Blankenship v. Liberty Life Assur. Co. of Boston

• Decision Date: 18 May 2007
• Docket Number: No. 05-15077.,05-15077.
• Citation: 486 F.3d 620
• Court: U.S. Court of Appeals — Ninth Circuit
• Parties: Vorris BLANKENSHIP, Plaintiff-Appellee, v. LIBERTY LIFE ASSURANCE COMPANY OF BOSTON, as Administrator and Fiduciary of the KPMG Employee Long-term Disability Plan and the KPMG Employee Long-term Disability Plan, Defendant-Appellant.

486 F.3d 620

Vorris BLANKENSHIP, Plaintiff-Appellee, v. LIBERTY LIFE ASSURANCE COMPANY OF BOSTON, as Administrator and Fiduciary of the KPMG Employee Long-term Disability Plan and the KPMG Employee Long-term Disability Plan, Defendant-Appellant.

No. 05-15077.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 13, 2006.

Filed May 18, 2007.

Mark G. Bonino, Pamela E. Cogan, Kathryn C. Curry, Elisa Nadeau, San Jose, CA, for the defendant-appellant.

Scott Kalkin, San Francisco, CA, for the plaintiff-appellee.

Appeal from the United States District Court for the Northern District of California; Samuel Conti, District Judge, Presiding. D.C. No. CV-03-01132-SC.

Before WILLIAM C. CANBY, JR., JOHN T. NOONAN, and RICHARD A. PAEZ, Circuit Judges.

Opinion by Judge PAEZ; Concurrence by Judge NOONAN.

PAEZ, Circuit Judge.

Liberty Life Assurance Company of Boston ("Liberty Life") appeals the district court's award of disability benefits to Vorris Blankenship, following a court trial on his claims under the Employment Retirement Income Security Act ("ERISA") § 502(a)(1)(B) and § 502(a)(3). 29 U.S.C. § 1132(a). Liberty Life does not challenge the district court's ruling that Blankenship was entitled to long-term disability benefits. Instead, Liberty Life argues that the disability benefits owed Blankenship should have been reduced by the amount of retirement benefits transferred to his Individual Retirement Account ("IRA") upon his retirement. Liberty Life also challenges the use of a 10.01-percent interest rate to calculate prejudgment interest. We have jurisdiction under 28 U.S.C. § 1291, and we affirm.

FACTS & PROCEDURAL HISTORY

The facts are not in dispute. Vorris Blankenship, an attorney employed by KPMG LLP ("KPMG"), developed cancer. He suffered severe complications as a result of his medical treatment. Blankenship's treating physician informed him that, although he could undergo surgery to attempt to improve his situation, it was not advisable because the surgery could cause further complications and exacerbate his condition.

Liberty Life, administrator and fiduciary of the KPMG Employee Long-Term Disability Plan ("Disability Plan"), of which Blankenship was a member, initially determined in June 1998 that Blankenship qualified for long-term disability benefits under the Disability Plan. However, on April 20, 2000, Liberty Life sent Blankenship a letter informing him that his benefits would be terminated because it had determined that there were alternative treatments that could improve his condition. Blankenship appealed the decision to Liberty Life. Five months later, in September 2000, Liberty Life rejected Blankenship's appeal, reaffirming its prior decision to terminate benefits, and adding additional reasons for the determination. Liberty Life also informed Blankenship that he had exhausted his administrative remedies and that its decision was final.

On September 13, 2000, KPMG terminated Blankenship, who was 64 at the time, for failure to return to work. Upon termination, Blankenship became eligible to receive retirement benefits from several of his retirement plans with KPMG. In a written letter, KPMG informed Blankenship of his options for distribution of these benefits. The KPMG Pension Plan offered the benefits as either a joint and survivor annuity for the lives of Blankenship and his spouse or as a lump-sum payment. The lump-sum payment could be distributed directly to Blankenship, or he could elect to "roll it over into an IRA or other tax qualified vehicle." The KPMG Personal Account for Retirement ("PAR Plan"), a defined-contribution plan in which the employer contributed an amount equal to 1.5 percent of Blankenship's salary each year, also allowed for an annuity, a lump-sum payment, or a lump-sum direct rollover to an IRA, with the additional options of payment in monthly installments or deferred distribution of the funds until Blankenship reached the age of 70½.

Blankenship chose to roll over both accounts directly into an IRA managed by the Vanguard Fiduciary Trust Company ("Vanguard"). On December 11, 2000, KPMG transferred $29,291, representing the amount in Blankenship's Pension Plan account, to his Vanguard IRA. On January 9, 2001, KPMG transferred $761,149, the amount in Blankenship's PAR Plan account, to the Vanguard IRA. The Disability Plan requires that "other income benefits" be deducted from the total monthly disability benefit paid to the insured. These other income benefits are defined to include "[t]he amount of benefits the insured receives under the employer's retirement plan as follows: (a) any disability benefits; (b) any retirement benefits." (emphasis added). "Retirement benefits" are defined as money from a retirement plan¹ which:

(1) is payable under a retirement plan either in a lump sum or in the form of periodic payments;

(2) does not represent contributions made by an employee . . . ; and

(3) is payable upon:

(a) early or normal retirement; or

(b) disability if the payment does not reduce the amount of money which would have been paid at the normal retirement age under the plan if the disability had not occurred.

Blankenship sued Liberty Life and the Disability Plan to recover benefits under ERISA § 502(a)(1)(B) and appropriate equitable relief under ERISA § 502(a)(3). See 29 U.S.C. §§ 1132(a)(1)(B) and (a)(3). The parties agreed, as did the district court, that the court should apply a de novo standard of review in determining whether Blankenship was entitled to disability benefits because the Disability Plan did not give "the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989); see also Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 963 (9th Cir.2006) (en banc) (discussing standards of review to be used by courts in reviewing cases in which ERISA-covered plan administrators have denied benefits). Following a court trial, the court issued Findings of Fact and Conclusions of Law, which it subsequently amended. The district court found that Blankenship was "totally disabled" under the terms of the Disability Plan and entitled to an award of benefits, attorney's fees, costs, and pre-judgment interest. The district court also determined that Liberty Life was not entitled to reduce the benefits owed by the amount of outside retirement benefits transferred to Blankenship's IRA because these benefits were not "received" by Blankenship as required by the Disability Plan. The court based its ruling on: (1) the text of the Disability Plan; (2) the distinction in the Internal Revenue Code ("IRC") between a trustee-to-trustee transfer (a "direct rollover") and a 60-day rollover; (3) the plain meaning of the word "receives"; and (4) the policy behind the Age Discrimination in Employment Act ("ADEA") provision which permits employers to offset long-term disability benefits with pension benefits. The court entered judgment in favor of Blankenship in the amount of $325,451.28, which included prejudgment interest at a rate of 10.01 percent, attorney's fees, and costs.

Liberty Life does not appeal the district court's determination that Blankenship was entitled to long-term disability benefits. Instead, Liberty Life argues that the disability benefits owed Blankenship should have been reduced by the retirement benefits from the Pension and PAR Plans. Liberty Life also appeals the interest rate used to calculate prejudgment interest.

DISCUSSION

A.

We first address Liberty Life's challenge to the district court's ruling that it is not entitled to deduct the long-term disability payments due Blankenship by the retirement benefits transferred to Blankenship's IRA at Vanguard. The Disability Plan requires that "other income benefits" be deducted from the total monthly disability benefit payments paid to the insured. These other income benefits are defined to include "[t]he amount of benefits the insured receives under the employer's retirement plan as follows: (a) any disability benefits; (b) any retirement benefits." (emphasis added). The issue here is whether Blankenship "received" his retirement funds when they were transferred to his Vanguard IRA under the terms of the Disability Plan.

We review de novo a district court's determinations regarding the text of an ERISA plan, including whether plan terms are ambiguous. Cisneros v. UNUM Life Ins. Co. of Am., 134 F.3d 939, 942 (9th Cir.1998); see also Metropolitan Life Ins. Co. v. Parker, 436 F.3d 1109, 1113 (9th Cir.2006) (citing Cisneros, 134 F.3d at 942).

We begin by recognizing that the term "receives" is not defined in the Disability Plan. On appeal, both parties accept the term "receive" to mean "to take into possession or control," with Blankenship focusing on the possession aspect, arguing that it means "to accept custody of; collect." However, a definition of receipt based on possession and one based on control may lead to two separate outcomes. Thus, when considered in the context of the Disability Plan, the term "receives" is ambiguous. We therefore apply the rule of contra proferentem, and we conclude that it supports the district court's determination.

Contra proferentem, which is recognized by federal common law and the law of every state and the District of Columbia, see Kunin v. Benefit Trust Life Ins. Co., 910 F.2d 534, 538-40 (9th Cir. 1990), holds that "if, after applying the normal principles of contractual construction, the insurance contract is fairly susceptible of two different interpretations, another rule of construction will be applied: the interpretation that is most favorable to the insured will be adopted." Id. at 539. The rule applies in interpreting ambiguous terms in an ERISA-covered plan except where the plan: (1) grants the administrator discretion to construe its terms, (2) is the...