Court Opinion

ID: 3001867
Source: CourtListenerOpinion
Date Created: 2015-09-24 20:21:45.05653+00
Date Added: 2024-06-11T15:03:39.470257
License: Public Domain

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 contin-
uing 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 judg-
ment. He first argued for a favorable standard of review,
claiming that the policy does not grant the plan administra-
tors 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 deferen-
tial “arbitrary and capricious” standard of review to
Standard’s decisions and whether it correctly rejected
Gutta’s assertion that the parties had concluded an en-
forceable settlement agreement. The facts bearing on
Gutta’s medical conditions and Standard’s assessment of
his eligibility for disability benefits are thoroughly dis-
cussed 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 author-
    ity 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 prosecu-
    tion 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 settle-
ment agreement containing additional terms, which Gutta
refused to sign.
No. 06-3708                                                 5

                             II
  On the cross-motions for summary judgment with re-
spect 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, how-
ever, federal law governs whether a judge or jury re-
solves 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 neces-
sary.
  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 objec-
    tive 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 ‘walk-
away’ 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 genu-
ine 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 agree-
ment 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 re-
viewed under a de novo standard unless the benefit plan
gives the administrator or fiduciary discretionary au-
thority 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. Em-
ployee 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 “satis-
factory 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 mes-
sage that payment of benefits is subject to Standard’s
discretion. Gutta argues unconvincingly that the lan-
guage “Standard has authority . . .” does not confer dis-
cretion 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 degenera-
tion, 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 degenera-
tive 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 ½ 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 hospi-
tals. 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 con-
ducting 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 prop-
erly 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 com-
mingled 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 Par-
ties’ ” 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, settle-
ment, 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 provi-
sion 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 con-
tract 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 Maxi-
mum 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 indistinguish-
able 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 ob-
tained 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 investi-
gate 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 grand-
mother 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 character-
ized 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). Enforce-
ment 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 adjudi-
cated 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 Stan-
dard’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 certi-
ficate 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 “Con-
version 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