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In re Unisys Corp. Retiree Medical Benefits Erisa Litigation

September 2, 2009

IN RE: UNISYS CORPORATION RETIREE MEDICAL BENEFITS ERISA LITIGATION
HARLEY J. ADAIR, ET AL.
v.
UNISYS CORPORATION, APPELLANT
IN RE: UNISYS CORPORATION RETIREE MEDICAL BENEFITS ERISA LITIGATION
HARLEY J. ADAIR, ET AL.
v.
UNISYS CORPORATION
THEODORE F. BOTZUM; MARY P. CASTORANI; ERNESTINE DILORETO; EUGENE P. ENDRESS; DENNIS F. GALLAGHER; HENRY GENEVA; ELI U. GINSBERG; HOWARD B. HANSELL; CHERRY L. SAVAGE, EXECUTRIX OF THE ESTATE OF VERNON HORSHAW; HELEN M. PETERMAN; ROBERT J. SCHIEMAN; RUTH P. STRINGER; ANNE S. WALNUT; THOMAS W. YEAGER, APPELLANTS



On Appeal from the United States District Court for the Eastern District of Pennsylvania. (D.C. No. 03-cv-03924). District Judge: Honorable Bruce W. Kauffman.

The opinion of the court was delivered by: Fisher, Circuit Judge

PRECEDENTIAL

Argued April 22, 2009

Before: SCIRICA, Chief Judge, SLOVITER and FISHER, Circuit Judges.

OPINION OF THE COURT

The plaintiffs in this appeal are fourteen individuals who retired from Unisys Corporation (Unisys) between 1987 and 1989. These individuals were originally employed by Burroughs Corporation (Burroughs) which merged with Sperry Corporation (Sperry) in September 1986 to form Unisys. In 1992, after the plaintiffs had retired, Unisys announced the elimination of its pre-existing retiree medical benefits plans and the implementation of a new medical benefits plan effective January 1, 1993. Although this case carries with it a complicated procedural history due to the evolution of the original class actions, which were filed as early as 1992 on behalf of thousands of Burroughs, Sperry, and Unisys retirees, this immediate appeal stems from a July 16, 2007 decision, following a bench trial, in which the District Court determined that Unisys breached its fiduciary duty to twelve of the fourteen plaintiffs. As a remedy, the District Court ordered that the terminated retiree plan be reinstated for these twelve plaintiffs and enjoined Unisys from making any changes to coverage under that plan. Additionally, in a June 26, 2008 decision, the District Court awarded plaintiffs approximately $2.3 million in attorneys' fees. Unisys challenges the District Court's finding of liability, the relief it ordered, and its award of attorneys' fees. In a cross-appeal, the plaintiffs argue that the District Court erred in denying retrospective monetary relief to fully remedy the violations they suffered and also that the District Court erred in concluding two of the fourteen plaintiffs did not establish detrimental reliance and therefore could not prevail on their claims. For the reasons stated below, we will affirm the District Court in all respects.

I.

Although the factual and procedural history of this extensive litigation have been discussed in a number of previous opinions, we will recount this background information to the extent it is relevant to the instant appeal.*fn1 In September 1986, Sperry and Burroughs, two competing computer manufacturers, merged to form Unisys. Prior to the merger, both Sperry and Burroughs provided post-retirement medical coverage to their retired employees at little or no cost to the retirees. After the merger, Unisys continued to provide the pre-merger benefits under a variety of Sperry plans and the Burroughs Medical Plan. Unisys also created its own medical benefits plan, which had different terms and costs than the Burroughs and Sperry plans, for employees who retired after April 1, 1989. In the process of implementing this new plan, Unisys informed employees who were eligible to retire that they could participate in the existing Burroughs or Sperry plans if they retired prior to April 1, 1989, but after that time they would only be eligible to participate in the new Unisys plan. The fourteen individual plaintiffs in the present appeal were originally Burroughs employees and retired from Unisys between December 1986 and April 1, 1989.

On October 30, 1992, Unisys announced that it was terminating the then-existing Burroughs, Sperry, and Unisys plans, and replacing them with a new consolidated plan effective January 1, 1993. Under the new plan, retirees were responsible for increasing levels of premium contribution until January 1, 1996, at which point they were required to pay the full cost of coverage. In reaction to the change, multiple lawsuits were filed in various jurisdictions alleging violations of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461, and the Panel on Multidistrict Litigation eventually assigned those cases to Judge Cahn in the District Court for the Eastern District of Pennsylvania.*fn2

On June 9, 1993, the District Court approved the parties' stipulation to certify three separate classes consisting of approximately 21,000 Sperry, Burroughs, and Unisys retirees. Each of these classes was further divided into "regular" retirees and "early" retirees. The class members in each of the six subclasses asserted three separate claims: breach of contract, equitable estoppel, and breach of fiduciary duty.

On October 13, 1993, the District Court granted summary judgment in favor of Unisys on the estoppel and breach of fiduciary duty claims of the Sperry, Burroughs, and Unisys regular retirees, as well as the breach of contract claims of the Burroughs and Unisys regular retirees. In re Unisys Corp. Retiree Med. Benefits ERISA Litig., 837 F. Supp. 670 (E.D. Pa. 1993). The District Court granted Unisys summary judgment on the breach of contract claims of the Burroughs and Unisys regular retirees because the "summary plan descriptions contain uncontradicted and unambiguous reservation of rights language." Id. at 681. The District Court granted summary judgment on the breach of fiduciary duty claims of all of the retirees because the "alleged oral misrepresentations about the terms of the plans by agents of Unisys and its successors, in their capacity as plan administrators, do not constitute breaches of their fiduciary duty." Id. And lastly, the District Court granted summary judgment in favor of Unisys on all of the estoppel claims because the plaintiffs "failed to demonstrate that they relied to their detriment on oral and written representations of the plan administrators." Id. As a result of this decision, only the breach of contract claims of the Sperry regular retirees and all claims of all early retirees remained viable.

Thereafter, the District Court conducted a seven-day bench trial on the remaining claims. Following trial, but before closing arguments, the Sperry and Burroughs early retirees reached a settlement with Unisys; however, the claims of the Unisys early retirees and the breach of contract claims of the Sperry regular retirees remained viable. On June 23, 1994, the District Court entered judgment in favor of Unisys on all of these remaining claims. In re Unisys Corp. Retiree Med. Benefits ERISA Litig., No. MDL 969, 1994 WL 284079 (E.D. Pa. June 23, 1994). However, the District Court also granted the Sperry retirees' motion for reconsideration of their breach of fiduciary duty claim in light of the decision in Bixler v. Central Pennsylvania Teamsters Health & Welfare Fund, 12 F.3d 1292, 1294 (3d Cir. 1993), rendered during the pendency of the litigation, in which this Court held that a direct action for breach of fiduciary duty exists in the "other appropriate equitable relief" clause of ERISA § 502(a)(3)(B), 29 U.S.C. § 1132(a)(3)(B). The District Court explained that "based on the evidence and the law in this circuit, it seems possible that at least some plaintiffs will be able to sustain a [breach of fiduciary duty] claim." In re Unisys Corp. Retiree Med. Benefits ERISA Litig., 1994 WL 284079, at *27. The District Court certified this portion of its decision for immediate interlocutory appeal. The plaintiffs also appealed all of the District Court's summary judgment rulings with the exception of the breach of fiduciary duty claims of the Burroughs and Unisys regular retirees (which were being held in abeyance by the District Court).

On June 28, 1995, in separate opinions, our Court affirmed the District Court in all respects. In re Unisys Corp. Retiree Med. Benefit "ERISA" Litig., 58 F.3d 896 (3d Cir. 1995) (Unisys I) (affirming grant of summary judgment on breach of contract and equitable estoppel claims); In re Unisys Corp. Retiree Med. Benefit "ERISA" Litig., 57 F.3d 1255 (3d Cir. 1995) (Unisys II) (affirming reinstatement of breach of fiduciary duty claims). Accordingly, the Sperry regular retiree breach of fiduciary duty claims were remanded for adjudication. On August 13, 1996, the District Court also reinstated the breach of fiduciary duty claims of the Burroughs and Unisys regular retirees. In re Unisys Corp. Retiree Med. Benefits ERISA Litig., No. MDL 969, 1996 WL 455968 (E.D. Pa. Aug. 13, 1996). These breach of fiduciary duty claims of the Sperry, Burroughs, and Unisys regular retirees were the only claims that remained from the original class action litigation.

On March 10, 1997, the District Court granted summary judgment in favor of Unisys on the breach of fiduciary duty claims of over 14,000 retirees after it concluded that "the statute of limitations bars the claims of many of the retirees, and that many of the retirees cannot demonstrate the resulting harm required to maintain a breach of fiduciary duty claim." In re Unisys Corp. Retiree Med. Benefits ERISA Litig., 957 F. Supp. 628, 646 (E.D. Pa. 1997). But four years later, on March 9, 2001, our Court reversed this summary judgment ruling and reinstated the breach of fiduciary duty claims of these individuals for two reasons. In re Unisys Corp. Retiree Med. Benefit "ERISA" Litig., 242 F.3d 497 (3d Cir. 2001) (Unisys III). First, we interpreted ERISA's statute of limitations for breach of fiduciary duty claims and concluded that the "summary judgment entered by the District Court was overbroad and must be reversed." Id. at 507. Second, we rejected the "District Court's view that Unisys II, as a matter of law, limits recovery on the breach of fiduciary duty claims to claims based on voluntary decisions to retire." Id. at 508.

After this decision, the parties agreed to settle all of the remaining Sperry regular retiree breach of fiduciary duty claims. As a result, the only remaining claims were those of the approximately 10,000 Burroughs and Unisys regular retirees for breach of fiduciary duty. On February 4, 2003, the District Court granted Unisys' motion to decertify the Burroughs and Unisys regular retiree subclasses because of the need to make individual factual determinations in the adjudication of the claims, and thereafter five separate multi-plaintiff breach of fiduciary duty actions were filed against Unisys by approximately 900 of these former class members. In re Unisys Corp. Retiree Med. Benefits Litig., No. MDL 969, 2003 WL 252106 (E.D. Pa. Feb. 4, 2003).

The claims of the Burroughs regular retirees who continued in the litigation were filed together under the caption of Adair, et al. v. Unisys Corp. On July 15, 2005, after more than ten years of developments in the litigation, the parties agreed to sever from the Adair complaint the breach of fiduciary duty claims of fourteen individuals, namely the plaintiffs who are currently before this Court, so they could proceed to trial before Magistrate Judge Thomas J. Rueter. They also stipulated that the District Court would review all findings of fact for clear error.

From October 17 to October 26, 2005, Magistrate Judge Rueter presided over a bench trial on these claims and, on September 29, 2006, he issued a Report and Recommendation, concluding that twelve of the fourteen plaintiffs had proven that Unisys breached its fiduciary duty to them as a result of the company's affirmative misrepresentations and inadequate disclosure of certain information about the retirees' medical benefits plan. In re Unisys Corp. Retiree Med. Benefits Erisa Litig., No. MDL 969, 2006 WL 2822261, at *58 (E.D. Pa. Sept. 29, 2006) (Magistrate Report). The Magistrate Judge recommended that the District Court enter an equitable decree restoring the Burroughs Medical Plan for the twelve retirees and reforming the plan to preclude any right to terminate or modify their benefits. Id. at *65.

On July 16, 2007, the District Court issued a decision adopting in part and modifying in part the Magistrate Judge's Report and Recommendation.*fn3 In re Unisys Corp. Retiree Med. Benefits Erisa Litig., No. MDL 969, 2007 WL 2071876 (E.D. Pa. July 16, 2007) (District Court Opinion). The District Court adopted all of the Magistrate Judge's factual findings and the legal conclusion that Unisys breached its fiduciary duty to twelve of the plaintiffs. Id. at *3, *9. The District Court adopted the Magistrate Judge's recommendation to restore the Burroughs Medical Plan, but instead of ordering the reformation of the plan, it enjoined Unisys from amending or terminating the plan as to the twelve retirees, thus requiring Unisys to continue to pay the premiums for their medical coverage. Id. at *10. The District Court also denied the plaintiffs' request for monetary damages under a claim for restitution. Id. at *11. Lastly, on June 26, 2008, the District Court awarded plaintiffs $2,266,357.92 in attorneys' fees and $97,779.98 for litigation expenses. In re Unisys Corp. Retiree Med. Benefits Erisa Litig., No. MDL 969, 2008 WL 2600364 (E.D. Pa. June 26, 2008) (Fee Opinion). Unisys timely appealed the District Court's orders and the plaintiffs cross-appealed.*fn4

II.

The District Court had jurisdiction pursuant to 28 U.S.C. § 1331 and 29 U.S.C. § 1132(e)(1), and we have jurisdiction to review its orders pursuant to 28 U.S.C. § 1291. "In an appeal from an ERISA bench trial, we review findings of fact for clear error but have plenary review over the District Court's conclusions of law." Vitale v. Latrobe Area Hosp., 420 F.3d 278, 281 (3d Cir. 2005). "Determining what remedies are available under a statute is a question of statutory interpretation that requires de novo review. Therefore, we review de novo the District Court's grant of an injunction and its denial of restitution" and other forms of relief. Pell v. E.I. DuPont de Nemours & Co., 539 F.3d 292, 305 (3d Cir. 2008) (citation omitted). "An award of . . . attorneys' fees to a prevailing plaintiff in an ERISA case is within the discretion of the district court and may only be reversed for abuse of discretion." Hahnemann Univ. Hosp. v. All Shore, Inc., 514 F.3d 300, 305 (3d Cir. 2008) (internal quotation marks omitted). To that end, "[w]e review the District Court's factual determinations . . . for clear error," and "[w]e exercise plenary review over the legal standards employed by the District Court used in calculating the award." Id. (internal quotation marks omitted).

III.

A. Breach of Fiduciary Duty Claims

Unisys challenges the District Court's conclusion that Unisys breached its fiduciary duty to twelve of the fourteen plaintiffs. ERISA § 404 provides:

"[A] fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and --

(A) for the exclusive purpose of:

(i) providing benefits to participants and their beneficiaries; and

(ii) defraying reasonable expenses of administering the plan;

(B) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an ...


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