Johnson v. Allsteel Inc.

• Decision Date: 07 August 2001
• Docket Number: No. 00-1504,00-1504
• Citation: 259 F.3d 885
• Parties: (7th Cir. 2001) Charles Johnson, Plaintiff-Appellant, v. Allsteel, Inc., et al., Defendants-Appellees
• Court: U.S. Court of Appeals — Seventh Circuit

Page 885

259 F.3d 885 (7th Cir. 2001)

Charles Johnson, Plaintiff-Appellant, v. Allsteel, Inc., et al., Defendants-Appellees.

No. 00-1504

In the United States Court of Appeals For the Seventh Circuit

Argued December 6, 2000

Decided August 7, 2001

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 99 C 3156--Ruben Castillo, Judge.

Before Bauer, Posner, and Williams, Circuit Judges.

Williams, Circuit Judge.

Charles Johnson brought this suit against his former employer and former plan administrator, Allsteel, Inc., and several related entities (collectively "Allsteel") under sec.sec. 404(a) and 502(a) of the Employee Retirement Income Security Act ("ERISA") challenging what he claims is an illegal plan amendment. The district court dismissed the case sua sponte for lack of standing because it was not convinced that Johnson had sufficiently alleged injury-in-fact. Taking all of his factual allegations as true, we are satisfied that Johnson has alleged sufficient facts to establish Article III standing and, therefore, reverse the judgment of the district court and remand the case for further proceedings.

I. BACKGROUND

Johnson was employed by Allsteel, a manufacturer and distributor of office furniture. While there, he became a participant in Allsteel's pension plan ("the Plan"). The specific sections of the Plan amended by Allsteel (discussed below) are part of pension agreements that his union, the International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers & Helpers, Local 1239 ("the Union"), bargained for on his and his fellow union members' behalf.

As originally drafted, section 11.1 of the Plan provided that the Plan could be amended only "by agreement of the parties." Without obtaining the agreement of any other party to the Plan, Allsteel changed the language of section 11.1 to state that the Plan could be amended only "by the Company," thereby granting itself the right to unilaterally amend the Plan. Allsteel then used this purported right to grant itself discretion to resolve all questions arising under the Plan and relating to the Plan's administration:

The Company [(Allsteel)] will be responsible for the general administration of the Plan and as Plan Administrator will be responsible for the carrying out of its provisions. From time to time, the Company may adopt such rules and regulations as may be necessary for proper and efficient administration of the Plan. However, the Company's administration of the Plan and the rules and regulations adopted by it shall be consistent with the terms of the Plan and any applicable pension agreement arrived at through collective bargaining. The Company shall have discretionary authority to interpret and construe this Plan and to determine all questions arising under this Plan, including questions regarding eligibility, vesting and entitlement to benefits under the Plan.

Amended Section 1.3 (emphasis added).

Johnson alleges that he was injured by this second amendment, which grants Allsteel an additional quantum of discretion not bargained for by the parties. To remedy this alleged injury, Johnson seeks (i) a declaration that the allegedly proscriptive amendment violates the terms of the Plan, (ii) reformation of the Plan to eliminate the amended language, (iii) clarification of his rights to future benefits under the Plan, and (iv) other equitable relief.

II. ANALYSIS

We review the district court's dismissal for lack of standing de novo. Norfolk S. Ry. Co. v. Guthrie, 233 F.3d 532, 534 (7th Cir. 2000). We commend the district court for addressing the question of standing sua sponte. However, we disagree with its conclusion that Johnson failed to allege injury-in-fact.

To satisfy Article III's standing requirements, a plaintiff must allege that he has sustained "personal injury[- in-fact] fairly traceable to the defendant's allegedly unlawful conduct and likely to be redressed by the requested relief." Allen v. Wright, 468 U.S. 737, 751 (1984). Johnson alleges that the sections of the Plan changed by Allsteel were specifically intended "to limit the ability of [Allsteel] substantively and procedurally to administer and to amend the Plan." In other words, the Union bargained, on his behalf, for a defined bundle of contract rights, including the right to have the Plan administered with a limited amount of discretion. In his view, when Allsteel increased its discretion as plan administrator, it simultaneously decreased the value of his bargained-for- entitlements, causing him injury-in-fact. Allsteel disagrees, arguing that Johnson cannot show injury-in-fact because it has yet to adversely exercise its discretion towards him.

We agree with Johnson that he was injured by Allsteel's increase in discretion. We have stated before that the right to have a plan administered with a limited amount of discretion is an important right for plan participants:

An employee's decision with regard to the purchase of medical insurance and the provision of resources for retirement will often depend critically on his understanding of his rights under his employer's ERISA plan. The very existence of 'rights' under such plans depends on the degree of discretion lodged in the administrator. The broader that discretion, the less solid an entitlement the employee has and the more important it may be to him, therefore, to supplement his ERISA plan with other forms of insurance.

Herzberger v. Standard Ins. Co., 205 F.3d 327, 331 (7th Cir. 2000) (emphasis added). An increased amount of discretion opens up to the administrator administering the plan a greater range of permissible choices. This expanded range renders "less solid" the participant's benefits by shifting risk to the participant. The increased risk the participant faces as a result is an injury-in-fact. 13 Charles Alan Wright, Arthur R. Miller, & Edward H. Cooper, Federal Practice and Procedure sec. 3531.4, at 696 (2001 Supp.) (citing Clinton v. New York, 524 U.S. 417 (1998)).

For example, an amendment that changes a plan's terms so that oral surgery, which previously was always covered, is covered at the administrator's discretion obviously makes it less certain that the insured will be covered in the event that he must undergo such a procedure. The chance that the administrator will, at some point, exercise its discretion adversely against the insured immediately decreases the insured's rights under the plan. This is true whether or not the administrator ever exercises its discretion adversely against the insured; the increased risk is itself an injury. See id. The insured would have to purchase additional insurance in order to regain the protection the plan originally provided.

To see why Allsteel's alteration of the Plan's language makes less certain Johnson's rights, we must understand the plan administrator's decision-making process. A plan administrator is responsible for the general administration of the plan, a contract between the employee and the employer for benefits. See Contents of Summary Plan Description, 29 C.F.R. sec. 2520.102-3 (2001); Herzberger, 205 F.3d at 330. When presented with a claim for benefits, for example, the administrator must evaluate the claim and determine whether the participant-applicant meets the conditions set forth in the plan. If there is more than one reasonable interpretation of the plan's terms, the administrator must choose from among those choices. See Questions and Answers Relating to Fiduciary Responsibility under the Employee Retirement Income Security Act of 1974, 29 C.F.R. sec. 2509.75-8 (2001); Trombetta v. Cragin Fed. Bank for Savings Emp. Stock Own. Plan, 102 F.3d 1435, 1438 (7th Cir. 1996) (internal citation omitted). After weighing the various options, the administrator must notify the applicant of its decision to either grant or deny benefits. If displeased with the administrator's decision, the applicant usually has the option of appealing it internally. See 29 C.F.R. sec. 2520.102- 3(s). If that appeal is unsuccessful, then the applicant may file suit under ERISA challenging the administrator's decision. Id.

When presented with a benefits claim, the administrator is aware of the risk that his decision may be subject to judicial review. The administrator has an incentive to avoid intense scrutiny by the courts (such processes can be costly and time-consuming) and is, therefore, more likely to choose an interpretation that will be favored by the reviewing court, an independent and unbiased forum more likely to explain fully its reasons and thereby scrutinize effectively the soundness of its own decision.¹ See 29 U.S.C. sec. 1001(b) (2001) ("[ERISA's policy is] to protect . . . the interests of participants in employee benefit plans . . . by providing for appropriate remedies, sanctions, and ready access to the Federal courts."); Bogue v. Ampex Corp., 976 F.2d 1319, 1325 (9th Cir. 1992) (characterizing judicial review of an administrator's decision as an "additional benefit"); cf. Zervos v. Verizon Wireless New York, Inc., 252 F.3d 163, 168 (2d Cir. 2001) (discussing the nature of de novo review). Thus the degree to which judicial review affects the administrator's decision-making process corresponds with the "depth or penetration or exactingness" of judicial review to be employed. Lister v. Stark, 942 F.2d 1183, 1188, n. 6 (7th Cir. 1991) (quoting Van Boxel v. Journal Co. Employees' Pension Trust, 836 F.2d 1048, 1052 (7th Cir. 1987)).

The scope of judicial review varies in accordance with the extent of discretion afforded the administrator. Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). Administrators empowered with "discretionary authority to determine eligibility for benefits or to construe the terms of the plan" are entitled to have their decisions reviewed deferentially. Id. Administrators not empowered with discretion are not accorded...