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Kolentus v. AVCO Corp.

decided: August 5, 1986.


Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division, No. IP 77-689-C- S. Hugh Dillin, District Judge.

Author: Gordon

BAUER, COFFEY, Circuit Judges, and GORDON, District Judge.*fn*

GORDON, District Judge. The plaintiffs, retirees of Avco Corporation's now-defunct Precision Products Division plant in Richmond, Indiana, brought this class action to recover certain pension benefits which they allege were wrongfully denied them as a result of the termination of four pension plans in 1974 and 1975. The district court granted partial summary judgment for the defendants, and, following a court trial of the remaining issues, entered judgment for the defendants. We affirm.


Prior to August 31, 1974, defendants Avco Corporation and its Precision Products Division (hereinafter collectively referred to as "Avco") operated a factory in Richmond, Indiana, employing approximately 500 persons, which produced home video equipment. On that date, Avco closed the plant, having lost the contract for the products manufactured there and unable to find other work for the plant.

The plaintiff class consists of former Avco workers who were members of four bargaining units at the Richmond plant: Local Union No. 1127 of the International Brotherhood of Electrical Workers (IBEW), Local Union No. 135 of the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America (Teamsters), Local Union No. 21 of the International Association of Tool Craftsmen (IATC), and Local Union No. 200 of the United Plant Guard Workers of America (Guards).

Beginning in 1957, Avco and the four bargaining units entered into a series of collective bargaining agreements, each agreement providing that pension benefits would be governed by supplemental pension agreements. These supplemental pension agreements, following their formation, were themselves amended from time to time. The Pension Plan for Hourly-Rated Employees of Avco Corporation (Hourly Plan), in turn, was incorporated in each of the supplemental pension agreements and constituted the basic pension plan. The Hourly Plan provided for the vesting of benefits upon an employee's fulfillment of certain age and length-of-service requirements.

On August 31, 1974, the day the Richmond plant closed, the IBEW, IATC and Teamsters pension plans were terminated. The pension plan for the Guards was terminated on May 31, 1975. Defendant Chemical Bank (Bank) was the trustee of the pension plans at issue from their inception through the dates of their termination.

Following the plan terminations, Avco made no further contributions to the pension funds. as a result, there were insufficient assets to cover the benefits set out in the pension agreements.

The Pension Benefit Guaranty Corporation (PBGC), under the authority of 29 U.S.C. § 1342 of the Employee Retirement Income Security Act (ERISA), assumed responsibility for and was appointed trustee of the plans upon their termination. The PBGC originally was named a defendant in this action but later was dismissed upon the stipulation of the parties. There is some dispute between the present parties concerning the extent of the PBGC's coverage for plan benefits, the defendants claiming that in many cases retirees have received the same benefits from the PBGC that they would have received had the pension plans been fully funded under the terms of the supplemental agreements. The court need not delve into this dispute. The degree of PBGC coverage relates to the matter of damages and is not relevant to this appeal.

As a result of the plan terminations, the plaintiffs claim that they have been deprived of vested pension benefit to which they are entitled. In support of their claim for these benefits, the plaintiffs charge that (1) any plan provisions purporting to authorize the terminations are invalid and contrary to representations made by Avco to the plaintiffs; (2) Avco should be estopped to deny the vested benefits; (3) Avco has been unjustly enriched; (4) Avco failed to comply with the Welfare and Pension Plans Disclosure Act, 29 U.S.C. §§ 301-309 (repealed and replaced by 29 U.S.C. §§ 1021-1031, effective Jan. 1, 1975), by failing adequately to explain the plan provisions to the plaintiffs; (5) Avco did not make pension contributions in accordance with the standards of the plans' actuary; (6) Avco acted fraudulently in failing to disclose its intention to close the Richmond plant to the union locals when negotiating and entering into the final plan agreements; and (7) Avco violated its fiduciary and contractual duty to the plaintiffs by neglecting to notify the Bank in a timely manner of the projected plant shutdown and plan terminations so that the plan assets could be protected. As to the defendant Bank, the plaintiffs contend that it violated its fiduciary and contractual obligations to the plaintiffs in the management of the pension plan assets.


The present action originally was filed in Indiana Superior Court on November 10, 1977. Shortly thereafter, the action was removed by Avco to the United States District Court, Southern District of Indiana. Jurisdiction is predicated on § 301 of the Labor Management Relations Act, 29 U.S.C. § 185, and on 28 U.S.C. § 1332.

On October 11, 1983, in response to the parties' cross-motions for summary judgment, the district court denied the plaintiffs' motion and granted summary judgment to the defendants as to the plaintiffs' claims against Avco for breach of contract, estoppel, unjust enrichment, and fraud. The court held that under the express provisions of the supplemental pension agreements Avco was entitled to terminate the pension plans and cease making further pension fund contributions. The court also ruled that the plaintiffs' fraud against Avco was preempted by the National Labor Relations Act (NLRA). The court found, however, that genuine issues of material fact existed as to the plaintiffs' remaining claims.

These claims were tried to the court on July 23 and 24, 1984. On December 28, 1984, the court issued its findings of fact and conclusions of law, ruling in favor of the defendants on the remaining claims and entering judgment accordingly. The court held that Avco had properly funded the plans in compliance with the recommendations of the plans' actuary. The court also concluded that Avco had no fiduciary or contractual obligation to the plaintiffs to give the Bank early notification of the plant closing or to instruct the Bank to segregate the plan assets prior to the time that it did so. Finally, the court determined that the Bank's fiduciary obligation as trustee of the plans did not require it to segregate the plan assets prior to notification of the termination.

Although the present appeal concerns the management and termination of certain employee benefit plans, it is not governed by the provisions of ERISA. In its decision of October 11, 1983, the district court considered whether ERISA preempted the plaintiffs' state law claims. Based on the assumption that the four pension plans at issue all were terminated prior to September 2, 1974, when ERISA was signed into law, the district court concluded that the plaintiffs' state law claims were not preempted. See 29 U.S.C. § 1144 (effective January 1, 1975, ERISA preempts state laws relating to employee benefit plans covered by the federal act). While three of the four plans were terminated two days prior to the enactment of ERISA, it is clear from the record that the Guards plan was not terminated until May 31, 1975. The district court incorrectly stated that this latter plan was terminated on May 31, 1974.

The question of the applicability of ERISA to the termination of the Guards pension plan, however, is not raised on appeal. Accordingly, this court will assume without deciding that the plaintiffs' claims as to the termination of this plan are governed by state law.


Five issues are raised by the plaintiffs' appeal:

(1) Was Avco entitled to terminate the pension plans and cease making pension contributions?

(2) Is the plaintiffs' common law fraud claim preempted by the NLRA?

(3) Did the district court clearly err in finding that Avco made proper cost contributions to the plans in compliance with the recommendations of the plans' actuary?

(4) Did Avco have a contractual or fiduciary duty to notify the Bank, prior to the time that it did so, of the plant closing and plan terminations and to instruct the Bank to segregate the assets allocable to the plans?

(5) Did the Bank have a contractual or fiduciary duty to segregate plan assets prior to receiving notice from Avco of the plan terminations or to advise Avco to notify it at an early date of the plant closing and plan termination?

The issues on appeal, with the exception of the third one, raise questions of law which this court may independently review. See S.E.C. v. Suter, 732 F.2d 1294, 1300 (7th Cir. 1984). The third issue requires the court to review the district court's findings of fact. These findings are reviewed under the clearly erroneous standard of Federal Rule of Civil Procedure 52(a).


A. Avco's Right to Terminate the Pension Plans

The plaintiffs allege that Avco unlawfully deprived them of their vested pension benefits when it terminated the four pension plans in question and ceased making pension fund contributions. They contend that they were never made aware of any limitation on their vested pension benefits and that they bargained for and were reasonably led to believe by Avco that they would receive these benefits in full.

1. Pension Agreement and Summary Booklet Provisions

Section 9(6) of the Teamsters agreement and section 10(6) of the other three agreements contain the following express cancellation clause:

"Anything contained in this Agreement or in the [Hourly] Plan to the contrary notwithstanding, the Corporation may terminate this Agreement as of any date on or after which it shall have sold and transferred title to the manufacturing facilities of the Richmond, Indiana plant or on or after which it shall have permanently discontinued manufacturing operations at the said plant by the service of a written notice of such termination upon the Union at least sixty (60) days prior to the date on which such termination shall become effective."

It is undisputed that Avco complied with the 60-day notice provision as to each plan terminated.

Each pension agreement also provides that in the event of the plan's termination upon the shutdown of the Richmond plant, Avco "shall cease to be obligated to make any further contributions to the Pension Fund held by the Trustee to cover the cost of benefits attributable to the service of employees employed at the Corporation's plant in Richmond, Indiana . . ." (Teamsters agreement, § 9(8); IBEW, IATC and Guards agreements, § 10(8)). Section 2(3) of each pension agreement states that by the payment of the annual pension contributions, "the Corporation shall be relieved of any further liability and pension shall be payable only from the Pension Fund."

Thus under the express provisions of the pension agreements, Avco was entitled to terminate the pension plans upon the closing of the Richmond facility and cease making further contributions to the pension fund. Moreover, upon the termination of the plans, the agreements declare that the assets of ...

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