7th Circuit Ruling puts ERISA litigation back on track
Chicago Daily Law Bulletin
September 17, 2007
by MARK D. DEBOFSKY
Diaz v. Prudential Ins.Co. of America, 2007 U.S.App.LEXIS 20067 (7th Cir. 8/23/2007). For the second time, the 7th U.S. Circuit Court of Appeals was called upon to untangle summary judgment rulings issued by the district court in this proceeding. In the first appeal (424 F.3d 635 (7th Cir. 2005)), the court of appeals reversed the district court's summary judgment ruling in Prudential's favor, holding the district court erroneously applied an arbitrary and capricious standard of review. Called upon to reconsider Hugo Diaz's claim for disability benefits under the de novo standard, the district court once again granted summary judgment to Prudential. For the second time, the court of appeals reversed, finding Federal Rule of Civil Procedure 56 mandates that summary judgment is only proper where there are no genuine issues of material fact. Ruling that Hugo Diaz introduced substantial evidence of his disability following unsuccessful spine surgery, the court held that summary judgment was inappropriate and remanded the case for trial before a different judge.
Diaz, who participated in a group disability program sponsored by his employer that was insured by Prudential, applied for disability benefits in 2002 after undergoing a lumbar spinal fusion. Although the surgery was technically a success, Diaz continued to experience acute chronic pain, and was ultimately diagnosed with ''failed back syndrome.'' Although Diaz supported his claim for benefits with the opinions of the surgeon who performed the fusion, reports from a pain specialist, physical therapy records, and a favorable Social Security disability determination, Prudential refused to pay benefits, ultimately having his claim file reviewed by Dr. Gale Brown, who issued a report stating she could find no objective support for Diaz's pain complaints.
The district court reviewed the record and found Prudential was entitled to summary judgment, initially under an arbitrary and capricious standard of review, and a second time after the case was remanded by the court of appeals with direction to apply the de novo standard. In this second appeal, the 7th Circuit once again found the summary judgment award improper; and in the key provisions of the ruling, the court of appeals explained the district court's role in evaluating an ERISA case under the de novo standard:
''The district court's task in engaging in de novo consideration of the decision of the plan administrator is not the same as its job in reviewing administrative determinations on the basis of the record the agency compiled under the substantial evidence rule, as it might do in a Social Security benefits case. See Ramsey v. Hercules Inc., 77 F.3d 199, 205 (7th Cir. 1996). Some of the confusion in this area may be attributable to the common phrase 'de novo review' used in connection with ERISA cases. In fact, in these cases the district courts are not reviewing anything; they are making an independent decision about the employee's entitlement to benefits. In the administrative arena, the court normally will be required to defer to the agency's findings of fact; when de novo consideration is appropriate in an ERISA case, in contrast, the court can and must come to an independent decision on both the legal and factual issues that form the basis of the claim. What happened before the Plan administrator or ERISA fiduciary is irrelevant. See Patton v. MFS/Sun Life Financial Distributors Inc., 480 F.3d 478, 485-86 (7th Cir. 2007). That means that the question before the district court was not whether Prudential gave Diaz a full and fair hearing or undertook a selective review of the evidence; rather, it was the ultimate question whether Diaz was entitled to the benefits he sought under the plan. See Wilczynski v. Kemper Nat. Ins. Companies, 178 F.3d 933, 934-45 (7th Cir. 1999).''
The court explained that Diaz introduced a substantial amount of evidence in support of his claim. First, he supplied his own subjective complaints regarding his severe, intractable pain. The court ruled that such evidence ''cannot be discounted simply because it is 'self-serving' or because it is not 'medical' or 'neurological' evidence.'' Moreover, the evidence was described as ''more than a long series of complaints spoken across the breakfast table. It demonstrates the kind of 'long history of treatment' that we have found relevant in the past in comparable circumstances:
'' 'What is significant is the improbability that [the claimant] would have undergone the pain-treatment procedures that she did, which included not only heavy doses of strong drugs such as Vicodin, Toradol, Demerol, and even morphine, but also the surgical implantation in her spine of a catheter and a spinal-cord stimulator, merely in order to strengthen the credibility of her complaints of pain and so increase her chances of obtaining disability benefits.' Carradine v. Barnhart, 360 F.3d 751, 755 (7th Cir. 2004) (citation omitted).''
Next, the court pointed out the record contained the results of six diagnostic tests performed by the physical therapist who was treating Diaz. Although Dr. Brown rejected the physical therapist's findings, claiming they were inconsistent with other evidence of record, the court determined that even though Brown, a specialist in physical medicine and rehabilitation, may have had greater expertise than the physical therapist, she never examined Diaz. Moreover, the court remarked, ''It was the absence of certain factors that created the conflict for Dr. Brown, not direct contradictions in the notes of other doctors.'' Thus, the issue was deemed one of weight rather than admissibility of the evidence.
Finally, the court cited findings made by Diaz's doctors. The district court had characterized the treating surgeon's findings as ''not those of an 'expert medical witness' capable of 'rebutting Prudential's assertions.' '' However, the court of appeals found that conclusion puzzling in view of corroboration from prescription records and clinic notes of two other treating doctors. Citing Carradine, a Social Security disability case, the court matched up Diaz's treatment to that received by Carradine whose pain complaints and treatment were consistent and were therefore sufficient to support a disability award. Specifically, prescriptions for potent painkillers, epidural steroid injections, and a recommendation for the implantation of a spinal cord stimulator are corroborative of pain complaints since it is unlikely that someone who is faking would fool multiple doctors and emergency room personnel into falsely believing made-up pain allegations. (citing Carradine, 360 F.3d at 755). Moreover, two treating doctors deemed Diaz's complaints physiological.
The court also pointed out that Diaz had been awarded Social Security disability benefits. Despite differences between the statutory definition of disability under the Social Security Act and the disability definition in Prudential's policy following an initial 24 month period of disability benefits payable so long as the insured cannot perform the duties of his regular occupation, the 7th Circuit characterized the differences as ''minor.'' Hence, the court found that ''[j]ust as evidence explaining an apparent inconsistency between an award of Social Security benefits and the ability to work for purposes of the Americans with Disabilities Act is relevant, see Cleveland v. Policy Mgt. Sys. Corp., 526 U.S. 795, 801-07 (1999), evidence pointing to consistency between a Social Security decision and another ought to be taken into account.'' For all of these reasons, the court found Diaz had presented sufficient evidence to withstand summary judgment. The court cited ''the difference between a person's being able to engage in sporadic activities and her being able to work eight hours a day five consecutive days of the week.'' (citing Carradine, 360 F.3d at 755). Because of disputes of material fact relating to Diaz's capacity to do the latter, summary judgment was disallowed and the case remanded for trial.
The court's reminder that summary judgment is never appropriate in the presence of genuine issues of material fact teaches an important lesson. Also see, Casey v. Uddeholm Corp., 32 F.3d 1094 (7th Cir. 1994) (holding that facts are not to be weighed on summary judgment in determining entitlement to benefits under the ERISA law). Also of crucial significance was the court's recognition of the claimant's self reports which ''cannot be discounted simply because it is 'self-serving' or because it is not 'medical' or 'neurological' evidence.'' Likewise, the court's finding as to the relevance of the social security disability determination is an important part of the opinion. However, the discussion of the scope of the adjudication of ERISA cases under the de novo standard is the major point made in this ruling. Indeed, the key sentence in the entire opinion is the one noting that ''in these cases the district courts are not reviewing anything; they are making an independent decision about the employee's entitlement to benefits.'' That point represents a watershed in ERISA litigation. Judge Diane P. Wood, the author of the opinion, was in the minority in Perlman v. Swiss Bank Corp., 195 F.3d 975 (7th Cir. 1999), where she wrote in dissent that ERISA cases are very different from the administrative law processes applied in social security cases and there are many ''reasons to eschew the analogy between SSA and ERISA review. Most importantly, the SSA is a public agency, whose decisions are subject to the strictures of the Administrative Procedure Act, while ERISA plan administrators are private sector actors subject to regulation under the ERISA statute. A host of federal constitutional rights and statutory rights combine to assure procedural regularity in the case of public agencies that are not available to those who attack private action. In addition, the sources of substantive law differ significantly: in the case of the SSA, agencies and courts deal with an entitlement statute, while under ERISA the Supreme Court has noted that the proper source of guidance is the law of trusts. See Bruch, 489 U.S. at 111. The difference between decisions made by private actors such as ERISA plans and public agencies such as SSA is the reason that the Supreme Court has instructed the lower courts to 'develop a federal common law of rights and obligations under ERISA-regulated plans,' rather than import wholesale a body of administrative law.'' 195 F.3d at 985 (Wood, J., dissenting).
The Diaz ruling reinforces the point that the importation of administrative law into ERISA is wholly inappropriate, a point I have written about extensively (DeBofsky, ''The Paradox of the Misuse of Administrative Law in ERISA Benefit Claims,'' 37 John Marshall Law Review 727 (2004)).
There are yet other reasons to reject the treatment of ERISA cases as ''review proceedings,'' not only as to cases adjudicated under the de novo standard, but even as to those cases evaluated under the deferential arbitrary and capricious standard of review. The civil action authorized by section 502 of the ERISA law (29 U.S.C. § 1132(a)(1)(B)) must be construed as entitling plan participants to a plenary court proceeding rather than a claim record review under the principles enunciated by the Supreme Court in Chandler v. Roudebush,425 U.S. 840 (1976). In Chandler, a question as to whether employees bringing civil actions to redress discrimination in federal employment pursuant to section 717(c) of the Civil Rights Act, 42 U.S.C. § 2000e et seq. were entitled to plenary hearings or simply a review of a record. While some lower courts had ruled that such actions entailed no more than a record review, the Supreme Court overruled those decisions and held that federal employees were entitled to discovery and a trial rather than a review proceeding, explaining: ''Nothing in the legislative history indicates that the federal-sector 'civil action' was to have this chameleon-like character, providing fragmentary de novo consideration of discrimination claims where 'appropriate,' and otherwise providing record review.'' 425 U.S. at 861.
The Court added, ''In most instances, of course, where Congress intends review to be confined to the administrative record, it so indicates, either expressly or by use of a term like ''substantial evidence,'' which has ''become a term of art to describe the basis on which an administrative record is to be judged by a reviewing court.'' 425 U.S. at 862 n.37 (citations omitted).
Applying Chandler's analysis, it is evident that nowhere in the ERISA statute itself or in its legislative history is the term ''substantial evidence'' used; nor is there any support for a conclusion that Congress intended that ERISA civil actions would be review proceedings. Even further support for this proposition can be drawn from the fact that the ERISA statutory provision that has been interpreted to mandate pre-suit appeals, 29 U.S.C. § 1133, or the claim regulations applicable to pre-suit appeals, 29 C.F.R. § 2560.503-1, lack any provision for an administrative hearing or discovery proceedings. In contrast, other ERISA provisions do provide for administrative review prior to suit. See, 29 C.F.R. § § 2560.502i-1, 2570.7, and 2570.11 (relating to prohibited transaction penalties, and which provide discovery procedures, along with an explicit statement in the regulations that ensuing civil actions are review proceedings). Hence, it is evident that pre-suit appeals of ERISA claims are no substitute for an administrative hearing or even remotely analogous.
Thus, the Diaz ruling goes a long way toward restoring ERISA litigation back to the track which Congress intended and which even the Supreme Court commented on in Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 385 (2002), where the Court noted, ''Whatever the standards for reviewing benefit denials may be, they cannot conflict with anything in the text of the statute, which we have read to require a uniform judicial regime of categories of relief and standards of primary conduct, not a uniformly lenient regime of reviewing benefit determinations.''
Thus, this major ruling from the 7th Circuit will no doubt transform the scope of the proceedings in ERISA litigation in order to benefit claimants by improving the fairness and objectivity of the determinations of their claims for benefits.
I was counsel for Hugo Diaz in both this appeal and in the prior appeal.