Fershtadt v. Verizon Communications Inc.

• Decision Date: 24 April 2008
• Docket Number: No. 07 Civ. 6963(CM).,07 Civ. 6963(CM).
• Citation: 550 F.Supp.2d 447
• Parties: Dov FERSHTADT, Plaintiff, v. VERIZON COMMUNICATIONS INC., the Plan for Group Insurance, Metropolitan Life Insurance Company, and Unum Life Insurance Company of America, Defendants.
• Court: U.S. District Court — Southern District of New York

Page 447

550 F.Supp.2d 447

Dov FERSHTADT, Plaintiff, v. VERIZON COMMUNICATIONS INC., the Plan for Group Insurance, Metropolitan Life Insurance Company, and Unum Life Insurance Company of America, Defendants.

No. 07 Civ. 6963(CM).

United States District Court, S.D. New York.

April 24, 2008.

Michael Steven Hiller, Weiss &. Hiller, PC, New York, NY, for Plaintiff Dov Fershtadt.

Karen M. Wahle, O'Melveny & Myers, L.L.P., New York, NY, Karen Mary Wahle, Washington, DC, Khuong G. Phan, Robert M. Stern, O'Melveny & Myers, L.L.P., Washington, DC, for defendants Verizon Communications Inc. Plan For Group Ins.

Allan Michael Marcus, Lester, Schwab, Katz and Dwyer LLP, New York, NY, for defendant Metropolitan Life Ins. Co.

Patrick Walter Begos, Begos and Horgan L.L.P., Westport, CT, for defendant UNUM Life Ins. Co. of America.

DECISION AND ORDER GRANTING DEFENDANT'S MOTION TO DISMISS

McMAHON, District Judge.

I. Introduction

This case involves a series of alleged machinations by Defendant Verizon Communications, Inc., its employee benefit plan, and the administrators of that plan, resulting in the underpayment of disability benefits to the plaintiff, Dov Fershtadt. Fershtadt requests relief under various provisions of the Employee Retirement Income and Security Act (ERISA) 29 U.S.C. § 1001 et seq., and under New York contract law. Defendants have moved to dismiss all but one of Fershtadt's claims.

The motion is granted, and Counts IIV of the Complaint are dismissed. We will proceed to litigate Count I.

II. Background

a. Parties and Plaintiffs disability

In 1982 Plaintiff Dov Fershtadt became an employee of Defendant Verizon. PL's Opp. at 2. Defendant The Plan for Group Insurance (PGI or Plan) is an employee benefit plan governed by ERISA, and Plaintiff is a participant and beneficiary under the Plan. Compl. ¶¶ 4-5. Defendants Metropolitan Life Insurance Company and UNUM Life Insurance Company of America are administrators, trustees and fiduciaries of the Plan. Id. ¶¶ 7-9, 12. Plaintiff also alleges that Defendant Verizon is an administrator, trustee and fiduciary of the Plan. Id. ¶ 10.

On September 11, 2001, Plaintiff was working for Verizon at the World Trade Centers, in Tower 2. Id. ¶ 16. When American Airlines Flight 11 struck Tower 1, Plaintiff fled into the plaza, where he dodged falling airplane parts and human remains. Id. ¶ 23. Plaintiff returned to Tower 2 for shelter, but shortly after his return it was struck by United Airlines Flight 175. Id. 24-26. He once again evacuated Tower 2. Id. ¶ 27. Plaintiff survived the attacks, but soon began experiencing severe depression, dementia and post-traumatic stress disorder. Id. ¶ 29.

b. Fershtadt's coverage and benefits

At the time of the attacks, Fershtadt was covered by a disability plan that he refers to in his brief as the Bell Atlantic Plan. PL's Opp. at 3. The Bell Atlantic Plan included the following terms: (1) disability benefits were payable to Fershtadt at 50% of his pre-disability earnings, fully taxable, and subject to a $420,000 life-time cap; (2) if Fershtadt remained disabled for more than one year, his employment could be terminated and he would not continue to accrue pension benefits. Id.

Verizon and UNUM (its administrator at the time), initially approved short-term, and later long-term, disability benefits for Fershtadt. Id. However, Fershtadt alleges that Verizon and UNUM consistently misidentified the plan applicable to Fershtadt, mixing and matching various plans depending on which plan provisions were least favorable to Fershtadt. Id.

In October of 2001, other Verizon employees who were members of the Bell Atlantic Plan were given the option to change their benefit levels from those offered under the Bell Atlantic Plan to those offered under the new Plan for Group Insurance (PGI). Id. at 4. Fershtadt alleges that he was never notified of this offer, and so did not exercise this option. Id.

During 2004 Verizon issued a Summary Plan description (2004 SPD) in connection with the PGI. Id. The 2004 SPD contained a provision limiting persons who became disabled as a result of a "mental-nervous condition" to 24 months of disability insurance benefits.. Disability benefits under the PGI would be non-taxable, but capped at a $8,333 per month. In the event of disability exceeding one year a member would not necessarily be terminated and would continue to accrue pension benefits. Id. at 5. The 2004 SPD also contained a clause stating that any Verizon employees who did not accept the October 2001 transfer option (described above) would continue to receive whatever benefit levels to which they were entitled under the Bell Atlantic Plan.

In October 2004, Verizon directed Fershtadt to enroll in the PGI and select various benefit levels and taxability options that were being made available under a new 2005 SPD. Pursuant to this directive, Fershtadt selected benefits at a level of 66% of his pre-disability earnings, nontaxable, capped at $11,333 per month. Thereafter, Verizon provided multiple confirmations to Fershtadt that he would be paid his long-term disability at these levels. Id. Relying on these representations, Fershtadt paid the premiums for this level of disability benefits. Id.

During this time, Fershtadt claims that he had been receiving short-term disability benefits. Id. at 6. On July 14, 2005, Fershtadt received a letter from defendant UNUM indicating that he would begin receiving long term disability benefits under yet another plan, called the Legacy Plan, which according to Verizon and UNUM, entitled Fershtadt to 50% of his earnings, fully taxable, rather than tax free benefits at 66% of his previous earnings. Id. Fershtadt claims never to have received a copy of the Legacy Plan and to be unfamiliar with its contents. Id. Two weeks later, on August 3, 2005, Verizon sent Fershtadt a letter contradicting the UNUM letter and confirming that he was entitled to long-term benefits at the 66%, nontaxable rates. Id. Throughout this period, Fershtadt remained a Verizon employee, albeit out on disability leave. But only "days later" — i.e., almost immediately after had Verizon confirmed that Fershtadt's long term disability would be calculated pursuant to the 2005 SPD — Verizon terminated Fershtadt's employment, apparently under the belief that he was still covered by the Bell Atlantic Plan (and hence subject to termination after one year of disability), rather than the 2005 SPD for the PGI (which contains no such termination clause). Id. Upon his termination, Fershtadt stopped accruing pension benefits, and began receiving long term disability benefits at 50%, fully taxable, subject to a $420,000 cap — i.e., under the terms of the Bell Atlantic Plan. Id.

In August of 2006, Verizon and UNUM terminated Fershtadt's long term disability benefits altogether, this time citing the 2004 SPD for the PGI, which contained a 24 month limitation for mental-nervous disabilities — despite the fact that Fershtadt had not selected PGI coverage until the 2005 SPD was in effect, and been terminated pursuant to a provision of the Bell Atlantic Plan. Id. at 7.

In' September of 2006 Fershtadt successfully appealed the termination of his long-term disability benefits. However, at that time it was determined that Fershtadt was entitled to long term benefits based on the $8,333 cap contained in the 2004 SPD, rather than the $11,000 cap in the 2005 SPD. Verizon and its new administrator, Met Life, also concluded that these benefits were fully taxable, despite the fact that the 2004 SPD states that benefits paid thereunder are not taxable. Thus, Fershtadt concludes that defendants were administering his long-term disability benefits as if he were covered by the provisions least favorable to him under at least two, and probably three, different plans. Id.

Fershtadt appealed this determination of his benefit levels in April 2007, demanding that he be paid long-term disability benefits at the levels stated in the 2005 SPD for the PGI. Id. at 7-8. After Verizon and its new Plan administrator, Met Life, took no action on his appeal, he filed the instant action on September 24, 2007, alleging that Defendants' inaction amounted to "de facto rejection" under the Plan. Shortly thereafter, Verizon and Met Life purported to grant Fershtadt's appeal in part, determining that he was entitled to benefits under the Bell Atlantic terms (50% of his previous earnings, subject to a $420,000 cap, fully taxable). Id. at 8. Fershtadt maintains that he is entitled to benefits under the 2005 SPD for the PGI, namely 66% of his previous earnings, nontaxable. Compl. ¶ 104.

c. Procedural history

In Count I of his complaint, Fershtadt requests, inter alia, that (1) the court declare that defendants must provide him benefits pursuant to the 2005 SPD, and (2) the court direct defendants to "make equitable restitution with respect to, and/or otherwise make payment of, all back benefits" from the date on which Fershtadt claims defendants began underpaying his benefits, and "restore all pensions benefits properly accrued since wrongful termination of [his] employment." Id. 1108.

In Count II, Fershtadt alleges that the defendants have breached their fiduciary duties by refusing to pay Fershtadt the proper amount of benefits in violation of the ERISA statute, placing their own financial interests ahead of his. Id. ¶ 111. For relief Fershtadt requests an order that defendants "provide him with equitable restitution of pension funds or any other funds that are in defendant's possession, to which Fershtadt is the rightful owner." Id. ¶ 22.

In Count III, Fershtadt alleges that defendants are liable for consequential damages, including emotional distress damages, arising from their bad faith handling of his benefits. Id. ¶¶ 13-18. In support, Fershtadt relies on a New York case which holds than an insurer may be liable for consequential damages when it breaches a contract in bad faith. Id....