Abraham v. Exxon Corporation

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

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No. 95-30704
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N. MARK ABRAHAM, RICHARD E. ELLIS,
WILLIAM O. FLOWERS, ROBERT GIURINTANO
AND BILLY J. WALKER,

Plaintiffs-Appellants,

VERSUS

EXXON CORPORATION d/b/a EXXON COMPANY USA,
BENEFIT PLAN OF EXXON CORPORATION
AND PARTICIPATING AFFILIATES,

Defendants-Appellees.

_________________________

Appeal from the United States District Court
for the Eastern District of Louisiana
_________________________

June 10, 1996

Before POLITZ, Chief Judge, HIGGINBOTHAM and SMITH, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

Plaintiffs N. Mark Abraham and others (collectively "Abraham")

appeal a summary judgment in favor of Exxon Corporation and the

Benefit Plan of Exxon Corporation (collectively "Exxon") on their

ERISA1 claims. We affirm in part and vacate and remand in part.

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Employee Retirement and Income Security Act of 1974.
 I.

The plaintiffs are "leased" or "special agreement" employees

of Exxon who work at Exxon facilities. They are similar to

ordinary Exxon employees in many ways: They report to Exxon

supervisors, have Exxon business cards, and play on the Exxon

softball team. Exxon is not their direct employer, however.

Instead, the plaintiffs are nominally employed by unaffiliated

firms that lease their services to Exxon.

Exxon maintains an ERISA plan ("the plan" or "the Exxon

plan"), for the benefit of its own employees, that specifically

excludes leased and special agreement employees such as the

plaintiffs. The plan vests "discretionary and final authority" to

determine eligibility in the plan administrator, currently J.J.

Rouse.

The plaintiffs applied to Rouse for benefits and certain plan

information. He determined that the plan excluded the plaintiffs

from participation, denied them benefits, and failed to provide the

requested information. The plaintiffs filed this ERISA suit,

seeking both a determination that they were entitled to benefits

from the plan and statutory penalties for Rouse's failure to

provide them the requested information.

Exxon moved for summary judgment. It conceded for purposes of

summary judgment that the plaintiffs were "common law employees" of

Exxon under the criteria set forth in Nationwide Mut. Ins. Co. v.

Darden, 503 U.S. 318 (1992), but maintained that they were not

entitled to relief. The district court agreed and granted summary

2
judgment.

II.

As a threshold matter, we must determine whether Abraham has

standing.2 Only a "participant or beneficiary" of an ERISA plan

has standing to bring a civil action under ERISA. 29 U.S.C.

§ 1132(a)(1). Abraham claims only to be a "participant" in the

Exxon plan, so we need not consider whether he is a "beneficiary."

Whether an employee has standing as a "participant" depends,

not on whether he is actually entitled to benefits, but on whether

he has a colorable claim that he will prevail in a suit for

benefits. ERISA itself defines a "participant" as an employee "who

is or may become eligible to receive a benefit of any type from an

employee benefit plan." Id. at § 1002(7). Those who "may become

eligible" to receive benefits include anyone who "ha[s] a colorable

claim that . . . he or she will prevail in a suit for benefits."

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 117-18 (1989).

Thus, Abraham may have ERISA standing even if he is ultimately not

entitled to receive benefits under the plan. See Kennedy v.

Connecticut Gen. Life Ins. Co., 924 F.2d 698 (7th Cir. 1991) ("[A]s

Firestone held, jurisdiction depends on an arguable claim, not on

success.").

We believe that Abraham did have standing because, ex ante, he

2
It is not evident whether the district court meant to address the
standing issue. The court did determine that Abraham lacked a colorable claim
to benefits, which should have been enough to deprive him of standing. It did
not, however, dismiss his claim for lack of standing, but granted summary
judgment instead. We therefore treat the judgment as one on the merits.

3
had a colorable claim that he would prevail in this suit.

Firestone made standing turn on a claimant’s likelihood of success

in a lawsuit.3 Abraham had a colorable chance of success because

his argument rested squarely on Renda v. Adam Meldrum & Anderson

Co., 806 F. Supp. 1071 (W.D.N.Y. 1992). No other court has

addressed the issues raised by Renda; Abraham could argue that the

only federal court to address his argument had bought it. And

Renda is not bizarre or unreasoned. Although we ultimately reject

Renda, we do so only after devoting a considerable amount of time

to explaining why it is wrong. We recognize that a claim is not

colorable merely because a federal court has approved it, but we

believe Abraham’s reliance on Renda in this instance gave him a

colorable claim that he would prevail in this lawsuit. That is

enough for ERISA standing. Cf. Panaras v. Liquid Carbonic Indus.

Corp., 74 F.3d 786, 790 (7th Cir. 1996) ("The requirement of a

colorable claim is not a stringent one.").

III.

Abraham argues that the district court erred by refusing to

apply structural defect analysis to the plan. Structural defect

analysis originated in the Ninth Circuit's Taft-Hartley Act

3
Firestone does not distinguish between a plaintiff who claims he has been
wrongly excluded under the terms of the plan as written and a plaintiff who
claims the plan was improperly written to exclude him. Firestone itself involved
palintiffs of the former sortSSplaintiffs who claimed they were wrongly denied
benefits under the plan as writtenSSwhile Abraham is of the latter typeSShe
argues that the plan as written wrongly excludes him. But Firestone gives us no
basis for distinguishing between the two. The test is whether the plaintiff has
a “colorable claim that . . . he or she will prevail in a suit for benefits,”
regardless of the type of claim he presents.

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jurisprudence. Under the Act, money paid by an employer to a trust

fund established by an employee representative must be used "for

the sole and exclusive benefit of the employees of such employer."

29 U.S.C. § 186(c)(5). The Ninth Circuit has enforced this

provision through structural defect analysis: “A pension plan is

structurally deficient when it arbitrarily and unreasonably

excludes a large number of participants from receiving benefits,

thus failing to satisfy the ‘sole and exclusive benefit’ of all

employees.” Phillips v. Alaska Hotel & Restaurant Employees

Benefit Fund, 944 F.2d 509, 515 (9th Cir. 1991), cert. denied, 504

U.S. 911 (1992).

Similarly to Taft-Hartley, ERISA mandates that "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 . . . ." 29 U.S.C. § 1104(a)(1)(A)(i).

Borrowing from its Taft-Hartley jurisprudence, the Ninth Circuit

has enforced § 1104 through structural defect analysis. See Siles

v. ILGWU Nat’l Retirement Fund, 783 F.2d 923, 929 (9th Cir. 1986);

Harm v. Bay Area Pipe Trades Pension Plan Trust Fund, 701 F.2d 1301

(9th Cir. 1983). Although we have never applied structural defect

analysis to either Taft-Hartley or ERISA, Abraham would have us

apply such analysis to ERISA now.

Even if structural defect analysis is the appropriate way to

enforce § 1104, however, § 1104 explicitly creates a duty only for

fiduciaries, and we have held that an employer does not act as a

5
fiduciary when designing an ERISA plan. See Izzarelli v. Rexene

Prods. Co., 24 F.3d 1506, 1524 (5th Cir. 1994) ("[A]n employer that

decides to terminate, amend, or renegotiate a plan does not act as

a fiduciary, and thus cannot violate its fiduciary duty . . . .");

see also Hines v. Massachusetts Mut. Life Ins. Co., 43 F.3d 207,

210 (5th Cir. 1995). In contrast, the Ninth Circuit cases Abraham

cites as applying structural defect analysis under § 1104 have

involved suits against plan administrators acting in a fiduciary

capacity. See Siles, 783 F.2d at 929; Harm, 701 F.2d at 1305.

Because Abraham complains only that Exxon designed the plan

improperly, structural defect analysis is inappropriate.

IV.

Abraham contends that the exclusion of leased employees from

the plan is discriminatory and contrary to the minimum participa-

tion and minimum coverage requirements of ERISA and various

Treasury regulations. He relies entirely on Renda v. Adam Meldrum

& Anderson Co., 806 F. Supp. 1071 (W.D.N.Y. 1992). We find Renda

unpersuasive and reject Abraham's argument.

Renda held that 29 U.S.C. § 1052(a)(1)(A) forbids employers to

discriminate against leased employees when designing an ERISA plan.

That provision reads as follows:

No pension plan may require, as a condition of participa-
tion in the plan, that an employee complete a period of
service with the employer or employers maintaining the
plan extending beyond the later of the following dates—

(i) the date on which the employee attains
the age of 21; or

6
 (ii) the date on which he completes 1 year of
service.

Although the plain language of § 1052(a) makes no mention of leased

employees, Renda asserts that "[s]ection 1052(a) effectively

prohibits participation requirements which discriminate against

certain employees such as leased employees." 806 F. Supp. at 1081.

We disagree. Section 1052(a) does nothing more than forbid

employers to deny participation in an ERISA plan to an employee on

the basis of age or length of service if he is at least twenty-one

years of age and has completed at least one year of service.

Section 1052(a) does not prevent employers from denying participa-

tion in an ERISA plan if the employer does so on a basis other than

age or length of service.

Renda incorrectly relies on Fernandez v. Brock, 840 F.2d 622

(9th Cir. 1988). Fernandez does state in dicta that "ERISA

requires that an employee must be eligible to participate in a plan

after 'he completes 1 year of service . . . .’ Similarly, ERISA

requires that an employee accrue benefits after a 'year of

participation' . . . ." This statement appears in the portion of

the opinion setting forth the facts of the case, however, and plays

no role in the holding. The statement is best read to mean that an

employee is eligible to participate in a plan after completing a

year of service and attaining the age of twenty-one only if he is

not otherwise disqualified for a reason other than age or length of

service. To the extent that Fernandez's dicta does support Renda,

we reject it.

Renda also relied on Treasury regulations in finding improper

7
the discrimination against leased employees. Title 26 C.F.R.

§ 1.410(b)-(4)(c)(3) sets forth factors the Secretary must consider

when determining whether a plan is nondiscriminatory, and Renda

found these factors "useful for extracting subtler shades of

meaning necessary to paint a more detailed portrait of an individ-

ual's substantive rights under ERISA." 806 F. Supp. at 1083.

Looking to those factors, Renda found the exclusion of a leased

employee to be improper under ERISA.

We read the function of Treasury regulations more narrowly.

The regulations purport to do no more than determine whether a plan

is a qualified tax plan. Failure to meet the requirements of those

regulations results in the loss of a beneficial tax status; it does

not permit a court to rewrite the plan to include additional

employees. The Treasury regulations do not create substantive

rights under ERISA that would permit the relief Abraham requests.

It is true that ERISA does incorporate portions of the Internal

Revenue Code and Treasury regulations, in some instances, but on

those occasions it does so explicitly. See 29 U.S.C. § 1202(c)

(expressly incorporating Treasury regulations promulgated under

26 U.S.C. §§ 410(a), 411, & 412).

Nor do we find persuasive Renda's reliance on Crouch v. Mo-Kan

Iron Workers Welfare Fund, 740 F.2d 805 (10th Cir. 1984). Crouch

did find that an employee was entitled to participate in an ERISA

plan because her exclusion would cause the plan to fail Treasury

regulations. Unlike the Exxon plan or the Renda plan, however, the

ERISA plan in Crouch contained an explicit provision declaring that

8
it was to be construed to meet the requirements of an ERISA plan.

Absent such a requirement in the plan itself, a court is not

entitled to look to Treasury regulations to determine employee

eligibility for participation in an ERISA plan. We therefore

reject Renda and Abraham's argument.

V.

Abraham next claims that the district court erred by deferring

to the administrator's interpretation of the plan. The plan vests

the administrator with "discretionary and final authority to

determine eligibility . . . [and] to interpret this . . . Plan."

When a plan vests such discretionary authority in an administrator,

we review his decisions for abuse of discretion. Pickrom v. Belger

Cartage Serv., 57 F.3d 468, 471 (5th Cir. 1995); see also

Firestone, 489 U.S. at 115.

Our inquiry proceeds in two parts. First, we must determine

whether the administrator's interpretation is legally correct. If

it is not, we determine whether the decision constituted an abuse

of discretion. Pickrom, 57 F.3d at 571. In deciding whether an

interpretation is legally correct, we look to (1) whether the

administrator has given the plan a uniform construction,

(2) whether the interpretation is consistent with a fair reading of

the plan, and (3) any unanticipated costs resulting from different

interpretations of the plan. Wildbur v. ARCO Chem. Co., 974 F.2d

631, 638 (5th Cir.), clarified, 979 F.2d 1013 (5th Cir. 1992).

The district court properly applied the law in this instance.

9
Looking to the Wildbur factors, it is apparent that the

administrator construed the plan uniformly in a manner consistent

with a fair reading of the plan. Furthermore, Abraham's

interpretation of the plan will create unanticipated costs, as

Exxon would have to provide benefits to 16,000 additional persons.

Having determined that the administrator's interpretation was

legally correct, the district court did not need to look further.

VI.

Abraham contends that the plan is either ambiguous or includes

him. We find no merits to his arguments, which rest on tortured

constructions of the plan, defying rules of grammar and logic.

VII.

Besides a claim for benefits, a plaintiff may also file suit

under ERISA for penalties when a plan administrator "refuses to

comply with a request for any information which such administrator

is required . . . to furnish to a participant or beneficiary."

29 U.S.C. § 1132(c)(1)(B). ERISA provides that an administrator

who fails to provide such information "may in the court's

discretion be personally liable to such participant or beneficiary

in the amount of up to $100 a day from the date of such failure or

refusal." Id. at § 1132(c)(1). In his complaint, Abraham alleges

that the plan administrator, Rouse, refused to comply with his

request for information.

The district court did not specifically address the claim for

10
statutory penalties. The only portion of the opinion that seems to

address that claim is the portion concluding that Abraham is not a

"participant or beneficiary" because he lacks a colorable claim to

benefits. We must therefore assume that the district court granted

summary judgment on this claim because it believed the Abraham was

not a "participant" within the meaning of ERISA and was therefore

not entitled to the information he requested.

This was not a proper basis for summary judgment. Abraham was

a "participant" under ERISA because he had a colorable claim that

he would prevail in this suit. In Firestone, the Court held that

ERISA's definition of "participant," 29 U.S.C. § 1002(7), includes

anyone with a colorable claim that he will prevail in a suit for

benefits, and it explained that the definition applied to claims

for statutory penalties under § 1132(c)(1). 489 U.S. at 117-18.

For the reasons we discussed in part II, supra, Abraham was a

participant under this standard and had standing to seek penalties

under ERISA because the administrator failed to provide him with

information. We therefore vacate summary judgment on Abraham's

claim for statutory penalties and remand so that the district

court, in its discretion, may determine whether to award penalties.

We recognize that this result may appear harsh: We conclude

that the Exxon plan unambiguously excludes Abraham, yet we find

that the administrator may be liable for failing to provide Abraham

with plan information. We note, however, that a claimant is not

entitled to penalties merely because he is a “participant.”

Status as a participant is simply a threshold requiremnet a

11
plaintiff must meet before he can request penalties. The district

court has the discretion to grant or deny such a request. In

making its decision, the district court maySSand often shouldSStake

into consideration the administrator’s reasons for refusing to

provide information.

In this case, for example, the district court might note that

the terms of the plan excluded Abraham, that Abraham has standing

because he relies on Renda, and that the administrator was probably

unaware of Renda, a district court decision from a distant

district. From all this, the district court could conclude that

the administrator acted in good faith when he refused to provide

information and could decline to award penalties. Of course, we

note this only by way of example; we express no opinion as to what

the district court should actually do in this case.

VIII.

Summary judgment on all claims except the claim for statutory

penalties is AFFIRMED. Summary judgment on statutory penalties is

VACATED and REMANDED.

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