Cinelli v. Security Pacific Corp.

Citations: 61 F.3d 1437; 95 Cal. Daily Op. Serv. 6218; 95 Daily Journal DAR 10622; 1995 U.S. App. LEXIS 20698; 1995 WL 461892Docket: No. 93-17318

Court: Court of Appeals for the Ninth Circuit; August 7, 1995; Federal Appellate Court

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The case involves an appeal by Alfred Cinelli concerning the termination of the Security Pacific Corporation Supplemental Group Life Insurance Plan under the Employee Retirement Income Security Act (ERISA). Cinelli contends that the termination was improper and deprived him of fully vested life insurance benefits. The district court ruled that the benefits were not fully vested and that the plan allowed for termination. The court found that Security Pacific had the authority to terminate the insurance policy at any time under its agreement with Aetna Life, Casualty Company, which governed the Supplemental Plan.

The Supplemental Plan, established in 1979 for senior management, included vesting provisions stating that 50% of the benefits would vest at age 55, increasing 10% annually until full vesting at age 60. However, the policy rider did not specify any vesting or termination provisions. Cinelli, a senior vice president, was informed of his eligibility in 1979 and received coverage of $100,000. Upon his retirement in 1981 at age 66, he was entitled to approximately $40,000 in basic life insurance and $100,000 under the Supplemental Plan.

After BankAmerica merged with Security Pacific in 1992, it became the successor sponsor and notified participants of the plan's termination effective December 31, 1992. Participants were offered the option to convert their coverage to a new policy without a medical examination, with premiums to be paid by them. Cinelli, then 78, did not convert his policy, leading to its termination. He believed that comparable insurance would be unavailable or too costly due to his age. The court affirmed the district court's ruling, concluding that the termination of the Supplemental Plan was consistent with the plan documents.

Cinelli initiated a legal action on behalf of himself and similarly situated individuals to seek recovery under the Supplemental Plan. The district court determined that the Board resolution was not part of the Supplemental Plan documents and concluded that the Supplemental Plan, which consists of the Aetna policy and rider, included provisions for termination. Consequently, the court granted summary judgment in favor of the Supplemental Plan and BankAmerica, ruling that BankAmerica had properly terminated the coverage under the Supplemental Plan, thereby dismissing Cinelli's breach of fiduciary duty claim.

The appellate review of summary judgment is conducted de novo, considering the facts in favor of the nonmoving party to assess if any material disputes exist and whether the law was applied correctly. Under ERISA, a plan offering death benefits qualifies as a 'welfare plan,' which differs from pension plans as it is not subject to vesting requirements. Benefits under welfare plans are generally non-vested, allowing employers to amend or terminate them at any time unless explicitly stated in the plan documents.

The Board resolution indicates that benefits under the Supplemental Plan would vest at age 60; however, the Aetna policy lacks any vesting language and states it can be terminated by the employer. The court must evaluate if the Board resolution is part of the plan documents that would imply vested benefits in the Supplemental Plan. If it's not part of the documents, the court will then consider if the Supplemental Plan's language regarding vesting or termination is ambiguous enough to warrant the inclusion of external documents. Although Cinelli contends that the Board resolution is part of the Supplemental Plan, it is primarily a recommendation for the creation of the plan rather than a binding document, specifically indicating that the Aetna policy constitutes the Supplemental Plan.

In Watkins v. Westinghouse Hanford Co., the court established that letters from an employer could not constitute a binding ERISA plan document due to the absence of critical details regarding beneficiaries, funding sources, and operational procedures. Under ERISA, plans must be maintained with a written instrument that outlines (1) funding policy and method, (2) operational procedures, (3) amendment procedures, and (4) payment mechanisms. The court determined that the letters lacked sufficient information to qualify as plan documents, leading to the conclusion that an ERISA plan was not established.

Cinelli contends that the Security Pacific Board Resolution and the Flamson letter qualify as plan documents creating a Supplemental Plan. However, the Flamson letter failed to include amendment procedures or operational descriptions, a shortcoming mirrored in the Board Resolution. The court ruled that the Supplemental Plan was only established with the policy rider from Aetna, which met the statutory requirements.

Cinelli's reference to Horn v. Berdon, Inc. is deemed misguided. In Horn, a board resolution effectively amended a pension plan by redistributing surplus assets, as it complied with amendment requirements despite its title. In contrast, the Security Pacific resolution did not amend an existing plan but authorized a new Supplemental Plan, which did not alter current benefits under the Group Life Insurance Policy. The resolution was characterized as an enabling document rather than an amendment or plan document.

Cinelli contends that a resolution or letter constituted an informal yet binding ERISA plan, asserting it included necessary vesting language based on the precedent set in Donovan v. Dillingham. The Eleventh Circuit's decision in Donovan established that a court must evaluate whether a reasonable person could identify the intended benefits, beneficiaries, financing sources, and procedures for receiving benefits to determine the existence of a welfare plan. The court clarified that merely deciding to extend benefits does not equate to establishing a plan; instead, concrete actions or documentation must demonstrate that a plan exists. In Williams v. Wright, the court found that a letter from a company president detailing financing sources, beneficiaries, and benefit administration procedures constituted a plan. Similarly, in Scott v. Gulf Oil Corp., allegations of oral agreements to provide benefits were deemed sufficient to assert an ERISA claim. Conversely, in Watkins, preliminary booklets and letters failed to meet the statutory requirements for creating an ERISA plan, emphasizing that intent alone is insufficient. Additionally, in Elmore v. Cone Mills Corp., promises made in a letter during a takeover bid were deemed part of the plan by the district court, which ruled that the Board violated fiduciary duties and allowed for recovery based on equitable estoppel if detrimental reliance was proven. However, the Fourth Circuit ultimately determined that the documents did not establish a formal ERISA plan.

The court ruled that the documents in question did not serve as amendments to the formal plan, as they failed to adhere to the amendment procedures outlined within the plan. In evaluating whether the letters constituted a binding informal ERISA plan, the court referenced the cases of Donovan and Carver, concluding that they did not meet the criteria to establish such a plan. It found that the letters lacked essential provisions for benefit receipt, which could only be derived from the formal plan itself. The court noted that if a formal plan is adopted by the employer, preliminary statements regarding the plan are not enforceable as an employee benefit plan. Citing Carver, it emphasized that Donovan applies only in scenarios lacking a formal plan, and since a formal plan was later adopted, the preliminary communications failed to create an informal ERISA plan. Cinelli's argument that a resolution and president's letter satisfied ERISA requirements was dismissed, as Donovan pertains to the absence of a formal plan. The court confirmed that the formal plan did not include vesting language from the resolution, thus the letter and resolution did not establish a binding informal plan.

The Board's resolution merely indicated the decision to implement a supplemental life insurance plan, with the actual provisions being defined by the Aetna policy and its rider. The Board Resolution was not considered a plan document unless ambiguity regarding termination arose in the Supplemental Plan. The policy explicitly outlined termination rights, allowing the employer to discontinue the plan upon proper notice. The court noted that the policy included an integration clause and that the termination provisions were clear, affirming the employer's right to terminate the Supplemental Plan at will. Hence, absent any ambiguity within the Supplemental Plan, extrinsic evidence could not be utilized to alter the plan's written terms.

Cinelli argues for a remand based on a material question regarding whether the omission of vesting language was a mistake. He contends that parol evidence should be admissible to clarify the true agreement between the parties since the written document does not reflect their intent. The discussion references case law, including Armistead v. Vernitron Corp., which allows extrinsic evidence to interpret collective bargaining agreements under ERISA, while noting that ERISA generally preempts common law contract theories. Exceptions exist where contract principles align with ERISA’s objectives, such as limited applications of equitable estoppel and mutual mistake. The excerpt highlights that other circuits have allowed for the consideration of mistakes in ERISA contexts, provided it does not contradict written terms or involve collective bargaining agreements. However, the court concludes that this case does not involve such agreements or material mistakes but must instead determine if applying mistake principles aligns with ERISA’s preference for written documents. Ultimately, the court finds that applying these principles would contradict ERISA’s aim of ensuring clarity in employee rights and obligations as outlined in plan documents.

Parol evidence cannot be used to modify the clear terms of a formal plan document, as it would contradict the objectives of ERISA. Unlike the Murata case, the mistake claimed by Cinelli pertains to a fundamental provision of the plan, which is explicitly stated, making it inappropriate to challenge based on alleged intent. Cinelli's claim of breach of fiduciary duty under 29 U.S.C. § 1132 was dismissed by the district court because the plan's termination was a legitimate business decision compliant with the Supplemental Plan's terms. Liability for breach of fiduciary duty under ERISA is limited to injuries to the plan itself, not individual beneficiaries, and Cinelli's action sought personal benefits rather than addressing any injury to the plan. 

Regarding attorney fees on appeal, the court considered the factors outlined in 29 U.S.C. § 1132(g) but ultimately decided against awarding fees, noting Cinelli’s claims were made in good faith and were supported by a reasonable legal argument. Additionally, the court found no ambiguity in the termination provision of the Supplemental Plan; the rider explicitly forms part of the policy and is governed by its terms, allowing BankAmerica to terminate the policy without any ambiguity. The prior ruling was affirmed.

The Policyholder and any Participant Employer may terminate the policy for all employees by providing written notice to the Insurance Company, specifying the effective date of the termination. This allows for the termination of the Supplemental Plan at any time, provided proper notice is given. The policy's termination provisions are clear and unambiguous, granting the company the right to terminate the policy at will. Without ambiguity in the Supplemental Plan, extrinsic evidence cannot alter its terms. Cinelli argues for remand due to a material factual question regarding the omission of vesting language, claiming it reflects a mistake, which would allow for parol evidence to ascertain the true agreement. While ERISA generally preempts common law contract theories, exceptions exist where traditional contract principles do not conflict with ERISA’s objectives, such as allowing equitable estoppel in limited situations. Other circuits have permitted the use of mistake theory to clarify intent in ERISA cases, recognizing that collective bargaining agreements are subject to traditional contract interpretation rules if consistent with federal labor policy. Courts have acknowledged the potential to reform or void contracts when parties are mutually mistaken about a material aspect, and have allowed examination of parol evidence in cases involving “scrivener’s error.”

The court held that reformation for a "scrivener’s error" under ERISA is permissible when neither party could foresee a windfall, emphasizing ERISA's goal of clear plan documents. Unlike previous cases, this situation did not involve a collective bargaining agreement or mutual mistake. The court found that applying principles of mistake would contradict ERISA's preference for written terms, as it would require altering unambiguous plan documents based on parol evidence. Cinelli's claim of breach of fiduciary duty was dismissed because the district court determined there was no breach; BankAmerica's plan termination was a legitimate business decision. Under 29 U.S.C. § 1109, fiduciary liability requires injury to the plan, not individual beneficiaries like Cinelli. The district court’s dismissal was affirmed. The court also declined to award attorney fees under 29 U.S.C. § 1132(g) since Cinelli's claims were not made in bad faith and were based on a legitimate legal argument. Lastly, the court found Cinelli's assertion of ambiguity in the termination provision of the Supplemental Plan to be without merit, affirming that the rider was clearly part of the Group Policy and governed by its terms.