Flinders v. Workforce Stabilization Plan of Phillips Petroleum Co.

F IL E D
United States Court of Appeals
Tenth Circuit
PUBLISH
July 3, 2007
U N IT E D ST A T E S C O U R T O F A PP E A L S
Elisabeth A. Shumaker
Clerk of Court
T E N T H C IR C U IT

BLAINE FLINDERS; DAVID
BROW N, on behalf of themselves and
others similarly situated,
No. 06-4133
Plaintiffs - Appellants,

v.

W O RK FORC E STA BILIZA TION
PLA N O F PH ILLIPS PETR OLEUM
C OM PA N Y ,

Defendant - Appellee.

A PPE A L FR O M T H E U N IT ED ST A T ES D IST R IC T C O U R T
FO R T H E D IST R IC T O F U T A H
(D .C . N o. 2:04-C V -541-D A K )

Scott A. Hagen (and M ichael E. Blue with him on the briefs), Ray, Quinney &
Nebeker, P.C, Salt Lake City, Utah, for Plaintiffs - Appellants.

M atthew M . Durham (and Justin B. Palmer with him on the brief), Stoel, Rives,
L.L.P., Salt Lake City, Utah, for Defendant - Appellee.

Before K E L L Y , H E N R Y , and L U C E R O , Circuit Judges.

K E L L Y , Circuit Judge.
 Plaintiffs-Appellants Blaine Flinders and David Brown, on behalf of

themselves and a class of others similarly situated, (referred to collectively as

“Plaintiffs”) appeal the district court’s grant of partial summary judgment in favor

of Defendant-Appellee Workforce Stabilization Plan of Phillips Petroleum

Company (“W FSP” or “the Plan”). Plaintiffs asserted claims under the Employee

Retirement Income Security Act of 1974 (“ERISA ”), arguing that the Plan

wrongfully denied them benefits. The parties filed cross motions for partial

summary judgment on August 31, 2005. The district court granted the Plan’s

motion, finding that the Plan’s determination that Plaintiffs were not

“participants” in the W FSP was not arbitrary and capricious. Our jurisdiction

arises under 28 U.S.C. § 1291, and we reverse and remand for an award of

benefits.

Background

Plaintiffs constitute a class of former employees of the Phillips Petroleum

Company (“the Company”). The class consists of members of collective

bargaining units at two of the Company’s plants: a refinery in W oods Cross, Utah

and a terminal in Spokane, W ashington. The W oods Cross plaintiffs filed suit

against the Plan on June 14, 2004 to recover benefits under § 502(a)(1)(B) of

-2-
ERISA . See 29 U.S.C. § 1132(a)(1)(B). The district court certified the class on

November 4, 2004, which was later enlarged to include four Spokane plaintiffs.

The total amount of benefits sought by Plaintiffs is $6,701,626.32. Aplt. App. at

908. After the district court granted the Plan’s motion for partial summary

judgment, Plaintiffs sought leave to serve Joseph High, the Plan’s administrator,

and assert a claim for breach of fiduciary duty under § 502(a)(3) of ERISA . See

29 U.S.C. § 1132(a)(3). The district court denied the motion as futile on M ay 18,

2006. This appeal followed.

The Plan provides a substantial benefit payment to Company employees

who are laid off as the result of a merger, specifically “[a] lump-sum payment

equivalent to four weeks’ pay for each year of service, with a minimum benefit of

16 weeks’ pay and a maximum benefit of 104 weeks’ pay.” A plt. App. at 118. It

is financed using the general assets of “the company,” which is defined as

“Phillips Petroleum C ompany and all other [affiliated] companies which have

adopted this plan.” The Summary Plan Description (“SPD”) furnished to

employees 1 gives this description of the Plan’s financing:

The company pays the entire cost of the plan from its general assets.
Employee contributions are not required or permitted. The company
holds all funds used to provide benefits under the W ork Force

1
ERISA requires that a plan administrator furnish to each “participant
covered under the plan and to each beneficiary who is receiving benefits under
the plan . . . a summary plan description.” 29 U.S.C. § 1021(a)(1).

-3-
 Stabilization Plan. The benefits will not be funded through a trust
agreement or guaranteed by an insurance contract issued by an
insurance carrier . . . .

Id. at 119.

The Plan expressly grants the Plan Administrator discretion to determine

eligibility for benefits, subject to review by the Plan Committee. The Plan also

grants the Plan Committee the power to “interpret and administer the Plan

including the resolution of ambiguities, inconsistencies and omissions.” Id. at

453. It further states that the “Committee shall have absolute discretion in

carrying out its responsibilities.” Id. The Plan Administrator and Plan

Committee members are all senior executives and long-time employees of the

Company, each having served with the Company for a number of years. Id. at

300-20, 902-07. They are compensated by salary and receive bonuses based on

the Company’s performance. The chair of the Plan Committee is John Carrig, the

Company’s chief financial officer.

The Plan’s coverage rules (as contained in the M arch 12, 2002 SPD ) state,

in relevant part:

You become a participant and are eligible to receive benefits if you
meet all of these conditions:

• You are laid off during the window period.

• You are an active regular full-time or active regular
part-time employee of Phillips or one of the
participating subsidiaries on the company’s direct U.S.

-4-
 dollar payroll. The following groups of employees are
not eligible to participate:

–Retail marketing store or outlet personnel;

–Any employee of Phillips Pipe Line Company
whose job is in the Pipe Line Relief Labor Pool

–Any member of a recognized or certified
collective bargaining unit unless coverage under
the plan is included under the collective
bargaining agreement; and

–Tosco heritage employees notified of layoff prior
to Dec. 7, 2001.

Id. at 118.

The W oods Cross CBA states as follow s:

Except as hereinafter limited, all benefits arranged by the Company
for its employees generally shall be available to employees covered
by this Agreement. “Security Plans” and “Benefits” include among
others:

• Unavoidable Absence Benefits Plan
• Group Life Insurance and Total and Permanent
Disability Insurance
• Long Term Disability Insurance
• Comprehensive M edical and Hospital Expense Plan
• Phillips Retirement Plan
• Annual M ilitary Training Leave of Absence and
Emergency Call-outs
• Civil Leave of Absence
• Active Duty M ilitary Leave and Job Reinstatement
Policy
• Thrift plan
• Lost Time D ue to Jury Duty or as W itness in Court
Proceedings Benefits
• Vacations

-5-
 • Dental Assistance Plan
• Layoff Plan
• Long Term Stock Savings Plan

Id. at 125.

The Spokane CBA is substantially similar to the W oods Cross CBA, and it

states that “all benefits arranged by the Company for its employees as a whole,

shall be available to all employees covered by this Agreement.” Id. at 139. The

Spokane CBA also gives a list of exemplary benefits, which does not include the

W FSP.

An exclusion for unionized employees first appeared in the SPD on M arch

12, 2002. 2 The W oods Cross CBA was completed over a month earlier, on

February 4, 2002. Shortly after M arch 12, 2002, the Company announced a

proposed merger with Conoco. As a result of the merger, Plaintiffs were laid-off

on June 1, 2003 when the refinery and terminal w ere sold to Holly Corporation.

Plaintiffs were immediately offered employment by Holly Corporation. A new

company, ConocoPhillips, was formed on August 30, 2002.

A. The W oods Cross Plaintiffs

Believing they were entitled to W FSP benefits, the W oods Cross plaintiffs

2
The Plan points out that the exclusion has been part of the plan document
itself since 1991 and that the SPD specifically states that it is not meant to include
all details of the Plan. Nevertheless, ERISA requires that the SPD include “the
plan’s requirements respecting eligibility.” 29 U.S.C. § 1022(b).

-6-
formally applied for benefits on June 5, 2003. On September 24, 2003, the Plan

Administrator denied the benefits, giving the following rationale:

This list of benefits and policies that are applicable to the
employees covered by the [Woods Cross CBA] is quite detailed and
although reference is made to the Layoff Plan, another severance
benefit plan of Phillips Petroleum, there is no reference to, or
inclusion of, the W ork Force Stabilization Plan, as required by the
W FSP definitions for employee and participant. Additionally,
Section 2 of Article VII of the Bargaining A greement further states:
“The conditions, rules, and regulations of such security plans and
benefits as established by Phillips Petroleum Company shall
determine all questions arising there under.[”] Thus, it is my
determination that the W FSP is not included under the Bargaining
Agreement as required by the terms of the W FSP and therefore,
Claimants are not covered by the W FSP.

Id. at 969 (emphasis added).

The W oods Cross plaintiffs appealed the denial of their claims to the Plan

Committee on October 29, 2003. The appeal letter responded to each point raised

in the Plan Administrator’s denial letter, including the apparent determinative

rationale that “although reference is made to the Layoff Plan, another severance

benefit plan of Phillips Petroleum, there is no reference to, or inclusion of, the

W ork Force Stabilization Plan,” in the W oods Cross CBA. The appeal letter

stated:

Although, as [the Plan A dministrator] pointed out in his letter,
this list of plans and benefits [from the W oods Cross CBA] is “quite
detailed,” it is not exhaustive. In fact, it is expressly stated that the
list does not include every plan or benefit. The language of the
collective bargaining agreement is that the Claimants are entitled to
“all benefits arranged by the Company for its employees generally,”

-7-
 and that the benefits available include “among others,” those
specifically itemized in the list. There is no dispute that benefits
under this Plan have been available to all Phillips Petroleum
Company employees generally, and the list, because it is preceded by
the words “among others,” expressly includes other plans not
specifically mentioned. Under the plain language of the collective
bargaining agreement, the Claimants are therefore entitled to “all
benefits arranged by the Company for its employees generally,”
which include benefits under the Plan. . . .

Furthermore, the Claimants have been allowed to participate in
employee benefit plans that were not specifically listed in the
collective bargaining agreement. Such plans include the Scholarship
Plan, the Death Gratuity Plan, the Long-Term Care Plan, the
Employee Assistance Plan, and, more recently, the Performance 66
Account, among others.

Id. at 165-66.

A packet of materials for advance review was prepared for the Plan

Committee which included the appeal letter. The “Overview” section of the

packet (which is more accurately described as a recommendation) stated that:

“There is no reference to, or inclusion of, the W FSP in the collective bargaining

agreement. The Claimants are not eligible for the W FSP.” Id. at 951. The packet

contained no other response to the arguments asserted in the appeal letter. Id. at

177-229. To be sure, the packet outlined each of the W oods Cross plaintiffs’

arguments but it did not provide a response to any of them, aside from the general

statement in the “Overview” that the W FSP was not referenced or included in the

CBA. In addition, the Plan’s subsequent litigation position–that the W FSP is not

a benefit that was “arranged by the Company for its employees generally”–is

-8-
nowhere specifically articulated in the appeal packet. The only relevant reference

to the Plan’s availability is a statement in the W oods Cross plaintiffs’ appeal

letter which reads: “There is no dispute that benefits under this Plan have been

available to all . . . employees generally . . . .” Id. at 206.

The minutes of the Plan Committee meeting state the following, in

pertinent part:

The third agenda item w as the Scott Hagen [counsel for
Employees] appeal on behalf of the members (Claimants) of PACE
Local No. 8-578 to the Plan Administrator’s denial of benefits under
the W ork Force Stabilization Plan (Plan). The Plan excludes
members of a recognized or certified collective bargaining unit as
being eligible for severance benefits unless “the Plan is included
under the collective bargaining agreement.” There is no reference to,
or inclusion of, the W ork Force Stabilization Plan in the collective
bargaining agreement.

Connie Brandon presented an overview of the key events of
the appeal. The Committee reviewed and discussed M r. Hagen’s
appeal, the relevant terms of the Plan and the relevant terms of the
“A greement Between Phillips Petroleum Company and Paper,
Allied-Industrial, Chemical and Energy W orkers International Union
and its Local No. 8-578.” The Union had adopted the Phillips Layoff
Plan in negotiations, but had not adopted the Plan.

After discussion, the Committee determined the Claimants
were not eligible for severance benefits under the W ork Force
Stabilization Plan. John Carrig made the motion to deny the appeal,
Rand Berney seconded the motion, and the Committee voted
unanimously to deny the appeal for the Plan benefits. The
Committee concurred with the Plan Administrator’s decision.

Id. at 325-26 (emphasis added). These minutes make no specific reference to the

Plan’s litigation position that the W FSP is not a plan arranged by the Company

-9-
for its employees generally. Apparently, the Plan Committee simply agreed with

the proposition that the W FSP had not been “adopted” by the Union; i.e., that the

W FSP w as not “included” in the CBA.

The Plan Committee drafted a denial letter dated December 18, 2003. 3 In

explaining its denial, the Plan Committee did not contest any of the factual

assertions in the W oods Cross plaintiffs’ appeal letter but instead stated: “The

Committee does not agree with your interpretation of the language contained in

the collective bargaining agreement with respect to inclusion of the plan.” Id. at

169. It then relied exclusively on the Plan Administrator’s determination to deny

the claims, stating that “the Committee is in agreement with the reasons set forth

in the determination of [the Plan Administrator’s] letter of September 24, 2003.”

Id. at 170. The W oods Cross plaintiffs then filed suit on June 14, 2004, with M r.

Flinders and M r. Brown serving as class representatives.

B. The Spokane Plaintiffs

The Spokane plaintiffs initially sought benefits by inquiring directly with

the Company, outside the formal claims administration process set out in the

Plan’s SPD . They received a written response from the Company on August 22,

2003, which stated as follows:

3
The parties dispute w hen the letter w as actually mailed, but that fact is
im material to our review .

- 10 -
 These issues [including the request for Plan benefits] were
discussed again at the June 16, 2003 meeting. The following is the
company’s final position on these issues.

***
3. The W ork Force Stabilization Summary Plan Description
states “the following groups of employees are not eligible to
participate: any member of a recognized or certified collective
bargaining unit unless coverage under the plan is included under the
collective bargaining agreement.” As the collective bargaining
agreement does not include coverage under W ork Force Stabilization,
[sic] the represented employees are not eligible for benefits under
W ork Force Stabilization.
Id. at 233-34.

The Spokane plaintiffs asked the Company to reconsider, but received no

response. Accordingly, on July 14, 2004 (seven months after the final denial of

the W oods Cross plaintiffs’ claims), the Spokane plaintiffs formally applied for

benefits from the Plan by a letter addressed to the Plan Administrator. The Plan

Administrator denied the claims in a letter dated September 14, 2004, giving this

explanation:

To summarize my findings, the Plan excludes employees who are
members of a recognized or certified collective bargaining unit
unless the Plan is included in the collective bargaining agreement.
The collective bargaining agreement applicable to your bargaining
unit, PA CE Local 8-562 does not include the Plan; therefore, the
employees of that bargaining unit are not participants under the plan
or eligible for benefits.

Id. at 239. The explanation also explicitly stated, for the first time, that the

W FSP was not arranged by the Company for its employees “as a whole.” Id. at

244.

- 11 -
 The Spokane plaintiffs appealed the denial of benefits in a letter dated

November 3, 2004. The Plan Administrator, however, denied the appeal

summarily on the ground that it was submitted late. Id. at 275-76. The Spokane

plaintiffs were then added to the lawsuit and the class by way of an amended

complaint on August 5, 2005.

C. The Proceedings Below

In district court, the parties disputed the appropriate standard of review.

The Plan argued that, because the W FSP gives the Plan Administrator and the

Plan Committee discretionary authority to determine eligibility, the burden should

be on Plaintiffs to show that the denial of benefits was arbitrary and capricious.

See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989); Chambers

v. Family Health Plan Corp., 100 F.3d 818, 825 (10th Cir. 1996). Plaintiffs

countered that the Plan Committee members had a serious conflict of interest and

that there were significant irregularities in the claims process. Consequently,

Plaintiffs argued the burden was on the Plan to show its denial of the benefits was

reasonable and supported by substantial evidence. See Fought v. UNUM Life Ins.

Co., 379 F.3d 997, 1006 (10th Cir. 2004). The district court concluded that the

Plan C ommittee members had only a standard conflict of interest and that there

were no procedural irregularities. Accordingly, it reviewed the decision denying

benefits under the arbitrary and capricious standard, “adjusted only slightly for

- 12 -
the standard conflict [of interest].” Flinders v. W orkforce Stabilization Plan, No.

2:04-CV-541, 2006 W L 641524, at * 8 (D. Utah M ar. 10, 2006).

On its merits review, the district court affirmed the denial of benefits.

Regardless of the standard of review, it considered and agreed with the Plan’s

argument that the W FSP was not arranged by the Company for its employees

generally and therefore was not included in the CBA. Id. at *11. It reached this

conclusion because the W FSP excluded certain classes of employees (aside from

union workers) and was only triggered upon the happening of a merger. Id. at

*10. Furthermore, the district court granted the Plan’s motion to strike the

alleged statement of Jim Nokes, a Company administrator, as unreliable double

hearsay. Id. at *11. It also granted the Plan’s motion to strike a Yahoo! finance

report showing that the Plan Committee members owned stock in the Company.

Id.

On appeal, Plaintiffs argue that the district court erred in (1) utilizing the

arbitrary and capricious standard of review without any adjustment for a serious

conflict of interest or a serious procedural irregularity and (2) holding that the

Plan’s decision denying benefits on the ground that Plaintiffs were not

participants was not arbitrary and capricious. In addition, Plaintiffs contend that

the district court abused its discretion in excluding the alleged statement of Jim

N okes and the Y ahoo! finance report. W e consider these arguments below.

- 13 -
 Discussion

I. The Standard of Review

“Summary judgment orders are reviewed de novo, using the same standards

as applied by the district court.” Pitman v. Blue Cross & Blue Shield of Okla.,

217 F.3d 1291, 1295 (10th Cir. 2000). A denial of benefits covered by ERISA “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.” Firestone, 489 U.S. at 115. If the

benefit plan gives discretion to a plan administrator, then a decision denying

benefits is typically review ed under an arbitrary and capricious standard. Fought,

379 F.3d at 1003. Such review is limited to “determining whether the . . .

interpretation [of the plan] w as reasonable and made in good faith.” Id.

If, however, a plan administrator operates under an inherent or proven

conflict of interest or there is a serious procedural irregularity in the

administrative process, it is necessary to adjust the standard of review. Id. at

1006. Effectively, this court has crafted a “sliding scale approach” where the

“reviewing court will always apply an arbitrary and capricious standard, but the

court must decrease the level of deference given . . . in proportion to the

seriousness of the conflict.” Chambers, 100 F.3d at 825-26. If a plaintiff can

- 14 -
prove a serious conflict of interest or the existence of a serious procedural

irregularity, then the burden shifts to the plan administrator to prove the

reasonableness of its decision under the arbitrary and capricious standard.

Fought, 379 F.3d at 1006. W hen the burden shifts in this manner, the plan

administrator “must demonstrate that its interpretation of the terms of the plan is

reasonable and that its application of those terms to the claimant is supported by

substantial evidence.” Id. “The district court must take a hard look at the

evidence and arguments presented to the plan administrator to ensure that the

decision was a reasoned application of the terms of the plan to the particular case,

untainted by the conflict of interest.” Id.

Plaintiffs argue that there was a serious conflict of interest requiring

reversal of the burden of proof because: (1) the W FSP is not simply self-funded,

it is “unfunded,” with benefits being paid directly by the Company as needed, (2)

the Plan Administrator and Plan Committee members are all paid employees and

stockholders in the Company, (3) John Carrig, the Plan Committee chairman (and

the C ompany’s CFO), had an incentive to cut costs due to the impending merger,

and (4) when viewed in relation to the price of the sale of the W oods Cross

Refinery ($25 million), the cost of benefits sought ($6.4 million) would have had

a significant impact on the Company. Plaintiffs also argue that there was a

serious procedural irregularity because: (1) the denial of their claims was

- 15 -
predetermined, (2) their claims were rejected in summary fashion without

response to their substantive arguments, and (3) the Plan asserted a new ground

for denying benefits in district court that was not articulated in the administrative

record–namely that the W FSP was not arranged by the Company for its employees

generally. W e need not address whether there was a serious conflict of interest or

a serious procedural irregularity because we conclude that the Plan’s asserted

rationale for denying Plaintiffs claims is unreasonable under any standard of

review .

II. The Plan’s Rationale For Denying the Claims

In reviewing a plan administrator’s decision, we may only consider the

evidence and arguments that appear in the administrative record. Sandoval v.

Aetna Life and Cas. Ins. Co., 967 F.2d 377, 380 (10th Cir. 1992); see also King v.

H artford Life and A ccident Ins. Co., 414 F.3d 994, 999 (8th Cir. 2005) (“[A]

reviewing court must focus on the evidence available to the plan administrators at

the time of their decision and may not admit new evidence or consider post hoc

rationales.”). This means that, when review ing a plan administrator’s decision to

deny benefits, we consider only the rationale asserted by the plan administrator in

the administrative record and determine whether the decision, based on the

asserted rationale, was arbitrary and capricious.

To determine whether a plan administrator considered and asserted a

- 16 -
particular rationale, w e look only to those rationales that were specifically

articulated in the administrative record as the basis for denying a claim. See 29

U.S.C. § 1133(1) (noting that a claim denial must “set[] forth the specific reasons

for such denial, written in a manner calculated to be understood by the

participant”) (emphasis added); see also Schadler v. Anthem Life Ins. Co., 147

F.3d 388, 394 (5th Cir. 1998); W eaver v. Phoenix Home Life M ut. Ins. Co., 990

F.2d 154, 158 (4th Cir. 1993); W hite v. Jacobs Eng’g G roup Long Term

Disability Benefit Plan, 896 F.2d 344, 350 (9th Cir. 1990); Richardson v. Cent.

States, Se. and Sw. Areas Pension Fund, 645 F.2d 660, 665 (8th Cir. 1981). The

reason for this rule is apparent– “[w]e will not permit ERISA claimants denied

the timely and specific explanation to which the law entitles them to be

sandbagged by after-the-fact plan interpretations devised for purposes of

litigation.” M arolt v. Alliant Techsystems, Inc., 146 F.3d 617, 620 (8th Cir.

1998). This is consistent with the converse rule that a claimant may not urge new

grounds outside the administrative record that would support the award of

benefits. Sandoval, 967 F.2d at 381.

In district court, the Plan argued that Plaintiffs are not participants in the

W FSP because the Plan is not “arranged by the Company for its employees

generally.” See Flinders, 2006 W L 641524, at *9. W e have reviewed the record

and can find no evidence that this rationale w as considered or specifically

articulated by the Plan in the administrative proceeding. Had the Plan actually
- 17 -
considered this rationale below, the administrative record would likely have

contained information and arguments regarding the W FSP’s availability, but it

does not. See Schadler, 147 F.3d at 397 n.10 (“[I]n many cases the factual

development that takes place at the administrative level will differ depending on

the plan provisions upon which the administrator relies to deny benefits.”).

Indeed, the lack of any factual discussion of the Plan’s availability indicates that

the denial of benefits likely hinged solely on the Plan’s interpretation that the

W FSP’s eligibility language required that it be specifically named in the list of

example benefits contained in the CBA. See Aplt. App. at 169 (“The Committee

does not agree with your interpretation of the language contained in the collective

bargaining agreement with respect to inclusion of the Plan.”) (emphasis added).

The Plan argues that there is evidence that the Plan Administrator and the

Plan Committee considered Plaintiffs’ “argument” that the W FSP is arranged by

the Company for its employees generally and rejected it. The Plan argues that

because Plaintiffs asserted the undisputed fact that the W FSP is arranged by the

Company for its employees generally, and the Plan Administrator and Plan

Committee denied benefits anyway, the Plan Administrator and Plan Committee

must have concluded that the W FSP was not arranged by the Company for its

employees generally. 4

4
Indeed, this fact suggests the Plan likely did not consider the W FSP’s
(continued...)
- 18 -
 This conclusion is incorrect. Plaintiffs’ statement that there is no dispute

that the W FSP is arranged by the Company for its employees generally is only

what it purports to be: an assertion of an undisputed fact in support of awarding

benefits, not an argument supporting the denial of benefits. The fact that

Plaintiffs’ undisputed fact was never challenged or rebutted (let alone mentioned)

is telling. To be sure, a plan administrator is free to reject an undisputed fact

urged by a claimant, but such a rejection must be articulated and have a factual

basis. See Caldw ell v. Life Ins. Co. of N . Am., 287 F.3d 1276, 1282 (10th Cir.

2002) (indicating that a plan administrator’s factual determinations must be

supported by substantial evidence to survive arbitrary and capricious review). It

would be manifestly unfair to hold that Plaintiffs’ assertion of an undisputed fact

was necessarily considered and rejected by the Plan Administrator and Plan

Committee simply because Plaintiffs noted that the fact was undisputed.

The district court relied on Gallo v. Amoco Corp., 102 F.3d 918, 922-23

(7th Cir. 1996), to hold that the Plan’s conclusion that the W FSP was not included

4
(...continued)
availability. After all, Plaintiffs asserted the uncontested fact that the Plan was
arranged by the Company for its employees generally in their appeal letter, after
the Plan Administrator had denied their claims. If anything, this should have
indicated to the Plan C ommittee that Plaintiffs viewed the Plan A dministrator’s
decision as resting solely on the fact that the W FSP was not listed as an example
benefit in the CBA. Yet, in its denial letter, the Plan Committee still did not
discuss the Plan’s availability.

- 19 -
in the CBA was sufficient to preserve (for our review) any supporting rationale.

See Flinders, 2006 W L 641524, at *7. Gallo concerned whether an employee’s

“high-three” years of earnings used to figure an annuity included payments in lieu

of vacation. The plan document was not entirely clear, but since 1939 the

company had not treated such payments as earnings. W hen the employee

appealed, the plan administrator stated that the company consistently interpreted

the plan to exclude such payments and that the interpretation was necessary to

avoid double counting. Id. at 920-21. On appeal, the Seventh Circuit concluded

that the denial w as adequate. It held that the plan’s reason for denying benefits

“was sufficient explanation to enable G allo to formulate his further challenge to

the denial.” Id. at 923.

W hile a plan administrator may not be required to give “the reasoning

behind the reasons,” id. at 922, the plan administrator still must identify the

specific reason for denying benefits. Here, the Plan Administrator denied benefits

because “there is no reference to, or inclusion of, the [WFSP in the CBA].” The

phrase “there is no reference to” sufficiently articulates the Plan’s rationale that

the W FSP had to be included in the list of example benefits to be included in the

CBA. But the phrase “there is no . . . inclusion of” fails to articulate the rationale

that the W FSP was not arranged by the C ompany for its employees generally. In

fact, this phrase merely restates the Plan’s general eligibility criteria. See

Skretvedt v. E.I. Dupont de Nemours & Co., 268 F.3d 167, 177 n.8 (3d Cir. 2001)
- 20 -
(criticizing a denial letter that merely restated the requirements of a benefit plan

and then stated summarily that a claimant failed to meet them); VanderKlok v.

Provident Life & Accident Ins. Co., 956 F.2d 610, 616 (6th Cir. 1992) (same);

W olfe v. J.C. Penney Co., 710 F.2d 388, 393 (7th Cir. 1983) (same); see also

Richardson, 896 F.2d at 665 (“Bald-faced conclusions do not satisfy this

requirement.”). Only once the case was in district court did the Plan finally

articulate the rationale that the W FSP was not arranged by the Company for its

employees generally.

Consequently, Gallo is inapposite. In that case, the company consistently

articulated the same reason for denying benefits from the minute the

administrative process began. Furthermore, the plan at issue in Gallo was

ambiguous regarding the treatment of “pay in lieu of vacation,” and the company

specifically offered its interpretation. In this case, the W FSP’s eligibility

language is not at all ambiguous, as discussed infra, and the rationale asserted by

the Plan in litigation differs significantly from that which it asserted in the

administrative process. W ere we to apply Gallo in a case like this, a plan

administrator could simply treat the administrative process as a trial run and offer

a post hoc rationale in district court. In addition, such a practice would result in

an incomplete administrative record.

The Plan does cite to a portion of the Plan Administrator’s letter denying

the Spokane plaintiffs’ claims that states “[WFSP] . . . is clearly not severance
- 21 -
pay that is arranged for employees ‘as a whole’ . . . .” Aplt. App. at 468. But

that letter was sent on September 24, 2004, after the W oods Cross plaintiffs had

already filed suit. Thus, it is not even part of the relevant administrative record.

See Kalish v. Liberty Life Assur. Co., 419 F.3d 501, 511 (6th Cir. 2005) (noting

that the administrative record consists of all information submitted to the

fiduciary before the final denial). 5 It was improper for the district court to

consider the rationale that the W FSP was not arranged by the Company for its

employees generally. Instead, the Plan’s decision to deny benefits must stand or

fall on its articulated rationale alone.

III. The Plan’s Denial of Benefits W as Arbitrary and Capricious

Under the arbitrary and capricious standard, we must determine whether the

Plan’s decision to deny benefits based on its interpretation of the W FSP and CBA

was “reasonable and made in good faith.” Fought, 379 F.3d at 1003. In

conducting this review, we typically consider whether: (1) the decision was the

result of a “reasoned and principled process,” (2) is “consistent with any prior

5
Furthermore, the Spokane plaintiffs’ administrative appeal is not actually
relevant because, absent an abuse of discretion by the trial judge, only the class
representatives must exhaust their administrative claims, and the class
representatives are W oods Cross plaintiffs. In re Household Int’l Tax Reducation
Plan, 441 F.3d 500, 501-02 (7th Cir. 2006). To the extent the Plan challenges that
the Spokane plaintiffs should not have been added to the class, the Plan raised
this issue before the district court but has not challenged the district court’s
adverse determination on appeal.

- 22 -
interpretations by the plan administrator,” (3) is “reasonable in light of any

external standards,” and (4) is “consistent with the purposes of the plan.” Id. W e

need not determine that the Plan’s interpretation was the only logical one, nor

even the best one. Finley v. Hewlett-Packard Co. Employee Benefits Org. Income

Protection Plan, 379 F.3d 1168, 1176 (10th Cir. 2004). Instead, the decision will

be upheld “unless it is not grounded an any reasonable basis.” Id.

In this case, the arbitrary and capricious review encompasses the contract

law standard of ambiguity. A provision of a contract is ambiguous if it

susceptible to more than one reasonable interpretation. Hickman v. GEM Ins.

Co., 299 F.3d 1208, 1212 (10th Cir. 2002). A decision denying benefits based on

an interpretation of an ERISA provision survives arbitrary and capricious review

so long as the interpretation is reasonable. Finely, 379 F.3d at 1176.

Consequently, if a plan provision is ambiguous, and the plan administrator adopts

one of two or more reasonable interpretations, then the plan administrator’s

decision to deny benefits based on that interpretation survives arbitrary and

capricious review. To the contrary, if the plan provision is unambiguous, and the

plan administrator’s interpretation differs from the unambiguous meaning, then

the plan administrator’s interpretation is unreasonable, and the decision to deny

benefits based on that interpretation is arbitrary and capricious. See Swaback v.

Am. Info. Techs. Corp., 103 F.3d 535, 540 (7th Cir. 1996); Lickteig v. Bus.

M en’s Assurance Co. of Am., 61 F.3d 579, 585 (8th Cir. 1995); Lockhart v.
- 23 -
United M ine W orkers 1974 Pension Trust, 5 F.3d 74, 78 (4th Cir. 1993). Thus,

the starting point in this and similar cases is to determine whether the relevant

plan provision is ambiguous. See Hickman, 299 F.3d at 1212. If we determine

that the plan provision is unambiguous, then we must construe it as a matter of

law. Id.

In determining whether the W FSP’s eligibility language is ambiguous, the

language must be given “its common and ordinary meaning as a reasonable person

in the position of the plan participant would have understood the words to mean.”

Id. (emphasis added). The W FSP states: “Any member of a recognized or

certified collective bargaining unit [shall not be eligible to participate] unless

coverage under the plan is included under the collective bargaining agreement.”

Aplt. App. at 118. The W oods Cross CBA states: “Except as hereinafter limited,

all benefits arranged by the Company for its employees generally shall be

available to employees covered by this Agreement.” Id. at 125 (emphasis added).

The CBA states that included plans and benefits “include among others: [some

fourteen listed examples].” Id. The language in the Spokane CBA is essentially

identical.

These provisions are unambiguous. A union employee is covered by the

W FSP, so long as the W FSP is “included under the collective bargaining

agreement.” The CBA contains a catch-all provision stating that all benefits

“arranged by the Company for its employees generally” shall be available to
- 24 -
unionized employees. The CBA then lists a number of example benefits, but

those listed benefits are, by inclusion of the language “among others” not

exclusive. Consequently, Plaintiffs are participants in the W FSP so long as it is

“arranged by the Company for its employees generally.”

The Company’s articulated rationale for denying coverage, however, was

that the “list of benefits and policies that are applicable to the employees covered

by the [Woods Cross CBA] is quite detailed and although reference is made to the

Layoff Plan, another severance benefit plan of Phillips Petroleum, there is no

reference to, or inclusion of, the W ork Force Stabilization Plan.” Id. at 969

(emphasis added). This interpretation of the W FSP and CBA is unreasonable

because it conflicts with the unambiguous language of the catch-all provision and

the express statement that the example benefits listed are illustrative rather than

exclusive. In the Plan’s interpretation, language of inclusion has become

language of exclusion. The Plan counters that “coverage under the Plan cannot be

included in the CBAs by implication.” A plee. Br. at 43. Even accepting this

principle, the CBA expressly includes all benefits that are arranged by the

Company for its employees generally. Consequently, the Plan’s decision to deny

benefits based on its interpretation of the W FSP and CBA is arbitrary and

capricious.

IV. The Appropriate Remedy

W hen a plan administrator’s decision is overturned as arbitrary and
- 25 -
capricious, we may either remand the case to the plan administrator for a renewed

evaluation of the claimant’s case or we may order an award of benefits. DeGrado

v. Jefferson Pilot Fin. Ins. Co., 451 F.3d 1161, 1175 (10th Cir. 2006). “W hich of

these two remedies is proper in a given case, however, depends upon the specific

flaw s in the plan administrator’s decision.” Id. If the plan administrator failed to

make adequate factual findings or failed to adequately explain the grounds for the

decision, then the proper remedy is to remand the case for further findings or

additional explanation. Caldwell, 287 F.3d at 1288. In contrast, if the evidence

in the record clearly shows that the claimant is entitled to benefits, an order

awarding such benefits is appropriate. See Buffonge v. Prudential Ins. Co. of

Am., 426 F.3d 20, 31 (1st Cir. 2005); Caldwell, 287 F.3d at 1289.

In this case, the Plan Administrator erred by unreasonably interpreting the

W FSP and CBA to require that the W FSP be specifically named in the list of

example benefits. The other ground upon which to deny Plaintiffs benefits now

urged by the Plan is that the W FSP was not arranged by the Company for its

employees generally. W e did not consider this argument in our merits review

because it was not asserted in the administrative record. But we cannot ignore it

for purposes of formulating an appropriate remedy. To be sure, we are aware that

“it is not th[is] court’s function ab initio to apply the correct standard to the

participant’s claim.” K ing, 414 F.3d at 1005. This case is unique, however,

because the Plan (through its briefs) has stated quite clearly that it considers the
- 26 -
W FSP not to have been arranged by the Company for its employees generally.

The Plan’s briefing on the matter is extensive, and any doubt about how the Plan

might exercise its discretion on remand is eliminated by its treatment of the

Spokane plaintiffs’ claims. Consequently, if the Plan’s position on the W FSP’s

availability is untenable, there is no point in remanding the case so that the Plan

can again deny benefits, only to be reversed a second time on appeal. See Comm.

for First Amendment v. Campbell, 962 F.2d 1517, 1525 (10th Cir. 1992) (noting

that this court is not required to remand in futility).

Based on the plain language of the W FSP and the relevant facts and

arguments asserted by the parties in their briefs, we conclude that it would be

patently unreasonable, under any standard of review, for the Plan to deny

Plaintiffs coverage on the basis that the W FSP is not arranged by the Company

for its employees generally. In its brief, the Plan argues that the W FSP is not

arranged by the Company for its employees generally because it only applies to

active employees and specifically excludes several groups of employees,

including union members whose CBA does not include the W FSP. 6 The Plan

also argues that the W FSP is not arranged by the Company for its employees

6
As discussed earlier, other excluded groups include “retail marking store
or outlet personnel . . . [a]ny employee of Phillips Pipe Line Company whose job
is in the Pipe Line Relief Labor Pool . . . Tosco heritage employees notified of
layoff prior to Dec. 7, 2001,” and any employee on an approved “Leave of
Absence.” Aplt. A pp. at 118.

- 27 -
generally because the W FSP is contingent on the occurrence of a particular event,

namely a lay-off as defined in the W FSP. Because such an event might never

occur, argues the Plan, the W FSP is not arranged by the Company for its

employees generally.

This latter argument is specious. Of the fourteen example benefits listed in

the CBA, all are triggered upon the happening of a contingency. For example, the

“Long Term Disability Insurance” benefit is only triggered when a covered

employee suffers a long-term disability. Similarly, the “Active D uty M ilitary

Leave and Job Reinstatement Policy” is only triggered when a covered employee

is called to active military service. Likewise, the “Dental A ssistance Plan” is

only triggered when a covered employee undergoes certain dental procedures.

Taken at face value, the Plan’s reasoning leads to the absurd conclusion that the

dental plan is not arranged by the Company for its employees generally because

not all employees will need root canals, fillings, or bridgework.

Focusing only on the eligibility language of the WFSP, the Plan’s argument

that the W FSP is not arranged by the Company for its employees generally

because it contains certain exclusions is barely colorable. The Plan ignores the

plain meaning of the word “generally” and instead substitutes “universally” in its

place. That there are several exclusions in the W FSP is irrelevant, so long as the

W FSP covers enough employees to be “generally” available, which the American

Heritage Dictionary defines as “widely,” or “for the most part.” generally The
- 28 -
American Heritage Dictionary of the English Language (4th ed. 2004). In other

words, the W FSP need not cover every Company employee in order to be

arranged by the Company for its employees generally.

W hen considered in light of the facts put forward by Plaintiffs in the

district court, however, the Plan’s argument regarding the exclusions is simply

untenable. 7 For example, for several years prior to the merger, the W FSP was

included in a large red binder of SPDs that was labeled “Y ES” for “Y our Extra

Security.” In the years prior to the merger, Plaintiffs had participated in every

other YES benefit plan. Plaintiffs also received periodic updates to each YES

benefit plan, including the W FSP, which w ere accompanied by transmittal letters

identifying Plaintiffs as participants. 8

Furthermore, many of the YES benefit plans contain exclusions similar to

those in the W FSP. Taking the medical plan as an example, the plan excludes

seven classes of employees, including certain retail marketing employees, contract

7
While, in its brief, the Plan disagrees with the conclusion to be drawn
from the facts asserted by Plaintiffs, it never disagrees with the facts themselves.
Accordingly, we assume the Plan has no dispute with Plaintiffs’ version of the
facts regarding the Plan’s availability.
8
The Plan argues that the Plan Committee members did not personally
determine w ho received the Y ES binders. This argument is unpersuasive because
plan fiduciaries are “legally responsible both for [their] own decisions and also
for decisions made by [their] agents.” Geddes v. United Staffing Alliance
Employee M ed. Plan, 469 F.3d 919, 931 (10th Cir. 2006).

- 29 -
employees, certain non-U.S. employees working in their home countries, and

union members whose CBA does not include the plan. See Aplt. A pp. at 785.

Likewise, the dental plan excludes six classes of employees, including certain

retail marketing employees, employees of a company that has not adopted the

plan, temporary, intermittent, leased or contract employees, members of the

Phillips Pipe Line Company Pipe Line Relief Labor Pool, non-U.S. employees

working in their home countries, and union members whose CBA does not include

the plan. See id. at 787. Nevertheless, Plaintiffs w ere always allowed to

participate in the medical and dental plans, along with every other YES benefit

plan. And while the Plan states that no union member has ever received benefits

under the W FSP, prior to the merger with Conoco, there had never been a change

in control that would have triggered benefits under the W FSP for any covered

employee. Simply put, there is no precedent for excluding Plaintiffs from the

W FSP.

Nor are we convinced by the Plan’s argument that no other YES benefit

plan contains the same exclusions as the W FSP. W e have reviewed the

exclusions contained in the other benefit plans and many are substantially similar

or even broader than the exclusions in the W FSP. Furthermore, it is irrelevant

just what specific classes of employees are excluded by the Plan, so long as the

Plan covers enough employees to be arranged by the Company for its employees

generally. The Plan has not articulated any logical principle for treating the
- 30 -
W FSP differently from every other YES benefit plan, even when challenged to do

so by Plaintiffs in these proceedings. Although the Plan reminds us that it “was

not required to resolve hypothetical disputes concerning other plans not before

it,” A plee. Br. at 50 n.11, this argument is unpersuasive in light of the W FSP’s

striking similarity to the other YES benefit plans–especially given that the Plan

has never argued that the W FSP exclusions are broader than the exclusions in, for

example, the medical and dental plans. Consequently, the Plan’s argument that

the W FSP is not arranged by the Company for its employees generally is w holly

unsupported and entirely inconsistent with its past practices. It would be

unreasonable to deny benefits based on this ground. The Plan has articulated no

other rationale for denying benefits, and we can conceive of none that is either

apparent or meritorious. Thus, this is a case where a remand is unnecessary and

we must award Plaintiffs the benefits to which they are clearly entitled. See

Buffonge, 426 F.3d at 31.

Given our disposition of the case, it is unnecessary to consider Plaintiffs’

additional arguments that the district court wrongly excluded the statement of Jim

Nokes and the Yahoo! finance report. W e REVERSE and REM AND, directing

the district court to enter judgment awarding Plaintiffs benefits under the W FSP,

including interest. W e leave to the district court’s discretion whether an award of

attorney’s fees and costs is appropriate under 29 U.S.C. § 1132(g).

- 31 -