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DONOVAN v. CARLOUGH

November 17, 1983

Raymond J. DONOVAN, Plaintiff,
v.
Edward J. CARLOUGH, et al., Defendants



The opinion of the court was delivered by: HOGAN

 THOMAS F. HOGAN, District Judge.

 This case is before the Court upon cross-motions for summary judgment by the parties. The Court heard oral argument. It has considered the pleadings, exhibits and affidavits, together with the extensive and ably-crafted briefs of the parties. It appears to the Court that there is no genuine issue as to any material fact and that the plaintiff is entitled as a matter of law to summary judgment in accordance with the following opinion.

 I. BACKGROUND

 The National Stabilization Agreement of the Sheet Metal Industry Trust Fund ("SASMI" and "the Fund") is an employee welfare benefit plan under Section 3(1) of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1002(1), and was created pursuant to Section 302(c)(5) of the Labor Management Relations Act of 1947 ("LMRA"), 29 U.S.C. § 186(c)(5). A board of six trustees ("the Trustees") operates the Fund and interprets SASMI Rules and Regulations. SASMI is intended to minimize adverse economic effects from major fluctuations of employment in the industry on individual sheet metal workers and to preserve for the industry a pool of experienced and skilled sheet metal workers. To this end, SASMI provides qualified and eligible sheet metal workers with the "Basic Underemployment Benefit" and "Special Incentive Benefit" programs. SASMI Rules and Regulations provide that the Basic Underemployment Benefit is payable to an eligible and qualified participant at the conclusion of a six-month "Stabilization Period," if during that period the participant was involuntarily unemployed and consequently worked fewer than a certain number of hours specified in SASMI Rules and Regulations. There are two Stabilization Periods in each year: from January 1 to June 30 ("Stabilization Period 19XXA"), and from July 1 to December 31 ("Stabilization Period 19XXB"). The Special Incentive Benefit is available to participants who have received less than a certain amount of Underemployment and other benefits from SASMI during four consecutive Stabilization Periods.

 The SASMI Rules and Regulations also provide that applications for Underemployment and Special Incentive Benefits must be filed within ninety days after the end of the Stabilization Period, and that as soon as practicable the Trustees of the Fund shall arrange for payments of benefits to which an employee is entitled. The Rules and Regulations also provide that benefits otherwise payable to a participant may be forfeited under certain conditions. The particular forfeiture provision which is the heart of this litigation states: "Benefits shall be forfeited under the following conditions: . . . (g) any employee who no longer is working under a Contract." The term "contract" is defined in the Plan's rules as "a collective bargaining agreement in effect between a local union . . . and an employer requiring the employer to make contributions to [the Plan]." The purpose of the forfeiture provision is to protect the actuarial and financial soundness of the SASMI Trust Fund by preventing manipulation of contributions and benefits by participants. When the forfeiture provision was instituted, the Trustees were hoping to prevent local unions and contractors from timing their entry and exits from SASMI in a manner which allowed participants to receive more benefits than they paid in contributions.Because contributions are directly related and benefits are inversely related to the number of employee hours worked, employers and unions might try to enter the SASMI when employment was low (contributions low; benefits high) and leave the fund when employment was high (contributions high, benefits low). The rule in question manifests the Trustees' attempt to protect SASMI against the long-term effects of such behavior. The complaint alleges that defendant Trustees breached their fiduciary duties to qualified and eligible participants of SASMI by failing to pay benefits to the participants as a result of the Trustees' unreasonable interpretation of that forfeiture provision, in violation of ERISA § 404(a)(1)(A), (B), and (D), 29 U.S.C. § 1104(a)(1) (a)(2)(A), (B), and (D). *fn1" The Trustees argue that their interpretation and application of the Rules and Regulations was reasonable based upon the facts before them.

 The Sheet Metal Workers International Association Local No. 16 ("Local 16") is located in Portland, Oregon. Members of the collective bargaining unit represented by Local 16 ("the Local 16 participants") worked pursuant to a collective bargaining agreement originally effective from April 1, 1976 through March 31, 1979. Employers of the Local 16 participants made contributions to SASMI without interruption from April 1, 1976 through March 31, 1979.

 On November 1, 1978, the Local 16 membership decided that it would not seek, in its new collective bargaining agreement to become effective April 1, 1979, a provision requiring the employers to make contributions to SASMI. During November 1978, the Trustees were unofficially informed of Local 16's decision. On November 30, 1978, counsel for Local 16 sent to Trustee Carlough a copy of an agreement between the employers and Local 16 which, effective January 1, 1979, deleted that provision of the collective bargaining agreement which required the employers to make contributions to SASMI. The agreement also provided that it "was conditioned upon approval by the SASMI Board of Trustees," and contained places for the Trustees' signatures. By letter of December 20, 1978, Edward J. Carlough, in his capacity as Chairman of the SASMI Board of Trustees, informed Donald S. Richardson as follows:

 
. . . If the action taken [on November 1, 1978] by one-fifth of the members of Local 16 is indeed the official action of the Local, then no further SASMI benefits will be available to any member of Local Union 16 after December 31, 1978. This means all benefits, including any Underemployment and Special Incentive Benefits to which a beneficiary has been entitled in the Spring of 1979, had SASMI remained in the Contract. The same results would be obtained if the contractual obligation to contribute the SASMI was voted out, now or effective March 31, 1979."

 On March 17, 1979, representatives of SASMI told Local 16 participants that any benefits which otherwise would have been payable to them at the conclusion of the 1978-B Stabilization Period became forfeit under Article VI, Section 1(g) of the 1977 Rules as a result of the vote on November 1, 1978 but that the forfeiture could be voided if the membership rescinded its earlier action to withdraw provisions for SASMI from its current collective bargaining agreement and to maintain provisions requiring contributions to SASMI in the next collective bargaining agreement. The membership of Local 16 voted not to include, in the collective bargaining agreement to commence April 1, 1979, an obligation on the employers to make contributions to SASMI.

 Between January 1 and March 31, 1979, the employers made all contributions due under the 1976 collective bargaining agreement (assuming the Amendment Agreement was not effective to change the agreement). Additionally, some Local 16 participants filed applications with SASMI for Underemployment and Special Benefits for Stabilization Period 1978-B. SASMI denied all applications and all appeals on the ground that the participants forfeited their right to benefits because they were "no longer working under a Contract."

 II. STANDARD OF REVIEW

 The Secretary admits that most cases reviewing trustee action under Section 404 of ERISA have concluded that the proper standard of review is whether the trustees have acted arbitrarily, capriciously, or in bad faith. However, the Secretary argues that because the Court is reviewing a trustee interpretation of a welfare plan, as opposed to other trustee action, it should set aside such interpretation which is contrary to the "plain meaning" of the plan. The Court finds no validity in the Secretary's argument.

 This circuit has for over two decades applied the "arbitrary or capricious" standard of review to trustees' decisions. Maggard v. O'Connell, 217 U.S. App. D.C. 62, 671 F.2d 568 (D.C.Cir.1982); Pete v. United Mine Workers of Am. Welfare Retirement Fund, 171 U.S. App. D.C. 1, 517 F.2d 1275 (D.C.Cir.1975) (en banc); Roark v. Boyle, 141 U.S. App. D.C. 390, 439 F.2d 497, 499 (D.C.Cir.1970); Gaydosh v. Lewis, 133 U.S. App. D.C. 274, 410 F.2d 262, 265 (D.C. Cir.1969); Roark v. Lewis, 130 U.S. App. D.C. 360, 401 F.2d 425, 426-27 (D.C.Cir.1968); Kosty v. Lewis, 115 U.S. App. D.C. 343, 319 F.2d 744, 747 (D.C.Cir.1963); cert. denied, 375 U.S. 964, 84 S. Ct. 482, 11 L. Ed. 2d 414 (1964); Danti v. Lewis, 114 U.S. App. D.C. 105, 312 F.2d 345, 348 (D.C.Cir.1962). In Danti v. Lewis, 114 U.S. App. D.C. 105, 312 F.2d 345 (D.C.Cir.1962), the court said judicial review is proper to determine "whether the Trustees have acted arbitrarily, capriciously or in bad faith; that is, is the decision of the Trustees supported by substantial evidence or have they made an erroneous decision on a question of law." Id. at 340. Contrary to plaintiff's argument, Danti does not in any way suggest that a standard other than "arbitrary and capricious" is applied to trustee interpretations. Moreover, in Maggard v. O'Connell, 217 U.S. App. D.C. 62, 671 F.2d 568 (D.C.Cir.1982), the court reaffirmed the Danti standard of review, adding that such review must be ...


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