Conkright v. Frommert

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Argued January 20, 2010.

Authorship: Martine Cicconi of Stanford Law School

Docket: 08-810

Issues: 1. Whether the Second Circuit erred in holding, in conflict with decisions of this Court and other Circuits, that a district court has no obligation to defer to an ERISA plan administrator’s reasonable interpretation of the terms of the plan if the plan administrator arrived at its interpretation outside the context of an administrative claim for benefits.

2. Whether the Second Circuit erred in holding, in conflict with decisions of other Circuits, that a district court has "allowable discretion" to adopt any "reasonable" interpretation of the terms of an ERISA plan when the plan interpretation issue arises in the course of calculating additional benefits due under the plan as a result of an ERISA violation.

Contents

Briefs and Documents

Oral Argument

Transcript (January 20, 2010)

Merits Briefs

Amicus Briefs

Certiorari-Stage Documents

Argument Recap

The following originally appeared on SCOTUSblog.

On Wednesday, the Court heard argument in Conkright v. Frommert. Arguing for the petitioners (Xerox’s ERISA plan administrators), Robert Long contended that Second Circuit “got it backwards” when it afforded deference to the district court’s – but not the Plan Administrator’s – interpretation of the company’s ERISA plan. Almost immediately, Justice Scalia challenged Long, asking whether the law required the district court to send a plan back to the administrator no matter how many times he offered an incorrect interpretation. Long cited the principles of trust law to support his position, but Justice Scalia remained unconvinced: “I can’t believe that’s what the law is.”

Justice Breyer also appeared unpersuaded, pointing to the Solicitor General’s argument that, when the Plan Administrator erroneously interprets a plan, the district court may decline to defer to his subsequent interpretation. Such a reading, Justice Breyer noted, “make[s] sense.” Chiming in, Justice Alito wondered “how many shots the plan administrator . . . gets to try to answer this question.”

The argument then turned from abstract principles to the details of the case itself. Justices Ginsburg and Scalia queried whether the Plan Administrator’s second interpretation of the Plan referred to the same language as the first interpretation. Justice Scalia appeared persuaded by Mr. Long’s explanation that the second interpretation involved different terms because the Second Circuit had struck from the plan the language which the Administrator had originally interpreted. Seeking to understand the basis for the district court’s decision, Justice Kennedy asked whether the administrator’s interpretation was best described as a question of law or instead as one of fact. Mr. Long responded that whether the administrator’s interpretation of the terms was reasonable was a question of law.

Defending the Administrator’s second interpretation of the Plan, Mr. Long explained that the time value of money is a concept central to pensions. Justice Alito countered that the assumption that their pensions would be offset only by the nominal amount of prior distributions may have lured the petitioners back to employment at Xerox. Such an assumption, Mr. Long responded, was “ridiculous” because “no employer would do that to current employees.”

Speaking for the respondents, Peter K. Stris faced questioning from the Chief Justice, who asked whether a Plan Administrator offering two alternative interpretations of plan terms would be entitled to deference on both. Mr. Stris replied that deference would be appropriate in that case because the administrator would have admitted uncertainty and offered both interpretations simultaneously. The Chief Justice then suggested that it would be “odd” to encourage administrators to offer a number of inconsistent interpretations. Backtracking a bit, Mr. Stris responded that indeed a “fallback” interpretation on the same terms should not be entitled to deference, and that in this case the district court had properly exercised its discretion not to defer.

At that point, Justice Alito asked Mr. Stris to what factors a district court should use to determine whether to give an administrator a second chance to interpret a plan. Mr. Stris responded that the first factor was whether the second interpretation involved the same terms as the first. Revealing his satisfaction with Mr. Long’s response on this point, Justice Scalia countered that the second interpretation in this case did not involved the same terms as the first. He suggested that Mr. Stris had changed his position when he argued that the court of appeals had prohibited the administrator from calculating benefits using any appreciated offset, and thus the administrator’s second interpretation was identical to his first in relevant part. After attempting to allay Justice Scalia’s skepticism, Mr. Stris returned to his recitation of the relevant factors, citing the presence or absence of factual disputes and regulatory infractions.

Concluding, Mr. Stris argued that the petitioners seek to replace the venerated trust-law principle permitting a district court to eschew deference in light of an abuse of discretion by the Plan Administrator in favor of a bright-line rule requiring deference in all cases. The Chief Justice pointed out that “defer” does not mean that the administrator’s interpretation is always adopted; the court could find an abuse of discretion and reach another result. True, Mr. Stris conceded, but that understanding is inconsistent with trust cases, in which courts often refuse to exercise deference in the first instance.

Appearing on behalf of the United States as an amicus in support of respondents, Assistant to the Solicitor General Matthew D. Roberts argued that deference to an administrator’s “fallback” interpretation would discourage employers from establishing pension plans. But what if the two interpretations did not involve the same terms, Justice Scalia asked. Although that would be a different scenario, Mr. Roberts explained, deference would remain inappropriate in this case because the Plan Administrator’s second interpretation violated ERISA as plainly as his first interpretation.

Returning to an earlier question, the Chief Justice asked whether an administrator who offered several alternative interpretations of a plan would be entitled to deference for each one. “No,” Mr. Roberts answered, because administrators should not be permitted to make laundry-list appeals to the court. Responding to Justice Kennedy’s suggestions that he was struggling not to articulate a standard based on the absence of bad faith, Mr. Roberts argued that an administrator whose first interpretation was unreasonable interpretation could not be trusted to subsequently offer a reasonable one. Apparently skeptical, the Chief Justice characterized that argument as “one strike and you’re out.”

In a response to Justice Ginsburg, Mr. Roberts reiterated that even the administrator’s second interpretation of the plan violated ERISA’s notice provisions. But several justices seemed unconvinced, noting that if the Second Circuit had indeed found that any appreciated offset violated the statute, there was no reason for a remand at all, because the holding would constitute a complete interpretation of the plan.

In rebuttal, Mr. Long faced the crucial question of whether the Second Circuit prohibited any appreciated offset, and whether as a result the administrator’s second interpretation of the plan suffered from the same flaws as his first. Citing the commonality of actuarial adjustments in pension plans, Mr. Long urged the Court not to read the lower court’s opinion that way.

Pre-Argument Articles

Argument Preview

The following was originally written for SCOTUSblog.

On January 20, in Conkright v. Frommert, the Court will consider what level of deference district courts owe to the findings of an Employee Retirement Income Security Act (ERISA) plan administrator. The litigation began eleven years ago when respondent Paul Frommert, a Xerox employee (as well as other similarly situated Xerox employees), alleged that the administrator of the company’s retirement plan (the “Plan Administrator”) had violated ERISA in her calculation of retirement benefits. Specifically, in this case Frommert had left the company, at which point he received benefits. However, he was subsequently rehired several years later; when he later retired, the Plan Administrator calculated his award by subtracting both the sum previously distributed and the interest those funds would have accrued had they remained invested – the so called “phantom account” method. The district court granted summary judgment for the Plan Administrator (petitioner Sally Conkright and her predecessors, also petitioners in this case).

On appeal, the Second Circuit reversed. It held that although the Plan had been amended to permit the administrator to use the phantom method, the application of the phantom method to employees hired before the amendment violated ERISA’s notice provisions. The Second Circuit remanded the case to the district court to craft a remedy under the Plan’s pre-amendment terms. On remand, the district court rejected the administrator’s interpretation of the Plan’s original provisions, holding instead that Frommert’s benefits should be offset by the nominal amount of the initial distribution rather than the actuarial equivalent. On appeal, reviewing the district court’s decision for an abuse of discretion, the Second Circuit affirmed.

Conkright and the Plan filed a petition for certiorari, arguing that the Second Circuit created a division of authority with its conclusion that an administrator’s interpretation of a plan is not entitled to deference when it occurs outside the context of an administrative claim for benefits. They also asked the Court to review the Second Circuit’s holding that a district court has “allowable discretion” to adopt any reasonable interpretation of the terms of a plan when the issue arises in the context of calculating additional benefits owed as a result of an ERISA violation.

Opposing certiorari, Frommert and the other respondents challenged the petition’s characterization of the case. They countered that the district court had not “interpret[ed] and appl[ied] the Plan” on remand; instead, it had merely crafted an equitable remedy as directed by the court of appeals. Moreover, Conkright’s claim that the Second Circuit should have reviewed the claim de novo ignored the history of the case. Because the court of appeals had previously rejected the Plan Administrator’s interpretation and directed the district court to adopt an equitable remedy, it had no reason to conduct a complete review of the case and therefore properly reviewed the district court’s decision for abuse of discretion. The Court called for the views of the Solicitor General, which recommended that certiorari be denied on the ground that, as Frommert had contended, the Second Circuit’s decision did not create a circuit split. The Court nonetheless granted certiorari in June 2009.

In their brief on the merits brief, Conkright relied heavily on the Supreme Court’s 1989 decision in Firestone Tire & Rubber Co. v. 'Bruch, which held that a plan administrator’s interpretation of a plan is subject to deference if “the benefit plan gives the administrator . . . discretionary authority . . . to construe [its] terms.” Because the Xerox Plan gave the administrator such discretion, the court was required to defer to her interpretation. Deference is crucial, Conkright argued, to furthering ERISA’s statutory goals: it promotes the creation of pension programs by ensuring employers that plans will be interpreted by experienced administrators rather than judges, and it “reduces the risk that different courts will interpret plan documents in contradictory ways, thereby imposing irreconcilable fiduciary obligations on plan administrators.”

Turning to the decision below, Conkright claimed that the Second Circuit’s decision carved out an exception to the deference rule by differentiating between “decisions” made by the Plan Administrator – such as the determination to confer benefits – that are entitled to deference and “mere opinions,” in which the administrator offers an interpretation of a plan outside the context of an administrative claim, and which are not entitled to deference. In Conkright’s view, whether an interpretation is entitled to deference depends not the context in which the interpretation arises, but on the discretion afforded the administrator in the Plan itself. Drawing on principles of trust law, Conkright also argued that a “good faith mistake” regarding the use of the phantom method could not strip the administrator of her authority to interpret the Plan.

Addressing the second question presented, Conkright emphasized that when no deference is warranted, Firestone requires a court of appeals to review the district court’s decision on an ERISA plan de novo. That rule, she argued, does not give way simply because a district court interprets a plan in the course of creating an equitable remedy.

In his brief on the merits, Frommert countered that Xerox and the Plan Administrator sought precisely the outcome ERISA was designed to prohibit: “an undisclosed, unexplained, post-hoc reduction in accrued and vested pension benefits earned over years of work.” Because the company sought deference for an interpretation of the very same terms on which its position had been deemed “arbitrary and capricious,” it was thus seeking “re-run deference,” which no court is obligated to provide and which would undermine ERISA’s goals. And because the statute aimed to make the pension more transparent, it would contravene Congress’s intent to defer to the second interpretation by an administrator after her initial interpretation had been rejected.

Turning to Conkright’s arguments based on trust law, Frommert asserted that there is no rigid principle requiring deference when there is no evidence of bad faith. In any event, trust law does not resolve the question: Congress imposed limits on ERISA plan construction that do not exist in trust law, making deference inappropriate in some circumstances even when there is no bad faith. Finally, Frommert argued that the Second Circuit reviewed the case under the correct standard: because the lower court gave meaning to ambiguous documents, judicial discretion was necessary, and review for abuse of discretion was proper.

In an amicus brief filed on behalf of Frommert et al., the United States argued that the Second Circuit did not carve out a broad exception to deference when an ERISA plan is construed outside the context of a benefits determination. Rather, it held only that the district court was not required to defer to the administrator’s interpretation of plan terms when a previous construction had been deemed an abuse of discretion. The opposite conclusion, the government argued, would provide an incentive for administrators to adopt interpretations that disfavored beneficiaries, knowing that courts would defer to their “fallback” interpretations. Moreover, deference in this case would have violated ERISA in any event, because employees were not given fair notice that their benefits would be offset by the appreciated value of past distributions.

Links and Further Information

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