Summary
In Melluish v. Provident Life Accident Ins. Co., No. 4:99-CV-144, slip op. (W.D. Mich. Feb. 25, 2001) (Quist, J.), the court held that a physician who was one of three shareholders in a medical company, was an employee under ERISA.
Summary of this case from Stefani v. Paul Revere Life Insurance Co.Opinion
Case No. 4:99-CV-144.
February 26, 2001.
OPINION
On November 12, 1999, Plaintiff, Dr. James W. Melluish, filed a complaint in this Court alleging that Defendant, Provident Life and Accident Insurance Co., in denying him benefits under a disability insurance policy, (1) violated the Federal Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq.; (2) breached its contract with him; (3) breached its fiduciary duty to him; (4) breached its duty of good faith and fair dealing; (5) was barred from its actions by promissory estoppel; and (6) misrepresented the terms of the insurance policy. Count 1 is a federal claim; counts 2, 4, and 6 are state law claims, while counts 3 and 5 may be considered joint state and federal law claims. On June 27, 2000, on the facts then before it, this Court granted in part Defendant's motion to dismiss. The Court dismissed all of Plaintiff's claims except its breach of contract claim (count 2) at that time. Now before the Court is Plaintiff's motion for summary judgment, Defendant's motion for summary judgment and Defendant's motion for determination that Plaintiff's action is governed by ERISA. While the Court previously found that this action was not governed by ERISA, on the basis of the facts now before it, it finds the action properly governed by ERISA. For that reason, and the reasons that follow, the Court will reinstate counts 1 and 3-6 of Plaintiff's complaint, dismiss count 2 of Plaintiff's complaint, and dismiss on new grounds counts 3-6 of Plaintiff's complaint. The Court will deny Plaintiff's motion for summary judgment, asking for further briefing on the issue of whether the plan language gives Provident discretionary authority to interpret the plan. The Court will deny Defendant's motion for summary judgment. The Court will grant in part Defendant's motion for determination that Plaintiff's action is governed by ERISA, denying that motion only to the extent it asks that judgment be entered in favor of Defendant. Count 1 will remain before this Court.
Facts
This action centers around a disability income insurance policy number 01024838250, issued to Dr. Melluish, an opthamologist, by Paul Revere Insurance Company on December 14, 1990. (Paul Revere merged into Provident in the first quarter of 1997; thus, Provident is the defendant in this case. Throughout this opinion, "Provident" and "Defendant" refer to both Paul Revere and Provident). This policy provides coverage for Dr. Melluish in the case of total or partial disability. Prior to the collection of any benefits under the policy, partial disability ("residual disability"):
means that due to injury or Sickness: a. (1) You are unable to perform one or more of the important duties of Your Occupation; or (2) You are unable to perform the important duties of Your Occupation for more than 80% of the time normally required to perform them; and b. Your Loss of Earnings is equal to at least 20% of Your Prior Earnings while You are engaged in Your Occupation or another occupation; and c. You are under the regular and personal care of a physician.
The policy also contains an amendment which changes clause "c", though this change has no effect on this litigation. See n. 3,infra.
(Paul Revere Policy 01024838250 at 7, Ex. A, PLT 00001, attached to Pl.'s Response to Def.'s Request for Summ. J) (There are many documents in Ex. A, but many of these documents can be quickly located because they are sequentially numbered in the lower right hand corner with "PLT" and a number.) After collection of any benefits under the policy, residual disability "means that due to the continuation of that Injury or Sickness: a. Your Loss of Earnings is equal to at least 20% of Your Prior Earnings while You are engaged in Your Occupation or another occupation; and b. You are under the regular and personal care of a physician." (Id.)
While, as described later, in resolving this matter the Court must rely on the record before the administrator or fiduciary, the policy was clearly part of the record before Provident.
The Court notes that the 80% language in the policy can be construed to mean either that Dr. Melluish qualifies for residual disability only if he must reduce his workload by 20%, or that he qualifies only if he must reduce his workload by 80%. Provident's course of dealing with Dr. Melluish after his heart attack (granting him disability benefits though he had not reduced his workload by anything near 80%), and Dr. Melluish's acceptance of those benefits, demonstrates that the parties interpreted this provision to mean that he must reduce his workload by 20%, not by 80%, in order to qualify. Because in interpreting a contract the Court aims to enforce the intent of the parties, this interpretation of the relevant policy language is adopted as the correct interpretation.
The Court also notes that for the purpose of defining "residual disability" both prior to and after collection of benefits, the phrase "You are under the regular and personal care of a Physician" (contained at clause "c" of the definition of residual disability before benefits are collected and at clause "b" of the definition of residual disability after benefits are collected) is changed by a policy amendment. The new language states: "You are receiving Physician's Care. We will waive this requirement if We receive written proof acceptable to Us that further Physician's Care would be of no benefit to You." The policy amendment defines "Physician's Care" as "the regular and personal care of a Physician which, under prevailing medical standards is appropriate for the condition causing the disability."(Paul Revere Policy 01024838250 at 7, Ex. A, PLT 00019, attached to Pl.'s Response to Def.'s Request for Summ. J). Under either standard, the record before Provident shows that at all times relevant to this litigation Plaintiff met the "physician's care" requirements of the policy.
On March 25, 1993, Plaintiff suffered a myocardial infarction, i.e. a heart attack. Provident paid Dr. Melluish benefits from 1993 through 1998. However, in 1999, Provident sent Dr. Melluish a letter stating that he no longer qualified for benefits because he was able to return full-time to his profession. (Letter to Melluish of 1/29/99 at 2, Ex. 3, PRLCL 00880, attached to Pl.'s Response to Def.'s Mot.) (As with the documents attached to the Plaintiff's Response to Defendant's Request for Summary Judgment, many documents are behind tab 3, but they can be located by examining the "PRLCL #" located on the lower right hand side of the page. The documents at tab 3 are excerpts from the record before Provident). Provident based its decision to stop paying benefits to Dr. Melluish on its "opinion that you are able to perform the duties of an `Opthamologist' on a full-time basis." (Letter to Melluish of 1/29/99 at 2, Ex. 3, PRLCL 00880) However, numerous and continuing recommendations in the record before Provident indicated that his doctors advised that he reduce his work load by 1/3. (See, e.g., Evaluation of Melluish by Francis of 6/11/93, Ex. 3, PRLCL 00134, attached to attached to Pl.'s Response to Def.'s Mot.; Evaluation of Melluish by Campbell of 5/23/94, PRLCL 00150; Evaluation of Melluish by Campbell of 4/24/95, PRLCL 00308; Evaluation of Melluish by Campbell of 4/5/96, PRLCL 00440; Evaluations of Melluish by Campbell dating from 8/20/96-3/20/98, PRLCL 00506-645). The letter stated that Dr. Melluish's performance on exercise stress test since Dr. Francis' determination on 6/10/93 demonstrated that he was able to return to work on a full-time basis. (Letter at 3, PRLCL 00881). However, as already pointed out, on many occasions after 6/10/93 Dr. Melluish's doctors reemphasized Dr. Melluish's work restriction. Dr. Melluish's doctors felt that his condition was a continuing one, regardless of his performance on exercise stress tests. (See, e.g., documents cited above, as well as Test Results of 5/4/93 and 3/31/93, PRLCL 00241 and 00267; Campbell Notes of 11/27/95, PRLCL 00681 ("He is able to exercise to a high work load without symptoms"), and Campbell Notes of 5/8/96, PRLCL 00679 ("He however remains remarkably asymptomatic")).
The record does not indicate that Provident based its decision upon a dispute over Dr. Melluish's income level, but upon his disability. (Letter to Melluish of 1/29/99 at 2, Ex. 3, PRLCL 00880, attached to Pl.'s Response to Def.'s Mot.) While Provident has denied in its pleadings that Dr. Melluish's income was reduced by 20% due to disability, it is only the record before Provident that is relevant to the Court's ruling.
Analysis
Summary judgment is appropriate if there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56. The rule requires that the disputed facts be material. Material facts are facts which are defined by substantive law and are necessary to apply the law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510 (1986). The court must draw all inferences in a light most favorable to the non-moving party, but may grant summary judgment when "the record taken as a whole could not lead a rational trier of fact to find for the non-moving party." Agristor Financial Corp. v. Van Sickle, 967 F.2d 233, 236 (6th Cir. 1992) (quotingMatsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356 (1986)).
The Court must determine whether the plan at issue is an employee welfare benefit plan (an "ERISA plan.") An ERISA plan is "any plan, fund or program . . . established or maintained by an employer . . . for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) . . . benefits in the event of sickness, accident, disability, death or unemployment." 29 U.S.C. § 1102(1); Agrawal v. Paul Revere Life Ins. Co., 205 F.3d 297, 299 (6th Cir. 2000). The Sixth Circuit has "set out a three-step factual analysis for determining whether a benefit plan satisfies the statutory definition." Id. First, a court applies the Department of Labor's "safe harbor" provision which exempts certain plans from ERISA. Second, a court determines if a plan exists from examining whether from the surrounding circumstances a reasonable person could ascertain the existence, funding and features of a plan. Third, a court asks whether the employer established or maintained the plan intending to benefit its employees. See id. at 299-300.
The safe harbor analysis is found in 29 C.F.R. § 2510.3-1(j). See also B-T Dissolution, Inc. v. Provident Life and Accident Ins. Co., 101 F. Supp.2d 930, 937 (S.D.Ohio 2000) (quoting regulation). Under the safe harbor provision, a plan is exempt from ERISA if, inter alia, the employer makes no contributions to the policy. It is undisputed that in this case the employer (referred to as "Melluish, M.D.", a corporation,) did contribute to the policy, and that the safe harbor provision is not applicable. (Pl.'s Response to Def.'s Mot. at 4).
In this case, the existence, funding and features of the plan are easily ascertained by an examination of the policy, which provides benefits on the disability of Dr. Melluish, and which was funded, as already explained, by Melluish, M.D. Therefore, the second prong of the ERISA test is met. The parties' disagreement arises over the third prong of the test. While the policy clearly provides benefits for Dr. Melluish in the case of disability, Plaintiff argues that Dr. Melluish, as one of three shareholders of Melluish, M.D., cannot be classified as an employee, but is rather an employer. Accordingly, Plaintiff argues, Melluish's plan is not a plan which benefits employees and therefore not an ERISA plan. See Agrawal, 205 F.3d at 300 (dispute as to whether party is an "employee" or "employer" examined as part of third prong of ERISA test).
Plaintiff bases its argument on Fugarino v. Hartford Life and Acc. Ins. Co. and on Department of Labor Regulations published at 29 C.F.R. § 2510.3-3. Fugarino held that a sole proprietor of a restaurant could not be deemed an "employee" but only an "employer." Accordingly, Fugarino held that the restaurant owner's plan could not be an ERISA plan. See Fugarino, 969 F.2d at 186-86. Fugarino based its holding on 29 C.F.R. § 2510.3-3(b) and (c)(1). 29 C.F.R. § 2510.3-3(b) provides that ". . . the term `employee benefit plan' shall not include any plan, fund or program, . . . under which no employees are participants covered under the plan . . . ." Id. 29 C.F.R. § 2510.3-3(c)(1) provides that "[a]n individual and his or her spouse shall not be deemed to be employees with respect to a trade or business, whether incorporated or unincorporated, which is wholly owned by the individual or by the individual and his or her spouse." Id.Fugarino's holding was based directly on these regulations. Fugarino, 969 F.2d at 185. Springing on language in that opinion, however, Plaintiff asserts that Fugarino establishes that not just sole shareholders, but multiple shareholders of a company cannot be deemed "employees." (Fugarino states that "[a]s a result of these regulations [ 29 C.F.R. § 2510.3-3(b) and (c)(1)], a plan whose sole beneficiaries are the company's owners cannot qualify as a plan under ERISA." Id., citing Kennedy v. Allied Mut. Ins. Co. 952 F.2d 262, 264 (9th Cir. 1991)). Plaintiff contends that the plural language used in this quote shows that joint owners of an incorporated business, when they are the only beneficiaries of a plan, cannot qualify as employees.
The court's statement is Fugarino, however, was dicta; the case involved a sole proprietor rather than multiple owners. Furthermore, the Court concludes on the basis of a Department of Labor advisory opinion letter that the regulations relied upon in Fugarino do not extend to situations where more than an individual and his or her spouse hold stock in a corporation. In this opinion letter, in response to a query as to whether or not a pension or profit sharing plan is an ERISA plan when its only participants are shareholders or spouses of shareholders, the letter advised that "your interpretation is correct only where the stock of the corporation is wholly owned by one shareholder and his or her spouse and the shareholder and his or her spouse are the only participants in the plan." Department of Labor Advisory Opinion Letter 76-67, 1976 ERISA LEXIS 58. This Court is bound to give great deference to Department of Labor Advisory Opinion Letters interpreting ERISA, see Bartling v. Fruehauf Corp., 29 F.3d 1062, 1072 (6th Cir. 1994) (deferring to Department of Labor Advisory Opinion Letter and stating that "we must keep in mind that in interpreting [a section of ERISA], we are obliged to accord great deference to DOL interpretations.") While Plaintiff argues that this interpretation was directed at a question regarding pension funds, the interpretation is of the very same regulation that Plaintiff asks us to interpret, and it makes no difference whether the plan at issue is a pension plan or a employee benefit welfare plan. See Williams v. International Paper Co., 227 F.3d 706, 710-11 (6th Cir. 2000) (applying rule of Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 104-116, 109 S.Ct. 948, 951-57, an ERISA pension plan case, to an ERISA disability plan case). Furthermore, the interpretation of the regulation is not arbitrary and capricious. While it is true that the regulations provide that partners will not be deemed employees of their partnership, and that the interpretation of 29 C.F.R. § 2510.3-3 advanced in the Department of Labor's Opinion Letter means that corporations are treated differently than partnerships under the regulations (in that in a partnership multiple owners of the partnership are classified as non-employees, while in a corporation multiple owners are classified as employees), there are enough differences between partnerships and corporations that the Department of Labor could have manifold grounds for treating the two types of entities differently.
Plaintiff cites numerous cases in his brief. The only cases Plaintiff cites that actually support his interpretation that a shareholder who is not the sole shareholder of a company may be deemed an employer rather than an employee are Kennedy v. Allied Mut. Ins. Co. 952 F.2d 262, 264 (9th Cir. 1991), Magnuson v. The Paul Revere Life Ins. Co., 1999 U.S. Dist. LEXIS 6021 (E.D.Mich. 1999), and Jaffee v. Provident Life and Acc. Ins. Co, No. 99-CV-3062, 2000 WL 349750, at * 1 and 5 (S.D. Florida 2000). These cases are not binding on this Court. Furthermore, Defendant has pointed out that McMurty v. Paul Revere Life Ins. Co., No. 95-CV-58 (W.D.Ky.Oct. 23, 1997), Pini v. Paul Revere Life Ins. Co., No. 99-CV-70848-DT (E.D.Mich. Oct. 19, 1999), Santino v. Provident Life Acc. Ins. Co., No. 99-CV-70301-DT (E.D.Mich. Sept. 29, 1999) and In re Baker, 114 F.3d 636, 639 (7th Cir. 1997) specifically contradict Kennedy and Magnuson by holding that a shareholder in a closely held corporation (a 50% shareholder in McMurty and Pini, a 33% shareholder in Santino, and a 50.9% shareholder in In re Baker) was an employee rather than an employer for ERISA purposes. Furthermore, none of these cases even had before them the DOL letter which this Court has been presented. Even without the DOL letter, ample support in case law exists for the proposition that a shareholder in a closely-held corporation is not an ERISA employee.
Plaintiff, therefore, as simply one of multiple owners of Melluish, M.D., is properly classified as an employee under 29 C.F.R. § 2510.3-3, and therefore under ERISA. Plaintiff's argument that because at the time of the plan's founding Dr. Melluish was the sole shareholder of Melluish, M.D. this case falls under the direct holding of Fugarino is inapposite. To begin with, the evidence is ambiguous as to whether or not Dr. Melluish was the sole shareholder of Melluish, M.D. at the time of the purchase of the policy. But even if he was, this fact makes no difference, for as Defendant points out in its reply brief, Plaintiff's suggestion ignores the clear language of the statute, which provides that an employee welfare benefit plan is "any plan, fund or program which was heretofore or is hereafter established or maintained by an employer . . . to the extent that such plan, fund or program was established or maintained for the purpose of providing . . . through the purchase of insurance . . . benefits in the event of . . . disability." 29 U.S.C. § 1002(1) (emphasis added).
Accordingly, the policy at issue is an ERISA policy. In his complaint, Plaintiff requested relief under 29 U.S.C. § 1132(a)(1) (Complaint p. 5.) In actions brought to recover benefits under an ERISA plan or to enforce a party's rights under the plan under 29 U.S.C. § 1132(a)(1)(B), a court must defer to a decision by a plan administrator or fiduciary if given discretionary authority under the plan to determine eligibility for benefits or to construe the terms of the plan. See Firestone Tire and Rubber Co. v. Bruch, 489 U.S. at 104-116, 109 S.Ct. at 951-57. Alternatively, if the administrator or fiduciary is not given discretionary authority to determine eligibility for benefits or to construe the terms of the plan, the Court exercises de novo review of the decision. See id.; International Paper, 227 F.3d at 710-11;Wilkins v. Baptist Healthcare System, Inc., 150 F.3d 609 (6th Cir. 1998). Provident is a plan fiduciary, see 29 U.S.C. § 1002(21), so this Court must decide how to review its denial of benefits to Dr. Melluish. Plans do not automatically vest discretionary authority to determine eligibility or to construe its terms in a fiduciary or administrator. See Firestone, 489 U.S. at 111-12, 109 S.Ct. at 955 ("Finding no support in the language of its . . . plan for the arbitrary and capricious standard, Firestone argues that as a matter of trust law the interpretation of the terms of a plan is an inherently discretionary function. But other settled principles of trust law, which point to de novo review, belie this contention"); International Paper, 227 F.3d at 711 (Firestone requires a plan to "expressly give discretionary authority to the administrator'", quoting Perry v. Simplicity Eng'g, 900 F.2d 963, 965 (6th Cir. 1990)).
Plaintiff's action must be under 1132(a)(1)(B), not 1132(a)(1)(A), since 1132(a)(1)(A) applies only to suits against an administrator of a plan for disclosure of information. Melluish has sued a fiduciary of the plan, not its administrator (which by operation of law is Melluish, M.D.See 29 U.S.C. § 1002(16)(A) and (B); Firestone, 489 U.S. at 105, 109 S.Ct. at 951), and his suit involves a refusal of benefits, not of information.
The parties have not fully briefed the issue of whether or not the policy language grants Provident discretionary authority to interpret the terms of the plan. Accordingly, the Court has requested further briefing from the parties on this issue, and it will not be decided at this time.
On the facts now before it, the Court concludes that the policy at issue is an ERISA plan. Count 1 of Plaintiff's complaint is reinstated. Count 2 is dismissed because it is a state law contract claim, and state law claims are preempted by ERISA. 29 U.S.C. § 1144(a); see also Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d 1272, 1276 (6th Cir. 1991). Counts 3 through 6 are reinstated because the prior grounds for dismissing them were premised on the assumption that the plan was not an ERISA plan. Counts 4 and 6 will now be dismissed as state law claims preempted by ERISA. See id. Counts 3 and 5, alleging breach of fiduciary duty and promissory estoppel, respectively, are dismissed to the extent they are state law claims. See id. These two counts, however, may be considered to allege federal as well as state claims. See Sprague v. General Motors Corp., 133 F.3d 403-6. The federal breach of fiduciary claim cannot survive in this instance, as it is nothing more than an allegation that Provident breached its fiduciary duty by denying Dr. Melluish benefits under the plan. Such an allegation may only be pled as an ERISA violation under § 1132(a)(1)(B) of ERISA. See Wilkins, 150 F.3d at 616. Therefore, this claim will be dismissed. The federal promissory estoppel allegation also fails. The elements of an equitable estoppel claim in this context are
(1) there must be conduct or language amounting to a representation of material fact; (2) the party to be estopped must be aware of the true facts; (3) the party to be estopped must intend that the representation be acted on, or the party asserting the estoppel must reasonably believe that the party to be estopped so intends; (4) the party asserting the estoppel must be unaware of the true facts; and (5) the party asserting the estoppel must reasonably or justifiably rely on the representation to his detriment.See Sprague, 133 F.3d at 403 (citing Armistead v. Vernitron Corp., 944 F.2d 1287, 1298 (6th Cir. 1991). Furthermore, "[p]rinciples of estoppel . . . can only be invoked in the context of ambiguous plan provisions." See id. at 404. In the case at hand, the provisions of the plan are not ambiguous; the plan clearly defines when Dr. Melluish will or will not be deemed eligible for benefits. The parties' dispute is not over the terms of the plan or any misrepresentations of them, but over the parties' interpretations of Dr. Melluish's condition. This type of claim does not involve ambiguous policy language, or misrepresentations by Provident. Provident did not misrepresent any facts in its policy, of which Dr. Melluish was unaware. Indeed, Provident could hardly have been aware of how it would evaluate the particular physical condition of Dr. Melluish following a heart attack, before that heart attack occurred! In this case, this is the only "misrepresentation" alleged. Dr. Melluish's federal promissory estoppel claim fails because the plan did not contain ambiguous language which affected a determination of benefits, and because Provident did not misrepresent any facts to Dr. Melluish in its policy, of which Dr. Melluish was unaware.
The Court notes that pursuant to Wilkins v. Baptist Healthcare System, 150 F.3d at 619-20 (Gilman, and Ryan, concurring), in reviewing a plan administrator or fiduciary's decisions under a plan, the Court is to use the procedure specified there rather than summary judgment procedures for making its decision. In this case the Court, pursuant to a review of the record before Provident, determines that neither Plaintiff nor Defendant are currently entitled to judgment on Count 1 under Wilkins.
Conclusion
For the foregoing reasons, Plaintiff's motion for summary judgment will be denied. Defendant's motion for summary judgment will also be denied. The evidence in the record before Provident does not establish that no genuine issue of material fact exists as to whether Dr. Melluish was disabled under the policy. Defendant's motion for determination that Plaintiff's action is governed by ERISA will be granted in part and denied in part. Defendant's motion for determination that Plaintiff's action is governed by ERISA will be granted, but denied to the extent that Defendants request judgment for them under Wilkins.
An Order consistent with this opinion will be entered.
ORDER
In accordance with the Opinion filed on this date,IT IS HEREBY ORDERED that Plaintiff's motion for summary judgment (docket no. 25) is DENIED. IT IS FURTHER ORDERED that Defendant's motion for summary judgment (docket no. 27) is denied.
IT IS FURTHER ORDERED that Defendant's motion for determination that Plaintiff's action is governed by ERISA (docket no. 38) is GRANTED IN PART AND DENIED IN PART. Defendant's Motion will be granted to the extent it requests the Court determine that this action is governed by ERISA. Defendant's Motion will be denied to the extent it requests judgment for Defendant. Count 1 of Plaintiff's Complaint is properly before this Court, while Counts 2-6 are dismissed.