Opinion
CAUSE NO. IP98-1241-C-H/K
May 13, 2004
ENTRY ON REMEDY FOR PROCEDURAL VIOLATION
This dispute over disability insurance benefits between Sarah Robyns and Reliance Standard Life Insurance Company has followed an arduous path. The details of this case have been set forth in detail in the court's findings of fact and conclusions of law in Robyns v. Reliance Standard Life Ins. Co., 2003 WL 21850820 (S.D. Ind. July 10, 2003), the court's opinion ordering a remand to the insurance company for full consideration of the case, 2001 WL 699886 (S.D. Ind. May 17, 2001), the court's entry on summary judgment, 2000 WL 1902193 (S.D. Ind. Dec. 28, 2000), as well as the Seventh Circuit's opinion affirming Judge Tinder's dismissal of Robyns' first case, Robyns v. Reliance Standard Life Ins. Co., 130 F.3d 1231 (7th Cir. 1997).
After a de novo trial, the court found that Robyns had not been disabled under the insurance policy at any relevant time, but that Reliance had violated 29 U.S.C. § 1133 when it rejected as untimely Robyns' 1998 request for further consideration of her claim. The issue now before the court is whether the court should grant any additional remedy for that violation. As explained below, the court finds that, beyond the court's earlier remand of Robyns' claim for benefits for further consideration, no additional remedy should be ordered.
Factual Background
For purposes of deciding the remedy question, the following are the most relevant facts. Pursuant to an employee benefit plan governed by ERISA, Robyns began receiving short-term disability benefits in 1991. In 1992 Reliance approved her application for long-term disability benefits. In early 1993, Reliance began re-examining Robyns' eligibility for long-term disability benefits. Over many months, as the Seventh Circuit recounted in its opinion, Robyns and her doctors and attorney failed to provide the information Reliance was requesting. Reliance eventually terminated Robyns' benefits in January 1994. 130 F.3d at 1233-34. Robyns then filed her first lawsuit, which Judge Tinder dismissed with prejudice for failure to exhaust administrative remedies. His decision was affirmed by the Seventh Circuit in November 1997.
On June 16, 1998, Robyns' new lawyer sent a letter to Reliance seeking to continue, as he put it, Robyns' appeal of the termination of her benefits. Reliance responded by saying the request came too late. Reliance declined to carry out any further review of her claim. Robyns then filed this second lawsuit claiming that Reliance violated ERISA in terminating her benefits and in refusing to consider her claim further. The court denied Reliance's motion for summary judgment, then stayed the litigation while the court remanded Robyns' case to Reliance for a "full and fair review" of her eligibility for disability benefits. After that review, which involved Reliance personnel and experts who had not been involved in the case earlier, Reliance found that Robyns had not been disabled. It stood by its earlier decision to terminate benefits.
After a de novo trial on the merits, the court found that Robyns was not eligible for disability benefits, but that Reliance's refusal to consider her claim further in 1998 was a violation of 29 U.S.C. § 1133, which provides:
In accordance with regulations of the Secretary, every employee benefit plan shall —
(1) provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant, and
(2) 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.
Reliance's refusal to consider her claim further was contrary to the terms of the plan itself, and contrary to the arguments Reliance had made in obtaining dismissal of the first lawsuit.
The court invited further briefing on the difficult question of the appropriate remedy for this purely procedural violation. Neither party concedes the court has correctly decided any issue against it or her. Working from the court's findings that Robyns was not eligible for benefits but that the 1998 refusal to consider her claim further was aviolation of 29 U.S.C. § 1133, however, the parties propose the following. Reliance argues that the court already provided the appropriate remedy for the procedural violation by ordering the remand in 2001, and that no further remedy would be equitable. Robyns argues that the proper remedy should be a retroactive reinstatement of benefits from December 1993 through November 1, 2001, the date that Reliance made the final denial decision with which this court eventually agreed. Robyns suggests in the alternative that benefits should be reinstated for the period June 1998 to November 1, 2001, and that the court should award her attorney fees incurred in pursuing her claim under § 1133.
Discussion
The court finds that the earlier remand was the appropriate, equitable, and sufficient remedy for Reliance's procedural violation in this case. No additional remedy is warranted at this time. The court bases this finding on the overall equities of the case, as well as more specific consideration of the status quo at the time of the procedural violation. Also, any retroactive reinstatement of benefits in this case would result in an inequitable windfall for Robyns.
The Seventh Circuit has issued a series of decisions involving appropriate remedies for similar procedural violations under ERISA, and those decisions guide this court's exercise of its equitable discretion under ERISA.
In Wolfe v. J.C. Penney Co., 710 F.2d 388 (7th Cir. 1983), the district court found that the denial of plaintiff's application for long-term disability benefits was defective, and it ordered payment of benefits. The Seventh Circuit affirmed the finding of procedural error because the letter notifying the plaintiff of the denial of benefits did not actually provide a reason for the decision. However, the Seventh Circuit reversed on the issue of remedy, finding that the proper remedy was a remand to the plan for proper consideration of the claim. 710 F.2d at 393-94. Under Wolfe, a procedural remedy rather than an order to pay benefits should be the remedy when an initial denial of benefits is procedurally defective.
More recent cases have indicated that, depending on the applicable standard of judicial review for a denial of benefits ( de novo or deferential), the procedural remedy for a procedural violation of § 1133 could be either a remand to the benefit plan or a de novo hearing in a bench trial in the district court. See Casey v. Uddeholm Corp., 32 F.3d 1094, 1099 n. 4 (7th Cir. 1994), which has been described as abrogating a portion of Wolfe. See Renaldi v. Sears Roebuck Co., 2001 WL 290372, *20 n. 10 (N.D. Ill. March 21, 2001). In reversing the district court's order to pay benefits as a substantive remedy for a procedural violation in an initial benefits denial, Wolfe remains good law.
More specific guidance on the problem here comes from three more recent Seventh Circuit cases involving the termination of disability benefits after the plaintiff had initially been found to be disabled: Halpin v. W.W. Grainger, Inc., 962 F.2d 685, 697 (7th Cir. 1992) (affirming as exercise of discretion the district court's reinstatement of disability benefits suspended through defective procedure); Quinn v. Blue Cross and Blue Shield Ass'n, 161 F.3d 472, 478 (7th Cir. 1998) (reversing reinstatement of disability benefits where plan used arbitrary procedure to decide that disability benefits should not be renewed past scheduled expiration date); and Hackett v. Xerox Corp. Long-Term Disability Income Plan, 315 F.3d 771, 775-77 (7th Cir. 2003) (ordering reinstatement of disability benefits suspended through defective procedure).
In Hatpin, the plaintiff had been receiving disability benefits. The plan terminated those benefits after further medical review of his condition. The district court found that the procedures for termination were defective, and the district court ordered that benefits be reinstated. The Seventh Circuit affirmed, expressly treating the choice of remedy as a matter for the district court's discretion. 962 F.2d at 697, citing Grossmuller v. Int'l Union, 715 F.2d 853, 858-59 (3d Cir. 1983) (district court had discretion to reinstate terminated benefits where plan failed to provide "full and fair review"). The principal defect in the procedures in Hatpin was the plan's failure to provide a notice of the decision to deny benefits that provided specific reasons and informed the employee of the steps needed to obtain further review. As Judge Ripple's opinion made clear, the failures were thorough and made meaningful substantive review impossible. The Seventh Circuit distinguished Wolfe, which had found a remand to be the correct remedy for procedural defects, based on the difference between an initial denial of benefits and the termination of benefits already being paid. 962 F.2d at 697. In effect, the court reasoned, the improper decision to terminate benefits was nullified, though the plan had the opportunity to begin a new review of the plaintiff's eligibility for benefits. Id. at 697-98.
In Quinn, the employee had been receiving long-term disability benefits. The plan was designed so that benefits were scheduled to stop unless, upon fresh consideration, the employee was again determined to be disabled. When her case was reviewed, the plan found that she was no longer disabled and stopped paying benefits. 161 F.3d at 474. On judicial review, the district court found that the plan had acted arbitrarily and capriciously by not conducting a more thorough vocational determination when it found the plaintiff was not disabled. The district court initially remanded the case to the plan for further review, but then decided, on the basis of Halpin, to order reinstatement of benefits. Id. 475.
The Seventh Circuit reversed that remedy in Quinn and ordered the original remedy of remand to the plan. The Seventh Circuit observed that retroactive reinstatement of benefits would be the proper remedy in some cases, noting that such cases "usually either involve claimants who were receiving disability benefits, and, but for their employers' arbitrary and capricious conduct, would have continued to receive the benefits, or they involve situations where there is no evidence in the record to support a termination or denial of benefits." Id. at 477 (collecting cases). The Seventh Circuit then cited cases finding that remands were appropriate remedies for procedural failures, such as failures to provide adequate reasoning, unless the case was so clear cut that denial of benefits would be unreasonable. Id. The Seventh Circuit distinguished Halpin and found that remand was the appropriate remedy in Quinn because the original grant of benefits had been scheduled to be terminated on a specified date, and Quinn had the opportunity to submit new evidence supporting her claim for continued benefits. The court noted that the denial was "arbitrary and capricious, but not necessarily wrong," and that retroactive benefits "might provide Quinn with an economic windfall." Id. at 478. The Seventh Circuit's opinion in Quinn did not specify the standard of review that was applied, but it did not disagree with the abuse of discretion standard applied in Hatpin.
More recently in Hackett, the plaintiff had been receiving long-term disability benefits for more than ten years, having repeatedly been found to be disabled. A new examination by one doctor reached the opposite conclusion, and the plan terminated the benefits. The plan's only explanation was "continued disability not clinically supported." 315 F.3d at 773. The district court granted the plan's motion for summary judgment. The Seventh Circuit reversed and ordered that judgment be entered for plaintiff. The court found that the decision to terminate benefits was arbitrary because it failed to explain why the one doctor's opinion outweighed all of the prior findings of disability. Id. at 775. The Seventh Circuit then turned to the issue of remedy, which had not been addressed below or in the briefs. Hackett reviewed Wolfe, Hatpin, and Quinn, and ordered reinstatement of benefits for Hackett.
The Hackett court distinguished between procedural violations in the initial decision about benefits and procedural violations in the termination of benefits. In initial denials of benefits, "the court is not in the place to make the determination of entitlement to benefits," and the procedural error does not necessarily mean the claimant is entitled to benefits. Id. at 776. Where the plan terminates benefits using defective procedures, however, "the status quo prior to the defective procedure was the continuation of benefits," so that "[r]emedying the defective procedures requires a reinstatement of benefits." Id. The Hackett court distinguished Quinn because that plan had provided that benefits automatically terminated unless the plan administrator found on review that continued benefits were proper. Under that approach, the status quo prior to the procedural error was that benefits were scheduled to end. Id. The Hackett court went on to assert that the distinction between initial denials and termination of ongoing benefits "makes perfect sense." Id.
Robyns reads Hackettas, establishing a bright-line rule — if the plaintiff had previously been found eligible for benefits, then retroactive reinstatement of benefits must be the remedy for procedural violations — with an exception no applicable here for plans like the one in Quinn, which put a time limit on such benefits unless there is a new finding of eligibility. Under that reading, Robyns would be entitled to payment of retroactive benefits ending in November 2001 when Reliance finished its evaluation of her claim. Under that reading, Robyns would be entitled to those payments even though she was, as the court has found, not actually disabled after November 1993.
Although the court finds that no benefits should be awarded to Robyns, the court believes that if any award were required here, it should be limited to the period from June 1998 to November 2001. The doctrine of res judicata would bar complaints about any earlier procedural errors. Also, an award covering December 1993 to June 1998 would reward Robyns for her premature first lawsuit and for the confusion and delays resulting from that tactic.
This court does not read Hackettas, establishing that bright-line rule. First, ERISA remedies have always been based upon equity, which gives the court some discretion to fashion an appropriate remedy in a particular case. That discretion was explicit in Halpin, and it is implicit in Quinn and Hackett. The court finds that equity requires denial of Robyns' request for reinstatement of benefits. Robyns shares a substantial portion of the responsibility for the procedural tangles here. Reliance had the right to ask Robyns for proof of continued disability. See Ex. 4 at 4.0 (plan has right to have claimant interviewed or examined to determine the existence of any total disability, and may exercise right "as often as it is reasonably required. . . ."), and at 7.1 (benefits terminate on "the date the Insured fails to furnish the required proof of Total Disability"). The procedural tangles in this case resulted in large part from Robyns' repeated failures and refusals to provide requested information when Reliance was reviewing her eligibility for benefits, and from Robyns' premature lawsuit, as well as from her failure to have taken any interim administrative steps to protect her rights while the lawsuit was pending.
Based on the shared responsibility for these procedural problems, it would not be equitable to order reinstatement of benefits. That remedy would impose the entire burden on the plan and would provide a substantial economic windfall on a person who has not been actually disabled. The court's remedy of the remand gave Robyns what she was entitled to — a full and fair review of her claim — and requires the parties to share the burden of the procedural problems (in the form of the costs and trouble of litigation).
Second, the Seventh Circuit's decisions in Quinn and Hackett continue to recognize concerns about a remedy for a procedural error giving "an economic windfall" to the claimant. Hackett, 315 F.3d at 776; Quinn, 161 F.3d at 478. After the de novo trial on the merits of her claim, it is clear that retroactive reinstatement of benefits would amount to an economic windfall for Robyns.
Third, the line that Hackett drew depends on the status quo immediately before the procedural violation. As a result of two complications that were not present in Hackett, Quinn, or the other cases cited, the status quo immediately before Reliance's procedural violation was that Robyns' benefits had been properly suspended.
The first complication is that the original termination or suspension of Robyns' benefits was based on her failure to cooperate with Reliance's investigation of her continued disability. The Seventh Circuit reviewed that lack of cooperation in great detail in its opinion. 130 F.3d at 1233-34. On that record of failure to cooperate, Reliance's decision to terminate benefits was reasonable and understandable.
The second complication is that, because of the prior lawsuit, Robyns cannot argue that Reliance committed any procedural violation before the 1998 violation. Any such claims that could have been presented in the first lawsuit would now be barred by the doctrine of claim preclusion or res judicata. See Simon v. Allstate Employee Group Medical Plan, 263 F.3d 656, 658 (7th Cir. 2001); Brzostowski v. Laidlaw Waste Sys., Inc., 49 F.3d 337, 338 (7th Cir. 1995); Robyns v. Reliance Standard Life Ins. Co., 2000 WL 1902193, *9 (S.D. Ind. 2000) (noting that " Robyns I bars any subsequent action based on the suspension of her benefits," but denying motion for summary judgment based on res judicata as applied to eligibility for benefits and the 1998 refusal to hear Robyns' appeal).
As a result of these facts, the status quo at the time of Reliance's 1998 procedural violation was that benefits had properly been suspended, through the use of procedures that are no longer open to challenge. Under the reasoning of Hackett, as applied to these unusual facts, a remand was the appropriate remedy.
The Seventh Circuit noted in Quinn that reinstatement is sometimes an appropriate remedy, but that such cases "usually either involve claimants who were receiving disability benefits, and, but for their employers' arbitrary and capricious conduct, would have continued to receive the benefits, or they involve situations where there is no evidence in the record to support a termination or denial of benefits." 161 F.3d at 477.
This case does not fit either of those two categories. On the merits, Reliance had substantial grounds for suspending benefits and for adhering to its decision. Where the claimant herself bears substantial responsibility for the procedural tangle, a remedy requiring retroactive payments of long-term disability benefits to a person who was not actually disabled at the relevant times would not be an equitable remedy. It would provide instead what Quinn called "an economic windfall." Id. at 478.
Robyns argues that a remedy that fails to put money in her pocket and/or those of her lawyers would "reward Reliance's refusal to comply with the statute and undermine ERISA's purpose and requirements." Pl. Supp. Br. at 6. The court disagrees. The expensive course of this litigation creates no incentive for a plan to cut procedural corners. True, there is a modest presumption in ERISA cases in favor of awarding attorney fees to the prevailing party. Meredith v. Navistar Int'l Transp. Corp., 935 F.2d 124, 128 (7th Cir. 1991). But the district court must consider all the relevant circumstances. Those circumstances can include related litigation, see Central States, Southeast and Southwest Areas Pension Fund v. Hunt Truck Lines, Inc., 272 F.3d 1000, 1003 (7th Cir. 2001) (reversing fee award for failure to consider related litigation), and can certainly include the results of other claims in the same lawsuit.
Although Robyns eventually prevailed on the Section 1133 claim, she also subjected Reliance to more than a decade of litigation over a substantive claim for benefits that was without merit and was based on exaggerated symptoms and manipulative behavior with scores of doctors. It would not be equitable to award Robyns her attorney fees for the Section 1133 claim in this case without also awarding Reliance a portion of its attorney fees in defending the substantive claims.
Conclusion
The proper remedy, in the court's view, was the procedural remedy of the court-ordered remand for completion of the review process. Robyns is not entitled to any further relief on this claim. The court will enter final judgment; because of the mixed results, the court does not award costs to either party.So ordered.