Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-04856/USCOURTS-cand-3_06-cv-04856-5/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 29:1109 Breach of Fiduciary Duties

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United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

DOUGLAS McVICKER and NANCY

McVICKER,

Plaintiffs,

 v.

BLUE SHIELD OF CALIFORNIA and SAN

FRANCISCO MEDIA FAX INC. HEALTH

CARE BENEFITS PLAN,

Defendants.

 

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Case No. 06-4856 SC

ORDER DENYING

PLAINTIFFS' MOTION

FOR SUMMARY JUDGMENT

AND DENYING

DEFENDANTS' MOTION

FOR SUMMARY JUDGMENT

I. INTRODUCTION

This matter comes before the Court on the parties' crossmotions for summary judgment. See Docket Nos. 42, 46. Both

parties have submitted Oppositions and Replies. See Docket Nos.

57, 62, 68, 70. For the following reasons, the Court DENIES

Plaintiffs' Motion for Summary Judgment and DENIES Defendants'

Motion for Summary Judgment.

II. BACKGROUND

The plaintiffs Douglas McVicker and Nancy McVicker

("Plaintiffs") filed a complaint in federal district court for

Recovery of Employee Benefits [Under] 29 U.S.C. § 1132(a)(1) and

Breach of Fiduciary Duty [Under] 29 U.S.C. §§ 1109(a) and

1132(a)(2). See Compl., Docket No. 10. The Complaint alleges

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1

 Although Media Fax is a named defendant, it has not made an

appearance. Plaintiffs, in their papers, only discuss Blue Shield. 

The Court therefore assumes that the McVickers and Blue Shield are

the only real parties of interest. 

2

 ERISA is the Employee Retirement Income Security Act of

1979, codified at 29 U.S.C. §§ 1001 et seq.

2

that defendants Blue Shield of California ("Blue Shield") and San

Francisco Media Fax Inc. Health Care Benefits Plan ("Media Fax")

improperly terminated Plaintiffs' health care plan.1

Douglas McVicker was CEO of Media Fax and Nancy McVicker is

his wife. Def.'s Mot. at 1; Pls.' Mot. at 2; Douglas McVicker

Decl. ¶ 2. In 1997 Blue Shield issued an ERISA-governed group

health care contract ("the Contract") to Media Fax.2 Def.'s Mot.

at 1; Pls.' Mot. at 2. The Contract funded an employer sponsored

welfare benefit plan ("the Plan"). Def.'s Mot. at 3. Douglas

McVicker, as the CEO, was a participant in the Plan and his wife

Nancy was a beneficiary. Pls.' Mot. at 2. 

The Contract provided that dues for the plan were payable on

the first of each month. Martin Decl. ¶ 4; Ex. A at 033. The

Contract also provided for a 30-day grace period for the payment

of dues. Id. Cancellation of the Contract was permitted for

nonpayment of the dues. Martin Decl., Ex. A at 087. 

Specifically, the Contract stated:

Blue Shield may cancel this contract for

non-payment of dues by written notice

delivered to the Employer, or mailed to

the Employer's last address as shown on

the records of Blue Shield, stating when,

not less than 15 days thereafter, such

cancellation shall be effective,

retroactive to the last day of the period

to which dues were paid. 

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Id.

Media Fax and Douglas McVicker in his capacity as CEO failed

to make payment to Blue Shield for the dues owed under the

Contract for July 2002. Pls.' Mot. at 2; Def.'s Mot. at 5. In a

letter dated July 17, 2002, and addressed to Douglas McVicker,

Blue Shield demanded payment for July. Ware Decl. Ex. A. The

letter stated, in part: 

Blue Shield's policy is that unless we

resolve the delinquent status of your

group's dues by the last day of the

current billing period, your coverage

will be cancelled for non-payment of

dues. This is Blue Shield's advance

notice of cancellation effective

07/01/02.

Id.

On August 6, 2002, Blue Shield cancelled the Contract after

not receiving any payment from Douglas McVicker or Media Fax. 

Martin Decl. ¶ 11; Ex. A at 322 and 325. On August 7, 2002, Blue

Shield received the dues payment from McVicker for the month of

July. Def.'s Mot. at 5; Martin Decl. ¶ 13. By letter dated

August 12, 2002, Blue Shield advised Media Fax/Douglas McVicker

that the late payment for July 2002 was not accepted and would be

refunded. Martin Decl. ¶ 15; Ex. A at 269. Plaintiffs did not

dispute the cancellation, submit a request for reinstatement, or

submit any other dues payments to Blue Shield. Martin Decl. ¶¶

13, 14, 16. The only communication between Blue Shield and the

McVickers after August 12, 2002, was a letter from Douglas

McVicker to Blue Shield, dated July 29, 2003, asking for copies of

the delinquency notice and cancellation letter. Martin Decl. ¶

16; Ex. A at 274. Prior to Blue Shield's cancellation of the

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3

 There is no indication, and Plaintiffs do not allege, that

the cancellation had anything to do with Nancy McVicker's cancer

diagnosis. Both parties agree that the cancellation was related to

the timeliness of Plaintiffs' payment.

4

Contract, Nancy McVicker had been diagnosed with cancer.3

 Pls.'

Mot., McVicker Decl. ¶ 3. Because of this diagnosis Plaintiffs

had been unable to obtain other health insurance. Id. In July

2003, almost one year after Blue Shield cancelled the Contract,

Nancy McVicker began treatment for the cancer. Def.'s Mot.,

Murray Decl. ¶ 3; Ex. B. Although Plaintiffs were able to obtain

grants and other low-cost or no-cost services for the cancer

treatment, Plaintiffs still had to pay out-of-pocket costs of

$48,594.84. Id. ¶ 4. Plaintiffs now seek to recover these costs

based on the theory that Blue Shield's notice of cancellation was

defective.

III. DISCUSSION

A. Legal Standard

Entry of summary judgment is proper "if the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party is

entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). 

"Summary judgment should be granted where the evidence is such

that it would require a directed verdict for the moving party.” 

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). Thus,

"Rule 56(c) mandates the entry of summary judgment . . . against a

party who fails to make a showing sufficient to establish the

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existence of an element essential to that party's case, and on

which that party will bear the burden of proof at trial." Celotex

Corp. v. Catrett, 477 U.S. 317, 322 (1986). In addition, entry of

summary judgment in a party's favor is appropriate when there are

no material issues of fact as to the essential elements of the

party's claim. Anderson, 477 U.S. at 247-49.

B. Analysis

In their Motion Plaintiffs allege that the notice of

cancellation provided by Blue Shield was defective and that they

are therefore entitled to the $48,594.84 they spent on Nancy

McVicker's cancer treatment. Defendant alleges that the notice

was proper and that Plaintiffs' action is barred by applicable

statutes of limitations and time limitations from the Contract. 

1. Notice Under California Law

The California Health and Safety Code requires that a group

health care service plan contain a "provision requiring the health

care service plan to notify the group contract holders in writing

of the cancellation of the plan contract . . . ." Cal. Health &

Safety Code § 1367.23(a). In addition, the Code permits

cancellation of a group health care service plan for "[f]ailure to

pay the charge for such coverage if the subscriber has been duly

notified and billed for the charge and at least 15 days has [sic]

elapsed since the date of notification." Id. § 1365(a)(1). 

Plaintiffs assert that Blue Shield's cancellation was

defective and therefore the policy remained in effect through the

time of Nancy McVicker's cancer treatment, almost one year after

the Contract was purportedly cancelled.

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California law supports Plaintiffs' claim that improper

notice of cancellation may result in no cancellation: 

[W]hether an insurer's attempted

cancellation of an automobile insurance

policy was ineffective because the notice

provided was procedurally defective,

regardless of whether the insurer acted

upon a valid ground for cancelling the

policy. . . . is [a valid claim] by the

rule in California that notices of

cancellation must strictly comply with

statutory directives . . . .

Mackey v. Bristol W. Ins. Serv. of Cal., Inc., 105 Cal. App. 4th 1247

1257-58 (Ct. App. 2003).

"In California, there is no such thing as substantial

compliance in furnishing notice that an insurance policy has been

cancelled." Id. at 1258. "Termination of coverage can only be

accomplished by strict compliance with the terms of any statutory

provisions applicable to cancellation." Id. "Likewise, the

insurer must adhere closely to all policy provisions setting forth

requirements as to the time and manner of giving notice of

cancellation to the insured." Id. "If a cancellation is

defective, the policy remains in effect even if the premiums are

not paid." Kotlar v. Hartford Fire Ins. Co., 83 Cal. App. 4th

1116, 1121 (Ct. App. 2000).

Plaintiffs assert that notice of cancellation was defective

because Blue Shield failed to provide the requisite notice period. 

Both California law and the Contract provide for a 15 day notice

period of cancellation. See Cal. Health & Safety Code §

1365(a)(1); Martin Decl., Ex. A at 087 (stating "Blue Shield may

cancel this contract for non-payment of dues by written notice . .

. stating when, not less than 15 days thereafter, such

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4

 Plaintiffs state: "By letter dated July 17, 2002, Blue

Shield endeavored to cancel Plaintiffs' coverage for nonpayment of

dues." Pls.' Mot. at 2. Plaintiffs later indicate, however, that

they might not have received the letter until July 18, 2002. 

Regardless of whether notice was received on July 17 or July 18,

Plaintiffs clearly state that "notice of cancellation here was

ineffective because it gave only 14 days notice (and one minute,)

and therefore Plaintiffs' coverage was automatically renewed and in

full force and effect when Plaintiffs had to pay for Mrs.

McVicker's cancer treatment." Pls.' Mot. at 5.

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cancellation shall be effective . . .").

Plaintiffs assert that "[o]n the face of the notice given in

this case, Blue Shield gave Plaintiffs only 14 days and one

minute." Pls.' Mot. at 4. Both parties appear to concede that

notice of the cancellation was initially provided by Blue Shield

in the July 17, 2002, letter.4

 The letter stated that Plaintiffs'

payment must be received by "the last day of the current billing

period." Ware Decl. Ex. A. 

Although it is unclear, it appears that the billing period

expired on August 1, 2002. In Plaintiffs' deposition of Blue

Shield representative Kim Martin, the following exchange took

place:

Question: And the last day of that

billing period is when?

Answer: The last day of July. August

1st.

Question: I notice your counsel was

just giving you that answer, but you

first said July. I understand. The

records speak for themselves.

Answer: Well, we talked about that

earlier where it's midnight. The

billing period is July to August 1st of

midnight.

Question: I really have to ask you not

to whisper to the witness. That's just

not fair. I think I understand what

you're saying. What you're saying is

that the current billing period we are

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dealing with here goes through one

minute in to August 1st. Is that true?

Answer: That's how--when we described

it earlier, it's to midnight.

Question: So it gives them--it gives

them until 12:01 a.m.--the billing

period that is being referred to here in

Exhibit 5 is 12:01 a.m. on August 1,

2002. Is that a correct statement?

Answer: I would have to look at the

contract to see the actual hour that it

cuts off. Our billing period is 7/1 to

8/1. Whether that cuts off at 12:01 or

11:59.

Question: It would either cut off at

11:59 on July 31st, or it would cut off

on August 1 at 12:01 a.m.

Pls.' Mot., Ex. B, Martin Dep. at 57-58. Six days after the

deposition Blue Shield submitted a series of corrections that

indicated that the period ended on 12:01 a.m. on August 1, 2002. 

Pls.' Mot., Ex. B. 

Although the above exchange indicates to the Court that there

is indeed confusion regarding whether the period ended on July

31st or August 1, Plaintiffs apparently concede that the period

ended on August 1. In their Motion Plaintiffs state: "As the end

of the July 2002 billing period at issue here is one minute after

midnight July 31, 2002 (i.e. August 1, 2002 at 12:01 a.m.[)], the

notice, on its face, only gives 14 full days notice (plus one

minute of the 15th day)." Mot. at 4. Elsewhere Plaintiffs

reiterate this, stating "[t]he July 'billing period' described in

[the July 17] letter ended on August 1, 2002, at 12:01 a.m." Mot.

at 2. Therefore, the Court assumes, for purposes of the pending

summary judgment motions, that the billing period did in fact end

on August 1, 2002, at 12:01 a.m. 

Plaintiffs assert that the one minute on August 1 does not

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5 Blue Shield also asserts that they had an informal policy

of granting extensions on late payments. As proof of this, Blue

Shield notes that the Contract was not actually cancelled until

August 6. This, however, is besides the point. The issue is

whether the notice complied with the 15-day statutory requirement. 

Whether Blue Shield waited several extra days after the end of the

billing period before terminating the Contract does not change the

fact that the July 17 letter provided Plaintiffs with less than 15

days notice.

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constitute a full day and Blue Shield did not therefore provide

the requisite 15-day notice period. Defendants counter that even

though the billing period expired at 12:01 a.m. on August 1, the

language contained in both the Contract and the July 17 letter

states that payment was due "by the last day of the current

billing period." Ware Decl. Ex. A. Thus, even if the billing

period expired at 12:01 a.m., payment would be accepted at any

time on August 1 and 15-day notice period was satisfied. Def.'s

Mot. at 2. 

Contrary to Defendant's assertion, the Court cannot conceive

how one minute can be construed to be one day. The language of

the Contract was clear that payment was due the last day of the

billing cycle. Although the billing period itself may have

terminated one minute into the following day, the last day of the

period was July 31. Accordingly, the notice of cancellation

provided by Blue Shield was not in compliance with California law.5

2. Whether Action is Time-Barred

Blue Shield asserts that even if the cancellation notice was

defective, Blue Shield is entitled to summary judgment because

Plaintiffs' action is time-barred. As noted above, Blue Shield,

in a letter dated July 17, 2002, provided notice to Douglas

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McVicker that the Contract would be terminated unless payment was

received by the last day of the policy period. Martin Decl., Ex.

A at 270. No payment was received and on August 6, 2002, Blue

Shield terminated the Contract. Martin Decl. ¶ 11; Ex. A at 322. 

On August 7, 2002, Blue Shield received the dues payment for the

July coverage period. Martin Decl. ¶ 13; Ex. A at 303, 304. By

letter dated August 12, 2002, Blue Shield advised Plaintiffs that

the Contract had been cancelled and the payment for the July

coverage period would be refunded as it was received after the

last day of the policy period. Martin Decl. ¶ 15; Ex. A at 269. 

Plaintiffs filed the present action on August 11, 2006.

a. ERISA Statute of Limitations

"California Code of Civil Procedure Section 337[] provides

the applicable statute of limitations for an ERISA cause of action

based on a claim for benefits under a written contractual policy

in California." Wetzel v. Lou Ehlers Cadillac Group Long Term

Disability Ins. Program, 222 F.3d 643, 648 (9th Cir. 2000) (en

banc). Section 337 states that the statute of limitations is four

years. Cal. Code Civ. P. § 337. Thus, under ERISA the statute of

limitations is four years and "an ERISA action accrues either at

the time benefits are actually denied or when the insured has

reason to know that the claim has been denied." Wetzel, 222 F.3d

at 649 (internal citations omitted). 

It is undisputed that the Contract was terminated on August

6, 2002. Thus, the earliest date at which the present action

began accruing was August 6, 2002. The latest possible date on

which Plaintiffs would have reason to know that the Contract was

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6 Plaintiffs acknowledge receipt of the August 12 letter. 

Pls.' Opp'n, Douglas McVicker Decl. ¶ 5.

7 Plaintiffs also assert that "there are not the foundational

facts necessary to support the 'business records' exception to the

hearsay rule." Pls.' Opp'n at 4. Plaintiffs, however, have

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cancelled was August 12, 2002.6

 Plaintiffs filed the present

action on August 11, 2006. If the operative date for the accrual

period is August 12, 2002, then Plaintiffs are within the ERISA

statute of limitations by one day. If, however, the operative

date is before August 11, 2002, then Plaintiffs' action is timebarred.

 Blue Shield asserts that it notified Plaintiffs of the

cancellation by letter dated August 7, 2002. Blue Shield does not

have a copy of this letter but has submitted evidence that

indicates that such a letter was sent. Kim Martin, a Blue Shield

employee of 21 years, was designated as the person most

knowledgeable regarding the cancellation of group health care

contracts in 2002. Supplemental Martin Decl. ¶ 2. In a sworn

declaration, Martin stated: 

By letter dated August 7, 2002, Blue

Shield advised Media Fax/Mr. McVickar

[sic] that the Group Health Contract was

cancelled for nonpayment retroactive to

July 1, 2002. . . . Blue Shield did not

keep copies of system-generated

cancellation letters in the file, such as

the August 7, 2002 letter . . . . The

Activity Notes indicate that the Group

Cancellation letter was processed on

August 8, 2002, which means that it was

generated (and dated) August 7, 2002.

Martin Decl. ¶ 12. 

Plaintiffs object to this portion of Martin's declaration on

the grounds that it is hearsay.7

 Pls.' Opp'n at 4. Hearsay is an

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objected to the declaration of Martin, not to the records submitted

by Blue Shield. The business records exception is therefore not

applicable. See Fed. R. Evid. 803(6) (stating that "records of

regularly conducted activity" are not excluded by the hearsay

rule").

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out of court statement "offered into evidence to prove the truth

of the matter asserted." Fed. R. Evid. 801(c). Nothing in this

portion of the declaration is hearsay. It is instead Martin's

explanation of the significance of different entries in the record

and her explanation of Blue Shield's normal course of business

practice. As an employee of Blue Shield for 21 years and as a

Supervisor of the Small Group Billing Department, Martin is

qualified to make such statements.

Plaintiffs state that they have no recollection of the August

7 letter. Pls.' Opp'n, McVicker Decl. ¶ 3. Given that the case

is at summary judgment stage, the Court cannot conclude that there

is no triable issue of material fact regarding the date that

Plaintiffs received notice of the cancellation. Thus, the Court

cannot conclude that Plaintiffs' action is barred by the four year

statute of limitations.

b. The Contract Time Period Limitation

Blue Shield also argues in the alternative that the two year

limitations period contained in the Contract bars the present

action. The General Provisions section of the Contract, under the

subheading "Commencement of Legal Action," states: "Any suit or

action to recover benefits under this contract . . . or any other

matter arising out of this contract, shall be commenced no later

than two years after the date the coverage for benefits in

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question were first denied." Martin Decl., Ex. A at 91.

"[I]n the absence of a controlling statute to the contrary, a

provision in a contract may validly limit, between the parties,

the time for bringing an action on such contract to a period less

than that prescribed in the general statute of limitations,

provided that the shorter period itself shall be a reasonable

period." Order of United Commercial Travelers v. Wolfe, 331 U.S.

586, 608 (1947). Blue Shield argues that the two year time period

is reasonable.

Although the Ninth Circuit has not squarely addressed this

issue, it "has implied that it would allow a shorter statute of

limitations for an ERISA claim if one is contained in a policy." 

Sousa v. Unilab Corp., 252 F. Supp. 2d 1046, 105 (E.D. Cal. August

14, 2002) (citing Wetzel v. Lou Ehlers Cadillac Group Long Term

Disability Ins. Program, 222 F.3d 643, 650 (9th Cir. 2000).

The court in Sousa determined that a three year limitation

period was acceptable. The court stated: 

The law does not require all statutes of

limitations for ERISA claims be four

years. Rather, . . . the law allows for

shorter limitation periods if they are

reasonable, and the Ninth Circuit has

impliedly approved of a contractual three

year limitation period. Because the

plan's three year limitation period is

allowed by law, the four year limitation

period provided by statute for ERISA

claims is not substituted into the Plan.

Sousa, 252 F. Supp. at 1057. 

Blue Shield asks the Court to find that the two year

limitation period of the Contract is reasonable. The Court

declines such an invitation. Although the Ninth Circuit has

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indicated that it would permit a shorter limitations period for an

ERISA claim, the court was specifically considering a reduced

limitations period of three years. See Wetzel, 222 F.3d at 650

(finding that an ERISA claim brought within the four year statute

of limitations might nonetheless be barred by a three year

limitations provision in the policy); see also Souza, 252 F. Supp.

at 1057 (describing the Wetzel court as having "impliedly approved

of a contractual three year limitation period").

 A one year reduction in a four year statute of limitations

period may be reasonable; halving a four year statute of

limitations is a different matter. This is especially true given

that the California legislature determined that a four year

statute of limitations period is appropriate for written contracts

and federal courts in California have approved of this statute for

ERISA claims. See Cal. Code Civ. P. § 337; Wetzel,222 F.3d at

648. The Court is unwilling to further hollow out a statute of

limitations specified by the California legislature. In the

absence of controlling authority stating otherwise, the Court

finds the two year limitations period contained in the Contract

unreasonable.

c. Statute of Limitations for Breach of Fiduciary

Duty

Plaintiffs' second cause of action is for breach of fiduciary

duty under 29 U.S.C. §§ 1104(a)(1); 1109; 1132(a)(2). Defendant

argues that this cause of action is barred by the three year

statute of limitations for breach of fiduciary duty contained in

29 U.S.C. § 1113. Section 1113 states:

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No action may be commenced under this

subchapter with respect to a fiduciary's

breach of any responsibility, duty, or

obligation under this part, or with

respect to a violation of this part,

after the earlier of . . . three years

after the earliest date on which the

plaintiff had actual knowledge of the

breach or violation . . . . 

29 U.S.C. § 1113. 

The Tenth Circuit has squarely addressed the issue of whether

§ 1113 bars claims brought under § 1132. In Wright v. S.W. Bell

Telephone Co., 925 F.2d 1288, 1290 (10th Cir. 1991), the court

held that "the district court erred when it concluded that section

1113 was applicable to an action brought under section 1132." Id.

at 1292. "Section 1113 is, in fact, only applicable to actions

arising out of violations of the portion of the Act addressing

fiduciary responsibilities, 29 U.S.C. §§ 1101-12." Id. The Court

finds this reasoning persuasive and holds that Plaintiffs' § 1332

claim is not barred by § 1113.

In addition to their § 1332 claim, Plaintiffs' second cause

of action also raises §§ 1104(a)(1) and 1109. Section 1104(a)(1)

provides the definitions of fiduciary duties and § 1109 defines

the liability for breach of fiduciary duty. See 29 U.S.C. §§

1104(a)(1), 1109. The Court finds that the primary issue

Plaintiffs raise is the termination of the Contract, not the

financial solvency or accountability encompassed by § 1113. 

Therefore, § 1332 is the operative statutory basis for the claim

and § 1113 is inapplicable. See Wright, 925 F.2d at 1290 (stating

the plaintiff's "claim does not involve fiduciary responsibilities

regarding financial solvency or accountability as contemplated by

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section 1113. The focus of [the] complaint is on [the]

administration of the plan's benefits, specifically, the denial of

long-term disability benefits.") (emphasis in original). 

Therefore, the Court finds that Plaintiffs' second cause of action

under § 1132 is not barred by § 1113.8

3. Grace Period

Plaintiffs assert that they were entitled to an additional

10-day grace period after the last day of the policy period. The

evidence submitted by Blue Shield disproves this theory. The

Contract for Media Fax was considered by Blue Shield to be a small

group health care contract. Martin Decl. ¶ 5. Evidence submitted

under seal by Blue Shield demonstrates that the additional 10 day

grace period applied only to large group contracts or to small

group contracts who had called Blue Shield seeking additional

time. Supplemental Martin Decl. ¶ 6, Ex. A. As noted above,

Media Fax was a small group contract and Douglas McVicker did not

call Blue Shield seeking additional time to pay his bill. Thus,

Plaintiffs' assertion that they were entitled to an additional 10

day grace period after the policy period had ended is not

supported by the evidence.

Finally, Plaintiffs make much of the fact that because Blue

Shield had previously accepted a late dues payment, the August 7

late dues payment should also have been accepted. Pls.' Opp'n at

5. Plaintiffs assert that on May 7, 2002, Blue Shield accepted a

late payment. Pls.' Opp'n at 5. Blue Shield alleges that the

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previous late payment was actually accepted on June 7, 2002. 

Martin Decl. ¶ 18. Either way, it is clear that Blue Shield had

previously accepted a late payment on the 7th of some month and

then did not accept late payment on the 7th of August. 

Blue Shield has provided evidence that explains this apparent

discrepancy. Blue Shield's general business practice was to delay

the cancellation process "if the group contract holder called with

promise of payment before steps had been taken to cancel the

contract." Martin Decl. ¶ 18. Douglas McVicker called Blue

Shield on the 3rd of either May or June, 2002, with the promise of

a payment for the previous billing period. Id. Because of this

call, Blue Shield delayed referral of the Contract for

cancellation and ultimately accepted the late payment. Id. Blue

Shield asserts, and Plaintiffs do not argue, that there was no

such call made by Douglas McVicker or Media Fax regarding the July

payment. Thus, according to Blue Shield policy, there was no

additional delay in referring the Contract for cancellation. The

Contract was cancelled on August 6 and Plaintiffs' payment on

August 7 was rejected.

4. Laches and Failure to Mitigate

Defendant argues that Plaintiffs' claims are barred by the

doctrine of laches because Plaintiffs waited almost four years to

file the present action. This argument is not persuasive,

especially considering the fact that ERISA claims are, in general,

permitted within a four year statute of limitations. In addition,

Blue Shield has not demonstrated that Plaintiffs' delay has in any

way prejudiced Blue Shield.

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Defendant's argument that Plaintiffs' claim is barred because

Plaintiffs failed to mitigate is also without merit. Defendant

asserts that Plaintiffs should have sought reinstatement of the

Contract. Defendant's own August 12 cancellation letter, however,

states "[r]reinstatement is not available." Martin Decl. at 272. 

In addition, Plaintiffs were unable to secure other health

insurance due to Nancy McVicker's cancer diagnosis. Finally,

Plaintiffs did mitigate their expenses by obtaining grants and

other low-cost or no-cost services for the cancer treatment. 

Because of this Plaintiffs only had to pay out-of-pocket costs of

$48,594.84.

5. Blue Shield's Discretionary Authority

Blue Shield argues that "[t]o the extent that this case

involves Blue Shield's interpretation of the relevant Group Health

Contract provisions, Plaintiffs face a particularly difficult

burden of proof . . . ." Mot. at 12. This case, however, does

not involve Blue Shield's interpretation of the Contract

provisions. Instead, the case involves the amount of time Blue

Shield provided in its cancellation notice. Blue Shield's

discretionary authority to interpret the terms of the Contract and

determine benefit eligibility, while not disputed by the Court, is

nonetheless irrelevant to the present matter. 

6. Damages and Attorneys Fees

Plaintiffs seek damages of $48,594.84 and costs and attorneys

fees. As Defendant rightly notes, however, "if the Court

determines that Blue Shield's cancellation was ineffective, then

the claims should be remanded to the Plan administrator for

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processing under the terms of the Group Health Contract." Mot. at

14. The Ninth Circuit has stated that "remand for reevaluation of

the merits of a claim is the correct course to follow when an

ERISA plan administrator . . . has misconstrued the Plan and

applied a wrong standard to a benefits determination." Saffle v.

Sierra Pac. Power Co. Bargaining Unit Long Term Disability Income

Plan, 85 F.3d 455, 461 (9th Cir. 1996). Although the present case

differs from Saffle in that Plaintiffs' claim was never evaluated,

this fact only strengthens Blue Shield's assertion that they must

be allowed to evaluate Plaintiffs' claim. Accordingly,

Plaintiffs' Motion for Summary Judgment and request for damages

and fees and costs is also denied.

IV. CONCLUSION

For the foregoing reasons, the Court DENIES Plaintiffs'

Motion for Summary Judgement and DENIES Defendant's Motion for

Summary Judgment.

IT IS SO ORDERED.

Dated: November 13, 2007 

UNITED STATES DISTRICT JUDGE

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