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holding that where the defendant "has yet to uncover complete copies of the relevant plan documents," the court had to proceed on the assumption that the de novo standard of review would apply
Summary of this case from Garg v. Winterthur LifeOpinion
01 Civ. 9182 (CSH)
June 28, 2002
MEMORANDUM OPINION AND ORDER
Plaintiff James Sheehan brought suit in New York Supreme Court against defendant Metropolitan Life Insurance Company ("MetLife") for unpaid disability benefits that are allegedly due under an insurance policy issued to plaintiff through his employment with Bear Stearns Co. (the "Disability Plan"). Defendant removed the case to federal court on the basis that the Employee Retirement and Income Security Act, 29 U.S.C. § 1001 et seq. ("ERISA") governs plaintiffs claims. Defendant now moves for a protective order with respect to certain demands made by plaintiff in a Notice to Produce dated January 9, 2002 and with respect to plaintiffs request to conduct depositions. The parties have submitted letter briefs in which they dispute the appropriateness of particular requests made by plaintiff and generally dispute the permissible scope of discovery in an ERISA case such as this one.
I. Scope of Discovery Generally
Rule 26(b)(1) of the Federal Rules of Civil Procedure governs the general scope of discovery in a civil action: "Parties may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party. . . . For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action." Rule 26(b)(2) authorizes a court to limit otherwise permissible discovery if the discovery sought is "unreasonably cumulative," the party seeking the discovery has had "ample opportunity" to obtain the information sought, or the discovery is unduly burdensome in light of the likely benefit. Rule 26(c) authorizes a court to issue a protective order to "protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense. . . ."
The parties dispute the nature of plaintiff's claims and the evidence that is relevant to those claims. Plaintiff believes that Bear Stearns wrongfully induced MetLife to terminate his benefits and therefore seeks information that will shed light on the dealings of MetLife and Bear Stearns as concerns plaintiffs disability benefits. Defendant points out that plaintiff's complaint only states a claim against it for unpaid disability benefits and does not even name Bear Stearns as a defendant. Defendant argues that the information sought by plaintiff is not relevant to plaintiff's claim for disability benefits because the court in an ERISA case may review only the materials considered by the claim administrator. In response, plaintiff contends that because this suit is against an insurer, not a plan administrator, and concerns an insurance policy, "New York State Law is not preempted by ERISA in this matter, but is instead supported by it." Letter Brief of Gina M. Sgarlato dated May 8, 2002, at 2.
As an initial matter, it is clear that ERISA does preempt state law in this case. Section 514(a) of ERISA provides that "all State laws" are preempted insofar as they "relate to any employee benefit plan." 29 U.S.C. § 1144 (a). Section 514(b) exempts, however, "any law of any state which regulates insurance, banking, or securities." 29 U.S.C. § 1144 (b)(2)(A). In Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987), the Supreme Court considered a plaintiff's claims under state tort and contract law against the insurer who issued his employer's group insurance policy. The Court first held that "[t]he common law causes of action raised in Dedeaux's complaint, each based on alleged improper processing of a claim for benefits under an employee benefit plan, undoubtedly meet the criteria for pre-emption under § 514(a)." Id. at 48. The Court then held that the insurance exemption under section 514(b) was inapplicable, explaining:
[T]he detailed provisions of § 502(a) set forth a comprehensive civil enforcement scheme. . . . The policy choices reflected in the inclusion of certain remedies and the exclusion of others under the federal scheme 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; see also Marcella v. Capital Dist. Physicians' Health Plan, Inc., ___ F.3d ___, 2002 WL 1174547, at *3 (2d Cir. June 5, 2002) ("In order for a claim to be completely preempted by ERISA so as to support removal, the defendant must demonstrate that (1) the state law cause of action is preempted by ERISA, and (2) that cause of action is within the scope of the civil enforcement provisions of ERISA § 502(a), 29 U.S.C. § 1132 (a).") (internal quotation marks and citation omitted). Like Dedeaux, the plaintiff in the present case has brought suit against an insurance company for alleged improper processing of a claim for benefits under an employee benefit plan. Therefore, plaintiff's state law causes of action are preempted, and plaintiff is limited to the remedies provided by ERISA.
Plaintiff's claim is properly brought under section 502(a)(1) of ERISA, which entitles a beneficiary to sue "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). Such a suit may be brought against a plan itself or against the administrator of the plan. Chapman v. Choicecare Long Island Term Disability Plan, 288 F.3d 506, 509 (2d Cir. 2002). If an insurance company controls the distribution of funds and decides whether or not to grant benefits under an employee benefit plan, then it can be sued as a plan administrator. See id. at 510, citing Cole v. Aetna Life Cas., 70 F. Supp.2d 106, 115-16 (D. Conn. 1999) and Nozar v. John Hancock Mut. Life Ins. Co., No. 89 C 5496, 1990 WL 103216, at *3 (N.D. Ill. July 19, 1990); see also Pilot, 481 U.S. 41 (dealing with claim against insurance company under ERISA).
Plaintiff also argues that MetLife and Bear Stearns violated their obligations as fiduciaries. Sgarlato Letter of Apr. 12, 2002, at 2. Plaintiff's claim in this case may not properly be characterized as one for breach of fiduciary duty, regardless of the circumstances of the denial of plaintiff's claim for benefits. Section 409 of ERISA makes a plan fiduciary liable for any breach of its fiduciary duties. 29 U.S.C. § 1109. The Supreme Court has made it clear, however, that "recovery for a violation of § 409 inures to the benefit of the plan as a whole" and therefore that a beneficiary cannot recover damages for a fiduciary's breach of its duties under ERISA. Mass. Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 140 (1985); see also Revello v. Metropolitan, No. 84 Civ. 2911, 1984 WL 912, at *2 (S.D.N.Y. Sept. 28, 1984) ("Plaintiffs' attempt to characterize this action as one for fiduciary misconduct is misplaced. What is at stake in this action is not fiduciary malfeasance with an attendant loss of plan assets, but rather, individuals' entitlement to benefits under the plan."); but see Reynolds v. Unum Life Ins. Co. of Am., No. Civ. A. 97-D-2325, 1998 WL 654475 (D. Colo. June 15, 1998) ("Plaintiff is entitled to discovery . . . . [which] may lead to admissible evidence concerning whether UNUM fulfilled its fiduciary obligation to obtain all information necessary to deny benefits . . . .").
Plaintiff comments in passing that MetLife and Bear Stearns may also have violated civil RICO (Racketeer Influenced and Corrupt Organizations Act) by wrongfully terminating plaintiff's benefits. Sgarlato Letter of Apr. 12, 2002, at 2. Plaintiff does not claim a violation of RICO or even allege facts supporting such a cause of action in the Complaint. Plaintiff's letter briefs do not cite to any. provision of RICO. The only evidence plaintiff points to in support of his theory that Bear Stearns influenced MetLife's decision to terminate his benefits is the fact that the W-2s that Bear Stearns issued for plaintiff included the amounts that plaintiff received under the Disability Plan. Sgarlato Letter of Apr. 12, 2002, at 2. In these circumstances, plaintiff has not demonstrated "good cause" under Rule 26(b)(1) to seek discovery on a potential claim under RICO.
"`[A] denial of benefits challenged under [ERISA § 502(a)(1)] is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.'" Fay v. Oxford Health Plan, 287 F.3d 96, 103-04 (2d Cir. 2002), quoting Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). "The plan administrator bears the burden of proving that the deferential standard of review applies." Fay, 287 F.3d at 103. The presence of a conflict of interest is irrelevant in determining the standard of review, but it is "weighed as a factor in determining whether there is an abuse of discretion." Firestone, 489 U.S. at 115 (internal quotation marks and citation omitted); see also DeFelice v. Am. Int'l Life Assurance Co. of N.Y., 112 F.3d 61-66 (2d Cir. 1997) (discussing Firestone and criticizing Pagan v. NYNEX Pension Plan, 52 F.3d 438 (2d Cir. 1995)). Defendant states that it "has yet to uncover complete copies of the relevant plan documents." Letter Brief of Carl J. Schaerf dated March 25, 2002, at 2. Therefore, it is not yet clear which standard of review is appropriate in this case. Until MetLife can prove otherwise, I must presume that a de novo standard of review applies.
While defendant acknowledges that a de novo standard of review presumptively applies, defendant argues that review should be limited to the record before the benefit administrator, citing cases in which a deferential standard of review was applied. Miller v. United Welfare Fund, 72 F.3d 1066, 1071 (2d Cir. 1995) ("We follow the majority of our sister circuits in concluding that a district court's review under the arbitrary and capricious standard is limited to the administrative record."); Perlman v. Swiss Bank Corp. Compr. Disability Prot. Plan, 195 F.3d 975, 981-82 (7th Cir. 1999) ("Deferential review of an administrative decision means review on the administrative record."). The Second Circuit has held that when a district court conducts a de novo review of a plan administrator's determination, the court may consider evidence outside the administrator's record on issues of plan interpretation. Masella v. Blue Cross Blue Shield of Conn., 936 F.2d 98, 104 (2d Cir. 1991). As regards factual issues, "the decision whether to admit additional evidence is one which is discretionary with the district court, but which discretion ought not to be exercised in the absence of good cause." DeFelice, 112 F.3d at 66; accord Zervos v. Verizon N.Y., Inc., 277 F.3d 635, 646 (2d Cir. 2002).
"A demonstrated conflict of interest in the administrative reviewing body is an example of `good cause' warranting the introduction of additional evidence." DeFelice, 112 F.3d at 67. "When faced with the question of whether a plan administrator is conflicted within the meaning of DeFelice, courts have focused on whether the plan administrator both determines eligibility for benefits and pays the benefits itself, without reimbursement." Locher v. UNUM Life Ins. Co. of Am., 126 F. Supp.2d 769, 773 (S.D.N.Y. 2001). "[I]ncompleteness of an administrative record" may also sometimes constitute good cause. Zervos, 277 F.3d at 646-47.
To summarize, plaintiff's claim in this case is for recovery of benefits due to him under the Disability Plan provided to him by his former employer Bear Stearns and administered by MetLife, pursuant to section 502(a)(1) of ERISA. The central issue to be determined is whether plaintiff was disabled under the terms of the plan when MetLife terminated his benefits. See Locher, 126 F. Supp.2d at 774 ("The issue is thus whether Plaintiff was entitled, under the terms of the Disability Plan, to benefits at the time she applied"). In deciding this issue de novo, the Court will interpret the terms of the plan and evaluate plaintiff's physical condition at the time that he was denied benefits. Plaintiff will be entitled to present evidence outside the administrator's record on issues of plan interpretation, and, if plaintiff is able to demonstrate a conflict of interest or other good cause, plaintiff will also be entitled to present evidence outside the record on the issue of his physical condition.
Therefore, I conclude that one of the proper subjects for discovery is whether MetLife had a conflict of interest when it terminated plaintiff's benefits. The presence or absence of a conflict of interest determines the scope of evidence that the Court can consider on factual issues in conducting a de novo review. In DeFelice, a case involving de novo review, the Second Circuit concluded that the plan administrator was conflicted based on the following evidence:
The ERISA Appeals Committee which reviewed Ms. DeFelice's claim was comprised entirely of American employees — hardly a neutral decision-making body. Moreover, several members of the Committee testified that there existed no established criteria for determining an appeal. To add insult to injury, the Committee apparently had a practice of destroying or discarding all records within minutes after hearing an appeal.112 F.3d at 66; see also Locher, 126 F. Supp.2d at 774 ("[A]ll of the persons involved in the initial and appellate review of Locher's claim under the Disability Plan were UNUM employees; it also appears that UNUM had no written procedures for claims review."). The Second Circuit's reasoning indicates that in an action challenging a plan administrator's denial of a claim for benefits, at least where review is de novo, the procedure followed by the administrator in evaluating the claim is relevant to the issue of whether the administrator had a conflict of interest. Even if the Court conducts a deferential review, the existence of a conflict of interest is a relevant factor for the Court to weigh in determining whether MetLife abused ifs discretion. Firestone, 489 U.S. at 115; DeFelice, 112 F.3d at 66. Plaintiff may therefore seek information tending to show that Bear Stearns influenced MetLife's decision to terminate plaintiffs benefits. Plaintiff may also seek information concerning whether MetLife or Bear Stearns was the payor of benefits granted under the Disability Plan.
The Seventh Circuit has tightly limited the discovery available in a case involving deferential review of a plan administrator's decision:
It follows from the conclusion that review of UNUM's decision is deferential that the district court erred in permitting discovery into UNUM's decision-making . . . . [W]hen there can be no doubt that the application was given a genuine evaluation, judicial review is limited to the evidence that was submitted in support of the application for benefits, and the mental processes of the plan's administrator are not legitimate grounds of inquiry . . . .
Perlman, 195 F.3d at 981-82. One judge within the Second Circuit has sharply criticized and declined to follow the Seventh Circuit's holding, commenting that "Perlman . . . does not negate the possibility that an aggrieved beneficiary may, in good faith, entertain a doubt whether the fiduciary in fact gave the application `genuine evaluation.'" Nagele v. Elec. Data Sys. Corp., 193 F.R.D. 94, 105-07 (W.D.N.Y. 2000) (Foschio, M.J.). Nagele, like the present case, involved a motion for a protective order by MetLife, who was sued after it terminated the plaintiffs long-term disability benefits. The court rejected MetLife's contention that in "§ 1132(a)(1)(B) actions, under the arbitrary and capricious standard, discovery is limited to the administrative record." Id. at 103. The court reasoned that pretrial discovery is appropriately used to "determine the actual parameters of the administrative record and whether or not the fiduciary acted arbitrarily and capriciously," and the court pointed out that in Miller, 72 F.3d 1066, the Second Circuit "approved, and relied upon, pretrial discovery in an ERISA case challenging the denial of benefits pursuant to a plan under the arbitrary. and capricious standard." 193 F.R.D. at 103. In MetLife's motion for a protective-order in the present case, MetLife relies on Perlman but does not cite Nagele.
II. Plaintiffs Discovery Requests
With regard to plaintiffs Notice to Produce, defendant acknowledges that it is obliged to respond in full to plaintiffs requests numbered 1, 3, 4, 5, 6, 7, 9, 13, 14, 15, and 17. To the extent that it has not done so already, defendant is directed to respond in full to these requests forthwith, and in any event not later than fourteen days from the date of this Opinion.
Defendant omits mention of request number 12 in its letter brief. I therefore assume that defendant also has no objection to this request.
In response to requests 3, 6, 7, 13, 14, 15, and 17, defendant refers plaintiff to the claim file, which defendant produced as part of its initial disclosure. Plaintiff seeks confirmation that all responsive information and documents are contained in the claim file. I interpret defendant's reference to the claim file as a representation that the claim file contains all responsive information and documents presently within defendant's custody and control. Secondly, I do not understand defendant to be objecting, on relevance or other grounds, to production of any responsive information or documents that may not be in the claim file. Should such extra-claim file information or documents exist, defendant is directed to disclose them within the time limit specified in the preceding paragraph of this Opinion.
Defendant objects on grounds of relevance to plaintiffs requests numbered 2, 8, 10, 11, and 16. These requests all concern MetLife's relationship with plaintiffs former employer, Bear Stearns. Request number 2 seeks the entire underwriting file maintained by MetLife for the Bear Stearns group policy. Plaintiff explains that he is specifically interested in any documents in the file that pertain to him. Defendant states that it is willing to search for and produce any documents that make reference to plaintiff but is not willing to produce the entire file. Since the parties seemingly concur on the appropriate scope of production, I direct defendant to produce any documents in the underwriting file that make reference to plaintiff.
As for the remaining requests, numbered 8, 10, 11, and 16, defendant resists production entirely. Request number 8 seeks the agreement concluding the relationship between MetLife and Bear Stearns. Plaintiff believes that the relationship between MetLife and Bear Stearns ended in 1999 or 2000. Plaintiff's benefit payments were terminated in March 2001. The agreement sought by plaintiff is likely to provide information regarding the administration of the Disability Plan and the payment of benefits under the plan at the time that plaintiffs benefits were terminated. This information is relevant to the issue of whether MetLife had a conflict of interest when it terminated plaintiffs benefits. Defendant is directed to respond to request number 8.
Request number 10 seeks premium statements issued to Bear Stearns by MetLife from 1994 to 2001, and request number 11 seeks copies of payments made by Bear Stearns to MetLife from 1994 to 2001. Plaintiff explains that it seeks these documents in order to determine whether, "as part and parcel of their separation agreement, Bear Stearns agreed to bear some of the costs of disability claims pending for its employees." Sgarlato Letter dated Apr. 12, 2002, at 4. This purpose is sufficiently served by request number 8. While plaintiff may seek information regarding the general arrangement between MetLife and Bear Stearns for paying claims under the Disability Plan, plaintiff has no need for specific information on every financial transaction between Bear Stearns and MetLife. Therefore, requests number 10 and 11 are unduly burdensome, and defendant is not obliged to respond to them.
Finally, request number 16 seeks identification of other disability claims by Bear Stearns employees, as of the date of the separation agreement between Bear Stearns and MetLife, and the present status of such claims. Defendant objects to request number 16 on grounds of confidentiality, as well as relevance. Plaintiff provides no separate explanation of his need for this information and simply refers to the explanation he provided for requests 10 and 11. Again, I find that plaintiffs purpose is adequately served by request number 8. Request number 16 seeks personal information regarding other employees of Bear Stearns who are not involved in this case. It also would impose an undue burden on defendant. Therefore, defendant is not obliged to respond to request number 16.
Defendant objects additionally to plaintiff's request to conduct depositions of MetLife representatives with knowledge of the denial of plaintiff's claim for disability benefits. Plaintiff does not explain what information he seeks to obtain by conducting depositions. Nevertheless, I deny defendant's motion for a protective order with respect to depositions generally. Plaintiff is entitled to seek discovery for the purpose of determining which persons were involved in the evaluation of plaintiffs claim for benefits, in particular whether Bear Stearns influenced MetLife's evaluation of the claim, and what procedure was followed in terminating plaintiff's benefits. This information, which is relevant to the issue of whether MetLife had a conflict of interest when it terminated plaintiffs benefits, may be sought by means of depositions.
CONCLUSION
Defendant's motion for a protective order is granted in part and denied in part, as explained in detail in Part II.
The parties are directed to submit a revised joint report pursuant to Rule 26(f) on or before July 16, 2002, following which the Court will issue a Rule 16(b) scheduling order.