Flores v. Life Ins. Co. of N. Am., No. 22-55779, __ F. App’x __, 2024 WL 222265 (9th Cir. Jan. 22, 2024) (Before Circuit Judges Collins, Mendoza, and Desai)
This week’s notable decision addresses a procedural issue in ERISA benefit cases: if a plaintiff brings a lawsuit seeking benefits, and the court rules against her because she hasn’t yet complied with the benefit plan’s claim submission requirements, can she bring a subsequent action for those same benefits after she does comply with the requirements? This question split a panel of Ninth Circuit judges.
The plaintiff is Kayla Flores, who sued defendant Life Insurance Company of North America (LINA) in 2020 for terminating her short-term disability (STD) benefits. In her complaint Flores also included a claim for long-term disability (LTD) benefits, even though she had not yet applied for them. The district court overturned LINA’s denial of her STD claim, but rejected her request for LTD benefits because she had not complied with the LTD insurance policy’s proof of loss requirements. (Your ERISA Watch covered this decision in its August 4, 2021 edition.)
Flores then submitted her LTD claim in accordance with the policy’s requirements. LINA denied this claim as well, so Flores brought another lawsuit in 2022. LINA filed a motion to dismiss based on claim preclusion, which was granted by the district court. The district court ruled that Flores had already pursued her claim for LTD benefits in her first action and thus could not do so a second time. Flores appealed.
In this ruling the Ninth Circuit reversed. In doing so, the court applied a four-factor test to determine if Flores’ claim was precluded, although it focused on the fourth and “most important”: “whether the two suits arise out of the same transactional nucleus of facts.” For the court, this question was equivalent to asking “whether the [second] claim could have been brought in the previous action.”
The court concluded that Flores could not have brought the second claim in the first action. This was because “an ERISA cause of action accrues either at the time benefits are actually denied or when the insured has reason to know that the claim has been denied.” Flores’ claim regarding LTD benefits did not accrue until LINA denied her claim in 2022, and thus the court concluded that it could not have been brought in the prior action: “At bottom, Flores I and Flores II could not have been tried together because the latter suit involves Flores’s eligibility for benefits that she applied for after a judgment had been rendered in the former suit.” As a result, her claim for LTD benefits was not barred by claim preclusion.
The Ninth Circuit’s decision was not unanimous, however. Judge Collins dissented, contending that the district court “squarely held” in the first action that Flores was not entitled to LTD benefits, which barred any subsequent claim for those benefits. Judge Collins stated, “Here, it is clear that the two actions arise from the ‘same transactional nucleus of facts,’ because Flores seeks the same LTD benefits, based on the same underlying condition, under the same policy.”
The majority responded to the dissent by characterizing it as “overstating” the district court’s original ruling. According to the majority, Flores responded appropriately to the district court’s decision by doing “what any diligent plaintiff would have done; she went back and complied with the precondition that the district court stated she had missed.” As a result, “the district court’s determination that Flores was not entitled to LTD benefits before she had complied with the terms of the LTD policy does not bar her subsequent suit for LTD benefits after she complied with the terms of the LTD policy.”
The court thus reversed, and remanded for further proceedings on the merits.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Disability Benefit Claims
Kamholtz v. Madison Nat’l Life Ins. Co., Inc., No. 22-CV-617-JDP, 2024 WL 230283 (W.D. Wis. Jan. 22, 2024) (Judge James D. Peterson). Plaintiff Jeanie Kamholtz was a receptionist for Madison Teachers, Inc. who stopped working in January 2021 when pain and spasming in her eyes made it difficult for her to keep them open for extended periods. She applied for long-term disability benefits with her employer’s insurer, defendant Madison National, but Madison National denied her claim. Kamholtz then brought this action under ERISA against Madison National. The parties filed cross-motions for summary judgment, which were decided in this order. The court first determined that because the insurance policy at issue gave Madison National discretionary authority to determine benefit eligibility, it would review the denial under an “arbitrary and capricious” standard of review. Kamholtz argued that the denial should be overturned because Madison National (1) “unreasonably disregarded objective evidence of her pain and instead relied on irrelevant ophthalmologic testing results,” (2) “failed to consider the totality of her mental and physical limitations,” and (3) “failed to give her claim a full and fair review because it didn’t provide her with the independent physician reports for her second appeal in advance of its decision denying her appeal.” The court rejected all three arguments. First, the court found there was “rational support in the record for Madison National’s conclusion that the objective medical evidence did not support Kamholtz’s claim,” because her symptoms were subjective, her eye examinations were normal, and she did not adequately explain how her medical diagnoses were connected to her allegedly disabling symptoms. Second, the court found that Madison National fully considered Kamholtz’s mental health symptoms, and that it was reasonable for Madison National to conclude that these were insufficient to support disability. Third, the court agreed that Kamholtz was not provided with Madison National’s independent physician reports relating to her second-level appeal. However, the court ruled that she was not prejudiced by this error because the reports were similar to previous reports, and Kamholtz did not identify what evidence she would submit to counteract the reports. As a result, remand was not required for this procedural violation. The court thus granted Madison National’s summary judgment motion and denied Kamholtz’s.
Invictus Special Situations Master I v. Invictus Global Management, LLC, No. CV 24-16-RGA, 2024 WL 175736 (D. Del. Jan. 12, 2024) (Judge Richard G. Andrews). This action is a dispute between a privately held investment fund and its estranged general partner and investment manager, originally filed in Delaware state court. Defendants served interrogatories on plaintiffs, whose responses referred to ERISA. Defendants believed that this triggered ERISA preemption and thus removed the case to federal court. Plaintiffs promptly filed a motion to remand, which the court granted in this order. First, the court determined that defendants’ removal was untimely because it did so more than 30 days after receiving plaintiffs’ interrogatory responses. Second, the court ruled that even if the removal was timely, plaintiffs’ claims were not preempted under the Supreme Court’s Davila test because their “allegations relate to different duties than ERISA.” Specifically, plaintiffs’ complaint alleged that defendants breached various agreements and sought to reform a partnership agreement, and thus defendants’ potential liability does not “exist only because of their administration of ERISA-regulated plans.” Defendants’ notice of removal was also “vague as to which counts they believe are preempted.” Thus, the court ruled that removal was improper and remanded the case back to Delaware court.
Exhaustion of Administrative Remedies
Fitzsimons v. New York City Dist. Council of Carpenters, No. 23-815, __ F. App’x __, 2024 WL 221550 (2d Cir. Jan. 22, 2024) (Before Circuit Judges Park, Lee, and Merriam). This is the first of two decisions issued this week by the same panel of Second Circuit judges involving the same defendant, New York City District Council of Carpenters and Joiners of America, the same attorneys on both sides, and similar issues. The plaintiff in this case is Peter Fitzsimons, who, with his family members who were also plan beneficiaries, alleged that the union’s pension and welfare funds improperly terminated their benefits after the union determined that Mr. Fitzsimons was working as a carpenter for a non-union company. The district court upheld the union’s decision in April of 2023. (Your ERISA Watch covered this ruling in its May 3, 2023 edition.) Plaintiffs appealed, and the Second Circuit affirmed in this ruling. The court rejected plaintiffs’ claim under the Labor-Management Reporting and Disclosure Act, finding that (a) Mr. Fitzsimons had received a full and fair disciplinary hearing from the union, (b) his claims of bias were unsupported, and (c) the LMRA did not allow the court to “interfere at will in the internal affairs of unions.” As for plaintiffs’ ERISA claims, the Second Circuit upheld the district court’s ruling that they had failed to exhaust their administrative remedies: “Fitzsimons failed to take any appropriate administrative action after receiving the Funds’ benefit-determination letters.” The court rejected plaintiffs’ arguments that any appeal would have been futile on the ground that they were “speculative and insufficient.”
Pleading Issues & Procedure
Graham O. v. United Behavioral Health, No. 1:18-CV-31-TS, 2024 WL 170739 (D. Utah Jan. 16, 2024) (Judge Ted Stewart). The three plaintiffs, two parents and their child, J.O., brought this action against United alleging that it improperly denied their claims for medical benefits for treatment received by J.O. The district court agreed, concluding that United had acted arbitrarily and capriciously, and remanded the case to United “to more adequately explain its decision.” On remand, United again denied plaintiffs’ claims, and plaintiffs filed this motion to reopen the case. United opposed the motion, contending that its denials “were supported by substantial evidence.” The district court granted plaintiffs’ motion, concluding that it was “ill-suited to resolve” the arguments on the merits asserted by United. The court thus directed the parties to file cross-motions for summary judgment to address the issue of whether United’s new denial should be upheld.
The Medical Soc’y of the State of New York v. UnitedHealth Grp. Inc., No. 22-2702-CV, __ F. App’x __, 2024 WL 177448 (2d Cir. Jan. 17, 2024) (Before Circuit Judges Calabresi and Nathan, and District Judge Paul A. Engelmayer). This is a class action by several medical providers against health insurer United asserting that United violated ERISA when it refused to pay benefits for outpatient surgery performed at office-based surgery venues (“OBS”). United denied the claims at issue on the ground that the benefit plans “only cover fees for procedures performed at facilities ‘licensed’ in New York, and OBSs are not licensed facilities.” After a five-day bench trial, the district court ruled in United’s favor (a decision covered by Your ERISA Watch in its September 21, 2022 edition), and plaintiffs appealed. Plaintiffs raised two arguments on appeal: “(1) the district court erred by relying on evidence outside the administrative record; and (2) the district court erred by failing to interpret the plain meaning of the plan terms.” In this ruling, the Second Circuit rejected both arguments. The court acknowledged that ERISA benefit denials are typically adjudicated solely on the administrative record, but noted that district courts may exercise their discretion to admit extrinsic evidence for good cause. Good cause existed in this case because plaintiffs’ challenge was to United’s claims-adjudication process, and the extrinsic evidence admitted by the district court, which consisted of “medical coding evidence, industry standards such as Medicare practices, other payors’ OBS facility fee policies, and United’s correspondence with regulators,” related to that process. The Second Circuit also concluded that the district court’s findings of fact – that the OBSs were not “licensed facilities” for the purpose of New York’s Public Health Law – was not arbitrary and capricious, and therefore affirmed the judgment in United’s favor.
Statute of Limitations
Spillane v. New York City Dist. Council of Carpenters & Joiners of Am., No. 23-247, __ F. App’x __, 2024 WL 221816 (2d Cir. Jan. 22, 2024) (Before Circuit Judges Park, Lee and Merriam). In this second case this week involving the same defendant, attorneys, and the same panel of Second Circuit judges, plaintiff Patrick Spillane, a retired member of the New York City District Council of Carpenters and Joiners of America union, and his wife, Deborah, brought this action against the union for terminating their pension and medical benefits. The union’s decision was based on a finding that Mr. Spillane had performed employment for a non-union contractor, and thus was ineligible for continued union benefits. Plaintiffs filed an action alleging several claims, including under ERISA, but the union’s decision was upheld in its entirety by the district court. (Your ERISA Watch covered this decision in its January 11, 2023 edition.) The Second Circuit’s ruling in this case was the same as in the first: affirmed. The court agreed that plaintiffs had failed to exhaust their claims under the Labor-Management Reporting and Disclosure Act. As for plaintiffs’ ERISA benefit claim, the Second Circuit upheld the district court’s decision that it was time-barred because plaintiffs did not bring suit within 365 days of the denial, as required by the plan, and furthermore the decision to terminate their benefits was not arbitrary and capricious because the union reasonably found that Mr. Spillane was engaged in disqualifying employment. The Second Circuit also rejected plaintiffs’ breach of fiduciary duty claim, ruling that it consisted of “speculation and unsubstantiated name-calling,” and in any event was duplicative of their claim for benefits.
Protingent Inc. v. Gustafson-Feis, No. C20-1551-KKE, 2024 WL 197368 (W.D. Wash. Jan. 18, 2024) (Judge Kymberly K. Evanson). Defendant Lisa Gustafson-Feis was injured in a motor vehicle accident in 2016. At the time, she was insured under an ERISA-governed medical benefit plan established by plaintiff Protingent, Inc. Protingent placed a lien on the lawsuit arising from Gustafson-Feis’ accident, which eventually settled for $150,000. Gustafson-Feis refused to reimburse Protingent, whose lien totaled $73,326.54, and thus Protingent filed this action under ERISA against her. In this order the court granted Protingent’s motion for summary judgment. The court rejected Gustafson-Feis’ reliance on the make-whole doctrine (under which an insured party injured in an accident must be “made whole” before her insurer can recover compensation) because the plan specifically disclaimed the doctrine: “the Plan ‘is entitled to full reimbursement on a first-dollar basis from any payments, even if such payment to the plan will result in a recovery which is insufficient to make you whole or to compensate you in part or in whole for the damages sustained.’” The court also rejected other various arguments made by Gustafson-Feis, such as (1) Protingent engaged in procedural irregularities, (2) her husband’s claim affected Protingent’s right to reimbursement, (3) the summary plan description prevented Protingent from enforcing the plan terms, (4) Protingent was not diligent in pursuing its lien, and (5) the lien increased over time, suggesting impropriety. Notably, and unusually, the court also ruled that Protingent was “entitled to an award of reasonable attorney fees,” as well as interest, which will be determined pursuant to a subsequent motion.