Schultz v. Aviall Inc. Long Term Disability Plan

• Decision Date: 02 August 2011
• Docket Number: No. 09 C 2387.,09 C 2387.
• Parties: Kathleen G. SCHULTZ and Mary Kelly, on their own behalf and on behalf of a class of all persons similarly situated, Plaintiffs,v.AVIALL, INC. LONG TERM DISABILITY PLAN and Perkins Coie Long Term Disability Plan, on their own behalf and on behalf of a defendant class of certain ERISA plans insured by Prudential Insurance Company of America, Defendants.
• Court: U.S. District Court — Northern District of Illinois

790 F.Supp.2d 697

51 Employee Benefits Cas. 1871

Kathleen G. SCHULTZ and Mary Kelly, on their own behalf and on behalf of a class of all persons similarly situated, Plaintiffs,

v.AVIALL, INC. LONG TERM DISABILITY PLAN and Perkins Coie Long Term Disability Plan, on their own behalf and on behalf of a defendant class of certain ERISA plans insured by Prudential Insurance Company of America, Defendants.

No. 09 C 2387.

United States District Court,N.D. Illinois,Eastern Division.

April 4, 2011.Opinion Denying Motion to Alter or Amend Judgment Aug. 2, 2011.

Mark D. Debofsky, Violet Helen Borowski, Daley, Debofsky & Bryant, Chicago, IL, for Plaintiffs.John I. Grossbart, Corey M. Shapiro, Sonnenschein, Nath & Rosenthal, LLP, Chicago, IL, Michael S. Gugig, Sonnenschein Nath & Rosenthal LLP, New York, NY, for Defendants.

MEMORANDUM OPINION AND ORDER

RUBEN CASTILLO, District Judge.

Kathleen G. Schultz (“Schultz”) and Mary Kelly (“Kelly”) (collectively, “Plaintiffs”) bring this putative class action under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq., against the Aviall, Inc. Long Term Disability Plan (“Aviall Plan”) and the Perkins Coie Long Term Disability Plan (“Perkins Coie Plan”) (collectively, “Defendants”) to recover long-term disability payments that were allegedly wrongfully withheld. (R. 49–2, Third Am. Compl.) Presently before the Court is Defendants' motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). (R, 59, Defs.' Mot.) For the reasons stated below, the motion is granted.

RELEVANT FACTS ¹

I. The Plans

Under ERISA, the Aviall and Perkins Coie Plans are considered employee welfare benefit plans, (R. 49–2, Third Am. Compl. ¶¶ 7–8), which are plans maintained by an employer that are established for the purpose of, inter alia, providing for its participants or beneficiaries, through the purchase of insurance, “benefits in the event of sickness, accident, disability, death or unemployment.” 29 U.S.C. § 1002(1). The Aviall and Perkins Coie Plans provide long-term disability benefits under separate group insurance contracts issued by Prudential Financial (“Prudential”). (R. 49–2, Third Am. Compl. ¶¶ 9, 20.)

II. Schultz

Schultz was a participant in the Aviall Plan, which provided long-term disability benefits (“LTD benefits”) to disabled employees under the Aviall contract. (R. 49–2, Third Am. Compl. ¶ 9; Ex. A.) Up until November 30, 2006, Schultz was employed as an Operations Administrator at Aviall, Inc. (“Aviall”). ( Id. ¶ 12.) Schultz stopped working at Aviall because of a disability. ( Id.)

On December 1, 2006, the Social Security Administration concluded that Schultz was disabled. ( Id. ¶ 14.) According to the Social Security Administration's notice of award, Schultz and her children became entitled to monthly disability payments beginning May 2007. ( Id. ¶¶ 14–15.) Schultz informed Prudential of the Social Security Administration's decision by providing copies of the notice of award for herself and her children. ( Id. ¶ 16.)

Schultz was approved for LTD benefits under the Aviall Plan on April 30, 2007. ( Id. ¶ 13.) Over one year later, on June 26, 2008, Prudential claimed that an overpayment of $12,432.00 had occurred on Schultz's disability claim and demanded repayment of that amount ( Id. ¶ 17.) In a letter dated March 11, 2009, Prudential stated that the overpayment was a product of its failure to deduct the amount of dependent Social Security benefits paid to Schultz's children from Schultz's gross LTD benefits. ( See id.) To recover this alleged overpayment, Prudential reduced Schultz's LTD benefits by the dependent Social Security benefits paid to her children. ( Id.)

On March 19, 2009, Schultz appealed Prudential's deduction of dependent Social Security benefits and demanded the return of benefits she claims were wrongfully withheld. ( Id. ¶ 18.) After considering the appeal, Prudential refused to change its position with respect to the deduction of dependent Social Security benefits from gross LTD benefits. ( Id. ¶ 19.)

III. Kelly

Kelly was a participant in the Perkins Coie Plan, which provided LTD benefits to disabled employees under the Perkins Coie contract. ( Id. ¶ 20; Ex. B.) Kelly was employed as a trial attorney at Perkins Coie until March 2005, when she ceased working due to disability. ( Id. ¶ 22.) The Social Security Administration found Kelly to be disabled as of March 2, 2005. ( Id. ¶ 23.) According to the Social Security Administration's notice of award, Kelly became entitled to monthly disability benefits beginning September 2005; Kelly's children were also entitled to dependent benefits. ( Id. ¶¶ 23–24.) Kelly informed Prudential of the Social Security Administration's decision by providing copies of the notice of award for herself and her children. ( Id. ¶ 25.)

Kelly was approved to receive LTD benefits from the Perkins Coie Plan on April 30, 2007. ( Id.) On January 26, 2009, Prudential informed Kelly that her dependent Social Security benefits were deductible from the LTD benefits she was receiving from the Perkins Coie Plan. ( Id. ¶ 26.) Kelly unsuccessfully appealed this decision to Prudential. ( Id. ¶ 28.)

PROCEDURAL HISTORY

Schultz originally filed this suit on April 20, 2009. (R. 1, Compl.) On January 11, 2010, the Court dismissed the original complaint. See Schultz v. Prudential Ins. Co. of Am., 678 F.Supp.2d 771, 783 (N.D.Ill.2010). After denying leave to file a second amended complaint, the Court allowed Schultz to file a third amended complaint (the “complaint”), which added Kelly as a named plaintiff and, pursuant to the Court's opinion dismissing the original complaint, named a new set of defendants. ( See R. 49–2, Third Am. Compl.)

In the complaint, Plaintiffs present one claim under 29 U.S.C. § 1132(a)(1)(B) (“Section 1132”). Under Section 1132, a civil action may be brought by a plan participant “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B). According to Plaintiffs, Defendants cannot deduct dependent Social Security benefits from the LTD benefits to which they are entitled; therefore, they aver, any such deduction is unlawful. (R. 49–2, Third Am. Compl. ¶ 31.)

On November 15, 2010, Defendants filed a motion to dismiss. (R. 59, Defs.' Mot.) In their supporting memorandum, Defendants argue that the language contained in the relevant contracts plainly allows them to deduct from LTD benefits the “amount of dependent Social Security disability benefits paid to Plaintiffs' children on account of Plaintiffs' disabilities.” (R. 61, Defs.' Mem. at 7.) Accordingly, they conclude, Plaintiffs' claims for allegedly wrongful deductions necessarily fail as a matter of law. ( See id. at 14.)

LEGAL STANDARD

A motion under Rule 12(b)(6) “challenges the sufficiency of the complaint to state a claim upon which relief may be granted.” Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir.2009). To survive a motion to dismiss for failure to state a claim, the complaint must overcome “two easy-to-clear hurdles”: (1) “the complaint must describe the claim in sufficient detail to give the defendant fair notice of what the claim is and the grounds on which it rests”; and (2) “its allegations must plausibly suggest that the plaintiff has a right to relief, raising that possibility above a ‘speculative level[.]’ ” Tamayo v. Blagojevich, 526 F.3d 1074, 1084 (7th Cir.2008). “Plausibility” in this context does not imply that a court “should decide whose version to believe, or which version is more likely than not.” Swanson v. Citibank, N.A., 614 F.3d 400, 404 (7th Cir.2010). Rather, to survive a motion to dismiss under Rule 12(b)(6), the “plaintiff must give enough details about the subject-matter of the case to present a story that holds together.” Id. In other words, “the court will ask itself could these things have happened, not did they happen.” Id.

ANALYSIS

The interpretation of ERISA plans is governed by federal common law, which draws on general principles of contract interpretation to the extent they are consistent with ERISA. Young v. Verizon's Bell Atl. Cash Balance Plan, 615 F.3d 808, 823 (7th Cir.2010) (citing Mathews v. Sears Pension Plan, 144 F.3d 461, 465 (7th Cir.1998)). Under these principles, contract language is given its plain and ordinary meaning. Id. (citing Pitcher v. Principal Mut. Life Ins. Co., 93 F.3d 407, 411 (7th Cir.1996)). Contracts must be read as a whole, and the meaning of separate provisions should be considered in light of one another and the context of the entire agreement. Id. (citing Taracorp, Inc. v. NL Indus. Inc., 73 F.3d 738, 745 (7th Cir.1996)). Contract interpretations should, to the extent possible, give effect to all language without rendering any term superfluous. Id. If a district court determines that the language of an ERISA plan is unambiguous, it may determine its meaning as a matter of law. Cf. McWane, Inc. v. Crow Chi. Indus., Inc., 224 F.3d 582, 584 (7th Cir.2000).

In resolving this interpretive dispute, the Court must examine the specific language contained in the Aviall and Perkins Coie group insurance contracts separately.² After considering the text of the Aviall and Perkins Coie contracts, the language and intent of the Social Security Act, and general principles of contract interpretation, the Court concludes that dependent Social Security benefits were properly deducted from Plaintiffs' gross LTD benefits.

I. Aviall contract

Under the Aviall contract, the gross monthly LTD benefits provided to a participant amount to 60% of the participant's monthly earnings, subject to a $12,000 maximum monthly LTD benefit. (R. 49–3, Aviall contract at 11.) To determine the monthly LTD benefits to which a participant is entitled, this gross monthly LTD benefit figure is reduced by ...