Court: District Court, W.D. Kentucky; May 16, 2017; Federal District Court
Defendant Lincoln National Life Insurance Company filed a motion to dismiss claims made by Plaintiff Barber under the Employee Retirement Income Security Act of 1975 (ERISA) concerning a long-term disability insurance policy. Barber, a business litigation attorney diagnosed with Parkinson’s disease, had his benefits approved in December 2015. However, Lincoln reduced his monthly benefits after Barber disclosed income from work as an independent contractor for a political campaign. Barber's request to reverse this reduction was denied, prompting him to initiate legal action for recovery of benefits (Count I) and to enjoin the unlawful withholding of benefits (Count II), on behalf of himself and two classes of similarly situated individuals.
Lincoln's motion to dismiss challenges both counts under Federal Rules of Civil Procedure 12(b)(6) and 12(b)(1). The court's standard of review for a motion to dismiss requires it to view the complaint favorably to the plaintiff, accepting well-pled facts as true and assessing whether a plausible claim for relief is presented. The complaint must go beyond mere labels or conclusions, providing sufficient factual content to support a reasonable inference of the defendant's liability. If the allegations do not exceed a mere possibility of misconduct, the complaint fails to demonstrate entitlement to relief. The court emphasizes the necessity of a concise and clear statement of claims as required by Rule 8(a)(2).
Ultimately, the court granted the motion to dismiss, indicating that Barber's complaints did not meet the necessary legal standards.
Count I of the complaint seeks to recover benefits owed to Barber under 29 U.S.C. § 1132(a)(1)(B). Lincoln's motion to dismiss claims that Barber fails to state a plausible claim because the policy allows Lincoln to offset Barber's benefits by his income as a political consultant. The policy grants Lincoln authority to manage and interpret its terms, including the ability to offset benefits, and a denial of benefits is reviewed under a de novo standard unless the plan gives discretionary authority to the administrator. In this case, the policy explicitly grants Lincoln such discretion, meaning the review standard is arbitrary and capricious. For Count I to survive, Barber must demonstrate that Lincoln's decision was made arbitrarily.
The policy outlines two benefit types: total disability benefits and partial disability benefits. Total disability benefits are calculated by taking the insured's basic monthly earnings and subtracting other income benefits. Partial disability is defined as working in a reduced capacity and benefits are calculated through two formulas based on predisability income and other income benefits. Barber contends that his earnings as a political consultant should not be classified as 'Other Income Benefits.' However, the policy defines 'Other Income Benefits' to include earnings from any employment, which encompasses Barber's political consulting income. Thus, according to the policy's plain language, Barber's consulting income qualifies as 'Other Income Benefits' and is relevant in calculating both total and partial disability benefits.
Lincoln was justified in deducting a specified amount from Barber’s benefits, as the policy's plain text permits this interpretation. Barber failed to demonstrate that Lincoln acted arbitrarily or capriciously in its decision-making. He argued against giving deference to Lincoln due to a conflict of interest, but this conflict does not change the arbitrary and capricious standard; it is merely a factor to consider. Even accounting for the conflict, Barber has not shown that Lincoln's interpretation was unreasonable, as it adhered to the unambiguous terms of the policy.
Barber contended that Lincoln’s interpretation undermines the policy's essential purpose of protecting earning power in one’s occupation. However, Lincoln's application of the policy's terms was valid, as "Earnings" includes income derived from any occupation, including political consulting. Barber's assertion that Lincoln's actions rendered distinctions between partial and total disability meaningless is unfounded. His complaint did not claim improper reclassification regarding his disability status, focusing instead on the benefit reduction. Furthermore, Barber’s consulting income would influence his monthly benefit calculation regardless of his disability classification. The policy clearly stipulates deductions for Other Income Benefits, which includes his consulting income. Consequently, Barber's allegations do not support a claim of arbitrary or capricious action by Lincoln. The motion to dismiss Count I is therefore granted.
Count II of the complaint alleges that Lincoln violated its duties under ERISA by prematurely offsetting Barber's monthly benefits without waiting for him to report other income for federal tax purposes, in violation of 29 U.S.C. § 1132(a)(3). Barber seeks an injunction against such offsets and restitution for the amounts improperly withheld. Lincoln argues for dismissal on four grounds: (1) Barber lacks standing due to insufficiently alleging a concrete injury; (2) he has not exhausted administrative remedies; (3) the complaint does not plausibly state a claim; and (4) his request for restitution is impermissible.
To establish standing, a plaintiff must demonstrate (1) an injury in fact, (2) a causal connection to the defendant's conduct, and (3) redressability. Lincoln contends that Barber fails to allege any specific injury. Barber claims two injuries: the loss of the time value of money from premature offsets and actual monetary loss from excessive offsets. The court notes a split in circuit decisions regarding whether loss of time value alone constitutes a sufficient injury for standing. However, it first needs to determine if Barber's complaint explicitly alleges such an injury. Lincoln argues that Barber's complaint does not specifically detail the loss of time value, except in the prayer for relief, which requests withheld amounts plus interest. The court cannot assume injury from implications; it requires a clear, particularized allegation to demonstrate that Barber's situation uniquely affects him. Without this specificity, the claim fails to meet standing requirements.
Barber claims standing based on an alleged injury from excessive offsetting of payments, asserting that the amounts deducted were not reported for federal tax purposes and were ultimately lesser than what Lincoln used to reduce his payment. This claim is deemed concrete, as it indicates a denial of funds Barber was entitled to under his policy. There is no argument from Lincoln disputing that this injury is traceable to its conduct or that a favorable ruling could provide redress. The Court finds that Barber's complaint establishes sufficient injury for Article III standing.
Regarding the exhaustion of administrative remedies under ERISA, Lincoln contends that Barber has not adequately demonstrated exhaustion, since he raised the issue of offsets only in this lawsuit. Barber counters that exhaustion is unnecessary because his challenge pertains to the legality of the offsets, not the policy itself, and pursuing administrative remedies would be futile. The Sixth Circuit recognizes an exception to the exhaustion requirement when a plaintiff's claim questions the legality of a plan rather than its interpretation, stating that exhaustion is not needed for claims asserting statutory violations under ERISA. Barber's complaint includes allegations that Lincoln failed to use appropriate tax documentation for benefit calculations, which falls under ERISA's fiduciary duties. The Sixth Circuit holds that no exhaustion is required for claims of fiduciary duty breaches, but warns against recharacterizing benefit claims as fiduciary duty claims to circumvent the exhaustion requirement.
The court addressed whether Barber's claim for breach of fiduciary duty is essentially a claim for breach of policy terms or a legitimate fiduciary duty claim. It concluded that Barber's claim is merely a recharacterization of policy violations as statutory claims under ERISA. The core of Barber's complaint is that Lincoln improperly offset his monthly benefits with untaxed income, a practice not mandated by ERISA but defined by the policy itself. Barber failed to specifically articulate how this action constituted a breach of fiduciary duty beyond asserting that Lincoln violated both the policy and its fiduciary duties. The court noted that Barber conflated policy obligations with ERISA fiduciary duties, echoing the scenario in Hitchcock, where fiduciary duty claims are essentially policy-based claims. Although Barber may have valid grounds for a denial of benefits claim, this does not translate to a breach of fiduciary duty under ERISA. Allowing such a reinterpretation would eliminate the necessary distinction between policy claims, which require exhaustion of remedies, and statutory claims, which do not. Consequently, the motion to dismiss Count II was granted. Additionally, Lincoln argued that the 180-day period for administrative review of the claim had elapsed, rendering it impossible for Barber to exhaust his remedies, a point Barber did not contest. The policy stipulates that review requests for denied claims must be submitted within 180 days of receiving the denial.
The Motion to Dismiss is granted by the Court. There is a noted tension between the deference to plan interpretation required by Firestone and the obligation to accept all facts pleaded by the plaintiff as true under Rule 12(b)(6). Some courts have opted not to assess the merits of a claim until an administrative record is available, while others have applied the plausibility standard from Iqbal to determine if the complaint adequately alleges arbitrary and capricious behavior by the defendant. The Sixth Circuit has approved the latter approach when the complaint does not present a plausible claim for relief. Barber has not claimed that it is premature to rule on the motion without an administrative record, so the Court will evaluate whether his complaint plausibly alleges that Lincoln acted arbitrarily and capriciously in offsetting his benefits. The policy in question explicitly excludes income from Partial Disability Employment when calculating benefits, which may include Barber’s political consulting income. The policy clarifies which income sources affect benefit reductions, undermining Barber’s argument that the policy language does not mean what it states. Additionally, Barber's assertion that Count II of his complaint incorporates prior paragraphs is incorrect, though the allegations in paragraph 20 relate to Lincoln’s practice of offsetting benefits, which corresponds to Count II's focus.
