"MEYERED" IN THE BOGG OF ERISA
PREEMPTION: EMPLOYEE BENEFITS IN THE
FIFTH CIRCUIT
by Jayne Elizabeth Zanglein·
I.
To PREEMPT OR NOT TO PREEMPT
583
A. Preemption ofCommunity Property Laws. . . . . . . . .. . . . .. 583
I. Introduction to Boggs v. Boggs. . . . . . . . . . . . . . . . . .. 583
2. The Lower Courts: All That Matters is that the Money is
Paid to Someone
585
3. En Banc Hearing: The Collision ofERISA and
Community Property Laws
586
4. The Supreme Court's Decision
588
5. An Epilogue to Boggs: QDROs Awarded During
Probate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 592
B. Preemption ofThird Party Claimsfor Misrepresentation .. 595
C. Preemption ofStatutory Right to Sue for Breach ofFiduciary
Duty
597
D. Preemption ofAny Willing Provider Statute . . . . . . . . . . . .. 600
E. Preemption ofWorkers ' Compensation Offset
603
F. Preemption Under the Supreme Court's Wew n Approach .. 604
I. California Division of Labor Standards Enforcement v.
Dillingham Construction, N.A., Inc.
604
2. Boggs v. Boggs
607
3. DeBuono v. NYSA-ILA Medical & Clinical Services
Fund
608
II.
CONTRACT INTERPRETATION: CAN DOCUMENTS WRITTEN IN
PLAIN LANGUAGE BE ACCURATE?
610
A. Interpretation ofPolicy Time Limits
611
B. Interpretation ofMedical Policy Exclusion
612
C. Interpretation ofSubrogation Clause
617
D. Interpretation ofMental Illness . . . . . . . . . . . . . . . . . . . . . .. 621
III. DIVERSIFICATION...................................... 623
IV. LEASED EMPLOYEES AND STANDING TO SUE
"
627
V. CONCLUSION
630
This term brought a wide variety of employee benefits cases. As usual,
preemption cases led the pack. Boggs v. Boggs made its way through the Fifth
Circuit and up to the Supreme Court. I There, the Court wrote the second in
• Professor of Law, Texas Tech University School of Law; J.D., S.U.N.Y. Buffalo, 1980.
1. 82 F.3d 90 (5th Cir. 1996), reh 'g denied, 89 F.3d 1169 (5th Cir. July 1996) (en bane), rev'd,
581
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a series of three rather lackluster preemption opinions issued this term in
which the Court adopted a new approach to preemption. The Suprem~ Court
applied conflict preemption to hold that the Employee Retirement Inqome
Security Act (ERISA) preempts state community property law. 2 In Texas.Life,
Accident, Health & Hospital Service Insurance Guaranty Ass 'n v. Gaylord
Entertainment Co., the Fifth Circuit held that ERISA preempts a Texas statute
which assigns, by operation of law, the right to sue for breach of fiduciary
duty under ERISA. 3 In Texas Pharmacy Ass 'n v. Prudential Insurance Co. of
America, the Fifth Circuit held that ERISA preempts the current Texas Any
Willing Provider statute but does not preempt the 1995 statute which did not
refer to ERISA plans. 4 In another case, the court held that ERISA does not
preempt a state law which allQws an offset for Social Security disability
benefits. s
In Cypress Fairbanks Medical Center Inc. v. Pan-American Life
Insurance CO.,6 the Fifth Circuit reexamined its 1990 ruling in Memorial
Hospital System v. Northbrook Life Insurance Co., in which the court held that
ERISA did not preempt a hospital's state law claim for misrepresentation of
medical coverage.? The Cypress Fairbanks decision clarified that ERISA
does not preempt an independent, third-party claim that an insurer negligently
represented that a patient was covered, when in fact, the patient was not
covered. s However, ERISA preempts third-party claims raised by an assignee
where the assignor was actually covered for the benefit. 9
Some of the most intriguing cases this term involved· contract
interpretation cases. In Jones v. Georgia Pacific Corp., the court strictly
construed insurance provisions relating to the deadline by which a participant
may convert a group policy to an individual policy.IO The Fifth Circuit held
that a thirty-one day deadline could not be extended simply because the thirtyfirst day fell on a Sunday. II In two other cases this term, the court defined
"mental disorders." In Bellaire General Hospital v. Blue Cross Blue Shield
ofMichigan, the court held that a plan administrator arbitrarily denied mental
health benefits to two young women who met the plan's criteria for in-patient
mental treatment. 12 In Lynd v. Reliance Standard Life Insurance Co., the
court defined "mental or nervous disorder" in lay terms without regard to
117 S. Ct. 1754 (1997).
2. See Boggs v. Boggs, 117 S. Ct. 1754, 1762 (1997).
3. 105 F.3d 210, 213 (5th Cir. Jan. 1997), cert. dismissed, 117 S. Ct. 2501 (1997).
4. 105 F.3d 1035, 1036 (5th Cir. Feb. 1997), cert. denied, 118 S. Ct. 75 (1997).
5. See Martco Partnership v. Lincoln Nat. Life Ins. Co., 86 F.3d 459, 463 (5th Cir. July 1996).
6. 110 F.3d 280, 281 (5th Cir. Apr. 1997), cert. denied, 118 S. Ct. 167 (1997).
7. 904 F.2d 236, 250 (5th Cir. 1990).
8. See Cypress Fairbanks, 110 F.3d at 282-84.
9.
See id.
10.
90 F.3d 114, 116-17 (5th Cir. Aug. 1996).
11.
See id. at 117.
12.
97 F.3d 822, 832 (5th Cir. Oct. 1996).
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EMPLOYEE BENEFITS
583
whether the medical condition met the medical or scientific definition of a
mental disorder. 13 Similarly, in Sunbeam-Oster Co. Group Benefits Plan v.
Whitehurst, the Fifth Circuit held that a subrogation clause was not
ambiguous, where written in easy-to-understand lay language. '4 The court
applied a less stringent standard ofcontract interpretation to the summary plan
description which, by law, must be written in plain language.J s Lynd and
Sunbeam-Oster reflect a recent, but unreasoned approach to contract
interpretation which states that laypersons read summary plan descriptions
differently than attorneys and that the summary plan must be read from the
viewpoint of the average plan participant.
Metzler v. Graham is the result of the Department of Labor's renewed
enthusiasm for investigating the prudence of pension plan investments. 16 In
Metzler, the court held that a plan fiduciary did not breach his duty to
diversify plan assets by investing 63% of plan assets in a single tract of real
estate. 17 The investment fell within the exception to the diversification rule
because the fiduciary proved that it was clearly prudent not to diversify at the
time the investment was made. 18
Finally, in Abraham v. Exxon Corp., the Fifth Circuit held that a leased
employee had standing to sue under ERISA I9 Because the leased employee
"may become eligible to receive ... benefit[s]," he could sue to determine his
rights to benefits under the plan. 20
I. To PREEMPT OR NOT TO PREEMPT
A. Preemption o/Community Property Laws
J. Introduction to Boggs v. Boggs
Last year, I reported on the Fifth Circuit's decision in Boggs v. Boggs. 21
Technically, I jumped the gun, as Boggs properly belongs in this year's
survey. But the case was too controversial and potentially devastating to
participants' rights to wait for a year to comment on it. For those of you who
did not read last year's survey article, let me describe the Fifth Circuit
13.
14.
15.
16.
17.
94 F.3d 979,984 (5th Cir. Aug. 1996).
102 F.3d 1368, 1376 (5th Cir. Dec. 1996).
See id. at 1374-75.
112 F.3d 207 (5th Cir. May 1997).
See id. at210.
18. See id. at 211.
19. 85 F.3d 1126, 1129 (5th Cir. June 1996).
20. [d.
21. See Jayne Elizabeth Zanglein, Divorce, Lies and Pensions: Employee Benefits in the Fifth
Circuit, 28 TEX. TECH L. REv. 493, 495-505 (1997) (discussing Boggs v. Boggs, 82 F.3d 90 (5th Cir.
1996), rev'd, 117 S. Ct. 1754 (1997».
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opinions. 22
.
Sandra Boggs, second wife and widow of Isaac Boggs, sought a
declaratory judgment stating that ERISA preempted Louisiana's community
property laws, barring her stepsons from any interest in Isaac's pension plan
devised to them in their mother, Dorothy's, will. 23 Isaac was employed by
South Central Bell from 1949 until his retirement in 1985.24 Isaac was
married to Dorothy when he began his employment with South Central Bell.2S
They had three sons and remained married until her death in 1979.26 In 1980,
Isaac married Sandra, and Sandra survived Isaac upon his death in 1989.27
Isaac's retirement plan offered several types of benefits. When he
retired, Isaac received a lump sum distribution of $151,628.94, which he
rolled over into an individual retirement account (IRA).28 At his death, this
account was valued at $180,778.05. 29 In addition to the lump sum
distribution, Isaac received a monthly annuity of $1,777.67. 30 Upon Isaac's
death, the annuity was converted to a survivor's annuity paid to Sandra.3 \
Two of his sons sought an accounting for a portion of these pension benefits
as due to them by right of inheritance. 32
In her will, Dorothy left one-third of her estate and a lifetime usufruct in
the remaining two-thirds to her husband, Isaac. 33 She gave her sons a
reversionary interest in the two-thirds estate over which Isaac held a
usufruct. 34 Dorothy's probate papers valued her community property interest
in Isaac's pension at $21,194.29. 35 Dorothy's and Isaac's sons filed an action
in Louisiana state court seeking an accounting of Isaac's usufruct and an
award of a portion of his pension benefits. 36 Sandra filed her own suit for a
declaratory judgment stating that ERISA controlled the disbursement of
Isaac's pension benefits, and therefore, Isaac's and Dorothy's sons had no
legal interest in those benefits. 37
22. See generally Jayne Elizabeth Zanglein & Lisa A. May, ERISA Preemption and State
Community Property Lows: Are Pensions/or the Living or the Dead?, 4 1. TAX'N EMPLOYEE BENEFITS
255 (1997) (discussing the Fifth Circuit analysis in Boggs).
23. See Boggs, 82 F.2d at 94.
24. See id. at 93.
25. See id.
26. See id. at 93-94.
27. See id. at 94.
28. See id.
29. See id.
30. See id.
31. See id.
32. See id.
33. See id.
34. See id.
35. See id.
36. See id.
37. See id.
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2. The Lower Courts: All That Matters is that the Money is Paid to
Someone
The district court rejected Sandra's contention that ERISA preempted
Louisiana's community property laws. 38 Sandra appealed to the Fifth Circuit
where a panel of three judges, in a divided opinion, ruled in favor of the
sons. 39 The Fifth Circuit rejected Sandra's argument that ERISA's antialienation provision40 prohibited the assignment of plan benefits, stating that
"[t]his provision was not intended to affect support obligations among the
members ofa family.n 41 Furthermore, the court noted that the anti-alienation
rule did not prevent the distribution of payments once received by the
intended beneficiary.42 The court stated, "ERISA 'is concerned not so much
with what the beneficiary does with his pension checks or how they are spent
but with whether those in charge actually deliver the benefits.' ..43
Judge King dissented ~n strong language: "It defies reality to say that the
widow's rights under ERISA have only been 'tenuously, remotely or
peripherally' affected by Louisiana law. They have been gutted."44 The
dissent endorsed the approach adopted by the Ninth Circuit in Ablamis v.
Roper,4S and Department of Labor Advisory Opinion 90-46A.46 The dissent
noted that "ERISA was enacted to protect the living" and was amended by the
Retirement Equity Act of 1984 to protect divorced spouses ofparticipants. 47
Judge King concluded: "Today's decision will create great uncertainty in the
principal tenet of the statute that Congress strived to make certain: that a plan
participant and his or her spouse will actually receive their anticipated
retirement income."48
38.
39.
40.
41.
42.
43.
See id.
See id.
See 29 U.S.C. § 1056(d)(I)(1994).
Boggs, 82 F.3d at 97.
See id.
Id. (quoting United Ass'n ofJourneymen & Apprentices ofPlurnbing Local 198 v. Myers, 488
F. Supp. 704, 712 (M.D. La. 1980), qff'd, 645 F.2d 532 (5th Cir. 1981».
44. Id. at 98 (King, J., dissenting).
45.
46.
937 F.2d 1450 (9th Cir. 1991).
DOL Advisory Opinion 90-46A (Dec. 4,1990).
47. Boggs, 82 F.3d at 98 (King, J., dissenting); see Retirement Equity Act of 1984, Pub. L. No.
98-397,98 Stat 1426, 1433-36 (1984) (codified as amended at 29 U.S.C. §§ 1056(d)(3)(A)-(L) (1994».
48. Boggs, 82 F.3d at 98 (King, J., dissenting).
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3. En Bane Hearing: The Collision ofERISA and Community Property
Laws49
Dissatisfied with the panel's ruling, an outsider to the case, Judge
Wiener, requested a rehearing en banc. so The majority denied the rehearing
because the parties had not requested a rehearing en bane and because the
arguments raised by Judge Wiener had not been presented to the court.SI
Judge Wiener, joined by five other judges, filed a lengthy dissent. 52
The dissent acknowledged "that domestic relations law has long been
recognized as the domain of the states."S3 A court must overcome a tough
obstacle before it will rule that federal law preempts state domestic relations
law. s4 The dissent assumed arguendo that this deferential standard applied
and concluded that "[t]his has never meant, however, that domestic relations
laws are wholly immune from federal preemption."ss
The dissent observed that the transfer ofownership of retirement benefits
by inheritance is antithetical to ERISA's purpose of ensuring that retirees and
their dependents actually receive retirement benefits. s6 The succession of
retirement benefits to heirs also violates ERISA's second stated purpose,
namely, assuring national uniformity of pension rights. s7
The dissent buttressed its argument in favor of preemption with the
legislative history of ERISA and the enactment of the Retirement Equity Act
of 1984 (REA).s8 REA was enacted to address the "burgeoning body of
conflicting jurisprudence addressing spousal rights in plans and plan benefits,
49. The dissent in the en banc hearing described the clash between pension law and stale
community property law: "The instant appeal forces us to come to grips with the conundrum that results
when the irresistible force of ERISA, particularly its preemption and anti-alienation provisions, meets the
immovable object of a stale's community property regime, particularly its immediate vesting and
assignability provisions." Boggs v. Boggs, 89 F.3d 1169, 1170 (5th Cir. July 1996) (en banc) (Wiener,
1., dissenting), denying reh 'g 0182 F.3d 90 (5th Cir. 1996), rev'd, 117 S. Cl. 1754 (1997).
SO. See id.
51. See id. atl171 (Wiener, J., dissenting).
52. See id. at 1170-85 (Wiener, 1., dissenting).
53. [d. at 1174 (Wiener, J., dissenting).
54. See id. (Wiener, J., dissenting).
55. [d. (Wiener, J., dissenting).
56. See id. at 1177 (Wiener, J., dissenting).
57. See id. (Wiener, 1., dissenting). The dissent noted the following:
[N]ational unifonnity
would be frustrated if heirs and legatees were allowed to prevail
under state laws
Unavoidably, the amount of retirement income available for each
participant in a given plan would vary depending solely on the serendipity ofa participant's
state of residence from time to time .... Quite simply, ERISA's goal ofunifonnity would be
unattainable if the ultimate enjoyment of ERISA plan benefits were left to the vicissitudes of
the varying and disparate marital property laws of the several stales, be they community or
separate.
[d. (Wiener, J., dissenting).
58. See id. (Wiener, 1., dissenting) (citing Retirement Equity Act of 1984, Pub. L. No. 98-397, 98
Stat. 1426 (1984». .
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587
particularly under community property regimes."59 Congress resolved this
conflict by making a qualified domestic relations order (QDRO) the exclusive
means of recognizing a spouse's community property interest in a retirement
benefit.60 A QDRO is defined by ERISA as:
[A] judgment, decree, or order made pursuant to a state domestic relations
law (including community property law) which (1) "creates or recognizes the
existence of an alternate payee's right to, or assigns to an alternate payee the
right to, receive all or a portion of the benefits payable with respect to a
participant under a plan, n and (2) "relates to the provision of child support,
alimony payments, or marital property rights to a spouse, former spouse,
child, or other dependent of a participant. n61
In order to be "qualified," a QDRO must meet specific statutory
requirements. 62 Once qualified, the QDRO is exempted from ERISA's antialienation prohibition.63
.
The dissent concluded that "if a state court order that purports to divide
spousal rights in an ERISA-covered plan does not meet the detailed, technical
requirements of the federal statute, it is not 'qualified' and therefore is
afforded no exemption from ERISA's omnipotent preemption or antialienation rules."64 According to the dissent, a probate court order never
would meet these technical requirements. 65 Dorothy and Isaac's sons could
not have met these technical requirements; moreover, Dorothy, the only
person who might have been eligible to seek a QDRO, was ineligible because
she died in 1979, five years before REA was enacted. 66 As Judge Wiener
described it, "only a living spouse (or, in the event of a divorce, a living exspouse) can obtain a QDRO."67 Heirs are not the intended beneficiaries of a
59.
60.
Id. at 1178 (Wiener, 1., dissenting).
See id.
61. Id. at 1178 n.49 (Wiener, J., dissenting) (quoting 29 U.S.C. § 1056(d)(3)(B) (1994».
62. See 29 U.S.C. § 1056(d)(3)(B) (1994).
63. See id.
64. Boggs, 89 F.3d at 1179 (Wiener, J., dissenting); see also S. REp. No. 98-575, at 19 (1984),
reprinted in 1984 U.S.C.C.A.N. 2547,2565 ("[The Senate Finance] committee believes that conforming
changes to the ERISA preemption provision are necessary to ensure that only those orders that are
excepted from the spendthrift provisions are not preempted by ERISA.").
65. See Boggs, 89 F.3d at 1179 (Wiener, 1., dissenting). Apparently Judge Stewart, who joined
in the dissent, has reconsidered this statement. In Bailey v. New Orleans Steamship Ass 'n/International
Longshoreman's Ass'n, 100 F.3d 28, 31 (5th Cir. Nov. 1996), Judge Stewart was on a panel that affirmed
without discussion a probate court's issuance ofa QDRO.
66. See Boggs, 89 F.3d at 1172 (Wiener, 1., dissenting).
67. Id. at 1179 (Wiener, J., dissenting). ERISA's anti-alienation clause, section 206(d)(I) of
ERISA, states that "[e]ach pension plan shall provide that benefits provided under the plan may not be
assigned or alienated." 29 U.S.C. § 1056(d)(I) (1994). The only exceptions to this clause are a voluntary
and revocable alienation of up to ten percent of any benefit payment, and a transfer of benefits pursuant
to a QDRO. See 29 U.S.C. § 1056(d)(2). The QDRO exception was enacted in response to ERISA
preemption of state community property rights upon the divorce of a participant and spouse. See Boggs,
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QDRO.68
4. The Supreme Court's Decision
In an article recently published by the Journal of Pension Planning and
Compliance, I predicted that the Supreme Court would "hold that ERISA's
anti-alienation clause and the QDRO rules prevent the stepsons from
snatching the survivor annuity away from Sandra. The Court will hold that
because ERISA does not apply to the lump sum distribution, the sons are
entitled to those benefits."69 I was wrong.
The Supreme Court did not differentiate between the annuity and the
lump sum distribution. 70 The Court held that ERISA preempted Louisiana
community property law and the sons were entitled to nothing. 7J The Court
observed that "[ilt would undermine the purpose of ERISA's mandated
survivor's annuity to allow Dorothy, the predeceasing spouse, by her
testamentary transfer to defeat in part Sandra's entitlement to the annuity
section I055 guarantees her as the surviving spouse. This cannot be. States
are not free to change ERISA's structure and balance. f172 Notice that nowhere
in this statement did the Court quote the preemption clause's "relates to"
language. Under traditional analysis, a state law is preempted if it "relates to"
an ERISA plan. 73 A law "relates to" a plan if it has a "connection with" or a
"reference to" the plan: "Where a State's law acts immediately and
exclusively upon ERISA plans, ... or where the existence of ERISA plans is
essential to the law's operation, ... that 'reference' will result in preemption. "74 The Court appears to have abandoned the use of this "relates to"
test and has substituted a conflict preemption test. 7S
Some background is necessary to understand the significance ofthis new
approach to preemption. In the first preemption opinion issued by the
Supreme Court during the October 1996 term, California Division ofLabor
89 F.3d at 1178-79 (Wiener, J., dissenting). It allows a divorced nonparticipant spouse to receive the
benefits to which she is entitled due to the community between her and the participant. See id. (Wiener,
J., dissenting).
68. See Boggs, 89 F.3d at 1179 (Wiener, J., dissenting).
69. Jayne Elizabeth Zanglein, To Preempt or Not to Preempt: Will the Supreme Court Do Some
Serious Bushhogging Through the Preemption Thicket?, J. PENSION PLAN. & COMPLIANCE, Fall 1997, at
22,33.
70. See Boggs v. Boggs, 117 S. Ct. 1754, 1762 (1997). The Court recognized that ERISA
preemption cases are important because "[i]n large part the number of ERISA pre-emption cases reflects
the comprehensive nature of the statute, the centrality of pension and welfare plans in the national
economy, and their importance to the financial security of the Nation's work force." [d. at 1760.
71. See id.
72. [d.
73. See 29 U.S.C. § I I44(a) (1994).
74. California Div. ofLabor Standards Enforcement v. Dillingham Constr., N.A., Inc., 117 S. Ct.
832,838 (1997).
75. See Boggs, 117 S. Ct. at 754.
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Standards Enforcement v. Dillingham Construction, NA., the Court applied
the traditional preemption test. 76 Under the preemption clause, a law "relates
to" an ERISA plan if it has a "connection with" or "reference to" such a plan."
The Court held that the prevailing wage law at issue neither "relates to, n refers
to, nor has a "connection with" an ERISA plan and, therefore, is not
preempted. 78 Justices Scalia and Ginsburg concurred, stating that the opinion
is a "fair description of our prior case law."79 Justice Scalia, however, urged
the Court to abandon the "relates to" text because it was "doomed to failure,
since, as many a curbstone philosopher has observed, everything is related to
everything else."BO Justice Scalia urged the majority to "simply acknowledge[
] that our first take on this statute was wrong; that the 'relate to' clause eifthe
pre-emption provision is meant, not to set forth a test for pre-emption, but
rather to identify the field in which ordinary field pre-emption applies." 81
Justice Scalia concluded that preemption analysis is "[n]othing more
mysterious than that; and except as establishing that, 'relates to' is
irrelevant."82
In Boggs, the Supreme Court applied conflict preemption and held that
ERISA preempted Louisiana community property law because the state law
conflicted with ERISA. 83 The Court stated, "We need not inquire whether the
statutory phrase 'relate to' provides further and additional support for the preemption claim." 84 The Court also found it unnecessary to address field
preemption and focused instead on conflict preemption. 8s
The Court began its analysis of the survivor's annuity under ERISA's
joint and survivor provisions. 86 ERISA requires all pension plans to offer a
joint and survivor option for married participants. 87 The Court noted that
"ERISA's solicitude for the economic security of surviving spouses would be
undermined by allowing a predeceasing spouse's heirs and legatees to have
a community property interest in the survivor's annuity."88 If the Court were
76.
77.
78.
79.
80.
Dillingham, 117 S. Ct. at 837-42.
See Shaw v. Delta Air Lines, Inc., 463 u.S. 85, 96-97 (1983).
Dillingham, 117 S. Ct. at 842.
Id. at 843 (Scalia, J., concurring).
Id. (Scalia, J., concurring).
81. Id. (Scalia, 1., concurring). Justice Scalia stated that the Court had adopted this "new
approach" to preemption in John Hancock Mutual Life Insurance Co. v. Harris Trust & Savings Bank, 5 10
U.S. 86,99 (1993). See id. (Scalia, 1., concurring). Field preemption is described in Rice v. Santa Fe
Elevator Corp., 331 U.S. 218, 230 (1947) (preempting state law where it falls within a field that Congress
has sought to occupy), and conflict preemption is defined in Florida Lime & Avocado Growers, Inc. v.
Paul, 373 U.S. 132, 142-43 (1963) (preempting state law where it is in direct conflict with a federal law).
82. Dillingham, 117 S. Ct. at 843 (Scalia, J., concurring).
83. See Boggsv. Boggs, 117 S. Ct. 1754, 1761 (1997).
84. Id.
85. See id.
86. See id. (citing 29 U.S.C. § 1055 (1994».
87. See id.
88. Id. at 1762.
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to hold that ERISA does not preempt community property law, then the result
would be that the joint and survivor benefits could be reduced below fifty
percent, which is prohibited by ERISA. 89 The Court applied conflict
preemption, stating that to allow Dorothy to defeat Sandra's entitlement to the
joint and survivor benefits guaranteed her by ERISA, through testamentary
transfer, is a blatant conflict between state and federal law. 90 Federal law
must control.9J
Next, the Court addressed the preemption of the sons' claim to a portion
of the IRA, the stock, and the monthly annuity payments paid to Isaac after
Dorothy's death. 92 The QDRO provisions were designed to protect a former
spouse's right to a portion ofthe participant's benefit which accrued during
the marriage.93 The Court observed that ERISA has provisions which
"acknowledge and protect specific pension plan community property
interests."94 However, Congress did not choose to regulate through ERISA the
testamentary transfer of pension benefits. 9s Congress's silence provides
powerful support for the conclusion that the right of a nonparticipant spouse
to devise pension assets through testamentary transfers does not exist. 96
The Court buttressed its conclusion with ERISA's anti-alienation
provision, a "potent mechanism [designed] to prevent the dissipation of
funds."97 Dorothy's testamentary transfer to her sons was an assignment
prohibited by ERISA. 98 The Court stated that "it would be inimical to
ERISA's purposes to permit testamentary recipients to acquire a competing
interest in undistributed pension benefits, which are intended to provide a
stream of income to participants and their beneficiaries."99 The majority
concluded that "ERISA is concerned with providing for the living."JOO
Justice Breyer dissented, along with Justices O'Connor, Ginsberg, and
Chief Justice Rehnquist. IOJ The dissent acknowledged that Sandra was
entitled to the survivor benefit but disagreed that she was entitled to Isaac's
stock and IRA account. 102 The dissent analyzed the case under the "relates to"
89.
90.
91.
92.
93.
94.
95.
96.
97.
98.
99.
100.
policy.").
101.
102.
See id.
See id.
See id.
See id. at 1763.
See id.
ld.; see 29 U.S.C. §§ lOSS, 1056 (1994).
See Boggs, 117 S. Ct. at 1764.
See id.
ld. at 1765.
See id.; see also 26 C.F.R. § 1.40 I(a)-13(cXI)(ii) (1997) (defining "assignment or alienation").
Boggs, 117 S. Ct. at 1766.
ld. at 1767 ("Congress has decided to favor the living over the dead and we must respect its
See id. at 1767 (Breyer, J., dissenting).
See id. (Breyer, J., dissenting).
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provision. 103 A state law "relates to" an ERISA plan, and is therefore
preempted, "if it expressly 'refers' to such a plan, or if it has an impermissible
'connection with' a plan."I04 Justice Breyer concluded that the Louisiana
community property law neither referred to nor relied on the existence of an
ERISA plan, and, therefore, was not preempted. lOS The minority admitted that
"[t]he 'connection' problem is more difficult."I06 A state law may be
considered to have a "connection with" a plan if the state law overlaps a field
of law that Congress wanted to reserve for federal regulation. 107 This was not
the case in Boggs, according to the dissent. los
Justice Breyer asked, "[W]hy would Congress have intended to include
a silent implication that strips Dorothy of an asset that may be the bulk of her
community property-simply because, instead of divorcing Isaac, she
remained his wife until she died?"I09 Hypothetically, the majority would have
responded: "Because ERISA protects the living and not the dead. n The
dissent disagreed and bemoaned the fact that by predeceasing Isaac, Dorothy
lost the right to dispose ofher community property by testamentary transfer. 110
The dissent argued that Isaac's pension passed to the sons by operation
of law and was not assigned or alienated. III The dissent also noted that if
ERISA does not regulate, with the exception of the joint and survivor annuity,
what Isaac does with the retirement monies that were distributed to him and
placed in the IRA, then Dorothy should not be so restricted. 112 The dissent
rejected the argument that Dorothy died first and so her transfer of pension
monies would reduce the sums available to Isaac during his retirement. 1l3
When Isaac received the lump sum distribution which he later rolled over into
an IRA, he could have used the money instead to "pay for a vacation, to buy
a house, to bet at the races, or he could have given the money to his
children."114 Accordingly, Dorothy should have the same right. lIS
103.
104.
See id. (Breyer, J., dissenting).
Jd. (Breyer, J., dissenting) (quoting California Div. of Labor Standards Enforcement v.
Dillingham Constr., N.A., Inc., 117 S. Ct. 832, 837 (1997».
105. See id. (Breyer, J., dissenting).
106. Jd. (Breyer, J., dissenting).
107. See id. (Breyer, J., dissenting). The dissent focused on field preemption not conflict
preemption. See id. at 1769-76 (Breyer, J., dissenting).
108. See id. at 1769-70 (Breyer, J., dissenting).
109. Jd. at 1776 (Breyer, J., dissenting).
110. See id. (Breyer, J., dissenting).
Ill. See id. at 1771-72 (Breyer, J., dissenting).
112. See id. at 1772 (Breyer, J., dissenting).
113. See id. (Breyer, J., dissenting).
114. Jd. (Breyer, J., dissenting).
115. See id. (Breyer, J., dissenting). Justice Breyer noted, "I recognize that Isaac did not use the
$150,000 to buy a new house, or to pay for medical expenses, or to gamble; rather, he put the money into
an IRA account. But no one has explained why that fact-which in all likelihood reflects the exigencies
of tax law-should make any difference here." Jd. (Breyer, J., dissenting) (citation omitted).
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The dissent also focused on the resulting i.nequities because, had Dorothy
divorced Isaac instead of leaving him a widower, she would have received her
community property interest in the pension benefits. 1l6 However, since she
" 'stay[ed] with him till her last breath,' " she forfeited any right to her
community property interest in Isaac's pension. 1l7
The dissent concluded that ERISA adequately protected Sandra, as the
surviving spouse, through the $1800 monthly survivor benefit.118 The dissent
agreed that the sons had no right to this amount. 1l9 The sons, however, had a
right to the testamentary transfer of the stock investments and IRA funds. 120
Sandra was financially protected by the annuity and ERISA did not care what
happened to the assets other than the survivor annuity.121
5. An Epilogue to Boggs: QDROs Awarded During Probate
Despite the Department of Labor's repeated efforts to educate attorneys
on how to obtain a QDRO, it appears that many non-participant spouses do
not seek a QDRO until after the death ofthe participant spouse. Bailey v. New
Orleans Steamship Ass 'n/International Longshoreman's Ass'n is a prime
example of this phenomenon. 122
Olivia and Herman Bailey married in 1947, and after twenty-five years
of marriage, divorced in 1972. 123 Later, Herman married Vivian, and they
remained married until Herman's death in 1990. 124
Herman retired in 1988 and began receiving a monthly benefit of
$1023. 12S When he died in 1990, Vivian began receiving monthly survivor
benefits of $524. 126 Olivia never received any portion of Herman's retirement
benefits.127
Five years after Herman's death, the administratrix of Herman's estate
filed a petition for a QDRO. 128 Recall that Olivia and Herman had divorced
in 1972 prior to the effective date of ERISA, and, of course, prior to the
Retirement Equity Act amendments which created QDROs.1 29 For all
116.
117.
See id. at 1773 (Breyer, J., dissenting).
[d. (Breyer, 1., dissenting) (quoting United States Supreme Court Official Transcript, at 15,
1997 WL 23069, Boggs v. Boggs, 117 S. Ct. 1754 (1997) (No. 96-79».
118. See id. at 1774 (Breyer, J., dissenting).
119. See id. (Breyer, J., dissenting).
120. See id. (Breyer, J., dissenting).
121. See id. at 1774-75 (Breyer, J., dissenting).
122. 100 F.3d 28 (5th Cir. Nov. 1996).
123. See id. at 29.
124.
125.
126.
127.
128.
129.
See id.
See id.
See id.
See id.
See id.
See id.; Retirement Equity Act of1984, Pub. L. No. 98-397, 98 Stat. 1426, 1433-36 (codified
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practical purposes, Olivia could not have petitioned for a QDRO until after
1984, when REA was enacted. 130 However, five years after Herman's death
seems a little late.
The probate court; without hesitation, issued a QDRO designating Olivia
as the alternate payee of the pension benefits in the amount of $238.69 per
month. 131 The pension plan refused to acknowledge the order as a QDRO.132
In response, Olivia filed suit for a declaratory judgment that the order was a
QDRO. 133
The district court held that the probate order clearly was a QDRO. I34 The
court noted that under Louisiana community property law, Olivia was "vested
with a present undivided one-half interest in the portion of the pension plan
vested during the time of her marriage to Herman Bailey."m The court
rejected the plan's argument that the QDRO was defective because it caused
the plan to payout more money that it otherwise would have been required to
pay.136 The court held that the QDRO did not increase the actuarial value of
the benefits because Olivia's life expectancy was shorter than Vivian's.137
The Fifth Circuit summarily affirmed in a two paragraph opinion in
which the court upheld the district court's ruling which was attached to the
opinion. 13s The court did not address the argument raised by Judge Wiener in
Boggs that a QDRO could not be issued as part of probate.139
This raises the serious question as to whether a QDRO issued by a
probate court can be a qualified QDRO. Most plan attorneys would say that
a probate court order cannot meet the technical requirements of a qualified
QDRO. Yet, probate courts routinely issue QDROs.
Although the Supreme Court majority in Boggs did not address this issue,
the dissent discussed the authority of a probate court to issue QDROs.1 40
Justice Breyer, joined by three other justices, examined the statutory
requirements for a QDRO and concluded that the statute "tells us virtually
nothing relevant about whether the prohibition on anti-alienation applies to
matters not covered by the term 'domestic relations orders,' such as probate
court orders."141
as amended at 29 U.S.C. § 1056(d)(3)(A)-(L) (1994».
130. See Pub. L. No. 98-397, 98 Stat. at 1433-36.
131. See Bailey, 100 F.3d at 29.
132.
133.
134.
135.
See id.
See id.
See id. at 31.
Id at 30 (citing Boggs v. Boggs, 849 F. Supp. 462, 464 (E.D. La. 1994), affd, 82 F.3d 90 (5th
Cir. 1996), rev'd, 117 S. Ct. 1754 (1997».
136. See id. at 31.
137. See id. at 30-31.
138. See id. at 28.
139. See supra notes 64-68 and accompanying text.
140. See Boggs v. Boggs, 117 S. Ct. 1754, 1772-73 (1997) (Breyer, J., dissenting).
141. Id. at 1773 (Breyer, J., dissenting).
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The dissent concluded that the QDRO provisions do not "affect
testamentary transfers taking place after death."142 The dissent argued that
since Congress permits the transfer of pension benefits to a living nonparticipant spouse pursuant to a QDRO, "[w]hy ... would Congress object to
court orders that transfer benefits to a former spouse after her death?"143
Yet the dissent specifically acknowledged that a "probate court order
awarding property to an estate or to children cannot easily be squeezed into.
the definition of 'domestic relations order.' 11144 A probate order does not
relate to marital property rights and does not provide property rights to a
" 'spouse, former spouse, child, or dependent.' "14S
Boggs is clearly distinguishable from Bailey. The QDRO issued by the
probate court in Bailey designated the first wife, Olivia, as the alternate payee
of the pension benefits: 146 The order related to Olivia's marital property
rights. 147 Yet, the issuance of QDROs by probate courts remains a matter of
concern. A probate court does not typically issue domestic relations orders.
Allowing probate courts to issue QDROs leaves the door open for nonparticipant spouses to apply for QDROs years after the participant dies. This
creates administrative problems for the pension plan and jeopardizes the
position of the second wife who was relying on the joint and survivor annuity
to provide income during her retirement years.
A deadline needs to be established for the issuance of a QDRO. Absent
extraordinary circumstances, a spouse should not be permitted to revisit the
question of marital property or support obligations after the final divorce
decree is issued. Certainly, the right to apply for and receive a QDRO should
not be allowed after the participant's death. This is the position taken by
Department of Labor in Advisory Opinion 90-46A. 148
The real problem with respect to QDROs is lack of education.
Participants and beneficiaries need to be educated about the effect of divorce
on pension rights. The Department of Labor and the Pension Benefit
Guaranty Corporation have initiated efforts to inform the public as to these
rights. 149
[d. (Breyer, J., dissenting).
[d. (Breyer, J., dissenting).
144. [d. (Breyer, J., dissenting).
145. [d. (Breyer, J., dissenting) (quoting 29 U.S.C. § 1056(d)(3)(B)(ii)(I) (1994».
146. See Bailey v. New Orleans Steamship Ass'n!Int'! Longshoreman's Ass'n, 100 F.3d 28, 29 (5th
Cir. Nov. 1996).
147. See id.
148. See DOL Advisory Opinion 90-46A (Dec. 4,1990).
149. See Department of Labor, QDROs: The Division ofPensions Through Qualified Domestic
Relations Order (visited Feb. 17, 1998) <http://dol.gov/dol/pwbalpublidpubs/qdro.htm>; Pension Benefit
Guaranty Corporation, Divorce Orders & PBC (visited Feb. 17, 1998) <httpllwww.pbgc.gov/ divorce
3.htrn>.
142.
143.
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B. Preemption o/Third Party Claims/or Misrepresentation
Seven years ago, the Fifth Circuit decided Memorial Hospital System v.
Northbrook Life Insurance Co., ISO in which the court held that a hospital's
"state-law claim for misrepresentation of medical coverage was not
preempted" by ERISA. ISI Memorial Hospital sued Northbrook Insurance
Company for negligently misrepresenting that a prospective patient was
covered for medical benefits. ls2 The hospital provided services to the
patient. IS3 Later, Memorial Hospital submitted a bill to Northbrook for
reimbursement but was denied payment because the patient was not covered
under the plan. l54 Memorial Hospital sued the insurer for negligent
misrepresentation. ISS The district court held that the cause of action was
preempted by ERISA. 1s6
The Fifth Circuit reversed, holding that claims made by independent,
third-party health care providers such as Memorial Hospital are not
preempted. ls7 The court identified three reasons which support this holding. ISS
First, a third-party medical service provider faces certain "commercial
realities" such as who will pay for the cost ofthe treatment. IS9 Second, outside
of ERISA, when an insurer erroneously tells a health care provider that a
patient is covered by health insurance, state law normally provides a
remedy"60 Preemption is not a defense because ERISA does not apply"61
Third, "depriving an independent third-party provider of a state-law cause of
action ... defeats Congress's purpose behind enacting ERISA."162 Without
a reliable verification of coverage, backed by a state-law cause of action,
third-party providers would "require patients to make up-front payments or
subject [them] to other unnecessary inconveniences before treatment is
offered." 163
This term, Cypress Fairbanks Medical Center, Inc. v. Pan-American Life
Insurance Co. provided the Fifth Circuit with an opportunity to determine the
150. 904 F.2d 236 (5th Cir. 1990).
151. Cypress Fairbanks Med. CIT. Inc. v. Pan-American Life Ins. Co., 110 F.3d 280, 281 (5th Cir.
Apr. 1997), cert. denied, 118 S. Ct. 167 (1997) (describing the Fifth Circuit's holding in Memorial
Hospital).
152. See Memorial Hospital, 904 F.2d at 238.
153. See id.
154. Seeid.
155. See id.
156. See id.
157. Seeid.at251.
158. See id. at 246-47.
159. See id. at 246.
160. See id. at 246-47.
161. See id. at 247.
162. Cypress Fairbanks, 110 F.3d at 283 (summarizing the court's holding in Memorial Hospital).
163. Id.
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scope of Memorial Hospital. 164 Jack Schwartz, an employee of Meyer, was
admitted to Cypress Fairbanks Medical Center. 165 Before his hospitalization,
Meyer's insurer advised Cypress Medical Center that Schwartz was covered
under the Meyer medical plan. l66 Cypress extended $178,000 in medical
benefits to Schwartz in reliance on the insurer's representation that Schwartz
was covered by the plan. 167 In fact, Schwartz was not a covered participant. 168
Cypress submitted Schwartz's medical bills to the insurer who refused to
pay.l69 Cypress sued the insurer for negligent misrepresentation in violation
of the Unfair Competition and Unfair Practices provisions of the Texas
Insurance CodeYo The district court granted the insurer's motion to dismiss
and Cypress appealed. 171
In Cypress Fairbanks, the Fifth Circuit also reviewed its prior decision
in Hermann Hospital v. MEBA Medical & Benefits Plan (Hermann /),172
which reached a conclusion opposite to Memorial Hospital. 173
In Hermann I, the court held that Hermann Hospital's state-law claims
for negligent misrepresentation were preempted. 174 Hermann Hospital
provided medical services to a patient after the insurer advised the hospital
that the patient was covered by an ERISA plan. 175 The patient assigned her
rights under the medical plan to the hospital.1 76 After the patient died, the
hospital submitted the patient's bill to the insurer. 177 The insurer neither paid
nor denied payment; instead, the insurer said that the claim was "being
'investigated.' 11178 The hospital, complaining ofthe insurer's delay, sued the
insurer for negligence, equitable estoppel, breach of contract, and other state
law claims. l79 The Fifth Circuit relied on Pilot Life Insurance Co. v.
Dedeaux l80 and Metropolitan Life Insurance Co. v. Taylor,181 to hold that these
claims were preempted by ERISA.182 The court stated that when a claim
relates to an ERISA plan and is "based upon state law of general application
164.
165.
166.
167.
168.
169.
170.
171.
172.
173.
174.
175.
176.
177.
178.
179.
180.
181.
182.
Id. at 281.
See id.
See id.
See id.
See id.
See id. at 281.
See id. at 281-82; TEX. INS. CODE ANN. art. 21.21 (Vernon 1981 & Supp. 1998).
See Cypress Fairbanks, 110 F.3d at 282.
845 F.2d 1286 (5th Cir. 1988).
Cypress Fairbanks, 110 F.3d at 283-84.
id. at 284 (citing Hermann 1,845 F.2d at 1290).
id. (citing Hermann 1,845 F.2d at 1287).
id. (citing Hermann 1,845 F.2d at 1287).
id. (citing Hermann 1,845 F.2d at 1287).
id. (quoting Hermann 1,845 F.2d at 1287).
id. (citing Hermann 1,845 F.2d at 1286).
481 U.S. 41 (1987).
481 U.S. 58 (1987).
See Cypress Fairbanks, 110 F.3d at 284 (citing Hermann 1,845 F.2d at 1290).
See
See
See
See
See
See
See
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and not a law regulating insurance," the state-law claim is preempted. 183
In Cypress Fairbanks, the court distinguished Hermann Ion the grounds
that Memorial Hospital involved an independent third-party service provider
who was erroneously advised that a patient had medical coverage. l84 Since
there was no coverage, there was no plan and preemption was inappropriate. 185
In contrast, Hermann I involved a third-party beneficiary who was an assignee
of benefits for which the assignor was covered. 186 The patient in Hermann I
clearly was covered by an ERISA employee benefit plan. 187 Preemption,
therefore, was appropriate. 188
Applying this interpretation to the facts in Cypress Fairbanks, the court
held that because Schwartz clearly was not covered by the Meyer's plan,
Cypress's cause ofaction did not "relate to" ERISA, and was not preempted. 189
C. Preemption ofStatutory Right to Sue for Breach ofFiduciary Duty
In Texas Life, Accident, Health & Hospital Service Insurance Guaranty
Ass 'n v. Gaylord Entertainment Co., the Fifth Circuit held that ERISA
preempts a state law which assigns, by operation oflaw, a participant's right
to sue for breach of fiduciary duty under ERISA. I90 The Guaranty
Association, which bailed out Executive Life when it became insolvent,
exercised its right to sue the administrator for breach of fiduciary dUty.191 The
administrator had purchased guaranteed investment contracts (GICs) from
Executive Life in the 1980s at a time when it was apparent that Executive Life
was in financial trouble. 192
In 1993, a bailout of Executive Life was approved by the California
Insurance Commissioner. l93 Texas Life, Accident, Health & Hospital Service
Insurance Guaranty Association provided the funds for the bailout. l94 The
Guaranty Association is a organization, created by statute, which all insurance
companies are required to join before they can conduct business in Texas. 195
The Guaranty Association provides supplemental funds to bailout purchasers
183. Id. (quoting Hermann 1,845 F.2d at 1290).
184. See id. (citing Memorial Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d 236, 249 n.20 (5th
Cir. 1990».
185. See id. (citing Memorial Hospital, 904 F.2d at 249 n.20).
186. See id. (citing Memorial Hospital, 904 F.2d at 249 n.20).
187. See id. (citing Memorial Hospital, 904 F.2d at 249 n.20).
188. See id.
189. See id. at 282.
190. 105 F.3d 210, 217·18 (5th Cir. Jan. 1997), cert. dismissed, 117 S. Ct. 2501 (1997).
191. See id. at 213-14.
192. See id. at 213.
193. See id.
194. See id.
195. See id.; TEX. INS. CODE. ANN. art. 21.28·0, § 6 (Vernon Supp. 1997).
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of insurance policies from insurers that become insolvent. 196 Under the
bailout, plans could substitute GICs issued by Aurora National Life Assurance
Company for Executive Life contracts ifthey waived their claims against the
state Guaranty Association. 197 Those plans that did not participate in the
bailout plan received the liquidated cash value of the GICs and retained the
right to challenge the Guaranty Association's coverage determination. 198
After the bailout, the Guaranty Association sued the plan administrator,
alleging that he breached his fiduciary duty by purchasing Executive Life
GICs at a time when there were signs that Executive Life "was on the brink
of insolvency due to its heavy investing in high-risk junk bonds."I99 The
Guaranty Association claimed that it had derivative standing to sue based on
the statutory assignment of beneficiaries' rights to sue. 2OO
A magistrate held that the Guaranty Association did not have standing
to bring an action for breach of fiduciary duty because it was not an
enumerated party under ERISA section 502(a)(2).201 The magistrate further
held that ERISA preempts the statutory assignment of the right to sue, and
therefore, Guaranty Association did not have derivative standing. 202 The
Guaranty Association appealed. 203
The Fifth Circuit noted that this was a case of first impression. 204 The
court reiterated that the only parties who can bring a suit for breach of
fiduciary duty under ERISA are "the Secretary of Labor, participants,
beneficiaries or fiduciaries of plans."20s The court held that the Guaranty
Association had derivative standing because it had been assigned the
participants' rights to sue. 206
The court examined Hermann Hospital v. MEBA Medical & Benefits
Plan (Hermann /),207 in which the court held that a hospital had derivative
.standing to sue. 208 The court rejected the administrator's argument that
derivative standing was inappropriate for pension plans because of ERISA's
anti-alienation c1ause. 209 The right to sue for breach of fiduciary duty does not
violate ERISA's anti-alienation clause because it is not an assignment of a
196.
197.
198.
199.
200.
201.
See Texas Life, 105 F.3d at 214.
See id.
See id.
Id.
See id.
See id.; 29 U.S.C. § 1132(a)(2) (1994). Section 502(a)(2) of ERISA limits those who can bring
a lawsuit under the Act to participants, beneficiaries, the Secretary of Labor, or fiduciaries. See 29 U.S.C.
§ 1132(a)(2)(1994).
202.
203.
204.
205.
206.
207.
208.
209.
See
See
See
Id.
See
Texas Life, 105 F.3d at 214.
id.
id.
id. at 216.
845 F.2d 1286, 1289 (5th Cir. 1988).
See Texas Life, 105 F.3d at 214 (citing Hermann J, 845 F.2d at 1289).
See id. at 215.
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"benefit."210 Rather, it is an assignment of the right to sue. 2Il
The purpose ofthe anti-alienation clause is to ensure that a participant's
benefits "are actually available for retirement purposes," and, according to the
Fifth Circuit, this purpose is compatible with an assignment of the right to
sue. 212 By assigning the right to sue, those participants who received cashouts were protected by the Guaranty Association's right to sue. 213 Once the
participants were cashed-out, they had no right to sue. The court concluded:
[A]bsent derivative standing, the guaranty association would have no
standing. This would allow plan administrators to gamble with pension
funds covered by guaranty associations, safe in the knowledge they will
never be held accountable for their actions. Encouraging such reckless
behavior ... does not promote ERISA's goal of safeguarding pension
benefits for employees' retirements. 214
The court held that the assignment ofthe right to sue "advances ERISA's goal
of safeguarding pension funds."m
Next, the Fifth Circuit considered the validity of the assignment. 216 The
court held that ERISA preempts the Guaranty Act's assignment provlsion. 217
The court applied the "relates to" clause, noting that" '[a] law 'relates to' an
employee benefit plan ... if it has a connection with or reference to such a
plan.' "218 Since the Guaranty Act did not refer to ERISA plans, the court
examined whether the Act had a "connection" with the plan.2\9
The Fifth Circuit stated that a state law is preempted only if it has more
than a " 'tenuous, remote, or peripheral connection with covered plans.' ,,220
The court held that the Guaranty Act had a "connection with" a plan because
it assigned, by operation of law, the participants' right to sue for breach of
fiduciary duty.221 This connection was "direct and substantial" enough to
trigger preemption. 222
Likewise, the court rejected Guaranty Association's argument that the
assignment was valid under the federal common law ofERISA. 223 Although
210. See id. (citing 29 U.S.C. § 1056(d) (1994».
211. See id. (citing 29 U.S.C. §§ 1109, I I32(a)(2) (1994».
212. Jd. (quoting Hermann J, 845 F.2d at 1289).
213. See id. at215-16.
214. Jd.
215. Jd. at 216.
216. See id.
217. See id. at217-18.
218. Jd. at 217 (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97 (1983».
219. See id.
220. Jd. (quoting District of Columbia v. Greater Wash. Bd. of Trade, 506 U.S. 125, 130 (1992».
221. See id. at 217-18.
222. See id. The Court further held that the insurance savings clause did not save the Guaranty Act
from preemption. See id. at 218.
223. See id. at 218-19.
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courts have been encouraged to develop a federal common law of ERISA, the
Fifth Circuit declined to apply it here,224 The court noted that "unsuccessful'
claims [for breach of fiduciary duty] can waste plan resources that are meant
to be available for employees' retirements."22s Assignment of a claim for
breach of fiduciary duty is valid only if the assignment is an "express and
knowing assignment."226 Because there was no evidence that the assignment
was made expressly and with full knowledge, the assignment was invalid. 227
D. Preemption ofAny Willing Provider Statute
In last year's survey article, I reported on CIGNA Health Plan of
Louisiana, Inc. v. Louisiana ex reI Ieyoub,228 in which the Fifth Circuit held
that ERISA preempted Louisiana's Any Willing Provider statute as it applied
to service providers of ERISA plans. 229 The statute required that "[n]o
licensed provider ... who agrees to the terms and conditions of the preferred
provider contract shall be denied the right to become a preferred provider."23o
The statute "related to" an employee benefit plan because it mandated benefit
structures and, therefore, was preempted. 231
A similar issue arose this term in Texas Pharmacy Ass 'n v. Prudential
Insurance Co. ofAmerica. 232 The Texas Pharmacy Association brought suit
to obtain a declaratory judgment that the Any Willing Provider statute
required Prudential Insurance to contract with any Texas pharmacy that was
willing to accept Prudential's terms and conditions. 233 The lower court held
that the statute was not preempted, and Prudential appealed. 234
The Texas Legislature amended the Any Willing Provider statute in 1995
to include references to managed care plans.23s Section 2(a) of the statute
provides that:
A health insurance policy or managed care plan . .. may not:
224.
225.
226.
See id. (citing Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56 (1987».
ld. at 218.
ld.; cf Gulfstream III Ass'n v. Gulfstream Aerospace Corp., 995 F.2d 425, 439 (3d Cir. 1993)
(Greenberg, J., concurring) (noting "only an express assignment of an antitrust claim can be valid").
227. See Texas Life, 105 F.3d at 219.
228. 82 F.3d 642, 645 (5th Cir. 1996).
229. See Zanglein, supra note 21, at 521-23.
230. CIGNA, 82 F.3d at 645 (quoting LA. REv. STAT. ANN. § 40:2202(5)(c) (West 1992».
231. See id. at 647.
232. 105 F.3d 1035 (5th Cir. Feb. 1997), cert denied, 118 S. Ct. 75 (1997).
233. See id. at 1036.
234.
235.
See id.
See Act of May 27,1995, 74th Leg., RS., ch. 852, §§ 1-4, 1995 Tex. Gen. Laws 4280, 4280·
81. A "managed care plan" is defined as a "health maintenance organization, a preferred provider
organization, or another organization that, under a contract or other agreement entered into with a
participant in the plan ... provides health care benefits." TEx. INS. CODE ANN. art 21.528, § 1(6) (Vernon
Supp. 1997).
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(I) prohibit or limit a person who is a beneficiary of the policy from selecting
a pharmacy or pharmacist of the person's choice to be a provider under the
policy to furnish pharmaceutical services offered or provided by that policy
or interfere with that person's selection of a pharmacy or pharmacist;
(2) deny a pharmacy or phannacist the right to participate as a contract
pr:ovider under the policy or plan if the pharmacy or phannacist agrees to
provide pharmaceutical services that meet all terms and requirements and to
include the same administrative, financial, and professional conditions that
apply to pharmacies and pharmacists who have been designated as providers
under the policy or plan;
(3) require a beneficiary of a policy or a participant in a plan to obtain or
request a specific quantity or dosage supply ofphannaceutical products. 236
Italicized portions were added by the 1995 amendments. 237 The statute
specifically exempts self-insured plans that are subject to ERISA. 238
The court held that the current statute was preempted because it "relates
to" ERISA plans. 239 Relying on CIGNA Health Plan of Louisiana, Inc. v.
Louisiana ex rei Ieyoub, the court found that the statute "relates to ERISA
plans because it 'eliminates the choice of one method of structuring benefits,'
by prohibiting plans from contracting with pharmacy networks that exclude
any willing provider."24o
The Fifth Circuit also ruled that ERISA's savings clause did not save the
statute from preemption. 241 The court relied on its prior ruling in CIGNA and
applied the three-part test in Metropolitan Life Insurance Co. v.
Massachusetts,242 to determine if the statute fell within the insurance savings
clause. 243 The Fifth Circuit looked at: "'(1) [w]hether the practice (the
statute) has the effect of spreading the policyholders' risk; (2) whether the
practice is an integral part of the policy relationship between the insurer and
the insured; and (3) whether the practice is limited to entities within the
insurance industry.' "244 If the statute meets the definition of an insurance
regulation and all three questions are answered affirmatively, the statute is
saved from preemption. 24s
The Fifth Circuit proceeded directly to the third factor, which could not
be met because the Texas Any Willing Provider Statute was not limited to
TEX. INS. CODE ANN. art. 2 I .528, § 2 (Vernon Supp. 1997).
See Act of May 27,1995, 74th Leg., R.S., ch. 852, §§ 1-4, 1995 Tex. Gen. Laws 4280, 4281.
See TEX. INS. CODE ANN. art. 2 I .528, § 5 (Vernon Supp. 1997).
See Texas Pharmacy, 105 F.3d at 1037.
ld. (quoting CIONA Health Plan of La, Inc. v. Louisiana ex re/leyoub, 82 F.3d 642, 648 (5th
Cir. 1996), cert. denied, 117 S. Ct. 387 (1996».
24 I. See id. at 1038.
236.
237.
238.
239.
240.
242.
243.
244.
245.
471 U.S. 724, 743 (1985).
See Texas Pharmacy, 105 F.3d at 1038.
ld. (quoting CIGNA, 82 F.3d at 650).
See id. (citing CIGNA, 82 F.3d at 650).
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entities within the insurance industries. 246 The 1995 amendments broadened
the statute to apply to HMOs, PPOs and other health care providers.247 HMOs
and PPOs do not fall within the statute;s exemption because they are not selfinsured plans. 248
However, the insurance savings clause saved the pre-1995 statute from
preemption. 249 The statute was an insurance regulation as it regulated the
terms of health insurance policies that could be offered in Texas. 25o
The pre-I 995 statute also met the Metropolitan Life three-factor test. 2S1
The first factor, whether the statute spreads policyholders' risk was the
hardest question for the court. 2S2 The Fifth Circuit held that the pre-1995
statute spread the risk among policyholders:
By requiring policies to give the beneficiary the option of obtaining
pharmaceutical services from any pharmacy, and requiring pharmacy
networks to admit any willing provider, we believe that the prior statute
influenced which costs were ultimately borne by the insurer and which were
borne by the beneficiary, and whether insurers would be willing to offer
pharmacy coverage at all. 2S3
The court noted that the second factor, whether the practice was an
integral part of the policy relationship between the insurer and the insured,
also was met. 2S4 The pre-1995 statute disallowed: U( I) policies that prohibit
a beneficiary from selecting a pharmacy of the beneficiary's choice, (2)
policies that deny willing pharmacists from participating as a contract
provider under the policy, and (3) policies that require a beneficiary of a
policy to obtain' or request a specific quantity or dosage supply of
pharmaceutical products... 255 The first and third items above regulated an
integral part of the policy relationship between the insurer and the insured,
thus meeting the second factor of the Metropolitan Life test. 256
The third factor, whether the practice was limited to insurance
companies, was also met. 2S7 The pre-I 995 Any Willing Provider statute only
246.
247.
See id.
See id.; Act of May 27, 1995, 74th Leg., R.S., ch. 852, 1995 Tex. Gen. Laws 4280 (codified
as amended at TEX. INS. CODE ANN. art. 21.528 (Vernon Supp. 1997».
248. See Texas Pharmacy, 105 F.3d at 1039.
249. See id. at 1040.
250.
251.
252.
253.
See id.
See id.
See id.
Jd. at 1041; see Stuart Circle Hosp. Corp. v. Aetna Health Mgmt., 995 F.2d 500, 503-04 (4th
Cir. 1993).
254.
255.
256.
257.
See Texas Pharmacy, 105 F.3d at 1040.
Jd.
See id.
See id.
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regulated entities within the insurance industry.258
Because the pre-1995 statute was an insurance regulation that met all
three of the Metropolitan Life factors, it was saved from preemption. 259
E. Preemption of Workers 'Compensation Offiet
In Martco Partnership v. Lincoln National Life Insurance Co., the Fifth
Circuit held that ERISA did not preempt a state law allowing workers'
compensation payments to be offset by payments made for Social Security
disability and pension disability.260
Dempty Manuel became permanently disabled as the result of a
workplace accident. 261 He received workers' compensation benefits of
$1,222.00 per month, Social Security benefits of $994.80 per month, and
long-term disability benefits of $311.10. 262
His employer, Martco,
complained that the long-term disability payments should be $2,527.90 per
month. 263 This amount equaled the $311.10 per month being paid under the
disability plan, plus the $1,222.00 in workers' compensation benefits, and the
$994.80 in Social Security disability benefits for a monthly total of
$2,527.90. 264 Apparently, this determination would allow the reduction of
Martco's workers' compensation payments. 265 The long-term disability plan
offered disability benefits of 66.6% of Manuel's "basic monthly earnings,"
less other income benefits such as workers' compensation benefits, and Social
Security disability benefits. 266
Martco petitioned the Louisiana Office of Workers' Compensation to
lower its workers' compensation payments. 267 The statute allowed payments
to be reduced by the amount payable under a disability plan and under Social
Security disability.268 The district court held that the employer was not
entitled to a reduction in workers' compensation payments. 269 The court held
that ERISA preempted the offset provision. 270
The Fifth Circuit reversed and held that the workers' compensation offset
provisions did not "relate to" the ERISA plan noting the following: "The
offset provisions ... do not modify or regulate the ERISA plan, addressing
258.
259.
260.
261.
262.
263.
264.
265.
266.
267.
268.
269.
270.
See id.
See id. at 1042.
86 F.3d 459, 463 (5th Cir. July 1996).
See id. at 460.
See id. at 460-61.
See id. at 461.
See id.
See id.
See id.
See id.
See id.; LA. REv. STAT. ANN. § 23: 1225(A) (West 1985).
See Martco, 86 F.3d at 462.
See id.
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only the means by which the employer's obligation to Manuel is to be
determined and not the amounts owed by Lincoln under the policy."271
The court criticized Martco for trying to stand ERISA on its head. 272
Martco's argument was that ERISA should preempt the state workers'
compensation law simply because the ERISA plan related to the law. 273 This
analysis was backwards as the correct argument was that the law sought to be
preempted related to the plan. 274 The court said, "Simply put, Lincoln cannot
'don the mantle of ERISA preemption simply by including workers'
compensation benefits in its [disability] benefits plan.' "275
F. Preemption Under the Supreme Court's ('New 11 Approaclt 76
Ironically, all of the Fifth Circuit cases this term were decided before the
Supreme Court decided the three preemption cases during its term. 277 The
Fifth Circuit cases relied heavily on analysis of the "relates to" clause instead
of the Supreme Court's new approach clarified in the three cases decided this
term. A brief examination of the Supreme Court's new approach is helpful to
determine whether the Fifth Circuit's analysis in its preemption cases will
stand.
1. California Division of Labor Standards Enforcement v. Dillingham
Construction, N.A., Inc.
The "relates to" clause was first put to the test this term in California
Division ofLabor Standards Enforcement v. Dillingham Construction, NA.,
Inc. 2711 At issue was whether ERISA preempted state prevailing wage laws. 279
California law requires a public works contractor to pay its employees the
prevailing wage rate in the locality of the job. 280 An exception allows
employers to pay workers less than prevailing wages if they are contributing
to an apprenticeship plan approved by the California Apprenticeship
271. [d. at 463 (citing Contract Servs. Network, Inc. v. Aubry, 62 F.Jd 294,297 (9th Cir. 1995».
272. See id. (citing Hook v. Morrison Milling Co., 38 F.3d 776, 785 (5th Cir. 1994».
273. See id.
274. See id.
275. [d. (quoting Contract Servs., 55 F.3d at 536).
276. Portions o(this section were adapted from Jayne Elizabeth Zanglein, To Preempt or Not to
Preempt: Will the Supreme Court Do Some Serious Bushhogging Through the Preemption Thicket? J.
PENSION PLAN. & COMPLIANCE, Fall 1997, at 22.
277. See; e.g., DeBuono v. NYSA·ILA Med. & Clinical Servs. Fund, 117 S. Ct. 1747 (1997)
(decided June 2, 1997); Boggs v. Boggs, 117 S. Ct. 1754 (1997) (decided June 2, 1997); California Div.
afLabar Standards Enforcement v. Dillingham Constr., N.A., Inc., 117 S. Ct. 832 (1997) (decided Feb.
18, 1997).
278. 117 S. Ct. 832 (1997).
279. See id. at 835.
280. See id.; CAL. LAB. CODE ANN. § 1771 (West 1989).
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Council.281 The Court held that ERISA did not preempt California's
prevailing wage law because the state law did not "relate to" employee benefit
plans. 282
The state awarded Dillingham Construction a public works contract to
.build a prison. 283 Dillingham subcontracted electrical work to a contractor
who was signatory to a collective bargaining agreement with the International
Brotherhood of Electrical Workers Local 202. 284 The subcontractor paid its
workers pursuant to its collective bargaining agreement with Local 202, which
required payments to its joint apprenticeship training program. 28S The
apprenticeship program had been approved by the California Apprenticeship
Council. 286
Some time after construction began, Local 202 withdrew its
representation of the subcontractors' employees. 287 The subcontractor signed
a contract with the Northern California Electrical Sound Communications
Association. 288 The collective bargaining agreement required payments to an
apprenticeship plan; however, the rate was lower than required under the
Local 202 contract and the apprenticeship program was· not state-approved. 289
The subcontractor paid its apprentices according to this nonapproved rate,
which was lower than the prevailing wage. 290
The California Division of Labor Standards notified Dillingham that its
subcontractor had failed to pay its apprentices at the prevailing rate. 291 Under
the prevailing wage law, Dillingham became liable for the delinquency of the
subcontractor. 292 Dillingham sued the Division of Labor Standards
Enforcement, Division of Apprentices, alleging that the requirement that the
apprenticeship program be approved by the state was preempted by ERISA,293
The district court held that ERISA did not preempt the California
prevailing wage law. 294 The court of appeals reversed, and the Supreme Court
granted certiorari. 29s
281. See Dillingham, 117 S. Ct. at 835; CAL. LAB. CODE ANN. § 1771.5 (West Supp. 1997).
282. See Dillingham, 117 S. Ct. at 835.
283. See id. at 836.
284. See Dillingham Constr., N.A., Inc. v. County of Sonoma, 57 F.3d 712, 716 (9th Cir. 1995),
rev 'd sub nom. California Div. of Labor Standards Enforcement v. Dillingham Constr., N.A., Inc., 117
S. Ct. 832 (1997).
285. See id.
286. See id.
287. See id.
288. See id.
289. See id.
. 290. See id.
291. See id.
292. See id.
293. See id.
294. See California Div. of Labor Standards Enforcement v. Dillingham Constr., N.A., Inc., 117
S. Ct. 832, 837 (1997).
295. See id.
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Predictably, the Supreme Court commenced its analysis with a recitation
of the "relates to" clause. 296 Rejecting Dillingham Construction's argument
that the prevailing wage law was preempted because it had a "reference to" the
plan, the Court observed that approved apprenticeship plans were not required
to be ERISA plans, and therefore, the law did not make reference to the
plans. 297 The California prevailing wage law permitted a contractor to pay a
lower apprenticeship wage rate when the contractor obtained the apprentice
through a jointly managed apprenticeship program, which normally would be
an ERISA plan. 298 But the California Apprenticeship Council promulgated
regulations that permit a broader range of approved apprenticeship plans,
including an apprenticeship program sponsored by an employer or union fund
through general assets, which is not governed by ERISA. 299 The Court held
that because the prevailing wage law " 'functions irrespective of ... the
e?,istence of an ERISA plan,' " it did not make reference to an ERISA plan so
as to be preempted. 3oo
The Court also held that the law did not have a "connection to" ERISA
plans so as to fall within ERISA's preemption c1ause. 301 Laws that mandate
employee benefit structures or their administration have a "connection to" an
ERISA plan and are preempted. 302 Laws that do not have such a connection
296.
297.
298.
See id.
See id. at 838.
See id. (citing CAL. LAB. CODE ANN. §§ 3075, 3076 (West 1989». If the plan is ajointly
trusteed plan under section 302(c)(6) of the Taft-Hartley Act, then the plan must be funded through a
separate account and, by virtue of that separate account, the plan becomes an ERISA plan. See id.(citing
29 U.S.C. § 302(c)(6) (1994».
299. See id.; see also Massachusetts v. Morash, 490 U.S. 107, 120 (1989) (finding payment of
vacation benefits from accumulated fund to be employee welfare benefits plan while vacation benefits paid
from general assets was not such a plan). During oral arguments, the Dillingham Court expressed its
distaste for the employer's use of the preemption clause to escape onerous obligations, and asked the
following:
[W]hy did your client establish the plan? The ERISA plan was established to fund, in effect,
his apprenticeship obligations, and by virtue of having done it by an ERISA plan he now
claims that because of the relating-to language there is a preemption which exempts him from
the State law that he established the fund to honor.
United States Supreme Court Official Transcript at 29, 1996 WL 656209, California Div. of Labor
Standards Enforcement v. Dillingham Constr., N.A., Inc., 117 S. Ct. 832 (1997) (No. 95-789).
When Dillingham's counsel could not adequately answer the question, Justice Scalia jumped in with
the answer:
Isn't your response that you could create such a hypothetical with respect to any provision that
could be preempted by ERISA? You could always create a hypothetical that somebody does
not want to abide by the State law in question, which would be preempted, need only set up an
ERISA plan.
ld. at 33.
300. Dillingham, 117 S. Ct. at 839 (quoting Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 139
(1990».
301. See id. at 840.
302. See id. at 839 (citing New York State Conf. of Blue Cross & Blue Shield Plans v. Travelers
Ins. Co., 514 U.S. 645, 657·58 (1995».
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to an ERISA plan are not preempted. 303 The Court stated that a "reading of
[the preemption clause] resulting in the pre-emption of traditionally stateregulated substantive law in those areas where ERISA has nothing to say
would be 'unsettling.' "304
The Court noted that the "apprenticeship portion of the prevailing wage
statute does not bind ERISA plans to anything."30s The Court further stated:
No apprenticeship program is required by California law to meet California's
standards. If a contractor chooses to hire apprentices for a public works
project, it need not hire them from an apprenticeship program (although ifit
does not, it must pay these apprentices journeyman wages).... The effect of
[the prevailing wage law] on ERISA apprenticeship programs, therefore, is
merely to provide some measure of economic incentive to comport with the
State's requirements, at least to the extent that those programs seek to
provide apprentices who can work on public works projects at a lower
wage. 306
The Court concluded that the "prevailing wage statute alters the incentives
[for complying with the state apprenticeship laws], but does not dictate the
choices, facing ERISA plans."307 The statute, therefore, does not have a
connection with an ERISA plan and is not preempted. 308
Justices Scalia and Ginsburg filed a concurring opinion stating that this
"opinion is no more likely than our earlier ones ... to bring clarity to this
field-precisely because it does obeisance to all our prior cases, instead of
acknowledging that the criteria set forth in some of them have in effect been
abandoned."309 Justice Scalia explained that the "relates to" clause "is meant,
not to set forth a test for pre-emption, but rather to identify the field in which
ordinary field pre-emption applies-namely, the field of laws regulating
'employee benefit plan[s].' "310 He urged the Court to "apply ordinary field
pre-emption, and, of course, ordinary conflict pre-emption."311
2. Boggs v. Boggs
The second preemption case was Boggs v. Boggs. 312 As previously
303.
304.
305.
306.
307.
308.
309.
310.
311.
312.
See id. at 840.
Id. (quoting Travelers, 514 U.S. at 664-65).
Id. at 841.
Id.
Id. at 842.
See id.
Id. at 843 (Scalia, J., concurring).
Id. (Scalia, J., concurring).
Id. (Seal ia, J., concurring).
117 S. Ct. 1754 (1997).
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.mentioned, in Boggs, the Court applied conflict preemption. 313 The Court
noted that conflict preemption doctrines require preemption ". 'where
compliance with both federal and state regulations is a physical impossibility,
... or where state law stands as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress.' "314 Justices
Breyer, O'Connor, Rehnquist, and Ginsburg, in a dissenting opinion, analyzed
the "relates to" clause and rejected field preemption as being inapplicable. 315
3. DeBuono v. NYSA-ILA Medical & Clinical Services Fund
The final preemption cas~ heard by the Supreme Court this tenn was
DeBuono v. NYSA-ILA Medical & Clinical Services Fund, in which the Court
considered whether ERISA preempted a New York statute that taxed the gross
receipts from patient care services and general operations of all hospitals in
New York. 316 Trustees ofthe NYSA-ILA Medical and Clinical Services Fund
brought an action to enjoin the taxation of revenues of two medical centers
that were operated by the Fund. 317 The centers provided medical treatment
solely to plan participants and beneficiaries. 318 The district court held that
ERISA did not preempt the state tax, and the Fund appealed. 319
The Second Circuit reversed, holding that:
[The tax] directly affects the Fund in its principal role as an employee
welfare benefit plan. It does not touch the Fund only slightly on the outer
limits of its plan activities; it affects the very operations and functions that
make the Fund what it is, a provider of medical, surgical, and hospital care
to its participants and their beneficiaries. 320
The court concluded that the tax directly "relates to" the Fund:
The tax depletes those assets earmarked for the provision of health care
benefits and, as a result, will cause the Fund to reduce benefits provided
and/or to charge beneficiaries more in the future for benefits received. Both
313. See supra notes 83-100 and accompanying text.
314. Boggs, 117 S. Ct. at 1762 (quoting Gade v. National Solid Wastes Mgmt. Ass'n, 50S U.S. 88.
98 (1992».
31 S. See id. at 1770 (Breyer, J., dissenting).
316. 117 S. Ct. 1747, 1749 (1997)(discussing N.Y. PuB. HEALm LAw § 2807-<1 (McKinney Supp.
1997».
317. See id. at 1749-50.
318. See id. at 1749.
319. See id. at 1750.
320. NYSA-ILA Med. & Clinical Servs. Fund v. Axelrod, 27 F.3d 823, 827 (2d Cir. 1994), vacated
and remanded sub nom., Chassin v. NYSA-ILA Med. & Clinical Servs. Fund, lIS S. Ct. 1819 (1995), on
remand sub nom., HYSA-ILA Med.& Clinical Servs. Fund v. Axelrod, 74 F.3d 28 (2d Cir. 1996), cert.
granted sub nom., DeBuono v. NYSA-ILA Med. & Clinical Servs. Fund, 117 S. Ct. 292 (1996), rev'd, 117
S. Ct. 1747 (1997).
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impacts will detriinentally affect the central mission and purpose ofthe Fund
and hence cannot be characterized as remote or tenuous. J21
The court, therefore, held that the tax was preempted by ERISA.322
After the Second Circuit's decision, the Supreme Court issued its
decision in New York State Conference ofBlue Cross and Blue Shield Plans
v. Travelers Insurance Co. ,323 and granted certiorari in DeBuono. 324 The Court
remanded DeBuono to the Second Circuit for further consideration in light of
Travelers. 325 On remand, the Second Circuit once again held that the tax law
directly affected and, therefore, "related to" the NYSA-ILA plan. 326 The
Supreme Court granted certiorari.
The Supreme Court stated that it had never been necessary, in earlier
preemption cases, to go beyond the "relates to" clause. 327 Earlier cases
involved state laws which clearly referred to or had a connection with ERISA
plans. 328 It was not until Travelers that the Court considered whether the
"relates to" clause altered the traditional presumption that federal law does not
supersede state law" 'unless that was the clear and manifest purpose of
Congress.' "329 The Court concluded that the "relates to" clause was unhelpful
and instead, stated that courts should "look ... to the objectives of ... ERISA
... as a guide to the scope of the state law that Congress understood would
survive."33o
The Court distinguished the state tax law at issue in DeBuono from
previous preemption cases which clearly mandated ERISA plans to calculate
benefits in a certain manner or required the plan to pay certain benefits. 331
Nor did the law explicitly refer to an ERISA plan or require a plan as an
element of a state law cause of action. 332
321.
322.
Id.
See id.
323.
324.
liS S. Ct. 1671 (1995).
liS S. Ct. 1819 (1995).
See id. at 1819.
See Axelrod, 74 F.3d at 30.
See DeBuono, 117 S. Ct. at 1751.
325.
326.
327.
328.
329.
330.
331.
See id.
Id. (quoting Travelers, 514 U.S. at 655).
Id. (quoting Travelers, 514 U.S. at 656).
See id. at 1752; see, e.g., Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 524-25 (198 I)
(concluding that state statute related to ERISA governed pension plan "because it eliminates one method
for calculating pension benefits-integration-that is permitted by federal law"); Shaw v. Delta Airlines, Inc.,
463 U.S. 85, 108 (1983) (preempting state law which required employer to provide pregnancy benefits);
Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 758 (1984) (finding state law mandating
minimum mental health benefits to be "related to" ERISA plans).
332. See DeBuono, I 17 S. Ct. at 1752; see, e.g., Mackey v. Lanier Collection Agency & Serv., Inc.,
486 U.S. 825, 829-30 (1988) (preempting state law which expressly referred to ERISA benefit plans);
District of Columbia v. Greater Washington Bd. of Trade, 506 U.S. 125, 130 (1992) ("District's Equity
Amendment Act specifically refers to welfare benefit plans regulated by ERISA and on that basis alone
is pre-empted."); Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 139-40 (1990) ("We are not dealing
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Instead, the Supreme Court held that the tax law was "one of 'myriad
state laws' of general applicability that impose some burdens on the
administration of ERISA plans" which do not necessarily "relate to" ERISA
plans so as to require preemption.333 A plan "bear[s] the considerable burden
of overcoming 'the starting presumption that Congress does not intend to
supplant state law.' "334
The Court ruled that although the health care tax at issue had an indirect
impact on the plan, this indirect impact was not enough to warrant
preemption.33S The Court noted that "[a]ny state tax, or other law, that
increases the cost of providing benefits to covered employees will have some
effect on the administration of ERISA plans, but that simply cannot mean that
every state law with such an effect is preempted by [ERISA]."336 As Justice
Souter observed in New York State Conference ofBlue Cross & Blue Shield
Plans v. Travelers Insurance Co.: "If 'relate to' were taken to extend to the
furthest stretch of its indeterminacy, then for all practical purposes, preemption would never run its course, for '[r]eally, universally, relations stop
nowhere.' "337
Not surprisingly, Justices Scalia and Thomas dissented in DeBuono: "I
am at a loss to understand the Court's invocation of 'our settled practice of
according respect to the courts' of appeals' greater familiarity with issues of
state law ... .' "338 The dissent argued that "[t]he Tax Injunction Act bars
federal-court jurisdiction over an action seeking to enjoin state tax (such as
the one at issue here) where' a plain, speedy and efficient remedy may be had
in the Courts of such State.' n339 The dissent noted that the circuit courts are
split on the issue of whether the Tax Injunction Act bars suits under ERISA
to enjoin a state tax. 340 The dissent would have' set this jurisdictional issue for
briefing and argument before reaching the merits of the case. 341
II. CONTRACT INTERPRETATION: CAN DOCUMENTS WRITTEN IN PLAIN
LANGUAGE BE ACCURATE?
This term the Fifth Circuit decided several disturbing contract
here with a generally applicable statute that makes no reference to, or indeed functions irrespective of, the
existence of an ERISA plan. . .. Here, the existence of a pension plan is a critical factor in establishing
liability under the state's wrongful discharge law.").
333. DeBuono, 117 S. Ct. at 1752.
334. Id. (quoting Travelers,S 14 U.S. at 654).
335. See id. at 1753.
336.
Id.
337. 514 U.S. at 655 (quoting HENRY JAMES, RODERICK HUDSON xli (New York ed., World's
Classics 1980».
338. DeBuono, 117 S. Ct. at 1754 (Scalia, J., dissenting) (quoting DeBuono, 117 S. Ct. at 1750 n.5).
339. Id. at 1753 (Scalia, J., dissenting) (quoting 28 U.S.C. § 1341 (1994».
340. See id. at 1754 (Scalia, J., dissenting).
341. See id. (Scalia, J., dissenting).
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interpretation cases, causing some concern that the Fifth Circuit has concluded
documents written in plain language do not require the accuracy of those
written in legalese.
A. Interpretation ofPolicy Time Limits
The first case, Jones v. Georgia Pacific Corp., is relatively straightforward. 342 There, the court rejected a legalistic interpretation ofa conversion
provision. 343
Georgia Pacific covered their employee, Higgins, with a group life
344
plan.
The policy terminated when he reached sixty-five, but allowed him
to convert to an individual policy during the thirty-one days following his
sixty-fifth birthday.34S The policy stated that if the participant died during this
thirty-one day period, he would receive death benefits even though he did not
convert the policy.346
Unfortunately, Higgins did not convert the policy within the thirty-one
day period, and he died on the thirty-second day, a Monday.347 His heirs
requested payment of benefits under the policy.348 They contended that
because the thirty-first day fell on a Sunday, Higgins should have been given
an extra day to apply for coverage. 349 The insurer denied the claim and
Higgins' heirs filed suit,3s0 The district court ruled in favor of the heirs,
stating that because the thirty-one day period ended on a Sunday, it should be
extended to the following day.3S1 Because Higgins died on Monday, before
the conversion period expired, the policy automatically converted.3S2
The Fifth Circuit reversed, explaining that it " 'interpret[s] ERISA plans
in an ordinary and popular sense as would a person of average intelligence and
experience.' Il3S3 The court found that the plan language was not ambiguous:
"A person of ordinary intelligence and experience would understand what the
policy provides and requires of the insured ...."3S4 The court rejected the
heirs' attempt to apply the doctrine that "Sunday is not a day in law" and,
therefore, Higgins was entitled to an extra day to comply.3SS The court
342.
343.
344.
345.
346.
347.
348.
349.
350.
35I.
352.
353.
354.
355.
90 F.3d 114 (5th Cir. Aug. 1996).
See id. at 116.
See id. at 115.
See id.
See id.
See id.
See id.
See id.
See id.
See id.
See id.
[d. at 116 (quoting Todd v. AIG Life Ins. Co., 47 F.3d 1448, 1452 n.l (5th Cir. 1995».
[d.
[d.
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concluded the following:
Except for suicides, the date of an individual's death is not a matter of
choice. When death occurs the day following the expiration of insurance
coverage there is a natural human reaction to agonize over the fortuitousness
of that circumstance. Such is, however, the inherent result of defming limits
and boundaries for events, Le. some will fall just inside and some will fall
just outside the boundaries. We can perceive no valid public policy to be
served by saying that deaths which occur on a Monday following expiration
of such a period on Sunday will be given protection and coverage but deaths
which occur on Tuesday following expiration of such a period on Monday
will not. 356
This decision seems right. Laypersons typically do not think in legalistic
terms. The average plan participant would not know of the doctrine,
sometimes applied in computing deadlines, that "Sunday is not a day in law."
Laypersons do not typically try to circumvent the law by asserting
technicalities. That is the peculiar realm of the lawyer.
The next case, however, takes this same principle and inappropriately
applies it to a medical case. The typical layperson does not know a lot about
anyone particular medical disorder. But the layperson who has the disorder
suddenly becomes an expert on the medical disorder. Within this context, it
seems unfair to apply a non-technical interpretation to an exclusion in a
medical policy.
B. Interpretation ofMedical Policy Exclusion
Lyndv. Reliance Life Standard Insurance Co. is an especially troubling
case. m In Lynd, the Fifth Circuit applied a lay definition of mental illness,
rather than a medical definition, to determine that Edward Lynd, a participant
who suffered from a major depressive disorder, was no longer qualified for
disability benefits relating to a "mental or nervous disorder."m Judge Dennis
dissented. 359
As a result of Lynd's diagnosis of "major depressive disorder," Lynd
qualified for long-term disability benefits under his employer's plan as of
March 1991.360 The plan provided that" 'Monthly Benefits for Total
Disability due to mental or nervous disorders will not be payable beyond
twenty-four (24) months unless you are in a Hospital or Institution at the end
356.
357.
358.
359.
360.
[d. at 117.
94 F.3d 979 (5th Cir. Aug. 1996).
See id. at 983.
See id. al984-89 (Dennis, J., dissenting).
See id. at 980.
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EMPLOYEE BENEFITS
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of the twenty-four (24) month period.' "361 At the end of the twenty-four
month period, Lynd was neither hospitalized nor institutionalized.362 The plan
terminated Lynd's benefits in March of 1993.363
Lynd sued the plan alleging that he did not have a mental or nervous
disorder and, therefore, his benefits were wrongfully terminated. 364 The
district court denied Lynd's motion for summary judgment, and Lynd
appealed. 36s
Lynd argued that the appropriate standard of review on appeal was de
novo and that his benefits were wrongfully terminated. 366 The court noted that
under Firestone Tire and Rubber Co. v. Bruch,367 the appropriate standard of
review for a claims denial is de novo "unless the plan giyes the administrator
'discretionary authority to determine eligibility for benefits or to construe the
temls of the plan.' "368 The court observed that "it remains unclear precisely
what language must be employed in the plan to confer such discretionary
authority upon the plan administrator."369 The Fifth Circuit noted its
reluctance to impose" 'a linguistic template' '1370 or " 'incantation of ... [a]
"magic word" , " to satisfy the requirement of the inclusion of "discretionary
authority."371
After this brief history of Firestone, the court refused to determine the
appropriate standard of review because Lynd had conceded that "it makes
absolutely no difference" whether the plan administrator's decision is
reviewed de novo or under the arbitrary and capricious standard. 372
The court turned to the question of whether Lynd's disability should be
characterized as a mental or physical disability.373 Lynd was diagnosed as
suffering from a major depressive disorder. 374 Lynd argued, however, that his
depression had an organic origin, and therefore, was a physical disability
rather than a mental disability.m Lynd's physician had testified that
depression is caused by a chemical imbalance in the brain: "'It is a
361. [d. (quoting the employer's Employee Welfare Benefit Plan's Master Policy and Certificate
of Insurance).
362. See id. al 98!.
363. See id. at 980.
364. See id.
365. See id.
366. See id.
367. 489 U.S. 101 (1989).
368. Lynd, 94 F.3d at 981 (quoting Bruch, 489 U.S. at 115).
369. [d.
370. [d. (quoting Duhon v. Texaco, Inc., 15 F.3d 1302, 1305 (5th Cir. 1994».
371. [d. (quoting Chevron Chern. Co. v. Oil, Chern. & Atomic Workers Local Union 4-447, 47 F.3d
139, 142 (5th Cir. 1995».
372. [d. at 981 n.2.
373. See id. a1982.
374. See id.
375. See id.
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malfunction in the part of the brain that controls mood regulation.' "376 He
described depression as a " 'disorder ofthe central nervous system ... [with]
a physiologic basis' "377
The Fifth Circuit noted that this was the first time the court had been
called upon to interpret the phrase "mental or nervous disorders.'rJ78 The court
quoted, with approval, the Eighth Circuit's decision in Brewer v. Lincoln
National Life Insurance CO.,379 which stated:
It would be improper and unfair to allow experts to define [ERISA plan]
terms that were specifically written for and targeted toward laypersons. This
requirement provides a source from which we may fashion a federal common
law rule; the terms should be accorded their ordinary, and not specialized,
meanings.
The cause of a disease is a judgment for experts, while laymen know
and understand symptoms. Laymen undoubtedly are aware that some mental
illnesses are organically caused while others are not; however, they do not
classify illnesses based on their origins. Instead, laypersons are inclined to
focus on the symptoms of an illness; illnesses whose primary symptoms are
depression, mood swings and unusual behavior are commonly characterized
as mental illnesses regardless of their cause. 380
The Eighth Circuit concluded that the federal common law of ERISA requires
courts to interpret the phrase "mental illness" as a layperson would understand
it, not as the medical community would define it. 381
The Lynd court also considered Patterson v. Hughes Aircraft CO.,382 in
which the Ninth Circuit held that the term "mental disorder" was
ambiguous. 383 The Ninth Circuit stated that ambiguous plan terms should be
interpreted in favor of the participant. 384 If the participant's disability was
caused by depression, the disability would be the result of a "mental
disorder."385 If, however, the disability was caused by or contributed by a
physical symptom of his depression, such as headaches, then the disability is
not a mental disorder. 386 Where the phrase "mental disorder" is ambiguous,
the term must be interpreted in favor of the participant. 387 The Ninth Circuit
376.
377.
378.
379.
380.
381.
382.
383.
384.
385.
386.
387.
[d. (quoting deposition testimony of Lynd's treating psychiatrist, Dr. Dumont).
[d. (quoting deposition of Dr. Dumont).
See id. at 983.
921 F.2d 150 (8th Cir. 1990).
Lynd, 94 F.3d at 983 (quoting Brewer, 921 F.2d at 154).
See id.
II F.3d 948 (9th Cir. 1993).
See Lynd, 94 F.3d at 983 (citing Patterson, II F.3d at 950).
See id. (citing Patterson, II F.3d at 950).
See id. at 983-84 (citing Patterson, II F.3d at 951).
See id. at 984 (citing Patterson, II F.3d at 951).
See id. (citing Patterson, II F.3d at 951).
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EMPLOYEE BENEFITS
615
held that if the disability is solely caused by physical manifestations of a
mental disorder, or if the disability is caused by a combination of physical and
mental symptoms, then the plan must be resolved in favor of the participant
and characterized as a physical, not mental, disorder. 388
.
The Fifth Circuit disagreed with the approach the Ninth Circuit took in
Patterson. 389 The court noted that the American Psychiatric Association states
that " 'there is much 'physical' in 'mental' disorders.' "390 The court
.concluded that depression is a mental disorder even though it has physical
symptoms. 391 A contrary conclusion would "render the term 'mental disorder'
obsolete [and would] effectively collapse the term 'mental disorder' to include
only those illnesses, if any exist, which have no 'physical' manifestations."392
Because Lynd had a major depressive disorder, it was a "mental or nervous
disorder" as defined by the plan, even though the depression had physical
origins and symptoms. 393
Judge Dennis said in his dissent he would have reviewed the plan
administrator's decision de novo since the plan did not give the administrator
any discretionary authority.394 Under the federal common law of ERISA,
Judge Dennis applied the rule of contra proferentem requiring courts to
construe ambiguous terms strictly in favor of the participant 39S The dissent
concluded that the phrase " 'total disability due to ~ental or nervous
disorders' . . . is ambiguous because it is susceptible to a number of
reasonable interpretations."396 Many courts have applied policy limits on
mental disorders only to disabilities "caused purely by a behavioral
disturbance with no demonstrable organic or physical basis"397 such as
congenital encephalopathy,398 autism,399 and other organic brain defects. 4OO
Other courts, however, have held that mental illness policy limits "apply
to any abnormal condition that manifests itself in symptoms that an untutored
layperson without benefit of medical advice or diagnosis would call mental
388. See id. (citing Patterson, II F.3d at 951).
389. See id.
390. ld. at 983 (quoting AMERICAN PSYCHIATRIC ASSOCIATION, DIAGNOSTIC & STATISTICAL
MANUAL OF MENTAL DISORDERS xxi (4th ed. 1994».
39 J. See id. at 984.
392. ld.
393. See id.
394. See id. at 985 (Dennis, J., dissenting).
395. See id. at 985-86 (Dennis, J., dissenting); Todd v. AlG Life Ins. Co., 47 F.3d 1448, 1451-52
(5th Cir. 1995).
396. Lynd, 94 F.3d at 986-87 (Dennis, J., dissenting).
397. ld. at 987 (Dennis, J., dissenting).
398. See Phillips v. Lincoln Nat'l Life Ins. Co., 978 F.2d 302, 314 (7th Cir. 1992).
399. See Kunin v. Benefit Trust Life Ins. Co., 910 F.2d 534, 537 (9th Cir. 1990). Actually, autism
has an organic basis. See id. at 538.
400. See Malerbi v. Central Reserve Life ofN. America Ins. Co., 407 N.W.2d 157, 161-62 (Neb.
1987); Arkansas Blue Cross & Blue Shield, Inc. v. Doe, 733 S.W.2d 429, 431-32 (Ark. Ct. App. 1987).
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disorder or illness." 401 Brewer, cited by the majority, is such a case.402 The
dissent criticized Brewer as being "one of the few ERISA cases in which a
court has rejected the contra proferentem rule."403 Moreover, according to the
dissent, Brewer only considered how "an ill read layperson having no expert
medical advice about the particular patient in question" would interpret the
plan. 404 Judge Dennis provided an example of the absurdity of applying
Brewer:
[W]ithout further refmement, the Brewer definition of mental illness would
apply to, inter alia, an accident victim who exhibits abnormal behavior as the
result of a traumatic head injury, a person suffering from brain cancer who
develops unusual behavior, an elderly person who has contracted
Alzheimer's Disease, and a delirious person suffering from a high fever
caused by a staph infection. 40s
Yet another plausible interpretation of mental disorder would focus on
the nature of treatment involved. 406 Because the term "mental disorder" can
reasonably be interpreted in several ways, Judge Dennis concluded that the
doctrine of contra proferentem dictates that the term be strictly construed
against the insurer and in favor of the participant.407 Judge Dennis'
interpretation of mental disorder is "a behavioral disturbance with no
demonstrable organic or physical basis. n408 Because there existed a genuine
issue of material fact as to whether Lynd's depression fell within this
definition, Judge Dennis determined that summary judgment was
inappropriate.409
Judge Dennis noted that before brain research became a highly developed
specialization, most well informed laypersons could agree on what disorders
were mental or physical.410 As brain research developed, disorders commonly
thought of as mental, such as schizophrenia, bipolar affective disorder, and
401. Lynd, 94 F.3d at 987 (Dennis, J., dissenting) (citing Brewer v. Lincoln Nat. Life Ins. Co., 921
F.2d 150, 154 (8th Cir. 1990».
402. See id. at 983.
403. Id. at 987 (Dennis, J., dissenting). More recently, in Delk v. Durham Life Ins. Co., 959 F.2d
104, 105-06 (8th Cir. 1992), the Eighth Circuit applied contra proferentem when an ambiguity could not
be resolved by interpreting the plan language as an average plan participant would interpret it.
404. Lynd,94 F.3d at 987 (Dennis, J., dissenting).
405. Id. (Dennis, J., dissenting).
406. See id. (Dennis, J., dissenting); see also Simons v. Blue Cross & Blue Shield of Greater New
York, 536 N.Y.S.2d 431, 434 (N.Y. Sup. Ct. 1989) (treating patient for malnutrition and hypotension was
not treatment for mental disorder, despite the fact that those symptoms resulted from psychiatric condition
of anorexia nervosa).
407. See Lynd, 94 F.3d at 988 (Dennis, J., dissenting).
408. Id. (Dennis, J., dissenting).
409. See id. at 989 (Dennis, J., dissenting).
410. See id. at 988 (Dennis, J., dissenting).
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EMPLOYEE BENEFITS
617
depressive illnesses, came to be regarded by experts as organic in nature. 411
While it might be assumed that reasonably intelligent laypersons would keep
up-to-date on the latest developments in brain research, it is unreasonable to
interpret plan language based on how the average layperson would define
"mental disorder."412
This case raises serious implications for several reasons. First, most
circuits have adopted the rule of ~ontra proferentem.413 This rule protects plan
participants and beneficiaries by requiring insurance companies to either state
the plan provisions unambiguously or allow a court to construe the terms
against the insurer. 414 The rule of contra proferentem is sound. The
participant has no control over the drafting of the contract, therefore, terms
should be construed against the drafter of the contract, the insurer who wrote
the plan.41S
Second, the court's reliance on how an average layperson would read the
document is absurd. Certainly, a group of highly-educated scientists would
interpret the provisions differently than a group of retail clerks and cashiers
holding high school diplomas. Since the same plan may be offered to the
scientists and the retail clerks, it is unreasonable to tailor the interpretation to
an average plan participant's definition of the term "mental illness." If the
average layperson does not know about the latest medical discoveries with
respect to mental disabilities, it is unfair to bind the plan to the average
layperson's definition. Moreover, a person with a mental disability is more
likely to know about the particular nature and origin of his disorder, such as
autism, whereas the average layperson may not have reason to know the origin
of autism.
C. Interpretation ofSubrogation Clause
In Sunbeam-Oster Company, Inc. Group Benefits Plan v. Whitehurst, the
Fifth Circuit held that a subrogation agreement written in plain language was
not ambiguous. 416 Whitehurst, an employee of Sunbeam-Oster Company was
41 I.
412.
413.
See id. (Dennis, J., dissenting).
See id. (Dennis, J., dissenting).
See id. at 986 (Dennis, 1., dissenting); see, e.g., Pizzuti v. Polaroid Corp., 985 F.2d 13, 14 (1st
Cir. 1993); Masella v. Blue Cross & Blue Shield ofConn., Inc., 936 F.2d 98,107 (2d Cir. 1991); Heasley
v. Belden & Blake Corp., 2 F.3d 1249, 1257-58 (3d Cir. 1993); Glocker v. W.R. Grace & Co., 974 F.2d
540,544 (4th Cir. 1992); Todd v. AlG Life Ins. Co., 47 F.3d 1448, 1451-52 (5th Cir. 1995); McNeilly v.
Bankers United Life Assurance Co., 999 F.2d 1199, 1201 (7th Cir. 1993); Delk & Durham Life,lns. Co.,
959 F.2d 104, 105-06 (8th Cir. 1992); Kunin v. Benefit Trust Life Ins. Co., 910 F.2d 534, 539-40 (9th Cir.
1990); Blairv. Metropolitan Life Ins. Co., 974 F.2d 1219, 1222 (lOth Cir. 1992); Lee v. Blue CrossIBlue
Shield of Ala., 10 F.3d 1547, 1551 (11th Cir. 1994).
414. See Lynd, 94 F.3d at 985-86 (Dennis, J., dissenting)..
415. See id. (Dennis, 1., dissenting).
416. 102 F.3d 1368, 1369 (5th Cir. Dec. 1996).
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injured in a car accident and incurred $137,000 in medical bills.417 At the time
of the accident, Sunbeam-aster's medical plan, a self-funded ERISA plan,
covered Whitehurst, and the plan was obligated to pay his medical bills. 418
Whitehurst sued the driver of the tractor-trailer' who caused the
accident. 4I9 Whitehurst's attorney advised the plan that settlement was likely,
but the plan did not intervene or participate in settlement discussions. 42o
Whitehurst settled for $500,000, plus $9,000 for property damage, although
it is unclear what damages the $500,000 was intended to cover. 421 The
settlement agreement released the defendants from liability for 'all medical
expenses, hospital expenses and liens incurred by and in connection with any
medical treatments rendered to [Whitehurst].' "422
The Sunbeam-Oster medical plan was a self-funded plan having a
summary plan description, but not a formal plan.423 The summary plan
description (SPD), as required by law, was written in language designed to be
easily understandable by the average participant.424 The original SPD
excluded medical" 'charges for which payment or reimbursement is received
by or for the individual as a result of a legal action or settlement.' 11425 The
subrogation clause explained that the plan could recover duplicate benefit
amounts:
II
For example, if you are injured by another individual and incur $1000 in
covered expenses-and you sue that individual and recover $IOOo-the
Sunbeam-Oster Plan does not pay benefits for those expenses. Ifthe plan has
already paid benefits, it has the right to recover payment from yoU. 426
Shortly before Whitehurst's accident, the plan distributed to plan
participants a summary of material modification (SMM).427 The SMM
expanded the subrogation plan, but in a manner that was irrelevant to
Whitehurst. 428
After the accident, Blue Cross sent Whitehurst a standard form inquiring
whether medical benefits could be recovered from a tortfeasor. 429 Whitehurst
417.
418.
419.
420.
421.
422.
423.
424.
425.
426.
427.
428.
429.
Seeid.at1370.
See id.
See id.
See id.
See id.
ld. (quoting the settlement agreement).
See id.
See id.
ld. at 1371 (quoting the ·General Exclusions· of Sunbeam-Oster's SPD).
ld. (quoting ·Subrogation" subsection of Sunbeam-Oster's SPD).
See id. The SMM was not filed with the Department of Labor. See id.
See id.
See id.
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EMPLOYEE BENEFITS
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partially completed the fonn and returned it,430 He did not sign the
reimbursement/subrogation portion of the fonn under which he would agree
that, should he recover money from the tortfeasor, he would reimburse Blue
Cross" 'the total amount of benefits provided by it up to the amount of [his]
recovery.' "43 t
Blue Cross sent Whitehurst another fonn and advised him that if he did
not sign the fonn, Blue Cross would assume that his medical bills would be
paid by a third party.432 Whitehurst signed the fonn, including the
reimbursement subrogation section, and returned it to Blue Cross which began
to pay his medical bills.433
After Whitehurst settled his case, he refused to reimburse Blue Cross,
and Blue Cross sued him for reimbursement. 434 The district court ruled in
favor of Whitehurst, holding that the plan did not address the plan's right to
reimbursement or subrogation where the participant settles for less than full .
damages. 43S The court adopted a "Make Whole" rule under which a plan
cannot recoup any funds until the participant has completely recovered all
compensatory damages. 436 The district court held that Whitehurst had
suffered damages of two million dollars. 437 Since Whitehurst had not been
made whole by settlement, the plan was not entitled to any reimbursement. 438
The plan appealed. 439
The Fifth Circuit noted that this was .a case of first impression and
reviewed de novo the application of the Make Whole rule. 440 The court first
examined the district court's conclusion that the SPD was silent on the issue
of the priority ofreimbursement.441 The Fifth Circuit held that the SPD was
neither silent nor ambiguous. 442 The court cautioned that the SPD must be
read as a document designed to be read by the average plan participant. 443 As
a result, the document was not "drafted with ... particularity and [did not have
the typical] plethora oflegalistic boilerplate."444 The court refused to subject
this type of document to a strict standard of interpretation. 44s The court also
refused:
430.
431.
432.
433.
434.
435.
436.
437.
438.
439.
440.
441.
442.
443.
444.
445.
See id.
ld. (quoting reimbursement/subrogation section of Blue Cross & Blue Shield inquiry form).
See id.
See id. at 1371-72.
See id. at 1372.
See id.
See id.
See id.
See id.
See id.
See id. at 1373.
See id.
See id. at 1374.
See id.
ld.
See id. at 1375.
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[To] penalize the Plan ... for lack of technical precision or verbosity by
labeling the Plan "silent" or "ambiguous" when it uses the kind of direct,
jargon-free language that is mandated by ERISA for all summary plan
descriptions and does not expressly address every conceivable factual
variation of recovery .... [T]he fact that the SPD ... does not express a
reimbursement priority for each possible combination or permutation ... is
not a valid reason for branding the SPD as silent ....446
The plan clearly stated that it could receive reimbursement for duplicate
benefit payments.447 The plan did not specify different rules for different
recovery amounts. 448 The court held that this could only mean that "the rule
is the same for total and partial recoveries. "449 The court concluded that the
SPD clearly and unequivocally granted the plan the "right to reimbursement
for the full amount of the medical benefits it paid on a participant's behalf,
from any and all funds that a participant might recover from ... a third party
tortfeasor or his insurer."4so
Because the plan was clear and unambiguous, the court did not reach the
issue of the parties' intent or the appropriate default rule. 4s1 However, the
court noted that it had "serious misgivings" about the district court's adoption
of the Make Whole rule. 4S2 The court speculated that intrinsic evidence
existed to support the adoption of the Plan Priority Rule. 4S3 The court
disagreed with the district court's adoption of the Make Whole rule as a
default rule when "( 1) the participant or beneficiary's recovery from other
sources is partial only, (2) the plan is silent or ambiguous, (3) the plan
administrator is not vested with discretionary authority to interpret the plan,
and (4) the intent ofthe parties cannot otherwise be determined."4S4 The court
expressed "serious doubts" as to whether it would adopt the Make Whole rule
as a default rule in subrogation cases.4S5
This conclusion seems reasonable on its face. A plan cannot provide for
every contingency. Here, the example provided by the plan illustrated that if
a participant recovered the full amount of medical benefits paid by the plan,
446.
[d.
447. See id.
448.. See id. at 1375-76.
449. [d. at 1376. The court observed that "judges and lawyers, who by education and experience
are primed to discover ambiguity in contract language, might find gaps or contradictions in a summary
plan description's ordinary conversational language does not mean that the language is necessarily
ambiguous or silent as to the point of default for ERISA purposes." [d.
450. [d.
451. See id. at 1376-77.
452. See id. at 1377.
453. See id. The court noted: "[W]e harbor some lingering concerns that if we were to stop at this
point without adverting to the parties' intent or the default rule our readership might wrongly interpret
[our] opinion ...." [d.
454. [d. at 1377-78.
455. See id. at 1378.
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the plan was entitled to full reimbursement. However, where several remedies
are available and the plan fails to state which remedy applies, courts should
apply the remedy most favorable to the plan participant-in this case the Make
Whole remedy.
Here, where the plan was given the right to intervene, but failed to do so,
the plan cannot complain if the right of recovery is slanted in favor of the
participant. In all fairness to the participant, the participant cannot make an
informed decision as to whether to accept a settlement offer if the participant
does not know how much he or she is required to reimburse the plan.
The court's opinion is also disturbing because it implies that documents
written in plain language cannot and need not be completely accurate and that
accuracy and full disclosure is not required for summary plan descriptions.
Of course, we know that is not the case. Only six years ago, the Fifth .Circuit,
when discussing summary plan descriptions, stated that "[a]ccuracy is not a
lot to ask."4s6 That principle remains vital today. Accuracy is not a lot to
ask-it is required of all plan documents. The burden should be placed on the
drafter ofthe document to create a document that is clear, unambiguous, easyto-understand, complete, and accurate.
If participants are not guaranteed complete and accurate disclosure, then
plaintiffs' attorneys will be forced to continue to find novel ways to require
full and fair disclosure. The current trend is for participants to file suits for
breach of fiduciary duty for failure to disclose information which the plan
administrator knew was necessary in order for the participant to make an
informed decision. If Whitehurst could not rely on the plan to provide
complete and accurate disclosure, he might have sued for failure to disclose
material information. It would be wiser to read the requirement into the
obligation to provide an accurate summary description.
D. Interpretation ofMental Illness
The second case on mental illnesses decided this term was Bellaire
General Hospital v. Blue Cross Blue Shield of Michigan. 4S7 There, two
women were admitted to Bellaire Hospital in Bellaire, Texas, for depression
and suicidal thoughts. 4S8 Arlene White was hospitalized from March II to
April 9, 1993, and Rebecca Catlin was hospitalized from May 8 to June 10,
1993.4S9 In both cases, Bellaire Hospital's request for payment for services
rendered was denied in part.460 Blue Cross approved seven days of
hospitalization for White and three days for Catlin, but refused to pay for the
456.
457.
458.
459.
460.
Hansen v. Continental Ins. Co., 940 F.2d 971, 972 (5th Cir. 1991).
97 F.3d 822 (5th Cir. Oct. 1996).
See id. at 824.
See id.
See id. at 824-25.
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remainder of their hospitalization. 461 Bellaire Hospital sued Blue Cross for
breach of contract and violation of ERISA. 462 The district court ruled that
Blue Cross had unfairly denied payment and ruled in favor of the Hospital. 463
Blue Cross appealed, contending that the district court improperly
reviewed Blue Cross's decision de novo instead of under the abuse of
discretion standard.464 The Fifth Circuit reviewed the lower court's factual
determinations for abuse of discretion. 465
White's insurance covered" '[u]p to 30 days' " of hospitalization for
treatment of" 'nervous and mental conditions.'"466 Catlin's insurance
provided the same coverage but for forty-five days, instead of thirty days.467
Under both policies, a service had to be "medically necessary" for coverage.468
The plan stated that" '[m]edically necessary services which can be provided
safely in an outpatient or office location are not payable when provided on an
inpatient basis.' 11469 Blue Cross denied White's and Catlin's claims beyond
seven days and three days respectively as being medically unnecessary.470
Blue Cross relied on its manual, Criteriafor Review ofAdult Inpatient
Psychiatric Services, to deny the claim.471 The manual contained a list of
Severity of Illness (SI) criteria and the Intensity of Service Psychiatric (IS)
criteria. 472 The manual provided that" '[i]f, at the time of admission, and
throughout the hospital stay, the medical record contains documentation that
at least one SI criterion and at least one IS criterion are met, then the case
should be approved.' 11473 The list of SI criteria included suicide attempt,
suicidal ideation, and self-mutilative behavior, which both women
demonstrated. 474 The IS criteria consisted of 'comprehensive multimodal
therapy requiring close medical supervision' " including several or all of the
following: "'Milieu therapy; Individual psychotherapy; Group therapy;
Family therapy; Behavior modification; Psychopharmacotherapy; Occupational therapy; Recreational therapy; Medical supervision; and Limited use of
therapeutic passes.' "475
II
461. See id.
462. See id. at 825.
463. See id.
464. See id.
465. See id. at 828; see also Pierre v. Connecticut Gen. Life Ins. Co./Life Ins. Co. ofN. Am., 932
F.2d 1552, 1562 (5th Cir. 1991) (holding that abuse ofdiscretion standard of review is the proper standard
for factual determination under ERISA plans).
466. Bellaire, 97 F.3d at 829 (quoting White's Blue Cross insurance contract).
467. See id.
468. See id.
469. Id. (quoting Blue Cross contracts of White and Catlin).
470. See id.
471. See id.
472. See id. at 830-31.
473. Id. (quoting Blue Cross Criteriafor Review ofAdullInpalienl Psychialric Services).
474. See id. at 831-32 & 831 n.l4.
475. Id. at 831 n.l4 (quoting Blue Cross Criteria for Review of Adull Inpatienl Psychialric
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EMPLOYEE BENEFITS
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White met two of the SI criteria and was undergoing three types of
therapy.476 Catlin met three ofthe SI criteria and was being treated with four
types of therapy.477 The Fifth Circuit concluded that the lower court's
findings of fact were not clearly erroneous, and that Blue Cross arbitrarily
. denied Bellaire Hospital's claims.478
III. DIVERSIFICATION
Metzler v. Graham is an enforcement action brought by the Secretary of
Labor against a plan fiduciary for failure to diversify plan assets. 479 The Fifth
Circuit had the unusual opportunity to apply the exception to the
diversification rule in this case. 480 The court noted ERISA Section
404(a)(1)(C) "requires a plan fiduciary to 'discharge his duties with respect
to a Plan solely in the interest of the participants and beneficiaries ... by
diversifying the investments of the Plan so as to minimize the risk of large
losses, unless, under the circumstances it is clearly prudent not to do so.' "481
The legislative history ofthis section states that there is no magic number that
triggers a failure to diversify case. 482 Instead, seven factors must be
considered:
(1)
(2)
(3)
(4)
the purposes of the plan;
the amount of the plan assets;
financial and industrial conditions;
the type of investment, whether mortgages, bonds or shares of stock
or otherwise;
(5) distribution as to geographical location;
(6) distribution as to industries;
(7) the dates of maturity.483
A court must review the fiduciary's decision not to diversify from the
perspective of the fiduciary at the time of the investment decision. 484
Hindsight is not to be employed.48S
Services).
476.
477.
478.
479.
480.
481.
482.
5084-85).
483.
5084-85).
484.
485.
See id. at 832.
See id.
See id.
112 F.3d 207, 208 (5th Cir. May 1997).
See id. at 209-12.
[d. at 209 (quoting 29 U.S.C. § 1104(a)(I)(c) (1994».
See id. (citing H.R. CONF. REp. NO. 93-1280 (1974), reprinted in 1974 U.S.C.C.A.N. 5038,
[d. (quoting H.R. CONF. REp. No. 93-1280 (1974), reprinted in 1974 U.S.C.C.A.N.
See id.
See id.
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TEXAS TECH LA W REVIEW
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Jack Graham, the sole trustee of Graham Associates, Inc. Pension Fund,
invested 63% of the plan assets in a parcel ofland in 1985.486 Graham was
careful to prudently investigate the property before he purchased it. 487 He
considered the low rate of returns on plan assets which were invested solely
in "short-term monetary or cash equivalent investments."488 Graham was very
knowledgeable about real estate in the area. 489 He consulted with his attorney,
accountant, actuary, and other plan participants.490 He obtained an appraisal
which valued the property higher than the purchase price.491 Graham planned
to purchase the property at a deflated price, hold it for a short period, and
make a profit. 492
At one point, Graham consulted with the plan participants about whether
the plan should purchase the entire twenty-four acre lot, or half of it. 493 The
participants were knowledgeable about commercial real estate development
and encouraged Graham to purchase the entire 101. 494
The Secretary of Labor sued Graham, alleging a failure to diversify.49s
The district court ruled in favor of Graham and the Secretary appealed. 496
The Fifth Circuit held that Graham did not violate the diversification rule
because, "under the circumstances, it was clearly prudent not to diversify." 497
The court noted that there was no immediate need for the plan assets as the
average age of the plan participants was thirty-seven at the time of
purchase. 498 The plan assets remaining after the purchase were more than
sufficient to payout benefits over the next twenty years. 499
The court also noted that at the time of the purchase, the plan's assets
were all invested in short-term instruments, which were not an adequate hedge
against inflation. soo Real estate offered the plan the opportunity to guard
against inflation. sol Finally, the court also considered the difference between
the appraised value and purchase price. so2
486. See id.
487. See id.
488. Id.
489. See id.
490. See id.
491. See id.
492. See id. at 210.
493. See id. at 209 n.3.
494. See id. at 209 & n.3.
495. See id. at 209.
496. See id.
497. Id. at 210.
498. See id. Payments to the plan beneficiaries did not occur until they reached age sixty-five, were
disabled, or died. See id.
499. See id.
500. See id. at 211.
501. See id.
502. See id.
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The court relied on Etter v. J. Pease Construction CO. S03 There, the
Seventh Circuit held that the plan trustees did not violate the diversification
rule by investing 88% of plan assets in a single tract of land.s04 The court
observed that the trustees were" 'experienced in real estate and knew the local
market and development potential in the county.' "sos The Pease trustees were
confident enough that they invested their own money in the transaction.S06
The Seventh Circuit held that the transaction did not violate the diversification
rule under these circumstances because the trustees were experienced and had
carefully investigated the transaction, and it was clearly prudent not to
diversify. S07
Similarly in Reich v. King,S08 the Maryland district court held that
investment of 70% of plan assets in residential mortgages in one county fell
within the diversification rule exception.509 The Maryland court found it was
clearly prudent not to diversify because the administrator was knowledgeable
about real estate and had exercised procedural prudence.slo The Fourth Circuit
"affirmed the district court's finding that the Secretary [of Labor's] position
was not even 'substantially justified' under [ERISA]."5I1
In Metzler, the Secretary of Labor raised a valid point: "[The Etter and
King decisions] allow satisfaction of the prudence requirement to wipe out the
separate and independent requirement of diversification."sI2 The Fifth Circuit
rejected this argument. 513 The court equated diversification with a risk of
large losses.s l4 Because there was no risk oflarge loss, there was no violation
of the diversification rule. m
The Fifth Circuit also examined the transaction to determine whether the
trustees violated their duty of loyalty under ERISA §404(a)(l )(A) which
requires a fiduciary to " 'discharge his duties with respect to a plan solely in
the interest of the participants and beneficiaries and-{A) for the exclusive
purpose of: (i) providing benefits to participants and their beneficiaries; and
(ii) defraying reasonable expenses of administering the plan.' "S16
The Secretary of Labor argued that the trustee did not act solely in the
503. 963 F.2d 1005 (7th Cir. 1992).
504. See Metzler, 112 F.3d at 211 (citing Eller, 963 F.2d at lOll).
505. [d. (quoting Etter, 963 F.2d at 1008).
506. See id. (citing Etter, 963 F.2d at 1008).
507. See id. (citing Etter, 963 F.2d at lOll).
508. 867 F. Supp. 341 (D. Md. 1994), ajJ'd, Reich v. Walter W. King Plumbing & Heating
Contractor, Inc., 98 F.3d 147 (4th Cir. 1996).
509. See Metzler, 112 F.3d at 211 (citing King, 867 F. Supp. at 344-45).
510. See id. (citing King, 867 F. Supp. at 344-45).
511. [d. at 211 n.8 (quoting Reich v. WalterW. King Plumbing & Heating Contractor, Inc., 98 F.3d
147,152 (4th Cir. 1996».
512. [d. at 212.
513. See id.
514. See id.
SIS. See id.
516. [d. (quoting 29 U.S.C. § 1104(a)(I)(A) (1994».
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interest of plan participants and beneficiaries when he purchased the land on
behalf of the plan because he owned interests in nearby tracts of land. SI7 The
plan's purchase of the land allegedly enhanced the value of the trustee's other
real estate holdings. SIB Also, the Secretary alleged that as a result of the
purchase of the property, a conflict of interest arose between the plan and the
trustee because they were both competing for the same buyers. S19 The Fifth
Circuit noted the district court's rejection ofthis contention:
[M]erely because Graham was a partner in other real estate investments in
the area it was not a breach of his fiduciary duty to acquire the land on behalf
of the Plan, nor was it, under the specific facts of this case, a breach of his
fiduciary duty to try to market the Plan's Property in a package along with
the property he had an interest in, since doing so provided a larger market of
potential purchasers. 52o
The Secretary argued that given this potential conflict of interest, the
trustee should have appointed an independent fiduciary to administer the
plan. S21 The Secretary claimed that under Donovan v. Bierwirth,Sll the trustee
should have taken" 'every feasible precaution to see that [he] had carefully
considered the other side, to free [himself], if indeed this was humanly
possible, from any taint.' "523
The Fifth Circuit ruled that the trustee was not required to take any
further steps to remove himself from this potential conflict of interest. S24 The.
action he had taken was enough to ensure fair dealing:
Graham's other interests in adjacent property were known to the plan
participants, and a majority in interest of the participants concurred in the
decision to purchase the Property. Graham investigated the soundness of
purchasing the property as a plan investment by obtaining an independent
appraisal of the property, consulting the plan's actuary, accountant and
lawyer, and conducting enough analysis to convince himself that the
investment was in the plan's best interests. S2S
The court distinguished Bierwirth because that case involved the use of plan
assets to control the outcome of contests for corporate control where the
517.
518.
519.
520.
521.
See id.
See id.
See id.
ld. at 212-13 (quoting unpublished district court opinion).
See id. at 213.
522.
680 F.2d 263 (2d Cir. 1982).
523.
524.
525.
Metzler, 112 F.3d at 213 (quoting Bierwirth, 680 F.2d at 276).
See id.
ld.
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EMPLOYEE BENEFITS
627
trustees' jobs were jeopardized. ~26 In Bierwirth, a heightened standard of care
was required because a contest for corporate control is " 'an unusual situation
peculiarly requiring legal advice from someone above the battle.' "~27 The
Fifth Circuit said that Graham's situation "[was] a far cry from that type of
conflict."~28 The court commented that "[t]he level of precaution necessary to
relieve a fiduciary of the taint of a potential conflict should depend on the
circumstances of the case and the magnitude ofthe potential conflict.,j~29 .
The court further noted that Graham's investment decisions were more
b~neficial to the plan's holdings than his own holdings.~3o Bierwirth makes
clear that trustees do not violate their fiduciary duty simply because an
investment "incidentally benefits" the trustees.~31 The Fifth Circuit concluded
that "[t]here was no evidence Graham ever placed his interests over the plan's
interest or ever failed to keep 'an eye single to the interests ofthe participants
and beneficiaries.' lIm The court, therefore, affirmed the district court's
opinion that Graham did not violate his fiduciary duties. S33
IV. LEASED EMPLOYEES AND STANDING TO SUE
In Abraham v. Exxon Corporation, the court addressed the question of
whether a leased employee has standing to sue under ERISA.~34 Abraham and
other leased employees of Exxon sued Exxon seeking a determination that
leased employees were entitled to benefits under the plan. m The plaintiffs
also requested statutory penalties for the administrator's failure to provide
them with requested information.~36
Under ERISA § 502 (a)(l), a suit may be brought by a " 'participant or
beneficiary' "for a determination ofbenefits. m Abraham contended that, as
a leased employee, he was a plan participant, and had standing to sue. S38 The
court noted that "[w]hether an employee has standing as a 'participant'
depends, not on whether he is actually entitled to benefits, but on whether he
has a colorable claim that he will prevail in a suit for benefits. "~39 Even if the
court ultimately found that Abraham was not entitled to benefits, he still may
526.
527.
528.
529.
530.
531.
532.
533.
534.
535.
536.
537.
538.
539.
See id. (citing Bierwirth, 680 F.2d at 271).
Id. (quoting Bierwirth, 680 F.2d at 271-72).
Id.
Id.
See id.
See id.
Id. (quoting Bierwirth, 680 F.2d at 271).
See id. at 214.
85 F.3d 1126, 1129 (5th Cir. June 1996).
See id. at 1128-29.
See id.
Id. at 1129 (quoting 29 U.S.C. § 1132 (a)(I) (1994».
See id.
Id.; see Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 117-18 (1989).
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have had standing to sue, as standing" 'depends on an arguable claim, not on
success.' n540
The Fifth Circuit held that Abraham had standing because "he had a
colorable claim that he would prevail in this suit. n541 Abraham relied on
Renda v. Adam Meldrum & Anderson CO.,542 a district court case in the
Western District of New York, the only court having addressed the issue
raised by Abraham. S43 Even though the Fifth Circuit ultimately rejected
Renda, Abraham's reliance, in good faith, on a decision that was neither
"bizarre [n]or unreasoned," was sufficient to give him a colorable claim that
he would prevail in the lawsuit.S«
Abraham contended that the exclusion of leased employees from the
Exxon plan created a structural defect in the plan, claiming: u' A pension plan
is structurally deficient when it arbitrarily and unreasonably excludes a large
number of participants from receiving benefits, thus failing to satisfy the 'sole
and exclusive benefit' of all employees.' "545
The Fifth Circuit rejected this approach, stating that even if the structural
defect analysis were applicable, under ERISA section 404, an employer did
not act as a fiduciary when designing an ERISA plan. 546 Since Abraham
alleged that Exxon violated ERISA by excluding leased employees when it
designed the plan, the structural defect analysis was inapplicable in the court's
view. 547
Next, Abraham contended that under Renda, the Exxon plan was
discriminatory and violated the minimum participation and coverage
requirements. 548 In Renda, the district court held that ERISA's minimum
participation rules prohibited the wholesale discrimination against leased
employees by excluding them from the plan. 549
540. Abraham, 85 F.3d at 1129 (quoting Kennedy v. Connecticut Gen. Life Ins. Co., 924 F.2d 698,
700 (7th Cir. 1991».
541. [d.
542. 806 F. Supp. 1071 (W.O.N.Y. 1992).
543. See Abraham, 85 F.3d at 1129. In Renda, the district court held that an employee under a lease
agreement had standing to sue since she fit within the "common-law definition of an employee." Renda,
806 F. Supp. at 1079.
544. Abraham, 85 F.3d at 1129.
·545. [d. at 1129-30 (quoting Phillips v. Alaska Hotel & Restaurant Employees Pension Fund, 944
F.2d 509, 515 (9th Cir. 1991».
546. See id. at 1130 (citing 29 U.S.C. § 1104(a)(I)(A)(i) (1994»; see also 1zzare1li v. Rexene Prods.
Co., 24 F.3d 1506, 1524 (5th Cir. 1994) (holding that employer's decision to "terminate, amend, or
renegotiate a plan" is not activity regulated by ERISA and not subject to fiduciary duty).
547. See Abraham, 85 F.3d at 1130.
548.
549.
See id.
See id.; see also 29 U.S.C. § 1052(a)(I)(A) (1994) (stating all employees must become
participants no later than "(i) the date on which the employee attains the age of21; or (ii) the date on which
he completes 1 year of service").
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629
The Fifth Circuit rejected the analysis applied in Renda. sso The minimum
participation rules simply require the plan to make an employee who is
otherwise not disqualified from participation, eligible for participation no later
than age twenty-one or completion of one year of service. sst
Abraham also argued that the district court failed to review the plan
administrator's decision for abuse of discretion. SS2 The court agreed that the
abuse of discretion standard was appropriate because the plan administrator
had discretionary authority.SS3 The court applied a three-factor test to
determine whether the administrator's interpretation was legally correct:
(I) whether the administrator has given the plan a uniform construction,
(2) whether the interpretation is consistent with a fair reading ofthe plan,
and
(3) any unanticipated costs resulting from different interpretations of the
plan. sS4
The court summarily held that the first two factors were met. sss With
respect to the third factor, the court held that clearly the plan would face major
unanticipated costs if it were required to provide benefits for its sixteen
thousand leased employees. ss6 Since all three factors were met, the plan
administrator's interpretation was legally correct. SS7
In a surprising move, however, the court held that Abraham had standing
to seek $100 per day penalties for the administrator's failure to provide
information. ss8 The court held that Abraham was a participant because he had
a colorable claim that he would prevail in the lawsuit. ss9 As a participant,
Abraham had standing to seek the statutory pena1ties. s60 Therefore, the court
vacated the summary judgment with respect to the statutory penalties and
remanded the issue to the district court. S61
550. See Abraham, 85 F.3d at 1130-31.
551. See id.
552. See id. at 1131.
553. See id.
554. [d. (citing Wildbur v. Area Chern. Co., 974 F.2d 631, 638 (5th Cir. 1992), clarified, 979 F.2d
1013 (5th Cir. 1992) (per curiam».
555. See id.
556. See id.
557. See id.
558. See id. at 1132.
559. See id.
560. See id.
561. See id.
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The court observed that this was a harsh result because the court held that
Abraham was properly excluded from the plan, and yet the administrator
might still be liable for failing to provide him with the requested
inforniation. 562
V. CONCLUSION
This was a watershed year for employee benefits, especially with respect
to preemption. It is too early to tell how the Fifth Circuit will apply the
Supreme Court's new preemption standard. Hopefully, the standard will
provide greater guidance to pension and medical plans. The court's new
direction with respect to contract interpretation is disturbing and should be
curtailed in the next term so that participants' rights are not further eroded.
562.
See id.
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