UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 94-30035
_____________________
CHEVRON CHEMICAL COMPANY, ET AL.,
Defendants-Appellants,
VERSUS
OIL, CHEMICAL and ATOMIC WORKERS LOCAL UNION 4-447, ET AL.,
Plaintiffs-Appellees.
____________________________________________________
Appeal from the United States District Court
for the Eastern District of Louisiana
_____________________________________________________
(February 23, 1995)
Before DAVIS, BARKSDALE, and STEWART, Circuit Judges.
RHESA HAWKINS BARKSDALE, Circuit Judge:
The central issue at hand is whether the district court should
have applied the abuse of discretion standard of review to the
interpretation given an ERISA plan by its administrator. Members
of a local union challenged the decision by a review panel of
Chevron Chemical Company's Mental Health/Substance Abuse Plan
(MH/SA Plan) that the members' coverage in the plan had not
terminated because they continued to participate in another medical
plan "sponsored by or offered through" Chevron; but, in a de novo
review of that decision, the district court held otherwise. We
conclude that the court should have applied the abuse of discretion
standard; and, applying it to the administrator's decision, we
REVERSE and RENDER.
I.
In January 1989, as part of furnishing health care benefits,
Chevron began covering its employees in the MH/SA Plan, and
designated that plan as the primary recipient of the overall health
care dollars it would contribute on behalf of its employees. In
other words, for all of its employees' health care coverage, it
agreed to contribute a sum certain, but with the first dollars
earmarked for the MH/SA Plan.
These contributions, however, were not available immediately
to all employees; contributions on behalf of union represented
employees were conditioned on acceptance of the MH/SA Plan by their
collective bargaining agent. In April 1990, Chevron and Oil,
Chemical and Atomic Workers Local Union 4-447 (OCAW) executed a
collective bargaining agreement for represented employees at
Chevron's Oak Point facility in Belle Chasse, Louisiana; as a
result, the OCAW members commenced being covered by the MH/SA Plan.
But shortly thereafter (June 1, 1990), some OCAW members
terminated their participation in the general medical plan
sponsored by Chevron, electing instead to participate in a newly
negotiated, union-sponsored plan (OCAW Plan). Accordingly, Chevron
commenced diverting a portion of its contributions for those
employees' health care to the OCAW Plan, but continued to direct
the first dollars of its contributions for them to the MH/SA Plan.
Because the OCAW Plan was sponsored by the union and provided,
inter alia, a mental health/substance abuse rider, certain OCAW
- 2 -
Plan participants believed that their participation in the MH/SA
Plan had terminated, and so notified Chevron. It disagreed.
In November 1990, OCAW filed a claim with the MH/SA Plan,
contending that named OCAW members were entitled to the "first
dollars" that Chevron had earmarked for the MH/SA Plan. This
position was based on MH/SA Plan § 3(a)(i): "[i]f [a] Member
participates in a health care plan sponsored by or offered through
[Chevron]", his coverage under the MH/SA Plan does not terminate
until the date that his coverage under the other plan also
terminates.
Thus, the issue became whether the OCAW Plan was "sponsored
by or offered through" Chevron. If it was, Chevron could continue
to direct the "first dollars" to the MH/SA Plan; if not, the OCAW
members would be entitled to those "first dollars". Chevron's
assistant manager, welfare plans (Administrator), denied OCAW's
claim, on the basis that under the collective bargaining agreement,
OCAW had agreed to participate in the MH/SA Plan.
As a result, and maintaining that the OCAW Plan "is not a
Chevron sponsored or offered plan", OCAW appealed to the review
panel (Review Authority). In April 1991, the Review Authority
rejected OCAW's contention, and upheld the Administrator's denial,
stating in part that the OCAW Plan "is a plan sponsored by or
offered through [Chevron], as evidenced by company contributions to
[the OCAW Plan] on behalf of these employees. Therefore, there has
been no termination of coverage under the MH/SA Plan."
- 3 -
Pursuant to § 502(a)(1)(B) of the Employee Retirement Income
Security Act of 1974 (ERISA), 29 U.S.C. § 1132(a)(1)(B), OCAW and
70 of its members commenced this action, seeking, inter alia, to
recover benefits allegedly due them, and to clarify their rights to
current and future benefits under the MH/SA Plan. The parties
consented to trial before a magistrate judge, who applied a de novo
review to the Review Authority's decision.1 Holding that, pursuant
to § 3(a)(i) of the MH/SA Plan, the OCAW members' coverage had
terminated because the OCAW Plan is not "sponsored by or offered
through" Chevron, the court ordered retrospectively the termination
of coverage and restitution of contributions that Chevron had
directed to the MH/SA Plan.
II.
Critical to this appeal is the standard of review that the
district court should have applied to the plan interpretation -- de
novo or abuse of discretion. Obviously, we must address that issue
first, before turning to whether the OCAW Plan is "sponsored by or
offered through" Chevron.
A.
"On appeal, our standard of review for district court
decisions reviewing plan administrators' eligibility determinations
is guided by the principles that typically guide our standard of
review. Namely, we review questions of law de novo and set aside
1
The district court stated also that "even if [its] review were
done under an abuse of discretion standard, the Court perceives a
conflict of interest herein which should result in favor of a
heightened standard of review." See infra.
- 4 -
factual determinations only if clearly erroneous." Sweatman v.
Commercial Union Ins. Co., 39 F.3d 594, 600 (5th Cir. 1994).
Whether the district court employed the correct standard of review
to an administrator's eligibility determination/plan interpretation
is a question of law. Therefore, we review freely the district
court's decision to apply a de novo, rather than an abuse of
discretion, review. As hereinafter discussed, we conclude that,
under the terms of the MH/SA Plan, the Administrator is given
discretion in determining OCAW's claim, and that this discretion is
vested also in the Review Authority; accordingly, the district
court should have applied the abuse of discretion standard of
review.
1.
In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989),
the Supreme Court held that
a denial of benefits challenged under §
1132(a)(1)(B) 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 the terms of the plan.
Id. at 115. Our court has recognized, however (as did the district
court), that the Supreme Court "surely did not suggest [in Bruch]
that `discretionary authority' hinges on incantation of the word
`discretion' or any other `magic word.' Rather, the Supreme Court
directed lower courts to focus on the breadth of the
administrators' power -- their `authority to determine eligibility
for benefits or to construe the terms of the plan' ...." Wildbur
v. ARCO Chem. Co., 974 F.2d 631, 637 (5th Cir.) (quoting Block v.
- 5 -
Pitney Bowes Inc., 952 F.2d 1450, 1453 (D.C. Cir. 1992)), modified
on other grounds, 979 F.2d 1013 (5th Cir. 1992). On the other
hand, discretionary authority cannot be implied, Cathey v. Dow
Chem. Co. Medical Care Program, 907 F.2d 554, 558-59 (5th Cir.
1990), cert. denied, 498 U.S. 1087 (1991); "an administrator has no
discretion to determine eligibility or interpret the plan unless
the plan language expressly confers such authority on the
administrator." Wildbur, 974 F.2d at 636.
When the union members began participating in the OCAW Plan in
June 1990, MH/SA Plan § 10 provided as follows:2
SECTION 10. ADMINISTRATION AND OPERATION OF THE PLAN
....
(b) Administrative Power and Responsibility.
The [Administrator] is the named fiduciary that has
the authority to control and manage the
administration and operation of the Plan. The
[Administrator] shall prescribe such forms, make
such rules, regulations, interpretations and
computations and shall take such other action to
administer the Plan as [he] may deem appropriate.
In administering the Plan, the [Administrator]
shall at all times discharge [his] duties with
respect to the Plan in accordance with the
standards set forth in section 404(a)(1) of ERISA.
As discussed, although the MH/SA Plan does not state that the
Administrator has "discretion" to make eligibility determinations
or plan interpretations, this is not a sine qua non for an
administrator to be vested with such discretion. In addition to
2
The language of the MH/SA Plan denotes the plan's
administrator as the "Organization". Rather than using the
language of the MH/SA Plan, we refer to the Organization as the
"Administrator" in order to provide for a consistent use of the
latter term as it is used in ERISA and related case law.
- 6 -
having "the authority to control and manage the administration and
operation of the Plan", the Administrator is empowered to "make
such rules, regulations, [and] interpretations ... and [to] take
such other action ... as [he] may deem appropriate." (Emphasis
added.) Thus, based on the MH/SA Plan's language, the
Administrator has discretionary authority to make eligibility
determinations and plan interpretations. See Salley v. E.I. DuPont
de Nemours & Co., 966 F.2d 1011, 1014 (5th Cir. 1992) (abuse of
discretion standard applied to employer's decision to terminate
ERISA plan benefits when plan gives employer resposibility for the
development of "procedures to implement the [plan], for
interpretation of [the plan], and for coordination of
administration").3
Because the district court reviewed the Review Authority's
decision, not the Administrator's, OCAW contends that we should not
focus on the authority given the Administrator, but, rather, on
3
Compare also Halpin v. W.W. Grainger, Inc., 962 F.2d 685, 688
(7th Cir. 1992) (discretionary review when the plan provides that
the administrator "shall determine all questions arising in the
administration, interpretation and operation of the Plan"), and
Madden v. ITT Long Term Disability Plan for Salaried Employees, 914
F.2d 1279, 1284 (9th Cir. 1990) (discretionary authority to
determine eligibility and to construe the terms of plan where
administration committee had "the exclusive right ... to interpret
the Plan and to decide any and all matters arising hereunder"),
cert. denied, 498 U.S. 1087 (1991), and de Nobel v. Vitro Corp.,
885 F.2d 1180, 1186 (4th Cir. 1989) (abuse of discretion standard
when administrator has the power to "determine all benefits and
resolve all questions pertaining to administration, interpretation
and application of Plan provisions, either by rules of general
applicability or by particular decisions"), with Michael Reese
Hosp. & Medical Ctr. v. Solo Cup Employee Health Benefit Plan, 899
F.2d 639, 641 (7th Cir. 1990) (de novo review appropriate when
administrator is granted only the "authority to control and manage
the operation and administration of the Plan").
- 7 -
that given to a distinct, separate entity -- the Review Authority.
MH/SA Plan § 13 provides for appointment of the Review Authority:4
SECTION 13. REVIEW PROCEDURE
(a) Named Fiduciary. Upon receipt of a
request for review of a denied claim, the
[Administrator] shall appoint a Review Authority.
The Review Authority shall be the named fiduciary
that has the authority to act with respect to any
appeal from a denial of benefits under the Plan.
....
(e) Review Authority Rules and Procedures.
The Review Authority shall establish such rules and
procedures, consistent with the Plan and with
ERISA, as it may deem necessary or appropriate in
carrying out its responsibilities under this
Section 13. The Review Authority may require an
applicant who wishes to submit additional
information in connection with an appeal from the
denial of benefits in whole or in part to do so at
the applicant's own expense.
In ascertaining the standard of review for the Review
Authority's decision, we need not determine whether § 13 grants the
Review Authority discretion over eligibility determinations. Under
ERISA, a named fiduciary (e.g., the Administrator) may delegate his
fiduciary responsibilities:
The instrument under which a plan is
maintained may expressly provide for procedures (A)
for allocating fiduciary responsibilities (other
than trustee responsibilities) among named
fiduciaries, and (B) for named fiduciaries to
4
On January 4, 1991, Chevron amended, inter alia, MH/SA Plan §
13(a) to empower the Review Authority with "final and binding"
authority relative to all eligibility questions and disputes, with
the amendment retroactive to January 1, 1990. In district court,
the parties disagreed whether the MH/SA Plan, as amended, should
have guided that court in determining its standard of review. For
purposes of this appeal, however, Chevron has stipulated that the
original MH/SA Plan would control. Thus, we need not address the
text that should have been considered.
- 8 -
designate persons other than named fiduciaries to
carry out fiduciary responsibilities (other than
trustee responsibilities) under the plan.
29 U.S.C. § 1105(c)(1). For example, in Madden, when confronted
with a situation in which a plan's named fiduciary delegated his
responsibilities to an entity which was not a named fiduciary, the
Ninth Circuit, relying upon the logic of Bruch and § 1105(c)(1),
held that the failure of the plan instrument to provide
specifically that the delegate had discretion did not mandate a de
novo review of the delegate's decision. Instead, the Ninth Circuit
held that when
(1) the ERISA plan expressly gives the
administrator or fiduciary discretionary authority
to determine eligibility for benefits or to
construe the terms of the plan and (2) pursuant to
... 29 U.S.C. § 1105(c)(1) ..., a named fiduciary
properly designates another fiduciary, delegating
its discretionary authority, the "arbitrary and
capricious" [(abuse of discretion)] standard of
review for ERISA claims brought under §
1132(a)(1)(B) applies to the [delegate] as well as
to the named fiduciary.
Madden, 914 F.2d at 1283-84; accord Rodriguez-Abreu v. Chase
Manhattan Bank, N.A., 986 F.2d 580, 584 (1st Cir. 1993).
In the instant case, a person whose claim is denied by the
Administrator may seek review of that decision. For that review,
MH/SA Plan § 13(a) requires the Administrator to appoint the Review
Authority, and empowers it with the "authority to act with respect
to any appeal from a denial of benefits under the Plan." Thus,
even if the MH/SA Plan did not provide specifically that the Review
Authority was vested with discretion in acting on claims, the
decision of the Review Authority, like that of the Administrator,
- 9 -
should have been subjected to an abuse of discretion review,
because the MH/SA Plan provided for the appointment of the Review
Authority by the Administrator.
2.
Alternatively, OCAW counters that any discretion afforded the
Review Authority's decision under the abuse of discretion standard
of review is limited because the MH/SA Plan and Chevron want "to
preserve the flow of `first dollar' employer contributions to that
plan's coffers." OCAW maintains that this creates a conflict,
mandating a heightened standard of review.
Assuming arguendo the possibility of a conflict, "we will
follow the Supreme Court's direction in Bruch and weigh this
possible conflict as a factor in our determination of whether the
[Review Authority] abused [its] discretion .... Thus, the standard
of review we apply in our review of the [Review Authority's]
decision is the ... abuse of discretion standard, with due
consideration given to" the alleged conflict. Duhon v. Texaco,
Inc., 15 F.3d 1302, 1306 (5th Cir. 1994); see Bruch, 489 U.S. at
115 ("if a benefit plan gives discretion to an administrator or
fiduciary who is operating under a conflict of interest, that
conflict must be weighed as a `facto[r] in determining whether
there is an abuse of discretion'" (quoting RESTATEMENT (SECOND) OF
TRUSTS § 187 cmt. d (1959))).
In any event, OCAW fails to identify what financial benefit
Chevron will gain or lose depending upon how the MH/SA Plan is
interpreted. It makes the conclusory statement that we are
- 10 -
confronted with a situation of a "dollar out of the pocket of the
company and into the pocket of an employee, is a dollar lost to the
company." While this may be the situation when a conflict of
interest exists, see Izzarelli v. Rexene Prods. Co., 24 F.3d 1506,
1513 n.13 (5th Cir. 1994), OCAW has failed to demonstrate this
situation is present in this case. When pressed at oral argument,
OCAW summarized the conflict as competition between the MH/SA Plan
and the OCAW Plan. But, this hypothetical dollar will be going to
either the MH/SA Plan or the OCAW Plan, not to Chevron. OCAW has
failed to identify how Chevron will gain financially should the
decision of the Review Authority be upheld; no conflict is present.
B.
The district court's application of an incorrect standard of
review does not, per se, compel remand. As noted, had it applied
the correct standard (abuse of discretion), we would still "review
de novo the district court's holding on the question of whether the
plan administrator abused its discretion ...." Sweatman, 39 F.3d
at 601. Accordingly, we will review the Review Authority's
decision under the abuse of discretion standard. And, as discussed
below, pursuant to that review, we conclude that the Review
Authority concluded correctly that coverage continued under the
MH/SA Plan for OCAW Plan participants.
MH/SA Plan § 3(a) describes the events which terminate
coverage for a Chevron employee participating in that plan.
Subsection (i) provides that "[i]f the Member participates in a
health care plan sponsored by or offered through [Chevron]," then
- 11 -
the termination date for coverage under the MH/SA Plan is the same
as "the date that the Member's coverage under [that other] health
care plan terminates." The Review Authority concluded that,
because the union members participate in the OCAW Plan, and the
OCAW Plan is sponsored by or offered through Chevron, their
participation in the MH/SA Plan has not terminated. The Review
Authority identified three bases for its decision: 1) Chevron
contributes to the OCAW Plan on behalf of the union members; 2) as
a general matter, regardless of which health care plan an employee
belongs to, so long as Chevron makes contributions to that plan,
employees must be covered by the MH/SA Plan; and, 3) there is, and
has been, no direct employee contributions, through payroll
deductions or otherwise, to the MH/SA Plan.
"Application of the abuse of discretion standard may involve
a two-step process. First, a court must determine the legally
correct interpretation of the plan. If the administrator did not
give the plan the legally correct interpretation, the court must
then determine whether the administrator's decision was an abuse of
discretion." Wildbur, 974 F.2d at 637; accord, e.g., Jordan v.
Cameron Iron Works, Inc., 900 F.2d 53, 56 (5th Cir.), cert. denied,
498 U.S. 939 (1990); but see Duhon, 15 F.3d at 1307 n.3 ("the
reviewing court is not rigidly confined to this two-step analysis
in every case").
For the first step -- whether an administrator's
interpretation of a plan was legally correct -- we consider: 1)
whether the administrator has given the plan a uniform
- 12 -
construction; 2) whether the administrator's interpretation is
consistent with a fair reading of the plan; and, 3) whether
different interpretations of the plan will result in unanticipated
costs. E.g., Duhon, 15 F.3d at 1311-12 (Johnson, J., dissenting);
Wildbur, 974 F.2d at 637-38; Jordan, 900 F.2d at 56.
For this first step, although there is no basis in the record
for considering the uniformity of construction given the MH/SA Plan
by the administrator, nor any evidence of unanticipated costs, we
may base our review on two factors: the explanation given to
workers enrolling in the plan, as well as our own reading of the
plan.5 See Jordan, 900 F.2d at 56-58. We address each factor in
turn, and conclude that the Review Authority's interpretation of
the MH/SA Plan was legally correct.
First, we turn to the explanation given by Chevron, to workers
enrolling in the plan, that touches on the phrase "sponsored by or
offered through". There is evidence of a consistent understanding
of the phrase, by Chevron, in its presentations to its workers. In
its September 30, 1988, letter notifying OCAW of the implementation
of the MH/SA Plan, Chevron declared that it "plan[ned] to provide
a fully Company-paid Mental Health and Substance Abuse Plan to all
employees and dependents of those employees who are enrolled in any
medical plan to which the Company contributes .... The plan is
separate from the Chevron Medical Plan, HMO, Blue Cross/Blue Shield
or union plan". (Emphasis added.) This understanding was conveyed
5
Chevron attempted to introduce into evidence the costs of an
interpretation, but the district court ruled the evidence
irrelevant.
- 13 -
to all Chevron employees in an October 1988 Benefit News letter,
which discussed who would be covered by the MH/SA Plan: "All
employees and dependents will be automatically covered ... if they
are enrolled in the Chevron Medical Plan, a participating HMO or
another health care plan to which Chevron contributes". (Emphasis
added.)
OCAW asserts that the OCAW Plan is completely independent from
any company-sponsored plan, by relying upon a booklet, provided to
Chevron employees, which lists various medical plans available to
them. This booklet, entitled "Comparing Your Health Care Choices
in 1992", was prepared by Health Benefits of America (HBA) for
distribution to Chevron employees. HBA is not part of the Chevron
organization; rather, it is a broker/consultant for Chevron, and is
paid a commission by various health care plans in order to be
listed in the booklet. The OCAW Plan was not listed in the
booklet, not because of any action by Chevron or the MH/SA Plan,
but because OCAW elected not to have its plan included.6
As explained above, our own reading of the plan is the other
(second) factor for determining, based on this record, whether the
Review Authority's interpretation of the plan was legally correct;
whether, under MH/SA Plan § 3(a)(i), the OCAW Plan is "sponsored by
or offered through [Chevron]". It is undisputed that Chevron does
not "sponsor" the OCAW Plan; therefore, the sole issue is whether
6
In a letter to the provider of the OCAW Plan, OCAW stated that
it did "not wish for any payment to [HBA] to be deducted from or
added to [the OCAW Plan] premium, as we do not wish to avail
ourselves to any services rendered by that Company."
- 14 -
the OCAW Plan is "offered through" Chevron. Because Chevron
provides administrative support for the OCAW Plan (through such
activities as directing the payroll deductions of its employees),
and contributes to the plan (as part of an employer contribution
for employees' health care plans), we conclude that a fair reading
of the MH/SA Plan is that the OCAW plan is "offered through"
Chevron.
In sum, based upon the consistent explanation given to Chevron
workers and our reading of the MH/SA Plan, we conclude that the
Review Authority gave the MH/SA Plan its legally correct
interpretation. Therefore, we need not proceed to the second leg
for the abuse of discretion test. See, e.g., Jordan, 900 F.2d at
58.
III.
For the foregoing reasons, we REVERSE, and RENDER judgment for
Chevron.
REVERSED and RENDERED
- 15 -