Thomas Menhorn v. Firestone Tire & Rubber Co.

FERGUSON, Circuit Judge,

dissenting:

I dissent. The majority denies federal court access to employee benefit plan participants whose pension claims have been or will be denied after ERISA’s effective date when their claims are denied because of acts or omissions that occurred prior to 1975. This result is contrary to the law of this circuit, as well as to the express provisions of ERISA, and frustrates congressional intent of providing ready access to the federal courts to enforce pension claims.

Title 29, section 1132(a)(1)(B) of the United States Code provides that a civil action may be brought by a participant or beneficiary “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” Such an action may be brought in either state or district court. 29 U.S.C. § 1132 (e)(1). The majority, however, nullifies this express grant of concurrent federal jurisdiction via the preemption provisions of 29 U.S.C. § 1144 (b)(1).

The majority’s mistake is its attempt to construe ERISA’s preemption provision coextensively with federal jurisdiction. The preemption provision of section 1144 governs courts’ choice-of-law decisions in pension claims. It does not define the bounds of federal jurisdiction and was never intended to.

While I agree with the majority that the federal court has no jurisdiction under ERI-SA to hear a pension claim in which the cause of action arises prior to January 1, 1975, I cannot conclude that when a cause of action arises after ERISA’s effective date, federal jurisdiction is precluded because the claim is denied on the basis of pre-ERISA acts or omissions. A cause of action that arises prior to ERISA’s effective date does not “arise under” a federal statute and thus, absent diversity, there is no federal jurisdiction. U.S. Const, art. Ill, § 2, cl. 1; 28 U.S.C. § 1331 . In this case, however, Menhorn’s cause of action arose in 1980, the year in which he applied for *1506 and was denied pension benefits. See Paris v. Profit Sharing Plan, etc., 637 F.2d 357, 361 (5th Cir.), cert. denied, 454 U.S. 836 , 102 S.Ct. 140 , 70 L.Ed.2d 117 (1981); Winer v. Edison Bros. Stores Pension Plan, 593 F.2d 307, 312 (8th Cir.1979); Morgan v. Laborers Pension Trust Fund, 433 F.Supp. 518 , 522 n. 5 (N.D.Cal.1977). Menhorn’s cause of action thus arose under a federal statute, and the district court had subject matter jurisdiction. See 1974 U.S. Code Cong. & Ad.News 5188 (“It is intended that [a suit brought to recover benefits under the terms of a plan] will be regarded as arising under the laws of the United States.”) (comment of Senator Harrison Williams).

In holding that the district court had no jurisdiction over Menhorn’s claim because it was denied by Firestone on the basis of a pre-1975 act, the majority expressly disregards the law of this circuit that ERISA permits federal courts to interpret pension plans in light of pre-ERISA state law rights irrespective of when the material events concerning the claim took place. In Terpinas v. Seafarer’s Intern. Union of N. America, 722 F.2d 1445 (9th Cir.1984), we held that:

The legislative history of ERISA indicates that by [ 29 U.S.C. § 1132 (a)(1)(B)] Congress intended to create a body of federal common law governing pension rights which would augment the rights created by ERISA’s substantive provisions. Woodfork v. Marine Cooks & Stewards Union, 642 F.2d 966, 972-73 (5th Cir.1981). This body of federal common law allows a court to “interpret a pension plan’s terms in light of a worker’s pre-ERISA state law rights.” Woodfork, supra, at 973 . Accordingly, [the plaintiff] may assert his substantive rights in the pre-ERISA plan pursuant to California law “as part of a judicially created body of federal law governing pension entitlement.” Id.

Id. at 1447. The Woodfork court held that “a cause of action arising after January 1, 1975, is an ERISA claim even though it may be founded in part on earlier occurrences.” Woodfork, 642 F.2d at 970 . This construction of ERISA’s preemption and jurisdictional provisions has been correctly applied by other courts. In Landro v. Glendenning Motorways, Inc., 625 F.2d 1344 (8th Cir.1980), participants brought suit under the civil enforcement provision of ERISA. The court assumed subject matter jurisdiction, but applied state law to evaluate the propriety of pre-ERISA acts and omissions. Similarly, in Bacon v. Wong, 445 F.Supp. 1189, 1192-93 (N.D.Cal.1978), the district court assumed jurisdiction under ERISA when the cause of action arose after January 1, 1975, but applied California law to pre-ERISA acts and omissions pursuant to ERISA’s preemption exceptions.

Thus, in examining Firestone’s denial of Menhorn’s pension claim in 1980, section 1144 precludes us from retroactively applying ERISA’s prohibition against break-in-service rules, see 29 U.S.C. § 1053 , to Firestone’s pre-ERISA plan. The fiduciary conduct of Firestone as trustee in 1980 is evaluated in light of the fact that in 1967 it was permissible under state law for an employee to lose his pension benefits because of a break in service. We are not enforcing state law; rather we are evaluating the fiduciary conduct of a trustee under ERISA “without judging the conduct of affected persons by standards different from those which applied when they acted.” Bacon v. Wong, 445 F.Supp. at 1192 . See Paris v. Profit Sharing Plan, etc., 637 F.2d at 360 (“The January 1,1975, effective date of 29 U.S.C.A. § 1144 means that the defendants cannot be held liable for damages arising from acts committed in 1974 so long as those acts comported with state law as it then existed.”).

Extending federal jurisdiction over Men-horn’s cause of action does not furnish a federal forum for enforcing state law. See majority opinion, supra, at 1505. The Article III concerns expressed by the majority have been discussed only in those cases concerned with providing a federal forum to a cause of action which arose prior to ERISA’s enactment. Those concerns do not apply when, as here, the cause *1507 of action arises after ERISA’s effective date. “Providing a federal forum for causes of action arising after January 1, 1975 raised fewer constitutional implications, even though it was still possible the cause might be based primarily on events occurring before 1975.” Woodfork v. Marine Cooks & Stewards Union, 642 F.2d at 972 n. 6.

Rather than follow this common-sense interpretation of the preemption provisions of ERISA, the majority holds that certain pre-ERISA “acts or omissions” may instead preclude federal subject matter jurisdiction. Only one circuit opinion cited by the majority, however, actually holds that when a cause of action arises after January 1, 1975, ERISA jurisdiction may nonetheless be barred by pre-1975 acts or omissions. See Quinn v. Country Club Soda Co., Inc., 639 F.2d 838 (1st Cir.1981). The remainder of the decisions lend no support to the majority approach because they either uphold ERISA jurisdiction or bar federal jurisdiction because the cause of action arose prior to 1975.

Quinn is distinguishable from the present case because Quinn was neither a participant in nor a beneficiary of the defendant pension plan, a fact of which he was repeatedly and consistently informed. See 639 F.2d at 841 . ERISA jurisdiction over private civil actions to enforce ERISA pension rights extends only to participants and beneficiaries of a plan. 29 U.S.C. § 1132 (a)(1)(B). There is no dispute that Menhorn was a participant in Firestone’s pension plan and, as such, he had standing to bring an ERISA action to enforce his' rights under the plan.

Nor does this circuit’s recent decision in Freeman v. Jacques Orthopaedic & Joint Implant Surg., 721 F.2d 654 (9th Cir.1983) provide support for the majority holding. Freeman challenged the validity of his waiver of the right to participate in a pension plan, alleging that the waiver had been procurred through fraudulent misrepresentations made in 1971 regarding the cost of participation in the plan. The opinion does not indicate whether Freeman ever made a claim for benefits under the plan, or if he did, when it was made. Nor does the court state when Freeman discovered the alleged fraud. Thus, there is absolutely no finding by the court that Freeman’s cause of action arose after ERISA’s effective date. Further, Freeman admittedly was not a participant in the defendant pension plan, and thus, the district court lacked ERISA jurisdiction over his claim.

The approach taken by the majority and by the First Circuit in Quinn is inconsistent with ERISA’s express grant of concurrent jurisdiction to the federal courts to enforce pension claims, 29 U.S.C. § 1132 (e)(1), and at odds with the Act’s stated, purpose of “providing ... ready access to the Federal courts.” Id. § 1001(b). It also ignores congressional intent that the exceptions to ERISA’s preemption provisions be narrowly construed:

It should be stressed that with the narrow exceptions specified in the bill, the substantive and enforcement provisions ... are intended to preempt the field for Federal regulations, thus eliminating the threat of conflicting or inconsistent State and local regulation of employee benefit plans.

1974 U.S.Code Cong. & Ad.News 4639, 5188 (comments of Senator Williams).

Presumably, had Menhorn’s employment not terminated, the majority approach would also deny Menhorn his right to a federal forum to clarify his rights under Firestone’s pension plan if the clarification he sought was what effect his 1967 break-in-service would have on his pension rights. Such a construction is at odds with ERI-SA’s express provision of a federal forum to clarify a participant’s right to future pension benefits. See 29 U.S.C. § 1132 (a)(1)(B).

Further, if Menhorn chooses to proceed in state court, that court will be required to evaluate Firestone’s conduct in 1980, when Menhorn’s claim was denied. I assume that the majority does not dispute that in ruling on Firestone’s post-1974 conduct, the federal standards of ERISA must be applied. Thus, the majority commits to the *1508 state courts the duty to apply federal law in ruling on Menhorn's claim. The majority, however, ironically denies federal courts the power to apply this same federal body of regulation.

Even under the majority’s theory of ERI-SA jurisdiction, however, the opinion errs in concluding that Menhorn’s cause of action is based wholly on events occurring before the effective date. Menhorn alleges that Firestone violated the fiduciary duties established by ERISA, see 29 U.S.C. § 1104 (a)(1), in the handling and disposition of his claim. Firestone’s conduct in processing Menhorn’s claim in 1980 is subject to ERISA’s fiduciary standards. See Russell v. Massachusetts Mutual Life Ins. Co., 722 F.2d 482, 488 (9th Cir.1983) (“ERISA regulates fiduciary conduct ... in the handling and disposition of claims.”); Paris v. Profit Sharing Plan, etc., 637 F.2d at 360-61 (“The action the plaintiffs protest, and the one we must review, is the trustee’s 1975 interpretation of the Profit Sharing Plan. Only with that decision did it become clear that the plaintiffs would be denied benefits.”) (footnote omitted); Gordon v. ILWU-PMA Benefits Fund, 616 F.2d 433, 437-38 (9th Cir.1980) (“The trustees’ denial of the estate’s claim occurred after January 1, 1975; therefore, at the time of the denial, the trustees’ actions were subject to ERISA’s fiduciary standards.”). When Menhorn applied for benefits in 1980, his claim was governed by the version of the pension plan then in effect. See Hicks v. Pacific Maritime Association, 567 F.2d 355, 357 (9th Cir.1978); Budwig v. Natelson’s, Inc. Profit Sharing Retirement, 576 F.Supp. 661, 664 (D.Neb.1982), aff'd, 720 F.2d 977 (8th Cir.1983) (per curiam); Snyder v. Titus, 513 F.Supp. 926, 931 (E.D.Va.1981). Firestone was required in 1980 to interpret a plan adopted after ERISA’s effective date and to determine how that plan treated Menhorn's 1967 break in service. Menhorn alleged that the determination made by Firestone was arbitrary and capricious. Such an allegation may support an ERISA claim. A trustee’s denial of benefits under an ERISA plan based on a preERISA break in service may be arbitrary and capricious if, for example, the trustee reads an ambiguity into the pension plan relating to the break in service that is not apparent on the face of the plan. See Snyder v. Titus, 513 F.Supp. at 935 .

In addition to alleging that Firestone’s application of the break-in-service policy to Menhorn’s claim was a breach of fiduciary duty, Menhorn further alleged that Firestone in the past had waived application of the break-in-service rule to others. Men-horn’s complaint alleged that:

the Company has in the past restored credited service dates for non-exempt salaried personnel, such as plaintiff, said other employees having been terminated for periods in excess of four days, such as plaintiff here. Accordingly, plaintiff believes and thereupon asserts that the decision by the Company’s Plan Administrator in refusing to grant the credited service date was arbitrary and capricious ____

Therefore, Menhorn alleged that Firestone’s denial of his claim involved an exercise of discretion — the choice to waive application of the break-in-service rule — and that by not waiving Menhorn’s break in service, Firestone’s actions were arbitrary and capricious. These allegations challenged “substantial acts” of Firestone in 1980, after ERISA’s effective date, and thus provide a basis for federal subject matter jurisdiction even under the majority’s construction. 1

*1509 I believe that the district court had subject matter jurisdiction over Menhorn’s claim. Menhorn’s cause of action arises under a federal statute. He seeks to enforce his rights as a participant in an ERI-SA pension plan and challenges the fiduciary conduct of the trustees in 1980 when his pension claim was denied. That is sufficient to confer subject matter jurisdiction on the federal court.

. Contrary to the majority’s assertion, see supra, p. 1502 n. 6, Menhorn's failure to repeat this allegation when opposing the motion for summary judgment does not defeat federal jurisdiction. To avoid a motion to dismiss, it is only necessary that Menhorn’s pleadings demonstrate facts which support a finding of jurisdiction. Societe de Conditionnement v. Hunter Engineering, 655 F.2d 938, 942 (9th Cir.1981). Nor was Menhorn required to reassert the issue in opposing the motion for summary judgment. When the nonmoving party has raised a genuine issue of material fact and the evidentiary matter in support of the motion for summary judgment does not establish the absence of the genuine issue, the nonmoving party is not required to present opposing evidentiary material. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 160 *1509 (1970); Dalke v. Upjohn Co., 555 F.2d 245, 248 (9th Cir.1977). Firestone’s motion for summary judgment did not address Menhorn’s allegation that Firestone had waived application of the break-in-service policy to other employees. Menhorn therefore was not required to respond in order to preserve that issue.