Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. IP 811-1178-C -- Cale J. Holder, Judge.
Pell and Eschbach, Circuit Judges, and Jameson, Senior District Judge.*fn*
JAMESON, Senior District Judge.
Plaintiffs-appellants, James W. Sly and Schorling Schneider, on behalf of themselves and others similarly situated, brought this action against defendant-appellee, P.R. Mallory, Inc. (Mallory) seeking recovery of severance pay and other benefits as a result of their terminations of employment by Mallory. They appeal from a judgment dismissing their complaint following cross-motions for summary judgment. We affirm.
On March 24, 1975, Mallory adopted a written "severance policy for salaried employees", which was applicable to all divisions of the Mallory Corporation. This policy was designated as "Standard Practice Instruction No. 17.04.01" (S.P.I.). According to officials of the Company, the S.P.I. was drafted in response to a severe economic recession in 1975 when Mallory anticipated that it would be forced to make large layoffs of salaried employees.*fn1
On March 6, 1978, Mallory sold its Metallurgical Division to Contacts Metals Welding, Inc. (C.M.W.) As a result of the sale, approximately 167 salaried employees of the Metallurgical Division were terminated from their employment with Mallory. Thirteen of the terminated employees were not offered continued employment by C.M.W. and were paid full severance benefits under the terms of the S.P.I., without any qualification, limitation or provision for termination of such benefits upon obtaining other employment. Two employees were offered continued employment by C.M.W., but were to be paid on an hourly basis rather than as salaried employees. They refused the offer and were also paid full severance benefits under the terms of the S.P.I. The remaining 152 employees were offered continued employment by C.M.W. as salaried employees. They were denied payment of any severance benefits by C.M.W. regardless of whether they accepted or declined the offer of continued employment. All accepted employment with C.M.W.
James W. Sly was employed by Mallory as plant manager until Friday, March 3, 1978. The following Monday, March 6, he was employed by C.M.W. at the same rate of pay with the same basic job responsibilities. Schorling Schneider likewise left Mallory's employment on March 3, 1978 and began working for C.M.W. on March 6, in the same job at the same salary.
II. Proceedings in State and District Courts
Sly and Schneider brought this action in state court on behalf of themselves and other Mallory employees similarly situated, alleging breach of a contractual obligation to award them severance pay. The claim was certified by the state court as a class action. In an amended complaint a second count was added, alleging that Mallory had adopted a written severance pay policy which was an "employee welfare benefit plan" within the meaning of the Employee Retirement Income Security Act of 1974. (ERISA) 29 U.S.C. §§ 1001 et seq.
The action was then removed to the United States District Court, Southern District of Indiana, Indianapolis Division. The parties filed cross-motions for summary judgment. In its findings of fact and conclusions of law the court held that the state law breach of contract claim alleged in Count I had been preempted by ERISA, and that Count II, the ERISA claim, was without merit because Mallory's decision to deny benefits to plaintiffs was not arbitrary or capricious. The action was dismissed with prejudice.
III. Contentions on Appeal
Plaintiffs-Appellants contend that the district court erred in overruling their motion for summary judgment, sustaining defendant's motion for summary judgment, and ordering dismissal of plaintiffs' complaint. They argue that the S.P.I. was an "employee welfare benefit plan" within the meaning of ERISA, 29 U.S.C. § 1002(1), that any uncertainty as to the interpretation of the S.P.I. must be construed in favor of the plaintiffs, and that in reaching its decision the district court misconstrued certain uncontradicted facts and misapplied certain recognized rules of law. Defendant-appellee contends that the district court was correct in finding, on undisputed facts, that Mallory's denial of severance pay to plaintiffs was not arbitrary and capricious, and the judgment of dismissal accordingly should be affirmed.
The parties agree that the S.P.I. is an "employee welfare benefit plan" within the meaning of ERISA, and that the courts have adopted an "arbitrary and capricious" standard of review for ERISA pension plans. Accordingly this court is bound by the decision of the pension administrator "unless [plaintiffs-appellants] can establish that it was 'arbitrary, fraudulent or in bad faith.'" Martinez v. Swift & Co., 656 F.2d 262, 263 (7 Cir. 1981), quoting Matthews v. Swift and Company, 465 F.2d 814, 821 (5 Cir. 1972). See also Wardle v. Central States, etc., 627 F.2d 820, 823-23 ...