Firestone Tire & Rubber Co. v. BruchAnnotate this Case
489 U.S. 101 (1989)
U.S. Supreme Court
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989)
Firestone Tire & Rubber Co. v. Bruch
Argued November 30, 1988
Decided February 21, 1989
489 U.S. 101
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE THIRD CIRCUIT
Petitioner Firestone Tire & Rubber Co. (Firestone) maintained, and was the plan administrator and fiduciary of, a termination pay plan and two other unfunded employee benefit plans governed by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq. After Firestone sold its Plastics Division to Occidental Petroleum Co. (Occidental), respondents, Plastics Division employees who were rehired by Occidental, sought severance benefits under the termination pay plan, but Firestone denied their requests on the ground that there had not been a "reduction in workforce" that would authorize benefits under the plan's terms. Several respondents also sought information about their benefits under all three plans pursuant to § 1024(b)(4)'s disclosure requirements, but Firestone denied those requests on the ground that respondents were no longer plan "participants" entitled to information under ERISA. Respondents then brought suit for severance benefits under § 1132(a)(1)(B) and for damages under §§ 1132(a)(1)(A) and (c)(1)(B) based on Firestone's breach of its statutory disclosure obligation. The Federal District Court granted summary judgment for Firestone, holding that the company had satisfied its fiduciary duty as to the benefits requests because its decision not to pay was not arbitrary or capricious, and that it had no disclosure obligation to respondents because they were not plan "participants" within the meaning of § 1002(7) at the time they requested the information. The Court of Appeals reversed and remanded, holding that benefits denials should be subject to de novo judicial review, rather than review under the arbitrary and capricious standard, where the employer is itself the administrator and fiduciary of an unfunded plan, since deference is unwarranted in that situation, given the lack of assurance of impartiality on the employer's part. The Court of Appeals also held that the right to disclosure of plan information extends both to people who are entitled to plan benefits and to those who claim to be, but are not, so entitled.
1. De novo review is the appropriate standard for reviewing Firestone's denial of benefits to respondents. Pp. 489 U. S. 108-115.
(a) The arbitrary and capricious standard -- which was developed under the Labor Management Relations Act, 1947 (LMRA) and adopted by some federal courts for § 1132(a)(1)(B) actions in light of ERISA's failure to provide an appropriate standard of review for that section -- should not be imported into ERISA on a wholesale basis. The raison d'etre for the LMRA standard -- the need for a jurisdictional basis in benefits denial suits against joint labor-management pension plan trustees whose decisions are not expressly made reviewable by the LMRA -- is not present in ERISA, which explicitly authorizes suits against fiduciaries and plan administrators to remedy statutory violations, including breaches of fiduciary duty and lack of compliance with plans. Without this jurisdictional analogy, LMRA principles offer no support for the adoption of the arbitrary and capricious standard insofar as § 1132 (a)(1)(B) is concerned. Pp. 489 U. S. 108-110.
(b) Principles of the law of trusts -- which must guide the present determination under ERISA's language and legislative history and this Court's decisions interpreting the statute -- establish that a denial of benefits challenged under § 1132(a)(1)(B) must be reviewed under a de novo standard unless the benefit plan expressly gives the plan administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the plan's terms, in which cases a deferential standard of review is appropriate. The latter exception cannot aid Firestone, since there is no evidence that, under the termination pay plan, the administrator has the power to construe uncertain plan terms or that eligibility determinations are to be given deference. Firestone's argument that plan interpretation is inherently discretionary is belied by other settled trust law principles whereby courts construe trust agreements without deferring to either party's interpretation. Moreover, ERISA provisions that define a fiduciary as one who "exercises any discretionary authority," give him control over the plan's operation and administration, and require that he provide a "full and fair review" of claim denials cannot be interpreted to empower him to exercise all his authority in a discretionary manner. Adopting Firestone's interpretation would afford employees and their beneficiaries less protection than they received under pre-ERISA cases, which applied a de novo standard in interpreting plans, a result that Congress could not have intended in light of ERISA's stated purpose of "promot[ing] the interest of employees and their beneficiaries." The fact that, after ERISA's passage, Congress failed to act upon a bill to amend § 1132 to provide de novo review of benefits denial decisions does not indicate congressional approval of the arbitrary and capricious standard that had by then been adopted by most courts, since the bill's demise may have resulted from events having nothing to do with Congress' views on the relative merits of the two
standards, and since the views of a subsequent Congress form a hazardous basis for inferring the intent of an earlier one. Firestone's assertion that the de novo standard would impose higher administrative and litigation costs on plans, and thereby discourage employers from creating plans in contravention of ERISA's spirit, is likewise unpersuasive, since there is nothing to foreclose parties from agreeing upon a narrower standard of review, and since the threat of increased litigation is not sufficient to outweigh the reasons for a de novo standard. Those reasons have nothing to do with the concern for impartiality that guided the Court of Appeals, and the de novo standard applies regardless of whether the plan at issue is funded or unfunded and whether the administrator or fiduciary is operating under a conflict of interest. If a plan gives discretion to such an official, however, the conflict must be weighed as a factor in determining whether there is an abuse of discretion. Pp. 489 U. S. 110-115.
2. A "participant" entitled to disclosure under § 1024(b)(4) and to damages for failure to disclose under § 1132(c)(1)(B) does not include a person who merely claims to be, but is not, entitled to a plan benefit. The Court of Appeals' interpretation to the contrary strays far from the statutory language, which does not say that all "claimants" are entitled to disclosure; begs the question of who is a "participant"; and renders the § 1002(7) definition of "participant" superfluous. Rather, that definition of a "participant" as "any employee or former employee . . . who is or may become eligible" for benefits must be naturally read to mean either an employee in, or reasonably expected to be in, currently covered employment, or a former employee who has a reasonable expectation of returning to covered employment or a colorable claim to vested benefits. Moreover, a claimant must have a colorable claim that (1) he will prevail in a suit for benefits, or that (2) eligibility requirements will be fulfilled in the future in order to establish that he "may be eligible." This view attributes conventional meanings to the statutory language, since the "may become eligible" phrase clearly encompasses all employees in covered employment and former employees with a colorable claim to vested benefits, but simply does not apply to a former employee who has neither a reasonable expectation of returning to covered employment nor a colorable claim to vested benefits. Congress' purpose in enacting the ERISA disclosure provisions -- ensuring that the individual participant knows exactly where he stands -- will not be thwarted by this natural reading of "participant," since a rational plan administrator or fiduciary faced with the possibility of $100-a-day penalties under § 1132(c)(1)(B) for failure to disclose would likely opt to provide a claimant with the requested information if there were any doubt that he was a participant, especially since the claimant could be required to pay the reasonable
costs of producing the information under § 1024(b)(4) and Department of Labor regulations. Since the Court of Appeals did not attempt to determine whether respondents were "participants" with respect to the plans about which they sought information, it must do so on remand. Pp. 489 U. S. 115-118.
828 F.2d 134, affirmed in part, reversed in part, and remanded.
O'CONNOR, J., delivered the opinion for a unanimous Court with respect to Parts I and II, and the opinion of the Court with respect to Part III, in which REHNQUIST, C.J., and BRENNAN, WHITE, MARSHALL, BLACKMUN, STEVENS, O'CONNOR, and KENNEDY, JJ., joined. SCALIA, J., filed an opinion concurring in part and concurring in the judgment, post, p. 489 U. S. 119.
JUSTICE O'CONNOR delivered the opinion of the Court.
This case presents two questions concerning the Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat.
829, as amended, 29 U.S.C. § 1001 et seq. First, we address the appropriate standard of judicial review of benefit determinations by fiduciaries or plan administrators under ERISA. Second, we determine which persons are "participants" entitled to obtain information about benefit plans covered by ERISA.
Late in 1980, petitioner Firestone Tire and Rubber Company (Firestone) sold, as going concerns, the five plants composing its Plastics Division to Occidental Petroleum Company (Occidental). Most of the approximately 500 salaried employees at the five plants were rehired by Occidental and continued in their same positions without interruption and at the same rates of pay. At the time of the sale, Firestone maintained three pension and welfare benefit plans for its employees: a termination pay plan, a retirement plan, and a stock purchase plan. Firestone was the sole source of funding for the plans, and had not established separate trust funds out of which to pay the benefits from the plans. All three of the plans were either "employee welfare benefit plans" or "employee pension benefit plans" governed (albeit in different ways) by ERISA. By operation of law, Firestone itself was the administrator, 29 U.S.C. § 1002(16)(A)(ii), and fiduciary, § 1002(21)(A), of each of these "unfunded" plans. At the time of the sale of its Plastics Division, Firestone was not aware that the termination pay plan was governed by ERISA, and therefore had not set up a claims procedure, § 1133, nor complied with ERISA's reporting and disclosure obligations, §§ 1021-1031, with respect to that plan.
Respondents, six Firestone employees who were rehired by Occidental, sought severance benefits from Firestone under the termination pay plan. In relevant part, that plan provides as follows:
"If your service is discontinued prior to the time you are eligible for pension benefits, you will be given termination pay if released because of a reduction in workforce
or if you become physically or mentally unable to perform your job."
"The amount of termination pay you will receive will depend on your period of credited company service."
Several of the respondents also sought information from Firestone regarding their benefits under all three of the plans pursuant to certain ERISA disclosure provisions. See §§ 1024(b)(4), 1025(a). Firestone denied respondents severance benefits on the ground that the sale of the Plastics Division to Occidental did not constitute a "reduction in workforce" within the meaning of the termination pay plan. In addition, Firestone denied the requests for information concerning benefits under the three plans. Firestone concluded that respondents were not entitled to the information because they were no longer "participants" in the plans.
Respondents then filed a class action on behalf of "former, salaried, nonunion employees who worked in the five plants that comprised the Plastics Division of Firestone." Complaint
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