Petition for Writ of Certiorari — Pacific Bell v. Pallas

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| HOV 18 1990

| DFFICE OF THE CLERK

No. 91-___

In The

Supreme Court of the United States

October Term, 1991

PACIFIC BELL, PACIFIC TELESIS GROUP,

PACIFIC TELEPHONE & TELEGRAPH COMPANY,

PACIFIC TELESIS GROUP PENSION PLAN FOR

SALARIED EMPLOYEES,

Petitioners,

LANA PALLAS (aka Lana Hubbs),

and persons similarly situated,

Respondents.

Petition For Writ Of Certiorari To The

United States Court Of Appeals

For The Ninth Circuit

PETITION FOR WRIT OF CERTIORARI

C. Douctas FLoyp*

Wituam Gaus

Frep W. ALVAREZ

KirKE M. Hasson

225 Bush Street

Post Office Box 7880

San Francisco CA 94120-7880

Telephone: (415) 983-1000

Attorneys for Petitioners

*Counsel of Record

Pillsbury Madison & Sutro

Of Counsel

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTIONS PRESENTED

The decision of the court of appeals presents the

following questions, on which the circuits are in conflict:

1. Does Title VII of the Civil Rights Act of 1964,

which expressly provides that “it shall not be an unlawful

employment practice for an employer to apply different * * *

terms, conditions, or privileges of employment pursuant

to a bona fide seniority or merit system,” nevertheless

prohibit an employer from using seniority unless the

employer retroactively applies new legal requirements to

long-established seniority dates to eliminate the present

effects on seniority of past employment decisions that

were lawful when they occurred, but have been prohib-

ited by subsequent legislation?

2. Does ERISA impose an undefined standard of

“discrimination” or “fairness,” independent of the

requirements of Title VII, that governs an employer’s

decision of what benefits to provide and to whom under

an ERISA benefit plan?

PARTIES

All parties to the proceeding appear in the caption of

the case except the following parties that were defen-

dants and appellees in the court below and that, pursuant

to Rule 12.4 of this Court’s rules, are deemed to be

respondents in this Court:

American Telephone & Telegraph Company

Bell System Management Pension Plan

Bell System Pension Plan

Petitioners submit the following list pursuant to Rule

29.1 of this Court’s rules:

Petitioner Pacific Telesis Group has no parent corpo-

rations and no subsidiaries except wholly owned subsid-

iaries.

Pacific Telesis Group is the parent corporation of

petitioner Pacific Bell, which it wholly owns.

Petitioner Pacific Bell has no subsidiaries except

wholly owned subsidiar‘es, other than the following:

Bell Communications Research, Inc.

Certain wholly owned subsidiaries of petitioner

Pacific Telesis Group have subsidiaries or subsidiaries of

subsidiaries that are not wholly owned. These non-

wholly owned subsidiaries include:

Cellular Communications, Inc.

PacTel Meridian Systems

South Yorkshire Cablevision Limited

ELT Acquisition Company Limited

Percom Services Limited (Thailand)

Mannesmann Mobilfunk GmbH

iii

PARTIES-Continued

Pacific Telesis Ireland

METROPHONES Company Limited

Sistelcom, S.A.

Pacific Telesis (Hellas) Limited

Telecel-Comunicacoes Pessoais, S.A.

Tokyo Digital Phone Company

Athens Cellular, Inc.

TABLE OF CONTENTS

Page

CASE E SGIEMD FIM LGED oi ce ccc csc neecascneves i

en ee ere Tee ee eee eer ere ii

oe ee rere re: Peers ee 1

i ce dg 5 66:5 4 even Kae aw hae ohn pals 2

Re TE ooo vc vcsce ccna Wieectneceens 2

RPRR GENTE GOW OUI GPR os ccc ceeeccsescsess 3

Fi, De Oe OE I ants cerenedesasaesunvers 3

ee A TORE EET eee 6

REASONS FOR GRANTING THE PETITION....... 8

I. THE DECISION OF THE COURT OF APPEALS IS

IRRECONCILABLE WITH THE PLAIN LAN-

GUAGE OF SECTION 703(h) AND WITH THIS

COURT’S DECISIONS APPROVING THE USE OF

STABLE SENIORITY SYSTEMS FOR MAKING

EMPLOYMENT DECISIONS.................06. 12

A. This Court’s decisions interpret section

703(h) in accord with its plain language to

permit the use of seniority despite its alleged

present discriminatory impact.............. 12

B. The fact that Pacific Bell’s 1987 ERO was a

“new” program is irrelevant. Section 703(h)

protects both old and new programs based on

i, ERR TELE LEE eee 18

C. Eligibility for Pacific Bell’s 1987 ERO was

based on the facially neutral criterion of

seniority, not pregnancy................-... 20

II. THE PANEL’S DECISION CONFLICTS WITH

THE DECISIONS OF OTHER CIRCUITS REJECT-

ING SIMILAR CLAIMS UNDER TITLE VII .... 23

TABLE OF CONTENTS - Continued

Page

Ill. THE PANEL’S DECISION ALSO CONFLICTS

WITH THE DECISIONS OF OTHER CIRCUITS

HOLDING THAT AN EMPLOYER DOES NOT

ACT AS A FIDUCIARY IN DESIGNING THE

BENEFIT STRUCTURE OF AN ERISA PLAN.. 24

6, eer ere eh GUS GF ASE Rio 30

TABLE OF AUTHORITIES

Page

Cases

Adams v. LTV Steel Mining Co., 936 F.2d 368 (8th

RN AOUER ov she bet dCeiuee dau bee ebendos eae tiers 6s 25

Amalgamated Clothing & Textile Workers v. Mur-

dock, 861 F.2d 1406 (9th Cir. 1988). ...........005. 26

Amato v. Western Union Intern., Inc., 596 F. Supp.

Pe Re Be SE sab cewhte cc recedsrinesvscceens' 27

Amato v. Western Union Intern., Inc., 773 F.2d

WE GE He WUE vince cdenconscndecserssew nn 25, 27

American Tobacco Co. v. Patterson, 456 U.S. 63

SPECI Gs Kigueecdee byhkavesWeane Pen kS 16, 17, 18, 20

Bazemore v. Friday, 478 U.S. 385 (1986).......... 19, 22

Belade v. ITT Corporation, 909 F.2d 736 (2d Cir.

Ss ob p.cee donne. os 00 eu uekes CK en ps eh bebben sce. 25

Elser v. L.A.M. Nat. Pension Fund, 684 F.2d 648

(9th Cir. 1982), cert. denied, 464 U.S. 813 (1983).... 28

Farris v. Board of Ed. of City of St. Louis, 576 F.2d

Pe GE A ROP s 0.a Vencteuan shereveneusecsss 20, 24

Fletcher v. The Kroger Co., 942 F.2d 1137 (7th Cir.

PRET POE E Pore TEP eT TUT ee rere Te eee 25

Franks v. Bowman Transportation Co., Inc., 424

ae TOT CEDPOD vcs vccncecsesasncarconnerens 9, 12, 13

General Electric Co. v. Gilbert, 429 U.S. 125 (1976) ..4, 16

Griggs v. Duke Power Co., 401 U.S. 424 (1971)...... 14

Lea v. Republic Airlines, Inc., 903 F.2d 624 (9th

RAD WHEE pot crvace bees tpebehnse se ereaatknn sess’ 26

a a |

vii

TABLE OF AUTHORITIES - Continued

Page

Lorance v. AT&T Technologies, Inc., 490 U.S. 900

FE 45s 5h 0 ine wes uaken ln vessel heey weak h isk 10, 21

Moore v. Reynolds Metals Co. Retirement Pro-

gram, 740 F.2d 454 (6th Cir. 1984), cert. denied,

ee so 27

Musto v. American General Corp., 861 F.2d 897

(6th Cir. 1988), cert. denied, 490 U.S. 1020 (1989)

io PONS WS ORAS UNGER Eee RARE EES Shia ee ee: 25, 26, 28, 29

Schwabenbauer v. Bd. of Educ. of City of Olean,

a eee 23, 24

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983). .6, 25

Simmons v. South Carolina State Ports Authority,

495 F. Supp. 1239 (D.S.C. 1980), aff'd, 694 F.2d

Gy Ge Ee I iiss cckssvcwncesccb yhWand veees 24

Teamsters v. United States, 431 U.S. 324 (1977)

aah ou ke ed eS heat aka orcs 13, 14, 15, 18, 19, 20

Trabucco v. Delta Airlines, 590 F.2d 315 (6th Cir.

RTS Ae ry eer Sy pee Ly EET GR 24

Trans World Airlines, Inc. v. Hardison, 432 U.S. 63

CT te EUR ULE cans vmek eae reece tek ek oriak s

Trenton v. Scott Paper Co., 832 F.2d 806 (3d Cir.

1987), cert. denied, 485 U.S. 1022 (1988)........... 25

United Air Lines, Inc. v. Evans, 431 U.S. 553 (1977) . passim

Weise v. Syracuse University, 522 F.2d 397 (2d Cir.

ck TERE OTL E ET CELE RELL CLT eee 24

West v. Greyhound Corp., 813 F.2d 951 (9th Cir.

MPR SIREPECRSV NANOS CERES ROA Cee eeee. (Wa baksns 26

Winpisinger v. Aurora Corp. of Ill, Etc., 456 F

SUD. Sor COULD. QUO TOTO). oc ccscccccvccusseacnce 28

viii

TABLE OF AUTHORITIES — Continued

STATUTES AND Copes

Title 28, United States Code

Title 29, United States Code

Sa Din dee etevccvecsessuecuten

Section 1001, et 0G. .....cccccccccccevcceveess

EE rer Te Tere T ee Eee TTT Te

har a hee eee esan spe és

Title 42, United States Code

Nee nn Si emaww ees ees

were bones cue ewee O2

OCTIO BED cv cece ck cccccens Pant eS whtaek

Orner AUTHORITIES

119 Cong. Rec. 24456-24457, 30410 (1973)........

120 Cong. Rec. 4276 (1974). ..... 6... cece eens

56 Cong. Rec. 15275 (daily ed. Oct. 25, 1991)...

Page

AT 6

No, 91-___

In The

Supreme Court of the United States

October Term, 1991

PACIFIC BELL, PACIFIC TELESIS GROUP,

PACIFIC TELEPHONE & TELEGRAPH COMPANY,

PACIFIC TELESIS GROUP PENSION PLAN FOR

SALARIED EMPLOYEES,

Petitioners,

LANA PALLAS (aka Lana Hubbs),

and persons similarly situated,

Respondents.

@ —_—

Petition For Writ Of Certiorari To The

United States Court Of Appeals

For The Ninth Circuit

PETITION FOR WRIT OF CERTIORARI

OPINIONS BELOW

Petitioners respectfully request that a writ of cer-

tiorari issue to review the judgment and opinion of the

United States Court of Appeals for the Ninth Circuit in

this case. The opinion of the court of appeals is reported

at 940 F.2d 1324 and is included in the Appendix at pp. la

to 12a. The order of the court of appeals denying rehear-

ing is included in the Appendix at p. 13a. The opinion of

the district court is set out in the Appendix at pp. 15a to

24a. The order of the court of appeals granting peti-

tioners’ motion to stay the mandate to and including

November 18, 1991 to permit the filing and subsequent

disposition of a petition for certiorari, is included in the

Appendix at p. 14a.

JURISDICTION

The opinion and judgment of the court of appeals

was entered on August 12, 1991. Petitioner’s timely peti-

tion for rehearing was denied on September 26, 1991. The

jurisdiction of this Court is invoked pursuant to 28 U.S.C.

§ 1254(1).

STATUTES INVOLVED

This case involves section 703(h) of Title VII of the

Civil Rights Act of 1964 (“Title VII”), 42 U.S.C.

§ 2000e-2(h), which provides, in pertinent part:

(h) Notwithstanding any other provision

of this subchapter, it shall not be an unlawful

employment practice for an employer to apply

different standards of compensation, or differ-

ent terms, conditions, or privileges of employ-

ment pursuant to a bona fide seniority or merit

system, * * * provided that such differences are

not the result of an intention to discriminate

because of race, color, religion, sex, or national

orlgn, **” .

This case also involves section 404 of the Employee

Retirement Income Security Act of 1974 (“ERISA”), 29

U.S.C. § 1104, which is set out in the Appendix. App., p.

25a.

STATEMENT OF THE CASE

A. Nature of the case.

This action challenges petitioner Pacific Bell’s deci-

sion to use petitioners’ long-standing “Net Credited Ser-

vice” system as a basis for determining eligibility for

certain benefits under Pacific Bell’s retirement plans. Like

many employers, Pacific Bell relies on its employees’

length of service as an established and neutral yardstick

on which it can base benefits without the threat of a claim

of discrimination. Respondent, however, claims that the

amount of her service credit incorporates, and thus gives

present effect to, an action that was lawful when it

occurred in 1972 (when respondent filed a charge of

discrimination, but elected not to bring suit), but, under a

subsequent amendmen: to Title VII, would be unlawful if

it occurred today.

Previous decisions of this Court and of other circuits

have held that employers may rely on seniority for mak-

ing employment decisions without reopening and revis-

ing established seniority dates to take account of past acts

that are claimed to have a current discriminatory impact

because they are incorporated in an employee’s seniority.

The court of appeals in this case, by contrast, has held

that an employer’s reliance on seniority should be

deemed to constitute a present act of discrimination

unless the employer continually revises established

seniority dates to give retroactive effect to new legal

requirements, or to eliminate the present effects of long

past and closed acts that were not challenged (or were

unsuccessfully challenged) at the time.

Under Pacific Bell’s service crediting system (which

was used for similar purposes by Pacific Bell’s prede-

cessor, Pacific Telephone & Telegraph Company, for many

years before its divestiture from AT&T in 1984), a “Net

Credited Service Date” is continuously maintained for all

employees from their initial hire until their retirement.

An employee’s Net Credited Service Date consists of the

employee’s original hiring date adjusted to take account

of periods for which no service credit is accrued. As

noted by the court of appeals, “[uJnder this system, an

employee receives credit for time during which the

employee is absent due to a temporary disability, but

does not receive credit for time spent on personal leave.”

App., p. 3a.

Prior to the 1979 enactment of the Pregnancy Dis-

crimination Act (“PDA”), the Bell System companies,

including Pacific Telephone & Telegraph Company by

whom respondent was employed, classified absences due

to pregnancy as personal leaves rather than as disability

leaves. That treatment was lawful when it occurred. In

1976, this Court ruled in General Electric Co. v. Gilbert, 429

U.S. 125 (1976) that discrimination based on pregnancy

did not violate Title VII. In response, Congress enacted

the PDA, which became effective in 1979. 42 USC.

§ 2000e(k).' Pacific Telephone immediately changed its

practice and petitioners classified all pregnancy leaves

taken after the 1979 enactment of the PDA as disability

leaves, for which Net Credited Service has accrued.

! Section 2000e(k) provides:

The terms “because of sex” or “on the basis of

sex” include, but are not limited to, because of or on

the basis of pregnancy, childbirth, or related medical

conditions; and women affected by pregnancy, child-

birth, or related medical conditions shall be treated

the same for all employment-related purposes,

including receipt of benefits under fringe benefit

programs, as other persons not so affected but simi-

lar in their ability or inability to work, and nothing

in section 2000e-2(h) of this title shall be interpreted

to permit otherwise. * * *

However, petitioners did not retroactively revise their

existing employment records or change the existing net

credited service dates of employees, such as respondent,

who had taken pregnancy leaves prior to 1979.

Respondent Lana Pallas has been employed by

Pacific Bell and, previously, Pacific Telephone & Tele-

graph Company, since 1967. Respondent became preg-

nant and took a leave in 1972. In accordance with the

practice at that time, this absence was treated as a per-

sonal leave, rather than as a disability leave. Therefore,

respondent did not accrue Net Credited Service during

her absence. Respondent filed a charge of discrimination

with the EEOC in 1972 challenging the classification of

her leave as “personal,” but elected not to bring suit.

In September 1987, Pacific Bell amended its retire-

ment pian to include an early retirement option (“ERO”)

for which employees with certain amounts of Net Cred-

ited Service were eligible. In November 1987, respondent

applied for the Company’s “20-year plan” ERO. Respon-

dent’s complaint alleges that she would have been eligi-

ble for the 20-year ERO if Pacific Telephone had treated

her 1972 absence from work due to pregnancy as a dis-

ability leave rather than as a personal leave. Respondent

requested that Pacific Bell retroactively redefine her 1972

absence as a disability leave and adjust her accrued Net

Credited Service Date accordingly. Pacific Bell denied

that request?

? However, on September 12, 1944, Pacific Bell's Employee

Benefits Claims Review Committee adjusted respondent's Net

Credited Service Date to give respondent service credit for

September 6 to October 1, 1972 (a period during which respon-

dent claims she was willing to return to work but was

allegedly prevented from doing su), but declined to reclassify

the period from July 23 to September 5, 1972, during which

(Continued on following page)

B. Proceedings below.

Respondent’s complaint alleged that Pacific Bell’s

reliance on Net Credited Service in determining her eligi-

bility for the ERO violated Title VII, the California Fair

Employment and Housing Act and the Employee Retire-

ment Income Security Act of 1974 (29 U.S.C. § 1001, et

seq.) (“ERISA”). Respondent asserted these claims on

behalf of herself and others similarly situated.

The district court dismissed respondent’s complaint

for failure to state a claim upon which relief could be

granted. App., p. 24a. The court held that Pacific Bell’s

determination to base eligibility for the 1987 ERO on

service credit was a facially neutral policy that, under this

Court’s decision in United Air Lines, Inc. v. Evans, 431 U.S.

553 (1977), did not violate Title VII. Id. at 19a-20a. The

district court dismissed respondent’s ERISA claim,

accepting petitioners’ argument that ERISA does not pro-

vide an independent standard of fairness or discrimina-

tion that regulates an employer’s design of the benefit

structure of an ERISA plan. Id. at 22a.

A divided panel of the Ninth Circuit reversed. The

court acknowledged that eligibility for the ERO was

based on seniority as measured by an employee’s Net

(Continued from previous page)

respondent was indisputably absent and unavailable for work

due to pregnancy. With this adjustment, respondent remained

ineligible for the 20-year plan ERO as she was still short of the

necessary amount of net service credit.

3 The court dismissed respondent's parallel state-law

FEHA claim on the same ground, and because any effort to

apply the FEHA beyond the scope of Title VII would be pre-

empted by ERISA. Shaw v. Delta Air Lines, Inc., 463 U.S. 85

(1983). App., pp. 21a-22a.

Credited Service date.4 Nonetheless, the majority con-

cluded that Pacific Bell’s seniority system “adopted, and

thereby perpetuated, acts of discrimination which

occurred prior to enactment of the Pregnancy Discrimina-

tion Act.” App., p. 6a. For that reason, the court held that

Pacific Bell’s 1987 decision to base eligibility for the ERO

on seniority should be viewed as no different from a

“decision to discriminate against Pallas in 1987 on the

basis of pregnancy.” Id. at 6a-7a. In its view, “the criteria

adopted in 1987 to determine eligibility for the new bene-

fit program” should be viewed as “not facially neutral,”

even though eligibility for the ERO concededly turned on

the criterion of seniority (not pregnancy). Id. at 3a, 5a-6a.

The majority further concluded that the respondent had

stated a claim for relief under ERISA on the ground that

“discrimination constitutes a fiduciary breach for pur-

poses of ERISA.” Id. at 7a.

The dissenting judge reasoned that eligibility for

Pacific Bell’s ERO was based on the facially neutral crite-

rion of seniority which is “simply a method of record-

keeping and mathematical calculation which determines

how long an employee has worked for the employer.”

App., p. 8a. “[A]ll that the telephone company is cur-

rently doing is applying a bona fide seniority system,

which is not discriminatory on its face, and is specifically

authorized by Congress.” Id. at 10a. “Neither we nor the

telephone company can erase or change his-

tory. * * * Appellant’s grievance is one that belongs to

history; it is not a current violation of law.” Id. at 10a-11a.

* “To qualify for the benefit, an eligible employee must

have accrued twenty years of service. The company measures

an employee’s length of service by a ‘net credited service’

system.” App., p. 3a.

REASONS FOR GRANTING THE PETITION

As this Court has emphasized, “Seniority systems

*** are afforded special treatment under Title VII.” Trans

World Airlines, Inc. v. Hardison, 432 U.S. 63, 81 (1977).

Thus, from Title VII’s inception, section 703(h) has pro-

vided that “notwithstanding any other provision of this

subchapter, it shall not be an unlawful employment prac-

tice for an employer to apply different standards of com-

pensation, or different terms, conditions, or privileges of

employment pursuant to a bona fide seniority or merit

system ** * .” 42 U.S.C. § 2000e-2(h). Nevertheless, the

court of appeals has held that employers may not rely on

seniority unless they continually revise their employees’

regularly established seniority dates to give retroactive

effect to new legal requirements. That decision fails to

adhere to the plain language of section 703(h), and frus-

trates the important federal policy that it embodies.

This Court and other courts of appeals have held that

reliance on facially neutral seniority and service crediting

systems is protected by Title VII even if it gives some

present effect to a previous employment decision that

was not lawful when it was made, but has since become a

permanent part of the employee’s work history. That

result follows a fortiori in the present case, where the

decision to treat plaintiff's 1972 absence as a personal

leave rather than as a disability leave was lawful when it

was made and respondent elected not to pursue her

charge of discrimination at that time. In erroneously

holding to the contrary, the Ninth Circuit majority did

not even mention the clear language of section 703(h),

which should have been dispositive. Nor did it recognize

the distinction consistently drawn by this Court — and

applied by other courts of appeals — between the present

effect given to a past act by a seniority system, on the one

hand, and a present act of discrimination, on the other.

The court of appeals’ decision is of immense practical

and legal importance not only for petitioners, but for all

employers. “Seniority systems and the entitlements con-

ferred by credits earned thereunder are of vast and

increasing importance in the economic employment sys-

tem of this nation.” Franks v. Bowman Transportation Co.,

Inc., 424 U.S. 747, 766 (1976). Seniority provides one of

the most common and fair means of making a wide

variety of employment decisions, ranging from eligibility

for pensions and other benefits as in this case, to bidding

for job assignments and work schedules, to layoffs, pro-

motions and recalls. Congress recognized this fact when

it enacted section 703(h). As this Court has repeatedly

held, section 703(h) permits an employer to rely on

seniority at all times, not merely if all of the past, compo-

nent decisions that make up seniority would be valid if

current legal requirements were retroactively applied to

them. This holding that use of a seniority system is per-

missible even if it arguably “perpetuates” the effects of

past acts is essential if the congressional approval of the

use of seniority in section 703(h) is to have any meaning,

because, by its very nature, seniority incorporates the

results of all previous employment decisions.

If permitted to stand, the court of appeals’ decision

will undermine the use of seniority rather than freely

permit it as Congress intended. The inevitable result will

be to force employers either to attempt to reopen and

investigate each underlying decision that comprises each

employee’s seniority to take account of all past acts that

might now be thought to have been discriminatory even

though they were completely lawful at the time (or, if

unlawful, were not subject to a timely challenge), or,

alternatively, to abandon the use of seniority altogether.

In either event, the will of Congress will have been frus-

trated.

As this Court has recognized, the

“special treatment” [accorded seniority systems

under Title VII] strikes a balance between the

interests of those protected against discrimina-

tion by Title VII and those who work - perhaps

for many years — in reliance upon the validity of

a facially lawful seniority system. * * *

[A]llowing a facially neutral system to be chal-

lenged, and entitlements under it to be altered,

many years after its adoption would disrupt

those valid reliance interests that § 703(h) was

meant to protect.

Lorance v. AT&T Technologies, Inc., 490 U.S. 900, 912

(1989).5 Thus, even putting aside the practical impos-

sibility of the obligation imposed by the court of appeals

continually to reevaluate each component decision that

comprises seniority to give retroactive effect to new legal

requirements or to take account of time-barred episodes

of alleged discrimination, that requirement would frus-

trate the valid reliance interests of other employees

> Section 112 of the Civil Rights Act of 1991, as recently

passed by the Congress, contains an amendment that would

allow “a seniority system that has been adopted for an inten-

tionally discriminatory purpose” to be challenged “when an

individual becomes subject to the seniority system, or when a

person aggrieved is injured by the application of the seniority

system.” 56 Cong. Rec. $15275 (daily ed. Oct. 25, 1991). The

amendment does not apply to this case because there is no

claim that Pacific Bell’s long-standing seniority system was

“adopted for an intentionally discriminatory purpose.” While

the amendment may affect the specific holding of Lorance v.

AT&T Technologies, Inc., supra, in cases involving seniority sys-

tems adopted for an intentionally discriminatory purpose, it

does not affect its broader discussion of the purposes of section

703(h).

regarding such matters as job assignments, work sched-

ules, promotions and layoffs that Congress intended to

protect.

Prompt review by this Court is warranted to resolve

the conflict in the circuits on this issue, and to alleviate

the uncertainty and confusion that the Ninth Circuit’s

decision has injected into the previously well-understood

principles applied to seniority and service crediting sys-

tems by this Court. The Ninth Circuit’s rationale appears

to turn on the fact that the benefits program at issue -

although basing eligibility on seniority - was a “new”

program adopted subsequent to the enactment of the

PDA. This is an insupportable interpretation of this

Court’s decisions construing section 703(h), which sustain

the use of seniority systems for determining terms and

conditions of employment regardless of whether the pro-

grams at issue are “new” programs or “old” programs.

Infra, pp. 18-20. No other circuit has adopted the Ninth

Circuit’s novel and highly restrictive interpretation of

section 703(h).

The effect of the Ninth Circuit’s attempt narrowly to

confine section 703(h) will be to create a strong incentive

for employers to freeze existing benefit programs, rather

than revise them as they otherwise would to take account

of new economic and workplace conditions. Nor are the

effects of the decision below limited to a few businesses

or to the Ninth Circuit. Many employers with national

operations both within and outside the Ninth Circuit base

employment decisions on seniority or service credit. If

they are to treat their employees equally, they must

attempt to conform to the Ninth Circuit’s decision nation-

wide (by freezing benefits programs, abandoning use of

seniority altogether, or attempting in some manner retro-

actively to reevaluate each component decision that com-

prises the seniority dates contained in company records),

even though other circuits have rendered conflicting deci-

sions. Moreover, the problems created by the Ninth Circuit's

approach are not confined to the PDA. Employers could face

demands that they revise seniority dates to give retroactive

effect to all new legal requirements governing employment

decisions (such as, for example, the Family Leave bills now

pending in Congress) that are regularly imposed in this

rapidly evolving area. The grant of certiorari is necessary to

prevent these wide-ranging and unwarranted effects of the

Ninth Circuit’s erroneous interpretation of section 703(h).

Certiorari should also be granted to review the Ninth

Circuit’s decision that ERISA, independently of the provi-

sions of Title VII, prohibits an employer from “discrimi-

nating” in determining what benefits to provide and to

whom under an ERISA benefit plan. The Second, Third,

Sixth, Seventh and Eighth Circuits have rendered con-

flicting decisions, holding that ERISA’s fiduciary duty

requirement imposes no independent standard of dis-

crimination or fairness to govern an employer’s design of

an ERISA benefit plan. Congress refrained from imposing

such an undefined prohibition to encourage employers to

create and fund such purely voluntary plans. The Ninth

Circuit’s contrary decision thus undermines Congress’

intent in enacting ERISA, as well as Title VII.

I. THE DECISION OF THE COURT OF APPEALS IS

IRRECONCILABLE WITH THE PLAIN LAN-

GUAGE OF SECTION 703(h) AND WITH THIS

COURT’S DECISIONS APPROVING THE USE OF

STABLE SENIORITY SYSTEMS FOR MAKING

EMPLOYMENT DECISIONS.

A. This Court’s decisions interpret section 703(h)

in accord with its plain language to permit the

use of seniority despite its alleged present dis-

criminatory impact.

Beginning with Franks v. Bowman Transportation Co.,

Inc., 424 U.S. 747 (1976), this Court has consistently

sustained the use of stable and predictable seniority sys-

tems to make employment decisions. In Franks, the Court

held that, where a timely claim of discrimination is

brought, section 703(h) does not prevent the district court

from remedying a violation of Title VII that exists indepen-

dently of the operation of the seniority system by award-

ing retroactive seniority to the individuals discriminated

against. Id. at 758. However, the Court explicitly recog-

nized that section 703(h) does bar claims like those in the

present case, in which the plaintiff claims that the use of

seniority itself has given a long past and closed act a

present discriminatory effect on current rights and bene-

fits:

[T]he thrust of [section 703(h)] is directed

toward defining what is and what is not an

illegal discriminatory practice in instances in

which the post-act operation of a seniority system is

challenged as perpetuating the effects of discrimina-

tion occurring prior to the effective date of the Act.

Id. at 761 (emphasis added). In reaching that conclusion,

this Court relied not only on the plain language of section

703(h), but on the legislative history of Title VII. That

history clearly indicates that, even though an employee’s

seniority may have been adversely affected by a previous

act of discrimination, “any differences in treatment based

on established seniority rights would not be based on

race and would not be forbidden by the title.” Id. at

760-761 n. 16 (quoting Department of Justice Statement

on Title VII). The legislative history also establishes that

Title VII was not intended to “require an employer to

change existing seniority lists,” as respondent contends

in this case. Id.

Franks’ recognition that section 703(h) was intended

to bar claims such as those here formed the basis for this

Court’s subsequent decision in Teamsters v. United States,

431 U.S. 324 (1977). Plaintiffs claimed that, before Title

VII was enacted, the employer had engaged in a pattern

or practice of racial discrimination, and that the

employer’s use of seniority after the enactment of Title

VII for the purpose of determining current “benefits, such

as vacations, pensions, and other fringe benefits” (id. at

343) was unlawful because it had the effect of perpetuat-

ing the effects of those previous acts of discrimination.

The district court and the court of appeals had held that

this use of seniority violated Title VII because it ” ‘locked’

minority workers into inferior jobs and perpetuated prior

discrimination by discouraging transfers to jobs as line

drivers.” Id. at 344.

This Court reversed, holding that section 703(h)

immunizes an employer from liability for the discrimina-

tory impact of using seniority as a basis for current

determinations of benefits and other conditions of

employment, even though, as is claimed to be true in this

case, “the seniority system operates to carry the effects of

the earlier discrimination into the present.” Id. at 344-345

n. 27. Specifically, despite the fact that facially neutral

seniority systems may be viewed as “one kind of practice

‘fair in form, but discriminatory in operation’ * * * which

perpetuates the effects of prior discrimination” that

would otherwise violate Title VII (see Griggs v. Duke Power

Co., 401 U.S. 424 (1971)), “both the literal terms of

6 Were it not for § 703(h), the seniority system in this

case would seem to fall under the Griggs rationale. The

heart of the system is its allocation of the choicest

jobs, the greatest protection against layoffs, and

other advantages to those employees who have been

line drivers for the longest time. Where, because of

the employer’s prior intentional discrimination, the

line drivers with the longest tenure are without

exception white, the advantages of the seniority

(Continued on following page)

§ 703(h) and the legislative history of Title VII demon-

strate that Congress considered this very effect of many

seniority systems and extended a measure of immunity to

them.” 431 U.S. at 350. This Court reiterated that “the

unmistakable purpose of § 703(h) was to make clear that

the routine application of a bona fide seniority system

would not be unlawful under Title VII. As the legislative

history shows, this was the intended result even where

the employer’s pre-Act discrimination resulted in whites

having greater existing seniority rights than Negroes”

and the use of seniority, therefore, “inevitably tends to

perpetuate the effects of pre-Act discrimination in such

cases.” 431 U.S. at 352-353. Accordingly, “we hold that an

otherwise neutral, legitimate seniority system does not become

unlawful under Title VII simply because it may perpetuate pre-

Act discrimination.” Id. at 353-354 (emphasis added).

In United Air Lines, Inc. v. Evans, 431 U.S. 553 (1977),

this Court extended the rationale of Teamsters to a case

where the use of seniority perpetuated the effects of

discriminatory acts that, unlike those in Teamsters and in

this case, were unlawful when they occurred but had not

been challenged at that time. In Evans, the plaintiff was

forced to resign in 1968 after she married. Resigning

employees lost all seniority. United subsequently ended

this discriminatory practice, but when plaintiff was

rehired United gave her no seniority credit for the period

of her forced resignation. This Court assumed that the

1968 forced resignation would have been found unlawful

(Continued from previous page)

system flow disproportionately to them and away

from Negro and Spanish-surnamed employees who

might by now have enjoyed those advantages had

not the employer discriminated before the passage of

the Act.

Id. at 349-350 (emphasis added).

had it been subject to a timely challenge, and addressed

the question of “whether the employer is committing a

second violation of Title VII by refusing to credit her with

seniority for any period prior to February 1972.” Id. at

554. The Court again ruled that a seniority system does

not violate Title VII even though it “gives present effect

to the past illegal act and therefore perpetuates the conse-

quences of forbidden discrimination.” Id. at 557.

[A] challenge to a neutral system may not be

predicated on the mere fact that a past event

which has no present legal significance has

affected the calculation of seniority credit, even

if the past event might at one time have justified

a valid claim against the employer.

Id. at 560.

Thus, even if, despite this Court’s decision in Gilbert,

supra, petitioners’ 1972 treatment of respondent’s preg-

nancy had been unlawful when it occurred (which it was

not), Evans makes it clear that petitioners were:

entitled to treat that past act as lawful after

respondent failed to file a charge of discrimina-

tion within the 90 days then allowed by

§ 706(d). A discriminatory act which is not made

the basis for a timely charge is the legal equiva-

lent of a discriminatory act which occurred

before the statute was passed.

Id. at 558.7

In American Tobacco Co. v. Patterson, 456 U.S. 63

(1982), this Court held that section 703(h) is not confined

to seniority systems adopted before the passage of Title

7 In the present case, respondent filed a timely charge with

the agency with respect to her 1972 leave, but failed to pursue

that charge by filing a timely complaint within 90 days after

receiving her right-to-sue letter as prescribed in 42 U.S.C.

§ 2000e-5(f).

VII, but extends as well to protect newly adopted

seniority systems, even though the result of such “new”

uses of seniority is to perpetuate the effects of earlier acts

of discrimination. Relying on the “plain language of

§ 703(h),” which, on its face, makes no distinction

between “old” and “new” uses of seniority, this Court

held that the statute insulates the alleged discriminatory

impact of such systems from challenge under Title VII

regardless of when they were adopted. Id. at 77. Any

other result not only would be inconsistent with the

language of section 703(h), but would discourage

employers from “modifying pre-Act seniority systems or

post-Act systems whose adoption was not timely chal-

lenged.” Id. at 71. This Court emphasized that:

Our prior decisions have emphasized that

“seniority systems are afforded special treat-

ment under Title VII itself,” Trans World Airlines,

Inc. v. Hardison, 432 U.S. 63, 81 (1977), and have

refused to narrow § 703(h) by reading into it

limitations not contained in the statutory lan-

guage. In Teamsters v. United States,* * * we held

that § 703(h) exempts from Title VII the dispa-

rate impact of a bona fide seniority system even

if the differential treatment is the result of pre-

Act racially discriminatory employment prac-

tices. Similarly, by holding that “[a] discrimina-

tory act which is not made the basis for a timely

charge is the legal equivalent of a discrimina-

tory act which occurred before the statute was

passed,” United Air Lines v. Evans, 431 U.S. 553,

558 (1977), the Court interpreted § 703(h) to

immunize seniority systems which perpetuate

post-Act discrimination. Thus, taken together,

Teamsters -ad Evans stand for the proposition

stated in Teamsters that “[sJection 703(h) on its

face immunizes all bona fide seniority systems,

and does not distinguish between the perpetua-

tion of pre- and post-Act” discriminatory

impact. * * * Section 703(h) makes no distinction

between seniority systems adopted before its effective

date and those adopted after its effective date.

Id. at 75-76 (emphasis added).

The court of appeals in this case made no attempt to

apply the distinction drawn in this Court’s cases between

a current act of discrimination, on the one hand, and the

current impact given to a prior act by seniority, on the

other. To the contrary, the panel reasoned that Pacific Bell

had violated Title VII because:

In 1987, Pacific Bell instituted a program that

adopted, and thereby perpetuated, acts of discrimina-

tion which occurred prior to enactment of the Preg-

nancy Discrimination Act.

App., p. 6a (emphasis added). Evans, however, holds

exactly the opposite: Evans ruled that even though

United’s seniority system “does indeed have a continuing

impact on [plaintiff's] pay and fringe benefits” as a result

of United’s previous act of sex discrimination, United’s

practice of basing current pay and benefits on seniority,

with the “present effect” of adopting and “perpet-

uat{ing]” that previous act of discrimination, was “neu-

tral in its operation.” 431 U.S. at 557-558. Accordingly, it

was not a present violation of Title VII.

B. The fact that Pacific Bell’s 1987 ERO was a

“new” program is irrelevant. Section 703(h) pro-

tects both old and new programs based on

seniority.

The court of appeals attempted to distinguish Teams-

ters and Evans, primarily on the ground that the alleged

“discriminatory program” at issue was a new program

that had been adopted in 1987. App., pp. 5a-6a. Thus, the

majority conciuded, “this is not a belated attempt to

litigate the discriminatory impact of a pre-Pregnancy Dis-

crimination Act program.” Id. Rather, “Pallas challenges

the criteria adopted in 1987 to determine eligibility for

the new benefit program.” Id.

This analysis disregards both the clear language of

section 703(h) and the central rationale of this Court’s

decisions. The very point of section 703(h) as construed in

Teamsters and Evans is that a current decision to base pay

or other benefits on seniority, as in the present case,

“shall not be an unlawful employment practice” even

though such use of seniority may give a previous act a

current “impact.” The issue in Evans was not whether

plaintiff had filed a timely claim. Rather, the question was

whether, given the company’s discriminatory action in

1968, “the employer is committing a second violation of

Title VII by refusing to credit her with seniority for any

period prior to February 1972” when she returned to

work. 431 U.S. at 554. This Court held that despite the

1972 impact of seniority on her pay and other benefits

“she has not alleged facts establishing a violation since

she was rehired in 1972.” Id. at 559.

Thus, the court of appeals’ conclusion that respon-

dent had made a timely challenge to Pacific Bell’s “new”

use of her Net Credited Service Date to determine eligi-

bility for the ERO in 1987 does not address the controlling

legal principle: It was not a current act of discrimination

for Pacific Bell to rely on Net Credited Service as the

criterion for determining eligibility for a retirement bene-

fit. Nothing in the language of section 703(h) or the

rationale of this Court’s decisions turns on whether the

employee benefit program or wage scale at issue is an

“old” wage scale or benefit program or a “new” wage

scale or benefit program.® Teamsters and Evans clearly

8 Indeed, in Bazemore v. Friday, 478 U.S. 385 (1986) (infra, p.

22), on which the panel relies, the pay system at issue was an

(Continued on following page)

uphold all programs that base current pay or benefits on

seniority, whether they are “new” programs or “old”

programs (or, as is true in this case, amendments to old

programs). Clearly, if, as this Court held in American

Tobacco, supra, section 703(h) immunizes the adoption and

the application of entirely new seniority systems after the

enactment of Title VII despite their conceded discrimina-

tory impact, Pacific Bell’s use of its existing and long-

standing service crediting system for the purpose of

determining eligibility for its 1987 ERO was also lawful.

C. Eligibility for Pacific Bell’s 1987 ERO was

based on the facially neutral criterion of

seniority, not pregnancy.

The court of appeals’ majority also suggested that

Evans and Teamsters are not on point because the “net

credit system used to calculate eligibility under the Early

Retirement Opportunity is not facially neutral” but

“facially discriminates against pregnant women.” App.,

p. 6a (emphasis added). The panel stated that under the

1987 ERO, Pacific Bell employed “a method of calculating

employee service time that does not credit pregnancy

leaves taken prior to 1979 but credits temporary disability

leaves taken during the same period.” Id. at 2a. The panel

erroneously implies that respondent’s 1972 pregnancy

was expressly considered by the company in determining

her eligibility for the ERO, stating that the company

(Continued from previous page)

“old” system adopted prior to the implementation of Title VII.

Conversely, in Farris v. Board of Ed. of City of St. Louis, 576 F.2d

765 (8th Cir. 1978) (infra, p. 24), the pay practice upheld under

Evans was an employer’s current salary schedule basing pay

on seniority, which plaintiff claimed had been unlawfully

reduced as a result of a previous failure to credit her maternity

leave.

“informed [respondent] that she was not eligible for the

benefit because, as a result of a pregnancy-related leave

she took in 1972,” she lacked the necessary seniority. Id.

at 3a.

To the contrary, neither Pacific Bell’s 1987 ERO nor

any of its other benefit programs employed eligibility

criteria that depended on, or even mentioned, whether an

employee had taken a pregnancy leave, either before or

after 1979. The complaint itself alleges that “at all times

relevant herein, defendants maintained a Net Credited

Service Date for each of defendants’ employees” which

they used “to measure an employee's length of service for

purposes of determining entitlement to and eligibility for’

benefits. ER 8 (emphasis added).? As the dissenting judge

in the court of appeals correctly recognized:

The appellee telephone company has simply

applied a seniority system, which it uses as the

criterion for according many kinds of employee

benefits, and appellant simply did not have

enough seniority to qualify for the early retire-

ment which she sought.

App., p. 8a (footnote omitted).

Thus, eligibility for benefits for Pacific Bell’s 1987

ERO did not, on its face, turn on “pregnancy vs. disabil-

ity,” as the panel implies. Rather, it turned on the facially

neutral criterion of seniority, which included the period

of disability leaves, but not “personal” leaves. Pacific

Bell’s seniority system did not, on its face, discriminate

by “assign[ing] men twice the seniority that women

receive for the same amount of time served * * * ,” thus

treating “similarly situated employees differently.”

Lorance v. AT&T Technologies, Inc., supra, 490 U.S. at 912 &

9 The citation is to the Excerpt of Record filed in the court

of appeals.

n. 5. Rather, on its face it assigned all employees service

credit for disability leaves, but not for personal leaves,

treating all similarly situated employees the same.

Respondent’s complaint is not with the Pacific Bell

seniority system itself, which on its face properly differ-

entiates between personal leaves and disability leaves.

Rather, it is with Pacific Telephone’s 1972 decision to treat

her pregnancy leave as a personal leave — a decision that

was lawful when it occurred.

The court of appeals’ heavy reliance on Bazemore v.

Friday, 478 U.S. 385 (1986) (App., p. 6a) was clearly mis-

placed. Bazemore did not involve the alleged current dis-

criminatory impact of basing pay or other benefits on

seniority. Rather, in Bazemore, the employer commenced

the practice of paying blacks less than whites for the

same work before the effective date of Title VII, and

continued that practice after Title VII became effective.

Seniority was not involved at all. This Court merely held

that the fact that an unlawful employment practice which

currently bases an employee’s pay on the forbidden criterion

of race (not seniority) had commenced before Title VII

became effective could not immunize the employer from

liability for its continuing and current acts of basing pay

on race. At the same time, however, the Court stressed

“recovery may not be permitted for pre-1972 acts of dis-

crimination.” Id. at 395. The court of appeals’ sweeping

extension of Bazemore beyond current acts of discrimina-

tion to encompass the current effects given by a seniority

system to past acts that were lawful when they occurred,

thus giving retroactive effect to new legal requirements,

is irreconcilable with section 703(h) as it has been inter-

preted and applied by this Court.

In this case, by contrast to Bazemore, Pacific Bell does

not currently base the availability of any employee bene-

fit on the forbidden criterion of pregnancy, but rather on

the lawful and neutral criterion of seniority. Petitioners

did not establish respondent’s seniority date in 1987.

Rather, the pre-1979 rule classifying pregnancy leaves as

personal leaves for which no seniority credit would be

given was applied when plaintiff took her leave in 1972.

Plaintiff's resulting seniority date was then established

throughout the entire period of her employment with the com-

pany. The only action taken by Pacific Bell in 1987 was to

apply respondent's already established and facially neu-

tral seniority date —- which necessarily incorporated the

results of all previous decisions affecting seniority — to

determine her eligibility for the 1987 ERO. In so doing, it

did not refer to pregnancy at all. The only reason that

respondent’s 1972 pregnancy ever appeared in the record

was because she requested the company retroactively to

change her previously established seniority date as it

appeared in the company records. That is the very thing

that, under section 703(h), the company need not do.

Prior to the present decision, no court had held that a

system for determining employment benefits, which “on

its face” does not refer in any way to a forbidden crite-

rion, should nevertheless be treated as “facially discrimi-

natory.”

Il. THE PANEL’S DECISION CONFLICTS WITH THE

DECISIONS OF OTHER CIRCUITS REJECTING

SIMILAR CLAIMS UNDER TITLE VII.

Review is also necessary to resolve a conflict in the

circuits. The Second and Eighth Circuits have rejected

claims indistinguishable from those of respondent here.

See Schwabenbauer v. Bd. of Educ. of City of Olean, 777 F.2d

837 (2d Cir. 1985) (rejecting plaintiff's claim that her 1972

dismissal constituted a current violation of Title VII since

she would have had enough service to receive tenure but

for defendant’s failure to credit her 1970 maternity leave);

Farris v. Board of Ed. of City of St. Louis, 576 F.2d 765 (8th

Cir. 1978) (rejecting plaintiff’s claim that defendant’s cur-

rent salary schedule, which depended on length of ser-

vice, violated Title VII since plaintiff’s mandatory

maternity leave absences taken before 1972 were not

credited). See also Trabucco v. Delta Airlines, 590 F.2d 315

(6th Cir. 1979); Simmons v. South Carolina State Ports

Authority, 495 F. Supp. 1239 (D.S.C. 1980), aff'd, 694 F.2d

63 (4th Cir. 1982).

Thus, in Schwabenbauer, the Second Circuit noted that

Title VII did not apply to school boards until 1972 and

that defendant’s failure to credit plaintiff’s maternity

leave in 1970 was not unlawful at that time. The court

ruled that to apply the 1972 statute to require such ¢redit

in determining whether plaintiff had “tenure” precluding

her dismissal in 1972 would improperly:

give retroactive effect to a statute creating new

rights where none had previously existed. The

manifest injustice of such ex post facto imposition

of civil liability is reflected in the general rule of

construction that absent clear legislative intent

statutes altering substantive rights are not to be

applied retroactively **”*.

777 F.2d at 840 (emphasis in original) (quoting Weise v.

Syracuse University, 522 F.2d 397, 411 (2d Cir. 1975)).

Precisely the same analysis applies to the court of

appeals’ erroneous application of the 1979 Pregnancy Dis-

crimination Act in this case to require that respondent’s

seniority date be retroactively revised so that she receives

service credit for her 1972 pregnancy leave.

Ill. THE PANEL’S DECISION ALSO CONFLICTS

WITH THE DECISIONS OF OTHER CIRCUITS

HOLDING THAT AN EMPLOYER DOES NOT

ACT AS A FIDUCIARY IN DESIGNING THE BEN-

EFIT STRUCTURE OF AN ERISA PLAN.

The majority summarily concludes, in a single para-

graph, that “discrimination constitutes a fiduciary breach

for purposes of ERISA.” App., p. 7a. But this Court has

explicitly stated that ERISA “does not itself proscribe dis-

crimination in the provision of employee benefits.” Shaw v.

Delta Air Lines, Inc., 463 U.S. 85, 91 (1983) (emphasis

added). The court of appeals’ contrary decision consti-

tutes an unprecedented revision of settled ERISA princi-

ples and is in conflict with decisions in the Second, Third,

Sixth, Seventh and Eighth Circuits.

Those other courts have correctly held that employer

decisions to create, allocate benefits under, amend or

even terminate a benefit plan are not to be judged by

fiduciary standards. See, e.g., Fletcher v. The Kroger Co., 942

F.2d 1137, 1139 (7th Cir. 1991) (employer’s decision to

provide special retirement benefits to employees at some

plants but not at others did not violate ERISA’s fiduciary

duty standards because an employer does not act as a

fiduciary when it makes the initial decision as to what the

plan will provide); Adams v. LTV Steel Mining Co., 936 F.2d

368 (8th Cir. 1991); Belade v. ITT Corporation, 909 F.2d 736,

737-738 (2d Cir. 1990) (“an employer’s decision to exclude

certain employees from the design of an early retirement

program” does not implicate ERISA fiduciary duties);

Musto v. American General Corp., 861 F.2d 897, 911 (6th Cir.

1988), cert. denied, 490 U.S. 1020 (1989) (“there is a world

of difference between administering a welfare plan in

accordance with its terms and deciding what those terms

are to be. A company acts as a fiduciary in performing

the first task, but not the second”); Trenton v. Scott Paper

Co., 832 F.2d 806, 809 (3d Cir. 1987), cert. denied, 485 U.S.

1022 (1988) (single-employer plan did not breach fiduci-

ary duty by discriminating in adopting ERO for the bene-

fit of some participants but not others); Amato v. Western

Union Intern., Inc., 773 F.2d 1402, 1416 (2d Cir. 1985).?9 As

the court of appeals explained in Musto, supra:

The case law * * * makes it clear that when

an employer decides to establish, amend, or ter-

minate a benefits plan, as opposed to managing

any assets of the plan and administering the

plan in accordance with its terms, its actions are

not to be judged by fiduciary standards.

861 F.2d at 912.

ERISA does contain specific restrictions on the sub-

stantive provisions of pension plans.'! These specific stat-

utory provisions, however, are the sole limits which

ERISA places on the terms of an employer’s plan. No

provision of ERISA empowers a court to review the sub-

stantive provisions of an employer’s plan for conformity

to any standard of “reasonableness,” “fairness” or “dis-

crimination.”!2 An employer may be a fiduciary in carry-

ing out the provisions of a plan that it has designed, but it

10 The Ninth Circuit’s decision is at odds with previous

decisions within that circuit as well. See Lea v. Republic Airlines,

Inc., 903 F.2d 624, 631 (9th Cir. 1990); Amalgamated Clothing &

Textile Workers v. Murdock, 861 F.2d 1406, 1419 (9th Cir. 1988);

West v. Greyhound Corp., 813 F.2d 951, 955-956 (9th Cir. 1987)

(single-employer plan changes “ ‘are not to be reviewed by

fiduciary standards’ ”).

1 For example, single-employer pension plans must begin

to vest employees by, at latest, their fifth year. 29 U.S.C. § 1053.

12 [A]n employer has no affirmative duty to provide

employees with a pension plan. H.Rep. No. 93-807,

93rd Cong., 2d Sess. (1974), reprinted in [1974]

U.S.Code Cong. and Ad.News, 4670, 4677. In enact-

ing ERISA, Congress continued its reliance on volun-

tary action by employers by granting substantial tax

advantages for the creation of qualified retirement

programs. Id. Neither Congress nor the courts are

(Continued on following page)

is not a fiduciary in determining the design of the plan

itself. “ERISA permits employers to wear ‘two hats.’”

Amato v. Western Union Intern., Inc., 773 F.2d 1402, 1416

(2d Cir. 1985). Employers “assume fiduciary status ‘only

when and to the extent’ that they function in their capac-

ity as plan administrators” — not when they design their

pension plans and act as a corporate employer. Id. at

1416-1417 (quoting Amato v. Western Union Intern., Inc.,

596 F. Supp. 963, 968 (S.D.N.Y. 1984)). Thus, while ERISA

provides for judicial review of the administration of

ambiguous provisions of a plan to determine whether

those provisions have been construed in an arbitrary or

capricious manner,!% review of an employer’s selection of

(Continued from previous page)

involved in either the decision to establish a plan or

in the decision concerning which benefits a plan should

provide. In particular, courts have no authority to decide

which benefits employers must confer upon their

employees; these are decisions which are more appro-

priately influenced by forces in the marketplace and,

when appropriate, by federal legislation. Absent a

violation of federal or state law, a federal court may

not modify a substantive provision of a pension

plan.

Moore v. Reynolds Metals Co. Retirement Program, 740 F.2d 454,

456 (6th Cir. 1984), cert. denied, 469 U.S. 1109 (1985) (footnote

and citation omitted; emphasis added).

13 The court of appeals erroneously implies, without elab-

oration, that respondent may have stated a claim challenging

the way in which the plan was administratively interpreted

and applied to her, rather than the design of the plan’s benefit

structure itself. It states that respondent “challenges the man-

ner in which the Early Retirement Opportunity program was

applied to her” and that “[cJjalculation of the service term for

purposes of eligibility in the program is an act subject to

(Continued on following page)

which benefits to provide to particular classes of

employees is not intended under ERISA.

The court of appeals’ reliance on Elser v. 1.A.M. Nat.

Pension Fund, 684 F.2d 648 (9th Cir. 1982), cert. denied, 464

U.S. 813 (1983) (App., p. 7a) was misplaced, because Elser

involved a multi-employer plan, established by collective

bargaining under the Taft-Hartley Act, 29 U.S.C.

§ 186(c)(5), under which a pooled fund was administered

jointly by labor and management representatives.'4 In

such a case, the plan’s administrators do not act as an

employer in deciding what benefits to provide and to

whom they will be provided, but rather as administrators

in managing the plan assets that have already been pro-

vided through collective bargaining. In Musto, supra, the

court of appeals explained this important - and previ-

ously well-understood —- distinction between reviewing

the terms of a multi-employer pension plan for the gen-

eral fairness of its “allocation” of benefits and reviewing

(Continued from previous page)

review for breach of fiduciary duty.” App., p. 7a. However,

there is no issue of improper plan interpretation or administra-

tion in this case. The court of appeals failed to mention that

respondent’s complaint admits that the plan itself made all of

its benefits dependent on Net Credited Service (ER 8, | 34; ER

10, 40), and that her Net Credited Service did not include the

period of her pre-1979 pregnancy leave (ER 9, ¥ 38). The panel

also failed to note that the district court granted respondent

leave to amend to attempt to state a claim for improperly

administering the plan by failing to interpret and apply it in

accordance with its provisions. Respondent declined that

opportunity. Thus, as the district court correctly concluded, no

issue of alleged misinterpretation of the plan in determining

respondent's net credited service is presented.

14 See also, e.g., Winpisinger v. Aurora Corp. of Ill., Etc., 456 F.

Supp. 559 (N.D. Ohio 1978).

29°

the terms of a single-employer plan such as that in this

case:

In amending a multi-employer plan, where the

level of contributions of each participating

employer has generally been set by collective

bargaining, the trustees “affect the allocation of

a finite plan asset pool between participants,” as

defendants point out in their brief, and hence act

as plan administrators subject to a fiduciary duty.

But when, as here, there is only one employer,

there is normally no “plan asset pool” to be

affected. In amending a single employer plan, there-

fore, the company normally acts in its role as

employer, not in its role as fiduciary.

861 F.2d at 912 (emphasis added).

An employer’s plan design decisions are of course

subject to independent legal requirements, such as Title

VII.15 But ERISA itself provides no independent standard

or prohibition of “discrimination” that restricts or regu-

lates an employer’s decision as to what benefits to pro-

vide or how they should be allocated among its

employees. Congress carefully refrained from importing

such an undefined and wide-ranging standard of judicial

review to avoid the deterrent effect such review would

obviously have on employers’ willingness to create and

1S Congress specifically declined to amend ERISA to

include a substantive prohibition of discrimination analogous

to that of Title VII on the ground that the matter was ade-

quately dealt with by Title VII. Senator Mondale’s proposed

amendment to ERISA that would have prohibited discrimina-

tion based on race, color, national origin or sex by any plan

covered by ERISA, was withdrawn on the ground that discrim-

ination was adequately dealt with under Title VII. 119 Cong.

Rec. 24456-24457, 30410 (1973). See also 120 Cong. Rec. 4276

(1974) (remarks of Ms. Abzug and Mr. Dent).

fund such purely voluntary plans for the benefit of their

employees.

The court of appeals’ decision in this case injects new

uncertainty into this previously settled area of ERISA law,

and prevents employers from knowing with any assur-

ance what requirements the law imposes on their design

of a benefit plan. The conflict in the circuits and the broad

importance of this issue to the willingness of employers

to revise old plans and create new plans for the benefit of

their employees make this issue independently worthy of

this Court’s attention.

CONCLUSION

For the reasons stated, the petition for a writ of

certiorari should be granted.

Respectfully submitted,

C. Douctas FLoyp*

Wititiam Gaus

Frep W. ALVAREZ

Kirke M. Hasson

225 Bush Street

Post Office Box 7880

San Francisco, CA 94120-7880

Telephone: (415) 983-1000

Attorneys for Petitioners

*Counsel of Record

Pillsbury Madison & Sutro

Of Counsel

APPENDICES

TABLE OF CONTENTS

Page

APPENDIX A

Opinion of the United States Court of Appeals for

the Ninth Circuit, August 12, 1991............... la

APPENDIX B

Order of the United States Court of Appeals for the

Ninth Circuit Denying the Petition for Rehearing

and Rejecting the Suggestion for Rehearing En

a | a 13a

APPENDIX C

Order of the United States Court of Appeals for the

Ninth Circuit Granting the Appellees’ Motion to

Stay the Mandate, October 10, 1991.............. 14a

APPENDIX D

Order Dismissing Complaint of the United States

District Court of the Northern District of Califor-

I sce s oc cbsccrcesiceesccces 15a

APPENDIX E

RE 25a

APPENDIX A

FOR PUBLICATION

UNITED STATES COURT OF APPEALS FOR THE

NINTH CIRCUIT

No. 90-15559

LANA PALLAs, D.C.No.

Plaintiff-Appellant, CV-89-2373-DLJ

v. OPINION

Paciric Bett; PaAciric

TELEsIs, et al.,

_—— ee

Defendants-Appellees.

Appeal from the United States District Court

for the Northern District of California

D. Lowell Jensen, District Judge, Presiding

Argued and Submitted

May 15, 1991 — San Francisco, California

Filed August 12, 1991

Before: Mary M. Schroeder and Jerome Farris, Circuit

Judges, and Edward Dumbauld,” District Judge.

Opinion by Judge Schrceder;

Dissent by District Judge Dumbauld

*Honorable Edward Dumbauld, Senior United States District

Judge for the Western District of Pennsylvania, sitting by des-

ignation.

COUNSEL

Maria Blanco, Equal Rights Advocates, San Francisco,

California, and Robert Hirsch, Van Bourg, Weinberg,

Roger & Rosenfeld, San Francisco, California, for the

plaintiff-appellant.

C. Douglas Floyd, Pillsbury, Madison & Sutro, San Fran-

cisco, California, for the defendants-appellees.

OPINION

SCHROEDER, Circuit Judge:

Lana Pallas filed this suit against her employer,

Pacific Bell, and its predecessor companies (collectively

“Pacific Bell”), claiming that the company has discrimi-

nated against her on the basis of gender and pregnancy.

Pacific Bell denied her retirement benefits in 1987 based

on a method of calculating employee service time that

does not credit pregnancy leaves taken prior to 1979 but

credits temporary disability leaves taken during the same

period. Pallas brought this action under the Pregnancy

Discrimination Act provisions of Title VII, 42 U.S.C.

§ 2000e et seq.; ERISA, 29 U.S.C. §§ 1001 et seq.; and the

California Fair Employment and Housing Act, Cal. Gov't

Code § 12900 et seq.

The district court interpreted Pallas’s complaint to

allege only that discrimination occurred prior to 1979,

when the law did not require employers to treat pregnant

women like temporarily disabled men. See General Electric

Co. v. Gilbert, 429 U.S. 125, 97 S.Ct. 401, 50 L.Ed.2d 343

(1976). Thus, the district court dismissed the complaint

for failure to state a federal claim. Because we hold that

the complaint states a claim for discrimination occurring

in 1987 when Pacific Bell denied Pallas retirement bene-

fits, we reverse. See Bazemore v. Friday, 478 U.S. 385, 106

S.Ct. 3000, 92 L.Ed.2d 315 (1986).

FACTS

In 1987, Pacific Bell instituted a new retirement bene-

fit for management employees called the “Early Retire-

ment Opportunity.” To qualify for the benefit, an eligible

employee must have accrued twenty years of service. The

company measures an employee's length of service by a

“net credited service” system. Under this system, an

employee receives credit for time during which the

employee is absent due to a temporary disability, but

does not receive credit for time spent on personal leave.

Prior to enactment of the Pregnancy Discrimination Act,

Pacific Bell required employees disabled by pregnancy to

take personal leaves. After 1979, Pacific Bell changed its

policy to allow employees with pregnancy-related dis-

abilities to take disability leaves. Under the currcnt “net

credited service” system, employees disabled by preg-

nancy prior to 1979 do not receive service credit for their

pregnancy-related leaves.

Pallas, who had been employed by Pacific Bell and its

predecessor companies since 1967, applied for the Early

Retirement Opportunity. By letter dated October 11, 1988, the

company informed her that she was not eligible for the

benefit because, as a result of a pregnancy-related leave she

took in 1972, she was three to four days short of the neces-

sary amount of service credit. This suit followed.

DISCUSSION

The Pregnancy Discrimination Act amended Title VII

to redress discrimination based on a woman’s pregnancy.

See 42 U.S.C. § 2000e(k); Newport News Shipbuilding & Dry

Dock Co. v EEOC, 462 U.S. 669, 684, 103 S.Ct. 2622, 2631,

77 L.Ed.2d 89 (1983) (“The Pregnancy Discrimination Act

has now made clear that, for all Title VII purposes, dis-

crimination based on a woman’s pregnancy is, on its face,

discrimination because of her sex”). The Act requires

employers to treat pregnancy disabilities in the same

manner as other temporary medical disabilities for “all

employment-related purposes, including receipt of bene-

fits under fringe benefit programs.” 42 U.S.C. § 2000e(k).!

' Section 703(a) of Title VII provides that it is an “unlawful

employment practice” for an employer:

(1)... to discriminate against any individual with

respect to his compensation, terms, conditions, or

privileges of employment, because of such individ-

ual’s race, color, religion, sex, or national origin; or

(2) to limit, segregate, or classify his employees or

applicants for employment in any way which would

deprive or tend to deprive any individual of employ-

ment opportunities or otherwise adversely affect his

status as an employee, because of such individual's

race, color, religion, sex, or national origin.

42 U.S.C. § 2000e-2(a). Congress amended Title VII in 1978 to

provide that:

[t]he terms “because of sex” or “on the basis of sex”

include, but are not limited to, because of or on the

basis of pregnancy, childbirth, or related medical

(Continued on following page)

The district court dismissed Pallas’s Title VII claim

on the basis of a series of Supreme Court decisions inter-

preting a special provision of Title VII concerning

seniority systems, 42 U.S.C. § 2000e-2(h). See, e.g., Lorance

v. AT & T Technologies, Inc., 490 U.S. 900, 109 S.Ct. 2261,

104 L.Ed.2d 961 (1989); United Air Lines, Inc. v. Evans, 431

U.S. 553, 97 S.Ct. 1885, 52 L.Ed.2d 571 (1977). In this line

of decisions, the Supreme Court held that disparate

impacts resulting from a bona fide seniority system that

is facially neutral must be challenged within the statute

of limitations from the time the system is adopted; with a

facially neutral system, the discriminatory act occurs at

the time of adoption and subsequent applications do not

constitute continuing violations. See Lorance, 490 U.S. at

911-13, 109 S.Ct. at 2268-69; Evans, 431 U.S. at 557-58, 97

S.Ct. at 1888-89.

The district court erred in relying on Evans and its

progeny. These cases are inapposite in two determinative

respects. First, the discriminatory program which gave

rise to this suit, the Early Retirement Opportunity, was

instituted in 1987. This is not a belated attempt to litigate

the discriminatory impact of a pre-Pregnancy Discrimina-

tion Act program. Pallas challenges the criteria

(Continued from previous page)

conditions; and women affected by pregnancy, child-

birth, or related medical conditions shall be treated

the same for all employment-related purposes,

including receipt of benefits under fringe benefit

programs, as other persons not so affected but simi-

lar in their ability or inability to work... .

42 U.S.C. § 2000e(k) (Pregnancy Discrimination Act).

adopted in 1987 to determine eligibility for the new bene-

fit program. The claim could not have been brought ear-

lier. Second, the net credit system used to calculate

eligibility under the Early Retirement Opportunity is not

facially neutral. The system used to determine eligibility

facially discriminates against pregnant women. The sys-

tem distinguishes between similarly situated employees:

female employees who took leave prior to 1979 due to a

pregnancy-related disability and employees who took

leave prior to 1979 for other temporary disabilities.

The controlling Supreme Court precedent is Bazemore

v. Friday, 478 U.S. 385, 106 S.Ct. 3000, 92 L.Ed.2d 315

(1986). In Bazemore, the employer had, prior to the enact-

ment of Title VII, maintained two separate, racially segre-

gated work forces and paid whites more than blacks. The

Court held that pay disparities which remained after the

enactment of Title VII were unlawful. “Each week’s pay-

check that delivers less to a black than to a similarly

situated white is a wrong actionable under Title VII,

regardless of the fact that this pattern was begun prior to

the effective date of Title VII.” 478 U.S. at 395-96, 106

S.Ct. at 3006. Although the employer was not liable for

acts of discrimination that occurred prior to the enact-

ment of Title VII, the Court held that an employer could

be held liable for discrimination perpetuated after the Act

took effect. Id. at 395, 106 S.Ct. at 3006.

In 1987, Pacific Bell instituted a program that

adopted, and thereby perpetuated, acts of discrimination

which occurred prior to enactment of the Pregnancy Dis-

crimination Act. While the act of discriminating against

Pallas in 1972 is not, itself, actionable, Pacific Bell is liable

for its decision to discriminate against Pallas in 1987 on

the basis of pregnancy. Pallas’s complaint states a valid

claim under Title VII.

For similar reasons, the district court erred in dis-

missing Pallas’s claims under the California Fair Employ-

ment and Housing Act, Cal. Gov’t. Code § 12900 et seq.

The FEHA is based on Title VII, making it an unlawful

business practice to “refuse to allow a female employee

affected by pregnancy, childbirth or related medical con-

ditions . . . [tlo receive the same benefits or privileges of

employment granted by that employer to other persons

not so affected .. . including to take disability or sick

leave... .” Cal. Gov’t Code § 12945(b) (1) Because Pallas

has stated a Title VII claim, she has also stated a claim

under the FEHA.

Pallas has also stated a claim cognizable under

ERISA. Pallas challenges the manner in which the Early

Retirement Opportunity program was applied to her. Cal-

culation of the service term for purposes of eligibility in

the program is an act subject to review for breach of

fiduciary duty. Menhorn v. Firestone Tire & Rubber Co., 738

F.2d 1496, 1502-03 (9th Cir. 1984). Pallas alleges that

Pacific Bell breached its fiduciary duty by failing to act in

the interests of plan participants. Discrimination consti-

tutes a fiduciary breach for purposes of ERISA. See, e¢.g.,

Elser v. 1.A.M. National Pension Fund, 684 F.2d 648 (9th Cir.

1982), cert. denied, 464 U.S. 813, 104 S.Ct. 67, 78 L.Ed.2d 82

(1983). The allegations in the complaint are sufficient to

support an ERISA claim.

The judgment of the district court is REVERSED and

the case is REMANDED.

DUMBAULD, District Judge, dissenting:

Respectfully, and regretfully, I dissent. Appellant

portrays to us, in the words of an English poet,

“a melancholy tale

Of things done long ago, and ill-done.”!

In my interpretation of Congressional legislation?

and authoritative case law? we confront a situation which

we have no power to alleviate or remedy. The appellee

telephone company has simply applied a seniority sys-

tem,4 which it uses as the criterion for according many

kinds of employee benefits, and appellant simply did not

have enough seniority to qualify for the early retirement

which she sought.

A seniority system is simply a method of record-

keeping and mathematical calculation which determines

how long an employee has worked for the employer.

Economics has been called “the dismal science” and a

rigorous economist might exclude all time not spent by

1 From memory, I think John Ford was the author of these

lines.

2 See 42 U.S.C. 2000-e(k), 2000c-2(a) and 2000e-2(h), which

will be discussed more fully hereinafter.

3 See United Airlines v. Evans, 348 U.S. 553, 97 S.Ct. 1885,

52 L.Ed.2d 571 (1977) and Bazemore v. Friday, 478 U.S. 385, 106

S.Ct. 3000, 92 L.Ed.2d 315 (1986), which will be discussed more

fully hereinafter.

* Surviving from its predecessor company before the cele-

brated antitrust case resulting in the breakup of the old A.T. & T.

system. See U.S. v. Western Electric Co., et al., 552 F. Supp. 131

(D.D.C. 1982, aff’d. 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 492

(1983); further opinions in 569 F. Supp. 990 (1983), and 569 F. Supp.

1057 (1983).

the employee on actual productive work. Sound public

policy and even corporate self-interest, however, surely

permit the inclusion of time off work due to job-related

injuries or unhealthful working conditions, or, indeed,

any disease, disability, or other medical condition pre-

venting the employee from performing his or her job in

normal fashion. The telephone company’s plan in the case

at bar has always included medical leave but excluded

personal leave in computing seniority.

The problem involved in the case at bar stems from

the fact that up until legislation enacted by Congress in

19785 the company counted pregnancy leave for women

employees as personal leave, not as medical leave. Such

action was then not unlawful. Upon enactment of the

1978 law the company began, and continues, to count

pregnancy leave as medical leave.

The authoritative case law requires current unlawful

discrimination in order to support a title VII violation.

Bazemore, supra, upon which the majority relies, makes

plain that “While recovery may not be permitted for

pre-1972 acts of discrimination, to the extent that this

discrimination was perpetuated after 1972, liability may

5 Act of October 31, 1978, 92 Stat. 2076, 42 U.S.C. 2000e-(k).

6 As explained in appellant’s brief (p. 5):

At the time [of appellant’s pregnancy in 1972],

Pacific Telephone’s policies required disabled preg-

nant employees to take personal leaves instead of

disability leaves. Persons temporarily disabled for

reasons other than pregnancy were given disability

leaves while they were unable to work.

10a

be imposed.” 478 U.S. at 395, 106 S.Ct. at 3006. In

Bazemore actual disparity between black and white

employees with respect to pay continued to exist. In

Justice Brennan’s trenchant phrase, “Each week’s pay-

check that delivers less to a black than to a similarly

situated white is a wrong actionable under Title VII,

regardless of the fact that this pattern was begun prior to

the effective date of Title VII.” In Bazemore there was a

current discrimination being practiced.

In the case at bar, by contrast, all that the telephone

company is currently doing is applying a bona fide

seniority system, which is not discriminatory on its face,

and is specifically authorized by Congress.” Such current

activity of the company, as previously stated, consists

siinply of examination of the company’s records and

adding up the time the employee has worked for the

company, as disclosed by those records. Neither we nor

the telephone company can erase or change history. We

cannot, like the Communists’ comical claims that they

invented all useful inventions now in common use, alter

or falsify the past. The company can say, with Pontius

Pilate, “What I have written, | have written.”* Or, as

eloquently stated in the familiar passage of the Rubaiyat:

7 See note 2, supra.

* J4.19:22. It is true that the company did adjust appel-

‘sos record to give her several more days (but not enough to

walily her for the early retirement she sought). | think this

adjustment simply accepted her doctor’s opinion of when she

was able to return to work rather than the company doctor’s.

To contend that such an adjustment defeats the company’s

general reliance on its non-discriminatory seniority plan

(Continued on following page)

lla

The Moving Finger writes; and, having writ,

Moves on: nor all your Piety nor Wit shall lure it

back to cancel half a Line, Nor all your Tears

wash out a Word of it.?

Appellant's grievance is one that belongs to history; it is

not a current violation of law.'’° Currently there is no

discrimination between pregnant and non-pregnant

women, nor between pregnant women and men with a

sex-specific ailment such as prostate condition (which

was mentioned at argument), or men with other mutually

(Continued from previous page)

reminds me of those courts which in my law school days

treated a special appearance to object to the jurisdiction of the

court as constituting an acceptance of its jurisdiction over the

merits of the case.

% The Rubaiyat of Omar Khayyam (Fitzgerald, tr.) Stanza

71.

1° The situation in the case at bar can be illustrated by a

hypothetical case. Suppose that appellant were a graduate of

Harvard Law School, and that three years after women were

first admitted to Harvard Law School, she sought election to

the imaginary office of Historian of the Alumni Association, to

be eligible for which post the by-laws for over a quarter of a

century and without any specific sexual animus have provided

that only alumni of five years’ standing or more are eligible.

(Assume arguendo also that such a requirement is reasonable

(like minimum age for service in the Congress), and also that it

would now be unlawful to exclude women from the School but

was not prior to the year when they were first admitted during

the deanship of Erwin Griswold]. Is it not plain that simply as

a matter of chronology she would be ineligible for lack of the

five years’ standing required for election to that office?

12a

available medical reasons for absence from work. Hence |

would affirm on the Title VII claim."

I agree with the majority on the ERISA claim.

" As Judge Schroeder states, “the parties agree that

the same legal analysis” applies to appellant's claims under

California legislation.

13a

APPENDIX B

IN THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

LANA PALLAS,

Plaintiff-Appellant, No. 90-15559

PACIFIC BELL; PACIFIC

TELESIS, ET AL.,

Defendants-Appellees.

D.C. # CV-89-2373-DL]

(Northern California)

ORDER

(Filed Sept. 26, 1991)

Before: SCHROEDER and FARRIS, Circuit Judges, and

DUMBAULD,’ District Judge.

The panel as constituted above has voted to deny the

petition for rehearing and to reject the suggestion for

rehearing en banc.

The full court has been advised of the suggestion for

rehearing en banc and no judge of the court has

requested a vote on the suggestion for rehearing en banc.

Fed. R. App. P. 35.

The petition for rehearing is denied and the sugges-

tion for rehearing en banc is rejected.

*Honorable Edward Dumbauld, Senior United States District

Judge for the Western District of Pennsylvania, sitting by des-

ignation.

14a

APPENDIX C

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

LANA PALLAS,

Plaintiff/ Appellant,

No. 90-15559

D.C. #

vs. CV-89-2373-DLJ

PACIFIC BELL; PACIFIC

TELESIS, et al.,

Defendants/ Appellees.

ORDER

(Filed

Oct. 10, 1991)

eee Nee eee eee ee

Before: SCHROEDER, Circuit Judge

Appellees’ motion to stay the mandate is GRANTED.

15a

APPENDIX D

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

LANA PALLAS,

Plaintiff, ) C89-2373-DLJ

v. ) ORDER DISMISSING

PACIFIC BELL et al., ‘ COMPLAINT

Defendants. (Filed Febr. 28, 1990)

The Court heard defendants’ motions to dismiss

under Rule 12 (b) (6) on December 13, 1989. Appearing

for plaintiff were Shauna I. Marshall of Equal Rights

Advocates and Robert Hirsch of Van Bourg, Weinberg,

Roger & Rosenfeld. William Gaus of Pillsbury, Madison &

Sutro appeared for defendants Pacific Bell and its related

companies and pension plans. Jeffrey D. Wohl of Orrick,

Herrington & Sutcliffe appeared for defendant American

Telephone & Telegraph Company, Inc. (“AT&T”).

After review of the briefs submitted by the parties,

the oral argument of counsel, and the applicable legal

standard, the Court hereby DISMISSES plaintiff's first

and second claims for relief under the Civil Rights Act of

1964 and the California Fair Employment and Housing

Act. Plaintiff’s third claim for relief, under ERISA, 29

U.S.C. § 1104, is DISMISSED WITH LEAVE TO AMEND.

I. FACTS

Plaintiff seeks declaratory and injunctive relief and

damages for defendants’ failure to qualify her for an

l6a

Early Retirement Option (“ERO”) benefit which was

made available in 1987 to employees with 20 years or

more Net Credited Service (“NCS”). Although plaintiff

commenced employment with the predecessor of defen-

dant Pacific Bell on or about December 20, 1967, she

failed to qualify for the ERO because of a break in service

in 1972 during which she was on leave due to pregnancy.

At the time, her employer treated leaves for pregnancy as

“personal leave” —- which would not count as service

toward retirement — rather than as “temporary disability

leave” — which would count for seniority benefits such as

retirement. Plaintiff received full credit for the periods

both before and after her leave, but the actual time of

leave taken was not included for calculating her service.

Upon this basis, plaintiff was determined by her

employer to lack three to four days of net service credit to

qualify for the plan, and she was denied the ERO benefit.

The Complaint alleges that failure to reclassify plain-

tiff’s 1972 pregnancy leave as disability leave for pur-

poses of determining eligibility for the 1987 ERO benefit

violates the Pregnancy Discrimination Act, 42 U.S.C.

§ 2000e (k) (“PDA”), or alternatively constitutes sex dis-

crimination in violation of the Civil Rights Act of 1964 in

that only women were denied the ERO benefit due to

breaks in service for pregnancy leave which reduced their

Net Credited Service. The Complaint alleges violations of

the California Fair Employment and Housing Act, Cal.

Gov't Code §§ 12940, 12945, in this same conduct. Finally,

the Complaint alleges that the denial of the ERO benefit

to plaintiff was determined in a manner violative of the

Employee Retirement Income Security Act (“ERISA”), 29

U.S.C. § 1001 et seq.

17a

Defendants concede all the facts stated in the Com-

plaint, and move for dismissal under Rule 12(b) (6) of the

Federal Rules of Civil Procedure on the grounds that

these facts do not state a cause of action, either for sex or

pregnancy discrimination or for violations of ERISA. In

addition, defendant AT&T requests the Court to take

judicial notice of a 1983 district court divestiture decree

requiring that divested regional companies, including the

other defendants in this action, take over complete

responsibility for their pension plans. United States v.

Western Elec. Co., Inc., 569 FSupp. 1057, 1093 (D.D.C.

1983). Based upon this decree, AT&T argues it is not a

party to the 1987 conduct complained of and seeks dis-

missal as a defendant even were the Court to deny the

Rule 12(b) (6) motion to dismiss.

II. DISCUSSION

A. Standard for Dismissal

The question presented by a motion to dismiss is not

whether plaintiff will prevail in the action, but whether

plaintiff is entitled to offer evidence in support of her

claim. “[T]he accepted rule [is] that a complaint should

not be dismissed for failure to state a claim unless it

appears beyond doubt the plaintiff can prove no set of

facts in support of his claim which would entitle him to

relief.” Conley v. Gibson, 78 S.Ct. 99, 102 (1957). In the

Ninth Circuit, the Court making this determination must

assume that plaintiff’s allegations are true, construe the

complaint in a light most favorable to plaintiff, and

resolve every doubt in plaintiff's favor. United States v.

City of Redwood City, 640 F.2d 963, 966 (9th Cir. 1981).

18a

Therefore, the Court will dismiss the complaint or

any claim in it without leave to amend only if “it is

‘absolutely clear that the deficiencies of the complaint

could not be cured by amendment.’ ” Noll v. Carlson, 809

F.2d 1446, 1448 (9th Cir. 1987) (quoting Broughton v. Cutter

Laboratories, 622 F.2d 458, 460 (9th Cir. 1980) (per curiam).

B. Claim for Relief Under Title VII

Prior to passage of the PDA, employer disability

benefit plans which failed to cover pregnancy-related

. disabilities were not unlawful. General Elec. Co. v. Gilbert,

429 U.S. 125, 97 S.Ct. 401 (1976). Congress overruled

Gilbert in 1979, when the PDA amended the Civil Rights

Act of 1964 to provide that “women affected by preg-

nancy, childbirth, or related medical conditions shall be

treated the same for all employment-related purposes,

including receipt of benefits under fringe benefit pro-

grams, as other person not so affected...” 42 U.S.C.

§ 2000e(k). Plaintiff’s counsel conceded at oral argument

that plaintiff has not preserved any claim for discrimina-

tion from 1972 resulting from the failure to classify her

leave as disability leave, even assuming that passage of

the PDA would reinstate such a claim in 1979. Therefore,

plaintiff's cause of action arises solely from post-1979

applications of her NCS without adjustment to credit the

period of her 1972 pregnancy leave.

Plaintiff argues in the first instance that applying the

NCS system without adjustment is facially discriminatory

toward women because only women were denied service

credits for periods of pregnancy leave. This, plaintiff

claims, is the same as permitting NCS to accumulate for

19a

women at a slower rate than it does for men. The Court is

not persuaded by this argument.

A policy is facially neutral if it does not treat sim-

ilarly situated employees differently based on the suspect

criteria (here, pregnancy); this rule applies even though

some basis for the neutral policy rests on a policy that

now would be held discriminatory. E.g., United Air Lines,

Inc., v. Evans, 97 S.Ct. 1885, 1889 (1977) (maintenance of a

seniority system in which a woman was denied prefer-

ence over subsequently-hired males was nondiscrimina-

tory if she was also denied preference over subsequently-

hired females). Under this rule, calculating plaintiff’s ser-

vice credit without adjustment for her pregnancy leave is

facially neutral in that a woman who started work at the

same time as plaintiff but took pregnancy leave after the

policy was changed in 1979 would be eligible for the ERO

while plaintiff would not.

Thus, the crucial factor contributing to a reduced

NCS for plaintiff is not that she is a woman, or even that

she took pregnancy leave, but that she took pregnancy

leave at a certain time. This is not a case where, as

described in Lorance v. AT&T Technologies, Inc., 109 S.Ct.

2261, 2269 n.5 (1989), a woman is assigned half the

seniority that a man receives for the same time worked.

Here, for each credited day worked plaintiff received the

same amount of seniority as other employees, male or

female, and, after 1979, on pregnancy leave or not.

In view of this, the NCS system is facially neutral,

and the parties agree that Evans provides the controlling

law for a facially neutral system. In Evans, as here, the

plaintiff asserted that her injury lay in the employer’s

20a

reliance upon an earlier act, lawful at the time but now

discriminatory, to deny her seniority. The Court agreed

that the earlier, discriminatory, system had a continuing

impact on the plaintiff’s pay and fringe benefits, but that

this impact did not amount to a continuing violation of

Title VII. Id. at 1889. The holding in Evans is precisely on

point: the continuing impact of the earlier denial of ser-

vice credit to plaintiff for the period of her pregnancy

leave does not amount to a continuing violation of Title

VII at the time that her NCS for retirement is actually

calculated.

Plaintiff asks the Court to find the Evans rule as

applied to this case modified by Bazemore v. Friday, 478

U.S. 385, 106 S.Ct. 3000 (1986). In Bazemore the Supreme

Court held that an employer who paid disparate salaries

to black and white employees prior to the passage of Title

Vil had a duty to eradicate salary disparities following

passage of the Act. Id. at 386-87. The Court declines to

read this rule in its broadest sense, as imposing an affir-

mative duty to eliminate all continuing impacts of prior

discriminatory policies, no matter how incidental to the

present benefit. Bazemore is clearly distinguishable from

the present case in identifying the actionable wrong as

“leJach week’s paycheck that delivers less to a black than

to a similarly situated white,” id. at 395 (Brennan, J.,

concurring), i.e., each paycheck that was less than 100%

of a white employee’s salary. This is similar to the 50%

seniority allocation identified as facially discriminatory

in Lorance.

Plaintiff by contrast received 100% of her credited

service for each day worked before and after her pregnancy

leave. To adopt plaintiff's reasoning would require the

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Court to consider that every day plaintiff accumulated

service credits following her leave was a separate action-

able wrong, because the total accumulated was less than

it would have been had she received credit for her leave

time. Such impact not only is lesser to begin with than a

continuing salary disparity, it diminishes over time as

leave accumulates at the full rate.

Therefore, application of plaintiff's NCS based in

part upon the denial of service credit for her pregnancy

leave does not state a cause of action under Title VII, and

plaintiff's First Claim for Relief is DISMISSED.

C. California Fair Employment and Housing Act

California’s Fair Employment and Housing Act,

Gov't Code § 12900 et seq., contains a provision parallel

to that in the PDA, making it an unlawful business prac-

tice to “refuse to allow a female employee affected by

pregnancy, childbirth or related medical condi-

tions . . . [tlo receive the same benefits or privileges of

employment granted by that employer to other persons

not so affected . . . including to take disability or sick

leave...” Cal. Gov’t Code § 12945(b) (1). This provision

is clearly modeled on the PDA, as it was adopted in 1980.

Therefore, the Evans analysis for continuing viola-

tions of Title VII applies to the FEHA claim as well, and

the Court finds no continuing violation of FEHA in refus-

ing to grant plaintiff credit for pregnancy leave taken

before passage of the Act.

Further, any state law claim for discrimination

beyond the scope of Title VII would be preempted by

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ERISA under the rule in Shaw v. Delta Air Lines, Inc., 463

U.S. 85, 103 S.Ct. 2890 (1983). There the Supreme Court

specifically found that state antidiscrimination statutes

mandating disability benefits for pregnancy beyond the

scope of prohibited practices under Title VII are pre-

empted by ERISA, while state statutes which parallel

Title VII are not. This is so because state anti-discrimina-

tion provisions within the scope of Title VII were subject

to the savings clause of ERISA § 514(a), 29 U.S.C.

§ 1144(a). Id. However, where state law prohibits prac-

tices which Title VII holds lawful, such law is not subject

to the savings clause, and is preempted by ERISA. Id. at

2903.

For these reasons, plaintiff’s Second Claim for Relief,

under the California Fair Employment and Housing Act,

is DISMISSED.

D. Improper Administration of Claim - ERISA

Plaintiff has identified a colorable claim for improper

administration of her application for the ERO benefit in

violation of ERISA. Defendants argue persuasively that

the policy of calculating NCS without making an adijust-

ment for pre-1979 pregnancy leave does not state a claim

under ERISA.

However, plaintiff has identified two alternative

methods of determining eligibility for the ERO benefit, as

described in the ERO amendment to the Plan. See Adden.

dum to Pacific Telesis Group Pension Plan for Salaried

Employees for 1987 Window Period Retirements (“ERO

Plan”). Specifically, the benefit was apparently available

to employees whose service as adjusted amounted to 20

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years, or to employees whose “unadjusted term of

employment” on December 31, 1987, would amount to 20

years. Because plaintiff commenced her employment with

defendants on December 20, 1967, it appears from the

face of the ERO Plan that she might have been eligible for

the ERO benefit under this second criteria. In addition,

the term “Net Credited Service,” on which defendants

rely to justify their denial of the ERO benefit to plaintiff,

is not defined in the ERO Plan.

Therefore, an ambiguity exists on the face of the ERO

Plan, and plaintiff may be able to state a claim for

improper administration of her application for benefits.

However, the Complaint in its present form fails to allege

facts sufficient to state a claim based on administrative

conduct. Although defendants assert that the plan pro-

vides the administrator with complete discretion and that

they could, therefore, survive a challenge based on the

“arbitrary and capricious” standard, it is appropriate at

this time to permit plaintiff to state such a claim, if she

can.

The Court notes that, in order to retain AT&T as a

defendant, the amended complaint must articulate a

ground for AT&T’s continuing administrative capacity in

regard to the ERO Plan following the 1983 divestiture of

Pacific Bell and other subsidiaries. See United States v.

Western Elec. Co., Inc., 569 FSupp. 1057, 1093 (D.D.C.

1983).

Therefore, plaintiff’s Third Claim for Relief is DIS-

MISSED WITH LEAVE TO AMEND to siate facts suffi-

cient to allege administrative conduct in violation of

ERISA.

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Ill. CONCLUSION

For the reasons stated above, the Court rules as fol-

lows:

1. Plaintiff’s first claim for relief for discrimination

under Title VII of the Civil Rights Act of 1964, 42 U.S.C.

§§ 2000e, is DISMISSED WITH PREJUDICE.

2. Plaintiff's second claim for relief for discrimina-

tion under the California Fair Employment and Housing

Act, Calif. Gov’t Code § 12900 et seq. is DISMISSED WITH

PREJUDICE.

3. Plaintiff’s third claim for relief under ERISA

§ 404, 29 U.S.C. § 1104, is DISMISSED WITH LEAVE TO

AMEND to allege facts supporting a claim for improper

administration of her application for benefits and to artic-

ulate the ground, if any, upon which defendant AT&T

retained administrative authority at the time plaintiff's

claim was decided.

Plaintiff has 30 days from the filing date of this Order

to file her amended complaint. A status conference is set

in this matter for May 2, 1990, at 9:00 a.m.

IT IS SO ORDERED.

DATED: February 28 , 1990.

/s/ D. Lowell Jensen

D. Lowell Jensen

United States District Judge

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APPENDIX E

29 USC § 1104 provides in pertinent part:

(a) (1) Subject to sections 1103(c) and (d), 1342 and 1344

of this title, a fiduciary shall discharge his duties with

respect to a plan solely in the interest of the participants

and beneficiaries and -

(A) for the exclusive purpose of:

(i) providing benefits to participants and their bene-

ficiaries; and

(ii) defraying reasonable expenses of administering

the plan;

(D) in accordance with the documents and instru-

ments governing the plan insofar as such documents and

instruments are consistent with the provisions of this

subchapter or subchapter III of this chapter.'

' Subsequent to events and actions at issue in this case, 29

U.S.C. § 1104 (a) (1) (D) was amended. The amendment was

effective September 30, 1990. That section now reads:

“in accordance with the documents and instruments

governing the plan insofar as such documents and

instruments are consistent with the provisions of this

subchapter and subchapter III of this chapter.”

(Underscore reflects amendment.)

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.