Kirby v. Guardian Life Ins. Co. Of Am.

• Decision Date: 04 March 2010
• Docket Number: 329.,No. 31,31
• Citation: 231 P.3d 87,2010 NMSC 014,148 N.M. 106
• Parties: Stella R. KIRBY, Plaintiff-Petitioner,v.GUARDIAN LIFE INSURANCE COMPANY OF AMERICA, Defendant-Respondent.
• Court: New Mexico Supreme Court

148 N.M. 106
231 P.3d 87
2010 NMSC 014

Stella R. KIRBY, Plaintiff-Petitioner,
v.
GUARDIAN LIFE INSURANCE COMPANY OF AMERICA, Defendant-Respondent.

No. 31,329.

Supreme Court of New Mexico.

March 4, 2010.

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Mettler & Lecuyer, P.C., Earl R. Mettler, Shiprock, NM, for Petitioner.

Modrall, Sperling, Roehl, Harris & Sisk, P.A., Donald A. Decandia, Albuquerque, NM, for Respondent.OPINIONBOSSON, Justice.

{1} Wrongfully denied her disability benefits, a former employee obtained a judgment against her employer's long-term disability plan based on rights accorded under the federal Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001 to 1461 (2000). The employee seeks to enforce that judgment by way of a writ of garnishment against the insurer whose insurance policy funded the employer's disability plan. The district court granted the writ of garnishment against the insurance company, but the Court of Appeals reversed, concluding that the employee's case did not fit its understanding of the proper scope of garnishment under state law. We reverse the Court of Appeals, uphold the writ of garnishment against the insurer, and remand to the Court of Appeals for further proceedings.

ERISA AND THE PARTIES

{2} This case involves four parties: the plaintiff and former employee Stella Kirby (Kirby); the former employer Adecco (Adecco); the long-term disability plan established by Adecco to provide benefits to eligible employees (the Plan); and the defendant in this appeal (Guardian), who is the insurer and claims fiduciary of the Plan. The present action is one for enforcement of a writ of garnishment, but it follows a lengthy and complex procedural history that originated almost eleven years ago with Kirby's claim for wrongful denial of disability benefits under ERISA. We summarize the procedural history below, but first examine the relationship of the parties under ERISA.

{3} Congress enacted ERISA

to protect ... the interests of participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts.

Section 1001(b) see also Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 44, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987) (citing § 1001(b)). The statute was Congress's response to the growing problem of employer-funded pension plans failing to provide promised benefits to employees, most notably in the case of the Studebaker bankruptcy, which left thousands of current and former employees without pension benefits after years of service. Colleen E. Medill Introduction to Employee Benefits Law: Policy and Practice 15 n. 2 (2d ed. 2007).

{4} The statute establishes a legal entity called the “employee benefit plan,”

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which is designed to be independent of the employer, and is charged with managing plan funds in the sole interest of plan participants and beneficiaries. See Boggs v. Boggs, 520 U.S. 833, 845-46, 117 S.Ct. 1754, 138 L.Ed.2d 45 (1997); see also § 1001(b) (stating purpose of ERISA). Employee benefit plans are of two types: welfare benefit plans that provide for health, vacation or training, and pension benefit plans that provide retirement income. Mackey v. Lanier Collection Agency & Serv., Inc., 486 U.S. 825, 827 n. 1, 108 S.Ct. 2182, 100 L.Ed.2d 836 (1988); § 1002(1)-(3). The Plan in this case is a “welfare benefit plan,” which is defined under ERISA as a plan “established or maintained by an employer ... for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, ... benefits in the event of sickness, accident, disability, death or unemployment.” Section 1002(1).

{5} ERISA allows flexibility in the exact arrangement of welfare benefit plans. For example, under ERISA, a plan may be self-funded or funded by an insurance policy, or by some combination thereof. Id.; see also FMC Corp. v. Holliday, 498 U.S. 52, 54, 111 S.Ct. 403, 112 L.Ed.2d 356 (1990) (providing self-funded benefits to employees and their dependents). A self-funded plan collects premiums and maintains those funds in a trust account, paying benefits from this account to eligible plan beneficiaries. Cent. States, Se. & Sw. Areas Pension Fund v. Cent. Transp., Inc., 472 U.S. 559, 580-82, 105 S.Ct. 2833, 86 L.Ed.2d 447 (1985). Under an insured plan arrangement, the insurance company collects premiums and pays benefits directly to eligible employees.

{6} In the present case, the Plan is funded by an insurance policy (hereinafter, the “Policy”) issued by the Plan's insurer, Guardian. Under the Policy, Guardian is responsible for paying benefits directly to eligible beneficiaries. Under the present plan arrangement, Guardian also serves as the claims fiduciary of the Plan with sole discretion to determine eligibility for disability benefits. ERISA outlines the role of a fiduciary as follows:

[A] fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and ... for the exclusive purpose of ... providing benefits to participants and their beneficiaries ... with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity ... would use.

Section 1104(a)(1)(A)-(B). As fiduciary, Guardian is also responsible for complying with ERISA's fiduciary requirements provisions. See §§ 1002(21)(A), 1144.

{7} The employer, now Adecco,¹ purchased the Policy from Guardian, which served to establish the Plan. See Kirby v. TAD Res. Int'l, Inc., 2004-NMCA-095, ¶ 17, 136 N.M. 148, 95 P.3d 1063 ( Kirby I ) (stating that purchase of long-term disability insurance establishes an ERISA plan, and citing § 1002(1)). Adecco is the plan sponsor and administrator with the responsibility to perform various administrative functions on behalf of the Plan, but it does not retain any discretion to make determinations on claims for benefits. Kirby I, 2004-NMCA-095, ¶ 44, 136 N.M. 148, 95 P.3d 1063. Due to its limited role in the ERISA plan arrangement, Adecco has been properly dismissed from this case. At this stage, only Kirby, Guardian and the Plan remain parties to the dispute.

THE PROCEDURAL HISTORY

{8} This case comes to us after more than a decade of litigation in state and federal courts, originating with Guardian's decision to deny Kirby's disability benefits in 1997. In all these years, the issue of Kirby's eligibility for benefits under the Plan has been overshadowed by procedural issues regarding the nature of the litigation itself. A detailed account of the early procedural history of this case can be found in the first Court of Appeals opinion it generated, Kirby I, 2004-NMCA-095, 136 N.M. 148, 95 P.3d 1063. We highlight here only the most critical

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early developments, and the progression of the case following remand by the Kirby I court.

{9} After 16 years of service to Adecco, Stella Kirby was first approved for long-term disability benefits in 1996. In May 1997, Guardian informed Kirby that she would no longer receive benefits, and promptly ceased making disability payments. Kirby filed her first complaint in April 1999, in the Fifth Judicial District Court of New Mexico, naming Guardian and Adecco as defendants, and alleging seven state-law causes of action. In December 1999, the district court dismissed the complaint with leave to amend, on the ground that it was preempted by ERISA, §§ 1001 to 1461. No appeal was taken from that dismissal.

{10} Kirby timely filed a second amended complaint in December 1999, now properly alleging a cause of action under ERISA. Critical to subsequent developments, however, Kirby failed to name Guardian as a defendant in the second amended complaint. In November 2000, while the second amended complaint was pending, Kirby's first counsel withdrew from representation on the basis of irreconcilable differences. Kirby retained new counsel and, in February 2001, entered into a stipulation with Adecco, whereby the parties agreed that Kirby would file a third amended complaint based on ERISA.

{11} In March 2001, Kirby filed a third amended complaint alleging a proper cause of action under ERISA, § 1132(a)(1)(B), once again including Guardian along with Adecco, and for the first time, the Plan, as the named defendants. Guardian moved to dismiss the third amended complaint, arguing that Kirby had failed to name Guardian within 15 days of the district court's December 1999 dismissal of the first-amended complaint, as directed in that order of dismissal. The district court granted the motion, and, in September 2001, the third amended complaint against Guardian was dismissed with prejudice on res judicata grounds.

{12} In February 2002, Kirby served Guardian for the first time in its capacity as administrator of the Plan, by way of an alias summons on the third amended complaint. Kirby also served the Plan itself by alias summons, through service upon the Secretary of Labor. The court granted Adecco leave to amend its answer to include a third-party complaint against Guardian, which sought indemnification from Guardian in the event Adecco should suffer an adverse judgment.

{13} Kirby argued that re-service on Guardian as plan administrator was made only to perfect service on the Plan. Kirby stated in the same pleading, as well as in a letter to Guardian's counsel, that Kirby understood and accepted the fact that Guardian was not directly liable and that Guardian had been properly dismissed. However, this position changed once again in November 2002, when...