Opinion
No. C-06-00695 RMW.
September 1, 2006
ORDER GRANTING DEFENDANT'S MOTION TO CLARIFY STANDARD OF REVIEW [Re Docket Nos. 16, 19, 22]
Defendant Hewlett-Packard Company Disability Plan moves for an order clarifying that the standard of review in this ERISA action is de novo. For the reasons set forth below, the court determines the standard of review is abuse of discretion.
I. BACKGROUND
Plaintiff Parto Tabatabai formerly worked for the Hewlett-Packard Company ("HP") and was covered by the Hewlett-Packard Company Disability Plan. This plan is governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., and administered for HP by VPA, Inc.
Plaintiff applied for long-term disability benefits under the plan. In a February 20, 2003 letter, VPA denied her claim, stating that
The medical evidence in your file documents you suffer from depression and anxiety, as these conditions are limited to the initial 52 weeks under the Hewlett Packard Disability Plan; we cannot consider these conditions as part of your disability as of March 8, 2003. The medical documentation in your file does not show any other condition that would limit your ability to work, the objective medical evidence does not support that you are unable to continuously perform the duties of any occupation that you are qualified to perform, therefore, you are not considered Totally Disabled by the Plan, and as of March 8, 2003 your claim for Long Term Disability Benefits is being denied.
HP 125 (Green Decl., Ex. A). In a July 24, 2003 letter (received by VPA on July 30), Tabatabai appealed VPA's denial. HP 77 (Green Decl., Ex. C). She explained that her mental health problems stemmed from "an adrenal mass and hormonal problems," and that she had been diagnosed with "Hashimoto disease" and "Cushing's disease." Id. She also stated that
The parties have helpfully submitted excerpts of the administrative record, and citations to the administrative record in this order will refer to the Bates-stamped page numbers and the declaration containing the excerpt.
Because of my poor health, I have decided to stay with my family for a few months. During this time, I will not be able to communicate with you. I am leaving in a few days. Therefore, I am sending you my latest diagnosis for the appeal.
HP 78.
In an August 1, 2003 letter, VPA acknowledged Tabatabai's appeal and requested additional medical records. HP 76 (Green Decl., Ex. D). VPA continued that
The appeal procedures clearly indicate that you must state in writing those reasons, along with examples, of why you feel the denial of your claim was in error. We are allowing you an additional 30 days to submit documentation in support of your contention that our denial was in error. If nothing further is received, our Administrative Review will be based upon the information we have in our files.Id. VPA also stated that "the initial 45-day review period will be suspended pending receipt of this information." Id. On August 13, 2003, a VPA employee phoned Tabatabai and left her a message regarding the additional information requested. HP 4 (Supp. Curry Decl., Ex. A). In an August 25, 2003 letter, VPA informed Tabatabai that it was requesting medical records directly from her physicians and reiterated that "the initial 45-day review period will be suspended pending receipt of this information." HP 71 (Supp. Curry Decl., Ex. B).
VPA received additional medical records for Tabatabai by September 10, 2003. HP 2 (Supp. Curry Decl., Ex. A). VPA referred them to Dr. Gerald Weingarten, M.D., a physician hired by VPA to review Tabatabai's medical records. HP 44 (Supp. Curry Decl., Ex. C). His report of September 24, 2003 stated that "[s]he has not had confirmation of a diagnosis of Cushing's disease" and that her "primary symptoms" were all caused by her "anxiety depressive disorder and not any other illnesses including Hashimoto's thyroiditis and [her] adrenal adenoma." HP 42 (Supp. Curry Decl., Ex. D).
VPA's attempt to contact Tabatabai by phone on October 30, 2003 was again unsuccessful. HP 4 (Supp. Curry Decl., Ex. A). In a November 3, 2003 letter, VPA informed Tabatabai that it had not received all of the medical records requested, that it would proceed based on the records it had on November 10, 2003, and that "the initial 45-day review period" remained suspended. HP 34 (Supp. Curry Decl., Ex. E). VPA finally spoke to Tabatabai the next day, and she sent VPA a report from an MRI performed in March 2003. HP 2, 31-33 (Supp. Curry Decl., Exs. A, F).
In a December 4, 2003 letter, VPA, relying on Dr. Weingarten's report, denied Tabatabai's appeal. HP 25-30 (Green Decl., Ex. E). Approximately two years later, Tabatabai retained an attorney who requested VPA reconsider its denial. HP 447-48 (Green Decl., Ex. F). VPA refused to do so. HP 8 (Supp. Curry Decl., Ex. G). Tabatabai then initiated this action.
II. ANALYSIS
"[A] denial of benefits challenged under [29 U.S.C.] § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Firestone Tire Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). When the plan confers discretion on the plan administrator to determine eligibility for benefits, courts generally review the denial of benefits for abuse of discretion. See id. A conflict of interest on the part of the plan administrator can convert review for abuse of discretion into de novo review. Lang v. Long-Term Disability Plan of Sponsor Applied Remote Tech., Inc., 125 F.3d 794, 797 (9th Cir. 1997).
Here, plaintiff does not appear to dispute that the plan at issue gives the plan administrator discretion, but does argue that the denial of her appeal was untimely, converting the standard of review to de novo. The Ninth Circuit recently (during the briefing on this motion) clarified that "a procedural irregularity in processing an ERISA claim does not usually justify de novo review." Abatie v. Alta Heath Life Ins., ___ F.3d ___, 2006 WL 2347660 at *13 (9th Cir. Aug. 15, 2006) ( en banc). The court held that
A procedural irregularity, like a conflict of interest, is a matter to be weighed in deciding whether an administrator's decision was an abuse of discretion. When an administrator can show that it has engaged in an ongoing, good faith exchange of information between the administrator and the claimant, the court should give the administrator's decision broad deference notwithstanding a minor irregularity. A more serious procedural irregularity may weigh more heavily.Id. (citations and quotation marks omitted). Only "[w]hen an administrator engages in wholesale and flagrant violations of the procedural requirements of ERISA, and thus acts in utter disregard of the underlying purpose of the plan as well," is review de novo. Id. at *12.
Section 8(c) of the HP plan provides:
The Claims Administrator shall act upon a request for review within forty-five (45) days after receipt thereof, unless special circumstances require additional time for review. If additional time for review is required, the review period may be extended for up to an additional forty-five (45) days for a total of ninety (90) days. The Claims Administrator will notify the claimant of the reasons for the delay prior to the expiration of the initial forty-five (45) day period and give a date when it expects to make a decision. The notice will also state the special circumstances requiring the extension.
HP 369-70 (Green Decl., Ex. B). By these terms, VPA had to act within forty-five days of receiving Tabatabai's appeal letter on July 30, 2003, i.e., by September 13, 2003, and had to complete its review no later than ninety days after receiving Tabatabi's appeal letter, i.e., by October 28, 2003. VPA's letters of August 1, August 25, and November 3 purported to suspend the running of the forty-five day limit but did not in so many words extend the period.
Tabatabai argues that VPA lacked power to suspend the running of the forty-five day time period or to extend the review beyond ninety days, and that her appeal is therefore to be deemed denied and subject to de novo review. Tabatabai's interpretation of section 8(c) of the plan appears correct; however, she is mistaken as to the results that flow from VPA's violation of the terms of the plan.
VPA was faced with a situation in which a claimant appealed and then disappeared. Tabatabai informed VPA that she would be incommunicado "for a few months." Whether VPA could have, knowing that Tabatabai would not be participating in her appeal, nevertheless adhered to the ninety-day schedule of section 8(c) is not a question before this court, for that is not what VPA did. VPA instead gave Tabatabai more time to submit medical records. While the additional medical records may have been helpful to plaintiffs, they could also have bolstered VPA's denial. Under these circumstances, taking more time than allowed to decide her appeal was not a "wholesale and flagrant" violation but rather appears to have been done in good faith.
Furthermore, while section 8(c) required VPA to complete its review no later than October 28, 2003, VPA did complete its review by December 4, 2003, only five weeks late.
When "a claim is deemed denied on review after the expiration of a given time period, there is no opportunity for the exercise of discretion and the denial is usually to be reviewed de novo." Jebian v. Hewlett-Packard Co. Employee Benefits Org. Income Prot. Plan, 349 F.3d 1098, 1103 (9th Cir. 2003). There is, however, no merit to Tabatabai's contention that her appeal should be deemed denied because VPA did not reach a decision within the time allowed. As the Ninth Circuit noted in Jebian, the provision of the regulations deeming claims denied by the passage of time was removed effective January 1, 2002. 349 F.3d at 1103 n. 5. The plan here contains no provision deeming claims denied. Jebian does not apply to this situation. See Freitas v. Delta Family-Care Disability Survivorship Survivorship Plan, 2006 WL 1320932 at *2-3 (E.D. Cal. May 15, 2006). This court therefore will review VPA's decision to deny Tabatabai's claim for long-term disability benefits for abuse of discretion.
Plaintiff correctly pointed out at oral argument that Abatie does say that
[e]ven when procedural irregularities are smaller, though, and abuse of discretion review applies, the court may take additional evidence when the irregularities have prevented full development of the administrative record. In that way the court may, in essence, recreate what the administrative record would have been had the procedure been correct.2006 WL 2347660 at *14. However, the procedural irregularity here had the effect of developing the administrative record as opposed to keeping the record from being fully developed. Therefore, the court finds that additional discovery is not necessary. The evidence at trial will be limited to the administrative record.