Source: https://casetext.com/case/chappel-v-laboratory-corp
Timestamp: 2019-01-18 05:49:00
Document Index: 687718274

Matched Legal Cases: ['§ 1132', '§ 1001', '§ 1132', '§ 1132', '§ 1291', '§ 1132', '§ 1133', '§ 1133', '§ 2560', '§ 2560', '§ 2560', '§ 1133', '§ 404', '§ 1104', '§ 2560', '§ 2560', '§ 502', '§ 1132', '§ 1022', '§ 1021']

Chappel v. Laboratory Corp. of America, 232 F.3d 719 | Casetext
Chappel v. Laboratory Corp. of America
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United States Court of Appeals, Ninth CircuitNov 14, 2000
Solien v. Raytheon Long Term Disability Plan #590
…It is a question of first impression, whether a claimant must be given written notice of a contractually…
Z.D. ex rel. J.D. v. Grp. Health Coop.
…" Id. at ¶¶ 28-35 (relying on 29 U.S.C. § 1132(a)(2) ("breach of fiduciary duty")). Finally, they ask the…
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holding that an ERISA plan administrator would have breached its fiduciary duty if it adopted a mandatory arbitration clause with a 60–day time limit in which to demand arbitration, and gave notice of the clause and its terms only in a summary plan description contained in an employment manual
Summary of this case from Day v. at & T Disability Income Plan
holding that the district court abused its discretion in denying an ERISA plaintiff leave to amend because "amendment would allow [the plaintiff] to state a legally cognizable claim for breach of fiduciary duty"
Summary of this case from Harris v. Amgen, Inc.
Arbitration of ERISA Benefit Claims In Lieu of Judicial Review
…232 F.3d 719 (9th Cir. 2000), plaintiff was denied benefits. The court enforced the plan’s mandatory…
No. 98-17361.
Argued and Submitted February 15, 2000.
Marvin I. Bartel and Douglas J. Woods, Pillsbury Madison Sutro LLP, Sacramento, California, for the appellee.
Appeal from the United States District Court for the Eastern District of California; Robert E. Coyle, District Judge, Presiding. D.C. No. CV-97-06041-REC/SMS.
Before: KOZINSKI, FERNANDEZ, and W. FLETCHER, Circuit Judges.
In September 1993, Trina Chappel became an employee of National Health Laboratories Incorporated, a company now known, and to which we will refer, as Laboratory Corporation of America ("Lab Corp"). Lab Corp provided health insurance benefits to its employees and their eligible dependents through the National Health Laboratories Incorporated Medical Plan ("Plan"), a self-insured welfare benefits plan subject to the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. Lab Corp both sponsored and administered the Plan.
Trina's then-spouse, James Chappel ("Chappel"), was insured under the Plan by virtue of Trina's employment with Lab Corp. Lab Corp provided Trina with the summary plan description as part of her "Employment Manual." This manual explained that the Plan would not pay medical expenses for "any condition which, in the judgement [sic] of an independent physician designated by the Plan Administrator, had to have existed in the twelve (12) months prior to [the] plan effective date."
After enrolling in the Plan, Chappel underwent surgery and related medical treatment, and he thereafter submitted his medical bills to the Plan for payment. The Plan denied benefits because it concluded that Chappel's medical condition was preexisting. Chappel filed an internal appeal. The Plan denied the appeal in a letter dated May 17, 1995. According to Chappel, the Plan did not then bring to his attention, in the May 17 letter or otherwise, that his sole means of redress was arbitration and that he had 60 days in which to pursue it.
On October 24, 1997, Chappel timely filed suit against Lab Corp, as the Plan's administrator, in federal district court pursuant to ERISA's private right of action, 29 U.S.C. § 1132(a)(1). Chappel's complaint requested reversal of the Plan's denial of his medical benefits. Lab Corp defended on the ground that it was not the proper defendant and asserted that Chappel should instead have sued the Plan. In response, Chappel filed a first amended complaint naming both Lab Corp and the Plan as defendants.
Sometime after Chappel filed suit, the Plan informed him of the arbitration clause. Chappel claims that he had not previously known about the clause. Chappel again amended his complaint, this time to state two claims rather than one. The first claim renews Chappel's earlier request for reversal of the denial of benefits. It asserts that the Plan's failure to notify him of the existence of the arbitration clause when it denied his internal appeal resulted in waiver, estoppel, and detrimental reliance. The second claim requests a declaratory judgment that the arbitration clause violates ERISA because the clause requires the beneficiary to pay one-half of the costs of the arbitration, imposes a contractual 60-day statute of limitations, and does not provide for attorneys' fees. By contrast, the private right of action under ERISA does not require the sharing of costs, allows a four-year statute of limitations for an action to recover benefits under a written contract, see Wetzel v. Lou Ehlers Cadillac Group Long Term Disability Ins. Program, 222 F.3d 643 (9th Cir. 2000) (en banc), and provides attorneys' fees to a prevailing plaintiff, see 29 U.S.C. § 1132(g)(1).
Chappel appeals. We have jurisdiction under 28 U.S.C. § 1291, and we affirm in part and reverse in part.
Section 502 of ERISA entitles a participant or beneficiary of an ERISA-regulated plan to bring a civil action "to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." 29 U.S.C. § 1132(a)(1)(B). Before invoking this private right of action, however, an ERISA plaintiff whose claim is governed by the contractual terms of the benefits plan, rather than by the statutory provisions of ERISA itself, must first exhaust the administrative dispute-resolution mechanisms of the benefit plan's claims procedure. See Graphic Communications Union v. GCIU-Employer Retirement Benefit Plan, 917 F.2d 1184, 1187-88 (9th Cir. 1990). Thus, if the plan contains an arbitration clause, the plaintiff must arbitrate the dispute in accordance with the clause in order to exhaust his administrative remedies before filing suit in federal court. See id.
The Plan at issue in this case contains an arbitration clause, and Chappel failed to exhaust this dispute-resolution mechanism before filing suit. His suit is therefore barred unless he can show that the arbitration clause is unenforceable or invalid. Chappel makes three attacks on the clause, but each fails as a matter of law.
The Secretary of Labor has proposed revised regulations that would forbid ERISA plans to use arbitration clauses like the one at issue in this case, but those regulations have not yet been approved. See Amendments to Employee Benefit Plan Claims Procedures Regulation, 65 Fed.Reg. 23040, 23041 (Apr. 24, 2000); 63 Fed.Reg. 48405 (Sept. 9, 1998).
First, Chappel argues that even if the arbitration clause is legally enforceable as a general matter, the Plan waived its right to rely on the arbitration clause in this case by litigating the dispute in federal court. We do not lightly find waiver of the right to arbitrate, see Van Ness Town-houses v. Mar Indus. Corp., 862 F.2d 754, 758 (9th Cir. 1988), and we do not do so here.
Chappel next argues, in general reliance on Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991), that we should declare the arbitration clause invalid because some of its terms are less generous than the statutory rights guaranteed to plan participants and beneficiaries under ERISA. Specifically, Chappel objects to the cost-sharing provision and to the deferential standard of review the arbitrator must apply to the Plan's benefits determinations. We hold that these provisions do not render the arbitration clause invalid.
Chappel's complaint also maintained that the clause is unenforceable because it imposes a shorter time limit within which to demand arbitration than does ERISA's statute of limitations and because, unlike ERISA, the arbitration clause does not provide for an award of attorneys' fees to a prevailing plaintiff. Chappel does not renew these arguments on appeal. We deem those arguments waived, see Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999), and do not consider the effect of the shorter time limit or absence of an attorneys' fees provision on the validity of the clause.
We rejected an identical challenge to a cost-sharing provision in Graphic Communications Union, 917 F.2d at 1188-89, and we are not at liberty to depart from our precedent. Moreover, the arbitrator's deferential standard of review is consistent with the standard of review that a district court would use, in an appropriately drafted plan, in determining Chappel's right to benefits. See Kearney v. Standard Insurance Co., 175 F.3d 1084, 1087-89 (9th Cir. 1999) (en banc). Chappel contends that judicial review would be more searching because the Plan, as both the employer and the administrator, operated under an inherent conflict of interest in determining his eligibility for benefits. Yet it is uncontested that the Plan sent Chappel's claim to an independent medical consultation company for review before denying his internal appeal, thereby seeking to eliminate the potential for its eligibility determination to be influenced by any such conflict. In the absence of an apparent conflict of interest, a district court, like the arbitrator, would properly accord the Plan's determination deference in accordance with the terms of the plan. See McDaniel v. Chevron Corp., 203 F.3d 1099, 1108 (9th Cir. 2000).
Third, Chappel contends that the arbitration clause is unenforceable because the Plan is part of an employment contract and, under our decision in Craft v. Campbell Soup Co., 177 F.3d 1083 (9th Cir. 1999), employment contracts are not covered by the Federal Arbitration Act ("FAA"). We believe that Chappel may be able to prove that the Plan was part of an employment contract and that the arbitration clause contained in the Plan was therefore outside the scope of the FAA. It does not follow, however, that the arbitration clause is unenforceable. While the distinctive procedural apparatus and presumption of arbitrability of the FAA would fall away, Chappel would still be required under the law of contract to arbitrate in accordance with the clause. See Cole v. Burns Int'l Security Servs., 105 F.3d 1465, 1472 (D.C. Cir. 1997).
Without the FAA's strong policy in favor of arbitration to tip the scales, an ERISA plaintiff might more easily show that an ERISA-governed plan's arbitration clause is unenforceable because it conflicts with statutory provisions or regulations governing the judicial review of benefits determinations under ERISA. Chappel, however, has not made such a showing. He bases his argument that the arbitration clause is facially invalid solely on its cost-sharing provision. Graphic Communications Union, the case in which we approved such a provision, was not governed by the FAA and therefore did not consider the pro-arbitration policy of the FAA when it approved cost-sharing. See 917 F.2d at 1188-89.
We review a denial of leave to amend a complaint for an abuse of discretion. See Griggs v. Pace Am. Group, Inc., 170 F.3d 877, 879 (9th Cir. 1999). A district court acts within its discretion to deny leave to amend when amendment would be futile, when it would cause undue prejudice to the defendant, or when it is sought in bad faith. See Bowles v. Reade, 198 F.3d 752, 757 (9th Cir. 1999). In this case, the district court denied Chappel leave to amend solely because it believed that amendment would be futile. Because Chappel's proposed amendment would allow him to state a legally cognizable claim for breach of fiduciary duty against Lab Corp, we reverse.
There is no provision of ERISA or its implementing regulations that specifically governs the administration of arbitration clauses. However, a plan's internal procedures for reviewing denied claims are addressed in 29 U.S.C. § 1133. Section 1133 provides that claimants must be notified of the reasons why a claim has been denied and must be given a reasonable opportunity for a full and fair internal review. It also empowers the Secretary of Labor to issue implementing regulations. See id.
The regulations implementing § 1133 require that a plan's internal claims procedures be "reasonable." 29 C.F.R § 2560.503-1(b). Specifically, although "[a] plan may establish a limited period within which a claimant must file any request for review of a denied claim[,] . . . [i]n no event may such a period expire less than 60 days after receipt by the claimant of written notification of denial of a claim." Id. § 2560.503-1(g)(3). Further, a claimant must receive written notice of the reasons why a claim has been denied and "[a]ppropriate information as to the steps to be taken if the participant or beneficiary wishes to submit his or her claim for [internal] review." Id. § 2560.503-1(f).
Neither 29 U.S.C. § 1133 nor its implementing regulations are directly applicable here; they address only a plan's internal appeal process and do not contemplate arbitration as an additional layer of pre-judicial dispute resolution. An ERISA fiduciary is nonetheless constrained by its duty to "discharge [its] duties with respect to a plan solely in the interest of the participants and beneficiaries," ERISA § 404(a); 29 U.S.C. § 1104(a), when it writes and implements an arbitration clause. Although the existing ERISA regulations do not specifically address arbitration, we believe that they provide guidance for a fiduciary seeking to create "reasonable" arbitration procedures. See 29 C.F.R. § 2560.503-1(b). Just as a fiduciary must give written notice to a plan participant or beneficiary of the "steps to be taken" to obtain internal review when it denies a claim, id. § 2560.503-1(f), so also, we believe, should a fiduciary give written notice of steps to be taken to obtain external review through mandatory arbitration when it denies an internal appeal.
When a fiduciary breaches its duty and relief is not otherwise available under the statute, § 502(a)(3) of ERISA provides for individualized equitable relief. See 29 U.S.C. § 1132(a)(3); Varity Corp. v. Howe, 516 U.S. 489, 515, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996). In cases of inadequate notice, the usual remedy is to allow the plaintiff to file a late appeal and to construe it as timely. See White v. Jacobs Eng'g Group Long Term Disability Benefit Plan, 896 F.2d 344, 350-51 (9th Cir. 1990); see also J.W. Counts v. American Gen. Life Accident Ins. Co., 111 F.3d 105, 108 (11th Cir. 1997); Epright v. Environmental Resources Mgmt., Inc. Health Welfare Plan, 81 F.3d 335, 342 (3d Cir. 1996). We believe this is an appropriate remedy in this case.
The district court should grant Chappel leave to amend his complaint to state a claim against Lab Corp for breach of fiduciary duty. If Chappel can prove that Lab Corp failed to provide timely and effective notification of his right to arbitration and the time in which he had to act to preserve that right, he will be entitled to file an out-of-time demand for arbitration.
No doubt a plan beneficiary has the right to know about the plan's provisions for seeking review of the plan administrator's decisions. But the mechanism that ERISA provides to assure that is the summary plan description (SPD). If that is clear, and if the administrator does nothing to prevent reliance upon it, I cannot see how a breach of fiduciary duty has taken place.
But we are, in effect, asked to decide that Congress passed a useless Act, at least from the standpoint of a fiduciary, when it required that a SPD must contain a description of "the remedies available under the plan for the redress of claims which are denied." 29 U.S.C. § 1022(b); see also 29 U.S.C. §§ 1021, 1024(b). That, of course, is because the notice is now to be deemed inadequate, and will have to be retold to the beneficiary at what we deem to be the appropriate time. Just how many other parts of the SPD sections will be found to be similarly insufficient is now unknown. For example, if the plan administrator happens to hear that a person is ill, must the administrator seek the person out and inform him of "the procedures to be followed in presenting claims for benefits?" 29 U.S.C. 1022(b). Neither the employer, the employee, nor the administrator will know the answer until we, once again, take the measure of our judicial foot.
We, by inference, are also invited to ignore cases which have held that when the SPD explains the rules which will be applied by the plan, ERISA does not additionally impose sua sponte individualized disclosure requirements. See Stahl v. Tony's Bldg. Materials, Inc., 875 F.2d 1404, 1409 (9th Cir. 1989); Schultz v. Metropolitan Life Ins. Co., 872 F.2d 676, 680 (5th Cir. 1989); Cummings v. Briggs Stratton Retirement Plan, 797 F.2d 383, 387-88 (7th Cir. 1986). I would decline that invitation.
Here, as in other cases, we are asked to create a duty through nothing more than judicial fiat or thaumaturgy. I would deny that request. Among other things, I see no need for it; I am not that cynical about the general competence of workers or about the general motives of plan administrators. Nor do I think that we should pile new burdens upon administrators. Of course, it is always easy for us to add steps to the minuet which administrators must perform if they are to avoid litigation and worse. Each step is just one step, and (as courts often like to suggest) a minor thing to require of the administrator — "a simple matter." See maj. op. at 727. In the end, however, we are creating an exceedingly complex little dance. The result of a misstep in that dance may be an action against the administrator which will ultimately lead to an attempt to mulct him for his alleged wrongdoing. At the very least, it will tarnish the administrator, his methods and motives, and may well lead to an imposition of liability upon a plan that should be barred due to the beneficiary's own inaction.
See, e.g., Bins v. Exxon Co., 220 F.3d 1042, 1053-54 (9th Cir. 2000) (en banc) (rejecting just such an attempt).