Plaintiff commenced this action in New York Supreme Court for a declaration that the February 20 and 21, 1992 temporary restraining orders enjoined defendant and NYNEX from filing and/or processing Mr. Ehrlich's request for a lump sum payment of his interest in the Plan and an order directing that NYNEX (a) make a lump sum payment of Mrs. Ehrlich's interest in the Plan, (b) accept and process a request for a lump sum payment of Mr. Ehrlich's remaining interest in the Plan, and (c) pay Mr. Ehrlich's interest to the plaintiff in satisfaction of outstanding judgments she allegedly holds against Mr. Ehrlich. NYNEX removed the action to this Court, contending that the action in substance seeks benefits under an ERISA plan. The Court denied plaintiff's motion to remand.
Mrs. Ehrlich's plight is a sympathetic one. From the papers submitted to this Court, her husband of twenty four years announced that he wanted a divorce, took early retirement from NYNEX, moved first to upstate New York and later to Maryland, and failed to comply with his financial obligations under the separation agreement and divorce decree. Her desire to obtain her own interest in the Plan in a lump sum and to reach her former husband's interest in satisfaction of his apparently defaulted obligations is quite understandable. NYNEX, however, contends that she has failed to exhaust her remedies within the Plan and, in any case, that the Plan correctly rejected her claim.
Exhaustion of Administrative Remedies
The Plan states that "any Participant whose claim for benefits has been denied, in whole or in part, may (and must for the purpose of seeking any further review of a decision or for the purpose of determining any entitlement to a benefit under the Plan), within 60 days after receipt of notice of denial submit a written request for review of the decision denying the claim." Such claims must be submitted to the Employees' Benefit Committee ("EBC"), which serves as the final review committee under the plan and ERISA for the review of all appeal claims . . ." (Def. 3(g) Ex. 11, § 14.5) Thus, if the Plan rejects a claim for benefits, the claimant ordinarily is precluded from seeking judicial review unless he or she has filed an appeal with the EBC. See Kennedy v. Empire Blue Cross & Blue Shield, 989 F.2d 588, 593 (2d Cir. 1993); Barnett v. IBM Corp., 885 F. Supp. 581, 586 (S.D.N.Y. 1995).
NYNEX argues that plaintiff has failed to exhaust her administrative remedies because she did not appeal to the EBC (a) after being informed on May 18, 1995 of a February 24, 1995 state court order that indicated that she would be paid 50 percent of Mr. Ehrlich's monthly pension benefit as of the date of retirement, or (b) from NYNEX's March 22, 1996 letter in response to her inquiry as to the present value of the pension benefits as a lump sum payment. (Def. Mem. 6)
Assuming, as the parties do, that Mrs. Ehrlich has applied for a lump sum distribution and that her application has been denied,
the Court does not view her failure to appeal as precluding judicial review in the peculiar circumstances of this case.
The purposes of the exhaustion requirement, as articulated by the Second Circuit in Kennedy, are "to: (1) uphold Congress' desire that ERISA trustees be responsible for their actions, not the federal courts; (2) provide a sufficiently clear record of administrative action if litigation should ensue; and (3) assure that any judicial review of fiduciary action (or inaction) is made under the arbitrary and capricious standard, not de novo." 989 F.2d at 594 (quoting Denton v. First Nat'l Bank of Waco, Texas, 765 F.2d 1295 (5th Cir.), reh'g denied, 772 F.2d 904 (5th Cir. 1985)).
Nevertheless, a plaintiff who fails to exhaust nevertheless will not be deprived of a district court remedy if she makes "a clear and positive showing of the futility of such an appeal . . . ." Id. at 592. Among other circumstances in which the exhaustion requirement will not be applied is "where there is a material issue of fact as to whether the plaintiff was informed of the appeals process." Ludwig v. NYNEX Service Co., 838 F. Supp. 769, 781 (S.D.N.Y. 1993) (citing cases); see also Barnett, 885 F. Supp. at 587-88 & nn. 7-8 (court may take equitable considerations into account); Tiger v. A T & T Technologies Plan for Employees' Pensions, Disability Benefits, 633 F. Supp. 532, 534 (E.D.N.Y. 1986) (McLaughlin, J.) (same).
Although Mrs. Ehrlich was made an "alternate payee" by the state court orders, there is nothing in the papers to suggest that she ever received notice of the appellate provisions of the Plan. Nor did NYNEX's May 18, 1995 and March 24, 1996 letters even hint at the availability of an appeals process, much less the dire consequences that might flow from Mrs. Ehrlich's failure to pursue it. As NYNEX is not entitled to summary judgment dismissing Mrs. Ehrlich's claim on the basis of her alleged failure to exhaust unless it has demonstrated that there is no genuine issue as to any material fact, the possibility that Mrs. Ehrlich was justifiably ignorant of the availability of appellate rights within the Plan precludes the granting of its motion on this ground.
While NYNEX may not obtain summary judgment dismissing the complaint for Mrs. Ehrlich's alleged failure to exhaust, it nevertheless would be entitled to prevail if its decision, measured by the appropriate standard of review, was appropriate. The Court therefore turns to the merits.
Scope of Review
In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 103 L. Ed. 2d 80, 109 S. Ct. 948 (1989), the Supreme Court held that "a denial of benefits challenged under [ERISA] is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Id. at 115. Where such discretion is conferred, the plan's action is to be sustained unless it is arbitrary and capricious. See id. at 111. The existence of a conflict of interest is pertinent in applying the arbitrary and capricious standard. Id. at 115.
Here, Section 14.5(a) of the Plan confers authority to grant or deny claims upon the applicable Plan committee. Sections 14.5(c) and (d) make the EBC "the final review committee . . . for the review of all appeal claims." Sections 14.5(e) and 14.6, respectively, provide, perhaps somewhat inconsistently, that participants whose claims have been denied retain their right to review under Section 503 of ERISA and that the EBC "shall determine conclusively for all parties all questions arising in the administration of the Plan and any decision of such Committee shall not be subject to further review."
Substantially identical provisions of an earlier NYNEX pension plan were at issue in Ludwig, where the court held that they constituted a "clear grant of fiduciary authority to determine eligibility for benefits and to interpret the provisions of the Plan . . . ." 838 F. Supp. at 784. The arbitrary and capricious standard therefore applies here. Nevertheless, it now is clear that a decision made by a fiduciary vested with discretion is arbitrary and capricious if it rests on an error of law. Miller v. United Welfare Fund, 72 F.3d 1066, 1070 (2d Cir. 1995) (error of law renders fiduciary's decision arbitrary and capricious) (citing Pagan v. NYNEX Pension Plan, 52 F.3d 438, 442 (2d Cir. 1995)); Weil v. Retirement Plan Admin. Committee of the Terson Co., 913 F.2d 1045, 1049 (2d Cir. 1990) (applying de novo standard to administrator's determination of question of law notwithstanding grant of discretion within plan document).
The State Court Orders
Mrs. Ehrlich's first and principal argument is that the February 20 and 21, 1992 state court orders restrained Mr. Ehrlich from exercising his option to elect a lump sum payment of his pension benefits and that this somehow permits Mrs. Ehrlich now to exercise that option. (Pl. Mem. 4) This contention is frivolous irrespective of the standard of review.
The state court restraining orders did no more than prevent Mr. Ehrlich from obtaining and NYNEX from distributing to him any benefits under the Plan. They certainly did not prevent Mr. Ehrlich from electing the lump sum option. Had he done so, NYNEX simply would have been required by the orders to hold the amount otherwise due to him pending a state court decision as to the indent(ies) of the appropriate payee(s). Indeed, the April 21, 1992 preliminary injunction drew back even from this limited restraint. It merely required NYNEX, "in the event defendant requests distribution," to "withhold one half of the sum requested . . . and place said sum into an . . . escrow account . . . pending further court order." (S. Ehrlich Aff. Ex. B-9, at 2)
The Language of the Plan
Plaintiff's other contention, first raised in her reply papers, is that the Plan authorizes or, at any rate, does not prevent her from exercising the lump sum distribution option even at this date. (Rudden Reply Aff. P 2-5, 8)
The Plan amendment effective January 1, 1992, which created the lump sum distribution option, by its terms applied "to all employees who retired or separated from service in 1992 under the NYNEX Force Management Plan . . ." with certain exceptions not here relevant. (Donovan Aff. Ex. 1, P (1)) It contained no requirement that an election of this option be made during 1992 or, for that matter, within any specific time. Indeed, the only evidence in the record that even remotely supports such a conclusion is Mr. Donovan's assertions that (a) 1992 FMP retirees were required to submit a Lump Sum Distribution Election Form within 90 days, which is supported by the January 29, 1992 newsletter, and (b) the payment option no longer existed after December 31, 1992.
(Donovan Aff. P 3; Littlefield Aff. Ex. 3)
Section 402(a)(1) of ERISA, 29 U.S.C. § 1102(a)(1), provides that "every employee benefit plan shall be established and maintained pursuant to a written instrument." The requirement is designed to "ensure that plans be governed by written documents filed under ERISA's reporting requirements and that [summary plan descriptions], drafted in understandable language, be the primary means of informing participants and beneficiaries." Moore v. Metropolitan Life Ins. Co., 856 F.2d 488, 492 (2d Cir. 1988). See generally Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 131 L. Ed. 2d 94, 115 S. Ct. 1223, 1230-31 (1995). Moreover, Section 402(b)(3), 29 U.S.C. § 1102(b)(3), requires that every plan shall "provide a procedure for amending such plan, and for identifying the persons who have authority to amend the plan . . . ."
As far as this record discloses, the only writing that limited the period within which 1992 FMP retirees could exercise their option to take lump sum distributions from the Plan was the January 29, 1992 newsletter, which was published subsequent to the date as of which the Plan amendment establishing the lump sum option was effective. There is no suggestion that the Plan was further amended to incorporate the terms of the newsletter. There is no indication that the newsletter was among the plan documents to which employees were intended to have recourse in order to determine exactly what their rights and obligations were. See H.R. REP. No. 93-1280, 93d Cong., 2d Sess. 297, reprinted in 1974 U.S.C.C.A.N. 4639, 5038, 5077-78. Nor is there any indication that the contents of the newsletter were contained in the summary plan descriptions that NYNEX was obliged to distribute to beneficiaries. See 29 U.S.C. § 1024(b)(1).
To give effect to the restrictive terms of the newsletter, at least on the record now before the Court, would do violence to basic principles of ERISA. There is no evidentiary basis from which the Court properly might conclude that the terms of the newsletter were part of the "written instrument" required by Section 402(a)(1) from which every employee must be able to determine "exactly what his rights and obligations are under the plan." Algie v. RCA Global Communication, Inc., 891 F. Supp. 839, 860 (S.D.N.Y. 1994), aff'd, 60 F.3d 956 (2d Cir. 1995) (quoting Hamilton v. Air Jamaica, Ltd., 945 F.2d 74, 77 (3d Cir. 1991), cert. denied, 503 U.S. 938, 117 L. Ed. 2d 622, 112 S. Ct. 1479 (1992)).
The newsletter's attachment of conditions and limitations to the option created by the January 1, 1992 plan amendment arguably constituted an amendment of the Plan. But as there is no evidence that the procedures established for amendment of the Plan were complied with in this instance or that the limitations were imposed by the amending authority there specified, the Court cannot conclude that any such amendment was valid. E.g., Borst v. Chevron Corp., 36 F.3d 1308, 1323 (5th Cir. 1994), cert. denied, 131 L. Ed. 2d 561, 115 S. Ct. 1699 (1995) (plan may not be amended orally or through informal written means); Coleman v. Nationwide Life Ins. Co., 969 F.2d 54, 58-59 (4th Cir. 1992), cert. denied, 506 U.S. 1081, 122 L. Ed. 2d 359, 113 S. Ct. 1051 (1993) ("Any modification to a plan must be implemented in conformity with the formal amendment procedures and must be in writing."); Confer v. Custom Engineering Co. 952 F.2d 41, 43 (3d Cir. 1991) (rejecting contention that speech or bulletin board announcement "could effectively change" plan); Alday v. Container Corp. of America, 906 F.2d 660, 665-66 (11th Cir. 1990), cert. denied, 498 U.S. 1026, 112 L. Ed. 2d 668, 111 S. Ct. 675 (1991) (booklet that "does not describe . . . plan's terms, specify its benefits or coverage, or define eligibility or limitations" did not amend plan); Allen v. West Point-Pepperell, Inc., 908 F. Supp. 1209, 1222 (S.D.N.Y. 1995) (plan not altered because "changes [can] only be made pursuant to a defined amendment procedure by a defined amending authority.").
In this case, the record does not unequivocally establish that the conditions imposed by NYNEX upon the exercise of the lump sum payment option complied with the writing requirement of Section 402(a)(1) of ERISA or the amendment provisions of the Plan. Accordingly, NYNEX is not entitled to summary judgment on the ground that Mrs. Ehrlich is not entitled to a lump sum distribution.
For the foregoing reasons, the cross-motions for summary judgment are denied. The parties will appear for a pretrial conference at 2:00 p.m. on January 10, 1997 in Courtroom 12D.
Dated: December 27, 1996
Lewis A. Kaplan
United States District Judge