Claims For Administrative Record And Statutory Penalties Advance Over Challenge

Plaintiffs bring a claim for violation of 29 C.F.R. 2560.503-1(h)(2) on behalf of the individual Plaintiffs against Defendants . . .
29 C.F.R. 2560.503-1(h)(2) sets forth the requirements that must be met in order for a plan’s claims procedures to be considered as having provided a claimant with a reasonable opportunity for a full and fair review of a claim and adverse benefit determination. Subsection (iii) states that the claims procedures of a plan must provide that “a claimant shall be provided, 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.” 29 C.F.R. 2560.503-1(h)(2)(iii).

[E]ven if Plaintiffs are ultimately unable to recover statutory penalties for any alleged document production violations, they have stated a claim for relief that is plausible on its face. Defendants’ motion to dismiss this claim is denied.

Moyle v. Liberty Mut. Ret. Benefit Plan, 2011 U.S. Dist. LEXIS 44065 (D. Cal. 2011)

The plaintiffs in this case argue that the defendants failed to produce documents in derogation of their duties under the DOL claims regulation.  The claims regulation embodies a sort of “due process” for benefit claimants pursuant to 29 U.S.C. § 1133 which states,

“[i]n accordance with regulations of the Secretary, every employee benefit plan shall . . . afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.”

The plaintiffs argued that the defendants violated 29 C.F.R. 2560.503-1(h)(2), a part of the DOL claims regulation promulgated under 29 U.S.C. § 1133.  The defendants argued that the plaintiffs failed to state a claim.

The Regulation And The Allegation

First, let’s take a look at the regulation, summarized as follows:

29 C.F.R. 2560.503-1(h)(2) sets forth the requirements that must be met in order for a plan’s claims procedures to be considered as having provided a claimant with a reasonable opportunity for a full and fair review of  a claim and adverse benefit determination. Subsection (iii) states that the claims procedures of a plan must provide that “a claimant shall be provided, 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.” 29 C.F.R. 2560.503-1(h)(2)(iii)(stating that relevance of a document shall be determined by reference to paragraph (m)(8) of the section).

Now, the plaintiffs argued to the Court that  ”[s]ubstantial portions of the records and documentation related to the Plaintiffs[‘] claims were not provided,” in connection with the claims process.

The Consequence Of A Violation

Even if the defendants failed to comply with the regulation, they argued it didn’t really matter.   So the arguments looked like this:

# 1 The plaintiffs contended that they were entitled to statutory penalties under 29 U.S.C. section 1132(c)(1).  They also contended that were “entitled to an immediate order . . .  compelling Defendants to produce all such portions of the administrative record on Plaintiffs’ claims which have not been produced as required by law.”

# 2 The defendants demurred, arguing that statutory penalties “are not available for violations of 29 C.F.R. 2560.503-1(h)(2)(iii).”

Who was correct?  In fact the law is not so clear – in the Ninth Circuit anyhow.

The Ninth Circuit View

Perhaps the Ninth Circuit has not fully addressed the issue – the defendants claimed as much – but the Ninth Circuit did provide the plaintiffs a foothold in Sgro v. Danone Waters of N. Am., 532 F.3d 940 (9th Cir. 2008).  As related by the district court:

Plaintiffs claim the Ninth Circuit’s holding in Sgro v. Danone Waters of N. Am., 532 F.3d 940 (9th Cir. 2008), established that Plaintiffs have a claim pursuant to 29 U.S.C. § 1132.

Defendants, in contrast, argue the relevant language in Sgro was merely dicta and the Court should follow the approach taken in Bielenberg v. ODS Health Plan, Inc., 744 F. Supp. 2d 1130, 1143-44 (D. Or. 2010), which denied plaintiff’s motion for leave to amend his complaint to add a claim for penalties pursuant to 29 U.S.C. § 1132(c)(1) based upon violations of 29 C.F.R. 2560.503-1(h)(2)(iii) on the basis that such penalties are not permissible and, thus, amendment would be futile.

A Belt And Suspenders To Be Sure Sgro also claims that he asked defendants for a “complete copy of [his] claim file” and that defendants didn’t fully comply with the request. In particular,  [*945]  Sgro alleges that MetLife held back “claim activity records or investigation notes” kept by MetLife’s “claims personnel.” Sgro argues that MetLife’s failure to provide these documents violated  [**10] HN11ERISA regulations, which require that a claimant shall be provided, 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. 29 C.F.R. § 2560.503-1(h)(2)(iii). The documents that MetLife is alleged to have held back are “relevant,” and thus HN12covered by this regulation, because they were “generated in the course of making the benefit determination.” Id. § 2560.503-1(m)(8)(ii). ERISA’s remedies provision gives Sgro a cause of action to sue a plan “administrator” who doesn’t comply with a “request for . . . information.” 29 U.S.C. § 1132(c)(1). But there are two defendants here, and Sgro’s complaint doesn’t say which one he asked for the records. See First Amend. Compl. P 24. That matters because HN13a defendant can’t be liable unless it received a request. See 29 U.S.C. § 1132(c)(1). As for Danone Waters, Sgro’s lawyer told the district court that he requested the records from that company but that his letter came back to him stamped “undeliverable as addressed.” It’s not at all clear whose fault that was. So it seems possible for Sgro to amend his complaint to state a claim against Danone  [**11] Waters. On remand, Sgro shall be given leave to amend his complaint to allege that he requested these documents from Danone Waters, if he can do so in good faith.

For good measure, the plaintiffs argued that their claim:

should survive Defendants’ motion to dismiss because, in addition to requesting penalties, Plaintiffs request “an order compelling Defendants to produce all such portions of the administrative record on Plaintiffs’ claims which have not been produced as required by law.” )  Plaintiffs argue this claim is not merely based upon the penalty provisions of 29 U.S.C. § 1132, but, rather, seeks to compel Defendants to produce the records required to be produced pursuant to 29 C.F.R. 2560.503-1(h)(2).

So the plaintiffs added a backstop to their argument by asserting that, even if penalties weren’t allowable, their claim would still be viable.   The district court agreed with this point, stating:

Finally, in addition to seeking penalties pursuant to 29 U.S.C. § 1132(c)(1), Plaintiffs seek an order from this Court requiring Defendants to comply with their document production requirements. According to Plaintiffs, they are not relying on § 1132 for this aspect of their claim. Nonetheless, § 1132 provides the Court with the authority to grant such relief. See 29 U.S.C. § 1132(a)(”A civil action may be brought . . . (3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such provisions or (ii) to enforce any provisions of this subchapter or the terms of the plan); 29 U.S.C. § 1132(c)(1)(”the court may in its discretion order such other relief as it deems proper”).

Accordingly, even if Plaintiffs are ultimately unable to recover statutory penalties for any alleged document production violations, they have stated a claim for relief that is plausible on its face. Defendants’ motion to dismiss this claim is denied.

Final Answer?

On the statutory penalties claim, the court left the issue hanging, stating:

The Ninth Circuit’s opinion in Sgro states, in the context of discussion of a claim pursuant to 29 C.F.R. 2560.503-1(h)(2)(iii), that “ERISA’s remedies provision gives Sgro a cause of action to sue a plan ‘administrator’ who doesn’t comply with a ‘request for . . . information. 29 U.S.C. § 1132(c)(1).”   However, the opinion does not contain further discussion regarding the availability of statutory fines for violations of the regulation.  The Court is not persuaded that the opinion in Sgro conclusively established the applicability of § 1132’s penalties  provisions to claims for violations of 29 C.F.R. 2560.503-1(h)(2)(iii), as Plaintiffs argue.

However, neither is the Court persuaded by Defendants’ argument that the opinions of other Circuit Courts should be adopted by this Court to find Plaintiffs have failed to state a claim for relief at the motion to dismiss stage. See Groves v. Modified Ret. Plan for Hourly Paid Emps. of Johns Manville Corp. & Subsidiaries, 803 F.2d 109 (3d Cir. 1986); Stuhlreyer v. Armco, Inc., 12 F.3d 75 (6th Cir. 1993); Wilczynski v. Lumbermens Mut. Cas. Co., 93 F.3d 397 (7th Cir. 1996); Brown v. J.B. Hunt Transp. Servs., Inc., 586 F.3d 1079 (8th Cir. 2009).

And so the plaintiffs claims on this issue survived the motion to dismiss and remain to be decided on a later date.

Note:  Regarding statutory penalties:

29 U.S.C. § 1132(c)(1) states “[a]ny administrator . . . who fails or refuses to comply with a request for any information which such administrator is required by this subchapter to furnish to a participant or beneficiary . . . by mailing the material requested to the last known address of the requesting participant or beneficiary within 30 days after such request may in the court’s discretion be personally liable to such participant or beneficiary in the amount of up to $100 a day from the date of such failure or refusal, and the court may in its discretion order such other relief as it deems proper.”

The current penalty is $110 per day.

Sgro Excerpt:  From the Ninth Circuit opinion:

Sgro also claims that he asked defendants for a “complete copy of [his] claim file” and that defendants didn’t fully comply with the request. In particular,  Sgro alleges that MetLife held back “claim activity records or investigation notes” kept by MetLife’s “claims personnel.” Sgro argues that MetLife’s failure to provide these documents violated  ERISA regulations, which require that:

a claimant shall be provided, 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.

29 C.F.R. § 2560.503-1(h)(2)(iii). The documents that MetLife is alleged to have held back are “relevant,” and thus HN12covered by this regulation, because they were “generated in the course of making the benefit determination.” Id. § 2560.503-1(m)(8)(ii). ERISA’s remedies provision gives Sgro a cause of action to sue a plan “administrator” who doesn’t comply with a “request for . . . information.” 29 U.S.C. § 1132(c)(1).

But there are two defendants here, and Sgro’s complaint doesn’t say which one he asked for the records. See First Amend. Compl. P 24. That matters because a defendant can’t be liable unless it received a request. See 29 U.S.C. § 1132(c)(1). As for Danone Waters, Sgro’s lawyer told the district court that he requested the records from that company but that his letter came back to him stamped “undeliverable as addressed.” It’s not at all clear whose fault that was. So it seems possible for Sgro to amend his complaint to state a claim against Danone  Waters. On remand, Sgro shall be given leave to amend his complaint to allege that he requested these documents from Danone Waters, if he can do so in good faith.