Epright v. Envir Res Mgt Inc , 81 F.3d 335 ( 1996 )

Opinions of the United
1996 Decisions States Court of Appeals
for the Third Circuit
2-16-1996
Epright v. Envir Res Mgt Inc
Precedential or Non-Precedential:
Docket 95-1110
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 95-1110
___________
CHARLES JOHN EPRIGHT,
Appellant
v.
ENVIRONMENTAL RESOURCES MANAGEMENT, INC.
HEALTH AND WELFARE PLAN; ERM ENVIROCLEAN;
NOBLE LOWNDES/JOHNSON, Administrator; JOHN DOE
TRUSTEES, 1 through 10 in their capacity as
Trustees of the Environmental Management, Inc.
Health and Welfare Plan; CHIEF FINANCIAL OFFICER,
ENVIRONMENTAL RESOURCES MANAGEMENT, INC.
_____________________________________________________
On Appeal from the February 3, 1995 Order
of the United States District Court
for the Eastern District of Pennsylvania
D.C. Civil Action No. 93-cv-06034
______________
Argued November 13, 1995
Before: BECKER and SCIRICA, Circuit Judges
1
and COHILL, District Judge
(Filed: February 16, 1996)
LOUIS AGRE, ESQUIRE (ARGUED)
718 Arch Street, Suite 4 North
Philadelphia, PA 19106
LORALEE CHOMAN, ESQUIRE
109 Oxford Street
Wilkes-Barre, PA 18702
Attorneys for Appellant
1
*The Honorable Maurice B. Cohill, Jr., United States District Judge for the Wes
District of Pennsylvania, sitting by designation.
2
MICHAEL F. KRAEMER, ESQUIRE (ARGUED)
DEBBIE RODMAN SANDLER, ESQUIRE
White and Williams
1800 One Liberty Place
1650 Market Street
Philadelphia, PA 19103-7395
Attorneys for Appellees
WAYNE R. BERRY, ESQUIRE
United States Department of Labor
Plan Benefits Security Division
200 Constitution Avenue, N.W.
Washington, DC 20210
Attorney for Amicus-appellant
_____________
OPINION OF THE COURT
_____________
COHILL, Senior District Judge
I. Jurisdiction
Here we consider the appeal from an Order of the United States District C
for the Eastern District of Pennsylvania entering judgment against the
appellant/plaintiff, Charles John Epright. Mr. Epright is a former employee of the
defendant/appellee, ERM Enviroclean, Inc. ("ERM"), a corporation with its principal
of business in West Chester, Pennsylvania. Mr. Epright brought this action alleging
improper denial of medical benefits by ERM in violation of § 502(a) of the Employee
Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq.
The district court had subject matter jurisdiction based upon the alleged
violation of ERISA and 28 U.S.C. § 1331 (federal question). Because of the discret
nature of the Plan Administrator's authority regarding Plan benefits, the district
reviewed the Plan Administrator's decision under an "arbitrary and capricious" stan
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Kotrosits v. Gatx Corp. Non-Contributory Pension, 970 F.2d 1165, 1171 (3d Cir.), ce
denied, 113 S. Ct. 657 (1992).
The Secretary of Labor filed a brief as amicus curiae in support of the
appellant.
II. Background
The case arises because Mr. Epright was severely injured in a non-work r
swimming pool accident and denied health and welfare benefits under the ERM employe
benefits plan. ERM had a rather unusual business practice with respect to its empl
At the time an employee was hired, ERM's president, Stanley Porfido, would assign t
employee to one of three classifications - full-time, temporary, or part-time. The
employee's classification would be changed only when Mr. Porfido so directed. Neit
Porfido nor the company had written guidelines to determine how the employee should
designated or when the classification might be changed. App. at 134.
Mr. Porfido testified that in deciding to change an employee's status to
time he considered the backlog of work, the employee's skills, attendance and an
employee's "performance, the initiative, and attitude that the individual brings to
job; the enthusiasm, the willingness to make an extra effort; having a can-do attit
[and] being a team player." Id.
Part-time employees were not entitled to company health and welfare benef
When Mr. Epright was hired, on or about November 18, 1992, Mr. Porfido designated h
"temporary employee."
The Employee Handbook stated in part:
You are a full time employee of ERM if you work a minimum of 30 hours
each week on a continuous basis and are designated as a full time
employee. As a full time employee you are eligible for group medical,
life and long term disability insurance coverage . . . .
You are a part time employee of ERM if you work less than 30 hours
each week on a continuous scheduled basis or designated as a part time
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employee. You are not entitled to participate in group medical, life,
and long-term disability plans.
App. at 331 (second emphasis added).
The Handbook made no reference to temporary employees such as Mr. Epright
The ERM Health and Welfare Plan, on the other hand, defines "eligible cla
as all "active, full-time employees" of ERM who have selected the high option or st
option plan, and states that the eligibility date is the "date following 60 consecu
days of active, full-time employment." App. at 191. The Plan goes on to state that
employee is eligible the coverage will become effective on "the date eligible if ac
at work . . . ." Id.
An active, full-time employee is defined in the Plan as one who "regularl
30 hours or more each week . . . ." App. at 232.
Like the Handbook, the Plan makes no reference to temporary employees. M
Epright regularly worked 40 to 65 hours per week from the time of his employment un
date of his injury, July 31, 1993. He had completed 60 days of service on January
1993. Thus, if one excludes his designation by Mr. Porfido as a "temporary employe
Epright unquestionably met the definition of an active, full-time employee in both
Plan and the Employee Handbook. If one applies the designation of temporary employ
Mr. Epright, he still met the definition of active, full-time employee in the Plan,
although not in the Employee Handbook.
Subsequent to January 25, 1993, it is undisputed that Mr. Epright often i
of ERM when he would receive Health and Welfare benefits. Indeed, he testified tha
had previously worked for a contractor where he received no health benefits, and th
accepted the job at ERM so that he could have health benefits, even though the pay
same as he had received at his previous job. App. at 100.
Finally, in July of 1993, he was informed that he would be eligible for P
coverage commencing August 1, 1993. He was instructed to fly from his work-site in
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Florida to company headquarters in Pennsylvania and complete Plan enrollment forms
August 2, 1993.
As noted, the accident occurred on July 31, and the Plan Administrator re
coverage on the grounds that on July 31, Mr. Epright was a temporary employee and
therefore ineligible.
The Plan provides that an appeal from a denial of benefits must be made w
120 days. Mr. Epright did appeal the initial denial, but subsequent to the 120 day
period. ERM denied the appeal both on the merits and due to its untimeliness. ERM
argued that Mr. Epright had never filled out the appropriate forms or indicated whi
health benefits option he wanted. Mr. Epright commenced this action alleging wrong
denial of Plan benefits. The parties agreed to bifurcate the issues of liability a
damages, and a bench trial was held solely on the issue of liability.
The Court entered judgment in favor of the defendants on December 6, 1994
holding that because Mr. Epright was a temporary employee, he was ineligible for Pl
benefits. Mr. Epright moved the district court to alter or amend its judgment; th
denied in February of 1995.
This Court has jurisdiction pursuant to 28 U.S.C. § 1291. Its review of t
district court's legal conclusions is plenary. Epstein Family Partnership v. Kmart
13 F.3d 762, 765-66 (3d Cir. 1994).
III. Issues
Four issues must be considered here:
(A) Whether ERM may lawfully designate some employees as "temporary"
exclude them from Plan coverage because of this designation when the Plan makes no
reference to such designation; (B) Whether the fact that Mr. Epright never fi
out Plan enrollment forms serves to exclude him from coverage;
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(C) Whether his failure to request review of the denial of benefits
120 days is an independent basis for denial of benefits; and
(D) Whether the decision of the Plan Administrator to deny benefits
arbitrary and capricious.
IV. Discussion
(A)
ERISA plans are required to be in writing. 29 U.S.C. §1102(a)(1). They
be administered by fiduciaries, id., and Congress has emphasized a fiduciary's obli
to comply with the terms of the Plan. Nazay v. Miller, 949 F.2d 1323, 1329 (3d Cir
1991).
A Plan Administrator has discretion when interpreting the terms of the Pl
however, the interpretation may not controvert the plain language of the document.
v. Amalgamated Ins. Fund, 753 F.2d 288, 289 (3d Cir. 1985). Extrinsic evidence may
used to determine an ambiguous term; however, it is inappropriate to consider such
evidence when no ambiguity exists. Boyer v. Douglas Components Corp., 986 F.2d 999
(6th Cir. 1993). Additionally, past practice is of no significance where the plan d
is clear. Blau v. Del Monte Corp., 748 F.2d 1348, 1353 (9th Cir. 1984), cert. deni
U.S. 865 (1985); Snyder v. Titus, 513 F. Supp. 926, 934 (E.D. Va. 1981) ("[b]eing
consistently wrong can hardly be sanctioned as right").
In the instant case, Mr. Epright argues that the Plan Administrator's den
insurance benefits controverts the plain language of the document. He points out t
Plan expressly provides coverage to "full-time employees" who have completed sixty
"active" service. Since the Plan defines active service as working more than thirt
a week, which Mr. Epright indisputably did, he argues that pursuant to the plain la
of the Plan, he was entitled to coverage on his sixty-first day of employment, Janu
1993.
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ERM maintains that the district court was correct when noting that ERM wa
acting consistently with its long-standing policy when it denied benefits to Mr. Ep
a temporary employee. It also points out that Mr. Epright knew that as a temporary
employee he was not covered by the Plan.
Significantly, ERM argues that the term "full-time employee" is ambiguous
thus evidence extrinsic to the Plan may be used to interpret this term. The issue
becomes whether the term "full-time employee," which is defined by the Plan, is amb
and subject to interpretation.
In support of its contention that the term "full-time employee" is ambigu
ERM relies on Gaines. In Gaines, this Court held that a Plan provision allowing be
to people eligible to receive them within nine months of the last date of employme
should be interpreted to mean entitled to receive benefits within the context of th
Social Security Act ("SSA"). Since under the SSA individuals are not entitled to be
until the sixth month after the onset of a disability, the Plan Administrator deter
that an employee was only eligible for benefits if a person was entitled to the ben
pursuant to the SSA (i.e. only if the end of the five month waiting period occurred
the nine month eligibility period). Gaines, 753 F.2d at 290. This Court held that
Administrator's interpretation was reasonable, and as such, not arbitrary or capric
Id. at 289. ERM argues that since the interpretation in Gaines was reasonable, its
interpretation of "full-time employee" is reasonable. We disagree.
ERM's analogy between Gaines and the instant case fails on a number of po
First, the Plan language at issue in Gaines is dissimilar to the Plan language at i
the instant case. Second, and more importantly, there was no definition of the lang
question in the Plan in Gaines. Thus, looking to the SSA for a definition was reas
In the instant case, a definition of the language in question is provided in the Pl
such, there is no reason to look outside the Plan for an interpretation.
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Lastly, ERM is not pointing to a statutory provision to help define the t
was the case in Gaines; rather, ERM relies on a self-serving company practice.
We hold that the term "full-time employee" is not ambiguous. A definiti
provided by the Plan, and it is this definition, not extrinsic evidence, that is to
used to interpret this term. Simply because ERM has consistently misinterpreted th
"full-time employee" does not mean that such misinterpretation should be deemed par
the Plan and sanctioned as lawful. Accordingly, consistent with the Plan's language
hold that, for purposes of the Plan, Mr. Epright became a full-time employee at the
completion of sixty days of active service, or on January 26, 1993.
Mr. Epright has also argued that a Plan Administrator who has a conflict
interest should be held to some form of heightened scrutiny beyond the typical "arb
and capricious" standard. Here Mr. Sevick, the Plan Administrator, was also a part
of the company. A court may consider conflicts of interest as a factor when decidi
denial of benefits was arbitrary and capricious. Firestone Tire & Rubber Co. v. Br
489 U.S. 101, 115 (1989); Doe v. Group Hospitalization & Medical Servs., 3 F.3d 80,
(4th Cir. 1993). Because we hold that ERM's denial of Plan benefits pursuant to it
practice of designating some employees as temporary ones controverts the plain lang
its Plan, we need not consider this issue.
(B)
ERM next argues that even if Mr. Epright was a full-time employee on Janu
1993, since he had not completed Plan enrollment forms, nor designated the type of
coverage he desired, he was not entitled to any Plan benefits. ERM points to the l
in the Plan, which defines classes of employees eligible for coverage as those "who
selected the [appropriate coverage]." App. at 191 (emphasis added). ERM argues th
places an affirmative duty on an individual to select coverage prior to any such co
taking effect. In support of this argument it points out that Mr. Epright might ha
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selected the HMO coverage or additional compensation in lieu of Plan coverage. In
event, it would have no liability for his current medical expenses.
The Secretary of Labor, in his brief amicus curiae, responds to this argu
noting that immediately following the above quoted language, the Plan, with respect
standard option coverage, states that "[i]f eligible, coverage shall become effecti
. . the date eligible if actively at work . . . ." Id. (emphasis added). Thus, he
that this language means that if an employee is working actively, pursuant to the P
definition, the employee becomes immediately eligible for the standard option cover
the sixty-first day of service to the extent another option has not otherwise been
selected. As such, he maintains that since Mr. Epright became eligible for coverag
January 26, 1993, the standard option plan became effective on this date.
As additional support for his argument, the Secretary of Labor points to
fact that Mr. Porfido, ERM's president, testified that Mr. Epright was to become el
for benefits on August 1, 1993, which was one day prior to the day that he was supp
fly back from Florida to fill out the appropriate forms. The Secretary thus argues
Mr. Porfido's testimony that Mr. Epright was to become eligible for Plan coverage o
prior to filling out the forms shows that the completion of these forms is a minist
act which is not a condition precedent to becoming eligible for Plan coverage.
We agree with this last argument, particularly as it stands in the instan
context. If an employee knew that he or she was eligible for Plan benefits and yet
not complete the requisite enrollment forms through procrastination or indecision,
might have an argument that the employee was not covered by the Plan. Such is not
case here. Due to ERM's erroneous interpretation of the Plan, Mr. Epright was unde
mistaken impression that he was not eligible for Plan coverage. He had made numero
inquiries into when his employee status would change so that he would be eligible f
benefits. Thus, it was not through lack of diligence on his part that the enrollme
forms were not completed; rather, it was solely due to ERM's erroneous interpretati
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its own Plan. ERM should not now be allowed to benefit from its own mistake at the
expense of its employee. To the extent that completed enrollment forms are a prere
to eligibility for Plan benefits, such a requirement is excused in the instant case
their lack of existence is due to the defendant's mistake, and not the plaintiff's.
(C)
ERM's next argument is that even if it otherwise should have been li
for Plan benefits in the instant case, Mr. Epright's untimely request for review of
initial denial of Plan benefits precludes him from obtaining those benefits.
The Plan provides that after a denial of benefits a participant has
days to request that the Plan Administrator review the denial. Mr. Epright did req
such a review; however, he did so more than 120 days after the denial of benefits.
Plan Administrator used the untimeliness of this request as one of his reasons for
Mr. Epright Plan benefits. ERM argues that in using the untimeliness of the reques
review to deny Mr. Epright Plan benefits, the Plan Administrator was relying on the
language of the Plan, and as such his decision should be upheld. Mr. Epright respo
arguing that ERM's initial letter denying him Plan benefits fell short of statutory
regulatory requirements, and as such his request for review was timely. Specificall
points out that Section 503 of ERISA provides that,
In accordance with regulations of the
Secretary, every employee benefit plan shall-
(1) provide adequate notice in writing to any
participant or beneficiary whose claim for benefits under
the plan has been denied, setting forth the specific reasons
for said denial, written in a manner to be understood by the
participant; and
(2) afford a reasonable opportunity to any
participant whose claim for benefits has been denied for a
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Just as in contract law, failure to satisfy a condition should be excused if the o
party thwarted fulfillment of the condition. This is especially true here, where th
Administrator's failure to allow Epright to choose a health plan option contradicte
plain terms of the Plan and thus violated ERISA's exclusive purpose and prudence
requirements.
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full and fair review by the appropriate named fiduciary of
the decision denying the claim.
29 U.S.C. § 1133. Additionally, and in accordance with Section 503, the Secretary
Labor has established that the notice of a claim denial must:
provide to every claimant who has been denied a claim for
benefits written notice setting forth in a manner calculated
to be understood by the claimant:
(1) The specific reason or reasons for the denial;
(2) Specific reference to pertinent plan provisions on which
the denial is based;
(3) A description of any additional material or information
necessary for the claimant to perfect a claim and an
explanation why such material or information is necessary;
and
(4) Appropriate information as to the steps to be taken if
the participant or beneficiary wishes to submit his or her
claim for review.
29 C.F.R. § 2560.503-1(f). Mr. Epright argues that ERM's letter denying him benefi
not comply with subsections (2)-(4) of the above regulation, and as such his reques
review was timely. ERM does not rebut these assertions, although they do argue that
Epright's attorney had a copy of the Plan, and they argue that as such, there was n
excuse for requesting review subsequent to the 120 day period. We disagree.
We initially note that in their letter of denial, ERM took the posit
that because Mr. Epright was a temporary employee, and not a participant of their P
they were under no duty to comply with ERISA. App. at 184-85. The letter did not
to any Plan provision as a basis for denying the claim, nor did it provide informat
to how Mr. Epright could perfect his claim. Most significantly, it did not referen
appropriate avenue for obtaining a review of the decision denying Mr. Epright benef
Id. When a letter terminating or denying Plan benefits does not explain the proper
for pursuing review of the termination or denial, the Plan's time bar for such a re
not triggered. White v. Jacobs Eng'g Group, 896 F.2d 344, 350 (9th Cir. 1989). In
instant case, because ERM's letter denying Mr. Epright Plan benefits did not explai
proper steps for requesting a review of this denial, the 120 day time bar was not
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triggered. Accordingly, his request for review was submitted in a timely fashion.
fact that Mr. Epright's attorney had a copy of the Plan, and thus the means to asce
the proper steps for requesting review, in no way excuses ERM's failure to comply w
Department of Labor's regulations. E.g., Tomczyscyn v. Teamster Local 115 Health a
Welfare Plan, 590 F. Supp. 211, 214 (E.D. Pa. 1984); McClean Hosp. Corp. v. Lasher,
Supp. 110, 125 (D. Mass. 1993); Graham v. Federal Express Corp., 725 F. Supp. 429,
(W.D. Ark. 1989).
Because we hold that Mr. Epright's request for review of the initial
decision to deny him Plan benefits was submitted in a timely fashion, we need not a
his argument that even if his request for review was not timely submitted, it shoul
excused because seeking such review would have been futile.
(D)
The last issue is, considering the above discussion, whether ERM acted
arbitrarily and capriciously when denying Mr. Epright's benefits. The United State
of Appeals for the Eighth Circuit has held that when the Trustees of a pension plan
imposed standards not required by the plan itself, they acted arbitrarily. Morgan
Mullins, 643 F.2d 1320, 1321 (8th Cir. 1981). We agree with this proposition of l
Moreover, only written amendments, executed in accordance with the Plan's procedure
amendments, can change the Plan. Oral amendments are not valid. Confer v. Custom
Co., 952 F.2d 41, 43 (3d Cir. 1991). In the instant case ERM's imposition of the
"Temporary Employee" classification is a standard not required by the Plan. Essenti
it is an amendment to the Plan that has not been incorporated into the Plan documen
imposing a requirement which is extrinsic to the Plan, ERM has acted arbitrarily an
capriciously.
ERM attempts to rebut this conclusion by arguing that under the arbitrary
capricious standard, a Plan Administrator's decision should be upheld if there is a
reasonable basis for doing so. Blakeman v. Mead Containers, 779 F.2d 1146, 1150 (6
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1985). This a correct statement of that rule of law, but it does not apply here.
classification of Mr. Epright as a temporary employee controverted the Plain langua
the Plan; Mr. Epright was validly excused from completing enrollment forms due to E
mistaken conduct and Mr. Epright sought review of the initial denial of Plan benefi
timely fashion. Accordingly, there was no reasonable basis for the Plan Administra
denial of benefits.
V. Conclusion
In summary, we hold that Mr. Epright met all of the Plan's requirements f
coverage thereunder, and as such he was entitled to coverage under the Standard Opt
Plan. ERM's practice of designating employees as temporary or full-time is extrins
the Plan, and as such cannot lawfully be considered when determining who is eligibl
Plan coverage. If ERM wants to adopt such a procedure, it must amend its Plan in p
fashion. Because the enrollment forms were not completed due to ERM's mistake, and
through any fault of the plaintiff, the lack of completed forms will not preclude M
Epright from coverage under the Plan. We also hold that Mr. Epright did seek revie
the Plan Administrator's initial denial of Plan benefits in a timely fashion. Fina
hold that ERM, through its Health and Welfare Plan, is liable for benefits pursuant
Plan's standard option. The case is remanded to the United States District Court f
Eastern District of Pennsylvania for further proceedings consistent with this opini
_____________________________
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