United States District Court, S.D. New York
May 6, 2005.
EASTMAN KODAK COMPANY and MARTIN M. COYNE, Plaintiffs,
BAYER CORP., formerly MILES INC; THE STERLING DRUG INC. SUPPLEMENTAL BENEFIT PLAN; and THE SUPPLEMENTAL BENEFIT PLAN COMMITTEE OF STERLING DRUG INC., Defendants.
The opinion of the court was delivered by: MIRIAM CEDARBAUM, Senior District Judge
Plaintiffs Eastman Kodak Company ("Eastman Kodak") and Martin
M. Coyne move for summary judgment on the issue of whether Coyne
has failed to exhaust his administrative remedies prior to
commencing this action for supplemental pension benefits. For the
reasons that follow, plaintiffs' motion is denied.
The following facts are not contested for the purposes of the
present motion. Martin Coyne began working for Sterling Drug Inc.
("Sterling") in 1981. Shortly thereafter, Coyne subscribed to a
Supplemental Benefit Plan (the "Plan") a so-called "top-hat"
plan designed to provide certain executives of Sterling who
participated in Sterling's standard retirement plan with
supplemental payments in excess of limitations imposed by
Sections 401(a) (17) and 415 of the Internal Revenue
Code.*fn1 In 1989, Eastman Kodak acquired Sterling. The
standard Sterling retirement plan became a part of Eastman
Kodak's retirement plan, and subscribers to the Plan became
entitled to payments in excess of benefits received under the Eastman Kodak plan. In a
series of subsequent transactions, Sterling was acquired first by
SmithKline Beecham plc, and then by defendant Bayer Corp.
In 1994, Coyne left Sterling's employ to join Eastman Kodak,
where he worked until his retirement on July 1, 2003. In May
2003, with Coyne's retirement approaching, Eastman Kodak
contacted Bayer to inquire about Bayer's responsibility for
Coyne's benefits under the Sterling Plan. Bayer responded by
e-mail with a request for Coyne's work history and a copy of the
Plan, but expressed doubts about its responsibility for Coyne's
benefits. Eastman Kodak provided the requested information.
On October 8, 2003, Eastman Kodak again contacted Bayer,
seeking to confirm Bayer's responsibility for Coyne's benefits.
Bayer responded promptly, and noted that Coyne was not yet
eligible for benefits, but that it would nonetheless convene its
benefits group to determine whether it would assume
responsibility for payments to Coyne and, if so, to confirm the
benefit amount. In several subsequent e-mails, Eastman Kodak
sought confirmation from Bayer that it would assume
responsibility for Coyne's benefits, which it informed Bayer
would become due on March 1, 2004. Bayer never responded to any
of those e-mails. Defendants made no payment to Coyne on March 1, 2004, when he
allegedly became eligible for benefits under the Plan, or at any
time thereafter. On April 6, 2004, Eastman Kodak sent a letter to
Bayer stating that "[d]espite repeated notices from Kodak, Bayer
has failed to acknowledge its liability to Mr. Coyne under the
Sterling Supplemental Retirement Benefit Plan and has failed to
make the first payment due to Mr. Coyne. Pursuant to undertakings
to Mr. Coyne at the time of his retirement in July 2003, Kodak
has paid Mr. Coyne his first monthly check. . . . Kodak seeks and
requires Bayer to indemnify Kodak from, against and in respect of
all losses arising from its breach of its obligations." Bayer
never responded to the letter.
Eastman Kodak and Coyne commenced this action on June 28, 2004.
Coyne sues defendants for his supplemental benefits under the
Plan. Eastman Kodak seeks indemnification for payments it has
already made to Coyne. Defendants moved to dismiss the action on
the ground that Coyne has failed to exhaust administrative
remedies, but withdrew their motion after the complaint was
amended. On October 15, 2004, defendants filed an answer
asserting failure to exhaust administrative remedies as a
defense. At a pre-trial conference, defendants identified the
administrative remedies that Coyne had failed to exhaust as those
contained in an amendment to the Plan that was adopted on July 12, 2004, some two weeks after the filing of the complaint.
The amendment was adopted "as of January 1, 2004."
A motion for summary judgment should be granted if the court
determines, from the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, that "there is no genuine issue as to any material
fact and that the moving party is entitled to a judgment as a
matter of law." Fed.R.Civ.P. 56; see also Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986). "Where there are no material
facts in dispute, a motion for summary judgment should be
granted." Nexans Wires S.A. v. Sark-USA, Inc.,
319 F. Supp.2d 468, 471 (S.D.N.Y. 2004).
It is undisputed that the Plan at issue provided no
administrative procedure for Coyne to follow at the time he
retired or at the time this action was commenced. The parties
disagree, however, as to whether Coyne must now exhaust the claim
procedure first adopted in the belated amendment to the Plan.
Defendants contend that, under the terms of the Plan, they are
entitled retroactively to enforce procedural amendments, such as
the July 12, 2004 amendment. Coyne must therefore exhaust the
amendment's claim procedure before proceeding in federal court.
Plaintiffs respond that the amendment does not apply because it
impairs Coyne's right to benefits, and that, in view of defendants' failure to pay and to
respond to Eastman Kodak's e-mails and letter, requiring Coyne to
exhaust the new claim procedure would be futile.
I. The Retroactive Amendment
The first question is whether the amendment to the Plan, which
was adopted after Coyne's retirement and after commencement of
this action, applies to Coyne.
In the case of "top-hat" benefit plans, such as the Plan at
issue here, courts apply principles of contract law in
determining the rights of participants. See Gallione v.
Flaherty, 70 F.3d 724, 728-29 (2d Cir. 1995); Pereira v.
Cogan, 200 F. Supp.2d 367, 375 (S.D.N.Y. 2002) ("Rights under a
top hat plan are governed by contract law as opposed to trust or
fiduciary principles under ERISA.").*fn2 In deciding whether
the amendment applies to Coyne, the language of the Plan is therefore
Article VI of the Plan provides that the employer has the right
to amend, suspend, or terminate the Plan, in whole or in part,
provided that "[n]o such amendment, suspension or termination
shall retroactively impair or otherwise adversely affect the
rights of any Employee or other person to benefits under the Plan
that may have arisen prior to the date of such [amendment] as
determined by the Committee in its sole discretion." Thus, the
Plan expressly permits retroactive amendments that do not
"impair" or "adversely affect" vested rights of participants.
Defendants argue that the amendment retroactively applies to
Coyne because, as an initial matter, Coyne's right to benefits
had never vested. Under ERISA, defendants contend, a
participant's right to benefits only vests when the plan
administrator makes a determination to that effect, which has
never happened in Coyne's case. Defendants also argue that, even
if Coyne's right to benefits had vested, the amendment
nonetheless applies retroactively because it does not "impair" or
"adversely affect" Coyne's rights.
Defendants' argument that Coyne's right could not vest under
the Plan until the plan administrator says so is without merit.
It is well-settled that "top-hat" benefit plans, which are exempt from ERISA's vesting requirements, Healy v. Rich
Products Corp., 981 F.2d 68, 72 (2d Cir. 1992), are interpreted
in keeping with the principles of unilateral contract law. See
Aiena v. Olsen, 69 F. Supp.2d 521, 533 (S.D.N.Y. 1999); Black
v. Bresee's Oneonta Dept. Store, Inc. Sec. Plan,
919 F. Supp. 597, 602 (N.D.N.Y. 1996); see also Feifer v. Prudential Ins.
Co. of America, 306 F.3d 1202, 1211 (2d Cir. 2002). A "top-hat"
plan is "a unilateral contract which creates a vested right in
those employees who accept the offer it contains by continuing in
employment for the requisite number of years. . . . [O]nce the
employee performs, the offer becomes irrevocable, the contract is
completed, and the employer is required to comply with its side
of the bargain." Kemmerer v. ICI Americas Inc., 70 F.3d 281,
287 (3d Cir. 1995) (quoting Pratt v. Petroleum Prod. Management
Employee Sav. Plan, 920 F.2d 651, 661 (10th Cir. 1990))
(internal quotation marks omitted); accord Black,
919 F. Supp. at 602 ("[P]laintiff, by his full performance under all the
["top-hat"] plan's terms, had fully accepted the unilateral offer
embodied in the terms of the Plan. Accordingly, plaintiff's
rights under the unilateral contract had vested.").
Thus, insofar as Coyne accepted the Plan's unilateral offer by
complying with all requisite terms, his right to benefits under
the Plan vested. Although defendants may proffer evidence showing
that Coyne never actually complied with all the necessary preconditions to be entitled to benefits, they may not
argue, absent specific language in the Plan, that his right under
the Plan could not vest until the plan administrator says so.
Defendants maintain, however, that there is such specific
language in the Plan. Article VI of the Plan provides that
amendments may not retroactively "impair or adversely affect the
rights of any Employee or person to benefits under the Plan that
may have arisen prior to the date of such [amendment] as
determined by the Committee in its sole discretion." This
language, defendants contend, confers upon the plan committee the
discretion to determine whether participants' rights have
"arisen," that is, vested. According to defendants, absent a
decision by the committee such rights cannot vest.
The language defendants rely on, however, does not compel the
conclusion that an affirmative decision by the committee is a
sine qua non for the vesting of participants' rights. First, it
is not entirely clear from the Plan's language whether, under
Article VI, the committee has discretion to determine if
participants' rights are "impaired or otherwise adversely
affected" by retroactive amendments, or whether instead, as
defendants urge, it has discretion to determine whether
participants' rights have "arisen," i.e. vested, under the Plan.
Even assuming it is the latter, it does not follow that participants' rights cannot vest absent an affirmative decision
by the committee. Read the way defendants propose, Article VI
simply provides that the committee has discretion to determine
eligibility for benefits under the Plan, not that the rights of
participants who meet the eligibility criteria cannot vest absent
an affirmative decision by the committee.
As for the retroactive application to Coyne of the amendment,
it is settled that a "top-hat" benefit plan may be retroactively
amended after participants' rights have vested only if the
"explicit right to terminate or amend after participants'
performance is reserved." Kemmerer, 70 F.3d at 287-88; see
also Feifer, 306 F.3d at 1211. Here, the Plan only reserves
the employer's right to adopt retroactive amendments that do not
"impair or otherwise adversely affect" vested rights of
The Plan's language in particular, the use of the terms
"impair" and "adversely affect" suggests that it was intended
to proscribe retroactive amendments diminishing the substance of
participants' vested rights, but not amendments that are purely
procedural in nature. It is instructive that, in the analogous
context of standard ERISA-covered benefit plans, courts have
drawn a similar distinction between retroactive amendments that
are substantive, and thus impermissible, and retroactive
amendments that are merely procedural, and thus permissible. See Smathers v. Multi-Tool, Inc./Multi-Plastics, Inc. Employee
Health and Welfare Plan, 298 F.3d 191, 195-96 (3d Cir. 2002)
(retroactive amendment was permissible where it "did not change
the coverage under the plan or [the] substance of [the
employee's] benefits or his entitlement to them"); Member
Services Life Ins. Co. v. American Nat. Bank and Trust Co. of
Sapulpa, 130 F.3d 950, 954 (10th Cir. 1997) ("An amendment to
any ERISA plan may not operate retroactively if that amendment
deprives a beneficiary of a vested benefit."); see also Virta
v. DeSantis Enterprises, Inc., 1996 WL 663970, *4 (N.D.N.Y.
1996) (noting that "[e]ven if the Court had determined the Plan
to be a Top Hat plan, this Court could not allow the termination
language provided in the employer's plan to operate to deny a
vested employee of benefits"). The July 12, 2004 amendment
neither "changes [Coyne's] coverage" nor "deprives [Coyne] of a
Plaintiffs nevertheless contend that the amendment impairs the
substance of Coyne's right to benefits. The new claim procedure
allows the plan administrator ninety days from the date a claim
is submitted to make a determination.*fn3 If an adverse
determination is made, a claimant has sixty days to appeal that decision to a review committee, which must make a
final determination within sixty days from the date of the
appeal. Plaintiffs argue that if Coyne is required to exhaust
this procedure, his right to benefits would be significantly
delayed by as much as seven months.
Plaintiffs cite no authority for the proposition that temporary
delay is a substantive impairment of a participant's right to
benefits under an ERISA-covered plan. But cf. Koenig v. Waste
Management, Inc., 76 F. Supp.2d 908, 915 (N.D. Ill. 1999)
(benefits under "top-hat" plan were substantively impaired where
payment was delayed "indefinitely" as opposed to temporarily).
There is no question that, if Coyne ultimately prevails on his
claim for benefits, he will be entitled to recover payments for
the period in which the plan administrator and review committee
consider his claim under the new procedure. See e.g., Black v.
Bresee's Oneonta Dept. Store, Inc. Sec. Plan,
919 F. Supp. at 603 (awarding past due benefits under "top-hat" plan from day of
eligibility). It is also not in doubt that, if Coyne is
unsatisfied with the committee's decision, he can seek redress in
this court. See Peterson v. Continental Casualty Company,
282 F.3d 112, 118 (2d Cir. 2002) ("Should [plaintiff] receive an
adverse decision after exhausting administrative remedies, he may
file a suit in federal court in the normal course."). Plaintiffs
thus cannot point to any substantive impairment of Coyne's underlying right to benefits that would
result from the delay associated with exhausting the new claim
Grasping at straws, plaintiffs also argue that Coyne's
substantive right would be impaired by complying with the new
procedure because the plan committee's decision, at the
culmination of the administrative process, would be subject to a
more deferential standard of review in this court. This argument
is without merit.
A denial of pension benefits under an ERISA plan that grants
the administrator discretionary authority to determine
eligibility or to construe the plan's terms is reviewed under the
"arbitrary and capricious" standard. See Muller v. First Unum
Life Ins. Co., 341 F.3d 119, 123 (2d Cir. 2003); Mario v. P & C
Food Markets, Inc., 313 F.3d 758, 763 (2d Cir. 2002). Under that
standard, a court may overturn a plan administrator's decision to
deny benefits "only if the decision was without reason,
unsupported by substantial evidence or erroneous as a matter of
law." Celardo v. GNY Auto. Dealers Health & Welfare Trust,
318 F.3d 142, 146 (2d Cir. 2003). Although the standard is
deferential, if the plan administrator's interpretation of the
plan is erroneous, federal courts are not without power to
reverse the administrator's decision to deny benefits. See Gallo
v. Madera, 136 F.3d 326, 330-31 (2d Cir. 1998) ("[W]here the trustees of a plan impose a standard not required by the
plan's provisions, or interpret the plan in a manner inconsistent
with its plain words, or by their interpretation render some
provisions of the plan superfluous, their actions may well be
found to be arbitrary and capricious."); Novella v. Westchester
County, No. 02 Civ. 2192 (MBM), 2004 WL 1752820, *3 (S.D.N.Y.
Aug. 4, 2004) ("The plan administrators acted in an arbitrary and
capricious manner . . . because their decision was based on an
interpretation of the Westchester Plan that is inconsistent with
the plain words of that Plan.").
Here, Article V of the Plan provides:
The Plan shall be administered by the Committee,
which shall have full power and authority to
interpret and construe the Plan, to make all
determinations considered necessary or advisable for
the administration of the Plan and the calculation of
the amount of benefits payable thereunder, and to
review claims for benefits under the Plan. The
Committee's interpretations and constructions of the
Plan and its decisions or actions thereunder shall be
binding and conclusive on all persons for all
The Plan thus confers conclusive authority on the committee to
construe its terms and make claim determinations. The applicable
standard of review is therefore the "arbitrary and capricious"
standard. Cf. Mario, 313 F.3d at 763 (language reserving to
plan administrator the discretionary authority to review all
claims for benefits and to interpret the language of the plan was
sufficient to trigger the "arbitrary and capricious" standard of review); Ganton Techs., Inc. v. Nat'l
Indus. Group Pension Plan, 76 F.3d 462, 466 (2d Cir. 1996)
(language reserving to plan trustees the authority to "resolve
all disputes and ambiguities relating to the interpretation of
the Plan, and the application of the terms of the Plan to any
circumstances," and stating that trustees' decisions in such
matters will be final, was sufficient to trigger the "arbitrary
and capricious" standard of review).
The standard of review in this court would remain the same
whether the denial is challenged now or at the conclusion of the
administrative process. The question on review would be the same,
namely, whether the denial of Coyne's benefits was without
reason, unsupported by substantial evidence, or erroneous as a
matter of law. This court is simply without authority to render a
de novo determination in reviewing the discretionary decisions
of the plan committee under the Plan. See Peterson,
282 F.3d at 117 ("ERISA empowers federal courts to review the
[discretionary] decisions of plan administrators, but provides no
authority for a court to render a de novo determination of an
employee's eligibility for benefits.").
It is true that the absence of a reasoned decision by the plan
committee makes it more difficult to ascertain the grounds for
denial of benefits. But, if anything, this fact weighs in favor
of requiring Coyne to exhaust the new claim procedure, so that review in this court may be had after a reasoned opinion is
issued and an administrative record developed. See Kennedy,
989 F.2d at 594 (observing that a primary purpose of the
exhaustion requirement is to "provide a sufficiently clear record
of administrative action if litigation should ensue").
Plaintiffs contend that even if the amendment retroactively
applies to Coyne, he is not required to exhaust the claim
procedure set forth in it because doing so would be futile.
According to plaintiffs, defendants' failure to pay and to
respond to Eastman Kodak's repeated reminders is clear evidence
of their decision not to assume responsibility for Coyne's
The Second Circuit has recognized "the firmly established
federal policy favoring exhaustion of administrative remedies in
ERISA cases." Kennedy, 989 F.2d at 594 (quoting Alfarone v.
Bernie Wolff Construction, 788 F.2d 76, 79 (2d Cir. 1986))
(internal quotation marks omitted). The exhaustion requirement
serves 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." Davenport v. Harry N. Abrams, Inc., 249 F.3d 130, 133 (2d Cir. 2001); accord
Kennedy, 989 F.2d at 594.
Only where a plan participant can make a "clear and positive"
showing that pursuing administrative remedies would be futile,
may he be excused from the exhaustion requirement. Davenport,
249 F.3d at 133; Kennedy, 989 F.2d at 594. To overcome the
strong policy in favor of exhaustion, the showing of futility
must be substantial. See Barnett v. International Business
Machines Corporation, 885 F. Supp. 581, 587 (S.D.N.Y. 1995)
("The threshold required by the futility exception is very
high."); Shamoun v. Board of Trustees, No. 04 Civ. 3368 (ILG),
2005 WL 419412, *6 (E.D.N.Y. Feb. 22, 2005) (same). Absent a
"clear and positive" showing of futility, federal courts are
without jurisdiction to adjudicate a claim for benefits under
ERISA. See Peterson, 282 F.3d at 118; Barnett,
885 F. Supp. at 587 ("Th[e] exhaustion requirement is a jurisdictional
prerequisite to a suit for benefits.").
Defendants' conduct does not rise to the level required for a
showing of futility. "Usually, the futility exception is applied
in a context in which there has been, in some form, an
unambiguous application for benefits and a formal or informal
administrative decision denying benefits and it is clear that
seeking further administrative review of the decision would be
futile." Barnett, 885 F. Supp. at 588. In such circumstances, "some record for review has been established," allowing the
district court to ascertain the reasons for the denial of the
claim. Id. Moreover, although a formal initial denial of
benefits may not always be necessary for a showing of
futility,*fn4 "[a] de facto denial is simply not sufficient
to satisfy the futility exception to the exhaustion requirement."
Id. 885 F. Supp. at 589.
Defendants' failure to pay and to respond to Eastman Kodak, in
part precipitated by disagreement about the benefit amount due to
Coyne and Eastman Kodak's responsibility for the benefits, is not
the kind of unambiguous conduct that is sufficient for a showing
of futility. See e.g., Davenport, 249 F.3d at 133
(correspondence from the plan administrator that the participant
may not be covered, in the absence of a formal application, was
insufficient to establish futility); Barnett,
885 F. Supp. at 587 (allegation that defendant had informally notified claimant
that an application for benefits, if made, would be denied was insufficient to show futility); Schein v.
News America Publishing, Inc., No. 89 Civ. 0052 (MBM), 1989 WL
56255, *4 (S.D.N.Y. May 23, 1989) (plaintiff failed to establish
futility based on informal communications from certain plan
committee members where "a majority of the [committee] has not
yet considered plaintiff's claims."); Shamoun, 2005 WL 419412,
at *6 (defendants' informal assertion that plaintiff was not
entitled to benefits was insufficient to show futility).*fn5
Inferring a denial from defendants' conduct, with respect to a
claim which was never formally or informally presented by Coyne
himself,*fn6 would thwart the policy goals underlying the
exhaustion requirement. Davenport, 249 F.3d at 133. CONCLUSION
For the foregoing reasons, plaintiffs motion for summary
judgment is denied. This action is dismissed without prejudice to
its refiling after Coyne has exhausted the administrative
procedure under the amended Plan. To minimize delay, defendants
are instructed to accept Coyne's complaint in this action as a
formal claim for benefits that triggers the schedule for
administrative determination set forth in the amended Plan.