On May 10, 2018, the 6th Circuit vacated the District Court for the Western District of Kentucky’s 2013 decision in “Clemons v. Norton Healthcare Inc. Retirement Plan”, No. 16-5124 (6th Cir. 2018). The District Court had granted summary judgment in favor of a class of former Norton Healthcare workers who chose to retire early and said their lump-sum retirement distributions were miscalculated. In 1991, Norton had merged predecessor retirement plans into one Plan governed by ERISA. As of 1997, the Plan included a traditional defined-benefit formula applicable to members of the predecessor plans, and a cash-balance formula applicable to all other plans. In 2004, the Plan was amended to end accruals under the defined-benefit formulas and allow further accruals only under the cash-balance benefit formula. The retirees brought the class action in 2008, alleging the company was shortchanging them under the terms of the plan. The court certified the class in 2011 and eventually granted the Retirees summary judgment.
However, a Sixth Circuit three-judge panel concluded that a portion of plan’s terms was ambiguous, and Judge Russell should have applied Firestone deference (Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989), which would have required him to defer to the plan administrator’s interpretation of the terms unless it was arbitrary or capricious. Most notably, the court clarified that the doctrine of contra proferentum (a common law standard that allows courts to interpret ambiguous contract provisions in a way that goes against the interests of the contract drafter) should not apply when plan administrators have been given the discretion to construe the terms of the plan. The court stated contra proferentum is inherently incompatible with the Firestone deference.
As a result, the Sixth Circuit vacated Judge Russell’s decision to certify the class and award them damages, finding the Supreme Court’s holding in Wal-Mart Stores Inc. v. Dukes, 131 S. Ct. 2541 (2011) required the judge to take a closer look at due process concerns that can arise “when a case involves individualized damages awards” before certifying a class or awarding them damages.
The Sixth Circuit considered whether ordering courts to disregard contra proferentum principles when Firestone deference applies could incentivize plans to draft ambiguous language, but concluded such outcome was unlikely. Although it remains to be seen how this Clemons decision will be applied in future cases, it is likely courts in the Sixth Circuit will grant plan administrators given Firestone deference greater leeway in their benefits determinations, even in the face of ambiguous plan language.