Nichols v. Prudential Ins. Co. of America

• Decision Date: 21 April 2005
• Docket Number: Docket No. 04-1445-CV.
• Citation: 406 F.3d 98
• Parties: Cecilia NICHOLS, Plaintiff-Appellant, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

Page 98

406 F.3d 98

Cecilia NICHOLS, Plaintiff-Appellant, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant-Appellee.

Docket No. 04-1445-CV.

United States Court of Appeals, Second Circuit.

Argued: December 17, 2004.

Decided: April 21, 2005.

COPYRIGHT MATERIAL OMITTED

Christopher P. Foley, (Patrick F. Foley, on the brief) McCormick, Dunne & Foley, New York, N.Y., for Plaintiff-Appellant.

Stephen D. Cuyler, (David A. Brooks, on the brief), Cuyler Burk, LLP, New York, N.Y., for Defendant-Appellee.

Mary Ellen Signorille, AARP Foundation Litigation, Melvin R. Radowitz, AARP, Washington, D.C., for amicus curiae AARP.

Before: NEWMAN, POOLER, and KATZMANN, Circuit Judges.

POOLER, Circuit Judge.

Cecilia Nichols appeals from the February 27, 2004 decision and order of the United States District Court for the Southern District of New York (Victor Marrero, J.) dismissing without prejudice her claims of wrongful termination of disability benefits under the Employee Retirement Income Security Act of 1974, as amended and codified at 29 U.S.C. §§ 1001-1461 and scattered sections of 26 U.S.C. ("ERISA"). The district court held that while defendant-appellee The Prudential Insurance Company of America ("Prudential") did violate the deadlines for completing review of a denial of benefits set forth in 29 C.F.R. § 2560.503-1(h),¹ promulgated pursuant to ERISA, it made good faith efforts to complete this review that placed it in substantial compliance with the regulation. The district court therefore dismissed Nichols's claims for failure to exhaust administrative remedies, but ordered that Prudential complete its review and render a decision within thirty days of the date that Nichols complies with Prudential's requests for additional information and for an independent medical examination. On appeal, Nichols argues that the "substantial compliance" doctrine is inconsistent with the regulation, that Prudential did not technically or substantially comply with the regulation, and that in the absence of a decision by Prudential, the district court should have reviewed the denial of benefits de novo. Prudential argues that the district court's order was an interlocutory remand order over which this Court does not have appellate jurisdiction, that the "substantial compliance" doctrine is proper and consistent with the tolling scheme implemented by the current version of the regulation, and that any district court review of the denial of benefits should be under an arbitrary and capricious standard. We hold that the district court's dismissal without prejudice is a final decision over which this Court has appellate jurisdiction. We further hold that the plain language of 29 C.F.R. § 2560.503-1(h) precludes the judicial creation of a "substantial compliance" doctrine. We finally hold that the lack of discretion vested in the plan administrator, or alternatively, failure to exercise any such discretion, requires de novo review of the denial of benefits. We therefore vacate the district court's order and remand to the district court for de novo review of the merits of Nichols's claim.

BACKGROUND

While the facts pertaining to the underlying merits of Nichols's claim are disputed, the facts concerning the course of communications between Nichols and Prudential at issue here are not. We review and summarize here only this undisputed factual background.

Cecilia Nichols participated in a group insurance plan (the "plan") offering short — and long-term disability coverage, underwritten and administered by Prudential. The plan offered long-term disability coverage, and limited coverage to twenty-four months for disabilities based in part on mental disorders.

In November 1999, Nichols submitted a claim based on several diagnosed medical conditions that resulted in pain, fatigue, weakness, nausea, dizziness, depression, and disorientation. As per the terms of the plan, Prudential paid short-term disability benefits until April 29, 2000, and then began paying long-term benefits. On December 12, 2001, Prudential notified Nichols by letter that her benefits would be suspended after April 29, 2002, because she was no longer totally disabled and her disability was based in part on a mental disorder. On December 18, 2001, Prudential called Nichols by telephone and informed her of the termination of benefits and the right to appeal, and told Nichols that she should forward medical evidence of continued disability if she did appeal. Nichols called Prudential on December 19, 2001, discussed the appeals process and the medical evidence necessary, and was informed that if she appealed, Prudential would assess the need for an independent medical evaluation ("IME") at that time.

Nichols filed a written appeal with Prudential by letter dated April 11, 2002 (day 0)². No further correspondence was exchanged until June 17 (day 67), when Prudential acknowledged receipt of Nichols's letter, stated that Prudential was performing a review, and stated that Nichols would be contacted within 30 days with a decision or the status of the evaluation. On July 1 (day 81), Prudential requested by telephone that Nichols submit to an IME. A week later, on July 8 (day 88), Nichols informed Prudential by telephone that she refused any IME and would consult with an attorney. Nichols then sent a letter, through counsel, on July 11 (day 91), referring to Nichols's appeal as an ERISA matter and instructing Prudential not to delay or disturb resolution of the appeal. On July 25 (day 105), Prudential responded by letter, stating that it could not resolve Nichols's appeal until she submitted medical records of her continuing treatment. Nichols wrote a final letter on August 9 (day 120), rejecting Prudential's July 25 letter, and referring specifically to 29 C.F.R. § 2560.503-1(h) as requiring timely processing of Nichols's appeal.

On October 25, 2002 (day 197), Nichols filed the present suit. Nichols wrote to Prudential on November 7, 2002, notifying Prudential of the suit and stating that no further claims proceedings, such as an IME, were appropriate. Prudential responded by reminding Nichols to attend her scheduled IME by letter dated November 4, 2002. Prudential subsequently moved to dismiss without prejudice for failure to exhaust administrative remedies. Nichols v. Prudential Ins. Co. of Am., 306 F.Supp.2d 418, 419 (S.D.N.Y.2004).

The district court held that "while Prudential technically did not comply with the letter of the regulation, Nichols ignored its spirit," and dismissed Nichols's complaint without prejudice "to allow Prudential to complete its review of her claim." Id. The district court observed that 29 C.F.R. § 2560.503-1(h) "ordinarily" set a 60-day deadline for appeals of a denial of benefits, which could be extended to 120 days for "special circumstances," provided a written notice to the claimant preceded such extension. Nichols, 306 F.Supp.2d at 420 (quoting 29 C.F.R. § 2560.503-1(h)). It then found that while Prudential had remained entirely silent for 67 days after the date of Nichols's April 11 appeal letter, Prudential subsequently exhibited good faith efforts to gather new evidence and resolve Nichols's appeal, efforts which Nichols resisted. Id. at 423-24. Relying on a Tenth Circuit case, Gilbertson v. Allied Signal, Inc., 328 F.3d 625, 634-36 (10th Cir.2003), and several district court cases from other Circuits, the district court held that Prudential's actions placed it in "substantial compliance" with the regulatory deadlines. Nichols, 306 F.Supp.2d at 423-24. The district court therefore granted the motion to dismiss without prejudice and ordered that Prudential render a final decision within thirty days after Nichols complied with Prudential's requests for additional medical records and an IME. Id. at 424.

This appeal followed. Nichols argues that this Court should reject the substantial compliance doctrine; that in any case Prudential's actions do not constitute substantial compliance; and that on remand, the district court should conduct a de novo review of the administrative record. Prudential argues that the district court's order is an interlocutory order remanding to Prudential as the plan administrator, over which this Court has no appellate jurisdiction; that Prudential was in fact in technical compliance with the regulatory deadlines; and that this Court should adopt the substantial compliance doctrine and find Prudential substantially complied with the regulatory deadlines.

DISCUSSION

I. Appellate Jurisdiction

We first address the issue of our jurisdiction over this appeal. Prudential correctly notes that only final decisions of the district court are appealable as of right under 28 U.S.C. § 1291. "Federal appellate jurisdiction generally depends on the existence of a decision by the District Court that ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Coopers & Lybrand v. Livesay, 437 U.S. 463, 467, 98 S.Ct. 2454, 57 L.Ed.2d 351 (1978) (internal quotation marks omitted).

Prudential argues that the district court's order at issue here is a remand to the ERISA plan administrator, and that our jurisdiction over such a remand is undecided by this Court. See generally Zervos v. Verizon N.Y., Inc., 277 F.3d 635, 646 & n. 8 (2d Cir.2002) (citing Crocco v. Xerox Corp., 137 F.3d 105, 108 (2d Cir.1998)). Our sister courts of appeals have split on whether a remand to a plan administrator is a final decision within the meaning of 28 U.S.C. § 1291, with the Seventh and Ninth Circuits holding that such remands are immediately appealable in certain circumstances, and the First, Sixth, and Eleventh Circuits holding that such remands are not final decisions. Compare Hensley v. Northwest Permanente P.C. Ret. Plan & Trust, 258 F.3d 986, 992-93 (9th Cir.2001) and Perlman v. Swiss Bank Corp. Comprehensive Disability Prot. Plan, 195 F.3d 975, 979-80 (7th Cir.1999), with Bowers v. Sheet...