:: Finding A Median – The Constraint Of Promissory Estoppel Versus The Broad Ambit Of Deferential Review

Every now and then an estoppel case pops up under ERISA, and the law is twisted and mangled to make it fit. See, e.g., Livick v. The Gillette Co., U.S. App. Lexis 8261, 43 E.B.C. 2025 (1st Cir. 2008) (dictum), citing Hooven v. Exxon Mobil Corp., 465 F.3d 566, 578 (3d Cir. 2006); Mello v. Sara Lee Corp., 431 F.3d 440, 444 (5th Cir. 2005); Devlin v. Empire Blue Cross & Blue Shield, 274 F.3d 76, 85-86 (2d Cir.2001); Sprague v. General Motors Corp., 133 F.3d 388, 403 & n.13 (6th Cir. 1998) (en banc); Greany v. W. Farm Bureau Life Ins. Co., 973 F.2d 812, 821 (9th Cir. 1992); Kane v. Aetna Life Ins., 893 F.2d 1283, 1285 (11th Cir. 1990).

BNA Pension & Benefits Blog, Frank Cummings (May 28, 2008)

Frank Cummings posts this interesting comment on the BNA Pension & Benefits blog. If you don’t frequent the blog, I encourage you to so so. Not only Frank, but also Ron Dean, Sherwin Kaplan, Jeffrey Clayton, Steve Sacher and other ERISA heavyweights post to that blog.

Frank makes solid points against promissory estoppel in the ERISA context. Estoppel is a very legalistic term. So first, let’s take a look at what we mean by estoppel.

Here’s a short definition:

Promissory estoppel, also known as detrimental reliance, is defined as a promise that the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and that does induce such action or forbearance. The promise will be binding if injustice can be avoided only by its enforcement. The remedy granted for the breach may be limited as justice requires. Calabro, 15 S.W.3d at 878. The doctrine takes its name because a promisor that induces a promisee in these circumstances to change its position substantially is “estopped” (precluded) from denying the binding nature of the promise because of the absence of consideration from the promisee. Id. In applying this remedy, several Tennessee decisions have adopted the influential definition of promissory estoppel in the Restatement (Second) of Contracts, Section 90. E.g., Amacher v. Brown-Forman Corporation, 826 SW.2d 480, 482 (Tenn. Ct. App. 1991).

The Tennessee Bar Association Bar Journal (2004)

To prevail on an estoppel claim under ERISA, plaintiffs must ordinarily show:

(1) a knowing misrepresentation;

(2) made in writing;

(3) reasonable reliance on that representation by them;

(4) to their detriment.

The First Circuit recently recounted the application of estoppel in the enforcement of ERISA plan terms, observing:

Most of our sister circuits have recognized estoppel claims under ERISA’s civil enforcement provisions. See, e.g., Hooven v. Exxon Mobil Corp., 465 F.3d 566, 578 (3d Cir. 2006); Mello v. Sara Lee Corp., 431 F.3d 440, 444 (5th Cir. 2005); Devlin v. Empire Blue Cross & Blue Shield, 274 F.3d 76, 85-86 (2d Cir. 2001); Bowerman, 226 F.3d at 586; Sprague v. Gen. Motors Corp., 133 F.3d 388, 403 & n.13 (6th Cir. 1998) (en banc); Greany v. W. Farm Bureau Life Ins. Co., 973 F.2d 812, 821 (9th Cir. 1992); Kane v. Aetna Life Ins., 893 F.2d 1283, 1285 (11th Cir. 1990).

Livick v. The Gillette Co., U.S. App. Lexis 8261, 43 E.B.C. 2025 (1st Cir. 2008) (dictum)

Frank objects to the application of estoppel in the ERISA context. He writes:

First, it [estoppel] is basically a contract doctrine, and a benefit plan is not inherently a contract in the first place. You don’t need offer, acceptance, consideration, mutuality and so forth. All you need is a plan. You don’t need reliance. You don’t need to show that the participant even knew the plan existed, much less relied upon it. Why not? Because you would end up with people similarly situated but getting different benefits depending solely upon their awareness and understanding of the plan, which is exactly the wrong result under an employee benefits law. Instead, one looks to the plan, the whole plan, and nothing but the plan. And the plan that must be in writing. (Described in an SPD that must be in writing).

The concern Frank voices is one of uncertainty in plan benefits administration. If we rely on the plan document, the reasoning goes, then everything will be removed from that subjective sphere of what the participant was led to believe, relied upon, etc.. Having bracketed the subjective elements, and excluded them, we will be left with the residual objective terms of the written plan language. Is that the case? I doubt it.

Even were we able to agree as to the “plain meaning” of the plan terms, as written, (often a matter of contention), we still have the troubling ambiguity created when the plan administrator is given virtually absolute discretion to interpret plan terms. From the participant’s point of view, the considerable ambit of outcomes permitted when the plan administrator may exercise all but arbitrary discretionary authority give rises to the same uncertainty that troubles Frank when promissory estoppel is applied to enforce promised benefits upon specified terms.

If the answer is somewhere between the two instances of judicial gloss, i.e., deferential review and promissory estoppel, there is much to be done to close the gap. Perhaps if it were not for the broad ambit of deferential review, the incorporation of estoppel principles into ERISA would not have seemed so compelling.

Note: The argument for application of estoppel will typically be an uphill battle and must be advanced within the the caselaw of the circuit in which the case is brought.