                                                                                                                           Opinions of the United
2002 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


7-18-2002

D'Amico v. CBS Corp
Precedential or Non-Precedential: Precedential

Docket No. 01-3956




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PRECEDENTIAL

       Filed July 18, 2002

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 01-3956

NICK J. D’AMICO; CLIFF HOLLIHAN;
JOSEPH G. MUTO; KEVIN BEAM,
       Appellants

v.

CBS CORPORATION, f/k/a WESTINGHOUSE, INC;
THE WESTINGHOUSE ELECTRIC COMPANY
PENSION PLAN

Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil Action No. 00-cv-02495)
District Judge: Honorable Donetta W. Ambrose

Argued May 3, 2002

Before: ROTH and STAPLETON, Circuit Judges
POLLAK*, District Judge

(Filed: July 18, 2002)
_________________________________________________________________

* Honorable Louis H. Pollak, District Court Judge for the Eastern District
of Pennsylvania, sitting by designation.


       Colleen E. Ramage, Esquire
       Ramage & Valles
       429 Forbes Avenue
       Allegheny Building, Suite 800
       Pittsburgh, PA 15219

       Gary F. Lynch, Esquire
       36 North Jefferson Street
       P.O. Box 7635
       New Castle, PA 16107

       Theodore Goldberg, Esquire
       David B. Rodes, Esquire (Argued)
       John T. Tierney, III, Esquire
       Goldberg, Persky, Jennings & White,
        P.C.
       1030 Fifth Aenue
       Pittsburgh, PA 15219

        Attorneys for Appellants

       Glen D. Nager, Esquire
       Jack W. Campbell, IV, Esquire
        (Argued)
       Jones, Day, Reavis & Pogue
       51 Louisiana Avenue, N.W.
       Washington, D.C. 20001-2113

       Amy E. Dias, Esquire
       Jones, Day, Reavis & Pogue
       31st Floor, One Mellon Bank Center
       500 Grant Street
       Pittsburgh, PA 15219

        Attorneys for Appellees

OPINION OF THE COURT

ROTH, Circuit Judge:

This ERISA case requires us to apply our recent decision
in Harrow v. Prudential Ins. Co., 279 F.3d 244 (3d Cir.
2002), to determine whether plaintiffs, the D’Amico
claimants, must exhaust plan remedies before proceeding

                                  2


with breach of fiduciary duty claims against their former
employer, defendant CBS, Inc. See S 404 of ERISA, 29
U.S.C. S 1104(a).

The District Court granted summary judgment
dismissing plaintiffs’ unexhausted claims. We will affirm
that decision. We find that plaintiffs are required to exhaust
Plan remedies because their fiduciary allegations, which are
based on CBS’s failure to comply with a vesting and partial
termination provision in its Plan, amount to a claim for
plan benefits under Harrow. We also find that plaintiffs
have failed to meet their burden of establishing that Plan
remedies are futile. Finally, we see no reason to upset the
District Court’s grant of summary judgment in favor of
CBS.

I. Facts

Plaintiffs are a class of former employees of CBS (formerly
known as Westinghouse) and participants in the
Westinghouse Pension Plan. Section 18.B. of the
Westinghouse Pension Plan contains the following provision
for termination or partial termination of the Plan:

       If the Plan is terminated, or partially terminated, the
       rights of affected participants to benefits accrued under
       the Plan shall be nonforfeitable to the extent funded.

This language tracks 26 U.S.C. S 411(d)(3), 1 which, in order
for employers to obtain favorable tax treatment for pension
plans, requires the employers to include in their plans
provisions for vesting upon partial termination.

From 1994 through 2000, Westinghouse implemented a
systematic planned reduction of its entire workforce. As
_________________________________________________________________
1. 26 U.S.C. S 411 (d)(3) provides that:

       a trust shall not constitute a qualified trust under section 401(a)
       unless the plan of which such trust is a part provides that --

       (A) upon its termination or partial termination . . . the rights of all
       affected employees to benefits accrued to the date of such
       termination, partial termination, or discontinuance, to the extent
       funded as of such date, or the amounts credited to the employees’
       accounts, are nonforfeitable.

                                3


part of this downsizing effort, and a concurrent effort to
reduce a four billion dollar underfunding of the Plan, the
company also amended its Plan in 1994 to eliminate a
lump-sum option formerly available to retiring employees.

II. Procedural History

Although the Plan provides a procedure for presenting
claims for benefits, none of the plaintiffs attempted to
exhaust this Plan remedy before bringing suit. Plaintiffs
filed their initial complaint on December 22, 2000, and an
amended complaint on July 26, 2001. They allege, inter
alia, that the workforce reduction and elimination of future
benefit accruals through the 1994 amendment constituted
a partial termination that entitled all non-vested
participants to become vested. Plaintiffs claim that CBS’s
failure to provide vesting after these partial terminations
constituted a breach of its fiduciary duties under section
404 of ERISA, 29 U.S.C. SS 1104(a)(1)(A) & (a)(1)(D). The
complaint requests damages and declaratory relief to
remedy these violations. It also alleges that exhaustion
would be futile.

CBS filed a motion to dismiss under Fed. R. Civ. P.
12(b)(1), based on plaintiffs’ failure to exhaust Plan
remedies. The District Court determined that it was more
appropriate to address CBS’s motion under Fed. R. Civ. P.
12 (b)(6) and converted the motion to dismiss into a motion
for summary judgment under Fed. R. Civ. P. 56.

Plaintiffs opposed CBS’s motion on the ground that they
are not required to exhaust Plan remedies before bringing
their suit. The District Court disagreed and granted
summary judgment for CBS on the unexhausted claims. It
entered an order dismissing the case with prejudice on
October 1, 2001. Plaintiffs filed a timely notice of appeal.

III. Jurisdiction and Standard of Review

This case arises under ERISA, 29 U.S.C. S 1001 et seq.;
thus the District Court had federal question jurisdiction
under 28 U.S.C. S 1331 and 29 U.S.C. S 1132(e). We have
appellate jurisdiction under 28 U.S.C. S 1291, as the

                                4
District Court entered a final and appealable order granting
CBS’s motion for summary judgment with prejudice.

We exercise plenary review over an appeal from a grant of
summary judgment; we review de novo the applicability of
exhaustion principles to plaintiffs’ claims. Harrow v.
Prudential Life Ins. Co., 279 F.3d 244, 248 (3d Cir. 2002).
We review for abuse of discretion both the District Court’s
decision to deny a futility exception to exhaustion
principles, see id., and its decision to grant summary
judgment rather than entering a stay to allow exhaustion of
administrative remedies. St. Surin v. Virgin Island Daily
News, Inc., 21 F.3d 1309, 1313 (3d Cir. 1994) (abuse of
discretion standard applies when "an order entering
summary judgment is attacked as premature"); Lindemann
v. Mobil Oil Corp., 79 F.3d 647, 651 (7th Cir. 1996)
("decision whether to stay [an ERISA proceeding to allow
exhaustion] is entirely within the District Court’s
discretion").

IV. Discussion

Plaintiffs raise three arguments in their appeal. First,
they assert that they are not required to exhaust plan
remedies before bringing suit; second, they assert that
exhaustion would be futile; and, finally, they argue that the
District Court erred when it granted summary judgment
rather than staying their case and ordering expedited
administrative review. We will explain, below, why none of
these arguments merit reversal.

A. Exhaustion of Plan Remedies.

This Circuit requires the exhaustion of Plan remedies in
some, but not all, ERISA cases.2 In Zipf v. AT&T, 799 F.2d
889 (3d Cir. 1986), we drew a distinction between claims to
enforce the terms of a benefit plan and claims to assert
rights established by the ERISA statute. Id. at 891.
_________________________________________________________________

2. As we noted in Harrow, the Courts of Appeals are in "sharp
disagreement" over whether certain ERISA claims should be excused
from exhaustion requirements. 279 F.3d at 253 n.10 (comparing rule
applied by the Third, Fourth, Ninth and Tenth Circuits with rule applied
by the Seventh and Eleventh Circuits).

                                  5


Exhaustion of Plan remedies is required in the former, but
not the latter, category of cases. Id.3 Since Zipf, a vast
majority of cases waiving the exhaustion requirement have
fallen in two categories: (1) discrimination claims under
section 510 of ERISA, or (2) failure to provide plaintiffs with
Summary Plan Descriptions, as required by ERISA. Harrow
v. Prudential Ins. Co., 279 F.3d 244, 253 (3d Cir. 2002).

More recently, we have also recognized the possibility of
waiving exhaustion in cases where statutory rights stem
from the fiduciary duties set forth in section 404 of ERISA,
29 U.S.C. S 1104(a). See Harrow, 279 F.3d at 253-54. The
exhaustion requirement for these section 404 claims arises
from the fact that some of the duties established by section
404 are synonymous with a claim to enforce the terms of a
benefits plan. The section describes how a " fiduciary shall
discharge his duties with respect to a plan." 29 U.S.C.
S 1104(a)(1). It also requires the fiduciary to discharge those
duties for the purpose of "providing benefits to
participants," and "in accordance with the documents and
instruments governing the plan." 29 U.S.C. SS 1104(a)(1)(A)
& (a)(1) (D) (emphases added). Thus, we still require
exhaustion in cases where the alleged statutory violation--
a breach of fiduciary duty under section 404--is actually a
claim based on denial of benefits under the terms of a plan.

Exhaustion requirements for fiduciary allegations
brought under section 404, therefore, hinge on whether the
allegations amount to a claim for plan benefits. In Harrow,
we explained that alleged fiduciary breaches involve a claim
for benefits when "resolution of the claims rests upon an
interpretation and application of an ERISA-regulated plan
_________________________________________________________________

3. In general, plaintiffs bring claims to enforce the terms of a benefits
plan under 29 U.S.C. S 1132(a)(1)(B) and claims to enforce rights
established by ERISA under 29 U.S.C. S 1132(a)(3). Section 1132(a)(3)
claims to enforce statutory rights are not automatically excused from
exhaustion, however. We still require exhaustion where the statutory
claim "merely recasts [a] benefits claim in statutory terms." Harrow, 279
F.3d at 252. Thus, while the District Court assumed that plaintiffs
wished to proceed under S 1132(a)(3), and plaintiffs rely on S 1132(a)(3)
for purposes of appeal, our exhaustion analysis turns on whether
plaintiffs’ statutory allegations amount to a claim for benefits under the
terms of the Westinghouse Plan.

                                6


rather than on an interpretation and application of ERISA"
itself. 279 F.3d at 253-54 (quoting Smith v. Syndor, 184
F.3d 356, 362 (4th Cir. 1999)). There, we found that a
fiduciary claim, brought under section 404 based on an
allegedly wrongfully denial of insurance coverage for Viagra,
amounted to a claim for benefits. Id. at 254.4

Here, plaintiffs allege section 404 fiduciary breaches
based on CBS’s failure to vest after (1) the elimination of a
significant number of Plan participants, which allegedly
created a partial termination and required vesting under
the Plan and under 26 U.S.C. S 411 (d)(3); and (2) a partial
termination based on elimination of future benefit accruals
under the 1994 amendments to the Plan.5 See, e.g., Gluck
v. Unysis Corp., 960 F.2d 1168, 1178 (3d Cir. 1992) (noting
that breach of fiduciary duty theory may apply based on
"failure to vest fully the accrued benefits upon partial
termination of a plan"). The vesting obligations that form
the basis of plaintiffs’ fiduciary duty claims arise from
S 18.B of the Plan.
Although the language of S 18.B tracks the provisions of
26 U.S.C. S 411 (d)(3) and is designed to meet that federal
statutory requirement, the terms of section 411 do not
provide plaintiffs with a right to vesting independent of the
language of the Plan.6 It is, instead, the contractual
language of S 18.B of the Plan itself which gives rise to
_________________________________________________________________

4. In reaching this conclusion, we distinguished the holding from Smith
v. Syndor, 184 F.3d 356, 362 (4th Cir. 1999), a case in which exhaustion
was not required for allegations establishing a breach of fiduciary duty
independent of the denial of benefits. In that case plaintiffs alleged a
breach of fiduciary duties based on sales of preferred stock at an
undervalued price. Thus, the claims in Smith are distinguishable from
the plan benefits sought in Harrow and the instant case.

5. Because plaintiffs have chosen to proceed under 29 U.S.C.
S 1132(a)(3), their fiduciary duty claims are limited to equitable relief.
Great West Life & Annuity Ins. Co. v. Knudson, 122 S.Ct. 708 718-19
(2002). Thus, even if we held that plaintiffs were not required to exhaust
their remedies, they would not be able to recover damages for any of
their unexhausted claims.

6. Vornado, Inc. v. Trustees of the Retail Store Employees Union Local
1262, 829 F.2d 416, 418 n. 2 (3d Cir. 1987) (section 411 "does not give
plan participants an interest in the employer’s tax status").

                                7


Plaintiffs’ vesting rights. Indeed, we have on numerous
occasions noted that an employee’s right to vesting upon
partial termination arises from the terms of an ERISA plan.
In Vornado, Inc. v. Trustees of the Retail Store Employees
Union Local 1262, we stated that the purpose of section 411
"is to force employers to include language favorable to
employees in the plan; thus, employees must sue on the
plan language, not on the statute." 829 F.2d at 418 n. 2
(emphasis added); see also Bruch v. Firestone Tire & Rubber
Co., 828 F.2d 134, 151 (3d Cir. 1987) (in order to avoid the
severe penalty of loss of section 401 qualification,"all
qualifying pension plans contain the assurances required
by [section 411, and plaintiffs] can then sue on the basis of
the plan language" ),7 affirmed in part and reversed in part
on other grounds, 489 U.S. 101 (1989); United Steel Workers
of America v. Harris & Sons Steel Co., 706 F.2d 1289, 1299
(3d Cir. 1983) ("the question whether under the terms of
the Plan agreement there was a partial termination in 1972
is essentially one of contract interpretation").

Thus, the fiduciary breaches alleged by plaintiffs turn on
the application of S 18.B’s provisions for vesting. It follows
that their allegations amount to a claim for Plan benefits
and require exhaustion under Harrow. We will affirm the
District Court’s ruling that exhaustion of Plan remedies is
required for plaintiffs’ partial vesting allegations.

B. Is Exhaustion Futile?
Plaintiffs also argue that they are not required to exhaust
Plan remedies because it would be futile to do so. A party
invoking this exception must provide a clear and positive
showing of futility before the District Court. Harrow, 279
F.3d at 249-50. Here, plaintiffs concede that they"never
_________________________________________________________________

7. Bruch does suggest that one part of this inquiry--whether there has
been a partial termination--is subject to independent determination by
the court. 828 F.2d at 149. But that does not alter the fact that
plaintiffs’ ultimate right to vest is based on application of the Plan--a
question which should be addressed by the Plan administrator in the
first instance. See, e.g., Diaz v. United Agric. Employee Welfare Benefit
Plan & Trust, 50 F.3d 1478, 1484 (9th Cir. 1995) (prospect of judicial
review for compliance with federal statutory provisions does not give
claimant license to evade internal appeal to plan administrator).

                                8


presented their partial termination claims to the Plan
Administrator either formally or informally." 8 They assert
that no attempts to request benefits are required in light of
CBS’s longstanding policy of denying that partial
termination ever occurred. Our precedent makes clear,
however, that Plaintiffs who fail to make known their desire
for benefits to a responsible company official are precluded
from seeking judicial relief. Berger v. Edgewater Steel Co.,
911 F.2d 911, 917 (3d Cir. 1990) (agreeing that futility
argument lacked merit where employee "never even asked
for 70/80 retirement"). Thus, we find that the District
Court properly exercised its discretion when it declined to
apply the futility exception here.

C. Summary Judgment.

Plaintiffs conclude by arguing that the District Court
erred in granting summary judgment rather than staying
their case and ordering expedited administrative review.
The decision of whether to grant a stay is entirely within
the District Court’s discretion. Lindemann v. Mobil Oil
Corp., 79 F.3d 647, 651 (7th Cir. 1996) (affirming decision
to grant summary judgment and deny stay for unexhausted
ERISA claims). Here, the District Court refused to grant a
stay where the only justification offered by plaintiffs was an
appeal to justice and judicial economy, and where none of
the plaintiffs had ever attempted to convince Westinghouse
administrators that he or she was entitled to vesting. As
explained below, we see no reason to interfere with this
decision.

Plaintiffs argue, on appeal, that summary judgment is an
unduly harsh sanction for losing an exhaustion argument
that was made in good faith and under existing case law.
We note, however, that the Seventh and Eleventh Circuits
have granted summary judgment after rejecting good faith
arguments to limit exhaustion requirements. Lindemann,
79 F.3d at 650; J.W. Counts v. American Gen. Life and
Accident Ins. Co., 111 F.3d 105, 109 (11th Cir. 1997). Nor
_________________________________________________________________
8. Although we note that some of the named plaintiffs made a written
request for Job Separation Pension Benefits underS 19 of the Plan, we
do not construe this as a request for partial termination benefits under
S 18.B. of the Plan.

                                9


should summary judgment be a surprising result for
plaintiffs. As one treatise notes, "[f]ailure to exhaust the
review procedures provided by the plan may result in
dismissal with prejudice of (or summary judgment upon)
any lawsuit brought to challenge a denial of benefits."
James F. Jorden, Waldemar J. Pflepsen, Jr., & Stephen H.
Goldberg, Handbook on ERISA Litigation S 4.04[B][3][a] (2d
ed. 2000 Supplement).9 Thus, Plaintiffs’ decision to bring a
federal suit rather than pursuing administrative remedies
plainly included the possibility of summary judgment based
on failure to exhaust. The District Court did not abuse its
discretion by exercising that option.

Finally, we see no reason to alter our analysis out of
concern that the District Court’s order will foreclose future
consideration on the merits of their claims. Although we
may not "dictate the preclusion consequences" of our
decision to future courts, Wright, Miller & Cooper, 18
Federal Practice and Procedure S 4405 (2002), we do have
authority to make clear the limited scope of the District
Court’s decision. Id. at S 4413; Venuto v. Witco Corp., 117
F.3d 754, 759 n.8 (3d Cir. 1997). Here, the District Court
issued an order granting summary judgment because of the
failure to exhaust. That order is not, however, in any way
a ruling on the merits. It is, instead, limited to resolving the
threshold question of whether administrative remedies
must be exhausted before plaintiffs may bring these claims
in federal court. Such orders do not preclude later litigation
on the merits of properly exhausted claims. See , 18 Federal
Practice and Procedure at S 4436 ("claim preclusion is not
proper following dismissal [for] . . . failure to exhaust
administrative remedies."). We will not disturb the order
entered by the District Court.
_________________________________________________________________

9. This is not, of course, the only possible outcome. See Makar v. Health
Care Corp., 872 F.2d 80, 83 (4th Cir. 1989) (vacating order entering
judgment for defendants and ordering dismissal without prejudice to
allow plaintiffs to exhaust plan remedies.) Under the authority discussed
in the text, however, we do not find the District Court’s decision here to
be an abuse of discretion.

                                10


V. Conclusion

Plaintiffs’ breach of fiduciary duty claims are subject to
exhaustion requirements because they turn on application
of S 18.B. of the Westinghouse Pension Plan and, thus,
under Harrow, amount to claims for benefits under the
Plan. Plaintiffs have failed to establish that exhaustion is
futile or that the District Court erred in granting summary
judgment. We will, therefore, affirm the judgment of the
District Court.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

                                11
