First Circuit Weighs Standard of Review In Suits for Executive Compensation Benefits

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By Jacklyn Wille

April 22 — In approving a paper company's decision to deny severance benefits to its former chief technology officer, the U.S. Court of Appeals for the First Circuit clarified the standard of review applicable to “top-hat” plans that provide benefits for highly paid executives.

The circuits courts have been divided on this issue, with the Third and Eighth Circuits finding that top-hat plans are unilateral contracts that should be interpreted according to ordinary contract principles and without any deference to the plan administrator that denied benefits (Goldstein v. Johnson & Johnson, 251 F.3d 433, 26 EBC 1193 (3d Cir. 2001); Craig v. Pillsbury Non-Qualified Pension Plan, 458 F.3d 748, 38 EBC 1974 (8th Cir. 2006) .

By contrast, the Seventh and Ninth Circuits have afforded judicial deference to decisions made by top-hat plan administrators (Comrie v. IPSCO, Inc., 636 F.3d 839, 50 EBC 2473 (7th Cir. 2011); Olander v. Bucyrus-Erie Co., 187 F.3d 599, 23 EBC 1369 (7th Cir. 1999).

The First Circuit declined to take a clear position on this split, instead reasoning that “it is a distinction without a difference where, as here, the plan grants the administrator discretion to interpret the plan.”

Because the plan in question—sponsored by paper manufacturer Crane & Co. Inc.—gave the plan administrator discretion to review benefit claims, the First Circuit found that the administrator's decision was entitled to judicial deference under either competing standard.

In addition to weighing in on the standard of review circuit split, the First Circuit also clarified its 2013 ruling in Hannington v. Sun Life & Health Ins. Co., 711 F.3d 226, 57 EBC 2002 (1st Cir. 2013), which held that deferential judicial review applied to a disability insurer's interpretation of plan terms, while de novo judicial review applied to the administrator's interpretation of materials outside of the plan, such as the Veterans' Benefits Act and the Social Security Act.

In the instant case, the court clarified that Hannington's de novo standard applied only to documents that created or altered legal obligations, and not to background information like e-mail correspondence between parties.

Retirement or Termination?

The instant dispute centers on former Crane & Co. CTO Robert Niebauer's termination of employment in 2011. While Niebauer maintained that he was forced out of the company when he declined to temporarily relocate to Texas, Crane & Co. and its CEO, Stephen DeFalco, contended that Niebauer voluntarily retired.

Because it determined that Niebauer left the company voluntarily, Crane & Co.'s benefits committee denied Niebauer severance benefits under the company's top-hat plan. The plan provides that benefits are only payable to executives who are involuntarily terminated or who leave the company for “good reason” and satisfy certain conditions.

Niebauer objected to this decision and sued the company for $1.2 million in severance benefits, health insurance premiums and back pay. He also asserted a claim of benefit interference under Section 510 of the Employee Retirement Income Security Act, arguing that the company acted with the specific intent to deprive him of benefits.

Last fall, the U.S. District Court for the District of Massachusetts ruled in favor of the company on both of Niebauer's claims.

Benefit Denial Upheld 

After determining that the Crane plan committee's decision denying benefits was subject to judicial deference, the First Circuit considered Niebauer's specific challenges to the committee's decision-making process.

In particular, the First Circuit rejected the idea that the committee's decision was tainted by a conflict of interest, saying that the company's alleged frustrations at Niebauer's refusal to move to Texas didn't qualify as an “actual conflict of interest.”

The court also rejected Niebauer's contentions that the committee relied on an incomplete and skewed factual record, noting that Niebauer ultimately submitted nearly 70 pages of documentation supporting his claim for benefits, which the committee had access to before rendering its final decision.

After dismissing these procedural challenges, the court ultimately found that the committee's decision denying severance benefits was reasonable, because the committee had “ample evidence” that Niebauer announced his retirement to multiple parties and that his “belated disavowel” of the retirement decision was a “specious attempt to collect severance.”

Interference Claim Reinstated 

Finally, the court considered Niebauer's claim that the company violated ERISA Section 510 by involuntarily terminating him and then labeling that termination as a retirement in order to deprive him of severance benefits.

Niebauer scored a victory on this claim, with the First Circuit finding that the district court applied the wrong standard when it ruled in favor of the company.

In particular, the First Circuit said that the district court looked to whether substantial evidence supported the company's conclusion that Niebauer retired—a standard typically applicable to claims for benefits—instead of considering whether the company acted with the specific intent to deprive Niebauer of benefits, which is the standard generally applicable to benefit interference claims under ERISA Section 510.

Given this, the First Circuit vacated the district court's ruling in favor of the company on Niebauer's benefit interference claim and ordered the lower court to reconsider the claim under the proper legal standard.

David C. Casey, a shareholder with Littler Mendelson PC in Boston and counsel for Crane & Co., expressed doubt that Niebauer would prevail on this claim at the district court level.

“Mr. Niebauer acknowledges that Mr. DeFalco reasonably believed that Niebauer had resigned,” Casey told Bloomberg BNA April 22. “As such, Niebauer cannot prove that DeFalco ‘terminated' him, never mind that he did so with the specific intent to deprive Niebauer of any benefits.”

Counsel for Niebauer didn't respond to Bloomberg BNA's request for comments.

The court announced its decision in an April 21 opinion written by Judge Norman H. Stahl and joined by Judges David J. Barron and Bruce M. Selya.

Niebauer was represented by Christopher S. Feudo, Jonathan A. Keselenko and Robert A. Fisher of Foley Hoag LLP. Crane & Co. was represented by David C. Casey of Littler Mendelson PC. All are of Boston.

To contact the reporter on this story: Jacklyn Wille in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

Text of the opinion is at