Source: https://caselaw.findlaw.com/us-2nd-circuit/1321740.html
Timestamp: 2020-08-09 00:11:20
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NERNEY v. VALENTE SONS REPAIR SHOP | FindLaw
NERNEY v. VALENTE SONS REPAIR SHOP
Michael E. NERNEY, Plaintiff-Appellant, v. VALENTE & SONS REPAIR SHOP, a Partnership, Joseph A. Valente and Mary Ann Valente, d/b/a Valente & Sons Repair Shop, Defendants-Appellees.
No. 1537, Docket 94-9026.
Before: FEINBERG, WALKER, and CABRANES, Circuit Judges. Timothy G. Mulcahy, Greenfield Center, NY, for plaintiff-appellant. Sanford N. Finkel, Troy, NY, for defendants-appellees.
Plaintiff Michael Nerney filed this suit against his former employer, Valente & Sons Repair Shop (“Valente Repair”), and its partners Joseph and Mary Ann Valente. Nerney claimed that defendants' failure to pay his medical premiums during his employment and to secure continued medical coverage after his employment violated defendants' duties under the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq., and state law. Plaintiff appeals from an order granting summary judgment in favor of defendants and denying leave to amend the complaint entered in the United States District Court for the Northern District of New York (Hon. G. Cholakis, District Judge).
Nerney applied for a job with Valente Repair on August 22, 1991 and began working there soon after. While at Valente Repair, Nerney expressed interest in joining the medical plan offered to the company's employees, which was provided through the Rensselaer Chamber of Commerce (“RCC”) by the Capital District Physicians' Health Plan (“CDPHP” or the “Plan”). After some delays, Nerney learned on October 1, 1991 that he had been added to the Plan. He received a copy of the policy and his identification cards on October 7, but returned one of his cards so that some inaccuracies could be corrected.
I. The ERISA Claims
Nerney's complaint asserted two claims under ERISA: (1) that defendants violated the terms of the Plan, and (2) that defendants were obligated under ERISA, specifically 29 U.S.C. § 1021, to provide Nerney with a summary of his rights under the Plan and to notify him that Valente Repair had failed to pay his premiums. On appeal, Nerney appears to abandon the latter claim, challenging only the district court's dismissal of his claim based upon Nerney's violation of the Plan's terms. As to that claim, the district court found that the CDPHP was a plan governed by ERISA and that defendants were subject to ERISA's strictures as administrators, but concluded that defendants were not obligated under the terms of the Plan. We agree.
Under 29 U.S.C. § 1132(a)(1)(B), a participant of a plan governed by ERISA may bring an action “to recover benefits due to him under the terms of his plan, [or] to enforce his rights under the terms of the plan.” Nerney asserts that Valente Repair and its partners violated the terms of the Plan both by failing to pay premiums on his behalf and by neglecting to inform him of his continuation rights. As the district court found, the Plan did not impose these duties on the defendants.
The Plan imposes duties on the “Policyholder” both to pay premiums on behalf of members and to notify them of their rights. Section XV(A) of the Plan specifies that the Policyholder must arrange for collection of premiums from Subscribers and that “[t]he Policyholder shall pay the total monthly premium due CDPHP on behalf of those Subscribers” each month. Although the Policy does not explicitly state that the Subscriber is entitled to notice of the right to continued coverage, under Section X(B)(2) the Subscriber must make a written request for continuation within twenty days of the subscriber's termination from employment or “[t]he date the employee is given notice of the right of continuation by the group,” whichever is later, but in any event within thirty-one days of termination. Pursuant to Section XVI(G)(2), “[t]he Policyholder agrees to provide appropriate notice to all affected Subscribers at its own expense.” Arguably, notice of the right to continued coverage qualifies as “appropriate notice” and is thus the Policyholder's obligation.
Unfortunately for Nerney, however, Valente Repair is not the Plan's “Policyholder.” The policy defines the “Policyholder” as “the employer, association, or group which contracts with [CDPHP] to provide Health Services to Members.” The Standard Plan Certificate identifies RCC, not Valente Repair, as the group that has contracted with CDPHP for health coverage. Consistent with this position, a letter from CDPHP to plaintiff's attorney on January 9, 1992 stated that it had sent Nerney enrollment information “based on our contractual agreement with [RCC].” Nothing in the express terms of the Plan obligates an employer that is not also the Policyholder to provide notice to a subscriber, pay an employee's premiums, or fulfill any other duties. Thus, while Nerney may have a cause of action against RCC based upon violation of the Plan's terms, the district court correctly dismissed the claim against Valente Repair and its partners.
II. Leave to Amend
Nerney also sought leave to amend the complaint to add a claim for violation of fiduciary duties under ERISA. Because a responsive pleading has already been served, leave to amend at this point must be obtained from the district court. Fed.R.Civ.P. 15(a). However, Rule 15(a) specifies that “leave shall be freely given when justice so requires,” and the Supreme Court has emphasized that amendment should normally be permitted, Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962). “Undue delay and futility of the amendment, among other factors, are reasons to deny leave.” John Hancock Mut. Life Ins. Co. v. Amerford Int'l Corp., 22 F.3d 458, 462 (2d Cir.1994).
The district court found that amendment would not “threaten to cause great hardship” but found the claim “so lacking in merit that leave should not be granted.” It agreed with Nerney that, as an administrator, Valente Repair was an ERISA fiduciary and that the failure to pay premiums on Nerney's behalf or to inform him of his continuation rights may have breached defendants' fiduciary duties. Cf. Eddy v. Colonial Life Ins. Co. of Am., 919 F.2d 747, 750 (D.C.Cir.1990) (“A fiduciary has a duty not only to inform a beneficiary of new and relevant information as it arises, but also to advise him of circumstances that threaten interests relevant to the relationship.”). It denied leave to amend solely on the ground that, since Nerney was not eligible for continuation of his benefits, any breach of defendants' fiduciary duties “would not be relevant to his injury.” We believe that there is a genuine issue of material fact as to the premise underlying this last conclusion and that as a result amendment to add a claim for violation of ERISA fiduciary duties should be allowed.
If the Subscriber's Coverage under the Contract ends due to termination of employment or membership in the group, he may continue Coverage․ Continuation of Coverage will not be available for: ․ b. Any person who is; becomes; or could be covered as an employee; Member; or dependent by an alternative health benefits plan which provides group health coverage.
The district court, in concluding that this exclusion applied to plaintiff, stated only that “Section X excludes coverage for individuals who have other group insurance available to them. Under these limitations, Mr. Nerney had no right of coverage to exercise.” Presumably, the district court based this conclusion on the fact that Nerney had already enrolled in a plan offered by his new employer when he incurred the medical expenses at issue.
Defendants offer no evidence to dispute the accuracy of Nerney's allegation. Rather, they charge that he has not offered sufficient proof of a coverage gap and doubt that such a gap existed. At a minimum, these contradictory allegations present a genuine issue of material fact. See Terminate Control Corp. v. Horowitz, 28 F.3d 1335, 1352-53 (2d Cir.1994); Commander Oil Corp. v. Advance Food Serv. Equip., 991 F.2d 49, 51 (2d Cir.1993). Because it would be possible for Nerney to prevail on an ERISA fiduciary claim at trial, the district court erred in concluding that amendment would be futile, and denial of leave to amend was therefore an abuse of discretion. See Cortec Indus. v. Sum Holding L.P., 949 F.2d 42, 50 (2d Cir.1991) (finding it an abuse of discretion to deny leave to amend where amendment could cure a defect in the complaint and thus would not be futile); cf. S.S. Silberblatt, Inc. v. East Harlem Pilot Block-Bldg. 1 Hous. Dev. Fund Co., 608 F.2d 28, 42 (2d Cir.1979) (reversing denial of leave to amend where “the alleged futility of the amendment rests on findings of fact”).
After dismissing plaintiff's ERISA claims, the district court declined to exercise its supplemental jurisdiction over the remaining state law claims. A district court may decline to exercise supplemental jurisdiction if it has “dismissed all claims over which it has original jurisdiction.” 28 U.S.C. § 1367(c)(3). Because amendment of the complaint to add a claim for breach of ERISA fiduciary duties “restores pendent jurisdiction ․ we remand [those claims] as well.” Albert v. Carovano, 851 F.2d 561, 574 (2d Cir.1988) (in banc). The district court may either exercise jurisdiction over those claims under § 1367(a) or articulate “compelling reasons for declining jurisdiction.” 28 U.S.C. § 1367(c)(4).
1. Because a fiduciary may in some circumstances be liable for a beneficiary's failure to comply with the terms of a policy, see, e.g., a Eddy, 919 F.2d at 751 (noting that plaintiff “should not be penalized because he failed to comprehend the technical difference between ‘conversion’ and ‘continuation’ ”); Fortune, 803 F.Supp. at 641 (finding that insurer may be liable where it breached its fiduciary duty to provide beneficiary with “complete and correct material information”), we do not mean to imply that Nerney's claim fails on proximate cause grounds.