Stephens v. Pension Benefit Guar. Corp.

755 F.3d 959

James C. STEPHENS and Richard Mahoney, Appellants

v.PENSION BENEFIT GUARANTY CORPORATION, Appellee.

No. 13–5129.

United States Court of Appeals, District of Columbia Circuit.

Argued March 27, 2014.

Decided June 24, 2014.

Appeal from the United States District Court for the District of Columbia (No. 1:07–cv–01264).

Jacks C. Nickens Jr. argued the cause for appellants. With him on the briefs was Robert P. Trout.

Colin B. Albaugh, Attorney, Pension Benefit Guaranty Corporation, argued the cause for appellee. With him on the brief were Judith R. Starr, General Counsel, Israel Goldowitz, Chief Counsel, Stephanie Thomas, Assistant Chief Counsel, and Jean Marie Breen and Mark R. Snyder, Attorneys.

Before: BROWN and PILLARD, Circuit Judges, and EDWARDS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge BROWN.

BROWN, Circuit Judge:

When a group of U.S. Airways pilots hung up their wings over a decade ago, they expected prompt payment of their retirement benefits. When payment was delayed 45 days, Appellants filed a class action on behalf of themselves and similarly situated pilots seeking interest for the period of delay. The district court refused to certify a class, holding that James Stephens's claim is not typical of the claims of the rest of the putative class because only Stephens exhausted internal plan remedies before filing suit under the Employee Retirement Income Security Act (ERISA). Today we hold the class members were not required to exhaust internal remedies before bringing their claims in court because they seek enforcement of ERISA's substantive guarantees rather than contractual rights. We reverse the district court's judgment and remand for reconsideration of Appellants' motion to certify a class.

I

The U.S. Airways pension plan for pilots allowed retirees to choose between receiving their benefits as a lifetime monthly annuity or as an equivalent lump sum payment actuarially equivalent to the projected value of all annuity payments. For pilots who chose the annuity option, payments would commence on the first day of the month after the pilot retired.¹ For retirees who chose to receive their benefits as a lump sum, U.S. Airways calculated the amount of that benefit to be actuarially equivalent to the annuity benefit as of the annuity commencement date. But those pilots were not paid the lump sum until 45 days after the annuity starting date, and they were not paid interest accrued on their benefits during that time. U.S. Airways maintained this delay was administratively necessary to perform additional calculations and to ensure pilots were paid the correct amount.

James Stephens and Richard Mahoney retired from their jobs as U.S. Airways pilots in 1996 and 1999, respectively. They, like many other U.S. Airways pilots, chose to receive their retirement benefits as a lump sum. And, like the other retirees that chose the lump sum option, Stephens and Mahoney received their payments approximately 45 days after what would have been their annuity start date. Stephens received $488,477.22, and Mahoney received $672,162.79. If the plan had paid interest during the 45–day delay, Stephens and Mahoney would have received an extra $3,665.06 and $5,043.25, respectively.

In 1997, Stephens filed an administrative claim with U.S. Airways arguing the company was required to pay interest for the 45–day delay under both the terms of the retirement plan and ERISA, 29 U.S.C. § 1054(c)(3), which requires that any lump sum benefit be the “actuarial equivalent” of the annuity benefit. Stephens argued that ERISA's actuarial equivalence rule required not only that his lump sum benefit be calculated to be actuarially equivalent to the annuity benefit as of the time the annuity benefit would have started, but also that he be paid the lost time value of the lump sum benefit to the extent payment of the lump sum was delayed past the annuity starting date. When U.S. Airways denied his claim, Stephens appealed to the U.S. Airways Retirement Board, which rejected Stephens's claim in 1999. Neither Mahoney nor any other U.S. Airways pilot filed a similar claim with the airline or Retirement Board.

In 2000, Appellants filed a complaint against the retirement plan and U.S. Airways in the U.S. District Court for the Northern District of Ohio. They sought to represent a class of similarly situated pilots whose lump sum benefits payments had been delayed. The district court dismissed the complaint for lack of subject matter jurisdiction, but the Sixth Circuit reversed. See Stephens v. Ret. Income Plan for Pilots of U.S. Air, Inc. (Stephens I), 464 F.3d 606 (6th Cir.2006). When the retirement plan subsequently terminated due to U.S. Airways's bankruptcy, Appellants substituted the Pension Benefit Guaranty Corporation (PBGC), a federal agency and the statutory trustee of the terminated plan, as the defendant. Consequently, the case was transferred to the U.S. District Court for the District of Columbia in 2007. Three years later, the district court granted summary judgment in PBGC's favor. Stephens v. U.S. Airways Grp. (Stephens II), 696 F.Supp.2d 84 (D.D.C.2010).

The pilots appealed, and a panel of this court affirmed in part and reversed in part.² Each of the panel's judges wrote a separate opinion. Judges Brown and Henderson, forming a majority of the court, concluded that, because “U.S. Airways accurately calculated [Appellants'] lump sums to be the actuarial equivalent of the annuity option as of the annuity start date, the lump sum payment does not violate § 1054(c)(3).” Stephens v. U.S. Airways Grp. (Stephens III), 644 F.3d 437, 440 (D.C.Cir.2011); id. at 444 (Henderson, J., dissenting in part).³ But we held U.S. Airways was permitted only a “reasonable delay[ ]” in paying retirees their lump sum benefit, and the airline was required to pay interest on any additional delay. Id. at 440 (Brown, J., for the court). We identified this standard in an Internal Revenue Service (IRS) regulation providing that “[a] payment shall not be considered to occur after the annuity starting date merely because actual payment is reasonably delayed for calculation of the benefit amount if all payments are actually made.” 26 C.F.R. § 1.401(a)–20 (Question & Answer 10(b)(3)); Stephens III, 644 F.3d at 440; Stephens III, 644 F.3d at 444 (Henderson, J., dissenting in part).

The panel was further split on the question of what portion of the delay in paying the lump sum benefit was reasonable. Judge Brown, writing only for herself in a controlling opinion,⁴ held a 45–day delay was not reasonable. Stephens III, 644 F.3d at 440–41 (Brown, J., for the court). She suggested a delay of about thirty days may be reasonable. See id. at 440–41.⁵ Concluding that the lump sum payments were unreasonably delayed, we remanded to the district court to determine the period of unreasonable delay and to calculate the corresponding amount of interest due Appellants.

On remand, Appellants moved to certify a class of plaintiffs consisting of all pension plan participants and beneficiaries who had retired between 1997 and 2003 and elected to receive their benefits as a lump sum. The district court denied the motion to certify the class, holding Stephens did not present a claim typical of the claims of the putative class. Stephens v. U.S. Airways Grp. (Stephens IV), 908 F.Supp.2d 10 (D.D.C.2012). The court noted that only Stephens had exhausted his internal remedies under the plan before bringing suit. Id. at 14. Although the court assumed without deciding that exhaustion is not required when a plaintiff alleges a violation of ERISA's substantive guarantees, the court held Appellants' claim did not fall within that exception because it implicated issues of plan administration, not merely statutory interpretation. Id. at 15–16. The district court also held putative class members were not excused from the exhaustion requirement under the futility exception. Id. at 16–18.

After the district court denied Appellants' motion for class certification, and in order to obtain a final appealable judgment, Stephens settled his individual claim with PBGC. Mahoney, seeing the writing on the wall for his unexhausted claim, agreed to a dismissal without prejudice. Accordingly, the district court entered a final judgment dismissing the action on April 3, 2013. This appeal followed.

II

We begin, as we so often do, by assuring ourselves of our own jurisdiction. See Floyd v. District of Columbia, 129 F.3d 152, 155 (D.C.Cir.1997). Because Stephens settled his individual claim against PBGC and Mahoney agreed to a dismissal of his case without prejudice, Appellants' standing to bring this appeal may be subject to some doubt. Cf. Calderon v. Moore, 518 U.S. 149, 150, 116 S.Ct. 2066, 135 L.Ed.2d 453 (1996) (“[A]n appeal should ... be dismissed as moot when, by virtue of an intervening event, a court of appeals cannot grant any effectual relief whatever in favor of the appellant.”). However, our precedent makes clear Stephens has standing to maintain this appeal because he has a continuing “interest in spreading the litigation costs among numerous litigants with similar claims.” Richards v. Delta Air Lines, Inc., 453 F.3d 525, 528–29 (D.C.Cir.2006). PBGC suggests Richards may not apply because, as we have previously held, see Stephens III, 644 F.3d at 441–42, Appellants are not entitled to recover attorney's fees from PBGC. Appellee's Br. at 11 & n. 41. But our holding in Richards did not depend on the ability of the class representative to recover attorney's fees from the defendant. Rather, the class representative has an interest in spreading the litigation costs among other members of the plaintiff class—a result that will be obtained if class counsel is paid out of a class-wide recovery. Because we conclude Stephens has standing to maintain this appeal, we need not consider whether Mahoney has standing. See Comcast Corp. v. FCC, 579 F.3d 1, 6 (D.C.Cir.2009...