2001 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

5-25-2001

Goldstein v. Johnson & Johnson

Precedential or Non-Precedential:

Docket 00-5149

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Recommended Citation

"Goldstein v. Johnson & Johnson" (2001). 2001 Decisions. Paper 115.

http://digitalcommons.law.villanova.edu/thirdcircuit_2001/115
Filed 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 Appellant 
 FRANCIS 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 question 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 1001 et 

seq., to deny benefits to a participant. Although this topic 

has been exhaustively examined in the context of benefits 

denials generally, see Firestone T ire & Rubber Co. v. Bruch, 

489 U.S. 101 (1989), and in the context of decisions made 

by potentially self-interested administrators specifically, 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 which 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." Miller 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 trustee, 

a reviewing court owes deference to the discretionary 

decisions of the administrator just as the discr etionary 

decisions of a trustee would receive defer ence. See Firestone 

Tire, 489 U.S. at 111. In Pinto, we interpreted Firestone Tire 

 2 
to mandate a more searching scrutiny of such discretionary 

decisions in situations where the impartiality of the 

administrator is called into question, either because 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 particular case. 

See Pinto, 214 F.3d at 383-87. However, both Firestone Tire 

and Pinto are premised on the analogy of an ERISA plan 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 other 

ERISA plans). This is because top hat plans ar e expressly 

exempted from most of the substantive ERISA r equirements 

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 contracts, 

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 Americas 

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 clause 

explicitly granting authority to the plan administrator 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 conclude 

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 implied duty 

of good faith and fair dealing. See Restatement (Second) of 

Contracts S 205. And, as with any other contract term, 

courts retain the authority to review the administrator's 

compliance with that duty to exercise discr etion in good 

faith. 

 3 
The 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 question 

is whether this compensation, which involved paying to 

Goldstein a specified percentage of the sales of products he 

developed, should have been taken into account for the 

purpose of determining his monthly pension under the 

terms of J&J's retirement plans. Goldstein argues that 

these payments should have been used to calculate his 

pension; the plan administrator disagrees. Her e, the grant 

of discretion to the plan administrator to interpret the 

plan's terms was broad, in that the administrator was given 

"sole authority" to "[i]nterpret the provisions" of the plan, 

and the administrator's actions were to be"final and 

conclusive for all persons." Moreover , the District Court's 

factual conclusion that the administrator at all times 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 Goldstein'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-Kettering 

Institute for Cancer Research, received a patent on the drug 

thymopentin, which he assigned to his employer . Later that 

year, he joined Ortho Pharmaceutical Corporation, a

subsidiary of J&J. Ortho licensed the thymopentin patent 

from Sloan-Kettering to allow Goldstein to continue his 

work, paying a royalty for the license based on sales, and 

paying a "commission" to Goldstein equal to one percent of 

the royalty.1 

_________________________________________________________________ 

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 and refer to the 

payments as "commissions," although our use of the term is not 

intended to imply a legal conclusion as to the pr oper characterization of 

the payments. 

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

Institute, headed by Goldstein. At that time, Goldstein 

entered into a new employment contract with J&J. This 

new contract contained a section titled "Compensation," 

with three subheadings. The first subheading,"Salary, 

Bonus and Employee Benefits" explained that Goldstein 

would receive a "salary and cash bonus each year," and 

would be "entitled to participate in all general employee 

benefit plans . . . in accordance with their terms, including 

. . . retirement plans." The second subheading, 

"Commissions," provided that in addition to his salary, 

Goldstein would receive a commission equal to one and 

one-fourth percent of the sales of the pr oducts he

developed. The commissions would continue at a r educed 

rate for five years after the expiration of the patents, 

irrespective of Goldstein's continued employment with 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 Goldstein 

would not participate in J&J's executive stock bonus plan, 

a provision to which Goldstein had agreed in exchange for 

the right to receive commissions. As it happened, 

throughout Goldstein's relationship with J&J, the only 

patent that was actually marketed -- and thus, the only 

patent that generated income to Goldstein -- was the 

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 (together, 

"the Plan"). The first was an ordinary funded pension plan 

(the Retirement Plan), subject to all of ERISA's substantive 

requirements. Under this plan, retir ees would receive 

monthly benefits in an amount determined by a formula 

based on the average compensation earned by the employee 

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 qualified status 

under the Internal Revenue Code. See 26 U.S.C. S 415. In 

 5 
addition to its Retirement Plan, J&J also maintained what 

it termed an "Excess Benefit Plan" (the Top Hat Plan) 

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 not 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 Plan, 

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 and 

conclusive for all persons." By early 1995, the Committee 

had delegated much of its authority to interpr et the Plan to 

a subcommittee known as the Benefits Claims Committee 

(BCC). The Pension Committee was the named fiduciary of 

the Retirement Plan. However, the T op Hat Plan was, by 

definition, unfunded (i.e., benefits wer e paid directly out of 

J&J's operating revenues), and its administrator not only 

had no fiduciary responsibilities, but was also explicitly 

exempted from personal liability for actions taken with 

respect to the plan. Obviously, both the lack of fiduciary 

responsibility and the exemption from personal liability 

would not have been possible had the excess benefit plan 

been subject to ERISA's general requirements. See In 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 included in 

_________________________________________________________________ 

2. ERISA provides that plans designed solely to provide benefits in excess 

of the statutory cap contained in 26 U.S.C. S 415 are "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 styled 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. See Goldstein v. 

Johnson & Johnson, No. 98-6065 & 98-6172, slip op. at 10 (3d Cir. Mar. 

4, 1999). 

 6 
the benefit calculation. Throughout Goldstein's employment 

with J&J, the relevant Plan provisions explained that: 

 "Covered Compensation" means basic r emuneration 

 paid to an Employee including amounts deferr ed at the 

 Employee's election under the Johnson & Johnson 

 Savings Plan, during periods for which such Employee 

 receives Credited Service under this Plan. Covered 

 Compensation for a year includes straight time pay for 

 a regular workweek, prior year salesman's 

 commissions and other specified forms of incentive 

 compensation, and incentive or piecework ear nings, 

 but excludes premiums for overtime shift, Satur day 

 and Sunday (6th or 7th workday) or holiday work, 

 arbitrary bonuses, the value of gifts, management 

 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-person's 

 commissions, overtime, shift differential, year-end cash 

 Christmas gift, and year-end executive cash bonus. All 

 other earnings, for example, Johnson & Johnson 

 Achievement Award and stock, not specifically 

 described above, are not included in Plan earnings. 

In December 1994, J&J modified its plan, r etroactive to 

1989. In this new version of the plan, the definition of 

"compensation" was rewritten as: 

 "Covered Compensation" means basic r emuneration 

 paid to an Employee including amounts deferr ed at the 

 Employee's election under the Johnson & Johnson 

 Savings Plan and salary reduction amounts under 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 time pay for 

 a regular workweek, current year salesperson's paid 

 commissions, other specified forms of incentive 

_________________________________________________________________ 

3. These Certificates of Extra Compensation, or CECs, were the 

functional equivalent of a share of stock. 

 7 
 compensation and incentive or piecework earnings, 

 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 paid on 

 unissued stock contract shares and, if applicable, non- 

 vested Certificates of Extra Compensation (CECs). 

The new Summary Plan Description defined "Plan 

Earnings" as: 

 Compensation used in determining Pension Plan 

 benefits, including consideration of straight-time pay 

 for your regular workweek, salesperson's commissions, 

 overtime, shift differential, year -end cash gift, year-end 

 executive cash bonus, the value of delivered r estricted 

 stock awards and dividend equivalents paid on 

 undelivered restricted stock awards, dividend 

 equivalents paid on non vested CEC units, and sales 

 management incentive compensation. 

As the quote demonstrates, this new Summary Plan 

Description no longer contained the sentence excluding 

forms of compensation not otherwise specified. 

Just before the changes to the 1994 Plan wer e enacted, 

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 until April 

1996, mostly focusing on the disposition of the intellectual 

property rights to the research Goldstein had conducted 

during his tenure. Eventually, an Agreement and Mutual 

Release was signed by both parties (Release). The Release 

provided that all claims by Goldstein r egarding "the 

Employment Agreement, the termination of said agreement 

. . . illegal discrimination, harassment or r etaliation based 

on age, sex, race, religion, national origin, citizenship, 

disability . . . breach of contract, br each of promise . . . 

wrongful denial of benefits . . . ." wer e waived; however, the 

Release expressly preserved "Goldstein's right to participate 

in J&J's Retirement Plan . . . in accor dance with the terms 

of said plan." Both provisions were added in response to a 

 8 
request by Goldstein's attorney that Goldstein be permitted 

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 pension 

benefits. Specifically, Goldstein objected to the fact 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 eceiving a 

pension of $7,606 per month; had his commissions been 

included, his pension would have been $30,126 per month. 

Goldstein admits that at the time he executed the Release, 

he was aware of his intention to challenge the calculation 

of his pension. All of the extra benefits claimed by Goldstein 

would have been paid out of the Top Hat Plan. 

On Dlugacz's suggestion, Goldstein lodged his objections 

in writing. Garry Goldberg, Manager of Pension 

Administration, having reviewed Goldstein's claim, 

addressed a memo to the BCC taking the position that 

Goldstein's commissions were not pensionable. Considering 

only whether Goldstein's commissions fell into one of the 

categories of specifically enumerated pensionable items, 

Goldberg concluded that the only potentially r elevant 

categories were "salesperson's commissions" and "sales 

management incentive compensation," but that these items 

only referred to the compensation r eceived by salespeople. 

Under this interpretation, Goldstein's ear nings did not 

qualify. Goldstein was not given a copy of this memo 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 claim, on 

the ground that Goldstein was not a salesperson and that 

the commissions were not "incentive compensation" as that 

term was used in the definition of "Cover ed Compensation." 

Letters were exchanged in which Goldstein ar gued that his 

commissions were, in fact, covered under the Plan because 

his commissions were "incentive or piecework earnings." 

Carey maintained the position that the ter m "incentive or 

piecework earnings" was intended to apply to production 

 9 
employees who exceeded their quotas, and that any type of 

earnings not explicitly mentioned in the 1994 definition of 

"Covered Compensation" was not pensionable. Goldstein 

began threatening to sue in September 1996, and shortly 

thereafter, the Pension Committee met and an attorney in 

the Tax Department, Robert Keefer,"presented" Goldstein'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 compensation" 

was "appropriate." 

II. Procedural History 

In October 1996, Goldstein filed suit against J&J in New 

Jersey Superior Court for the additional benefits under 29 

U.S.C. S 1132, ERISA's civil enforcement provisions. J&J 

removed to the District Court for the District of New Jersey, 

and that court granted summary judgment to J&J on the 

ground that the Release included all claims Goldstein had 

against J&J for further pension benefits. On appeal, we 

vacated the judgment and remanded to the District Court, 

holding that the Release was ambiguous as to its scope 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 wer 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 administrators 

was deserving of deference under Firestone Tire.4 The case 

_________________________________________________________________ 

4. J&J also argued that Goldstein had agr eed in the Release to waive 

these claims against J&J, and that even if the Release did not cover 

these particular claims, Goldstein's failure to mention his intention to 

sue for greater benefits during the negotiations should estop him from 

asserting his claims at this time. The District Court did not find it 

necessary to reach these alternative ar guments, and, given our 

disposition, neither do we. 

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

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

District Court reviewed the determination of the BCC de 

novo, concluding that Goldstein's commissions wer e not 

"Covered Compensation" as that phrase was used in the 

Plan. Further, the court found that J&J had r eviewed 

Goldstein's claim in good faith. See Goldstein v. Johnson & 

Johnson, No. 96-5643, slip op. at 22-23 (D.N.J. Feb. 14, 

2000) ("[T]he Court finds as a fact that the Johnson & 

Johnson Benefits Claims Committee and the Pension 

Committee . . . exerted their best efforts accurately to 

interpret the plan and fairly to adjudicate Goldstein's claim, 

uninfluenced by whether these benefits would have been 

paid directly by Johnson & Johnson . . . .").5 Accordingly, 

the court entered judgment for J&J. Goldstein now appeals. 

The District Court had jurisdiction over this action 

pursuant to 28 U.S.C. S 1331. We have jurisdiction 

pursuant to 28 U.S.C. S 1291. We have plenary review over 

a district court's conclusions of law, and we r eview 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 does not 

mandate that an employer provide benefits, and has 

nothing to say about how these plans are to be designed. 

See Nazay v. Miller, 949 F.2d 1323, 1329 (3d Cir. 1991). 

The Act does, however, ordinarily imposefiduciary duties 

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 

_________________________________________________________________ 

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 quoted statements can 

be interpreted as anything other than a finding of good faith. 

 11 
be charged simply with carrying out the plan according to 

its terms; others may have more discr etionary authority 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 which 

beneficiaries sued administrators alleging that benefits had 

been wrongly denied them, courts attempted to set 

standards as to the degree to which they would defer 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 Supreme 

Court. Firestone Tire had sold its plastics division to a new 

company, and the former employees, who had been rehired 

without interruption and at the same pay rates, sued 

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 constitute 

a triggering event within the terms of the plan requiring the 

payment of benefits. See id. at 105-06. In determining the 

appropriate standard of review to apply to Firestone'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, particularly 

noting that ERISA requires that benefits plans have named 

fiduciaries and authorizes suits against them for breach of 

fiduciary duty, see id., analogized ERISA administrators 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 discretionary 

authority or control." Id. at 113 (emphasis omitted). Under 

ordinary trust principles, the decisions of trustees who are 

granted discretionary authority to interpr et the trust'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 deferential review 

from courts, administrators who were not granted 

 12 
discretionary authority to construe a plan's terms would 

receive no deference, and their decisions would be reviewed 

in accordance with ordinary contract principles. See id. at 

111-15. The Court also left open the possibility that ERISA 

fiduciaries operating under a conflict of inter est would 

receive less deferential review. See id. at 115. Under our 

decision in Pinto v. Reliance Standard Life Insurance Co., 

214 F.3d 377 (3d Cir. 2000), a court will apply heightened 

scrutiny to an administrator's determination either when 

the plan, by its very design, creates a special danger of a 

conflict of interest, or when the beneficiary can point 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 Benefit Plan v. 

Gourley, Nos. 00-3412 & 00-1400, 2001 WL 427626, slip 

op. at 15 (3d Cir. Apr. 26, 2001). 

If J&J's Plan were an ordinary ERISA plan, then, given 

the broad discretion granted to the Pension Committee, we 

would apply the standards set forth in Fir estone Tire and 

Pinto. We would first determine whether any conflict of 

interest existed for the Plan administrators, and then we 

would calibrate our standard of review for their benefits 

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 revenues, 

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 such 

employees are in a strong bargaining position relative to 

their employers and thus do not require the same 

substantive protections that are necessary for other 

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 trust-like 

structure normally found in ERISA plans. See In re New 

Valley Corp., 89 F.3d 143, 149 (3d Cir. 1996); Kemmerer v. 

ICI Americas Inc., 70 F.3d 281, 287 (3d Cir. 1995).

Accordingly, top hat plans are not subject to any of ERISA's 

 13 
substantive 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 specifically 

exempts its administrators from any personal liability for 

actions taken with regard to the plan. 

Given the unique nature of top hat plans, we believe the 

holding of Firestone Tire requiring deferential review forthe 

discretionary decisions of administrators to be inapplicable. 

The deferential standard of review granted to plan 

administrators exercising discretionary authority was 

specifically an outgrowth of the Supr eme Court's analogy to 

trust law, and particularly the fiduciary r esponsibilities 

possessed by administrators with discretionary authority. 

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 identified 

by the Supreme Court, i.e., when a plan administrator has 

no discretion to interpret the plan's ter ms (and thus is not 

a fiduciary), in which case the plan is reviewed de novo, 

according to the federal common law of contract. See id. at 

112. That is, although, as was done in this case, 

"discretion" may be explicitly written into a top hat plan 

document, it does not act as a legal trigger altering the 

standard of review. Thus, we believe that, in accordance 

with our earlier precedent, top hat plans should be treated 

as unilateral contracts, and neither party's interpr 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 contention 

that, because ERISA's definitional section lists a"fiduciary" 

as one who exercises discretion in interpr eting the terms of 

_________________________________________________________________ 

6. We are aware that other courts have applied Firestone Tire's holding to 

top hat plans. See, e.g., Olander v. Bucyrus-Erie Co., 187 F.3d 599, 604 

(7th Cir. 1999); Schikore v. BankAmerica Supplemental Retirement Plan, 

No. C 98-3857 SI, 1999 WL 605826 (N.D. Cal. Aug. 2, 1999). However, 

these cases do not explicitly question whether Firestone Tire should be 

so freely transferrable, and, in fact, in at least one instance, the court 

specifically "deferred" to the administrator of a top hat plan on the 

basis 

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

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

hat plans are also fiduciaries. To begin with, ERISA 

explicitly states that top hat plans are not subject to the 

ERISA's fiduciary requirements. See 29 U.S.C. S 1101(a). 

Further, it is well established in the caselaw that there is 

no cause of action for breach of fiduciary duty involving a 

top hat plan. See In re New Valley Corp., 89 F.3d at 153; 

accord Demery v. Extebank Compensation Plan , 216 F.3d 

283, 290 (2d Cir. 2000) (dismissing ERISA claims for 

breach of fiduciary duty in a top hat plan on the ground 

that top hat administrators are not bound byfiduciary 

standards); Duggan v. Hobbs, 99 F .3d 307, 313 (9th Cir. 

1996) (same). Finally, we find J&J's argument disingenuous 

in light of the explicit terms of its own Plan absolving the 

administrators of the Top Hat Plan from individual liability. 

These terms, which designate the Pension Committee as 

"administrator" (but not fiduciary), stand in marked 

contrast to the parallel provisions of the Retirement 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 with, many 

plans may be structured as the one curr ently before us, 

whereby benefits are calculated in a similar manner

whether they are to be paid from an or dinary retirement 

plan or from a top hat plan. Differ ent standards of review 

for each may result in different interpretations of a single 

plan's terms, even though on paper the two halves are 

designed to work in tandem and to yield identical r esults. 

Our holding may also seem anomalous in that we appear to 

be according the least deference to plan administrators 

when they are determining benefits of highly-paid 

employees, the very group that the Department of Labor 

believes is best able to protect its own inter ests. 

However, we believe that these potentially anomalous 

results are not as severe as may appear at first blush. The 

"deference" ordinarily due an ERISA plan administrator is 

only available to the extent that the plan grants that 

administrator discretion to interpret the terms of the plan. 

See Firestone Tire, 489 U.S. at 111-13. In the absence of 

such discretion, a court will review the terms of the plan de 

 15 
novo. 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 discretion to 

the plan administrators. But in the case of a top hat plan, 

even though an administrator may not receive"deference" 

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 contract 

principles would require, thus minimizing the potential for 

differing standards of review for identical plan terms. 

Ordinary contract principles requir e that, where one 

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. Edgewater Steel 

Co., 911 F.2d 911, 919 (3d Cir. 1990) (term of an ERISA 

retirement plan allowing early retir ement when "the 

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, courts retain 

the authority to conduct a de novo review as to whether 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 for it is 

the functional equivalent of designating an inter ested party 

as an arbitrator. We do not agr ee. Contracts are often 

considered to be enforceable even when particular parties 

are able to specify terms in the course of dealing, subject 

only to the duty of good faith. See, e.g., O.N. Jonas Co., Inc. 

v. Badische Corp., 706 F.2d 1161 (11th Cir. 1983) 

(interpreting the Uniform Commercial Code); TCP Indus., 

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 impartial 

arbitrators, such as United Retail & Wholesale Employees 

Teamsters Union Local No. 115 Pension Plan v. Yahn & 

McDonnell, Inc., 787 F.2d 128 (3d Cir . 1986), to be apposite 

to the issue at hand. Thus, we see nothing impr oper in 

Goldstein and J&J contracting to allow Goldstein to

 16 
participate 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 are 

reasonable and it exercises its responsibilities in good faith. 

In fact, given that the Top Hat Plan was designed to work 

in concert with a retirement plan that has designated the 

same entity as the fiduciary (a perfectly legitimate design), 

the Top Hat Plan could hardly be administered effectively 

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 documents 

the Pension Committee was given broad authority to 

interpret the terms of the Plan and to make final decisions 

with regard to the payment of benefits. 7 Nonetheless, 

Goldstein disputes the Committee's interpretation of 

whether his commissions constituted pensionable 

compensation, although, as we explained in the r ecitation 

of facts, his argument as to how his commissions fall 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 that, 

although his commissions were not cover ed under the 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, are not 

_________________________________________________________________ 

7. As described above, the Retirement Plan stated that 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 provision 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 claimed that his 

commissions were "salesperson's commissions" or "sales management 

incentive compensation," or, in the alter native, that the commissions 

were "basic remuneration," and that the items enumerated as "basic 

remuneration" in the Plan were only meant as examples of the types of 

payments that were pensionable. 

 17 
included in Plan earnings," suggests that the phrase "basic 

remuneration" was given a broader definition in 1994. In 

Goldstein's view, the 1994 Plan's list of pensionable items 

was intended merely to provide examples of the type of 

compensation covered; because Goldstein's commissions 

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 1994 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 in the 

list, they are therefore not pensionable. As explained above, 

the question presented to the Court is not whether J&J's 

interpretation offers the best reading of the contract; 

rather, given the discretion granted to the Pension

Committee, the question is whether the interpr etation 

offered by J&J was reached in good faith. The District 

Court, after listening to the testimony of the parties and 

examining the documentary evidence, concluded that J&J's 

interpretation of the terms of its Plan was reasonable, and 

that J&J administrators had used their "best ef forts" to 

interpret the Plan accurately and fairly to assess 

Goldstein's claim. The District Court's findings are not 

clearly erroneous. 

In reaching its conclusions, the court first relied on its 

assessment of the credibility of J&J's plan administrators, 

and specifically found that the members of the Pension 

Committee and the BCC were not biased in their decisions, 

and had "exerted their best efforts accurately to interpret 

the plan and fairly to adjudicate Goldstein's claim." It is 

axiomatic that we defer to a district court's cr edibility 

determinations. 

Further, we find no fault with the District Court's

determination that the numerous "irr egularities" identified 

by Goldstein in the process by which the administrators 

interpreted the Plan do not give rise to an inference 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 Goldstein 

perceives as the lack of opportunities for him to present 

arguments and evidence on his behalf. 

 18 
Goldstein begins by submitting that the Pension 

Committee never formally delegated authority to the BCC to 

make benefits determinations, and ther efore its decision to 

"rubber stamp" the BCC decision without r eaching its own 

independent conclusions rendered its interpretation of the 

Plan terms nugatory. It is true that courts have refused to 

accord Firestone Tire deference to the decisions of 

administrators who, in the courts' determination, have 

failed to exercise the discretion granted to them under the 

terms of an ERISA plan. See, e.g., Sharkey v. Ultramar 

Energy Ltd., 70 F.3d 226 (2d Cir . 1995). As we have 

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 violation of 

the terms of the contract. Therefor e, whatever weight 

Goldstein's arguments on this score might carry in the 

context of a more ordinary ERISA plan, these arguments 

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 etionary 

power was never delegated to the BCC rests on the fact that 

the formal resolution delegating the Pension Committee'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 to interpret 

the terms of the Plan (and it is difficult to see why it would 

not), any technical flaws in the Pension Committee's efforts 

to delegate discretion to the BCC do not bear on the issue 

of good faith. The Plan documents themselves granted the 

Pension Committee the right to delegate its authority, and 

the Committee declared its intention to do so in the 

Summary Plan Description. Additionally, the final 

disposition of Goldstein's claim was made by the Pension 

Committee itself in September 1996. Thus, it cannot be 

said that the delegation to the BCC, and the decision of the 

Pension Committee to adopt its reasoning, somehow 

violated the contractual provisions of the Plan granting the 

Pension Committee the power to interpret the Plan terms, 

or demonstrated any lack of good faith on the part of J&J. 

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

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 the BCC 

all of the information he believed it needed to reach a 

determination. Goldstein was informed of the initial BCC 

meeting, but never asked to attend or to submit evidence. 

Finally, as the District Court found, Goldstein's claim was 

reviewed by J&J on at least three separate occasions: 

during the initial meeting of the BCC, during the course of 

Goldstein's exchange of correspondence with Car ey, and 

during the Pension Committee's September 1996 meeting. 

In the face of this evidence, we see no grounds for

concluding that the District Court's finding of good faith on 

the part of J&J was clearly erroneous.9 

_________________________________________________________________ 

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 make arguments before 

the determination was reached, he ur ges us to review the terms of the 

Plan de novo. Title 29 U.S.C. S 1133(2) is among those enforcement 

provisions of ERISA from which top hat plans have not been explicitly 

exempted. However, by its terms, S 1133(2) obligates only "named 

fiduciaries" -- which are not required for top hat plans -- to conduct a 

"full and fair review" of a benefits denial. We need 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, because 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 for benefits and fully 

laid out its reasons for denying his claim. It responded 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 premising the denial of 

benefits. And, as explained above, Goldstein has been unable to identify 

any "evidence" that he could have submitted that the administrators 

failed to consider. Thus, J&J fully complied with the strictures we 

developed in Grossmuller v. Inter national Union, United Automobile 

Aerospace & Agricultural Implement Workers of America, 715 F.2d 853, 

857-58 (3d Cir. 1983), for a full and fair r eview as required by S 

1133(2). 

 20 
In addition to the propriety of the process by which J&J 

reached its decision, there is no inher ent unreasonableness 

in the substantive interpretation of the Plan terms offered 

by J&J giving rise to an inference of bias or bad faith. As 

written, Goldstein's contract discusses his salary and 

bonuses in the same section as the discussion of his right 

to participate in the Plan; his "commissions," in contrast, 

are placed in a separate section, suggesting that the 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 District 

Court observed, these forms of executive compensation 

were not pensionable at the time of the execution of 

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 that the 

phrase "basic remuneration" did not encompass either 

these alternative forms of compensation, or Goldstein's 

commissions, in 1989, and the fact that these for ms of 

executive compensation had to be explicitly added to the 

list of pensionable earnings in 1994, while the phrase 

"basic remuneration" remained intact, suggests that there 

was no "implied" broadening of the definition of "basic 

remuneration," but instead an expanded list of included 

items. 

Additionally, as the District Court concluded, the phrase 

"Covered Compensation includes" is r easonably susceptible 

of meaning either that the earnings listed ar e a "sample" of 

the types of compensation to be included, or that the 

phrase "Covered Compensation" is intended to encompass 

only those forms of compensation explicitly mentioned in 

the list.10 Thus, there is nothing unreasonable in J&J's 

_________________________________________________________________ 

10. We cannot help but observe that Goldstein apparently began offering 

his alternative construction of the phrase"Covered Compensation 

includes" only at the time he filed suit in the District Court, and not 

when he lodged his claim for additional benefits with the Pension 

Committee. This fact alone suggests that J&J's interpretation is, at 

minimum, a reasonable one. 

 21 
interpretation of the Plan to cover only those forms of 

compensation specifically enumerated. And although 

Goldstein plausibly argues that the 1994 deletion from the 

Summary Plan Description of the clause excluding for ms of 

compensation not otherwise specified must be interpreted 

as evincing an intent to alter the Plan from pr oviding 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 compensation" 

solely by listing the included items. Certainly, such an 

interpretation of the motivation for the deletion is not 

unreasonable either. 

Goldstein's position is not an unsympathetic one, and we 

can understand his anger that, notwithstanding the large 

sums that his thymopentin patent yielded to J&J (and the 

fact that he was brought into J&J for his expertise in 

developing profitable drugs, a skill that might often be 

rewarded by large royalty-like payments), he was 

nonetheless given a pension based merely upon his salary. 

Concomitantly, were we reviewing the plan's terms de 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-compensated 

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 Pension 

Committee the power to make final determinations as to 

the types of compensation that are pensionable. 

Therefore, we conclude that although courts need not 

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 discretion on 

the administrators (subject as always to the implied duty of 

good faith). In this case, the discretion granted to the 

administrators was quite broad, and ther e is nothing in the 

process by which J&J reached its decision, or in the 

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

District Court's determination as to J&J's good faith was 

clearly erroneous. Thus, we conclude that J&J did not 

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 

 23