Metro. Life Ins. Co. v. NLRB
489 U.S. 101 (1989)
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Rule of Law:
A denial of benefits challenged under § 1132(a)(1)(B) of the Employee Retirement Income Security Act (ERISA) is to be reviewed under a de novo standard unless the benefit plan gives the administrator discretionary authority to determine eligibility or construe plan terms. The term 'participant' under ERISA, entitled to receive plan information, includes former employees who have a colorable claim to vested benefits.
Facts:
- Firestone Tire and Rubber Company (Firestone) sold its Plastics Division to Occidental Petroleum Company (Occidental).
- Most of the salaried employees at the sold plants, including the respondents, were immediately rehired by Occidental in their same positions and at the same pay rates.
- Firestone maintained a termination pay plan that provided severance benefits to employees whose service was discontinued due to a 'reduction in work force'.
- The rehired employees applied for severance benefits from Firestone under this plan.
- Firestone denied the benefits, concluding that the sale of the division did not constitute a 'reduction in work force' under the plan's terms.
- The employees also requested information regarding their benefits under three different Firestone plans.
- Firestone denied these requests for information, asserting the employees were no longer 'participants' in the plans.
Procedural Posture:
- Respondents filed a class-action lawsuit against Firestone in the U.S. District Court for the Eastern District of Pennsylvania for severance benefits and for statutory damages for failure to provide plan information.
- The District Court granted summary judgment in favor of Firestone.
- In its ruling, the District Court applied the 'arbitrary and capricious' standard to the denial of benefits and held that respondents were not 'participants' entitled to information.
- Respondents, as appellants, appealed the decision to the U.S. Court of Appeals for the Third Circuit.
- The Court of Appeals reversed the District Court's grant of summary judgment, holding that a de novo standard of review was appropriate for the benefits denial and that the right to receive information extends to those who claim to be participants.
- Firestone, as petitioner, successfully sought a writ of certiorari from the U.S. Supreme Court.
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Issue:
Is a denial of benefits challenged under § 1132(a)(1)(B) of ERISA to be reviewed under a de novo standard when the benefit plan does not give the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan?
Opinions:
Majority - Justice O’Connor
Yes. A denial of benefits under these circumstances is to be reviewed under a de novo standard. Drawing from principles of trust law, the Court reasoned that ERISA's provisions should be interpreted to protect participants' interests. In trust law, a court reviews a trustee's interpretation of a trust instrument de novo unless the instrument grants the trustee discretionary powers. Because ERISA does not specify a standard of review and is rooted in trust law, this de novo standard is the default. The previously common 'arbitrary and capricious' standard was improperly imported from the Labor Management Relations Act, where it served a jurisdictional purpose not present in ERISA. The Court also held that a 'participant' entitled to receive plan information is a former employee who has a 'colorable claim' to vested benefits, meaning a claim that he or she will prevail in a suit for benefits or that eligibility requirements will be fulfilled in the future.
Concurring - Justice Scalia
Yes. The concurring opinion agrees with the majority's adoption of the de novo standard of review based on trust law principles. However, it disagrees with the majority's reasoning for defining a 'participant' as someone with a 'colorable claim' to benefits. The phrase 'may become eligible' in the statute, according to this opinion, should refer to the future vesting of benefits through employment, not the probability of winning a lawsuit. Despite this different interpretation, the practical outcome is the same, as a sensible plan administrator would provide information to anyone with a colorable claim to avoid potential statutory penalties.
Analysis:
This decision fundamentally shifted the landscape of ERISA litigation by establishing de novo review as the default standard for benefit denials. It places the burden on employers and plan sponsors to draft plan documents that explicitly grant discretionary authority to the administrator if they wish to receive a more deferential 'abuse of discretion' review from the courts. This holding significantly strengthened the position of employees challenging benefit denials, as courts would no longer automatically defer to the administrator's interpretation of the plan. The case also provides a clear, workable definition of a 'participant' for disclosure purposes, ensuring that those with legitimate claims can access necessary information.
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