In the

United States Court of Appeals

For the Seventh Circuit

No. 08-2451

MICHAEL MARRS, on behalf of himself and

all others similarly situated,

Plaintiff-Appellant,

v.

MOTOROLA, INC., et al.,

Defendants-Appellees.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 05 C 5463—Susan E. Cox, Magistrate Judge.

ARGUED MAY 26, 2009—DECIDED AUGUST 14, 2009

Before EASTERBROOK, Chief Judge, and BAUER and

POSNER, Circuit Judges.

POSNER, Circuit Judge. This suit under ERISA for disability payments presents the recurring question whether

an employee welfare benefits plan creates an entitlement to lifetime benefits rather than just to benefits that

can be terminated by an amendment to the plan.

In 1997 Michael Marrs, an employee of Motorola, ceased

working because of a psychiatric condition and began
2 No. 08-2451

drawing disability benefits under Motorola’s Disability

Income Plan. Six years later Motorola amended the plan

to place a two-year limit on benefits for disability resulting from certain “Mental, Nervous, Alcohol, [or] DrugRelated” (MNAD) conditions, including Marrs’s. Such

limitations on MNAD conditions are common in employee disability plans. Rogers v. Department of Health &

Environmental Control, 174 F.3d 431, 435 (4th Cir. 1999); see,

e.g., Krolnik v. Prudential Ins. Co., No. 08-2616, 2009 WL

1838298, at *1 (7th Cir., June 29, 2009); Hackner v. Long

Term Disability Plan for Employees of Havi Group LP, 81 Fed.

App’x 589, 591 (7th Cir. 2003); Kahane v. UNUM Life Ins.

Co., 563 F.3d 1210, 1212 (11th Cir. 2009); Steven J. Sacher

et al., Employee Benefits Law 1003-05, 1147-48 (2d ed. Supp.

2008); cf. Dana L. Kaplan, “Can Legislation Alone Solve

America’s Mental Health Dilemma? Current State Legislative Schemes Cannot Achieve Mental Health Parity,” 8

Quinnipiac Health L.J. 325, 328-30 (2005). Previously,

however, Motorola had imposed no time limit on the

receipt of such benefits. Although Marrs had already

received benefits for more than two years, he was given

an additional two years of benefits, starting on the date

of the amendment. That period has ended and the

benefits have ceased.

His suit is on behalf of himself and others in the

same position, and a class action has been certified. The

district court granted summary judgment in Motorola’s

favor. In an earlier stage of the litigation, the district

court had dismissed two other claims under Rule 12(b)(6).

Marrs renews them on appeal, but they are too clearly

without merit to require us to discuss them.
No. 08-2451 3

Marrs contends that the application of the amendment

to persons in his situation violates a provision of the

disability-income plan that, like the provision in Article V

of the U.S. Constitution according to which a state

cannot by constitutional amendment be deprived of its

right to two senators without its consent, limits Motorola’s

power to amend the plan. The provision states that no

amendment “shall adversely affect the rights of any

Participant to receive benefits with respect to periods

of Disability prior to the adoption date of the [amendment].” Marrs interprets “periods of Disability prior to

the adoption date” to mean one or more periods of disability that began before the plan was amended but may

not have ended before then.

That is a forced reading. The reference in the plan to

“periods” rather than “period” suggests the segmentation

of a period of disability, with some segments (“periods”)

lying before and some after the amendment. It is true

that the plan defines the term “Period of Disability” to

mean “one or more periods of absence from Active Employment due to Disability,” and if we substituted “Period

of Disability prior to the plan” for “periods of Disability

prior to the plan” we would come closer to Marrs’s preferred interpretation. But the plan provides that only

words the initial letters of which are capitalized are

defined terms, and so “periods of Disability” cannot be

equated to “Period of Disability.”

Marrs’s interpretation is further undermined by the

disability plan that was in force in 1997 when he stopped

working and that states that if a participant became

disabled prior to 1994, the benefit levels specified in the
4 No. 08-2451

disability income plan in force then would “continue

in force until [the participant] returns to work for thirty

(30) days.” This provision would be surplusage in the

superseding plan (where it also appears) if the plan

guaranteed the continuation of disability benefits without diminution even if, as in Marrs’s case, the disability

did not arise before 1994.

Whether this interpretation of the plan, which is the

plan administrator’s interpretation, is correct or not, it

is reasonable; and we are inclined to stop with that observation. But Marrs asks us to give no weight to the administrator’s interpretation because the administrator

labored under a conflict of interest: Motorola is both the

plan administrator and the payor of benefits awarded

under the plan.

Marrs cites the Supreme Court’s recent decision in

Metropolitan Life Ins. Co. v. Glenn, 128 S. Ct. 2343 (2008),

which addresses the significance of a conflict of interest

by the plan administrator when, as in that case and this

one, the plan commits the decision whether to award

benefits to the administrator’s discretion. (If the plan

did not confer discretion on the administrator, his

decision would be entitled to no deference by the reviewing court.)

Marrs reads Glenn to require “a more penetrating

inquiry into the actions of a conflicted administrator”

than the earlier case law, which was all over the

map—see Kathryn J. Kennedy, “Judicial Standard of

Review in ERISA Benefit Claim Cases,” 50 Am. U. L. Rev.
No. 08-2451 5

1083, 1135-62 (2001); see also Denmark v. Liberty Life Assurance Co., 566 F.3d 1, 6 (1st Cir. 2009)—had required.

Although normally an employer can amend a welfare

benefits plan without regard to the employees’ interests,

Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 443-44 (1999);

Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 78 (1995),

remember that Marrs’s claim is that the amendment

curtailing his benefits violated the plan, and that is a

claim of wrongful denial of benefits and so the Supreme

Court’s concern with “conflicted” administrators would

seem pertinent.

True, the issue in this case is the interpretation of a

plan document rather than the application of the plan’s

criteria for an award of benefits to particular facts; and

the interpretation of a contract, unless extrinsic evidence

is considered, is usually treated as an issue of law, which

an appellate tribunal therefore resolves without

deferring to the opinion of the first-line decision maker.

But when an ERISA plan gives the plan administrator

discretion to interpret its terms as well as to determine

eligibility for benefits under terms the meaning of which

is not questioned, the court can, as the parties to this

case agree, reject the administrator’s interpretation only

if it is unreasonable (“arbitrary and capricious”). Firestone

Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989); Carr v.

Gates Health Care Plan, 195 F.3d 292, 294 (7th Cir. 1999)

(“under the arbitrary and capricious standard, the administrator’s decision will only be overturned if it is

‘downright unreasonable.’ A denial of benefits will not be

set aside if the denial was based upon a reasonable interpretation of the plan documents”) (citations omitted);
6 No. 08-2451

Call v. Ameritech Management Pension Plan, 475 F.3d 816,

822 (7th Cir. 2007). And both the original and the

amended plan in this case confer discretion on the plan

administrator to “construe and interpret the Plan, decide

all questions of fact and questions of eligibility and determine the amount, manner and time of payment of any

benefits hereunder” (emphasis added).

The administrator is not by virtue of such a grant of

authority free to disregard unambiguous language in

the plan, id. at 822-23; Swaback v. American Information

Technologies Corp., 103 F.3d 535, 540 (7th Cir. 1996)

(“if fiduciaries or administrators of an ERISA plan controvert the plain meaning of a plan, their actions are

arbitrary and capricious”)—that would be unreasonable.

But the administrator’s use of interpretive tools to disambiguate ambiguous language is, one would think, by the

terms of the plan entitled to deferential consideration by

a reviewing court.

Yet Vallone v. CNA Financial Corp., 375 F.3d 623 (7th Cir.

2004), although noting that the plan in that case gave

the plan administrator interpretive discretion, treats the

question whether benefits claimed by the plaintiffs had

vested as a straight issue of contract interpretation. The

court seemed to give no weight to the plan administrator’s

judgment, though in the end agreeing with the administrator’s denial of benefits. But the court was mirroring the

parties’ emphasis, and it did not say that the grant of

interpretive discretion to a plan administrator is entitled

to no weight, although one passage in the opinion could

be thought to imply this. See id. at 632. Any such implica-
No. 08-2451 7

tion would be in tension with the Firestone and Carr

decisions—and the former is a Supreme Court decision,

which is a trump.

Confusion may have been injected into the issue of

deference to interpretive discretion by cases which say

that the interpretation of an ERISA plan is governed by

the ordinary federal common law principles of contract

interpretation, e.g., Ruttenberg v. United States Life Ins. Co.,

413 F.3d 652, 659 (7th Cir. 2005); Mathews v. Sears Pension

Plan, 144 F.3d 461, 465 (7th Cir. 1998); Dobson v. Hartford

Financial Services Group, Inc., 389 F.3d 386, 399 (2d Cir.

2004), and by cases in this circuit that say that welfare

benefits plans are presumed not to create lifetime benefits. Hackett v. Xerox Corp. Long-Term Disability Income Plan,

315 F.3d 771, 774 (7th Cir. 2003); Rossetto v. Pabst Brewing

Co., 217 F.3d 539, 543 (7th Cir. 2000); contra, Gibbs v. CIGNA

Corp., 440 F.3d 571, 576 (2d Cir. 2006). But these statements,

so far as applicable to plans in which the administrator is

given interpretive discretion, are properly understood as

aids to determining whether the denial of benefits by the

administrator is reasonable, rather than as warrants for a

court’s resolving interpretive disputes without any deference to the administrator’s exercise of interpretive discretion. Thus, as explained in Ross v. Indiana State Teacher’s

Ass’n Ins. Trust, 159 F.3d 1001, 1011 (7th Cir. 1998), “although, generally, ambiguities in an insurance policy are

construed in favor of an insured, in the ERISA context in

which a plan administrator has been empowered to

interpret the terms of the plan, this rule does not obtain.

See Morton v. Smith, 91 F.3d 867, 871 n. 1 (7th Cir. 1996)

(explaining that rule of contra proferentem applies only
8 No. 08-2451

when courts undertake de novo review of an administrator’s interpretation of an ERISA plan).”

The play between principles of contract interpretation

and the scope of review of a plan administrator’s

decision is illustrated by Hackett. The court had to determine which version of a plan controlled the determination of entitlement to disability benefits. The earlier

version did not grant interpretive authority to the plan

administrator, but the later one did, so we had to determine as a matter of contract law which plan controlled

because that would determine the standard of review

of the plan administrator’s interpretation that we

should use. 315 F.3d at 773-74. In this case both plans

confer interpretive authority on the plan administrator.

But maybe the court in Vallone thought that an alleged

misinterpretation of a plan’s eligibility criteria is less

serious than an alleged misinterpretation of a plan provision that affects an employer’s right to amend it without

trampling on vested rights, and therefore that appellate

review of the latter claim should be less deferential.

Neither Vallone nor, to our knowledge, any other case

says that. Nor is it apparent why the interpretive

principles (including the scope of judicial review of the

first-line interpreter’s decision) that govern the two

types of issue should differ. In any event we do not

think that the Glenn decision has the significance that

Marrs attaches to it even if it is fully applicable to cases

involving the interpretation of plan amendments alleged

to infringe on vested rights.

When a payment of benefits comes out of the plan

administrator’s pocket, the administrator has an
No. 08-2451 9

incentive to resolve a close case in favor of a denial of

benefits. But that incentive may be outweighed by

other incentives, such as an employer’s interest in maintaining a reputation among current and prospective

employees for fair dealing—a reputation that may enable

him to obtain a better-quality employee at a lower cost in

wages and benefits. E.g., Williams v. Interpublic Severance

Pay Plan, 523 F.3d 819, 821-22 (7th Cir. 2008). Then too,

the employees who actually decide benefits claims at

the plan-administrator level may not be acutely concerned with the financial implications of a benefits

award for their employer. Id. at 821; Perlman v. Swiss

Bank Corp. Comprehensive Disability Protection Plan, 195

F.3d 975, 981 (7th Cir. 1999). But especially when a firm is

struggling (which may or may not be the case here—there

is nothing in the record bearing on the question), an

opportunity for short-run economies may dominate

decision making by benefits officers. In any event, a

majority of the Supreme Court Justices consider the

potential conflict of interest of a plan administrator (or

its staff) serious enough to be given weight in judicial

review of the denial of benefits.

But how much weight should it be given? The nub of

the Glenn opinion is the following passage:

[W]hen judges review the lawfulness of benefit

denials, they will often take account of several different considerations of which a conflict of interest

is one. This kind of review is no stranger to the judicial

system. Not only trust law, but also administrative

law, can ask judges to determine lawfulness by
10 No. 08-2451

taking account of several different, often casespecific, factors, reaching a result by weighing all

together. In such instances, any one factor will act as

a tiebreaker when the other factors are closely balanced, the degree of closeness necessary depending

upon the tiebreaking factor’s inherent or casespecific importance. The conflict of interest at issue

here, for example, should prove more important

(perhaps of great importance) where circumstances

suggest a higher likelihood that it affected the

benefits decision, including, but not limited to, cases

where an insurance company administrator has a

history of biased claims administration. It should

prove less important (perhaps to the vanishing

point) where the administrator has taken active steps

to reduce potential bias and to promote accuracy,

for example, by walling off claims administrators

from those interested in firm finances, or by imposing management checks that penalize inaccurate

decisionmaking irrespective of whom the inaccuracy

benefits.

128 S. Ct. at 2351 (citations omitted). A dissent by

Justice Scalia argued that a conflict of interest should

only prompt an inquiry into the existence of improper

motive that would render the plan administrator’s

decision unreasonable. If the decision is reasonable, he

argued, in the sense in which “a reasonable decision is

one over which reasonable minds seeking the ‘best’ or

‘right’ answer could disagree,” the fact that the administrator had a conflict of interest is irrelevant, id. at 2360,

“unless the conflict actually and improperly motivates

the decision.” Id. at 2357 (emphasis in original).
No. 08-2451 11

There are two ways to read the majority opinion. One,

which tracks its language and has been echoed in

opinions in this and other circuits, e.g., Jenkins v. Price

Waterhouse Long Term Disability Plan, 564 F.3d 856, 861-62

(7th Cir. 2009); Holland v. Int’l Paper Co. Retirement Plan,

No. 08-30967, 2009 WL 2050688, at *4-*5 (5th Cir. July 16,

2009), makes the existence of a conflict of interest one

factor out of many in determining reasonableness. That

sounds like a balancing test in which unweighted factors

mysteriously are weighed. Such a test is not conducive

to providing guidance to courts or plan administrators.

“Multifactor tests with no weight assigned to any factor

are bad enough from the standpoint of providing an

objective basis for a judicial decision; multifactor tests

when none of the factors is concrete are worse.” Menard,

Inc. v. Commissioner, 560 F.3d 620, 622-23 (7th Cir. 2009)

(citations omitted); see also Sullivan v. William A. Randolph,

Inc., 504 F.3d 665, 671 (7th Cir. 2007); Short v. Belleville

Shoe Mfg. Co., 908 F.2d 1385, 1394 (7th Cir. 1990) (concurring opinion); Stevens v. Tillman, 855 F.2d 394, 399-400

(7th Cir. 1988).

If that’s the test the Supreme Court has adopted, we

must bow. But it is not clear that the rudderless balancing

test suggested by the passage that we quoted was intended

to be the last word on the standard that should guide

decision in these cases. The test can be made more directive, without contradicting the Court’s opinion, by first

recognizing that while a decision may look reasonable if

one just reads the decision and the record, a decision that

is “reasonable” rather than clearly correct is a decision that

might just as well have gone the other way, United States v.

Williams, 81 F.3d 1434, 1437-38 (7th Cir. 1996), as when
12 No. 08-2451

“reasonable” is used, as it often is, to mean that a ruling

was not an abuse of discretion. Call v. Ameritech Management Pension Plan, supra, 475 F.3d at 822. If the circumstances indicate that probably the decision denying

benefits was decisively influenced by the plan administrator’s conflict of interest, it must be set aside, just as a

decision by a judge who should have recused himself

must be set aside even if he might well have reached

the same decision had there been no basis for recusal.

The likelihood that the conflict of interest influenced

the decision is therefore the decisive consideration, as

seems implicit in the majority opinion’s reference to

indications of “procedural unreasonableness” in the plan

administrator’s handling of the claim in issue, 128 S. Ct. at

2352, and its suggestion that efforts by a administrator

to minimize a conflict of interest would weigh in favor

of upholding his decision. Id. at 2351. It is thus not the

existence of a conflict of interest—which is a given in

almost all ERISA cases—but the gravity of the conflict, as

inferred from the circumstances, that is critical. For example, the terms of employment of the staff that decides

benefits claims might, consistent with the Williams and

Perlman cases of this court, affect a determination of

how likely it is that those employees would slant their

decisions in favor of their employer’s short-term interest

in minimizing his benefits expense.

Justice Scalia appears to believe that if the plan administrator has no improper motive, the existence of a

conflict of interest cannot have affected the denial of

benefits: “if one is to draw any inference about a fiduciary
No. 08-2451 13

from the fact that he made an informed, reasonable, though

apparently self-serving discretionary decision, it should

be that he suppressed his selfish interest (as the settlor

anticipated) in compliance with his duties of good faith

and loyalty.” Id. at 2360 (emphasis in original). But if, as

we have suggested, both a decision in favor of the applicant for benefits and a decision against may be reasonable, the plan administrator’s conflict of interest may

cause him unconsciously to decide against the applicant

and thus in favor of the plan’s financial welfare; hence

the majority Justices’ interest in whether the plan establishes safeguards designed to minimize such a tendency.

There are no indications in this case, however, that the

plan administrator labored under a conflict of interest

serious enough to influence his decision consciously or

unconsciously—a decision that was otherwise entirely

reasonable—decisively. The district court’s decision must

therefore be

AFFIRMED.

8-14-09