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Fischer v. Philadelphia Elec. Co.

October 1, 1996

HERBERT L. FISCHER; FLOYD L. ADAMS; JAMES W. ALFREDS; JOHN I. ARENA; EARL T. ATKINSON; WILLIAM AUVE; THOMAS F. BECK; WILLIAM J. BONO; WILLIAM A. BURWELL, JR., JOSEPH C. CALABRESE; PETER CARFAGNO; JOHN B. CREIGHTON; RALPH J. DAFERMO, SR.; FELIX A. DEJOSEPH; JOSEPH A. DEVITO; JOHN T. DOUGHERTY; JOHN J. DOWLING; ANTHONY FALASCA; EUGENE FINK; RITA J. GESUALDO; EDWIN HAINES; JOSEPH T. HALEY; DANIEL J. HEFFERAN; LEO M. HILL; ROBERT J. HOOPES; DONALD J. HOY; MICHAEL HRYNKO; DONALD HUGHES; CARL M. HUNSICKER; NEAL IRELAND; WALTER D. KRAUS; CHARLES E. LINDEMUTH; ROBERT F. MAHONEY; ANTHONY D. MARCHESANI; ROBERT P.F. MCCARON; ROBERT MCCORMICK; FRANK L. MERCADANTE; JOHN P. MONAGHAN; DAVID MONZO; JOHN K. MOORE; JOSEPH P. MORAN; MILDRED PEARL MORGAN; RALPH E. MOYER; HERBERT E. MUELLER; JAMES J. NUGENT; THOMAS E. OETZEL; FRANK W. PERSICHETTI, SR.; CHARLES W. PLUMMER; LEWIS RAIBLEY; JAMES J. RODDY; JOHN J. SAUNDERS; LOUIS F. SAUNDERS; NICHOLAS J. SCRENCI; JOSEPH J. SEMETTI; JOHN STEINDL; WILLIAM F. THOMPSON; MICHAEL W. TRENDLER; FRANCIS R. TUNNEY, SR.; HERBERT R. WALTERS; RICHARD S. WILSON; JOHN H. ZIMMER; GERALD A. ZIMMERMAN

v.

PHILADELPHIA ELECTRIC COMPANY; JOSEPH F. PAQUETTE, JR.; MICHAEL J. CROMMIE; SERVICE ANNUITY PLAN OF PHILADELPHIA ELECTRIC COMPANY HERBERT L. FISCHER, JOHN B. CREIGHTON, FRANCIS R. TUNNEY, SR.; EARL ATKINSON, LEO M. HILL, DONALD HUGHES; JOSEPH P. MORAN; MICHAEL W. TRENDLER; JOHN H. ZIMMER; WILLIAM AUVE; JOHN STEINDL; LOUIS F. SAUNDERS; ROBERT MCCORMICK; WILLIAM J. BONO; JAMES J. RODDY; RITA J. GESUALDO; RALPH J. DAFERMO, SR.; JOSEPH C. CALABRESE; JAMES W. ALFREDS; FELIX A. DEJOSEPH; EUGENE FINK; JOSEPH T. HALEY; WALTER D. KRAUS; CHARLES W. PLUMMER; ROBERT P.F. MCCARRON; RICHARD S. WILSON; JOHN P. MONAGHAN, RALPH E. MOYER; JOHN J. DOWLING; JOSEPH J. SEMETTI; CHARLES E. LINDEMUTH; ROBERT F. MAHONEY; JOHN K. MOORE; JAMES J. NUGENT; JOHN J. SAUNDERS; ANTHONY FALASCA; DANIEL J. HEFFEREN; NICHOLAS J. SCRENCI; THOMAS E. OETZEL; DONALD J. HOY; FLOYD L. ADAMS, THOMAS F. BECK; JOHN T. DOUGHERTY; WILLIAM F. THOMPSON; GERALD A. ZIMMERMAN; HERBERT E. MUELLER; HERBERT R. WALTERS; LEWIS RAIBLEY; JOSEPH L. GIORGIO; JOSEPH DEVITO; DAVID MONZO; THOMAS J. LEE; THOMAS B. BARNES, JR.; PHILIP G. MULLIGAN; ROBERT L. TOMLINSON; JOHN R. GRIMES; W.B. WILLSEY; WILLIAM J. MOSS; JAMES T. PRYOR; ROBERT J. GLENN; GEORGE C. ZAPP; JOSEPH J. DELLA VECCHIO; GEORGE V. CHURACH; CHARLES T. REIMEL; ANDREW J. KELLEHER; GEORGE C. HALL; WILLIAM P. ZACKEY; FRANCIS W. BATIPPS; HARRY C. FRYMIARE, JR.; JOSEPH J. GRECO; RICHARD R. ROWLANDS; JESSE P. BOYD; JAMES D. DENNETT; VERNON C. READMAN, JR.; JOSEPH L. GIORGIO,; EDWARD M. HAILE; EUGENE C. SCHINDLER; JOHN P. SWAHL; ELMER E. LUCAS; JAMES L. ROUSH; JAMES V. LEWIS; ALBERT J. RIEGER; THOMAS J. SHERIDAN, JR.; DOLORES A. ROMANO; HELEN J. THROCKMORTON; ROBERT E. SPROSS; WILLIAM P. ROHLFING; EDWARD C. KISTNER, JR.; HARRY W. BACKHOUSE; JAMES V. MANNION, JR.; JOSEPH E. BONAPARTE; WILLIAM A. BRADY, JR.; MALCOLM J. MACNEIL; MANUS J. COONEY; JOHN J. KUHNS; MARLENE BELL; DEAN G. BRADFORD; JAMES W. BATEMAN; JAMES S. HERRICK; STANLEY W. JACQUES, JR.; RUDOLPH G. DELLA VECCHIO; ALDEN F. TUCKER & BERNARD J. DESS,

APPELLANTS IN 95-1794

HERBERT L. FISCHER; FLOYD L. ADAMS; JAMES W. ALFREDS; JOHN I. ARENA; EARL T. ATKINSON; WILLIAM AUVE; THOMAS F. BECK; WILLIAM J. BONO; WILLIAM A. BURWELL, JR.; JOSEPH C. CALABRESE; PETER CARFAGNO; JOHN B. CREIGHTON; RALPH J. DAFERMO, SR.; FELIX A. DEJOSEPH; JOSEPH A. DEVITO; JOHN T. DOUGHERTY; JOHN J. DOWLING; ANTHONY FALASCA; EUGENE FINK; RITA J. GESUALDO; EDWIN HAINES; JOSEPH T. HALEY; DANIEL J. HEFFERAN; LEO M. HILL; ROBERT J. HOOPES; DONALD J. HOY; MICHAEL HRYNKO; DONALD HUGHES; CARL M. HUNSICKER; NEAL IRELAND; WALTER D. KRAUS; CHARLES E. LINDEMLUTH; ROBERT F. MAHONEY; ANTHONY D. MARCHESANI; ROBERT P.F. MCCARRON; ROBERT MCCORMICK; FRANK L. MERCANDANTE; JOHN P. MONAGHAN; DAVID MONZO; JOHN K. MOORE; JOSEPH P. MORAN; MILDRED PEARL MORGAN; RALPH E. MOYER; HERBERT E. MUELLER; JAMES J. NUGENT; THOMAS E. OETZEL; FRANK W. PERSICHETTI, SR.; CHARLES W. PLUMMER; LEWIS RAIBLEY; JAMES J. RODDY; JOHN J. SAUNDERS; LOUIS F. SAUNDERS; NICHOLAS J. SCRENCI; JOSEPH J. SEMETTI; JOHN STEINDL; WILLIAM F. THOMPSON; MICHAEL W. TRENDLER; FRANCIS R. TUNNEY, SR.; HERBERT R. WALTERS; RICHARD S. WILSON; JOHN H. ZIMMER; GERALD A. ZIMMERMAN

v.

PHILADELPHIA ELECTRIC COMPANY; JOSEPH F. PAQUETTE, JR.; MICHAEL J. CROMMIE; SERVICE ANNUITY PLAN OF PHILADELPHIA ELECTRIC COMPANY

PECO ENERGY COMPANY, FORMERLY KNOWN AS PHILADELPHIA ELECTRIC COMPANY, JOSEPH F. PAQUETTE, JR., MICHAEL J. CROMMIE AND SERVICE ANNUITY PLAN OF PHILADELPHIA ELECTRIC COMPANY,

APPELLANTS IN 95-1794



On Appeal from the United States District Court for the Eastern District of Pennsylvania

(D.C. Civil Action No. 90-cv-08020)

Before: COWEN and ROTH, Circuit Judges and CINDRICH *fn1, District Judge

ROTH, Circuit Judge

Argued April 29, 1996

filed October 1, 1996)

In this appeal, we must review the application of a decision we reached when this case first came before us. In Fischer v. Philadelphia Elec. Co., 994 F.2d 130 (3d Cir.) ("Fischer I"), cert. denied, 510 U.S. 1020 (1993), we reversed the district court's grant of summary judgment to defendant Philadelphia Electric Co. ("PECo"), holding that there were genuine issues of material fact as to whether PECo, acting in its role as fiduciary under the Employee Retirement Income Security Act ("ERISA"), had made affirmative material misrepresentations to its employee-beneficiaries. The misrepresentations alleged were that PECo had denied, or failed to disclose when asked, that it was seriously considering an early retirement program. We remanded the case to the district court to determine when PECo began to give serious consideration to an early retirement program. Id. at 135.

On remand, the district court concluded that PECo was seriously considering an early retirement program as of March 12, 1990. Fischer v. Philadelphia Elec. Co., C.A. No. 90-8020, slip op. at 19 (E.D. Pa. May 16, 1994) ("District Ct. Op."). Applying Fischer I, the district court held that any employee who sought information about retirement benefits during the period from March 12, 1990, until the announcement of the plan on April 19, 1990, and who was told that no change was under consideration, had received material misinformation.

We find that the district court misunderstood the concept of "serious consideration." We will therefore reverse the decision of the district court, and we will enter judgment for defendant.

I.

This action arises out of PECo's efforts to cut costs and reduce its payroll by implementing an early retirement plan. On April 19, 1990, Joseph Paquette, PECo's President and Chief Operating Officer, announced in a letter to all employees that he would recommend to PECo's Board of Directors that the company cut its payroll through early retirement. On April 26, 1990, PECo sent a letter to all employees who had announced an intent to retire, suggesting that they delay their retirement until the company's early retirement package was finalized. On May 25, 1990, PECo's Board of Directors approved a plan, which included inducements such as a five year time-in-service credit, a five year age credit, and severance pay. These events caused much consternation among employees who had retired in the months preceding the plan's announcement.

Various pre-plan retirees filed suit in the U.S. District Court for the Eastern District of Pennsylvania, alleging that PECo had long known of its intent to offer an early retirement package, or at least that it was considering a package, and had breached its fiduciary duty under ERISA Section(s) 404, 29 U.S.C. Section(s) 1104, by providing material misinformation. The district court certified a class, then entered summary judgment for PECo. In Fischer I, we reversed, holding that PECo could be liable for breach of fiduciary duty if the company represented that no early retirement plan was being considered at a time when the plan was in fact under serious consideration. 944 F.2d at 133. We remanded for a trial on the merits; a bench trial followed. The facts we recite here were found by the district court; the vast majority were stipulated.

PECo had long engaged in a practice of reviewing its retirement and pension benefits packages as part of its ordinary course of business. During one such review, on March 21, 1988, Fred Beaver, an Administrative Assistant in the Benefits Division of Human Resources, prepared a memorandum for Charles Fritz, Vice President of Personnel and Industry Relations, on the possibility of reducing the size of PECo's work force. The memorandum suggested that a modest "sweetener" could induce approximately 50% of a target group of workers to retire. During the same period, on May 5, 1988, Michael Crommie, PECo's Director of Benefits, contacted William Murdoch, a consultant with Towers, Perrin, Forster & Crosby ("TPF&C"), to discuss various early retirement options. Discussions between management and TPF&C continued into June.

Beaver's memorandum and the TPF&C consultations occurred roughly contemporaneously with Joseph Paquette's arrival at PECo as president and chief of operations. Paquette had a long term goal of reducing the number of PECo employees, and he would ultimately recommend the 1990 early retirement package. In June, 1988, however, Paquette decided against an early retirement plan. At trial, Paquette testified that PECo was then in the process of completing one nuclear plant and restarting another. He did not want to risk an early retirement program because personnel vital to the nuclear effort might leave. He believed that PECo could not legally institute an early retirement plan that excluded nuclear plant personnel. After deciding that no early retirement package would be considered, Paquette shifted his attention to promoting operational excellence at the company.

In July, 1989, PECo requested a rate increase from the Public Utility Commission ("PUC"). PUC staff made a preliminary recommendation that PECo be granted less than half its requested increase.

In November, 1989, as part of the operational excellence program, PECo hired McKinsey & Co. to explore long-term strategies and cost-cutting measures. Paquette used the McKinsey report to calculate the savings that an early retirement program could produce.

On December 13, 1989, Paquette held three meetings with employees to discuss the importance of the rate increase to the company. In response to questions, Paquette stated that an early retirement plan might be considered if the rate request was denied. He explained that the company had no plans for such a program because the outcome of the rate increase was in doubt. Paquette stated that PECo's first option in the event the increase was denied would be to appeal the decision but that the company would also consider cutting costs and reducing its stock dividend. On March 1, 1990, an Administrative Law Judge issued an interim decision recommending that PECo receive 21% of the rate increase it had requested.

Events accelerated rapidly following the ALJ's decision. On March 12, 1990, Kenneth Lefkowitz, Manager of Compensation & Benefits, contacted Murdoch at TPF&C. Lefkowitz stated PECo's concern about its rate case before the PUC and the need to reduce costs quickly. The question of an early retirement sweetener was mentioned as a possible method. TPF&C had done no work for PECo on early retirement plans since June, 1988, nor had TPF&C been asked to prepare contingency plans in case PECo's rate request was denied. On March 20, 1990, Lefkowitz asked TPF&C to develop a set of early retirement alternatives. On March 28, 1990, Murdoch proposed three alternative programs, the first of which resembled the 1988 program in some respects, although it targeted a different group of eligible employees and contained different severance provisions. On April 2, 5, and 6, Murdoch had further discussions with PECo personnel about the details of the early retirement sweetener. On April 7, senior PECo executives attended a corporate strategy meeting. Notes from the meeting indicated a statement by Paquette that on April 20 he would issue a letter announcing a $100 million cost cutting ...


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