Conkright v. Frommert: The Justices Make Mistakes

"People make mistakes." Hand it to the Chief Justice, he's got an ear for a catch phrase. As BNA summarized the holding: "Employee Retirement Income Security Act plan administrators will not be stripped of deferential review by federal courts when they make a "single honest mistake" in administering and interpreting plans...." ( Conkright v. Frommert, U.S., No. 08-810, 4/21/10).

The decision gushes with the Chief's sympathy for Plan Administrators and Plan Sponsors. ERISA recognizes, we're reminded, that benefit plans and the impulse to offer them are fragile things. Were we to hold employers to ordinary rules of contract construction, employers might choose not to offer plans at all and presumably, tax incentives notwithstanding, would choose instead to pay their employees cash. So employers and their administrators must be handled with kid gloves. There is to be no consequence to an unreasonable plan interpretation; the plan administrator, unless he's shown to be in bad faith (who knows how?) gets at least a second interpretive bite, as of right. That bite comes after an internal claims process that was supposed to offer a full and fair review and after a court has overturned the administrator's interpretation, notwithstanding deference, the basis for which is already quite dubious.

Participants are people too. Yet I find precious little sympathy in the law as it has developed for participants who commit all sorts of mistakes:

1. Participants who imagine that reading the Summary Plan Description will actually reveal the material terms of the Plan.

2. Participants who bravely try and read a large company's pension plan and its dozens of amendments accommodating mergers and acquisitions, because they took the SPD's warning that it is only a summary to heart, but can't understand a word of what they've read.

3. Participants who neglect to read their plans and consequently fail to discover the shortened limitations period included in the plan.

4. Participants who retire relying on exit interview representations from their employer that turn out to be be contrary to the plan.

5. Participants who neglect to challenge "clear repudiations" of what is in the plan by their employers during their careers, and then imagine they can still enforce the plan.

6. Participants who exhaust claims processes without a lawyer and neglect to promptly request pertinent documents or place in evidence all the factual material that a lawyer would introduce at trial because, after all, it's not an adversarial process.

Lost in our jurisprudence is what the Chief Justice apparently thinks is ERISA's secondary purpose: making sure participants receive the benefits that they are promised or, I would add, the benefits which they reasonably understood they were promised. That's why plans are supposed to be in writing and summarized fairly in SPDs. Participants are supposed to be able to look at these documents and know what they're going to get. I'd add that when the plan is unclear or even when it's clear to a judge but not a participant, participants should be able to ask the administrator or the employer and put some stock in the answers, particularly if an adverse answer is enough to start the clock running on a limitations period.

But in the real world, where every plan has a discretionary clause unless it was drafted by monkeys, the plan documents can be opaque and the administrator (generally the employer, his HR folks, but always someone of the employer's choosing) gets to decide what the plan document means.

Conkright v. Frommert didn't change that; it was already the law and we have a way of losing our sense of shame and outrage over what's been the law for a couple of decades. After pretending in Firestone that de novo review was the norm, the Court now acknowledges that deference is the practical default.

In common legal parlance, employer sponsored plans are contracts of adhesion. Employees don't negotiate them; they generally don't have access to them until they've taken the job, and then they have to make a a daunting written request to get more than the SPD. Can people, real people actually afford to quit when they discover that the company pension plan is incomprehensible, or that you could drive a truck through the disability definition in the disability plan or that the health plan has a worrisome definition of "medically necessary" or no definition at all? People are happy to have a job with a pension plan and health coverage. People take what they can get, and hope they haven't signed up for an illusion. But make no mistake, employers tout these plans, in general terms, when they recruit. "We have great benefits: pension, health, disability. It's a great place to work."

So then there's a dispute. In ordinary contract law, review would be de novo and importantly, the contract construed against the drafter. That's a powerful incentive for clarity in the drafting of contracts, but it doesn't operate in ERISA plans. There the incentives line up just the other way.

Keep it vague, and we can figure out what it means later. Meanwhile, if an employee reads the document, he can't count on plain meaning because the employer or his agent will get deference for any reasonable interpretation, even one a court (or plain old people) would find little more than a plausible mistake.

Now comes Frommert. The employer denies the benefit, but his interpretation is so unreasonable that deference is no help. It's not just a mistake; it's a whopper. But the court presumes good faith. The employer gets another chance to say no, or rationalize a smaller benefit than the language of the plan would lead a reasonable person to believe had been promised. He gets it as of right. How can a participant show bad faith? Obviously, the Court is not prepared to infer bad faith from the unreasonableness of the original decision. Will the participant get searching discovery into the decision making process that produced the unreasonable decision in the first place? Call me cynical, but if that question is ever presented to the Chief, I bet I know the answer; we don't want to make the claims process and subsequent litigation too costly. So people are left in the dark.

What happens now in real life? Claims decisions can be safely left to HR types. Lawyers can be left out of the initial appeal. If the HR decision doesn't stick, the lawyers can be called in later to craft an alternate interpretation, a reasonable interpretation. There is no incentive even to be reasonable the first time around, just as there is no incentive to draft clear documents; the vast majority of participants will accept what they're told anyway. It would be a waste of scarce resources to get the documents and the decisions right in the first instance and clarity would just eliminate flexibility. People challenging these decisions better have deep pockets and a lot at stake, or why would they even bother.

Next up for the Supreme Court? Whether participants who slog through the claims process, lose there and then win a reversal for unreasonableness and a remand to the plan administrator (the best possible outcome after Conkright v. Frommert) are entitled to attorney's fees. I fear that I can see how this ends. Absent a showing of bad faith, why punish a plan administrator for an honest mistake? How can participants and their counsel afford this fight? How can they pick their fights when an unreasonable decision only means that the administrator hasn't yet really focused on the issue because there was no real reason to bother.

People give up. Can you blame them?