Livingston v. South Dakota State Medical Holding

• Decision Date: 20 January 2006
• Docket Number: No. Civ. 04-4139.,Civ. 04-4139.
• Parties: Danielle LIVINGSTON and Sioux Valley Hospital, Plaintiffs, v. SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INC., d/b/a Dakotacare, Defendant.
• Court: U.S. District Court — District of South Dakota

Page 1161

411 F.Supp.2d 1161

Danielle LIVINGSTON and Sioux Valley Hospital, Plaintiffs, v. SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INC., d/b/a Dakotacare, Defendant.

No. Civ. 04-4139.

United States District Court, D. South Dakota, Southern Division.

January 20, 2006.

Mitchell A. Peterson, Davenport, Evans, Hurwitz & Smith, Sioux Falls, SD, for Plaintiff.

Drew C. Duncan, Frieberg, Zimmer, Duncan & Nelson, Jeffrey Alan Cole, Zimmer Duncan and Cole, Parker, SD, for Defendant.

OPINION AND ORDER

KORNMANN, District Judge.

INTRODUCTION

[¶ 1] Plaintiffs brought suit against Danielle Livingston's ("Livingston") employer, Wakonda Heritage Manor ("Manor"), and Manor's group health insurance carrier, South Dakota State Medical Holding Company, Inc. ("DakotaCare"), challenging DakotaCare's denial of group health insurance benefits to Livingston and her newborn baby, contending that the denial violates the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001 et seq. ("ERISA"), as amended by the Consolidated Omnibus Budget Reconciliation Act, 29 U.S.C. §§ 1161-68 ("COBRA"), and the Health Insurance Portability and Accountability Act, Pub.L. No. 104-191, 110 Stat. 1936 (relevant provisions codified at 29 U.S.C. § 1181 et seq.) ("HIPAA"). Manor was dismissed as a party defendant pursuant to the stipulation of the parties. The plaintiffs and DakotaCare have filed cross motions for summary judgment. Following all briefing on the summary judgment motions, defendant filed a motion to "supplement" its claimed facts and to support those claimed facts with two affidavits.

DECISION

[¶ 2] The summary judgment standard is well known and has been set forth by this Court in numerous opinions. See Hanson v. North Star Mutual Insurance Co., 1999 DSD 334 ¶ 8, 71 F.Supp.2d 1007, 1009-1010 (D.S.D.1999), Gardner v. Tripp County, 66 F.Supp.2d 1094, 1098 (D.S.D.1998), Patterson Farm, Inc. v. City of Britton, 1998 DSD 34 ¶ 7, 22 F.Supp.2d 1085, 1088-89 (D.S.D.1998), and Smith v. Horton Industries, 1998 DSD 26 ¶ 2, 17 F.Supp.2d 1094, 1095 (D.S.D.1998). Summary Judgment is proper where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Donaho v. FMC Corp., 74 F.3d 894, 898 (8th Cir.1996). "A material fact dispute is genuine if the evidence is sufficient to allow a reasonable jury to return a verdict for the non-moving party." Landon v. Northwest Airlines, Inc., 72 F.3d 620, 624 (8th Cir. 1995). In considering a motion for summary judgment, this Court must view the facts in the light most favorable to the non-moving party and give the non-moving party the benefit of all reasonable inferences that can be drawn from the facts. Donaho, 74 F.3d at 897-98. As already noted, the parties have filed cross-motions for summary judgment. Where the parties file cross-motions, the standards by which the Court decides the motions do not change. Each motion must be evaluated independently, "taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration." Heublein Inc. v. United States, 996 F.2d 1455, 1461 (2nd Cir.1993). See also Bakery and Confectionery Union and Industry International Health Benefits and Pension Funds v. New Bakery Co. of Ohio, 133 F.3d 955, 958 (6th Cir. 1998).

[¶ 3] Almost all facts material to the motions are not in dispute. Livingston was hired as a full time employee of Manor in October of 2002. One of the benefits of full time employment was eligibility to enroll, after a 60 day waiting period, in group health insurance coverage provided by DakotaCare. Livingston did not elect DakotaCare coverage during the regular enrollment period because she and her children were eligible for Medicaid. On May 6, 2003, she gave birth to a child 15 weeks prematurely. She did not return to work until June 19, 2003, when she returned to work on a part time basis. She resigned from her position and her employment with Manor was terminated on August 29, 2003.

[¶ 4] On June 4, 2003, within 30 days of the birth of her son, Livingston applied for DakotaCare benefits for herself and her child. DakotaCare denied the application for coverage based upon information from Manor employee Judy Swenson ("Swenson") that Livingston was then working only part time. The fact is, however, that Livingston was not on June 4, 2003, working at all. The fact is also that Livingston was a full time employee when her baby was born. Manor did not do anything to ever attempt to change Livingston's status. Nor could they have done so. For example, if a qualified employee has a baby, can the employer change the employee's status so as to prevent the employee and the child from being eligible to be enrolled and asking to be enrolled, e.g. by firing her or suspending her? The answer is clearly "No."

[¶ 5] DakotaCare informed Swenson that coverage was denied because part time employees were not eligible, the Family Medical Leave Act was not applicable,¹ and Manor had no formal leave policy on file with DakotaCare. Manor did have a leave policy set forth in the employee handbook but Manor did not notify Dakotacare of the policy. Livingston did not fill out any paperwork in conjunction with a formal leave of absence. Nonetheless, she was informally granted a leave during which Manor did not expect her to return to work. Manor admitted in its answer to the complaint in this action that Livingston was on leave status. That admission is binding. Her employment was not terminated during this time and no paperwork was initiated by Manor reclassifying her as a part time employee. She was not at work from May 6, 2003, until June 19, 2003, and Manor had no objection to that.

[¶ 6] There is also nothing to indicate that Livingston knew that Manor was required to file its leave policy with DakotaCare or that Manor had failed to do so. Any problem with filing a leave policy would not be the problem of plaintiffs.

[¶ 7] Livingston did not formally appeal from the denial. When and how she became aware of the denial is not clear. Dakotacare sent no notice to Livingston. The record does not show that Livingston personally would have had a copy of the DakotaCare plan setting forth the appeal procedure.

[¶ 8] Plaintiff Sioux Valley Hospital ("Sioux Valley") received some payment for Livingston's medical bills through Medicaid. Livingston is not personally responsible for the bills at issue here. She has signed an assignment of any right she may have to payment of benefits from DakotaCare to Sioux Valley.

[¶ 9] DakotaCare contends that its discretionary decision, as plan administrator, to deny benefits is subject to an abuse of discretion standard. As a general proposition, this would normally be true. Plaintiffs contend that, pursuant to HIPAA, defendant had no discretion to deny benefits to Livingston. In any event, plaintiffs contend that DakotaCare does not qualify for deferential review because it has a pecuniary conflict of interest² and because DakotaCare never directly sent Livingston a denial letter or a formal request for additional evidence in support of her application for coverage.

[¶ 10] Defendant contends that Livingston failed to exhaust her administrative remedies under the DakotaCare plan, precluding any ERISA claim in federal court. Plaintiffs again resist on the basis that DakotaCare never formally informed Livingston of the denial of benefits but instead only corresponded with a Manor employee. Plaintiffs further contend that DakotaCare's plan does not clearly require exhaustion, that exhaustion would be futile, and that DakotaCare is estopped from asserting failure to exhaust because it sent a letter specifically denying what DakotaCare construed as an appeal letter.

[¶ 11] Finally, defendant contends that Sioux Valley lacks standing to bring an ERISA action. Sioux Valley contends that ERISA does not preclude suit by an entity that has a valid assignment which is authorized thorized both under DakotaCare's plan and under South Dakota law.

I. Standing.

[¶ 12] Standing is a threshold matter that, if absent, prevents this Court from exercising jurisdiction. Arkansas Right to Life State Political Action Comm. v. Butler, 146 F.3d 558, 560 (8th Cir.1998). See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 118 S.Ct. 1003, 1012-13, 140 L.Ed.2d 210 (1998) (holding that federal courts may not consider other issues before resolving standing, an Article III jurisdictional matter). Standing in this case turns on the source of the plaintiffs' claim for relief. Warth v. Seldin, 422 U.S. 490, 500, 95 S.Ct. 2197, 2206, 45 L.Ed.2d 343 (1975). "Essentially, the standing question in such cases is whether the constitutional or statutory provision on which the claim rests properly can be understood as granting persons in the plaintiff's position a right to judicial relief." Id. DakotaCare contends that Sioux Valley lacks standing. No claim has been advanced that Livingston lacks standing. It is sufficient to confer standing that at least one of the plaintiffs qualifies and, if so, the court does not need to consider the standing issue as to the other plaintiff in the action. Bowsher v. Synar, 478 U.S. 714, 721, 106 S.Ct. 3181, 3185, 92 L.Ed.2d 583 (1986), Village of Arlington Heights v. Metropolitan Housing Development Corp., 429 U.S. 252, 264 n. 9, 97 S.Ct. 555, 562 n. 9, 50 L.Ed.2d 450 (1977).

[¶ 13] In any event, under 29 U.S.C. § 1132(a)(1)(B) (1988) a "participant" in a plan or a "beneficiary" may sue to collect benefits owing under a plan. Lutheran Medical Center of Omaha, Neb. v. Contractors, Laborers, Teamsters and Engineers Health and Welfare Plan, 25 F.3d 616, 619 (8th Cir.1994), abrogated on other grounds, Martin v. Arkansas Blue Cross and Blue Shield, 299 F.3d 966 (8th Cir. 2002). The Eighth Circuit holds that "nothing in ERISA prohibits a plan participant from assigning a cause of action to a health care provider after...