Assignments of Benefits – Do They Include Rights To Statutory Penalties & Attorneys’ Fees?

It is well-established that ERISA plan participants and beneficiaries may assign their rights to their health care provider. Misic v. Bldg. Serv. Employees Health & Welfare Trust, 789 F.2d 1374, 1378-79 (9th Cir. 1986). As an assignee, the provider has standing “to assert the claims of his assignors.” Id. at 1379. A Plan may also prohibit the assignment of rights and benefits. Davidowitz v. Delta Dental Plan of California, Inc., 946 F.2d 1476 (9th Cir. 1991). Both the Braun and Rudolph Plans prohibit the assignment of benefits.

Thus, the question is whether the plan participants assigned Eden the right to sue for statutory penalties, independent from a claim for benefits.

Eden Surgical Ctr. v. B. Braun Med., Inc., 2011 U.S. App. LEXIS 4809 (9th Cir. Cal. Mar. 9, 2011)

Although a short, unpublished opinion, the decision in Eden Surgical Ctr. v. B. Braun Med., Inc. raises an important question. Does the assignment of benefits by a patient to a provider confer rights under an ERISA group health plan to assert other claims, such as a claim for statutory penalties and attorneys fees?

Claims for benefits arise under 29 U.S.C. § 1132(a)(1)(B). This case is not about a claim for benefits, though, but rather statutory penalties and attorneys fees.

Statutory penalties for failure to provide requested plan information, inter alia, may be available under § 1132(c). Attorney’s fees may be available under 29 U.S.C. § 1132(g).

In this case the Court held that the assignment did not confer rights to seek the penalties and attorneys fees, stating:

Eden’s assignment purports to include the right to sue for statutory penalties under § 1132(c), as well as the right to seek attorney’s fees. Eden’s assignment is effective during “any legal process, necessary to collect claims submitted on [the participant’s] behalf for health insurance benefits, but denied by [the] plan.” Eden’s assignment grants personal standing under ERISA for “judicial review of denied claims.”

This is not a suit seeking “judicial review of denied claims,” and the claim for relief is not asserted during any “legal process, necessary to collect claims submitted on [the participant’s behalf] for health insurance benefits, but denied by [the] plan.” Accordingly, assuming (without deciding) that the right to bring claims under § 1132(c) is free-standing and may be assigned, Eden’s assignment to seek such relief is not effective under the terms of the assignment itself because it is not pursued during a process “necessary to collect claims.”

This means that Eden lacks derivative standing to sue and the district court lacked jurisdiction. See Harris v. Provident Life and Account Ins. Co., 26 F.3d 930, 933 (9th Cir. 1994) (an ERISA civil action must be brought by a participant, beneficiary, fiduciary, or the Secretary of Labor).

According to the dissent, the question was a matter of contract interpretation (meaning, presumably the terms of the assignment itself).

This case turns on a matter of contract interpretation. Unlike the majority, I would find that the assignment language at issue allows Eden Surgical Center (”Eden”) the right to seek penalties under 29 U.S.C. § 1132(c) and would reverse the district court’s decision on that basis. For this reason, I respectfully dissent.

Since the balance of the dissenting opinion contains the judge’s perspective on the specific contractual terms, I do not think it is worth reproducing here.

Note: Since this case turned on a contractual interpretation, and the assignment terms (as interpreted) failed to confer rights to sue for penalties and attorneys’ fees, the question remains open as to whether an assignment can confer such rights under ERISA.

The Fifth Circuit took a hard look at the rights of health care providers under assignments many years ago. Under a strict reading of ERISA, of course, providers are not in the class of permitted plaintiffs.  Nonetheless, in one of the seminal opinions on the issue, the Fifth Circuit permitted an assignment of claims on this analysis:

As the district court correctly concluded below, Memorial’s state law claims asserted as an assignee of Echols’ benefits under Noffs’ plan are preempted. As assignee, Memorial stands in the shoes of Echols and may pursue only whatever rights Echols enjoyed under the terms of the plan. Such derivative claims invoke the relationship among the standard ERISA entities and clearly relate to a plan for preemption purposes. See Hermann Hospital, 845 F.2d at 1290. Moreover, these derivative claims fall within the scope of section 502(a), ERISA’s civil enforcement scheme, which Congress intended to be the exclusive vehicle for suits by a beneficiary to recover benefits from a covered plan. See Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 62-63, 107 S. Ct. 1542, 1546, 95 L. Ed. 2d 55 (1987).

Memorial Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d 236 (5th Cir. Tex. 1990).

Note the reference to ERISA Section 502(a) (which is the parallel citation to 1132(a)). I am inclined to think that the Fifth Circuit (and likely majority of courts facing this unique issue), would limit health care providers’ rights under assignments to claims for benefits.