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Clemons v. Norton Healthcare Inc.

United States Court of Appeals, Sixth Circuit

May 10, 2018

Elizabeth A. Clemons, David R. Khaliel, and Larry W. Taylor, on behalf of themselves and all other similarly situated individuals, Plaintiffs-Appellees/Cross-Appellants,
Norton Healthcare Inc. Retirement Plan, Defendant-Appellant/Cross-Appellee.

          Argued: June 22, 2017

          Appeal from the United States District Court for the Western District of Kentucky at Louisville. 3:08-cv-0069-Thomas B. Russell, District Judge.


          Keith L. Pryatel, KASTNER WESTMAN & WILKINS, LLC, Akron, Ohio, for Appellant/Cross-Appellee.

          Michael D. Grabhorn, GRABHORN LAW OFFICE, PLLC, Louisville, Kentucky, for Appellees/Cross-Appellants.

         ON BRIEF:

          Keith L. Pryatel, Kenneth M. Haneline, KASTNER WESTMAN & WILKINS, LLC, Akron, Ohio, Lira A. Johnson, Michael P. Abate, DINSMORE & SHOHL LLP, Louisville, Kentucky, for Appellant/Cross-Appellee.

          Michael D. Grabhorn, Andrew M. Grabhorn, GRABHORN LAW OFFICE, PLLC, Louisville, Kentucky, William T. Payne, Joel R. Hurt, FEINSTEIN DOYLE PAYNE & KRAVEC, Pittsburgh, Pennsylvania, for Appellees/Cross-Appellants.

          Before: SILER, McKEAGUE, and WHITE, Circuit Judges.


          McKEAGUE, Circuit Judge.

         This appeal is the latest installment in an ERISA litigation saga that has spanned almost ten years. At the risk of oversimplifying their case, the Plaintiff- Retirees claim that Defendant Norton Healthcare, Inc. Retirement Plan ("Norton") underpaid them under the terms of the plan. The district court found that the plan was unambiguous in the Retirees' favor. We agree with the district court on most issues. However, because the Plan is ambiguous in one crucial respect and may not comply with ERISA in another, we VACATE the district court's summary judgment order and REMAND for further examination of those issues. Consequently, we also VACATE the district court's damages order, including its certification of a class under Rule 23(b)(1)(A) and (b)(2) during the damages stage. In doing so, we mean no slight to the district judges and their staff, who ought to be praised for their commitment to this case and for their patience with the complex issues it presents.


         Plaintiffs Elizabeth A. Clemons, David R. Khaliel, and Larry W. Taylor ("the Retirees") were employed by Norton Healthcare. They are covered by a plan ("the Plan") established to benefit former Norton employees. In January 2008, the Retirees brought a putative class action under ERISA, alleging Norton underpaid retirees who elected to take their pension as a lump-sum payment. The district court certified a class in 2011 and eventually granted summary judgment to the Retirees. Damages have not been reduced to a sum certain, but the district court adopted the Retirees' formula for calculating damages, awarded pre-judgment interest at a fixed rate, and entered a final judgment for the Retirees. Collateral proceedings indicate that the total amount at issue is between sixty and seventy million dollars.

         Both sides appealed the judgment. Norton (technically, the appellant) disputes the district court's interpretation of the Plan, the standard of review employed by the district court, class certification, and the district court's adoption of the Retirees' proffered damages formula. The Retirees (technically, the cross-appellants), ask us to apply a longer statute of limitations and quibble with the appropriate rate of prejudgment interest, in addition to disagreeing with Norton's arguments on appeal. After the Retirees filed their cross-appeal, Norton balked, asserting that we lack jurisdiction over the entire case because the district court's last order was not final under 28 U.S.C. § 1291.


         The facts relevant to this appeal are straightforward and undisputed. In 1991, Norton merged two predecessor plans (the "MEH Plan" and the "NKC Plan") into one Plan, which is the defendant here. The Plan is a single-employer plan governed by ERISA, funded by Norton, and maintained under a written document (the "Plan Document"). Although the initial Plan was established in 1991, the most recent, restated Plan Document became effective January 1, 1997. Since then, it has been amended multiple times.

         As of January 1, 1997, the Plan used two basic formulas for pension benefits. First, it included a traditional defined-benefit formula applicable only to members of the predecessor plans from MEH and NKC. It also included a cash-balance formula applicable to all other plans. See Norton Plan § 4.03. In 2004, the Plan was amended to tie off the predecessor plans; that is, to end accruals under the defined-benefit formulas and allow further accruals only under the cash-balance benefit formula established in the merged Plan.

         In all its iterations, the Plan provides for benefits for "normal" retirement at age 65, late retirement, early retirement, and disability retirement. §§ 4.03-4.07. The Plan allows participants who are at least 55 years old and have at least 10 years of service to retire early. §§ 2.22, 4.05(a). The Plan allows retirees to take their benefit in the "Basic Form" or in one of six alternative forms. § 4.02(a)-(b). One of those alternative forms is a lump-sum payment received on the date of retirement. § 4.02(b)(6).


         The Retirees here are all former Norton employees who (a) retired after the 2004 amendments became effective and (b) elected the lump-sum benefit. On January 30, 2008, they filed their first Class Action Complaint. The case was assigned to Judge Jennifer B. Coffman.

         After two years of motion practice and class-certification discovery, the Retirees filed the operative complaint on May 10, 2010. Explaining the core of their allegations, the Retirees stated:

On behalf of themselves and others similarly situated, Plaintiffs challenge the calculation of their pension benefits as follows:
a. the Defendant Plan's failure to include the value of the "increasing monthly income" ("cost-of-living") in the calculation of participant lump sum benefits and in the calculation of participant "cash balance" starting balances;
b. the Defendant Plan's failure to include the value of early retirement subsidies in the calculation of participant lump sum benefits and in the calculation of participant "cash balance" starting balances; and/or
c. the Defendant Plan's failure to calculate participant lump sum benefits according to the contra[c]tual formula.


         On May 17, 2010, the Retirees filed a motion for class certification. They sought certification under Rule 23(b)(1)(A), (b)(2), and (b)(3), defining their proposed class as:

All participants in the Norton Healthcare, Inc. Retirement Plan, its predecessors and successors, whose contractual lump sum pension benefits:
(1) did not include the value of the basic form of benefit - an "increasing monthly retirement income" (annual cost-of-living adjustment) - when election of such basic form would have yielded the highest value for the participant; and/or
(2) did not include the value of the "alternative" lump sum benefit where the basic form of benefit is multiplied by 212, when election of such alternative form would have yielded the highest value for the participant; and/or
(3) did not include the value of the early retirement subsidy.

         The district court granted the motion and certified the class under Rule 23(b)(1)(A) and (b)(2), finding Norton's counterarguments to be improperly merits-based. It also appointed Khaliel and Taylor as class representatives, but rejected Clemons, reasoning that the Retirees had not satisfied the typicality requirement as to her. The district court defined the class as requested by the Retirees. In April 2011, the parties began merits discovery. Meanwhile, Norton petitioned for interlocutory review of the certification order. We denied the petition.

         Back in the district court, Norton moved for partial summary judgment. The basis for the motion was that Kentucky's five-year statute of limitations for statutory claims applied, and that all claims related to benefits paid before January 30, 2003 should be dismissed. See Ky. Rev. Stat. Ann. § 413.120(2). The Retirees countered that their claims were timely because Kentucky's fifteen-year statute of limitations for claims based on a written contract should apply. See Ky. Rev. Stat. Ann. § 413.090(2). The district court denied the motion. The court reasoned that the dispute "centers around the plaintiffs' rights under their contract with [Norton], " and that the Retirees were not seeking to enforce any statutory rights created by ERISA.


         After we denied interlocutory appeal of the class certification decision, the Supreme Court decided Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011). On July 24, 2012, Norton attacked the existing class certification, citing Dukes and West v. AK Steel Corp., 484 F.3d 395 (6th Cir. 2007). Norton asked the district court to decertify the class entirely because the highly individualized nature of pension calculations forestalled a finding of commonality. Norton also attacked the merits of Khaliel's and Taylor's individual claims and argued that certification under Rule 23(b)(2) was improper in light of Dukes and West.

         The district court denied the motion. The court found Dukes inapplicable, reasoning that the commonality requirement was satisfied because Norton "stipulated that its actuaries used a consistent methodology when they calculated benefits, " and "the crux of the Plaintiffs' claims" was whether that methodology was correct. The district court also concluded that even if certification under Rule 23(b)(2) was improper, the class "would remain properly certified under Rule 23(b)(1)(A)."

         While Norton's motion to decertify was pending, the parties completed merits discovery and filed cross-motions for summary judgment. Shortly after briefing on these motions was completed, Judge Coffman retired, and the case was reassigned to Judge Thomas B. Russell.

         On August 23, 2013, Norton filed a motion asking Judge Russell to reconsider Judge Coffman's ruling on the statute-of-limitations issue. The district court granted the motion, concluding that Fallin v. Commonwealth Indus., Inc., 695 F.3d 512 (6th Cir. 2012), and Redmon v. Sud-Chemie Inc. Ret. Plan for Union Emps., 547 F.3d 531 (6th Cir. 2008), compelled the conclusion that Kentucky's five-year limitations period for statutory claims applied.


         On October 31, 2013, the district court granted summary judgment to the Retirees. Only the issues germane to this appeal are discussed below.

         First, the district court held that, because the Plan gives its administrator discretion to construe the terms of the plan, arbitrary-and-capricious review applies. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). After announcing that conclusion, however, the court engaged in a lengthy discussion of whether the doctrine of contra proferentum should also apply. Relying primarily on dicta in University Hospitals of Cleveland v. Emerson Electric Co., 202 F.3d 839 (6th Cir. 2000), the court concluded that there is "no significant reason why this basic and equitable contract principle should not apply in the context of ERISA contracts."

         Second, the district court concluded that the Plan documents unambiguously favored the Retirees' position on most issues. This included a finding that the 2004 amendments created an "early retirement subsidy" and that the Plan called for any lump sum to account for an increasing monthly income for sixty months certain. The court supplemented its discussion by stating, "However . . . to the extent that any of the relevant provisions are ambiguous, they would be construed against the drafter and in favor of plaintiffs." However, the district court did agree with Norton on a structural issue, applying the last paragraph of a disputed section globally, rather than only to the subparagraph immediately preceding it.

         Third, the district court agreed with the Retirees that, regardless of the various formulas set out in the Plan, "ERISA require[s] that a participant's lump sum benefit be the 'actuarial equivalent' of the [Monthly Retirement Income]." 29 U.S.C. § 1054(c)(3).

          Fourth, the district court declined to attempt any actual damages calculations, instead leaving them "for the parties to perform, consistent with the Court's instructions." To that end, the court ordered Norton to recalculate the class members' pensions within 45 days, and the Retirees to raise any objections within 14 days thereafter.


         Translating the district court's rulings into a pension formula proved more difficult and contentious than expected. With the Retirees' agreement, the deadline was extended by 45 days. However, Norton continued to struggle to assemble the necessary records and cull the requisite data. The parties therefore jointly requested an open-ended extension, based on Norton's promise that once its spreadsheet detailing all the data and calculations was completed, Norton would share the spreadsheet with the Retirees and make the underlying hard-copy documents available to the Retirees. The parties also promised to discuss Norton's new formula and attempt to resolve any disagreements. The district court granted the open-ended extension request on January 24, 2014.

         This cooperation broke down about a year later. Subsequently, the parties offered competing damages formulas, both supported by expert affidavits. The Retirees also requested pre-judgment interest at a rate of eight percent. Norton argued that the Retirees were not entitled to any pre-judgment interest. Norton also used its damages brief to reargue the certification question.

         The district court issued its damages opinion on January 6, 2016 (more than two years after its liability ruling). The court's order addresses a variety of issues, however, and was not limited to damages.

         First, the district court ordered that the Retirees' formula be used to recalculate class members' pensions, explaining:

After extensively reviewing the parties' formulas and their arguments, this Court finds that Norton did not provide a formula that will ensure that the recalculated lump sums are at least actuarially equivalent to the Monthly Retirement Income. Norton goes to great lengths to critique the Class's proposed formula, but it does not adequately explain to this Court how its own formula results in an actuarially equivalent lump sum. Norton makes several conclusory statements that its formula results in an actuarial equivalent lump sum, but it does little to explain to the Court how this is so. Alternatively, the Class has gone to great lengths to not only create a formula and demonstrate how it is actuarially equivalent but also to respond to any of Norton's criticisms concerning its formula.

         Second, the district court rejected Norton's request to decertify the class entirely. The district court also rejected Norton's request to interpret its liability holding in a way that would narrow the scope of the class.

         Third, the district court concluded that the Retirees are entitled to pre-judgment interest. However, the court found that eight percent "would be excessive." Employing the post-judgment interest statute and seeking to avoid "the complexities of compounding interest, " the district court instead awarded pre-judgment interest at a flat two percent rate. 28 U.S.C. § 1961.

Finally, the district court concluded its damages opinion with the following:
To conclude that this matter is complex is probably an understatement. . . . The complexity of comprehending and analyzing lengthy interrelated documents and deciphering the nuisances therein has been time consuming on the part of counsel and the Court. The Court is not inclined to entertain any motion for reconsideration. Frankly, the Court has given this matter its best shot. Too much time has elapsed between the earlier ruling and the current posture of this case. The Court originally thought agreeing on a formula would not be a time consuming process. Obviously, it was time consuming. It is time for another court, if the parties are so inclined, to look at this matter with new eyes.

         The district court then entered judgment for the Retirees "in an amount consistent with" its opinion, and stated that its judgment was "final and appealable."


         Norton filed a notice of appeal on January 20, 2016. The Retirees filed a notice of cross-appeal on February 2, 2016. On May 27, 2016, Norton filed a motion to dismiss the cross-appeal for lack of jurisdiction, arguing the district court has not entered a final order for purposes of 28 U.S.C. § 1291.


         We have jurisdiction over this appeal. Norton's motion to dismiss is DENIED.[1]

         The court of appeals has jurisdiction over all "final decisions of the district courts." 28 U.S.C. § 1291. A district court's statement that its judgment is final and appealable does not make it so. Liberty Mut. Ins. Co. v. Wetzel, 424 U.S. 737, 742 (1976); Day v. NLO, Inc., 3 F.3d 153, 155 (6th Cir. 1993). Rather, a "final decision is 'one which ends the litigation on the merits and leaves nothing for the [district] court to do but execute the judgment.'" Gelboim v. Bank of Am. Corp., 135 S.Ct. 897, 902 (2015) (quoting Catlin v. United States, 324 U.S. 229, 233 (1945)). Generally, "[a] judgment is not final for purposes of appeal when the assessment of damages remains, " unless the calculation is purely ministerial. Woosley v. Avco Corp., 944 F.2d 313, 316-17 (6th Cir. 1991). Norton contends that the district court's order was not final because it has not reduced damages to a sum certain and because "the complex actuarial calculations required to compute the Plaintiffs' damages" under the formula adopted by the district court "are far more than 'ministerial.'"

         We think Woosley controls the outcome here. In Woosley, we held that a judgment ordering the employer to calculate backpay was final, even though the court had yet to calculate the exact amount owed. 944 F.2d at 317. As the variables necessary to calculate backpay were not known to the court, the judgment ordered the parties to supply stipulations about those variables, which would automatically be incorporated into the judgment. Id. at 316. The employer appealed before the stipulations were filed, and the employees subsequently challenged the jurisdiction of this Court on finality grounds, arguing that there were still complex calculations left to be done about which the parties were arguing. Id. at 316-17. We denied the motion to dismiss, reasoning that although the calculations required more than simple addition, they did not affect the finality of the judgment. See id. In doing so, we pointed out that "the equities between the parties were resolved, " even though someone still had to find a more advanced calculator before writing the check. Id. at 317.

         The same is true here. The district court answered all the parties' merits questions, and found that Norton had misapplied the terms of the Plan. The district court then told the parties exactly how to recalculate those Retirees' benefits-by using the Retirees' proposed formula. Thus, there are no unanswered legal or equitable questions in this case. Norton also does not contend it lacks the data necessary to perform the calculations, or that the parties dispute the accuracy or authenticity of the relevant records, so there are no unanswered factual questions either. It is undoubtedly true that the calculations required here are complex and time-consuming. But the point made by the Woosley panel was that complexity is not a vice in this context. See id. The need for an advanced understanding of applied mathematics to obey an order of the court does not make that judgment any less final for our purposes. The motion to dismiss is DENIED.


         The first thing the parties dispute is the standard of review applicable to Norton's interpretation of the plan documents. Ordinarily, a plan administrator's denial-of-benefits decision is reviewed de novo. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). But if the plan "gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan, " we review such decisions under the arbitrary-and-capricious standard. Id. at 111, 115. Further, if the plan gives the administrator discretion to make factual determinations, arbitrary-and-capricious review extends to those issues as well. Shaw v. AT&T Umbrella Benefit Plan No. 1, 795 F.3d 538, 547 (6th Cir. 2015). However, "if a benefit plan gives discretion to an administrator or fiduciary who is operating under a ...

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