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ANDERSON v. SOTHEBY'S INC.

United States District Court, S.D. New York


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 the plaintiff's allegation that the committee denied his claim for benefits shortly after he and the manager of the committee had engaged in a bitter dispute leading to the plaintiff's termination.*fn20

  B. Adverse Inference

  Three facts must be established by a party seeking an adverse inference instruction based on the spoliation of evidence:

  (1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed with a `culpable state of mind' and (3) that the destroyed evidence was `relevant' to the party's claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.*fn21 A duty to preserve evidence arises when the party in possession of the evidence is notified of its relevance.*fn22 A party is on notice once it receives a discovery request or the complaint alerts the party that certain information will likely be sought in discovery.*fn23 However, "the obligation to preserve evidence even arises prior to the filing of a complaint where a party is on notice that litigation is likely to be commenced."*fn24

  The Second Circuit has determined that "a `culpable state of mind' for purposes of spoliation is demonstrated "by a showing that the evidence was destroyed knowingly, even without intent to [breach a duty to preserve it], or negligently."*fn25 When evidence is destroyed or rendered unavailable in bad faith or through gross negligence, this fact alone is sufficient to satisfy the relevance requirement.*fn26 When evidence is destroyed negligently, "it cannot be inferred . . . that the evidence would have been harmful to [the plaintiff]"*fn27 and hence the plaintiff must prove relevance.*fn28

  IV. DISCUSSION

  A. Conflict of Interest

  It is undisputed that the Plan grants discretionary authority to the Administrator.*fn29 Therefore, an arbitrary and capricious standard of review will apply unless plaintiff can prove that there is an actual conflict of interest that in fact influenced the Administrator's determination. Anderson has demonstrated the likelihood of an actual conflict of interest — the Plan is unfunded and the members of the Committee serving as the Administrator are all employees of the sponsoring Company.

  However, as noted earlier, the existence of a conflict of interest alone is insufficient to trigger de novo review; the plaintiff must also demonstrate that the conflict in fact influenced the administrator's determination.*fn30 Plaintiff has provided no evidence that the Committee members who denied his benefits claim were motivated either by financial concerns or by any hostility toward him. Plaintiff argues that an improper financial motivation is evident because the Plan Sponsor sought indemnification from Cendant.*fn31 But Susan Alexander, Chair of the Committee, testified that the Committee members did not consider the source of funding for the benefits payments when making their determination.*fn32 Plaintiff has adduced no evidence that would permit this Court to discredit that testimony. Plaintiff also contends that the Administrator delegated its fiduciary functions to Karen Wahle, Sotheby's outside counsel.*fn33 However, Wahle testified that she had no previous connection with Sotheby's,*fn34 she was retained to assist the Committee in performing its fiduciary duties,*fn35 and she did not vote on plaintiff's claim.*fn36 Thus, Wahle's position as counsel to the Administrator does nothing to prove that the Committee was in fact influenced by a conflict of interest. In short, plaintiff has failed to demonstrate that any alleged conflict of interest in fact influenced the Administrator's decision.

  B. Adverse Inference Based on Spoliation of Evidence

  Plaintiff next argues that he is entitled to an adverse inference instruction permitting the Court to find that the Administrator was in fact influenced by a conflict of interest based on the alleged spoliation of evidence. This evidence consists of Interview Notes taken during Committee meetings at which Anderson's claim was discussed.*fn37

  1. Duty to Preserve

  Plaintiff asserts that the duty to preserve evidence arose as of July 6, 2004, the date the Interview Notes were written, because the Administrator claimed that those Notes were entitled to protection as work product. The work product doctrine provides protection for "documents . . . prepared in anticipation of litigation. . . ."*fn38 The Administrator contends that it cannot have reasonably anticipated litigation as of July 6, 2004. Furthermore, Magistrate Judge Eaton found that the Notes were not entitled to work product protection because they were prepared by the Administrator "in the ordinary course of assessing an employee's beneficiary's claim for a large severance benefit."*fn39 Nonetheless, because the Administrator claimed that it reasonably anticipated litigation as of July 6, 2004, the Administrator's duty to preserve the documents arose as of that date.

  2. Culpable State of Mind

  There is insufficient evidence here to establish that the Administrator intentionally destroyed notes of the Committee meetings to prevent plaintiff from obtaining them. Plaintiff alleges that Alean Timm, Committee Secretary, intentionally destroyed the notes she took at Committee meetings during which Anderson's claim was discussed.*fn40 Timm testified that she routinely destroyed her handwritten meeting notes after she prepared a typewritten report. She asserts that she followed this routine practice with regard to the notes she took at the meetings during which Anderson's claim for severance benefits was discussed.*fn41 Plaintiff further asserts that Wahle was grossly negligent in losing her notes of these meetings. According to the testimony provided by Wahle, however, she was unsure whether she had even taken notes at these meetings.*fn42 As a result, plaintiff cannot demonstrate that any evidence was destroyed in bad faith or through gross negligence. However, the Notes were negligently destroyed as a duty to preserve existed at the time the Notes were lost.

  3. Relevance

  Plaintiff has offered no evidence that the handwritten notes would have shown a conflict of interest that in fact influenced the Administrator's determination. Rather, he contends that relevance ought to be presumed due to the Administrator's intentional destruction of documents.*fn43 Because I have already found that the destruction of evidence was not done willfully, plaintiff has failed to show relevance and is not entitled to an adverse inference instruction.

  C. Admissibility of Evidence

  "Where the scope of review is under the arbitrary and capricious standard, the rules are clear — district courts may only consider the evidence that the fiduciaries themselves considered."*fn44 Thus, the only evidence I can consider is that contained in the administrative record.

  V. CONCLUSION

  For the foregoing reasons, plaintiff's motion to apply a de novo standard of review is denied. The Clerk of the Court is directed to close this motion [Docket #33]. A conference is scheduled for October 28, 2005 at 4:30 pm.

  SO ORDERED.

20051011

© 1992-2005 VersusLaw Inc.



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