Sullivan v. Unum Life Ins. Co. of America et al
Filing
45
MEMORANDUM OPINION AND ORDER. IT IS HEREBY ORDERED that: 1. Plaintiff's Motion for Summary Judgment 34 is GRANTED in its entirety; 2. Plaintiff is entitled to ongoing benefits under the long-term disability plan and is entitled to retroacti ve monthly benefits from March 2009, to the present date, in the amount of $7,107, less $155.20 for the months March 2009 through December 2009 and less $139.70 for the month of January 2010; 3. If Plaintiff seeks an award of costs, d isbursements and other expenses of this litigation and reasonable attorneys' fees pursuant to 29 U.S.C. § 1132(g), he shall bring the appropriate motion, supported by an itemized petition, within thirty days of the date of this Order. If no such motion is brought, the Clerk may enter judgment; and 4. Defendant's Motion for Summary Judgment 30 is DENIED. (Written Opinion). Signed by Chief Judge Michael J. Davis on 8/26/11. (GRR)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Kevin Sullivan,
Plaintiff,
v.
MEMORANDUM OPINION
AND ORDER
Civil No. 10‐4076
Unum Life Insurance Company
of America; Unum Group,
Defendants.
______________________________________________________________________
Denise Yegge Tataryn and Emeric J. Dwyer, Mansfield, Tanick & Cohen,
P.A., Counsel for Plaintiff.
Terrance J. Wagener and Molly R. Hamilton, Messerli & Kramer, P.A.,
Counsel for Defendants.
______________________________________________________________________
The matter is before the Court on cross‐motions for summary judgment.
For the reasons stated below, the Court will grant Plaintiff’s motion and deny
Unum’s motion.
I.
Factual Background
In 1984, Plaintiff was involved in a swimming accident that left him a
quadriplegic. In 1991, he started a home health care business, In Home Personal
Care, Inc. (“IHPC”), and Plaintiff serves as President. In 1996, a supplemental
1
needs trust (“Trust”) was created pursuant to the rules and regulations of SSA to
pay for Plaintiff’s medical expenses and medical care. The Trust was created by a
third party and is not controlled by Plaintiff. (UA‐CL‐LTD‐000866)
When the Trust was created, IHPC was sold to the Trust for current value.
(Id.) Shares of IHPC were then transferred to Erin Sullivan, Plaintiff’s sister, who
initially served as the trustee. (Id.) Currently, Plaintiff’s brother Murray Sullivan,
serves as the trustee. (Id.) Plaintiff remained President of the corporation, and he
remains in that position even though he ceased working full time in October
2005. (Id.) IHPC did have a board of advisors, and it was this board that created
a plan where Plaintiff would draw a salary from the corporation, the amount of
which was based on the percentage of revenue increase, with the rate changing
based on the profit and liquidity of IHPC, and dependant on the amount of cash
available in the business after all other salaries and fixed expenses were paid.
(UA‐CL‐LTD‐000866‐867, 001059, 001070, and 001083)
IHPC’s business grew steadily over the years, and by 2009, IHPC
employed two hundred part‐time in‐home care givers, serving one hundred
clients. (UA‐CL‐LTD‐000867) From 2000 to 2004 Plaintiff’s salary varied. In
2000, it was $111,760; 2001 it was $190,140; 2002 it was $257,659; 2003 it was
2
$360,054; and 2004 it was $179,410. (Doherty Aff., Ex A (Administrative Record
UA‐CL‐LTD‐001083).)
Beginning in October 2005, Plaintiff claimed that he could no longer
perform the duties associated with his position as President of IHPC. On March
26, 2006, he submitted a claim for benefits to his disability insurance provider,
Defendant Unum Life Insurance Company of America (“Unum”). (UA‐CL‐LTD‐
000112‐116.)
The policy purchased by IHPC, effective January 1, 2004, provides a
monthly benefit of 66.6667% of earnings up to a maximum of $10,000 for the
President of the company and a $5,000 maximum monthly benefit for all other
IHPC employees. To determine the monthly benefit amount, the base monthly
earnings are multiplied by 66.6667%. This figure is then compared to the $10,000
maximum, and whichever amount is less is the gross disability payment. From
this amount, deductible sources of income are deducted, such as Social Security
disability income. (UA‐CL‐LTD‐000079.)
The Policy also defines “monthly earnings” as follows:
“Monthly Earnings” means your gross monthly income from your
Employer in effect just prior to your date of disability. It includes your
total income before taxes, but does not include deductions made for pre‐tax
3
contributions to a qualified deferred compensation plan, Section 125 plan,
or flexible spending account. It includes income actually received from
commissions and bonuses just prior to your date of disability but does not
include renewal commission, overtime pay or any other extra
compensation or income received from sources other than your Employer.
Bonuses will be averaged for the lesser of:
a.
the prior calendar year’s 12 month period of your employment with
your Employer just prior to the date you disability begins; or
b.
the period of actual employment with your Employer.
Commissions will be averaged for the lesser of:
a.
the 12 full calendar month period of your employment with your
Employer just prior to the date your disability begins; or
b.
the period of actual employment with your Employer.
(Id.)
Based on this policy language, Plaintiff’s monthly benefit was determined
by reviewing information provided by IHPC’s accountant, Mike Holmquist. This
included a spreadsheet which indicated that Plaintiff’s salary in 2004 was
$179,440; which consisted of six monthly payments of $740, and payments of
$150,000 on September 30, 2004 and $25,000 on December 31, 2004. (UA‐CL‐LTD
000230.) The lump sum payments were labeled “for prior services.” (Id.) A
spreadsheet for 2005 indicated that Plaintiff received $50,000 on December 31,
4
2005 “for prior services” and one payment of $684 on January 31, 2005 and five
subsequent payments of $720. (UA‐CL‐LTD‐001044) In response to a question
from Unum, asking whether the lump sum payments were commission or
bonuses, Holmquist replied such payments were commissions. He then added
“The commission could be called a bonus, depending on the definition used.”
(UA‐CL‐LTD‐000360.) In response to Unum’s question “How much is bonus
and how much is commission” Holmquist wrote “It is all commission, unless
definitions would deem part of it bonus.” (Id.)
Based on the representations that the payments Plaintiff received were
commissions, Unum calculated Plaintiff’s monthly benefit by considering his
income from October 1, 2004 to September 30, 2005 ‐ the 12 month period
immediately preceding his disability. The Unum representative that calculated
Plaintiff’s initial benefit, however, made a mistake by considering the $25,000
payment made on December 31, 2004 as one for $250,000. (UA‐CL‐LTD 000363.)
This error resulted in an annual earning miscalculation of $252,940, which
resulted in a monthly benefit paid to Plaintiff in the amount of $7,107 ($10,000
minus social security benefits received). (UA‐CL‐LTD 000376, 414.) Plaintiff
received these payments from August 2006 through 2009.
5
In April 2007, the SSA advised Plaintiff that it had overpaid him $163,794
in SSDI payments. (UA‐CL‐LTD‐001099) Unum asserts that the social security
determination prompted it to review Plaintiff’s benefit payments. (UA‐CL‐LTD
000837, 839) A different financial consultant reviewed Plaintiff’s file and
discovered the earlier mistake. (UA‐CL‐LTD 000850, 000847‐849) Plaintiff’s pre‐
disability earnings were recalculated to be $2,328.33 per month.1 Pursuant to the
formula set forth in the Policy, the monthly income was multiplied by 66.6667%,
for a total of $1,552.22. Because Plaintiff received social security benefits of $2,893
per month, his Policy benefit is reduced to $155.20 (Policy provides for a
minimum benefit of 10% of gross benefit, where offsets exceed the benefit
amount). (UA‐CL‐LTD 000845.)
Prior to making a final determination as to whether Plaintiff was overpaid
long term disability benefits, Unum requested additional information concerning
the ownership and control of the Trust which, in addition to having purchased
IHPC, provided income to Plaintiff. (UA‐CL‐LTD 000847‐49.)
On April 6, 2009, Unum again contacted Plaintiff and requested additional
1
This amount was calculated by adding the following amounts, and dividing by 12:
$25,000 payment received on 12/31/04, $780 payment on 1/31/04, $720 payment on 6/30/05, $720
payment on 8/19/05, and $720 payment on 9/09/05.
6
information. Plaintiff requested that Unum submit written questions, and then
Plaintiff would review the questions with Holmquist. On October 21, 2009,
Plaintiff’s counsel responded to Unum’s questions and document request, stating
the lump sum payments Plaintiff received in 2004 should not be considered
commissions, but rather a regular salary or bonus.2 (UA‐CL‐LTD‐001069‐1070)
Plaintiff’s counsel also provided Unum documentation concerning
Plaintiff’s dispute with the SSA. In response to the SSA’s notification of
overpayment in 2007, Plaintiff requested reconsideration and, under penalty of
perjury, did initially argue to the SSA that the payments he received from the sale
of a business should not be considered income. (UA‐CL‐LTD‐001100‐01) He
further stated to the SSA that in 2000, he sold a subsidiary corporation, In Home
Personal Care Home Health, Inc. (“IHPCHH”) to IHPC for $440,000 pursuant to
the terms of a Promissory Note. (UA‐CL‐LTD‐001101) Plaintiff further stated that
2
The significance of characterizing the payments as salary or bonus is that pursuant to
the Policy, Plaintiff’s monthly benefit would be determined by averaging the 12 month calendar
year prior to the onset of disability. That is, all payments received in 2004 would be included to
determine his monthly benefit amount. Under this calculation, his monthly benefit is
determined based on a base monthly earning of $14,950.83. If the payments are characterized
as a commission, however, the monthly benefit is determined by averaging the prior 12 month
period ‐ October 1, 2004 through September 30, 2005, resulting in base monthly earnings of
$2,328.33.
7
he and IHPC were given incorrect financial information that Plaintiff should be
paid as W‐2 wages instead of proceeds from the sale of a business, resulting in a
higher tax than necessary. (Id.) Plaintiff also submitted the Promissory Note,
which provided that IHPC would pay Plaintiff a minimum of $5,000 on monthly
or yearly intervals until December 31, 2015 for the $440,000 purchase price. (UA‐
CL‐LTD‐001102) According to the amortization schedule submitted with the
Note, which was not created at the same time as the Note, Plaintiff was to receive
a payment of $175,000 on December 31, 2004 and $50,000 on December 31, 2005.
(UA‐CL‐LTD‐001103)
Thereafter, Jan Kendrick, CPA, on behalf of Unum, reviewed the materials
provided by Plaintiff to determine the proper characterization of the payments
Plaintiff received from 2001 through 2007. Based on the information submitted,
Kendrick determined that the payments Plaintiff received in 2004 were not
salary, bonus or commissions, but were proceeds from the sale of a business or
payments on a loan due Plaintiff for services provided prior to 2000. (UA‐CL‐
LTD‐001275)
On January 27, 2010, Unum notified Plaintiff that he would no longer
receive disability payments beyond January 27, 2010. (UA‐CL‐LTD‐001292‐1300)
8
Unum first indicated that
[b]ased on the various information Unum has received of the classification
of lump sum payments, it is unclear whether lump sum payments were
salary, bonuses, commission or something else. Therefore, Unum has to
consider any and all relevant information available to determine the true
nature of the monies paid to [Plaintiff] and the impact of said monies on
the calculation of her pre‐disability earnings.
(UA‐CL‐LTD‐001296) Referring to the evidence submitted concerning Plaintiff’s
request for reconsideration to the SSA, Unum concluded that
[b]ased on the totality of the available information, the lump sum amounts
in 2004 are either due to the sale of a capital asset or are for payment on a
loan due to your client for services provided prior to 2000. Therefore, these
lump sum payments are not considered as part of [Plaintiff’s] pre‐disability
monthly earnings, as defined by the policy.
(UA‐CL‐LTD‐001297) Unum further indicated that payroll records indicated
that Plaintiff received wages of $720 per month in the months before the onset of
disability in October 2005, and that he continued to receive this amount after his
approval of disability benefits. (Id.) Finally, Unum indicated that as Plaintiff
received monies from the Trust and IHPC to meet his needs, both pre and post
disability, the evidence indicated that Plaintiff did not experience a loss of
earnings and he was thus not entitled to long term disability benefits. (Id.)
On May 20, 2010, Plaintiff appealed this decision. With respect to Unum’s
9
position that the payments received in 2004 were due to the sale of a capital asset,
Plaintiff noted that such position was based solely on Plaintiff’s submission to the
SSA.
Although you give significance to the fact that the document to Social
Security was signed under penalty of perjury, the information he provided
to Social Security states the 2004 income was in fact paid as wages. He did
not say that the payments were in fact for the sale of the subsidiary. He
argued that it could have been, because in fact he was owed that money.
(UA‐CL‐LTD‐001329)
Plaintiff further argued that all documentation supports his claim that the
payments received in 2004 were earnings. Further, Plaintiff submitted a letter
from his current accountant, who noted that no payments were made on the
Promissory Note for the sale of the subsidiary corporation until 2008. (UA‐CL‐
LTD‐001330, 1333)
On July 1, 2010, Unum affirmed its prior decision. (UA‐CL‐LTD‐001356‐
1360) In response to the argument included in Plaintiff’s appeal, Unum noted
that “[Plaintiff] has been paid amounts over the years for a variety of reasons
including salary, bonus, payments on a promissory note, and loans to an officer.
The characterization and accounting for these amounts has been inconsistent. . . .
For example, payroll documentation indicates that amounts paid in 2004 are W2
10
wages, however, sworn statements to the Social Security Administration (SSA)
indicate they were reported that way in error and were, in fact, payments on a
promissory note.” (UA‐CL‐LTD‐001357) Unum concluded that
the sworn statements to the SSA seem to be the most accurate and
objective. These statements were made under penalty and are also
supported by a notarized promissory note dated January 3, 2000, which is
well before the adverse decision by the SSA or the filing of the Unum
claim, and a supporting amortization schedule showing the 2004
payments.
* * *
As communicated in the January 27, 2010 correspondence, [Plaintiff]
continued to receive a salary of $720 post‐disability as he had for the five
months just prior to his disability. His basic monthly earnings would
therefore be $720.00. This amount is noted on worksheets, payroll and
communicated to the SSA. [Plaintiff] also continues to receive other
monies from IHPC in the same manner that he did pre‐disability. This
consists of loans and the provision of services provided by IHPC. It
appears that [Plaintiff] can draw upon the various sources as convenient
and decide the reporting at the end of the year.
(UA‐CL‐LTD‐001358)
On July 7, 2010, Plaintiff notified Unum that he had agreed to repay SSA
for overpaid benefits, conceding that the amounts he received from December
2001 through March 2007 were wages. (UA‐CL‐LTD‐001364‐1365) Thereafter,
Plaintiff brought this action seeking reinstatement of benefits.
11
II.
Standard for Summary Judgment
Summary judgment is appropriate if, viewing all facts in the light most
favorable to the non‐moving party, there is no genuine issue as to any material
fact, and the moving party is entitled to judgment as a matter of law. Fed. R.
Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322‐23 (1986). Before the
Court are cross motions for summary judgment, and neither party argues that
fact issues preclude summary judgment. Instead, as will be discussed below, the
parties ask the Court to decide, as a matter of law, whether it was reasonable for
Unum to characterize Plaintiff’s 2004 income as sale proceeds, loan payments or
commissions instead of salary or bonuses.
III.
Standard of Review Under ERISA
A.
Unum Group Authorized to Act on Behalf of Unum Life
Insurance Company of America
Under ERISA, a plan beneficiary has the right to judicial review of a
benefits determination. See 29 U.S.C. § 1132(a)(1)(B). When a policy provides
the plan administrator with discretionary authority to determine eligibility for
benefits, the abuse of discretion standard generally applies. Cash v. Wal‐Mart
Group Health Plan, 107 F.3d 637, 641 (8th Cir. 1997). Here, the Policy clearly
12
provides discretionary authority to Unum Life Insurance Company of America.
(UA‐CL‐LTD‐000074) Plaintiff asserts, however, that Unum Group made the
decisions on Plaintiff’s claims, and that the Policy does not grant discretion to
Unum Group.
A plan administrator may act through an authorized agent. Zurndorfer v.
Unum Life Ins. Co. of Am., 543 F. Supp.2d 242, 256 (S.D.N.Y. 2008) (recognizing
that a corporation must act through its agents, and noting no authority which
limits an ERISA fiduciary to a particular agent). Here, Unum Group was an
authorized agent of Unum Life Insurance Company. The record demonstrates
that those handling Plaintiff’s claims were acting on behalf of Unum Life
Insurance Company of America. (UA‐CL‐LTD‐001292, 001075, 001026, 001019,
001005, 000962, 000951, 000935, 000922, 000907, 000902, and 000843.)
B.
Minn. Stat. § 62Q.107
Plaintiff argues that, in any event, the Policy is governed by Minnesota
law, which prohibits a plan from containing language that specifies a “standard
of review upon which a court may review denial of a claim or of any other
decision . . .” and “prohibits limiting court review to a determination of whether
the health plan company’s decision is arbitrary and capricious, an abuse of
13
discretion, or any other standard less favorable to the enrollee than a
preponderance of the evidence.” Minn. Stat. § 62Q.107 (1998).
While ERISA generally preempts any and all state laws as they relate to an
employee benefit plan, ERISA contains the following savings clause “except as
provided in subparagraph (B), nothing in this subchapter shall be construed to
exempt or relieve any person from any law of any State which regulates
insurance, banking or securities.” 29 U.S.C. § 1144(b)(2)(A). This savings clause
applies to an insurance action that is specifically directed toward entities
engaged in insurance and which substantially affects the risk pooling
arrangement between the insurer and the insured. Kentucky Ass’n of Health
Plans v. Miller, 538 U.S. 329, 341‐42 (2003).
Plaintiff argues that Minn. Stat. § 62Q.107 is specifically directed towards
insurance providers, and substantially affects the risk pool by restricting the
range of available standards of review. As a result, the conditions under which
a plan must pay on its policies are altered, shifting the contractual risk away
from the insured and toward the provider. See Am. Council of Life Ins. v. Ross,
558 F.3d 600, 607 (6th Cir. 2009) (finding that when court applies de novo
standard, it is the insurer who faces a greater probability of paying for the risk it
14
has assumed).
Plaintiff concedes that the Minnesota statute cited above has not been
cited or discussed in any previous court decision, but notes that courts in other
jurisdictions have applied the savings clause to other state’s laws that are similar
to Minn. Stat. § 62Q.107. See, e.g., McClenahan v. Metropolitan Life Ins. Co., 621
F. Supp.2d 1135 (D. Colo. 2009); Standard Ins. Co. v. Morrison, 584 F.3d 837, 845
(9th Cir. 2009).
After reviewing the applicable law, the Court finds that Minn. Stat. §
62Q.107 does not apply here. That statute provides:
Beginning January 1, 1999, no health plan, including the coverages
described in section 62A.011, subdivision 3, clauses (7) and (10), may
specify a standard of review upon which a court may review denial of a
claim or of any other decision made by a health plan company with
respect to an enrollee. This section prohibits limiting court review to a
determination of whether the health plan companyʹs decision is arbitrary
and capricious, an abuse of discretion, or any other standard less
favorable to the enrollee than a preponderance of the evidence.
“Health plan” is defined as “a health plan as defined in section 62A.011 . . .”
Minn. Stat. 62Q.01, subd. 3. Section 62A.011 defines “health plan” as “a policy
or certificate of accident and sickness insurance as defined in section 62A.01
offered by an insurance company licensed under chapter 60A . . . . Health plan
15
does not include coverage that is: (1) limited to disability or income protection
coverage . . .” Minn. Stat. § 62A.011, subd. 3(1). Because the Policy at issue here
is one that is limited to disability or income protection coverage, the prohibitions
of section 62Q.107 do not apply.
Plaintiff nonetheless argues the pursuant to the rules of statutory
construction, the statutory definition of “health plan” should be construed to
give effect to the purpose of the statute and to construe the statute as a whole.
Applying these rules of construction, Plaintiff argues that the Policy should not
be interpreted as “limited to disability or income protection coverage” because
the Policy also provides coverage for survivor benefits, rehabilitation and return
to work assistance, dependant and child care, work‐life assistance and social
security claimant advocacy programs. (UA‐CL‐LTD‐000087‐91)
To adopt Plaintiff’s argument, however, would require the Court to ignore
the plain language of the Policy: “This long term disability plan provides
financial protection for you by paying a portion of your income while you are
disabled.” (UA‐CL‐LTD‐000067) While the Policy may afford some additional
coverages, it is clear that the Policy primarily provides income protection.
Accordingly, the Court finds that the prohibition set forth in Minn. Stat. §
16
62Q.107 is inapplicable here.
C.
Conflict of Interest
In the event the Court determines that the abuse of discretion standard
applies, Plaintiff argues that a conflict of interest exists in this case that must be
given considerable weight. Here, Unum is both the decision maker and the
payer of benefits under its long term disability policy.
The Supreme Court has held that an inherent conflict of interest exists
when a plan administrator acts as both the decision‐maker in a claim
determination and the payer of benefits. Metro. Life Ins. Co. v. Glenn, 554 U.S.
105, 112 (2008). Such a conflict of interest does not change the standard of
review from abuse of discretion, however. See id. at 115‐16. Instead, the conflict
should be weighed as a factor in determining whether there is an abuse of
discretion. Id. at 117. All relevant factors, including the presence of a conflict of
interest, should be used as a tiebreaker when all other factors are “closely
balanced.” Id. A conflict of interest should be given greater importance if a
party can show that “circumstances suggest a higher likelihood that it affected
the benefits decision.” Id.
Here, Plaintiff argues that the conflict of interest in this case should be
17
given considerable weight, because by February 2009, Unum was motivated by a
reasonable prospect of litigation and was considering litigation strategy at the
time it sought additional information for a benefits determination. Plaintiff
asserts that throughout the claim process, Unum did not act as a fiduciary,
instead, it acted out of self‐interest as demonstrated by the fact that Unum did
not disclose the fact that a mistake had originally been made in the calculation of
his disability benefits, and by the fact that Unum withheld its claim file for
several months, and set up an interview of Plaintiff without informing him of
the purpose of the interview. Under such circumstances, Plaintiff argues that
Unum’s decision‐making cannot be considered neutral and the conflict should
be given considerable weight.
There is nothing in the administrative record to suggest that the original
mistake in calculating Plaintiff’s benefits was anything but a clerical error ‐ an
error which resulted in Plaintiff receiving over $7,000 in disability payments for
over two years. In addition, the record demonstrates that Unum conducted a
multi‐tiered review of Plaintiff’s disability claim, offered Plaintiff multiple
opportunities to provide Unum information in support of his claims, and
repeatedly informed Plaintiff of the specific information necessary to support his
18
claims. (See, e.g., UA‐CL‐LTD‐000405‐406, 000531, 000562‐563, 000790, 000807,
000863‐868, 000902‐903) Finally, Plaintiff has presented no evidence that failure
to turn over the claim file for a three month period of time prejudiced him in any
way.
In accordance with Glenn, the Court will give some weight to the conflict
of interest in this case in determining whether there Unum abused its discretion,
but not considerable weight as requested by Plaintiff. Id. at 117.
D.
Abuse of Discretion
“Under the abuse of discretion standard, the court must affirm the plan
administratorʹs interpretation of the plan unless it is arbitrary and capricious.”
Manning v. Am. Rep. Ins. Co., 604 F.3d 1030, 1038 (8th Cir. 2010) (citation
omitted). “To determine whether a plan administrator’s decision was arbitrary
and capricious, the court examines whether the decision was “reasonable.” . . .
Any reasonable decision will stand, even if the court would interpret the
language differently as an original matter.” Id (internal citation omitted). A
reasonable decision is one that is supported by substantial evidence. Darvell v.
Life Ins. Co. of N. Am., 597 F.3d 929, 934 (8th Cir. 2010). “Substantial evidence
means ‘more than a scintilla but less than a preponderance.’” Id.
19
IV.
Review of Denial of Benefits
The Court has thoroughly reviewed the administrative record submitted,
and from such review, it is clear that even when Unum made the initial
determination in 2006 that Plaintiff was entitled to benefits (based on a clerical
error) the record did not clearly support a finding that the lump sum payments
Plaintiff received in 2004 were commissions. Unum asserts its initial benefits
determination was based on information from IHPC’s accountant at the time,
Mike Holmquist. However, as noted previously, Holmquist’s statements were
not clear, as he characterized the payments as commissions or a bonus,
depending on the definition used. (UA‐CL‐LTD‐000360)
After Unum decided to review Plaintiff’s benefits determination, the
evidence obtained to determine whether the 2004 lump sum payments were, in
fact, commissions became even more unclear as Plaintiff provided various
characterizations of the 2004 payments throughout the claims process.
Plaintiff presented evidence to demonstrate that the lump sum payments
were paid out based on a percentage of the total revenue increase and the
percentage rate change from year to year based on profitability and liquidity
needs of IHPC. (UA‐CL‐LTD‐000866‐867, 001059, 001070, and 001083) As a
20
result, Plaintiff argued that the payments were more akin to bonuses. (UA‐CL‐
LTD‐001069) Nonetheless, the record demonstrates that on other occasions,
Plaintiff referred to the payments as a commission/bonus. (UA‐CL‐LTD‐000531)
As Unum points out, Plaintiff provided yet another characterization of the
2004 payments to the SSA after it notified Plaintiff that he had been overpaid.
Plaintiff specifically represented to the SSA, under penalty of perjury, that the
payments were for the sale of an IHPC subsidiary and he provided an
amortization schedule identifying payments from IHPC of $575,000 between
December 2000 and December 31, 2005. According to that schedule, Plaintiff
was to receive $175,000 in 2004. (UA‐CL‐LTD‐001103) Plaintiff was also to
receive $50,000 on December 31, 2005 pursuant to the amortization schedule.
Unum asserts that based on the administrative record in this case, and the
differing positions taken by Plaintiff as to the appropriate characterization of the
2004 payments, Unum’s decision to deny benefits is supported by substantial
evidence. Unum further asserts that Plaintiff should be estopped from taking a
contrary position in this litigation, from the one taken in the social security
benefits proceeding. Mitchell v. Washingtonville Cent. Sch. Dist., 190 F.3d 1, 6‐7
(2d Cir. 1999) (recognizing that judicial estoppel “prevents a party from
21
asserting a factual position in a legal proceeding that is contrary to a position
previously taken by [that party] in a prior legal proceeding.” ).
It is Plaintiff’s position that he has been consistent in characterizing the
2004 payments as wages, not sale proceeds or a loan, as demonstrated by the
relevant corporate and individual tax returns, earnings statements, and
information from Mike Holmquist. The payments were processed through the
company as payroll and both the company and Plaintiff paid taxes on the
payments. The only evidence supporting Unum’s decision is the documentation
initially provided to the SSA, but that documentation was later withdrawn by
Plaintiff when he agreed to repay the SSI overpayments. Because the record
overwhelmingly establishes that the payments received in 2004 were treated as
wages, Unum’s decision to deny benefits based on its determination that such
payments were sale proceeds or payments on a loan was an abuse of discretion.
The Court finds that viewing all the evidence as a whole, and in the light
most favorable to Unum, Unum’s decision to deny Plaintiff benefits based on a
determination that the 2004 lump sum payments were sale proceeds, was an
abuse of its discretion. The only evidence supporting Unum’s determination
consists of the documents initially presented to the SSA in support of Plaintiff’s
22
request for reconsideration of the SSA’s determination to deny benefits. Prior to
the decision to deny him long term disability benefits, Plaintiff informed Unum
that he intended to withdraw this request. (UA‐CL‐LTD‐001072) Thereafter,
Plaintiff did withdraw his request and agreed to repay the SSA the
overpayment. (UA‐CL‐LTD‐001364) There is nothing in the record to suggest
that the SSA relied on this information in any way. In addition, at no time did
Plaintiff take the position with Unum that the payments made to him in 2004
should be considered sale proceeds. Under these circumstances, the Court finds
that it was not reasonable for Unum to rely on a withdrawn argument, before a
different agency, when the remainder of the record before it clearly
demonstrated that the 2004 lump sum payments were considered by Plaintiff
and IHPC as wages.
As for Unum’s determination that the lump sum payments paid to
Plaintiff in 2004 are payments on a loan due to Plaintiff for services provided
prior to 2000, it is unclear what evidence supports this finding. There is a
reference in the report prepared by Jan Kendrick, in which she states “It is noted
that the corporation has loans to officers on its books. In the years since
disability, the amount loaned to the officer, [Plaintiff], has increased from
23
$220,000 at the end of 2004 to $445,000 at the end of 2007.” (UA‐CL‐LTD‐
001275‐1276) The corporate tax returns for 2004 also indicate officer loans in the
amount of $220,461. (UA‐CL‐LTD‐001227) The Court notes, however, that the
same corporate tax return indicates that Plaintiff was paid compensation in the
amount of $179,410. (UA‐CL‐LTD‐001216) This is consistent with Plaintiff’s
2004 W‐2, (UA‐CL‐LTD‐000120), and the information provided Unum in 2006 by
Holmquist. Under these circumstances, Unum’s determination that the lump
sum payments were payments on a loan due Plaintiff is not based on substantial
evidence.
Because the record clearly supports a finding that Plaintiff received wages
in 2004 in the amount of $179,410, the only question remaining is whether the
lump sum payments should be considered bonuses or commissions. If the sums
are determined to be bonuses, Plaintiff’s monthly earnings will be determined
by taking into consideration all sums paid to Plaintiff in 2004. If the sums are
commissions, then his monthly earnings will be considered for the calendar year
immediately preceding his disability ‐ October 1, 2004 through September 30,
2005.
In denying his request for benefits in January 2010, however, Unum did
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not make this determination, instead denying benefits based on a determination
that the lump sum payments were either sale proceeds or a loan.
The Policy does not define the terms bonus or commission. The
dictionary definition of “commission” is “a fee paid to an agent or employee for
transacting a piece of business or performing a service; esp: a percentage of
money received from a total paid to the agent responsible for the business.”
Merriam‐Webster’s Collegiate Dictionary 231 (10th ed. 1999). “Bonus” is
defined as “money or an equivalent given in addition to an employee’s usual
compensation.” Id. 131. Applying these definitions to the undisputed record in
this case, the Court finds that the lump sum payments are properly considered
bonuses.
In 2004, Plaintiff was paid six monthly payments of $740, a lump sum
payment of $150,000 on September 30, 2004 and a $25,000 lump sum payment on
December 31, 2004. Prior to the onset of disability in October 2005, Plaintiff
received monthly payments in the amount of $720 in 2005. Thereafter, Plaintiff
received a lump sum payment of $50,000 on December 31, 2005. The lump sum
payments were based on company performance and the availability of cash.
There is no evidence in the record to suggest that the lump sum payments were
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based on “a piece of business” as is the case with respect to a commission.
Based on the above, the Court finds that Plaintiff is entitled to judgment as
a matter of law on his claim for benefits.
V.
Unum’s Counterclaim
Unum has asserted a counterclaim for a constructive trust/equitable lien
over and/or attendant to the long term disability benefits erroneously paid to
Plaintiff as a result of its clerical mistake. Unum has also asserted a counterclaim
for restitution and for unjust enrichment in the amount of overpayment paid to
Plaintiff. In support, Unum asserts the Policy expressly provides that Unum is
entitled to recover overpaid benefits. (UA‐CL‐LTD‐000070)
Based on the Court’s determination that Unum abused it discretion in
denying Plaintiff benefits, Unum’s counterclaims concerning any alleged
overpayment to Plaintiff do not have merit. Accordingly, Plaintiff is also
entitled to summary judgment as to these counterclaims.
IT IS HEREBY ORDERED that:
1.
Plaintiff’s Motion for Summary Judgment [Doc. No. 34] is
GRANTED in its entirety;
2.
Plaintiff is entitled to ongoing benefits under the long‐term
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disability plan and is entitled to retroactive monthly benefits from
March 2009, to the present date, in the amount of $7,107, less
$155.20 for the months March 2009 through December 2009 and less
$139.70 for the month of January 2010;
3.
If Plaintiff seeks an award of costs, disbursements and other
expenses of this litigation and reasonable attorneys’ fees pursuant to
29 U.S.C. § 1132(g), he shall bring the appropriate motion,
supported by an itemized petition, within thirty days of the date of
this Order. If no such motion is brought, the Clerk may enter
judgment; and
4.
Defendant’s Motion for Summary Judgment [Doc. No. 30] is
DENIED.
Date: August 26, 2011
s/ Michael J. Davis
Hon. Michael J. Davis
Chief Judge
United States District Court
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