Rochow v. Life Ins. Co. of N. Am.

780 F.3d 364

Todd R. ROCHOW and John Rochow, personal representatives of the Estate of Daniel J. Rochow, Plaintiffs–Appellees

v.LIFE INSURANCE COMPANY OF NORTH AMERICA, Defendant–Appellant.

No. 12–2074.

United States Court of Appeals, Sixth Circuit.

Argued: June 18, 2014.

Decided and Filed: March 5, 2015.

ARGUED:Jeremy P. Blumenfeld, Morgan, Lewis, Bockius LLP, Philadelphia, Pennsylvania, for Appellant. Erik W. Scharf, Scharf Appellate Group, Miami, Florida, for Appellees. ON BRIEF:Jeremy P. Blumenfeld, Morgan, Lewis, Bockius LLP, Philadelphia, Pennsylvania, Brian T. Quinn, Honigman Miller Schwartz & Cohn, LLP, Lansing, Michigan, for Appellant. Erik W. Scharf, Scharf Appellate Group, Miami, Florida, John J. Cooper, Cooper Law Firm, PLLC, Troy, Michigan, for Appellees. Waldemar J. Pflepsen, Jr., Carlton Fields Jorden Burt, P.A., Washington, D.C., Jerrold J. Ganzfried, Holland & Knight LLP, Washington, D.C., Julie Wilensky, Lewis, Feinberg, Lee, Renaker & Jackson, P.C., Oakland, California, Mary Ellen Signorille, AARP, Washington, D.C., Mark D. DeBofsky, Debofsky & Associates, P.C., Chicago, Illinois, for Amici Curiae.

BEFORE: COLE, Chief Judge; KEITH, BOGGS, BATCHELDER, MOORE, CLAY, GIBBONS, ROGERS, SUTTON, COOK, McKEAGUE, GRIFFIN, KETHLEDGE, WHITE, STRANCH, and DONALD, Circuit Judges.

McKEAGUE, J., delivered the opinion of the court in which BOGGS, BATCHELDER, GIBBONS, ROGERS, SUTTON, COOK, GRIFFIN, and KETHLEDGE, JJ., joined, and WHITE, J., joined in part. GIBBONS, J. (pp. 376–78), delivered a separate concurring opinion in which BATCHELDER and COOK, JJ., joined. WHITE, J. (pp. 378–82), delivered a separate opinion concurring in part and dissenting in part. STRANCH, J. (pp. 382–95), delivered a separate dissenting opinion in which COLE, C.J., KEITH, MOORE, CLAY, and DONALD, JJ., joined, and WHITE, J., joined in part.

OPINION

McKEAGUE, Circuit Judge.

This is the second time this case has been before the Sixth Circuit. The first time, we affirmed the district court's determination that defendant Life Insurance Company of North America (“LINA”) acted arbitrarily and capriciously when it denied Daniel Rochow's claim for long-term disability benefits under the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. (“ERISA”). Rochow v. LINA, 482 F.3d 860 (6th Cir.2007) (“Rochow I ”). Our second review comes after the district court ordered that LINA disgorge profits flowing from its wrongful denial of benefits. A divided three-judge panel affirmed the district court's order. Rochow v. LINA, 737 F.3d 415 (6th Cir.2013) (“Rochow II ”). We granted rehearing en banc, thereby vacating Rochow II, in order to reconsider as a full court whether the disgorgement award was proper. For the reasons that follow, we vacate the disgorgement award and remand the case to the district court to determine whether prejudgment interest is appropriate.

I

The facts of this case are adequately summarized in Rochow II and are reproduced here:

In mid–2000, the late Daniel J. Rochow (“Rochow”), a principal of Universico Insurance Company (“Universico”), sold his interest in Universico to Arthur J. Gallagher & Co. (“Gallagher”) and became President of Gallagher. As an employee of Gallagher, Rochow was covered under Life Insurance Company of North America (“LINA”) policy number LK 30214. LINA's policy provided for disability benefits if an employee gave “satisfactory proof” that “solely because of Injury or Sickness [the employee is] unable to perform all material duties of [his or her] Regular Occupation or a Qualified Alternative[.]” See Rochow v. LINA (“Rochow I ”), 482 F.3d 860, 863–64 (6th Cir.2007).

In 2001, Rochow began to experience short term memory loss, occasional chills, sporadic sweating, and stress at work. Id. In July 2001, Gallagher demoted Rochow from President to Sales Executive–Account Manager because Rochow could no longer perform his duties as President. Id. Rochow continued to have difficulties, and as a result of his inability to perform his job, Gallagher forced Rochow to resign effective January 2, 2002. Id. In February 2002, Rochow experienced periods of amnesia and was hospitalized. Id. During his February 2002 hospital stay, Rochow was diagnosed with HSV–Encephalitis, a rare and severely debilitating brain infection. Id.

On or about December 31, 2002, Rochow filed a claim for long term disability benefits. LINA denied Rochow benefits stating that Rochow's employment ended before his disability began. Rochow I, 482 F.3d at 864.

Rochow appealed LINA's denial and included medical records from 2001 that stated Rochow was suffering short-term memory loss during 2001. In denying Rochow's appeal, LINA noted that Rochow experienced the effects of encephalitis during 2001 but denied coverage because Rochow continued to work and was not disabled until February 2002. Rochow I, 482 F.3d at 864.

Rochow again appealed and included a report from Jack Tellerico, an area vice president for Gallagher, which identified the material duties of Rochow's position with Gallagher and stated that during 2001, Rochow was not able to perform all the material duties of those jobs due to his lack of memory. LINA again denied Rochow's claims stating, “[s]ince, Mr. Rochow's long-term disability claim was not filed until after his termination date; his claim was denied because of, ‘not considered actively working at time of disability.’ It appears no additional documentation was provided which would support that Mr. Rochow was actively working when he became disabled.' ” (Page ID 4056) (Joint App'x) (sic).

Rochow appealed the denial a third time. LINA denied his claim for the final time stating Rochow had not presented any medical records to support his inability to work prior to the date he was terminated.

On September 17, 2004, Rochow filed a complaint against Cigna Group Insurance, LINA's parent company, in the United States District Court for the Eastern District of Michigan. Compl., ECF No. 1. The complaint states two claims under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3) : one to recover full benefits due to the failure to pay benefits in violation of the terms of the plan and one to remedy the alleged breach of fiduciary duty in ERISA Section 404(a), 29 U.S.C. § 1104(a).

Defendant moved for judgment on the record and Plaintiff moved for summary judgment. On June 24, 2005, Judge Tarnow of the United States District Court for the Eastern District of Michigan heard oral arguments on the parties' motions. At the conclusion of oral argument, Judge Tarnow stated on the record that LINA acted arbitrarily and capriciously in finding Rochow was not disabled while still employed and that Rochow had prevailed. In a one page order which incorporated the reasoning stated on the record, the Court granted Rochow's motion and denied LINA's motion. The same day, the district court clerk filed a judgment which purported to dismiss the case and was signed by the district court clerk and Judge Tarnow.

LINA appealed the June 24, 2005 Order denying Defendant's motion and granting Plaintiff's motion. Rochow moved to enforce judgment or require Defendant to post a supersedeas bond pursuant to Federal Rule of Civil Procedure 62(d). Eventually this motion was withdrawn and Defendant deposited a supersedeas bond in the amount of $250,000.

On April 3, 2007, a panel of this Court affirmed Judge Tarnow's Order. Rochow I, 482 F.3d at 866. The Rochow I panel held the record supported the district court's decision that LINA's denial of Rochow's claims was arbitrary and capricious, was not the result of a deliberate, principled reasoning process, and did not appear to have been made “ ‘solely in the interest of the participants and beneficiaries and [ ] for the exclusive purpose of [ ] providing benefits to participants and their beneficiaries' as required by ERISA. 29 U.S.C. § 1104(A)(1).” Id. The opinion noted, “there is no ‘logical incompatibility between working full time and being disabled from working full time’ ” and that the policy required only “satisfactory proof of disability, not medical evidence.” Id. (internal citations omitted). On the same day, the clerk for this Court entered judgment stating “the order of the district court is AFFIRMED.” The clerk of this Court issued the mandate on April 26, 2007, and it was filed May 3, 2007.

On May 10, 2007, the parties filed a stipulation “to toll the time for all parties and counsel to bring any post remand motions,” and the district court entered an Order tolling the filing deadlines for post-remand motions until further order of the court. On April 3, 2008, the district court referred the remaining issues in dispute to United States Magistrate Judge Whalen. Over the next few months, Judge Whalen held several status conferences.

On November 10, 2008, LINA filed a statement of resolved and unresolved issues and Plaintiff¹ filed motions for attorneys' fees and costs and equitable accounting. LINA's statement of issues represented that the parties still disputed several issues, including whether Plaintiff was entitled to a disgorgement of profits.

Plaintiff also filed a motion seeking an equitable accounting and a request for disgorgement. In that motion, Plaintiff argued Rochow's estate was entitled to disgorgement of profits because LINA breached its fiduciary duties, and disgorgement was necessary to prevent LINA's unjust enrichment resulting from profits it earned on the wrongfully retained benefits. Plaintiff supported the motion with the report of his expert, Dr. David C. Crosen. In calculating LINA's “Return on (Average) Equity” (“ROE”), Dr. Crosen determined LINA used Rochow's benefits to earn between 11 percent and 39 percent annually and, therefore, made approximately $2.8 million by retaining Rochow's benefits.

In June 2009, the district court granted Plaintiff's motion for an equitable accounting of profits and disgorgement of the same. LINA then moved to strike Croson's report and to preclude him from testifying as an

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