Opinion
Civil Action No. 3:02-CV-2100-K.
February 8, 2005
MEMORANDUM OPINION AND ORDER
Now before the Court for consideration is the Motion for Summary Judgment of Defendants E-Systems, Inc. Long Term Disability Income and Death Plan, now known as Raytheon Company Long Term Disability Plan (the "Raytheon Plan"), Raytheon Disability Trust (the "Trust"), and Metropolitan Life Insurance Company ("MetLife") and Plaintiff Henry Thomas High's ("Mr. High") Motion for Leave to Amend Pleadings. The Court GRANTS Mr. High leave to amend. The Court finds that MetLife did not abuse its discretion, therefore, the Defendants' Motion for Summary Judgment is GRANTED.
I. Background
Plaintiff Henry Thomas High was terminated from E-Systems, Inc. in 1992 due to a disability. Mr. High became eligible for and received long term disability payments under the E-Systems, Inc. Long Term Disability Income Benefit Plan (the "E-Systems Plan"), a self-funded employee welfare benefit plan. Mr. High also received Veterans Administration ("VA") disability income benefits, which were disclosed to his employer.
The E-Systems Plan Document expressly provides in Section 4.6 for a reduction in monthly disability benefits by "other income benefits," including: "(a) disability benefits payable under the federal Social Security Act . . .; (b) earnings continuation from any Employer; (c) benefits payable under any other group disability plan; (d) benefits payable under any workmen's compensation or similar law." Despite this provision, the Claims Administrator for the E-Systems Plan did not offset Mr. High's VA benefits from his monthly disability benefits from 1992 until 1998.
The 1979 E-Systems Plan merged with and into the Raytheon Company Long Term Disability Plan, effective July 1, 1998 (the merged Plan is referred to herein as the "Raytheon Plan"). Although the procedural terms of the 1979 E-Systems Plan are controlled by the Raytheon Plan Document, the substantive terms of the benefit structure (i.e. Articles I through V) of the 1979 E-Systems Plan Document remain in effect for former participants of the E-Systems Plan. Under the Raytheon Plan, Raytheon Company is the Plan Administrator, and Metropolitan Life Insurance Company ("MetLife") provides claims administrative services; both are vested with discretionary authority to make claims determinations.
As a result of the merger, Mr. High's claim for monthly disability benefits was transferred to MetLife, and, on September 10, 1998, MetLife notified Mr. High that it would reduce his disability benefits by his VA benefits, effective September 1998.
On August 30, 2002, Mr. High filed this lawsuit to recover past and future benefits that he claims are due under the Raytheon Plan. Defendants moved for summary judgment on Mr. High's claim to recover monthly disability benefits, arguing that MetLife properly reduced Mr. High's disability benefits payable under the Raytheon Plan by his VA benefits, because the applicable Plan Documents provide for the offset of disability benefits by the amount of "other income benefits" received by Plan participants. Defendants argue that even if reasonable minds differ on the correct interpretation of the Raytheon Plan's offset provision, MetLife's decision to offset is not an abuse of discretion and must be upheld under ERISA principles established by the Fifth Circuit.
In his response, Mr. High argues that the 1979 E-Systems Plan, not the Raytheon Plan, applies to his claim for monthly benefits, and offsets for VA disability benefits are not authorized under either Plan. Moreover, MetLife's has not been granted discretionary authority under either Plan and therefore de novo review of MetLife's decision to offset is the appropriate standard of review.
Additionally, Mr. High asserts that MetLife's decision to offset his Plan benefits by his VA benefits is barred by laches, estoppel and waiver, because the former Claims Administrator failed to offset his Plan benefits for eight years. Furthermore, under Texas Supreme Court authority, an offset for VA disability benefits must be set forth in an insurance policy. And, finally, Mr. High argues that MetLife's determination to offset his benefits payable under the Raytheon Plan is incorrect under the rule of contra proferentem, because ambiguous insurance policies must be construed in favor of the insured in an ERISA case.
II. Summary Judgment Standard
Summary judgment is appropriate when the pleadings, affidavits and other summary judgment evidence show that no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The moving party bears the burden of identifying those portions of the record it believes demonstrate the absence of a genuine issue of material fact. Celotex, 477 U.S. at 322-25. Once a movant makes a properly supported motion, the burden shifts to the nonmovant to show that summary judgment should not be granted; the nonmovant may not rest upon allegations in the pleadings, but must support the response to the motion with summary judgment evidence showing the existence of a genuine fact issue for trial. Id. at 321-25; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255-57 (1986). All evidence and reasonable inferences must be viewed in the light most favorable to the nonmovant. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).
When a party who will not have the burden of proof at trial, such as the Plan, moves for summary judgment, it may meet its summary judgment burden by pointing to the absence of evidence to support the nonmovant's claim. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The Plan directs the court to Mr. High's inability to show an abuse of discretion. Because the Plan has satisfied its burden, Mr. High must go beyond his pleadings and designate specific facts showing a genuine issue for trial concerning whether the Plan abused its discretion in applying the offset provision. See id.; Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc) (per curiam). In applying the abuse of discretion standard, the Court analyzes whether the plan administrator acted arbitrarily or capriciously. Wildbur v. ARCO Chem. Co., 974 F.2d 631, 635 (5th Cir. 1992). To avoid summary judgment, Mr. High must raise a genuine issue of fact that there was an abuse of discretion — that is, that the Plan was administered arbitrarily and capriciously.
III. Mr. High's Claims
1. The Raytheon Plan is the Applicable ERISA Plan
In asserting a claim against Defendants to recover past due disability benefits, Mr. High does not dispute that the Raytheon Plan is governed by ERISA, but rather Mr. High disputes that the Raytheon Plan applies to Mr. High's claim for Plan benefits. Specifically, Mr. High argues that the merger of the 1979 E-Systems Plan Document into the 1994 Raytheon Plan Document did not occur until January 1, 1999, and MetLife made the decision to offset Mr. High's disability benefits in September 1998, when the E-Systems Plan was still in effect. However, Defendants' uncontroverted affidavit testimony of Frank R. Anderson establishes that the 1979 E-Systems Plan Document and 1994 Raytheon Plan Document were merged, effective July 1, 1998; and, Exhibit A-4 is a true and correct copy of the Board of Directors' Written Consent to Merger. Mr. High had an evidentiary objection to Defendants' evidence of the merger because Defendants attached an unsigned copy of the Board of Directors' Written Consent to Merger. In response, Defendants offered the supplemental evidence of a signed copy of the First Amendment to the 1994 Raytheon Plan Document. This First Amendment establishes that the E-Systems Plan was merged into the Raytheon Plan, effective July 1, 1998. Thus, the Raytheon Plan that resulted from the merger of the 1979 E-Systems Plan and 1994 Raytheon Plan effective July 1, 1998 is the ERISA Plan that applies to Mr. High's claim for additional Plan benefits.
2. Abuse of Discretion Standard of Review Applies to MetLife
In Firestone Tire and Rubber Co. v. Bruch, the Supreme Court established the rule that courts must apply a de novo standard of review in an action brought by an ERISA plan participant to challenge the denial of benefits, unless the plan vests the administrator with discretionary authority to make eligibility determinations or construe the plan's terms. 489 U.S. 101, 115 (1989). When the ERISA plan vests the administrator with discretionary authority, courts may not reverse the administrator's decision to deny benefits absent a showing of an abuse of discretion. See Sunbeam-Oster Co. Group Benefits Plan v. Whitehurst, 102 F.3d 1368, 1373 (5th Cir. 1996); see also Meditrust Fin. Servs. Corp. v. Sterling Chems., Inc., Med. Benefits Plan, 168 F.3d 211, 213 (5th Cir. 1999).
In this case, the parties disagree that MetLife's interpretation of the applicable Raytheon Plan must be reviewed for an abuse of discretion. Mr. High argues that because the Raytheon Plan states that persons disabled prior to January 1, 1999 are to continue coverage under the substantive terms of the 1979 E-Systems Plan in effect at the time they were disabled, and because the E-Systems Plan Document does not grant the Administrator discretionary authority, the Raytheon Plan does not grant MetLife discretionary authority.
Conversely, Defendants argue that the 1994 Raytheon Plan Document controls the procedural aspects of the Raytheon Plan as of the date of the merger, July 1, 1998, and because Section 7.1 of the 1994 Plan expressly provides that MetLife and Raytheon Company have the "exclusive right, in their sole discretion, to interpret the Plan, make factual determinations and decide all matters arising thereunder, including the right to remedy possible ambiguities, inconsistencies, or omissions," that the Raytheon Plan gives MetLife the discretionary authority to determine eligibility for benefits and to construe the terms of the Plan.
A procedural amendment to an ERISA plan, including an amendment changing the scope of an administrator's discretion and authority, applies to a claims determination made after the effective date of the amendment, regardless of when the claim arose. See Vercher v. Alexander Alexander, Inc., 379 F.3d 222, 226 n. 6 (5th Cir. 2004) (suggesting, while not deciding, that a controlling plan is the plan in effect at the time benefits are denied); see also Smathers v. Multi-Tool Inc./Multi-Plastics, Inc. Employee Health Welfare Plan, 298 F.3d 191, 195-96 (3rd Cir. 2002); Grosz-Salomon v. Paul Revere Life Ins. Co., 237 F.3d 1154, 1159 (9th Cir. 2001).
Here, although the 1979 E-Systems Plan Document did not grant the Plan Administrator discretionary authority, this Plan was merged with and into the 1994 Raytheon Plan Document, and the merged Plan became effective on July 1, 1998, several months before MetLife decided to reduce Mr. High's Plan benefits. Under this applicable Raytheon Plan, the 1994 Raytheon Plan Document controls the procedural aspects of the Raytheon Plan and, specifically, Section 7.1 grants the Plan Administrator and Claims Administrator discretionary authority; therefore, MetLife, as the Claims Administrator, had discretionary authority in making the decision to reduce Mr. High's monthly benefits by his VA benefits.
Since the applicable Plan, the Raytheon Plan, grants MetLife discretionary authority, MetLife's decision to deny Mr. High's claim for additional benefits cannot be reversed absent an abuse of discretion. See Meditrust, 168 F.3d at 213. Thus, abuse of discretion is the proper standard to review MetLife's decision to offset Mr. High's disability benefits under the Raytheon Plan.
3. MetLife did not Abuse its Discretion in Offsetting Mr. High's Monthly Disability Benefits Under the Raytheon Plan
The application of the abuse of discretion standard to an ERISA plan administrator's decision to deny benefits "may involve a two-step analysis." See Spacek v. Maritime Ass'n, 134 F.3d 283, 292 (5th Cir. 1998). First, the court must determine whether the administrator's interpretation of the plan is the legally correct interpretation. Id. (citing Wildbur v. ARCO Chem. Co., 974 F.2d 631, 637 (5th Cir. 1992)). If the administrator's interpretation of the plan is legally correct, then the inquiry ends because no abuse of discretion could have occurred. Id. at 293. However, if the court determines that the administrator's interpretation is not legally correct, then it must further determine whether the administrator's decision was an abuse of discretion. Id.
Under Wildbur, the evidence presented by both sides does not conclusively establish that MetLife's interpretation of Section 4.6 of the Raytheon Plan to include VA benefits is legally correct. It therefore may not be said, as a matter of law, that MetLife's interpretation of the offset provision is legally correct.
Nevertheless, the court may skip the first step of the analysis, i.e. whether an administrator's interpretation of a plan is legally correct, if it can determine that the administrator's decision was not an abuse of discretion. MacLachlan v. ExxonMobil Corp., 350 F.3d 472, 481 (5th Cir. 2003) (citing Duhon v. Texaco, Inc., 15 F.3d 1302, 1307 n. 3 (5th Cir. 1994) ("the reviewing court is not rigidly confined to this two-step analysis in every case")). Here, because it is apparent that MetLife, as the Claims Administrator, clearly did not abuse its discretion in deciding to offset Mr. High's Plan benefits by his VA benefits under Section 4.6, it is unnecessary for the Court to conduct the two-step analysis and first determine whether MetLife's interpretation of the offset provision is legally correct. Duhon, 15 F.3d at 1397 n. 3.
a. MetLife's Decision to Offset Mr. High's Disability Benefits Under the Raytheon Plan is not Arbitrary and Capricious as a Matter of Law
In the Fifth Circuit, an Administrator does not abuse its discretion unless its decision to deny benefits is arbitrary and capricious. See Meditrust, 168 F.3d at 214-15. There is only a "semantic, not a substantive, difference" between the arbitrary and capricious and the abuse of discretion standards in the ERISA benefits review context. See Wildbur at 635. In reviewing for arbitrary and capricious actions resulting in an abuse of discretion, courts affirm an administrator's decision if it is supported by substantial evidence. Id. at 215. A decision is arbitrary and capricious only if it was made without a rational connection between the known facts and the decision. Id. (citing Bellaire Gen. Hosp. v. Blue Cross Blue Shield, 97 F.3d 822, 828 (5th Cir. 1996)).
Here, the administrative record reflects that there is a rational connection between the facts MetLife knew before this lawsuit and the decision it made to offset Mr. High's benefits. Mr. High's benefits claim was transferred to MetLife when the E-Systems Plan was merged into the Raytheon Plan in 1998. MetLife's computerized claims system was set up to reflect a reduction for VA disability benefits for former E-Systems Plan participants; thus, it showed a discrepancy between Mr. High's claims file and a similarly-situated E-Systems Plan participant's file, in which the participant's Plan benefits were being offset by his VA benefits. Noting that this discrepancy was caused by the former Claims Administrator, MetLife then reviewed the E-Systems Plan Document, which still governed the substantive terms of Mr. High's benefits payable under the Raytheon Plan. MetLife then contacted the former Plan Administrator for the E-Systems Plan, who advised that VA benefits should be and were intended to be offset under the applicable offset provision, Section 4.6 of the Raytheon Plan, and that Mr. High's benefits should have been offset all along; notwithstanding, MetLife did not attempt to collect the overpayments made to Mr. High from 1992 to 1998.
Furthermore, MetLife contacted the current Plan Administrator, Raytheon Company, which agreed with MetLife that Mr. High's benefits should be offset under the language of Section 4.6. Thus, MetLife knew that the former Plan Administrator and the current Plan Administrator were in agreement with MetLife that Mr. High's Plan benefits should be offset by his VA benefits. MetLife also knew that the VA described Mr. High's VA award as "disability compensation on account of service-connected disability," and that the VA reported that Mr. High receives "compensable service-connected disability" benefits, "paid at the rate of 100% due to unemployability." After MetLife received Mr. High's claim for benefits under the Raytheon Plan, reviewed the offset provision in Section 4.6 of the Raytheon Plan, noted that a similarly-situated Plan participant had his Plan benefits offset by his VA benefits under Section 4.6, and confirmed with the former Plan Administrator and current Plan Administrator that Mr. High's Plan benefits should be offset under Section 4.6, MetLife made the decision to offset Mr. High's Plan benefits. Because these facts establish that there is a rational connection between the facts and MetLife's decision to offset Mr. High's benefits by his VA benefits, its decision is not arbitrary and capricious as a matter of law. Moreover, MetLife's decision to offset must be upheld under ERISA principles established by the Fifth Circuit, because MetLife's decision is not an abuse of discretion. See Meditrust, 168 F.3d at 214-15.
III. Mr. High's Other Claims
1. Mr. High's Amended Complaint
The Court grants Mr. High leave to amend his pleadings to specifically assert estoppel, waiver and laches as theories of recovery. The assertion of these claims does not alter the above analysis, however, as these claims fail as a matter of law because laches is inapplicable to the case at bar and waiver and estoppel are preempted by ERISA.
a) Laches
The doctrine of laches does not apply as pleaded by Mr. High in this case. The doctrine of laches is an equitable affirmative defense which must be pled and proved by the defendant. See Clark v. Amoco Prod. Co., 794 F.2d 967, 971 (5th Cir. 1986). Since laches is an affirmative defense and the Defendants have not asserted any claims here, the doctrine of laches is inapplicable.
b) Estoppel and Waiver
Mr. High asserts a theory of estoppel to prevent MetLife from enforcing the offset provision of the Raytheon Plan. This state law claim is preempted by the Employee Retirement Income Security Act of 1974 ("ERISA"). There is no question that the Raytheon Plan is an "employee welfare benefit plan" as defined by ERISA. 29 U.S.C. § 1002(1). ERISA supersedes any state law that "relates to" an employee benefit plan. 29 U.S.C. § 1144(a). The Fifth Circuit has consistently held that claims based on estoppel are not cognizable within the context of claims for benefits under ERISA. See Rodrigue v. Western S. Life Ins. Co., 948 F.2d 969, 971 (5th Cir. 1991); Cefalu v. B.F. Goodrich Co., 871 F.2d 1290, 1297 n. 44 (5th Cir. 1989); Degan v. Ford Motor Co., 869 F.2d 889, 895 (5th Cir. 1989). Therefore, Mr. High is precluded from recovering under a theory of estoppel.
Similarly, Mr. High's claim of waiver is preempted because it addresses his right to receive benefits under the terms of an ERISA plan. See McNeil v. Time Ins. Co., 205 F.3d 179, 191 (5th Cir. 2000) (holding claims of estoppel and waiver preempted because a finding for either party would effect the obligations owed to the other under the terms of the plan).
2. Mr. High's Other Claims
Mr. High's claim that, under the Texas Supreme Court case, Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663 (Tex. 1987), an offset for VA disability benefits must be set forth in an insurance policy is preempted because State rules of contract interpretation are preempted by ERISA. See Thibodeaux v. Cont'l Cas. Ins. Co., 138 F.3d 593, 596 (5th Cir. 1998); accord Hammond v. Fid. Guar. Life Ins. Co., 965 F.2d 428, 430 (7th Cir. 1992).
The Court finds that the administrator did not abuse his discretion, therefore, the Court need not address Mr. High's claim that MetLife's determination that "other income benefits" in Section 4.6 includes VA benefits is ambiguous and should be construed in favor of Mr. High. Assuming that there is some ambiguity in Section 4.6, the remedy for this under Fifth Circuit precedent is review for abuse of discretion, not the application of the rule of contra proferentem, or interpretation of the contract in favor of the plaintiff. See MacLachlan v. ExxonMobil Corp., 350 F.3d 472 (5th Cir. 2003).
IV. Conclusion
The applicable ERISA Plan, the Raytheon Plan, gives the Claims Administrator, MetLife, the discretionary authority to determine eligibility for benefits and construe the terms of the Raytheon Plan; thus, the court may not reverse MetLife's decision to deny benefits absent an abuse of discretion. See Meditrust, 168 F.3d at 213.
Exercising its discretionary authority, MetLife decided to offset Mr. High's benefits by his VA benefits, because Section 4.6 of the Raytheon Plan authorizes the offset of "other income benefits" from Plan benefits, and MetLife interpreted this provision to include VA benefits. MetLife did not abuse its discretion, because it did not act arbitrarily and capriciously in deciding to reduce Mr. High's monthly Plan benefits by his VA benefits.
Given that there is no genuine issue of material fact regarding whether there was an abuse of discretion and MetLife did not abuse its discretion, Mr. High's claim fails as a matter of law and the Defendants' Motion for Summary Judgment is GRANTED.
SO ORDERED.