On Appeal from the United States District Court for the Western District of Pennsylvania, D.C. Civil Action No. 86-438.
Higginbotham, Hutchinson and Scirica, Circuit Judges.
Age discrimination, one commentator recently observed, is "the grayest, and thereby the most troublesome, area" of employment discrimination law. See J. Kalet, Age Discrimination in Employment Law ix (1986). Because in most instances "direct evidence of the employer's motivation is unavailable or difficult to acquire. . .", cases involving an employer's intent are particularly troublesome. See Chipollini v. Spencer Gifts, Inc., 814 F.2d 893, 897 (3d Cir.) (en banc) (citing Dillon v. Coles, 746 F.2d 998, 1003 (3d Cir. 1984)), cert. dismissed, 483 U.S. 1052, 108 S. Ct. 26 , 97 L. Ed. 2d 815 (1987). This case is no different: we must examine an employer's decision-making process in light of the Age Discrimination in Employment Act (ADEA), 29 U.S.C. §§ 621-634 (1982).
Our inquiry is twofold. First, we must determine whether the City of Mt. Lebanon's decision to maintain its R 16-73 disability plan, after being urged to modify it by its insurance carrier, constituted a willful violation of the ADEA, triggering the statute's three-year limitations period. Second, we must determine whether Mt. Lebanon established that a subsequent disability plan, MElT, was not a subterfuge to evade the purposes of the ADEA and thereby fell within § 623(f)(2), the statutory exemption for bona fide employee benefit plans. After appellant, the Equal Employment Opportunity Commission (EEOC) sought partial summary judgment, the district court granted summary judgment in favor of Mt. Lebanon on both issues.*fn1 For the reasons that follow, we vacate and remand.
I. FACTS AND PROCEEDINGS BELOW
On February 26, 1986, the EEOC instituted suit against Mt. Lebanon, alleging that termination of disability benefits to employees at age fifty-five under the city's former disability plan (R16-73) violated the ADEA. The last discriminatory act allegedly stemming from the R16-73 plan concerned a June 22, 1983 termination of benefits. Thus, the EEOC's claim was time-barred under the ADEA's two-year limitations period, but not under the three-year period for willful violations. See § 623(e)(1) (incorporating 29 U.S.C. § 255(a)). Accordingly, our factual examination proceeds with particular emphasis on factors relating to Mt. Lebanon's possible willfulness.
Mt. Lebanon adopted the R16-73 plan in 1973 and it continued in force until December 31, 1983. As of 1978, benefits paid through the plan were insured under a policy from the Bankers Life Company. Mt. Lebanon, however, continued to pay a portion of the benefits not covered under the Bankers Life policy. Under the plan, disability benefits terminated when an employee reached "normal retirement age." Mt. Lebanon interpreted and applied that phrase to refer to an employee's eligibility for normal retirement benefits, which, according to the city's pension plan, covers any employee age fifty-five with twenty-five years of continuous service.
In 1978, Congress amended the ADEA to restrict mandatory retirement based upon age and to extend protection to individuals up to age seventy. See § 631. As a result, Bankers Life notified Mt. Lebanon in writing in February, 1979, that the amendment "may have created a need for benefit/rate adjustments to your present group program." App. at 120. The Bankers Life memorandum noted that proposed Department of Labor regulations and guidelines would require modifications in disability plans:
Long Term Disability - One of two proposed alternates may be implemented. The first simply provides that LTD coverage must continue until age 70. The second alternate provides that LTD benefit payments may cease at age 65 for those employees who were disabled prior to age 60 but must be continued for at least 5 years (but not beyond age 70) for those disabled on or after age 60.
Although the DOL has not finalized the proposed regulations, we have seen no indications that the January 1, 1979 effective date will be postponed. Since compliance is the direct responsibility of each employer, we wanted you to have this status report now. . . .
App. at 121 (emphasis in original).
Bankers Life notified the city in August, 1979 that federal rules and guidelines concerning the 1978 ADEA amendments had been issued in final form. App. at 122. "The purpose of this letter is to explain how the rules affect Group Life, Disability and Medical Expense coverages and to present suggestions for installing any necessary benefit revisions. . . . " Id. Bankers Life stated that "most Group Long Term Disability plans presently eliminate coverage at age 65. This is no longer permitted and such plans must be revised." Id. at 123. Bankers Life cautioned, however, that its suggestions were not intended as legal advice and that each insured should consult its own attorney concerning the ADEA amendments. Id. at 124.
Mt. Lebanon authorized Bankers Life on November 19, 1979 to change the R16-73 plan. The city changed the portion of the plan insured by Bankers Life, but did not change that portion of the plan under which it provided co-payments. In 1982, the city terminated payments to six employees under the unmodified co-payment portion of the plan, thereby causing a reduction in disability benefits to those employees. As a result, the EEOC sought lost benefits and liquidated damages on the employees' behalf, alleging that the city's continuation of pre-1979 co-payment portion of the plan violated the ADEA. For example, James Gordon, a fireman disabled at age fifty-two was receiving $1,450 per month, but when the city did not modify its co-payment portion of the plan, his benefits were reduced to $1,250 at age fifty-five. Accordingly, the EEOC sought to recover the $200 monthly difference Gordon would have received until 1993, when he would turn age sixty-five.
Until the 1982 benefit reductions, no question arose concerning the city's partial modification of the R16-73 plan. At that time, Mt. Lebanon was informed by counsel that it could lawfully terminate its co-payment portion of disability benefits to a former police officer, age fifty-five, with thirty-three years of service. The city explained its failure to modify its portion of the plan by relying on a statement of its current finance director that she had not read nor been made aware of the insurance company notices. App. at 24 (Taylor affidavit).
In light of these facts, the EEOC maintained that Mt. Lebanon had willfully violated the ADEA by refusing to modify its disability plan, thereby terminating benefits to older employees, despite warnings from Bankers Trust that the plan discriminated based on an employee's age. Applying the "knew or reckless disregard" willfulness standard set forth by this court in Brock v. Richland Shoe Co., 799 F.2d 80, 83 (3d Cir. 1986) (applying 29 U.S.C. § 255(a)), cert. granted, 1085. Ct. 63 (1987), the district court granted summary judgment in favor of Mt. Lebanon, holding that the R16-73 claim was time-barred because Mt. Lebanon had not willfully violated the ADEA. E.E.O.C. v. City of Mt. Lebanon, 651 F. Supp. 1259, 1260-62 (W.D. Pa. 1987).
Adding to its claim on the R16-73 plan, the EEOC amended its complaint April 28, 1986, asserting that Mt. Lebanon's termination of benefits to employees age sixty-two through sixty-eight under the 1984 MEIT plan violated the ADEA. Mt. Lebanon contended, however, that the MEIT plan was exempt from ADEA coverage because it was a bona fide employee benefit plan and not a subterfuge to evade the purposes of the ADEA. See 29 U.S.C. § 623(f)(2).
Under the MEIT plan, which is presently in effect,*fn2 Mt. Lebanon no longer terminates benefits upon eligibility for normal retirement. Instead, it discontinues benefits based on a schedule providing: (1) payment until age sixty-five or normal retiremerit, whichever occurs first, if the disability occurred before age sixty-two; or (2) payment until age seventy, based on a sliding scale for individuals between ages sixty-two and sixty-nine.*fn3
The EEOC alleged that Mt. Lebanon's MEIT plan violated the ADEA because: (1) it did not provide benefits until age sixty-five for those disabled before age sixty; (2) it failed to provide benefits for five years for those disabled between age sixty and sixty-five; (3) it failed to provide benefits until age seventy for individuals disabled between the ages of sixty-six and sixty-eight; and (4) Mt. Lebanon had not established that this lower level of benefits for older employees was supported by sufficient age-related cost considerations. See 29 C.F.R. § 860. 120(f)(iii) (1982). Accordingly, the EEOC contended that the MEIT plan was a subterfuge to evade the purposes of the ADEA and not exempt under § 623(f)(2). Mt. Lebanon, however, maintained that pursuant to § 860. 120(f)(iii), it had demonstrated sufficient age-related cost considerations to establish that its plan was not a subterfuge. Specifically, it relied on a schedule prepared by its insurer, which concluded that as a general rule the cost of providing disability benefits increases with an employee's age. See App. at 43.
The district court granted summary judgment in favor of Mt. Lebanon, holding that the city had disproved subterfuge by establishing "an economic or business purpose or valid reason for the challenged terms even though every detail of the cost-justification regulations is not met." E.E.O.C. v. Mt. Lebanon, 651 F. Supp. at 1263.
When reviewing a grant of summary judgment, we must apply the same test the district court should have utilized initially. Sorba v. Pennsylvania Drilling Co., Inc., 821 F.2d 200, 203 (3d Cir. 1987), cert. denied, 484 U.S. 1019, 108 S. Ct. 730, 98 L. Ed. 2d 679 (1988); Chipollini, 814 F.2d at 896 (citing Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir. 1976), cert. denied, 429 U.S. 1038, 50 L. Ed. 2d 748, 97 S. Ct. 732 (1977)). The principles governing summary judgment are well settled: it is appropriate only in the absence of a genuine issue of material fact and where the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c). Material facts are identified by reference to the substantive law, Chipollini, 814 F.2d at 896, and an issue is genuine only if the "evidence is such that a reasonable jury could find for the nonmoving party." Equimark Comm. Fin. Co. v. C.I.T. Fin. Serv. Corp., 812 F.2d 141, 144 (3d Cir. 1987) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986)). Moreover, we must view the record in the light most favorable to the party opposing the motion and resolve all "inferences, doubts and issues of credibility" against the nonmoving party. E.E.O.C. v. Westinghouse Elec. Corp., 725 F.2d 211, 216 (3d Cir. 1983), cert. denied, 469 U.S. 820, 83 L. Ed. 2d 38, 105 S. Ct. 92 (1984). We must refrain, however, from weighing competing inferences, resolving ...