Denton v. First Nat. Bank of Waco, Texas

Decision Date22 July 1985
Docket NumberNo. 84-1760,84-1760
Citation765 F.2d 1295
Parties6 Employee Benefits Ca 1980 Jack D. DENTON, Plaintiff-Appellee, v. FIRST NATIONAL BANK OF WACO, TEXAS, Defendant-Appellant.
CourtU.S. Court of Appeals — Fifth Circuit

Hughes & Luce, M. David Bryant, Jr., James D. McCarthy, Dallas, Tex., for defendant-appellant.

Vance Dunnam, W.V. Dunnam, Waco, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Western District of Texas.

Before BROWN, POLITZ, and JOLLY, Circuit Judges.

JOHN R. BROWN, Circuit Judge:


The issue before us in this ERISA case is whether the district court erred in ordering the trustees of a Bank's retirement plan 1 to make a lump sum payment to a long-term employee who left to work for a competing bank. The district court ordered such a lump sum payment--despite the employee's failure to pursue his administrative remedies under the Plan--after the employee's request for a lump sum payment was denied by the committee charged with approving the payment of retirement benefits. The district court ordered this payment, even though the Plan did not provide for lump sum payments as one of its regular options, because some other employees who had retired had received lump sum payments. We hold the district court erred in not applying ERISA's arbitrary and capricious legal standard to its evaluation of the Plan fiduciary's denial of lump sum benefits; accordingly, we reverse. To preserve the integrity of ERISA, we hold as a matter of law that the doctrine of exhaustion of remedies is applicable to the denial of benefits by Plan trustees. Additionally, since we believe the district court's interpretation of the evidence presented at trial to be clearly erroneous, we render judgment for the Plan.

How it all Began

Jack Denton, long time employee of the First National Bank of Waco (Bank), brought suit for early payment of retirement benefits, which he claimed pursuant to the retirement plan for employees of the Bank. The Plan is administered by a retirement committee appointed by the Bank's Board of Directors. The Bank sponsors the Plan and is the trustee of the Plan, but the funds held by the Bank belong irrevocably to the Plan.

Denton decided to discontinue his employment with the Bank and go to work for a competing Bank. By letter he requested a single lump sum payment of his retirement benefits. The evidence at trial 2 showed that several prior employees who had left the Bank had been paid by means of a lump sum if they had requested it. It is undisputed, however, that Denton's lump sum request was over two and one-half times larger than any other lump sum payment made under the Plan. To receive approval for a lump sum request, the Plan called for signatures from five of the eight committee members charged with administering the Plan. The evidence showed that the practice was informally to circulate a lump sum request form among committee members. Three committee members initially signed, thus agreeing to Denton's lump sum request, but one of these shortly asked that her name be removed, which was done. Denton's request never received more than three approval signatures, even though one of these signatures was from the President of the Bank who earlier had attempted to convince Denton to remain at the Bank.

Denton contends that it was the hostility of the Bank's President to his leaving the Bank which was responsible for the denial of his lump sum benefit request. However, Denton offered no evidence at trial that would explain the inconsistency between his theory of the President's hostility and the fact that the President approved Denton's lump sum request. 3 Moreover, it is undisputed that committee members spoke with actuaries for the Plan to determine the effect of a lump sum payment. 4 The actuaries recommended that such a large lump sum distribution--almost $135,000--not be made because it might impair the Plan's ability to meet the future retirement obligations of other Bank employees. 5

After receiving the report of the actuaries, the committee, at a formal meeting, turned down Denton's request for a lump sum payment. The committee asked Denton to choose among the various options for payment which were specified in the Plan--a copy of which Denton, at all times, had in his possession. 6 After the committee's decision, Denton's attorney sent a letter to the Bank requesting, on behalf of his client, a meeting with thecommittee to explore the reasons for its denial of the lump sum request. 7 By letter the committee responded that it was willing to have such an administratively prescribed meeting and asked Denton's attorney to send a list of convenient dates on which to hold the meeting over a two to three week period. Denton never responded to the committee's letter and instead, filed suit in state court, which was removed by the Bank to federal court.

Two trials were held before the district court. After the first trial, but before judgment, the district court ordered Denton to join the pension Plan as a party to his lawsuit. The parties stipulated prior to the second trial that all evidence from the first trial would be deemed admitted in the second trial. Further briefs and record supplements followed. The Plan appeals from the district court's order to pay Denton's retirement benefits in a lump sum rather than as one of the options listed in the Plan. The Plan urges that the district court erred by not evaluating the actions of the trustees under ERISA's arbitrary and capricious standard. The court also denied attorneys' fees to all parties.

The Exhaustion Requirement

At trial Denton contended that all previous employees of the Bank who had requested lump sum benefits upon the termination of their employment had received such benefits by informal approval of the committee. 8 This argument, without more, is insufficient to sustain the trial court's judgment. Realizing this, Denton maintains that the trial court's credibility decision as to whether the Bank President was mad at him, and thus masterminded the rejection of his lump sum request, should not be disturbed upon appeal. Denton maintains that this hostility on the part of the President excuses his failing to proceed with the administrative remedies specified in the Plan. In essence, on appeal he seeks to come within an exception to the exhaustion of remedies doctrine by asserting that his pursuit of administrative remedies would have been futile since the committee was composed of the same members that earlier turned down his request. We disagree.

The evidence clearly showed that the committee comprised members from inside as well as outside the Bank. Pursuing his administrative remedy after the denial of benefits would have allowed the trustees to reconsider their decision on Denton's request. The primary purposes of the exhaustion requirement are to: (1) uphold Congress' desire that ERISA trustees be responsible for their actions, not the federal courts; (2) provide a sufficiently clear record of administrative action if litigation should ensue; and (3) assure that any judicial review of fiduciary action (or inaction) is made under the arbitrary and capricious standard, not de novo. Accordingly, decisions of the trustees are disturbed only if they are arbitrary and capricious, not on the basis of what the district court would have done in the first instance. This is necessary to keep from turning every ERISA action, literally, into a federal case.

The logic behind the exhaustion requirement was set forth in Amato v. Bernard, 618 F.2d 559 (9th Cir.1980). The Amato court required benefit claimants to exhaust their administrative remedies prior to seeking federal court review of a benefit denial. The court based its decision on an examination of the legislative history of ERISA which clearly suggested that "Congress intended to grant authority to the courts to apply the exhaustion doctrine in suits arising under the Act." 9

The Amato court stressed that the literal language and policies of ERISA require benefit Plans to provide administrative remedies to persons whose benefits had been denied. See ERISA Sec. 503, 29 U.S.C. Sec. 1133, 29 C.F.R. Sec. 2560.503-1. Also important to the court was Congress' intention to grant trustees the broad managerial discretion necessary to establish and operate ERISA qualified pension Plans. 10 See generally ERISA Secs. 401-14, 29 U.S.C. Sec. 1101-1114.

As the Second Circuit recently observed:

Having charged trustees with the duty to implement this national policy, it follows that the equitable powers which a trustee exercises are fettered with meaningful standards, implicit in the references to "remedies, sanctions, and ready access to the federal court."

Thus, a court may intervene in the administration of an employee benefit plan, but should intervene only when the trustees transgress their fiduciary duties by acting in an arbitrary and capricious manner.... This standard strikes a balance between excessive judicial intervention in the discharge of trustees' duties, on the one hand, and abdication of traditional judicial control of fiduciaries' actions, on the other....

Morse v. Stanley, 732 F.2d 1139, 1145 (2d Cir.1984). Thus, Congress' ERISA fiduciary framework mandates the exhaustion requirement. The Ninth Circuit fully illuminated this point when it said:

the institution of such administrative claim-resolution procedures was apparently intended by Congress to help reduce the number of frivolous lawsuits under ERISA; to promote the consistent treatment of claims for benefits; to provide a nonadversarial method claims settlement; and to minimize the cost of claims settlement for all concerned. It would certainly be anomalous if the same good reasons that presumably led Congress and the Secretary to require covered plans to provide administrative remedies for aggrieved claimants did not lead the court to see that those remedies are...

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