Source: https://law.justia.com/cases/federal/appellate-courts/F3/150/1003/571524/
Timestamp: 2019-02-21 20:15:13
Document Index: 641321723

Matched Legal Cases: ['§ 1002', '§ 1003', '§ 1144', '§ 502', '§ 1144', '§ 1132', '§ 502', '§ 502', '§ 502', '§ 502', '§ 502', '§ 502', '§ 502', '§ 1132', '§ 502', '§ 502', '§ 1132']

22 Employee Benefits Cas. 1268, 98 Cal. Dailyop. Ser v. 4155,98 Daily Journal D.a.r. 5767,98 Daily Journal D.a.r. 8433roger Timothy Bast, Individually and As Personalrepresentative for the Estate of Rhonda Raefleming Bast; Douglas Glenn Bast, Aminor Child, Plaintiffs-appellants, v. Prudential Insurance Company of America, an Insurancecorporation, Defendant-appellee, 150 F.3d 1003 (9th Cir. 1998) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Ninth Circuit › 1998 › 22 Employee Benefits Cas. 1268, 98 Cal. Dailyop. Ser v. 4155,98 Daily Journal D.a.r. 5767,98 Daily J...
22 Employee Benefits Cas. 1268, 98 Cal. Dailyop. Ser v. 4155,98 Daily Journal D.a.r. 5767,98 Daily Journal D.a.r. 8433roger Timothy Bast, Individually and As Personalrepresentative for the Estate of Rhonda Raefleming Bast; Douglas Glenn Bast, Aminor Child, Plaintiffs-appellants, v. Prudential Insurance Company of America, an Insurancecorporation, Defendant-appellee, 150 F.3d 1003 (9th Cir. 1998)
U.S. Court of Appeals for the Ninth Circuit - 150 F.3d 1003 (9th Cir. 1998)
Argued and Submitted May 7, 1998
Decided June 2, 1998. As Amended Aug. 3, 1998
We review de novo a grant of summary judgment. Forsyth v. Humana, Inc., 114 F.3d 1467, 1474 (9th Cir.), cert. denied, --- U.S. ----, 118 S. Ct. 559, 139 L. Ed. 2d 401 (1997); Bagdadi v. Nazar, 84 F.3d 1194, 1197 (9th Cir. 1996). We must determine, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material fact for trial. Forsyth, 114 F.3d at 1474.
Whether ERISA preempts a plaintiff's state law claims is a question of law we review de novo. Ward v. Management Analysis Co. Employee Disability Benefit Plan, 135 F.3d 1276, 1279 (9th Cir. 1998); Spain v. Aetna Life Ins. Co., 11 F.3d 129 (9th Cir. 1993).
The Basts first argue that the district court improperly granted summary judgment because there is an issue of fact as to whether the Plan was managed by an agency of the government. ERISA exempts from preemption any plan that is established or maintained by the U.S. government, a state government or by any agency or instrumentality of the government. 29 U.S.C. § 1002(32); 29 U.S.C. § 1003(b) (1).
The RTC's involvement with Cole did not convert Cole's private benefit plan into a government benefit plan. The Plan was established and paid for by Cole, a private entity, for the benefit of its employees. Cf. Silvera v. The Mutual Life Ins. Co., 884 F.2d 423, 427 (9th Cir. 1989) (holding that where a governmental entity purchases a benefit plan on behalf of government employees and delegates the administration to a private insurer, the plan is a government plan exempt from ERISA); and see McGraw v. Prudential Ins. Co., 137 F.3d 1253 (10th Cir. 1998) (holding that a public trust that exercised control over the beneficiary's employment did not change the benefit plan into a government plan because the trust did not establish the Plan or control it).
ERISA regulates employee benefit plans in order to promote the interests of employees and their beneficiaries. Ward, 135 F.3d at 1287. Under section 514(a), a state law cause of action is preempted by ERISA if it "relates to" an employee benefit plan. 29 U.S.C. § 1144(a); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S. Ct. 1549, 95 L. Ed. 2d 39 (1987). "A law relates to an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan." Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138, 111 S. Ct. 478, 112 L. Ed. 2d 474 (1990) (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97, 103 S. Ct. 2890, 77 L. Ed. 2d 490 (1983)). A state law may relate to a benefit plan even if the law "is not specifically designed to affect such plans, or the effect is only indirect." Id.
In more recent decisions, however, the Supreme Court has limited the scope of the "relate to" provision of ERISA. See De Buono v. NYSA-ILA Med. and Clinical Serv. Fund, 520 U.S. 806, ----, 117 S. Ct. 1747, 1751, 138 L. Ed. 2d 21 (1997); New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655, 115 S. Ct. 1671, 131 L. Ed. 2d 695 (1995). Courts must "go beyond the unhelpful text and the frustrating difficulty of defining its key term ["relate to"], and look instead to the objectives of the ERISA statute as a guide to the scope of the state law that Congress understood would survive." Id. at 656, 115 S. Ct. 1671. See also Operating Engineers Health & Welfare Trust Fund v. JWJ Contracting Co., 135 F.3d 671, 677 (9th Cir. 1998) ("Of late, the [Supreme] Court has come to recognize that ERISA pre-emption must have limits when it enters areas traditionally left to state regulation ...."); Toumajian v. Frailey, 135 F.3d 648, 653 n.3 (9th Cir. 1998) ("Recently, the scope of this broad 'relate to' preemption was markedly narrowed.")
In determining whether a state law relates to ERISA, a court must evaluate whether the state law "has a connection with or reference to" employee benefit plans. District of Columbia v. Greater Washington Board of Trade, 506 U.S. 125, 129, 113 S. Ct. 580, 121 L. Ed. 2d 513 (1992). " [T]o determine whether a state law has the forbidden connection, we look both to 'the objectives of the ERISA statute as a guide to the scope of the state law that Congress understood would survive,' as well as the nature of the effect of the state law on ERISA plans." California Div. of Labor Standards Enforcement v. Dillingham Constr., Inc., 519 U.S. 316, ----, 117 S. Ct. 832, 838, 136 L. Ed. 2d 791 (1997) (citations omitted).
The Supreme Court has held that ERISA preempts state common law tort and contract causes of action asserting improper processing of a claim for benefits under an insured employee benefit plan. Pilot Life, 481 U.S. at 57. The detailed provisions of ERISA § 502(a) set forth a comprehensive civil enforcement scheme that "would be completely undermined if ERISA-plan participants and beneficiaries were free to obtain remedies under state law that Congress rejected in ERISA." Id. at 54, 107 S. Ct. 1549.
In a factually similar case, we held that ERISA preempts a state law wrongful death cause of action based upon an insurance company's negligent administration of a claim. Spain, 11 F.3d at 132. "ERISA preempts Appellants' wrongful death action because the state law in its application directly 'relates to' the administration and disbursement of ERISA plan benefits." Id. See also Kanne v. Connecticut General Life Ins. Co., 867 F.2d 489, 494 (9th Cir. 1988) (holding that the plaintiffs' state common law causes of actions for breach of contract and breach of the duty of good faith and fair dealing, as well as a statutory cause of action for unfair insurance practices under the California Insurance Code were preempted by ERISA).
Washington state courts have also recognized ERISA preemption in circumstances similar to the Basts'. The Washington Supreme Court has held that common law claims for negligence, outrage, breach of contract, negligent misrepresentation and fraud which are based upon an interference with an attainment of benefits are preempted by ERISA. Cutler v. Phillips Petroleum, 124 Wash. 2d 749, 763, 881 P.2d 216 (1994); Hepler v. CBS, Inc., 39 Wash. App. 838, 696 P.2d 596 (1985) (holding that ERISA preempts a plaintiff's claims for violation of the State Insurance Code and Consumer Protection Act).
ERISA, however, has a savings clause. This clause states that ERISA does not exempt any person from "any law of any State which regulates insurance, banking, or securities." 29 U.S.C. § 1144(b) (2) (A). The Basts argue that their state law claims for violations of the Washington Insurance Code and the Washington Consumer Protection Act are not preempted by ERISA. They assert that these two state statutes fall within ERISA's "savings clause."
The Basts recognize that, notwithstanding ERISA's savings clause, we have held that insurance bad faith claims are preempted by ERISA. They argue, however, that they are not suing the Plan, they are suing Prudential as an insurance company doing business in Washington. They assert that ERISA does not preempt relationships "where a plan operates just like any other commercial entity, for instance the relationship between the plan and its own employees, or the plan and its insurers or creditors...." General Am. Life Ins. Co. v. Castonguay, 984 F.2d 1518, 1522 (9th Cir. 1993). They contend, therefore, that whether Prudential is administering a benefit plan or not, it is still bound by the good faith obligations imposed upon an insurance company by Washington's Insurance Code and Consumer Protection Act.
These arguments fail to persuade us that the Basts' claims are exempted by ERISA's savings clause. The Basts' claims against Prudential arise out of Prudential's actions as the benefit plan administrator, not as an insurance company or insurance provider. " [T]he key issue is whether the parties' relationships are ERISA-governed relationships." Geweke Ford v. St. Joseph's Omni Preferred Care Inc., 130 F.3d 1355, 1358 (9th Cir. 1997) (citing Castonguay, 984 F.2d at 1522). Prudential's alleged breach of fiduciary duty while administering the benefit plan is conduct covered by ERISA. The Basts' claims under the Washington Insurance Code and Washington Consumer Protection Act are not exempt under ERISA's savings clause. Accordingly, these claims are covered by ERISA. If the Basts are to recover, they must do so under ERISA.
ERISA's civil enforcement provision outlines the possible claims by a participant or beneficiary. 29 U.S.C. § 1132, ERISA § 502(a). They include: (1) an action to recover benefits due under the plan, ERISA § 502(a) (1) (B); (2) an action for breach of fiduciary duties, ERISA § 502(a) (2); and (3) a suit to enjoin violations of ERISA or the Plan, or to obtain other equitable relief, ERISA § 502(a) (3).
Extracontractual, compensatory and punitive damages are not available under ERISA. Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 105 S. Ct. 3085, 87 L. Ed. 2d 96 (1985); Sokol v. Bernstein, 803 F.2d 532 (9th Cir. 1986) (holding that ERISA § 502(a) (3) does not allow for extracontractual damages, including damages for emotional distress).
The Basts argue that if ERISA provides no remedy, ERISA should not preempt their state causes of action which do provide a remedy. They make two related arguments: (1) they should not be left without a remedy for Prudential's allegedly wrongful conduct, and (2) they are entitled to recover under ERISA's equitable relief provision, section 502(a) (3).
We addressed these two arguments in McLeod v. Oregon Lithoprint Inc., 102 F.3d 376 (9th Cir. 1996), cert. denied, --- U.S. ----, 117 S. Ct. 1823, 137 L. Ed. 2d 1030 (1997). In that case, Pamela McLeod claimed that her employer's ERISA plan administrator breached its fiduciary duty by failing to notify her that she was eligible for coverage under a cancer insurance policy. Id. at 377. McLeod sought a judgment for the amount of benefits she would have been paid if coverage had been provided under the cancer policy, and for compensatory damages for emotional distress. Id. We held that the term "equitable relief" in ERISA § 502(a) (3) does not allow for the recovery of compensatory damages. Id. at 378. We stated that McLeod did not seek an injunction, mandamus, or restitution, and damages are not "equitable relief." Id.
In a lawsuit nearly identical to the present lawsuit, the Tenth Circuit held that ERISA preempts state law claims even if the plaintiff is left without a remedy. Cannon v. Group Health Serv., 77 F.3d 1270 (10th Cir.), cert. denied, --- U.S. ----, 117 S. Ct. 66, 136 L. Ed. 2d 27 (1996). In Cannon, Phyllis Cannon was diagnosed with leukemia and needed the ABMT procedure. The insurers administering her ERISA plan denied pre-authorization for the procedure because it was experimental. Id. at 1271. Cannon requested reconsideration, and the insurers eventually reversed their decision and agreed to authorize the ABMT. However, by the time the procedure was authorized, Cannon's window of opportunity for receiving the ABMT had passed and she died shortly thereafter. Id. Cannon's surviving spouse brought an action against the insurers alleging that they negligently or in bad faith had refused to authorize in a timely manner the ABMT procedure. The Tenth Circuit held that ERISA preempts state law claims even if there is no alternative remedy under ERISA. Id. at 1272. Id. Cannon's surviving spouse was left without a remedy.
The Fifth and Sixth Circuits have reached the same conclusion under equally tragic circumstances. "While we are not unmindful of the fact that our interpretation of the pre-emption clause leaves a gap in remedies within a statute intended to protect participants in employee benefit plans, ... the lack of an ERISA remedy does not affect a pre-emption analysis." Corcoran v. United HealthCare, Inc., 965 F.2d 1321, 1333 (5th Cir. 1992) (ERISA administrator denied a hospital stay for woman during the final weeks of a high-risk pregnancy and the fetus died); Tolton v. American Biodyne, Inc., 48 F.3d 937, 943 (6th Cir. 1995) (wrongful death) ("That ERISA does not provide the full range of remedies available under state law in no way undermines ERISA preemption."); Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d 1272, 1276 (6th Cir. 1991) ("Nor is it relevant to an analysis of the scope of federal preemption that appellants may be left without a remedy.").
ERISA § 502(a) (3) provides that a participant or beneficiary may bring a civil action "to obtain other appropriate equitable relief" to redress violations of ERISA or to enforce provisions of ERISA or the benefit plan. 29 U.S.C. § 1132(a). The Basts argue they can obtain, under ERISA, the equitable remedy of restitution because that would be "other appropriate equitable relief."
The Supreme Court has held that the language "appropriate equitable relief" does not authorize suits for money damages for breach of fiduciary duty. Mertens v. Hewitt Assocs., 508 U.S. 248, 257-58, 113 S. Ct. 2063, 124 L. Ed. 2d 161 (1993). " ' [E]quitable relief' in the form of the recovery of compensatory damages is not an available remedy under § 502(a) (3)." McLeod, 102 F.3d at 378.
The Basts rely heavily upon the Supreme Court's decision in Varity Corp. v. Howe, 516 U.S. 489, 116 S. Ct. 1065, 134 L. Ed. 2d 130 (1996). There, the Court held that ERISA participants or beneficiaries may bring an action for equitable relief for breach of fiduciary duties. Id. at 514-15, 116 S. Ct. 1065. The Court concluded that section 502(a) (3) is a catchall provision designed to act as a "safety net" offering appropriate equitable relief for violations of ERISA where there is no other adequate remedy. Id. at 512, 116 S. Ct. 1065. ERISA's basic purposes favor providing plaintiffs with a remedy. Id. " [I]t is hard to imagine why Congress would want to immunize breaches of fiduciary obligation that harm individuals by denying injured beneficiaries a remedy." Id. at 513, 116 S. Ct. 1065.
The equitable remedy provided by the Court in Varity, however, was reinstatement, not money damages. The Varity beneficiaries were tricked by an administrator into withdrawing from their benefit plan and forfeiting their benefits. The Court concluded that reinstatement was an appropriate equitable remedy. Id. at 515, 116 S. Ct. 1065.
Imposition of a constructive trust for breach of a fiduciary duty is an appropriate equitable remedy under ERISA in some cases. See FMC Medical Plan v. Owens, 122 F.3d 1258 (9th Cir. 1997); Waller v. Blue Cross, 32 F.3d 1337 (9th Cir. 1994); Amalgamated Clothing & Textile Workers Union, AFL-CIO v. Murdock, 861 F.2d 1406 (9th Cir. 1988). In both Waller and Murdock, we imposed a constructive trust upon the employers' "ill-gotten profits" from breach of their fiduciary duties. In both cases an identifiable portion of the beneficiaries' pension plans had been improperly taken from them.
Moreover, the Amicus is unclear as to what form a constructive trust would take. The Amicus suggests the trust could benefit the Plan or the Basts. Under McLeod, however, it is clear that the proceeds of such a trust could not be paid to the Basts because this would be the equivalent of money damages. McLeod, 102 F.3d at 378. And, because no funds were taken from the Plan, there are no "ill-gotten" profits to return to the Plan. We conclude that in this case a constructive trust is not an appropriate equitable remedy under ERISA § 502(a) (3). And there is no other remedy available.
There was a brief time when Rhonda Bast could have sought equitable relief under ERISA. She could have sought an injunction to compel Prudential to authorize the ABMT procedure when Prudential first denied coverage. See 29 U.S.C. § 1132(a) (1) (B)