Court Opinion

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Opinions of the United
2008 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

8-28-2008

In Re: Lucent Death
Precedential or Non-Precedential: Precedential

Docket No. 06-5008

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Recommended Citation
"In Re: Lucent Death " (2008). 2008 Decisions. Paper 570.
http://digitalcommons.law.villanova.edu/thirdcircuit_2008/570

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                                         PRECEDENTIAL

       UNITED STATES COURT OF APPEALS
            FOR THE THIRD CIRCUIT

                Nos. 06-5008 & 06-5009

IN RE: LUCENT DEATH BENEFITS ERISA LITIGATION

                  EDWARD FOSS; SARAH CONDER;
                  ARTHUR J. BERENDT; ROBERT B.
                  HOWARD,

                               Appellants (No. 06-5008)

                  HELEN P. LUCAS, as surviving spouse
                  of Vincent R. Lucas,

                               Appellant (No. 06-5009)

       Appeal from the United States District Court
               for the District of New Jersey
 (D.C. Civil Action Nos. 03-cv-05017/04-cv-01099/00640)
     District Judge: Honorable Dennis M. Cavanaugh

                 Argued April 16, 2008
  Before: AMBRO, FISHER, and MICHEL,* Circuit Judges

               (Opinion filed: August 28, 2008)

James R. Malone, Jr., Esquire (Argued)
Kimberly L. Kimmel, Esquire
Chimicles & Tikellis
361 West Lancaster Avenue
One Haverford Centre
Haverford, PA 19041

       Counsel for Appellants
       Edward Foss and Sarah Conder

Alan M. Sandals, Esquire
Scott M. Lempert, Esquire
Sandals & Associates
One South Broad Street
Suite 1850
Philadelphia, PA 19107

Victoria Quesada, Esquire (Argued)
Quesada & Moore
128 Avon Place
West Hempstead, NY 11552

       Counsel for Appellant
       Helen P. Lucas

       *
       Honorable Paul R. Michel, Chief Judge, United States
Court of Appeals for the Federal Circuit, sitting by designation.

                               2
Joseph D. Guarino, Esquire
Epstein, Becker & Green
Two Gateway Center
12th Floor
Newark, NJ 07102

John Houston Pope, Esquire (Argued)
Epstein, Becker & Green
250 Park Avenue
New York, NY 10177

Frank C. Morris, Jr., Esquire
Epstein, Becker & Green
1227 25th Street, N.W., Suite 700
Washington, DC 20037

      Counsel for Appellee

Curtis L. Kennedy, Esquire
8405 East Princeton Avenue
Denver, CO 80237

      Counsel for Amicus-Appellant

                OPINION OF THE COURT

                             3
AMBRO, Circuit Judge

        Former employees of AT&T Corp. (“AT&T”) and
Lucent Technologies Inc. (“Lucent”) appeal the dismissal of
their putative class action relating to the termination of a
pensioner death benefit provided for in the governing benefit
plan. We conclude that this benefit was an unvested welfare
benefit and that neither the Employee Retirement Income
Security Act (“ERISA”), 29 U.S.C. §§ 1001–1461, nor
unilateral contract principles prohibited its termination. We thus
affirm.

I.     Factual and Procedural Background

       Plaintiffs allege the following. We assume the truth of
these facts for the purpose of this appeal of the District Court’s
order dismissing the complaint for failure to state a claim upon
which relief may be granted. See Phillips v. County of
Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) (“[O]n a Rule
12(b)(6) motion, the facts alleged must be taken as true and a
complaint may not be dismissed merely because it appears
unlikely that the plaintiff can prove those facts . . . .”).

       AT&T adopted a pension and disability benefit plan in
1913. This plan was called the Plan for Employees’ Pensions,
Disability Benefits and Death Benefits when ERISA was
enacted in 1974.

       AT&T spun off Lucent in 1996. Lucent assumed the

                                4
obligation to provide retirement benefits equivalent to those
under the AT&T plan to the retirees transferred to Lucent. It
created a plan called the Lucent Technologies Inc. Management
Pension Plan (“1996 Plan”) that expressly incorporated the
terms of the AT&T plans. The 1996 Plan included the
following provisions:

      Pensioner Death Benefit Amount

      In the event of the death of any person who at the
      time of death is receiving, or who at the time of
      death is a former Employee of a Participating
      Company, is not employed by a Lucent
      Controlled Group entity, and is eligible to receive,
      a pension granted under Section 4.1(a) or 4.1(c)
      of this Plan, the Committee or the BCAC [the
      Benefit Claim and Appeal Committee], as
      applicable, in its discretion, but subject to the
      following provisions of this Section 5.4, may
      authorize a Death Benefit to the spouse or
      dependent relatives of the pensioner the total
      amount of which shall not exceed the maximum
      amount which could have been paid as a Sickness
      Death Benefit under the terms of Section 5.3 if
      the pensioner had died on his or her last day of
      active service before retirement on pension;
      provided, however, that in the case of a pensioner
      who retired after the last day of the month in
      which the pensioner’s Normal Retirement Age

                               5
       occurred, and whose pension was effective during
       the period from January 2, 1979 to August 10,
       1980, inclusive, the Death Benefit shall not
       exceed the maximum Sickness Death Benefit
       which could have been paid if the pensioner had
       died on the last day of the month in which the
       pensioner’s Normal Retirement Age occurred.

1996 Plan Art. 5.4(a).

       Power to Amend

       The Board of Directors, or its delegate, may from
       time to time make changes in the Plan as set forth
       in this document, or terminate said Plan, but such
       changes or termination shall not affect the rights
       of any Employee, without his or her consent, to
       any benefit or pension to which he or she may
       have previously become entitled hereunder.

1996 Plan Art. 10.1.

       Lucent amended its plan in 1997 to eliminate the
pensioner death benefit for employees who retired after January
1, 1998. It further amended its plan in February 2003 to
eliminate the pensioner death benefit for all management
employees then living regardless of the date of retirement.

       This litigation followed. Three separate lawsuits were

                               6
filed in 2003 and 2004 by long-serving AT&T employees who
had retired in the 1980s. Edward Foss, Vincent R. Lucas,1
Arthur J. Berendt, Robert B. Howard, and Sarah A. Conder
(collectively, “the pensioners”) filed a consolidated amended
complaint in the District of New Jersey in November 2005.
That complaint included four claims under ERISA and federal
common law on behalf of a putative class of pensioners. It
alleged that Lucent had terminated the pensioner death benefit
unlawfully and sought declaratory and injunctive relief reversing
that termination.

       The District Court dismissed the complaint in November
2006 for failure to state a claim upon which relief may be
granted. It concluded that the plan documents were not
ambiguous and therefore extrinsic evidence was not relevant to
construing them. It held that the pensioner death benefit was an
unvested welfare benefit and that neither ERISA nor unilateral
contract principles prohibited its elimination.

       The pensioners timely appealed.

II.    Jurisdiction and Standard of Review

       The District Court had jurisdiction under 29 U.S.C.

       1
        Lucas subsequently died. His widow Helen P. Lucas, an
appellant in this case, moved to be substituted as plaintiff. The
District Court denied that motion as moot when it dismissed the
complaint.

                               7
§ 1132(e)(1). We have jurisdiction under 28 U.S.C. § 1291.
Our review is plenary. See Burstein v. Retirement Account Plan
for Employees of Allegheny Health & Educ. Research Found.,
334 F.3d 365, 374 (3d Cir. 2003).

III.   Analysis

       “ERISA recognizes two types of employee benefit plans:
pension plans and welfare plans.” In re. Unisys Corp. Retiree
Med. Benefit “ERISA” Litig., 58 F.3d 896, 902 (3d Cir. 1995).
Welfare plans provide “medical, surgical, or hospital care or
benefits, or benefits in the event of sickness, accident, disability,
death or unemployment . . . .” 29 U.S.C. § 1002(1). Pension
plans provide retirement income to employees or result in a
deferral of income by employees for periods extending to the
termination of covered employment or beyond.                      Id.
§ 1002(2)(A).

       The distinction between accrual (the rate at which an
employee earns benefits to put in the employee’s pension
account) and vesting (the process by which an employee’s
already-accrued pension account becomes irrevocably the
employee’s property) is relevant to the protection of benefits.
See generally DiGiacomo v. Teamsters Pension Trust Fund of
Philadelphia & Vicinity, 420 F.3d 220, 223 (3d Cir. 2005)
(quoting Cent. Laborers’ Pension Fund v. Heinz, 541 U.S. 739,
749 (2004), and discussing accrual and vesting). ERISA
provides elaborate requirements for the vesting of pension
benefits, but it does not provide automatic vesting of welfare

                                 8
benefits. Int’l Union, United Auto., Aerospace & Agric.
Implement Workers of Am. v. Skinner Engine Co., 188 F.3d 130,
137–38 (3d Cir. 1999). An accrued pension benefit is protected
by ERISA’s anti-cutback provision without any showing that it
has vested. See 29 U.S.C. § 1054(g) (anti-cutback provision);
In re Fruehauf Trailer Corp., 444 F.3d 203, 212 (3d Cir. 2006)
(“Under ERISA’s ‘anti-cutback’ provision, benefits accrued in
a qualified plan are irrevocable; an administrator or sponsor may
not decrease them once they are granted.”). In contrast, a
welfare benefit is protected from elimination only if the plaintiff
proves by a preponderance of the evidence that the plan provider
had intended the welfare benefit to have vested (despite not
being obliged to do so by ERISA). See Skinner, 188 F.3d at
138–39.

       The pensioners contend that the pensioner death benefit
is an accrued and vested pension benefit that is protected by
ERISA from unilateral termination. Lucent, on the other hand,
argues that the pensioner death benefit is an unvested welfare
benefit that it may terminate unilaterally. See id. at 138.

       A.     Is the Pensioner Death Benefit a Welfare
              Benefit or a Pension Benefit?

       ERISA defines pension and welfare benefits as follows:

       Except as provided in subparagraph (B), the terms
       “employee pension benefit plan” and “pension
       plan” mean any plan, fund, or program which was

                                9
      heretofore or is hereafter established or
      maintained by an employer or by an employee
      organization, or by both, to the extent that by its
      express terms or as a result of surrounding
      circumstances such plan, fund, or program—

             (i) provides     retirement    income     to
             employees, or

             (ii) results in a deferral of income by
             employees for periods extending to the
             termination of covered employment or
             beyond,

      regardless of the method of calculating the
      contributions made to the plan, the method of
      calculating the benefits under the plan or the
      method of distributing benefits from the plan. A
      distribution from a plan, fund, or program shall
      not be treated as made in a form other than
      retirement income or as a distribution prior to
      termination of covered employment solely
      because such distribution is made to an employee
      who has attained age 62 and who is not separated
      from employment at the time of such distribution.

29 U.S.C. § 1002(2)(A). In contrast:

      The terms “employee welfare benefit plan” and

                              10
       “welfare plan” mean any plan, fund, or program
       which was heretofore or is hereafter established or
       maintained by an employer or by an employee
       organization, or by both, to the extent that such
       plan, fund, or program was established or is
       maintained for the purpose of providing for its
       participants or their beneficiaries, through the
       purchase of insurance or otherwise, (A) medical,
       surgical, or hospital care or benefits, or benefits in
       the event of sickness, accident, disability, death or
       u n e m p l o ym e n t , o r v a c a t io n b e n e f i t s ,
       apprenticeship or other training programs, or day
       care centers, scholarship funds, or prepaid legal
       services, or (B) any benefit described in section
       186(c) of this title (other than pensions on
       retirement or death, and insurance to provide such
       pensions).

Id. § 1002(1) (emphasis added).

       “ERISA’s framework ensures that employee benefit
plans be governed by written documents and summary plan
descriptions, which are the statutorily established means of
informing participants and beneficiaries of the terms of their
plan and its benefits.” Unisys, 58 F.3d at 902. We therefore
look to the plan documents to interpret plan obligations. See id.
Extra-ERISA commitments (such as vested welfare benefits)
must be found in the plan documents and stated in clear and
express language. Id. The written terms of a plan control and

                                    11
employers may not modify or supersede them orally. Id. When
a plan is clear and unambiguous, a court must determine its
meaning as a matter of law without looking to extrinsic
evidence. Skinner, 188 F.3d at 138, 145.

        The pensioner death benefit neither provides retirement
income to employees nor results in a deferral of income by
employees. See 29 U.S.C. § 1002(2)(A) (defining pension
plan); see also Oatway v. American Int’l Group, Inc., 325 F.3d
184, 189 (3d Cir. 2003) (concluding that a plan that was not
“created for the purpose of providing retirement income” was
not a pension plan). Moreover, it could not be an accrued
pension benefit since it is not “an annual benefit” and it does not
“commenc[e] at normal retirement age.” See 29 U.S.C.
§ 1002(23); see generally Bencivenga v. W. Pa. Teamsters &
Employers Pension Fund, 763 F.2d 574, 577 (3d Cir. 1985)
(discussing accrued pension benefits). Nor does the pensioner
death benefit directly relate to an accrued benefit by paying out
an accumulated amount of accrued benefits. See, e.g., West v.
AK Steel Corp., 484 F.3d 395, 410–11 (6th Cir. 2007).

       Instead, the pensioner death benefit provides “benefits in
the event of . . . death.” See 29 U.S.C. § 1002(1) (defining a
welfare plan). This fits readily within the definition of a welfare
benefit. As the Second Circuit Court of Appeals has explained,
the fact that a welfare benefit appears in a larger plan that also
provides pension benefits does not change the character of that
welfare benefit. See Rombach v. Nestle USA, Inc., 211 F.3d
190, 193–94 (2d Cir. 2000) (discussing McBarron v. S & T

                                12
Indus. Inc., 771 F.2d 94 (6th Cir. 1985)). As in Rombach, the
“meaning and function” of the pensioner death benefit “remain[]
clear” despite surrounding benefits or the use of the word
“Pensioner” to describe the benefit. See id. at 194. The 1996
plan language thus identifies the plan as a welfare benefit plan
to the extent that it provides the pensioner death benefit. See
generally 29 U.S.C. § 1002(1).

       Nothing in the Summary Plan Descriptions distributed by
Lucent suggests otherwise. See Burstein, 334 F.3d at 378
(explaining that “where a summary plan description conflicts
with the plan language, it is the summary plan description that
will control”). The pensioners focus on the following Plan
Description language:

       The Plan is classified as both a pension plan and
       a welfare plan under the Employee Retirement
       Income Security Act of 1974, as amended
       (ERISA). It is a defined benefit pension plan for
       service and deferred vested pension purposes and
       for the payment of certain sickness death benefits
       upon the death of a participant under the pension
       provisions of the Plan. The Plan is a “welfare
       plan” for purposes of providing disability
       pensions and certain other death benefits
       payments.

This passage does not state that the pensioner death benefit is a
pension benefit. It merely says, in general terms, that some

                               13
death benefits are pension benefits and others are welfare
benefits. Regardless whether the other death benefits in the plan
(the “Accident Death Benefit,” and the “Sickness Death
Benefit,” see 1996 Plan Art. 5.2–5.3) are pension benefits, the
pensioner death benefit is a welfare benefit and this language in
the Plan Description does not change that.

        Nor does the asserted fact that the pensioner death benefit
has characteristics “consistent with” or “not inconsistent with”
a pension benefit change its character. The amount and
calculation method of the pensioner death benefit, the identity
of the recipient of payment, and the treatment of the pensioner
death benefit for tax, accounting, and plan termination purposes,
are relevant details for administrators of the plan, but they do
not change the fundamental character of the benefit. The type
of benefit provided, not other considerations, determines
whether a plan is a pension plan or a welfare plan. Indeed, the
statutory definition of pension plans specifically states that a
plan providing the relevant type of benefits is a pension plan
“regardless of the method of calculating the contributions made
to the plan, the method of calculating the benefits under the plan
or the method of distributing benefits from the plan.” 29 U.S.C.
§ 1002(2)(A). We accordingly will not give weight to these
factors in the face of the unambiguous provision of welfare
benefits rather than pension benefits.

       Any claimed reliance on a belief that the pensioner death
benefit is a pension benefit also is irrelevant to the character of
the pensioner death benefit. The pensioners identify no

                                14
authority stating that such detrimental reliance has significance
under the facts of this case.

       The Lucent plan thus is a welfare plan to the extent that
it provides for the pensioner death benefit at issue in this case.
No ambiguity in the plan prohibits us from reaching this legal
conclusion since the plan language is not “subject to reasonable
alternative interpretations.” Taylor v. Cont’l Group Change in
Control Severance Pay Plan, 933 F.2d 1227, 1232 (3d Cir.
1991); see also In re New Valley Corp., 89 F.3d 143, 149 (3d
Cir. 1996) (stating that the existence of ambiguity is a question
of law).

       B.     Is the Pensioner Death Benefit Vested?

         Having concluded that the pensioner death benefit is a
welfare benefit, we must decide if that benefit had vested prior
to its termination. “Employers are generally free . . . [,] for any
reason at any time, to adopt, modify or terminate welfare plans.”
Skinner, 188 F.3d at 138 (internal quotation marks omitted;
alteration in original). However, they may “relinquish their
right to unilaterally terminate those benefits and provide for
lifetime vesting.” Id. “Because vesting of welfare plan benefits
constitutes an extra-ERISA commitment, an employer’s
commitment to vest such benefits is not to be inferred lightly
and must be stated in clear and express language.” Id. at 139.

     The pensioner death benefit vests for an eligible
mandatory recipient (i.e., becomes unalterably the property of

                                15
the recipient) “[i]n the event of the death” of a pensioner. 1996
Plan Art. 5.4(a)–(b) (making the otherwise discretionary grant
of benefits subject to mandatory beneficiary provisions). It
vests for a discretionary beneficiary when, after the death of a
pensioner, the plan administrator “in its discretion . . .
authorize[s] a Death Benefit.” Id. Nothing in the plan
documents suggests that the pensioner death benefit vests during
the life of the pensioner and the plan documents certainly do not
state such vesting in clear and express language.

       The pensioners nonetheless argue that the pensioner
death benefit has vested. They over-read the plan’s language,
however, to the extent they claim that, by making the payment
of death benefits mandatory for certain recipients, the plan
vested the pensioner death benefit. Section 5.4 of the plan does
incorporate the “Mandatory Beneficiary” section and instructs
that payment “shall be made,” but the vesting event remains the
pensioner’s death. Put another way, the pensioner death benefit
does not belong irrevocably to living pensioners. The
mandatory language merely indicates how the pensioner death
benefit should be distributed once death causes the benefit to
vest. Moreover, the pensioners do not allege that Lucent failed
to pay death benefits that vested (by reason of the death of the
pensioner) prior to the termination of the pensioner death
benefit.

       All this leads to one conclusion: the pensioner death
benefit was not vested, meaning that Lucent could terminate it.
See Hooven v. Exxon Mobil Corp., 465 F.3d 566, 575 (3d Cir.

                               16
2006) (explaining that vesting does not occur unless “all of the
conditions precedent to the employee’s receipt of that benefit
have been satisfied”); see also 1996 Plan Art. 10.1 (reservation
of rights clause).

       For the same reasons, we conclude that no unilateral
contract binds Lucent to providing the pensioner death benefit.
Unilateral contract principles are relevant in ERISA cases only
“where the asserted unilateral contract is based on the explicit
promises in the ERISA plan documents themselves.” Hooven,
465 F.3d at 573 (internal quotation marks omitted). No such
promises appear in these plan documents.

IV.    Conclusion

       The pensioner death benefit, a lump-sum payment made
in the event of a pensioner’s death, was an unvested welfare
benefit that Lucent could terminate without violating ERISA or
unilateral contract principles. We thus affirm the decision of the
District Court dismissing the pensioners’ complaint and denying
as moot Helen Lucas’ motion to substitute herself in this case
for her deceased husband.

                               17