Smathers v. Multi-Tool, Inc./Multi-Plastics, Inc.

• Decision Date: 31 July 2002
• Docket Number: No. 01-1045.,01-1045.
• Citation: 298 F.3d 191
• Parties: *William Reed SMATHERS, Appellant, v. MULTI-TOOL, INC./MULTI-PLASTICS, INC. EMPLOYEE HEALTH AND WELFARE PLAN; Multi-Tool, Inc./Multi-Plastics, Inc., as Administrator and named Fiduciary of the named Plan. *Amended in accordance with Clerk's Order dated 2/15/01
• Court: U.S. Court of Appeals — Third Circuit

Page 191

298 F.3d 191

*William Reed SMATHERS, Appellant, v. MULTI-TOOL, INC./MULTI-PLASTICS, INC. EMPLOYEE HEALTH AND WELFARE PLAN; Multi-Tool, Inc./Multi-Plastics, Inc., as Administrator and named Fiduciary of the named Plan *Amended in accordance with Clerk's Order dated 2/15/01

No. 01-1045.

United States Court of Appeals, Third Circuit.

Argued December 4, 2001.

Filed: July 31, 2002.

Lawrence C. Bolla [argued], Kenneth W. Wargo, Quinn, Buseck, Leemhuis, Toohey & Kroto, Erie, PA, for appellant.

Elaine C. Rizza [argued], The Rizza Group Professional Corporation, Washington, PA, for appellees.

BEFORE: ALITO, RENDELL and AMBRO, Circuit Judges.

OPINION OF THE COURT

RENDELL, Circuit Judge.

William Reed Smathers brought this suit against Multi-Tool, Inc./Multi-Plastics, Inc. and Multi-Tool, Inc./Multi-Plastics, Inc. Employee Health and Welfare Plan (together "Multi-Tool") in the Western District of Pennsylvania seeking payment of medical claims in excess of $81,000 arising from an accident that occurred while he was driving his motorcycle under the influence of alcohol and which resulted in the amputation of his leg. The District Court granted summary judgment in favor of Multi-Tool. While the District Court was correct to apply an arbitrary and capricious standard of review to the administrator's denial of benefits, that standard should have been heightened due to Multi-Tool's conflict of interest. Because we find that the administrator's denial was arbitrary under the applicable standard, we conclude that the District Court erred in affirming its denial. Accordingly, we reverse the District Court's grant of summary judgment in favor of Multi-Tool, and will remand to the District Court with instructions to remand to the Administrator.

I.

On August 24, 1997, around 1:15 a.m., Smathers was driving his motorcycle on Route 19 in West Mead Township, Crawford County, Pennsylvania. At the same time, eighteen-year old Jeffrey S. Southworth was backing out of a driveway onto Route 19. Southworth admitted that he saw the lights of Smathers' motorcycle coming down the road, but thought that he had the necessary time to back out. Southworth backed out of the driveway across one lane and into the lane down which Smathers was traveling. Once he had backed into the roadway, Southworth saw Smathers' bike in his rearview mirror, but as he attempted to put the car into gear, it stalled. He then heard tires squealing and Smathers smashed into the side bumper of the car. Smathers explained that in response to coming upon the stalled car he hit both his front and rear brakes which caused his rear wheel to begin spinning to the left. Afraid that he would lose control of the bike if he continued to brake, Smathers attempted to drive around the car. He explained:

[B]ecause of the skid caused by the braking, I had to try to [drive around the car] to the right, which meant going off the road surface because the Southworth vehicle was all the way to the edge of the road surface. As I attempted to drive around the Southworth vehicle to the right, my left leg struck it's [sic] bumper and I believe it caused me to fly off the motorcycle. At that point I lost consciousness....

After investigating the scene, the police provided a similar description of the accident, reporting that it appeared that Smathers had attempted to steer to the right of the car, but was unsuccessful and struck the car. A fifty-four foot skidmark was found leading to the site of the impact. Smathers was seriously injured in the accident, necessitating the amputation of his leg.

Both Smathers and Southworth were charged with violations arising from the accident. Southworth was charged with illegal backing pursuant to Pennsylvania Vehicle Code, 75 Pa.C.S.A. § 3702, which provides: "No driver shall back a vehicle unless the movement can be made with safety and without interfering with other traffic and then only after yielding the right-of-way to moving traffic and pedestrians." Southworth pled guilty and paid the accompanying fine. After Smathers' blood alcohol content ("BAC") was found to be 0.252¹ he was charged with driving under the influence in violation of 75 Pa. C.S. § 3731(a)(1).² Smathers was admitted into an Accelerated Rehabilitative Disposition ("ARD") program overseen by the Crawford County Probation/Parole Department. His completion of the program resulted in a dismissal of the charges against him.³

Multi-Tool refused to pay Smathers' medical expenses arising from the accident under a provision which excludes coverage for "any charge for care, supplies, or services which are ... 8. Caused or contributed to by the Covered Person's commission or attempted commission of a felony, misdemeanor, or being engaged in an illegal occupation or activity." Multi-Tool refused Smathers' claims because the accident occurred while he was driving while intoxicated — an admittedly illegal activity. In February 1998, while the claim was pending, Multi-Tool amended its plan to incorporate a provision giving the administrator discretionary authority in making benefits determinations. Smathers subsequently brought suit under the Employees Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132, in an effort to collect benefits which he argued were due to him under the plan.⁴ Multi-Tool filed a motion to dismiss, which was treated by the court as a motion for summary judgment because Multi-Tool relied on material outside the pleadings. Smathers filed a provisional motion for summary judgment.⁵

The District Court determined that the administrator's decision not to provide Smathers' benefits was governed by the discretionary authority provided under the 1998 plan, and, accordingly, considered only whether that decision was arbitrary and capricious. Applying that deferential standard, the District Court granted summary judgment in favor of Multi-Tool finding that the determination by Multi-Tool, as plan administrator, was not, as a matter of law, arbitrary and capricious, and that there were no issues of material fact remaining to be considered.

II.

As Smathers' claim for recovery of plan benefits rests on the rights provided by ERISA, the District Court had jurisdiction under 28 U.S.C. § 1331 and 29 U.S.C. § 1132(e). We exercise jurisdiction pursuant to 28 U.S.C. § 1291. We subject the District Court's grant of summary judgment to plenary review, and we apply the same standard that the lower court should have applied. Farrell v. Planters Lifesavers Co., 206 F.3d 271, 278 (3d Cir.2000). Summary judgment is proper if there is no genuine issue of material fact and if, viewing the facts in the light most favorable to the non-moving party, the moving party is entitled to judgment as a matter of law. F.R.C.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

Smathers raises two interrelated issues on appeal, one procedural and one substantive. He first urges that the District Court improperly subjected the administrator's decision to an arbitrary and capricious standard of review instead of the de novo standard applicable under the plan in effect when the claim arose and was filed. Second, he claims that even if the correct standard was employed by the District Court, it wrongly determined that the administrator's consideration of the claim satisfied that standard. We will address these claims in order.

A. Determining the Standard of Review

1. "Arbitrary and Capricious" or De Novo

Before we can evaluate the propriety of the administrator's determination, we must decide whether the District Court properly applied the deferential arbitrary and capricious standard of review. The Supreme Court has instructed us to review the determinations of a plan administrator de novo unless "the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). In that event, an "arbitrary and capricious" standard is to be applied. Because Multi-Tool's plan was amended on February 1, 1998 to give discretion to the administrator we need to determine whether that provision, or the earlier version, should apply, as it impacts our standard of review.⁶ The amendment was implemented after the injury occurred (August 24, 1997), and after the initial claims were made (prior to January 22, 1998),⁷ but before the administrator made its determination (January 29, 1999). The District Court explained its decision to rely on the later plan: "This [1998] Plan document was in effect when Multi-Tool considered and then denied the plaintiff's claim for benefits."

Smathers argues that he had a vested right to have his claim reviewed based on the earlier plan, and therefore, in accordance with our jurisprudence, that "right" could not be retroactively denied. We disagree. Along with our sister circuits, we have spoken of the retroactive denial of "rights" only in a narrow factual setting where the occurrence of an accident or other event resulted in the vesting of coverage or benefits prior to an amendment affecting the person's substantive rights under the plan. See Confer v. Custom Eng'g Co., 952 F.2d 41, 43 (3d Cir.1991) (concluding that coverage had vested because the exclusion was not in force at the time of the accident); see also Wheeler v. Dynamic Eng'g, Inc., 62 F.3d 634, 637-40 (4th Cir.1995) (determining whether coverage vested); Member Svcs. Life Ins. Co. v. Amer. Nat'l Bank & Trust Co. of Sapulpa, 130 F.3d 950, 954 (10th Cir.1997) (considering whether benefits had vested). This is not the situation before us.

Smathers relies heavily on our statement in Confer that "the change [in the plan] by means of a formal amendment could operate only prospectively." 952 F.2d at 43. In Confer we found that the employer could not apply a motorcycle exclusion after the fact to deny...