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
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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.
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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
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• 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).
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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,”
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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
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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 .
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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.
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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
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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.
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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
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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
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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
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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
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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.
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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
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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.
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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.
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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
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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
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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
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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.
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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
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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).
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