On Appeal from the United States District Court for the Middle District of Pennsylvania, D.C. Civil No. 85-1549.
Gibbons, Chief Judge, Weis, Circuit Judge and Kelly, District Judge.*fn*
Vance L. Eckersley appeals from a summary judgment in favor of WGAL-TV, Inc. (Successor Plan Administrator) in his suit, pursuant to section 502(a)(1)(B) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1132(a)(1)(B) (1982), for the recovery of additional pension benefits. The district court held that the action of the Plan Administrator in denying Eckersley's claim was not arbitrary or capricious, and must be upheld. We reverse.
In 1961 Eckersley was employed as the station manager of a television station in New Bedford, Massachusetts. That station was acquired, in 1966, by WGAL Television, Inc. (Employer), a Pennsylvania corporation which also owned a television station in Lancaster, Pennsylvania. The Employer continued Eckersley's services. Effective January 1, 1975, Eckersley's compensation was governed by a contract under which he was paid an annual base salary and a bonus equal to 3 % of after-tax net profits earned by the New Bedford station, plus a Christmas bonus equal to his average weekly salary for the year in question. The share of profits was paid after the close of each year.
The Employer also had a pension plan under which, commencing at age 65, plan participants would be paid benefits based solely on an employee's "final average earnings." "Final average earnings" is defined in the plan as "the average of . . . total nondeferred annual earnings from the Employer during the final five consecutive complete calendar years of [the employee's] service." The Employer was the initial plan administrator.
On August 15, 1987, the Employer sold the assets of the New Bedford television station for $16,195,500 to a Delaware corporation wholly owned by the Pulitzer Publishing Company. Simultaneously the Employer sold the assets of its Lancaster, Pennsylvania television station to WGAL-TV Inc., a separate, wholly-owned Pulitzer Publishing Company subsidiary. These sales marked the end of Eckersley's employment as manager of the New Bedford station. Following the sales of the two stations, WGAL-TV Inc. became the Successor Plan Administrator of the Employer's pension plan.
The Employer paid Eckersley 3 % of the net after-tax profits of the New Bedford station for the first seven months of 1979. The Employer did not, however, disclose to Eckersley the amount of the net profit on the sale of the station's assets, or pay him any part of that profit. In December, 1979, Eckersley requested that the Employer adhere to its contractual obligation by including in his bonus calculation 3 % of then et after-tax profits on the sale of its assets. The Employer refused.
Because he had reached the age of 65, Eckersley sought a normal pension. The Successor Plan Administrator initially calculated Eckersley's average total nondeferred annual earnings for the years 1975 through 1979 by including his basic salary and all profit-sharing monies he had actually received. The Successor Plan Administrator did not include any amount that Eckersley claimed as his share of the profits on the sale of the New Bedford station assets. That computation resulted in a monthly benefit of $512.49. On August 4, 1980 Eckersley's counsel transmitted to the Successor Plan Administrator a request for a formal review of the computation, asserting that 3 % of the profits from the sale of assets should have been included. By then, Eckersley had commenced suit against the Employer for additional compensation, and the Substitute Plan Administrator responded to the effect that since the claim for additional compensation was in litigation the review of the computation of pension benefits was premature.
Eckersley's suit against the Employer sought only the additional compensation he claimed under his employment contract. He alleged that "[the Employer's] failure to pay plaintiff 3 % of the net profits of [the New Bedford station] for the month of August, 1979, constitutes a breach of the written bonus plan." Because he was not informed of the amount of profit realized on the sale of assets, his initial demand was for 3 % of the sale price. After discovery, Eckersley's suit against the Employer was settled for $200,000. As a part of the settlement, Eckersley signed a release in favor of the Employer "its shareholders, directors, officers, agents and employees and their heirs and assigns."*fn1 The release states that it is a full and complete settlement of the liability claimed and denied in the lawsuit. The Successor Plan Administrator was not a party to the lawsuit, however, and no reference appears, either in the complaint against the Employer or in the release, to Eckersley's still pending claim for additional pension benefits. The Employer reported the $200,000 payment for federal income tax purposes as "Court-ordered payment to V. Eckersley as compensation re: sale of station WTEV-TV."
Following the settlement with the Employer, Eckersley's counsel, referring to the request for formal review transmitted to the Successor Plan Administrator on August 4, 1980, requested a computation of additional "retroactive and future benefits to which Mr. Eckersley is not entitled as a result of the inclusion of the additional compensation of $200,000 for the year 1979." Letter from Myers dated August 3, 1984. That request was referred to the Successor Plan Administrator's business manager, actuary, and attorneys. On May 30, 1985, the Successor Plan Administrator rejected the request for the following reasons:
1. Benefits under the Plan are computed on the basis of "Final average earnings." . . . "Final average earnings" as defined in Section I of the Plan consist solely of "nondeferred annual earnings from the Employer during the final five consecutive complete calendar years of his Service" and do not encompass the amount ...