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Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 

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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.

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

District of Minnesota.

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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

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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).

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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

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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

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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. 

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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, 387 F.3d 778, 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,

489 U.S. 101, 115 (1989). If a plan gives discretion to a plan administrator, we review

the plan administrator’s decision for an abuse of discretion. Id. Even where 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

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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., 144 F.3d 1157, 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.’” Id. at 1161 (quoting Buttram

v. Cent. States, Se. & Sw. Areas Health & Welfare Fund, 76 F.3d 896, 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 Woo, 144 F.3d at 1161.

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“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.” Id. at 1162. 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.” Id.

B. Reasonableness 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, 957 F.2d 617, 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. Id. Although we 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., 61 F.3d 579, 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 . . . .”

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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., 120

F.3d 138 (8th Cir. 1997). The case at bar is distinguishable from Waller. In Waller,

the plan was “‘subrogated to all rights of recovery.’” Id. at 140. 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. Id. Based on 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, 138 F.3d 325, 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,

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“[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., 414 F.3d 994, 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., 146 F.3d 617, 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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