Here, International Paper established the trust to pay benefits, and it makes periodic contributions to the trust. International Paper’s contribution to the trust will necessarily increase if the total amount due on awarded claims exceeds the actuarially anticipated amounts. Nonetheless, International Paper’s contributions are irrevocable and non-reversionary and the Plan’s assets are not International Paper’s assets. Thus, a decision to pay benefits does not directly affect International Paper’s bottom-line. In effect, the creation of the trust diminishes, but does not entirely negate, the impact of that conflict. See Lance v. Ret. Plan of Int’l Paper Co., No. 08-1295, 2009 WL 1497493, *4 (4th Cir. May 29, 2009) (“Because the Plan’s benefits are funded by a separate trust to which International Paper does not have access for its own purposes, the Plan does not have significant incentives to benefit itself by denying benefits.” (quotation marks omitted)).
Holland v. International Paper, No. 08-30967 (5th Cir.) (July 16, 2009)
Holland v. International Paper, No. 08-30967 (5th Cir.) (July 16, 2009) is the most recent Fifth Circuit assessment of the Supreme Court decision in Glenn on the effect of a structural conflict of interest on judicial review of a benefit claim denial. The case is interesting for several additional points, including the effect of trust funding on a structural conflict of interest, other factors that may mitigate a conflict, and the relevance of prior precedent employing the Fifth Circuit’s “two step” analysis and “sliding scale” approach.
Derrell Holland worked at International Paper Co.’s mill in Bastrop, Louisiana, for over thirty-six years in various positions, such as paper machine specialist, equipment operator, dispatcher, and, lastly, fire protection specialist.
Most of these jobs required heavy physical exertion. On April 28, 2003, Holland suffered a myocardial infarction (heart attack), had a pacemaker inserted. He could not work in his job as a fire protection specialist due to the physical demands of the position.
He applied for and received thirty-nine weeks of sickness and accident benefits. He also applied for disability retirement benefits under the Retirement Plan of International Paper Co. (the “Plan”). Since Mr. Holland had primarily worked in jobs requiring heavy work, the district court felt his skills were not tranferable. As we shall see, however, the Fifth Circuit did not view this point as material.
Trust Funding Of Benefits
The Plan was funded through a trust and this had some bearing on the conflict analysis later in the opinion. The opinion states that International Paper funds the Plan “by making irrevocable, nonreversionary, periodic payments into a separate trust, from which all benefits are paid.” To qualify for benefits, an employee must be totally and permanently disabled. The Human Resources Vice President served as the Plan Administrator and was granted discretion over benefit claims and plan interpretation.
In his application for benefits, Holland stated his disability as “heart attack, pacemaker, [emphysema], leaking heart valve[,] nerve damage in back, [and] high blood pressure.” The medical evidence was somewhat equivocal. In any event, the Plan Administrator denied Holland’s claims under the Plan.
Litigation – First Round To Mr. Holland
After exhausting administrative appeals, Holland filed suit against the plan administrator under 29 U.S.C. 1132(a)(10(B).
The magistrate judge held for Holland, finding that the plan administrator abused its discretion in failing to consult In particular, the Magistrate Judge concluded that the Plan Administrator lacked sufficient evidence and improperly failed to consult a vocational expert in determining that Holland possessed the education, training, or experience required to perform sedentary or light work. Because the record did not contain evidence of other light or sedentary jobs, the Magistrate Judge recommended the conclusion that the Plan Administrator should have consulted a vocational rehabilitation expert.
The district court adopted the Report and Recommendation after considering the parties’ objections and responses and their briefed arguments about the effect of the Supreme Court’s intervening decision in Metropolitan Life Insurance Co. v. Glenn, — U.S. —-, 128 S. Ct. 2343 (2008). See Holland v. Ret. Plan of Int’l Paper Co., No. 05-1095, 2008 WL 4163089, *6 (W.D. La. Sept. 4, 2008).
The district court paid the Plan Administrator’s decision a modicum less deference because of the apparent conflict that arose from International Paper’s funding of the trust and its Senior Vice President’s role as the Plan Administrator. Id. at *4.
Abuse Of Discretion Issue
The court thus held that the Plan Administrator “could not have competently determined that there were jobs for which Holland was qualified by education, training, or experience without consulting a vocational expert” and that “[t]he Administrator’s conclusion that Holland is not disabled is not supported by substantial evidence and is thus arbitrary and capricious.” Id. As such, applying a modicum less deference, the district court held that the Plan Administrator abused its discretion and, consequentially, awarded Holland
disability retirement benefits and attorney’s fees. Id. at *7.
Fifth Circuit – Round Two Goes To Plan
On appeal, the Fifth Circuit reversed. The Court took the occasion to revisit its prior caselaw on the standard of review where there is a structural conflict of interest and seemed at some pains to reconcile the prior authority with Glenn through copious and lengthy footnotes.
The “Sliding Scale”
Nonetheless, the Court explicitly abandoned the sliding scale metaphor for determining the degree of deference to afford a conflicted fiduciary’s benefit denial. In a footnote, the Court observed:
Previously, if we identified a conflict of interest, we would apply a “sliding scale” to assess the potential impact of the conflict. Lain, 279 F.3d at 343; see generally Vega, 188 F.3d at 298–99 (adopting a “sliding-scale” methodology of weighing conflicts of interest). “The greater the evidence of conflict on the part of the administrator, the less deferential our abuse of discretion standard will be.” Lain, 279 F.3d at 343.
For example, “[w]hen a minimal basis for a conflict [was] established,” we would “review the decision with only a modicum less deference than we otherwise would” under the abuse of discretion standard. Id. (emphasis in original, quotation marks omitted). Based on this precedent, the district court in this case applied a modicum less deference to the Plan Administrator’s decision because of the existence of an apparent conflict of interest. See Holland, 2008 WL 4163089, at *4. While this course of action was proper under our earlier precedent, the Supreme Court’s holding in Glenn directly repudiated the application of any form of heightened standard of review to claims denials in which a conflict of interest is present. This supercedes our sliding-scale approach, which constitutes a change in the level of scrutiny.
Still, the Court maintained that “ much of our “sliding scale” precedent is compatible with the Supreme Court’s newly clarified “factor” methodology, and Glenn does not supercede that precedent to the extent it reflects the use of a conflict as a factor that would alter the relative weight of other factors.”
. . . in this case, while the district court erred by altering its standard of review from a traditional abuse of discretion standard to the more onerous modicum less deference standard, it did not err to the extent it considered the purported conflict as a factor. Here, we will consider the apparent conflict as one factor among the others identified by the parties in our de novo review of whether the Plan Administrator abused its discretion.
Effect Of Trust Funding
The funding of the trust presented an interesting twist.
The parties dispute whether a conflict of interest exists in this case. The district court concluded a conflict existed because International Paper is responsible for funding the trust at viable levels and its Senior Vice President is the Plan Administrator that decides claims. Acknowledging that “the irrevocable funding of the trust diminishes the importance of the conflict and the likelihood that it affected the [Plan] Administrator’s benefits decisions,” the district court nonetheless concluded that the Plan “has not completely isolated benefits decisions from concerns regarding the viability of the trust.” See Holland, 2008 WL 4163089, at *4. Where, as here, the employer who funds the plan also determines eligibility for benefits, a structural conflict of interest exists. See Glenn, 128 S. Ct. at 2348.4 Nonetheless, the specific facts of the conflict will dictate its importance.
Mitigation Of Conflict
This aspect of the opinion is particularly interesting since, in addition to the trust aspect, the Court addresses other countermeasures that the Court felt mitigated the effect of the conflict (as Glenn suggested might be done):
In addition, the Plan has taken other steps to minimize any conflict. For example, although the Plan Administrator ultimately decides whether or not to award a claim, it submits applicants’ records to independent medical professionals who have affirmed that they have no conflict of interest and that their compensation “is not dependent, in any way, on the outcome of this case.” Cf. Stone, 2009 WL 1479405, at *9 (discussing steps in a plan’s attempts to mitigate a conflict, such as the fact that the administrator’s compensation was not affected by the number of appeals granted or denied and the fact that the employer did not make any attempt to influence the administrative process).
In a analysis of motive reminiscent of the Fourth Circuit’s opinion in Champion v. Black & Decker (U.S.) Inc., 550 F.3d 353 (4th Cir. 2008), the Court then turns to what proof Holland has provided to show bias:
Holland adduced no evidence in this case that International Paper’s conflict affected its benefits decision or that it has a history of abuses of discretion. See Glenn, 128 S. Ct. at 2351 (suggesting that conflicts carry greater importance where the “administrator has a history of biased claims administration”). Considering the totality of this evidence, we hold that, to the extent International Paper’s funding of the trust and its Senior Vice President’s role as Plan Administrator may create a conflict, that conflict is not a significant factor in this case. See Lance, 2009 WL 1497493, at *4 (“To the extent this type of plan structure creates any conflict of interest on the part of its administrator, that conflict may be deemed of such little importance as to recede ‘to the vanishing point.’”(citing Glenn, 128 S. Ct. at 2351)).
Note: On the effect of funding through a trust on the conflict of interest, see the 11th Circuit opinion in Gibbs v. Bellsouth and White v. Coca Cola. The Eleventh goes too far, in my opinion – the Fifth Circuit approach above seems more reasonable in view of Glenn’s per se structural conflict analysis where the adjudicator funds the claims. Attenuation of conflict? Perhaps. Negation of conflict? Doubtful.
The Two Step Approach – Note that the Court did not abandon its “two-step” procedure in such cases, that is, first determining if the decisions was “legally correct” and if not, whether there was an abuse of discretion. This approach seems dubious in light of Glenn’s aversion to special procedural or evidentiary rules. Be that as it may, the Court found that it could skip the first step anyway, and proceed right to the question of abuse of discretion, particularly where that was the approach of the parties to the issue as in the case at bar.
The preceding was substantially cross posted to erisaboard.com where I attached the opinion