Insight From Posner on Abuse of Discretion
Judge Richard Posner of the U.S. Court of Appeals for the Seventh Circuit wrote an opinion earlier this week, Call v. Ameritech Management Pension Plan, ___ F.3d ____, 2007 U.S. App. LEXIS 365 (7th Cir. 2007), dealing with pension issues in an ERISA case. I won’t get into the merits of the case because, quite honestly, they were tedious to me. But at the end of the opinion Judge Posner makes some enlightening comments about judicial review when dealing with an abuse of discretion standard of review, also referred to by many courts as an arbitrary and capricious standard of review.
As I’ve mentioned before, abuse of discretion is a difficult standard of review for claimants because it requires them to prove that the ERISA plan administrator’s decision was “arbitrary and capricious” or, as some courts have put it, completely unreasonable. Posner’s comments cast that deferential standard of review in another light, a more nuanced perspective.
He states, “. . . the term ‘abuse of discretion’ covers a range of degrees of deference rather than denoting a point within that range, and where a particular case falls in the range depends on the precise character of the ruling being reviewed.” Then, after noting that the lack of any reasoned basis for an interpretation of an ERISA plan document is unreasonable, Posner goes on to say:
"Deference is relative to the nature of the issues, including their complexity. . . . The more complex, the greater the range of reasonable resolutions. In addition, ‘Deference depends on ambiguity.’ . . . The points are related. The more numerous and imponderable the factors bearing on a decision, the harder it will be for a reviewing court to pronounce the decision unreasonable and hence an abuse of discretion. But the interpretation of written contracts in cases in which no extrinsic evidence (that is, no evidence–besides the contract itself) is presented is usually pretty straightforward. There are the contract’s wording, some commonsensical principles of interpretation, and the commercial or other background of the contract insofar as that can be gleaned without taking evidence. When guides to meaning line up on one side of the case, as they do here, an adjudicator who decides the case the other way is likely to be acting unreasonably. Just as unambiguous terms of a statute leave no room for the agency that administers the statute to exercise interpretative discretion, so unambiguous terms of a pension plan leave no room for the exercise of interpretive discretion by the plan’s administrator . . .” (citations omitted).
Judge Posner’s articulation of these concepts is helpful because it steps the abuse of discretion analysis up to a higher level. Synthesize it with the Tenth Circuit’s statement that there is a continuum of reasonableness when dealing with an arbitrary and capricious standard of review and that even decisions on the low end of the continuum may pass muster. Posner’s analysis illustrates that the spectrum for proper decision-making differs from case to case and that for cases that are relatively simple with unambiguous plan language, the continuum on which the decision must fall to be considered “reasonable” may be very short.