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No. 14-3189
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
LYDIA MALLON, on behalf of herself
and all others similarly situated,
Plaintiff-Appellant,
v.
TROVER SOLUTIONS, INC., d/b/a HEALTHCARE
RECOVERIES, INC., INDEPENDENCE BLUE CROSS, and
QCC INSURANCE CO.,
Defendants-Appellees.
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
Hon. R. Barclay Surrick
No. 2:11-cv-00326-RBS
APPELLANT’S BRIEF & APPENDIX VOL. I
Appendix Vol. II filed separately
Peter K. Stris
Counsel of Record
Victor O’Connell
STRIS & MAHER LLP
19210 S. Vermont Ave., Bldg. E
Gardena, CA 90248
(424) 212-7090
Counsel for Plaintiff-Appellant
September 23, 2014
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TABLE OF CONTENTS
Table of Authorities .................................................................................................. ii
Preliminary Statement ................................................................................................ 1
Jurisdictional Statement ............................................................................................. 4
Statement of the Issues ............................................................................................... 4
Statement of Related Cases and Proceedings ............................................................ 4
Statement of the Case ................................................................................................. 5
A. Statutory and Regulatory Background .................................................. 5
B. Factual Background ............................................................................. 12
C. Procedural History ............................................................................... 20
Statement of the Standard of Review....................................................................... 28
Summary of the Argument ....................................................................................... 28
Argument.................................................................................................................. 31
I. Plaintiff Was Not Required to Exhaust the Claims in Count I of the
SAC Because They Seek Relief for Violations of Duties Imposed by
ERISA ............................................................................................................ 31
A. Plaintiff Is Seeking Relief Under 29 U.S.C. § 1132(a)(3) for
Defendants’ Statutory Violations ........................................................ 33
B. Plaintiff Has Pleaded a 29 U.S.C. § 1132(a)(3) Claim for
Defendants’ Violations of 29 U.S.C. § 1104(a)(1)(A) ........................ 34
C. Plaintiff Has Also Pleaded a 29 U.S.C. § 1132(a)(3) Claim for
Defendants’ Violations of 29 U.S.C. § 1104(a)(1)(D) ........................ 38
II. Insofar as Plaintiff Had Any Obligation to Exhaust, That Obligation
Was Satisfied in This Case ............................................................................ 46
Conclusion ............................................................................................................... 52
Combined Certifications .......................................................................................... 53
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TABLE OF AUTHORITIES
CASES
Amato v. Bernard,
618 F.2d 559 (9th Cir. 1980) ........................................................................ 11, 12
Ashcroft v. Iqbal,
556 U.S. 662 (2009) ............................................................................................ 28
Bell Atlantic Corp. v. Twombly,
550 U.S. 544 (2007) ............................................................................................ 28
Black & Decker Disability Plan v. Nord,
538 U.S. 822 (2003) .............................................................................................. 7
Carducci v. Aetna U.S. Healthcare,
204 F. Supp. 2d 796 (D.N.J. 2002) ..................................................................... 45
Carducci v. Aetna U.S. Healthcare,
247 F. Supp. 2d 596 (D.N.J. 2003) ..................................................................... 45
CIGNA Corp. v. Amara,
131 S. Ct. 1866 (2011) .......................................................................................... 9
Conley v. Pitney Bowes,
34 F.3d 714 (8th Cir. 1994) ................................................................................ 50
D’Amico v. CBS Corp.,
297 F.3d 287 (3d Cir. 2002) ............................................................................... 31
Eastman Kodak Co. v. STWB, Inc.,
452 F.3d 214 (2d Cir. 2006) ............................................................................... 50
Edmonson v. Liberty Nat’l Life Insurance Co.,
725 F.3d 406 (3d Cir. 2013) ............................................................................... 36
Epright v. Environmental Res. Mgmt., Inc. Health & Welfare Plan,
81 F.3d 335 (3d Cir. 1996) ................................................................................. 49
Firestone Tire & Rubber Co. v. Bruch,
489 U.S. 101 (1989) .............................................................................................. 5
Fowler v. UPMC Shadyside,
578 F.3d 203 (3d Cir. 2009) ............................................................................... 28
Gavalik v. Cont’l Can Co.,
812 F.2d 834 (3d Cir. 1987) ................................................................................ 28
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Great Great–West Life & Annuity Ins. Co. v. Knudson,
534 U.S. 204 (2002) ............................................................................................ 42
Harrow v. Prudential Ins. Co. of Am.,
279 F.3d 244 (3d Cir. 2002) ............................................................. 11, 28, 32, 37
Harrow v. Prudential Ins. Co. of Am.,
279 F.3d 244 (3d Cir. 2002) ............................................................................... 11
Kennedy v. Empire Blue Cross & Blue Shield,
989 F.2d 588 (2d Cir. 1993) ............................................................................... 12
Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan,
555 U.S. 285 (2009) ............................................................................................ 38
Kesselman v. Rawlings Co.,
668 F. Supp. 2d 604 (S.D.N.Y. 2009) ................................................................ 37
LaRue v. DeWolff, Boberg & Assocs., Inc.,
552 U.S. 248 (2008) ............................................................................................ 11
Lazorko v. Pennsylvania Hospital,
237 F.3d 242 (3d Cir. 2000) ................................................................................ 28
Levine v. United Healthcare Corp.,
402 F.3d 156 (3d Cir. 2005) .......................................................30, 37, 43, 44, 45
Lockheed Corp. v. Spink,
517 U.S. 882 (1996) .......................................................................................... 6, 7
Mass. Mut. Life. Ins. Co. v. Russell,
473 U.S. 134 (1985) .............................................................................................. 6
Metro. Life Ins. Co. v. Glenn,
554 U.S. 105 (2008) .............................................................................................. 7
Mertens v. Hewitt,
508 U.S. 248 (1993) .............................................................................................. 9
Pilot Life Ins. Co. v. Dedeaux,
481 U.S. 41 (1987) ................................................................................................ 6
Reich v. Compton,
57 F.3d 270, 290 (3d Cir. 1995) ......................................................................... 34
Schorsch v. Reliance Standard Life Ins. Co.,
693 F.3d 734 (7th Cir. 2012) ........................................................................ 11, 12
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Sereboff v. Mid Atl. Med. Servs., Inc.,
547 U.S. 356 (2006) .............................................................................................. 9
Singh v. Prudential Health Care Plan,
335 F.3d 278 (4th Cir. 2003) .............................................................................. 34
Stephens v. PBGC,
755 F.3d 959 (D.C. Cir. 2014) .................................................................. 7, 11, 12
US Airways, Inc. v. McCutchen,
133 S. Ct. 1537 (2013) ........................................................................ 9, 26, 38, 39
Varity Corp. v. Howe,
516 U.S. 489 (1996) ........................................................................................ 6, 40
Wirth v. Aetna U.S. Healthcare,
469 F.3d 305 (3d Cir. 2006) .............................................................. 30, 37, 44, 45
Wurtz v. Rawlings Co., LLC,
933 F. Supp. 2d 480 (E.D.N.Y. 2013) ................................................................ 37
Zipf v. American Tel. & Tel. Co.,
799 F.2d 889 (3d Cir. 1986) ......................................................................... 37, 41
STATUTES
29 U.S.C. § 1001 .................................................................................................... 1, 6
29 U.S.C. § 1002(1) ................................................................................................... 5
29 U.S.C. § 1002(2) ................................................................................................... 5
29 U.S.C. § 1104(a) ................................................................................................... 2
29 U.S.C. § 1104(a)(1)(A) ................................................................................. 29, 34
29 U.S.C. § 1104(a)(1)(D) ................................................................................passim
29 U.S.C. § 1109 ........................................................................................................ 9
29 U.S.C. § 1111 ........................................................................................................ 8
29 U.S.C. § 1131 .................................................................................................. 8, 10
29 U.S.C. § 1132(e) ................................................................................................... 4
29 U.S.C. § 1132(a) ....................................................................................... 8, 28, 48
29 U.S.C. § 1132(a)(1) ......................................................................................passim
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29 U.S.C. § 1132(a)(2) ........................................................................................... 8, 9
29 U.S.C. § 1132(a)(3) ......................................................................................passim
29 U.S.C. § 1133 ............................................................................................ 7, 11, 30
29 U.S.C. § 1141 ........................................................................................................ 8
28 U.S.C. § 1291 ........................................................................................................ 4
REGULATIONS
29 C.F.R. § 2560.503-1 ............................................................................................ 10
29 C.F.R. § 2560.503-1(g) ..................................................................... 10, 47, 48, 49
29 C.F.R. § 2560.503-1(l) ............................................................................ 46, 48, 50
OTHER AUTHORITIES
Brendan S. Maher & Radha A. Pathak, Understanding and Problematizing
Contractual Tort Subrogation, 40 LOY. U. CHI. L.J. 49 (2008) ........................... 1
Federal Register, Vol. 65, No. 225, Rules and Regulations
(November 21, 2000) .......................................................................................... 10
James A. Wooten, ‘The Most Glorious Story of Failure in the Business:’
The Studebaker-Packard Corporation and the Origins of ERISA, 49
BUFFALO L. REV. 683 (2001) ................................................................................ 5
John H. Langbein, What ERISA Means by “Equitable”: The
Supreme Court’s Trail of Error in Russell, Mertens, and Great-
West, 103 COLUM. L. REV. 1317 (2003). .............................................................. 8
Pension Benefit Guaranty Corporation, Introduction to Multiemployer
Plans (last visited Sept. 20, 2014), http://www.pbgc.gov/prac/multi
employer/introduction-tomultiemployerplans.html. ......................................... 5, 6
Vanessa Fuhrmans, Accident Victims Face Grab for Legal Winnings,
WALL ST. J., Nov. 7, 2007, http://online.wsj.com/news/articles/
SB119551952474798582...................................................................................... 1
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PRELIMINARY STATEMENT
This case is about the reimbursement practices of an employer sponsored
welfare plan governed by the Employee Retirement and Income Security Act of 1974
(“ERISA”), 29 U.S.C. §§ 1001 et seq. ERISA welfare plans often pay medical
benefits to an injured plan participant and later seek reimbursement out of any
monies recovered by that injured participant from a responsible third party.
Especially when there is a limited pool of funds, questions arise as to whether – and
to what extent – the plan is entitled to such reimbursement.
There are significant questions in this litigation about the reimbursement
practices of Plaintiff’s Plan. Defendants claim the Plan has a “first-dollar” right of
reimbursement – i.e., is entitled to recover every penny it paid to cover Plaintiff’s
medical expenses without, for example, sharing any portion of her attorneys’ fees. It
is widely accepted that first-dollar reimbursement provisions can be terribly unfair.
See, e.g., Vanessa Fuhrmans, Accident Victims Face Grab for Legal Winnings, WALL
ST. J., Nov. 7, 2007, http://online.wsj.com/news/articles/SB119551952474798582.
As such, they are unenforceable under the law of most states. See generally Brendan
S. Maher & Radha A. Pathak, Understanding and Problematizing Contractual Tort
Subrogation, 40 LOY. U. CHI. L.J. 49 (2008).
Plaintiff disputes the Plan’s asserted first-dollar right of reimbursement on a
number of grounds, including its prohibition by Pennsylvania state insurance law
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and recent United States Supreme Court precedent. She also contends that the Plan
is not entitled to reimbursement because of defendants’ gross misconduct in pursuing
collection of the disputed debt in violation of section 404(a) of ERISA, 29 U.S.C.
§ 1104(a).
This appeal, however, is not about the underlying merits of the parties’
dispute. It is about whether Plaintiff gets to sue at all. Defendants moved to dismiss
Plaintiff’s lawsuit on the grounds that she failed to exhaust administrative remedies
under ERISA prior to filing suit. The district court agreed and dismissed her lawsuit
on that basis. Given the underlying facts of this dispute, Defendants’ exhaustion
argument is not only wrong, it is shameless.
Plaintiff received $4,078.42 from the Plan to cover medical expenses related
to a car accident. Before she even filed a complaint against her injurer, Defendants
began to send her form collection letters. Unlike the vast majority of people in her
situation, Plaintiff happened to have retained counsel familiar with ERISA to
represent her in her personal injury action. Her counsel requested from Defendants
the documents necessary to validate the existence of the Plan’s reimbursement right,
including proof of its self-insured status. The parties agree that such proof is essential
because, unless self-insured, the Plan would be prohibited from seeking any
reimbursement from Plaintiff under clearly established Pennsylvania law.
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Defendants never provided the requested documents. They simply repeated
their demand for payment, along with boilerplate representations about the self-
insured status of the Plan that now appear to be false. To make matters worse, when
Plaintiff settled with the driver who injured her, Defendants circumvented her
counsel altogether and sent debt collection notices directly to Plaintiff. After Plaintiff
received a “third and final” notice that threatened her health benefits, she directed
her attorney to pay Defendants. Again, unlike many people in her situation, Plaintiff
paid under clear protest.
Defendants now have the audacity to suggest that Plaintiff failed to comply
with her procedural obligations under ERISA. Relying on dicta from two inapposite
Third Circuit preemption decisions, Defendants convinced the district court that
Plaintiff’s objections to their reimbursement demand and unlawful collection
practices somehow amounted to a “claim for benefits” triggering a pre-filing
administrative exhaustion requirement. They do not. And even if Plaintiff’s claims
were somehow subject to an exhaustion requirement, it was clearly satisfied in this
case.
Reversal is warranted.
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JURISDICTIONAL STATEMENT
This appeal involves claims arising under ERISA. The plaintiff, Lydia Mallon
(“Plaintiff,” “Appellant,” or “Ms. Mallon”), filed this case in the United States
District Court for the Eastern District of Pennsylvania on January 20, 2011. This
Court has jurisdiction under 29 U.S.C. § 1132(e) and 28 U.S.C. § 1291. This appeal
is taken from a final order, dated June 4, 2014. App. 3. A timely notice of appeal was
filed on July 2, 2014. App. 1.
STATEMENT OF THE ISSUES
1. Did the District Court err in concluding that Plaintiff failed to assert
fiduciary breach claims under 29 U.S.C. § 1132(a)(3) that are, under longstanding
Third Circuit law, immune from any requirement of pre-suit administrative
exhaustion? App. 11–14.
2. If the answer to Issue 1 is no, did the District Court err in concluding that
Plaintiff’s claims had not been exhausted notwithstanding Defendants’ egregious
failure to comply with ERISA and its governing regulations? App. 14–17.
STATEMENT OF RELATED CASES AND PROCEEDINGS
This case has not been before this Court previously. Plaintiff is not aware of
any other case or proceeding (whether completed, pending, or about to be presented
before this Court or any other court or agency, state or federal) that is in any way
related to this case.
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STATEMENT OF THE CASE
This is a dispute involving complex legal questions pertaining to ERISA. In
order to place Appellant’s arguments in their proper context, what follows next is a
discussion of the relevant statutory and regulatory background followed by the
factual and procedural history of this dispute.
A. Statutory and Regulatory Background
Enacted in 1974, ERISA is a landmark piece of congressional legislation that
was designed “to promote the interests of employees and their beneficiaries in
employee benefit plans” and “to protect contractually defined benefits” owed to
those employees and beneficiaries. See Firestone Tire & Rubber Co. v. Bruch, 489
U.S. 101, 113 (1989) (citations omitted). Although originally devised as a response
to the failure of several large private pension plans, see generally James A. Wooten,
‘The Most Glorious Story of Failure in the Business:’ The Studebaker-Packard
Corporation and the Origins of ERISA, 49 BUFFALO L. REV. 683 (2001), ERISA was
drafted broadly to cover most private-sector employee benefit plans, including those
which provide health, life, disability, or pension benefits.1
1 Under ERISA, there are two distinct types of plans: “welfare plans,” see
29 U.S.C. § 1002(1), and “pension plans,” see 29 U.S.C. § 1002(2). This case
involves an ERISA-governed multi-employer welfare plan. A multi-employer plan
is “a collectively bargained plan maintained by more than one employer, usually
within the same or related industries, and a labor union.” Pension Benefit Guaranty
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“Nothing in ERISA requires employers to establish employee benefit plans.”
Lockheed Corp. v. Spink, 517 U.S. 882, 887 (1996) (“Spink”). As such, in creating
ERISA, Congress wanted to avoid a regulatory regime that was “so complex that
administrative costs[] or litigation expenses” would dissuade employers from
electing to offer benefits in the first place. Varity Corp. v. Howe, 516 U.S. 489, 497
(1996) (“Varity”); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (1987) (“Pilot
Life”). Congress also wanted, however, to establish procedural safeguards and
enforcement mechanisms that would secure employees’ contractually promised
benefits. Varity, 516 U.S. at 497; Pilot Life, 481 U.S. at 54. The result was a
“comprehensive,” “reticulated,” and carefully “crafted” statute that strikes a balance
between these competing interests. Mass. Mut. Life. Ins. Co. v. Russell, 473 U.S.
134, 146–47 (1985).
The statute contemplated that the rights of employees would be enforced on
two levels. First and foremost, the statute contemplates civil litigation in federal
court to remedy violations of ERISA or the terms of an ERISA plan. As the statute
declares: “It is . . . the policy of [ERISA] to protect . . . the interests of participants
in employee benefit plans and their beneficiaries[] . . . by providing for appropriate
remedies, sanctions, and ready access to the Federal courts.” 29 U.S.C. § 1001.
Corporation, Introduction to Multiemployer Plans (last visited Sept. 20, 2014),
http://www.pbgc.gov/prac/multiemployer/introduction-tomultiemployerplans.html.
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Through the process of adjudicating claims under ERISA, “Congress intended for
the courts to develop a body of federal substantive law that would address issues
involving rights and obligations under pension plans.” Stephens v. PBGC, 755 F.3d
959, 966 (D.C. Cir. 2014).
Second, ERISA contemplates administrative proceedings and review of
routine benefit claims, which are to be conducted by a private-sector plan
administrator selected by the plan. See 29 U.S.C. § 1133 (mandating that plans
provide adequate notice and full and fair review of benefit denials). Such a procedure
“promotes the consistent treatment of claims and . . . minimizes the burden on the
courts and all parties.” Stephens, 755 F.3d at 966.
Civil Enforcement. ERISA gives employers enormous discretion to
determine the substantive content of the employee benefit plans that they offer.
Spink, 517 U.S. at 887 (“ERISA does not mandate “what kind of benefits employers
must provide . . . .”). The parties (i.e., the employer and employee) may strike
whatever bargain they desire or no bargain at all. Once a decision is made to offer
benefits, however, ERISA imposes a series of “higher-than-marketplace” procedural
safeguards, coupled with a set of enforcement mechanisms. Metro. Life Ins. Co. v.
Glenn, 554 U.S. 105, 115 (2008); see also Black & Decker Disability Plan v. Nord,
538 U.S. 822, 830 (2003).
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The primary enforcement mechanism contemplated by ERISA is private civil
litigation.2 29 U.S.C. § 1132(a) contains ten subsections authorizing civil actions,
but nearly all litigation brought by participants and beneficiaries is pursuant to
sections 1132(a)(1), (a)(2), and (a)(3). See John H. Langbein, What ERISA Means by
“Equitable”: The Supreme Court’s Trail of Error in Russell, Mertens, and Great-
West, 103 COLUM. L. REV. 1317, 1334–36 (2003).
Section 1132(a)(1) is best known for conferring the right upon a participant or
beneficiary to sue: “to recover benefits due to him under the terms of his plan, to
enforce his rights under the terms of the plan, or to clarify his rights to future benefits
under the terms of the plan.” 29 U.S.C. 1132(a)(1)(B). 3 Pursuant to section
1132(a)(1)(B), a claimant may bring a claim asserting the entitlement to benefits in
federal court. Actions to “recover benefits due . . . under [the] plan” or “enforce . . .
rights under . . . the plan” are akin to suits for breach of contract. Similarly, actions
to “clarify . . . rights to future benefits under . . . the plan” are akin to suits seeking
declaratory or injunctive relief based on the terms of a contract.
2 ERISA authorizes criminal enforcement under 29 U.S.C. §§ 1111, 1131, and
1141. But criminal prosecutions are rare because the government must prove willful
or intentional conduct.
3 Section 1132(a)(1)(A) permits a participant or beneficiary to sue “for the
relief provided for in [section 1132(c)].” Section 1132(c), in turn, establishes
penalties which apply if an administrator fails or refuses to furnish documents
required by ERISA.
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Unlike section 1132(a)(1), civil actions pursuant to sections 1132(a)(2) and
1132(a)(3) are primarily brought to remedy statutory violations of ERISA. Section
1132(a)(2) permits an action to enforce 29 U.S.C. § 1109, which makes a fiduciary
personally liable whenever it, as a result of a breach of duty, causes “loss[] to the
plan” or a gain to the fiduciary. A section 1132(a)(2) suit is a derivative action on
behalf of the plan for damages and/or disgorgement arising from the fiduciary’s
breach of duty. See id.
Section 1132(a)(3) consists of two operative provisions. The first provision
permits a civil action brought by a participant, beneficiary, or fiduciary “to enjoin
any act or practice which violates [ERISA].” 29 U.S.C. § 1132(a)(3)(A). The second
provision authorizes the court to grant a participant or beneficiary “other appropriate
equitable relief.” 29 U.S.C. § 1132(a)(3)(B). When suing under 1132(a)(3), a litigant
is limited to those remedies that “were typically available at equity.” CIGNA Corp.
v. Amara, 131 S. Ct. 1866, 1878 (2011) (“Amara”) (quoting Sereboff v. Mid Atl. Med.
Servs., Inc., 547 U.S. 356, 361 (2006) (“Sereboff”); Mertens v. Hewitt, 508 U.S. 248,
256 (1993) (“Mertens”)). Those remedies include restitution, mandamus, and
injunctions, see Mertens, 508 U.S. at 256; the equitable lien by agreement, see US
Airways, Inc. v. McCutchen, 133 S. Ct. 1537, 1546 (2013) (“McCutchen”); Sereboff,
547 U.S. at 361; and, as the Supreme Court recently made clear, reformation,
surcharge, and estoppel, Amara, 131 S. Ct. at 1866.
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Administrative Review. Although the focus of ERISA was to allow
employees to sue in federal court for violations of the statute or the terms of a plan,
in order to address the processing of routine benefit claims, the statute requires plans
to provide an internal administrative review procedure. Specifically, 29 U.S.C.
§ 1133 requires every employee benefit plan to give “adequate notice” and “full and
fair review” of any claim denial in accordance with ERISA and any regulations
which may be established by the Department of Labor (“DOL”). The DOL has
established lengthy, detailed regulations, which govern nearly every aspect of the
ERISA-mandated notice and review process. See Federal Register, Vol. 65, No. 225,
Rules and Regulations at 70265–70271 (November 21, 2000) (promulgating
29 C.F.R. § 2560.503-1, a regulation which spans seven pages of the Federal
Register). As relevant here, the regulations provide that every claim denial must be
accompanied by written notice setting forth, “in a manner calculated to be
understood by the claimant:”
(i) the specific reason or reasons for the adverse determination;
(ii) reference to the specific plan provisions on which the
determination is based;
(iii) a description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why
such material or information is necessary; and
(iv) a description of the plan’s review procedures and applicable time
limits, including a statement of the claimant’s right to bring a
civil action under ERISA Section 502(a) following exhaustion of
the plan’s administrative remedies . . . .
29 C.F.R. § 2560.503-1(g)(i)–(iv).
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Nothing in the text of ERISA requires participants to utilize the administrative
review process described above. See Amato v. Bernard, 618 F.2d 559, 566 (9th Cir.
1980) (“Amato”) (“ERISA nowhere mentions the exhaustion doctrine.”). In a well-
established judicial gloss, however, virtually every circuit has held that an ERISA
claimant must pursue, and then exhaust, her claim for benefits through a plan’s own
internal procedures before filing suit under section 1132(a)(1)(B). See LaRue v.
DeWolff, Boberg & Assocs., Inc., 552 U.S. 248, 258 (2008) (Roberts, C.J.,
concurring) (discussing the “requirement, recognized by almost all the Courts of
Appeals, see Fallick v. Nationwide Mut. Ins. Co., 162 F. 3d 410, 418, n.4 (CA6 Cir.
1998) (citing cases), that a participant exhaust the administrative remedies mandated
by ERISA § 503, 29 U.S.C. § 1133, before filing suit under § [1132](a)(1)(B)”). See
also Stephens, 755 F.3d at 964 (observing that “courts have universally applied the
[administrative exhaustion] requirement as a matter of judicial discretion.”).
As courts have reasoned, administrative review of benefits claims serves
several important purposes. Administrative exhaustion “reduce[s] the number of
frivolous law-suits under ERISA; . . . promote[s] the consistent treatment of claims
for benefits; . . . provide[s] a nonadversarial method of claims settlement; and . . .
minimize[s] the cost of claims settlement for all concerned.” Harrow v. Prudential
Ins. Co. of Am., 279 F.3d 244, 249 (3d Cir. 2002) (“Harrow”) (quoting Amato v.
Bernard, 618 F.2d 559, 567 (9th Cir. 1980)). See also Stephens, 755 F.3d at 965;
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Schorsch v. Reliance Standard Life Ins. Co., 693 F.3d 734, 739 (7th Cir. 2012);
Kennedy v. Empire Blue Cross & Blue Shield, 989 F.2d 588, 594 (2d Cir. 1993). In
addition, administrative review “enables plan administrators to apply their expertise
and exercise their discretion to manage the plan’s funds, correct errors, make
considered interpretations of plan provisions, and assemble a factual record that will
assist the court reviewing the administrators’ actions.” Stephens, 755 F.3d at 965.
See also Amato, 618 F.2d at 568.
B. Factual Background
The Parties. Plaintiff participates in a multi-employer health and welfare plan
governed by ERISA. App. 30 (¶ 2). According to its ERISA and Internal Revenue
Code disclosures, the Plan – during the period of time relevant to this dispute – was
funded by insurance and not by the “general assets of the plan sponsor.”4 App. 33 (¶
7), 44 (¶ 44), 85. The Plan purchased insurance from five carriers, including
Defendant Independence Blue Cross (“IBX”), the leading health insurance company
in Southeastern Pennsylvania. App. 88.
Defendant QCC Insurance Company (“QCC”), a subsidiary of IBX,
administers claims for the Plan. App. 30 (¶ 2), 38–39 (¶¶ 17, 18). QCC is a purveyor
4 Under “Plan funding arrangement,” the Plan checked the box indicating
funding by a “trust” and not the “general assets of the sponsor.” App. 85. Ms. Mallon
understands that the multi-employer trust purchases insurance pursuant to collective
bargaining agreements. Dkt. No. 22, at 6–7.
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of insured (i.e., not self-funded) preferred provider organization (“PPO”) plans. App.
44 (¶ 37). 5 QCC engages Defendant Trover Solutions, Inc. d/b/a Healthcare
Recoveries (“Trover”) to assert and collect reimbursement claims on behalf of the
Plan. App. 30 (¶ 2), 35 (¶ 10). Trover’s main business consists of providing
subrogation/reimbursement services to insurance companies and plans, typically in
exchange for a percentage of any recovery. App. 35 (¶ 10), 47 (¶ 48). It maintains an
in-house law firm to facilitate these services. App. 38 (¶ 16).6 Trover is the largest
subrogation/reimbursement vendor in the country. App. 47 (¶ 48).
On November 2, 2006, Ms. Mallon was seriously injured in a car accident in
Pennsylvania. App. 59 (¶ 84), 117–18 (describing injuries). The Plan paid about
$4,000 of her medical bills. App. 30 (¶ 2), 59 (¶ 85). Ms. Mallon retained Steven
Gillman, Esq. (“Mr. Gillman”) as counsel and sued the driver who struck her vehicle
in the Court of Common Pleas of Bucks County, Pennsylvania. App. 30 (¶ 2), 115–
18. That action settled on December 17, 2009. App. 122.
5 AmeriHealth Administrators, another subsidiary of IBX, typically
administers its self-funded plans. App. 43–44 (¶ 36).
6 See also Trover Solutions, Inc., Subrogation Services (last visited Sept. 22,
2014), http://www.troversolutions.com/healthcare/subrogation (“[W]hen necessary,
Trover Solutions engages its dedicated legal team. Trover provides comprehensive
litigation management services for its clients through Gibson & Sharps, PSC.”).
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The Dispute. This lawsuit arises from Defendants’ efforts to seek
reimbursement from Ms. Mallon’s personal injury settlement for medical benefits
paid by the Plan. From October 2007 through December 2009, Trover sent Mr.
Gillman a series of collection letters asserting that Ms. Mallon was required to
reimburse the Plan if she received any compensation for her injuries. App. 123, 125–
31, 133, 215, 218–25, 227–30. After Mr. Gillman notified Trover that the Plan did
not have an enforceable subrogation/reimbursement right based on the information
that Trover had provided, App. 232–37, Trover contacted Ms. Mallon directly and
threatened to disrupt her health coverage if she did not pay. App. 238–40. She paid
under protest. App. 241. This section summarizes the relevant correspondence
among the parties.
Trover’s collection efforts began well before Ms. Mallon’s personal injury
lawsuit was even filed. On October 11, 2007, Trover representative Melissa Wright
(“Ms. Wright”) sent Mr. Gillman a one-page form letter stating that the Plan had
engaged Trover to exercise its reimbursement rights under the Plan and that Ms.
Mallon was required to reimburse the Plan if she received funds from a third party.
App. 123. The letter stated:
You should be aware that this Health Plan is a self-funded plan
governed by the Employee Retirement Income Security Act of 1974
(ERISA), as amended. As such, any recovery language in the Health
Plan is generally enforceable as written. The Health Plan, therefore, has
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the right to be reimbursed by your client for benefits it has provided in
the event that any compensation is received from another source.
Id. The letter did not reference the specific plan provisions under which the Plan
determined it was entitled to reimbursement, provide a copy of the Plan or its
summary plan description, provide information concerning Ms. Mallon’s right to
appeal the decision, state that Ms. Mallon had the right to bring a civil action under
502(a) of ERISA, or otherwise indicate Ms. Mallon had the ability to dispute the
decision to seek reimbursement.
The very same day, Mr. Gillman responded to Trover’s letter, advising the
company that if it is “satisfactorily proven that the plan has a valid right of recovery,
[Mr. Gillman’s] office will protect the plan’s lien from any settlement or verdict
entered in [Ms. Mallon’s] case . . . .” App. 124. Mr. Gillman requested appropriate
proof in the form of “a full and complete copy of the Summary Plan Description for
the health plan and the Form 5500 filed with the Internal Revenue Service for the
last calendar/fiscal year.” App. 124. The Form 5500 was important because it would
indicate whether the Plan was self-insured and thus exempt from certain limitations
on subrogation. Trover did not respond to Mr. Gillman’s request. Instead, it began
sending him additional one-page form letters requesting status updates on Ms.
Mallon’s personal injury suit. App. 125–27, 131.
On January 15, 2009, in response to Trover’s request for a case status update,
Mr. Gillman informed Trover that “Ms. Mallon’s personal injury case is in litigation”
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and that although “[t]he health plan’s subrogation interest has been noted, . . . we
have not been provided with proof that the plan is entitled to reimbursement.” App.
132. Mr. Gillman referred Trover to his October 11, 2007 letter and again requested
that Trover “[p]lease provide the appropriate proofs.” App. 132.
On January 20, 2009, over 15 months after Mr. Gillman originally requested
proof of the Plan’s right to reimbursement, Trover mailed Mr. Gillman a copy of the
entire 77-page Plan. App 134–214. In its accompanying letter, it asserted: “As you
can see, INDEPENDENCE BLUE CROSS FAMILY OF COMPANIES has a
contractual right to pursue its recovery interest (through subrogation,
reimbursement, or otherwise) in this claim.” App. 133.7 Once again, Trover did not
indicate that Ms. Mallon could appeal the Plan’s decision to assert a “contractual
right” to reimbursement against any personal injury recovery she might obtain.
Indeed, a review of the Plan proved that she had no such appeal right. The Plan
enumerates three specific types of appeals:
A. Administrative Appeal – an appeal by or on behalf of a Covered
Person that focuses on unresolved disputes or objections regarding
coverage terms such as contract exclusions and non-covered
benefits. Administrative appeal may present issues related to
Medical Necessity or Medical Appropriateness, but these are not the
primary issues that affect the outcome of the appeal.
7 Trover never provided the Plan’s Form 5500 or any other evidence of the
Plan’s purported self-funded status. App. 35 (¶ 10), 43–44 (¶ 36), 55 (¶ 75(b)), 60 (¶
90(b)), 232 (Letter of Mr. Gillman, dated February 11, 2010).
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B. Medical Necessity Appeal – request for the Claims Administrator to
change its decision, based primarily on Medical Necessity and
Appropriateness, to deny or limit the provision of a Covered
Service.
C. Expedited Appeal – a faster review of a Medical Necessity Appeal,
conducted when the Claims Administrator determines that a delay
in decision making would seriously jeopardize the Covered Person’s
life, health, or ability to regain maximum function.
App. 140–41. As these provisions make clear, a participant or beneficiary of the Plan
may only pursue an appeal associated with a denial of medical coverage.
Shortly after Ms. Mallon settled her personal injury action, Mr. Gillman
notified Trover that the Plan did not have an enforceable reimbursement right under
its terms. App. 232–33. Mr. Gillman explained that the terms of the Plan precluded
reimbursement “when prohibited by law,” and Pennsylvania’s Motor Vehicle
Financial Responsibility Law (“MVFRL”) expressly prohibits hospital plan
corporations like IBX from pursuing reimbursement claims against motor vehicle
accident victims. App. 233–35. Mr. Gillman offered to reconsider if Trover
submitted proof of the Plan’s self-funded status. App. 235–36. 8 He also requested
8 Mr. Gillman made clear that he was formally asserting Ms. Mallon’s right to
this information under ERISA: “In the event that you intend to prove self-funded
status within the time frame in question, please consider this letter as a formal
request, pursuant to ERISA, to provide the following: (a) The Plan’s IRS Form 5500,
(b) A complete, certified true copy of the entire self-funded plan, (c) The summary
plan description in effect at the time of injury as well as subsequent SPDs issued
since; (d) The complete bargaining agreement, trust agreement, contract or other
instrument under which the Plan is established, together with any amendments
subsequent thereto, (e) The certification from the U.S. Department of Labor that the
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“specific legal citations” in support of any assertion that the Plan was not required
to pay a pro rata share of his fees out of any recovery. App. 236. Mr. Gillman advised
Trover that he would place the amount of the lien into escrow for thirty days to allow
Trover to provide the information requested. App. 236.
Mr. Gillman concluded his letter by referencing a telephone conversation with
Ms. Wright in which she told him “that it was not [Trover’s] responsibility to obtain
and provide the requested proofs entitling IB[X] to subrogation but that [Mr.
Gillman’s] office should have written directly to the Plan for this information.” App.
236. Ms. Wright also advised him “that in view of the fact that [Mr. Gillman’s] office
was questioning IB[X]’s subrogation rights that [Ms. Wright] would immediately
refer this matter to counsel to address [Mr. Gillman’s] concerns.” App. 237.
aforementioned plan is an approved self-funded and 100% self-insured ERISA plan;
(f) Complete copies of each and every check or other negotiable instrument or proof
of delivery of wire transfer for each payment purportedly made to each and every
provider.” App. 236.
In addition, Mr. Gillman notified Trover that its failure to provide this
information could subject it to the penalties prescribed by ERISA: “Please be
advised that since you are acting as the claims administrator’s agent, we view this
request as sufficient under the terms of ERISA, and accordingly advise that the
failure to provide such plan documents can result in a penalty of up to $100.00 per
day payable to the plan participant under 29 U.S.C. § 1132(c). Indeed, it would
appear that since we requested proof of self-funded status as early as October 4,
2007, it is likely that those penalties have already been accruing since that date.”
App. 236.
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Rather than responding to Mr. Gillman’s legitimate concerns, unbelievably,
Trover began sending debt collection letters directly to Ms. Mallon. App. 238–40.
See also App. 35 (¶ 10), 55 (¶ 75(c)), 60 (¶ 90(c)). These letters asserted that the
Plan was entitled to reimbursement and demanded that Ms. Mallon remit $4,078.42.
App. 238 (“The Health Plan has the right to recover the benefits it has provided on
your behalf as a result of this accident or injury. Therefore, your plan is making a
formal request for reimbursement of medical benefits totaling $4078.42.”); App. 239
(“We contacted you previously regarding [IBX], and its right of recovery for claims
that relate to your accident or injury.”); App. 240 (“As representatives of your Health
Plan, we have previously contacted you requesting reimbursement of $4078.42 for
benefits provided . . . .”).
In its third collection letter to Ms. Mallon, stamped “THIRD AND FINAL
NOTICE,” Trover threatened: “If we do not hear from you within the next ten (10)
days we will have no choice but to notify your Health Plan that you have failed to
comply with our requests.” App. 240. See also App. 56 (¶ 75(d)), 60 (¶ 90(d)).
On May 5, 2010, Mr. Gillman sent Trover a final letter enclosing a check for
$4,078.42 and indicating that the asserted lien was being paid under protest. App.
241. In Mr. Gillman’s own words:
It has come to our attention that since our last letter to you, in which we
required substantiation of your asserted lien, you have contacted our
client directly on a number of occasions. As a result of the most recent
such communication, dated April 14, 2010, Ms. Mallon is concerned
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20
that you may take action to interrupt her health care coverage. As such,
she has directed us to direct payment to you, although we have advised
her we do not believe that the asserted lien is valid. Accordingly,
pursuant to her instructions, we are enclosing our draft in the amount
of Four Thousand Seventy Eight Dollars and Forty Two Cents
($4,078.42) representing payment of this disputed lien.
App. 241 (emphasis added).
C. Procedural History
On January 20, 2011, Ms. Mallon filed this lawsuit on behalf of herself and
all others similarly situated. App. 24. On June 3, 2011, she filed the operative
pleading in this dispute – a Second Amended Complaint for Injunctive and
Declaratory Relief and Damages (the “SAC”). App. 29–109. The SAC began by
explaining, in general terms, Ms. Mallon’s core grievance:
Plaintiff is a participant in a multi-employer health and welfare plan
which provides her with medical benefits. She was involved in a motor
vehicle accident in Pennsylvania and subsequently received medical
benefits through her health care plan to pay for some of her medical
bills. As a result of her accident, she had a claim against the negligent
tortfeasor, and during the pendency of that claim was contacted by . . .
an agent of her health care plan’s claim administrator, which sought
reimbursement from her tort recovery. Plaintiff asserts in this case that
this claim was improperly asserted against her.
App. 30 (¶ 2).
Plaintiff Alleges Two Categories of Wrongdoing. Broadly speaking, the
SAC alleged that Defendants “improperly asserted” their reimbursement claim in
two different ways:
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First, the SAC contains many allegations about Defendants’ wrongful conduct
in pursuing reimbursement against Ms. Mallon and other Class Members. That
allegedly wrongful conduct includes:
“Falsely representing . . . that the plan is a ‘self funded ERISA plan’
even when it is known or reasonably ascertainable that the plan is not
self-funded . . . .” App. 55 (¶ 75(a)).
“Failing and refusing, despite repeated requests, to provide
documentation to plan beneficiaries and/or their attorneys
substantiating self-funded ERISA status when the same is asserted as a
basis for subrogation rights . . . .” App. 55 (¶ 75(b)).
“Stating or implying to plan beneficiaries, by telephone communication
and through the mail, that their health care benefits could be interrupted
or canceled if the Defendants’ subrogation claim was not paid . . . .”
App. 56 (¶ 75(d)).
“Asserting and collecting . . . sums greater than were actually paid by
the insurer Defendants for the medical care which forms the basis of
the Defendants’ subrogation claims . . . .” App. 56 (¶ 75(e)).
“Mak[ing] direct contact in [] collection efforts with individuals known
to be represented by counsel . . . notwithstanding the fact that [Trover]
maintains a captive law firm as part of its business, is affirmatively
engaged in the practice of law, and is prohibited from such contacts by
attorney ethical rules.” App. 35 (¶ 10).
See also App. 55–57 (¶¶ 74–80) (grouped under the heading: “The Unlawful Acts
Taken in Pursuit of the Prohibited Claims”).9
9 Such conduct-based allegations can be found throughout the SAC. See, e.g.,
App. 31–32 (¶ 5) (alleging that Defendants “often [] mak[e] the false assertion that
the plan is a ‘self funded’ ERISA plan . . . .”); App. 33 (¶ 7) (alleging that “[t]he
Defendants have failed and refused to provide any documentation of plan funding
status which indicates that her plan is self-funded . . . .”); App. 35 (¶ 10) (alleging
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As a remedy for Defendant’s allegedly unlawful conduct, the SAC made clear
that “[Plaintiff] seeks to enjoin the deceptive practices alleged herein pursuant to
section 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3) [as well as] damages and/or
disgorgement of unlawfully obtained funds obtained through these practices . . . .”
App. 33 (¶ 7).
Second, the SAC contains many allegations about Defendants’ wrongful legal
position of asserting a “first-dollar” reimbursement right against Ms. Mallon and
other Class Members. Specifically, Plaintiff alleged that Defendants’ legal position
was incorrect for the following reasons:
Any right of reimbursement asserted by Defendants is barred by a
Pennsylvania statute which, as a generally applicable insurance
regulation, is not preempted because Ms. Mallon’s plan is not self-
insured. App. 32 (¶ 6), 33–34 (¶ 8), 43–44 (¶ 35–37), 46–47 (¶ 41–45),
App. 49 (¶ 54).
Any right of reimbursement asserted by Defendants is subject to
“traditional equitable limitations on the availability of subrogation as a
remedy, including the ‘make whole’ and ‘common fund’ doctrines
. . . .” App. 33–34 (¶ 8).
See also App. 47–50 (¶¶ 46–58) (grouped under the heading: “Defendants’
Subrogation Practices”); App. 50–52 (¶¶ 59–64) (grouped under the heading: “The
Legal Prohibition Against Defendants’ Subrogation Claims”).
that Defendant “Trover regularly and aggressively asserts that the plans it represents
are self-funded and entitled to overcome any impediment to subrogation, but
uniformly fails and refuses to provide any documentation of self-funded status.”).
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As a remedy for Defendants’ allegedly unlawful legal position, the SAC made
clear that Plaintiff was asking the district court, again pursuant to 29 U.S.C.
§ 1132(a)(3), to “[e]njoin[] the Defendants from attempting to assert any current
and/or prospective subrogation claims with respect to motor vehicle accident-related
tort recoveries by Plaintiff and the Class Members;” App. 69 (¶ 144(e)), and to
“[r]equir[e] the Defendants to disgorge all funds obtained through the exercise of
subrogation claims which the court has deemed to be improper in whole or in part,”
App. 71–71 (¶ 114(k)).
Plaintiff Includes Five “Counts.” The SAC sought relief in five “counts.”
Count I was asserted against all three Defendants. App. 44–46 (¶¶ 38–43). It
reiterated, at length, the two categories of wrongdoing described above. App. 44–46
(¶¶ 38–43). And as a remedy for such wrongdoing (which constitute fiduciary
violations under ERISA), it sought “declaratory and injunctive relief” as well as
“restitution of wrongfully obtained and retained funds.” App. 71.
The heading of Count I purported to seek such relief pursuant to “ERISA
Sections 502(a)(1)(B) and 502(a)(3).” App. 66. As explained below, however, the
relief sought by Plaintiff is only available under Section 502(a)(3) of ERISA, 29
U.S.C. § 1132(a)(3). See infra pages 31–36 (Argument Section I). Plaintiff’s trial
counsel realized that fact and informed the district court throughout the course of
briefing associated with Defendants’ motion to dismiss the SAC (or, alternatively,
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for summary judgment), Dkt. No. 20-1 (the “MTD”). See, e.g., Plaintiff’s Sur-Reply,
Dkt No. 27, at 2 (“Plaintiff’s claims, at their heart, allege breaches of the fiduciary
duties owed to plan beneficiaries under section 404(a) of ERISA, 29 U.S.C. §
1104(a) [and a]s such, plaintiff’s claims for declaratory and injunctive relief are by
necessity claims which assert statutory rights.”). See also Plaintiff’s Response, Dkt.
No. 22, at 11 (Plaintiff’s “claims are not claims for benefits but rather fiduciary duty
claims.”). See also App. 70 (¶ 114(i)) (specifically alleging that Defendants’ conduct
“constitutes a breach of fiduciary duty”).10
Counts II, III, and V were asserted against only Defendant Trover. Count II
alleged violations of the Fair Debt Collection Practices Act (“FDCPA”) and
Pennsylvania debt collection laws. App. 71. Count III alleged tortious interference
with contract. App. 75. And Count V sought a remedy under an unjust enrichment
theory. App. 79. Count IV was asserted against only Defendants IBX and QCC. App.
78. It sought relief under Section 502(a)(2) of ERISA, 29 U.S.C. § 1132(a)(2), for
some of the fiduciary violations described in Count I. App. 79.
10 Defendants themselves expressly recognized that this case does not involve
any claims under 29 U.S.C. § 1132(a)(1)(B). See Defendant’s Third Brief, Dkt. No.
32, at 2 (“Mallon’s admission that she is trying to preclude [not enforce] the Plan’s
provisions also confirms that she has no claim under [29 U.S.C. § 1132(a)(1)(B).]
While ERISA § 502 (a)(1)(B) allows a plan participant to ‘recover benefits,’ ‘enforce
[her] rights,’ or ‘clarify [her] rights to future benefits,’ each of these remedies is
limited to obtaining relief ‘under the terms of the plan.’”).
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Defendants Move to Dismiss All Counts. On June 24, 2011, Defendants filed
the MTD. In the MTD, Defendants’ primary argument was that the entire SAC
should be dismissed under Federal Rule of Civil Procedure 12 because Ms. Mallon
failed to exhaust administrative remedies under ERISA before filing her lawsuit. See
Dkt. No. 20-1, at 18–25.
In the alternative, Defendants argued that the entire SAC should be dismissed
under Federal Rule of Civil Procedure 12 because each of the five Counts failed to
state a claim on which relief may be granted. See Dkt. No. 20-1, at 25–38.
Defendants made the following specific arguments with regard to each Count in the
SAC:
Defendants argued that Count I of the SAC should be dismissed
because Defendant QCC’s interpretation of the plan’s subrogation
provision is reasonable, see Dkt. No. 20-1, at 25–30, and Plaintiff’s
arguments about the illegality of the provision are without merit, see Dkt. No. 20-1, at 31–32.
Defendants argued that “Count II (FDCPA And FCEUA Claims Against
Trover) Should Be Dismissed Because Trover Is Not A ‘Debt
Collector.’” Dkt. No. 20-1, at 34–35.
Defendants argued that “Count III (Tortious Interference With Contract
Claim Against Trover) Should Be Dismissed Because The Plan Was
Entitled To Subrogation And Mallon Failed To Allege Any Actual Legal
Damage.” Dkt. No. 20-1, at 36–37.
Defendants argued that Count IV of the SAC should be dismissed
because “she seeks relief under ERISA § 502(a)(2), 29 U.S.C.
§ 1132(a)(2). However, individual relief is not authorized under this
section of ERISA which provides a remedy only for ERISA plans and
not individual plan participants.” Dkt. No. 20-1, at 34.
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And Defendants argued that “Count V (Unjust Enrichment Claim
Against Trover) Should Be Dismissed Because The Plan’s Rights To
Subrogation Were Provided In A Written Document.” Dkt. No. 20-1, at
38–39.
In a final section of the MTD, Defendants argued at length that “THE
PENNSYLVANIA ANTI-SUBROGATION STATUTE IS PREEMPTED” and that,
insofar as any Count of the SAC was predicated on that state law, it must fail. Dkt.
No. 20-1, at 39–43.
Plaintiff Voluntarily Dismisses Counts II, III, IV, and V. After the MTD
was filed, extensive briefing ensued. See Plaintiff’s Response, Dkt. No. 22 (Aug. 12,
2011); Defendants’ Reply, Dkt. No. 25 (Sept. 15, 2011); Plaintiff’s Sur-Reply, Dkt.
No. 29 (Sept. 26, 2011); Defendants’ Third Brief, Dkt. No. 32 (Oct. 17, 2011). After
the Supreme Court decided McCutchen, 133 S. Ct. 1537, on April 16, 2013, Plaintiff
voluntarily dismissed Counts II, III, IV, and V of the SAC choosing to litigate only
her claims under 29 U.S.C. § 1132(a)(3) seeking injunctive and other equitable
relief. See Dkt No. 39 (notice of voluntary dismissal); Dkt. No. 39-1 (letter to court
explaining decision). Immediately thereafter, Defendants filed a Motion for Leave
to File Notice of Supplemental Authority in Support of Defendants’ MTD, Dkt. No.
34 (May 1, 2013), alerting the district court to the Supreme Court’s McCutchen
decision. Plaintiff filed a Response in Opposition. Dkt. No. 37 (May 9, 2013).
The District Court Dismisses Count I for Failure to Exhaust. On June 4,
2014, the district court granted the MTD and dismissed the SAC in its entirety.
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App. 3 (Order); App. 21 (“[T]he Motion to Dismiss of Defendants’ Independence
Blue Cross, QCC, and Trover Solutions will be granted.”).
The sole basis on which the court predicated its dismissal was Ms. Mallon’s
alleged failure to exhaust administrative remedies. The court did not reach any other
argument advanced by Defendants in their MTD. And to be clear: the district court’s
opinion was comprised of two core holdings.
First, the district court held that “subrogation disputes are claims for benefits
due. As such, Plaintiff was required to exhaust her Plan’s administrative remedies
prior to initiating this lawsuit.” App. 13–14. As explained below, that holding
constitutes reversible error. See infra pages 31–46 (Argument Section I).
Second, the district court held that Ms. Mallon failed to satisfy ERISA’s
exhaustion requirement prior to filing this case. See, e.g., App. 14–15 (rejecting
Plaintiff’s arguments that “even if the exhaustion doctrine does apply, she was never
informed of an adverse benefit determination as required by ERISA” and “‘that there
was no administrative process or remedy available to her with which to resolve
subrogation disputes. . .”) (emphasis in original). As explained below, that holding
also constitutes reversible error. See infra pages 46–52 (Argument Section II).
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STATEMENT OF THE STANDARD OF REVIEW
This Court has plenary review over legal questions. Lazorko v. Pennsylvania
Hospital, 237 F.3d 242, 247 (3d Cir. 2000); Gavalik v. Cont’l Can Co., 812 F.2d 834,
850 (3d Cir. 1987). Issues concerning the applicability of exhaustion principles in
cases brought under 29 U.S.C. § 1132(a) are questions of law. Harrow, 279 F.3d at
248. A district court’s decision to grant or decline an exception to exhaustion is
reviewed for abuse of discretion. Id.
Moreover, “a district court’s decision granting a motion to dismiss [is
reviewed] under a plenary standard.” Fowler v. UPMC Shadyside, 578 F.3d 203, 206
(3d Cir. 2009). A plaintiff “need only set forth sufficient facts to support plausible
claims” to survive a motion to dismiss. Id. at 212 (citing Bell Atlantic Corp. v.
Twombly, 550 U.S. 544 (2007); Ashcroft v. Iqbal, 556 U.S. 662 (2009)).
SUMMARY OF THE ARGUMENT
The district court erred in granting Defendants’ MTD for two reasons.
I. The SAC alleges sufficient facts to support plausible claims for relief that
are not subject to an exhaustion requirement. Specifically, the SAC alleges facts
entitling Ms. Mallon to injunctive relief and “other appropriate equitable relief”
under 29 U.S.C. § 1132(a)(3) because the SAC alleges facts that, if true, would
constitute violations of Defendants’ fiduciary duties imposed by two different
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statutory provisions in ERISA: 29 U.S.C. §§ 1104(a)(1)(A) and 1104(a)(1)(D). As
such, the entire complaint should not have been dismissed for failure to exhaust.
Defendants violated section 1104(a)(1)(A) by engaging in conduct that is
inconsistent with their statutorily-imposed duty of loyalty. While it is true that their
behavior was inspired by the desire to obtain money that was once paid to Ms.
Mallon as a benefit, Ms. Mallon’s section 1132(a)(3) claim is nonetheless an
independent statutory claim, not a section 1132(a)(1)(B) claim for benefits (or an
artfully pled claim for benefits). Thus, Ms. Mallon was not required to exhaust
administrative remedies before filing a lawsuit seeking relief on the basis of facts
that plausibly entitle her to relief for violations of section 1104(a)(1)(A).
Defendants violated section 1104(a)(1)(D) by failing to implement the plan as
written and also by asserting a right of reimbursement that is inconsistent with
ERISA, and these violations entitle Ms. Mallon to injunctive and equitable relief
under section 1132(a)(3). Like Defendants’ violations of section 1104(a)(1)(A),
Defendants’ violations of section 1104(a)(1)(D) are inspired by their desire to obtain
money that was once paid to Ms. Mallon as a benefit. But this fact alone does not
transform Ms. Mallon’s claim under section 1132(a)(3) into a claim for benefits due
under section 1132(a)(1)(B). Nor does it render her claim one that is artfully pled to
avoid exhaustion requirements.
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When a plaintiff seeks to challenge a Plan’s demand for reimbursement, the
plain language of section 1132(a)(1)(B) does not create the Plaintiff’s cause of
action; the plaintiff must proceed under section 1132(a)(3). The Third Circuit
opinions in Wirth v. Aetna U.S. Healthcare, 469 F.3d 305 (3d Cir. 2006) (“Wirth”),
and Levine v. United Healthcare Corp., 402 F.3d 156 (3d Cir. 2005) (“Levine”), do
not compel a contrary conclusion. The issue in those cases was not whether a claim
like Ms. Mallon’s is more properly construed as an section 1132(a)(3) claim or an
section 1132(a)(1)(B) claim. It was instead whether a claim like Ms. Mallon’s is
remediable under section 1132(a) at all. Thus, the language in those opinions about
the applicability of section 1132(a)(1)(B) is dicta and is not binding upon this Court.
II. Even if the administrative exhaustion requirement would generally apply
to the type of claims asserted by Ms. Mallon, it would not bar the present suit.
29 U.S.C. § 1133 requires plans to provide “adequate notice” and “full and fair”
review of any adverse benefit determination in conformity with regulations
promulgated by the DOL. The DOL’s regulations require plans to engage in specific
conduct following any adverse benefits determination. See 29 C.F.R. § 2560.503-
1(g)(i)–(iv).
If Defendants’ decision to pursue a reimbursement claim against Ms. Mallon
constitutes an adverse benefits determination, then Defendants failed to comply with
ERISA and the pertinent DOL regulations in two critical ways. First, Defendants
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failed entirely to apprise Ms. Mallon of their expectation that she exhaust the
administrative remedies available under the Plan. Under the DOL’s deemed
exhausted rule, such behavior excuses any purported failure on Ms. Mallon’s part to
exhaust administrative remedies. Second, Defendants failed entirely to establish an
administrative process that would permit review of the Plan’s decision to exercise
its reimbursement rights. As a result of this failure as well, Ms. Mallon is deemed to
have exhausted her administrative remedies. The district court abused its discretion
in holding otherwise.
ARGUMENT
I. Plaintiff Was Not Required to Exhaust the Claims in Count I of the SAC
Because They Seek Relief for Violations of Duties Imposed by ERISA.
In seeking reversal of the district court’s order granting Defendants’ MTD,
Plaintiff does not ask that the Court fashion new law. Indeed, the law of this Circuit
is clear and well settled. First, “the [administrative] exhaustion doctrine applies to
benefits claims under ERISA.” App. 11 (emphasis added). Second, the
administrative exhaustion doctrine does not apply to statutory claims under ERISA.
App. 11–12 (quoting D’Amico v. CBS Corp., 297 F.3d 287, 291 (3d Cir. 2002)). The
district court stated these simple and uncontroversial principles. But it misapplied
them to the facts of this case. It erroneously lumped Ms. Mallon’s allegations into
the category of “subrogation disputes,” and characterized all such disputes –
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regardless of whether they arise under the statute – as “claims for benefits due,”
subject to ERISA’s exhaustion requirement. App. 13. That was reversible error.
A claim seeking relief under 29 U.S.C. § 1132(a)(3) to remedy an alleged
fiduciary violation is clearly a statutory claim. App. 12 (noting that “the exhaustion
doctrine will apply unless the facts alleged ‘present a breach of fiduciary duty claim
that is independent of a claim for benefits . . . .’”) (quoting Harrow, 279 F.3d at 253).
And in this lawsuit, Plaintiff unquestionably seeks injunctive and equitable relief
under section 1132(a)(3) to remedy Defendants breaches of fiduciary duties. Indeed,
the SAC alleges facts giving rise to violations of two distinct provisions of ERISA
that impose statutory fiduciary duties on Defendants. See infra pages 33–34
(Argument Section I.A) (fiduciary duties imposed by 29 U.S.C. § 1104(a)(1)(A));
infra pages 34–38 (Argument Section I.B) (fiduciary duties imposed by 29 U.S.C. §
1104(a)(1)(D)).
The district court failed to appreciate these facts. It mistakenly believed that
because Plaintiff voluntarily dismissed her section 29 U.S.C. § 1132(a)(2) claim
(which, as discussed above, is a type of ERISA action seeking relief on behalf of the
plan), she was asserting no breach of fiduciary duty claim against Defendants. See
App. 12 n.5 (“Although Plaintiff originally claimed that Defendants breached their
fiduciary duties under section 404(a) of ERISA, that claim has since been
withdrawn.”). Then, thinking there was no longer a fiduciary breach claim, the court
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cited two inapposite district court opinions from within the Second Circuit and
seized on dicta from two Third Circuit preemption cases to reach the mistaken
conclusion “that subrogation disputes are claims for benefits due.” App. 13. And
from that incorrect premise, the court summarily concluded that “Plaintiff was
required to exhaust her Plan’s administrative remedies prior to initiating this
lawsuit.” App. 13–14. Because Ms. Mallon has alleged that Defendants, as
fiduciaries, committed statutory breaches of ERISA, her claims were not subject to
an exhaustion requirement and should not have been dismissed.
A. Plaintiff Is Seeking Relief Under 29 U.S.C. § 1132(a)(3) for
Defendants’ Statutory Violations.
In Count I of the SAC, Ms. Mallon sought injunctive relief and “other
equitable relief” under 29 U.S.C. § 1132(a)(3). App. 66–71. To be sure: section
1132(a)(3) may address either (i) a statutory violation of a provision found in ERISA
or (ii) a term of the participant’s ERISA plan that has been violated or needs
enforcement. But Ms. Mallon did not seek relief under section 1132(a)(3) to enforce
a term found in her ERISA plan. The reason is simple: no plan term would have
entitled her to relief. As her counsel explained to the district court:
Plaintiff does not seek to enforce any term of the benefit plan. Indeed,
she seeks declaratory and injunctive relief under section 502(a)(3) to
preclude the enforcement of the subrogation clause against her and
others similarly situated, and to establish the applicability of the state
law “common fund” doctrine under the clause in question.
Dkt. No. 29, at 1–2 (emphasis in original).
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As explained in detail below, Plaintiff is seeking relief to remedy statutory
violations by Defendants of two different ERISA provisions: 29 U.S.C.
§ 1104(a)(1)(A) and 29 U.S.C. § 1104(a)(1)(D). The district court failed to
appreciate this critical distinction. Indeed, without any examination of the SAC or
Plaintiff’s specific allegations, the district court summarily decided that Plaintiff was
seeking injunctive and equitable relief to enforce terms in her ERISA plan. See, e.g.,
App. 13 (“subrogation disputes are claims for benefits due”); id. (“resolution. . .
requires a court to determine entitlement to a benefit under the lawfully applied terms
of an ERISA plan . . . .”) (quoting Singh v. Prudential Health Care Plan, 335 F.3d
278, 291 (4th Cir. 2003)) (emphasis in original). Had the district court examined the
SAC, it would have seen that Ms. Mallon’s allegations state a claim for statutory
violations that are not subject to ERISA’s exhaustion requirement.
B. Plaintiff Has Pleaded a 29 U.S.C. § 1132(a)(3) Claim for
Defendants’ Violations of 29 U.S.C. § 1104(a)(1)(A).
29 U.S.C. § 1104(a)(1)(A) of ERISA requires a plan fiduciary to “discharge
his duties . . . for the exclusive purpose of (i) providing benefits . . . and (ii)
defraying reasonable expenses of administering the plan.” It is commonly
understood to impose a strict duty of loyalty upon fiduciaries. See, e.g., Reich v.
Compton, 57 F.3d 270, 290 (3d Cir. 1995), amended (Sept. 8, 1995). In the SAC,
Ms. Mallon alleges that Defendants engaged in at least three affirmative acts of
conduct that would violate section 1104(a)(1)(A).
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1. Ms. Mallon alleges that Defendants misrepresented the funding status of
her Plan in order to argue that Pennsylvania anti-subrogation law is preempted. See
supra page 21 (discussing Plaintiff’s misrepresentation allegations). Only through
such misrepresentation were Defendants able to induce Ms. Mallon to pay the
disputed funds to the Plan.
2. Ms. Mallon alleges that (even if her plan is self-funded) Defendants
refused to provide timely proof of plan funding which, in turn, limited the amount
of money that she was able to recover in her underlying tort litigation. See supra
page 21 (discussing Plaintiff’s document withholding allegations). Indeed, Ms.
Mallon goes so far as to allege that Defendants have engaged in a pattern and practice
of such misconduct. See, e.g., App. 68 (¶ 112) (“In instances where self-funded
ERISA status was asserted as a basis for the subrogation claims at issue, the
Defendants ignored and/or refused reasonable requests for proof and documentation
of plan funding. . .”); Dkt. No. 22, at 2 (“To further these improper practices, the
defendants universally fail to provide documents supporting their claimed self-
funded status, causing further harm by prejudicing beneficiaries’ ability to recover
on the assert lien amounts in their tort claims.”).
3. Ms. Mallon alleges that Defendant Trover improperly contacted her
directly, and thus pressured her to pay money that she would not have otherwise
paid. See supra page 21 (discussing Plaintiff’s improper contact allegations). See
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also Dkt. No. 22, at 5 (“Although Trover knew that Mallon was represented by
counsel, it began to contact her directly once her attorneys disputed the lien, causing
her to fear the loss of her health benefits. This in turn led her to instruct her attorneys
to issue payment for the full amount asserted by Trover from the amount they had
retained in escrow pending resolution of the lien.”) (citing SAC at ¶¶ 90–92).
If proven, any of these allegations would unquestionably constitute a violation
of section 1104(a)(1)(A) that is remediable under section 1132(a)(3). See, e.g.,
Edmonson v. Liberty Nat’l Life Insurance Co., 725 F.3d 406, 418 (3d Cir. 2013)
(“[A]n ERISA beneficiary suffers an injury-in-fact sufficient to bring a disgorgement
claim when a defendant allegedly breaches its fiduciary duty, profits from the breach,
and the beneficiary, as opposed to the plan, has an individual right to the profit”).
And the above three examples are not the only allegations of this type of fiduciary
breach. Paragraphs 74–80 of the SAC describe “the unlawful acts taken in pursuit of
the prohibited claims,” such as overstating the amount of money owed by insureds
and threatening insureds with the loss of their health benefits for failure to reimburse
the Plan. App. 56 (¶ 75(d)–(e)).
These allegations provide the basis for a statutory breach of fiduciary duty
claim that is clearly independent of any benefits claim. Any of the alleged violations
of ERISA’s duty of loyalty would entitle Ms. Mallon to an equitable remedy
regardless of whether the Plan would otherwise – i.e. in the absence of their fiduciary
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breaches – have been entitled to reimbursement out of Ms. Mallon’s tort settlement.
Put differently, even if Ms. Mallon conceded that the Plan contains a valid
reimbursement provision, she would be entitled to repayment of the $4,078.42 in
this particular case because defendants obtained those funds through a breach of
duty. And so long as there exists an independent breach of fiduciary duty, Ms.
Mallon’s statutory claims are not subject to exhaustion. Cf. Harrow, 279 F.3d at 254–
55 (plaintiff may not “attach a ‘statutory violation’ sticker” to ordinary claim denial).
The district court’s failure to appreciate that Ms. Mallon was alleging
violations of section 1104(a)(1)(A) is significant because none of the cases that it
relied upon in dismissing the SAC – Wurtz v. Rawlings Co., LLC, 933 F. Supp. 2d
480 (E.D.N.Y. 2013) (“Wurtz”); Kesselman v. Rawlings Co., 668 F. Supp. 2d 604
(S.D.N.Y. 2009) (“Kesselman”); Wirth v. Aetna U.S. Healthcare, 469 F.3d 305 (3d
Cir. 2006); and Levine v. United Healthcare Corp., 402 F.3d 156 (3d Cir. 2005) –
imposes an exhaustion requirement upon a plaintiff who seeks relief for fiduciary
breaches that are akin to those pleaded by Ms. Mallon. Nor would doing so make
any sense: Ms. Mallon’s entitlement to relief depends entirely on whether
Defendants’ behavior violated their statutorily-imposed duty of loyalty, a matter that
is within the “peculiar expertise” of the courts. Zipf v. American Tel. & Tel. Co., 799
F.2d 889, 893 (3d Cir. 1986) (“Zipf”). In asserting that Defendants’ violated section
1104(a)(1)(A), Ms. Mallon does not challenge the validity of the Plan’s
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reimbursement right as a matter of plan interpretation. Rather, she seeks redress for
Defendants’ statutorily prohibited misconduct. There were no similar allegations in
Wurtz, Kesselman, Wirth, and Levine.
C. Plaintiff Has Also Pleaded a 29 U.S.C. § 1132(a)(3) Claim for
Defendants’ Violations of 29 U.S.C. § 1104(a)(1)(D).
A different provision of ERISA, 29 U.S.C. § 1104(a)(1)(D), gives rise to
Plaintiff’s other independent breach of fiduciary duty claim. Section 1104(a)(1)(D)
requires a plan fiduciary to act “in accordance with the documents and instruments
governing the plan insofar as such documents and instruments are consistent with
the provisions of [ERISA].” As a corollary, a plan fiduciary cannot act pursuant to
the plan documents and instruments in a manner that is illegal under ERISA. This is
often referred to as the “plan documents rule.” Kennedy v. Plan Adm’r for DuPont
Sav. & Inv. Plan, 555 U.S. 285, 303 (2009).
In this case, Plaintiff alleged that Defendants violated the plan documents rule
in several important ways. See, e.g., App. 47–50 (¶¶ 46–58). To take just one
example, Plaintiff alleged that Defendants wrongfully administered the Plan by
seeking subrogation/reimbursement in a manner that violated the common fund
doctrine. Under the common fund doctrine “a litigant or a lawyer who recovers a
common fund for the benefit of persons other than himself or his client is entitled to
a reasonable attorney’s fee from the fund as a whole.” McCutchen, 133 S. Ct. at 1545.
Yet, in administering the Plan, Defendants refused to contribute to the common fund,
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seeking full reimbursement against the Plan’s participants and beneficiaries. App.
33–34 (¶ 8).
As explained in McCutchen, that was wrongful. Unless the common fund is
expressly disclaimed by the terms of the Plan, the Plan “is properly read to retain the
common-fund doctrine.” McCutchen, 133 S. Ct. at 1551. And such a disclaimer – in
Defendants’ Plan – can nowhere be found:
Subrogation
In the event any service is provided or any payment is made to you or
your covered Dependent under this Plan, the Claims Administrator shall
be subrogated and succeed to your rights of recovery against any
person, firm, corporation, or organization except against insurers on
policies of insurance issued to your and in your name. You or your
covered Dependent shall execute and deliver such instruments and take
such other reasonable action as the Claims Administrator may require
to secure your rights. You or your covered Dependent may do nothing
to prejudice the rights given the Claims Administrator without the
Claims Administrator’s consent.
You or your covered Dependent shall pay the Claims Administrator all
amounts recovered by suit, settlement, or otherwise from any third
party or his insurer to the extent of the benefits provided or paid under
this Claims Administrator and as permitted by law.
The Claims Administrator’s right of subrogation shall be unenforceable
when prohibited by law.
App. 200. Thus, Defendants rejection of the common fund doctrine not only violates
the plan document rule because it is inconsistent with the Plan documents, it also
violates the plan document rule because it is inconsistent with ERISA.
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To be clear: a lawsuit such as this one seeking relief under section 1132(a)(3)
to remedy a violation of section 1104(a)(1)(D) is not merely a disguised claim for
“benefits due” under section 1132(a)(1)(B). To the contrary, section 1132(a)(3) is
often the only way for a beneficiary who believes that a plan administrator has
wrongly obtained reimbursement to affirmatively challenge that act. Consider the
choice a beneficiary faces when a plan administrator makes a demand for
reimbursement:
One option is to refuse the demand like the beneficiary in McCutchen, 133 S.
Ct. 1537. That choice would force the plan fiduciary to file suit “under [29 U.S.C.]
§ [1132](a)(3), seeking ‘appropriate equitable relief’ to enforce the plan’s
reimbursement provisions.” McCutchen, 133 S. Ct. at 1543. No court, case, or
commentator has ever suggested that such an action would be subject to
administrative exhaustion requirements and for good reason: It is not a claim for
benefits. It is a claim asserting a contractual lien on benefits already paid.
But what if, when faced with a demand for reimbursement that is not
authorized by her plan, the beneficiary wants to avoid being sued (potentially along
with her lawyer) in a federal lawsuit brought by her plan? Her other option is to pay
the demand in protest and then bring suit herself under section 1132(a)(3) alleging
that the plan fiduciary breached its obligations to act in accordance with the plan –
a violation of section 1104(a)(1)(D). See, e.g., Varity, 516 U.S. at 507–15
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(confirming that section 1132(a)(3) is an appropriate vehicle for remedying a breach
of the fiduciary obligations owed to plan participants). That is exactly what happened
here.
If a plan administrator’s section 1132(a)(3) action for reimbursement is not
required to proceed first through internal exhaustion, why must a beneficiary’s?
After all, both claims involve precisely the same issue – whether the plan is properly
able to obtain reimbursement. While such a dispute will likely involve some issues
of plan interpretation, that interpretation will almost certainly require adjudication
of extra-contractual legal questions, such as whether a plan’s reimbursement
provision can survive state law or whether such state law is preempted, whether a
plan’s reimbursement provision is consistent with Supreme Court jurisprudence
governing subrogation, and whether there is conflict between the Plan and the
Summary Plan Description that renders a reimbursement provision invalid. These
questions involve application of legal doctrines that “plan fiduciaries have no
expertise in interpreting.” Zipf, 799 F.2d at 893.
Accordingly, one of the primary justifications for an exhaustion
requirement in other contexts, deference to administrative expertise, is
simply absent. Indeed, there is a strong interest in judicial resolution of
these claims, for the purpose of providing a consistent source of law to
help plan fiduciaries and participants predict the legality of proposed
actions.
Id. Like the claim in Zipf, reimbursement disputes are unlikely to “present complex
issues of plan interpretation,” id. at 894, and even if such issues do present
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themselves, that “possibility” should not “justify an across-the-board barrier to
judicial relief.” Id.
One might wonder whether another option for the beneficiary who is facing
an improper reimbursement demand would be to file a claim under
section 1132(a)(1)(B). The answer is no. By its plain terms, that provision authorizes
no relief because claims for reimbursement are claims over “equitable relief” for
which section 1132(a)(1)(B) has no sway. See Great Great–West Life & Annuity Ins.
Co. v. Knudson, 534 U.S. 204 (2002).
To be sure: there has been confusion on this point. Even Plaintiff’s trial
counsel were confused and, in an abundance of caution, initially requested
declaratory relief pursuant to section 1132(a)(1)(B). But nothing in this lawsuit seeks
“benefits due” (either now or in the future) “under the terms of the plan.” 29 U.S.C.
§ 1132(a)(1)(B). Nor does anything in this lawsuit seek “to enforce [Plaintiff’s]
rights under the terms of the plan.” Id. Put simply, there is no term of Plaintiff’s plan
that entitles her to restitution of an improperly asserted lien that she happens to have
paid under protest. That right comes from ERISA itself – the fiduciary duty found in
section 1104(a)(1)(D).
The district court understandably but mistakenly relied on Levine and Wirth
to conclude that “subrogation disputes are claims for benefits due.” App. 13. This
Court’s opinions in Wirtz and Levine, however, do not support the conclusion that
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Ms. Mallon’s allegations about Defendants’ violations of section 1104(a)(1)(D) are
properly understood as claims under section 1132(a)(1)(B).
Those cases both characterized plaintiffs’ challenges to reimbursement
provisions as claims for benefits due under section 1132(a)(1)(B). But those cases
involved complete preemption, and the panels were concerned only with whether
the plaintiffs’ claims were remediable under state law or under ERISA. Neither
opinion reached – or even considered – the issue of whether the plaintiffs’ claims in
those cases were more properly considered claims for benefits under section
1132(a)(1)(B) or claims for equitable relief under section 1132(a)(3).
To be clear: there was absolutely no need for either opinion to consider such
a distinction because the plaintiffs’ claims in those cases would have been preempted
regardless of whether they were under one provision or another of section 1132(a).
Moreover, the parties never argued that the plaintiffs’ claims were section 1132(a)(3)
claims. Instead the parties and district court all assumed that the plaintiffs’ claims –
if they were remediable under ERISA at all – were remediable under section
1132(a)(1)(B).
The doctrine of complete preemption allows a defendant to remove a case that
asserts only state-law claims on the grounds that these claims are “in essence” federal
claims. Levine, 402 F.3d at 162. Specifically, if a lawsuit asserts state-law claims
“seeking relief within the scope of section 502(a) of ERISA,” 29 U.S.C. § 1132(a),
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it will be completely preempted and can be removed to federal court. Id. This is true
regardless of whether the state-law claims are remediable under section 1132(a)(3)
or 1132(a)(1)(B).
In both Levine and Wirth, the plaintiffs were participants who sued to recover
money that they had paid to their plans after their plans demanded reimbursement
from the plaintiffs’ settlements with third-party tortfeasors. Levine, 402 F.3d at 159–
60; Wirth, 469 F.3d at 307. The plaintiffs in both cases asserted various state law
claims. Levine, 402 F.3d at 162; Wirth, 469 F.3d at 307. The defendants in both cases
removed on the grounds of complete preemption. Levine, 402 F.3d at 160; Wirth,
469 F.3d at 307. In each case, this Court held that plaintiffs’ state law claims were
completely preempted because they were remediable under section 1132(a). Levine,
402 F.3d at 163; Wirth, 469 F.3d at 309. Neither opinion considered – much less
rejected – the possibility that the plaintiffs’ state law claims were remediable under
section 1132(a)(3). Instead, the opinions discussed only the question of whether the
claims could be pursued under section 1132(a)(1)(B). Levine, 402 F.3d at 160, 162–
63; Wirth, 469 F.3d at 308–09. But the outcome of both cases would have been
exactly the same if the opinions had concluded that the plaintiffs’ state law claims
could have been brought pursuant to section 1132(a)(3). All that mattered to the
outcome of these cases was that plaintiffs’ state law claims were “in essence” federal
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claims under section 1132(a). The courts’ discussion of whether the claims fit within
section 1132(a)(1)(B) was therefore dicta that is not binding on this court.
Moreover, the panels in Levine and Wirth did not have the benefit of briefing
on the issue of whether plaintiffs’ state law claims were more properly understood
as section 1132(a)(1)(B) claims or section 1132(a)(3) claims. The issue was not
raised in any of the briefs on appeal, and it was not considered by any of the courts
below. See Carducci v. Aetna U.S. Healthcare, 247 F. Supp. 2d 596, 606 (D.N.J.
2003), rev’d sub nom. Levine v. United Healthcare Corp., 402 F.3d 156 (3d Cir.
2005); Carducci v. Aetna U.S. Healthcare, 204 F. Supp. 2d 796, 797 (D.N.J. 2002),
aff’d sub nom. Levine v. United Healthcare Corp., 402 F.3d 156 (3d Cir. 2005); Wirth
v. Aetna U.S. Healthcare, CIV.A. 03-5406, 2004 WL 253525 (E.D. Pa. Feb. 10,
2004), aff’d 137 F. App’x 455 (3d Cir. 2005), certified question answered, 904 A.2d
858 (2006). And this is entirely understandable – the plaintiffs in those cases had no
incentive whatsoever to argue that their claims were more properly construed as
section 1132(a)(3) claims rather than section 1132(a)(1)(B) claims. They were
opposing removal on the grounds that their state law claims did not fall within the
scope of section 1132(a) at all. It would have made no sense for them to quibble with
the particular subsection of section 1132(a) or to even have mentioned section
1132(a)(3). That would have invited a fight on two fronts, rather than just one. Thus,
the parties, the district courts, and this Court’s panels confined themselves to
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determining the applicability of section 1132(a)(1)(B), rather than determining
whether plaintiffs’ claims were more properly understood as claims under section
1132(a)(3) or 1132(a)(1)(B).
II. Insofar as Plaintiff Had Any Obligation to Exhaust, That Obligation Was
Satisfied in This Case.
If Ms. Mallon was obligated to exhaust administrative remedies prior to filing
this lawsuit, that obligation was satisfied for two independent reasons. First, as
Plaintiff argued below, Trover’s communications failed to comply with ERISA’s
notice requirements following its alleged “adverse benefits determination.” App. 14.
Second, as Plaintiff also argued below, “there was no administrative process or
remedy available to her with which to resolve subrogation disputes with an outside
vendor such as Trover.” App. 14 (emphasis in original). Either of these arguments,
if accepted, requires that Ms. Mallon be deemed to have exhausted her
administrative remedies. See 29 C.F.R. § 2560.503-1(l) (“In the case of the failure
of a plan to establish or follow claims procedures consistent with the requirements
of this section, a claimant shall be deemed to have exhausted the administrative
remedies available under the plan and shall be entitled to pursue any available
remedies under section 502(a) of [ERISA] . . . .”).
1. As explained above, the DOL has promulgated regulations regarding
notice that must be provided to participants following any adverse benefits
determination. See supra page 10 (discussing regulations). The district court
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acknowledged the existence of those regulations. In fact, it quoted the relevant
provisions from the Code of Federal Regulations:
“ERISA requires that every employee benefit plan ‘provide adequate
notice in writing to any participant . . . whose claim for benefits under
the plan has been denied, setting forth the specific reasons for such
denial, written in a manner calculated to be understood by the
participant.”‘ Brown v. First Reliance Standard Life Ins. Co., No. 10-
486, 2011 WL 1044664, at *8 (W.D. Pa. Mar. 18, 2011) (quoting 29
U.S.C. § 1133(1)). Specifically, the notification must set forth:
(i) The specific reason or reasons for the adverse determination;
(ii) Reference to the specific plan provisions on which the
determination is based;
(iii) A description of any additional material or information
necessary for the claimant to perfect the claim and an explanation
of why such material or information is necessary;
(iv) A description of the plan’s review procedures and the time
limits applicable to such procedures, including a statement of the
claimant’s right to bring a civil action under section 502(a) of the
Act following an adverse benefit determination on review[.]
29 C.F.R. § 2560.503-1(g)(i)-(iv).
App. 14–15. As explained below, however, the district court abused its discretion in
finding that Defendants’ substantially complied with such regulations.
In their MTD, Defendants argued that “the assertion of a subrogation claim is
itself an adverse benefit determination under Third Circuit law.” Dkt. No. 25, at 4.
If that is true, then Defendants’ adverse benefit determination occurred on October
11, 2007 when Trover mailed a letter to Ms. Mallon’s attorney asserting the Plan’s
“interest in any settlements in [Ms. Mallon’s personal injury] matter.” App. 123. And
that letter unquestionably failed to provide notice to Ms. Mallon in a manner that
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would comply with the relevant regulations. Arguably, the letter complies with
subsection (i) (requiring the notice to state “[t]he specific reason or reasons for the
adverse determination”) because it asserts that the “Plan has subrogation and/or
recovery rights.” App. 123. But it clearly fails to comply with subsections (ii)-(iv).
The letter makes no mention of any particular plan provision nor does it attach any
plan document. The letter makes no mention of any material that Plaintiff would
need to provide to have her “claim for benefits” perfected. And the letter makes no
mention of the plan’s review procedures, the time limits applicable to such review,
or claimant’s right to bring a civil action under 29 U.S.C. § 1132(a).
Absent compliance with these notice regulations, a participant like Ms.
Mallon cannot possibly be expected to appreciate the need to pursue an appeal, the
manner in which an appeal may be pursued, and the deadline to do so. As such, the
consequence of non-compliance is that “a claimant shall be deemed to have
exhausted the administrative remedies available under the plan and shall be entitled
to pursue any available remedies under [29 U.S.C. § 1132(a)] . . . .” 29 C.F.R.
§ 2560.503-1(l) .
In holding that Defendants’ substantially complied with ERISA’s notice
requirements, the district court found significance in the fact that 15 months later,
Trover mailed a copy of the Plan to Ms. Mallon’s attorney. App. 15–16. That act
arguably satisfied 29 C.F.R. § 2560.503-1(g)(i) and (ii). But neither the Plan nor the
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49
letter that accompanied it can possibly be viewed as providing notice sufficient to
meet the requirements of 29 C.F.R. § 2560.503-1(g)(iii)-(iv).
Nothing received by Ms. Mallon or her counsel describes “any additional
material or information necessary for [her] to perfect the claim” that she had,
according to Defendants, made for benefits. Id. Few, if any, people in the position of
Ms. Mallon or her counsel would even think they had filed a claim. Without some
explanation of what Plaintiff was required to “do next,” it is unreasonable to suggest
that she had sufficient notice of the administrative process to expect that she
understood how, when, and why to use it.
Similarly, nothing received by Ms. Mallon or her counsel describes “the plan’s
review procedures and the time limits applicable to such procedures . . . .” Id. It is
of no consequence that the Plan, according to Defendants, contained review
procedures that were available to Ms. Mallon. See, e.g., Epright v. Environmental
Res. Mgmt., Inc. Health & Welfare Plan, 81 F.3d 335, 342 (3d Cir. 1996) (“The fact
that [Plaintiff’s] attorney had a copy of the Plan, and thus the means to ascertain the
proper steps for requesting review, in no way excuses [Defendant’s] failure to
comply with the Department of Labor’s regulations.”). By failing to identify and
describe the plan’s review procedures (including time limits), it is unreasonable for
Defendants to suggest that Ms. Mallon had sufficient notice of the administrative
process to participate in any meaningful fashion.
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The consequence of such notice violations is well settled. “[A] claimant shall
be deemed to have exhausted the administrative remedies available under the plan
and shall be entitled to pursue any available remedies under [29 U.S.C. § 1132(a)]
. . . .” 29 C.F.R. § 2560.503-1(l); Conley v. Pitney Bowes, 34 F.3d 714 (8th Cir. 1994)
(a plan’s duty to inform the plaintiff of the appeals procedure is a condition precedent
to invoking a defense of failure to exhaust) (applying older and less demanding
claims regulations).
2. A claimant is deemed to have exhausted administrative remedies not only
if administrators failed to provide adequate notice of an adverse benefit
determination but also if the plan does not establish reasonable claims procedures.
See 29 C.F.R. § 2560.503-1(l). See also Eastman Kodak Co. v. STWB, Inc., 452 F.3d
214, 221 (2d Cir. 2006) (“The ‘deemed exhausted’ provision was plainly designed
to give claimants faced with inadequate claims procedures a fast track into court.”)
(emphasis added). That occurred in this case. The district court’s contrary conclusion
was another abuse of discretion.
Even a cursory review of the Plan reveals that it fails to provide any
administrative review procedures that could have been used by Ms. Mallon. As
described above, the Plan does include procedures for appealing some adverse
benefit determinations. See supra pages 16–17 (discussing the Plan’s internal
appeals process). But those procedures do not apply to the circumstances of this case.
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Take, for example, the language relied on by Defendants. It provides as
follows:
Administrative Appeal Issues – An appeal by or on behalf of a Member
that focuses on unresolved Member disputes or objections regarding a
Claims Administrator decision that concerns coverage terms such as
contract exclusions and non-covered benefits, exhausted benefits, and
claims payment issues.
App. 211. Such “Administrative Appeal Issues” must “concern[] coverage.” And a
coverage “dispute” or “objection” relates to whether a benefit is available to a
participant. Indeed, the examples provided in the above provision are illustrative:
“contract exclusions and non-covered benefits, exhausted benefits, and claims
payment issues.” App. 211.
It is difficult to conceive of how the parties’ reimbursement dispute could
possibly concern coverage. Defendants have never suggested that Ms. Mallon’s
medical bills were not covered; rather they argued that she must reimburse the Plan
specifically because they were covered. App. 123 (October 11, 2007 Letter of Ms.
Wright, stating that the “Plan has provided various medical benefits to your client in
connection with his or her injury.”). Indeed, the language of the reimbursement
provision confirms this reality: “You or your covered Dependent shall pay the
Claims Administrator all amounts recovered by suit, settlement, or otherwise from
any third party or his insurer to the extent of the benefits provided or paid under this
Claims Administrator and as permitted by law.” App. 200 (emphasis added).
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As with the notice violation discussed above, the consequence of have
unreasonable/unavailable plan procedures is well settled. “[A] claimant shall be
deemed to have exhausted the administrative remedies available under the plan and
shall be entitled to pursue any available remedies under [29 U.S.C. § 1132(a)] . . . .”
29 C.F.R. § 2560.503-1(l). Reversal is warranted.
CONCLUSION
The order of the district court should be reversed.
Respectfully submitted,
/s/ Peter K. Stris
Peter K. Stris
Victor O’Connell
STRIS & MAHER LLP
19210 S. Vermont Ave., Bldg. E
Gardena, CA 90248
(424) 212-7090
September 23, 2014 Counsel for Plaintiff-Appellant
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COMBINED CERTIFICATIONS
1. Bar Membership: I certify that I am a member of this Court’s bar.
2. Word Count, Typeface, and Type Style: I certify that I certify that this
brief complies with the type-volume limitations of Federal Rule of Appellate
Procedure 32(a)(7)(B) because the brief (as indicated by my word processing
program, Microsoft Word) contains 12,721 words, excluding those portions
excluded under Rule 32(a)(7)(B)(iii). I also certify that this brief complies with the
typeface requirements of Rule 32(a)(5) and type style requirements of Rule 32(a)(6)
because this brief has been prepared in the proportionally spaced typeface of 14-
point Times New Roman.
3. Service: I certify that on this date I caused this brief to be filed
electronically via this Court’s CM/ECF system, which will automatically serve all
counsel of record in this case.
4. Paper Copies: I certify that the text of the electronic brief filed via ECF is
identical to the text of the paper copies that will be delivered to the Court.
5. Virus Check: I certify that I have performed a virus check using McAfee
AntiVirus Plus.
Dated: September 23, 2014 /s/ Peter K. Stris
Peter K. Stris
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RECORD NO. 14-3189
THE LEX GROUP 1108 East Main Street Suite 1400 Richmond, VA 23219 (804) 644-4419 (800) 856-4419 Fax: (804) 644-3660 www.thelexgroup.com
In The
United States Court of Appeals For The Third Circuit
LYDIA MALLON, on behalf of herself and all other similarly situated,
Plaintiff – Appellant,
v.
TROVER SOLUTIONS INC., D/B/A HEALTHCARE RECOVERIES, INC., INDEPENDENCE BLUE CROSS;
QCC INSURANCE COMPANY,
Defendants – Appellees.
ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
JOINT APPENDIX VOLUME I OF II
(Pages 1 – 21)
Victor A. O’Connell M. Duncan Grant Peter K. Stris PEPPER HAMILTON STRIS & MAHER 1313 Market Street, Suite 5100 19210 South Vermont, Building E Wilmington, Deleware 19899 Gardena, California 90248 (215) 981-4343 (657) 464-0464
Counsel for Appellant Counsel for Appellee Trover Solutions, Inc
Shawn J. Rabin E. Thomas Henefer SUSMAN GODFREY STEVENS & LEE 560 Lexington Avenue, 15th Floor 111 North Sixth Street New York, New York 10022 Reading, Pennsylvania 19603 (212) 336-8330 (610) 478-2223
Counsel for Appellee Counsel for Appellees Trover Solutions, Inc Independence Blue Cross and QCC Insurance Co.
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-i-
TABLE OF CONTENTSVOLUME I OF II
Appendix Page
Plaintiff’s Notice of Appeal(Docket Entry 43)
filed July 2, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Order of The Honorable R. Barclay Surrick, J.Re: Granting Motion to Dismiss(Docket Entry 42)
filed June 4, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Memorandum Opinion of The Honorable R. Barclay Surrick, J.Re: Granting Motion to Dismiss(Docket Entry 41)
filed June 4, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
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TABLE OF CONTENTSVOLUME II OF II
Appendix Page
Docket Entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Plaintiff’s Second Amended Compliant(Docket Entry 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Attachment to Joint Motion to Dismissfiled June 24, 2011:
Attachment:
Appendix in Support of Defendant’s Motion to Dismiss or, Alternatively, for Summary Judgment(Docket Entry 20-2 through 20-6)
filed June 24, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Exhibit to Defendants’ Motion for Leave to File Notice of Supplemental Authority
filed May 1, 2013:
Exhibit:
A. Defendants’ Notice of Supplemental Authority,With Exhibits,(Docket Entry 34-1)
dated April 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448
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IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
LYDIA MALLON : : CIVIL ACTION v. : : NO. 11-326 TROVER SOLUTIONS, INC. ET AL. : SURRICK, J. JUNE _4_, 2014
O R D E R
AND NOW, this 4th day of June , 2014, upon consideration of the
Joint Motion to Dismiss or, Alternatively, for Summary Judgment of Defendants Independence
Blue Cross, QCC, and Trover Solutions, Inc. (ECF No. 20), and all papers submitted in support
thereof and in opposition thereto, it is ORDERED that the Motion is GRANTED. Plaintiff’s
Complaint is DISMISSED, and the Clerk of Court is directed to mark this case CLOSED.
IT IS SO ORDERED.
BY THE COURT:
________________________ R. BARCLAY SURRICK, J.
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IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
LYDIA MALLON : : CIVIL ACTION v. : : NO. 11-326 TROVER SOLUTIONS, INC. ET AL. : SURRICK, J. JUNE 4 , 2014
MEMORANDUM
Presently before the Court is the Joint Motion to Dismiss or, Alternatively, for Summary
Judgment of Defendants Independence Blue Cross, QCC, and Trover Solutions, Inc. (ECF No.
20). For the following reasons, Defendants’ Motion will be granted.
I. BACKGROUND
A. Factual History1
Plaintiff Lydia Mallon is a participant in a multi-employer health and welfare plan (the
“Plan”) which provides her with medical benefits. (Sec. Am. Compl. ¶ 2, ECF No. 19.)
Defendant QCC Insurance Company (“QCC”), a subsidiary of Independence Blue Cross
(“IBX”), is the Claims Administrator for the Plan. (Id. at ¶¶ 2, 17, 18.) Defendant Trover
Solutions, Inc., d/b/a Healthcare Recoveries (“Trover”) is a third-party vendor engaged in the
business of asserting and collecting subrogation claims on behalf of QCC. (Id. at ¶¶ 2, 10.)
Plaintiff was injured in a car accident in 2006 and received benefits from the Plan to pay
for some of her medical bills. (Id. at ¶ 2; Pl.’s Resp. 4, ECF No. 22.) Following the accident, 1 Pursuant to Federal Rule of Civil Procedure 12(b)(6), ‘“we accept all factual allegations as true [and] construe the complaint in the light most favorable to the plaintiff.’” DelRio-Mocci v. Connolly Props., Inc., 672 F.3d 241, 245 (3d Cir. 2012) (quoting Warren Gen. Hosp. v. Amgen, Inc., 643 F.3d 77, 84 (3d Cir. 2011)).
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Plaintiff initiated a lawsuit against the driver of the other motor vehicle. (Sec. Am. Compl. ¶ 2.)
On or about October 11, 2007, during the pendency of that action, Trover sent Plaintiff’s
attorney, Steven Gillman, Esquire (“Gillman”), a letter. (Id.; Oct. 11, 2007 Trover Ltr., Defs.’
Mot. App. 11, ECF No. 20.) The letter stated that the Plan was self-funded and governed by the
Employee Retirement Income Security Act of 1974 (“ERISA”). (Oct. 11 Trover Ltr.) The letter
explained that the Plan had the right “to be reimbursed by [Plaintiff] for benefits it has provided
in the event that any compensation is received from another source.” (Id.)
Gillman responded to Trover’s letter by requesting a consolidated statement of benefits
paid by the Plan on behalf of Plaintiff. (Defs.’ Mot. App. 12.) Gillman also requested a
complete copy of the Summary Plan Description and the Form 5500 filed with the Internal
Revenue Service for the last fiscal year as proof of the Plan’s right of recovery. (Id.; see Sec.
Am. Compl. ¶ 37 n.7.) Gillman stated that “[i]f it is satisfactorily proven that the [Plan] has a
valid right of recovery, this office will protect the [P]lan’s lien from any settlement or verdict
entered in [Plaintiff’s] case less the [P]lan’s proportionate share of expenses incurred in
[Plaintiff’s] case.” (Defs.’ Mot. App. 12.)
Trover’s response, on or about August 4, 2008, included a consolidated statement
showing that the Plan had provided Plaintiff with benefits in the amount of $4,078.42. (Defs.’
Mot. App. 15-18.) The letter also stated that as a self-funded plan governed by ERISA, “any
recovery language in the Plan is generally enforceable as written.” (Id.) Therefore, the Plan
“has the right to be reimbursed for benefits it has provided in the event that any compensation is
received from another source.” (Id.; see Sec. Am. Compl. ¶ 75(a).)
On or about January 15, 2009, Gillman responded to Trover stating that the Plan’s
subrogation interest had been noted, but that “we have not been provided with proof that the
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[P]lan is entitled to reimbursement.” (Defs.’ Mot. App. 20.) Gillman again requested “the
appropriate proofs.” (Id.) Trover responded on or about January 20, 2009, and enclosed a copy
of the Plan’s benefit booklet (“Benefit Booklet”). (Defs.’ Mot. App. 21.) The Benefit Booklet
provides, in pertinent part:
You or your covered Dependent shall pay the Claims Administrator all amounts recovered by suit, settlement, or otherwise from any third party or his insurer to the extent of the benefits provided or paid under this Claims Administrator and as permitted by law[.] The Claims Administrator’s right of subrogation shall be unenforceable when prohibited by law[.]
(Sec. Am. Comp. Ex. A; Benefit Booklet 3 2-63, Defs.’ Mot. App. 88.) The Benefit Booklet also
sets forth the complaint and appeals process for Plan members. (Benefit Booklet 3 2-74.)
Members who wish to register a complaint are instructed to “call the Member Services
Department number at the telephone number on the back of their identification card or write to
the Claims Administrator [at the address provided].” (Id.) Members may also pursue an appeal
by calling or writing the Claims Administrator within 180 days of an adverse benefit
determination and requesting a change of the previous decision. (Id.) The two types of member
appeals described in the Benefit Booklet are “Medical Necessity Appeal Issues” and
“Administrative Appeal Issues.” (Id.)
Gillman responded by letter on or about April 16, 2009, and informed Trover that “the
health insurance subrogation lien of $4,078.42 has been noted and we will contact you at the
conclusion of [Plaintiff’s] case to discuss repayment arrangements.” (Apr. 16, 2009 Gillman
Ltr., Defs.’ Mot. App. 104.) Gillman sent Trover a letter seeking confirmation of the lien
amount on or about June 26, 2009. (Defs.’ Mot. App. 105.) Trover responded by letters on
December 7, 2009 and December 15, 2009. (Defs.’ Mot. App. 106-113.)
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On or about December 15, 2009, Gillman offered Trover 50% of the lien amount as
repayment in full. (Defs.’ Mot. App. 114.) On December 17, 2009, Plaintiff settled the
negligence lawsuit. (Defs.’ Mot. App. 10.) On or about February 1, 2010, Gillman made an
offer to Trover to repay two-thirds of the lien amount. (Defs.’ Mot. App. 119.) Trover rejected
the offer by telephone. (Defs.’ Mot 8.)
On or about February 11, 2010, Gillman sent a letter to Trover stating that IBX had failed
to provide any documentation in support of its claim that the Plan is self-funded and that the
Benefit Booklet was insufficient to support the Plan’s subrogation rights. (Feb. 11, 2010
Gillman Ltr., Defs.’ Mot. App. 120-125.) The letter acknowledged a telephone conversation in
which Trover stated that “it was not [their] responsibility to obtain and provide the requested
proofs entitling [IBX] to subrogation,” that Plaintiff “should have written directly to the Plan for
this information,” and that “the address of the Plan to which [Plaintiff’s] request should have
been directed was contained in [Trover’s January 20th Letter].” (Defs.’ Mot. App. 124-25.)
On or about March 17, 2010, March 31, 2010, and April 14, 2010, Trover sent letters
directly to Plaintiff requesting reimbursement for benefits provided. (Defs.’ Mot. App. 126-28;
see Sec. Am. Compl. ¶ 75(c).) On or about May 5, 2010, Gillman submitted a draft in the
amount of $4,078.42 representing payment of the disputed lien, although he advised Plaintiff that
he did not believe that the lien was valid. (Defs.’ Mot. App. 129.)
B. Procedural History
On January 20, 2011, Plaintiff filed this lawsuit on behalf of herself and all others
similarly situated. (ECF No. 1.) On June 3, 2011, Plaintiff filed a Second Amended Complaint.
(Sec. Am. Comp.) Plaintiff brings this ERISA class action alleging claims for declaratory and/or
injunctive relief pursuant to ERISA sections 502(a)(1) and 502(a)(3) (Count I), violations of the
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Fair Debt Collection Practices Act and the Pennsylvania Debt Collection Laws (Count II),
tortious interference with contract (Count III), breach of fiduciary duty (Count IV), and unjust
enrichment (Count V). (Id.)2
On June 24, 2011, Defendants filed this Motion to Dismiss or, Alternatively, for
Summary Judgment. (Defs.’ Mot.) On August 12, 2011, Plaintiff filed a Response in
opposition. (Pl.’s Resp.) On September 15, 2011, Defendants filed a Reply. (Defs.’ Reply, ECF
No. 25.) On September 26, 2011, Plaintiff filed a Sur-Reply. (Pl.’s Sur-Reply, ECF No. 29.)
On October 17, 2011, Defendants filed a Third Brief in support of their Motion. (ECF No. 32.)
On May 1, 2013, Defendants filed a motion for leave to file notice of supplemental authority.
(ECF No. 34.) On May 9, 2013, Plaintiff filed a response. (ECF No. 37.) On May 24, 2013, we
granted Defendants’ Motion to file a notice of supplemental authority. (ECF No. 38.)
II. LEGAL STANDARD
Defendants move to dismiss the Second Amended Complaint under Federal Rule of Civil
Procedure 12(b)(6) or, in the alternative, for summary judgment under Rule 56.3 Under Federal
Rule 8(a)(2), “[a] pleading that states a claim for relief must contain a short and plain statement
2 Plaintiff has voluntarily dismissed Counts II, III, IV, and V. (ECF No. 40.) 3 When extrinsic documents are “presented to and not excluded by the court, the [12(b)(6)] motion must be treated as one for summary judgment under Rule 56.” Fed. R. Civ. P. 12(d). However, when considering a motion to dismiss, the district court may consider documents that are attached to the complaint as well as “undisputedly authentic document[s] that a defendant attaches as . . . exhibit[s] to a motion to dismiss if the plaintiff’s claims are based on th[ose] document[s].” Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993). Courts may also consider “matters incorporated by reference.” Siwulec v. J.M. Adjustment Servs., LLC, 465 F. App’x 200, 202 (3d Cir. 2012) (quotation omitted). The documents relied upon by Defendants in this case are both referenced in Plaintiff’s Complaint and integral to her claim. See Smith v. Pallman, 420 F. App’x 208, 213 (3d Cir. 2011) (finding that the district court properly considered letters attached to the defendant’s motion to dismiss because the letters established that the plaintiff had failed to exhaust her administrative remedies). Thus, we will rule upon Defendants’ Motion under Federal Rule 12(b)(6).
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of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Rule 12(b)(6)
provides for the dismissal of a complaint, in whole or in part, for failure to state a claim upon
which relief can be granted. See Fed. R. Civ. P. 12(b)(6). A motion under Rule 12(b)(6),
therefore, tests the sufficiency of the complaint against the pleading requirements of Rule 8(a).
“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A complaint that merely
alleges entitlement to relief, without alleging facts that show entitlement, must be dismissed. See
Fowler v. UPMC Shadyside, 578 F.3d 203, 211 (3d Cir. 2009). Courts need not accept
“[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory
statements . . . .” Iqbal, 556 U.S. at 678. “While legal conclusions can provide the framework of
a complaint, they must be supported by factual allegations.” Id. at 679. This “‘does not impose
a probability requirement at the pleading stage,’ but instead ‘simply calls for enough facts to
raise a reasonable expectation that discovery will reveal evidence of’ the necessary element.”
Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly, 550 U.S. at
556).
In determining whether dismissal of the complaint is appropriate, courts use a two-part
analysis. Fowler, 578 F.3d at 210. First, courts separate the factual and legal elements of the
claim and accept all of the complaint’s well-pleaded facts as true. Id. at 210-11. Next, courts
determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a
“‘plausible claim for relief.’” Id. at 211 (quoting Iqbal, 556 U.S. at 679). Given the nature of
the two-part analysis, “‘[d]etermining whether a complaint states a plausible claim for relief will
. . . be a context-specific task that requires the reviewing court to draw on its judicial experience
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and common sense.’” McTernan v. City of York, 577 F.3d 521, 530 (3d Cir. 2009) (quoting
Iqbal, 556 U.S. at 679).
III. DISCUSSION
Plaintiff argues that Defendants have no valid subrogation rights under the Plan. (Sec.
Am. Compl. ¶ 5.) Specifically, Plaintiff contends that the Plan is subject to Pennsylvania’s
Motor Vehicle Financial Responsibility Law, 75 Pa. Cons. Stat. § 1720 (the “MVFRL”), which
prohibits subrogation claims in motor vehicle accidents. (Id.) Plaintiff alleges that Defendants
falsely represented the Plan’s status as self-funded in an effort to evade the MVFRL. (Id.)4 In
the alternative, Plaintiff argues that even if the Plan is self-funded, its terms are “self-limiting”
and expressly subordinate the Plan’s subrogation rights to the MVFRL. (Sec. Am. Compl. ¶ 8.)
Finally, Plaintiff maintains that even if the Plan is entitled to subrogation, its recovery is subject
to equitable limitation under the “make whole” and “common fund” doctrines. (Id. at ¶¶ 8, 69,
77, 78.)
Defendants argue that Plaintiff failed to exhaust the Plan’s administrative remedies and
that, as a result, her Complaint must be dismissed. (Defs.’ Mot. 2.) In addition, Defendants
contest Plaintiff’s claim that the Plan explicitly subordinates its subrogation rights to the
MVFRL. (Id. at 3.) Instead, Defendants argue that because the Plan is self-funded, the MVFRL
is pre-empted by ERISA, and Plaintiff’s claim fails as a matter of law. (Id.)
4 A self-funded plan “does not purchase an insurance policy from any insurance company in order to satisfy its obligations to its participants.” FMC Corp v. Holliday, 498 U.S. 52, 54 (1990). Such plans are not subject to Pennsylvania’s MVFRL. Id. at 65. “On the other hand, employee benefit plans that are insured are subject to indirect state insurance regulation,” such as Pennsylvania’s MVFRL. Id. at 61.
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A. Exhaustion
1. Claim for Benefits
Defendants argue that subrogation disputes are subject to the exhaustion doctrine and that
because Plaintiff failed to comply with the Plan’s administrative remedies, her Complaint should
be dismissed. (Id. at 19-21.) Plaintiff counters that “the claims in this case are not the type of
claims to which the ‘exhaustion’ doctrine applies.” (Pl.’s Resp. 10.) Specifically, Plaintiff
argues that the exhaustion of administrative remedies “is only required if the claim is for denied
benefits.” (Id. (emphasis in original).) Where “the claims asserted are independent of a claim
for benefits, a plaintiff is not required to exhaust administrative remedies.” (Id. (emphasis in
original).)
The exhaustion doctrine is not referenced within the statutory provisions of ERISA.
Metro. Life. Ins. Co. v. Price, 501 F.3d 271, 279 (3d Cir. 2007). Rather, “[i]t is a judicial
innovation fashioned with an eye toward sound policy.” Id. (internal quotation marks omitted).
Its purpose is to “reduce the number of frivolous lawsuits under ERISA; to promote the
consistent treatment of claims for benefits; to provide a nonadversarial method of claims
settlement; and to minimize the costs of claims settlement for all concerned.” Harrow v.
Prudential Ins. Co. of Am., 279 F.3d 244, 249 (3d Cir. 2002) (internal quotation marks omitted).
It is well established that the exhaustion doctrine applies to benefit claims under ERISA, id. at
252, and that in the context of a class action, the named plaintiff must establish that she has
exhausted her administrative remedies, see Thomas v. SmithKline Beechman Corp., 201 F.R.D.
386, 395 (E.D. Pa. 2001); Matz v. Household Int’l Tax Reduction Inv. Plan, 232 F.R.D. 593, 597
(N.D. Ill. 2005); Williams v. Rohm & Haas Pension Plan, No. 02-123, 2003 WL 22271111, at
*4-5 (S.D. Ind. Sept. 26, 2003). However, exhaustion is not required where the claimant seeks
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“to assert rights established by the ERISA statute.” D’Amico v. CBS Corp., 297 F.3d 287, 291
(3d Cir. 2002).5
The question of whether subrogation disputes are subject to the exhaustion doctrine was
addressed in Kesselman v. Rawlings Co., LLC, 668 F. Supp. 2d 604 (S.D.N.Y 2009). The
plaintiffs in that putative class action were individuals who had been injured in car accidents and
who had a portion of their medical bills paid by their health plans. Id. at 605-06. Following the
accidents, the plaintiffs recovered damages from the negligent drivers and “were subjected to
claims for reimbursement by the [d]efendants.” Id. at 606. After making payment to a
subrogation agent, one of the plaintiffs filed a lawsuit seeking reimbursement of her benefits. Id.
at 607-08. The plaintiff also sought a declaratory judgment finding that ERISA laws prohibit
benefit plans from pursuing reimbursements from plaintiffs’ third-party personal injury
settlements. Id. at 609-10. The court granted the defendants’ motion to dismiss after concluding
that the plaintiff had failed to exhaust her plan’s administrative remedies. Id.; see also Wurtz v.
Rawlings Co., LLC, 933 F. Supp. 2d 480, 507-08 (E.D.N.Y. 2013) (questioning whether the
plaintiffs, whose ERISA claims were based upon subrogation disputes, had exhausted their
administrative remedies).
5 Exceptions to this generally fall into two categories: “(1) discrimination claims under § 510 of ERISA, or (2) failure to provide plaintiffs with summary plan descriptions, as required by ERISA.” Harrow, 279 F.3d at 253 (internal quotation marks omitted). Claims for breach of fiduciary duty, under sections 404-406 of ERISA, might also fall within this exception because they are statutory in nature. Id. However, “[p]laintiffs cannot circumvent the exhaustion requirement by artfully pleading benefit claims as breach of fiduciary duty claims.” Id. Thus, the exhaustion doctrine will apply unless the facts alleged “present a breach of fiduciary duty claim that is independent of a claim for benefits . . . .” Id.; see also D’Amico, 297 F.3d at 291 (“[W]e still require exhaustion in cases where the alleged statutory violation - a breach of fiduciary duty under section 404 - is actually a claim based on denial of benefits under the terms of a plan.”). Although Plaintiff originally claimed that Defendants breached their fiduciary duties under section 404(a) of ERISA, that claim has since been withdrawn.
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Plaintiff attempts to distinguish the court’s decision in Kesselman by arguing that the
Second Circuit does not recognize a distinction between claims for benefits and claims to enforce
rights conferred by statute. (Pl.’s Sur-Reply 2.) However, this distinction is of little
consequence given the Third Circuit’s decision in Levine v. United Healthcare Corp., 402 F.3d
156 (3d Cir. 2005). In Levine, the Court held that “[w]here . . . plaintiffs claim that their ERISA
plan wrongfully sought reimbursement of previously paid health benefits, the claim is for
‘benefits due’ . . . .” Id. at 163. This holding was reaffirmed by the Third Circuit in Wirth v.
Aetna U.S. Healthcare, 469 F.3d 305 (3d Cir. 2006). In Wirth, the plaintiff’s health plan pursued
a subrogation lien to recover monies that the plaintiff received from a third party negligence
action. Id. at 306-307. The plaintiff made a payment to the plan to release its lien and then filed
a lawsuit claiming that the lien was in violation of the MVFRL. Id. at 307. On appeal, the Third
Circuit determined that Levine precluded the plaintiff’s argument that his claim was “not
tantamount to seeking recovery of ‘benefits due’ to him.” Id. at 309.6
We are not persuaded by Plaintiff’s argument that Wirth and Levine are inapplicable
because they arose from jurisdictional disputes and did not address the issue of exhaustion. The
Third Circuit’s language leaves little doubt that subrogation disputes are claims for benefits due.
As such, Plaintiff was required to exhaust her Plan’s administrative remedies prior to initiating
6 The reasoning of the Third Circuit in Levine and Wirth is consistent with that of the Fourth and Fifth Circuits. See Singh v. Prudential Health Care Plan Inc., 335 F.3d 278, 291 (4th Cir. 2003); Arana v. Ochsner, 338 F.3d 433, 437 (5th Cir. 2003). In Singh, the Court explained:
[A] claimant who is denied a benefit is no different than a claimant who is faced with an invoice from the insurer for the return of a benefit paid or a claimant who has paid such an invoice, because resolution in each case requires a court to determine entitlement to a benefit under the lawfully applied terms of an ERISA plan.
Singh, 335 F.3d at 291 (emphasis in original).
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this lawsuit. This view is shared by a number of courts that have addressed the issue under the
same or similar circumstances. Wurtz, 933 F. Supp. 2d at 507-08; Kesselman, 668 F. Supp. 2d at
609; see Barnes v. Humana, Inc., No. 13-68, 2013 WL 4434391, at *2 (W.D. Mo. Aug. 14,
2013) (finding that subrogation dispute was a claim for benefits under the Federal Employee’s
Health Benefits Act and dismissing the plaintiff’s claim because he failed to exhaust his
administrative remedies); see also Potts v. Rawlings Co., LLC, 897 F. Supp. 2d 185, 193
(S.D.N.Y. 2012) (collecting cases in which courts have held that subrogation disputes under the
Medicare Secondary Payer Act must be exhausted at the administrative level).
2. Notice of Adverse Benefit Determination and Administrative Appeal Procedure Plaintiff argues that even if the exhaustion doctrine does apply, she was never informed
of an adverse benefit determination as required by ERISA. (Pl.’s Resp. 13.) Specifically,
Plaintiff claims that she never received any correspondence relating to the subrogation claim
from QCC and that the communications from Trover did not contain any of the information
required by ERISA. (Id. at 14.) In addition, Plaintiff argues “that there was no administrative
process or remedy available to her with which to resolve subrogation disputes with an outside
vendor such as Trover.” (Id. at 10 (emphasis in original).)
“ERISA requires that every employee benefit plan ‘provide adequate notice in writing to
any participant . . . whose claim for benefits under the plan has been denied, setting forth the
specific reasons for such denial, written in a manner calculated to be understood by the
participant.”’ Brown v. First Reliance Standard Life Ins. Co., No. 10-486, 2011 WL 1044664, at
*8 (W.D. Pa. Mar. 18, 2011) (quoting 29 U.S.C. § 1133(1)). Specifically, the notification must
set forth:
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(i) The specific reason or reasons for the adverse determination; (ii) Reference to the specific plan provisions on which the determination is based; (iii) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; (iv) A description of the plan’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under section 502(a) of the Act following an adverse benefit determination on review[.]
29 C.F.R. § 2560.503-1(g)(i)-(iv). Courts in the Third Circuit have found that notice can be
sufficient if it “is ‘in substantial compliance with the governing regulation.”’ Morningred v.
Delta Family-Care & Survivorship Plan, 790 F. Supp. 2d 177, 194 (D. Del. 2011) aff’d, 526 F.
App’x 217 (3d Cir. 2013) (quoting Brown, 2011 WL 1044664, at *9). Substantial compliance is
achieved when the denial letter sets forth a ‘“sufficiently clear understanding of the
administrator’s position to permit effective review.”’ Id. (quoting Brogan v. Holland, 105 F.3d
158, 165 (4th Cir. 1997)). “[C]ourts may ‘consider all communications’ between the parties ‘to
determine whether the information provided was sufficient under the circumstances.’” Sutley v.
Int’l Paper Co., No. 07-105, 2009 WL 703555, at *13 n.11 (W.D. Pa. Mar. 16, 2009) (quoting
Moore v. LaFayette Life Ins. Co., 458 F.3d 416, 436 (6th Cir. 2006)).
Trover’s October 11, 2007 letter to Gillman notified Plaintiff of an adverse benefit
determination. See Medlar v. Regence Grp., No. 04-2762, 2005 WL 1241881, at *3, 8 (E.D. Pa.
May 23, 2005) (finding that the plaintiff’s receipt of a trust agreement granting the plaintiff’s
insurer a right to subrogation was “the action giving rise to the grievance”). The letter explained
that the Plan was entitled to pursue subrogation and that this right was based upon the Plan’s
self-funded status under ERISA. On January 20, 2009, Trover sent Gillman a copy of the
Benefit Booklet, which set forth the subrogation rights of the Claims Administrator. The Benefit
Booklet also described the procedures that members must follow when pursuing an
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administrative appeal and the deadline by which these procedures must be completed. Plaintiff
concedes that the Plan’s Administrative Appeals Procedure governs claims for benefits. (Pl.’s
Resp. 14; see Benefit Booklet 3 2-74.) Considering all of the communications between Trover
and Gillman, we find that there was an appeals process available and that Plaintiff was provided
with a “sufficiently clear understanding of the administrator’s position to permit effective
review.” Morningred, 790 F. Supp. 2d at 194; see Zarringhalam v. United Food & Commercial
Workers Int’l Union Local 1500 Welfare Fund, 906 F. Supp. 2d 140, 153-54 (E.D.N.Y. 2012)
(finding that the plaintiff could not claim that “the [f]und failed to adequately notify him of its
available administrative remedies” where the fund sent the plaintiff a summary plan description
outlining the appeals process); see also Zahl v. Local 641 Teamsters Welfare Fund, No. 09-1100,
2010 WL 3724520, at *3 (D.N.J. Sept. 14, 2010) (finding that even if the plaintiff did not receive
a denial letter, the appeal procedures were set forth in the plan document).
We reject Plaintiff’s argument that Gillman’s communications to Trover satisfied
Plaintiff’s exhaustion requirement. (Pl.’s Sur-Reply 4.) The case cited by Plaintiff in support of
this argument, Medlar, 2005 WL 1241881, at *1, is easily distinguished. In Medlar, the
defendant required the plaintiffs to sign an agreement that granted the defendant a right to
subrogation. Id. The agreement was forwarded to the plaintiffs from the defendants subrogation
department. Id. at *3. The plaintiffs responded within two months by sending two objection
letters to the subrogation department. Id. The plaintiffs then initiated a lawsuit seeking a
declaratory judgment that their health insurance policy was subject to the MVFRL. Id. at *1. In
denying the defendant’s motion to dismiss, the court rejected the argument that the plaintiffs had
failed to exhaust their administrative remedies by addressing their letters to the wrong
department within the defendant’s company. Id. at *3. The Court determined that it was
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reasonable for the plaintiffs to direct their objections to the same department that had forwarded
them the trust agreement. Id. The court further explained that it would not fault the plaintiffs for
failing to direct their complaint to an appellate unit that was never mentioned in the plan’s
procedures. Id.
Unlike Medlar, Plaintiff did not object to Defendants’ subrogation lien. Instead, Plaintiff
requested proof of the Plan’s self-funded status. Plaintiff did not object after receiving a copy of
the Benefit Booklet, which provided the procedural steps and contact information necessary for
an appeal. Nor does Plaintiff allege that she made any subsequent requests for additional proof
of the Plan’s self-funded status. Instead, Plaintiff informed Trover that “[t]he health insurance
subrogation lien of $4,078.42 has been noted and we will contact you at the conclusion of
[Plaintiff’s] case to discuss repayment arrangements.” (Apr. 16 Gillman Ltr.) Plaintiff then sent
Trover two letters offering partial repayment of the lien before ultimately submitting full
payment. It was not until February 11, 2010, nearly two-and-a-half years after being contacted
by Trover and over a year after receiving the Benefit Booklet, that Gillman informed Trover of
his belief “that the Plan has no enforceable subrogation rights.” (Feb. 11 Gillman Ltr.) Plaintiff
did not file a complaint, objection, or appeal within the Plan’s limitations period. Clearly,
Plaintiff failed to exhaust her administrative remedies. See Kesselman, 668 F. Supp. 2d at 609
(rejecting the plaintiff’s argument that counsel’s letters “disputing the claims and citing legal
authority and requesting documentation from said [d]efendants to justify the claims should be
considered sufficient exhaustion of remedies”) (internal quotation marks omitted).7
7 Plaintiff argues that “[n]either QCC nor Trover (nor, indeed, the [Plan’s Administrator]) ever provided any Form 5500s or other financial disclosures, since those disclosures - required under ERISA and executed under penalty of perjury - did not support their subrogation claim.” (Pl.’s Sur-Reply 4.) Accepting this assertion as true, it is insufficient to support Plaintiff’s claim that she exhausted her administrative remedies. Although 29 U.S.C. § 1024(b)(4) imposes a duty
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3. Futility
Plaintiff argues that even if her subrogation dispute is subject to the exhaustion doctrine,
Defendants’ “fixed and inflexible policy with respect to subrogation claims . . . would have
rendered any administrative appeal futile.” (Sec. Am. Compl. ¶ 94; Pl.’s Resp. 15.) Specifically,
Plaintiff cites the following provision from the Plan’s Administrative Services Agreement
(“ASA”):
Except as set forth in the Benefit Program, the Claims Administrator will not apply any state law that, in its view, relates to the Benefit Program, regulates insurance, affects self-insured plans, and mandates that self-insured plans provide certain benefits to persons insured by the plans.
(Pl.’s Resp. 16; Defs.’ Mot. App. 301.) Given this language, Plaintiff argues that any challenge
to the Plan’s subrogation rights under the MVFRL was predetermined as a matter of policy.
(Pl.’s Resp. 16.) Defendants counter that the ASA provision cited by Plaintiff “is hardly a
‘fixed’ policy concerning subrogation claims.” (Defs.’ Reply 8.) Rather, “it is nothing more
than an observation that the Claims Administrator will not apply state laws that, in its view, do
not apply to self-funded plans (such as laws that regulate insurance) to the Plan.” (Id. at 8
(emphasis in original).) Defendants also argue that Plaintiff’s futility argument is inconsistent
with her position that Defendants’ actions were in violation of Pennsylvania law and established
Supreme Court precedent. (Id. at 23.)
“Although the exhaustion requirement is strictly enforced, courts have recognized an
exception when resort to the administrative process would be futile.” Berger v. Edgewater Steel
Co., 911 F.2d 911, 916 (3d Cir. 1990). To “merit waiver of the exhaustion requirement,”
upon plan administrators to provide participants with certain information upon request, neither Trover nor QCC is the Plan Administrator. 29 U.S.C. § 1024(b)(4). Moreover, Plaintiff has made clear that her claims in this lawsuit “are not dependent on the source of funding for her plan.” (Pl.’s Resp 3, 6; Pl.’s Sur-Reply 5.)
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plaintiffs must set forth a “clear and positive showing of futility.” Harrow, 279 F.3d at 249
(quotation omitted). Courts weigh several factors in determining whether to excuse exhaustion
on futility grounds. Those factors include:
(1) whether plaintiff diligently pursued administrative relief; (2) whether plaintiff acted reasonably in seeking immediate judicial review under the circumstances; (3) existence of a fixed policy denying benefits; (4) failure of the insurance company to comply with its own internal administrative procedures; and (5) testimony of plan administrators that any administrative appeal was futile.
Id. at 250. These factors need not be weighed equally in evaluating whether pursuit of
administrative remedies would have been futile. Id.
Plaintiff’s futility argument is based solely upon the fixed policy factor set forth in
Harrow. Similar arguments have been rejected by courts under comparable circumstances. In
Gatti v. W. Pa. Teamsters & Emp’rs Welfare Fund, No. 07-1178, 2008 WL 794516, at *2 (W.D.
Pa. 2008), the plaintiff was involved in a motor vehicle accident and sought benefits from his
health plan. The plan declined to pay the requested benefits because the plaintiff refused to sign
a subrogation agreement. Id. Counsel for the fund sent a letter to the plaintiff’s attorney stating
that the fund was confident that it had the right to subrogation, “pursuant to the language of the
plan.” Id. Based upon that letter, the plaintiff’s attorney determined that an appeals hearing
would be a “sham” and instead filed a lawsuit. Id. at *3. The court held that because the
plaintiff had failed to submit evidence of a fixed policy, he could not establish futility and
therefore granted the defendant’s motion for judgment on the pleadings. Id. at *5.
Similarly, the plaintiff in Barnes relied upon a letter that instructed his insurer to “pursue
reimbursement without regard to a state’s anti-subrogation law.” Barnes, 2013 WL 4434391, at
*4. The letter also stated that this position would be maintained in the future. Id. In granting the
defendant’s motion to dismiss, the court concluded that the defendant’s position that “federal
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regulations and the [p]lan require[d] subrogation [was] not enough to demonstrate futility.” Id.;
see also Wurtz, 933 F. Supp. 2d at 508 (granting the defendant’s motion to dismiss where the
plaintiff argued that the defendant would have ignored New York’s anti-subrogation law even if
the plaintiff had brought it to the defendant’s attention).
The Plan’s policy with respect to subrogation claims is less fixed than in Barnes and
Gatti. The directives set forth in the ASA are made expressly contingent upon any instructions
set forth by the Plan. In fact, the Plan limits its subrogation rights by stating that such rights
“shall be unenforceable when prohibited by law.” (Benefit Booklet 3 2-63.) This fact is not only
acknowledged by Plaintiff, it serves as the very basis of her Complaint. (Sec. Am. Comp. ¶¶ 5,
6, 8, 35, 36, 37, 40, 64, 70; Pl.’s Resp. 16 n.8.) Specifically, Plaintiff argues that the language
contained within the Benefit Booklet “is self-limiting” and expressly subordinates the Plan’s
subrogation rights to the MVFRL, as well as Pennsylvania’s “make whole” and “common fund
doctrines.” (Sec. Am. Compl. ¶¶ 8, 69, 77.) This argument is not supportive of Plaintiff’s claim
that the Plan has a fixed and inflexible policy with respect to subrogation claims. Moreover, as
in Wurtz, any claim that Defendants would have ignored the MVFRL is insufficient to establish
futility.
Furthermore, even if the Plan did have a fixed and inflexible policy, courts are reluctant
to apply the futility exception where plaintiffs fail to make a request for benefits. Churchill v.
Cigna Corp., No. 10-6911, 2011 WL 3563489, at *7 (E.D. Pa. Aug. 12, 2011) (“The Third
Circuit has denied use of the futility exception, however, when an ERISA plaintiff did not
request the contested benefit, even when the plan has a blanket policy of denying all such
requests.”); see also Balmat v. Certain Teed Corp., No. 04-2505, 2004 WL 2861873, at *3 (E.D.
Pa. Dec. 9, 2004) (rejecting the plaintiff’s claim of futility where the plaintiff “without ever
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trying to engage the administrative appeals process, simply cite[d] a section of the [p]lan and
claim[ed] that it establishe[d] a fixed policy without providing any example or further
explanation”). In the instant case, Plaintiff did not make a request for benefits within 180 days
of receiving notice of the adverse benefit determination as required by the Plan. Although
Plaintiff initially requested additional proof in support of the Plan’s right to subrogation, she later
acknowledged the lien, made two offers of partial repayment, and ultimately instructed Gillman
to satisfy the lien in full. Plaintiff did not object until nearly a year and a half after receiving a
copy of the Benefit Booklet. Given Plaintiff’s failure to file a request for benefits and failure to
engage in the administrative appeals process, we decline to apply the futility exception. See
D’Amico, 297 F.3d at 293 (“Plaintiffs who fail to make known their desire for benefits to a
responsible company official are precluded from seeking judicial relief.”).
IV. CONCLUSION
For the foregoing reasons, the Motion to Dismiss of Defendants’ Independence Blue
Cross, QCC, and Trover Solutions will be granted.
An appropriate Order follows.
BY THE COURT:
_________________________ R. BARCLAY SURRICK, J.
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