Leeson v. Transamerica Disability Income Plan

Decision Date23 January 2012
Docket NumberNo. 10–35380.,10–35380.
Citation2012 Daily Journal D.A.R. 918,671 F.3d 969,12 Cal. Daily Op. Serv. 906,51 Employee Benefits Cas. 2889
PartiesJack C. LEESON, Plaintiff–Appellant, v. TRANSAMERICA DISABILITY INCOME PLAN, Defendant–Appellee.
CourtU.S. Court of Appeals — Ninth Circuit


Steven Krafchick, Krafchick Law Firm, Seattle, WA, for the appellant.

David Levin, Drinker Biddle & Reath LLP, Washington, DC, for the appellee.

Appeal from the United States District Court for the Western District of Washington, Ricardo S. Martinez, District Judge, Presiding. D.C. No. 2:04–cv–00471–RSM.Before: BETTY B. FLETCHER, M. MARGARET McKEOWN, and RICHARD A. PAEZ, Circuit Judges.


PAEZ, Circuit Judge:

Plaintiff Jack Leeson (Leeson), a former employee of Defendant Transamerica Corporation (Transamerica), filed this action under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1101, et seq., to challenge the termination of his long-term disability benefits. The district court, applying an abuse of discretion standard of review, upheld the Transamerica Corporation Disability Income Plan's decision to terminate his benefits. Leeson appealed. In a prior disposition, we reversed the district court's grant of summary judgment to Transamerica and remanded with instructions to the district court to apply a de novo standard of review in determining whether Transamerica properly terminated Leeson's benefits. Leeson v. Transamerica Disability Income Plan, 279 Fed.Appx. 563 (9th Cir.2008).

On remand, Transamerica filed a motion to dismiss Leeson's action for lack of subject matter jurisdiction on the ground that Leeson did not have statutory standing as a plan participant to file suit under ERISA. Leeson, on the other hand, argued that he was a plan participant because he was employed at Transamerica at the time he applied for benefits. Leeson also stressed that Transamerica approved his claim and, in fact, paid him benefits for four years. The district court, relying on Curtis v. Nevada Bonding Corp., 53 F.3d 1023 (9th Cir.1995), concluded that Leeson was not a plan participant and granted Transamerica's motion to dismiss. The district court concluded that because Leeson lacked standing to pursue an ERISA claim, there was no federal subject matter jurisdiction. Leeson again timely appealed.

In this appeal, Leeson argues that the district court erroneously relied on our prior holding in Curtis to dismiss the case for lack of subject matter jurisdiction. In Curtis, we held that a district court lacked jurisdiction to consider an ERISA claim where a former employee “had neither a reasonable expectation of returning to covered employment nor a colorable claim to vested benefits.” Id. at 1027. Relying on a more recent decision, Vaughn v. Bay Environmental Management, Inc., Leeson contends that, under ERISA, a “dismissal for lack of statutory standing is properly viewed as a dismissal for failure to state a claim rather than a dismissal for lack of subject matter jurisdiction.” 567 F.3d 1021, 1024 (9th Cir.2009). Leeson therefore argues that because he alleged a colorable claim for benefits, the district court had subject matter jurisdiction to address the merits of his case on remand.

For the reasons explained below, we agree with Leeson that Vaughn controls. Whether Leeson is a participant for purposes of ERISA is a substantive element of his claim, not a prerequisite for subject matter jurisdiction. As the Supreme Court has instructed, “when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as nonjurisdictional in character.” Arbaugh v. Y & H Corp., 546 U.S. 500, 516, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006). To the extent our prior cases—including Curtis—hold otherwise, they have “no precedential effect” because they are precisely the type of “drive-by jurisdictional rulings” the Supreme Court has since rejected. Id. at 511, 126 S.Ct. 1235 (quoting Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 91, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998)). We therefore vacate the dismissal and remand for further proceedings.


Leeson is a former employee of Transamerica. While employed there, he participated in Transamerica's long-term disability (“LTD”) income plans. The Basic Plan, known as the Transamerica Corporation Disability Income Plan (Basic Plan), provided benefits based on a participant's predisability annual earnings up to $150,000. A second plan, known as the Transamerica Corporation Class 2 Long Term Disability Coverage Supplemental Plan (Supplemental Plan), 1 provided benefits on eligible pre-disability annual earnings over $150,000.

Leeson began working as a Regional Pension Manager for Transamerica in 1983. In December 1993, Leeson was in an automobile accident that resulted in injury to his neck and caused him to suffer severe headaches. Leeson continued to work until June 1996, at which time he took a leave of absence due to his deteriorating physical condition. Shortly thereafter, Leeson timely applied for LTD benefits under both the Basic and Supplemental Plans.

On April 1, 1997, Prudential Insurance Company of America (“Prudential”), as Claims Administrator, determined that Leeson was eligible for LTD benefits 2 and approved his application subject to “continuing evaluation of his claim.” 3 Prudential paid Leeson LTD benefits until July 2, 2001, when it determined that he was no longer disabled within the meaning of the LTD plan.4 In terminating Leeson's benefits, Prudential determined that the medical evidence no longer supported Leeson's claim that he suffered from a physical impairment that prevented him from returning to work. Prudential further concluded that, although Leeson may have suffered from an impairment that resulted from a psychological condition, the maximum benefits available for a mental impairment limitation had been exhausted.

Leeson appealed Prudential's decision to terminate his LTD benefits. Leeson disputed Prudential's interpretation of the medical evidence and requested that Prudential reinstate his benefits. In a letter dated October 19, 2001, Prudential affirmed its decision to terminate Leeson's benefits. The letter explained that Leeson's benefits were terminated because of the 24–month mental disorder limitation and because the medical evidence did not show that Leeson suffered from a physical disability that prevented him from working.

In February 2002, Leeson filed a second administrative appeal with the AEGON Committee, which had replaced Transamerica as the Plan Administrator.5 Subsequently, on June 19, 2002, the AEGON Committee denied Leeson's appeal on the ground that he “d[id] not meet the definition of disability under the Plan that is applicable after the first 24 months of disability.”

One year later, in August 2003, Leeson filed a second appeal with the AEGON Committee. The Committee denied this appeal, explaining that its June 19, 2002, decision was final. Having pursued his administrative remedies, Leeson filed this action pursuant to 29 U.S.C. § 1132(a)(1)(B) and invoked federal court jurisdiction pursuant to 29 U.S.C. § 1132(e)(1).6

Ruling on cross-motions for summary judgment, the district court granted Transamerica's motion on the ground that the termination of benefits did not constitute an abuse of discretion. In its ruling, the district court concluded that Transamerica did not breach its fiduciary duty under the then-existing standard recognized in Atwood v. Newmont Gold Co., 45 F.3d 1317 (9th Cir.1995), when it provided Leeson with a copy of the 1997 Restatement Plan that was in effect at the time Leeson's benefits were terminated, rather than the version of the plan in effect at the time Leeson became disabled and applied for benefits. The district court further concluded that Leeson received a full and fair administrative review, and that there was substantial evidence to support the determination that [Leeson's] disability resulted from a mental condition.”

As noted above, Leeson appealed. In Leeson's first appeal, we held that, under our then-recent decision in Abatie v. Alta Health & Life Insurance Co., 458 F.3d 955 (9th Cir.2006) (en banc), the district court erred in reviewing for abuse of discretion the decision to terminate Leeson's benefits. We remanded the case for further consideration under a de novo standard of review to determine whether Leeson was disabled under the terms of the 1997 Restatement Plan.7 Leeson, 279 Fed.Appx. at 567.

Transamerica never asserted in the administrative process, in the original district court proceeding, or in the prior appeal that Leeson was not a plan participant within the meaning of 29 U.S.C. § 1002(7). After our remand, however, Transamerica filed a Federal Rule of Civil Procedure 12(h)(3) motion to dismiss for lack of subject matter jurisdiction on the ground that Leeson did not qualify as a plan participant, and therefore lacked statutory standing to sue under ERISA. In support of its argument, Transamerica explained that after the remand, its newly retained counsel located relevant plan documents8 that governed Leeson's eligibility for benefits. Under these LTD plan documents, Transamerica argued that Leeson was not a plan participant because he was on an unpaid leave of absence when he applied for benefits. Citing to the 1997 Restatement Plan, Transamerica argued that Section 3.3.4 expressly provided that “if an Eligible Employee is on an unpaid leave of absence, his or her status as a Long–Term Participant shall be suspended and he or she shall be ineligible for Long–Term Disability Benefits.” Recognizing that it had not previously raised this standing issue, Transamerica argued that because the issue ultimately related to the district court's subject matter jurisdiction it could, under Rule 12(h)(3), raise the issue at any time. As noted above, Transamerica relied on our decision in Cur...

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