Scipio v. United Bankshares, Inc. , 119 F. App'x 431 ( 2004 )

UNPUBLISHED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Affirmed by unpublished per curiam opinion.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Unpublished opinions are not binding precedent in this circuit.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).
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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.
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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
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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
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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
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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
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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
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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
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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:
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(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
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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).
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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
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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
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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.
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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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