FLAUM, District Judge.
This appeal concerns the rights of plaintiff, James J. Reiherzer, to a disability pension pursuant to the provisions of the International Brotherhood of Teamsters' Central States, Southeast and Southwest Areas Pension Plan (Plan). In his amended complaint Reiherzer alleged that trustees of the Plan "wrongfully refused to pay . . . disability benefits" to him even though he met all of the Plan's eligibility requirements. Furthermore, Reiherzer alleged that the trustees, by their actions and statements, were estopped to deny him a disability pension. After a bench trial, the district court entered judgment for plaintiff and ordered defendants to pay plaintiff a disability pension of $100 per month for life, retroactive to October 1, 1968. For reasons other than those expressed by the district court,
From 1949 to 1951 Reiherzer was employed at Cartage solely as a teamster truck driver. In 1951, however, Reiherzer purchased the controlling share of the stock of Cartage and became the company's president and chief executive officer.
Although Cartage had only three shareholders, defendants do not contend that it was a "sham" corporation. Thus, it was Cartage and not Reiherzer which owned the operating authority for the business, and Reiherzer held none of the assets used in the business in his own name. The proper corporate forms were maintained by Cartage and there is no evidence to suggest that corporate funds were commingled with Reiherzer's personal funds. On the advice of counsel in 1959, Cartage began filing its federal income tax returns as a Subchapter S, small business corporation pursuant to 26 U.S.C. §§ 1371 et seq., and Reiherzer stopped deducting Social Security taxes from his monthly salary declaring himself "self-employed."
In 1955, pursuant to a collective bargaining agreement, Cartage began making payments to the Plan on behalf of its teamster employees. From 1955 to 1968, each month Cartage submitted a check to the Plan along with the names of those persons for whom contributions were being made. Reiherzer's name appeared on the lists submitted to the Plan, and as president of Cartage he signed the accompanying contribution checks. During this time no official of the Plan notified Cartage that Reiherzer was ineligible to participate in the pension program. In total, Cartage contributed over $3,000 to the Plan on Reiherzer's behalf.
Although Reiherzer retired in 1968 and sold his stock in Cartage, it was not until April 1974 that he filed a formal application for a disability pension with the Plan.
On November 14, 1974 defendants rejected plaintiff's application. Defendants stated that from 1959 to 1968 plaintiff was "self-employed" with Cartage and was therefore out of "covered employment."
Initially this action was brought by plaintiff in state court and it was subsequently removed to the district court pursuant to 28 U.S.C. § 1441(b). For obvious reasons,
Defendants' removal petition raised three jurisdictional bases: the Labor-Management Relations Act, §§ 301 and 302, 29 U.S.C. §§ 185, 186 and the Employee Retirement Income Security Act of 1974 (ERISA) § 502, 29 U.S.C. § 1132. For the reasons stated below, we find subject matter jurisdiction exists over Reiherzer's claim of wrongful rejection of his pension application pursuant to section 502 of ERISA.
Id. § 186(c)(5). Section 302(e) provides that the provisions of section 302(c) may be enforced by way of civil actions in the federal district courts. In Johnson, referring to section 302, the court stated:
537 F.2d at 933. Rather, section 302(e) conferred jurisdiction on the federal courts over claims by putative pension beneficiaries alleging that the "pension plan is arbitrary, capricious, or in some way contrary to the exclusive benefit of employees." Id. This construction was consistent with those decisions holding that section 302(e) conferred subject matter jurisdiction on the federal courts over claims by pension beneficiaries alleging that the pension plans, themselves, contained "structural defects." See, e. g., Lugo v. Employees Retirement Fund of Illumination Products Industry, 529 F.2d 251 (2d Cir.), cert. denied, 429 U.S. 826, 97 S.Ct. 81, 50 L.Ed.2d 88 (1976); Bowers v. Moreno, 520 F.2d 843 (1st Cir. 1975); Alvares v. Erickson, 514 F.2d 156 (9th Cir.), cert. denied, 423 U.S. 874, 96 S.Ct. 143, 46 L.Ed.2d 106 (1975). Since Reiherzer in his amended complaint does not allege that the Plan contains an illegal eligibility requirement under section 302(c)(5) which makes the Plan not for the exclusive benefit of the employees in the teamster industry, section 302(e) cannot be a basis upon which this court can consider Reiherzer's claim that his pension was wrongfully denied.
However, whether this court has jurisdiction over Reiherzer's claim pursuant to section 301 raises more difficult questions, questions this court has yet to consider.
29 U.S.C. § 185(a). The courts which have considered the question of whether this section provides jurisdiction in cases of this sort have divided on its resolution. See Cuff v. Gleason, 515 F.2d 127 (2d Cir. 1975); Beam v. International Organ. of Masters, Mates, & Pilots, 511 F.2d 975 (2d Cir. 1975); Miller v. Davis, 507 F.2d 308 (6th Cir. 1974); Finn v. Chicago Newspaper Publishers' Assoc.-Drivers Union Pension Plan, 432 F.Supp. 1178 (N.D.Ill.1977); Meehan v. Laborers Pension Fund, 418 F.Supp. 29 (N.D.Ill.1976), holding no jurisdiction under section 301. Contra, Rehmar v. Smith, 555 F.2d 1362 (9th Cir. 1977); Phillips v. Kennedy, 542 F.2d 52 (8th Cir. 1976); Leonardis v. Local 282 Pension Trust Fund, 391 F.Supp. 554 (E.D.N.Y.1975).
In Textile Workers v. Lincoln Mills, 353 U.S. 448, 77 S.Ct. 923, 1 L.Ed.2d 972 (1957), the Supreme Court held that section 301 created not only a jurisdictional grant for federal courts to resolve disputes arising out of violations of contracts between employers
Whichever of these positions is correct concerning the availability of a federal remedy for the wrongful denial of a pension pursuant to section 301 of the Labor-Management Relations Act, 29 U.S.C. § 185 Congress in section 502(a)(1)(B) of ERISA has clarified the law in this area and has opted to enact the position granting federal courts jurisdiction in cases of this sort. Section 502(a)(1)(B) provides:
29 U.S.C. § 1132(a)(1)(B). Section 502(e)(1) states that both federal and state courts have jurisdiction over cases brought pursuant to section 502(a)(1)(B). 29 U.S.C. § 1132(e)(1). Thus, as the legislative history points out:
H.R.Conf.Rep.No.73-1280, 93d Cong., 2d Sess., reprinted in  U.S.Code Cong. & Admin.News, pp. 5038, 5107 (emphasis supplied). Accordingly, federal jurisdiction exists over, and federal common law will govern, actions under section 502 claiming that pension trustees have improperly denied pension benefits to an individual in violation of the terms of the pension plan.
Since it is clear that Reiherzer's claim falls within the scope of section 502, the only remaining question is whether section 502 applies to this case. Section 502 does not have an explicit effective date, unlike other provisions of ERISA,
II. The Merits
As stated previously, defendants denied Reiherzer a disability pension because the trustees of the Plan determined that he had been "self-employed" from 1959 to 1968, and therefore suffered a "break in service" which precluded him from meeting the 15 year "continuous service in the industry" requirement. In response, Reiherzer argues that he was not self-employed within the meaning of the Plan because he was, in fact, an employee of Cartage, a valid and distinct corporate entity. This court, in deciding this case, under federal common law principles, of course, cannot replace its judgment for the considered judgment of the Plan's trustees. Rather, we are required to uphold the trustees' decision unless it was arbitrary and capricious in light of the language of the Plan. Phillips v. Kennedy, 542 F.2d 52, 54 (8th Cir. 1976); Roark v. Lewis, 130 U.S.App.D.C. 360, 361, 401 F.2d 425, 426 (1968).
This court must agree with defendants that the Plan, on its face, excludes time as "self-employed" from being considered for purposes of calculating "continuous service in the industry" under Article I, Section 14A of the Plan.
First, nothing in the Plan expressly states that an employee of a corporation working in the teamster industry may not include the time he works for that corporation as "continued service in the industry" if he is a shareholder of the corporation. Likewise, employment as a corporate office holder at the same time as an individual is doing classic teamster work, driving truck, is not expressly excluded from the continuous employment definition.
Second, the trustees' decision, itself, was inherently inconsistent. Thus, the trustees stated that for purposes of the "continuous service in the industry" eligibility requirement, Reiherzer was "self-employed" from 1959 to 1968. However, it is clear from the facts that nothing occurred in 1959, in relation to the nature of Reiherzer's employment, which would have justified the trustees in determining that Reiherzer was "self-employed." Thus, from 1951 on Reiherzer was the president and principal shareholder of Cartage and the trustees' decision indicates that from 1951 to 1959 his employment with Cartage was not "self-employed" under the Plan. Several courts, not surprisingly, have held that such inherently inconsistent decisions as to an individual's eligibility under a pension plan indicate arbitrary action by the plan's trustees. Maness v. Williams, 513 F.2d 1264, 1267 (8th Cir. 1975); Becker v. Pension Fund, 59 Mich.App. 684, 229 N.W.2d 888 (1975). Furthermore, the fact that Cartage in 1959 filed for income tax purposes as a Subchapter X corporation is irrelevant to Reiherzer's status with that corporation as an employee. Electing to file as a Subchapter S corporation does not make Cartage anything less than a valid corporation whose shareholder-officers are its employees. Cf. Byrne v. C. I. R., 361 F.2d 939 (7th Cir. 1966).
Third, at the trial of this cause, no evidence was presented to show that the trustees have consistently maintained that shareholders or officers of corporations which make contributions to the Plan are not working in the industry for purposes of Article III, section 4B(a)(1) of the Plan. The defendants' only witness, Edward Murtha, the Administrator of Pension Benefits for the Plan, merely testified that self-employed work in the industry was not considered covered employment for determining an individual's continuous service in the industry.
In fact, the case of Becker v. Pension Fund, 59 Mich.App. 684, 229 N.W.2d 888
229 N.W.2d at 891. This ability of the trustees to blow hot or cold on the definition of "self-employed" under the Plan demonstrates the arbitrariness of their denial of Reiherzer's pension on the ground that he was "self-employed."
Finally, on this issue, defendants contend that to allow a shareholder/corporate office holder to accrue "continuous service in the industry" under the Plan would jeopardize the tax-exempt status of the Plan pursuant to 26 U.S.C. §§ 401 et seq. Pursuant to the Trust Agreement establishing the pension plan the trustees are forbidden from taking any action which would jeopardize the tax-exempt status of the Plan. Trust Agreement Article VII, Section 1.
In support of this contention defendants cite this court to Rev.Rul. 69-421. Defendants point to the language in Rev.Rul. 69-421(j), which states, "A qualified plan must benefit employees or their beneficiaries exclusively," to demonstrate that payments to shareholders or corporate officeholders, not being "employees," would disqualify the Plan from tax-exempt status. However, the remainder of the revenue ruling states that, "Stockholders who are bona fide employees of a corporation may participate in the corporation's plan to the same extent as other employees." Rev.Rul. 69-421(j)(3). And Rev.Rul. 69-421(j)(1) merely excludes sole proprietors and partners from participating in a qualified plan and does not exclude corporate officers who may be employees of a valid corporation from participating in a qualified plan.
Accordingly, defendants having presented no evidence to suggest that A. G. Cartage, Inc. is a sham corporation, the trustees of the Plan acted arbitrarily in labeling Reiherzer "self-employed" for purposes of his disability pension eligibility. Cf. NLRB v. Caravelle Wd. Prod., Inc., 466 F.2d 675 (7th Cir. 1972).
However, the defendants have raised another ground which they contend makes Reiherzer ineligible under the Plan even if he cannot be considered "self-employed." Thus, defendants argue that because Reiherzer was clearly a "supervisor" at Cartage,
Defendants rely on two provisions of the Plan not previously cited; Article II, Section 1 of the Plan which provides: "every employee, as defined herein, shall be a
(Emphasis supplied). Defendants argue that the exclusion of supervisors from the definition of "employees" incorporated into the Plan in 1967 was to clarify the fact that supervisory personnel were not part of the collective bargaining unit, and thus not eligible to participate in the pension program.
We cannot agree that this new contention put forth by defendants, not relied on by the trustees in ruling on Reiherzer's application, bars plaintiff's eligibility for a disability pension. as stated previously, the Plan requires 15 years continuous service in the teamster industry by an individual in order to achieve eligibility for a disability pension. However, there is nothing in the Plan that requires that these 15 years be under the terms of a collective bargaining agreement. Rather, there is a separate requirement that an individual to be eligible for a pension must have 3 years of continuous service "under a collective bargaining agreement".
Nevertheless, although we find that the Plan does not exclude Reiherzer's time employed as a supervisor from being counted in calculating his 15 years "continuous service in the industry," defendants still contend that under the Labor-Management Relations Act § 302(c)(5) it would be illegal for them to pay pension benefits to a supervisor. This agreement is premised on the definition of "employee" found in the Act which states,
Labor-Management Relations Act § 2(3), 29 U.S.C. § 152(3). Thus, since under section 302(c)(5), as previously noted, an employer-funded union pension plan must be for the "benefit of employees," payments cannot be made to supervisors who are not, by definition, employees.
Although this syllogism has facial appeal, it is completely without merit. First, it should be noted that until 1947, the definition of "employee" in section 2(3) did not
Second, to accept defendants' contention would lead to the absurd result that if an individual employee met all the eligibility requirements of his union's pension plan and then became a supervisor he would not be able to obtain his pension. Defendants have cited this court no authority to suggest that section 302(c)(5) requires the forfeiture of a pension upon obtaining a promotion.
Accordingly, this court finds that defendants arbitrarily denied Reiherzer his disability pension and the judgment of the district court is hereby
Plan, Article I, Section 13.
(Emphasis in original).
Id. Thus, the relative had to be considered an "employee" of the corporation unless the business was in fact a sole proprietorship. A fortiori, the court was stating that the shareholder/officer was not the employer of his or her relative.