Russell v. CVS Rx Services Incorporated et al

Filing 26

ORDER: Defendants' Rule 12(b)(6) Motion to Dismiss First Amended Complaint (Doc. 16 ) is denied. Signed by Senior Judge Paul G Rosenblatt on 3/23/2017. (REK)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Kristine Russell,
Plaintiff,

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vs.
CVS Caremark Corporation, et al.,
Defendants.

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No. CV-16-00284-PHX-PGR
ORDER

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Pending before the Court is Defendants’ Rule 12(b)(6) Motion to Dismiss First

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Amended Complaint (Doc. 16). Having considered the parties’ memoranda, the

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Court finds that the motion to dismiss should be denied.1

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Background

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In a previous order (Doc.11), the Court dismissed plaintiff Kristine Russell’s

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complaint with leave to amend on the ground that the state law claims raised therein

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were preempted by ERISA.

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In her First Amended Complaint (“FAC”) (Doc. 12), the plaintiff raises ERISA

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The Court notes that it has discussed only those arguments raised by
the parties that the Court deems necessary to its resolution of the motion to dismiss.

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claims pursuant to 29 U.S.C. § 1132(a) against defendants CVS Caremark

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Corporation, CVS RX Services, Inc., and 401(k) Plan and the Employee Stock

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Ownership Plan of CVS Caremark Corporation and Affiliated Companies (collectively

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“CVS”); all of the plaintiff’s claims arise from an allegedly improper distribution from

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her 401(k) Plan.

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The plaintiff, a former CVS employee, alleges that in the first week of July

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2015, she directed CVS to distribute $99,786.24 from her 401(k) Plan account to her

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bank account but that CVS erroneously caused her funds to be deposited in the

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wrong bank account, resulting in a loss of those funds. She further alleges as

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follows: that upon discovery of the error on August 7, 2015, she contacted CVS by

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telephone and requested assistance in correcting the error; that she was advised by

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CVS’ agents that such errors had occurred before and that this one would be

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corrected shortly; that she was later advised that CVS was looking into the error; that

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when the error was not corrected, that she again contacted CVS and asked for

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assistance in fulfilling any necessary requirements or procedures for correcting the

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error and recovering the distributed funds; that CVS’ agents failed or refused to

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provide her with the requested information regarding procedures available under the

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401(k) Plan for correcting the erroneous distribution or for recovering erroneously

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distributed funds, and that they ultimately advised her that they would no longer

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accept any communications from her; that despite her demand, CVS refused to

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return the distributed funds to her and it failed or refused to identify the person who

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received the funds distributed from the plaintiff’s account; that due to CVS’ failure

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and refusal to provide information, the plaintiff could not exercise any administrative

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remedies under the plan; and that the funds distributed from the plaintiff’s account

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have not been returned or otherwise recovered.

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The FAC, which does not contain any separate enumerated causes of action,

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alleges that CVS (1) breached its fiduciary duties as the plan administrator, in

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violation of 29 U.S.C. § 1109; (2) failed to discharge its duties with respect to the

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plan in accordance with the documents and instruments governing the Plan, in

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violation of 29 U.S.C. § 1104(a)(1)(D); (3) failed to discharge its duties with respect

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to the Plan solely in the interest of the participants and beneficiaries and failed to do

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so with the care, skill, prudence and diligence that a prudent person would have

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used, in violation of 29 U.S.C. § 1104(a)(1)(A) and (B); and (4) failed to discharge

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its duties of disclosure, in violation of 29 U.S.C. § 1133. As a result of these alleged

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ERISA violations, the plaintiff seeks to recover civil penalties pursuant to 29 U.S.C.

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§1132(c)(1), as well as her costs and attorney’s fees pursuant to 29 U.S.C. §

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1132(g)(1).

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Relevant Plan Provisions

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The 401(k) Plan (“the Plan”) (Exhibit A to CVS’ motion) provides in relevant

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part in Section 13.13, entitled Claims and Appeals from Denial of Claims, that

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“[c]laims for benefits and inquires [sic] concerning the Plan shall be submitted to the

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Administrative Subcommittee or its designated agent in writing.” The section also

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provides that

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the procedure for the resolution of claims for benefits arising under the
Plan shall be as follows. Any claim for benefits under the Plan shall
initially [sic] submitted in writing to the Administrative Subcommittee or
its delegate in accordance with such procedures that may be
established from time to time by the Administrative Subcommittee. If
any such claim for benefits is wholly or partially denied, the claimant
shall be given notice in writing within a reasonable period of time after
receipt of the claim by the Plan not to exceed 90 days after receipt of
the claim[.]
The section further provides that by the end of the 90-day period,
the claimant shall be given written notice of the decision with respect to
such claim, which notice shall be written in a manner calculated to be

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understood by the claimant setting forth the following information:
(a) the specific reasons for such denial,
(b) specific reference to pertinent Plan provisions on which the denial
is based,
(c) a description of any additional material or information necessary for
the claimant to perfect the claim and an explanation of why such
material is necessary,
(d) an explanation of the Plan’s claim review procedure, and
(e) a statement that the participant has the right to bring a civil action
under Section 502(a) of the Employee Retirement Income Security Act
of 1974, as amended.

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The Summary Plan Description (“the SPD”) (Exhibit B to CVS’ motion) states

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in relevant part in its section entitled Filing a Claim that “[y]ou or your beneficiary

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may claim Plan benefits by filing a written request for such benefits, accompanied

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by a completed distribution form, with Human Resources.” Regarding CVS’ duties

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regarding a denial of a claim, the SPD also states in part that:

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If your claim for benefits is denied in full or in part, you will be notified
in writing within 90 days after you file your claim. ...
Any notice of denial will state the reasons for the denial, the Plan
provisions on which the denial is based, a description of any additional
information or material required to perfect your claim, why such
information is necessary, and the procedure you must follow to have
the Administrative Subcommittee review your claim (including a
statement that you have the right to bring a civil action following the
adverse determination or review.)
Regarding CVS’ review procedure, the SPD further provides in part that:
If your claim is denied, you or your beneficiary may write to the
Administrative Subcommittee for a review of the claim. You must
request the review within 60 days after your claim is denied. ...
As part of the review procedure, you or your beneficiary must be
allowed to: See the Plan document and other papers that affect your
claim[.] ...

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The SPD also provides, in the Enforce Your Rights portion of the section entitled

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Your Rights Under ERISA, that “[i]f your claim for a benefit is denied or ignored, in

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whole or in part, you have the right to know why this was done, to obtain copies of

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documents relating to the decision without charge and to appeal any denial, all within

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certain time limits.”

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Discussion

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CVS seeks the dismissal of the entirety of the FAC pursuant to Fed.R.Civ.P.

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12(b)(6) on two grounds: first, because the plaintiff has failed to plead that she has

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exhausted the administrative remedies available to her under the Plan as required

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by ERISA; and second, because she has further failed to allege facts sufficient to

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demonstrate that any exception to the exhaustion requirement applies to her. The

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Court concludes that only the first of these issues needs to be resolved at this time.

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Although ERISA does not contain a statutory requirement that a plan

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participant must exhaust administrative remedies before bringing an ERISA action,

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the Ninth Circuit has adopted a prudential exhaustion requirement, Bilyeu v. Morgan

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Stanley Long Term Disability Plan, 683 F.3d 1083, 1088 (9th Cir.2012), which as a

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matter of sound policy, the federal courts should “usually” enforce. Amato v.

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Bernard, 618 F.2d 559, 568 (9th Cir.1980). Pursuant to this requirement, an ERISA

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claimant such as the plaintiff, absent the applicability of a recognized exception to

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the exhaustion rule, must avail herself of the Plan’s own internal review procedures

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before bringing an ERISA action. Diaz v. United Agricultural Employee Welfare

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Benefit Plan and Trust, 50 F.3d 1478, 1483 (9th Cir.1995).

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As the plaintiff notes in her response, the Ninth Circuit has previously treated

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a motion to dismiss an ERISA denial-of-benefits claim for failure to exhaust

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administrative remedies as an unenumerated motion to dismiss, which permitted

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courts to resolve disputed factual issues raised through extrinsic evidence. See

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Bilyeu, 683 F.3d at 1088 (“Consistent with circuit practice addressing exhaustion, we

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construe Unum’s [Rule 12(b)(6)] motion as an unenumerated motion to dismiss. In

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addressing that motion, a court may look beyond the pleadings and decide disputed

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issues of fact.”) But as CVS notes in its reply, subsequent Ninth Circuit case law has

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cast doubt on the continued validity of that proposition. See Albino v. Baca, 747 F.3d

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1162, 1166 (9th Cir.2014) (en banc). In Albino, which involved the failure to exhaust

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administrative remedies under the Prison Litigation Reform Act, the Ninth Circuit

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overruled earlier precedent that had held that the failure to exhaust under that

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statute should be raised by a defendant as an unenumerated Rule 12(b) motion.

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The Ninth Circuit concluded that

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a failure to exhaust is more appropriately handled under
the framework of the existing rules than under an
“unenumerated” (that is, non-existent) rule. Failure to
exhaust under the PLRA is an affirmative defense that the
defendant must plead and prove. In the rare event that a
failure to exhaust is clear on the face of the complaint, a
defendant may move for dismissal under Rule 12(b)(6).
Otherwise, defendants must produce evidence proving a
failure to exhaust in order to carry their burden. If
undisputed evidence viewed in the light most favorable to
the prisoner shows a failure to exhaust, a defendant is
entitled to summary judgment under Rule 56. If material
facts are disputed, summary judgment should be denied[.]

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747 F.3d at 1162 (internal citations and some quotation marks omitted). The Court

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agrees with those courts that have ruled that the Albino en banc court implicitly

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overruled prior cases such as Bilyeu and that motions to dismiss based on a failure

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to exhaust in the ERISA context must be treated as ordinary Rule 12(b)(6) motions

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in which disputed issues of fact cannot be resolved and all reasonable inferences

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must be drawn in the plaintiff’s favor. See e.g., Norris v. Mazzola, 2016 WL 1588345,

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at *6 (N.D.Calif. April 20, 2016). The Court consequently deems ERISA-related

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exhaustion to be an affirmative defense and will not treat the defendant’s motion as

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an unenumerated one, nor will it consider the plaintiff’s declaration attached to her

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response or the declaration of Roberta Johnnene or the other submitted extraneous

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evidence submitted by CVS in its reply, with the exception of the Plan and the SPD

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submitted by CVS since they were incorporated by reference in the FAC and their

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authenticity has not been questioned. See Parrino v. FHP, Inc., 146 F.3d 699, 705-

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706 (9th Cir.1998).

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Having determined that exhaustion of administrative remedies is an affirmative

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defense, the Court rejects CVS’ underlying contention that the plaintiff has to plead

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exhaustion in her FAC. See Rivera v. Peri & Sons Farms, Inc., 735 F.3d 892, 902

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(9th Cir.2013) (Court noted that plaintiffs “ordinarily need not plead on the subject

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of an anticipated affirmative defense.”) (internal quotation marks omitted). That

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being the case, the Court cannot grant the motion to dismiss unless CVS has

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established that the elements of its exhaustion defense are obvious from the face

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of the FAC, id., and the Court cannot come to that conclusion here.

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The gist of CVS’ argument is that the plaintiff’s claims must be dismissed

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under the exhaustion requirement because she never made any written contact with

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CVS regarding the circumstances alleged in the FAC. The Court is unpersuaded.

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First, under ERISA, “a claim for benefits is a request for a plan benefit or benefits

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made by a claimant in accordance with a plan’s reasonable procedure for filing

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benefit claims.” 29 C.F.R. § 2560.503-1(e). The Plan provides that “[a]ny claim for

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benefits under the Plan shall initially [be] submitted in writing[,]” and the SPD

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provides that a plan participant or beneficiary “may claim Plan benefits by filing a

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written request for such benefits, accompanied by a completed distribution form[.]”

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The Court considers it to be undisputed that the plaintiff complied with these

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directives by submitting the required written form to CVS requesting the distribution

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of her 401(k) Plan benefits.2 Furthermore, to the extent that CVS is contending that

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As CVS states in its reply, “Plaintiff actually directed the request for
distribution on June 29, 2015, when she made a request for a final distribution from
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the plaintiff’s initial written claim for benefits does not suffice because she did not

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follow up with a further written request when her claimed benefits did not show up

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in her bank account, it is not clear that the Plan documents require that such a post-

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claim, pre-decision follow-up be in writing. The fact that the Plan, but not the SPD,

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does state, without elaboration, that “inquir[i]es concerning the Plan” must be in

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writing does not make this issue any less ambiguous since the plaintiff was not

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making some general inquiry about the Plan but was attempting to get CVS to rectify

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the situation regarding her previously submitted written request for the distribution

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of her funds. Since “ERISA is remedial legislation that should be construed liberally

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to protect participants in employee benefit plans[,]”) LeGras v. Aetna Life Ins. Co.,

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786 F.3d 1233, 1236 (9th Cir.2015) (internal quotation marks and brackets omitted),

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the Court “must construe ambiguities in an ERISA plan against the drafter and in

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favor of the insured.” Barnes v. Independent Automobile Dealers Ass’n of Calif.

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Health and Benefit Plan, 64 F.3d 1389, 1393 (9th Cir.1995). So construing the

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requirements of the Plan and SPD, the Court cannot conclude that it is evident from

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the face of the FAC that the plaintiff failed to properly file a written request for her

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benefits.

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Second, CVS’ related contention that the Plan’s internal review procedure was

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never completed by the plaintiff because she did not seek in writing to have CVS’

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decision, which in effect denied her claim for benefits, further internally reviewed

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does not suffice to require dismissal of the FAC on failure to exhaust grounds.

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Federal law, as recognized by the provisions of both the Plan and the SPD, requires

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CVS to follow certain written notification procedures once a claim is denied in whole

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or in part in order to assist a claimant in requesting a review of the denial. 29 C.F.R.

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her Future Fund account by using the online form available via the Plan Portal.”
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§ 2560.503-1(f) and (g); see also, Booten v. Lockheed Medical Benefit Plan, 110

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F.3d 1461, 1463 (9th Cir.1997) (“In simple English, what this regulation [§ 2560.503-

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1(f)] calls for is a meaningful dialogue between ERISA plan administrators and their

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beneficiaries.”) The Court construes CVS’ post-claim refusal, as alleged in the FAC,

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to provide the plaintiff’s funds to her to be a sufficiently pleaded adverse benefit

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determination that triggered CVS’ obligations to notify the plaintiff in writing of its

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benefit decision, the basis for it, and the procedures the plaintiff had to follow to have

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CVS review its decision. See 29 C.F.R. § 2560.503-1(m)(4) (“The term ‘adverse

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benefit determination’ means any of the following: ... a failure to provide or make

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payment (in whole or in part) for, a benefit[.]” The Plan’s requirement for a written

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request by a claimant for a review of a denial of a claim only comes into play after

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CVS has provided the claimant with a properly documented written denial of the

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claim, and the FAC sufficiently alleges that CVS did not follow the required

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procedures after denying the plaintiff’s claim. See Bilyeu v. Morgan Stanley Long

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Term Disability Plan, 683 F.3d at 1088-1089 (Court, citing to 29 C.F.R. § 2560.503-

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1(l), noted that “when an employee benefits plan fails to ... follow reasonable claims

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procedures consistent with the requirements of ERISA, a claimant need not exhaust

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because his claims will be deemed exhausted.”)

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In summary, the Court, drawing all reasonable inferences in the plaintiff’s

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favor, concludes that dismissal of this action for failure to exhaust is not appropriate

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at this pleading stage because CVS has not established that non-exhaustion is

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obvious from the face of the FAC. Therefore,
IT IS ORDERED that Defendants’ Rule 12(b)(6) Motion to Dismiss First
Amended Complaint (Doc. 16) is denied.
DATED this 23rd day of March, 2017.

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