Gilbert v. The Greater St. Louis Automotive Association Incorporated

Filing 42

MEMORANDUM AND ORDER: IT IS HEREBY ORDERED that Plaintiff's motion for clarification regarding the scope of discovery is GRANTED to the extent set forth above. (Doc. No. 14.) Signed by District Judge Audrey G. Fleissig on 11/30/2012. (KSM)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION

PAMELA GILBERT,
Plaintiff,
vs.
THE GREATER ST. LOUIS
AUTOMOTIVE ASSOCIATION
INCORPORATED,
Defendant.

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Case No. 4:12CV00754 AGF

MEMORANDUM AND ORDER
Plaintiff Pamela Gilbert brings this action under the Employee Retirement Income
Security Act (”ERISA”) for additional amounts she claims are due to her as the spouse of her
deceased husband, a former employee of Defendant, under a Deferred Compensation
Agreement (“DCA”). Because the parties disagreed at the Rule 16 Conference whether
discovery outside the administrative record should be available, the Case Management Order
set a deadline for Plaintiff to request any discovery she believes she is entitled to, and the legal
and factual basis therefor. The matter is now before the Court on Plaintiff’s motion for a
determination as to whether discovery will be permitted, an issue she contends is contingent
upon the standard of review adopted by the Court.
BACKGROUND
On September 5, 1990, the decedent and Defendant entered into a DCA that provided
in relevant part that if he remained in the employ of Defendant until July 29, 1996, he would

receive annual deferred compensation payments in the amount of $36,000 for the remainder
of his life, and upon his death, his spouse would receive such payments for her lifetime. The
payments were to be reduced in any given year by the amount of distributions received by the
decedent or his beneficiary during such year from any qualified retirement plan maintained by
Defendant. (Doc. No. 1-1.) The DCA also provided as follows:
Determination of Benefits
Except as otherwise specifically provided in this Agreement,
[Defendant] shall make all determinations as to rights to benefits under this
Agreement. Subject to and in compliance with the specific procedures
contained in and the applicable regulations under the Employee Retirement
Income Security Act of 1974, as amended: (i) any decision by [Defendant]
denying a claim by Employee or Employee’s beneficiary for benefits under this
Agreement shall be stated in writing and delivered or mailed to Employee or
such beneficiary; (ii) each such notice shall set forth the specific reasons for the
denial, written to the best of the [Defendant’s] ability in a manner that may be
understood without legal or actuarial counsel; and (iii) [Defendant] shall afford
a reasonable opportunity to Employee or such beneficiary for full and fair
review of the decision denying such claim.
Administration
Subject to the provisions of the Section hereof entitled “Determination
of Benefits”, the Board of Directors of [Defendant] shall have full power and
right to delegate authority to interpret, construe and administer this agreement.
The interpretation and construction of this Agreement by the Board of Directors
of [Defendant], and any action taken thereunder, shall be binding and
conclusive upon all parties in interest. No member of the Board of Directors of
[Defendant] shall, in any event, be liable to any person for any action taken or
omitted to be taken in connection with the interpretation, construction or
administration of this Agreement, so long as such action or omission to act be
made in good faith.
Id.
According to Plaintiff, in 1996 Defendant began paying the decedent $23,796 a year in
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monthly installments. Upon his death on April 25, 2007, Defendant advised Plaintiff that she
was entitled to monthly payments of $1,983. In 2010, Defendant told Plaintiff that it wished
to “buy out” the payment obligation. She consulted with an attorney and was advised that the
DCA provided for payments greater than she had been receiving, as she had never received
any payments from a qualified pension plan maintained by Defendant. Upon inquiry,
Defendant’s counsel informed her that in 1996, when Defendant had maintained a qualified
pension plan, the decedent received a lump sum payment under it in lieu of future monthly
payments and that this was why her annual payments under the DCA were reduced and would
remain at the then current level going forward.
Plaintiff believed she was entitled to more than she had been and would continue to be
paid, and submitted her claim to Defendant’s Board of Directors. The Board of Directors
denied her claim, and her claim was denied again following an internal appeal. Plaintiff then
filed this action for past and future benefits due her under the DCA.
The parties agree that the DCA is a “top hat plan” under ERISA. A “top hat plan” is
one that is unfunded and is used by employers primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees. 29 U.S.C.
§§ 1051(2), 1081(a)(3), & 1101(a)(1). In support of her motion now before the Court,
Plaintiff asserts that de novo review of Defendant’s benefit determination applies in this
action, and that therefore discovery into matters outside the claim-process record–matters such
as Defendant’s possible bias or conflict of interest or procedural irregularities–is not
appropriate. Plaintiff argues that the DCA does not give Defendant discretionary authority to
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decide what benefits she should receive, because under the DCA, Defendant’s Board of
Directors is “required to apply the contract in an objective, nondiscretionary manner in
accordance with the law.” Plaintiff argues that if the Court were to apply an abuse of
discretion standard of review, giving Defendant’s benefits decision deference, she should be
allowed to conduct discovery into the extra-record matters noted above.
Defendant acknowledges that under Eighth Circuit law, the standard of review in a top
hat plan case is de novo, but asserts that where the plan confers discretionary authority on the
plan administrator–as in the instant case–the Court’s review is limited to a determination of
whether the plan’s decision was “reasonable,” and that this
determination is identical to the abuse of discretion standard in a case involving a typical
ERISA benefit plan that vests the plan administrator with discretion to interpret the plan.
Defendant argues that, nevertheless, extra-record discovery is not allowed because Defendant
owed no fiduciary duty to Plaintiff in interpreting the top hat plan. Defendant also notes that
Plaintiff has failed to identify any specific information she might seek through discovery, and
failed to establish good cause to permit discovery into the broad areas she mentioned.
DISCUSSION
Here, despite Plaintiff’s argument regarding discretionary authority, it is clear that the
DCA gave Defendant, as the plan’s administrator, discretion to interpret the agreement. In
general, where an ERISA plan grants the administrator discretionary authority to determine
eligibility for benefits, trust principles make an abuse of discretion standard of review
appropriate. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). Otherwise, a
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benefits decision is reviewed de novo. Hillstrom v. Kenefick, 484 F.3d 519, 524 (8th Cir.
2007).
However, “‘Top Hat’ plans are unique animals under ERISA’s provisions.” Fields v.
Thompson Printing Co., 363 F.3d 259, 274 (3d Cir. 2004) (citation omitted). These plans are
exempt from the participation, vesting, funding, and fiduciary provisions of ERISA.
Accordingly, in Craig v. Pillsbury Non-Qualified Pension Plan, 458 F.3d 748 (8th Cir. 2006),
the Eighth Circuit held that de novo review applies to benefits determinations under a top hat
plan, even though the plan gives its administrator interpretive discretion. Id. at 752; see also
Goldstein v. Johnson & Johnson, 251 F.3d 433, 441-44 (3d Cir. 2001).1
The Eighth Circuit explained that top hat plans are treated as “unilateral contracts” and
are reviewed in accordance with ordinary contract principles. Craig, 458 F.3d at 752.
Ordinary contract principles require that, where one party is granted discretion under the terms
of the contract, that discretion must be exercised in good faith–a requirement that includes the
duty to exercise the discretion reasonably; thus de novo review of a benefits determination
under a top hat plan ultimately requires a determination of whether the plan’s decision was
reasonable. Craig, 458 F.3d at 752; Goldstein, 251 F.3d at 444 (“As with any other contract
term, courts retain the authority to conduct a de novo review as to whether a party has
complied with its good-faith obligations.”).

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At least one other circuit has held that even top hat plans that grant the
administrator discretionary interpretative authority are subject to an abuse of discretion
standard. See Comrie v. IPSCO, Inc., 636 F.3d 839, 842 (7th Cir. 2011) (applying
Firestone Tire and rejecting Goldstein’s analysis).
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Craig was decided before the United States Supreme Court decision in Metropolitan
Life Insurance Co. v. Glenn, 554 U.S. 105 (2008). In Glenn, the Court held that an ERISA
plan administrator’s dual role of both evaluating and paying benefits claims creates a conflict
of interest that should be weighed as a factor in determining whether there was an abuse of
discretion, when that standard was appropriate. Id. at 112-14. After Glenn, the Eighth Circuit
decided Bender v. XCel Energy, Inc., 507 F.3d 1161 (8th Cir. 2007), which reaffirmed that
Craig applies to top hat plans that give the plan administrator discretionary authority to
interpret the plan. Id. at 1167. The Eighth Circuit again noted that review was de novo, but
that the review was “for reasonableness, a deferential standard.” Id.2
In sum, the Court concludes that de novo review for reasonableness, as set forth in
Craig and Bender, will be applied in the present case. The Court is not prepared to say that
this precludes all extra-record discovery. It is conceivable that discovery may be appropriate
to show that Defendant breached the implied covenant of good faith to exercise its discretion
in a reasonable manner. Plaintiff would have to make a strong showing that particular
discovery outside the administrative record was warranted. See Ferrari v. Teachers Ins. &
Annuity Ass’n, 278 F.3d 801, 807 (8th Cir. 2002) (stating that even under de novo review, the
introduction of documentation not in the administrative record is discouraged unless good
cause is shown). Plaintiff has not yet made such a showing.

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The Seventh Circuit in Comrie, 636 F.3d at 842, described this an “an
intermediate standard.”
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CONCLUSION
Accordingly,
IT IS HEREBY ORDERED that Plaintiff’s motion for clarification regarding the
scope of discovery is GRANTED to the extent set forth above. (Doc. No. 14.)

AUDREY G. FLEISSIG
UNITED STATES DISTRICT JUDGE
Dated this 30th day of November, 2012.

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