Laurenzano v. Blue Cross and Blue Shield of Mass.

191 F.Supp.2d 223

James G. LAURENZANO, M.D., individually, and on behalf of all others similarly situated, Plaintiff, v. BLUE CROSS AND BLUE SHIELD OF MASSACHUSETTS, INC. RETIREMENT INCOME TRUST, Defendant.

No. CIV.A. 99-11751-WGY.

United States District Court, D. Massachusetts.

January 30, 2002.

COPYRIGHT MATERIAL OMITTED

Edward F. Haber, Shapiro, Grace & Haber, Boston, MA, Christine E. Morin, Shapiro, Grace, Haber & Urmy, Boston, MA, for James G. Laurenzano, M.D., Individually, and on behalf of all others similarly situated, Plaintiffs.

F. Dennis Saylor, IV, Goodwin Procter LLP, Boston, MA, Brian W. Robinson, Laura McLane, McDermott, Will & Emery, Boston, MA, Joseph D. Halpern, Blue Cross and Blue Shield of Mass., Law Department, for Blue Cross and Blue Shield of Massachusetts Inc. Retirement Income Trust, Defendants.

MEMORANDUM OF DECISION

YOUNG, Chief Judge.

I. INTRODUCTION

This is a case concerning lump sum distributions under the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et. seq. ("ERISA"). The parties were last before the Court at a hearing held on June 27, 2000. As recounted by this Court in its Memorandum and Order of March 27, 2001:

James G. Laurenzano, M.D. ("Laurenzano") is a former employee of Blue Cross and Blue Shield of Massachusetts, Inc. During his employment, Laurenzano enrolled in a defined benefit pension plan (the "Plan") administered by Blue Cross and Blue Shield of Massachusetts, Inc. Retirement Income Trust [the "Trust"] ....

Under the Plan, a participant's normal retirement benefit is a life annuity beginning at age sixty-five. This life annuity is increased every year to include a [cost-of-living adjustment ("COLA")] payment that reflects changes in the Consumer Price Index.

Rather than receive a life annuity, Laurenzano elected to receive the present value of his pension in a single, lump sum distribution. When Laurenzano received his lump sum distribution, however, it did not include the present value of the projected COLA payments.

134 F.Supp.2d 189, 191 (D.Mass.2001).

That raised the following question:

If a defined benefit pension plan normally provides retirement benefits in the form of a life annuity that includes a [COLA], must a lump sum distribution in lieu of the annuity include the present value of the projected COLA payments?

Id. The Court held that "it must, and that each participant in a plan that does not has approximately six years from the date of his distribution to seek redress." Id.

With the question of liability answered, the parties now ask the Court to determine damages.

A. Procedural Posture

As before, the parties have submitted their dispute to the Court as a case stated and thus have consented to judgment on the written record. See Pl.'s Mot. at 1; Def.'s Reply at 1 n. 1. "In effect, judgment on the written record is a bench trial without any witnesses. This highly-efficient procedural device allows a court to resolve factual disputes and enter judgment in one fell swoop." 134 F.Supp.2d at 191 (citing, inter alia, Garcia-Ayala v. Lederle Parenterals, Inc., 212 F.3d 638, 643-45 (1st Cir.2000)); see also Boston Five Cents Sav. Bank v. Sec'y of Dep't of Hous. & Urban Dev., 768 F.2d 5, 11-12 (1st Cir.1985) (Breyer, J.).

B. Federal Jurisdiction

The Court has jurisdiction. 134 F.Supp.2d at 191 (citing 28 U.S.C. § 1331 and 29 U.S.C. § 1132(e)).

II. DISCUSSION

Four issues are before the Court, two legal and two economic. The legal issues are whether any of the class members released their claims and, if not, what rate should be used to calculate prejudgment interest. The economic issues—debated in competing expert reports submitted by the parties—are how future COLAs should be estimated and what rate should be used to calculate the present value of future payment streams.

A. Legal Issues

1. Releases

The class consists of about 3,000 people. Of those people, approximately 1,000 signed some form of release. Anderson Aff. ¶ 3. Before turning to the circumstances of the releases, the Court considers two legal principles.

The first is ERISA's anti-alienation and anti-assignment provision:

§ 1056. Form and payment of benefits

. . . . .

(d) Assignment or alienation of plan benefits

(1) Each pension plan shall provide that benefits provided under the plan may not be assigned or alienated.

ERISA § 206(d)(1), 29 U.S.C. § 1056(d)(1); accord IRC § 401(a)(13)(A), 26 U.S.C. § 401(a)(13)(A).¹ The Plan itself contains a similar anti-alienation provision. Def.'s Facts Ex. D § 15.1.

"ERISA's pension plan anti-alienation provision is mandatory and contains only two explicit exceptions, see §§ 1056(d)(2), (d)(3)(A), which are not subject to judicial expansion." Boggs v. Boggs, 520 U.S. 833, 851, 117 S.Ct. 1754, 138 L.Ed.2d 45 (1997) (citing Guidry v. Sheet Metal Workers National Pension Fund, 493 U.S. 365, 376, 110 S.Ct. 680, 107 L.Ed.2d 782 (1990)); accord Patterson v. Shumate, 504 U.S. 753, 760, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992).² The Supreme Court's holding in Guidry is striking. In that case, the CEO of a union, who also was a trustee of the union's pension fund, pleaded guilty to embezzling more than $377,000. The district court sent the defendant to prison and imposed a constructive trust on his pension so that the benefits would be paid to the union. The Tenth Circuit affirmed the remedy. The Supreme Court reversed, for the simple reason that ERISA states very clearly that pensions are not subject to alienation or assignment. "Understandably, there may be a natural distaste for the result we reach here. The statute, however, is clear." 493 U.S. at 377, 110 S.Ct. 680.

The second legal principle is the "heightened scrutiny" that federal common law requires for waivers of ERISA pension benefits. Morais v. Cent. Beverage Corp. Union Employees' Supplemental Ret. Plan, 167 F.3d 709, 712-13 (1st Cir.1999); Smart v. Gillette Co. Long-Term Disability Plan, 70 F.3d 173, 181-82 (1st Cir.1995), aff'g 887 F.Supp. 383, 385-86 (D.Mass. 1995); see also Rivera-Flores v. Bristol-Myers Squibb Caribbean, 112 F.3d 9, 11-12 (1st Cir.1997) (extending heightened scrutiny to ADA cases). "Waiver and release are affirmative defenses on which the employer bears the burden. Fed.R.Civ.P. 8(c)." Rivera-Flores, 112 F.3d at 12. In the ERISA context, the totality of the circumstances must show that the waiver or release was "knowing and voluntary." Smart, 70 F.3d at 181 (citing Rodriguez-Abreu v. Chase Manhattan Bank, N.A., 986 F.2d 580, 587 (1st Cir.1993)). "We have found helpful in this endeavor a set of six factors identified by the Second Circuit in Finz v. Schlesinger, 957 F.2d 78, 82 (2d Cir.1992)." Morais, 167 F.3d at 713. Those factors, which are not exclusive, include:

1. the plaintiff's education and business sophistication,

2. the respective roles of employer and employee in determining the provisions of the waiver,

3. the clarity of the agreement,

4. the time plaintiff had to study the agreement,

5. whether the plaintiff had independent advice, such as that of counsel, and 6. the consideration for the waiver.

See id. at 713 n. 6.

If ERISA's antialienation provision is read to apply to waivers and settlements, it creates a tension with the body of federal common law that allows waivers. The First Circuit has not addressed the interaction of the two principles (or considered whether they even interact), but other courts of appeals have, most notably the Seventh Circuit in a case discussed extensively by both parties, Lynn v. CSX Transportation, Inc., 84 F.3d 970 (7th Cir. 1996).

"[T]his case presents the question of whether a release from liability signed by an employee in exchange for participation in an early retirement program is void in light of the anti-alienation provision of ERISA." Id. at 972. In exchange for signing a "voluntary resignation agreement" —which included a broadly-worded release—the plaintiff received his full pension, as provided under the plan, but with an additional five years of service credit and an additional five years of age credit for purposes of the pension calculation. Seven years later, the plaintiff contested the calculation of his pension, arguing that he should have received credit for time he spent in the military. The plaintiff's argument concerned solely the calculation of his original pension benefits, not the calculation resulting from the additional credits he earned by resigning early. In its defense, the company simply pointed to the release the plaintiff had signed. Id. at 972-75. The district court agreed with the company and granted the defendant's motion for summary judgment. The Seventh Circuit reversed on this point.

Pension entitlements are, without exception, subject to the anti-alienation provision of ERISA. Patterson v. Shumate, 504 U.S. 753, 760, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992). Contested pension claims, on the other hand, are "simply outside the realm of the provision." Lumpkin [v. Envirodyne Indus., Inc., 933 F.2d 449, 456 (7th Cir.1991)]. The distinction between these two categories is a critical one, and, if the decision of the district court is any indication, one that has not yet been drawn with sufficient clarity. A pension entitlement arises under the terms of the pension plan itself. A contested pension claim, by contrast, arises under a settlement agreement. A release may prevent a plan participant from asserting claims based on a settlement agreement, but may not bar claims based on pension entitlements.

. . . . .

We turn now to a central distinction between this case and its predecessors. [The plaintiff] Lynn is not asking the court here to interpret the language of the resignation agreement; everyone agrees on what it says. Under the terms of the resignation agreement, Lynn is entitled to "retirement payments in accordance with section 4.02(a) of the CSX Transportation, Inc. Pension Plan." Here is where the similarity between this case and Fair [v. ...