The opinion of the court was delivered by: Charles R. Norgle, U.S. Senior Judge
Before the court are Defendants' motion for summary judgment and
Plaintiffs cross-motion for summary judgment. For the following the
reasons, Defendants' motion is granted and Plaintiffs motion is denied.
This case involves claimed violations of the Employee Retirement Income
Security Act ("ERISA"), 29 U.S.C. § 1001 et seq., arising out of the
termination of long-term disability benefits. In October of 1985,
Plaintiff, James J. Hackett ("Hackett"), began employment with
Defendant, Xerox ("Xerox"), as a sales representative. Hackett, within a
year of his initial employment, experienced emotional problems and began
to see a psychiatrist regularly. By March of 1987 Hackett's emotional
problems began to interfere with his ability to work. Frank H.
Brunstetter, M.D. ("Dr. Brunstetter"), the disability physician for the
office of Clinical and Disability Services at Xerox, after consulting
with Hackett's treating psychiatrist, John P. Gerber, M.D. ("Dr.
Gerber"), advised Hackett that disability status was appropriate and
encouraged him to apply for long-term disability benefits under the Xerox
Long-Term Disability ("LTD") Plan. As part of the application for
disability benefits, Hackett was reexamined by Dr. Gerber to ascertain a
formal diagnosis. Dr. Gerber found that Hackett suffered a serious
psychiatric condition, a personality disorder coupled with neurotic
depression, which prevented him from doing any type of work. As of March
2, 1987, Hackett qualified for, and began receiving long-term disability
benefits from Xerox. Over the next twelve years Hackett saw numerous
different psychologists and psychiatrists who all performed evaluations.
Each different psychologist or psychiatrist reached varying diagnoses of
mental illness, but with the same conclusion that Hackett was unable to
work. Hackett continued to qualify and receive full disability benefits
under Xerox's LTD Plan.*fn2
In 1989, Xerox advised Hackett that as a condition to his continuing to
receive long-term disability benefits he was required to apply for social
security disability benefits. After an unsuccessful application for
disability benefits to the Social Security Administration, Hackett
appealed and in May of 1996 was granted disability status and benefits,
retroactive to March 2, 1987. Xerox provided legal counsel to Hackett in
connection with the successful application for social security disability
benefits. Additionally, the social security disability benefits
retroactively awarded were paid to Xerox.
Hackett alleges that the denial of long-term disability benefits is an
arbitrary cessation. Hackett filed a six count complaint alleging
violations of ERISA by the following actions: (I) failure to timely
provide requested documents; (2) breaches of fiduciary duty; (3) failure
to follow applicable plan requirements; (4) improper claim and appeal
procedures; (5) denial of benefits; and (6) conflict of interest. Both
parties now move for summary judgment, arguing that there are no disputed
issues of fact, and they are entitled to judgment as a matter of law.
Initially, the court must address the question of judicial estoppel.
The doctrine of judicial estoppel provides a party that has won a suit on
one ground may not turn around and in another case obtain another
judgment on an inconsistent ground. Bethesda Lutheran Home and Services,
Inc. v. Born, 238 F.3d 853, 857-58 (7th Cir. 2001) (citing Saecker v.
Thorn, 234 F.3d 1010, 1014-15 (7th Cir. 2000); Moriarty v. Sve,
233 F.3d 955, 962 (7th Cir. 2000); Lydon v. Boston Sand & Gravel Co.,
175 F.3d 6, 12-13 (1st Cir. 1999)). If such repudiation were permitted,
the incentive to commit perjury and engage in other litigation fraud
would be greater. McNamara v. City of Chicago, 138 F.3d 1219, 1225 (7th
Cir. 1998) (citing Chaveriat v. Williams Pipe Line Co., 11 F.3d 1420,
1428 (7th Cir. 1990)). Judicial estoppel requires, however, that the
party sought to be estopped have obtained a favorable judgment or
settlement on the basis of a legal or factual contention that the party
wants to repudiate in the current litigation. McNamara, 138 F.3d at
1225. The purpose behind judicial estoppel "is to protect the judicial
system from being whipsawed with inconsistent arguments and to discourage
the form of fraud that consists of withholding your best ground in the
first of a series of suits because it is helpful to your opponent in that
suit hoping to win that suit on a different ground and then spring your
inconsistent best ground in a later suit in order to obtain additional
relief" Bethesda Lutheran, 238 F.3d at 858.
Hackett argues that Xerox is judicially estopped from denying him
long-term disability benefits based on the fact that Xerox agreed and
aided Hackett in successfully applying for social security benefits.
(Pl.'s Mem. In Opp'n to Defs.' Mot. for Summ. J. and in Supp. of
Cross-Mot. for Summ. J., p.11.) Hackett relies on Ladd v. ITT Corp.,
148 F.3d 753 (7th Cir. 1998), for the foundation of his argument. The
Ladd case involves an ERISA suit brought by a plan participant who was
denied disability benefits. See Ladd, 148 F.3d at 753-755. The
plaintiff, Ladd, suffered nerve damage to her neck and both wrists when a
shelving unit fell on her at work. Id. Ladd immediately began the process
of applying for disability benefits. Id. As part of that process, the
defendant, ITT Corporation, encouraged and aided Ladd in applying for
social security disability benefits. Id. With legal aid from ITT, Ladd
was able to demonstrate to the Social Security Administration she was
totally disabled. Id. Within a short period of time after the Social
Security Administration's decision, ITT turned around and determined Ladd
was not totally disabled and denied her disability benefits. Id. The
Seventh Circuit held the denial of disability benefits was arbitrary and
"even irrational." Ladd, 148 F.3d at 755. The court stated "no one who
examined Ladd, including the doctor selected by
[ITT] to examine her, believed that she was capable of working . . . the
uncontradicted evidence is that Ladd's condition was worse when [ITT]
denied her claim then it had been when the Social Security Administration
granted it." Id. at 755-56. In terms of judicial estoppel the
court held it was "technically not applicable," because ITT was not a
party to a previous action involving Ladd's benefits; rather, it was the
spirit of the doctrine that was worthy of consideration. See
id. at 756. The court stated the aid of ITT and subsequent
granting of social security disability benefits "has an additional
significance," but was not the deciding factor. Id. Rather,
ITT's actions of helping Ladd obtain social security benefits and then
turning around and denying disability benefits "cast additional
doubt on the adequacy of the evaluation of Ladd's claim even if it
[did] not provide an independent basis for rejecting that evaluation."
Ladd, 148 F.3d at 756.
A comparison between Ladd and the case at bar reveals several telling
differences. First, it must be pointed out that in Ladd the Seventh
Circuit did not rule that judicial estoppel applied. See id., 148 F.3d at
756. Rather, it addressed Ladd considering the "spirit" of judicial
estoppel. Id. Thus, when Hackett argues that judicial estoppel prevents
Xerox from taking such inconsistent positions, there is no authoritative
support for such an argument. Xerox was never a party to any previous
action involving Hackett's benefits and even though Xerox supported
Hackett in his application for disability benefits it is of only
"additional significance." See id. Second, the position taken by Xerox is
neither inconsistent nor "irrational" as it was in Ladd. Id. at 755.
Hackett was determined disabled by the Social Security Administration in
May of 1996, but it was not until January of 1999 that Hackett was denied
disability benefits by Xerox. (Defs.' Rule 56.1 Statement, ¶ 14, p.
33; Pl.'s Rule 56.1 Statement, ¶ 14, p. 11; R. 52, 85, 108, 109.)*fn4
In that intervening time, Hackett's situation changed. Two separate board
certified psychiatrists determined that Hackett was able to work. (R.
002-010, 78, 080-081, 160-166, 193, 234.) Thus, Xerox should not be
estopped from denying disability benefits, where circumstances have
changed over several years and in light of the current medical evidence.
Further, Xerox's position cannot be considered inconsistent, since at the
time that Hackett applied for social security disability the medical
evidence indicated that he was disabled. (Id.) It was only in January of
1999, again, three years after the award of social security disability,
that new medical evaluations determined that Hackett was no longer
totally disabled. In conclusion, even though Ladd brings the doctrine of
judicial estoppel into the realm of consideration, it is not legally
viable, nor is it applicable in spirit when the actions of a party,
against whom judicial estoppel is sought are not inconsistent. The court
rejects the judicial estoppel argument.
B. Standards for Summary Judgment
Summary judgment is permissible when "there is no genuine issue as to
any material fact and . . . the moving party is entitled to judgment as a
matter of law." Fed. R. Civ. P. 56(c). The nonmoving party cannot rest
on the pleadings alone, but must identify specific facts, see Cornfield
v. Consolidated High School District No. 230, 991 F.2d 1316, 1320 (7th
Cir. 1993), that raise more than a mere scintilla of evidence to show a
genuine triable issue of material fact. See Murphy v. ITT Technical
Services, Inc., 176 F.3d 934, 936 (7th Cir. 1999); see also Shank v.
William R. Hague, Inc., 192 F.3d 675, 682 (7th Cir. 1999) (stating that a
party opposing summary judgment must present "what evidence it has that
would convince a trier of fact to accept its version of events"). A
defendant is entitled to put the plaintiff to his proofs and demand a
showing of the evidence. See e.g. Navarro v. Fuji Heavy Industries,
Ltd., 117 F.3d 1027, 1030 (7th Cir. 1997). If the plaintiff fails to come
up with the required proof, the defendant is entitled to summary
judgment. See id. It bears repeating that the plaintiff must present
evidence, rather than speculation and conclusions without factual
support. See Rand v. CF Industries, Inc., 42 F.3d 1139, 1146-47 (7th
In deciding a motion for summary judgment, the court can only consider
evidence that would be admissible at trial under the Federal Rules of
Evidence. See Bombard v. Fort Wayne Newspapers, Inc., 92 F.3d 560, 562
(7th Cir. 1996). The court views the record and all reasonable inferences
drawn therefrom in the light most favorable to the party opposing summary
judgment. See Fed. R. Civ. P. 56(c); Perdomo v. Browner, 67 F.3d 140,
144 (7th Cir. 1995). "In the light most favorable" simply means that
summary judgment is not appropriate if the court must make "a choice of
inferences." See United States v. Diebold, Inc., 369 U.S. 654, 655
(1962); First Nat'l. Bank of Arizona v. Cities Service Co., 391 U.S. 253,
280 (1968); Wolf v. Buss (America) Inc., 77 F.3d 914, 922 (7th Cir.
1996). The choice between reasonable inferences from facts is a jury
function. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
The court has one task and one task only: to decide, based on the
evidence of record, whether there is any material dispute of fact that
requires a trial. Waldridge v. Amercian Hoechst Corp., 24 F.3d 918, 920
(7th Cir. 1994) (citing Anderson, 477 U.S. at 249-50; 10 Charles A.
Wright, Arthur R. Miller & Mary K. Kane, Federal Practice and Procedure:
Civil § 2712, at 574-78 (2d ed. 1983)).
As part of the court's decision to grant summary judgment in favor of
Xerox, an analysis of several issues is necessary. First, the court has
to determine what standard of review to apply to the denial of disability
benefits under ERISA, de novo or a more deferential standard. This
determination is dependent upon the language contained in the LTD plan.
In order to identify the correct language, the court must establish the
LTD plan that was in effect. The end result is application of the
deferential standard of arbitrary and capricious. Application of the
arbitrary and capricious standard reveals that Xerox is entitled to
summary judgment because the decision to deny disability benefits was not
unreasonable. Even with Hackett's numerous collateral challenges to the
reasonableness of the decision, including arguments involving full and
fair review, violation of a service agreement, failure to provide
required plan materials, conflict of interest, and breach of fiduciary
duty, Xerox is still entitled to summary judgment.
ERISA was enacted "to promote the interests of employees and their
beneficiaries in employee benefit plans," Shaw v. Delta Airlines, Inc.,
463 U.S. 85, 90 (1983), and "to protect contractually defined benefits."
Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 148 (1985);
see generally 29 U.S.C. § 1001 et seq. (setting forth congressional
findings and declarations of policy regarding ERISA). ERISA provides "a
panoply of remedial devises" for participants and beneficiaries of
benefits plans. Firestone Tire and Rubber Co. v. Brunch, 489 U.S. 101,
106 (1989) (citing Massachusetts Mutual Life Ins. Co., 473 U.S. at 146).
The Supreme Court held in Firestone that a "de novo standard of review
applies regardless of whether the plan at issue is funded or unfunded and
regardless of whether the administrator or fiduciary is operating under a
possible or actual conflict of interest." Firestone, 489 U.S. at 115
(citing Restatement (Second) of Trust § 187, Comment d (1959)).
Further, the Seventh Circuit has stated "[t]he [Firestone] case makes
plenary review the default rule, that is, the rule to govern when the plan
documents contain no indication of the scope of judicial review; and it
is a natural and modest extension of [Firestone], or perhaps merely a
spelling out of an implication of it, to construe uncertain language
concerning the scope of judicial review as favoring plenary review as
well." Herzberger v. Standard Insurance Co., 205 F.3d 327, 330 (7th Cir.
2000); See also Reilly v. Hartford Life & Accident Ins. Co., ___ F.3d
___, No. 00-3760, 2001 WL 1518765 (7th Cir. Nov. 30, 2001). However "an
ERISA plan can likewise specify that the administrator has discretion in
interpreting or applying it . . . but the conferral of discretion is not
to be assumed." Herzberger, 205 F.3d at 331. Discretion is only entitled
when the language of the plan provides it. See id., see also O'Reilly,
2001 WL 1518765 at *2. The Seventh Circuit has suggested such "safe
harbor" language that would assure that the administrator has sole
discretion, however, such language is not mandatory nor can it be
considered magic words. See Herzberger, 205 F.3d at 331 (The `safe
harbor' language suggested by the Seventh Circuit is the following:
"Benefits under this plan will be paid only if the plan administrator
decides in his discretion that the applicant is entitled to them.")
Rather, "in some cases the nature of the benefits or the conditions upon
it will make reasonably clear that the plan administrator is to exercise
discretion." Id. "In others the plan will contain language that, while
not so clear as our `safe harbor' proposal, indicates with the requisite
of minimum clarity that a discretionary determination is envisaged." Id.
If the administrator does have discretion, then the court reviews the
administrator's decision from the perspective of an arbitrary and
capricious standard. See Herzberger, 205 F.3d 331-32.
Obviously, then the court must look to the language of the plan to
determine its standard of review. A significant issue arises when the
court looks to the language of the plan to determine the standard of
review, namely which LTD plan is in effect.
As stated before, it is disputed between the parties exactly which LTD
is in effect. In October of 1978, Xerox executed a "Long Term
Disability Income Plan" effective to August 1, 1977. (Compl., Ex. 1, p.
1.) This plan was amended several times over the years. (Compl., Ex. 1,
pp. 8-10.) The most recent amendment, in terms of the context of this
action, was in June of 1997 to be effective August 1, 1996. (Compl., Ex.
2, pp. 1, 19.) Hackett claims the LTD plan in effect is the 1987 Policy.
Xerox claims that the plan in effect is the 1996 Plan which was an
amendment to the 1977 Plan.
Judge Posner has written that "this kind of confusion is all too common
in ERISA land." Health Cost Controls of Illinois, Inc. v. Washington,
187 F.3d 703, 712 (7th Cir. 1999). The terms of ERISA plans sometimes
"must be inferred from a series of documents none clearly labeled as `the
plan.'" Id. (referring to Milwaukee Area Joint Apprenticeship Training
Comm. v. Howell, 67 F.3d 1333, 1338 (7th Cir. 1995); Horn v. Berdon Inc.
Defined Benefit Pension Plan, 938 F.2d 125 (9th Cir. 1991) (per
curiam)). In Health Cost Controls, the Seventh Circuit faced the issue as
to what was encompassed within the plan. Health Cost Controls, 187 F.3d
at 712. The court looked to surrounding evidence to establish the plan.
In this case, the court must consider several factors, including
vesting, amendments, and accrual of a cause of action. Welfare plans,
such as an LTD, are specifically exempted from vesting requirements to
which pension plans are subject. 29 U.S.C. § 1051 (1); see
Curtiss-Wright Corp. v. Schoonejngen, 514 U.S. 73, 78 (1995). Employers
"are generally free under ERISA, for any reason at any time, to adopt,
modify, or terminate welfare plans. Curtiss-Wright Corp., 514 U.S. at
78. But, employers may provide for the vesting of benefits by written
contract, so that the benefits are fixed. See Land v. Chicago Truck
Drivers Helpers & Warehouse Workers Union Health & Welfare Fund 1994,
25 F.3d 509, 514 (7th Cir. 1994) (citing Bidlack v. Wheelabrator Corp.,
993 F.2d 603, 605 (7th Cir. 1993)); Senn v. United Dominion Indus.,
Inc., 951 F.2d 806, 814 (7th Cir. 1992). Accordingly, whether welfare
benefits have vested must be determined by the text of the governing plan
documents. Senn 951 F.2d at 814; Ryan v. Chromalloy Am. Corp.,
877 F.2d 598, 602 (7th Cir. 1989).
The Seventh Circuit has stated that "an employee's entitlement to such
benefits expires with the agreement creating the entitlement, rather than
vesting, but the presumption can be knocked out by a showing of genuine
ambiguity, either patent or latent, beyond silence." Rossetto v. Pabst
Brewing Co., Inc., 217 F.3d 539, 543 (7th Cir. 2000) (citing Bidlack, 993
F.2d at 606-07).*fn6 Further, the court stated the "presumption
against vesting, it is important to emphasize, kicks in only if all the
court has to go on is silence." Rossetto, 217 F.3d at 544. "If
there is some positive indication of ambiguity, something to make you
scratch your head (but the "something" must be either language in the
plan or contract itself or the kind of objective evidence that can create
a latent ambiguity under principles of contract law, Murphy v.
Keystone Steel & Wire Co., 61 F.3d at 565), the presumption fails
out." Rossetto, 217 F.3d at 544. The presumption against
vesting is thus a default rule, that is, a rule to be applied when there
is no other evidence. Id. (citing Bidlack, 993 F.2d
at 609; B. Allan Farnsworth, Contracts, § 7.16, pp. 499.
(3d ed. 1999)).
If a determination is made that a welfare plan does not vest rights and
the plan may be amended, it is necessary to establish which plan is in
effect. In order to ultimately determine what LTD plan is in effect, the
court must identify when Hackett's cause of action arose. See Daill v.
Sheet Metal Workers' Local 73 Pension Fund, 100 F.3d 62, 65 (7th Cir.
1996). The Seventh Circuit has stated that an ERISA plan participant's
claim for relief accrues when his claim for benefits is denied. See id.
Other circuits and district courts have also addressed the issue and have
similarly concluded that "an ERISA cause of action based on a denial of
benefits accrues at the time the benefits are denied." Grosz-Salomon v.
Paul Revere Life Ins. Co., 237 F.3d 1154, 1159 (9th Cir. 2001); see also
Podolan v. Aetna Life Insurance Co., 909 F. Supp. 1378, 1384 (D. Idaho
1995) (action of plan administrator in denying benefits is when claim
arises); Blessing v. John Deere & Co., 985 F. Supp. 899, 903 (S.D. Iowa
1997) (ERISA cause of action based on a denial of benefits accrues at the
time the benefits are denied).
With these principles as a guide, the court examines Xerox's LTD
Plans. On October 26, 1978, Xerox executed a document entitled "Xerox
Long Term Disability Income Plan," (Compl., Ex. 1, p. 1.), which actually
became effective on August 1, 1977. (Id.) The purpose of the 1977 Plan
was "to provide disability benefits for covered employees and former
employees of Xerox Corporation. . . ." (Id.) Significantly, the plan
provides in Article 5, under the heading "Amendment or Termination of the
Plan" the following:
The company intends to continue the Plan described
herein as a permanent program. However, the Company
specifically reserves the right to amend, suspend or
terminate the Plan described herein at any time and
for any reason, except that no amendment, suspension
or termination of the Plan shall affect benefits
previously granted to participants, and provided
further that no amendment of the Plan may be made
which would permit any part of the Trust Fund to be
used for or diverted to purposes other than for the
exclusive benefit of the participants or which would
diminish any rights accrued for the benefit of
participants prior to the effective date of the
(Compl., Ex. 1, p. 6.) Additionally, attached to the 1977 Plan are three
documents, entitled Amendment No.1 executed September 20, 1979, Amendment
No. 2 executed December 19, 1980, and Amendment No. 3 executed October
31, 1986. The 1977 Plan was amended further in 1996 when a new document
entitled "Long-Term Disability Income Plan" became effective. (Compl.,
Ex. 2, p. 1.)
As stated previously, the court looks to when a claim for benefits is
denied to establish the cause of action under ERISA. Daill, 100 F.3d at
65 (citing Tolle v. Carroll Touche, Inc., 977 F.2d 1129, 1138 (7th Cir.
1992)). Hackett originally went on disability in 1987. (See infra pp.
2-3) Hackett was determined disabled by the Social Security
Administration in 1996. However, it is not until January of 1999 that
Xerox denied Hackett's claim for disability benefits. (See infra, pp.
2-3.) Thus, Hackett's claim for relief against Xerox did not accrue until
January of 1999. The plan in effect at that time governs Hackett's
benefits, the scope of the administrator's discretion, and this court's
review of the administrator's decision.
Following this progression of analysis, the court addresses the 1996
Plan which is entitled "Xerox Corporation Long Term Disability Income
Plan." (Compl, Ex. 2, p. 1.) The 1996 Plan states under Section 1.2 the
following: "Effective Date. The original effective date of the Xerox
Corporation Long-Term Disability Income Plan was August 1, 1977. . . ."
(Id.) The 1996 Xerox LTD Plan also contains the following language:
The determination of whether an Employee has incurred
a covered disability and has complied with all of the
conditions for receiving, and continuation of,
benefits shall be made by either the Medical Case
Manager or the ...