Opposition Brief — Muse v. International Business Machines Corp.

8

7. me eT!

"A

Se, APR 28 1997

No. 96-1520 eo

IN THE

Supreme Court of the United States

OCTOBER TERM, 1996

RICHARD MUSE, ET AL.,

Individually and on behalf of Others Similarly Situated

Petitioners,

Vv.

INTERNATIONAL BUSINESS MACHINES CORPORATION, ET AL.,

Respondents.

On Petition For a Writ of Certiorari

to the United States Court of Appeals

for the Sixth Circuit

BRIEF OF RESPONDENTS IN OPPOSITION

MICHAEL S. HORNE*

JEFFREY B. COOPERSMITH

Of Counsel: COVINGTON & BURLING

1201 Pennsylvania Ave., N.W.

Theresa Mohan P.O. Box 7566

44 South Broadway Washington, D.C. 20044

White Plains, New York 10601 (202) 662-6000

Attorneys for Respondents

APRIL 23, 1997 *Counsel of Record

QUESTIONS PRESENTED

In respondents’ view, the questions that petitioners claim

are presented by this case are as follows:

1. If, contrary to the conclusions of the court of appeals

and the district court, "serious consideration" in this case

began before all of the members of the plaintiff class left

IBM, did the company, upon the commencement of "serious

consideration," have an affirmative duty to disclose

information about the possible new benefit plan in addition to

a duty to avoid giving inaccurate responses to employee

questions.

2. Did the court of appeals correctly hold that "serious

consideration" does not occur before an employer begins to

focus on a particular employee benefit plan for a particular

purpose.

PARTIES TO THE PROCEEDING

AND RULE 29.6 LISTING

The parties to this case are listed in the caption and in the

Petition at ii. The following is an affiliate or nonwholly-

owned subsidiary of respondent International Business

Machines Corporation: Object Design, Inc. We have defined

"affiliate" for purposes of this statement as companies in

which IBM holds an interest of ten percent or greater of

outstanding securities.

ii

TABLE OF CONTENTS

CEFERPRUAIEWE WUMREEEUERIS Ce ee cw ewe

PARTIES TO THE PROCEEDING

PtP ds Se REET 0 i ee eee ee

pe 8 ere es See era

RE ee 5a a wae ooo eee as

IEE ok gba ie Sa a ee Oe Ss KO ee

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

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

I. THERE IS NO CAUSE FOR THIS

COURT TO REVIEW THE COURT

OF APPEALS’ OBSERVATION

THAT AN EMPLOYER HAS NO

DUTY TO AFFIRMATIVELY

DISCLOSE ITS WORK ON AN

EMPLOTES BENEFIT PLAN ...........

Il. INSOFAR AS PETITIONERS’ SECOND

QUESTION PRESENTED IS CONCERNED,

THERE IS NO CONFLICT BETWEEN THE

DECISION OF THE COURT OF APPEALS

AND EITHER THIS COURT’S

DECISIONS OR THE DECISIONS OF ANY

OTHER COURT OF APPEALS .........

lil

Ill. THERE IS NO CONFLICT BETWEEN

THE COURT OF APPEALS’ DECISION

AND EITHER THIS COURT’S DECISION

IN VARITY CORP. V. HOWE OR A

RECENT SECOND CIRCUIT DECISION ... 14

CAPERS ak 0 Soe Woe RR OE A 17

iv

TABLE OF AUTHORITIES

Cases Page

Anweiler v. American Electric

Power Service Corp., 3 F.3d 986

(Pek S SO eek hee Dee es 11

Ballone v. Eastman Kodak Co.,

Nos. 96-7209 and 96-7212, 1997

U.S. App. LEXIS 5430 (2d Cir.

Ps ees ST 6 ar ee re ee 16

Barnes v. Lacy, 927 F.2d 539 (11th

Cir. 1991), cert. denied.,

Pk Ss RE eo oS Se 3

Basic, Inc. v. Levinson, 485 U.S. 223

EE SE EWE ea Sok ek he ee eee 12

Berlin v. Michigan Bell Telephone

Co., 858 F.2d, 1154 (6th Cir.

SE 65 eo OES WER 3, 4, 10

Birler v. Central Pa. Teamsters

Health & Welfare Fund, 12 F.3d

SR as SO ig oe ks cS a RS 11

Curtiss-Wright Corp. v. Schoonejongen,

Rar Gis See REE 6 ek 6 MER Re Se 9

Drennan v. General Motors Corp..,

977 F.2d 246 (6th Cir. 1992),

cert. denied, 508 U.S. 940

[SUE 4 6 Nee alee ane SUR rE. 3, 4, 10

Eddy v. Colonial Life Insurance Co.

of America, 919 F.2d 747

As Ge RO Re ok be ow ee eee 11

Fischer v. Philadelphia Electric

Co., 96 F.3d 1533 (3d Cir.

1996), cert. denied, 137 L. Ed. 2d

Ee RES 6k a a ee ee as 3, 4, 10, 14

Fischer v. Philadelphia Electric

Co., 994 F.2d 130 (3d Cir. 1993),

cert. denied, 510 U.S.

PPE soba va eek ees 9, 10

Hockett v. Sun Co., Inc.,

Nos. 95-5252 and 95-5255,

1997 U.S. App. LEXIS 5827

(10th Cir. Mar. 24, 1997) ....... 3,4, 9, 11, 14

Kurz v. Philadelphia Electric

Co., 96 F.3d 1544 (3d Cir. 1996)............ 4

Lockheed Corp. v. Spink, 116 S. Ct.

Pre 4 kk og eee ek ke en eee 4, 9,10

Mullins v. Pfizer, Inc., 23 F.3d 663

eRe wv ak os wea ee eae ake 3, 10, 13

Pocchia v. NYNEX Corp., 81 F.3d 275

(2d Cir. 1996), cert. denied, 136

ha te ee Be 2k pe Gos ew ee 10

Stanton v. Gulf Oil Corp. , 792 F.2d 432

CG See bk RS se SC a ae 3

Sutter v. BASF Corp., 964 F.2d 556

SE San SU ooo ee So ee we 10

Swinney v. General Motors Corp., 46 F.3d

Pie CU Gc CPOE os 88S we oa BO 13

Varity Corp. v. Howe, 116 S. Ct. 1065

Ce vee eae oc 8) ORC eee ee 4, 15, 16

Vartanian v. Monsanto Co., 14 F.3d 697

Ce GE, FI 8 6.5 4 8h cen A ieee 3

vi

Wilson v. Southwestern Bell Telegraph Co.,

Ok 8 be a. 3, 10, 13

Wisniewski v. United States, 353 U.S. 901

ht BER GSPRS ANSE St 2 vd de Seer CAI ast MN SD 13

STATUTES

Vii

IN THE

Supreme Court of the United States

OCTOBER TERM, 1996

No. 96-1520

RICHARD MUSE, E&T AL.,

Individually and on behalf of Others Similarly Situated

Petitioners,

Vv.

INTERNATIONAL BUSINESS MACHINES

CORPORATION, ET AL.,

Respondents.

On Petition For a Writ of Certiorar:

to the United States Court of Appeals

for the Sixth Circuit

BRIEF OF RESPONDENTS IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 1a-9a) is

reported at 103 F.3d 490. The district court’s Opinion and

Order (Pet. App. 10a-20a) and the Magistrate Judge’s

Proposed Findings of Fact and Recommendation (Pet. App.

22a-36a) are not reported.

JURISDICTION

The court of appeals entered its judgment on December

26, 1996. No petition for rehearing or for rehearing en banc

was filed. The jurisdiction of this Court is invoked pursuant

to 28 U.S.C. § 1254(1).

COUNTERSTATEMENT OF THE CASE

New or enhanced retirement, severance and other

employee benefit plans typically take effect on a specified

effective date. Particularly for employers with many workers,

some people invariably miss out on the new or enhanced

benefit by reason of having retired or otherwise terminated

their employment shortly before the effective date. Sometimes

such persons feel so strongly about missing out on the new

benefit — even though the effective date was many months

after their employment ended — that they sue under ERISA,

claiming there was a fiduciary duty to forewarn them that the

new or enhanced benefit was in the works, so that they could

defer their retirements or resignations in order to qualify for

the new benefit.

This is one such case.

The members of the petitioner class quit or retired from

IBM’s Lexington, Kentucky, facility on various dates from

October 31, 1989, through March 31, 1990. Each of them

qualified for and received a severance benefit equal to as

much as one year’s salary and other benefits pursuant to one

of three versions of a Voluntary Transition Program (VTP)

offered by the Company during this period. As a result of

their departures, they could not qualify for a different

severance benefit program with richer benefits (LTPP) that

was announced on August 1, 1990, in connection with the sale

of a large part of the IBM business in Lexington.’

In some cases of this sort, like this case, the new plan

was not fully developed and other alternatives were under

study when the plaintiffs departed. In other cases, unlike this

case, the new plan was in final form and had been endorsed

by top management before the plaintiffs left. When faced

with issues of this sort, virtually every circuit court has held

that no fiduciary duty with respect to the new or amended

benefit plan arises until that plan is under "serious

consideration. "2

The earlier cases generally characterize "serious

consideration" as an issue of fact without elaborating on the

The opinions below sometimes refer to these programs as early

retirement plans, but it is more accurate to characterize them as severance

benefit pians. An early retirement program typically offers some

enhancement to the retirement benefit to which employees would otherwise

be eligible if they elect to retire by a specified date. A severance benefit

program, on the other hand, need not be restricted to those who are or

soon would be retirement eligible, and may be limited in other ways, such

as to those working at a particular site or in a particular occupational

category.

¥ See, e.g., Pet. App. 6a.; Vartanian v. Monsanto Co., 14 F.3d 697.

702 (Ist Cir. 1994); Mullins v. Pfizer, Inc., 23 F.3d 663, 669 (2d Cir.

1994); Fischer v. Philadelphia Elec. Co., 96 F.3d 1533, 1538 (3d Cir.

1996) ("Fischer II"), cert. denied, 137 L. Ed. 2d 329 (1997); Berlin vy.

Michigan Bell Telephone Co., 858 F.2d, 1154, 1163-64 (6th Cir. 1988):

Drennan v. General Motors Corp., 977 F.2d 246, 251 (6th Cir. 1992),

cert. denied, 508 U.S. 940 (1993); Wilson v. Southwestern Bell Tel. Co.,

55 F.3d 399, 405 (8th Cir. 1995); Hockett v. Sun Co., Inc., Nos. 95-5252

and 95-5255, 1997 U.S. App. LEXIS 5827, at *16 (10th Cir. Mar. 24,

1997); Barnes v. Lacy, 927 F.2d 539, 544 (11th Cir. 1991), cert. denied.,

502 U.S. 938 (1991); of. Stanton v. Gulf Oil Corp., 792 F.2d 432, 434-35

(4th Cir. 1986) (employee who retired before new plan took effect had no

standing to sue under ERISA).

meaning of that term. See Berlin, 858 F.2d at 1163-64;

Drennan, 977 F.2d at 251. Some of the more recent cases,

however, have attempted to add some guidance, in light of the

language and objectives of ERISA, to what is otherwise a

wholly conclusory term. Pet. App. 7a; Fischer IIT, 96 F.3d at

1539-40; Kurz v. Philadelphia Elec. Co., 96 F.3d 1544, 1548-

49 (3d Cir. 1996) ("Kurz II"); Hockett, 1997 U.S. App.

LEXIS 5827, at *17-*21. In this case, the court of appeals

concluded that the “serious consideration” rule "does not apply

until a company focuses on a particular plan for a particular

purpose.” Pet. App. 7a.

In addition to resolving the events or circumstances that

may trigger the beginning of a fiduciary duty with respect to

an unannounced benefit plan, disputes sometimes arise in these

cases over the scope of that fiduciary duty. Consistent with

Varity Corp. v. Howe, 116 S. Ct. 1065 (1996), no circuit

court has suggested that deliberate attempts to defraud

employees fall outside the fiduciary duty. Conversely,

consistent with Lockheed Corp. v. Spink, 116 S. Ct. 1783

(1996), virtually every circuit court has recognized that

employer decisions regarding whether and when to adopt and

how to design a benefit program are settlor not fiduciary

functions, so that employers are not obligated to volunteer

information about plans not yet announced. All the employer

must do, if it elects to respond to employee inquiries about

future benefit plans, is to do so truthfully.

Here, after extensive discovery, petitioners and

respondents filed cross-motions for summary judgment. The

IBM motion contended that serious consideration of the LTPP

plan offered in connection with the Lexington sale did not

begin before all of the plaintiffs left IBM’s employment, so

that none of the plaintiffs could recover. Petitioners argued

not only that the court could find as a matter of law that

serious consideration began as early as the fall of 1989, but

4

ee NOT Oe RRR re

also that there was no genuine dispute that IBM gave

misleading responses to employee inquiries, and failed

voluntarily to disclose that the Lexington benefit plan was

under serious consideration.

The Magistrate Judge, the District Judge and a unanimous

three-member panel of the Sixth Circuit have now all

concluded that IBM was entitled to summary judgment

because the facts of the record indicated that "serious

consideration" of the Lexington plan began no earlier than

April 1990, and that IBM made no intentional or affirmative

The facts pertinent to the serious consideration issue are

as follows: In August 1989 four IBM manufacturing sites,

including Lexington, obtained permission to run a voluntary

transition program subsequently known as VTP-I. The

program was limited to certain occupational speciaities which

were overstaffed. Shortly after VTP-I was announced, IBM

initiated a series of staff studies in Tarrytown, New York,

looking at various measures to reduce costs and improve

profitability throughout the entire company. One such study

group looked at the possibility of closing the Lexington site as

a means of reducing excess capacity and in the course of that

work developed some initial cost estimates for closure,

including a severance benefit program that might be used in

a closure situation. The idea of closing Lexington was fairly

promptly rejected, however.

Another study group developed proposals that resulted in

a nationwide VTP program announced on December 5, 1989,

known in Lexington as VTP-II.”

Besides the nationwide VTP program, IBM also

announced on December 5, 1989, that it would be taking a

$2.3 billion write-off against 1989 earnings to cover the cost

of the VTP program, as well as various write-downs of

inventory and equipment and other company restructuring

efforts. No decision had been made at that point precisely

what restructuring would occur, although planning officials

recognized that some closing or partial closing one or more

facilities might be involved. To quantify the potential cost of

such restructuring efforts, the staff working on the write-off

used cost estimates for closing Lexington, even though closure

of that facility was no longer under consideration.

A small task force was created in late 1989 at corporate

headquarters in Armonk, New York to explore the possibility

of selling IBM’s typewriter and small printer business (known

within the company as the Information Products or "IP"

business) which existed to a large extent at Lexington and to

a lesser extent in Boulder, Colorado, and overseas. Operating

under the code name "Libra," this exploratory effort was

regarded as highly confidential. Because IBM had not been

operating Information Products as a separate, stand-alone

business, the prospects for a sale were seen as problematic,

and the Libra task force had to develop extensive pro forma

financials which could be shown to prospective buyers.

Meanwhile, the managers with immediate responsibility

for Lexington operations were working on their own proposals

to fashion an independent business unit consisting largely of

¥ In January, 1990, a special leave of absence feature was added to the

nationwide VTP program. This is sometimes referred to in the decisions

below as a separate, third version of VTP.

6

the Lexington portion of the Information Products business.

Their staff work included efforts to determine the optimum

size of the workforce. In later months, in describing their

proposals to top management and senior personnel staff

representatives in Armonk, these Lexington managers on some

occasions stated that they needed a very lucrative severance

program to shrink Lexington’s workforce, but they received

no promises or assurances that such a severance program

would be authorized to facilitate an internal organization.

IBM’s first indication that a buyer might be interested in

acquiring the Information Products business came in late

March or early April, 1990. As discussions with the

prospective buyer progressed, the Libra task force was

expanded to include staff persons from the personnel discipline

who were asked to develop appropriate personnel policies and

transition programs to implement a sale, including what

became the LTPP severance program. In May 1990 IBM’s

top management heard presentations pro and con from the

advocates of a sale and from the Lexington proponents of the

independent business unit approach, and decided to pursue the

sale option. Subsequently the personnel group within the

enlarged Libra task force, after considering and rejecting

various other options, developed its proposal for what became

LTPP. Top management approved that proposal in July 1990.

In affirming the District Court and the Magistrate Judge

on the serious consideration issue, the court of appeals noted

that, unlike the situation in earlier Sixth Circuit cases, such as

Berlin and Drennan, in which the employer was considering

whether to reopen an early retirement program that had been

used on prior occasions, here IBM was designing a new

program to deal with a unique event — the sale of much of

the Lexington business. The Court observed that the risk that

premature disclosure would mislead or disadvantage

employees was much greater in the context of a plan being

7

newly formulated and that, accordingly, construing the

"serious consideration" test to require premature disclosure

would be inconsistent with the statutory purposes underlying

ERISA’s disclosure requirements, could impair the

achievement of legitimate business goals by forcing the

premature disclosure that a sale might occur, and would not

serve the goals of encouraging employers to offer welfare

benefit plans and of minimizing the burdens on employers.

Pet. App. 6a-7a. Specifically, the court of appeals concluded

that serious consideration does not occur until the employer

"focuses on a particular plan for a particular purpose." Pet.

App. 7a.

Without seeking rehearing or rehearing en banc,

petitioners filed a timely petition for certiorari on March 25.

REASONS FOR DENYING THE WRIT

By mischaracterizing the decision below, petitioners frame

questions that are not properly presented by this case.

Moreover, the decision below is entirely in accord with the

decisions of this Court, and does not conflict with any

decision of another court of appeals. The petition for a writ

of certiorari should be denied.

I, PETITIONERS’ FIRST QUESTION PRESENTED

IS NOT POSED BY THE COURT OF APPEALS

DECISION, AND IN ANY EVENT THERE IS NO

CIRCUIT CONFLICT OR OTHER

SUBSTANTIAL REASON FOR THIS COURT TO

REVIEW THAT QUESTION.

The first question framed by petitioners — "Does an

employer/ERISA fiduciary have the affirmative duty to

disclose truthful information about the serious consideration

which it is giving to an enhanced severance plan?" — is not

8

a

properly presented by this case. The question assumes that

IBM was giving serious consideration to LTPP prior to the

time that the members of the petitioner class left the company.

But the court of appeals unanimously affirmed the district

court’s factual finding that serious consideration occurred no

earlier than April 1990, after petitioners left the company.

See Pet. App. 6a; Pet. App. 19a. This case thus does not

present the question of whether an employer has an

affirmative duty to disclose its developmental work on a new

employee benefit plan once that work reaches the point of

serious consideration.

The court of appeals did observe that, even after serious

consideration begins, an employer has no affirmative duty to

disclose information about a possible new or amended plan,

but merely a duty to avoid untruthful answers to employee

inquiries. See Pet. App. 6a. But this dictum is entirely in

accord with the decisions of this Court and other courts of

appeals so that, even if it represented the holding of the lower

court, review on certiorari is not appropriate.

As another recent circuit opinion put it: "ERISA

contemplates that an employer often will act as both employer

and plan fiduciary, and not all of an employer’s business

activities implicate ERISA’s fiduciary duties." Hockett, 1997

U.S. App. LEXIS 5827, at *15 (citing Varity, 116 S.Ct. at

1071); see also Fischer v. Philadelphia Elec. Co., 994 F.2d

130, 133 (3d Cir. 1993) ("Fischer I"), cert. denied, 510 U.S.

1020 (1993).

As this Court reaffirmed just last term in Lockheed, 116

S.Ct. at 1789, "[e]mployers . .. are generally free under

ERISA, for any reason at any time, to adopt, modify, or

terminate welfare plans" (quoting Curtiss-Wright Corp. v.

Schoonejongen, 115 S.Ct. 1223, 1228 (1995)). Lockheed

explains that, "[w]hen employers undertake those actions, they

9

do not act as fiduciaries, . . . but are analogous to the settlors

of a trust." 116 S. Ct. at 1789 (citing Curtiss-Wright Corp..,

115 S.Ct. at 1228; Johnson v. Georgia-Pacific Corp. , 19 F.3d

1184, 1188 (7th Cir. 1994)).

Because such activities are non-fiduciary, the courts of

appeals have sensibly declined to impose a duty on employers

to affirmatively disclose their work on employee benefit plans

before such plans are formally promulgated.“ As the court

of appeals stated in this case:

Insisting on disclosure during the formulation of a

plan and prior to its adoption would increase the

likelihood of confusion on the part of beneficiaries.

At the same time management would be unduly

burdened by the continued uncertainty of what to

disclose and when to disclose it. Moreover, any

requirement of pre-adoption disclosure could impair

the achievement of legitimate business goals.

Pet. App. 6a-7a; see also Pocchia, 81 F.3d at 278-79; Fischer

4 See Pet. App. 6a; Pocchia v. NYNEX Corp., 81 F.3d 275, 278 (2d

Cir. 1996), cert. denied, 136 L. Ed. 2d 220 (1996). ("We . . . hold that

a fiduciary is not required to voluntarily disclose changes in a benefit plan

before they are adopted."); Drennan, 977 F.2d at 251 (a fiduciary need not

"disclose its internal deliberations"); Mullins v. Pfizer, Inc., 23 F.3d 663,

669 (2d Cir. 1994); Sutter v. BASF Corp. , 964 F.2d 556, 562-63 (6th Cir.

1992); Berlin, 858 F.2d at 1164 (employer is under no duty “to say

anything at all or to communicate with potential plan participants about the

future availability of [a severance plan known as] MIPP"); Wilson v.

Southwestern Bell Tel. Co., 55 F.3d 399, 405 (8th Cir. 1995) ("Plan

fiduciaries are not obligated under ERISA to provide information to

potential plan beneficiaries about possible future offerings."); Fischer I,

994 F.2d at 135.

10

IT, 96 F.3d at 1539; Hockett, 1997 U.S. App. LEXIS 5827,

at *18-*21.2

Il. INSOFAR AS_ PETITIONERS’ SECOND

QUESTION PRESENTED IS CONCERNED,

THERE IS NO CONFLICT BETWEEN THE

DECISION OF THE COURT OF APPEALS AND

EITHER THIS COURT’S DECISIONS OR THE

DECISIONS OF ANY OTHER COURT OF

APPEALS.

In support of their second question presented, petitioners

argue that the conclusion by the court of appeals that the

serious consideration rule does not apply until an employer

"focuses on a particular plan for a particular purpose"

constitutes a "bright line" test which has been rejected by a

decision of this Court in a securities case and by several

courts of appeals dealing with the ERISA issue of "serious

consideration." Pet. at 17-22. By omitting the words

"focuses on" and frequently suggesting that the court of

appeals said "adopts" a particular plan for a particular

purpose, petitioners attempt to portray the court of appeals as

being unduly rigid.

* Petitioners claim to find support for their theory of affirmative

disclosure in cases such as Eddy v. Colonial Life Ins. Co. of America, 919

F.2d 747 (D.C. Cir. 1990); Bixler v. Central Pa. Teamsters Health &

Welfare Fund, 12 F.3d 1292 (3d Cir. 1993) and Anweiler v. American

Elec. Power Serv. Corp., 3 F.3d 986 (7th Cir. 1993). However, those

cases did not involve the particular fiduciary duty established by Berlin and

its progeny, but rather ongoing administrative issues pertaining to published

plans. Thus, in Eddy and Bixler, the employees alleged that the plan

fiduciaries failed to provide complete and accurate information in response

to inquiries about the employees’ existing group medical coverage. In

Anweiler, the court held that the plan fiduciary, an insurance company,

improperly acted in its own interests when it asked a beneficiary to sign

over his rights to the proceeds of an existing group life insurance policy.

11

Based on that mischaracterization of the court of appeals’

decision, petitioners argue that it conflicts with Basic, Inc. v.

Levinson, 485 U.S. 223 (1988). Basic concluded, in the

context of the federal securities laws, that "[a]ny approach that

designates a single fact or occurrence as always determinative

of an inherently fact-specific finding such as materiality, must

necessarily be overinclusive or underinclusive." 485 U.S. at

236.

Clearly there is no conflict between the court of appeals

and Basic or any other decision of this Court because neither

Basic nor any other decision of this Court holds that the

interpretation of materiality for purposes of the securities laws

is to be followed in the context of claims under ERISA in

which plaintiffs are seeking recovery based on allegedly

misleading statements.

Moreover, here the lower court did not hold that "serious

consideration" arises only when an employer "decides that a

particular plan will be offered for a particular business

purpose." Pet. at i (emphasis added). Rather, the court of

appeals said that "(t]he exception of serious consideration does

not apply until a company focuses on a particular plan for a

particular purpose." Pet. App. 7a. (emphasis added.)

A variety of facts could show that an employer "focuses"

on a particular plan for a particular purpose. Thus, contrary

to petitioners’ claim, the court of appeals neither adopted a

"bright-line" test nor held that serious consideration can arise

only after a single business decision or unique event. Rather,

the court of appeals merely affirmed the district court’s

unremarkable factual finding that, in the context of this

particular case, "it was not until IBM made a definite decision

to sell the Lexington plant and was told by the buyer that

further downsizing was necessary that IBM focused on this

particular plan for a particular purpose." Pet. App. 7a (citing

12

* srr it e

Swinney v. General Motors Corp. , 46 F.3d 512, 520 (6th Cir.

1995). Petitioners’ unhappiness with that factual finding does

not create a conflict with Basic or any other decision of this

Court.

Petitioners also argue that the particular plan/particular

purpose formulation conflicts with the decisions of other

circuit courts.” This assertion rests on the same misreading

of the lower court’s decision that led them to incorrectly assert

a conflict between that decision and Basic. Two of the cases

cited by petitioners as being in conflict with the decision

below, Wilson v. Southwestern Bell Telephone Co., 55 F.3d

399, 405 (8th Cir. 1995), and Mullins v. Pfizer, Inc., 23 F.3d

663, 669 (2d Cir. 1994), certainly identified the issues of

when "serious consideration” occurs and whether

misrepresentations are material as questions of fact or mixed

questions of law and fact, but they certainly do not reject the

notion that until "a company focuses on a particular plan for

a particular purpose" alleged misrepresentations are likely to

be immaterial. The only other cases petitioners cite as giving

rise to a circuit conflict are cases in the Third and Tenth

Circuits (See Pet. at 21) that have been superseded by

subsequent decisions in those circuits.

Indeed, the most recent decisions of the Third and Tenth

Circuits are fully consistent with the Sixth Circuit’s decision

in this case. In Fischer IJ, the Third Circuit concluded that:

£ Petitioners also argue that the decision below is in conflict with earlier

Sixth Circuit decisions. Pet. at 20-21. That is an issue petitioners should

have raised, if at all, in a petition for rehearing addressed to the Sixth

Circuit, not a petition for certiorari addressed to this Court. See

Wisniewski v. United States, 353 U.S. 901 (1957). Petitioners also claim

to see a conflict with a 1993 Third Circuit decision (Fischer I), see Pet. at

21, but ignore the subsequent Third Circuit decision in Fischer I] which is

fully consistent with the Sixth Circuit’s decision in this case.

13

Serious consideration of a change in plan benefits

exists when (1) a specific proposal (2) is being

discussed for purposes of implementation (3) by

senior management with the authority to implement

the change.

96 F.3d at 1539. The Tenth Circuit recently adopted this

same three-part test and cited in support of that result the very

Sixth Circuit decision petitioners now attack as being

inconsistent with Tenth Circuit law. Hockett, 1997 U.S. App.

LEXIS 5827, at *16, *19. The conclusions reached in Fischer

II, Hockett, and by the court of appeals here are nearly

identical in practice. Clearly, if "a specific proposal is being

discussed for purposes of implementation by senior

management with the authority to implement the change"

within the meaning of Fischer I], the employer has necessarily

"focuse[d] on a particular plan for a particular purpose" under

the Sixth Circuit test.

Ill. THERE IS NO CONFLICT BETWEEN THE

COURT OF APPEALS’ DECISION AND

EITHER THIS COURT’S DECISION IN

VARITY CORP. V. HOWE OR A RECENT

SECOND CIRCUIT DECISION.

In the District Court, in their briefs to the Sixth Circuit,

and even in their questions presented in this Court, Pet. at i,

petitioners do not suggest that they may recover under ERISA

in the absence of serious consideration. But they did call to

the attention of the court of appeals this Court’s decision in

Varity, which came down after all briefs were filed below, in

a letter to the Sixth Circuit prior to oral argument. In its

opinion, the court of appeals, after quoting the holding of

Varity, observed that the one bit of evidence cited by plaintiffs

in support of applying Varity was inadequate to justify

recovery under the rationale of that case. Pet. App. 8a. In

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TO a Nn eR Men ee

a subsequent "Supplement to Petition For Writ of Certiorari,"

petitioners argue vigorously that the decision below is in

conflict with Varity and a recent Second Circuit decision in

holding that there can be the liability in the absence of serious

consideration. It is unclear whether petitioners are suggesting

without stating a third question presented: whether the Sixth

Circuit impermissibly departed from the teaching of Varity by

holding that petitioners could not recover if they left IBM

before serious consideration of LTPP began. Giving

petitioners the benefit of every doubt, we will assume that

they are arguing that this additional question warrants review

by this Court.

In Varity, the employer engaged in a plan of deliberate

deception designed to persuade employees to transfer to a new

subsidiary which was created as a dumping ground for failing

business units, and which did not have the resources necessary

to pay for the benefit programs it promulgated. The employer

intentionally lied to its employees, falsely assuring them,

among other things, that their benefits would be safe at the

new subsidiary and that the subsidiary had been provided with

"the funds necessary to ensure its future viability." 116 S.Ct.

at 1072. The new subsidiary went into receivership a short

time later. On these facts, this Court held that "we can find

no adequate basis here, in the statute or otherwise, for any

special interpretation that might insulate Varity, acting as a

fiduciary, from the legal consequences of the kind of conduct

(intentional misrepresentation) that often creates liability even

among strangers." 116 S.Ct. at 1075.

Far from being inconsistent with Varity, the court of

appeals quoted Varity’s holding that:

plan administrators who "participate knowingly and

significantly in deceiving a plan’s beneficiaries in

order to save the employer money at the

15

beneficiaries’ expense" fail to act "solely in the

interest of the participants and beneficiaries," and

violate the duty of loyalty in Section 404(a)(1) of

ERISA.

Pet. App. 8a (quoting Varity, 116 S.Ct. at 1074). The court

of appeals then applied that holding, but found that "[t}he

record does not contain sufficient evidence to establish that

IBM knowingly deceived plaintiffs about the possibility of an

enhanced plan."” Pet. App. 8a. Thus, petitioners’ claim

that the court of appeals’ decision is inconsistent with Varity

has no merit.

Finally, in their supplement, petitioners assert that the

court of appeals’ decision conflicts with Ballone v. Eastman

Kodak Co., Nos. 96-7209 and 96-7212, 1997 U.S. App.

LEXIS 5430 (2d Cir. Mar. 21, 1997) (Pet. Supp. App. 1a-

16a). However, Ballone stands merely for a proposition that

is uncontroversial in the wake of Varity: An employer "may

not actively misinform its plan beneficiaries about the

availability of future retirement benefits to induce them to

retire earlier than they otherwise would, regardless of whether

or not it is seriously considering future plan changes." Pet.

Supp. App. 10a (emphasis added).

2 The court of appeals observed that petitioners’ “only suggestion of

any improper behavior by IBM is the June 14, 1990, memo" which

petitioners have reproduced as Appendix E to the petition, but concluded

that the June 14 memo showed no intentional deception by IBM. Pet.

App. 8a. The June 14 memo claims that IBM employees in Boulder,

Colorado — not Lexington, Kentucky — will be unhappy if LTPP is

adopted because the Boulder employees were told that "VTP is as good as

it’s going to get;" the memo says nothing at all suggesting there was a plan

intentionally to deceive Lexington employees.

16

Here, as in Ballone, the court of appeals applied Varity

but on the different factual record the Sixth Circuit quite

properly reached a different result: there is no credible

evidence that IBM was following a scheme to actively

misinform or deceive its employees in Lexington, or anywhere

else. Pet. App. 8a. There is no conflict between Ballone and

the Sixth Circuit opinion in this case.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted,

Michael S. Horne*

Jeffrey B. Coopersmith

COVINGTON & BURLING

1201 Pennsylvania Avenue, N.W.

P.O. Box 7566

Washington, DC 20044

(202) 662-6000

Of Counsel:

Theresa Mohan

44 South Broadway

White Plains, NY 10601

Counsel for Respondents

International Business Machines

Corporation, et al.

April 23, 1997

*Counsel of Record

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