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EDWARDS v. AKZO NOBEL

September 17, 2001

A. JAMES EDWARDS, PLAINTIFF,
V.
AKZO NOBEL, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Larimer, Chief Judge.

    DECISION AND ORDER

INTRODUCTION

Plaintiffs commenced this action on November 23, 1999, under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq., to recover certain retirement benefits allegedly due them under the Akzo Nobel Retirement Account Plan ("the Plan"). The original complaint contained six causes of action, under ERISA and other federal and state theories of liability, and named as defendants Akzo Nobel, Inc. ("Akzo"), the Plan, by its representative, Akzo Nobel Retirement Account Plan Pension Committee ("the Committee"), and Cargill, Inc. After all defendants filed motions to dismiss, on June 19, 2000, the court issued a Decision and Order granting those motions with respect to all claims except plaintiffs' claim under 29 U.S.C. § 1132(a)(1)(B) against the Plan and the Committee ("defendants"). Edwards v. Akzo Nobel, Inc., 103 F. Supp.2d 214 (W.D.N.Y. 2000). Defendants have now moved for summary judgment on that sole remaining claim. Plaintiffs have cross-moved "for an Order denying defendants' motion for summary judgment or, in the alternative, deferring action on said motion pending the completion of all discovery, pursuant to Rule 56(f) of the Federal Rules of Civil Procedure."

The relevant facts are set forth in my June 19 Decision and Order, familiarity with which is assumed. In short, the five plaintiffs were all formerly employed at Akzo's facility in Watkins Glen, New York. In late 1996, Akzo agreed to sell the facility and its other salt-producing operations to Cargill; the actual transfer occurred on April 25, 1997.

The purchase agreement provided, inter alia, that Akzo would "retain the assets, sponsorship, administration of and liability for all benefit obligations pursuant to its benefit plans," and that Akzo would "fulfill its obligations in accordance with [its] pension plans without regard to whether or not an eligible retiree is employed by Cargill." Amended Complaint Ex. A. The agreement stated, "It is expressly understood and agreed that Cargill is not assuming any obligations or liabilities under [Akzo's] benefit plans." Id.

At the time of the transfer, plaintiffs were all within two years of reaching their fifty-fifth birthdays, which was the minimum age for taking early retirement under the Plan. After the transfer took place, plaintiffs initially continued working at the Watkins Glen facility, but as employees of Cargill. Within six months after the transfer, however, Cargill terminated all five plaintiffs.

In August 1998, plaintiffs (who turned fifty-five on dates ranging from July 1997 to February 1999) applied to defendants for pension benefits under the Plan. Defendants granted their applications, but treated them as having been terminated from Akzo's employ at the time that the Watkins Glen facility was transferred to Cargill on April 25, 1997. That determination had an effect upon the amount of plaintiffs' benefits, because § 4.05(c) of the Plan provides that a terminated Plan member may

elect . . . to have his Pension begin as of the first day of any month following his 55th birthday and prior to his Normal Retirement Date [age 65]. In such event, the Member's Pension shall be reduced by one-half of one percent (0.5%) for each full month by which the Benefit Commencement Date precedes the Member's Normal Retirement Date.

Because defendants determined that plaintiffs had been terminated on April 25, 1997, plaintiffs' benefits were calculated by taking the amount that they would have received had they retired at age sixty-five, and reducing that amount by 0.5% for each month by which their benefit commencement date preceded their sixty-fifth birthdays.

Plaintiffs allege that they should have been given the benefit of the early retirement provision, which is contained at § 4.03 of the Plan. That section provides that any employee age fifty-five or older with at least 10 years of service may retire, in which case the employee's benefit is to be reduced by 0.5% for each month prior to the employee's sixty-second birthday. Plaintiffs contend that because they are all now over age fifty-five, and all have over ten years of service with Akzo, their benefits should be calculated under this provision. Plaintiffs allege that defendants' use of the age sixty-five figure in § 4.05, rather than sixty-two as provided in § 4.03, as the basis upon which to reduce their benefits, has caused them to lose at least eighteen percent of the value of their pension benefits.

Based on these allegations, plaintiffs have asserted a claim for benefits allegedly due to them under the Plan, pursuant to 29 U.S.C. § 1132(a)(1)(B).

DISCUSSION

I. Standard of Review

The first issue that must be addressed is the proper standard of review to be applied to defendants' decision concerning the proper calculation of plaintiffs' benefits. In Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), the Supreme Court held that "a denial of benefits challenged under [29 U.S.C. § 1132(a)(1)(B)] is to be reviewed under a de novo standard unless the benefit plan gives the administrator . . . discretionary authority to determine eligibility for benefits or to construe the terms of the plan." The Second Circuit has stated that "[w]here the plan reserves such discretionary authority, denials are subject to the more deferential arbitrary and capricious standard, and may be overturned only if the decision is `without reason, unsupported by substantial evidence or erroneous as a matter of law.'" Kinstler v. First Reliance Std. Life Ins. Co., 181 F.3d 243, 249 (2d Cir. 1999) (quoting Pagan v. NYNEX Pension Plan, 52 F.3d 438, 442 (2d Cir. 1995)); see also O'Shea v. First Manhattan Co. Thrift Plan & Trust, 55 F.3d 109, 112 (2d Cir. 1995) (denial is arbitrary and capricious where plan administrator or fiduciary has "impose[d] a standard not required by the plan's provisions, or interpret[ed] the plan in a manner inconsistent with its plain words") (citation and internal quotation marks omitted). The burden of establishing that the arbitrary-and-capricious standard applies is upon the plan administrator, since "the party claiming deferential review should prove the predicate that justifies it." Sharkey v. Ultramar Energy Ltd, 70 F.3d 226, 230 (2d Cir. 1995).

Defendant contends that the court should apply the arbitrary-and-capricious standard because the Plan gives the administrator, the Pension Committee, discretion to determine benefits and construe the Plan. Plaintiffs do not appear to quarrel with that proposition, and indeed the Plan states that the Pension Committee has "the power, authority and responsibility to . . . determine all benefits and the resolution of all questions arising in the administration, interpretation and application of the Plan either by general rules or by particular decisions including the right to remedy possible amibiguities, inconsistencies or omissions. . . ." Affidavit of Eugene D. Ulterino (Docket Item 24), Ex. A at 60. The Pension Committee also has the authority to "establish such general rules, regulations, policies, practices and procedures, as well as standing interpretations of general application, as may be necessary to carry out its duties and in connection with its responsibility to control and maintain the operation and administration of the Plan. . . ." Id. That language does indicate that the administrator has discretionary authority to determine eligibility for benefits and to construe the terms of the plan. See Bendixen v. Standard Insurance Co., 185 F.3d 939, 943 n. 1 (9th Cir. 1999) (plan stating, "we have full and exclusive authority . . . to interpret the Group Policy and resolve all questions arising in the administration, interpretation, and application of the Group Policy" conferred discretionary authority on administrator); Mitchell v. Eastman Kodak Co., 113 F.3d 433, 438 (3d Cir. 1997) (applying abuse of discretion standard to plan which provided that "[i]n reviewing the claim of any participant, the Plan Administrator shall have full discretionary authority to determine all questions arising in the administration, interpretation and application of the plan"); Kocsis v. Standard Ins. Co., 142 F. Supp.2d 241, 251-52 (Conn. 2001) (language reserving to plan administrator "full and exclusive authority . . . to interpret the Group Policy and resolve all questions arising in the administration, interpretation, and application of the Group Policy," was sufficient, albeit without using the word "discretion" or "discretionary," to trigger application of arbitrary-and-capricious standard).

Plaintiffs, however, assert that a conflict of interest may exist on the part of the Plan administrator because it appears that the members of the Pension Committee were appointed by, and are employees of, Akzo. Plaintiffs maintain that further discovery is necessary to determine whether that is in fact the case, but that if it is, then the court should take this factor into account in determining whether the administrator's decision was arbitrary and capricious. Defendant does not appear to deny that the Committee members are appointees and employees of Akzo, but asserts that this does not give rise to a conflict of interest.

Neither party's position is entirely correct. The rule is that if the plan administrator is an arm of the employer, and the plan is funded by the employer, the court may take that into account in deciding whether the defendant acted arbitrarily and capriciously. Darling v. E.I. DuPont de Nemours & Co., 952 F. Supp. 162, 164-65 (W.D.N.Y. 1997) (citing Pagan v. NYNEX Pension Plan, 52 F.3d 438, 442 (2d Cir. 1995)); see also Kotrosits v. GATX Corp. Non-Contributory Pension Plan for Salaried Employees, 970 F.2d 1165, 1173 (3d Cir.) (degree of deference afforded to plan administrators would properly be reduced in cases involving "unfunded plans where benefits come directly from the sponsor's assets and funded plans where the sponsor's contributions each year are determined by the cost of satisfying plan liabilities in the immediately preceding year"), cert. denied, 506 U.S. 1021, 113 S.Ct. 657, 121 L.Ed.2d 583 (1992); Sansevera v. E.I. DuPont de Nemours & Co., 859 F. Supp. 106, 112 (S.D.N.Y. 1994) ("The fact that the Plan is funded by DuPont raises a potential conflict of interest in the Board's decision to deny Sansevera's application, and therefore will be considered in deciding whether the Board acted arbitrarily or capriciously").

In addition, the Second Circuit has stated that

Sullivan v. LTV Aerospace & Def. Co., 82 F.3d 1251, 1255-56 (2d Cir. 1996); see also Kocsis, 142 F. Supp.2d at 253 (court will defer to administrator's reasonable decision unless plaintiff can show how alleged conflict affected that decision); accord Roberton v. ...


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