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Court considers deference to ERISA plan administrators

Below, Stanford law student Martine Cicconi recaps oral argument in Conkright v. Frommert (08-810); her analysis is now also available on the case’s SCOTUSwiki page.

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.