Bader v. RHI Refractories America, Inc.

Opinions of the United
2004 Decisions States Court of Appeals
for the Third Circuit
10-6-2004
Bader v. RHI Refractories
Precedential or Non-Precedential: Non-Precedential
Docket No. 01-4486
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2004
Recommended Citation
"Bader v. RHI Refractories" (2004). 2004 Decisions. Paper 253.
http://digitalcommons.law.villanova.edu/thirdcircuit_2004/253
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2004 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 01-4486
GARY BADER,
Appellant
v.
RHI REFRACTORIES AMERICA, INC,
Successor to Global Industrial Technologies, Inc;
GLOBAL IND TECH INC, Employee Severance Pay Plan;
STEVEN B. SPOLAR, Plan Administrator for the
Global Industrial Technologies Inc. Employee Severance Pay Plan
Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil No. 01-cv-00346)
District Judge: Honorable Robert J. Cindrich
Submitted Under Third Circuit LAR 34.1(a)
October 1, 2004
Before: RENDELL, FUENTES and SMITH Circuit Judges.
(Filed )
OPINION OF THE COURT
RENDELL, Circuit Judge.
Appellant Gary Bader (“Bader”) seeks reversal of the District Court’s grant of
summary judgment for Defendants RHI Refractories America, Inc., Global Industrial
Technologies., Inc. Employee Severance Pay Plan, and Steven B. Polar (collectively
referred to as “RHI”), based on the Court’s determination that the decision of the Plan
Administrator (“Administrator”) to deny the appellant benefits under the Global Industrial
Technologies, Inc. Employee Severance Pay Plan (“Plan”) was supported by substantial
evidence and affirmed under the “heightened” arbitrary and capricious standard of
review. As Bader’s claim for recovery of benefits under the Plan rests on the rights
provided by ERISA, the District Court had jurisdiction under 29 U.S.C. § 1132(e). We
have jurisdiction under 28 U.S.C. § 1291. We will affirm.
I.
As we write solely for the parties, our recitation of the facts will be limited to those
necessary to our determination. Bader appeals the District Court’s judgment, contending
that the Court erred in adopting the Magistrate Judge’s Report and Recommendation
(“Magistrate’s Report”) which Bader claims improperly applied an overly deferential
standard in reviewing the Plan Administrator’s decision. Consequently, Bader argues that
the Court erred in adopting the Magistrate’s Report as the basis for granting summary
judgment to the Defendants, alleging that the Court lacked relevant material facts on the
record to support affirming the denial of Bader’s claim for benefits.
The Administrator concluded that Bader’s resignation from RHI did not qualify as
a voluntary termination for “Good Reason” and, therefore, Bader was not entitled to
2
receive enhanced severance benefits under the terms of the Plan. The District Court's
summary judgment ruling was based on its determination that the Administrator’s
decision, denying Bader’s application for benefits, was supported by sufficient facts in the
record.
II.
We exercise plenary review of the District Court’s grant of summary judgment and
we apply the same standard that the lower court should have applied. Farrell v. Planters
Lifesavers Co., 206 F.3d 271, 278 (3d Cir. 2000). Summary judgment is proper if there is
no genuine issue of material fact and if, viewing the facts in the light most favorable to
the non-moving party, the moving party is entitled to judgment as a matter of law. Fed.
R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
A. Appropriateness of the Arbitrary and Capricious Standard
Before we can evaluate the propriety of the Administrator’s determination, we
must first decide whether the District Court’s application of the deferential “arbitrary and
capricious” standard of review was proper. The Supreme Court has directed us to review
the determinations of a plan administrator de novo, unless the “benefit plan gives the
administrator or fiduciary discretionary authority to determine eligibility for benefits or to
construe the terms of the plan.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115
(1989). In that event, the arbitrary and capricious standard is to be applied in reviewing
3
the decisions of the plan’s administrator. Id.; see also Orvosh v. Program of Group Ins.
for Salaried Employees of Volkswagen of Am., 222 F.3d 123, 129 (3d Cir. 2000).
In the present case, it is undisputed that the Plan grants the Administrator
discretion to construe its terms and determine the eligibility for benefits.1 Therefore, as
the Magistrate’s Report noted, the Administrator’s decision is properly reviewed under an
arbitrary and capricious standard.
B. Conflict of Interest: Applying Heightened Standard of Review
Our consideration of the proper standard of review does not end here. The
Supreme Court has instructed that “if a benefit plan gives discretion to an administrator or
fiduciary who is operating under a conflict of interest, that conflict must be weighed as a
‘facto[r] in determining whether there is an abuse of discretion.’” Firestone Tire &
Rubber Co., 489 U.S. at 115.
In addition to determining eligibility for benefits, RHI also pays benefits disbursed
1
Section 5.1 of the Plan provides that:
The Plan shall be administered by the Company . . . [which] shall have the
sole and absolute discretion to interpret where necessary all provisions of
the Plan, . . . to determine the rights and status under the Plan of employees
or of other persons, to resolve questions or disputes arising under the Plan,
and to make any determinations with respect to the benefits payable
hereunder and the persons entitled thereto as may be necessary for purposes
of the plan.
App. at 9a.
4
through the Plan out of its own funds. 2 This creates an inherent conflict of interest for
RHI as the Administrator of the Plan.3 See Skretvedt v. E.I. DuPont de Nemours & Co.,
268 F.3d 167, 174 (3d Cir. 2001). Where such a conflict exists, the arbitrary and
capricious standard is not abandoned, but “heightened” scrutiny is applied to a plan
administrator’s decision. Pinto v. Reliance Std. Life Ins. Co., 214 F.3d 377, 393 (3d Cir.
2000); see also Firestone Tire & Rubber Co., 489 U.S. at 115. This “heightened arbitrary
and capricious review” standard remains “deferential, but not absolutely deferential” to
the decisions of a plan administrator. Pinto, 214 F.3d at 393.
The appropriate level of review that is given to an administrator’s decision is
determined by a “sliding scale method, intensifying the degree of scrutiny to match the
degree of the conflict.” Id. at 379. The degree of deference applied will be lessened
accordingly to “neutralize any untoward influence resulting from the conflict.” Id. at 391(quoting Doe v. Group Hospitalization & Med. Servs., 3 F.3d 80, 87 (4th Cir. 1993)).
As noted in the Magistrate’s Report, a conflict of interest clearly existed as a result
of RHI’s role as both administrator and funder of the Plan. A ruling by the Administrator
in Bader’s favor would cost RHI $156,666 under the Plan’s provisions. The magnitude
2
Section 7.4 of the Plan expressly states that the Plan is not funded and benefits
under the Plan are paid by RHI from its general assets.
3
Because direct evidence demonstrating that a plan administrator’s decision was
actually influenced by the presence of a conflict of interest is rare, the absence of such
direct evidence is not determinative that no conflict exists. See Pinto v. Reliance Std.
Life Ins. Co., 214 F.3d 377, 379 (3d Cir. 2000).
5
of this conflict, however, is lessened by the fact that RHI, as the employer, had
“incentives to avoid the loss of morale and higher wage demands that could result from
denials of benefits” that at least partially counter any incentive not to pay legitimate
claims. Nazay v. Miller, 949 F.2d 1323, 1335 (3d Cir. 1991); see also Kosiba v. Merck &
Co., No. 02-2668, 2003 W L 2029942, at *8 (3d Cir. Sept. 13, 2004), Smathers v. Multi-
Tool, Inc., 298 F.3d 191, 197 (3d Cir. 2002). The mere fact that the particular Plan at
issue was subsequently terminated does not detract from RHI’s incentives to adjudicate
claims fairly.
C. Reviewing the Administrator’s Decision
Accordingly, we will apply a moderately heightened arbitrary and capricious
review to the Administrator’s decision. See, e.g., Kosiba, 2003 WL 2029942, at *8.
Under this standard of review, “a plan administrator’s decision will be overturned only if
it is clearly not supported by the evidence in the record or the administrator has failed to
comply with the procedures required by the plan. A court is not free to substitute its own
judgment for that of the defendants in determining eligibility for plan benefits.” Orvosh,
222 F.3d at 129 (internal quotations omitted). Furthermore, “[w]hether a claim decision
is arbitrary and capricious requires a determination ‘whether there was a reasonable basis
for [the administrator’s] decision, based upon the facts as known by the administrator at
the time the decision was made.’” Levinson v. Reliance Std. Life Ins. Co., 245 F.3d 1321,
6
1326 (11th Cir. 2001) (quoting Jett v. Blue Cross & Blue Shield of Ala., Inc., 890 F.2d
1137, 1139 (11th Cir. 1989)). Any deference we afford this decision must be
appropriately tempered due to RHI’s conflict of interest. See supra Part II.B.
In this case, there is ample evidence in the record to support the Administrator’s
decision. The dispute appears to revolve around whether there was a material and
adverse change in Bader’s duties, responsibilities, or status with the company to
constitute “Good Reason” for his resignation.4 As noted in the Magistrate’s Report, there
is no evidence in the record which indicates that Bader “was at any time unable to or
prevented from continuing with his prior responsibilities” due to RHI’s acquisition of his
former employer.
Prior to RHI’s acquisition of Harbison-Walker, Bader was employed by Harbison-
Walker as Director, Worldwide Minerals Processing. Following the acquisition, RHI
offered Bader a position with the succeeding company as Director, Worldwide Cement.
Bader acknowledged that the position he was being offered was “the same position as he
4
Under the terms of Section 1.11 of the Plan, an employee who voluntarily
terminates employment for “Good Reason” may qualify for benefits. Following a change
in control, such as the acquisition of Harbison-Walker by RHI, an employee may
voluntarily resign a position for “Good Reason,” under § 1.11(d), if they are subjected to:
[A]ny change in duties, responsibilities (including direct reporting
responsibilities) or status of the Eligible Employee that is inconsistent in any
material and adverse respect with the Employee’s position(s), duties,
responsibilities or status with the Company immediately prior to such Change
in Control (including any material and adverse diminution of such duties or
responsibilities).
App. at 17a.
7
held at Harbison-Walker.” 5 Bader presented no evidence, other than his personal
perceptions and conjectures, of material and adverse changes to his job responsibilities
following the RHI acquisition. In reviewing the record, the only adverse change to
Bader’s job responsibilities was that, during the post-acquisition reorganization, Bader
“unilaterally decided to stop performing his duties.” The Administrator, in reviewing the
record before them, had sufficient evidence to justify a conclusion that Bader’s voluntary
resignation was not for “Good Reason,” as defined in the Plan, and to deny Bader’s
application for enhanced severance benefits.
III.
For these reasons, we conclude that the District Court properly granted summary
judgment in favor of RHI. Accordingly, we will AFFIRM the Order of the District Court.
5
The position of Director of Worldwide Cement, by its terms, offered the same
salary, reporting structure, and continued in the same product line as Bader’s previous
position with Harbison-Walker. The language of the job proposal also expressly stated
that the new position would “be consistent with [Bader’s] current responsibilities.”
8