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ANDERSON v. SOTHEBY'S INC.

October 11, 2005.

THOMAS B. ANDERSON, Plaintiff,
v.
SOTHEBY'S INC. SEVERANCE PLAN, ADMINISTRATOR OF THE SOTHEBY'S INC. SEVERANCE PLAN, and SOTHEBY'S HOLDINGS, INC., Defendants.



The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge

OPINION AND ORDER

I. INTRODUCTION

  Thomas B. Anderson moves to apply a de novo standard of review to the Sotheby's Inc. Severance Plan Committee's ("Committee") determination denying his claim for severance benefits. Anderson also moves to admit evidence outside of the administrative record under a de novo standard. For the following reasons, Anderson's motion is denied. An arbitrary and capricious standard of review will be applied and evidence outside of the administrative record will not be considered.

  II. BACKGROUND

  Plaintiff worked for Sotheby's International Realty, Inc. ("SIR") from 1981 until February 17, 2004, during which he participated in the Sotheby's Inc. Severance Plan (the "Plan"), which is funded by Sotheby's Holdings, Inc. ("Sotheby's").*fn1 On February 17, 2004, SIR was sold by Sotheby's to NRT Incorporated, a wholly owned subsidiary of Cendant Corporation ("Cendant"). After the sale, plaintiff became an employee of Cendant's Real Estate Franchise Group. He had several meetings with Michael Good, the President of SIR, to discuss his new responsibilities and new compensation package under Cendant.

  Plaintiff, through counsel, submitted a benefits claim under the Plan on March 17, 2004, along with a letter stating his intention of terminating his employment with Cendant by March 31, 2004. According to plaintiff, Cendant had not offered him a comparable position with comparable compensation. His claim for benefits under the Severance Plan was referred to the Committee for review.

  All Committee members were employees of Sotheby's who were designated by the Plan Administrator to decide any questions regarding eligibility for Plan benefits, including interpreting and construing Plan provisions. Susan Alexander was the Chair of the Committee, as well as Sotheby's Executive Vice-President for Human Resources. On April 12, 2004, Karen Wahle, outside counsel to the Plan Administrator, sent a written invitation to plaintiff to submit a statement supporting his claim. In response, plaintiff submitted a letter and declaration on May 10, 2004. On July 6 and 7, 2004, Alexander and Wahle conducted interviews of Cendant employees with respect to Anderson's claim and took notes during those interviews. On July 16, 2004, the Committee denied the claim, and plaintiff appealed on July 20, 2004. On September 20, 2004, the Committee, acting on behalf of the Plan Administrator, denied the appeal. Plaintiff then filed the instant Complaint on October 18, 2004. Defendants provided documents to plaintiff in March 2005, but withheld Interview Notes, asserting work product and attorney-client privilege. Magistrate Judge Douglas F. Eaton directed defendants to produce the withheld documents.

  Plaintiff now asserts that a de novo standard of review should be applied to the Plan Administrator's determination of his benefits claim. He argues that the Plan Administrator had an actual conflict of interest that in fact influenced the Plan Administrator's determination. Plaintiff further maintains that the Plan Administrator intentionally destroyed evidence and, as such, he is entitled to an adverse inference regarding the existence of an actual conflict of interest in the Plan Administrator's deliberations. Lastly, plaintiff argues that evidence outside of the administrative record should be admissible under a de novo standard of review. Defendants deny each of these contentions, and argue that the Court should apply an arbitrary and capricious standard of review.

  III. LEGAL STANDARD

  A. Standard of Review

  The Supreme Court has held that principles of trust law "establish that a denial of benefits challenged under section 1132(a)(1)(B) must be reviewed under a de novo standard unless the benefit plan expressly gives the plan administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the plan's terms, in which cases a deferential standard of review is appropriate."*fn2 "Where discretionary authority is afforded an ERISA-regulated plan administrator . . . denial of plan benefits is generally reviewed under an `arbitrary and capricious' standard of review."*fn3

  In Firestone Tire & Rubber Co. v. Bruch, the Supreme Court stated that courts should apply the arbitrary and capricious standard of review where appropriate "regardless of whether the administrator or fiduciary is operating under a possible or actual conflict of interest."*fn4 According to the Supreme Court, the "conflict must be weighed as a factor in determining whether there is an abuse of discretion."*fn5 In Pagan v. NYNEX Pension Plan, the Second Circuit held that the arbitrary and capricious standard must be applied where the plan provides the administrator with discretionary authority.*fn6 The court enunciated this standard of review regardless of whether the administrator was operating under a conflict of interest.*fn7 In applying the arbitrary and capricious standard, the court stated that it must defer to a benefits committee's interpretation of a pension plan where such an interpretation is reasonable.*fn8 The court specifically noted that the arbitrary and capricious standard would apply notwithstanding the plaintiff's assertion that a conflict of interest existed, because the plaintiff failed to demonstrate how the alleged conflict affected the reasonableness of the benefits committee's determination.*fn9 In Sullivan v. LTV Aerospace and Defense Company, the Second Circuit set forth a two-part test for determining whether an administrator's determination was arbitrary and capricious where the administrator is shown to have a conflict of interest.*fn10 The two relevant inquiries are: "First, whether the determination made by the administrator is reasonable, in light of possible competing interpretations of the plan; second, whether the evidence shows that the administrator was in fact influenced by such conflict."*fn11 The plaintiff has the burden of proving that the conflict of interest in fact influenced the administrator's determination.*fn12 If a plaintiff can satisfy this burden, a de novo standard of review is applied.*fn13 If a plaintiff cannot satisfy this burden, then the conflict of interest becomes an additional factor in determining whether the challenged determination was arbitrary or capricious.*fn14

  "A conflict of interest may be found where there is an unfunded plan and the administrator is also an employee of the sponsoring company . . . in such a situation, the administrator has conflicting fiduciary duties to the plan sponsor, his employer, and the participants as plan beneficiaries."*fn15 Nonetheless, "the requirement that a plaintiff show actual influence of conflict on the administrator's decision makes it exceedingly hard, if not impossible, for plaintiffs to obtain de novo review on the basis of conflict."*fn16 For example, a court still applied the arbitrary and capricious standard where the administrator's determination involved "the possibility of exercising discretion in favor of one portion of the group to whom he may feel more loyal and, indeed, a greater need to keep content, given that this portion works for him while the other does not."*fn17

  Two courts recently found that plaintiffs had demonstrated that there was a factual question as to whether the administrator was influenced by an actual conflict of interest. In Sullivan v. LTV Aerospace and Defense Company, the court found that the administrator may have acted under an actual conflict of interest because of the committee members' potential desire to cut costs for the Company, which was in severe financial distress.*fn18 The court also noted that the "Senior Vice President of Human Resources had a significant, and perhaps improper, role in determining who was actually eligible for . . . benefits."*fn19 Similarly, in Suozzo v. Bergreen, the court found there was a possible conflict of interest that affected the committee's decision. The court based its finding on ...


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