Clarence Wells v. United States Steel & Carnegie Pension Fund, Inc.

950 F.2d 1244, 1991 WL 261223

• Court: Court of Appeals for the Sixth Circuit
• Decided: January 30, 1992
• Docket: 90-5957
• Status: Published

Opinions

RYAN, Circuit Judge.

The plaintiffs, retirees of United States Steel Corporation, appeal the grant of summary judgment in favor of the defendant, United States Steel and Carnegie Pension Fund (“Fund”), in this case brought under the Employees Retirement Income and Security Act (ERISA), 29 U.S.C. § 1132. There are three issues:

1. Whether the district court applied the appropriate standard in reviewing the Fund’s interpretation of the Plan’s workers’ compensation offset provision;

2. Whether the district court properly upheld the Fund’s interpretation of the workers’ compensation offset provision; and

3. Whether the district court properly entered judgment in favor of the Fund on its counterclaim for overpayment? We hold that although the district court

applied the proper standard, the Fund’s interpretation of the Plan language was arbitrary and capricious. We agree with the district court that the Plan language permitted recovery on the defendants’ counterclaim for overpayment.

Consequently, we shall reverse, in part, and remand for further proceedings.

I.

The Facts

The plaintiffs are thirty-one former employees of United States Steel Corporation who suffer from black lung disease due to their coal mine employment. Upon retirement, they began drawing pension benefits pursuant to the United States Steel Corporation Plan for Employee Pension Benefits (“Plan”). Under the Plan, they receive a contributory and noncontributory pension. They also receive Kentucky workers’ compensation benefits, federal black lung benefits, and Kentucky Special Fund benefits.

The noncontributory pension was always subject to an offset for Kentucky workers’ compensation benefits. The offset is designed to preclude “double dipping” — receiving both a generous pension from the company to support the employee in his retirement and a liberal workers’ compensation payment also financed by the company. Workers’ compensation is designed to compensate employees for earnings lost due to a disabling injury but, in the case of a retired employee, it is, in many instances, simply another pension financed by the company.

The Plan also offsets federal black lung trust benefits against the noncontributory pension. This policy also prevents double-dipping because federal black lung benefits are paid from a government-sponsored fund financed by an excise tax on coal production. The offset is made because the noncontributory pension rules and the general provisions of the Plan require an offset against noncontributory pensions for a benefit that is “paid directly or indirectly by an Employing Company.” Government funds financed from general revenues would not be offset as this type of arrangement does not “double dip” into employer pockets. Prior to 1976, the Plan provided that “[a]ny amount paid to ... any participant on account of injury or occupational disease ... whether pursuant to workmen’s compensation, occupational disease or similar statutory law ... shall be deducted from or charged against” the noncontributory pension. Federal Black Lung Benefits were at that time paid out of general revenues. USX did not seek to offset those benefits since it was not paying for them. In 1976, to reflect this position, it changed the language of the Plan to limit offsets to amounts paid “directly” or “indirectly” by an Employing Company. The Plan substituted the following provision:

Notwithstanding anything to the contrary contained in this Plan, workers’ compensation, occupational disease benefits and other similar benefits payable with respect to a disability in the nature of a permanent disability will be taken into account in the calculation of pension only if such benefits are paid directly or indirectly by an Employing Company.

(Emphasis added.) Thus, the “directly,” “indirectly” language was adopted as a limitation on reimbursement.

Thereafter, financing for Federal Black Lung Benefits was changed to an excise tax on coal, and the Plan sought to offset these benefits in their entirety. In Teer v. United States Steel & Carnegie Pension Fund, No. CV 82-P-2379-S (N.D.Ala. May 9, 1983), the court determined that the offset of federal funds is permitted under the “directly” or “indirectly” provision of the Plan, but that USX could only offset that portion attributable to employment with USX. Since that percentage attributable to employment with USX was also roughly the percentage paid indirectly by USX, USX was not financing duplicate benefits.

The current dispute involves the Plan’s policy of offsetting Kentucky Special Fund benefits against the noncontributory pension. The Kentucky Special Fund is a state-sponsored fund, financed by employer taxes, which compensates victims of black lung disease. The Special Fund benefits are paid in two parts: the first part, 25% of the total payment, is paid directly to the retiree by United States Steel, and the second part, 75% of the total payment, is paid by the Special Fund. This case involves only the offset of the 75% paid by the Special Fund.

In 1986, Anthony Kuchta, the Fund’s new case supervisor, learned from the Special Fund director that the Special Fund benefits were financed by special employer taxes.¹ Kuchta concluded that such benefits should be offset under the Fund’s general provisions. Kuchta notified the plaintiffs that pursuant to section 8 of the Plan’s general provisions, their pension benefits would be reduced or terminated until alleged overpayments of $6,000-$50,-000 per person were recouped. The reduction and termination of benefits adversely affected all of the plaintiffs who, due to old age and incapacity from black lung disease, depended on their fixed income.

The plaintiffs sought a declaratory judgment that the Plan administrator could not offset against their pensions those portions of Special Fund benefits for which the fund and not the company is liable, and that the company was precluded under both equity and state law from recouping any payments already made to the plaintiffs. The Fund counterclaimed for judgment against each plaintiff for recoupment of the erroneous payments.

On December 14, 1987, the trial court entered summary judgment against the plaintiffs. The court found that the Fund’s interpretation of the Plan and its method of recoupment were reasonable and rejected the plaintiffs’ equitable arguments since the administrator acted quickly upon discovery of the overpayment. The plaintiffs appealed to this court which held that since the district court had not adjudicated the defendant’s counterclaim and the issue that had been decided had not been certified for interlocutory appeal, the trial court’s order was not appealable as a final order. 842 F.2d 334. On June 22, 1990, the trial court granted the defendant’s motion for summary judgment and awarded them $683,-429.12 against plaintiffs as recoupment of the overpaid sums. This appeal followed.

II.

A.

Standard of Review on Appeal

The district court’s grant of summary judgment is reviewed de novo. EEOC v. University of Detroit, 904 F.2d 331, 334 (6th Cir.1990). Thus, we must determine whether the pleadings, depositions, answers to interrogatories, and admissions on file “show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Canderm Pharmacal, Ltd. v. Elder Pharmaceuticals, Inc., 862 F.2d 597, 601 (6th Cir.1988).

B.

Standard of Review Used by District Court

The pensioners contend that the district court erred in applying the “arbitrary and capricious” standard of review to the plaintiffs’ challenge to the Fund’s interpretation of the Plan language. This court has held, however, that “the arbitrary and capricious standard applies to decisions by plan administrators under ERISA to deny benefits to particular claimants.” Varhola v. Doe, 820 F.2d 809, 813 (6th Cir.1987). In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), the Supreme Court departed from this rule and announced that a de novo standard applies when the employer administers the plan and denies benefits based on an interpretation of the plan. However, the Supreme Court held that no change in the former rule is necessary where “the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” Id. at 115, 109 S.Ct. at 956. In such a case, “if a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a ‘facto[r] in determining whether there is an abuse of discretion.’ ” Id. (quoting Restatement (Second) of Trusts § 187 Comment d (1959)). We have held that where a plan gives an administrator discretion to interpret the plan, the arbitrary and capricious standard still applies. Davis v. Kentucky Fin. Cos. Retirement Plan, 887 F.2d 689, 694 (6th Cir.1989), cert. denied, — U.S. -, 110 S.Ct. 1924, 109 L.Ed.2d 288 (1990).

The Plan granted the administrator discretion to interpret its provisions. Section 7.1(a) of the pension rules provided that “[t]he Pennsylvania Corporation [the Pension Fund] shall administer these Pension Rules and shall decide all questions arising out of and relating to ... these Pension Rules.” Section 7.7 states that “[t]he decisions of the Pennsylvania Corporation shall be final and conclusive as to all questions of interpretation and application of these Pension Rules and as to all other matters arising in the administration thereof.” In Davis, this court found that similar language indicated that the plan accorded the administrator broad discretion in interpreting the plan. Davis, 887 F.2d at 694. The district court correctly determined that the Plan granted the administrator discretion to interpret the Plan and thus properly applied the arbitrary and capricious standard.

C.

Interpretation of the Plan

1.

Applicable Law

In interpreting the language of a pension plan, courts are guided by principles of trust law. As the Court explained in Firestone:

ERISA abounds with the language and terminology of trust law. ERISA’s legislative history confirms that the Act’s fiduciary responsibility provisions, “co-dif[y] and mak[e] applicable to [ERISA] fiduciaries certain principles developed in the evolution of the law of trusts.”

Firestone, 489 U.S. at 110, 109 S.Ct. at 954 (citations omitted). Under trust law, a plan may give a trustee the power to construe disputed terms, and in such circumstances the trustee’s interpretation, if reasonable, will not be disturbed. Id. at 111, 109 S.Ct. at 954. As this court has explained: “ ‘Where both the trustees of a pension fund and a rejected applicant offer rational, though conflicting, interpretations of plan provisions, the trustees’ interpretation must be allowed to control.’ ” Cook v. Pension Plan for Salaried Employees, 801 F.2d 865, 870 (6th Cir.1986) (quoting Miles v. New York State Teamsters Conference Pension & Retirement Fund Employee Pension Benefit Plan, 698 F.2d 593, 601 (2d Cir.), cert. denied, 464 U.S. 829, 104 S.Ct. 105, 78 L.Ed.2d 108 (1983)).

2.

Plan Language

The dispute over the Plan language involves section 3.10 of the noncontributory pension rules and section 11 of the general provisions of the Plan which read as follows:

Section 3.10

Any amount paid to or on behalf of any participant on account of injury or occupational disease incurred in the course of his employment by an Employing Company or any other employer causing disability in the nature of a permanent disability that is paid directly or indirectly by an Employing Company, whether pursuant to workers’ compensation, occupational disease or similar statutory law ..., shall be deducted from or charged against the amount determined in accordance with paragraphs 3.3(b), (c), and (d) and paragraph 3.4 or 3.5— Section 11

Notwithstanding anything to the contrary contained in this Plan, workers’ compensation, occupational disease benefits and other similar benefits payable with respect to a disability in the nature of a permanent disability will be taken into account in the calculation of pension only if such benefits are paid directly or indirectly by an Employing Company. All such benefits which are financed directly or indirectly by an Employing Company (including benefits paid from the Federal Black Lung Disability Trust Fund or a “second injury fund” established by state law to which an Employing Company is required to contribute by reason of law) shall be taken into account in the calculation of pension; provided, however that the deduction for such benefits paid from the Federal Black Lung Disability Trust Fund or a “second injury fund” shall be limited to the amount, to the extent reasonably determinable, of such benefits attributable to employment with an Employing Company....

(Emphasis added.) The Fund interpreted these sections to mandate offsetting against pension payments any workers’ compensation benefits, as indirectly paid by United States Steel, if financed by special taxes or assessments on employers or on the product produced by employers where United States Steel paid any of those taxes or assessments and the employees received such payments by reason of prior employment at United States Steel. The district court found that this was a reasonable interpretation of the Plan and granted the Fund summary judgment.

Because the Kentucky Special Fund is financed by an excise tax on all employers doing business in Kentucky, United States Steel contributes only a small portion of the benefits received by its United States Steel retirees. For example, retiree Vernon Asbridge receives $98.25 per week from the Special Fund, but plaintiffs assert that United States Steel contributes only $4.91 of that payment. Section 3.10, with appropriate ellipsis, provides that the Fund may offset “[a]ny amount paid to or on behalf of any participant ... paid directly or indirectly by an Employing Company.” The $4.91 which United States Steel pays to the state for retiree Asbridge, and which the state then pays to Asbridge, clearly falls within section 3.10’s “paid ... indirectly by an Employing Company” language. The Fund contends, however, that it may offset the entire $98.25 per week paid to retiree Asbridge despite the fact that United States Steel did not pay $93.34 of the $98.25 into the Fund either directly or indirectly. We agree with the district judge in Teer v. United States Steel & Carnegie Pension Fund, No. CV 82-P-2379-S, mem. op. at 4 (N.D.Ala. May 9, 1983), who, addressing a dispute over the offset of federal black lung benefits under the Plan, stated:

Section 11 therefore limits deduction of disability benefits to those which the employing company pays directly, such as those paid out of company funds, or indirectly, such as those paid through insurance companies or through trust funds established by the employing companies. Defendant argues that [U.S. Steel] indirectly pays the black lung benefits to plaintiff. To find that [U.S. Steel] paid the black lung benefits indirectly to plaintiff when the payments were in reality paid from the Black Lung Benefits Trust Fund, to which [U.S. Steel] makes contributions by way of an excise tax on its coal production, would be to take the meaning of the term “indirectly” beyond its limits.

The court in Teer did uphold the Plan’s general scheme to prevent the double payment of benefits to an employee when it held that to the extent benefits are attributable to employment with USX, they may be deducted.

Of course, this court may not overrule the Fund’s interpretation of the Plan language unless the administrator’s reading may be said to be arbitrary and capricious. That standard of review asks whether the Fund’s interpretation of the Plan language is “reasonable.” Firestone, 489 U.S. at 111, 109 S.Ct. at 954. An interpretation allowing an offset of $98.25 when only $4.91 was indirectly paid to a beneficiary by the employer is not reasonable. It is an interpretation forbidden by the plain language of the Plan. It may not, therefore, stand.²

The language of section 11 we have been addressing includes a paragraph added to the section in 1985. The additional paragraph, which we previously set forth as integrated in section 11, reads:

All such benefits which are financed directly or indirectly by an Employing Company (including benefits paid from the Federal Black Lung Disability Trust Fund or a “second injury fund” established by state law to which an Employing Company is required to contribute by reason of law) shall be taken into account in the calculation of pension; provided, however, that the deduction for such benefits paid from the Federal Black Lung Disability Trust Fund or a “second injury fund” shall be limited to the amount, to the extent reasonably determinable, of such benefits attributable to employment with an Employing Company....

Since all of the plaintiffs retired before 1985, we remand to the district court to determine whether their rights, vested under the pre-amendment language, would prohibit the offset of the full Kentucky Special Fund benefit.

D.

The Fund’s Counterclaim

The district court awarded judgment for the Fund on its counterclaim for recoupment of overpayments. Section 8 of the Plan provides that “[t]he amount of the overpayment ... shall be deducted from any benefit payable under this Plan in whole or in part until such time as the overpayment is recouped.” On appeal, the pensioners do not contest that the language of section 8 allows recoupment. They argue, however, that the following principles of law and equity prevent such recoupment: (1) the doctrine of mistake of law; (2) the Pennsylvania statute of limitations for contract claims; (3) laches; (4) estoppel; and (5) lack of standing. Because the first two arguments, mistake of law and statute of limitations, involve contract theories, we do not consider them. ERISA is governed by trust, not contract, law. Firestone, 489 U.S. at 110-12, 109 S.Ct. at 953-55.

Laches

The plaintiffs contend that the equitable doctrine of laches bars recoupment of the alleged overpayments.

Laches is an equitable doctrine, the elements of which are short of an estoppel, and the time in which it may ripen is short of the applicable period of limitation, and it is invoked in equity to defeat a tardy litigant on account of whose inexcusable delay, after possession of knowledge of the facts, his adversary, who has materially changed his situation, may defeat a recovery or defense because of the other’s passiveness, if during the delay, and in reliance on such nonaction, a change has occurred in the situation and condition of the adversary to such an extent that to uphold the action and to grant the relief would put it beyond the power of the adversary to restore himself to his former situation or the court to place him in status quo.

Klineline v. Head, 205 Ky. 644, 266 S.W. 370, 372 (Ky.1924). Laches thus requires showing an unreasonable delay by one party which prejudiced the other party. The district court found that laches did not bar the counterclaim because “the Administrators acted quickly once they determined an overpayment had occurred.” Because the definition of laches focuses on the inexcusable delay “after possession of the knowledge of the facts,” the plaintiffs cannot successfully invoke the doctrine of laches as there is no evidence that the Fund delayed seeking recoupment once it learned of the possible overpayments.

Estoppel

The plaintiffs propose that the doctrine of estoppel by acquiescence should preclude recoupment of the prior payments. Equitable estoppel requires:

(1) conduct which amounts to false representation or concealment of material facts or at least which is calculated to convey the impression the circumstances are in a particular state that is inconsistent with the party’s subsequent position;

(2) the intention or expectation that such conduct shall influence the other party to act; and (3) knowledge, constructive or actual, of the true facts.

City of Shelbyville v. Commonwealth of Kentucky, 706 S.W.2d 426, 429 (Ky.App.1986); see also Lowenschuss v. Lowenschuss, 396 Pa.Super. 531, 579 A.2d 377, 381 (Pa.Super.1990). Equitable estoppel requires that there be more than a change of position detrimental to the other party; it requires an element of misrepresentation or deceit in inducing the other party to rely on the initial position. As there was no false representation, the plaintiffs cannot claim equitable estoppel bars the counterclaim.

3.

Standing

The plaintiffs argue that the district court erred in awarding judgment on the counterclaim because the Fund did not have standing to bring the counterclaim under 29 U.S.C. § 1132. A civil action may be brought

by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan[.]

29 U.S.C. § 1132(a)(3). Section 1132 is essentially a standing provision to be construed narrowly. Gulf Life Ins. Co. v. Arnold, 809 F.2d 1520 (11th Cir.1987). The Fund contends that it has standing to bring its counterclaim as a fiduciary seeking to enforce the terms of the Plan pertaining to workers’ compensation offsets.

Section 8 of the Plan expressly permits recoupment for overpayment. Because the Plan provides for recoupment, the Fund has standing as it seeks “to enforce ... the terms of the plan.” 29 U.S.C. § 1132(a)(3)(B)(ii). This court has held, in a case involving an employee’s fraud on a fund, that the fiduciary may sue to collect for past overpayments. Kentucky Laborers Dist. Council Health & Welfare Fund v. Hope, 861 F.2d 1003 (6th Cir.1988). Thus, the district court did not err in allowing the Fund to bring its counterclaim.

4.

Principles of Equity and Trust Law

Although the Plan language permits re-coupment, this court is concerned with the possible inequitable impact recoupment may have on the individual retirees. The retirees submitted affidavits describing the hardship they would suffer if they were forced to pay back benefits which they had received and depended upon. We thus remand this case to the district court to consider whether, under principles of equity or trust law, relief is unwarranted.³ We do not, by doing so, suggest implicitly or otherwise any particular outcome.

III.

We REVERSE the findings of the district court that the Fund’s interpretation of the language was not arbitrary and capricious and REMAND for a determination of whether the rights of the plaintiffs who retired prior to 1985 are affected by the 1985 amendment to section 11 of the Plan. The district court shall also determine what percentage of the plaintiffs’ Special Fund benefits United States Steel has contributed in each year.

With respect to the counterclaim, the district court shall determine whether equity permits recoupment.

1 . Kuchta was told by Kentucky Special Fund employees that they couldn’t determine what percentage was financed by USX. This was in error since as to each year they can and did determine what percentage is paid by USX. Indeed, since USX knew what it was paying each year to the Kentucky Special Fund and knew what each retiree was receiving, it could have computed the percentage easily without asking.

2 . The Plan acted arbitrarily in concluding that it indirectly financed the Special Fund benefits when it had not ascertained what percent it had financed. Had it financed a substantial portion of them as opposed to approximately 5%, the situation would be very different.

3 . The district court may wish to consider Thorn v. United States Steel & Carnegie Steel Pension Fund, CV-P-1829-S (M.D.Ala.1983). In Thom, the court held that under trust law recovery of an overpayment by a trustee will not be allowed where the beneficiary, in reliance on the correctness of the amount of benefits, changes his position so that it would be inequitable to compel him to make restitution. Restatement (Second) of Trusts § 254, Comment e. Whether repayment would be inequitable depends on the beneficiary's disposition of the money which he was overpaid, the amount of the overpayment, the nature of the mistake made by the administrator, the amount of time which has passed since the overpayment was made, and the beneficiary’s total amount of income and the effect recoupment would have on that income. Thorn, CV-P-1829-S at 3 n. 6 (citing III Scott on Trusts § 254.1 at 2187).