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Massachusetts Carpenters Central Collection Agency v. Belmont Concrete Corporation, ___ F.3d ____, 1998 U.S. App. LEXIS 5988 (1st Cir. 1998). This is a withdrawal liability case under ERISA. Court used alter-ego theory to hold successor to bankrupt signatory defendant liable for the plan contributions. Court emphasized that the alter ego jurisprudence developed in cases brought under the National Labor Relations Act, 29 U.S.C. §§ 141-197, is applicable in cases brought under ERISA where the basis for imposition of liability is also the alter ego doctrine.
Morelli v. Cedel, ____ F.3d ___ ,1998 U.S. App. LEXIS 6317 (2nd Cir. 1998)
Second circuit decided that the domestic employees of certain foreign corporations were protected under the Age Discrimination and Employment Act of 1967 and that the foreign corporation's foreign employees were counted for the purpose of determining whether the corporation has enough employees to be subject to the ADEA.
Silverman v. Mutual Benefit Life Insurance Company, ___ F.3d ___, 1998 U.S. App. LEXIS 4133 (2nd Cir. 1998). Mutual Benefit held plan funds. Defendant Gorny was an employee of Mutual Benefit. Its services were terminated. Before Principal, Mutual Benefit's successor, received the plan funds, the two individual plan trustees embezzled $130,000.
Silverman alleged that Mutual Benefit and Gorny were personally liable for loss to the plan because, when Mutual Benefit's contract was terminated, they returned the plan's funds to Zucker (one of the two trustees who allegedly embezzled the funds) upon his written request. The Second Circuit affirmed the District Court's finding that Mutual Benefit's actions were required under the terms of the plan and Mutual Benefit's contract with the plan. Mutual Benefit's return of plan funds was consistent with the summary plan description (the "SPD") and complied with all relevant Department of Labor ("DOL") regulations. Silverman argued that Mutual Benefit and Gorny violated their fiduciary duties of care and prudence by transferring the plan funds because only one of the two plan trustees signed Zucker’s letter requesting cancellation of the contract. Under ERISA, a trust agreement providing for more than one fiduciary must provide for joint authority to control and manage the plan, see 29 U.S.C. § 1102(a), and the exercise of joint powers typically requires the action of all trustees. See Illinois Conf. of Teamsters and Employers Welfare Fund v. Mrowicki, 44 F.3d 451, 462-63 (7th Cir. 1994). However, joint trustees may modify the default rule by agreeing to delegate authority to a single agent. See id. at 463; see also Restatement (Second) of Trusts § 194 (1959) (joint trustees must act unanimously "unless it is otherwise provided by the terms of the trust"). Under the terms of the plan, the joint trustees "may authorize one or more of them to sign all papers on their behalf." The plan further provided that Mutual Benefit "may rely on the signature of any Trustee on an application for or any document used in connection with" its contract with the plan. The plan delegated to Zucker the authority to act on behalf of both trustees in documents used in connection with the plan, and Mutual Benefit lawfully relied on this authority in connection with cancellation of the contract. The Second Circuit determined the return of the funds could not constitute the basis for a finding that Mutual Benefit or Gorny breached their ERISA fiduciary duties, and the District Court properly granted summary judgment in their favor.
Silverman contended that Principal should be liable under 29 U.S.C. § 1109(a) because it failed to take steps to remedy the fiduciary breach committed by Zucker and Fertig in violation of 29 U.S.C. § 1105(a)(3). The district court granted summary judgment to Principal because Silverman had failed to produce evidence from which a jury could find that, at the time of Principal's alleged breach, Zucker or Fertig had money that might have remedied the loss. The Second Circuit agreed.
Michigan
Affiliated Healthcare System, Inc., f/k/a v. Cc Systems Corporation Of Michigan,
___ F.3d ___ , 1998 U.S. App. LEXIS 5704; 1998 FED App. 0087P (6th
Cir. 1998). Lansing General
sponsored a partially self-funded major medical plan ("Plan") for its
employees. It contracted with CCS for services as Third Party Administrator for
the Plan. CCS was responsible for reviewing claims for benefits, determining
eligibility for benefits, and computing benefits payable. CCS referred contested
or questionable claims to Lansing General, which had sole and final discretion
to grant or deny payment of the claim. CCS also had responsibilities in the
areas of accounting, plan benefit development, employee communications,
preparation of documents, and insurance. Under the Plan, Lansing General was
responsible for payment of the first $60,000.00 of covered medical benefits per
person. Stop Loss Insurance Corporation ("SLI") provided stop-loss
insurance coverage for the Plan, paying for those medical expenses that exceeded
$60,000.00 and were covered under the Plan.
In 1992,
Carol Hoskins, a Lansing General employee covered under the Plan, was diagnosed
with breast cancer. Her doctor recommended treatment called an autologous bone
marrow transplant with high-dose chemotherapy ("ABMT/HDC"). Hoskins
submitted a claim for coverage to CCS, which rejected her claim based on its
determination that the ABMT/HDC procedure fell within the Plan's exclusion for
experimental or investigational treatment. CCS referred her claim to Lansing
General, which concluded that the Plan provided coverage for the procedure, so
it paid the claim. (The facts do not indicate whether Lansing General would be
performing the procedure and would receive payment of the costs in excess of
Lansing General's $60,000 obligation.) Lansing General subsequently submitted a
claim for payment to SLI, which denied coverage based on the stop-loss policy.
That
policy excluded "expenses in connection with surgery or treatment
classified by the Health Care Financing Administration of the United States
Department of Health and Human Services as 'experimental,' 'investigational' or
as not 'reasonable' or 'necessary.'"
Lansing
filed suit against CCS and SLI in state court. Only SLI filed a notice of
removal. The district court denied a motion to remand and granted summary
judgment in favor of Defendants. Lansing appealed.
The Sixth
Circuit found that SLI had a defect in its removal procedure since not all
Defendants joined in the notice of removal. The Sixth Circuit also found that
the Plaintiff did not waive this defect since it filed for remand on other
grounds. The Sixth Circuit found there was another defect in the notice of
removal when SLI alleged only 29 U.S.C. § 1144 as the basis for removal.
However, the district court asserted jurisdiction based upon preemption under 29
U.S.C. § 1132, when it recognized that removal could not be effected under §
1144. See Alexander v. Electronic Data Sys. Corp., 13 F.3d 940, 945 (6th Cir.
1994).
The Sixth
Circuit determined the district court was correct when it found that removal
could not be effected under 29 U.S.C. § 1144. See Warner v. Ford Motor Co., 46
F.3d 531, 534 (6th Cir. 1995) (en banc).
However, the district court should not have proceeded under § 1132.
First, it was not then pleaded as a basis for original or removal jurisdiction.
CCS argues that the notice of removal contains a reference to § 1132 because it
cited ERISA in whole when it stated that the claims arose under 29 U.S.C. §
1001-1461. We need not now decide whether that was an adequate pleading to put
the court on notice of SLI's theory of removal or whether the failure to cite
the proper statute with specificity is not a fatal defect in the notice of
removal. See Wormley v. Southern Pacific Transp. Co., 863 F. Supp. 382, 385
(E.D. Tex. 1994).
Second, and more important, " § 1132 preempts state claims by
'participants or beneficiaries' to enforce certain rights guaranteed by ERISA.
Claims by anyone other than a 'participant or beneficiary,' however, fall
outside the scope of ERISA's civil enforcement section." Alexander, 13 F.3d
at 946. See also Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 66, 95 L.
Ed. 2d 55, 107 S. Ct. 1542 (1987) ("legislative history consistently sets
out this clear intention to make § [1132(a)(1)(B)] suits brought by
participants or beneficiaries federal questions for the purposes of federal
court jurisdiction."). Lansing General was not a participant or a
beneficiary, so the district court did not have jurisdiction under §
1132(a)(1)(B), as it recognized. CCS argues, alternatively, that the court had
jurisdiction under § 1132(a)(1)(B) because Lansing General was acting on behalf
of the Plan beneficiary, namely, Hoskins. See Cromwell v. Equicor-Equitable
HCA Corp., 944 F.2d 1272, 1277 (6th Cir. 1991). However, in that case, the
provider received a "valid assignment of benefits." Id. That is not
the situation here, as Lansing General is proceeding on a breach of contract
cause of action, not on behalf of the beneficiary.
Even if there was no jurisdiction under § 1132(a)(1)(B), the defendants
have argued that removal would be proper under § 1132(a)(2) or (3). The
district court did find an alternative basis for jurisdiction under §
1132(a)(3), but it is a provision providing for injunctive relief. Lansing
General asked for injunctive relief in respect to some of its claims, but the
primary claims were for damages. In addition, the provisions of either
subsection (2) or (3) implicate duties of fiduciaries in actions brought by a
participant, beneficiary or fiduciary. Because CCS was not a fiduciary, no
jurisdiction arose. Even after the district court erroneously found CCS was a
fiduciary, when it later determined that CCS was not a fiduciary, it should have
remanded the case then. See Alexander, 13 F.3d at 947; Cromwell, 944 F.2d at
1279 (after the plaintiff moves to remand, the district court should make an
independent inquiry into the factual basis supporting jurisdiction)
(Suhrheinrich, J., concurring). Finally, although Lansing General amended its
complaint following the denial of the motion to remand, its allegation that
jurisdiction was founded upon § 1132 and that SLI and CCS were fiduciaries did
not restore jurisdiction for the court, because SLI and CCS were never
fiduciaries.
The Sixth
Circuit found the District Court did not have jurisdiction and ordered the case
remanded to state court.
Cousins v. Spartan Chemical Company, 1998 U.S.
App. LEXIS 3947 (6th Cir. March 4, 1998). Plaintiff had Chron's
disease. Plaintiff missed work from the
end of 1991 through February 17, 1992 because of his illness. Defendant
terminated him on March 2, 1992. Plaintiff applied for long-term disability
benefits in October 1992 arguing he was disabled on March 2, 1992. The District
Court determined that the key question was whether Plaintiff was disabled on
March 2, 1992, In deciding Plaintiff was not disabled on March 2. 1992, the
district court noted that "my findings about the lack of credibility to be
given to the plaintiff's version of events are supported by the plaintiff's
admitted untruthfulness during the months following his discharge. In sworn
statements seeking unemployment benefits and alleging discrimination due to his
disability, the plaintiff represented that he was able to work. These assertions
on his part, along with the medical evidence that indicated that, at least
during the critical period for purposes of this case, his condition was
improving."
The Sixth
Circuit affirmed adopting this reasoning.
Lindemann v. Mobil Oil Corporation, ___ F.3d ___, 1998 U.S. App. LEXIS 5994 (7th Cir. 1998). Mobile has a short-term disability plan. Plaintiff had numerous absences for which Mobil's short-term disability plan provides benefits. Mobil fired Plaintiff for excess absenteeism. Plaintiff brought this action under 29 U.S.C. § 1140 alleging Mobil fired Plaintiff because she claimed benefits under Mobil's short-term disability plan.
In upholding the district court's grant of summary
judgment, the Seventh Circuit found that Plaintiff did not show that Mobil acted
with the specific intent to interfere with Plaintiff's benefits. "To prove
a violation of section 510, plaintiffs must establish more than a loss of
benefits; they must demonstrate that their employers terminated them with the
specific intent of preventing or retaliating for the use of benefits. See
Little v. Cox's Supermarkets, 71 F.3d 637, 642 n.3 (7th Cir. 1995) (holding
that "a plaintiff in an ERISA action must demonstrate that the employer had
the 'specific intent' to violate the statute."); Teumer v. General
Motors Corp., 34 F.3d 542, 550 (7th Cir. 1994) ("A plaintiff seeking
relief under § 510 must establish that the complained of action affecting his
employment situation was taken by his employer with the specific intent of
interfering with his benefit rights."). In other words, "the plaintiff
must ultimately show that a desire to frustrate [the plaintiff's] attainment or
enjoyment of benefit rights contributed toward the employer's decision and [the
plaintiff] can avoid summary judgment only if the materials properly before the
district court, construed sympathetically, allow for such a conclusion."
Id. See Turner v. Schering-Plough Corp., 901 F.2d 335, 347 (3d Cir. 1990) ("To
recover under section 510 the employee must show that the employer made a
conscious decision to interfere with the employee's attainment of . . .
benefits."). "'No action lies where the alleged loss of rights is a
mere consequence, as opposed to a motivating factor behind the
termination.'" Meredith, 935 F.2d at 127 (quoting Dytrt v.
Mountain State Telephone and Telegraph Co., 921 F.2d 889, 896 (9th Cir.
1990)).
Clough v. Voyager Group, Inc., 1998 U.S. App. LEXIS 5602 (8th
Cir. 1998). Executive's employment
contract supercedes a severance plan.
Clancy v. Bay Area Bank,
Bay Area Bancshares, No. 97-15830, 1998 U.S. App. LEXIS 6636 (9th
Cir. Mar 31, 1998.) Plaintiff
claimed that Plan Administrator breached its Fiduciary duties by failing to
enroll him in 401(k) plan. Ninth Circuit affirmed dismissal for lack of
standing. Freeman v. Jacques Orthopaedic and Joint Implant Surgery Medical
Group, 721 F.2d 654 (9th Cir. 1983), that an employee fraudulently excluded
from an ERISA plan is not a "participant" in the plan, and thus has no
standing to bring an ERISA claim.
Delta Dental Plan Of
California, Inc. v. Mendoza, ____ F.3d ___, 1998 U.S. App. LEXIS 5979 (9th
Cir. 1998). Delta offers dental
services in California by contracting with dentists. Delta's contract with
participating dentists requires the participating dentists to require the
patient to make a co-payment. SmileCare stopped charging patients a co-payment.
SmileCare would charge its patients, under a California licensed plan, an annual
premium in lieu of a co-pay. Delta then required SmileCare dentists to obtain
preapproval of their services but did not require preapproval of dentists who
did not waive the co-pay requirement. Delta also assigned SmileCare dentists a
reduced fee schedule. Delta also refused to allow other SmileCare dentists to
participate in Delta's group. Further Delta allegedly wrote dentists telling
them that claims from SmileCare facilities after a certain date would be grounds
for terminating services.
The California Commissioner of Corporations issued a cease and desist
order against Delta to stop what the Commissioner determined to be economic
retaliation. The Commissioner further wanted Delta to recognize the licensed
plan of SmileCare.
On July 17, 1995, Delta moved for an administrative review under
California's administrative review procedure. In September 1995, Delta moved in
Federal court for an injunction to prevent enforcement of the cease and desist
order.
The Ninth Circuit, in reversing the district court, held that the
district court should not have heard the case under Younger v. Harris, 401
U.S. 37, 27 L. Ed. 2d 669, 91 S. Ct. 746 (1971). The Younger abstention
doctrine reflects the strong federal policy against federal interference with
pending state judicial proceedings.
McGraw v. The Prudential Insurance Company Of
America, ____ F.3d ___, 1998 U.S. App. LEXIS 3923 (10th Cir. 1998). This
is a claim for benefits involving a claimant with multiple sclerosis (MS). Ms.
McGraw's doctors ordered physical therapy. In addition, the doctors also
required in-home nursing visits to monitor Ms. McGraw's bladder functions since
urinary infections are common with persons with MS. Person with MS require
catheterization. Due to Ms. McGraw's illness, she required assistance. Hence the
in-home nursing. Ms. McGraw's health care providers submitted claims of $47,000.
Prudential
denied the claims because the services were not medically necessary. . To decide
whether to exclude a particular service, a case manager reviews the claim and
makes a recommendation to the medical director. Prudential then relies upon a
three-tiered review process. At the first level, the local medical director
decides whether the claim is covered by the policy. A challenge of that decision
then goes to Prudential's regional medical director. At the third level, an
appeals committee comprised of several members who submit individual ballots may
confirm or reverse the regional medical director's decision.
In this
case, the medical director, Dr. Boyd Shook, board certified in internal
medicine, made the initial decision to deny payment of the claim based on his
belief "physical therapy does not affect the course of MS" and was
therefore not medically necessary. The regional medical director, Dr. Sharon
Lewis, who had previously practiced pediatrics, reviewed the decision and
agreed. The appeals committee affirmed these decisions.
The
district court Prudential's motion for summary judgment concluding Ms. McGraw
failed to exhaust her administrative remedies for some the claims submitted. In
a final order examining the denial of coverage for the two surviving claims, the
district court held Dr. Shook's determination the treatments were not medically
necessary, while perhaps made without benefit of a review of Ms. McGraw's
medical records, was nevertheless not arbitrary and capricious because
subsequent review assured the initial decision was reasonable and made in good
faith.
The Tenth
Circuit applied its sliding scale standard of review. "We have held the
degree of deference to accord such a decision will be decreased on a sliding
scale in proportion to the extent of conflict present, recognizing the arbitrary
and capricious standard is inherently flexible. Chambers, 100 F.3d at 826-27;
Pitman, 24 F.3d at 123."
The Tenth
Circuit found the denial of physical therapy to be arbitrary and capricious. The
decision to deny reimbursement for the care, however, was premised on Dr.
Shook's opinion physical therapy does not affect the course of MS. An internist
who had given up his practice by 1989 to become "the medical director of
all of the Prudential products in Oklahoma City" (emphasis added), Dr.
Shook acknowledged before making the decision, he did not review Ms. McGraw's
medical records, did not talk to her neurologist, did not examine Ms. McGraw,
and did not read any medical literature "because it was such a simple
straightforward decision." He stated his decision was based on the nature
of MS, no doubt referring to its progressive degeneration of the central nervous
system. To warrant physical therapy, he explained that Prudential's internal
protocols required a showing the condition would improve; and because there was
no evidence any intervention would even have anything to do with maintenance,
physical therapy, in his opinion, was not medically necessary. The Tenth Circuit
noted that, in fact, sixteen of Ms. McGraw's approximately forty outpatient
visits in the Baptist HomeCare claim were automatically paid, deemed
"medically necessary," based on a confidential, internal Group Claim
Division Memorandum (GCLM 90-42), which Dr. Lewis,
the regional medical director, referenced in making her decision. That
guideline states, in part, " Physical therapy should be a short-term
intensive and goal-oriented program ordered for a condition having potential for
significant improvement. We consider a "significant improvement" to be
a measurable and substantial increase in the patient's physical functional
abilities compared to his/her ability at the time treatment began.
The Tenth
Circuit noted Prudential has modified its definition of "medically
necessary" with the additional requirement the treatment provide a
measurable and substantial increase in functional ability for "a condition
having potential for significant improvement." This guideline is not
binding but imposes on the "condition" of MS the requirement it has a
"potential for significant improvement." However, under the terms of
the Plan, the medical director and subsequent Prudential fiduciaries reviewing
the claim were charged with assuring only that the treatment is ordered by a
doctor; is generally accepted under United States medical standards; and is
neither educational, experimental, or investigational in nature. Prudential's
interpretation of the Plan with this criterion alters its scope and is
unreasonable. Moreover, had Prudential's representatives read the hospital
notes, medical records, and neurologists' letters, they might have discovered
that each treating physician ordered physical therapy to enhance Ms. McGraw's
strength, endurance, and motor functions. Ultimately, however, improving Ms.
McGraw's functionality would permit her to live more comfortably. And that's the
rub. Using GCLM 90-42, Prudential then characterized the means to that end as
"medically beneficial" but not "medically necessary" because
the treatment in its view would not alter the course of the disease. In a
footnote, the Court said "Arguably, were this criterion carried to its
logical conclusion, no MS patient could qualify for reimbursement of certain
medical services, and the contract of insurance would be illusory."
The Court
applied the same analysis and reasoning to Prudential's handling of Ms. McGraw's
claim for inpatient physical therapy at Baptist Medical Center denied by Dr.
Shook and the denial approved by Dr. Lewis and the appeals committee.
Dr. Lewis explained in her affidavit the denial was based in part on the
statement in Dr. Lawton's discharge summary "the patient has had a
progressive decline over the last three years, which has been particularly acute
for the last eight months and the admission was an attempt at intensive therapy,
in hope that the patient could regain some degree of ambulation." While Dr.
Lewis believed this explanation qualified the treatment as "medically
necessary," she stated, "I did not believe inpatient confinement for
that therapy was necessary, because I found nothing listed on the admission
orders that would have required inpatient care. In addition, nurses' notes ...
reflect that Mrs. McGraw left the hospital on a pass, accompanied by her
husband, and had a good time. I believe the medical necessity of inpatient
confinement is suspect where a patient is either able or allowed to leave the
hospital on a pass." We find this statement shocking. There is nothing in the record
suggesting proper inpatient physical therapy mandates a twenty-four hour
confinement, or that periods away from the hospital when therapy is not being
administered are incompatible with proper treatment. Indeed, one would assume
the opportunity for entertainment would be not only therapeutic, but also
desirable in treating this illness. (Brininger's emphasis.)
As we read the record, it is apparent Prudential's fiduciary, who must
act "solely in the interest of the participants and beneficiaries and for
the exclusive purpose of providing benefits ... and defraying reasonable
expenses," 29 U.S.C. § 1104(a)(1)(A), made the discretionary decision
"to give up on" Ms. McGraw. Bedrick, 93 F.3d at 153. Most
egregiously, there is no indication in this record that the decision was ever
based on a review of Ms. McGraw's medical records. Clifton Abel, Prudential's
regional appeals coordinator, testified all the ballots voting to deny the
Baptist claim were submitted before Prudential had Plaintiff's Exhibit 17B. He
opined that a claim could reasonably be denied without a review of the records
if the medical director called the treating physician. Dr. Shook "seriously
doubted" he talked to anyone, and Dr. Lawton stated he was never called by
anyone at Prudential to discuss the care he had ordered. Even Dr. Lewis
testified, while she qualified the need for out-patient physical therapy as
medically necessary in the Baptist Center claim, that decision, she stated in
her affidavit, "was probably influenced by the fact that there had been a
delay in the decision-making process." Indeed, if there were no records in
the appeal file, Dr. Lewis, a pediatrician, would be distinctly disadvantaged in
adjudging the medical necessity of this treatment for this particular patient.
(The
disease is rare in children.) Without the medical records how could a
pediatrician review a claim involving MS?
The Court
found that at each level of review, Prudential's fiduciaries did not evaluate
the claims for Ms. McGraw's physical therapy "solely in the interest of the
participants" as required under 29 U.S.C. § 1104(a)(1)(A), but more to
reflect "defraying reasonable expenses." 29 U.S.C. § 1104(a)(1)(A).
"There is no balancing of interests; ERISA commands undivided loyalty to
the plan participants." Bedrick, 93 F.3d at 154. Because the
fiduciary unreasonably interpreted the Plan, we therefore hold the denial of
benefits for the two claims reviewed was arbitrary and capricious and reverse
the contrary conclusion of the district court.
As to the
District Court's granting of summary judgment because Ms. McGraw failed to
exhaust, the Tenth Circuit reversed. Because this record clearly establishes
futility in numerous respects. First, as acknowledged by Dr. Lewis, claims that
Ms. McGraw pursued were belatedly processed and review delayed. Second, in the
face of Ms. McGraw's treating neurologist and urologist's opinions the services
prescribed were medically necessary, Prudential followed its own interpretation
of the Plan isolated from any understanding of the treatment needs of the Plan's
beneficiary, Ms. McGraw. (The court noted that in her deposition, Ms. McGraw
described a visit from a Prudential representative, probably a case manager, who
told her "a monkey could do that [insert a catheter], and I said, well, I'm
not a monkey and I can't do it.") Third, we would note Ms. McGraw's lawsuit
began as a state claim for damages for Prudential's bad faith breach of an
insurance contract. Once the district court correctly held ERISA applied, it was
within its discretion to consider the full record in light of ERISA's remedial
structure and evaluate Ms. McGraw's allegations from that perspective. Our
odyssey through this record makes clear Prudential never evaluated Ms. McGraw's
individual case but rubber stamped the "nature" of her condition and
denied each subsequent claim arising from her MS.
