Leonard v. Southwestern Bell Corporation Disability Income Plan , 341 F.3d 696 ( 2003 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
No. 02-3559
Marion Leonard, *
*
Plaintiff - Appellant, *
* Appeal from the United States
v. * District Court for the Eastern
* District of Missouri
Southwestern Bell Corporation *
Disability Income Plan; Southwestern *
Bell Corporation Pension Benefit Plan; *
Southwestern Bell Corporation, as Plan *
Administrator and a Named Fiduciary *
of Southwestern Bell Corporation *
Disability Income Plan and of *
Southwestern Bell Corporation Pension *
Benefit Plan, also known as SBC *
Communications, Inc.; Benefit Plan *
Committee of Southwestern Bell *
Corporation Disability Income Plan, as *
Fiduciaries of Southwestern Bell *
Corporation Disability Income Plan; *
Benefit Plan of Southwestern Bell *
Corporation Pension Benefit Plan, as *
Fiduciaries of Southwestern Bell *
Corporation Pension Benefit Plan; *
Southwestern Bell Telephone, L.P., as *
a participating company and a Named *
Fiduciary in the Southwestern Bell *
Corporation Disability Income Plan *
and Southwestern Bell Corporation *
Pension Benefit Plan; Benefit Plan *
Committee of Southwestern Bell *
Telephone Company, as the Named *
Fiduciary designated by Southwestern *
Bell Telephone Company with respect *
to claims and administration of *
benefits of employees of Southwestern *
Bell Telephone Company, *
*
Defendants - Appellees. *
Submitted: April 17, 2003
Filed: September 2, 2003
Before MORRIS SHEPPARD ARNOLD, BEAM, and MELLOY, Circuit Judges.
MELLOY, Circuit Judge.
Appellant Marion Leonard sued Appellees1 alleging that they violated the
Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001-
1461, by interpreting two employee benefit plans in a manner that reduced Leonard’s
benefits. In particular, Leonard challenged Appellees’ contention that plan benefits
may be reduced by the entire amount of a 1996 worker’s compensation award that
Leonard received. The district court granted Appellees’ motions for summary
judgment, and in doing so, denied Leonard’s request to prohibit Appellees from
offsetting the benefits owed under the plans. We affirm in part, but reverse the
1
Appellees include the Southwestern Bell Corporation, the Southwestern Bell
Corporation Pension Benefit Plan, the Southwestern Bell Corporation Disability
Income Plan and other related entities, committees, and administrators. Southwestern
Bell Telephone Company employed Mrs. Leonard at the time she became eligible for
disability benefits. Unless describing the specific features of the two employee
benefit plans at issue, we refer to these parties as Appellees or Southwestern Bell.
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district court’s decision to approve the offset amount. The offset amount should not
include attorneys’ fees and costs that Leonard incurred to obtain her 1996 worker’s
compensation award.
I. Background
It is undisputed that Marion Leonard is entitled to disability benefits for
injuries suffered while working for Southwestern Bell. Leonard was placed on leave
in 1995 because of her injuries. She hoped to receive compensation for these injuries
from two sources: worker’s compensation and two employee benefit plans. The
employee benefit plans in which she participated were the Southwestern Bell
Corporation Disability Income Plan (“Disability Plan”) and the Southwestern Bell
Corporation Pension Benefit Plan (“Pension Plan”). After being placed on leave,
Leonard initially received disability benefits from both plans. However,
Southwestern Bell later decided that benefits owed under the Disability and Pension
Plan should be reduced by the entire amount of Leonard’s worker’s compensation
award. Leonard was informed that she would not receive any further benefits under
the plans until the entire amount of her worker’s compensation award had been
withheld.
Leonard brought this action, and the district court ruled on two separate
motions for summary judgment. The first motion for partial summary judgment,
decided on May 30, 2001, considered whether Southwestern Bell was estopped from
arguing that ERISA plan benefits could be reduced by the amount of Leonard’s
worker’s compensation. Leonard's estoppel arguments were based on Southwestern
Bell actions in the “Hechenberger Trilogy”2 of cases.
2
The Hechenberger Trilogy refers to the following three cases brought in the
United States District Court, Eastern District of Missouri, Eastern Division and all
related district court and appellate court opinions, as well as settlement negotiations
in these cases. Hechenberger v. Western Elec. Co., No. 82-0145C(3); Wilken v.
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The district court determined that the Hechenberger Trilogy of cases did not
address the type of offsets at issue in Leonard's case. The Hechenberger Trilogy
directly concerned only reductions of worker’s compensation payments by the
amount of ERISA benefits that had already been paid (“counterclockwise offsets”),
not reductions of ERISA benefits by the amount of worker’s compensation payments
that had been received (“clockwise offsets”). While the district court acknowledged
that the net result of both practices was the same, i.e., in both situations the employees
received the same amount of compensation, it determined that the distinction between
clockwise and counterclockwise offsets was a distinction that mattered (at least when
considering the Hechenberger Trilogy’s preclusive effect). As a result, the district
court granted Southwestern Bell's first motion for partial summary judgment and
determined that the Hechenberger Trilogy did not preclude Southwestern Bell from
arguing that clockwise offsets were acceptable under the terms of the Disability and
Pension Plans.
The district court allowed discovery to continue and, on September 11, 2002,
granted Southwestern Bell's second motion for summary judgment. In doing so, the
district court approved the decision to reduce benefits owed under the plans by the
entire amount of Leonard’s worker’s compensation award. The district court
determined that Southwestern Bell did not abuse its discretion when it determined
that worker’s compensation payments were of the “same general character” as the
disability benefits provided by the plans. Additionally, the district court declined to
consider whether attorneys’ fees should have been included in the offset because the
attorneys’ fees issue had not been properly raised.
On appeal, there are three issues this Court must decide. The first is whether
the district court properly determined that the Hechenberger Trilogy only addressed
AT&T Techs., Inc., No. 83-2198C(3); and Clemens v. Southwestern Bell Tel. Co.,
No. 84-0756-C(3).
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counterclockwise offsets and therefore did not prevent Southwestern Bell from
arguing that clockwise offsets were permissible. The second issue is whether the plan
administrators’ determination that worker’s compensation awards were of the “same
general character” as plan benefits constituted an abuse of discretion. The final issue
is whether Southwestern Bell abused its discretion by including in the offset amount
the attorneys’ fees and costs Leonard paid to obtain her worker’s compensation
award.
II. Standard of Review
“We review a grant of summary judgment de novo, applying the same standard
as that applied by the district court.” Hossaini v. Western Mo. Med. Ctr., 140 F.3d
1140, 1142 (8th Cir. 1998).
This circuit has not clearly stated whether we review a district court’s decision
on the applicability of the collateral or judicial estoppel doctrines under an abuse of
discretion or de novo standard of review. Other courts that considered this issue
reached conflicting opinions. See Wright & Miller, Federal Practice and Procedure:
Civil 3d §4416 n.35-37 (describing the differing opinions on how issue
preclusion/collateral estoppel should be reviewed); §4477 n.9 (providing differing
opinions on how judicial estoppel should be reviewed). We need not resolve the
standard of review issue at this time. Even under the less deferential standard of
review, the de novo standard, we do not find that collateral or judicial estoppel
applies.
By contrast, we have clearly defined the standard for evaluation of a district
court’s review of an ERISA plan’s administration. In Sahulka v. Lucent Techs., Inc.,
206 F.3d 763, 767 (8th Cir. 2000), we stated:
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[T]his Court reviews de novo the district court’s determination of the
appropriate standard of review under ERISA. Woo v. Deluxe Corp., 144
F.3d 1157, 1160 (8th Cir. 1998).
Under ERISA, a plan beneficiary has the right to judicial review of a
benefits determination. See 29 U.S.C. §1132(a)(1)(B). The court
reviews the denial of benefits for abuse of discretion when a plan gives
the administrator “discretionary authority to determine eligibility benefits
or to construe terms of the plan . . . . Firestone Tire & Rubber Co. v.
Bruch, 489 U.S. 101, 115 (1989). Under the abuse of discretion
standard, “the plan administrator’s decision to deny benefits will stand
if a reasonable person could have reached a similar decision.” Woo v.
Deluxe Corp., 144 F.3d 1157, 1162 (8th Cir. 1998) (citation omitted). In
evaluating reasonableness, the court determines “whether the decision is
supported by substantial evidence, which is more than a scintilla but less
than a preponderance.” Id. (quotation omitted).
Id. at 767-768; see also Shelton v. ContiGroup Co., Inc., 285 F.3d 640, 642 (8th
Cir. 2002) (discussing the standard of review under ERISA). In this case, both
plans provide the plan administrators3 with discretionary authority to determine
eligibility and interpret the terms of these plans. As such, the appropriate
standard of review for evaluating the decision to reduce plan benefits by the
entire amount of the 1996 worker’s compensation award is whether the plan
administrators abused their discretion.
3
The term “plan administrator” is used in this opinion to refer to the individual,
committee, or subcommittee provided with the responsibility for interpreting the
Disability or Pension Plans at issue in this case.
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III. Estoppel Arguments
Leonard argues that, based on principles of collateral and judicial
estoppel, Southwestern Bell's actions in the “Hechenberger Trilogy” should
preclude clockwise offsets (reducing plan benefits by the amount of worker’s
compensation received). We agree with the district court’s rejection of
Leonard's argument. The Hechenberger Trilogy dealt only with
counterclockwise offsets (reducing worker's compensation benefits by the
amount of plan benefits received), not with clockwise offsets like those at issue
in this case.
The principle of collateral estoppel is part of a doctrine often referred to
as preclusion or res judicata. The Supreme Court explained the characteristics
of the res judicata doctrine in Baker by Thomas v. General Motors Corp.:
“Res judicata” is the term traditionally used to describe two discrete
effects: (1) what we now call claim preclusion (a valid final adjudication
of a claim precludes a second action on that claim or any part of it) and
. . . (2) issue preclusion, long called “collateral estoppel” (an issue of
fact or law, actually litigated and resolved by a valid final judgment,
binds the parties in a subsequent action, whether on the same or a
different claim) . . . .
522 U.S. 222, 233 n.5 (1998) (internal citations omitted) (emphasis added). The
question in this case is whether issue preclusion prevents Southwestern Bell
from arguing that the reduction of ERISA benefits by the amount of a worker’s
compensation award is proper. This circuit has defined the elements of issue
preclusion as applying only when the party against whom preclusion is sought,
was involved in a prior lawsuit and:
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(1) the issue sought to be precluded [was] the same as that involved
in a prior action;
(2) the issue [had been] actually litigated in the prior action;
(3) the issue [had been determined] by a valid and final judgment;
and
(4) the determination [was] essential to the prior judgment.
Tyus v. Schoemehl, 93 F.3d 449, 453 (8th Cir. 1996). Our careful review of the
Hechenberger Trilogy leads us to conclude that the issue before the court in
those cases was only whether counterclockwise offsets were improper or
prohibited by statute. While we acknowledge that a few select individuals in
those cases may have been concerned about clockwise offsets (reductions in
their plan benefits by the amount of worker’s compensation awards they had or
expected to receive) we are not convinced that this issue was squarely before
the court or essential to the judgment in any of the three cases. Therefore, we
conclude that the doctrine of issue preclusion does not apply in this case.
Leonard also argues that Southwestern Bell should be judicially estopped
from arguing that the present, clockwise offsets were proper. The doctrine of
judicial estoppel is a discrete doctrine different from issue preclusion. New
Hampshire v. Maine, 532 U.S. 742, 748-49 (2001). The purpose of the doctrine
of judicial estoppel is to “protect the integrity of the judicial process.” Bendet
v. Sandoz Pharm. Corp., 308 F.3d 907, 910 (8th Cir. 2002) (citing New
Hampshire, 532 U.S. at 749-50).
In general, the doctrine of judicial estoppel operates to “prohibit[] a party
from taking inconsistent positions in the same or related litigation.” Hossaini
v. Western Mo. Med’l Ctr., 140 F.3d 1140, 1142-43 (8th Cir. 1998); see also
New Hampshire, 532 U.S. at 750-51 (providing some of the factors that a court
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should consider in determining whether the doctrine applies). For judicial
estoppel to apply in this case, we would need to be convinced that Southwestern
Bell clearly represented to the court in prior cases that it had no intention of
engaging in clockwise offsets or that it made some other similar representation
that caused the courts in the Hechenberger Trilogy, or other related cases, to
refrain from addressing that issue.
Our review of these cases does not convince us that Southwestern Bell
made such representations. Additionally, we see nothing in Southwestern Bell's
arguments before this court that leads us to the conclusion that the “integrity of
the judicial process” would be compromised by allowing Southwestern Bell to
argue that the clockwise offsets in this case were proper. Having determined
that neither collateral estoppel nor judicial estoppel applies, we affirm the
district court’s decision that the Hechenberger Trilogy does not preclude
Southwestern Bell from arguing that it was appropriate to reduce Leonard's plan
benefits by the amount of her 1996 worker’s compensation award.
IV. Same General Character
Leonard also argues that it was improper for the plan administrators to
determine that her worker’s compensation award was of the “same general
character” as benefits provided under these plans. This determination is
important because both plans allow benefits of the “same general character” to
be offset against plan benefits owed:
Southwestern Bell Corp. Disability Income Plan ("Disability Plan")
§ 3.11
In case any benefit, which the Committee or the Claims Administrator,
as applicable, shall determine to be of the same general character as
a payment provided by the Plan . . . the excess only, if any, of the
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amount prescribed in the Plan above the amount of such payment . . .
shall be payable under the Plan . . . .
(Emphasis Added).
Southwestern Bell Corp. Pension Benefit Plan (“Pension Plan”) § 6.8.1
In the event any benefit, which the Committee shall determine to be of
the same general character as a benefit provided by the Plan . . . the
excess only, if any, of the amount prescribed in the Plan above the
amount of such payment . . . shall be payable under the Plan.
(Emphasis Added).
Having determined that the plans allow for benefits of the “same general
character” to be offset, we must determine whether the plans provide their plan
administrators with discretion to determine whether worker’s compensation
awards are of the “same general character” as benefits provided under the plans,
or whether that question is simply one of contract interpretation subject to de
novo review. We find that both the Disability Plan and Pension Plan provide
the plan administrators with such discretion:
Disability Plan § 5.4
[T]he Claims Administrator . . shall have full and exclusive authority
and discretion to grant and deny claims under the Plan, including the
power to interpret the Plan and determine the eligibility of any person
to . . . receive Benefits under the Plan.
Pension Plan § 3.5.4
The Committee and each organizational committee or subcommittee to
whom claim determination or review authority has been delegated shall
have full and exclusive authority and discretion to grant and deny claims
under the SBCPBP, including the power to interpret the SBCPBP and
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determine the eligibility of any individual to participate in and receive
benefits under the SBCPBP.
Since we find that these plans provide the plan administrators with discretion
to determine what constitute benefits of the “same general character,” we are
required to give deference to the plan administrators and only reverse their
decisions for clear abuse of discretion. Woo, 144 F.3d at 1162. But see
Firestone Tire & Rubber Co. v. Burch, 489 U.S. 101, 115 (1989) (holding that
if the plans did not provide a plan administrator with discretion to interpret its
terms that courts are required to review plan administrator’s decisions de novo).
In determining whether an administrator abused his or her discretion in
the interpretation of an employee benefit plan, “we may not find the
interpretation invalid merely because we disagree with it, but only if it is
unreasonable.” Hutchins v. Champion Intern. Corp., 110 F.3d 1341, 1344 (8th
Cir. 1997). As the Hutchins court explained, we look at five factors to
determine whether a plan administrator's interpretation was reasonable:
1) whether the interpretation is consistent with the goals of the plan;
2) whether the interpretation renders any language in the plan
meaningless or makes the plan internally inconsistent;
3) whether the interpretation conflicts with ERISA;
4) whether the interpretation has been consistent; and
5) whether the interpretation is contrary to the clear language of the
plan.
Id. (citing Finely v. Special Agents Mut. Benefit Ass’n, Inc., 957 F.2d 617, 621
(8th Cir. 1992)). The district court applied these five factors when deciding that
the "same general character" determination was not an abuse of discretion. We
agree with the district court’s application of these factors as they relate to the
worker’s compensation award that Leonard actually received, i.e., that portion
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of the award not used to pay attorneys’ fees and costs related to the award. We
see no reason to repeat that well reasoned analysis.
We do address, however, the substance of Leonard’s argument that the
type of award she received was not of the “same general character” as the
benefits provided under the plans. Leonard argues that the worker's
compensation award was for a Permanent Partial Disability, not for a
Temporary Total Disability. Leonard argues that Permanent Partial Disability
benefits are not for the loss of wages, which she argues is the purpose of the
disability benefits provided by the Disability Plan and Pension Plan, but rather
are intended as compensation for the permanent loss of the use of a body part.
On the other hand, she claims that Temporary Total Disability benefits are for
the loss of wages due to a disability, and therefore, only a Temporary Total
Disability award may be of the “same general character" as the plan benefits.
While this argument has some logical merit, we reiterate that the proper
standard of review for the plan administrators' decisions, in this case, is for
abuse of discretion. We do not review the Disability Plan or Pension Plan
administrators’ decisions de novo. Southwestern Bell provided reasonable
arguments to support the determination that the worker’s compensation award
is of the “same general character” as benefits under the Disability and Pension
Plans. For example, Southwestern Bell argues that the purpose of the disability
component of the plans is to provide employees with a minimal level of income
or a “safety net” if they become disabled. Southwestern Bell does not act
contrary to this goal by deciding to reduce Leonard's plan benefits by the
amount received from other sources for the same injuries.
Additionally, we note that the plans provide notice to their participants
that worker’s compensation benefits would be offset against plan benefits. Both
plans’ summary plan descriptions stated that benefits may be reduced by
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worker’s compensation awards. The summary plan description for the
Disability Plan provides: “[t]he Plan provides you with a [long term disability]
benefit of 50% of your basic wage rate reduced by benefits you may receive
from other sources of disability income, including: Workers’ Compensation.”
Likewise the summary plan description for the Pension Plan provides: “If you
receive a state Worker’s Compensation benefit for the same disability for which
you are receiving a disability pension, the disability pension amount will be
reduced by the amount of the Workers’ Compensation benefit.” The summary
plan descriptions in this case do not limit or contradict the explicit terms of the
employee benefit plans. Rather, the summary plan descriptions merely provide
plan participants with notice of what the plan administrators consider to be
awards of the “same general character.” We also note that the summary plan
descriptions do not specify or limit the type of worker’s compensation awards
that the plans would characterize as of the “same general character.”
Considering these factors, we do not agree with Leonard that the plan
administrators abused their discretion.
V. Including Attorneys’ Fees & Costs in the Offset
Although we agree with the district court that the plan administrators did
not abuse their discretion in determining that the worker’s compensation award
was of the “same general character” as the benefits provided under the plans,
we disagree with the district court that Southwestern Bell may offset the entire
amount of Leonard’s worker’s compensation award from the plan benefits
owed.
We first address the district court’s conclusion that Leonard failed to
properly raise the argument that, if offsets were allowed, the plans should not
be permitted to offset the amount Leonard paid in attorneys’ fees and costs to
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obtain the worker’s compensation award. In its September 11, 2002 order the
district court stated that:
Plaintiff now, for the first time, argues that she is entitled to summary
judgment on the theory that attorney’s fees in workers compensation
proceedings are not of the same general character as plan benefits, and
that the administrators abused their discretion in applying offsets in the
amount of attorney’s fees she paid as part of the worker compensation
proceedings. Unfortunately for Plaintiff, it is too late to argue such a
theory. She didn’t raise it in either her initial or First Amended
Complaint, and the time to amend ran out in January 2001.
Memorandum and Order at 9. The district court, however, stated to the contrary
in its May 30, 2001 order. In that order the district court characterized one of
Leonard’s requests to include prohibiting Southwestern Bell from including in
the offset attorneys’ fees and costs. Memorandum and Order at 3 (“if this Court
allows defendants to offset plan benefits with worker’s compensation awards
. . . [plaintiff requests that] any offsets are reduced to account for fees and
expenses required to process and secure worker’s compensation awards . . .”).
We also note that Leonard made this request in paragraph 31 of her First
Amended Complaint. We agree with Leonard that this issue was properly
before the district court and should have been considered.
While it is true that administrators will be granted deference in making
decisions when the plans provide for such discretion, that discretion is not
unlimited. Indeed, the Finley factors were designed to help prevent
unreasonable interpretations of employee benefit plans. In this instance, there
are several reasons for determining that it was unreasonable for the plan
administrators to include in the offset the amount Leonard paid in attorneys’
fees and costs.
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Southwestern Bell argues that the goal of these plans is to provide a
safety net for employees, i.e., to provide a minimum amount of compensation
for disabled employees. Allowing the plans to offset the portion of a worker’s
compensation award the employee paid in attorneys fees and costs to obtain that
award contradicts this stated goal. Such a practice would place employees in
worse positions than they would have been in had they not tried to obtain a
worker’s compensation award in the first place. This result would clearly
violate the first Finley factor: that the interpretation be consistent with the goals
of the plan. We note that concluding otherwise, i.e., concluding that the entire
workers’ compensation award–including the amount paid in attorneys’ fees and
costs–should be treated in the same manner, contradicts Southwestern Bell’s
main argument, namely, that it was not contrary to the goals of the plans to find
Leonard’s benefits of the “same general character" as the workers
compensation.
Additionally, we are concerned with the inequitable results this practice
could produce. Assuming that an employer is not self-insured for worker’s
compensation, Southwestern Bell's argument would result in a windfall to an
employee benefit plan and a detriment to an employee when the employee elects
to asserts rights under a worker’s compensation law. The employer would be
able to reduce benefits, dollar for dollar, for the total amount of the worker’s
compensation award, while the employee, who asserted statutory rights and
obtained additional recovery, would be worse off, having only received the
amount of the award remaining after payment of attorneys’ fees and costs.
Given these two concerns, we are unwilling to allow an offset to include
the amount a plan participant had to pay in attorneys’ fees and costs to obtain
non-plan benefits, absent an explicit statement in the plan that plan
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administrators had discretion to treat fee and cost portions of such payments as
the “same general character” as plan benefits. In this case, neither the Disability
Plan nor the Pension Plan provided the administrator with this discretion.
We conclude that when an ERISA plan does not explicitly provide
administrators with this discretion, the appropriate way to analyze offsets is set
forth in Waller v. Hormel Foods Corp., 120 F.3d 138 (8th Cir. 1997). In
Waller, we held that where “the Plan does not clothe its administrators with
discretion to decide [attorneys’ fees], it is left to the courts to construe the
subrogation clause de novo.” Id. at 141. Although Southwestern Bell tries to
distinguish Waller as a subrogation case, we note that Waller concerned an
ERISA plan’s subrogation clause. The fact that the court in Waller was
addressing an ERISA plan was an important factor in the decision to review the
clause de novo. Thus, we decline to limit Waller’s holding to only subrogation
cases. As a result, we conclude that it was improper for the plan administrator
of either the Disability Plan or the Pension Plan to include in the offset the
amount Leonard paid in attorneys fees and costs.
IV. Conclusion
We reverse the district court’s decision only as it relates to attorneys’ fees
and costs involved in obtaining the $100,000 worker’s compensation award.
We affirm the district court decision in all other respects. We remand to the
District Court to determine the appropriate amount of fees and costs to be
awarded Leonard (to the extent they have already been offset from benefits she
is owed), or to require Southwestern Bell to reduce the total amount of the
offset.
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A true copy.
Attest.
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT
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