Gismondi v. United Tech Corp ( 2005 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 05a0228p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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EDWARD KISCH, ARTHUR KNACK, RICHARD RATKE, -
BERNARD GISMONDI, THOMAS CHALIFOUX,
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JAMES SALLIOTTE, and JEFFREY STONE,
Plaintiffs-Appellants, -
No. 03-2410
,
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v. -
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Defendant-Appellee. -
UNITED TECHNOLOGIES CORPORATION,
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Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 02-73217—Denise Page Hood, District Judge.
Argued: January 26, 2005
Decided and Filed: May 24, 2005
Before: BOGGS, Chief Judge; MARTIN, Circuit Judge; GWIN, District Judge.*
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COUNSEL
ARGUED: Charles Gottlieb, GOTTLIEB & GOREN, Bingham Farms, Michigan, for Appellants.
Daniel A. Schwartz, DAY, BERRY & HOWARD, Hartford, Connecticut, for Appellee.
ON BRIEF: Charles Gottlieb, GOTTLIEB & GOREN, Bingham Farms, Michigan, for Appellants.
Daniel A. Schwartz, DAY, BERRY & HOWARD, Hartford, Connecticut, Lawrence S. Gadd,
HARNISCH & ASSOCIATES, Bingham Farms, Michigan, for Appellee.
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OPINION
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BOYCE F. MARTIN, JR., Circuit Judge. The seven plaintiffs in this case are former
employees of United Technologies Automotive, a division of defendant United Technologies
Corporation. On May 4, 1999, United Technologies sold its Automotive division to Lear
Corporation. Subsequently, the plaintiffs sought early retirement benefits from United
Technologies; the Corporation’s Benefit Claims Appeal Committee denied the claims. The plaintiffs
then challenged the Committee’s denial in the district court. United Technologies moved for
*
The Honorable James S. Gwin, United States District Judge for the Northern District of Ohio, sitting by
designation.
1
No. 03-2410 Gismondi, et al. v. United Technologies Corp. Page 2
summary judgment, and the district court granted that motion. In this appeal, we AFFIRM the
judgment of the district court for the reasons discussed below.
I.
While employed with United Technologies, the plaintiffs were participants in its Employee
Retirement Plan. Under the Plan, a participant could receive early retirement benefits if (1) the
participant’s Severance Date occurred at or after age fifty and (2) the participant’s age and sum of
continuous years of service equaled or exceeded sixty-five—the so-called “Rule of 65.” The
“Severance Date,” according to section 2.59(a) of the Retirement Plan, was the earliest of
(i) the date the employee “quits, retires, is discharged or dies;”
(ii) the first anniversary of the first date that the employee is absent from work
“for any other reason, including layoff, sickness, disability or leave of
absence;” or
(iii) the date within the twelve-month period that the employee “quits, retires, is
discharged or dies” after the employee has been absent from work for “any
other reason other than quitting, retirement or discharge.”
The central issue in this case is United Technologies’s interpretation of section 2.59(a) in denying
the plaintiffs’ claims for retirement benefits.
After the transfer of the Automotive division to Lear, the plaintiffs applied to United
Technologies for early retirement benefits under the Rule of 65. They claimed that their “Severance
Date” should be calculated under section 2.59(a)(ii), because their transfer to Lear should be
considered “any other reason” for absence from work. As a result, they argued, the Severance Date
should be May 5, 2000, a year after the sale of the Automotive division to Lear.
United Technologies denied the claim, based on the Committee’s finding that the plaintiffs
were “discharged” under section 2.59(a)(i) from United Technologies when the division was sold
on May 4, 1999. Because the plaintiffs were only forty-nine years old on that day, they were ruled
ineligible for early retirement benefits.
The plaintiffs filed this action in district court, pursuant to the Employee Retirement Income
Security Act of 1974, 29 U.S.C. § 1001 et seq., challenging United Technologies’s interpretation
of section 2.59(a) and of the term “discharge” under section 2.59(a)(i). They argued again that they
were entitled to benefits under section 2.59(a)(ii), which allows for an additional year of credited
service—the “first anniversary of the first date the Employee is absent from work.” Both parties
moved for summary judgment. The district court, applying an arbitrary and capricious standard of
review, found that United Technologies’s interpretation of section 2.59(a) was rational. Therefore,
it granted United Technologies’s motion for summary judgment. The plaintiffs timely appealed.
II.
On appeal, the plaintiffs argue that the district court erred in applying an “arbitrary and
capricious” standard of review to United Technologies’s decision to deny early retirement benefits.
In evaluating an administrator’s interpretation of a plan governed by the Employment Retirement
Income Security Act, the district court applies a de novo standard unless the plan gives the
administrator discretionary authority to determine eligibility for benefits or to construe the terms of
the plan. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989); Williams v. Int’l Paper
Co., 227 F.3d 706, 710 (6th Cir. 2000). If the plan gives such discretionary authority, this Court
reviews the administrator’s decision to deny benefits using “the highly deferential arbitrary and
capricious standard of review.” Killian v. Healthsource Provident Adm’rs, Inc., 152 F.3d 514, 520
(6th Cir. 1998) (citing Firestone Tire, 489 U.S. at 115).
No. 03-2410 Gismondi, et al. v. United Technologies Corp. Page 3
In this case, the language of the retirement plan expressly grants to the administrator the
discretionary authority to determine eligibility for benefits or to construe the terms of the plan.
Specifically, section 10.5 of the plan states that the Committee is vested with
all implied powers and duties that are necessary or appropriate to carry out and
administer the provisions of the Plan and shall have the following specific
discretionary powers and duties: (ii) to interpret the Plan and to decide any and all
matters arising hereunder including to determine all questions relating to: (A) the
eligibility of persons to receive benefits hereunder; . . . (C) all other matters upon
which the benefits or other rights of a Participant or other person hereunder are
based, and in so doing, without limitation, the power the right to remedy possible
ambiguities, inconsistencies, or omissions by general rule or particular decision.
Thus, we review the district court’s grant of summary judgment to “‘determine if there is any
genuine issue of material fact whether the . . . company’s decision to deny benefits was arbitrary and
capricious.’” Killian, 152 F.3d at 520 (quoting Miller v. Metro. Life Ins. Co., 925 F.2d 979, 986 (6th
Cir. 1991)).
Under this deferential standard, we will uphold a benefit determination if it is “rational in
light of the plan’s provisions.” Yeager v. Reliance Standard Life Ins. Co., 88 F.3d 376, 381 (6th Cir.
1996) (internal quotation marks and citation omitted). “When it is possible to offer a reasoned
explanation, based on the evidence, for a particular outcome, that outcome is not arbitrary or
capricious.” Davis v. Ky. Fin. Co. Ret. Plan, 887 F.2d 689, 693 (6th Cir. 1989) (internal quotation
marks and citation omitted). Indeed, we must accept a plan administrator’s rational interpretation
of a plan even in the face of an equally rational interpretation offered by the participants. Morgan
v. SKF USA, Inc., 385 F.3d 989, 992 (6th Cir. 2004) (citing Ross v. Pension Plan for Hourly
Employees of SKF Indus., Inc., 846 F.2d 329, 334 (6th Cir. 1988)).
Notwithstanding this deferential standard, courts must be aware of a possible conflict of
interest and consider it as a factor in determining whether the decision to deny benefits was arbitrary
and capricious. Id. at 694; see also Borda v. Hardy, Lewis, Pollard & Page, P.C., 138 F.3d 1062,
1069 (6th Cir. 1998) (noting that “‘the abuse of discretion or arbitrary and capricious standard still
applies, but application of the standard should be shaped by the circumstances of the inherent
conflict of interest’”) (quoting Miller, 925 F.2d at 984). “[I]f a plan gives discretion to an
administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed
as a ‘facto[r] in determining whether there is an abuse of discretion.’” Firestone Tire, 489 U.S. at
115.
As this Court noted in Killian, “there is an actual, readily apparent conflict . . ., not a mere
potential for one,” when the company or plan administrator is the insurer that ultimately pays the
benefits. 152 F.3d at 521. Because United Technologies interpreted the terms of the plan for
purposes of determining whether plaintiffs should receive early retirement benefits, a conflict of
interest clearly is apparent. Thus, the district court erred in failing to take into account the existence
of this conflict as a “factor in determining whether there is an abuse of discretion.” Firestone Tire,
489 U.S. at 115; Davis, 887 F.2d at 694. However, based on our analysis of the plaintiffs’
arguments below, it is clear that even when we consider the conflict of interest as a factor in our
standard of review, we have no choice but to conclude that United Technologies’s denial of benefits
survives the plaintiffs’ challenge because the interpretation of “discharge” is a rational interpretation
of the terms of the retirement plan. See Wulf v. Quantum Chem. Corp., 26 F.3d 1368, 1377 (6th Cir.
1994) (noting that when the employee/employer relationship is severed, employment is terminated).
The plaintiffs make two general arguments challenging United Technologies’s interpretation
of section 2.59(a). First, they argue that United Technologies’s interpretation of discharge is
No. 03-2410 Gismondi, et al. v. United Technologies Corp. Page 4
arbitrary and capricious because it is unsupported by the evidence and is inconsistent with past
practices. Second, they argue that their Severance Date should be calculated under section
2.59(a)(ii), and that United Technologies’s interpretation of that section is arbitrary and capricious.
a. Meaning of Discharge
The plaintiffs claim that the evidence does not support the conclusion that they were
“discharged.” They argue that, based on what they were told, they were merely undergoing a
“transition” during which they retained the same job duties, reporting structures, pay, benefits, and
location. They explain that their seniority carried over to Lear, and that there is no evidence of
discharge or rehire announcements, exit or hiring interviews, or personnel file records indicating any
discharge.
The plaintiffs rely on a case from the Third Circuit, Gillis v. Hoechst Celanese Corp., 4 F.3d
1137 (3d Cir. 1993), to support their argument that the effect of a sale to another company does not
constitute a “separation from service” for purposes of a retirement plan, and therefore cannot be
interpreted as a “discharge.” The Gillis court noted the long-standing position of the Internal
Revenue Service that an employee will be considered separated from service “only upon the
employee’s death, retirement, resignation or discharge, and not when the employee continues in the
same job for a different employer as a result of liquidation, merger, consolidation, etc. of the former
employer.” Id. at 1146. However, in a subsequent decision, the Third Circuit narrowed its ruling
in Gillis to Employee Retirement Income Security Act cases involving sections 208 and 204(g) of
the Act. Dade v. N. Am. Philips Corp., 68 F.3d 1558 (3d Cir. 1995). Those sections are not
involved in this case and, given the Third Circuit’s retreat, the opinion is not applicable.
The plaintiffs also contend that if they were, in fact, discharged, they were entitled to
severance benefits. When they brought this argument to the attention of the company, they were
told that it was not United Technologies’s policy to make severance payments in cases of transfer
and sale. The plaintiffs argue that they cannot be discharged for one purpose but not for another:
if they were discharged, then they should receive severance payments; if they were not discharged,
then they should receive early retirement benefits. The fact that they received neither, according to
the plaintiffs, supports a finding that United Technologies’s interpretation is arbitrary and capricious.
The plaintiffs arguments are unpersuasive. As discussed, “[w]hen it is possible to offer a
reasoned explanation, based on the evidence, for a particular outcome, that outcome is not arbitrary
or capricious.” Davis, 887 F.2d at 693. United Technologies interpreted the sale to mean the
discharge of its employees for purposes of its responsibilities for their employee benefits. According
to United Technologies, such benefits were taken on by Lear, the purchasing company. Any
responsibility on the part of United Technologies was, at that point, discharged. This reasoned
explanation is sufficient to overcome the plaintiffs’ challenge here.
Furthermore, there is no evidence that the plaintiffs were entitled to severance payments;
indeed, their employment was not subject to the terms of any collective bargaining agreement, in
which severance benefits are typically set forth. For this reason, the plaintiffs’ argument regarding
the absence of such payments is without merit.
The plaintiffs also claim that the company’s interpretation contradicts its own previous
construction of section 2.59(a) and past practices. They say that at the time of sale United
Technologies granted additional service time and construed eligibility under the Rule of 65 as of the
end of the calendar year. As a result, certain employees received early retirement benefits even
though they were only forty-nine years old on May 4, 1999. As United Technologies argues,
No. 03-2410 Gismondi, et al. v. United Technologies Corp. Page 5
however, the plaintiffs have submitted no evidence to substantiate their allegations that United
Technologies extended the Severance Date for some but not for others.
b. Section 2.59(a)(ii)
The plaintiffs argue that a more rational interpretation of section 2.59(a) is available. They
contend that the sale of the Automotive division and transfer of employees to Lear constituted a
reason for “absence from work” under section 2.59(a)(ii), and therefore, as that section directs, the
Severance Date should be calculated as May 5, 2000. United Technologies argues, and the district
court found, that the additional year provided by section 2.59(a)(ii) was limited to situations in
which absence from work resulted from “layoff, sickness, disability or leave of absence.”
We agree with the plaintiffs that the language of section 2.59(a)(ii) appears to include, rather
than exclude, reasons other than those listed. It seems more appropriate to read section 2.59(a)(ii)
as follows:
The Severance Date may be “the first anniversary of the first date that the employee
is absent from work for any other reason[—i.e., any reason other than those listed in
2.59(i)—] including [but not limited to] layoff, sickness, disability or leave of
absence.”
United Technologies’s interpretation of subsection (ii) to be exclusive, rather than inclusive, appears
to be irrational. This determination is of no consequence, however, given our conclusion that the
company’s interpretation of discharge under section 2.59(a)(i) to include the transfer of employees
upon sale of a company division is rational.
III.
For the foregoing reasons, we AFFIRM the judgment of the district court.