STEWART, United States Magistrate Judge:
Plaintiff, Richard Bielenberg ("Bielenberg"), originally filed this action in Multnomah County Circuit Court on August 28, 2009. Bielenberg seeks declaratory relief against his employer, Metro West Ambulance Services, Inc. ("Metro West"), and ODS Health Plan, Inc. ("ODS") with respect to the existence of certain subrogation and reimbursement rights under the terms of a health insurance policy ("Benefit Plan") sponsored and funded by Metro West.
ODS removed this case to this court on October 7, 2009, based on 28 USC §§ 1331, 1441(a), and the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 USC §§ 1132(a)(3), (e)(1). ODS and Metro West later filed two alternative counterclaims against Bielenberg and a Counterclaim against defendant Law Offices of Brandon Mayfield ("Mayfield Law Office"), as trustee of two accounts entitled "Richard Bielenberg, beneficiary, Client Trust Account" ("Bielenberg Trust Account"). ODS's Amended Answer, Affirmative Defenses, and Counterclaims ("ODS's Amended Answer") (docket # 20);
Bielenberg has now filed a Motion for Leave to File an Amended Complaint (docket # 80), seeking to add a claim for penalties under 29 USC § 1132(c)(1). Additionally, the parties have filed cross-motions for summary judgment, including ODS's Motion for Partial Summary Judgment (docket # 44), Metro West's Motion for Partial Summary Judgment (docket # 49) (joining in ODS's motion), Plaintiff's Motion for Summary Judgment (docket # 61), and Counterclaim Defendant's Motion for Summary Judgment (docket # 71) (joining Bielenberg's motion in part). In addition, in response to Bielenberg's motion for summary judgment, ODS seeks to strike certain portions of the declarations of Bielenberg and his attorneys, Brandon Mayfield ("Mayfield") and Gary Linkous ("Linkous"). See ODS's Memorandum in Opposition to Plaintiff's and Counterclaim Defendant's Motions for Summary Judgment (docket # 90), p. 4 and Ex. 1.
For the reasons that follow, ODS's Motion for Partial Summary Judgment (docket # 44), Metro West's Motion for Partial Summary Judgment (docket # 49), Plaintiff's Motion for Summary Judgment (docket # 61), and Counterclaim Defendant's Motion for Summary Judgment (docket #71) are GRANTED IN PART AND DENIED IN PART, and Bielenberg's Motion for Leave to File an Amended Complaint (docket #80) is DENIED.
Effective January 1, 2007, Bielenberg was covered under the Metro West Ambulance Services, Inc. PPO High Deductible Plan (the Benefit Plan), which was funded by Metro West and administered by ODS.
Dr. Larson administered a blood test in September 2005 and failed to follow up on laboratory results which showed elevated creatinine levels (evidence that Bielenberg was already suffering from advancing and chronic renal insufficiency).
On April 19, 2006, Bielenberg was admitted to the emergency room at the Santiam North Lincoln Hospital in Lincoln City, Oregon. The following day, he was transferred to Good Samaritan Regional Medical Center, in Corvallis, Oregon, where he underwent kidney dialysis. Bielenberg continued to undergo kidney dialysis over the course of the ensuing months into March 2007. Laidler Decl., Ex. 4, pp. 3, 10-11; Bielenberg Decl., ¶ 8.
On March 13, 2007, Bielenberg was admitted to Oregon Health Sciences University where he underwent a kidney transplant surgery and received attendant care. The Benefit Plan paid his medical bills between January 1, 2007, and December 12, 2008. Laidler Decl., pp. 3-16. ODS and Metro West contend that they paid a total of $272,123.20 relating to Bielenberg's renal failure, hypertensive kidney disease, end stage renal disease, and chronic renal failure. The bulk of payments related to Bielenberg's March 13, 2007 kidney transplant. Amounts allowed for medical charges prior to the transplant were approximately $10,500.00.
ODS is the Benefit Plan's named Claims Administrator. Laidler Decl., Ex. 1, p. 9.
Id., p. 11.
The Benefit Plan defines a "Third Party Claim" and a "Third Party" as follows:
Id., p. 12.
Finally, under the heading "Right of Recovery," the Benefit Plan provides that:
Id., pp. 12-13.
On April 17, 2007, Bielenberg filed a lawsuit against Dr. Larson in Multnomah County Circuit Court, Bielenberg v. Larson, Multnomah County Circuit Court Case No. 0704-04295 (the "Bielenberg Medical Malpractice Lawsuit"), seeking over $2.5 million in damages. The Complaint alleged that Dr. Larson was negligent:
Langfitt Decl., Ex. 7, p. 4, ¶ 18.
The Complaint further alleged that, as a result of Dr. Larson's negligence:
Id., ¶ 19.
On or about July 23, 2007, Bielenberg filed an Amended Complaint in the Bielenberg Medical Malpractice Action. Langfitt Decl., Ex. 8. With the exception of the deletion of specification "e.," in paragraph 18, it makes the same allegations as in the Complaint. Venue was subsequently transferred to Marion County Circuit Court.
On or about October 31, 2007, Bielenberg filed a Second Amended Complaint. Langfitt Decl., Ex. 9. In the Second Amended Complaint, the prior paragraph 19 was renumbered as paragraph 31 and otherwise remained unchanged. However, the prior paragraph 18 was renumbered as paragraph 30 and added that Dr. Larson was negligent in failing to "monitor" Bielenberg's advancing renal disease on September 20, 2005, and "a. in failing to specify
Bielenberg was represented by several attorneys during the course of the Bielenberg Medical Malpractice Lawsuit, including Mayfield, Linkous, and Michael Shinn ("Shinn"). In evaluating Bielenberg's case against Dr. Larson, Linkous consulted with both Bielenberg's treating neurologist and with a renal specialist. Linkous Decl., ¶ 3. Neither the treating doctors nor any medical experts retained on behalf of Bielenberg opined that his dialysis and kidney transplant could have been avoided if Dr. Larson had caught the blood tests earlier. Id., ¶ 5. From his review of the case and input from treating doctors and retained medical specialists, Linkous concluded that Bielenberg's case was not worth the $2.5 million originally alleged, but was instead only worth the pain and suffering associated with the brief delay in diagnosis and treatment, including the pain and suffering which resulted from Bielenberg's initial emergency room procedures and the development of [REDACTED]. Id., ¶¶ 2-3. Linkous suggested to Bielenberg that he settle the case against Dr. Larson for $[REDACTED]. Id., ¶ 3.
Following that suggestion, Linkous contacted Bielenberg's insurance providers to resolve any potential claims on the settlement funds. Id., ¶ 4. On July 22, 2008, Linkous spoke with Ann Daniels ("Daniels") in ODS's Medical Claims Support Department. Daniels Decl., ¶ 2 and Ex. 1. Linkous avers—and Daniels denies—that Daniels agreed ODS would not seek a lien regarding costs paid by the Benefit Plan. Id., ¶ 2 and Linkous Decls. (docket # 67 & # 78), ¶ 4.
The following day, July 23, 2008, Linkous wrote to ODS, explaining the settlement posture of the case as follows:
Daniels Decl., Ex. 2, pp. 1-2.
Three days later, on July 25, 2008, Bielenberg and Dr. Larson's insurance carrier settled the Bielenberg Medical Malpractice Action for $[REDACTED]. Mayfield Decl., ¶ 4; Langfitt Decl., Ex. 10.
On August 11, 2008, over two weeks after the Bielenberg Medical Malpractice Action settled, Daniels wrote a letter to Linkous stating that "ODS does not feel that it has sufficient information to waive its subrogation rights at this time," enclosing the Third Liability section of the Benefit Plan, and noting ODS's willingness "to review any additional information, including expert testimony, that can support your comments that this outcome was predictable and unavoidable, and that Dr. Larson's errors had little impact on Mr. Bielenberg's prognosis." Daniels Decl., Ex. 3, p. 3; Linkous Decl., Ex. 13. The letter also indicated that ODS would reduce its lien and requested that $158,434.52 from the settlement be held in trust until the matter was resolved. Id.
The record is silent concerning the contacts between Bielenberg's attorneys and ODS over the next few months. In the first weeks of January and February 2009, Linkous wrote letters to ODS formalizing his previous requests for an accounting of the benefits paid on behalf of Bielenberg and challenging the conclusion that ODS had a valid lien under the Benefit Plan. Linkous Decl., Ex. 14. On February 6, 2009, ODS provided Bielenberg's attorney with a copy of its claims ledger and a letter disagreeing with the assertion that ODS does not have a valid lien. Id., Ex. 17.
Linkous forwarded the claims ledger to Walter H. Whitman, M.D., a physician in Salem, Oregon, who apparently had previously reviewed the Bielenberg Medical Malpractice Case at the request of one of the defense attorneys. Id., Ex. 18, p. 3. Dr. Whitman opined as follows:
Id., Ex. 18.
On June 11, 2009, Linkous sent an email to ODS's Government Programs Compliance Officer, Deanna Laidler ("Laidler"), forwarding Dr. Whitman's letter and noting that his opinion was consistent with the opinions of the experts retained in the Bielenberg Medical Malpractice Action. Mayfield Decl., Ex. 3 (mismarked as Ex. 1). Linkous again requested that ODS release its claim for subrogation rights on the settlement proceeds. Id.
Laidler in turn forwarded Dr. Whitman's letter to Daniels (ODS Medical Claims Support Department) and Maureen Woods ("Woods").
In late June 2009, Laidler spoke with Metro West's medical consultant, Dr. Johnson,
Another month passed and on August 4, 2009, at 3:43 p.m., Jessica Bynum, ODS's Marketing Account Executive, sent an email to J.D. Fuiten ("Fuiten"), Metro West's President, copied to Laidler, stating that ODS had "confirmed with the National Practitioner Data Bank that the settlement amount was $[REDACTED]" and that:
Laidler Decl., Ex. 6 (bold in original).
An hour and a half later, Laidler faxed a letter to Mayfield explaining that:
Mayfield Decl., Ex. 4, p. 1.
Mayfield responded the following day with a letter cataloguing the contacts between Bielenberg's attorneys and ODS between July 22, 2008, and August 4, 2009, including the initial telephone call with Daniels, ODS's subsequent letter asserting a lien, ODS's nearly six month delay in providing the claims ledger and the substantive inadequacy of the claims ledger when provided, Dr. Whitman's letter, and Mayfield's surprise at learning that Metro West, not ODS, "yields the ultimate authority in deciding important policy decisions such as whether or not to release subrogation rights for settlement proceeds for one of its own employees (a beneficiary under the plan)," which he characterized as a "clear conflict of interest and breach of fiduciary duty if Metro West is the plan sponsor, the plan administrator, funds the plan, and is the named fiduciary." Id., Ex. 6.
On August 12, 2009, Fuiten spoke with Laidler concerning his conversations with Skip Freedman, M.D., Executive Medical Director of AllMed Healthcare Management, an independent medical review company.
Id.
A few days later, Dr. Freedman forwarded a message from "a [n]ephrologist friend in [F]lorida who knows nothing of the case" to Larry Boxman, Metro West's Director of Operations, who forwarded the message to Fuiten. Id., Ex. 9. Fuiten in turn forwarded the message on to Laidler. Id. The "Nephrologist friend," identified only as "Izu," opined that there were "a number of possibilities" relating to the progress of renal dysfunction, depending on whether the patient has well-controlled hypertension, poorly controlled hypertension and/or undiagnosed glomerulonephritis.
The record reveals no further correspondence between Metro West or ODS and Bielenberg or his attorneys.
Defendants ask this court to strike a number of paragraphs from the affidavits of Bielenberg and his attorneys (Mayfield and Linkous). This court has carefully considered those requests to strike certain evidence. Rather than separately ruling on these evidentiary objections, the court will not consider any inadmissible evidence in considering the pending motions.
Bielenberg seeks to amend his complaint to assert a claim against both ODS and Metro West for penalties under 29 USC § 1132(c)(1).
Whether to grant or deny a motion to amend pleadings is a matter within the court's discretion. Pisciotta v. Teledyne Indus., Inc., 91 F.3d 1326, 1331 (9th Cir. 1996). The policy favoring amendment, however, is to be applied with "extreme liberality." Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir. 2003) (citations omitted). In evaluating the propriety of a motion for leave to amend, "we consider five factors: (1) bad faith; (2) undue delay; (3) prejudice to the opposing party; (4) futility of the amendment; and (5) whether the plaintiff has previously amended his complaint." Nunes v. Ashcroft, 375 F.3d 805, 808 (9th Cir.2004), citing Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir.1995). However, futility of an amendment alone justifies denial of a motion to amend. Id. Absent futility, prejudice to the opposing party is the most important factor. Jackson v. Bank of Hawaii, 902 F.2d 1385, 1387 (9th Cir.1990), citing Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 330-31, 91 S.Ct. 795, 28 L.Ed.2d 77 (1971).
The penalty provision cited by Bielenberg permits a court to impose a penalty of up to $100.00 per day against a plan administrator who "fails to meet the requirements of [29 USC § 1166(1) or (4), 1021(e)(1), 1021(f), or 1025(a)] with respect to a participant or beneficiary" or "fails or refuses to comply with a request for any information which such administrator is required by this subchapter to furnish to a participant or beneficiary (unless such failure or refusal results from matters reasonably beyond the control of the administrator)." 29 USC § 1132(c)(1). Rather than citing one of the statutes specifically listed in 29 USC § 1132(c)(1), Bielenberg alleges that defendants violated a regulation, 29 CFR § 2560.503-1(h)(2)(iii), which sets forth minimum requirements for claims procedures. With regard to appeals of adverse benefit determinations, it requires that "a claimant shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant's claim for benefits." Id.
Bielenberg contends that on August 18 and November 16, 2009, he made written requests for the results of defendants' internal medical directors, but that defendants failed and refused to provide those documents until April 5, 2010, after this court ordered that the documents be produced and 227 days after Bielenberg's first request. Accordingly, Bielenberg seeks to amend to request a penalty of $100.00 per day ($22,700.00) against Metro West and ODS for intentionally withholding those documents. This court concludes that the amendment proposed by Bielenberg is futile and, therefore, denies his request to amend.
The problem with attempting to seek penalties under 29 USC § 1132(c)(1) for an alleged violation of 29 CFR § 2560.503-1(h)(2)(iii) is two-fold. First, 29 USC § 1132(c)(1) only permits penalties against plan administrators. Thus, only Metro West, not the claims administrator ODS, arguably could be held liable for a violation of that provision. See Sgro v. Danone Waters of N. Am., Inc., 532 F.3d 940, 944-45 (9th Cir.2008) (indicating that "ERISA's remedies provision gives [claimants] a cause of action to sue a plan `administrator' who doesn't comply with a `request for ... information,'", but dismissing penalty claims against claims administrator).
Second, the Third, Sixth, Seventh, and Eighth Circuits have held that 29 USC § 1132(c) may not be used to impose civil liability for the violation of 29 USC § 1133 or regulations implemented pursuant thereto. Brown v. J.B. Hunt Transport Servs., Inc., 586 F.3d 1079, 1089 (8th Cir. 2009) ("[W]e agree with our sister circuits that a plan administrator may not be penalized under § 1132(c) for a violation of the regulations to § 1133") (citing cases); Wilczynski v. Lumbermens Mut. Cas. Co., 93 F.3d 397, 405-06 (7th Cir.1996). These cases reason that the underlying regulation (29 CFR § 2560.503-1(h)) speaks only to the obligations of benefit plans (as opposed to plan administrators)
Bielenberg cites Sgro as Ninth Circuit authority for the proposition that a violation of 29 CFR § 2560.503-1(h)(2)(iii) is a proper vehicle for assessing penalties under 29 USC § 1132(c)(1). However, Sgro concluded that the claimant named an improper party and, therefore, never reached the issue whether a penalty claim is appropriate based on the regulation cited by Bielenberg. This court is persuaded by the reasoning of the other circuits which have actually addressed the issue and declines to impose liability under 29 USC § 1132(c) for a violation of the regulations to 29 USC § 1133.
Moreover, an amendment to allege that defendants violated this regulation is futile for another reason disclosed by the record. Bielenberg made his initial request for records only to ODS, the claims administrator, and did not make any request to Metro West, the plan administrator, until after filing suit and then made the request to Metro West's attorney. At that point, Bielenberg's request for documents from a party to this lawsuit was governed by the Federal Rules of Civil Procedure and not by 29 CFR § 2560.503-1(h)(2)(iii).
Accordingly, because the proposed amendment is futile, Bielenberg's Motion for Leave to File Amended Complaint (docket #80) is denied. This court need not, and does not, express any opinion on the remaining factors considered in deciding motions to amend.
Bielenberg's summary judgment motion raises a jurisdictional challenge based on two interrelated issues: (1) ODS's fiduciary status; and (2) the nature of relief asserted by defendants. ODS and Metro West relied on ERISA as the basis for removal to this court under 28 USC § 1441. Notice of Removal, ¶¶ 4-5. Under ERISA, 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." 29 USC § 1132(a)(3). United States district courts have exclusive jurisdiction over such actions. 29 USC § 1132(e)(1). Bielenberg argues that ODS is not a plan fiduciary and that defendants are seeking legal—not equitable— relief which is unavailable to fiduciaries under ERISA rules and regulations. Both of these arguments must be rejected.
ERISA defines a plan fiduciary as follows:
29 USC § 1002(21)(A).
Bielenberg contends that only Metro West, as the plan sponsor, is the plan fiduciary. According to Bielenberg, ODS is merely a third-party, non-fiduciary claims administrator hired by the Benefit Plan to perform ministerial functions, such as those identified in 29 CFR § 2509.75-8, D-2. As a result, Bielenberg contends that ODS has simply administered claims and applied policy rules, which is not a fiduciary function entitled to deference. In response, ODS asserts that it administered the Benefit Plan and performed discretionary functions with respect to the Third-Party Liability recovery provisions and that those functions are sufficient to establish that it is a fiduciary under the Benefit Plan with respect to those provisions.
By definition, the plan administrator is the person specifically designated by the plan document or, in the absence of such designation, the plan sponsor. ERISA § 3(16)(A), 29 USC § 1002(16)(A); Pegram v. Herdrich, 530 U.S. 211, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000). Although a plan may have numerous persons "with discretionary authority or discretionary responsibility" in its administration, it generally designates only one person as the plan "administrator."
However, a plan may have more than one fiduciary. In fact, ERISA mandates that a written plan document must provide for "one or more named fiduciaries who shall have authority to control and manage the operation and administration of the plan." 29 USC § 1102(a)(1). Alternatively, the named fiduciary may be identified by the plan sponsor pursuant to a procedure specified in the plan. 29 USC § 1102(a)(2). Named fiduciaries can delegate certain fiduciary functions to other persons. 29 USC § 1105(c)(1). There is no limit to the number of named fiduciaries. 29 CFR § 2509.75-5, FR-2.
ERISA defines fiduciary conduct "in functional terms of control and authority over the plan" without regard to the title or position. Mertens v. Hewitt Assocs., 508 U.S. 248, 262, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993). The key element in determining whether a party performing administrative services is a fiduciary is whether that person possesses either de facto or de jure discretion in the performance of such tasks. Thus, when a health insurer or third-party administrator is given discretionary authority to grant or deny claims, that person acts as a fiduciary in performing that function. Aetna Life Ins. Co. v. Bayona, 223 F.3d 1030 (9th Cir. 2000), as amended on denial of reh'g en banc (9th Cir.2003). On the other hand, a party performing purely ministerial functions for a plan, such as preparing financial reports, does not possesses the requisite discretionary authority to be a fiduciary. See Pacificare v. Martin, 34 F.3d 834, 837 (9th Cir.1994); 29 CFR § 2509.75-8.
Several courts have specifically held that various entities act as fiduciaries when seeking to enforce a plan's reimbursement or subrogation rights. Administrative Comm. v. Gauf, 188 F.3d 767, 770-72 (7th Cir.1999) (holding that ERISA plan administrator was fiduciary where it exercised discretionary authority under the plan and was asserting a claim for equitable relief under the reimbursement clause of plan); Health Cost Controls of Ill., Inc. v. Washington, 187 F.3d 703, 708-11 (7th Cir.1999) (holding that assignee of employee-sponsored health plan's reimbursement claims was fiduciary where it had a discretionary role under the plan and asserted an equitable right that the plan entitled it to reimbursement as subrogee); Blue Cross & Blue Shield of Ala. v. Sanders, 138 F.3d 1347, 1353 (11th Cir.1998) (stating that "[c]laims administrators are fiduciaries if they have the authority to make ultimate decisions regarding benefits eligibility," and that an equitable right to specific performance is implied where legal remedies are inadequate because ERISA preemption precludes claims administrator from suing defendants at law in state court); Biomet, Inc. Health Benefits Plan v. Black, 51 F.Supp.2d 942, 947 (N.D.Ind. 1999).
Here the Benefit Plan expressly grants discretionary authority and control to ODS over the functions of seeking reimbursement and subrogation. Therefore, as the claims administrator, ODS clearly is a named fiduciary under the Benefit Plan. However, with respect to Bielenberg's request for a lien waiver, it did not actually exercise that discretionary authority, but instead referred the request to Metro West for the final decision.
IT Corp., 107 F.3d at 1420.
In addition, the Ninth Circuit concluded that the claims administrator may be a fiduciary because it "controlled the money in the plan's bank account." Id. at 1421.
Id.
For the same two reasons, ODS is a fiduciary in this case. Here it is clear from the record that ODS had the power to interpret the Benefit Plan to determine whether to refer Bielenberg's lien waiver request to Metro West. In addition, as far as the record reveals, ODS had control over the Benefit Plan's assets. Therefore, ODS is a fiduciary with the requisite standing to bring an ERISA claim.
Bielenberg also argues that the relief defendants seek is not equitable in nature. As a result, he contends that the relief that ODS and Metro West seek is inappropriate and without jurisdictional basis because it is not "other appropriate equitable relief" permitted by 29 USC § 1132(a)(3).
Under ERISA, fiduciaries may bring a civil action "(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." 29 USC § 1132(a)(3). Bielenberg contends that defendants are employing creative pleading in an effort to dupe this court into believing that what in reality is a claim for damages for breach of contract appears to be a claim for "other appropriate equitable relief" in the form of a constructive trust.
The phrase "other appropriate equitable relief" is limited to relief that was "typically available in equity (such as injunction, mandamus, and restitution, but not compensatory damages)." Mertens, 508 U.S. at 256-57, 113 S.Ct. 2063 (emphasis omitted). Money damages, in contrast, are "the classic form of legal relief." Id. (citations omitted; emphasis in original).
If defendants sought to impose personal liability on Bielenberg or on the Bielenberg Trust Account, then the First Counterclaims would be considered legal actions for breach of contract and not authorized under ERISA:
Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 213, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002) (citations and internal punctuation omitted; emphasis in original).
In this case, rather than seeking to impose personal liability on Bielenberg or the Bielenberg Trust Account in the form of a legal action for breach of contract, defendants seek a constructive trust over disputed funds currently held in the Bielenberg Trust Account. This type of claim falls squarely within the type of claim characterized as seeking "equitable relief" and, therefore, is permitted under 29 USC § 1132(a)(3) as discussed in Sereboff v. Mid Atlantic Med. Servs., Inc., 547 U.S. 356, 126 S.Ct. 1869, 164 L.Ed.2d 612 (2006).
The parties dispute the standard of review applicable in this case. In order to properly evaluate their arguments, this court must first clarify what this case is not about. This case does not involve a claim for a denial of benefits. There is no issue in this case that defendants failed or refused to pay for any medical care to which Bielenberg was entitled under the
Over a decade ago, the Supreme Court held that denials of benefits under ERISA are reviewed de novo by the district court "unless the benefits plan gives the administrator or fiduciary discretionary authority to determine eligibility for the benefits or to construe the terms of the plan." Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). This standard applies not only in the context of denials of benefits decisions, but also in the context of other ERISA decisions, including those involving reimbursement and subrogation rights.
In order for a plan "to alter the standard of review from the default of de novo to the more lenient abuse of discretion, the plan must unambiguously provide discretion to the administrator. The essential first step of the analysis, then, is to examine whether the terms of the ERISA plan unambiguously grant discretion to the administrator." Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 963 (9th Cir.2006) (en banc) (citation omitted). Thus, this court must first examine the terms of the Benefit Plan to determine the extent of any discretion afforded to Metro West and ODS in the context of the Third-Party Liability provisions.
Metro West is the plan sponsor, plan administrator, and the named fiduciary under the terms of the Benefit Plan. Laidler Decl., Ex. 1, p. 10. ODS is the claims administrator of the Benefit Plan. Id., p. 9. The Benefit Plan includes detailed provisions concerning "Benefits Available From Other Sources," including a section on
Despite this express grant of discretion, Bielenberg counters that, for a variety of reasons, this court must apply a de novo standard of review. However, a review of the case law reveals that a discretionary standard of review applies, albeit one tempered by weighing other factors, including a structural (contract imposed) conflict of interest.
Bielenberg intermittently contends that defendants' failures to deliver copies of the Benefit Plan documents to him until August 2009 and to credit his reliable evidence merit application of a de novo standard of review. While consideration of those factors may impact the manner in which the decision is reviewed for abuse of discretion, Supreme Court precedent makes clear that they do not alter the applicable standard of review:
Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105, 115, 128 S.Ct. 2343, 2350, 171 L.Ed.2d 299 (2008) (internal citations omitted; emphasis in original).
Accordingly, this court concludes that an abuse of discretion standard of review applies to the claims at issue in this case, but that the court must weigh some of the factors identified by Bielenberg in determining whether there has been an abuse of discretion.
Bielenberg raises several factors which he contends modify the standard of review, including defendants' failure to deliver a copy of the plan or summary plan description, irregularities in the appeal process including a failure to timely respond to his request for reconsideration of the lien assertion, and a conflict of interest inherent in the arrangement between ODS and Metro West concerning payment of claims. In portions of those arguments, Bielenberg asserts that this case involves a claim for a denial of benefits, as opposed to a case involving reimbursement or subrogation rights. However, as previously noted, this case does not involve a claim for denial of benefits. In addition, it does not involve a situation where defendants refused to pay benefits unless and until Bielenberg signed a subrogation agreement, as in the case Bielenberg cites, Germany v. Operating Engineers Trust Fund of Washington D.C., 789 F.Supp. 1165 (D.D.C.1992). Instead, this case involves a third-party recovery claim. Bielenberg received benefits from ODS and makes no claim that ODS owes him benefits. Instead, the contest is over monies received by Bielenberg from a third party (Dr. Larson's insurer). Therefore, to the extent the factors are premised upon an assertion that this case involves a claim for an improper benefits denial, they need not be considered.
Where "a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a factor in determining whether there is an abuse of discretion." Firestone, 489 U.S. at 115, 109 S.Ct. 948. Abuse of discretion review is required "whenever an ERISA plan grants discretion to the plan administrator, but a review informed by the nature, extent, and effect on the decision-making process of any conflict of interest that may appear in the record. This standard applies to the kind of inherent conflict that exists when a plan administrator both administers the plan and funds it, as well as to other forms of conflict." Abatie, 458 F.3d at 967. Courts must "temper the abuse of discretion standard with skepticism 'commensurate' with the conflict." Nolan v. Heald College, 551 F.3d 1148, 1153 (9th Cir.2009), quoting Abatie, 458 F.3d at 959, 965, 969.
The importance that courts attach to the conflict depends on the "conflict's nature, extent, and effect on the decision-making process." Id. at 1153, quoting Abatie, 458 F.3d at 970 (remaining citation omitted). A variety of factors may be considered, including the monetary conflict (structural conflict of interest), the emphasis by the administrator of evidence favorable to a denial of benefits and de-emphasis of unfavorable evidence, inconsistent explanations for claims denials, the presence of procedural irregularities in the claims process, and evidence which tends to show bias or bad faith. See Metropolitan Life Ins. Co., 554 U.S. at 116-19, 128 S.Ct. at 2351-52 (financial incentives, emphasis of evidence favoring denial of benefits, failure to provide independent experts all relevant evidence); Nolan, 551 F.3d at 1155 (bias); Abatie, 458 F.3d at 968 (inconsistent reasons for claims denial, failure to adequately investigate, failure to credit reliable evidence, making decisions against the weight of the evidence); Friedrich v. Intel Corp., 181 F.3d 1105, 1110 (9th Cir. 1999) (procedural irregularities in initial claims process and unfair appeal process); Lang v. Long Term Disability Plan, 125 F.3d 794, 797 (9th Cir.1997) (inconsistent reasons). The reviewing court must make "something akin to a credibility determination about the insurance company's or plan administrator's reason for denying coverage under a particular plan and a particular set of medical and other records." Abatie, 458 F.3d at 969.
Bielenberg identifies two factors which do not depend on an improper characterization of the claims in this case and which are relevant and must be weighed in reviewing defendants' decision: (1) ODS's structural conflict of interest and deferral to Metro West regarding the decision to pursue reimbursement, both apparently driven by the terms of the contract between ODS and Metro West; and (2) defendants' failure to credit reliable evidence provided by Bielenberg.
Although ODS has "sole discretion" to interpret and construe the reimbursement provisions under the express written terms of the Benefit Plan, it is undisputed that ODS operated as the claims administrator under the terms of a separate contract with Metro West. That contract apparently contains terms which alter ODS's authority in significant ways. The contractual arrangement between Metro West and ODS includes a "stop loss" provision which obligates ODS to pay claims which exceed $150,000.00. See Mayfield Decl., Ex. 10. ODS acknowledges that this presents a structural conflict of interest because ODS "both decides whether claimants will receive benefits and is responsible for paying benefits when they are awarded." ODS's Memorandum in Opposition to Plaintiff's and Counterclaim Defendant's Motions for Summary Judgment (docket # 90), p. 10. The fact that ODS paid over $100,000.00 for medical care received by Bielenberg must be weighed in the court's analysis of its decision to assert a lien for reimbursement.
The contractual arrangement between ODS and Metro West also apparently requires any release of subrogation or reimbursement rights to be approved by Metro West, as evidenced in the August 4, 2009 letter from ODS to Mayfield. Mayfield Decl., Ex. 4 ("As a self-insured group, Mr. Bielenberg's claims were funded by Metro West, not by ODS, thus the consent of Metro West must be obtained before releasing any subrogation rights."). The letter makes clear that ODS deferred to Metro West. Id. ("We advised Metro West of your settlement offer ... and also communicated the findings of our internal medical director. At [Metro West's] request, we are having the records reviewed by a second medical professional."). Thus, although the Benefit Plan states that ODS has the "sole discretion" to interpret and construe the subrogation and reimbursement provisions, ODS clearly deferred to Metro West, apparently due to a contractual obligation to do so.
The record does not reveal anything further about the nature of the financial arrangements between ODS and Metro West. The record is similarly silent on any previous interpretations of the Third Party Liability provision of the Benefit Plan. Bielenberg was apparently the only Benefit Plan beneficiary whose claims exceeded the cap on Metro West's self-insurance during 2007. Id., Ex. 10. As a result of their contractual relationship, both Metro West and ODS were on the hook for over $100,000.00 in claims less than three months into their relationship. Neither ODS nor Metro West has provided affirmative evidence to demonstrate that they took steps to minimize the conflict of interest through the structure of their decision-making process. See Abatie, 458 F.3d at 969 n. 7. At a minimum, these factors militate that this court look askance at ODS's decision.
Another relevant consideration is ODS's failure to credit the medical evidence provided by Bielenberg. Plan administrators "may not arbitrarily refuse to credit a claimant's reliable evidence." Black & Decker Disability Plan v. Nord, 538 U.S. 822, 834, 123 S.Ct. 1965, 155 L.Ed.2d 1034 (2003).
From their earliest contact, Bielenberg's attorneys advised ODS that Bielenberg's deterioration into end stage kidney failure,
In short, the record reveals nothing to support the conclusion that Bielenberg's need for a kidney transplant resulted from the delay in diagnosis and treatment attributable to the negligence of Dr. Larson as alleged in the Bielenberg Medical Malpractice Action.
Finally, although not discussed by the parties, this court notes that it "may weigh a conflict more heavily" for a variety of other reasons, including an administrator's failure "adequately to investigate a claim or ask the plaintiff for necessary evidence." Abatie, 458 F.3d 955, 968-69 (citations omitted). ODS was notified of Bielenberg's plans to settle the Bielenberg Medical Malpractice Action on July 22, 2008. ODS did not provide Bielenberg with the claims ledger until February 6, 2009. Upon receiving the letter from Dr. Whitman on June 11, 2009, ODS consulted with Dr. Johnson, then asked for and received Bielenberg's medical records on July 1, 2009. ODS apparently never obtained a formal opinion from either Dr. Johnson, Dr. Freedman, or Dr. Freedman's "Nephrologist friend," "Izu." Instead, it relied on casual conversations with (or hearsay statements from) these physicians and simply quoted a single sentence in the Third-Party Liability section of the Benefit Plan as its explanation to Bielenberg of its decision that it had a right to recovery from the settlement proceeds. The net effect is that nearly half of Bielenberg's settlement funds were held captive for over a year before Bielenberg finally filed this case to resolve the matter. The record also seems to indicate that ODS took no action unless and until repeatedly
This court is bound to consider whether ODS abused its discretion in interpreting the Benefit Plan in light of the following factors. First, ODS operated under a structural conflict due to its own payment of claims on behalf of Bielenberg. Second, ODS also deferred to Metro West, which operated under a similar—if not more significant—conflict. Additionally, the only medical evidence in the record supports Bielenberg's assertion that he was unable to prove a causal link between Dr. Larson's negligence and the dialysis and kidney transplant that accounted for the bulk of Bielenberg's medical charges.
Although beyond the scope of the Order limiting the pending motions to the standard of review, ODS and Metro West seek summary judgment that the Benefit Plan has a valid lien against the proceeds of Bielenberg's settlement with Dr. Larson. Essentially, their contention is twofold. First, focusing on the language of the pleadings in the Bielenberg Medical Malpractice Action and the broad terms of the settlement agreement, they argue that the settlement necessarily included all components of Bielenberg's treatment, including his dialysis and kidney transplant. Folding in a judicial estoppel argument, defendants contend that Bielenberg may not now take an inconsistent position by contending that Dr. Larson did not cause Bielenberg's kidney failure and need for dialysis and transplant. Second, turning their focus to the text of the Third-Party Liability provisions of the Benefit Plan, defendants contend that they are entitled to reimbursement of all amounts they paid on Bielenberg's behalf irrespective of how the settlement is characterized. After an exhaustive review of the record, considered in light of this court's obligation to weigh the factors described above, this court concludes that ODS abused its discretion in asserting a lien for all amounts it paid on behalf of Bielenberg, irrespective of the lack of a causal connection between the amounts paid and negligence by Dr. Larson.
Citing Bielenberg's allegations in the Bielenberg Medical Malpractice Action, ODS contends that Bielenberg should be judicially estopped from claiming that Dr. Larson is not a "Third Party" as defined by the Benefit Plan. Specifically, ODS asserts that Bielenberg's allegations regarding the results of Dr. Larson's negligence, constitutes an allegation that he suffered an aggravation of his renal disease due to Dr. Larson's negligence that is inconsistent with his assertion in this case that he did not. Accordingly, ODS contends that Bielenberg is "playing fast and loose with the courts by claiming that Dr. Larson caused an aggravation of his injuries in order to obtain a favorable settlement in one proceeding, and then taking a directly contrary position in this court to prevent ODS from enforcing its rights under the Benefit Plan." ODS's Memorandum in Support of its Motions for Partial Summary Judgment (docket # 53), p. 7.
The parties vehemently dispute the scope of the allegations in paragraph 31 in the Second Amended Complaint in the Bielenberg Medical Malpractice Action (¶ 19 in prior pleadings) discussing the results of Dr. Larson's negligence. ODS insists that this paragraph alleges that Dr. Larson's negligence resulted in an aggravation of Bielenberg's kidney disease and, therefore, fits squarely within the Benefit Plan's definition of a "Third Party" as an individual "responsible for ... the aggravation
The difficulty is that paragraph 31 of the Second Amended Complaint begins with a complex run-on sentence that does not specify exactly how Bielenberg's renal disease was "worsen[ed]" by each of the multiple negligent acts by Dr. Larson alleged in the preceding paragraph. At the outset, Bielenberg sought $2.5 million in damages and was engaged in discovery with an eye toward linking Dr. Larson's negligence to all of the symptoms, treatment and sufferings he experienced beginning with his hospital admission in April 2006. As specified in the pleadings, Bielenberg's renal disease went undiagnosed until April 29, 2006, by which time his kidney had failed. The request for $2.5 million was, in part, premised upon medical and hospital expenses totaling over $300,000.00, a figure which undoubtedly included many or all of the costs associated with the transplant surgery.
The first sentence of the critical paragraph could be interpreted as not linking Dr. Larson's negligence to the kidney transplant surgery by reading the phrase "by which time his kidney had failed" as only modifying the clause "thus requiring him to undergo numerous surgeries for implantation of fistulas and catheters, and required him to undergo a regime of hemodialysis, and eventually a kidney transplant surgery." However, the request to recover the costs relating to the kidney transplant surgery, combined with the second sentence of paragraph 31 which seeks damages for "[t]he effects of the kidney failure, and the subsequent treatments," makes it difficult to narrowly read the allegations as excluding a contention that Dr. Larson was responsible for the kidney transplant surgery.
Be that as it may, it is evident from the record that Bielenberg's litigation posture significantly altered by mid-2008. Unable to unearth proof that Dr. Larson's negligence caused or aggravated Bielenberg's kidney disease to the point of requiring dialysis and a transplant, Linkous suggested to Bielenberg that he settle his case against Dr. Larson for $[REDACTED]. This figure was "based on the pain and suffering which resulted from [Bielenberg]'s initial emergency room procedures, and the development of [REDACTED]." Linkous Decl., ¶ 3. Dr. Larson and his insurer agreed to [REDACTED] and signed settlement documents. By August 4, 2009, ODS and Metro West learned that Dr. Larson's settlement with Bielenberg was similarly characterized in a report to the National Practitioner Data Base by Dr. Larson's insurer as a claim for "failure to diagnose advancing chronic renal insufficiency leading to related [REDACTED]" causing a "minor permanent injury." Laidler Decl., Ex. 5, p. 3 and Ex. 6. However, the pleadings in the Bielenberg Medical Malpractice Action were never amended to reflect this more limited claim, and the settlement documents contain a broad release of "any and all known or unknown claims, for bodily and personal injuries to [Bielenberg] or any future claim of [Bielenberg]... which has resulted or may result from the medical care and treatment rendered to [Bielenberg] by [Dr. Larson]." Langfitt Decl., Ex. 10, p. 1.
Judicial estoppel is an equitable doctrine invoked by a court at its discretion. Russell v. Rolfs, 893 F.2d 1033, 1037 (9th Cir.1990). Although the "circumstances under which judicial estoppel may appropriately be invoked are probably not reducible to any general formulation or principle," factors commonly considered include:
The amended pleading filed by Bielenberg in Marion County does contain additional allegations which indicate that Bielenberg had "signs of risk to his remaining kidney," "advancing and chronic renal insufficiency" which presented "foreseeable [risk of] disease and loss of his remaining kidney" and went undiagnosed until April 2006. Langfitt Decl., Ex. 9, pp. 2-4, ¶¶ 7, 10, 16. These allegations, which focus on the chronic and foreseeable progression of his renal disease, might well be interpreted to mean that Bielenberg would have had at least some of the same problems without the effects of Dr. Larson's negligence. However, the second sentence of paragraph 31 was not amended to specify which of the "[e]ffects of kidney failure" were or were not attributable to negligence by Dr. Larson.
As described above, the pleadings in the Bielenberg Medical Malpractice Action are somewhat open to interpretation, but include an allegation in paragraph 31 that Bielenberg was seeking damages from Dr. Larson for—without limitation—"the effects of kidney failure, and the subsequent treatments." That broad allegation arguably includes not only the [REDACTED] Bielenberg developed, but also the dialysis and kidney transplant he underwent. Such an allegation is inconsistent with an assertion that Dr. Larson's negligence, in fact, had nothing to do with the need for dialysis and a kidney transplant. In addition, as noted by defendants, a settlement is considered a "success" in a prior proceeding. Rissetto v. Plumbers and Steamfitters Local 343, 94 F.3d 597, 604-05 (9th Cir.1996). In this case the settlement contained unrestricted release language, encompassing "any and all known or unknown claims for bodily and personal injuries... which has resulted or may result from the medical care and treatment rendered." Langfitt Decl., Ex. 11, p. 1. In her June 1, 2009 email to Woods and Daniels commenting on Dr. Whitman's opinions, Laidler expresses some concern that "the complaint itself specifically states that the insured was negligent and also states that the pain and suffering was attributable to the renal failure, dialysis, and transplant." Mayfield Decl., Ex. 7. Laidler "wonder[ed] if [Bielenberg] was reimbursed solely for his medical bills and we are being asked to let him walk away." Id.
Nevertheless, this court is not inclined to apply judicial estoppel to prevent reaching the merits of whether ODS abused its discretion in interpreting the Benefit Plan. As described above, as early as July 2008, ODS was aware that Bielenberg was willing to settle a lawsuit claiming $2.5 million in damages for only $[REDACTED] because his treating doctors and retained experts could not establish the critical causal link between his need for dialysis and a kidney transplant and any negligence by Dr. Larson. ODS expressed its willingness to consider any additional information in that regard, but continued to assert that it had a valid lien, citing a provision in the Benefit Plan that "the Plan is entitled to receive the amount of Benefits it has paid whether the health care expenses are itemized or expressly
Defendants maintain that they are entitled to a constructive trust over the settlement proceeds because the Benefit Plan paid benefits for treatment received by Bielenberg associated with or related to an illness or injury caused or aggravated by Dr. Larson. The Benefit Plan paid benefits for Bielenberg's dialysis and a kidney transplant but apparently not for treatment of [REDACTED]. In defendants' view, dialysis and a kidney transplant are problems associated with or related to Bielenberg's kidney disease.
This court concludes that defendants' interpretation of the Benefit Plan is flawed. The language of the Benefit Plan premises its rights of recovery on a causal connection between the amounts to be recovered and the cause or aggravation of an injury or illness for which benefits were paid. Thus, the Benefit Plan may only impose a constructive trust for benefits paid to treat the illness or injury which was caused or aggravated by Dr. Larson.
The Third-Party Liability provision begins by stating the Benefit Plan "may have a legal right to recover benefit or healthcare costs from another person ... as a result of an injury or illness for which benefits or healthcare costs were paid by the Plan." Laidler Decl., Ex. 1, p. 11 (emphasis added). That statement is followed by two examples including recovery from "an individual or entity responsible for the injury" or, in an employment injury context, recovery from a workers' compensation insurer "responsible for healthcare expenses connected with the illness or injury." Id. (emphasis added). Similarly, the Right of Recovery section restricts the amounts the Covered Individual must hold in trust for the Benefit Plan to "the amount of Benefits the Plan paid for that illness or injury." Id., p. 12 (emphasis added).
The Right of Recovery provisions in the Third-Party Liability section of the Benefit Plan provide that the Covered Individual (Bielenberg) "holds any rights of recovery against the Third Party in trust for the Plan, but only for the amount of Benefits we
With the exception of Bielenberg's development of [REDACTED], the record reveals no evidence which would permit the conclusion that Dr. Larson's actions or inactions were causally tied to the dialysis or kidney transplant surgery suffered as a result of Bielenberg's chronic renal disease. To the contrary, Dr. Whitman opined that the delay in diagnosis linked to Dr. Larson's negligence "had minimal, if any, effect on the course of this patient's disease," and ODS's medical consultant, Dr. Johnson, noted that Bielenberg "may have required dialysis and a transplant independent of [Dr. Larson's alleged negligence]." Id, Ex. 9. Dr. Freedman was "not so sure" that the record indicated medical malpractice at all, much less that Dr. Larson's negligence necessitated a kidney transplant. Id.
ODS seizes on various provisions of the Benefit Plan which state that its right to recovery "includes the full amount of the Benefits paid ... out of any recovery made by the Covered Individual from the Third Party, including, without limitation, any and all amounts from the first dollars paid or payable to the Covered Individual... regardless of the characterization of the recovery [and] whether or not the Covered Individual is made whole." Laidler Decl., Ex. 1, p. 13; see also id., p. 11 (Benefit Plan beneficiaries are obligated to "reimburse the Plan in full from any recovery the Covered Individual may receive, no matter how the recovery is characterized"); and (2) "the Plan is entitled to receive the amount of Benefits it has paid whether the health care expenses are itemized or expressly excluded in the Third Party recovery." Id, p. 12.
However, the Right of Recovery provisions expressly state that Benefit Plan beneficiaries hold rights of recovery in trust "only for the amount of Benefits [the Plan] paid for that illness or injury." Id. (emphasis added). As described above, the only fair reading of the Benefit Plan's provisions is that "that illness or injury" is one for which the "Third Party" is "responsible" for causing or aggravating. There is simply no parsing out the provisions cited by ODS from the nature of the Third Party Claim: rights of recovery exist only against individuals or entities who cause or aggravate an illness or injury for which the Benefit Plan pays benefits. Assuming that the benefits paid were for illnesses or injuries caused or aggravated by an individual or entity (Third Party) against whom a Covered Individual successfully receives a recovery, then—and "only" then—are those amounts held in trust for the Benefit Plan under the Right of Recovery section.
ODS attempts to skirt this causation requirement by citing one sentence that "it is entitled to be reimbursed for any benefits paid by the Plan that are associated with any illness or injury." Id., p. 11. According to ODS, all of the benefits it paid are "associated" with Bielenberg's kidney disease. However, again, the sentence cited by ODS continues on and incorporates the need for recovery from a "Third Party," which as described above, presumes responsibility for causing or aggravating the illness or injury: "the Plan... is entitled to be reimbursed for any benefits paid by the Plan that are associated
Dr. Larson did not cause Bielenberg's kidney disease, and the only evidence in the record is that Bielenberg's dialysis and kidney transplant were unavoidable and "independent" of Dr. Larson's alleged negligence. Mayfield Decl., Exs. 8, 18. Linkous acknowledged that there was "some expert testimony that the [REDACTED] was anticipated, but was more severe than expected" and admitted that "the increased severity was arguably due to the substantial period of time Mr. Bielenberg went unmonitored by a nephrologist." Daniels Decl., Ex. 2, p. 1. This is consistent with the characterization by the Practitioner Data Bank of the settlement as one "failure to diagnose advancing chronic renal insufficiency leading to [REDACTED]." Laidler Decl., Ex. 6.
Accordingly, the Benefit Plan provides a right of recovery out of settlement funds from a Third Party only where there is a causal connection between the benefits paid and the injury or illness caused or aggravated by the Third Party.
For the reasons stated above, ODS's Motion for Partial Summary Judgment (docket #44), Metro West's Motion for Partial Summary Judgment (docket # 49), Plaintiff's Motion for Summary Judgment (docket # 61), and Counterclaim Defendant's Motion for Summary Judgment (docket #71) are GRANTED IN PART AND DENIED IN PART, and Bielenberg's Motion for Leave to File an Amended Complaint (docket # 80) is DENIED.
As explained in this Opinion, this court concludes that the Benefit Plan is entitled to reimbursement from the proceeds of the settlement in the Bielenberg Medical Malpractice Lawsuit only insofar as the Benefit Plan paid benefits on behalf of Bielenberg that were causally connected to an injury or illness caused or aggravated by the negligence of Dr. Larson. Further proceedings are required to determine the amount of reimbursement owed, if any.
This Opinion and Order is sealed. On or before October 8, 2010, the parties shall submit to the court a list of redactions to this Opinion and Order necessary to protect confidential information. On October 8, 2010, the court will unseal this Opinion and Order with appropriate redactions, unless the parties show cause in writing before that date why the Opinion and Order should remain sealed.
29 CFR § 2509.75-8, D-2.
