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In Peterson, the district court expressly found it "unnecessary to decide whether 29 C.F.R. § 2560.503-1(i)(1)(i) or (i)(1)(ii) is the applicable provision because under either provision, Federal Express failed to act in a timely manner."
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No. CV 05-1622-PHX-NVW.
May 24, 2006
ORDER
The court has before it Plaintiff's Motion for Summary Judgment Regarding Standard of Review, Doc. # 17; Defendants' Cross-Motion for Summary Judgement and Response to Plaintiff's Motion, Doc. # 20; Plaintiff's Reply to Defendants' Motion for Summary Judgment and a Motion to Stay, Doc. # 24; Defendants' Reply Regarding Standard of Review and Response to Plaintiffs' Motion to Stay Case; Plaintiff's Statement of Facts, Doc. # 19; and Defendants' Statement of Facts, Doc. # 21.
Peterson brought this action pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"). 29 U.S.C. § 1132(a)(1)(B). The issue before the court is the proper standard of review for determining whether Federal Express erred by denying Peterson's disability claim. Peterson argues that the appropriate level of review is de novo while Federal Express argues that abuse of discretion should be the reviewing standard.
I. Statement of Facts
Peterson filed a claim for short-term disability benefits on November 12, 2001, which she received until May 12, 2002. Plaintiff's Statement of Facts ("PSOF") at ¶ 4. Peterson then applied for long-term disability benefits, which she received between May 13, 2001, and July 1, 2002, and between September 3, 2002, and July 13, 2004. Id. On June 4, 2004, Broadspire, the claims paying administrator for the Federal Express Corporation Long Term Disability Plan ("Plan"), advised Peterson that her disability benefits would be terminated on July 13, 2004. PSOF at ¶ 6. Peterson timely appealed on November 30, 2004. PSOF at ¶¶ 7, 8. On December 1, 2004, Broadspire confirmed the receipt of Peterson's appeal and informed her that she had until December 7, 2004, to submit any additional medical information. PSOF at ¶ 9. On December 1, 2004, Peterson submitted additional medical evidence supporting her disability claim. PSOF at ¶ 10. Broadspire received the additional evidence by December 6, 2004. On January 5, 2005, the Federal Express Benefit Review Committee ("Committee") met and decided to uphold the denial of Peterson's long-term disability claim. Defendants' Statement of Facts ("DSOF") at ¶ 28. On May 5, 2005, Federal Express issued a letter to Peterson's attorney communicating this decision. PSOF at ¶ 20. Federal Express did not communicate with Peterson between December 6, 2004, and May 5, 2005. PSOF at ¶ 21.
On May 31, 2005, Peterson filed her Complaint in federal court.
II. Standard of Review
A. Standard for Summary Judgment
To defeat a motion for summary judgment, the opposing party must set forth specific facts showing that there is a genuine issue of material fact in dispute. Fed.R.Civ.P. 56(e); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). A dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. at 248 (1986). In the absence of such facts, "the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (citations omitted).
The party seeking summary judgment bears the initial burden of informing the court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of any genuine issue of material fact. Id. Summary judgment is appropriate against a party who "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322. Although the initial burden is on the movant to show the absence of a genuine issue of material fact, this burden may be discharged by indicating to the court that there is an absence of evidence to support the nonmoving party's claims. See Singletary v. Pennsylvania Dep't of Corr., 266 F.3d 186, 193 n. 2 (3d Cir. 2001). When parties file cross motions for summary judgment, a court must determine whether summary judgment for either party is appropriate. Fair Housing Council of Riverside County, Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001).
B. Standard of Review for Denial of Benefits
"A denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Firestone Tire Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). If the plan provides such discretionary authority to the administrator or fiduciary, the standard of review is abuse of discretion. Atwood v. Newmont Gold Co., 45 F.3d 1317, 1321 (9th Cir. 1994).
However, if an affected beneficiary produces material, probative evidence, beyond the mere fact that an apparent conflict exists, that the plan administrators were breaching their fiduciary duty, a presumption arises that the administrator breached its fiduciary obligations to the beneficiary. Hensley v. Northwest Permanente P.C. Retirement Plan Trust, 258 F.3d 986, 995 (9th Cir. 2001). "[M]aterial, probative evidence may consist of inconsistencies in the plan administrator's reasons, insufficiency of those reasons, or procedural irregularities in the processing of the beneficiaries claims," Nord v. Black and Decker Disability Plan, 356 F.3d 1008, 1010 (9th Cir. 2004), as well as the failure to provide a claimant with a full and fair hearing. Friedrich v. Intel Corp., 181 F.3d 1105, 1110 (9th Cir. 1999). Where a plaintiff meets his initial burden, the administrator "must rebut the presumption by producing evidence to show that the conflict of interest did not affect its decision to deny or terminate benefits." Hensley, 258 F.3d at 995. If the administrator fails to rebut the presumption, the district court reviews the administrator's decision to deny benefits under the de novo standard. Id.
III. Analysis
The Plan provides that the Administrator shall have discretion in determining eligibility benefits. PSOF at ¶ 13. ("The determination shall be made in a fair and consistent manner in accordance with the Plan's terms and its decision shall be final, subject only to a determination by a court of competent jurisdiction that the committee's decision was arbitrary and capricious."). Peterson does not dispute that the Plan confers discretion upon the Administrator. The standard of review is therefore abuse of discretion unless Peterson can produce material, probative evidence that the plan administrators breached their fiduciary duties.
Peterson argues that de novo review should apply because Federal Express breached its fiduciary duty by (1) violating ERISA's procedural requirements and (2) violating its own internal guidelines as set forth in the Plan.
B. Procedural Irregularities
1. ERISA
Peterson argues that Federal Express failed to act on her appeal within the ERISA-mandated time limit. The relevant provision for time within which an administrator must issue a decision after receiving an appeal is 29 C.F.R. 2560.503-1(i)(3). Under this provision, if a multiemployer plan meets regularly and utilizes a committee to make disability determinations, then the plan administrator must issue a decision within five days of making a benefit determination. See 29 C.F.R. 2560.503-1(i)(3)(ii). Otherwise, the plan administrator must issue a decision within forty-five days of receiving an appeal. See 29 C.F.R. 2560.503-1(i)(3)(i). Here, Peterson submitted her appeal on November 30, 2004, the Committee met and made its disability determination on January 5, 2005, yet Federal Express did not render a decision until May 5, 2005. Thus, it is clear that Federal Express failed to act in a timely manner irrespective of whether 29 C.F.R. 2560.503-1(i)(3)(i) or (i)(3)(ii) is the applicable provision.
It is unnecessary to decide whether 29 C.F.R. 2560.503-1(i)(3)(i) or (i)(3)(ii) is the applicable provision because under either provision, Federal Express failed to act in a timely manner.
To the extent Federal Express argues that because the Committee reached a "determination" of Peterson's claim on January 5, 2005, Federal Express did not violate ERISA, this argument is rejected. ERISA requires that a claimant receive notice, in a timely manner, that a claim has been denied or accepted. Federal Express failed to provide Peterson with notice of its decision within the requisite amount of time.
Peterson has therefore established that Federal Express violated ERISA.
2. The Plan
Peterson also argues that this conduct violated Federal Express's own internal guidelines. The Plan's relevant provision provides:
The Administrator shall appoint a committee for the purpose of conducting reviews of denial of benefits and providing the claimant with written notice of the decision reached by such committee, setting forth the specific reasons for the decision and specific references to the provisions of the Plan upon which the decision is based. The committee shall meet at least quarterly and its decision on review shall be made no later than the date of its next meeting immediately following the Administrator's receipt or a written request for review, unless such request is filed within 30 days prior to such meeting. In such a case, a decision shall be made no later than the date of the second meeting following the receipt of the written request for review. However, if special circumstances, as determined by the Administrator, require a further extension of time for processing, a decision shall be rendered by the committee not later than the third meeting following the Administrator's receipt of the written request for review.
A.R. at 452.
Peterson's claim fails for the reason that Federal Express's internal guidelines — unlike the ERISA guidelines set forth above — do not include any requirement that the Committee provide notice of its disability determination within a fixed amount of time following the meeting. Moreover, Peterson has not introduced any evidence that the Committee failed to decide her claim at the first meeting after when she submitted her appeal and supporting documents. Indeed, the first page of the administrative record demonstrates that the Committee met on January 5, 2005, and decided to reject her appeal on that date.
While the Plan provides that "[t]he appeal committee normally issues a decision on your case within 90 days of receipt of your request," A.R. at 385, this provision does not establish that the Committee violates the Plan by failing to meet the ninety-day time period. The word "normally" informs a Plan participant that the Committee may or may not render a decision within the ninety-day period.
Peterson has therefore failed to establish that Federal Express violated the terms of the Plan. However, as discussed below, even if this were a Plan violation, Peterson has not shown a lack of substantial compliance.
C. Applicable Standard of Review
Peterson argues that the standard of review should be de novo because of (1) Federal Express's violation of ERISA's Regulations and (2) Federal Express's failure to follow its own Plan and internal guidelines regarding the time within which it needed to respond to Peterson's appeal. Peterson argues that Jebian v. Hewlett-Packard Co. Employee Benefits Org. Income Prot. Plan, 349 F.3d 1098 (9th Cir. 2003), is controlling, while Federal Express argues that Gatti v. Reliance Standard Life Ins. Co., 415 F.3d 978 (9th Cir. 2005), controls. As discussed below, while neither case is on point, Gatti should apply under the facts of this case.
1. Jebian
In Jebian, the language of the plan provided that a claim was "deemed to have been denied on review" if the administrator neither responded to the appeal within sixty days nor informed the claimant that it needed sixty additional days in which to decide the claim. 349 F. 3d at 1102 (quotations omitted). The plan administrator informed Jebian on the 119th day that his appeal was still pending because it needed to consider additional medical documentation. Id. There had been no communication between Jebian and the plan administrator until that time. Id. at 1107. The failure to issue a timely benefits determination or request an extension violated both ERISA and the plan. Id. at 1103. After Jebian filed a complaint in federal court, the administrator finally issued a decision denying Jebian's appeal. Id. at 1102. The administrator asked the court to review its final decision under the abuse of discretion standard. Id. at 1104.
The Jebian court concluded that when a plan includes a "deemed denied" provision, and the administrator does not issue a decision within that period, de novo review applies to the administrator's final decision. Id. at 1105-06 (stating "that where the plan itself provides that a particular procedural violation results in an automatic decision rather than one calling for the exercise of the administrator's discretion, that provision is as enforceable as the provision giving the administrator discretionary authority under other circumstances"). However, the Jebian court limited its holding by stating that "inconsequential violations of the deadlines would not entitle the claimant to de novo review in the context of ongoing good faith exchange of information between the administrator and the claimant." Id. at 1107 (citations, alterations, and internal quotation marks omitted). The court also stated that de novo review may not be appropriate when the plan is in "substantial compliance with prescribed procedures." Id. at 1107-08.
Jebian is not controlling here. Unlike in Jebian, here the Plan does not contain a "deemed denied" provision — a factor that bore heavily upon the Jebian court's decision not to defer to the plan administrators. See id. at 1105-06 ("For present purposes, however, we leave the more general issue open and decide only that where the plan itself provides that a particular procedural violation results in an automatic decision rather than one calling for the exercise of the administrator's discretion, that provision is as enforceable as the provision giving the administrator discretionary authority under other circumstances."). Case law supports this interpretation of Jebian. See Mitchell v. Aetna Insurance Co., 359 F. Supp. 2d 880, 886 (C.D. Cal. 2005) ("First, and most importantly, the actual holding of the case limits stripping the abuse of discretion review from plan administrators to cases when the plan itself provides that a decision is `deemed denied' if not decided within the deadline.") (emphasis in original); Horn v. Provident Life Ins. Co., 351 F. Supp. 2d 954, 966 n. 7 (N.D. Cal. 2004) ("In contrast to Jebian, the policy at issue here does not include the `deemed denied' language that appears in the pre-2002 regulations. Thus, the Plan language cannot provide an independent basis for concluding that plaintiff's claim was `deemed denied' upon expiration of the applicable time limit.") (citations omitted).
Even if the "deemed denied" language were not considered essential to Jebian, Peterson has failed to establish that Federal Express violated its Plan. Jebian involved a situation in which the administrators violated both the plan and the ERISA regulations. By contrast, here Federal Express only violated ERISA.
2. Gatti
In Gatti, the administrator issued a decision 279 days after the claimant had submitted her request for administrative review, violating ERISA. 415 F.3d at 981. The plan did not contain either a "deemed denied" clause or time limits specifying when the administrator needed to determine an appeal.
The district court, relying on Jebian, concluded that the administrator had violated the ERISA regulations, that the claim was "deemed denied," and therefore that de novo review applied. Id. The Ninth Circuit reversed, holding that "violations of the time limits established in 29 C.F.R. § 1260.503-1(h) are insufficient to alter the standard of review." Id. at 982. The court determined that ERISA's "deemed denial" language in 29 C.F.R. § 1260.503-1(h)(4) (1998) did not have the same effect on the standard of review as when a plan contained "deemed denial" language, as was the case in Jebian. Id. at 983. The Gatti court then stated that the standard for determining whether an ERISA violation shifts the standard of review is whether the "violations are so flagrant as to alter the substantive relationship between the employer and employee, thereby causing the beneficiary harm." Id. at 985. The court further distinguished Jebian because it involved a plan administrator violating the plan and ERISA, while Gatti only involved a plan administrator violating ERISA.
This provision was amended in 2000 to remove the "deemed denied" language.
While Gatti appears to apply here, the Gatti court limited its holding to the 1998 version of ERISA. See id. at 982 n1 (9th Cir. 2005) ("We do not address the question of whether, under the new regulation, claimants who can establish a failure to comply with the claims procedures established by ERISA regulations are entitled to de novo consideration of their claims. The earlier version of the regulation applies to Gatti's claim because her claim was made prior to 2002."). In this case, the amended version of 29 C.F.R. § 2560.503-1 applies because Peterson filed her claim in November 2004. The additional ERISA provision provides:
In the case of the failure of a plan to establish or follow claims procedures consistent with the requirements of this section, a claimant shall be deemed to have exhausted the administrative remedies available under the plan and shall be entitled to pursue any available remedies under section 502(a) of the Act on the basis that the plan has failed to provide a reasonable claims procedure that would yield a decision on the merits of the claim.29 C.F.R. § 2560.503-1(l).
This case thus raises the question whether the Gatti court's analysis should be extended to cases involving violations of post-1998 versions of the ERISA guidelines. No circuit court appears to have addressed whether a violation of 29 C.F.R. § 2560.503-1(l) — which was added to ERISA after 1998 — requires courts to review disability determinations de novo. Moreover, the district courts that have considered this issue have reached inconsistent results. Compare Reeves v. Unum Life Ins. Co. of Am., 376 F. Supp. 2d 1285, 1293-94 (W.D. Okla. 2005) (holding that under the amended version of ERISA, violations of the Regulations result in de novo review without an exception for substantial compliance) with Goldman v. Hartford Life and Accident Ins. Co., 417 F. Supp. 2d 788, 802 (E.D. La. 2006) (concluding that "[a]lthough this change cements the argument that untimely benefits decisions should presumptively be subject to de novo review," de novo review should not apply when there is no concern about the overall adequacy of the decision-making process).
The parties have not briefed this issue.
Gatti and Jebian demonstrate that it is unlikely the Ninth Circuit would interpret 29 C.F.R. § 1560.503-1(l) as requiring de novo review every time a plan administrator violates ERISA, no matter how inconsequential the violation. Jebian excuses violations when the employer "substantially complies" with the Regulations and the governing plan, and Gatti excuses violations unless they are so flagrant as to affect the substantive relationship between employer and employee. Therefore, the Ninth Circuit would most likely not interpret C.F.R. § 1560.503-1(l) as requiring de novo review for every ERISA violation. However, the question remains whether Jebian's "substantial compliance" or Gatti's requirement that the violations be flagrant and affect the substantive relationship between employer or employee should be the governing standard here.
Because this case involves an ERISA violation but not a violation of the underlying Plan, the standard enunciated in Gatti should apply. Although this case presents a stronger argument that de novo review should apply than was present in Gatti (due to the addition of 29 C.F.R. § 1560.503-1(l)), it still falls on the Gatti rather than the Jebian side of the line.
D. Application of Gatti
The remaining question is therefore whether Federal Express's "violations [were] so flagrant as to alter the substantive relationship between the employer and employee, thereby causing the beneficiary harm."
Peterson has failed to provide any argument that Federal Express's ERISA violations were so flagrant as to alter the substantive relationship between Federal Express and Peterson. The only identified ERISA violation is Federal Express's failure to issue its disability determination within the time specified by ERISA. As the Gatti court stated, "violations of the time limits established" in the ERISA Regulations are insufficient to alter the standard of review. 415 F.3d at 982. Therefore, Federal Express's disability determination of Peterson's claim will be reviewed for an abuse of discretion.
Even if "substantial compliance" were the standard by which to review Federal Express's conduct, Peterson has failed to demonstrate that Federal Express did not substantially comply with ERISA and its internal guidelines as set forth in the Plan. Broadspire contacted Peterson on December November, 30, 2004, to inform Peterson that she needed to submit additional medical evidence by December 7, 2004. Peterson submitted additional evidence on December 1, 2004, and contacted Broadspire on December 7, 2006, to confirm Broadspire's receipt of the additional evidence. Peterson also informed Broadspire that her appeal was complete. The Committee met and decided to uphold the denial of Peterson's claim on January 5, 2005, as it was required to do under the Plan. However, despite meeting on January 5, 2005, Federal Express failed to issue its decision until May 5, 2005, which clearly violated ERISA. As to the Plan, its language was murky with regard to deadlines. See A.R. at 385 ("The appeal committee normally issues a decision on your case within 90 days of receipt of your request.").
Peterson's central argument for why Federal Express did not substantially comply with ERISA and its internal guidelines is that there was no communication between Peterson and Federal Express between December 7, 2004, and May 5, 2005. However, there was no need for communication between Peterson and Federal Express beyond January 5, 2005 (other than to provide notice to Peterson of its denial). Federal Express did not fail to issue a timely decision because it needed additional medical evidence or more time to review Peterson's appeal, as was the case in Jebian. Rather, Federal Express simply failed to provide timely notice of its January 5, 2005 decision. Therefore, under the facts of this case, Peterson has failed to demonstrate that Federal Express did not substantially comply with ERISA or with the language of the Plan. Peterson has not submitted any other arguments for why Federal Express breached its fiduciary duties.
IT IS THEREFORE ORDERED that Plaintiff's Motion for Summary Judgment Regarding the Standard of Review, Doc. # 17, is denied.
IT IS FURTHER ORDERED that Defendants' Cross-Motion for Summary Judgment Regarding the Standard of Review, Doc. # 20, is granted.
IT IS FURTHER ORDERED that Plaintiff's Motion to Stay, Doc. # 24, is denied.
IT IS FURTHER ORDERED that the parties brief the merits of the case under the abuse of discretion standard of review, submitting separate statements of fact following the procedure prescribed in LRCiv 56.1(a), pursuant to the following schedule:
1. By June 26, 2006: Plaintiff's opening brief.
2. By July 26, 2006: Defendant's answering brief.
3. By August 10, 2006: Plaintiff's reply brief.
The court does not contemplate extending this schedule.