Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_05-cv-02028/USCOURTS-azd-2_05-cv-02028-0/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 29:1132 E.R.I.S.A.-Employee Benefits

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

KAREN SAMPLES, )

) No. CIV 05-2028 PHX RCB

Plaintiff, )

) O R D E R

vs. )

)

FIRST HEALTH GROUP CORP., et )

al., )

)

Defendants. ) )

This matter arises out of an action brought pursuant to the

Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §

1132, by Plaintiff Karen Samples to challenge the rejection of her

claim for additional director-level severance benefits under the

First Health Group Corp. Severance Pay Plan (the "Plan") following

her termination through a reduction in work force. After her

denial of benefits, and an unsuccessful appeal, Plaintiff filed a

Complaint (doc. # 1) on July 8, 2005 against Defendants First

Health Group Corp., its subsidiary companies (collectively, "First

Health"), and the Plan. Currently before the Court is Defendants'

motion for summary judgment (doc. # 23). The motion has been fully 

Case 2:05-cv-02028-RCB Document 33 Filed 07/24/07 Page 1 of 17
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1

 For eligibility under the Plan, departing employees must "sign

a Separation Agreement and General Release with the Company

including, in some cases at the discretion of the Company,

restrictive covenants in a form satisfactory to the Company." DSOF

(doc. # 24), Ex. 2 at 2.

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briefed. Resp. (doc. # 25); Reply (doc. # 29). The Court finds

the matter suitable for decision without oral argument. Having

carefully considered the arguments raised by the parties' briefs,

the Court now rules.

I. BACKGROUND

A. Undisputed Facts

Plaintiff began her employment with First Health on October 4,

1999 as its "Clinical Management Services, Colleague Development

Director." Defs.' Statement of Facts ("DSOF") (doc. # 24) ¶ 3. On

January 19, 2004, First Health notified Plaintiff that her position

was being eliminated effective March 18, 2004 due to a reduction in

work force. Id. ¶ 4. The letter also informed Plaintiff that,

pursuant to the company's then existing severance pay plan, she

would be eligible for four weeks of severance pay. Id.

1. The Plan

On February 16, 2004, First Health notified Plaintiff that it

had organized and consolidated a number of its benefit plans,

including the aforementioned severance plan. As modified, the Plan

provides for the possibility of additional severance benefits

subject to the eligibility requirement that the departing employee

execute a release agreement.1 Id.; Pl.'s Statement of Facts

("PSOF") (doc. # 26) at 2.

The schedule of benefits under the Plan provides as follows

for "persons with the title of Manager or titles below Manager:"

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i. Minimum severance payment will be four (4)

Weeks of Pay;

ii. Severance pay will be two Weeks of Pay plus

(Year(s) of Service times one Week of Pay);

iii. Maximum severance pay will be fifteen (15)

Weeks of Pay.

DSOF (doc. # 24), Ex. 2 at 4. For "persons with the title of

Director or titles above Director," the Plan provides the following

benefits:

i. Minimum severance payment will be eight (8)

Weeks of Pay;

ii. Severance pay will be 4 Weeks of Pay plus

(Year(s) of Service times 2 Weeks of Pay);

iii. Maximum severance pay will be fifteen (17)

Weeks of Pay.

Id. at 5. An explanatory footnote clarifies that the phrase

"persons with the title of Director or titles above Director"

excludes "any position classified as 'non-supervisor' in the

Colleague Data Base, such as Medical Director, National Sales

Director, or Product Director." Id. at 5, n.1.

As the administrator and fiduciary of the Plan, First Health

retains the "sole, absolute discretion over issues or

determinations, regardless of the timing of such determination or

exercise of discretion." Id. at 6. The Plan further provides that

The Plan Administrator shall have the

discretion to make any findings of fact needed

in the administration of the Plan and will have

the discretion to interpret or construe

ambiguous, unclear or implied (but omitted)

terms in any fashion it deems to be appropriate

in its sole judgment. The validity of any such

findings of fact, interpretation, construction

or decision will not be given a de novo review

if challenged in Court, by arbitration or any

other forum and will be upheld unless clearly

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arbitrary and capricious. . . . If, due to

errors in drafting, any Plan provision does not

accurately reflect its intended meaning, as

demonstrated by consistent interpretations or

other evidence of intent, or as determined by

the Plan Administrator in its sole and

exclusive judgment, the provision will be

considered ambiguous and will be interpreted by

the Plan Administrator in a fashion consistent

with its intent, as determined by the Plan

Administrator in its sole discretion.

Id.

2. Eligibility Determination Regarding Director-Level Benefits

In the Colleague Data Base, Plaintiff's former position is

reflected with the title of "director," appearing as "CMS Colleague

Dev Dir." DSOF (doc. # 24), Ex. 7 at 3. The supervisory level

classification corresponding to that position is "Mgr" (for

"manager"), as opposed to "Non-Supv" (for "non-supervisor"). Id.

The supervisory level classifications for the Medical Director,

National Sales Director, and Product Director positions that are

referred to in the Plan are also indicated as "Mgr," not "NonSupv." Id.

On March 8, 2004, Plaintiff received a memorandum from Iris

Sullivan, First Health's Director of Human Resources, summarizing

First Health's decision to terminate Plaintiff's position and

reviewing the recent changes to the company's severance benefit

plan. DSOF (doc. # 24) ¶ 13. Enclosed with the memorandum were

two copies of the Separation and General Release agreement required

for eligibility under the new Plan. Id. The memorandum further

explained that, while Plaintiff would still be entitled to a

severance package that was presented to her on January 8, 2004, she

would have to sign and return the release agreement within 45 days

to be eligible for any additional severance benefits under the new

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Plan. Id. ¶¶ 13-14.

On March 18, 2004, the last day of her employment, Plaintiff

sent an email to Nancy Zambon, First Health's Vice President of

Human Resources, complaining about the information she received

from Sullivan who told her that she would not be eligible for

director-level compensation under the new Plan due to her title and

grade of employment. Id. ¶ 15.

On March 19, 2004, First Health issued a check made payable to

Plaintiff that included $5,931.20 of severance pay, calculated at

Plaintiff's wage rate of $37 per hour, i.e., four weeks of pay. 

Id. ¶ 16.

On April 14, 2004, Plaintiff wrote a letter to Zambon

reiterating her demand for director-level benefits under the Plan,

and requesting additional time to sign the release. Id. ¶ 17.

Plaintiff eventually retained counsel and formally appealed

First Health's decision to its Corporate Severance Plan Review

Committee (the "Committee"), which responded by letter dated

January 12, 2005. Id. ¶ 18. The Committee determined that

Plaintiff was not eligible for director-level benefits under the

Plan, explaining that "[t]he Plan language indicates the intent to

differentiate between the level of benefits awarded to a person

acting at a director level with a director title and someone who

merely has the word 'director' in their title." DSOF (doc. # 24),

Ex. 11. The Committee stated that "Footnote 1 to Section 5©) of

the Plan clearly provides that the classification in the Colleague

Data Base is the controlling classification for determining which

Schedule of Benefits applies when a colleague is eligible for

severance benefits." Id. Finally, the Committee's letter

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explained some distinctions that it apparently considered in

distinguishing between those "acting at a director level" and those

"who merely have the word 'director' in their title." These

considerations included the fact that (1) directors accrue Flexible

Time Off at a slightly higher rate than other colleagues, (2)

directors are required to sign an insider trading agreement, and

(3) directors are subject to blackout periods during which they

cannot buy or sell First Health stock. Id.

B. Disputed Facts

Plaintiff states that, during her employment, First Health

never explained to her that she was a manager and never showed her

the Colleague Data Base on which it has apparently relied in making

its benefit eligibility determination. PSOF (doc. # 26) ¶2. She

claims that, in her position as Colleague Development Director, she

exercised supervisory responsibilities over her unit's budget,

staff, processes, and procedures, and had eight employees reporting

to her. Id. ¶ 5. In addition, she states that she attended

director-level meetings, was responsible for strategic and longterm planning, recommended who would receive stock options and the

number of options to be awarded, and, unlike managers who worked in

cubicles, worked in an office with a view. Id. ¶¶ 6-9. First

Health does not dispute these facts, but maintains that it is

irrelevant whether potential plan beneficiaries can see the

Colleague Data Base or exercise any seemingly supervisory

responsibilities, because the Plan vests "sole and absolute

discretion" in the Plan Administrator to make benefit eligibility

determinations. Defs.' Supplemental Statement of Facts ("DSSOF")

(doc. # 30) ¶¶ 2, 5.

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2

 The Court does not fully appreciate the genuineness of this

"dispute," but, in the adversarial spirit exhibited by First Health,

will note the matter as being hotly contested.

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In her affidavit, Plaintiff also states that Sullivan, First

Health's Director of Human Resources, initially told her that she

thought Plaintiff had been incorrectly classified as a manager,

rather than a director, for purposes of severance benefits under

the Plan. PSOF (doc. # 26) ¶ 11. She states that Sullivan had

said that she should receive director-level benefits. Id. ¶ 12. 

First Health apparently believes that these statements are

contradictory to Plaintiff's deposition testimony that Sullivan had

told her that she felt First Health had misapplied the plan, and

that she felt Plaintiff was actually eligible for director-level

benefits.2 DSSOF (doc. # 30) ¶¶ 7-8. First Health also believes

that Sullivan's opinions are immaterial on account of the "sole and

absolute discretion" vested in First Health under the Plan. Id.

Plaintiff notes that the Plan does not define the terms

"director," "manager," "supervisor," or "non-supervisor," PSOF

(doc. # 26) ¶ 18, but First Health maintains that this, too, is

immaterial by virtue of its "sole and absolute discretion" under

the Plan. DSSOF (doc. # 30) ¶ 13.

Finally, Plaintiff contends that she was subject to blackout

periods for the purchase and sale of First Health stock, was

periodically reminded of such blackout periods throughout the term

of her employment, and that she did sign an insider trading

agreement. PSOF (doc. # 26) ¶¶ 19-20. First Health disputes these

allegations. DSSOF (doc. # 30) ¶ 14.

. . .

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II. STANDARD OF REVIEW

Summary judgment is appropriate "when there is no genuine

issue of material fact" such that "the moving party is entitled to

judgment as a matter of law." Fed. R. Civ. P. 56. In determining

whether to grant summary judgment, a district court must view the

underlying facts and the inferences to be drawn from those facts in

the light most favorable to the nonmoving party. See Matsushita

Elec. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

If a party will bear the burden of proof at trial as to an

element essential to its claim, and fails to adduce evidence

establishing a genuine issue of material fact with respect to the

existence of that element, then summary judgment is appropriate. 

See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Not

every factual dispute is capable of defeating a properly supported

motion for summary judgment. Rather, the party opposing the motion

must show that there is a genuine issue of material fact. See

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). A

factual dispute is genuine if the evidence is such that a rational

trier of fact could resolve the dispute in favor of the nonmoving

party. Id. at 248. A fact is material if determination of the

issue might affect the outcome of the case under the governing

substantive law. Id. Thus, a party opposing a motion for summary

judgment cannot rest upon bare allegations or denials in the

pleadings, but must set forth specific facts demonstrating a

genuine issue for trial. See id. at 250. If the nonmoving party's

evidence is merely colorable or not significantly probative, a

court may grant summary judgment. See id. at 249; see also Cal.

Architectural Bldg. Prods., Inc. v. Franciscan Ceramics, 818 F.2d

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3

 First Health argues for the first time in its reply that

Plaintiff was ineligible for additional director-level benefits under

the Plan, because she did not execute a release. Reply (doc. # 29)

at 2-3. Ordinarily, the Court would not consider this argument

without providing Plaintiff an opportunity to respond. Cf. Provenz

v. Miller, 102 F.3d 1478, 1483 (9th Cir. 1996) (holding that where a

party introduces new evidence in its reply brief, the district court

should not consider the new evidence without giving the non-movant an

opportunity to respond); Corson & Gruman Co. v. NLRB, 283 U.S. App.

D.C. 239, 899 F.2d 47, 50 (D.C. Cir. 1990) (requiring moving party to

raise all arguments in its opening brief to prevent "sandbagging" of

opposing party). For purposes of the present motion, it is

sufficient to note that, beyond the inferences discussed in its reply

memorandum, First Health has not supplied any evidence that Plaintiff

has failed to execute such an agreement. Moreover, the Committee's

denial of benefits letter, by discussing the terms of the new Plan,

suggests that a release may actually have been executed by Plaintiff.

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1466, 1468 (9th Cir. 1987).

III. DISCUSSION

First Health argues that there are no genuine issues of

material fact that would indicate any abuse of discretion on its

part in denying Plaintiff director-level benefits under the Plan,

and should therefore be granted summary judgment. The Court will

first determine the appropriate standard of review to apply.3

A. Standard of Judicial Review in § 1132 Actions

Although ERISA creates private rights of action allowing plan

participants and beneficiaries to challenge benefit eligibility

determinations, the statute does not set out the standard of

judicial review for such actions. See 29 U.S.C. § 1132. First

Health’s position is that "[t]he validity of [First Health's]

findings of fact, interpretation, construction or decision will not

be given a de novo review if challenged in Court . . . and will be

upheld unless clearly arbitrary and capricious." DSOF (doc. # 24),

Ex. 2 at 6. 

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Notwithstanding, the Supreme Court has stated that the

determination of the appropriate standard for § 1132 actions should

be guided by principles of trust law. See Firestone Tire & Rubber,

Co. v. Bruch, 489 U.S. 101, 107-111 (1989). Thus, if a plan

confers discretion on its administrator to interpret the plan's

terms or to make benefit eligibility determinations, the

administrator's decisions are entitled to deference, and are

reviewed for abuse of discretion. Id. at 111-15. Absent such

discretionary authority, however, courts must review the

administrator's decisions de novo. Id. at 115.

However, even if a plan administrator has discretionary

authority, a court may engage in a more searching review if the

administrator's decision was tainted by a conflict of interest. 

Id. "Because the great deference accorded a plan administrator

arises in part from the assumption of trust law that the trustee

has no pecuniary interest in his decisions, proof that the trustee

does have such interest correspondingly strengthens the court's

level of review." Bogue v. Ampex Corp., 976 F.2d 1319, 1325, n.29

(9th Cir. 1992). In Firestone, the Supreme Court noted that if an

administrator 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 (internal

quotations omitted). The Ninth Circuit has recently clarified that

"Firestone . . . require[s] abuse of discretion review 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." Abatie v. Alta Health & Life Insurance Co., 458

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F.3d 955, 967 (9th Cir. 2006) (en banc). This standard applies to

the kind of inherent or structural conflict of interest that exists

when an insurer acts as both the plan administrator and funding

source for benefits. Id. at 967-69.

"[A]buse of discretion review, with any 'conflict . . .

weighed as a factor,' . . . , is indefinite." Id. (citation

omitted). The district court must tailor the intensity of its

review to fit the circumstances before it. See id. at 968-69.

The level of skepticism with which a court

views a conflicted administrator's decision may

be low if a structural conflict of interest is

unaccompanied, for example, by any evidence of

malice, of self-dealing, or of a parsimonious

claims-granting history. A court may weigh a

conflict more heavily if, for example, the

administrator provides inconsistent reasons for

denial, . . . ; fails adequately to investigate

a claim or ask the plaintiff for necessary

evidence, . . . ; fails to credit a claimant's

reliable evidence, . . . ; or has repeatedly

denied benefits to deserving participants by

interpreting plan terms incorrectly or by

making decisions against the weight of evidence

in the record.

Id. (citations omitted). The district court may also consider

"evidence that any conflict did not influence [the administrator's]

decisionmaking process," e.g., "that it used . . . [an] independent

review process; that its employees do not have incentives to deny

claims; that its interpretations of the plan have been consistent

among [claimants]; or that it has minimized any potential financial

gain through structure of its business." Id. at 969, n.7. In

determining how much weight to give a conflict under the abuse of

discretion standard, the district court may look outside the

administrative record. Id. at 970.

In the present case, there is little question that the Plan's

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language was designed to confer the broadest discretion imaginable

on First Health to interpret its terms and make benefit eligibility

determinations. As noted earlier, the extent of this extensive

power is best illustrated by the following passage:

If, due to errors in drafting, any Plan

provision does not accurately reflect its

intended meaning, . . . as determined by the

Plan Administrator in its sole and exclusive

judgment, the provision will be considered

ambiguous and will be interpreted by the Plan

Administrator in a fashion consistent with its

intent, as determined by the Plan Administrator

in its sole discretion.

See DSOF (doc. # 24), Ex. 2 at 6. First Health's discretion under

the Plan is clearly sufficient for the Court to apply abuse of

discretion review, but also appears to invite potential abuse with

its liberal allowance of ambiguities as an avenue for unilateral

plan modification.

Plaintiff suggests that the Court should apply de novo review,

because she was allegedly never shown the Plan until after she was

terminated, and therefore could not have agreed to the Plan

Administrator's broad discretionary powers. Resp. (doc. # 25) at

6-7. Given that Plaintiff was at least aware of the Plan's

schedule of benefits while she was still employed by First Health,

as evidenced by her March 18 email to Zambrano, the Court cannot

accept her position, and will apply abuse of discretion review. 

However, the Court will temper its deference to First Health's

decision on account of the structural conflict of interest inherent

to its dual capacity as plan fiduciary and administrator. Id. at

7-9. Plaintiff argues that the Court should weigh this conflict

more heavily due to the inconsistent reasons she was given by First

Health for the denial of her director-level benefits. Id. at 8. 

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The point is well taken. Plaintiff was a "person with the title of

Director" who was not "classified as 'non-supervisor' in the

Colleague Data Base," and by the plain meaning of the Plan would

appear to have been entitled to director-level severance benefits. 

See DSOF (doc. # 24), Ex. 2 at 5. Instead of focusing on those

considerations set forth in the Plan, the Committee's reasons for

its denial of Plaintiff's director-level benefits focus on other

irrelevant details such as insider trading agreements, blackout

periods, and Flexible Time Off. DSOF (doc. # 24), Ex. 11. The

Committee apparently did so because, "in it its sole and exclusive

judgment," it determined that "errors in drafting" caused the

Plan's schedule of benefits to "not accurately reflect its intended

meaning," and required the schedule to be "considered ambiguous"

and reinterpreted "in its sole discretion" as follows: "The Plan

language indicates the intent to differentiate between the level of

benefits awarded to a person acting at a director level with a

director title and someone who merely has the word 'director' in

their title." DSOF (doc. # 24), Ex. 2 at 6, Ex. 11. Absent the

Plan provision which purports to allow First Health to create such

ambiguities out of otherwise clear terms for the sole purpose of

reinterpreting the Plan consistent with its later determined

intent, the Court perceives no such intent in the Plan documents. 

Moreover, First Health acknowledges that the National Sales

Director and Product Director-- positions expressly excluded from

director-level benefits under the Plan-- were both subject to stock

restrictions, yet later attempted to deny Plaintiff on the basis

that she was not subject to those same restrictions. See Reply;

DSOF (doc. # 24), Ex. 11. It suffices to say that First Health's

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reasons for denying eligibility have been inconsistent. The Court

undertakes its abuse of discretion review.

B. Whether First Health Abused Its Discretion

An ERISA plan administrator abuses its discretion if (1) it

renders a decision without any explanation, (2) it construes

provisions of the plan in a way that conflicts with the plain

language of the plan, or (3) it relies on clearly erroneous

findings of fact in making benefit determinations. Taft v.

Equitable Life Assurance Soc'y, 9 F.3d 1469, 1472-73 (9th Cir.

1993). Because an administrator cannot abuse its discretion by

failing to consider evidence that was never before it, the Court's

review is limited to evidence that was part of the administrative

record. See id. at 1471-72.

It is apparent to the Court that there are at least genuine

issues of material fact from which a rational trier of fact could

determine that First Health abused its discretion in denying

Plaintiff director-level benefits under the Plan. Although the

Court has determined that the abuse of discretion review in this

case must be undertaken with a good measure of skepticism, these

triable issues would exist even in the absence of such heightened

review.

First Health has arguably abused its discretion by construing

the provisions of the Plan in a way that conflicts with its plain

meaning. Taft, 9 F.3d at 1472-73. The plain language of the Plan

provides that "persons with the title of Director or titles above

Director" are eligible for the subject benefits. DSOF (doc. # 24),

Ex. 2 at 5. Although the primary criteria of eligibility is

defined in terms of the prospective beneficiary's title, the

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Committee's denial letter to Plaintiff suggests the opposite-- that

the real purpose of the Plan was to "differentiate between . . . a

person acting at a director level with a director title and someone

who merely has the word 'director' in their title." DSOF (doc. 

# 24), Ex. 11. Moreover, an explanatory footnote in the Plan

refining the eligibility criteria notes that directors classified

as "non-supervisor" in the Colleague Data Base are ineligible for

director-level benefits. DSOF (doc. # 24), Ex. 2 at 5 n.1. 

Plaintiff was a director whose position was not classified in the

database as "non-supervisor," yet she was denied for other reasons

obviously not contemplated by the plain language of the Plan. 

Furthermore, the Court does not know what to make of First Health's

contention that it has no obligation to show prospective

beneficiaries the Colleague Data Base, see DSSOF (doc. # 30) ¶ 2,

when it claims that the classifications in that database are

"controlling" in determining benefit eligibility. See DSOF (doc. 

 24), Ex. 11. It may simply reflect a belief that a prospective

beneficiary's full and accurate understanding of the bargain

reflected in the Plan documents is immaterial and unnecessary given

First Health's broad discretion to alter those terms at any later

date based on what is contended to be an ambiguity.

In defense of its motion, First Health makes much of the fact

that the illustrative examples it selected for the explanatory

footnote in the Plan-- Medical Director, National Sales Director,

or Product Director-- like Plaintiff's position, were actually

classified in the database as "managers," not "non-supervisors." 

Reply (doc. # 29) at 2-4, 8. It therefore argues that its choice

of examples creates an ambiguity requiring interpretation. 

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Curiously, however, First Health's interpretation imbues mere

examples in a footnote with more determinative weight than the

substantive phrases they were meant to illustrate. This unusual

manner of interpretation is insufficient to dispel the genuine

issues of material fact concerning the question of whether First

Health abused its discretion in denying Plaintiff benefits. 

 First Health's interpretive efforts have strained the plain

meaning of the Plan. As the Court alluded above, the Plan's

eagerness to confer sweeping discretion on the administrator nearly

invites such abuse by allowing the administrator, "in its sole and

exclusive judgment," to cure "errors in drafting" by unilaterally

"consider[ing] [them] ambiguous," and reinterpreting them "in a

fashion consistent with its intent, as determined by the Plan

Administrator in its sole discretion." DSOF (doc. # 24), Ex. 2 at

6. This free license to unveil the Plan's hidden meanings by

rewriting its terms is offensive to contractual principles of

mutual assent and impermissible under ERISA. See Saffle v. Sierra

Pac. Power Co. Bargaining Unit Long Term Disability Income Plan, 85

F.3d 455, 460 (9th Cir. 1996) ("[A]n administrator lacks discretion

to rewrite the Plan.").

IV. CONCLUSION

In light of the foregoing analysis,

IT IS ORDERED that Defendants' motion for summary judgment

(doc. # 23) is DENIED. 

DATED this 24th day of July, 2007.

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Copies to counsel of record

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