Sixth Circuit: Ability to Perform Some Part-time Work Means Plaintiff Not Totally Disabled from Performing Any Work or Qualified for LTD Benefits

On Friday, the Sixth Circuit Court of Appeals affirmed summary judgment for a long-term disability benefits plan on the basis that it was not arbitrary or capricious for the plan to deny LTD benefits to a participant because she was capable of performing some part-time work.  McClain v. Eaton Corporation Disability Plan, No. 13-5395 (6^th Cir. 1-24-14).  Like many LTD plans, the defendant’s plan only provided LTD benefits (of 70% wage replacement) to participants who were sufficiently disabled so as to be “totally and continuously unable to engage in any occupation or perform any work for compensation or profit.”  The plaintiff’s “treating physician opined she could work part-time, and a market study identified various part-time positions in the area for which she was qualified.”  Therefore, the defendant plan concluded that because the plaintiff was able to perform some work, she was not totally disabled from performing any work as required by the terms of the benefit plan.

According to the Court’s opinion, the plaintiff injured her back at work and received short-term disability benefits under the plan, which only

defined disability as being “totally and continuously unable to perform the essential duties of your regular position with the Company, or the duties of any suitable alternative position with the Company.” After 24 months, however, the Plan switched from an “own occupation” standard to an “any occupation” standard, providing Second Tier coverage if “you are totally and continuously unable to engage in any occupation or perform any work for compensation or profit for which you are, or may become, reasonably well fit by reason of education, training or experience--at Eaton or elsewhere.”

After the short-term disability benefits expired, the plan sought updated medical information.  The plaintiff’s new treating physician “submitted medical information to the Claims Administrator, indicating that Plaintiff could work part time at a sedentary position with frequent rest, but that she had no ability to work full time.”  Importantly, he “limited Plaintiff to a part-time schedule, with certain restrictions.”  The Claims Administrator performed a survey of the local job market and identified “four positions locally, paying between $7.25 and $10.00 per hour, that both allowed for part-time work and met Plaintiff’s physical restrictions.”  Therefore, the plaintiff was notified that she did not qualify for LTD benefits because she was not “totally disabled” as required by the plan. 

 The plaintiff pursued an administrative appeal. A non-reviewing physician reviewed the plaintiff’s file and spoke with her treating physician.  He reiterated that plaintiff could perform sedentary work with restrictions, but did not note any restriction to part-time work.  Her treating physician indicated that she was very upset with him because of his restrictions and her loss of LTD benefits.  On her second appeal, the plaintiff submitted records from her initial surgeon, who also indicated that she could return to work in some capacity. 

The Plan Administrator arranged for a neurological surgeon and an orthopedic surgeon from an independent medical review organization to review Plaintiff’s claim file. Both doctors found that Plaintiff was not disabled under the terms of the Plan. The neurological surgeon submitted a report stating that Plaintiff was capable of returning to work with various restrictions, and that Plaintiff was capable of working in a sedentary position.

The orthopedic surgeon was even more optimistic: “The claimant should actually be able to return to work full duty without limitations at this point, as the multiple examinations performed and the imaging studies do not support further limitations or restrictions as noted.” Again, the Plan Administrator denied the plaintiff’s appeal and she sought further review in federal court.

 The Sixth Circuit noted that it must uphold the Plan Administrator’s decision: “A decision reviewed according to the arbitrary and capricious standard must be upheld if it results from a deliberate principled reasoning process’ and is supported by ‘substantial evidence.’”  

Under an arbitrary and capricious standard, honoring the extreme deference due the administrator, we are not convinced it was irrational to have concluded that an ability to work part time does not meet the definition of totally disabled to engage in any occupation or perform any work for compensation. It is reasonable to conclude that an ability to do some work means one is not unable to do “any work.”

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Supreme Court Endorses Reasonable Contractual Limitations Periods In ERISA Plans That Commence Prior to Any Exhaustion of Remedies

Yesterday, a unanimous Supreme Court issued an opinion endorsing the use of reasonable contractual statutes of limitations in ERISA plans even when the limitations periods begin to run prior to the exhaustion of administrative remedies.  Heimeshoff v. Hartford Life & Accident Ins. Co., No. 12-729 (U.S. 12-16-13).   Although ERISA plaintiffs are generally required to exhaust their administrative remedies before filing an ERISA lawsuit for denial of benefits under §502(a)(1)(B), there is no federal statutory limitations period for such actions.  In the Heimeshoff  lawsuit, the Wal-Mart LTD plan required participants to file a lawsuit for ERISA benefits within three years after proof of loss was due – which means that the three years begins to run before the plaintiff has commenced or exhausted administrative remedies under the LTD plan.  This is significant because, “[a]s a gen­eral matter, a statute of limitations begins to run when the cause of action “‘accrues’”—that is, when “the plaintiff can file suit and obtain relief.”  In Heimeshoff, the plaintiff’s proof of loss was due in the summer of 2005, when she became unable to work due to her physical disability.  After appealing several denials of LTD benefits under the plan, the plaintiff received her final denial of benefits in November 2007.  However, she did not file her lawsuit until November 2010 – more than 3 years after her proof of loss was due.  The Court rejected her argument that the three year period should not begin to run until after she had exhausted her administrative remedies. “Absent a controlling statute to the contrary, a participant and a plan may agree by contract to a particular limita­tions period, even one that starts to run before the cause of action accrues, as long as the period is reasonable.”

As noted by the Court,  its prior precedent permits this result:

“[I]n the absence of a controlling statute to the con­trary, a provision in a contract may validly limit, be­tween the parties, the time for bringing an action on such contract to a period less than that prescribed in the general statute of limitations, provided that the shorter period itself shall be a reasonable period.” Order of United Commercial Travelers of America v. Wolfe, 331 U. S. 586, 608 (1947).

 . . .

If parties are permitted to contract around a default statute of limitations, it follows that the same rule applies where the statute creating the cause of action is silent regarding a limitations period.

The Wolfe rule necessarily allows parties to agree not only to the length of a limitations period but also to its commencement. The duration of a limitations period can be measured only by reference to its start date. Each is therefore an integral part of the limitations provision, and there is no basis for categorically preventing parties from agreeing on one aspect but not the other.

                . . .

ERISA §502(a)(1)(B) authorizes a plan participant to bring suit “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U. S. C. §1132(a)(1)(B) (emphasis added). That “statutory language speaks of ‘enforc[ing]’ the ‘terms of the plan,’ not of changing them.”

                . . .

Neither Heimeshoff nor the United States claims that the Plan’s 3-year limitations provision is unreasonably short on its face. And with good reason: the United States acknowledges that the regulations governing internal review mean for “mainstream” claims to be resolved in about one year, Tr. of Oral Arg. 22, leaving the participant with two years to file suit. Even in this case, where the administrative review process required more time than usual, Heimeshoff was left with approximately one year in which to file suit. Heimeshoff does not dispute that a hypothetical 1-year limitations period commencing at the conclusion of internal review would be reasonable. Id., at 4. We cannot fault a limitations provision that would leave the same amount of time in a case with an unusually long internal review process while providing for a signifi­cantly longer period in most cases.

  . . . .

 

The first tier of ERISA’s remedial scheme is the internal review process required for all ERISA disability-benefit plans. 29 CFR §2560.503–1. After the participant files a claim for disability benefits, the plan has 45 days to make an “adverse benefit determination.” §2560.503–1(f)(3).Two 30-day extensions are available for “matters beyond the control of the plan,” giving the plan a total of up to 105 days to make that determination. Ibid. The plan’s time for making a benefit determination may be tolled “due to a claimant’s failure to submit information necessary to decide a claim.” §2560.503–1(f)(4).

Following denial, the plan must provide the participant with “at least 180 days . . . within which to appeal the determination.” §§2560.503–1(h)(3)(i), (h)(4). The plan has 45 days to resolve that appeal, with one 45-day exten­sion available for “special circumstances (such as the need to hold a hearing).” §§2560.503–1(i)(1)(i), (i)(3)(i). The plan’s time for resolving an appeal can be tolled again if the participant fails to submit necessary information.§2560.503–1(i)(4). In the ordinary course, the regulations contemplate an internal review process lasting about one year. Tr. of Oral Arg. 22. If the plan fails to meet its own deadlines under these procedures, the participant “shall be deemed to have exhausted the administrative reme­dies.” §2560.503–1(l). Upon exhaustion of the internal review process, the participant is entitled to proceed im­mediately to judicial review, the second tier of ERISA’s remedial scheme.

The Court rejected the suggestion that plan administrators would “attempt to prevent judicial review by delaying the resolution of claims in bad faith.”  The Court found this to be speculative in light of the short deadlines given in the statute (as just discussed) and because “the penalty for failure to meet those deadlines is immediate access to judicial re­view for the participant. 29 CFR §2560.503–1(l). In addi­tion, that sort of dilatory behavior may implicate one of the traditional defenses to a statute of limitations.”  In addition,

even in the rare cases where internal review prevents participants from bringing §502(a)(1)(B) actions within the contractual period, courts are well equipped to apply traditional doctrines that may nevertheless allow participants to proceed. If the administrator’s conduct causes a participant to miss the deadline for judicial re­view, waiver or estoppel may prevent the administrator from invoking the limitations provision as a defense.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Reverses Employee’s Summary Judgment and Remands LTD Determination to Insurance Company Where Insurer Failed to Address Significant Issues Raised by Treating Physicians

On Tuesday, the Sixth Circuit Court of Appeals reversed a summary judgment granted to an employee-plaintiff on his ERISA claim that his LTD benefits were unlawfully terminated.  Fura v. Federal Express Corp Long Term Disability Plan, No. 12-2062 (6^th Cir. 8-6-13).  The Court refused to find that the employee was entitled to benefits as a matter of law because certain aspects of the reports of the treating physicians were conclusory (instead of descriptive) and the insurer could only be reversed if it had been arbitrary or capricious.  However, the Court also refused to deter to the insurer’s flawed explanation for its decision.  The Court questioned the thoroughness of the decision to terminate benefits and found “some serious flaws” in the insurer’s analysis and failures by the two reviewing physicians to address significant material evidence provided by the treating physicians.  Accordingly, it determined that the insurer failed to give a reasoned explanation for its decision, which justified remand.

Under the arbitrary and capricious standard, we uphold the administrator’s decision “if it is the result of a deliberate, principled reasoning process and if it is supported by substantial evidence.”  . .   Several lodestars guide our decision: “the quality and quantity of the medical evidence”; the existence of any conflicts of interest; whether the administrator considered any disability finding by the Social Security Administration; and whether the administrator contracted with physicians to conduct a file review as opposed to a physical examination of the claimant.

Under the employer’s LTD plan, an employee could not receive benefits after two years unless he or she was “totally disabled, which means that the employee is completely unable to work at least 25 hours per week because of a “medically-determinable physical or functional impairment[.]”   

In February 2008, the Social Security Administration determined that [the plaintiff] was disabled and awarded him benefits retroactive to his second back surgery [in January 2007]. [He] underwent a third spinal surgery in February 2009, but his back problems continued. Thus, near the two-year deadline of August 2009, [the insurer] asked Fura to prove that he was totally disabled. Under the terms of the plan, a covered employee can prove that he is totally disabled only through “significant objective findings” from medical examinations, test results, and “anatomical, physiological or psychological abnormalities which can be observed apart from the individual’s symptoms.” [He] then submitted records from his treating physicians. These records described [his] back problems, as well as a number of other ailments.

The insurer engaged a neurologist and a physician to review the plaintiff’s medical records.  They both found that the plaintiff was capable of working at least 25 hours/week in a sedentary job.

The Court was unimpressed with their analysis and found their conclusions to “suffer from some serious flaws.”  First, it was unclear why they concluded that his “pain would permit him to work 25 hours per week” because they never examined him, had no first-hand knowledge and were contradicted by observations of the plaintiff’s treating physicians.  They also failed to explain why the discounted the opinions of the treating physicians on the issue of the plaintiff’s pain.  “Of course, we do not defer to the opinions of treating physicians.  . . . But ‘a plan may not reject summarily the opinions of a treating physician, [and] must instead give reasons for adopting an alternative opinion.’”

More critically, the Aetna physicians failed to address significant material evidence. First, no reviewing physician addressed Dr. Ganley’s notes that Fura is losing sensation in his arms. FedEx now claims that this condition is not serious, but no medical professional submitted that opinion to Aetna. Second, no Aetna physician addressed the evidence that Fura’s range of motion is restricted. Even if Fura can get around with a walker, overwhelming medical evidence indicates that he can do so only with difficulty. Drs. Ganley and Easton both recorded numbness in Fura’s legs and difficulties with balance and stability. Each doctor also recorded restrictions on Fura’s ability to sit, stand, and drive—all elements of a sedentary workday. The omissions do not stop there. No reviewing physician discussed the progressive nature of Fura’s ailments, his impaired bowel and bladder function, or the impact of his lymphedema on his ability to do sedentary work.  And Aetna’s decision to rely on file reviews makes these omissions all the more troubling because a “plan’s decision to conduct a file-only review . . . [may] raise questions about the thoroughness and accuracy of the benefits determination.” Elliott v. Metro. Life Ins. Co., 473 F.3d 613, 621 (6th Cir. 2006) (quotation marks omitted). 

Neither Aetna nor the reviewing physicians were required to discuss every piece of evidence in the record. But Aetna’s decision to terminate Fura’s benefits “must be consistent with the quantity and quality of the medical evidence that is available on the record.” Moon v. Unum Provident Corp., 405 F.3d 373, 381–82 (6th Cir. 2005) (internal quotation marks omitted). Here, Aetna relied on file reviews that failed to confront significant evidence of total disability. In light of this evidence, Aetna did not give a reasoned explanation for its decision.

The Court decided to remand the case to the insurer instead of affirming the plaintiff’s judgment because the evidence was insufficient to grant the plaintiff judgment as a matter of law, but the insurer’s decision was insufficiently reasoned to warrant deferral. “When an employee-benefit plan grants the plan administrator discretion to determine a claimant’s eligibility for benefits, we can reverse that decision only if it is arbitrary or capricious.” 

Remand to the plan administrator is appropriate “where the problem is with the integrity of the plan’s decision-making process, rather than that a claimant was denied benefits to which he was clearly entitled.” Elliott, 473 F.3d at 622 (brackets and quotation marks omitted). Here, Aetna relied on reviewing physicians’ opinions that did not address significant evidence of total disability. Without an explanation for this evidence, we cannot find Aetna’s decision to be reasoned. But neither can we say, on this record, that Fura is totally disabled as a matter of law. Certain aspects of his treating physicians’ reports, for example, appear conclusory. Remand, rather than outright affirmance, is thus the appropriate outcome. 

On remand, Fura will also be free to supplement the record with the Social Security Administration’s decision granting him benefits as well as the record in that case. Without the decision and record, Aetna had no way of evaluating the reasons for the SSA’s award. Once the decision is part of the record Aetna can evaluate its reasoning to determine whether the award is persuasive evidence of total disability. Fura may also wish to ask his physicians to explain more fully the medical evidence supporting their conclusions.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Affirms Summary Judgment Against LTD Applicant Who Was Receiving SSDI

This morning, the Sixth Circuit Court of Appeals affirmed summary judgment in favor of an insurance company which denied long-term disability benefits to an employee who claimed that she could not work (and was successful in obtaining SSDI benefits), but whose medical providers had periodically released her to return to work.  Frazier v. LINA, No. 12-6216 (6^th Cir. 8-5-13).  The Court found that the employer’s LTD insurance policy at issue named the insurance company as a fiduciary and could be considered as the plan document, not merely an asset of the plan.  The Court also found that the plan vested discretionary authority in the insurance company when it required employees to submit “satisfactory proof” of their disability to the insurer.  “This Court has found ‘satisfactory proof,’ and similar phrases, sufficiently clear to grant discretion to administrators and fiduciaries.  . . Although the Policy could have more clearly expressed this grant of discretion, the ‘mere fact that language could have been clearer does not necessarily mean that it is not clear enough.’”  The decision was clearly rational to deny benefits (meaning it must be affirmed) because, among other things, the employee’s own doctors had released her to return to work without restrictions at various points.  Finally, the Court found the insurance company had the discretion to assist the employee with her SSDI application and was not mandated by the policy to assist her.

 NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit: Pre-2002 ERISA Plan Need Not Inform Beneficiary of Shortened Statute of Limitations to Seek Judicial Review

Last week, the Sixth Circuit Court of Appeals affirmed the dismissal of an ERISA claim brought more than eight years after the plaintiff’s claim for long-term disability had been denied because the Plan only permitted claimants three years to seek review in federal court.  Engleson v. Unum Life Ins. Co. of Am., No. 12-4049 (6^th Cir. 7-3-13).  The Court rejected the plaintiff’s argument that ERISA at that time required the Plan to disclose the shortened limitations period in its claim denial letters or the summary plan description.  It was not until 2002 that the Plan was required to disclose information in claim denial letters about the claimant’s right to seek federal court review. “Because SPDs lack controlling effect in the face of plan language to the contrary, we do not feel compelled to read the regulation in a manner that requires sweeping, comprehensive disclosure, as [the plaintiff] asks us to do.” Finally, the Court rejected the plaintiff’s waiver and equitable tolling arguments.
 

According to the Court’s opinion, the plaintiff had filed his LTD claim in August 2001, but it and his subsequent appeal were denied, most recently in November 2001.  He filed a new claim in August 2008, which was granted.  He then sought review of his 2001 claim and when it was denied again, he filed suit in federal court in December 2009. The district court concluded that “[t]he plan requires participants to file an ERISA claim within “3 years after the time proof of claim is required.” Therefore, his lawsuit was untimely in March 2005.  

The Sixth Circuit rejected the plaintiff’s contention that the 2000 version of 29 C.F.R. § 2560.503-1(f) required the Plan to disclose the shortened statute of limitations in its claim denial letters.   Instead, the Court “construe[d] the phrase “appropriate information” as requiring only the disclosure of information pertaining to internal processes, not judicial review.”  (emphasis in original).  The ERISA regulations were amended effective January 1, 2002 at 29 C.F.R. § 2560.503-1(g)(1)(iv) to require the disclosure of “a description of the plan’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action” to challenge adverse benefit determinations.” 

Moreover, the Court rejected the plaintiff’s argument that the Plan’s 2008 invitation to submit additional information about his 2001 claim and then refusal to reconsider the 2001 claim re-started the limitations period.  “When an adverse benefit determination is justified in the first instance and later denials are premised on the initial reason, there has been a “full and fair review” that satisfies § 1133 and its regulations.”

The plaintiff also argued that the SPD did not comply with 29 C.F.R. § 2520.102-3 because it failed to disclose the shortened statute of limitations for seeking judicial review even though it was required to address “applicable time limits” and remedies for the claimant to seek redress of claims.  “Because SPDs lack controlling effect in the face of plan language to the contrary, we do not feel compelled to read the regulation in a manner that requires sweeping, comprehensive disclosure, as [the plaintiff] asks us to do.”  Instead, the Court interpreted the regulation’s general phrase “applicable time limits” to extend “only to the terms that precede it, i.e., time limits need only be disclosed with respect to the processing of claims.” 

Mindful of this interpretation, we conclude that Unum’s SPD complied with the regulation. The SPD provided “applicable time limits” as to certain parts of the claims process, such as the plan administrator’s obligation to provide a claim response within 90 to 180 days and the claimant’s right to seek plan documents by filing suit in federal court after 30 days of noncompliance. Unum complied with the requirement of disclosing the time limits for the “remedies available under the plan for the redress of claims” by (1) explaining the internal appeals process; and (2) noting the claimant’s right to “file suit in a state or federal court” for claims that have been denied or ignored.

In addition, the Court rejected the claimant’s common law waiver argument based on the Plan’s  offer reconsider his 2001 claim if he submitted additional information. 

As there is no established federal common law in this circuit that governs the question of whether a plan administrator has affirmatively waived a contractual limitations provision, we “look to state-law principles for guidance.”  . . . While contractual limitations periods are generally enforced irrespective of state law so long as they are reasonable . . .  the present case does not raise the question as to whether the period is reasonable, but whether the period was waived.

The Court had previously relied on Hounshell v. American States Insurance Co., 424 N.E.2d 311, 314 (Ohio 1981) where 

“[a]n insurer . . . loses the right to assert its contractual statute of limitations if, ‘by its actions or declarations, it evidences a recognition of liability under the policy, and the evidence reasonably shows that such expressed recognition of liability and offers of settlement have led the insured to delay in bringing an action on the insurance contract.’”  . . .  An insurer’s decision to reconsider the validity of a claim, however, “does not constitute a waiver of the limitations clause.

While there may be alternatives to waiving a right than as discussed in Hounshell, the Court required “more than mere relinquishment—the waiver must be “a clear, unequivocal, and decisive act of the party against whom the waiver is asserted.”  The Plan’s “December 2008 letter lacks the clarity, directness, and decisiveness that the general waiver rule demands.”  More importantly, it “says nothing about waiving the limitations period.”

Finally, the Court rejected the equitable tolling argument on the grounds, among other things, that the plaintiff was not diligent in pursuing his rights.  Moreover, there was no evidence of bad faith.

 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit: Tortious Interference Claim Based on Termination of ERISA Plan Is Not Completely Pre-Empted

This morning, the Sixth Circuit Court of Appeals reversed a defense judgment on a motion to dismiss the tortious interference with contract claim brought by executives covered by a terminated ERISA plan and remanded the case back to state court.  Gardner v. Heartland Industrial Partners, LP, No. 11-2327 (6^th Cir. 2013).  The supplemental executive retirement plan allegedly had been terminated in order to expedite the sale of the interest of a controlling shareholder to another entity.  The case had been removed to federal court on the grounds that the claim was completely pre-empted under §1132(a) of ERISA.  The Sixth Circuit, however, found the claim to be completely independent of the terms of the ERISA plan, and therefore, not covered under §1132’s complete pre-emption clause.  Therefore, not only should the claim not have been dismissed, but it should not have been removed to federal court in the first place.

According to the Complaint’s well-plead allegations, the plaintiff executives were covered by a Supplemental Executive Retirement Plan (SERP), which contained a change of control provision.  The individual defendants were Board members and/or executives of the employer and also owned an investment fund, which was a shareholder of the employer corporation and was also a defendant.  The investment fund agreed to sell its shares in the employer to another investment fund, which triggered the SERP’s Change of Control provision and created a $13M liability to Plaintiffs.  When the purchasing company found out about the $13M liability, it threatened to back out of the deal.   The individual defendants then convinced the employer’s Board to terminate the SERP – without notifying the Plaintiffs – and consummated the sale the following month. At least one of the individual defendants made $10M from the sale.   Plaintiffs were notified of the SERP termination the following month and then brought suit for tortious interference with contract.

Defendants asserted that Plaintiffs’ claims were completely pre-empted under §1132(a)(1)(B) of ERISA, removed the case to federal court and moved to dismiss.  The District Court granted the Motion and this appeal followed.  The Sixth Circuit concluded that the tortious interference claim was not completely pre-empted because the merit of the claim was independent of the terms of the SERP.

The issue here is whether Plaintiffs’ state-law “tortious interference with contractual relations” claim is within the scope of § 1132(a)(1)(B) [the complete pre-emption provision] for purposes of this rule. A claim is within the scope of § 1132(a)(1)(B) for that purpose if two requirements are met: (1) the plaintiff complains about the denial of benefits to which he is entitled “only because of the terms of an ERISA-regulated employee benefit plan”; and (2) the plaintiff does not allege the violation of any “legal duty (state or federal) independent of ERISA or the plan terms[.]” Id. at 210.

Plaintiffs’ tortious interference claim was independent from the SERP because the state-law duty was not dependent upon the terms of the SERP and the damages would be paid, if at all, by Defendants and not by the SERP or the employer. 

Defendants’ duty not to interfere with Plaintiffs’ SERP agreement with Metaldyne arises under Michigan tort law, not the terms of the SERP itself. And more to the point—unlike the state-law duties in Arditi and Davila, respectively—Defendants’ duty is not derived from, or conditioned upon, the terms of the SERP.  Nobody needs to interpret the plan to determine whether that duty exists. Thus, Plaintiffs’ claim is based upon a duty that is “independent of ERISA [and] the plan terms[.]” Davila, 542 U.S. at 210.

The Court rejected the defense argument that a tortious interference claim required proof of a breach, which in turn, required an interpretation of the terms of the SERP:

But the issue is immaterial here, because under Michigan law one party’s complete repudiation of a contract is enough to establish breach.  . . .  And Plaintiffs have alleged facts amounting to repudiation here. See Complaint ¶ 41 (“on December 18, 2006, without stating a reason, or giving plaintiffs any opportunity to be heard, [the Metaldyne Board] declared the Amended SERP invalid”).

A determination of Defendants’ liability therefore does not require any interpretation of the SERP’s terms. It is true, of course, that those terms would likely be relevant in measuring the amount of Plaintiffs’ damages. As shown above, however, that is beside the point for purposes of Davila’s second prong. Moreover, in this case, as in Stevenson, any damages “would be payable from [Defendants’] assets, not from the” plan itself. 609 F.3d at 61. Finally, Heartland’s remaining arguments pertain less to preemption under § 1132(a)(1)(B) than they do to whether Plaintiffs’ claims are [expressly] preempted under § 1144(a)—which is an issue upon which we take no position here.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Supreme Court: Two 5-4 Decisions On FLSA and ERISA

This morning, the United States Supreme Court issued two employment decisions which had two things in common.  They both were both 5-4 decisions and they both reversed the Third Circuit Court of Appeals.  Justice Kennedy was the swing vote.  In the first case, Justice Thomas’ opinion found that a FLSA lawsuit brought by a single plaintiff on behalf of herself other others similarly situated could not proceed after her individual claim was mooted by her failure to accept an offer of judgment from the defendant hospital employer.  In the second lawsuit, Justice Kagan’s opinion found that an employer’s ERISA plan could properly recover in a lawsuit from its employee/beneficiary funds which employee recovered in a personal injury lawsuit from a third-party based on the equitable lien in the ERISA plan to recover funds already paid by the plan to the employee for his injuries.  However, because the ERISA plan was silent on the subject of attorney fees, the common law doctrine concerning a common fund would be applied to reduce the ERISA’s plan’s recovery by the 40% contingency fee that the plaintiff paid his personal injury attorney to recover the funds.

In the FLSA lawsuit, the plaintiff employee alleged that she and other similarly situated employees were not paid in accordance with the FLSA because her hospital employer automatically deducted 30 minutes each day from their paycheck for lunch whether they worked through lunch or not.   Genesis Healthcare Corp. v. Symczyk, No. 11-1059 (4-16-13).  No other employees joined her lawsuit.  Upon filing its answer to her complaint, her savvy employer made an offer of judgment under Civil Rule 68 – i.e., offered her the full requested relief of $7500 of unpaid wages plus any attorney fees, costs and expenses that the court might deem appropriate.  She was given 10 days to accept the offer, which she ignored.  The trial court, however, was impressed.  By offering her full relief, the employer mooted her individual claim (under the law of the Third Circuit – which is not universally accepted on this point), which was dismissed.  Because no one else had joined her lawsuit, and she had no personal interest in the pending lawsuit,  the case was dismissed.  The Third Circuit reversed, objecting to allowing employers to cherry pick cases by paying off the representative plaintiff.  However, the Supreme Court reversed.

While the FLSA authorizes an aggrieved employee to bring an action on behalf of himself and “other employees similarly situated,” 29 U. S. C. §216(b), the mere presence of collective-action allegations in the complaint cannot save the suit from mootness once the individual claim is satisfied.

                . . . . .

The Court of Appeals concluded that respondent’s indi­vidual claim became moot following petitioners’ Rule 68 offer of judgment. We have assumed, without deciding, that this is correct.

Reaching the question on which we granted certiorari, we conclude that respondent has no personal interest in representing putative, unnamed claimants, nor any other continuing interest that would preserve her suit from mootness. Respondent’s suit was, therefore, appropriately dismissed for lack of subject-matter jurisdiction.

The Court distinguished this case for damages from equitable cases where the fleeting nature of the underlying claim (such as the lawfulness of pre-trial detentions) would almost always render a case moot before it could be heard.  Notably, the Court did not address the larger issue of whether a rejected offer of judgment renders the case moot, which is an unsettled issue of law.  The lower courts held that it did and the plaintiff did not appeal that issue to the Supreme Court.

In the second case, an employee was injured in a car accident and his employer’s health plan paid $66,866 in medical costs.  US Airways, Inc. v. McCutchen, No. 11-1285 (4-16-13).   The employee then retained a lawyer to sue the driver of the car which injured him.  That driver had also killed and/or seriously injured 3 other people, had limited insurance coverage and settled for $10,000.  However, the employee’s own insurance carrier paid $100,000.  Of the $110,000  recovered by the employee, 40% of it went to his attorney’s contingency fee.  Although he was left with only $66,000, the employer’s health plan then sued him under §502(a) of ERISA to recover reimbursement of the $66,888 in medical expenses it paid on his behalf. The terms of the health plan provided:

“If [US Airways] pays benefits for any claim you incur as the result of negligence, willful misconduct, or other actions of a  third party, . . . [y]ou will be required to reimburse [US Airways] for amounts paid for claims out of any monies recovered from [the] third party, including, but not limited to, your own insurance company as the result of judgment, settlement, or otherwise.”

The health plan’s right to reimbursement is an equitable lien by agreement on the proceeds of the personal injury litigation.   Nonetheless, it is a contractual right and is not subject to common law rules concerning equitable liens.  Therefore, the plan’s contractual rights could not be defeated by the common law doctrines of unjust enrichment, double recovery, or common fund.  However, because the plan was silent on the allocation of attorney fees, the Court’s majority (and the point on which the minority dissented because the terms of the plan were plain and uncontested), concluded that the silence would be filled by the common law doctrine of the common fund.  The plan did not specify whether its right to recovery went to the first dollar or only to the dollars recovered (i.e., after deduction for attorney fees).  

The majority found that the plan’s contractual right to recovery was reduced by the 40% attorney contingency fee.   Otherwise, the plan would receive a full ride at the employee’s expense.  The employee here would be out of pocket for bringing the lawsuit that the plan failed to bring or contribute towards. To rule otherwise, would also create a disincentive for the employee to have brought the personal injury lawsuit in the first place.    Of course, employers could avoid having to share with personal injury attorneys in the future by revising the terms of their ERISA plans to explicitly avoid responsibility for those fees and/or specify how its recovery would be calculated.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Affirms Dismissal of FMLA and ERISA Claims

Today, the Sixth Circuit released two opinions affirming the summary judgment dismissal of two lawsuits.  One involved FMLA and disability discrimination claims and the other involved denial of STD/LTD benefits under ERISA.  In the FMLA case, the plaintiff employee failed to show that his termination was related to his use of FMLA  leave or violated Ohio law.   Blosser v. AK Steel Corp., No. 12-4015 (6^th Cir. 4-2-13).  In the ERISA case, the plaintiff employee claimed to be too stressed out to work, but refused to consult with a psychiatrist and had only the vague support of her primary care practitioner to support her claims.  Therefore, the Court found it was not arbitrary or capricious for the insurance carrier to deny her claims under ERISA.   Hogan v. Life Ins. Co. of N. Am., No. 12-5902 (6^th Cir. 4-2-13).

In Blosser, the plaintiff employee was hired in 2007 as an at-will engineer and received negative performance feedback:

[The manager] informed [plaintiff] that his performance was not meeting expectations and told him that he would need to improve. On one occasion, [the manager] indicated that the cost and time associated with one of [plaintiff’s] projects was “getting out of hand” and that [his] projects were not progressing as expected. Nevertheless, [plaintiff] continued having problems and failing to meet the expectations of [the manager] and other supervisors at AK Steel.

In September 2008, the plaintiff took FMLA leave to remove a brain tumor and was released to return to work without any medical restrictions in November 2008.   He returned to work on December 1 without any medical restrictions and admitted that he was not suffering from any disability. His work performance did not improve after his medical leave.  While he accomplished assigned tasks, his manager felt that he did not show enough initiative or independent judgment.

[The manager] rated [plaintiff] as “below satisfactory” in seven of ten performance sections, including “job knowledge, planning, control, management of resources, decision-making, communications (oral and written), and current performance.” [The manager] explained his ratings by writing, “Al is slow to assume the responsibilities of the Infrastructure work for Middletown Works. . . . [He is] not aggressive enough. . . . The quantity and difficulty of the projects that Al has been assigned is lower due to the length of time he has taken to work on them. . . . [He] has not achieved the desired improvement in response time.” When [the manager] and [plaintiff] met to discuss the evaluation, [he] blamed any substandard performance on his recent medical problems.

In the meantime, the recession adversely affected the company’s business and layoffs were made based on seniority, job performance and uniqueness of skills.  Because the plaintiff had low seniority, a non-unique job and documented poor performance, he was selected for layoff.  Before he had been notified of the layoff, the plaintiff emailed the HR department – in an attempt to avoid being laid off – that his medical condition had not been properly considered in his prior performance evaluation.  He filed suit following his layoff.

The Court found that the plaintiff could not show that he was laid off because of his FMLA leave merely because the layoff occurred six weeks following his return to work.    First, the Court focused not on the date of his return to work, but on the date several months earlier when he requested FMLA leave in September.  The passage of four months between his FMLA request and his layoff was found insufficient to support, by itself, the implication of retaliation.  “[A] plaintiff must couple temporal proximity with other evidence to show causation.”  In this case, the “other evidence” submitted by the plaintiff was insufficient.  The offer by his supervisor to help him move was irrelevant.   A comment that his work performance had not improved or changed since his medical leave was also irrelevant.  Comments by the company CEO in general against a state law form of FMLA leave was also insufficient to show retaliation.  In addition, the plaintiff could not show pretext in that there had been dissatisfaction with his job performance before he requested medical leave and those comments were consistent with his subsequent performance evaluation following his medical leave.   He also could not dispute the company’s economic need for layoffs during the recession.  Finally, he could not show his layoff was retaliation for emailing HR because the decision had already been made before his email was sent.

The Court also rejected his disability discrimination claim under Ohio law on the grounds that he could not show that he was disabled when he returned from a brief medical leave with no medical restrictions.  The Court found that his surgery and the potential of a need for future medical treatments did not render him disabled as having a record of a disability.   Instead, his brain tumor – while serious – was of temporary duration and was resolved without any further medical restrictions.  Therefore, the Court rejected any argument that it constituted a record of a substantial impairment. 

The Court found that the plaintiff had failed to produce any evidence that he had been regarded as disabled and could not show that his layoff was pretext for discrimination.

In the Hogan case, the plaintiff visited her primary care physician in September 2008 complaining of anxiety, difficulties concentrating, panic attacks, disliking her job and back pain.  He diagnosed her with depression, prescribed medication and she stopped working two days later on the grounds of depression, anxiety and panic attacks.   She visited her physician a week later complaining of anxiety and work-related stress and he agreed that she required a medical leave to adjust to her new medications.  A month later, she explained to her physician that she was still too stressed to return to work and he referred her to a psychiatrist.   She visited her EAP, which noted no restrictions on her work or daily activities, but referred her to another psychiatrist in order to rule out Alzheimers or dementia.  There was no evidence that she had ever consulted with any psychiatrist.

The plaintiff’s claims for STD and LTD were denied because she failed to provide satisfactory proof of disability.  While her primary physician noted that "significant stressors at work exacerbate [her] condition . . . but did  not connect any specific work activity to her condition, nor did he provide any evidence of objective testing or fruther evaluation.  And while he noted restrictions on her work activities, he did not initially place any restrictions on any other activities of  [her] daily life."  In rejecting her claim, the defendant company explained the:

 

lack of clinical evidence of functional deficiencies and added “we cannot conclude from the records we received a physical or mental inability to function at work other than your current dislike for your position.

 . . . .

Disability is determined by medically supported functional limitations and restrictions which preclude ability in performing your occupation. We do not dispute you may have been somewhat limited or restricted due to your diagnosis, however an explanation of your functionality and how your functional capacity prevented you from performing the requirements of a Leave Processor was not clinically supported as we were not provided with physical exam findings, physical limitations, and severity of symptoms.

The Court affirmed the denial of the claim:

In evaluating Hogan’s claim, LINA received only three brief visit notes from Hogan’s treating physician—an internist lacking any sort of mental-health specialization. These notes indicated that the idea to take time off from work originated with Hogan and was not a restriction imposed by her physician (although Dr. Schurfranz agreed with her decision to stop working until her medications better controlled her self-reported symptoms). The record lacked any sort of clinical verification, and despite requests and opportunities to do so, Hogan failed to provide the type of information about her specific limitations that could be used by LINA to determine that she met the plan’s definition of disability.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Reverses Termination of LTD Benefits as Arbitrary and Capricious and Retroactively Awards Benefits

Last week, the Sixth Circuit surprisingly reversed as arbitrary and capricious under ERISA the decision of an insurance company to terminate LTD benefits it had previously awarded to the plaintiff.  Neaton v. Hartford Life and Accident Ins. Co., No. 11-6-61 (6^th Cir. 3-21-12).  In that case, the plaintiff suffered from a rare genetic condition that made him particularly susceptible to skin cancer, requiring him to submit with increasing frequency to increasingly invasive surgeries to remove and repair carcinomas before they spread to other organs.  His medical condition was only expected to worsen as he aged and was exposed to sunlight and fluorescent lighting and his recovery time kept him off work fairly regularly. Prior to applying for long-term disability, the plaintiff held a well-compensated position as a debt collector.  After much consideration, the defendant granted his application, but then determined approximately six months later that the plaintiff was well enough to perform his – or a substantially similar job – from home.  The Court found this decision to be arbitrary and capricious for a number  of reasons, including the lack of improvement in the plaintiff’s underlying medical condition, the defendant’s failure to seek or consider the treating physician’s opinion on the plaintiff’s ability to recover more quickly from his surgeries if he was working from home, the defendant’s failure to consider all types of the plaintiff’s recent surgeries in underestimating his anticipated absenteeism, and the defendant’s unsupported conclusion that the plaintiff’s employer would accommodate the anticipated number of medical absences plaintiff was expected to incur in the future.  Although the trial court had granted the insurance company judgment on the pleadings, the Sixth Circuit reversed and retroactively reinstated the LTD benefits.

The Court found that the plan administrator was vested with discretionary authority to administer the plan because employees were required to submit satisfactory proof of disability in order to receive benefits.  There was also a question about a potential conflict of interest when the same entity both administers the benefit plan and pays the claim.

The plaintiff argued that it is always suspicious when a claimant is later found to no longer be disabled without any change or improvement in his underlying medical condition.   In this case, “based on a review of [the plaintiff’s] file, a [defendant] employee concluded that he was no longer eligible for disability benefits because he was able to perform his former job, a sedentary, indoor occupation.”  When his benefits were terminated the next day, the plaintiff protested on the grounds that his conditioned had only worsened since his application and he would appeal.  The defendant hired two other physicians to review his claim.

 As an initial matter, the defendant’s consulting physicians greatly minimized the amount of recovery time the plaintiff would require from his surgeries and assumed that his recovery time would be shortened if he were permitted to work from home.  His treating physician was never consulted about whether there would be a reduction in his recovery time if he worked from home and the plaintiff insisted the recovery time was significant.  It was an error to give preference to non-treating physicians on the issue of recovery time – particularly without consulting the treating physician at all – “because a patient’s recovery time following surgery is variable and depends in part on the extent of a patient’s pain. Accordingly, the length of the patient’s recovery is in large part a credibility determination.” 

While it is not per se improper to rely on the opinion of a non-examining medical consultant, whether a doctor has physically examined the claimant is a factor that may be considered in determining whether a plan administrator acted arbitrarily in giving greater weight to the opinion of its consulting physician. Kalish, 419 F.3d at 508. The plan administrator’s failure to require a physical examination “may, in some cases, raise questions about the thoroughness and accuracy of the benefits determination.” Calvert v. Firstar Fin. Inc., 409 F.3d 286, 295 (6th Cir. 2005). Indeed, the lack of a physical examination may be particularly inadequate where, as here, the file reviewer makes critical credibility determinations.

This Circuit has repeatedly criticized the rejection of the opinion of a treating physician that is consistent with the medical record, in favor of non-examining file reviewers.

While it is not an abuse of discretion to give more weight to a consulting physician opinion than that of a treating physician, in this case, the defendant’s physicians failed to consult the treating physician about this issue at all.

Although the district court did not wholly disregard the opinion of [the plaintiff’s] treating physician, a court should not uphold a termination when there is an absence of reasoning in the record to support it. McDonald, 347 F.3d at 172. The number of days [the plaintiff] required to recover from a[n invasive] Moh’s procedure if working from home is in large part a credibility determination. See Calvert, 409 F.3d at 297. [Defendant’s] exclusive reliance on the opinion of a physician who never physically examined [the plaintiff], or even spoke to him about his recovery process, calls into question the quantity and quality of the medical evidence and opinion.

Secondly, the Court also found that the defendant’s expert underestimated the plaintiff’s absenteeism by not including his absences for the less-invasive carcinoma removal procedures and considering the period of time before his medical condition worsened following the application for LTD benefits.

The vocational expert’s opinion here, based upon calculating the average frequency of [the plaintiff’s] surgeries over a timeline beginning prior to the time he claimed to be disabled, results in an artificially low assumption as to the frequency of his surgeries and work absences, and does not constitute substantial evidence to support [Defendant’s] denial of benefits. Moreover, regardless of which time period the Court considers, any one of the periods shows a number of absences greater than what government statistics suggest could be accommodated.

Finally, the defendant’s vocational expert also concluded – without citation to any authority whatsoever – that the plaintiff’s anticipated level of absenteeism – which the Court already found was artificially low – could be accommodated by “the common practice of employers.”  “Conclusory medical and vocational opinions that fail to provide evidence or reasoning to support the conclusions are insufficient to support a denial of benefits.”  There was no evidence in the file that the plaintiff’s employer would accommodate the anticipated level of absenteeism, or that it would he qualify for paid sick leave for all of the anticipated days.  The Court then referred to evidence that he was anticipated to miss more than 20 days (and perhaps almost 30) per year, but that government studies showed that few employers paid more than 10 days per year in sick pay.  (There was no discussion about accrued paid leave benefits, presumably because they had long since been exhausted).

Finding the termination of LTD benefits to be arbitrary and capricious under the circumstances, the Court determined that the proper remedy was to reinstate the plaintiff’s LTD benefits retroactively to the date of their termination instead of remanding the matter for reconsideration by the plan administrator.   While the plan administrator may conduct another review and ultimately decide to properly terminate benefits, it cannot benefit from its prior arbitrary and capricious decision. “A retroactive award of long-term disability benefits wrongfully withheld and reinstatement of Neaton’s long-term disability payments is the appropriate remedy in this case.”

 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit: Denial of LTD Benefits, Attorneys Fees and Remand

This morning, the Sixth Circuit Court of Appeals affirmed a trial court decision that the denial of LTD and 401(k) benefits were arbitrary and capricious and that the plaintiff was entitled to attorney fees as a prevailing party under ERISA. However, the remedy for the denial of benefits was not the award of benefits, but rather, remand to the plan administrator to re-evaluate its prior invalid decision. Burge v. Republic Engineered Products, Inc., No. 10-3124 (6th Cir. 8/3/11). The plaintiff injured her wrist in a fall, subsequently became depressed and left work in mid-January 2006. A variety of physicians and psychiatrists issued conflicting decisions about the existence, extent, and scope of her medical and emotional condition. There was some evidence of malingering and exaggeration of symptoms. The employer terminated receipt of LTD on the grounds that there was no evidence of “total disability.” Her position was then eliminated in August 2006. Problem was, the employer’s LTD plan did not require evidence of total disability and there was no discussion in the decision about the plaintiff’s ability to perform any work. Accordingly, the trial court concluded on appeal that even though the plan vested discretion in the plan administrator, the decision had been arbitrary and capricious for relying on requirements that were not contained in the LTD plan, by not following a methodical appeal process, by reverting between the LTD and STD plans, by refusing to consider all evidence of her wrist condition and by considering only her medical status without also considering her ability to perform any gainful employment. The court also awarded attorney fees to the plaintiff as a prevailing party. On appeal, the Sixth Circuit affirmed the trial court on the merits and award of attorney fees, but found that the proper remedy for the benefit claims was to remand to the employer to make a proper decision.

“Generally, when a plan administrator chooses to rely upon the medical opinion of one doctor over that of another in determining whether a claimant is entitled to ERISA benefits, the plan administrator’s decision cannot be said to have been arbitrary and capricious because it would be possible to offer a reasoned explanation, based upon the evidence, for the plan administrator’s decision.” The employer was not required to consider evidence of vocational experts and the plaintiff’s receipt of SSA benefits was only one factor to be considered.

Nonetheless, the employer made an arbitrary decision when it failed to follow a methodical appeal process:

Specifically, Republic (1) failed to follow a stated, methodical appeal process and inconsistently applied and reverted between the STD and LTD Plans; (2) applied a standard of “total disability” that did not appear in the Plan; and (3) failed to consider evidence of Burge’s actual wrist condition. . . . [The employer] never “reasoned from [the plaintiff’s] condition to her ability to perform her occupation. There is no statement or discussion of [plaintiff’s] occupational duties or her ability, or inability, to perform them.”

In Elliot, we held that “medical data, without reasoning, cannot produce a logical judgment about a claimant’s work ability.” Id. at 618. There, as here, we noted that the plan administrator’s two denial letters contained “mere recitation[s] of medical terminology employed by various physicians in their diagnoses of [the claimant’s] condition, without any reasoning as to why those diagnoses would permit her to function in the workplace. A court’s decision that merely said ‘affirmed’ or reversed’ could not be considered ‘reasoned.’ Similarly, [the plan administrator] cannot be said to have given a reasoned denial of the [claimant’s] claim . . . .” Id. at 619. Even assuming that the appropriate definition of disability is that used in the STD Plan, which requires the claimant to be unable to engage in her regular occupation, rather than the LTD Plan, which is broader, none of [the employer's] benefits denial letters analyzed whether [the employee] would be able to perform her regular occupation in light of the restrictions imposed on her by the physicians who examined or treated her and in view of her complaints that [the employer] did not accommodate these restrictions.

A trial court is empowered to either award benefits or to remand to the plan administrator to make a proper determination following a flawed decisionmaking process. In light of the question in this case about the plaintiff’s malingering and exaggeration of symptoms, the Sixth Circuit found remand to be a more appropriate remedy than simply awarding the plaintiff LTD benefits.

Even though the plaintiff ultimately may not be entitled to LTD benefits, she would still be entitled to attorney fees as a prevailing party under ERISA. The trial court was not arbitrary in awarding her fees after ruling on the merits of her claim in that the employer’s underlying decision was flawed.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit: Retired Employee Can Assert ERISA Claim Based on False Information Provided in Written Benefit Estimate

Last week, the federal Sixth Circuit Court of Appeals in Cincinnati issued a decision recognizing for the first time that a plaintiff can assert an estoppel claim against a pension plan under ERISA when the plaintiff relied to his detriment upon a written and certified estimate of his monthly retirement benefit in making his decision to retire and then was then told two years later that his actual benefits were substantially lower than the prior estimate, that his future benefits would be reduced accordingly and that he was requested to repay approximately $11,000 to the retirement plan. Bloemker v. Laborers Local 265 Pension Fund, No. 09-3536 (6^th Cir. 5/19/10). However, the Court affirmed the dismissal of the plaintiff's statutory and breach of contract claims.

According to the Court's opinion, the plaintiff's 2005 annual statement of status estimated that he "would be entitled to to a monthly benefit pension of

$2,666.99." Interested, he contacted the third-party administrator of his pension plan "to discuss the possibility of early retirement. He received a letter from her

stating that if he were to retire on April 1, 2005, he would be eligible for "approximately $2,564.00 per month, single life annuity, payable for your lifetime only."

Based on this, the plaintiff applied for early retirement benefits on February 10, 2005" and on March 1, 2005, he received a Benefit Election Form which was stamped by the TPA, stated that he would receive $2,339.47 per month for his life, and contained a certification stating:

Based on our records of your hours worked under the Plan and the contributions which have been made on your behalf, we hereby certify that you are entitled to receive the retirement benefit specified above, and that the amount shown for any optional forms of payment are equivalent to your basic benefit.

The plaintiff retired and in 2006 received a letter from the TPA indicating that a computer error caused it to miscalculate his early retirement benefits, that he was entitled to $500/month less than previously indicated and that he needed to repay the approximately $11,000 he had been overpaid to date. The plaintiff filed suit after exhausting his administrative remedies under the plan. In his suit, he alleged that the Plan and the TPA should be equitably estopped from denying him the larger retirement benefit on account of their material misstatements on which he relied to his detriment. He also alleged that the Plan and TPA breached a written contract to him in the application for benefits and that the TPA breached its statutory fiduciary duties to him. The trial court dismissed his claims

In the past, the Sixth Circuit has – unlike other circuit courts -- been reluctant to recognize estoppels claims against pension plans because estoppel "cannot be applied to vary

the terms of the unambiguous plan documents." In addition,

pension benefits are typically paid out of funds to which both employers and employees contribute. Contributions and pay-outs are determined by actuarial assumptions reflected in the terms of the plan. If the effective terms of the plan may be altered by transactions between officers of the plan and individual plan participants or discrete groups of them, the rights and legitimate expectations of third parties to retirement income may be prejudiced.

The Court remains unwilling to accept estoppels claims based on oral or verbal statements by low level employees which modify the written terms of the plan. "This policy concern is

greatly lessened when the representations at issue are made in writing, and, particularly here, where the representations constituted formal certifications."

Under Sixth Circuit precedent,

the elements of an equitable estoppel claim are: 1) conduct or language amounting to a representation of material fact; 2) awareness of the true facts by the party to be estopped; 3) an intention on the part of the party to be estopped that the representation be acted on, or conduct toward the party asserting the estoppel such that the latter has a right to believe that the former's conduct is so intended; 4) unawareness of the true facts by the party asserting the estoppel; and 5) detrimental and justifiable reliance by the party asserting estoppel on the representation.

The Court found these elements to be satisfied by the plaintiff's allegations in this case. It found the defendants' alleged gross negligence sufficient to constitute constructive fraud. Moreover, while it generally has found that a plaintiff can not prove justifiable reliance on a misrepresentation if the misstatement contradicted unambiguous plan documents, in this case, the plaintiff alleged that "it would have been impossible for him to determine his correct pension benefit given the complexity of the actuarial calculations and his lack of knowledge about the relevant actuarial assumptions."

We hold that a plaintiff can invoke equitable estoppel in the case of unambiguous pension plan provisions where the plaintiff can demonstrate the traditional elements of estoppel, including that the defendant engaged in intended deception or such gross negligence as to amount to constructive fraud, plus (1) a written representation; (2) plan provisions which, although unambiguous, did not allow for individual calculation of benefits; and (3) extraordinary circumstances in which the balance of equities strongly favors the application of estoppel.

The Court affirmed the dismissal of his fiduciary duty claims and breach of contract claims.

Section 1132(a)(1)(B) of ERISA provides that a plan beneficiary may bring suit "to recover benefits due to him under the terms of his plan." 29 U.S.C. § 1132(a)(1)(B). As discussed above, the written ERISA plan documents govern the rights and benefits of ERISA plan beneficiaries. . . . . Where a retirement plan creates benefits in excess of those established by ERISA, however, those rights may be enforceable in contract under federal common law. . . . Furthermore, when additional documents operate to modify or amend the plan, a beneficiary can rely on those modifications to determine his benefits. . . . .

However, the Benefit Election form submitted by the plaintiff "did not purport to be an amendment or a modification to the Plan. Nor did it purport to create a separate contract for benefits in addition to those provided by the Plan. Instead, it simply claimed to provide the actuarially certified benefit [the plaintiff] was entitled to, based on the Plan." Thus, there was no basis for asserting a claim for breach of contract.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.