Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-01904/USCOURTS-cand-3_07-cv-01904-4/pdf.json

Parties Involved:
AT&T Umbrella Benefit Plan No. 1
Defendant
Paul Mazur
Plaintiff
Pacific Telesis Group Comprehensive Disability Benefits Plan
Defendant

Document Text:

United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

PAUL MAZUR,

Plaintiff,

 v.

PACIFIC TELESIS GROUP

COMPREHENSIVE DISABILITY

BENEFITS PLAN, et al.,

Defendants. /

No. C 07-01904 JSW

ORDER GRANTING

PLAINTIFF’S MOTION TO

CONDUCT DISCOVERY

Now before the Court is Plaintiff’s motion to conduct discovery. The Court finds that

this matter is appropriate for disposition without oral argument and it is hereby deemed

submitted. See Civ. L.R. 7-1(b). Accordingly, the hearing set for February 29, 2008 is

HEREBY VACATED. Having considered the parties’ pleadings and the relevant legal

authority, the Court hereby grants Plaintiffs’ motion to conduct discovery.

Plaintiff brings this motion to conduct discovery regarding defendant Pacific Telesis

Group Comprehensive Disability Benefits Plan (“Pacific Telesis Plan”), a program within a

larger entity, defendant AT&T Umbrella Benefit Plan No. 1 (“Umbrella Plan”)’s conflict of

interest. Plaintiff argues that there was an apparent conflict of interest because AT&T Inc.

(“AT&T”) acted as both the funding source and the administrator of the ERISA plan. See

Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 965 (9th Cir.2006) (“an insurer that acts

both as the plan administrator and the funding source for the plan operates under what may be

termed a structural conflict of interest”). The court in Abatie directed courts to weigh a conflict

Case 3:07-cv-01904-JSW Document 50 Filed 02/28/08 Page 1 of 4
United States District Court

For the Northern District of California

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of interest as a factor in abuse of discretion review on a case-by-case basis. Id. at 968. Under

Abatie, based on all the facts and circumstances, districts courts are to “decide in each case how

much or how little to credit the plan administrator’s reason denying insurance coverage.” Id. In

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

standard, courts may consider evidence outside the administrative record. Id. at 970 (“The

district court may, in its discretion, consider evidence outside the administrative record to

decide the nature, extent, and effect on the decision-making process of any conflict of interest;

the decision on the merits, though, must rest on the administrative record once the conflict (if

any) has been established by extrinsic evidence or otherwise.”); see also Welch v. Metropolitan

Life Ins. Co., 480 F.3d 942, 949-50 (9th Cir. 2007). 

In Welch, the court implicitly held that a plaintiff may conduct discovery in order to

show a conflict of interest. In reviewing the district court’s determination of attorney’s fees, the

Ninth Circuit stated that, “[b]ecause an ERISA plaintiff may be permitted to supplement the

administrative record with evidence of a conflict of interest on the part of the defendants, ...

some discovery aimed at demonstrating a conflict of interest may have been appropriate.” Id. at

949-50 (emphasis in original); see also Gullidge v. Hartford Life & Accident Ins. Co., 501 F.

Supp. 2d 1280, 1283 (C.D. Cal. 2007) (citing Welch for the proposition that conducting

discovery regarding whether a conflict of interest existed is appropriate).

Here, Plaintiff contends that there is a conflict of interest because Defendants both

administered and funded the Pacific Telesis Plan. Defendants counter that there is no conflict

because there are “structural mandates in place to isolate the fiduciary decision maker from the

funding source.” (Opp. at 1.) AT&T has an agreement with Sedwick Claims Management

Services, Inc. (“Sedwick”) which provides that Sedwick shall serve as the claims administrator

for the Pacific Telesis Plan. (Opp. at 4; see also Supplemental Declaration of Michael S.

Henderson (“Suppl. Henderson Decl.”), Ex. C.) The Ninth Circuit has not addressed whether a

structural conflict of interest can be eliminated by contractually delegating authority to a thirdparty administrator. In Nord v. Black & Decker Disability Plan, 296 F.3d 823 (9th Cir. 2002),

rev’d on other grounds, 538 U.S. 822 (2003), although the defendant delegated administration

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United States District Court

For the Northern District of California

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of the plan to a third-party, the third-party administrator merely processed the claims and made

recommendations as to whether to grant or deny benefits. Id. at 828-29 n. 6. The defendant

made the final disability determination after receiving the recommendation. Id. Moreover, the

defendant admitted that it acted as both the funding source and the plan administrator. Id. at

828. In Eley v. Boeing, 945 F.2d 276, 279 (9th Cir. 1991), the court specifically declined to

address whether the defendant’s contract with a third-party to administer the plan mitigated any

potential conflict of interest. 

Only one district court in the Ninth Circuit has considered this specific issue. See

Wallace v. Intel Corp., 2006 WL 27909839 (D. Ariz. Sept. 20, 2006). The court in Wallace

found that although the defendant had contracted with a third-party to administer the plan, the

defendant still had a financial influence over the third-party administrator under the contract

which rendered the third-party susceptible to the taint of the defendant’s conflict. Id. at *6. 

Therefore, the court concluded that the company’s delegation of claims administration

responsibilities was insufficient to negate a structural conflict outright, but was a significant

factor in assessing the impact of that conflict under Abatie. Id. 

Upon review of the contract between AT&T and Sedgwick, the Court concurs with

Wallace and finds that Defendants’ delegation of administration responsibilities is insufficient

to completely negate the existence of a structural conflict. Although Defendants appear to

delegate the decision as to whether to provide disability benefits under the Pacific Telesis Plan,

Defendants retain oversight over and provide financial incentives to encourage Sedwick to

administer the plan to Defendants’ satisfaction. (Suppl. Henderson Decl., Ex. C.) Therefore,

the Court finds that discovery into the existence and scope of the conflict, as well as discovery

regarding the nature, extent, and effect of the conflict on the decision making process in

accordance with Abatie is appropriate. Accordingly, the Court HEREBY GRANTS Plaintiff’s

motion to conduct discovery. Nevertheless, the Court reminds Plaintiff that “such discovery

must be narrowly tailored and cannot be a fishing expedition.” Groom v. Standard Ins. Co., 492

F. Supp. 2d 1202, 1205 (C.D. Cal. 2007). 

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The Court declines to examine Plaintiff’s specific discovery requests. To the extent the

parties are unable to resolve disputes regarding specific discovery requests, pursuant to Civil

Local Rule 72-1, the Court HEREBY REFERS this matter to a randomly assigned magistrate

judge for resolution of such discovery disputes and for resolution of all discovery matters.

The Case Management Conference scheduled for February 29, 2008 at 9:00 a.m. is

HEREBY CONTINUED to February 29, 2008 at 1:30 p.m.

IT IS SO ORDERED.

Dated: February 28, 2008 

JEFFREY S. WHITE

UNITED STATES DISTRICT JUDGE

cc: Wings Hom

Case 3:07-cv-01904-JSW Document 50 Filed 02/28/08 Page 4 of 4