Opinion
No. C 03-05785 CRB.
August 23, 2004
MEMORANDUM AND ORDER
Plaintiff, a former in-house attorney for Sun Microsystems, Inc. ("Sun") alleges that he was unlawfully terminated. He also alleges that defendants Sun and Ceridian failed to notify him of his COBRA rights and unlawfully terminated his COBRA coverage. Now pending are defendants' motions for summary judgment on all claims.
BACKGROUND FACTS
In November 2001, Sun laid off plaintiff Naren Chaganti ("Chaganti"). Sun cited business conditions as the reason for the lay-off. Sun gave Chaganti a letter accompanied by a proposed Release and Waiver Agreement. The letter advised Chaganti that if he signed and did not revoke the release he would receive as severance four weeks pay and a lump sum equal to four weeks of health insurance premiums. The letter also stated that Chaganti must return the signed release by December 20, 2001 and that he had seven days to revoke his signature. Sun also provided Chaganti with FAQ's which also discussed the Release and Waiver agreement.
Chaganti denies ever receiving the letter and accompanying FAQ's, although he admits he received the proposed Release. According to Chaganti, he signed the Release on December 23, 2001 but erroneously dated it December 20, 2001, and faxed it to Sun on December 23, 2001. Sun attests that it paid Chaganti the severance by directly depositing the sums in his bank account in January and February 2002.
The Release waived all claims Chaganti had against Sun prior to the effective date of the Agreement "arising out of or in any way connected with the employment or termination of Employee by Sun, including but not limited to, all 'wrongful discharge' claims." The effective date was the eighth day after Chaganti signed and delivered the Release to Sun. The Release also waived the protections of California Civil Code section 1542.
Chaganti also contends that after he was laid off in November 2001 he never received any notification of his COBRA benefits, that is, his right to continuing health care benefits. In May 2002 he learned that Ceridian administered the continuing health care benefits for Sun and called Ceridian. Ceridian mailed Chaganti a notification of benefits and in June 2002 Chaganti enrolled in the plan. Ceridian thereafter sent Chaganti an invoice for approximately $2200 for coverage from November 2001 through June. Chaganti paid the amount under protest because he did not believe he should pay premiums for the period when he did not have any benefits.
Ceridian subsequently sent Chaganti several notices that his premium payment for July was due July 1 and that the grace period expired July 31. On July 23 Ceridian sent Chaganti an additional notice that it had not yet received the July payment. The notice specifically stated that if payment was not received by July 31 "federal law requires that your COBRA continuation coverage be terminated as of the last fully-paid period for lack of full and timely payment of premium. This requirement cannot be waived, and if your coverage is terminated due to lack of full and timely payment, it cannot be reinstated." Despite these warnings, Chaganti did not send July's premium by July 31. Instead, on August 7, 2002, Ceridian received a payment that was postmarked August 3, 2002. Chaganti's benefits were subsequently terminated.
PROCEDURAL HISTORY
Chaganti subsequently filed this action against Sun and Ceridian. His second amended complaint includes ten causes of action: ERISA/COBRA claims against both Sun and Ceridian for wrongfully denying him continuation medical coverage, breach of fiduciary duty under ERISA, and failure to provide COBRA notice; statutory claims for violation of the federal Family Medical Leave Act of 1993 ("FMLA") and the California Family Rights Act ("CFRA"); and state common law claims for wrongful termination of employment against public policy, tortious interference with prospective business advantage, fraud, invasion of privacy, and intentional infliction of emotional distress.
At the case management conference on May 14, 2004 the Court scheduled defendants' summary judgment motions to be heard on August 20, 2004 and on July 16, 2004 both defendants filed their motions noticing them for hearing on August 20, 2004. Under the Local Rules Chaganti was required to file his oppositions by July 30, 2004. He did not. Instead, on August 11, 2004 — nearly two weeks after his opposition was due — he filed an application pursuant to Federal Rule of Civil Procedure 56(f) to continue the summary judgment hearing. The next day he filed an opposition to defendants' motion. On Saturday August 14, he filed another opposition and on Monday, August 16, 2004 Chaganti filed yet another opposition. Because of Chaganti's numerous untimely oppositions defendant Sun had to prepare its reply over the weekend and file it on August 16. Chaganti also filed a surreply, which, by this order, the Court grants Chaganti leave to file.
Because plaintiff's Rule 56(f) application did not establish that the discovery he claims he did not have the opportunity to conduct was relevant to the pending motions for summary judgment the Court denied his Rule 56(f) application. The Court heard oral argument on August 20, 2004.
SUMMARY JUDGMENT STANDARD
Summary judgment is proper when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). An issue is "genuine" only if there is a sufficient evidentiary basis on which a reasonable fact finder could find for the nonmoving party, and a dispute is "material" only if it could affect the outcome of the suit under governing law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). A principal purpose of the summary judgment procedure "is to isolate and dispose of factually unsupported claims." Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no 'genuine issue for trial.'" Matsushita Elec. Ind. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986).DISCUSSION
I. The Release
Sun argues that Chaganti's Second, Fourth and Eighth causes of action are barred by the Release. Sun accordingly moves for summary judgment on these claims. As Sun's release argument is an affirmative defense, see Fed.R.Civ.P. 8(c), it has the initial burden of producing evidence which would entitle it to a directed verdict if the evidence went uncontroverted at trial. See C.A.R. Transp. Brokerage Co., Inc. v. Darden, 213 F.3d 474, 480 (9th Cir. 2000). Sun has met its initial burden by demonstrating that these causes of action, which arise from the termination of Chaganti's employment, are unambiguously encompassed by the Release.
Chaganti first responds that the Release does not bar his claims because there is a dispute to whether he intended to Release all known and unknown claims. In his declaration he asserts that he would never have signed the agreement had he known that Sun lied to him about the reason for his termination. Chaganti Decl. at ¶ 11.
Chaganti's attempt to avoid the Release is foreclosed by Winet v. Price, 4 Cal. App. 4th 1159 (1992). In that case an attorney and his former client entered into an agreement releasing all claims against the attorney, including unknown and unsuspected claims, and waiving the benefit of Civil Code section 1542. The client subsequently sued the attorney. The issue presented was whether the release could be avoided if the client testifies that he was unaware of a claim and did not intend to waive the right to pursue that claim. Id. at 1162. The California Court of Appeal held that it could not.
The Court of the Appeal first concluded that the unambiguous language of the agreement released all claims, whether known or unknown. Id. at 1166-67. Next, the court concluded that the client's testimony that he did not intend to release a later-discovered claim was inadmissible parole evidence. Id. at 1167. Parole evidence is admissible only to prove a meaning to which the language is "reasonably susceptible." Id. Since the language of the agreement was not susceptible to the client's interpretation — that he only intended to release known claims — his testimony as to his subjective intent was inadmissible. Id. Finally, the court concluded that the circumstances surrounding the adoption of the release suggested that the client did intend to release unknown claims. These circumstances included the fact that he was represented by counsel. Id. at 1168. The court accordingly affirmed the trial court's grant of summary judgment in the attorney's favor.
The same result is required here. First, while Chaganti was not represented by an attorney he is himself a practicing attorney licensed by the State of California. Moreover, he had 45 days to consult an attorney if he had any questions. Second, the Release's language unambiguously waives all claims arising out of his employment "whether known or unknown." Third, the Release recites Civil Code section 1542 and advises that the employee has the right not to waive unknown claims, and then states, again, that by signing the agreement the employee waives unknown claims. Finally, Chaganti does not actually claim that he did not intend to waive unknown claims; he only testifies that if he knew he had a claim he would not have signed the Release at all. As theWinet court explained, however, "[i]f an argument such as this were given currency, a release could never effectively encompass unknown claims. A releasor would simply argue that a release of unknown or unsuspected claims applied only to known or suspected claims, making it ineffective as to known or unsuspected claims." Id. at 1167.
Chaganti cites Casey v. Proctor, 59 Cal.2d 97 (1963) for the proposition that whether he intended to release unknown claims is always a question of fact. Casey was decided before Winet and the Winet court explained why Casey was inapplicable to the facts of that case (and this case as well). In Casey, the releasor — who was not an attorney — signed a form release sent to him by an insurance adjustor just a few days after an accident. The release waived all claims, including unknown claims, but did not include a waiver of Civil Code section 1542. The releasor later discovered he suffered personal injuries in the accident. The Supreme Court concluded that the intent of section 1542 was to prevent a releasor from inadvertently waiving unknown claims merely by signing a general release. The Court also recognized that "there are competing policy concerns peculiarly applicable to personal injury releases. While there is a desire to encourage finality in settlements, there are also countervailing concerns, such as . . . the difficult process of evaluating long-term effects of personal injuries, leaving the unfortunate claimant bearing the loss, the insurer reaping a windfall through avoidance of liability for a risk it had been paid to assume." Id. at 1170.
Accordingly, the Winet court concluded that Casey was inapplicable since Winet did not involve personal injuries or an unsophisticated claimant, or a windfall to an insurance company. Most importantly, however, the Winet court foundCasey inapplicable because Casey rested principally on section 1542. In Winet, in contrast, the language of the agreement showed that the client consciously understood the benefits conferred by section 1542 and consciously waived those benefits.
The same is true here. This case does not involve personal injuries or an unsophisticated claimant; Chaganti is a practicing attorney. Moreover, there is no windfall to an insurance company. Finally, the language of the Release unambiguously explains the benefits of section 1542 and the fact that by signing the Release Chaganti is waiving those rights.
Chaganti makes other arguments which do not require much discussion. First, he claims that because the Release he signed does not have Sun's signature it is not valid. Second, he claims that the Release is void for public policy because it releases all claims up to eight days after the employee signs and therefore those employees who take longer to sign the Release actually release potentially more claims. Third, he claims that Sun breached the Release because the Release states that Sun would send the severance to the employee's address and instead Sun deposited the amount directly into his bank account.
Chaganti also refers to the well-established law that releases induced by fraud are not enforceable. While Chaganti alleges fraud, he alleges fraud with respect to the termination of his employment, not with respect to inducement to enter into the Release.
Finally, Chaganti appears to dispute Sun's evidence that it paid Chaganti the consideration required by the Release. Sun has presented admissible evidence that in January and February 2002 it directly deposited into Chaganti's account the exact amounts due under the Release, namely, four weeks' severance pay and reimbursement for the cost of COBRA coverage for four weeks. Declaration of Kenneth Tuffnell and accompanying exhibits. Although Chaganti admits Sun directly deposited money to his account in January and February 2002, he states that it is his "belief" that the money was payment for other matters. Chaganti Decl. ¶ 14. Chaganti's "belief" is insufficient to create a genuine dispute of fact especially given that the undisputed evidence demonstrates that the amount deposited equals the amount due under the Release. He does not identify any evidence, direct or circumstantial, to support his "belief." Accordingly, he has not submitted evidence sufficient to create a genuine dispute of fact as to whether Sun performed its end of the bargain. See Carmen v. San Francisco Unified School Dist., 237 F.3d 1026, 1028 (9th Cir. 2001).
None of the discovery Chaganti refers to in his Rule 56(f) application is relevant to the enforcement of the Release; most of it relates to his COBRA claims or to the reasons for his termination.
Sun has met its burden of showing that based on the uncontroverted evidence it has produced it would be entitled to a directed verdict on its defense that Chaganti's Release bars his claims arising out of his termination. Accordingly, Sun's motion for summary judgment on the Second, Fourth and Eighth causes of action is GRANTED.
II. The COBRA claims
ERISA, as amended by the Consolidated Omnibus Budget Reconciliation Act ("COBRA") "authorizes a qualified beneficiary of an employer's health plan to obtain continued coverage under the plan when he might otherwise lose that benefit for certain reasons, such as the termination of employment." Geissal v. Moore Medical Conference, 524 U.S. 74, 76 (1998). COBRA "requires plans to advise beneficiaries of their rights under COBRA both at the commencement of coverage and within 14 days of learning of a qualifying event." Id. at 80 (citing section 1166(a)(2)). Beneficiaries then have 60 days to decide whether to elect coverage. Id. "If a qualified beneficiary makes a COBRA election, continuation coverage dates from the qualifying event, . . . the maximum period of coverage is generally 18 months."Id. (citing section 1162(2)(A)). "Benefits may cease if the qualified beneficiary fails to pay the premiums." Id. (citing 1162(2)(C)).
In his first cause of action, entitled "COBRA and ERISA," plaintiff alleges that defendants wrongfully denied him medical coverage. In his sixth cause of action he alleges breach of fiduciary duty arising out of the same circumstances. In his seventh cause of action he alleges that defendants failed to provide him with notice of his eligibility for COBRA coverage.
A. Defendant Ceridian
Ceridian is not the health plan sponsor or plan administrator; instead, it is undisputed that Sun hired Ceridian to perform the clerical functions of COBRA administration. Ceridian argues that since it was only performing clerical duties it had no fiduciary duty to Chaganti.
In CSA 402(K) Plan v. Pension Professionals, Inc., 195 F.3d 1135 (9th Cir. 1999), the Ninth Circuit explained that "[l]iability for breach of fiduciary duty under ERISA may be imposed only against ERISA-defined fiduciaries." "Under ERISA, a person is deemed a fiduciary if he 'exercises discretionary authority or control respecting the management or administration of an employee benefit plan.'" Id. The evidence offered by Ceridian establishes that it did not exercise any discretionary authority or control regarding COBRA benefits and Chaganti does not offer any evidence that creates a material dispute of fact on this issue. Indeed, Chaganti does not address the issue in any of his three oppositions or in his Rule 56(f) affidavits. Accordingly, as Ceridian was not an ERISA fiduciary, it is entitled to summary judgment.
B. Defendant Sun
1. Failure to provide notice of COBRA benefits
As is explained above, an ERISA plan is required to notify a plan participant of his COBRA benefits within 14 days of the plan learning of a qualifying event (for example, termination). If a plan fails to provide a plan beneficiary with timely notice of his COBRA rights, the plan may be liable for statutory penalties or the medical expenses the former employee incurred. See Hamilton v. Mecca, Inc., 930 F.Supp. 1540, 1554 (S.D. Ga. 1996).
Sun contends that it provided timely notice to Chaganti. Melissa Taylor, an employee of Ceridian, attests that Ceridian sent a notice dated November 12, 2001 to Chaganti at an address in Virginia. She further attests that it is the last-known address provided by Chaganti to Sun. Chaganti declares, however, that once he found an apartment in Palo Alto "he gave that address to Sun immediately." Chaganti Decl. ¶ 2. This statement creates a genuine dispute of fact on Chaganti's claim that Sun did not provide him with timely notice of his COBRA rights. Whether he has been prejudiced by this alleged failure, or whether statutory penalties are appropriate, is a different issue.
2. The termination of medical coverage
It is undisputed that Chaganti's July premium payment was untimely. It is also undisputed that a plan may terminate COBRA coverage for a failure to timely pay the premium.See Geissal, 524 U.S. at 81 (citing 29 U.S.C. § 1162(2)(C)).
Chaganti has submitted a check dated June 30, 2002 which he claims he sent to Ceridian. He does not offer any evidence, however, of when he sent the check or even if the check was cashed by Ceridian (he only produced the front of the check). Thus, there is no admissible evidence that Ceridian received a check for the July premium prior to August 7, 2002.
Nonetheless, the dispute as to whether Sun provided Chaganti with timely notice of his COBRA rights precludes summary judgment on his claim that Sun unlawfully terminated his COBRA coverage. When Chaganti was offered continuation coverage in May 2002, he was advised that he had to pay Sun premiums for the previous eight months in order to obtain coverage. Chaganti protested that he should not have to pay premiums of over $2000.00 for a period when he did not believe he had health insurance and therefore did not incur medical expenses. In other words, Sun was insisting that he pay premiums retroactively and receive no benefit in return other than the ability to have coverage going forward. Sun has not established, however, that it could lawfully require Chaganti to pay retroactive premiums for a period during which he did not know he was eligible for benefits because Sun failed to notify him of his benefits as required by law. Chaganti argues that if Sun should have waived the premiums for that period, or, at the very least, permitted Chaganti to join the plan with an interruption of coverage, then the over $2000 Chaganti paid for retroactive coverage should have been applied to future premiums and Chaganti's coverage not terminated for untimely payment.
If, on the other hand, Sun had provided Chaganti with notice of his COBRA rights as required by ERISA, then Sun was under no legal obligation to allow Chaganti to join the plan. Accordingly, its decision to allow him to join the plan only if he paid premiums from the date of his termination would be appropriate and its subsequent termination of benefits for non-payment would also be appropriate.
One key, then, to resolution of the COBRA claims is whether Ceridian (on Sun's behalf) sent notice to the last address provided by Chaganti. If Sun provided proper, timely notice then all of Chaganti's ERISA/COBRA claims fail (although the converse is not necessarily true).
3. Exhaustion of remedies
Sun also argues that Chaganti's COBRA claims are barred by his failure to exhaust the plan's administrative remedies. See Horan v. Kaiser Steel Retirement Plan, 947 F.2d 1412, 1416 (9th Cir. 1991). The exhaustion requirement, however, does not apply to Chaganti's claim that Sun breached its fiduciary duty by violating ERISA's notice requirement. See id. at 1416 n. 1. The Court exercises its discretion not to require exhaustion of his termination of benefits claim because Sun/Ceridian did not notify of his appeal rights until the time for appealing had expired and, in any event, the parties' papers demonstrate that exhaustion would be futile. See id. at 1416.
CONCLUSION
Sun's motion for summary judgment on the second, fourth, and eighth causes of action is GRANTED. Sun has proved as a matter of law that these claims are barred by the Release executed by Chaganti.
Ceridian's motion for summary judgment on the COBRA/ERISA claims is GRANTED as the evidence is undisputed that Ceridian was not an ERISA fiduciary.
Sun's motion for summary judgment on the COBRA/ERISA claims is DENIED as there is a dispute as to whether Ceridian, on Sun's behalf, mailed Chaganti timely notice of his COBRA rights to the last address Chaganti properly provided to Sun.
The Court will hold a bench trial at 8:30 a.m. on September 13, 2004 to address solely the factual issues of (1) whether Ceridian mailed Chaganti notice of his COBRA rights in November 2001 and (2) whether Ceridian mailed the notice to his last-known address. The parties shall exchange witness lists and proposed exhibits and file same with the Court by September 7, 2004. Chaganti is warned that his failure to comply with this deadline could result in an evidence preclusion sanction.
IT IS SO ORDERED.