Sandoval v. Aetna Life and Cas. Ins. Co.

• Decision Date: 16 June 1992
• Docket Number: No. 90-2217,90-2217
• Citation: 967 F.2d 377
• Parties: Dan M. SANDOVAL, Plaintiff-Appellant, v. AETNA LIFE AND CASUALTY INSURANCE CO. and Metropolitan Life Insurance Co., Defendants, and Atlantic Richfield Co.; Arco Coal Co.; and Thomas L. Jacobs & Associates, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 377

967 F.2d 377

Dan M. SANDOVAL, Plaintiff-Appellant, v. AETNA LIFE AND CASUALTY INSURANCE CO. and Metropolitan Life Insurance Co., Defendants and Atlantic Richfield Co.; Arco Coal Co.; and Thomas L Jacobs & Associates, Inc., Defendants-Appellees.

No. 90-2217.

United States Court of Appeals Tenth Circuit.

June 16, 1992.

Jere C. Corlett (James E. Thomson and Judith C. Zelazny with him on the brief), Santa Fe, N.M., for plaintiff-appellant.

David L. Bacon of Adams, Duque & Hazeltine, Los Angeles, Cal., (Cameron Peters of Kemp, Smith, Duncan & Hammond, P.C., Santa Fe, N.M., with him on the brief), for defendants-appellees.

Before MOORE, ANDERSON, and EBEL, Circuit Judges.

EBEL, Circuit Judge.

In this appeal, we review a district court's conclusion that an ERISA plan administrator's decision to terminate the appellant's disability payments was not arbitrary and capricious. Our review requires that we confront three issues: (1) whether the district court could consider evidence not before the ERISA plan administrator; (2) whether the appellant received a "full and fair" hearing pursuant to 29 U.S.C. § 1133; and (3) whether the administrator's decision was unsupported by substantial evidence and therefore arbitrary and capricious. Because we conclude that the district court decided these issues correctly, we affirm.

I. Background

Dan M. Sandoval, the plaintiff-appellant, worked as a computer operator for defendant-appellee Arco Coal Company ("Arco"), a wholly owned subsidiary of defendant-appellee Atlantic Richfield Company. Sandoval's employment with Arco began in 1964.

Sandoval was covered by an employee benefit plan ("the plan") governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. The plan included benefits for long-term disability. ¹ Thomas L. Jacobs & Associates ("Jacobs") was the designated administrator of the plan. As administrator, Jacobs was a fiduciary with discretionary authority to determine entitlement to benefits and to review denials of claims. Under the terms of the contract between Jacobs and Arco, Jacobs received flat fees for processing claims and thus had no direct financial incentive to deny or to terminate benefits to plan participants.

In 1977, Sandoval became disabled and entitled to long-term benefits under the terms of the plan. Sandoval's disability arose "on the basis of physical impairments which included a chronic cervical strain, an ulnar neuropathy in the area of plaintiff's right wrist, and a minor carpal tunnel syndrome of the left wrist." District Court's Findings of Fact and Conclusions of Law, R., Vol. I, Doc. 100, at 2. Upon Sandoval's eligibility for benefits, Arco classified him as an "inactive employee," and he began receiving disability benefits under the terms of the plan. Sandoval also applied for and was granted total disability Social Security benefits.

In 1988, as part of the routine review of claims permitted by the plan agreement, Jacobs reviewed Sandoval's claim, requested additional information from him, and scheduled an independent medical evaluation. Dr. Moon, Sandoval's personal physician, submitted a supplemental medical evaluation in which he opined that Sandoval continued to be fully disabled due to his physical impairments. However, Dr. Walsky, the doctor who conducted the independent evaluation, concluded that Sandoval could "return to gainful employment" if he did not engage in any "heavy lifting with [his] right arm." Addendum to Defendants-Appellees' Answer Br., Defs.' Ex. H, at 3. Dr. Walsky concluded that Sandoval's impairments were relatively mild and not disabling:

Cerebellar exam reveals no ataxia, dysmetria, nor incoordination. On motor exam, he shows no atrophy even in the right intrinsic hand muscles. However, there is mild weakness against active resistance in the intrinsic muscles of the right hand, particularly the abductors of the fingers. Normal strength is noted in the lower extremities and the left upper extremity. On sensory examination, there is hypesthesia to pin and touch in the ulnar side of the right hand, affecting half the ring finger, and the little finger as well. The rest of the sensory examination is unremarkable, including vibration sense in the fingertips and toes....

The neck range of motion is mildly restricted to lateral flexion, attempting to turn the ear toward the shoulders, and is relatively normal for rotation of the chin toward the shoulders.... A very mild Tinel sign is present in both wrists, with only an occasional tap causing paresthesias in the forearms, not the hands.

Id. at 2-3. He specifically disagreed with Dr. Moon's previous diagnosis of "a C-8 and D-1 radiculopathy," stating that it was "not substantiated by the examination and x-rays that [he] reviewed." Id. at 3. Dr. Walsky recommended that Sandoval receive counseling, vocational rehabilitation, and exercise therapy, and noted that Sandoval "obviously d[id] not ever intend to be involved in gainful employment." Id. at 4. Based on this information, a Jacobs employee determined that Sandoval was no longer totally disabled under the plan's definition. Jacobs therefore terminated Sandoval's benefits.

Jacobs advised Sandoval of its decision that he was no longer totally disabled and of his right to request review of the decision. Sandoval then hired an attorney and requested review, at which point Jacobs invited him to submit any additional relevant information. Neither Sandoval nor his attorney informed Jacobs' Benefit Review Committee ("the Review Committee") of the possibility that Sandoval might suffer from any psychological impairment. As a result, the Review Committee was unaware of and did not consider disability based on psychological impairment. ² The Review Committee upheld the decision to terminate Sandoval's benefits.

After Sandoval's disability benefits were cancelled, Arco terminated his employment. Under the terms of the benefit plan, Sandoval then lost his eligibility for any future benefits.

Sandoval brought suit in New Mexico state court. Several months after the suit was filed, Sandoval had a psychological evaluation for the first time. The clinical psychologist who performed the examination diagnosed him as suffering from depression and memory loss and opined that Sandoval was totally disabled by reason of his psychological impairments together with his physical impairments.

Because the action arose under ERISA, the defendants removed the action on the basis of federal question jurisdiction to the United States District Court for the District of New Mexico. After a bench trial, the district court found that Sandoval was totally disabled because of his psychological impairments or a combination of physical and psychological impairments. However, because Sandoval had not submitted evidence of psychological disability to Jacobs, the district court concluded that Jacobs' actions were not arbitrary and capricious. The court therefore entered judgment in favor of the defendants.

Sandoval filed a timely notice of appeal. We have jurisdiction under 28 U.S.C. § 1291.

II. Standard of Review

Although not styled as such, Sandoval's complaint arises under 29 U.S.C. § 1132(a)(1)(B). ³ The district court found, and the parties do not dispute, that Jacobs had discretionary authority to determine eligibility for benefits. Because the plan gave the administrator this discretion, the district court reviewed Jacobs' actions under an arbitrary and capricious standard. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109-11, 109 S.Ct. 948, 953-54, 103 L.Ed.2d 80 (1989) (in action brought under section 1132(a)(1)(B), discretionary actions of fiduciary reviewed under arbitrary and capricious standard); Woolsey v. Marion Lab., Inc., 934 F.2d 1452, 1457 (10th Cir.1991); Pratt v. Petroleum Prod. Management Inc. Employee Sav. Plan & Trust, 920 F.2d 651, 657-58 (10th Cir.1990). ⁴

The district court's holding that the administrator's decision was not arbitrary and capricious is a legal conclusion. Hence, our review of the district court's decision, although not the underlying administrator's decision, is plenary. See Pratt, 920 F.2d at 658; cf. Phillips v. Alaska Hotel & Restaurant Employees Pension Fund, 944 F.2d 509, 515 (9th Cir.1991) (district court's decision whether trustees acted arbitrarily or capriciously is mixed question of law and fact, reviewed de novo), cert. denied, --- U.S. ----, 112 S.Ct. 1942, 118 L.Ed.2d 548 (1992).

III. Scope of District Court's Review

Although the district court concluded that Sandoval was psychologically disabled at the time Jacobs terminated his benefits, the court also found that the Review Committee was unaware of this disability because Sandoval failed to bring it to the Review Committee's attention. In determining whether the plan administrator's decision was arbitrary and capricious, the district court generally may consider only the arguments and evidence before the administrator at the time it made that decision. See Perry v. Simplicity Engineering, 900 F.2d 963, 967 (6th Cir.1990); Voliva v. Seafarers Pension Plan, 858 F.2d 195, 196 (4th Cir.1988) ("[T]he court must consider only the record before the plan administrator at the time it reached its decision. [Courts should not consider or rely] upon evidence not part of the administrative record. [Nor should courts] consider arguments that do not appear in the administrative record.") (citations omitted); Danti v. Lewis, 312 F.2d 345, 349-50 (D.C.Cir.1962) (court should consider only evidence and arguments before trustee). As the Sixth Circuit stated in Perry:

A primary goal of ERISA was to provide a method for workers and beneficiaries to resolve disputes over benefits inexpensively and expeditiously. Permitting or requiring district courts to consider evidence from both parties that was not presented to the plan administrator would seriously impair the achievement of that goal. I...