Is Williston on Contracts The Sacred Text for Interpretation of ERISA Plans?

By Joseph A. Garofolo

Earlier this year, the Supreme Court emphasized that collective bargaining agreements establishing ERISA welfare plans generally must be construed in accordance with ordinary principles of contract interpretation.  See M&G Polymers USA, LLC v. Tackett, 135 S. Ct. 926 (2015).   The Court rejected the Sixth Circuit’s inferences in favor of vesting of retiree health care benefits outlined in International Union, United Auto, Aerospace, & Agricultural Implement Workers of America v. Yard-Man, Inc., 716 F.2d 1476, 1479 (6th Cir. 1983).  Counting the concurring opinion, the Court cited Williston on Contracts no less than seven times when describing ordinary principles of contract interpretation.  See Tackett, 135 S. Ct. at 933, 935-938 (citing R. Lord, Williston on Contracts (4th ed. 2008 & 2012)).  The majority also cited Williston on Contracts in US Airways, Inc. v. McCutchen, 133 S. Ct. 1537, 1549 (2013), and Justice Scalia cited the treatise in his concurrence in Cigna Corp. v. Amara, 131 S. Ct. 1866, 1884 (2011).

ERISA practitioners familiar with the Supreme Court’s interpretive history of the phrase “other appropriate equitable relief,” as used in ERISA § 502(a)(3), will recall the Court’s frequent references to the Restatement of Trusts, Bogert & Bogert’s Law of Trusts and Trustees, and Scott & Fratcher’s Law of Trusts (now Scott & Ascher on Trusts), sometimes referred to as The Sacred Texts.  See Jacklyn Willie, Attorneys Reflect on 40 Years of ERISA’s Biggest Rulings, Bloomberg BNA Pension & Benefits Daily, Sept. 9, 2014, at 2.

In light of the Court’s recent decisions, Williston on Contracts might be viewed as The Sacred Text when it comes to benefit plan interpretation.  But this is by no means a foregone conclusion.  The Supreme Court has characterized Corbin on Contracts as a “standard current work[].”  Great-West Life Annuity Ins. Co. v. Knudson, 534 U.S. 204, 217 (2002).  Indeed, in Tackett, 135 S. Ct. at 936, the Court also cited Corbin on Contracts.  Of course, Arthur Corbin and Samuel Williston famously disagreed on a number of fundamental principles relating to contractual interpretation, such as the proper application of the parol evidence rule.  See Eric A. Posner, The Parol Evidence Rule, the Plain Meaning Rule, and the Principles of Contractual Interpretation, 146 U. Pa. L. Rev. 533, 568-69 (1998).  

Moreover, “for the last few decades the academic literature has not taken Williston’s jurisprudence all that seriously.”  Mark L. Movsesian, Rediscovering Williston, 62 Wash. & Lee L. Rev. 207, 209 (2005).  While Mark Movsesian, a contracts professor at St. John’s University School of Law, concluded in 2005—perhaps presciently in the case of the Supreme Court’s recent ERISA jurisprudence—that there had been a resurgence of interest in Williston’s work, he also explained the following:

The cite count is high, but scholars have tended to look to Williston only in passing, referencing him when they have needed a source for some black-letter proposition or some point of legal history.  In part, this indifference stems from the fact that most of Williston’s work is of a doctrinal and case-oriented style that has fallen out of vogue. . . . Over time, the conventional wisdom has lumped Williston together with the great villains of contemporary jurisprudence, the classical formalists, portraying him as a mindless reactionary obsessed with logic and conceptual abstraction.

Id. at 209-210.

Elaborating upon what some perceive to be failings of Williston’s work, Professor Movsesian pointed out that Harvard Law Professor Morton Horwitz has asserted that “Williston’s objective theory of contract acts to ‘disguise gross disparities of bargaining power under a facade of neutral and formal rules.'”  Id. at 226 (citation omitted).

Back to the realm of ERISA, in Tackett, the Supreme Court suggested that it would not be appropriate to apply ordinary contract law principles when such principles are “inconsistent with federal labor policy.”  135 S. Ct. at 933.  And, in addition to the fact that ERISA expressly states that one of its purposes is to protect the interests of participants and beneficiaries, some commentators have contended that ERISA plans are adhesion contracts.  See, e.g., John H. Langbein, Trust Law as Regulatory Law: The Unum/Provident Scandal and Judicial Review of Benefit Denials Under ERISA, 101 Nw. U. L. Rev. 1315, 1323 (2007) (“ERISA benefit plans are characteristic contracts of adhesion, offered on a take-the-plan-or-leave-the-job basis.”).

Thus, it is unclear whether all of the principles of contractual interpretation associated with Samuel Williston are consistent with the “special nature and purpose of employee benefit plans.”  Varity Corp. v. Howe, 516 U.S. 489, 497 (1997).

Because ERISA cases frequently involve disputes over benefit plan interpretation, we will likely have the opportunity to observe whether the Court will continue to rely upon Williston on Contracts to articulate ordinary principles of contract interpretation.  If this turns out to be the case, considering the fact that the treatise currently consists of 31 volumes, there is certainly plenty of material for the Court to draw from in framing the “ordinary contract principles” that must be applied to employee benefit plans.

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