Court Opinion

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Opinions of the United
2007 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

6-13-2007

Maciejczak v. Procter & Gamble Co
Precedential or Non-Precedential: Non-Precedential

Docket No. 06-2594

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                                                               NOT PRECEDENTIAL

                      UNITED STATES COURT OF APPEALS
                           FOR THE THIRD CIRCUIT

                                  _______________

                                    No. 06-2594
                                  _______________

                              JOHN W. MACIEJCZAK,

                                               Appellant

                                          v.

           PROCTER & GAMBLE CO., PROCTER & GAMBLE DISABILITY
          BENEFIT PLAN & BENEFIT PLANS TRUST, PROCTER & GAMBLE
           DISABILITY BENEFIT PLAN CORPORATE REVIEWING BOARD,
               PROCTER & GAMBLE PAPER PRODUCTS COMPANY

                                  _______________

                   On Appeal From the United States District Court
                       for the Middle District of Pennsylvania
                                  (No. 02-cv-01041)
                    District Judge: Honorable Thomas I. Vanaskie

                      Submitted Under Third Circuit LAR 34.1(a)
                                   May 25, 2007

           Before: CHAGARES, HARDIMAN, and TASHIMA,* Circuit Judges.

                                 (Filed June 13, 2007)

      *
        Honorable A. Wallace Tashima, United States Court of Appeals for the Ninth
Circuit, sitting by designation.
                                   __________________

                                OPINION OF THE COURT
                                  __________________

CHAGARES, Circuit Judge.

          Appellant John Maciejczak contends that the Procter & Gamble Company

(collectively with the other defendants, “P&G”) wrongly terminated long-term disability

benefits due to him under the terms of an employee welfare benefit plan. See Employee

Retirement Income Security Act of 1974 (“ERISA”) § 502(a)(1)(B), 29 U.S.C. §

1132(a)(1)(B). The District Court sustained P&G’s termination decision, and Maciejczak

appeals. We write only for the parties, and thus do not state the facts separately. Because

P&G’s termination of Maciejczak’s benefits was not arbitrary and capricious, we will

affirm.

                                              I.

          We begin with the standard of review. Where, as here, an ERISA benefit plan

“gives the administrator or fiduciary discretionary authority to determine eligibility for

benefits or to construe the terms of the plan,” we review the denial of benefits under the

arbitrary and capricious standard. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S.

101, 115 (1989); Vitale v. Latrobe Area Hosp., 420 F.3d 278, 281-82 (3d Cir. 2005).

Under this standard, the administrator’s decision “will be overturned only if it is ‘clearly

not supported by the evidence in the record or the administrator has failed to comply with

the procedures required by the plan.’” Orvosh v. Program of Group Ins. for Salaried

                                              2
Employees of Volkswagen of Am., Inc., 222 F.3d 123, 129 (3d Cir. 2000) (quoting

Abnathya v. Hoffman-La Roche, Inc., 2 F.3d 40, 41 (3d Cir. 1993)).

       Although this standard is deferential, we apply a more robust version of arbitrary

and capricious review when the plan administrator is operating under a conflict of

interest. See, e.g., Pinto v. Reliance Standard Life Ins. Co., 214 F.3d 377 (3d Cir. 2000).

In such a case, we employ a sliding-scale approach that “approximately calibrat[es] the

intensity of our review to the intensity of the conflict.” Id. at 393. Here, the District

Court determined that P&G was operating under “a minor conflict of interest.” Amended

Appendix (“App.”) 27. It thus applied a “slightly heightened version of the arbitrary and

capricious standard of review.” Id. That determination is a mixed question of law and

fact. See Kosiba v. Merck & Co., 384 F.3d 58, 64 (3d Cir. 2004). Accordingly, “our

review is plenary, though we review [the] district court’s underlying factual findings only

for clear error.” Id.

       Both parties disagree with the District Court’s “slightly heightened” standard of

review. P&G contends that “the standard should not have been heightened at all.” P&G

Brief 14. Maciejczak argues for “more than a slightly heightened standard.” Maciejczak

Brief 16. Maciejczak, however, does not articulate precisely how far down the scale our

review should slide. Presumably, he would be content with the “somewhat heightened”

review we applied in Smathers v. Multi-Tool, Inc., 298 F.3d 191, 199 (3d Cir. 2002), or

the “moderately heightened” standard of Kosiba, 384 F.3d at 68. He doubtless would

                                              3
raise no objection if we slid the standard all the way down to the “far end of the arbitrary

and capricious ‘range.’” See Pinto, 214 F.3d at 394.

       In determining where on the arbitrary and capricious scale to situate our review,

we must examine the totality of the circumstances. See id. at 392. Among the relevant

factors are “the sophistication of the parties, the information accessible to the parties,” the

financial structure of the plan, and the presence of any procedural anomalies. See id.

“Also relevant is the current status of the fiduciary, i.e., whether the decisionmaker is a

current employer, former employer, or insurer.” Kosiba, 384 F.3d at 64 (internal

quotation omitted). In addition, our cases have considered the cost of paying out benefits

relative to the total assets of the plan. See Pinto, 214 F.3d at 386.

       Conflicts of interest are far more likely to arise when an insurance company, as

opposed to the employer, both funds and administers the plan. See Pinto, 214 F.3d at

387-88. Employer-funded plans present a decreased “risk of a conflict of interest . . .

because the employer has ‘incentives to avoid the loss of morale and higher wage

demands that could result from denials of benefits.’” Smathers, 298 F.3d at 197 (quoting

Nazay v. Miller, 949 F.2d 1323, 1335 (3d Cir. 1991)). Moreover, “the typical employer-

funded . . . plan is set up to be actuarially grounded, with the company making fixed

contributions to the . . . fund . . . .” Pinto, 214 F.3d at 388. In such circumstances, the

employer “‘incurs no direct expense as a result of the allowance of benefits, nor does it

benefit directly from the denial or discontinuation of benefits.’” Id. (quoting Abnathya, 2

                                               4
F.3d at 45 n.5). Conversely, heightened scrutiny may be appropriate when the “plan is

‘unfunded,’ that is, when it pays benefits out of operating funds rather than from a

separate ERISA trust fund.” Vitale, 420 F.3d at 282.

       Here, P&G pre-funds a Long-Term Disability Trust Fund, and the plan is

administered by a Board of Trustees consisting of P&G employees. The Trustees receive

no additional compensation for their service on the Board. Moreover, P&G’s

contributions to the plan are determined based on an estimate of the current year’s claim

liability and the plan’s investment return. Management determines the appropriate annual

contribution, if any, according to “anticipated claims and an actuarial determination of

unrevealed costs.” App. 288.

       These features counsel against any heightening of the arbitrary and capricious

standard. Our cases “have noted that a situation in which the employer establishes a plan,

ensures its liquidity, and creates an internal benefits committee vested with the discretion

to interpret the plan’s terms and administer benefits does not typically constitute a conflict

of interest.” Stratton v. E.I. DuPont De Nemours & Co., 363 F.3d 250, 254-55 (3d Cir.

2004) (internal quotations and alterations omitted). That is exactly what P&G has done

here. Although, as the District Court noted, P&G’s contributions are not “fixed,” Pinto,

214 F.3d at 388, we are somewhat dubious about the District Court’s conclusion that this

fact warrants any ratcheting up of the standard of review. The record indicates that P&G

made no contributions to the fund in both 2001 and 2002. The mere fact that P&G will

                                              5
have to make some contributions in the future, and that those payments are not fixed, is

scant evidence of any conflict of interest. The annual payment claimed by Maciejczak

was one-tenth of one percent of the amount of payments made by the Trust to

participants. That minimal impact on the fund makes it unlikely that the Trustees were

conflicted in Maciejczak’s case.

       Maciejczak also argues that “procedural anomalies” in P&G’s claim processing

justify increased scrutiny. See Pinto, 214 F.3d at 394. In our view, none of the facts

pointed out by Maciejczak constitute “anomalies” that would warrant heightened scrutiny.

       About the only factor that does weigh in Maciejczak’s favor is his status as a

former, as opposed to a current, employee. See Smathers, 298 F.3d at 198 (“Since

Smathers was no longer an employee when Multi-Tool made its decision to deny his

claims, the counterbalancing of its monetary self-interest by possible concerns about the

impact of its decision on morale and wage demands would thereby be lessened.”). As

P&G points out, though, our cases have never applied heightened scrutiny based on this

factor alone. Rather, our cases have applied heightened scrutiny to claims by former

employees only where some other structural conflict or procedural anomaly was present.

See Kosiba, 384 F.3d at 65; Smathers, 298 F.3d at 198. As a result, we doubt that this

factor alone justifies any movement away from traditional arbitrary and capricious

review.

       But despite our reservations, we need not decide whether the District Court’s slight

                                             6
heightening of the arbitrary and capricious standard was error. For our purposes, it is

sufficient to hold that no greater than a slight heightening was appropriate. We will

therefore assume arguendo that the District Court’s “slightly heightened” form of

arbitrary and capricious review applies.

                                             II.

       Applying that standard here, we agree with the District Court that the Trustees

acted within their discretion in terminating Maciejczak’s benefits. The Trustees accepted

Dr. Michael Wolk’s opinion that Maciejczak was not totally disabled, and rejected the

conflicting opinions of Maciejczak’s treating physician and chiropractor. Because “[a]

professional disagreement does not amount to an arbitrary refusal to credit” the plan

participant’s doctor, the Trustees’ decision was not arbitrary and capricious. See Stratton,

363 F.3d at 258; see also Black & Decker Disability Plan v. Nord, 538 U.S. 822 (2003).

Furthermore, the fact that P&G granted Maciejczak benefits in 1995 and terminated them

in 2001 does not render its decision arbitrary and capricious, even under a slightly

heightened version of that standard. The Long-Term Disability Plan specifically states

that participants must submit to subsequent examinations to reassess their eligibility.

Under the plan, then, the prior determination of eligibility does not foreclose the Trustees

from reassessing continued disability. As such, the Trustees’ decision to revisit and

reverse the earlier disability finding was not arbitrary and capricious. See Ellis v. Liberty

Life Assurance Co. of Boston, 394 F.3d 262, 273-74 (5th Cir. 2004) (ERISA plan

                                              7
administrator may reverse initial grant of disability benefits in light of later-discovered

evidence that recipient was not disabled at the time of the initial grant of benefits).

                                              III.

       For these reasons, we will affirm the District Court’s judgment.

                                               8