Employee Relations Law Journal – From the CourtsSeptember 7, 2018 | Ian S. Linker | |
Sixth Circuit Affirms Dismissal for Failure to Exhaust Plan’s Administrative Remedies
Courts interpreting the Employee Retirement Income Security Act of 1974 (ERISA) have long held that a claimant seeking benefits under an employee benefit plan must exhaust the plan’s administrative remedies before he or she can file suit. A recent decision by the U.S. Court of Appeals for the Sixth Circuit upholds that principle.
The plaintiff applied for short-term disability benefits under his employer’s ERISA-governed employee benefit plan after he began suffering from peripheral neuropathy and lung problems.
The plan’s claim administrator could not obtain from the plaintiff’s primary care physician records adequately documenting the plaintiff’s conditions. As a result, the claim administrator notified the plaintiff that it had determined the plaintiff was not eligible for benefits under the plan and advised the plaintiff he could appeal the determination within 180 days.
On the 180th day, the claim administrator received an indecipherable letter. It tried to contact the sender, who the claim administrator inferred was the plaintiff’s daughter. The administrator left a message requesting a return call, but there is no information in the administrative record indicating anyone called back.
More than two years later, the claim administrator received two letters from the plaintiff’s attorney, asking for a determination on the plaintiff’s claim for long-term disability benefits.
Although the plaintiff had never applied for long-term disability, the claim administrator nevertheless considered the claim. It discovered not only that the plaintiff had never submitted a claim for long-term disability benefits, but that the plaintiff no longer worked for his employer; therefore, he was ineligible for benefits.
The plaintiff sued, seeking long-term disability benefits. He claimed the administrator had violated the plan and, thus, ERISA.
The U.S. District Court for the Western District of Kentucky granted summary judgment in favor of the claim administrator, dismissing the case because the plaintiff had not exhausted the plan’s administrative remedies.
The plaintiff appealed to the Sixth Circuit.
The Sixth Circuit’s Decision
The Sixth Circuit affirmed.
In its decision, the court affirmed the district court’s conclusion that the plaintiff had never applied for long-term benefits. It concluded that the first time the plaintiff even mentioned long-term disability benefits was when his attorney inquired about it in two letters, “both of which came long after any such claim was due under the plan’s terms.” Accordingly, the Sixth Circuit held the plaintiff failed to exhaust the plan’s administrative remedies.
The court was not persuaded by the plaintiff’s contention that the claim administrator should have automatically treated his application for short-term disability benefits also as one for long-term disability benefits, based on an internal policy under which the claim administrator transitioned claims for short-term disability into claims for long-term disability when the former were “expected to reach maximum duration.” The court determined that the “internal policy” was “inapplicable,” because the plaintiff was not expected to reach maximum duration of short-term disability since the claim administrator had not approved any short-term disability benefits. Further, the court also noted that the claim administrator could not have expected short-term disability to reach maximum duration given that the plaintiff had not appealed the initial adverse benefit determination.
The plaintiff also argued that an exception to the claim administrator’s internal policy for benefit denials relying on plan exclusions applied and so the administrator should have transitioned to long-term disability the plaintiff’s claim for short-term disability benefits. The court rejected plaintiff’s argument because the claim administrator had not relied on an exclusion.
The court concluded that the district court had not abused its discretion in holding that the plaintiff had failed to exhaust the plan’s administrative remedies. [Kennedy v. Life Ins. Co. of North America, No. 17-5901 (6th Cir. April 13, 2018).]
Ninth Circuit Holds That Surgical Center Lacked Derivative Standing to Sue for Benefits Due to Plan’s Anti-Assignment Provision
The U.S. Court of Appeals for the Ninth Circuit has held that a surgical center lacked derivative standing as a beneficiary’s assignee to seek benefits under an employee benefit plan governed by the Employee Retirement Income Security Act of 1974 (ERISA).
Before undergoing surgery at the plaintiff surgical center, an ERISA plan beneficiary purportedly assigned her benefits to the center. The plan’s claim administrator denied the center’s claim for benefits. As an assignee, the surgical center sued the plan’s claim administrator seeking to recover benefits under the plan. The U.S. District Court for the Central District of California granted summary judgment in favor of the claim administrator, concluding that the surgical center lacked standing to sue due to the plan’s anti-assignment provision.
The surgical center appealed to the Ninth Circuit. The surgical center conceded that the plan contained an anti-assignment provision that would have barred the center’s suit, if the provision was enforceable. The surgical center argued, however, that the claim administrator made two misrepresentations; thus, the administrator was equitably estopped from relying on the plan’s anti-assignment provision. According to the surgical center, the claim administrator had incorrectly advised the surgical center a week or so before the surgery regarding the applicable reimbursement rate under the plan. In addition, the claim administrator had mistakenly told the surgical center roughly four months after the surgery that the plan did not contain an anti-assignment provision.
The surgical center also argued that the claim administrator waived its right to assert the plan’s anti-assignment provision to challenge the surgical center’s standing to file suit.
The Ninth Circuit’s Decision
The Ninth Circuit disagreed with the surgical center and affirmed the district court’s decision.
In its decision, the Ninth Circuit explained that reasonable reliance on a material misrepresentation was a prerequisite to establishing equitable estoppel. It assumed the surgical center could invoke equitable estoppel as to the first alleged misrepresentation, but found that the misrepresentation was immaterial to the standing analysis because it related to the plan’s reimbursement rate, which had no impact on whether or not the anti-assignment provision was enforceable.
Although the court found that the second alleged misrepresentation was “at least potentially relevant” to whether the anti-assignment provision was enforceable, the court decided that the surgical center “could not have reasonably relied” on that alleged misrepresentation in deciding to file suit.
The court found that the surgical center had not attempted to obtain the plan documents from its assignor until after it had filed suit, even though it could have and should have obtained the documents from the assignor. Under these circumstances, the surgical center’s reliance on the claim administrator’s alleged misrepresentation concerning the existence of an anti-assignment provision was unreasonable.
The court also rejected the surgical center’s waiver argument. The court recognized that a plan administrator may not fail to assert a basis for a benefits determination during the administrative process and then raise that basis for the first time in court. The court distinguished that scenario from what happened in this case. The claim administrator asserted the plan’s anti-assignment provision after the surgical center filed suit to challenge standing to sue, not as a basis for its benefit determination. In fact, the court continued, no benefits were payable in this case because the beneficiary’s deductible had not been met. Moreover, the court stated that the surgical center cited to no authority for the proposition that the claim administrator had an affirmative duty to notify the surgical center of the plan’s anti-assignment provision. The court, therefore, rejected plaintiff’s waiver argument. [Eden Surgical Center v. Cognizant Technology Solutions Corp., No. 16-56422 (9th Cir. April 26, 2018).]
In Case Seeking LTD Benefits, Court Denies Plaintiff’s Request for Discovery
When a court is asked to review an administrative benefit determination under an employee benefit plan governed by the Employee Retirement Income Security Act of 1974 (ERISA), the court typically will base its review solely on the administrative record that was compiled and considered by the benefit administrator absent a compelling reason to look outside the record. Accordingly, courts typically do not allow discovery.
A recent decision by a federal district court in Massachusetts explains when a court might allow discovery and consider information outside the administrative record.
In November 2009, a serious lung condition prevented the plaintiff from working. She received long-term disability benefits under an ERISA plan until September 2015, when the claim administrator determined that she was no longer eligible for benefits.
The plaintiff appealed the determination and, in May 2016, the administrator upheld its determination. The plaintiff appealed again and, in May 2017, the administrator again upheld the determination.
After the plaintiff sued the administrator in the U.S. District Court for the District of Massachusetts, she sought to take the deposition of the administrator’s employee who had written both determination letters on appeal.
In her motion for discovery, the plaintiff contended that she was entitled to depose the employee because the administrator was biased against her. The plaintiff based her claim of bias on the following:
- The claim administrator secretly made video recordings of her in public, which she said were undertaken in bad faith;
- The reviewing physician misrepresented the record evidence;
- The administrator “cherry-picked” the evidence and failed to give weight to her treating physicians’ opinions; and
- The administrator had an inherent, or structural, conflict, because it both made benefit determinations and funded the benefits payable under the plan.
The Court’s Decision
The court denied the motion.
The plaintiff failed to convince the court that the administrator, an insurance company, was biased against her. The court noted that insurance companies are “routinely permitted to record the activities of claimants in public places” as one of many sources of information to assist them in making claim determinations. The court decided that the plaintiff had presented nothing more than “conclusory allegations” to suggest that the recording was taken in bad faith.
Moreover, although the plaintiff could argue that the claim administrator erred when it adjudicated the claim, the court held that nothing in the record justified allowing the plaintiff to take the deposition she sought.
Finally, the court acknowledged the structural conflict of interest, but recognized that claim administrators both make benefit determinations and fund benefits payable under the plan “in the majority of ERISA cases.” According to the court, if a “structural conflict alone were enough to justify additional discovery, it would occur routinely,” and the presumption that the record was limited to that before the administrator would do little to advance the “interests in finality and exhaustion of administrative procedures required by ERISA.”
Accordingly, the court denied the plaintiff’s motion to take limited discovery. [Scolnick v. Prudential Ins. Co. of America, No. 17-11430-FDS (D. Mass. May 2, 2018).]
Court Strikes Jury Demand in ERISA Case
Following established precedent, a federal district court in Illinois has decided that plaintiffs had no right to a trial by jury in a case they brought seeking to recover losses to an employee benefit plan governed by the Employee Retirement Income Security Act of 1974 (ERISA).
The plaintiffs filed a lawsuit under ERISA, asserting six claims for breach of fiduciary duty (Counts I-VI) and one claim for failure to monitor fiduciaries (Count VII). The plaintiffs sought relief under 29 U.S.C. § 1132(a)(2) for losses to the plan the plaintiffs alleged were caused by the defendant’s breach of fiduciary duties.
The Seventh Amendment to the U.S. Constitution guarantees a right to a jury trial in suits to ascertain and determine legal rights, as opposed to suits involving equitable rights or administering equitable remedies. In determining whether a claim is legal or equitable, a court considers the claim’s statutory antecedents prior to the merger of law and equity and whether the remedy is legal or equitable.
The plaintiffs argued that, because they sought to be compensated for losses, they were, in essence, seeking money damages, a classic remedy at law, for which they were entitled to a trial by jury.
The defendants argued that the plaintiffs sought equitable relief and therefore, had no right to a jury trial. They moved to strike the plaintiffs’ jury demand.
The Court’s Decision
The court recognized that plaintiffs sought a surcharge, a form of equitable restitution; thus, the court did not agree that plaintiffs sought legal relief, because the remedy was available in equity prior to the merger of equity and law. Accordingly, the court granted the defendant’s motion to strike.
In its decision, the court explained that the Seventh Amendment guarantees a right to a jury trial in suits “at common law.” In Granfinanciera SA v. Nordberg, 492 U.S. 33, 41, 109 S. Ct. 2782, 106 L. Ed. 2d 26 (1989) (quoting Parsons v. Bedford, 28 U.S. 433, 3 Pet. 433, 447, 7 L.Ed. 732 (1830)), the U.S. Supreme Court held that “at common law” means suits involving legal rights and remedies, as opposed to equitable rights and remedies.
In determining whether a claim was legal or equitable, the court added, it had to consider the claim’s statutory antecedents and whether the remedy was legal or equitable.
ERISA’s antecedent is the law of trusts, which was, and still is, equitable. It is thus well established in ERISA jurisprudence that plaintiffs have no right to a jury trial.
Plaintiffs’ argument that their case was different because they sought relief not under 29 U.S.C. §§1132(a)(1)(B) (a)(3), but under 29 U.S.C. §1132(a)(2), which provides a private right of action “by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title,” failed to persuade the court.
29 U.S.C. § 1109(a) provides:
Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through the use of assets of the plan by the fiduciary. . . .
Because the plaintiffs sought to recover losses to the plan resulting from alleged breaches of fiduciary duty under 29 U.S.C. § 1109(a), the court determined that the plaintiffs sought a surcharge, an equitable remedy, not a legal remedy.
Accordingly, because ERISA’s statutory antecedent is trust law, a body of law handled by courts of equity before the courts of law and equity merged, plaintiffs in ERISA actions have no right to trial by jury. Further, because the relief plaintiffs sought here was specifically equitable, they had no right to a jury trial. Thus, the court struck the plaintiffs’ jury demand. [Divane v. Northwestern University, No. 16 C 8157 (N.D. Ill. April 25, 2018).]
- Ian S. Linker