Durham v. IDA Group Benefit Trust et al
Filing
26
OPINION AND ORDER granting 16 Motion to Compel Defendants to Produce Initial Disclosures and granting 19 Motion to Compel Discovery. Revised Joint Discovery Plan due by 9/2/2011. Rule 16 Preliminary Pretrial Conference set for 9/8/2011 09:45 AM in US District Court - Hammond before Magistrate Judge Paul R Cherry. Signed by Magistrate Judge Paul R Cherry on 8/1/11. (kjp)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
HAMMOND DIVISION
JULIE DURHAM,
Plaintiff,
v.
IDA GROUP BENEFIT TRUST,
Defendant.
)
)
)
)
)
)
)
CAUSE NO.: 2:11-CV-40-RL-PRC
OPINION AND ORDER
This matter is before the Court on Plaintiff’s Motion to Compel Defendants to Produce Initial
Disclosures [DE 16], filed by Plaintiff Julie Durham on May 20, 2011, and on Plaintiff’s Motion to
Compel Discovery [DE 19], filed by Plaintiff on June 8, 2011. Defendant IDA Group Benefit Trust
filed a response in Opposition to Plaintiff’s Motion to Compel Defendant to Produce Initial
Disclosures on June 1, 2011, and Plaintiff filed a reply on June 13, 2011. Defendant filed a response
in Opposition to Plaintiff’s Motion to Compel Discovery on July 11, 2011, and Plaintiff filed a reply
on July 20, 2011.
I. BACKGROUND
Plaintiff Julie Durham is a participant in Defendant IDA Group Benefit Trust (the “Trust”),
which provides health benefits to participating employees and their dependents. Ms. Durham
participates in the trust as a dependent of her husband, Timothy Durham, who is an employee of
Affordable Garage Door, Inc. Affordable Garage Door, Inc., is a member of the International Door
Association, Inc., and a participating employer in the Trust. Mr. Durham and his dependents,
including Ms. Durham, participated in the Trust through Affordable Garage Door, Inc.
In 2009, Ms. Durham submitted medical bills to the Trust for payment. The claims
administrator for the Trust, Medical Benefits Administrators of MD, Inc. (“MBA”), denied Ms.
Durham’s claim for coverage, citing the guidelines set forth in the Summary Plan Description (the
“Plan”). DaySpring Management LLC (“DaySpring”) acted as the plan administrator for the Trust.
On November 19, 2010, Ms. Durham filed her Complaint against the Trust in Lake County,
Indiana Superior Court, and filed an amended Complaint on January 10, 2011. The Amended
Complaint alleges that the Trust wrongfully denied her health care benefits in violation of the
Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001, et seq. On January 27,
2011, the case was removed to the United States District Court for the Northern District of Indiana.
The Trust has not provided initial disclosures pursuant to Federal Rule of Civil Procedure 26(a)(1).
On April 14, 2011, Ms. Durham served Interrogatories and Request for Production of
Documents on the Trust. The Trust refused to comply with Ms. Durham’s requests on the grounds that
Rule 26(a)(1)(B)(I) exempts disclosure in actions for review of an administrative proceeding.
II. ANALYSIS
Ms. Durham seeks the production of initial disclosures and discovery from the Trust. She
argues that discovery is appropriate and that the Court should review the denial of benefits de novo
for the following reasons: (1) claim reviews under ERISA are not administrative proceedings that fall
into the exemptions from initial disclosure requirements in Federal Rule of Civil Procedure 26; (2) the
Trust improperly delegated discretionary authority to MBA, an entity who was not authorized to make
a determinative decision on Ms. Durham’s claim; and (3) the administrative record filed with the Court
is incomplete. The Trust contends that the Court should prohibit discovery and review the decision
to deny benefits under an arbitrary and capricious standard for the following reasons: (1) neither
formal discovery nor supplementation of the administrative record is permitted in the judicial review
of an ERISA administrative determination; (2) the Plan expressly authorized DaySpring to delegate
discretionary authority to MBA; and (3) the current administrative record filed with the Court contains
2
all of the materials MBA relied on when adjudicating her appeal and is a complete record suitable for
review.1
Generally, both parties must disclose certain general information prior to the issuance of a
discovery request. The guidelines for initial disclosures are set forth in Federal Rule of Civil
Procedure 26(a), which provides an exemption to the general rule for initial disclosures in “an action
for review on an administrative record.” Fed. R. Civ. P. 26(a)(1)(B)(I). Similarly, the Federal Rules
also provide that “[p]arties may obtain discovery regarding any nonprivileged matter that is relevant
to any party’s claim or defense,” with certain limitations when the discovery is burdensome or readily
available by other means. Fed. R. Civ. P. 26(b)(1), (b)(2)(C). Rule 37(a) allows a party to move for
an order compelling discovery, including an order compelling an answer or inspection. See Fed. R.
Civ. P. 37(a)(3)(B). The Court has broad discretion when deciding whether to compel discovery. See,
e.g., Patterson v. Avery Dennison Corp., 281 F.3d 676, 681 (7th Cir. 2002).
The scope of discovery that is permissible in ERISA cases is affected by the standard of review
that the Court applies to the benefits decision. “[A] denial of benefits . . . is to be reviewed under a
de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority
to determine eligibility for benefits or to construe the terms of the plan.” Firestone Tire & Rubber Co.
v. Bruch, 489 U.S. 101, 115 (1989); see also Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 111 (2008);
Jackman Fin. Corp. v. Humana Ins. Co., 641 F.3d 860, 864 (7th Cir. 2011); Perugini-Christen v.
Homestead Mortg. Co., 287 F.3d 624, 626 (7th Cir. 2002). When applying a de novo standard in
ERISA cases, “[e]vidence is essential if the court is to fulfill its fact-finding function,” and discovery
1
In its Memorandum in Opposition to Plaintiff's Motion to Compel Initial Disclosures, the Trust asserts as an
Affirmative Defense that Ms. Durham failed to exhaust her administrative remedies under the Summary Plan
Description and ERISA. To the extent that the Trust is requesting that the Court make a determination on the merits of
its Affirmative Defense, it is directed to file a separate motion addressing this issue.
3
is therefore permitted. Krolnik v. Prudential Ins. Co., 570 F.3d 841, 843 (7th Cir. 2009). However,
“if the plan grants to its administrator the discretion to construe the plan’s terms, the district court must
review a denial of benefits deferentially.” Hess v. Reg.-Ellen Mach. Tool Corp. Emp. Stock Ownership
Plan, 502 F.3d 725, 727 (7th Cir. 2007) (citing Ruttenberg v. United States Life Ins. Co., 413 F.3d 652,
658-59 (7th Cir. 2005)); see also Glenn, 554 U.S. at 111. The deferential standard of review applies
only “when there can be no doubt that the application was given a genuine evaluation,” but in those
cases “judicial review is limited to the evidence that was submitted in support of the application for
benefits, and the mental processes of the plan's administrator are not legitimate grounds of inquiry any
more than they would be if the decisionmaker were an administrative agency.” Perlman v. Swiss Bank
Corp. Comprehensive Disability Prot. Plan, 195 F.3d 975, 982 (7th Cir. 1999); see also Krolnik, 570
F.3d at 843. The party invoking the arbitrary and capricious standard “has the burden to establish that
the language of the plan gives it discretionary authority to award benefits.” Sperandeo v. Lorillard
Tobacco Co., Inc., 460 F.3d 866, 870 (7th Cir. 2006) (citing Gibbs v. Cigna Corp., 440 F.3d 571, 575
(2nd Cir. 2006)).
The Trust argues that Ms. Durham’s Motion to Compel is untimely as there is no scheduling
order in this case. Federal Rule of Civil Procedure 26 provides, in relevant part, “A party may not seek
discovery from any source before the parties have conferred as required by Rule 26(f), except in a
proceeding exempted from initial disclosure under Rule 26(a)(1)(B).” Fed. R. Civ. P. 26(d)(1). The
question of whether this is a proceeding exempted from initial disclosure is currently before the Court.
Rule 26(f) requires the parties to confer regarding their claims and discovery and to “submit[] to the
court within 14 days after the conference a written report” about their discovery plan. Fed. R. Civ. P.
26(f)(2). In this case, the parties have conferred as required by Rule 26, and submitted a written report
of their meeting, specifically identifying that it was held “[i]n accordance with Fed. R. Civ P. 26(f).”
4
[DE 14]. The Trust cites no authority for the proposition that a scheduling order must be entered by
the Court before discovery requests can be submitted. Rule 16 requires the Court to set a scheduling
order, in accordance with local rules, that sets the deadlines and the allowed extent of discovery. In
this case, the Court ordered the briefing in the instant Motions to ascertain the appropriate nature of
discovery in this case before entering a scheduling order. Accordingly, the Court declines to deny the
Motion to Compel on procedural grounds, and will consider the merits of whether discovery is
appropriate in this case.
Ms. Durham argues that a de novo standard applies in this case because the Trust improperly
designated discretionary legal authority to a third party administrator, MBA, and that DaySpring did
not play any role in the processing or denial of Ms. Durham’s medical claim. The Trust argues that
deferential review is appropriate because the Plan expressly authorized DaySpring to delegate
discretionary authority to MBA.
The parties agree that the Plan expressly designated DaySpring as the plan administrator and
MBA as the claims administrator. As the plan administrator, Dayspring was “retained . . . to control
and manage the operations and administration of the Plan,” with authority to “employ persons to
process claims and perform other Plan connected services.” The Plan also unequivocally provided that
DaySpring had “maximum legal discretionary authority to construe and interpret the terms and
provisions of the Plan” and that DaySpring’s decision should be subject to review “only if it is
arbitrary or capricious or otherwise an abuse of discretion.” MBA was named as the Claims
Administrator, defined as “[t]he person[] providing consulting services to the Plan Administrator in
connection with the operation of the Plan and performing such other functions, including processing
and payments of claims, as may be delegated to it.”
5
In determining whether authorization was given to the plan administrator such that arbitrary
and capricious review applies, the Seventh Circuit has not directly addressed the issue of “whether the
delegation of a plan administrator’s discretionary authority [to a third party] need be express.” Semien
v. Life Ins. Co. of N. Am., 436 F.3d 805, 810-811 (7th Cir. 2006). However, other circuit courts have
consistently held that a decision to deny benefits by a non-delegated entity shall be reviewed de novo
when a plan document clearly and unequivocally notifies employees that one entity retains discretion
to deny their claims but does not clearly and unequivocally notify employees that another entity was
delegated the same discretionary authority. See, e.g., Shelby Cnty. Health Care Corp. v. Majestic Star
Casino LLC Grp. Health Benefit Plan, 581 F.3d 355, 365 (6th Cir. 2009) (“[E]ven when the plan
documents confer discretionary authority on the plan administrator, when the benefits decision is made
by a body other than the one authorized by the procedures set forth in a benefits plan, federal courts
review the benefits decision de novo. Where a plan administrator does not make the benefits decision,
the plan administrator has not exercised its discretionary authority, and therefore a deferential standard
of review is not justified.”)(quoting Sanford v. Harvard Indus., 262 F.3d 590, 597 (6th Cir. 2001))
(quotation marks omitted); Sharkey v. Ultramar Energy, 70 F.3d 226, 229 (2d Cir.1995) (“When an
unauthorized body that does not have fiduciary discretion to determine benefits eligibility renders such
a decision, however, . .
deferential review is not warranted.”); Nelson v. EG & G Energy
Measurements Grp., Inc., 37 F.3d 1384, 1388-1389 (9th Cir. 1994) (“because we do not have an
interpretation of the Plan by the [party] to whom such authority was granted by the Plan, there is no
appropriate exercise of discretion to which to defer” so the de novo standard of review applies);
Rodriguez-Abreu v. Chase Manhattan Bank, N.A., 986 F.2d 580, 584 (1st Cir.1993) (“To be an
effective delegation of discretionary authority so that the deferential standard of review will apply,
6
. . . the fiduciary must properly designate a delegate for the fiduciary's discretionary authority.”) (citing
Madden v. ITT Long Term Disability Plan, 914 F.2d 1279, 1283-84 (9th Cir. 1990)).
At least two other district courts in this circuit have considered nearly identical situations to
the one at issue here. In Davis v. Lafayette Life Ins., No. 1:09-CV-0909-LJM-DML, 2010 WL
2246424, at *1 (S.D. Ind., May 24, 2010), the court considered a situation where “the plan does give
discretionary authority to the [defendant] to determine [the] employees’ eligibility for benefits . . . [but]
does not grant [the claims administrator] discretionary authority to make the same decisions.” Id. The
Court found “an absence of any independent discretionary judgment on the part of the [defendant] in
the denial of Plaintiff’s claim” and concluded that because “the third party administrator was not
delegated discretionary authority in plain language and as a result no notice was given to plan
participants that some authority other than the plan administrator had such discretion, . . . the
appropriate standard of review is de novo.” Id.
Similarly, in Skibbe v. Metropo. Life Ins. Co., No. 05-C-3658, 2007 WL 2874035, at *10 (N.D.
Ill., Sep. 24, 2007), “the Plan conferred discretionary authority to the [Plan Administrator] only. While
the Plan authorized [the Plan Administrator] to employ [the defendant] to furnish administrative
services and assist in the administration of the Plan, such language does not suffice to clearly and
unequivocally grant [the defendant] discretionary authority to make its decisions.” Id. In that case,
the court held that “[b]ecause [the Plan Administrator]’s discretionary authority was not expressly
delegated to [the defendant], [the defendant]’s decision to terminate [the plaintiff]'s benefits will be
subject to a de novo standard of review.” Id. at *11.
Clear and unequivocal language was required to delegate discretionary authority to DaySpring
as the plan administrator and from DaySpring to MBA. In this case, the plain language of the Plan did
not clearly and unequivocally notify Ms. Durham that MBA had legal discretionary authority to decide
7
the outcome of her claim, so de novo review is appropriate. Furthermore, both parties agree that MBA
investigated Ms. Durham’s claim, conducted all communication with her and her representatives, and
made the final decision to deny her benefits under the Plan. DaySpring did not engage in any
independent fact-finding or exercise its discretionary authority in this case, further emphasizing the
importance of independent review. See, e.g., Davis, 2010 WL 2246424, at *1 (applying de novo
review in part because “there is no evidence of any discretion being exercised at all by the Company
other than simply to agree with and adopt the denial finding”).
The Trust has not met its burden of establishing that the decision to deny benefits was entitled
to deferential review. Sperandeo, 460 F.3d at 870. A de novo standard of review is appropriate, and
Ms. Durham may seek the discovery of all materials “reasonably calculated to lead to the discovery
of admissible evidence.” Fed. R. Civ. P. 26(b)(1).
III. CONCLUSION
Accordingly, the Court hereby GRANTS the Motion to Compel Defendants to Produce Initial
Disclosures [DE 16] and GRANTS the Motion to Compel Discovery [DE 19]. The matter is therefore
set for a telephonic Rule 16(b) preliminary pretrial conference on September 8, 2011 at 9:45 AM
CST with the Court initiating the conference. A revised joint discovery plan, if any, must be filed with
the Court on or before September 2, 2011.
SO ORDERED this 1st day of August, 2011.
s/ Paul R. Cherry
MAGISTRATE JUDGE PAUL R. CHERRY
UNITED STATES DISTRICT COURT
cc:
All counsel of record
8
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?