As we previously wrote about, the Plaintiffs in Tibble v. Edison Int’l filed a Petition for Rehearing to both the three judge panel and all active 9th Circuit judges at large. Today, August 1, the three judge panel amended their opinion and explicitly rejected any further attempts by the Plaintiffs to seek redress in the 9th Circuit. Although, as explained below, the judges tweaked their opinion regarding the application of Firestone deference, the opinion remains effectively unchanged.
In their Petition, Plaintiffs raised two primary questions to be reheard:
[list_item]Does the statute of limitations in ERISA, 29 U.S.C. § 1113(1), bar a plan participant from bringing suit against a fiduciary who persists in maintaining imprudent funds on the menu of a 401(k) plan if such funds were initially included more than six years beforehand and had always been unlawful in the same way they are currently unlawful (the “Limitations Question”)?[/list_item]
[list_item]Are ERISA fiduciaries entitled to have their interpretation of plan documents reviewed under the deferential standard established in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), in a lawsuit seeking relief under 29 U.S.C. § 1132(a)(2) where the fiduciary is alleged to have, in violation of 29 U.S.C. § 1104, ignored the valid interests of beneficiaries in favor of non- beneficiaries (the “Deference Question”)?[/list_item]
As to the first question, the judges did not even address it in their amended opinion and state that no active judge of the 9th Circuit voted to have the issue reheard. Thus, the plan sponsor friendly interpretation of the 6 year statute of limitations remains the law.
As to the second, the judges deleted two plus pages of their previous opinion and replaced it with new language. The judges have backed down from their very broad decision that Firestone deference to a plan administrator applies equally when violations of fiduciary duties under ERISA sections 404 and 502(a)(2) have been alleged, as when a benefits claim is filed under section 502(a)(1)(B). Instead, they now attempt to harmonize their finding that Edison is entitled to deference with cases such as the John Blair decision from the 2nd Circuit, by arguing that John Blair rejected Firestone deference only when a plan administrator is attempting to replace the prudent man standard under ERISA section 404(a)(1)(B) with the plan interpretation provision under 404(a)(1)(D). The judges here find no such scenario finding that the Plaintiffs “have not pursued this challenge as a violation of the prudent person standard; instead, their contention rises or falls exclusively on what Plan section 19.02 allows. As to issues of plan interpretation that do not implicate ERISA’s statutory duties, they are subject to Firestone.” Slip op. at 9.
My immediate reaction is three-fold:
[list_item]First, the judge’s amended opinion still appears to conflict with the John Blair decision which held that Firestone deference should not apply when a plan administrator has “sacrificed valid interests [of beneficiaries] to advance the interests of non-beneficiaries.” 26 F.3d 360, 369-70. It’s pretty clear that the Plaintiffs here have alleged that Edison advanced its own interest by interpreting the plan provision that stated that Edison must pay all administrative costs, as one that states that the Edison can use revenue sharing to offset Edison’s bills rather than reimburse the money back to plan participants.[/list_item]
[list_item]Second, it’s also somewhat unbelievable for the 9th Circuit to state that Plaintiffs failed to argue that Edison’s actions were an independent violation of ERISA’s statutory duties, when in a footnote in their opinion cited to that very sentence, they acknowledge a claim under ERISA section 406(b)(3) for the improper receipt of consideration, but the judges are rejecting that claim. So does this mean deference only applies where the court finds no separate breach of another provision? (Compare John Blair: prudent man violation = no deference with Edison: no 406(b)(3) violation = deference applies) Doesn’t this mean then that the arbitrary and capricious standard that the 9th Circuit wants to benefit the plan administrator with is really just masquerading as the fiduciary duty test of other ERISA provisions such as 404(a)(1)(B) or 406?[/list_item]
[list_item]Third, the panel also appears to have failed to read 404(a)(1)(D) when they stated “[w]hile subsection (a)(1)(B) codifies the statutory prudent-person standard, subsection (a)(1)(D) simply requires that actions be in line with the plan documents.” Slip op. at 8. In fact, the language at (a)(1)(D) must be read with the intro language at (a)(1): “a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and…in accordance with the documents and instruments governing the plan…” It’s simply hard for me to reconcile their reading of (a)(1)(D) with the actual language of the statute. This provision is supposed to have teeth and the three judge panel just neutered it. Especially in a situation where a fiduciary is being given deference to interpret a plan document to benefit a non-beneficiary that is itself.[/list_item]
With the three judge panel explicitly stating that “[n]o further petitions for panel rehearing or for rehearing en banc will be entertained,” it remains to be seen whether the Plaintiffs take this all the way to the Supreme Court. If they do, we will report on it first.