Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-99-05125/USCOURTS-caDC-99-05125-0/pdf.json

Nature of Suit Code: 442
Nature of Suit: Civil Rights Employment
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 13, 2000 Decided April 14, 2000

No. 99-5125

Equal Employment Opportunity Commission,

Appellant

v.

Aramark Corporation, Inc.,

Appellee

Consolidated with

99-7042

Appeals from the United States District Court

for the District of Columbia

(No. 97cv00716)

(No. 97cv00734)

---------

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Barbara L. Sloan, Attorney, Equal Employment Opportunity Commission, argued the cause for appellant. With her

on the briefs was Philip B. Sklover, Associate General Counsel.

Leslie Robert Stellman argued the cause and filed the brief

for appellant Rebecca L. Fennell.

Ronald S. Honberg was on the brief for amicus curiae The

National Alliance for the Mentally Ill.

Ronald S. Cooper argued the cause and filed the briefs for

appellees Aramark Corporation, Inc. and Aetna Life Insurance Company.

Phillip E. Stano was on the brief for amici curiae the

Health Insurance Association of America, the Equal Employment Advisory Council, the Chamber of Commerce of the

United States of America and the American Council of Life

Insurance.

Before: Williams, Randolph and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Tatel.

Tatel, Circuit Judge: Claiming a violation of the Americans with Disabilities Act, appellants challenge an employee

benefit plan that provides twenty-four months of long-term

disability benefits for persons suffering from mental or psychological disabilities but a longer period of benefits for those

with physical disabilities. Because the employer adopted the

plan prior to the ADA's enactment and because circuit precedent holds that such plans are protected by the statute's "safe

harbor" provision, we affirm the district court's grant of

summary judgment for the employer and plan administrator.

I

Appellant Rebecca Fennell worked as a food service manager for appellee Aramark Corporation for ten years until

mental illness prevented her from performing her duties.

Following Fennell's extended leave of absence due to depression and post-traumatic stress disorder, Aramark terminated

her employment on February 15, 1996. She received Social

Security disability benefits and long-term disability payments

under Aramark's employee benefit plan, administered by

appellee Aetna Life Insurance Company. The plan provides

income replacement amounting to two-thirds of base monthly

salary for employees unable to work due to long-term disability resulting from illness, injury, or disease. Funded by

contributions from Aramark and participating employees, the

plan limits disability payments to twenty-four months if the

disability is caused by a mental condition but continues

payments until at least age sixty-five if the disability is

physical. In accordance with the plan's terms, Aetna notified

Fennell that because she had no physical impairment, her

benefit payments would be discontinued effective April 16,

1997, two years after she began receiving them.

Alleging that the plan's different benefit terms for mental

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and physical disabilities amount to discrimination prohibited

by the Americans with Disabilities Act, Fennell filed a complaint with the Equal Employment Opportunity Commission

and then filed suit against Aramark and Aetna in the United

States District Court for the District of Columbia. Three

days later, EEOC also filed suit, and the two cases were

consolidated. Fennell claimed that the cutoff in benefit payments violates Title III of the ADA, 42 U.S.C. ss 12181-89,

which prohibits discrimination "on the basis of disability in

the full and equal enjoyment of the goods, services, facilities,

privileges, advantages, or accommodations of any place of

public accommodation...." Id. s 12182(a). EEOC argued

that the two-year limit violates Title I of the ADA, Id.

s 12111-17, which prohibits a covered employer from discriminating "against a qualified individual with a disability

because of the disability of such individual in regard to [the]

terms, conditions, and privileges of employment." Id.

s 12112(a).

The district court granted summary judgment for Aramark

and Aetna. See Fennell v. Aetna Life Ins. Co., 37 F. Supp.2d

40 (D.D.C. 1999). With respect to EEOC's claim, the district

court observed that Title I protects only a "qualified individual with a disability," defined as "an individual with a disability

who, with or without reasonable accommodation, can perform

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the essential functions of the employment position that such

individual holds or desires." 42 U.S.C. s 12111(8). Because

Fennell had become totally disabled and unable to perform

the essential functions of her job, the district court held that

she no longer met the definition of a "qualified individual with

a disability" and was therefore unprotected by Title I of the

ADA. Fennell, 37 F.Supp. 2d at 43-44. With respect to

Fennell's claim, the district court held that Title III only

requires elimination of barriers to access for the disabled in

places of public accommodation, which the court limited to

"physical locations." Id. at 45. Because a disability benefit

plan does not constitute a physical place of public accommodation, the court said, it is not regulated by Title III.

EEOC and Fennell appeal. EEOC argues that the district

court erred by construing Title I narrowly to prevent former

employees no longer able to perform essential functions of

their previous jobs from ever suing under the ADA. According to EEOC, the district court's ruling would prevent a

totally disabled former employee from suing for discrimination in post-employment benefits, even if those benefits had

been earned when she was a "qualified individual with a

disability." Fennell argues that public accommodation refers

not just to physical locations, as the district court held, but

also to all available products and services including benefit

plans. Our review is de novo. See Cones v. Shalala, 199

F.3d 512, 516 (D.C. Cir. 2000).

II

Our sister circuits are divided on both issues that formed

the basis of the district court's grant of summary judgment

for Aramark and Aetna. The Seventh, Ninth, and Eleventh

Circuits have held (as did the district court) that Title I of the

ADA provides no protection to a totally disabled former

employee because that person is no longer a "qualified individual with a disability." See Weyer v. Twentieth Century

Fox Film Corp., 198 F.3d 1104, 1110 (9th Cir. 2000); EEOC

v. CNA Ins. Cos., 96 F.3d 1039, 1045 (7th Cir. 1996); Gonzales v. Garner Food Services, Inc., 89 F.3d 1523, 1531 (11th

Cir. 1996). Reaching the opposite conclusion, the Second and

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Third Circuits have held that a former employee who had

earned fringe benefits while employed and "qualified" could

sue under Title I for discrimination in post-employment benefits despite the fact that at the time of the suit the former

employee had become completely disabled and no longer

"qualified." See Ford v. Schering-Plough Corp., 145 F.3d

601, 608 (3d Cir. 1998), cert. denied, --- U.S. ----, 119 S. Ct.

850 (1999); Castellano v. City of New York, 142 F.3d 58, 68

(2d Cir. 1998), cert. denied, 525 U.S. 820 (1998). With respect

to Title III, the Third and Sixth Circuits (like the district

court) have limited Title III to ensuring access to physical

locations open to the public. See Ford, 145 F.3d at 614;

Parker v. Metropolitan Life Ins. Co., 121 F.3d 1006, 1014 (6th

Cir. 1997) (en banc), cert. denied, 522 U.S. 1084 (1998). The

First and Second Circuits have held that the ADA's prohibition on disability discrimination in the products and services

of places of public accommodation is not limited to physical

structures and may in some instances include insurance policies and underwriting practices. See Pallozzi v. Allstate Life

Ins. Co., 198 F.3d 28 (2d Cir. 1999), amended on denial of

reh'g, 204 F.3d 392 (2d Cir. 2000); Carparts Distrib. Ctr., Inc.

v. Automotive Wholesaler's Ass'n of New England, Inc., 37

F.3d 12, 19 (1st Cir. 1994).

This circuit has expressed itself on neither of these disputed issues, nor need we do so now, for we have circuit

precedent under which we may affirm the district court on a

different ground--that the challenged plan is protected by

the ADA's safe harbor for bona fide employee benefit plans.

Although the district court never addressed the safe harbor

provision, the issue is fully briefed, and because we review the

district court's judgment, not its reasoning, we may affirm on

any ground properly raised. See, e.g., Doe v. Gates, 981 F.2d

1316, 1321-22 (D.C. Cir. 1993).

The ADA's safe harbor appears in section 501(c): "Subchapters I through III of this chapter and title IV of this Act

shall not be construed to prohibit or restrict ... a person or

organization covered by this chapter from establishing, sponsoring, observing or administering the terms of a bona fide

benefit plan that is not subject to State laws that regulate

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insurance." 42 U.S.C. s 12201(c)(3). This safe harbor "shall

not be used as a subterfuge to evade the purposes" of Title I

or Title III of the ADA. Id. s 12201(c).

The parties agree that Aramark's benefit plan "is bona fide

in that it exists and pays benefits." Public Employees Retirement Sys. of Ohio v. Betts, 492 U.S. 158, 166 (1989)

(internal quotation marks omitted). They also agree the plan

is not subject to state insurance regulation by virtue of

ERISA's preemption provisions. Their disagreement centers

on the meaning of the safe harbor's "subterfuge" exception.

Relying on our decision in Modderno v. King, 82 F.3d 1059

(D.C. Cir. 1996), Aramark and Aetna argue that their benefit

plan cannot fall into the subterfuge exception because Aramark adopted it before the ADA's enactment. Fennell and

EEOC contend that any benefit plan that includes disabilitybased distinctions, no matter when adopted, is a subterfuge if

those distinctions are not "based on sound actuarial principles."

Modderno involved a challenge to a benefit plan's lifetime

limit on mental health treatment reimbursement. Although

the case arose under the Rehabilitation Act of 1973, which

prohibits disability discrimination in government employment,

that Act incorporates the ADA's safe harbor provision. See

29 U.S.C. s 794(d). The appellant in Modderno argued, as

do Fennell and EEOC, that in order to escape the safe

harbor's subterfuge exception, the employer had to show that

any differential treatment of disabled persons in a benefit

plan is actuarially justified. Modderno rejected this actuarial

defense interpretation of subterfuge, finding it " 'at odds with

the plain language of the statute itself.' " Modderno, 82 F.3d

at 1065 (quoting Betts, 492 U.S at 171).

Of particular significance to this case, Modderno went on to

hold that the plan challenged in that case could not be a

subterfuge because the employer had adopted it prior to the

Rehabilitation Act amendment that incorporated the subterfuge provision. In support of this conclusion, Modderno

relied on two Supreme Court decisions interpreting a similar

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ment Act of 1967: United Air Lines, Inc. v. McMann, 434

U.S. 192 (1977), and Betts, 492 U.S. 158. In those two cases,

the Supreme Court construed "subterfuge" to have its "ordinary meaning as 'a scheme, plan, stratagem, or artifice of

evasion.' " Betts, 492 U.S. at 167 (quoting McMann, 434 U.S.

at 203). Recognizing that the ordinary meaning of subterfuge includes a specific intent to circumvent or evade a

statutory purpose, the Supreme Court held there could be no

such intent if the challenged provision had been adopted prior

to the statute's enactment. "In McMann, for instance, where

the plan at issue had been adopted in 1941, long before the

enactment of the ADEA, the Court observed that '[t]o spell

out an intent in 1941 to evade a statutory requirement not

enacted until 1967 attributes, at the very least, a remarkable

prescience to the employer.' " Modderno, 82 F.3d at 1064

(quoting McMann, 434 U.S. at 203).

Modderno's application of Betts and McMann to section

501(c) of the ADA controls this case. It is undisputed that

Aramark's long-term disability benefit plan, including the

twenty-four-month cap on mental disability benefits challenged here, has been in place since at least 1982, long before

the ADA's 1990 enactment. Under Modderno, therefore, the

twenty-four-month benefit limit cannot fall within section

501(c)'s subterfuge exception to the safe harbor.

Appellants offer three arguments why Modderno should

not control this case, none of which is convincing. First, they

claim that Modderno was wrongly decided because it overlooked a difference between the language of section 501(c)'s

subterfuge provision and the language of the similar provision

in section 4(f)(2) of the ADEA interpreted by Betts. They

point out that while the ADEA gave safe harbor to a benefit

plan "which is not a subterfuge to evade the purposes of this

chapter," the ADA substitutes the phrase "shall not be used

as a subterfuge to evade the purposes of subchapter[s] I and

III of this chapter" 29 U.S.C. s 623(f)(2) (1990); 42 U.S.C.

s 12201(c) (emphasis added). Even if a panel of this court

could depart from settled precedent, which of course it cannot, see, e.g., LaShawn v. Barry, 87 F.3d 1389, 1395 (D.C. Cir.

1996) (en banc), we are unpersuaded that what EEOC itself

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acknowledges to be a "subtle difference in language"--the

addition of the words "used as"--would compel a different

result.

In enacting section 501(c) of the ADA, Congress repeated

the phrase "a subterfuge to evade the purposes of ... this

chapter" just one year after Betts had interpreted that precise phrase in section 4(f)(2) of the ADEA to exclude pre-Act

benefit plan provisions. According to EEOC, Congress signaled its rejection of the Betts interpretation by changing the

words preceding that phrase from "is not" in the ADEA to

"shall not be used as" in the ADA. While a benefit plan

cannot be a subterfuge to evade the purposes of a not-yetenacted statute, EEOC argues, it "can be 'used as a subterfuge' regardless of when the plan was adopted." EEOC

contends that merely by including the words "used as" in

section 501(c), Congress expanded the subterfuge exception

to remove pre-ADA benefit plans from safe harbor protection.

Instead of protecting all pre-Act plans, the safe harbor, as

EEOC reads it, functions as an affirmative defense that

allows employers, benefit plan administrators, and insurance

underwriters to avoid liability for disability-based distinctions

by showing on the basis of "sound actuarial principles" that

the distinctions are risk- or cost-justified.

The language of the two safe harbor provisions actually

differs more extensively than even EEOC points out. The

ADEA provision examined in McMann and Betts reads in

pertinent part:

It shall not be unlawful for an employer, employment

agency, or labor organization ... to observe the terms of

... any bona fide employee benefit plan such as a

retirement, pension, or insurance plan, which is not a

subterfuge to evade the purposes of this chapter....

29 U.S.C. 623(f)(2) (1990). The ADA provision reads as

follows:

Subchapters I through III of this chapter and title IV of

this Act shall not be construed to prohibit or restrict--

(1) an insurer, hospital or medical service company,

health maintenance organization, or any agent, or entity

that administers benefit plans, or similar organizations

from underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with

State law; or

(2) a person or organization covered by this chapter from

establishing, sponsoring, observing or administering the

terms of a bona fide benefit plan that are based on

underwriting risks, classifying risks, or administering

such risks that are based on or not inconsistent with

State law; or

(3) a person or organization covered by this chapter from

establishing, sponsoring, observing or administering the

terms of a bona fide benefit plan that is not subject to

State laws that regulate insurance.

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Paragraphs (1), (2), and (3) shall not be used as a

subterfuge to evade the purposes of subchapter[s] I and

III of this chapter.

42 U.S.C. s 12201(c). Under the ADEA, a benefit plan falls

within the safe harbor only if the plan is both (1) bona fide

and (2) not a subterfuge. In the ADA, by contrast, a benefit

plan receives safe harbor protection if it is (1) bona fide and

(2) either consistent with or exempt from state law, but the

safe harbor provision "shall not be used as a subterfuge to

evade the purposes of" Titles I and III of the ADA. In other

words, under the ADA, it is not the benefit plan, but the safe

harbor itself that shall not be used as a subterfuge.

We think these semantic distinctions, including the one on

which appellants rely, do not undermine Modderno. As

Modderno pointed out, the Supreme Court interpreted the

phrase "subterfuge to evade" to require a specific intent to

circumvent a statutory purpose, thus excluding from the

subterfuge exception all pre-Act plans. 82 F.2d at 1064.

Fully aware of the judicial construction of this phrase, Congress used the very same phrase in the ADA's safe harbor.

"[W]hen Congress chose the term 'subterfuge' for the insurance safe-harbor of the ADA, it was on full alert as to what

the Court understood the word to mean and possessed (obviously) a full grasp of the linguistic devices available to avoid

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that meaning." Id. at 1065. See also Bragdon v. Abbott, 524

U.S. 624, 645 (1998) ("When ... judicial interpretations have

settled the meaning of an existing statutory provision, repetition of the same language in a new statute indicates, as a

general matter, the intent to incorporate its ... judicial

interpretations as well."). Whether a benefit plan "is" a

subterfuge to evade the purposes of the law (the ADEA's

language), or whether the safe harbor for benefit plans is

"used as" a subterfuge to evade the purposes of the law (the

ADA's language), the plain meaning of the phrase "subterfuge to evade" remains as defined by McMann, Betts, and

Modderno--"a scheme, plan, stratagem, or artifice of evasion." Under the ADA, then, "subterfuge to evade" still

requires intent and still excludes pre-Act plans like Aramark's because, as McMann said, "[t]o spell out an intent in

[1982] to evade a statutory requirement not enacted until

[1990] attributes, at the very least, a remarkable prescience

to the employer." McMann, 434 U.S. at 203. For the same

reason, "subterfuge to evade" cannot mean merely a lack of

actuarial justification. Indeed, appellants' contention that the

safe harbor applies only to plans whose terms are actuarially

justified has been rejected not only by Modderno but also by

every other circuit to have considered the issue. See Leonard F. v. Israel Discount Bank of New York, 199 F.3d 99, 105

(2d Cir. 1999) ("In the context of the subterfuge clause of

Section 501(c) of the ADA, neither the dictionary definition

nor the Supreme Court's reasonably suggests that absence of

actuarial justification for differential insurance benefits is

sufficient to demonstrate a 'subterfuge' to evade the purposes

of an Act, at least where the insurance policy was adopted

prior to the Act's passage."); Rogers v. Department of Health

and Envtl. Control, 174 F.3d 431, 437 (4th Cir. 1999) ("[W]e

do not find anything in s 501(c) of the ADA (or anywhere else

in the Act) that requires a plan sponsor or administrator to

justify a plan's separate classification of mental disability with

actuarial data."); Ford, 145 F.3d at 611-12 ("[W]e will not

construe section 501(c) to require a seismic shift in the

insurance business, namely requiring insurers to justify their

coverage plans in court after a mere allegation by a plainUSCA Case #99-5125 Document #510639 Filed: 04/14/2000 Page 10 of 13
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tiff."); Parker, 121 F.3d at 1012 n. 5 (rejecting as inconsistent

with the statutory text the view expressed in the Department

of Justice Technical Assistance Manual that different insurance benefit or coverage levels based on disability are permitted only where "based on sound actuarial principles" or

"related to actual or reasonably anticipated experience");

Krauel v. Iowa Methodist Med. Ctr., 95 F.3d 674, 678-79 (8th

Cir.1996) (rejecting EEOC's interim guidance explaining actuarial justification defense as contrary to the plain language

of the statute and thus not entitled to deference).

Congress's addition of the words "used as" is simply too

thin a reed on which to support appellants' claim that Congress intended to overrule Betts, remove pre-Act plans from

safe harbor protection, and give life to EEOC's uniformly

rejected actuarial justification theory. After all, Congress

responded to Betts by totally deleting the subterfuge language from the ADEA, just before it included the similar

subterfuge provision in section 501(c) of the ADA. See Older

Workers Benefit Protection Act of 1990, Pub.L. No. 101-433,

s 103(1) (codified at 29 U.S.C. s 623(f)(2)). Had Congress

also intended to repudiate Betts for ADA purposes, it could

have omitted the provision from that statute as well.

Appellants' second argument is that Modderno's discussion

of section 501(c) is dicta. As they read the case, the decision

rested on the observation that the plan provision challenged

there, a lifetime limit on reimbursement for mental health

treatment, did not discriminate on the basis of disability.

Given that "holding," the Commission claims, the panel's

discussion of section 501(c) was merely "ruminations" "not

necessary to its holding," and therefore not binding on us.

Not only did EEOC fail to raise this argument until its reply

brief, see, e.g., Presbyterian Med. Ctr. of the Univ. of Penn.

Health Sys. v. Shalala, 170 F.3d 1146, 1152 (D.C. Cir. 1999)

(noting that we need not consider arguments raised for the

first time in a reply brief), but it rests on a misreading of

Modderno. After concluding that "[b]ecause the coverage

limitations challenged by Modderno were enacted before the

1992 amendment of s 504 of the Rehabilitation Act (and there

is no suggestion that their enactment was prompted by an

expectation of amendment), they do not fall into the subterfuge exception to the ADA's safe-harbor," Modderno went on

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to say, in language the Commission fails to account for:

"Thus, whether or not Modderno stated a claim under the

1992 amendment of s 504 apart from the safe-harbor provision--a question on which we express no opinion--the coverage limitations challenged by Modderno cannot violate

amended s 504." Modderno, 82 F.3d at 1065 (emphasis

added). Because Modderno's interpretation of the safe harbor was essential to its reasoning as well as to its disposition

of the claims before it, it stands as binding precedent.

Finally, EEOC argues that even assuming we follow Modderno's interpretation of section 501(c), this case differs from

Modderno because Aramark modified the plan after the

ADA's enactment. Appellants rely on two specific changes in

Aramark's long-term disability benefit plan. First, the twenty-four-month limit on benefit payments previously applied to

anyone whose disability is "a result of a mental or emotional

illness," but now applies to disabilities "caused to any extent

by a mental condition (including conditions related to alcoholism or drug abuse) described in the most current edition of

the Diagnostic and Statistical Manual of Mental Disorders,

published by the American Psychiatric Association." Second,

for a mentally disabled participant confined to an inpatient

psychiatric hospital at the time the twenty-four-month period

ends, benefit payments under the prior plan would continue

for the duration of hospitalization; under the revised plan,

continuation of benefits is limited to ninety days beyond the

twenty-four-month cutoff. According to EEOC, these two

changes remove Aramark's plan from automatic safe harbor

protection. We disagree.

To begin with, whatever effect the plan amendments may

have, appellants concede that they did not apply to Fennell,

whose benefits would have terminated after twenty-four

months even under the plan's previous version. Neither

appellant explains how the plan amendments could be a

subterfuge to evade the ADA and discriminate against Fennell if they did not affect her.

Asserting that its suit is not limited to seeking relief for

Fennell, EEOC argues that the plan amendments affected

others by "increas[ing] the number of people subject to the

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limitation." Not only was this argument also raised for the

first time in EEOC's reply brief, but the Commission's complaint alleges neither that Aramark amended the plan for the

purpose of circumventing the ADA, i.e., that the amendments

were a subterfuge (its burden under Betts), nor that the

amendments have ever been applied to terminate benefits to

anyone not subject to the same cutoff under the previous

plan.

The judgment of the district court is affirmed.

So ordered.

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