Munoz v. Prudential Ins. Co. of America

• Decision Date: 30 May 1986
• Docket Number: No. 85-K-1300.,85-K-1300.
• Citation: 633 F. Supp. 564
• Parties: Barbara MUNOZ, Plaintiff, v. PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant.
• Court: U.S. District Court — District of Colorado

633 F. Supp. 564

Barbara MUNOZ, Plaintiff, v. PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant.

No. 85-K-1300.

United States District Court, D. Colorado.

April 23, 1986.

As Amended May 30, 1986.

Andrew C. Littman, Stevens & Littman, Boulder, Colo., for plaintiff.

Alan Gary Dunn, Phelps, Hall, Singer & Dunn, Denver, Colo., for defendant.

MEMORANDUM OPINION AND ORDER

KANE, District Judge.

This case presents an issue of first impression in this circuit on the pre-emptive effect of Erisa on a suit against a non-fiduciary administrator of a self-funded employee benefits plan. Plaintiff seeks damages for defendant's failure to provide medical insurance coverage under the employee benefit plan of the Storage Technology Corporation. Plaintiff premises her right to recovery upon breach of contract, negligence, strict liability and Erisa (Employee Retirement Income Security Act) 29 U.S.C. §§ 1001 et seq. The parties' presence in this forum under federal question and diversity jurisdiction, 28 U.S.C. §§ 1331 and 1332, respectively, is not disputed. This case is now before me on defendant's motion to dismiss for failure to join an indispensible party pursuant to Fed.R. Civ.P. 19. In addition, defendant moves for an order of summary judgment per Fed.R.Civ.P. 56 dismissing all of plaintiff's claims because: (1) The doctrine of bad faith breach of an insurance contract is not applicable where there is no insurance policy; (2) Erisa pre-empts state law claims; (3) Extra-contractual compensatory and punitive damages are not recoverable under Erisa; and (4) Prudential is not a proper party defendant under Erisa. For the reasons set forth below, defendant's motions are granted in part and denied in part.

I. BACKGROUND

While an employee of STC, plaintiff was covered for certain medical expenses under the "Medical Plan" section of the employee benefit plan established by STC. On October 3, 1984, plaintiff was diagnosed by Dr. Alan Stormo as needing non-cosmetic abdominoplasty surgery. On October 4, Dr. Stormo informed defendant of his diagnosis and sought a pre-surgery authorization. On about October 17, plaintiff was laid off by STC and notified that the Medical Plan would continue covering her until at least November 17, 1984.¹ Plaintiff was told by STC, however, that if she paid $250.00 her coverage would be extended to December 31, 1984. She remitted the $250.00. On October 23, 1984, Prudential acknowledged Dr. Stormo's request for a pre-determination of benefits and stated that plaintiff would be notified as soon as a coverage determination was made. Between October 4 and November 16, plaintiff made numerous inquiries as to when a coverage determination would be made. Defendant was unresponsive and evasive. On about November 17, defendant notified plaintiff that the contemplated surgery was a covered expense, but that actual benefits could not be determined because "each charge must be evaluated with regard to plan provisions and the patient's eligibility at the time of service". Surgery was performed on December 4, 1984. Following surgery, STC returned to plaintiff her $250.00 check which was to have afforded her coverage until December 31 and informed her that her coverage had expired prior to the surgery. Defendant has failed to pay medical benefits for this surgery and a later surgery allegedly necessitated by the delay in having the first surgery performed. Defendant asserts that the medical expenses claimed by plaintiff were incurred after November 17, the date terminating her coverage under STC's benefits plan.

II. MOTION TO DISMISS FOR FAILURE TO JOIN AN INDISPENSIBLE PARTY

In deciding whether to grant a Rule 19 motion, I must engage in a two step inquiry. See, First National Bank of Strasburg v. Platte Valley State Bank, 107 F.R.D. 120 (D.Colo.1985). First, I need to determine whether the person sought to be joined is a party necessary to the action. Potter v. Continental Trailways, Inc., 480 F.Supp. 207 (D.Colo.1979). Under Rule 19(a)(2), a person is considered a necessary party to the action if:

he claims an interest relating to the subject of the action and is so situated that disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest ...

This determination must always be made on a case-by-case basis taking into account the special circumstances and facts in the case. Helzberg's Diamond Shops, Inc. v. Valley West Des Moines Shopping Center, Inc., 564 F.2d 816 (8th Cir.1977). If they are not deemed necessary parties then the motion should be denied. If I conclude that the person is a necessary party and joinder is not possible, the second step in my inquiry is triggered. Platte Valley Bank, 107 F.R.D at 122. Under Rule 19(b), if a necessary party cannot be joined,

the court shall determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person thus being regarded as indispensable. The factors to be considered by the court include: ... whether the plaintiff will have an adequate remedy if the action is dismissed for non-joinder.

Defendant asserts that STC is a necessary and indispensable party and that their non-joinder is ground for dismissal. I disagree. I see no merit in defendant's contention that my determination of coverage issues without the presence of STC could substantially impair STC's ability to protect itself in subsequent litigation. STC is currently in the midst of a Chapter 11 bankruptcy. The automatic stay provision of the Bankruptcy Act, 11 U.S.C. § 362, insulates STC from service of process. Assuming STC eventually were to become amenable to suit and judgment, STC would not be bound by the decisions of this court. STC's absence as a party to this action would preclude in any hypothetical future litigation the invocation of res judicata or collateral estoppel.² Any issues affecting the rights and liabilities of STC would have to be re-litigated.

Even if I were to grant defendant its contention that STC is a necessary party, I could not find that STC is indispensible. I believe that since dismissal would leave plaintiff without an adequate remedy, the balance of equities lie in favor of proceeding without STC. See Id. at 122.

Accordingly, defendant's motion to dismiss for failure to join an indispensible party is denied.

III. MOTIONS FOR SUMMARY JUDGMENT

Summary Judgment is a drastic remedy which is appropriate only where there exists no genuine issues of material fact. The movant must show entitlement to summary judgment beyond all reasonable doubt. In order to determine the propriety of summary judgment, I must construe all pleadings, affidavits, and depositions liberally in favor of the party against whom the motion is made. Where different inferences can be drawn from conflicting affidavits, pleadings and depositions, summary judgment should not be granted. United States, etc. v. Santa Fe Engineers, Inc., 515 F.Supp. 512, 514 (D.Colo.1981). However, an adverse party may not rest upon the mere allegations or denials of his pleading. His response, by affidavits or as otherwise provided by Rule 56, must set forth specific facts showing that there is a genuine issue for trial. Fed.R.Civ.P. 56(e).

A. Whether Defendant is a Proper Party Defendant Under Erisa

A person is subject to suit under Erisa if he may be characterized as a fiduciary to an employee benefits plan. 29 U.S.C. § 1109(b). "Fiduciary" is specially defined in Erisa itself, 29 U.S.C. § 1002(21)(A), and in various rules and regulations promulgated thereunder.

Except as otherwise provided in subparagraph (B)³, a person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan. Such term includes any person designated under section 1105(c)(1)(B)⁴ of this title.

1002(21)(A)

Plaintiff asserts that, though not a named fiduciary, defendant's processing of claims for STC required an exercise of discretionary responsibility so as to render defendant amenable to Erisa suit. Defendant argues that its claims processing functions were void of any discretionary authority and were purely administrative. Because there is no material dispute as to the facts of defendant's claims processing activity, only its legal effect, this issue may be resolved as a matter of law and is appropriate for summary resolution.

Pursuant to 29 U.S.C. §§ 1031, 1133 and 1135, the Department of Labor has issued numerous interpretive regulations regarding Erisa. 29 C.F.R. § 2509.75-8, D-2 clarifies the significance of the distinction between discretionary and merely ministerial functions:

Q. Are persons who have no power to make any decisions as to plan policy, interpretations, practices or procedures, but who perform the following administrative functions for an employee benefit plan, within a framework of policies, interpretations, rules, practices and procedures made by other persons, fiduciaries with respect to that plan:

(1) Application of rules determining eligibility for participation or benefits;

* * * * * *

(6) Calculation of benefits;

* * * * * *

(10) Processing of claims A: No ... a person who performs purely ministerial functions such as the types described above for an employee benefit plan within a framework of policies, interpretations, rules, practices and procedures made by other persons is not a fiduciary because such person does not have discretionary authority or discretionary control respecting

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