Case 5:05-cv-00233-XR Document 415 Filed 01/14/11 Page 1 of 17 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION FRANK STOFFELS, ET AL, ) ) Plaintiffs, ) ) VS. ) Civil Action No. SA-05-CA-233-XR ) SBC COMMUNICATIONS, ET AL., ) ) Defendants. ) ) ) ORDER On this date, the Court considered SBC Communications, Inc.’s Motion for Reconsideration of Interlocutory Memorandum Opinion Dated May 21, 2008 (docket no. 378), and the Response and Reply thereto. The named Plaintiffs in this class action lawsuit are all individuals who worked for and retired from SBC or an SBC subsidiary. Judge Justice previously bifurcated this case into two phases. Phase One focuses solely on the question of whether reimbursement for telephone services obtained by out-of-region retirees (known as “OOR Retiree Concession”) is an ERISA pension plan. On November 26, 2007, Judge Justice empaneled an advisory jury and held a trial on the question of whether OOR Retiree Concession is an “employee benefit plan” within the meaning of ERISA. On May 21, 2008, he issued his interlocutory fact findings and conclusions of law, in which he held that OOR Retiree Concession was an ERISA pension plan. The case was subsequently transferred to the Undersigned Judge. SBC then moved for reconsideration of Judge Justice’s May 21, 2008 Order, asking the Court to enter judgment that the telephone service reimbursement provided to out- of-region retirees is not an ERISA pension plan as a matter of law. I. Background A. Defendant SBC Prior to 1984, American Telephone & Telegraph Co. (“Bell”) was the parent corporation of the “Bell System,” which through various subsidiaries and affiliated entities controlled over 80% 1 Case 5:05-cv-00233-XR Document 415 Filed 01/14/11 Page 2 of 17 of all U.S. telephones, over 98% of all long-distance telephone lines in the United States, and manufactured over 90% of all U.S. telephone equipment. (JS ¶ 6.) A federal court ordered the divestiture of Bell and its regional operating companies, known as the Regional Bell Operating Companies (“RBOCs”), effective January 1, 1984. (JS ¶ 7.) The RBOC’s were: (1) Ameritech Corporation, (2) Bell Atlantic (now Verizon), (3) BellSouth Corporation, (4) NYNEX (now Verizon), (5) Pacific Telesis Group (“PTG”), (6) Southwestern Bell Telephone (“SWBT”), and (7) U.S. West (now Qwest). Id. In 1995, SBC Communications, Inc. was established as a holding company for SWBT, which provides telephone service in Arkansas, Kansas, Missouri, Oklahoma, and Texas. (JS ¶ 8.) SBC Communications, Inc. acquired the following companies on the following dates: In 1997, SBC acquired PTG, which was the parent company to Pacific Bell Telephone Company and Nevada Bell Telephone Company; in 1998, SBC acquired Southern New England Telecommunications Corporation, which was the parent company to the Southern New England Telephone Company1; and in 1999, SBC acquired Ameritech Corporation, which was the parent company to Illinois Bell Telephone Company, Indiana Bell Telephone Company, Michigan Bell Telephone Company, Ohio Bell Telephone Company, and Wisconsin Bell, Inc. (JS ¶ 9.) In 2005, SBC Communications Inc. acquired AT&T Corporation (“Bell”), and SBC Communications, Inc. changed its name to AT&T, Inc. (JS ¶ 10.) AT&T, Inc. merged with BellSouth in late 2006. To avoid confusion, Defendant will be referred to in this Order as SBC or SBC Communications. B. Plaintiffs The named Plaintiffs in this class action lawsuit are all individuals who worked for and retired from SBC or an SBC subsidiary. As found by Judge Justice and set forth in the parties’ Joint Statement of Undisputed Facts (“JS”) (docket no. 253), Plaintiff James Belcher is a retiree of Illinois Bell (a subsidiary of Ameritech Corporation). (JS ¶ 1.) Plaintiff Belcher was employed by Illinois Bell from August 1956 through April 1982 and retired with a Service Pension in 1982. Id. Plaintiff 1 Prior to its acquisition by SBC Communications, Inc., the Southern New England Telephone Company (“SNET”) was an incumbent local exchange carrier and not subject to the Modification of Final Judgment that required Bell to divest itself of its local exchange monopolies. (JS ¶ 11). 2 Case 5:05-cv-00233-XR Document 415 Filed 01/14/11 Page 3 of 17 Burnie Joe Dunn is a retiree of SWBT. (JS ¶ 2.) Plaintiff Dunn was an employee of SWBT from August 3, 1959 through December 31, 1990, and retired with a Service Pension in 1990. Id. Plaintiff Jack Giuliani is a retiree of Pacific Bell Telephone Co. (JS ¶ 3.) Plaintiff Giuliani was employed by Pacific Bell Telephone Co. from 1962 through 1992, and retired with a Service Pension in 1992. Id. Plaintiff Frank E. Stoffels is a retiree of Pacific Bell Telephone Co. (JS ¶ 5.) Plaintiff Stoffels was an employee of Pacific Bell from 1970 to 1996, and retired in 1996 with a disability pension. Id. Plaintiff Linda Villafane retired from Illinois Bell on January 31, 2001. (JS ¶ 6.) Plaintiff Villafane was employed by Illinois Bell from 1971 until her retirement. Id. C. Plaintiffs’ claims/Background It is undisputed that “Telephone Concession” is a long-standing practice of offering discounted telephone services to telephone industry employees, that Telephone Concession was established by the former AT&T company (“Bell”), and that Telephone Concession was continued by the RBOCs after divestiture. The history of AT&T’s telephone concession program through divestiture, and its continuation by BellSouth Corporation after divestiture, was discussed at length in this Court’s opinion on summary judgment in Boos v. AT&T, Inc., 07-CV-727, a case involving similar claims to this case. After divestiture, because each independent telephone company had a limited service area, it could (and did) provide discounts on its own service to employees and retirees who lived within its service area, but could not provide such discounted service to employees and retirees who lived outside its service area. As a result, each company provided some form of reimbursement to employees and retirees who lived outside its service area who purchased phone service from another company, referred to as out-of-region (“OOR”) Concession. It is the reimbursement provided to OOR Retirees that is at issue in this lawsuit. As explained above, SBC was the holding company for SWBT and later acquired Ameritech and PTG (SWBT, Ameritech, and PTG were part of the Bell divestiture), and also SNET (which had been an independent company) as of late 1999, before Plaintiffs filed this suit. Thus, each of those companies’ concession plans are relevant in this case. The details of the various OOR Retiree Concessions among the companies varied. Before the year 2000, each subsidiary had separate contracts with a third party benefits administrator to administer OOR retiree reimbursement, but in 2000, administration of all OOR Retiree Concession was consolidated into a single contract between SBC and Acordia. Tr. 176-77. 3 Case 5:05-cv-00233-XR Document 415 Filed 01/14/11 Page 4 of 17 Further, effective February 1, 2003, a $25/month cap was placed on the amount of Concession available to all OOR Retirees. JS ¶ 18; Tr. 130; Pl. Ex. 268. In July 2005, OOR retirees were switched to a block of 600 minutes of free long distance provided by SBC in place of their reimbursements. Tr. 135-37; Pl. Ex. 39.2 Plaintiffs filed this lawsuit in March 2005, complaining about the reductions and changes in their OOR Retiree Concession benefits. Plaintiffs refer to “Telephone Concession” as “the promise and provision by SBC to provide either discounted local and Intralata3 telephone service for In-Service Area Employees and Retirees or a cash reimbursement to Out-of-Service-Area Employees for local and Intralata telephone service paid to an Independent Telephone Company.” Plaintiffs bring an enforcement action pursuant to section 502(a)(1)(B), (a)(2), (a)(3), and (c)(3) of ERISA. According to the Complaint, “[t]he fundamental premise of this lawsuit is by informing employees that they would receive the Telephone Concession when they retired with a Service or Disability Pension, and by providing the Telephone Concession to retirees who lived outside the SBC Service Area (and received telephone service from an Independent Telephone Company) Defendant SBC (and its predecessors) have established and maintained a ‘defined benefit plan,’ the SBC Telephone Concession Plan, within the meaning” of ERISA. Thus, Plaintiffs contend that Telephone Concession provided to out-of-service-area retirees (“OOR Retiree Concession”) is a defined benefit plan. D. Judge Justice’s Interlocutory Memorandum Opinion In his fact findings and conclusions of law, Judge Justice found, among other things, that OOR Retiree Concession was separate from OOR employee Concession4; that the benefits and class 2 Plaintiff Villafane testified that, in 2004, she had been required to sign up for a discounted 500-minute block of long distance through SBC as a condition of continuing to receive her Concession reimbursement. Tr. 133-34; Pl. Ex. 38. 3 Intralata is commonly referred to as “local long distance” service. 4 The Court notes that Judge Justice often referred to OOR Retiree Concession as “Concession.” However, the Court finds this terminology to be potentially confusing because “Concession” was the practice of providing discounted telephone service to all active employees and qualifying retirees, and involved in-region employee concession, OOR employee concession, in- region retiree concession, and OOR retiree concession. In discussing Judge Justice’s