Stephens v. Retirement Income Plan for Pilots of US Air

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

File Name: 06a0352p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

_________________

JAMES C. STEPHENS, FLOYD G. STEPHENS, RICHARD X

-

Plaintiffs-Appellants, -

MAHONEY, DONALD V. NIPPERT,

-

-

No. 01-3913

,

v. >

-

RETIREMENT INCOME PLAN FOR PILOTS OF U.S. AIR, -

-

Defendant-Appellee. -

INC.,

-

N

Appeal from the United States District Court

for the Northern District of Ohio at Cleveland.

No. 00-00144—Dan A. Polster, District Judge.

Argued: July 19, 2006

Decided and Filed: September 13, 2006

Before: MARTIN, and RYAN, Circuit Judges; MARBLEY, District Judge.*

_________________

COUNSEL

ARGUED: J. Bruce Bennett, CARDWELL, HART & BENNETT, Austin, Texas, for Appellants.

Jean Marie Breen, OFFICE OF THE CHIEF COUNSEL, PENSION BENEFIT GUARANTY

CORPORATION, Washington, D.C., for Appellee. ON BRIEF: J. Bruce Bennett, CARDWELL,

HART & BENNETT, Austin, Texas, for Appellants. Jean Marie Breen, OFFICE OF THE CHIEF

COUNSEL, PENSION BENEFIT GUARANTY CORPORATION, Washington, D.C., Karen M.

Wahle, Tom A. Jerman, O’MELVENY & MYERS, Washington, D.C., for Appellee.

_________________

OPINION

_________________

BOYCE F. MARTIN, JR., Circuit Judge. Former pilots of US Airways, represented in this

class action by James Stephens and three other former pilots, brought a suit in district court against

both their former employer, US Airways, and their pension plan, the US Airways Retirement Plan

for Pilots. The pilots alleged six different causes of actions against the airline and the retirement

plan under provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”),

*

The Honorable Algenon L. Marbley, United States District Judge for the Southern District of Ohio, sitting by

designation.

1

No. 01-3913 Stephens, et al. v. Retirement Income Plan Page 2

for Pilots of U.S. Air

29 U.S.C. §§ 1001-1169. The district court dismissed all causes of action for lack of subject matter

jurisdiction based on arguments stemming from the Railway Labor Act, 45 U.S.C. § 151 et seq. The

pilots now appeal that dismissal.1 Based on the following discussion, we affirm in part and reverse

in part the district court’s decision.

I.

US Airways is a large commercial airline. The pilots are all former employees of US

Airways and are participants in the Retirement Plan. The Retirement Plan is part of a broader

collective bargaining agreement between US Airways and the Pilots’ representative labor group, the

Air Line Pilots Association. Section 10.5 of the Retirement Plan entitled the Pilots to receive a lump

sum distribution of their pension benefit. This lump sum was an alternative to the normal method

of payment of retirement benefits, a joint and survivor annuity. The Plan states that it will pay a

participant’s “normal retirement amount commencing on the first day of the month coinciding with

or next following his Normal Retirement Date.” The Plan defines the normal form of payment as

the annuity option. The Normal Retirement Date is the date on which the participant turns sixty

years old.

Around 1994, US Airways and the Air Line Pilots Association orally agreed that US Airways

could withhold payment of the lump sum benefit for up to forty-five days after the retiring pilot’s

normal benefit commencement date without paying the retiree the interest accrued during that time.

US Airways claims it needs the forty-five days in order to calculate the exact amount owed to the

retiree.2

In October 1996, Jim Stephens notified US Airways that he would turn sixty on November

25, 1996, that he wished to retire effective December 1, 1996, and that he was electing to receive

his pension benefit in a lump sum amount. The amount of his benefit was $488,477.22 as of

December 1, 1996. US Airways paid Jim Stephens that amount on January 14, 1997. According

to Stephens, he would have accrued $14,740 in interest over the period of delay. Stephens requested

payment of the amount of lost interest. That request was denied by US Airways. Stephens appealed

this decision to the Retirement Board.

Pursuant to Section 184 of the Railway Labor Act, 45 U.S.C. § 184, and Section 14.3 of the

Retirement Plan, US Airways and the Pilots Association created the Retirement Board. The

Retirement Board has the power to “hear and determine all disputes which may properly arise out

of the application and interpretation of the [Retirement Plan].” It is comprised of four members, two

US Airways representatives and two Pilots Association representatives. If the four members are

deadlocked on an issue, an “Impartial Referee” is brought in to break the tie.

The four member Retirement Board was deadlocked on Stephens’s appeal. The Impartial

Referee voted to deny Stephens’s claim. The Board held that US Airways and the Pilots Association

came to an oral agreement in 1994 answering the question of whether interest would be paid on the

forty-five day delay of payment in the negative. The Board’s opinion, written by the impartial

arbitrator, relies heavily on this oral agreement along with strong historical evidence in favor of US

1

The parties agreed to the dismissal of US Airways as a party while this appeal was pending.

2

US Airways states the calculation of the lump sum amount involves the pilot’s highest average earnings over

a consecutive thirty-six month period during the 120 months immediately preceding the pilot’s retirement date. Because

the computation must wait for the pilot’s last month of pay to be available (which takes place on the 18th of the month

following their retirement) the forty-five day delay is allegedly necessary and unavoidable.

No. 01-3913 Stephens, et al. v. Retirement Income Plan Page 3

for Pilots of U.S. Air

Airways in that around 780 lump sum payments have been made to pilots since 1989 without interest

paid to the recipients.

II.

The pilots, through Stephens and three other representatives filed this class action lawsuit

on January 18, 2000. The pilots asserted six claims for relief under ERISA: (1) a claim for benefits

under 29 U.S.C. § 1132(a)(1)(B); (2) a claim for equitable relief under 29 U.S.C. § 1132(a)(3)(B);

(3) a claim for equitable relief for alleged violations of 29 U.S.C. §§ 1054(c)(3) and 1055; (4) a

claim against US Airways for breach of fiduciary duty pursuant to 29 U.S.C. §§ 1104(a)(1)(A) and

(B); (5) a claim against US Airways for breach of fiduciary duty for alleged violations of 29 U.S.C.

§ 1022; and (6) a claim against US Airways for breach of fiduciary duty for alleged violations of

29 U.S.C. §§ 1104(a)(1)(A) and (B). Specifically, the pilots asserted that the oral agreement in

question was void under ERISA and that the Retirement Plan, as interpreted by the Retirement

Board, violated ERISA. These violations led to the breach of fiduciary duty and equitable relief pled

in the above claims.

The district court dismissed the suit for lack of subject matter jurisdiction. The district court

held that each claim required an interpretation of the Retirement Plan, which was a matter of

exclusive jurisdiction for the Retirement Board under the Railway Labor Act. The pilots now appeal

that decision before this Court.

The pilots characterize their appeal as two separate issues: first, whether dismissal for lack

of subject matter jurisdiction was appropriate; and second, whether the Retirement Board has

exclusive jurisdiction over the claims. Because the district court held that it was because of the

exclusive jurisdiction of the Retirement Board that the district court itself did not have proper

subject matter jurisdiction, these arguments are part and parcel of the same broader issue: did the

district court lack subject matter jurisdiction in this matter.

III.

A. Standard of Review

This Court reviews a district court’s dismissal for lack of subject matter jurisdiction de novo.

Janis v. Ashcroft, 348 F.3d 491, 492 (6th Cir. 2003).

B. Railway Labor Act

Enacted in 1926, the Railway Labor Act (“RLA”) was designed to “avoid any interruption

to commerce or to the operation of any [railroad] engaged therein” caused by labor-management

disputes. 45 U.S.C. § 151a(1); see also H.R.Rep. No. 328, at 1 (1926) (noting that the Act would

ensure “continuity and efficiency of interstate transportation service, and [] protect the public from

the injuries and losses consequent upon any impairment or interruption of interstate commerce

through failures of managers and employees to settle peaceably their controversies”). In 1936,

Congress extended the Act to “every common carrier by air engaged in interstate or foreign

commerce.” 45 U.S.C. § 181.

In an attempt to prevent labor disputes from crippling freight and passenger delivery in the

railway and airline industries, the Railway Labor Act divides labor disputes into four categories:

(1) representation disputes, (2) major disputes, (3) minor disputes and (4) collateral disputes

governed by independent state or federal laws. Int’l Bhd. of Teamsters, AFL-CIO v. United Parcel

Serv. Co., 447 F.3d 491, 495 (6th Cir. 2006). The district court, in this case, characterized the

disputes brought by the pilots as minor disputes.

No. 01-3913 Stephens, et al. v. Retirement Income Plan Page 4

for Pilots of U.S. Air

C. Minor Disputes

A minor dispute “contemplates the existence of a collective agreement . . . The dispute

relates either to the meaning or proper application of a particular provision with reference to a

specific situation or to an omitted case [from that agreement].” Elgin, Joliet & E. Ry. Co. v. Burley,

325 U.S. 711, 723 (1945); see also Hawaiian Airlines v. Norris, 512 U.S. 246, 252-54 (1994)

(“[M]inor disputes[] grow out of grievances or out of the interpretation or application of agreements

covering rates of pay, rules, or working conditions. Minor disputes involve controversies over the

meaning of an existing collective bargaining agreement in a particular fact situation . . . [they]

develop from the interpretation and/or application of the contracts between the labor unions and the

carriers . . . [and] pertain[] only to disputes invoking contract-based rights.”) (internal quotation

marks and citations omitted); cf. Conrail v. Ry. Labor Executives' Ass'n, 491 U.S. 299, 302 (1989)

(“This Court . . . adopted the major/minor terminology, drawn from the vocabulary of rail

management and rail labor, as a shorthand method of describing two classes of controversy Congress

had distinguished in the RLA: major disputes seek to create contractual rights, minor disputes to

enforce them.”); id. at 307 (“Where an employer asserts a contractual right to take the contested

action, the ensuing dispute is minor if the action is arguably justified by the terms of the parties’

collective-bargaining agreement. Where, in contrast, the employer’s claims are frivolous or

obviously insubstantial, the dispute is major.”). Stated another way, this Court has defined a claim

as “minor” if “the disputed action of one of the parties can ‘arguably’ be justified by the existing

agreement or, in somewhat different statement, if the contention that the labor contract sanctions the

disputed action is not obviously insubstantial.” Stephens v. Norfork and W. Ry., 792 F.2d 576, 580

(6th Cir. 1986) (internal quotation marks and citations omitted).

To address “minor disputes,” Congress amended the Railway Labor Act in 1934 to give the

National Railroad Adjustment Board power to settle such disputes definitively. Burley, 325 U.S.

at 726-27. After the 1934 amendments, if either party filed a “minor” dispute with the Board, the

Board had “exclusive primary jurisdiction” to issue a decision that was binding as to both parties.

Pa. R.R. Co. v. Day, 360 U.S. 548, 550 (1959) (noting that “the National Railroad Adjustment Board

ha[s] exclusive primary jurisdiction over disputes between unions and carriers based on the

provisions of a collective bargaining agreement”).

In this case, the question of whether the district court has subject matter jurisdiction over the

counts brought by the pilots turns on whether each count constitutes a “major” or “minor” dispute.

If the issue is a “minor dispute,” the Retirement Board holds exclusive jurisdiction over that claim

and the district court cannot have subject matter jurisdiction. If the issue is a “major dispute,” the

Retirement Board may not decide the issue and the district court is the appropriate court in which

to raise the claim (assuming that the claims involved raise a question of federal law, which these

claims do).

D. Application to the Airline Industry

In 1936, Congress extended most of the obligations and rights established by the Railway

Labor Act to the airline transport industry, requiring the parties to use “system, group, or regional

boards of adjustment,” instead of the National Railroad Adjustment Board, to resolve minor

disputes. Int'l Ass'n of Machinists v. Cent. Airlines, Inc., 372 U.S. 682, 686 (1963). Congress gave

the system boards the same exclusive jurisdiction over “minor disputes” in the airline industry that

the National Railroad Adjustment Board has over such disputes in the railroad industry. 45 U.S.C.

§ 184 (noting that minor disputes “shall be handled in the usual manner up to and including the chief

operating officer of the carrier designated to handle such disputes; but, failing to reach an adjustment

in this manner, the disputes may be referred by petition of the parties or by either party to an

appropriate adjustment board”); see also Hawaiian Airlines, 512 U.S. at 258. Save for relying on

No. 01-3913 Stephens, et al. v. Retirement Income Plan Page 5

for Pilots of U.S. Air

system boards rather than the National Railroad Adjustment Board as the forum for minor-dispute

resolution, the Act makes the resolution process and its applicability to minor disputes identical for

the airline and railway industries. Cent. Airlines, 372 U.S. at 689 (“The statute directed that minor

disputes be handled on the property in the usual manner, but failing adjustment either party could

take the matter to the adjustment board, which was to hear and decide it. This provision is applicable

both to rail [] and air [] carriers.”). It is undisputed that the Retirement Board in this case is a valid

system board.

E. The Pilots’ Arguments

The pilots argue that the issues brought in their class action suit were not “minor” as

categorized by the district court, and that their suit instead raises “major” issues. “Major disputes”

are “those arising out of the formation or change of collective bargaining agreements covering rates

of pay, rules, or working conditions.” Atchison, Topeka & Santa Fe R.R. Co. v. Buell, 480 U.S. 557,

562-63 (1987) (internal quotation marks and brackets omitted). Under the Railway Labor Act, no

arbitral boards (such as the Retirement Board) have jurisdiction over “major disputes” and,

therefore, no exclusive jurisdiction bar would prevent the district court from hearing the case.

United Transp. Union v. Cuyahoga Valley Ry. Co., 979 F.2d 431, 435 (6th Cir. 1992). The pilots

argue that their ERISA claims involve the application of an oral agreement between US Airways and

the Air Line Pilots Association to the Retirement Plan and this oral agreement was a change to the

collectively bargained for Retirement Plan. It appears to be undisputed by the parties and clear from

the plain language of the Retirement Board’s opinion that it relied heavily on the oral agreement in

coming to its final decision on Stephens’s claim. Jurisdiction in this case turns on how this Court

chooses to characterize the oral agreement in light of the Retirement Board’s decision.

The pilots argue that the mere inclusion of the oral agreement as binding on the application

of the Retirement Plan, no matter what interpretation is given to the agreement or the Plan, is a

violation of ERISA. Because the Retirement Board treated the oral agreement as a binding

alteration, they claim that this dispute qualifies as a “major dispute.” US Airways counters that

argument by stating that the Retirement Board merely used the oral agreement as further evidence

on how to interpret the language already within the Retirement Plan. The Plan is silent as to how

to determine when a lump sum payment must be paid and whether interest must be paid on that

amount based on any delay by US Airways. Therefore, according to US Airways, the Retirement

Board had to take any evidence it could find, including the oral agreement and historical evidence

(about 780 lump sum payments had been made in a delayed manner without interest between 1989

and 1999) in order to properly interpret the existing Retirement Plan.

F. Retirement Board’s Opinion

There is a close question of how to characterize the oral agreement. Below are the relevant

portions of the Retirement Board’s opinion:

[T]his decision is based on my construction of the applicable provisions of the Pilot

Retirement Income Plan (hereinafter the Plan) and the parties’ collective bargaining

agreement.

...

I point out that the Company and [the Pilots Association] have bargained to

agreement over various provisions incorporated into the Plan, and, clearly, they have

the authority to reach an understanding on whether or not interest should be paid on

lump sum distributions.

The Company contends that it and [the Pilots Association] reached an

agreement in early 1994 on this issue and resolve that interest would not be paid on

No. 01-3913 Stephens, et al. v. Retirement Income Plan Page 6

for Pilots of U.S. Air

lump sum distributions made within 45 days following a pilot’s retirement and that

interest on such distributions would be paid at the current interest rate commencing

with the 46th day until such time as payment was received. The evidence introduced

at the arbitration hearing supported this contention. Steve Weidenmuller, Pension

Director, testified that in early 1994 [US Airways] and [the Pilots Association]

reached an oral understanding described above. . . . Additionally, the parties

renegotiated their collective bargaining agreement in 1997, and there was no

evidence of any change in the parties’ joint understanding concerning interest on

lump sum distributions.

...

In view of the parties’ understanding that interest will not be paid on lump

sum distributions paid within 45 days following the commencement date of a pilot’s

retirement and in view of the fact that the lump sum payment was made to the

claimant here within 45 days of the effective date of the claimant’s retirement, the

claim for interest must be denied.

From this discussion, it is this Court’s understanding that the Retirement Board took the oral

agreement as part and parcel of the collective bargaining agreement. There is no attempt to interpret

the language of the Retirement Plan and how the oral agreement fits into that language, as is argued

by US Airways. Instead, the Retirement Board simply took that agreement as another section of the

collectively bargained for Retirement Plan as they held that US Airways and the Pilots Association

“have the authority to reach an understanding on whether or not interest should be paid on lump sum

distributions” and used that authority in coming to the oral agreement. It is the existence of the

agreement which the pilots are arguing about, not any interpretation of the collective bargaining

agreement. While the Retirement Board does limit its decision to its “construction of the applicable

provisions of the Pilot Retirement Income Plan . . . and the parties’ collective bargaining

agreement,” we believe it went beyond those borders in regarding the oral agreement as part of those

documents. While the employer bears a “relatively light burden” in establishing that a disputed

action is “arguably justified” and subject to exclusive arbitral jurisdiction under the Railway Labor

Act, Conrail, 491 U.S. at 306-07, we agree with the pilots’ characterization of the oral agreement.

G. US Airways’s Arguments

US Airways argues that any attempt to characterize the oral agreement as illegal under

federal law requires an interpretation of the Retirement Plan in order to determine if the oral

agreement is contradictory to that language. That is incorrect. The oral agreement may be assumed

to fully comply with the Retirement Plan and still be potentially illegal based on federal law. In this

case, the pilots contend that the Retirement Plan violates ERISA due to its delay in payment of the

lump sum and failure to pay interest on the amount once payment is tendered and they, facially,

appear to have reasonable claims.3

Additionally, we fear that ruling for US Airways in this case could lead to troubling results

in future cases. If the pilots cannot bring their claims to the district court based on subject matter

jurisdiction then it creates a potentially dangerous end-around ERISA’s limitations on collectively-

bargained-for provisions. A company and labor association could be silent as to an issue in their

written agreement, then make an oral agreement as to the outcome of the issue which potentially

violates federal law. Then, the arbitral board decides the oral agreement is proof as to how the

3

Because this case is brought to this Court having been dismissed based on subject matter jurisdiction, we need

not and cannot decide the merits of the pilots’ claims.

No. 01-3913 Stephens, et al. v. Retirement Income Plan Page 7

for Pilots of U.S. Air

silence should be interpreted, insulating the decision as a “minor dispute” and keeping it away from

federal courts.

In this case, US Airways embraces this potential reality by arguing that the Retirement Plan

includes a provision that if the plan is silent or ambiguous on an issue, then US Airways has “the

sole right to interpret and construe the Plan” and its decision may only be reviewed by the

Retirement Board. This provision may have not been intended to do so, but it has the potential result

of providing US Airways with the means of allowing all questions, including those implicating

federal law, to be under the exclusive jurisdiction of the Retirement Board.

H. Counts I, II, and V

The above discussion addresses the subject matter jurisdiction concerns for Counts I and II

(alleging violations of 29 U.S.C. §§ 1132(a)(1)(B) and (a)(3)(B) in adopting the oral agreement

rather than the terms of the written Retirement Plan), and Count V (alleging that the result of the

Retirement Board’s decision – the withholding of the lump sum payment and retaining the interest

– violates US Airways’s fiduciary duty to the pilots under 29 U.S.C. §§ 1104(a)(1)(A) and (B)).

Based on the above discussion, we reverse the district court’s dismissal based on lack of subject

matter jurisdiction as to these three counts.

I. Counts IV and VI

Counts IV and VI allege violations of 29 U.S.C. § 1132(a)(3) stemming from US Airways

not distributing the lump sum payments as promised in either the Retirement Plan or the Summary

Plan Description. Both of these claims appear to argue that the Retirement Board’s final result was

inconsistent with the documents it was charged to interpret. These claims are separate and

independent, despite the pilots’ arguments to the contrary, from whether the oral agreement was

illegal, and specifically ask the district court to interpret the Retirement Plan and the Summary Plan

Description in order to determine if there actually is a conflict between those documents and the

Retirement Board’s final result. Therefore, we hold that these two claims are “minor disputes” and

subject to the exclusive jurisdiction of the Retirement Board. See Hawaiian Airlines, 512 U.S. at

258.

J. Count III

Finally, Count III alleges that US Airways breached its duty under 29 U.S.C. § 1054(c)(3)

to ensure that the retired pilots’ lump sum benefits were the actuarial equivalent of the normal

annual benefits under the Plan. The district court dismissed this cause of action because there was

no clear federal statutory directive for such a claim and the claim is “inextricably intertwined” with

the collective bargaining agreement and the Retirement Plan. Section 1054(c)(3) states

For purposes of this section, in the case of any defined benefit plan, if an employee’s

accrued benefit is to be determined as an amount other than an annual benefit

commencing at normal retirement age, or if the accrued benefit derived from

contributions made by an employee is to be determined with respect to a benefit

other than an annual benefit in the form of a single life annuity (without ancillary

benefits) commencing at normal retirement age, the employee’s accrued benefit, or

the accrued benefits derived from contributions made by an employee, as the case

may be, shall be the actuarial equivalent of such benefit or amount determined under

paragraph (1) or (2).

The district court, in its discussion of Count III, then argued the merits of this claim discussing if

Treasury Regulations applied to the claim, “whether case law offers support for Plaintiffs’ position

No. 01-3913 Stephens, et al. v. Retirement Income Plan Page 8

for Pilots of U.S. Air

that a 45-day delay in payment is unreasonable,” and whether case law provides the employer the

discretion to determine what is “the actuarial equivalent.” Upon finding these all went against the

pilots, the district court dismissed the claim based on subject matter jurisdiction.

The district court’s discussion appears to be a review of the merits of the pilots’ claim rather

than an evaluation as to whether the district court had subject matter jurisdiction. See Steel Co. v.

Citizens for a Better Environment, 523 U.S. 83, 94-95 (1998) (holding that federal courts must

assure themselves that they have subject matter jurisdiction before addressing the merits of a suit).

The question of subject matter jurisdiction appears to begin and end with the language of the statute:

an alternate form of benefit payment “shall be the actuarial equivalent” of the normal benefit

amount. 29 U.S.C. § 1054(c)(3). Assuming the interpretation of the Retirement Plan by the

Retirement Board is correct, there is still a question of whether the amount is appropriate as required

by federal statute. This claim does not involve the interpretation of the collective bargaining

agreement by the Board but its ultimate result. Stephens (and those similarly situated) have been

given their lump sum amount and it is within the federal subject matter jurisdiction to hear a claim

questioning whether that final amount is permissible under Section 1054(c)(3). Therefore, we find

that subject matter jurisdiction is appropriate for this claim and reverse the district court.

IV.

Based on the above discussion, we reverse the district court and hold that there is appropriate

subject matter jurisdiction for Counts I, II, III, and V. For Counts IV and VI, we affirm the district

court’s dismissal based on a lack of subject matter jurisdiction.