Court Opinion

ID: 6952964
Source: CourtListenerOpinion
Date Created: 2022-07-24 01:34:28.603001+00
Date Added: 2024-06-11T16:08:08.545634
License: Public Domain

FLETCHER, Circuit Judge,
with whom HUG, Chief Judge, and PREGERSON, MICHAEL DALY HAWKINS and THOMAS, Circuit Judges, join, concurring in part and dissenting in part:
We concur in the substance of Judge Fernandez’ opinion except that we would not remand the issue of eligibility to participate in the SPP to the Plan Administrator and would hold that the Workers are eligible to participate. Remand is inappropriate and further unnecessary in that we conclude that interpretation of the phrase “on the United States payroll of the employer” is not required.
In its denial of the Workers’ claim, the administrative panel convened by the Plan Administrator stated:
The denial is affirmed for the reasons that: (1) claimants had agreed and/or acknowledged upon first working for Microsoft that they would not receive employee benefits; (2) claimants specifically waived (by contract) any rights to benefits and (3) even if claimants had been employees and had not “waived rights to benefits,” they were not “regular, full-time employees” in an approved headcount position.
We agree with Judge Fernandez that these determinations were arbitrary and capricious. On appeal, as Judge Fernandez has also properly noted, the Plan abandoned all of its prior positions in favor of a new tack: that the Workers are not eligible for SPP benefits based on a construction of the phrase “on the United States payroll of the employer.” Our disagreement with Judge Fernandez, therefore, concerns (1) whether the Plan can properly raise a theory on judicial review not raised in the administrative process, and (2) if a new theory can be raised, whether the appropriate course is for the court to remand to the Plan Administrator to interpret the phrase in the first instance or for the court to decide the issue de novo. We would hold that the Plan waived any arguments not raised in the administrative process. Second, we conclude that because of their conduct in this litigation the defendants should be estopped from asserting that remand is appropriate. Third, were we to reach the U.S. payroll question, we would conclude that the issue was resolved by the administrative panel’s factual determi*1016nations. Finally, were we required to interpret the phrase, we would affirm the interpretation of the original three-judge panel of our court.
I.
Remand to the Plan Administrator to determine the meaning of the phrase “on the United States payroll of the employer” is improper because a plan should not be permitted to assert on judicial review reasons for denial that were not contained in the plan administrator’s decision. Because it was raised for the first time before the district court, the Plan Administrator waived this argument.
An ERISA plan is required to:
provide to every claimant who is denied a claim for benefits written notice setting forth in a manner calculated to be understood by the claimant: (1) The specific reason or reasons for the denial; (2) Specific reference to pertinent plan provisions on which the denial is based; (3) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (4) Appropriate information as to the steps to be taken if the participant or beneficiary wishes to submit his or her claim for review.
29 C.F.R. § 2560.503-l(f).
We recently construed this requirement:
In simple English, what this regulation calls for is a meaningful dialogue between ERISA plan administrators and their beneficiaries. If benefits are denied in whole or in part, the reason for the denial must be stated in reasonably clear language, with specific reference to the plan provisions that form the basis for the denial; if the plan administrators believe that more information is needed to make a reasoned decision, they must ask for it. There is nothing extraordinary about this; it’s how civilized people communicate with each other regarding important matters.
Booton v. Lockheed Med. Benefit Plan, 110 F.3d 1461, 1463 (9th Cir.1997).
These regulations “are designed to afford the beneficiary an explanation of the denial of benefits that is adequate to ensure meaningful review of that denial.” Halpin v. W.W. Grainger, Inc., 962 F.2d 685, 689 (7th Cir.1992). The requirements “enable the claimant to prepare adequately for any further administrative review, as well as appeal to the federal courts.” Id. (internal quotation marks omitted).
In concluding that “no plan can provide discretion to deny benefits for reasons identified only years after the fact,” the Seventh Circuit noted that “[t]his Court would emasculate ERISA’s disclosure requirement if it were to defer to reasons that the Board first identified on appeal in the District Court, years after the decision at issue.” Matuszak v. Torrington Co., 927 F.2d 320, 322-23 (7th Cir.1991).
This reasoning is sound. One of the fundamental precepts of appellate analysis is review based on a closed record. To allow a plan to raise new reasons for denial on judicial review could subject the plan participant to a cycle of multiple appeals. It would also effectively eviscerate the requirements of ERISA regulations.
In a similar context, we have held that administrative agencies are bound by the reasons stated in their FOIA denial letter and cannot conjure up new reasons on judicial review. Friends of the Coast Fork v. United States Dep’t of the Interior, 110 F.3d 53, 55 (9th Cir.1997). Because the Plan may not properly raise the U.S. payroll issue for the first time on judicial review, that issue has been waived and it is improper to remand to the Plan Administrator. Accordingly, because the Plan abandoned its other reasons for denying eligibility, the Workers should be entitled to participate in the SPP.
II.
Even if the U.S. payroll issue can be raised on judicial review, the court should decide the issue de novo rather than remanding to the Plan Administrator. We conclude that through their conduct in the litigation the defendants should be estopped from asserting that the issue is properly before the *1017Administrator in the first instance. The defendants raised their argument that the Workers were not eligible because they were not on the “United States payroll of the employer” for the first time before the district court and urged that court, initially over the objections of the Workers, to decide the issue. The district court obliged. The defendants not only did not object to the district court deciding the question but affirmatively urged it to do so, and the Workers withdrew their objection. The Workers appealed the decision of the district court to this court. Once again, the defendants urged the court to interpret the phrase and to affirm the district court. The original panel did so but reversed the ruling of the district court and held for the Workers. Only then, after losing on the merits on appeal, in their petition for rehearing and suggestion for rehearing en banc, do the defendants for the first time argue that we should remand the question of the interpretation of the phrase “on the United States payroll of the employer” to the Plan Administrator if we are unwilling to affirm the district court. The defendants make this argument despite their failure to raise the issue during the administrative process, despite their sua sponte raising the issue and urging that it be decided by the district court, and despite their urging that this court reach the issue on appeal. After proceeding through four years of litigation urging at every turn that the issue be decided by the court, the defendants should be estopped from asserting otherwise. See Voliva v. Seafarers Pension Plan, 858 F.2d 195, 197 (4th Cir.1988) (“the party who introduced new evidence in the district court ... cannot argue that the district court was foreclosed from considering the Plan’s alternative argument”).
Even today the defendants are willing to have us interpret the phrase, but only if we defer to the Administrator. The defendants contend that their willingness to have the court decide the issue all along was contingent upon the court giving deference to their interpretation of the phrase because they represent the Plan. This argument is specious. Although we defer to the reasonable interpretations of a plan administrator when the plan grants the administrator discretion to construe its provisions, see Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 111, 109 S.Ct. 948, 954-55, 103 L.Ed.2d 80 (1989), we do not grant the same discretion to the position taken by a plan as litigant. Where a plan administrator has not exercised his discretion to construe a provision in a plan, our review is de novo. Nelson v. EG & G Energy Measurements Group, Inc., 37 F.3d 1384, 1389 (9th Cir.1994) (de novo interpretation of plan is appropriate when, although administrative committee had discretion to do so, it failed to interpret the plan after repeated requests from participants). When conducting de novo review we “construe [the terms of a plan] without deferring to either party’s interpretation.” Firestone, 489 U.S at 112, 109 S.Ct. at 955.
III.
Were we to reach the U.S. payroll issue on de novo review, we would hold that the Workers are eligible to participate in the SPP. The ease can be resolved without interpreting the Plan language. A careful review of the record before the administrative panel convened by the Plan Administrator reveals that while the administrative panel had no occasion to construe the U.S. payroll language, it did find that the Workers had been “recharacterized, for payroll purposes only, ... as ‘employee[s].’ ” (Emphasis added.) The administrative panel described this recharacterization as follows: “The effect of the IRS’s recharacterization is that individuals who had worked in recharacter-ized positions were issued W-2 forms and they became eligible to refile their income tax returns for the relevant years as ‘employees’ rather than as ‘independent contractors.’ ”
Because the administrative panel’s determination is supported by ample evidence in the record, we should accept its factual determination that the Workers were placed on the payroll of the employer, albeit retroactively, for the relevant period. Snow v. Standard Ins. Co., 87 F.3d 327, 331 (9th Cir.1996) (reviewing courts must accept the factual determinations of the administrator unless they are clearly erroneous). In light of the administrative panel’s finding of fact *1018that the Workers were on the payroll, they are eligible under the SPP regardless of how the “on the United States payroll” phrase is construed. If, as the Workers suggest, the phrase refers to those employees who are United States residents paid from United States sources, then the Workers would be eligible to participate in the Plan. Alternatively, if the defendants’ construction is correct and the phrase limits benefits to those employees who were “on the payroll,” then the Workers also prevail. The pleadings establish that the Workers were all United States residents and worked in the United States, and the administrative decision established that they were reclassified as employees on the payroll of the employer. Therefore, under either interpretation the Workers are eligible to participate in the SPP.
IV.
Finally, were we called upon to interpret the phrase we would agree with the conclusion of the original three-judge panel of our court that the Workers are “on the United States payroll of the employer” for substantially the same reasons advanced by the panel. Vizcaino v. Microsoft, 97 F.3d 1187, 1196 (9th Cir.1996).
Accordingly, we respectfully dissent from the decision to remand this aspect of the appeal back to the Plan Administrator.