“Plaintiff’s attorney’s letter to Lincoln makes no mention of a breach of fiduciary duty claim against Defendant nor does it request administrative review of that claim. Rather, the letter accuses Lincoln of wrongfully denying coverage because it had accepted SP’s application and payments for the optional benefit coverage, requested materials and demanded immediate review of the denial under ERISA, and concluded with a threat that if the matter was not resolved favorably for the Plaintiff, Plaintiff would file a declaratory judgment action against Lincoln. Id. As a result, this Court finds Plaintiff’s counsel’s letter was not an attempt to initiate administrative proceedings, but a threat to take Lincoln to court if the matter was not resolved favorably for the Plaintiff.”
Pierce v. Flsmidth, Inc. (C.D. Ill. 2021)
This opinion addresses the familiar problem for plaintiffs on the question of sufficient exhaustion of administrative remedies. Here, the plaintiff contended that the defendant had a duty to advise of an active at work requirement for optional life insurance coverage. The plaintiff’s attorney wrote a letter on her behalf as noted in the excerpt above. The plaintiff ultimately filed suit claiming a breach of fiduciary duty.
“SP’s widow has now brought action against his former employer under [ERISA] “seeking equitable relief for an alleged breach of fiduciary duty in relation to continuation of coverage under a group life insurance welfare benefit plan sponsored by the Defendant” pursuant to § 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3). Id. It is Plaintiff’s position that during the year 2020, Defendant, a fiduciary of the plan, had a duty under 29 U.S.C. §§ 1022(b) and 1104 to notify SP of the optional benefit plan’s active employment requirement for the policy to become effective. Plaintiff is now seeking a monetary surcharge, plus interest and fees, for the full amount of the optional benefit policy.”
Issue
Was this letter sufficient to initiate administrative review or did the plaintiff skip the important step of exhaustion of administrative remedies? The question is significant as the federal courts have treated plan claims and appeal procedures as an analog to proceedings before an agency.
Exhaustion Requirement
The district court began by citing the “important public policy” behind the exhaustion requirement:
“Section 502(a)(3), 29 U.S.C. § 1132(a)(3), encompasses civil actions such as this one for alleged violations of ERISA. While § 502 is silent as to whether exhaustion of administrative remedies is a prerequisite to bringing a civil action, the Seventh Circuit recognizes this judicially created doctrine and places the decision to require exhaustion within the discretion of the trial court. Kross v. Western Elec. Co., 701 F.2d 1238, 1244 (7th Cir. 1983); Lindemann v. Mobil Oil Corp., 79 F.3d 647, 650 (7th Cir. 1996); Powell v. A.T. & T. Comm., Inc., 938 F.2d 823, 825 (7th Cir. 1991).
Exhaustion “supports the important public policy of encouraging private rather than judicial resolution of disputes under ERISA.” Kross, 701 F.2d at 1246. Moreover, requiring exhaustion enables plan fiduciaries to assemble a factual record that would assist the court in reviewing their actions and “minimizes[s] the number of frivolous lawsuits, promote[s] a non-adversarial dispute resolution process, and decrease[s] the cost and time of claims settlement.” Lindemann, 79 F.3d at 650.“
Attorney Letter As Request for Review
The district court noted that the Seventh Circuit has held that an attorney letter may be sufficient to initiate administrative review if the content of the letter is reasonably calculated to alert the employer to the nature of the claim and requests administrative review. But a “rear-guarded attempt to turn a request for information and threat to sue into a demand for administrative review must be rejected.”
A review of the letter’s language did not convince the court that the letter was sufficient to invoke administrative review.
“Here, Plaintiff’s attorney’s letter to Lincoln makes no mention of a breach of fiduciary duty claim against Defendant nor does it request administrative review of that claim. (D. 15, p. 6, ¶¶ 21-22) (D. 22-1). Rather, the letter accuses Lincoln of wrongfully denying coverage because it had accepted SP’s application and payments for the optional benefit coverage, requested materials and demanded immediate review of the denial under ERISA, and concluded with a threat that if the matter was not resolved favorably for the Plaintiff, Plaintiff would file a declaratory judgment action against Lincoln. Id. As a result, this Court finds Plaintiff’s counsel’s letter was not an attempt to initiate administrative proceedings, but a threat to take Lincoln to court if the matter was not resolved favorably for the Plaintiff.”
The opinion is attached.
Note – The district court concluded the plaintiff “put the cart before the horse in arguing that Lincoln’s failure to respond to Plaintiff’s “request for review” meant the Plaintiff has exhausted administrative remedies under the plan. “A plaintiff cannot fail to initiate administrative review, and then argue exhaustion is waived when they do not receive a response to a demand letter within the time required by the plan.”
Circuit Split – Note this was a claim for breach of fiduciary duty, not a claim for benefits:
“While there is unanimity that exhaustion of administrative remedies is required before a plaintiff can bring an ERISA action in federal court to recover benefits under a plan, the courts of appeal are split on the question of whether beneficiaries of an ERISA plan must exhaust internal plan remedies before suing plan fiduciaries based on an alleged violation of duties imposed by statute. See Kross, 701 F.2d 1238 (7th Cir. 1983); Mason v. Cont’l Grp., Inc., 763 F.2d 1219, 1226- 27 (11th Cir.1985); Zipf v. AT&T, 799 F.2d 889 (3d Cir. 1986); Smith v. Sydnor, 184 F.3d 356 (4th Cir. 1999); Galvan v. SBC Pension Benefit Plan, 204 Fed. App’x. 335, 338-39 (5th Cir. 2006); Held v. Mfrs. Hanover Leasing Corp., 912 F.2d 1197, 1204-05 (10th Cir. 1990); Dorman v. Charles Schwab Corporation, 934 F.3d 1107 (9th Cir. 2019) (overturning previous circuit authority excusing the exhaustion requirement on the grounds that it was irreconcilable with the Supreme Court’s holding in American Exp. Co. v. Italian Colors Restaurant, 570 U.S. 228 (2014), that federal statutory claims are generally arbitrable and arbitrators can competently interpret and apply federal statutes).
It is the Seventh Circuit position, whose decisions bind this Court, that: “a district court may properly require exhaustion of administrative proceedings prior to filing a claim involving an alleged violation of an ERISA statutory provision.” Powell, 938 F.2d at 826.
Affirmative Defense – Exhaustion of administrative remedies is not an element of a claim under ERISA; rather, it is an affirmative defense. Adamczyk v. Lever Bros. Co., 991 F.Supp. 931, 934 (N.D. Ill. 1997). To support a Rule 12(b)(6) motion to dismiss, the plaintiff’s allegations must clearly point to the existence of an affirmative defense. Id. In other words, the fact that the plaintiff failed to exhaust administrative remedies must appear plainly on the face of the complaint.
Pierce v. Flsmidth, Inc. (C.D. Ill. 2021)
