Opinion ID: 444642
Heading Depth: 1
Heading Rank: 2

Heading: The Decision to Deny Benefits

Text: 27 Summary judgment is appropriate if, viewing the evidence in the light most favorable to the opposing party, the trial court finds 'that there is no genuine issue of material fact and the moving party is entitled to a judgment as a matter of law.' Fed.R.Civ.P. 56(c). Lojek v. Thomas, 716 F.2d 675, 677 (9th Cir.1983). The court of appeals reviews de novo a district court's grant of summary judgment. Id. 28 In this case, this court, like the trial court, reviews another decisionmaker: the welfare benefit plan administrator. Del Monte, although it assumed the posture of an administrator in accordance with 29 U.S.C. Sec. 1002(16)(A)(ii), made no attempt to comply with any of the duties that ERISA places upon a benefit plan administrator. To the contrary, the Severance Allowance Policy was actively concealed in violation of ERISA's reporting and disclosure requirements. See 29 U.S.C. Sec. 1021(a) (disclosure to all plan participants); 29 U.S.C. Sec. 1021(b) (various reporting requirements). Nor has Del Monte created any of the procedural mechanisms for benefit determinations that ERISA mandates. E.g., 29 U.S.C. Sec. 1133 (requiring compliance with claims procedures under Department of Labor regulations). 29 Despite its failure to assume any of ERISA's obligations, Del Monte urges upon us the deferential standard of review generally applicable to administrator's decisions under ERISA: decisions by the trustees of an employee benefit plan will not be reversed by the courts unless they are arbitrary, capricious, made in bad faith, not supported by substantial evidence, or erroneous on a question of law. Malhiot v. Southern California Retail Clerks Union, 735 F.2d 1133, 1135 (9th Cir.1984). We do not decide that this is the only applicable standard of review when ERISA's provisions have been flouted in such a wholesome and flagrant manner. We do, however, decide that the district court erred by holding, as a matter of law, that Del Monte's decision survived even this deferential standard. 30 B. The Decision to Deny Severance Benefits to the Employees Could Not be Said as a Matter of Law Not to be Arbitrary and Capricious 31 The administrator of an employee welfare benefit plan, such as this severance benefit policy, has no discretion to secrete the plan, to flout the reporting, disclosure and fiduciary obligations imposed by ERISA, or to deny benefits in contravention of the plan's plain terms. 29 U.S.C. Secs. 1101-1114 (fiduciary responsibilities with respect to plan); 29 U.S.C. Secs. 1021-1031 (reporting and disclosure provisions); 29 U.S.C. Sec. 1104(a)(1)(D) (plan must be administered in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of [ERISA]). It is undisputed that the administration of this plan failed to comply with these reporting, disclosure and fiduciary requirements. Del Monte's decision to deny benefits in this case was made in the course of, and could have been infected by, these ERISA violations. Thus, the defendants' decision could not be said, as a matter of law, not to be arbitrary and capricious, and summary judgment was inappropriately granted to Del Monte at this stage of the proceedings. 32 The undisputed facts show that defendants failed to comply with virtually every applicable mandate of ERISA. The Separation Allowance Policy was confidential, i.e., secret, in contravention of ERISA's reporting and disclosure provisions. 29 U.S.C. Secs. 1021-1031. The policy was subject to no claims procedure. ERISA mandates a reasonable claims procedure, 29 U.S.C. Sec. 1133; the Code of Federal Regulations establishes exactly what will be considered reasonable: 33 (1) A claims procedure will be deemed to be reasonable only if it: 34 (i) Complies with the provisions of ... this section .... 35 (ii) Is described in the summary plan description ..., 36 (iii) Does not contain any provision, and is not administered in a way, which unduly inhibits or hampers the initiation and processing of plan claims, and 37 (iv) Provides for informing participants in writing, in a timely fashion, of the time limits .... 38 29 C.F.R. Sec. 2560.503-1(b)(1) (emphasis supplied). Here, there was no summary plan description, no claims procedure, and no provision to inform participants in writing of anything. Del Monte's claims procedure fails simply because there was none. Id. 39 While it is thus clear that violations of ERISA's procedural requirements--reporting, disclosure and claims procedures--may amount to arbitrary and capricious conduct, the remedy to which this entitles the victimized employees has often been less than satisfactory. Ordinarily, a claimant who suffers because of a fiduciary's failure to comply with ERISA's procedural requirements is entitled to no substantive remedy. Wolfe v. J.C. Penney Co., 710 F.2d 388, 393 (7th Cir.1983). We do not deny the logic of this proposition in the ordinary case. ERISA mandates no minimum substantive content for employee welfare benefit plans, and therefore a court has no authority to draft the substantive content of such plans. 40 Under ERISA, however, no great wall divides procedural from substantive violations. Although reporting and disclosure requirements are arguably procedural, it is these procedural requirements that alter the very balance of knowledge and rights between covered employees and their employer. The importance of disclosure applies to welfare benefit plans as well as to pensions: 41 Disclosure has been seen as a device to impart to employees sufficient information and data to enable them to know whether the plan was ... being administered as intended. It was expected that the information disclosed would enable employees to police their plans. 42 H.R.Rep. No. 93-533, 93d Cong., 2d Sess., reprinted in 1974 U.S.Code Cong. & Ad.News 4639, 4649 (emphasis supplied). 43 When procedural violations rise to the level that they have in this case, they alter the substantive relationship between employer and employee that disclosure, reporting and fiduciary duties sought to balance somewhat more equally. The quantity of defendants' procedural violations thus work a substantive harm. Thus, in reviewing an administrator's decision, a court must consider continuing procedural violations in determining whether the decision to deny benefits in a particular case was arbitrary and capricious. We hold that the type of plan administration practiced by Del Monte is highly probative of whether a particular decision to deny benefits was infected by its having been made in conformity with the objectionable scheme. Cf. Dennard v. Richards Group, Inc., 681 F.2d 306, 314 (5th Cir.1982) (listing various other factors that may be taken into consideration in determining whether the decision of a pension plan administrator met the arbitrary and capricious standard). In this case, of course, this factor weighs heavily against Del Monte. 1 44 Other factors also weigh against Del Monte's denial of benefits in this case. With employee welfare benefit plans, as with pension plans that are subject to the full panoply of ERISA requirements, imposition of a standard that is not contained in the terms of a plan amounts to an arbitrary and capricious decision. See Morgan v. Mullins, 643 F.2d 1320, 1321 (8th Cir.1981) (Where the Trustees impose a standard not required by the pension plan itself, this court has stated that such action 'would result in an unwarranted and arbitrary construction of the Plan.' ) (quoting Maness v. Williams, 513 F.2d 1264, 1267 (8th Cir.1975)). 45 Del Monte imposed several standards not required by the severance policy. The plan provides for severance pay when jobs are eliminated  and alternative employment opportunities are unavailable within the Corporation  2 (emphasis supplied). The plan does not condition receipt of severance benefits upon elimination of positions from the face of the earth, but upon eliminat(ion) and unavailability of appropriate alternative employment opportunities... within the Corporation. (Emphasis supplied). The plan does not condition receipt of benefits upon employees' subsequent unemployment, but upon job eliminat[ion]. The plan does not condition receipt of benefits upon failure of a successor corporation to offer employees jobs after their employment with Del Monte ceases, but upon job eliminat[ion]. 46 The plan specifies only that the job be eliminated and that alternative Corporation jobs be unavailable . No permissible construction of eliminated permits us to imply other conditions into the plan, as Del Monte would have us do. Neither the case law nor Del Monte's past practice allows such bootstrapping. 47 Certainly, under the applicable case law we cannot deny that jobs are eliminated--and then, perhaps, reinstated--when one employer succeeds another. Even under a collective bargaining agreement, where the National Labor Relations Act imposes various duties on a successor employer, a business entity which replaces another is not obligated to hire all or any of its predecessor's employees. Bates v. Pacific Maritime Association, 744 F.2d 705, 708 (9th Cir.1984) (citations omitted) (applying this rule to a successorship issue arising under Title VII of the Civil Rights Act of 1964, 42 U.S.C. Secs. 2000e--2000e-17 and 42 U.S.C. Sec. 1981). 3 Lack of obligation to rehire, and the consequence of the prior job's elimination, is no less real where, as here, the employees lack the benefits of a collective bargaining agreement with either the predecessor or successor employer. 48 Neither does the term eliminated necessarily contain any of these conditions inherent in its usage. See, e.g., Livernois v. Warner-Lambert, 723 F.2d 1148, 1155 (4th Cir.1983) (ending defendant's liability for job severance to those continuing as employees [with the successor] ... would clearly constitute ... job termination); Sly, 712 F.2d at 1210 (even though claimants did not receive severance benefits in this case, the court acknowledged that [a]s a result of the sale [of the business as an ongoing concern], employees of the [predecessor company] were terminated from their employment); Pinto, 480 F.Supp. at 364 (claimants unentitled to benefits because of overall construction of severance plan, but court acknowledged that sale of business as an ongoing concern resulted in the loss of plaintiff's old job, and his being immediately hired by defendants' successor company). See also Chapin v. Fairchild Camera & Instrument Corp., 31 Cal.App.3d 192, 197-98, 107 Cal.Rptr. 111, 115 (1973) (the sale [of a business as an ongoing concern] involved a permanent release of the Employees). 49 Nor can we permit resort to Del Monte's secret intentions behind its secret severance pay policy to imply these conditions into the plan. Del Monte claims that the secret purpose behind its secret severance benefit policy was to benefit only those employees who were without a job of any kind after termination. We decline to refer to the secret intent behind a secret plan to determine whether the denial of severance benefits in this case was not arbitrary and capricious. Allowing reference to this factor would only encourage violation of ERISA's reporting and disclosure requirements, in the hope of later being able to interpret the policy through the cost-benefit analysis of hindsight. In Donovan v. Dillingham, 688 F.2d 1367 (11th Cir.1982), the court stated: it would be incongruous for persons establishing or maintaining informal or unwritten employee benefit plans, or assuming the responsibility of safeguarding plan assets, to circumvent the Act merely because an administrator or other fiduciary failed to satisfy reporting or fiduciary standards. Id. at 1372. Thus, that court decided that a plan did exist within the meaning of ERISA despite its informal and unwritten form. That court decided only that jurisdiction under ERISA therefore existed. We are faced with the next logical question: May the same failure to satisfy reporting or fiduciary standards go judicially unnoticed in determining the company's obligations under the written expression of the plan? Like the Donovan court; we answer no. 50 For similar reasons we decline to reward Del Monte's past practice of denying severance benefits to employees in this situation by interpreting the plan with reference to Del Monte's past course of conduct. Imposition of conditions outside the plan amounts to arbitrary and capricious conduct in spite of how often it is practiced. See Dennard v. Richards Group, Inc., 681 F.2d at 318 ( 'if the interpretation is unreasonable from the beginning, such an interpretation may still be arbitrary and capricious' ) (quoting Morgan v. Mullins, 643 F.2d at 1324 n. 4). 51 ERISA seeks to safeguard the well-being and security of working men and women and to apprise them of their rights and obligations under any employee benefit plan. Donovan v. Dillingham, 688 F.2d at 1372. Not coincidentally, the evils against which ERISA was enacted to guard--insecurity, lack of knowledge, and inability to police plan administration--are just the evils that appear in Del Monte's administration of its plan. Del Monte's counsel revealed as much in his treatment of two hypothetical situations that could arise under its plan. First, in Defendant's Reply Memorandum in Support of Motion for Summary Judgment before the district court, Del Monte states: Even if [a president of a divested subsidiary of Del Monte which had been sold as an ongoing concern] actually received such severance benefits, it is understandable that the president of the company would lose his job when his company was bought as an on-going [sic] concern and that he would receive severance pay. Understandable for a president, but not for a salaried nonunion employee, based on Del Monte's secret distinctions and conditions. Second, at oral argument, Del Monte's counsel was asked, What if an executive, the president of Del Monte, terminated his employment with Del Monte and the next day got a job working for Pillsbury. Would he be entitled to severance pay? Counsel responded, Probably. Thus, benefits would probably be available for a president or a vice president, but not for a salaried nonunion employee, based on Del Monte's secret distinctions and conditions. We decline to undermine the purposes of ERISA by considering Del Monte's secret conditions on its secret plan that result in such widely disparate results.