Blankenship v. Liberty Life Assurance Co. of Boston

JR., CANBY, Before WILLIAM C. NOONAN, A. T. and RICHARD JOHN PAEZ, Judges. Circuit PAEZ; Opinion by Judge Concurrence by Judge NOONAN.

PAEZ, Judge. Circuit Liberty Company Life Assurance Life”) (“Liberty the dis- appeals Boston disability trict court’s award of Blankenship, following a court trial Vorris Employment his claims under the Re- on (“ERISA”) Act Security tirement Income 502(a)(1)(B) 502(a)(3). § 1132(a). Liberty not challenge Life does ruling the district court’s disability long-term was entitled to Instead, Liberty that the argues fits. owed should have been reduced the amount to his of retirement benefits transferred (“IRA”) Account Individual Retirement upon Liberty his retirement. Life also in- challenges 10.01-percent the use of a prejudgment inter- terest rate to calculate jurisdiction est. have under 28 U.S.C. We and we affirm. FACTS & PROCEDURAL HISTORY dispute. are not in facts Vorris Blankenship, attorney employed by (“KPMG”), developed KPMG LLP cancer. complications He suffered severe re- sult of his medical treatment. Blanken- him ship’s treating physician informed Bonino, Cogan, E. Ka- Mark G. Pamela that, although undergo surgery he could Nadeau, Jose, thryn Curry, C. Elisa San situation, it attempt improve was not CA, defendant-appellant. for the surgery could cause advisable because Kalkin, Francisco, CA, complications for the further and exacerbate his Scott San plaintiff-appellee. condition. IRA, to an with the sum direct rollover Life, and fiducia- administrator Long-Term options payment Employee additional KPMG

ry of the Plan”), of (“Disability installments or deferred distribution Disability Plan member, initial- until reached the funds 1998 that Blanken- 70}L in June ly determined long-term ben- qualified for

ship both ac- Blankenship chose to roll over However, efits under managed by counts into an Liberty Life sent April Vanguard Fiduciary Company Trust him that informing Blankenship a letter 11, 2000, December (“Vanguard”). On because would be terminated his benefits $29,291, representing KPMG transferred there were alter- that it had determined Blankenship’s in Pension Plan the amount improve could native treatments account, January IRA. Vanguard to his On deci- Blankenship appealed the condition. $761,149, 9, 2001, KPMG transferred later, in Liberty Life. Five months sion ac- Blankenship’s in PAR Plan amount 2000, rejected Liberty Life September count, IRA. The Disabili- to the appeal, reaffirming prior its Plan that “other income bene- ty benefits, adding and to terminate decision the total fits” be deducted from reasons for the determination. additional the insured. disability paid benefit Blankenship Life also informed Liberty other income benefits are defined These exhausted his administrative that he had the in- amount of benefits “[t]he include final. and that its decision was remedies retire- employer’s receives under the sured 2000, KPMG termi- September On (a) any disability plan ment as follows: Blankenship, who was 64 at nated (b) benefits; any benefits.” retirement time, Upon failure to return to work. added). “Retirement benefits” (emphasis termination, eligible Blankenship became money from a retirement are defined as benefits from several to receive retirement which: plan1 In a plans with KPMG. of his retirement (1) plan payable under a retirement is letter, Blanken- KPMG informed written in or in the form of lump either sum of these options of his for distribution ship periodic payments; Pension Plan of- The KPMG benefits. (2) contributions represent does not joint and the benefits as either fered ...; and by made of Blanken- annuity for the lives survivor (3) payable upon: lump-sum or as a ship spouse and his (a) retirement; or early or normal could lump-sum payment The payment. (b) if does not disability payment Blankenship, or directly to be distributed money which reduce the amount into an IRA elect to “roll over he could paid at the normal would have been vehicle.” The qualified or other tax if the plan under the Account for Retirement KPMG Personal not occurred. had (“PAR Plan”), a defined-contribution Liberty Life and sued employer in contributed Disability Plan to recover benefits of Blanken- equal amount to 1.5 502(a)(1)(B) eq- appropriate an ERISA salary year, each also allowed for ship’s 502(a)(3). ERISA uitable relief under payment, lump- or a annuity, lump-sum plan” under the parties agree the Pension and ment 1. Both "retire- Plans fall within the definition of PAR (a)(3). 1132(a)(1)(B) Liberty appeal §§ Life does not the district See court’s determination that as did the district parties agreed, long-term disability court, was entitled to apply the court should de Instead, Liberty argues fits. that the determining novo standard of review benefits owed entitled to dis- by should have been reduced the retire- Disability Plan ability because the benefits ment from the and PAR Pension give fiduciary administrator or did “the Liberty appeals Plans. Life also the inter- discretionary authority eligi- to determine prejudgment est rate used to calculate in- bility for or to construe the terms terest. Tire & Rubber plan.” Firestone Co. Bruch, 101, 115, 489 U.S. S.Ct. DISCUSSION (1989); Abatie v. 103 L.Ed.2d 80 see also Co., Alta Health & Ins. A. banc) (9th Cir.2006) (en (discussing We first address Life’s chal- standards of review to be used courts lenge ruling to the district court’s that it is reviewing cases which ERISA-covered not entitled to long-term deduct the dis- benefits). plan administrators have denied ability payments Blankenship by due the trial, court Following a court the issued retirement benefits transferred to Blank- Law, Findings of Fact and of Conclusions IRA enship’s Vanguard. Disability subsequently it which amended. The dis- requires Plan that “other income benefits” trict court found that was “to- be deducted from the total dis- tally disabled” under the terms of the Dis- ability payments paid benefit in- the ability Plan and entitled to award of sured. These other income benefits are costs, benefits, fees, attorney’s pre- and defined to include amount of “[t]he bene- judgment interest. The district court also employ- fits the insured receives under the determined that Life was not enti- (a) plan any er’s retirement as follows: by tled to reduce the benefits owed the (b) benefits; any retirement ben- amount of outside retirement benefits added). (emphasis efits.” The issue here is transferred to because whether “received” his retire- these benefits were not “received” they ment funds when were transferred to required by Disability the IRA under the terms the (1) ruling Plan. The court based its on: the (2) Plan; Disability text of the the distinc- We review de novo a district (“IRC”)

tion in the Internal Revenue Code regarding court’s determinations the text (a between a trustee-to-trustee transfer plan, of an including plan ERISA rollover”) rollover; 60-day “direct and ambiguous. terms are Cisneros v. UNUM (3) the plain meaning of the word “re- Am., (9th Ins. Co. 134 F.3d 942 (4) Life ceives”; policy Age and the behind the Cir.1998); Metropolitan see also Ins. Discrimination Act Employment Parker, (9th Co. v. (“ADEA”) provision permits em- Cir.2006) Cisneros, (citing 134 F.3d at ployers long-term disability to offset 942). pension fits with benefits. The court en- judgment tered in favor of begin by We recognizing the term $325,451.28, amount which included Disability “receives” is not defined in the prejudgment interest at a rate of 10.01 appeal, parties accept Plan. On both fees, percent, attorney’s and costs. term “receive” to pos- mean “to take into the insured. “Other income benefits” control,” Blankenship fo- with session arguing categories to include two aspect, is defined possession cusing on of; custody col- an insured “re- accept “to benefits: those which that it means However, receipt ceives,” a definition of and those for which lect.” one based on possession and category The latter includes “eligible.” based out- may separate to two lead compensation, control workers’ oc- benefits under Thus, con- considered laws, when disease, comes. and other related cupational Plan, the term “re- Disability text of the any other disability income benefits apply ambiguous. We therefore ceives” is employer, insurance group we 'proferentem, rule of contra governmental under a supports the district conclude job em- system as a result of the with the determination. court’s Disability Plan The fact that the ployer. eligi- disability benefits based on reduces which is proferentem, Contra bility types certain with- payments, law and the by federal common recognized evidence that the individual requiring out the District of Co every state and law of applied or even payments received the lumbia, Trust see Kunin Benefit that, them, conclusion where supports the (9th Co., F.2d 538-40 Cir. Ins. Disability Plan a deduction “if, 1990), applying after holds “received,” the of funds benefits because construc of contractual principles normal to mean funds that properly term is read tion, fairly sus insurance contract is actually possession come into the interpretations, of two different ceptible insured. ap be rule of construction will another fa that is most interpretation plied: the re Blankenship elected to have adopted.” the insured will be

vorable to into his tirement funds rolled over applies interpret rule in at 539. The Id. that, these IRA. We hold under Vanguard in an ERISA-covered ambiguous terms ing circumstances, Blankenship did not obtain (1) plan: grants except where funds.2 We possession of his its discretion to construe administrator Vanguard’s sta this determination base (2) terms, of a collective- is the result the IRC and the tus as a trustee under (3) is self-fund bargaining agreement, were trans fact that funds v. Costco Wholesale ed. See Winters Vanguard KPMG to his ferred from (9th Cir.1995); F.3d Corp., 49 transfer. See through a trustee-to-trustee Co., 276, 279-80 Boeing Eley v. 401(a)(31)(A), 402(e)(6), §§ 26 U.S.C. Kunin, (9th Cir.1991); 910 F.2d at 540. 408(a). Ap here. exceptions apply these None of construe proferentem, we plying contra Vanguard that is Liberty argues Life possession to mean the term “receives” agent than designated as an properly more funds. through receipt actual of determin- purposes for the as a trustee re- receiving Blankenship’s in ing its role by the interpretation is buttressed This Liberty According to tirement funds. Disability Plan. As discussed terms a mere Life, acting is as Vanguard if above, that Disability Plan con- to the IRA would agent, the transfer from benefits” be deducted “other income Blankenship through receipt by paid stitute monthly disability benefits the total installments, pay- lump-sum or a parties had undisputed by that 2. It is ment, Disability owed Blank- Plan benefits directly receive the elected to accordingly. benefits, annuity, enship have been reduced would in the form of an view, however, gled property except if Van- with other in a com- Vanguard. In our fund; characterized as a trus- that guard properly mon trust or investment tee, in are no more Blanken- in the funds funds not be invested life insurance they contracts; than were before ship’s possession and that the interest of an indi- transfer, would be possession and vidual the balance of his or her account only at the time the funds were gained compli- be nonforfeitable. See id. It is IRA. In withdrawn from the the latter requirements ance with these that estab- circumstance, of funds to the transfer Van- lishes the custodian of a IRA as a trustee.3 actual guard receipt would not constitute Liberty argues cate the IRS’s meaning within the gorization of the transfer to a trustee ac bearing count has no on whether the funds context, Vanguard, in this lacks by Blankenship. were “received” Howev powers respon and most of the traditional er, relevant; clearly provides the IRC is characterize a trustee. It is sibilities that backdrop arguments. Life’s Blankenship who directs investment is, Liberty argues That that Blanken choices, Blankenship who controls the flow ship possessed and controlled his retire account, of funds in and out of the ment funds because at the time the funds any can at time Blankenship who termi Vanguard, were transferred to Blanken Nonetheless, nate the account. an IRA ship age was over the and was with established accordance IRC 591/2 permitted therefore 408(a) the IRC to special type constitutes trust money withdraw from his IRA account, without in which the custodian of the ac early-withdrawal penalty. See 26 U.S.C. particular obligations count must fulfill 72(t)(2)(A)(i). argument implies This must conform to certain restrictions. See 408(a). custodian, that if were under the acting trustee, at the time.the funds were transferred must ensure contribu 59J6 cash; account, into his the 10 tions to the account are made penalty early the contributions not exceed the amount withdrawal would create permitted the individual is a restriction on contribute the account that limited his year; each that the funds not be commin- possession and control of the funds.4 See supports age 3. The IRC further the Blankenship's conclusion 4. cannot be overlooked. Blankenship did not receive the holding retire- policy pur- Our is consistent with the through harbor, ment funds the direct rollover: under 4(Z) poses § behind the ADEA safe 402(a), employee § a IRC disbursal from an (3)(B), statutory authority which is the for an only “actually trust is taxable if it is distribut- employer-provided disability plan to reduce 402(a). § employee. ed” to the 26 U.S.C. See payments paid employee by pension to an However, a trustee-to-trustee transfer despite age-based impact benefits the of such employer plan which the distributes funds 623(l) (3) plan provision. § See 29 U.S.C. directly employee's exempt to the IRA is from (permitting employer-sponsored plan to 40l(a)(31)(A), §§ taxation. See U.S.C. by pension reduce contrast, 402(e)(6). 60-day In rollover "(A) paid to the individual that the individual transfer, which the distributes funds receive; (B) voluntarily elects to for which directly employee, requires to the the with- an individual who attained the has later of holding proceeds of 20 the tax of age eligible.”). 62 or normal retirement 402(c)(3), purposes. §§ See 26 U.S.C. explained As in Kalvinskas v. Insti- California rollover, 3405(c). 60-day the Under em- Technology. tute of funds, maintaining ployee receives control them, legislative history [The] over but he must transfer some or all of demonstrates that )(3)(B) days purpose § prevent the funds to an IRA within 60 to of was to 4{l avoid receiving tax on the transferred funds. income See 26 from the wind-fall of 402(c)(3). payments long-term U.S.C. simultaneous dis- 72(t)(l). Blankenship anything did not receive Thus, de the IRC transfer. He did not re- through this an IRA ac relationship between fines income, nor did he ceive the funds as holder and count custodian/trustee enjoyment of the the use and obli obtain the duties and through account Although Blankenship has bene- each, funds. and is imposes gations in the id.; ownership ficial of the funds Van- analysis. See to our relevant IRA, to rights well as the 408(a). guard was not Vanguard U.S.C. appoint a benefi- obtain those funds and was a Blankenship, but agent mere them, similarly possessed ciary of he pro IRA under the as established trustee when the funds rights these and benefits Internal Revenue Code. We visions plans, and held the KPMG did were Blankenship therefore conclude cannot be said to have re- therefore of his retirement possession not obtain anything in the transaction. ceived trans through the trustee-to-trustee funds Vanguard. fer from KPMG Thus, fact that could funds distributed withdraw the retirement doc- hold that under the Although we change not Vanguard into did the definition proferentem, trine of contra ability to control his funds. possession, is one that receipt type had the same Because gain not did we also note (and control) funds possession his re- authority to control any additional ac- Vanguard into the once transferred through the transfer to tirement funds have had were the that he would count acknowledged Vanguard IRA. KPMG, not “receive” funds left with he did if court that argument before this oral offset un- funds for the purposes these upon retirement Blankenship had elected Therefore, the dis- der the by leav- distribution of his funds to defer that Blank- properly court concluded trict account, would in his KPMG he ing them enship’s award of benefits was funds under the have “received” the not on the dis- subject to reduction based Disability Plan. There is no terms of the retirement benefits under tribution of his difference, however, between significant Pension Plans. the PAR and electing keep the funds through deferred distribu- KPMG’s care B. electing to transfer the funds tion and instances, may pre A court award IRA. In both district on an award of ERISA judgment interest choose to take out some Blankenship could See, e.g., Dish in benefits at its discretion. money penalty; without or all of the Am., 269 instances, Ins. Co. money belonged to man UNUM both (9th Cir.2001); Grosz-Salo by him F.3d 988 and would be held for Co., 237 F.3d Ins. mon v. Paul Revere explained: the district court a trustee. As retire). coercing retiring, effectively him to pension in full. In oth- ability and benefits words, 4(Z)(3)(B) poli- Congress to that the agree created the district court er We with is, permit employers bene- dipping,” to offset avoiding re- cy of "double necessary by pension to benefits when fits payments ceiving independent two benefit payments. avoid double once, electing By to apply here. did not 1996) (9th (holding Cir. F.3d 1309 96 retirement benefits into roll over his prohibi- employer violated the ADEA’s that an IRA, collecting addi- deferred an by reducing involuntary tion period, during time income the relevant tional by pension employee’s the avoiding concurrent income streams. by only receive could 628 (9th Cir.2001); dollars, v. half million and which had a 10.01- Blanton 1163-64 (9th

Anzalone, 1574, 1575 Cir. in inception 813 F.2d return since its June 1987). pre record, interest rate Generally, “the 2000. Based on this factual interest post-judgment scribed for “in Blank- court concluded that order for fixing appropriate 1961 enship adequately compensated to be interest unless pre-judgment the rate of Liberty’s wrongful nonpayment finds, evi on substantial judge the trial fits,” awarding prejudgment it interest dence, particular equities percent, compounded at a rate of 10.01 rate.” require case a different Grosz-Sa findings monthly. sup- These factual are lomon, (quoting at 1164 Nelson v. 237 F.3d record, adequate and are to ported Group, Energy & Measurements EG G require- satisfy the “substantial evidence” (9th Cir.1994)). Inc., 1384, 1391 Therefore, ment. the district court did not is defined as “such “Substantial evidence” awarding prejudg- abuse its discretion as a reasonable mind relevant evidence ment interest at a rate that exceeded the support a might accept adequate Treasury standard bill rate. Blanton, F.2d at 1576 conclusion.” 813 reasons, foregoing judgment For the (holding that district court abused its dis of the district court is AFFIRMED. award, by awarding, cretion on ERISA prejudgment a interest rate below the Treasury making bill rate without find NOONAN, Judge, concurring: Circuit justified the ing equities as to the By principles distinguishing of law omitted). (citations The court departure) trusteeship agency, Vanguard was an for “the

may compensate plaintiff losses agent, on trustee. restrictions he incurred as a result of [the defendant’s] Vanguard’s power imposed of investment Dishman, nonpayment of benefits.” by the Internal Revenue Code U.S.C. (holding F.3d at that the district court however, 408(a), infringe Blanken- awarding per abused its a 16 discretion ship’s provision control as does the in the cent rate on an prejudgment interest same statute that the balance of his ac- rate of return ERISA award —double the count be nonforfeitable. If were portfolio— on the defendant’s investment agent, Blankenship free to would be “[p]rejudgment because interest is an ele chose, invest the account as he and he compensation, penalty”). ment of not a upon could not confer a nonforfeitable Here, the district court determined that peculiarities status. Because of these necessary prejudgment interest was position Vanguard peculiarities — The court compensate Blankenship. devi- owed to the Internal Revenue Code—Van- rate, Treasury ated from the standard bill guard completely does not meet the crite- awarding 10.01-percent doing rate. In and, therefore, agency, ria of so, findings court made factual neces- prevails this case. sary support The court deviation. cited that as a Blankenship’s declaration nonpayment

result of Life’s

benefits, Blankenship was forced to re- $6,093.82

place month he per would

have funds. personal received with his own

Those funds would otherwise have been

invested in a mutual fund in already

which he had invested over one

Case Details

Case Name: Blankenship v. Liberty Life Assurance Co. of Boston

Court Name: Court of Appeals for the Ninth Circuit

Date Published: May 17, 2007

Citation: 486 F.3d 620

Docket Number: 05-15077

Court Abbreviation: 9th Cir.