Opposition Brief — Kurz v. Philadelphia Electric Co.

Supreme Court, U.S.

FILED

SEP 4 1997

No. 97-214 CLERK

In The

Supreme Court of the United States

October Term, 1996

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DONALD R. KURZ, et al.,

Petitioners,

PHILADELPHIA ELECTRIC COMPANY, et al.,

Respondents.

«

On Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The Third Circuit

4

BRIEF IN OPPOSITION

e

Davip H. Marion*

Howarp J. BASHMAN

MONTGOMERY, MCCRACKEN,

WALKER & RHoADs, LLP

123 South Broad Street

Philadelphia, PA 19109

(215) 772-1500

“Counsel of Record

for Respondents

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

OR CALL COLLECT (402) 342-2831

PARTIES TO THE PROCEEDING

Respondents in this matter are PECO Energy Com-

pany, formerly known as Philadelphia Electric Company,

Service Annuity Plan of Philadelphia Electric Company,

Charles L. Fritz, J.L. Everett, III and John H. Austin, Jr.

Respondents have no parent companies or non-

wholly owned subsidiaries to list pursuant to Rule 29.6.

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TABLE OF CONTENTS

Page

PARTIES TO THE PROCES 65 ccctccsicscass i

FABGE GP ALPE Ree ip hose hackanea nse vewees iii

STATEMENT COP TRG CAB oc oki se sille ch ecccnes 1

The Third Circuit’s Decision Rests on Alternate

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Factual and Procedural Background.............. 3

PN CR re ar A a ee 6

This Court Should Deny Certiorari Because The

Second Ground On Which The Third Circuit's

Judgment Rests Is An Adequate And Independent

Ground On Which To Sustain The Judgment And Is

Clearly Unworthy Of Review.................... 6

I. This is an inappropriate case in which to

resolve any conflict created by the Second Cir-

cuit’s recent decision in Ballone.............. 6

II. There is no reason for this Court to review the

Third Circuit’s statute of limitations ruling... 8

CONMEL ARNIS o0sccnncthcenceneeeneenuaeeeaese es 10

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TABLE OF AUTHORITIES

Page

CASES

Ballone v. Eastman Kodak Co., 109 F.3d 117 (CA2

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Barnes v. Lacy, 927 F.2d 539 (CA11), cert. denied,

dl Reet ee aen heen enat ieee 7

Berlin v. Michigan Bell Tel. Co., 858 F.2d 1154 (CA6

REREAD ne eee 7

Diduck v. Kaszycki & Sons Contractors, Inc., 874 F.2d

ik Oa ely «ul ec nui eh ado’ 9, 10

- Fischer v. Philadelphia Elec. Co., 96 F.3d 1533 (CA3

1996), cert. denied, 117 S. Ct. 1247 (1997)..... 1-3, 6-8

Maez v. Mountain States Tel. & Tel., Inc., 54 F.3d

I re POL aG yey vss aba adn wdae dares 7

Wilson v. Southwestern Bell Tel. Co., 55 F.3d 399

ee te ee as yee Salat y wad ke 7

STATUTES

2 ee ee reer ere 1

Court RULEs

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BRIEF IN OPPOSITION

Respondents PECO Energy Company, et al., (collec-

tively, “PECO”) respectfully pray that the petition for

writ of certiorari sought in this matter be denied.

¢

STATEMENT OF THE CASE

This is the second of two consolidated cases filed in

the United States District Court for the Eastern District of

Pennsylvania alleging that PECO was liable under the

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

U.S.C. §1001, et seq., for affirmatively misleading

employees concerning whether PECO was contemplating

changes to certain of its ERISA plans.

In this case, employees who decided to retire before

PECO changed its pension plan to provide more lucrative

benefits claimed that PECO violated ERISA when it failed

to inform them that such changes were being contem-

plated. In the earlier of the two cases, known as the

Fischer case, employees who decided to retire before

PECO offered certain early retirement incentives claimed

that PECO violated ERISA when it failed to inform them

that such incentives were being contemplated. See Fischer

v. Philadelphia Elec. Co., 96 F.3d 1533 (CA3 1996), cert.

denied, 117 S. Ct. 1247 (1997).

Petitioners correctly note at the outset of their Peti-

tion for Writ of Certiorari, see Pet. for Cert. at 1 n.1, that

the first question presented for review here is identical to

the question that this Court refused to review earlier this

year when the Court denied certiorari in Fischer, 117 S.

Ct. 1247 (1997). In this case, review should again be

denied.

The Third Circuit’s Decision Rests on Alternate

Grounds

The Third Circuit’s decision in this matter rests on

alternate grounds, the second of which is unworthy of

review and presents an adequate and independent basis

for the Third Circuit’s ruling in PECO’s favor.

As the first basis for its ruling, the Third Circuit held

that ERISA imposed no duty on a company to inform an

employee concerning whether changes could occur to the

company’s ERISA plans until the changes were the sub-

ject of “serious consideration.” App. to Pet. for Cert. 11a.

Because some plaintiffs retired after the date on which

the Third Circuit held that possible pension plan changes

began to receive “serious consideration,” the court of

appeals proceeded to determine whether ERISA’s statute

of limitations barred the class members’ claims. Id.

As the alternate ground for its holding, the Third

Circuit ruled that because “all the material elements of a

breach of fiduciary duty claim were patently obvious on

July 2, 1987, the day PECO announced the pension

increase,” App. to Pet. for Cert. 13a, and “[b]Jecause no

fraud or concealment of any kind occurred,” id. at 15a

n.5, ERISA’s three-year statute of limitations applied to

the claims of the plaintiff class, id. at 15a. Since this action

was not filed until April 30, 1991, more than three years

after the ERISA claims of the plaintiff class accrued, the

Third Circuit held as an alternate basis for its judgment in

PECO’s favor that the claims of the plaintiff class were

i

a

time-barred. The Third Circuit’s ruling on the statute of

limitations issue constitutes an adequate and indepen-

dent basis for the Third Circuit’s judgment in PECO’s

favor on the ERISA claims of the plaintiff class.

Even if this Court were now willing to review the

issue as to which it recently denied certiorari in Fischer,

the Third Circuit’s decision that the claims of the plaintiff

class were time-barred is plainly not deserving of this

Court’s review. Accordingly, this Court should deny the

Petition for Writ of Certiorari.

Factual and Procedural Background

PECO, since 1977, has conducted regular periodic

reviews of its pension fund programs. Part of that review

involves comparing the benefits that PECO offers its

employees to the benefits that other similar companies

offer their employees. The event that gives rise to this

suit was PECO’s announcement on July 2, 1987 of a plan

to provide more lucrative pension benefits to its

employees as of August 1, 1987.

The plaintiff class consists of various former PECO

employees who retired between February 1, 1987 and July

1, 1987. The plaintiff class alleged that ERISA imposed a

duty on PECO to inform plaintiffs before July 2, 1987 that

pension plan changes might occur. The plaintiff class

further alleged that if PECO had provided such informa-

tion, the class members would have postponed retirement

until after the pension plan changes took effect.

The district court concluded that PECO began seri-

ously considering an increase in pension benefits as of

March 1, 1987. Accordingly, the district court entered

judgment in favor of aJl members of the plaintiff class

who asked about ‘pension benefits after March 1, 1987.

App. to Pet. for Cert. 7a. The district court also concluded

that it was appropriate to apply ERISA’s alternative six-

year statute of limitations, because, in the district court’s

view, “[t]he class action complaint clearly sounds in con-

cealment.” App. to Pet. for Cert. 65a-66a (conclusions of

law 22-25).

PECO thereafter appealed to the United States Court

of Appeals for the Third Circuit. The Third Circuit

reversed both aspects of the district court’s decision.

First, the court of appeals ruled, based on its review of

the evidence of record, that PECO did not begin to give

serious consideration to the pension plan changes that are

the subject of this suit until May 28, 1987. App. to Pet. for

Cert. 7a-1la. As previously noted, however, the plaintiff

class included PECO employees who had retired between

February 1, 1987 and July 1, 1987. The claims of some

plaintiffs therefore survived the Third Circuit’s ruling on

the issue of serious consideration.

The Third Circuit turned next to examine the ques-

tion whether the ERISA claims of the plaintiff class were

time-barred. The Third Circuit ruled that the plaintiff

class’s claims under ERISA accrued on July 2, 1987: “In

the current case, all the material elements of a breach of

fiduciary duty claim were patently obvious on July 2,

1987, the day PECO announced the pension increase.”

App. to Pet. for Cert. 13a. That date was more than three

and one-half years prior to the filing of this lawsuit.

Examining the facts of record, the Third Circuit con-

cluded, notwithstanding that plaintiffs had claimed con-

cealment, that it could “find nothing suggesting that

fraud or concealment delayed the discovery of the breach

of fiduciary duty claim.” App. to Pet. for Cert. 15a.

Indeed, the court of appeals determined, based on its

review of the record, that “no fraud or concealment of

any kind occurred.” App. to Pet. for Cert. 15 n.5.

Accordingly, the Third Circuit ruled that ERISA’s

three-year statute of limitations, which applies where a

plaintiff has actual knowledge of his or her claim, and not

ERISA’s six-year statute of limitations, governed the

claims of the plaintiff class. App. to Pet. for Cert. 15a.

Given that (1) a three-year statute of limitations governed

the claims of the plaintiff class, (2) the plaintiff class knew

of its ERISA claims as of July 2, 1987, and (3) the plaintiff

class did not initiate this suit until April 30, 1991, the

Third Circuit ruled that all plaintiffs’ claims were time-

barred. App. to Pet. for Cert. 11a-15a.}

1 The Third Circuit’s precise holding on the statute of

limitations issue was: “We therefore hold that §413’s statute of

limitations bars the fiduciary duty claims of those members of

the plaintiff class who asked about a change in pension benefits

and retired after May 28, 1987 [the date on which serious

consideration was found to have commenced] but before July 2,

1987.” App. to Pet. for Cert. 15a. Nevertheless, it is plain that the

Third Circuit’s statute of limitations ruling constitutes an

alternate ground for the dismissal of plaintiffs’ entire suit.

Moreover, the Third Circuit’s conclusion that “no fraud or

concealment of any kind occurred,” App. to Pet. for Cert. 15 n.5,

was not limited to those class members who retired between

May 28, 1987 and July 1, 1987. Rather, that conclusion plainly

applied to all members of the plaintiff class.

| |

The Third Circuit issued its rulings in this case and in

the Fischer case on October 1, 1996. In the Fischer case,

plaintiffs filed a Petition for Writ of Certiorari on Decem-

ber 24, 1996 presenting a single question for review,

which was identical to the first question presented for

review in this case. On March 17, 1997, this Court denied

the Petition for Writ of Certiorari filed in the Fischer case.

See 117 S. Ct. 1247 (1997).

In the instant case, plaintiffs filed a petition for panel

rehearing asserting that the pane! misapprehended facts

pertaining to three individual class members. On May 7,

1997, the Third Circuit denied the petition for panel

rehearing. App. to Pet. for Cert. 144a-46a.2 Thereafter,

plaintiffs filed the Petition for Writ of Certiorari that is

the subject_of this Brief in Opposition.

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ARGUMENT

This Court Should Deny Certiorari Because The Second

Ground On Which The Third Circuit’s Judgment Rests

Is An Adequate And Independent Ground On Which To

Sustain The Judgment And Is Clearly Unworthy Of

Review

I. This is an inappropriate case in which to resolve any

conflict created by the Second Circuit’s recent deci-

sion in Ballone

The Third Circuit’s ruling in PECO’s favor rests on

alternate grounds. The second ground, holding the ERISA

2 As reproduced in the Appendix to the Petition for Writ of

Certiorari, the order denying the petition for panel rehearing

bears the erroneous date of May 7, 1977. See App. to Pet. for

Cert. 146a.

claims of the plaintiff class to be time-barred, constitutes

an adequate and independent basis for the court of

appeals’ ruling. The court of appeals’ decision on the

statute of limitations question is plainly undeserving of

this Court’s review. Accordingly, while the first question

presented arguably now is the subject of a circuit conflict,

this is not the appropriate case in which to resolve the

conflict, because no matter how the conflict is resolved

the judgment in PECO’s favor would stand.

On March 21, 1997, four days after this Court denied

the Petition for Writ of Certiorari filed in the Fischer case,

the United States Court of Appeals for the Second Circuit

issued its decision in Ballone v. Eastman Kodak Co., 109

F.3d 117. In Ballone, the Second Circuit held that an

employer could be held liable for making affirmative

misrepresentations concerning whether pension plan

changes were under review even before such changes

were the subject of “serious consideration.” Id. at 122-25.

In so holding, the Second Circuit appears to have

disagreed with the rulings of other courts of appeals that

have refused to impose ERISA liability on an employer in

similar circumstances until after pension plan changes

become the subject of “serious consideration.” See, e.g.,

Fischer v. Philadelphia Elec. Co., 96 F.3d 1533, 1539 (CA3

1996), cert. denied, 117 S. Ct. 1247 (1997); Berlin v. Michigan

Bell Tel. Co., 858 F.2d 1154, 1163-64 (CA6 1988); Wilson v.

Southwestern Bell Tel. Co., 55 F.3d 399, 405 (CA8 1995);

Maez v. Mountain States Tel. & Tel., Inc., 54 F.3d 1488,

1500-01 (CA10 1995); Barnes v. Lacy, 927 F.2d 539, 544

(CA11), cert. denied, 502 U.S. 938 (1991).

Even if this Court were disposed to resolve without

further percolation among the courts of appeals the

apparent conflict created by the Second Circuit’s recent

ruling in Ballone, this case is not the appropriate vehicle.

No matter how this Court might resolve the apparent

conflict between Ballone and the Third Circuit’s ruling in

this case, the judgment against plaintiffs would stand

because of the Third Circuit’s separate ruling on the

statute of limitations question. Given this Court's practice

of resolving circuit conflicts only in cases where resolu-

tion of the conflict could affect the result of the case, this

Court should deny the Petition for Writ of Certiorari. The

Court could of course later grant review in a case in

which resolution of the conflict that Ballone appears to

create could benefit the party seeking review, and after

other circuits have had an opportunity to consider the

Second Circuit’s recent ruling.?

II. There is no reason for this Court to review the

Third Circuit’s statute of limitations ruling

Petitioners make a half-hearted attempt to argue that

the Third Circuit’s resolution of the statute of limitations

3 Except for noting the existence of the Second Circuit’s

ruling in Ballone, the Petition essentially repeats the very same

arguments for granting review of the first question presented

that this Court rejected in Fischer. Because PECO fully

addressed those arguments in its Brief in Opposition filed in

Fischer, No. 96-1038, and because this Court denied review in

Fischer on March 17 of this year, PECO has limited its argument

herein on the first question presented to whether this Court

should grant review in light of Ballone.

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question is worthy of this Court’s review, but petitioners’

effort in that regard is unpersuasive.

Dedicating just a little more than a page of their

Petition to this issue, see Pet. for Cert. 25-26, petitioners

begin by asserting that “the Third Circuit’s decision

regarding the applicable statute of limitations conflicts

with decisions of other courts of appeals.” Id. at 25. The

discussion that follows, however, recognizes that the

Third Circuit’s statute of limitations ruling is in accord

with the rulings of five circuits and is allegedly contrary

only to the decision of a single court of appeals — and

even that asserted conflict disappears upon analysis of

the latter decision.

The Petition erroneously asserts that the Third Cir-

cuit’s statute of limitations holding conflicts with the

Second Circuit’s ruling in Diduck v. Kaszycki & Sons Con-

tractors, Inc., 874 F.2d 912 (1989), that “[flor a breach of

fiduciary duty involving fraud or concealment, the three-

year exception for actual knowledge does not apply, and

a party has six years from the time it discovers the breach

to bring an action.” Pet. for Cert. 26 (quoting Diduck, 874

F.2d at 919).

The holding of Diduck on which petitioners rely

could only give rise to a circuit conflict if the present case

had been found to have “involv[ed] fraud or conceal-

ment... ,” id., but the Third Circuit had nevertheless

applied the shorter limitations period. However, the

Third Circuit expressly found in the context of its statute

of limitations discussion that “no fraud or concealment of

any kind occurred” in this case. App. to Pet. for Cert. 15a

n.5. There is, accordingly, no conflict between the Third

10

Circuit’s holding in this case, in which no fraud or con-

cealment occurred, and the Second Circuit’s holding in

Diduck, where the plaintiffs produced sufficient evidence

of fraud and concealment.

Because the Third Circuit’s ruling on the statute of

limitations issue — holding the ERISA claims of the plain-

tiff class to be time-barred under ERISA’s three-year stat-

ute of limitations - constitutes an adequate and

independent ground for the Third Circuit’s ruling, and

because the Third Circuit’s ruling on the statute of limita-

tions issue is not deserving of this Court’s review, the

Petition for Writ of Certiorari should be denied.

¢

CONCLUSION

The Petition for a Writ of Certiorari should be denied.

Respectfully submitted,

Davip H. Marion*

Howarp J. BASHMAN

MONTGOMERY, McCCRACKEN,

WALKER & RuHoaps, LLP

123 South Broad Street

Philadelphia, PA 19109

(215) 772-1500

*Counsel of Record

for Respondents

SS