Stephen Bandak v. Eli Lilly ( 2009 )

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 09-1620, 09-2271
S TEPHEN I. B ANDAK,
Plaintiff-Appellee,
v.
E LI L ILLY AND C OMPANY R ETIREMENT P LAN, et al.,
Defendants-Appellants.
Appeals from the United States District Court
for the Southern District of Indiana, Indianapolis Division.
No. 1:06-CV-01622-LJM-JMS—Larry J. McKinney, Judge.
A RGUED O CTOBER 9, 2009—D ECIDED N OVEMBER 18, 2009
Before P OSNER, R OVNER, and W ILLIAMS, Circuit Judges.
P OSNER, Circuit Judge. Bandak, a retired employee of
Eli Lilly, sued the company’s retirement plan under
ERISA and received a judgment for $100,222.86 in dam-
ages and an injunction against the plan’s offsetting any
of his future benefits by amounts paid to him under a
plan in which he was enrolled when he worked in the
United Kingdom. The district court also awarded him
2 Nos. 09-1620, 09-2271
attorneys’ fees and costs, amounting to $89,612, on the
ground that Lilly’s position in the litigation had not
been substantially justified.
Bandak, who is English, began work for the Lilly group
of companies in 1978 in England, and was enrolled in the
pension plan of the English member of the group. In 1995,
he was shifted to the United States. Lilly informed
him in writing that he was now enrolled in the U.S. affili-
ate’s retirement plan and that his benefits under the
plan would be based on his years of service retroactive
to his initial employment by the Lilly group, which is
to say back to 1978. Thus he would be treated as if he
had worked for U.S. Lilly from 1978 to 1995 rather than
for the English affiliate. He retired in 2004.
The plan in effect in 1995 said that an employee’s re-
tirement benefits “shall be reduced by the Actuarial
Equivalent of any benefit payable to such a person under
a qualified defined benefit plan maintained by” a Lilly em-
ployer (emphasis added). On the basis of this provision,
the plan administrator decided that Bandak was not
entitled to benefits under the English affiliate’s retirement
plan because it was a “qualified defined benefit plan” and
thus within the exclusion. If this is correct, Bandak’s
pension entitlement would fall from $18,000 a month
to $14,000.
The term “qualified defined benefit plan” is an American
legal term that means a plan approved by the Internal
Revenue Service for favorable federal tax treatment. See,
e.g., 26 U.S.C. §§ 401(a)(5)(D)(i), 1060(e)(2)(A)(ii) (“a
defined benefit plan . . . which qualifies”); 26 C.F.R. § 1.401-
Nos. 09-1620, 09-2271 3
4(c)(7)(ii); Powell v. Commissioner, 129 F.3d 321, 323 (4th Cir.
1997); Arnold v. Arrow Transportation Co., 926 F.2d 782, 783
(9th Cir. 1991); Wilson v. Bluefield Supply Co., 819 F.2d 457,
464 (4th Cir. 1987); Jesse D. Taran & Pamela C. Scott,
“Qualified Defined Benefit Plans: The Essentials,” 875
PLI/Tax 149, 155 (2009). It has no reference to foreign
taxation. The presumption in interpreting a contract
is that the meaning of a technical term is its technical
meaning, Reed v. Hobbs, 3 Ill. 297 (1840); Minges Creek, LLC
v. Royal Ins. Co., 442 F.3d 953, 956 (6th Cir. 2006); Mellon
Bank, N.A. v. Aetna Business Credit, Inc., 619 F.2d 1001, 1013
(3d Cir. 1980); Superior Business Assistance Corp. v. United
States, 461 F.2d 1036, 1039 (10th Cir. 1972); Restatement
(Second) of Contracts § 202(3)(b) (1981), and thus, if it is a
technical legal term, its technical legal meaning. Sunstar,
Inc. v. Alberto-Culver Co., No. 07-3288, 2009 WL 3447450, at
*3 (7th Cir. Oct. 28, 2009); Mellon Bank, N.A. v. Aetna
Business Credit, Inc., supra; Superior Business Assistance Corp.
v. United States, supra. Elsewhere in the plan document,
moreover, “qualified” plan unmistakably means a U.S.
plan because it makes specific references to the Internal
Revenue Code.
Lilly argues that it would be “unfair” for Bandak to get
greater benefits than if he had begun work for Lilly’s
U.S. affiliate rather than its English affiliate in 1978.
Whether and in what sense it is “unfair” would require a
deeper investigation than attempted by the plan adminis-
trator—would require for example investigating whether
it really is “unfair” to give an employee relocated to a
foreign country (remember that Bandak is English, not
American) a 30 percent increase in retirement benefits
4 Nos. 09-1620, 09-2271
($4,000/$14,000). Lilly is a sophisticated enterprise, the
plan document was undoubtedly drafted by lawyers
specializing in ERISA, and those lawyers would, unless
it were otherwise stated in the document, use technical
legal terms in their technical legal senses.
While conceding that “qualified defined benefit plan” is
not an English legal term, Lilly says that the plan in
which Bandak was enrolled when he worked in
England was a “broad-based retirement plan” entitled to
favorable tax treatment under English law. The district
judge rejected the argument on the grounds that the
administrative record contains no English plan document
and that Lilly cites no English law. Lilly thus laid no
foundation for comparing the English plan to a U.S.
“qualified defined benefit plan.”
The U.S. plan does state that “in no event shall an
Employee receive credit more than once for the same
period of Service.” But the plan restricts “Employees” to
citizens or residents of the U.S., and Bandak was
neither when he was working for the English affiliate.
Two years after he was relocated to the United States the
retirement plan of the U.S. affiliate was amended to
provide that the plan benefits “of an individual who
becomes an Employee on or after April 1, 1997” would
be reduced by the amount of benefits to which he was
entitled “by a plan or program maintained by a non-
United States [Lilly company] . . . that provides retirement-
type benefits,” or by the retirement plan of a foreign
government. The amendment did not apply to Bandak,
whose employment by the domestic affiliate had begun
Nos. 09-1620, 09-2271 5
before 1997; its only significance in the litigation is in
undermining Lilly’s position.
Rather than trying to define a “qualified” retirement
plan, the amendment eliminated double counting for
anyone who had received “retirement-type benefits”
under a plan maintained by a foreign Lilly affiliate for
whom the employee had worked. Lilly argues that the
amendment does not apply to foreign retirement plans
that are “like” a U.S. qualified defined benefit plan;
those plans, it argues, had always been usable to reduce
benefits. On this interpretation the plan administrator
when dealing with a benefits claim by someone like
Bandak who is not subject to the amendment has to
decide how much “like” a “qualified defined benefit
plan” in its U.S. sense the foreign affiliate’s plan had
been. The administrator would have to familiarize
himself with the retirement laws of the 52 other countries
in which one or more of Lilly’s 142 affiliates operate.
He would have to decide whether the Chinese affiliate,
for example, has a retirement plan that is sufficiently
“like” a qualified defined benefit plan under U.S. law to
satisfy the plan administrator’s understanding of “quali-
fied defined benefit plan.”
Notice the strangeness of an interpretation that allows
an employee to get double service credit (as Lilly’s
lawyer acknowledged at argument) if the foreign
affiliate’s retirement plan is not given favorable tax treat-
ment by the foreign government.
It seems the amendment was intended to close what Lilly
belatedly had decided was a loophole through which
6 Nos. 09-1620, 09-2271
Bandak has sailed. This interpretation is supported by
the minutes of the Lilly board meeting at which the
amendment was adopted. The chairman of the board
explained that the “amendment is necessary to prevent
the Company from paying benefits for years of service
that are already being paid or credited by another
affiliate or foreign country.” That describes Bandak’s
case to a T.
The contention in Lilly’s brief that the reference in the
minutes to years of service “credited by another affiliate”
is a reference to defined contribution plans, not defined
benefit plans, makes no sense. Though Lilly does offer a
defined contribution plan, benefits generated by such
plans are based on the contributions to the employee’s
retirement account rather than on his years of service.
E.g., Evans v. Akers, 534 F.3d 65, 71 n. 5 (1st Cir. 2008);
Hawkeye National Life Ins. Co. v. AVIS Industrial Corp., 122
F.3d 490, 500 n. 6 (8th Cir. 1997); Andrew L. Gaines &
Steven M. Margolis, “An Introduction to Defined Con-
tribution Plans,” 875 PLI/Tax 183, 189 (2009). Nor were
defined contribution plans common prior to 1997. See
Gregory N. Filosa, “International Pension Reform: Lessons
for the United States,” 19 Temp. Int’l & Comp. L.J. 133, 137
(2005); Marti Dinerstein, “Social Security ‘Totalization’:
Examining a Lopsided Agreement with Mexico,” Center
for Immigration Studies (Sept. 2004), available at
www.cis.org/articles/2004/back904.pdf (visited Oct. 11,
2009); Noriyuki Takayama, “Pension Reform in Japan at
the Turn of the Century,” 26 Geneva Papers on Risk and
Insurance 565 (2001); Lothar Schruff, “Pensions and Post-
Retirement Benefits by Employers in Germany,” 64 Brook-
lyn L. Rev. 795, 800 (1998).
Nos. 09-1620, 09-2271 7
The implication that the 1997 amendment was based
on a belief that without it persons in Bandak’s situation
would have a double dip is further strengthened by
Lilly’s inability to name even one person whose benefits
under a foreign retirement plan had been reduced
before the amendment (which remember is not applicable
to Bandak) went into effect, even though Lilly is a
global enterprise and many of its high-level scientific
employees, like Bandak, must at times during their career
with Lilly reside in different countries, working for dif-
ferent affiliates each with its own defined benefit plan.
A document in Bandak’s employee file states that “until
1997 [the reference is to the 1997 amendment], the
offset [for foreign plans] was not specifically written into
the plan, but was followed as a common practice.” Provi-
sions of an ERISA plan must be in writing. 29 U.S.C.
§ 1102(a)(1); Curtiss-Wright Corp. v. Schoonejongen, 514
U.S. 73, 83-84 (1995). They cannot be modified by
“common practice.” E.g., Orth v. Wisconsin State Employees
Union Counsel 24, 546 F.3d 868, 872 (7th Cir. 2008); In re
Unisys Corp. Retiree Medical Benefit “ERISA” Litigation,
58 F.3d 896, 905-06 (3d Cir. 1995).
Lilly reminds us that a plan administrator’s judgment
is entitled to deference when as in this case (as in
almost every case) the plan document vests the admin-
istrator with discretion in interpreting and applying the
plan. But the entitlement is diminished by indications
that the conflict of interest inherent when benefits deter-
minations are made by a plan funded by the employer
has infected the administrator’s consideration of the
8 Nos. 09-1620, 09-2271
application for benefits. As we explained in Marrs v.
Motorola, Inc., 577 F.3d 783, 789 (7th Cir. 2009), elaborating
on the Supreme Court’s decision in Metropolitan Life Ins. Co.
v. Glenn, 128 S. Ct. 2343 (2008), “If the circumstances
indicate that probably the decision denying benefits was
decisively influenced by the plan administrator’s conflict
of interest, it must be set aside . . . . The likelihood that the
conflict of interest influenced the decision is therefore
the decisive consideration, as seems implicit in the
majority opinion’s [in Glenn] reference to indications of
‘procedural unreasonableness’ in the plan administrator’s
handling of the claim in issue, id. at 2352 (emphasis in
original), and its suggestion that efforts by the plan
administrator to minimize a conflict of interest would
weigh in favor of upholding his decision. Id. at 2351.”
We know that the chairman of Lilly’s board of directors
was concerned about the cost of its retirement plan. And
the disingenuousness of Lilly’s arguments suggests that
the conflict of interest was indeed gnawing at the ad-
ministrator. Consider the administrator’s failure to
identify anyone in Bandak’s position hired before the 1997
amendment who had been denied service credit for his
time with a foreign affiliate, and consider the implausible
suggestion that the reference to private plans in the
1997 amendment is just to defined contribution plans.
Consider also the barrenness of the record concerning the
English plan and English tax law, which makes one
wonder how the plan administrator even knew that the
English plan was a “qualified defined benefit plan,” and
which suggests the administrator was covertly applying
the 1997 amendment, while conceding its inapplicability
to Bandak.
Nos. 09-1620, 09-2271 9
So not only was the district court’s decision correct;
Lilly’s rejection of Bandak’s claim was not substantially
justified, and therefore the district judge committed no
error in awarding Bandak his reasonable attorneys’ fees
and costs. Sullivan v. William A. Randolph, Inc., 504 F.3d
665, 670-72 (7th Cir. 2007); see 29 U.S.C. § 1132(g). Bandak
has asked for fees for defending the appeal, and he is
entitled to them too. As we explained in Sullivan,
“affirmance entitles an appellee who has properly been
awarded an attorney’s fee in the district court to an at-
torney’s fee for successfully defending the district
court’s judgment in the court of appeals. Otherwise the
purpose of the initial award—to shift the cost of litigation
to the losing party—would be imperfectly achieved.”
Sullivan v. William A. Randolph, Inc., supra, 504 F.3d at 672(citations omitted). Bandak is directed to submit within
10 days an itemized statement of the attorneys’ fees that
he incurred in defending the appeal, and Lilly will have
10 days to respond.
A FFIRMED.
11-18-09