Vitale v. Latrobe Area Hosp.

• Decision Date: 29 August 2005
• Docket Number: No. 04-3243.,04-3243.
• Citation: 420 F.3d 278
• Parties: Joyce VITALE v. LATROBE AREA HOSPITAL, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

420 F.3d 278

Joyce VITALE v. LATROBE AREA HOSPITAL, Appellant.

No. 04-3243.

United States Court of Appeals, Third Circuit.

Argued July 11, 2005.

August 29, 2005.

Terrence H. Murphy, William M. Hassan (Argued), Klett Rooney Lieber & Schorling, Pittsburgh, PA, for Appellant.

John E. Quinn (Argued), Sharon J. Newbrander, Evans Portnoy Quinn & O'Connor, Pittsburgh, PA, for Appellee.

Before ALITO and BECKER, Circuit Judges, and SHADUR, District Judge.^*

OPINION OF THE COURT

BECKER, Circuit Judge.

Latrobe Area Hospital ("Latrobe") appeals from a judgment against it in a dispute over ERISA retirement benefits.¹ Latrobe denied early retirement benefits to plaintiff Joyce Vitale after determining that, because she was on long-term disability leave, she was not accruing benefits and so did not qualify for the early retirement incentive under the terms of the plan. After a bench trial, the District Court ruled in favor of Vitale, finding that Latrobe's decision to deny benefits was arbitrary and capricious. The District Court relied on the fact that two other employees, who were out on short-term disability leave at the relevant time, had received early retirement benefits; the Court determined that these other employees were similarly situated to Vitale and that the decision to deny her benefits was therefore arbitrary and capricious.

We will reverse. The plain language of Latrobe's retirement plan required Latrobe to deny benefits to Vitale. And its decision to do so, while granting benefits to two employees in what we find to be distinguishable circumstances, was not arbitrary and capricious.

I. Facts and Procedural History

Vitale worked as a food service aide at Latrobe until July 1, 1999, when she was severely injured in a car accident. Latrobe offers its employees ninety days of short-term disability leave, and Vitale used her full allowance. When this expired in September 1999, she went on long-term disability leave.

On February 28, 2000, Latrobe adopted an amendment to its ERISA retirement plan ("the Plan") to encourage early retirement. Under the amendment, early retirement benefits would be paid out of the Plan, which was then overfunded, allowing the hospital to reduce staffing costs, which are paid out of operating funds. In discussions prior to adopting the new benefit, the hospital decided that employees on long-term disability leave would not be eligible, because encouraging them to retire early would not achieve the goal of reducing active staff. On the other hand, employees on short-term disability leave would be eligible, because they still had an open position at the hospital. The language of the incentive plan, as it was adopted, allowed employees "currently accruing a benefit" and meeting other requirements to receive early retirement.

Vitale applied for early retirement in April 2000, while she was on long-term disability leave. She was informed that she had been denied benefits because, being on long-term disability leave, she was not "actively employed" at the time. Vitale was terminated from her job on August 6, 2000, because her employment had been "inactive" for twelve months.

She then brought this suit under 29 U.S.C. § 1132(a)(1)(B), alleging that Latrobe's denial of benefits was arbitrary and capricious. As evidence, she pointed to the fact that two other employees, Donna McCullough and Margaret Sommerville, were awarded early retirement benefits under the Plan even though they too were out on medical leave. Vitale argued that McCullough and Sommerville were similarly situated employees, and that it was arbitrary and capricious of Latrobe to grant them benefits while denying the same benefits to her. Latrobe's response was that McCullough and Sommerville, who were on short-term disability leave protected by the Family and Medical Leave Act of 1993, 29 U.S.C. § 2601 et seq. ("FMLA"), were not similarly situated to Vitale.

After a bench trial in July 2004, the District Court filed an opinion and order finding that the denial was arbitrary and capricious, and requiring Latrobe to award Vitale benefits under the Plan. Latrobe timely appealed.

II. Jurisdiction

The District Court had subject matter jurisdiction under 28 U.S.C. § 1331. This Court has appellate jurisdiction over the final judgment of the District Court under 28 U.S.C. § 1291.

Although the District Court's order did not specifically fix damages, instead referring the matter to Latrobe for calculation of benefits, it is nonetheless a final judgment subject to appellate review. In general, "[a] finding of liability that does not also specify damages is not a final decision." Marshak v. Treadwell, 240 F.3d 184, 190 (3d Cir.2001). However, the "practical finality rule . . . permits appellate review of an order that is not technically final but resolves all issues that are not purely ministerial." Id. We have elaborated on this standard, stating that

even when a judgment fails to fix the amount of damages, if the determination of damages will be mechanical and uncontroversial, so that the issues the defendant wants to appeal before that determination is made are very unlikely to be mooted or altered by it—in legal jargon, if only a "ministerial" task remains for the district court to perform—then immediate appeal is allowed.

Skretvedt v. E.I. DuPont De Nemours, 372 F.3d 193, 201 n. 8 (3d Cir.2004) (quoting Prod. & Maint. Employees' Local 504 v. Roadmaster Corp., 954 F.2d 1397, 1401 (7th Cir.1992) (internal quotation marks omitted)).

This case is closely analogous to Skretvedt. The parties agree that the benefits calculation required by the District Court would be entirely mechanical: the Plan contains a precise mathematical formula for calculating the monthly retirement benefit, and the inputs to the formula are all undisputed facts. As the only remaining issues remaining before the District Court were "purely ministerial," we have jurisdiction over Latrobe's appeal.

III. Standard of Review

Our standard of appellate review is straightforward. In an appeal from an ERISA bench trial, we review findings of fact for clear error but have plenary review over the District Court's conclusions of law. Kosiba v. Merck & Co., 384 F.3d 58, 64 (3d Cir.2004). The parties dispute, however, the proper standard of judicial review to be applied to the Plan administrator's decision to deny benefits. The District Court employed a "slightly heightened level of scrutiny under the touchstone arbitrary and capricious standard of review." Latrobe contends that this was error, and that the normal arbitrary and capricious standard applies.

Courts review a denial of ERISA benefits de novo unless the plan documents give the administrator discretionary authority to determine eligibility 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). Where, as here, the plan gives the administrator discretionary authority, we review the administrator's exercise of that authority under an "arbitrary and capricious" standard, and the administrator's decision "will be overturned only if it is `clearly not supported by the evidence in the record or the administrator has failed to comply with the procedures required by the plan.'" Orvosh v. Program of Group Ins. for Salaried Employees of Volkswagen of Am., Inc., 222 F.3d 123, 129 (3d Cir.2000) (quoting Abnathya v. Hoffmann-La Roche, Inc., 2 F.3d 40, 41 (3d Cir.1993)).

In certain cases, however, we have applied a heightened standard of review. The leading case is Pinto v. Reliance Standard Life Insurance Co., 214 F.3d 377 (3d Cir.2000), in which we considered plan administrators' possible conflicts of interest. To address those conflicts, we employ "heightened scrutiny. . . when an insurance company is both plan administrator and funder." Id. at 387. The District Court interpreted Pinto and its progeny to mean that any fiduciary who both administers and funds a plan operates under a conflict of interest and is therefore subject to a heightened standard of review.

In Pinto, however, we specifically distinguished insurance companies that both administer and fund plans from employers who perform those roles. Insurance companies pay plan benefits out of funds that would otherwise be available as profits, creating a direct incentive for them to withhold benefits. See Pinto, 214 F.3d at 388. In contrast,

the typical employer-funded pension plan is set up to be actuarially grounded, with the company making fixed contributions to the pension fund, and a provision requiring that the money paid into the fund may be used only for maintaining the fund and paying out pensions. As we explained in Abnathya and Mitchell, the employer in such a circumstance "incurs no direct expense as a result of the allowance of benefits, nor does it benefit directly from the denial or discontinuation of benefits."

Id. (quoting Abnathya, 2 F.3d at 45 n. 5, and Mitchell v. Eastman Kodak Co., 113 F.3d 433, 437 n. 4 (3d Cir.1997)). Furthermore, employer fiduciaries have "incentives to avoid the loss of morale and higher wage demands that could result from denials of benefits," Nazay v. Miller, 949 F.2d 1323, 1335 (3d Cir.1991); these incentives are absent, or at least attenuated, when an insurer serves as an ERISA fiduciary.

We have therefore repeatedly stated that a typical employer-funded ERISA benefits plan does not create the sort of conflicts of interest that demand a heightened arbitrary and capricious review. See, e.g., Bill Gray Enters., Inc. Employee Health & Welfare Plan v. Gourley, 248 F.3d 206, 216-17 (3d Cir.2001); Pinto, 214 F.3d at 383; Abnathya, 2 F.3d at 45 & n. 5. As Latrobe both administers and funds its own pension plan, it falls squarely within the rule of these cases.

That said, we hasten to observe that an employer-fiduciary may be subject to a conflict of interest requiring heightened scrutiny when its plan is "unfunded," that is, when...