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stating that "[i]f notice is not furnished within [the applicable] period of time, the claims will be deemed denied and the participant or beneficiary may move on to the next step in the review process"
Summary of this case from Wertheim v. Hartford Life Insurance Co.Opinion
Civil Action No. 01-2627, Section "T"(1)
June 25, 2002
MOTIONS FOR SUMMARY JUDGMENT
Before this Court are two Motions for Summary Judgment; one filed on behalf of each of the remaining defendants. United Wisconsin Life Insurance Company and American Medical Security, Inc. Because the two Motions for Summary Judgment involve the exact same facts and because the Motions concern the same arguments of law, the Court will treat the two Motions as one for the purposes of this Order. These matters came for hearing before the undersigned on a previous date without oral argument. The Court, having studied the legal memoranda and exhibits submitted by the parties. the record, and the applicable law, is fully advised on the premises and ready to rule.
ORDER AND REASONS
I. BACKGROUND
Plaintiffs, Denman and Martha Tarter, are participants in and beneficiaries under an employee welfare benefit plan sponsored by Tarter Electronics and Communications, Inc. ("the Plan"). The Plan is funded by a policy of group insurance ("the Policy") issued by United Wisconsin Life Insurance Company ("UWLIC") to the Trustee of the American Medical Security Trust ("AMS"). AMS administers claims for benefits under the Policy.
In July of 2001, AMS' transplant case management department was monitoring Denman Tarter's health status in connection with a request for pre-certification of benefits for a heart transplant. On July 9, 2001, Susan McCoy, a transplant case manager for AMS, forwarded an e-mail to Dawn Brumm, who is in AMS' administration department, indicating that Mr. Tarter's condition was rapidly deteriorating and questioning his Active Work Status. The Policy provides that coverage terminates when an employee is no longer in Active Work Status. In order to be considered as having Active Work Status under the Policy, an employee must work a minimum of 30 hours per week and not be considered Totally Disabled.
On July 10, 2001, Paula Prentis, who is in AMS' claims department, sent an e-mail to Dawn Brumm requesting that Brumm review Denman Tarter's eligibility under the Policy. Dawn Brumm sent a letter to Tarter Electronics and Communications informing it that AMS was in the process of reviewing Denman Tarter's eligibility and requested that the enclosed "Employment Verification" Form be completed and returned to AMS by July 31, 2001. On July 11, 2001, Dawn Brumm sent an e-mail to Cindy Tappy in AMS' special investigations unit alerting her that Denman Tarter had been placed on "family watch."
On July 12, 2001, Cindy Tappy made a "Note Pad" entry indicating that an eligibility review of Denman Tarter was being processed. All claims for services were held pending completion of the review process. The providers who submitted claims for services provided to Denman Tarter during that period (the period during which the claims at issue in this suit were submitted) were notified by letter that AMS "was not able to determine eligibility for benefits because the employee's eligibility for coverage has not been confirmed by his or her employer." A carbon copy of each of those letters was sent to Denman Tarter.
On July 26, 2001, AMS received a letter from counsel for the plaintiffs enclosing an original of Mr. Tarter's "Employment Verification." The letter indicated that plaintiffs' counsel, at that time, incorrectly assumed that the pendent claims had been denied. However, at that time, AMS had not completed its eligibility review and had made no decision as to whether the claims could be processed under the terms of policy.
The "Employment Verification" form attached to plaintiffs' counsel's letter which was dated July 20, 2001 and bore the signature of Denman Tarter, indicated that "Mr. Tarter is the CEO of TEC, Inc. and works in excess of 25 hours a week and more." The returned "Employment Verification" form did not include specific information requested such as a copy of the LDOL, E3-4, Employee Detailed Quarterly Wage and Tax Report and copies of employee payroll records.
Based on the above summarized facts, the Tarters filed petition for damages in the 25th Judicial District Court for the Parish of Plaquemines, State of Louisiana on August 6, 2001. The original petition seeks a Preliminary Injunction, Declaratory Judgment and Damages. Two of the defendants, UWLIC and AMS, removed the petition to federal court on August 27, 2001. These two defendants filed answers and counterclaims. The third defendant, Lloyd LeBlanc ("LeBlanc"), an alleged agent for UWLIC and AMS, filed an answer and third party complaint against UWLIC and AMS, which both parties answered. On March 21, 2002, the claims against LeBlanc were dismissed.
As previously mentioned, the original petition in state court filed by the Tarters seeks a preliminary injunction, declaratory judgment and damages associated with an alleged contract to provide medical insurance to the Tarters by the defendants. By an Order dated March 14, 2002, the Tarters were allowed to amend their complaint which added claims for a pattern of racketeering by the defendants in violation of 18 U.S.C. § 1962 (c), fraudulent misrepresentation, failure to perform contract in good faith, breach of contract, and intentional or negligent infliction of emotional distress.
The defendants filed this Motion for Summary Judgment alleging that ERISA provides the exclusive remedy for the plaintiffs' claims and that the plaintiffs have failed to state a claim for relief under RICO. In addition, all claims for medical services submitted by or on behalf of the plaintiffs have been processed and paid pursuant to the terms of the Policy.
II. LAW AND ANALYSIS
A. Law on Summary Judgment.
The Federal Rules of Civil Procedure provide that summary judgment should be granted only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. CIV. P. 56(c). The party moving for summary judgment bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the record which it believes demonstrate the absence of a genuine issue of material fact. Stults v. Conoco, Inc., 76 F.3d 651, 655-56 (5th Cir. 1996) (citing Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 912-13 (5th Cir.) (quoting Celotex Corp. v. Catrett, 477 U.S. 317.323 (1986)), cert. denied, 506 U.S. 832 (1992)). When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts. The nonmoving party must come forward with "specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (emphasis supplied); Tubacex, Inc. v. M/V RISAN, 45 F.3d 951, 954 (5th Cir. 1995).
Thus, where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no "genuine issue for trial." Matsushita Elec. Indus. Co., 475 U.S. at 588. Finally, the Court notes that substantive law determines the materiality of facts and only "facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
B. Plaintiffs' Claims are Preempted by ERISA.
ERISA contains an extremely broad preemption clause which provides, in part, that:
Except as provided in subsection (b) of this section, the provisions of this Title and Title IV shall supersede any and all State laws insofar as they may now or hereafter relate to an employee benefit plan.29 U.S.C. § 1144 (a). As the Supreme Court explained in Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504 (1981), that preemption clause is deliberately expansive and is designed to establish the regulation of ERISA plans "as exclusively a federal concern." Alessi, 451 U.S. at 523.
The Supreme Court has also held that, for the purposes of ERISA preemption, a state law "relates to" an employee welfare benefit plan if it has a connection with or a reference to such a plan. Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739 (1985). In Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987), the Supreme Court further explained that:
In both Meropolitan Life and Shaw v. Delta Airlines, Inc., at 96-100, we noted the expansive sweep of the preemption clause. In both cases, the phrase "relate to" was given its broad common-sense meaning, such that a state law "relate[s] to" a benefit plan "in the normal sense of the phrase, if it has a connection with or reference to such a plan", "In Particular, we have emphasized that the preemption clause is not limited to state laws specifically designed to affect employee benefit plans." Shaw v. Delta Airlines, supra, at 98.
Pilot Life, 481 U.S. at 47-48. Applying that reasoning to the case before it, the Supreme Court then concluded that, because the common law causes of action raised in the plaintiff's complaint were "each based on alleged improper processing of a claim for benefits under an employee benefit plan," those claims "undoubtedly meet the criteria for preemption under Section 514(a)" of ERISA. Pilot Life, 481 U.S. at 48. In the case at bar, AMS was the claims administrator for claims made under the Plan and administered plaintiffs' claims for benefits under the Plan. The plaintiffs and their attorney assumed that AMS had improperly denied plaintiffs' claims for medical benefits under the Policy. In addition, as evidenced from the petition filed by the plaintiffs, plaintiffs' claims against UWLIC are in its capacity as the insurer of benefits provided under the Plan. Because the claims by the plaintiffs against AMS for denial of claims and against UWLIC as the insurer of benefits "relate to" or have some "connection with" a benefit plan, the claims made by the plaintiffs are preempted by ERISA.
C. ERISA Affords Plaintiffs No Relief.
All state law contract and tort claims asserted by the plaintiffs are preempted by ERISA, and they are displaced by ERISA's civil enforcement provisions. Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58 (1987). To prevail in this action, plaintiffs must demonstrate that ERISA's "carefully crafted and detailed enforcement scheme" provides for the relief that they seek. Mertens v. Hewitt Associates, 508 U.S. 248 (1993).
Under ERISA, a civil action may be brought by a plan participant, beneficiary, or fiduciary. 29 U.S.C. § 1132 (a). Plaintiffs have brought this suit in their individual capacity, so their standing exists as alleged beneficiaries under the Plan. Because plaintiffs bring this action as beneficiaries, they can seek only to:
recover benefits due to [them] Linder the terns of his plan, to enforce [their] rights under the terms of the plan, or to clarify [their] rights to future benefits under the terms of the plan.29 U.S.C. § 1132 (a)(1)(B). In addition, § 1132(a)(3)(B) similarly provides that a plan participant, beneficiary or fiduciary may sue only "to obtain appropriate equitable relief . . . (ii) to enforce any provisions of this subchapter or the terms of the plan." 29 U.S.C. § 1132 (a)(3)(B).
The claims for medical benefits which had been held prior to the plaintiffs' suit, which was filed before a final decision on the benefits was made, have been paid. Because the claims for benefits have been paid, and because under ERISA plaintiffs can have claims for either benefits due, enforce rights, or to clarify rights under the Plan, plaintiffs' claims for benefits under 29 U.S.C. § 1132 (a)(3)(B) is moot. The claims for benefits have been paid. The plaintiffs, as beneficiaries under the Plan, do not have any other claim under 29 U.S.C. § 1132.
In addition, the plaintiffs cannot argue that UWLIC and AMS did not comply with the terms of the Plan or with ERISA in the handling of their claims for benefits. Pursuant to 29 C.F.R. § 2560.503 (d). the claimant must be notified of a claims decision within a reasonable time, not to exceed 90 days, after the claimant filed the claim. If notice is not furnished within that period of time, the claims will be deemed denied and the participant or beneficiary may move on to the next step in the review process. Id. In this case, the claims at issue were held during a review period that lasted a little over one month (claims for services provided after July 11, 2001 were held until August 24, 2001). That time period was within the 90 days provided by the regulation. Even if the claims were deemed denied, the plaintiffs did not exhaust their administrative remedies prior to filing suit.
It is well established that a potential plaintiff generally must exhaust the administrative remedies provided by an ERISA plan before resorting to the federal courts. See Denton v. First Nat'l Bank of Waco, Texas, 765 F.2d 1295, 1303 (5th Cir. 1985) (adopting the exhaustion requirement); Hager v. NationsBank N.A., 167 F.3d 245, 247 (5th Cir. 1999); Hall v. National Gypsum Co., 105 F.3d 225, 231 (5th Cir. 1997); Medina v. Anthem Life Ins. Co., 983 F.2d 29, 33 (5th Cir. 1993).
The Certificate of Insurance applicable to plaintiffs contains the following "Claim Appeal Procedure":
In accordance with the provision of the Employees Retirement Income Security Act of 1974 (ERISA), if you have any questions or disagree with the judgment rendered on a claim, you may ask to have it reviewed.
A written request should be sent to us within 60 days of the date You receive the claim denial. Be sure to include proper identification, including all insurance numbers that appear on your claim ID card.
Please state the reason(s) you feel the claim should not have been denied. Send a copy of the claim denial form, along with any other documentation (medical or dental records), which you believe supports your claim.
We will notify you of the final decision within 60 days of our receipt of your request. Special circumstances, however, may require us to review your request for up to 120 days.
(See Exhibit 1-A to defendants' Motion for Summary Judgment). In this case, the plaintiffs did not follow the outlined Claim Appeal Procedure. Instead, they filed suit prior to the date AMS made a decision on Mr. Tarter's eligibility. The ultimate decision was favorable to the Tarters, and the plaintiffs pending claims were processed under the terms and limitations of the Certificate. Therefore, the plaintiffs' premature claims under ERISA are now moot.
Furthermore, the remedies available under ERISA do not authorize an action for extra-contractual damages. In Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134 (1985), the Supreme Court held that, when enacting ERISA:
. . . congress did not provide, and did not intend the judiciary to imply, a cause of action for extra-contractual damages caused by improper or untimely processing of benefit claims.
Russell, 473 U.S. at 148. ERISA therefore bars any claims against AMS for extra-contractual compensatory damages. See also Pilot Life, 481 U.S. 41 (1987).
The plaintiffs argue that their claims fall under some sort of "safe harbor" under ERISA, and therefore their claims are not precluded by ERISA. "Safe harbor" is a term of art under ERISA. In determining whether an insurance program is an "employee welfare benefit plan" governed by ERISA, the Fifth Circuit uses a two-pronged analysis: (1) whether the plan meets any of the criteria of the Department of Labor's "safe harbor" provision for exclusion from ERISA regulation; and (2) whether the program meets the definitional criteria of a "plan, fund or program" set forth by the Eleventh Circuit in Donovan v. Dillingham, 688 F.2d 1367, 1371 (11th Cir. 1982) and adopted by the Fifth Circuit in Memorial Hospital System v. Northbrook Life Insurance Co., 904 F.2d 236 (5th Cir. 1990).
The Department of Labor's "safe harbor" provision, 29 C.F.R. § 2510.3-1 (j), provides that a "group or group-type insurance program" does not constitute an employee benefit plan where:
(1) No contributions are made by an employer or employee organization;
(2) Participation in the program is completely voluntary for employees or members;
(3) The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and
(4) The employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than the reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs.
The plaintiffs have never disputed that the employee benefit plan under which the Tarters are covered is an ERISA plan. Therefore, the "safe harbor" provisions are not applicable in this case.
ERISA's "savings clause" is found at 29 U.S.C. § 1144 (b)(2)(A), but it is not applicable in this case. ERISA section 524, 29 U.S.C. § 1144 (a) expressly preempts any and all state civil laws that "relate to" employee benefit plans, and § 1144(b)(2)(A) saves from preemption those state laws that regulate insurance, banking, and securities. In Pilot Life Insurance v. Dedaux, 481 U.S. 41 (1987), the Supreme Court held that a state law suit asserting improper processing of a claim for benefits under an ERISA-regulated plan was preempted by 29 U.S.C. § 1144 (a). Specifically addressing the insurance savings clause of ERISA, the Court found that the savings clause itself has to be "informed by the legislative intent concerning the civil enforcement provisions provided by ERISA section 502(a)." Id. at 52. The Court determined that Mississippi's common law, bad faith cause of action "related to" ERISA plans, but was not a law that regulated insurance, and, therefore, allowing such a claim to proceed would conflict with and frustrate Congress's intent that ERISA section 502(a) serve as the exclusive civil enforcement scheme for ERISA claims. Although the plaintiffs in this case allege that their claims should survive due to "safe harbors," or due to the fact that the claims are based on laws that "regulate insurance," this Court finds that the claims in the plaintiffs original petition are preempted by ERISA and must be dismissed.
D. Plaintiffs have Failed to State a Claim for Relief under Civil RICO.
On March 14, 2002, this Court allowed the plaintiffs to amend their complaint to include a claim for Civil RICO. However, the plaintiffs have failed to state a claim for relief under Civil RICO. Civil Rico, 18 U.S.C. § 1962 (c), provides:
It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which effect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.
Under this subsection, RICO claims require: "1) a person who engages in 2) a pattern of racketeering activity, 3) connected to the acquisition, establishment, conduct or control of an enterprise." Word of Faith World Outreach Center Church, Inc. v. Sawyer, 90 F.3d 118, 121 (5th Cir. 1996). In this case, the plaintiffs have not alleged sufficient facts which would entitle them relief under civil Rico.
1. Plaintiffs have not Sufficiently Pled a "Pattern of Racketeering Activity."
Federal Rule of Civil Procedure Rule 9(b) requires that when a plaintiff alleges that the defendants have violated the RICO statutes, the plaintiffs must allege the predicate acts with particularity. Tel-Phonic Services, Inc. v. TBS Int'l, Inc., 975 F.2d 1134, 1139 (5th Cir. 1992). In this case, the plaintiffs have not alleged the predicate acts necessary in order to bring a Civil RICO claim with the requisite particularity.
The plaintiffs allege that the defendants violated the Rico statutes by committing mail and wire fraud. As evidence of this claim, the plaintiffs allege that the defendants raised premiums, denied "legitimate claims for benefits," and that each "fraudulent" denial and premium increase was a "separate predicate act." See Plaintiffs' "RICO Standing Order," ¶¶ 5 (a)-(d), 8. These conclusory allegations are insufficient to meet the specificity requirement of Rule 9(b).
The plaintiffs have also failed to sufficiently demonstrate a "pattern of racketeering activity." A "pattern of racketeering activity" must involve at least "two predicate acts of racketeering that are related and amount to or pose a threat of continued criminal activity." Tel-Phonic Services, 975 F.2d at 1139-40. Thus, one of the requirements for a Rico "pattern" is "continuity" — "[p]redicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this requirement." Tel-Phonic Services, 975 F.2d at 1140.
Several related "predicate acts" do not establish a pattern when they are part of an alleged "single effort" to effectuate one wrong, such as the obtaining of a contract or an act of insurance fraud. Scotsdale Insurance Co. v. Dorman, 153 F. Supp.2d 852, (E.D.La. 2001) (granting motion to dismiss RICO claim where all alleged predicate acts were part of or directed toward a single scheme of insurance fraud against one insurer over a period of 6 months). The plaintiffs in this matter are claiming that each of the alleged "mail fraud" and "wire fraud" acts was perpetrated solely to allow the defendants to avoid paying the plaintiffs' claims under a single insurance contract. All of the plaintiffs' claims under that insurance contract have been paid. Therefore, there is no "pattern" of racketeering activity in this case.
2. Plaintiffs have not Sufficiently Pled the "Enterprise" Element of RICO.
"[A] plaintiff must plead specific facts, not mere conclusory allegations, which establish the existence of an enterprise." Elliot v. Foufas, 867 F.2d 877, 881 (5th Cir. 1989).
"An association in fact enterprise (1) must have an existence separate and apart from the pattern of racketeering." Calcasieu Marine National Bank v. Grant, 943 F.2d 1453, 1461 (5th Cir. 1991). It must exist as an enterprise for "purposes other than simply to commit the predicate acts." Elliot, 867 F.2d at 881. The plaintiffs' allegations of an "association in fact" do not satisfy this requirement.
The plaintiffs allege that the "enterprise" conducted through a "pattern of racketeering" is the alleged "association-in-fact" of UWLIC and AMS. But these allegations made by the plaintiffs in both their amended complaint and in their RICO Standing Order fail to demonstrate that the "association" has an existence separate and apart from the alleged pattern of racketeering.
As alleged by the plaintiffs', the only purpose of the "enterprise" and its sole activity is identical to the alleged racketeering activities. However, it is well-established that a RICO enterprise must be "an entity separate and apart from the pattern of activity in which it engages." See Rivera v. ATT Corp., 141 F. Supp.2d 719, 726 (S.D.Tex. 2001). In Rivera, the Court explained, "Plaintiffs would need to plead specific facts which establish that the association exists for purposes other than simply to commit the predicate acts." Rivera, 141 F. Supp.2d at 726. In this case, the alleged association is solely for the purposes of the alleged wrong, and that wrong is the supposed improper operation of the defendants' insurance business.
III. CONCLUSION
Excluding the RICO claim, the plaintiffs' claims are preempted by ERISA, and ERISA does not afford the plaintiffs relief in this matter. In addition, the plaintiffs' RICO allegations must fail because they have failed to sufficiently plead both a "pattern of racketeering activity" and the "enterprise" element.
Accordingly,
IT IS ORDERED that the Motion for Summary Judgment filed by American Medical Security, Inc. (Doc. 15) be, and the same is hereby GRANTED pursuant to Rule 56 of the Federal Rules of Civil Procedure.
IT IS FURTHER ORDERED that the Motion for Summary Judgment filed by United Wisconsin Life Insurance Company (Doc. 16) be, and the same is hereby GRANTED pursuant to Rule 56 of the Federal Rules of Civil Procedure.
IT IS FURTHER ORDERED that the Counter-Claim filed by United Wisconsin Life Insurance Company against the plaintiffs for attorney's fees be, and the same is hereby DISMISSED WITHOUT PREJUDICE.
IT IS FURTHER ORDERED that the Counter-Claim filed by American Medical Security, Inc. against the plaintiffs for attorney's fees be, and the same is hereby DISMISSED WITHOUT PREJUDICE.
IT IS FURTHER ORDERED that the Motion for Leave of Court to Amend Petition filed by the plaintiffs (Doc. 51) be, and the same is hereby, DENIED AS MOOT.
IT IS FURTHER ORDERED that the Third-Party Complaint filed by Lloyd LeBlanc be, and the same is hereby, DISMISSED WITHOUT PREJUDICE.