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SMITH v. ROCHESTER TEL BUS. MKTG. CORP.

February 13, 1992

LAWRENCE D. SMITH, Plaintiff,
v.
ROCHESTER TEL BUSINESS MARKETING CORP., et al., Defendants.



The opinion of the court was delivered by: DAVID G. LARIMER

 BACKGROUND

 This is an action under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq. Plaintiff, Lawrence D. Smith ("Smith"), seeks to recover damages based on his claims that he has been denied benefits to which he is entitled under certain employee benefit plans.

 The complaint names thirteen defendants. Two defendants, Rochester Telephone Business Marketing Corporation ("RTBMC") and Rotelcom, Inc. ("Rotelcom"), are former employers of Smith. RTBMC is allegedly an "umbrella" sales and marketing company for several subsidiaries of Rochester Telephone Corporation ("RTC"), including Rotelcom. For purposes of this action, RTBMC and Rotelcom are allegedly one and the same.

 Also named as defendants are three employee benefit plans of which Smith is a participant and beneficiary. Those plans are: the RTC Pre-Pension Leave Plan ("Pre-Pension Leave Plan"); the RTC Management Pension Plan ("Pension Plan"); and the RTC Management Investment and Savings Plan and Management optional Salary Treatment Plan ("MISP/MOST Plan").

 The remaining eight defendants are individual persons. Defendant Richard E. Sayers was the President of RTBMC until June 1990. Robert M. Curran is Director of Personnel and Staff for RTC and Chairperson of the RTC Employees' Benefits Committee ("EBC"), which is the named fiduciary and plan administrator for the three plans. The other individual defendants are alleged to be or have been members of the EBC.

 Smith alleges that on January 4, 1989, he informed RTBMC that he intended to retire on January 13, 1989. Smith at that time was employed as a management level employee selling telecommunications equipment and services in Upstate New York.

 Although Smith was only fifty years old, he had over thirty years of service, which, he alleges, made him eligible for full early retirement benefits under the Pension Plan. Smith also claims that he was entitled to a four-month leave of absence at full pay under the Pre-Pension Leave Plan. In addition, Smith was a participant in the MISP/MOST Plan. This is an investment and savings plan in which individual employees have accounts that are funded by a combination of employee and employer contributions.

 When informed that Smith was retiring, RTBMC calculated that his remaining accrued vacation time would run from January 14 through March 31, 1989, and that he would receive what was referred to as a "pre-pension leave of absence" from April 1 through July 31. Smith would then begin receiving pension benefits on August 1, 1989. On January 13, 1989, Smith ceased working for RTBMC and he began receiving his vacation pay.

 Prior to leaving RTBMC, however, Smith had already secured a position with ACC Long Distance Corporation ("ACC"), a competitor of RTBMC. Smith and ACC had entered into a written employment agreement on January 4, 1989, which called for Smith to begin working for ACC on January 16, 1989. (Def. Ex. G).

 On February 17, 1989, when RTBMC found out that Smith was working for ACC, defendant Sayers sent him a letter advising him that because Smith was then using vacation and pre-pension leave time, he was still considered an "employee" of RTBMC. Sayers warned Smith that "while you remain our employee, you owe us a duty of loyalty," and that unless within one week Smith sent RTBMC a written certification that he had ceased working for ACC and was not in competition with RTBMC, Smith's pre-pension and unearned 1989 vacation benefits would be deemed forfeited. (Def. Ex. K).

 Smith did not stop working for ACC. On March 10, 1989, Sayers sent him another letter stating that as of March 2, RTBMC considered Smith to have forfeited his right to further employee benefits, including his pre-pension leave and vacation time. This letter was followed up by another on March 22 which confirmed that Smith was not eligible to receive any unaccrued benefits due to his alleged violation of his duty of loyalty to RTBMC.

 Smith appealed this decision to the EBC. In a letter dated May 18, 1989, the EBC informed Smith that it had denied his appeal, and that his pension benefits had been recalculated based on a March 3, 1989 retirement date. The resulting benefits, about $ 2400 per month, were, according to defendants, about $ 43 per month less than Smith would have received had the benefits been based on the original August 1 date. *fn1" Smith began receiving pension benefits in that amount in March 1989.

 The instant action was commenced on January 22, 1990. Smith filed an amended complaint on June 25, 1991. The first two causes of action in the amended complaint are for benefits pursuant to 29 U.S.C. § 1132(a)(1)(B). In the first cause of action, Smith claims that he is entitled to $ 5581 per month under the Management Pension Plan instead of the $ 2400 per month that he is now receiving. The second claim is for four months' worth of pay under the Pre-Pension Leave Plan.

 In the third cause of action, Smith alleges that his purported termination as of March 2, 1989 constitutes discrimination motivated by an intent to interfere with his benefit rights in violation of 29 U.S.C. § 1140. The fourth cause of action is asserted against the seven individual members of the EBC for breach of fiduciary duty in their administration of the three plans, in violation of 29 U.S.C. § 1104.

 The fifth claim is against Rotelcom and RTBMC for breach of their contractual obligations to Smith in connection with his benefits. The sixth cause of action alleges that Rotelcom promised its salespersons, including Smith, that their benefits would be calculated according to a certain formula (which will be explained in detail below), but that Rotelcom either failed to apply this formula to certain benefits or failed properly to calculate Smith's benefits under the formula.

 Plaintiff seeks damages based on each of these causes of action in amounts ranging from $ 16,000 to $ 433,300.

 DISCUSSION

 1. Claim for Benefits Under the Management Pension Plan

 Defendants argue that the first cause of action, for lost pension benefits, is without merit because the EBC acted within its discretion in calculating Smith's benefits. Defendants rely on a statement in § 10.3 of the Management Pension Plan that "The [Employees' Benefits] Committee shall interpret the Plan and shall determine all questions arising in the administration, interpretation, and application of the Plan. Any such determination by the Committee shall be conclusive and binding on all persons."

 The dispute concerning these benefits involves two issues. One is the date which was used to calculate Smith's benefits. Defendants based Smith's pension benefits on the March 2, 1989 termination date. Smith contends that his benefits should have been calculated according to the date when he was originally supposed to begin receiving them, i.e., August 1, 1989. Smith claims that March 2 is not the proper date because he was wrongfully terminated. If the August 1 date had been used, Smith's benefits would be slightly higher--about forty dollars per month, according to defendants.

 The second issue, which accounts for most of the difference between the parties' calculations of the pension benefits, concerns Smith's sales commissions. The Pension Plan's formula for calculating benefits is based on a combination of the participant's years of service and his average "compensation preceding retirement." Pension Plan § 4.1. "Compensation" is defined in § 2.11 as "the total of an Employee's base rate of pay and bonuses for personal services actually rendered by the Employee to the Employer. . . . Compensation does not include . . . any types of extra remuneration (except bonuses) of whatever nature."

 Smith contends that his sales commissions should have been included as part of his compensation. Smith argues that commissions are either included within "base rate of pay" or "bonuses."

 Defendants argue that even if commissions could be considered part of an employee's compensation under § 2.11, the EBC had discretion to determine that they are not.

 Before reaching the merits of this claim, the court must determine the appropriate standard of review. In Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 103 L. Ed. 2d 80, 109 S. Ct. 948 (1989), the Supreme Court held that "a denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Id. at 115. If the administrator has discretionary authority, the court must apply the more deferential arbitrary-and-capricious standard. Id.

 One indication of the presence or absence of discretionary authority is whether the plan uses categorical or conditional language. In Heidgerd v. Olin Corp., 906 F.2d 903, 908 (2d Cir. 1990), for example, the court held that a statement in a plan that began, "Benefits are payable if . . ." did not give the administrators discretion, but another statement that "In some unusual cases, benefits may be payable . . ." did grant discretion to interpret the plan.

 In the case at bar, the Management Pension Plan states that a retiree's benefit rate "shall be the sum of" certain figures, among which is "the average of his last five years of Compensation preceding retirement . . ." Thus, the EBC has no discretion to decide whether to include compensation.

 The important question here, though, is whether the EBC has discretion to determine what constitutes compensation. As stated, compensation is defined as "the total of an Employee's base rate of pay and bonuses," excluding "extra remuneration (except bonuses) of whatever nature." Nowhere does the plan define "base rate of pay," "bonuses," or "extra remuneration."

 The plan provides that the EBC "shall interpret the Plan and shall determine all questions arising in its interpretation, and application of the Plan. Any such determination by the Committee shall be conclusive and binding on all persons." Pension Plan § 10.3 (emphasis added). I believe that this language indicates that the EBC was intended to have discretion to decide the meaning of words and phrases not explicitly defined in the plan itself. See Fuller v. CBT Corp., 905 F.2d 1055, 1058 (7th Cir. 1990) (grant of power "to construe and interpret" plan requires deferential review); De Nobel v. Vitro Corp., 885 F.2d 1180 (4th Cir. 1989) (power to "determine all benefits and resolve all questions pertaining to the administration, interpretation and application of Plan provisions . . ." bars de novo review); Lowry v Bankers Life & Casualty Retirement Plan, 871 F.2d 522 (5th Cir. 1989) (authority to "interpret and construe" plan and to "determine all questions arising" in plan administration bars de novo review).

 I find, therefore, that the EBC's determination that sales commissions are not included in calculating pension benefits must be reviewed under the arbitrary-and-capricious standard. I also find that there are no genuine issues of material fact that would preclude summary judgment on this cause of action. The relevant documents are in the record, and there is no real dispute about the facts. The only issue is whether the EBC's interpretation of the plan should be upheld.

 After reviewing the record, I find that the EBC's decision that commissions constitute "extra remuneration" that is not part of the employee's compensation under § 2.11 is neither arbitrary nor capricious. To the extent, therefore, that the first cause of action seeks to have Smith's benefits recalculated by including his commissions, I grant summary judgment in favor of defendants.

 "A trustee may be given power to construe disputed or doubtful terms, and in such circumstances the trustee's interpretation will not be disturbed if reasonable." Firestone, 489 U.S. at 111. The EBC's determination that commissions are not part of one's base rate of pay is reasonable. Since commissions depend on sales, they constitute an addition to the employee's base rate of pay.

 I am also not convinced that the EBC erred in deciding that commissions are not bonuses. There was a bonus system for sales managers whose departments met or exceeded certain goals, and payments under this program were expressly called "bonuses." See Pltf. Ex. Q. The plans that applied to Smith, on the other hand, referred to "commissions." Smith argues that the managers' bonuses were effectively the same as sales commissions, because they were extra payments for reaching certain sales levels. Even if there were analogies between managers' bonuses and salespersons' commissions, however, they were two separate programs, and defendants were not obligated to treat them identically for purposes of calculating pension benefits. The fact that defendants used two different names--commissions and bonuses--is an indication that commissions were not intended to be included as part of an employee's compensation under the pension plan.

 Furthermore, the plan excludes "extra remuneration" other than bonuses. In effect, this set up a broad category of any payments outside the employee's base salary, and then carved out a specific exception for bonuses. It was not unreasonable for the EBC to conclude that commissions did not fall within this exception.

 Finally, the EBC's denial of Smith's appeal states that the exclusion of commissions represented a long-standing interpretation of the plan, and there is no evidence to the contrary. See Ruth Accorso Affidavit P7. That assertion is also supported by papers that Smith received when he was transferred to Buffalo in 1982 which discuss the calculation of bonuses and commissions separately. See Pltf. Ex. O. The consistency of prior interpretations of a plan provision is a factor that the court may consider in determining whether a given interpretation is arbitrary or capricious. See, e.g., Donovan v. Carlough, 576 F. Supp. 245, 249 (D.D.C. 1983), aff'd, 243 App. D.C. 348, 753 F.2d 166 (D.C. Cir. 1985).

 There remains the issue of the date of calculation of plaintiff's pension benefits. Whether Smith should have begun receiving those benefits on August 1 or sooner depends on whether he was entitled to use up his remaining vacation and pre-pension leave. As explained below in the discussion of the second cause of action, I find that Smith was entitled to the benefit of all of his pre-pension leave. Therefore, his pension benefits should not have started until his pre-pension leave was completed.

 I do not believe, however, that Smith was entitled to use up the remainder of his vacation. This was simply an ordinary employee benefit which was not covered by ERISA. *fn2" The fact that Smith deferred some vacation until retirement did not affect its character as a part of his normal compensation or transform it into a pension or welfare benefit. Massachusetts v. Morash, 490 U.S. 107, 112, 104 L. Ed. 2d 98, 109 S. Ct. 1668 (1989). Unlike pre-pension leave, vacation was available to all employees and was "not contingent upon the termination of their employment." Id.

 Smith was therefore not entitled to use up the remainder of his vacation at the time of his termination, but he was entitled to use up his pre-pension leave of absence before his pension benefits commenced. The record reflects that defendants considered March 2, 1989 to have been the effective date of Smith's termination, since by that time he had not responded to RTBMC's demand that he cease working for ACC. Had Smith been given his full four-month pre-pension leave of absence, he would have begun receiving pension benefits commencing July 2, 1989. This would apparently have some effect, albeit a relatively small one, on the amount of his monthly benefit. Since it is not evident from the record precisely what that effect would have been, however, the parties are directed to submit proof on this issue, if the matter cannot be resolved by stipulation, within twenty (20) days of the date of entry of this order.

 For these reasons, defendants' motion for summary judgment on the first cause of action is granted, except to the extent that Smith seeks to have his pension benefits recalculated based on a different commencement date. As to that issue, plaintiff is granted summary judgment, *fn3" consisted with this decision.

 2. Claim for Pre-Pension Leave Benefits

 In his second claim, Smith contends that he is entitled under the Pre-Pension Leave Plan to four months of paid leave. Smith argues that these benefits are nonforfeitable under ERISA and that defendants had no authority to terminate them.

 Under ERISA, 29 U.S.C. § 1053, certain types of employee benefits are nonforfeitable. This provision expressly applies to any "pension plan," ...


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