United States District Court, W.D. Kentucky, Louisville Division
ELIZABETH A. CLEMONS, DAVID R. KHALIEL, and LARRY W. TAYLOR, on behalf of themselves and all other similarly situated individuals., Plaintiffs
NORTON HEALTHCARE, INC. RETIREMENT PLAN., Defendant
For Elizabeth A. Clemons, On behalf of himself and all other similarly situated individuals, David R. Khaliel, on behalf of himself and all other similarly situated individuals, Larry W. Taylor, on behalf of himself and all other similarly situated individuals, Plaintiffs: Joel R. Hurt, LEAD ATTORNEY, Ellen M. Doyle, Pamina G. Ewing, William T. Payne, Feinstein Doyle & Kravec, LLC, Pittsburg, PA; Michael D. Grabhorn, LEAD ATTORNEY, Grabhorn Law Office, PLLC, Louisville, KY.
For Norton Healthcare, Inc., Movant: Benjamin Joel Lewis, Eric L. Ison, Bingham Greenebaum Doll LLP - Louisville, Louisville, KY.
For Norton Healthcare Inc. Retirement Plan, Defendant: Kristie Alfred Daugherty, LEAD ATTORNEY, Jefferson County Attorney, Louisville, KY; Mitzi Denise Wyrick, LEAD ATTORNEY, Wyatt, Tarrant & Combs LLP - Louisville, Louisville, KY; Keith L. Pryatel, Kenneth M. Haneline, Kastner Westman & Wilkins, LLC, Akron, OH; Lira A. Johnson, Lisa D. Hughes, Dinsmore & Shohl LLP - Louisville, Louisville, KY.
MEMORANDUM OPINION AND ORDER
Thomas B. Russell, Senior United States District Judge.
This matter is before the Court upon Plaintiffs' Motion for Summary Judgment. (Docket No. 143.) Defendant has responded, (Docket No. 148), and Plaintiffs have replied. (Docket No. 167). This matter is now fully briefed and ripe for adjudication. For the following reasons, the Court will GRANT in part and DENY in part (to the extent it is inconsistent with this opinion) Plaintiffs' Motion for Summary Judgment. (Docket No. 143.) The Court ORDERS Defendant to recalculate Plaintiffs' Monthly Retirement Income and corresponding lump sums, consistent with the below holdings. Furthermore, the Court ORDERS Defendant to ensure the recalculated lump sums are at least actuarially equivalent to the Monthly Retirement Income, appropriately accounting for the increasing monthly income (cost of living adjustment) and sixty (60) months certain of the Monthly Retirement Income. The recalculations should be done within 45 days and submitted to the Court for approval. If Plaintiffs have any objections with these recalculations, they must respond within 14 days.
Defendant has also moved for Summary Judgment and for Oral Argument. (Docket No. 145.) Plaintiffs have responded, (Docket No. 154), and Defendant has replied. (Docket No. 164.) For the following reasons, the Court will DENY Defendant's Motion for Summary Judgment to the extent it is inconsistent with this opinion. The Court will also DENY their request for oral argument. Plaintiffs' complaint is not dismissed.
This is an Employee Retirement Income Security Act (" ERISA" ) pension dispute brought by a class of early retirees who elected to draw lump sum distributions.  The pension plan at issue is a defined benefit pension plan sponsored by Norton Healthcare, Inc. Retirement Plan (" Defendant" ) with the express purpose of providing retirement benefits to employees. The Plan was established in 1991 when the Company merged two predecessor plans: the Methodist Evangelical Hospital Plan (the " MEH Plan" ) and the NKC Hospitals, Inc. Plan (the " NKC Plan" ). It is funded exclusively by contributions from the Company and maintained in accordance with a written plan document, beginning with the first plan document effective January 1, 1991. (Docket No. 143-3.)
Subsequent to the 1991 plan, the Plan document has been amended. These subsequent amendments were reflected in restated Plan documents. Each restatement of the Plan document incorporates all intervening amendments since the last Plan document. One such restated Plan document was effective January 1, 1997. (Docket No. 143-5, 1997 Plan Document.) There are several amendments that occurred in both January and May of 2004, which predated Plaintiffs retirement. (Docket No. 143-11; 143-12.)
By its terms, the Plan provides for an early retirement to any employee who accrues ten years of service and attains age 55:
2.22(a) The term " Early Retirement Date" shall mean, in the case of each Member who has been credited with at least (10) years of Service and whose
Attained Age is at least fifty-five (55), the later of:
(1) the date such Member shall leave the employ of the Employer in accordance with Section 4.05 hereof, or
(2) the date the Member directs in writing shall be his Early Retirement Date.
* * *
4.05(a) Upon written application, a Member whose Attained Age is at least fifty-five (55) and who has been credited with ten (10) or more years of Service may retire as of an Early Retirement Date.
(Docket No. 143-5.)
Plaintiffs are participants in the Defendant Plan (and its predecessors and successors) who claim that Defendant underpaid their retirement benefits. The Court previously certified Plaintiffs' claims as a class action. (Docket No. 66.) The Court defined the class as follows:
All participants in Norton Health, Inc. Retirement Plan, its predecessors and successors, whose contractual lump-sum pension benefits:
(a) Did not include the value of the basic form of benefit - an " increasing monthly retirement income" (annual cost-of-living adjustment) - when election of such basic form would have yielded the highest value for the participant; and/or
(b) Did not include the value of the " alternative" lump-sum benefit where the basic form of benefit is multiplied by 212, when election of such alternative benefit would have yielded the highest value for the participant; and/or
(c) Did not include the value of the early retirement subsidy.
(Docket No. 66, Page 12-13.)
In their Second Amended Complaint, Plaintiffs' challenge the calculation of their benefits on three separate bases:
First, they allege Defendant failed to include the value of the " increasing monthly income" (" cost-of-living" ) in the calculation of participant lump sum benefits and in the calculation of participant " cash balance" starting balances.
Second, they allege Defendant failed to include the value of early retirement subsidies in the calculation of participant lump sum benefits and in the calculation of participant " cash balance" starting balances.
Third, they allege Defendant failed to calculate participant lump sum benefits according to the contractual formula.
(Docket No. 42, Second Amended Complaint.) Specifically, Plaintiffs allege the following deficiencies by the Defendant with respect to these steps.
(1) The Plan failed to accurately determine the form of benefit payable to Class members by incorrectly characterizing their accrued benefit as a non-increasing benefit. Plaintiffs contend this characterization is directly contrary to the express terms of the plan.
(2) The Plan further compounded the error of characterization of the accrued benefit by failing to include the value of the five-year certain benefit (60 months), as well as the " increasing" benefit when calculating the Actuarial Equivalent lump sum benefit.
(3) The Plan failed to provide the 212 Lump sum minimum benefit.
(4) For early retirees on or after January, 1, 2004, the Plan improperly reduced their lump sum benefit for early commencement contrary to the amended plan document.
The Plaintiffs request the Court to enter summary judgment in their favor as to the following:
(1) The accrued benefit is an increasing monthly income and continuing for sixty months certain. The accrued benefit for Mr. David Khaliel is $2,849.13. The accrued benefit is the Basic Form of benefit.
(2) The Early Retirement Benefit is fully subsidized. For Class members terminating on or after January 1, 2004, their benefits are not to be reduced for early commencement. Their lump sum benefits are to be calculated based upon their Basic Form of benefit. For Mr. Khaliel, his Early Retirement Benefit would be calculated based upon his accrued Basic Form of benefit ($2,849.13).
(3) The lump sum benefit, based on the Basic Form of benefit, shall be the greater of:
(a) an amount equal to the Actuarial Equivalent of the Basic Form, inclusive of the increasing and five-year certain benefit; or
(b) an amount equal to the Basic Form times 212, said amount then divided by one minus the appropriate reduction factor.
The Plaintiffs also request that the Court order the Defendant to perform the requisite recalculation of Class member's benefits in accordance with the findings within 45 days, so the Class can verify the amounts. Defendants contest all these assertions and request the opposite be ordered, essentially affirming their determination of Name Plaintiffs' lump sums.
Name Plaintiff David R. Khaliel was employed by the Defendant from November 18, 1974, to January 9, 2005. When he retired effective March 1, 2005, he elected to receive his accrued plan benefit in lump sum. Mr. Khaliel received a lump sum and submitted a claim by letter July 11, 2007, challenging Defendant's benefit calculations. The Defendant never responded to this claim for benefits. This lawsuit was filed on January 30, 2008. (Docket No. 1, Complaint.)
Summary judgment is appropriate where " the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). In determining whether summary judgment is appropriate, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
" [N]ot every issue of fact or conflicting inference presents a genuine issue of material fact." Street v. J. C. Bradford & Co., 886 F.2d 1472, 1477 (6th Cir. 1989). The test is whether the party bearing the burden of proof has presented a jury question as to each element in the case. Hartsel v. Keys, 87 F.3d 795, 799 (6th Cir. 1996). The plaintiff must present more than a mere scintilla of evidence in support of his position; the plaintiff must present evidence on which the trier of fact could reasonably find for the plaintiff. See id. (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). The plaintiff may accomplish this by " citing to particular parts of materials in the record" or by " showing that the materials cited do not establish the absence . . . of a genuine dispute . . . ." Fed.R.Civ.P. 56(c)(1).
Mere speculation will not suffice to defeat a motion for summary judgment; " the mere existence of a colorable factual dispute will not defeat a properly supported motion for summary judgment. A genuine dispute between the parties on an issue of material fact must exist to render summary judgment inappropriate." Monette v. Electronic Data Sys. Corp., 90 F.3d 1173, 1177 (6th Cir. 1996).
STANDARD OF REVIEW FOR DEFENDANT'S BENEFIT DECISIONS
As an initial matter, it is necessary to determine the standard of review that will be applied to Defendant's decision(s) to deny Plaintiffs benefits they claim are due under the plan. Name Plaintiff Khaliel received a lump sum payment and subsequently, by letter dated July 11, 2007, submitted a claim challenging the Plan's benefit calculations. The Defendant never responded to Mr. Khaliel's letter, prompting the filing of this lawsuit.  The Court has already ruled on the exhaustion issue and again agrees with Plaintiffs that the exhaustion requirements under ERISA were excused because further exhaustion would be futile. 
We review the plan administrator's denial of benefits de novo, unless the benefit plan specifically gives the plan administrator discretionary authority to determine eligibility for benefits or to construe the terms of the plan. Morrison v. Marsh & McLennan Companies, Inc., 439 F.3d 295, 300 (6th Cir. 2006). In this case, the benefit Plan specifically gives the plan administrator discretionary authority to determine eligibility for benefits or construe the terms of the plan. Notably, the Plaintiffs' do not dispute that the Plan affords this discretion.  6.06 of the plan provides for this discretion:
6.06 Powers and Authority
(a) Each Committee shall have all powers and discretion necessary or helpful for carrying out its responsibilities, and the decisions or actions of such Committee in good faith in respect of any matter hereunder shall be conclusive and binding upon all parties concerned.
(b) Without limiting the generality of the foregoing, the Retirement Committee shall be the Plan Administrator and shall have the power and discretion:
(1) to make rules and regulations for the administration of the Plan which are not inconsistent with the terms and provisions of the Plan.
(2) to construe all terms, provisions, conditions and limitations of the Plan.
(3) to determine all questions arising out of or in connection with the provisions of the Plan or its administration in any and all cases in which the Retirement Committee deems such a determination advisable.
(Docket No. 143-5, Page 57-58.)
Where an ERISA plan gives the plan administrator such discretionary authority,
as is the case here, we review under an " arbitrary and capricious" standard. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 111, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). Review under the arbitrary and capricious standard is the least demanding form of judicial review of an administrative action; it requires only an explanation based on substantial evidence that results from a deliberate and principled reasoning process. See Killian v. Healthsource Provident Adm'rs Inc., 152 F.3d 514, 520 (6th Cir. 1998). The Court must accept a plan administrator's rational interpretation of a plan even in the face of an equally rational interpretation offered by the participants. Morgan v. SKF USA, Inc., 385 F.3d 989, 992 (6th Cir. 2004) (citation omitted).  Thus, if an interpretation of the plan provisions is " reasonable," it must be upheld. Morrison, 439 F.3d at 300; Firestone, 489 U.S. at 111. The issue of reasonableness is a question of law. Waxman v. Luna, 881 F.2d 237, 240 (6th Cir. 1989).
However, there is arguably a principle of contract interpretation that would temper the deference given to the administrator: " to the extent the Plan's language is susceptible of more than one interpretation, we will apply the 'rule of contra proferentum ' and construe any ambiguities against . . . the 'drafting parties." ' University Hosps. v. Emerson Elec. Co., 202 F.3d 839, 846-47 (6th Cir. 2000) (noting arbitrary and capricious deferential review is tempered by the principle of " contra profentum " which construes any ambiguities against the drafting parties) (emphasis added). At first glance, these two principles seem to be at odds with one another. However, they can be reconciled by noting that arbitrary and capricious review isn't as deferential when it comes to ambiguities in plan language asserted against a drafting party, such as Defendant here. Of course, plan administrators still are afforded the normal deferential arbitrary and capricious review when it comes to determinations apart from plan language, such as whether an employee is disabled or not.  But as to construing plan provisions themselves, ambiguities are construed against the drafting party. 
The Court notes that the principle of contra profenentum in the context of a Plan administrator's decision is not a well established principle:
First, they point to cases from this Circuit that they claim have reduced the deference given to an administrator's decision through the use of state principles of contract interpretation. " [T]o the extent that the Plan's language is susceptible of more than one interpretation, we will apply the 'rule of contra proferentum' and construe any ambiguities against" the drafting party. University Hosps. v. Emerson Elec. Co.,
202 F.3d 839, 846-47 (6th Cir. 2000) (quoting Perez v.. Aetna Life Ins. Co., 150 F.3d 550, 557 n. 7 (6th Cir. 1998) (en banc)); see also Copeland Oaks v. Haupt, 209 F.3d 811, 813 (6th Cir. 2000). We do not believe that through these statements this Circuit has established a rule of interpretation that would completely contradict the deference paid to an administrator's decision.
As the parenthetical notes, the court in University Hospitals attributes the application of the rule of interpretation to the Perez court. When we examine Perez, we see that the court was not talking about applying the principal to " temper" the arbitrary and capricious standard. Rather, the Perez court was interpreting the provision that was alleged to grant that discretion-the principal issue in the case. See Perez v. Aetna Life Ins. Co., 150 F.3d 550, 557 & n. 7 (6th Cir. 1998) (en banc). It was in that context that the court said it was possible to apply the state rule of interpretation. See id. (" Because the only reasonable interpretation of the Plan concludes that it vests discretion in Aetna to make benefit determinations, Perez's contra proferentum argument lacks merit." ) (emphasis added).
The Perez court cites a footnote in an earlier case, Schachner v. Blue Cross & Blue Shield of Ohio, 77 F.3d 889, 895 n. 6 (6th Cir. 1996), when describing how " [t]he rule of contra proferentum provides that ambiguous contract provisions in ERISA-governed insurance contracts should be construed against the drafting party." Perez, 150 F.3d at 557 n. 7. But that language does not hold that the Perez court was suggesting that the rule of interpretation is to be used in ERISA cases when the standard of review is arbitrary and capricious. And indeed when one reads Schachner one realizes that the Perez court was likely just citing it for descriptive purposes rather than suggesting that it was the rule in this Circuit. For Schachner does nothing more than state in a footnote that the court need not address the issue of whether the rule of interpretation applies in ERISA cases. " Since we hold that the phrase [in the Plan] is not ambiguous, however, we need not consider" the arguments regarding the applicability of contra proferentum. Schachner, 77 F.3d at 895 n. 6. Indeed, the court does not even purport to be reviewing the administrator's decision; rather, it makes clear it is applying a de novo standard of review to the contract. See id. at 893.
University Hospitals, while it states (citing Perez ( Id. at 846)) it will construe any ambiguities against the drafter when applying the " arbitrary and capricious" standard, makes no further reference to that principle in its analysis and holding that the Plan administrator's construction of the Plan was arbitrary and capricious and that the only reasonable construction of the Plan was that asserted by the plaintiff.
Copeland Oaks was a suit by a benefit Plan to require the employee and his daughter who had suffered injuries to sign a subrogation agreement before it, the Plan, paid any of the daughter's medical expenses. Plaintiff's daughter's claim against a third party had been settled for $100,000 plus $5,000 medical expenses for the parents. This Circuit had adopted the so-called " make whole" rule of federal common law. That requires an insured to be made whole before an insurer can enforce its rights to subrogation. Copeland Oaks ...