Equal Employment Opportunity Commission v. Aramark Corp.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 13, 2000 Decided April 14, 2000

No. 99-5125

Equal Employment Opportunity Commission,
Appellant

v.

Aramark Corporation, Inc.,
Appellee

Consolidated with
99-7042

Appeals from the United States District Court
for the District of Columbia
(No. 97cv00716)
(No. 97cv00734)

---------

 Barbara L. Sloan, Attorney, Equal Employment Opportu-
nity Commission, argued the cause for appellant. With her
on the briefs was Philip B. Sklover, Associate General Coun-
sel.

Leslie Robert Stellman argued the cause and filed the brief
for appellant Rebecca L. Fennell.

Ronald S. Honberg was on the brief for amicus curiae The
National Alliance for the Mentally Ill.

Ronald S. Cooper argued the cause and filed the briefs for
appellees Aramark Corporation, Inc. and Aetna Life Insur-
ance Company.

Phillip E. Stano was on the brief for amici curiae the
Health Insurance Association of America, the Equal Employ-
ment Advisory Council, the Chamber of Commerce of the
United States of America and the American Council of Life
Insurance.

Before: Williams, Randolph and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Tatel.

Tatel, Circuit Judge: Claiming a violation of the Ameri-
cans with Disabilities Act, appellants challenge an employee
benefit plan that provides twenty-four months of long-term
disability benefits for persons suffering from mental or psy-
chological disabilities but a longer period of benefits for those
with physical disabilities. Because the employer adopted the
plan prior to the ADA's enactment and because circuit prece-
dent holds that such plans are protected by the statute's "safe
harbor" provision, we affirm the district court's grant of
summary judgment for the employer and plan administrator.

I

Appellant Rebecca Fennell worked as a food service man-
ager for appellee Aramark Corporation for ten years until
mental illness prevented her from performing her duties.
Following Fennell's extended leave of absence due to depres-
sion and post-traumatic stress disorder, Aramark terminated
her employment on February 15, 1996. She received Social
Security disability benefits and long-term disability payments

under Aramark's employee benefit plan, administered by
appellee Aetna Life Insurance Company. The plan provides
income replacement amounting to two-thirds of base monthly
salary for employees unable to work due to long-term disabili-
ty resulting from illness, injury, or disease. Funded by
contributions from Aramark and participating employees, the
plan limits disability payments to twenty-four months if the
disability is caused by a mental condition but continues
payments until at least age sixty-five if the disability is
physical. In accordance with the plan's terms, Aetna notified
Fennell that because she had no physical impairment, her
benefit payments would be discontinued effective April 16,
1997, two years after she began receiving them.

Alleging that the plan's different benefit terms for mental
and physical disabilities amount to discrimination prohibited
by the Americans with Disabilities Act, Fennell filed a com-
plaint with the Equal Employment Opportunity Commission
and then filed suit against Aramark and Aetna in the United
States District Court for the District of Columbia. Three
days later, EEOC also filed suit, and the two cases were
consolidated. Fennell claimed that the cutoff in benefit pay-
ments violates Title III of the ADA, 42 U.S.C. ss 12181-89,
which prohibits discrimination "on the basis of disability in
the full and equal enjoyment of the goods, services, facilities,
privileges, advantages, or accommodations of any place of
public accommodation...." Id. s 12182(a). EEOC argued
that the two-year limit violates Title I of the ADA, Id.
s 12111-17, which prohibits a covered employer from dis-
criminating "against a qualified individual with a disability
because of the disability of such individual in regard to [the]
terms, conditions, and privileges of employment." Id.
s 12112(a).

The district court granted summary judgment for Aramark
and Aetna. See Fennell v. Aetna Life Ins. Co., 37 F. Supp.2d
40 (D.D.C. 1999). With respect to EEOC's claim, the district
court observed that Title I protects only a "qualified individu-
al with a disability," defined as "an individual with a disability
who, with or without reasonable accommodation, can perform

the essential functions of the employment position that such
individual holds or desires." 42 U.S.C. s 12111(8). Because
Fennell had become totally disabled and unable to perform
the essential functions of her job, the district court held that
she no longer met the definition of a "qualified individual with
a disability" and was therefore unprotected by Title I of the
ADA. Fennell, 37 F.Supp. 2d at 43-44. With respect to
Fennell's claim, the district court held that Title III only
requires elimination of barriers to access for the disabled in
places of public accommodation, which the court limited to
"physical locations." Id. at 45. Because a disability benefit
plan does not constitute a physical place of public accommo-
dation, the court said, it is not regulated by Title III.

EEOC and Fennell appeal. EEOC argues that the district
court erred by construing Title I narrowly to prevent former
employees no longer able to perform essential functions of
their previous jobs from ever suing under the ADA. Accord-
ing to EEOC, the district court's ruling would prevent a
totally disabled former employee from suing for discrimina-
tion in post-employment benefits, even if those benefits had
been earned when she was a "qualified individual with a
disability." Fennell argues that public accommodation refers
not just to physical locations, as the district court held, but
also to all available products and services including benefit
plans. Our review is de novo. See Cones v. Shalala, 199
F.3d 512, 516 (D.C. Cir. 2000).

II

Our sister circuits are divided on both issues that formed
the basis of the district court's grant of summary judgment
for Aramark and Aetna. The Seventh, Ninth, and Eleventh
Circuits have held (as did the district court) that Title I of the
ADA provides no protection to a totally disabled former
employee because that person is no longer a "qualified indi-
vidual with a disability." See Weyer v. Twentieth Century
Fox Film Corp., 198 F.3d 1104, 1110 (9th Cir. 2000); EEOC
v. CNA Ins. Cos., 96 F.3d 1039, 1045 (7th Cir. 1996); Gon-
zales v. Garner Food Services, Inc., 89 F.3d 1523, 1531 (11th
Cir. 1996). Reaching the opposite conclusion, the Second and

Third Circuits have held that a former employee who had
earned fringe benefits while employed and "qualified" could
sue under Title I for discrimination in post-employment bene-
fits despite the fact that at the time of the suit the former
employee had become completely disabled and no longer
"qualified." See Ford v. Schering-Plough Corp., 145 F.3d
601, 608 (3d Cir. 1998), cert. denied, --- U.S. ----, 119 S. Ct.
850 (1999); Castellano v. City of New York, 142 F.3d 58, 68
(2d Cir. 1998), cert. denied, 525 U.S. 820 (1998). With respect
to Title III, the Third and Sixth Circuits (like the district
court) have limited Title III to ensuring access to physical
locations open to the public. See Ford, 145 F.3d at 614;
Parker v. Metropolitan Life Ins. Co., 121 F.3d 1006, 1014 (6th
Cir. 1997) (en banc), cert. denied, 522 U.S. 1084 (1998). The
First and Second Circuits have held that the ADA's prohibi-
tion on disability discrimination in the products and services
of places of public accommodation is not limited to physical
structures and may in some instances include insurance poli-
cies and underwriting practices. See Pallozzi v. Allstate Life
Ins. Co., 198 F.3d 28 (2d Cir. 1999), amended on denial of
reh'g, 204 F.3d 392 (2d Cir. 2000); Carparts Distrib. Ctr., Inc.
v. Automotive Wholesaler's Ass'n of New England, Inc., 37
F.3d 12, 19 (1st Cir. 1994).

This circuit has expressed itself on neither of these disput-
ed issues, nor need we do so now, for we have circuit
precedent under which we may affirm the district court on a
different ground--that the challenged plan is protected by
the ADA's safe harbor for bona fide employee benefit plans.
Although the district court never addressed the safe harbor
provision, the issue is fully briefed, and because we review the
district court's judgment, not its reasoning, we may affirm on
any ground properly raised. See, e.g., Doe v. Gates, 981 F.2d
1316, 1321-22 (D.C. Cir. 1993).

The ADA's safe harbor appears in section 501(c): "Sub-
chapters I through III of this chapter and title IV of this Act
shall not be construed to prohibit or restrict ... a person or
organization covered by this chapter from establishing, spon-
soring, observing or administering the terms of a bona fide
benefit plan that is not subject to State laws that regulate

insurance." 42 U.S.C. s 12201(c)(3). This safe harbor "shall
not be used as a subterfuge to evade the purposes" of Title I
or Title III of the ADA. Id. s 12201(c).

The parties agree that Aramark's benefit plan "is bona fide
in that it exists and pays benefits." Public Employees Re-
tirement Sys. of Ohio v. Betts, 492 U.S. 158, 166 (1989)
(internal quotation marks omitted). They also agree the plan
is not subject to state insurance regulation by virtue of
ERISA's preemption provisions. Their disagreement centers
on the meaning of the safe harbor's "subterfuge" exception.
Relying on our decision in Modderno v. King, 82 F.3d 1059
(D.C. Cir. 1996), Aramark and Aetna argue that their benefit
plan cannot fall into the subterfuge exception because Ara-
mark adopted it before the ADA's enactment. Fennell and
EEOC contend that any benefit plan that includes disability-
based distinctions, no matter when adopted, is a subterfuge if
those distinctions are not "based on sound actuarial princi-
ples."

Modderno involved a challenge to a benefit plan's lifetime
limit on mental health treatment reimbursement. Although
the case arose under the Rehabilitation Act of 1973, which
prohibits disability discrimination in government employment,
that Act incorporates the ADA's safe harbor provision. See
29 U.S.C. s 794(d). The appellant in Modderno argued, as
do Fennell and EEOC, that in order to escape the safe
harbor's subterfuge exception, the employer had to show that
any differential treatment of disabled persons in a benefit
plan is actuarially justified. Modderno rejected this actuarial
defense interpretation of subterfuge, finding it " 'at odds with
the plain language of the statute itself.' " Modderno, 82 F.3d
at 1065 (quoting Betts, 492 U.S at 171).

Of particular significance to this case, Modderno went on to
hold that the plan challenged in that case could not be a
subterfuge because the employer had adopted it prior to the
Rehabilitation Act amendment that incorporated the subter-
fuge provision. In support of this conclusion, Modderno
relied on two Supreme Court decisions interpreting a similar
subterfuge provision in the Age Discrimination in Employ-

ment Act of 1967: United Air Lines, Inc. v. McMann, 434
U.S. 192 (1977), and Betts, 492 U.S. 158. In those two cases,
the Supreme Court construed "subterfuge" to have its "ordi-
nary meaning as 'a scheme, plan, stratagem, or artifice of
evasion.' " Betts, 492 U.S. at 167 (quoting McMann, 434 U.S.
at 203). Recognizing that the ordinary meaning of subter-
fuge includes a specific intent to circumvent or evade a
statutory purpose, the Supreme Court held there could be no
such intent if the challenged provision had been adopted prior
to the statute's enactment. "In McMann, for instance, where
the plan at issue had been adopted in 1941, long before the
enactment of the ADEA, the Court observed that '[t]o spell
out an intent in 1941 to evade a statutory requirement not
enacted until 1967 attributes, at the very least, a remarkable
prescience to the employer.' " Modderno, 82 F.3d at 1064
(quoting McMann, 434 U.S. at 203).

Modderno's application of Betts and McMann to section
501(c) of the ADA controls this case. It is undisputed that
Aramark's long-term disability benefit plan, including the
twenty-four-month cap on mental disability benefits chal-
lenged here, has been in place since at least 1982, long before
the ADA's 1990 enactment. Under Modderno, therefore, the
twenty-four-month benefit limit cannot fall within section
501(c)'s subterfuge exception to the safe harbor.

Appellants offer three arguments why Modderno should
not control this case, none of which is convincing. First, they
claim that Modderno was wrongly decided because it over-
looked a difference between the language of section 501(c)'s
subterfuge provision and the language of the similar provision
in section 4(f)(2) of the ADEA interpreted by Betts. They
point out that while the ADEA gave safe harbor to a benefit
plan "which is not a subterfuge to evade the purposes of this
chapter," the ADA substitutes the phrase "shall not be used
as a subterfuge to evade the purposes of subchapter[s] I and
III of this chapter" 29 U.S.C. s 623(f)(2) (1990); 42 U.S.C.
s 12201(c) (emphasis added). Even if a panel of this court
could depart from settled precedent, which of course it can-
not, see, e.g., LaShawn v. Barry, 87 F.3d 1389, 1395 (D.C. Cir.
1996) (en banc), we are unpersuaded that what EEOC itself

acknowledges to be a "subtle difference in language"--the
addition of the words "used as"--would compel a different
result.

In enacting section 501(c) of the ADA, Congress repeated
the phrase "a subterfuge to evade the purposes of ... this
chapter" just one year after Betts had interpreted that pre-
cise phrase in section 4(f)(2) of the ADEA to exclude pre-Act
benefit plan provisions. According to EEOC, Congress sig-
naled its rejection of the Betts interpretation by changing the
words preceding that phrase from "is not" in the ADEA to
"shall not be used as" in the ADA. While a benefit plan
cannot be a subterfuge to evade the purposes of a not-yet-
enacted statute, EEOC argues, it "can be 'used as a subter-
fuge' regardless of when the plan was adopted." EEOC
contends that merely by including the words "used as" in
section 501(c), Congress expanded the subterfuge exception
to remove pre-ADA benefit plans from safe harbor protection.
Instead of protecting all pre-Act plans, the safe harbor, as
EEOC reads it, functions as an affirmative defense that
allows employers, benefit plan administrators, and insurance
underwriters to avoid liability for disability-based distinctions
by showing on the basis of "sound actuarial principles" that
the distinctions are risk- or cost-justified.

The language of the two safe harbor provisions actually
differs more extensively than even EEOC points out. The
ADEA provision examined in McMann and Betts reads in
pertinent part:

It shall not be unlawful for an employer, employment
agency, or labor organization ... to observe the terms of
... any bona fide employee benefit plan such as a
retirement, pension, or insurance plan, which is not a
subterfuge to evade the purposes of this chapter....

29 U.S.C. 623(f)(2) (1990). The ADA provision reads as
follows:

Subchapters I through III of this chapter and title IV of
this Act shall not be construed to prohibit or restrict--

(1) an insurer, hospital or medical service company,
health maintenance organization, or any agent, or entity

that administers benefit plans, or similar organizations
from underwriting risks, classifying risks, or administer-
ing such risks that are based on or not inconsistent with
State law; or

(2) a person or organization covered by this chapter from
establishing, sponsoring, observing or administering the
terms of a bona fide benefit plan that are based on
underwriting risks, classifying risks, or administering
such risks that are based on or not inconsistent with
State law; or

(3) a person or organization covered by this chapter from
establishing, sponsoring, observing or administering the
terms of a bona fide benefit plan that is not subject to
State laws that regulate insurance.

Paragraphs (1), (2), and (3) shall not be used as a
subterfuge to evade the purposes of subchapter[s] I and
III of this chapter.

42 U.S.C. s 12201(c). Under the ADEA, a benefit plan falls
within the safe harbor only if the plan is both (1) bona fide
and (2) not a subterfuge. In the ADA, by contrast, a benefit
plan receives safe harbor protection if it is (1) bona fide and
(2) either consistent with or exempt from state law, but the
safe harbor provision "shall not be used as a subterfuge to
evade the purposes of" Titles I and III of the ADA. In other
words, under the ADA, it is not the benefit plan, but the safe
harbor itself that shall not be used as a subterfuge.

We think these semantic distinctions, including the one on
which appellants rely, do not undermine Modderno. As
Modderno pointed out, the Supreme Court interpreted the
phrase "subterfuge to evade" to require a specific intent to
circumvent a statutory purpose, thus excluding from the
subterfuge exception all pre-Act plans. 82 F.2d at 1064.
Fully aware of the judicial construction of this phrase, Con-
gress used the very same phrase in the ADA's safe harbor.
"[W]hen Congress chose the term 'subterfuge' for the insur-
ance safe-harbor of the ADA, it was on full alert as to what
the Court understood the word to mean and possessed (obvi-
ously) a full grasp of the linguistic devices available to avoid

that meaning." Id. at 1065. See also Bragdon v. Abbott, 524
U.S. 624, 645 (1998) ("When ... judicial interpretations have
settled the meaning of an existing statutory provision, repeti-
tion of the same language in a new statute indicates, as a
general matter, the intent to incorporate its ... judicial
interpretations as well."). Whether a benefit plan "is" a
subterfuge to evade the purposes of the law (the ADEA's
language), or whether the safe harbor for benefit plans is
"used as" a subterfuge to evade the purposes of the law (the
ADA's language), the plain meaning of the phrase "subter-
fuge to evade" remains as defined by McMann, Betts, and
Modderno--"a scheme, plan, stratagem, or artifice of eva-
sion." Under the ADA, then, "subterfuge to evade" still
requires intent and still excludes pre-Act plans like Ara-
mark's because, as McMann said, "[t]o spell out an intent in
[1982] to evade a statutory requirement not enacted until
[1990] attributes, at the very least, a remarkable prescience
to the employer." McMann, 434 U.S. at 203. For the same
reason, "subterfuge to evade" cannot mean merely a lack of
actuarial justification. Indeed, appellants' contention that the
safe harbor applies only to plans whose terms are actuarially
justified has been rejected not only by Modderno but also by
every other circuit to have considered the issue. See Leon-
ard F. v. Israel Discount Bank of New York, 199 F.3d 99, 105
(2d Cir. 1999) ("In the context of the subterfuge clause of
Section 501(c) of the ADA, neither the dictionary definition
nor the Supreme Court's reasonably suggests that absence of
actuarial justification for differential insurance benefits is
sufficient to demonstrate a 'subterfuge' to evade the purposes
of an Act, at least where the insurance policy was adopted
prior to the Act's passage."); Rogers v. Department of Health
and Envtl. Control, 174 F.3d 431, 437 (4th Cir. 1999) ("[W]e
do not find anything in s 501(c) of the ADA (or anywhere else
in the Act) that requires a plan sponsor or administrator to
justify a plan's separate classification of mental disability with
actuarial data."); Ford, 145 F.3d at 611-12 ("[W]e will not
construe section 501(c) to require a seismic shift in the
insurance business, namely requiring insurers to justify their
coverage plans in court after a mere allegation by a plain-

tiff."); Parker, 121 F.3d at 1012 n. 5 (rejecting as inconsistent
with the statutory text the view expressed in the Department
of Justice Technical Assistance Manual that different insur-
ance benefit or coverage levels based on disability are permit-
ted only where "based on sound actuarial principles" or
"related to actual or reasonably anticipated experience");
Krauel v. Iowa Methodist Med. Ctr., 95 F.3d 674, 678-79 (8th
Cir.1996) (rejecting EEOC's interim guidance explaining ac-
tuarial justification defense as contrary to the plain language
of the statute and thus not entitled to deference).

Congress's addition of the words "used as" is simply too
thin a reed on which to support appellants' claim that Con-
gress intended to overrule Betts, remove pre-Act plans from
safe harbor protection, and give life to EEOC's uniformly
rejected actuarial justification theory. After all, Congress
responded to Betts by totally deleting the subterfuge lan-
guage from the ADEA, just before it included the similar
subterfuge provision in section 501(c) of the ADA. See Older
Workers Benefit Protection Act of 1990, Pub.L. No. 101-433,
s 103(1) (codified at 29 U.S.C. s 623(f)(2)). Had Congress
also intended to repudiate Betts for ADA purposes, it could
have omitted the provision from that statute as well.

Appellants' second argument is that Modderno's discussion
of section 501(c) is dicta. As they read the case, the decision
rested on the observation that the plan provision challenged
there, a lifetime limit on reimbursement for mental health
treatment, did not discriminate on the basis of disability.
Given that "holding," the Commission claims, the panel's
discussion of section 501(c) was merely "ruminations" "not
necessary to its holding," and therefore not binding on us.
Not only did EEOC fail to raise this argument until its reply
brief, see, e.g., Presbyterian Med. Ctr. of the Univ. of Penn.
Health Sys. v. Shalala, 170 F.3d 1146, 1152 (D.C. Cir. 1999)
(noting that we need not consider arguments raised for the
first time in a reply brief), but it rests on a misreading of
Modderno. After concluding that "[b]ecause the coverage
limitations challenged by Modderno were enacted before the
1992 amendment of s 504 of the Rehabilitation Act (and there
is no suggestion that their enactment was prompted by an
expectation of amendment), they do not fall into the subter-
fuge exception to the ADA's safe-harbor," Modderno went on

to say, in language the Commission fails to account for:
"Thus, whether or not Modderno stated a claim under the
1992 amendment of s 504 apart from the safe-harbor provi-
sion--a question on which we express no opinion--the cover-
age limitations challenged by Modderno cannot violate
amended s 504." Modderno, 82 F.3d at 1065 (emphasis
added). Because Modderno's interpretation of the safe har-
bor was essential to its reasoning as well as to its disposition
of the claims before it, it stands as binding precedent.

Finally, EEOC argues that even assuming we follow Mod-
derno's interpretation of section 501(c), this case differs from
Modderno because Aramark modified the plan after the
ADA's enactment. Appellants rely on two specific changes in
Aramark's long-term disability benefit plan. First, the twen-
ty-four-month limit on benefit payments previously applied to
anyone whose disability is "a result of a mental or emotional
illness," but now applies to disabilities "caused to any extent
by a mental condition (including conditions related to alcohol-
ism or drug abuse) described in the most current edition of
the Diagnostic and Statistical Manual of Mental Disorders,
published by the American Psychiatric Association." Second,
for a mentally disabled participant confined to an inpatient
psychiatric hospital at the time the twenty-four-month period
ends, benefit payments under the prior plan would continue
for the duration of hospitalization; under the revised plan,
continuation of benefits is limited to ninety days beyond the
twenty-four-month cutoff. According to EEOC, these two
changes remove Aramark's plan from automatic safe harbor
protection. We disagree.

To begin with, whatever effect the plan amendments may
have, appellants concede that they did not apply to Fennell,
whose benefits would have terminated after twenty-four
months even under the plan's previous version. Neither
appellant explains how the plan amendments could be a
subterfuge to evade the ADA and discriminate against Fen-
nell if they did not affect her.

Asserting that its suit is not limited to seeking relief for
Fennell, EEOC argues that the plan amendments affected
others by "increas[ing] the number of people subject to the

limitation." Not only was this argument also raised for the
first time in EEOC's reply brief, but the Commission's com-
plaint alleges neither that Aramark amended the plan for the
purpose of circumventing the ADA, i.e., that the amendments
were a subterfuge (its burden under Betts), nor that the
amendments have ever been applied to terminate benefits to
anyone not subject to the same cutoff under the previous
plan.

The judgment of the district court is affirmed.

So ordered.