Professional Documents
Culture Documents
United States Court of Appeals, Third Circuit
United States Court of Appeals, Third Circuit
3d 1034
62 USLW 2593
I. FACTUAL BACKGROUND
2
The facts are largely undisputed. CW owns a number of industrial plants. One,
in Wood-Ridge, New Jersey, opened during World War II and did defenserelated work for forty years. Following a period of declining business, this plant
closed in late 1983. At that time, CW notified a class of individuals who had
retired from the Wood-Ridge plant that their health benefits were being
terminated.
In 1984, a number of retirees who had their benefits terminated brought this suit
as a class action on behalf of "all those retired Wood-Ridge employees who
were not members of the bargaining unit represented by the United Auto
Workers at the time of their retirement and whose post-retirement medical
benefits were terminated or denied on or about December 1, 1983." The
complaint alleged that CW's termination of benefits was wrongful and that the
plaintiffs had a vested right to retiree health benefits for life. Plaintiffs sought
damages as well as declaratory and injunctive relief.
From 1966 through 1970, Liberty Mutual provided the insurance benefits.
During this period two booklets were sent to retirees stating that benefits would
terminate upon death or "if the Group Policy terminates." From 1971 through
1972, Prudential was the insurance carrier for retiree health benefits.
Apparently, little, if anything, was provided during this period in the way of
documentation. From 1973 through 1974, Blue Cross/Blue Shield provided
benefits and CW sent retirees a letter summarizing those benefits. The letter
stated that coverage would terminate upon death or "the date the class of
persons of which the retiree is a member ceases to be covered by the program"
and also stated that CW "reserves the right to modify, revoke, suspend, change,
or terminate the program, in whole or in part." The term "class of persons of
which the retiree is a member" was not defined. However, the contract between
CW and Blue Cross/Blue Shield included in the classification of employees
eligible for benefits: "All full-time salaried non-bargaining exempt and nonexempt Employees retired prior to January 1, 1973" and "All full-time salaried,
non-bargaining exempt Employees retired on or after January 1, 1973."
simply incorporated any "plan or plans" CW might "from time to time adopt."
Also at that time, CW changed the manner in which it provided benefits: it
began to self-insure, at least with respect to the medical-surgical benefits, and
contracted with various carriers to administer the program.
7
Plaintiffs claim that from 1976 through 1983, although active employees
received Summary Plan Descriptions (SPDs), retirees did not. CW insists that
SPDs were sent to retirees. In any event, the 1976 SPD, which was prepared by
CW and Prudential and not replaced until 1983, provided in part: "When your
employment terminates, or you cease to be a member of a class eligible for
insurance under any part of the plan, your insurance under that part of the plan
will cease.... Your insurance under the group policy will also terminate upon
discontinuance of the group policy." Nothing in the SPD defined "class,"
although the underlying agreement between CW and Prudential listed sixteen
classes of employees including: "14. All full-time exempt retired salaried
employees located in the United States" and "15. All full-time Retired
Employees ... [who] (ii) are classified as full-time non-bargaining non-exempt
employees."
Termination of Coverage
10retiree's coverage will terminate on the date of his or her death or on the date the
A
class of persons of which the retiree is a member ceases to be covered by the
Program.
******
11
12
CURTISS-WRIGHT
CORPORATION RESERVES THE RIGHT TO MODIFY,
REVOKE, SUSPEND, CHANGE, OR TERMINATE THE PROGRAM IN
WHOLE OR IN PART, AT ANY TIME.
13
15
In 1983, concurrent with a change in carriers, a new SPD was issued and
distributed to active employees. Plaintiffs and CW dispute whether the SPD
was distributed to retirees. This SPD stated: "Coverage under this Plan will
cease for retirees and their dependents upon the termination of business
operations of the facility from which they retired." In addition, it stated:
"Although the Company expects this Plan to continue in its present form for an
indeterminable period, this Plan is not a vested Plan and as such is subject to
modification or termination at any time." CW contends that the provision
allowing termination of retiree benefits in the event of a plant closure was
intended as a clarification; plaintiffs claim it was an amendment.
16
In November 1983, CW announced that the Wood-Ridge plant would close and
that in accordance with the provision in the 1983 SPD, retiree benefits would be
cut off for non-bargaining unit employees who retired from the Wood-Ridge
plant. This termination of benefits allegedly contradicted oral representations
made to many of the retirees that their health benefits would continue for life.1
The plaintiffs brought this suit in 1984 alleging breach of contract and
violations of ERISA.
After six years of litigation, the district court issued its decision in 1990
following a bench trial. The court found that CW had reserved the right to
amend its plan. In particular, it referred to the express reservation of such a
right in the 1976 Plan Constitution, although it noted that other documents also
evidenced such a reservation. The district court further found that the term in
the 1983 SPD permitting termination of retiree benefits upon closure of the
plant at which they had worked was not a clarification of an already existing
plan term, but rather was a new term. Accordingly, the district court held that
this new term could only be effective if it had been added to the plan as an
amendment.
18
The district court observed that, contrary to ERISA Sec. 402(b)(3), 29 U.S.C.
Sec. 1102(b)(3), the plan did not specify procedures for amendment of the
plan's terms. It further concluded that the manner in which the amendment was
added to the plan in this case did not comply with any unpublished amendment
procedures. As a result, the district court held that the amendment was invalid.
It followed that the termination of plaintiffs' retiree benefits was contrary to the
terms of the plan.
19
CW appeals from the district court's judgment against it; plaintiffs cross appeal
from its determinations that CW reserved the right to amend the plan and that
plaintiffs have no vested health benefits.2
24
essentially meaningless.
25
26
We conclude that Huber is distinguishable. We agree with the district court that
CW's plan was in violation of Sec. 402(b)(3).4
In at least three previous cases, we have noted that a violation of Sec. 402(b)(3)
might prevent any purported amendment from taking effect, but we have
expressly declined to decide that question. See, e.g., Deibler v. Local Union 23,
973 F.2d 206, 210 n. 7 (3d Cir.1992) ("[A]rguably, ... a plan cannot be
amended unless and until an amendment procedure is added to the plan and
complied with.") (quoting Frank v. Colt Industries, Inc., 910 F.2d 90, 98 (3d
Cir.1990), citing Hozier v. Midwest Fasteners, Inc., 908 F.2d 1155, 1163 n. 9
(3d Cir.1990)). This case requires that we now reach that issue.
30
CW argues that the invalidation of the purported amendment due to the failure
of CW to comply with Sec. 402(b)(3) would be inconsistent with our decision
in Hozier. CW reads Hozier as holding that creation of "a substantive remedy
for procedural violations of ERISA would contravene ERISA's statutory
scheme" and that "procedural violations do not create rights to benefits in
disregard of the plan terms." As a general matter, these propositions make
Hozier addresses the issue of whether a failure to comply with ERISA's notice
or reporting requirements confers a right to receive benefits not provided for in
the plan. There is something at stake here far more fundamental than a failure
to comply with ERISA's procedural requirements pertaining to reporting and
notice. The basic premise of ERISA is that a plan sponsor will be free to
determine what benefits the plan will provide, but that once such a
determination has been made, the benefits must be described in a written plan
that is available to participants at any time upon request. Thereafter the
participants are entitled to rely upon the plan document as defining the benefits
currently being provided. Unless and until the written plan is altered in a
manner, and by a person or persons authorized in the plan, neither the plan
administrator nor a court is free to deviate from the terms of the original plan. It
is in this way that ERISA provides certainty and protects participants against
frustration of their legitimate expectations.
32
Unlike the situation in Hozier where the plaintiffs sought benefits not provided
for in the plan, the plaintiffs' right to benefits in this case is derived exclusively
from the terms of the plan; all the district court did was enforce the plan as
written. The case law expressly recognizes that amendments which are not
adopted substantially in accordance with a plan's amendment procedures are
ineffective to alter the terms of a plan. See, e.g., Albedyll v. Wisconsin
Porcelain Co. Revised Retirement Plan, 947 F.2d 246, 255 (7th Cir.1991);
Frank, 910 F.2d at 98 ("Where a plan has complied with ERISA by setting forth
a method for accomplishing amendment, of course each putative amendment
will be evaluated with reference to that method."). The same result is required
where there are no amendment procedures at all. To hold otherwise would
place those who violate Sec. 402(b)(3) by including no procedure for
amendment in a plan in a better position than those who comply with that
requirement and would thereby discourage employers from complying with
Sec. 402(b)(3).
33
34
37
CW's alternative theory will simply not fit the facts of this case. The record is
devoid of any evidence that anyone at CW, much less a body having authority
to terminate the plan, gave any consideration whatever to the business, public
relations, tax or other legal implications of doing so. Moreover, after the
announcement, no one at CW treated it as effecting a termination of the plan.
No notice of plan termination was sent to all of the plan's participants, for
example, as would have been required by ERISA if CW had intended to
terminate it. 29 U.S.C. Sec. 1024(b)(1). Most important, it is incumbent on us
to look at the economic reality of transactions involving a ERISA plans. To
characterize the November 1983 announcement as a termination of CW's
welfare benefit plan would be to ignore the reality of the matter. That
announcement was nothing more than an application to the Wood-Ridge plant
of the 1982 plan amendment, an amendment that CW regarded as only a
"clarification" of a continuing plan.
38
We are confident that the drafters of Sec. 402(b)(3) would view the situation
before us as one involving an attempted amendment to the plan in 1982, an
amendment that could be effected only in a manner consistent with the
requirements of that section. We are not disposed to indulge in a legal fiction in
order to sanction an end run around the safeguards Congress there imposed.
Turning to the cross-appeal, plaintiffs argue that the district court erred in
concluding that CW reserved the right to amend its plan. They note that the
district court, in so concluding, relied heavily on the reservation language
contained in the Plan Constitution. Plaintiffs then stress that the Constitution,
by its terms, facially refers only to "employees," not retirees. They further point
out that one of CW's witnesses gave testimony susceptible of an interpretation
that the Constitution was understood not to apply to the Blue Cross
hospitalization program. Thus, according to the plaintiffs, the district court's
conclusion about CW's reservation of a right to amend is without record
support.
40
The district court understandably declined to hold that the Constitution and
other plan documents were unambiguous as a matter of law. It held a trial in
order to put itself in a position to consider all available evidence bearing on the
sponsor's intent, the participants' reasonable understanding, and the past
practice of the parties. Having considered all of this evidence, the district court
made a finding of fact, in accordance with the teachings of Alexander v.
Primerica Holdings, Inc., 967 F.2d 90 (3d Cir.1992), on whether the power to
amend had been reserved. We may not disturb that finding unless, viewed in the
context of all of the evidence, it is clearly erroneous. We decline to so
characterize it.
41
First, while it is true that the Constitution does not specifically refer to retired
employees, there is ample support for the district court's understanding of that
document. On its face, the Constitution refers only to employees. It defines
employees as individuals who are "intended to be employed for one thousand
or more hours in a calendar year or a period of twelve months from an
employee's date of hire." According to CW and its witnesses, the employee
definition was meant only to distinguish between full-time and part-time
employees and was understood to include those employees who had retired
from full-time employment. Moreover, such an intent is reflected in several
contemporary documents and is confirmed by the practice of the parties in the
administration of the plan. Indeed, it was stipulated by the parties that retiree
benefits were provided and administered in accordance with the framework
established by the Constitution. Finally, CW's witnesses testified that when
retirees asked to see plan documents they would be shown the Constitution as
well as other documents.
42
Moreover, while the district court relied upon the Constitution, it relied as well
on the clear and express reservation of the right to amend contained in every
SPD following 1979 and in the summary of exempt retiree benefits first
distributed in 1973 and revised in 1975.
44
As we understand plaintiffs' briefs, they seek to avoid the effect of the court's
finding of a reserved right to amend by implying that a general right to amend
somehow does not authorize an amendment like the one CW purported to adopt
in 1983. They explain:
47
While the court may not have expressly addressed this issue, it is apparent from
the court's opinion that it properly decided it in CW's favor. One important and
50
The petition for rehearing filed by appellant in the above-entitled case having
been submitted to all the available circuit judges of the circuit in regular active
service, and a majority of the circuit judges of the circuit in regular active
service not having voted for rehearing by the court in banc, the petition for
rehearing is denied.
Even if we were willing to equate "by the Company" with "by the board of
directors," the record here does not indicate that the 1983 amendment was
adopted by CW's board. While Judge Roth agrees with our conclusion that the
amendment to the plan was ineffective, she does not agree with our reasoning
on this point. Instead, Judge Roth believes that action taken by "the Company"
means action taken by the board of directors or whomever of the company has
the authority to take such action under the corporation law of the state of
incorporation of the company in question. As CW is a Delaware corporation,
Judge Roth would consider action by "the Company" to be action by the board
of directors pursuant to 8 Del.C. Sec. 141(a): "The business and affairs of every
Our holding here should not be construed to extend beyond a situation in which
a plan sponsor amends the plan in a fashion which is advantageous to the
sponsor's interest and in which the beneficiaries of the plan later challenge that
amendment. We do not attempt to encompass in this decision other factual
scenarios under which an amendment might be challenged
F.2d 130 (3d Cir.1993) and Kurz v. Philadelphia Elec. Co., 994 F.2d 136 (3d
Cir.1993). These cases are, however, distinguishable. There, a material issue of
fact existed as to whether agents of the plan administrator had made affirmative
misrepresentations to plan participants, i.e., telling them that the company was
not considering an early retirement plan when in fact it was. However, we
cautioned that "ERISA does not impose a 'duty of clairvoyance' on fiduciaries"
and that "[a]n ERISA fiduciary is under no obligation to offer precise
predictions about future changes to its plan." Fisher, 994 F.2d at 135