Frommert v. Becker

153 F.Supp.3d 599

Paul J. Frommert, et al., Plaintiffs,

v.Lawrence Becker, Xerox Corporation Plan Administrators, Xerox Corporation Retirement Income Guarantee Plan, Defendants.

00–CV–6311L

United States District Court, W.D. New York.

Signed January 5, 2016

George A. Schell, Jr., Schell & Schell, Fairport, NY, Peter K. Stris, Stris & Maher LLP, Gardena, CA, Robert H. Jaffe, Robert H. Jaffe & Associates, P.A., Springfield, NJ, Shaun P. Martin, San Diego, CA, Amber M. Ziegler, John A. Strain, Law Offices of John A. Strain, Manhattan Beach, CA, Matthew J. Fusco, Trevett, Cristo, Salzer & Andolina P.C., Rochester, NY, for Plaintiffs.

Margaret A. Clemens, Littler Mendelson, P.C., Fairport, NY, Robert A. Long, Jr., Robert D. Wick, Covington & Burling LLP, Washington, DC, for Defendants.

DECISION AND ORDER

DAVID G. LARIMER, United States District Judge

In 2000, several employees of Xerox Corporation (“Xerox”) filed a lawsuit seeking additional pension benefits. Over fifteen years later, this case continues, having seen decisions by this Court, the Court of Appeals for the Second Circuit, and the United States Supreme Court. This Court must now address issues presented by a remand from the Court of Appeals, and by several motions filed by plaintiffs.

This action was begun in the District of Connecticut, and was transferred to this Court in July 2000. The case presents claims under the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1101 et seq.

In general, this case, and several related cases, involve Xerox employees who were participants in the Xerox Retirement Income Guarantee Plan (“Plan”). Plaintiffs left Xerox's employ at some point, at which time they each received a lump-sum distribution of accrued pension benefits. Plaintiffs later returned to work for Xerox, for a second period of employment. The basic dispute arises out of Xerox's treatment of the prior distributions when calculating plaintiffs' subsequent pension benefits, following their second period of employment.

The history of this litigation and the relevant issues presented here have been laid out at length in prior decisions of this Court and of the appellate courts. The reader's familiarity with those decisions and with the background of this case is assumed. The following summary will suffice for purposes of this Decision and Order.¹

The central issue in this case involves how to take plaintiffs' past distributions from Xerox into account when calculating plaintiffs' current or future retirement benefits. What initially gave rise to this litigation was defendants' use of a so-called “phantom account,” which involves reducing participants' benefits based on a hypothetical appreciation of the prior lump-sum distribution. The details of the phantom account have been set forth in several reported decisions, including Frommert v. Conkright, 433 F.3d 254, 257–61 (2d Cir.2006).

Several cases have been brought in this Court arising out of this general core of operative facts; some of those cases have been resolved, while others remain pending. The present Decision and Order addresses just one case, Frommert v. Conkright, which might fairly be described as the “lead case,” although some of the issues presented here may be common or relevant to some of the other cases.

Some issues have been decided in this case. For one thing, it is now clear that defendants' application of the phantom account violated plaintiffs' rights under ERISA, and that plaintiffs are entitled to relief for that violation.² The primary question now before the Court is what form that remedy should take.

In 2010, the United States Supreme Court issued a decision in this case holding, in short, that this Court could not refuse to defer to the plan administrator's interpretation of the Plan simply because the Court of Appeals had found one previous related interpretation by the administrator to be invalid. See 559 U.S. 506, 522, 130 S.Ct. 1640, 176 L.Ed.2d 469 (2010).

Upon remand, this Court applied so-called Firestone deference to the administrator's interpretation, under which “[a] court may overturn a plan administrator's decision to deny benefits only if the decision was without reason, unsupported by substantial evidence or erroneous as a matter of law.” Celardo v. GNY Auto. Dealers Health & Welfare Trust, 318 F.3d 142, 146 (2d Cir.2003) (internal quotation marks omitted). See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989) ). The Court did defer to the plan administrator's interpretation, and applied an “offset” method of calculating plaintiffs' benefits, the details of which need not be recited here. Frommert v. Conkright, 825 F.Supp.2d 433, 438–40 (W.D.N.Y.2011).

On appeal from that decision, the Court of Appeals vacated and remanded, and that is the posture in which the case is now before this Court. See 738 F.3d 522 (2d Cir.2013). In its decision (“remand decision”), the Court of Appeals “f[ou]nd that the [plan administrator's] proposed offset produces an absurd and contradictory result and is therefore unreasonable.” 738 F.3d 522, 531 (2d Cir.2013). The court stated that this approach could “make[ ] the rehired employees worse off under the Plan in terms of actual benefits received,” as compared to newly-hired employees. Id. at 530. The court also found no language in the Plan that would support such a result. Id. at 531.

The Second Circuit went on to “consider, assuming arguendo that the Plan Administrator's offset method was a reasonable interpretation of the Xerox Plan, whether the offset violated ERISA's notice requirements and therefore cannot be applied to the Plaintiffs' benefits.” The court held that regardless of the standard of review applied, “the Plan [as interpreted by the administrator] violates ERISA's notice provisions.” Id. at 531. Specifically, the court held that “the SPDs fail to clearly identify the circumstances that will result in an offset, are insufficiently accurate and comprehensive, and fail to explain the ‘full import’ of Section 9.6 of the Plan,” which provides that “the accrued benefit of [a beneficiary] based on all Years of Participation shall be offset by the accrued benefit attributable to [any past] distribution.” Id. at 532.

Significantly, the court concluded that “in the circumstances of this case any offset of the RIGP [Retirement Income Guarantee Plan, i.e., the basic benefit plan] benefit violated ERISA's notice provisions....” Id. at 534 (emphasis in original). In support of that holding, the Court of Appeals said that “[f]irst and foremost, the SPDs do not state that the amount of the lump-sum distribution will reduce the RIGP benefit, stating only that it ‘may’ result in a reduction.” Describing this as “a critical omission,” the court said that it did “not see how a beneficiary would know, given the SPDs' use of the word ‘may,’ that a prior distribution from an account would reduce his benefit under a formula unless the SPD made clear the interaction between the two. Thus, any interpretation of the Plan that necessarily reduces the RIGP benefit would violate ERISA's notice requirements.” Id. at 532.

“Second and relatedly,” the court added,

even assuming that the SPDs prescribe an offset to RIGP, the SPDs fail to describe the mechanics of any offset. Specifically, the SPDs fail to state the interest rate to be used to make the actuarial equivalence [of the annuity value of the prior lump-sum distribution]. A higher interest rate would lead to a much larger offset than a lower one, leading to a correspondingly greater reduction of benefits. The SPDs are therefore insufficiently accurate and comprehensive.

Id. The court rejected all of defendants' arguments concerning the notice issue, and held that “there was not adequate notice in this case.” Id. at 534.

With respect to the appropriate remedy, the court stated that on remand, “the district court should first consider equitable remedies. In order to impose an equitable remedy, the district court must consider two questions: (1) what remedy is appropriate; (2) whether Plaintiffs have established the requisite level of harm as a result of the notice violations.” Id.

The court went on to state that

[i]f the district court holds that the Plan's notice violations justify the imposition of an equitable remedy, such a remedy will provide the relief that Plaintiffs seek. However, if it finds that no equitable remedy is available, it should separately consider Plaintiffs' unreasonable-interpretation claim, under which the appropriate remedy is to enforce the terms of the Xerox Plan.

Id. Having set forth those parameters, the court remanded the case to this Court for further proceedings.

That remand decision forms the primary relevant framework within which this Court must now work to determine the proper remedy. A full understanding of that decision requires that it be viewed in the context of the history of the litigation in this case, but as stated, the reader's familiarity with that background is assumed. Other relevant decisions will be referenced as necessary below.

In the wake of the Second Circuit's remand, this Court, by letter dated October 2, 2014, directed defendants to submit their current proposed interpretation of the Plan to the Court. I also directed plaintiffs to submit a “concrete proposal as to what equitable remedy is warranted for the notice violation.”³

Defendants submitted a response, setting forth a proposed methodology for calculating plaintiffs' benefits. Dkt. # 266. Plaintiffs responded to this Court's October 2 directive by moving for summary judgment, seeking a judgment that they are entitled to one of several alternative forms of equitable relief. Dkt. # 267. Plaintiffs have since filed an additional summary judgment motion based on defendants' alleged bad faith. Dkt. # 278. Defendants have responded to those motions, and the Court has heard oral argument on all the matters now pending before me (Dkt. # 280).

DISCUSSION

I....