When stripped of its “futility” label, Brown’s argument is a winner. Prudential’s failure to comply with its duty under § 1133(2) to provide Brown with “a reasonable opportunity . . . for a full and fair review” of Prudential’s decision to discontinue her LTD benefits excuses Brown’s failure to exhaust before bringing suit under § 1132(a). Without the Administrative Record and other requested documents in hand, Brown was unable fully and fairly to prepare her appeal.

Brown v. J.B. Hunt Transport Services, Inc., 586 F.3d 1079 (8th Cir. 2009)

Note: The Eighth Circuit decision supersedes the prior post concerning the district court decision which appears below.

District Court Rejects “Substantial Compliance” Argument As Justification For Failure To Exhaust Administrative Remedies

Defendants filed a Motion for Summary Judgment asking that Plaintiff’s Count I be dismissed for failure to exhaust administrative remedies. Plaintiff asserts that she substantially complied with the appeal process by telling Prudential over the phone that she wanted to appeal Prudential’s decision. In the alternative, Plaintiff alleges that Defendants did not provide her a copy of the administrative record, and that an appeal in the blind would be futile. Plaintiff asserts that the futility of an appeal in the blind released her from her obligation to exhaust her administrative remedies.

Brown v. J.B. Hunt Transp. Servs., 2008 U.S. Dist. LEXIS 66293 (E.D. Ark. Aug. 28, 2008)

Failure to exhaBrown v. J.B. Hunt Transp. Servs., 2008 U.S. Dist. LEXIS 66293 (E.D. Ark. Aug. 28, 2008)ust administrative remedies, a venerable and effective ERISA defense, will not be found in the statute.  The doctrine is one borrowed from administrative law and imposed by federal courts to trim the docket of cases that might have been resolved by benefit appeals. And so, in Brown, the plaintiff had a difficult hurdle to overcome when the district court determined that she had failed to appeal the denial of her benefits.

The Basic Rule

Benefit plans governed by ERISA must include a claim review procedure, observed the court.  The exhaustion requirement arises from the adoption of the claims review procedure. “[A]ny plan claim review procedure that meets the requirements of  29 U.S.C. § 1133 30 and 29 C.F.R. § 2560.503-1(f) and (g) 31 will trigger the judicially imposed duty to exhaust that remedy.”

“Substantial Compliance”?

The plaintiff had made a couple of telephone calls and discussed an appeal.  She had requested the administrative record and contended she had not received it.  The plaintiff thus derived a notion of substantial compliance, arguing:

that where employers fail to follow plan regulations, substantial compliance satisfies a beneficiary’s obligation to exhaust administrative remedies. . . .  Plaintiff asserts that her verbal request for an appeal should count as substantial compliance with Plan requirements, arguing “[w]hat is good for the goose is good for the gander.”

Finding no Eighth Circuit authority on the point, the court rejected this argument:

Apparently, however, there are no Eighth Circuit cases supporting Plaintiff’s argument that substantial compliance satisfies a beneficiary’s obligation to exhaust administrative remedies. Thus, Plaintiff’s substantial compliance argument cannot withstand Defendants’ Motion for Summary Judgment.

Futility Doctrine Invoked

The plaintiff then turned to the standard countermeasure to the failure to exhaust defense, the futility doctrine.

Plaintiff argues that a written appeal would have  been futile, because: the insurance company failed to provide upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits. Thus, simply put, the insurance company’s failure to provide Ms. Brown with the administrative record never triggered the judicially imposed duty to exhaust her administrative appeal.

The court described the doctrine in these terms:

A beneficiary is, however, relieved of the requirement to exhaust administrative remedies when exhaustion “would be wholly futile.”

Here, the court found supporting authority, but noted that:

The Eighth Circuit has recognized futility in only limited circumstances. In Back v. Danka Corp., the beneficiary was not required to exhaust administrative  remedies where the plan did not notify the beneficiary of the existence of an internal remedy. In Union Pac. R.R. Co. v. Beckham, the court recognized the futility exception in the context of determining when a cause of action accrued. The common thread running through Eighth Circuit cases applying the futility exception is an appearance of certainty that a claim would be denied on appeal.

The “futility exception is particularly appropriate where the past pattern of a plan administrator, as well as its position on the merits of a current matter in litigation, reveal that any further administrative review would provide no relief.” A mere speculation that a claim will be denied does not establish futility.

On balance, the Court found an insuficient showing that further administrative review would provide no relief.  The futility argument focus on not having been provided the administrative record was undercut by the Court’s conclusion that the Plaintiff did not request the administrative record from the proper party until after she filed suit.  Thus, the

Note: The status of plan administrator is vitally important under ERISA not only for purposes of naming the proper defendant, but also for triggering responsibility for information requests.  The court noted that:

Because J.B. Hunt Transport Services, Inc. is identified as the Plan Administrator, only J.B. Hunt Transport Services, Inc. can be liable under § 502(c) of ERISA. Further, the Eighth Circuit has rejected Plaintiff’s de facto plan administrator argument.

See, Ross v. Rail Car Am. Group Disability Income Plan, 285 F.3d 735, 743 (8th Cir. 2002).

Futility Cases – The district court collected the following cases on the futility doctrine:

Glover v. St. Louis-San Francisco R. Co., 393 U.S. 324, 330, 89 S. Ct. 548, 21 L. Ed. 2d 519 (1969). See also Wert v. Liberty Life Assur. Co. of Boston, 447 F.3d 1060, 1065 (8th Cir. 2006) (citing, among others, Back v. Danka Corp., 335 F.3d 790, 792 (8th Cir. 2003) (exhaustion not required where plan failed to notify plaintiff regarding availability of internal remedy); Union Pac. R.R. Co. v. Beckham, 138 F.3d 325, 332 & n.4 (8th Cir. 1998) (recognizing the futility exception to the exhaustion requirement  under ERISA in the context of determining when a cause of action accrued).