Denial of Employee’s Post-Bankruptcy Disability Claim Bars Recoupment of Pre-Bankruptcy Overpayment of Disability Benefits

July 31, 2012 | Appeals | Employment & Labor | Insurance Coverage

The plaintiff in this case worked as an engineer for the Boeing Company. Under Boeing’s long term disability plan, employees who were totally disabled as a result of accidental injury or illness were eligible for long term disability benefits. During the first 24 months of disability, the plan’s “own occupation” definition of disability applied, under which an employee was eligible for benefits if he or she was unable to perform “the material duties” of his or her own occupation or other appropriate work the company made available. Thereafter, an employee only was eligible for long term disability benefits under a stricter “any reasonable occupation” definition of disability, if his or her condition prevented the employee from working at “any reasonable occupation” for which the employee might be fit “by training, education, or experience.”

The plaintiff claimed total disability as of May 6, 2005, due to depression, irritable bowel syndrome (IBS), colitis, and neck and back pain. On November 9, 2005, Aetna Life Insurance Company, which serviced the plan for Boeing, notified the plaintiff that he was entitled to “own occupation” benefits under the plan. Aetna advised the plaintiff that, after November 4, 2007, he would need to satisfy the stricter “any reasonable occupation” definition of disability to continue to receive benefits. In addition, to the extent his disability was due to a mental condition, Aetna informed him that his coverage would be limited to a maximum of 24 months under the plan.

The plan provided that long term disability benefits would be reduced if the employee received certain other income, including Social Security disability (SSD) benefits. Aetna initially reduced the plaintiff’s monthly long term disability benefits by an estimated amount of the SSD benefits he might be awarded. The plaintiff subsequently signed a reimbursement agreement with Aetna in which Aetna agreed to pay him unreduced long term disability benefits and he agreed to reimburse Aetna for any overpayment made to him under the plan. The plaintiff further agreed “that any benefits due [him] … under the [long term disability] policy may be applied to any outstanding overpayment whether resulting from retroactive award of Social Security or any other income benefits as described in the [long term disability] policy.”

On October 5, 2007, Aetna notified the plaintiff that his long term disability benefits would cease on November 3, 2007. Aetna indicated that, although the information in his claim file continued to support a determination of disability based on recurrent major depressive disorder and post traumatic stress disorder, these conditions fell under the plan’s 24 month limitation for disability benefits based on mental conditions. Aetna further determined that the medical documentation did not support physical limitations and restrictions that would preclude the plaintiff from performing “his own sedentary level of occupation.”

The plaintiff received notice from the Social Security Administration in November 2007 that he had been awarded SSD benefits. He received a lump sum payment for benefits retroactive to July 2005 and monthly payments going forward. After learning of the plaintiff’s SSD benefits award, Aetna informed the plaintiff on March 10, 2008, that the plan required a reduction in the amount of long term disability benefits he had received through November 3, 2007. Aetna sought reimbursement from the plaintiff of an overpayment of $39,500. Shortly thereafter, the plaintiff entered bankruptcy, and the bankruptcy court entered a discharge order in his bankruptcy case.

The plaintiff sought review of Aetna’s termination of his long term disability benefits, but Aetna upheld its determination; the plaintiff then sued Aetna. In its answer, Aetna asserted the affirmative defense of recoupment, stating that if the plaintiff were entitled to payment of benefits, as he alleged, Aetna was entitled to recoupment of the remainder of its previous overpayment of benefits to the plaintiff notwithstanding the plaintiff’s bankruptcy discharge. The parties moved for partial summary judgment on Aetna’s recoupment defense.

The district court ruled in favor of Aetna, holding that, for purposes of recoupment, Aetna’s obligation to make monthly long term disability benefit payments, and the plaintiff’s obligation to reimburse Aetna for the overpayment, arose from a single, integrated transaction. The court further concluded that, as a result, Aetna was “entitled to recoup the overpayment made to [the plaintiff] should it succeed in this case.”

The parties next filed cross motions for summary judgment on the question of the plaintiff’s entitlement to long term disability benefits. The district court granted judgment in favor of Aetna, finding that the plaintiff was not entitled to further long term disability benefits. The district court further held that Aetna was entitled to the recoupment of its previous overpayment. The plaintiff appealed to the U.S. Court of Appeals for the Tenth Circuit.

In its decision, the Tenth Circuit affirmed the district court’s decision finding that the plaintiff was not entitled to further long term disability benefits, but reversed the district court’s determination that Aetna was entitled to recoup its pre-bankruptcy overpayment.  It explained that “recoupment” is an equitable doctrine in bankruptcy that allows one party in a transaction to withhold funds due another party where the debts arose out of the same transaction. In other words, the doctrine allows a creditor to recover pre-bankruptcy debt out of payments it owes to the debtor after the debtor’s bankruptcy filing.

Thus, the circuit court continued, recoupment is an exception to the “fundamental tenet” of bankruptcy law that a petition for bankruptcy operates as a “cleavage” in time. Ordinarily, once a petition is filed, debts that arose before the petition may not be satisfied through postpetition transactions. But recoupment is allowed in the bankruptcy context because a debtor who assumes the favorable aspects of a contract post-bankruptcy also must take the unfavorable aspects of the same contract – including the obligation to repay pre-bankruptcy overpayments.

In this case, the circuit court found, because the plaintiff had not succeeded on his claim that Aetna owed him ongoing long term disability benefits, Aetna had no payment obligation to the plaintiff against which it could recoup its overpayment. Under these circumstances, the circuit court ruled, Aetna’s claim for recovery of its overpayment, like any other creditor’s claim, was subject to the plaintiff’s discharge in bankruptcy. It then reversed the district court’s award of damages to Aetna. [Eissa v. Aetna Life Ins. Co., 2012 U.S. App. Lexis 9309 (10th Cir. May 8, 2012).]

Employee Fails To Prove He ‘Needed to Care For’ His Father Under FMLA

The plaintiff in this case worked for the Nebraska Department of Economic Development (NDED) beginning in 1986. The plaintiff’s father was diagnosed with prostate cancer in 2005 and with stage IV terminal lung cancer in 2006. The plaintiff regularly obtained leave from work to attend his father’s medical appointments throughout 2005 and 2006. On April 5, 2007, the father’s pulmonologist predicted that he had a 60 to 90 day life expectancy and recommended that the family look into hospice care. Soon thereafter, the plaintiff and his father began to disagree on how to proceed with the father’s care. The plaintiff stopped attending his father’s medical appointments beginning on April 17, but he subsequently missed at least 23 days of work during April and May 2007, frequently with little or no explanation.

On June 15, 2007, the NDED terminated the plaintiff’s employment, citing his unexcused absences. The plaintiff contested the termination through a collective bargaining agreement grievance process, explaining that he had suffered a “complete physical and mental breakdown” beginning on April 17 from dealing with his father’s medical condition. After an arbitrator rejected his wrongful discharge grievance, the plaintiff brought suit for interference and retaliation in violation of the Family and Medical Leave Act (FMLA), alleging that he was absent to care for his father. Concluding that no reasonable jury could find that his father had been unable to care for his own needs or that the plaintiff had used his absences to provide his father with necessary care, the district court granted the NDED’s motion for summary judgment. The plaintiff appealed to the U.S. Court of Appeals for the Eighth Circuit, primarily challenging the district court’s determination that no reasonable jury could conclude that he was needed to care for his father in April and May 2007.

In affirming the district court’s ruling, the Eighth Circuit explained that the FMLA does not define the phrase “needed to care for,” but that regulations issued by the Department of Labor define “needed to care for” as including physical and psychological care where, because of a serious health condition, a family member is “unable to care for his or her own basic medical, hygienic, or nutritional needs or safety.”

Applying that standard to this case, the circuit court first rejected the plaintiff’s contention that his father was unable to care for his own basic medical, hygienic, or nutritional needs during April and May 2007, crediting the testimony by affidavit of the plaintiff’s father’s companion and her daughter that the plaintiff’s father was able to care for those needs during that period.

It also found that the plaintiff had not established that his absences from work were taken for the purpose of providing necessary assistance to his father, even assuming that such assistance was “periodically” necessary. Among other things, the circuit court noted that the reason the plaintiff initially cited for his absences during his grievance process – that he himself had suffered “a complete physical and mental breakdown” – undermined his claim that he was providing necessary assistance to his father at the same time.

The circuit court next rejected the plaintiff’s argument that the district court had erroneously ignored the psychological comfort that the plaintiff testified he provided to his father, noting that the plaintiff had introduced no evidence that his father was receiving “inpatient or home care,” or that his absences from work were for the purpose of providing psychological care to his father as part of the ongoing treatment of his father’s serious health condition.

In addition, the Eighth Circuit found that although the plaintiff contended that his father needed him to arrange hospice care, his own testimony established that his father opposed hospice care, and there was no evidence that hospice care was necessary despite his father’s opposition. Finally, the appellate court ruled that, apart from his own “vague and conclusory statements,” the plaintiff offered no specific facts to show that he had devoted significant amounts of time during his absences to arrange hospice care for his father; accordingly, it rejected this argument.

The Eighth Circuit therefore affirmed the district court’s decision in favor of the NDED. [Miller v. State of Nebraska Department of Economic Development, 2012 U.S. App. Lexis 7532 (8th Cir. Apr. 16, 2012).]

Employer May Seek Indemnity From Former Employee For Costs Of Settling Another Employee’s Action

The complaint in this case was filed by Howard University, which sued its former Acting Dean for Student Life and Activities for indemnification, fraud, and misrepresentation based on actions it asserted resulted in a claim of discrimination and retaliation against Howard by a former employee. In its complaint, Howard alleged that while the defendant was Acting Dean for Student Life and Activities, she supervised an administrative assistant and an Acting Assistant Dean of Students. According to Howard, in September 1998, the Acting Assistant Dean suffered a stroke that caused him to be hospitalized and, during his hospital stay, he learned that he was infected with the Human Immunodeficiency Virus (HIV). Howard alleged that the administrative assistant visited the Acting Assistant Dean during his hospital stay. During those visits, according to Howard, the administrative assistant learned that the Acting Assistant Dean was infected with HIV and communicated that information to the defendant. When the Acting Assistant Dean returned to work in February 1999, the administrative assistant allegedly harassed the Acting Assistant Dean. Howard alleged that the defendant knew how the administrative assistant was treating the Acting Assistant Dean but did not discipline the administrative assistant or otherwise stop the harassment. Indeed, Howard alleged, the defendant made inappropriate statements about the Acting Assistant Dean and about male students who met with the Acting Assistant Dean that led students to believe that he suffered from Acquired Immune Deficiency Syndrome (AIDS).

Howard’s complaint alleged that the Acting Assistant Dean experienced side effects from his HIV medication that prevented him from arriving at the office at the regularly scheduled starting time and that he attempted to compensate for his late arrival by staying past the office’s regularly scheduled closing time, but that the defendant admonished the Acting Assistant Dean by letter for arriving late to the office. The Acting Assistant Dean allegedly responded by asking the defendant to accommodate him by allowing him to arrive at work after the office opened and stay until after the office closed, but the defendant allegedly refused that proposed accommodation.

Howard also alleged that in 2002, the defendant proposed that Howard refrain from renewing the Acting Assistant Dean’s contract as Acting Assistant Dean. Howard alleged that representatives from its Office of General Counsel and Office of Human Resources Management asked the defendant to explain why she recommended not renewing the Acting Assistant Dean’s contract, and if he were a member of a class protected by federal or local anti-discrimination laws. According to Howard, the defendant responded by stating that the Acting Assistant Dean had “behavior problems” including excessive socializing, disrespectful behavior, misrepresenting his position, and spreading rumors that the defendant had a drinking problem. The defendant did not inform Howard’s representatives that the Acting Assistant Dean was infected with HIV, according to Howard. Howard then approved the defendant’s recommendation to not renew the Acting Assistant Dean’s employment contract, which then expired on June 30, 2002. Howard alleged that it would not have approved the defendant’s recommendation to not renew the Acting Assistant Dean’s contract had it been aware that he suffered from the HIV infection, or that the defendant had denied his request for an accommodation.

The Acting Assistant Dean filed a claim with the U.S. Equal Employment Opportunity Commission (EEOC), which found that the defendant’s decision to recommend not renewing his contract constituted retaliation for his request for an accommodation. The Acting Assistant Dean later filed suit against Howard and the defendant, alleging claims of discrimination in violation of the Americans with Disabilities Act of 1991 (ADA), the District of Columbia Human Rights Act (DCHRA), Section 504 of the Rehabilitation Act, and the Family and Medical Leave Act of 1993 (FMLA).

Howard settled the Acting Assistant Dean’s claims against both the university and the defendant by paying him $253,000 in damages and attorney’s fees. Howard then sued the defendant, alleging claims of equitable indemnity, misrepresentation by concealment, constructive fraud, and negligent misrepresentation. The defendant moved to dismiss or for summary judgment, arguing that Howard failed to plead fraud with particularity, that employers are not allowed to seek contribution or indemnity from their employees for successful claims of discrimination, and that the remaining claims were merely mislabeled attempts to re-state the claim for equitable indemnity.

In denying the defendant’s motion, the court first rejected her contention that Howard’s indemnity claim should be dismissed because employees could not be held liable to their employers for contribution or indemnity for liability under Title VII of the Civil Rights Act of 1964 that was caused by those employees. The court stated that even assuming that the ADA, Rehabilitation Act, and FMLA prohibited employers from bringing causes of action for contribution or indemnification against employees, such a claim under state law might be available under the DCHRA.

The court also rejected the defendant’s argument that it should dismiss Howard’s other claims, finding that Howard’s complaint had sufficiently alleged facts and circumstances regarding allegedly false or negligent representations and omissions made by the defendant to Howard’s Office of the General Counsel and the Office of Human Resources of Howard University. In the court’s view, Howard identified both the defendant’s allegedly false statement – that the Acting Assistant Dean’s contract should not be renewed because he had “behavior problems” – and her allegedly material omissions – namely that the Acting Assistant Dean was suffering from the medication he was taking for HIV and that he unsuccessfully requested accommodation for that problem. The court stated that although the counts appeared to overlap somewhat, the complaint alleged plausible causes of action of fraud and misrepresentation, and alleged the elements of fraud with sufficient particularity to survive. [Howard University v. Watkins, 2012 U.S. Dist. Lexis 58863 (D.D.C. Apr. 27, 2012).]

Finding Lack of Appellate Jurisdiction, Circuit Dismisses Appeal of Order Remanding Decision To Plan Administrator 

The plaintiff in this case sued the plan administrator for the Bristol-Meyers Squibb Long Term Disability Group Plan in a state court in West Virginia after it terminated his long term disability benefits under his employer-sponsored plan. After the case was removed to a federal district court in West Virginia, the parties filed cross-motions for summary judgment. The plaintiff also moved in the alternative to have the matter remanded to the plan administrator. The district court denied both summary judgment requests, concluded that relevant evidence had not been adequately addressed, and remanded the case to the plan administrator for further consideration. The plan administrator appealed to the U.S. Court of Appeals for the Fourth Circuit.

The circuit court dismissed the appeal. It explained that the district court had concluded that the plan administrator had abused its discretion by neglecting to address relevant evidence relating to an award of Social Security disability benefits to the plaintiff. More specifically, it noted, the district court had decided that, because the plan’s and Social Security Administration’s definitions of “disability” were similar and the Social Security Administration’s regulatory definition was more restrictive, the plan administrator was obliged to accord substantial weight to the Social Security Administration’s disability determination. The district court order stated that the Social Security Administration’s disability award also warranted consideration because the plan required the plaintiff to apply for Social Security benefits, and the plan profited from the Social Security Administration’s award in offset of the plan’s long term disability benefits. As the Fourth Circuit pointed out, because the district court concluded that the plan administrator had accorded no weight to the Social Security Administration’s determination and failed to consider the Social Security Administration disability award in “any meaningful way,” it deemed the plan administrator’s decision to terminate the plaintiff’s long term disability benefits “arbitrary and unreasonable.”

The Fourth Circuit added that the district court had “express[ed] no opinion” as to whether the plaintiff was disabled under the plan’s definition. Indeed, the circuit court pointed out, although the plaintiff sought attorney’s fees with the view that the remand to the plan administrator represented a success on the merits, the district court rejected that request, emphasizing that its order had not addressed the substance of the plaintiff’s claim. The circuit court then noted that the district court had stated that the remand in this case represented “a purely procedural victory” for the plaintiff, and it had never even entered a final judgment.

The Fourth Circuit explained that the jurisdiction in a court of appeals generally is reserved for the “final decisions of the district courts of the United States.” The district court’s order, however, was an “interlocutory” order, in that it did not resolve the merits of the plaintiff’s claims for relief and no final order or judgment was entered by the district court.

Given that there was no final decision issued by the district court, and that its order was not among the category of interlocutory orders that have been deemed final, the circuit court ruled that it did not have appellate jurisdiction and dismissed the plan administrator’s appeal. [Dickens v. Aetna Life Ins. Co., 677 F.3d 228 (4th Cir. 2012).]

Comment: A number of other circuit courts have ruled that a district court order remanding to an ERISA claims administrator for reconsideration does not constitute a final decision. See, e.g., Young v. Prudential Ins. Co. of Am., 671 F.3d 1213 (11th Cir. 2012) (concluding that remand of ERISA dispute to claims administrator for further proceedings is not appealable); Graham v. Hartford Life & Accident Ins. Co., 501 F.3d 1153 (10th Cir. 2007) (same); Borntrager v. Cent. States, Se. & Sw. Areas Pension Fund, 425 F.3d 1087 (8th Cir. 2005) (same); Bowers v. Sheet Metal Workers’ Nat’l Pension Fund, 365 F.3d 535 (6th Cir. 2004) (same); Petralia v. AT&T Global Info. Solutions Co., 114 F.3d 352 (1st Cir. 1997) (same). Two circuits – the Seventh and Ninth Circuits – have taken the minority view that, in certain circumstances, a district court’s remand to an ERISA claims administrator may constitute a final decision. See Hensley v. Nw. Permanente P.C. Ret. Plan & Trust, 258 F.3d 986 (9th Cir. 2001), overruled on other grounds by Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955 (9th Cir. 2006); Perlman v. Swiss Bank Corp. Comprehensive Disability Prot. Plan, 195 F.3d 975 (7th Cir. 1999).

Regular Attendance Is “Essential Function” Of A Neo-Natal Nurse, Circuit Rules

In this case, the plaintiff, a neo-natal intensive care unit (NICU) nurse, had fibromyalgia, a condition that limited her sleep and caused her chronic pain. Over the entire period of her employment, the plaintiff never worked full time but still apparently exceeded the number of unplanned absences permitted even for full time employees. In July 2000, while on leave of absence, the plaintiff received a performance appraisal that reflected she had taken seven unplanned absences over the year, exceeding the number of five unplanned absences permitted by the attendance policy, and was informed that her attendance needed improvement. In 2002, the plaintiff was placed on work plans to manage her continued absences, and she predicted that her absences would decrease.

That did not occur, however, and after two more years of attendance problems, and another negative attendance review, the plaintiff’s manager asked to meet with her and a leave-of-absence specialist to address her attendance problems. At the meeting, Providence agreed to a highly flexible accommodation: the plaintiff was allowed to call in when having a bad day, and move her shift to another day in the week. Providence did not require that the plaintiff find a replacement for her shift.

By July 2006, the plaintiff once more exceeded the attendance policy, and received a corrective action notice that was later withdrawn. She again met with management in August 2006, which agreed to yet another accommodation under which her two shifts-per-week would not be scheduled on consecutive days. Nevertheless, she received a verbal warning at the end of the year because of her attendance and responded by seeking an exemption from the attendance policy altogether, which would have allowed the plaintiff to simply miss work whenever she felt she needed to.

The plaintiff’s attendance in early 2007 improved, but by May 2007 she sought and was given a month long leave of absence to obtain counseling. She received another medical leave of over two weeks in October. The following year, 2008, began with another two week medical leave.

The plaintiff was issued a corrective action notice in March 2008 for seven unplanned absences over the previous 12 month period, some of several days in length. Matters came to a head in early 2008, when management informed the plaintiff that her part-time position would cease to exist, and that she could transfer to another position or face termination. After two further unplanned absences in April, the plaintiff was scheduled to discuss her attendance issues with management at a meeting at which she was absent. The plaintiff was finally discharged for, among other issues, seven absences in a 12 month period, and general problems with attendance.

She then filed suit alleging, among other claims, a violation of the Americans with Disabilities Act due to failure to accommodate. The district court granted summary judgment in favor of Providence, reasoning that because the plaintiff was unable to adhere to Providence’s attendance policy, she was unqualified for her position as a matter of law. The district court also held that the 2006 part-time work plan was a reasonable accommodation, and that the accommodation that she requested, to obtain a waiver from the five unplanned absence limit, was unreasonable. The plaintiff appealed.

The U.S. Court of Appeals for the Ninth Circuit explained that the case turned on the role that regular attendance played in the functions of a NICU nurse. Finding that regular attendance was an essential function of a neo-natal nursing position at Providence, it affirmed.

As the circuit court stated, to establish a prima facie case for failure to accommodate under the ADA, the plaintiff had to show that she was disabled within the meaning of the ADA; she was a qualified individual able to perform the essential functions of the job with reasonable accommodation; and she suffered an adverse employment action because of her disability. Providence did not dispute that the plaintiff was disabled, that she had the requisite technical skills for the job, or that she suffered an adverse employment action. However, the circuit court found, the plaintiff was faced with “an insurmountable hurdle” in arguing that regular attendance was not an essential function of the NICU nurse position.

Indeed, the circuit court said that the “common-sense” notion that on-site regular attendance was an essential job function could hardly be more illustrative than in the context of a neo-natal nurse because the “at-risk patient population” required “constant vigilance, team coordination and continuity.” The circuit court added that not only was physical attendance required in the NICU to provide critical care, the hospital needed to populate this unit with nurses who could guarantee some regularity in their attendance.

Finally, the circuit court ruled that the plaintiff’s requested accommodation exceeded “the realm of reasonableness” – she essentially had asked for a reasonable accommodation that exempted her from an essential function. The plaintiff’s approach, the circuit court concluded, “would eviscerate any attendance policy, leaving the hospital with the potential for unlimited absences.” Simply put, the circuit court concluded, an employer “need not provide accommodations that compromise performance quality – to require a hospital to do so could, quite literally, be fatal.” [Samper v. Providence St. Vincent Medical Center, 675 F.3d 1233 (9th Cir. 2012).]

Reprinted with permission from the August 2012 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.

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