Petition for Writ of Certiorari — Robinson v. Administrative Committee of the Sea Ray Employees' Stock Ownership & Profit Sharing Plan

No. - ry Jr THE CLERK

In The

Supreme Cont of the United States

+

DANIEL ROBINSON; et al. (“Class I’’);

Petitioners/Defendants,

VS.

ADMINISTRATIVE COMMITTEE OF THE

SEA RAY EMPLOYEE'S STOCK OWNERSHIP &

PROFIT SHARING PLAN et al.

Respondents/Plaintiffs,

and

SHARON BALDOCK; et al. (“Class IT’)

Respondents/Defendants.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Sixth Circuit

PETITION FOR A WRIT OF CERTIORARI

E. H. RAYSON

Counsel of Record

WILLIAM P. SNYDER

JOHN C. BURGIN JR. |

KRAMER, RAYSON, LEAKE

RODGERS & MORGAN, LLP

P. O. Box 629

Suite 2500, First Tennessee Plaza

Knoxville, Tennessee 37901

(423) 525-5134

Attorneys for Petitioners

i

Questions Presented

I.

A.

Whether, under Firestone Tire & Rubber Co. v. Bruch, 489

U.S. 101 (1989), the Language in the Respondent’s Employee

Stock Ownership and Profit Sharing Plan was Sufficient to

Permit Review under the Arbitrary and Capricious Standard.

B.

Whether Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101

(1989), Requires Deference to a Plan Administrator’s

Interpretation of a Federal Statute (26 U.S.C. § 411(d)(3))

and/or its Factual Findings that a Partial Termination Had Not

Occurred.

c.

Whether a Plan Administrator’s Decision May be Upheld on

Grounds Other Than Those Given or Considered by the Plan

Administrator Regardless of the Standard of Review.

Il.

Whether, on an Appeal from a Decision Granting Summary

Judgment, the Court of Appeals Properly Applied the Clearly

Erroneous Standard of Review to Conclusions Crucial to the

District Court’s Holding that a Partial Termination of an ESOP

Had Not Occurred.

il

Parties to Proceedings Below

DANIEL ROBINSON; MIKE DOMINQUEZ; WILLIAM

SKINNER; LISA MOORE; CHERYL ELLIOTT; RICKY

TAYLOR; JERRY WAYNE MASSEY; JAMES BARNES;

SUE COOKE; RALPH DAVIS JONES; SCOTT LYONS;

VICKI HARDENBURG; TIM CARROLL; BENNY

HOUSEHOLDER; RANDY NEIL GARNER; BENJAMIN

WILLIAMS; STEVEN WAYNE BLAIR; ROBERT

MARKWALTER; LISA BOYER; SAMUEL ADAMS;

JERRY HANCOCK, on behalf of themselves and all other

similarly-situated individuals, (“Class I’)

Petitioners/Defendants

VS.

ADMINISTRATIVE COMMITTEE OF THE SEA RAY

EMPLOYEE'S STOCK OWNERSHIP & PROFIT SHARING

PLAN; WILLIAM J. BARRINGTON, in their capacities as

members of the Administrative Committee; DIANNE M.

YACONETTI, in their capacities as members of the

Administrative Committee; WILLIAM R. MCMANAMAN, in

their capacities as members of the Administrative Committee

Respondents/Plaintiffs

and

SHARON BALDOCK; MARK LINDEMAN; EARL WAYNE

HUMPHRIES; JEAN MARIE HOWARTH; WILLIAM

SULLIVAN; ROY ELLIS; ARVIL ELLIS; GARY

SOUTHWOOD; KENNETH HARRELL; EMILY SCHULTZ;

FOREST JOSLIN; DEBORAH MCDANIEL, on behalf of

themselves and all other similarly-situated individuals, (“Class

IT”)

Respondents/Defendants

eee

Table of Contents

Questions Presented .............................. i

Parties to Proceedings Below............ ........._. il

POPPIN oe eer ees ereseceses....... vi

Citations to Opinions and Orders................... l

Corporate Disclosure Statement .................._ l

Statement of Jurisdiction ......................... l

Statutes and Regulations .......................0. 2

statement oftheCase............................. 4

Basis for Original Subject Matter Jurisdiction... .. 4

Statement of Facts ......................... 6

hoc copy Ae eID ee 9

I.A. Whether, under Firestone Tire & Rubber Co.

v. Bruch, 489 U.S. 101 (1989), the Language in

the Respondent’s Employee Stock Ownership

and Profit Sharing Plan was Sufficient to Permit

Review under the Arbitrary and Capricious

ask ok Ooi. 9

1.B. Whether Firestone Tire & Rubber Co. y.

Bruch, 489 US. 10] (1989), Requires

Deference to a Plan Administrator’s

Interpretation of a Federal Statute (26 U.S.C. §

411(d)(3)) and/or its Factual Findings that a

Partial Termination Had Not Occurred. ... 14

iV

LC. Regardless of the Standard of Review, May A

Federal Court Uphold A Plan Administrator’s

Decision on Grounds Other Than Those Given

or Considered by the Plan Administrator. . 18

Comeiuesnel 00 GOGGUURON So 5 icc cecvecccccccacs 20

Il. Whether, on an Appeal from a Decision

Granting Summary Judgment, the Court of

Appeals Properly Applied the Clearly

Erroneous Standard of Review to Conclusions

Crucial to the District Court’s Holding that a

Partial Termination of an ESOP Had Not

eo ere re ree pr heey & 21

CNS i edo cele Waa cmebare eee eee 27

Vv

Table of Authorities

Cases

Administrative Committee of the Sea Ray

Employees' Stock Ownership and Profit

Sharing Plan v. Robinson, 164 F.3d 981

Gee es BOO ei cine ticks J bibeiche ei 1,12

Anderson v. Great West Life Assur. Co.,

PES F.26 392 (Gth Cir. 1991) 2. one eed, 17

Bogue v. Ampex Corp., 976 F.2d 1319 (9th Cir. 1992),

cert. den. 507 U.S. 1031 (1993) ............... 10

Bruch v. Firestone Tire & Rubber Co., 828 F.2d 124

(3rd Cir.1987), aff'd in part, rev'd in part,

ei tt me eS. SR 15

Central States, Southeast & Southwest Areas

Pension Fund v. Central T, ransport, Inc.,

eT). eee 12

Chait v. Bernstein, 835 F.2d 1017 (3d Cir. 1987)....... 22

Chevron, U.S.A., Inc. v. Natural Resources Defense Council,

Inc.,

WU. 3G 15

Cox v. Mid-America Dairyman, Inc., 965 F.2d 569 (8th Cir.

EUNE) 645 soi es Hie LORIE eet 16

DeFelice v. American International Life, 112 F.3d 61

SG WINES 6s Sheek Hk ee. 18

vi

Donatelli v. Home Ins, Co., 992 F.2d 763

ee Gate ES Gras cc Oieb etc cdesbevusuree 19

Firestone Tire & Rubber Co. v. Bruch,

GOP U.S. TOUTIGRO? . occ cuctvoeunces i, 9-11, 13-17

Gauer v. Connors, 953 F.2d 97 (4th Cir. 1991) ........ 14

Gluck v. Unisys Corp., 960 F.2d 1168 (3d Cir. 1992) ... 22

Halliburton Co. v. C.I.R., 100 T.C. 216 (1993),

aff'd, 25 F.3d 1043 (Sth Cir. 1994),

cert. deniedS|3 U.S. 989 (1994) ..... 20, 22, 235, 26

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

Cr Get Se a te cad oaks URN a 10

Heidgerd v. Olin Corp., 906 F.2d 903 (2nd Cir. 1990)... 16

Hickey v. A. E. Staley Mfg., 995 F.2d 1385

CPG Bee 5 COR ble 6 oo 88k 2 ae WOR e cass 10

Hullett v. Towers, Perrin , Forster & Crosby, Inc.,

Se Fie er Gs Se 8s oc ds bee eso eed 10

Hunt v. Chromartie, US __,

OT Ck RI Soc oc cate seensensaae 21

In re Gulf Pension Litigation, 764 F. Supp.

1149 (S.D. Tex. 1991),aff'd sub

nom., Borst v. Chevron Corp., 36

F.3d 1308 (Sth Cir. 1994), cert. den.

SER SR a ee ee Poe RRS 24

Kearney v. Standard Insurance Co., __ F.3d

ke POD a's, sb oa N Aka eae ek ok 10

ARC ACA coe tities hale “oe

Ele Swink lane, Be tale ta.

Vil

Kirwan v. Marriott Corp.,

10 F.3d 784 (11th Cir. 1994) .............. 10, 13

Kreis v. Charles O. Townley, M.D. and Associates, P.C.,

833 F.2d 74 (6th Cir. 1987) ............... 23, 25

Luby v. Teamsters Health, Welfare, and Pension

Trust Funds, 944 F.2d 1176 (3d Cir.1991) ... 16,19

Lynd v. Reliance Standard Life Ins. Co., 94 F.3d 979

Pee MO 8 ori oo OR Rs ae cs 10

Masella v. Blue Cross & Blue Shield of

Connecticut, Inc., 936 F.2d 98 (2d Cir. 1991) ...19

Matsushita Electric Industrial Co. vy. Zenith Radio,

Seictctcees ssh ince Pett Por Te 25

Meditrust Financial Services C. Orp. Vv.

The Sterling Chemicals, Incorporated,

Medical Benefits Plan for Hourly-paid

Employees, 168 F.3d 211 (5th Cir. Bee 16

Mertins v, Hewitt Associates, 508 U.S. 248 | ee 14

Moon v. American Home Assurance Co. ,

888 F.2d 86 (I 1th Cir. NS hls d 5k eo chakias: 19

Morales v. Pan American Life Ins. Co.,

718 F.Supp. 1297(E.D.La. 1989),

aff'd., 914 F.2d 83 (Sth Cir. SRT ene 22

New York State Conference of Blue Cross Plans

v. Travelers Ins. Co., 514 U.S. 645 i.) 20

Vill

Oldenberger v. Central States Southeast and

Southwest Areas Teamster Penion Fund,

p & be, b « | Se 10

Paramore v. Delta Airlines,

129 F.3d 1446 (11th Cir. 1997) ............ 16, 17

Penn v. Howe-Baker Engineers, Inc.,

898 F.2d 1096 (Sth Cir. 1990) ................ it

Perez v. Aetna Life Ins. Co., 150 F.3d 550

(Te ae TS 9,10

Perry v. Simplicity Eng'g , 900 F.2d 963

Pe eG rasa ayy o ved eevee ees 18

Pierre v. Connecticut Gen. Life Ins.,

i eR ae ae a 15

Pierre v. Connecticut General Life Ins. Co.,

932 F.2d 1552 (Sth Cir.),cert. denied,

AE Rf RR ee 16

Pratt v. Petroleum Production Mgt. Inc. Employee Sav.

Plan and Trust, 920 F.2d 651 (10th Cir. 1990) .. 14

Queisinberry v. Life iNs. Co. of North America,

987 F.2d 1017 (4th Cir. 1993) ............. 16, 19

Ramsey v. Hercules Inc., 77 F.3d 199 (7th Cir. 1996) ... 16

Reinking v. Philadelphia American Life Ins. Co.,

910 F.2d 1210 (40h Civ. 1990) 2... ccc ccc ccees 16

Rowan v. Unum Life Ins. Co. of America, 119 F.3d 433

IOS So 00 0 ak cows oy Cha ee ee ders ews 16

Te ee Ge ae eT ae Re Ie

1X

Sandoval v. Aetna Life & Casualty Ins. Co.,

967 F.2d 377 (10th ee 18

Snow v. Standard Ins. Co., 87 F.3d 327 (9th Cir. 1996) . 10

St. Mary’s Honor Center y. Hicks, 509 U.S. 502 (1993)

NSS CE RKHE OES CASE TERE RS HORE RE Mate lice o... 13

Sure-Tan, Inc. v. NLRB, 467 US. 883 (1984) ......... 25

Terry v. Bayer Corp., 145 F.3d 28 (Ist Cir. 1998) ...... 10

Varity Corp. v. Howe, 516 U.S. 489 Se bo bei cb) 9,13

Weil v. Retirement Plan Admin. Comm..,

913 F.2d 1045 (2nd Cir. 1990), on petition

for rehearing, 933 F.2d 106 (2nd Cir. 1991) .. 14,15

Wheeler v. Dynamic Engineering, Inc., 62 F.3d 634

PE ceseccss ee oa 10

Wildbur v. Arco Chemicals, 974 F.2d 63]

ovis lcuse, Peo OT TTY | a ae ee 16

Wilkins vy. Baptist Healthcare System, Inc., 150 F.3d 609

Ge ee PN bay go 18

Wulf v. Quantum Chem. Corp., 26 F.3d 1368

(6th Cir. 1994), cert den. 513 U.S. 1058 (1994) .. 13

X

Statutes, Regulations and Other Authorities

26 CFR. § L4LUG)-20OM1) 0c ee eee 22

MiP Ste... oe ea 2

MOTE SMI 5330s 20 Oe 2

UGt Ce eo oe, . ca oe 6

Ei RAR oo ih baie in 6

SUE OI i sd iy, aden GOI 2, 6, 26

MULLS SMe scien h eal 6

A ae 9,15

Bogert & G. Bogert, LAW OF TRUSTS AND TRUSTEES 552

CO ME SU a kee buveswenebdwuetes tas 14

Employee Retirement Income Security Act of 1974

PU i PP ca Pies ceecse le iet oeewentekens 6

Grant, Note, Battling for ERISA Benefits

in the Ninth Circuit: Overcoming

Abuse of Discretion Review, 28 SOUTHWESTERN

UNIVERSITY LAW REVIEW 93, 99 (1998) ........ 15

Heyl, Note, Bedrick v. Travelers Insurance Co.:

The Fourth Circuit’s Continued Attempt

to Work with the “Doctrinal Hash” of the

Standard of Review in ERISA

Benefit-Denial Cases, 75 NORTH CAROLINA

L.. REV. Z5G2, BOOG-G7 (IDET) 2. ccc cccccvesees 18

XI

JUDICIAL BUSINESS OF THE

UNITED STATES COURTS 1998 ................ 20

PENSION PLAN GUIDE § 5920 (CCH 1998) ............ 1]

WUD L. 10B-GG, SB IS0GE cok eed ikds cons cee: 8

wum. 1. 108-S08, Soe. 14S8) 6 ccc vcciccccndenus 8, 24

Restatement (Second) of Trusts 174,

COMMNGRE OCOD 6 vee iedivarcikdcasenude i4

S. Tape. S5-FES CIGTD)....« « vvinsniuednkdaten eee 23

]

Citations to Opinions and Orders

The decision of the United States Court of Appeals for the

Sixth Circuit is reported as Administrative Committee of the

Sea Ray Employees' Stock Ownership and Profit Sharing

Plan v. Robinson, 164 F.3d 981 (6th Cir. 1999), and is

reprinted in the appendix to this petition at Apx. 1-15. The

March 11, 1999, Order denying Class I’s petition for rehearing

and suggestion of rehearing en banc is not yet reported but is

reprinted in the Appendix at Apx 94-95. The Memorandum

and Order of the district court dated July 7, 1997 is reprinted in

the Appendix at Apx. 16-19. The Report and Recommendation

of the Magistrate Judge dated October 30, 1996, is reprinted in

the appendix at Apx. 20-88. The Memorandum and Order of

the District Court dated April 13, 1993, certifying two

defendant classes is reprinted in the Appendix at Apx. 89-93.

Corporate Disclosure Statement

In accordance with Supreme Court Rule 29.6, the

petitioners are not a nongovernmental corporation but a

conditionally certified class of individuals formerly employed

by Sea Ray boats. Apx. 89-93.

Statement of Jurisdiction

The United States Court of Appeals for the Sixth Circuit

entered judgment on January 15, 1999, and denied the Class |

Defendants-Appellants’ Petition for Rehearing and Suggestion

for Rehearing En Banc on March 11, 1999. Apx. 94. This Court

has jurisdiction pursuant to 28 U.S.C. § 1254(1).

2

Statutes and Regulations

26 U.S.C. § 411(d)(3), provides that:

Notwithstanding the provisions of subsection (a), a

trust shall not constitute a qualified trust under

section 401(a) unless the plan of which such trust is a

part provides that -

(A) upon its termination or partial termination, .

the nghts of all affected employees

to benefits accrued to the date of

such termination, partial

termination, or discontinuance, to

the extent funded as of such date,

or the amounts credited to the

employees’ accounts, are

nonforfeitable.

26 C.F.R. § 1.411(d)-2(b)(1) provides that:

Whether or not a partial termination of a qualified

plan occurs (and the time of such event) shall be

determined by the Commissioner with regard to all

the facts and circumstances in a particular case. Such

facts and circumstances include: the exclusion, by

reason of a plan amendment or severance by the

employer, of a group of employees who have

previously been covered by the plan; and plan

amendments which adversely affect the nghts of

employees to vest in benefits under the plan.

26 C.F.R. § 1.401-6 provides that:

(a) General rules. (1) In order for a pension,

profit-sharing, or stock bonus trust to satisfy the

3

requirements of section 401, the plan of which such

trust forms a part must expressly provide that, upon

the termination of the plan or upon the complete

discontinuance of contributions under the plan, the

rights of each employee to benefits accrued to the date

of such termination or discontinuance, to the extent

then funded, or the rights of each employee to the

amounts credited to his account at such time, are

nonforfeitable. As to what constitutes nonforfeitable

nghts of an employee, see paragraph (a)(2) of Sec.

1.402(b)-1.

*~* *

(b) Termination defined. (1) Whether a plan is

terminated is generally a question to be determined

with regard to all the facts and circumstances in a

particular case. For example, a plan is terminated

when, in connection with the winding up of the

employer's trade or business, the employer begins to

discharge his employees. However, a plan is not

terminated, for example, merely because an employer

consolidates or replaces that plan with a comparable

plan. Similarly, a plan is not terminated merely

because the employer sells or otherwise disposes of

his trade or business if the acquiring employer

continues the plan as a separate and distinct plan of its

own, or consolidates or replaces that plan with a

comparable plan. See paragraph (d)(4) of Sec.

1.381(c)(11)-1 for the definition of comparable plan.

In addition, the Commissioner may determine that

other plans are comparable for purposes of this

section.

(2) For purposes of this section, the term

termination includes both a partial termination and a

complete termination of a plan. Whether or not a

partial termination of a qualified plan occurs when a

4

group of employees who have been covered by the

plan are subsequently excluded from such coverage

either by reason of an amendment to the plan, or by

reason of being discharged by the employer, will be

determined on the basis of all the facts and

circumstances. Similarly, whether or not a partial

termination occurs when benefits or employer

contributions are reduced, or the eligibility or vesting

requirements under the plan are made less liberal, will

be determined on the basis of all the facts and

circumstances. However, if a partial termination of a

qualified plan occurs, the provisions of section

401(a)(7) and this section apply only to the part of the

plan that is terminated.

Statement of the Case

Basis for Original Subject Matter Jurisdiction

The district court possessed subject matter jurisdiction

over this case because the complaint filed by the Respondents

raised a federal question under the Employee Retirement

Income Security Act of 1974. 29 U.S.C. § 1132(e).

Jurisdiction is also proper under 28 U.S.C. § 1331, because this

case raises a federal question involving the interpretation and

application of the Internal Revenue Code, as amended by §

1012 of ERISA. 26 U.S.C. §411(d)(3).

This action was filed in the United States District Court for

the Eastern District of Tennessee on August 25, 1992, by the

Administrative Committee of the Sea Ray Employees’ Stock

Ownership and Profit Sharing Plan and the three members

thereof. (the “Committee’”’). Respondents sought a declaratory

judgment that there had been no partial termination of the an

Employee Stock Ownership and Profit Sharing Plan (ESOP),

within the meaning 26 U.S.C. § 411(d)(3), as amended by the

5

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

and the terms of the Plan. Apx. 16.

By order of the district court, two defendant classes of

former and present participants were defined. Petitioners, Class

I, consisted of all former Sea-Ray employees who were

participants in the plan, and whose service as employees ended

between July 1, 1989, and June 30, 1991, and who had an

interest in the plan that was not fully vested, as well as the

beneficiaries of those former Sea-Ray employees.

Respondents, Class II: consisted of the present and former Sea-

Ray employees who are or were participants in the plan and

who may be entitled under the terms of the plan to receive a

portion of the forfeitures resulting from the termination of

employment of members of Class I, as well as the beneficiaries

of those present and former Sea-Ray employees. Apx. 89. The

district court, upon the Committee’s motion, appointed counsel

to represent each class. Apx. 92.

After the filing of cross-motions for summary judgment,

the United States Magistrate Judge issued a Report and

Recommendation, which found that there had been no partial

termination of the plan. Apx. 20. By order dated July 7, 1997,

the district court adopted the Report and Recommendation of

the Magistrate Judge. Apx. 16. On appeal to the United States

Court of Appeals for the Sixth Circuit, the court of appeals

affirmed the lower court’s order in a decision filed January 14,

1999. Apx. 1. The court of appeals denied Class I’s petition for

rehearing with a suggestion for rehearing en banc on March 11,

1999. Apx. 94.

6

Statement of Facts

Title II of the Employee Retirement Income Security Act

of 1974( ERISA), amended the Internal Revenue Code of 1954

(the Code). Pub. L. 93-406, § 1012, codified as 26 U.S.C.

§ 411, amended the Code to codify existing regulations on

minimum vesting standards for, among other things, employee

stock ownership plans (ESOP). In order to be a “qualified

trust,” according to 26 U.S.C. § 411(d)(3), a plan must provide

that “upon its termination or partial termination . . . the nghts

ofall affected employees to benefits accrued to the date of such

.. . partial termination . . . are nonforfeitable.” See also 26

U.S.C. § 401(a); 26 U.S.C. § 4975(e)(7).

Since the 1950's, Ray Industries has manufactured pleasure

boats under the brand name “Sea Ray.” After a period of

unprecedented growth, Sea Ray was acquired by Brunswick

Corporation in 1986. At this time, Sea Rays adopted an

employee stock bonus plan and an employee profit sharing plan

(collectively referred to as the Plan). Apx. 3. Sea Ray

continued to expand. By 1988 Sea Ray had 10 production

facilities and three other divisions. By early 1989 Sea Ray had

4,425 employees. Apx. 37. Early in model year 1989, which

began July 1, 1988, retail sales continued to grow. But in

March and Apmil of 1989, retail sales began a sharp decline

which was to continue at least until July 1991.

In May 1989, Sea Ray instituted the first of a series of

layoffs and plant closings. By July 12, 1989, Sea Ray had laid

off eight (8) percent of its total workforce of production

employees. Apx. 31. In July it decided to close three plants

and by the end of July 1989, an additional 29% of the

workforce was laid off bringing the total percent of the layoffs

for the three-month period between April 21, 1989 to July 27,

1989, to 35%. Apx. 31-32.

In August 1989, Sea Ray consolidated the workforce at

four of its East Tennessee plants into two plants and advised

former employees that their “temporary layoff’ was now a

7

permanent one. Apx. 32-33. Explaining that “[sloftening

consumer demand for marine products” was to blame, Sea Ray

conducted “permanent” layoffs in July, August, September and

December (1990) at several of its plants and as well as at its

main headquarters in Knoxville, Tennessee. Apx. 34. Sea Ray

closed its Oxford, Michigan plant effective January 1991;

additional layoffs occurred in March and May 1991. Layoffs

continued through December 1992, after this action was

commenced. Apx. 35-36.

On June 30, 1989, there were 4,425 total employees. On

June 30, 1990, the number of employees was 3,309. By June

30, 1991, there were 2,028 total corporate employees, a total

workforce reduction (including voluntary departures) of 54.2%

over this two year period. Apx. 37.

Sea Ray’s sales decreased from a high of 24,538 units in

1988 to 10,542 units in 1991. Apx. 30. The effect on the

ESOP was equally dramatic. The plan participants as of July

1, 1989 were 3,832. By July 1, 1990, the participants

decreased to 3,060 and by July 1, 1991, the number of

participants dropped to 1,968. Adjusted to account for added

participants during this period, plan enrollment for this two

year was diminished to 49% of what it was (from 4,139, the

total participants during the two year period, to 1,968). Apx.

38-39.

The Committee and Class II contended (and the district

court so held) that the reductions in the plan should be

separated by plan years (July 1 to June 30) because, according

to them, 40 percent of the 1990-91 plan year layoffs were

caused by the enactment of a federal “luxury tax.” Apx. 60.

Class | argued against this because the undisputed evidence

established that the layoffs were continuing in nature and had

no relationship to the individual plan years. Apx. 35,64. The

Sixth Circuit affirmed the district court on this conclusion (as

well as others) using the clearly erroneous standard of review

despite the fact that the appeal was from a grant of summary

judgment.

8

The luxury tax was enacted on November 5, 1990, and

became effective January 1, 1991, i.e., halfway through Sea

Ray’s 1990-91 plan year. (Pub. L. 101-508, Sec. 11221).’

With respect to the first sale of a boat, the Act imposed a 10

percent tax on any amount exceeding $100,000. Sea Ray built

these luxury yachts at three Florida plants - Merritt Island,

Palm Coast, and Sykes Creek. Apx. 6, 26-27, 35, 60. Of the

454 employees Class II argued were laid off because of the

luxury tax, at least 204 of them were laid off between July 1,

1990 (the beginning of the plan year) and November 5, 1990.

The 204 employees laid off before the enactment of the iuxury

tax consisted of 74 employees laid off on July 6, 1990 from the

Palm Coast plant, 35 and 95 employees who were layoff

notices on September 28, 1990 from the Merritt Island and

Palm Coast plants, respectively. Apx. 34-35. (This assumes,

of course, that the remaining layoffs at the Merritt Island and

Palm Coast plants were entirely attributable to the luxury tax.)

The Administrative Committee met in June 1992, to

consider whether a partial termination had occurred. As the

Magistrate Judge aptly stated, “[i]t is unclear if the percentage

considerations were sufficiently examined at the meetings,”

Apx. 87, despite the fact that the Committee was aware of the

potential that a sufficiently sizable decline in plan participation

for reasons beyond the control of the employer may constitute

a partial termination. Apx. 25, 84-85. The Committee,

nevertheless, concluded that there had not been a partial

termination because the reductions were caused by general

economic conditions and not by an intent to “abuse” the plan.

Id.

' The tax on boats was repealed in 1993 by Pub L. 103-66, § 13161.

a ——

9

Argument

I,

A.

Whether, under Firestone Tire & Rubber

Co. v. Bruch, 489 U.S. 101 (1989), the

Language in the Respondent’s Employee

Stock Ownership and Profit Sharing Plan

was Sufficient to Permit Review under the

Arbitrary and Capricious Standard.

In Firestone Tire & Rubber Co. v. Bruch, 489 U.S.

101(1989), this Court held that “a denial of benefits challenged

under (29 U.S.C. §] 1132(a)(1)(B) is to be reviewed under a de

novo standard unless the benefit plan gives the administrator or

fiduciary discretionary authority to determine eligibility for

benefits or to construe the terms of the plan.” Jd. at 115.

Because the Firestone plan did not confer any discretionary

authority, the Court did not set forth criteria courts should use

in examining the type of language which would confer

discretionary authority on a plan administrator.

The question presented here is whether the language in the

Sea Ray plan is sufficient to confer a deferential standard of

review on the Committee’s decision to deny benefits to

terminated employees because, as the Respondent Committee

decided, no partial termination had occurred.’

After Firestone, most courts of appeals held that

deferential review was required only by plan language which

establish a “clear grant of discretion,” Perez v. Aetna Life Ins.

Co., 150 F.3d 550, 555 (6th Cir. 1998) (en banc), or by plan

* While the Court did not expressly hold that discretionary authority

language in a plan will mandate an abuse of discretion review, the lower

courts have generally adopted this as the alternative to the de novo standard

of review. Varity Corp. v. Howe, 516 U.S. 489, 513 (1996).

10

language which “expressly confers” discretionary authority on

the plan administrator. Lynd v. Reliance Standard Life Ins.

Co., 94 F.3d 979, 981 (5th Cir. 1996); see also Terry v. Bayer

Corp., 145 F.3d 28 (1st Cir. 1998) (“clear discretionary grant”

required); Wheeler v. Dynamic Engineering, Inc., 62 F.3d 634

(4th Cir. 1995) (must be an express grant of discretion);

Hickey v. A. E. Staley Mfg., 995 F.2d 1385 (7th Cir. 1993) (de

novo review applied because plan did not “expressly give”

administrator discretion); Oldenberger v. Central States

Southeast and Southwest Areas Teamster Penion Fund, 934

F.2d 171 (8th Cir. 1991) (plan must “expressly give”

administrator discretion); Bogue v. Ampex Corp., 976 F.2d

1319, 1325 (9th Cir. 1992), cert. den. 507 U.S. 1031 (1993)

(administrator had discretion only where discretion was

“unambiguously retained”); Kirwan v. Marriott Corp.., 10 F.3d

784 (11th Cir. 1994) (“express language unambiguous in its

design”); but see Hullett v. Towers, Perrin , Forster & Crosby,

Inc., 38 F.3d 107 (3rd Cir. 1994) (express language not

necessary, discretion may be implied); Heasley v. Belden &

Blake Corp., 2 F.3d 1249 (3rd Cir. 1993) (clear and

unequivocal grant of discretionary authority not necessary);

Snow v. Standard Ins. Co., 87 F.3d 327, 330 (9th Cir. 1996)

(discretion may be implied).

Despite these statements, the courts of appeals have

struggled to apply Firestone consistently. The Court need only

compare the recent en banc decision from the Sixth Circuit, in

Perez, with the even more recent en banc decision of the Ninth

Circuit in Kearney v. Standard Insurance Co., F.3d ___

(9th Cir. 1999). Despite very similar plan language,’ the en

banc Ninth Circuit expressly disagreed with the en banc Sixth

Circuit’s application (in Perez) of the abuse of discretion

* The operative language in Kearney was “upon receipt of satisfactory

written proof” while in Perez the plan stated the administrator had the “right

to require as part of the proof of claim satisfactory evidence.“ 150 F.3d at

$52.

ee

1]

standard of review. That two federal courts of appeals had to

resolve an issue of plan interpretation en banc would be proof

enough of the need for guidance in this area. That they

disagreed on the interpretation of virtually similar language

confirms the following observation in the PENSION PLAN GUIDE

4 5920 (CCH 1998):

While the general principles are clear enough, many

questions remain. The Court [in Firestone] failed to

provide specific guidance as to what plan language is

necessary to grant discretionary authority to an

administrator or fiduciary, thus insuring that their

decision are accorded deference by the courts.

Furthermore, the Court did not define the scope of the

de novo standard of review or the “new” deferential

standard of review.

Case law since the Firestone decision has helped to

fill in the gaps left by the Court. However, with the

Circuits developing their own rules, there are

inconsistencies in the application of the Firestone

rules.

In addition, the Sixth Circuit’s decision herein conflicts

with the interpretation given similar plan language by the

Eleventh Circuit Court of Appeals. The language in the Sea

Ray plan stating the powers of the Administrative Committee

is in Section 16:

The Committee shall have all powers necessary

to enable it to administer the Plan and Trust

Agreement in accordance with their provisions,

including without limitation the following:

(2) determining the appropriate

allocations to Participants' Accounts

pursuant to Section 6;

12

(3) determining the amount of benefits

payable to a Participant (or Beneficiary), and

the time and manner in which such benefits

are to be paid;

(7) construing and interpreting the Plan

and the Trust Agreement and adopting rules

for administration of the Plan that are

consistent with the terms of the Plan

documents and of ERISA and the Code;

The Committee shall perform its duties under the Plan

and the Trust Agreement solely in the interests of the

Participants (and their Beneficiaries). Any discretion

granted to the Committee under any of the provisions

of the Plan or the Trust Agreement shall be exercised

only in accordance with rules and policies established

by the Committee which shall be applicable on a

nondiscriminatory basis.

The Sixth Circuit held that this language “clearly grants

discretion to the committee” reasoning “[wJhile terms... such

as ‘construe’ and ‘interpret’ by themselves would likely be

enough to establish discretion, we need not decide that issue

because § 16 also expressly gives the Committee ‘discretion.’”

164 F.3d at 986. While the plan does use the word

“discretion,” the context in which it is used plainly shows that

it was merely imposing a limit on discretion that may be

granted by other plan provisions.*

* The court of appeals and the district court may have attached some

significance to the phrase in section 16 which provides the Committee with

“all powers necessary to enable it to administer the Plan and Trust

Agreement in accordance with their provisions.” But because this phrase

is simply a restatement of the authority and responsibility the common law

vested in every trustee, Central States, Southeast & Southwest Areas

13

The Sixth Circuit’s decision in this case conflicts with the

decision of the United States Court of Appeals for the Eleventh

Circuit which held the de novo standard of review applied

where the plan gave the administrator the ‘authority to control

and manage the operation and administration of the Plan” and

the authority to “promulgate such rules and regulations as

deemed necessary and proper to interpret or administer the

Plan.” Kirwan, 10 F.3d at 788. The Eleventh Circuit reasoned

that this language “falls short of the express grant of

discretionary authority necessary to trigger the arbitrary and

capricious standard of review,” because the grant of authority

to promulgate rules and regulations is “merely a grant of

administrative powers.” Indeed, the Sixth Circuit's decision in

this case is inconsistent with its own decision in Wulf v.

Quantum Chem. Corp., 26 F.3d 13 68, 1372 (6th Cir. 1994),

cert den. 513 U.S. 1058 (1994), which followed the Kirwan

decision. While both decisions were relied upon by Class I in

their briefs, they were ignored by the panel.

The key omission in the Sea Ray plan is the absence of any

discretionary authority to construe or interpret disputed terms

in the plan. 418 U.S. at 115.° See also Varity Corp., 516 U.S.

at 502-04. Authority to “constru[e] and interpret[e] the Plan”

confers no discretionary authority. \t does not “clearly and

Pension Fund v. Central Transport, Inc., 472 U.S. 559, 570 (1985), it is

not sufficient to confer deferential review either under the common law of

trusts or ERISA. Firestone, 489 U.S. at 111 & 113.

* Firestone is ambiguous on this point. The express holding in that

case requires a pian to contain a grant of discretionary authority, 418 U.S.

at 115. Other language in the decision, howevei, referred to the fact that

Firestone’s plan did not give the administrator the “power to construe

uncertain terms.” 489 U.S. at 111. In St. Mary’s Honor Center v. Hicks,

509 U.S. 502, 515 (1993), the Court cautioned that it was “generally

undesirable, where holdings of he Court are not at issue, to dissect the

sentences of the United States Reports as though they were the United

States Code.”

14

explicitly determine the character of the power,” Bogert & G.

Bogert, LAW OF TRUSTS AND TRUSTEES 552, p. 66 (2d rev. ed.

1980), because it is not a conferral of the “power to control

what the plan did.” Mertins v. Hewitt Associates, 508 U.S. 248,

262 (1993). The grant here is little more than a restatement of

the obligation every trustee has to “‘acquaint[] himself with the

terms of the trust... .””. Restatement (Second) of Trusts 174,

comment c (1959).

B.

Whether Firestone Tire & Rubber Co. v.

Bruch, 489 U.S. 101 (1989), Requires

Deference to a Plan Administrator’s

Interpretation of a Federal Statute (26 U.S.C.

§ 411(d)(3)) and/or its Factual Findings that

a Partial Termination Had Not Occurred.

After holding that the plan conferred “discretion” upon the

Committee, the Sixth Circuit held that it would defer to the

Committee’s determination that a partial termination had not

occurred. In so doing, the court expressly disagreed with

decisions from other courts of appeals. Apx. 8-9. In Weil v.

Retirement Plan Admin. Comm. 913 F.2d 1045, 1048-49 (2nd

Cir. 1990), on petition for rehearing, 933 F.2d 106 (2nd Cir.

1991) (Weil IT), the court held that the determination of

whether a partial termination had occurred was a question of

law, and therefore the fiduciary’s decision was not subject to

deference. See also Gauer v. Connors, 953 F.2d 97, 99-100

(4th Cir. 1991); Penn v. Howe-Baker Engineers, Inc., 898

F.2d 1096 (Sth Cir. 1990); Pratt v. Petroleum Production

Mgt. Inc. Employee Sav. Plan and Trust, 920 F.2d 651, 657

(10th Cir. 1990).

By reviewing the Committee’s decision under the arbitrary

and capricious standard, the Sixth Circuit gave greater

deference on a matter of statutory interpretation to a plan

15

administrator than a court gives to an agency charged with

interpreting the same statute. Cf Chevron, U.S.A., Inc. y.

Natural Resources Defense Council, Inc., 467 U.S. 837,

844-45 (1984). The Sixth Circuit’s only reason for doing so

was that the language of the statute was included in the plan.

But every plan provides for the contingency of a partial

termination and the decision as to whether a partial termination

has occurred should not be regarded as a matter of plan

interpretation.° As the Second Circuit recognized in Weil IT, the

inquiry requires an interpretation of the Internal Revenue Code,

tax regulations, as well as federal court and tax court decisions.

933 F.2d at 107-09. Even if a plan expressly granted a plan

administrator the power to construe a federal statute, and the

instant plan does not, it would still be inappropriate to defer to

a plan administrator’s interpretation of that statute.

Closely related to the conflict created by the Sixth

Circuit’s decision in this case is the conflict among the circuits

on on whether Firestone applies to factual findings by an

administrator.

In Firestone, 489 U.S. 108, this Court limited its

discussion to “the appropriate standard of review in [29 U.S.C.]

§ 1132(a)(1)(B), actions challenging denials of benefits based

on plan interpretations.” One commentator has observed that

“courts of appeals have disagreed about whether the Bruch

standard should only ‘be applied when a benefits decision turns

on the facts of the case, rather than the interpretation of the

terms in the ERISA plan.”” Grant, Note, Battling for ERISA

Benefits in the Ninth Circuit: Overcoming Abuse of

Discretion Review, 28 SOUTHWESTERN UNIVERSITY LAW

REVIEW 93, 99 (1998) (quoting Pierre v. Connecticut Gen.

° In Bruch v. Firestone Tire & Rubber Co., 828 F.2d 124, 151 (3rd

Cir.1987), aff'd in part, rev'd in part, 489 U.S. 101 (1989), the court of

appeals noted that the loss of tax qualified status is a "very severe penalty"

and as a result all qualifying pension plans contain the assurances” set forth

in § 411(d)(3).

16

Life Ins., 502 U.S. 973, 974 (1991) (White, J. dissenting from

denial of certiorari).

The majority of courts of appeals have held that

Firestone’s de novo review requirement extends to factual

determinations made by plan administrators unless the plan

“explicitly vests fact-finding discretion in the plan

administrator.” Rowan v. Unum Life Ins. Co. of America,

119 F.3d 433 (6th Cir.1997); accord Heidgerd v. Olin Corp.,

906 F.2d 903, 908-09 (2nd Cir. 1990); Luby v. Teamsters

Health, Welfare, and Pension Trust Funds, 944 F.2d 1176 (3d

Cir.1991); Reinking v. Philadelphia American Life Ins. Co.,

910 F.2d 1210 (4th Cir.1990), overruled on other grounds,

Queisinberry v. Life iNs. Co. of North America, 987 F.2d

1017 (4th Cir. 1993); Ramsey v. Hercules Inc., 77 F.3d 199,

203-04 (7th Cir. 1996); Paramore v. Delta Airlines, 129 F.3d

1446 (11th Cir. 1997).

In contrast, the United States Court of Appeals for the

Fifth Circuit has held that it is appropriate under Firestone to

apply different standards of review to claim denials based on

factual determinations than are applied to denials based on

interpretations of plan language. Pierre v. Connecticut General

Life Ins. Co., 932 F.2d 1552 (5th Cir.), cert. denied, 502 U.S.

973 (1991); Wildbur v. Arco Chemicals, 974 F.2d 631, 635

(Sth Cir. 1992). The Fifth Circuit continues to adhere to this

position. Meditrust Financial Services Corp. v. The Sterling

Chemicals, Incorporated, Medical Benefits Plan for

Hourly-paid Employees, 168 F.3d 211, 214 (Sth Cir. 1999).

The Eighth Circuit appears to agree with the Fifth Circuit’s

position. Cox v. Mid-America Dairyman, Inc., 965 F.2d 569, —

571 n. 2 (8th Cir. 1992).

Class I has repeatedly argued that, even if a court defers to

a plan administrator’s legal conclusions, a court should not

defer to an administrator’s interpretation of a statute for the

same reason the court does not defer to factual findings of the

Committee. Even if the plan gives the Committee some

discretionary authority, nothing in the plan gives the

17

Committee the power to make factual findings. There is no

language in the plan which gives the Committee the authority

to determine “eligibility for benefits,” language the courts of

appeal have found to be sufficient to confer deferential review

of a plan administrator's factual findings.’ E.g., Paramore,

129 F.3d at 1450-51.

A number of courts and writers have written about the

need for further guidance on these issues. One commentator

summed up the problems as follows:

Although the Supreme Court intended Bruch to

bring uniformity to the circuits and settle the

controversy over the standard of review, it did not

succeed in doing so; rather, it appeared to engender

considerable confusion. There was some uncertainty

as to what kind of plan language was sufficient to

grant an administrator or trustee “discretion,” thus

lowering the standard from de novo to abuse of

discretion. Other courts were unsure how to

undertake a de nove review, and many were confused

as to whether the new abuse of discretion standard

"In accepting the Magistrate Judge’s report, the district court aptly

commented that the Magistrate Judge “had to wrestle with the familiar. yet

difficult, question of the appropriate standard of review to apply to the

decision of the Plan's administrator.” Apx. 18 (emphasis added). The

Magistrate Judge’s very conscientious attempt to construe the plan is

nevertheless a perfect example of the need for guidance. The Magistrate

Judge held that a provision in the plan which gave the Committee authority

to “determine the amount” of benefits gave the Committee discretion to

determine whether benefits were payable at all because of a partial

termination. Apx. 44. The Sixth Circuit made the same mistake, Apx. 9,

ignoring its own prior decision which held that a grant of the power to

determine the “amount of the benefits” to which a participant may be

entitled was not a grant of discretionary authority to interpret the plan.

Anderson v. Great West Life Assur. Co.,942 F.2d 392, 394 (6th Cir. 1991).

18

was less or more stringent than the previous arbitrary

and capricious standard, or whether it was the same.

Heyl, Note, Bedrick v. Travelers Insurance Co.: The Fourth

Circuit’s Continued Attempt to Work with the “Doctrinal

Hash” of the Standard of Review in ERISA Benefit-Denial

Cases, 75 NORTH CAROLINA L. REV. 2382, 2406-07 (1997)

(and cases cited therein).

c.

Regardless of the Standard of Review, May A Federal

Court Uphold A Plan Administrator’s Decision on

Grounds Other Than Those Given or Considered by

the Plan Administrator.

In addition to the standard of review, a significant issue in

this case related to whether the court was limited to considering

the evidence considered by the Committee. While the Sixth

Circuit held that the abuse of discretion standard of review

applied to the Committee’s decision, it then considered

evidence not relied upon or considered by the Committee. In

so doing, it disregarded its own precedent, in which it held that

where a court is reviewing a plan administrator’s decision

deferentially, the court is limited to the factual record compiled

by the plan administrator absent exceptional circumstances.

Wilkins v. Baptist Healthcare System, Inc., 150 F.3d 609, 613

& 618 (6th Cir. 1998); Perry v. Simplicity Eng'g , 900 F.2d

963, 966-67 (6th Cir. 1990); accord Sandoval v. Aetna Life &

Casualty Ins. Co., 967 F.2d 377 (10th Cir.1992).

The lower courts are divided on how to review a plan

administrator’s decision. With respect to the de novo standard,

the Second Circuit, in DeFelice v. American International

Life, 112 F.3d 61 (2nd Cir. 1997), observed that courts

“presented with this issue have reached varied results:”

19

The Sixth Circuit has held that no evidence beyond

the administrative record is permissible, on the

grounds that district courts ought not to become

“substitute plan administrators." Perry v. Simplicity

Eng'g , 900 F.2d 963, 966-67 (6th Cir. 1990). While

the Eleventh Circuit seems comfortable allowing

district courts to rely upon entirely new evidence

without restriction, Moon v. American Home

Assurance Co. , 888 F.2d 86, 89 (11th Cir. 1989),

other courts, including the Eighth Circuit, have

permitted some additional evidence where the

administrative record is inadequate to conduct a

proper review of the administrative decision.

Donatelli v. Home Ins. Co., 992 F.2d 763, 765 (8th

Cir. 1993) (decision within discretion of trial court,

which should not be exercised absent good cause);

Quesinberry v. Life Ins. Co. of N. Amer. , 987 F.2d

1017, 1021-27 (4th Cir. 1993) (en banc); cf. Luby v.

Teamsters Health, Welfare, and Pension Trust

Funds, 944 F.2d 1176, 1184-85 (3d Cir. 1991) (where

record is sufficiently developed below, court may

limit review to that evidence even upon de novo

review). The Second Circuit has considered one

aspect of this issue, and has held that additional

evidence may be considered upon de novo review of

an issue of plan interpretation. See Masella v. Blue

Cross & Blue Shield of Connecticut, Inc., 936 F.2d

98, 103-05 (2d Cir. 1991). Masella explicitly did not

decide whether additional evidence may be

considered upon de novo review of factual issues. It

noted, however, that a claimant might be obligated to

present to plan administrators all evidence regarding

the claimant's condition, id. at 105, but would be

unfairly burdened by an obligation to present expert

testimony to plan administrators on an issue of plan

interpretation. Id.

20

If de novo review is appropriate in the instant case, then it will

be essential for the Court to clarify how a court should review

a plan administrator’s decision and whether that decision can

be upheld by a court on grounds other than those relied upon by

the Administrator. The Court should also resolve the evidence

a lower court may consider in reviewing the administrator’s

decision.

But especially if discretionary review is appropmate, the

Court should address whether a court may uphold a plan

administrator’s decision on grounds other than those relied

upon by the plan administrator. For example, a significant

factor to consider in a partial termination claim is the total

percentage reduction of plan participants. Halliburton Co. v.

C.I.R., 100 T.C. 216, 236-37 (1993), aff'd, 25 F.3d 1043 (Sth

Cir.), cert. denied 513 U.S. 989 (1994). In this case, the Sixth

Circuit found that the Committee “decided to calculate the

percentage of layoffs for each [plan] year separately.” Apx. 6.

But the chair of the Committee admitted that the Committee

did not calculate the reduction percentages by separate plan

years. Apx. at 85. Instead, separate plan year calculations were

first proposed after the complaint was filed. Apx. 64. While

there are other examples of “post - hoc” justifications for the

Committee’s decision, they will be addressed as part of

Question II.

Conclusion to Question I

“The basic thrust of the [ERISA] pre-emption clause. . .

was to avoid a multiplicity of regulation in order to permit the

nationally uniform administration of employee benefit plans.“

New York State Conference of Blue Cross Plans v. Travelers

Ins. Co., 514 U.S. 645 (1995). With over 9,000 ERISA claims

being filed in each of the last five years, see Table C-2A of

JUDICIAL BUSINESS OF THE UNITED STATES COURTS 1998, the

current state of disarray on how to review a plan

administrator’s decision unquestionably compromises a

21

fundamental purpose of ERISA, warranting further review by

this Court.

Il.

Whether, on an Appeal from a Decision

Granting Summary Judgment, the Court of

Appeals Properly Applied the Clearly

Erroneous Standard of Review to

Conclusions Crucial to the District Court’s

Holding that a Partial Termination of an

ESOP Had Not Occurred.

The Sixth Circuit erroneously applied the “clearly

erroneous” standard of review to four issues decided by the

district court (and the magistrate judge). The first issue

concerned the district court’s decision that the individuals who

resigned from their employment with Sea Rays were not

“constructively discharged” even though the court of appeals

agreed with Class I’s assertion that “that some former Sea Ray

employees felt compelled to leave in light of the economic

downturn.” Apx. 13-14. The court of appeals further held that

it was not “firmly convinced” that the district court erred in

deciding that the layoffs attributed to the luxury tax amounted

to second “major corporate event.” Apx. 13. Based upon this

finding, the court of appeals then upheld the division of the

reductions into separate plan years. Finally, the court of

appeals held the district court’s adoption of Class II’s reduction

percentages was not “clear error.” Apx. 14.

The appeal was pending before the district court on cross-

motions for summary judgment. Apx. 6, 17, 20. On appeal

from the grant of a summary judgment motion, the appellate

court is supposed to review the record using the same standard

applied by the district court, whether there is a genuine issue of

material fact. See Hunt v. Chromartie, ee * See

U.S.L.W. 4306 (1999).

22

To understand the harm caused by these findings it is

necessary to review the “common law” of partial terminations,

as it has been derived by the federal courts and the tax court.

A “plain english” definition of “partial termination” appears in

Morales v. Pan American Life Ins. Co., 718 F.Supp. 1297,

1302 (E.D.La. 1989), aff’d., 914 F.2d 83 (Sth Cir. 1990):

A partial termination occurs when, in connection with

a major corporate event, a significant percentage of

employees covered by the plan are involuntarily

excluded or terminated from participating in the plan.

The Department of the Treasury regulations require

consideration of all the “facts and circumstances”:

Whether or not a partial termination of a qualified

plan occurs (and the time of such event) shall be

determined by the Commissioner with regard to all

the facts and circumstances in a particular case. Such

facts and circumstances include: the exclusion, by

reason of a plan amendment or severance by the

employer, of a group of employees who have

previously been covered by the plan; and plan

amendments which adversely affect the nghts of

employees to vest in benefits under the plan.

26 C.F.R. § 1.411(d)-2(b)(1).

The partial termination provision has two purposes: to

protect employees legitimate expectations of benefits and to

prevent employers from taking unfair advantage of the

favorable tax treatment. Halliburton, 100 T.C. at 227, citing

Gluck v. Unisys Corp., 960 F.2d 1168, 1182-83 (3d Cir. 1992),

and Chait v. Bernstein, 835 F.2d 1017, 1021 (3d Cir. 1987).

Congress recognized when enacting ERISA that a partial

23

termination could occur as a result of “a large reduction in the

work force.” S. Rept. 93-383, at 50 (1973).

“An additional circumstance which courts attempt to

identify in deciding whether a partial termination has occurred

is the occurrence of a major corporate event in connection with

the reduction in plan participation.” Halliburton, 100 T.C. at

230. The purpose of identifying a major corporate event is to

be able to identify the cause for the reduction in plan

participants. Respondents’ claim that there are two major

corporate events here is an attempt to argue there were two

underlying causes of the massive reductions in plan

participants. As the Tax Court explained it, “Reductions in

participation unrelated to such cause are not relevant to the

question of whether a partial termination occurred . .. .” Jd.

Creating an artificial split in the plan years was an

important part of Respondents’ litigation strategy (even though

it was never part of the Committee’s reasoning) because it is

uniformly held that “the size of the drop in plan participation

resulting from the event” is one “of the most important facts”

bearing on the issue. Jd. at 231; Kreis v. Charles O. Townley,

M.D. and Associates, P.C., 833 F.2d 74, 79 (6th Cir. 1987).

Indeed, the percentage of the reduction in plan participation in

and of itself may be sufficient to constitute a partial

termination. Id. at 80. The purely artificial splitting in the plan

years allows Respondents to keep the reduction percentages as

low as possible despite a continuing and uninterrupted

reduction in the work force.

Resolution of the partial termination issue in this case

turned upon the application of two factors: the “major corporate

event” issue and how to take into account the employees who

quit working at Sea Ray because of the volatile uncertain

economic times.

The analysis of the major corporate event begins with the

luxury tax. Respondents argued that during plan year 1990-

1991, 454 employees were laid off from the three plants that

built luxury boats. Apx. 60. But what Respondents failed to

24

acknowledge was the undisputed fact that at least 204 of these

employees were laid-off before the bill imposing the luxury tax

was even introduced into Congress.* Apx. 34-37, 60. The

luxury tax could not possibly have influenced these layoffs,

thus casting considerable doubt on Class II contention (which

the district court adopted) that the reductions caused by the

luxury tax represented 44 percent of the reductions for plan

year 1990-1991. Apx. 34-36, 60. But Class II’s reasoning was

circular: separate plans years were appropriate because a large

percentage of the layoffs in the second plan year were caused

by the luxury tax. Nothing in the IRS Plan Termination

Handbook, on which Class II relied, mandates the use separate

plan years. The proposition has been expressly rejected by one

court:

Defendants argue that in determining whether a

vertical partial termination occurred the Court should

consider only the number of employees excluded

within a single plan year. The Court does not find this

position to be supported by logic or required by

authority. . . .There is nothing in the language of the

rule itself, however, that requires that a significant

corporate event occur within a year, and the ending of

a calendar year has no intrinsic relevance in making

this evaluation.

In re Gulf Pension Litigation, 764 F. Supp. 1149, 1166-67

(S.D. Tex. 1991), aff'd sub nom., Borst v. Chevron Corp., 36

F.3d 1308 (Sth Cir. 1994), cert. den. 514 U.S. 1066 (1995).

* HR. 5835 was introduced into the 101st Congress on October 15,

1990. It was passed on November 5, 1990, and became Pub. L. 101-508.

It should also be remembered that the plan year ran from July | to June 30.

The 204 employees laid off before the enactment of the luxury tax consisted

of 74 employees laid off in July 1990 from the Palm Coast plant, 35

employees laid off from the Merritt Island plant in September 1990 and 95

employees laid off from Palm Coast in September 1990. Apx. 34.

eee

25

The district court’s only reason for dividing the reductions

into separate plan years was its conclusion that the luxury tax

brought about an “additional large wave of layoffs.” Apx. 65.

What is important here is in using the Clearly erroneous

standard of review, the Sixth Circuit ignored Class I’s

argument that the impact of the luxury tax could not justify

artificially dividing all of the workforce reductions -- including

the work force reductions at plants which made boats not

subject to the luxury tax -- by separate plan years.

The Sixth Circuit also ignored Class I’s argument that

separate plan year reduction percentages were inappropriate

because the Committee did not divide the percentages into

separate plan years but, as member Barrington testified,

examined them over the “the total two year period.” Apx. 85

(emphasis added). Respondents cannot have it both ways. If

the Committee’s decision on the partial termination issue must

be reviewed for an abuse of discretion, then it is disingenuous

for them to argue the Committee’s decisions should be affirmed

on grounds other than those relied upon or even considered by

the Committee. These were disputed issues of fact which the

court of appeals should have reviewed de novo. See

Matsushita Electric Industrial Co. v. Zenith Radio, 475 U.S.

574 (1986).

The Sixth Circuit also applied the Clearly erroneous

standard to the constructive discharge issue relying upon its

decision in Kreis, 833 F.2d at 81. Apx 13. While the court of

appeals agreed with Class I’s assertion that “some former Sea

Ray employees felt compelled to leave in light of the economic

downtum.” Apx. 13. It held, however, that this was not

enough to support a claim of constructive discharge. The Sixth

Circuit gave no consideration to whether it was consistent with

the intent of the partial termination statute for it to apply the

rigorous constructive discharge standard to the facts of a partial

termination case involving thousands of workers. See Sure-

Tan, Inc. v. NLRB, 467 U.S. 883, 895 (1984).

26

The Sixth Circuit’s application of the constructive

discharge doctrine establishes that it misunderstood the nature

of the partial termination statute. This is shown by its

statement that “[t]o characterize the conditions at Sea Ray as

intolerable is to impute liability to the company simply because

of broad economic conditions which were beyond the

company’s control.” Apx. 13. But the partial termination ruie

is designed to protect the vesting of employee pension benefits.

Halliburton, 100 T.C. at 227. The “remedy” for a “violation”

is to immediately vest 100% of the employers’ previously

made contributions to the affected employees’ accounts. 26

U.S.C. § 411(d)(3). There would be no liability on the part of

Sea Ray, the employer, if for no other reason than that it is not

a party to this lawsuit. Indeed, a finding of a partial

termination imposes no “liability” on the plan itself. Rather, a

partial termination finding prevents a forfeiture of accrued but

not fully vested benefits and precludes the Class II Respondents

(who were or would be fully vested participants) from

receiving a windfall.

In short, the focus should not be on whether employees

were constructively discharged as that term is commonly used

but on the reason employees left, i.e., was the departure related

to the downturn in economic conditions. See Halliburton, 100

T.C. at 230. There, the Tax Court held that “employees who

leave of their own accord after it is clear that there is no

prospect of continuing to work for the employer may also be

considered as having been involuntarily terminated.” 100 T.C.

at 240. Where layoffs on the scale presented in this case are

considered, the partial termination inquiry should be sufficient

broad so as to encompass so-called “voluntary” departures

when the evidence shows that the employer did not replace the

position vacated by the departing employee within a reasonable

period of time.

The rules of the Supreme Court provide that certiorari will

be considered where a federal court of appeals “has so far

departed from the accepted and usual course of judicial

27

proceedings . . . as to call for an exercise of this Court's

supervisory power.” S.Ct. Rule 10(a). The Sixth Circuit

application of the clearly erroneous standard of review in a

summary judgment appeal is a quintessential example of a

significant departure from accepted judicial proceedings.

Conclusion

For the reasons herein discussed, petitioners pray that this

petition for a writ of certiorari should be granted and that a writ

of certiorari issue to review the decision and judgments of the

United States Court of Appeals for the Sixth Circuit entered on

January 14, 1999 and March 11, 1999.

Respectfully submitted,

Attorneys for Petitioners

E. H. RAYSON

Counsel of Record

Of Counsel: WILLIAM P. SNYDER

JOHN C. BURGIN JR.

Kramer, Rayson, Leake, Kramer, Rayson, Leake,

Rodgers & Morgan LLP Rodgers & Morgan LLP

P. O. Box 629 P. O. Box 629

Suite 2500, Suite 2500,

First Tennessee Plaza First Tennessee Plaza

Knoxville, Tennessee Knoxville, Tennessee 37901

37901 (423) 525-5134

(423) 525-5134