We're betting that no one was more relieved by Verizon's Nov. 2 defeat of a $1.67 billion ERISA class action than a former Bell Atlantic in-house lawyer named Barry Peters. Peters, as he testified at a September hearing in the case, was responsible for the typographical error in the Bell Atlantic ERISA plan that was the basis of the billion-dollar class claims.
Anyone could have made the mistake Peters made. In the 1990s -- before it was acquired by Verizon -- Bell Atlantic switched over from one pension plan to another. It was a major undertaking, and to assure employees that the change was fair, the company boosted opening balances in the new plan by multiplying the cash-out value of each employee's stake in the old plan by a variable "transition factor" that was based on age and years of service.
All of Bell Atlantic's literature to employees about the pension plan made it clear that the transition factor multiplier was supposed to be applied once. But as in-house ERISA lawyer Peters drafted iterations of the new plan, he added a mention of the transition factor multiplier in the middle of a sentence -- and then forgot to delete it from the end of the sentence. The implication of his mistake was that employees' holdings in the old plan would be multiplied by the transition factor not once, but twice. The inadvertent doubling, according to Monday's 105-page ruling (pdf) for Verizon, would have boosted Bell Atlantic's pension liability by $1.67 billion.
Peters' mistake, in other words, had huge implications. But no one, including Bell Atlantic's outside ERISA counsel from Morgan, Lewis & Bockius, noticed it at the time.
Even when Bell Atlantic pension plan participants filed their ERISA class action against Verizon in 2005, they didn't cite it. The plaintiffs, represented by Susman Heffner & Hurst, Allen Engerman, and Jeffrey Engerman, first alleged Bell Atlantic had used the wrong discount rate in calculating employees' opening balances in the new plan. Only six months later, in an amended complaint, did the class claim it was due damages based on Bell Atlantic's failure to comply with plan language called for the transition factor to be applied twice.
"Everyone said we didn't notice it," plaintiffs counsel Arthur Susman said. "We did. The question wasn't whether we noticed it, it was whether we asserted it."
Although it was clear from everything else Bell Atlantic told employees about the pension plan changeover that the company only intended the transition factor to be applied once, when Chicago federal district court Magistrate Judge Morton Denlow considered the motion to dismiss filed by Verizon's lead counsel at Covington & Burling, he ruled that the language of the plan as mistakenly drafted by Peters was not ambiguous and the plan administrator did not have the discretion to interpret it otherwise.
After that ruling, Verizon's only recourse was to ask the court to reform the ERISA plan and order Peters' mistake to be corrected as a harmless "scrivener's error." Covington and local counsel from Greenberg Traurig argued that plan participants and Bell Atlantic mutually understood the transition factor was only to be applied once.
Denlow held two days of trial on the issue, at which Peters and Robert Abramowitz of Morgan Lewis testified in person. Peters, who is now retired and serves on the city council of Bainbridge Island, Wash., took full blame for the mistake. "I believe I made an error that was unintentional and I did not know I made the error," he testified. "It was a good faith error which I regret."
Denlow was apparently persuaded. In an exhaustive 105-page ruling, he entered judgment for Verizon, ruling that the ERISA plan language should be changed to eliminate the second reference to the transition factor multiplier. "The phrase calling for a second multiplication was a drafting error," he wrote. "No evidence exists to suggest that any plan participant relied upon the error. In fact, the course of dealing between defendants and the plan participants shows that benefits were consistently calculated by multiplying the transition factor once. To enforce the erroneous plan provision now would result in an enormous windfall to the class participants.
Verizon counsel Jeffrey Huvelle of Covington & Burling told us the ruling is significant because it's the most thorough analysis of whether ERISA plans can be reformed. "It's unrealistic to think that ERISA plans will be error free," he said. Plaintiffs counsel Susman, meanwhile, said he's considering an appeal of Denlow's opinion. "It's a pretty good bet we will," he said.
We tried to reach Peters to talk about the case, but unfortunately, he was tied up in a city council meeting all day. Morgan Lewis partner Abramowitz didn't return our call.
This article first appeared on The Am Law Litigation Daily blog on AmericanLawyer.com.