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Trombetta v. Cragin Federal Bank For Savings Employee Stock Ownership Plan

December 19, 1996

ANTHONY V. TROMBETTA, JACK G. LEBAR, WILLIAM THORPE, ET AL., PLAINTIFFS-APPELLANTS,

v.

CRAGIN FEDERAL BANK FOR SAVINGS EMPLOYEE STOCK OWNERSHIP PLAN, AND ABN AMRO U.S. GROUP EMPLOYEE BENEFITS COMMITTEE, DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division.

No. 94 C 2010

Before CUDAHY, KANNE and ROVNER, Circuit Judges.

ROVNER, Circuit Judge.

Paul E. Plunkett, Judge.

ARGUED SEPTEMBER 13, 1996

DECIDED DECEMBER 19, 1996

Plaintiffs contracted with Cragin Bank for Savings ("Cragin") to be loan originators, and bring the present claims under the Employee Retirement Income Security Act, 29 U.S.C. secs. 1001-1461 ("ERISA"), alleging that they are entitled to benefits under the Cragin Employee Stock Ownership Program (the "ESOP"). The defendants, Cragin ESOP and its administrative board, ABN AMRO U.S. Group Employee Benefits Committee (the "Committee"), contend that plaintiffs have always been independent contractors, not employees, and as such have never been eligible to participate in the Cragin ESOP. We must determine in this appeal the standard under which a court may review the Committee's finding that the plaintiffs are not employees, and whether, under that standard of review, the Committee's finding may be sustained. The district court ruled that, because the plan at issue granted discretion to the Committee to interpret and apply the ESOP plan terms, the Committee's decisions should be reviewed under the deferential arbitrary and capricious standard. The district court further found that the Committee's ruling as to plaintiffs' status was not arbitrary or capricious. For the reasons stated below, we agree with the district court's conclusion and thus affirm its judgment.

BACKGROUND

Plaintiffs worked for Cragin as loan originators under contracts which specified that "[i]t is the parties' intention that [each plaintiff] shall be an independent contractor and not Cragin's employee for all purposes." As loan originators, plaintiffs solicited, procured, prepared and submitted mortgage loan applications to Cragin. Although Cragin allowed plaintiffs to participate in certain employee benefits programs at plaintiffs' own expense, Cragin never invited plaintiffs to participate in the ESOP. The ESOP was a retirement benefit plan subject to Title I of ERISA. The ESOP accumulated shares of Cragin Financial Corporation, the holding company for Cragin, in a trust for the benefit of eligible employees or their beneficiaries. The committee that administered the ESOP was given "exclusive responsibility and authority to control and manage the operation and administration of the Plan, including the interpretation and application of its provisions." Cragin ESOP at sec. 12.1. The ESOP also granted the committee the specific power to "determine which Employees qualify to enter the Plan." Id. at sec. 12.9.

On June 1, 1994, ABN AMRO North America, Inc. ("ABN AMRO") purchased Cragin Financial Corporation. As a result of the purchase, the ESOP stock was liquidated and the ESOP was terminated. Upon learning that ABN AMRO was to purchase Cragin, plaintiffs filed suit in the district court to enjoin the sale until their claim for benefits under the ESOP could be adjudicated. The complaint was dismissed without prejudice to allow plaintiffs to present their claim to the Cragin Committee. After the Cragin Committee denied plaintiffs' claim, plaintiffs appealed to the Committee for ABN AMRO, which had taken over administering the ESOP after ABN AMRO purchased Cragin. That Committee held a hearing at which plaintiffs appeared with counsel to make a full presentation of their claims. On January 13, 1995, the Committee issued a written opinion denying plaintiffs' claims. Plaintiffs then refiled their action in the district court.

The district court granted summary judgment to defendants, reviewing the Committee's decision under the arbitrary and capricious standard, and finding that the Committee's decision in denying plaintiffs' claim for benefits under the ESOP passed muster. The district court reasoned that because the plan granted discretion to the Committee to determine who was eligible to participate in the plan, the court's review must be deferential. The district court thus considered whether the Committee was unreasonable in determining (a) that the terms of the plan excluded individuals who had signed agreements designating themselves as independent contractors; and (b) that plaintiffs did not meet the standard for common law employees. The district court found that both of the Committee's conclusions were based on careful and reasonable consideration of the facts before the Committee and the applicable law.

DISCUSSION

In reviewing the district court's order granting summary judgment, we review de novo whether any genuine issue of material fact exists and whether the moving party is entitled to judgment as a matter of law. All reasonable inferences are drawn in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-52, 106 S.Ct. 2505, 2510-12 (1986); Anderson v. Operative Plasterers' and Cement Masons' Int'l Ass'n Local No. 12 Pension and Welfare Plans, 991 F.2d 356, 357 (7th Cir. 1993). There are two issues on appeal: whether the district court applied the correct standard in reviewing the Committee's decision, and whether, in light of the proper standard, the Committee erred in denying plaintiffs' claim for benefits.

Benefit determinations are reviewed de novo unless the trustees of the plan have discretionary authority to determine eligibility. If the trustees have such discretion, then review of the trustees' decisions is conducted using an arbitrary and capricious standard. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 111, 109 S.Ct. 948, 954 (1989); Anderson, 991 F.2d at 358. The issue here, then, is whether the ESOP plan gives the Committee discretion to determine who is eligible for the plan. Plaintiffs agree that section 12.1 of the ESOP grants broad discretion to the Committee to control and manage the operation and administration of the plan, including the discretion to interpret the plan. Plaintiffs concede that if section 12.1 were the only provision addressing the Committee's discretion, then the arbitrary and capricious standard would apply. Plaintiffs also concede that section 12.1 was a grant of discretionary authority to determine the meaning of the term "Employee" as used in the plan. Plaintiffs argue, however, that section 12.9, which granted the Committee the power to "determine which Employees qualify to enter the Plan," supersedes section 12.1, and removes discretion from the Committee to determine who qualifies for the plan. Although conceding that no "magic language" is required for a grant of discretionary authority, plaintiffs nonetheless argue that "magic ...


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