Reply Brief — Robinson v. Administrative Committee of the Sea Ray Employees' Stock Ownership & Profit Sharing Plan

Supreme Court, Ua,

FILED

(5) SEP 138 1999

B | DEELGE OF THE CLERK

No. 98-1971

In The

Supreme Cont of the United States

4

DANIEL ROBINSON; et al. (“Class I’);

Petitioners/Defendants,

VS.

ADMINISTRATIVE COMMITTEE OF THE

SEA RAY EMPLOYEES’ STOCK OWNERSHIP &

PROFIT SHARING PLAN et al.

Respondents/Plaintiffs,

and

SHARON BALDOCK; et al. (“Class IT”’)

Respondents/Defendants.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Sixth Circuit

REPLY TO THE BRIEFS IN OPPOSITION

E. H. RAYSON

Counsel of Record

WILLIAM P. SNYDER

JOHN C. BURGIN JR.

KRAMER, RAYSON, LEAKE

RODGERS & MORGAN, LLP

P. O. Box 629

Suite 2500, First Tennessee Plaza

Knoxville, Tennessee 37901

(423) 525-5134

Attorneys for Petitioners

oy ae

1

Questions Presented

I.

A.

Whether, under Firestone Tire & Rubber Co. v. Bruch, 489

U.S. 101 (1989), the Language in the Respondent’s Employee

Stock Ownership and Profit Sharing Plan was Sufficient to

Permit Review under the Arbitrary and Capricious Standard.

B.

Whether Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101

(1989), Requires Deference to a Plan Administrator’s

Interpretation of a Federal Statute (26 U.S.C. § 411(d)(3))

and/or its Factual Findings that a Partial Termination Had Not

Occurred.

C.

Whether a Plan Administrator’s Decision May be Upheld on

Grounds Other Than Those Given or Considered by the Plan

Administrator Regardless of the Standard of Review.

II.

Whether, on an Appeal from a Decision Granting Summary

Judgment, the Court of Appeals Properly Applied the Clearly

Erroneous Standard of Review to Conclusions Crucial to the

District Court’s Holding that a Partial Termination of an ESOP

Had Not Occurred.

11

Table of Contents

4 Ne re Pe error erry i

Bane OE PS oko sk oh a ee ee eee iV

A PE ey re re rr) ea een es ]

I.A. Whether, under Firestone Tire & Rubber Co.

v. Bruch, 489 U.S. 101 (1989), the Language in

the Respondent’s Employee Stock Ownership

and Profit Sharing Plan was Sufficient to Permit

Review under the Arbitrary and Capricious

| a rr er ern fee oy ee ane re ]

B. Whether Firestone Tire & Rubber Co. v.

Bruch, 489 U.S. 101 (1989), Requires

Deference to a Plan Administrator’s

Interpretation of a Federal Statute (26 U.S.C. §

411(d)(3)) and/or its Factual Findings that a

Partial Termination Had Not Occurred. .......... 5

o Regardless of the Standard of Review, May A

Federal Court Uphold A Plan Administrator’s

Decision on Grounds Other Than Those Given

or Considered by the Plan Administrator. ........ 5

Il. Whether, on an Appeal from a Decision

Granting Summary Judgment, the Court of

Appeals Properly Applied the Clearly

Erroneous Standard of Review to Conclusions

Crucial to the District Court’s Holding that a

Partial Termination of an ESOP Had Not

CRO. gins cN4 55 bee ees ces 9

CN oe os od bes oe ee ee es 10

ill

Table of Authorities

Cases

Administrative Committee of the Sea Ray Employees'

Stock Ownership and Profit Sharing Plan v.

Robinson, 164 F.3d 981 (6th Cir. 1999) .........

Bogue v. Ampex Corp., 976 F.2d 1319 (9th Cir. 1992) ...

Carpenter Local 1027 v. Lee Lumber & Building

Material Corp., 2 F.3d 796 (7th Cir. 1993) .......

Firestone Tire & Rubber Co. v. Bruch,

oo ee i, 1, 3-6

Kearney v. Standard Insurance Co.,

175 F.3d 1084 (9th Cir. 1999) ... 0.0 ...0..0....

Kinstler v. First Reliance Standard Life Insurance Co.,

BSE F356 249 Gent Cw. 1999) 2. oo cece nce 1-4

Kreis v. Charles O. Townley, M.D. and Associates, P.C.,

op ey fe 8 7, Sa ee

Lechmere Inc. v. NLRB, 502 U.S. 527 (1992) .........

Maislin Industries, U.S. Inc. v. Primary Steel, Inc.,

ee

Perez v. Aetna Life Ins. Co.,

mR |

Weil v. Retirement Plan Administrative Committee of The

Terson Co., Inc., 933 F.2d 106 (2nd Cir. 1991) ... 6

1V

Statutes, Regulations and Other Authorities

Saas PUMEED 4 605 6 keen ecccetictececxere 5,6

MUSE. CH BOA SS 6

l

Argument

I.

A.

Whether, under Firestone Tire & Rubber

Co. v. Bruch, 489 U.S. 101 (1989), the

Language in the Respondent’s Employee

Stock Ownership and Profit Sharing Plan

was Sufficient to Permit Review under the

Arbitrary and Capricious Standard.

For purposes of the petition for certiorari the issue is not

whether the courts of appeals disagree on how to interpret

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101(1989).

Respondents acknowledge (somewhat begrudgingly) the split

of authority on this issue. Committee brief p. 13 (referring to

the “asserted conflict”) Class II brief p. 17 (“While it is true

that the circuits disagreed. . . .)

Before addressing Respondents’ arguments in opposition

to the petition, however, Petitioners invite the Court’s attention

to the decision in Kinstler v. First Reliance Standard Life

Insurance Co., 181 F.3d 243 (2nd Cir. 1999), pet. for rehearing

& sug. reh. en banc den. Aug. 18, 1999, of which Petitioners

were not aware until after their petition was filed. The plaintiff

in Kinstler sought long term disability benefits, which the plan

denied for essentially factual reasons. Plaintiff sought judicial

review, arguing that the plan administrator’s decision was

subject to de novo review under Firestone. The court of

appeals agreed.

The Second Circuit acknowledges that “appellate judges

are divided on the issue of what language suffices to convey

to plan administrators the discretionary authority that

warrants the more deferential arbitrary and capricious standard

2

of review.” 181 F.3d at (emphasis added). The plan

language at issue in Kinstler is similar to the plan language at

issue in Kearney v. Standard Insurance Co., 175 F.3d 1084

(9th Cir. 1999) (en banc), petition for cert. filed no. 99-186, 68

U.S.L.W. 3131, and Perez v. Aetna Life Ins. Co., 150 F.3d

550, 555 (6th Cir. 1998) (en banc). Following Kearney and

rejecting Perez, the Second Circuit held that the ambiguous

language in the plan was not sufficient to convey discretionary

review status. The Second Circuit reasoned that because the

plan administrator bears the burden of proving that the arbitrary

and capricious standard applies, needless ambiguities should be

resolved against the plan administrator:

Though we reiterate that no one word or phrase must

always be used to confer discretionary authority, the

administrator's burden to demonstrate insulation from

de novo review requires either language stating that

the award of benefits is within the discretion of the

plan administrator or language that is plainly the

functional equivalent of such wording. Since clear

language can be readily drafted and included in

policies, even in the context of collectively bargained

benefit plans when the parties really intend to subject

claim denials to judicial review under a deferential

standard, courts should require clear language and

decline to search in semantic swamps for arguable

grants of discretion.

____ F.3d at . The issues in Kinstler are the same issues

raised in parts A and B of question 1 in the petition.

Respondents (which will be referred to individually as the

Committee or Class II) attempt to distinguish the instant case

from the acknowledged split of authority. But Respondents’

arguments begin with an invalid assumption: that certiorari

should only be granted if there is a disagreement in how to

3

interpret specific plan language. Committee brief p. 12. Aside

from the fact that Petitioners have shown there is a dispute

between the Sixth Circuit and the Eleventh Circuit with respect

to plan language similar to the language in the Sea Ray plan,

pet. cert. p. 11-12, Respondents’ arguments would relegate this

Court to the role of an arbitrator. What is needed are principles

for lower courts to follow in determining whether a plan

requires deferential review. Whether there is a dispute over

how to interpret similar language is not the issue.

While Class II accuses Petitioners of “attempting to draw

broad conclusions from judicial determinations that were

intensely factual,” Class II brief p 18, the very fact that ERISA

cases (and these issues in particular) are “intensely factual”

establishes the need for guidance from the Court. With 9,000

ERISA claims filed each year, federal courts are hip deep in

ERISA claims. Pet. Cert. p. 20. They do not have the resources

to “search in semantic swamps for arguable grants of

discretion.” Kinstler, 181 F.3d at ot

Respondents, accompanied by the Sixth Circuit, argue that

the Plan required discretionary review because it gave the

Committee the authority to determine who is eligible to be a

“participant,” the “amount” of benefits, and determine

“allocations to participants accounts.” Each argument is

incorrect. Determining whether a statutory “partial

termination” has occurred has absolutely nothing to do with

“participant” status; it has even less to do with the “amount” of

a benefit. The class members are, by definition, “participants”

or else they would not be parties to this action. Firestone, 489

U.S. at 117-18. Furthermore, no one has ever made a rational

argument that the partial termination inquiry considers the

“amount” of benefits that might be received.

Likewise, the Committee’s argument that discretion is

found in a grant of authority to “determine allocations” ignores

4

the fact that the plan expressly limits this authority to a plan

provision separate and distinct from the plan provision that

contains the partial termination language. See App. 97, 100.

And it is telling that even the Committee does not attempt to

defend the Sixth Circuit’s reasoning that a provision (§ 16) in

the plan that clearly limits the Committee’s discretion “clearly

grants discretion.” Administrative Committee of the Sea Ray

Employees’ Stock Ownership and Profit Sharing Plan v.

Robinson, 164 F.3d 981, 986 (6th Cir. 1999) (emphasis added),

reprinted at App. 9.

Characterizing the Sea Ray plan as establishing a “clear

grant of discretion” Committee brief p. 12-13, is inconsistent

with Kinstler, not to mention the decisions set forth in the

petition on pages 9 to 13. If this plan requires discretionary

review, then so will just about any plan language, no matter

how ambiguous it may be. Petitioners do not believe this is

what the Court intended when it decided Firestone.

There is a sound reason for requiring unambiguous

language. As one court observed,

We do not want to encourage an employer to insulate

himself from effective appellate review through the

abuse of vague phrases that fail to make clear to the

employees that the employer will have the final

determination of benefit decisions. Employees who

lose promised benefits should not lose the additional

benefit of judicial review because their employer

reserved discretionary power to itself without making

that reservation clear.

Bogue v. Ampex Corp., 976 F.2d 1319, 1325 (9th Cir. 1992).

Respondents’ argument that the petition merely presents an

“intensely factual” issue overlooks the fact that the underlying

TL ET Meee IT NET eee ee eee A

5

issue is always going to be plan language dependent.

“Different contractual language justifies different results.”

Carpenter Local 1027 v. Lee Lumber & Building Material

Corp., 2 F.3d 796, 800 (7th Cir. 1993). Petitioners are not

asking this Court merely to “get involved in parsing the

language of the Sea Ray Plan.” Committee brief p. 14. Rather

Petitioners respectfully submit that the Court needs to provide

guidance with respect to the clarity of discretionary language

in a plan which will insulate a plan administrator’s decision

from de novo review.

B.

Whether Firestone Tire & Rubber Co. v.

Bruch, 489 U.S. 101 (1989), Requires

Deference to a Plan Administrator’s

Interpretation ofa Federal Statute (26 U.S.C.

§ 411(d)(3)) and/or its Factual Findings that

a Partial Termination Had Not Occurred.

c:

Regardless of the Standard of Review, May

A Federal Court Uphold A _ Plan

Administrator’s Decision on Grounds Other

Than Those Given or Considered by the Plan

Administrator.

Neither Respondent addresses question 1.B. and 1.C as

they were presented in the petition. Instead, like the court of

appeals, they re-characterize question 1.B. as whether

Firestone applies to a plan administrator’s decision concerning

a “question of law.”

But Class I has repeatedly argued that even if a court might

defer to a plan administrator’s “legal conclusions,” in so far as

6

it interprets the terms of the plan, a court should never defer to

a plan administrator’s interpretation of a federal statute. If

anything, the Committee’s brief re-enforces Petitioner’s

contention that there is a split of authority among the federal

courts on this issue. Committee brief p. 15-16.

The window dressing Respondents put on the court of

appeals’ decision cannot hide the fact that the Sixth Circuit

held Firestone requires a court to defer to a plan

administrator’s interpretation of a federal statute where the plan

incorporates the terms of the statute.' The Committee asserts

that the Court should not “expend its limited resources

reviewing the unexceptionable, fact-specific application of a

well-established multi-factor test.” Committee brief p. 15. But

if this test is so “well-established” why didn’t the Committee

apply it in reaching its decision? The only factor given serious

consideration by the Committee was whether there was “plan

abuse.” App. 83, 85. While there is no dispute that this is one

of the factors to consider, it was the only factor given any

weight by the Committee. The Committee’s chair testified that

it did not give significant consideration to the percentage of

participants who were excluded from the plan, App. 85, a factor

the Sixth Circuit had previously characterized as “significant”

and “generally the most persuasive.” Kreis v. Charles O.

Townley, M.D. and Associates, P.C., 833 F.2d 74, 79 (6th Cir.

1987); see Weil v. Retirement Plan Administrative Committee

of The Terson Co., Inc., 933 F.2d 106, 110 (2nd Cir. 1991)

(“The IRS has informed us that it believes a partial termination

may occur if there is ‘a significant contraction of a plan, such

as a significant reduction in the number of plan participants’

and ‘all terminated participants, both vested and non-vested,

' It should also be remembered that a plan must provide for the

occurrence of a partial termination in order to obtain favorable tax

treatment. 26 U.S.C. § 411(d)(3); 26 U.S.C. §401(a)(7).

7

should be counted in determining whether a partial termination

has occurred.’” (Emphasis added)).

For the two plan years in question (1989-90, 1990-91),

participation in the plan dropped from 4,084 to 1,968, i.e., more

than 50 percent. App. 38-39. Employment during this period

dropped from 4,425 to 2,028, again, a drop of more than half.

App. 37-38. The Committee never considered the reason these

participants were excluded (i. ., voluntary departures or

involuntary layoffs) or why the employment rolls dramatically

decreased. Indeed, data regarding constructive discharges was

not compiled until after the committee made its decision. App.

67. Few departing employees were replaced and the above

figures account for the few replacements that were hired.

Despite the fact that the Committee failed to apply its self-

described “well-established multi-factor’’ test, the Committee’s

decision was upheld as “reasonable.” Even administrative

agencies do not have the authority to disregard judicial

interpretations of a statute. Lechmere Inc. v. NLRB, 502 U.S.

527, 537 (1992); Maislin Industries, U.S. Inc. v. Primary

Steel, Inc., 497 U.S. 116, 131 (1990) (“Once we have

determined a statute's clear meaning, we adhere to that

determination under the doctrine of stare decisis, and we judge

an agency's later interpretation of the statute against our prior

determination of the statute's meaning.”’)

Respondents’ miscast question 1.C as being whether a

court can affirm a plan administrator’s decision on “evidence

before the Committee.”” Committee brief p. 19; see also Class

II brief p. 24. This misses the point. The question is whether

the Committee’s stated grounds for its decision were those on

which it sought to be affirmed upon judicial review.

Once the Committee commenced this litigation, the

Committee persuaded the lower courts to affirm its decision on

8

grounds which were never considered or relied upon by the

Committee. One such ground was that the termination

percentage should be broken down into separate plan years

because of the imposition of a federal luxury tax. The

Committee now asserts that it was “well aware” of the effect of

the luxury tax. Committee brief p. 19. But this fact, even if

true, is irrelevant because the chair of the Committee testified

that the Committee did not separate the percentage reductions

in the plan by plan year. App. 85.

In its brief, the Committee asserts that it actually

considered “figures on terminations as reflected on Sea Ray’s

Plan Ternination Reports . . . including the reasons for those

terminations. Committee brief pp. 5 & 18. The Committee’s

assertion misstates the record because the “Plan Termination

Reports” it claims to have relied upon in 1992 were not

developed until 1995. The Committee, in other words, has

again offered a justification that it did not articulate or consider

at the time of its decision.

> As if to bolster the Sixth Circuit’s decision, the Committee asserts

that, even if the plan years were combined, the percentage of involuntarily

terminated participants would be “less than 38%.” Committee brief p. 20.

The Committee baldly asserts that there is a 15-20% average “industry

turnover rate.” These were not facts relied upon by the Committee or the

Sixth Circuit and there is no evidence that Sea Ray’s turnover rates were

in this range. In fact, there was no genuine “turnover;” few employees who

left were replaced. Their departure added to the dimension of the layoff and

allowed Sea Ray to reduce its workforce through layoffs and “voluntary

departures.” App. 67-68. To apply a turnover rate where “voluntarily”

departing employees have already been excluded would count non-replaced

employees twice, thus inappropriately reducing the percentage of excluded

plan participants.

9

The infirmity of the Sixth Circuit’s decision can be

summed up by quoting the testimony of the Committee’s chair:

“Tt wasn’t something that we studied very carefully.” App. 84.

In recounting these facts, Petitioners are not asking the

Court to reverse the lower courts simply because they drew

incorrect conclusions from the facts set before them. What that

matters at this stage is whether or not a court should defer to a

plan administrators’ interpretation of a federal statute. Indeed,

should the Court ultimately agree with Petitioners’ on this point

a remand would be the appropriate course of action.

Il.

Whether, on an Appeal from a Decision Granting

Summary Judgment, the Court of Appeals Properly

Applied the Clearly Erroneous Standard of Review to

Conclusions Crucial to the District Court’s Holding

that a Partial Termination of an ESOP Had Not

Occurred.

Respondents also concede (as they must) that the Sixth

Circuit applied the incorrect standard of review. The

Committee assets this error was harmless because the district

court properly found the Committee’s decision (on the

constructive discharge issue) was reasonable. What the

Committee fails to admit is that it never addressed the

constructive discharge issue until after the litigation

commenced. Data regarding voluntary/involuntary

terminations was not compiled until well after the committee

made its decision. App. 67. As has been shown in the

discussions about Questions 1.B. and 1.C., the district court did

not merely review the Committee’s decision but based its

decision, in significant part, on grounds never considered,

much less relied upon, by the Committee.

10

Conclusion

For the reasons herein discussed, petitioners pray that this

petition for a wmit of certiorari should be granted and that a writ

of certiorari issue to review the decision and judgments of the

United States Court of Appeals for the Sixth Circuit entered on

January 14, 1999 and March 11, 1999.

Respectfully submitted,

Attorneys for Petitioners

E. H. RAYSON

Counsel of Record

Of Counsel: WILLIAM P. SNYDER

JOHN C. BURGIN JR.

Kramer, Rayson, Leake, Kramer, Rayson, Leake,

Rodgers & Morgan LLP Rodgers & Morgan LLP

P. O. Box 629 P. O. Box 629

Suite 2500, Suite 2500,

First Tennessee Plaza First Tennessee Plaza

Knoxville, Tennessee Knoxville, Tennessee 37901

37901 (423) 525-5134

(423) 525-5134