On Appeal from the United States District Court for the Eastern District of Pennsylvania
(D.C. Civil Action No. 91-cv-02771)
Before: COWEN and ROTH, Circuit Judges and CINDRICH *fn1, District Judge
This appeal marks the second time this case has reached this court. In its first incarnation, Kurz v. Philadelphia Elec. Co., 994 F.2d 136 (3d Cir.) ("Kurz I"), cert. denied, 510 U.S. 1020 (1993), we reversed the district court's grant of summary judgment to defendant Philadelphia Electric Co. ("PECo"). Applying the rule established in Fischer v. Philadelphia Elec. Co., 994 F.2d 130 (3d Cir.) ("Fischer I"), cert. denied, 510 U.S. 1020 (1993), we held that genuine issues of material fact remained as to whether PECo, acting in its role as fiduciary under the Employee Retirement Income Security Act ("ERISA"), had made affirmative material misrepresentations to its employee-beneficiaries by denying, or failing to disclose when asked, that it was seriously considering changes in its pension benefits program. On remand, after a bench trial, the district court entered judgment for those members of the plaintiff class who had asked about a change in benefits after March 1, 1987, the date on which the district court found that serious consideration began. Kurz v. Philadelphia Elec. Co., No. 91-2771, slip op. at 24 (E.D. Pa. May 13, 1994) ("District Ct. Op."). We will apply the formulation of "serious consideration" established in Fischer v. Philadelphia Elec. Co., ___ F.3d ___ (3d Cir. 1996) ("Fischer II"), and on the basis of that analysis we will reverse the district court's decision and enter judgment for defendant PECo.
This action stems from PECo's efforts to change its pension plan to provide more lucrative benefits to its employees. PECo announced this change on July 2, 1987, and implemented it on August 1, 1987. The plaintiff class consists of various employees who retired between February 1, 1987, and July 1, 1987, and who were therefore ineligible for the plan.
On April 30, 1991, the plaintiffs filed suit in the U.S. District Court for the Eastern District of Pennsylvania, alleging that PECo had long known of its intent to change its pension package and had breached its fiduciary duty under ERISA Section(s) 404, 29 U.S.C. Section(s) 1104, by representing that no change was under consideration. The district court certified the class, then entered summary judgment for PECo. In Kurz I, we reversed. Relying on our decision in Fischer I, we held that PECo could be liable for breach of fiduciary duty if it had made affirmative misrepresentations, such as denying that any change was being considered when in fact a change was under serious consideration. Kurz I, 994 F.2d at 139. We remanded for a trial on the merits to determine, inter alia, when the plan came under serious consideration. The district court found the following facts, the vast majority of which were stipulated.
Since 1977, PECo had conducted periodic reviews of its pension fund program as part of its ordinary course of business. PECo also participated in an annual or biannual survey that compared benefits packages at selected utilities.
On October 2, 1985, the consulting firm of Towers, Perrin, Forster & Crosby ("TPF&C") completed a study of PECo's pension benefit plan. TPF&C concluded that the plan was well-funded and that the current rate of contributions would be sufficient to cover improvements in the benefits package. At approximately the same time, Michael Crommie, PECo's Director of Employee Services, noted that PECo's comparative ranking in the benefits survey had fallen. On June 23, 1986, Crommie sent a memorandum to Ronald Downs, Manager of the Industrial Relations Department, asking whether TPF&C should be asked to prepare a pension benefit study based on the survey results. Downs responded, "Probably not, but suggest we consider after we see [this year's] survey results. Obviously, some input from TPF&C will be required with regard to our recommended modifications to plan!" In 1986, PECo took over the task of compiling the benefits survey. Fred Beaver, an Administrative Assistant in the Personnel and Industrial Relations Department, *fn2 was assigned the task of preparing the survey. In February, 1987, Beaver received data from other utilities on their 1986 benefits levels. Beaver concluded that PECo's position was below the mid-point for the industry. After discussing the matter with his colleagues, Beaver suggested that PECo increase its benefits. On February 27, 1987, Beaver contacted Donald Fleischer, a consultant at TPF&C, to discuss a possible pension plan change.
During March, 1987, the pace of deliberations increased. Charles L. Fritz, PECo's Vice President of Personnel and Industrial Relations, met with members of the Independent Group Association, PECo's unofficial employee representative, to discuss an increase in pension benefits. Fritz told them that the time was ripe to make significant changes in the pension plan. It was also during March that TPF&C began calculating the results of various changes in the pension benefit rate. TPF&C continued its work through April and May.
On May 6, 1987, Crommie and William Murdoch, a consultant with TPF&C, met to discuss competing alternatives for the amended plan. On May 11, Fritz reviewed the costs of the various alternatives with Murdoch. On May 20, TPF&C presented the results of its pension benefit study and recommended a pension increase. The TPF&C report discussed seven different proposals for changing the plan. By memorandum dated May 28, Fritz contacted J.L. Everett, III, PECo's Chief Executive Officer, and John H. Austin, Jr., PECo's President & Chief Operating Officer, to request permission to recommend a pension change to the Board of Directors. Everett and Austin were the only two individuals with authority to make recommendations to the Board. After receiving permission, Fritz prepared a recommendation, which was approved at the Board's June 22, 1987, meeting.
Based on this record, the district court concluded that PECo began seriously considering an increase in its pension benefit plan in March, 1987. It therefore set March 1, 1987, as the date on which PECo's duty to inform its employees arose. The district court entered judgment for those retirees who asked about pension benefits and retired after that date. The court entered judgment for PECo on the claims of those retirees who asked about pension benefits and retired before that date. This appeal followed.
Our analysis proceeds within the confines of Fischer I and Fischer II. Liability turns on the materiality of PECo's representation that no change was being considered. Fischer I, 994 F.2d at 135. *fn3 Under Fischer II, whether PECo's statement was a material "misrepresentation" turns on whether a change in benefits was in fact under serious consideration at the time the statement was made. Fischer II, ___ F.3d at ___ [typescript at 11-12]. "[S]erious consideration requires (1) a specific proposal (2) discussed for purposes of implementation (3) by senior management with the authority to implement the change." Id. ...