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D ock e t 00-5149

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. e du/thir dc ir c uit_2001/115Filed May 25, 2001

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 00-5149

GIDEON GOLDSTEIN, M.D., PH.D., Appellant

v.

JOHNSON & JOHNSON; RETIREMENT PLAN OF JOHNSON & JOHNSON AND AFFILIATED COMPANIES;

CONSOLIDATED RETIREMENT PLAN OF JOHNSON & JOHNSON; THE EXCESS BENEFIT PLAN OF

JOHNSON & JOHNSON

On Appeal From the United States District Court For the District of New Jersey (D.C. Civ. No. 96-cv-5643) District Judge: Honorable Alfred M. Wolin

Argued: September 14, 2000

Before: BECKER, Chief Judge, NYGAARD and AMBRO, Circuit Judges.

(Filed: May 25, 2001)

SHEPPARD A. GURYAN, ESQUIRE (ARGUED)

BRUCE H. SNYDER, ESQUIRE Lasser Hochman, L.L.C. 75 Eisenhower Parkway Roseland, NJ 07068

Counsel for AppellantFRANCIS X. DEE, ESQUIRE

(ARGUED)

STEPHEN F. PAYERLE, ESQUIRE Carpenter, Bennett & Morrissey Three Gateway Center 100 Mulberry Street Newark, NJ 07102

Counsel for Appellees

OPINION OF THE COURT

BECKER, Chief Judge.

This is an appeal by Dr. Gideon Goldstein fr om the adverse judgment of the District Court in favor of his former employer, Johnson & Johnson (J&J), following a bench trial. It requires us to addr ess again the q uestion of the proper scope of judicial review of the decision of a plan administrator acting under the Employee Retir ement Income Security Act of 1974 (ERISA), 29 U.S.C. S 10 01 et seq., to deny benefits to a participant. Although t his topic has been exhaustively examined in the context of be nefits denials generally, see Firestone T ire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), and in the context of decision s made by potentially self-interested administrators speci fically, see Pinto v. Reliance Standard Life Ins. Co., 214 F.3d 377 (3d Cir. 2000), we now face a benefits-denial decision in a new context: that of a "top hat" plan, i.e., a"plan whi ch is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly trained employees." M iller v. Eichleay Eng'rs, Inc., 886 F.2d 30, 34 n.8 (3d Cir. 1989) (citations omitted).

In Firestone Tire, the Supreme Court explained that because ERISA plans are analogous to "trusts" for employees, with the plan administrator serving as t rustee, a reviewing court owes deference to the discretiona ry decisions of the administrator just as the discr et ionary

decisions of a trustee would receive defer ence. Se e Firestone Tire, 489 U.S. at 111. In Pinto, we interpreted Fir estone Tire

2to mandate a more searching scrutiny of such discre tionary

decisions in situations where the impartiality of t he administrator is called into question, either becau se the structure of the plan itself inherently cr eates a conflict of interest, or because the beneficiary has put forth specific evidence of bias or bad faith in his or her particu lar case. See Pinto, 214 F.3d at 383-87. However, both Firest one Tire and Pinto are premised on the analogy of an ERISA p lan to

a traditional trust.

In contrast, this Court has routinely tr eated top hat plans differently from other kinds of plans. See, e .g., In re New Valley Corp., 89 F.3d 143, 148-49 (3d Cir. 1996 ) (explaining differences between top hat plans and o ther ERISA plans). This is because top hat plans ar e ex pressly exempted from most of the substantive ERISA r equir ements normally employed to protect workers' interests in their plans. See 29 U.S.C. SS 1051(2), 1081(a)(3), 1101(a )(1). Top hat plans are unfunded, they do not vest, and they are not required to name fiduciaries. See id. Under such circumstances, the analogy to trust law fails, and the plans are more appropriately consider ed as unilateral co ntracts, whereby neither party's interpretation is entitled to any more "deference" than the other party's. See In re New Valley, 89 F.3d at 149 (top hat plans are governed by the federal common law of contract); Kemmerer v. ICI Am ericas Inc., 70 F.3d 281, 287 (3d Cir. 1995) (same).

There appears to be no reason, however , why the precondition that mandates deference in the context of the more typical ERISA plan -- that is, a written claus e explicitly granting authority to the plan administr ator to interpret the terms of the plan, see Firestone Tire , 489 U.S. at 111-12 -- should not be given effect as part of the unilateral contract that constitutes a top hat plan . In accordance with ordinary contract principles, we co nclude that, depending on the language used, such a clause has the potential to grant the plan administrator discr etion to construe the terms of the plan, subject to the impl ied duty of good faith and fair dealing. See Restatement (Se cond) of Contracts S 205. And, as with any other contract te rm, courts retain the authority to review the administr ator's compliance with that duty to exercise discr etion i n good

faith.

3The dispute in this case centers around the pr oper

characterization of an unusual form of compensation that Goldstein received during his tenure at J&J. The qu estion is whether this compensation, which involved paying to Goldstein a specified percentage of the sales of pr oducts he developed, should have been taken into account for the purpose of determining his monthly pension under th e terms of J&J's retirement plans. Goldstein argues t hat these payments should have been used to calculate h is pension; the plan administrator disagrees. Her e, t he grant of discretion to the plan administrator to interpre t the plan's terms was broad, in that the administrator w as given "sole authority" to "[i]nterpret the provisions" of the plan,

and the administrator's actions were to be"final an d conclusive for all persons." Moreover , the Distric t Court's

factual conclusion that the administrator at all ti mes acted in good faith with respect to the employee's claim for benefits is not clearly erroneous. Accor dingly, we will affirm the judgment of the District Court denying Goldstei n's

claim for additional benefits.

I. Facts

Goldstein is a physician who specializes in immunobiology research, specifically AIDS research. In 1977, Goldstein, then employed by the Sloan-Ketteri ng Institute for Cancer Research, received a patent on the drug thymopentin, which he assigned to his employer . La ter that year, he joined Ortho Pharmaceutical Corporation, a subsidiary of J&J. Ortho licensed the thymopentin p atent from Sloan-Kettering to allow Goldstein to continue his work, paying a royalty for the license based on sal es, and paying a "commission" to Goldstein equal to one per cent of the royalty.1

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1. The employment contracts consistently r efer to these payments as "commissions"; however, the parties dispute whether they were truly "commissions" or were instead "r oyalties." For the purposes of this opinion, we will follow the contractual language an d refer to the payments as "commissions," although our use of the term is not intended to imply a legal conclusion as to the pr o per characterization of the payments.

4In 1987, J&J created the Immunobiology Resear ch

Institute, headed by Goldstein. At that time, Golds tein entered into a new employment contract with J&J. Th is new contract contained a section titled "Compensati on," with three subheadings. The first subheading,"Salar y, Bonus and Employee Benefits" explained that Goldste in would receive a "salary and cash bonus each year," and would be "entitled to participate in all general em ployee benefit plans . . . in accordance with their terms, including . . . retirement plans." The second subheading, "Commissions," provided that in addition to his sal ary, Goldstein would receive a commission equal to one a nd one-fourth percent of the sales of the pr oducts he developed. The commissions would continue at a r ed uced rate for five years after the expiration of the pat ents, irrespective of Goldstein's continued employment wi th J&J. The agreement also provided that J&J was under no obligation to market Goldstein's products, and that the salary and bonus payments were to be paid "in lieu of " that obligation. The third subheading stated that Goldst ein would not participate in J&J's executive stock bonu s plan, a provision to which Goldstein had agreed in exchan ge for the right to receive commissions. As it happened, throughout Goldstein's relationship with J&J, the o nly patent that was actually marketed -- and thus, the only patent that generated income to Goldstein -- was th e thymopentin patent. Despite this fact, Goldstein's commissions greatly exceeded his salary and bonus payments, constituting almost 75% of his total compensation.

Throughout Goldstein's tenure with J&J, the company maintained a system of retirement benefits for its employees, consisting of two interrelated plans (to gether, "the Plan"). The first was an ordinary funded pensi on plan (the Retirement Plan), subject to all of ERISA's su bstantive requirements. Under this plan, retir ees would rece ive monthly benefits in an amount determined by a formu la based on the average compensation earned by the emp loyee during his or her five highest consecutive ear ning years with the company. The amount of these payments was capped in order for the plan to maintain its qualif ied status

under the Internal Revenue Code. See 26 U.S.C. S 41 5. In

5addition to its Retirement Plan, J&J also maintaine d what

it termed an "Excess Benefit Plan" (the Top Hat Pla n) designed to work in tandem with the Retirement Plan .2 The Top Hat Plan paid out the benefits due an employee under J&J's pension formula that, due to the cap, could n ot be paid directly from the Retirement Plan.

Both plans were administered by a Pension Committee

. Under the terms of the Retirement Plan, the Pension Committee was granted "sole authority" to"interpret " the terms of the plan. Under the terms of the Top Hat P lan, benefits would be calculated according to the terms of the Retirement Plan, and the "decisions made by and the actions taken by [the Pension Committee] in the

administration of this Excess Plan shall be final a nd conclusive for all persons." By early 1995, the Com mittee had delegated much of its authority to interpr et t he Plan to

a subcommittee known as the Benefits Claims Committ ee (BCC). The Pension Committee was the named fiduciar y of the Retirement Plan. However, the T op Hat Plan was , by definition, unfunded (i.e., benefits wer e paid dir ectly out of J&J's operating revenues), and its administrator no t only had no fiduciary responsibilities, but was also exp licitly exempted from personal liability for actions taken with respect to the plan. Obviously, both the lack of fi duciary responsibility and the exemption from personal liab ility would not have been possible had the excess benefit plan been subject to ERISA's general requirements. See I n re New Valley Corp., 89 F.3d 143, 149 (3d Cir. 1996).

Because benefits under the Plan were deter mined by reference to the employee's compensation during his or her employment with J&J, it was necessary for the Plan to define the types of compensation that would be incl uded in

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2. ERISA provides that plans designed solely to pro vide benefits in excess of the statutory cap contained in 26 U.S.C. S 415 a re "excess benefit plans" that are not covered by ERISA at all. See 29 U.S.C. S 1002(36); Gamble v. Group Hospitalization & Med. Servs., 38 F .3d 126, 128 (4th Cir. 1994). However, despite the fact that J&J styl ed this an "Excess Benefit Plan," we determined on a pr evious appeal that the plan was, in fact, a top hat plan, and thus governed by ERISA. S ee Goldstein v. Johnson & Johnson, No. 98-6065 & 98-6172, slip op. at 10 (3d Cir. Mar. 4, 1999).

6the benefit calculation. Throughout Goldstein's emp loyment

with J&J, the relevant Plan provisions explained th at:

"Covered Compensation" means basic r emunera tion paid to an Employee including amounts deferr ed at the Employee's election under the Johnson & John son Savings Plan, during periods for which such Employee

receives Credited Service under this Plan. C overed Compensation for a year includes straight ti me pay for a regular workweek, prior year salesman's commissions and other specified forms of inc entive compensation, and incentive or piecework ear nings, but excludes premiums for overtime shift, Sa tur day and Sunday (6th or 7th workday) or holiday w ork, arbitrary bonuses, the value of gifts, manag ement

incentive bonuses and certificates of extra compensation.3

In addition, the Summary Plan Description explained that:

Included in your Plan earnings will be your straight time pay for your regular workweek, sales-pe rson's commissions, overtime, shift differential, y ear-end cash Christmas gift, and year-end executive cash bonus. All other earnings, for example, Johnson & Johns on Achievement Award and stock, not specificall y described above, are not included in Plan ea rnings.

In December 1994, J&J modified its plan, r etroacti ve to 1989. In this new version of the plan, the definiti on of "compensation" was rewritten as:

"Covered Compensation" means basic r emunera tion paid to an Employee including amounts deferr ed at the Employee's election under the Johnson & John son Savings Plan and salary reduction amounts un der a plan that meets the requirements of Section 125 of the Code, during periods for which such Employee r eceives

Credited Service under this Plan. Cover ed Compensation for a year includes straight ti me pay for a regular workweek, current year salesperson 's paid commissions, other specified forms of incent ive

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3. These Certificates of Extra Compensation, or CEC s, were the functional equivalent of a share of stock.

7compensation and incentive or piecework earn ings,

year-end cash Christmas gift, year-end cash executive bonus, overtime, shift, Saturday and Sunday (6th or 7th workday), and holiday pay. . . . Covered Compensation shall include the annual value of stock contract awards and dividend equivalents pai d on unissued stock contract shares and, if appli cable, non- vested Certificates of Extra Compensation (C ECs).

The new Summary Plan Description defined "Plan Earnings" as:

Compensation used in determining Pension Pla n benefits, including consideration of straigh t-time pay for your regular workweek, salesperson's com missions, overtime, shift differential, year -end cash gift, year-end executive cash bonus, the value of delivered r estricted stock awards and dividend equivalents paid o n undelivered restricted stock awards, dividen d equivalents paid on non vested CEC units, an d sales management incentive compensation.

As the quote demonstrates, this new Summary Plan Description no longer contained the sentence exclud ing forms of compensation not otherwise specified.

Just before the changes to the 1994 Plan wer e enac ted, Goldstein retired from J&J and began to receive his pension under the terms of the Retirement Plan and the Top Hat Plan. At this time, J&J and Goldstein also began to negotiate a severance. Discussions continued unt il April 1996, mostly focusing on the disposition of the int ellectual property rights to the research Goldstein had condu cted during his tenure. Eventually, an Agreement and Mut ual Release was signed by both parties (Release). The R elease provided that all claims by Goldstein r egarding "t he Employment Agreement, the termination of said agree ment . . . illegal discrimination, harassment or r etali ation based on age, sex, race, religion, national origin, citiz enship, disability . . . breach of contract, br each of pro mise . . . wrongful denial of benefits . . . ." wer e waived; however, the Release expressly preserved "Goldstein's right to p articipate

in J&J's Retirement Plan . . . in accor dance with the terms of said plan." Both provisions were added in respon se to a

8request by Goldstein's attorney that Goldstein be p ermitted

to participate in the pension plans.

The day after the Release was signed, Goldstein telephoned Efrem Dlugacz, a member of the Pension Committee, to protest the calculation of his pensio n benefits. Specifically, Goldstein objected to the f act that the "compensation" used to compute his pension did not

include the commissions he had earned on the thymopentin patent, but rather were based solely on his salary and annual bonuses. Goldstein was then r ece iving a pension of $7,606 per month; had his commissions be en included, his pension would have been $30,126 per m onth.

Goldstein admits that at the time he executed the R elease, he was aware of his intention to challenge the calc ulation of his pension. All of the extra benefits claimed b y Goldstein would have been paid out of the Top Hat Plan.

On Dlugacz's suggestion, Goldstein lodged his objec tions in writing. Garry Goldberg, Manager of Pension Administration, having reviewed Goldstein's claim, addressed a memo to the BCC taking the position tha t Goldstein's commissions were not pensionable. Consi dering only whether Goldstein's commissions fell into one of the categories of specifically enumerated pensionable i tems, Goldberg concluded that the only potentially r elev ant categories were "salesperson's commissions" and "sa les management incentive compensation," but that these items only referred to the compensation r eceived by sale speople. Under this interpretation, Goldstein's ear nings di d not qualify. Goldstein was not given a copy of this mem o or asked to respond.

With Goldstein's knowledge, the BCC met in May 1996 to consider his claims. In June of that year, Michael J. Carey, Chair of the BCC, wrote to Goldstein denying his cl aim, on the ground that Goldstein was not a salesperson and that the commissions were not "incentive compensation" a s that term was used in the definition of "Cover ed Compen sation." Letters were exchanged in which Goldstein ar gued t hat his commissions were, in fact, covered under the Plan b ecause his commissions were "incentive or piecework earnin gs." Carey maintained the position that the ter m "incen tive or piecework earnings" was intended to apply to produc tion

9employees who exceeded their quotas, and that any t ype of

earnings not explicitly mentioned in the 1994 defin ition of "Covered Compensation" was not pensionable. Goldste in began threatening to sue in September 1996, and sho rtly thereafter, the Pension Committee met and an attorn ey in the Tax Department, Robert Keefer,"presented" Golds tein's claim. After considering the evidence and the correspondence that had been exchanged, the Pension Committee agreed that the BCC's determination that Goldstein's commissions were not "cover ed compensa tion" was "appropriate."

II. Procedural History

In October 1996, Goldstein filed suit against J&J i n New Jersey Superior Court for the additional benefits u nder 29 U.S.C. S 1132, ERISA's civil enforcement provisions . J&J

removed to the District Court for the District of N ew Jersey, and that court granted summary judgment to J&J on t he ground that the Release included all claims Goldste in had against J&J for further pension benefits. On appeal , we vacated the judgment and remanded to the District C ourt, holding that the Release was ambiguous as to its sc ope and thus there could be no judgment as a matter of law based upon it. See Goldstein v. Johnson & Johnson, No. 98 -6065 & 98-6172 (3d Cir. Mar. 4, 1999).

The District Court then held a bench trial in which

Goldstein claimed that his commissions were covered under the Plan, either as "salesperson's commissions" or "sales management incentive compensation," or because the items included on the list of pensionable compensation we r e meant only as exemplars of the general category of" basic remuneration," into which his commissions fell. J&J defended on the ground that the Plan, by its terms, did not cover Goldstein's commissions, and further that the interpretation of the Plan offered by the Plan admi nistrators was deserving of deference under Firestone Tire.4 T he case

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4. J&J also argued that Goldstein had agr eed in th e Release to waive these claims against J&J, and that even if the Rele ase did not cover these particular claims, Goldstein's failure to men tion his intention to sue for greater benefits during the negotiations sh ould estop him from asserting his claims at this time. The District Cou rt did not find it necessary to reach these alternative ar guments, an d, given our disposition, neither do we.

10was tried prior to our decision in Pinto v. Relianc e Standard

Life Insurance Co., 214 F.3d 377 (3d Cir . 2000), a nd the

District Court reviewed the determination of the BC C de novo, concluding that Goldstein's commissions wer e not "Covered Compensation" as that phrase was used in t he Plan. Further, the court found that J&J had r eview ed Goldstein's claim in good faith. See Goldstein v. J ohnson & Johnson, No. 96-5643, slip op. at 22-23 (D.N.J. Feb . 14, 2000) ("[T]he Court finds as a fact that the Johnso n &
Johnson Benefits Claims Committee and the Pension

Committee . . . exerted their best efforts accurate ly to interpret the plan and fairly to adjudicate Goldste in's claim, uninfluenced by whether these benefits would have b een paid directly by Johnson & Johnson . . . .").5 Acco rdingly, the court entered judgment for J&J. Goldstein now a ppeals. The District Court had jurisdiction over this actio n pursuant to 28 U.S.C. S 1331. We have jurisdiction pursuant to 28 U.S.C. S 1291. We have plenary revie w over a district court's conclusions of law, and we r evi ew its

factual conclusions for clear error.

III. Discussion

A. Standard of Review of a Plan Administrator's Interpretations

ERISA was enacted to ensure that employer -provided benefit plans are safeguarded and maintained so as to be available to employees when they are due. The Act d oes not mandate that an employer provide benefits, and has nothing to say about how these plans are to be desi gned. See Nazay v. Miller, 949 F.2d 1323, 1329 (3d Cir. 1 991). The Act does, however, ordinarily imposefiduciary d uties upon plan administrators once a plan has been implemented. See Noorily v. Thomas & Betts Corp. , 188 F.3d 153, 158 (3d Cir. 1999).

Administrators of ERISA plans may have various degr ees of responsibility, depending on the plan's design. Some may

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5. We recognize that the court did not use the term of art "good faith" in its opinion; however, we do not believe that the qu oted statements can be interpreted as anything other than a finding of good faith.

11be charged simply with carrying out the plan accord ing to

its terms; others may have more discr etionary auth ority to interpret the terms of the Plan and make benefits

determinations. See Firestone T ire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). For many years, in cases in wh ich beneficiaries sued administrators alleging that ben efits had been wrongly denied them, courts attempted to set standards as to the degree to which they would defe r to the decisions of the administrators who, by the design of the plan -- which the employer was completely fr ee to set -- were charged with implementing it.

In Firestone Tire, the issue finally reached the Su preme Court. Firestone Tire had sold its plastics divisio n to a new company, and the former employees, who had been reh ired without interruption and at the same pay rates, sue d Firestone for the benefits they had accrued under Firestone's termination pay plan. Fir estone, which was also the administrator of the plan, denied the benefits on the ground that the sale to the new company did not con stitute a triggering event within the terms of the plan req uiring the payment of benefits. See id. at 105-06. In determin ing the appropriate standard of review to apply to Fireston e's interpretation of its plan, the Supreme Court began by observing that "ERISA abounds with the language and terminology of trust law." Id. at 110. The Court, p articularly noting that ERISA requires that benefits plans have named fiduciaries and authorizes suits against them for b reach of fiduciary duty, see id., analogized ERISA administr ators to trustees, and explained that in setting a standar d of review for an administrator's decision, it would follow or dinary principles of trust law, see id. at 111.

In the Court's view, under ERISA, an administrator is a fiduciary "to the extent he exercises any discretio nary authority or control." Id. at 113 (emphasis omitted ). Under ordinary trust principles, the decisions of trustee s who are granted discretionary authority to interpr et the t rust's terms receive only arbitrary and capricious review from courts. See id. at 111. Extending these principles to ERISA, the Court held that although the decisions of these fiduciaries of ERISA plans would receive deferentia l review from courts, administrators who were not granted

12discretionary authority to construe a plan's terms would

receive no deference, and their decisions would be reviewed in accordance with ordinary contract principles. Se e id. at 111-15. The Court also left open the possibility th at ERISA fiduciaries operating under a conflict of inter est would

receive less deferential review. See id. at 115. Un der our

decision in Pinto v. Reliance Standard Life Insuran ce Co., 214 F.3d 377 (3d Cir. 2000), a court will apply hei ghtened scrutiny to an administrator's determination either when the plan, by its very design, creates a special dan ger of a conflict of interest, or when the beneficiary can p oint to evidence of specific facts calling the impartiality of the administrator into question. See id. at 383-87; see also Bill Gray Enters., Inc. Employee Health & Welfar e Benef it Plan v. Gourley, Nos. 00-3412 & 00-1400, 2001 WL 427626, sl ip op. at 15 (3d Cir. Apr. 26, 2001).

If J&J's Plan were an ordinary ERISA plan, then, gi ven the broad discretion granted to the Pension Committ ee, we would apply the standards set forth in Fir estone T ire and Pinto. We would first determine whether any conflic t of interest existed for the Plan administrators, and t hen we

would calibrate our standard of review for their be nefits decision accordingly. Because Goldstein's claim for benefits would be paid entirely out of the Top Hat Plan and the funds would come directly from J&J's operating reve nues, we perforce would consider these facts r elevant in choosing our standard of review. See Pinto, 214 F.3d at 389.

However, a top hat plan is a unique animal under ERISA's provisions. These plans are intended to compensate only highly-paid executives, and the Department of Labor has expressed the view that suc h employees are in a strong bargaining position relat ive to their employers and thus do not require the same substantive protections that are necessary for othe r employees. See DOL Opin. Letter 90-14 A, 1990 WL 123933, at *1 (May 8, 1990). We have held that such plans

are more akin to unilateral contracts than to the t rust-like structure normally found in ERISA plans. See In re New Valley Corp., 89 F.3d 143, 149 (3d Cir. 1996); Kemm erer v. ICI Americas Inc., 70 F.3d 281, 287 (3d Cir. 1995). Accordingly, top hat plans are not subject to any o f ERISA's

13substantive provisions, including its r equirements for

vesting and funding. See 29 U.S.C. SS 1051(2); 1081 (a)(3). Not only are the administrators of these plans not subject to ERISA's fiduciary requirements, see 29 U.S.C. S 1101(a), but the top hat plan at issue in this case specific ally exempts its administrators from any personal liabil ity for actions taken with regard to the plan.

Given the unique nature of top hat plans, we believ e the holding of Firestone Tire requiring deferential rev iew forthe discretionary decisions of administrators to be ina pplicable. The deferential standard of review granted to plan administrators exercising discretionary authority w as specifically an outgrowth of the Supr eme Court's a nalogy to trust law, and particularly the fiduciary r esponsi bilities possessed by administrators with discretionary auth ority. See Firestone Tire, 489 U.S. at 110-11. In contrast , a top hat administrator has no fiduciary responsibilities . Top hats are more analogous to the second scenario iden tified by the Supreme Court, i.e., when a plan administrat or has no discretion to interpret the plan's ter ms (and t hus is not a fiduciary), in which case the plan is reviewed de novo, according to the federal common law of contract. Se e id. at 112. That is, although, as was done in this case, "discretion" may be explicitly written into a top h at plan document, it does not act as a legal trigger alteri ng the standard of review. Thus, we believe that, in accor dance with our earlier precedent, top hat plans should be treated as unilateral contracts, and neither party's interp r etation should be given precedence over the other's, except in accordance with ordinary contract principles.6

In reaching this conclusion, we reject J&J's conten tion that, because ERISA's definitional section lists a" fiduciary" as one who exercises discretion in interpr eting th e terms of

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6. We are aware that other courts have applied Fire stone Tire's holding to top hat plans. See, e.g., Olander v. Bucyrus-Erie C o., 187 F.3d 599, 604 (7th Cir. 1999); Schikore v. BankAmerica Supplement al Retirement Plan, No. C 98-3857 SI, 1999 WL 605826 (N.D. Cal. Aug. 2, 1999). However, these cases do not explicitly question whether Fire stone Tire should be so freely transferrable, and, in fact, in at least one instance, the court specifically "deferred" to the administrator of a t op hat plan on the

basis that the administrator was a fiduciary. See Olander , 187 F.3d at 607.

14a plan, see 29 U.S.C. S 1002(21)(a), administrators of top

hat plans are also fiduciaries. To begin with, ERIS A explicitly states that top hat plans are not subjec t to the ERISA's fiduciary requirements. See 29 U.S.C. S 11 01(a). Further, it is well established in the caselaw that there is no cause of action for breach of fiduciary duty inv olving a top hat plan. See In re New Valley Corp., 89 F.3d a t 153; accord Demery v. Extebank Compensation Plan , 216 F .3d 283, 290 (2d Cir. 2000) (dismissing ERISA claims fo r breach of fiduciary duty in a top hat plan on the g round that top hat administrators are not bound byfiducia ry standards); Duggan v. Hobbs, 99 F .3d 307, 313 (9th Cir. 1996) (same). Finally, we find J&J's argument disin genuous in light of the explicit terms of its own Plan abso lving the administrators of the Top Hat Plan from individual liability. These terms, which designate the Pension Committee as "administrator" (but not fiduciary), stand in marke d contrast to the parallel provisions of the Retireme nt Plan that explicitly name the same committee both as administrator and as fiduciary.

We acknowledge that our holding may appear to have the potential to create anomalous results. T o begin wi th, many plans may be structured as the one curr ently befor e us, whereby benefits are calculated in a similar manner whether they are to be paid from an or dinary retir ement plan or from a top hat plan. Differ ent standards o f review for each may result in different interpretations of a single plan's terms, even though on paper the two halves a re designed to work in tandem and to yield identical r esults. Our holding may also seem anomalous in that we appe ar to be according the least deference to plan administra tors when they are determining benefits of highly-paid employees, the very group that the Department of La bor believes is best able to protect its own inter ests

.

However, we believe that these potentially anomalou s results are not as severe as may appear at first bl ush. The "deference" ordinarily due an ERISA plan administra tor is only available to the extent that the plan grants t hat administrator discretion to interpret the terms of the plan. See Firestone Tire, 489 U.S. at 111-13. In the abse nce of such discretion, a court will review the terms of t he plan de

15novo. See id. Thus, the possibility for dif ferent standards of

review between top hat plans and other ERISA plans will only arise when the plan has explicitly granted dis cretion to the plan administrators. But in the case of a top h at plan, even though an administrator may not receive"defere nce" under Firestone Tire, any grant of discretion must be read as part of the unilateral contract itself. As a ter m of the contract, it must be given effect as or dinary cont ract principles would require, thus minimizing the poten tial for differing standards of review for identical plan te rms.

Ordinary contract principles requir e that, where o ne party is granted discretion under the ter ms of the contract, that discretion must be exercised in good faith -- a requirement that includes the duty to exer cise the discretion reasonably. See Restatement (Second) of Contracts S 205 & cmt a; see also Ber ger v. Edgewa ter Steel Co., 911 F.2d 911, 919 (3d Cir. 1990) (term of an E RISA retirement plan allowing early retir ement when "th e Company considers that such retirement would . . . be in its interest" obligates the employer to r each its decision in good faith). As with any other contract term, court s retain the authority to conduct a de novo review as to whe ther a party has complied with its good-faith obligations.

Goldstein argues that if the plan is a traditional contract, the clause granting interpretive discretion to J&J

administrators should be voided as unconscionable f or it is the functional equivalent of designating an inter e sted party as an arbitrator. We do not agr ee. Contracts are o ften considered to be enforceable even when particular p arties are able to specify terms in the course of dealing, subject only to the duty of good faith. See, e.g., O.N. Jon as Co., Inc. v. Badische Corp., 706 F.2d 1161 (11th Cir. 1983) (interpreting the Uniform Commercial Code); TCP Ind us., Inc. v. Uniroyal, Inc., 661 F.2d 542 (6th Cir. 1981 ) (same). Goldstein has cited nothing to the contrary, and we do not consider cases involving due process rights to impa rtial arbitrators, such as United Retail & Wholesale Empl oyees Teamsters Union Local No. 115 Pension Plan v. Yahn & McDonnell, Inc., 787 F.2d 128 (3d Cir . 1986), to b e apposite to the issue at hand. Thus, we see nothing impr ope r in Goldstein and J&J contracting to allow Goldstein to

16participate in a pension plan under which J&J will have

responsibility to administer the plan and interpret ambiguous terms, so long as its interpr etations ar e reasonable and it exercises its responsibilities in good faith. In fact, given that the Top Hat Plan was designed t o work in concert with a retirement plan that has designat ed the same entity as the fiduciary (a perfectly legitimat e design), the Top Hat Plan could hardly be administered effec tively without granting J&J this discretion.

B. Interpreting the Ter ms of J&J's Top Hat Plan

The District Court concluded, and Goldstein has not disputed, that under the language of the Plan docum ents the Pension Committee was given broad authority to interpret the terms of the Plan and to make final d ecisions with regard to the payment of benefits. 7 Nonethele ss, Goldstein disputes the Committee's interpretation o f whether his commissions constituted pensionable compensation, although, as we explained in the r ec itation of facts, his argument as to how his commissions fa ll under the definition of "Covered Compensation" has taken a variety of forms over the course of this dispute.8 As it is currently presented to us, Goldstein's claim is tha t, although his commissions were not cover ed under th e 1989 version of the Plan, the 1994 changes to the Plan, in particular the deletion of the statement that "All other earnings . . . not specifically described above, ar e not

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7. As described above, the Retirement Plan stated t hat the Pension Committee had "sole authority" to "interpr et" the plan's terms; the Top Hat Plan incorporated this discretion by r eference when it explained that

benefits would be calculated in accordance with the terms of the Retirement Plan. The Top Hat Plan also added a prov ision that the

Pension Committee's decisions in the administration of the Top Hat Plan

would be "final and conclusive."

8. Goldstein originally argued that his commissions were pensionable as "incentive or piecework earnings." Later , he claim ed that his commissions were "salesperson's commissions" or "sa les management incentive compensation," or, in the alter native, t hat the commissions were "basic remuneration," and that the items enume rated as "basic remuneration" in the Plan were only meant as exampl es of the types of payments that were pensionable.

17included in Plan earnings," suggests that the phras e "basic

remuneration" was given a broader definition in 199 4. In Goldstein's view, the 1994 Plan's list of pensionab le items was intended merely to provide examples of the type of compensation covered; because Goldstein's commissio ns constituted 75% of his earnings, he maintains that the commissions were, in fact, his "basic r emuneration ," and therefore are pensionable under the terms of the 19 94 Plan.

J&J responds that the list of pensionable ear nings was intended as an exclusive list of all covered items, and that

because Goldstein's commissions were not included i n the list, they are therefore not pensionable. As explai ned above, the question presented to the Court is not whether J&J's interpretation offers the best reading of the contr act; rather, given the discretion granted to the Pension Committee, the question is whether the interpr etat ion offered by J&J was reached in good faith. The Distr ict Court, after listening to the testimony of the part ies and examining the documentary evidence, concluded that J&J's interpretation of the terms of its Plan was reasona ble, and

that J&J administrators had used their "best ef for ts" to interpret the Plan accurately and fairly to assess Goldstein's claim. The District Court's findings ar e not clearly erroneous.

In reaching its conclusions, the court first relied on its assessment of the credibility of J&J's plan adminis trators, and specifically found that the members of the Pens ion

Committee and the BCC were not biased in their deci sions, and had "exerted their best efforts accurately to i nterpret the plan and fairly to adjudicate Goldstein's claim ." It is

axiomatic that we defer to a district court's cr ed ibility

determinations.

Further, we find no fault with the District Court's determination that the numerous "irr egularities" i dentified by Goldstein in the process by which the administra tors interpreted the Plan do not give rise to an inferen ce of bias or bad faith. These alleged irregularities r elate first to the manner by which the Pension Committee delegated its responsibilities to the BCC, and second to what Gol dstein perceives as the lack of opportunities for him to p resent arguments and evidence on his behalf.

18Goldstein begins by submitting that the Pension

Committee never formally delegated authority to the BCC to make benefits determinations, and ther efore its de cision to "rubber stamp" the BCC decision without r eaching i ts own independent conclusions rendered its interpretation of the Plan terms nugatory. It is true that courts have re fused to

accord Firestone Tire deference to the decisions o f administrators who, in the courts' determination, h ave failed to exercise the discretion granted to them u nder the terms of an ERISA plan. See, e.g., Sharkey v. Ultra mar Energy Ltd., 70 F.3d 226 (2d Cir . 1995). As we hav e explained, however, we review her e the decision of the administrators not under Firestone T ire standards, but

rather to determine whether there has been a violat ion of the terms of the contract. Therefor e, whatever wei ght Goldstein's arguments on this score might carry in the context of a more ordinary ERISA plan, these argume nts are only relevant in the context of a top hat plan to the extent they bear upon compliance with the plan's contractual provisions, including the implied duty of good faith and fair dealing.

In this case, Goldstein's argument that discr etion ary power was never delegated to the BCC rests on the f act that the formal resolution delegating the Pension Commit tee's power to the BCC specifically granted the BCC only the authority to "hear and decide claims and appeals." Whether the power to "hear and decide claims and appeals" necessarily carries with it a discretionary power t o interpret the terms of the Plan (and it is difficult to see w hy it would not), any technical flaws in the Pension Committee' s efforts to delegate discretion to the BCC do not bear on th e issue of good faith. The Plan documents themselves grante d the Pension Committee the right to delegate its authori ty, and

the Committee declared its intention to do so in th e Summary Plan Description. Additionally, the final disposition of Goldstein's claim was made by the Pe nsion Committee itself in September 1996. Thus, it cannot be said that the delegation to the BCC, and the decisi on of the Pension Committee to adopt its reasoning, somehow violated the contractual provisions of the Plan gra nting the Pension Committee the power to interpret the Plan t erms, or demonstrated any lack of good faith on the part of J&J.

19As for Goldstein's second argument, that he was den ied

an opportunity to make his case before the BCC, the facts simply do not bear him out. He exchanged numer ous letters with J&J employees, including the Chair of the BCC, in which he was able to explain his interpretation of the Plan. In fact, during cross-examination, Goldstein admitted that he had, at one time or another, submitted to t he BCC

all of the information he believed it needed to rea ch a

determination. Goldstein was informed of the initia l BCC meeting, but never asked to attend or to submit evi dence. Finally, as the District Court found, Goldstein's c laim was reviewed by J&J on at least three separate occasion s: during the initial meeting of the BCC, during the c ourse of Goldstein's exchange of correspondence with Car ey, and during the Pension Committee's September 1996 meeti ng. In the face of this evidence, we see no grounds for concluding that the District Court's finding of goo d faith on the part of J&J was clearly erroneous.9

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9. In a related argument, Goldstein ar gues that no deference is due an administrative interpretation of a Plan unless the claimant is given a "full and fair review" as requir ed by 29 U.S.C. S 1133(2). Because he was not given an opportunity to present evidence and ma ke arguments before the determination was reached, he ur ges us to revi ew the terms of the Plan de novo. Title 29 U.S.C. S 1133(2) is among th ose enforcement provisions of ERISA from which top hat plans have n ot been explicitly exempted. However, by its terms, S 1133(2) obligate s only "named fiduciaries" -- which are not required for top hat plans -- to conduct a

"full and fair review" of a benefits denial. We nee d not decide today whether S 1133(2) applies to the administrators of top hat plans per se, or whether a "full and fair review" as defined by S 1133(2) is itself a component of good-faith plan administration, becaus e we agree with the District Court that such a review was pr ovided to Goldstein in this case. J&J wrote to Goldstein with updates on his claim fo r benefits and fully laid out its reasons for denying his claim. It resp onded to his letters

and invited him to call if he had further questions. It identified the specific provisions of the Plan pursuant to which it was pre mising the denial of benefits. And, as explained above, Goldstein has be en unable to identify any "evidence" that he could have submitted that th e administrators failed to consider. Thus, J&J fully complied with t he strictures we developed in Grossmuller v. Inter national Union, U nited Automobile Aerospace & Agricultural Implement Workers of Ameri ca, 715 F.2d 853, 857-58 (3d Cir. 1983), for a full and fair r eview as required by S 1133(2).

20In addition to the propriety of the process by whic h J&J

reached its decision, there is no inher ent unreaso nableness in the substantive interpretation of the Plan terms offered by J&J giving rise to an inference of bias or bad f aith. As written, Goldstein's contract discusses his salary and

bonuses in the same section as the discussion of hi s right to participate in the Plan; his "commissions," in c ontrast, are placed in a separate section, suggesting that t he parties construed these payments to be something other than pensionable earnings.

Further, the contract specifically avers that the commissions were intended to replace other forms of executive compensation such as CECs. As the Distric t Court observed, these forms of executive compensati on were not pensionable at the time of the execution o f Goldstein's contract, and only some of them became pensionable when they were explicitly added to the list of pensionable earnings in 1994. Thus, it is clear tha t the phrase "basic remuneration" did not encompass eithe r these alternative forms of compensation, or Goldste in's commissions, in 1989, and the fact that these for m s of executive compensation had to be explicitly added t o the list of pensionable earnings in 1994, while the phr ase "basic remuneration" remained intact, suggests that there was no "implied" broadening of the definition of "b asic remuneration," but instead an expanded list of incl uded

items.

Additionally, as the District Court concluded, the phrase "Covered Compensation includes" is r easonably susc eptible of meaning either that the earnings listed ar e a " sample" of the types of compensation to be included, or that t he phrase "Covered Compensation" is intended to encomp ass only those forms of compensation explicitly mention ed in the list.10 Thus, there is nothing unreasonable in J&J's

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10. We cannot help but observe that Goldstein appar ently began offering his alternative construction of the phrase"Covered Compensation includes" only at the time he filed suit in the Dis trict Court, and not when he lodged his claim for additional benefits wi th the Pension Committee. This fact alone suggests that J&J's inte rpretation is, at minimum, a reasonable one.

21interpretation of the Plan to cover only those form s of

compensation specifically enumerated. And although Goldstein plausibly argues that the 1994 deletion f rom the Summary Plan Description of the clause excluding fo r ms of compensation not otherwise specified must be interp reted as evincing an intent to alter the Plan from pr ovi ding an exclusive list to providing only a "sample" listing , the District Court credited testimony of J&J employees that the phrase had been deleted as surplusage, because the intent all along was to create a list of "cover ed compens ation" solely by listing the included items. Certainly, su ch an interpretation of the motivation for the deletion i s not

unreasonable either.

Goldstein's position is not an unsympathetic one, a nd we can understand his anger that, notwithstanding the large sums that his thymopentin patent yielded to J&J (an d the fact that he was brought into J&J for his expertise in developing profitable drugs, a skill that might oft en be rewarded by large royalty-like payments), he was nonetheless given a pension based merely upon his s alary. Concomitantly, were we reviewing the plan's terms d e novo, we might reach a different r esult. After all, the fact that Goldstein's employment contract specifies that the salary and bonus payments were to be made in lieu of J&J's obligation to market Goldstein's products suggests that it was the commissions -- and not the salary -- that constituted Goldstein's "basic remuneration." But, as the Department of Labor has explained, highly-compensat ed employees such as Goldstein are well-placed to form employment contracts that protect their inter ests, and in this case, the contract expressly grants the Pensio n Committee the power to make final determinations as to the types of compensation that are pensionable.

Therefore, we conclude that although courts need no t defer to the construction of disputed contract ter ms given by the administrators of top hat plans, effect must be given to all of the terms, including those conferring dis cretion on the administrators (subject as always to the implie d duty of good faith). In this case, the discretion granted t o the administrators was quite broad, and ther e is nothi ng in the process by which J&J reached its decision, or in th e

22decision itself, that would lead us to conclude tha t the

District Court's determination as to J&J's good fai th was clearly erroneous. Thus, we conclude that J&J did n ot breach its contractual obligation to Goldstein. The judgment of the District Court will be affir med.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

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