John F. Gritzer v. Cbs, Inc

Filed January 3, 2002
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 01-1979
JOHN F. GRITZER; DONALD J. LEONARD; CRAWFORD
WILLIAMS; JOHN PALACKI; DONALD S. MAJORSKY; KEN
SMETAK; TOM MCCHESNEY; THOMAS CAWOSKI, for
themselves and others similarly situated
v.
CBS, INC; WESTINGHOUSE PENSION PLAN
John F. Gritzer, Donald J. Leonard, Crawford Williams,
John Palacki, Donald Majorsky, Ken Smetak, Tom
McChesney, and Thomas Cawoski,
Appellants
ON APPEAL FROM
THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
D.C. Civil No. 98-cv-02080
District Judge: The Honorable Donetta W. Ambrose
Argued October 18, 2001
Before: MANSMANN, ALITO, and BARRY, Circuit Judges
(Filed: January 3, 2002)

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William T. Payne, Esq. (Argued)
Schwartz, Steinsapir, Dohrmann &
Sommers
1007 Mount Royal Boulevard
Pittsburgh, Pa. 15223
AND
John Stember, Esq.
Suite 1705
429 Forbes Avenue
Allegheny Building
Pittsburgh, Pa. 15219
AND
John T. Tierney, III, Esq.
Goldberg, Persky, Jennings & White
1030 Fifth Avenue, 3rd Floor
Pittsburgh, Pa. 15219
AND
Daniel P. McIntyre, Esq.
P. O. Box 190952
Miami Beach, Fl. 33119
Attorneys for Appellants
Glen D. Nager, Esq. (Argued)
Jones, Day, Reavis & Pogue
51 Louisiana Avenue, N. W.
Washington, D.C. 20001
Attorneys for Appellees
OPINION OF THE COURT
BARRY, Circuit Judge:
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'
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motion for summary judgment. We have jurisdiction under
28 U.S.C. § 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,¶ 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]
_________________________________________________________________
1. Westinghouse itself was subsequently sold to CBS Corporation
(incorrectly identified as "CBS, Inc." in the caption of the complaint),
which in turn merged into Viacom Inc. CBS and the Plan are the
appellees in this case. Because Westinghouse and its Plan are the major
players in the events at issue here, we will refer to "Westinghouse"
throughout this opinion.
2. There are 53 such RSAs -- one for each divested facility -- each
containing different language.
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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
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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 § 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.
II.
Before turning to the contractual issues in this case, and
particularly whether "may" means "may," it is appropriate
to address a predicate issue: whether the District Court
utilized the correct standard of review when considering
Westinghouse' s denial of 50/25 benefits. Our review of the
District Court' s decision in this regard is plenary.
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Appellants contended before the District Court, and
contend before us, that de novo review was appropriate.
Westinghouse, not surprisingly, argued -- and argues here
-- for an arbitrary and capricious standard. The District
Court disagreed with both sides and held that a heightened
arbitrary and capricious standard was applicable--
"arbitrary and capricious" because Westinghouse had
unfettered discretion to interpret the Plan and"heightened"
because it was operating under a financial conflict of
interest when it denied the 50/ 25 benefits. Had discretion
in fact been exercised in the course of denying benefits we
would agree, but it was not. We, thus, conclude that the
District Court erred and that the denial of benefits should
have received de novo review.
The Supreme Court has held that denials of benefits
challenged under 29 U.S.C. § 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. Id.3
It is undisputed that Westinghouse funds the Plan and
that the Plan gives Westinghouse essentially unfettered
discretion to interpret the Plan and to determine
_________________________________________________________________
3. Chief Judge Becker recently did an exhaustive analysis of this dicta
and concluded that a "sliding scale" is appropriate when applying the
arbitrary and capricious standard to account for any potential conflict of
interest. Pinto v. Reliance Standard Life Ins. , 214 F.3d 377 (3d Cir.
2000). Under this "sliding scale," a court should examine how the plan
is funded, if the plan is administered by an entity independent from the
employer-employee relationship, whether the decisionmaker has any
reason to be concerned about employer-employee relations, and the
amount of money that is at stake in the decision at issue. Id. at 388-93.
In other words, a court should look at any and all factors that might
show a bias and use common sense to put anywhere from a pinky to a
thumb on the scale in favor of the administrator' s analysis and decision.
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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
_________________________________________________________________
4. Westinghouse contends that it effectively provided its "reasons"
because (1) appellants were aware of Westinghouse' s"general" policy of
denying such claims; and (2) Westinghouse did eventually provide a
written response, albeit after this litigation commenced. This contention
is unpersuasive. General policy announcements and post-
commencement-of-litigation determinations under the aegis of attorneys
are not benefit eligibility analyses by a plan administrator to which a
court must defer.
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proposition that a de novo standard is appropriate when
the decisionmaker did not actually exercise its discretion).5
III.
We turn, finally, to the heart of this appeal. Simply
stated, appellants claimed before the District Court, and
argue here, that they were entitled to 50/25 benefits under
§ 14(F)(1) of the Plan. Westinghouse contended, and the
District Court agreed, that Westinghouse extended some
benefits when appellants were transferred, but not 50/25
benefits. We exercise plenary review over the District
Court' s grant of summary judgment.
To better understand the District Court' s disposition of
the case, it is helpful to first consider the relevant Plan
provisions.6 Westinghouse is the" sponsor" and "fiduciary"
of the Plan, and also funds the Plan. Under the Plan,
Administrative Managers are responsible for day-to-day
management and have "full and absolute discretion and
authority to control and manage the operation and
administration of the Plan, and to interpret and apply the
terms of the Plan. " JA 665.
_________________________________________________________________
5. See also, e.g., Marolt v. Alliant Techsystems, Inc. , 146 F. 3d 617, 620
(8th Cir. 1998) ("The fact is, the [Plan Administrator] did not provide a
rationale for its decision. . . . [W]e are free to ignore ERISA plan
interpretations that did not actually furnish the basis for a plan
administrator' s benefits decision.") (citations omitted); Mansker v. TMG
Life Ins., 54 F. 3d 1322, 1328 (8th Cir. 1995) ("[W]e hold that the
consequence of [the Plan Administrator' s] failure to render a decision on
certain issues concerning [an employee' s] medical expenses is that the
district court could . . . decide the issues de novo. "); Restatement
(Second) of Trusts § 187, cmt. (h) ("[I]f the trustee without knowledge of
or inquiry into the relevant circumstances and merely as a result of his
arbitrary decision or whim exercises or fails to exercise a power, the
court will interpose." ), cited with approval by Moench, 62 F. 3d at 568;
accord Matuszak v. Torrington Co. , 927 F. 2d 320, 322-23 (7th Cir. 1991)
(applying de novo review where administrator only offered "reasons" for
denial during the course of litigation).
6. While we refer throughout this opinion to the 1994 Plan, we note that
the provisions relevant here have not been substantively changed since
1985 when Westinghouse sold the Derry facility to Ceramics and
appellants were transferred.
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The Plan provides a variety of benefits, which can
generally be broken down into "Normal," "Early," and
"Special" retirement benefits. Employees qualify for these
various benefits by meeting certain "eligibility service" and
"credit service" benchmarks. Credit service includes the
time spent at work with an employer and certain time away
from work such as time spent on (1) furlough, (2) disability,
(3) general leave of absence, (4) union leave of absence, (5)
maternity leave of absence, or (6) military leave of absence.
Credit service is used to determine the amount of an
employee' s pension. Eligibility service includes all credit
service time plus certain periods when "the employee is
separated from service by reason of a quit, discharge,
release or retirement, " so long as the employee"was re-
employed" or "returned to work" within one year. Eligibility
service is used to determine an employee's eligibility for
benefits.
It is the "Special" retirement benefits section and, more
particularly, 50/25 benefits, that is at the core of this
dispute. If an employee is (1) 50 years of age; (2) has 25 or
more years of eligibility service; and (3) suffered a
permanent job separation, he or she may collect these
special benefits. Accordingly, unlike other Plan benefits, to
collect 50/25 benefits employees cannot merely meet the
age/service benchmarks, as appellants did, but must also
suffer a permanent job separation.
The critical question before the District Court was
whether appellants satisfied the permanent job separation
requirement, which required the "Employer" to terminate
the employee because of a plant close down or some other
similar "no-fault" termination. "Employer" simply means
Westinghouse. It is undisputed that Ceramics, or any other
successor company for that matter, does not qualify as an
"Employer" under the express terms of the Plan. To
circumvent this seemingly fatal flaw in their case,
appellants point to what they describe as the unambiguous
language of § 14(F)(1) and contend as well that extrinsic
evidence, including Westinghouse' s course of dealing with
that provision, tacitly made successor companies employers
for purposes of 50/25 benefits. Appellants are wrong.
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Section 14 governs employees, such as appellants, who
were hired by successor companies when a Westinghouse
facility was transferred. Section 14(F)(1) provides:
[T]he Administrative Managers and Financial Managers
may, by regulations or otherwise and to the extent they
consider advisable, treat service with [a successor
company] as service with [Westinghouse] for purposes
of vesting and for determining eligibility for any
pensions accrued to the date of such transfer or any
other benefits under this Plan which are dependent on
a service-eligibility requirement.
JA 675 (emphasis added).7 Administrative and Financial
Managers would typically exercise their powers under this
provision through an RSA. As discussed below, appellants'
case hinges on interpreting this text as compelling the
Administrative and Financial Managers to treat a successor
company as an employer for 50/25 benefits whenever they
treated service with such a company as service for the
service-eligibility requirements of any Plan benefit.
In this connection, it is important to understand that the
District Court was not asked, and we are not being asked,
to determine whether the 1985 RSA between Westinghouse
and Ceramics contractually extended 50/25 benefits to
appellants. Rather, the issue is whether Westinghouse, by
extending some benefits under the Plan through its RSA
with Ceramics, automatically or necessarily by virtue of
§ 14(F)(1) extended 50/25 benefits. Appellants contend that
the text of § 14(F)(1), by itself, unambiguously compels an
award of 50/25 benefits.8
_________________________________________________________________
7. When appellants were transferred in 1985, the Pension Plan
Administration Committee, as opposed to the Administrative and
Financial Managers, had the authority to define service with the
successor company.
8. At oral argument, appellants attempted to reframe the issue,
contending that if we were to find that § 14(F)(1) is a "pick-and-choose"
provision, reversal would be called for because each of the 53 RSAs
would need to be analyzed separately to determine whether 50/25
benefits were extended in any of them. This contention is utterly without
merit given appellants' decision to restrict the certified class question to
whether or not § 14(F)(1), standing alone, mandates 50/25 benefits.
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Turning first to the text of the Plan, § 14(F)(1) simply
authorizes Westinghouse, in its discretion, to treat service
with a successor company as service with Westinghouse for
purposes of pension eligibility for some or all of the Plan
benefits. The "may" and "to the extent they consider
advisable" language highlighted above unambiguously
establishes discretion to pick and choose which benefits, if
any, will continue to accrue eligibility service after a
transfer. Simply stated, Westinghouse did not have to
extend 50/25 benefits; indeed, nothing in § 14(F)(1)
required Westinghouse to extend any benefits at all.
Appellants try to escape this conclusion by looking to
several other words or phrases in § 14(F)(1) and in other
provisions, almost wholly ignoring the critical"may" and "to
the extent they consider advisable" language. We will not
unnecessarily extend this opinion by identifying and
rejecting each of the words or phrases raised to us and
each of the contractual interpretation and related
arguments. Suffice it to say that none of them renders
"may" and "to the extent they consider advisable"
ambiguous. In this regard, it is important to remember that
this is a class action that involves only a limited question:
does § 14(F)(1) mandate an award of 50/25 benefits? The
answer is unambiguously "no."
Appellants' proffered extrinsic evidence does not alter this
conclusion. We note, in this connection, that the District
Court erred in its blanket refusal to consider this extrinsic
evidence offered to support appellants' argument that
relevant provisions of the Plan unambiguously required the
award of 50/25 benefits or, failing that, that the extrinsic
evidence rendered at least certain of those provisions
ambiguous. Extrinsic evidence may be used for this
purpose although it may not, of course, be used"to create
an ambiguity where none exists." International Union v.
Skinner Engine Co. , 188 F.3d 130, 145 (3d Cir. 1999); see
also Einhorn v. Fleming Foods of Pa., Inc., 258 F. 3d 192,
194-95 (3d Cir. 2001). Appellants point, for example, to the
fact, and fact it be, that to the extent benefits were
extended, Westinghouse did not consider the transferred
employees to be terminated by it, the "Employer." This,
however, simply begs the question of whether 50/25
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benefits were extended in the first place. Moreover, the
"course of dealing" evidence as concerns the various RSAs
only establishes that Westinghouse treated § 14(F)(1) like
the "pick-and-choose" provision it is, extending 50/25
benefits in some cases and excluding them or being
ambiguous about them in others. We have no hesitancy in
finding that, had the District Court considered the proffered
extrinsic evidence, it would have reached the same
conclusion -- 50/25 benefits were clearly not mandated by
the Plan.
IV.
We will affirm the order of the District Court.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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