Diaz v. Seafarers Int'l

• Court: Court of Appeals for the First Circuit
• Decided: January 14, 1994
• Docket: 93-1488
• Status: Published

Opinion

USCA1 Opinion

UNITED STATES COURT OF APPEALS

                                FOR THE FIRST CIRCUIT

                                 ____________________

No. 93-1488

                                DOMINGO DIAZ, ET AL.,

                               Plaintiffs, Appellants,

                                          v.

                        SEAFARERS INTERNATIONAL UNION, ET AL.,

                                Defendants, Appellees.

____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                           FOR THE DISTRICT OF PUERTO RICO

[Hon. Raymond L. Acosta, U.S. District Judge]
                                             ___________________

                                 ____________________

                                        Before

                                 Breyer, Chief Judge,
                                         ___________
                        Torruella and Boudin, Circuit Judges.
                                              ______________

____________________

            Carlos A.  Del Valle Cruz  with whom Jose  Luis Gonzalez  Castaner
            _________________________            _____________________________
        was on brief for appellant Domingo Diaz.
            Mary T.  Sullivan with whom  Segal, Roitman &  Coleman, and  Ellen
            _________________            _________________________       _____
        Silver, Associate Counsel, Seafarers Pension  Plan, were on brief  for
        ______
        appellee.

____________________

                                   January 10, 1994
                                 ____________________

BREYER,  Chief Judge.    Domingo Diaz,  a  retired
                                ___________

             seaman,   brought  this   lawsuit   against  the   Seafarers

             International Union  and the Union's Pension Plan.   He says

             that the  Plan should have  provided him a pension  of about

             $450  per month,  rather than  about  $200 per  month.   The

             Plan's  failure  to do  so,  in Diaz's  view,  represents an

             erroneous application of  the Plan's own pension-calculation

             rules  and thereby  violates  federal  law.    See  Employee
                                                            ___

             Retirement Income Security Act of 1974  (ERISA), 29 U.S.C.  

             1104(a)(1)(D)  ("[Plan  trustees]  shall  discharge  [their]

             duties  .  .   .  in  accordance  with   the  documents  and

             instruments  governing the  plan .  . .  .").   The district

             court found  that the  Plan, through  its trustees,  did not

             improperly apply the Plan's rules.   We agree, and we affirm

             the district court's judgment.

                                          I

                                      Background
                                      __________

                       A. Basic Facts.   The following key facts  are not
                          ___________

             contested:

                       1.   From  1943 to 1960 Diaz worked on ships whose
                            employees were  represented by  the Seafarers
                            International  Union  (SIU).     During  that
                            period, the SIU had no pension plan.

                       2.   In  1960 Diaz  quit.   Soon  after, he  began
                            working   on  ships   whose  employees   were

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represented  by the  National Maritime  Union
                            (NMU).

                       3.   In 1961 the  SIU developed a pension  plan --
                            the  Seafarers   Pension  Plan   --  covering
                            seafarers who work on SIU-represented ships.

                       4.   In  1968  Diaz,  then  still  working  on NMU
                            ships, was  injured and stopped working  as a
                            seaman altogether.

                       5.   In 1975  Diaz recovered  from his injury  and
                            began to work again as a seaman, this time on
                            SIU ships.

                       6.   In 1988 Diaz retired, at age 65, having spent
                            the previous 13 years on SIU ships.

                       B.  The  Seafarers  Pension Plan.    The Seafarers
                           ____________________________

             Pension Plan provides pensions based upon time worked on SIU

             ships,  but not  on  other  ships.   It  normally permits  a

             seafarer  to include, in the pension level calculation, time

             that  he  worked  even  before  the  plan  first  came  into

             existence  in  1961   --  even  though  employers   did  not

             contribute before 1961  and the relevant pension  funds must

             therefore come  from contributions  (and related  investment

             earnings) made in  respect to work  performed later, and  by

             others.

                       Despite the  ordinary practice  of crediting  pre-

             1961 work,  the trustees  gave Diaz credit  only for  the 13

             years he  worked on  SIU ships after  he recovered  from his

             injury  in 1975 and  returned to SIU work.   They denied him

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credit  for the 17  years he worked  on SIU  ships before he

             left  SIU employment  in 1961  (and before  the SIU  had any

             pension plan)  because they  concluded that,  in respect  to

             that  work, Diaz  suffered a  "break in  service" under  the

             plan's "break in service" rule.  The rule prohibits counting

             work prior  to a "break  in service," defined as  failure to

             perform  90  or more  days  of SIU  work  in  each of  three

             consecutive calendar years between 1968 and 1975 (when ERISA

             took effect).  The rule states specifically:

                       If  during the  period  from January  1,
                       1968 to December  31, 1975, an  employee
                       received credit for less than 90 days of
                       Service in each of three (3) consecutive
                       calendar years, a Break of Service shall
                       occur.

                       If such  a Break of Service occurs, said
                       employee  shall  lose   all  credit  for
                       Service  prior  to  and  including  said
                       three (3) year period . . . . 

             Seafarers Pension Regulations, Article 2, Section D(1).

                       The  upshot is  that Diaz  received  a pension  of

             about $200 per  month (and without certain  health benefits)

             instead of the $450 per  month (plus such benefits) to which

             he believed himself entitled.

                       C.  Procedure.    Diaz  brought  this  lawsuit  in
                           _________

             federal   district   court   under   ERISA,   29   U.S.C.   

             1132(a)(1)(B),  which  authorizes  an  employee  action  "to

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                                          4

recover benefits  due to him  under the terms of  his plan."

             ERISA requires trustees to follow their own rules, see id.  
                                                                ___ ___

             1104(a)(1)(D), and Diaz argues that the trustees have failed

             to do  so by  misinterpreting the break  in service  rule in

             applying  it to  his  situation.   The district  court found

             against Diaz.

                                          II

                                  Standard of Review
                                  __________________

                       Ordinarily,   a    court   will    give   trustees

             considerable leeway to  interpret and to apply  pension plan

             rules,  setting aside those  trustee decisions only  if they

             are arbitrary, capricious, or an abuse of discretion.   See,
                                                                     ____

             e.g.,  Lockhart v.  United  Mine  Workers  of  America  1974
             ____   ________     ________________________________________

             Pension Trust, 5 F.3d 74, 78  n.6 (4th Cir. 1993); Gordon v.
             _____________                                      ______

             ILWU-PMA  Benefit Funds, 616 F.2d  433, 439 (9th Cir. 1980).
             _______________________

             Diaz  points out, however,  that the Supreme  Court has said

             that this deferential standard of review is appropriate only

             where the "benefit plan" itself gives the trustees

                       discretionary  authority   to  determine
                       eligibility for benefits  or to construe
                       the terms of the plan.

             Firestone  Tire &  Rubber Co.  v. Bruch,  489 U.S.  101, 115
             _____________________________     _____

             (1989); see also Allen v.  Adage, Inc., 967 F.2d 695, 697-98
                     ___ ____ _____     ___________

             (1st Cir. 1992).  Diaz says that the  version of the benefit

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plan in effect when he applied for a pension did not provide

             the trustees with the "discretionary authority" to determine

             eligibility or  construe the terms  of the plan.   Hence, we

             must review trustee decisions de novo.
                                           __ ____

                       Diaz's   argument   is    unconvincing,   however.

             Firestone  concerned  certain  terms   ("reduction  in  work
             _________

             force")  set forth  in what  was in  effect the  basic trust

             instrument, which  terms the trustees  had construed against

             the employees.   The argument in the case  before us focuses

             on  the application  (and implicit  interpretation),  not of

             terms contained in the basic  trust instrument, but of rules
             ______________________________________________         _____

             promulgated  by the trustees pursuant to powers delegated by
             ____________________________________________________________

             that instrument.  And, the distinction is important.
             _______________

                       The Firestone  opinion turned  on the  traditional
                           _________

             legal doctrine that trustee powers are 

                       determined  by the rules of law that are
                       applicable to the situation . . . and by
                                                             __
                       the  terms of the trust as the court may
                       ________________________________________
                       interpret  them, and not  as they may be
                       _______________
                       interpreted by the trustee himself . . .
                       .

             3  W. Fratcher,  Scott on  Trusts    201,  at 221  (emphasis

             added); see  Firestone, 489 U.S.  at 112.   That is  to say,
                     ___  _________

             courts  ordinarily  interpret  (independently)  the  trust's

             terms.  The Firestone Court concluded that, since
                         _________

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                                          6

there  is no  evidence  that under  [the
                       benefit plan] the  administrator has the
                       power to construe uncertain terms [i.e.,
                       terms of the  trust] or that eligibility
                             _____________
                       determinations   are    to   be    given
                       deference,

             the proper standard of review is de novo.  489 U.S. at 111.
                                              _______

                       Traditional trust  law, however, does  not suggest

             that  courts   normally  should,  or  do,  substitute  their

             judgment for reasonable  trustee interpretations of  trustee

             rules  promulgated   pursuant  to  powers  that   the  trust

             instrument  grants to those trustees.   To the contrary, one

             would ordinarily assume  that a trust instrument's  grant of

             power to make  rules and to apply rules carries  with it (to

             avoid  unnecessary  administrative  complexity)  an  implied

             power to interpret those  rules reasonably and  consistently

             with  the  instrument and  other  provisions  of  law.   Cf.
                                                                      ___

             Lockhart  v. United  Mine Workers  of  America 1974  Pension
             ________     _______________________________________________

             Trust, 5 F.3d 74,  78 n.6 (4th Cir.  1993) ("Given that  the
             _____

             Trustees  have  the  authority to  formulate  the  rules and
                                                _________

             regulations  that implement  the  Plan .  .  . ,  it  is not

             subject  to  question that  the  Trustees  have  the .  .  .

             discretion  to interpret these  rules and regulations  . . .
                            _________

             .") (citations omitted) (emphasis added).  And, courts would

             presumably  review  any  such exercise  of  delegated  rule-

             interpretive  power  as  they would  any  other  exercise of

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                                          7

delegated  power, i.e., with a degree of interpretive leeway

             that reflects the  trustees' likely better  understanding of

             how they intended their own rules to apply.  Cf. Restatement
                                                          ___

             (Second) of  Trusts    187 ("Where  discretion is  conferred

             upon the  trustee with respect  to the exercise of  a power,

             its exercise is not subject  to control by the court, except

             to prevent an abuse by the trustee of his discretion.")  I n

             this case, the terms of the  trust itself are not in  issue.

             The trust document, at the time  of Diaz's application, gave

             the trustees broad, discretionary, authority to make, and to

             apply,  rules  governing  eligibility  for  pensions.    The

             document specifically said:

                       The  Trustees  shall  without limitation
                                             __________________
                       have  the  power  .   .  .  to  .   .  .
                       [f]ormulate and adopt  a pension program
                       . . . and promulgate and establish rules
                       . .  . for .  . . [its] operation  . . .
                       and  in pursuance  thereto (but  without
                       intent   to   limit    such   authority)
                       formulate  and  establish  conditions of
                       eligibility .  . . and all other matters
                                              _________________
                       which the  Trustees in  their discretion
                       ________________________________________
                       may   deem   necessary  or   proper   to
                       ________________________________________
                       effectuate  the purposes  and intent  of
                       ________________________________________
                       the pension program.
                       ___________________

             Seafarers  Pension  Agreement  and  Declaration  of   Trust,

             Article III, Section 1 (emphasis added).  It added a general

             clause stating:

                       The [T]rustees  are empowered to  do all
                                                            ___
                       acts whether or not expressly authorized
                            ___________________________________

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                                          8

herein,  which the  [T]rustees may  deem
                       necessary  to  accomplish   the  general
                       purposes of the Trust.

             Id. Section 5 (emphasis added).  
             ___

                       This language demonstrates broad trustee authority

             to determine the content of  the rules they promulgate.  The

             document  provides  no reason  for  finding  any significant

             difference   between   1)    determining   content   through

             promulgating  new  rules,  and  2)  determining  content  by

             interpreting   old  ones.     Hence,  consistent   with  our

             discussion above,  we interpret the document's explicit, and

             broad,  power to  create  "rules"  governing "conditions  of

             eligibility" as carrying  with it a similarly  broad implied

             power to interpret those rules.   And, the existence of such

             a delegated  power seems  to be what  Firestone had  in mind
                                                   _________

             when it called  for "evidence" of  a grant of  discretionary

             authority to determine eligibility for benefits.  Firestone,
                                                               _________

             489 U.S. at  111; cf. Curtis v. Noel, 877 F.2d 159, 161 (1st
                               ___ ______    ____

             Cir.  1989)   (holding  that   plan  language   giving  plan

             administrator  power  to   determine  "which  Employees  are

             eligible  to participate in  the Plan" and  "provid[ing] all

             parties  dealing with  the Plan  an  interpretation of  Plan

             provisions  on request"  indicates  deferential standard  of

             review of trustee eligibility decisions); Jett v. Blue Cross
                                                       ____    __________

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                                          9

& Blue Shield of Alabama, Inc., 890 F.2d 1137, 1138-39 (11th
             ______________________________

             Cir.  1989)   (same  for   plan   language  giving   "Claims

             Administrator"  power   to  make   "final  and   conclusive"

             determinations  "in the  administration of  the [plan],"  so

             long  as  such  determinations are  "reasonable");  but  cf.
                                                                 ___  ___

             Sisters of the Third Order of St. Francis v. SwedishAmerican
             _________________________________________    _______________

             Group  Health Benefit Trust,  901 F.2d 1369,  1371 (7th Cir.
             ___________________________

             1990)  (explaining that circuit courts appear split over the

             degree  of  plan language  specificity  required to  trigger

             deferential review of trustee determinations).

                       Finally, Diaz argues that the trustees, in effect,

             confessed  that the  SIU  plan  does  not  meet  Firestone's
                                                              _________

             requirements  for deferential  review, for,  after Firestone
                                                                _________

             (and  after Diaz had applied for  his pension), the trustees

             sought and obtained an amendment to the plan document giving

             them  the  "absolute  and  exclusive  authority  to  .  .  .

             interpret Plan Rules"  and "sole discretion to .  . . apply"

             them.  Not surprisingly, we think this amendment merely made

             express  a power  that,  for  reasons  already  stated,  was

             plainly implied  all along.   (Why  the trustees  decided to

             clarify the plan's language in  this way is not explained in

             the record; perhaps they  wanted to play it safe in light of

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Firestone  and the possibility that lower courts would later
             _________

             misread it.)

                       The   end  result  is  that  we  shall  apply  the

             "arbitrary and capricious" standard of review.

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                                          11

III

                                 Review of the Merits
                                 ____________________

                       Diaz  concedes that  his absence  from  work after

             being  injured counted  as a  "break in  service" under  the

             plan's "break in service" rule as literally interpreted.  He
                                            ________________________

             did not  perform three months of  SIU work in each  of three

             consecutive years between 1968 and  1975.  But, Diaz  argues

             that the trustees  should not interpret the  rule literally.

             He says that  they should not  count an involuntary  absence
                                                     ___________

             from work --  a break caused, for example,  by an on-the-job

             injury -- as a "break in  service" under the rule.  And,  he

             points  to  several  circuit  court  cases  that  have  held

             trustees' refusals to treat involuntary absences this way to

             be  arbitrary and  capricious.   See,  e.g.,  Van Fossan  v.
                                              __________   ______________

             International  Bhd. of Teamsters Union Local No. 710 Pension
             ____________________________________________________________

             Fund,  649 F.2d 1243,  1248-49 (7th  Cir. 1981)  (finding it
             ____

             arbitrary and capricious to apply "break in service" rule to

             worker  who  leaves fund-covered  employment  involuntarily,

             such  as because  of a  permanent  shoulder disability,  and

             citing other circuit cases on point).

                       The  problem for  Diaz is  that  the trustees  are

             willing  to  assume (for  purposes  of  this case)  that  an

             involuntary  absence does not count as  a "break in service"
             ___________               ___

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                                          12

under  the  rule.    But,  that  willingness  is  still  not

             sufficient  to win  Diaz  his augmented  pension.   That  is

             because the trustees say that any such "involuntary absence"

             exception  must  involve  an involuntary  absence  from  SIU
                                                                      ___

             service, not  from some other  kind of service.   After all,

             one who left SIU service well before 1968 and works steadily

             thereafter  in  a  totally  different  industry cannot,  and

             should not be able to,  overcome the "break in service" rule

             simply because an  injury caused him  to be absent  (between

             1968 and 1975) from that totally different job.
                                      _________________

                       The trustees  also recognize  that Diaz's  case is

             not quite that simple.  He did, indeed, leave SIU employment

             well before  1968 and  he did not  return to  SIU employment

             until after 1975, and he was employed on NMU, not SIU, ships

             in the interval.  But, when he did return to shipping, after

             recovering from his injury in 1975, he returned to work, not

             on NMU, but on SIU, ships.  In light of this fact,  it is at
                            ___

             least possible, as  the trustees rightly suggest,  that "but

             for his injury in 1968, he would have left the NMU ships and

             resumed  shipping with  the SIU"  in  time not  to suffer  a

             "break  in service"  under the  rule --  in which  case, the

             trustees  further suggest,  they  would have  ignored Diaz's

             post-injury absence.   But, they  add, the single  fact that

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                                          13

Diaz  returned to  SIU shipping  after  recovering from  his
                                              _____

             injury is not enough to show that he would have left the NMU

             (and  returned to  the SIU)  without the  injury.   In their
                                          _______

             view, in the absence of an injury, it is more likely  that a

             seaman would  continue in,  rather than  leave, his  current

             job.

                       We  cannot quarrel with  the reasonableness of the

             trustees'  interpretation of  their rule,  at  least on  the

             assumptions  they  are  willing to  make.    They assume  an

             exception  for  an  involuntary   break  in  service;   they

             understand the  special situation  of one  who has  left SIU

             employment before, but  returns after, an injury;  and, they

             impose a minimal  factual SIU-connection,  namely a  showing

             that, without  the injury, the  seaman would have  worked on

             SIU  ships.   But, whether  or not  Diaz made  the requisite

             factual  showing  --   dependent  as  the  question   is  on

             generalizations about  how seafarers ordinarily behave -- is

             precisely the kind of matter that courts should leave in the

             hands of the trustees, who,  after all, often must draw upon

             their  knowledge of  the industry  in deciding  how best  to

             share a limited amount of money among different plan members

             with varying claims,  of varying strength.   See Richards v.
                                                          ___ ________

             United Mine  Workers of Am.  Health & Retirement  Funds, 851
             _______________________________________________________

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                                          14

F.2d 122, 123 (4th Cir.  1988) ("[W]e may not substitute our

             judgment of the facts in this case for that of the Trustees,

             for it is  the Trustees whose expertise in  this area arises

             from daily and continual experience.") (citation omitted).

                       In these  circumstances, and against  the backdrop

             that the  payment at stake  here is for pre-1961  service (a

             time  when  no  pension  fund   existed  and  no  one   made

             contributions on  behalf of Diaz's work), we cannot say that

             the  trustees' interpretation  or application of  their rule

             was arbitrary. 

                       Consequently, the  judgment of the  district court

             is

                       Affirmed.
                       ________

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