Michaeleen KOSIBA; Celeslie Epps-Malloy v. MERCK & COMPANY; UNUM Life Insurance Company of America; Merck & Co., Long Term Disability Plan for Union Employees Celeslie Epps-Malloy, Appellant.
No. 02-2668.
United States Court of Appeals, Third Circuit.
Argued June 28, 2004. Filed Sept. 13, 2004.
384 F.3d 58
We therefore conclude that the District Judge did not exercise “‘sound discretion’ in declaring a mistrial.” Washington, 434 U.S. at 514, 98 S.Ct. 824. Choosing not to await the final prognosis of Schoenbaum‘s ability to appear and testify, the District Judge prematurely declared a mistrial without considering the constitutional import of his decision. Because the declaration of a mistrial was not manifestly necessary, any subsequent reprosecution of the defendants is barred by the Double Jeopardy Clause. The District Court‘s order denying the defendants’ motion to dismiss will be reversed.
Peter J. Heck (Argued), Del Mauro, DiGiaimo, Knepper & Heck, Morristown, NJ, for Appellee.
Before AMBRO, BECKER, and GREENBERG, Circuit Judges.
BECKER, Circuit Judge.
Plaintiff Celeslie Epps-Malloy is a former employee of defendant Merck & Co. (“Merck“), who participated in Merck‘s ERISA-based Long Term Disability Plan for Union Employees (the “Plan“).1 At times relevant, Merck, as overall plan administrator, had delegated responsibility for claims administration to defendant UNUM Life Insurance Company of America (“UNUM“).2 Following an at-work injury and a diagnosis of sarcoidosis and fibromyalgia, Epps-Malloy applied for and received long-term disability (LTD) benefits from the defendants in 1993. During a periodic review conducted in 1996, the defendants terminated Epps-Malloy‘s benefits, finding that she was no longer totally disabled under the terms of the Plan. During the course of the Plan‘s administrative appeals process, Merck requested that Epps-Malloy undergo an independent medical examination, and designated a pulmonologist, Dr. Gautam Dev, to evaluate her. Dr. Dev‘s report contradicted Epps-Malloy‘s treating physicians’ diagnoses, and on this basis the defendants upheld their denial of continued benefits. Epps-Malloy then filed this suit under
Epps-Malloy‘s claim survived summary judgment, and the District Court held a
On appeal, we concentrate on the District Court‘s first conclusion. We agree with the District Court that the record in this case does not support finding a financial conflict of interest (which, under Pinto‘s “sliding scale” approach, would warrant a standard of judicial review less deferential than arbitrary and capricious review), and that delegation by Merck to UNUM of claims administration would ordinarily preclude heightened review. However, there is evidence of procedural bias in Merck‘s intervention in the appeals process to request an independent medical exam. This is especially problematic because the record before the defendants prior to Dr. Dev‘s examination provided reasonably sound as well as unequivocal support for Epps-Malloy‘s claim for benefits; the choice to request a third medical opinion therefore strongly suggests a desire to generate evidence to counter Epps-Malloy‘s physicians’ diagnoses. Because Merck‘s intervention, notwithstanding its delegation of claims administration to a large and experienced carrier, undermines the defendants’ claim to the deference normally accorded an ERISA plan fiduciary with discretionary authority, we conclude that the District Court should have applied a moderately heightened arbitrary and capricious standard of review. Additionally, with respect to the merits, the District Court failed to address Epps-Malloy‘s fibromyalgia diagnosis, an omission which itself alone would require a new trial. For these reasons, we will reverse the judgment of the District Court and remand for a new trial.
I. Factual Background and Procedural History
Although the District Court, which rendered its opinion following a
A. Epps-Malloy‘s Medical History
Epps-Malloy was employed by Merck as a cook and food-service attendant. She suffered an injury at work in 1991, and was diagnosed with fibromyalgia, chronic pain syndrome, and sarcoidosis.3 She was granted short-term disability benefits by the defendants in October 1992. In October 1993, she was approved for LTD bene
Epps-Malloy‘s benefits were provided under the terms of the Merck & Co. Long Term Disability Plan for Union Employees, an ERISA plan. By the Plan‘s terms, “[Merck] shall pay the cost of the benefits provided under the Plan,” though the Plan gives discretion to the Management Pension Investment Committee to choose “any funding method, or combination of funding methods which are permissible under ERISA.” The District Court found that no evidence was introduced on how Merck actually funded the plan, and the parties do not dispute this on appeal. The Plan allocates fiduciary responsibility among a committee of Merck‘s Board of Directors (which has certain powers of appointment); the Merck Management Pension Investment Committee (which is responsible for the investment and management of Plan funds); and Merck itself, which is the plan administrator. As plan administrator, Merck has the power to appoint a claims administrator, who “shall determine claims for benefits by Participants under the Plan.” At the time Epps-Malloy‘s LTD benefits were first granted, Thomas L. Jacob & Associates (“TLJ“) was Merck‘s appointed claims administrator; later, appellee UNUM was the claims administrator. Notwithstanding this appointment, the Plan confers on Merck (as plan administrator) the powers “to construe the Plan“; “to decide all questions of eligibility“; and “to request and receive from all Participants such information [as is] necessary for the proper administration of the Plan.”
B. Termination of Epps-Malloy‘s LTD Benefits
In May 1996, as part of a periodic review of Epps-Malloy‘s benefits, UNUM requested information from her treating physicians, Dr. Panullo and Dr. David Williams. Dr. Panullo was Epps-Malloy‘s gynecologist. Epps-Malloy‘s disability is not related to any gynecological condition, so Dr. Panullo‘s reports are irrelevant—though they seem to have been misunderstood by UNUM, at some points, to indicate that Epps-Malloy was entirely able to work, when they in fact say only that no gynecological problems prevented Epps-Malloy from working. We therefore say no more about Dr. Panullo.
Dr. Williams‘s notes from January 16, 1996, refer to Epps-Malloy‘s sarcoidosis and her fibromyalgia. According to his notes, the sarcoidosis had been diagnosed by a 1989 bronchoscopy; the record does not disclose when the initial fibromyalgia diagnosis was made. Dr. Williams‘s June 14, 1996, notes state that “[s]arcoidosis is her diagnosis as well as fibromyalgia,” and he indicated that she was being medicated for fibromyalgia. In response to an UNUM questionnaire dated October 28, 1996, Dr. Williams stated that Epps-Malloy was “disabled to light activity because of shortness of breath” and that his prognosis for her to return to gainful employment on a part-time basis or full-time basis was “never.”
UNUM informed Epps-Malloy on December 31, 1996 that it was terminating her benefits. The letter explained that a review of medical documentation, including
Epps-Malloy administratively appealed this decision. She provided additional information to UNUM, including the name of her new treating physician, Dr. Fred McQueen. Dr. McQueen repeated the fibromyalgia diagnosis, stated “[s]he cannot return to gainful employment,” and that he did “not feel it in her best interest to be under any stress due to triggering her sarcoid remission.” Dr. McQueen concluded: “Permanently & totally disabled. Suffers with severe anxiety. She cannot cope with stress.”
Upon receiving Dr. McQueen‘s report, UNUM wrote to Epps-Malloy stating that “Merck & Company has requested an Independent Medical Exam.” The defendants designated Dr. Dev to perform the examination. We rescribe Dr. Dev‘s report in the margin;4 in sum, Dr. Dev concluded that a diagnosis of sarcoidosis was “incompatible with her clinical presentation“—i.e., that he disagreed with the sarcoidosis diagnosis. He did not opine on her fibromyalgia diagnosis. Based on Dr. Dev‘s report, UNUM upheld its decision denying benefits.
C. Proceedings Before the District Court
Epps-Malloy filed this suit, seeking benefits allegedly due her under the terms of the Plan under
II. Our Standard of Review Over the District Court‘s Decision
In the post-Pinto era, we appear to have had only one case in the same procedural posture as this one, i.e., an appeal from a bench trial. In Goldstein v. Johnson & Johnson, 251 F.3d 433, 441 (3d Cir.2001), we stated (without further elaboration or citation) that in such an appeal “[w]e have plenary review over a district court‘s conclusions of law, and we review its factual conclusions for clear error.” This is, of course, the usual standard of review on appeal from a bench trial. See In re Unisys Savings Plan Litig., 173 F.3d 145, 149 (3d Cir.1999). Determining the proper standard of judicial review under Pinto is a question of applying law to fact; accordingly, our review is plenary, though we review a district court‘s underlying factual findings only for clear error. Because we conclude the District Court applied too deferential a standard of judicial review, we do not reach the merits of Epps-Malloy‘s claim.
III. Standard of Judicial Review over Unum‘s Determination of Epps-Malloy‘s Claim
Our principal task is to determine whether the District Court applied the appropriate standard of judicial review to the defendants’ decision to deny LTD benefits to Epps-Malloy. We begin with a discussion of Pinto and our cases following it, and then turn to the proper standard of judicial review in this case.
A. Pinto and Its Progeny
We held in Pinto that, in reviewing an ERISA plan fiduciary‘s discretionary determination regarding benefits, a court must take into account the existence of the structural conflict of interest present when a financially interested entity also makes benefit determinations. Specifically, we adopted a “sliding scale” approach, in which district courts must “consider the nature and degree of apparent conflicts with a view to shaping their arbitrary and capricious review of the benefits determinations of discretionary decisionmakers.” Pinto, 214 F.3d at 393. This “sliding scale” method “intensif[ies] the degree of scrutiny to match the degree of the conflict.” Id. at 379.
Pinto offered a nonexclusive list of factors to consider in assessing whether a structural conflict of interest warranting heightened review exists. The sliding-scale approach “allows each case to be examined on its facts.” Id. at 392. Among the factors we identified were “the sophistication of the parties, the information accessible to the parties, and the exact financial arrangement between the insurer and the company.” Id. Also relevant is “the current status of the fiduciary,” id., i.e., whether the decisionmaker is a current employer, former employer, or insurer. Our cases have addressed various combinations of these factors. In Pinto itself, we concluded that “heightened arbitrary and capricious review,” id. at 393, or review “on the far end of the arbitrary and capricious ‘range,‘” id. at 394, was appropriate because Pinto‘s insurer both made benefits determinations and funded the benefits, and because of various procedural anomalies that tended to suggest that
Turning to Pinto‘s progeny, we first note that in some cases the parties stipulate to the applicable standard of judicial review, or at least do not contest the District Court‘s choice of a standard of review. See, e.g., McLeod v. Hartford Life & Accident Ins. Co., 372 F.3d 618, 623-24 & nn.3-4 (3d Cir.2004); Orvosh v. Program of Group Ins. for Salaried Employees of Volkswagen of Am., Inc., 222 F.3d 123, 129 (3d Cir.2000). Other cases, though they cite Pinto, are factually too far removed from the facts of this case to provide meaningful guidance. See e.g., Goldstein, 251 F.3d 433 (unfunded executive deferred compensation, or “top hat,” plan).
While Pinto addressed the case of an insurer both making benefits determinations and paying claims, it did not definitively decide whether any form of heightened review applies to employers both making benefits determinations and paying claims. When an employer pays claims out of its general operating funds—the situation most likely to introduce a structural conflict because the employer feels an immediate “sting” from paying a claim—the plan is referred to as “unfunded” or sometimes “self-funded.” This is in contrast to “the typical employer-funded pension plan” which “is set up to be actuarially grounded, with the company making fixed contributions to the pension fund.” Pinto, 214 F.3d at 388.
We confronted (but were ultimately able to avoid) ruling on the issue of whether heightened review applies to employers making benefits determinations and paying claims in Skretvedt v. E.I. DuPont de Nemours & Co., 268 F.3d 167 (3d Cir.2001). That case concerned (among other things) an employer-administered unfunded benefit plan, and noted that “a heightened standard of review might be applicable to the [employer-controlled] Board‘s denial of Skretvedt‘s claim for the unfunded... benefits, because of the potential conflict under Pinto.” Id. at 175. We reached this question less than a year later, in Smathers v. Multi-Tool, Inc./Multi-Plastics, Inc. Employee Health & Welfare Plan, 298 F.3d 191 (3d Cir.2002). In Smathers, we concluded that an employer‘s unfunded and self-administered benefits plan presented a conflict that, though “not extraordinary,” did warrant “somewhat heightened” scrutiny, requiring “a more penetrating review of [the] administrator‘s decisionmaking process than would normally be conducted under the arbitrary and capricious standard.” Id. at 199. Most recently, we approved a district court‘s holding that the unfunded and self-administered benefit plan in Stratton v. E.I. DuPont De Nemours & Co., 363 F.3d 250, 255 (3d Cir.2004), warranted only a “slightly heightened form of arbitrary and capricious review.”
As we noted in Pinto itself, the financial and administrative relationship between the employer and the benefit plan is not the only relevant consideration. For example, in Stratton, we observed that while an employer administering an unfunded plan may have a financial incentive to deny the claims of its employees, it thereby risks “the loss of morale and higher wage demands that could result from denials of benefits.” 363 F.3d at 254 (quoting Nazay v. Miller, 949 F.2d 1323, 1335 (3d Cir.1991)); see also Smathers, 298 F.3d at 198; Pinto, 214 F.3d at 389. We have recognized the inverse as well: When a former employee seeks benefits, this conflict-mitigating consideration is not present. See Smathers, 298 F.3d at 198 (“Since Smathers was no longer an employee when Multi-Tool made its decision to deny his claims, the counterbalancing of its mone
Indeed, we made the general point about the short-circuiting of incentives by imperfect information flow in Pinto itself:
[M]any claims for benefits are made after individuals have left active employment and are seeking pension or disability benefits. Details about the handling of those claims, whether responsible or irresponsible, are unlikely to seep into the collective knowledge of still-active employees. If Pinto‘s claim is denied, few at Rhone-Poulenc will learn of it, and Reliance Standard will have little motive to heed the economic advice of the Seventh Circuit that “it is a poor business decision to resist paying meritorious claims for benefits.”
214 F.3d at 388 (quoting Mers v. Marriott Int‘l Group Accidental Death & Dismemberment Plan, 144 F.3d 1014, 1020 (7th Cir.1998)); see also id. at 392 (noting the relevance of the current relationship between the fiduciary and beneficiary). In short, our precedents recognize that the situation of an individual claiming benefits from her former employer may, for Pinto purposes, be more akin to that of an insured claiming benefits from an insurance company than that of an employee claiming benefits from her current employer.
Our precedents establish at least one more cause for heightened review: demonstrated procedural irregularity, bias, or unfairness in the review of the claimant‘s application for benefits. The Pinto panel‘s decision to apply heightened review turned almost as much on the procedures afforded to Pinto as it did on her insurer‘s financial conflict of interest. See Pinto, 214 F.3d at 393 (“[L]ooking at the final decision, we see a selectivity that appears self-serving in the administrator‘s use of [one doctor‘s] expertise.“); id. (“[i]nconsistent treatment of the same facts“); id. at 394 (suggesting that “whenever it was at a crossroads, Reliance Standard chose the decision disfavorable to Pinto“). Though no case since Pinto appears to have turned on evidence of procedural bias or unfairness, the corresponding negative pregnant appears in several of our cases. See Skretvedt, 268 F.3d at 175-76 (considering but rejecting allegations of decisionmaker bias in the benefits review system); Goldstein, 251 F.3d at 435-36 (noting that heightened review would be required when “the beneficiary has put forth specific evidence of bias or bad faith in his or her particular case“); Bill Gray Enters., Inc. Employee Health & Welfare Plan v. Gourley, 248 F.3d 206, 216 (3d Cir.2001) (“[U]nless specific evidence of bias or bad-faith has been submitted, plans ... are reviewed under the traditional arbitrary and capricious standard.“); id. at 216 n. 8 (“Gourley has failed to allege bias on the part of the plan administrator....“).
B. The Appropriate Standard of Review in This Case
We begin with the financial and administrative arrangement between Merck and the Plan. The District Court found that Epps-Malloy had offered no evidence on the mechanism by which Merck funds the Plan beyond the bare statement in the Plan itself that “[Merck] shall pay the cost of the benefits provided under the Plan.” By the Plan‘s terms, Merck is the plan administrator, and even though it has delegated claims administrative authority to UNUM, it exercises ultimate administrative authority as evidenced by its request that Epps-Malloy be examined by Dr. Dev. But since Epps-Malloy has not excluded the possibility that Merck pays for the benefits it administers through fixed contributions to an actuarial-
Epps-Malloy‘s argument for heightened review draws more support from our discussion in Pinto of procedural bias. As described above, Merck intervened in Epps-Malloy‘s appeal process, requesting that she submit to an “Independent Medical Exam,” ultimately conducted by Dr. Dev. Merck surely has the authority under the plan to require such an exam—the Plan empowers Merck as Administrator “to request and receive from all Participants such information [as is] necessary for the proper administration of the Plan.” But the circumstances under which Merck made this request necessarily raise an inference of bias: At the time of the request, every piece of evidence in Epps-Malloy‘s record—the opinions of two doctors (Drs. Williams and McQueen), a consistent medical history, and an SSA determination that she was totally disabled—supported her contention that she was disabled.6 The District Court‘s discussion is consistent with this view: It recognized that Epps-Malloy‘s physician‘s reports uniformly supported her contentions (though they were, in some aspects, incomplete), and that the defendants’ denial of benefits was grounded on Dr. Dev‘s report, augmented by medical opinions offered by one Nurse Girardo based on a review of Epps-Malloy‘s file.
It is in this light that we must view Merck‘s request for an independent medical examination. We have a claimant seeking continued LTD benefits whose treating physicians offer unequivocal support for her claims, and a plan administrator that has delegated claims administration to a large insurance company intervening—not at the initial determination stage, but at the appeal stage—with a request for an additional medical examination to be performed by a physician of its own choosing. This situation arguably has a quality to it that undermines the administrator‘s claim to the deference normally owed to plan fiduciaries. Given how favorable the record was to Epps-Malloy prior to Dr. Dev‘s examination, the most natural inference is that by intervening and ordering the retention of Dr. Dev, thus seeking evidence to counter Epps-Malloy‘s physicians’ evaluation, Merck was not being a disinterested fiduciary.
We conclude that the procedural bias we have described in Epps-Malloy‘s appeals process warrants a moderately heightened arbitrary and capricious standard of review. Naturally, a significantly heightened arbitrary and capricious standard of review would be warranted if Merck also acted under a financial conflict of interest, but, as noted above, the record before us does not demonstrate such a conflict. Because the District Court applied an unmodified arbitrary and capricious standard of review to the defendants’ actions, we will set aside the judgment and remand for a new trial on the merits under an appropriate standard of judicial review. Because the question whether the defendants’ determination can stand is essentially an ultimate issue of fact, it is appropriate for the District Court to undertake that inquiry in the first instance. See
IV. The District Court‘s Conclusion on the Merits
Even if we were not setting aside the District Court‘s conclusion on the merits because of the standard of review it applied, we would be constrained to do so because it did not adequately address the defendants’ denial of LTD benefits to Epps-Malloy in light of her diagnosis of fibromyalgia. While one diagnosis in Epps-Malloy‘s records is sarcoidosis, she was also diagnosed with fibromyalgia. Not only did her doctors ascribe aspects of her disability to fibromyalgia, the ALJ appears to have granted SSA benefits to Epps-Malloy principally on the basis of her fibromyalgia. As noted above, Dr. Dev‘s report is the defendants’ best counter to Epps-Malloy‘s physicians’ diagnoses, but, as the District Court itself found, “[Dr. Dev] did not address the previous diagnosis of fibromyalgia or any other condition.” This is hardly surprising, as Dr. Dev is a pulmonologist, and fibromyalgia is most commonly treated by a rheumatologist.
It would be premature to hold that, given the record on Epps-Malloy‘s alleged fibromyalgia, the defendants’ denial of benefits to her was impermissible as a matter of law. Doctor Dev did, in fact, apparently perform a musculo-skeletal examination, finding “unremarkable” results; this may be evidence that Epps-Malloy was not disabled by fibromyalgia. But it is plain that the District Court did not adequately address the defendants’ treatment of Epps-Malloy‘s fibromyalgia diagnosis. On remand, the District Court
That Court‘s review of these determinations should be based on the record available to the plan administrator in making its own decision; if there is not sufficient evidence in the defendants’ record to support their decision as to the fibromyalgia claim, then it must be reversed. See Mitchell v. Eastman Kodak Co., 113 F.3d 433 (3d Cir.1997); cf. Sandoval v. Aetna Life & Cas. Ins. Co., 967 F.2d 377, 381 (10th Cir.1992) (“In effect, a curtain falls when the fiduciary completes its review, and for purposes of determining if substantial evidence supported the decision, the district court must evaluate the record as it was at the time of the decision.“). While the District Court may take further evidence to aid in its understanding of the medical issues involved, it must base its ultimate determination on the record before the plan administrator, not its own judgment of whether Epps-Malloy was disabled. We leave it to the District Court to determine whether the defendants’ treatment of Epps-Malloy‘s fibromyalgia claims met the moderately heightened arbitrary and capricious standard that we have identified.
V. Conclusion
Because the original bench trial proceeded on too deferential a standard of review, we will reverse the judgment of the District Court and remand for a new trial on the merits.