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Marrs v. Motorola

August 14, 2009


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 05 C 5463-Susan E. Cox, Magistrate Judge.

The opinion of the court was delivered by: Posner, Circuit Judge.

ARGUED MAY 26, 2009

Before EASTERBROOK, Chief Judge, and BAUER and POSNER, Circuit Judges.

This suit under ERISA for disability payments presents the recurring question whether an employee welfare benefits plan creates an entitlement to lifetime benefits rather than just to benefits that can be terminated by an amendment to the plan.

In 1997 Michael Marrs, an employee of Motorola, ceased working because of a psychiatric condition and began drawing disability benefits under Motorola's Disability Income Plan. Six years later Motorola amended the plan to place a two-year limit on benefits for disability resulting from certain "Mental, Nervous, Alcohol, [or] Drug-Related" (MNAD) conditions, including Marrs's. Such limitations on MNAD conditions are common in employee disability plans. Rogers v. Department of Health & Environmental Control, 174 F.3d 431, 435 (4th Cir. 1999); see, e.g., Krolnik v. Prudential Ins. Co., No. 08-2616, 2009 WL 1838298, at *1 (7th Cir., June 29, 2009); Hackner v. Long Term Disability Plan for Employees of Havi Group LP, 81 Fed. App'x 589, 591 (7th Cir. 2003); Kahane v. UNUM Life Ins. Co., 563 F.3d 1210, 1212 (11th Cir. 2009); Steven J. Sacher et al., Employee Benefits Law 1003-05, 1147-48 (2d ed. Supp. 2008); cf. Dana L. Kaplan, "Can Legislation Alone Solve America's Mental Health Dilemma? Current State Legislative Schemes Cannot Achieve Mental Health Parity," 8 Quinnipiac Health L.J. 325, 328-30 (2005). Previously, however, Motorola had imposed no time limit on the receipt of such benefits. Although Marrs had already received benefits for more than two years, he was given an additional two years of benefits, starting on the date of the amendment. That period has ended and the benefits have ceased.

His suit is on behalf of himself and others in the same position, and a class action has been certified. The district court granted summary judgment in Motorola's favor. In an earlier stage of the litigation, the district court had dismissed two other claims under Rule 12(b)(6). Marrs renews them on appeal, but they are too clearly without merit to require us to discuss them.

Marrs contends that the application of the amendment to persons in his situation violates a provision of the disability-income plan that, like the provision in Article V of the U.S. Constitution according to which a state cannot by constitutional amendment be deprived of its right to two senators without its consent, limits Motorola's power to amend the plan. The provision states that no amendment "shall adversely affect the rights of any Participant to receive benefits with respect to periods of Disability prior to the adoption date of the [amendment]." Marrs interprets "periods of Disability prior to the adoption date" to mean one or more periods of dis-ability that began before the plan was amended but may not have ended before then.

That is a forced reading. The reference in the plan to "periods" rather than "period" suggests the segmentation of a period of disability, with some segments ("periods") lying before and some after the amendment. It is true that the plan defines the term "Period of Disability" to mean "one or more periods of absence from Active Employment due to Disability," and if we substituted "Period of Disability prior to the plan" for "periods of Disability prior to the plan" we would come closer to Marrs's preferred interpretation. But the plan provides that only words the initial letters of which are capitalized are defined terms, and so "periods of Disability" cannot be equated to "Period of Disability."

Marrs's interpretation is further undermined by the disability plan that was in force in 1997 when he stopped working and that states that if a participant became disabled prior to 1994, the benefit levels specified in the disability income plan in force then would "continue in force until [the participant] returns to work for thirty (30) days." This provision would be surplusage in the superseding plan (where it also appears) if the plan guaranteed the continuation of disability benefits without diminution even if, as in Marrs's case, the disability did not arise before 1994.

Whether this interpretation of the plan, which is the plan administrator's interpretation, is correct or not, it is reasonable; and we are inclined to stop with that observation. But Marrs asks us to give no weight to the administrator's interpretation because the administrator labored under a conflict of interest: Motorola is both the plan administrator and the payor of benefits awarded under the plan.

Marrs cites the Supreme Court's recent decision in Metropolitan Life Ins. Co. v. Glenn, 128 S.Ct. 2343 (2008), which addresses the significance of a conflict of interest by the plan administrator when, as in that case and this one, the plan commits the decision whether to award benefits to the administrator's discretion. (If the plan did not confer discretion on the administrator, his decision would be entitled to no deference by the reviewing court.)

Marrs reads Glenn to require "a more penetrating inquiry into the actions of a conflicted administrator" than the earlier case law, which was all over the map-see Kathryn J. Kennedy, "Judicial Standard of Review in ERISA Benefit Claim Cases," 50 Am. U. L. Rev. 1083, 1135-62 (2001); see also Denmark v. Liberty Life Assurance Co., 566 F.3d 1, 6 (1st Cir. 2009)-had required. Although normally an employer can amend a welfare benefits plan without regard to the employees' interests, Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 443-44 (1999); Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 78 (1995), remember that Marrs's claim is that the amendment curtailing his benefits violated the plan, and that is a claim of wrongful denial of benefits and so the Supreme Court's concern with "conflicted" administrators would seem pertinent.

True, the issue in this case is the interpretation of a plan document rather than the application of the plan's criteria for an award of benefits to particular facts; and the interpretation of a contract, unless extrinsic evidence is considered, is usually treated as an issue of law, which an appellate tribunal therefore resolves without deferring to the opinion of the first-line decision maker. But when an ERISA plan gives the plan administrator discretion to interpret its terms as well as to determine eligibility for benefits under terms the meaning of which is not questioned, the court can, as the parties to this case agree, reject the administrator's interpretation only if it is unreasonable ("arbitrary and capricious"). Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989); Carr v. Gates Health Care Plan, 195 F.3d 292, 294 (7th Cir. 1999) ("under the arbitrary and capricious standard, the administrator's decision will only be overturned if it is 'downright unreasonable.' A denial of benefits will not be set aside if the denial was based upon a reasonable interpretation of the plan documents") (citations omitted); Call v. Ameritech Management Pension Plan, 475 F.3d 816, 822 (7th Cir. 2007). And both the original and the amended plan in this case confer discretion on the plan administrator to "construe and interpret the Plan, decide all questions of fact and questions of eligibility and deter-mine the amount, manner and time of payment of any benefits hereunder" (emphasis added).

The administrator is not by virtue of such a grant of authority free to disregard unambiguous language in the plan, id. at822-23; Swaback v. American Information Technologies Corp., 103 F.3d 535, 540 (7th Cir. 1996) ("if fiduciaries or administrators of an ERISA plan controvert the plain meaning of a plan, their actions are arbitrary and capricious")-that would be unreasonable. But the administrator's use of interpretive tools to disambiguate ...

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