Unpublished Disposition, 886 F.2d 334 (9th Cir. 1989)

MEMORANDUM^* 

Prior to October 25, 1985, Foss Maritime Company ("Foss Launch & Tug") and Foss Alaska Line ("FAL") were wholly owned subsidiaries of Dillingham Corporation("Dillingham") engaged in the business of transporting cargo on ocean-going tugs and barges between Seattle, Washington and various Alaska ports. Among FAL's approximately two hundred employees were some fifty non-bargaining unit workers, eleven of whom were employed in the office of FAL's Sitka, Alaska agent.

In June 1985, FAL sought a buyer for its ongoing operations. When these efforts proved unsuccessful, FAL informed its employees on October 4, 1985 that it would be shutting down operations and selling off its assets. Meanwhile, FAL and Lynden, Inc. ("Lynden"), parent company of one of FAL's competitors, Alaska Marine Lines ("AML"), entered into an agreement for the purchase and sale of most of FAL's assets. Pursuant to the terms of that agreement, but prior to its final closing date of November 4, 1985, FAL transferred some of its assets to Bowhead Equipment Leasing Company ("Bowhead"), another Lynden subsidiary, and Bowhead in turn sold those assets to Jamestown Bay Warehousing, Inc. ("Jamestown"), an independent agent based in Sitka but with offices elsewhere in Alaska.

On October 23, 1985, Jamestown entered into an agreement with AML to act as agent for the latter in, along other places, Sitka. Because FAL was shutting down its Sitka operation at the same time that Jamestown was expanding its own office there, Jamestown hired FAL's eleven Sitka employees. One consequence of this was that, although these eleven workers changed employers over the weekend of October 26 and 27, 1985, they found themselves on the morning of the 28th performing jobs similar to those they had been doing on the Friday before, and at some of the same locations.

On November 5, 1985, one of these eleven employees (collectively, "appellees") contacted Foss Launch & Tug, which historically had administered FAL's employee benefits program, and requested severance pay on behalf of himself and the other ten employees under the provisions of the Dillingham Maritime Severance Benefit Guidelines ("Guidelines"). The Guidelines provided, in relevant part, that " [t]he employee shall be entitled to receive severance pay unless ... (c) in the event of a sale of the employee's company or division, the employee accepts employment within the purchaser's organization...." The request was denied, and on April 24, 1986, the appellees filed suit against Foss Launch & Tug, FAL, and Dillingham (collectively, "appellants"). The district court granted partial summary judgment in favor of the appellees, and the appellants filed a timely notice of appeal.

* A denial of benefits under 29 U.S.C. § 1132(a) (1) (B) is subject to de novo review "unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Firestone Tire & Rubber Co. v. Bruch, 109 S. Ct. 948, 956 (1989). Where such discretion has been reserved, the more deferential arbitrary and capricious standard applies. Id. at 954, 956. Accord International Bhd. of Elec. Workers v. Southern California Edison Co., No. 88-6075, slip op. at 7819-20 (9th Cir. July 18, 1989). Because the Guidelines are devoid of any language that would imply a reservation on the part of the administrator of a right to exercise any discretion in the application of the severance pay plan's provisions, de novo review is appropriate here. See Bruch, 109 S. Ct. at 956; International Bhd. of Elec. Workers, slip op. at 7820.

II

Because there is no dispute that the Employee Retirement Income Security Act ("ERISA"), codified at 29 U.S.C. §§ 1001-1461, governs the relations of the parties here, the sole question before us is whether the appellants acted properly by interpreting the Guidelines as precluding severance pay for those former employees of FAL who suffered no period of unemployment between the time FAL ceased operations and those former employees began working elsewhere.

Boiled to its essence, the appellants' argument is that, while the appellees were "involuntarily terminated because of lack of work resulting in the elimination of [their] position [s]," they are not entitled to severance pay benefits because the sale of most of FAL's assets constituted a "sale of the ... company or division" and Jamestown is de facto "within the purchaser's organization."

The appellants cite Jung v. FMC Corp., 755 F.2d 708 (9th Cir. 1985), in support of their argument that the sale of most of FAL's assets constituted a sale of the company. Jung involved the acquisition of a complete division of one company by another, with the buying corporation accepting not only all assets of the division, but the liabilities (e.g., agreeing to hire and maintain benefits of division employees) as well. Id. The facts of Jung, therefore, present a "sale of [a] division" which would fall squarely within the provisions of the Guidelines. That is not what happened here.

By their own admission, the officers and directors of FAL were unable to find a buyer of the company as a going concern, and were therefore compelled to shut down the company and liquidate its assets. While it is true that Lynden did acquire most of FAL's assets, it did not buy them all. Moreover, Lynden neither acquired FAL's liabilities nor hired or retained all of FAL's employees. Under these facts, and in the absence of any cited authority to the contrary, we hold that no "sale" of FAL occurred within the express provisions of the Guidelines.

The appellants' second argument is that the close working arrangement between Jamestown and AML effected by their agency agreement brought Jamestown "within the purchaser's [i.e., Lynden's] organization." This argument is also without merit.

There is nothing in the record to show that Jamestown works exclusively for AML. Although Jamestown is AML's exclusive agent in Sitka and Petersburg, Jamestown is free to accept other business in those towns, and in the six other Alaska towns where Jamestown has offices, AML's parent company, Lynden, uses other independent agents. Moreover, Jamestown pays rent to AML for the use of its facilities, provides for its own utilities, and pays its employees with checks drawn on Jamestown's accounts. Finally, the express wording of the agency contract entered into between Jamestown and AML makes clear that Jamestown is an independent contractor serving as agent for AML. Because the record does not support the appellants' contention that Jamestown is either de jure or de facto a part of Lynden's organization, the second requirement of subsection (c) of the Guidelines is not met.

The appellants' final, fallback argument is that the plan administrator acted properly in denying the appellees' claims for severance pay because to have granted the claims would have resulted in a windfall to those former employees who experienced no period of unemployment. This argument also fails.

There is ample authority for the proposition that terminated employees who are immediately rehired, with no period of unemployment, by an outgoing company's successor "under terms that are comparable to those received from their initial employer ... are not entitled to severance benefits." See, e.g., Lakey v. Remington Arms Co., 874 F.2d 541, 545 (8th Cir. 1989), and cases cited thereat. Indeed, those were the facts in the Bruch case and, in a slightly different context, in the Jung case as well. However, those are not the facts in the instant case.

Bruch, Jung, and Lakey all involved situations in which one company was acquired by another, and the acquiring company agreed to retain the selling company's employees under nearly identical pay and benefit schemes. Here, as noted, Lynden neither acquired FAL nor agreed to hire or otherwise retain the appellees on its payroll. Jamestown, which did hire the appellees, did not do so on terms identical to those enjoyed by the appellees while on FAL's payroll. One employee suffered a 32% pay cut and lost substantial benefits, including severance pay rights. A second employee's lost wages during his first twelve months with Jamestown exceeded his anticipated severance pay from FAL by more than 300%. Such facts hardly support a "windfall" argument.

There is also no showing that the plan administrator handled the claims equitably. For example, the thirty-one non-bargaining unit employees who were laid off by FAL and received severance pay benefits collected a total of $268,213.75, or nearly $9,000.00 apiece. Of these thirty-one individuals, at least five wound up as employees of either Jamestown or AML, with periods of unemployment ranging between two and thirty days. As the district court noted, for a plan administrator to award substantial severance pay benefits to an individual who goes to work for a company on Wednesday, while denying any benefits whatsoever to another employee who starts work on Monday, smacks of being arbitrary and capricious. We agree, and hold that the district court did not err in ruling as it did.

III

The appellees' request for attorney fees is denied. AFFIRMED.