Court Opinion

ID: 2995694
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:21:46.026258+00
Date Added: 2024-06-11T12:03:32.629952
License: Public Domain

In the
United States Court of Appeals
For the Seventh Circuit

No. 01-2981

Mary Perugini-Christen,

Plaintiff-Appellant,

v.

Homestead Mortgage Company and
Reliance Standard Life Insurance Company,

Defendants-Appellees.

Appeal from the United States District Court
for the Northern District of Indiana, Fort Wayne Division.
No. 1:00 CV 57--William C. Lee, Chief Judge.

Argued January 16, 2002--Decided April 19, 2002

  Before Bauer, Rovner, and Williams, Circuit
Judges.

  Williams, Circuit Judge. Mary Perugini-
Christen was covered by long-term
disability insurance under a group policy
provided by Reliance Standard Life
Insurance Company. When she became
disabled, Perugini filed for benefits
under the Reliance plan. Reliance paid
benefits to Perugini, but the amount it
paid was less than Perugini thought she
should receive, and she filed suit. The
district court granted summary judgment
in Reliance’s favor. We conclude that the
district court correctly reviewed the
plan administrator’s decision de novo and
that the administrator correctly
characterized the profit compensation
language of the employment agreement as a
bonus for purposes of the ERISA plan.

I.   BACKGROUND

  From 1985 until 1993, Perugini was the
owner, president, and CEO of People’s
Mortgage Company in Fort Wayne, Indiana.
In 1993, Perugini sold People’s to
Homestead Mortgage Company. As part of
the sale, Perugini entered into a deal
with Homestead to act as an independent
branch manager for the Fort Wayne office.
Perugini negotiated a compensation
package under which she was to receive
fifty percent of the branch profits in
addition to her annual salary./1
Perugini worked under this compensation
plan until she became disabled in 1996.
Perugini filed a claim for long-term
disability benefits with Reliance,
Homestead’s disability insurance carrier.
Under Reliance’s benefits plan,
Perugini’s benefits were to be based on
her covered monthly earnings. Covered
monthly earnings were defined as the
employee’s monthly salary and any
commissions or bonuses averaged over the
preceding twelve months, with respect to
commissions, or thirty-six months, with
respect to bonuses. The plan does not
define either salary or bonus.

  Reliance considered the branch profits
Perugini received to be a bonus and
averaged them over a thirty-six month
period to calculate her monthly benefit.
Perugini disagreed and the district court
found that the plan language was not
ambiguous. Furthermore, the district
court classified the branch profits
compensation as bonuses because
Perugini’s employment agreement
designated them as such and the ordinary
definition of bonus encompassed the
branch profits compensation.

II.    ANALYSIS

  A.    Standard of Review

  The Supreme Court has made it clear that
"a denial of benefits challenged under
sec. 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."
Firestone Tire & Rubber v. Bruch, 489
U.S. 101, 115 (1989). In determining
whether a plan grants its administrator
discretion, we must look to the language
of the plan. Postma v. Paul Revere Life
Ins. Co., 223 F.3d 533 (7th Cir. 2000).

  Reliance argues that the plan grants it
discretionary authority because it
required Perugini to submit:

"satisfactory proof of Total Disability
to [Reliance]."

However, "the presumption of plenary
review is not rebutted by the plan’s
stating merely that benefits will be paid
only if the plan administrator determines
they are due, or only if the applicant
submits satisfactory proof of his
entitlement to them." Herzberger v.
Standard Ins. Co., 205 F.3d 327, 331 (7th
Cir. 2000). Rather, the plan
shouldclearly and unequivocally state
that it grants discretionary authority to
the administrator, which we find the plan
did not do.

  In this case, the language at issue is
open to two reasonable interpretations:
(1) that Perugini submit to Reliance
satisfactory proof or (2) that she submit
proof which is satisfactory to Reliance.
The former interpretation would simply
require Perugini to submit requested
documents, the latter would be satisfied
only if Perugini’s documents satisfied
Reliance’s subjective notions of what was
required. Because it is not clear from
the plan language which interpretation is
the correct one, we find that Reliance
failed to reserve discretionary
authority. Accordingly, we will engage in
plenary review.

  Two of our sister circuits have been
faced with this issue and have reached
opposite conclusions. In Kinstler v.
First Reliance Standard Life Ins. Co.,
181 F.3d 243, 251-52 (2d Cir. 1999), the
Second Circuit was faced with language
identical to the plan at issue in this
case and held that "the language of First
Reliance’s policy is insufficient to pre
clude de novo review," because it is not
clear whether the language "means only
that the claimant must submit to First
Reliance proof that is satisfactory or
that the claimant must submit proof that
is satisfactory to First Reliance."
However, the Sixth Circuit found that the
same language conferred deferential
review. In Yeager v. Reliance Standard
Life Ins. Co., 88 F.3d 376, 381 (6th Cir.
1996), the court found that "[a]
determination that evidence is
satisfactory is a subjective judgment
that requires a plan administrator to
exercise his discretion." While the Sixth
Circuit is correct in finding that a
determination that evidence is
satisfactory is a subjective judgment, we
agree with the Second Circuit that merely
requiring satisfactory proof "is an
inadequate way to convey the idea that a
plan administrator has discretion. Every
plan that is administered requires
submission of proof that will ’satisfy’
the administrator." Kinstler, 181 F.3d at
252. Therefore, "unless a policy makes it
explicit that the proof must be
satisfactory to the decision-maker, the
better reading of ’satisfactory proof’ is
that it establishes an objective
standard, rather than a subjective one."
Kinstler, 181 F.3d at 252./2 Although
we believe that under either standard of
review the district court reached the
correct decision, we find the district
court was correct in applying plenary
review.

  B.   Perugini’s Compensation was a Bonus

  Turning to the merits, Perugini claims
that the district court erred in finding
that the branch profits constituted
bonuses rather than commissions. Perugini
argues that because she was contractually
entitled to the branch profits, they
cannot be considered bonuses. Reliance
counters that Perugini’s employment
agreement with Homestead characterized
the branch profit payments as bonuses,
and therefore, Perugini should be bound
by the terms of that agreement. The
district court found that the branch
profits were correctly classified as
bonuses, and we agree.

  Perugini relies on Lister v. Stark, 942
F.2d 1183 (7th Cir. 1991), to support her
contention that the branch profits should
be considered commission rather than
bonus. In Lister, the plaintiff, a
salesman whose compensation was based
solely on commissions, was promoted to a
management position and his compensation
was changed to a combination of salary
and percentage of regional profits. At
least one of the employment documents
characterized the regional profits as
commission, which was to be considered
part of the plaintiff’s salary. However,
the plaintiff’s pension was calculated to
include salary, without regard to
commissions, and the district court
upheld that decision. This court
reversed, finding it implausible that the
plan contemplated that employees promoted
to management would receive less in
pension benefits than the subordinates
they supervised. Perugini latches on this
court’s finding in Lister that the
regional profits were properly considered
commission rather than bonus. Lister, 942
F.2d at 1189. However, as we made clear
in Lister, that conclusion was based on
the individual circumstances of that
case, and our conclusion that a contrary
interpretation was implausible:

[a]n interpretation will not pass muster
. . . when the evidence of records
demonstrates that thetrustees "entirely
failed to consider an important aspect of
the problem, offered an explanation for
its decision that runs counter to the
evidence before [it] or is so implausible
that it could not be ascribed to a
difference in view or the product of
[its] expertise."

Lister, 942 F.2d at 1189. In Lister,
because the managers’ pensions were based
on salary alone, which invariably was
less than the salesmens’ pension that
were based on commissions, the plan in
Lister must have contemplated commissions
as a pension benefit. However,
interpreting the plan language in this
case would not lead to an implausible
result. Contrary to the circumstances in
Lister, Pergugini’s compensation can
easily be characterized as a bonus
because not only did the employment
agreement define it as such, but because
the result is not counter to the evidence
before us.

  The district court correctly classified
the branch profits as bonuses. Certainly,
the branch profits cannot be considered
salary because although they were earned
on a monthly basis, they were in no way
fixed compensation. Additionally, the
branch profits are unlike ordinary
commissions because although they are
calculated as a percentage of the
proceeds, they are not based on
Perugini’s personal sales, but rather on
the sales of the branch as a whole.
Furthermore, Perugini’s contention that
the branch profits are contractually
required is of no avail because the plan
distinguishes discretionary from
nondiscretionary bonuses--it excludes
nondiscretionary bonuses altogether.
Therefore, contrary to Perugini’s claims,
the plan contemplates nondiscretionary
bonuses like the compensation at issue
here. This interpretation is consistent
with the description of branch profits in
the employment agreement. Accordingly,
the district court was correct in finding
that the branch profits are better
described as bonuses rather than
commissions./3

III.   CONCLUSION

  The court was correct in applying a de
novo standard of review in this case and
it properly classified Perugini’s
compensation as a bonus. We therefore
AFFIRM the judgment of the district court.

FOOTNOTES

/1 "The Company shall also pay a bonus to Employee
equal to fifty percent (50%) of the Net Profits
(as hereinafter defined) of the Branch ("Bonus")
annually within thirty (30) days following the
end of the Branch’s fiscal year." Appellant’s Ex.
A-034.

/2 The Second Circuit concluded that even if the
plan language had required "proof satisfactory to
the decision-maker," that this language would
also be inadequate to reserve discretionary
review. We need not go that far, however, because
the language here was ambiguous as to whether
"satisfactory" invoked a subjective determina-
tion.

/3 Perugini also complains that the district court
should have stricken Reliance’s evidence regard-
ing the negotiations between Reliance and Home-
stead because the evidence was not produced in
compliance with Rule 26(a)(1). Fed. R. Civ. P.
26(a)(1) (initial disclosures). The district
court denied her motion as moot and stated that
it did not consider it. We will not disturb this
holding and we did not consider the disputed
evidence in making our decision.