Forbush v. J C Penney Co, Inc

UNITED STATES COURT OF APPEALS
FIFTH CIRCUIT

_________________

No. 97-10533

(Summary Calendar)
_________________

MARY JANE FORBUSH, Individually and on behalf of all others
similarly situated,

Plaintiffs - Appellants,

versus

J C PENNEY COMPANY, INCORPORATED, Pension Plan; WILLIAM J ALCORN;
JAMES P BRYANT; FRANK ENGELS; JAY F HUNDLEY; ROBERT S GORIN; HENRY
H SCOTT, JR; GERALD L SHORES,

Defendant-Appellees.

*********************************************

CATHERINE E RHODES, Individually and on behalf of all others
similarly situated

Plaintiffs-Appellants,

versus

J C PENNEY COMPANY INCORPORATED, Pension Plan; WILLIAM J ALCORN,
member of the Retirement Plans Committee of the J C Penney Company
Inc Pension Plan; JAMES P BRYANT, member of the Retirement Plans
Committee of the J C Penney Company Inc Pension Plan; FRANK ENGELS,
member of the Retirement Plans Committee of the J C Penney Company
Inc Pension Plan; JAY F HUNDLEY, member of the Retirement Plans
Committee of the J C Penney Company Inc Pension Plan; ROBERT S
GORIN, member of the Retirement Plans Committee of the J C Penney
Company Inc Pension Plan; HENRY H SCOTT JR, member of the
Retirement Plans Committee of the J C Penney Company Inc Pension
Plan; and GERALD L SHORES, member of the Retirement Plans Committee
of the J C Penney Company Inc Pension Plan

Defendant-Appellees.
 Appeal from the United States District Court
For the Northern District of Texas

November 25, 1997

Before WIENER, BARKSDALE and EMILIO M. GARZA, Circuit Judges.

PER CURIAM:*

This appeal concerns the interpretation of two paragraphs of

an agreement settling a class action suit (“Settlement Agreement”)

based on the Employee Retirement Income Security Act of 1974, 29

U.S.C. § 1001, et seq., between the J.C. Penney Company Pension

Plan (the “Pension Plan”) and J.C. Penney’s former employees.

Forbush and Rhodes, acting as class representatives, appeal the

district court’s denial of the class’ motion seeking to compel the

pension plan to calculate its liability under the Settlement

Agreement in present value discounted dollars for purposes of

applying the ceiling on its liability payment. We reverse and

remand for proceedings not inconsistent with this opinion.

I

This appeal grows out of a class action suit filed by former
J.C. Penney employees alleging that the employees’ pension benefits

should have been calculated using actual social security benefits,

rather than an estimated benefit contained in a formula used by the

pension plan. Both parties were unsure of the exact size of the

class and amount of benefits that the pension plan would owe to the

*
Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
class. The pension plan sought to cap its potential liability,

while class counsel sought both to maximize current recovery and to

prevent any erosion in the real value of the recovery as a result

of the time value of money during the period in which the eligible

class and benefits were determined. Accordingly, prior to trial,

the parties reached a settlement, and memorialized it in the

Settlement Agreement. The Settlement Agreement provides for a Total

Settlement Payment (“TSP”) of between $45 million (the “floor”) and

$80 million (the “ceiling”), as determined by the number of claims

filed and size of the benefits claimed.

After the court accepted the Settlement Agreement in February

of 1995, class counsel hired an administrator to determine the

eligibility of former J.C. Penney employees for participation in

the settlement and the amount of benefits that the pension plan

owed each class member. The size of the class and benefits owed

unfortunately exceeded everyone’s expectations and, perhaps more

importantly, the $80 million ceiling. The individual class members’

benefits, called Recalculated Pension Benefits (“RPBs”), amounted

to an aggregate of slightly over $100 million, thereby triggering

a provision in the Settlement Agreement requiring a pro rata

reduction in each member’s RPB.

The calculation of the RPBs also took twenty-one months and

was not completed until November of 1996. This delay decreased the

value of the $80 million ceiling as a result of the adverse effects

of the time value of money. In September of 1996 and prior to

payment of the benefits to the class, class counsel demanded that

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the TSP be calculated in 1995 dollars for purposes of applying the

ceiling, to account for the decrease in the value of the ceiling,

which would make the ceiling worth $88 million in current dollars.

The pension plan refused this demand, and class counsel sought an

order in district court requiring that the ceiling be so

calculated, which they stylized as “Motion for Order Requiring

Defendants to Comply With Settlement Agreement.” The district

court referred this motion to a magistrate judge, who found that

the Settlement Agreement provided that the pension plan’s maximum

liability was $80 million dollars, however denominated, and denied

the class’ motion. After a de novo review, the district court

affirmed the magistrate’s order.1 This appeal timely followed.

II

We review the district court’s interpretation of the

Settlement Agreement de novo as a question of law, applying Texas

law, as provided for in the Settlement Agreement. See Westwind

Exploration, Inc. v. Homestate Savings Ass’n, 696 S.W.2d 378, 381

(Tex. 1985) (holding that under Texas law, if there is no

ambiguity, the construction of a contract is a question of law for

the court). Whether the Settlement Agreement is ambiguous is also

a question of law, and the Settlement Agreement does not become

ambiguous merely because the parties disagree as to its correct

1
We decline to address the class’ arguments as to whether
the magistrate’s findings should be vacated because they were
issued in an order, and whether the district court reviewed the
magistrate’s findings de novo or under a clear error standard
because we decide the proper interpretation of the legal provisions
of the Settlement Agreement de novo. See Guidry v. Halliburton
Geophysical Servs., Inc., 976 F.2d 938, 940 (5th Cir. 1992).

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interpretation. See D.E.W., Inc. v. Local 93, Laborers’ Int’l

Union, 957 F.2d 196, 199 (5th Cir. 1992). “If the written

instrument is so worded that it can be given a certain or definite

legal meaning or interpretation, then it is not ambiguous, and this

Court will construe the contract as a matter of law.” Id.

Our primary concern is to effectuate the parties’ intent, as

expressed in the Settlement Agreement. See Forbau v. Aetna Life

Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994). “Language should be

given its plain grammatical meaning unless it definitely appears

that the intention of the parties would thereby be defeated.”

Reilly v. Rangers Management, Inc, 727 S.W.2d 527, 529 (Tex. 1987).

We discern the intent of the parties by reading the Settlement

Agreement as a whole, and giving effect to each provision contained

in the Settlement Agreement. See Forbau, 876 S.W.2d at 133. We

attempt to avoid interpreting the Settlement Agreement in a way

that would render any provision meaningless. See Coker v. Coker,

650 S.W.2d 391, 393 (Tex. 1983). However, “[t]he clear language of

the contract may not be rewritten by the courts after the parties

have taken pains to bargain for and draft language which suits

their specific purposes.” Berman v. Rife, 644 S.W.2d 574, 576 (Tex.

App. 1983, writ ref’d n.r.e.).

The Settlement Agreement states in pertinent part:

V. Settlement Program

* * *

B. Limits and Valuation of Total Amount of Settlement
Proceeds.

* * *

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 2. The Total Settlement Payment
shall not be more than $80 million.
If the Total Settlement Payment
would otherwise exceed $80 million,
Separated Class Members, who may
receive a Recalculated Pension
Benefit, or their Representatives
shall incur a pro rata reduction in
the amount of their Recalculated
Pension Benefits until the Total
Settlement Payment equals $80
million.

3. For purposes of the above, the
Total Settlement Payment shall be
calculated by the Claims
Administrator and valued as
specified in Section VI.F, and
discounted with a 5¼% rate of
interest to its present value as of
January 31, 1995. There shall be no
adjustments to the above $45 million
floor or $80 million ceiling due to
interest accruing under Section V.C.

Based on these provisions, the magistrate found that the

Settlement Agreement was not ambiguous and that the parties

intended the $80 million ceiling in paragraph V.B.2 to be a “hard”

ceiling (i.e., that the pension plan’s maximum liability should not

exceed $80 million, figured in current dollars). The magistrate

based his decision on the fact that the parties intended to cap the

total liability of the pension plan and that no provision in the

Settlement Agreement provided for increasing the ceiling to offset

the adverse effects of the time value of money. The magistrate

further found that the present value discounting provision in

paragraph V.B.3 only concerns the process for reduction of benefits

in the event that the TSP exceeds $80 million. Supporting this

interpretation was the second sentence of paragraph V.B.3, which

provides that neither the floor nor the ceiling should be adjusted

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for interest accruing under paragraph V.C.

While we agree that the Settlement Agreement is not ambiguous,

the magistrate’s interpretation of the agreement is mistaken

because his interpretation renders the present value discounting

provision of paragraph V.B.3 a nullity. The magistrate and

district court found that the present value discounting provision

only refers to the method for taking a pro rata reduction in the

TSP when it exceeds the ceiling. The structure of section V.B,

however, suggests that paragraph V.B.3 applies to the entirety of

both paragraphs V.B.1 and V.B.2. Paragraph V.B.1 establishes a

floor of $45 million for the TSP, and paragraph V.B.2 creates a

ceiling of $80 million. Paragraph V.B.3 begins “[f]or purposes of

the above,” and then sets forth the present value discounting

methodology. Grammatically, we cannot see any way to say that

“[f]or purposes of the above” means that the present value

discounting provision of paragraph V.B.3 applies to paragraph V.B.2

(the ceiling) but not to paragraph V.B.1 (the floor). Thus, it is

the discounted present value of the TSP that is compared to the

ceiling and floor, not its current value.

Because it is the discounted present value of the TSP that is

compared to the ceiling and floor, there will be instances when the

discounted present value is within the ceiling and floor, but the

current value exceeds the ceiling.2 An example illustrates this

2
For the sake of clarity, we generally refer to the
discounted present value of the TSP as its “constant value” and its
current value in 1997 dollars as its “nominal value.” This
terminology corresponds with that of economists, who refer to a
discounted present value as the constant, or real, value, and the

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point: assume the nominal value of the TSP is $84 million, and

that its discounted present value is approximately $76.5 million.

While the nominal value exceeds the $80 million ceiling, the

discounted present value is below the $80 million ceiling. If, as

the magistrate contends, the TSP cannot exceed a nominal amount of

$80 million, then the discounting provision of paragraph V.B.3

becomes superfluous because the second sentence of V.B.2

automatically causes a pro rata reduction in the TSP down to $80

million. However, if paragraph V.B.3 is given effect and the

discounted present value of the TSP is compared to the ceiling,

then no pro rata reduction will occur because the constant value is

less than $80 million, even though the nominal value exceeds $80

million. Accordingly, we conclude that the constant value of the

ceiling is fixed, but that its nominal value can vary. Stated in

another way, the floor and ceiling provisions in paragraphs V.B.1

and V.B.2 fix the minimum and maximum potential liability of the

pension plan; the present value discounting provision specifies

that these limits are calculated in constant dollar terms and

ensures that the value of the bargain contained in the Settlement

Agreement, from the point of view of the class, will not

deteriorate due to the adverse effects of the time value of money.

The magistrate also found that the second sentence of

paragraph V.B.3, which provides that neither the floor nor the

ceiling should be adjusted for interest accruing under paragraph

V.C, supports the conclusion that the parties intended to establish

current, or changing, value as the nominal value.

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a hard ceiling. Under the magistrate’s interpretation, this

sentence trumps the present value discounting provision found in

the first sentence of this paragraph because the present value

discounting provision has no effect when the nominal value of the

TSP exceeds $80 million, as an automatic reduction in the nominal

value of the TSP to $80 million is required. A better

interpretation is that this sentence merely states that even though

interest accrues on RPBs under paragraph V.C, the constant value of

the $80 million ceiling will not be increased to incorporate this

interest. This interpretation is consistent with our understanding

of the first sentence of paragraph V.B.3 and the floor and ceiling

provisions in paragraphs V.B.1 and V.B.2 because in all provisions,

references to the ceiling and floor refer to the comparison with

the discounted present value of the TSP, not to the nominal value.

In Koch Industries, Inc. v. Sun Co., 918 F.2d 1203 (5th Cir.

1990), we interpreted a contract with a present value discounting

provision. Koch bought a petroleum refinery from Sun in November

1981, and agreed to assume Sun’s pension plan liabilities for its

workers at the refinery. In return, Sun agreed to transfer to Koch

funds equal to the present value of the pension benefits and future

cost of living adjustments expected to be paid to those workers

when they retired. The calculation of those benefits took some

time, and Sun did not actually transfer the funds until the spring

of 1982. Koch sued Sun, claiming that Sun should have included

interest on the funds from the date it sold the refinery until it

paid the funds, based on language in the contract of sale which

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stated that “[a]s of the Closing Date, the Suntide Plan . . . shall

be funded by [Sun]. . . .” Id. at 1208. We rejected Koch’s claim,

noting that if the parties had intended to provide for interest,

they would have discounted the present value of the benefits “as

of” the date the funds were transferred. Similarly, if the parties

here had intended the pension plan to pay no more than a nominal

amount of $80 million, they would have either discounted the TSP to

the date on which the RPB calculations were finalized or simply

omitted the present value provision.3

Thus, we hold that the magistrate judge erred in concluding

that the pension plan could not be required to pay a nominal amount

in excess of $80 million, and hold that the Settlement Agreement

requires the pension plan to calculate the TSP, for purposes of

applying the ceiling, in 1995 dollars. While such a holding may

conflict with the intent of the pension plan to cap its liability

in absolute terms, based on the clear language of the Settlement

3
Another critical factor to our decision in Koch was that
the contract provided for discounting the pension fund liabilities
to the closing date on the contract, but was silent as to whether
post-closing date interest should be paid. Even assuming that
post-closing date interest would have been proper, we would have
had no principled method to determine what interest rate was
proper. Id. at 1208. No such problem exists in this case, because
the Settlement Agreement provides that the discounted present value
of the TSP should be compared to the floor and ceiling. If that
discounted present value exceeds the ceiling, then a pro rata
reduction in the TSP will occur. Thus, the parties estimate that
the TSP amounts to approximately $100 million, which has a
discounted present value of $91.24 million. This $91.24 million
exceeds $80 million, so the current value of the TSP (and each
class member’s RPB) is proportionally reduced using the formula:
$100 million x ($80 million / $91.24 million). Accordingly, unlike
Koch, we do not have to speculate as to what the proper interest
rate should be.

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Agreement, we can only assume that in the give-and-take of

negotiations, the pension plan compromised and accepted a limit on

its maximum liability in real, rather than nominal, terms.4

III

The pension plan argues that the class should be judicially

estopped from arguing that the $80 million ceiling refers to 1995

dollars because it contends that the class has consistently

maintained, until recently, that the maximum total liability of the

pension plan would be $80 million dollars.5 The class argues that

judicial estoppel should not apply because its counsels’ past

statements are not inconsistent with its current position.

Judicial estoppel bars a litigant from asserting a position in

a judicial proceeding that is contrary to, or inconsistent with, a

position previously taken in the current or a prior proceeding.

See Ergo Science, Inc. v. Martin, 73 F.3d 595, 598 (5th Cir. 1996).

“The doctrine prevents internal inconsistency, precludes litigants

4
The pension plan does not argue that the administrator
took too long to calculate the RPBs, thereby resulting in the class
breaching its implied covenant to perform timely. Under Texas law,
when the parties do not specify a time for performance, a duty to
perform within a reasonable time is implied at law. See M.J.
Sheridan & Son Co. v. Seminole Pipeline Co., 731 S.W.2d 620, 622
(Tex. App. 1987, no writ). In the absence of such an argument, we
decline to decide whether the amount of additional money
(approximately $8 million) that the pension plan will be required
to pay due to the delay is unreasonable.
5
The pension plan raised this argument before the
magistrate and district court, although neither decided the
argument. Because the pension plan has consistently renewed this
argument, we can consider it on appeal. See Henderson v. Century
Fin. Co., 577 F.2d 997, 1002 n.5 (5th Cir. 1978) (stating that an
appellate court can consider alternative basis for upholding lower
court’s decision raised but not decided below).

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from ‘playing fast and loose’ with the courts, and prohibits

parties from deliberately changing positions based upon the

exigencies of the moment.” Id. (quoting United States v. McCaskey,

9 F.3d 368, 378 (5th Cir. 1993)).

Contract interpretation is an issue of state law, and

accordingly we apply the formulation of judicial estoppel employed

by Texas courts. See United States ex rel. Am. Bank v. C.I.T.

Constr., Inc., 944 F.2d 253, 258 n.7 (5th Cir. 1991) (holding that

when federal issue is decided, federal law of judicial estoppel is

applied, but that when nonfederal issue is decided, state law

formulation should be used). Texas courts require the presence of

four elements for judicial estoppel to apply: (1) a sworn, prior

inconsistent statement made in a judicial proceeding; (2) the party

now sought to be estopped successfully maintained the prior

position; (3) the prior inconsistent statement was not made

inadvertently or because of mistake, fraud, or duress; and (4) the

statement was deliberate, clear, and unequivocal. See Owen v.

Knop, 853 S.W.2d 638, 641 (Tex. App. 1993, writ denied). Judicial

estoppel applies to statements made by counsel as well parties.

See Goldman v. White Rose Distrib. Co., 936 S.W.2d 393, 398 (Tex.

App. 1996), vacated on other grounds, 949 S.W.2d 707 (Tex. 1997).

We find that it would be inappropriate to apply judicial

estoppel in this case. As a threshold matter, class counsels’

comments at the hearing where the district court judge approved the

Settlement Agreement are not clearly and unequivocally inconsistent

with the position they now take. Neither discounted present

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valuation nor paragraph V.B.3 was even discussed at the hearing.

Although certain statements by class counsel suggested that the

liability of the pension plan could not exceed $80 million, it is

unclear whether $80 million referred to constant or nominal value.

Moreover, the thrust of Judge Kendall’s questioning at that hearing

was directed to whether the ceiling was large enough and fair to

the class; he was concerned about the potential for collusion

between class counsel and the pension plan at the expense of the

class. Being informed that the Settlement Agreement protected the

class from the adverse effects of the time value of money by

providing for a constant ceiling of $80 million would have only

strengthened his impression that the Settlement Agreement was fair

to the class. Thus, we find that judicial estoppel should not

apply in this case because class counsels’ comments at the hearing

are not clearly and unequivocally inconsistent with their current

position.60.Class counsel argue that we should disregard their

6
Although we do not decide the issue now, we note that
judicial estoppel might apply to prevent class counsel from seeking
additional attorneys’ fees as a result of our decision today. When
the parties submitted the Settlement Agreement to the district
court for approval, class counsel also submitted an application for
award of attorneys’ fees. This application requested an award of
ten percent of the total settlement fund, which class counsel
asserted would amount to between $4.5 and $8.0 million. At the
hearing in which the district court judge approved the Settlement
Agreement, the judge inquired about attorneys’ fees, and asked “I
don’t know you Mr. Bruce [lead class counsel], but let me just ask
you: You know, you are asking me for I guess what could be up to
$8 million?” Mr. Bruce replied, “yes.” This answer is inaccurate
if the nominal value of the TSP can exceed $80 million because ten
percent of the nominal value of the TSP is $8.8 million dollars
(based on a current nominal TSP of $88 million), which is more than
the $8 million that the class counsel asserted is the maximum to
which they are entitled.

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statements about attorney’s fees because the Settlement Agreement

provides that disputes about attorney’s fees are severable from the

rest of the agreement. We disagree, because Texas courts have

clearly held that even though attorney’s statements are not

evidence, they establish a client’s legal position. See Goldman,

936 S.W.2d at 398 (holding that attorney’s statements can bind its

client to that point).7

For the foregoing reasons, the order of the district court

denying the class’s motion is REVERSED and REMANDED for proceedings

not inconsistent with this opinion.

In the appeal of this attorney fee order to the Fifth Circuit,
class counsel once again asserted that the maximum to which they
are entitled is $8 million. See Forbush v. J.C. Penney Pension
Plan, 98 F.3d 817, 819 (5th Cir. 1996). Both the district court
and we are entitled to rely on these statements made in open court
by the class counsel as accurate. See Ergo Science, 73 F.3d at 598-
99 (holding that district court judge could rely on statements made
by party’s counsel in court renouncing a claim, and that party
would thereafter be estopped from renewing the claim upon appeal).
Therefore, we think that judicial estoppel might apply to prevent
class counsel from hereafter attempting to claim an additional
$800,000.

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