Unpublished Disposition, 921 F.2d 281 (9th Cir. 1989)

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US Court of Appeals for the Ninth Circuit - 921 F.2d 281 (9th Cir. 1989)

No. 89-15458.

United States Court of Appeals, Ninth Circuit.

Before WIGGINS and LEAVY, Circuit Judges, and STEPHENS,*  District Judge.


Plaintiff Romero filed a timely appeal from the district court's dismissal of her ERISA action to obtain her husband's disability on the grounds that the administrative decision to deny disability benefits was in error, that the provision under which those benefits were denied is an impermissible forfeiture clause, that the notice given concerning the spousal benefits was inadequate, and that the action regarding these benefits was a result of a denial of due process. We affirm.


Plaintiff Alice Romero sued on behalf of herself and the estate of her husband, Fernando Romero. Defendants are her late husband's employer, Magma Copper Company ("Magma"), and its owner, Newmont Mining Corp., and the company pension plan of which Mr. Romero was a member, Pension Plan for Hourly Rated Employees of Magma Copper Company No. 002 ("Plan").

Mr. Romero was employed by Magma from December 30, 1955 through August 21, 1981. On April 28, 1980, Robert Burwell, a senior Plan administrator, told Romero to undergo treatment for alcohol abuse or suffer termination. Romero entered a program and was diagnosed by an attending psychologist, Dr. Thomas R. McCabe, as suffering from organic brain syndrome. On July, 8, 1980, Romero was again hospitalized and was diagnosed as having a variety of ailments, including cirrhosis of the liver. Plaintiff suggests that these ailments were due to an earlier bout with hepatitis.

On April 22, 1981, Romero applied for total disability benefits under the Plan. He was given a physical by a Magma Company physician, Dr. Robert Brower. The doctor concluded that the primary cause of Mr. Romero's disability was his alcoholism. Subsequently, Mr. Romero was notified by Burwell that he would be denied any total disability benefits under the Plan. The reason given for the denial was that the Plan by its terms excluded disability coverage for any disability resulting from alcoholism.

At the time, the Plan required that decisions concerning the payment of pension benefit claims be made by a three to five member Administrative Committee. If the claim is denied, the claimant has the right to appeal this decision to a three to five member Appeals Committee which has final authority concerning such decisions. Actions taken by both Committees are to be recorded by written instrument. In addition, the Plan provided for the arbitration and referral to a medical panel of any claim for total disability.

Romero did not take the appeal available to him. However, upon notification of his termination from Magma, he and representatives of his union met with Burwell and other Plan officials. Despite Romero's contentions to the contrary, Mr. Jackson, the company hospital administrator, rejected the theory that Romero's physical problems had resulted from his hepatitis. The Plan cannot furnish written records of either Administrative Committee Meeting. On August 22, 1981, Romero was fired. He was forty-nine years of age.

On May 23, 1984 and June 13, 1985, Magma sent Mr. Romero forms by certified mail, both signed for, requesting his election as to the spousal benefits option plan. Both envelopes were found unopened in Romero's car after his death. In December of 1985, a former Magma employee and acquaintance of Romero's, Edward Jackson, met with Romero and explained the spousal benefits program. Romero indicated to Jackson that he did not want his wife's future lover or husband to get his pension. Mr. Jackson testified that Romero seemed lucid and competent at the time.

Romero was killed in a hit-and-run accident on December 19, 1985. When Alice Romero sought spousal benefits, Magma denied her request. She filed this action in state court naming Magma, Newmont Mining, the Plan, and the Union as defendants, and alleging breach of contract, unjust enrichment, and violations of ERISA. The action was removed to federal court on April 23, 1987.

Both the corporate and union defendants filed motions for summary judgment. The district court found the state causes of action pre-empted by ERISA and dismissed them. The court also dismissed the action against the union and granted summary judgment for defendants on the issue of whether the condition excluding coverage for alcohol related disabilities was an impermissible "bad boy" clause in violation of 29 U.S.C. § 1053(a). The court denied summary judgment on that aspect of the ERISA claim concerning the spousal benefits because the question of Romero's competency to waive those benefits had not been resolved.

A trial concerning this issues was conducted on February 7 & 8, 1989. Plaintiff introduced testimony from herself, the Romeros' children, and psychologists to the effect that Mr. Romero's mental condition had deteriorated significantly between 1980 and 1984. Defendants introduced the testimony of Mr. Jackson, a friend of Mr. Romero, who spoke with Mr. Romero shortly before his death concerning the spousal benefits plan. On February 28, 1989, the Court held for defendants on the ground that Romero was competent to waive the spousal benefits plan. Plaintiff filed a timely notice of appeal.


* The Panel found that the Plan's denial of disability benefits was not an error, as contended by the plaintiff.

The Supreme Court has recently held that an ERISA plan administrator's decision to deny benefits is subject to de novo review unless the benefit plan expressly gives the plan administrator discretionary authority to determine eligibility for benefits or to construe the terms of the plan. Firestone Tire and Rubber Company, et al., v. Richard Bruch, etc., et al., 489 U.S. 101, 115, 109 S. Ct. 948, 956 (1989). Where the administrator is given such authority, its decisions are subject to a deferential "abuse of discretion" standard. Id. at 956-57; see also Jones v. Laborers Health & Welfare Trust Fund, 906 F.2d 480 (9th Cir. 1990).

In the present case, the Plan administrator "establishes rules for the Plan and has the exclusive right to administer and interpret the Plan, subject to review by the Appeals Committee. The decision and records of this committee are conclusive and binding on the company, participants and all other persons having any interest in the Plan." This language seems to indicate that the Plan administrator has discretionary authority, and that any decision he makes should be subject to an "abuse of discretion" review. In other circuits, similar language has been held to give plan administrators discretionary authority. See, e.g., Batchelor v. International Bhd. of Elec. Workers Local 861 Pension and Retirement Fund, 877 F.2d 441, 442-43 (5th Cir. 1989) (plan language, including "full and exclusive authority to determine all questions of coverage and eligibility," confers discretionary authority); Boyd v. Trustees of the United Mine Workers Health and Retirement Funds, 873 F.2d 57, 59 (4th Cir. 1989) (discretionary authority when language gives trustee power of "full and final determination as to all issues concerning eligibility for benefits" and authorizes promulgation of rules).

The plaintiff alleges that the Plan did not follow its own procedures in reaching the decision to deny Romero disability benefits. Applying the "abuse of discretion" standard of review, we find that the Plan's decision was not erroneous.

Under ERISA, a plan must comply with certain requirements concerning a claim procedure. 29 U.S.C. § 1133; 29 C.F.R. Sec. 2560.503-1(b). In addition, a plan administrator must follow the plan's plain terms. 29 U.S.C. § 1104(a) (1) (D) (plan must be administered "in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of [ERISA]"). Failure to comply with the requirements of ERISA or to follow the plain terms of a plan's provisions can be arbitrary and capricious decision-making where procedural violations "alter the substantive relationship between employer and employee that disclosure, reporting and fiduciary duties sought to balance." Blau v. Del Monte Corp., 748 F.2d 1348, 1354 (9th Cir. 1984), cert. denied, 474 U.S. 865 (1985) (plan administration substantially failed to comply with statutory requirements and was arbitrary and capricious). In Blau, the court found that the plan administrator's conduct was arbitrary and capricious where the administrator failed to comply with ERISA's reporting, disclosure, and fiduciary requirements.

In the present case, plaintiff alleges that the Plan administration failed to comply with the decision-making requirements of the Plan documents. She alleges that the decision to terminate the decedent was not made by the Administration Committee, but by one Plan official, and notes that the Plan is unable to produce written documents chronicling such a meeting as required by the plan. Defendants allege that the Administrative and Appeals Committees did meet to consider Mr. Romero's case, and that their decision to deny him benefits was not arbitrary and capricious. We agree with the defendants that the decision to deny Mr. Romero's benefits was not an error. The Plan clearly gives the Plan administrator discretion to make a decision based on the evidence before him. Sufficient evidence exists on the record to support the conclusion that Mr. Romero's disability was the result of his twenty years of alcoholism. Accordingly, we find that under the standard of review detailed above, the Plan's decision cannot be said to be arbitrary and capricious. Despite defendants' failure to come forward with written documentation of the Committees' deliberations, plaintiff has not met the burden of shown that the decision was clearly in error.


We also disagree with plaintiff's contention that the provision of the Plan which excludes coverage for disability which is alcohol-related is an impermissible "bad-boy" forfeiture, and therefore find that the district court's granting of summary judgment was not in error.1 

Under 29 U.S.C. § 1053(a), certain retirement benefits are nonforfeitable. Any ERISA plan provision which attempts to forfeit these benefits is impermissible. However, this statute does not protect the plaintiff for two reasons. First, Sec. 1053 only protects normal retirement benefits, and is inapplicable to "employee welfare benefit plans." 29 U.S.C. § 1051(1). Unfortunately for the plaintiff, disability benefits belong in the latter category. See also McBarron v. S & T Industries, Inc.,% 771 F.2d 94, 97-98 (6th Cir. 1985). Second, Sec. 1053 only protects retirement benefits to certain defined vested limits, and disability benefits are not vested until a disability is shown. Cf. Hummell v. S.E. Rykoff & Co., 634 F.2d 446, 450 (9th Cir. 1980). If a qualifying disability is not shown, the right to benefits has not vested.

Plaintiff argues that regardless of the language of Sec. 1053, the courts have adopted a reasonableness standard for examining exclusionary clauses in ERISA plan documents. See Hollenbeck v. Falstaff Brewing Corp., 605 F. Supp. 421, 428 (E.D. Mo. 1984), aff'd, 780 F.2d 20 (8th Cir. 1985) (per curiam). However, Hollenback does not aid the plaintiff, as the exclusionary provision at issue here is not, as seen above, a "bad boy" clause as it is characterized by the plaintiff. Alcoholism is not the type of job related misconduct that the bad boy clauses are intended to reach. In any event, the Plan's general policy of carving out certain types of disabilities that will not be covered as well as the specific decision to deny disability benefits in cases of alcohol-related disabilities cannot be said to be unreasonable.


Plaintiff's next argument is that the Plan provided Romero with insufficient notice of the spousal benefits plan option in that the Plan's process was insufficient and the language of the notice was overly technical.

The form and substance of notice of post-ERISA qualified plans and trusts are governed by regulations promulgated by the Treasury Department. 26 C.F.R. Secs. 1.401(a)-11, 1,7476-2. Under these regulations, notice to a former employee must be given in person or sent by mail to the last known address of that person. See 26 C.F.R. Sec. 1.401(a)-11(c) (3) (ii). The information provided by the plan administrator must provide in nontechnical language a description of the benefit, the circumstances under which it will be provided, the availability of an election, and the financial effect of the election. See 26 C.F.R. Sec. 1.401(a)-11(c) (3) (i).

Before 1984, the Plan provided its members with an optional spousal benefit plan. The Plan sent Romero notice of this option by certified mail. Romero did not respond. In 1984, Congress passed the Retirement Equity Act ("REA"), which made certain employees eligible for pre-retirement spousal annuity plans. After the REA was passed, the Plan again sent Romero notice of the option by certified mail. Again Romero did not respond. Plaintiff does not dispute that Mr. Romero received these notices. Accordingly the Plan followed the process required of it by the regulations under 29 C.F.R. Sec. 1.401(a)-11(c) (3) (ii), and therefore did not commit any error as to this aspect of the notice procedure.

Plaintiff also argues that the substance of the notices did not comply with the regulatory requirements because they were not written in nontechnical language and did not clearly describe either the option which the Plan member could choose or the effects of this choice. However, even if this characterization of the letters from the Plan is accurate, the point is rendered moot by two facts that were brought out at trial. First, Mr. Romero apparently never opened the certified letters. Second, Mr. Jackson, Mr. Romero's friend and former co-worker at Magma testified that he explained the spousal benefits plan to Mr. Romero, who appeared to understand. Given these circumstances, we cannot agree with the plaintiff that the notice was inadequate.


Plaintiff's next contention is that the district court in its finding on Mr. Romero's competency to make a meaningful waiver. She argues that Mr. Romero was incompetent to make the determination as to the spousal benefits plan and that the Plan owed both Romero and her a greater duty because of that incompetency. The district court found that Romero was competent to waive his rights under the Plan, and that in any event, the Plan was only obligated to provide the decedent with notice, not to verify his competency.

It is unclear what standard of review is applicable to a determination of competency in a bench trial. Such a determination appears to be a mixed question of law and fact. Such questions are subject to de novo review, although findings of fact will only be set aside if clearly erroneous. United States v. McConney, 728 F.2d 1195, 1204 (9th Cir.) (en banc), cert. denied, 469 U.S. 824 (1984); Rozay's Transfer v. Local Freight Drivers, Local 208, 850 F.2d 1321, 1326 (9th Cir. 1988), cert. denied, 109 S. Ct. 1768 (1989). However, determinations of negligence, also a mixed question of law and fact, are reviewed under a clearly erroneous standard. Barnett v. Sea Land Service, Inc., 875 F.2d 741, 745 (9th Cir. 1989). Under either standard the district court's opinion should be upheld.

Both parties cite to the various definitions of competency which exist under Arizona state law. These include the requirements for appointment of a guardian, the mental capacity for execution of a will, and the definition of unsound mind. Assuming that the Arizona standards are applicable, they require that the party attempting to establish incompetency must show by clear and convincing evidence that the individual did not understand or appreciate the impact of his actions. Guardianship of Reyes, 152 Ariz. 235, 731 P.2d 130, 131 (App.1986).

The evidence introduced by the plaintiff included her own observations and those of the Romeros' children and the testimony of a physician. This physician, Dr. McCabe, had not seen Mr. Romero since 1980, five years before his death and four years before the first notice of the spousal benefits option had been mailed to the decedent. In rebuttal, the defendant offered the testimony of Mr. Jackson, who is a layperson, but had seen the decedent shortly before his death, and that of a physician who testified that the plaintiff's expert did not have enough information to form the basis for a determination of incompetency. We find that despite the fact that Mr. Romero's capacity may have been somewhat diminished by his alcoholism, a fact agreed upon by both parties, the decedent was competent to exclude his wife from his company benefits.


The next issue is whether the plaintiff's due process rights were violated when she was deprived of a community property interest in the decedent's pension. We find that since Mr. Romero had not reached retirement age at the time of his death, his pension had not vested. Consequently, his widow, the plaintiff, has no derivative right to the pension that the decedent had no right to receive.

The plaintiff argues that ERISA and the REA are unconstitutional as applied to her because they deprive her of her community property rights without due process. However, ERISA does not in fact preempt state domestic and community property laws. Carpenter Pension Trust v. Kronschabel, 632 F.2d 745 (9th Cir. 1980), cert. denied, 453 U.S. 922 (1981); see also Operating Eng'rs Local 428 Pension Fund v. Zambarsky, 650 F.2d 196 (9th Cir. 1981) (ERISA does not preempt spousal maintenance award).

Unfortunately, plaintiff cannot find solace in the Arizona community property laws because whatever rights plaintiff had in the Romero's pension lapsed when he died.

The relevant sections of ERISA allow plan participants to elect to have a survivor annuity paid to a surviving spouse. 29 U.S.C. §§ 1053, 1055. However, Mr. Romero's retirement benefit was not vested because he died before reaching normal retirement age. Consequently, Mrs. Romero has no right to the benefits. Hernandez v. Southern Nevada Culinary & Bartenders Pension Trust, 662 F.2d 617 (9th Cir. 1981).


Finally, the plaintiff argues that she is entitled to attorney's fees under 29 U.S.C. § 1132(g) (1), which gives the court discretion to award reasonable attorney's fees. We affirm the decision of the district court, which held that the plaintiff is not entitled to attorney's fees.

This court has established a five part test for considering whether to award fees. Hummell, 634 F.2d at 452-53. The factors to be examined are; 1) the degree of the opposing party's culpability; 2) the ability of the opposing party to satisfy a fee award; 3) whether a fee award would deter others from acting under similar circumstances; 4) whether the party seeking fees sought to benefit all plan participants or to resolve a legal question concerning ERISA; and 5) the relative merits of the parties' positions. Id. In addition, the party requesting fees must be victorious. As we are affirming the district court's findings on all issues against the plaintiff, an award of attorney's fees is not appropriate. The order of the district court is AFFIRMED.


The Honorable Albert Lee Stephens, Jr., Chief Judge Emeritus, Central District of California, sitting by designation


This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by the 9th Cir.R. 36-3


Prior to the enactment of ERISA, pension plans frequently contained "bad boy" clauses which denied employees their otherwise nonforfeitable pension benefits if they were discharged for dishonesty, excessive absenteeism or insubordination, or if they competed with their former employer after termination. Certain sections of ERISA, such as Sec. 203(a), were designed to prevent further enforcement of these clauses. Winer v. Edison Bros. Stores Pension Plan, 593 F.2d 307, 311 (8th Cir. 1979)