Council v. American Airlines, Inc.

Filing 13

MEMORANDUM OPINION AND ORDER. Signed by Honorable Robert T. Dawson on July 20, 2011. (lw)

IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
FORT SMITH DIVISION
LEWARD R. COUNCIL

PLAINTIFF

v.

Case No. 10-2075

AMERICAN AIRLINES, INC.

DEFENDANT

MEMORANDUM OPINION AND ORDER
Plaintiff brings this action pursuant to the provisions of the
Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C.
§ 1001 et seq., alleging a breach of fiduciary duty by Defendant and
seeking damages.

Before the Court are the Stipulated Administrative

Record (Doc. 8), Plaintiff‟s Brief (Doc. 10), and Defendant‟s Brief
(Doc. 12).

For the reasons stated herein, the Court finds that

Defendant did not breach its fiduciary duty, and its decision to deny
early retirement and the calculated pension benefit for normal
retirement was supported by substantial evidence.

Plaintiff‟s

claim is therefore DENIED, and Plaintiff‟s Complaint (Doc. 1) is
DISMISSED WITH PREJUDICE.
I.

Background
Plaintiff Leward R. Council born February 21, 1945, worked for

Defendant American Airlines, Inc. from January 29, 1968 to November
19, 1980.

(AR 20-21) 1 .

On July 1, 1970, Plaintiff enrolled in

Defendant‟s employee benefit program, the Retirement Benefit Plan
1 AR refers to the Administrative Record.
Page 1 of 13

of American Airlines, Inc. for Employees Represented by the Transport
Workers Union of America, AFL-CIO (the “Plan”).
The Plan provided that an employee could request a hardship
withdrawal, and upon approval by Defendant, an employee could
withdraw from the Plan and the entire amount of the employee‟s
contribution paid into the Plan would be refunded.

(AR 131).

An

employee who withdrew would be ineligible to re-enroll in the Plan
for five years from the date of the withdrawal, and any subsequent
re-enrollment would only be done as a new employee.
On

September

25,

1973,

withdrawal from the Plan.

Plaintiff

(AR 280).

requested

Id.
a

hardship

Plaintiff‟s request form

acknowledged he understood the consequences of his withdrawal,
including “forfeit[ure] [of] all benefits accrued under both Plans
to date of withdrawal.”

(AR 280).

On January 17, 1974, Defendant

discussed with Plaintiff his request, and the following day executed
a recommendation to allow Plaintiff to withdraw and a refund be
expedited.

(AR 220).

On February 26, 1974, Defendant issued a

refund check for $1,558.38.

(AR 272).

On October 1, 1974, Plaintiff re-enrolled in the Plan during
an “open enrollment” period.

On January 1, 1976, the Plan was

amended to change the definition of “credited” service and “vested”

Page 2 of 13

service 2 .

On April 1, 1978, the Plan was amended to provide for

partial vesting, which allowed for Plan participants to receive
retirement benefits before they had the required ten years of
service, and in proportion to their years of vested service.

On

November 19, 1980, Plaintiff was terminated from employment with
Defendant.
After Plaintiff requested information about his retirement
benefits, he received a letter from Defendant dated May 13, 1997,
which determined he was eligible for early retirement and estimated
his pension was $121.00 per month3.

(AR 414).

Plaintiff filed a claim for benefits.

(AR

On October 24, 2006,

291).

On February 28,

2007, Plaintiff received a decision letter from Defendant which
estimated his pension was $179.85 per month and would start at normal
retirement.

(AR 293).

On March 13, 2007, Plaintiff requested

Defendant recalculate his estimated pension and to reconsider its
decision to deny him early retirement.

(AR 304-05).

On August 29,

2007, Defendant issued its final decision which denied Plaintiff
early retirement and estimated his pension was $104.03 per month
based on partial vesting of sixty percent at normal retirement.

(AR

80-84).
On October 11, 2007, Plaintiff appealed Defendant‟s decision
2 “Credited” service and “vested” service refer to periods of employment
that counted towards a participant‟s retirement benefits.
3 Early retirement began at age 62, and normal retirement began at 65.
Page 3 of 13

that denied him early retirement and his calculated pension to
American

Airlines

(“Committee”).

Pension

Benefits

(AR 12, 22-23).

Administration

Committee

On December 11, 2007, the Committee

affirmed decision to deny Plaintiff early retirement and its
calculations concerning Plaintiff‟s benefits.
1, 2010, Plaintiff filed this action.
II.

(AR 1-6).

On June

(Doc. 1).

Standard of Review
A denial of benefits claim under ERISA is reviewed for an abuse

of discretion when “a plan gives the administrator discretionary
power

to

construe

determinations.”

uncertain

terms

or

to

make

eligibility

King v. Hartford Life & Accident Ins. Co., 414 F.3d

994, 998-99 (8th Cir. 1997)(en banc)(citing Firestone Tire & Rubber
Co. v. Bruch, 489 U.S. 101, 111 (1989)).
The parties do not dispute that abuse of discretion is the proper
standard of review.
interest

exists

Plaintiff however contends a conflict of

because

Defendant

both

determines

whether

an

enrollee is eligible for benefits and also pays the benefits.
Plaintiff contends the conflict of interest should be considered as
a factor in determining whether there was an abuse of discretion.
See Hackett v. Standard Ins. Co., 559 F.3d 825, 830 (8th Cir.
2009)(citing Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 128 S. Ct.
2343 (2008)).

The Court will review the denial of benefits for an

Page 4 of 13

abuse of discretion taking into account relevant factors to include
the potential conflict of interest.
III. Analysis
The

Eighth

Circuit

defined . . . an

abuse

Court
of

of

Appeals

discretion

as

has

“variously

being

„extremely

unreasonable,‟ „virtually‟ the same as arbitrary and capricious, and
„extraordinary imprudent.‟”

Shell v. Amalgated Cotton Garment, 43

F.3d 364, 366 (8th Cir. 1994)(citations omitted).
inquiry

under

the

administrator‟s

deferential

decision

substantial evidence.‟”

was

standard

is

reasonable;

“The proper

whether
i.e.,

„the

supported

plan
by

Cash v. Wal-Mart Group Health Plan, 107

F.3d 637, 641 (8th Cir. 1997)(quoting Donaho v. GMC Corp., 74 F.3d
894, 899 (8th Cir. 1996)).

A decision is reasonable “if „a

reasonable person could have reached a similar decision, given this
evidence before him, not that a reasonable person would have reached
that decision.‟”

Id.

(citation omitted).

“If the decision is

supported by a reasonable explanation, it should not be disturbed,
even though a different reasonable interpretation could have been
made.”

Id.

The parties appear to be in agreement with many of the facts
in this case, including the relevant events and dates.

The

disagreements between the parties lie in the calculation of time that
would count towards retirement benefits.
Page 5 of 13

Plaintiff claims he was

entitled to early retirement because he worked for Defendant for over
12 years.

Defendant argues Plaintiff was not entitled to early

retirement because he had not accrued ten years of service as defined
by the Plan.

Plaintiff argues that the “Court‟s determination of

vested and credited service in this case will largely decide this
dispute.”

(Doc. 10, Page 2).

The Court agrees with Plaintiff; however, before the specific
calculations of “credited” and “vested” service are discussed, the
issue of whether Plaintiff‟s first enrollment period counts as years
of service needs to be addressed.4
a. First Enrollment Period
The Plan defines years of service to be “a period of twelve
consecutive months during which you perform 1,000 Hours of Service.
It is computed during the twelve month period starting on your first
day of employment and during any subsequent calendar year.”
10, Exh. 4 at 28).

(Doc.

To qualify for early retirement a participant

needed ten years of service; specifically, credited service.
140).

(AR

Defendant excluded the first enrollment period from years of

4 The “first enrollment” period refers to the time from when Plaintiff first
enrolled in the Plan on July 1, 1970 to when he withdrew from the Plan in or around
February 1974.
The “second enrollment” period refers to the time from when
Plaintiff re-enrolled on October 1, 1974, to his termination on November 19, 1980.
If the first enrollment period does not count as years of service, Plaintiff
would be ineligible for early retirement because his years of service are limited
to the six years that made up the second enrollment period. If the first enrollment
period does count as years of service, the specific calculations of credit and
vested service would determine Plaintiff‟s eligibility for early retirement.
Page 6 of 13

service

based

on

its

conclusion

that

Plaintiff‟s

forfeited all accruals, including all years of service.
131).

withdrawal
(AR 280,

Plaintiff argues that certain provisions in the 1980

collective bargaining agreement (“Agreement”) between Defendants
and the Transport Workers Union of America, AFL-CIO operates to
entitle Plaintiff to “credited service for the period of time prior
to 1974 and including 1974.”

(Doc. 10, Exh. C at 4).

The Court reviewed the cited provisions and the materials
submitted but does not find the provisions operate to undo the effects
of Plaintiff‟s withdrawal, including the forfeiture of the accrued
years of service.5

The cited provisions appear only to amend the

definition of “credited” service to count from January 1st or July
1st following the date the employee completes his first year of
company service and attains the age of twenty-five.6

In its decision

5 Plaintiff argues that he never received the refund check for his withdrawal
however the Record includes a copy of check number 585775 made payable to Plaintiff
from Defendant, dated February 15, 1974, and captioned as “benefits payable upon
termination of membership in American Airlines, Inc. Retirement Program” in the
amount of $1,558.38. (AR 272). Notwithstanding the argument that Plaintiff
never received his disbursement check, the issue does not alter the effects of
Plaintiff‟s withdrawal, and/or his re-enrollment as a new member. Furthermore,
the Record includes several instances where the effects of a hardship withdrawal
were communicated to Plaintiff, including the Plan itself stating that
re-enrollment by Plaintiff after withdrawal could only be as a new member. (AR
131).
Similarly, the requesting document for his withdrawal is signed by
Plaintiff and sets out an understanding that he would be “forfeit[ing] all benefits
accrued . . .” and that he “[would] not be permitted at any future date to redeposit
in the Plan all or any part of the contributions so withdrawn”.
(AR 280).
Furthermore, records indicate Defendant verbally explained to Plaintiff that a
withdrawal would “leave him with no benefits under the Plan at retirement age.”
(AR 220).
6 The amendment changes the previous version‟s starting of credited service
to either January 1st or July 1st after the employee completes his first year of
Page 7 of 13

letter, Defendant sets out the history and rationale for excluding
the first enrollment period based on its conclusion that Plaintiff‟s
withdrawal caused forfeiture of all accrued benefits.

Defendant‟s

decision is further supported by its reasoned conclusion that
Plaintiff‟s re-enrollment on October 1, 1974, was “only as a new
member.”

(AR 1-2).

Accordingly,

Defendant‟s

decision

to

exclude

the

first

enrollment period from total years of service on grounds of
forfeiture was supported by substantial evidence, and therefore
reasonable.

The Court further finds it was likewise reasonable for

Defendant to deny Plaintiff early retirement and to calculate
benefits at partial vesting for normal retirement based on accrued
vested and credited service.
b. Credited and Vested Service
Prior to the January 1, 1976 Amendment, there was no distinction
between credited and vested service, and all years of service counted
towards both.

(AR 144).

Due to the forfeiture, Plaintiff‟s years

of service prior to the Amendment ran from the date of re-enrollment,
October 1, 1974, to the date of the Amendment, January 1, 1976.
Therefore, Plaintiff‟s vested and credited service reflects the
fractional years of service in 1974 and 1975.

Defendant calculated

employment and attaining the age of twenty-five, as opposed to the day he meets
the requirements.
The amendment does not operate to nullify the effects of
withdrawing from the Plan.
Page 8 of 13

Plaintiff had .144 and .786 years of credited service in 1974 and
1975, respectively.
Plaintiff‟s

credited

service

for

1974

was

based

on

the

late-in-the-year enrollment (October), and his suspension leave from
November 18th through December 31st.

Plaintiff argues that the

suspension leave should not be excluded because the case was referred
to arbitration which found “the company did not have just cause for
the grievant‟s discharge . . . [h]e should therefore be reinstated”.
(Doc. 10 at 5)(citing Doc. 10, Exh. E).

A review of Plaintiff‟s cited

letter however shows reinstatement was with direction “to treat the
period since his discharge as leave without pay[.]”
added).

Id.

(emphasis

As Defendant explained in its decision letter, the Plan does

not allow for accumulation of benefits while on unpaid leave and
Defendant‟s decision to exclude it from credited service was
reasonable.

(AR 11).

Likewise, Plaintiff‟s suspension leave from

January 1st through April 13th of 1975 was reasonably excluded from
credited service.

Therefore the calculated total credited service

for 1974 and 1975 of .930 was supported by substantial evidence and
was therefore reasonable.
Following the 1976 Amendment, the Plan defined credited and
vested service distinct from one another.

Credited service after

January 1, 1976, was defined to be any calendar year a participant
completes 1900 hours of service, and the fractional amount for the
Page 9 of 13

year the participant does not complete 1900 hours.

(AR 144).

Plaintiff had 4.000 years of credited service for 1976 and 1978
through 1980, and “.890” for 1977.

The fractional years of

“credited” service in 1977 was explained by Defendant to be based
on Plaintiff‟s unpaid sick leave from September 21, 1977 to December
12, 1977.

Plaintiff contends that this time should not have been

excluded because he was off work during that time due to an on the
job injury for which he received Worker‟s Compensation benefits.

As

Defendant explained in its decision letter, the Plan does not allow
for accumulation of benefits while on Worker‟s Compensation leave
and therefore it was reasonably excluded from credited service.
Thus the calculated 5.820 years of credited service was supported
by substantial evidence and was reasonable.
Vested service was defined to be all years of service during
a period of twelve consecutive months during which the employee
performs 1,000 hours of service, counted from the first day the
employee performs one hour of service to his termination of service.
(AR 28).

The court notes that the language “all years of service”

in the definition of vesting service would appear to include all
periods of employment where an employee worked 1,000 hours of
service;

however

this

definition,

like

the

1980

arbitration

agreement discussed above, does not operate to nullify the effects
of Plaintiff‟s hardship withdrawal, i.e., it does not operate to
Page 10 of 13

reinstate the forfeited accruals.
Defendant calculated Plaintiff to have “0” years of vested
service in 1974, and 1.000 for each of the years from 1975 through
1980, for a total of 6.000 years of vested service. The vested service
of 1974 appears to be based on a less-than-1000 hours of service
therefore

no

vested

service

was

accrued.

The

Court

finds

Defendant‟s calculated total number of years of vested service was
supported by substantial evidence and was therefore reasonable.
c. Monthly Pension
Defendant‟s calculated monthly distribution based on the “Final
Average Retirement Benefit” formula was accurately computed.
10, Exh.4 at 9).

(Doc.

The Formula used calls for “an annual benefit equal

to 1.667% of your Final Average Compensation, multiplied by years
of Credited Service”.

Id.

The Final Average Compensation was

calculated to be $21,445.60.7

Pursuant to the Final Average formula,

the Final Average Compensation was multiplied by .01667 to receive
1.667% of Final Average Salary.

The resulting value was then

multiplied by 5.820, Plaintiff‟s “credited” service, pursuant to the
formula.

Partial vesting called for a reduction to 60% of the

product to reflect the 6.000 years of vested service, which resulted
7 The Plan defines Final Average Compensation to be “[the employee‟s]
Compensation for the 60 consecutive calendar months out of the 120 consecutive
calendar months of Credited Service preceding your retirement or termination which
produces the highest 60 consecutive-month sum, divided by 5. If you have fewer
than 5 years of Credited Service this will be the average of all months during
that period.” (Doc. 10, Exh. 4 at 27).
Page 11 of 13

in $1,248.39, the annual accrued benefit at 60% vesting.
Exh. 4 at 8).

(Doc. 10,

Dividing Plaintiff‟s annual accrued benefit by twelve

resulted in the monthly accrued benefit of $104.03.

The Court finds

Defendant‟s calculations for Plaintiff‟s monthly pension at partial
vesting of 60% at normal retirement was supported by substantial
evidence and was therefore reasonable.
The Court notes that it reviewed the matter aware of Plaintiff‟s
argument concerning Defendant‟s alleged breach of fiduciary duty,
and did not find there to be a conflict of interest that caused
Defendant to render an “arbitrary” and “capricious” decision.
Groves v. Metropolitan Life Ins. Co., 438 F.3d 872, 874 (8th Cir.
2006); Metropolitan Life Ins. Co v. Glenn, 554 U.S. 105, 108 (2008).
The Court is cognizant that Defendant issued different calculations
of Plaintiff‟s pension before arriving at the final computation;
however, these “mistakes” did not appear to reflect any dishonesty
or improper motive of Defendant.

See Congkright v. Frommert, 130

S.Ct. 1640, 1644 (2010)(“People make mistakes.
of ERISA plans.

Even administrators

That should come as no surprise, given that the

Employee Retirement Income Security Act of 1974 is an enormously
complex and detailed statute.”).
IV.

Conclusion
For the reasons stated herein, the Court finds Defendant‟s

decision to deny Plaintiff early retirement, and the calculated
Page 12 of 13

pension at partial vesting was supported by substantial evidence,
and was therefore reasonable.

Defendant‟s decision is AFFIRMED,

Plaintiff‟s claim is DENIED, and Plaintiff‟s Complaint (Doc. 1) is
hereby DISMISSED WITH PREJUDICE with each party to bear its own costs
and fees.
IT IS SO ORDERED this 20th day of July, 2011.
/s/ Robert T. Dawson
Honorable Robert T. Dawson
United States District Judge

Page 13 of 13