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6th Circuit Definitively Rejects the Use of Contra Proferentum...

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  • 6th Circuit Definitively Rejects the Use of Contra Proferentum...

    6th Circuit Definitively Rejects the Use of Contra Proferentum in Conjunction with Abuse of Discretion Standard of Review

    Attached hereto is a case out of the Sixth Circuit, Clemons, et. al. v. Norton Healthcare, Inc. Retirement Plan. The opinion is lengthy, but I wanted to post the section of the opinion dealing with the use of contra proferentum in the context of discretionary plan language. In this opinion, the Court definitely decides that contra proferentum cannot be employed with the plan grants discretionary authority. The Court did not abandon the doctrine entirely, however, and found that it can still be employed when determining whether or not the language of the plan is sufficient to delegate discretionary authority.

    However, we have also suggested in dicta that the common-law doctrine of contra proferentum might apply to ERISA cases. The doctrine is traditionally used to construe ambiguous terms against the drafter of a contract. Our precedent has not been a model of clarity on the issue—in some cases, we have implied that it sweeps broadly; in others, we have expressed confusion about how contra proferentum and Firestone deference can apply at the same time. Compare Univ. Hosps. of Cleveland v. Emerson Elec. Co., 202 F.3d 839 (6th Cir. 2000), with Smiljanich v. Gen. Motors Corp., 182 F. App’x 480, 486 n.2 (6th Cir. 2006).

    The district court recognized this confusion and did its best to obey these cases insofar as it understood them. Although the court ultimately disclaimed any reliance on the rule to decide the case, the doctrine reappears at least five times throughout the court’s substantive analysis. Our review of the plan documents and the parties’ disputes leads us to conclude that the Plan is ambiguous on an issue of significant importance to the parties—whether the early retirement reducers apply to the Retirees bringing this lawsuit. We think, therefore, that the law’s treatment of this ambiguity is necessary to the outcome here, and compels us to examine whether contra proferentum can be used in conjunction with Firestone deference. We conclude that it cannot.


    It appears that dicta on this issue first appeared in our cases in 1993. See Tolley v. Commercial Life Ins. Co., 14 F.3d 602 (table) (6th Cir. 1993) (per curiam). That panel declined to reach the question because the insurance policy in dispute was not ambiguous. Id.; see also Schachner v. Blue Cross & Blue Shield of Ohio, 77 F.3d 889, 895 n.6 (6th Cir. 1996) (same); Swisher-Sherman v. Provident Life & Accident Ins. Co., 37 F.3d 1500 (table) (6th Cir. 1994) (per curiam) (same).

    In Perez v. Aetna Life Insurance Co., however, the en banc court issued stronger dicta on the subject. In that case, we stated, without qualification: “The rule of contra proferentum provides that ambiguous contract provisions in ERISA-governed insurance contracts should be construed against the drafting party.” 150 F.3d 550, 557 n.7 (6th Cir. 1998) (en banc). The dispute in Perez was whether a particular plan provision gave the administrator discretion to decide sufficiency-of-the-evidence questions. Id. at 556–57. However, the court found that the plan unambiguously did provide for such discretion, and thus did not need to apply contra proferentum. See id. at 557 n.7.
    In University Hospitals, a panel went further, but still did not move from dicta to a holding. University Hosps. of Cleveland v. Emerson Elec. Co., 202 F.3d 839 (6th Cir. 2000). In that case, we stated that “to the extent that the [p]lan’s language is susceptible of more than one interpretation, we will apply the ‘rule of contra proferentum’ and construe any ambiguities against Defendants/Appellees as the drafting parties.” Id. at 846–47. However, we ultimately concluded that the defendant’s interpretation of the plan was implausible. Id. at 850. Since the panel concluded that the plan was unambiguous in the plaintiff’s favor, its statements on contra proferentum were dicta.

    We have since addressed University Hospitals and the doctrine of contra proferentum at least seven times. Three times, we found no ambiguity and thus did not address any potential conflict between contra proferentum and Firestone. See Osborne v. Hartford Life & Accident Ins. Co., 465 F.3d 296, 300 (6th Cir. 2006); Marquette Gen. Hosp. v. Goodman Forest Indus.,315 F.3d 629, 632 (6th Cir. 2003); Ziegler v. HRB Mgmt., Inc., 182 F. App’x 405, 408 (6th Cir. 2006). Three other times, we have criticized the doctrine on various grounds. Mitzel v. Anthem Life Ins. Co., 351 F. App’x 74, 82 (6th Cir. 2009) (“Limiting the application of the contra proferentem rule to cases in which an administrator’s decision is reviewed de novo strikes us as the only sensible approach . . . .”); Smiljanich v. Gen. Motors Corp., 182 F. App’x 480, 486 n.2 (6th Cir. 2006) (concluding that applying contra proferentum would be improper where Firestone deference applies); Mitchell v. Dialysis Clinic, Inc., 18 F. App’x 349, 353–54 (6th Cir. 2001) (characterizing the statements in University Hospitals, Perez, and Schachner as nonbinding dicta).

    The only contrary case appears to be Copeland Oaks v. Haupt, 209 F.3d 811 (6th Cir. 2000). The Copeland Oaks court never used the term contra proferentum. But in holding the plan administrator had abused her discretion, the court stated that Firestone deference should not be understood to allow a plan to “avoid a default rule of insurance law applicable in the ERISA context merely by giving itself discretion to interpret the plan.” Id. at 813. The court went on to state that “even an arbitrary and capricious standard of review can be tempered by considering conflicts of interest such as those implicit in any self-funded plan, and by construing ambiguities against a plan drafter.” Id.

    This last statement went beyond the holding in Copeland Oaks. That case dealt solely with the issue of whether Firestone discretion allowed the plan to avoid a default rule of federal insurance law (the “make-whole” rule). Id. We concluded that the plan could not avoid default obligations that we have imposed on all ERISA plans simply by interpreting the plan to its advantage. Id. Instead, we required a clear statement before we would conclude that the parties had chosen to abandon the make-whole rule. Id. at 813–14. This result is not obtained by “tempering” arbitrary and capricious review, but instead is mandated by a cardinal principle of administrative law: that ambiguity does not give administrators license to ignore fundamental policy judgments made by the governments that supervise them. Cf. Util. Air Regulatory Grp. v. Envt’l Protection Agency, 134 S. Ct. 2427, 2444 (2014); Food & Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 125–26, 132–33 (2000).

    Contra proferentum has nothing to do with this logic. It applies as a sort of equitable estoppel between parties to a contract, not as a way for parties to escape the strictures of public policy. See, e.g., Merrimack Valley Nat’l Bank v. Baird, 363 N.E.2d 688, 690–91 (Mass. 1977) (“The author of the ambiguous term is held to any reasonable interpretation attributed to that term which is relied on by the other party.”). Thus, suggestions in a case dealing with the latter issue are not necessarily helpful in the former cases.


    Faced solely with a mountain of dicta, we move from law to reason. And we think that contra proferentum is inherently incompatible with Firestone deference. Thus, we hold that when Firestone applies, a court may not invoke contra proferentum to “temper” arbitrary-and capricious review. However, when it is not clear whether the administrator has, in fact, been given Firestone deference on a particular issue, we think the doctrine still has legitimate force.


    In Firestone, the Court rejected the Plan’s position that arbitrary-and-capricious review should be the norm in denial-of-benefits cases. Before ERISA, a denial-of-benefits lawsuit was governed by ordinary contract law, unless the plan itself “g[a]ve the employer or administrator discretionary or final authority to construe uncertain terms.” Firestone, 489 U.S. at 112–13. When it enacted ERISA, Congress relied heavily on concepts of trust law, including the fundamental rule that the courts would construe trust terms “without deferring to either party’s interpretation.” Id. at 112. The Court was therefore skeptical that Congress meant to give employees less protection under ERISA than they possessed under pre-ERISA contract law. But even though de novo review was the default rule, the Court recognized a significant exception. It observed that “when trustees are in existence, and capable of acting, a court of equity will not interfere to control them in the exercise of a discretion vested in them by the instrument under which they act.” Id. at 111 (quoting Nichols v. Eaton, 91 U.S. 716, 724–25 (1875)) (emphasis supplied by the Firestone Court). In other words, parties to a trust may, by contract, remove certain decisions from the de novo supervision of an equity court. Id. A trustee therefore cannot violate the terms of the trust he or she was vested with authority over, but could violate the vesting clause itself through an abuse of discretion. Id. at 114–15.

    The contra proferentum doctrine is, at its core, a rule of equity. See RESTATEMENT (SECOND) OF CONTRACTS § 206 cmt. a (noting that the principle’s “operation depends on the positions of the parties as they appear in litigation, and sometimes the result is hard to distinguish from a denial of effect to an unconscionable clause”).2 It compels a drafting party to be honest about its offer up front, by threatening to construe terms “against the offeror” if he attempts to hoodwink the other party. Id.; Contra Proferentem, BLACK’S LAW DICTIONARY (10th ed. 2014). The rule’s equitable nature and its stated goals suggest that it does not make a good roommate for Firestone, but that it might make a good neighbor.


    As a practical matter, we do not think a court can apply Firestone deference and contra proferentum to the same case without contradiction.

    First, the Firestone Court labeled the discretion-vesting clauses as a turning point in the character of an ERISA plan. By conferring discretion on the administrator of a plan, ordinary rules of equity no longer operate to control the administrator–trustee absent an abuse of discretion that violates the vesting clause itself. See Firestone, 489 U.S. at 111. It follows that contra proferentum, as an equitable rule, should not be injected to micromanage this discretion or tip the scales in close cases. Whatever the precise contours of Firestone deference, it must include the ability to choose between two reasonable interpretations of the Plan, and that is precisely the situation in which the traditional contra proferentum rule operates against the drafter.

    Indeed, the very point of vesting discretion in someone is to trust his or her judgment when you are lost at sea or when you need to solve a Gordian knot. It makes little sense to revoke that discretion when it is needed most—in difficult cases where there is no clear answer. In effect, applying contra proferentum when language is ambiguous generates a paradox where the administrator can only exercise his discretion when it is not needed, i.e., when the plan language is clear. We are certain that this is not what the Supreme Court had in mind when it decided Firestone.

    Second, we doubt that plan-construction and denial-of-benefits decisions will be influenced by a contra proferentum rule. Courts construe ambiguities against a drafter to remind the next drafter to state his terms clearly when he comes to the negotiating table. It is a prophylactic rule, not a remedial device. See RESTATEMENT (SECOND) OF CONTRACTS § 206 (noting that the primary aim of the rule is to discourage drafters from being “deliberately obscure”). But the kind of benefits and plan-construction decisions contemplated by ERISA are far removed from contract negotiations, where parties cannot reasonably be expected to foresee every possible negative consequence of the language they use. Indeed, it is this very uncertainty that often compels parties to vest discretion in the administrator, rather than risk de novo review under Firestone. The presence of an obvious vesting clause makes it hard to believe that beneficiaries will be duped by a “deliberately obscure” clause in the plan, since they have already agreed to trust the administrator’s judgment in those obscure cases. And it is equally hard to believe that the administrator would deliberately write obscure benefits provisions, since that can easily develop into a headache later on (or perhaps a ten-year-long, class-action lawsuit). Thus, we do not see how contra proferentum has any worth as a prophylactic in these cases.


    Neither do we think that contra proferentum can be “weighed” in the final analysis “in determining whether there is an abuse of discretion.” Firestone, 489 U.S. at 115 (citation omitted) (quotation marks and brackets removed); Copeland Oaks, 209 F.3d at 813 (suggesting this approach). An administrator’s conflict of interest is properly considered in this analysis, because fiduciaries are absolutely forbidden from acting with ulterior motives. Firestone, 489 U.S. at 115–16; RESTATEMENT (THIRD) OF TRUSTS § 78, cmt. b. Depending on the severity of the conflict, discretion exercised under these circumstances can easily be capricious, in the sense that the action is done without regard for the best interests of the beneficiary. See id.

    Plan ambiguities do not work this way. If the administrator deliberately makes the Plan ambiguous so that it can invoke deference to serve its own interests, we might consider that fact under Firestone. But we would do so under the conflicts-of-interest rubric and the breach-of trust doctrine, not because the plan was ambiguous. In other words, the equitable impulse to construe the Plan against the drafter comes from the administrator’s malfeasance, not from the Plan’s language. To the extent that we would “temper” arbitrary-and-capricious review by construing language against the administrator, we would do so only to take account for this kind of misbehavior.


    This does not mean that we abandon contra proferentum entirely. The Firestone Court made it clear that modifying the presumption of de novo review is a contractual decision. 489 U.S. at 115. And unlike denial-of-benefits and plan-construction decisions, defer-or-not decisions are at the forefront of ERISA plan negotiations, because that is where Firestone puts them. Indeed, the parties’ agreement on the Firestone procedural rules may often be more important than the substance of the plan itself. In the immortal words of Rep. John Dingell: “I’ll let you write the substance . . . you let me write the procedure. I’ll screw you every time.” Hearing on H.R. 2327, 98 Cong. 312 (1983).

    Thus, we see the wisdom of applying contra proferentum to the threshold question of whether Firestone deference exists. The administrator has an obvious desire to operate under Firestone and an equally obvious motivation to obtain that result in a deliberately obscure manner. We do not think it was an accident that our first unequivocal statement on this subject occurred in an en banc case where the defer-or-not question was at issue. Perez v. Aetna Life Ins. Co., 150 F.3d 550, 557 n.7 (6th Cir. 1998) (en banc). And if beneficiaries are to give the administrator the kind of trust inherent in Firestone deference, they ought to do so on purpose, not as the result of ambiguity.3 But since no one disputes that the Norton plan gives the administrator Firestone deference here, this issue can be resolved at a later time.

    In sum, we hold that if the Plan clearly gives the administrator Firestone deference, then contra proferentum has no place in reviewing the administrator’s decisions. The arbitrary-and capricious standard stays intact.
    Attached Files