Martinez v. BEVERLY HILLS HOTEL

• Decision Date: 09 March 2010
• Docket Number: No. CV09-1222 SVW (PLAx).,CV09-1222 SVW (PLAx).
• Citation: 695 F. Supp.2d 1085
• Court: U.S. District Court — Central District of California
• Parties: Ana MARTINEZ, Plaintiff, v. The BEVERLY HILLS HOTEL and Bungalows Employee Benefit Trust Employee Welfare Plan, Defendant. The Beverly Hills Hotel and Bungalows Employee Benefit Trust, Counterclaimant, v. Ana Martinez, an individual; U.S. Bancorp, a Delaware corporation, d/b/a U.S. Bank, as trustee of the Steve Martinez Special Needs Trust; and Roes 1 though 10, inclusive, Counterdefendants.

695 F. Supp.2d 1085

Ana MARTINEZ, Plaintiff, v. The BEVERLY HILLS HOTEL and Bungalows Employee Benefit Trust Employee Welfare Plan, Defendant.

The Beverly Hills Hotel and Bungalows Employee Benefit Trust, Counterclaimant, v. Ana Martinez, an individual; U.S. Bancorp, a Delaware corporation, d/b/a U.S. Bank, as trustee of the Steve Martinez Special Needs Trust; and Roes 1 though 10, inclusive, Counterdefendants.

No. CV09-1222 SVW (PLAx).

United States District Court, C.D. California.

March 9, 2010.

Elizabeth K. Green, Lisa S. Kantor, Kantor and Kantor LLP, Northridge, CA, for Plaintiff and Counterdefendants.

J. Scott Scheper, Seltzer Caplan McMahon & Vitek, San Diego, CA, Todd E. Hyatt, Hill Farrer and Burrill, Los Angeles, CA, for Defendant and Counterclaimant.

Steven R. Skirvin, William E. Crockett, Dion-Kindem And Crockett, Woodland Hills, CA, for Counterdefendants.

FINDINGS OF FACT AND CONCLUSIONS OF LAW; ENTRY OF FINAL JUDGMENT

STEPHEN V. WILSON, District Judge.

I. INTRODUCTION

The Court held a two-day trial on December 9, 2009 and February 3, 2010. The Court heard evidence regarding the proper standard of review to apply to Defendant's benefits determination. Having made the following factual findings and thoroughly examined the administrative record, the Court finds that Defendant abused its discretion by unreasonably interpreting and applying the plan when denying Plaintiff's claim for benefits. The Court vacates the Plan's prior determinations and remands the matter to the Plan to make a proper decision on Plaintiff's claim in the first instance.

II. FACTUAL BACKGROUND

Plaintiff Ana Martinez ("Plaintiff") filed this action under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1132(a),(e), and (g), for the purpose of obtaining benefits under an employer-provided health insurance plan administered by defendant The Beverly Hills Hotel and Bungalows Employee Benefit Trust Employee Welfare Plan ("Defendant" or "the Plan").

A. Steve Martinez's Condition

Plaintiff's 15-year-old son Steve Martinez had a severe epileptic seizure at the school playground on April 18, 2005. As a result of the seizure, he went into cardiopulmonary arrest and suffered a serious brain injury. (Medical Report of O. Carter Snead III, MD, Dec. 16, 2006, at Ex. 2: 103.) He was twice diagnosed with hypoxic-ischemic encephalopathy, and was designated as "do not resuscitate." (Id.) He survived, and now lives in a minimally-conscious state and is permanently disabled. (Id. at 95, 105.) He is dependent on a ventilator, requires 24-hour supervision, and must fed by a pump. (Id. at 104.)

In a state court trial against the Los Angeles Unified School District, a jury determined that the school's delayed and ineffective response to Steve's seizure caused him to suffer his serious brain injuries. The jury returned a verdict for $7.6 million jury verdict against the Los Angeles Unified School District. The jury's special verdict form categorized the damages award. (Ex. 11: BHH 731.) Of the $7.6 million, the largest amount, $3,676,045, covered "future medical, nursing, hospital, attendant care, equipment and supply expenses."¹ (Id.) Another $2,500,000 covered "future physical pain/mental suffering/loss of enjoyment of life/physical impairment/ inconvenience/humiliation/emotional distress." (Id.) An additional $650,000 was for "past physical pain/ mental suffering/loss of enjoyment of life/ physical impairment/inconvenience/humiliation/ emotional distress." (Id.) The remaining $775,000 covered "future lost earnings." (Id.)

In May 2007, shortly after trial, the parties agreed on a $7 million structured settlement, of which $3,676,045—the exact amount that the jury found to properly account for "future medical, nursing, hospital, attendant care, equipment and supply expenses"—was placed in a Special Needs Trust to provide for Steve's future health and welfare. The Special Needs Trust was funded with approximately $1 million in cash and an annuity paying $13,769 per month (or $165,228 per year), plus 3% annual interest, for the remainder of Steve's life. (Ex. 4: 1; see also Ex. 2: 113-14.) A payment of $600,000 went to Steve's parents to settle future claims for wrongful death and extraordinary care they provided to their son. (Ex. 2: 113.) Another $5,000 was paid to satisfy Medi-Cal liens, and Plaintiff requested that the state court authorize the Special Needs Trust to pay "any additional amount" owed to Medi-Cal "out of the assets of the Trust." (Ex. 2: 108.) Steve's attorneys recovered the remaining amount of the settlement to cover their fees, court costs, and other litigation expenses. (Id. at 113.)

B. The Steve Martinez Special Needs Trust

The Steve Martinez Special Needs Trust was established under California Probate Code § 3600 et seq. Plaintiff and her husband are members of the three-person Trust Advisory Committee, which provides non-binding "recommendations and advice" to the court-approved trustee. (State Court Order Approving Settlement, at Ex. 5: 8.)

The state court, in its order approving the Special Needs Trust, recited that "Steve Martinez, the minor, has a disability that substantially impairs his ability to provide for his own care or custody and constitutes a substantial handicap. . . . He is likely to have special needs that will not be met without the Trust proposed herein. The money to be paid to the Trust does not exceed the amount that appears reasonably necessary to meet his special needs." (Ex. 5: 5.) The Special Needs Trust was also authorized to pay Plaintiff (Steve's mother) $4,000 per month to cover the cost of nursing care she provided him (id. at 22), and whatever amount was necessary (around $700 per month at the time) to pay for private health insurance from Pacific Care (Plaintiff's husband's previous insurer). (Id. at 23; see also Ex. 2: 159-160.)

In addition, the Special Needs Trust recites the purpose of the Trust:

The intent and purpose of this trust is to provide a discretionary, spendthrift trust, to supplement public resources and benefits when such resources and benefits are unavailable or insufficient to provide for the Special Needs of the Beneficiary. As used in this instrument, the term `Special Needs' means the requisites for maintaining the Beneficiary's good health, safety, and welfare when, in the discretion of the Trustee, such requisites are not being provided by any public agency, office, or department of the State of California, or of any other state, or of the United States of America. The funds of the trust may be used as an emergency or backup fund secondary to public resources. Special Needs include without limitation special equipment, programs of training, education and habilitation, travel needs, and recreation, which are related to and made reasonably necessary by this Beneficiary's disabilities. This is not a trust for the support of the Beneficiary. All payments made under this Trust must be reasonably necessary in providing for this Beneficiary's special needs, as defined herein.

(Ex. 5: 6-7.)

The Special Needs Trust also grants the Trustee discretionary powers to distribute Trust assets for Steve's benefit:

The Trustee may distribute from such common fund constituting the trust estate to or for the benefit of the Beneficiary during his lifetime, such sums and at such times as the Trustee, in its discretion, determines appropriate and reasonably necessary for the Beneficiary's Special Needs. In exercising its discretion, the Trustee may take into consideration the recommendations and advice of the Trust Advisory Committee. In making distributions to the Beneficiary for his Special Needs, the Trustee shall take into consideration the applicable resource and income limitations of the public assistance programs for which the Beneficiary is eligible, and the duties of any persons legally obligated to support the Beneficiary.

(Ex. 5: at 11.)

The Trust specifically explains the method by which the Trust assets leave Steve's eligibility for public assistance unaffected:

If the Trustee and the members of the Trust Advisory Committee determine that it is in the best interest of the Beneficiary to make a disbursement which will cause a reduction or elimination of the Beneficiary's right to receive public benefits, the Trustee and the members of the Trust Advisory Committee shall not be liable for having caused the loss of such benefits. For purposes of determining the Beneficiary's Medi-Cal eligibility, or Supplemental Security Income (hereinafter referred to as "S.S.I.") eligibility, or eligibility for other governmental assistance programs, no part of the principal or income of the trust estate shall be considered available to said Beneficiary. In the event the Trustee is requested by any county, state, federal, or other governmental agency, to release principal or income of the trust to or on behalf of the Beneficiary to pay for equipment, medication, or services which Medi-Cal or S.S.I. or some other governmental program is authorized to provide, or in the event the Trustee is requested to petition a court or administrative agency for the release of trust principal or income for any of these purposes, the Trustee is authorized to deny such request and is authorized, in its discretion, to take whatever administrative or judicial steps may be necessary to continue the Medi-Cal or S.S.I. or other governmental program eligibility of the Beneficiary, including obtaining instructions from a court of competent jurisdiction ruling that the principal and income of this trust is not available to the Beneficiary for Medi-Cal or S.S.I. or other governmental program eligibility purposes.

(Ex. 5: 13-14.)

After Steve's death, public assistance programs are to be reimbursed for any benefits they provided, and the residual amounts of the Special Needs Trust (if any) will be paid to creditors of the estate or Steve's heirs. (Ex. 5: 11-12.)

C. Plaint...