Petition — Paris v. Profit Sharing Plan of Howard B. Wolf, Inc.

Office-Supreme Court, U.S.

FILED

<a ea

oe 2 L8o JUN 18 1981

ALEXANDER L. STE

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1980

RUETTA PARIS, MILDRED CAWTHON AND MARGE

KANE, INDIVIDUALLY AND ON BEHALF OF THE

CERTIFIED CLASS,

Petitioners,

V

PROFIT SHARING PLAN CF HOWARD B. WOLF,

INC. AND EUGENE K. FRIESEN

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

DEAN CARLTON

THE CARLTON FIRM

3109 Carlisle

P. O. Box 19427

Dallas, Texas 75219

214/741-2336

ATTORNEY FOR PETITIONERS

NO.

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1980

RUETTA PARIS, MILDRED CAWTHON AND MARGE

KANE, INDIVIDUALLY AND ON BEHALF OF THE

CERTIFIED CLASS,

Petitioners,

V

PROFIT SHARING PLAN OF HOWARD B. WOLF,

INC. AND EUGENE K. FRIESEN

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THF FIFTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

DEAN CARLTON

THE CARLTON FIRM

3109 Carlisle

P. 0. Box 19427

Dallas, Texas 75219

214/741-2336

ATTORNEY FOR PETITIONERS

QUESTIONS PRESENTED

1. Whether a Trustee of a Pension

and Profit Sharing Plan can arbitrarily

and capriciously disregard the express

language of the plan to exclude certain

employee- participants.

Ze Whether employees who were

expressly included as participants in a

Pension and Profit Sharing Plan at the

time of its effective date, can be

excluded from participation in the plan?

TABLE OF CONTENTS

Title

Questions Presented

List of Authorities

Opinions Below

Jurisdiction

Constitutional, Statutory and

and Rules Provisions Involved

Concise Statement of the Case

Reasons For Granting The Writ

Conclusion

site

2-3

3S - 6

7.2 2

23

LIST OF AUTHORITIES

Cases: Page

Brinzo v. Phoenix Steel Cor os

304 A2d 66, 67 (Del. Ch. 5) .. 10

Danti v. Lewis, 312 F.2d 345, 348

(.Gs Gifs Soe ipa 15

Levitt v. Billy Penn Corporation,

284 A2d 8 a. Super. 1971)... 10

Sperte ya v. Lawrence Warehouse Co.,

T Cir. i |S Rapes fF 20

Stevenson v. ITT Harper Co.,

“366 N.E.2d S61 ( pp. 1977).. 10

Tucci v. dgewood Countr cin

“459 FLS upp" 940, 942 (W.D. Penn,

1978) <idehlphen aapce ener 9,

20, 32,

22

Wardle v. Central States, Southeast

any Southwest Areas Pension Fund,

F.2d 820 (7th Cir. e8)..... 15

Statutes:

28 U.S.C. §1254(1) oeeeeeveeeeeeeee

29 U.S.C.As §1132 peccoecereesecoons

n A> -

29 U.S.C.A. §1144(b)1 eoeoeeeereeeeee

-iii-

OPINIONS BELOW

The opinion of the Court of

Appeals (App. pp. 5 - 31, infra) is

reported at 637 F.2d 357. The opinion of

the District Court for the Northern

District of Texas (App. pp. 1 - 4,

infra) is unreported.

-iv-

JURISDICTION

The judgment of the court below

(infra, Appendix pp. 5 - 31) was entered

on February 17, 1981. A timely petition

for rehearing was denied on March 24, 1981

(Appendix pp. 32 - 33). The jurisdiction

of this Court is invoked under 28 U.S.C.

§1254(1).

CONSTITUTIONAL, STATUTORY AND RULES

PROV 5S INVOLVED

TSTON

The Employee Retirement Income

Security Act of 1974, 29 U.S.C.A. $1132,

provides in pertinent part:

(a) A civil action may be

brought -

(1) by a participant or

beneficiary -

(A) for the relief

pi tbe he for in subsection

c) of this section, or

(B) to recover bene-

fits due to him under the

ele

provides:

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;

(c) Any administrator who fails

or refuses to comply with a

request for any information which

such administrator is required by

this subchapter to furnish to a

participant or beneficiary

(unless such failure or refusal

results from matters reasonably

beyond the control of the

administrator) by mailing’ the

material requested to the last

known address of the requesting

participant or beneficiary within

30 days after such request may in

the court's discretion be per-

sonally liable to _ such par-

ticipant or beneficiary in the

amount of up to $100 a day from

the date of such failure or refu-

sal, and the court may in its

discretion order such other

relief as it deems proper.

Further, 29 U.S.C.A. $1144 (b)(1)

(b)(1) This section shall not

apply with respect to any cause

of action which arose, or any act

‘sie

or omission which occurred,

before January 1, 1975.

CONCISE STATEMENT OF THE CASE

Petitioners Ruetta Paris, Mildred

Cawthon, and Marge Kane, individually and

on behalf of the class of all persons who

were employees of Howard B, Wolf, Inc. or

Marcy Lee, Inc., on June 1, 1973, and

whose employment with said companies ter-

minated before February 21, 1974, brought

this action against the Profit Sharing

Plan for Employees of Howard B, Wolf,

Inc. ("Defendant Plan") and Eugene K.

Friesen, Administrator to recover amounts

due Petitioners under the Defendant Plan.

The class was duly certified with

Petitioners as class representatives and

notices were duly forwarded, Both

Petitioners and Defendants filed Motions

for Summary Judgment. The District Court

initially informed all parties that the

Court was granting Petitioners' Motion for

Summary Judgment, and Defendants filed a

Motion for Reconsideration. On recon-

sideration, the District Court granted

Defendants' Motion for Summary Judgment

and Petitioners appealed that judgment to

the United States Court of Appeals for the

Fifth Circuit. The Court of Appeals

affirmed, finding that the Trustee's

determinations that Petitioners were not

participants in the Defendant Plan was not

“arbitrary or capricious".

The basis for Federal jurisdic-

tion in the court of first instance is 29

U.S.C.A. $1132 (a)(1)(B). Based on this

section, the Fifth Circuit Court of

Appeals held that there is proper federal

subject matter jurisdication pursuant to

ERISA.

The facts material to the con-

sideration of the questions provided are

i

straight forward and were stipulated to by

the parties in the District Court.

Petitioners were employees of Howard B.

Wolf, or its subsidiary Marcy Lee, Inc.

(referred to as "Wolf") as of June 1,

1973, but whose employment ceased between

that date and February 21, 1974. The

Petitioners were participants in the

Trusteed Retirement Plan for Employees of

Howard B. Wolf, Inc. (Pension Plan) prior

to the time of their termination of

employment with Wolf. On February 21,

1974, the Defendant Plan was adopted by

the Board of Directors of the Employer.

By its very terms the Defendant Plan was

made retroactive, and was to be effective

as of June 1, 1973. The Defendant Plan

provided that all amounts held for the

benefit of the participants in the Pension

_ Plan were to be transferred to the

Trustees for the Defendant Plan, which was

established to "supercede and replace the

aforementioned Pension Plan". These funds

were to be administered "in accordance

with the provisions of the trust

agreement" (referring to the Defendant

Plan).

On June 12, 1975, Petitioner

Marge Kane made her first request for

information concerning the Defendant Plan,

and on August 17, 1975, Petitioner Ruetta

Paris requested information concerning the

Defendant Plan from the Trustee. The

administrator of the Defendant Plan failed

to answer said requests within 30 days as

is mandated by ERISA, 29 U.S.C. §1132(c).

Such denial of information amounted to a

constructive denial by Respondents of

benefits to the Petitioners under the

Defendant Plan.

REASONS FOR GRANTING THE WRIT

This case presents an important

question of whether an administrator of a

Pension or Profit Sharing Plan can unila-

terally exclude employees who are defined

as plan participants by the express

language of the plan. The federal govern-

ment has displayed a great concern for the

protection of employees involved in

Pension or Profit Sharing Plans. The

_opportunity for employers to take unfair

advantage of unknowing and unsuspecting

employees is great in this area. Because

of this Congress has enacted ERISA, to

regulate these Pension and Profit Sharing

Plans, and the Federal Courts’ are

entrusted to enforce these plans.

The sole issue under both

. questions presented here is whether or not

Petitioner-employees can be excluded as

participants in the Defendant Plan in

spite of the express language to the

effect that all employees on the effective

date of June 1, 1973, were included,

merely because the plan was_ formally

adopted after the termination of

Petitioner employees.

As Judge Teitelbaum stated in

Tucci v. Edgewood Country Club, 459

F.Supp. 940, 942 (W.D. Penn. 1978), a

strikingly similar case to the one at bar:

Defendants' viewpoint is unte-

nable because of the explicit Language

of the 1976 retirement plan. The plan

introduction, as specitleatiy

authorized by the Board of Directors

of Edgewood Country Club, states at

page 3:

‘It is intended that the existing

plan, as changed, will comply

with the requirements of the

Employee Retirement Income

Security Act of 1974 and any sub-

sequent amendments to the Act.

It is believed that the best

means to accomplish such changes

is to amend said plan to comple-

tely restate the terms provisions

«he

and conditions of said plan,

which restatement, effective June

1, 1975, is substituted in lieu

of said plan.

All persons covered under the

0 Thay plan on May 31, 1975,

will e covered under the

restated plan. . . °

Plaintiff was indisputably a

person covered by the 1958 plan on Ma

, 1975, because his employment di

not cease until February tr 1976.

Therefore, pursuant to the express

language ratified by the Edgewood

Board of Directors, Plaintiff is a

participant under the 1976 retirement

plan. (emphasis added)

The express terms of the

Defendant Plan are clear and unequivocal.

"Each employee who is a participant in the

trusteed retirement plan will become a

participant in the plan as of the effec-

tive date of the plan." The Defendant

Plan defines the effective date as June 1,

1973. Therefore, this language is clear

and unambiguous and virtually identical to

Tucci. On June 1, 1973, all employees who

were participants in the Pension Plan,

automatically became participants in the

Defendant Plan and their rights should be

construed under the new plan. "{Tjhe

court cannot in construing a pension

agreement ignore its clear provisions."

Brinzo v. Phoei.ix Steel Corp., 304 A.2d

66, 67 (Del. Ch. 1973). The terms of the

Defendant Plan are clear, and the

Petitioners have a right to enforce such

terms. "The employee has a contractual

right to enforce the plan according to its

terms, and such benefits may not be denied

arbitrarily." Levitt v. Billy Penn

Corporation, 283 A.2d 873 (Pa. Super.

1971). Looking at the four corners of

this document, the language is clear and

unambiguous so that construction thereof

is neither necessary or proper. Stevenson

_v. ITT Harper Co., 366 N.E.2d 561 (111.

App. 1977). The terms of the Defendant

oi6-

Plan have a “plain meaning" and therefore

the Court should not look outside the

document for interpretation. The unam-

biguous plain meaning of the terms of the

Defendant Plan make all employees who were

participants in the Pension Plan par-

ticipants in the new plan as of its effec-

tive date, June 1, 1973. Petitioners

qualify under this language and are there-

fore participants in the Defendant Plan

and are entitled to have their benefits

determined thereunder.

The Trustee's determination that

the Petitioner-employees are not members

of the Defendant Plan is arbitrary and

capricious, and therefore should be over-

turned by this Court. The facts of the

case create a presumption that the

Trustees acted arbitrarily, capriciously,

and in bad faith.

The Trustees of the Proft Sharing

sLhe

Plan for employees of HOWARD B. WOLF, INC.

were CHARLES S. WOLF; HERBERT ALBAUM,

HOWARD B. WOLF, and HENRY SCHLINGER.

CHARLES S. WOLF, HOWARD B. WOLF, and

HERBERT ALBAUM were the highest paid

employees of the company and received the

highest allocations of the Trust funds'

assets (although an individual named M. W.

Becker did receive a higher allocation

than Herbert Albaum). CHARLES WOLF and

HOWARD WOLF each received allocations of

more than $90,000.00 and HERBERT WOLF

received an allocation of almost

$50,000.00. Only twelve employees

received allocations in excess of

$10,00000. The total allocations for

those twelve employees was $505,267.00 out

of a total allocation of $645,056.00. In

other words, out of a total of 148

employees who received allocations, the

twelve of the highest paid employees

received 78.33% of the total amount allo-

-12-

cated, Since the amount’ allocated

included the sums forfeited by the members

of the Petitioners' class, it is clear

that the twelve individuals described

above (including three of tthe four

Trustees of the Proft Sharing Plan)

received over 78% of the amounts for-

feited., Specifically, HERBERT ALBAUM

received 7.7% of the total forfeitures,

CHARLES WOLF received 14.1% of the total

forfeitures, and HOWARD WOLF received

14.5% of the total forfeitures. The three

Trustees who have received allocations

received a total of 36.3% of the amounts

forfeited by the Petitioners. Under such

circumstances, the unilateral action of

the Trustees in denying benefits to the

Petitioners' class is highly’ suspect.

Three of the Trustees clearly had a com-

_pelling personal interest in deciding that

the Petitioners were not entitled to bene-

43.

fits. These three Trustees individually

received more than 36% of the amount which

they themselves declared forfeited. By

the undisputed facts and by trial stipula-

tion between the parties, the members of

the Petitioners' class were participants

in the Pension Plan. The terms of the

Profit Sharing Plan are not in any way

ambiguous. The Circuit Court's decision

that the Trustees' determination of ineli-

gibility was not arbitrary or capricious,

deprives the members of the Petitioners’

class of any opportunity for an unbiased

deliberative body to fairly determine

their entitlement to _ benefits. The

Circuit Court is clearly incorrect in

determining that the Trustees' actions

were not arbitrary, since the Trustees

completely disregarded the plain wording

of the Profit Sharing Plan for their own

benefit and the benefit of the high paid

cadre of the corporation.

ot§e

In addition to being arbitrary,

Petitioners submit that the actions of the

Trustees in denying benefits to the Class

were in bad faith. The standard of review

of Trustees' actions was first enunciated

in Danti v. Lewis, 312 F.2d 345, 348 (D.C.

Cir. 1962). That Court phrased the stan-

dard as "whether the Trustees have acted

arbitrarily, capriciously, or in bad

faith; that is, is the decision of the

Trustees supported by substantial evidence

or have they made an erroneous decision on

a question of law." The standard incor-

porating bad faith was upheld in Wardle v,

Central States, Southeast and Southwest

Areas Pension Fund, 627 F.2d 820 (7th Cir.

1980). Since the individual Trustees were

substantially rewarded individually for

their denial of beneifts to the Class

Members, the Class is entitled to a pre-

" sumption that their actions did not meet

the strict standards required of fidu-

eiSe

ciaries.

Further, the Trustees' deter-

minations were arbitrary, capricious and

in bad faith because they did not treat

all similarly situated persons the same.

The Circuit Court states that the Trustees

treated all similarly situated persons the

same in this case. Petitioners respect-

fully disagree. Petitioners were unde-

niably participants in the old Pension

Plan, as were the employees who remained

in the company's employment after February

of 1974. The clear terms of the Profit

Sharing Plan state that the Petitioners

are entitled to have "former Retirement

Plan accounts" established in their names

in the Profit Sharing Plan along with

those persons who remained employed at

HOWARD WOLF. In violation of the clear

7 terms of the Profit Sharing Plan, the

Trustees failed to make such allocations,

aZGe

and that failure constituted an arbitrary

discrimination against the members of the

Petitioners' class. The Class Members were

as entitled to receive the unvested por-

tions of their pension plan benefits as

those whose circumstances allowed them to

remain employed,

The Circuit Court makes several

assumptions which are unwarranted by the

facts. It states that "The profit Sharing

Plan's resources are still dedicated to

the participants; the Trustees' policy

will direct money to those who were

employed on the adoption date."

Petitioners suggest that the Class Members

are "participants" in the Profit Sharing

Plan by virtue of its terms. As stated in

the paragraph titled FACTS in the Profit

Sharing Plan, the Class Members became

participants in the Profit Sharing Plan by

virtue of the fact that they were par-

ae

ticipants in the Pension Plan, and all

amounts held for their benefit should have

been transferred according to the terms of

the Trust Agreement for the Profit Sharing

Plan. The fact that the Trustees unila-

terally decided not to make such an allo-

cation does not deprive the Class Members

of their legal status as participants.

The Circuit Court's: statement that "The

Trustees' policy will direct money to

those who were employed on the adoption

date" avoids the entire issue presented by

the case. That is precisely the policy

under which the Trustees have acted in the

past to enrich themselves and the other

employees who remained, The allocations

under the Defendant Plan were made to 148

persons. To the best of Petitioners'

knowledge, the class herein consists of

198 persons. Under the Circuit Court's

construction, the benefits to which the

o3@=

many are rightfully entitled will be for-

feited and reallocated for the benefit of

the few. The clear terms of the Profit

Sharing Plan require the opposite result,

and equity demands it.

The precise topic of the right of

employees who have terminated employment

before the adoption of a Pension Plan, but

after its effective date has_ been

discussed in two cases. Sparta v.

Lawrence Warehouse Co., 368 F.2d 227 (3rd

Cir. 1966) is the case relied on by the

Respondents in this action. In Sparta,

the Court held that an employee was not

entitled to benefits under the new plan.

However, the Court in Sparta makes no men-

tion of the language of the new plan which

it was construing, and therefore it is not

possible to ascertain its similarity to

the Defendant Plan in this case, Further

points which distinguish Sparta from the

-19-

case at bar is that the sole claimant

there had no vested rights as opposed to

the rights vested in this case; the

"balancing" of only one claimant against

the other beneficiaries in Sparta as

opposed to the large class here wrongfully

excluded; and the express language in the

predecessor to the Wolf plan that the

effective date of any future amendment

thereto would be for all purposes."

Further Sparta is not Federal

precedent, Sparta is not a decision under

ERISA, but simply a diversity action

whereby the Third Circuit Court of Appeals

is interpreting New Jersey law.

Therefore, the Federal precedent to be

considered herein, as above noted, is

Tucci v. Edgewood Country Club, 459

F.Supp. 940 (W.D. Penn, 1978). In that

_ case, the court held that an employee

whose employment was terminated when the

-20-

employer sponsored Retirement Plan was not

yet adopted, could nevertheless be called

a plan participant where the later adopted

plan was made retroactive to a date prior

to the employee's termination. The opi-

nion in Tucci also includes the pertinent

language of the Pension Plan of the

Defendant company in that case:

It is believed that the best

means to Sry ae such changes is to

amend said [old] plan to completely

restate the terms, provisions and con-

ditions of said plan, which restate-

ment, effective June 1, 1975, is

substituted in lieu of said plan.

All persons covered: under the

existing plan on May 31, 1975, will be

covered under the restated plan...

Tucci at 942,

This language is very similar to the

language of the Defendant Plan which sta-

tes the Defendant Plan is to “supercede

and replace" the Pension Plan, and "Each

employee who is a participant in the

Trusteed Retirement Plan [old plan} will

-21-

become a participant in the plan fnew

plan) as of the effective date of the

plan." The court in Tucci commented on

the contention that Plaintiff was not a

participant in the new plan (the same con-

tention expressed by Respondent in this

case) by stating, "Defendants' viewpoint

is untenable because of the explicit

language of the 1976 Retirement Plan."

Tucci at 942, The court went on to state

its holding:

Plaintiff was we pe a per-

son covered by the 1958 plan on May

31, 1975, because his employment did

not cease until February 17, 1976.

Therefore, pursuant to the express

language ratified by the Edgewood

Board of Directors, Plaintiff is a

participant under the 1976 retirement

plan. Tucci at 942.

It is clear that the Trustee

herein arbitrarily and capriciously

ignored and disregarded the clear and

_ definite language of the Profit Sharing

Plan to deny the Petitioners' Class of

@22-

employees their rights under the plan.

The Petitioners in this case should be

adjudged participants in the Defendant

Plan, and should be entitled to all the

benefits thereunder.

CONCLUSION

The present case is illustrative

of the unfair advantage that can be taken

of employees by a company for its own gain

and for the benefit of upper-management

personnel. The Petitioners Class is

included as participants in the Defendant

Plan by its clear and express language,

and therefore the Petitioners have been

wrongfully denied these rights.

For the reasons set forth above,

this petition for a writ of certiorari

should be granted.

é23.

nespactfcit)sxbaltted,

THE CARLTON FIRM

3102 Carlisle

P, O. Box 19427

Dallas, TX 75219

214/741-2336

-24-

APPENDIX

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

PROFIT SHARING PLAN FOR

EMPLOYEES OF HOWARD B.

WOLF, INC. and EUGENE K.X

FRIESEN, X

X

CA3-76-0297-C

RUETTA PARIS, MILDRED X

CAWTHON, and MARGE X

KANE, X

X

Plaintiffs, X

X

V. X CIVIL

X ACTION NO.

X

X

Defendants. X

SUMMARY JUDGMENT

Defendants, PROFIT SHARING PLAN

FOR EMPLOYEES OF HOWARD B. WOLF, INC. and

EUGENE K. FRIESEN ("Defendants") having

moved the Court for summary judgment in

their favor that Plaintiffs' claim be

dismissed and that Plaintiffs take nothing

by virtue of the above-entitled action, on

the ground that there is no genuine issue

as to any material fact and that

Defendants are entitled to judgment as a

matter of law, further;

Plaintiffs RUETTA PARIS, MILDRED

CAWTHON and MARGE KANE having filed their

Motion for Summary Judgment pursuant to

Rule 56 of the Federal Rules of Civil

Procedure, on the issue of liability as

against Defendants; and

The Court having considered then

reconsidered the Motions for Summary

Judgment, the pleadings herein,

Plaintiffs' Request for Admissions and

Interrogatories, the Responses of

Defendants thereto and the Stipulation of

Facts filed herein on May 10, 1977 and,

having granted the Motion to Intervene

filed by Stella Hodkinson filed herein on

August 28, 1978, it is therefore

ORDERED, that Defendants' Motion

_ for Summary Judgment be, and the same

hereby is, granted and that

(1)

(2)

(3)

the claims of

Plaintiffs RUETTA

PARIS, MILDRED CAWTHON

and MARGE KANE are

hereby dismissed with

prejudice;

that Plaintiffs RUETTA

PARIS, MILDRED CAWTHON

and MARGE KANE take

nothing by this suit;

that Defendants have

from Plaintiffs their

costs of suit, for

which let execution

issue,

IT IS FURTHER ORDERED that

Plaintiffs' Motion for Summary Judgment

be, and the same hereby is, denied.

All relief not expressly granted

ee

herein is denied.

SIGNED this 3rd day of April,

1979,

/s/ W. M. TAYLOR

ONITED STAT CT JUDGE

Ruetta PARIS, Mildred Cawthon and

Marge Kane, Plaintiffs-Appellants,

Vv.

PROFIT SHARING PLAN FOR EMPLOYEES

OF HOWARD B. WOLF, INC. and Eugene K,

Friesen, Defendants-Appellees.

No. 79-2286,

United States Court of Appeals,

Fifth Circuit,

Feb. 17, 1981.

Suit was brought against profit

sharing plan and its trustee by former

employees who sought recovery of benefits

under the plan. The United States

District Court for the Northern District

of Texas, at Dallas, William M, Taylor,

Jr., J., entered judgment for defendants,

and plaintiffs appealed. The Court of

Appeals, Henderson, Circuit Judge, held

that: (1) there was federal subject-

matter jurisdiction, and (2) employees who

worked for company or its subsidiary on

‘June 1, 1973, but who resigned or were

terminated prior to February 21, 1974,

=f

were not entitled to benefits under new

profit sharing plan that was adopted on

the latter date; the plan trustee's deter-

mination of ineligibility withstood scru-

tiny under the arbitrary or capricious

standard,

Affirmed,

1. Federal Courts (Key) 5

A congressional grant of juris-

diction to the federal courts not based on

the citizenship of a party can only encon-

pass cases, in law and equity, arising

under the Constitution, laws of the United

States, and treaties made under their

authority. U.S.C A... Const. Are...3, Be,

cl. 1.

2. Federal Courts (Key) 243

Since, in suit brought against

“profit sharing plan and its trustee by

former employees who sought recovery of

sie

benefits under the plan, plaintiffs did

not rest their case on acts or omissions

occurring in 1974, i. e., the suit did not

challenge the adoption of the plan in

1974, since plaintiffs' complaint con-

cerned the trustee's 1975 interpretation

of the plan, and since it was only with

that decision that it became clear plain-

tiffs would be denied benefits, the

federal courts had jurisdiction to examine

the validity of that 1975 determination

under the Employee Retirement Income

Security Act. Employee Retirement Income

Security Act of 1974, 88502, 514,

514(b)(1), 29 U.S.C.A. §81132, 1144,

1144(b)(1).

3. Action (Key) 61

.

A cause of action accrues when

the events upon which it is based occur.

4. Action (Key) 61

= *

A cause of action does not become

a presently enforceable demand until a

claim is denied,

5. Master and Servant (Key) 78.1(8)

For purposes of the Employee

Retirement Income Security Act, a cause of

action does not accrue until an applica-

tion for benefits is denied. Employee

Retirement Income Security Act of 1974,

§514, 29 U.S.C.A. $1144.

6. Master and Servant (Key) 78.1.(8)

Although the determination of

eligibility for pension benefits seems to

be a matter of contract law, the clear

weight of federal authority mandates that

the pension plan trustee's determinations

of eligibility be upheld unless arbitrary

or Capricious.

7. Master and Servant (Key) 78.1(5)

Employees who worked for company

or its subsidiary on June 1, 1973, but who

resigned or were terminated prior to

February 21, 1974, were not entitled to

benefits under new profit-sharing plan

that was adopted on the latter date; the

plan trustee's determination of ineligibi-

lity withstood scrutiny under the

arbitrary or capricious standard.

8. Master and Servant (Key) 78.1(7)

Plaintif£s, who brought’ suit

against profit-sharing plan and _ its

trustee to recover benefits allegedly due

under the plan, did not attempt. to

demonstrate that they were prejudiced by

the alleged failure of the plan trustee to

respond to plaintiffs' request for infor-

mation, accordingly, the disrict court did

not abuse its discretion in failing to

penalize the trustee in accordance with

provision of the Employment Retirement

Os

Income Securities Act. Employee

Retirement Income Securities Act of 1974,

§§3(16)(A), 104(b)(4), 502(c), 29 U.S.C.A.

§§1002(16)(A), 1024 (b)(4), 1132(c).

Appeal from the United States

needy Court for the Northern District of

exas,

Before RUBIN, HENDERSON’ and

REAVLEY, Circuit Judges.

HENDERSON, Circuit Judge:

The ultimate issue in this appeal

is whether employees who worked for Howard

B. Wolf, Inc. or Marcy Lee, Inc. on June

1, 1973, but who resigned or were ter-

minated prior to February 21, 1974, are

entitled to benefits under a new profit

sharing plan which was. adopted on the

latter date. The resolution of this issue

entails extensive consideration of our

jurisdiction in such cases. We conclude

that we have jurisdiction, and affirm the

- oe.

district court's determination that the

appellants are not entitled to benefits.

In 1960 Howard B, Wolf, Inc.

(hereinafter referred to as "the

employer") established a "Trusteed

Retirement Plan for Employees of Howard B.

Wolf, Inc." (hereinafter referred to as

"the Retirement Plan"), The employer

created the defendant "Profit Sharing Plan

for Employees of Howard B. Wolf, Inc."

(hereinafter referred to as "the Profit

Sharing Plan") on February 21, 1974. The

Profit Sharing Plan had a _ retroactive

effective date of June 1, 1973, and the

Retirement Plan was retroactively ter-

minated as of that time. "The terms of

the Profit Sharing Plan provided, inter

alia, that benefits which had been held

under the ... Retirement Plan for

Participants under the ... Retirement Plan

would be be transferred on a fully vested

elie

basis to the Profit Sharing Plan in indi-

vidual ‘former retirement plan accounts’

which would be established under the

Profit Sharing Plan." Stipulated Facts

fi4.

The plaintiffs are the class of

those who were employed by Howard B. Wolf,

Inc. and its subsidiary on June 1, 1973,

whose employment had been’ terminated

before the adoption date of February 21,

1974, They sued the Profit Sharing Plan

and its trustee to recover benefits they

Claimed under the Profit Sharing Plan,

They also allege that during the summer of

1975 certain named plaintiffs requested

information about the Profit Sharing Plan,

and that the defendant trustee failed to

respond within thirty days, in violation

of 29 U.S.C.A. §1132(c). Jurisdiction is

‘ predicated on §502(c) of the Employee

-12-

Retirement Income Security Act of 1974

(hereinafter referred to as “ERISA'"), 29

U.S.C. A.81132(e)(1).1

The defendants deny that the

plaintiffs were entitled to benefits.

They do admit that some plaintiffs sought

plan information in 1975, but assert that

all requests were answered in such a

manner as to make clear the claimants were

not entitled to benefits. The defendants

also dispute ERISA jurisdiction.

All parties filed motions for

summary judgment, pursuant’ to stipulated

facts. After the district court notified

the parties that the plaintiffs' motion

would be granted, the defendants moved the

1, Hereafter reference is made only to

the U.S.C.A.

-13-

court to reconsider.2 The plaintiffs

failed to respond and, on April 3, 1978,

the district court granted summary

judgment to the defendants without stating

reasons for its decision.

A participant in a benefit plan

may bring a civil action to recover bene-

fits, 29 U.S.C.A. §1132(a)(1)(B). State

and federal trial courts have concurrent

jurisdiction over such suits. 29 U.S.C.A.

§1132(e)(1). ERISA supersedes "all state

laws" relating to covered benefit plans,

2. Subsequently, Stella Hodkinson sought

to intervene as a plaintiff. The

defendants opposed, but conceded that

she was a "bona fide participant in

the profit sharing plan." R. 240,

Hodkinson insisted that "f[a}]) ruling

with respect to the entitlement of the

Class members to benefits under the

defendant plan could affect as a prac-

tical matter the amount of benefits

available to [Hodkinson] by propor-

tionately reducing those funds

available for profit sharing distribu-

tions R. 235. The court allowed the

intervention, then dismissed _ her

action without prejudice.

othe

effective January 1, 1975. 29 U.S.C.A.

$1144(a). It further provides that this

"section shall not apply with respect to

any cause of action which arose, or any

act or omission which occurred, before

January 1, 1975." 29 U.S.C.A.

§1144(b)(1).

{1} A congressional grant of

jurisdiction to the federal courts not

based on the citizenship of a party can

only encompass "Cases, in Law and Equity,

arising under [the] constitution, the Laws

of the United States, and Treaties made,

or which shall be made, under their

Authority." U.S. Const. art. III, 82, cl.

1. In Association of Westinghouse

Salaried Employees v. Westinghouse

Electric Corp., 348 U.S. 437, 75 S.Ct.

489, 99 L.Ed. 510, (1955), Justice

Frankfurter, speaking for a plurality,

said "fiJf ... Congress merely furnished a

nate

federal forum for enforcing the body of

contract law which the States provide, a

serious constitutional problem would lie

at the threshold of jurisdiction," 348

U.S. at 442, 75 S.Ct. at 491, 99 L.Ed. at

515; that is, the case would not be one

"arising under" federal law.

With Westinghouse in mind, the

First Circuit Court of Appeals reads $1144

as limiting 81132 jurisdiciton to causes

of action originating after January 1,

1975. Cowan v. Keystone Employee Profit

Sharing Fund, 586 F.2d 888 (1st Cir.

1978). See also Martin v. Bankers Trust

Co., 565 F.2d 1276, 1278 (4th Cir. 1977).

Contra, Reiherzer v. Shannon, 581 F. 2d

1266 (7th Cir. 1978) (criticized in Cowan,

586 F.2d at 894 n.13). In post argument

briefs the defendants strongly urge that

o16«

Cowan and Martin require a dismissal of

this case for lack of jurisdiction.>

Because of the difficult consti-

tutional problem that would accompany a

conclusion contrary to that reached in

Cowan, and because ERISA sets a certain

date on which federal law supersedes that

of the states, see 29 U.S.C.A.

§1144(b)(1), it falls wa lot to determine

precisely when the cause of action arose

and what acts of the defendants furnished

the basis for suit. Assuming Cowan

correctly blazed what the court acknow-

ledged was a "tortuous path" leading to

the conclusion that ERISA jurisdiction is

restricted to cases arising after

aa. ae their answer the defendants

challenge ERISA jurisdiction as well

as the existence of a cause of action,

-17-

January 1, 1975,4 we find that the

district court had jurisdiction in this

case,°

The defendants assert that the

governing date is February 21, 1974, when

the defendant plan was adopted. They say

4. Bayles v. Central States, Southeast

an Southwest Areas Pension Fund,

F.2d 97 (Sth Cir. 1979), may forclose

inquiry by us. Bayles applied for

benefits in June, 1974, and "soon

thereafter" took another job. On the

basis of his reemployment the trustees

denied him a _ pension. The court

repeatedly noted ERISA jurisidiction

but never determined the date _ the

cause accrued, The case was decided

on the summary calendar, and it is not

clear that the panel dealt with this

problem.

5. Although Cowan thoroughly and convinc-

ingly covers the issue, we emphasize

that we do not decide whether the

federal courts have jurisdiction over

causes of action arising before

January 1, 1975. Even if there is

federal subject matter jurisdiction in

such instances, we must establish when

the action matured and when the

trustee acted to the detriment of the

plaintiff in order to ascertain

whether state or federal law controls,

Ate

that any acts or omissions for which they

are responsible occurred before’ the

beginning of 1975. They also insist that

a cause of action for denial of pension

benefits accrues not upon denial of bene-

fits, but rather when the claimant becomes

entitled to those benefits. If either

position is correct® we would face the

"serious constitutional problem" noted in

Westinghouse, Consequently, we consider

these two issues separately.

The dilemma stems from the Profit

Sharing Plan's retroactive effective date.

Section 2.1 of the Profit Sharing Plan

provides that "{eJach employee who is a

participant in the trusteed retirement

plan will become a participant in the

{profit sharing) plan as of the effective

6. Section 1144(a) (i. e. federal law)

does not apply to causes of action

arising before January 1, 1975, nor to

, review of acts occurring before that

ate,

=

date of the plan." In their trial court

stipulation, the parties agreed that the

controlling issus is whether the plain-

tiffs were participants "by virtue of the

retroactive provisions" of the Profit

Sharing Plan, Whatever its meaning may

be, no one can, and no one does, seriously

deny that the adoption of the Profit

Sharing Plan resulted in substantial con-

fusion or that the status of the plain-

tiffs was fraught with uncertainty.

The defendants maintain that the

conduct surrounding adoption of the Profit

Sharing Plan must be judged by the legal

standards of the time, not by’ those

substituted by ERISA. This is true, but

the plaintiffs do not maintain’ the

contrary. The January 1, 1975, effective

date of 29 U.S.C.A. $1144 means that the

defendants cannot be held liable for dama-

ges arising from acts commited in 1974 so

-20-

long as those acts comported with state

law as it then existed. See also Cowan;

Martin.

{2} The Plaintiffs do not rest

their case on acts or omissions occurring

in 1974 (viz. the suit does not challenge

the adoption of the Profit Sharing “Plan).7

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

¥

7. It may be that a claim based on denial

of benefits under the Retirement Plan

would predate ERISA. That question is

not before us. The plaintiffs sued

for benefits allegedly due them under

the Profit Sharing Plan, not. the

superseded Retirement Plan.

*21-

benefits.8 This determination took place

in 1975, and, thus, was governed by 29

U.S.C.A. 81144, and it follows that the

federal courts have $1132 jurisdiction to

examine its validity.

: The defendants next urge that

even if an “essential act" occurred in

1975, the cause of action (if there is

one) arose on the adoption date. They

reason that a cause of action arises not

when an employee is denied benefits, but

when he becomes eligible for them. Knauss

v. Gorman, 433 F.Supp. 1040, 1042 (W.D.

8. In Cowan the court observed:

This is not a case in which the

application or interpretation of a

pension plan are unclear. In such

cases, plaintiff obviously has _ no

cause for complaint until he is

refused benefits to which he has some

colorable claim, since it cannot be

known earlier how the instrument will

be interpreted by the trustees.

$86 F.2d at 895.

«23.

Pa. 1977), vacated 583 F.2d 82 (3d Cir.

1978); Keller v. Graphic Systems, 422

F.Supp. 1005, 1008 (N.D. Ohio 1976).

The plaintiffs respond that the

cause of action came into existence when

the trustee denied tthe’ plaintiffs'

requests for benefits. There is ample

support for that proposition. Cowan, 586

F.2d at 895; Reiherzer v. Shannon, 581

F.2d 1266, 1272 (7th Cir. 1978). If the

plaintiffs are right, the cause arose in

1975, and this court has jurisdiction even

under the rule announced in Cowan.

According tu the terms of the

Profit Sharing Plan:

The initial distribution

date of a participant who terminates

his employement or has his employment

terminated by the Employer for any

reason other than those specified in

{the previous sections, which cover

terminations by reasons of retirement,

disability or death), shall be the

date of termination of his employment

even though distribution may be made

as of a later date.

«23-

Section 6.1(B)9 The defendants use this

provision to further support their asser-

tion that the termination date is

controlling. Admittedly, if this argument

is correct there would be no jurisdiction.

{3-5} A cause of action accrues

when the events upon which it is based

occur. See, e. g., Atkins v. Crosland,

417 S.W.2d 150 (Tex. 1967). The distinc-

tion between eligibility date and the date

of denial of benefits was not relevant in

any of the cases cited by the defendants.

The most thorough discussion of the matter

is contained in Morgan v. Laborers Pension

Trust Fund, 433 F.Supp. 518, 522 n. 5

(N.D. Cal. 1977). We agree that a cause

9, Although benefits are computed in con-

formity with the date of employment

termination, the Profit Sharing Plan

contemplates a delay before eventual

payment. 86.3(A) ("distribution ...

as soon [thereafter] .. . as admin-

istratively feasible").

-24-

of action does not become a presently

enforceable demand until a claim is

denied. To hold otherwise

would put an almost intolerable burden

on employees covered by pension plans.

It would require individuals who are

unversed in the law to be constantly

vigilant ... Moreover, claims filed

before a pension actually has been

denied might be challenged for lack of

ripeness. Cf. United Public Workers

Vv. Mitchell, 330 U.S. 75, 86 - SI, 67

Ct. ). 556 | [562 - 565), 91 L.Ed. 754

1947

Requiring piecemeal challenges

before an actual denial has occurred

would also result in a great waste of

judicial resources.

Id. We hold that for purposes of ERISA a

cause of action does not accrue until an

application is denied. See quotation from

Cowan in note 8. Cf. Kosty v. Lewis, 319

F.2d 744, 7580 (D.C. Cir. 1963), cert.

denied, 375 U.S. 964, 84 S.Ct. 482, 11

L.Ed.2d 414 (1964) (Statute of limitations

does not commence to run until there has

been "a clear and continuing repudia-

tion.").

«2S

Having concluded there is federal

subject matter jurisdiction, we next con-

sider whether the district court erred in

denying benefits to the plaintiffs.

Federal common law governs this

action. 29 U.S.C.A. $1144(a). See Cowan,

586 F.2d at 894, and Reiherzer, 581 F.2d

at 1271, Martin, 565 F.2d at 1278, and

their discussion of the legislative

history. Compare Martin, 565 F.2d at

1279, with Reiherzer, 581 F.2d at 1271 n.

14.

[6] Although the determination

of eligibility for pension benefits seems

to be a matter of contract law, "the clear

weight of federal authority" mandates that

the trustee's determinations of eligibi-

lity are to be upheld unless arbitrary or

capricious. Bayles v. Central States,

Southeast and Southwest Areas’ Pension

© 26-

Fund, 602 F.2d 97, 99 and 100 n. 3 (Sth

Cir. 1979); Bueneman v. Central States,

Southeast and Southwest Areas Pension

Fund, 572 F.2d 1208, 1209 n. 3 (8th Cir.

1978). But cf. Ramirez v. Lowe,

---F.,Supp. ---, No. H-78-1624 (S.D. Texas

August 15, 1979), aff'd mem., slip op.

930, --- F.2d --- (5th Cir. Nov. 7, 1980)

(vesting).

{7} The trustee's decision

withstands scrutiny under this standard.

Contra, Tucci v. Edgewood Country Club,

459 F.Supp. 940, 941 - 42 (W.D. Pa. 1978)

(similar facts, suspect termination; no

enunciated standard of review). He

treated all similarly situated persons the

same, See Bayles, 602 F.2d at 100;

Bueneman, 572 F.2d at 1210. The Profit

Sharing Plan's resources are still dedi-

cated to the participants; the trustee's

policy will direct money to those who were

+.)

employed on the adoption date. See note

2. “The trustees of [a] pension fund may

properly enforce pension plan_ rules

limiting pension benefits if an alter-

native would require inappropriate or

unanticipated costs to the fund so as to

potentially limit resources available to

the proper beneficiaries of a trust." Id.;

accord, Sparta v. Lawrence Warehouse Co.,

366 F.2d 227, .228 (34 Cir. 1966)

(diversity action apparently applying

general principles of law).

Certain individual plaintiffs

also complain that the trustee did not

respond to their requests for information.

The defendants deny this allegation. No

affidavits were submitted to the trial

court, so there was clearly an issue of

fact. There was not, however, a "genuine

issue as to any material fact" such as

o28-

would necessitate a remand, F.R.Civ.P.

56(c).

The stipulation states that "the

issue to be determined" is whether the

plaintiffs are entitled to benefits. Not

only did the plaintiffs allow the question

of failure to respond to the request for

information to escape the trial court's

attention, they did not raise it in this

court except in their brief in reply to

the defendants' post argument brief.

ERISA's civil enforcement section

authorizes the courts to enforce 29

U.S.C.A. §$1024(b)(4), which requires the

administrator!9 to furnish certain infor-

mation upon the written request of a par-

ticipant. Specifically, 29 U.S.C.A.

§1132(c) provides that "f{a}ny administra-

tor who fails or refuses to comply with a

10. "Administrator" is defined at 29

U.S.C.A. 8$1002(16)(A).

-29-

request for any information which such

administrator is required by this

subchapter to furnish to a participant ...

may in the court's discretion be per-

sonally liable to such participant ... in

the amount of up to $100 a day from the

date of such failure or refusal..."

{8} The short answer may be that

since the plaintiffs were not participants

they were not entitled to any information.

However, at the time of this request their

status was far from clear, and we are not

sure that those who may be entitled to

benefits should be denied an oppportunity

to determine their entitlement. The deci-

sion to grant relief under 29 U.S.C.A.

§1132(c) is committed to the discretion of

the trial judge. We take his disposition

of this case as a decision not to grant

‘relief. The plaintiffs have not attempted

to demonstrate that they were prejudiced

«3Qe

by the alleged failure to respond, and we

cannot say that the district court abused

its discretion.

The judgment is AFFIRMED.

ote

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

UNIT A

NO. 79-2286

RUETTA PARIS, MILDRED CAWTHON

and MARGE KANE,

Plaintiffs-Appellants,

versus

PROFIT SHARING PLAN FOR

EMPLOYEES OF HOWARD B. WOLF,

INC. and EUGENE K. FRIESEN,

Defendants-~-Appellees.

Appeal from the United States District

Court for the Northern District of Texas

ON PETITION FOR REHEARING

(March 24, I98i)

Before RUBIN, HENDERSON and REAVLEY,

Circuit Judges.

PER CURIAM:

a$2-

IT IS ORDERED that the petition

for rehearing filed in the above entitled

and numbered cause be and the same is

hereby denied,

ENTERED FOR THE COURT:

/s/ ALBERT J. HENDERSON, JR.

ONITED STATES CIRCUIT JUDGE

#5.