Christensen v. Northrop Grumman Cor ( 1997 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
MARJORIE J. CHRISTENSEN,
Plaintiff-Appellant,
v.
NORTHROP GRUMMAN CORPORATION,
Defendant-Appellee,
and
No. 97-1096
EMPLOYEES' RETIREMENT PLAN OF THE
GEORGE A. FULLER COMPANY;
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY, t/a The Principal
Financial Group,
Defendants.
Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Albert V. Bryan Jr., Senior District Judge.
(CA-96-304-A)
Argued: July 14, 1997
Decided: October 15, 1997
Before MURNAGHAN, Circuit Judge, PHILLIPS,
Senior Circuit Judge, and BRITT, United States District Judge for
the Eastern District of North Carolina, sitting by designation.
_________________________________________________________________
Affirmed in part, reversed in part, and remanded with directions by
unpublished opinion. Senior Judge Phillips wrote the opinion, in
which Judge Murnaghan and Judge Britt joined.
_________________________________________________________________
COUNSEL
ARGUED: Patricia Ann Smith, Alexandria, Virginia, for Appellant.
Robert Alan Salerno, SCHWALB, DONNENFELD, BRAY & SIL-
BERT, P.C., Washington, D.C., for Appellee. ON BRIEF: Charles B.
Wayne, SCHWALB, DONNENFELD, BRAY & SILBERT, P.C.,
Washington, D.C.; Daniel B. Stone, IVINS, PHILLIPS & BARKER,
CHARTERED, Washington, D.C., for Appellee.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PHILLIPS, Senior Circuit Judge:
This is an appeal by Marjorie Christensen from an order granting
summary judgment to Northrop Grumman Corporation (Northrop),
her deceased husband's former employer, in Mrs. Christensen's
action claiming the wrongful denial of death benefits under two pen-
sion plans and breaches of fiduciary duty by Northrop in the adminis-
tration of the plans. Because we conclude that Mrs. Christensen is
entitled to benefits under one of the plans but not the other and is not
entitled to recover for breach of fiduciary duty, we affirm in part and
reverse in part.
I
Marjorie Christensen is the surviving spouse of Norman Christen-
sen, who began work at the George A. Fuller Company (Gafco) in
1953 and was a participant in Gafco's retirement plan from its incep-
tion in 1956. Mr. Christensen was employed by Gafco or its succes-
sors until his death in 1994, when the company was known as
American International Contractors, Inc. (AICI). In 1971, Northrop
had acquired Gafco and Mr. Christensen officially became a Northrop
employee. In 1981 Northrop sold its interest in the company to AICI.
2
Mr. Christensen remained with the company throughout, ultimately
rising to the position of vice president.
This dispute arises out of Northrop's decisions with regard to
Gafco's retirement plans. When he was employed by Gafco before
Northrop purchased the company, Mr. Christensen was a participant
in its retirement plan, known as Plan I. Under Plan I, Mrs. Christensen
was entitled to a specified pension benefit if her husband died before
retirement and had met certain eligibility requirements. Specifically,
the plan provided a benefit if the employee,
as of the date of his death, (1) was continuing in the Service
of any of the Employers, (2) had reached his 60th birthday,
(3) had completed 10 or more years of service, (4) had con-
tracted the marriage with the surviving spouse at least one
year prior to the date of his death, and (5) was not legally
separated from the surviving spouse.
J.A. 56A. "Employers" was defined as "the Company (George A. Ful-
ler Company, Inc.), and such other organizations as may hereafter
adopt the Plan and Trust in accordance with Article XIV, and their
successor or successors." J.A. 53.
Northrop acquired all of Gafco's assets and liabilities, including the
pension plan, in the 1971 transaction. Though the parties dispute
whether Northrop "terminated" Plan I when it purchased Gafco, or
instead amended and superseded that plan,1 it is clear that Northrop
_________________________________________________________________
1 Mrs. Christensen asserts that"Plan II was merely a restatement of the
Gafco plan. Plan II states that its effective date is 1956, and the later-
implemented Northrop language was an amendment to the Gafco plan.
Computation for accrual of years of service credit included years
employed by the predecessor entity, Gafco." Appellant's Br. at 8. The
district court held, however, that Northrop terminated Plan I when it pur-
chased Gafco and instituted its own pension plan. We agree that the evi-
dence establishes that Northrop intended to terminate Plan I in 1971,
fund the benefits that accrued under that plan, and then provide a new
set of benefits under Plan II. Northrop did, however, credit Gafco
employees under Plan II for their service before Northrop purchased the
company. J.A. 131 § 1.13, 133-34 § 1.30.
3
purchased a group annuity from the Prudential Insurance Company to
fund some of the benefits for which Plan I participants had qualified
or would qualify. Specifically, Northrop purchased annuities for Mr.
Christensen's and other Gafco employees' retirement benefits. Nor-
throp did not, however, purchase annuities to fund the pre-retirement
death benefits, deciding it would be less expensive simply to pay
whatever benefits became due out of the pension trust fund. Northrop
informed the plan participants of this decision, telling them to seek
the death benefit not from the annuity but from Northrop itself.
Northrop adopted its own pension plan, Plan II, that covered Gafco
employees and in which Mr. Christensen participated while Northrop
owned Gafco. Plan II allowed participants to apply pre-1972 employ-
ment with Gafco toward eligibility for benefits under Plan II. This
plan also provided a benefit in the event of death before retirement,
though on slightly different terms than Plan I:
If a Member should die (1) prior to his termination of
employment from the Company for any reason and (2) after
having been credited with ten (10) or more years of Vesting
Service, and (3) after Early Retirement Age, and (4) prior to
his Normal Retirement Age, his Spouse will receive a
monthly retirement benefit for her remaining lifetime in an
amount equal to 50% of the reduced amount of the monthly
retirement benefit the deceased Member would have
received assuming he retired early on the date of his death
....
J.A. 145. "Company" was defined under Plan II as "Northrop Corpo-
ration (including any unincorporated division thereof) and any affili-
ate or subsidiary in which Northrop Corporation owns more than 80%
of the voting stock and any other controlled trade or business as
defined in Department of Treasury Temporary Regulations 11.414(c)-
1 and (c)-2." J.A. 130.
In February 1981, Northrop sold Gafco, and in connection with the
sale terminated Plan II. Northrop purchased another group annuity,
this time from Bankers Life Insurance Company, to fund the benefits
for which Plan II participants had qualified, though again it did not
purchase an annuity for pre-retirement death benefits. Northrop deter-
4
mined that Plan II's assets exceeded the amount required to fund
those annuities, so the surplus assets reverted to its treasury. After its
sale of Gafco, Northrop explained to plan participants that with regard
to Plan I, "Any benefit payable to your eligible surviving spouse as
explained in the section entitled `Pre-Retirement Death Benefits' will
be paid from the Prior Plan's Trust Fund (sponsored by Northrop Cor-
poration) and not by the insurance company." J.A. 205. Northrop also
assumed responsibility for paying whatever pre-retirement death ben-
efits accrued under Plan II.
Northrop has conceded that it made numerous errors in connection
with its contract with Prudential for the annuities to pay benefits
under Plan I, and that it took steps to correct such errors as late as
1995. For example, Northrop realized that it should have purchased
annuities for certain benefits under Plan I, and that it would have to
pay these benefits out of the trust's assets. Northrop also has con-
ceded it failed to provide the necessary coverage by the annuities it
purchased during the termination of Plan II, and thereafter paid addi-
tional premiums to make the necessary adjustments and corrections
in the coverage.
Mr. Christensen died in 1994 at age 64, still employed by AICI.
When Mrs. Christensen made claims to Northrop for pre-retirement
benefits under both plans, Northrop refused to pay any benefit under
either Plan I or Plan II, asserting that Mrs. Christensen was ineligible
under the terms of the plans. Mrs. Christensen then brought this
action under the Employee Retirement Income Security Act (ERISA),
29 U.S.C. § 1132(a)(1)(B) and (a)(3), on March 7, 1996. She claimed
in Counts I and III the wrongful denial of pre-retirement death bene-
fits under both pension plans and in Counts II and IV that Northrop
had breached its fiduciary duty owed to program participants by
refusing to purchase annuities to cover her husband's pre-retirement
death benefits.2
_________________________________________________________________
2 The action also included claims against the AICI pension plan for
fraudulent misrepresentation and against Principal Mutual Life Insurance
Company for denying benefits allegedly due under the annuities pur-
chased in conjunction with Plan II's termination. Mrs. Christensen set-
tled her claim against AICI, and the district court denied her claim
against Principal Mutual. Mrs. Christensen does not pursue this claim on
appeal.
5
After discovery, Northrop and Mrs. Christensen filed cross-
motions for summary judgment. Northrop asserted statute of limita-
tions defenses to both the denial of benefits and breach of fiduciary
duty claims, and contended that as a matter of law Mrs. Christensen
was not eligible for death benefits under either of the Plans.
Mrs. Christensen contended that she was entitled to benefits under
both Plans as a matter of law. The district court granted Northrop's
motion as to all the claims, holding that neither Plan I nor Plan II per-
mitted a pre-retirement death benefit when the employee died after
leaving Northrop's employ, and that Mrs. Christensen's fiduciary
duty claims were barred under the applicable ERISA statute of limita-
tions found in 29 U.S.C. § 1113 (1994). This appeal followed.
II
We review the grant of a motion for summary judgment de novo
(see Kimsey v. City of Myrtle Beach, S.C., 109 F.3d 194, 195 (4th Cir.
1997)), and apply the same standard employed by the district court in
considering the motion. See Helm v. Western Maryland Ry. Co., 838
F.2d 729, 734 (4th Cir. 1988). A claim for a denial of benefits under
ERISA "is to be reviewed under a de novo standard unless the benefit
plan gives the administrator or fiduciary 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). It
is not contended here that Northrop had any discretion to determine
eligibility for benefits under either Plan I or Plan II, and we therefore
review de novo its denial of benefits. See Wheeler v. Dynamic Engi-
neering, Inc., 62 F.3d 634, 638 (4th Cir. 1995) ("Because the . . . plan
does not expressly give the administrator the discretion to interpret it,
we review [the administrator's] interpretation de novo.").3 We review
de novo the district court's dismissal of the breach of fiduciary duty
claims on statute of limitations grounds.
_________________________________________________________________
3 We therefore need not consider Mrs. Christensen's contention that
Northrop had a conflict of interest in interpreting the plans, and therefore
was owed a less deferential standard of review than plan administrators
with discretionary authority ordinarily receive. See Bailey v. Blue Cross
& Blue Shield of Virginia, 67 F.3d 53, 56-57 (4th Cir. 1995).
6
A.
The district court dismissed the breach of fiduciary duty claims in
Counts II and IV, on the grounds that they were time-barred under the
applicable ERISA limitations period found in 29 U.S.C. § 1113(1994) which provides,
No action may be commenced under this subchapter with
respect to a fiduciary's breach of any responsibility, duty, or
obligation under this part, or with respect to a violation of
this part, after the earlier of --
(1) six years after (A) the date of the last action which
constituted a part of the breach or violation, or (B) in the
case of an omission, the latest date on which the fiduciary
could have cured the breach or violation, or
(2) three years after the earliest date on which the plaintiff
had actual knowledge of the breach or violation . . . .
Mrs. Christensen contends that Northrop has had a continuous oppor-
tunity to "cure" the alleged breach of fiduciary duty and provide an
annuity for pre-retirement death benefits. Its failure to do so, there-
fore, constitutes an improper "omission" such that under § 1113(1)(B)
the statute has not yet run.4
Northrop argues, and the district court held, that Northrop's deci-
sion not to provide annuities for pre-retirement death benefits under
Plans I and II were the "actions" about which Mrs. Christensen com-
plains and that they occurred 25 years (as to Plan I) and 15 years (as
to Plan II) before she filed her complaint. In accepting this argument,
the district court relied on the D.C. Circuit's decision in Larson v.
Northrop Corp., 21 F.3d 1164 (D.C. Cir. 1994). There the court dealt
_________________________________________________________________
4 Alternatively, she contends she did not have actual knowledge of the
breach until her benefit was denied in 1995. We can summarily dismiss
this argument; the specific breach she alleges is Northrop's failure to
provide an annuity, and it is clear that she knew about Northrop's deci-
sion in 1971 as to Plan I and in 1981 as to Plan II through its announce-
ments of intention not to provide annuities for those benefits.
7
with a challenge by another Gafco employee to Northrop's failure "to
ensure that the group annuity contracts that it had purchased from
Prudential and Principal would pay an early retirement subsidy that
had existed under the Plan." Id. at 1166 (footnote omitted). The
employee argued that the last action connected with the breach
occurred when he was denied benefits, not when Northrop purchased
the annuities. The court rejected that argument under § 1113(1)(A),
determining that the last action occurred when Northrop pur-
chased the allegedly inadequate annuities. See id. at 1169-71. The
court expressly did not consider whether this was a case of omission
under § 1113(1)(B), though, and does not directly address
Mrs. Christensen's argument. See id. at 1168 n.7.
To accept Mrs. Christensen's characterization of Northrop's action
in not funding these benefits as an "omission," the district court noted,
"would eviscerate § 1113 as it applies to terminated plans. Any partic-
ipant could defeat the six year statutory limitation simply by recasting
the failure to provide a benefit, or, as here, the establishment of eligi-
bility criteria that a plaintiff failed to meet, as an omission which
could be cured at any time." J.A. 36. We agree. The alleged breaches
of fiduciary duty of which Mrs. Christensen complains were affirma-
tive decisions by Northrop not to purchase annuities that were com-
plete when made in 1971 and 1981. All of the plan participants
learned of these decisions when they were made as part of the termi-
nation of the plans, and there was no indication that they were subject
to subsequent revision. Characterizing the alleged breach as an "omis-
sion" suggests that Northrop simply overlooked these benefits in its
comprehensive termination of the plans. But Northrop understood that
in not purchasing annuities it would have to fund whatever benefits
accrued through the trust fund. The decisions to take that course were
affirmative actions that were completed in 1971 and 1981 for Plan I
and Plan II respectively. Cf. Gluck v. Unisys Corp., 960 F.2d 1168,
1179 (3d Cir. 1992) (holding that limitation period ran from the date
of the challenged amendment's adoption); Ziegler v. Connecticut
General Life Ins. Co., 916 F.2d 548, 551 (9th Cir. 1990) (holding that
alleged breach occurred at the time of the execution of the challenged
investment agreement). Though these cases do not address the omis-
sion argument directly, they reflect the view that these violations
occur when the company makes the decision how to fund benefit
plans.
8
Applying this determination to Mrs. Christensen's claims in Counts
II and IV, they are clearly time-barred. As indicated, the actions of
which she complains occurred in 1971 and 1981, and she did not
bring suit until 1996, after § 1113's six-year statute of limitations had
run. We therefore affirm the district court's dismissal of these claims
on statute of limitation grounds.
B.
Reviewing de novo the district court's dismissal of
Mrs. Christensen's denial of benefit claims in Counts I and III of her
complaint involves interpretation as a matter of law of the terms of
the two pension plans as applied to the situation created by
Mr. Christensen's death in 1994. In that process,"we must interpret
the [plan] using ordinary principles of contract law, enforcing the
plan's plain language in its ordinary sense." Bailey v. Blue Cross &
Blue Shield of Virginia, 67 F.3d 53, 57 (4th Cir. 1995) (citations omit-
ted). We take the two Plans in turn.
1.
Under the terms of Plan II, in order to qualify for the pre-retirement
death benefit the employee must have died "prior to his termination
of employment from the Company for any reason." J.A. 145. "Com-
pany" is defined in the plan as "Northrop Corporation (including any
unincorporated division thereof) and any affiliate or subsidiary in
which Northrop Corporation owns more than 80% of the voting stock
and any other controlled trade or business . . . ." J.A. 130. It is undis-
puted that when he died, Mr. Christensen was not working for Nor-
throp or any organization that could fit within this definition, and
therefore Mrs. Christensen cannot be eligible for benefits under that
plan. See Larson v. Northrop Corp., 15 E.B.C. 2107, 1992 WL
249790 (D.D.C. Mar. 30, 1992), aff'd, 21 F.3d 1164 (D.C. Cir. 1994)
(holding that former Gafco employee's employment relationship with
Northrop ended under terms of Plan II when Northrop sold Gafco to
AICI).
Mrs. Christensen relies upon a number of cases that are inapposite
because they construe pension plan terms that are critically different
from the terms of Plan II. For example, in Tilley v. Mead Corp., 927
9
F.2d 756, 761 (4th Cir. 1991), we held that ERISA did not prohibit
workers from receiving benefits under a pension plan that did not vest
until after the plan was terminated. However, under the terms of that
plan, employers' rights could vest after the plan was terminated. Id.
at 762-63. Similarly, the plan construed in Gillis v. Hoechst Celanese
Corp., 4 F.3d 1137 (3d Cir. 1993), did not explicitly provide that ben-
efits could only be paid if the employee was still employed by that
employer, as Plan II does. In sum, under traditional principles of con-
tract interpretation, Mrs. Christensen is not eligible for benefits under
the terms of Plan II.5
2.
The eligibility requirements for pre-retirement death benefits differ
under Plan I. Under that plan, the benefit accrued if, "as of the time
of his death," the employee had reached his 60th birthday, completed
10 or more years of service, had met the marital requirements and
"was continuing in the Service of any of the Employers." J.A. 56A.
Only the last of these criteria is contested by Northrop. Under Plan
I's definition, "Employers" is defined as"The Company . . . and such
other organizations as may hereafter adopt the Plan and Trust in
accordance with Article XIV, and their successor or successors." J.A.
53. Mrs. Christensen does not argue that Northrop or anyone else
"adopted" the plan in accordance with Article XIV. Plan I, however,
defines "Company" as Gafco, "or its successor or successors." J.A.
52. And while the plan does not specifically define"successor," with
regard to corporations, "generally [the term] means another corpora-
tion which, through amalgamation, consolidation, or other legal suc-
cession, becomes invested with rights and assumes burdens of first
corporation." Black's Law Dictionary 1431 (6th ed. 1990). Under this
_________________________________________________________________
5 Mrs. Christensen also contends that under our holding in Tilley, she
is eligible to be paid from the surplus assets that reverted to Northrop at
the termination of Plan II. We held in Tilley that an employer was
responsible for funding all contingent assets that could vest under the
plan before recovering any surplus. In that case, however, the employees
claiming the benefits were eligible for them under the terms of the plan;
Tilley does not provide support for funding benefits that would not
accrue under the terms of a plan before accepting a surplus. See 927 F.2d
at 759-62.
10
definition, both Northrop and AICI are successors to Gafco and hence
are included within the definition of "Company."
Northrop does not contend that neither it nor AICI was not Gafco's
successor. The district court did not consider the significance of this
route to Northrop's liability under the Plan, but held narrowly that "At
the time of his death, Mr. Christensen was employed by AICI. No
other entity ever adopted Plan I, and it terminated in December 1971.
Plaintiff is thus no more entitled to pre-retirement death benefits
under the terms of Plan I than under Plan II." J.A. 34. In so holding,
the district court apparently interpreted the phrase"and their succes-
sor or successors" as only modifying the clause"organizations as may
hereafter adopt the Plan," and did not consider whether Northrop
could be considered as itself the "Company" under the definitional
provisions above noted. Northrop clearly, however, falls within those
definitions as successor to Gafco, therefore as the"Company," there-
fore as "any of the Employers." Under the terms of Plan I, therefore,
Mr. Christensen met the requirements for pre-retirement death bene-
fits, and Northrop, which acknowledged responsibility for paying any
pre-retirement death benefits that accrued under Plan I, see J.A. 205,
is responsible for paying them.
3.
Northrop also contends alternatively that the statute of limitations
had run as to the denial of benefits claims in Counts I and III. In those
counts Mrs. Christensen alleged generally that Northrop improperly
denied her benefits under Plans I and II. Northrop seeks to cast these
allegations as reconstituted fiduciary duty claims, based on the failure
to fund pre-retirement benefits through annuities. That will not do.
These claims were that Northrop breached the terms of Plan I and
Plan II by refusing to award Mrs. Christensen death benefits, whether
or not the payment would come from an annuity or from the plan's
trust fund. Mrs. Christensen therefore had no cause of action until
Northrop denied her benefits after Mr. Christensen's death in 1994.
See Rodriguez v. Meba Pension Trust, 872 F.2d 69, 72 (4th Cir. 1989)
("An ERISA cause of action does not accrue until a claim of benefits
has been made and formally denied.") (citations omitted). Conse-
11
quently, the applicable statute of limitations had not run on these
claims when she brought suit in March 1996.6
III
We affirm the district court's grant of summary judgment in favor
of Northrop on Counts II and IV on the ground that the applicable
statute of limitations had run before Mrs. Christensen filed this action.
We also affirm the district court's grant of summary judgment in
favor of Northrop as to Count III, because Mrs. Christensen did not
meet Plan II's eligibility criteria. We reverse the district court's grant
of summary judgment in favor of Northrop as to Count I, and the
denial of Mrs. Christensen's motion for summary judgment as to that
count, because Mrs. Christensen met all of the requirements for pre-
retirement death benefits under Plan I. We remand for entry of judg-
ment accordingly.
AFFIRMED IN PART, REVERSED IN
PART, AND REMANDED WITH DIRECTIONS
_________________________________________________________________
6 Section 1113 of ERISA does not provide the statute of limitations for
claims alleging an improper denial of benefits, however. Rather, because
ERISA does not provide a statute of limitations for denial of benefits
claims, we look to the most analogous state statute of limitations. See
Schroeder v. Phillips Petroleum Co., 970 F.2d 419, 420 (8th Cir. 1992);
Jenkins v. Local 705 Int'l Broth. of Teamsters, 713 F.2d 247, 251 (7th
Cir. 1983). We have previously held that the statute of limitations for
actions alleging a breach of contract is the most analogous state statute.
See Cotter v. Eastern Conf. of Teamsters Retirement Plan, 898 F.2d 424,
428 (4th Cir. 1990). As such the statute of limitations for Mrs. Christen-
sen's claim is that for breach of a written contract in Virginia: five years.
See Va. Code Ann. § 8.01-246 (Michie 1992).
12