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Shapiro v. Reliance Standard Life Ins. Co., 91 F.3d 121 (1st Cir. 1996) - Plaintiff alleged that she was wrongfully denied benefits under a long-term disability plan under ERISA [29 U.S.C. § 1132(a)(1)(B). Under the terms of the plan, plaintiff was required to submit "satisfactory proof of her ... disability." However, the plaintiff failed to provide a report to the plan administrator to indicate that she was totally incapacitated, and her physician failed to respond to the administrator's request to submit medical information as to plaintiff's alleged disability. Moreover, there was contradicting evidence from her physician. Although he opined that plaintiff was totally disabled, the administrator found that he also suggested that plaintiff should" give ... a try" at going back to work. Finally, the plan administrator had evidence that plaintiff applied for reemployment with her former employer right before she made her initial application for disability benefits. In light of this evidence, the First Circuit held the district court's grant of summary judgment to the defendant was not clearly erroneous.
Grabois v. Jones, 89 F.3d 97 (2d Cir. 1996) - Download in RTF- Pension fund administrator brought an interpleader action to determine which of the deceased participant's two widows were entitled to his pension benefits. Annie Marie was married to Junior Jones in 1942. Kay Jones had been married to Junior since 1962. There was no indication that Marie had been involved in Junior's life at least from 1942. Relying on New York law which states that a purported marriage is void if one of the parties was already legally married, the district court held on summary judgment that Marie was the legal widow and thus entitled to benefits. Jones appealed to the Second Circuit. First, the court noted that the participant's pension contract was never entered into the record, therefore it had no way to determine whether the administrator was required to pay benefits to Junior's "legal widow" or more generally to "his wife." The court agreed that N.Y. law would apply to determine which widow is entitled to benefits, however it found that the district court failed to consider the whole of N.Y. law. The district court should have considered also well established N.Y. law that recognizes a strong presumption of validity to a second marriage where a substantial injustice would be created by invalidating that second marriage. Here, Jones was formally married to Junior by a state official, she raised his five children, kept their home, and nursed him through an illness that lasted the final 12 years of his life. Additionally, there was no explanation as to why Marie presented the administrators with two marriage certificates, each bearing different maidens name. The court held these facts gave rise to a question which of the two women N.Y. would recognize as Junior's widow, therefore summary judgment was no appropriate. Next, the court held that the pension fund may fall within ERISA, and if so, other questions would arise which the district court did not consider. Under ERISA's surviving spouse provision (29 U.S.C. § 1055), a "survivor annuity" must be paid to the surviving spouse of the employee. Who is the surviving spouse depends on the law of the relevant state. Furthermore, under ERISA, a surviving spouse's right to benefits may be waived only if the employee so elects, and is the surviving spouse consents in writing to such an election, and acknowledges the effect of the election before a notary public. Thus, the district court was required to consider whether ERISA applies to the plan, which of the two widows was the surviving spouse; and if the court determined that Marie was the surviving spouse, it must determine whether Junior intended to elect to waive her right to benefits and whether she consented to such an election. Factors such as Junior's marriage to Kay, and his inability to locate Marie might raise an inference that he intended to make Kay the rightful beneficiary. Finally, even if the plan did not invoke ERISA, the district court was required to interpret the terms of the pension contract to determine whether Junior intended to provide benefits to his legal widow or to his non-legal wife whom he intended to treat as the surviving spouse. The appellate court remanded the case to the district court to make these determinations emphasizing the presumption in favor of the second widow, and directing the court to weigh the equities of the situation.
McNemar
v. Disney Stores, Inc., 91 F.3d 610 (3d Cir. 1996) - Plaintiff brought
action under the ADA, ERISA and New Jersey Law Against Discrimination (NJLAD)
against his former employer claiming that he was terminated because of his
disability, HIV-positive. The district court found that plaintiff previously
made sworn statements under penalties of perjury in his applications for Social
Security Disability Insurance benefits and New Jersey state disability benefits
wherein he claimed that he was permanently disabled and unable to work.
Furthermore, he submitted affidavits from his physicians to this effect. Thus,
the court held that plaintiff was judicially estopped from claiming that he was
"able to perform the essential functions of his job, with or without
reasonable accommodations," a necessary element of both the ADA and NJLAD.
Since plaintiff could not establish a prima facie case under the ADA and NJLAD,
the court granted summary judgment to the employer. The Third Circuit affirmed,
holding that a court in its discretion may apply judicially estoppel to prevent
a person "to play fast and loose with the courts" by asserting a
position inconsistent with a position it had successfully relied upon in a past
proceeding. The court further agreed with the district court that plaintiff
could not prevail on his ERISA § 510 discrimination claim. To establish a prima
facie case under § 510, plaintiff must show that (1) he belongs to a protected
class; (2) that he was qualified for the position involved; and (2) that he was
terminated under circumstances that raise an inference that the employer
intended to interfere with his right to under an employee benefit plan. Since
plaintiff previously represented that he was permanently disabled and unable to
work, he was similarly judicially estopped from claiming that "he was
qualified for the job." Moreover, the court rejected plaintiff's state law
claims for intrusion upon seclusion, public disclosure of private information
and intentional infliction of emotional distress. The facts demonstrated that
plaintiff voluntarily told his supervisors that he was HIV positive, and
therefore he could not claim an intrusion. Furthermore, the supervisor's
relaying this information to one of plaintiff's friend and two of his family
members did not constitute disclosure to the public at large. Finally, the
employer's conduct was neither extreme or outrageous in terminating plaintiff,
therefore his intentional infliction of emotional distress claim also failed.
New Valley Corporation, Debtor v. New Valley Corporation, Senior Executive Benefit Plan Participants, 89 F.3d 143 (3d Cir. 1996) - Participants in a top heavy pension plan sought benefits from employer who went into bankruptcy and terminated the plan. Under the formal plan, the employer reserved the right to amend or terminate "at any time," however this provision was not integrated into previous plan summaries. The bankruptcy and district courts, nonetheless read the "four corners" of the plan and determined that the employer's reserved right to terminate precluded plaintiffs' recovery, and thus did not permit plaintiffs to present extrinsic evidence to show they were entitled to benefits.
Plaintiffs appealed, and the appellate court held that the bankruptcy court erred insofar as it did not consider plaintiffs' extrinsic evidence. The court noted that top heavy plans were exempted from certain ERISA provisions, including the minimum participation, vesting and funding requirements. ERISA also exempts top heavy plans from its fiduciary responsibility provision, including the requirement of a written plan. Since top heavy plans need not be in writing, top heavy agreements can be partially or exclusively oral. Thus, those cases which limit employees strictly to terms of the plan document are not controlling, but rather federal common law of contracts would apply to top heavy plan. The bankruptcy court could interpret the words of the agreement in a vacuum, but must also consider the parties' context and other provisions of the plan. Accordingly, plaintiffs were allowed to present extrinsic evidence to show that an ambiguity existed in the plan. The Third Circuit held that an ambiguity did exist for which plaintiff could offer extrinsic evidence to explain. The plaintiffs argued that the provision reserving the employer's right to terminate "at any time," however, did not permit the employer's ability to terminate the plan after the plaintiffs had already retired. The court was persuaded that if the employer did intend to reserve the right to terminate the plan literally "at any time," even after retirement, then any contract or promise would be merely illusory. Furthermore, the court found specific and mandatory provisions promising what appeared to be benefits which vest on retirement. Under these facts, the reserved right to terminate provision could reasonably be read to preclude the employer from terminating vested benefits after the participant retired. Because the plan was ambiguous, the bankruptcy court should have allowed plaintiffs to present extrinsic evidence to clarify its meaning.
In addition, the court concluded that the bankruptcy court should have considered plaintiff's promissory estoppel claims. To establish a claim for equitable estoppel under ERISA, plaintiff must show (1) a material misrepresentation, (2) reasonable and detrimental reliance upon the representation, and (3) extraordinary circumstances. Because top heavy plans can be oral, participants may reasonably rely on oral representations of benefits, even where the employer reserves the right to terminate.
Montgomery Ward Comprehensive Health Care v. Layne - 92 F.3d 1180 (4th Cir. 1996) - Jeffrey Layne was a beneficiary under his wife's employer's health benefit plan. As a prerequisite to recovery under the plan, beneficiaries are required to execute a subrogation agreement reimbursing the plan for benefits paid from any recovery from a third party tortfeasor. Mr. Layne was involved in an automobile accident for which he received $100,000 from the other driver and $100,000 from his own insurance company. He then made a claim for benefits under the plan, however he refused to execute the subrogation agreement. The plan then offered to cover Mr. Layne if he would agreed to reimburse the plan 2/3 of what he received from the other driver ($66,666), however he still refused to sign a subrogation agreement. In a previous action, Mr. Layne then brought a claim in district court for benefits, and the court concluded that the plan accurately notified Mr. Layne that he must executed a subrogation agreement before benefits were paid, and thus the plan properly denied him benefits upon his refusal to execute such agreement. The Third Circuit affirmed.
Mr. Layne, however, failed to pay his medical expenses, and subsequently his health care providers brought a state action against him. Mr. Layne named the plan as a third-party defendant claiming it was liable for his unpaid medical expenses. The plan sought an injunction from the federal district court to enjoin plaintiff from relitigating the issue of whether he is entitled to a double recovery. On the day of oral arguments for the injunction, Mr. Layne finally executed the subrogation agreement. Mr. Layne argued that because the Laynes now agreed to subrogate the plan, the issue before the state court was "the obligations of the Plan under the Subrogation Agreement" which differed from the previous litigated issue of "whether the plan had provided adequate notice that a subrogation agreement must be signed before benefits would be paid." Out of an abundance of caution, the district court reluctantly denied the injunction. The plan moved to reconsider and vacate the motion pursuant to F.R.C.P. 60(b), which provides in part that, "On motion and upon such terms as are just, the court may relieve a party ... from a final judgment, order or proceeding...." The district court also denied this motion.
The plan appealed. The Fourth Circuit determined to prevail on a Rule 60(b) motion, the "movant must make a showing of timeliness, a meritorious defense, a lack of unfair prejudice to the opposing party, and exceptional circumstances." If these threshold requirements are met, then a movant must satisfy one of the listed reasons that the Rule provides for grounds of relief, including "fraud, misrepresentation, or other misconduct of an adverse party." Here, the plan satisfied the threshold requirements. The plan filed a motion to reconsider and vacate within a week after the court denied the injunction; its defense is meritorious because if the signed agreement does not raise a new issue, then they were entitled to an injunction; there is no unfair prejudice since the Laynes chose not to submit the agreement until the day of the hearing of the injunction, and their delay gives rise to exceptional circumstances. The court further concluded that the Laynes submission of the purported subrogation agreement and his statements as to its legal effect was a misrepresentation. The agreement provided that he would transfer to the plan any portion of his recovery from a third party tortfeasor who is ultimately found to be liable. Since the third party tortfeasor liability had already been established; he already paid the Laynes, and was released from any further claims, there could be no future decision on his legal liability. The Laynes did not represent to the court that they possessed no right to a future recovery from a third party tortfeasor. Thus, the district court erred in denying the plan's motion to reconsider.
Furthermore, the court concluded that the Laynes were estopped by res judicata. It determined that in the first action, it decided that the Laynes could not double recover from both the plan and the other driver, and the subsequent submission of the subrogation agreement merely re-raises that issue. The Laynes has no right to recover from the third party tortfeasor, thus the subrogation agreement transfers nothing to the plan. Because the Laynes have already recovered from the third party tortfeasor, the Laynes could only recover from the plan in the state court action if the court holds that the Laynes have a right to double recovery. Such a holding would directly conflict the previous ruling.
Custer v. Sweeney, 89 F.3d 1156 (4th Cir. 1996) - Participant sued ERISA plan attorney for breach of fiduciary duty under ERISA and legal malpractice alleging the attorney made arrangements for deceased trustee to use plan funds to lease a private jet and purchase a mansion, which the trustee claimed was used as a conference center. The district court dismissed plaintiff's ERISA claim because the attorney was not a fiduciary under the statute. It also dismissed without prejudice plaintiff's malpractice claim finding no supplemental jurisdiction over the state law action. Finally, the district court declined to award attorneys fees to the attorney. Both parties appealed.
The Fourth Circuit held that a person is liable under ERISA's fiduciary provision, if the person (1) exercises any discretionary authority or control with respect to management or disposition of plan assets; (2) renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so; or (3) has any discretionary authority or responsibility in the administration of the plan. Although plaintiff's complaint alleged that the attorney had discretionary authority, plaintiff failed to allege any facts to support this conclusion. Instead, the facts revealed that the attorney performed purely ministerial functions, such as soliciting bids for contracting work and approving payment of bills. He had no check-writing authority. Furthermore, the trustees subcommittees that the attorney represented merely made recommendations to the board of trustees, who ultimately decided to enter into the airplane and conference center transactions.
The appellate court also agreed that the district court properly dismissed without prejudice plaintiff's malpractice claim, thus allowing plaintiff to bring this claim against the attorney in state court. The attorney argued that ERISA preempted plaintiff's state law claim, therefore the court should have dismissed the malpractice claim in with prejudice. The Fourth Circuit determined that although plaintiff's claim will have obvious effects on the plan, legal malpractice claims represented a traditional exercise of state authority, and such action was too tenuous to be related to the plan, and thus not preempted by ERISA. Furthermore, it concluded that allowing the plaintiff to pursue the a legal malpractice state action would not impede the goals of ERISA in protecting employee benefits fans, nor did it "affect the structure, the administration, or the type of benefits provided by an ERISA plan. Finally, the court noted that ERISA provides no cause of action for malpractice claims, therefore plaintiff must be allowed to pursue a remedy in state court. The attorney, nevertheless argued that since some federal questions would arise, plaintiff's claim would best be addressed by the federal courts. The appellate court disagreed and concluded that there was no real danger that a state court may incorrectly or inconsistently interpret ERISA's fiduciary duty provisions in addressing plaintiff's malpractice claim, therefore the significant federal policies that Congress sought to promote in enacting ERISA were not at stake.
Finally, the court held that the district court did not abuse its discretion in failing to award attorneys fees to the attorney. Even though the lower court dismissed plaintiff's ERISA claim without prejudice, it did not find that he acted in bad faith in bringing the claim.
Martin v. Board of Trustees, 91 F.3d 131 (4th Cir. 1996) - Plaintiff claimed that the plan's unlawful cutback provision wrongfully denied him benefits. The plan was subsequently amended and plaintiff received his benefits. The court found that his claim was moot and granted the defendant summary judgment.
Klebe v. Mitre Group Health Care Plan, 91 F.3d 131 (4th Cir. 1996) - Under the terms of the employer's welfare plan, mental health treatment is limited to $500,000 lifetime benefit. Plaintiffs claimed that their son's schizophrenia was not a mental illness, and sought full lifetime coverage of $1 million for medical illness. The court held that the administrator was not arbitrary and capricious in finding that schizophrenia falls within the mental illness umbrella, and thus it properly denied benefits in excess of $500,000.
Shade v. Panhandle Motor Service, 91 F.3d 133 (4th Cir. 1996) - Beneficiary's estate brought action against plan administrator for breach of fiduciary duty and sought benefits pursuant to the employer's health plan. Marvin E. Stephens was a covered beneficiary under the employer's plan through Mountain State Blue Cross & Blue Shield ("Blue Cross") when he underwent a liver transplant. His personnel file bore an entry stating "quit-disability," however both Stephens and the employer represented to the court that Stephens was on a medical leave when he left work to have the transplant. While he was under an extended period of recovery, the employer terminated the health plan with Blue Cross, and implemented a self-insured plan with Phoenix Mutual Insurance ("Phoenix"). Due to an administrative error, Stephens was omitted as a covered employee under the new plan. Stephens returned to work, however two months later he terminated his employment due to illness. Panhandle sent him a COBRA election notice, but he was denied extended coverage since he was never a covered employee under the self-insured plan. Stephens again returned to work for five months, and finally terminated his employment permanently. He became eligible for Medicare benefits.
The Fourth Circuit affirmed the district findings that Panhandle breached its fiduciary duty to Stephens when it failed to inform Phoenix that Stephens was a covered employee. It determined that Panhandle had a duty to enroll Stephens in the new self-insured plan so he enjoyed continuing coverage. Panhandle also breached its fiduciary duty when it failed to inform Stephens of any change in his coverage status. Furthermore, the appellate court concluded that Panhandle subjectively believed that Stephens terminated employment when he first left to have a transplant, and despite this belief, it failed to provide Stephens with COBRA notice. Accordingly, the district court could properly impose a penalty of $5 per day for the failure to provide notice. Finally, the Fourth Circuit affirmed the district court's award of attorneys fees to Stephens' estate.
Bowers v. Sears, Roebuck & Co., 91 F.3d 143 (6th Cir. 1996) - Under the Sear's plan, benefits would cease under the more attractive Active Plan and Plan D when the beneficiary became entitled to Medicare. At that time, the beneficiary would automatically enroll in Plan E with lifetime benefits of $150,000. Plaintiff was rendered a quadriplegic after an automobile accident, and subsequently became eligible for Medicare, thus she was enrolled in Plan E. Before she reached her lifetime benefit, she filed suit seeking declaration of her rights of coverage, asserting state claims for compensatory and punitive damages, and federal claims under ERISA.
The Sixth Circuit agreed that plaintiff's state law claims were properly dismissed by the district court. Plaintiff argued that pursuant to the Ohio Statute, she had a statutorily vested right to an option to convert her "policy of group sickness and accident insurance" to an individual policy. The statute, however applied only to insurance policy issued to an employer, and did not apply to Sear's self-insured plan. Next, plaintiff argued that she was entitled to relief under ERISA, 29 U.S.C. § 1132(A)(3) because Sear's failed to maintain its plan pursuant to a written instrument and by failing to provide a summary plan description of the plan. The court, however determined that plaintiff could not show that she was entitled to benefits even if the plan was written, and that there was no causal connection between the violation and the injury. Since plaintiff sought only damages and not equitable relief requiring the administrator to reduce the plan to writing, the district court properly dismissed her ERISA claim. Finally, the court held that Sears was entitled to summary judgment on plaintiff's promissory estoppel claim since plaintiff failed to show that she relied on any misrepresentation. The administrator's interpretation of the plan was not arbitrary and capricious.
Lewis v. Plumbers and Pipefitters National Pension Fund, 91 F.3d 144 (6th Cir. 1996) - Plaintiff worked as pipefitter from 1951 to 1970 when a work related injury forced him to leave employment. During that time, his former employer was not a contributor to the defendant multi-employer pension fund. In 1987, plaintiff recovered from his disability and resumed work as a pipefitter. His new employer did make contributions to the fund for plaintiff until 1992 when he retired. Although the plan was not required to count plaintiff's service years prior to his separation in 1970, it credited his pre-separation service years from 1951 to 1970 because his separation was due to a disability. However, the plan provided that his pre-separation years of service to accrued at the contribution rate effective at the time of his separation, and his post-separation years of service (1987-1992) accrued upon the higher contribution rate at the time of his retirement in 1992. The district court interpreted the plan and found that plaintiff did not incur a separation in 1970 because he left employment due to a disability, therefore all of his service credits should have accrued benefits based upon the contribution rate effective at the time of his retirement.
The 6th Circuit disagreed. According to the plan, all prior years of service are canceled when a participant incurs a break, unless waived by the Trustee. Plaintiff in this case incurred a break, however, his break was "repaired" because of his disability, therefore he retained credit for the canceled years of service. The Plan must then set the contribution rate to apply to the "repaired credit," and it could either apply the contribution rate when the participant retired or the rate in effect when the participant incurred the break. A provision in the plan provides that once a participant incurs a five year break of service, his service credits will accrue at the contribution rate effective at the time of separation. The circuit court held that although the plan did not cancel plaintiff's prior years of service (because of his disability), plaintiff nonetheless incurred a separation, therefore, the plan administrator reasonably interpreted the plan and applied the contribution rate effective at the time of his separation.
Clarkson v. Hubbard, 91 F.3d 143 (6th Cir. 1996) - Plaintiff sought proceeds from her father's life insurance policy provided by his employer pursuant to a divorce decree between the deceased participant and plaintiff's mother. Defendant is participant's second wife and name beneficiary under the policy. The employer, General Motors, and the insurer, MetLife, removed Plaintiff's state claim to federal court under ERISA preemption, and summary judgment was entered in plaintiff's favor. Defendant appealed.
The Sixth Circuit determined that the district court did not have jurisdiction to decide the case. The plaintiff here chose not to assert any claim under federal law, rather she brought action pursuant to an Ohio statute that she is entitled to 1/2 of the proceeds as an irrevocable third party beneficiary of her parents' divorce decree. GM and MetLife wrongfully assumed that her case arose under ERISA when it removed the case to federal court. The appellate court determined that she was not a named beneficiary under the plan, and therefore had "no colorable claim to vested benefits." Since plaintiff had no standing to bring an § 1132(a) action, removal was improper for lack of subject matter jurisdiction. The court stated that her state claims may nonetheless be preempted by ERISA, however the state court would first have to address her claims and determined whether Congress intended for the state claim to be preempted. Her state law claim for insurance proceeds will be preempted if the state court finds that it relates to the benefit plan. Accordingly, the case was remanded to the district court with an order to dismiss.
Yeager v. Reliance Standard Life Insurance Company, 88 F.3d 376 (6th Cir. 1996) - Reviewing de novo the administrator's decision to deny plaintiff's claim for disability benefits, the district found entered judgment in plaintiff's favor. The Sixth Circuit, however, reversed and held that the lower court should have applied an arbitrary and capricious standard of review. The appellate court determined that language in the plan requiring plaintiff to submit "satisfactory proof of Total Disability to us" was sufficient to grant discretion to the administrator. A determination that evidence was satisfactory was a subjective judgment that required a plan administrator to exercise his discretion, therefore the district court should have given more deference to the administrator's decision. Moreover, the Sixth Circuit found it unnecessary to remand the case to the district court to apply the proper standard because the medical evidence established that the administrator did act arbitrary and capricious in denying benefits. Indeed, none of plaintiff's medical evidence definitively diagnosed her with a disabling condition, and even one of her doctors concluded that she was able to perform 95% of her job duties. It concluded that in the absence of any definite anatomic explanation of plaintiff's symptoms, the administrator's decision to deny benefits was proper.
Youngstown Aluminum Products, Inc. v. Mid-West Benefit Services, Inc., 91 F.3d 22 (6th Cir. 1996) - After the participant underwent surgery for breathing problems, the administrator of an employee health benefit plan denied him coverage because he failed to list the preexisting condition on his enrollment application. Pursuant to a provision in the plan, failure to list a preexisting condition resulted in a loss of coverage. The evidence showed that plaintiff was never medically diagnosed for a respiratory or cardiovascular disorder at the time he completed his application, and he was not required to update his application upon subsequent diagnosis, therefore the insurer could not rely on his failure to do so as grounds for denying coverage. Moreover, even if plaintiff had a preexisting condition, the court found that a "liberalization" clause in the plan that provides coverage for pre-existing conditions as long as "a group transfers into the defendant's plan without a lapse in coverage" precluded the insurer from denying coverage since there was no lapse in coverage when the employer switched to then new plan. Additionally, the administrator denied extended coverage because the participant already received Medicare benefits, however the court found that under the terms of the plan Medicare eligibility was not an event that terminated eligibility for continuing coverage. According, the court concluded that the participant was entitled to COBRA coverage when he retired.
Morton v. Smith, 91 F.3d 867 (7th Cir. 1996) - Plaintiff, a beneficiary in a union health and welfare plan, fell eight feet from the roof of a bar and broke his leg. His blood alcohol level at the time of his injury was .23. The plan denied insurance benefits pursuant to a provision that excludes coverage for "intentionally self-inflicted injury." Plaintiff appealed the district court grant of summary judgment to the defendant. First, the Seventh Circuit addressed the proper standard of review of the administrator's decision. It held that where fiduciaries are bound to interpret the plan in good faith, judicial review is most deferential, and a reviewing court may only determine whether their decision was "arbitrary and capricious." However, this plan merely gave fiduciary discretion to make "reasonable" interpretation of their plans, thus, the reviewing court must apply an "abuse of discretion" standard. Even under this somewhat less deferential standard, the appellate court found that the administrator did not abuse its discretion when it interpreted the plan to deny plaintiff's benefits.
Plaintiff argued that a provision in the plan provides that Illinois law would govern "construction" of the trust instrument, therefore, the Trustee was entitled to no deference. The court, however, found that the provision would apply Illinois law to the construction of the trust instrument, but the benefit plan itself was within the discretionary authority of the Trustee to interpret. Moreover, the court concluded that even if the provision intended to apply state law to the plan itself, it had no legal effect since ERISA preempted state law interpretation of benefit plans. Next, plaintiff argued that because his injury was an "accident," the administrator's unreasonably found that it was "intentionally self-inflicted." The court disagreed, and held that the administrator could reasonably determine that an injury is not an accident if it is the natural and probably consequence of an intentional act. Because this interpretation was consistent with insurance law (or well-established legal concept), the administrators did not abuse their discretion.
Jass v. Prudential Health Care Plan, 88 F.3d 1482 (7th Cir. 1996) - Plaintiff underwent complete knee replacement surgery performed by Dr. Anderson, who was on defendant's (Pru Care) list of participating physicians. She claimed that her condition required a course of rehabilitative physical therapy. An agent for Prudential Health Care Plan (Pru Care), Karen Margulis, determined that physical therapy was unnecessary, thus, plaintiff was discharged prematurely from the hospital. Plaintiff claimed that this denial of treatment caused her to suffer permanent injury to her knee. She filed a claim in state court against Margulis and a vicarious liability claim against Pru Care for Margulis and Dr. Anderson's alleged negligence. Pru Care removed the case to federal court asserting both diversity jurisdiction and subject matter jurisdiction under ERISA. Plaintiff moved for remand and while her motion was pending, she amended her complaint to state a medical malpractice claim against Dr. Anderson, which destroyed complete diversity. The district court, however, concluded that joinder of Dr. Anderson, while destroying diversity jurisdiction, did not destroy subject matter jurisdiction because of ERISA preemption. Also relying on ERISA preemption, the district court dismissed plaintiff's state claims against Pru Care and Margulis. It refused to exercise supplemental jurisdiction over the malpractice claim without an underlying federal claim, therefore it remanded the remaining case against Dr. Anderson to state court.
Plaintiff appealed arguing that he district court had no jurisdiction to dismiss her claims against Margulis and Pru Care based on ERISA preemption. The 7th Circuit held that if plaintiff's claim invoked ERISA § 514, then only her claim was subject only to "conflict preemption." However, if her claim invoked ERISA § 502, the action was subject to "complete preemption. The court then cited three factors to determine whether plaintiff's claim was within ERISA § 502(a): (1) whether the plaintiff is eligible to bring a claim under that section; (2) whether the plaintiff's "cause of action falls within the scope of an ERISA provision that the plaintiff can enforce via § 502(a); and (3) whether the plaintiff's "state law claim cannot be resolved without an interpretation of the contract governed by federal law. The court applied these factors to plaintiff's claims against Margulis for negligence, against Pru Care for vicarious liability, and against Dr. Anderson for malpractice.
Although plaintiff stated her claim as a negligence claim against Margulis, the court must determine whether plaintiff's really claimed a right to recover benefits due under the terms of the plan. Applying these factors and looking beyond plaintiff's artfully drafted complaint, the court concluded that Jass' claim was in effect a claim for denial of benefits. It reasoned that when Margulis determined that therapy treatment was not medically necessary, she made a determination of benefits within the meaning of the plan. Even though plaintiff stressed the fact that Margulis was a registered nurse, plaintiff admitted that Margulis' only contact with plaintiff was "participating in the determination of benefits due to plaintiff under the terms of the ... plan." Since plaintiff's negligence action was predicated on Margulis' determination of benefits, a court must interpret the plan and to resolve plaintiff's claim. Accordingly, ERISA preempted plaintiff's negligence action, therefore the district court properly exercised jurisdiction. Having decided that plaintiff's claim was really a claim for benefits, the circuit court held that plaintiff's claim was properly dismissed because she sued Margulis in her individual capacity and "ERISA permits suits to recover benefits only against the Plan as an entity[.]"
Next, the court held that plaintiff's claim against Pru Care for vicarious liability based on Margulis' actions is also a § 502(a) denial of benefits, therefore the district court had jurisdiction. The court determined that under ERISA § 502(a), plaintiff may recover benefits due her under the plan, or obtain "other appropriate equitable relief." The plaintiff in this case requested only compensatory damages for her injuries, which is not an ERISA remedy. Rather than affirm the district court's dismissal of plaintiff's claim against Pru Care, the circuit court allowed her an opportunity to amend her complaint to request appropriate relief under § 502(a), but cautioned that in the future, artful pleading of an ERISA case to avoid federal jurisdiction may result in dismissal.
The court then determined that plaintiff's claim negligence claims against Pru Care for vicarious liability of Dr. Anderson was preempted by ERISA because it directly related to an ERISA plan. It reasoned that if any agency relationship existed between Pru Care and Dr. Anderson, it was solely the result of the Pru Care health plan. Without a benefit plan, Pru Care would have no need for a relationship with Dr. Anderson, and plaintiff would not probably not have sought treatment from him. Furthermore, the court concluded that because plaintiff's claim was based on Dr. Anderson's failure to treat, which was the result of Margulis' denial of benefits, plaintiff's action related to a benefit plan. Finally, the court concluded that allowing plaintiff to assert a claim against Pru Care under Illinois vicarious liability law would conflict with Congress' intent to exclude remedies against a plan for compensatory damages resulting from the denial of benefits. It would also conflict with Congress intent that a plan not be subject to a myriad of state laws applying to employee benefits plan. It stated, "To allow a vicarious liability claim against an ERISA Plan for the alleged negligence of a listed physician would required multi-state plans to vary their plan administration to avoid strict vicarious liability under differing state laws." State courts, exercising their common law powers, might develop different substantive standards applicable to the same conduct, and such an outcome was fundamentally at odds with the uniformity Congress intended.
Dranchak v. Akzo Nobel, Inc., 88 F.3d 457 (7th Cir. 1996) - Plaintiff was discharged from defendant/employer, and sought to enforce a promise from employer's agent conferring a generous severance package. Plaintiff brought a state contract claim in federal court. The district court set aside the jury's verdict in plaintiff's favor because it believed plaintiff's contract claim was preempted by ERISA. The Seventh Circuit agreed. The plaintiff argued that letters from the former human resources manager promising him extra benefits did not affect the employer's plan. The court recognized that "ERISA does not regulate executive's pay and bonuses, and it is possible to draft severance agreements that are unrelated to a 'plan' and therefore fall outside ERISA's scope." Nagy v. Riblet Products Corp., 79 F.3d 572, 574 (7th Cir. 1996). The human resource manager's letter told the plan administrator to calculate plaintiff's benefits under the plan, then pay him twice that amount. The court determined that this agreement is covered by ERISA because it instructs the plan's administrator how much to disburse to plaintiff from the pension and welfare trusts. It held that "[r]ules governing payment to participants from pension and welfare plans necessarily 'relate to' those plans."
Eyler v. Commissioner of Internal Revenue, 88 F.3d 445 (7th Cir. 1996) - Taxpayer, former officer and majority shareholder of corporation, challenged excise taxes against him for engaging in prohibited transaction with corporation's ESOP plan. Eyler sold $10 million shares of stock to the ESOP. He contended that the ESOP received adequate consideration when it purchased his stock because the plan's fiduciaries acted in good faith in determining the fair market value of the stock was $14.50 per share. Thus, he argued that the fiduciary did not engage in a prohibited transaction. The court held that the board of directors acted in a fiduciary capacity when it approved the sale price of the stock for the ESOP plan, therefore the board's conduct in making their decision was relevant to determine whether a breach of fiduciary duty occurred. The court determined that fiduciaries were bound to invest prudently, thus the court must determine whether at the time of the challenged transaction, the trustees employed the appropriate methods to investigate the merits of the investments and to structure the investment. Under the objective prudent person standard, courts examine both the process used by the fiduciary to reach their decision as well as an evaluation of the merits. ESOP fiduciaries have the burden of showing that adequate consideration was paid "by showing that they arrived at their determination of fair market value by way of a prudent investigation in the circumstances then prevailing." The adequate consideration test, therefore, emphasizes the conduct of the fiduciaries in determining the price, not the price itself.
The evidence showed that the board made no independent inquiry regarding the current fair market value of the stock. The board merely relied on its underwriters' four month old letter prepared for an initial public offering (IPO). Although the board's was aware of the cyclical, changing IPO market, it took no steps to determine whether the valuation had changed. The board also failed to consider any intervening factors that affected the financial condition of the corporation, and may have rendered the valuation inaccurate. Furthermore, the board never questioned the merits of its financial consultant's statements and opinions. There was nothing in the record to show what specific factors he considered, or what questions he answered at his meeting with the board, therefore there was no way to measure if he acted prudently. Although the consultant was a reputable businessman, the board was nevertheless required to exercise their own judgment with regard to the ESOP transaction. The court also determined that the board's reliance on the opinion of the law firm that represented the corporation did not shield the fiduciary. The law firm played no role in valuating the stock, therefore the board has no basis to rely on counsel in determining the fair market value. Moreover, the board could not rely on the opinion of investment banking firms to relieve its duty to investigate. The informal opinions valued the company between $50 million to $120 million, thus, the board should have been alerted to question the true value. Finally, because Eyler wanted favorable tax treatment for the sale, the board was pressured to complete the transaction by the end of the tax year. The court suspected that such time constraint raised a question as to whether the board had adequate time to independently evaluate the fair market value of the stock. The court concluded that the board, acting as the ESOP fiduciary, did not meet their burden of showing that it arrived at their determination of fair market value after a prudent investigation. Accordingly, the IRS assessment of an excise tax for prohibited transaction was not clearly erroneous.
National Automobile Dealers Associates Retirement Trust v. Arbeitman, 89 F.3d 496 (8th Cir. 1996) - In this interpleader action, trustees of two pension plans sought court declaration of the proper beneficiary of deceased participant's pension fund. The deceased, Harold Arbeitman, was a participant in two plans maintained by the trustees, the Royal Parkway plan and the Royal Gate plan. Harold divorced his first wife, Patricia, in 1983. As part of their separation agreement, Harold agreed to maintain a life insurance policy sufficient to pay the balance of any support payments owed at the time of his death. Patricia agreed to relinquish any right to his pension plan. Harold married Donna in 1987, and the couple signed a prenuptial agreement keeping their ownership of listed property "free and clear of any title, interests, rights, or claims of the other." The plans were not in Harold's schedule of property. The Royal Parkway plan named Patricia as the beneficiary, and the Royal Gate plan named no beneficiary. The district awarded half of the pension benefits under the Royal Parkway plan to Patricia. It awarded the remaining half and all of the Royal Gate plan pension benefits to Donna. Patricia claimed she was entitled to all the pension benefits pursuant to the separation agreement. Donna claimed she was entitled to all benefits as the surviving spouse. Harold's children by Patricia, claimed a constructive trust should be imposed against Donna since the prenuptial agreement relinquished her rights to their father's pension.
Under the Royal Parkway plan, 50% of the pension benefits would be applied toward an annuity for the surviving spouse, Donna, and the remainder would be paid to the designated beneficiary, Patricia. Donna claimed that her consent was required to waive her rights to the surviving spouse annuity. However, the court concluded that her consent was not required to pay the remaining 50% to Patricia, which amounts never went into a surviving spouse annuity. Furthermore, the court concluded that Patricia did not relinquish her rights to 1/2 of Harold's pension benefits pursuant to the separation agreement. Even though the language in the agreement would suggest such an effect, the court noted that Harold purposefully designated Patricia as the beneficiary under the Royal Parkway plan, and thus he must have intended her to recovery benefits. Also persuading the court was Harold's obligation in the agreement to provide for support payments, via life insurance, after his death. Allowing Patricia to recover 1/2 under the Royal Parkway plan fulfilled his obligation.
On cross-appeal, Patricia and her children, claim that the children were entitled to pension benefits under the Royal Gateway plan, after Harold died without naming a beneficiary. However, the plan provides that where no beneficiary is named, benefits will be paid to the following relation in order, (1) spouse, then (2) children[.] Accordingly, Donna was the designated beneficiary, and properly received all benefits. Patricia and her children also argue that Donna was not entitled to proceeds because of the prenuptial agreement, and sought a constructive trust in their behalf. Under ERISA, a participant may only waive the surviving spouse's annuity upon written consent from the surviving spouse, acknowledging the effect of such waiver in front of a notary. The prenuptial agreement was signed before Harold and Donna were married, and thus before Donna was entitled to receive anything under the plan. The agreement failed to mention the plans, and did not acknowledge the effect of waiver, therefore it did not satisfy the waiver requirements of ERISA. Accordingly, Donna did not waive her rights, and the district court properly awarded her benefits.
Ellison v. Spectrastar, 91 F.3d 151 (9th Cir. 1996) - Participant's estate brought state action alleging wrongful death, negligence, fraud, and breach of contract claims against employer after participant was denied health insurance coverage for her liver transplant. The estate claimed that if the employer had maintained the plan rather than allowing premiums to lapse, the deceased would have been provided coverage, and could have had her transplant sooner. The employer removed the case to federal court upon ERISA's preemption. The plaintiff's claimed that the state action was not preempted because at the time the employee requested benefits, the employer terminated the plan, therefore their claims did not relate to any ERISA plan. The Ninth Circuit agreed with the district court that ERISA preempted the state law claims. Although the employer failed to "maintain" the plan, it was clear that the plan was "established" as an ERISA plan. Relying on precedent in the circuit, the court held that ERISA preempted plaintiff's wrongful death, negligence, breach of contract and fraud claims as they relate to the plan. The appellate court did not reach the merits of any ERISA claim that plaintiff might have.
Bostick v. Reliance Electric, 91 F.3d 150 (9th Cir. 1996) - Plaintiff was terminated before he satisfied the six month waiting period required before becoming eligible for participation in employer's disability plan had no standing to bring an ERISA § 1132(a) claim. He had no colorable claim to vested benefits, and no reasonable expectation of returning to work. Furthermore, under the terms of the plan, any disability insurance would cease when plaintiff was terminated, unless service ended because of a disability. There was no showing that he left employment because of a disability, therefore, even if he was eligible to participate, his right to insurance lapsed when he was terminated.
Invanciw v. Unum Insurance Company of America, 91 F.3d 152 (9th Cir. 1996) - The Ninth Circuit held that plaintiff's state law claims for benefits was preempted by ERISA since the employer's Long Term Disability plan met the requirements of an employee welfare plan under ERISA. Even though employees paid for 100% of the premiums, the plan specified that participation was required upon employment, and thus did not fall within ERISA's safe harbor exclusion for certain plans that are "completely voluntary." In addition, the defendant served various administrative functions in implementing the plan, and the plan was an integral part of the benefit scheme associated with employment at ASI.
WSB Electric, Inc. v. Curry, 88 F.3d 788 (9th Cir. 1996) - Plaintiff claimed California's wage law for public works contracts was preempted by ERISA. The Ninth Circuit held that regulation of wages are traditionally of state concern, and does not fall within ERISA's broad preemption. The statute in question required public work contractors to pay employees a minimum wage, but allowed contributions to employee welfare of pension plans to be considered as factors in calculating the proper minimum wage. The court held that the mere reference to an ERISA plan was not sufficient to bring the statute under ERISA. The court relied on a number of factors to determine whether a state law relates to an ERISA plan because it has a "connection with" such plans. It held that the wage law did not require the establishment of a separate employee plan to comply with the law, nor imposed reporting, disclosure, funding or vesting requirements for ERISA plans. Here, the contractor need only comply with the minimum wage requirement and need not alter his contributions to an ERISA plan to do so. The court also held that the state law did not affect the relationship between an ERISA plan employer and the employee. The contractors argued that statute had an excess benefit cap, which would discourage employer's from contributing in excess of the cap, thus affecting the employment relationship. The court determined that such an discouraging effect was not sufficient to find ERISA preemption, and the economic effect of discouraging benefit contributions was to tenuous, remote or peripheral to support a finding that the law relates to an ERISA plan. Finally, the court noted that the state law did not tell employers how to write their ERISA plans nor conditioned some requirement on how individual employers write their plans. Instead, it told employers, "regardless of how they write their ERISA plan, or even whether they have an ERISA plans at all, they must pay the prevailing wage, and they may do so through some combination of cash and benefits."
Godfrey v. Bellsouth Telecommunications, Inc., 89 F.3d 755 (11th Cir. 1996) - Plaintiff was a beneficiary in defendant's Sickness and Accident Disability Plan (SAD) when she was diagnosed with fibromyalgia, a severe and disabling condition. Her medication lessened the pain, however its main side effect was drowsiness. Furthermore, she was required to undergo regular physical therapy. Although she provided defendant (BST) with more than ample evidence of her disability, including certificates from four doctors, BST denied her claim. Moreover, it threatened plaintiff with discharge if she did not return to work. Plaintiff was forced to return to work, however because of her condition, her attendance was poor, and she was disciplined because of her poor attendance. Plaintiff filed discrimination and harassment complaints with BST, and grievances with her union. On January 1993, all of her complaints were denied, therefore she filed suit on May 5, 1994. The district court found that she was disabled under the terms of the SAD plan and ordered defendant to pay her $58,300.50 in benefits. BST appealed.
The Eleventh Circuit determined that although the plan gave discretionary authority to the administrator calling for an arbitrary and capricious standard of review, BST had a conflict of interest requiring the court to first conduct de novo review to decide if the determination was wrong. BST argued that there was no conflict since it had to pay plaintiff wages when it denied benefits, therefore there was no financial benefit to BST. However, the court concluded that BST did have a financial incentive since if it paid plaintiff's benefits, it would have to hire a replacement worker and pay that worker's salary. Because of this conflict of interest, BST's determination could be arbitrary and capricious even if it was only "a wrong but apparent reasonable interpretation."
Next, the plan argued that its determination was reasonable because plaintiff was able, and did in fact return to work. BST's doctors concluded that even though plaintiff suffered pain from her condition, he stated, "pain alone does not substantiate disability." The court disagreed, and found that BST's physician's arbitrarily rejected clear medical evidence she submitted without even examining or seeking treatment notes from of her doctors. BST's physicians also ignored the effects of her medication. BST physicians failed to follow up on the evidence she provided because if they had, her disability would have been confirmed. The court held "[b]ecause BST could not justify its determination 'on the ground of its benefit to the class of all participants,' the denial of benefits was arbitrary and capricious."
The appellate court also upheld the district court's ruling that BST violated ERISA § 510 when it threatened to terminate plaintiff if she did not return to work. If found that plaintiff exhausted her administrative remedies when she made complaints to BST to no avail. Furthermore, the circuit court held that the district court did not err in refusing to offset plaintiff's benefits award by the wages she received. Although normally, a disabled employee will not collect wages and benefits, the appellate court explained,
BST was wrong, and the court did not have to give it credit for being wrong. If the benefits award was offset by her wages, then BST (an other companies that self-administer their ERISA plans) would have an incentive to do the same thing in the future: if the employer could threaten or cajole a disabled employee into returning to work, it could obtain the rewards of having an employee in that position without hiring a replacement and without paying anything in benefits.
Finally, the court agreed with the district court that under ERISA, plaintiff was not entitled to extra-contractual or punitive damages.