Opinion
Civil Action No. 2:03cv431-T.
January 5, 2005
James Denning, Plaintiff, represented by James Bernard Brannan, Jr., Jennifer Denning, Plaintiff, represented by James Bernard Brannan, Jr., The Brannan Law Firm PC Montgomery, AL.
Jerry Averill, Defendant, doing business as ServiceMaster by Averill, represented by George Walton, Walker, III Copeland Franco Screws Gill Montgomery, AL.
Shannon Lynn Holliday, Copeland Franco Screws Gill, Montgomery, AL.
Joyce Averill, Defendant, doing business as ServiceMaster by Averill, represented by, George Walton Walker, III, Copeland Franco Screws Gill Montgomery, AL.
Shannon Lynn Holliday, Copeland Franco Screws Gill, Montgomery, AL.
Strategic Outsourcing, Inc., Defendant represented by Charlotte Kaye McClusky, Littler Mendelson, Atlanta, GA.
Daniel W. Srsic, Littler Mendelson, PC, Columbus, OH.
ORDER
Plaintiffs James and Jennifer Denning, a married couple, bring this lawsuit claiming that defendant Strategic Outsourcing, Inc. ("SOI") wrongfully withheld payments for health benefits from Mr. Denning's salary without actually providing medical coverage for the Dennings. It is undisputed that SOI's health benefit plan was regulated by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.A. §§ 1001-1462, and the court's jurisdiction is proper under 29 U.S.C.A. § 1132(e).
This case is now before the court on SOI's motion for summary judgment. The motion will be denied.
I. SUMMARY-JUDGMENT STANDARD
Summary judgment is proper where "there is no genuine issue as to any material fact" and "the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). "[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2510 (1986). Only factual disputes that are material under the substantive law governing the case will preclude entry of summary judgment. Id.
Where, as here, the non-moving party bears the burden of proof at trial, "the moving party, in order to prevail, must do one of two things: show that the non-moving party has no evidence to support . . . [her] case, or present `affirmative evidence demonstrating that the non-moving party will be unable to prove . . . [her] case at trial.'" Hammer v. Slater, 20 F.3d 1137, 1141 (11th Cir. 1994) (quoting U.S. v. Four Parcels of Real Property, 941 F.2d 1428, 1437-38 (11th Cir. 1991) (en banc)). Once the party seeking summary judgment has informed the court of the basis for its motion, the burden shifts to the non-moving party to show that a genuine issue of material fact exists. Id. In making its determination, the court must view all evidence and any factual inferences in the light most favorable to the non-moving party.Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356 (1986).
II. FACTUAL BACKGROUND
From June 2001 through January 2003, Mr. Denning was employed with ServiceMaster and SOI, with SOI providing human resources, payroll, and benefits functions to ServiceMaster's employees. During the pay periods from March through July 2002, SOI withheld $209.64 per pay period from Mr. Denning's pay for family medical coverage. This medical coverage was provided by an employee benefit plan established and funded by SOI. Mrs. Denning was a beneficiary under this ERISA-regulated plan.
See infra note 9.
In July or August 2002, the contractual relationship between ServiceMaster and SOI ended. On July 26, 2002, Mrs. Denning underwent surgery; at that time, she believed her medical expenses in excess of $11,000 were covered by the SOI plan. SOI subsequently denied that it owed any benefits to the Dennings for the surgical procedure because, according to SOI, its plan coverage had ceased prior to Mrs. Denning's surgery.
As described in greater detail below, the parties dispute when the contractual relationship between SOI and ServiceMaster ceased.
III. DISCUSSION A. Standard of Review for Denial of ERISA Benefit Claim
As a threshold matter, the court must determine the proper standard of review to apply to SOI's denial of benefit payments to the Dennings. ERISA does not provide a standard of review for decisions of a plan administrator; however the Court of Appeals for the Eleventh Circuit "has adopted the following standards for reviewing administrators' plan interpretations: (1) de novo where the plan does not grant the administrator discretion, (2) arbitrary and capricious when the plan grants the administrator discretion; and (3) heightened arbitrary and capricious where there is a conflict of interest." Buckley v. Metropolitan Life, 115 F.3d 936, 939 (11th Cir. 1997). Because SOI funded the employee benefit plan at issue in this litigation and also determined benefits eligibility, a "conflict of interest exists between [SOI's] fiduciary role and its profit making role." Levinson v. Reliance Standard Life Ins. Co., 245 F.3d 1321, 1326 (11th Cir. 2001). Consequently the court will apply a "heightened arbitrary and capricious" standard of review in evaluating the claim decision. Id.; see also Torres v. Pittston Co., 346 F.3d 1324, 1329 (11th Cir. 2003) ("we are bound by precedent to apply the heightened arbitrary-and-capricious standard . . . to factual determinations . . . by an ERISA fiduciary operating with discretionary authority but operating under a conflict of interest").
Mary O'Brien Ledford, one of SOI's employees, was the benefits manager, and the plan clearly vested discretion to determine the benefits in SOI, stating that "Benefits under this Plan will be paid only if the Plan Administrator decides in his discretion that the applicant is entitled to them." Def.'s motion for summary judgment ("Def.'s motion"), Ledford Afd., Strategic Outsourcing, Inc. Employee Benefit Plan ("Benefit Plan"), Ex. A, p. 12.
The "Eleventh Circuit has determined that use of a burden-shifting analysis is appropriate in cases applying the heightened arbitrary-and-capricious standard of review." Lake v. UNUM Life Ins. Co. of Am., 50 F.Supp. 2d 1243, 1253 (M.D. Ala. 1999). When dealing with a factual dispute — as is the case here, where the parties dispute, for example, the termination date of the health benefit coverage — the court first examines "whether the claimant has shown that her version of the facts is supported by the record."Id. If the claimant is successful, "the court will draw all inferences from the facts against the plan administrator, to find that the administrator's factual determinations are wrong." Id. Finally, "the court will determine whether the plan administrator was arbitrary and capricious in making its factual determinations, placing the burden upon the administrator to establish that its action was not tainted by self-interest; and, if the administrator carries its burden, the court will allow the claimant to show by other measures that the factual determination was arbitrary and capricious." Id.
B. Termination Date of Health Benefit Coverage
Neither party disputes that Mrs. Denning was a beneficiary of SOI's health plan; instead the parties' disagreement centers on when the Dennings' coverage ended. Mr. Denning argues that he was still an employee of SOI as of July 26, 2002, the date upon which his wife underwent surgery. In order to understand the Dennings' evidence, however, one must first grasp SOI's payroll process. Ordinarily, prior to a pay date, ServiceMaster would provide SOI with documentation of the hours worked by employees. SOI would then prepare a payroll report of those hours and fax it to ServiceMaster, with instructions to respond with approval or corrections within two hours. Subsequently, SOI would send payroll checks to ServiceMaster, and ServiceMaster would send back a cashier's check to SOI for services and reimbursement.The Dennings have submitted to the court a copy of a payroll report that SOI faxed to ServiceMaster on July 30, 2002. This report was for the payroll period ending July 27, 2002. An individual report on Mr. Denning included deductions for his health coverage for the pay period from July 14, 2002, through July 27, 2002. In addition, for the period ending July 27, 2002, SOI belatedly sent the payroll checks to ServiceMaster around August 9 (they were due on August 2); however, in order to make payroll, ServiceMaster had already deposited into its own account the cashier's check originally intended for SOI. ServiceMaster therefore returned SOI's belated payroll checks to SOI. According to Joyce Averill, an owner of ServiceMaster, SOI did not contact ServiceMaster to notify it that SOI was terminating the agreement until after ServiceMaster returned SOI's payroll checks, around August 9. Averill stated in her affidavit: "our agreement with Strategic Outsourcing, Inc. . . . was not terminated on July 13th, 2002 as Strategic Outsourcing, Inc. was still following the usual business steps of preparing our payroll and faxing it to us on July 30th, 2002." Moreover, the medical group that serviced Mrs. Denning contacted SOI on July 25, 2002, prior to Mrs. Denning's surgery, and SOI indicated that pre-certification was not necessary for the Dennings' medical coverage. Although having ample opportunity to do so, SOI did not indicate that the Dennings' medical coverage had been terminated.
Plaintiff's response to Strategic Outsourcing, Inc.'s motion for summary judgment, Averill Afd. ("Averill Afd."), Ex. 3, Payroll Bill, Ex. B.
Averill Afd., Pay Stub with Deductions, Ex. D.
SOI had previously failed to payroll send checks once in June but had then resumed its customary relationship with ServiceMaster. Consequently, SOI's conduct in August need not have been interpreted by ServiceMaster as a sign that SOI was terminating its agreement with ServiceMaster.
Averill Afd.
Since the court concludes that the Dennings have more than adequately shown that their version of the facts — namely, that SOI's medical coverage of the Dennings continued during and after Mrs. Denning's surgery — is supported by the record, the court now turns to SOI's factual determinations, drawing "all inferences from the facts against the plan administrator." Lake, 50 F.Supp. 2d at 1253.
SOI asserts that Mr. Denning's health benefit coverage terminated over one week before his wife's surgery on July 26, 2003. Under the terms of the plan, if the employee does not pre-pay his contributions, then coverage may terminate upon the last day that the beneficiary is no longer "considered an active employee." Likewise, coverage for dependents, such as Mrs. Denning, terminates on the date that the employee's coverage terminates.
Benefit Plan, p. 88.
SOI asserts — and the Dennings do not deny — that Mr. Denning did not pre-pay his contributions; instead, the contributions to the benefit plan that were deducted from his paycheck were for the same periods of time covered by the paycheck. Mr. Denning's coverage therefore terminated upon the last day that he was no longer considered to be an active employee. The parties agree that, given the close relationship between SOI and ServiceMaster, Mr. Denning was considered an employee of both companies. SOI provided compensation and benefits to Mr. Denning, but he performed duties for ServiceMaster. However SOI asserts that the contractual relationship between itself and ServiceMaster ended on July 13, 2002, effectively terminating Mr. Denning's employment with SOI. Although SOI never clarifies what term of the Service Agreement was invoked in canceling the agreement with ServiceMaster, SOI has submitted a Client Termination Report that lists Mr. Denning's termination date as July 13, 2002. This report, however, lists client terminations through January 15, 2004, indicating that it was prepared well after Mrs. Denning's surgery. Rather than proving that Mr. Denning's employment was terminated on July 13, 2002, this report merely suggests that, after the Dennings had filed their lawsuit against SOI in 2003, SOI generated a document suggesting that Mr. Denning's medical coverage had ceased prior to his wife's surgery. The persuasive value of such evidence is minimal at best.
More technically, under the terms of the SOI-ServiceMaster service agreement, ServiceMaster "assigned" all of its employees for whom SOI processed payroll to SOI. Def.'s motion, Service Agreement ("Service Agreement"), Ex. B.
Under the terms of the SOI-ServiceMaster service agreement, "Either party may terminate this Agreement by giving the other at least 30 days advance written notice." Other reasons for terminating the agreement include ServiceMaster's breach of the contract. Service Agreement.
Def.'s motion, Client Termination Report, Ex. C.
In further support of its argument for the July 13, 2002, termination date, SOI asserts that the last paycheck received by Mr. Denning from SOI and the last contribution to the health benefits plan provided by SOI that was withheld from Mr. Denning's paycheck was for the period from June 30, 2002, to July 13, 2002. The Dennings have provided evidence that SOI had sent ServiceMaster payroll checks for the period from July 13 through July 27 but that ServiceMaster had returned the checks because they had arrived too late for the payroll period. In other words, the alleged fact that SOI's last, effective paycheck to Mr. Denning was for the period ending July 13 is not inconsistent with the Dennings' assertion that SOI did not terminate its agreement with ServiceMaster (and therefore Mr. Denning remained an employee of SOI) until after Mrs. Denning's surgery.
Def's motion, Payroll Journal, Ex. D.
Drawing all inferences from the facts against SOI and considering SOI's weak evidence in the record, the court finds that the overall evidence — in particular, SOI's delivery to ServiceMaster of a payroll check for the period ending July 27 with deductions for Mr. Denning's health coverage, its failure to indicate on July 26 to Mrs. Denning's medical group (when explicitly questioned regarding coverage) that the Dennings' medical coverage had been terminated, and the testimony of one of ServiceMaster's owners that SOI had not contacted her to terminate their agreement until August 9, 2002 — leads to the conclusion that SOI's determination that July 13 was the termination date of Denning's employment is wrong. Because SOI's factual determination is unreasonable and wrong and because SOI has otherwise failed to carry its burden of "establish[ing] that its action was not tainted by self-interest," Lake, 50 F.Supp.2d at 1253 (on the contrary, the effort to avoid coverage of Mrs. Denning's expensive medical procedure is marked by SOI's self-interest), summary judgment in favor of SOI is inappropriate.
Additionally, the disagreement concerning the termination date creates a material factual dispute, the existence of which renders summary judgment inappropriate. Anderson, 477 U.S. at 247-48, 106 S.Ct. at 2510.
C. Exhaustion of Administrative Remedies
ERISA requires that employee benefit plans "afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim." 29 U.S.C.A. § 1133(2). Accordingly, SOI's benefit plan provided the following appeals procedure:
"If a claim should be denied in whole or in part, written notification will be delivered in the same fashion as reimbursement for a claim. . . . If additional information is needed for payment of a claim, the Participant may request a review by filing a written application with the personnel office, Plan Administrator or Plan Supervisor. . . . Decision by the Plan Administrator will be made promptly . . . [and] will also be delivered to the Participant in writing."
Benefit Plan, p. 101. The plan goes on to note: "Upon receipt of written request, the Plan Supervisor and Plan Administrator will review the claim and all facts and reasons relating to the decision . . . The Participant or his authorized representative may examine pertinent documents . . . which the Plan has, and may submit his opinion of what the issues are and his comments in writing." Id.
In addition, the form that SOI sent to Mr. Denning denying medical benefits provided the following: "You may appeal in writing to the Plan Administrator at the address in your health booklet within 180 days of this decision. . . . Once the written appeal process is over you may bring an action against the plan under Section 502(a) of ERISA, if applicable."
Def's motion, Explanation of Benefits, Exhibit E. The description of the appeals process need not be limited to the benefits plan, but may also be included in the letter announcing the denial of the claim. Watts v. Bellsouth Telecomms, Inc., 316 F.3d 1203, 1208 n. 2 (11th Cir. 2003) (stating, in dicta, that a denial-of-benefits letter may supplement the appeals process outlined in a plan).
SOI's administrative remedies are important because it "is well-established law in this Circuit that plaintiffs in ERISA cases must normally exhaust available administrative remedies under their ERISA-governed plans before they may bring suit in federal court." Springer v. Wal-Mart Assocs.' Group Health Plan, 908 F.2d 897, 899 (11th Cir. 1990). Although exceptions to this exhaustion requirement exist (for example, "`when resort to the administrative route is futile or the remedy inadequate,'"id. (quoting Curry v. Contract Fabricators Inc. Profit Sharing Plan, 891 F.2d 842, 846 (11th Cir. 1990))), "a strong policy favoring such exhaustion underlies . . . [ERISA's] statutory scheme." Id. at 900.
While SOI asserts that the Dennings failed to exhaust their administrative remedies, the Dennings offer evidence to the contrary. SOI provided Mr. Denning with several forms explaining its denial of medical benefits during the last two weeks of August 2002. The Dennings subsequently contacted SOI regarding the denial of benefits, but SOI referred them to ServiceMaster. Averill, one of the owners of ServiceMaster, stated that, after August 20, she "corresponded by fax with Strategic Outsourcing, Inc., on [Mrs. Denning's] behalf. I sent faxes with the payroll reports that showed James Denning's deductions for medical coverage. I made it known to Strategic Outsourcing, Inc., that the Denning's [sic] were not accepting the denial and that our records established that they had coverage."
Averill Afd.
SOI's argument that the Dennings failed to exhaust administrative remedies (when SOI, by refusing to interact with the Dennings and referring them to ServiceMaster, effectively prevented them from availing themselves of SOI's appeals process) is disingenuous. Moreover, while the denial-of-benefits form stated that written appeals should be sent "to the Plan Administrator at the address in your health booklet," there is not enough evidence in the record to know whether this "address" was merely a physical one or whether it also included a fax number. Even assuming, arguendo, that ServiceMaster's written objection on behalf of the Dennings should have been sent to a physical address, the court finds that this failure to abide strictly by the letter of the plan will not be fatal. SOI never explicitly denies having received ServiceMaster's faxed objections. Drawing all factual inferences in the light most favorable to the Dennings, the court must conclude that SOI was aware of the Dennings' disagreement with its denial of medical benefits and never responded to their written objections at all, let alone "promptly" or "in writing" as required by the plan. Based on SOI's responses or lack thereof, the Dennings may reasonably have believed that the "written appeal process [was] over" and that an action could be brought in federal court, as stated in SOI's denial-of-benefits form. Alternatively, the Dennings may reasonably have concluded, given SOI's behavior, that further efforts to resort to SOI's administrative process would be futile, thereby qualifying for an exception to the administrative exhaustion requirement.Springer, 908 F.2d at 899; see also Engelhardt v. Paul Revere Life Ins. Co., 77 F.Supp.2d 1226, 1233-34 (M.D. Ala. 1999) (recognizing futility exception to remedy-exhaustion requirement where the court concluded that the plaintiff's claim would definitely not have been reconsidered even if an appeal had been made).
Consequently, the Dennings' lawsuit is not barred by any alleged failure to exhaust the administrative remedies provided in SOI's plan.
IV. CONCLUSION
For the reasons given above, it is ORDERED that the defendant Strategic Outsourcing, Inc.'s motion for summary judgment (Doc. no. 38) is denied.