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Carlo Novella, On His Own Behalf v. Westchester County

November 3, 2011


The opinion of the court was delivered by: Sack, Circuit Judge:


Novella v. Westchester County

(Argued: March 11, 2009 Final Submission: June 22, 2011

Before: WALKER and SACK, Circuit Judges, KOELTL, District Judge.*fn2

Appeal from four decisions of the United States District Court for the Southern District of New York (Michael B. Mukasey, then-Chief Judge and Barbara S. Jones, Judge), and related judgments, (1) granting the plaintiff Novella's motion for summary judgment, (2) certifying a class action, (3) granting the plaintiff class's motion for summary judgment on the class claims, and (4) awarding prejudgment interest to the named plaintiff and the class members. We agree with the district court that the defendants' interpretation of certain plan language was arbitrary and capricious. Accordingly, we affirm the district court's award of summary judgment to plaintiff Novella on his individual claims for miscalculation of pension benefits. However, we conclude, contrary to the district court, that the six-year statute of limitations applicable to the plaintiff's and each other putative class member's Employee Retirement Income Security Act claims began to run when each pensioner knew or should have known that the defendants had miscalculated the amount of his pension benefits, and that he was being underpaid as a result. We therefore vacate the district court's judgments certifying the plaintiff class, granting summary judgment to the class, and granting prejudgment interest to the class members. We remand for further factfinding with regard to when each putative class member became, or should have become, aware of his alleged injury so as to begin the running of the statute of limitations as applied to him.

AFFIRMED in part; VACATED and REMANDED in part.

This appeal and cross-appeal concern the pension benefits owed to plaintiff Carlo Novella, a retired carpenter, and members of a class he purports to represent. During Novella's three-decade career, he performed jobs for which his employers were obligated, under collective bargaining agreements, to pay into the defendant pension fund on his behalf. But there were multi-year periods -- principally from 1982 to 1986 -- during which Novella did not perform any work requiring his employer to make such a contribution. In 1995, when Novella was nearing his sixty-second birthday, he became disabled as a result of injuries sustained while he was on the job. He applied for, and received, a pension ("Disability Pension"); however, he was disappointed to learn that his benefits were not calculated using the pension rate in effect in 1995, but rather using two different rates for Novella's two periods of service. The rate applicable in 1995 was applied to benefits for work performed between 1987 and 1995, and the lower rate in effect in 1981 was applied to benefits for work performed between 1962 and 1981.

The use of the 1981 rate for the earlier period resulted in a lower aggregate monthly pension payment.

After unsuccessfully seeking administrative redress from the pension fund, Novella filed suit in the United States District Court for the Southern District of New York on his own behalf and on behalf of a class of pensioners whose benefits also were allegedly miscalculated. He asserted that the fund was guilty of seven violations of the Employee Retirement Income Security Act ("ERISA") and sought declaratory and injunctive relief. On cross-motions for summary judgment, the district court agreed with Novella that the defendants -- the pension fund and its trustees -- had erred in calculating his Disability Pension at two different rates. The court did not reach Novella's other claims.

Novella then moved to certify a class action on behalf of either of two classes: one including recipients of various types of pensions whose benefits were calculated using multiple 11 per-credit rates, and the other limited to disability pensioners 12 whose benefits were affected by the same practice. The district 13 court concluded that in light of Novella's success on his 14 individual claims, only the narrower class of disability 15 pensioners was eligible for certification. The court determined 16 that the statute of limitations for the absent class members' 17 claims did not accrue until each class member affirmatively 18 challenged the defendants' two-rate benefit calculation, and was 19 rebuffed. The court found twenty-four putative class members 20 whose claims were timely and determined that this number met the 21 numerosity requirement of Rule 23(a)(1) of the Federal Rules of 22 Civil Procedure. Finding the other requirements of Rule 23(a) 23 and (b) to have been met, the court certified this narrower class 24 of disability pensioners.

The parties then cross-moved for summary judgment on 26 the class claims, which motions the district court referred to a 4 1 magistrate judge. The magistrate judge recommended granting the 2 plaintiff class's motion on the merits and denying the 3 defendants', the latter of which the magistrate judge 4 characterized as an untimely motion for reconsideration of the 5 decision certifying the class. The district court reviewed the 6 magistrate judge's recommendation, adopted it, and entered 7 judgment in favor of the class. The court also awarded 8 prejudgment interest at the fund's assumed annual rate of return 9 to both Novella and the members of the plaintiff class. Both 10 parties appealed.

We agree with the district court that the defendants' use of two rates in calculating disability pensions finds no support in the language of the fund's controlling documents -- the Summary Plan Description and the Rules of the Pension Plan.

We therefore affirm the district court's judgment in Novella's favor on his individual claims. We also affirm its award of prejudgment interest to Novella, and its setting of the rate and date of accrual for the award. However, we conclude that the district court erred in identifying the time at which a claim for miscalculation of benefits accrues. In light of our view that such a claim accrues when the pensioner knew or should have known that his benefits were miscalculated, we vacate the certification of the class, the judgment in favor of the class, and the award of prejudgment interest to the class members, and remand the case for further proceedings before the district court.

These proceedings may include a case-by-case inquiry into when each putative class member knew or had sufficient information so that he should have known that the defendants were using two different rates to calculate his pension.


Factual History

The relevant facts are not in dispute.

The plaintiff, Carlo Novella, is a 78-year-old former carpenter. From 1962 through 1995, he worked in Westchester County, New York, and in New York City, and participated in both the defendant Westchester County, New York Carpenters' Pension Fund (the "Westchester Fund" or the "Fund")*fn3 -- which is administered by the defendant eight-member Board of Trustees of the Fund -- and the New York City District Council of Carpenters Pension Plan. It is Novella's pension under the Westchester Fund -- which is an employer-funded employee pension benefit plan within the meaning of ERISA, see 29 U.S.C. § 1002(2)(A) -- that is at issue in this appeal. Novella's pension benefits under the Fund are determined by the Pension Fund Rules (the "Plan") and Summary Plan Description (the "SPD")*fn4 , which have been in effect and unchanged since January 1, 1986. The Plan creates six classes of benefits, four of which are pension-type allowances:

"Regular Pension" benefits, governed by sections 3.02-3.03 of the Plan; "Early Retirement Pension" benefits, governed by sections 3.04-3.05 of the Plan; "Deferred Pension" benefits, dictated by sections 3.06-3.07 of the Plan; and "Disability Pension" benefits, as set forth in sections 3.08-3.11 of the Plan.*fn5 See J.A. 151-54.*fn6 Each participant is entitled to only one type of benefit, "except that a Disability Pensioner who recovers [from his disabling injury] may be entitled to a different type of pension." Id. at 155.

Fund participants earn pension credits based on the number of hours they serve in jobs that are covered by the Plan.

A job constitutes "Covered Employment" if the employer is benefits becomes vested, when and in what form benefits are paid, and how to file a claim for benefits." U.S. Dep't of Labor, ERISA - Plan Information, "obligated by its [collective bargaining] agreement to contribute to the Fund" on behalf of the relevant Plan participant. Id. at 146. Novella has had two periods of covered employment: from 1962 through 1981,*fn7 during which time he earned 13.20 pension credits, and from 1987 to 1995, during which time he earned an additional 6.30 pension credits.*fn8 In the years between 1982 and 1986, Novella performed work in New York City, which was covered by the New York City Fund -- not a party to this action -- but he did not perform any work covered by the defendant Westchester Fund.

On March 22, 1995, Novella, then sixty-one years old, suffered a disabling accident while at work, for which he immediately began to receive workers' compensation. He also applied to the Fund for pension benefits. To calculate the amount of Novella's monthly pension, the defendants used two different rates: They applied a rate of $17 per credit to the 13.20 pension credits Novella earned between 1962 and 1981, and a second rate of $40 per credit for the credits he earned between 1987 and 1995.

Immediately after receiving notice in fall 1995 that his pension would be calculated using two different rates, Novella asked the Fund trustees for an explanation of his benefits. The defendants explained to him that the two-rate calculation was appropriate because of the break in his covered service from 1982 through 1986, during which time he performed no work covered under the Westchester Plan.

The defendants denied Novella's repeated appeals from 7 the two-benefit rate calculation, referring Novella to section 8 3.07 of the Westchester Plan, which applies to Deferred Pensions.*fn9 9 By letter dated August 28, 1997, the defendants explained that 10 under that section of the Plan, 11 a Deferred Pension is calculated based on the 12 rate in effect on the last day you worked in 13 Covered Employment prior to the accumulation 14 of three One-Year Breaks in Service. . .

Since each of the years you were not working in covered employment was a Break in Service,*fn10 the credits you had accumulated up to 1981 when you left covered employment under the Plan (13.20) were calculated at the 1981 rate ($17.00).

Section 3.07 also provides that if any additional credits were earned after the Break in Service, the benefit amount for the additional credits shall be calculated on the rate that was in effect at the time of termination. The credits you earned after the Break in Service (6.30) were calculated at the rate in effect when you terminated ($40.00).

J.A. 194. Although Novella was awarded a Disability Pension, not a Deferred Pension, the letter did not cite the sections of the Plan governing Disability Pensions: sections 3.08 to 3.11.

The letter also failed to cite section 3.16 of the Plan, entitled "Application to Benefit Increases," on which the defendants would later rely in this litigation. Id. at 156. Section 3.16 provides that a Fund participant is entitled to a Pension in an amount to be "determined under the terms of the Plan and [at] the benefit level as in effect at the time the Participant last separates from Covered Employment." Id. Under section 3.16, "[a Plan p]articipant shall be deemed to have last separated from Covered Employment on the last day of Work which is followed by three consecutive calendar years of less than 1,000 hours of Covered Employment in each year." Id.

Procedural History

On March 19, 2002, having contested the two-rate calculation through the Fund's administrative review process and having failed to obtain relief, Novella filed suit in the United States District Court for the Southern District of New York against the defendant Fund and its Board of Trustees, asserting violations of ERISA, and seeking declaratory and injunctive relief.*fn11 He filed an amended complaint on October 27, ...

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