26 F.4th 114
2d Cir.2022Background
- Nancy J. Soto, a longtime Walt Disney employee, suffered a stroke and other medical problems in 2016–2017 and was unable to work; Disney terminated her employment in January 2018.
- Disney paid sick pay and long‑term disability benefits but denied severance under the Disney Severance Pay Plan after Soto applied in June 2018.
- The Plan requires three eligibility elements: Eligible Employee status, written notice that the employee is a Plan "Participant," and that the employee experienced a qualifying "Layoff."
- "Layoff" is defined as an "involuntary termination of employment" (except for poor performance or misconduct) but excludes any involuntary termination that does not qualify as a "separation of service" under Section 409A and related Treasury regulations; the Plan grants the Administrator sole, absolute discretion to construe terms and determine benefits.
- The Plan Administrator denied Soto’s claim on the ground that termination for disability did not constitute a qualifying "Layoff" under the Plan; Soto sued under ERISA § 502(a)(1)(B) (benefits) and § 502(a)(3) (reformation).
- The District Court dismissed; the Second Circuit affirmed, holding Soto did not plausibly plead that the Administrator’s interpretation and denial were arbitrary and capricious; a dissent would have found the Plan unambiguous and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standard of review for Plan interpretation | Plan language is unambiguous so de novo review should apply | Plan vests Administrator with "sole and absolute discretion," so arbitrary-and-capricious review applies | Administrator discretion exists and term is ambiguous in context → arbitrary-and-capricious review applies |
| Whether termination for disability qualifies as a Plan "Layoff" | Soto: termination due to disability is an "involuntary termination" within the Plan’s definition, so she is eligible for severance | Disney/Administrator: Plan requires consistency with §409A; regulations define "involuntary" to require employee be able/willing to work, excluding disability-based terminations | Court: reasonable bases (including §409A conformity and Plan text) support Administrator’s interpretation; denial not arbitrary and capricious |
| Notice / Participant status prerequisite | Soto: Administrator withheld written notice solely because it deemed her not to have a qualifying Layoff; notice should have been given under correct interpretation | Disney: written notice is required and was properly withheld because Administrator reasonably concluded Soto wasn’t a Participant (no qualifying Layoff) | Held that Soto failed to plausibly allege arbitrary withholding of notice; dismissal affirmed |
| Reformation remedy under ERISA §502(a)(3) | Soto: alternatively seeks equitable reformation of Plan to conform to ERISA and her reasonable understanding | Defendants: Soto is not a Plan participant/beneficiary and has not shown entitlement to equitable relief | Court: because Soto failed to plausibly show participant status or arbitrary denial, reformation claim fails; dismissal affirmed |
Key Cases Cited
- Roganti v. Metropolitan Life Ins. Co., 786 F.3d 201 (2d. Cir. 2015) (arbitrary-and-capricious standard applies when plan grants administrator discretionary authority)
- Official Committee of Unsecured Creditors of Color Tile, Inc. v. Coopers & Lybrand, LLP, 322 F.3d 147 (2d. Cir. 2003) (a plaintiff may plead himself out of court)
- O'Neil v. Retirement Plan for Salaried Employees of RKO General, Inc., 37 F.3d 55 (2d. Cir. 1994) (unambiguous plan language is reviewed de novo)
- Fay v. Oxford Health Plan, 287 F.3d 96 (2d. Cir. 2002) (test for plan ambiguity: capable of more than one meaning in context)
- Testa v. Becker, 910 F.3d 677 (2d. Cir. 2018) (standard of review on Rule 12(b)(6) motions and pleading rules)
- Laurent v. PricewaterhouseCoopers LLP, 945 F.3d 739 (2d. Cir. 2019) (§502(a)(3) may authorize equitable relief including reformation to remedy ERISA violations)