Opinion ID: 8704053
Heading Depth: 2
Heading Rank: 1

Heading: Whether Administrative Exhaustion Is Excused Because Plaintiffs Allege a Statutory Violation

Text: Administrative exhaustion is a non-issue, Plaintiffs argue, because the sole remaining issue upon remand derives from allegations of a statutory violation of ERISA. PI. Mem. at 6-8. Accordingly, they argue, it presents a question that is wholly independent of plan interpretation and does not require pre-suit exhaustion. Id. The Court rejected this argument in the context of the First Motion for Class Certification, concluding that “[b]eeause Plaintiffs challenge the administration of the Plan and not just the legality of the Plan, they cannot rely on any ‘statutory violation’ exception to the exhaustion requirement.’ ” July 18, 2012, Order at 7 (citing Kifafi, 2004 WL 3619156, at ). In their second motion, Plaintiffs’ claims, now set forth in the Fourth Amended Complaint, remain essentially the same. Now, however, Plaintiffs assert that they should prevail because “two courts of appeals have determined” that this case involves a statutory violation, not a question of pension-plan interpretation. 4 PI. Mem. at 7. They cite the Sixth Circuit and the D.C. Circuit’s opinions in this ease as authorities. Id. at 6-7. First, Plaintiffs rely on the Sixth Circuit’s statement that “the pilots contend that the Retirement Plan violates ERISA due to its delay in payment of the lump sum and failure to pay interest on the amount once payment is tendered and they, facially, appear to have reasonable claims.” Stephens v. Ret. Income Plan for Pilots of U.S. Air, Inc., 464 F.3d 606, 613 (6th Cir.2006). Second, Plaintiffs contend that the D.C. Circuit’s statement that “a pension plan could not satisfy ERISA by correctly calculating an actuarially equivalent lump sum, then delaying payment of that sum indefinitely” requires this Court to conclude that Plaintiffs’ claim implicates a statutory violation. 644 F.3d at 440. The Court has considered Plaintiffs’ argument long and hard but concludes that it overreads the Sixth Circuit’s opinion and misreads the D.C. Circuit’s opinion. The Sixth Circuit did not reach any conclusion or holding on the nature of Plaintiffs’ claims. See 464 F.3d at 613 n. 3 (“Because this case is brought to this Court having been dismissed based on subject matter jurisdiction, we need not and cannot decide the merits of the pilots’ claims.”). That court only decided that Plaintiffs’ allegations of ERISA violations implicated both the Plan’s written terms and an alleged oral amendment to the Plan instead of just the oral amendment. Id. at 613. The D.C. Circuit’s controlling opinion likewise is unhelpful to Plaintiffs. That court expressly held that U.S. Airways’ lump sum payments were actuarially equivalent to annuity payments and, thus, did not violate ERISA. 644 F.3d at 440 (“[US Airways’s] late payment of Plaintiffs’ lump sums does not violate § 1054(c)(3).”); see also id. at 442 (“The amount of Plaintiffs’ lump sum benefit was equal to the actuarial present value of the annuity payments Plaintiffs would have received under the Plan’s default payment option.”). It then articulated a standard of reasonableness to gauge how long a delay might extend between a retiree’s commencement date and his lump-sum payment, dependent on specific fact-finding for which the case was remanded. Id. at 440-41 (“U.S. Air’s 45-day delay in paying Plaintiffs was unrelated to the calculation of Plaintiffs’ benefits, and therefore not reasonable under existing IRS regulations. We therefore remand to the district court to calculate the appropriate amounts due Plaintiffs.”). In the discussion leading to the standard of “reasonable” delay, the controlling opinion contrasted a “reasonable” delay with an “indefinite” delay, which would violate ERISA. Id. at 440. However, it defined “reasonable” in the first instance by reference to an IRS regulation, 26 C.F.R. § 1.401(a)-20 (Question & Answer 10(b)(3)), not the ERISA statute. 644 F.3d at 440. The D.C. Circuit further stated that any delay attributable to “administrative necessity” would be reasonable, and Judge Brown suggested that “approximately one calendar month” might be excusable in this case. Id. By the terms of the Circuit’s remand, it is not yet clear what a “reasonable” period in the circumstances of U.S. Airways’ payments would have been; that question depends on fact-finding and decision. Because the D.C. Circuit has held that the lump sum payments made here were the “actuarial equivalent” of the annuities and left only the issue of the reasonableness of the delay, the remanded issue pertains only to the practices of the plan administrator, not the statutory requirements of ERISA. See Air Line Pilots Ass’n, Int’l v. Nw. Airlines, Inc., 627 F.2d 272, 276-77 (D.C.Cir.1980) (distinguishing between claims of a violation of “the terms and conditions of the pension plan” and allegations of “the obligatory fiduciary standards of ERISA”). Because the issue now before this Court poses a question of plan administration and not a question of statutory interpretation or application, the common principle of prelitigation exhaustion applies to all plaintiffs. See Commc’ns Workers, 40 F.3d at 431.