Burke v. Kodak Retirement Income Plan

• Decision Date: 17 July 2003
• Docket Number: Docket No. 02-9051.
• Citation: 336 F.3d 103
• Parties: Sally J. BURKE, Plaintiff-Appellant, v. KODAK RETIREMENT INCOME PLAN and KODAK RETIREMENT INCOME PLAN COMMITTEE, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

336 F.3d 103

Sally J. BURKE, Plaintiff-Appellant, v. KODAK RETIREMENT INCOME PLAN and KODAK RETIREMENT INCOME PLAN COMMITTEE, Defendants-Appellees.

Docket No. 02-9051.

United States Court of Appeals, Second Circuit.

Argued: April 30, 2003.

Decided: July 17, 2003.

COPYRIGHT MATERIAL OMITTED

George A. Schell, Schell & Schell, P.C., Fairport, N.Y. (Jennifer M. Hoeling, on the brief), for Plaintiff-Appellant.

Eric J. Ward, Ward Norris Heller & Reidy, LLP, Rochester, N.Y. (Heather D. Kenny, of counsel), for Defendants-Appellees.

Before: MINER, McLAUGHLIN and POOLER, Circuit Judges.

McLAUGHLIN, Circuit Judge.

Plaintiff Sally J. Burke sued the Retirement Income Plan Administrators of her deceased husband's employer, the Eastman Kodak Company ("Kodak"), for denying her survivor income benefits. She alleged that defendants Kodak Retirement Income Plan ("KRIP") and Kodak Retirement Income Plan Committee ("KRIP-CO") (collectively, the "Plan Administrators") based their denial on a deficient Summary Plan Description ("SPD") in violation of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001 et seq.

The United States District Court for the Western District of New York (Larimer, J.) granted defendants summary judgment and dismissed the complaint. The court held that the SPD complied with ERISA's disclosure requirements. The court further concluded that even if the SPD were defective, Mrs. Burke could not show that she relied on the SPD to her detriment. We disagree with both conclusions.

The SPD was defective for omitting a critical restriction on Mrs. Burke's eligibility for survivor income benefits as a domestic partner. Moreover, requiring plan participants or beneficiaries to show detrimental reliance to recover for a deficient SPD contravenes ERISA's objective to promote distribution of accurate SPDs to employees. We now adopt a prejudice standard and find that Mrs. Burke was prejudiced as a matter of law.

BACKGROUND

Kenneth Burke was a Kodak employee for twenty-seven years. Before their marriage on May 17, 1999, Mr. and Mrs. Burke lived together for eight years as domestic partners. In 1994, Mrs. Burke suffered a physically and mentally debilitating stroke. In the fall of 1999, after the couple had been married for less than six months, Mr. Burke died of lung cancer.

Mr. Burke was a participant in Kodak's pre-retirement Survivor Income Benefits ("SIB") plan, which provided payments to spouses, domestic partners, dependent children or dependent parents upon the death of the employee. As required by ERISA, Kodak distributed an SPD contained in an approximately 300 page employee handbook, summarizing its employee benefits plan (the "plan"), including SIB. The plan and sixteen sections of the SPD explicitly require "domestic partners" to file a joint affidavit on a form provided by the Plan Administrator if they wish to be eligible for various types of benefits. Significantly, the section of the handbook that deals with SIB fails to mention the affidavit requirement.

To publicize the benefits available to domestic partners, Kodak circulated a 1996 Employee Benefits Newsletter and a 1997 Benefits Update. The Newsletter and Update explained that domestic partners had to file an affidavit of domestic partnership to qualify for certain employee benefits, including SIB. After the Newsletter and Benefits Update were circulated, Kodak issued a revised version of its SPD. The SIB section of the new SPD, however, omitted the affidavit requirement.

The week after Mr. Burke's death, Kodak sent Mrs. Burke a letter describing the benefits available to a surviving spouse of more than one year. In response, Mrs. Burke called Kodak to explain that she had been married for less than a year. By a second letter, Kodak informed Mrs. Burke that, because she was married for less than a year, she was ineligible for preretirement SIB. This letter referred to page ninety-eight of an enclosed handbook for spousal eligibility requirements.

The handbook also happened to contain a paragraph stating that aggrieved beneficiaries "should" file an appeal of Kodak's initial denial within ninety days. In this case, ninety days from Kodak's initial denial was February 21, 2000. Almost five months later, Mrs. Burke finally appealed to the Plan Administrators.

In her appeal, Mrs. Burke included an affidavit describing her domestic partnership status. In her appeal letter, she cited her distraught "emotional state ... upon the death of her husband" as the reason for her failure to appeal within the ninety-day limitations period. Unmoved, the Plan Administrators denied her appeal as untimely and further stated that, even had her appeal been timely, Mrs. Burke was ineligible for SIB as a domestic partner because the Burkes never filed the joint affidavit required by the plan.

Mrs. Burke then filed this ERISA action. Her claim is that the SPD was deficient because it failed to set forth the affidavit requirement in the section dealing with SIB. After discovery, Kodak moved for summary judgment.

The district court rejected the Plan Administrators' attempt to invoke the ninety-day limitation. In the court's view, Kodak's notice to Mrs. Burke of the ninety-day period was inadequate. The court also held that Mrs. Burke could qualify for benefits both as a surviving spouse and as a domestic partner. It therefore reached the merits of her claim, but affirmed the Plan Administrators' denial of survivor income benefits because the Burkes had failed to comply with the domestic partnership affidavit requirement. It also held, in the alternative, that even if the SPD was deficient, Mrs. Burke failed to demonstrate that she relied to her detriment on the SPD. See Burke v. Kodak Ret. Income Plan, 217 F.Supp.2d 384, 389-91 (W.D.N.Y.2002).

Mrs. Burke now appeals.

DISCUSSION

Preliminarily, the Plan Administrators argue that: (1) Mrs. Burke's claims were barred by her failure to exhaust her administrative remedies; and (2) her application for survivor income benefits as a domestic partner was moot. We find these arguments without merit.

I. Exhaustion of Administrative Remedies

The Plan Administrators claim that Mrs. Burke failed to exhaust her administrative remedies and thus the district court erred in reaching the merits of her ERISA claim. Mrs. Burke concedes, as she must, that she appealed KRIP's denial of benefits after the ninety-day limitations period. The district court, nevertheless, refused to enforce the ninety-day limitation and we agree.

Whether Mrs. Burke exhausted her administrative remedies under ERISA is a question of law we review de novo. See Kinkead v. SW Bell Corp. Sickness & Accident Disability Benefit Plan, 111 F.3d 67, 68 (8th Cir.1997) ("Exhaustion is a threshold legal issue we review de novo").

We require the exhaustion of administrative remedies for the denial of ERISA benefits. See, e.g., Chapman v. ChoiceCare Long Island Term Disability Plan, 288 F.3d 506, 511 (2d Cir.2002). The ERISA regulations adopted by the Department of Labor ("DOL") allow employers to impose a time limit on the right to appeal, so long as it is not shorter than sixty days. See 29 C.F.R. § 2560.503-1(h)(2)(i). Where a claimant fails to appeal a denial of benefits under an employee plan within the prescribed time limit, the court will generally not reach the merits of her claim. See, e.g., Chapman, 288 F.3d at 511.

Under the ERISA statute and the DOL regulations, the denial must notify the claimant of appeal procedures under the plan. See 29 U.S.C. § 1133 & 29 C.F.R. § 2560.503-1. A written notice of denial must be comprehensible and provide the claimant with the information necessary to perfect her claim, including the time limits applicable to administrative review. Id. A notice that fails to substantially comply with these requirements does not trigger a time bar contained within the plan. See White v. Jacobs Eng'g Group Long Term Disability Benefit Plan, 896 F.2d 344, 350 (9th Cir.1989).

Kodak's notice was inadequate for two reasons.

First, Kodak's initial denial letter does not expressly say that Mrs. Burke had ninety days to appeal. Rather, the letter contains a cross-reference to page 98 of the handbook, which deals with spousal eligibility. That handbook also contains an appeals section — not on page 98, but on page 140 — stating that an aggrieved beneficiary "should" appeal "within 90 days." This section, however, does not help Kodak. Based on the denial letter's exclusive reference to spousal eligibility, Mrs. Burke's focus in turning to the handbook would justifiably have been on her eligibility, not on the time limit for appeals. See Ross v. Diversified Benefit Plans, Inc., 881 F.Supp. 331, 335 (N.D.Ill.1995) (notice insufficient where denial letter "did not mention the Plan's appeal procedure or specifically refer the claimant to the Plan book for information about the appeal procedure").

The Plan Administrators argue that the denial letter need not inform an individual of her appeal rights provided that the materials accompanying the letter do so. Their position, however, is disingenuous. The cases the plan administrators cite for this proposition involved denial letters that contained notice of appeal rights. See White, 896 F.2d at 347 (denial letter "informed White that he had 60 days to appeal"); Gruber v. Unum Life Ins. Co. of Am., 195 F.Supp.2d 711, 715 (D.Md.2002) (denial letter "stated that Plaintiff could have the decision reviewed if she made a request in writing within 60 days"); Kenavan v. Empire Blue Cross & Blue Shield, 1996 WL 14446, at *3 (S.D.N.Y. Jan.16, 1996) (explanation of benefits form contained the following notice: "IMPORTANT: if you do not agree with the amount approved you may ask for a review. To do this you must write to us [within six months]").

Secondly, even if Kodak's denial letter had cross-referenced the time limitation's provision in the handbook, the language requiring appeal...