ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY
Before: GIBBONS, GARTH and HIGGINBOTHAM, Circuit Judges
William J. Walsh, a retired employee of The Great Atlantic & Pacific Tea Company, Inc. (A&P), appeals from an order of the district court approving a settlement of a class action brought by him under sections 502(a)(2) and (3) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1133(a)(2), (3) (1976), on behalf of participants in the A&P Employees' Retirement Plan. Walsh advances several reasons why the order should be set aside, none of which has merit. Thus we affirm the settlement.
I. Background to the Class Action
In 1948 A&P adopted a defined-benefits Employee Retirement Plan. The Plan provided that A&P would make contributions "in such amounts as, in the light of actuarial requirements, may be deemed necessary . . . to provide the benefits under the Plan. . . ." 1948 Plan, § 5(1), App. at 1097-98. A&P reserved the right to terminate the Plan at any time. Section 8(2) of the 1948 Plan provided that in the event of Plan termination, funds of the Plan were to be used "solely for the benefit of members and retired members or their contingent annuitants . . . except that such excess funds as may exist because of erroneous actuarial computation shall be returned to the Company. " 1948 Plan, § 8(2), App. at 1102 (emphasis added). A&P also reserved the right to amend the Plan, "retroactively or otherwise, . . . provided that no such modification or amendment shall make it possible for any part of the funds of the Plan to be used for, or diverted to, purposes other than for the exclusive benefit of members and retired members or their contingent annuitants . . . prior to the satisfaction of all liabilities with respect to such members, retired members and contingent annuitants. " 1948 Plan, § 10, App. at 1106 (emphasis added).
By 1973, largely because of a contraction of A&P's business and a consequent reduction in its work force, the funds in the Plan substantially exceeded its obligations for defined benefits. Coincidentally, in that year Gulf and Western Corp. initiated a hostile tender offer for A&P stock. According to an affidavit of Arthur Melervey, Assistant General Counsel to A&P from 1971 to 1975 and the company Secretary thereafter, A&P's management believed that these excess funds, reachable by virtue of section 8(2), were alluring to tender offerors, who might obtain and syphon off the funds or merge the Plan with one of their own less-generously funded pension plans. Thus in 1973 A&P amended section 8(2) to provide that "[w]ith respect to any funds remaining in the Plan following the satisfaction of all allocations hereinbefore set forth, such funds shall be applied pro-rata to the benefit of each class hereinbefore set forth as determined by the actuary of the Plan." 1973 Plan, § 8(1)(g), App. at 1109-10.A&P further amended section 8 to provide that in the event of termination, "all of the funds of the Plan shall be used solely for the benefit of members and retired members or their contingent annuitants, and their widows. . . ." 1973 Plan, § 8(2), App. at 1110. The effect of the 1973 amendments was to eliminate the provision that excess funds would on termination or expiration be returned to A&P. No change was made in 1973, however, in the provision of section 10 reserving to A&P the right to amend the Plan "retroactively or otherwise." According to Melervey's affidavit, A&P management apparently believed that the reserved right to amend permitted A&P to control the disposition of the excess Plan funds until termination, but that the threat of termination -- and thus of vesting the excess in the fund participants -- would discourage covetous raiders. App. at 1063-67
In 1976 the A&P management purported to amend and restate the Plan. Among the changes in the 1976 Plan is an amendment to section 8 providing that "after all the liabilities under the Plan have been satisfied, any property remaining in the trust fund as a result of erroneous actuarial computation shall be distributed by the Trustee to the Company." 1976 Plan, § 8.5, App. at1252. The intended effect of the 1976 amendment appears to have been to restore the situation existing prior to 1973 under which excess funds would, on termination, be returned to A&P.
Evidently there was some concern that the 1976 amendment may not have been effective in restoring the pre-1973 situation, however, for in 1981, in response to sections 4044(d)(1)(A) and (B) of ERISA, 29 U.S.C. § 1344(d)(1)(A), (B) (1976 & Supp. V 1981), section 11 of the Amended and Restated Plan was further amended by the addition of the following provision:
11.4. Upon termination of the Plan, any residual assets of the Plan shall be distributed to the Company if --
(A) All liabilities of the Plan to Members and their beneficiaries have been satisfied; and
(B) The distribution does not contravene any provision of law.
App. at 109, 1061. The parties do not dispute that by June 26, 1981, when the language just quoted was adopted, the Plan, by its terms, purported to restore the pre-1973 provisions under which, on termination, excess funding would be restored to A&P.
By 1981 A&P's business fortunes had badly deteriorated. Between 1970 and 1979 A&P reduced the number of its retail stores from 4500 to 1500 and the number of its employees from 130,000 to 63,000. App. at 1036. A&P accrued enormous losses 1980 and 1981 that A&P terminate the Plan in order recapture the Plan's excess funding. On October 16 A&P announced that it intended to terminate the plan. This litigation intervened.
II. The Class Action and Settlement
On October 30, 1981 Walsh filed the instant class action. Charging that the 1981 amendment was a breach of fiduciary duties in violation of Sections 404 and 405 of ERISA, 29 U.S.C. §§ 1104-1105 (1976 & Supp. V 1981), the complaint sought a declaratory judgment that the June 26, 1981 amendment to Section 11 is a nullity and an injunction against distribution of the excess funds to A&P. App. at 26. In January of 1982 the district court, on the stipulation of the parties, determined that the requirements of Fed. R. Civ. P.23(a), (b)(1) and (b)(2) had been fully satisfied and that Walsh and his counsel would fairly represent and adequately protect the interests of the class. The district court's order certifying the class defined the class as all persons "who are members, including former members, and their covered beneficiaries" of the A&P Plan. The parties stipulated, and the court ordered, that notice be provided "to all members, including former members, of the Plan and their covered beneficiaries who are denominated as such on the books and records of the Plan." App. at 115. The court ordered notice by publication once in the Eastern Edition of the Wall Street Journal and once in the Newark Star Ledger, and by first class mail addressed to class members at the most recent address shown on the books and records of the Plan.
Thereafter, counsel for Walsh and for A&P engaged in substantial discovery and in settlement negotiations. In April of 1982 the parties reported a proposed settlement to the court. Under its terms A&P would amend the Plan so that $50 million of the excess funds would be used to purchase annuities which would increase retirement benefits. On the $50 million, $40 million would be allocated among retired employees and terminated Plan participants who had vested pension rights. Ten million dollars would be allocated to participants still employed by A&P on the date of the Plan's termination. The remaining excess funds -- then estimated at $200 million, and subsequently assessed at an even ...