In the
United States Court of Appeals
For the Seventh Circuit

No. 00-1504

Charles Johnson,

Plaintiff-Appellant,

v.

Allsteel, Inc., et al.,

Defendants-Appellees.

Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 3156--Ruben Castillo, Judge.

Argued December 6, 2000--Decided August 7, 2001


  Before Bauer, Posner, and Williams, Circuit
Judges.

  Williams, Circuit Judge. Charles Johnson
brought this suit against his former
employer and former plan administrator,
Allsteel, Inc., and several related
entities (collectively "Allsteel") under
sec.sec. 404(a) and 502(a) of the
Employee Retirement Income Security Act
("ERISA") challenging what he claims is
an illegal plan amendment. The district
court dismissed the case sua sponte for
lack of standing because it was not
convinced that Johnson had sufficiently
alleged injury-in-fact. Taking all of his
factual allegations as true, we are
satisfied that Johnson has alleged
sufficient facts to establish Article III
standing and, therefore, reverse the
judgment of the district court and remand
the case for further proceedings.

I.   BACKGROUND

  Johnson was employed by Allsteel, a
manufacturer and distributor of office
furniture. While there, he became a
participant in Allsteel’s pension plan
("the Plan"). The specific sections of
the Plan amended by Allsteel (discussed
below) are part of pension agreements
that his union, the International
Brotherhood of Boilermakers, Iron Ship
Builders, Blacksmiths, Forgers & Helpers,
Local 1239 ("the Union"), bargained for
on his and his fellow union members’
behalf.

  As originally drafted, section 11.1 of
the Plan provided that the Plan could be
amended only "by agreement of the
parties." Without obtaining the agreement
of any other party to the Plan, Allsteel
changed the language of section 11.1 to
state that the Plan could be amended only
"by the Company," thereby granting itself
the right to unilaterally amend the Plan.
Allsteel then used this purported right
to grant itself discretion to resolve all
questions arising under the Plan and
relating to the Plan’s administration:

The Company [(Allsteel)] will be
responsible for the general
administration of the Plan and as Plan
Administrator will be responsible for the
carrying out of its provisions. From time
to time, the Company may adopt such rules
and regulations as may be necessary for
proper and efficient administration of
the Plan. However, the Company’s
administration of the Plan and the rules
and regulations adopted by it shall be
consistent with the terms of the Plan and
any applicable pension agreement arrived
at through collective bargaining. The
Company shall have discretionary
authority to interpret and construe this
Plan and to determine all
questionsarising under this Plan,
including questions regarding
eligibility, vesting and entitlement to
benefits under the Plan.

Amended Section 1.3 (emphasis added).

  Johnson alleges that he was injured by
this second amendment, which grants
Allsteel an additional quantum of
discretion not bargained for by the
parties. To remedy this alleged injury,
Johnson seeks (i) a declaration that the
allegedly proscriptive amendment violates
the terms of the Plan, (ii) reformation
of the Plan to eliminate the amended
language, (iii) clarification of his
rights to future benefits under the Plan,
and (iv) other equitable relief.

II.   ANALYSIS

  We review the district court’s dismissal
for lack of standing de novo. Norfolk S.
Ry. Co. v. Guthrie, 233 F.3d 532, 534
(7th Cir. 2000). We commend the district
court for addressing the question of
standing sua sponte. However, we disagree
with its conclusion that Johnson failed
to allege injury-in-fact.

  To satisfy Article III’s standing
requirements, a plaintiff must allege
that he has sustained "personal injury[-
in-fact] fairly traceable to the
defendant’s allegedly unlawful conduct
and likely to be redressed by the
requested relief." Allen v. Wright, 468
U.S. 737, 751 (1984). Johnson alleges
that the sections of the Plan changed by
Allsteel were specifically intended "to
limit the ability of [Allsteel]
substantively and procedurally to
administer and to amend the Plan." In
other words, the Union bargained, on his
behalf, for a defined bundle of contract
rights, including the right to have the
Plan administered with a limited amount
of discretion. In his view, when Allsteel
increased its discretion as plan
administrator, it simultaneously
decreased the value of his bargained-for-
entitlements, causing him injury-in-fact.
Allsteel disagrees, arguing that Johnson
cannot show injury-in-fact because it has
yet to adversely exercise its discretion
towards him.

  We agree with Johnson that he was
injured by Allsteel’s increase in
discretion. We have stated before that
the right to have a plan administered
with a limited amount of discretion is an
important right for plan participants:

An employee’s decision with regard to the
purchase of medical insurance and the
provision of resources for retirement
will often depend critically on his
understanding of his rights under his
employer’s ERISA plan. The very existence
of ’rights’ under such plans depends on
the degree of discretion lodged in the
administrator. The broader that
discretion, the less solid an entitlement
the employee has and the more important
it may be to him, therefore, to
supplement his ERISA plan with other
forms of insurance.

Herzberger v. Standard Ins. Co., 205 F.3d
327, 331 (7th Cir. 2000) (emphasis
added). An increased amount of discretion
opens up to the administrator
administering the plan a greater range of
permissible choices. This expanded range
renders "less solid" the participant’s
benefits by shifting risk to the
participant. The increased risk the
participant faces as a result is an
injury-in-fact. 13 Charles Alan Wright,
Arthur R. Miller, & Edward H. Cooper,
Federal Practice and Procedure sec.
3531.4, at 696 (2001 Supp.) (citing
Clinton v. New York, 524 U.S. 417
(1998)).

  For example, an amendment that changes
a plan’s terms so that oral surgery,
which previously was always covered, is
covered at the administrator’s discretion
obviously makes it less certain that the
insured will be covered in the event that
he must undergo such a procedure. The
chance that the administrator will, at
some point, exercise its discretion
adversely against the insured immediately
decreases the insured’s rights under the
plan. This is true whether or not the
administrator ever exercises its
discretion adversely against the insured;
the increased risk is itself an injury.
See id. The insured would have to
purchase additional insurance in order to
regain the protection the plan originally
provided.

  To see why Allsteel’s alteration of the
Plan’s language makes less certain
Johnson’s rights, we must understand the
plan administrator’s decision-making
process. A plan administrator is
responsible for the general
administration of the plan, a contract
between the employee and the employer for
benefits. See Contents of Summary Plan
Description, 29 C.F.R. sec. 2520.102-3
(2001); Herzberger, 205 F.3d at 330. When
presented with a claim for benefits, for
example, the administrator must evaluate
the claim and determine whether the
participant-applicant meets the
conditions set forth in the plan. If
there is more than one reasonable
interpretation of the plan’s terms, the
administrator must choose from among
those choices. See Questions and Answers
Relating to Fiduciary Responsibility
under the Employee Retirement Income
Security Act of 1974, 29 C.F.R. sec.
2509.75-8 (2001); Trombetta v. Cragin
Fed. Bank for Savings Emp. Stock Own.
Plan, 102 F.3d 1435, 1438 (7th Cir. 1996)
(internal citation omitted). After
weighing the various options, the
administrator must notify the applicant
of its decision to either grant or deny
benefits. If displeased with the
administrator’s decision, the applicant
usually has the option of appealing it
internally. See 29 C.F.R. sec. 2520.102-
3(s). If that appeal is unsuccessful,
then the applicant may file suit under
ERISA challenging the administrator’s
decision. Id.

  When presented with a benefits claim,
the administrator is aware of the risk
that his decision may be subject to
judicial review. The administrator has an
incentive to avoid intense scrutiny by
the courts (such processes can be costly
and time-consuming) and is, therefore,
more likely to choose an interpretation
that will be favored by the reviewing
court, an independent and unbiased forum
more likely to explain fully its reasons
and thereby scrutinize effectively the
soundness of its own decision./1 See 29
U.S.C. sec. 1001(b) (2001) ("[ERISA’s
policy is] to protect . . . the interests
of participants in employee benefit plans
. . . by providing for appropriate
remedies, sanctions, and ready access to
the Federal courts."); Bogue v. Ampex
Corp., 976 F.2d 1319, 1325 (9th Cir.
1992) (characterizing judicial review of
an administrator’s decision as an
"additional benefit"); cf. Zervos v.
Verizon Wireless New York, Inc., 252 F.3d
163, 168 (2d Cir. 2001) (discussing the
nature of de novo review). Thus the
degree to which judicial review affects
the administrator’s decision-making
process corresponds with the "depth or
penetration or exactingness" of judicial
review to be employed. Lister v. Stark,
942 F.2d 1183, 1188, n. 6 (7th Cir. 1991)
(quoting Van Boxel v. Journal Co.
Employees’ Pension Trust, 836 F.2d 1048,
1052 (7th Cir. 1987)).

  The scope of judicial review varies in
accordance with the extent of discretion
afforded the administrator. Firestone
Tire and Rubber Co. v. Bruch, 489 U.S.
101, 115 (1989). Administrators empowered
with "discretionary authority to
determine eligibility for benefits or to
construe the terms of the plan" are
entitled to have their decisions reviewed
deferentially. Id. Administrators not
empowered with discretion are not
accorded deference. Their decisions are
reviewed de novo. Id. For these
administrators, the potential exercise of
de novo review limits the range of
choices available to them while
administering the Plan. Administrators
whose decisions are subject to only
deferential review, on the other hand,
are not as constrained by the possibility
of judicial review.

  Our review in Morton v. Smith, 91 F.3d
867 (7th Cir. 1996), of a benefits
determination provides us with a helpful
illustration of the latter principle. The
plaintiff-beneficiary in Morton sought
reimbursement of medical expenses he
incurred as a result of jumping off a
metal awning to the sidewalk below while
intoxicated. Id. at 869. The plan’s
trustees (who served as administrators
and were empowered with discretion to
construe the plan’s terms) denied his
request, citing the plan’s exclusion from
coverage of "[a]ny . . . expense . . .
result[ing] from an intentional-self-
inflicted injury." Id. Relying on a
decision reached by the Fifth Circuit
while engaging in de novo review in a
factually similar case, Morton argued
that, contrary to how the trustees’
interpreted the phrase, a "self-inflicted
injury" is one that is substantially
certain to result from an intentional
act, e.g., his leap from the metal
awning.

  In affirming the district court’s grant
of summary judgment for the trustees, we
reminded Morton that our standard of
review limited our ability to override
the trustees’ decision. Id. at 872. We
noted that the trustees had several
interpretations to choose from, Morton’s
interpretation being only one, and that
because we were engaging in deferential
review we had to respect their choice to
adopt a different interpretation. We
further acknowledged that if we had been
reviewing Morton’s claim de novo we might
have adopted his interpretation and
overturned the trustees’ decision. Id. As
this illustration indicates,
administrators empowered, like the
trustees in Morton, with discretionary
authority to construe the plan enjoy "a
broad, unchanneled discretion to deny
claims." Herzberger, 205 F.3d at 333. See
also Foster McGaw Hosp. of Loyola Univ.
of Chicago v. Bldg. Material Chaffeurs,
Teamsters and Helpers Welfare Fund of
Chicago, Local 786, 925 F.2d 1023, 1026
(7th Cir. 1991) ("[W]ith the
[administrator’s] decision entitled to
deference, the outcome is foredoomed.").

  Allsteel’s alteration of the Plan’s
language changed the standard of review
by which a court would review its
decisions, thereby granting Allsteel the
same unchanneled discretion to deny
claims. Before Allsteel altered the
Plan’s language to grant itself
discretion to interpret and construe the
Plan, its decision would have been
subject to de novo review. Section 1.3 of
the Plan, as originally drafted, was
insufficient to trigger deferential
review. See Krueger Int’l, Inc. v. Blank,
225 F.3d 806, 810 (7th Cir. 2000);
Michael Reese Hosp. and Med. Ctr. v. Solo
Cup Employee Hlth. Ben. Plan, 899 F.2d
639, 641 (7th Cir. 1990). But the
language added by Allsteel ("The Company
shall have discretionary authority to
interpret and construe this Plan and to
determine all questions arising under
this Plan, including questions regarding
eligibility, vesting and entitlement to
benefits under the Plan.") was sufficient
to trigger deferential review and expand
the range of options available to
Allsteel as administrator. See Trombetta,
102 F.3d at 1437-38; Krawczyk v.
Harnischfeger Corp., 41 F.3d 276, 278
(7th Cir. 1994); Halpin v. W.W. Grainger,
Inc., 962 F.2d 685, 688 (7th Cir. 1992).

  Just as an amendment that changes from
universal to discretionary coverage for
oral surgery immediately harms the
insured by making his entitlement less
certain, so too does the amendment here,
which expands the range of permissible
choices open to the administrator. By
adding language that granted itself
discretionary authority to determine
eligibility under and to construe the
Plan, Allsteel increased the likelihood
that Johnson will, at some point, be
denied benefits under the Plan. This
correspondingly decreased the certainty
of his Plan entitlements, causing him
immediate injury. Thus we conclude that
Johnson has sufficiently alleged injury-
in-fact.

  Our standing inquiry, however, does not
end here. Although the parties asked us
to decide only whether Johnson
sufficiently alleged injury-in-fact, we
must satisfy ourselves that the remaining
elements of Article III’s standing test
(causation and redressability) are met.
Rhodes v. Johnson, 153 F.3d 785, 787 (7th
Cir. 1998). As is apparent from our
preceding discussion, we conclude that
Johnson’s injury was caused by Allsteel’s
amendment. We further believe that
Johnson has alleged facts indicating that
his injury is redressable by the courts.
Among other forms of relief, Johnson
seeks reformation of the Plan to
eliminate the amended language. If
Johnson is successful at trial, his
injury would be redressed. Accordingly,
we conclude that Johnson has met each of
the requisites for standing under Article
III./2 And we have no occasion to
impose any pru-dential standing
limitations in this case. Duke Power Co.
v. Carolina Environmental Study Group,
Inc., et al., 438 U.S. 59, 80-81 (1978)
("Where a party champions his own rights,
and where the injury alleged is a
concrete and particularized one which
will be prevented or redressed by the
relief requested, the basic practical and
prudential concerns underlying the
standing doctrine are generally satisfied
when the constitutional requisites are
met.").

  We decline to reach Allsteel’s remaining
non-jurisdictional arguments supporting
dismissal because they were not presented
to the district court in the first
instance. Zbaraz v. Quern, 596 F.2d 196,
202 (7th Cir. 1979).

III.   CONCLUSION

  For these reasons, we Reverse the
judgment of the district court and Remand
the case for further proceedings.

FOOTNOTES

/1 For a discussion of the administrator’s incentive
to avoid intense judicial scrutiny, see George
Lee Flint, Jr., ERISA: the Arbitrary and Capri-
cious Rule under Siege, 39 Cath. U.L. Rev. 133,
181-82 (1989).

/2 We make no comment, however, on the merits of
Johnson’s claim.
