Goodes et al v. Pacific Gas & Electric Company

Filing 69

ORDER ON STANDARD OF REVIEW AND SCOPE OF PERMISSIBLE DISCOVERY (Illston, Susan) (Filed on 3/15/2013)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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WILLIAM GOODES and DIANA GOODES,

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United States District Court
For the Northern District of California

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Plaintiffs,

No. C 12-1667 SI
ORDER ON STANDARD OF REVIEW
AND SCOPE OF PERMISSIBLE
DISCOVERY

v.
PACIFIC GAS & ELECTRIC COMPANY,

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Defendant.

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The parties have filed briefs regarding the applicable standard of review and plaintiffs’ request

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to conduct discovery. For the reasons set forth in this order, the Court concludes that an abuse of

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discretion standard applies and that plaintiffs are not entitled to conduct discovery.

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BACKGROUND

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On July 19, 2012, plaintiffs William and Diana Goodes filed a First Amended Complaint

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(“FAC”) against defendant Pacific Gas & Electric Company (“PG&E”).1 According to the complaint,

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PG&E hired William Goodes as an electrician on April 20, 1981. FAC ¶ 3. After Mr. Goodes suffered

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an injury on December 12, 1989, he filed a claim for worker’s compensation. Id. ¶ 4. Mr. Goodes’

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claim for worker’s compensation was accepted and he received worker’s compensation until December

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1, 1992; on that date, Mr. Goodes began to receive long-term disability benefits (“LTD benefits”) under

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PG&E’s Long Term Disability Benefit Plan (“the Plan”). Id. ¶¶ 7, 9. Neither party disputes that the Plan

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is subject to the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C.A. § 1001

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The FAC also named the Metropolitan Life Insurance Company as a defendant, but the parties
subsequently stipulated to dismiss that defendant. Docket No. 46.

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et seq.

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The complaint alleges that PG&E “willfully and deliberately miscalculated” Mr. Goodes’ LTD

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benefits and breached its fiduciary obligations to plaintiffs in violation of ERISA. Although the

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complaint does not specify how PG&E miscalculated Mr. Goodes’ LTD benefits, it appears from the

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record that plaintiffs are challenging the decision to start payment of the LTD benefits after Mr. Goodes’

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worker’s compensation benefits ended and/or the reduction of his LTD benefits due to an offset from

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Mr. Goodes’ Social Security benefits.

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United States District Court
For the Northern District of California

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DISCUSSION
I.

Standard of review

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A denial of benefits under an ERISA plan “is to be reviewed under a de novo standard unless

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the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for

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benefits or to construe the terms of the plan.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115

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(1989). If an ERISA benefits plan confers such authority on the plan administrator, the Court must

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review any denial of benefits under an abuse of discretion standard. Abatie v. Alta Health & Life Ins.

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Co., 458 F.3d 955, 963 (9th Cir. 2006) (en banc)).

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PG&E contends that an abuse of discretion standard applies to this case because the Plan confers

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discretionary authority upon the Plan Administrator to determine eligibility for benefits and to interpret

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the Plan’s terms. The Court agrees. The Plan states that “[t]he determination of disability will be made

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by the Administrator.” Docket No. 50, Ex. A at 6 (Group Life Insurance and Long-Term Disability Plan

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Document). The Plan also provides that “[t]he Administrator shall also maintain such records and make

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such rules, computations, interpretations, and decisions as may be necessary or desirable for the proper

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administration of the Plan.” Id.

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Plaintiffs assert that the Court must apply a de novo standard of review because PG&E had a

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conflict of interest because PG&E both funded benefits and administered claims under the Plan.

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However, “[a]buse of discretion review applies to a discretion-granting plan even if the administrator

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has a conflict of interest.” Abatie, 458 F.3d at 965. The Court’s review is “informed by the nature,

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extent, and effect on the decision-making process of any conflict of interest that may appear in the
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record. This standard applies to the kind of inherent conflict that exists when a plan administrator both

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administers the plan and funds it . . . .” Id. at 967; see Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105,

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111 (2008) (“If ‘a benefit plan gives discretion to an administrator or fiduciary who is operating under

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a conflict of interest, that conflict must be weighed as a factor in determining whether there is an abuse

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of discretion.’” (quoting Firestone, 489 U.S. at 115) (emphasis added in Glenn)). A conflict of interest

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can prove more important “where circumstances suggest a higher likelihood that it affected the benefits

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decision, including, but not limited to, cases where an insurance company administrator has a history

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of biased claims administration. It should prove less important (perhaps to the vanishing point) where

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the administrator has taken active steps to reduce potential bias and to promote accuracy, for example,

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United States District Court
For the Northern District of California

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by walling off claims administrators from those interested in firm finances, or by imposing management

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checks that penalize inaccurate decisionmaking irrespective of whom the inaccuracy benefits.” Glenn,

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554 U.S. at 117 (citation omitted).

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As a factual matter, PG&E argues that there is no conflict of interest because PG&E “funds the

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Plan but separate entities, Fortis and the Plan Administrator, determine eligibility for benefits.” Docket

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No. 50 at 6:21–24. However, according to the Plan document the “Administrator” is comprised of an

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employee benefit administrative committee, and is appointed by PG&E’s Board of Directors to serve

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at PG&E’s pleasure. Docket No. 50, Ex. A at 13. PG&E possesses the exclusive power “to appoint and

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remove from time to time” the members of the employee benefit administrative committee. Id. Based

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on the record before the Court, the Court cannot conclude that PG&E and the Plan Administrator are

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separate entities, and thus it is possible that a conflict of interest exists. Defendant may supplement the

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record on this issue in connection with defendant’s upcoming motion for summary judgment.

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II.

Discovery

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The parties dispute whether plaintiffs are entitled to take any discovery. “[I]n general, a district

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court may review only the administrative record when considering whether the plan administrator

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abused its discretion . . . .” Abatie, 458 F.3d at 970. If there is a conflict of interest, however, the Court

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“may, in its discretion, consider evidence outside the administrative record to decide the nature, extent,

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and effect on the decision-making process of any conflict of interest . . . .” Id. The plaintiff must allege
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the existence of a conflict affected denial of his or her claim to be entitled to limited discovery

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concerning the conflict. Zewdu v. Citigroup Long Term Disability Plan, 264 F.R.D. 622, 626 (N.D. Cal.

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2010). Conflicts discovery, however, “must be limited if ‘the burden or expense of the proposed

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discovery outweighs its likely benefit, considering certain factors including the importance of the issues

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at stake in the action, and the importance of the discovery in resolving the issues.’” Id. at 627 (quoting

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Dilley v. Metropolitan Life Ins. Co., 256 F.R.D. 643 (N.D. Cal. 2009)).
Here, plaintiffs seek to compel disclosure of three e-mail communications among PG&E

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personnel and PG&E in-house and outside counsel that took place in April and May 2012, after

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plaintiffs filed this lawsuit. Plaintiffs also seek to depose the individual who conducted Mr. Goodes’

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United States District Court
For the Northern District of California

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LTD benefit offset, as well as other unspecified discovery. As an initial matter, the Court notes that

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plaintiffs had not alleged that a conflict of interest or any procedural irregularities impacted the alleged

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miscalculation of Mr. Goodes’ LTD benefits. Further, defendant asserts, and plaintiffs do not dispute,

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that the Plan sets forth the formula for calculating an employee’s LTD benefits, including any offset of

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those benefits. Thus, plaintiffs have not demonstrated that the discovery they seek would have any

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bearing on whether a potential conflict of interest affected the calculation of Mr. Goodes’ LTD benefits.

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In addition, the Court finds that the requested e-mails are protected by the attorney-client privilege.

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CONCLUSION

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For the foregoing reasons, the Court concludes that an abuse of discretion standard applies in

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this case, and DENIES plaintiffs’ request to conduct discovery. This order resolves Docket Nos. 50 and

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52.

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IT IS SO ORDERED.

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Dated: March 15, 2013
SUSAN ILLSTON
United States District Judge

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