Opinions of the United
2006 Decisions States Court of Appeals
for the Third Circuit
9-6-2006
Tobias v. PPL Elec Util Corp
Precedential or Non-Precedential: Non-Precedential
Docket No. 05-2907
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEAL
FOR THE THIRD CIRCUIT
No. 05-2907
RICHARD TOBIAS,
Appellant
v.
PPL ELECTRIC UTILITIES CORPORATION;
PPL CORPORATION; EMPLOYEE BENEFIT PLAN BOARD OF
PPL CORPORATION AND PPL RETIREMENT PLAN
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil No. 03-cv-05861)
District Judge: Hon. Juan R. Sanchez
Submitted Pursuant to Third Circuit LAR 34.1(a)
March 31, 2006
BEFORE: SMITH and COWEN, Circuit Judges,
and ACKERMAN*, District Judge
(Filed: September 6, 2006)
*Honorable Harold A. Ackerman, Senior United States District Judge for the District of
New Jersey, sitting by designation.
OPINION
COWEN, Circuit Judge.
Richard Tobias appeals from a judgment entered by the District Court following a
bench trial in favor of defendants PPL Electric Utilities Corporation, PPL Corporation,
Employee Benefit Plan Board of PPL Corporation, and PPL Retirement Plan (collectively
defendants or “PPL”) in his suit under the Employee Retirement Income Security Act
(“ERISA”), 29 U.S.C. §§ 1001-1461, and the District Court’s denial of his motion for a
new trial and to alter or amend judgment pursuant to Federal Rule 59(a). For the reasons
stated below, we will affirm.
I.
Because we write for the parties, we recite only those facts necessary to our
analysis. Richard Tobias is a former employee of PPL, where he worked for forty-two
years until his retirement on April 1, 2003. In the spring of 2002, Tobias worked as a
Right of Way Agent in PPL’s Field Services Department and was assigned to the West
Division. At that time, he was the most senior Right of Way Agent employed by PPL.
During the spring of 2002, PPL implemented the Operational Improvement
Assessment Separation Program (“OIA”), a workforce reduction program which provided
enhanced early retirement benefits to selected separating employees. The OIA was
intended to “improve productivity while reducing costs,” and, to that end, the company
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predicted that it would “result in a reduction of the number of employees at the Company
as well as a reduction in contractors, including consultants.” (App. at 326.)
In furtherance of the OIA, each business line reviewed its staffing requirements
and organizational structure. Based upon that review, the business line managers then
recommended the elimination of specific work or functions to the appropriate company
president or vice president and the Vice President of Human Resources. The OIA plan
document instructed that “[w]hen the elimination of positions has been approved,
representatives from Human Resources and managers from the company or departments
involved will meet to develop a plan for the necessary staffing changes.” (Id. at 327.)
Specifically, with regard to the process of selecting incumbents for separation, the OIA
plan document provided, in relevant part:
(a) For incumbents in an identified grouping of related positions as
determined by the company, management may canvass employees to
determine whether they have an interest in separating from
employment. . . . If there are too many interested employees within
an identified group, the employees with the most company service
will be selected. If there are not enough employees interested in
separation within the group, a selection process will be implemented
within that group to determine the remaining separations.
(b) A selection process, which includes an interview, will be used whenever the
business line determines that canvassing for interest in separation from
employment is not desirable or when staffing requirements were not met
through the canvassing process.
(Id. at 328.)
The OIA plan document further provided an appeal process for challenges
concerning whether the selection procedures had been followed. The three-member
3
appeal panel consisted of the Vice President of Human Resources, the Director of
Business Ethics and Compliance, and the Deputy General Counsel. The plan document
stated that “[i]f the appeal panel determines that the established procedures were not
followed, it will instruct the business line to correct any deviations from the procedures.”
(Id. at 329.) The decision of the appeal panel was final. (Id.)
Thomas Stathos, a PPL manager, was responsible for carrying out the OIA
selection process for the employees in the Field Services Department. At the time of the
selection process, all of the Right of Way Agents were assigned to one of two
geographical divisions, specifically the East Division or the West Division. In
approaching the process, Stathos grouped the Right of Way Agents by geographical
division, which resulted in the creation of two groups of Right of Way Agents rather than
one.
Based upon staffing needs, PPL management decided to terminate the services of a
contractor in the West Division, and eliminate one Right of Way Agent position in the
East Division. The termination of the contractor’s services saved costs for the company
since contractors could not be beneficiaries under the OIA. Following a canvassing
process for the East Division, PPL offered an OIA separation package to East Right of
Way Agent Barrie Perilla, who accepted the offer and separated from PPL.
None of the Right of Way Agents in the West Division were canvassed or selected
for OIA separation. Tobias had six more years of company service than the East Right of
4
Way Agent who separated from PPL under the OIA. Tobias’ appeal to the three-member
Appeal Panel was denied.
Stathos was also responsible for implementing the OIA process for the Foresters in
the Field Services Department. Like the Right of Way Agents, Foresters were assigned to
either the East Division or the West Division. Unlike his approach with the Right of Way
Agents, Stathos did not group the Foresters by geographical division, but, instead,
grouped all of the Foresters together in a single group for OIA selection and canvassing
purposes.
On October 1, 2003, J. Frank Michael, Jr., a Field Location Coordinator, retired
from PPL. He was given separation benefits under the OIA despite the expiration of the
OIA at the end of 2002.
II.
Following a bench trial, we review a district court’s conclusions of law de novo
and its factual findings for clear error. Kosiba v. Merck & Co., 384 F.3d 58, 64 (3d Cir.
2004). We review a district court’s evidentiary rulings principally for an abuse of
discretion. Stecyk v. Bell Helicopter Textron, Inc., 295 F.3d 408, 412 (3d Cir. 2001). A
district court commits an abuse of discretion when its action was “arbitrary, fanciful or
clearly unreasonable.” Id. (citation and internal quotation marks omitted). We will not
disturb a district court’s exercise of discretion unless “no reasonable person would adopt
the district court’s view.” Id. (citation and internal quotation marks omitted).
III.
5
A.
Before addressing Tobias’ arguments on appeal, we must first consider PPL’s
preliminary argument that it was acting as an employer, not as a fiduciary under ERISA,
with regard to its decisions challenged on appeal.
When an employer makes decisions about the design of an early retirement benefit
plan, it functions as an employer and not as an administrator and, thus, is not acting as a
fiduciary under ERISA. Noorily v. Thomas & Betts Corp., 188 F.3d 153, 158 (3d Cir.
1999). Similarly, when a plan gives an employer discretion to make business decisions
implementing the plan’s terms, the employer is not acting as a fiduciary when it makes
those business decisions. Id.; Berger v. Edgewater Steel Co., 311 F.2d 911, 918 (3d Cir.
1990). Thus, for example, in Noorily, we held that an employer was not acting in a
fiduciary capacity when it denied severance benefits under a plan that gave the employer,
through its terminating manager, discretion to determine when an award of benefits was
“appropriate.” 188 F.3d at 159. Similarly, in Berger, we held that an employer was not
acting in a fiduciary capacity when it determined, according to the plan’s terms, that the
early retirement of certain employees was not in the company’s “interest.” 311 F.2d at
918-19. Likewise, in Trenton v. Scott Paper Co., 832 F.2d 806, 809-10 (3d Cir. 1987),
we concluded that an employer was not acting in a fiduciary capacity when it designed
and implemented an accelerated retirement program, which gave the company the
authority to make personnel decisions, such as which plants needed fewer employees.
6
On the other hand, when the employer is merely administering the plan and paying
out benefits, it acts as a fiduciary and must act in the interest of the plan’s participants.
Norrily, 188 F.3d at 158. “In sum, then, the employer acts as a fiduciary when
administering a plan but not when designing or making business decisions allowed for by
a plan, even though in all three situations its determinations may impact on its
employees.” Id. We have said that the determination as to whether an employer acts in
the capacity of a business manager or an administrator involves a “sensitive analysis.”
Nazay v. Miller, 949 F.2d 1323, 1329 (3d Cir. 1991).
Here, Tobias does not challenge the company’s design of the reduction-in-force
program. He also does not challenge the terms of the OIA selection process themselves,
which gave PPL the discretion to place “incumbents in an identified grouping of related
positions as determined by the company.” (App. at 328.) He does, however, challenge
PPL’s decisions implementing those terms with respect to the Right of Way employees in
the Field Services Department. Tobias submits that all of the Right of Way Agents
should have been grouped together because all of the Right of Way Agent positions entail
the same job responsibilities. Tobias asserts that PPL abused its discretion when it
grouped the Right of Way Agents by geographical division.
The determination of whether the grouping of related positions was a corporate
matter or the act of a fiduciary depends upon the particular facts and circumstances of this
case. We find it significant that individual business line managers had the authority to
determine, and did determine, all of the grouping decisions, subject to the approval of the
7
manager of corporate staffing. There is no indication in the record that the Employee
Benefit Plan Board had any authority to override these company determinations.
Moreover, the OIA plan document did not prescribe any special rules for the grouping of
related positions, but left the matter to the discretion of these company managers.
Based upon these facts, we view the grouping determinations as an essential step
in the company’s overall business assessment plan, requiring some knowledge on the part
of the decision-makers as to the staffing needs of the business line in question.
Conversely, we do not view the grouping task as a mere administrative benefits decision.
Indeed, as we stated in Trenton, “it defies common sense to suggest that a corporation
must allow a retirement board to make personnel decisions such as determining which
[departments] need fewer employees.” 832 F.2d at 809.
Nevertheless, because we do not think that this issue, which is fact-specific and
involves a “sensitive analysis,” Nazay, 949 F.2d at 1329, was adequately noticed and
briefed by the parties, and for the sake of completeness, we will assume that PPL acted as
a fiduciary with respect to the decisions challenged on appeal.
B.
Tobias argues on appeal that the District Court applied an insufficiently heightened
arbitrary and capricious standard or, alternatively, applied the correct standard of review
but reached the wrong result. We disagree, as to both arguments.
1.
8
Under the arbitrary and capricious standard, a court may overturn a decision of a
plan administrator only if it is “without reason, unsupported by substantial evidence or
erroneous as a matter of law.” Abnathya v. Hoffmann-La Roche, Inc., 2 F.3d 40, 45 (3d
Cir. 1993) (citation and internal quotation marks omitted). “This scope of review is
narrow, and the court is not free to substitute its own judgment for that of the defendants
in determining eligibility for plan benefits.” Id. (citation and internal quotation marks
omitted).
In Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101 (1989), the Supreme
Court instructed that “if a benefit plan gives discretion to an administrator or fiduciary
who is operating under a conflict of interest, that conflict must be weighed as a factor in
determining whether there is an abuse of discretion.” Id. at 115 (citation and internal
quotation marks and brackets omitted). Based upon that instruction, in Pinto v. Reliance
Standard Life Ins., 214 F.3d 377 (3d Cir. 2000), we adopted a sliding scale approach to
cases involving an apparent conflict of interest, id. at 392, “calibrating the intensity of our
[arbitrary and capricious] review to the intensity of the conflict,” id. at 393.
Thus, we have held that when an employer is directly funding a portion of the plan
and would thereby stand to benefit financially from the denial of a current employee’s
claim, a “somewhat heightened” standard of review applies. Smathers v. Multi-Tool,
Inc./Multi--Plastics, Inc. Employee Health and Welfare Plan, 298 F.3d 191, 199 (3d Cir.
2002). Such a case presents a conflict of interest that, although not extraordinary,
warrants a “more penetrating review of [an] administrator’s decisionmaking process.” Id.
9
In applying the sliding scale approach, a court may also take into account the
sophistication of the parties, the information accessible to the parties, and the particular
financial arrangement involved. Pinto, 214 F.3d at 392. It is also relevant whether the
claimant seeking benefits was then the fiduciary’s employee, as to whom there are
conflict-mitigating factors such as loss of morale and higher wage demands, or a former
employee, as to whom those mitigating factors are not present. Kosiba, 384 F.3d at 65.
Finally, “demonstrated procedural irregularity, bias, or unfairness in the review of the
claimant’s application for benefits” warrants a heightened standard of review. Id. at 66.1
In this case, defendants paid the enhanced early retirement benefits out of PPL’s
general corporate funds, and defendants stood to benefit from separating an employee
with less company service. These circumstances alone warrant a slightly heightened
arbitrary and capricious standard. Smathers, 298 F.3d at 199.
However, there are no other circumstances tending to heighten the standard of
review. At the time of the implementation of the OIA, Tobias was a current employee of
PPL and continued to work there for almost another year, which presented conflict-
mitigating factors for PPL. Moreover, although PPL grouped the Right of Way Agents
differently than it grouped the Foresters, there were no specific rules relating to the
1
Because a court may consider unfairness and bias in applying the sliding scale
approach to the standard of review, the District Court did not err in noting that there was
no evidence of any company animosity toward Tobias.
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grouping of related positions, and, thus, we find no procedural irregularities or unfairness
particular to Tobias’ situation.
Based upon these circumstances, and in accordance with Pinto and Smathers, we
will apply a somewhat heightened arbitrary and capricious standard of review. In
reviewing PPL’s decisions, we will keep in mind its financial interest, and will conduct a
“more penetrating review” of the decision-making process than we would normally
conduct under the arbitrary and capricious standard. Id. at 199.
2.
Applying the slightly heightened arbitrary and capricious standard, we conclude
that PPL’s grouping of the Right of Way Agents based upon geographical assignment
survives scrutiny. As noted above, there were no specific rules relating to the grouping of
related positions, and the grouping decision was committed to the discretion of the
company. PPL’s decision to create two groupings of Right of Way Agents reflected the
two geographical regions for their work assignments. Thus, there was a reasonable basis
underlying its decision to divide the Right of Way Agents into two groups.
Furthermore, there is nothing in the OIA plan document that precluded the creation
of multiple groupings within the same job function. The only requirement articulated in
the OIA plan document was that each identified grouping consist of related positions, as
11
determined by the company. Since each of the Right of Way Agent groupings consisted
only of related positions, the OIA requirement was clearly satisfied.2
For these reasons, we conclude that PPL’s grouping of Right of Ways Agents
survives the slightly heightened arbitrary and capricious standard.
C.
Tobias also argues on appeal that the District Court abused its discretion in
excluding evidence concerning J. Frank Michael, Jr.’s separation from PPL. According
to Tobias, although plan administrators paid enhanced early retirement benefits to
Michael, PPL later filled his position. Tobias argues that this evidence is relevant to his
position that the plan administrators did not make decisions in accordance with the OIA’s
cost-saving purpose or on a consistent basis.
After considering the proffered evidence, we find no abuse of discretion with
respect to the District Court’s evidentiary ruling. PPL’s alleged staffing decisions with
regard to Michael’s position have little to no relevance to the denial of benefits in this
case. The undisputed record shows that Michael, a former PPL Location Field
Coordinator (“LFC”), was not employed as a Right of Way Agent and did not work in the
Field Services Department. In addition, a different set of decision-makers were
2
We note that PPL provided an additional reason for its decision to divide the Right of
Way Agents into two separate groupings. As explained by Stathos, the decision saved the
company the expense of later relocating an agent from one division to the other.
However, we agree with Tobias that the argument is tenuous because the Foresters were
not divided into two groupings despite the same possible relocation expense.
12
responsible for the reductions in the LFC business line. For these reasons, we cannot
conclude that the District Court’s exclusion of evidence relevant to Michael’s separation
was clearly unreasonable.
D.
Tobias’ final argument on appeal is that the District Court erred in failing to adhere
to the doctrine of the law of the case. Tobias posits that the District Court’s findings in its
final Memorandum and Order in favor of defendants conflict with its earlier findings in
the summary judgment order. We reject his argument.
“The law of the case doctrine limits the extent to which an issue will be
reconsidered once the court has made a ruling on it.” Fagan v. City of Vineland, 22 F.3d
1283, 1290 (3d Cir. 1994). “The law of the case [doctrine] operates only to limit
reconsideration of the same issue.” Id. In addition, the doctrine does not preclude a trial
judge from “clarifying or correcting an earlier, ambiguous ruling.” Id.
In its summary judgment order, the District Court considered PPL’s contention
that its decisions implementing the OIA plan were business decisions outside of the scope
of ERISA. In rejecting that contention, the District court stated that the plan “does not
purport to reserve the right to pick and choose among employees to whom the benefit
would be offered.” (App. at 32.) Later, in its final Memorandum and Order, the District
Court stated that “[t]he OIA retained in PPL Electric the discretion to create groupings of
related employees in any way it chose and then to decide what its staffing needs were in
each grouping.” (Id. at 16.)
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We do not read these statements to be mutually exclusive or in direct conflict with
each other. While the OIA plan did not give PPL unbridled discretion to pick and choose
the employees to whom the early retirement benefits would be offered, it clearly gave the
company discretion to determine groupings of related employees and assess its staffing
needs for each grouping. Moreover, the District Court’s allegedly inconsistent ruling was
not determinative since the District Court ultimately reviewed the actions of PPL as a
fiduciary under ERISA. For these reasons, we conclude that the District Court did not
violate the doctrine of the law of the case.
For the foregoing reasons, the judgment of the District Court entered on May 19,
2005, will be affirmed.
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