USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 93-1488
DOMINGO DIAZ, ET AL.,
Plaintiffs, Appellants,
v.
SEAFARERS INTERNATIONAL UNION, ET AL.,
Defendants, Appellees.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Raymond L. Acosta, U.S. District Judge]
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Before
Breyer, Chief Judge,
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Torruella and Boudin, Circuit Judges.
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Carlos A. Del Valle Cruz with whom Jose Luis Gonzalez Castaner
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was on brief for appellant Domingo Diaz.
Mary T. Sullivan with whom Segal, Roitman & Coleman, and Ellen
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Silver, Associate Counsel, Seafarers Pension Plan, were on brief for
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appellee.
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January 10, 1994
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BREYER, Chief Judge. Domingo Diaz, a retired
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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
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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
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A. Basic Facts. The following key facts are not
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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
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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
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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.
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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
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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,
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e.g., Lockhart v. United Mine Workers of America 1974
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Pension Trust, 5 F.3d 74, 78 n.6 (4th Cir. 1993); Gordon v.
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ILWU-PMA Benefit Funds, 616 F.2d 433, 439 (9th Cir. 1980).
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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
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(1989); see also Allen v. Adage, Inc., 967 F.2d 695, 697-98
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(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.
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Diaz's argument is unconvincing, however.
Firestone concerned certain terms ("reduction in work
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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
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promulgated by the trustees pursuant to powers delegated by
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that instrument. And, the distinction is important.
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The Firestone opinion turned on the traditional
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legal doctrine that trustee powers are
determined by the rules of law that are
applicable to the situation . . . and by
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the terms of the trust as the court may
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interpret them, and not as they may be
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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,
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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
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determinations are to be given
deference,
the proper standard of review is de novo. 489 U.S. at 111.
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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.
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Lockhart v. United Mine Workers of America 1974 Pension
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Trust, 5 F.3d 74, 78 n.6 (4th Cir. 1993) ("Given that the
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Trustees have the authority to formulate the rules and
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regulations that implement the Plan . . . , it is not
subject to question that the Trustees have the . . .
discretion to interpret these rules and regulations . . .
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.") (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
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(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
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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
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which the Trustees in their discretion
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may deem necessary or proper to
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effectuate the purposes and intent of
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the pension program.
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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
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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).
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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
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when it called for "evidence" of a grant of discretionary
authority to determine eligibility for benefits. Firestone,
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489 U.S. at 111; cf. Curtis v. Noel, 877 F.2d 159, 161 (1st
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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
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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.
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Sisters of the Third Order of St. Francis v. SwedishAmerican
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Group Health Benefit Trust, 901 F.2d 1369, 1371 (7th Cir.
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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
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requirements for deferential review, for, after Firestone
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(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
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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
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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
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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
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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.
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International Bhd. of Teamsters Union Local No. 710 Pension
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Fund, 649 F.2d 1243, 1248-49 (7th Cir. 1981) (finding it
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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
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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.
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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
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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
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injury is not enough to show that he would have left the NMU
(and returned to the SIU) without the injury. In their
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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.
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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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