Ruling outlines scope of review in ERISA case
Chicago Daily Law Bulletin
January 19, 2009
by MARK D. DEBOFSKY
The recent ruling in McDowell v. Standard Ins.Co., 2008 U.S.Dist.LEXIS 99239 (N.D.Ga. Nov. 24, 2008), focuses on the proper scope of review in an ERISA case adjudicated under the de novo standard. The plaintiff in McDowell was an attorney who suffered back and closed head injuries when he was rear ended by another car traveling at high speed. He was ultimately diagnosed with post-concussion syndrome after undergoing a neuropsychological evaluation. However, McDowell's disability insurer learned he had previously been treated for bipolar disorder; and since McDowell had been covered under the policy for less than one year, Standard asserted its exclusion for preexisting conditions.
In an earlier ruling, the court deemed the de novo standard applicable as a sanction for Standard's flagrant disregard of the standards set forth in the U.S. Department of Labor's ERISA claims regulations, 29 C.F.R. § 2560.503-1. See, McDowell v. Standard Ins.Co., 2008 U.S.Dist.LEXIS 65213 (N.D.Ga. May 20, 2008). Here, the court focused on how it would go about reviewing the benefit denial.
The court ruled it would treat the case as a bench trial on the papers constituting the claim record, relying heavily on Muller v. First Unum Life Ins. Co., 341 F.3d 119, 124 (2nd Cir. 2003) and Kearney v. Standard Ins. Co., 175 F.3d 1084, 1094-95 (9th Cir. 1999), which both advocated such an approach for disposition of ERISA cases under the de novo standard. The court noted, however, that under Moon v. Am. Home Assurance Co., 888 F.2d 86, 89 (11th Cir. 1989), additional evidence beyond the claim record might be admissible under the rationale that limiting review to the administrative record ''would afford less protection to employees and their beneficiaries than [they enjoyed] before ERISA was enacted.'' (quoting Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 113-14 (1989)).
Here, however, the court found that allowing Standard to take discovery in order to supplement the record would end up rewarding Standard for its flagrant misconduct in failing to comply with the ERISA regulations. The court then ruled that it did not consider a full-blown trial appropriate under the de novo standard for the reasons set forth in Kearney:
''A full trial de novo in any ERISA dispute where there was a genuine issue of fact as to whether the individual qualified for a benefit would undermine [ERISA's] policies. Trial de novo on new evidence would be inconsistent with reviewing the administrator's decision about whether to grant the benefit. The means that suggests itself for accomplishing trial of disputed facts, while preserving the value of the fiduciary review procedure, keeping costs and premiums down, and minimizing diversion of benefit money to litigation expense, is trial on the administrative record, in cases where the trial court does not find it necessary ... to consider additional evidence.'' 175 F.3d 1084, 1094 (9th Cir. 1999).
Hence the court concluded ''that the existing materials, which include 2,500 pages of evaluations, medical reports, sworn statements, and medical literature citations, form a sufficient basis for conducting an 'adequate review of the benefits decision.' '' (citing Quesinberry v. Life Ins. Co. of N. Am., 987 F.2d 1017, 1025 (4th Cir. 1993)).
While the denial of Standard's request to take discovery was no doubt an appropriate sanction in this case, the court's underlying rationale is a significant deviation from the 11th Circuit's Moon ruling. The point made by the court in Moon is that de novo means that the parties should have a trial, not a review proceeding, unless they consent to a trial on the papers. The 7th Circuit concurred with that philosophy in Diaz v. Prudential Ins.Co. of America, 499 F.3d 640, 643 (7th Cir. 2007), making the point that ''in these cases the district courts are not reviewing anything.'' (emphasis in original). But there is support from other courts for treating even de novo cases as review proceedings. See, Jewell v. Life Ins.Co. of North America, 508 F.3d 1303 (10th Cir. 2007); cert. denied 128 S. Ct. 2872 (2008); Orndorf v. Paul Revere Life Insur.Co.,404 F.3d 510 (1st Cir. 2005).
ERISA was never intended to invoke a review proceeding, however. Congress' authorization of a ''civil action ... to recover benefits due ... under the terms of [a] plan'' (29 U.S.C. § 1132(a)(1)(B)) entitles plan participants to a plenary court proceeding rather than a claim record review based on the principles established by Chandler v. Roudebush, 425 U.S. 840 (1976).
Although Chandler involved a claim for employment discrimination based on § 717(c) of the Civil Rights Act, 42 U.S.C. § 2000e et seq., rather than an employee benefit dispute, the court's ruling delineates between statutes that invoke review proceedings and those that trigger plenary adjudication. Thus, its conclusion that federal employees' civil rights claims were review proceedings by holding that federal employees seeking redress for civil rights violations were entitled to discovery and a trial, 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,' ibid., 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.' '' (citations omitted) 425 U.S. at 862 n.37.
Since neither the ERISA statute nor its legislative history make reference to substantial evidence or other terms of art typically associated with administrative law, the imposition of a review proceeding in ERISA cases appears misplaced.
As further support, in United States v. First City National Bank, 386 U.S. 361 (1967), the court was called upon to construe the requirements of the Bank Merger Act of 1966, 12 U.S.C. § 1828(c)(7)(A) and § 1828(c)(7)(B), which specified the standards to be applied by a court in a judicial proceeding challenging a bank merger. Section 1828(c)(7)(A) stated, ''In any such action [to challenge a bank merger], the court shall review de novo the issues presented.''
In interpreting that provision to describe a plenary proceeding, the court explained: ''It is argued that the use of the word 'review' rather than 'trial' indicates a more limited scope to judicial action. The words 'review' and 'trial' might conceivably be used interchangeably. The critical words seem to us to be 'de novo' and 'issues presented.' They mean to us that the court should make an independent determination of the issues.'' 386 U.S. at 368.
The court then concluded an administrative law paradigm would be inappropriate, finding the denial of a plenary hearing under the de novo standard would require the court to ''assume the Congress made a revolutionary innovation by making administrative action well nigh conclusive, even though no hearing had been held and no record in the customary sense created.''
Based on these two key Supreme Court cases, and absent contrary specific statutory direction in ERISA's language or its legislative history, the imposition of administrative review proceedings is an aberration. Indeed, in the Conference Report issued in conjunction with ERISA's passage, Congress explained that ERISA civil actions ''are to be regarded as arising under the laws of the United States in similar fashion to those brought under section 301 of the Labor-Management Relations Act of 1947.'' H.R. Conf. Rep. 93-1280, 93d Cong., 2d Sess. 327 (1974). That section requires plenary hearings and even jury trials according to Textile Workers Union v. Lincoln Mills, 353 U.S. 448, 456 (1957) and Chauffeurs, Teamsters & Helpers, Local No. 391 v. Terry, 494 U.S. 558 (1990). Accordingly, while bench trials on the papers provide an efficient and expeditious means of disposing of benefit disputes under ERISA, and parties should be encouraged to invoke trials on the papers for just that purpose, mandating such a procedure is inconsistent with the ''civil action'' authorized by Congress.
Note: I was counsel in Diaz v. Prudential and also represented the petitioner in Jewell v. Life Ins.Co. of North America in petitioning for certiorari.