Opinion
NO. 01-CV-6340
October 10, 2003
MEMORANDUM
Before the Court are cross-Motions for Summary Judgment and the Motion of co-Defendants Sumpter, Wade, and Wade for Default Judgment against Plaintiff.
I. Background
Plaintiff Metropolitan Life Insurance Company ("MetLife") filed this interpleader action on December 13, 2001. The controversy involves the proceeds of the life insurance policies of Darlene Hamm ("Decedent"), which total $102,000, plus interest.
Decedent had two insurance policies on her life at the time of her death. She was an employee of Bell Atlantic and was subscribed in the Group Life Insurance Program administered by MetLife ("The Plan"). She was enrolled for $34,000 in the Basic Life Insurance Program and $68,000 in the Supplemental Life Insurance Program. With the filing of the action, MetLife deposited $124,576.93 into the Registry of the Court, representing the amount in controversy (including interest) as of that time.
Although the parties agree that Decedent was the victim of a homicide on May 24, 1994, Defendant William Hamm ("Defendant Hamm"), Decedent's husband, vigorously disputes that he was the killer. Decedent's life insurance policies designated Defendant Hamm as principal beneficiary. Both policies named Defendants Mildred Sumpter, Raymond Wade, and Michael Wade ("Co-Defendants") as contingent beneficiaries. Co-Defendants claim the proceeds of the policies because Defendant Hamm allegedly was the killer.
William Hamm and Brandi Hamm are both named as interpleader defendants. However, Brandi Hamm has not filed an Answer or taken any position thus far.
Although he has never been arrested, Defendant Hamm is considered by the police to be the "prime suspect." MetLife Claim File, Attached as Exhibit A to MetLife's Motion for Summary Judgment, p. 27. If Defendant Hamm is found to be Decedent's killer, Pennsylvania law would preclude his receipt of the proceeds.
On March 19, 2002, Defendant Hamm filed his Answer, denying that he was his wife's killer. On November 27, 2002, just under a year after the Complaint was filed, Co-Defendants filed their Answer, asserting a number of Affirmative Defenses and Counterclaims against MetLife. MetLife delayed almost seven months before filing its Answer to the Counterclaims on June 10, 2003.
Defendant Hamm filed a Motion for Summary Judgment on June 9, 2003. MetLife filed a Motion for Summary Judgment and Answer on June 10, 2003. That same day, Co-Defendants requested that the Clerk of the Court enter a Default Judgment against MetLife for failing to file an Answer to the Counterclaims. Because that request was docketed after the Answer had been filed, it was not granted. On June 27, 2003, Co-Defendants filed an Opposition to MetLife's Motion for Summary Judgment, a Motion for Default Judgment, and, alternatively, a Motion to Strike the Answer of MetLife and Motion for Summary Judgment ("Co-Defendants' Motions").
II. Legal Standard
In deciding a motion for summary judgment, "the test is whether there is a genuine issue of material fact and, if not, whether the moving party is entitled to judgment as a matter of law." Federal Rule of Civil Procedure 56; Med. Protective Co. v. Watkins, 198 F.3d 100, 103 (3d Cir. 1999) (citing Armbruster v. Unisys Corp., 32 F.3d 768, 777 (3d Cir. 1994)). "Summary judgment will not lie if the dispute about a material fact is 'genuine', that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 250 (1986). The Court must examine the evidence in the light most favorable to the non-moving party, and resolve all reasonable inferences in that party's favor. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). However, "there can be 'no genuine issue as to any material fact' . . . [where the non-moving party's] complete failure of proof concerning an essential element of [its] case necessarily renders all other facts immaterial." Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986) (emphasis added).
III. Analysis
A. Breach of Fiduciary Duty
In their Motions, Co-Defendants allege that MetLife breached its fiduciary duty under the Employee Retirement Income Security Act (ERISA) because it failed to notify them of their status as contingent beneficiaries until the suit was filed in 2001. MetLife concedes that the first notice it gave to Co-Defendants was the filing of the suit, over seven years after decedent's death. Co-Defendants allege that this failure constitutes a breach of fiduciary duty. The Court agrees.
It is indisputable that a fiduciary has a duty to disclose material information under ERISA. As the Claims Administrator for the Plan, it is MetLife's responsibility to process claims and make determinations as to whom such claims are to be paid. See Complaint ¶ 28 ("Until [this case is decided], MetLife cannot determine the proper recipient(s) of the Proceeds benefits. . . ."). Accordingly, MetLife exercises discretion in the administration of the Plan and therefore has a fiduciary duty to its beneficiaries under ERISA. See 29 U.S.C. § 1002(21)(A).
Likewise, it is clear that Co-Defendants are beneficiaries. ERISA defines a beneficiary as "a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder." 29 U.S.C. § 1002(8). The parties acknowledge that Decedent was a participant in the Bell Atlantic plan. All parties agree that if Defendant Hamm is found to be Decedent's killer, Pennsylvania law would prevent his receipt of the life insurance proceeds. See 20 Pa. Cons. Stat. Ann. § 8811(a) ("Insurance proceeds payable to the slayer as the beneficiary or assignee of any policy or certificate of insurance on the life of the decedent, or as the survivor of a joint life policy, shall be paid to the estate of the decedent, unless the policy or certificate designates some person not claiming through the slayer as alternative beneficiary to him"). Co-Defendants were designated by the policy as contingent beneficiaries. Accordingly, Co-Defendants "may [have] become entitled to a benefit" under the plan and were therefore beneficiaries.
"The term participant means any employee or former employee of an employer who is or may become eligible to receive a benefit of any type . . . or whose beneficiaries maybe entitled to receive any such benefit." 29 U.S.C. § 1002(7).
Section 404 of ERISA ( 29 U.S.C. § 1104) defines the obligations owed to a beneficiary by a fiduciary. "Congress intended in § 404(a) to incorporate the fiduciary standards of trust law into ERISA, and it is black-letter trust law that fiduciaries owe strict duties running directly to beneficiaries in the administration and payment of trust benefits." Bixler v. Central Pennsylvania Teamsters Health Welfare Fund, 12 F.3d 1292, 1299 (3d Cir. 1993). "Under the common law of trusts, a fiduciary has a fundamental duty to furnish information to a beneficiary." Glaziers and Glassworkers Union Local No. 252 Annuity Fund v. Newbridge Securities, 93 F.3d 1171 (3d Cir. 1996). "This duty to inform is a constant thread in the relationship between beneficiary and trustee; it entails not only a negative duty not to misinform, but also an affirmative duty to inform when the trustee knows that silence might be harmful." Bixler, 12 F.3d at 1300. "[The trustee] is under a duty to communicate to the beneficiary material facts affecting the interest of the beneficiary which he knows the beneficiary does not know and which the beneficiary needs to know for his protection in dealing with a third person." Glaziers, 93 F.3d at 1181, quoting Restatement (Second) of Torts § 173, comment d (1959).
"It is clear that circumstances known to the fiduciary can give rise to this affirmative obligation even absent a request by the beneficiary . . . Indeed, absent such information, the beneficiary may have no reason to suspect that it should make inquiry into what may appear to be a routine matter." Glaziers, 93 F.3d at 1181 (citations omitted).
Here, no party has alleged that Co-Defendants had knowledge of their status as contingent beneficiaries. To receive the proceeds, Co-Defendants would have to show by a preponderance of the evidence that Defendant Hamm was Decedent's killer. As time goes on, this burden becomes more difficult. Moreover, in the seven years of silence, Co-Defendants could have unknowingly bargained away their interest in the proceeds, lost that interest, or failed to account for that interest in important life activities. While it is not clear that the damages caused by this delay, if any, can be proved with certainty, the beneficiaries nevertheless needed to know of their status as such "for [their] protection." Glaziers, 93 F.3d at 1181, quoting Restatement (Second) of Torts § 173, comment d (1959). MetLife had a duty to inform the contingent beneficiaries of their status to allow them both to plan their affairs and to gather the evidence necessary to prove their case. It failed to do so.
In its own defense, MetLife refers to its annual contact with the Philadelphia Police, attempting to determine whether Defendant Hamm was the slayer (and therefore whether the contingent beneficiaries' interest vested). However, the mere fact that MetLife was not certain that the interest would vest is no defense. The Philadelphia Police immediately informed MetLife that Defendant Hamm was a suspect and, in 1997, that he was the "prime suspect." MetLife has given no reason for the inordinate delay in informing the contingent beneficiaries. The Court therefore concludes as a matter of law that the inexcusable delay was a breach of MetLife's fiduciary duty to inform the beneficiaries.
B. Remedies Available Under 29 U.S.C. § 1132(a)(1) and (a)(3)
Co-Defendants have alleged violations of ERISA and have claimed the right to sue under both 29 U.S.C. § 1132(a)(1) and (a)(3). MetLife responds by arguing that 29 U.S.C. § 1132(a)(3) is unavailable to Co-Defendants for monetary damages, the remedy sought. The Court agrees.
Co-Defendants aver that MetLife has defaulted on this claim by taking more than 20 days to respond. However, given that Co-Defendants took 11 months to respond to the Interpleader and that MetLife is not obliged to respond to legal conclusions, the Court will consider this question on its merits.
In relevant part, § 1132 reads:
(a) Persons empowered to bring a civil action A civil action may be brought —
(1) by a participant or beneficiary — . . .
(B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan; . . . [or]
(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan. . . .29 U.S.C. § 1132(a). All parties agree that the Co-Defendants may bring an action for recovery of the proceeds of Decedents' policies under 29 U.S.C. § 1132(a)(1). MetLife disputes, however, whether an action for damages may be maintained under 29 U.S.C. § 1132(a)(3). InMertens v. Hewitt Associates, 508 U.S. 248 (1993), the Supreme Court held that the phrase "appropriate equitable relief" refers to "remed[ies] traditionally viewed as 'equitable,' such as injunction or restitution."Mertens, 508 U.S. at 255. There, as here, "although they often dance around the word, what [Co-Defendants] in fact seek is nothing other than compensatory damages-monetary relief for all losses their plan sustained as a result of the alleged breach of fiduciary duties. Money damages are, of course, the classic form of legal relief." Id., citing Curtis v. Loether, 415 U.S. 189, 196 (1974): see also Teamsters v. Terry, 494 U.S. 558. 570-571 (1990); D. Dobbs, Remedies § 1.1, p. 3 (1973). The Court also cited favorably its interpretation of a similar phrase in the Civil Rights Act of 1964 to preclude awards for compensatory or punitive damages. Teamsters v. Terry, 494 U.S. at 571-72. The Supreme Court has adhered to this position in its later decisions. See Great-West Life Annuity Ins. Co. v. Knudson, 534 U.S. 204, 209 (2002) ("As we explained in Mertens, "[e]quitable' relief must mean something less than all relief") (emphasis in original); Varity Corp. v. Howe, 516 U.S. 489, 508 (1996) (explaining that Mertens stands for the principle that "compensatory and punitive damages are not 'equitable relief' within the meaning of subsection (3) of ERISA § 409(a) [ 29 U.S.C. § 1132(a)]").
Co-Defendants claim that MetLife's breach of fiduciary duty also constitutes a breach of the duty of good faith and fair dealing required under ERISA federal common law. Both the proof of this claim and the damages available under it are co-extensive with that under their claim for breach of fiduciary duty.
Accordingly, MetLife's Motion for Summary Judgment will be granted as to 29 U.S.C. § 1132(a)(3).
C. Co-Defendants' Motion for Default
Co-Defendants seek a default judgment against MetLife. Given the history of delinquent pleadings in this case, entry of a default judgment would be unnecessarily harsh.
Not one of the parties appears from the record to have filed a response to any of the pleadings in this case within the time required by the Federal Rules of Civil Procedure, or to have sought leave of the Court to extend those deadlines. See Fed.R.Civ.P. 12(a). Indeed, Co-Defendants filed their own Answer 11 months after the Complaint, well after the other parties had already begun to litigate in earnest.
Alternatively, Co-Defendants ask that the Court strike MetLife's Answer and enter default judgment as to all factual claims. It appears, however, that the only disputed fact in the case is whether Defendant Hamm killed Decedent. This issue is not one on which MetLife's failure to Answer could result in default, as it implicates Defendant Hamm's interests as well. Furthermore, Defendant Hamm filed his Answer to the Cross-claim Co-Defendants filed against him shortly after the deadline, so Co-Defendants were certainly on notice that there would be a disputed issue of fact as to whether he was Decedent's killer.
Thus, the Court will deny the Motion to Strike MetLife's Answer, without prejudice to Co-Defendants demonstrating some issue of fact that could have been defaulted and actual prejudice accruing from MetLife's delay in filing an Answer.
D. Defendant Hamm's Motion for Summary Judgment
Defendant Hamm has moved for summary judgment on the grounds that Co-Defendants have failed to produce any evidence that he killed Decedent. In response, Co-Defendants note that the discovery deadlines set by the Court had expired before MetLife filed its Answer. The Court finds that MetLife's failure to Answer precluded the completion of discovery by the Co-Defendants. It would be unfair to grant summary judgment against Co-Defendants before they have had an adequate opportunity to complete discovery. The fact that Defendant Hamm has not been arrested, formally charged, or convicted of homicide does not dispose of Co-Defendants' civil claims. The burdens of proof are different in the criminal and the civil context. As this Court held in Prudential Ins. Co. of America v. Doane, 339 F. Supp. 1240, 1242 (E.D. Pa. 1972), "[A]n acquittal does not foreclose challenge under the Slayer's Act. Conviction in a criminal case is the result of proof beyond a reasonable doubt." In civil trials like actions for those for recovery of insurance, parties need only prove their case by a preponderance of the evidence. Id.
Whether Co-Defendants have presented a material issue of fact as to whether Defendant Hamm is Decedent's killer will not be addressed by the Court until they have had the opportunity to complete discovery. Accordingly, Defendant Hamm's motion will be denied at this time without prejudice.
IV. Further Discovery on Prejudice and the Merits
None of the parties has acted with appropriate promptness or diligence. MetLife delayed seven years before filing this action. During the same time, Defendant Hamm filed no action to enforce the contract, despite having filed a claim for the proceeds shortly after Decedent's death. Upon the filing of the Complaint in this case, Defendant Hamm waited three months to file an Answer. Co-Defendants, who have moved to default other parties, waited nearly a year. MetLife then waited six months to Answer the counterclaims brought by Co-Defendants, finally filing after the discovery deadline set by the Court had expired.
Accordingly, some modification of the trial schedule is necessary. The Court will extend the discovery period to allow Co-Defendants to attempt to support their claims that: (1) Defendant Hamm was a slayer within the meaning of Pennsylvania law and (2) they were prejudiced by MetLife's delay in notifying them.
V. Conclusion
Defendant Hamm's Motion for Summary Judgment will be denied, with leave to re-file once discovery has been completed. MetLife's Motion for Summary Judgment will be granted in part and denied in part. An action for damages cannot be maintained under 29 U.S.C. § 1132(a)(3). However, MetLife has breached its fiduciary duty under ERISA. Damages may be recovered for this breach under 29 U.S.C. § 1132(a)(1), if they can be proved. Co-Defendants' Motion for Summary Judgment will be granted in part and denied in part, with leave to re-file those parts denied when discovery has been completed. MetLife has breached its fiduciary duty to Co-Defendants, who may recover any resulting damages they are able to prove.
An appropriate Order follows.