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


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 (Niebauer v. Crane &  Co., 2015 BL 113073, 1st Cir., No. 14-2059, 4/21/15).

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.

Excerpted from a story that ran in Pension & Benefits Daily (4/22/2015).

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