The debate over deference in the ERISA setting - judicial review of decisions by conflicted fiduciaries.

• Author: Harmon, Roy F., III

The federal courts have frequently applied administrative law principles in the Federal Employee Retirement Income Security Act (ERISA) setting to channel benefit disputes into an efficient decisional framework. Though framed in terms of trust law, the standard of review applied in most ERISA cases is essentially the same as that applied when federal courts review administrative agency actions. In both contexts, the standard of review can afford broad discretion to decision-makers and suppress inquiries, and thereby disputes, regarding matters outside the administrative record.

This article suggests that the recent United States Supreme Court decision in Metropolitan Life Insurance Co. v. Glenn (1) can be viewed as yet another alignment of ERISA judicial review with the administrative law paradigm. On this occasion, the U.S. Supreme Court drew upon administrative law jurisprudence concerned with the thoroughness and reliability of the administrative record. While pointedly concerned not to burden the federal judiciary with de novo review, the Court fashioned a factor-based analysis of conflicts of interest that permits substantial flexibility in judicial review of the sufficiency and accuracy of the administrative record. (2)

Though maintaining trust law as the frame of reference for ascertaining the standard of review, Glenn actually reduces the emphasis on trust principles by: (1) taking an expansive view of when conflicts of interest may be found to exist, and (2) expanding the relevant factors for judicial consideration when conflicts of interest are found. By so doing, Glenn confers broader authority on district courts to evaluate the administrative record's factual basis for completeness and reliability.

This article begins with a review of the nexus between administrative law and ERISA benefit determinations as reflected in pre-Glenn case law. This analysis will include an overview of the several efficiency-based administrative law principles incorporated into the federal common law of ERISA.

Thereafter, the article will examine the emergence of the ERISA standard of review, with particular attention to conflict of interest issues, from the U.S. Supreme Court's first attention to this problem in Firestone v. Bruch (3) to the recent guidance on this issue in Glenn. In conclusion, it is submitted that the U.S. Supreme Court's decision in Glenn favors analogy to administrative law principles germane to judicial review, particularly as they may bear on the integrity of the administrative record.

1. THE INCORPORATION OF ADMINISTRATIVE LAW PRINCIPLES IN JUDICIAL REVIEW OF ERISA CLAIMS ADJUDICATION

   Three principal models have influenced the derivation of rules for the judicial review of decisions of ERISA plan administrators: (1) contract law, (2) trust law, and (3) administrative law. The fiduciary responsibilities imposed by ERISA naturally suggest analogies to trust law. Administrative law, however, rivals trust law as a frequent resource for the federal judiciary in matters of claims adjudication.

   The ascendancy of administrative law principles as a paradigm for judicial review of decisions by benefit administrations has not been without its critics. (4) In fact, the courts' frequent citation of trust law principles as a decisional reference, as opposed to administrative law principles, may derive in part from hesitancy to commit fully to the implications that follow from the administrative law analogy. After all, benefit administrators are not subject to public scrutiny, as are administrative law judges or appointed government officials. Nor do procedural constraints protective of due process apply, such as those afforded by the Administrative Procedures Act (APA).

   Nonetheless, in virtually every important procedural aspect of judicial review in ERISA cases, the federal courts have resorted to administrative law principles as a guide. In fact, far from critical of these developments, the United States Supreme Court's decision in Glenn recently gave further warrant to consultation of administrative law principles in judicial review of benefit denials.

   For example, in commending a factor-based assessment, Justice Breyer noted that:

   This kind of review is no stranger to the judicial system. Not only trust law, but also administrative law, can ask judges to determine lawfulness by taking account of several different, often case-specific, factors, reaching a result by weighing all together. See Restatement [section] 187, Comment d, cf., e.g., Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415-17 (1971) (review of governmental decision for abuse of discretion); Universal Camera Corp. v. NLRB, 340 U.S. 474 (1951) (review of agency factfinding). (5) Also, in noting the potential countermeasures that could mitigate conflicts of interest, Justice Breyer applied analogies drawn from the regulatory context. (6)

   Without attaching undue significance to such references, the many administrative law parallels drawn by the federal courts in judicial review of claims administration equally caution against giving the analogy too little regard. Despite the discontinuities inherent in proceedings before benefit plan administrators and those before government agencies, the federal courts have found it useful to borrow from administrative law principles and they have done so liberally. On the view that explicit comparisons between the two contexts can explain and influence judicial conduct, this analysis will begin by briefly examining the elements of administrative law historically employed by the federal courts in ERISA claims adjudication.

2. OVERVIEW OF ADMINISTRATIVE LAW PRINCIPLES APPLIED IN REVIEW OF ERISA CLAIMS ADJUDICATION

   The incongruities between proceedings before a federal administrative agency and benefit determinations of a private ERISA plan administrator are significant. Before proceeding to the administrative parallels, some distinctions should be noted.

   ERISA benefit plan adjudications proceed in a relatively informal manner when compared to proceedings before governmental agencies. (7) ERISA places adjudicatory power, not in the hands of administrative law judges or publicly appointed officials, but rather in the hands of plan administrators, who may frequently have a vested interest in the proceedings. ERISA plan administrators do not promulgate regulations or engage in rulemaking, per se, although plans must be administered according to plan documents that plan fiduciaries may have drafted or amended themselves.

   Furthermore, as private entities, benefit administrators operate outside of the due process and procedural constraints that apply to governmental agencies. For example, the Administrative Procedures Act (8) provides a set of rules governing how federal administrative agencies (9) may propose and establish regulations and procedures for judicial review of agency decisions. As private entities, ERISA plans lie beyond the reach of the APA.

   In the case of federal agencies, Congress enacted the APA to ensure accountability by requiring notice of administrative agency operations, establishing uniform standards for rulemaking and adjudication, and providing rules for judicial review. (10) In the case of ERISA claims adjudications, however, the incorporation of procedural rules has progressed largely by judicial flat.

   A notable exception exists in the case of ERISA health and disability plans. The Department of Labor imposed additional requirements on these plans requiring "reasonable procedures governing the filing of benefit claims, notification of benefit determinations, and appeal of adverse benefit determinations...." (11) Nevertheless, the boundaries of judicial review, as narrowly interpreted by the federal judiciary, have limited accountability for lapses in procedural requirements under these regulations. (12)

   Despite these and other significant discontinuities, the incremental incorporation of administrative law principles into review of ERISA benefit adjudications demonstrates the value of evaluation of the positive points of comparison. A brief review of the judiciary's adoption of administrative law principles illustrates a common purpose of promoting efficiency, i.e., judicial economy.

   The importation of administrative law principles, evidenced by the following examples, (13) lays the foundation for evaluating the U.S. Supreme Court's recent comparison of trust law and administrative law in Glenn. Subsequently, it will be contended in Part VII, infra, that Glenn's allusion to administrative law principles is of a piece with these examples and warrants argument by analogy to additional administrative law principles in appropriate cases.

   1. EXHAUSTION OF ADMINISTRATIVE REMEDIES

      Though ERISA does not impose a requirement that claimants exhaust plan administrative processes before filing an action under the statute's civil remedies provisions, the federal courts have incorporated this requirement into ERISA. Drawing upon "well-settled principles of administrative law [,]" (14) as well as perceptions of Congressional intent, the federal judiciary requires exhaustion of administrative remedies under the plan as an essential prerequisite to relief under 29 U.S.C. [section] 1132. (15)

   2. REVIEW LIMITED TO THE ADMINISTRATIVE RECORD

      Under administrative law principles, the existing administrative record comprises the focal point for judicial review, "not some new record made initially in the reviewing court." (16) Under the Administrative Procedures Act (APA), for example, the task of the reviewing court is to apply the appropriate standard of review to the agency decision, pursuant to 5 U.S.C. [section] 706, based on the record the agency presents to the reviewing court. (17)

      Granted, these principles are developed under the APA and have statutory antecedents from that context. Nonetheless, the federal courts have applied similar requirements in ERISA cases. If an abuse...