Opinion
Case No. 1:06 CV 1579.
October 16, 2006
MEMORANDUM OF OPINION AND ORDER
Introduction
This matter is before the Court upon plaintiff's Motion to Allow Discovery (Doc. 15). The issue herein is whether discovery should be permitted in this ERISA matter. For the following reasons, the motion is GRANTED.
Facts
Plaintiff, Demag Crane and Components, brought this Complaint against defendants, Alexandra R. Gehrke, a minor (hereafter, Alexandra), David C. Gehrke and Old Second National Bank. Plaintiff is the plan administrator of an employer-sponsored health care plan which provides benefits to Alexandra through her father David's employment with plaintiff. Old Second National Bank is the plenary guardian of Alexandra's estate and holds her funds in trust on her behalf.
The Complaint alleges the following. Plaintiff provided a medical benefit plan of insurance (hereafter, the plan) which covered Alexandra, as the dependent of her father, David. The plan provides that it has a lien and subrogation rights to pursue amounts recovered by a covered person from a third party or insurer and that such covered person must repay the plan for any benefits paid on his behalf. In February 1999, Alexandra suffered injury as a result of a drug error when a pharmacy filled a prescription. In September 1999, Alexandra, through her parents, brought a civil action in Illinois against Walgreen Company, et al., for the damages resulting from the drug error. As of December 31, 2003, the plan had paid $254,033.31 of medical and hospital expenses for the services received by Alexandra as a result of her February 1999 injury. On February 25, 2005, Alexandra was awarded the amount of $21,000,000.00 in settlement of her civil claim, which included repayment for medical and hospital expenses paid and future medical and hospital expenses to be incurred. Old Second National Bank holds the funds in trust.
The Complaint sets forth three claims. Count One is a claim for equitable relief to enforce the subrogation rights. Count Two is a claim for injunctive relief. Counts One and Two are asserted under ERISA, 29 U.S.C. § 1132(a)(3). Count Three is an alternative claim for breach of contract under Ohio law.
This matter is now before the Court upon plaintiff's Motion to Allow Discovery.
Discussion
In Wilkins v. Baptist Healthcare System, Inc., 150 F.3d 609 (6th Cir. 1998), the Sixth Circuit reiterated that where an ERISA beneficiary sues for the recovery of benefits, the district court must limit its review to the administrative record, conducting that review pursuant to an arbitrary and capricious standard if there is clear indication on the face of the plan that discretionary authority to determine eligibility for benefits was given to the administrator. The court may consider evidence outside of the administrative record only if that evidence is offered in support of a procedural challenge to the administrator's decision, such as an alleged lack of due process afforded by the administrator or alleged bias on its part. This also means that any prehearing discovery at the district court level would be limited to such procedural challenges.
The matter herein does not involve a suit by a beneficiary for the recovery of benefits. Rather, this case is one for equitable relief brought by the plan pursuant to 29 U.S.C. § 1132(a)(3). As such, plaintiff asserts that discovery should be permitted. For the following reasons, this Court agrees.
Plaintiff points to Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot and Wansbrough, 354 F.3d 348 (5th Cir. 2003), Mank v. Green, 323 F.Supp.2d 115 (D. Maine 2004) and Great-West Life Annuity Insurance v. Brown, 192 F.Supp.2d 1376 (M.D. Georgia 2002). In Bombardier, however, where the plan brought suit against a participant and his law firm for constructive trust over settlement funds held in the latter's trust account in order to seek reimbursement of medical benefits paid to the participant following an automobile accident, the court did not address the issue of whether discovery should be permitted. Rather, the court was presented with the issue of subject matter jurisdiction and decided that ERISA's provision allowing suit for "other appropriate equitable relief" authorized the plan's suit for a constructive trust over the funds held in the law firm's trust account. In Mank, the plan sought to recover medical benefits paid to a plan participant. Although the matter was not discussed in any detail, the court reopened discovery to enable the parties to develop a record offering a factual basis for evaluating whether equitable relief was warranted under 29 U.S.C. § 1132(a)(3) in favor of the ERISA plan for the expenses paid to the participant. Similarly, in Brown, without discussion, the court permitted discovery in a case where the assignee of an ERISA insurer's subrogation rights under the plan sought restitution in equity for medical expenses paid by the insurer on behalf of the insured.
Defendants argue that discovery should not be permitted because plaintiff never offered administrative review to its participants prior to commencing this case. Defendants assert that plaintiff's attempt to recover under the subrogation clause is an adverse benefit determination, which requires that plaintiff offer the right to administrative review.
Only defendants Alexandra and David Gehrke object to discovery. Defendant Old Second National Bank does not oppose plaintiff's motion.
An adverse benefit determination, however, is defined as:
. . . a denial, reduction, or termination of, or a failure to provide or make payment (in whole or in part) for, a benefit, including any such denial, reduction, termination, or failure to provide or make payment that is based on a determination of a participant's or beneficiary's eligibility to participate in a plan, and including, with respect to group health plans, a denial, reduction, or termination of, or a failure to provide or make payment (in whole or in part) for, a benefit resulting from the application of any utilization review, as well as a failure to cover an item or service for which benefits are otherwise provided because it is determined to be experimental or investigational or not medically necessary or appropriate.29 C.F.R. § 2560.503-1(m)(4).
Defendants assert that when the plaintiff unilaterally determined that the plan was entitled to a refund of monies paid for Alexandra's medical benefits under the subrogation clause, plaintiff made an adverse benefit determination.
Plaintiff contends that there has been no adverse benefit determination in this case. This Court agrees. Plaintiff did not deny, reduce, terminate, or fail to pay any claims submitted by the Gehrkes. Rather, there is no dispute that the plaintiff paid the bills relative to Alexandra's injury. Defendants assert that plaintiff's decision to recoup monies previously paid is a refusal to pay for a covered benefit and is, therefore, an adverse benefit decision. To the contrary, plaintiff did pay the claims and now seeks equitable relief to restore to the plan expenses it paid that were later recovered in the civil lawsuit. As plaintiff argues, plaintiff could not have denied payment based on the subrogation clause because subrogation could not be asserted until the claims were paid and defendants received a settlement that included recovery of the claims. Thus, this case is not an appeal of an adverse benefit determination.
Finally, defendants rely on this Court's decision in Children's Hospital Medical Center of Akron v. Grace Management Services Employee Benefit Plan, No. 06 CV 1052 (N.D. Ohio September 1, 2006) (unreported). However, that case involved a complaint filed by a hospital against an ERISA plan to collect benefits for services rendered to a plan participant. There had been an adverse benefit determination by the plan. Accordingly, the Court granted the hospital's request for discovery because the plan failed to comply with ERISA's procedural requirements.
Because this case does not involve an adverse benefit determination, plaintiff is entitled to discovery. Conclusion
For the foregoing reasons, plaintiff's Motion to Allow Discovery is granted.
IT IS SO ORDERED.