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finding restitution of benefits for defendant's breach of fiduciary duty to be a legal remedy
Summary of this case from Leuthner v. Blue Cross of Northeastern PennsylvaniaOpinion
CIVIL ACTION NO. 03-CV-1410
February 27, 2004
MEMORANDUM ORDER
Presently before the Court is Defendant UNUM Life Insurance Company of America's ("UNUM") Motion to Dismiss Counts I, II, III, and VI of Plaintiff's Amended Complaint (Doc. No. 3.), and Plaintiff's Request to File a Sur Reply to Defendants' Reply Brief in Support of Motion to Dismiss Counts I, II, III, and VI of Complaint (Doc. No. 6). Plaintiff's Request to File a Sur Reply is granted. For the following reasons, Defendants' Motion to Dismiss will be granted in part and denied in part.
While only UNUM originally moved to dismiss the amended complaint, both Defendants joined the reply brief in support of that motion. (Doc. No. 5.) We will therefore consider the motion to dismiss as if it were filed by both Defendants.
Because Defendants moved to dismiss the amended complaint, we must "accept as true the facts alleged in the [amended] complaint and all reasonable inferences that can be drawn from them." Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3d Cir. 1990) (citing Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir. 1988)). We will only dismiss the amended complaint if "it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 249-50 (1989) (quoting Hishon v. King Spalding, 467 U.S. 69, 73 (1984)).
Plaintiff Alan Tannenbaum, M.D., brings this action against Defendants UNUM Life Insurance Company of America and Albert Einstein Healthcare Foundation ("Einstein") for relief pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, 28 U.S.C. § 1001, et seq., and Pennsylvania state law. Plaintiff is employed by the Einstein Community Health Associates as a pediatrician and as such became a participant in the Albert Einstein Healthcare Foundation Plan (the "Plan"). ( Id. ¶ 11.) The Plan is an employee welfare benefit plan established pursuant to ERISA and Plaintiff was at all relevant times a participant in the Plan. ( Id. ¶¶ 2-3.) The Plan was created to maintain and provide disability income to employees pursuant to ERISA. ( Id. ¶ 4.) Defendants are administrators of the Plan and fiduciaries with respect to the Plan. ( Id. ¶¶ 5-6.) UNUM is also a disability insurance company with whom Plaintiff has contracted for two additional private disability insurance policies. ( Id. ¶ 7.) Plaintiff generally alleges that Defendants failed to pay him certain disability benefits that he was due after a traumatic injury ended his career.
Plaintiff was injured on December 1, 2000, in a motor vehicle accident. ( Id. ¶ 12.) As of April 1, 2001, Plaintiff could no longer perform his duties as a pediatrician and has been unable to return to work since then. ( Id. ¶ 17.) Plaintiff contacted the Plan to apply for disability benefits on or about April 1, 2002, but was incorrectly advised by the Plan administrator that he could not apply for benefits until after the elimination period. ( Id. ¶¶ 19-20.) Based on this false information, Plaintiff was not provided a benefit application until on or about June 6, 2002. ( Id. ¶ 21.) At or about the same time Plaintiff completed the application and forwarded a copy to UNUM and the Plan. ( Id. ¶ 22.) The Plan and UNUM made no effort to investigate Plaintiff's claim until August 22, 2002, more than 60 days after Plaintiff submitted his application. ( Id. ¶ 23.) UNUM denied Plaintiff's application on October 4, 2002. ( Id. ¶ 24.) Plaintiff alleges that this denial was without support in the record and/or relied upon evidence that had been manipulated, altered, and fabricated. ( Id. ¶ 26.)
On November 11, 2002, Plaintiff appealed UNUM's decision and requested a copy of the documents that it used in its review. ( Id. ¶ 27.) Plaintiff also submitted an application for Social Security Disability Benefits as required under the Plan and was awarded total disability benefits on December 17, 2002. As required under the Plan, Plaintiff forwarded a copy of this award to UNUM. ( Id. ¶ 29.) On January 6, 2003, more than forty-five days after Plaintiff appealed the denial of benefits, UNUM requested an additional forty-five days for review. ( Id. ¶ 30.) On January 31, 2003, eight months after Plaintiff first applied for benefits, UNUM requested that Plaintiff undergo two medical examinations by physicians of their choosing so that UNUM could "make a more informed determination." ( Id. ¶ 31.) On February 6, 2003, UNUM denied Plaintiff's request for the documents contained in the administrative record and upon which it relied in making its decision to deny Plaintiff benefits. ( Id. ¶ 32.) As of the date of the amended complaint, Plaintiff still had not received a decision on his appeal to the Plan and UNUM. ( Id. ¶ 35.)
Plaintiff's amended complaint is divided into six counts. Counts I and III of the amended complaint primarily seek to recover the past and future disability benefits that Plaintiff claims he is due under the Plan. Count II seeks penalties for Defendants' failure to provide certain documents that Plaintiff claims he was entitled to under ERISA. Count IV asserts a state law contract claim alleging that UNUM breached the two private disability insurance policies it issued Plaintiff. Count V asserts a bad faith claim under state law. Count VI asserts a bad faith claim under ERISA. Defendants originally argued that Counts I and III should be dismissed for Plaintiff's failure to exhaust his administrative remedies. However, in their reply brief in support of their motion to dismiss, Defendants abandoned that argument. Thus, the only remaining arguments for us to consider are Defendants' motion to dismiss Counts I (on grounds other than exhaustion), II, and VI.
B. Count I — ERISA Breach of Fiduciary Duty Claim
ERISA's civil enforcement provision, 29 U.S.C. § 1132, sets forth the kinds of actions that may be brought to remedy violations of ERISA. Count I, entitled "ERISA Breach of Fiduciary Duty," invokes one subsection of that provision, § 1132(a)(3)(B), as its basis for relief. Section 1132(a)(3)(B) permits a participant in an ERISA plan to bring a civil action "to enjoin any act or practice which violates any provision of [ERISA] or the terms of the plan, or (B) to obtain other appropriate equitable relief" (i) to redress such violations or (ii) to enforce any provisions of [ERISA] or the terms of the plan." (emphasis added). Defendants, citing Varity Corp. v. Howe, 516 U.S. 489 (1996), argue that § 1132(a)(3)(B) is a catchall remedial section that may only be invoked to remedy violations of ERISA when no other provision of ERISA's civil enforcement provision applies. Defendants argue that Plaintiff may not sue to recover ERISA benefits under § 1132(a)(3)(B) because he may recover any benefits he is owed under § 1132(a)(1)(B).
29 U.S.C. § 1132 provides, in relevant part:
(a) Persons empowered to bring a civil action
A civil action may be brought —
(1) by a participant or beneficiary —
(A) for the relief provided for in subsection (c) of this section, or
(B) 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;
(2) by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title;
(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan;
Plaintiff's brief in opposition to the motion to dismiss makes clear that Count I invokes § 1132(a)(3)(B).
In Count I Plaintiff seeks, among other things, "restitution in an amount equal to the benefits he should have received from the date of [his] application and to otherwise make Plaintiff whole for the fiduciary breaches." In Count III, which invokes § 1132(a)(1)(B), Plaintiff also seeks to recover the benefits he believes he is due under the Plan. Section 1132(a)(1)(B) allows plan participants 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." Since Plaintiff can recover any benefits he is due under § 1132(a)(1)(B), Defendant argues that Count I of the amended complaint, which seeks benefits under the catchall remedial section, must be dismissed.
In arguing for dismissal of Count I Defendants also cite Great-West Life Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002). They argue that Plaintiff may only obtain equitable relief under § 1132(a)(3)(B), and that following the Supreme Court's decision in Great West, restitution of benefits should not be considered an equitable remedy. Thus, Defendants argue that Count I of the amended complaint must be dismissed on the additional grounds that seeks relief not authorized by § 1132(a)(3)(B). We will separately address each of these arguments.
1. The impact of Varity Corp. v. Howe
In Varity Corp. v. Howe, the Supreme Court held that a group of beneficiaries who were denied benefits under an ERISA plan could bring an individual action for breach of fiduciary duty under § 1132(a)(3)(B). 516 U.S. at 515. The plaintiff beneficiaries were former employees of the defendant. Soon after the defendant assigned its former employees to a new benefit plan, the new plan entered into a receivership, and the former employees lost their benefits. The former employees then sued the defendant under ERISA for breach of fiduciary duty and sought to be reinstated into their former benefit plan. The Court held that the former employees' suit was proper under § 1132(a)(3)(B), which entitles beneficiaries to seek "other appropriate equitable relief to redress violations of ERISA. The Court stated that § 1132(a)(3)(B) was a "`catchall' remedial section" that afforded litigants equitable relief for violations of ERISA when no other remedial section applied. Varity, 515 U.S. at 511. However, the Court cautioned that:
[w]e should expect that courts, in fashioning `appropriate' equitable relief, will keep in mind the `special nature and purpose of employee benefit plans,' and will respect the `policy choices reflected in the inclusion of certain remedies and the exclusion of others.' . . . Thus, we should expect that where Congress elsewhere provided adequate relief for a beneficiary's injury, there will likely be no need for further equitable relief, in which case such relief normally would not be `appropriate.'Id. at 515 (citations omitted).
In Varity, the former employees could not obtain relief under the first two subsections of § 1132(a). They could not sue under § 1132(a)(1)(B), which is the ERISA provision that specifically allows plan participants and beneficiaries to sue to recover the benefits they are due, because, as former employees, they were not due any benefits "under the terms of [the] plan." Therefore, § 1132(a)(1)(B) did not apply. Section 1132(a)(2), which permits suits for "appropriate relief for breaches of fiduciary duty, only allows plaintiff's to recover on behalf of the plan. Because the former employees were seeking to recover individually, § 1132(a)(2) did not apply. Thus, the former employees had to rely on § 1132(a)(3)(B) or they would have no remedy at all. Under these circumstances, the Court allowed the former employees to invoke § 1132(a)(3)(B). However, as mentioned above, the Court cautioned that "where Congress elsewhere provided adequate relief for a beneficiary's injury," § 1132(a)(3)(B) "normally" would not apply. Varity, 515 U.S. at 515.
The courts of appeals are split over whether Varity ever permits a plaintiff who has been denied benefits to simultaneously bring an action for benefits under § 1132(a)(1)(B) and an action for breach of fiduciary duty under § 1132(a)(3)(B). Compare, e.g., Katz v. Comprehensive Plan of Group Ins., 197 F.3d 1084, 1088-89 (11th Cir. 1999) (holding that a plaintiff with a right to bring a claim for benefits under § 1132(a)(1)(B) cannot bring an action under § 1132(a)(3)(B)); Rhorer v. Raytheon Eng'rs Constructors, Inc., 181 F.3d 634, 639 (5th Cir. 1999) (same); Wald v. Southwestern Bell Corp. Customcare Med. Plan, 83 F.3d 1002, 1006 (8th Cir. 1996) (same); with Larocca v. Borden, Inc., 276 F.3d 22, 28 (1st Cir. 2002) (affirming district court's decision to constructively reinstate plaintiff's to benefit plan under § 1132(a)(3)(B), and then award plaintiff's benefits under § 1132(a)(1)(B)); Devlin v. Empire Blue Cross Blue Shield, 274 F.3d 76, 89-90 (2d Cir. 2001) (holding that Varity did not eliminate a private cause of action for breach of fiduciary duty when another potential remedy is available; instead, in such situations the district court may only award such equitable relief as it considers appropriate). Defendants assert that this issue was resolved in the Third Circuit in Ream v. Frey, 107 F.3d 147, 152-53 (3d Cir. 1997). We disagree. The plaintiff in Ream was in a situation similar to that of the plaintiff's in Varity, in that he was seeking lost benefits but had no cause of action against the defendant under § 1132(a)(1)(B). The court, relying on Varity, held that the plaintiff was entitled to pursue a private breach of fiduciary duty claim against the defendant under § 1132(a)(3)(B), the catchall remedial section. In dicta the court stated that "[w]here Congress otherwise has provided for appropriate relief for the injury suffered by a beneficiary, further equitable relief ought not be provided." Ream, 107 F.3d at 152. The court did not decide whether a plaintiff who has been denied benefits can, at the pleading stage, maintain an action for benefits under § 1132(a)(1)(B) and an action for "other appropriate equitable relief under § 1132(a)(3)(B). That is the question before this Court.
The district courts within this circuit are split over the issue presently before us. Compare, e.g., Doyle v. Nationwide Ins. Cos. Affiliates Employee Health Care Plan, 240 F. Supp.2d 328, 349-50 (E.D. Pa. 2003) (rejecting view that Varity set a bright-line rule that a claim for equitable relief under § 1132(a)(3) should be dismissed when a plaintiff also brings a claim under § 1132(a)(1)(B)); Moore v. First Union Corp., C.A. No. 00-2512, 2000 WL 1052140, at *1 (E.D. Pa. July 24, 2000) (same); Parente v. Bell Atlantic-Pa., C.A. No. 99-5478, 2000 WL 419981, at *4 (E.D. Pa. Apr. 18, 2000) (permitting plaintiff to proceed under both § 1132(a)(1)(B) and (a)(3) until it can be determined whether § 1132(a)(1)(B) in fact provides plaintiff appropriate relief from her injuries), with Emil v. UNUM Life Ins. Co. of Am., C.A. No. 02-2019, 2003 U.S. Dist. LEXIS, at *7 (M.D. Pa. Feb. 4, 2003) (holding "Congress' creation of a specific remedy for the wrongful denial of benefits in § 1132(a)(1) makes it inappropriate for Plaintiff to pursue an overlapping claim for breach of fiduciary duty"); Post v. Hartford Life Accident Ins. Co., C.A. No. 02-1917, 2002 WL 31741470, at *3 (E.D. Pa. Dec. 6, 2002) (dismissing plaintiff's fiduciary duty claim because "a claim for wrongful denial of benefits cannot be maintained under § 1132(a)(3).") (quoting Blahuta-Glover v. Cyanamid Long Term Disability Plan, No. 95-7069, 1996 WL 220977, at *5 (E.D. Pa. Apr. 30, 1996)).
Under the circumstances of this case, we conclude that at this juncture, consistent with Varity, Plaintiff can simultaneously seek benefits under § 1132(a)(1)(B) and "other appropriate equitable relief under § 1132(a)(3)(B). At this stage, we cannot know whether Plaintiff will be able to prove his entitlement to benefits under § 1132(a)(1)(B). If it is later apparent that Plaintiff is ineligible to pursue a claim for benefits under § 1132(a)(1)(B), then Plaintiff's only remedy may be to pursue his claim for breach of fiduciary duty and seek "other appropriate equitable relief under the catchall remedial section, § 1132(a)(3)(B). Therefore, Plaintiff will be permitted to maintain his claim under § 1132(a)(3)(B). See Varity, 516 U.S. at 515 (upholding the right of plaintiff's seeking benefits to state a claim under § 1132(a)(3)(B) when they have no other remedy). Of course, if it is determined that Plaintiff can obtain "adequate relief under § 1132(a)(1)(B), then "further equitable relief ought not be provided." Ream, 107 F.3d at 152.
In so holding, we express no opinion whether or not, in different circumstances, it might be appropriate to dismiss a claim on the pleadings for breach of fiduciary duty under § 1132(a)(3)(B) when a plaintiff brings a parallel claim for benefits under § 1132(a)(1)(B).
Our conclusion is supported by Int'l Union, United Auto., Aerospace Agric. Implement Workers of Am., U.A. W. v. Skinner Engine Co., 188 F.3d 130 (3d Cir. 1999), a case that is somewhat similar to this case. In Skinner, the plaintiff's asserted simultaneous claims under §§ 1132(a)(1)(B) and (3)(B). The plaintiffs' § 1132(a)(1)(B) claim was based on the theory that they were contractually owed benefits under their benefit plan, and their § 1132(a)(3)(B) claim was based on the theory that they were damaged by the defendant's affirmative misrepresentations. In a footnote, the Third Circuit stated that "[i]t is clear that even if a court rejects a breach of contract claim, a party may nevertheless pursue a breach of fiduciary duty cause of action." Skinner, 188 F.3d at 148 n. 6 (citing In re Unisys Corp. Retiree Med. Benefit "ERISA" Litig., 57 F.3d 1255, 1264 n. 13 (3d Cir. 1995)). Interestingly, the district courts within this circuit that have considered whether plaintiff's can simultaneously bring claims for benefits under §§ 1132(a)(1)(B) and (3)(B) have not cited Skinner as controlling on this issue. However, we think that Skinner demonstrates that a plaintiff who fails to prove that he is contractually entitled to benefits may nevertheless pursue a breach of fiduciary duty claim under ERISA, a result that is consistent with Varity. It is too early in these proceedings to decide whether Plaintiff is contractually entitled to benefits under the Plan. If Plaintiff is not entitled to benefits under the Plan, Plaintiff might still be entitled to "other appropriate equitable relief to remedy any breaches of fiduciary duty by Defendants. For all of the above reasons, we reject Defendants' argument that Varity mandates dismissal of Count I.
2. The impact of Great-West Life Annuity Ins. Co. v. Knudson
In Great-West, the Supreme Court found that an insurance company who had sued to enforce a reimbursement provision in an ERISA plan was not seeking "other appropriate equitable relief authorized by § 1132(a)(3)(B). The insurance company, Great West, claimed to seek restitution, which it characterized as an equitable remedy. However, the Supreme Court concluded that not "all relief falling under the rubric of restitution is available in equity." Great-West, 534 U.S. at 212. Whether restitution is a legal or equitable remedy depends on the basis for the plaintiff's claim and the nature of the underlying remedies sought. Id. at 213. Because Great-West sought to impose personal liability on the defendants for a contractual obligation to pay money, the Supreme Court concluded that it was seeking a legal remedy not authorized by § 1132(a)(3)(B). Courts applying Great-West are split over whether a plaintiff alleging a breach of fiduciary duty and seeking benefits is seeking a legal or equitable remedy. Compare, e.g., Godshall v. Franklin Mint Co., 285 F. Supp.2d 628, 634 (E.D. Pa. 2003) (permitting plaintiff's to seek restitution of benefits owed under § 1132(a)(3)(B)), with Kishter v. Principal Life Ins. Co., 186 F. Supp.2d 438, 445 (S.D.N.Y. 2002) (holding Great-West barred beneficiary's claim for insurance money that she would have received if not for the fiduciary's breach).
In this case, Plaintiff seeks a variety of remedies for Defendants' purported breach of their fiduciary duties. Some of the remedies Plaintiff seeks are legal, and some are equitable. For example, Plaintiff seeks "compensatory damages," clearly a legal remedy barred by Great-West. On the other hand, Plaintiff also seeks an award of prejudgment interest, an equitable remedy that is authorized by § 1132(a)(3)(B). See Fotta v. Trustees of United Mine Workers of Am., Health Ret. Fund of 1974, 165 F.3d 209, 213 (3d Cir. 1998). With respect to Plaintiff's claim for restitution, we conclude that Plaintiff is seeking a legal remedy that is barred by Great-West. The theory of Plaintiff's case is that Defendants wrongfully failed to pay him the benefits he was due under the Plan. "A claim for money due and owing under a contract is `quintessentially an action at law.'" Great-West, 534 U.S. at 210 (quoting Wal-Mart Stores, Inc. v. Wells, 213 F.3d 398, 401 (7th Cir. 2000)); see also Great-West, 534 U.S. at 210 ("Almost invariably . . . suits seeking (whether by judgment, injunction, or declaration) to compel the defendant to pay a sum of money to the plaintiff are suits for `money damages,' as that phrase has traditionally been applied, since they seek no more than compensation for loss resulting from the defendant's breach of legal duty." (quoting Bowen v. Massachusetts, 487 U.S. 879, 918-919 (1988) (Scalia, J., dissenting)). We conclude that Plaintiff's claim for restitution seeks a legal remedy. Our conclusion is also supported by dicta in a recent Third Circuit case, suggesting that a claim for restitution of benefits under § 1132(a)(3)(B) would be barred by Great-West. See Horvath v. Keystone Health Plan East, Inc., 333 F.3d 450, 457 n. 3 (3d Cir. 2003). Thus, we will grant Defendants' motion to dismiss Count I to the extent Plaintiff seeks restitution of benefits and compensatory damages.
C. Count II — ERISA's Penalty Provision
Defendants do not seek dismissal of Count V which states a claim for bad faith under Pennsylvania law based upon UNUM's alleged breach of Plaintiff's individual policies.
In Count II Plaintiff seeks an award of penalties pursuant to 29 U.S.C. § 1132(c) for Defendants' failure to turn over certain Plan documents that Plaintiff requested. Defendants move to dismiss Count II on the grounds that they provided all the documents they were required to disclose under ERISA.
It is axiomatic that we may not consider materials outside the complaint when ruling on a motion to dismiss unless we convert that motion to one for summary judgment. See Boyle v. Governer's Veterans Outreach Assistant Ctr., 925 F.2d 71, 74-75 (3d Cir. 1991). Plaintiff has not had an opportunity to conduct discovery or submit evidence in support of its claim that Defendants failed to turn over certain Plan documents that he requested. Accordingly, it would be premature for us to assess Plaintiff's claim at this time. We will therefore deny Defendants' motion to dismiss Count II.
D. Count VI — ERISA Bad Faith Claim
Count VI asserts "a claim for bad faith under ERISA," but does not cite any provision of ERISA authorizing a cause of action for bad faith denial of benefits. We will construe this claim as though Plaintiff is asserting that Defendants are liable for bad faith under Pennsylvania state law for violating ERISA. Defendants move to dismiss this claim on two grounds. First, they claim that the Pennsylvania bad faith statute, 42 PA. CONS. STAT. ANN. § 8371, does not fall within ERISA's savings clause, 29 U.S.C. § 1144(b). ERISA provides that "[e]xcept as provided in subsection (b) of this section, the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan. . . ." 29 U.S.C. § 1144(a). Thus, a state law relating to an employee benefit plan is preempted by ERISA unless it falls within ERISA's savings clause, which exempts from preemption "any law of any State which regulates insurance, banking, or securities." 29 U.S.C. § 1144(b). In Kentucky Assoc. of Health Plans v. Miller, 123 S.Ct. 1471 (2003), the Supreme Court set forth a two-part test to determine whether a state law regulates insurance for purposes of ERISA's savings clause. Plaintiff and Defendants disagree about whether section 8371 regulates insurance, and therefore whether it falls within ERISA's savings clause.
Defendants claim that even if section 8371 regulates insurance, it is still preempted by ERISA because it enlarges the remedies that are otherwise available under ERISA. The Supreme Court has stated that Congress intended ERISA's civil enforcement provisions to "be the exclusive vehicle for actions by ERISA-plan participants and beneficiaries asserting improper processing of a claim for benefits. . . ." Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 52 (1987). "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. Thus, state statutes that act to enlarge the remedies that are not otherwise available to plaintiff's under ERISA are preempted. See Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 145 (1990) (finding a Texas state cause of action preempted by ERISA because it duplicated a cause of action under ERISA and provided remedies not available under ERISA); Pilot Life, 481 U.S. at 56 (finding Mississippi state causes of action preempted by ERISA and noting that Congress' "expectations that a federal common law of rights and obligations under ERISA-regulated plans would develop . . . would make little sense if the remedies available to ERISA participants and beneficiaries . . . could be supplemented or supplanted by varying state laws"); see also Pane v. RCA Corp., 868 F.2d 631, 635 n. 2 (3d Cir. 1989) (finding Pennsylvania causes of action preempted by ERISA to the extent they would support an award of punitive damages because punitive damages are not available under ERISA).
We agree that section 8371 enlarges the remedies that are otherwise available to plaintiff's under ERISA. We also agree that because section 8371 enlarges ERISA's remedies, it is preempted even if it falls within ERISA's savings clause. Accordingly, we need not decide whether or not section 8371 regulates insurance for purposes of ERISA's savings clause.
Generally, if a state statute falls within ERISA's savings clause, it is "saved" from preemption. However, the Supreme Court has "recognized a limited exception from the savings clause for alternative causes of action and alternative remedies." Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 381 (2002). Thus, if a state statute falling within ERISA's savings clause "allows plan participants `to obtain remedies . . . that Congress rejected in ERISA," it is preempted. Rush, 536 U.S. at 378 (quoting Pilot Life, 481 U.S. at 54). The Supreme Court has described this limited exception to ERISA's savings clause as "Pilot Life's categorical preemption." Id. at 380.
It is clear that section 8371 provides relief to plaintiff's that is not available under ERISA. For example, section 8371 "allows an ERISA-plan participant to recover punitive damages for bad faith conduct, thus `expand[ing] the potential scope of ultimate liability imposed upon employers by the ERISA scheme.'" Dolce v. Hercules Inc. Ins. Plan, C.A. No. 03-cv-1747, 2003 WE 22992148, at *4 (E.D. Pa. Dec. 15, 2003) (quoting Sprecher v. Aetna U.S. Healthcare, Inc., C.A. No. 02-CV-580, 2002 WE 1917711, at * 7 (E.D. Pa. Aug. 19, 2002)). A number of district courts within this circuit have found that section 8371 is preempted by ERISA, regardless of whether it falls within ERISA's savings clause. See, e.g., Dolce, 2003 WE 22992148, at *4; Nguyen v. Healthguard of Lancaster, Inc., 282 F. Supp.2d 296, 306-7 (E.D. Pa. 2003); Morales v. First UNUM Life Ins. Co. of Am., C.A. No. 03-cv-925, 2003 WE 22097493, at *2 (E.D. Pa. May 27, 2003); Snook v. Penn State Geisinger Health Plan, 241 F. Supp.2d 485, 493 (M.D. Pa. 2003); Emil v. UNUM Life Ins. Co. of Am., C.A. No. 02-2019, 2003 WE 256781, at *3 (M.D. Pa. Feb. 5, 2003); McGuigan v. Reliance Standard Life Ins. Co., 256 F. Supp.2d 345, 348-49 (E.D. Pa. 2003); Sprecher, 2002 WE 1917711, at *7; Kirkhuff v. Lincoln Technical Inst., Inc., 221 F. Supp.2d 572, 576 (E.D. Pa. 2002).
Two district judges within this circuit have come to a different conclusion, namely, that if a state statute falls within ERISA's savings clause, it is "saved" from preemption even if it expands the remedies available to plaintiff's under ERISA. See Stone v. Disability Mgmt. Servs., Inc., 288 F. Supp.2d 684, 695-96 (M.D. Pa. 2003); Rosenbaum v. UNUM Life Ins. Co. of Am., C.A. No. 01-6758, 2003 WE 22078557, *7-*9 (E.D. Pa. Sept. 8, 2003). In Rosenbaum, the court examined the Supreme Court's decisions in Rush and Pilot Life and found that the portions of those opinions addressing conflict preemption were dicta and therefore not binding. The Rosenbaum court then examined ERISA's savings clause and found that in writing the savings clause, "Congress' intent was clear, it wanted all state laws which regulate insurance to be exempt from preemption under ERISA." Id. at *8. In sum, the Rosenbaum court held that if a state statute regulates insurance and qualifies for ERISA's savings clause, it is not subject to preemption under Pilot Life. Id. at *9.
We conclude that we are not free to disregard those portions of the Rush and Pilot Life opinions addressing preemption. In Pilot Life, an employee brought common law contract and tort claims against the insurance company that issued his employer's group insurance policy. Two years after the employee was injured in a work related accident, the insurance company terminated his benefits under his employer's disability benefit plan. The plaintiff employee then sued under state law for both compensatory and punitive damages. The insurance company moved for summary judgment, arguing that ERISA preempted the plaintiff's common law claims. The district court agreed with the insurance company's preemption argument, but the court of appeals reversed. The Supreme Court then granted certiorari to determine whether or not the plaintiff's state law claims were preempted by ERISA.
In answering this question, the Supreme Court first concluded that each of the plaintiff's claims met the criteria for preemption under ERISA's preemption provision, 29 U.S.C. § 1144(a). Pilot Life, 481 U.S. at 48. Thus, unless those claims fell within an exception to that provision, they were preempted. Id. The Court then considered whether or not those claims fell within ERISA's savings clause. It concluded that the claims did not regulate insurance and therefore did not qualify for the savings clause. The Court stated that it was "obliged in interpreting the saving clause to consider . . . the role of the saving clause in ERISA as a whole." Id. at 51. Thus, an "understanding of the saving clause must be informed by the legislative intent concerning [ERISA's] civil enforcement provisions," which, the Court said, were "intended to be exclusive." Id. at 52. Those provisions allow persons alleging violations of ERISA to "sue to recover benefits due under the plan, to enforce the participant's rights under the plan, or to clarify rights to future benefits." Id. at 53. No provision, however, authorizes plaintiff's to recover punitive damages. Id. Accordingly, the Court found the state claims (which authorized both punitive and compensatory damages) were preempted by ERISA.
In Rush, the Court again considered whether a state statute was preempted by ERISA. The statute under review required health maintenance organizations (HMOs) to provide an independent review of disputes between primary care physicians and HMOs, and to cover services deemed medically necessary by the independent reviewer. The Court agreed with Rush, the HMO, that the statute was subject to preemption under § 1144(a). However, the Court also held that the statute fell within ERISA's savings clause because it regulated insurance. Rush, 536 U.S. at 373.
Citing Pilot Life, Rush argued that even if the statute fell within ERISA's savings clause, it was still preempted because it expanded the remedies that are otherwise available to plaintiff's under ERISA. Rush claimed that the independent review procedure was a form of binding arbitration that supplemented or supplanted the remedies available under ERISA. The Court concluded that "Rush overstate[d] the rule expressed in Pilot Life.'" Rush, 536 U.S. at 378. In both Pilot Life and Ingersoll-Rand, the Court had found state laws preempted by ERISA because they "provided a form of ultimate relief in a judicial forum that added to the judicial remedies provided by ERISA." Id. at 379. In Rush, however, the state regulatory scheme under consideration "provide[d] no new cause of action under state law and authorize[d] no new form of ultimate relief." Id. In other words, a plaintiff utilizing the state scheme in Rush could obtain nothing more than the benefits available in any action brought under § 1132(a). For this reason, the Court held that the statute in Rush did "not fall within Pilot Life's categorical preemption." Id. at 380.
Reading Rush and Pilot Life together, we conclude that there are a class of state statutes that are categorically preempted by ERISA, regardless of whether those statutes otherwise qualify for ERISA's savings clause. The class of statutes that are categorically preempted are those that "provide a form of ultimate relief in a judicial forum that add[s] to the judicial remedies provided by ERISA." Rush, 536 U.S. at 379. Section 8371 is just such a statute. It "allows an ERISA-plan participant to recover punitive damages for bad faith conduct, thus `expand[ing] the potential scope of ultimate liability imposed upon employers by the ERISA scheme.'" Dolce, 2003 WL 22992148, at *4. Accordingly, it is subject to Pilot Life's categorical preemption. We note that the courts of appeals that have considered this issue have unanimously concluded that that state statutes that fall within ERISA's savings clause may still be preempted if they run afoul of Pilot Life. See Conover v. Aetna U.S. Health Care, Inc., 320 F.3d 1076, 1078 (10th Cir. 2003) ("A state law otherwise regulating insurance within the meaning of [ERISA's savings clause] may still be preempted if it allows plan participants and beneficiaries `to obtain remedies under state law that Congress rejected in [ERISA]'") (citations omitted); Singh v. Prudential Health Care Plan, Inc., 335 F.3d 278, 286 (4th Cir. 2003) (holding that though state statute fell within ERISA's savings clause, "courts must still assess whether the otherwise saved State law nonetheless frustrates the overall purposes of ERISA by inappropriately supplementing or supplanting ERISA's exclusive remedies"); Elliot v. Fortis Benefits Ins. Co., 337 F.3d 1138, 1144 (9th Cir. 2003) (declining to consider whether state statute fell within ERISA's savings clause because the statute was preempted by Pilot Life). Accordingly, we will dismiss Plaintiff's claim for bad faith under Count VI.
An appropriate order follows.
ORDER
AND NOW, this 27th day of February, 2004, upon consideration of Defendant UNUM Life Insurance Company of America's Motion to Dismiss Counts I, II, III, and VI of Plaintiff's Amended Complaint (Doc. No. 3.), and Plaintiff's Request to File a Sur Reply to Defendants' Reply Brief in Support of Motion to Dismiss Counts I, II, III, and VI of Complaint (Doc. No. 6), and all papers filed in support thereof or opposition thereto, it is ORDERED that:
1. Plaintiff's Request to File a Sur Reply is GRANTED;
2. Defendants'Motion to Dismiss is GRANTED in part and DENIED in part. To the extent Plaintiff seeks restitution of benefits or compensatory damages under Count I, those claims are dismissed. Count VI is dismissed in its entirety. In all other respects, Defendants' Motion is DENIED.
IT IS SO ORDERED.