Nechis v. Oxford Health Plans, Inc.

• Decision Date: 24 August 2005
• Docket Number: Docket No. 04-5100-CV.
• Citation: 421 F.3d 96
• Parties: Alexina NECHIS and Doris Mady, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. OXFORD HEALTH PLANS, INC. and TRIAD HEALTHCARE, INC. Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

Page 96

421 F.3d 96

Alexina NECHIS and Doris Mady, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. OXFORD HEALTH PLANS, INC. and TRIAD HEALTHCARE, INC. Defendants-Appellees.

Docket No. 04-5100-CV.

United States Court of Appeals, Second Circuit.

Argued: May 5, 2005.

Decided: August 24, 2005.

Catherine E. Anderson, Giskan & Sokotaroff, New York, New York, for Plaintiffs-Appellants.

Athena R. Tsakanikas, Oxford Health Plans LLC, Trumbull, Connecticut, for Oxford

Health Plans, Inc., Defendant-Appellee.

Karen M Wahle and Khuong Phan, O'Melveny & Myers LLP, Washington, DC, for Triad Healthcare, Inc., Defendant-Appellee.

Before: RAGGI, WESLEY, and CUDAHY,^* Circuit Judges.

CUDAHY, Circuit Judge.

For plaintiffs Alexina Nechis and Doris Mady, members of health insurance plans offered by Oxford Health Plans, Inc., their assorted aches became a legal pain in the neck when their claims for chiropractor coverage were denied. Both Nechis and Mady had selected plans that covered chiropractic treatment from providers outside plan networks and both were treated by out-of-network chiropractors in late 2002. In December of 2002, Oxford had retained Triad Healthcare, Inc. to review its chiropractor claims and presumably to reduce its expenses. After receiving notice that most or all of their chiropractor claims had been denied, the plaintiffs sued Oxford and Triad on behalf of themselves and other similarly situated members, alleging multiple violations of the Employee Retirement Income Security Act (ERISA), including breach of their fiduciary duty and of their disclosure obligations, as well as failure to provide benefits as described in plan documents. The district court dismissed the plaintiffs' claims pursuant to Fed.R.Civ.P. 12(b)(6), finding that Nechis had failed to exhaust administrative remedies and that Mady's claims failed on their merits. The plaintiffs appeal, and we affirm.

I.

Oxford Health Plans, Inc. underwrites, administers and operates employee welfare plans. As part of its product line, it offers HMO, PPO and PSO plans, each of which includes coverage for chiropractic care that is "medically necessary." Oxford defines "medically necessary" services as those services "required to identify or treat your illness or injury" which its medical director determines to be "1) Consistent with symptoms or diagnosis and treatment of your condition; 2) Appropriate with regard to standards of good medical practice; 3) Not solely for your convenience or that of any provider; and 4) The most appropriate supply or level of service which can safely be provided.". In December of 2002, Oxford retained Triad Healthcare, Inc. to review its claims for chiropractic service. In the spring of 2003, Oxford distributed to its members a brochure titled "Healthy Mind, Healthy Body," informing subscribers that their in-network chiropractors would now be required to submit treatment plans for prior approval by Triad before chiropractic services would be covered, but that submission by out-of-network chiropractors for pre-approval was optional. The brochure also stated that post-service determinations would include a review of clinical notes, patient records and like documentation.

As required by ERISA, Oxford has an appeals process for adverse benefit determinations, consisting of three steps. Members must first file a grievance by telephone or mail; Oxford is supposed to acknowledge receipt of each such grievance within 15 days and to issue a determination within 30 days after receiving the information pertinent to the grievance. Members who wish to dispute the outcome of their grievance determination can re-file the grievance with Oxford's Grievance Review Board and thereafter may institute a final appeal of a denied grievance to its Board of Directors' Committee.

Both Alexina Nechis and Doris Mady had been members of Oxford health plans. Nechis received coverage through her union benefits package that entitled her to unlimited in-network chiropractic coverage, including 15 visits to out-of-network chiropractors based on a showing of medical necessity. Mady was a member of Oxford's Freedom Plan, and her premiums were paid by her employer from approximately April of 1997 until March of 2002, when her job was eliminated through downsizing. After losing her job, Mady elected to continue her coverage through COBRA until April 30, 2003.¹ Switching to COBRA coverage did not alter the terms or conditions of her plan, which entitled her to unlimited in-network chiropractic care and coverage for a maximum of $500 per year for out-of-network care. Both plaintiffs submitted out-of-network chiropractic care claims after Triad began reviewing claims; Nechis had been treated in January 2003 and Mady had been treated in November 2002 by providers whom they had seen previously without insurance coverage difficulties. After receiving notice that their benefit claims for out-of-network services had been denied, both Nechis and Mady assert that they attempted to contact Oxford and/or Triad but were unable to do so. Nechis alleges that both she and her chiropractor tried to contact Oxford and Triad for months via telephone, fax and mail but received no satisfactory response. Mady states that she attempted to resolve her denied claims through Oxford's administrative channels by writing letters and placing phone calls appealing the denial of coverage. She was actually notified that her files were being turned over for review and that her grievance had been submitted to the appeals division for first-level review. However, she received no word about the status of her appeal after waiting 60 days.

On September 22, 2003, the plaintiffs brought this action against Oxford and Triad on behalf of themselves and other similarly situated plan participants. The plaintiffs first alleged that Oxford breached its ERISA disclosure obligations by failing to inform participants within 60 days of instigating its practice of making chiropractic coverage decisions based on undisclosed cost-based criteria rather than medical necessity and by not informing participants that Triad received financial incentives to deny chiropractic claims and to limit coverage. Further, the plaintiffs alleged that Oxford delayed payment of covered claims to earn additional interest on premiums. The plaintiffs also contended that Oxford failed to provide benefits due under health insurance plans governed by ERISA and that this failure resulted in unjust enrichment for Oxford. Finally, the plaintiffs asserted that both Oxford and Triad had breached their fiduciary duties under ERISA. Both plaintiffs also stated that they had exhausted all administrative remedies.

On January 16, 2004, Oxford moved to dismiss the plaintiffs' claims under Fed.R.Civ.P. 12(b)(6), and Triad moved to dismiss them for lack of subject matter jurisdiction under Rule 12(b)(1) (and alternatively under 12(b)(6)). On August 4, 2004, the district court granted the defendants' motions and dismissed the plaintiffs' claims under Rule 12(b)(6), finding that Nechis had failed to exhaust administrative remedies and that Mady's claims failed on their merits, in particular because legal restitution was not one of the "equitable remedies" available under § 502(a)(3) of ERISA and that no additional disclosure obligations could be imposed on the defendants. On appeal, the plaintiffs assert that they did seek appropriate equitable forms of relief available under § 502(a)(3), that Oxford is liable for disclosure violations, that Nechis exhausted her administrative remedies and that the district court abused its discretion by not granting leave to replead.

II.

We have jurisdiction over this appeal under 28 U.S.C. § 1291. We review de novo the dismissal of this case under Fed.R.Civ.P. 12(b)(6). Freedom Holdings, Inc. v. Spitzer, 357 F.3d 205, 216 (2d Cir.2004). Dismissal of a complaint under Fed.R.Civ.P. 12(b)(6) for failure to state a claim on which relief can be granted is appropriate when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Harris v. City of New York, 186 F.3d 243, 250 (2d Cir.1999) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). The appropriate inquiry is not whether a plaintiff is likely to prevail, but whether he is entitled to offer evidence to support his claims. See Chance v. Armstrong, 143 F.3d 698, 701 (2d Cir.1998). At this stage, we assume that all well-pleaded factual allegations are true and draw all reasonable inferences in the plaintiff's favor. See E.E.O.C. v. Staten Island Sav. Bank, 207 F.3d 144, 148 (2d Cir.2000). In addition, we limit our consideration to facts stated in the complaint or documents attached to the complaint as exhibits or incorporated by reference. See Newman & Schwartz v. Asplundh Tree Expert Co., 102 F.3d 660, 662 (2d Cir.1996).

A. Standing to Sue Under § 502(a)(3) of ERISA

In granting the defendants' motions to dismiss under Fed.R.Civ.P. 12(b)(6), the district court held that Nechis had failed to exhaust administrative remedies under Kennedy v. Empire Blue Cross & Blue Shield, 989 F.2d 588 (2d Cir.1993), and so addressed only Mady's claims on the merits. We find, however, that considerations of standing prove fatal to Mady's allegations since she is not a plan "participant" under § 502(a)(3). As is discussed below, we are dubious that Nechis's claims may be dismissed for failure to exhaust administrative remedies and hence address them on the merits.

Oxford argues that, since Mady was not a member of its Freedom Plan at the time her complaint was filed, she could not benefit from injunctive relief and thus does not have standing to seek it. See Selby v. Principal Mutual Life Ins. Co., 197 F.R.D. 48, 64 (S.D.N.Y.2000) (stating that plaintiffs who were no longer participants in defendants' insurance plan could not benefit from...