## F I L E D United States Court of Appeals Tenth Circuit 

### AUG 6 1998 

### PATRICK FISHER Clerk PUBLISH
UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

CHARTER CANYON TREATMENT CENTER, Plaintiff-Appellee, vs. POOL COMPANY, Defendant-Appellant. Nos. 97-4063 97-4123

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF UTAH (D.C. No. 95-CV-424-C)

Bruce J. Douglas (Tim Dalton Dunn and Kevin D. Swen son, Dunn & Dunn, Salt Lake City, Utah, with him on the brief), Larkin, Ho ffman, Daly & Lindgren, Ltd., Bloomington, Minnesota, for Defendant-Appellant. Brian S. King (N. Brent Jones, Lawler & Jones, and Richard R. Burke, King & Isaacson, P.C., with him on the brief), King & Isaa cson, P.C., Salt Lake City, Utah, for Plaintiff-Appellee.

Before SEYMOUR , EBEL , and KELLY , Circuit Judges.

KELLY , Circuit Judge.

Defendant-Appellant Pool Company appeals from the d istrict court’s grant1 ERISA requires that plans provide continuing covera ge to certain

qualified beneficiaries upon termination of their e mployment in certain circumstances. See 29 U.S.C. § 1161. 2 of summary judgment and award of attorney’s fees in favor of Plaintiff-Appellee Charter Canyon Treatment Center (Charter). At issu e is the administration of Pool Company’s Medical Expense Plan (the Plan), an employee welfare plan governed by the Employee Retirement Income SecurityAct of 1974, 29 U.S.C. §§1001-1461 (ERISA). The Plan provides medical ben efits to Pool Company’s employees and their dependents. The district courtheld that Pool Company’s decision to conduct a retrospective utilization rev iew was without basis in Pool Company’s medical plan documents; thus, Pool Company’s subsequent denial of medical benefits could not be sustained under any s tandard of review. Our jurisdiction arises under 28 U.S.C. § 1291. We rev erse, vacate the award of attorney’s fees, and remand for further proceedings consistent with this opinion. Background From March 29, 1991 to April 25, 1991, Charter, a m ental health care facility, provided inpatient medical care to Austin Lyman (Austin), the son of former Pool Company employee Cleo Lyman (Mr. Lyman) . After terminating employment with Pool Company, Mr. Lyman had electedto temporarily retain continued coverage under Pool Company’s self-funded Plan, 1 and both he and Austin were beneficiaries of the Plan. Austin, who was fourteen years old at the3

time of his hospitalization, was diagnosed by Dr. D elbert Pearson prior to admission with major depression, single episode res ulting from a classmate’s accusation of rape. The accusation, according to D r. Pearson, engendered homicidal and suicidal thoughts which Austin expres sed. Upon admission to Charter, Dr. Pearson ordered that Austin be placed on a 15-minute suicide watch and suicide precautions. The master Plan documents and the Summary Plan Desc ription (Summary) which were provided to all insureds state that inpatient treatment for mental or nervous disorders would be approved “only when the patient is diagnosed as being an imminent threat to himself or others; e.g. , suicidal or homicidal,” as demonstrated by placement of the patient on suicide precautions. See Aplt. App at 64-65; id. at 273. The Plan also requires pre-certification review, a “screening process by medical professionals designed to help y ou and your doctor determine if hospitalization is really the best treatment,” p rior to any hospitalization. Aplt. App. at 276; see id. at 44 (“pre-admission requirements” defined as “ac tions as may be required . . . prior to non-emergency hospit al confinement . . . to ensure that neither covered persons nor the Company incur avoidable hospitalization costs . . .”). Should a Plan beneficiary fail to u tilize pre-certification review prior to hospitalization, a $500 deductible will no t be waived and “no benefits will be paid by the Plan for any treatment or perio d of hospitalization that is not4

determined to be medically necessary.” Aplt. App. at 276. Pursuant to the Plan’s requirement of pre-admission certification of inpatient care, Charter contacted Pool Company’s ut ilization review contractor Quality Inc. (Quality) prior to Austin’s admission to obtain such certification. At least initially, Quality withheld pre-certification of Austin’s inpatient treatment until its psychiatric consultant, Dr. Karyn Hall, c ould discuss Austin’s case with Dr. Pearson, his treating physician. Quality’s ini tial pre-certification of Austin’s treatment was based on telephone conversations betw een Dr. Pearson and Dr. Hall. From approximately April 9 until Austin’s di scharge on April 25, Quality’s physicians (Dr. Hall and Dr. Ferrero) pre-certifiedAustin’s extended stays based on medical records provided by Charter, including l ab results, nurse and physician progress and treatment notes, and psychol ogical evaluations. Throughout Austin’s treatment at Charter both Mr. L yman and Charter were provided periodically with notice of Quality’s pre-certification of Austin’s entire hospitalization, either telephonically or byletters granting an extension of hospital stay. The letters sent to Mr. Lyman state d that “[a]pproval does not guarantee payment. Payment is subject to eligibili ty and coverage at the time the services are rendered and need to be verified with the claim administrator.” Aplt. App. at 141, 147. The letters sent to Charter cont ained no such disclaimer, but prior to Austin’s admission Charter had obtained an assignment of medical5

insurance benefits and a guarantee of payment for s ervices from Mr. Lyman. In May 1991, shortly after Austin’s discharge from Charter, Louise Winger, Pool Company’s medical claims manager, subm itted Austin’s file to Quality for retrospective review of the claim basedon perceived inconsistencies in the medical records. Quality submitted the reco rds to Dr. Hall, who had previously pre-certified Austin’s stay, for indepen dent medical review. After reviewing the records in light of the Plan’s provis ions, however, Dr. Hall concluded: [t]he patient did not appear to have a plan for har ming himself or others. Alcohol abuse and continuing symptoms of A DHD appears [sic] to be the primary concern. In fact the recor ds reflect that the patient stated he had no plans. The outpatient ses sions were apparently related to alcohol abuse treatment. The re is no evidence that medication was attempted on an outpatient basi s. It is my understanding that the insurance plan does not cover alcohol abuse nor does the plan cover depression fo r someone who is depressed but not an immediate danger to himself orothers. By letter dated July 3, 1991, Pool Company denied c overage for Austin’s treatment at Charter. The letter stated in pertine nt part: The medical records were reviewed by an independentpsychiatric consultant who found that the patient did not appear to have a plan for harming himself or others; and the records refl ect that the patient stated that he had no plans. The consultant also f ound that alcohol abuse and the continuing symptoms of ADHD appear to be the primary concerns. In summary, the claims were denied because your son was not an imminent threat to himself or others and there w as no evidence in the records of his treatment that the severity of any disability was of sufficient magnitude to justify acute hospital inte rvention or that the6

intensity of the treatment was such that it could o nly be delivered in an acute inpatient setting. Having been assigned Mr. Lyman’s right to recover b enefits, Charter appealed Pool Company’s denial of payment to the Pl an administrator. Charter provided the Plan administrator with additional inf ormation from Dr. Pearson by letter dated August 6, 1991 reaffirming that Austin had expressed homicidal and suicidal thoughts. See Aplt. App. at 292-93. The Plan administrator requ ested a second independent medical review. That review was performed by Dr. Ferrero. In his report, Dr. Ferrero, who also had earlier pr e-certified Austin’s stay, changed his mind after reviewing the charts in ligh t of the Plan provisions: Under conditions of policy included with material r eviewed, I believe diagnosis and treatment was primarily direc ted toward alcohol abuse, personality disorder, and adjustmentdisorder, and therefore benefits are not available for treatment delivered. The letter of 8-6-91 from AP [attending physician D r. Pearson] notes the suicidal and homicidal thoughts and statements but these are not found in the original material. The notes about depression do not seem to justify the conclusions c oncerning the necessity for the care given. Aplt. App. at 245. The Plan administrator ultimate ly affirmed the denial of Charter’s claim for the same reasons provided in th e initial denial. Charter then filed this suit in Utah state court an d Pool Company removed the action to federal district court. The parties filed cross-motions for summary judgment, and the district court granted summary ju dgment in favor of Charter, denying Pool Company’s motion. The district court held that the phrase7

“retrospective review” was ambiguous and that a rea sonable beneficiary would believe Pool Company’s plan documents, particularlythe Summary, allow Pool Company to conduct a retrospective review only if p rior approval was based on misrepresentations by the physician, patient, or fa cility. Accordingly, the district court held that Pool Company’s denial of Charter’s claim was without basis in the Plan documents, and could not be upheld “under any standard of review.” Aplt. App. at 323. Pool Company moved to alter or amend the judgment, arguing, among other things, that the district court employed the incorrect standard of review, and the district court denied the motion. Charter then moved for attorney’s fees pursuant to 29 U.S.C. § 1920 and § 1924, and after a hearing and oral argument, the di strict court awarded Charter $26,419 in attorney’s fees, $2,998 in costs, and po st-judgment interest. Pool Company appeals the district court’s grant of summary judgment and award of attorney’s fees and costs. Discussion We review the district court’s grant of summary jud gment de novo, applying the same legal standard used by the district court. See Siemon v. AT&T Corp. , 117 F.3d 1173, 1175 (10th Cir. 1997). Summary ju dgment is properly granted where “there is no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law,” construing the facts and8

reasonable inferences which may be made from the re cord in the light most favorable to the non-moving party. Fed. R. Civ. P. 56(c); see Blue Circle Cement, Inc. v. Board of County Comm’rs , 27 F.3d 1499, 1503 (10th Cir. 1994). A court reviewing a challenge to a denial of employ ee benefits under 29 U.S.C. § 1132(a)(1)(B) applies an “arbitrary and capricious” standard to a plan administrator’s actions if the plan grants the admi nistrator discretionary authority to determine eligibility for benefits or to construe the plan’s terms. See Firestone Tire & Rubber Co. v. Bruch , 489 U.S. 101, 115 (1989) (holding de novo review inapplicable where plan grants administrator discre tion to construe terms of plan); Adams v. Cyprus Amax Minerals Co. , No. 97-1105, 1998 WL 396565, *3 (10th Cir. July 16, 1998); Siemon , 117 F.3d at 1177. Where the plan administrator operates under a conflict of interest , however, the court may weigh that conflict as a factor in determining whether th e plan administrator’s actions were arbitrary and capricious. See Chambers v. Family Health Plan Corp. , 100 F.3d 818, 824-27 (10th Cir. 1996). The parties agr ee that this modified standard of review governs this case; Pool Company’s self-fu nded Plan, which names the Company as the Plan administrator, grants the Company “the exclusive right to interpret the Medical Plan and to decide all matter s arising thereunder.” Aplt. App. at 93; see id. at 91. The parties’ agreement aside, Pool Company argues that the district court9

failed to apply this standard in this case, insisti ng that the district court’s interpretation of the Plan documents limiting the s cope of retrospective review was, in essence, a de novo review of the Plan administrator’s actions. See Aplt. Brief at 11-13; Aplt. App. at 322-23. Charter, how ever, asserts that given Pool Company’s “gross disregard” of the limitations on r etrospective review found in the plan documents, the most deferential review pos sible could not excuse Pool Company’s refusal to pay the claim. See Aplees. Brief at 20-22. In the alternative, Charter argues that even if the admini strator was entitled to conduct a full retrospective review, Charter is entitled to s ummary judgment because Pool Company’s denial of its claim was arbitrary and cap ricious. Given the deferential standard of review required, our inquiry focuses on “whether defendant’s interpretation of its plan is reasonable.” See Semtner v. Group Health Serv. of Oklahoma, Inc. , 129 F.3d 1390, 1393 (10th Cir. 1997). This standard of review is tempered by our recognit ion of Pool Company’s possible conflict of interest arising from its conc urrent funding and administration of the Plan. See, e.g. , McGraw v. Prudential Ins. Co. of Amer. , 137 F.3d 1253, 1259 (10th Cir. 1998). The district court held that “[s]ince the plan docu mentation nowhere explicitly defined what a ‘retrospective review’ is , the nature and scope of defendant’s right to conduct such a review is at le ast ambiguous.” Aplt. App. at10

321. We disagree. The master Plan documents grantthe Plan administrator the power to conduct retrospective reviews to ensure Po ol Company does not incur avoidable costs. The Plan specifically provides: The administration of the Medical Plan shall includ e pre-admission reviews, length of stay reviews, utilization review s, retrospective reviews, audits and managed care; each and all of w hich to such extent as is appropriate to ensure that neither cov ered persons nor the Company incur avoidable hospitalization or othe r costs in obtaining quality appropriate medical care covered by the Medical Plan. Aplt. App. at 88. This grant of power gives the plan administrator the authority to conduct a retrospective review to ensure treatme nt is covered under the Plan. Notwithstanding the Plan’s language allowing retros pective review, Charter brings our attention to the Summary’s discu ssion entitled “What About Other Utilization Review?”: It is extremely important that both you and your do ctor or hospital are completely honest with the pre-certification pr ofessionals. For example, if your hospitalization for a weight reduc tion or a drug rehabilitation program is pre-certified on the basi s of a diagnosis of major depression because you and your doctor know t hat the actual reason for the hospitalization is not covered by th e Medical Plan, you will probably be personally liable for the enti re cost of the treatment. Aplt. App. at 277. Charter argues that the Summarylimits the Plan administrator’s discretion to conduct retrospective review to situations where the Plan administrator has reason to believe pre-certif ication was based on active misrepresentations by the physician, patient or facility. See Aplees. Brief at 17-11

19; Semtner , 129 F.3d at 1393 (“When the summary plan descript ion and the plan language differ, the summary plan description is bi nding.”). Alternatively, Charter asserts that at a minimum the Summary’s lan guage renders the Plan administrator’s right to conduct retrospective revi ew ambiguous, and requires us to construe the Plan in favor of the insured. See Aplees. Brief at 23-24; Blair v. Metropolitan Life Ins. Co. , 974 F.2d 1219, 1222 (10th Cir. 1992) . We reject Charter’s arguments for two reasons. Fir st, it is axiomatic that if a summary’s language can trump language contained i n the master plan documents in the event of a conflict, the documents must actually conflict. If the plan documents do not conflict, the important polic y of protecting beneficiaries from misleading or false information contained in asummary plan description is not implicated. Thus, a summary plan description w hich is silent on a specific term or issue cannot prevail over the master plan document. See, e.g. , Mers v. Marriott Int’l Group Accidental Death and Dismemberment Plan , 1998 WL 228144, at *8 (7th Cir. May 8,1998); Sprague v. General Motors Corp. , 133 F.3d 388, 401 (6th Cir.) (en banc), cert. denied , 66 U.S.L.W. 3782 (June 8, 1998); Jensen v. SIPCO, Inc. , 38 F.3d 945, 952 (8th Cir. 1994), cert. denied , 514 U.S. 1050 (1995); Wise v. El Paso Natural Gas Co. , 986 F.2d 929, 938 (5th Cir.), cert. denied , 510 U.S. 870 (1993). The Summary does not mention retrospective review, but the master Plan12

documents set forth the plan administrator’s right to engage in such review. Thus, the Summary’s silence creates no direct confl ict with the master Plan documents. Nor does the Summary’s admonition again st misrepresenting material facts during the utilization review proces s mislead beneficiaries into believing that retrospective review of a claim will only be undertaken if misrepresentations are made to utilization review p ersonnel. The Summary simply warns that payment will likely be withheld i f pre-certification for treatment is based on a diagnosis for which treatme nt is covered, but treatment is actually undertaken for a condition which is not co vered by the Plan, an assertion which is consistent with conducting retrospective r eviews “to ensure that neither covered persons nor the Company incur avoidable hos pitalization or other costs.” Aplt. App. at 88. In any event, the passage reliedon to limit retrospective review is exemplary, not exclusive. Further, the Summary clearly states that not all Pl an provisions are addressed therein and that the master Plan document s govern in the event of conflict between the Summary and the master Plan. See Aplt. App. at 264, 288. This Circuit has previously given effect to such di sclaimers, at least where the master Plan documents grant broader coverage than does the Summary . See McGee v. Equicor-Equitable HCA Corp. , 953 F.2d 1192, 1201 (10th Cir. 1992); see also Parker v. Bankamerica Corp. , 50 F.3d 757, 769 (9th Cir. 1995)13

(involving inter-office memorandum); Gillis v. Hoescht Celanese Corp. , 4 F.3d 1137, 1142 (3d Cir. 1993), cert. denied , 511 U.S. 1004 (1994) . Given that the Summary’s silence regarding the scope of retrospect ive review creates no conflict and the master Plan documents broadly allow retrosp ective review, we see no reason why the Summary’s disclaimer should not oper ate. Because the Plan documents allow retrospective revi ew, the district court erred in holding that Pool Company’s decision to re trospectively review Charter’s claim could not be upheld under any standard of rev iew. In light of its disposition, however, the district court did not de cide whether the Plan administrator’s ultimate denial of benefits was arb itrary and capricious and influenced by Mr. Lyman’s temporary continuation of coverage. Charter has made an evidentiary showing that having continuallypre-certified Austin’s hospitalization based upon satisfactory evidence of suicidal or homicidal threats, the Plan administrator did an about-face after retr ospective review, focusing instead upon the Plan provisions that deny coverage for treatment of alcohol abuse. Charter relies upon not only the circumstan ces surrounding the decision to retrospectively review, but also the fact that the same contract medical personnel that pre-certified for the Plan administr ator were later called upon to perform the retrospective review and reached a comp letely different conclusion. The Pool Company disputes any improper motivation and claims that it had14

legitimate reasons for its decision, including addi tional information at the time of retrospective review. We express no opinion on the merits, other than to say that genuine issues of material fact remain that will re quire a bench trial. See Adams , 1998 WL 396565, at *6. We thus REVERSE the judgmen t of the district court, VACATE the district court’s order granting attorney ’s fees to Charter, and REMAND for further proceedings consistent with this opinion.