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Lockheed Corp. v. Spink, 116 S.Ct. 1783 (1996) - Syllabus Dissent/Concurrence -The Supreme Court decided two issues: (1) whether the payment of benefits pursuant to an early retirement program conditioned on the participants' release of employment-related claims violated ERISA's prohibited transaction provision; and (2) whether the 1986 amendments to ERISA and the ADEA forbidding age-based discrimination in pension plans apply retroactively. Under the employer's pension plan, new employees 60 years of age or older were ineligible to participate in the plan. Spink was 61 when he resumed employment with Lockheed in 1979 after a 29 year absence. In 1986, Congress passed OBRA which amended ERISA to prohibit age-based discrimination for participation, therefor Lockheed allowed Spink to come into the plan effective in 1988. However, Lockheed made clear that it would not credit those employees for years of services rendered before they became members. Lockheed then established two programs to provide increased benefits to employees who retired early. Both programs required the employee to release any employment-related claims to receive the benefits. Spink retired early, but refused to give up his ADEA and ERISA claims, and thus forfeited any extra benefits. He brought action alleging Lockheed violated ERISA's duty of care and prohibited transactions by amending the plans to create retirement programs. He also alleged that the OBRA amendments to ERISA and ADEA required Lockheed to count Spink's pre-1988 years of service toward his accrued pension. The Court held that Lockheed was not a fiduciary subject to ERISA §. 406, but rather was an employer, and "free under ERISA for any reason at any time, to adopt, modify, or terminate welfare plans." A person becomes a fiduciary only when certain functions are performed, i.e. "the exercise of discretionary authority or control over plan management or administration." Fiduciary duties do not include plan design, therefore Lockheed acted not as a fiduciary but as a settlor when it amended the terms of the Plan to include the early retirement programs. Furthermore, the Court determined that conditioning benefits upon the release of employment-related claims did not constitute a prohibited transaction. A transaction "constitutes a direct or indirect ... transfer to, or use by or for the benefit of a party in interest, of any assets of the plan." Congress did not intend that payment of benefits was a transaction, rather § 406(a) a proscribes that a "sale" "exchange" "leasing" "lending of money" or "extension of credit" "furnishing of good, services or facilities" and the "acquisition ... of any employer security or ... employer real property" with a party in interest would be prohibited transaction. § 406 generally involved uses of plan assets that are potentially harmful to the plan. Here, the condition of payment on release of claims was not harmful to the plan. Instead, it represented a quid pro quo between the plan sponsor and the participant. Finally, the Court determined that 1986 OBRA amendments, which came into effect in 1988, prohibiting age-based benefit accrual rules did not apply retroactively. Therefore, Lockheed was not required to count Spink's pre-1988 years of service to determine his accrued benefit.
Schonholz
v. Long Island Jewish Medical Center, 87 F.3d 72 (2d Cir.
1996) -- Download
in RTF-- The Second Circuit determined that Company's
president's memo promising severance payments to senior-level
employees upon involuntary termination was an employee welfare
benefit plan within the meaning of ERISA. In reaching this
conclusion, the court examined several factors including (1)
whether "a reasonable employee would perceive an ongoing
commitment by the employer to provide employee benefits";
(2) whether the employer was required to analyze the
circumstances of each employee's termination separately in light
of certain criteria. Although the memo promising severance
payments was informal, it created an employee welfare plan within
the meaning of ERISA. The plan in question required more than
simple arithmetic calculations. It required managerial discretion
and analysis to determine whether employee was involuntarily
terminated, whether termination was for either illegal conduct or
substantially deficient performance; whether employee made
reasonable efforts to sustain employment elsewhere; if other
employment, if found, commensurated with the employee's former
organizational level and scope of responsibility. Nonetheless,
the employer claimed that plaintiff had no vested interest in the
severance plan. However, the Court found that two letters from
the President indicating that the plaintiff was entitled to
severance payments constituted vesting in the severance plan. The
vesting requirements need only be as formal as the plan itself.
Here, where the plan was established by a memo, the employer
could effectively vest plaintiff's interest by a contract
evidenced by the letters from the president. All that is required
for vesting is a written document, unambiguously indicating she
had a vested interested. She doesn't have to point to unambiguous
language; she need only point to some writing that would allow a
rational jury to conclude that her benefit had vested. Finally,
the court concluded that the employer was subject to promissory
estoppel, the basic elements of which are (1) a promise; (2)
reliance on the promise; (3) injury caused by the reliance; and
(4) injustice if the promise is not enforced. Moreover, plaintiff
was not required to prove the more stringent elements of N.Y.
estoppel law, since ERISA's estoppel provision would preempt and
govern her claim. Whereas N.Y. requires a clear and unambiguous
promise, under ERISA, she only had to demonstrate a promise that
defendant reasonably should have expected to induce action or
forbearance. A reasonably trier of fact could infer the
president's letter was a promise which defendant should have
expected that plaintiff would rely on in tendering her
resignation. Plaintiff's resignation notice submitted four days
after the president's letter was enough to create a triable issue
of fact as to her reliance on the alleged promise. Additionally,
plaintiff could demonstrate that she suffered an injury because
if president never submitted the letter promising her a benefit,
plaintiff may not have issued her resignation. The court
concluded that since plaintiff could prove the first three
elements, a jury could conclude that injustice would result if
the Court did not enforce the promise.
Geller
v. County Line Auto Sales, Inc., 86 F.3d 18 (2d Cir. 1996) -
-- Download
in RTF-- Benefit plan trustee brought action under ERISA §
1132(a)(2) for damages against company to recover health benefits
paid to participant who was never employed by company. Defendant
listed his girlfriend as a full time employee, and paid premiums
on her behalf. The district court dismissed the claim on the
grounds that (2) plaintiffs were fiduciaries limited to only
equitable relief, and the claim here was for money damages, and
(2) defendants were not fiduciaries subject to liability under §
1132. The Second Circuit agreed that under DOL regulations, the
defendant/employer had no power to make any decisions as to plan
policy, interpretations, practices or procedures, and thus was
not a fiduciary. The defendant/employer had no authority,
discretion or control respecting management of the plan, or
disposition of plan assets. According to the regulations, merely
ministerial functions such as determining eligibility,
maintaining services records, calculating and processing claims
were not fiduciary functions. The Court also rejected plaintiff's
theory of restitution to impose ERISA liability against the
employer. In an action for unjust enrichment, the plaintiff must
show that it is "against equity and good conscience to
permit the defendant to retain what is sought to be
recovered." However, in this case, the benefits were paid to
the girlfriend, not the defendant, therefore defendant/employer
was not unjustly enriched. In addition, since ERISA addressed
restitution for unjust enrichment, plaintiff's New York common
law claims for restitution were preempted. However, ERISA did not
preempt plaintiff's fraud claims against defendants. Congress
intent to protect employee and to provide federal control over
benefits plans is not compromised by allowing plaintiff's to
pursue the fraud claim. The court held that "plaintiff's
common law fraud claim, which seeks to advance the rights and
expectations created by ERISA, is not preempted simply because it
may have a tangential impact on employee benefit plans."
Hein v. Federal Deposit Insurance Corp., 88 F.3d 210
(3d Cir. 1996) - Plaintiff was an employee of Howard Savings
Bank, that went bankrupt. The FDIC was appointed receiver, and
sold all of the bank's assets to Fidelity National Bank, however
retained the Howard Bank pension plan. Under the plan, plaintiff
was allowed unreduced early retirement benefits if he reached the
age of 55 while employed with Howard Bank. Plaintiff began
working for Fidelity National Bank in the same position he
occupied at Howard Bank. When he turned 55, he applied for
unreduced early retirement benefits under the Howard Plan. When
FDIC denied his claim, plaintiff brought suit under ERISA §
204(g). The district court awarded plaintiff benefits. The Third
Circuit found that under the plain language of the Howard Plan,
plaintiff was ineligible for unreduced early retirement since he
was not yet 55 when his employment at Howard Bank terminated.
Plaintiff never qualified for unreduced benefits, and the
district court could not enlarge plaintiff's entitlement.
Nonetheless plaintiff argued that under § 204(g), FDIC may not
amend the plan to deny his accrued benefit. The appellate court
determined that no amendment was ever made to the plan, however,
even if there was an amendment, plaintiff's interest in unreduced
retirement benefits never vested, therefore the FDIC did not
amend the plan to deny him an accrued benefit. Moreover, the
Court rejected the district court's application of the "same
desk rule" permitting plaintiff to satisfy the requirement
by working at Fidelity in the same position as he occupied at
Howard. It determined that had plaintiff satisfied the Plan's
requirement before he began employment with Fidelity, then his
years of employment at Fidelity might apply toward his accrued
benefit under the "same desk rule." However, since
plaintiff never qualified initially under the Howard plan, he
could not qualify once his employment was terminated. In
addition, the Howard plan was not transferred to Fidelity, and
Fidelity made no representation about early retirement benefits
to plaintiff. The Court also held that the official receiver was
qualified and could exercise his discretion in interpreting the
Howard Plan. The Court also rejected plaintiff's promissory
estoppel claim since he had no reason to believe that he was
going to get a benefit. Finally, the court rejected plaintiff's
fiduciary duty claim because under ERISA an action against a
fiduciary is limited to equitable relief, and here plaintiff
sought damages.
Central
Pennsylvania Teamsters Pension Fund v. McCormick Dray Line, Inc.,
85 F.3d 1098 (3d Cir. 1996) -- Multiemployer welfare fund sought
delinquent contributions from employer pursuant to collective
bargaining agreement between the employer and Teamsters Local
Union No. 764. Employer denied its obligation since the provision
in the CBA requiring contribution was due to a mutual mistake,
and requested the court to reform the agreement. The court
acknowledged that reformation may be allowed if the goals of
ERISA are not frustrated, however under the particular facts of
this case, the court held that reformation is not available
because third party beneficiaries to the underlying agreement are
entitled to rely on its plain language notwithstanding that such
language was the result of a mutual mistake or negligence of the
contracting parties. The Welfare Fund was a third party
beneficiary that relied on the accuracy of the CBA to make their
actuarial calculations that produce their payout systems for all
of their members. The court further stated there were only three
defenses available to an employer to avoid contributions: (1) the
pension contributions are themselves illegal; (2) the CBA is void
ab initio, as where there is fraud in the execution, and not
merely voidable, as in the case of fraud in the inducement; and
(3) the employees have voted to decertify the union as its
bargaining representative, thus prospectively voiding the
agreement. This case did not involve the above three
circumstances. Here, the court placed the burden on the employer
to read the CBA before signing it, and refused to impose a duty
on the Welfare Fund to ensure the employer fully understands its
obligation.
Dotson v. United States, 87 F.3d 682 (5th Cir. 1996) -
Taxpayers sought refund from IRS for income taxes paid on their
ERISA settlement. The district court held that damages from ERISA
settlement did not meet the "personal injury" exclusion
under Internal Revenue Code §
104(a)(2). The Fifth Circuit reversed. It determined that to
qualify for the exclusion: (1) the damages were must be due to a
personal injury rather than a mere economic loss and (2) the
legal basis of the claim must have "tort-like
characteristics," focusing on the scope remedies available
under the statutory scheme. Here, the appellate court found that
the Special Master thought that the settlement award included
significant "tort-like" elements, and the evidence
showed that defendants settled only out of fear that it would be
liable for punitive damages if they failed to settle. The
district court, however, relied on cases decided after the
parties settled which limited the remedies under ERISA, which the
appellate court found an error since only the case law
interpreting ERISA at the time of settlement was relevant. At the
time the parties settled, the Supreme Court, in Ingersoll-Rand
v. McClendon, 498 U.S. 133 (1990), stated in dicta that
compensatory damages were available under ERISA ' 502(a) for violations ' 510 violations. Therefore,
subsequent judicial clarification of the statute, which the
district court relied on, did not change the fact that the
taxpayer prosecuted and actually received a settlement which
compensated tort personal injuries. The Special Master developed
a Plan of Distribution for the settlement, described "the
double remedy of a 'Basic Award,' which included compensatory
damages for dignitary injuries, and an 'Earnings Impairment
Additur' which compensated lost earnings capacity." Clearly,
the parties intended that the damages compensated a personal
injury.
Abraham v. Exxon Corporation, 85 F.3d 1126 (5th Cir. 1996) - "Leased" or "special agreement" employees, who were excluded from participation in Exxon's ERISA plan, sought benefits under the plan and plan information. First, the court determined that plaintiffs, although excluded from the plan, had standing to bring an ERISA claim because they "had a colorable chance of success." The plaintiff's here relied on Renda v. Adam Meldrum & Anderson Co., 806 F.Supp. 1071 (W.D.N.Y. 1992), and although Fifth Circuit ultimately rejected that case, it held that Renda was not bizarre or unreasoned, therefore plaintiffs had at least a colorable claim. Nonetheless, the Court denied that plaintiffs were entitled to benefits under the plan. Plaintiff sought to apply a structural defect analysis, which states, "[a] pension plan is structurally deficient when it arbitrarily and unreasonably excludes a large number of participants from receiving benefits, thus failing to satisfy the 'sole and exclusive benefit' of all employees" to enforce ERISA § 1104 fiduciary duty provision. The court stopped short of adopting the structural defect analysis to enforce ' 1104, however, it stated that even if it applied the analysis, § 1104 creates a duty only for fiduciaries, and Exxon did not act as a fiduciary, but rather an employer when it designed the plan to exclude plaintiffs. Next, plaintiff claimed that ERISA and various Treasury Regulations' minimum coverage and participation requirements prohibited Exxon from discriminating against leased employees. The court held that ERISA § 1052(a) only forbids employers from denying participation to an employee on the basis of age or length of service if he is at least 21 years old and has completed one year of service, and therefore Exxon can properly denying participation in their ERISA plan on some basis other than age or service. Furthermore, failure to meet the Treasury Regulations' minimum age and service requirements only results in a loss of beneficial tax status to the employer; and does not permit the court to rewrite the plan to include additional employees. The court also determined that the plan administrator uniformly excluded leased or special agreement employees based on a legally correct interpretation of the plan, and plaintiff's interpretation would create unanticipated costs to the plan, therefore the plan administrators did not abuse their discretion in denying benefits to plaintiffs.
The appellate court, however, reversed the district court's
summary judgment to Exxon, on plaintiff's claim for statutory
penalties for Exxon's failure to produce plan information. Since
plaintiff's were participants, they were entitled to seek
penalties. appellate court remanded to the district court to
determine whether to assess penalties against Exxon, however the
court used language to suggest that the district court may deny
penalties on the grounds that Exxon acted in good faith.
Tolley v. Provident Life & Accident Insurance Company,
89 F.3d 835 (6th Cir. 1996) - In an unpublished opinion, the
Sixth Circuit held that plan administrators were not
"arbitrary and capricious" in terminating plaintiff's
disability benefits pursuant to the employer's benefits plan.
Here, plaintiff's treating physician determined that he was
totally disabled, however, two other physicians examining
plaintiff concluded that he was employable. There was sufficient
evidence before the plan administrator to reveal that plaintiff
could engage in light work, and that such light work existed in
plaintiff's area, therefore its termination of benefits was
upheld.
Enterprise Group Planning v. Stephens, 89 F.3d 833 (6th Cir. 1996) - Health insurer sought subrogation from defendants, who were participants in employer's health plan. Under the plan, insurer was entitled to reimbursement for health benefits paid to participants only in the event that the insured recovers from a third party "by way of settlement or in satisfaction of any judgment." Here, the defendants received medical insurance coverage from the employer-sponsored health plans for their injuries in an automobile accident. They also received small amounts of "medical payments" from their automobile insurer, for which the Enterprise Group sought reimbursement. Enterprise produced the subrogation agreement signed by defendants, agreeing to reimburse Enterprise if they received "medical payment" benefits. The court, however, determined that the subrogation form, for which no consideration was given, broadened the insurer's rights. The plan required subrogation only if the defendant received a settlement or judgment from a third party tortfeasor. Since medical payments from defendants automobile insurer was neither a settlement or judgment, Enterprise was not entitled to reimbursement.
Sullivan v. Gilchrist, 87 F.3d 867 (7th Cir. 1996) -
Union brought action to enforce an arbitration award against two
contractors liable for unpaid contributions to union pension
fund. The court found that the contractors' failure to challenge
the arbitration award within the applicable 90-day limitations
period rendered the award final. All defenses brought by the
contractors should have been raised within the limitation period.
Central States, Southeast & Southwest Areas Pension Fund v. Central Transport, Inc., 85 F.3d 1282 (7th Cir. 1996) - In a previous litigation, ERISA pension fund obtained judgment for withdrawal liability from the Rogers Group. In this case, the trust sought to enforce the judgment against corporate entities that allegedly controlled the employees of the Rogers Group. The court first determined whether it had subject matter jurisdiction in light of Peacock v. Thomas, --- U.S. ---, 116 S.Ct. 862 (1996), wherein the Supreme Court held that federal courts did not have independent jurisdiction to decide plaintiff's veil piercing claim to collect a judgment, even though it had jurisdiction to hear plaintiff's original claim for ERISA liability. In this case, the Seventh Circuit recognized that plaintiff was not trying to pierce the corporate veil, but rather plaintiff claimed that the defendants were liable for the underlying ERISA claim. As to the merits of this case, the court held that an employer for purposes of MPPAA is "a person who is obligated to contribute to a plan either as a direct employer or in the interest of an employer of the plan's participants." The relevant inquiry would be whether the defendants here had an obligation to contribute as well as the nature of the obligation. Although the defendants here were not signatories to the collective bargaining agreement that required contribution, the plaintiff argued that they were the "true employer" and thus liable. The factors to consider to determine whether defendants is the employer liable for contributions are (1) the amount of respect given to the separate identity of the corporation by its shareholders; (2) the fraudulent intent of the incorporators; and (3) the degree of injustice visited on the litigants by respecting the corporate entity. The court rejected the plaintiff's reliance on a previous NLRB proceeding wherein the Board determined that defendants and the judgment debtors were joint employers for an unfair labor practice charge. The court found that the Board did not examine the overall corporate relationship among the employers or the underlying purpose of the lease arrangements, its findings do not resolve the issue of respect for corporate forum. The court further determined that the alter-ego doctrine would not control this case because there is no evidence of fraud. Essential to the application of the alter-ego doctrine is a finding of a disguised continuance of a former business entity or an attempt to avoid the obligations of a CBA such as a sham transfer of assets. These facts do not support such a conclusion. There was no evidence that any of the employers withheld or disguised its corporate entity. The most telling evidence is that plaintiff did not name defendants as defendants in either of their first two lawsuits, therefore they probably did not consider them as employers obligated under the CBA.
Berger
Transfer & Storage v. Central States, Southeast and Southwest
Areas Pension Fund, 85 F.3d 1374 (8th Cir. 1996) -
Trucking company requested a declaratory judgment for a
declaration that owner-operators of tractors leased to company
were independent contractors, and enjoin pension fund from
collecting contribution for these individuals pursuant to CBA
obligating company to make contributions for
"employees." Court held that a common law control test
distinguishing independent contractors from employees would
apply, and considered the hiring party's right to control the
manner and means by which the product. The court considered a
number of factors cited in the Supreme Court case, Nationwide
Mutual Ins. Co. v. Darden, 503 U.S. 318 (1992) including: the
skills required; the source of the instrumentalities and tools;
the location of the work; the duration of the relationship
between the parties; whether the hiring party has the right to
assign additional project to the hired party; the extent of the
hired party's discretion over when and how long to work; the
method of payment; the hired party's role in hiring and paying
assistants; whether the work is part of the regular business of
the hiring party; whether the hiring party is in business; the
provisions of employee benefits; and the tax treatment of the
hired party. Here, the owner-operators agreement specifically
provided that the owner-operator was responsible for determining
the means used to provide transportation services to company;
were responsible for hiring and supervising drivers and other
workers, loading and unloading trusts, purchasing and maintaining
the leased equipment, paying operating expenses such as fuel and
repairs, and paying worker's compensation and withholding
employment taxes for drivers. The owner-operators were autonomous
and determined when and how long they worked, were not on
defendant's payroll; the company reported their income on Form
1099 rather than W-2. Although defendants previous contributions,
and their providing training programs to the owner-operators were
not decisive, the court held these were factors to be weighed,
and in this case the factors weighed in favor of independent
contractor. Key factor here was the fact that the employees also
drove for other companies. Finally, the workers compensation
award holding that defendants were liable in workers comp. for
injury to owner operator did not bar re-litigation of this issue
since the award examined only one employees relationship with
defendant, and not the relationship of all owner-operators.
Ravenscraft v. Hy-Vee Employee Benefit Plan and Trust, 85 F.3d 398 (8th Cir. 1996) - Plaintiff brought action claiming that employer improperly amended to health care plan which terminated coverage of medical expenses for her in vitro fertilization. The court determined that employer was free to unilaterally amend or terminate the plan without running afoul of ERISA fiduciary duty provisions. It rejected plaintiff's argument that employer breached ERISA's disclosure requirement because they failed to reveal that Plan trustees had to approve amendments that "change substantially the powers, duties, or liabilities of the Trustee," including plan amendments. The court stated that even if the employer violated the disclosure requirement, it doubted the proper remedy would be to invalidate the amendment. Moreover, the trustees have no role in the amending the plan, thus their duties were not substantially changed. Next, the plaintiff claimed the defendants were arbitrary and capricious in amending the plan when she was in the middle of receiving treatment. However, the plan administrators did not know that she was in the middle of treatment, and understood that she was in between treatment cycles, therefore their decision was not arbitrary.
Jelinek v. Hewlett-Packard Co., 89 F.3d 845 (9th Cir.
1996) - Plaintiff challenged the plan administrator's denial of
long-term disability benefits under an employer welfare plan. The
district court granted summary judgment to defendant. On appeal,
plaintiff argued that the district court should have conducted de
novo review of the administrator's decision. The appellate court
found that plaintiff never raised the issue de novo review at the
district court, therefore it would not address it on appeal.
Plaintiff also failed to raise at the district court the argument
of whether the plan administrator abused its discretion in
considering evidence outside the administrative record in making
their decision. Further, the court held that the district court
did not err in refusing to consider additional evidence outside
the administrative record when it reviewed the administrator's
decision under an abuse of discretion standard. The court also
rejected plaintiff's argument that the administrator was under
duty to seek clarification regarding plaintiff's disability, and
was required to seek evidence from vocational rehabilitation
experts. Instead, the plan put the burden on plaintiff to submit
all necessary evidence to support her claim for benefits.
Furthermore, there was sufficient evidence to support the
administrator's decision without a vocational expert's report.
Marx
v. Loral Corporation, 87 F.3d 1049 (9th Cir. 1996) -
Plaintiff brought action against Goodyear Aerospace Corporation
and its successor, Loral Corporation, for breach of fiduciary
duty in amending the plan to deny benefits. The district court
granted summary judgment for defendants finding that the plan
administrator reserved the right to amend the plan. The
plaintiffs filed an appeal one day late, however the district
court allowed the one day extension for excusable neglect because
plaintiffs had difficulty consulting with each other and counsel,
and there was no evidence of injury to defendants or to judicial
administration, and no indication of bad faith. The appellate
court held there was no clear error in the district court's
decision to allow the extension. Nonetheless, it affirmed the
district court's summary judgment. The district court held that
plaintiff could state a claim for fiduciary duty since ERISA only
provides equitable relief for breach of fiduciary duty, and here
plaintiff's claim is for benefits on their own behalf. The
district court also held that plaintiff's could not prevail on
their fraud and estoppel claims because ERISA precluded fraud
theories, and equitable estoppel would only apply when the plan
is ambiguous. On appeal, the plaintiff claimed amendment was
invalid because the plan did not provide a procedure for its
amendments. The appellate court refused to hear this issue for
the first time on appeal. Plaintiff's also claimed that the
district court erred in failing to recognize their independent
contract claims based on Loral's offers of vested benefits in
exchange for early retirement. The Ninth Circuit found that
plaintiff waived this argument since they did not allege a breach
of contract claim in their complaint or amended complaint. The
Ninth Circuit agreed with the district court that plaintiff's
equitable estoppel principles are applicable under ERISA only
when the terms of the plan are ambiguous.
Snow
v. Standard Insurance Co., 87 F.3d 327 (9th Cir.
1996) - Plaintiff claimed she suffered from Chronic Fatigue
Syndrome, and was wrongfully denied long term disability benefits
under her employer's welfare plan. The Ninth Circuit determined
that language in the plan that provided no benefit shall be paid
"unless the defendant is presented with what it considers to
be satisfactory written proof of the claimed loss,"
conferred discretionary authority to the administrator to
determine eligibility, therefore abuse of discretion review is
appropriate. Although the district court properly applied the
abuse of discretion standard of review, it failed to give
sufficient deference to the plan administrator's decision. The
court noted that an administrator's financial interest in a plan
might create a conflict of interest, which the court may consider
in determine whether the administrator abused its discretion.
However, the beneficiary must first provide material, probative
evidence tending to show that the fiduciary's self interest
caused a breach of the administrator's fiduciary obligations.
Only then would the court be required to act with skeptically in
deferring to the administrator's decision. The court stated that
it would be an abuse of discretion for the administrator to
"make a decision without and explanation, or in a way that
conflicts with the plain language of the plan, or that is based
on clearly erroneous findings of fact." Plaintiff did not
allege that defendants gave no explanation or that their decision
conflicted with language in the plan, but instead contended that
defendants decision was contrary to her treating physician's
report that she was totally disabled. The court stated that the
mere fact that a decision is directly contrary to some evidence
does not show that the decision is erroneous. Rather, there must
be a "definite and firm conviction that a mistake has been
committed." The court held that where there is sufficient
evidence in the administrative record to support an
administrator's decision, the district court should defer to that
decision. However, if the district court found a total lack of
evidence to support the administrator's decision, then the court
could properly overturn the decision and direct payments. Here,
the district court found substantial evidence to support the
administrator's decision, nonetheless it remanded the case back
to the administrator to seek more evidence. The Ninth Circuit
held that the court erred in requiring defendants to consider
more evidence. Based on the administrative record alone, the
district court was to determine whether there was sufficient
evidence to support the decision, and if so, it must defer to the
administrator, and if not, it should award the benefits to
plaintiff.
Reich v. Metrahealth, Inc., 87 F.3d 1321 (9th Cir.
1996) - Plaintiff brought action challenging the claim
administrator's denial of benefits for five patients, each of
whom were insured under different employer-sponsored ERISA
medical plans. The plaintiff is a doctor, and also the business
manager of Solutions Surgical Center, where each beneficiary
received outpatient nasal surgery. He claimed that defendants
wrongfully denied benefits, refused to provide requested
information, and breached its fiduciary duty. He sought
injunctive relief to compel defendants to remedy these
violations. The Ninth Circuit affirmed the district court's
dismissal of plaintiff's claims. First, the court determined that
a health care provider, as an assignee, may have derivative
standing to enforce a beneficiary's right under ERISA. However,
in this case, the patients assigned their claims to Solutions,
not the doctor, therefore he lacked standing to pursue the
claims. Next, the court determined that Metrahealth, the claim
administrator, was not an ERISA fiduciary. ERISA only permits
suits against an ERISA plan as an entity. Since Metrahealth was
neither the plan or the plan administrator, it was not liable for
unpaid benefits.
Hughes v. Hughes Aircraft Company, 87 F.3d 1319 (9th
Cir. 1996) - After plaintiff's estranged wife eliminated his
status as beneficiary under an employee benefit plan, he brought
a state court action alleging that defendant negligently failed
to adhere to the written requirements of its change of
beneficiary form, and negligently failed to notify him of the
change. Defendants removed the case to federal court, and the
district court denied plaintiff's motion to remand, finding that
plaintiff's claims were preempted by ERISA. The Ninth Circuit
held that even though plaintiff's negligence action did no
explicitly refer to an employee benefit plan, it was nonetheless
preempted since his claims arose directly or indirectly from the
administration of such plan. Next, plaintiff claimed that the
district court erred in concluding that res judicata bars
plaintiff's present claim. The appellate court found that in a
previous interpleader action involving the insurer (Metropolitan
Life), the trial court held that defendants had no obligation to
require plaintiff's signature, therefore plaintiff could not
recover proceeds. The resolution of the interpleader action was a
judgment on the merits. In this action, plaintiff again contended
that defendant was required to obtain his signature, however this
time, he based his claim on the theory of a vested community
property interest in the proceeds. This new action, however would
relitigate the same issue. The court found that defendants were
in privity with Metropolitan Life, a party in the interpleader
action. Since all three elements of res judicata had been met,
plaintiff's claims were barred.
Wyatt v. Masco Corporation Employees' Disability Income
Benefit Plan, 87 F.3d 1326 (9th Cir. 1996) - Plaintiff
challenged the administrator's denial of long term disability
benefits. The Ninth Circuit affirmed the district court's grant
of summary judgment to defendants. Plaintiff received disability
benefits for a year and 1/2 for depression, ending on October 1,
1991. The terms of the plan required plaintiff to return to
"active full time employment" after the first
disability period in order to qualify for a new benefit period.
Since plaintiff did not return to work after her benefit period
ended in October 1991, defendant did not abuse its discretion in
denying her a new benefit period for her claim of disability due
to bunions.
Chapleau v. Care America, Southern California, 87 F.3d
1317 (9th Cir. 1996) - Plaintiff, a resident of California,
appeal district court's grant of summary judgment to defendants
on his claim challenging administrator's denial of insurance
benefits. The plan provided that benefits would not pay charges
incurred for services from other than primary care physician
unless an emergency exists. Plaintiff claimed that nonprimary
care physician's letter stating that plaintiff had a
"rapidly progressive disease" and should have surgery
while he was in Indiana created a genuine issue of fact as to
whether there was an emergency. Defendant presented testimony
from the same doctor that plaintiff was not in "an emergency
condition" when he came to Indiana. The court held the fact
that plaintiff suffered from a "rapidly progressive
disease" did not mean he was faced with an
"emergency" as that term is commonly understood, and as
it is defined in the plan, therefore the letter failed to raise a
genuine issue of fact. The court also rejected plaintiff's claim
for unjust enrichment, since equitable relief is available under
ERISA to redress an ERISA violation. Here, plaintiff failed to
show that defendant violated any ERISA provision or any term of
the benefit plan.
Saffle v. Sierra Pacific Power Company Bargaining Unit Long Term Disability Income Plan, 85 F.3d 455 (9th Cir. 1996) - Plaintiff challenged administrator's denial of long term disability benefits. The plan provides that an employee is totally disabled, and thus entitled to benefits if "he is completely unable to perform each and every duty of his regular occupation." (Emphasis added). However, the administrator denied plaintiff benefits because "the weight of medical opinion is that you could perform a substantial portion of your regular job with the accommodations that could have been made." (Emphasis added). The district court held, and the Ninth Circuit agreed that the administrator's interpretation of the plan, with its adoption of the "substantial portion" standard and its "accommodations" requirement, was contrary to the plain language of the plan. The court noted that the administrator had discretion to interpret the that "each and every" language to "all substantial and material duties" of plaintiff's regular duties, and such an interpretation would be consistent with the plan terms. However, the administrator could not arbitrarily apply a new standard of "substantial portion" to determine eligibility. Furthermore, the word "accommodation" did not appear in the provision, thus the administrator incorrectly interpreted the plan by imposing a new requirement for eligibility. The appellate court directed the district court to remand to the administrator for a review of plaintiff's application for benefits under a correct interpretation of the plan.
Hawkins
v. Commissioner of Internal Revenue - IRS sought to
collect taxes from plaintiff (Arthur Hawkins) for distributions
made from his pension fund to his ex-wife (Glenda Hawkins)
pursuant to a divorce decree. Arthur and Glenda entered into an
agreement whereby she would receive $1 million dollars from his
pension fund, and relieve him of all tax liability for any
proceeds which she received pursuant to the agreement. Their
agreement was incorporated into the dissolution decree issued by
the divorce court. Payment was then made to Glenda in
installments between January 1987 and March 1987, however neither
Arthur his Glenda reported the distribution as income for 1987.
The IRS issued deficiency notices to both Arthur and Glenda, and
both filed petitions in the U.S. Tax Court challenging the
deficiency. The Tax Court concluded that Arthur was responsible
for the tax liability. The Tenth Circuit disagreed. Under I.R.C. ' 402(a)(1), any amount
actually distributed from a qualifying pension trust to a
"distributee" must be included in the distributee's
income for that year." However, I.R.C. ' 402(a)(9) creates an
exception to this general rule and provides that "an
alternate payee is the spouse or former spouse of the participant
shall be treated as the distributee of any distribution or
payment made to the alternate payee under a qualified domestic
relations order [QDRO]." The parties disputed whether Glenda
is an alternate payee and whether the agreement was a QDRO.
Glenda argued that the agreement did not designate, nor did the
parties intend her to be an "alternate payee." The
court, however stated that the subjective intent of the parties
was not controlling. It determined that the agreement, which was
incorporated into a dissolution decree, and which stated
"that Glenda 'shall receive' $1 million "from" the
Plan," effectively "created, recognized or
assigned" a right to Glenda to receive a distribution,
therefore she qualified as an alternate payee. Next, the court
determined that the dissolution decree was a QDRO for I.R.C. '402(a)(9). To qualify as a
QDRO, an order must specify (1) the name and last known address
of the participant and alternate payee; (2) the amount or
percentage of the participant's benefits to be paid to the
alternate payee, or the manner in which the amount or percentage
is to be determined; (3) the number of payments or period to
which the order applies; and (4) each plan to which the order
applies. I.R.C. '
414(p)(2)(A) - (D). The agreement at issue stated that Glenda is
to receive "cash of One Million Dollars ... from
Husband's share of the Arthur C. Hawkins, D.D.S. Pension Plan,"
and that Arthur "shall immediately allow [Glenda] to
take possession of the property..." sufficiently met the
statutory requirements. The only thing missing was Glenda's name
and last known address, which Glenda conceded was not necessary
because the plan administrator clearly possessed that
information. Since the dissolution decree was a QDRO, Glenda was
responsible as alternate payee for the tax liability attached to
the distribution.
Fuller v. Norton, 86 F.3d 1016 (10th Cir. 1996) - Trustee of multiemployer welfare arrangement (MEWA) sought to enjoin Colorado's Insurance Commissioner from imposing the state's workers' compensation and insurance regulatory laws on the MEWA. The MEWA was established to provide health benefits and workers' compensation benefits to its members. Trustee argued that state laws that relate to employee welfare benefit plans are preempted by ERISA. The district court dismissed plaintiff's claim, and the Tenth Circuit affirmed. The court determined that Congress did not intend to preempt areas of traditional state regulation, thus it excluded from ERISA preemptive scope laws regulating some arrangements that constitute employee benefits plan, including plans "maintained solely for the purpose of complying with applicable workmen's compensation laws or unemployment compensation laws or disability insurance laws." 29 U.S.C. '' 1003(b)(3), 1144(a). Accordingly, Colorado could require MEWA seeking to provide worker's compensation to conform with state regulatory laws since these laws do not relate to an ERISA plan. Next, the court held that Colorado could also require MEWA to conform with its insurance laws, relying on ERISA's "savings clause," which states: "...nothing in this chapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance..." 29 U.S.C. ' 1144(b)(2)(A). Nonetheless, the Trustee argued that ERISA's "deemer clause" prohibited the commissioner from deeming the MEWA as an insurer. The deemer clause states: "Neither an employee benefit plan ..., nor any trust established under such plan, shall be deemed to be an insurance company ... or to be in the business of insurance ... for purposes of any law of any State purporting to regulate insurance companies[.]" The court responded by pointing to an ERISA amendment, 29 U.S.C. ' 1144(b)(6)(4), that provides a limited exception to the "deemer clause," and allows states to regulate MEWA-sponsored plans as if they were engaged in the business of insurance so long as the state law is not inconsistent with ERISA. To determine whether the state law regulates insurance, and thus escapes ERISA preemption, the court applied a test developed by the Supreme Court in Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987). The practice must (1) have the effect of transferring or spreading a policyholder's risk; (2) is an integral part of the policy relationship between the insurer and the insured; and (3) is limited to entities within the insurance industry. It concluded that the statute, which subjected MEWA to the state's licensing requirements, does regulate insurance. The court also concluded that the state law was not inconsistent with ERISA. It defined inconsistent as "an actual conflict between federal and state requirements," and held that actual conflict arise only when state law "stands as an obstacle to the accomplishment and execution of the full purpose and objectives of Congress." In this case, Colorado's statute did not prohibit the MEWA from providing health insurance to members, it merely would require the MEWA to comply with the state's licensing and disclosure requirements. Imposing these requirements was not repugnant to ERISA.