:: Third Circuit Abandons “Sliding Scale” Approach In Judicial Review of ERISA Benefit Denials

Accordingly, we find that, in light of Glenn, our “sliding scale” approach is no longer valid. Instead, courts reviewing the decisions of ERISA plan administrators or fiduciaries in civil enforcement actions brought pursuant to 29 U.S.C. § 1132(a)(1)(B) should apply a deferential abuse of discretion standard of review across the board and consider any conflict of interest as one of several factors in considering whether the administrator or the fiduciary abused its discretion.

Schwing v. Lilly Health Plan, No. 06-4671 (3rd Cir.) (4/14/09)

In this recent Third Circuit opinion, the Court found that, in light of MetLife v. Glenn, the Court’s “sliding scale” approach was “no longer valid.”

Instead, judicial review of benefit denials under 29 U.S.C. § 1132(a)(1)(B) requires evaluation applying “a deferential abuse of discretion standard of review across the board and consider any conflict of interest as one of several factors in considering whether the administrator or the fiduciary abused its discretion.

As Glenn recognized, benefits determinations arise in many different contexts and circumstances, and, therefore, the factors to be considered will be varied and case-specific. Glenn, 128 S.Ct. at 351. In Glenn, factors included procedural concerns about the administrator’s decision making process and structural concerns about the conflict of interest inherent in the way the ERISA governed plan was funded; in another case, the facts may present an entirely different set of considerations. Id. at 2351-52. After Glenn, however, it is clear that courts should “take account of several different considerations of which a conflict of interest is one,” and reach a result by weighing all of those considerations. Id. at 2351.

The basic facts are as follows:

Kevin Schwing, an employee of Eli Lilly and Company (“Lilly”), was terminated from his sales position on August 22, 2001 for falsifying call data. Schwing sought payment of severance benefits pursuant to the Lilly Severance Plan, but his claim for benefits was denied by Lilly’s Employee Benefits Committee (“EBC”), the plan administrator.

The EBC based its denial on the fact that Schwing “was terminated for misconduct, misconduct to which both Schwing’s supervisor and a representative from Lilly’s human resources department stated to the EBC that Schwing had admitted.”

The Administrative Appeal

Schwing challenged the EBC’s determination, denying that he had admitted any wrongdoing and arguing that he had been terminated not for the alleged misconduct, but either as a result of mistakes or in retaliation for a grievance he had filed. The EBC considered Schwing’s arguments, and again denied his claim.

Judicial Review

In a subsequent legal challenge to the benefit denial, the district court applied a heightened standard of review based on its finding of a conflict of interest involving the EBC’s attorney, who was also an attorney for Lilly.

The District Court concluded that the conflict of interest tainted the deliberations to such a degree as to render the EBC’s decision arbitrary and capricious. In the alternative, the Court concluded that, even ignoring the conflict of interest, the EBC’s decision was arbitrary and capricious largely because the EBC failed to undertake a full investigation of Schwing’s claim.

The Third Circuit noted, however, that the attorney’s role visa-vis the EBC was advisory only and her conduct, although criticized by the district court, was “altogether appropriate.”

We note that ERISA fiduciaries are not required to engage independent counsel to aid in their interpretation and administration of an ERISA plan, Ashenbaugh v. Crucible Inc., 1975 Salaried Retirement Plan, 854 F.2d 1516, 1531-32 (3d Cir. 1988), and we note our disagreement with the Court’s conclusion, based on certain cases interpreting the attorney-client privilege, see, e.g., Washington-Baltimore Newspaper Guild v. Washington Star Co., 543 F.Supp. 906 (D.D.C. 1982), that an attorney for an ERISA fiduciary owes a fiduciary like duty of neutrality to each ERISA claimant.

No Need For Tie-Breaker

The Glenn analysis on the standard of review did not play a vital role.  The Court stated that, even if purported conflict of interest were serious, “the decision to deny Schwing’s claim for severance benefits was not so close that this factor would act as ‘tiebreaker’ tipping the scales in favor of finding that the EBC abused its discretion. See Glenn, 128 S.Ct. at 2351; Wakkinen v. UNUM Life Ins. Co. of Am., 531 F.3d 575, 582 (8th Cir. 2008).

In fact,

there was an abundance of evidence of Schwing’s misconduct to support the denial of his claim and a lack of evidence to support his theory of pretext. We also conclude, as a matter of law, that the EBC conducted an appropriate investigation of the claim. There is no requirement that an ERISA administrator faced with an issue of who is to be believed must conduct an independent investigation into the veracity of each account. Pinto, 214 F.3d at 394 n.8; see also Cord v. Reliance Standard Life Ins. Co., 362 F. Supp. 2d 480, 486 (D. Del. 2005).

The administrative record before the District Court was more than adequate to support the EBC’s denial of Schwing’s claim, and we cannot conclude that the EBC’s decision was “without reason, unsupported by substantial evidence orerroneous as a matter of law.”

Note: The sliding scale metaphor was eclipsed by the combination of factors approach taken in Glenn.   Whether that makes a difference, it is difficult to say, but the courts are correct in changing the nomenclature.  More importantly, it interesting how the “tiebreaker” role of  conflict is being developed in the case law.  Again, it is not easy to see at this point who that ultimately benefits, but it is a tactic to be remembered.

In a close case, the claimant plays the tiebreaker card – or the defendant notes that there is no close case, so there is no need for a tiebreaker.  Is that what Glenn stands for?  It seems that the notion is somewhat contrary to the “combination of factors” approach, does it not?  And yet the term was employed in the Glenn decision so it comes with a proper pedigree.   The resolution of the tension in the use of these terms will likely be a subject for scholarly analysis and further judicial refinement.

Role of Counsel – For additional discussion of counsel’s role as it may affect judicial review, see :: Role of In-House Legal Counsel In Claim Investigation Proper Delegation of Authority