In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 06-3708

GANDHI GUTTA,

Plaintiff-Appellant,

v.

STANDARD SELECT TRUST INSURANCE PLANS,

Defendants-Appellees.

____________

Appeal from the United States District Court 

for the Northern District of Illinois, Eastern Division.

No. 04 C 5988—Blanche M. Manning, Judge.

____________

ARGUED SEPTEMBER 11, 2007—DECIDED JUNE 26, 2008

____________

Before RIPPLE, MANION, and WOOD, Circuit Judges.

WOOD, Circuit Judge. Dr. Gandhi Gutta, a laparoscopic

surgeon, suffers from a variety of physical ailments. In

August of 2000, he came to the conclusion that he could

no longer work in his chosen profession and filed for

disability benefits under a group policy with Standard

Select Trust Insurance Plans (Standard). Gutta received

disability benefits from Standard for two years. At that

point, in order to be eligible for continuing benefits under

the plan, he had to show not just that he was unable to

perform his own occupation, but that he was unable to
2 No. 06-3708

perform any gainful occupation for which he is suited by

education and experience. Standard continued to pay

benefits to Gutta for a third year while it investigated

his eligibility under the latter, more stringent, criterion. It

ultimately decided that Gutta was ineligible for continuing benefits because he was capable of working as a

Medical Director.

After exhausting his administrative appeals, Gutta

filed suit in district court and moved for summary judgment. He first argued for a favorable standard of review,

claiming that the policy does not grant the plan administrators enough discretion to warrant deferential review,

and so he was entitled to the de novo standard. He further

claimed that even using the more deferential “arbitrary

and capricious” standard, the Plan’s determination was

unreasonable, and therefore arbitrary and capricious.

Standard likewise moved for summary judgment on

Gutta’s claim; it also filed a counterclaim for restitution

of $73,996.75, nearly all the disability benefits that it had

paid to Gutta. Standard took the position that Gutta had

not been entitled to that sum, because its policy contains

an offset provision for benefits received from other group

insurance plans. Gutta acknowledged receiving benefits

from another plan, but he claimed that it was not a group

plan and therefore was not subject to the offset provision.

Finally, Gutta also asked the district court to enforce

what he claimed to be a binding settlement agreement,

but the court declined to do so, finding that the parties

did not reach a meeting of the minds. The court granted

summary judgment in Standard’s favor on Gutta’s claim

as well as on Standard’s counterclaim, and Gutta now

appeals both adverse decisions.
No. 06-3708 3

I

We provide here the facts pertinent to the questions

whether the district court was correct to apply the deferential “arbitrary and capricious” standard of review to

Standard’s decisions and whether it correctly rejected

Gutta’s assertion that the parties had concluded an enforceable settlement agreement. The facts bearing on

Gutta’s medical conditions and Standard’s assessment of

his eligibility for disability benefits are thoroughly discussed in the district court’s opinion and need not be

repeated here. See Gutta v. Standard Select Trust Ins., No. 04

C 5988, 2006 WL 2644955, at *1-12 (N.D. Ill. Sept. 14, 2006).

Gutta’s Group Policy with Standard contains a section

titled “ALLOCATION OF AUTHORITY,” which reads

as follows:

Except for those functions which the Group Policy

specifically reserves to the Policyowner or Employer,

Standard has full and exclusive authority to control and

manage the Group Policy, to administer claims, and to

interpret the Group Policy and resolve all questions

arising in its administration, interpretation, and application.

Standard’s authority includes, but is not limited to:

1. The right to resolve all matters when a review has

been requested;

2. The right to establish and enforce rules and procedures

for the administration of the Group Policy and any

claim under it;

3. The right to determine:

a. Eligibility for insurance;

b. Entitlement to benefits;
4 No. 06-3708

c. Amount of benefits payable;

d. Sufficiency and the amount of information we may

reasonably require to determine a., b., or c., above.

Subject to the review procedures of the Group Policy

any decision Standard makes in the exercise of our authority is conclusive and binding.

(Joint Apx., Ex. A, Group Policy, Amendment 8, p. 2)

(emphasis added).

As is true in most litigation, from time to time as this

case progressed there was some talk of settlement. Gutta

focuses on an exchange of emails that took place on June 1,

2005, to support his claim that the parties reached an

enforceable agreement. On that day, Standard sent Gutta

an email stating:

Standard’s position is that Dr. Gutta is indebted to it

in the amount of $73,996.75, hence, Standard’s Motion

to File its Counterclaim. In other words, Standard’s

“response” is that it declines Dr. Gutta’s offer to

settle for its payment to him of $25,000, but Standard

would, at this time, entertain resolution of all disputes

existing between it and Dr. Gutta on the basis of a

“walk-away” whereby each party foregoes prosecution of any further claim against the other under the

terms of the Policy and otherwise.

Gutta’s lawyer sent an email in response stating, “Given

the current posture of the case, your ‘offer’ is accepted.” On

June 5, 2005, Standard then submitted a draft settlement agreement containing additional terms, which Gutta

refused to sign.
No. 06-3708 5

II

On the cross-motions for summary judgment with respect to Gutta’s claim, appellate review is de novo. Sound of

Music Co. v. 3M, 477 F.3d 910, 914 (7th Cir. 2007). Similarly,

we review de novo the grant of summary judgment in

favor of Standard on the counterclaim. Adjudication of

these claims, however, was proper only if the parties

did not have an enforceable settlement agreement.

A legally binding settlement agreement is a contract,

and so it is governed by ordinary principles. Gutta relies

on Illinois law to support his argument, without objection

from Standard, and so we too will look to that body of

substantive law. From a procedural standpoint, however, federal law governs whether a judge or jury resolves any disputed issues. Mayer v. Gary Partners and Co.,

29 F.3d 330, 332-33 (7th Cir. 1994). When the basic facts

are not in dispute, the question whether a contract has

come into being is one of law. See Echo, Inc. v. Whitson Co.,

121 F.3d 1099, 1102 (7th Cir. 1997). If there are disputed

facts, FED. R. CIV. P. 56 governs the question whether

summary adjudication is permissible or if a trial is necessary. 

In Laserage Technology Corp. v. Laserage Labs., 972 F.2d 799

(7th Cir. 1992), we reviewed the requirements that Illinois

imposes on contract formation in a situation similar to

the one we face here: 

A settlement agreement is a contract and as such, the

construction and enforcement of settlement agreements

are governed by principles of local law applicable to

contracts generally. Here, we look to Illinois contract

law for guidance. In interpreting a contract under

Illinois law, “the paramount objective is to give
6 No. 06-3708

effect to the intent of the parties as expressed by the

terms of the agreement.” . . . Illinois follows the objective theory of intent. As a result, whether [the parties]

had a “meeting of the minds” as to security for the

purchase of Mr. Byrum’s Laserage shares is determined

by reference to what the parties expressed to each other

in their writings, not by their actual mental processes.

Id. at 802 (citations omitted). If a potential jury could reach

only one conclusion about the existence of a meeting of

the minds between Gutta and Standard, then the district

court had no reason to explore the issue further.

The district court found that the statement in the

email that Standard “would ‘entertain’ the idea of a ‘walkaway’ type of settlement [was] not a binding agreement to

enter into a settlement agreement containing no terms

other than a mutual promise for the parties to dismiss

their respective complaint and counterclaim.” The court

interpreted the statement to mean “precisely what it

says it is: an agreement to come to the table to talk about

the parameters of an agreement which is premised on both

sides walking away as opposed to one side paying the

other side some amount of money.” Id. It found no genuine dispute over the fact that there was “no meeting of

the minds as to an agreement whereby the parties would,

without more, dismiss their claims.” Id.

Given the language in the email exchange and the fact

that the draft settlement agreement of June 5 (an agreement Gutta rejected) contained three full pages of new

terms, id. at 53-55, we too see nothing that might give rise

to a material dispute of fact. There was no meeting of

the minds here, and therefore no enforceable settlement

contract came into being. We may thus proceed to the
No. 06-3708 7

review of the district court’s rulings on the motions

for summary judgment.

III

On the merits, this case largely turns on whether the

language of the Standard plan gives the administrator

discretion in determining benefits. Firestone Tire & Rubber

Co. v. Bruch, 489 U.S. 101, 115 (1989), held that “a denial

of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan

gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe

the terms of the plan.” When discretionary power is

conferred on the administrator, her decision is reviewed

under the arbitrary and capricious standard, id. at 111, and

the district court may consider only evidence that was

before the administrator in deciding whether her decision

passes muster. Trombetta v. Cragin Fed. Bank for Sav. Employee Stock Ownership Plan, 102 F.3d 1435, 1438 n.1 (7th

Cir. 1996).

The reservation of discretion must be communicated

clearly in the language of the plan, but the plan need not

use any particular magic words. See Herzberger v. Standard

Ins. Co., 205 F.3d 327, 331 (7th Cir. 2000). Indeed, “the

critical question is whether the plan gives the employee

adequate notice that the plan administrator is to make

a judgment within the confines of pre-set standards, or

if it has the latitude to shape the application, interpretation,

and content of the rules in each case.” Diaz v. Prudential Ins. Co.

of Am., 424 F.3d 635, 639 (7th Cir. 2005) (emphasis added).

Although Standard’s plan does not use the word

“discretion,” it uses a variety of equivalent terms that
8 No. 06-3708

convey the same meaning. See supra (“full and exclusive

authority to control and manage, . . . to administer, . . . and

to interpret and to resolve all questions arising in its

administration, interpretation, and application”; “[t]he

right to determine [e]ligibility [and] entitlement”; “any

decision Standard makes in the exercise of our authority

is conclusive and binding”). This is a far cry from the

spare language “when Prudential determines” and “satisfactory to Prudential” that this court found inadequate to

signal discretion in Diaz, 424 F.3d at 638, 640. The Standard

plan’s language unambiguously communicates the message that payment of benefits is subject to Standard’s

discretion. Gutta argues unconvincingly that the language “Standard has authority . . .” does not confer discretion but instead merely establishes that Standard

operates the plan rather than some other actor. But that is

not the only language in the Plan. Reading it as a whole,

as we must, we conclude that Standard’s plan “gives the

employee adequate notice” that Standard has the “latitude

to shape the application, interpretation, and content of

the rules in each case.” See id at 639-40. Thus, we will

review Standard’s determination deferentially, to ensure

that the ultimate decision was not arbitrary, and we will

not consider evidence outside the record that was before

the administrator.

The district court exhaustively reviewed the medical

evidence that was before the administrator. It summarized

the testimony of no less than twelve doctors, as well as a

few other people. Gutta had been diagnosed with the

following conditions: type I diabetes, macular degeneration, retina artery aneurism in the left eye with a residual

blind spot, dislocation of the left thumb, degenerative

arthritis in both wrists, ulnar palsy of the left arms and
No. 06-3708 9

hand, rotator cuff injury in the left shoulder, and degenerative arthritis in the right AC joint. Standard accepted

the fact these problems left Gutta unable to continue

working as a surgeon, but it found that he had never

offered persuasive evidence showing that he could not

perform other activities in the medical field. Standard

took note of the fact that a number of experts believed

that Gutta was capable of performing full-time sedentary

to light-level work. It also observed that he had 10 1⁄2 years’

experience in administrative positions, that he had

owned and operated a medical practice for over 20 years,

and that he had some administrative experience in hospitals. All this added up, in its view, to the conclusion

that Gutta had the essential skills to become a medical

director or assistant medical director.

Gutta attacks these findings, and it is possible that

we might have found more to criticize if we were conducting de novo review. But we are not. The district court,

we conclude, reasonably concluded that Standard’s

decision was “based upon substantial evidence because it is

consistent with the medical evidence in the record” and

“thus easily satisfies the ‘arbitrary and capricious’ standard

of review.” See Gutta v. Standard Select Trust Ins., 2006 WL

2644955, at *23.

IV

Turning to Standard’s counterclaim, we must begin

with the threshold question whether the district court

had jurisdiction over it. ERISA preempts state-law theories

of recovery. Leipzig v. AIG Life Ins. Co., 362 F.3d 406,

410 (7th Cir. 2004). If Standard’s counterclaim can properly be viewed as seeking “equitable relief” under 29 U.S.C.
10 No. 06-3708

§ 1132(a)(3), then jurisdiction is secure, because in that

case it would arise under ERISA and would fall within

federal question jurisdiction. Gutta, however, argues that

because the benefits Standard paid him have been commingled with his other assets or dissipated, tracing is

impossible, and thus equitable relief is unavailable. This

means, in his view, that the counterclaim in substance is

now just a state-law claim for damages, outside the scope

of ERISA.

The case of Sereboff v. Mid Atl. Med. Servs., 126 S. Ct. 1869

(2006), controls our analysis. Marlene Sereboff and her

husband were injured in a car accident, and her employer

paid their medical expenses pursuant to an ERISA plan.

Id. at 1872. The plan contained an “ ‘Act of Third Parties’ ” provision, which “require[d] a beneficiary who

‘receives benefits’ under the plan for such injuries to

‘reimburse [Mid Atlantic]’ for those benefits from ‘[a]ll

recoveries from a third party (whether by lawsuit, settlement, or otherwise).’ ” Id. (altered by the Court). The

Sereboffs did in fact recover tort damages from a third

party, and Mid Atlantic pursued reimbursement of the

benefits it paid the Sereboffs, bringing an action under

29 U.S.C. § 1132(a)(3). Id. at 1873. The question before

the Court was whether the relief Mid Atlantic sought

was truly “equitable” for purposes of § 1132(a)(3). The

Court held that it was and that the reimbursement provision in the plan created an “equitable lien by agreement.”

Id. at 1877. For the latter kind of lien (in contrast to “an

equitable lien sought as a matter of restitution”), strict

tracing of the funds to be recovered was not required. Id.

at 1875. The Court noted also that “the fund over which

a lien is asserted need not be in existence when the contract containing the lien provision is executed.” Id. at 1876.
No. 06-3708 11

In our case, Standard’s plan provides for an offset for

“Income From Other Sources”: “Each month your Maximum LTD [Long Term Disability] Benefit will be

reduced by the Income From Other Sources for the same

monthly period . . . .” As the parties note, the relevant

part of the definition of “Income From Other Sources”

refers to “[t]he amount you receive or are eligible to receive

because of your disability under any group insurance

coverage, other than group credit insurance or group

mortgage disability insurance.”

The plan further provides that the beneficiary “must

notify Standard of the amount of the Income From Other

Sources when it is approved.” If the beneficiary “ha[s] been

overpaid, Standard will notify [the beneficiary] of the

amount of the overpayment” and the beneficiary “must

immediately reimburse Standard for the amount of the

overpayment.”

Standard’s reimbursement provision is indistinguishable from the reimbursement provision in Sereboff, 126

S. Ct. at 1872. Here, too, there is an “equitable lien by

agreement” between Standard and Gutta, and that lien is

not dependent on the ability to trace particular funds.

Standard may bring its counterclaim under 29 U.S.C.

§ 1132(a)(3) even if the benefits it paid Gutta are not

specifically traceable to Gutta’s current assets because of

commingling or dissipation.

Even if all this is correct, Gutta maintains that he ought

to prevail based on several defenses to the counterclaim.

First, he claims that because he disclosed to Standard

that he was receiving benefits from a policy that he obtained through his membership in the American Medical

Association (AMA) with Sentry Life Insurance Company,

the benefits paid by Standard were “voluntary payments”
12 No. 06-3708

made “with full knowledge of the facts.” The district

court found, to the contrary, that the “record does not

show that Standard Select knew that the AMA plan was

group insurance and voluntarily chose to pay benefits.”

Gutta v. Standard Select Trust Ins., 2006 WL 2644955, at *27

(emphasis added). On appeal, Gutta does not contest this

finding. Instead, he argues that Standard’s ignorance is

irrelevant, because the burden was on Standard to investigate further.

Aside from a number of policy arguments one could

make against it, Gutta’s position is contrary to the plain

language of the plan, which states that “[Gutta] must

notify Standard of the amount of the Income From Other

Sources when it is approved.” That can mean only that

a proper disclosure would also disclose that a given

payment was indeed from a group plan, i.e., that it was

Income From Other Sources. Otherwise, Gutta could

disclose to Standard that he got a check from his grandmother and it would be up to Standard to investigate

whether his grandmother was an administrator of a

group insurance plan, or an agent of any one of the many

payors who might trigger an offset. Thus, the benefits

paid by Standard could not properly have been characterized as voluntary.

Gutta’s second defense is that because Standard did

not exhaust administrative procedures before filing a

counterclaim against Gutta, Gutta was denied a full and

fair review. Standard’s failure to exhaust, according to

Gutta, also had the effect of impeding his discovery on

the counterclaim. As Standard points out and as the

record reflects, however, the district court specifically

noted that it was denying discovery only with respect to

the original claim and not the counterclaim. The rest of
No. 06-3708 13

Gutta’s discussion on this point revolves around the

policy favoring exhaustion.

We need not decide whether the same exhaustion

requirement that applies to beneficiaries also applies to

ERISA fiduciaries. See generally Reliance Standard Life

Ins. Co. v. Smith, No. 3:05-CV-467, 2006 WL 2993054, at *3

(E.D. Tenn. Oct. 18, 2006) (holding that an ERISA fiduciary

is not required to exhaust administrative review before

bringing an action to recover an overpayment). Enforcement of an exhaustion requirement is left to the discretion

of the district court. Wilczynski v. Lumbermens Mut. Cas. Co.,

93 F.3d 397, 401 (7th Cir. 1996). The district court adjudicated the counterclaim despite Standard’s failure to

exhaust administrative review, and Gutta has not

shown that this was an abuse of discretion.

Gutta’s final argument is that the disability payments

he received from his AMA policy are not subject to Standard’s offset provision because the AMA policy is not

“group insurance coverage.” In his view, the AMA policy

is better characterized as franchise insurance. “Franchise

insurance is a variation on group insurance, in which all

members of the group receive individual policies.” Hall

v. Life Ins. Co. of North America, 317 F.3d 773, 775 (7th

Cir. 2003). Our own review of the AMA insurance certificate leaves us confident that Gutta’s AMA insurance

coverage was not an individual policy. The policy was

issued to the AMA (the “Holder”) under Group Policy

No. 90-10613-47. Part V of the certificate contains a “Conversion Privilege,” which shows that the AMA policy

Gutta possessed was not an individual plan, but merely

convertible to an individual plan upon the occurrence of

certain events. After examining the various indicia of

group policies found in the AMA Certificate, the district
14 No. 06-3708

court found that the AMA policy was a group policy

rather than a franchise policy, and that it therefore fell

within the offset provision. After doing likewise, we agree.

* * *

The judgment of the district court is AFFIRMED.

USCA-02-C-0072—6-26-08