Court Opinion

ID: 1015058
Source: CourtListenerOpinion
Date Created: 2013-07-04 21:26:55.59478+00
Date Added: 2024-06-11T15:08:25.615962
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                             No. 03-2282

T. SAM SCIPIO, JR.,

                                              Plaintiff - Appellant,

           versus

UNITED BANKSHARES, INCORPORATED, a/k/a United
National Bank,

                                              Defendant - Appellee.

Appeal from the United States District Court for the Northern
District of West Virginia, at Clarksburg. Irene M. Keeley, Chief
District Judge. (CA-01-175-1)

Argued:   October 26, 2004              Decided:     December 22, 2004

Before WILKINSON and TRAXLER, Circuit Judges, and HAMILTON, Senior
Circuit Judge.

Affirmed by unpublished per curiam opinion.

ARGUED: Donald Martin Kresen, GOLD, KHOUREY & TURAK, L.C.,
Moundsville, West Virginia, for Appellant.      Charles T. Berry,
BOWLES, RICE, MCDAVID, GRAFF & LOVE, P.L.L.C., Morgantown, West
Virginia, for Appellee. ON BRIEF: William J. Yaeger, Jr., HERNDON,
MORTON, HERNDON & YAEGER, Wheeling, West Virginia, for Appellant.
Paul E. Frampton, BOWLES, RICE, MCDAVID, GRAFF & LOVE, P.L.L.C.,
Charleston, West Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).

                               2
PER CURIAM:

      T. Sam Scipio, Jr. brought this action under the Employee

Retirement      Income      Security     Act       (“ERISA”),         29   U.S.C.A.

§ 1132(a)(1)(B) (West 1999), alleging that the Plan Administrator

for   United    Bankshares,     Inc.,        a/k/a/     United   National     Bank,

improperly     calculated    benefits       due   him   under    a    non-qualified

executive retirement plan.       On cross-motions for summary judgment,

the district court denied Scipio’s motion for summary judgment and

granted United’s motion for summary judgment.                We affirm.

                                        I.

      Prior to 1988, Scipio was employed by First Empire Federal

Savings and Loan Association (“First Empire”).                       In 1988, First

Empire became the wholly-owned subsidiary of Eagle Bancorp, Inc.

(“Eagle”), through a mutual stock conversion.               Shortly thereafter,

First Empire and Eagle executed employment agreements with a

handful of key employees, including Scipio, and established a Non-

Qualified Retirement Plan for Executives (the “Retirement Plan” or

“Plan”) and a Non-Qualified Stock Option and a Stock Appreciation

Rights Plan (the “Stock Option Agreement”).

      Under the Stock Option Agreement, Scipio was granted a non-

qualified stock option for 10,000 shares of Eagle stock, which was

increased to 20,000 shares by virtue of a later stock-split.

Scipio elected to exercise his stock option in October 1993.

                                        3
Pursuant to the requirements of the Internal Revenue Code, First

Empire reported on Scipio’s W-2 Form the difference between the

exercise price and the fair market value of the stock at the time

the option was exercised.          The amount of the difference was

$408,000. That amount, plus his normal salary, resulted in a final

W-2 report of adjusted gross pay of $496,933.65 for the year 1993.

     In 1996, United Bankshares, Inc., acquired Eagle and First

Empire, and merged the three companies into United National Bank

(“United”). Scipio became an employee of United, and United became

the successor in interest for the payment of benefits under the

Employment Agreement and Retirement Plan. In November 1996, Scipio

resigned from United and sought severance pay under the Employment

Agreement.    Scipio also notified United of his intent to draw

benefits under the Retirement Plan beginning at age 55.

     Under the Retirement Plan, executives may elect to receive

“Normal   Retirement   Benefits”    beginning   at   age   65,   or   “Early

Retirement Benefits” beginning at age 55.            J.A. 33.    Generally

speaking, annual retirement benefits under the Retirement Plan are

calculated at 70% of the employee’s “Final Average Earnings,”

reduced by the amount of certain other benefits not relevant to

this appeal. J.A. 33. Those who elect “Early Retirement Benefits”

will receive “an annual pension commencing at such Early Retirement

Date computed in accordance with [the formula for calculating

                                    4
Normal Retirement Benefits] but based on his or her Final Average

Earnings . . . at such Early Retirement Date.”                        J.A. 33.

     Under the terms of the Plan, “Final Average Earnings” are

calculated by averaging

            the highest five consecutive calendar years of
            annual Earnings received by an Executive from
            the Employers during the calendar year of
            retirement and the nine calendar years prior
            to the Executive’s Early Retirement Date [or]
            Normal Retirement Date. . . , whichever is
            applicable.     Earnings   in   the  year   of
            retirement are annualized and treated as
            calendar year earnings for this purpose.

J.A. 32.    “Earnings” are defined in the Plan as “the total earnings

received from the Employers during a calendar year, excluding any

specific    bonuses      which   the     Board      of    Directors         stipulates    as

excluded for purposes of th[e] Plan.”                    J.A. 32.

     Scipio elected in 1996 to receive Early Retirement Benefits

under     the   Plan,    but     would    not       reach    age       55    until      1999.

Accordingly, his benefits were to be calculated based upon “the

highest    five      consecutive      calendar       years       of    annual      Earnings

received” out of years 1990 through 1999.                    J.A. 32.

     Contemporaneously with his resignation and election of early

retirement benefits, Scipio informed United’s Plan Administrator

that he considered his annual earnings for the ten consecutive

years   preceding       his   Early    Retirement         Date    to   be     as   follows:

$67,744.00      in   1990;    $79,043.95       in    1991;       $79,043.95        in   1992;

$496,933.65 in 1993; $101,008.13 in 1994; $101,419.13 in 1995; and

                                           5
annualized earnings based upon his 1996 income (later computed by

the Plan Administrator to be $106,209.36) for years 1996 through

1999.

     Upon receipt of Scipio’s notification that he intended to draw

early retirement benefits, the Plan Administrator contacted its

benefits consultant, Aon Consulting, and requested a calculation of

the benefits payable.       According to Aon Consulting’s calculations,

Scipio’s Final Average Earnings would be based upon the five years

immediately preceding his early retirement date ($101,419.13 for

year 1995 and $106,209.36 annualized earnings for each of the years

1996 through 1999), resulting in a Final Average Earnings of

$105,251.31, and a gross annual retirement benefit of $73,675.92.

     Scipio protested this calculation and, more particularly, Aon

Consulting’s     failure    to   consider    the   $408,000     gain   from   the

exercise of his stock option in 1993 as earnings for that year.                If

that amount were included as Scipio believed it should be, the

highest five consecutive calendar years of annual earnings received

by him would include the year 1993 (specifically years 1993 through

1997),   which   would     result   in   a   “Final   Average    Earnings”    of

$182,355.92 per year, and a gross annual retirement benefit of

$127,649.14.

     The parties agree that the crux of this dispute centers on

whether the $408,000 from Scipio’s election of his stock option

under the Stock Option Agreement in 1993 must be included as part

                                         6
of Scipio’s “Earnings” for purposes of computing his “Final Annual

Earnings” and his annual benefit due under the Retirement Plan.

J.A. 32.   Their inability to resolve the dispute over the proper

method of calculation led to the filing of this action.                      The

parties agreed that there were no genuine issues of material fact

and filed cross-motions for summary judgment.              The district court

granted summary judgment to United and denied Scipio’s cross-motion

for summary judgment.        This appeal followed.

                                     II.

     We review the district court’s rulings on summary judgment de

novo, applying the same standards that governed the district

court’s review.    See Gallagher v. Reliance Standard Life Ins. Co.,

305 F.3d 264, 268 (4th Cir. 2002).

     We review the plan administrator’s decision under the well-

established     principles    articulated       by   the   Supreme   Court   in

Firestone Tire and Rubber Company v. Bruch, 489 U.S. 101 (1989).

Benefits determinations based on plan interpretations are reviewed

de novo, unless the benefit plan gives the plan administrator

discretionary authority to determine eligibility for benefits or to

construe the terms of the plan.         If the benefit plan vests the plan

administrator with such discretionary authority, our review of the

plan administrator’s decision is solely for an abuse of that

discretion.      See id. at 111.            We review de novo whether the

language   of   the   benefit    plan       grants   the   plan   administrator

                                        7
discretion and whether the administrator acted within the scope of

that discretion.     See Feder v. Paul Revere Life Ins. Co., 228 F.3d

518, 522 (4th Cir. 2000).

     Scipio’s first claim on appeal is that the district court

erred in finding that United’s Plan Administrator had discretion to

interpret the term “Earnings” under the Plan.

     Under the terms of Section 6.1 of the Retirement Plan, “[t]he

Board     of   Directors   of   First   Empire   serves   as   the   Plan

Administrator.” As Plan Administrator, the Board is granted, inter

alia, the power “[t]o determine benefit rights,” as well as the

more explicit power

        [t]o determine, in accordance with uniform standards, any
        question arising in the administration, interpretation
        and application of the plan, such determination to be
        conclusive and binding to the extent the same shall not
        be plainly inconsistent with the terms of the Plan or any
        applicable law.

J.A. 36.

        Scipio does not quarrel with the Plan’s general grant of

discretion to interpret the Plan pursuant to this provision.

Rather, he asserts that it does not grant to the Plan Administrator

the discretion to interpret unambiguous terms in the Plan document,

and that the term “Earnings” is clear and unambiguous, plainly

meant to include amounts received under the Stock Option Agreement.

Accordingly, Scipio asserts, the appropriate standard of review is

de novo, and the court’s only inquiry should be one to determine

whether the plain meaning of the term was administered properly by

                                    8
the Plan Administrator as a matter of law.                      Cf. Denzler v.

Questech, Inc., 80 F.3d 97, 103 n.8 (4th Cir. 1996) (noting that

“[w]here the language in a plan is clear and unambiguous, the

deference owed the Administrator's interpretation is not of great

relevance because the meaning is apparent”).

       As noted above, “Final Average Earnings,” for purposes of

calculating the retirement benefit, is defined as “the average of

the highest five consecutive calendar years of annual Earnings.”

J.A. 32.     “Earnings” is defined as “the total earnings received

from [United] during a calendar year.”            J.A. 32 (emphasis added).

The district court held that, although the Plan purports to define

the term “Earnings,” it does so in a “circular” fashion.              J.A. 166.

In short, the definition of the term “Earnings” includes the word

“earnings,”    rendering     it   of   little    benefit   to    resolving   the

question of whether the term was meant to include gains realized

from   the   exercise   of    stock    options    under    the    Stock   Option

Agreement.    Accordingly, the district court concluded, the term is

ambiguous and, therefore, subject to discretionary interpretation

by the Plan Administrator.

       Scipio asserts that this was error on the part of the district

court.    More particularly, he asserts that the term “Earnings” is

defined as “total earnings,” that “total earnings” is a term

broader than wages or compensation, and that the term “should

plainly be read to include all earnings [Scipio] received from his

                                        9
employer through the exercise of his stock options.”                 Brief of

Appellant at 12.

       We fail to find the proffered clarity in the definition that

Scipio advances; indeed, his interpretation of the phrase “total

earnings” still relies upon the word “earnings.” We agree with the

district     court’s   determination    that     the   Plan’s   definition   of

“Earnings” is ambiguous and, therefore, that the Plan Administrator

has discretion to determine whether it includes benefits derived

from   the    exercise   of   stock    options    under   the   Stock   Option

Agreement.

                                      III.

       Under the abuse of discretion standard, a plan administrator’s

decision “will not be disturbed if it is reasonable, even if this

court would have come to a different conclusion independently.”

Ellis v. Metropolitan Life Ins. Co., 126 F.3d 228, 232 (4th Cir.

1997). A “plan administrator’s decision is reasonable if it is the

result of a deliberate, principled reasoning process and if it is

supported by substantial evidence.”              Bernstein v. CapitalCare,

Inc., 70 F.3d 783, 788 (4th Cir. 1995) (internal quotation marks

omitted).

       A number of factors have been outlined as relevant to the

court’s evaluation of whether a Plan Administrator has abused its

discretion.     We may consider, but are not limited to, such factors

as:

                                       10
          (1) the language of the plan; (2) the purposes
          and goals of the plan; (3) the adequacy of the
          materials considered to make the decision and
          the degree to which they support it; (4)
          whether the fiduciary’s interpretation was
          consistent with other provisions in the plan
          and with earlier interpretations of the plan;
          (5) whether the decisionmaking process was
          reasoned and principled; (6) whether the
          decision was consistent with the procedural
          and substantive requirements of ERISA; (7) any
          external standard relevant to the exercise of
          discretion; and (8) the fiduciary’s motives
          and any conflict of interest it may have.

Booth v. Wal-Mart Stores, Inc. Assoc. Health & Welfare Plan, 201

F.3d 335, 342-43 (4th Cir. 2000) (footnote omitted).

                                   A.

     We first address Scipio’s argument that, notwithstanding any

ambiguity in the Plan that would normally find itself subject to

discretionary   interpretation,     we    should      review   this   Plan

Administrator’s interpretation of the definition of earnings de

novo because the Retirement Plan at issue is an unfunded, non-

qualified executive retirement plan.       Because it is unfunded and

non-qualified, funds are not set aside to pay the benefits and all

retirement benefits must be paid directly by United to Scipio.

Such plans, Scipio argues, create a clear and unique conflict of

interest undeserving of the deference we would normally grant to a

plan administrator in such cases.

     Scipio   correctly   points   out   that   the   Plan   Administrator

suffers from a conflict of interest.      However, this court also has

“a well-developed framework for considering such conflicts of

                                   11
interest in [the] court’s reviewing calculus.”                   Ellis, 126 F.3d at

233.     “[W]here a plan administrator or fiduciary is vested with

discretionary authority and is operating under a conflict of

interest,    that    conflict      must    be     weighed       as   a   factor[]    in

determining      whether   there    is    an     abuse    of    discretion.”        Id.

(internal quotation marks omitted). It remains, however, “just one

of     several   [factors]   that        [the]    court        should    consider    in

determining whether an administrator or fiduciary has abused the

discretion vested in it.”          Id.    “[T]he court applies the conflict

of interest factor, on a case by case basis, to lessen the

deference normally given under this standard of review only to the

extent necessary to counteract any influence unduly resulting from

the conflict.”      Id.

            [W]hen a fiduciary exercises discretion in
            interpreting a disputed term of the contract
            where one interpretation will further the
            financial interests of the fiduciary, we will
            not act as deferentially as would otherwise be
            appropriate.    Rather, we will review the
            merits of the interpretation to determine
            whether it is consistent with an exercise of
            discretion by a fiduciary acting free of the
            interests that conflict with those of the
            beneficiaries.     In short, the fiduciary
            decision will be entitled to some deference,
            but this deference will be lessened to the
            degree necessary to neutralize any untoward
            influence resulting from the conflict.

Id. (quoting Bedrick v. Travelers Ins. Co., 93 F.3d 149, 152 (4th

Cir. 1996)) (internal quotation marks omitted).

                                          12
       We see no reason to alter this well-established framework of

review because the plan at issue in this case is an unfunded, non-

qualified plan.         That fact alters the deference we give, but does

not change our standard of review to de novo.

                                             B.

       Hence,     we    turn    to     the    question    of     whether     the   Plan

Administrator’s decision to exclude the stock option gain as

earnings was an abuse of its discretion.

       As   noted      previously,     the    plan    language     is   circular    and

ambiguous, providing no real guidance on the issue. The only other

factors pertinent to our inquiry are whether the Plan Administrator

considered adequate materials in making its decision, whether it

engaged in a reasoned and principled decisionmaking process, and

whether     its     ultimate     decision     was    consistent     with     the   Plan

provisions and its earlier interpretations of the Plan.                        For the

reasons set forth in the district court’s opinion, we too conclude

that    these     factors      weigh    against      a   finding    that     the   Plan

Administrator abused its discretion.

       Upon receiving notification of Scipio’s intention to draw

early retirement benefits, and his proposed calculation including

the stock option proceeds as earnings under the Plan, the Plan

Administrator took pains to gather and consider information and

material from a number of sources.                  The Plan Administrator hired

Aon    Consulting       to     calculate      independently       Scipio’s     benefit

                                             13
calculation, which did so without including the $408,000 gain as

earnings for the year 1993.        An opinion was obtained from outside

counsel to the effect that the Plan language and applicable law

would not lead to the conclusion that stock options were intended

to be included as a part of the annual earnings used to compute an

annual retirement benefit.        And, the Plan Administrator contacted

the former CEO and Chairman of the Board of Directors for First

Empire and Eagle involved at the time the Plan was drafted, as well

as other employees, to gather evidence of the intent behind the

Plan, and was advised that the Plan did not intend to include as

earnings any gain realized from the exercise of options under the

Stock   Option    Agreement.      Rather,   the    Plan    Administrator       was

consistently advised that the intent of the Plan was to provide

retirement benefits for key executives at roughly 70% of their

typical annual salary for the remainder of their lives.                        By

including the $408,000 as part of his earnings for 1993, however,

Scipio had advanced an amount quite atypical as his annual salary;

he arrived at an average annual earnings more than $70,000 greater

than the highest annual salary he ever earned as an executive with

United.    The Plan Administrator also learned that retirement

benefits for other similarly situated executives had been computed

without inclusion of their stock option gains.

     When Scipio continued to object to the Plan Administrator’s

decision   to    exclude   the   stock-option     gain    as   a   part   of   his

                                     14
earnings, the Plan Administrator continued to evaluate the claim

and   look   for   guidance      in   interpreting   its   terms.      The    Plan

Administrator      looked   to    the   Internal     Revenue   Code,   and     its

provisions governing “qualified” benefit plans, for help.                     The

definition of “compensation” applicable to “qualified retirement

plans” under the Internal Revenue Code, see 26 U.S.C.A. § 415(c)(3)

(West Supp. 2004), and the guidance found in Treasury Regulation

§ 1.415-2, see 26 C.F.R. § 1.415-2(d) (2004), also bolstered the

conclusion that such plans would not normally consider stock option

benefits in the calculation of annual retirement benefits.                   Under

the Regulation, the term “compensation,” for purposes of section

415(c)(3), normally includes items such as “[t]he employee’s wages,

salaries, [and] fees for professional services,” 26 C.F.R. § 1.415-

2(d)(2)(i), (2)(i)(2004), but excludes “[a]mounts realized from the

exercise of a non-qualified stock option,” 26 C.F.R. § 1.415-

2(d)(3)(ii).*

      *
          We note, and reject, Scipio’s contention that the
district court erred in equating the term “compensation” with
“earnings” and in relying upon statutes and regulations governing
“qualified” benefit plans to interpret a “non-qualified” benefit
plan. First, the Plan Administrator did not rely solely upon those
provisions in making its decision, but rather found support within
them for its decision after Scipio continued his objection to the
interpretation.    We find no error in the district court’s
determination that, for purposes of the narrow issue before it, the
terms “compensation” and “earnings” are synonymous, or in its
determination that the distinction between the two plans is
immaterial in evaluating whether it was reasonable for a Plan
Administrator to exclude stock option gains from annual earnings
when computing the retirement benefit due under a retirement plan.

                                         15
     After throughly considering the evidence and arguments, the

district   court   concluded   that,    “[e]ven   considering   the   Plan

Administrator’s conflict of interest,” the “decision to exclude

Scipio’s gain from his 1993 stock option transaction as part of

‘Earnings’ was objectively reasonable and supported by substantial

evidence.”   J.A. 183.   We have carefully considered the arguments

of Scipio and, for the reasons set forth in the district court’s

well-reasoned opinion, we reject them. Like the district court, we

hold that the Plan Administrator’s interpretation of the term

“Earnings” to exclude the stock option gain was the product of a

reasoned and principled decisionmaking process based upon adequate

materials and inquiry, and that the decision was consistent with

the purposes and goals of the Plan, the Plan provisions, and its

earlier interpretations of the Plan.

                                  IV.

     For the foregoing reasons, we affirm the district court’s

grant of summary judgment to United and denial of summary judgment

to Scipio.

                                                                AFFIRMED

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