UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

RACHEL T. SMITH, Executrix of the
Estate of Robert W. Smith,
Plaintiffs-Appellants,

v.                                                             No. 96-2740

CHAMPION INTERNATIONAL
CORPORATION,
Defendant-Appellee.

Appeal from the United States District Court
for the Western District of Virginia, at Danville.
Jackson L. Kiser, Senior District Judge.
(CA-94-69-D)

Argued: August 12, 1997

Decided: September 25, 1997

Before RUSSELL and HALL, Circuit Judges, and
MICHAEL, Senior United States District Judge for the
Western District of Virginia, sitting by designation.

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Reversed and remanded by unpublished per curiam opinion.

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COUNSEL

ARGUED: John Bertram Mann, LEVIT & MANN, Richmond, Vir-
ginia, for Appellants. Paul Michael Thompson, HUNTON & WIL-
LIAMS, Richmond, Virginia, for Appellee. ON BRIEF: Wood W.
Lay, HUNTON & WILLIAMS, Richmond, Virginia, for Appellee.

_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

In February 1984, Champion International Corporation
("Champion") placed employee Robert W. Smith on long-term dis-
ability because he suffered from chronic depression. Ten years later,
in July 1994, Champion discontinued Smith's disability benefits after
it determined that Smith was no longer "totally disabled" as required
by Champion's Long Term Disability Plan (the "Plan").1

In August 1994, Smith brought suit in district court for restoration
of his disability benefits, claiming that Champion unlawfully termi-
nated his benefits in violation of the Employment Retirement Income
Security Act2 ("ERISA"). Nine months later, the district court
remanded Smith's case to the Plan Supervisor for a redetermination
of eligibility because Champion had violated ERISA procedurally and
substantively when denying Smith's claim. Champion's ERISA viola-
tions included inter alia its failure to notify Smith of the specific rea-
sons for its termination of benefits; its failure to inform Smith it relied
upon surveillance evidence when making its decision; and its failure
to obtain an expert opinion disputing the conclusions of Smith's treat-
ing physicians that Smith suffered from chronic depression.

Upon remand, Champion hired psychiatrist Merritt Foster to inde-
pendently examine Smith. It also hired vocational specialist H. Gray
Broughton to review Smith's case. Their conclusions favored the
denial of benefits.

Dr. Foster examined Smith on June 27 and August 25, 1995, for
_________________________________________________________________
1 To be more precise, Smith received disability benefits under Champi-
on's Long Term Disability Plan for Salaried Employees of Champion
International Corporation #506.
2 29 U.S.C. § 1001 et seq.

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a total of five hours. Dr. Foster's twenty-three page report concluded
that Smith was a malingerer and that he has not been"totally and per-
manently disabled for employment since February 1986." In addition,
Dr. Foster believed that Smith's inability to be gainfully employed
was volitional and "not the result of an incapacitating emotional or
mental state." Mr. Broughton then reviewed Smith's case. Although
Mr. Broughton neither personally examined nor interviewed Smith,
he concluded that Smith was employable since 1986.

The Plan Administrator then forwarded Smith's file to Travelers
Insurance Company ("Travelers"), which was now handling some of
Champion's administrative duties. In addition to the reports of Dr.
Foster and Mr. Broughton, Travelers primarily relied on the following
information when recommending the termination of Smith's benefits:
(1) that Smith indicated on a 1992 Personal Profile Evaluation
("PPE") that he did not participate in any social or community activi-
ties, despite the fact that he had attended meetings of three local
boards from 1986 to 1993 and served as Chairman on two of the
boards; (2) that on the same PPE, Smith stated that he did not travel,
despite the fact that he had traveled to California and Asia with family
members three months prior to completing the PPE; (3) that Cham-
pion had videotaped Smith driving a car, attending council meetings,
and performing bank transactions; (4) that Smith had been Vice-
Mayor of the South Boston City Council until May 1986; (5) that
Smith did not require continued hospitalization; and (6) that Smith
saw his treating physician only twice a year.

Smith requested that Champion's Employee Benefits Committee
(the "Committee") review Travelers' recommendation. The Commit-
tee heard Smith's appeal and affirmed the denial of his benefits. After
the conclusion of the administrative appeal process, Champion filed
a motion for summary judgment in federal court. The district court
granted summary judgment in favor of Champion on the basis that
Champion's denial of benefits was reasonable and dismissed Smith's
claim for restoration of benefits.

Smith appealed the district court's decision. He asserted that the
district court committed several procedural errors and applied the
wrong standard of review to the Plan Supervisor's decision to deny
benefits. Twenty days following the district court's entry of judgment,

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but before this court heard his appeal, Smith committed suicide.
Rachel Smith, executrix of Smith's estate, maintains his appeal. We
review de novo a district court's grant of summary judgment.3

I.

Smith contends that the district court applied the wrong standard
of review when examining the Plan Supervisor's decision to deny
benefits. Smith asserts that the district court should not have reviewed
the decision for abuse of discretion because the Plan Supervisor had
a conflict of interest in the claims review process. When determining
which standard of review to apply, the district court must first turn to
the language of the plan.4 If the plan states that the administrator is
empowered to construe uncertain terms or that the administrator's eli-
gibility determinations are to be given deference, then the abuse of
discretion standard is appropriate.5

The abuse of discretion standard is inappropriate, however, when
a fiduciary or an administrator is operating under a conflict of interest.
When a conflict of interest exists, the district court must weigh the
conflict "as a factor in finding whether the fiduciary or plan adminis-
trator abused its discretion."6 Accordingly, we held in Doe v. Group
Hospitalization & Medical Services7 that, in cases involving a conflict
of interest, the district court should review the fiduciary's decision
with some deference, but it must reduce its deference "to the degree
necessary to neutralize any untoward influence resulting from the
conflict."8 This standard of review is the "modified abuse of discre-
tion standard."9

In the instant case, the Plan is a self-funded disability plan whose
benefits are paid from Champion's general assets. The Plan confers
_________________________________________________________________
3 Nguyen v. CNA Corp., 

, 236 (4th Cir. 1995).
4 Firestone Tire & Rubber Co. v. Bruch, 

(1989).
5 

quotations omitted).
7 

, 87 (4th Cir. 1993).
8 

CapitalCare, Inc. , 

(4th Cir. 1995).

                    4
the Plan Supervisor with the discretion to determine an employee's
eligibility to receive benefits and to determine the amount and kind
of benefits payable to the employee. Additionally, in the event there
exists a difference of opinion as to whether an employee qualifies as
having a "total disability," the Plan Supervisor's decision is final.
Thus, Champion argues that the traditional abuse of discretion stan-
dard was appropriate.

Three factors, however, weigh heavily in our finding a conflict of
interest, which subsequently necessitate changing the review stan-
dard. One, Champion directly appoints and compensates the members
of its Committee and the Plan Supervisor, and each appointee is a
Champion employee. Two, Champion administers the plan itself; it
does not pay a premium to any insurer to fund benefits paid out to the
plan beneficiaries. Third, the plan is not fully funded. Thus, any
denial of benefits is a savings, which accrues to the direct benefit of
Champion and other plan participants. Contrary to the district court's
finding, therefore, the Plan Supervisor and the Committee unquestion-
ably labored under a conflict of interest arising from their dual roles
as plan administrators and employees of Champion. Accordingly, the
district court should have reviewed the Plan Administrator's denial of
benefits under the modified abuse of discretion standard.

Using the traditional abuse of discretion standard, the district court
determined that the Plan Supervisor's decision was reasonable and
supported by the record. In arriving at this conclusion, the district
court was persuaded by the information relied upon by Travelers, e.g.
the reports of Dr. Foster and Broughton, Smith's misrepresentations
on the PPE, and that Smith had traveled and served on community
boards. But under the modified abuse of discretion standard, this evi-
dence fails to sufficiently controvert the twelve years of medical
observation, testing, and treatment administered by Smith's treating
physicians, who repeatedly concluded that Smith suffered from severe
and chronic depression from 1984 until his suicide in November
1996.

Evidence before the Plan Supervisor substantiating Smith's total
disability included reports from physicians Wilson, Floyd and Rozear,
and psychologist Stewart. Dr. Wilson regularly treated Smith from
1983 until 1996 and submitted reports to Champion twice a year. He

                    5
consistently diagnosed Smith as totally disabled due to chronic
depression. His treatment over the years included: hospitalizing Smith
on several occasions for suicidal ideations; administering prescriptive
anti-depressants and electric convulsive treatments; and subjecting
Smith to psycho and cognitive therapy. In response to Traveler's con-
clusion that Smith was not under the "regular care" of a physician, Dr.
Wilson stressed that after eight years of treatment, he only saw Smith
every three to six months because social security considers this ade-
quate follow-up for chronically depressed patients. Additionally, in
response to Traveler's conclusion that Smith could not have suffered
from depression since 1986 because Smith participated on community
boards and was able to perform minimal daily activities, Dr. Wilson
stated that as part of Smith's rehabilitative therapy he encouraged
Smith to get out and interact with individuals outside of his immedi-
ate family. Dr. Floyd treated Smith in 1989 at Duke University Medi-
cal Center, and he concluded that Smith suffered from hypertension,
hypertensive heart disease, and chronic depression. Dr. Rozear, a neu-
rologist also at Duke, tested Smith on two occasions to determine
whether or not Smith's memory loss and decline in mental ability was
neurologically based. His evaluations concluded that Smith suffered
from severe depression and psychotic thinking. Finally, Dr. Wilson
hospitalized Smith at Charter Hospital in 1993 for suicidal ideations
and severe depression. While at Charter, Mr. Stewart subjected Smith
to a battery of psychological tests, which led Stewart to conclude that
Smith suffered from a major affective depressive disorder and that
Smith possessed few intellectual and emotional resources which
enabled him to manage daily stress.

II.

Given the evident conflict of interest and the overwhelming objec-
tive evidence substantiating Smith's total disability since 1986, we
hold that the district court erred in awarding summary judgment to
Champion. Hence, in the interest of justice, we reverse the lower
court's decision and remand the case to the district court to reinstate
Smith's disability benefits in accordance with this opinion.

REVERSED AND REMANDED

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