Duane Hutchins v. Champion Intl. Corp. , 110 F.3d 1341 ( 1997 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 96-3543
___________
Duane Hutchins; Marcia *
Hutchins, individually *
and as mother and natural *
guardian of the minor *
children of Duane Hutchins, *
*
Plaintiffs/Appellees, *
* Appeal from the United States
v. * District Court for the
* District of Minnesota.
Champion International *
Corporation, Long Term *
Disability Benefits Plan *
for Salaried Employees #506 *
(the "Plan"); Champion *
International Corporation, *
*
Defendants/Appellants. *
___________
Submitted: March 14, 1997
Filed: April 10, 1997
___________
Before MAGILL, MURPHY, Circuit Judges, and Goldberg,1 Judge.
___________
MURPHY, Circuit Judge.
Champion International Corporation amended its Long-Term Disability
Benefits Plan (plan) to exclude benefits to people who are incarcerated
after Duane Hutchins, a plan participant, pled guilty to burglary and was
sentenced to prison. Hutchins brought
1
The Honorable Richard W. Goldberg, Judge, United States
Court of International Trade, sitting by designation.
this action to recover benefits lost because of his incarceration. On
cross-motions for summary judgment the district court ruled in favor of
Hutchins on the basis that the amendment was invalid because it had not
been approved in accordance with the procedure set out in the plan, and
Champion appeals. We reverse and remand.
Hutchins had been receiving benefits for total disability from
Champion. At the time of his crime, he was totally disabled and received
approximately $3,000 per month in benefits. After Hutchins went to prison,
the plan administrator amended Champion's disability plan to exclude
payments to those incarcerated; benefits resume upon release.2 The
amendment went into effect on March 1, 1995, and benefits were not paid for
the last 21 months Hutchins was imprisoned.3 Champion provided health care
benefits to his dependants the entire time he was in prison, however.
Hutchins does not argue that Champion could not properly amend its
program to exclude those who are incarcerated. His quarrel is with the way
the amendment was passed. Hutchins believes that it should have been
approved by Champion's board of directors instead of the company's plan
administrator, the company's pension and employee benefits committee
(PEBC). Hutchins also contends that his benefits had vested and therefore
should not have been terminated. Champion responds that there was nothing
wrong with the procedure used in adopting the amendment, the plan did not
require the board of directors to approve this type of amendment, and the
benefits had not vested.
2
The plan states that disability benefits are to provide
income to an employee who cannot work "as a result of" his or her
disability.
3
Hutchins was released from prison after judgment was
entered in his favor, and Champion has filed an affidavit stating
that disability payments to Hutchins have been resumed.
-2-
The district court concluded that the PEBC had abused its discretion
in interpreting the amendment provision because no reasonable person could
have interpreted the provision as it had. The amendment should have been
approved by the board. Hutchins' claim that his benefits had already
vested became moot, and the court did not decide it.
Champion appeals from the judgment, and we review the grant of
summary judgment de novo. Kopp v. Samaritan Health Sys., Inc., 13 F.3d
264, 268-69 (8th Cir. 1993). Summary judgment is proper if there is no
issue of material fact, and the moving party is entitled to judgment as a
matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Both
sides acknowledge that no material fact is in dispute.
I.
Champion believes the district court erred by invalidating the
amendment. It claims that the approval of the amendment by the PEBC
complied with the procedure set out in the plan. The plan gives the PEBC
the discretion to interpret the amendment provision, and there was no abuse
of that discretion. Champion contends the district court erred by applying
its own interpretation of the plan, as opposed to reviewing the action of
the PEBC under the correct standard.
The Employee Retirement Income Security Act (ERISA) 29 U.S.C. § 1001
et. seq., does not prohibit an employer from amending or terminating a
welfare benefit plan at any time as long as its action is consistent with
the rules of the plan. See Curtiss-Wright Corp. v. Schoonejongen, 514 U.S.
73, 115 S. Ct. 1223, 1228 (1995).
-3-
We start with the terms of the plan itself. This disability plan
outlines an amendment process that differs depending on the content of the
amendment. Champion's plan states:
[t]he Company hereby reserves the right to amend or terminate
the Plan at any time by action of its Board of Directors;
provided, however any amendment which is not a substantive
amendment shall be made on behalf of [the Company] by the
[PEBC].
A key issue in this case is what is meant by "substantive," and the plan
does not define the term.
Both sides offer their own definition of "substantive." Champion
argues it means "substantial impact on the company," and since the
amendment denying benefits to anyone incarcerated would have little effect
on the company, it was properly a matter for the PEBC. Hutchins interprets
substantive as meaning "of substance." Since the amendment would have
changed the substance of the program by altering who could receive
benefits, it was substantive and had to be approved by the board. Even if
substantive means substantial, the amendment was substantial says Hutchins
because it denied him benefits.
The plan provides the PEBC with the "sole, absolute and uncontrolled"
discretion to administer the plan and states that this includes the power
to interpret its provisions. We therefore review the PEBC's interpretation
of its plan under an abuse of discretion standard. See Donaho v. FMC
Corp., 74 F.3d 894, 898 (8th Cir. 1996). Since the PEBC has been given
discretion to interpret the terms of the plan, we may not find the
interpretation invalid merely because we disagree with it, but only if it
is unreasonable. Id. at 898-99. An interpretation is "reasonable if a
reasonable person could have reached a similar decision, given the evidence
before him." Id. at 899.
-4-
We have recognized five factors useful in determining whether an
interpretation of a welfare benefits plan is reasonable. Finley v. Special
Agents Mut. Benefit Ass'n, Inc, 957 F.2d 617, 621 (8th Cir. 1992). The
factors are 1) whether the interpretation is consistent with the goals of
the plan; 2) whether the interpretation renders any language in the plan
meaningless or makes the plan internally inconsistent; 3) whether the
interpretation conflicts with ERISA; 4) whether the interpretation has been
consistent; and 5) whether the interpretation is contrary to the clear
language of the plan. These factors present discrete questions; they need
not be examined in any particular order. See Lickteig v. Business Men's
Assurance Co. of Am., 61 F.3d 579, 584-85 (8th Cir. 1995).
The PEBC's interpretation does not contradict the clear language of
the plan. The words of the plan should be given their ordinary meaning.
Wilson v. Prudential Ins. Co. of Am., 97 F.3d 1010, 1013 (8th Cir. 1996).
Ordinary meaning is determined by the dictionary definition of the word and
the context in which it is used. See, e.g., Oxy USA, Inc. v. Hartford Ins.
Group, 58 F.3d 380, 382 (8th Cir. 1995). Hutchins contends "substantive"
means "of substance," and Champion does not dispute that this is one
meaning of the word. Champion points out, however, that "substantial" is
another acceptable meaning of the word.
Under an abuse of discretion standard we do not search for the best
or preferable interpretation of a plan term: it is sufficient if the PEBC's
interpretation is consistent with a commonly accepted definition. See
Donoho 74 F.3d at 899. The primary definition of "substantive" in the
American Heritage Dictionary 1791 (3d ed. 1992), is "substantial;
considerable," and this meaning is contained in other dictionaries as well.
E.g., Webster's New Collegiate Dictionary 1161-62 (8th ed. 1976).
-5-
Interpreting substantive as substantial is consistent with the
context of the provision. The provision defines the decision-making
procedure within the company. A reasonable person could interpret the
provision as requiring substantial decisions to be made by the board of
directors, leaving others to the committee that administers the program.
In general a board is involved with major or substantial decisions in
running a corporation, and leaves less important decisions to others. Cf.
Edward Brodsky & M. Patricia Adamski, Law of Corporate Officers and
Directors § 1:02 (1984) (noting that boards cannot manage all the business
of a large company). The amendment would not appear to have had a
substantial impact on Champion or the plan itself. Only a relatively small
amount of benefits under the plan were involved, as Hutchins is the only
participant affected and his benefits were discontinued only temporarily.
There was no suggestion that any member of the board or any person on the
PEBC objected to the amendment.
The PEBC's interpretation meets the first Finley factor to test
reasonableness since the interpretation does not appear to conflict with
the goals of the plan. The goals are not set out in the plan itself, but
Hutchins asserts one purpose was to ensure that the board act on amendments
that alter the substance of the program and that this goal was subverted
by the action of the PEBC. His interpretation of the wording of the
amendment provision is not unreasonable, but he is not the administrator.
Champion delegated to the PEBC broad discretion to manage and administer
the plan, and that included the sole power to interpret the provisions of
the plan. Interpreting the amendment provision to require board action
only on amendments with broad impact is not inconsistent with this generous
delegation of power or apparent plan goals.
-6-
The PEBC's interpretation does not render the provision of the plan
meaningless, and it is therefore consistent with the second Finley factor.
Hutchins complains that there is no limit on the PEBC's ability to amend
the plan without board approval if it can determine whether an amendment
is substantial. The PEBC is limited to making reasonable interpretations
of the plan, however. While there could be cases in which it would be
difficult to determine if an amendment had a substantial impact on the plan
or Champion, this is not one of them. As noted, the amount of benefits
involved is relatively small from the overall perspective. Under various
dictionary definitions the amendment could reasonably be interpreted in
more than one way. It is enough that the administrator's interpretation
of "substantive" was permissible under some of the definitions.
Finally, the PEBC's action does not violate the third or fourth
Finley factors: the PEBC's interpretation does not conflict with ERISA,
and there is no evidence that the PEBC has interpreted the provision
inconsistently. ERISA does not require the board of directors of a company
to approve changes to a welfare benefit plan, and it allows a plan to be
modified or terminated at any time. Hutchins argued below that there is
no evidence the PEBC has ever interpreted the provision before, and he does
not claim on appeal the PEBC interpreted the plan inconsistently. See
Finley, 957 F.2d at 621 (claimant must show the interpretation was
inconsistent).
In short, the PEBC's interpretation of the plan was reasonable and
the amendment denying benefits to those incarcerated was validly adopted.
II.
-7-
Hutchins also claims that because his benefits were vested, it was improper
for Champion to have discontinued them. The district court did not reach
this issue because it found the amendment invalid, but both sides briefed
and argued it on appeal and there are no disputed facts. The issue can
therefore be decided as a matter of law, and we exercise our discretion to
resolve it. See Talley v. United States Postal Serv., 720 F.2d 505, 508
(8th Cir. 1983)(an issue may be decided without remand when the facts are
undisputed).
ERISA does not require that welfare benefits vest, and the burden is
on the claimant to show that his welfare benefits had vested under the
terms of the plan. See Howe v. Varity Corp., 896 F.2d 1107, 1109 (8th Cir.
1990). Hutchins points to the following provision of the plan as evidence
that his benefits had vested:
12.3 Title to Assets - No Participant or beneficiary shall have any
right to or interest in any assets of the Plan upon
termination of his or her employment or otherwise, except
as provided from time to time under this Plan, and then only
to the extent of the benefits payable under the Plan to such
Participant or out of the assets of the Plan.
He contends that because he was receiving benefits as a totally disabled
participant, section 12.3 of the plan ensures that the benefits cannot be
taken away until he is no longer disabled or turns 65. He cites Howe for
the proposition that benefits vest for a disability occurring prior to a
plan's attempted termination.
Champion argues that benefits are not vested unless a plan explicitly
provides for it. Its plan explicitly states that benefits can be
terminated at any time. The amendment could therefore properly terminate
benefits while Hutchins was in prison. Section 12.3 indicates that a
participant has no right or interest in the plan's assets "except as
provided . . . under this Plan" and
-8-
Hutchins has not identified any provision of the plan which could create
a vested right.
Hutchins' benefits did not vest under the terms of the plan. The
plan specifically provided Champion with the authority to terminate or
modify it. In the absence of contrary language in the plan, Hutchins did
not have a right to vested benefits. Howe does not control as Hutchins
claims, because the plan there differed. The Howe plan contained language
that limited the ability of the administrator to terminate or amend
benefits once a participant was already entitled to receive them. Howe 896
F.2d at 1109-10. There is no similar limitation on Champion's right to
terminate or modify its plan, and in fact section 1.3 of the plan indicates
that benefits "shall be subject to the provisions of this Plan as amended
and restated."
III.
Since we find no abuse of discretion on the part of the plan
administrator and no vested right to receive benefits, we reverse and
remand for entry of judgment in favor of Champion.4
A true copy:
Attest:
CLERK: U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
4
In light of this disposition, the standing issue involving
Marcia Hutchins, Duane Hutchins' ex-wife and a named plaintiff,
is moot.
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