Why the Supreme Court's Definition of "Civil Action" Should Lead to an Overhaul of ERISA Civil Procedure
Patent law is not ordinarily the place an ERISA practitioner would look to gain insight concerning ERISA civil procedure. However, in a recent patent ruling issued by the Supreme Court, Kappos v. Hyatt, 132 S. Ct. 1690 (April 18, 2012), the Court presented fodder for rethinking the manner in which ERISA cases are adjudicated. Kappos examined a provision of the Patent Act of 1952, 35 U.S.C. § 145, which permits a patent applicant whose claims are denied to either file a direct appeal to the Court of Appeals for the Federal Circuit which deferentially reviews the claim or to bring a civil action against the Director of the Patent and Trademark Office (PTO) in federal district court. The Court addressed the nature of that § 145 civil action right along with the scope of adjudication and held that a claimant who brings a § 145 civil action is entitled to trial proceedings limited only by the Federal Rules of Evidence and the Federal Rules of Civil Procedure. In such a proceeding, moreover, no deference is accorded to the administrative finding.
The Court pointed out that Section 145 of the Act grants a patent applicant whose claims are denied a "remedy by civil action against the Director." Explaining the scope of such a proceeding, the Court noted, "By its terms, § 145 neither imposes unique evidentiary limits in district court proceedings nor establishes a heightened standard of review for factual findings by the PTO." Disagreeing with the agency, which argued the statute should be read in light of "traditional principles of administrative law" mandating a review proceeding that defers to the PTO's findings, the Court found § 145 requires the district court to serve as a fact-finder which "must make its own findings de novo" rather than act as a "reviewing court" as envisioned by the Administrative Procedures Act, 5 U. S. C. § 706. Consequently, the Supreme Court further held that § 145 did not permit the court to remand to the PTO to consider new evidence. Instead, the trial court could consider evidence not submitted to the PTO even if it was readily available during the PTO proceeding. The Court did, however, rule that the availability of the evidence during the proceedings before the PTO could be considered in deciding what weight to give such evidence.
The potential application of Kappos to ERISA cases is obvious. The Supreme Court has repeatedly ruled that ERISA must be read strictly in accordance with its statutory language without implying additional requirements. Most recently, in Hardt v. Reliance Standard Life Ins.Co., 130 S. Ct. 2149 (2010), the Supreme Court overturned the incorporation of a prevailing party standard in ERISA's fee statute (29 U.S.C. § 1132(g)) when no such language is found within the statutory text.
Hence, just like Section 145 of the Patent Act, ERISA contains no limitations upon the "civil action" authorized by 29 U.S.C. § 1132(a) requiring a more narrow adjudication than what is otherwise permitted under the Federal Rules of Civil Procedure and Evidence. Nor does the ERISA statute impose a standard of court review or authorize remands to private insurers comparable to the Social Security Act, 42 U.S.C. § 405(g), which appears to be the source of ERISA remands.
Kappos is entirely consistent with other Supreme Court rulings examining similar issues under different statutes. For example, in Chandler v. Roudebush, 425 U.S. 840 (1976), which involved discrimination claims brought under § 717(c) of the Civil Rights Act, 42 U.S.C. §2000e et seq., the Court resolved a circuit split on the question of whether federal employees' civil rights claims were review proceedings by holding that such civil actions invoke full plenary proceedings. The Court explained, "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. Since the statute itself contained no language that implicated an administrative law paradigm, the Court strictly construed the statutory language to preclude the imposition of a review proceeding. Id. at 862 n.37.
A similar conclusion was reached in United States v. First City National Bank, 386 U.S. 361 (1967), which construed the nature of the civil action permitted by the Bank Merger Act of 1966, 12 U.S.C. § 1828(c)(7)(A) and (B). Although the statute stated that courts are to "review de novo the issues presented," the Court still issued the following interpretation:
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. Id. at 386 U.S. at 368.
The only guidance as to the nature of the civil action afforded by 29 U.S.C. § 1132(a) is found in the legislative history which simply remarked that ERISA 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). Such actions are deemed plenary and even encompass jury trials according to Chauffeurs, Teamsters & Helpers, Local No. 391 v. Terry, 494 U.S. 558 (1990). However, while ERISA does not specify a standard of court review, in Firestone Tire v. Bruch, 489 U.S. 101 (1989), the Court chose to apply trust law to ERISA claims and permitted a deferential standard of review if the benefit plan contains language granting the plan administrator discretionary authority, thus triggering the lower courts' use of review proceedings to determine whether the benefit plan administrator abused its discretion in denying benefits based on the evidence presented.
Nonetheless, according to the Federal Rules of Civil Procedure, which apply to all civil actions (Rule 1), along with Rule 2's statement defining only one form of civil action, courts that conduct ERISA litigation as an administrative review proceeding under the de novo standard and arguably under the abuse of discretion standard as well contravene Federal Rule of Civil Procedure 43(a), which states, "At trial, the witnesses' testimony must be taken in open court unless a federal statute, the Federal Rules of Evidence, these rules, or other rules adopted by the Supreme Court provide otherwise." Since neither the ERISA statute itself, the Federal Rules of Evidence, nor the Federal Rules of Civil Procedure make an exception for civil actions authorized by ERISA, consistent with the holding and rationale applied in Kappos, it may be time to reassess the entire regime of ERISA litigation.
A version of this article appeared in the Chicago Daily Law Bulletin on May 9, 2012. The author thanks Ron Dean and Mary Ellen Signorille for their comments on the substance of this article.
Mark DeBofsky, Daley, DeBofsky & Bryant, 312-702-1842 or 800-237-5182