Robert Testa v. Lawrence Becker et al
ORDER granting plaintiff's 49 Motion for Summary Judgment; denying defendants' 53 Motion for Summary Judgment. Signed by Hon. David G. Larimer on 5/9/17. (EMA)-CLERK TO FOLLOW UP-
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
DECISION AND ORDER
LAWRENCE BECKER, as plan administrator of the
Xerox Corporation Retirement Income Guarantee
Plan, and XEROX CORPORATION RETIREMENT
INCOME GUARANTEE PLAN, an Employee
Pension Benefit Plan,
Plaintiff Robert Testa brings this action against the Xerox Corporation Retirement
Income Guarantee Plan (“RIGP”) and the administrator of the RIGP, alleging that his pension
benefits have been reduced in violation of the Employee Retirement Income Security Act
(“ERISA”), 29 U.S.C. § 1101 et seq.
Plaintiff brought this action in the United States District Court for the Central District of
California in January 2010. The action was transferred to this Court in April 2010, based on a
forum selection clause that was added to the RIGP in July 2008.
Two motions are now pending before this Court: plaintiff’s motion for summary
judgment (Dkt. #49) and defendants’ cross-motion for summary judgment (Dkt. #53). For the
reasons that follow, plaintiff’s motion is granted, and defendants’ motion is denied.
This is one of several related cases presenting roughly similar claims by current and
former employees of Xerox Corporation (“Xerox”). Plaintiff Testa began working for Xerox in
1972, and left in 1983, at which time he took a lump-sum distribution of about $30,000 from the
then-existing Profit Sharing Plan (“PSP”).
Testa returned to Xerox for a second period of employment, from 1985 to 2008. In 1990,
Xerox discontinued the PSP. See Conkright v. Frommert, 559 U.S. 506, 524 (2010). When it
did so, Xerox merged the PSP into the RIGP. Plaintiff then became a participant in the RIGP.
When Testa finally retired from Xerox in 2008, defendants calculated his benefit utilizing
a so-called “phantom account” offset. That offset involves defendants’ deduction from a
participant’s pension benefit, not only of the amount of the lump sum that the participant
received when he first left Xerox, but also a sum representing the hypothetical interest that the
lump sum would have earned had it remained in the pension plan until the employee’s retirement
at the end of his final period of employment with Xerox. See Frommert v. Conkright, 433 F.3d
254 (2d Cir. 2006) (explaining the details of the phantom account).
On or about January 13, 2009, Testa received a “pension calculation statement,” setting
forth the amount of his pension benefit, as determined by defendants. For the purposes of this
Decision and Order, the details of that calculation are not important, but what is important is that
defendants utilized the phantom account offset. Plaintiff alleges that his pension benefit,
following his final period of employment, is significantly lower than it should be, due to the
application of the phantom account offset.
Some of the relevant correspondence does not seem to be in the record, but it is referred
to by the parties, and the substance of that correspondence is not in dispute. It appears that on or
about January 30, 2009, Testa sent a letter to the Xerox Benefits Center, raising his objections to
Xerox’s calculation of the amount of his benefit. Apparently Xerox’s response was not to
plaintiff’s liking, because he sent them another letter dated May 26, 2009, in which he sought to
appeal what he characterized as Xerox’s denial of his claim for additional benefits.
By letter dated June 2, 2009, Arlyn Kaster (described as “Mgr. Pension and Life Ins.
Benefits”), responded to plaintiff. Kaster stated that Testa’s January 30 letter had not been
submitted in accordance with prescribed procedures, and hence would not be treated as a formal
claim. Kaster added that Xerox would construe Testa’s May 26 letter as a claim, but without
waiving any defenses that Xerox might have in any future lawsuit, including the defense that
Testa’s claims were time-barred. Dkt. #52-3 at 10.
Kaster informed Testa that Xerox had determined that Testa was not entitled to any
additional benefits, because Testa was not a plaintiff in the Frommert action (which was
commenced in 2000) or in any other litigation concerning the phantom account. See Dkt. #52-3.
By letter to plaintiff dated August 4, 2009, Plan Administrator Lawrence Becker essentially
affirmed that ruling, and stated that “[t]his represents a final and binding decision under the Plan
... .” Dkt. #52-3 at 16.
Plaintiff filed this lawsuit in January 2010, in the Central District of California. The
action was transferred to this Court in April 2010. The complaint asserted four causes of action,
as explained below. A full understanding of this case, however, requires some familiarity with
the related cases referenced above, many of which predate this lawsuit.
As indicated in Kaster’s letter, this is not the first case stemming from Xerox’s use of the
phantom account. To the contrary, the phantom account has given rise to much litigation, and
numerous reported cases over the years, in this and other courts, including the Supreme Court of
the United States See, e.g., Frommert, 559 U.S. 506; Frommert v. Conkright, 738 F.3d 522 (2d
Cir. 2013); Miller v. Xerox Corp. Retirement Income Guarantee Plan, 464 F.3d 871 (9th Cir.
2006), cert. denied, 549 U.S. 1280 (2007); Clouthier v. Becker, No. 08-CV-6441, 2016 WL
245157 (W.D.N.Y. Jan. 21, 2016). At least in this circuit, the primary focus of that litigation has
been on defendants’ failure to provide plan participants with adequate notice of the existence and
operation of the phantom account. See Frommert v. Conkright, __ F.Supp.3d __, 2016 WL
7186489, at *11 (W.D.N.Y. Dec. 12, 2016) (“At its heart, this case has always been primarily
about (1) Xerox’s application of the phantom account, to employees who were not given clear
and adequate notice of its existence and how it was utilized, in violation of ERISA, and (2) how
to remedy that violation”).
While some issues remain to be resolved in some of these cases, one thing that has been
established is that Xerox violated ERISA by applying the phantom account to certain employees,
who were inadequately apprised of the phantom account’s existence, the fact that it would be
applied to them, and the effect that its application would have on the amount of their pension
benefits. As this Court recently stated, “If nothing else, this litigation has established that
defendants violated ERISA through their application of the ‘phantom account’ to employees who
retired before the existence and operation of that account was fully disclosed in [the summary
plan description issued in] 1998, and that plaintiffs who were adversely affected by that
inequitable conduct are entitled to relief.” Frommert, 2016 WL 7186489, at *2 (citing cases).
In the case at bar, plaintiff originally asserted four claims under ERISA. On October 30,
2013, the Court issued a Decision and Order, 979 F.Supp.2d 379, granting defendants’ motion to
dismiss plaintiff’s first, second and fourth causes of action. Those causes of action asserted
claims for pension benefits under 29 U.S.C. § 1132(a)(1)(B), and for “other appropriate relief”
under § 1132(a)(3).
The Court dismissed those three claims principally on the ground that they were timebarred. Id. at 383. Familiarity with that decision is assumed, for purposes of this Decision and
Order, but the gist of the decision was that plaintiff could not seek benefits directly under the
terms of the plan itself, or under the summary plan description (“SPD”), because Xerox’s 1998
SPD had put plaintiff on notice of the existence and operation of the phantom account, when that
SPD was issued to and received by him. At the latest, then, plaintiff’s six-year limitations period
under § 1132(a)(1)(B) expired in 2004. Id. The Court added that plaintiff could not simply
recast his claim for benefits in the guise of a catchall fiduciary-duty claim for “other appropriate
relief” under § 1132(a)(3).
The Court denied, however, defendants’ motion to dismiss the third cause of action, in
which plaintiff asserted a claim under 29 U.S.C. § 1132(a)(3), based on his allegation that
defendants have refused to comply with controlling court precedent, in violation of their
fiduciary duties. In that cause of action, plaintiff seeks an order compelling defendants to comply
with the ruling of the Court of Appeals for the Ninth Circuit in Miller v. Xerox Corp. Retirement
Income Guarantee Plan, 464 F.3d 871 (9th Cir. 2006), cert. denied, 549 U.S. 1280 (2007). In
Miller, the Ninth Circuit held that the phantom-account methodology violates ERISA, and that
“[t]he benefit properly attributable to the [prior] distributions is simply the ... annuity amount that
those distributions would have provided.” Id. at 875.1
In denying defendants’ motion to dismiss this claim as untimely, I stated that “Plaintiff
may have been on notice since 1998 of the existence and operation of the phantom account
mechanism, but he could not have anticipated, after both the Second and Ninth Circuits
disapproved of the use of that mechanism in 2006, that defendants would essentially ignore those
rulings, and continue to apply the phantom account, as to anyone who had not won a victory in
court.” 979 F.Supp.2d at 384. The reference to the Second Circuit was to that court’s 2006
decision in Frommert, 433 F.3d 254, in which the Second Circuit ruled that Xerox’s phantom
account mechanism was not properly added to the RIGP until the issuance of the 1998 SPD, and
that it would violate § 204 of ERISA for the plan administrator to apply the phantom account to
employees rehired by Xerox prior to the issuance of the 1998 SPD.
Plaintiff now moves for summary judgment. He asks the Court to require defendants to
pay him benefits based on either the “new hire” methodology adopted by the Court in Frommert,
or–which is plaintiff’s preferred approach–an “actual annuity” formula, which plaintiff contends
As explained in my October 2013 decision, Miller is of particular relevance here because
this case was commenced in the Central District of California, which is in the Ninth Circuit.
is more in line with Miller. Those alternatives will be described in more detail below.
Defendants have cross-moved for summary judgment. Defendants do not argue that the
plaintiff’s sole remaining claim is time-barred, but that the Plan administrator correctly denied it
as time barred. The Court addresses defendants’ motion first.
I. Defendants’ Motion
In an attempt to find a way around this Court’s 2013 decision denying their motion to
dismiss plaintiff’s third cause of action under § 502(a)(3) as untimely, defendants have taken a
new tack. They state that they are not asking the Court to reconsider that ruling. Instead, they
say, they are seeking judgment in their favor on the merits of this claim, because the Plan
administrator did not breach his fiduciary duty in the first place. In fact, they claim, the
administrator got it right. The reason, defendants state, is that the administrator correctly
determined that Testa’s administrative claim for additional benefits was time barred.
This argument is simply a repackaging of defendants’ argument–which the Court has
already rejected–that plaintiff’s § 502(a)(3) claim is time barred. In effect, defendants state that
even if plaintiff’s fiduciary-duty claim, asserted in this Court, is not time barred, it is meritless,
because the underlying administrative claim was properly denied as time barred.
That is a fine distinction, indeed. The Court understands the distinction, and its fineness
alone does not render defendants’ argument meritless. But it is meritless.
As a preliminary matter, the Court finds inapposite defendants’ argument that the Second
and Ninth Circuits left the door open for the assertion of individualized defenses. In support of
that assertion, defendants note that the Second Circuit, as well as this Court, have permitted the
application of the phantom account offset to plaintiffs who waived their ERISA claims by
signing releases. See Anderson v. Xerox Corp., 614 Fed.Appx. 38, 39 (2d Cir. 2015); Frommert
v. Conkright, 535 F.3d 111, 12023 (2d Cir. 2008), rev’d and remanded on other grounds, 559
U.S. 506 (2010)); Clouthier, 2016 WL 245157, at *2.
This Court does not hold that defendants are precluded from asserting any defense as to
any claim asserted by a plan participant, related to the phantom account. But that is beside the
point. There is an obvious and significant difference between a plaintiff who has knowingly and
voluntarily released his claims under ERISA, and a plaintiff who is confronted with a fiduciary’s
unexpected refusal to apply to him court-issued directives, who acts swiftly to challenge that
Defendants’ argument that the Frommert and Miller courts “never intended to preclude
valid defenses to claims” thus begs the question. Defendants assume that their motion for
summary judgment, which is ultimately based on the 1998 SPD, is “valid,” even after the court
of appeals decisions issued in 2006, disapproving of the application of the phantom account to
plan participants rehired prior to 1998. Untimeliness is not a valid defense here, regardless of
whether that defense is put forth in terms of the timeliness, or the substance, of plaintiff’s §
As stated, then, defendants’ contention that they are seeking judgment on the merits of
this claim is little more than an attempt to resurrect their previously rejected argument that
plaintiff’s claim is time barred. Defendants have simply recast that assertion as an argument that
the administrator properly denied plaintiff’s administrative claim as time barred.
Defendants’ argument also ignores a fundamental point that the Court set forth in its 2013
decision. Based on the Court’s prior statements, one might reasonably have thought that this
issue was dead and buried. But defendants persist in attempting to resuscitate it.
That point concerns the Second Circuit’s very precise, explicit directive in Frommert, as
described by this Court in a related case:
Notably, the Court of Appeals in Frommert did not state that “the phantom account may
not be applied to plaintiffs rehired prior to the issuance of the 1998 SPD,” or that it may
not be applied to employees who timely filed suit. The court stated that “the phantom
account may not be applied to employees rehired prior to the issuance of the 1998 SPD.”
433 F.3d at 263 (emphasis added). This language was not ambiguous. It could not be
any clearer: the phantom account may not be used. It is hard to imagine how anyone
could read the Second Circuit’s directive and still persist in using the phantom account.
This is especially so for a fiduciary.
Kunsman v. Conkright, 977 F.Supp.2d 250, 263 (W.D.N.Y. 2013).
If further clarification is needed, the Court will spell it out again. In 2006, the Second
Circuit held that the phantom account may not be applied to an employee rehired prior to 1998.
That same year, the Ninth Circuit in Miller did so as well.2 Plaintiff Testa was rehired prior to
1998, and he finally retired and sought benefits in 2008. In 2009, the Plan administrator issued a
decision, as to Testa, that essentially ignored the Second and Ninth Circuit’s 2006 proscription of
the application of the phantom account to employees rehired prior to 1998. That refusal, by the
plan fiduciary, to follow controlling court decisions is what forms the basis of this claim.
Defendants’ contention that neither Miller nor Frommert held that defendants are
precluded from asserting individualized defenses to ERISA claims thus misses the mark. This
has nothing to do with whether defendants may assert individualized defenses, including
defenses based on the statute of limitations. The Court finds only that the defense asserted here-that Testa’s fiduciary-duty claim is substantively meritless–is fatally flawed, because the
administrator’s decision was erroneous and wrongful.
Defendants also argue that the statements by the Second Circuit in Frommert, and by the
Ninth Circuit in Miller, to the effect that defendants may not apply the phantom account to plan
participants, are mere dicta, and not binding on defendants. The Second Circuit’s statement that
“the phantom account may not be applied to employees rehired prior to the issuance of the 1998
SPD” hardly sounds like dictum, however. To the contrary, it seems like a clear directive.
Finally, lest there be any doubt on this score, I find that plaintiff’s third cause of action is
timely, and that plaintiff is entitled to relief on this claim. In my 2013 Decision, I stated that
Though the Ninth Circuit based its decision on reasoning that differed from the Second
Circuit’s, it similarly held that “Xerox may not use a projected-to-the-present value generated
from a phantom account as a proxy for the actual distribution amount.” 464 F.3d at 876.
plaintiff’s § 502(a)(3) claim presumably arose no earlier than 2006, but no evidence has been
presented to the Court that plaintiff was made aware, more than three years before he filed suit in
January 2010, that defendants would refuse to abide by the 2006 directives of the Second and
Ninth Circuits. For all that the record shows, it was not made known to plaintiff that his pension
benefits would be reduced based on the phantom account (in apparent contravention of the courts
of appeals’ disapproval of the application of that account) until after his 2008 retirement.
All the evidence in the record indicates that this claim did not accrue until the
administrator denied plaintiff’s claim in 2009. No additional proof has been presented to the
Court indicating that plaintiff was apprised, prior to the denial of his claim in 2009, that the
administrator would refuse to apply the Frommert holding to Testa or to anyone else who was
not a plaintiff in Frommert. As has been made abundantly clear, that refusal was unjustified and
constituted a breach of the administrator’s fiduciary duty to plaintiff. The only question
remaining before this Court, then, is the relief to which plaintiff is entitled.
II. Plaintiff’s Motion
In his motion for summary judgment, plaintiff argues that this Court should, at the least,
“apply the Frommert result to the Testa case.” (Dkt. #49-1 at 6.) But plaintiff goes on from
there to argue that it would be better for the Court to apply a different remedy, more beneficial to
him than that ordered in Frommert. Specifically, plaintiff contends that the Court should apply
an “actual annuity” approach, if that would result in a monthly benefit more favorable to plaintiff
than the new-hire remedy adopted in Frommert. Plaintiff adds that his proposed actual-annuity
formula would “probably” result in a benefit more generous than the new-hire approach that this
Court used in Frommert. (Dkt. #49-1 at 8.)
Plaintiff argues that though the Court’s “new hire” remedy may address defendants’
disclosure violations, it is not adequate to satisfy ERISA’s substantive requirements. Plaintiff
contends that “ERISA rules allow a RIGP Member’s final two-period RIGP ‘accrued benefit’
(expressed as an annuity) to be offset only by the similarly-computed (and similarly expressed)
RIGP ‘accrued benefit’ earned by the end of the Member’s first period of service.” (Dkt. #49-1
Plaintiff’s brief elaborates on that argument, but the bottom line is that, according to
When Mr. Testa left Xerox in 1984, he had earned a RIGP 1.4% formula accrued benefit
(expressed as a monthly annuity) of approximately $775. When his full service from both
periods of service is considered, that formula accrued benefit was a total of $4,457.96 per
month. Very simply, the appropriate offset to this accrued benefit is about $775 per
month. That is the benefit to which Mr. Testa is entitled as a matter of law.
(Dkt. #49-1 at 15.)
Plaintiff also acknowledges, in a footnote, that this Court has previously rejected that
proposed approach. See Plaintiff’s Mem. (Dkt. #49-1) at 9 n.5 (citing Frommert v. Becker, 153
F.Supp.3d 599, 614-15 (W.D.N.Y. 2016)). Plaintiff goes on at some length to attempt to show
why, as a matter of plan interpretation, the Court should adopt his proposed remedy.
Plaintiff is correct in stating that this Court has considered, and rejected, his proposed
“actual annuity” remedy. Plaintiff states that this Court “briefly” discussed, and rejected the
actual-annuity approach, but that dismissive characterization notwithstanding, the Court did set
forth its reasons for rejecting that proposed remedy, at some length, in its January 5, 2016
Decision and Order in Frommert. 153 F.Supp.3d at 614-15.
I see no need to restate all those reasons here. But as the Court stated in Frommert, in
adopting the new-hire remedy, the Court “recognize[d] that in fashioning an appropriate
equitable remedy, I cannot simply ignore the terms of the Plan altogether, at least insofar as those
terms were conveyed to plaintiffs.” 153 F.Supp.3d at 615. Considering both the terms of the
Plan and the extent of its disclosure to the plaintiffs, the Court found that “[t]he remedy the Court
has adopted here [i.e., the “new hire” remedy] strikes [an appropriate] balance ..., by ensuring
that plaintiffs are fully, but not overly, compensated for both their periods of service.” I reach the
same conclusion here.
I also note that the Supreme Court, in its Frommert decision, recognized the value of
uniformity in interpreting an ERISA plan. See 559 U.S. at 520 (expressing concern that some
rulings might “well cause the Plan to be subject to different interpretations in California and New
York”). While the Supreme Court made those statements in the context of a discussion of the
degree of deference that the court should accord to the plan administrator’s interpretation of the
plan, the underlying principle applies here as well.
In short, there is no reason here to deviate or depart from the remedy that this Court
imposed in Frommert. Plaintiff is therefore entitled to that same “new hire” remedy, as set forth
in the Conclusion to this Decision and Order.
Defendants’ motion for summary judgment (Dkt. #53) is denied.
Plaintiff’s motion for summary judgment (Dkt. #49) is granted. Defendants must take
immediate steps to recalculate and pay plaintiff benefits, both prospectively and retroactively,
according to the “new hire” formula set forth in this Court’s Decision and Order in Frommert v.
Becker, 00-CV-6311 (Dkt. #283), issued on January 5, 2016.
Defendants’ award of additional benefits to plaintiff must also include prejudgment
interest, in accordance with the formula set forth in the Court’s May 4, 2017 Decision and Order
in Frommert v. Conkright, 00-CV-6311 (Dkt. #347).
IT IS SO ORDERED.
DAVID G. LARIMER
United States District Judge
Dated: Rochester, New York
May 9, 2017.
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