Gill et al v. Bausch & Lomb Supplemental Retirement Income Plan I et al
Filing
74
-CLERK TO FOLLOW UP- DECISION AND ORDER denying Defendants' 55 Motion for Summary Judgment and granting Plaintiffs' 56 Motion for Summary Judgment consistent with details in this Decision and Order. Signed by Hon. Michael A. Telesca on 3/3/14. (JMC)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
DANIEL E. GILL, THOMAS C.
McDERMOTT, and JAY T. HOLMES,
DECISION AND ORDER
No. 6:09-CV-6043(MAT)
Plaintiffs,
-vsBAUSCH & LOMB SUPPLEMENTAL
RETIREMENT INCOME PLAN I, BAUSCH &
LOMB INCORPORATED, and COMPENSATION
COMMITTEE OF THE BAUSCH & LOMB
BOARD OF DIRECTORS,
Defendants.
I.
Introduction
Daniel E. Gill (“Gill”), Thomas C. McDermott (“McDermott”),
and
Jay
T.
“Plaintiffs”)
Holmes
are
(“Holmes”)
retired
Bausch
(hereinafter,
&
Lomb
collectively,
Incorporated
(“B&L”)
executives and are the sole participants in the Bausch & Lomb
Supplemental Retirement Income Plan I (“the Plan” or “SERP I”).
Represented by counsel, Plaintiffs instituted this action pursuant
to the Employee Retirement Income Security Act of 1974, as amended,
29 U.S.C. § 1001, et seq. (“ERISA”), challenging Defendants’
termination of their monthly benefits pursuant to the Change of
Control Provision of SERP I and calculation and distribution of
their supplemental retirement benefits as lump sums. Plaintiffs and
Defendants have filed competing motions for summary judgment, which
presently are pending before this Court.
II.
Background
A.
The Plan Document1
SERP I is an executive deferred compensation plan enacted to
provide
supplemental
retirement
benefits
to
its
vested
Participants: Gill, McDermott, and Holmes. Plaintiffs are the only
individuals named in the Plan, and their rights vested before the
effective date of the current version of SERP I, restated on
December 18, 1990. The Plan defines the terms “Participant” and
“Retired Participant” as follows: “Participant means an employee of
the Company who has been selected to participate in the Plan
pursuant to Section 4.” Plan, § 2(f). “Retired Participant means a
former Participant who is receiving benefits under this Plan.” Id.,
§ 2(h). All three individual plaintiffs were retired and receiving
benefits under SERP I prior to the dates on which the relevant
decisions were made.
The Plan states that it “shall be administered by the Vice
President of Human Resources of [B&L], or by such other employees
as the Committee may from time to time designate.” Plan, § 3.
“Committee” is defined as the “Committee on Management of the Board
of Directors.” Id., § 2(a). The Plan provides that, subject to
provisions not at issue here, “the Committee shall have authority
1
The Plan is attached as Exhibit (“Ex.”) A to the Affidavit of Harold A.
Kurland, Esq. (“Kurland Aff.”) and Ex. 3 to the Affidavit of Nicole Eichberger
(“Eichberger Aff.”). Exhibits referred to by letter are attached to the Kurland
Aff.; exhibits referred to by number are attached to the Eichberger Aff.
-2-
and
discretion
to
.
.
.
interpret
the
Plan,
and
make
all
determinations deemed necessary or desirable for the administration
of the Plan.” Id., § 3.
The Plan’s Change of Control (“COC”) provision states in
relevant part as follows:
Upon a Change of Control (as defined below), each
Participant shall be fully vested in the benefit set
forth in section 5 hereof . . . . [S]uch benefit
(assuming commencement at age 55 or such greater age as
is then attained by the Participant) shall be converted
to a cash lump sum and paid within 15 days following the
Change of Control utilizing for this purpose the same
actuarial assumptions as are utilized in the Bausch &
Lomb Retirement Benefits Plan. . . . The Plan and its
associated trusts shall continue in effect and survive
any Change of Control and any successor to the Company
shall assume the obligations of the Company under the
Plan.
Ex. A, BL-AR 002065.
B.
In
The Merger and the Decision to Terminate Benefits
May
outstanding
2007,
B&L
shares
of
announced
common
its
stock
agreement
to
Warburg
to
sell
its
Pincus,
LLC
(“Warburg”), a global private equity firm. In preparation for the
anticipated shareholder approval, B&L Human Resources personnel,
including Vice President of Compensation and Benefits Laurie Zaucha
(“Zaucha”)
and
Senior
Benefits
Analyst
Christopher
Reigle
(“Reigle”), analyzed B&L’s various benefit plans to determine
whether they contained COC provisions that would be triggered by a
shareholder vote approving the merger. SERP I was identified as one
of the plans containing such a COC provision. Reigle discussed the
-3-
COC provisions in SERP I and other benefit plans issued by B&L with
Todd
E.
Weber
(“Mercer”),
(“Weber”)
of
specifically,
Mercer
the
Human
issue
of
Resource
Consulting
whether
inactive
Participants would receive lump sumps following a COC. See Ex. K,
BL-LIT 000865-868 (Letter from Weber to Reigle; cc: to Zaucha).
Weber noted that
the purpose of a change in control provision is to ensure
continued employment and objectivity of senior executives
prior to a potential change in control, notwithstanding
any risks or uncertainties created by the possible change
in control. This is done by paying benefits in a lump sum
upon a change in control–benefits that would otherwise be
payable only if the executives terminated employment. .
. .
Ex. K, BL-LIT 000865. In Weber’s opinion, “[s]ince the change in
control provision specifically references ‘Participants’, and not
‘Retired Participants’, it appears the three retires [sic] would
not receive lump sum distributions upon a change in control.” Id.,
BL-LIT 000866. Weber observed that even “if it is determined that
the change in control provisions do not permit, or require lump sum
payments to both active and inactive participants, [B&L] may still
be able to terminate the plans based on the plan termination
provisions.” Id., BL-LIT 000867. Weber concluded by “strongly
recommend[ing]” that B&L discuss the COC provisions with its legal
counsel before proceeding with any lump sum distributions. Id.
Zaucha and Reigle sought and received additional input on the
COC
provision
from
Nadir
Minocher
(“Minocher”)
at
Westport
Strategies (“Westport”). See Ex. K, BL-LIT 001650-51 (Email from
-4-
Minocher to Susan Miller; cc: to Reigle and Zaucha). Minocher
opined that SERP I is “not an asset of B&L[;] it is beneficially
owned by the executives as beneficiaries. A change of control at
B&L should not have any effect on [SERP I]. . . . The design of the
trust assures participants are fully protected in the event of any
change at B&L.” Id., 001650. Reigle followed up with Minocher on
August 17, 2007, informing him that no decision had been made yet
on the COC provision in SERP I. Reigle noted, “We want to make sure
we are covering all ends before that decision is made. I think in
the end everyone would like these SERP plans to go away, it’s just
doing it the correct way and covering all options.” Ex. L, BL-LIT
000801 (Email from Reigle to Minocher).
On September 19, 2007, Zaucha wrote individually to Plaintiffs
“to notify [them] that the change of control provisions under . .
. [SERP I] will be triggered if the Company’s shareholders approve
the [Warburg] merger” and that “[i]n the event of a change of
control, [their] SERP I benefits will be converted to a cash lump
sum and paid to [them] within 15 days of the shareholder vote.” Ex.
M, BL-LIT 000143 (Letter from Zaucha to Gill). Gill’s financial
planner Patrick D. Martin (“Martin”) sent an email to Zaucha that
same day, stating that he would “discuss the proposal with [Gill]”
at their upcoming meeting. Ex. R, BL-LIT 001679 (Emails from Martin
to
Zaucha).
Zaucha
responded
“to
clarify
that
this
isn’t
a
proposal”, because “[t]he plan requires a lump-sum payout upon a
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change in control.” Id. Martin stated that he did “not see things
that clearly under the Plan document regarding[,] among other
things[,] the computation of the lump sum payout.” Id. Zaucha
replied that she would be “happy to meet with [Martin] regarding
the differences in how [they] are interpreting the plan.” Id.
Shareholders voted to approve the Warburg merger on September
21, 2007, and on September 24, 2007, Efrain Rivera, B&L Senior Vice
President and Chief Financial Officer, directed Wells Fargo Bank,
N.A., the SERP I trustee, to discontinue all monthly benefits
payments under SERP I. Ex. N, BL-LIT 000894. On September 27, 2007,
Zaucha wrote to Martin indicating that B&L still was “consulting
with several actuaries and an additional law firm” regarding the
amount of the lump-sum distribution to be paid to Gill and the
other affected individuals. Ex. R, BL-LIT 001726. The lump-sum
benefit
amounts
subsequently
were
submitted
for
payment
to
Plaintiffs on October 5, 2007. Ex. P, BL-LIT 000914.
Plaintiffs retained counsel, who wrote to Robert B. Stiles,
Esq., B&L Senior Vice President and General Counsel on October 5,
2007, noting
insufficient,
their
by
concerns
substantial
that
“the lump
amounts,
to
sum
payments
achieve
the
are
plan
requirement” and requested a “process . . . for working through the
numbers and attempting to stipulate to appropriate payments.”
Ex. S.
-6-
Plaintiffs further contended that the Plan explicitly provided
for the trusts to survive any change in control of B&L. B&L
responded that it was reviewing their claims and would contact them
“to set up a process for providing information.” On November 1,
2007, B&L advised Plaintiffs that in order to challenge the benefit
payments, they were required to file a claim with the Board’s
Committee on Management. B&L further advised that it intended to
establish a new Board of Directors, which would appoint a new
committee to assume the responsibilities of the Committee on
Management. At the time of this communication, no “Committee on
Management” or ERISA-compliant claim review procedure in fact
existed.
On November 21, 2007, the Board appointed three individuals to
serve
as
the
responsibility
“Compensation
for
all
Committee”
determinations
and
vested
concerning
it
SERP
with
I.
On
November 28, 2007, Plaintiffs wrote to the Board’s “Committee on
Management or Successor Committee” to contest the adequacy of the
lump sum payments and to request that the Committee remedy the
deficiency. On January 2, 2008, B&L’s current Chairman and Chief
Executive Officer advised Holmes that B&L and unnamed “advisors”
had reviewed the 2007 decision and had referred the matter to the
newly constituted Compensation Committee. On January 8, 2008, B&L
sent a Company Position Statement in Response to SERP I Claims to
the members of the Compensation Committee. Ex. T, BL-AR 000009. On
-7-
January 15, 2008, Plaintiffs’ counsel expanded the bases for
Plaintiffs’ claims to include, inter alia, an assertion that “the
Plan’s change in control provisions do not apply to [Plaintiffs],
because [Plaintiffs] had retired prior to the 2007 acquisition of
the Company and, under the terms of the Plan, were therefore not
subject to the lump sum cash-out provisions of the Plan that
operate in connection with a change in control[.]” Ex. U, B&L/R&G
000079.
Sometime in February 2008, Jonathan Zorn, Esq. of Ropes & Gray
LLC, the
Compensation
Committee’s attorneys,
sent
Plaintiffs’
attorneys the procedures established under the Plan, pursuant to
Section 503 of ERISA, for consideration of Plaintiffs’ claims under
SERP I. See Ex. U, B&L/R&G 000047.
B&L, through its counsel, Proskauer Rose, actively advocated
against Plaintiffs during the claims review process and were
permitted to file submissions with the Compensation Committee. On
April 14, 2008, plaintiffs were informed that their claims for
benefits had been denied. The letter was signed by Zorn, counsel
for the Compensation Committee, who stated that he was acting on
behalf of the Plan Administrator, although the letter did not
expressly identify the Administrator. The Compensation Committee
subsequently denied Plaintiffs’ appeal on December 11, 2008.
-8-
C.
The Instant Action
Plaintiffs filed the present lawsuit on January 29, 2009,
asserting
two
claims
under
ERISA:
(1)
their
benefits
were
terminated and wrongfully reduced under 29 U.S.C. § 1132(a)(1)(B);
and (2) Defendants owe them additional information and documents
under 29 U.S.C. § 1132(c)(1)(B). The second claim was dismissed by
the Court (Siragusa, D.J.). See Dkt #24 at 10. The first claim,
which remains pending, asserts that (1) the lump sum payments were
less than the present value of the benefits to which Plaintiffs
were entitled, and (2) the right-of-reversion created a conflict of
interest which actually influenced Defendants’ determination of
Plaintiffs claims.
Extensive discovery proceedings ensued. See, e.g., Gill v.
Bausch & Lomb Supplemental Retirement Income Plan I, 2011 WL
2413411 (W.D.N.Y. June 10, 2011). Plaintiffs and Defendants both
filed competing motions for summary judgment on April 16, 2012.
Oral argument was heard by the Court (Siragusa, D.J.) on July 19,
2012, and the matter subsequently was referred to mediation, which
was unsuccessful. The matter was transferred to District Judge
Frank P. Geraci, Jr. on January 9, 2013, and then re-transferred to
District Judge Charles J. Siragusa on March 21, 2013. The matter
was transferred to the undersigned on February 18, 2014.
-9-
For the reasons set forth below, Plaintiffs’ motion for
summary judgment (Dkt #56) is granted, and Defendants’ motion for
summary judgment (Dkt #55) is denied.
III. General Legal Principles
A.
Summary Judgment Standard
A party is entitled to summary judgment “if the movant shows
that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” FED. R. CIV. P.
56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247
(1986). The movant bears the burden of demonstrating the absence of
any genuine issue of material fact. Celotex v. Catrett Corp., 477
U.S. 317, 323 (1986). Once the movant has carried that burden, the
non-movant “must do more than simply show that there is some
metaphysical doubt as to the material facts”, and instead “must
come forward with specific facts showing that there is a genuine
issue for
trial.”
Caldarola
v.
Calabrese,
298
F.3d
156, 160
(2d Cir. 2002) (internal quotations and citation omitted). Summary
judgment is not defeated based on conclusory allegations or mere
speculation. Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir. 1998).
When evaluating a motion for summary judgment, the court must
assess the evidence in the light most favorable to the non-movant
and must draw all reasonable inferences in that party’s favor.
Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S.
574, 587 (1986).
-10-
B.
Breach of Fiduciary Duty Claims under ERISA
ERISA empowers a “participant or beneficiary” to bring a civil
action “to recover benefits due to him under the terms of his plan,
to enforce his rights under the terms of the plan, or to clarify
his rights to future benefits under the terms of the plan.” 29
U.S.C. § 1132(a)(1). “[A] denial of benefits challenged under [29
U.S.C.] § 1132(a)(1)(B) is to be reviewed [by a district court]
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 Co. v. Bruch, 489 U.S. 101, 115 (1989);
accord, e.g., Conkright v. Frommert, 559 U.S. 506, 512 (2010).
Where the plan has conferred discretion upon the administrator, a
reviewing court “will not disturb the administrator’s ultimate
conclusion unless it is arbitrary and capricious.” Pagan v. NYNEX
Pension Plan, 52 F.3d 438, 441 (2d Cir. 1995); accord Tocker v.
Philip Morris Cos., Inc., 470 F.3d 481, 487 (2d Cir. 2006) (“[I]t
is now settled that if a plan administrator clearly has been
granted discretionary authority in the plan documents, a court will
defer to the administrator’s decision. The grant of discretionary
authority thus narrows the range of judicial oversight and shields
a plan administrator’s decision from a more searching and broader
de novo review.”) (internal citation omitted). Thus, a party’s
-11-
fiduciary status is critical to determining which standard of
review applies to the denial of benefits.
Section 1002(21)(A) of ERISA defines a fiduciary in several
ways. In relevant part, that statute provides that a “person is a
fiduciary with respect to a plan,” and therefore subject to ERISA
fiduciary duties, “to the extent” that he or she “exercises any
authority or control respecting management or disposition of [plan]
assets,” or, “has any discretionary authority or discretionary
responsibility in the administration of such plan.” 29 U.S.C.
§ 1002(21)(A)(i) and (iii). ERISA thus “defines ‘fiduciary’ not in
terms of formal trusteeship, but in functional terms of control and
authority over the plan . . . .” Mertens v. Hewitt Assocs., 508
U.S. 248, 262 (1993) (citation omitted). The Second Circuit has
explained that “Congress intended ERISA’s definition of fiduciary
‘to be broadly construed.’” LoPresti v. Terwilliger, 126 F.3d 34,
40 (2d Cir. 1997) (quoting Blatt v. Marshall & Lassman, 812 F.2d
810, 812 (2d Cir. 1987)). However, “even [this] broad construction
has limits.” Bell v. Pfizer, 626 F.3d 66, 74 (2d Cir. 2010)
(quotation omitted; brackets in Bell). Falling outside the ambit of
ERISA are those individuals “who perform ministerial tasks with
respect to the plan, such as the application of rules determining
eligibility for participating, preparation of plan communication
materials, the calculation of benefits, and the maintenance of
employee
records.”
Bell,
626
F.3d
-12-
at
74
(citing
29
C.F.R.
§ 2509.75-8 (1995); Blatt, 812 F.2d at 812). “Because employers
often act as both plan administrators and employers, ERISA permits
employers to ‘wear two hats,’ and not all actions by an employer
fall under its fiduciary role.” Bell, 626 F.3d at 74 (citation
omitted).
C.
Standards of Review Under ERISA
While ERISA places the burden upon Plaintiffs to prove an
entitlement to benefits under the Plan, Horton v. Reliance Standard
Life Ins. Co., 141 F.3d 1038, 1040 (11th Cir. 1998) (citation
omitted), Defendants bear the burden of proving that the arbitrary
and capricious standard of review applies, Fay v. Oxford Health
Plan, 287 F.3d 96, 104 (2d Cir. 2002) (citation omitted). The
rationale behind this rule is that “the party claiming deferential
review should prove the predicate that justifies it.” Sharkey v.
Ultramar Energy Ltd., 70 F.3d 226, 229 (2d Cir. 1995). Furthermore,
“whether an insurance plan grants discretionary authority to a plan
administrator” presents a question of law. Tiemeyer v. Community
Mut. Ins. Co., 8 F.3d 1094, 1099 (6th Cir. 1993).
Defendants are entitled to the deferential “arbitrary and
capricious” standard of review only if an authorized party made the
challenged benefits determination; if an unauthorized party made
the benefits determination, the denial is reviewed under the
de novo standard. See, e.g.,
Sharkey, 70 F.3d at 299 (holding that
the de novo standard is “the standard of review applicable to a
-13-
decision to revoke benefits when that decision is made by a body
other than the one authorized by the procedures set forth in the
benefits plan); accord Sanford v. Harvard Indus., Inc., 262 F.3d
590, 597 (6th Cir. 2001); Rodriguez–Abreu v. Chase Manhattan Bank,
986 F.2d 580, 584 (1st Cir. 1993) (“Because the relevant plan
documents
did
not
grant
discretionary
authority
to
the
Plan
Administrator and the Named Fiduciaries did not expressly delegate
their discretionary authority to the Plan Administrator [who made
the adverse benefits decision], we find that the district court
correctly employed the de novo standard of review.”); Baker v. Big
Star Div. of the Grand Union Co., 893 F.2d 288, 291 (11th Cir.
1989); Candeub v. Blue Cross Blue Shield of Michigan, 577 F.
Supp.2d 918, 926 (W.D. Mich. 2006) (citing, inter alia, Rubio v.
Chock Full O’Nuts Corp., 254 F. Supp.2d 413, 423-25 (S.D.N.Y.
2003)).
IV.
Discussion
A.
The 2007 Decision by B&L Employees
1.
Overview of the Parties’ Arguments
Plaintiffs
assert
that
the
2007
decision
by
B&L
Human
Resources personnel, set forth in, e.g., the September 19, 2007,
letter sent by Zaucha to Plaintiffs, is the pertinent decision for
this Court to review. Plaintiffs argue that B&L Human Resources
personnel
acted
as
unauthorized
fiduciaries
by
performing
discretionary functions in interpreting the Plan document and
-14-
terminating Plaintiffs’ benefits, and that a de novo standard of
review therefore should apply. Defendants counter that the actions
by B&L Human Resources personnel were purely ministerial functions
and permissible under the Plan. Defendants contend that the Zaucha
letter, for instance, is totally irrelevant because only the
Compensation Committee’s decision is “ripe for judicial review”.
According to Defendants, the Compensation Committee acted as a duly
authorized fiduciary, and therefore its 2008 decision must be
judged under the arbitrary and capricious standard.
As discussed further below, the Court finds that (1) the 2007
termination of benefits and lump-sum payments as set forth in,
e.g., the Zaucha letter of September 19, 2007, and Rivera letter of
October 5, 2007, was an “adverse benefits decision” within the
meaning of ERISA; (2) the decision was discretionary in nature and
was unauthorized because the B&L Human Resources employees involved
had
not
been
delegated
authority
to
act
as
fiduciaries
or
administrators; (3) B&L intended the 2007 decision to be the final
adverse benefits determination; and (4) it fails under a de novo
standard of review.
2.
Proper Characterization of the B&L Human Resources
Employees’ Actions
“[T]rust law does not require a fiduciary to delegate his
authority only to other fiduciaries. Rather, the trustee is at
liberty to delegate administrative tasks to ‘agents’ or ‘other
persons’ as is necessary to carry out the purposes of the trust.”
-15-
Geddes v. United Staffing Alliance Employee Medical Plan, 469 F.3d
919, 926 (10th Cir. 2006) (quotation and citations omitted)).
Pursuant to 29 U.S.C. § 1105, a plan administrator may delegate its
fiduciary duties to a third party if the plan provides a clear
process for such delegation.2
With regard to who or what entity was assigned discretionary
authority
under
the
Plan,
SERP
I
provides
that,
subject
to
provisions not at issue here, “the Committee shall have authority
and discretion to . . . determine the rights and benefits of
Participants under the Plan, . . . , interpret the Plan, and make
all
determinations
administration
of
deemed
the
necessary
Plan.”
Plan,
§
or
3
desirable
(emphasis
for
the
supplied).
“Committee” is defined as the “Committee on Management of the Board
of Directors.” Id., § 2(a). The Plan contains no delegation of
discretionary authority to anyone other than the Committee on
Management. See id., § 3.
The Plan states that it “shall be administered by the Vice
President of Human Resources of [B&L], or by such other employees
as the Committee may from time to time designate.” Plan, § 3
(emphasis supplied). The parties disagree as to the scope of the
aforementioned
delegation.
There
is
no
indication
that
the
2
Section 1105 of ERISA provides, in part, that “the instrument[s] under
which a plan is maintained may expressly provide for procedures . . . for named
fiduciaries to designate persons other than named fiduciaries to carry out
fiduciary responsibilities.” 29 U.S.C. § 1105.
-16-
Committee on Management ever delegated authority to administer the
Plan to “other employees” apart from the Vice President of Human
Resources.
Defendants
argue
that
“SERP
I
designated
multiple
persons or entities with authority to determine the rights and
benefits of SERP I participants, including but not limited to the
Vice President of Human Resources, whom Defendants assert acted as
the day-to-day administrator. However, the parties do not dispute
that there was no individual who held the position of “Vice
President of Human Resources.” Plaintiffs contend that Defendants’
characterization of SERP I, § 3 is inaccurate. The Court agrees
that by the plain terms of SERP I, the only entity permitted to
exercise discretionary authority was the Committee on Management.
In any event, there is no evidence that the Committee on Management
was involved in any respect with any of the decisions here at
issue.
Zaucha was not even identified by the Committee on Management
as an “other employee” who could “administer[ ]” the Plan. Neither
was Reigle. It is also clear that neither of these individuals were
delegated to possess discretionary authority under the Plan; as
discussed above, only the Committee on Management was imbued with
discretionary powers. Yet these two B&L employees were intimately
involved
with
the
decision
to
terminate
Plaintiffs’
monthly
benefits and issue lump-sum payouts. Defendants contend Zaucha,
-17-
Reigle, and other B&L employees did not act in contravention of the
Plan or ERISA because
[a]ll of the day-to-day administrative tasks performed by
Ms. Zaucha and her staff were ministerial in nature. The
H[uman] R[esources] employees recognized that SERP I
required lump sum payments within 15-days of the Change
in Control, they communicated with Plaintiffs about the
Change in Control, and then calculated the lump sums.
Dkt. #66, p. 7 of 15, n.3 (citing Dkt #55-2, ¶¶ 44-56) (emphases
supplied).
The
statute
does
not
describe
fiduciaries
administrators of the plan, or managers or advisers.
Herdrich,
530
U.S.
211,
226
(2000).
Rather,
it
simply
as
Pegram v.
defines
an
administrator, for example, “as a fiduciary only ‘to the extent’
that he acts in such a capacity in relation to a plan.” 29 U.S.C.
§ 1002(21)(A). Thus, “the threshold question is not whether the
actions of some person employed to provide services under a plan
adversely affected a plan beneficiary’s interest, but whether that
person was acting as a fiduciary (that is, was performing a
fiduciary function) when taking the action subject to complaint. .
. .” Pegram, 530 U.S. at 226. Whether an individual or entity is
acting as a “fiduciary” can only be defined by reference to the
functions they perform. See id.; see also See Weaver v. Prudential
Ins. Co. of Am., 3:10-cv-438, 2011 WL 4833574, at*9 (M.D. Tenn.
Oct. 12, 2011) (“[Human resources employee] did not act in a purely
ministerial role in counseling [plaintiff] regarding the impact of
her divorce on her eligibility for benefits under the plan. He
-18-
clearly under took a discretionary task—interpretation of the
plan’s terms—related to the plan’s management or administration.”)
(citing 29 U.S.C. § 1002(21)(A)).
Under 29 C.F.R. § 2509.75-8,
persons who “have no power to make any decisions as to plan policy,
interpretations, practices or procedures, but who perform [certain]
administrative functions for an employee benefit plan, within a
framework
of
policies,
interpretations,
rules,
practices
and
procedures made by other persons” are not fiduciaries. Zaucha and
Reigle
assiduously
avoided
using
the
words
“interpret”
or
“interpretation” in their deposition testimony when describing the
actions they took in regards to SERP I, but their actions speak
louder than their words:
•
Zaucha “reviewed” SERP I “to determine what actions would
be necessary . . . when the Change in Control would
happen. . . .” Zaucha Depo. at 30:19-24, Ex. Y.
•
Zaucha and Reigle sought advice from outside benefits
consultants Mercer and Minocher regarding whether the COC
provision applied to Plaintiffs. See Exs. J, K; Reigle
Depo. at 36:6-37:24, Ex. Y.
•
Reigle wrote to Minocher that “[n]o final decision has
been made as of yet” regarding the COC provision in SERP
I, and that “everyone would like these SERP plans to go
away, it’s just doing it the correct way and covering all
options.” Ex. L.
•
Zaucha and Reigle reviewed the consultants’ reports but
rejected their opinions that the COC provision did not
apply to Plaintiffs. See Reigle Depo. at 85:3-86:22, Ex.
Y. Zaucha sent a letter on September 19, 2007, advising
Plaintiffs that due to the COC, their SERP I benefits
would be converted to a cash lump sum and they would
receive no further benefits under SERP I. See Ex. M.
-19-
•
After sending plaintiff Gill’s financial advisor a letter
regarding the impending termination of Plan benefits,
Zaucha offered to meet with him regarding “the
differences in how we are interpreting the Plan.” Ex. R
(emphasis supplied).
•
Zaucha wrote to Gill’s financial advisor, “We are
consulting with several actuaries and an additional law
firm. I’ll contact you when we have concluded our
analysis.” Ex. R (emphasis supplied).
•
Zaucha sent a letter dated October 1, 2007, to Gill’s
financial advisor stating that the “lump sum payout
methodology has been reviewed internally, and has also
been reviewed with [B&L]’s regular outside benefits
counsel, with two actuarial firms, and with an external
non-qualified benefits expert, who all agree with the
calculation methodology. . . . [W]e have re-reviewed the
methodology and Plan interpretation with the third
parties referenced above, and we have also engaged
another outside benefits lawyer for a further assessment
of the matter.” Ex. R.
•
Rivera directed the Plan’s trustee to cease all monthly
payments to Plaintiffs and to make lump sum payments in
amounts calculated by B&L employees. See Ex. N.
The above chronology of events indicates that B&L Human Resources
personnel
exhaustively
discussed
and
debated
the
proper
interpretation of SERP I, both in-house and with a host of outside
benefits specialists, actuaries, and attorneys. Based upon their
“interpret[ation][,]” Plan, § 3, of key terms and provisions in the
Plan, B&L personnel “determine[d] the rights and benefits[,]” Plan,
§ 3, owed to Plaintiffs by terminating Plaintiffs’ monthly benefits
under the Plan and causing lump sum payments to be made to them.
That B&L personnel performed discretionary duties “seems to [this
Court] to be the common sense of the matter; and common sense often
-20-
makes good law.” Peak v. United States, 353 U.S. 43, 46 (1957)
(Douglas, J.).
For the foregoing reasons, the Court concludes as a matter of
law that Zaucha, Reigle, and the other B&L employees involved in
the
2007
termination
of
benefits
acted
as
unauthorized
Plan
fiduciaries by engaging in actions that were discretionary in
nature, most particularly, by interpreting what have become hotlydisputed Plan provisions and terms.
3.
Which Benefits Decision is
Review by this Court?
Subject
to
Judicial
Defendants contend that the 2007 decision by B&L employees,
and the employees’ fiduciary status at that time are irrelevant,
“[b]ecause it is only the [Compensation] Committee’s binding,
fiduciary decision that is ripe for review[.]” Dkt #66 at 6 of 15
(citing Funk v. CIGNA Group Ins., 648 F.3d 182 (3d Cir. 2011)).
Plaintiffs assert that the 2007 letters from Zaucha informing them
of the decision to issue lump-sum benefits payments were “final”
because
Zaucha,
in
email
correspondence
to
Gill’s
financial
advisor, stated that the decision was “not a proposal” in response
to the financial advisor’s requires to discuss the “proposed
payments”. According to Defendants, Plaintiffs’ argument “confuses
or
conflates
functions[,]”
ministerial
Dkt
#55-1
at
functions
15
of
with
24,
and
exhaustion requirement, Dkt #66 at 6-8 of 15.
-21-
ERISA’s
fiduciary
overlooks
ERISA’s
As
an
initial
matter,
the
Court
finds
that
contrary
to
Defendants’ contention, the 2007 decision by B&L employees was an
“adverse benefit determination” within the meaning of ERISA. Under
the statute, an “adverse benefit determination” is defined as “a
denial, reduction, or termination of, or a failure to provide or
make payment (in whole or in part) for, a benefit. . . .” 29 C.F.R.
§ 2560.503-1(m)(4). In Price v. Xerox Corp., 445 F.3d 1054, 1056
(8th Cir. 2006), the claimant sought to have the definition in
§ 2560.503-1(m)(4) apply to the decision on the first appeal, for
purposes of obtaining additional time to file a second appeal. The
Eighth Circuit noted that “[t]he definition [of an adverse benefit
determination is] unclear and, as the district court found, no case
law interprets this specific provision.” Id. However, that court
found, “language elsewhere in the regulations indicates that only
the initial denial of benefits”–not the decision on the first
appeal of that denial–is an “adverse benefit determination” for
purposes of ERISA. Id. The 2007 decision clearly operated to
“terminate” Plaintiffs’ benefits under SERP I.
Turning to the exhaustion issue, strictly speaking, ERISA
“does not even contain a statutory exhaustion requirement[.]” Paese
v. Hartford Life and Acc. Ins. Co., 449 F.3d 435, 445 (2d Cir.
2006). Rather, there is a “firmly established federal policy
favoring exhaustion of administrative remedies in ERISA cases.”
Kennedy v. Empire Blue Cross & Blue Shield, 989 F.2d 588, 594
-22-
(2d Cir. 1993) (internal quotation marks omitted); see also LaRue
v. DeWolff, Boberg & Assoc., Inc., 552 U.S. 248, 258-59 (2008)
(Roberts, C.J., concurring opn.) (discussing the “safeguard[ ]” of
the exhaustion requirement read into the statute by numerous
circuit courts of appeals). Defendants cite Funk, 648 F.3d 182, for
the proposition that “[a] plan administrator’s final, post-appeal
decision
should
be
the
focus
of
review.”
Id.
at
191
n.11.
According to the Third Circuit, “[t]o focus elsewhere would be
inconsistent with ERISA’s exhaustion requirement.” Id. (citing,
inter alia, LaRue, 552 U.S. at 258–59 (Roberts, C.J., concurring
opn.) (noting that claimants must “exhaust the administrative
remedies mandated by ERISA § 503, 29 U.S.C. § 1133, before filing
suit under § 502(a)(1)(B)”)). Although the Third Circuit described
as
“misplaced”
the
district
court’s
reliance
on
a
plan
administrator’s initial, rather than final, decision, it went on to
note that “a court may of course consider a plan administrator’s
pre-final decision as evidence of the decision-making process that
yielded the final decision, and it may be that questionable aspects
of or inconsistencies among those pre-final decisions will prove
significant in determining whether a plan administrator abused its
discretion.” 648 F.3d at 191 n.11 (citation omitted).
In Funk, the Third Circuit cited a number of ERISA procedural
rules to support its conclusion that the post-appeal decision
should
be
the
focus
of
judicial
-23-
review.
See
29
C.F.R.
§
2560.503–1(h)
(requiring
that
claimants
subject
to
adverse
benefit determinations be provided with a “reasonable opportunity”
to
appeal
that
adverse
decision);
29
C.F.R.
§ 2560.503–1(h)(2)(i)–(ii) (requiring that claimant be provided
appropriate notice and an opportunity to submit documentation and
evidence
§
supporting
his
2560.503–1(h)(2)(iv)
&
or
her
(3)(ii)
claim);
(requiring
29
that
C.F.R.
the
plan
administrator’s review must “take[ ] into account all [additional
information] . . . without regard to whether such information was
submitted or considered in the initial benefit determination,” “not
afford deference to the initial adverse benefit determination,” and
be “conducted by an appropriate named fiduciary of the plan who is
neither the individual who made the adverse benefit determination
that is the subject of the appeal, nor the subordinate of such
individual”)).
Here, however, these rules have been violated or Defendants
have argued that they do not apply. For instance, Defendants have
denied
that
B&L’s
2007
decision
was
an
“adverse
benefit
determination”, and there were no procedures in place at the time
of that decision affording Plaintiffs a “reasonable opportunity” to
appeal it. Likewise, Plaintiffs were not provided any notice of
their right to appeal at the time of the termination of benefits,
much less
the
reason
for
that
termination,
which
were
clear
violations of ERISA. Moreover, the body hearing the appeal of an
-24-
adverse benefit determination is required to consider additional
information
without
regard
to
whether
such
information
was
submitted or considered in the initial benefit determination. Here,
however, the Compensation Committee did not solicit or consider any
of the documentation produced in connection with B&L’s 2007 review.
Finally, Plaintiffs have argued that the appeal was not
conducted by a duly-authorized fiduciary. The fiduciary authorized
under the Plan–the Committee on Management–had no involvement
whatsoever
with
the
2007
decision
to
terminate
Plaintiffs’
benefits. Plaintiffs assert that the Compensation Committee has no
discretionary authority to interpret the Plan because “only the
Committee on Management [has] discretion” and “there is no evidence
that the Committee on Management . . . had any involvement in the
decisions at issue.” Dkt. #56-6, pp. 13-14 of 29. Defendants
concede that the “Committee on Management” had no involvement in
determining Plaintiffs’ claims but argue that this is irrelevant in
light of the B&L Board of Directors’ resolution, post-merger,
reconstituting the “Committee of Management” as the “Compensation
Committee” and authorizing the Compensation Committee to act as the
Plan’s fiduciary and to, inter alia, review Plaintiff’s claims for
benefits. Waltrip, a member of the B&L Board for more than two
decades,
testified
that,
before
the
COC,
the
Committee
on
Management and the Compensation Committee were “one and the same.”
Dkt. #55-13, Waltrip Depo., p. 11:6-7. After the COC, and during
-25-
the relevant time period when Plaintiffs asserted their benefit
claims,
the
reconstituted
B&L
Board
conferred
discretionary
authority with respect to SERP I on the “Compensation Committee.”
Dkt.
#55-14,
p.
5
of
6
(BL-LIT
000004)
(copy
of
B&L
Board
resolution produced to Plaintiffs). This resolution was issued in
furtherance of the authority vested in the Board under the Plan.
Dkt. #55-6, p. 24 of 87 (BL-AR 000023) (allowing “resolution of the
Board” to establish fiduciary powers of the “Committee”).
Even
assuming
that
the
Board
had
the
authority
to
re-
constitute the “Compensation Committee” and to confer upon it the
discretionary authority to act as the Plan fiduciary, it seems to
this Court to be another example of Defendants elevating form over
substance. It strikes the Court as anomalous that the entity which
Defendants urge should be the considered the Plan fiduciary was not
even in existence at the time Plaintiffs’ benefits were terminated
and their lump-sump payments issued. Instead, the Compensation
Committee was “re-constituted” about two months after the Warburg
acquisition and a month after Plaintiffs’ attorney challenged the
benefits termination by letter to B&L. Essentially, Defendants are
arguing that the subsequent review by the Compensation Committee
should act to “cure” the unauthorized decision-making by B&L
employees. However, as discussed further below, the Compensation
Committee’s subsequent review itself was seriously flawed. Two
wrongs do not make a right. See, e.g., Shelby County Healthcare
-26-
Corp. v. Majestic Star Casino, LLC, 06-2549, 2008 WL 82642, at *3-4
(W.D. Tenn. Mar. 20, 2008) (citing Sanford v. Harvard Ind., Inc.,
262 F.3d 590, 596 (6th Cir. 2001) (finding no clear error in
district court’s application of de novo standard to review benefit
determination where unauthorized party had already decided to
rescind claimant’s retirement benefits by the time entity with
discretionary authority reviewed the action, and the decision was
not made in compliance with plan procedures)).
B.
The 2008 Decision Cannot Survive Arbitrary and Capricious
Review
The Court believes that Plaintiffs have adequately shown that
“since there is no evidence that under [the benefit plan] the
administrator has the power to construe uncertain terms [i.e.,
terms of the trust] . . . , the proper standard of review is
de
novo.”
Firestone,
489
U.S.
at
111.
In
the
interests
of
efficiency, however, the Court shall assume that the Compensation
Committee’s 2008 decision is the focus of this Court’s review, and
that the arbitrary and capricious standard applies. As discussed
further below, the Court finds that the Compensation Committee’s
2008 decisions cannot withstand scrutiny under the arbitrary and
capricious standard due to the pervasive bad faith in dealing with
Plaintiffs, the flagrant procedural violations, and the evidence
that the structural conflict of interest actually biased the
Committee’s decision-making. A fortiori, neither the 2007 by B&L
-27-
employees nor the 2008 decision by the Compensation Committee can
survive review under the more stringent de novo standard.
1.
The Arbitrary and Capricious Standard
When applying the arbitrary and capricious standard, the
reviewing court may overturn a denial of benefits “only if it was
without reason, unsupported by substantial evidence or erroneous as
a matter of law[,]” Pulvers v. First UNUM Life Ins. Co., 210 F.3d
89, 92 (2d Cir. 2000) (quotation marks and citation omitted), or
there has been “a showing of bad faith or arbitrariness. Miles v.
New York State Teamsters Conference Pension & Ret. Fund Employee
Pension Ben. Plan, 698 F.2d 593, 601 (2d Cir. 1983) (citation
omitted); accord, e.g., Demirovic v. Building Service 32 B-J
Pension Fund, 467 F.3d 208, 212 (2d Cir. 2006). Where both the
fiduciary
and
the
plan
participant
“offer
rational,
though
conflicting, interpretations of plan provisions, the [fiduciary’s]
interpretation must be allowed to control.” Miles, 698 F.2d at 601
(citation omitted). However, “[w]here the trustees of a plan impose
a standard not required by the plan’s provisions, or interpret the
plan in a manner inconsistent with its plain words, or by their
interpretation render some provisions of the plan superfluous,
their actions may well be found to be arbitrary and capricious.”
Id. (citation omitted).
In a situation where “a benefit plan gives discretion to an
administrator or fiduciary who is operating under a conflict of
-28-
interest,
that
conflict
must
be
weighed
as
a
‘facto[r]
in
determining whether there is an abuse of discretion.’” Firestone,
489 U.S. at 115 (internal citation omitted). A conflict of interest
thus does not preclude the application of the “arbitrary and
capricious standard”. Glenn, 554 U.S. at 116-17 (holding that a
conflict is merely a factor to consider under deferential review);
Frommert, 130 S. Ct. at 1647 (“[A] systemic conflict of interest
does not strip a plan administrator of deference.”). Rather, “[t]he
weight
properly
proportion
to
accorded
the
a
likelihood
Glenn
that
conflict
the
varies
conflict
in
direct
affected
the
benefits decision.” Durakovic v. Building Serv. 32 BJ Pension Fund,
609 F.3d 133, 139 (2d Cir. 2010). Claimants are not required to
show that the conflict of interest actually affected the decision
to terminate benefits. Cf. Glenn, 554 U.S. at 120 (Roberts, C.J.,
concurring opn.) (disagreeing with majority as to “how . . . a
conflict should matter” and stating that should be considered on
review “only where there is evidence that the benefits denial was
motivated or affected by the administrator’s conflict”) (emphasis
in
original).
The
reason
is
simple:
“‘[S]moking
gun;
direct
evidence of purposeful bias” in ERISA cases–as in other cases–is
“rare.” Pinto v. Reliance Standard Life Ins. Co., 214 F.3d 377, 379
(3d Cir. 2000), overruled on other grounds, Howley v. Mellon
Financial Corp., 625 F.3d 788 (3d Cir. 2010). Thus, where the
circumstances suggest a “higher likelihood” that the conflict of
-29-
interest affected the benefits decision, the court should give the
conflict greater weight and the decision closer scrutiny. See Marrs
v.
Motorola,
Inc.,
577
F.3d
783,
789
(7th
Cir.
2009)
(“The
likelihood that the conflict of interest influenced the decision is
therefore the decisive consideration, as seems implicit in the
[Glenn] majority opinion’s reference to indications of ‘procedural
unreasonableness’ in the plan administrator’s handling of the claim
in issue, 128 S. Ct. at 2352, and its suggestion that efforts by a
administrator to minimize a conflict of interest would weigh in
favor of upholding his decision. Id. at 2531.”).
a. Structural Conflict of Interest
Plaintiffs argue that Defendants operated under a conflict of
interest stemming from the fact that there would be reversion of
excess Plan funds to B&L/Warburg following the distribution of
lump-sum benefits to them.
Defendants characterize B&L/Warburg’s
right of reversion to millions of dollars as an “alleged conflict”
and argue that it was not a factor in the Compensation Committee’s
denial of Plaintiffs’ claim for benefits.
The secular trust document established pursuant to SERP I, as
well as ERISA itself, explicitly provide for the recapture of
surplus assets by the employer after a pension plan has been
terminated and accrued benefits have been allocated. See ERISA
§ 4044, 29 U.S.C. § 1344; Secular Trust, § 7.2 (“If excess assets
remain after all benefits and administrative expenses have been
-30-
paid, the excess shall be returned to the Company. . . .”).3 In
Glenn, the Supreme Court held that a conflict emerges where, as
here, “it is the employer that both funds the plan and evaluates
the claims” because “[i]n such a circumstance, ‘every dollar
provided in benefits is a dollar spent by . . . the employer; and
every dollar saved . . . is a dollar in [the employer’s] pocket.’”
554 U.S. at 112 (internal citation omitted); see also Miller v.
American Airlines, Inc., 632 F.3d 837, 847 (3d Cir. 2011) (“Even in
an
actuarially
grounded
plan
[such
as
SERP
I],
the
employer
provides the monetary contribution and any money saved reduces the
employer’s projected benefit obligation.”).
The
Court
agrees
with
Plaintiffs
that
the
Compensation
Committee and B&L clearly operated under a structural conflict of
interest in this case. Furthermore, there is ample circumstantial
evidence leading to the conclusion that the structural conflict of
interest biased the decision-makers against Plaintiffs’ claims, and
that the benefits denial actually “was motivated or affected by the
. . . conflict.” Glenn, 554 U.S. at 120 (Roberts, C.J., concurring
opn.). As Plaintiffs point out, despite receiving clearly-stated
opinions of two independent benefit consultants that the COC
provision did not apply to Plaintiffs, B&L senior benefits analyst
Reigle wrote to Westport (one of the consultants) that, “[i]n the
end, everyone [at B&L] would like to see these SERP plans go away.”
3
The Secular Trust is attached as Ex. H to the Kurland Aff.
-31-
Ex. L. In Zaucha’s letter terminating Plaintiffs’ benefits, she
gave no reason for the decision.
Defendants also point to the deposition testimony of the three
Compensation Committee members insisting that the conflict of
interest in general, and the reversion right in particular, played
no part in their deliberations. The Court accords this post facto,
self-serving testimony little weight. More telling is Mackesy’s
email to the Compensation Committee’s attorney at Ropes & Gray
stating, “We should just deny there [sic] claim and get on with
it.” All three members of the Compensation Committee stood to gain
directly
from
construing
the
COC
to
require
termination
of
Plaintiffs’ rights under the plan. As general partners in Warburg
or Welsh Carson, the private equity firms that bought B&L, Mackesy,
Carney, and Weatherman were not only directors of B&L, but owners,
either directly or indirectly.
In
addition,
B&L,
though
its
outside
benefits
counsel,
Proskauer Rose, affirmatively advocated against Plaintiffs before
the Compensation Committee in 2008. Through counsel, B&L drafted
multiple submissions advocating in favor of affirming the 2007
decision to issue lump-sum payments and terminate Plaintiffs’
rights under SERP I. See Schultz v. Stoner, No. 00 Civ. 0439, 2009
WL 455163, at *11 (S.D.N.Y. Feb. 24, 2009) (“[The employer]’s
selection of persons not versed in employee benefits, its failure
to provide them with advice regarding their fiduciary obligations,
-32-
and its strongly argumentative submission in opposition to the
benefit claim suggest that the claims determination structure
employed upon remand was one designed to favor the company’s
perspective rather than that of those claiming rights as plan
participants or beneficiaries.”).
As Plaintiffs note, the claims procedure established by the
Compensation Committee’s attorneys in February 2008 did not provide
for B&L’s participation in the administrative review process. See
Dep. Ex. P-8, Ex. U. Indeed, as noted elsewhere, these claims
procedures do not provide a mechanism for challenging an adverse
benefits determination by B&L; rather, the procedures only provide
for review of a “Claim”, which is defined solely as a “request,
demand or other claim for a Benefit brought by a Claimant or a
Claimant’s Representative.” SERP I Section 503 Procedures § 1, Dep.
Ex. P-83, Ex. U. The procedures therefore do not, and did not,
provide a means for challenging an adverse benefit determination
made, in the first instance, by B&L. This also violates ERISA. See
29 C.F.R. § 2560.503-1(b), (m)(4) (requiring plans to establish
claims procedures for appeal of “adverse benefit determinations”,4
which include any “reduction, or termination of, or a failure to
provide or make payment (in whole or in part) for, a benefit. . .
.”).
4
As discussed above, the 2007 B&L decision plainly constitutes an “adverse
benefit determination.”
-33-
The Supreme Court observed in Glenn, 554 U.S. at 118, that a
conflict of interest should be weighted more heavily where the
fiduciary “[takes] ‘seemingly inconsistent positions [that are]
both financially advantageous.” Id. Defendants did just that with
regard to the final sentence of Section 13, which provides that the
“Plan and its associated trusts shall continue in effect and
survive any Change of Control” and that “any successor to the
Company shall assume the obligations of the Company under the
Plan.” Plan, § 13. Defendants argued that this continuity provision
applies only to current employees of B&L, i.e., Participants, and
does not apply to Retired Participants. Thus, Defendants argued
that with one section of the Plan, there were two different classes
of individuals covered: “Participants” was required to include
“Retired Participants” in connection with the COC provision, in
order for Defendants to be able to terminate Plaintiffs’ benefits.
However, in order for Defendants to be able to take financial
advantage of the continuity provision of Section 13, Defendants had
to argue that this final sentence only included “Participants” and
excluded “Retired Participants”, even though there was no language
implicitly or explicitly indicating that this was the case. Indeed,
there is no language anywhere in the Plan that supports this
conclusion, which was conveyed by the Compensation Committee’s
attorney in a letter of April 14, 2008. See Ex. V. The Court agrees
with Plaintiffs that this internally contradictory interpretation
-34-
of the continuity provision of Section 13 was necessary to further
Defendants’ goal of making SERP I “go away,” in the words of B&L
employee Reigle. See Ex. L.
Coupled with the flagrant and persistent procedural violations
by Defendants, discussed further below, the evidence that B&L and
the Compensation Committee both predetermined Plaintiffs’ claims
cannot be explained benignly. Instead, the Court is compelled to
conclude that Defendants’ conflict of interest actually affected
their decision-making. See Prado, 800 F. Supp.2d at 1095, 1098
(“Liberty’s marked hostility to any evidence relating to Liberty’s
conflict of interest being shared with Plaintiff during the claims
process or put before the Court . . .
create[d] the impression
that the individuals handling and evaluating Plaintiff’s claim on
behalf of Liberty were less interested in offering a neutral and
fair evaluation of Plaintiff’s claim than they were in erecting
procedural roadblocks.”); see also Durakovic, 609 F.3d at 140
(administrator’s deceptive or unreasonable conduct is evidence that
a conflict likely affected decision-making).
b.
Procedural Violations
In addition to the conflict of interest, the Court must take
into
account
“various
procedural
factors
underlying
the
administrator’s decision-making process[.].” Miller v. American
Airlines, Inc., 632 F.3d 837, 845 (3d Cir. 2011). “[T]he procedural
inquiry focuses on how the administrator treated the particular
-35-
claimant.” Post v. Hartford Ins. Co., 501 F.3d 154, 162 (3d Cir.
2007), overruled on other grounds, Estate of Schwing v. Lilly
Health Plan, 562 F.3d 522, 525 (3d Cir. 2009).
ERISA regulations provide that “the claims procedures of a
plan will not be deemed to provide a claimant with a reasonable
opportunity for a full and fair review” unless they provide the
claimant access to “all documents, records, and other information
relevant
to
the
claimant’s
claim
for
benefits.”
29
C.F.R.
§ 2560.503–1(h)(2)(iii). A document is “relevant” to a claim if it:
(i) Was relied upon in making the benefit determination;
(ii) Was submitted, considered, or generated in the
course of making the benefit determination, without
regard to whether such document, record, or other
information was relied upon in making the benefit
determination; [or]
(iii) Demonstrates compliance with the administrative
processes and safeguards required pursuant to paragraph
(b)(5)
of
this
section
in
making
the
benefit
determination. . . .
29
C.F.R.
§
2560.503–1(m)(8).
Paragraph
(b)(5)
requires
that
“claims procedures contain administrative processes and safeguards
designed to ensure and to verify that benefit claim determinations
are made in accordance with governing plan documents and that,
where
appropriate,
the
plan
provisions
have
been
applied
consistently with respect to similarly situated claimants.” 29
C.F.R. § 2560.503–1(b)(5).
Plaintiffs’ counsel made multiple attempts during the claims
process to acquire information relevant to B&L’s adverse benefits
determination.
B&L
and
the
Compensation
-36-
Committee
summarily
rejected these requests, claiming that they had submitted all the
information “received, reviewed, and considered” in evaluating
Plaintiffs’ claims, and that they were not obligated under ERISA to
produce additional information. The Court here is particularly
concerned with Defendants’ attempts to prevent Plaintiff from
seeing the Westport and Minocher reports, which were favorable to
their position. Even if these reports were not relied upon by the
Compensation
§
Committee,
ERISA
2560.503–1(m)(8)(ii),
regulations,
clearly
required
namely,
their
29
C.F.R.
disclosure
to
Plaintiffs. Instead, Defendants actively concealed the existence of
the Westport and Minocher reports from Plaintiffs during the claims
review process, and then strenuously litigated against Plaintiffs
efforts’ to obtain discovery of them during this action. Regardless
of
the
reason
for
Defendants’
refusal
to
disclose
relevant
documents to Plaintiffs, ERISA was violated. See Prado v. Allied
Domecq Spirits and Wine Group Disability Income Policy, 800 F.
Supp.2d 1077, 1096 (N.D. Cal. 2011) (“There are two possible
conclusions the Court can make from [Liberty’s failure to disclose
documents].
The
first
is
that
Liberty
lacked
administrative
processes and safeguards to ensure claim determinations were made
in accordance with plan documents and that similarly situated
claimants were treated similarly, and that no statements of policy
or
guidance
existed
to
guide
Liberty's
representatives
in
evaluating Plaintiff's claim. The second is that Liberty had such
-37-
processes, safeguards, and policies, but refused to share them with
Plaintiff during the claims process. Either situation would violate
ERISA regulations.”).
c.
Abdication of Fiduciary
Outside Counsel
Responsibility
to
Plaintiffs argue that the Compensation Committee failed to
conduct a full and fair review of their claims because it abdicated
its discretionary authority to outside counsel, Ropes & Gray.
Defendants argue that the Compensation Committee simply consulted
with Ropes & Gray, and that the Committee made the ultimate
decision on Plaintiffs’ claims.
“[N]othing set forth in ERISA prohibits plan administrators
from
relying
on
information
provided
by
and
following
the
recommendations of either in-house or outside attorneys for the
employer who sponsors the plan.” Ford v. Motorola Inc. Involuntary
Severance Plan, No. CIV–03–1271–PHX–RGS, 2007 WL 162680, at *6 (D.
Ariz. Jan. 18, 2007) (citing Bidwill v. Garvey, 943 F.2d 498, 508
(4th
Cir. 1991)). However, under ERISA, “a plan fiduciary is
specifically charged with providing a full and fair review of the
claims brought, and it is improper to abdicate that responsibility
by simply relying on the opinions of others.” Neely v. Pension
Trust Fund of Pension, Hospitalization and Benefit Plan of Elec.
Ind., No. 00 CV 2013 SJ, 2003 WL 21143087, at *8 (E.D.N.Y. Jan. 16,
2003)
(citing
Crocco
v.
Xerox
Corp.,
956
F.
Supp.
129,
139
(D. Conn. 1997) (“[T]he plan’s fiduciary must consider any and all
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pertinent
information reasonably
available
to
him.”)
(quoting
Grossmuller v. International Union, United Auto. Aerospace & Agric.
Implement Workers of Am., U.A.W., Local 813, 715 F.2d 853, 857
(3d Cir. 1983)), aff’d, 137 F.3d 105 (2d Cir. 1998). In Crocco, the
fiduciary
relied on
the
opinion
and
expertise
of
an
outside
consultant to determine whether the plan covered a participant’s
medical expenses. The district court’s opinion, which was affirmed
on appeal, found that by allowing the non-fiduciary to make the
decision, the fiduciary to the plan was violating her obligation
under ERISA. See
Crocco, 137 F.3d at 108 (the “central inquiry is
whether or not [the plan fiduciary] fully and fairly reviewed [the
plan administrator’s] denial of Crocco’s claim for benefits”).
Here, the Compensation Committee’s counsel, Zorn of Ropes &
Gray, drafted the ERISA Section 503 procedures for SERP I. Zorn
prepared a proposed decision letter rejecting the claims; this
became the final decision letter. The Compensation Committee made
no changes–substantive or cosmetic. The communications produced
during
discovery
indicate
that
the
Compensation
deliberations were essentially non-existent.
Committee’s
As noted above, when
Zorn requested additional time to consider Plaintiffs’ claims,
Mackesy replied, “We should just deny there [sic] claim and get on
with it.” Dep. Ex. P-93, Ex. W. Mackesy did not recall any
discussions or in-person meetings with his two fellow committee
members, Weatherman and Carney; he did not know who wrote the
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decision letter; he was not aware of and did not read the SERP I
trusts; and he did not recall any of the facts or circumstances he
considered. Carney’s testimony was similar, although he did read
SERP I. Carney could not recall the substance of any of the
Compensation Committee’s discussions about the claims. Carney did
not recall making any changes to Zorn’s decision letter and was not
aware
of,
and
Weatherman
did
not
apparently
see,
had
the
the
Mercer
least
or
Minocher
recollection
reports.
about
the
Compensation Committee’s actions: she did not recall reviewing SERP
I, did not recall approving any document regarding the SERP I
claims, and did not recall anything about the claim.
It is undisputed that Zorn and Ropes & Gray had not been
delegated
SERP
I.
to
exercise
However,
the
discretionary
record
authority
indicates
that
with
regard
to
Zorn
determined
Plaintiffs’ claim and the subsequent appeal without any input from
the putative fiduciary, the Compensation Committee. After receiving
“marching
orders”
from
Defendants,
Zorn
crafted
arguments
to
justify a denial of Plaintiffs’ claims. Courts look with disfavor
upon such post-hoc rationalizations. As the Sixth Circuit observed
in University Hosps. v. Emerson Elec. Co., 202 F.3d 839 (6th Cir.
2000),
It strikes us as problematic to . . . allow the
administrator to “shore up” a decision after-the-fact by
testifying as to the true basis for the decision after
the matter is in litigation, possible deficiencies in the
decision are identified, and an attorney is consulted to
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defend the decision by developing creative post hoc
arguments that can survive deferential review.
Id. at 849 n. 7. Just as the B&L employees performed discretionary
functions in 2007 without any proper delegation of authority, so
too did Zorn and Ropes & Gray in 2007. Because the Compensation
Committee
at best
served
as
a rubber-stamp
to
its counsels’
interpretation of the Plan, Plaintiffs’ right to a “full and fair
review” of their claims was abridged.
See, e.g., Tholke v. Unisys
Corp., No. 01 Civ. 5495(HB), 2002 WL 575650, at *4 (S.D.N.Y.
Apr. 16, 2002) (where a plan fiduciary, a committee, “appears to
have served only as a rubber-stamp for [a non-voting committee
secretary’s] 6–page report, which was endorsed on its face without
further comment,” there was no full and fair review of plaintiff’s
claims).
C.
Remedy
The Second Circuit has instructed that a district court’s
review under the arbitrary and capricious standard is limited to
the administrative record. For this reason, if a district court
concludes that a fiduciary’s decision was arbitrary and capricious,
“it must remand to the [fiduciary] with instructions to consider
additional
evidence
unless
no
new
evidence
could
produce
a
reasonable conclusion permitting denial of the claim or remand
would otherwise be a ‘useless formality.’” Miller, 72 F.3d at
1071 (quoting Wardle v. Central States, Southeast & Southwest Areas
Pension Fund, 627 F.2d 820, 828 (7th Cir. 1980) (citing Ruth v.
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Lewis, 166 F. Supp. 346, 349 (D. D.C. 1958)), cert. denied, 449
U.S. 1112 (1981)).
Defendants have argued that if the Court finds
that the Westport and Minocher reports should have been considered,
remand to the Compensation Committee is required because these
reports are not part of the administrative record. The Court finds
this
argument
disingenuous
given
that
it
was
Defendants
who
prevented the consultants’ reports from being made part of the
administrative record in the first instance. See, e.g., Zervos v.
Verizon, N.Y., Inc., 277 F.3d 635, 648 (2d Cir. 2002).
However, the Court finds that this is a situation where “no
new evidence could produce a reasonable conclusion permitting
denial of the claim” and remand would be “useless formality[,]”
Wardle, 627 F.2d at 828. The only conclusion permitted by the “new”
evidence (the Westport and Minocher reports) is that Section 13 of
SERP I does not apply to Plaintiffs who, at the time of the COC,
were
“Retired
opposed
to
Participants”,
“Participants”,
i.e.,
i.e.,
“former
current
Participants”,
employees
of
as
B&L.
See Plan, § 2(f), (h). That Section 13 only applies to Participants
is clear from that section read as a whole, which states that upon
a
COC,
a
Participant’s
date
of
vesting
(i.e.,
the
date
of
termination of employment) shall be the date of the COC. Id., § 13.
That language only sensibly applies to present employees of B&L
(i.e. Participants) because it substitutes the COC date for the
date of “Termination of Employment”, defined as the “cessation of
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the employer-employee relationship between the Participant and the
Company for reasons other than disability.” Plan, § 2(j). It does
not make sense to apply that language to Retired Participants since
they, as of the COC, had ceased being in B&L’s employ.
The same language is used in Section 5, dealing with benefits
for “Retired Participants”, which are calculated based on the
“vested
Participant’s
age
on
the
date
of
Termination
of
Employment.” Plaintiffs undisputedly were receiving benefits under
Section 5 as of September 19, 2009; having already undergone a
“Termination of Employment”, they were “Retired Participants”.
Moreover, the final sentence of Section 13 provides that
“[t]he Plan and its associated trusts shall continue in effect and
survive any Change of Control and any successor to the Company
shall assume the obligations of the Company under the Plan.” Plan,
§ 13. If “Participants” and “Retired Participants” were one and the
same, and if Section 13 were meant to cover “Retired Participants”
also, then there were be no point in directing
that the “Plan”
continue in effect and survive any COC, because there would be no
longer
any
individuals
for
whose
benefit
the
Plan
and
its
associated trusts could operate.
As remand to the Compensation Committee would be futile, the
Court hereby vacates the 2007 and 2008 decisions terminating
Plaintiffs’ benefits under SERP I.
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V.
Conclusion
For the foregoing reasons, Plaintiffs’ motion for summary
judgment (Dkt #56) is granted to the extent that Court determines
the following: (1) the lump sum payments made in October 2007,
violated
ERISA;
(2)
the
direction
to
the
SERP
I
trustee
to
discontinue Plaintiffs’ monthly payments violated ERISA; (3) the
refusal to pay any further monthly benefits required under SERP I
since October 1, 2007, violated ERISA; and (4) the termination of
SERP I violated ERISA. Defendants’ motion for summary judgment (Dkt
#55) is denied. In calculating Plaintiffs’ damages, Defendants are
entitled to a credit for the lump-sum payments already paid to
Plaintiffs.
SO ORDERED.
S/Michael A. Telesca
HONORABLE MICHAEL A. TELESCA
United States District Judge
DATED:
March 3, 2014
Rochester, New York
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