Wednesday, April 23, 2008
The Supreme Court heard oral argument this morning in the ERISA enforcement case of Metlife v. Glenn. The case concerns the issue highlighted here before about structural conflicts of interest (dual-role insurers) in ERISA denial of benefits case under Section 502(a)(1)(B).
Here are some thoughts and highlights based on my reading of the Glenn oral argument transcript:
1. Metlife counsel, Ms. Posner, challenges that there is a "conflict in actuality" in these dual insurer situations. Justice Scalia helpfully clarifies her point:
MS POSNER: [T]hese terms to designate in actuality a conflicted fiduciary is one that has been infected or the decision was infected by the conflict.
JUSTICE SCALIA: No. That's, that's a conflicted fiduciary who allows the conflict to warp its judgment. But the conflict exists whether you, whether you give it effect or not.
They like the same opera, but Justice Ginsburg ain't buying it: "Let me follow up on Justice Scalia's question because I think your brief really goes astray on that . . . .I've always understood that the term 'conflicting interests' means just that; you have conflicting interests. It doesn't mean that you necessarily slide over into misconduct. And I think that if you would keep that separation in mind, is there a conflicting interest? Yes, there is."
2. Ms. Posner seems unable to give a satisfying answer to Chief Justice Roberts or anyone else on what seems to be the heart of the matter in Glenn:
How does the review differ as a functional matter? He says he looks at it and says, well, normally that would be within the discretion, but I've got to remember he's got a conflict, so I'm going to determine that this particular procedure should be covered because of the conflict.
Justice Scalia comes to Posner's rescue again, pleading with her seemingly to get
their her argument straight:
But you're saying it doesn't make any difference. You say you should take it into account, but if it was a reasoned decision, which is the test whether or not he's a fiduciary, if it's a reasoned decision the fact that he's a fiduciary makes no difference, right? Isn't that what you're saying?
Unbelievably, she says, "No, Your Honor . . . .it must be a factor that's weighed with the other factors."
Later, Justice Alito tries to help her: "JUSTICE ALITO: Could I just get this clear? I thought your position in your brief was that there has to be a demonstration that the conflict had an effect on the decision before there is any departure from the standard abuse of discretion - MS. POSNER: That's correct, Justice Alito. JUSTICE ALITO: -- the standard of review." One gets the sense in reading over this part of the transcript that Ms. Posner is having a difficult time articulating her client's view while at the same time satisfying the Firestone abuse of discretion standard and the friendly (read: conservative) Justices questions on the matter.
Justice Souter, for one, is exasperated with her inability to follow his hypothetical and give a simple answer as to the current impact of Firestone. Justice Ginsburg gangs up: "That's the question that Justice Souter posed, and you seem not to want to face up to it and answer it." Ouch.
3. Finally, a last ditch effort again by Chief Justice Roberts: "Now, which is right: Justice Souter's case in which the conflict tips the scales, no matter what the reason is; or Justice Alito's case where the conflict plays a role in the decision process? MS. POSNER: We believe that it's the Justice Alito hypothetical, where it does play a role." Hooray! Finally, the answer four Justices were looking for. In sum, Ms. Posner's less than stellar performance can be encompassed by this response: "MS. POSNER: No -- yes, Justice Alito, and I think you hit the nail on the head there." [Sigh].
4. Justice Stevens has another issue with MetLife's position: "[I]t's hard for me to understand how you're going to prove an insurance company's particular claim adjustment was really motivated by a conflict of interest rather than thinking the claim wasn't valid." Indeed, why should plaintiffs put to the proof in these cases when employers have the best access to such information. In such instances, shouldn't the burden be placed on them to justify their benefits decision?
5. Counsel for Glenn, Rosenkranz of Rumsfeld v. FAIR fame and the Solomon Amendment, tries to makes some heads and tails of all this ERISA mumbo-jumbo. Justice Ginsburg asked for a proposed standard and she gets a three-pronged one:
I would say three things to the district courts. Number one, this is not just some form of
arbitrary and capricious agency review with just a little bit more bite. This is reasonableness review under trust law, which is very, very different. Number two, the judicial eye is peeled, as this Court said in Rush, for conflict of interest. Kick the tires. Here are seven, eight, nine illustrations of the sorts of things that lower courts should be on the lookout for as they are trying to discern whether the conflict tainted the result. Number three, if -- if you are at the outer bounds of reasonableness for an unconflicted trustee, you can contract that zone of reasonableness because you don't -- when -- when an unconflicted trustee is right at the outer edge, there is no reason to suspect his motive.
The Assistant to the Solicitor, arguing on the same side as Glenn, puts it this way: "an administrator's discretionary decisions should be reviewed for reasonableness where the conflict of interest is considered as a factor," and "I think the problem with this inquiry is that reasonableness does not have mathematical standards. It's a determination that the court needs to make weighing all of the facts and circumstances."
6. Classic moment at the beginning of Rosenkranz' s argument:
MR. ROSENKRANZ: . . . .There's no reason for this Court to overrode its well-reasoned and
unanimous conclusion [in Firestone] which
JUSTICE SCALIA: Dictum.
MR. ROSENKRANZ: It was dictum, Your Honor, but it was very well-considered dictum because -- (Laughter.)
This case looks like it is going the way of most remedy cases - a debate between the literalist and remedialists on the court. The literalists (Roberts, Alito, Scalia, and Thomas) think that the statutory provision is clear and there shouldn't be a separate standard of review for conflicts. The remedialists (Stevens, Souter, Breyer, and Ginsburg) believe that the common law of trust must inform the meaning of ERISA's remedial sections because that is where ERISA derives from.
So as always, the question is whether Kennedy is a literalist or remedialist. In most cases decided under ERISA in his tenure, he has been on the literalist side, but this case might provide the limits of where he is willing to push a literalist interpretation given the clear conflicts in these cases.
Here goes nothing: 4-1-4 remedialists with a controlling concurrence by Kennedy. He seems to want to provide for a compromise by providing for certain procedural mechanisms an employer can take (a la Faragher and Ellerth) to avoid liability:
JUSTICE KENNEDY: Suppose that the insurance company shows or may be required to show, at least by the burden of production, that it has established firewalls, very careful procedures, written regulations that claims administrators are not to consult with the people that set policy and prices. Does that suffice to permit, simply, abuse of discretion review? MR. ROSENKRANZ: No, Your Honor. It would be a factor -
JUSTICE KENNEDY: So that there is nothing the fiduciary can do in order to avoid intrusive -
highly -- a high degree of scrutiny in review of every close case?
MR. ROSENKRANZ: Well, Your Honor, first, just to be clear, we are talking about still a
deferential standard. It's just not as deferential as it would otherwise be. Absolutely. An insurer can come in and say, look, we've created all these procedures; they have mitigated the conflict, but it can never get -
JUSTICE KENNEDY: So that all insurance company claims adjustors have less deferential review than independent claims administrators?
MR. ROSENKRANZ: Yes, Your Honor, unless the insurance company comes in and can demonstrate in a case that we've never heard of
JUSTICE KENNEDY: You want us to institute 22 an industrywide rule differentiating insurance companies . . . .
And so on. But Kennedy is looking for a workable compromise and he might just go the sexual harassment affirmative defense route we see with supervisor liability issues in hostile environment claims. The test might read: (1) Did the employer act reasonably in setting up policies to shied itself from conflict and (2) did the employee act unreasonably in not following these procedures or otherwise avoiding harm.