In the First Circuit, There Is No Such Thing As an Easy Conflict of Interest

The First Circuit has raised a strong bulwark over the years against challenges to the application of a strict arbitrary and capricious standard of review to cases in which the employee benefit plan at issue granted discretionary authority to the plan or the administrator. The circuit has, if anything, been hostile to attempts by participants to lessen the extensive deference shown to the plan and its administrator in such cases. The most common line of attack has been the argument that the administrator or other decision maker is operating under a conflict of interest, and that the court should not grant the usual degree of deference to the decision as a result. To say that this argument has done little to advance the ball for plan participants in this circuit would probably be an understatement.

The United States District Court for the District of Puerto Rico has just issued a decision that nicely sums up the law in this circuit at this point in time on this issue. As the court framed it:

If a plan administrator or fiduciary is operating under a conflict of interest, "the conflict must be weighed as a factor in determining whether there is an abuse of discretion." Firestone Tire & Rubber Co., 489 U.S. at 103, 115. "In this Circuit, if a court concludes there is an improper motivation amounting to a conflict of interest the court 'may cede a diminished degree of deference--or no deference at all--to the administrator's determinations." ' Wright v. R.R. Donnelley & Sons Co. Group Benefits, 402 F.3d 67, 74 (1st Cir.2005) (quoting Leahy v. Raytheon, 315 F.3d 11, 16 (1st Cir.2002)). "However 'a conflict of interest must be real. A chimerical, imagined or conjectural conflict will not strip the fiduciary's determination of the deference that otherwise would be due." ' Id. (quoting Leahy v. Raytheon Co., 315 F.3d 11,16 (1st Cir.2002)). On summary judgment, the burden is on the claimant to show that the benefits decision was improperly motivated. Doyle v. Paul Revere Life Ins. Co., 144 F.3d 181, 184 (1st Cir.1998) (finding that simply pointing out that any award of benefits would come out of the plan administrator's own pocket was not sufficient to satisfy a claimant's burden and thus, the traditional arbitrary and capricious standard of review must be applied.)

Participants must prove an actual, substantive conflict that truly affects the ability of the decision maker to act impartially. Generalized complaints that it is in the decision maker's own pecuniary interest to deny the claim are not sufficient, as this district court pointed out, quoting precedent in this circuit that:

Under the law of this Circuit, the fact that [a fiduciary or] the plan administrator will have to pay the plaintiff's claim out of its own assets does not change the arbitrary and capricious standard of review.

The case is Olivera v. Bristol Laboratories, 2006 WL 897972 (D.Puerto Rico Apr 05, 2006) (NO. CIV. 03-2195(HL)).