Opposition Brief — Hein v. McNeil

Supreme Court, U.s

: NOV 27 1996

No. 96-498 CLER

fencn oe. wma

In The

Supreme Court of the United States

October Term, 1996

*

JOHN M. HEIN; MERLENE HEIN,

Petitioners,

Vv.

FEDERAL DEPOSIT INSURANCE CORPORATION;

BURTON MCNEIL, acting as HOWARD SAVINGS

BANK PENSION PLAN ADMINISTRATOR AND

HOWARD SAVINGS BANK PENSION PLAN;

Burton McNeil and the Retirement Plan

of The Howard Savings Bank,

Respondents.

>

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Third Circuit

o

BRIEF IN OPPOSITION

SI

Frepric S$. SINGERMAN

Counsel of Record

CureistorpHeR A. WEALS

SEYFARTH, SHAW, FAIRWEATHER

& GERALDSON

Suite 500

815 Connecticut Ave., N.W.

Washington, D.C. 20006-4004

(202) 463-2400

Attorneys for Respondent

COCKLE LAW BRIEF PRINTING CO., (600) 225-6964

OR CALL COLLBCT (402) 342-2831

QUESTION PRESENTED

Does the anti-cutback provision in Section 204(g) of

the Employee Retirement Income Security Act of 1974, as

amended, 29 U.S.C. § 1054(g), mandate that Petitioner be

credited with post-termination service for purposes of

“growing into” unreduced early retirement benefits,

where Petitioner was not entitled to those benefits under

the unambiguous terms of the Plan and no amendment of

the Plan has cut back benefits?

The question presented by Petitioner is inapposite.

First, this case does not arise from a corporate restructur-

ing. Instead, The Howard Savings Bank was closed by the

State of New Jersey, and the Federal Deposit Insurance

Corporation was appointed receiver. As a result, Peti-

tioner ceased to be employed by the Bank prior to meet-

ing the requirements for unreduced early retirement

benefit from the Plan. Second, Petitioner’s assertion that

the benefits he seeks were “fully-funded” is devoid of

support in the record. The Plan’s funded status was not

addressed by the district court.

il

TABLE OF CONTENTS

Page

QUESTION PRESENTA sis coves vices coma i

TABLE OP AUTH bee o5< 0s sccasehaas oak cncuabn iii

RELEVANT STATUTORY AUTHORITY............. 1

COUNTERSTATEMENT OF THE CASE ............ 2

REASONS FOR DENYING THE WRIT............. 3

I. PETITIONER WAS NOT ENTITLED TO UNRE-

DUCED EARLY RETIREMENT BENEFITS

UNDER THE UNAMBIGUOUS PROVISIONS

Ce CES CEPR 0s 5 0b tcc Ween cues eo cen kemenbe hee 4 3

Il. PETITIONER DOES NOT RAISE AN ISSUE OF

IMPORTANCE CONCERNING THE APPLICA-

TION OF SECTION 204(g) OF ERISA ......... 5

A. ERISA’s Anti-Cutback Rule Does Not Apply

In The Absence Of A Plan Amendment Or

Where The Participant Has Not Satisfied

The Conditions For Receiving The Protected

| PTT eer re eC er, Fer 6

B. There Is No Conflict Of Authority Among

The Courts Of Appeals Regarding Applica-

tion Of ERISA’s Anti-Cutback Rule To The

UCU AY COO 85 setae ae eas vache v5 7

Il. PETITIONER DOES NOT RAISE AN IMPOR-

SHAPER ERP 8 SRI: 64 co hares bobs cavue ceases 12

ea RG 8 | eS eer ery ys err ary Some 14

iii

TABLE OF AUTHORITIES

Page

Cases

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

Cir. 1991), cert. denied, 502 U.S. 1073 (1992) ........ 7

Andes v. Ford Motor Co., 70 F.3d 1332 (D.C. Cir.

PaaS ak voabbe pcdcsvccnadeesss SUEbeCe seven 8, 13

Dade v. North American Phillips Corp., 68 F.3d 1558

NE Ns S555 cad wiv Cy nnd aeaoaxs | 9, 10, 11, 12

Davis v. United States, 417 U.S. 333 (1974)........... 12

Gavalik v. Continental Can Co., 812 F.2d 834 (3d

Cir.), cert. denied, 484 U.S. 979 (1987)............-- 13

Gillis v. Hoechst Celanese Corp., 4 F.3d 1137 (3d Cir.

1994), cert. denied, 114 S. Ct. 1369 (1994)....... 5 Ry

Goodman v. Lukens Steel Co., 482 U.S. 656 (1987)...... 5

Graver Mfg. Co. v. Linde Co., 336 U.S. 271 (1949)...... 5

Harms v. Cavenham Forest Indus., Inc., 984 F.2d 686

(5th Cir.), cert. denied, 510 U.S. 944 (1993).......... 7

Hunger v. AB, 12 F.3d 118 (8th Cir. 1993), cert.

denied, 114 S. Ct. 2676 (1994) ......... 0. cece eeee 8, 9

Stewart v. National Shopmen Pension Fund, 730 F.2d

1552 (D.C. Cir.), cert. denied, 469 U.S. 834 (1984) ..... 6

Texas v. Mead, 465 U.S. 1041 (1984).............0-505 4

United States v. Johnston, 268 U.S. 220 (1925).......... 4

STATUTES

12 U.S.C. § 1823(c)4)... 0. cece ence eccccceenenceees 13

Re ON Nan sicsa nies sdpee 12

iv

TABLE OF AUTHORITIES - Continued

Page

BO AIA. Be BER a io ks hide a 0a cy das ca cssveeiis 2

Be Rites SOIR asi ives Hh a OES Sec ca ne cues passim

OP We OD UD a hens ues beau bs peaen cds cabetsabaens 11

BP Aiea, Tp ROOM AD§ os cshnchccenscatetauns sheapen 13

S06 Pe os. ie a 13

STATUTORY PROVISIONS

Section 204(g) of ERISA, 29 U.S.C. § 1054(g), provides

as follows (with added emphasis):

(g) Decrease of accrued benefits through

amendment of plan

(1) The accrued benefit of a participant

under a plan may not be decreased by an amend-

ment of the plan, other than an amendment

described in section 1082(c)(8) or 1441 of this

title.

(2) For purposes of paragraph (1), a plan

amendment which has the effect of -

(A) eliminating or reducing an early

retirement benefit or a retirement-type sub-

sidy (as defined in regulations), or

(B) eliminating an optional form of

benefit,

with respect to benefits attributable to service

before the amendment shall be treated as reduc-

ing accrued benefits. In the case of a retirement-

type subsidy, the preceding sentence shall apply only

with respect to a participant who satisfies (either

before or after the amendment) the preamendment

conditions for the subsidy. The Secretary of the

Treasury may by regulations provide that this

subparagraph shall not apply to a plan amend-

ment described in subparagraph (B) (other than

a plan amendment having an effect described in

subparagraph (A)).

COUNTERSTATEMENT OF THE CASE

This case was brought under the Employee Retire-

ment Income Security Act of\| 1974, as amended

(“ERISA”), 29 U.S.C. §§ 1001-1461, to recover early retire-

ment benefits allegedly due under the Retirement Plan of

The Howard Savings Bank (the “Plan”). The Plan is a

qualified defined benefit pension plan sponsored by The

Howard Savings Bank (“Bank”). Petitioner John Hein!

was born on December 26, 1937. He became an employee

of the Bank (or its predecessor) on September 19, 1955

and commenced participation in the Plan soon thereaf-

ter.2

The Plan provides a fixed retirement benefit defined

as a monthly benefit commencing at normal retirement

age (generally age 65). The Plan further provides an

“unreduced early retirement benefit” for participants

who both (1) terminate employment after attaining their

fifty-fifth birthday and earning ten years of service, and

(2) have a combined age and years of service at termina-

tion equal to or exceeding 90. This benefit is more valu-

able than the Plan’s normal retirement benefit, because

payments may commence as early as age 55 without

being reduced to reflect the fact that payments will be

made over a longer life-span.

1 Throughout this brief, Petitioners John and Merlene Hein

will be referred to, both collectively and individually, as

“Petitioner” or “Hein.”

2 The facts set forth herein are derived from the opinions of

the district court, App. 28a-38a, and the court of appeals, App.

la-27a.

On October 2, 1992, the Bank was closed and the

Federal Deposit Insurance Corporation (“FDIC”) was

appointed receiver. Petitioner and other former Bank

employees were immediately notified that their employ-

ment with the Bank had been terminated. By Purchase

and Assumption Agreement entered into on the same

day, the FDIC as Receiver sold certain of the Bank’s

assets, and transferred certain of its liabilities, to First

Fidelity Bancorporation (“First Fidelity”). First Fidelity

Cid not assume any obligations with respect to the Plan.

Petitioner was hired by First Fidelity and remained in its

employ until December 31, 1992.

Petitioner’s employment with the Bank terminated

shortly before he attained age 55. Although he did not

meet the applicable age requirement at the time of his

termination, Petitioner sought an unreduced early retire-

ment benefit from the Plan.

¢

REASONS FOR DENYING THE WRIT

I. PETITIONER WAS NOT ENTITLED TO UNRE-

DUCED EARLY RETIREMENT BENEFITS UNDER

THE UNAMBIGUOUS PROVISIONS OF THE

PLAN

Petitioner claims that the denial of his unreduced

early retirement benefits is contrary to the express provi-

sions of the Plan. Pet. 17-23. Two courts have now looked

at this claim and concluded that Petitioner was not enti-

tled to unreduced early retirement benefits under the

unambiguous terms of the Plan. As the district court

held:

Under the plain language of the Plan itself, Mr.

Hein does not qualify for unreduced benefits

because he did not reach one of the specific

qualifying combinations of age and years of ser-

vice. The table set forth in the Plan is not offered

as an illustration of qualifying combinations,

but rather as an exhaustive list of those combi-

nations.

App. 34a. The Third Circuit arrived at precisely the same

conclusion in its interpretation of the Plan:

First Fidelity is neither an affiliate nor a subsid-

iary of The Howard Savings Bank. Hein could

not, therefore, satisfy the requirements of the

Plan after the asset sale to First Fidelity; when

he reached age fifty-five he was no longer an

“Employee” of the “Bank” as required by the

Plan.

App. 10a (footnote omitted).

Petitioner now asks the Supreme Court to review the

specific terms of the Plan document and the summary

plan description (“SPD”) for the Plan, in order to reverse

the reasonable contractual interpretation agreed to by the

district court and the court of appeals. Yet this Court has

specifically cautioned that “we do not grant a certiorari to

review evidence and discuss specific facts.” United States

v. Johnston, 268 U.S. 220, 227 (1925); Texas v. Mead, 465 U.S.

1041 (1984) (Stevens, J.). Certiorari is even less appropri-

ate where both the district court and the court of appeals

are in agreement regarding the correct contractual inter-

pretation. As the Court has often held, “a court of law,

such as this Court is, rather than a court for correction of

errors in fact finding, cannot undertake to review concur-

rent findings of fact by two courts below in the absence of

—_——

a very obvious and exceptional showing of error.” Graver

Mfg. Co. v. Linde Co., 336 U.S. 271, 275 (1949); Goodman v.

Lukens Steel Co., 482 U.S. 656, 665 (1987).

In any case, the contractual interpretation urged in

the Petition — that Petitioner is entitled to an unreduced

pension based on Plan § VIII(6) (relating to termination

before retirement) and the SPD - is not properly before the

Court. This convoluted argument was first proffered by

Petitioner at oral argument to the court of appeals, and

the court allowed Petitioner to file a supplemental letter

brief after the argument to clarify his position on inter-

pretation of the Plan. Although Respondents urged the

court to decline to consider arguments not raised before

the district court, Resp’t App. 1a, it is clear that the court

both considered and rejected them. App. 10a. Because

Petitioner failed to raise this contractual interpretation

argument before the district court or in any brief prior to

oral argument, the court of appeals should have declined

to hear it, and this Court should decline to hear it as well.

Petitioner’s proffered interpretation of the Plan is

wrong in any case, for the reasons set forth in the letter

brief filed by Respondents with the court of appeals on

December 27, 1995 and reproduced in the Appendix to

this brief at 1a.

II. PETITIONER DOES NOT RAISE AN ISSUE OF

IMPORTANCE CONCERNING THE APPLICA-

TION OF SECTION 204(g) OF ERISA

Both the district court and the court of appeals cor-

rectly determined that Petitioner did not meet the

requirements for an unreduced early retirement benefit

under the terms of the Plan, because his employment

terminated prior to his attaining age 55. Because Peti-

tioner did not qualify under the terms of the Plan, the

major question presented in the Petition is whether Sec-

tion 204(g) of ERISA, 29 U.S.C. § 1054(g), supplants the

provisions of the Plan by requiring the Plan to recognize

Petitioner’s post-termination service with First Fidelity.

Petitioner does not raise a question of exceptional impor-

tance regarding ERISA Section 204(g).

A. ERISA’s Anti-Cutback Rule Does Not Apply In

The Absence Of A Plan Amendment Or Where

The Participant Has Not Satisfied The Condi-

tions For Receiving The Protected Benefit

As the caption to the provision plainly states, Section

204(g) of ERISA governs a “decrease of accrued benefits

through amendment of [a] plan.” In pertinent part, it

states that the “accrued benefit of a participant under a

plan may not be decreased by an amendment of the

plan.” 29 U.S.C. § 1054(g)(1). The prohibition applies to a

“retirement-type subsidy,” including an early retirement

subsidy, only “with respect to a participant who satisfies

(either before or after the amendment) the pre-amend-

ment conditions for the subsidy.” 29 U.S.C. § 1054(g)(2).

Thus, the text of ERISA’s anti-cutback rule clearly

establishes that it applies to a retirement-type subsidy

only if: (1) an amendment of the plan has occurred,

Stewart v. National Shopmen Pension Fund, 730 F.2d 1552,

1561 (D.C. Cir.), cert. denied, 469 U.S. 834 (1984) (“Con-

gress did not state that any change would trigger [Section

204(g)]; it stated that any change by amendment would do

so.”); and (2) the participant satisfies the pre-amendment

conditions for the subsidy, Adams v. LTV Steel Mining Co.,

936 F.2d 368, 370-71 (8th Cir. 1991), cert. denied, 502 U.S.

1073 (1992) (Section 204(g) inapplicable where employees

did not satisfy requirements for early retirement bene-

fits); Harms v. Cavenham Forest Indus., Inc., 984 F.2d 686,

692 (5th Cir.), cert. denied, 510 U.S. 944 (1993).

Here, neither of these requirements is satisfied. No

amendment of the Plan is at issue, and Petitioner had not

attained age 55 on his “Actual Retirement Date” as

required under the terms of the Plan. Plan § V(5), App.

61a. Instead, Petitioner's employment with the Bank ter-

minated before his 55th birthday, when the Bank was

closed by the Commissioner of Banking of the State of

New Jersey. Although Petitioner continued to work for

First Fidelity, First Fidelity was unrelated to the Bank and

was not a participating employer in the Plan. Petitioner

was therefore unable to meet the Plan’s unambiguous

requirements for unreduced early retirement benefits.

Under these facts, it is clear that the anti-cutback rule in

Section 204(g) of ERISA does not apply.

B. There Is No Conflict Of Authority Among The

Courts Of Appeals Regarding Application Of

ERISA’s Anti-Cutback Rule To The Facts At

Issue

Three courts of appeals have squarely addressed

whether a participant whose job transfers as part of the

sale of a division or subsidiary is entitled to “grow into”

early retirement benefits under the seller’s retirement

plan based upon service with the buyer. Each of these

courts rejected the contention that ERISA’s anti-cutback

rule applies so as to require the seller’s plan to recognize

service with the buyer where the plan (or its assets) was

not transferred as part of the transaction.

Plaintiffs in Andes v. Ford Motor Co., 70 F.3d 1332

(D.C. Cir. 1995), were employees of Dealer Computer

Services (DCS), a subsidiary of Ford Motor Company.

When Ford sold DCS, employees who continued to work

for DCS ceased to be able to 2arn years of service for

purposes of becoming eligible for early retirement bene-

fits under Ford’s qualified retirement plan. The Court of

Appeals for the District of Columbia Circuit explicitly

rejected the argument Petitioner now advances here,

holding that Section 204(g) of ERISA does not apply

where there is no “amendment of the plan” as specifically

required by the statutory language:

As a result of the numerous compromises

between powerful competing interest groups

that ERISA embodies, the length of the legisla-

tive process that lead [sic] to its enactment, its

detail, and complexity, the [Supreme] Court has

placed particular importance on the statutory

text. See Mertens [v. Hewitt Assoc., 113 S. Ct.

2063, 2071 (1993).] Reliance on free-floating

notions of the “purposes” of ERISA is not an

acceptable method of statutory interpretation.

70 F.3d at 1335 (footnote omitted).

In Hunger v. AB, 12 F.3d 118 (8th Cir. 1993), cert.

denied, 114 S. Ct. 2676 (1994), plaintiffs were employees in

the Engine Parts Division of Clevite Industries and par-

ticipants in a defined benefit plan sponsored by Clevite.

a

The plan contained a heavily subsidized early retirement

benefit for participants who terminated employment after

attaining age 55 with ten or more years of service. When

Clevite sold the assets of its Engine Parts Division to JP!

Merger, Inc., the plaintiffs terminated employment with

Clevite and continued to work in their same positions

with JPI.

The Eighth Circuit held that the anti-cutback provi-

sion in ERISA was not implicated by the fact that plain-

tiffs’ service with JPI was not recognized under the

Clevite plan:

First, because the appellants were never entitled

to apply employment with a successor company

to their age and service requirements under the

original terms of the Plan, there was no amend-

ment to the Plan . . . and the protection of

section 204(g) does not come into play. Sec-

ond, . . . [bJecause the appellants are no longer

employed by Clevite, as expressly required by

the conditions of the Plan, they are unable to

satisfy the pre-amendment eligibility conditions

and section 204(g) will not serve to preserve

their entitlement to the early retirement subsidy.

12 F.3d at 121.

Dade v. North American Phillips Corp., 68 F.3d 1558 (3d

Cir. 1995), is similar. The dispute in Dade arose from the

sale of the Magnavox Division of North American Phi-

llips Corporation to MESC Electronics Systems, Inc.

Plaintiffs were employees of the Magnavox Division and,

until the sale occurred, participants in a pension plan

maintained by Philips. Similar to the Plan, the Phillips

plan permitted a participant to retire at or after age 55

10

with an unreduced retirement benefit if the sum of the

participant’s age and years of service was at least 85.

Plaintiffs, who became employees of MESC after the sale,

found themselves unable to meet the eligibility require-

ments for an unreduced early retirement benefit.

The Court of Appeals for the Third Circuit held that

Section 204(g) of ERISA could have no application under

the facts presented, because “there has been no amend-

ment to the Plan that reduced a benefit, accrued or other-

wise.” Id. at 1562. Instead, the court recognized that the

denial of benefits “resulted from the fact that plaintiffs

could not satisfy the preamendment, pre-sale conditions

for the Rule of 85 retirement-type subsidy as originally

written.” Id.

Petitioner’s attempt to distinguish Dade from this

case is unavailing. Pet. 26-29. Petitioner suggests that,

“had the Bank laid off John Hein immediately before the

seizure of the Bank by the FDIC, he would have been

entitled to a credit of up to 501 hours, well in excess of

the number of hours McNeil [then administrator of the

Plan] alleged were necessary under his interpretation of

the Plan.” Pet. 28. This is simply wrong. Petitioner was

not entitled to unreduced early retirement benefits

because he had not attained age 55 when his employment

with the Bank terminated, not because he lacked suffi-

cient service. Petitioner would have been no closer to age

55 when the Bank closed and his employment terminated

had he been laid off immediately before the closure.

Petitioner’s analogy fails in any event, since additional

hours of service are credited under the Plan only with

respect to a paid layoff. Plan § 1(15), App. 50a-51a.

11

Petitioner also seeks to distinguish this Plan from the

plan in Dade on the basis that the Dade plan explicitly

excluded service with an entity “prior to the date it

becomes an Employer” or “after it ceases to be an

Employer or Affiliate.” It is equally clear, however, that

the Plan does not cover hours of service for entities

unrelated to the Bank. Id.

Petitioner relies on Gillis v. Hoechst Celanese Corp., 4

F.3d 1137 (3d Cir. 1994), cert. denied, 114 S. Ct. 1369 (1994),

to support his contention that Section 204(g) of ERISA

overrides the Plan document so as to entitle him to unre-

duced early retirement benefits. The plaintiffs in Gillis

were participants in a defined benefit plan sponsored by

Hoechst Celanese Corporation. When Hoechst sold its

PVC Division to the American Mirrex Corporation, the

plaintiffs terminated their employment with Hoechst and

continued to work in their same positions with the

acquirer.

Hoechst also transferred pension assets to American

Mirrex on behalf of the plaintiffs. Plaintiffs claimed that

Hoechst violated Section 208 of ERISA, 29 U.S.C. § 1058,

because the amount transferred did not reflect the possi-

bility that plaintiffs could grow into the “rule of 85” early

retirement benefit in the Hoechst plan. In a divided

3 Under Section 208, a pension plan may not transfer assets

or liabilities to another plan, unless each participant in the plan

would (if the transferee plan then terminated) receive a benefit

immediately after the transfer which is at least equal to the

benefit he or she would have been entitled to receive

immediately before the transfer (had the transferor plan then

terminated).

12

opinion, the Court of Appeals for the Third Circuit held

that Hoechst was required to transfer assets with respect

to the subsidized benefit.

The Third Circuit has since twice addressed the

intended scope of Gillis. In Dade, and again in this case,

the court made it clear that Gillis does not apply where no

transfer of plan assets or liabilities has occurred. Dade, 68

F.3d at 1563; App. 15a. Thus, there is no conflict between

this case and Gillis, and even if there were, it would not

be a sufficient basis for granting a writ of certiorari. See

Davis v. United States, 417 U.S. 333, 340 (1974). Likewise,

there is no conflict between the circuits, and no ambiguity

in the language of Section 204(g) of ERISA, requiring

clarification by this Court.

Iii, PETITIONER DOES NOT RAISE AN IMPOR-

TANT POLICY ISSUE

Petitioner argues at length that a judicial extension of

ERISA’s anti-cutback rule is necessary in the “current

landscape of corporate America . . . filled with mergers,

acquisitions, and work-force reductions.” Pet. 8-14. How-

ever dubious Petitioner’s policy argument is, it does not

apply here. Petitioner lost his job because the Bank was

closed by the Commissioner of Banking of the State of

New Jersey, and the FDIC was appointed receiver. In this

capacity, the FDIC has a fiduciary obligation to claimants

against the insured depository institution. 12 U.S.C.

§ 1823(d)(3)(C). In determining how to fulfill its statutory

obligations of liquidating the assets of an insolvent finan-

cial institution and providing insurance of accounts, the

FDIC is enjoined by statute to select the least-cost method

13

of resolving the institution. 12 U.S.C. § 1823(c)(4). What-

ever policy considerations may otherwise apply where a

business voluntarily chooses to spin off or divest itself of a

business, those considerations cannot overcome the poli-

cies explicitly established by Congress governing resolu-

tion of an insolvent financial institution.

In any case, ERISA is not silent about how retirement

benefits are treated in a merger or acquisition transaction.

Section 210(b) of ERISA, 29 U.S.C. § 1060(b)(1), states that

“in any case in which the employer maintains a plan of a

predecessor employer, service for such predecessor shall

be treated as service for the employer.” Had Congress

intended the obverse — that service for the successor must

be treated as service for the predecessor where the suc-

cessor does not maintain the predecessor’s plan - it

would have said so.

Finally, Petitioner is simply wrong when he predicts

that “[clorporate transactions will inevitably be struc-

tured to avoid continuation of corporate benefits contrary

to the letter and the spirit of ERISA.” Pet. 14. Section 510

of ERISA, 29 U.S.C. § 1140, makes it unlawful for any

person to discharge or otherwise discriminate against a

participant or beneficiary for the purpose of interfering

with the attainment of any right to which he or she may

become entitled under the plan. See Andes v. Ford Motor

Co., 70 F.3d at 1338, (plaintiff can establish section 510

violation “by showing that some ERISA-related charac-

teristics special to the unit [were] essential to the firm’s

selecting the unit for closure or sale”); Gavalik v. Continen-

tal Can Co., 812 F.2d 834 (3d Cir.), cert. denied, 484 U.S. 979

(1987) (company’s decision to close down production line

constituted violation of section 510).

¢

14

CONCLUSION

For the reasons set forth above, we urge the Court to

deny the petition for a writ of certiorari.

Respectfully submitted,

Frepric S. SINGERMAN

Counsel of Record

CHRISTOPHER A. WEALS

SEYFARTH, SHAW, FAIRWEATHER

& GERALDSON

Suite 500

815 Connecticut Avenue, N.W.

Washington, D.C. 20006-4004

(202) 463-2400

Attorneys for Respondent

APPENDIX

la

LETTERHEAD OF SEYFARTH, SHAW,

FAIRWEATHER & GERALDSON

828-3585

December 27, 1995

VIA FEDERAL EXPRESS

The Honorable Edward R. Becker

United States Court of Appeals

19613 U.S. Courthouse

Independence Mall West

601 Market Street

Philadelphia, PA 19106

The Honorable Timothy K. Lewis

United States Court of Appeals

1014 U.S. Post Office & Courthouse

Pittsburgh, PA 15219

The Honorable Jane R. Roth

United States Court of Appeals

5100 Federal Building, Lockbox 12

844 King Street

Wilmington, DE 19801

Re: Hein v. Federal Deposit Insurance Corporation,

et al. Nos. 94-5641 and 95-5181

To the Honorable Court:

On behalf of Appellants Burton McNeil and the

Retirement Plan of The Howard Savings Bank, we submit

this letter in response to the letter of B. John Pendleton,

Jr., dated December 19, 1995.

2a

Introduction

At oral argument on December 12, 1995, the Court

gave counsel for Appellees seven days in which to pro-

vide supplemental authority to support his argument as

to how certain provisions of the Retirement Plan of The

Howard Savings Bank (the “Plan”) and the Summary

Plan Description (“SPD”) should be interpreted. In

response to that limited directive, counsel has submitted

what is essentially a new brief, raising entirely new argu-

ments that were never presented to the district court and

never raised in Appellees’ prior submissions to this

Court.!

This Court should decline to consider these new

arguments. In any event, nothing contained in Appellees’

Letter Brief changes the outcome of this case. The lan-

guage of the Plan document, which is controlling, clearly

demonstrates that Appellee John Hein (“Hein”) is not

entitled to unreduced early retirement benefits.

Hein claims that he is entitled to early retirement

benefits under the terms of the Plan, without regard to

any subsequent service at First Fidelity.?

1 Counsel for Appellees has had ample opportunity to

make the arguments that he now raises for the first time. In

addition to his main brief, counsel submitted a 12-page letter to

this Court on November 20, 1995, attempting to distinguish the

Court’s recent decision in Dade v. North American Phillips Corp.,

94-5446 (3d Cir. Nov. 1, 1995).

2 It is clear, based upon the Court’s decision in Dade, that

service with an acquiring corporation is not taken into account

in determining eligibility for early retirement benefits under the

seller’s plan, when no transfer of plan assets occurs. Hein’s

3a

It is uncontested that Hein terminated employment

with The Howard Savings Bank (the “Bank”) prior to his

55th birthday. He nevertheless argues that the Plan per-

mits him to retire with unreduced early retirement bene-

fits after termination from employment. Through selective

quoting, and mismatching of provisions of the Plan and

the SPD, Hein attempts to manufacture ambiguity where

none exists, by confusing “retirement” with the date pen-

sion benefits commence. This letter will briefly restate

how the unambiguous provisions of the Plan and the SPD

govern this case.

Interpretation of the Plan

First, Section V of the Plan governs early retirement

benefits. This section makes it clear that an employee

must meet the requirements for early retirement benefits

on or before the “Early Retirement Date,” a date which

may be different from the date benefits commence. Sec-

tion V(5) states in part:

(a) Any Member, upon written application-

. .. May retire on the first day of any calendar

month in which he attains his fifty-fifth (55th)

birthday and ten (10) Years of Service herein

termed “Early Retirement Date.”

(b) If a Member retires on his Early Retirement

Date, (i) benefit accruals shall cease on his Early

Retirement Date, and (ii) payments of Retire-

ment Income shall commence, at the option of

attempt to reargue this point at pages 13 through 16 of his Letter

Brief is inappropriate and unconvincing.

4a

the Member, either (x) on his Normal Retire-

ment Date . . . or (y) on the first day of any

month coinciding with or following his Early

Retirement Date [at a specified reduction].

Appendix (“App.”) 36-37. The statement in Section

V(5)(b)(i) that benefit accruals cease on the member’s

Early Retirement Date clearly contemplates that the mem-

ber is actually in employment, accruing benefits, until his

Early Retirement Date. The statement in Section

V(5)(b)(ii), that payments may commence on the first day

of any month coinciding with or following the Early

Retirement Date, indicates that “retiring” for purposes of

this Section V is different from, and is a prerequisite to,

beginning benefit payments as of the first day of a later

month. Thus, Hein could not “retire” for purposes of

Section V after he left employment.

Second, the Plan clearly distinguishes between (1) a

termination of employment after meeting the eligibility

requirements for early retirement, addressed in Section V,

and (2) termination of employment before meeting those

requirements, addressed in Section XI. Section XI of the

Plan, entitled “Termination of Service,” states in part:

(1) If a Member's service terminates for any

reason other than his death or retirement, no

further benefits shall be accrued by such mem-

ber.

App. 51. This is precisely what happened to Hein: His

service terminated other than by his death or retirement.

Section VIII(6) addresses the payment of benefits to par-

ticipants in this circumstance:

5a

If a Member with vested rights attributable to

contributions by the Bank under this Plan sepa-

rates from the service of the Bank prior to satisfy-

ing the age requirement for early retirement benefits,

as set forth in Paragraph (5)(a) of Section V

hereof, such Member shall, upon attaining the

age requirements for receiving such early retire-

ment benefits, be entitled to elect to have pay-

ments made to him on and after meeting such

age requirements in an amount equal to the

benefits he would have received at normal

retirement age, actuarially reduced.

App. 45 (emphasis added). There is no ambiguity here.

This section clearly describes Hein and equally clearly

requires that his benefits be actuarially reduced.®

Third, even if one assumes, with Hein, that the early

retirement provisions in Section V apply to a member

whose employment terminates before his Early Retire-

ment Date, it is unquestionable that the unreduced benefits

3 Hein assumes that the actuarial reduction factors

applicable to vested members who do not meet the

requirements for early retirement are the same as those for early

retirees. He then jumps to the conclusion that an individual who

has not met the requirements for early retirement could become

eligible for an unreduced early retirement benefit. Hein did not

raise either of these arguments before the district court or in

earlier filings before this Court and is therefore barred from

raising them now. See infra at 6. We note, however, that nothing

in the Plan supports Hein’s argument. Rather, the Plan contains

a separate definition of “Actuarial Equivalent” which applies.

Plan § 1(3), App. 25. It is, in any event, inconceivable that the

words “actuarially reduced” in Section VIII(6) can be

interpreted to include a reference to unreduced benefits in

Section V(5).

6a

which Hein claims do not. The unreduced early retire-

ment benefits in the Plan apply only “if the Member has

attained any combination of the ages and the years of

Vesting Service, combinations set forth below on his

Actual Retirement Date.” Plan § V(5)(b), App. 37. The

chart which is the real crux of this litigation follows:

Age on Actual Vesting Service on

Retirement Date Actual Retirement Date

55 35

56 34

- a ae i. a oe

Id. “Actual Retirement Date” is defined in the Plan as

“the date on which the service of an Employee is termi-

nated by retirement.” Plan § I(2), App. 25. Here, Hein was

not an “Employee” of the Bank at age 55.4

The argument in Hein’s Letter Brief (at pp. 7-8) that

the use of the word “Member” earlier in Section V(5) is

inconsistent with the use of “Actual Retirement Date” in

the chart is inexplicable. Section V(5) uses the word

“Member” because a former employee who has retired

early may elect to commence receiving benefits as of the

first day of any month coincident with or following his

Early Retirement Date. That is entirely consistent with

4 “Employee” mean [sic] a person employed by the Bank.

Plan § 1(12), App. 26. Similarly, “service” can refer only to

service for purposes of the Plan, and only service with the Bank

is credited under the Plan. Plan § 1(15), App. 27. As noted at

footnote 2, Hein’s subsequent service with First Fidelity is not

taken into account for this purpose.

7a

requiring that the “Member” meet the eligibility require-

ments for an unreduced early retirement benefit while in

employment.

As the district court stated in its opinion:

Under the plain language of the Plan itself, Mr.

Hein does not qualify for unreduced benefits

because he did not reach one of the specific

qualifying combinations of age and years of ser-

vice. The table set forth in the Plan is not offered

as an illustration of qualifying combinations,

but rather as an exhaustive list of those combi-

nations. Under the language of the Plan itself,

Mr. Hein did not qualify for unreduced retire-

ment benefits.

Attach. to Br. of Appellants, p. 8.

Interpretation of the SPD

Hein devotes a significant portion of his Letter Brief

attempting to establish an entitlement to benefits under

the SPD, rather than the Plan, but that is not the subject

of this appeal. As this Court has repeatedly recognized,

the Employee Retirement Income Security Act of 1974

(“ERISA”) does not provide an action for benefits under a

summary plan description where an operative plan docu-

ment controls. Gillis v. Hoechst Celanese Corp., 4 F.3d 1137,

1142 (3d Cir. 1993), cert. denied, 114 S. Ct. 1369 (1994)

(“[W]Je conclude that, under ERISA, these documents

were, at most, summary plan descriptions. Accordingly,

the plan document . . . controls and the plaintiffs ‘cannot

recover under 29 U.S.C. § 1132(a)(1)(b) [of ERISA] for

benefits allegedly due under a summary plan descrip-

tion.’” (quoting Gridley)); Gridley v. Cleveland Pneumatic

8a

Co., 924 F.2d 1310, 1318 (3d Cir.), cert. denied, 111 S. Ct.

2856 (1991). Because the Plan document clearly indicates

that Hein’s benefit must be actuarially reduced, it is of no

moment to this appeal whether or not the SPD is sim-

ilarly clear.

In any event, the SPD is clear. Like the Plan, the SPD

differentiates between “Your Early Retirement Benefit”

(App. 92-93) and what happens “If You Leave The Bank

Before Retiring” (App. 93-94). In defining “Early Retire-

ment,” the SPD states:

You become eligible for early retirement when

you reach age 55 and complete 10 years of vest-

ing service. . . . You can begin to receive retire-

ment benefits on the first of the month

coincident with your retirement or delay receipt

of benefits until the first day of any following

month.

App. 88. Hein did not fall within this definition. Instead,

Hein left the Bank before retiring, when the Bank entered

receivership.

With respect to employees who leave the Bank before

retirement, the SPD states in part:

Not every employee will spend his or her entire

career with the Bank. If you leave the Bank

before retiring, you may still be entitled to

receive a pension under the Plan’s vesting pro-

vision. .. .

Pension payments begin the first day of the

month after your 65th birthday. However, if you

have ten years of vesting service . . . you may

choose to receive your pension as early as the

first of the month after your 55th birthday. If

9a

you choose to receive your pension early, it will

be reduced in the same manner as an early

retirement benefit.

App. 93-94. This provision, like the early retirement pro-

vision quoted above, clearly distinguishes between an

employee who leaves the Bank at retirement and one who

leaves the Bank with a vested benefit prior to retirement.

Hein seeks to read the statement that a vested benefit

commencing at age 55 “will be reduced in the same

manner as an early retirement benefit” as incorporating

the specific reduction factors that apply to early retire-

ment benefits. Hein did not make this argument in his

appeal to the Plan, or before the district court, or in any

filing before this Court. He is barred from raising it now.

Hutchins v. Iniernal Revenue Serv., 67 F.3d 40, 45 (3d Cir.

1995); Toyota Indus. Trucks U.S.A., Inc. v. Citizens Nat'l

Bank of Evans City, 611 F.2d 465, 470 (3d Cir. 1979); Newark

Morning Ledger Co. v. United States, 539 F.2d 929, 932 (3d

Cir. 1976).

The argument is, nonetheless, no help to him. Like

the Plan, the SPD clearly indicates that unreduced early

retirement benefits apply only to a participant who

retired from the Bank upon or after retaining age 55:

However, the Bank provides an important bene-

fit to early retirees. This reduction does not take

effect if at retirement you have a certain mini-

mum number of years of vesting service, given

your age, as shown.

App. 92. The SPD then produces a chart, similar to that in

the Plan, showing the minimum “Age at Retirement” as

age 55. App. 93. This “important benefit to early retirees”

10a

did not apply to Hein, because he did not retire, and his

age at retirement was not 55. A statement that vested

benefits will be reduced in the same manner as an early

retirement benefit cannot mean that the benefit will be

unreduced in contravention to the directly applicable pro-

vision of the SPD.

Standard of Interpretation

Hein invites the Court to employ the doctrine of

contra proferentum to resolve an alleged ambiguity in the

Plan and SPD. Hein Letter Brief 10-12. In the case Hein

relies on, Heasley v. Belden & Blake Corp., 2 F.3d 1249 (3d

Cir. 1993), the Court applied contra proferentum to resolve

whether the plan at issue gave the plan administrator

discretion to interpret the plan, only after finding that

“both the Plan and the evidence are ambiguous regarding

discretion. ... ” 2 F.3d at 1257. Here, as the district court

found, the plain language of the Plan makes the doctrine

inapplicable.

In any case, the Court in Heasley addressed an insur-

ance policy underlying an ERISA plan, and the presence

of insurance was key to the Court’s holding. Thus, the

Court relied upon the reasoning of the Ninth Circuit

decision in Kunin v. Benefit Trust Life Ins. Co., 910 F.2d 534,

540 (9th Cir.), cert denied, 498 U.S. 1013 (1990):

Insurance policies are almost always drafted by

specialists employed by the insurer. In light [sic]

the drafter’s expertise and experience, the

insurer should be expected to set forth any lim-

itations on its liability clearly enough. .. .

lla

This Court found the Kunin reasoning “especially con-

vincing where, as here, an insured employee seeks con-

tractual benefits under ERISA,” and explicitly limited its

holding to insured ERISA plans. 2 F.3d at 1257. After

Heasley was decided, the Ninth Circuit expressly rejected

the argument Hein raises here:

We hold that the rule of contra proferentum is not

applicable to self-funded ERISA plans that

bestow explicit discretionary authority upon an

administrator to determine eligibility for bene-

fits or to construe the terms of the plan.

Winters v. Costco Wholesale Corp., 49 F.3d 550, 554 (9th Cir.

1995).

In other words, if the ERISA plans [sic] provides its

own principle of interpretation, the doctrine of contra

proferentum cannot apply. Id. In this case, the Plan states:

Except as herein otherwise expressly provided,

the Committee shall have the right to interpret

the Plan and to decide any and all matters aris-

ing thereunder or in connection with the admin-

istration of the Plan, including, but not limited

to, the determination of any Employee's eligi-

bility and the size and form of a Participant's

benefits.

Plan § XII(7), App. 54. The doctrine of contra proferentum

cannot apply without entirely abrogating this unam-

biguous grant of discretion.5

° Hein has asserted that McNeil was not properly

appointed to act as Plan administrator in lieu of the

“Committee” under the Plan. He did not raise this argument

before the district court and is therefore foreclosed from raising

12a

In sum, the district court correctly decided that Hein

was not entitled to unreduced early retirement benefits

under the Plan. Its reliance upon the “same desk rule”

reasoning in Gillis was in error. Many of the arguments

Hein has raised in his Letter Brief are entirely new and

must be disregarded. McNeil properly interpreted the

Plan in denying Hein’s claim for unreduced early retire-

ment benefits. Accordingly, we respectfully request that

the decision of the district court be reversed.

Very truly yours,

SEYFARTH, SHAW, FAIRWEATHER

& GERALDSON

Frepric S. SINGERMAN

CHRISTOPHER A. WEALS

cc: P. Douglas Sisk, Clerk (Federal Express)

Kevin M. Hart, Esq. (Regular Mail)

Edward R. McMahon (Regular Mail)

B. John Pendleton, Jr. (Federal Express)

it now. Supra at 6. In fact, it was undisputed below that McNeil

was appointed plan administrator for the Plan. Plaintiffs’ Brief

in Opposition to the Motion for Summary Judgment on behalf of

McNeil and the Plan and in Support of Plaintiffs’ Cross-Motion

for Summary Judgment, p. 12, { 17. In any case, it appears that

the district court applied a de novo standard here.