Hager v. DBG Partners, Inc., 17-11147

• Decision Date: 06 September 2018
• Docket Number: No. 17-11147,17-11147
• Citation: 903 F.3d 460
• Parties: David L. HAGER, Plaintiff - Appellant v. DBG PARTNERS, INCORPORATED, Defendant - Appellee
• Court: U.S. Court of Appeals — Fifth Circuit

903 F.3d 460

David L. HAGER, Plaintiff - Appellant

v.DBG PARTNERS, INCORPORATED, Defendant - Appellee

No. 17-11147

United States Court of Appeals, Fifth Circuit.

September 6, 2018

Nicholas Alban O'Kelly, Kilgore & Kilgore, P.L.L.C., Dallas, TX, for Plaintiff – Appellant.

Jason James Richardson, Richardson Law Firm, Arlington, TX, for Defendant – Appellee.

Before STEWART, Chief Judge, and WIENER and HIGGINSON, Circuit Judges.

WIENER, Circuit Judge:

After Plaintiff-Appellant David Hager was fired by Defendant-Appellee DBG Partners, Inc ("DBG"), he obtained continuation coverage under DBG’s ERISA health care plan through the Consolidated Omnibus Budget Recovery Act ("COBRA"). Hager later filed this suit, alleging that DBG had discontinued its health plan without notifying him, violating COBRA’s notice requirements. The district court sua sponte dismissed Hager’s claim on the eve of trial, concluding that ERISA did not provide Hager with a remedy. Hager appeals, and we reverse.

I. FACTS AND PROCEEDINGS

Hager was DBG’s Chief Financial Officer until August 15, 2014. By a letter hand-delivered to Hager’s home address that day, DBG’s Chief Executive Officer, Todd Rowan, notified Hager that he was fired. Various sections of COBRA allow a former employee to continue receiving health insurance through the former employer’s ERISA health insurance plan.¹ Hager elected to continue his enrollment in DBG’s health plan with Blue Cross Blue Shield through COBRA.

In May 2015, DBG decided to terminate its Blue Cross Blue Shield health plan. DBG has produced a letter addressed to Hager’s former address—not the address where it sent Hager’s termination letter—stating that it was terminating that coverage effective June 1, 2015. Hager contends he never received this letter. He continued paying his insurance premiums to DBG through August 2015, and DBG deposited his checks. From June to August 2015, Hager underwent colon cancer

treatment. In August 2015, Hager learned that he had not been covered during those months.

In February 2016, Hager sued DBG, seeking reimbursement of his medical expenses for the period he was without coverage.² He alleged that DBG had committed statutory violations of COBRA by failing to notify him of (1) his right to COBRA coverage and (2) the termination of the insurance plan. Hager also alleged fraudulent conversion of his insurance premiums for the period after the health plan was cancelled. In May 2017, DBG refunded Hager’s insurance premiums for June to August 2015.

On August 8, 2017, the district court held a pretrial conference, at which Hager, through counsel, acknowledged that he had received notice of his eligibility for COBRA coverage. Hager therefore elected to proceed only on his claim that DBG had failed to notify him that the plan coverage was being terminated. At the pretrial conference, the district court expressed uncertainty that DBG had any obligation to notify Hager that coverage was being terminated. At the hearing, the court asked for citations to the statute or regulation that imposed such a notice requirement.

Two days later, Hager’s counsel filed a status report on the parties’ unsuccessful settlement discussions. He drew the court’s attention to the provision of the Code of Federal Regulations that requires a plan administrator to give notice if COBRA coverage is terminated prematurely.³

On August 16, the parties again met for a settlement conference, which again proved unsuccessful. After the conference, the parties reported to the courtroom; the proceeding that followed is not in the record. The court apparently expressed its concern that, even if DBG did have a notice obligation, ERISA (of which the relevant sections of COBRA are a part⁴ ) did not allow monetary damages. The court specifically highlighted a case from the Ninth Circuit which suggested that remedy was unavailable.⁵ The court nevertheless determined to proceed to trial the following week.

The parties appeared before the court several days later to dispose of the remaining pretrial matters. The district court reiterated its concern that Hager lacked a remedy and ordered the parties to reconvene in a few hours for Hager to present authority that supported the availability of his remedy. When they reconvened, Hager’s attorney directed the court to several district court cases, but the court rejected them as factually dissimilar. The court then sua sponte dismissed Hager’s COBRA claims with prejudice. Hager elected not to pursue his fraudulent conversion claim, which the court dismissed without prejudice. Hager appeals only the dismissal of his COBRA claim.

II. STANDARD OF REVIEW

"Our review of the district court’s dismissal for failure to state a claim for relief is de novo ."⁶ A district court may consider the sufficiency of a complaint on its own initiative, "as long as the procedure employed is fair."⁷ "[F]airness in this context requires both notice of the court’s intention and an opportunity to respond."⁸ Hager was aware of the court’s concern about the viability of his claim and that the defendant had asked the court to dismiss the case with prejudice, albeit in a perfunctory filing. Moreover, Hager had the opportunity to make his case for a remedy to the district court. In any event, Hager has forfeited any challenge to the district court’s sua sponte dismissal by failing to raise the issue on appeal.⁹

III. ANALYSIS

We note that DBG has elected not to file a brief in this matter, but that does not preclude our consideration of the merits.¹⁰ Hager contends that DBG violated COBRA’s notice provision and that the district court erred in determining that he could not recover money damages for this violation.

Because COBRA is a part of ERISA, any remedy is limited to ERISA’s "carefully crafted and detailed enforcement scheme."¹¹ That enforcement scheme is embodied in 29 U.S.C. § 1132. So, we first examine whether Hager has standing to bring an action under that statute.¹² If we conclude that he does, we consider whether a COBRA notice violation can sustain a cause of action. If it can, we determine what remedy, if any, would be available for such a violation.

A. ERISA Standing

To bring a suit under ERISA, Hager must be a plan "participant."¹³ A participant may be a former employee who "is ... eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer[.]"¹⁴ At least one court has suggested that termination of COBRA coverage eliminates a former employee’s status as a participant.¹⁵ And, the Supreme Court has stated that an employee must have a " ‘colorable claim’ to vested benefits" to be a participant.¹⁶ As noted below, though, Hager has no claim for benefits under the plan, because the plan no longer exists.

More recently, however, the Supreme Court decided Varity Corp. v. Howe , in which employees were persuaded to transfer from an employer’s old benefit plan to a new benefit plan, but later lost their benefits when the company under which the new plan was formed went into receivership.¹⁷ The employees brought a suit for benefits they would have been owed under the old plan, and the Court noted that they were "participants or beneficiaries."¹⁸

Similarly, the Eleventh Circuit has determined that an employee whose health plan was suspended without notice was a plan participant because, as an employee, he was nevertheless eligible for benefits.¹⁹ Here, although DBG had discontinued the plan, Hager himself, though no longer an employee, remained eligible for benefits. The Sixth Circuit recently determined that two former employees were entitled to bring a class action as participants, even though they initiated the lawsuit after their employment had ended.²⁰ That court’s analysis hinged on the fact that the plaintiffs had been employees at the time of the alleged ERISA violation.²¹ Hager was a participant when DBG decided to discontinue its health plan, but allegedly failed to notify him.

Several courts have allowed ERISA civil actions when a defendant failed to give COBRA notice, and thus the plaintiff did not elect COBRA coverage. The courts in those cases did not examine ERISA standing, suggesting that there was no jurisdictional bar.²² Finally, this circuit has suggested that a plaintiff has ERISA standing if he would be a plan participant "but for the employer’s conduct alleged to be in violation of ERISA."²³

Taking all of this together, we conclude that Hager is a participant entitled to bring this action. Otherwise, employers would be able to avoid ERISA lawsuits simply by terminating their employees’ health benefits.²⁴

B. COBRA Notice Violation

There was uncertainty in the district court whether DBG even had notice obligations under COBRA, so we begin there.

1. Notice of Continuation Coverage

First, the parties do not dispute that DBG is the plan administrator.²⁵ 29 U.S.C. § 1166(a)(4) commands plan administrators to inform former employees of their COBRA rights.²⁶ Explaining this statute, 29 C.F.R. § 2590.606-4(b) details the content of the required notice to a former employee of his right to continuation health coverage under COBRA.²⁷

Hager complains that he had no notice of his right to coverage, but as noted above, he acknowledged in the district court that DBG had given this notice. Because no copy of the notice itself is in the record, we cannot tell whether it complies with the requirements of 29 C.F.R. § 2590.606-4(b). But, because Hager acknowledged in the district court that he received some notice and fails to explain on appeal why that notice was inadequate, we consider this issue forfeited.

2. Notice of Continuation Coverage Termination

Another subsection of that regulation requires a plan administrator to inform qualified beneficiaries "of any termination of continuation coverage that takes effect earlier than the end of the maximum period of continuation coverage applicable to [the] qualifying event."²⁸ On its face, this commanded DBG to notify Hager that the...