Stacy v. Appalachian Reg'l Healthcare, Inc.

259 F.Supp.3d 644

Cheryl STACY, Plaintiff

v.APPALACHIAN REGIONAL HEALTHCARE, INC., et al., Defendants

CIVIL ACTION NO. 16–186–DLB

United States District Court, E.D. Kentucky, Southern Division at London.

Signed April 17, 2017

Elizabeth Ann Thornsbury, M. Austin Mehr, Philip G. Fairbanks, Mehr Fairbanks & Peterson Trial Lawyers, PLLC, Lexington, KY, for Plaintiff.

Kevin M. Norris, Smith & Smith Attorneys, Edward M. O'Brien, James M. Burd, Wilson, Elser, Moskowitz, Edelman & Dicker LLP, Louisville, KY, for Defendants.

MEMORANDUM OPINION AND ORDER

David L. Bunning, United States District Judge

I. INTRODUCTION

Defendant Reliance Standard Life Insurance Company ("Reliance") seeks dismissal of Plaintiff Cheryl Stacy's Complaint for failure to exhaust her administrative remedies, as required by the Employee Retirement Income Security Act of 1974 ("ERISA"). (Doc. # 5). Accordingly, Reliance claims that Stacy has failed to state a claim upon which relief can be granted, and asks the Court to dismiss Stacy's claims against Reliance with prejudice pursuant to Federal Rule of Civil Procedure 12(b)(6). The motion is fully briefed (Docs. # 8 and 9), and ripe for the Court's review.¹ The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1331.

II. FACTUAL AND PROCEDURAL BACKGROUND

Stacy worked for Appalachian Regional Healthcare, Inc. ("ARH") as a Registered Nurse for approximately thirty years, until February 24, 2014, when she became disabled. (Doc. # 1–1 at ¶¶ 8, 13). Initially, Stacy applied for and received short-term disability benefits from Reliance. Id. at ¶ 40. After receiving short-term disability benefits "for the maximum duration allowable," Stacy "began the process of transitioning her claim into" a long-term disability ("LTD") claim. (Doc. # 8 at 1). Stacy simultaneously made a claim for and pursued disability retirement benefits under ARH's retirement plan. (Doc. # 1–1 at ¶ 16).

On August 21, 2014, before receiving a decision regarding her LTD claim, Stacy advised Reliance via e-mail that she no longer wished to pursue that claim. Id. at ¶ 43; see also (Doc. # 8–1). Stacy alleges that she withdrew her LTD benefits claim with Reliance because ARH informed her that the "application for and approval of LTD benefits with Reliance ... would prevent her from receiving her retirement benefits" under ARH's plan. Id. at ¶ 43. Stacy's decision to abandon her LTD claim with Reliance proved to be a misstep; her claim for disability retirement benefits with ARH was ultimately denied. Id. at ¶ 22–24.

On August 25, 2014, Reliance sent Stacy a denial letter, informing her that she was "not entitled to disability benefits under" the LTD policy. (Doc. # 8–2 at 2). In this letter, Reliance acknowledged that she did not want to pursue her claim and explained that it was unable to complete its LTD claim evaluation because Stacy had failed to respond to requests for additional information. Id. The letter also advised Stacy that a "written request for review must be submitted within 180 days" if she intended to appeal Reliance's benefit determination. Id. at 4. Over one year and eight months later—on May 18, 2016, Stacy appealed the denial of her LTD benefits. (Doc. # 1–1 at ¶ 45). By letter dated May 25, 2016, Reliance informed Stacy that it would not accept her untimely appeal. Id. at ¶ 46.

In her Complaint, Stacy claims that she is "entitled to LTD benefits" and that Reliance "should be required to perform under the contract and pay LTD benefits to Plaintiff." Id. at ¶ 47. Specifically, Stacy alleges that the denial of her LTD benefits claim constitutes a breach of contract, a breach of fiduciary duties, and was arbitrary and capricious. Id. at ¶ 48–49. Reliance seeks dismissal of Stacy's Complaint for failure to exhaust her administrative remedies, as required by ERISA. (Doc. #5 at 1). Reliance argues that Stacy failed to appeal the denial of her LTD benefits claim within the prescribed 180–day time period; and instead, waited approximately 632 days before filing her appeal. Id. Accordingly, Reliance claims that Stacy has failed to state a claim upon which relief can be granted, and asks the Court to dismiss Stacy's unexhausted ERISA claims with prejudice because her opportunity to pursue administrative remedies has expired. Id. at 7.

III. ANALYSIS

A. Standard of Review

To survive a Rule 12(b)(6) motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The plausibility standard is met when the facts in the complaint allow "the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. The complaint need not contain "detailed factual allegations," but must contain more than mere "labels and conclusions." Id. Put another way, the "[f]actual allegations must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

B. ERISA's Enforcement Options and Exhaustion Requirement

Stacy initially asserted state-law breach of contract claims, believing Reliance's LTD Policy was not governed by ERISA. (Doc. # 1–1 at ¶¶ 48–50). However, Stacy's Complaint alternatively pled, pursuant to ERISA, that the "decision made by Defendant [Reliance] to deny Plaintiff's claims was arbitrary and capricious, against the overwhelming evidence provided to Defendant, and a breach of fiduciary duties, which entitles Plaintiff to contractual benefits, interest, and attorney's fees." Id. at ¶ 51. Stacy also alleged that Reliance "should be enjoined from stopping LTD payments under the terms of the LTD policy." Id. at ¶ 52. As Stacy has since conceded, her state law claims are completely preempted by § 502(a), and ERISA governs this action. (Doc. # 8 at 1).

ERISA "authoriz[es] civil actions for six specific types of relief." Rush Prudential HMO, Inc. v. Moran , 536 U.S. 355, 376, 122 S.Ct. 2151, 153 L.Ed.2d 375 (2002). These civil enforcement provisions, more commonly known by their original section number in the Act, § 502(a), create an "interlocking, interrelated, and interdependent remedial scheme." Mass. Mut. Life Ins. Co. v. Russell , 473 U.S. 134, 146, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985). This scheme "represents a careful balancing of the need for prompt and fair claims settlement procedures against the public interest in encouraging the formation of employee benefit plans." Pilot Life Ins. Co. v. Dedeaux , 481 U.S. 41, 54, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987).

Three of these avenues are open to plan participants who, like Stacy, wish to sue the plan or plan administrator. First, participants may sue to recover benefits due, enforce their rights, or clarify their rights under the terms of the plan pursuant to § 502(a)(1)(B). See 29 U.S.C. § 1132(a)(1)(B). Second, participants may assert a claim for breach of fiduciary duty under § 502(a)(2). See 29 U.S.C. § 1132(a)(2). This subsection does not yield individualized relief—any benefits from suit inure to the plan itself. Russell , 473 U.S. at 143–45, 105 S.Ct. 3085. Third, participants may seek "appropriate equitable relief" under § 502(a)(3). See 29 U.S.C. § 1132(a)(3). This may include injunctions and individualized relief for breach of fiduciary duties. See Varity Corp. v. Howe , 516 U.S. 489, 509, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996). However, relief under § 502(a)(3) is typically only available to plan participants who cannot proceed under either § 502(a)(1)(B) or § 502(a)(2). Id. at 512, 116 S.Ct. 1065.

Before a plaintiff-participant can bring a civil enforcement action under ERISA, he or she may be required to exhaust administrative remedies. "Although ERISA is silent as to whether exhaustion of administrative remedies is a prerequisite to bringing a civil action, [the Sixth Circuit has] held that ‘the administrative scheme of ERISA requires a participant to exhaust his or her administrative remedies prior to commencing suit in federal court.’ " Coomer v. Bethesda Hosp., Inc. , 370 F.3d 499, 504 (6th Cir. 2004) (quoting Miller v. Metro. Life Ins. Co. , 925 F.2d 979, 986 (6th Cir. 1991) ). "The exhaustion requirement ‘enables plan fiduciaries to efficiently manage their funds; correct their errors; interpret plan provisions; and assemble a factual record which will assist a court in reviewing the fiduciaries' actions.’ " Id. (quoting Ravencraft v. UNUM Life Ins. Co. of Am. , 212 F.3d 341, 343 (6th Cir. 2000) ).

ERISA's administrative scheme requires "[e]very employee benefit plan ... to ‘afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review ... of the decision denying the claim.’ " Coomer , 370 F.3d at 504 (quoting 29 U.S.C. § 1133 ). Similarly, pursuant to ERISA regulations, when a claim is denied by an insurer, the insurer has an obligation to provide the claimant "appropriate information as to the steps to be taken ... to submit his or her claim for review." 29 C.F.R. § 2560.503–1(f). Reliance complied with these regulations and afforded Stacy an opportunity to appeal (Doc. # 8–2), but she did not take advantage of her appeal rights within the 180–day time period. (Doc. # 1–1 at ¶ 45). Therefore, failure to file a timely appeal and exhaust her administrative remedies may bar Stacy's claims against Reliance.

Before bringing an action for benefits under § 502(a)(1)(B), plan participants must exhaust their administrative remedies. See Miller , 925 F.2d at 986. However, the Sixth Circuit recently held that the exhaustion requirement does not apply to claims for breach of fiduciary duty, which "alleg [e] statutory, rather than plan-based, violations." Hitchcock v. Cumberland Univ. 403(b) DC Plan , 851 F.3d 552, 563 (6th Cir. 2017). Because "actions brought to enforce the terms of a plan are distinguishable from those brought to assert...