Alexander v. Brigham and Women's Physicians Org.

• Decision Date: 23 January 2008
• Docket Number: No. 07-1443.,07-1443.
• Citation: 513 F.3d 37
• Parties: Eben ALEXANDER III, M.D., Plaintiff, Appellant, v. BRIGHAM AND WOMEN'S PHYSICIANS ORGANIZATION, INC., et al., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

513 F.3d 37

Eben ALEXANDER III, M.D., Plaintiff, Appellant, v. BRIGHAM AND WOMEN'S PHYSICIANS ORGANIZATION, INC., et al., Defendants, Appellees.

No. 07-1443.

United States Court of Appeals, First Circuit.

Heard December 5, 2007.

Decided January 23, 2008.

Michael Paris, with whom Colleen C. Cook and Nystrom Beckman & Paris LLP were on brief, for appellant.

David C. Casey, with whom Littler Mendelson, PC was on brief, for appellees.

Before BOUDIN, Chief Judge, SELYA, Senior Circuit Judge, and GELPI,^* District Judge.

SELYA, Senior Circuit Judge.

This appeal implicates the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461. It presents two issues of first impression concerning the scope of ERISA's exemption for so-called top-hat deferred compensation plans. See id. § 1051(2). After careful consideration, we conclude—as did the district court—that the plans at issue are valid top-hat plans. In the course of our analysis, we reject the appellant's claims (i) that the plans cater to more than a select group of highly compensated employees and (ii) that the applicability of the top-hat exemption hinges on an implicit requirement that affected employees possess individual bargaining power.

I. BACKGROUND

We set forth here only those (essentially uncontroverted) facts that are necessary to place this appeal into perspective.¹ We refer readers who hunger for more detail to the district court's exegetic opinion. See Alexander v. Brigham & Women's Physicians Org., 467 F.Supp.2d 136, 137-41 (D.Mass.2006).

In 1988, plaintiff-appellant Eben Alexander III began working for the Brigham Surgical Group Foundation (BSG), a hospital-based physicians' organization that employed a host of surgeons who, like the appellant, doubled in brass as Harvard Medical School (Harvard) faculty members. In January of 2001, BSG morphed into a new organizational structure known as Brigham & Women's Physicians Organization. As this corporate shuffle has no bearing on the claims before us, we refer throughout to BSG as the employer of record.

Due to their academic affiliation, the members of BSG's full-time surgical complement were subject to special Harvard-imposed salary caps. Over time, these caps began to chafe: BSG found that they hindered its ability to recruit and retain top-flight surgeons (who could earn substantially more in private practice). To remove this impediment yet still remain compliant with Harvard's wishes, BSG created two deferred compensation plans: the Faculty Retirement Benefit Plan (FRBP) and the Unfunded Deferred Compensation Plan (UDCP). By allocating portions of a surgeon's "excess" earnings to these unfunded accounts, BSG expected that it would make employment at the hospital more attractive to surgeons.

We pause at this juncture to sketch the architecture of the plans. The critical datum under each plan is a given surgeon's net practice income (NPI), that is, the net of payments attributable to the services that he rendered less BSG's costs allocable to those services. In any year in which a surgeon does not have NPI equal to or greater than his base salary, he incurs an obligation to repay BSG for the deficit (either out of future NPI or out of pocket). In a rosier scenario—when and if a surgeon's NPI exceeds Harvard's earnings cap—the excess (up to 25% of the surgeon's salary) will be credited to his account in the FRBP.² If any surplus NPI remains (that is, if the excess of NPI over the salary cap is greater than the amount consigned to the FRBP), 50% of that surplus will be credited to the surgeon's account in the UDCP and the remainder will escheat to BSG. Should a surgeon produce a negative NPI in any year, the per annum deficit will be carried forward and debited against positive balances in his FRBP and UDCP accounts.

At the plans' inception, BSG lacked a clear indication as to the number of surgeons who might earn enough to produce contributions to the FRBP.³ Over time, however, it became evident that only a small fraction of the surgical complement would achieve that distinction. The district court determined that the relevant years for purposes of this case were 1997, 1998, and 1999, see id. at 140, and the parties have acquiesced in that configuration. The figures for those years illustrate the "small fraction" trend. All surgeons were potentially eligible to contribute to the plans; the key was whether a given surgeon generated sufficient NPI. The surgeons en masse constituted 32.4%, 30.7%, and 27.2%, respectively, of BSG's aggregate workforce. However, the roster of surgeons who actually achieved the requisite income level(s) and thus contributed money into one or both of the plans was significantly smaller. In 1997, 8.7% of BSG's overall employee population contributed to the FRBP and 5.8% to the UDCP; in 1998, the figures were 6.2% and 3.3%, respectively; and in 1999, the figures were 4.9% and 3.1%, respectively.

A glance at the average income of the plan contributors conveys the magnitude of the pecuniary cleft between them and the employee population as a whole. During the three years in question, BSG employees as a whole averaged annual earnings of $83,403 (1997), $80,491 (1998), and $74,376 (1999). Meanwhile, the FRBP contributors earned on average $434,840 (1997), $476,024 (1998), and $418,059 (1999). The UDCP contributors were even more richly compensated; they earned on average $503,730 (1997), $581,320 (1998), and $483,073 (1999).

The record is pellucid that, upon recruiting the appellant, BSG introduced him to a compendium of fringe benefits. This introduction included a review of the documentation describing the. FRBP and the UDCP and an explanation of the system of credits and debits used in connection therewith.⁴ At that time—and at all times material to this case—the plans covered all full-time BSG surgeons who held Harvard faculty appointments. As written, the plans afforded no option for any surgeon to opt out. And because they were already in place when the appellant, joined BSG, he had no real opportunity to bargain over their terms.

That is not to say that the terms of the plans were set in cement. Of course, the appellant, as an individual' employee, was unable to alter those terms. Like every other surgeon, however, he was a voting member of BSG. As such, standard corporate governance and decisionmaking mechanisms stood available to him. For example, BSG's board, which included surgeons as directors, could amend the plans, subject to the concurrence of the board's compensation committee (which, under BSG's bylaws, has "final authority respecting all compensation arrangements . . . between the Corporation and its . . . Employees"). While such corporate structures are not equivalent to direct employee democracy, they are nonetheless meaningful.

Here, moreover, the record indicates that the system responded to the surgeons and their wishes. As to plan amendments, the reviews are mixed: on one occasion, BSG's executive committee rejected a proposal to amend the plans, but on a different occasion (in 1990) a proposal to revise the terms of the plans so as to make them available to Harvard faculty members of all ranks was adopted.⁵

With this backdrop in place, we turn to the genesis of the litigation. In 2001, BSG terminated the appellant's employment. Simultaneously, it notified him that he was running a cumulative NPI deficit and that, therefore, his FRBP and UDCP accounts would' be debited by more than $400,000 to offset that deficit. The appellant protested, but to no avail.

After his ouster, the appellant sued BSG and related defendants in the United States District Court for the District of Massachusetts, asserting claims under both federal and state law. The district court deemed the state-law claims preempted, and those claims are not before us. We focus, then, on the, appellant's federal claims.

In brief, those claims allege that BSG's sponsorship and administration of the FRBP and UDCP violated ERISA's vesting and fiduciary duty requirements. The appellant seeks money damages and ancillary relief (including attorneys' fees). BSG—we use this acronym throughout this opinion as; a shorthand for all named defendants—replies that the plans, although within the realm of ERISA, were top-hat plans and thus exempt from the enumerated requirements.

After prolonged discovery and the denial of cross-motions for summary judgment, the district court conducted a bench trial. It found that the plans were maintained primarily for the purpose of providing deferred. compensation; that the surgeons as a group possessed sufficient bargaining power to alter the terms of the plans; and that the absence of individual bargaining power was irrelevant. See id. at 142, 145, 147. Having arrived at these findings, the court ruled that the plans came within the top-hat exemption and that, therefore, ERISA's vesting and fiduciary duty requirements were inapposite. See id. at 148. The court entered judgment accordingly, and this timely appeal ensued.

II. ANALYSIS

BSG crafted the two deferred compensation plans at issue here to take advantage of ERISA's top-hat provision; which applies to any "plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees." 29 U.S.C. § 1051(2). Not surprisingly, then, the questions before us revolve around the proper scope of that exemption.

In examining these questions, we begin by memorializing the applicable standard of review. We then orient our inquiry in terms of statutory purpose. Finally, we consider the appellant's dual assignments of error one by one and explain why we find them unconvincing.

A. Standard of Review.

It is common ground that deference is due to findings of fact made by a trial court following a bench trial. See Sierra Fria Corp. v. Donald J. Evans, P.C., 127 F.3d 175, 181 (1st...