Phillips v. Saratoga Harness Racing

• Decision Date: 01 August 2000
• Docket Number: Docket No. 00-7518
• Citation: 240 F.3d 174
• Parties: (2nd Cir. 2001) MELODY EDWARDSEN PHILLIPS, Plaintiff-Appellant, v. SARATOGA HARNESS RACING, INC., Defendant-Appellee
• Court: U.S. Court of Appeals — Second Circuit

Page 174

240 F.3d 174 (2nd Cir. 2001)

MELODY EDWARDSEN PHILLIPS, Plaintiff-Appellant, v. SARATOGA HARNESS RACING, INC., Defendant-Appellee.

Docket No. 00-7518

August Term, 2000

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Submitted: November 30, 2000

Decided: February 20, 2001

Plaintiff appeals from an order of the United States District Court for the Northern District of New York (Kahn, J.), dismissing plaintiff's complaint for lack of subject matter jurisdiction and denying plaintiff's motion for summary judgment as moot.

REVERSED IN PART, VACATED IN PART, AND REMANDED.

[Copyrighted Material Omitted]

MARY BETH HYNES, The Law Office of Mary Beth Hynes, Halfmoon, NY, for Plaintiff-Appellant.

RANDALL J. EZICK, Featherstonhaugh, Conway, Wiley & Clyne, LLP, Albany, NY, for Defendant-Appellee

Before: McLAUGHLIN, SACK, Circuit Judges, and Chatigny, District Judge.^*

BACKGROUND

McLAUGHLIN, Circuit Judge:

The district court was surely correct here when it wrote, "[i]n the realm of ERISA suits... the factual setting for this case may even pass as sensational and riveting." Phillips v. Saratoga Harness Racing, Inc., 103 F. Supp. 2d 127, 128 (N.D.N.Y. 2000).

Plaintiff, Melody Phillips, married Frank Studenroth in 1985. By 1993, they were living in Saratoga Springs, New York, with their two children. Studenroth worked for the defendant, Saratoga Harness Racing, Inc. ("SHR"), and enrolled his family in SHR's group health insurance plan. This health insurance covered the cost of Phillips's expensive treatments for Graves' disease, a serious disorder of the thyroid gland.

In July 1993, during a vacation in Maine, Studenroth abandoned his family and moved out of the marital home. In short order Phillips and Studenroth were communicating only through attorneys who were unsuccessful in negotiating a separation agreement.

In the summer of 1994, impatient with the pace of the protracted negotiations, Studenroth spirited to the Dominican Republic where he commenced an ex parte divorce action. In October of that year, Phillips, still unaware of the Dominican divorce proceeding, sued for a separation in New York State Supreme Court, Saratoga County. Two days later, Studenroth obtained a default judgment of divorce in a Santo Domingo court.

Two days later, his Dominican judgment of divorce in hand, Studenroth married his secretary, Patricia Leadley, in Vermont. After a short honeymoon with Leadley, Studenroth returned to work and informed SHR's health plan administrator that he had divorced and remarried, and wished to drop Phillips from his medical coverage and extend coverage to Leadley as his new wife.

When a beneficiary's coverage under an employer's health plan is terminated in a case like this, the employer must tell the beneficiary and advise her of her right to continue coverage at the employer's group rate, but at her own expense. Inexplicably, SHR gave the notice and other necessary forms to Studenroth, her estranged husband, with the understanding that he would deliver the documents to Phillips. SHR asserts that Studenroth attempted to give them personally to Phillips but that, in anger, she refused to accept them. SHR concedes that it never mailed Phillips any of the required forms, which is the standard method for delivery of such notices. Phillips states that she never received the notice of termination or any other forms regarding her health insurance.

In November 1994, one month after Studenroth's clandestine Vermont wedding, Phillips underwent treatments for her Graves' disease, under the assumption that her health insurance through SHR was still valid. Only then did Phillips learn that her husband had terminated her health coverage.

Meanwhile, in Phillips's separation action in New York Supreme Court, Studenroth interposed a defense that the marriage had already been terminated by the divorce he had obtained in the Dominican Republic. In March 1996, Justice Keniry of the New York Supreme Court rejected that defense, holding that the Dominican divorce was invalid in New York because Phillips had not "been given adequate notice of the commencement of the foreign divorce proceeding and an opportunity to be heard." Phillips v. Studenroth, No. 94 2427, slip op. at 5 (N.Y. Sup. Ct., Mar. 12, 1996).

In September 1996, Phillips brought this action in the United States District Court for the Northern District of New York (Kahn, J.). She sought to recover out of pocket medical expenses and other damages allegedly caused by SHR's failure to comply with the notice requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985, 29 U.S.C. §§ 1161-1168 ("COBRA").¹

The parties made cross motions for summary judgment under Fed. R. Civ. P. 56. In March 2000, Judge Kahn dismissed Phillips's complaint, holding that because Studenroth's Dominican divorce had been declared invalid in New York, the divorce could not suffice as a "qualifying event" that would trigger SHR's obligations under COBRA. Thus, Judge Kahn concluded the district court lacked subject matter jurisdiction over the case (the parties were not diverse), and denied both parties' summary judgment motions as moot. Phillips now appeals.

DISCUSSION

A. Subject Matter Jurisdiction

The precise question before us is whether an employer's receipt of notice of an ex parte foreign divorce, that is later declared invalid, is sufficient to trigger the employer's notice obligations under COBRA. We hold that it is.

"When reviewing a district court's determination of its subject matter jurisdiction, we review factual findings for clear error and legal conclusions de novo." McCarthy v. Navistar Fin. Corp. (In re Vogel Van & Storage, Inc.), 59 F.3d 9, 11 (2d Cir. 1995).

COBRA provides that:

The plan sponsor of each group health plan shall provide... that each qualified beneficiary who would lose coverage under the plan as a result of a qualifying event is entitled, under the plan, to elect, within the election period, continuation coverage under the plan.

29 U.S.C. § 1161(a) (emphasis added). A "qualifying event" is, in turn, defined, in relevant part, as follows:

[T]he term "qualifying event" means, with respect to any covered employee, any of the following events which, but for the continuation coverage required under this part, would result in the loss of coverage of a qualified beneficiary:

...

(3) The divorce or legal separation of the covered employee from the employee's spouse.

29 U.S.C. § 1163 & (3).

When a beneficiary's coverage is being terminated upon the occurrence of a "qualifying event," COBRA places notice obligations on both the employee and the employer. The employee is required to notify the employer, as follows:

(3) each covered employee or qualified beneficiary is responsible for notifying the administrator of the occurrence of any qualifying event described in paragraph (3)... of section 1163 of this title, [divorce or legal separation], within 60 days after the qualifying event...

29 U.S.C. § 1166(a)(3). The employee's notice to the employer then obligates the employer to notify the beneficiary being terminated. COBRA states:

(4) the administrator shall notify--

...

(B) in the case of [a divorce or legal separation] where the covered employee notifies the administrator..., any qualified beneficiary with respect to such event, of such beneficiary's rights under [COBRA].

29 U.S.C. § 1166(a)(4)(B).

In this case, Phillips argues that Studenroth's presentation of his Dominican divorce decree to SHR was a "qualifying event," and it triggered SHR's notification obligations under COBRA. SHR counters that because Studenroth's Dominican divorce was later declared to be invalid in the State of New York it cannot be a qualifying event.

For the reasons stated below, we conclude that whether or not an invalid divorce is actually a qualifying event under COBRA is not the question. It is the act of the employee telling his employer that the qualifying event has occurred -- not the actual occurrence of the qualifying event itself -- that triggers the employer's obligations under COBRA.

What little case law exists on the subject points to this conclusion.² Commenting on the notice requirements of COBRA, the Eighth Circuit wrote, "[u]nder COBRA, if the notice of the divorce is given to the employer by the covered employee, the plan administrator is required to provide the qualified beneficiary with notice of her rights to continue coverage." Lincoln Gen. Hosp. v. Blue Cross/Blue Shield of Nebraska, 963 F.2d 1136, 1140 (8th Cir. 1992) (emphasis added) (citing 29 U.S.C. § 1166(a)(4)(B)); see also Zemko v. Muntz Industries, Inc., No. 94 C 761, 1997 WL 158318, at *2 (N.D. Ill. Mar. 31, 1997) ("Upon receiving such notification [of a qualifying event] from the covered employee, the administrator must notify the qualified beneficiary of the right to elect continuation coverage." (emphasis added) (citing 29...