Opinion
Civ. No. 02-1384 (RHK/AJB)
October 25, 2002
Mark M. Nolan, Stapleton, Nolan, MacGregor Thompson, Saint Paul, MN, for Plaintiff.
Jeffrey E. Grell, Leonard, Street and Deinard, Minneapolis, MN, for Defendant.
MEMORANDUM OPINION AND ORDER
Introduction
Plaintiff Richard Christianson ("Christianson") has filed this action against Defendant Poly-America, Inc. Medical Benefits Plan ("Poly-America") alleging breach of contract, breach of fiduciary duty, and violation of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq. Poly-America has moved to compel arbitration. Because the Court concludes that the arbitration clause in Poly-America's medical benefit plan is ambiguous and should be construed so as not to require arbitration, the motion to compel arbitration will be denied.
Background
On January 18, 2001, Richard Christianson was admitted to United Hospital after complaining of swelling in his left leg. (Raia Aff. Ex. D (United Hospital Medical Records).) The attending physician diagnosed him with deep vein thrombosis. (Id.) Christianson's work involves standing on a hard, concrete floor for over fifty hours a week. (Id.) He is also a smoker. (Id.) Both are risk factors for deep vein thrombosis. (Id.) After undergoing a variety of medical procedures, Christianson was released six days later having incurred significant medical expenses. (Compl. at ¶ 5.)
Plaintiff's complaint alleges approximately $50,000 in medical expenses.
Christianson was an employee of Poly-America, Inc. and a participant in the Poly-America, Inc. Medical Plan ("the Plan"). (Compl. at ¶ 4.) Under the Plan, "[c]harges related in any way, shape or form to, or complicated by, the use of tobacco products or for treatment of an ailment or condition associated with the use of tobacco" are excluded from coverage. (Raia Aff. Ex. B (Poly-America Medical Plan) at 18.) Ken Struck, the Medical Benefits Plan Administrator determined that Christianson's medical expenses were related to smoking and his claim under the Plan was denied. (Raia Aff. Ex. G (Denial of Claim Letter).) On June 30, 2001, Christianson requested a review of this decision. (Raia Aff. Ex. H.) On July 19, 2001, Struck reaffirmed the denial of Christianson's claim. (Raia Aff. Ex. I.) Christianson filed suit on June 27, 2002.
Defendant's motion implicates three of the Plan's provisions. Under the section entitled "Your ERISA Rights" ("the ERISA Rights section"), the Plan states:
In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of the Plan. The people who operate the plan, called "fiduciaries," have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. . . . Under ERISA, there are steps you can take to enforce the above rights. . . . If you have a claim for benefits that is denied or ignored, in whole or in part, you may file suit in a state or federal court. . . . (None of the foregoing shall affect the enforceability of the Arbitration provision in the Plan.)
(Raia Aff. Ex. B at 41 (emphasis added).) Conversely, under the section entitled "Denial of Claim", the Plan reads:
If your claim is denied in whole or in part by the Plan Administrator, you may seek a review of this decision. The following procedures will apply and must be followed:
* * * *
4. Final Review Procedure: Final and Binding Arbitration. If you are dissatisfied with the decision of the Plan Administrator during the review process concerning:
a. The application of the Plan to this Claim;
b. The amount or duration of the payments under the Plan;
c. The performance by the Plan Administrator of the obligations under the Plan; or
d. Any interpretation of the Plan by the Plan Administrator;
You may file a written request with the Plan Administrator for arbitration by an impartial arbitrator, as described in the Plan, of the decision about which the complaint is being made, specifying the nature of your disagreement with the decision, and submitting any evidence or information which should be considered and the desired change in the decision. The cost of arbitration shall be split between the employee and the Plan. FINAL AND BINDING ARBITRATION IS YOUR SOLE REMEDY IF YOU ARE DISSATISFIED WITH YOUR TREATMENT UNDER THE PLAN.
(Raia Aff. Ex. B at 43 (emphasis added).)
Likewise, in the "General Information" section, the Plan reads:
The Court will refer to the arbitration provisions of the "General Information" section and the "Denial of Claim" section as "the Arbitration sections."
IN ACCORDANCE WITH THE TERMS OF THE PLAN, FINAL AND BINDING ARBITRATION IS YOUR SOLE REMEDY IF YOU ARE DISSATISFIED WITH ANY CLAIMS YOU MAY HAVE OR WITH YOUR TREATMENT UNDER THE PLAN.
(Raia Aff. Ex. B at 49.)
Analysis
While the Federal Arbitration Act mandates a strong presumption in favor of arbitration as to the scope of arbitrable issues, that presumption can only be triggered by a valid arbitration agreement. See Genesco, Inc. v. T. Kakiuchi Co., Ltd., 815 F.2d 840, 847 (2d Cir. 1987) ("[Once] a determination has been made that the parties have entered into a binding and enforceable arbitration agreement to arbitrate their disputes . . . questions regarding the scope of the arbitration agreement must be addressed with a healthy regard for the federal policy favoring arbitration." (internal quotations omitted)). Absent such an agreement, a party cannot be forced into arbitration, General Motors Corp. v. Pamela Equities Corp., 146 F.3d 242, 247 (5th Cir. 1998), and when deciding whether a party has consented to binding arbitration, "the court should decide that question just as it would decide any other question that the parties did not submit to arbitration, namely, independently." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995).
9 U.S.C. § 1, et seq.
In moving to compel arbitration, Poly-America contends that Christianson has acknowledged and consented to the Plan's dispute resolution procedures, and that the Court must accordingly stay or dismiss his complaint and compel him to proceed with arbitration. In response, Christianson argues that the Plan's arbitration sections are ambiguous and should be construed against the drafter. Because the Court concludes that the arbitration clause is ambiguous and should be construed so as not to require arbitration, Poly-America's Motion to Compel Arbitration will be denied.
Under federal common law, courts construing ERISA plans should construe ambiguities against the drafter only if, after applying ordinary principles of construction, giving language its ordinary meaning, and admitting extrinsic evidence, ambiguities remain. Delk v. Durham Life Ins. Co., 959 F.2d 104 (8th Cir. 1992); see also DeGeare v. Alpha Portland Indus., 837 F.2d 812, 816 (8th Cir. 1988) ("Construing ambiguities against the drafter should be the last step of interpretation, not the first step."). A term is ambiguous if it irreconcilably conflicts with other terms in the contract. See Barker v Ceridian Corp., 122 F.3d 628, 635 (8th Cir. 1997); Jensen v. SIPCO, Inc., 38 F.3d 945, 949 (8th Cir. 1994); see generally Wessman v. Massachusetts Mut. Life Ins. Co., 929 F.2d 402, 406 (8th Cir. 1991); Richard A. Lord, Williston on Contracts § 30:4 (4th ed., 1999) ("Ambiguity may exist where two contractual provisions are in conflict with each other.").
"ERISA is a broad, comprehensive regulation that preempts state laws relating to employee benefit plans, 29 U.S.C. § 1144(a), unless the state law in question `regulates insurance, banking, or securities.'" Brewer v. Lincoln Nat'l Life Ins. Co., 921 F.2d 150, 153 (8th Cir. 1990) (quoting 29 U.S.C. § 1144(b)(2)(A)). Thus, where no particular ERISA section governs, courts are obliged to look to federal common law, rather than state law, in consideration of plan terms in ERISA cases. McDaniel v. Medical Life Ins. Co., 195 F.3d 999, 1002 (8th Cir. 1999) (citing Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56 (1987), and Reid v. Connecticut General Life Ins. Co., 17 F.3d 1092, 1098 (8th Cir. 1994), which states, "[W]here there is no federal statutory law to apply in ERISA litigation, `federal common law,' not state law, should be applied.").
The Court first construes the Plan's language using its ordinary meaning. Under ERISA, plan administrators must prepare summary plan descriptions written in a manner calculated to be understood by "the average plan participant." 29 U.S.C. § 1022(a). Because one of the major purposes of ERISA is to ensure adequate disclosure to employees, see id. at 633, terms in an ERISA policy "should be accorded their ordinary, and not specialized, meanings," Brewer v. Lincoln Nat'l Life Ins., 921 F.2d 150, 154 (8th Cir. 1990). Moreover, such descriptions must apprise participants not only of their rights and obligations under the plan, but also "the remedies available under the plan for redress of claims which are denied in whole or in part." 29 U.S.C. § 1022(b).
Here, the word that signals a conflict between the Arbitration section and the ERISA Rights section is the word "sole." The dictionary defines "sole" as "one and only" or "single"; it is a word of limitation, not expansion. See New Shorter Oxford English Dictionary 2938 (Lesley Brown ed., 1993). If arbitration were the "sole remedy" for a denial of claim, that language would preclude recourse to the court for a denial of benefits. Applying this ordinary meaning, the Court cannot harmonize language that states, "If you have a claim for benefits that is denied or ignored, in whole or in part, you may file suit in a state or federal court," (Raia Aff. Ex. B at 41) with language that states, "If your claim is denied . . . final and binding arbitration is your sole remedy . . ." (id. at 43 (emphasis added, capitalization omitted); accord id. at 49). After applying the plain meaning of the language, the Court concludes that these provisions are ambiguous.
The Court next analyzes the Plan's provisions using ordinary rules of construction. An elementary rule of contract interpretation is that a contract should be construed so as to give effect to all the contract's provisions. DeGeare, 837 F.2d at 816. Similarly, if two clauses of a contract appear to be in conflict, the preferred interpretation is the one that gives a harmonious interpretation to the clauses in order to avoid rendering either one nugatory. Id. Poly-America proposes two alternative interpretations by which the Court could reconcile the conflicting provisions. First, Poly-America proposes that the language promising the right to "file suit in a state or federal court" (Raia Aff. Ex. B at 41) be read as only applying to certain statutory claims. Second, Poly-America maintains that while the plain language of the provision may allow a plaintiff of file a claim in federal court, it does not permit him to have the claim resolved there.
While the second assertion is merely diverting, the first poses an intriguing possibility. As the Supreme Court has acknowledged, "[N]ot every statutory controversy implicating a statutory right is appropriate for arbitration." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 23 (1991). Assuming arguendo that this interpretation is plausible, it still fails to reconcile this limited recourse to the courts with the Arbitration sections' requirement that arbitration be the participant's "sole remedy." (Raia Aff. Ex. 1 at 43, 49 (capitalization omitted, emphasis added).) Moreover, because a non-lawyer would be unlikely to reconcile these provisions in such a way, this interpretation does not comply with the requirement that "an employee should not be required to adopt the skills of a lawyer" in order to comprehend language in his or her own ERISA plan. Barker, 122 F.3d at 634. Thus, the Court concludes, the provisions cannot be harmonized satisfactorily and remain ambiguous.
This interpretation, bereft of citations or relevant support, is too clever by half. At a bare minimum, this interpretation fails to comply with the requirement that ERISA summaries not mislead plan participants. See 29 C.F.R. § 2520.102-3(t)(1). Because Poly-America's counsel conceded at the hearing that this was an argument only a lawyer would make, the Court notes in passing that such an interpretation also fails to comply with the requirement that ERISA summaries be comprehensible to non-lawyers. See Barker, 122 F.3d at 634.
Under the final stage of the inquiry, the Court may attempt to resolve the remaining ambiguity by examining evidence beyond the four corners of the ERISA plan. See Farley v. Benefit Trust Life Ins. Co., 979 F.2d 653, 657 (8th Cir. 1992) (when an ERISA plan is ambiguous, "extrinsic evidence is admissible to determine the meaning of the contract"); see also Landro v. Glendenning Motorways, Inc., 625 F.2d 1344, 1353 (8th Cir. 1980); DeGeare, 837 F.2d at 816 ("If examination of the plan documents reveals ambiguities, extrinsic evidence may be considered."). Here, the only "evidence" that Poly-America offers bearing on the conflicting provisions of its own arbitration scheme is the bald assertion that the language assuring recourse to the courts is merely "mandatory" or "regulatory." (See Def.'s Supp. Mem. at 8.) While the Court is tempted to pause here and reflect upon the notion that language that is "mandatory" or "regulatory" is therefore not binding, a quick glance at the regulation cited defeats even this thin claim. Section 2520-102-3(t)(2) provides a summary for employers to use sufficient to meet the regulation's requirements; it also, however, states "items of information which are not applicable to a particular plan may be deleted." 29 C.F.R. § 2520-102-3(t)(2). Clearly, if Poly-America had wanted to preclude access to the state and federal courts, it could have deleted this language. Having failed to do so, and having failed to introduce extrinsic evidence to explicate its plan, Poly-America cannot free itself from its own draftsmanship.
After giving language its ordinary meaning, applying ordinary principles of construction, and examining extrinsic evidence, the Court concludes that the Plan's arbitration provisions are ambiguous and should be construed against Poly-America. See Stephens v. TES Franchising, 2002 WL 1608281 (D.Conn.) (construing arbitration provision against drafter where "what the arbitration provision expressly provides is taken away several pages later by the separate provision that all disputes be submitted to a court of competent jurisdiction"). Poly-America has failed in its obligation to "furnish plan descriptions `written in a manner calculated to be understood by the average plan participant.'" Jensen v. SIPCO, Inc., 38 F.3d 945, 952 (8th Cir. 1994) (quoting 29 U.S.C. § 1022(a)(1) (1988)). Because the Plan's arbitration clause is ambiguous, the Court concludes that a valid arbitration agreement does not exist.
"Employers seeking to prescribe arbitration for the future should be required to `turn square corners.'" Gibson, 121 F.3d at 1133 (Cudahy, J., concurring) (quoting Rock Island A LR Co. v. United States, 254 U.S. 141, 143 (1920) (Holmes, J.,)). Poly-America has fallen well short of that standard here.
Conclusion
Based on the foregoing, and all of the files, records, and proceedings herein, IT IS ORDERED that Defendant Poly-America, Inc. Medical Benefit Plan's Motion to Compel Arbitration (Doc. 4) is DENIED.