Diaz v. Seafarers International Union

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

No. 93-1488

DOMINGO DIAZ, ET AL.,

Plaintiffs, Appellants,

v.

SEAFARERS INTERNATIONAL UNION, ET AL.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Raymond L. Acosta, U.S. District Judge]

Before

Breyer, Chief Judge,

Torruella and Boudin, Circuit Judges.

Carlos A. Del Valle Cruz with whom Jose Luis Gonzalez Castaner

was on brief for appellant Domingo Diaz.
Mary T. Sullivan with whom Segal, Roitman & Coleman, and Ellen

Silver, Associate Counsel, Seafarers Pension Plan, were on brief for

appellee.

January 10, 1994

BREYER, Chief Judge. Domingo Diaz, a retired

seaman, brought this lawsuit against the Seafarers

International Union and the Union's Pension Plan. He says

that the Plan should have provided him a pension of about

$450 per month, rather than about $200 per month. The

Plan's failure to do so, in Diaz's view, represents an

erroneous application of the Plan's own pension-calculation

rules and thereby violates federal law. See Employee

Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.

1104(a)(1)(D) ("[Plan trustees] shall discharge [their]

duties . . . in accordance with the documents and

instruments governing the plan . . . ."). The district

court found that the Plan, through its trustees, did not

improperly apply the Plan's rules. We agree, and we affirm

the district court's judgment.

I

Background

A. Basic Facts. The following key facts are not

contested:

1. From 1943 to 1960 Diaz worked on ships whose
employees were represented by the Seafarers
International Union (SIU). During that
period, the SIU had no pension plan.

2. In 1960 Diaz quit. Soon after, he began
working on ships whose employees were

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represented by the National Maritime Union
(NMU).

3. In 1961 the SIU developed a pension plan --
the Seafarers Pension Plan -- covering
seafarers who work on SIU-represented ships.

4. In 1968 Diaz, then still working on NMU
ships, was injured and stopped working as a
seaman altogether.

5. In 1975 Diaz recovered from his injury and
began to work again as a seaman, this time on
SIU ships.

6. In 1988 Diaz retired, at age 65, having spent
the previous 13 years on SIU ships.

B. The Seafarers Pension Plan. The Seafarers

Pension Plan provides pensions based upon time worked on SIU

ships, but not on other ships. It normally permits a

seafarer to include, in the pension level calculation, time

that he worked even before the plan first came into

existence in 1961 -- even though employers did not

contribute before 1961 and the relevant pension funds must

therefore come from contributions (and related investment

earnings) made in respect to work performed later, and by

others.

Despite the ordinary practice of crediting pre-

1961 work, the trustees gave Diaz credit only for the 13

years he worked on SIU ships after he recovered from his

injury in 1975 and returned to SIU work. They denied him

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credit for the 17 years he worked on SIU ships before he

left SIU employment in 1961 (and before the SIU had any

pension plan) because they concluded that, in respect to

that work, Diaz suffered a "break in service" under the

plan's "break in service" rule. The rule prohibits counting

work prior to a "break in service," defined as failure to

perform 90 or more days of SIU work in each of three

consecutive calendar years between 1968 and 1975 (when ERISA

took effect). The rule states specifically:

If during the period from January 1,
1968 to December 31, 1975, an employee
received credit for less than 90 days of
Service in each of three (3) consecutive
calendar years, a Break of Service shall
occur.

If such a Break of Service occurs, said
employee shall lose all credit for
Service prior to and including said
three (3) year period . . . .

Seafarers Pension Regulations, Article 2, Section D(1).

The upshot is that Diaz received a pension of

about $200 per month (and without certain health benefits)

instead of the $450 per month (plus such benefits) to which

he believed himself entitled.

C. Procedure. Diaz brought this lawsuit in

federal district court under ERISA, 29 U.S.C.

1132(a)(1)(B), which authorizes an employee action "to

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recover benefits due to him under the terms of his plan."

ERISA requires trustees to follow their own rules, see id.

1104(a)(1)(D), and Diaz argues that the trustees have failed

to do so by misinterpreting the break in service rule in

applying it to his situation. The district court found

against Diaz.

II

Standard of Review

Ordinarily, a court will give trustees

considerable leeway to interpret and to apply pension plan

rules, setting aside those trustee decisions only if they

are arbitrary, capricious, or an abuse of discretion. See,

e.g., Lockhart v. United Mine Workers of America 1974

Pension Trust, 5 F.3d 74, 78 n.6 (4th Cir. 1993); Gordon v.

ILWU-PMA Benefit Funds, 616 F.2d 433, 439 (9th Cir. 1980).

Diaz points out, however, that the Supreme Court has said

that this deferential standard of review is appropriate only

where the "benefit plan" itself gives the trustees

discretionary authority to determine
eligibility for benefits or to construe
the terms of the plan.

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115

(1989); see also Allen v. Adage, Inc., 967 F.2d 695, 697-98

(1st Cir. 1992). Diaz says that the version of the benefit

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plan in effect when he applied for a pension did not provide

the trustees with the "discretionary authority" to determine

eligibility or construe the terms of the plan. Hence, we

must review trustee decisions de novo.

Diaz's argument is unconvincing, however.

Firestone concerned certain terms ("reduction in work

force") set forth in what was in effect the basic trust

instrument, which terms the trustees had construed against

the employees. The argument in the case before us focuses

on the application (and implicit interpretation), not of

terms contained in the basic trust instrument, but of rules

promulgated by the trustees pursuant to powers delegated by

that instrument. And, the distinction is important.

The Firestone opinion turned on the traditional

legal doctrine that trustee powers are

determined by the rules of law that are
applicable to the situation . . . and by

the terms of the trust as the court may

interpret them, and not as they may be

interpreted by the trustee himself . . .
.

3 W. Fratcher, Scott on Trusts 201, at 221 (emphasis

added); see Firestone, 489 U.S. at 112. That is to say,

courts ordinarily interpret (independently) the trust's

terms. The Firestone Court concluded that, since

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there is no evidence that under [the
benefit plan] the administrator has the
power to construe uncertain terms [i.e.,
terms of the trust] or that eligibility

determinations are to be given
deference,

the proper standard of review is de novo. 489 U.S. at 111.

Traditional trust law, however, does not suggest

that courts normally should, or do, substitute their

judgment for reasonable trustee interpretations of trustee

rules promulgated pursuant to powers that the trust

instrument grants to those trustees. To the contrary, one

would ordinarily assume that a trust instrument's grant of

power to make rules and to apply rules carries with it (to

avoid unnecessary administrative complexity) an implied

power to interpret those rules reasonably and consistently

with the instrument and other provisions of law. Cf.

Lockhart v. United Mine Workers of America 1974 Pension

Trust, 5 F.3d 74, 78 n.6 (4th Cir. 1993) ("Given that the

Trustees have the authority to formulate the rules and

regulations that implement the Plan . . . , it is not

subject to question that the Trustees have the . . .

discretion to interpret these rules and regulations . . .

.") (citations omitted) (emphasis added). And, courts would

presumably review any such exercise of delegated rule-

interpretive power as they would any other exercise of

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delegated power, i.e., with a degree of interpretive leeway

that reflects the trustees' likely better understanding of

how they intended their own rules to apply. Cf. Restatement

(Second) of Trusts 187 ("Where discretion is conferred

upon the trustee with respect to the exercise of a power,

its exercise is not subject to control by the court, except

to prevent an abuse by the trustee of his discretion.") I n

this case, the terms of the trust itself are not in issue.

The trust document, at the time of Diaz's application, gave

the trustees broad, discretionary, authority to make, and to

apply, rules governing eligibility for pensions. The

document specifically said:

The Trustees shall without limitation

have the power . . . to . . .
[f]ormulate and adopt a pension program
. . . and promulgate and establish rules
. . . for . . . [its] operation . . .
and in pursuance thereto (but without
intent to limit such authority)
formulate and establish conditions of
eligibility . . . and all other matters

which the Trustees in their discretion

may deem necessary or proper to

effectuate the purposes and intent of

the pension program.

Seafarers Pension Agreement and Declaration of Trust,

Article III, Section 1 (emphasis added). It added a general

clause stating:

The [T]rustees are empowered to do all

acts whether or not expressly authorized

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herein, which the [T]rustees may deem
necessary to accomplish the general
purposes of the Trust.

Id. Section 5 (emphasis added).

This language demonstrates broad trustee authority

to determine the content of the rules they promulgate. The

document provides no reason for finding any significant

difference between 1) determining content through

promulgating new rules, and 2) determining content by

interpreting old ones. Hence, consistent with our

discussion above, we interpret the document's explicit, and

broad, power to create "rules" governing "conditions of

eligibility" as carrying with it a similarly broad implied

power to interpret those rules. And, the existence of such

a delegated power seems to be what Firestone had in mind

when it called for "evidence" of a grant of discretionary

authority to determine eligibility for benefits. Firestone,

489 U.S. at 111; cf. Curtis v. Noel, 877 F.2d 159, 161 (1st

Cir. 1989) (holding that plan language giving plan

administrator power to determine "which Employees are

eligible to participate in the Plan" and "provid[ing] all

parties dealing with the Plan an interpretation of Plan

provisions on request" indicates deferential standard of

review of trustee eligibility decisions); Jett v. Blue Cross

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& Blue Shield of Alabama, Inc., 890 F.2d 1137, 1138-39 (11th

Cir. 1989) (same for plan language giving "Claims

Administrator" power to make "final and conclusive"

determinations "in the administration of the [plan]," so

long as such determinations are "reasonable"); but cf.

Sisters of the Third Order of St. Francis v. SwedishAmerican

Group Health Benefit Trust, 901 F.2d 1369, 1371 (7th Cir.

1990) (explaining that circuit courts appear split over the

degree of plan language specificity required to trigger

deferential review of trustee determinations).

Finally, Diaz argues that the trustees, in effect,

confessed that the SIU plan does not meet Firestone's

requirements for deferential review, for, after Firestone

(and after Diaz had applied for his pension), the trustees

sought and obtained an amendment to the plan document giving

them the "absolute and exclusive authority to . . .

interpret Plan Rules" and "sole discretion to . . . apply"

them. Not surprisingly, we think this amendment merely made

express a power that, for reasons already stated, was

plainly implied all along. (Why the trustees decided to

clarify the plan's language in this way is not explained in

the record; perhaps they wanted to play it safe in light of

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Firestone and the possibility that lower courts would later

misread it.)

The end result is that we shall apply the

"arbitrary and capricious" standard of review.

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III

Review of the Merits

Diaz concedes that his absence from work after

being injured counted as a "break in service" under the

plan's "break in service" rule as literally interpreted. He

did not perform three months of SIU work in each of three

consecutive years between 1968 and 1975. But, Diaz argues

that the trustees should not interpret the rule literally.

He says that they should not count an involuntary absence

from work -- a break caused, for example, by an on-the-job

injury -- as a "break in service" under the rule. And, he

points to several circuit court cases that have held

trustees' refusals to treat involuntary absences this way to

be arbitrary and capricious. See, e.g., Van Fossan v.

International Bhd. of Teamsters Union Local No. 710 Pension

Fund, 649 F.2d 1243, 1248-49 (7th Cir. 1981) (finding it

arbitrary and capricious to apply "break in service" rule to

worker who leaves fund-covered employment involuntarily,

such as because of a permanent shoulder disability, and

citing other circuit cases on point).

The problem for Diaz is that the trustees are

willing to assume (for purposes of this case) that an

involuntary absence does not count as a "break in service"

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under the rule. But, that willingness is still not

sufficient to win Diaz his augmented pension. That is

because the trustees say that any such "involuntary absence"

exception must involve an involuntary absence from SIU

service, not from some other kind of service. After all,

one who left SIU service well before 1968 and works steadily

thereafter in a totally different industry cannot, and

should not be able to, overcome the "break in service" rule

simply because an injury caused him to be absent (between

1968 and 1975) from that totally different job.

The trustees also recognize that Diaz's case is

not quite that simple. He did, indeed, leave SIU employment

well before 1968 and he did not return to SIU employment

until after 1975, and he was employed on NMU, not SIU, ships

in the interval. But, when he did return to shipping, after

recovering from his injury in 1975, he returned to work, not

on NMU, but on SIU, ships. In light of this fact, it is at

least possible, as the trustees rightly suggest, that "but

for his injury in 1968, he would have left the NMU ships and

resumed shipping with the SIU" in time not to suffer a

"break in service" under the rule -- in which case, the

trustees further suggest, they would have ignored Diaz's

post-injury absence. But, they add, the single fact that

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Diaz returned to SIU shipping after recovering from his

injury is not enough to show that he would have left the NMU

(and returned to the SIU) without the injury. In their

view, in the absence of an injury, it is more likely that a

seaman would continue in, rather than leave, his current

job.

We cannot quarrel with the reasonableness of the

trustees' interpretation of their rule, at least on the

assumptions they are willing to make. They assume an

exception for an involuntary break in service; they

understand the special situation of one who has left SIU

employment before, but returns after, an injury; and, they

impose a minimal factual SIU-connection, namely a showing

that, without the injury, the seaman would have worked on

SIU ships. But, whether or not Diaz made the requisite

factual showing -- dependent as the question is on

generalizations about how seafarers ordinarily behave -- is

precisely the kind of matter that courts should leave in the

hands of the trustees, who, after all, often must draw upon

their knowledge of the industry in deciding how best to

share a limited amount of money among different plan members

with varying claims, of varying strength. See Richards v.

United Mine Workers of Am. Health & Retirement Funds, 851

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F.2d 122, 123 (4th Cir. 1988) ("[W]e may not substitute our

judgment of the facts in this case for that of the Trustees,

for it is the Trustees whose expertise in this area arises

from daily and continual experience.") (citation omitted).

In these circumstances, and against the backdrop

that the payment at stake here is for pre-1961 service (a

time when no pension fund existed and no one made

contributions on behalf of Diaz's work), we cannot say that

the trustees' interpretation or application of their rule

was arbitrary.

Consequently, the judgment of the district court

is

Affirmed.

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