:: Employer’s Refusal To Submit Required Information To Insurance Carrier Held To Constitute “Wrong Without Remedy”

If the factual allegations in Mitchell’s First Amended Complaint are true, this case provides still another illustration of a deserving plaintiff denied a remedy-a plaintiff who apparently did everything reasonably to be expected of an employee, where fault (intentional or not) appears to lie with the employer. But I follow the law as it has been interpreted by the Supreme Court and the First Circuit. Mitchell v. Emeritus Management, LLC, — F.Supp.2d —-, 2007 WL 4212321, (D.Me.) (November 29, 2007)

Mitchell v. Emeritus Management, LLC, in the view of the district court, represents a classic ERISA “wrong without remedy” case. A review of First Circuit authority, however, leaves some question as to whether the court properly concluded that the plaintiff’s employer was immune to liability in view of the “de facto” administrator doctrine that holds sway in that circuit.

The Facts

The plaintiff worked for Emeritus Management, LLC (d/b/a Emeritus Assisted Living). As presented by the plaintiff, and assumed true for purposes of the defendant’s motion, the facts were as follows:

[Mitchell] purchased a life insurance policy on her husband through her employer’s group coverage. When her husband was dying, she resigned her employment to care for him. She asked her employer for the proper forms to convert the group life insurance coverage to individual coverage, as she was entitled to do. Her employer refused or failed to provide the forms despite several in-person and telephone requests. In the meantime, the time for conversion (31 days) expired, her husband died, and now the life insurance company has denied her any benefits.

The opinion adds to the foregoing. At the time of her husband’s death on January 10, 2007, Mitchell still had not received the requested life insurance conversion documents from Emeritus. When she did obtain them and send them back to Emeritus, she learned subsequently that Emeritus sent the documents to Hartford without completing them:

On February 13, 2007, Mitchell received a letter from Hartford Life stating that it had received her conversion application but that Emeritus had failed to complete certain portions. . . . Ex. B-Letter from Hartford Life to Dawnitta Mitchell (Feb. 13, 2007) (Docket Item 25-4) (“We cannot process your application because Part A[ ] must be completed by a representative of your former employer”). This letter from Hartford Life also stated:

The applicant is responsible for ensuring that we receive a response within 15 days from the date of this letter or 31 days from the date of group coverage termination, whichever is later. If we do not receive the necessary information within this time limit, portability will no longer be available.

Emeritus showed little concern, however. When Mitchell contacted Emeritus to provide the missing information to Hartford Life, Emeritus claimed it already had provided the information and refused to resubmit any information.

Hartford Life then promised Mitchell that it would obtain the missing information from Emeritus. Yet, when the plaintiff filed a claim for benefits, Hartford Life denied Mitchell’s claim, stating that “the documentation submitted … does not establish James Mitchell was covered … at the time of his death.”

The ERISA Litigation

After exhausting administrative remedies, Mitchell filed suit against Emeritus and Hartford, claiming breach of fiduciary duty and wrongful denial of benefits and information.

She requested either:

1. “appropriate equitable relief” under ERISA” § 502(a)(3), 29 U.S.C. “§ 1132(a)(3), or
2. recovery of “benefits due to [her] under the terms of the plan.”

Emeritus and Hartford Life each moved to dismiss under Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted.

Dismissal And Amendment

For undisclosed reasons, Mitchell agreed to dismiss her breach of fiduciary duty claim against both defendants. Later, however, she filed a motion to amend her complaint, however, Mitchell reasserted this claim with a more specific request for “appropriate equitable relief.” The court permitted the amendment

Failure To State A Claim – Count I: ERISA § 502(a)(3)

ERISA section 502(a)(3) provides:

A civil action may be brought … by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.

Under this provision, Mitchell sought an injunction (1) requiring Emeritus to complete the necessary paperwork in order to process Plaintiff’s claim, (2) requiring Hartford to accept Plaintiff’s claim as timely filed, (3) requiring Hartford to re-process Plaintiff’s claim for benefits.

The court viewed this as tantamount to a request for an order requiring Hartford Life to pay her life insurance benefits. Noting that Emeritus and Hartford were fiduciaries, the court nonetheless rejected this request, stating:

Unfortunately for Mitchell, however, the First Circuit decided in August that payment of life insurance benefits is not “equitable relief” under ERISA. Todisco, 497 F.3d at 99-100; see also Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 210 (2002)(enforcement of contractual obligation to pay money is not relief “typically available in equity” as required under section 502(a)(3)). Although conceivably I could grant an injunction against Emeritus for the paperwork Mitchell requests, it would do her no good because ultimately this section of ERISA will not permit Mitchell to recover her life insurance benefits from Hartford Life.

Mitchell does allege sufficient facts to state a claim for breach of fiduciary duty against Emeritus, but not to obtain the relief she wants. Section 502(a)(3) allows equitable restitution, but only to “restore to the plaintiff particular funds or property in the defendant’s possession.” Emeritus does not possess Mitchell’s funds or property. Typically, equitable restitution is not available against an entity that has neither control nor possession of the funds in question. See Sereboff v. Mid Atl. Med. Servs., Inc., 126 S.Ct. 1869, 1874-76 (2006).

Failure To State A Claim – Count II: ERISA § 502(a)(1)(B)

ERISA section 502(a)(1)(B) permits a civil action to “be brought by a participant or beneficiary … to recover benefits due to him under the terms of [the] 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.” It is under this statutory provision that claims … challenging denials and termination of employer-sponsored … benefits are brought.”Terry v. Bayer, 145 F.3d 28, 34 (1st Cir.1998).

Yet, the court observed that the terms of the Plan did not entitle her to benefits.

. . . . although Emeritus failed to give Mitchell the forms she requested on a timely basis, the Plan’s instructions and deadline on how to convert life insurance are unambiguous. The Plan contains no exception to the 31-day deadline for filing a conversion application, Mitchell acknowledges that she failed to satisfy this unambiguous provision of the Plan.

Thus, the court granted Hartford’s motion to dismiss.

Emeritus “Not A Proper Defendant”

Emeritus, the employer, and on the facts presented the more culpable party, escaped liability on a technical argument. The court opined that:

In the First Circuit “the proper party defendant in an action concerning ERISA benefits is the party that controls administration of the plan.” Terry, 145 F.3d at 36 (quoting Garren v. John Hancock Mut. Life Ins. Co., 114 F.3d 186, 187 (11th Cir.1997)); Law v. Ernst & Young, 956 F.2d 364, 372-73 (1st Cir.1992); Cintron-Serrano v. Bristol-Myers Squibb Puerto Rico, Inc., 497 F.Supp.2d 272, 276 (D.P.R.2007). Since Hartford Life controls the determination of eligibility for benefits under the Emeritus Plan (“full discretion and authority,” The Plan at 17), Emeritus is not the proper defendant against which to seek a section 502(a)(1)(B) remedy, i.e., benefits due under the Plan.

Note: Terry v. Bayer Corp., 145 F.3d 28, (C.A.1 (Mass.)) (May 27, 1998), relied upon by the district court, involved a standard of review issue. In that context, the First Circuit observed:

ERISA contemplates actions against an employee benefit plan and the plan’s fiduciaries. With narrow exception, however, ERISA does not authorize actions against nonfiduciaries of an ERISA plan. . . . Courts have determined that when the plan administrator retains discretion to decide disputes, a third party service provider, such as Northwestern, is not a fiduciary of the plan, and thus not amenable to a suit under § 1132(a)(1)(B).

Terry is correct when he points out that this line of cases is concerned with service provider liability, and as such does not necessarily foreclose the construct he suggests – to review the decision of Northwestern [the nonfiduciary claims administrator] but hold the Plan liable. Nevertheless, we find the precedent compelling. We do not think it supportable or reasonable for a court, when conducting this form of inquiry, to examine an intermediate step in the internal review process de novo.

In Terry, the plaintiff urged the court to find that the employer/plan administrator/fiduciary was liable based upon a de novo standard of review. The plaintiff in Terry urged the court to use a de novo standard of review because the employer/plan administrator involved a claims administrator (who was not accorded deference in the plan document) in the claims review process.

In Mitchell, the district court held that the employer was a fiduciary but nonetheless held that the employer was not a proper defendant because it was not the plan administrator. Could the involvement of the employer in the claims process nonetheless render it an administrator though not named as such?

Who Is The Plan Administrator? The First Circuit has actually been on the side of courts willing to impose liability based upon factual circumstances as opposed to technical descriptions.

The First Circuit, and possibly the Fifth and Eleventh, are willing to deem “nonadministrators” to be “de facto” plan administrators; the other circuits (except the Third and the Eighth, which have not been heard from on this issue) are not.

Here are the authorities: Compare Law v. Ernst & Young, 956 F.2d 364, 373-74 (1st Cir.1992); Fisher v. Metropolitan Life Ins. Co., 895 F.2d 1073, 1077 (5th Cir.1990), and Rosen v. TRW, Inc., 979 F.2d 191 (11th Cir.1992), with Anweiler v. American Electric Power Service Corp., 3 F.3d 986, 994 and n. 5 (7th Cir.1993); Lee v. Burkhart, 991 F.2d 1004, 1010 n. 5 (2d Cir.1993); McKinsey v. Sentry Ins., 986 F.2d 401, 403-05 (10th Cir.1993); Coleman v. Nationwide Life Ins. Co., [969 F.2d 54, 62 (4th Cir.1992), cert. denied, 506 U.S. 1081, 113 S.Ct. 1051, 122 L.Ed.2d 359 (1993) ]; VanderKlok v. Provident Life & Accident Ins. Co., 956 F.2d 610, 617-18 (6th Cir.1992); Moran v. Aetna Life Ins. Co., [872 F.2d 296, 298-99 (9th Cir.1989) ]; Davis v. Liberty Mutual Ins. Co., 871 F.2d 1134, 1138 (D.C.Cir.1989).

In a case such as Mitchell, where the employer was required to collect, review, complete and submit critical information to the named plan administrator (the insurance carrier) to consummate a benefits decision, the de facto administrator doctrine would seem to have applicability. In other words, the First Circuit authority should be broad enough to create a fact issue as to whether the employer had sufficient authority to function as a de facto administrator and thus be liable in that capacity. Given the factual nature of this inquiry, a dismissal before discovery prevents adequate assessment of the issue. The district court missed the issue.

Another Angle - Assume, however, that the employer could not be deemed a de facto administrator. If an employer sponsors a plan wherein it promises benefits and then refuses to act in good faith to make those benefits available, could a claim be advanced under § 1132(a)(3)?

The court in Mitchell thought not, but compare the somewhat analogous situation of misrepresentation of benefits provided under a plan in Gore v. El Paso Energy Corp., ” F.3d -, 2007 WL 549470 C.A.6 (Tenn.)(February 23, 2007). :: Sixth Circuit Permits ERISA Fiduciary Claim Against Employer Misquoting Benefits. As I noted in the article on the Gore case, the Plaintiff there claimed appropriate equitable relief under § 1132(a)(3) could come in the form of five different equitable remedies: 1) Reformation; 2) Rescission; 3) Reinstatement; 4) Equitable Estoppel; and 5) Promissory Estoppel. The Sixth Circuit stated: [a]t this point, we need not determine what remedy is required to address the possible misrepresentation since the district court did not determine whether any misrepresentation in fact took place.”

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