United States Court of Appeals
                          FOR THE EIGHTH CIRCUIT
                                      ___________

                                      No. 05-1396
                                      ___________

Jamie Janssen; Elizabeth Janssen,             *
individually and as parents and natural       *
guardians of Alex Janssen, a minor,           *
Lauren Janssen, a minor, and                  *
Abby Janssen,                                 *
                                              *
            Plaintiffs - Appellees,           *
                                              *     Appeal from the United States
      v.                                      *     District Court for the
                                              *     District of Minnesota.
                                              *
Minneapolis Auto Dealers Benefit Fund;        *
Brad Peterson, Trustee; Michael Stanzak,      *
Trustee; Mark Robins, Trustee; Thomas         *
Tweet, Trustee; Bill Ziembo, Trustee;         *
Joyce Nerdahl, Trustee,                       *
                                              *
                                              *
            Defendants - Appellants.          *

                                      ___________

                               Submitted: November 14, 2005
                                   Filed: May 19, 2006 (Corrected May 26, 2006)
                                  ___________

Before WOLLMAN, FAGG, and MELLOY, Circuit Judges.
                          ___________
MELLOY, Circuit Judge.

       The Janssens brought this action against the Minneapolis Auto Dealers Benefit
Fund (the “Plan”) alleging an unlawful denial of benefits under the Employee
Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001-1461. The district
court1 granted summary judgment in favor of the plaintiffs. It held that the Plan had
waived its right to pursue its claims for reimbursement of medical expenses by failing
to defend a motion to dismiss the Plan’s subrogation claim in an earlier medical
malpractice action. The Plan now brings this timely appeal. We affirm.

I. Background

       The Janssens are participants in and beneficiaries of the Plan, a self-funded
employee welfare benefit plan governed by ERISA. The Plan provides medical,
dental, disability, and other welfare benefits to employees covered by a collective
bargaining agreement. Jamie Janssen is an employee participant in the Plan. The
remaining plaintiffs are eligible dependents.

      In 1995 during a surgical procedure, a nerve in Alex Janssen’s face was
damaged. The damage resulted in atrophy of his facial muscles. In November 2002,
Jamie and Elizabeth Janssen commenced a medical malpractice action on Alex
Janssen’s behalf. They alleged that the physician who performed the surgery was
negligent in failing to monitor and repair the damaged facial nerve. In 2003, Alex
underwent multiple corrective surgeries at the Mayo Clinic.

     On September 30, 2003, Joseph Crosby, the attorney for the plaintiffs in their
medical malpractice suit, sent a letter to the Plan explaining that he was counsel for


      1
         The Honorable Ann D. Montgomery, United States District Judge for the
District of Minnesota.

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the Janssens in the malpractice action. He inquired whether the Plan was interested
in retaining him to pursue recovery of past medical expenses it paid for Alex Janssen’s
surgical procedures. Crosby also informed the Plan that the trial date was set for
March 2004.

        On December 30, 2003, the law firm of Felhaber, Larson, Fenlon & Vogt sent
a letter to Crosby informing him that Terrance Cullen of the Felhaber firm represented
the Plan. It also stated that the Plan intended to assert a subrogation interest in the
amount of $27,963.29. Crosby disclosed the subrogation interest to the medical
malpractice defendant in response to an interrogatory served in the malpractice action.
Crosby sent a copy of this response to the Felhaber firm with a reminder of the trial
date. On February 26, 2004, Crosby sent another letter to Cullen’s assistant at the
Felhaber firm stating that the malpractice defendants had agreed to stipulate that the
medical care received by Alex was necessary, but causation remained in dispute. The
Plan did not take any actions to intervene or otherwise pursue its subrogation claim
for medical expenses in the malpractice action.

       The malpractice trial began on March 1, 2004. The Plan was not represented
at the trial. On March 2, 2004, the medical malpractice defendants told Crosby that
they planned to move to dismiss the Plan’s subrogation claim based on the statute of
limitations.2 The same day, Crosby informed the Felhaber firm of the motion so the
Plan could represent its interests. Later that day, Cullen informed Crosby that the Plan
believed it was in the Janssens’ best interest for Crosby to defend the Plan’s
subrogation claim. This request by Cullen represented a change in position from the
Plan’s earlier election not to retain Crosby to pursue its subrogation claim. On March
3, 2004, Crosby sent a fax to Cullen stating that he only represented Alex Janssen and

      2
       The statute of limitations barred any claims by the parents. However, since
Alex was a minor at the time of the alleged malpractice, he could pursue his personal
claims at any time up to one year after attaining the age of majority. Minn. Stat. §
541.15(a)(1).

                                          -3-
that he would not take a position regarding the motion to dismiss the Plan’s
subrogation interest.

      On March 5, 2004, no one appeared to represent the Plan at the hearing on the
motion to dismiss. The motion was granted based on the statute of limitations and the
Plan’s failure to prosecute.

      Following the presentation of evidence, the Janssens settled their malpractice
action for $225,000. The settlement did not cover reimbursement of medical
expenses. Since Alex was a minor, the settlement agreement was subject to court
approval. A hearing for the settlement agreement was set for March 25, 2004.

       On March 24, 2004, Cullen’s assistant contacted Crosby to inquire about the
Plan’s subrogation interest. Crosby responded by facsimile, stating that the trial court
had dismissed the Plan’s subrogation interest at the March 5 motion hearing. He also
informed Cullen of the settlement hearing. On March 25, 2004, the settlement hearing
was held. Marnie Polhamus attended for the Felhaber firm, but made no objection to
the settlement. The settlement agreement was approved.

       On March 30, 2004, Crosby received a letter from Cullen objecting to the
settlement agreement. Cullen objected to the lack of a provision in the agreement
providing subrogation to the Plan. Further, Cullen stated that pursuant to the
Summary Plan Description (SPD), the Plan would not pay future benefits to the
Janssens until it recovered its subrogation interest.

       On April 5, 2004, Cullen sent a letter to the Plan’s Trustees. In that letter,
Cullen summarized the settlement hearing and subsequent letter to Crosby. The letter
did not mention dismissal of the Plan’s subrogation interest claim or the fact that the
Felhaber firm did not defend the claim at the motion hearing or object to the
settlement agreement at the approval hearing. Cullen stated in the letter that it was

                                          -4-
unlikely that the Plan would recover its interest from the settlement. Rather, he
suggested that the Plan should recover its subrogation interest by denying future
medical claims by the Janssens until the Plan was repaid. The letter requested that the
Trustees initial the letter if they agreed with Cullen’s plan, which they did. On April
7, 2004, Cullen told the Plan’s administrative manager to notify Jamie Janssen that
claims for future benefits would be denied.

       On April 13, 2004, the Plan sent a letter to Jamie Janssen informing him that
it had suspended the Janssens’ benefits because it did not recover any of its
subrogation claim as part of the settlement reached in the Janssens’ medical
malpractice lawsuit. The letter stated that any new claims would be denied until the
total amount of denied claims equaled $29,431.47, the amount the Plan believed it
should have received under subrogation. On April 23, 2004, counsel for the Janssens
asked the Trustees to review the decision to deny the Janssens’ medical benefits. The
Plan responded in letters dated April 29 and May 11, 2004, reaffirming its position
that benefits would be suspended until the overpayment was resolved.

       In May 2004, Jamie Janssen visited the dentist. The dentist submitted an
insurance claim to Delta Dental. The claim was denied. When Elizabeth Janssen
contacted Trustee Tom Tweet, he informed her that all of the Janssens’ benefits had
been terminated. On July 14, 2004, the Janssens sent a letter to the Plan demanding
reinstatement of their benefits. The Plan responded in a letter again stating that the
Janssens had been overpaid by $29,431.47 and that the Plan was entitled to recoup this
amount by denying benefits to the Janssens.

      On July 30, 2004, the Janssens commenced this lawsuit against the Plan
pursuant to 29 U.S.C. § 1132(a)(1)(B) and (a)(3). The Janssens alleged that: 1) the
Plan unlawfully denied benefits owed to the Janssens; 2) the Plan breached its
fiduciary duty owed to the Janssens; and 3) the Plan failed to comply with certain
procedural requirements of ERISA.

                                         -5-
       The Janssens brought a motion for summary judgment on their claim that the
Plan unlawfully denied benefits. The Plan brought a cross-motion to dismiss, or in
the alternative, for summary judgment. The district court granted summary judgment
in favor of the Janssens on the first count, finding that the Plan waived its right to
pursue its claims for medical expenses by failing to defend the motion to dismiss. It
also found that the Plan’s subrogation claim was time-barred and that the settlement
proceeds represented only payment for Alex Janssen’s pain and suffering, not his
medical expenses. The district court granted summary judgment in favor of the Plan
as to the fiduciary duty claim because that claim sought no relief greater than that
claimed by the denial of benefit claim. The district court denied the Plan’s motions
with respect to the final claim of failure to comply with certain procedural
requirements of ERISA. The Plan now brings this timely appeal.

II. Discussion

      A. Standard of Review

       We review the trial court’s grant of summary judgment de novo. Ortlieb v.
United HealthCare Choice Plans, 

, 781 (8th Cir. 2004). On appeal, the
Plan and its Trustees argue that we should apply an abuse of discretion standard in
reviewing the Plan’s denial of benefits because the Plan vests the Trustees with
discretion to determine eligibility for benefits and to construe the terms of the Plan.

       We apply a de novo standard of review to challenges of a denial of benefits,
unless a plan grants its administrator discretionary authority to determine benefit
eligibility or construe the terms of the plan. Firestone Tire & Rubber Co. v. Bruch,

, 115 (1989). If a plan gives discretion to a plan administrator, we review
the plan administrator’s decision for an abuse of discretion. 

a plan
administrator enjoys discretion, a less deferential standard of review is applied if a
plan beneficiary “present[s] material, probative evidence demonstrating that (1) a

                                         -6-
palpable conflict of interest or a serious procedural irregularity existed, which (2)
caused a serious breach of the plan administrator’s fiduciary duty . . . .” Woo v.
Deluxe Corp., 

, 1160 (8th Cir. 1998). To meet the second prong of this
test, a plan beneficiary “must only show that the conflict or procedural irregularity has
‘some connection to the substantive decision reached.’” 

(quoting Buttram
v. Cent. States, Se. & Sw. Areas Health & Welfare Fund, 

, 900 (8th Cir.
1996)).

        In this case, a less deferential standard of review is appropriate. The Plan grants
the Trustees discretion to interpret the provisions of the Plan. Yet there is no evidence
that the Trustees performed a meaningful review prior to the April 13th letter denying
the Janssens’ benefits. The Plan asserts that the April 5 letter, initialed by the
Trustees, is sufficient evidence of meaningful review. We disagree. The Trustees
appear to have reached their decision without knowing the circumstances surrounding
the Plan’s subrogation interest. The Plan claims that it obtained this information from
the Janssens in their April 13 letter. The record does not support the Plan’s claim that
this letter fully informed the Trustees as to the actions, or lack thereof, taken by Cullen
to protect the Plan’s subrogation interest. The Plan did not explain in its April 13
letter to Jamie Janssen the Plan provisions on which its decision was based, as
required by 29 C.F.R. § 2560.503-1(g)(1)(ii). Further, the Plan did not notify the
Janssens of their appeal rights as required by 29 C.F.R. § 2560.503-1(g)(1)(iv).
Finally, the Plan’s failure to act to protect its claimed subrogation interest constitutes
a procedural irregularity. The Plan was well-informed of court dates by Crosby. The
Plan had notice that it might lose its subrogation interest. These procedural
irregularities are connected to the Plan’s substantive decision to suspend the Janssens’
benefits. Thus, the district court correctly concluded that in making its benefits
determination, “sufficient procedural irregularities existed to adopt the ‘sliding scale’
abuse of discretion standard set forth in Woo.” See 

.




                                           -7-
       “Under the traditional abuse of discretion standard, the plan administrator’s
decision to deny benefits will stand if a reasonable person could have reached a
similar decision.” 

When the “sliding scale” standard is used, “the
evidence supporting the plan administrator’s decision must increase in proportion to
the seriousness of the conflict or procedural irregularity.” 

of the Plan’s Decision Under the Sliding Scale Standard

       To determine if a plan administrator’s interpretation of a plan is reasonable, we
consider five factors. Finley v. Special Agents Mut. Benefit Ass’n, 

, 621
(8th Cir. 1992). Those factors are: 1) whether the interpretation is consistent with the
goals of the plan; 2) whether the interpretation renders any language in the plan
meaningless or internally inconsistent; 3) whether the interpretation conflicts with the
substantive or procedural requirements of ERISA; 4) whether the plan administrator
has interpreted the provisions at issue consistently; and 5) whether the interpretation
is contrary to the clear language of the plan. 

consider all of the
factors, “significant weight should be given to [] a misinterpretation of unambiguous
language in a plan.” Lickteig v. Bus. Men’s Assurance Co. of Am., 

, 585
(8th Cir. 1995). Accordingly, we will consider the fifth factor first.

       The Trustees’ interpretation of the policy was contrary to the clear language of
the Plan. The SPD states in section 8.12:

      If a Participant or Dependent has a medical injury, illness, or condition
      (“condition”) that another person, person’s insurer, or other plan (“third
      party”) may be liable for (whether or not the third party caused such
      condition), a claim for reimbursement of your medical expenses may
      exist against that third party. In this case, the Plan may elect not to pay
      your medical claims. If the Plan does pay your claims, this Plan has a
      legal right to pursue (i.e., will be “subrogated” to) claims for medical
      expenses that requires the Participant or Dependent to . . . .”


                                          -8-
The SPD defines subrogation as “the substitution of one person in the place of another
with reference to a legal right or claim.” The subrogation right in this case only exists
as to the Janssens’ claims for past medical expenses. The district court correctly noted
that under subrogation principles, the Plan “stands in the shoes of [the Janssens] and
has no greater rights than [the Janssens have].” Accordingly, the Plan does not have
a general right of recovery against the Janssens. Rather, the Plan has only the same
rights as the Janssens to pursue claims for medical expenses. Because any possible
claim for medical expenses by the Janssens was time-barred, the Plan has no
subrogation right to recover medical expenses.

       The Plan argues that an ERISA plan may be subrogated to all of a participant’s
right to recovery, not just medical expenses, citing Waller v. Hormel Foods Corp., 

(8th Cir. 1997). The case at bar is distinguishable from Waller. In Waller,
the plan was “‘subrogated to all rights of recovery.’” 

In contrast, here the
language of the subrogation clause is limited to recovery of medical expense claims.
In addition, the settlement in Waller claimed that any subrogation was contingent
upon the release of medical claims by the plan. 

that contingency, the
plan in Waller was entitled to full subrogation rights. That type of settlement
contingency is not present here.

        Further, the Plan failed to comply with procedural requirements of ERISA. At
issue here is whether 29 U.S.C. § 1133 and 29 C.F.R. § 2560.503-1 were violated.
These provisions require a plan to provide adequate written notice of a claim denial.
The writing must include specific reasons for the denial as well as notice of a method
and reasonable opportunity for full and fair review of the decision. 29 U.S.C. § 1133;
29 C.F.R. § 2560.503-1. We agree with the district court that the April 13, 2004 letter
informing the Janssens of the denial of future benefits qualifies as a denial letter for
purposes of ERISA. Union Pac. R.R. Co. v. Beckham, 

, 330 (8th Cir.
1998) (stating that a before-the-fact repudiation of benefits qualifies as a denial). The
letter clearly states the Plan’s intention to deny the Janssens’ future benefits. It states,

                                            -9-
“[W]e have been instructed by the Trustees to deny payment of any medical claims
for you and your dependents until the total amount of such denied claims equals
$29,431.47.” The April 13 letter, however, does not satisfy the requirements of 29
U.S.C. § 1133 and 29 C.F.R. § 2560.503-1. It does not explain the reasons behind the
denial of benefits, nor does it cite specific plan provisions. The specific reasons for
the denial of benefits and citations were only communicated later, following the denial
of Jamie Janssen’s dental claim in late spring 2004. Additionally, the proper appeals
process was not explained in the April 13 letter. It is irrelevant whether the process
was explained later; the process must be included in the initial denial letter to comply
with ERISA. See King v. Hartford Life and Acc. Ins. Co., 

, 999-1000
(8th Cir. 2005) (stating that any claim denial must set forth the plan’s rationale at the
time of the denial and that claims cannot be “sandbagged by after-the-fact plan
interpretations devised for purposes of litigation.” (quoting Marolt v. Alliant
Techsystems, Inc., 

, 620 (8th Cir. 1998))). This failure to comply with
the procedural requirements of ERISA compounds the substantive harm caused by the
Trustees’ contrary interpretation of the Plan language.

       In light of our conclusion that the Trustees’ interpretation is contrary to the
clear language of the Plan, and in light of the Trustees’ failure to comply with the
procedural requirements of ERISA, it is unnecessary for us to determine whether the
Plan has interpreted the plan language consistently or in accordance with the goals of
the Plan. Based on our analysis we conclude that the Plan’s decision was
unreasonable.

      Accordingly, we affirm the decision of the district court.
                      _____________________________




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