UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


EEOC

v.

ARAMARK CO INC


99-5125a

D.C. Cir. 2000


*	*	*


Tatel, Circuit Judge: Claiming a violation of the Ameri- cans with
Disabilities Act, appellants challenge an employee  benefit plan that
provides twenty-four months of long-term  disability benefits for
persons suffering from mental or psy- chological disabilities but a
longer period of benefits for those  with physical disabilities.
Because the employer adopted the  plan prior to the ADA's enactment
and because circuit prece- dent holds that such plans are protected by
the statute's "safe  harbor" provision, we affirm the district court's
grant of  summary judgment for the employer and plan administrator.


I


Appellant Rebecca Fennell worked as a food service man- ager for
appellee Aramark Corporation for ten years until  mental illness
prevented her from performing her duties.  Following Fennell's
extended leave of absence due to depres- sion and post-traumatic
stress disorder, Aramark terminated  her employment on February 15,
1996. She received Social  Security disability benefits and long-term


under Aramark's employee benefit plan, administered by  appellee Aetna
Life Insurance Company. The plan provides  income replacement
amounting to two-thirds of base monthly  salary for employees unable
to work due to long-term disabili- ty resulting from illness, injury,
or disease. Funded by  contributions from Aramark and participating
employees, the  plan limits disability payments to twenty-four months
if the  disability is caused by a mental condition but continues 
payments until at least age sixty-five if the disability is  physical.
In accordance with the plan's terms, Aetna notified  Fennell that
because she had no physical impairment, her  benefit payments would be
discontinued effective April 16,  1997, two years after she began


Alleging that the plan's different benefit terms for mental  and
physical disabilities amount to discrimination prohibited  by the
Americans with Disabilities Act, Fennell filed a com- plaint with the
Equal Employment Opportunity Commission  and then filed suit against
Aramark and Aetna in the United  States District Court for the
District of Columbia. Three  days later, EEOC also filed suit, and the
two cases were  consolidated. Fennell claimed that the cutoff in
benefit pay- ments violates Title III of the ADA, 42 U.S.C. ss
12181-89,  which prohibits discrimination "on the basis of disability
in  the full and equal enjoyment of the goods, services, facilities, 
privileges, advantages, or accommodations of any place of  public
accommodation...." Id. s 12182(a). EEOC argued  that the two-year
limit violates Title I of the ADA, Id.  s 12111-17, which prohibits a
covered employer from dis- criminating "against a qualified individual
with a disability  because of the disability of such individual in
regard to [the]  terms, conditions, and privileges of employment." Id.


The district court granted summary judgment for Aramark  and Aetna. See
Fennell v. Aetna Life Ins. Co., 37 F. Supp. 2d  40 (D.D.C. 1999). With
respect to EEOC's claim, the district  court observed that Title I
protects only a "qualified individu- al with a disability," defined as
"an individual with a disability  who, with or without reasonable
accommodation, can perform 


the essential functions of the employment position that such 
individual holds or desires." 42 U.S.C. s 12111(8). Because  Fennell
had become totally disabled and unable to perform  the essential
functions of her job, the district court held that  she no longer met
the definition of a "qualified individual with  a disability" and was
therefore unprotected by Title I of the  ADA. Fennell, 37 F. Supp. 2d
at 43-44. With respect to  Fennell's claim, the district court held
that Title III only  requires elimination of barriers to access for
the disabled in  places of public accommodation, which the court
limited to  "physical locations." Id. at 45. Because a disability
benefit  plan does not constitute a physical place of public accommo-
dation, the court said, it is not regulated by Title III.


EEOC and Fennell appeal. EEOC argues that the district  court erred by
construing Title I narrowly to prevent former  employees no longer
able to perform essential functions of  their previous jobs from ever
suing under the ADA. Accord- ing to EEOC, the district court's ruling
would prevent a  totally disabled former employee from suing for
discrimina- tion in post-employment benefits, even if those benefits
had  been earned when she was a "qualified individual with a 
disability." Fennell argues that public accommodation refers  not just
to physical locations, as the district court held, but  also to all
available products and services including benefit  plans. Our review
is de novo. See Cones v. Shalala, 199  F.3d 512, 516 (D.C. Cir.


II


Our sister circuits are divided on both issues that formed  the basis
of the district court's grant of summary judgment  for Aramark and
Aetna. The Seventh, Ninth, and Eleventh  Circuits have held (as did
the district court) that Title I of the  ADA provides no protection to
a totally disabled former  employee because that person is no longer a
"qualified indi- vidual with a disability." See Weyer v. Twentieth
Century  Fox Film Corp., 198 F.3d 1104, 1110 (9th Cir. 2000); EEOC  v.
CNA Ins. Cos., 96 F.3d 1039, 1045 (7th Cir. 1996); Gon- zales v.
Garner Food Services, Inc., 89 F.3d 1523, 1531 (11th  Cir. 1996).
Reaching the opposite conclusion, the Second and 


Third Circuits have held that a former employee who had  earned fringe
benefits while employed and "qualified" could  sue under Title I for
discrimination in post-employment bene- fits despite the fact that at
the time of the suit the former  employee had become completely
disabled and no longer  "qualified." See Ford v. Schering-Plough
Corp., 145 F.3d  601, 608 (3d Cir. 1998), cert. denied, --- U.S. ----,
119 S. Ct.  850 (1999); Castellano v. City of New York, 142 F.3d 58,
68  (2d Cir. 1998), cert. denied, 525 U.S. 820 (1998). With respect 
to Title III, the Third and Sixth Circuits (like the district  court)
have limited Title III to ensuring access to physical  locations open
to the public. See Ford, 145 F.3d at 614;  Parker v. Metropolitan Life
Ins. Co., 121 F.3d 1006, 1014 (6th  Cir. 1997) (en banc), cert.
denied, 522 U.S. 1084 (1998). The  First and Second Circuits have held
that the ADA's prohibi- tion on disability discrimination in the
products and services  of places of public accommodation is not
limited to physical  structures and may in some instances include
insurance poli- cies and underwriting practices. See Pallozzi v.
Allstate Life  Ins. Co., 198 F.3d 28 (2d Cir. 1999), amended on denial
of  reh'g, 204 F.3d 392 (2d Cir. 2000); Carparts Distrib. Ctr., Inc. 
v. Automotive Wholesaler's Ass'n of New England, Inc., 37  F.3d 12, 19


This circuit has expressed itself on neither of these disput- ed
issues, nor need we do so now, for we have circuit  precedent under
which we may affirm the district court on a  different ground--that
the challenged plan is protected by  the ADA's safe harbor for bona
fide employee benefit plans.  Although the district court never
addressed the safe harbor  provision, the issue is fully briefed, and
because we review the  district court's judgment, not its reasoning,
we may affirm on  any ground properly raised. See, e.g., Doe v. Gates,
981 F.2d  1316, 1321-22 (D.C. Cir. 1993).


The ADA's safe harbor appears in section 501(c): "Sub- chapters I
through III of this chapter and title IV of this Act  shall not be
construed to prohibit or restrict ... a person or  organization
covered by this chapter from establishing, spon- soring, observing or
administering the terms of a bona fide  benefit plan that is not
subject to State laws that regulate 


insurance." 42 U.S.C. s 12201(c)(3). This safe harbor "shall  not be
used as a subterfuge to evade the purposes" of Title I  or Title III
of the ADA. Id. s 12201(c).


The parties agree that Aramark's benefit plan "is bona fide  in that it
exists and pays benefits." Public Employees Re- tirement Sys. of Ohio
v. Betts, 492 U.S. 158, 166 (1989)  (internal quotation marks
omitted). They also agree the plan  is not subject to state insurance
regulation by virtue of  ERISA's preemption provisions. Their
disagreement centers  on the meaning of the safe harbor's "subterfuge"
exception.  Relying on our decision in Modderno v. King, 82 F.3d 1059 
(D.C. Cir. 1996), Aramark and Aetna argue that their benefit  plan
cannot fall into the subterfuge exception because Ara- mark adopted it
before the ADA's enactment. Fennell and  EEOC contend that any benefit
plan that includes disability- based distinctions, no matter when
adopted, is a subterfuge if  those distinctions are not "based on
sound actuarial princi- ples."


Modderno involved a challenge to a benefit plan's lifetime  limit on
mental health treatment reimbursement. Although  the case arose under
the Rehabilitation Act of 1973, which  prohibits disability
discrimination in government employment,  that Act incorporates the
ADA's safe harbor provision. See  29 U.S.C. s 794(d). The appellant in
Modderno argued, as  do Fennell and EEOC, that in order to escape the
safe  harbor's subterfuge exception, the employer had to show that 
any differential treatment of disabled persons in a benefit  plan is
actuarially justified. Modderno rejected this actuarial  defense
interpretation of subterfuge, finding it " 'at odds with  the plain
language of the statute itself.' " Modderno, 82 F.3d  at 1065 (quoting
Betts, 492 U.S at 171).


Of particular significance to this case, Modderno went on to  hold that
the plan challenged in that case could not be a  subterfuge because
the employer had adopted it prior to the  Rehabilitation Act amendment
that incorporated the subter- fuge provision. In support of this
conclusion, Modderno  relied on two Supreme Court decisions
interpreting a similar  subterfuge provision in the Age Discrimination


ment Act of 1967: United Air Lines, Inc. v. McMann, 434  U.S. 192
(1977), and Betts, 492 U.S. 158. In those two cases,  the Supreme
Court construed "subterfuge" to have its "ordi- nary meaning as 'a
scheme, plan, stratagem, or artifice of  evasion.' " Betts, 492 U.S.
at 167 (quoting McMann, 434 U.S.  at 203). Recognizing that the
ordinary meaning of subter- fuge includes a specific intent to
circumvent or evade a  statutory purpose, the Supreme Court held there
could be no  such intent if the challenged provision had been adopted
prior  to the statute's enactment. "In McMann, for instance, where 
the plan at issue had been adopted in 1941, long before the  enactment
of the ADEA, the Court observed that '[t]o spell  out an intent in
1941 to evade a statutory requirement not  enacted until 1967
attributes, at the very least, a remarkable  prescience to the
employer.' " Modderno, 82 F.3d at 1064  (quoting McMann, 434 U.S. at


Modderno's application of Betts and McMann to section  501(c) of the
ADA controls this case. It is undisputed that  Aramark's long-term
disability benefit plan, including the  twenty-four-month cap on
mental disability benefits chal- lenged here, has been in place since
at least 1982, long before  the ADA's 1990 enactment. Under Modderno,
therefore, the  twenty-four-month benefit limit cannot fall within
section  501(c)'s subterfuge exception to the safe harbor.


Appellants offer three arguments why Modderno should  not control this
case, none of which is convincing. First, they  claim that Modderno
was wrongly decided because it over- looked a difference between the
language of section 501(c)'s  subterfuge provision and the language of
the similar provision  in section 4(f)(2) of the ADEA interpreted by
Betts. They  point out that while the ADEA gave safe harbor to a
benefit  plan "which is not a subterfuge to evade the purposes of this
 chapter," the ADA substitutes the phrase "shall not be used  as a
subterfuge to evade the purposes of subchapter[s] I and  III of this
chapter" 29 U.S.C. s 623(f)(2) (1990); 42 U.S.C.  s 12201(c) (emphasis
added). Even if a panel of this court  could depart from settled
precedent, which of course it can- not, see, e.g., LaShawn v. Barry,
87 F.3d 1389, 1395 (D.C. Cir.  1996) (en banc), we are unpersuaded
that what EEOC itself 


acknowledges to be a "subtle difference in language"--the  addition of
the words "used as"--would compel a different  result.


In enacting section 501(c) of the ADA, Congress repeated  the phrase "a
subterfuge to evade the purposes of ... this  chapter" just one year
after Betts had interpreted that pre- cise phrase in section 4(f)(2)
of the ADEA to exclude pre-Act  benefit plan provisions. According to
EEOC, Congress sig- naled its rejection of the Betts interpretation by
changing the  words preceding that phrase from "is not" in the ADEA to
 "shall not be used as" in the ADA. While a benefit plan  cannot be a
subterfuge to evade the purposes of a not-yet- enacted statute, EEOC
argues, it "can be 'used as a subter- fuge' regardless of when the
plan was adopted." EEOC  contends that merely by including the words
"used as" in  section 501(c), Congress expanded the subterfuge
exception  to remove pre-ADA benefit plans from safe harbor
protection.  Instead of protecting all pre-Act plans, the safe harbor,
as  EEOC reads it, functions as an affirmative defense that  allows
employers, benefit plan administrators, and insurance  underwriters to
avoid liability for disability-based distinctions  by showing on the
basis of "sound actuarial principles" that  the distinctions are risk-


The language of the two safe harbor provisions actually  differs more
extensively than even EEOC points out. The  ADEA provision examined in
McMann and Betts reads in  pertinent part:


It shall not be unlawful for an employer, employment  agency, or labor
organization ... to observe the terms of  ... any bona fide employee
benefit plan such as a  retirement, pension, or insurance plan, which
is not a  subterfuge to evade the purposes of this chapter....


29 U.S.C. Sec. 623(f)(2) (1990). The ADA provision reads as  follows:


Subchapters I through III of this chapter and title IV of  this Act
shall not be construed to prohibit or restrict--


(1) an insurer, hospital or medical service company,  health
maintenance organization, or any agent, or entity 


that administers benefit plans, or similar organizations  from
underwriting risks, classifying risks, or administer- ing such risks
that are based on or not inconsistent with  State law; or


(2) a person or organization covered by this chapter from 
establishing, sponsoring, observing or administering the  terms of a
bona fide benefit plan that are based on  underwriting risks,
classifying risks, or administering  such risks that are based on or
not inconsistent with  State law; or


(3) a person or organization covered by this chapter from 
establishing, sponsoring, observing or administering the  terms of a
bona fide benefit plan that is not subject to  State laws that


Paragraphs (1), (2), and (3) shall not be used as a  subterfuge to
evade the purposes of subchapter[s] I and  III of this chapter.


42 U.S.C. s 12201(c). Under the ADEA, a benefit plan falls  within the
safe harbor only if the plan is both (1) bona fide  and (2) not a
subterfuge. In the ADA, by contrast, a benefit  plan receives safe
harbor protection if it is (1) bona fide and  (2) either consistent
with or exempt from state law, but the  safe harbor provision "shall
not be used as a subterfuge to  evade the purposes of" Titles I and
III of the ADA. In other  words, under the ADA, it is not the benefit
plan, but the safe  harbor itself that shall not be used as a


We think these semantic distinctions, including the one on  which
appellants rely, do not undermine Modderno. As  Modderno pointed out,
the Supreme Court interpreted the  phrase "subterfuge to evade" to
require a specific intent to  circumvent a statutory purpose, thus
excluding from the  subterfuge exception all pre-Act plans. 82 F.2d at
1064.  Fully aware of the judicial construction of this phrase, Con-
gress used the very same phrase in the ADA's safe harbor.  "[W]hen
Congress chose the term 'subterfuge' for the insur- ance safe-harbor
of the ADA, it was on full alert as to what  the Court understood the
word to mean and possessed (obvi- ously) a full grasp of the
linguistic devices available to avoid 


that meaning." Id. at 1065. See also Bragdon v. Abbott, 524  U.S. 624,
645 (1998) ("When ... judicial interpretations have  settled the
meaning of an existing statutory provision, repeti- tion of the same
language in a new statute indicates, as a  general matter, the intent
to incorporate its ... judicial  interpretations as well."). Whether a
benefit plan "is" a  subterfuge to evade the purposes of the law (the
ADEA's  language), or whether the safe harbor for benefit plans is 
"used as" a subterfuge to evade the purposes of the law (the  ADA's
language), the plain meaning of the phrase "subter- fuge to evade"
remains as defined by McMann, Betts, and  Modderno--"a scheme, plan,
stratagem, or artifice of eva- sion." Under the ADA, then, "subterfuge
to evade" still  requires intent and still excludes pre-Act plans like
Ara- mark's because, as McMann said, "[t]o spell out an intent in 
[1982] to evade a statutory requirement not enacted until  [1990]
attributes, at the very least, a remarkable prescience  to the
employer." McMann, 434 U.S. at 203. For the same  reason, "subterfuge
to evade" cannot mean merely a lack of  actuarial justification.
Indeed, appellants' contention that the  safe harbor applies only to
plans whose terms are actuarially  justified has been rejected not
only by Modderno but also by  every other circuit to have considered
the issue. See Leon- ard F. v. Israel Discount Bank of New York, 199
F.3d 99, 105  (2d Cir. 1999) ("In the context of the subterfuge clause
of  Section 501(c) of the ADA, neither the dictionary definition  nor
the Supreme Court's reasonably suggests that absence of  actuarial
justification for differential insurance benefits is  sufficient to
demonstrate a 'subterfuge' to evade the purposes  of an Act, at least
where the insurance policy was adopted  prior to the Act's passage.");
Rogers v. Department of Health  and Envtl. Control, 174 F.3d 431, 437
(4th Cir. 1999) ("[W]e  do not find anything in s 501(c) of the ADA
(or anywhere else  in the Act) that requires a plan sponsor or
administrator to  justify a plan's separate classification of mental
disability with  actuarial data."); Ford, 145 F.3d at 611-12 ("[W]e
will not  construe section 501(c) to require a seismic shift in the 
insurance business, namely requiring insurers to justify their 
coverage plans in court after a mere allegation by a plain-


tiff."); Parker, 121 F.3d at 1012 n. 5 (rejecting as inconsistent  with
the statutory text the view expressed in the Department  of Justice
Technical Assistance Manual that different insur- ance benefit or
coverage levels based on disability are permit- ted only where "based
on sound actuarial principles" or  "related to actual or reasonably
anticipated experience");  Krauel v. Iowa Methodist Med. Ctr., 95 F.3d
674, 678-79 (8th  Cir.1996) (rejecting EEOC's interim guidance
explaining ac- tuarial justification defense as contrary to the plain
language  of the statute and thus not entitled to deference).


Congress's addition of the words "used as" is simply too  thin a reed
on which to support appellants' claim that Con- gress intended to
overrule Betts, remove pre-Act plans from  safe harbor protection, and
give life to EEOC's uniformly  rejected actuarial justification
theory. After all, Congress  responded to Betts by totally deleting
the subterfuge lan- guage from the ADEA, just before it included the
similar  subterfuge provision in section 501(c) of the ADA. See Older 
Workers Benefit Protection Act of 1990, Pub.L. No. 101-433,  s 103(1)
(codified at 29 U.S.C. s 623(f)(2)). Had Congress  also intended to
repudiate Betts for ADA purposes, it could  have omitted the provision
from that statute as well.


Appellants' second argument is that Modderno's discussion  of section
501(c) is dicta. As they read the case, the decision  rested on the
observation that the plan provision challenged  there, a lifetime
limit on reimbursement for mental health  treatment, did not
discriminate on the basis of disability.  Given that "holding," the
Commission claims, the panel's  discussion of section 501(c) was
merely "ruminations" "not  necessary to its holding," and therefore
not binding on us.  Not only did EEOC fail to raise this argument
until its reply  brief, see, e.g., Presbyterian Med. Ctr. of the Univ.
of Penn.  Health Sys. v. Shalala, 170 F.3d 1146, 1152 (D.C. Cir. 1999)
 (noting that we need not consider arguments raised for the  first
time in a reply brief), but it rests on a misreading of  Modderno.
After concluding that "[b]ecause the coverage  limitations challenged
by Modderno were enacted before the  1992 amendment of s 504 of the
Rehabilitation Act (and there  is no suggestion that their enactment
was prompted by an  expectation of amendment), they do not fall into
the subter- fuge exception to the ADA's safe-harbor," Modderno went on


to say, in language the Commission fails to account for:  "Thus,
whether or not Modderno stated a claim under the  1992 amendment of s
504 apart from the safe-harbor provi- sion--a question on which we
express no opinion--the cover- age limitations challenged by Modderno
cannot violate  amended s 504." Modderno, 82 F.3d at 1065 (emphasis 
added). Because Modderno's interpretation of the safe har- bor was
essential to its reasoning as well as to its disposition  of the
claims before it, it stands as binding precedent.


Finally, EEOC argues that even assuming we follow Mod- derno's
interpretation of section 501(c), this case differs from  Modderno
because Aramark modified the plan after the  ADA's enactment.
Appellants rely on two specific changes in  Aramark's long-term
disability benefit plan. First, the twen- ty-four-month limit on
benefit payments previously applied to  anyone whose disability is "a
result of a mental or emotional  illness," but now applies to
disabilities "caused to any extent  by a mental condition (including
conditions related to alcohol- ism or drug abuse) described in the
most current edition of  the Diagnostic and Statistical Manual of
Mental Disorders,  published by the American Psychiatric Association."
Second,  for a mentally disabled participant confined to an inpatient 
psychiatric hospital at the time the twenty-four-month period  ends,
benefit payments under the prior plan would continue  for the duration
of hospitalization; under the revised plan,  continuation of benefits
is limited to ninety days beyond the  twenty-four-month cutoff.
According to EEOC, these two  changes remove Aramark's plan from


To begin with, whatever effect the plan amendments may  have,
appellants concede that they did not apply to Fennell,  whose benefits
would have terminated after twenty-four  months even under the plan's
previous version. Neither  appellant explains how the plan amendments
could be a  subterfuge to evade the ADA and discriminate against Fen-
nell if they did not affect her.


Asserting that its suit is not limited to seeking relief for  Fennell,
EEOC argues that the plan amendments affected  others by "increas[ing]
the number of people subject to the 


limitation." Not only was this argument also raised for the  first time
in EEOC's reply brief, but the Commission's com- plaint alleges
neither that Aramark amended the plan for the  purpose of
circumventing the ADA, i.e., that the amendments  were a subterfuge
(its burden under Betts), nor that the  amendments have ever been
applied to terminate benefits to  anyone not subject to the same
cutoff under the previous  plan.


The judgment of the district court is affirmed.


So ordered.