Conveniently, the Sixth Circuit has issued another opinion illustrating this urge of the lower courts to find plaintiff remedies by creative applications of the law. The case, Bloemaker v. Laborers' Local 265 Pension Fund, No. 09-3536 (6th Circuit 2010), held that participants in defined benefit pension plans can assert benefit rights not created by the plan but reflected in written estimates of benefits based on an equitable estoppel theory.
The participant had asked for an estimate of benefits under a plan’s early retirement provisions. The estimate provided was incorrect, and obviously so to anyone who has experience with calculations of early retirement benefits. The participant then retired, in reliance on the estimate and received benefits for almost two years. At this point, the TPA noticed the error, and contacted the participant stating that (1) future benefits would be reduced, and (2) the participant had to repay the excess benefits actually received. The error was based on “a computer programming error.”
The opinion is poorly written, so much so that the operational test is stated in two similar but hardly identical formulations. In the first version, the Sixth Circuit said: “Under our precedent, the elements of an equitable estoppel claim are: 1) conduct or language amounting to a representation of material fact; 2) awareness of the true facts by the party to be estopped; 3) an intention on the part of the party to be estopped that the representation be acted on, or conduct toward the party asserting the estoppel such that the latter has a right to believe that the former’s conduct is so intended; 4) unawareness of the true facts by the party asserting the estoppel; and 5) detrimental and justifiable reliance by the party asserting estoppel on the representation.” The second version required “intended deception or such gross negligence as to amount to constructive fraud, plus (1) a written representation; (2) plan provisions which, although unambiguous, did not allow for individual calculation of benefits; and (3) extraordinary circumstances in which the balance of equities strongly favors the application of estoppel.” The Court treated these two formulations as being the same, and to maintain some semblance of order here the balance of this post will focus on the first because it is more detailed and less vague.
Under the first standard, the first and the last three items were pretty easily met by the participant’s complaint. The second, however, seems problematic. In fact, the complaint appears to have had only general allegations that the plan and the TPA knew the true facts. But what facts? Did the TPA know the benefit calculation was wrong? That is unlikely. Will the courts ultimately say that knowledge of the facts underlying the benefit determination is awareness of the true facts?
Also, the calculated early retirement benefit involved an actuarial reduction of the annual benefit of only 12.3%, a reduction that is pretty obviously too small. This raises a very real question as to whether there was actual reliance by the participant, whether any reliance was justifiable or whether the participant just decided to take advantage of the error. This fact question can be raised under either the fourth or fifth elements set out by the Sixth Circuit.
And, of course, it is still an open question whether the Supreme Court will, ultimately, allow an equitable estoppel claim. The Sixth Circuit makes all the right protestations to the effect that plans have to be in writing and that a determination that a participant has rights exceeding the terms of the plan may adversely affect other participants, but gives these considerations no effect.
Various Circuit Courts, but not all, allow some version of the equitable estoppel theory. Given that, the Supreme Court needs to step in again and shoot down this latest attempt to find remedies not provided in ERISA.
So how does this apply in a defined contribution context? Presumably, the theory could be applied based on (1) representations as to contribution rates, (2) representations as to the availability of various kinds of investments, (3) participant statements, and (4) whatever else is contained in a written communication.
Wednesday, June 9, 2010
Attorney’s Fees Awarded for Lawsuit Resulting in Remand to Plan Administrator
The Supreme Court, in Hardt v. Reliance Standard Life Insurance Co., decided that attorney’s fees can be awarded to a participant where a case was remanded to the plan administrator and the claim was then granted. The attempt to prevent the award was based on the premises that (a) the person requesting an award of attorney’s fees must be a “prevailing party” in the lawsuit, and (b) “a fee claimant is a “prevailing party” only if he has obtained an “enforceable judgmen[t]on the merits ” or a “court-ordered consent decre[e]”.
The logic of the decision was that the specific language of ERISA does not require “prevailing party” status, but only that the person seeking fees show “some degree of success on the merits”.
This rule is to be applied not just in determining whether a court has authority to make an award of attorney’s fees but also in reviewing that court’s exercise of discretion in making the award. This, in effect, overturned the existing five factor analysis applied by the lower courts. Described by the Supreme Court as “(1) the degree of opposing parties’ culpability or bad faith; (2) ability of opposing parties to satisfy an award of attorneys’ fees; (3) whether an award of attorneys’ fees against the opposing parties would deter other persons acting under similar circumstances; (4) whether the parties requesting attorneys’ fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA itself; and (5) the relative merits of the parties’ positions.” The only limitations on the capacity of a court to award attorney’s fees are that the result has to be more that “trivial success on the merits” or a “purely procedural victory.”
This case is primarily being written up as to the first issue, whether the participant/claimant has to be a “prevailing party.” However, the lack of meaningful standards for reviewing the exercise of discretion by the court making the award is actually more troubling. Until the courts begin to establish a track record of making and reviewing awards and denials of awards under this decision, plans and plan administrators will live with uncertainty. Logically, since most cases outside of disability benefits are rejected, this broad ability to make awards could be advantageous. However, in the real world it is unlikely that plans will be awarded attorney’s fees at anything like the rate of awards to participants, because that second rejected factor will be applied, explicitly or implicitly.
The logic of the decision was that the specific language of ERISA does not require “prevailing party” status, but only that the person seeking fees show “some degree of success on the merits”.
This rule is to be applied not just in determining whether a court has authority to make an award of attorney’s fees but also in reviewing that court’s exercise of discretion in making the award. This, in effect, overturned the existing five factor analysis applied by the lower courts. Described by the Supreme Court as “(1) the degree of opposing parties’ culpability or bad faith; (2) ability of opposing parties to satisfy an award of attorneys’ fees; (3) whether an award of attorneys’ fees against the opposing parties would deter other persons acting under similar circumstances; (4) whether the parties requesting attorneys’ fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA itself; and (5) the relative merits of the parties’ positions.” The only limitations on the capacity of a court to award attorney’s fees are that the result has to be more that “trivial success on the merits” or a “purely procedural victory.”
This case is primarily being written up as to the first issue, whether the participant/claimant has to be a “prevailing party.” However, the lack of meaningful standards for reviewing the exercise of discretion by the court making the award is actually more troubling. Until the courts begin to establish a track record of making and reviewing awards and denials of awards under this decision, plans and plan administrators will live with uncertainty. Logically, since most cases outside of disability benefits are rejected, this broad ability to make awards could be advantageous. However, in the real world it is unlikely that plans will be awarded attorney’s fees at anything like the rate of awards to participants, because that second rejected factor will be applied, explicitly or implicitly.
Another Attack on Administrator Discretion Turned Back
There is a pattern in case law development under ERISA of lower courts giving pro-employee results, only to be overturned on appeal, particularly to the Supreme Court. This pattern certainly extends to case law on the appropriate standard of review of decisions by plan administrators. Yet another instance of this pattern is reflected in the recent Supreme Court case of Conkright v. Frommert, No. 08-810 (Apr. 21, 2010).
In Conkright, a participant’s claim was denied on one basis. The participant sued and eventually the basis for denying the claim was rejected by the Circuit Court, which returned the case to the plan administrator for consideration of other interpretations. The plan administrator again denied the claim, based on another interpretation, whereupon the participant went back to the courts. The participant argued that, since the plan administrator had been wrong the first time, there should be a de novo review, rather than a review for abuse of discretion, and the District Court and Circuit Court agreed. The Supreme Court disagreed, holding that the decision of the plan administrator on remand was still entitled to the deferential abuse of discretion review.
There are three lessons here. First, procedurally, plans should push for remand after adverse court decisions. Second, decisions by plan administrators should include language stating, broadly, that the initial denial is based on the issues considered as sufficient, and that other issues may warrant a denial. Third, nobody should get too worked up about lower court decisions on ERISA issues.
In Conkright, a participant’s claim was denied on one basis. The participant sued and eventually the basis for denying the claim was rejected by the Circuit Court, which returned the case to the plan administrator for consideration of other interpretations. The plan administrator again denied the claim, based on another interpretation, whereupon the participant went back to the courts. The participant argued that, since the plan administrator had been wrong the first time, there should be a de novo review, rather than a review for abuse of discretion, and the District Court and Circuit Court agreed. The Supreme Court disagreed, holding that the decision of the plan administrator on remand was still entitled to the deferential abuse of discretion review.
There are three lessons here. First, procedurally, plans should push for remand after adverse court decisions. Second, decisions by plan administrators should include language stating, broadly, that the initial denial is based on the issues considered as sufficient, and that other issues may warrant a denial. Third, nobody should get too worked up about lower court decisions on ERISA issues.
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