Counts v. Kissack Water And Oil Service, Inc.Counts v. Kissack Water And Oil Service, Inc.
Haultain E. Corbett, of Lonabaugh and Riggs, Sheridan, WY, for defendants-appellees.
Before McKAY, Chief Judge, SEYMOUR, and KELLY, Circuit Judges.*
PAUL KELLY, Jr., Circuit Judge.
1 Plaintiffs-appellants Dennis and Delores Counts appeal the district court‘s grant of summary judgment in favor of defendants-appellees Kissack Water and Oil Service, Inc., Profit Sharing Plan (Plan) and Kissack Water and Oil Service, Inc., Plan Administrator (Administrator), upholding the Administrator‘s refusal to pay Dennis Counts’ retirement benefits in a lump sum payment. Because we find that the Plan was improperly amended to eliminate an optional form of benefit, the Administrator‘s decision was based on a mistake of law, and we must reverse.
2 From May 1982 to January 1990, Dennis Counts worked for Kissack Water and Oil Service, Inc. (Kissack), participated in its profit sharing plan, and became fully vested. During this time, the Plan offered several forms of benefits at the employer‘s discretion, including a lump sum payment. Upon terminating his employment, Mr. Counts requested that his retirement benefits be paid in a lump sum. This request was refused, and Mr. Counts was informed that the Plan had been amended in 1990 to delete the lump sum option and that he could only receive his benefits in installments.
3 An action was commenced in the Wyoming federal district court, claiming violations of the Employee Retirement Income Security Act,
4 The various versions of the Plan have consistently granted the Administrator the power to interpret the Plan; therefore, an arbitrary and capricious standard of review must be applied to the Administrator‘s refusal to pay a lump sum benefit. See Firestone Tire & Rubber v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 956, 103 L.Ed.2d 80 (1989). An administrator‘s action is arbitrary and capricious if it is based on a “lack of substantial evidence, mistake of law, bad faith, [or] conflict of interest.” Winchester v. Prudential Life Ins., 975 F.2d 1479, 1483 (10th Cir.1992). The district court‘s determination that the Administrator‘s decision was not arbitrary and capricious is reviewed de novo. Sandoval v. Aetna Life & Cas. Ins. Co., 967 F.2d 377, 380 (10th Cir.1992); Pratt v. Petroleum Prod. Mgt., Inc., 920 F.2d 651, 658 (10th Cir.1990).
5 The Counts contend that Kissack violated
6 Since 1984,
7 A very limited exception to this statute was created, however, in 1988, when Treasury regulations were issued requiring the elimination of employer discretion as to the form of benefit to be paid.2
8 The regulations set out two relevant deadlines for compliance. First, the employer was required to “select” one of these alternatives prior to the first day of the first plan year beginning on or after January 1, 1989.
10 We have also considered whether Kissack‘s history of not awarding lump sum benefits constituted a “selection” prior to January 1, 1989. We hold that an employer may not be deemed to have achieved operational compliance with
11 The only two cases addressing the “selection” requirement have held that the regulations were not satisfied where an employer simply relied on an unspoken informal policy of not granting lump sum benefits. In Auwarter v. Donohue Paper Sales Corp. Defined Benefit Pension Plan, 802 F.Supp. 830, 839 (E.D.N.Y.1992), the court interpreted the “selection” requirement as imposing an affirmative duty to take some action by the date specified, and found that the employers’ “contention that they ‘selected’ by continuing not to do something that they claim they had not been doing all along, namely paying out lump sum benefits, is logic strained beyond the bounds of reasonableness.” Id. The court reasoned that if the regulations did not require an overt act by the employer, “there would be little reason to include a separate requirement of operational compliance.” Id. So too, in Hollingshead v. Burford Equipment Co., 747 F.Supp. 1421, 1434 (M.D.Ala.1990), the court rejected a claim that the company “selected” an operational alternative by not disbursing any benefits after a certain date.
12 Here, other than continuing an unspoken policy, Kissack first appears to have made its “selection” in March 1989, two months after it was required to do so under the regulations. Thus, Kissack did not make a timely choice, and, after January 1, 1989, was not entitled to formally amend its Plan to eliminate the lump sum option for those whose rights had already accrued.
13 Instead, ERISA and the Treasury regulations required Kissack to amend its Plan to afford the lump sum option to all employees whose rights accrued prior to the 1990 amendment. Because employer discretion as to the availability of an optional form of benefit violated
14 The retroactive application of a Plan amendment to eliminate an accrued benefit “is not only ineffective, but also arbitrary and capricious.” Pratt, 920 F.2d at 661. Because the Administrator failed to interpret the Plan to offer the option of lump sum payments to any participant whose rights had accrued prior to the 1990 amendment, his interpretation was contrary to the requirements of ERISA, and was based on a “mistake of law.” Winchester, 975 F.2d at 1483. His decision, therefore, cannot be upheld.
15 We note that the ineffectiveness of Kissack‘s “selection” has not been raised by either party on appeal. Based on the undisputed fact that the Distribution Policy was adopted in March 1989, two months after the deadline had passed, we cannot, as a matter of law, uphold the district court‘s determination that Kissack complied with the Treasury regulations. Although it is rarely done, an appellate court may, sua sponte, raise a dispositive issue of law when the proper resolution is beyond doubt and the failure to address the issue would result in a miscarriage of justice. See Gregory v. United States/United States Bankruptcy Court, 942 F.2d 1498, 1500-01 (10th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 2276, 119 L.Ed.2d 202 (1992); see also Petrini v. Howard, 918 F.2d 1482, 1483 n. 4 (10th Cir.1990).
16 The judgment of the United States District Court for the District of Wyoming is REVERSED, and the case is REMANDED with directions to enter judgment for the Plaintiffs-appellants.
ORDER ON PETITION FOR REHEARING
17 March 12, 1993.
18 In our opinion, we held that the employer failed to make a timely selection of a transitional alternative eliminating an optional lump sum benefit. We relied on a Distribution Policy adopted by the employer on March 9, 1989, which we viewed as a selection intended to eliminate the optional form of benefit, to be followed by a timely amendment. See
19 We have reviewed the materials contained in the petition for rehearing in the light most favorable to the Defendants to determine whether a remand to the district court is necessary. We decline to grant rehearing because the evidence submitted will not support an inference that the Defendants “selected” a transitional alternative prior to the March 9, 1989 Distribution Policy, which plainly was meant to constitute the selection within the meaning of the regulations. See I R. doc. 19 at 14-15; III R. 15-16. The contention that the Defendants “selected” a transitional alternative prior to this date, merely by continuing not to do something that they claim they had not been doing all along, namely awarding lump sum benefits, is untenable. While we recognize that selection of a transitional alternative was an operational requirement that did not call for a contemporaneous plan amendment or special reporting,
20 The Petition for Rehearing is DENIED.