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Stacy v. Appalachian Regional Healthcare, Inc.

United States District Court, E.D. Kentucky, Southern Division, London

April 17, 2017





         Defendant Reliance Standard Life Insurance Company (“Reliance”) seeks dismissal of Plaintiff Cheryl Stacy’s Complaint for failure to exhaust her administrative remedies, as required by the Employee Retirement Income Security Act of 1974 (“ERISA”). (Doc. # 5). Accordingly, Reliance claims that Stacy has failed to state a claim upon which relief can be granted, and asks the Court to dismiss Stacy’s claims against Reliance with prejudice pursuant to Federal Rule of Civil Procedure 12(b)(6). The motion is fully briefed (Docs. # 8 and 9), and ripe for the Court’s review.[1] The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1331.


         Stacy worked for Appalachian Regional Healthcare, Inc. (“ARH”) as a Registered Nurse for approximately thirty years, until February 24, 2014, when she became disabled. (Doc. # 1-1 at ¶¶ 8, 13). Initially, Stacy applied for and received short-term disability benefits from Reliance. Id. at ¶ 40. After receiving short-term disability benefits “for the maximum duration allowable,” Stacy “began the process of transitioning her claim into” a long-term disability (“LTD”) claim. (Doc. # 8 at 1). Stacy simultaneously made a claim for and pursued disability retirement benefits under ARH’s retirement plan. (Doc. # 1-1 at ¶ 16).

         On August 21, 2014, before receiving a decision regarding her LTD claim, Stacy advised Reliance via e-mail that she no longer wished to pursue that claim. Id. at ¶ 43; see also (Doc. # 8-1). Stacy alleges that she withdrew her LTD benefits claim with Reliance because ARH informed her that the “application for and approval of LTD benefits with Reliance … would prevent her from receiving her retirement benefits” under ARH’s plan. Id. at ¶ 43. Stacy’s decision to abandon her LTD claim with Reliance proved to be a misstep; her claim for disability retirement benefits with ARH was ultimately denied. Id. at ¶ 22-24.

         On August 25, 2014, Reliance sent Stacy a denial letter, informing her that she was “not entitled to disability benefits under” the LTD policy. (Doc. # 8-2 at 2). In this letter, Reliance acknowledged that she did not want to pursue her claim and explained that it was unable to complete its LTD claim evaluation because Stacy had failed to respond to requests for additional information. Id. The letter also advised Stacy that a “written request for review must be submitted within 180 days” if she intended to appeal Reliance’s benefit determination. Id. at 4. Over one year and eight months later – on May 18, 2016, Stacy appealed the denial of her LTD benefits. (Doc. # 1-1 at ¶ 45). By letter dated May 25, 2016, Reliance informed Stacy that it would not accept her untimely appeal. Id. at ¶ 46.

         In her Complaint, Stacy claims that she is “entitled to LTD benefits” and that Reliance “should be required to perform under the contract and pay LTD benefits to Plaintiff.” Id. at ¶ 47. Specifically, Stacy alleges that the denial of her LTD benefits claim constitutes a breach of contract, a breach of fiduciary duties, and was arbitrary and capricious. Id. at ¶ 48-49. Reliance seeks dismissal of Stacy’s Complaint for failure to exhaust her administrative remedies, as required by ERISA. (Doc. # 5 at 1). Reliance argues that Stacy failed to appeal the denial of her LTD benefits claim within the prescribed 180-day time period; and instead, waited approximately 632 days before filing her appeal. Id. Accordingly, Reliance claims that Stacy has failed to state a claim upon which relief can be granted, and asks the Court to dismiss Stacy’s unexhausted ERISA claims with prejudice because her opportunity to pursue administrative remedies has expired. Id. at 7.

         III. ANALYSIS

         A. Standard of Review

         To survive a Rule 12(b)(6) 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). The plausibility standard is met when the facts in the complaint allow “the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. The complaint need not contain “detailed factual allegations,” but must contain more than mere “labels and conclusions.” Id. Put another way, the “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

         B. ERISA’s Enforcement Options and Exhaustion Requirement

         Stacy initially asserted state-law breach of contract claims, believing Reliance’s LTD Policy was not governed by ERISA. (Doc. # 1-1 at ¶¶ 48-50). However, Stacy’s Complaint alternatively pled, pursuant to ERISA, that the “decision made by Defendant [Reliance] to deny Plaintiff’s claims was arbitrary and capricious, against the overwhelming evidence provided to Defendant, and a breach of fiduciary duties, which entitles Plaintiff to contractual benefits, interest, and attorney’s fees.” Id. at ¶ 51. Stacy also alleged that Reliance “should be enjoined from stopping LTD payments under the terms of the LTD policy.” Id. at ¶ 52. As Stacy has since conceded, her state law claims are completely preempted by § 502(a), and ERISA governs this action. (Doc. # 8 at 1).

         ERISA “authoriz[es] civil actions for six specific types of relief.” Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 376 (2002). These civil enforcement provisions, more commonly known by their original section number in the Act, § 502(a), create an “interlocking, interrelated, and interdependent remedial scheme.” Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 146 (1985). This scheme “represents a careful balancing of the need for prompt and fair claims settlement procedures against the public interest in encouraging the formation of employee benefit plans.” Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (1987).

         Three of these avenues are open to plan participants who, like Stacy, wish to sue the plan or plan administrator. First, participants may sue to recover benefits due, enforce their rights, or clarify their rights under the terms of the plan pursuant to § 502(a)(1)(B). See 29 U.S.C. § 1132(a)(1)(B). Second, participants may assert a claim for breach of fiduciary duty under § 502(a)(2). See 29 U.S.C. § 1132(a)(2). This subsection does not yield individualized relief – any benefits from suit inure to the plan itself. Russell, 473 U.S. at 143-45. Third, participants may seek “appropriate equitable relief” under § 502(a)(3). See 29 U.S.C. § 1132(a)(3). This may include injunctions and individualized relief for breach of fiduciary duties. See Varity Corp. v. Howe, 516 U.S. 489, 509 (1996). However, relief under § 502(a)(3) is typically only available to plan participants who cannot proceed under either § 502(a)(1)(B) or § 502(a)(2). Id. at 512.

         Before a plaintiff-participant can bring a civil enforcement action under ERISA, he or she may be required to exhaust administrative remedies. “Although ERISA is silent as to whether exhaustion of administrative remedies is a prerequisite to bringing a civil action, [the Sixth Circuit has] held that ‘the administrative scheme of ERISA requires a participant to exhaust his or her administrative remedies prior to commencing suit in federal court.’” Coomer v. Bethesda Hosp., Inc., 370 F.3d 499, 504 (6th Cir. 2004) (quoting Miller v. Metro. Life Ins. Co., 925 F.2d 979, 986 (6th Cir. 1991)). “The exhaustion requirement ‘enables plan fiduciaries to efficiently manage their funds; correct their errors; interpret plan provisions; and assemble a factual record which will assist a court in reviewing the fiduciaries’ actions.’” Id. (quoting Ravencraft v. UNUM Life Ins. Co. of Am., 212 F.3d 341, 343 (6th Cir. 2000)).

         ERISA’s administrative scheme requires “[e]very employee benefit plan … to ‘afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review … of the decision denying the claim.’” Coomer, 370 F.3d at 504 (quoting 29 U.S.C. § 1133). Similarly, pursuant to ERISA regulations, when a claim is denied by an insurer, the insurer has an obligation to provide the claimant “appropriate information as to the steps to be taken … to submit his or her claim for review.” 29 C.F.R. § 2560.503-1(f). Reliance complied with these regulations and afforded Stacy an opportunity to appeal (Doc. # 8-2), but she did not take advantage of her appeal rights within the 180-day time period. (Doc. # 1-1 at ¶ 45). Therefore, failure to file a timely appeal and exhaust her administrative remedies may bar Stacy’s claims against Reliance.

         Before bringing an action for benefits under § 502(a)(1)(B), plan participants must exhaust their administrative remedies. See Miller, 925 F.2d at 986. However, the Sixth Circuit recently held that the exhaustion requirement does not apply to claims for breach of fiduciary duty, which “alleg[e] statutory, rather than plan-based, violations.” Hitchcock v. Cumberland Univ. 403(b) DC Plan, No. 16-5942, 2017 WL 971790, at *8 (6th Cir. Mar. 14, 2017). Because “actions brought to enforce the terms of a plan are distinguishable from those brought to assert rights granted by federal statute,” the Sixth Circuit has determined that “ERISA plan participants or beneficiaries do not need to exhaust internal remedial procedures before proceeding to federal court when they assert statutory violations of ERISA.” Id. at *9 (internal citations and quotation marks omitted).

         Because exhaustion is required only for certain claims and because Stacy’s Complaint did not specifically identify which civil enforcement mechanism she seeks to utilize, it is imperative that the Court determine which of ERISA’s civil remedies may support her claims.[2] Stacy is attempting to recover benefits allegedly due to her under the terms of Reliance’s LTD plan; therefore, the Court construes this claim as one under § 502(a)(1)(B). Stacy’s Complaint also asserts an individualized “breach of fiduciary duty” claim and seeks an injunction, both of which constitute claims for equitable relief under § 502(a)(3).[3]

         Typically, § 502(a)(1)(B) and § 502(a)(3) claims cannot be brought in tandem. See Varity Corp., 516 U.S. at 512 (holding that § 502(a)(3) “act[s] as a safety net, offering appropriate equitable relief for injuries caused by violations that § 502 does not elsewhere adequately remedy”). However, in “some circumstances, an ERISA plaintiff may simultaneously bring claims under both” sections. Gore v. El Paso Corp. Long Term Disability Plan, 477 F.3d 833, 839 (6th Cir. 2007) (citing Hill v. Blue Cross and Blue Shield of Mich., 409 F.3d 710 (6th Cir. 2005)). “Where a claimant asserts an injury separate and distinct from the denial of benefits, then dual ERISA claims and remedies may be appropriate.” Brown v. United of Omaha Life Ins. Co., 661 F. App’x 852, 859 (6th Cir. 2016) (internal citations and quotation marks omitted). Thus, if an award of individual benefits under § 502(a)(1)(B) does not provide an adequate remedy for the alleged injury caused by the breach of fiduciaries, then a plaintiff may be able to pursue claims under both sections. See Gore, 477 F.3d at 840-42 ...

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