Source: http://supreme.justia.com/cases/federal/us/559/08-810/opinion2.html
Timestamp: 2014-08-02 04:54:21
Document Index: 648471499

Matched Legal Cases: ['§1001', '§1002', '§1132', '§1132', '§18', '§1132', '§187', '§187']

Conkright v. Frommert :: 559 U.S. ___ (2010) :: Justia US Supreme Court Center Justia.comFind a LawyerLegal AnswersLawMore ▾Justia BlogVerdictLaw Blog DirectoryLegal FormsUS Law US Supreme Court Cases Federal Cases US Constitution US Code Federal RegulationsFederal DocketsState CasesState Codes & StatutesTrademarksPatentsCompany Legal ProfilesMarketing ServicesSign InSearchJustia › US Law › US Case Law › US Supreme Court › Volume 559 › Conkright v. Frommert › Opinion
NEW - Receive Justia's FREE Daily Newsletters of Opinion Summaries for the US Supreme Court, all US Federal Appellate Courts & the 50 US State Supreme Courts and Weekly Practice Area Opinion Summaries Newsletters. Subscribe NowConkright v. Frommert559 U.S. ___ (2010)Annotate this CaseOpinionPDFSyllabus
appeals for the second circuit[April 21, 2010] Chief Justice Roberts delivered the opinion of the Court.
People make mistakes. Even administrators of ERISA plans. That should come as no surprise, given that the Employee Retirement Income Security Act of 1974 is “an enormously complex and detailed statute,” Mertens v. Hewitt Associates, 508 U. S. 248, 262 (1993), and the plans that administrators must construe can be lengthy and complicated. (The one at issue here runs to 81 pages, with 139 sections.) We held in Firestone Tire & Rubber Co. v. Bruch, 489 U. S. 101 (1989), that an ERISA plan administrator with discretionary authority to interpret a plan is entitled to deference in exercising that discretion. The question here is whether a single honest mistake in plan interpretation justifies stripping the administrator of that deference for subsequent related interpretations of the plan. We hold that it does not.I
As in many ERISA matters, the facts of this case are exceedingly complicated. Fortunately, most of the factual details are unnecessary to the legal issues before us, so we cover them only in broad strokes. This case concerns Xerox Corporation’s pension plan, which is covered by ERISA, 88 Stat. 829, as amended, 29 U. S. C. §1001 et seq. Petitioners are the plan itself (hereinafter Plan), and the Plan’s current and former administrators (hereinafter Plan Administrator). See §1002(16)(A)(i); App. 32a. Respondents are Xerox employees who left the company in the 1980’s, received lump-sum distributions of retirement benefits they had earned up to that point, and were later rehired. See 328 F. Supp. 2d 420, 424 (WDNY 2004); Brief for Respondents 9–10. The dispute giving rise to this case concerns how to account for respondents’ past distributions when calculating their current benefits—that is, how to avoid paying respondents the same benefits twice. The Plan Administrator initially interpreted the Plan to call for an approach that has come to be known as the “phantom account” method. 328 F. Supp. 2d, at 424. Essentially, that method calculated the hypothetical growth that respondents’ past distributions would have experienced if the money had remained in Xerox’s investment funds, and reduced respondents’ present benefits accordingly. See id., at 426–428; App. to Pet. for Cert. 146a. After the Plan Administrator denied respondents’ administrative challenges to that method, respondents filed suit in federal court under ERISA, 29 U. S. C. §1132(a)(1)(B). See 328 F. Supp. 2d, at 428–429. The District Court granted summary judgment for the Plan, applying a deferential standard of review to the Plan Administrator’s interpretation. See id., at 430–431, 439. The Second Circuit vacated and remanded, holding that the Plan Administrator’s interpretation was unreasonable and that respondents had not been adequately notified that the phantom account method would be used to calculate their benefits. See 433 F. 3d 254, 257, 265–269 (2006).
Petitioners asked us to grant certiorari on two questions: (1) whether the District Court owed deference to the Plan Administrator’s interpretation of the Plan on remand, and (2) whether the Court of Appeals properly granted deference to the District Court on the merits. Pet. for Cert. i. We granted certiorari on both, 557 U. S. ___ (2009), but find it necessary to decide only the first.IIA
This Court addressed the standard for reviewing the decisions of ERISA plan administrators in Firestone,489 U. S. 101. Because ERISA’s text does not directly resolve the matter, we looked to “principles of trust law” for guidance. Id., at 109, 111. We recognized that, under trust law, the proper standard of review of a trustee’s decision depends on the language of the instrument creating the trust. See id., at 111–112. If the trust documents give the trustee “power to construe disputed or doubtful terms, . . . the trustee’s interpretation will not be disturbed if reasonable.” Id., at 111. Based on these considerations, we held that “a denial of benefits challenged under §1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” Id., at 115. We expanded Firestone’s approach in Metropolitan Life Ins. Co. v. Glenn, 554 U. S. ___ (2008). In determining the proper standard of review when a plan administrator operates under a conflict of interest, we again looked to trust law, the terms of the plan at issue, and the principles of ERISA—plus, of course, our precedent in Firestone. See 554 U. S., at ___ (slip op., at 4, 6–7, 9–10). We held that, when the terms of a plan grant discretionary authority to the plan administrator, a deferential standard of review remains appropriate even in the face of a conflict. See id., at ___ (slip op., at 9).
It is undisputed that, under Firestone and the terms of the Plan, the Plan Administrator here would normally be entitled to deference when interpreting the Plan. See 328 F. Supp. 2d, at 430–431 (observing that the Plan grants the Plan Administrator “broad discretion in making decisions relative to the Plan”). The Court of Appeals, however, crafted an exception to Firestone deference. Specifically, the Second Circuit held that a court need not apply a deferential standard “where the administrator ha[s] previously construed the same [plan] terms and we found such a construction to have violated ERISA.” 535 F. 3d, at 119. Under that view, the District Court here was entitled to reject a reasonable interpretation of the Plan offered by the Plan Administrator, solely because the Court of Appeals had overturned a previous interpretation by
the Administrator. Cf. ibid. (accepting the District
Court’s chosen method as one of “several reasonable
alternatives”).B
We reject this “one-strike-and-you’re-out” approach. Brief for Petitioners 51. As an initial matter, it has no basis in the Court’s holding in Firestone, which set out a broad standard of deference without any suggestion that the standard was susceptible to ad hoc exceptions like the one adopted by the Court of Appeals. See 489 U. S., at 111, 115. Indeed, we refused to create such an exception to Firestone deference in Glenn, recognizing that ERISA law was already complicated enough without adding “special procedural or evidentiary rules” to the mix. 554 U. S., at ___ (slip op., at 10). If, as we held in Glenn, a systemic conflict of interest does not strip a plan administrator of deference, see id., at ___ (slip op., at 9), it is difficult to see why a single honest mistake would require a different result. Nor is the Court of Appeals’ decision supported by the considerations on which our holdings in Firestone and Glenn were based—namely, the terms of the plan, principles of trust law, and the purposes of ERISA. See supra, at 4–5. First, the Plan here grants the Plan Administrator general authority to “[c]onstrue the Plan.” App. to Pet. for Cert. 141a–142a. Nothing in that provision suggests that the grant of authority is limited to first efforts to construe the Plan.
Second, the Court of Appeals’ exception to Firestone deference is not required by principles of trust law. Trust law is unclear on the narrow question before us. A leading treatise states that a court will strip a trustee of his discretion when there is reason to believe that he will not exercise that discretion fairly—for example, upon a showing that the trustee has already acted in bad faith:“If the trustee’s failure to pay a reasonable amount [to the beneficiary of the trust] is due to a failure to exercise [the trustee’s] discretion honestly and fairly, the court may well fix the amount [to be paid] itself. On the other hand, if the trustee’s failure to provide reasonably for the beneficiary is due to a mistake as to the trustee’s duties or powers, and there is no reason to believe the trustee will not fairly exercise the discretion once the court has determined the extent of the trustee’s duties and powers, the court ordinarily will not fix the amount but will instead direct the trustee to make reasonable provision for the beneficiary’s support.” 3 A. Scott, W. Fratcher, & M. Ascher, Scott and Ascher on Trusts §18.2.1, pp. 1348–1349 (5th ed. 2007) (hereinafter Scott and Ascher) (footnote omitted) (citing cases).
The unclear state of trust law on the question was perhaps best captured by the Texas Supreme Court:“There is authority for ordering a dismissal of the case to afford the trustee an opportunity to exercise a reasonable discretion in arriving at the amount of payments to be made in the light of our discussion of the problem and after a proper consideration of the many factors involved. On the other hand, there is authority for remanding the case to the trial court to hear evidence and in the exercise of its supervisory jurisdiction to fix the amount of such payments. There is still other authority for remanding the case to the trial court to hear evidence and fix the boundaries of a reasonable discretion to be exercised by the trustee within maximum and minimum limits.” State v. Rubion, 158 Tex. 43, 54–55, 308 S. W. 2d 4, 11 (1957) (citations omitted).
Finally, this case demonstrates the uniformity problems that arise from creating ad hoc exceptions to Firestone deference. If other courts were to adopt an interpretation of the Plan that does account for the time value of money, Xerox could be placed in an impossible situation. Similar Xerox employees could be entitled to different benefits depending on where they live, or perhaps where they bring a legal action. Cf. 29 U. S. C. §1132(e)(2) (permitting suit “where the plan is administered, where the breach took place, or where a defendant resides or may be found”). In fact, that may already be the case. In similar litigation over the Plan, the Ninth Circuit also rejected the use of the phantom account method, but held that the Plan Administrator should utilize actuarial principles in accounting for rehired employees’ past distributions—which would presumably include taking some cognizance of the time value of money. See Miller v. Xerox Corp. Retirement Income Guarantee Plan, 464 F. 3d 871, 875–876 (2006); Brief for ERISA Industry Committee and American Benefits Council as Amici Curiae 8–9. Thus, failing to defer to the Plan Administrator here could well cause the Plan to be subject to different interpretations in California and New York. “Uniformity is impossible, however, if plans are subject to different legal obligations in different States.” Egelhoff v. Egelhoff, 532 U. S. 141, 148 (2001). Firestone deference serves to avoid that result and to preserve the “careful balancing” of interests that ERISA represents. Pilot Life Ins. Co., 481 U. S., at 54.C
In spite of all this, respondents and the Government argue that requiring the District Court to apply Firestone deference in this case would actually disserve the purposes of ERISA. They argue that continued deference would encourage plan administrators to adopt unreasonable interpretations of plans in the first instance, as administrators would anticipate a second chance to interpret their plans if their first interpretations were rejected. And they argue that plan administrators would be able to proceed seriatim through several interpretations of their plans, each time receiving deference, thereby undermining the prompt resolution of disputes over benefits, driving up litigation costs, and discouraging employees from challenging the decisions of plan administrators at all. All this is overblown. There is no reason to think that deference would be required in the extreme circumstances that respondents foresee. Under trust law, a trustee may be stripped of deference when he does not exercise his discretion “honestly and fairly.” 3 Scott and Ascher 1348. Multiple erroneous interpretations of the same plan provision, even if issued in good faith, might well support a finding that a plan administrator is too incompetent to exercise his discretion fairly, cutting short the rounds of costly litigation that respondents fear.
Applying a deferential standard of review does not mean that the plan administrator will prevail on the merits. It means only that the plan administrator’s interpretation of the plan “will not be disturbed if reasonable.” Firestone, 489 U. S., at 111; see also ibid. (“ ‘Where discretion is conferred upon the trustee with respect to the exercise of a power, its exercise is not subject to control by the court except to prevent an abuse by the trustee of his discretion’ ” (quoting Restatement (Second) of Trusts §187)). Thus, far from “impos[ing] [a] rigid and inflexible requirement” that courts must defer to plan administrators, post, at 8, we simply hold that the lower courts should have applied the standard established in Firestone and Glenn.III
The Court of Appeals erred in holding that the District Court could refuse to defer to the Plan Administrator’s interpretation of the Plan on remand, simply because the Court of Appeals had found a previous related interpretation by the Administrator to be invalid. Because we reverse on that ground, we do not reach the question whether the Court of Appeals also erred in applying a deferential standard of review to the decision of the District Court on the merits.[Footnote 2] The judgment of the Court of Appeals for the Second Circuit is reversed, and the case is remanded for further proceedings consistent with this opinion.It is so ordered. Justice Sotomayor took no part in the consideration or decision of this case.Footnote 1 The dissent is wrong to suggest a lack of case support for this interpretation of trust law. Post, at 10–12 (opinion of Breyer, J.). See, e.g.,Hanford v. Clancy, 87 N. H. 458, 461, 183 A. 271, 272–273 (1936) (“Affirmative orders of disposition, such as the court made in this case, may only be sustained if, under the circumstances, there is but one reasonable disposition possible. If more than one reasonable disposition could be made, then the trustee must make the choice” (emphasis added)); In re Sullivan’s Will, 144 Neb. 36, 40–41, 12 N. W. 2d 148, 150–151 (1943) (although trustees erred in not providing any support to plaintiff, “the court was without authority to determine the amount of support to which plaintiff was entitled from the trust fund” because “the court has no authority to substitute its judgment for that of the trustees” (emphasis added)); Eaton v. Eaton, 82 N. H. 216, 218–219, 132 A. 10, 11 (1926) (“[The trustee’s] failure to administer the fund properly did not entitle the court to act as a substitute trustee. . . . [W]ithin the limits of reasonableness the trustee alone may exercise discretion, since that is what the will requires” (emphasis added) (cited in 3 A. Scott & W. Fratcher, Law of Trusts §187.1, pp. 30–31 (4th ed. 1988))); In re Marre’s Estate, 18 Cal. 2d 184, 190, 114 P. 2d 586, 590–591 (1941) (lower court erred in setting amount of payments to beneficiary after ruling that trustees had mistakenly failed to make payment; “[i]t is well settled that the courts will not attempt to exercise discretion which has been confided to a trustee unless it is clear that the trustee has abused his discretion in some manner. . . . The amounts to be paid should therefore be determined in the discretion of the trustees” (cited in 3 Scott and Ascher 1349, n. 4 (5th ed. 2007))); Finch v. Wachovia Bank & Trust Co., 156 N. C. App. 343, 348, 577 S. E. 2d 306, 310 (2003) (agreeing with lower court that trustee abused its discretion, but vacating the court’s remedial order because it would “strip discretion from the trustee and replace it with the judgment of the court”). See also Brief for Petitioners 40–43. Footnote 2 The Government raises an additional argument—that the District Court should not have deferred to the Plan Administrator’s second interpretation of the Plan because that interpretation would have violated ERISA’s notice requirements. See Brief for United States as Amicus Curiae 25–26. That is an argument about the merits, not the proper standard of review, and we leave it to be decided, if necessary, on remand.