Home > Legal Updates >

Does Supreme Court Prefer Administrative Remand for Erroneous ERISA Benefit Determinations?

“People make mistakes.”  Thus did Chief Justice John Roberts introduce Conkright v. Frommert, No. 08-810 (Apr. 21, 2010), an opinion that re-affirms the importance the Supreme Court places upon the preservation of deferential review under ERISA (Employee Retirement Income Security Act).  The decision, however, also could be read as implying a preference that final determinations regarding benefits be made by the plan administrator, not the courts.

Litigation in the Lower Courts

Conkright involved a dispute over the interpretation of the Xerox Corporation pension plan. The plaintiffs retired from Xerox in the 1980’s, taking lump-sum cash out of their accrued pension benefits.  They were later rehired and became eligible, again, to accrue benefits under the Xerox pension plan. “The dispute giving rise to this case,” said the Supreme Court, “concerns how to account for respondents’ past distributions when calculating their current benefits – that is, how to avoid paying respondents the same benefits twice.” 

Xerox had dealt with this problem through creation of a “phantom account” for the lump-sum withdrawal of each such rehired employee.  The effect was to calculate a value for the lump-sum distribution, supposing it had not been withdrawn, that included “hypothetical investment gains and/or losses attributable to the prior distribution.” This hypothetically increased value, in effect, was then subtracted from the accrued value of the participant’s earned benefits, resulting in a substantially reduced monthly benefit.
  
The Second Circuit Court of Appeals, for various reasons, held that the use of the phantom accounts violated ERISA, and remanded the case to the District Court with instructions to “craft a remedy to calculate Plaintiffs-Appellees’ pension benefits in light of the [ERISA] violations.”

On remand, the District Court rejected a substitute calculation method proffered by Xerox.  Instead, the court adopted a method that gave no consideration of the time-value of a dollar received in the 1980’s versus a dollar received 20 or more years later, when the individuals would retire. 

Xerox again appealed to the Second Circuit.  Among other things, the company argued that the District Court erred in not remanding to the administrator so that it could calculate benefits taking into consideration the time-value issue. The Court of Appeals held this argument had been waived because Xerox never requested a remand in the District Court. It also concluded that remand was unnecessary as Xerox had ample opportunity to present – and did present – its proposed calculation method to the District Court.

Supreme Court’s Decision

Chief Justice Roberts, writing for the majority of the Court in a 5 to 3 decision, began with a brief overview of the Court’s holdings regarding ERISA deferential review.  He noted that in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), the Court held that “a denial of benefits challenged under § 1132(a)(1)(B) [of ERISA] 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 terms of the plan.”

The Chief Justice then turned to Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105 (2008), which he described as an “expansion” of Firestone.  The Court said that in Glenn, it held, “[W]hen the terms of a plan grant discretionary authority to the plan administrator, a deferential standard of review remains appropriate even in the face of a conflict.” [Emphasis added.]

In light of this precedent, the majority of the Court in Conkright held that the Second Circuit had crafted an impermissible “exception” to Firestone deference, namely, that “a court need not apply a deferential standard where the administrator has previously construed the same plan terms and [a court] found such a construction to have violated ERISA.” The opening paragraph of Conkright states, “The question here is whether a single honest mistake in plan interpretation justifies stripping the administrator of that deference for subsequent related interpretations of the plan. We hold that it does not.”

Analysis

Conkright appears to be a pointed admonition to the lower courts that Firestone deference is alive and well after Glenn. An application of plan terms that is found to be erroneous as a matter of law is not sufficient, in and of itself, to strip an administrator of duly-reserved discretionary authority, even for an administrator otherwise subject to a structural conflict of interest vis á vis Glenn.  Conkright thus may be a signal that the High Court will frown upon judicial decisions that acknowledge Firestone deference in principle, and, with a wink and a nod, eviscerate it in application.
 
However, Conkright may be more than a ringing endorsement of deferential review.  Implicit in the Court’s strong defense of Firestone deference is another principle: a presumption that, even in light of an initial determination that is found to be erroneous, the possible remedy may not be an award of benefits by the court, but a return to the administrator to review its determination in light of the court’s correction.  Indeed, during oral argument in a subsequent case, Hardt v. Reliance Standard, No. 09-448 (May 24, 2010), at least two members of the Supreme Court indicated this is their interpretation of Conkright.
 
Hardt involved a claim for attorneys’ fees in an action for long-term disability benefits under a fully-insured ERISA plan. During the April 26, 2010, Supreme Court oral argument, Chief Justice Roberts interrupted counsel for Reliance Standard to ask him for his views on the impact of Conkright upon the insurer’s position that the Court of Appeals correctly refused to award attorneys’ fees where the plaintiff’s only success in the district court was an administrative remand. Chief Justice Roberts observed:

I would have thought that [Conkright] – one thing it did emphasize is that in the typical case, the likely relief is going to be sending it back rather than making a judicial decision … .  So given Conkright, your position is going to severely limit the circumstances under which Plaintiffs are entitled to fees.

(Emphasis added.)

None of the other Justices expressed any surprise or reservations with the Chief Justice’s characterization of the result in Conkright.  Indeed, Justice Antonin Scalia plainly agreed. He observed, in light of Conkright, future plaintiffs will ask for a remand rather than for summary judgment, and, to the extent future plaintiffs request “final judicial relief,” “we’ve already told them they can’t get that.” He also observed, at least in situations where the only claim is that the administrative decision was simply wrong, after Conkright, “the claimant knows that all he’s going to get from the district court is a remand.”

The authors realize, of course, that oral argument banter is not precedential authority.  Nonetheless, these comments are certainly consistent with the language of Conkright and provide instructive insight to the views of the author of the majority opinion, the Chief Justice. Of course, one can distinguish Conkright on the ground that it was a pension case involving a trust and an interpretation of specific plan terms.  Thus, one might argue Conkright is not necessarily controlling in a run-of-the-mill, fully-insured, ERISA disability benefits case in which the court’s decision turns on an evaluation of the administrative record.  Yet Hardt was just such a run-of-the-mill disability case.  It seems unlikely both Chief Justice Roberts and Justice Scalia would have overlooked such distinctions if either believed them to be significant.

* * *

It is plain that a majority of the Justices are prepared to vigorously defend, and arguably expand, Firestone deference after Conkright. Perhaps the majority was concerned that Glenn or its progeny may have called this stance into question.  It would appear Conkright also may stand for the proposition that a possible remedy for wrongfully denied benefits may not be an award of benefits by the court, but a remand for further administrative review. 
  
Jackson Lewis attorneys are available to answer inquiries regarding this case and other workplace developments.