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

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386005_0948%3A4

## Record

- **Collection:** Supreme Court brief
- **Document type:** Reply Brief
- **Published:** January 1, 2000
- **Citation:** 528 U.S. 1114

## Text

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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386005_0948%3A4. Public record. Not legal advice.