Opinion
No. 99 C 5871.
February 25, 2000.
MEMORANDUM OPINION AND ORDER
Plaintiff Dr. Patricia Spann filed a two count second amended complaint alleging violations of the Employment Retirement and Security Act ("ERISA") (Count I) and common law breach of contract (Count II) against her employer, defendant Chicago Physicians II, P.C. ("CPII"). Plaintiff's complaint stems from defendant's alleged failure to pay long term disability benefits due to her under an employment contract. Defendant filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), arguing that plaintiff had failed to state a claim upon which relief can be granted. For the following reasons, defendant's motion is DENIED as to Count I and GRANTED as to Count II.
STANDARD OF REVIEW
In ruling on a motion to dismiss, the court must presume all of the well-pleaded allegations of the complaint to be true. Miree v. DeKalb County, 433 U.S. 25, 27 n. 2, 97 S.Ct. 2490, 2492 n. 2 (1977). The court must view those allegations in the light most favorable to the plaintiff. Gomez v. Illinois State Bd. of Educ., 811 F.2d 1030, 1039 (7th Cir. 1987). Dismissal under Rule 12(b)(6) is proper only if it appears "beyond doubt that the plaintiff can prove no set of facts in support of his [or her] claim which would entitle him [or her] to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102 (1957);see also Panares v. Liquid Carbonic Industries Corp., 74 F.3d 786, 791 (7th Cir. 1996).
BACKGROUND
The facts, as alleged in plaintiff's second amended complaint, are as follows. Plaintiff Dr. Patricia Spann was employed by Meyer Medical Group through December 31, 1996. On or around September, 1996, Meyer increased plaintiff's salary to $146,652 per year, or $12,220.00 per month. As one of its employment benefits, Meyer provided plaintiff long term disability insurance coverage through a disability policy underwritten by Hartford Life and Accident Insurance Company ("Hartford") and administered by the MGIS companies ("MGIS"), under which Meyer paid all premiums without contribution by Dr. Spann ("The Plan"). At all relevant times, Hartford's Plan provided for a long term disability benefit of 66.67% of plaintiff's "Monthly Rate of Basic Earnings." Accordingly, plaintiff's maximum benefit was 66.67% of her then-monthly salary of $12,220.00, equaling $8,148.00 per month.
Under the terms of the Plan, it was incumbent upon Meyer, as the employer, to notify MGIS of any increase in plaintiff's salary so that a commensurate adjustment could be made to the amount of benefits provided in her policy. In September of 1996, Meyer notified MGIS of the increase in plaintiff's salary, and plaintiff's long term disability benefit was increased accordingly.
Effective January 1, 1997, plaintiff became employed by defendant, Chicago Physicians II, P.C. ("CPII"), pursuant to an employment contract. Also that day, plaintiff's salary increased to $200,000 per year, or $16,666.67 per month. The employment agreement provided for the continuation of plaintiff's long-term disability coverage through the Hartford Plan at 66.67% of her compensation. However, defendant did not inform MGIS of the increase in plaintiff's compensation, which permitted an increase in plaintiff's long term disability benefit to $11,111.67 per month. The statement MGIS sent defendant each month for the monthly premium stated that any salary adjustments must be reported to MGIS and informed defendant of how to make such adjustments.
Effective March 15, 1997, plaintiff became disabled due to pregnancy and complications of Lupus and took disability leave. Plaintiff was paid her full salary for six months, through September 17, 1997, pursuant to a self-insured disability policy of full salary for the first six months of disability. On or about August 21, 1997, defendant submitted an application for long term disability benefits to MGIS. The application set forth plaintiff's increased salary of $16,667 per month and was the first notification to MGIS of plaintiff's increased salary, which had taken effect on January 1, 1997. However, under the terms of the Hartford Plan, defendant's notification of plaintiff's salary increase was untimely to entitle her to corresponding increased benefits. The Plan provided: "Any increase in coverage because of a change in the Plan of insurance . . . will become effective on the date of change, subject to the following limitations: (1) If you are absent from work due to Disability, the increase will not become effective until you return to work as an Active Full-time employee." Disability is defined under the Plan as "any accidental bodily injury, sickness, or pregnancy that . . . results in the physical inability to perform the duties of your occupation."
Hartford maintains that, because plaintiff was absent from work on disability when it was notified of the increase in plaintiff's salary, the notification was not timely to entitle plaintiff to increased benefits. Hartford informed plaintiff of its position in a letter dated November 30, 1997. As a result, Hartford has paid and continues to pay plaintiff benefits limited to $8,148.00 per month (based upon a monthly salary of $12,220.00) instead of a benefit of $11,111.67 per month (based on plaintiff's true salary of $16,666.67), resulting in a deficiency of $2,963.67 per month. Hartford is obligated to pay disability benefits to plaintiff through age 65 or March 28, 2025. As a result, plaintiff has been and will be deprived of benefits totaling approximately $978,000.
Plaintiff alleges that defendant's representation that she would be entitled to 66.67% of her true salary was a knowing misrepresentation upon which she reasonably relied. Plaintiff also alleges that she has exhausted all of her administrative remedies and that any further review would be futile, because Hartford correctly interpreted the Plan in limiting her benefits.
ANALYSIS
I. Count I ERISA claims
Defendant first argues that plaintiff has named the wrong party in her suit because she seeks to recover benefits due to her under the Hartford Plan, and therefore must sue the Plan as an entity. See Jass v. Prudential Health Care Plan. Inc., 88 F.3d 1482, 1491 (7th Cir. 1996). Plaintiff responds to this argument by advancing three theories of recovery against defendant which are all consistent with her complaint. First, plaintiff argues that she is not suing under the Hartford Plan, but under an individual plan with defendant itself. This court is skeptical of this theory, as plaintiff's own pleading makes it clear that defendant made only one promise to provide benefits, and those benefits would be administered though MGIS and paid by Hartford. There is thus only one plan at issue in plaintiff's complaint. The Seventh Circuit has refused to allow recovery on this sort of "one man" plan theory, where the full contents of the alleged plan is a promise to pay the medical expenses specified in another document, and thus identical to a plan that the plaintiff could not establish her rights under. See Miller v. Taylor Insulation Co., 39 F.3d 755, 760-61 (7th Cir. 1994).
However, a finding that plaintiff is attempting to enforce her rights under the Hartford Plan, which indisputably qualifies as a plan for purposes of ERISA, does not mean that plaintiff is without a remedy against defendant. While plaintiff does not appear to have a claim against defendant under 503(a)(1)(B) to recover benefits due to her or to enforce her rights under the Plan, she has pled sufficient facts to make out a claim under 502(a)(3)(b) "to obtain other appropriate equitable relief" to either redress violations of ERISA or the Plan, or to enforce her1 rights thereunder. See Varity Corp. v. Howe, 516 U.S. 489, 512, 116 S.Ct. 1065 (1996) (finding recovery for breach of fiduciary duty proper under 503(a)(3) proper where plaintiffs could not recover under any other provision of the statute, would otherwise have no remedy, and recovery would not frustrate an ERISA-related purpose). Here, plaintiff has no claim against the Plan for the wrongful denial of benefits, and would thus otherwise have no remedy. Moreover, recovery for breach of fiduciary duty under these circumstances would not upset any ERISA-related purpose; plaintiff is not seeking to expand the written terms of the Plan or otherwise threaten the actuarial soundness of the Plan.
It should also be noted that defendant has now brought Hartford into this litigation. As such, defendant's right to argue that another party is responsible for plaintiff's injury is preserved in this litigation.
Plaintiff claims that defendant breached a fiduciary duty by failing to inform MGIS of plaintiff's salary increase to $16,666.67 per month, thereby raising her long term disability benefit to $11,111.67 per month. In response, defendant argues that plaintiff has not pled sufficient facts to support a claim that CPII qualifies as a fiduciary. ERISA defines the term "fiduciary" as follows: "[A] person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, . . . or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan." 29 U.S.C. § 1002(21)(A). The definition provides that a person shall be deemed a fiduciary "to the extent" he or she performs one of the enumerated tasks.Plumb v. Fluid Pump Serv., Inc., 124 F.3d 849, 854 (7th Cir. 1997). Accordingly, a person or entity may be an ERISA fiduciary for some purposes, but not for others. Id. (internal citations omitted). In assessing whether a person can be held liable for breach of fiduciary duty, "a court must ask whether [that] person is a fiduciary with respect to the particular activity at issue."Id. (quoting Coleman v. Nationwide Life Ins. Co, 969 F.2d 54, 61 (4th Cir. 1992)).
Plaintiff has sufficiently pled that defendant was a fiduciary for the purpose of keeping the Hartford Plan informed of salary increases, thereby ensuring that plaintiff would receive the proper level of disability benefits. The first place this court looks to determine whether defendant was a fiduciary for the purpose of keeping Hartford informed of plaintiff's salary increases is the Hartford Plan documents. An insurer generally will not be held to be a fiduciary with respect to an activity unless the plan documents show that the insurer was responsible for that activity. Id. (citing Firestone Tire Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948 (1989)). The Hartford Plan's documents, according to plaintiff's second amended complaint, required defendant to notify MGIS of any salary adjustments. That defendant did not have discretion in its duty to inform Hartford of the salary increases is not fatal to plaintiff's claim, as defendant appears to have had exclusive control over the duty to inform Hartford of the salary increases. See Mira v. Nuclear Measurements Corp., 107 F.3d 466, 468-69 (7th Cir. 1997) (finding breach of fiduciary duty where employer was "obligated to forward the health insurance premiums . . . in a timely fashion, on behalf of the plan participants and beneficiaries in order to maintain the health insurance coverage agreed upon").
Plaintiff has also properly alleged a breach of fiduciary duty. Under ERISA, fiduciaries have a duty to act with the "care, skill, prudence, and diligence" of a "a prudent man acting in a like capacity." 29 U.S.C. § 1104(a)(1)(B). Plaintiff alleges that defendant failed to notify MGIS of plaintiff's salary increase and corresponding entitlement to higher benefits, despite a duty to do so.
Plaintiff's second amended complaint also properly states a claim under the common law of ERISA. Plaintiff has pled sufficient facts to make out a claim for promissory estoppel, and defendant may be estopped from denying plaintiff's entitlement to $11,111.67 per month in disability benefits. Accepting the facts as alleged in plaintiff's complaint as true, "the only reasonable interpretation" of plaintiff's employment contract would be that defendant promised to pay her 66.67% of her monthly salary of $16,666.67 per month for long term disability, totaling $11,111.67 per month. Cf. Miller v. Taylor Insulation Co., 39 F.3d 755, 758 (7th Cir. 1994). If plaintiff was not provided by the Plan with the promised benefits, it would have become defendant's duty to correct the Plan or "to pay any benefits that might be due under the terms governing entitlement . . . itself."Id. Promissory estoppel is part of the common law that serves to plug the gaps in ERISA. Id.
Promissory estoppel undoubtably does not have as long of a reach under ERISA as under ordinary contract law in the Seventh Circuit,id., but this is not a case of a plaintiff attempting to enforce an oral modification to a plan, thereby eroding its soundness and integrity. It is, rather, a case of an employee holding an employer to a written promise, an action that does not implicate the policy concerns of ERISA, as the Seventh Circuit recognized in Miller. See id. at 759. Promissory estoppel is limited under ERISA by confining benefits to the terms of the plan as written in order to protect its financial integrity. Black v. TIC Investment Corp., 900 F.2d 112, 115 (7th Cir. 1990).
Here, plaintiff seeks only what is due to her under the written terms of the Plan. Any relief obtained would not be a benefit to which the terms of the Plan as written do not entitle her. Pohl v. National Benefits Consultants, Inc., 956 F.2d 126, 128 (7th Cir. 1992). The concern for the actuarial soundness of a plan is particularly strong in multi-employer plans, where payments outside of the strict terms of a plan would force all employers to pay for one employer's misrepresentations. See id. "[W]here there is no danger that others associated with the Plan can be hurt, there is no good reason to breach the general rule that misrepresentations can give rise to an estoppel. There is no reason for the employee who reasonably relied upon his employer's false representations to suffer. There is no reason for the employer who misled the employee to be allowed to profit from the misrepresentation." Id. Here, plaintiff seeks relief only against her employer, not the Plan. There is thus no danger of others associated with the Plan being hurt, and a finding of promissory estoppel would not undermine ERISA policies.
Here, plaintiff has properly alleged all the elements of promissory estoppel under ERISA: an affirmative written misrepresentation of a material fact (that plaintiff would receive 66.67% of her monthly salary in disability benefits), reasonable reliance on the misrepresentation (continuing to work for defendant and forgoing other insurance), a detriment suffered as a result (reduced benefits), and lack of knowledge or convenient method of ascertaining the true facts. See Krawczyk v. Harnischfeger Corp., 41 F.3d 267, 280 (7th Cir. 1993). Plaintiff is not required to plead those facts with particularity, as defendant argues. Plaintiff's promissory estoppel claim is not based on fraud, thereby requiring plaintiff to plead the circumstances with particularity under Federal Rule of Civil Procedure 9(b). Under that rule, a knowing misrepresentation, the basis of a promissory estoppel claim, may be pleaded generally.
Defendant argues that plaintiff has not properly pled a knowing misrepresentation because she has not alleged that defendant "intentionally set out to mislead Plaintiff." This is not the standard for knowing misrepresentations under ERISA. Rather, an employer may make a knowing misrepresentation by affirming a beneficiary's entitlement to certain benefits.See, e.g., Witowski v. Tetra tech, Inc., 38 F. Supp.2d 640, 646-47 (N.D. Ill. 1998).
Plaintiff's claim also does not fail for failure to exhaust her remedies under the terms of the Plan. Plaintiff concedes that she does not have a claim against the Plan for the wrongful denial of benefits. Hartford's failure to pay plaintiff the benefits due under the Plan is based upon defendant's failure to provide the salary information to MGIS as obliged under the terms of the Plan, not Hartford's interpretation of the Plan. It is defendant, not the Plan, that plaintiff "has a fight with." Whether to require exhaustion as a prerequisite to bringing suit is a matter within the discretion of the trial court. Powell v. ATT Communications, Inc., 938 F.2d 823, 825 (7th Cir. 1991). Based upon the pleadings, this court believes that requiring plaintiff to appeal the denial of benefits with the Plan would be futile, as she has been paid all the benefits which are due to her under the terms of the Plan as it now stands. It is the compensation for the benefits which plaintiff should have been due under the Plan that plaintiff seeks, and there appears to be no administrative remedy for that violation. Plaintiff's allegations demonstrate certainty that her claim would be denied on appeal, and therefore falls into the futility exception to the exhaustion requirement. See Wilczynski v. Lumbermans Mut. Cas. Co., 93 F.3d 397, 404 (7th Cir. 1996). These allegations surpass the "bare allegations of futility" which have been found insufficient to bring a claim within the futility exception. See id.
II. Count II Breach of Contract Claim
As an alternative to her ERISA claims, plaintiff brings a claim under state law for breach of contract. Because this court has determined that plaintiff's complaint states a claim for relief under § 502(a) of ERISA, and because ERISA supersedes "any and all state laws insofar as they may now or hereafter relate to any employee benefits plan," ERISA § 514(a), 29 U.S.C. § 1144(a), plaintiff's breach of contract claim is preempted by that statute. Accordingly, Count II of plaintiff's complaint is dismissed.
CONCLUSION
For the reasons stated, defendant's motion to dismiss plaintiff's second amended complaint is DENIED. Defendant's motion to dismiss is GRANTED as to Count II. Count II of plaintiff's second amended complaint is dismissed without prejudice. Defendant is hereby given until March 10, 2000 to answer plaintiff's second amended complaint. The parties are strongly urged to move this litigation along and discuss the settlement of this case. The case is set for report on status at 10:00 on March 30, 2000.