Opinion
Case No. 04-3463 ADM/AJB.
December 30, 2004
Max C. Ramsey, Esq., Rider Bennett, LLP, Minneapolis, MN, appeared for and on behalf of Plaintiffs.
David L. Hashmall, Esq., Felhaber, Larson, Fenlon Vogt, P.A., Minneapolis, MN, appeared for and on behalf of Defendants.
MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
On November 4, 2004, oral argument before the undersigned United States District Judge was heard on Plaintiffs Jamie Janssen, Elizabeth Janssen, Alex Janssen, Lauren Janssen, and Abby Janssen's (collectively, the "Janssens" or "Plaintiffs") Motion for Partial Summary Judgment [Docket No. 11]. Argument was also heard on Defendants Minneapolis Auto Dealers Benefit Fund, Brad Peterson, Michael Stanzak, Mark Robins, Thomas Tweet, Bill Ziembo, and Joyce Nerdahl's (collectively, "Defendants") Motion to Dismiss and/or for Summary Judgment [Docket No. 6]. In Count I of their Complaint [Docket No. 1], Plaintiffs allege Defendants have unlawfully denied certain benefits owed to Plaintiffs. In Count II, Plaintiffs claim Defendants have breached their fiduciary duty to Plaintiffs. For the reasons set forth below, Plaintiffs' Motion is granted, and Defendants' Motion is granted in part and denied in part.
II. BACKGROUND
For purposes of the instant Motion, the facts are viewed in the light most favorable to the non-moving party. See Ludwig v. Anderson, 54 F.3d 465, 470 (8th Cir. 1995). Here, the vast majority of facts are undisputed, except where noted. The disputed facts are not material to this decision.
In 1995, Plaintiff Alex Janssen underwent a surgical procedure performed by Dr. Stacey Roback ("Roback"). During the surgery, a nerve in Alex's face was damaged, resulting in the atrophy of his facial muscles. In November 2002, Jamie and Elizabeth Janssen commenced a medical malpractice action against Roback and Pediatric Surgical Associates, Ltd., on behalf of Alex. The lawsuit alleged Roback was negligent in failing to monitor and repair the damaged facial nerve. In 2003, Alex underwent multiple surgeries at the Mayo Clinic to correct the asymmetry in his face caused by muscle degeneration.
Plaintiffs receive medical coverage through Defendant Minneapolis Auto Dealers Benefit Fund (the "Plan"). The Plan is an ERISA governed plan, 29 U.S.C. § 1001- 1461. It provides medical, dental, disability, and other welfare benefits to employees covered by a collective bargaining agreement. Here, the collective bargaining agreement covers members of the Garage Maintenance, Machine Warehousemen, Repairmen, Inside Men and Helpers, Local 974, International Brotherhood of Teamsters. Jamie Janssen is an employee participant in the Plan; the remaining Plaintiffs are eligible dependents. The Plan covered Alex Janssen's 2003 corrective surgical procedures.
Joseph Crosby ("Crosby") was the attorney for Alex Janssen and his parents in the medical malpractice suit. On September 30, 2003, Crosby sent a letter to the Plan explaining he was counsel for the Janssens in the malpractice action and inquired whether the Plan was interested in retaining him to pursue recovery of medical expenses it paid for Alex Janssen's surgical procedures. Crosby Aff. [Docket No. 14] ¶ 4, Ex. B. Crosby also informed the Plan the trial date was set for March 2004. Id.
The Plan responded on December 30, 2003, in a letter from the Felhaber, Larson, Fenlon Vogt ("Felhaber") informing Crosby that Terrance Cullen ("Cullen") of the Felhaber firm represented the Plan. Id. ¶ 5, Ex. C. It also stated the Plan was asserting a subrogation interest in the amount of $27,963.29. Id. Crosby disclosed the subrogation interest in response to an interrogatory served in the malpractice action. Id. ¶ 6. Crosby forwarded a copy of the interrogatory answer to the Felhaber firm along with a reminder of the March 2004 trial date. Id. ¶ 6, Ex. D. On February 26, 2004, Crosby sent another letter to Cullen's assistant informing her the malpractice defendants had agreed to stipulate that the medical care received by Alex Janssen was necessary, but causation was disputed. Id. ¶ 7, Ex. E. Again, this letter contained a reminder of the trial date.Id.
The amount of the Plan's subrogation interest is in dispute. Plaintiffs note the cost to the Plan of the February 5, 2003 procedure initially at issue was $29,431.47. The Plan, however, only paid $27,963.29. The Plan now asserts, however, an amount of $46,791.79, claiming both the February 2003 and July 2003 procedures on Alex Janssen are subject to the Plan's subrogation interest.
No one representing the Plan attended the malpractice trial, which began on March 1, 2004. Id. ¶ 8. On the second day of trial, March 2, 2004, defendants in the malpractice action informed Crosby they were planning to move to dismiss the Plan's subrogation claim based on the statute of limitations. Id. ¶ 9. That same day, Crosby informed the Felhaber firm of this development via facsimile letter. Id. ¶ 9, Ex. F. Cullen responded to Crosby that it was the Plan's "opinion that your defense of our subrogation claim is in your client's best interest, as the [Plan] has the right to recover [its] subrogation interest should your client receive any settlement in this matter." Id. ¶ 10, Ex. G. On March 3, 2004, Crosby replied to Cullen's letter, stating he represented only the Janssens, and would not take a position on the motion to dismiss the Plan's subrogation interest. Id. ¶ 11, Ex. H.
On March 5, 2004, the defendants' motion to dismiss the Plan's subrogation claim was heard. Id. ¶ 12. No one appeared to represent the Plan, and the motion was ultimately granted based on the statute of limitations and the Plan's failure to prosecute. Id. ¶ 12, Ex. I.
Following the presentation of evidence, the Janssens settled the malpractice lawsuit in the amount of $225,000, subject to approval of the trial court. Id. ¶ 13. A Motion to Approve Minor Settlement and Distribution was set for hearing on March 25, 2004.
On March 22, 2004, Cullen's assistant contacted Crosby, inquiring about the Plan's subrogation interest. Crosby sent a facsimile to Cullen that day, explaining the dismissal of the Plan's subrogation interest at the March 5, 2004 hearing. Id. ¶ 14, Ex. J. Crosby also informed Cullen of the hearing on the minor settlement. Id.
Cullen met with the Trustees on March 24, 2004, one day before the settlement approval hearing. Ramsey Aff. [Docket No. 16] Ex. A. According to Plaintiffs, Cullen told the Trustees that "no specific decision had been entered by the Court or a settlement reached by the parties on that date," despite Crosby's communications with Cullen to the contrary. Id.; see also Crosby Aff. Ex. J.
The Motion to Approve Minor Settlement and Distribution was held on March 25, 2004. Marnie Polhamus ("Polhamus") attended from the Felhaber firm. Crosby Aff. ¶ 16. The Plan's subrogation interest was discussed in the Petition to Approve Minor Settlement and Distribution, including the failure of Defendants to protect their subrogation interest. Id. at ¶ 16, Ex. K. Plaintiffs allege Crosby introduced himself to Polhamus, and asked if the Plan would object to the settlement plan. Id. at ¶ 16. According to Plaintiffs, Polhamus stated the Plan would not object, and indeed, did not do so during the hearing. Id. Defendants claim Polhamus attended, but did not appear, at the settlement hearing, and did not state to Crosby that the Plan did not object to the settlement. Polhamus Aff. [Docket No. 24] ¶¶ 2-6. The settlement agreement included an annuity and certificate of deposit for Alex Janssen, attorneys fees and costs for the Crosby Law Firm, and funds for building a tree fort for Alex Janssen. Crosby Aff. Ex. L.
On March 30, 2004, Crosby received a letter from Cullen objecting to the settlement agreement. Id. ¶ 17, Ex. M. Specifically, Cullen objected to the lack of a provision in the settlement agreement providing subrogation to the Plan. Id. Furthermore, Cullen stated that pursuant to § 8.12 of the Summary Plan Description ("SPD"), the Plan would not pay future benefits to the Janssens until it recovered its subrogation interest.Id.
Cullen then wrote a letter to the Trustees dated April 5, 2004, summarizing the settlement approval hearing and subsequent letter to Crosby. Ramsey Aff. Ex. A. The letter failed to mention the dismissal of the Plan's subrogation interest claim, nor did it mention the failure of the Felhaber firm to object to the settlement agreement at the approval hearing. Id. Cullen expressed the opinion that it was unlikely the Plan would be able to recover its interest from the settlement, but rather should deny payment of future medical claims by the Janssens until the Plan was repaid. Id. The letter also contained a request asking the Trustees to initial the letter if they agreed with Cullen's plan. Id. No letter bearing initials, however, has been proffered. On April 7, 2004, Cullen instructed the Plan's Administrative Manager to notify Jamie Janssen that claims for future medical benefits would be denied. Id. Ex. B.
Jamie Janssen received a letter from the Plan on April 13, 2004, informing him medical claims by him or his family would be denied until such claims equaled $29,431.47. Id. Ex. C. The letter stated the denial was a result of the Plan's failure to receive its subrogation interest as part of the settlement agreement. Id.
On April 23, 2004, counsel for the Janssens asked the Trustees in writing to review the decision to deny the Janssens medical benefits. Id. Ex. D. The Plan's attorney responded to the Janssens in letters dated April 29 and May 11, 2004. Id. Exs. E, G. The letters set forth additional reasons for denial of the Janssens' medical claims not previously disclosed in the April 13, 2004 letter.
In May 2004, Jamie Janssen visited the dentist, who submitted an insurance claim to Delta Dental. The bill was denied. When Elizabeth Janssen contacted Trustee Tom Tweet, he informed her that all of the Janssens' benefits, including medical, dental, life, accidental death, and disability benefits had been terminated. The Janssens sent a letter to the Plan demanding reinstatement of their benefits on July 14, 2004. Id. Ex. H. In response, the Janssens received a letter from the Plan lawyers, stating the Janssens had been overpaid by the amount of $29,431.47, and under the exclusion contained within paragraph 39 of the SPD, the Plan was entitled to recoup this amount. Id. Ex. I. The April 13, 2004 letter, however, did not state the $29,431.47 constituted an overpayment, nor did it cite the same portion of the SPD. Id. Ex. C.
After the instant lawsuit was filed on July 30, 2004, the Trustees held a meeting on August 9, 2004 to discuss the decision to terminate the Janssens' benefits. Id. Exs. K, L. The Janssens and their attorney attended the meeting. On September 17, 2004, the Trustees denied the Janssens' appeal.
III. DISCUSSION
A. Summary Judgment StandardFederal Rule of Civil Procedure 56(c) provides that summary judgment shall issue "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). On a motion for summary judgment, the Court views the evidence in the light most favorable to the nonmoving party. Ludwig v. Anderson, 54 F.3d 465, 470 (8th Cir. 1995). The nonmoving party may not "rest on mere allegations or denials, but must demonstrate on the record the existence of specific facts which create a genuine issue for trial." Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995).
B. Plaintiffs' Partial Summary Judgment Motion
Plaintiffs move for partial summary judgment on Count I of their Complaint on the grounds that Defendants have unreasonably construed the terms of the Plan in terminating Plaintiffs' benefits. For the reasons set forth below, Plaintiffs' Motion is granted.
1. Standard of Review
In general, district courts employ a de novo standard of review in assessing the propriety of an ERISA benefits determination.Firestone Tire Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). However, where, as here, the ERISA plan gives the plan administrator discretionary authority to determine eligibility for benefits or construe the terms of the plan, a district court may only review the determination for an abuse of discretion.Id.; Pls' Compl. Ex. A at 2.
A court, however, may apply a less deferential standard of review if evidence is presented that demonstrates: "1) a palpable conflict of interest or serious procedural irregularity existed which 2) caused a serious breach of the plan administrator's fiduciary duty to her." Woo v. Deluxe Corp., 144 F.3d 1157, 1160 (8th Cir. 1998). In Woo, the Eighth Circuit adopted a "sliding scale" approach to the abuse of discretion standard of review, holding "[t]he abuse of discretion standard is inherently flexible, which enables reviewing courts to simply adjust for the circumstances." Id. at 1161. Under the traditional abuse of discretion standard, a court will uphold a plan administrator's decision if it was reasonable. Id. at 1162. Under the "sliding scale" approach, however, the evidence supporting the plan administrator's "decision must increase in proportion to the seriousness of the conflict or procedural irregularity." Id.
In Woo, a plan administrator denied plaintiff's disability claim after analyzing plaintiff's claim form, medical records, opinions of plaintiff's doctors, papers related to her resignation, the opinion of the plan's in-house medical consultant, and affidavits submitted by plaintiff's co-workers.Id. At first blush, this analysis appeared to be quite thorough. However, the plan failed to conduct a medical examination of plaintiff. Id. As a result, the Eighth Circuit found the plan had failed to adequately investigate plaintiff's claim. Because of this failure, the Eighth Circuit required the plan to present "substantial evidence bordering on a preponderance" to uphold the plan's decision. Id.
Plaintiffs in the instant case argue that sufficient procedural irregularities exist to relax the traditional abuse of discretion standard of review. Plaintiffs cite the following alleged irregularities: (1) the Trustees' failure to use proper judgment by allowing attorney Cullen to make the initial determination terminating Plaintiffs' benefits; (2) the failure to research whether their subrogation interest in the malpractice lawsuit was time-barred; (3) the failure to timely provide Plaintiffs with specific reasons for the termination of benefits; (4) the failure to notify Plaintiffs of their appeal rights; and (5) the failure to timely consider and respond to Plaintiffs' appeal. In response, Defendants aver Cullen did not make the initial determination to deny Plaintiffs' benefits prior to review by the Trustees. Rather, Defendants argue the first denial of Plaintiffs' claims followed a May 2004 dentist appointment by Jamie Janssen. According to Defendants, the denial preceded a proper explanation of the denial of Plaintiffs' benefits.
Based on the record, this Court finds that sufficient procedural irregularities exist to adopt the "sliding scale" abuse of discretion standard set forth in Woo. A significant procedural irregularity arises from Defendants' denial of Plaintiffs' benefits in the letter of April 13, 2004. The letter states in relevant part that the Plan had been "instructed by the Trustees to deny payment of any medical claims for you and your dependents until the total amount of such denied claims equals $29,431.47." Ramsey Aff. Ex. C. No evidence has been proffered by Defendants, however, to support the claim that this decision was made by the Trustees. Moreover, there is no evidence to suggest any meaningful review was performed by the Trustees prior to this decision. Cullen's letter to the Trustees dated April 5, 2004, did not fully explain the circumstances of the denial of Defendants' subrogation interest at trial. Therefore, it is not clear the Trustees had all the relevant facts before the decision to terminate Plaintiffs' benefits was made. Although Defendants cling to the argument that the April 13, 2004 letter did not constitute a denial, this argument does not pass muster. Although a specific claim was not denied in the letter, the letter does represent a clear repudiation of benefits. Under ERISA, a claim can accrue before an actual denial when such a repudiation has occurred. Union Pac. R.R. Co. v. Beckham, 138 F.3d 325, 330-31 (8th Cir. 1998) (citations omitted). Therefore, the April 13, 2004 letter constituted a denial, triggering Plaintiffs' right to appeal.
As will be discussed further, Defendants failed to provide Plaintiffs with a meaningful review in the time frame contemplated by the Plan.
In addition to the failure of the Trustees to meaningfully review the Janssen record prior to its decision to terminate its benefits, additional procedural irregularities occurred with respect to the Plan's efforts to seek subrogation. Although the Plan was kept well informed of important court dates in the malpractice action by Crosby, it failed to participate to protect its claimed subrogation interest. Cullen told Crosby to represent the Plan's interest in the malpractice action. However, when the defendants in that suit sought to dismiss the Plan's subrogation interest, Cullen made clear that he represented the Plan. Crosby Aff. ¶ 5, Ex. C. Crosby acknowledged that he represented only the Janssens in the malpractice action, and duly informed the Plan the Janssens' would not be taking a position on the Plan's subrogation efforts. Id. ¶ 11, Ex. H. The Plan clearly had notice that Plaintiffs' claim for medical expenses (and, by extension, Defendants' subrogation interest in that claim) was in danger of being lost in the malpractice action, yet did nothing to protect itself from that result. In effect, Defendants waived their right to pursue claims for medical expenses by failing to defend the motion to dismiss their claims in the malpractice action. Defendants failure to object to the proposed settlement in the malpractice action also evidences waiver.
Defendants argue the state court decision dismissing their subrogation interest is not binding on the Plan, as it was not party to the lawsuit. As will be discussed, subrogation principles forbid Defendants from a greater recovery than is available to Plaintiffs. There is no dispute that Plaintiffs could not have recovered medical expenses in the malpractice suit. As a result, it is of little importance whether the trial court's dismissal of Defendants' subrogation claim is binding on the Plan.
As to the second prong of the Woo test, the procedural irregularities were related to the termination of Plaintiffs' benefits. As will be discussed below, the procedural irregularities led to an erroneous decision — a clear breach of the Plan's fiduciary duty to Plaintiffs.
As a result of the failure of the Trustees to engage in any sort of review of the Janssen record prior to the termination of their benefits, the failure to provide a timely and meaningful review, and the failure of the Plan to protect its subrogation interest, the Court finds sufficient procedural irregularities existed so as to apply a lesser standard of review than abuse of discretion. Given Defendants' conduct in denying Plaintiffs benefits, it is clear the procedural irregularities led to a premature and flawed denial of Plaintiffs' benefits. Therefore, it is appropriate to invoke a Woo "substantial evidence bordering on a preponderance" standard to the facts of this case.Woo, 144 F.3d at 1162.
2. Reasonability of the Plan's Decision
A plan administrator's interpretation of plan language will be upheld if reasonable. Finley v. Special Agents Mut. Benefit Ass'n, Inc., 957 F.2d 617, 621 (8th Cir. 1992). The Eighth Circuit employs a five factor test to determine if a decision is reasonable: 1) whether the interpretation is consistent with the goals of the plan; 2) whether the interpretation renders any language in the plan meaningless or internally inconsistent; 3) whether the interpretation conflicts with the substantive or procedural requirements of ERISA; 4) whether the plan administrator has interpreted the provisions at issue consistently; and 5) whether the interpretation is contrary to the clear language of the plan. Id. The Eighth Circuit has suggested the most significant of these factors is whether the decision is consistent with the language of the plan. Lickteig v. Business Men's Assurance Co. of America, 61 F.3d 579, 583-84 (8th Cir. 1995). This factor will therefore be assessed first.
a. Consistency of the decision with clear language of the plan
Plaintiffs argue Defendants' interpretation of the Plan's subrogation provisions is contrary to the language of the plan. Plaintiffs cite § 8.12, the Subrogation Provisions, of the SPD, which states:
If a Participant or Dependent has a medical injury, illness or condition ("condition") that another person, person's insurer or other plan ("third party") may be liable for (whether or not the third party caused such condition), a claim for reimbursement of your medical expenses may exist against that third party. In this case, the Plan may elect not to pay your medical claims. If the Plan does pay your claims, this Plan has a legal right to pursue (i.e., will be "subrogated" to) claims for medical expenses. . . .
Compl. Ex. A. Plaintiffs aver this section makes clear the Plan's subrogation rights are limited to medical expense claims. Plaintiffs further contend that because their claim for medical expenses in the malpractice action was time-barred, Defendants also had no right of recovery for medical expenses against defendants in the malpractice action. Since no claim for medical expenses could be made in the malpractice action by either Plaintiffs or Defendants, the Plan's subrogation provision is inapplicable.
In response, Defendants argue another portion of § 8.12 provides a broader right of subrogation for the Plan. Specifically:
This Plan is subrogated to each Participant or Dependent's right of recovery, to the extent of any payment or intended payment of benefits, against any person or entity, or under any liability, casualty program, insurance or self-insurance program, which is or becomes obligated to pay losses, damages or benefits to or on behalf of the Participant or a Dependent.
Compl. Ex. A. Additionally, § 8.12 of the SPD defines subrogation as: "the substitution of one person in the place of another with reference to a legal right or claim." On the basis of this language, Defendants claim the Plan's subrogation rights are not limited to claims for medical expenses. Rather, Defendants aver Plaintiffs are liable to Defendants for any recovery received by Plaintiffs. Defendants further argue the Subrogation Agreement, the exclusion contained within paragraph 39 of the SPD, and the overpayment provision of the Plan make clear Defendants' right to subrogation on any recovery of Plaintiffs, not merely recovery strictly related to medical expenses.
Here, the Plan language indicates the subrogation clause is limited to recovery of medical expense claims. Basic subrogation principles also suggest Plaintiffs' interpretation of the Plan language is correct, and the Plan's decision is unreasonable. It is a well-established rule that subrogation requires the ERISA plan to "stand in the shoes" of the beneficiary. Hamanne v. Central States, Southeast and Southwest Areas Health and Welfare Fund, 11 F.Supp.2d 1065, 1068 (D. Minn. 1998) (citations omitted). As a result, the Plan cannot be granted a greater right to recovery than available to Plaintiffs. In the malpractice action, it is undisputed any claim by Plaintiffs' for medical expenses was time-barred. Alex Janssen's injuries were sustained on November 9, 1995. Under the applicable statute of limitations for medical negligence at that time, the Janssens had two years to bring a claim for medical expenses. Minn. Stat. § 541.07(1) (1996). As a result, neither the Janssens nor the Plan had a valid claim for medical expenses in the malpractice action. This ultimately led to the dismissal of the Plan's subrogation interest by the trial court in the malpractice action. Because the Janssens had no right of recovery of medical expenses, the Plan can claim no greater right of recovery under subrogation principles. Therefore, the Plan's decision to terminate benefits is contrary to the language of the Plan.
The decision in Hamanne underscores this point. Although, as Defendants note, the factual pattern in Hamanne differs slightly from the instant litigation, its reasoning is applicable. In Hamanne, the ERISA plan claimed a right to recovery of medical expenses greater than the amount of medical expenses awarded to plaintiff in a malpractice action. 11 F.Supp.2d at 1069. Additionally, as here, the ERISA plan inHamanne contained broad provisions for subrogation. Id. However, Hamanne distinguished and rejected the first priority rule set forth in Waller v. Hormel Foods Corp., 950 F.Supp. 941, 944 (D. Minn. 1996),aff'd, 120 F.3d 138 (8th Cir. 1997). Under the first priority rule, a plan has the first right to recovery of its medical expenses, even if the recovery leaves the subrogee less than fully compensated for his injuries. In Waller, however, the settlement from which the plan claimed subrogation was contingent upon the release of any medical claims by the plan. Therefore, the plan was entitled to full subrogation. In Hamanne, no such settlement contingency existed. Rather, plaintiffs pursued medical expenses at trial, and were successful. Hamanne, 11 F.Supp.2d at 1069. However, the plan claimed the amount of medical expenses pursued by Hamanne was too low, and made a subrogation claim greater than the amount recovered by Hamanne.Id. The court ruled the plan was not entitled to a greater subrogation claim, stating "[the plan's] subrogation claim is unreasonable because it is stepping outside the shoes of the beneficiary and asserting rights of recovery greater than what the Hamannes recovered at trial." Id. Although Defendants stress the factual differences between the instant case andHamanne, the principle set forth in Hamanne is applicable.
Here, Defendants' interpretation of the Plan is similarly unreasonable. It is undisputed the Janssens had no right of recovery of medical expenses at trial. Therefore, the Plan cannot claim an interest greater than that available to the Janssens. As a result, the decision of the Defendants was not consistent with the language of the Plan, nor was it consistent with subrogation principles.
b. Whether the interpretation renders any language in the plan meaningless or internally inconsistent
Plaintiffs argue the Defendants' interpretation of the subrogation clause of the Plan renders language in § 8.12, as well as the definition of "subrogation" as given by the SPD, inconsistent. Specifically, Plaintiffs note § 8.12 of the Plan defines subrogation as "the substitution of one person in the place of another with reference to a legal right or claim." However, the Plan's claim for subrogation seeks to go beyond what Plaintiffs had a legal right to recover in terms of medical expenses. Since § 8.12 contains language limiting the Plan's subrogation rights to medical expenses, Defendants' broad interpretation of the subrogation provision is inconsistent with the plan language.
c. Consistency with procedural requirements of ERISA
Plaintiffs contend the letter of April 13, 2004 did not meet ERISA requirements for denial of claims. Specifically, Plaintiffs aver the letter violated 29 U.S.C. § 1133 and 29 C.F.R. § 2560.503-1. 29 U.S.C. § 1133 requires a plan to provide adequate notice in writing of a claim denial. It further requires the notice to include specific reasons for the denial as well as a method and reasonable opportunity for a full and fair review of the decision. 29 C.F.R. § 2560.503-1 further requires specific reference to pertinent plan provisions. Plaintiffs argue the April 13, 2004 letter did not cite specific reasons for the Plan's denial, nor did it reference specific provisions of the Plan. Moreover, Plaintiffs allege the letter did not set forth the appeals process, as required by law. Finally, Plaintiffs argue the Plan failed to follow the appropriate appeals procedure following the Plaintiffs' appeal of the denial of benefits. Plaintiffs argue they only received letters from the Plan's lawyers citing new reasons for the denials. They contend the Trustees did not afford Plaintiffs a full and fair review until August, 2004, well after the 60 day window for review contemplated by § 8.6 of the SPD.
Defendants argue the April 13, 2004 letter was not a denial of benefits, but rather notice that benefits would be denied in the future. Therefore, Defendants claim they did not violate any ERISA notice requirements. Following the denial of Jamie Janssens' dental claim in the spring of 2004, the Plan sent an official notice of denial to the Janssens, complete with specific reasons for the denial and citations to the SPD. Following the Janssens' appeal of the notice of denial, the Plan scheduled an appeals hearing, which was held within the time requirements of § 8.6 of the SPD. The appeals hearing was attended by the Trustees and the Janssens. Ultimately, the Trustees denied the appeal.
Section 8.6 of the SPD requires the Trustees to review and make a decision on an appeal within 60 days of the appeal. This window can be expanded to 120 days if such time is required.
This Court finds the April 13, 2004 letter informing the Janssens of the denial of future benefits qualifies as a denial letter for ERISA purposes. Although the letter did not deny a specific claim for benefits, the Eighth Circuit has held that a before-the-fact repudiation of benefits qualifies as a denial.See Union Pac. R.R., 138 F.3d at 330. The letter of April 13, 2004, clearly expresses the Plan's position that it will deny the Janssens' future benefits. This is a clear repudiation of benefits. Moreover, the April 13, 2004 letter fails to satisfy the requirements of 29 U.S.C. § 1133 and 29 C.F.R. § 2560.503-1. The letter merely states the denial is due to the subrogation interest of the Plan. However, it does not cite specific plan provisions, nor does it set forth the proper appeals process. Ultimately, the letter fails to set forth, in opinion format, the reason for the denial of benefits. Richardson v. Central States, Southeast Southwest Areas Pension Fund, 645 F.2d 660, 665 (8th Cir. 1981).
Finally, the Plan failed to afford Plaintiffs the proper appeals process following the April 13, 2004 letter. Although the Janssens' attorney sent a letter to Defendants on April 23, 2004, protesting the denial of benefits, Plaintiffs were not given a full and fair review by the Trustees according to the procedure set forth in § 8.6 of the SPD. Rather, they received letters from the Plan's lawyers offering new rationales for the denial of benefits. This after-the-fact reasoning does not comport with ERISA requirements. See Short v. Central States, Southeast and Southwest Areas Pension Fund, 729 F.2d 567, 571-72 (8th Cir. 1984). Consequently, Defendants' actions violate the procedural requirements of ERISA.
In their motion, Defendants make a passing attempt to dismiss the case on the grounds that the April 23, 2004 letter did not constitute an appeal. Therefore, they claim this lawsuit was premature, as the final decision from the Trustees was handed down on September 16, 2004. Because the Court finds the April 13, 2004 letter constituted a denial, the Court further holds the April 23, 2004 letter appropriately appealed that decision.
d. Consistency of the Trustees' interpretation of the plan language
There is no evidence on the record to determine how the Trustees' have interpreted the subrogation provision in other situations.
e. Consistency of the Trustees' interpretation with plan goals
Plaintiffs argue the Trustees' decision to terminate benefits is inconsistent with the Plan goal of providing health care benefits to participants and their dependents. Defendants respond the decision is consistent with the goal of funding the Plan to the maximum extent possible under the rules of the Plan. Such a goal ultimately provides a larger pool or resources for all participants. As both goals are legitimate, this factor balances and favors neither party.
In evaluating the five factors in light of the sliding abuse of discretion scale, it is clear the Plan has not shown the decision of the Trustees to be reasonable. The decision to terminate Plaintiffs' benefits based on the subrogation language of the Plan was in violation of the clear language of the subrogation provision. Additionally, Defendants ignored and violated ERISA procedural requirements in denying Plaintiffs' benefits. Finally, Defendants interpretation of the Plan renders the Plan language inconsistent. As a result, judgment is granted to Plaintiffs on Count I of their Complaint.
3. Defendants' Summary Judgment Motion
In their Motion for Summary Judgment, Defendants move to dismiss Counts I, II, and III of Plaintiffs' Complaint. For the reasons previously set forth, judgment is granted for Plaintiffs on Count I of the Complaint, and Defendants' Motion is therefore denied as to this count. Defendants further argue, however, for judgment on Count II of the Complaint. Defendants cite Varity Corp. v. Howe for the proposition that Plaintiffs' fiduciary duty claim must fail because it seeks relief no different than that sought under 29 U.S.C. § 1132(a)(1)(B). 516 U.S. 489, 515 (1996); see also Wald v. Southwestern Bell Corporation Customcare Medical Plan, 83 F.3d 1002, 1006 (8th Cir. 1996).
Defendants are accurate in their argument on this point. Plaintiffs' fiduciary duty claim seeks no relief greater than the relief claimed in Count I of the Complaint. In Count I, Plaintiffs request relief in the form of benefits due to Plaintiffs retroactive to April 13, 2004, and an order holding the Plan may not withhold benefits based upon the subrogation provision, the overpayment provision of the SPD does not apply, and medical expenses for Alex Janssen's surgeries are not subject to the subrogation provision. In Count II, Plaintiffs request an order enjoining Defendants from denying benefits to Plaintiffs. Judgment on Count I, however, will ultimately achieve this goal. Therefore, no further equitable relief is required. Howe, 516 U.S. at 515. Thus, Count II does not request relief any different than requested in Count I. As a result, judgment will be entered for Defendants on Count II.
Count III of Plaintiffs' Complaint alleges violation of ERISA section 503. Section 503 relates to the procedural issues related to notification of the denial of benefits. As has been discussed herein, Defendants violated ERISA rules related to notification. Therefore, Defendants' Motion on Count III is denied.
IV. CONCLUSION
Based on the foregoing, and all the files, records and proceedings herein, IT IS HEREBY ORDERED that:1. Plaintiffs' Motion for Partial Summary Judgment [Docket No. 11] is GRANTED, and
2. Defendants' Motion to Dismiss and/or for Summary Judgment [Docket No. 6] is GRANTED in part and DENIED in part.