Salley v. E.I. DuPont de Nemours & Co.

• Decision Date: 27 July 1992
• Docket Number: No. 91-3523,91-3523
• Citation: 966 F.2d 1011
• Parties: , 15 Employee Benefits Cas. 2057 Jack R. SALLEY, Individually and on Behalf of his Minor Daughter, Danielle SALLEY, et al., Plaintiffs-Appellees, Cross-Appellants. v. E.I. DuPONT de NEMOURS & CO., et al., Defendants-Appellants, Cross-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1011

966 F.2d 1011

23 Fed.R.Serv.3d 676, 15 Employee Benefits Cas. 2057

Jack R. SALLEY, Individually and on Behalf of his Minor Daughter, Danielle SALLEY, et al., Plaintiffs-Appellees, Cross-Appellants. v. E.I. DuPONT de NEMOURS & CO., et al., Defendants-Appellants,

Cross-Appellees.

No. 91-3523.

United States Court of Appeals,

Fifth Circuit.

July 27, 1992.

Laurence E. Best, Andre C. Gaudin, Best, Koeppel & Klotz, New Orleans, La., for defendants-appellants cross-appellees.

Charles N. Branton, Slidell, La., for plaintiffs-appellees, cross-appellants.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before WILLIAMS, JOLLY, and HIGGINBOTHAM, Circuit Judges.

JERRE S. WILLIAMS, Circuit Judge:

Danielle Salley was a psychiatric patient at DePaul Hospital. DuPont paid for her treatment under an ERISA plan it had established. DuPont concluded that Danielle's treatment was no longer medically necessary and terminated the benefits. Salley and her father brought suit to recover the costs of Danielle's hospitalization. The district court ruled in their favor. DuPont appeals the decision, claiming the district court erred both in holding that the plan administrators abused their discretion and in applying the treating physician rule. DuPont also appeals the court's decision to award attorney's fees, and the Salleys contest the court's calculation of the fees. We affirm the district court's ruling.

I. FACTS

DuPont established its Hospital Medical-Surgical Coverage Policy (the "Plan") in accordance with the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et seq. ("ERISA"). At all relevant times, Connecticut General administered the Plan, and DuPont reimbursed Connecticut General the full costs of medical claims. DuPont also contracted with Preferred Health Care ("Preferred") to manage the individual cases.

Danielle Salley is a fifteen-year-old girl with a history of emotional disabilities, drug abuse, and depression. Her father, Jack Salley, is a retired DuPont employee and continues to participate in the Plan under which Danielle is covered as his dependent. Danielle has been an in-patient three times at DePaul Northshore Hospital in Covington, Louisiana. Each time, she has been under the care of Dr. Gordon Blundell, a psychiatrist in charge of the hospital's adolescent unit. The present litigation concerns DuPont's termination of benefits during the third admission in the hospital.

During her first two visits, Danielle was an extremely troubled child. She displayed suicidal tendencies, attempted to escape, and experienced episodes of head-banging. She, however, improved during each visit, but as soon as she was released, she "recompensated"--i.e. reverted back to her previous behavior. Dr. Blundell thus determined that Danielle could not live with her parents and attend public schools.

Dr. Blundell was concerned about Danielle's continual admissions and releases from the hospital, a problem he referred to as her "revolving door admissions." In an attempt to eliminate the revolving door admissions, Dr. Blundell worked with Plan administrators to "flex" the benefits. A "benefits flex" is a health insurance industry practice in which the parties amend or modify the policy's coverage benefits in order to accommodate a contingency that the original contract did not address specifically. Although the policy does not in terms permit the treatment provided, the treatment is mutually beneficial because the insured receives the coverage desired while the insurer reduces its payout expense through less expensive treatment.

Beginning in Danielle's second admission at DePaul Hospital, the Salleys and hospital employees attempted to locate a less restrictive treatment for Danielle, including several boarding schools. They, however, were unable to find a facility capable to meet Danielle's particular needs. Unable to find such a facility, the hospital released Danielle to attend public school. She subsequently recompensated.

On September 10, 1990, Danielle was readmitted to DePaul Hospital. As the hospital's records evidence, she quickly restabilized. In fact, Dr. Blundell wrote in his October 5, 1990 Progress Notes that Danielle was beginning "to function at the highest level she ever has in life."

On September 28, 1990, Dr. Blundell conversed on the telephone with Ron Schlegel, a Preferred case manager, regarding Danielle's condition. Schlegel was knowledgeable about Danielle's case because he had been involved with it since her first admission. Dr. Blundell apprised Schlegel of Danielle's dramatic improvement but also informed Schlegel that although Danielle was currently stable, he did not think he could release her because she would quickly regress. Schlegel advised Dr. Blundell that Dr. Satwant Ahluwalia, in accordance with Preferred procedures, would review the case to determine medical necessity. The Plan pays only for expenses that are "medically necessary," although the Plan never defines the phrase.

Dr. Ahluwalia, a psychiatrist and regional director at Preferred, also had been involved with the case since Danielle's first admission. She, however, never had examined Danielle nor reviewed the medical records from the second or third admission. She had reviewed the records from Danielle's first admission.

Dr. Blundell and Dr. Ahluwalia discussed Danielle's treatment on the telephone on October 2, 1990. Dr. Blundell told Dr. Ahluwalia that Danielle was stabilizing and would be able to leave the hospital soon, but he did not want to repeat the revolving door of admissions. Dr. Ahluwalia instructed Dr. Blundell that DuPont would terminate the benefits for in-patient hospitalization on October 11, 1990. She testified at trial that she knew Dr. Blundell did not agree with this date for release.

The Salleys brought suit challenging DuPont's termination of benefits from October 11, 1990 through January 25, 1991. ¹ Dr. Blundell discharged Danielle on January 25, 1991. She has since enrolled in the Darrow School in New York.

The district court concluded that DuPont abused its discretion when it terminated benefits for Danielle's in-patient hospitalization. Consequently, the court found DuPont liable for Danielle's hospital bills from October 11, 1990 through January 25, 1991. Moreover, the court awarded discretionary attorney's fees under 29 U.S.C. § 1132(g) and required each party to pay its own costs. DuPont appeals the district court's ruling.

II. STANDARD OF REVIEW

We first address the standard of review we employ in evaluating DuPont's decision to terminate benefits under the terms of the ERISA benefit plan. The Supreme Court holds that the denial of benefits "is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 956, 103 L.Ed.2d 80 (1989). If the plan gives the administrator or fiduciary discretionary authority, then we apply an abuse of discretion standard. Id. In applying the abuse of discretion standard, we analyze whether the plan administrator acted arbitrarily or capriciously. Penn v. Howe-Baker Eng'rs, Inc., 898 F.2d 1096, 1100 n. 2A (5th Cir.1990).

The Policy states "The [DuPont] Employee Relations Department shall be responsible for development of procedures to implement the policy, for interpretation of policy, and for coordination of administration." Similar language has led this Court to apply the abuse of discretion standard. See, Lowry v. Bankers Life and Casualty Retirement Plan, 871 F.2d 522, 524 (5th Cir.), cert. denied, 493 U.S. 852, 110 S.Ct. 152, 107 L.Ed.2d 111 (1989) (granting the Plan Committee the power to "interpret and construe" the plan was sufficient to apply the abuse of discretion standard); Batchelor v. Int'l Brotherhood of Electrical Workers Local 861 Pension and Retirement Fund, 877 F.2d 441, 443 (5th Cir.1989) (the following language gave the administrator discretion: the Trustees "have full and exclusive authority to determine all questions of coverage and eligibility.... They ... have full power to construe the provisions of this Agreement, [and] the terms used herein").

The Salleys assert two reasons why we should not apply the abuse of discretion standard. First, DuPont contracted with Preferred Health Care for medical necessity reviews. DuPont, therefore, was not exercising its discretion as the Plan envisioned. We disagree. The contract between DuPont and Preferred explicitly states, "DUPONT reserves final authority to authorize or deny payment for services to beneficiaries of a Plan." Moreover, counsel for DuPont stated that DuPont exercised final authority in the case at hand. As long as a company maintains the ultimate decision on denial of benefits, it can be beneficial for it to have experienced agents assist in the determination.

DuPont's conflict of interest also concerns the Salleys. DuPont funds the Plan from current operating revenues, giving it an apparent incentive to deny benefits. The alleged conflict, however, does not change the standard of review. "[I]f a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a 'factor[ ] in determining whether there is an abuse of discretion.' " Firestone, 489 U.S. at 115, 109 S.Ct. at 956 (citation omitted); see also, Lowry, 871 F.2d at 525, n. 6 ("There may be in effect a sliding scale of judicial review of trustees' decisions ...--more penetrating the greater is the suspicion of partiality, less penetrating the smaller that suspicion is ...") (citation omitted). Accordingly, we apply an abuse of discretion standard to DuPont's benefits termination decision.

III. ABUSE OF DISCRETION

Analyzing the record before us, we conclude the district court...