John F. Gritzer, et al. v. CBS, Inc.

This case, at bottom, is about whether the word "may"
means "may" or whether it means "must." We are also
called upon to determine the appropriate standard of review
where a pension plan allows for discretion but discretion is
not exercised. The District court granted the defendants' motion for summary judgment. We have jurisdiction under
28 U.S.C. S 1291 and will affirm.

I.

In spite of the voluminous record and the lengthy briefs,
this is, again at bottom, a contract interpretation class
action with some ERISA bells and whistles. Appellants are
a group of employees who worked at Westinghouse Electric
Corporation's industrial ceramics plant in Derry,
Pennsylvania. Appellants enjoyed coverage under the
Westinghouse Pension Plan ("Plan") and purport to
represent all employees from the 53 different facilities that
were transferred by Westinghouse to successor companies
and were extended at least some benefits under the Plan for
time spent with the respective successors.

In December 1985, Westinghouse sold the Derry facility
to Industrial Ceramics, Inc. ("Ceramics"). 1 As part of that
transaction, the Derry employees, including appellants,
were transferred to Ceramics. This employee transfer forced
Westinghouse to decide how it wanted to treat these
employees' service with Ceramics for purposes of the Plan.
Westinghouse executed a reciprocal service agreement
("RSA") with Ceramics.2 The RSA provided, in pertinent
part, that Westinghouse would grant transferred employees
"service credit for their service with [Ceramics] for the
purpose of pension eligibility under any applicable
[Westinghouse] pension plan in which the employes [sic]
may have been participating, but not for purposes of
pension benefit accrual thereunder." JA 1030,P 8.8. The
notices provided to appellants stated that they would
"CONTINUE TO ACCRUE ELIGIBILITY SERVICE UNDER
THE . . . PLAN FOR AS LONG AS [THEY WERE] CONTINUOUSLY EMPLOYED BY [CERAMICS]. SUCH
ELIGIBILITY SERVICE WILL . . . DETERMINE WHEN YOU
BECOME ELIGIBLE FOR EARLY OR SELECTED
RETIREMENT." JA 1568. Under the RSA, therefore, Westinghouse agreed to credit its former employees with
Eligibility Service time under the Plan for the years
subsequently spent with Ceramics.

Ten years later, appellants were engaged in a protracted
strike at the Derry plant. Apparently at least in part as a
result of the strike, Ceramics closed the plant and
terminated appellants. It is undisputed that at the time of
the Derry plant closure in 1995, each appellant was more
than 50 years old and had 25 years of service with
Westinghouse/Ceramics. Accordingly, appellants met the
age and years of service requirements for the Plan's"Special
Retirement Provisions" benefits ("50/25 benefits"). As
discussed below, however, there is a significant dispute
over whether appellants met the additional requirement of
being terminated by an "Employer."

Following the plant closure, appellants inquired about
their pensions. Alarmed by the lower-than-expected dollar
amounts because 50/25 benefits begin earlier than the
benefits which were extended and are not actuarially
reduced, appellants began their quest for 50/25 benefits.
After several unsuccessful inquiries, appellants filed a claim
letter with the Plan Administrator. The Plan Administrator
failed to respond within 90 days and appellants' claim was
thereby deemed "denied." Based on this denial, appellants
filed suit in the U.S. District Court for the Western District
of Pennsylvania. Nearly five months later, Westinghouse
finally responded to appellants' claim and denied it on the
merits for essentially the same reasons that Westinghouse
invokes here.

The complaint before the District Court -- the Second
Amended Complaint -- set forth two counts, but only
Count I is relevant here. Count I alleged that appellants
were entitled under the Plan to 50/25 benefits and that the
failure to award 50/25 benefits violated ERISA. The District
Court certified the class, finding, as appellants contended,
that the "common questions" as to Count I were (1) whether
Westinghouse was obligated to award 50/25 benefits when
it treated service with a successor company as service with
Westinghouse, and (2) whether a successor's termination of
class members was equivalent to a Westinghouse
termination, thus amounting to a "Permanent Job
Separation" such that whenever Westinghouse entered into
an RSA treating service with a successor company as
service with Westinghouse, it was necessarily including the
50/25 benefits in that RSA, regardless of whether the RSA
said so and even if it expressly excluded such benefits. It is
not disputed that what was at issue before the District
Court and what is at issue before us is the meaning of the
Plan language regarding eligibility service, job separation
benefits, and a sale of assets. As Westinghouse puts it,
"there is no claim in this case that the various, differently
worded RSA agreements themselves entitle the class to
[50/25] benefits; on the contrary, this class action claims
that the Plan itself entitled [the] Gritzer class to these
benefits, and that the various RSAs unlawfully failed to
provide those benefits." Appellees' Br. at 20.

With these common class questions in mind, the parties
cross-moved for summary judgment. The District Court
granted Westinghouse's motion because the Plan's
definition of "Permanent Job Separation" unambiguously
requires termination by an "Employer" and Ceramics
concededly did not meet this definition, and because the
language of S 14(F)(1) of the Plan -- and more about that
later -- did not require Westinghouse to offer all of its Plan
benefits whenever it chose to offer some of those benefits as
part of a RSA. In reaching this conclusion, the District
Court reviewed Westinghouse's denial of benefits under a
heightened standard of deferential review and declined to
consider the extrinsic evidence proffered by appellants in
construing the relevant provisions of the Plan.

* * *

The Supreme Court has held that denials of benefits
challenged under 29 U.S.C. S 1132(a), like the denials
challenged here, are to be reviewed de novo unless the plan
under consideration gives the administrator discretionary
authority to determine eligibility for benefits or to construe
the terms of the plan, in which case an arbitrary and
capricious standard applies. Firestone Tire & Rubber Co. v.
Bruch, 489 U.S. 101, 115 (1989). In dicta, the Court noted
that if a plan permitted an administrator to exercise
discretion and the administrator was operating under a
conflict of interest, that conflict must be weighed as a factor
in applying the arbitrary and capricious standard.

It is undisputed that Westinghouse funds the Plan and
that the Plan gives Westinghouse essentially unfettered
discretion to interpret the Plan and to determine
entitlement to its various benefits. So far, so good. Here,
however, Westinghouse apparently never made any effort to
analyze appellants' claims much less to advise them of
what that analysis disclosed until after this litigation was
filed.4 As appellants note, "[i]n these circumstances, there
simply is no analysis or `reasoning' to which the Court may
defer under the arbitrary and capricious standard."
Appellants' Reply Br. at 7.

The District Court summarily rejected this contention,
holding that Firestone precluded de novo review whenever a
plan simply allows for discretion, regardless of whether
such discretion was exercised. This reads Firestone too
narrowly. It is important to recall that the Firestone rule
was predicated on basic trust law principles. Where a
trustee fails to act or to exercise his or her discretion, de
novo review is appropriate because the trustee has forfeited
the privilege to apply his or her discretion; it is the trustee's
analysis, not his or her right to use discretion or a mere
arbitrary denial, to which a court should defer. Moench v.
Robertson, 62 F.3d 553, 567 (3d Cir. 1995) (stating that de
novo review was appropriate "because the record is devoid
of any evidence that the Committee construed the plan at
all. Thus, this is not a case implicating the arbitrary and
capricious standard of review . . . . The deferential standard
of review of a plan interpretation `is appropriate only when
the trust instrument allows the trustee to interpret the
instrument and when the trustee has in fact interpreted the
instrument' ") (quoting Trustees of Central States, Southeast
and Southwest Areas Health & Welfare Fund v. State Farm
Mutual Auto Ins., 17 F.3d 1081, 1083 (7th Cir. 1994))
(citations omitted); id. at 568 (citing Firestone for the
proposition that a de novo standard is appropriate when
the decisionmaker did not actually exercise its discretion).

* * *

Click the case caption above for the full
text of the Court's opinion.

We will affirm the order of the District Court.

Unknown

Unknown

E-mail suggested comments and/or corrections to:
Kent Morlan

Welcome Video