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Lehman v. Nelson

United States Court of Appeals, Ninth Circuit

July 14, 2017

Richard Lehman, on behalf of himself and others similarly situated, Plaintiff-Appellee,
v.
Warner Nelson; William Beck, Jr.; Brian Bish; Klaas A. Deboer; Michael G. Marsh; Rocky Sharp; Richard Bamberger; Dennis Callies; Clif Davis; Tim Donovan; Harry Thompson; Gary Younghans, in Their Capacity as Trustees of the Ibew Pacific Coast Pension Plan; Clint Bryson; Michael Church; Michael Doyle; Greg Elder; Glen Franz; Gary Gonzales; Carl D. Hanson; Patrick Powell; Gary Price; Scott Stephens; Roger Tobin; Grant Zadow, Defendants-Appellants. Richard Lehman, on behalf of himself and others similarly situated, Plaintiff-Appellant/ Cross-Appellee,
v.
Warner Nelson; William Beck, Jr.; Brian Bish; Klaas A. Deboer; Michael G. Marsh; Rocky Sharp; Richard Bamberger; Dennis Callies; Clif Davis; Tim Donovan; Harry Thompson; Gary Younghans, in their capacity as Trustees of the IBEW Pacific Coast Pension Plan; Clint Bryson; Michael Church; Michael Doyle; Greg Elder; Glen Franz; Gary Gonzales; Carl D. Hanson; Patrick Powell; Gary Price; Scott Stephens; Roger Tobin; Grant Zadow, Defendants-Appellees/ Cross-Appellants.

          Argued and Submitted on June 12, 2017 Seattle, Washington

         Appeal from the United States District Court for the Western District of Washington Ricardo S. Martinez, Chief Judge, Presiding D.C. No. 2:13-cv-01835-RSM

          Seth Floyd (argued), Nathan R. Ring, and Michael A. Urban, The Urban Law Firm, Las Vegas, Nevada, for Defendants-Appellants/Defendants-Appellees/Cross-Appellants Warner Nelson, et al.

          Richard J. Birmingham (argued), Christine Hawkins, and Joseph P. Hoag, Davis Wright Tremaine, Seattle, Washington, for Plaintiff-Appellee/Cross-Appellant/Plaintiff-Appellant Richard Lehman.

          Before: Dorothy W. Nelson, Milan D. Smith, Jr., and Morgan Christen, Circuit Judges.

         SUMMARY[*]

         Employee Retirement Income Security Act

         The panel affirmed in part and reversed in part the district court's judgment in favor of the plaintiffs in an ERISA class action concerning a pension fund.

         After the trustees of the IBEW Pacific Coast Pension Fund learned that it would soon enter "critical status" under the Pension Protection Act of 2006, they amended the pension plan twice, in Amendments 14 and 24, and began withholding at least $1.00 per hour from all employer contributions to improve the plan's funding status. The named plaintiff was a "traveler" who worked in the jurisdictions of various local union pension funds, and his employers in those jurisdictions contributed to the local funds for the areas in which the work was performed. Under a reciprocal agreement among home funds, the plaintiff's employer contributions were transferred to his home pension fund. Under Amendment 14, the Pacific Coast Fund withheld $1.00 per hour that the plaintiff worked in the Fund's jurisdiction.

         The district court granted summary judgment in favor of the plaintiff in part, ruling that the trustees abused their discretion as plan administrator in interpreting Amendment 14's $1.00 withholding to apply to reciprocal transfers. The district court also certified a plaintiffs' class. In a clarifying order, the district court ruled that its previous orders also applied to withholding under Amendment 24, and it awarded damages for withholdings under both amendments.

         The panel held that only Amendment 14 was fully litigated before the district court, and vacated the damages award for withholdings under Amendment 24 because the trustees did not have notice that those withholdings were at issue, nor an opportunity to respond. Affirming the damages award for withholdings under Amendment 14, the panel held that the district court correctly interpreted the interaction between Amendment 14, Article 5 of the pension plan, and the reciprocal agreement. The panel concluded that the district court erred by ruling, in the alternative, that interpretation of Amendment 14 to apply to travelers who worked in the Pacific Coast Fund's jurisdiction on a temporary basis violated ERISA § 305. The panel remanded for further proceedings on the withholdings under Amendment 24.

         The panel also vacated the district court's award of attorneys' fees. It declined to reach the plaintiffs' issues on cross-appeal.

          OPINION

          CHRISTEN, CIRCUIT JUDGE:

         In May 2008, the Trustees of the IBEW Pacific Coast Pension Fund learned that the Fund would soon enter "critical status" under the Pension Protection Act of 2006. In response, the Trustees amended the Pacific Coast Fund Pension Plan twice-in Amendments 14 and 24-and began withholding at least $1.00 per hour from all employer contributions to improve the Plan's funding status. Richard Lehman filed a putative class action against the Trustees under the Employee Retirement Income Security Act of 1974 (ERISA). Lehman alleged that the Trustees breached the Pension Plan's terms, violated ERISA sections 204 and 305, and breached their fiduciary duties by withholding $1.00 per hour from his employer contributions without providing an accrued benefit.

         The district court granted Lehman's motion for summary judgment, in part, and ruled that he was entitled to the withheld contributions under the terms of the Pension Plan. After the parties stipulated to a class definition, the district court certified the class and awarded damages, attorneys' fees, and costs to the plaintiffs. The Trustees appeal the summary judgment order, an order granting the plaintiffs' motion to enforce or clarify the order, and the damages award. The plaintiffs cross-appeal, seeking alternative relief under ERISA sections 502(a)(2) and (a)(3) if the court reverses the district court's grant of summary judgment under ERISA section 502(a)(1)(B). The plaintiffs also appeal the district court's determination of a reasonable hourly rate for the attorneys' fees award. We have jurisdiction under 28 U.S.C. § 1291, and we affirm in part, reverse in part, and remand.

         BACKGROUND

         I. Travelers and the Electrical Industry Pension Reciprocal Agreement

         Richard Lehman is an electrician based in the Puget Sound area. He is a member of the Puget Sound Electrical Workers Pension Trust, but his profession frequently requires him to perform work for employers located outside the jurisdiction of his home pension fund. There are many so-called "travelers" in the electrical construction industry who work in the jurisdictions of other local union pension funds. When Lehman and other travelers are temporarily employed outside the jurisdiction of their home funds, their employers contribute to the local funds for the areas where they perform work.

         In recognition of the fact that travelers could receive multiple small pensions or lose pension benefits as a result of their work in other jurisdictions, the trustees of many local funds entered into the Electrical Industry Pension Reciprocal Agreement. Under the Reciprocal Agreement, travelers can elect to have employer contributions electronically transferred to a designated home pension fund.

         The Reciprocal Agreement requires participating funds to keep a "separate account" of contributions received on behalf of each traveler and to transfer an amount equal to all contributions received back to the traveler's home fund within thirty days of receipt. The Reciprocal Agreement prohibits participating funds from charging administrative fees "for the transfer or for any other reason." Under the Reciprocal Agreement, travelers accrue benefits in their home pension funds for "[a]ll hours worked in any Participating Fund for which Monies are transferred, " and the terms of their home pension plans govern benefit accrual.

         The Reciprocal Agreement requires participating funds to "take all actions . . . necessary to fully implement this Agreement." Participating funds can amend the Reciprocal Agreement at any time through "the written approval of a proposed amendment by a simple majority." Participating plans can also terminate their participation in the Reciprocal Agreement by following specified termination procedures. Finally, the Reciprocal Agreement outlines a detailed dispute-resolution process for participating funds to address any disagreements or questions that arise out of the Agreement.

         The IBEW Pacific Coast Pension Fund (the Pacific Coast Fund) is a signatory to the Reciprocal Agreement. Article 5 of the Pacific Coast Fund Pension Plan (the Pension Plan) incorporates provisions from the Reciprocal Agreement into the Plan. Section 5.04 of the Pension Plan states that the Pacific Coast Fund "shall collect and transfer to the Home Pension Fund all contributions received on behalf of the Employee for work performed by the Employee within [the Pacific Coast Fund's] jurisdiction."

         II. The Pension Protection Act of 2006 and the Pacific Coast Fund

         The Pension Protection Act of 2006 is designed to help severely underfunded multiemployer pension plans recover. The Act-codified in relevant part at ERISA section 305-requires plan actuaries for multiemployer plans to annually certify "whether or not the plan is or will be in critical status for such plan year or for any of the succeeding 5 plan years" within ninety days of the start of the plan year. 29 U.S.C. § 1085(b)(3)(A)(i). If the plan is certified to be in critical status, ERISA section 305(a)(2)(A) requires the plan sponsor to "adopt and implement a rehabilitation plan" formulated "to enable the plan to cease to be in critical status by the end of the rehabilitation period." Id. § 1085(a)(2)(A), (e)(3)(A)(i). The Act sets a deadline for plan sponsors to enact a rehabilitation plan after critical status certification, id. § 1085(e)(1)(A), but it does not prohibit plan sponsors from acting before certification to improve the plan's funding status.

         A. Amendment 14: $1.00 Hourly Withholding on all Contributions

         In May 2008, the Trustees of the Pacific Coast Fund learned that the Pension Plan was severely underfunded for 2009 and subsequent plan years. Based on a report from the Pension Plan's actuary stating that the "Plan's funding levels were getting perilously close to critical status level under the Pension Protection Act of 2006, " the Trustees enacted Amendment 14. Amendment 14 took effect on July 1, 2008 and added section 3.03(b) to the Pension Plan. Section 3.03(b) states:

Notwithstanding the foregoing or any other provision of the Plan to the contrary effective July 1, 2008, the first one dollar ($1.00) of required contribution for each and every Hour of Covered Work on and after July 1, 2008, shall not result in any monthly benefit accrual and shall be utilized solely to improve the funding of the Plan. The same reduction is applicable for required Contributions pursuant to subscription agreements and reciprocal transfers for each and every hour on and after July 1, 2008. . . . The Trustees['] intent in adopting this reduction is to improve the funding condition of the Plan and to encourage collective bargaining parties to recognize the need for increased hourly contributions to the Plan.

         Amendment 14 did not remove the language in section 5.04 of the Pension Plan governing transfers to travelers' home pension funds, and the Trustees did not terminate their participation in the Reciprocal Agreement nor seek to amend it before enacting Amendment 14.

         B. Amendment 24: The Rehabilitation Plan

         On June 29, 2009, the Pacific Coast Fund's actuary certified that the Pension Plan was in "critical status" for the plan year beginning April 1, 2009. As required by the Pension Protection Act of 2006, the Trustees adopted a formal rehabilitation plan on July 8, 2009 through Amendment 24. Amendment 24 added several new provisions to the Pension Plan, including Article 16, which contains the Rehabilitation Plan itself. The Rehabilitation Plan established a default schedule and two alternative schedules describing required increases in employer contributions and reduced benefit-accrual rates that would take effect upon each schedule's implementation.

         The default schedule and two alternative schedules contain different increases in required contribution levels from employers and different reductions in benefit-accrual rates. Because travelers who work in the Pacific Coast Fund's jurisdiction on a temporary basis accrue benefits in their home funds, they are not affected by the changes in benefit-accrual rates for the Pension Plan, but they are affected by Amendment 24 in other ways.

         First, Amendment 24's Rehabilitation Plan imposed a $1.00 hourly withholding from employer contributions for contribution rates below $3.00 per hour.[1] Second, the Rehabilitation Plan established an additional withholding of all required increases in employer contributions and all surcharge payments made in accordance with the Pension Protection Act of 2006.[2] The Rehabilitation Plan describes the required increases in employer contributions as "non-benefit contributions, " and explains the withholdings as follows:

Participants who work inside the jurisdiction of this Fund and who have employer contributions sent to an outside fund under a "money follows the man" reciprocity agreement shall have the first dollar of each hourly contribution (for contributions rates less than $3.00 per hour), all increased non-benefit contributions under any Schedule and all employer surcharge contributions remain in the [Pacific Coast Fund] for funding purposes only. These contributions result in no benefit accruals for any participant.

         In sum, with respect to travelers who work in the Pacific Coast Fund's jurisdiction on a temporary basis, the Rehabilitation Plan requires employers to contribute increasing amounts of money over time, classifies all increases beyond the contribution rates in effect on July 22, 2009 as "non-benefit contributions, " withholds all non-benefit contributions, withholds $1.00 per hour on employer contributions of less than $3.00 per hour, and withholds surcharge payments. While the amount of the increase in the new "non-benefit contributions" and the corresponding withholdings vary among the default and alternative schedules, all three schedules require increased contributions and state that these increases "shall be utilized solely to improve the funding condition of the Plan."

         Amendment 24 did not delete or otherwise alter the text of section 5.04-the Pension Plan provision requiring transfer of all employer contributions received on behalf of travelers (i.e., the "pass through" contributions routed to the travelers' home funds). But Amendment 24 added sections to each preexisting article of the Pension Plan, including Article 5, stating that "for all benefits commencing on or after July 22, 2009, any provision in this Article which is inconsistent with the requirements of Article 16, the Rehabilitation Plan, shall be ...


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