:: Sixth Circuit Holds That Plaintiffs Fail To Make ERISA Section 510 Case

But of course: the whole issue is whether reducing pension benefits by shutting down a plant with employees close to vesting was a “motivating factor” or was instead “incidental” because there were other, neutral, business reasons at play. See Smith, 129 F.3d at 865.

At the pretext stage, judges must still bring their judgment to bear on whether or not plaintiffs have met their burden–in effect, the Burdine/McDonnell-Douglas framework has fallen away and the question reduces to whether plaintiffs can prove improper motivation.

Crawford v. Trw Auto. United States Llc, 2009 FED App. 0124P (6th Cir.) (6th Cir. Mich. 2009)

In this recent Sixth Circuit opinion, the plaintiffs launched an attack on their employer’s plant closure using the most unreliable weapon of a Section 510 interference claim. Lacking direct evidence of a specific intent to interfere with benefit rights, the plaintiffs were forced to turn to the peculiar method of proving a circumstantial case unique to discrimination cases.

The Facts

The plaintiffs, a class of former TRW Automotive employees, alleged that TRW violated ERISA by closing the plant where they worked to interfere with the vesting of their retirement benefits. The defendant blamed the plant closure on overcapacity problems which hampered profits. Adding to the controversy, the defendant placed some new work at a non-union facility, but there were operational jusifications offered for that decision.

First a ray of hope appeared, but these hopes were soon overshadowed by economic differences:

Shortly before TRW shut Van Dyke down, however, the company discussed with the UAW the possibility of preferentially hiring laid-off Van Dyke employees to the Mancini plant and “bridging” the benefits of Van Dyke employees who were close to vesting. TRW also offered a severance to employees who opted out of their available retiree benefits. But the two sides failed to reach an agreement and TRW closed Van Dyke in January 2007. At that time, three employees missed the 30-year retirement mark by less than one year of benefit service (all three had been laid-off in 2005), and four others missed the 30-year mark by less than two years.

ERISA Section 510 Invoked

Ultimately the plaintiffs sued, alleging that TRW violated ERISA § 510 by (1) failing to recall employees following a layoff, (2) refusing to transfer employees to the Mancini Drive facility, and (3) improperly discharging employees to interfere with their attainment of retirement eligibility. The district court granted summary judgment to TRW on all counts, and also later dismissed plaintiffs’ motion for relief from the judgment on the basis of new evidence.

Making The Section 510 Case

ERISA § 510 makes it “unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary . . . for the purpose of interfering with the attainment of any right to which such participant may become entitled under [an employee benefit plan].” 29 U.S.C. § 1140.

The Sixth Circuit posed the question as follows: Did the plaintiffs proffered enough evidence of this improper motive to get to a jury.

The Burden Shifting Minuet

The Court noted that “the plaintiffs must show that TRW fired them for the purpose of interfering with the attainment of their retirement benefits.” and that the plaintiffs may make this showing either through direct or circumstantial evidence. If circumstantial, the case must be made “via the ubiquitous burden-shifting framework that has, like some B-movie villain, devoured nearly every area of law with which it has come into contact.” (citing, Texas Dep’t of Community Affairs v. Burdine, 450 U.S. 248, 253 (1981); McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973)).

The Circumstantial Case

Lacking direct evidence, the plaintiffs began the burden-shifting minuet. In the ERISA context, the burden-shifting framework first requires the plaintiffs to establish their “prima facie” case “by showing the existence of (1) prohibited employer conduct (2) taken for the purpose of interfering (3) with the attainment of any right to which the employee may become entitled.” Smith v. Ameritech, 129 F.3d 857, 865 (6th Cir. 1997).

Although some of the cases discuss, in reference to this “prima facie” case, the need for the plaintiff to prove the existence of the employer’s “specific intent,” see, e.g., Schweitzer v. Teamsters Local 100, 413 F.3d 533, 537 (6th Cir. 2005); Humphreys v. Bellaire Corp., 966 F.2d 1037, 1043 (6th Cir. 1992), that requirement is superfluous and not relevant (at this first stage at least) because it gets to the ultimate question of whether the employer purposefully interfered with the employee’s pension rights. This confusion stems in part because the term “prima facie” as used here, does not comport with the traditional understanding of that term–namely, that plaintiffs have proven enough to get to a jury, see 9 WIGMORE ON EVIDENCE § 2494, 378-79 nn. 1,3 (1981).

Instead, “prima facie” is Burdine/McDonnell-Douglas shorthand for saying whether the plaintiffs have shown enough to create a rebuttable presumption such that the employer must then produce evidence supporting a legitimate, non-discriminatory reason for the discharge. If the employer makes this showing, the burden shifts back to the plaintiff to show that this proffered reason was a “pretext”–i.e. a phony reason–and instead that the intent to interfere with the plaintiff’s ERISA rights was a “motivating factor.” Id.

Step 1

The plaintiffs “easily” satisfied the low-threshold for establishing their prima facie case.

TRW’s Vice President of Operations for the Suspension Group stated that pension costs–colloquially known within the company as “legacy” or “heritage” costs–were among the reasons to close down the plant. And that is no surprise: labor costs are often among the largest costs for a plant, and such “legacy” or retirement and benefits costs typically make up the largest portion of labor costs. See Hylton, 55 BUFF. L. REV. at 1204-11. Indeed, as the district court observed, the work done at Van Dyke was transferred to a non-union facility where such costs “were reduced or non-existent.”

The Court viewed this as sufficient “to erect the presumption” and require TRW to make an evidentiary showing.

Step 2

TRW’s answer was rather obvious. It stated that it closed Van Dyke because of its overcapacity: only 30,000 square feet of its available 300,000 square feet was being used, so roughly 26% of every sales dollar went to fixed costs and overhead.

This is a strong non-discriminatory reason, especially when coupled with the fact that there are necessarily a variety of concerns at play whenever a company decides to shut down a plant.

And so the Court moved on.

Step 3

So we reach the “pretext” stage.

Plaintiffs claimed that:

TRW’s proffered reason is phony because the plant was so poorly run; specifically, that the company could have kept Van Dyke going if it had cut a variety of possible costs and placed the DaimlerChrysler work there. Thus, plaintiffs argue, because they did not do those things, it must have been the company’s desire to interfere with their pension benefits that motivated it to close their plant.

TRW, in turn, claimed that:

since its stated reason concerned “business judgment,” then its reason is unassailable. In support, TRW quotes dicta from the cases, like: “Measures designed to reduce costs in general that also result in an incidental reduction in benefit expenses do not suggest discriminatory intent.” Daughtrey v. Honeywell, Inc., 3 F.3d 1488, 1492 (11th Cir. 1993).

The Issue Reduced To A Single Question

Returning to the larger theme, the Court stated:

the whole issue is whether reducing pension benefits by shutting down a plant with employees close to vesting was a “motivating factor” or was instead “incidental” because there were other, neutral, business reasons at play. See Smith, 129 F.3d at 865.

At the pretext stage, judges must still bring their judgment to bear on whether or not plaintiffs have met their burden–in effect, the Burdine/McDonnell-Douglas framework has fallen away and the question reduces to whether plaintiffs can prove improper motivation.

After a review of various details, some of them rather odd, the Court concluded that, “despite plaintiffs’ evidence, we cannot say that TRW’s reason was a mere pretext.”

Note: The Court noted that both parties overstated their case:

TRW overreaches in stating that employees may never challenge discharges that result from a plant-closing decision. While “[e]mployers or other plan sponsors are generally free under ERISA . . . to adopt, modify or terminate” pension benefit plans, Coomer v. Bethesda Hosp. Inc., 370 F.3d 499, 508 (6th Cir. 2004), this discretion does not permit them to discharge employees or alter their plan rights to “circumvent the provision of promised benefits.” Inter-Modal Rail Emples. Ass’n v. Atchison, Topeka & Santa Fe Ry., 520 U.S. 510, 515 (1997) (internal quotations omitted).
. . .
Plaintiffs similarly overreach in claiming that TRW was legally required to recall many of them back to or to transfer them to the Mancini plant. As stated above, § 510 includes a list of prohibited actions, including improperly “discharg[ing], fin[ing], expel[ling],” and “discriminat[ing].” But nowhere is “transferring” or “recalling” listed. Neither have plaintiffs identified caselaw giving effect to such a claim.

Novel Theory Rejected – The plaintiffs, in support of their theory that § 510 gives them a right to be recalled or transferred, “try to import two doctrines into ERISA law: the corporate “alter-ego” doctrine, see Yolton v. El Paso Tenn. Pipeline Co., 435 F.3d 571, 587 (6th Cir. 2006), and the labor law “double-breasting” doctrine, see NLRB v. Fullerton Transfer & Storage, Ltd., Inc., 910 F.2d 331, 336 n.7 (6th Cir. 1990).”

The idea seems to be that the plaintiffs view the Mancini plant as the successor or “alter-ego” of the defunct Van Dyke plant. But, setting aside the nuanced analysis required to explain if and how these doctrines would apply to two plants both owned by the same company–rather than to a successor entity–it is unclear what satisfying these tests would get plaintiffs. Suppose the Mancini plant was the “alter ego” of Van Dyke: plaintiffs would still not be entitled to a transfer, because their plan granted them no such right and neither would they be entitled to a separate recall, so long as the original discharge was lawful. So, we decline the invitation to apply these two doctrines to ERISA law because any conclusion would be irrelevant to our decision today. Thus, § 510 does not include the right to be recalled or transferred if the discharge itself was lawful.