One of our favorite stories in the 26 months since the Litigation Daily began was the case of the billion-dollar typo. A class of Bell Atlantic pension plan participants filed suit against Bell successor Verizon, claiming that Verizon miscalculated — by $1.67 billion! — the lump-sum cash payments they were due because it applied a particular multiplier only once, not twice. It turned out that the sentence in the ERISA plan that implied the multiplier should be applied twice was a drafting error: An in-house Verizon lawyer inadvertently neglected to delete a phrase about the multiplier from the end of a sentence after he inserted the same phrase in the middle of the sentence.
As we reported last November, after hearing days of testimony about Verizon’s creating and application of the ERISA plan, Chicago federal district court magistrate Morton Denlow entered judgment for the company. “The phrase calling for a second multiplication was a drafting error,” he wrote. “To enforce the erroneous plan provision now would result in an enormous windfall to the class participants.”
On Tuesday a three-judge panel of the 7th U.S. Circuit Court of Appeals upheld Denlow’s judgment. “Although [the plaintiffs class] raises some forceful arguments,” the panel concluded in a 29-page opinion, “we conclude that ERISA’s rules are not so strict as to deny an employer equitable relief from the type of ‘scrivener’s error’ that occurred here.” (The opinion, written by 7th Circuit judge John Tinder, actually begins with a quotation from another 2010 appellate ruling in an ERISA case: “People make mistakes. Even administrators of ERISA plans.”)
The panel, which also included 7th Circuit judge Joel Flaum and senior judge William Bauer, found that Verizon clearly communicated its intentions to plan participants, who, until the class action began, didn’t object to the lump-sum payments they received. And though the appellate court said it was “baffling that a major corporation would not invest greater resources to ensure accuracy in the drafting of such an important document,” the judges concluded that Verizon hadn’t demonstrated a lack of good faith.
“They got the main point — this was a mistake and no one relied on it,” said Jeffrey Huvelle of Covington & Burling, who represented Verizon at the June 1 oral argument. “ERISA is a very important public policy statute. There’s no public policy benefit in enforcing a mistake.” Huvelle told us this is the first time in the 36 years since ERISA was passed that a circuit court has addressed the correction of an error in a pension plan formula.
But plaintiffs lawyer Matthew Heffner of Susman Heffner & Hurst, who argued the appeal for the class, told us there’s a split in the federal circuits on how to deal with drafting errors in ERISA plans. He said the class is gratified that the 7th Circuit opinion says plan administrators can’t unilaterally correct purported mistakes without going to court, but the plaintiffs are considering an appeal. “The [Seventh Circuit] panel members were mainly concerned with the question of, if a drafting mistake occurs in a defined benefits plan, there has to be a procedure for the plan sponsor to correct it,” he said. “We think there are fertile grounds for appeal.”
This article first appeared on The Am Law Litigation Daily blog on AmericanLawyer.com.
