principles of contract interpretation to determine 7 if a plaintiff may recover benefits due under the terms of a plan. Accordingly, if the contract’s language is unambiguous, a court may not consult extrinsic evidence to redefine its meaning. But if the terms are ambiguous, it may hold a trial to hear evidence and resolve the ambiguity. In relevant part, the reciprocal agreements state: The Trustees of U.A. Local Union No. 322 [and 121] agree to pay the Trustees of U.A. Local Union No. 420 all contributions paid to them and collected by them from Employers for the members of U.A. Local Union No. 420 while employed within the territorial jurisdiction of U.A. Local No. 322 [and 121] by a contributing Employer. Keegan I, 174 F. Supp. 2d at 335. The plaintiffs became members of Local 420 on February 1, 1984. Prior to that date they were members of Local 532, which had neither a pension plan nor reciprocal agreements with other Locals. Nevertheless, they argue that the reciprocal agreements entered into between Local 420 and Locals 322 and 121 apply prior to February 1, 1984, for Local 532 members, while the defendants contend that these arrangements apply only prospectively from February 1, 1984. The plaintiffs construe the term “all contributions” in the agreement to mean all contributions regardless whether workers were members of Local 420 at the time they were earned. Under this reading, the agreement applies retroactively so that once the plaintiffs became members of Local 420 in 1984, the hours earned while members of Local 532 working in Local 322's territory should have been transferred to their accounts with Local 420, even though they would not have been entitled to these credits had they remained members of Local 532. (An exception would occur if they worked sufficient hours annually in Local 322's territory for ten years, at which point their credits would vest directly in Local 322's fund.) The District Court initially denied summary judgment to the plaintiffs on the ground that the term “all contributions” was ambiguous as to retroactive application. But after the bench 8 trial, the Court concluded that the agreements were not intended to apply retroactively. In so doing, it noted that relevant factors in interpreting an ambiguous contract include the general practice, custom, or usage in a particular industry and that courts may consider the expectations of the beneficiaries of the plan and the intent of the contracting parties. The Court found that industry custom weighs strongly in favor of finding that the reciprocal agreements do not apply retroactively. Three pension plan administrators, including Sweeney, testified that they had never seen a reciprocal agreement applied to contributions for a time period prior to the date an individual became a participant in a fund. An actuary testified to the administrative and financial reasons why retroactive application would have a “devastating” effect on a fund. In short, it would be impossible to know the plan’s future liabilities, as a sudden withdrawal to make retroactive payments could render a fund unable to honor its outstanding debts and obligations. In contrast, the plaintiffs did not offer a single example of a retroactive reciprocal agreement to rebut the defendants’ testimony. Instead, the plaintiffs pointed to a clause in the agreement that expressed the trustees’ desire to “keep the employees of each Pension Trust Fund eligible for benefits if possible.” The District Court found that nothing in this statement implies retroactivity; it merely indicates an aspiration to maintain employees’ eligibility. That the trustees pledged to do so if possible indicates a possibility of forfeiture. Finally, the District Court noted that the plaintiffs’ public policy argument – a prospective interpretation of the reciprocal agreements would result in forfeiture, a result disfavored by law – was unavailing because the plaintiffs never had a vested interest in a pension credit with the Local 322 plan. On appeal the plaintiffs proceed with the same strategy they waged unsuccessfully before the District Court; i.e., they advance conclusory assertions that the reciprocal agreements, unless 9 interpreted retroactively, are contrary to various tenets of public policy. The only argument specifically alleging error is their claim that the District Court improperly elevated industry practice to defeat other, more conventional methods of contract interpretation. We are not persuaded. The plaintiffs correctly note that courts adhere to the maxim that “evidence of trade practice and custom does not trump other canons of contract interpretation, but rather cooperates with them.” Metric Constructors, Inc. v. Nat’l Aeronautics & Space Admin., 169 F.3d 747, 753 (Fed. Cir. 1999). The plaintiffs focus on the first part of the statement but ignore the second, qualifying clause. “A contracting party cannot, for example, invoke trade practice and custom to create an ambiguity where a contract was not reasonably susceptible of differing interpretations at the time of contracting. Trade practice evidence is not an avenue for a party to avoid its contractual obligations by later invoking a conflicting trade practice.” Id. at 752. But this aside, the plaintiffs cannot reasonably claim that the reciprocal agreements unambiguously require retroactive application. Indeed, it is the plaintiffs who offer a strained interpretation of the term “all contributions.” It was only after the District Court denied the plaintiffs’ motion for summary judgment on the ground that this language was ambiguous that the defendants offered testimony that it was unanimous industry practice for reciprocal agreements to operate only prospectively. “[A] court should accept evidence of trade practice only where a party makes a showing that it relied reasonably on a competing interpretation of the words when it entered into the contract,” because “[w]ithout such a showing, evidence that some practitioners customarily accomplish tasks differently from the manner called for by the contract will not overcome the clear language of the contract.” Id. “This requirement helps insure that the evidence of trade 10 practice and custom truly reflects the intent of the contracting party, and avoids according undue weight to that party’s purely post hoc explanations of its conduct.” Id. Yet the plaintiffs overlook the fact that the plaintiffs are not a contracting party to the reciprocal agreements; they are third-party beneficiaries. To that end, the two contracting parties, the administrators of the Local 420 and 322 plans, both proffer the shared understanding that the reciprocal agreements do not apply retroactively. In sum, the District Court did not err in accepting evidence of trade practice. Even if it did, this would not amount to reversible error, as the testimony on industry custom was only one of the stated justifications for the District Court’s holding. Ultimately, the plaintiffs have not introduced any evidence that demonstrates they had an enforceable interest in the Local 322 fund or that supports their interpretation of the reciprocal agreements as requiring retroactive application.