Shook v. Avaya, Inc.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______

No. 09-4043
______

RICHARD SHOOK;
KAREN SHOOK,

Appellants
v.

AVAYA INC.
______

On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. No. 2-07-cv-01123)
District Judge: Honorable David Stewart Cercone
______

Argued September 15, 2010
Before: SCIRICA, RENDELL and FISHER, Circuit Judges.

(Filed: November 2, 2010 )

Glen S. Downey (Argued)
Michael J. Healey
Douglas B. McKeechnie
Healey & Hornack
1100 Liberty Avenue, Suite C-2
Pittsburgh, PA 15222
Counsel for Appellants

Michael J. Newman (Argued)
Charles M. Roesch
Dinsmore & Shohl
255 East Fifth Street
1900 Chemed Center
Cincinnati, OH 45202
Counsel for Appellee

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OPINION OF THE COURT
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FISHER, Circuit Judge.

Richard and Karen Shook, husband and wife, filed suit
against Avaya, Inc., Richard‟s former employer, alleging a
violation of the Employee Retirement Income Security Act of
1974 (ERISA), 29 U.S.C. §§ 1104 and 1132. The Shooks
contended that Avaya breached its fiduciary duty owed to
them as participant and beneficiary under the Avaya Pension
Plan through a series of misleading letters regarding
Richard‟s pension benefits. Based on Avaya‟s representation
of the length of Richard‟s service, the Shooks alleged that
Richard calculated his expected pension benefit and the
couple decided that Karen should retire from her job at a
different company. The District Court granted Avaya‟s
Motion for Summary Judgment, finding that Avaya did not

2
make a material misrepresentation. For the reasons stated
herein, we will affirm the decision of the District Court on
partly different grounds. Specifically, we hold that the
Shooks‟ decision that Karen should retire is insufficient
detrimental reliance to establish a claim for breach of
fiduciary duty under ERISA.

I.

Richard Shook was employed by Avaya and its
predecessor companies, including Western Electric and Octel
Communications Corporation. Lucent Technologies
purchased Octel in 1997. At that point, Avaya was a
telecommunications unit of Lucent. Lucent and Octel
subsequently entered into a Memorandum of Understanding
that addressed the integration of the two companies and the
effect of prior service in determining pension benefits.
Pursuant to this agreement, Octel service prior to September
1, 1998 “shall count toward eligibility under the Pension
Plan,” but that “[f]or pension calculation purposes, a . . .
pension service date shall be no earlier than September 1,
1998.” (App. at 421.) On October 1, 2000, Avaya became an
independent company. As a result, Avaya assumed control of
the Lucent Pension Plan, of which Richard was a participant.
Although Richard did not designate Karen as a beneficiary,
the Avaya Pension Plan provides that pension benefits are
paid to a lawful spouse if the participant and spouse are
married when pension payments begin. (Id. at 327.)

The Avaya Pension Plan states that the Recognition of
Prior Service (“RPS”) date is the employee‟s starting date and
includes prior service with predecessor companies. For

3
purposes of pension calculations, an employee‟s monthly
benefit is calculated by multiplying the applicable pension
range by the employee‟s net credited service. (Id. at 314.)
Net credited service (“NCS”) is defined as the “continuous
number of years, months and days you have worked for a
participating company or any other controlled group
company, beginning with your most recent date of hire and
ending with your retirement or other termination of
employment.” (Id.)

On October 18, 1999, the Lucent Technologies
Pension Service Center sent Richard a letter stating that
because “Octel is not a participant in the Lucent
Technologies, Inc. Management Pension Plan (LTMPP), your
Octel service will not be included in your Net Credited
Service date. Accordingly, your Net Credited Service date
will be 9/1/98.” (Id. at 367.)

In response to Avaya‟s correspondence, Richard filed
a grievance with Avaya in February 2000 contending that his
RPS date was calculated improperly and that the mistake
detrimentally affected his eligibility for benefits.
Subsequently, on April 7, 2000, the Lucent Technologies
Pension Service Center sent Richard a follow up letter
regarding his RPS date. The letter noted that there was
confusion regarding when prior service would be recognized
for purposes of vacation and benefits. As such, the letter
clarified that Richard‟s RPS date was October 30, 1980 and
his NCS date was December 19, 1988. The letter further
explained that “your NCS date will remain the same until you
complete three years of continuous employment with Lucent
from the Acquisition Date. At that time, your NCS date will

4
be adjusted to reflect your previous employment with
Lucent.” (Id. at 372.) The letter concluded that Richard‟s
“supervisor will need the above-referenced information to
determine [] eligibility for vacation and benefits under the
Lucent Technologies Inc. Sickness and Accident Disability
Benefit Plan.” (Id.)

Richard then received another letter from the Lucent
Pension Service Center on November 21, 2000 stating that his
NCS date “has been established and updated in the Payroll
and Personnel Systems.” (Id. at 373.) The letter provided
that Richard‟s “Adjusted NCS Date” was October 30, 1980.
Like the April 7, 2000 letter, this letter provided that
Richard‟s supervisor would need the document for purposes
of disability and vacation benefits.

The Shooks contend that, based on the November 2000
letter, Richard calculated his expected monthly pension using
the October 30, 1980 NCS date. Richard believed that he had
twenty-three years of service that would be credited towards
his pension. As a result, he thought he would be able to retire
in 2005 with twenty-five years of service and receive a full
pension. Richard was a member of the Communication
Workers of America and spoke to his union representative
regarding possible layoffs at the company. He also talked to
co-workers about his estimates. Richard did not, however,
confirm this calculation with anyone at Avaya. In late 2003,
the Shooks alleged that they jointly made the decision that
Karen would retire from her job at Verizon, based on their
current combined income, the likelihood of layoffs at Avaya,
and Richard‟s expected pension benefit.

5
 After Karen retired, Richard learned he was going to
be laid off and requested a pension calculation from Avaya.
On December 14, 2004, Richard received a Pension Plan
Worksheet calculating Richard‟s monthly benefit to be
$1,469.25 based on twenty-four years and four months of
service. On December 27, 2004, Avaya sent Richard a new
Pension Plan Worksheet correcting its prior calculation and
stating that his monthly benefit would be $880.54 based on
fourteen years and seven months of service. Richard admits
that he took no action based on these calculations during this
thirteen day period. Richard was laid off from Avaya in
January 2005. Richard unsuccessfully appealed the pension
benefit calculation through Avaya‟s administrative
procedures.

On August 16, 2007, the Shooks filed a complaint in
the United States District Court for the Western District of
Pennsylvania against Avaya, asserting claims for breach of
fiduciary duty under ERISA, 29 U.S.C. §§ 1104 and 1132 and
promissory estoppel.1 Both parties filed cross-motions for
summary judgment. The District Court granted Avaya‟s
motion on September 16, 2009.

The District Court determined that the Shooks could
not establish a breach of fiduciary duty claim because Avaya
had not made a material misrepresentation regarding its
pension plan. In its ruling, the District Court found that
Avaya made no affirmative misrepresentation in the

1
The District Court granted Avaya‟s motion to dismiss
the promissory estoppel claim as preempted by ERISA. The
Shooks do not appeal this ruling.

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correspondence prior to Karen‟s retirement in 2003. The
District Court concluded that the Memorandum of
Understanding made clear that an employee‟s pension service
date would be no earlier than September 1, 1998. Further, the
District Court determined, the letters dated October 18, 1999,
April 7, 2000, and November 21, 2000, provided that
Richard‟s NCS date was October 30, 1980, for the purpose of
vacation and disability benefits only. In addition, the District
Court noted that Richard did not rely on the mistake in
calculating his pension benefit from the December 2004
worksheets because Karen had already retired by that time.
Finally, the District Court concluded that even if there was a
misrepresentation, it was not material to Karen‟s retirement.
The District Court pointed out that the retirement decision did
not affect Richard‟s benefits or employment. The District
Court did not specifically address the element of detrimental
reliance.

The Shooks timely appealed.

II.

The District Court had jurisdiction under 28 U.S.C.
§ 1331 and we have jurisdiction pursuant to 28 U.S.C.
§ 1291. “Our standard of review applicable to an order
granting summary judgment is plenary.” Kossler v. Crisanti,
564 F.3d 181, 186 (3d Cir. 2009) (quotations and citations
omitted). In exercising this review, “[w]e may affirm the
order when the moving party is entitled to judgment as a
matter of law, with the facts viewed in the light most
favorable to the non-moving party.” Id. (quotations and
citations omitted); Fed. R. Civ. P. 56(c). We may affirm the

7
order of the District Court on any grounds supported by the
record. Kossler, 564 F.3d at 186. Additionally, “[t]o the
extent that the District Court made conclusions of law, our
review is de novo.” In re Merck & Co., Inc., Sec., Derivative
& ERISA Litig., 493 F.3d 393, 399 (3d Cir. 2007).

III.

The Shooks appeal the District Court‟s order granting
summary judgment in favor of Avaya. Specifically, the
Shooks argue that the District Court erred in ruling as a
matter of law that the November 2000 letter was not a
material misrepresentation and that the Shooks could not have
reasonably relied on the letter in making the decision about
Karen‟s retirement. Avaya counters that the District Court
properly determined that the correspondence was not a
material misrepresentation and that the Shooks‟ reliance was
neither foreseeable nor reasonable.

ERISA § 404 provides:

“[A] fiduciary shall discharge his duties with
respect to a plan solely in the interest of the
participants and beneficiaries and –

(A) for the exclusive purpose of:

(i) providing benefits to
participants and their
beneficiaries; and

(ii) defraying reasonable expenses
of administering the plan;

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 (B) with the care, skill, prudence, and
diligence under the circumstances then
prevailing that a prudent man acting in a like
capacity and familiar with such matters would
use in the conduct of an enterprise of like
character and with like aims[.]”

29 U.S.C. § 1104(a)(1). Pursuant to this provision, we have
determined that a “fiduciary may not, in the performance of
[its] duties, „materially mislead those to whom the duties of
loyalty and prudence are owed.‟” In re Unisys Corp. Retiree
Med. Benefits ERISA Litig., 579 F.3d 220, 228 (3d Cir. 2009)
(Unisys IV) (quoting Adams v. Freedom Forge Corp., 204
F.3d 475, 492 (3d Cir. 2000)) (additional citation omitted).2

In order to prevail on a breach of fiduciary duty claim
under ERISA, a plaintiff must establish that: “(1) the
defendant was acting in a fiduciary capacity; (2) the
defendant made affirmative misrepresentations or failed to
adequately inform plan participants and beneficiaries; (3) the
misrepresentation or inadequate disclosure was material; and
(4) the plaintiff detrimentally relied on the misrepresentation

2
We will refer to the sequence of Unisys cases
accordingly: In re Unisys Corp. Retiree Med. Benefit ERISA
Litig., 58 F.3d 896 (3d Cir. 1995) (Unisys I); In re Unisys
Corp. Retiree Med. Benefit ERISA Litig., 57 F.3d 1255 (3d
Cir. 1995) (Unisys II); In re Unisys Corp. Retiree Med.
Benefit ERISA Litig., 242 F.3d 497 (3d Cir. 2001) (Unisys
III); In re Unisys Corp. Retiree Med. Benefit ERISA Litig.,
579 F.3d 220 (3d Cir. 2009) (Unisys IV).

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or inadequate disclosure.” Unisys IV, 579 F.3d at 228
(quotations and citations omitted). Because we hold that the
decision for Karen to retire does not constitute the type of
detrimental reliance necessary to establish a breach of
fiduciary duty claim, we do not address whether the
previously described correspondence amounts to a material
misrepresentation.3

A plaintiff must be either a participant or a beneficiary
of a plan to bring an action for breach of fiduciary duty. See
29 U.S.C. § 1104(a)(1). Under ERISA, a beneficiary is “a
person designated by a participant, or by the terms of an
employee benefit plan, who is or may become entitled to a
benefit thereunder.” 29 U.S.C. § 1002(8). Richard is a
participant in the Avaya Pension Plan. For Karen to recover,
she must be a beneficiary. The Shooks assert that Karen is a
beneficiary because even though Richard did not specifically
name her as such, the terms of the Avaya Pension Plan
designated her a beneficiary as Richard‟s spouse. We find it
unnecessary to determine whether Karen is a beneficiary
because, regardless of her status, the particular type of injury
in this case is insufficient to give rise to a claim for
detrimental reliance.

We have not addressed the precise question of whether
the element of detrimental reliance is met when the alleged
injury concerns a non-employee‟s retirement, as opposed to
an employee‟s retirement or benefits under a plan.
Detrimental reliance encompasses both an injury and

3
Avaya never disputed its status as an ERISA
fiduciary; therefore, this element is not in issue.

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reasonableness. See In re Unisys Corp. Retiree Med. Benefits
ERISA Litig., 242 F.3d 497, 508 (3d Cir. 2001) (Unisys III);
Curcio v. John Hancock Mut. Life Ins. Co., 33 F.3d 226, 237
(3d Cir. 1994). In demonstrating sufficient reliance, the
plaintiff must have taken some action as a result of the
misrepresentation; the mere expectation of a continued
benefit is not enough. See, e.g., Hooven v. Exxon Mobil
Corp., 465 F.3d 566, 571 (3d Cir. 2006); Burstein v. Ret.
Account Plan for Employees of Allegheny Health Educ. and
Research Found., 334 F.3d 365, 386 (3d Cir. 2003); Adams v.
Freedom Forge Corp., 204 F.3d 475, 493 (3d Cir. 2000);
Bixler v. Cent. Pa. Teamsters Health & Welfare Fund, 12
F.3d 1292, 1302 (3d Cir. 1993).

We noted in Unisys III that reliance need not be based
solely on the employee‟s retirement decision. 242 F.3d at
508. In fact, we subsequently determined that a plaintiff‟s
detrimental reliance “may encompass decisions to decline
other employment opportunities, to forego the opportunity to
purchase supplemental health insurance, or other important
financial decisions pertaining to retirement.” Unisys IV., 579
F.3d at 229. The Shooks contend that based on Avaya‟s
misrepresentation of Richard‟s NCS date, Richard calculated
his expected pension benefit and the couple made the joint
decision that Karen should retire from her position at
Verizon. The Shooks urge us to find that this choice is an
“important financial decision pertaining to retirement” as
mentioned in Unisys IV. We decline to do so.

In prior decisions where we have found detrimental
reliance in the context of a breach of fiduciary duty claim, the
common thread has been that the alleged misrepresentation

11
caused an employee participant or beneficiary to make a
decision regarding benefits or retirement that is related to the
employee’s plan. See, e.g., id. at 232-33 (holding employees
demonstrated detrimental reliance where misrepresentation
caused them to make decisions regarding their retiree medical
benefits under plan); Daniels v. Thomas & Betts Corp., 263
F.3d 66, 75 (3d Cir. 2001) (finding widow beneficiary could
make claim based on misrepresentation causing employee
husband to decline supplemental insurance under plan);
Curcio, 33 F.3d at 237 (holding widow beneficiary satisfied
detrimental reliance element where she and employee
husband refused supplemental insurance under plan due to
misrepresentation); Bixler, 12 F.3d at 75 (determining that
widow beneficiary could bring breach of fiduciary duty claim
because of misrepresentation regarding her ability to obtain
COBRA benefits under husband employee‟s benefit plan).

We have never held that a decision, whether by a
participant or beneficiary, that affects a non-employee‟s
benefits or retirement – separate and apart from the plan – is
the type of injury for which a fiduciary should be responsible.
Although the District Court did not specifically address
detrimental reliance, it was likewise concerned with
expanding a breach of fiduciary duty claim to encompass this
type of injury. In its decision, the District Court expressed its
hesitation to expand the “materiality” element to include a
decision like Karen‟s retirement when she was neither an
employee nor a participant in the plan. The District Court
noted that no decision from our Court had ever found a
misrepresentation to be material to this type of decision, or
sanctioned this type of detrimental reliance in a breach of
fiduciary duty claim. The District Court ultimately based its

12
conclusion on the fact that Richard did not make any decision
regarding his benefits or retirement as a result of the alleged
misrepresentation of his NCS date.

We agree with the conclusion of the District Court in
this regard. Although the Shooks may have acted based on
the letters – they determined that Karen should retire – this
decision did not implicate Richard‟s or Karen‟s benefits
under the Avaya Pension Plan. Specifically, Karen‟s
retirement did not have an effect on Richard‟s pension, his
benefits, or his retirement. Avaya‟s communications as to
Richard‟s NCS date did not prompt Richard to change or
forego benefits, or to retire. Additionally, Richard admitted
that he took no action based on Avaya‟s initial miscalculation
of his expected pension benefit in the December 14, 2004
Pension Plan Worksheet. Likewise, this choice did not
impact Karen‟s potential benefits under the plan as a
beneficiary. Her retirement from Verizon did not alter the
amount she could potentially receive from Richard‟s pension.
This type of reliance is simply too attenuated to hold Avaya
liable as a fiduciary.

Moreover, we find that this type of injury is not
foreseeable and therefore insufficient to establish detrimental
reliance. We cautioned in Unisys III that “[a]n employer,
even when acting in a fiduciary capacity, is not responsible
for harm that is not reasonably foreseeable.” 242 F.3d at 508.
Here, Richard did not confirm his calculations of his expected
pension benefit with any Avaya representative prior to
Karen‟s retirement. We do not think it is reasonably
foreseeable for a fiduciary to anticipate that a non-employee
would retire based on representations to an employee of his

13
expected pension benefit. Accordingly, Avaya cannot be held
liable for conduct that did not implicate its fiduciary
responsibilities under the Avaya Pension Plan and of which it
did not otherwise have knowledge.

IV.

For the foregoing reasons, we will affirm the order of
the District Court, on partly different grounds. We find that
neither Richard as a participant nor Karen as a beneficiary
can establish a breach of fiduciary duty claim when the
alleged reliance stems from the decision that Karen, a non-
employee, should retire.

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