UNITED STATES COURT OF APPEALS LYDIA MALLON, …strismaher.com/wp-content/uploads/2016/08/14-3189-Brief-of... · UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT LYDIA MALLON,

No. 14-3189

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

LYDIA MALLON, on behalf of herself

and all others similarly situated,

Plaintiff-Appellant,

v.

TROVER SOLUTIONS, INC., d/b/a HEALTHCARE

RECOVERIES, INC., INDEPENDENCE BLUE CROSS, and

QCC INSURANCE CO.,

Defendants-Appellees.

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

Hon. R. Barclay Surrick

No. 2:11-cv-00326-RBS

APPELLANT’S BRIEF & APPENDIX VOL. I

Appendix Vol. II filed separately

Peter K. Stris

Counsel of Record

Victor O’Connell

STRIS & MAHER LLP

19210 S. Vermont Ave., Bldg. E

Gardena, CA 90248

(424) 212-7090

Counsel for Plaintiff-Appellant

September 23, 2014

Case: 14-3189 Document: 003111746109 Page: 1 Date Filed: 09/23/2014

i

TABLE OF CONTENTS

Table of Authorities .................................................................................................. ii

Preliminary Statement ................................................................................................ 1

Jurisdictional Statement ............................................................................................. 4

Statement of the Issues ............................................................................................... 4

Statement of Related Cases and Proceedings ............................................................ 4

Statement of the Case ................................................................................................. 5

A. Statutory and Regulatory Background .................................................. 5

B. Factual Background ............................................................................. 12

C. Procedural History ............................................................................... 20

Statement of the Standard of Review....................................................................... 28

Summary of the Argument ....................................................................................... 28

Argument.................................................................................................................. 31

I. Plaintiff Was Not Required to Exhaust the Claims in Count I of the

SAC Because They Seek Relief for Violations of Duties Imposed by

ERISA ............................................................................................................ 31

A. Plaintiff Is Seeking Relief Under 29 U.S.C. § 1132(a)(3) for

Defendants’ Statutory Violations ........................................................ 33

B. Plaintiff Has Pleaded a 29 U.S.C. § 1132(a)(3) Claim for

Defendants’ Violations of 29 U.S.C. § 1104(a)(1)(A) ........................ 34

C. Plaintiff Has Also Pleaded a 29 U.S.C. § 1132(a)(3) Claim for

Defendants’ Violations of 29 U.S.C. § 1104(a)(1)(D) ........................ 38

II. Insofar as Plaintiff Had Any Obligation to Exhaust, That Obligation

Was Satisfied in This Case ............................................................................ 46

Conclusion ............................................................................................................... 52

Combined Certifications .......................................................................................... 53


ii

TABLE OF AUTHORITIES

CASES

Amato v. Bernard,

618 F.2d 559 (9th Cir. 1980) ........................................................................ 11, 12

Ashcroft v. Iqbal,

556 U.S. 662 (2009) ............................................................................................ 28

Bell Atlantic Corp. v. Twombly,

550 U.S. 544 (2007) ............................................................................................ 28

Black & Decker Disability Plan v. Nord,

538 U.S. 822 (2003) .............................................................................................. 7

Carducci v. Aetna U.S. Healthcare,

204 F. Supp. 2d 796 (D.N.J. 2002) ..................................................................... 45

Carducci v. Aetna U.S. Healthcare,

247 F. Supp. 2d 596 (D.N.J. 2003) ..................................................................... 45

CIGNA Corp. v. Amara,

131 S. Ct. 1866 (2011) .......................................................................................... 9

Conley v. Pitney Bowes,

34 F.3d 714 (8th Cir. 1994) ................................................................................ 50

D’Amico v. CBS Corp.,

297 F.3d 287 (3d Cir. 2002) ............................................................................... 31

Eastman Kodak Co. v. STWB, Inc.,

452 F.3d 214 (2d Cir. 2006) ............................................................................... 50

Edmonson v. Liberty Nat’l Life Insurance Co.,

725 F.3d 406 (3d Cir. 2013) ............................................................................... 36

Epright v. Environmental Res. Mgmt., Inc. Health & Welfare Plan,

81 F.3d 335 (3d Cir. 1996) ................................................................................. 49

Firestone Tire & Rubber Co. v. Bruch,

489 U.S. 101 (1989) .............................................................................................. 5

Fowler v. UPMC Shadyside,

578 F.3d 203 (3d Cir. 2009) ............................................................................... 28

Gavalik v. Cont’l Can Co.,

812 F.2d 834 (3d Cir. 1987) ................................................................................ 28


iii

Great Great–West Life & Annuity Ins. Co. v. Knudson,

534 U.S. 204 (2002) ............................................................................................ 42

Harrow v. Prudential Ins. Co. of Am.,

279 F.3d 244 (3d Cir. 2002) ............................................................. 11, 28, 32, 37

Harrow v. Prudential Ins. Co. of Am.,

279 F.3d 244 (3d Cir. 2002) ............................................................................... 11

Kennedy v. Empire Blue Cross & Blue Shield,

989 F.2d 588 (2d Cir. 1993) ............................................................................... 12

Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan,

555 U.S. 285 (2009) ............................................................................................ 38

Kesselman v. Rawlings Co.,

668 F. Supp. 2d 604 (S.D.N.Y. 2009) ................................................................ 37

LaRue v. DeWolff, Boberg & Assocs., Inc.,

552 U.S. 248 (2008) ............................................................................................ 11

Lazorko v. Pennsylvania Hospital,

237 F.3d 242 (3d Cir. 2000) ................................................................................ 28

Levine v. United Healthcare Corp.,

402 F.3d 156 (3d Cir. 2005) .......................................................30, 37, 43, 44, 45

Lockheed Corp. v. Spink,

517 U.S. 882 (1996) .......................................................................................... 6, 7

Mass. Mut. Life. Ins. Co. v. Russell,

473 U.S. 134 (1985) .............................................................................................. 6

Metro. Life Ins. Co. v. Glenn,

554 U.S. 105 (2008) .............................................................................................. 7

Mertens v. Hewitt,

508 U.S. 248 (1993) .............................................................................................. 9

Pilot Life Ins. Co. v. Dedeaux,

481 U.S. 41 (1987) ................................................................................................ 6

Reich v. Compton,

57 F.3d 270, 290 (3d Cir. 1995) ......................................................................... 34

Schorsch v. Reliance Standard Life Ins. Co.,

693 F.3d 734 (7th Cir. 2012) ........................................................................ 11, 12


iv

Sereboff v. Mid Atl. Med. Servs., Inc.,

547 U.S. 356 (2006) .............................................................................................. 9

Singh v. Prudential Health Care Plan,

335 F.3d 278 (4th Cir. 2003) .............................................................................. 34

Stephens v. PBGC,

755 F.3d 959 (D.C. Cir. 2014) .................................................................. 7, 11, 12

US Airways, Inc. v. McCutchen,

133 S. Ct. 1537 (2013) ........................................................................ 9, 26, 38, 39

Varity Corp. v. Howe,

516 U.S. 489 (1996) ........................................................................................ 6, 40

Wirth v. Aetna U.S. Healthcare,

469 F.3d 305 (3d Cir. 2006) .............................................................. 30, 37, 44, 45

Wurtz v. Rawlings Co., LLC,

933 F. Supp. 2d 480 (E.D.N.Y. 2013) ................................................................ 37

Zipf v. American Tel. & Tel. Co.,

799 F.2d 889 (3d Cir. 1986) ......................................................................... 37, 41

STATUTES

29 U.S.C. § 1001 .................................................................................................... 1, 6

29 U.S.C. § 1002(1) ................................................................................................... 5

29 U.S.C. § 1002(2) ................................................................................................... 5

29 U.S.C. § 1104(a) ................................................................................................... 2

29 U.S.C. § 1104(a)(1)(A) ................................................................................. 29, 34

29 U.S.C. § 1104(a)(1)(D) ................................................................................passim

29 U.S.C. § 1109 ........................................................................................................ 9

29 U.S.C. § 1111 ........................................................................................................ 8

29 U.S.C. § 1131 .................................................................................................. 8, 10

29 U.S.C. § 1132(e) ................................................................................................... 4

29 U.S.C. § 1132(a) ....................................................................................... 8, 28, 48

29 U.S.C. § 1132(a)(1) ......................................................................................passim


v

29 U.S.C. § 1132(a)(2) ........................................................................................... 8, 9

29 U.S.C. § 1132(a)(3) ......................................................................................passim

29 U.S.C. § 1133 ............................................................................................ 7, 11, 30

29 U.S.C. § 1141 ........................................................................................................ 8

28 U.S.C. § 1291 ........................................................................................................ 4

REGULATIONS

29 C.F.R. § 2560.503-1 ............................................................................................ 10

29 C.F.R. § 2560.503-1(g) ..................................................................... 10, 47, 48, 49

29 C.F.R. § 2560.503-1(l) ............................................................................ 46, 48, 50

OTHER AUTHORITIES

Brendan S. Maher & Radha A. Pathak, Understanding and Problematizing

Contractual Tort Subrogation, 40 LOY. U. CHI. L.J. 49 (2008) ........................... 1

Federal Register, Vol. 65, No. 225, Rules and Regulations

(November 21, 2000) .......................................................................................... 10

James A. Wooten, ‘The Most Glorious Story of Failure in the Business:’

The Studebaker-Packard Corporation and the Origins of ERISA, 49

BUFFALO L. REV. 683 (2001) ................................................................................ 5

John H. Langbein, What ERISA Means by “Equitable”: The

Supreme Court’s Trail of Error in Russell, Mertens, and Great-

West, 103 COLUM. L. REV. 1317 (2003). .............................................................. 8

Pension Benefit Guaranty Corporation, Introduction to Multiemployer

Plans (last visited Sept. 20, 2014), http://www.pbgc.gov/prac/multi

employer/introduction-tomultiemployerplans.html. ......................................... 5, 6

Vanessa Fuhrmans, Accident Victims Face Grab for Legal Winnings,

WALL ST. J., Nov. 7, 2007, http://online.wsj.com/news/articles/

SB119551952474798582...................................................................................... 1


1

PRELIMINARY STATEMENT

This case is about the reimbursement practices of an employer sponsored

welfare plan governed by the Employee Retirement and Income Security Act of 1974

(“ERISA”), 29 U.S.C. §§ 1001 et seq. ERISA welfare plans often pay medical

benefits to an injured plan participant and later seek reimbursement out of any

monies recovered by that injured participant from a responsible third party.

Especially when there is a limited pool of funds, questions arise as to whether – and

to what extent – the plan is entitled to such reimbursement.

There are significant questions in this litigation about the reimbursement

practices of Plaintiff’s Plan. Defendants claim the Plan has a “first-dollar” right of

reimbursement – i.e., is entitled to recover every penny it paid to cover Plaintiff’s

medical expenses without, for example, sharing any portion of her attorneys’ fees. It

is widely accepted that first-dollar reimbursement provisions can be terribly unfair.

See, e.g., Vanessa Fuhrmans, Accident Victims Face Grab for Legal Winnings, WALL

ST. J., Nov. 7, 2007, http://online.wsj.com/news/articles/SB119551952474798582.

As such, they are unenforceable under the law of most states. See generally Brendan

S. Maher & Radha A. Pathak, Understanding and Problematizing Contractual Tort

Subrogation, 40 LOY. U. CHI. L.J. 49 (2008).

Plaintiff disputes the Plan’s asserted first-dollar right of reimbursement on a

number of grounds, including its prohibition by Pennsylvania state insurance law


2

and recent United States Supreme Court precedent. She also contends that the Plan

is not entitled to reimbursement because of defendants’ gross misconduct in pursuing

collection of the disputed debt in violation of section 404(a) of ERISA, 29 U.S.C.

§ 1104(a).

This appeal, however, is not about the underlying merits of the parties’

dispute. It is about whether Plaintiff gets to sue at all. Defendants moved to dismiss

Plaintiff’s lawsuit on the grounds that she failed to exhaust administrative remedies

under ERISA prior to filing suit. The district court agreed and dismissed her lawsuit

on that basis. Given the underlying facts of this dispute, Defendants’ exhaustion

argument is not only wrong, it is shameless.

Plaintiff received $4,078.42 from the Plan to cover medical expenses related

to a car accident. Before she even filed a complaint against her injurer, Defendants

began to send her form collection letters. Unlike the vast majority of people in her

situation, Plaintiff happened to have retained counsel familiar with ERISA to

represent her in her personal injury action. Her counsel requested from Defendants

the documents necessary to validate the existence of the Plan’s reimbursement right,

including proof of its self-insured status. The parties agree that such proof is essential

because, unless self-insured, the Plan would be prohibited from seeking any

reimbursement from Plaintiff under clearly established Pennsylvania law.


3

Defendants never provided the requested documents. They simply repeated

their demand for payment, along with boilerplate representations about the self-

insured status of the Plan that now appear to be false. To make matters worse, when

Plaintiff settled with the driver who injured her, Defendants circumvented her

counsel altogether and sent debt collection notices directly to Plaintiff. After Plaintiff

received a “third and final” notice that threatened her health benefits, she directed

her attorney to pay Defendants. Again, unlike many people in her situation, Plaintiff

paid under clear protest.

Defendants now have the audacity to suggest that Plaintiff failed to comply

with her procedural obligations under ERISA. Relying on dicta from two inapposite

Third Circuit preemption decisions, Defendants convinced the district court that

Plaintiff’s objections to their reimbursement demand and unlawful collection

practices somehow amounted to a “claim for benefits” triggering a pre-filing

administrative exhaustion requirement. They do not. And even if Plaintiff’s claims

were somehow subject to an exhaustion requirement, it was clearly satisfied in this

case.

Reversal is warranted.


4

JURISDICTIONAL STATEMENT

This appeal involves claims arising under ERISA. The plaintiff, Lydia Mallon

(“Plaintiff,” “Appellant,” or “Ms. Mallon”), filed this case in the United States

District Court for the Eastern District of Pennsylvania on January 20, 2011. This

Court has jurisdiction under 29 U.S.C. § 1132(e) and 28 U.S.C. § 1291. This appeal

is taken from a final order, dated June 4, 2014. App. 3. A timely notice of appeal was

filed on July 2, 2014. App. 1.

STATEMENT OF THE ISSUES

1. Did the District Court err in concluding that Plaintiff failed to assert

fiduciary breach claims under 29 U.S.C. § 1132(a)(3) that are, under longstanding

Third Circuit law, immune from any requirement of pre-suit administrative

exhaustion? App. 11–14.

2. If the answer to Issue 1 is no, did the District Court err in concluding that

Plaintiff’s claims had not been exhausted notwithstanding Defendants’ egregious

failure to comply with ERISA and its governing regulations? App. 14–17.

STATEMENT OF RELATED CASES AND PROCEEDINGS

This case has not been before this Court previously. Plaintiff is not aware of

any other case or proceeding (whether completed, pending, or about to be presented

before this Court or any other court or agency, state or federal) that is in any way

related to this case.


5

STATEMENT OF THE CASE

This is a dispute involving complex legal questions pertaining to ERISA. In

order to place Appellant’s arguments in their proper context, what follows next is a

discussion of the relevant statutory and regulatory background followed by the

factual and procedural history of this dispute.

A. Statutory and Regulatory Background

Enacted in 1974, ERISA is a landmark piece of congressional legislation that

was designed “to promote the interests of employees and their beneficiaries in

employee benefit plans” and “to protect contractually defined benefits” owed to

those employees and beneficiaries. See Firestone Tire & Rubber Co. v. Bruch, 489

U.S. 101, 113 (1989) (citations omitted). Although originally devised as a response

to the failure of several large private pension plans, see generally James A. Wooten,

‘The Most Glorious Story of Failure in the Business:’ The Studebaker-Packard

Corporation and the Origins of ERISA, 49 BUFFALO L. REV. 683 (2001), ERISA was

drafted broadly to cover most private-sector employee benefit plans, including those

which provide health, life, disability, or pension benefits.1

1 Under ERISA, there are two distinct types of plans: “welfare plans,” see

29 U.S.C. § 1002(1), and “pension plans,” see 29 U.S.C. § 1002(2). This case

involves an ERISA-governed multi-employer welfare plan. A multi-employer plan

is “a collectively bargained plan maintained by more than one employer, usually

within the same or related industries, and a labor union.” Pension Benefit Guaranty


6

“Nothing in ERISA requires employers to establish employee benefit plans.”

Lockheed Corp. v. Spink, 517 U.S. 882, 887 (1996) (“Spink”). As such, in creating

ERISA, Congress wanted to avoid a regulatory regime that was “so complex that

administrative costs[] or litigation expenses” would dissuade employers from

electing to offer benefits in the first place. Varity Corp. v. Howe, 516 U.S. 489, 497

(1996) (“Varity”); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (1987) (“Pilot

Life”). Congress also wanted, however, to establish procedural safeguards and

enforcement mechanisms that would secure employees’ contractually promised

benefits. Varity, 516 U.S. at 497; Pilot Life, 481 U.S. at 54. The result was a

“comprehensive,” “reticulated,” and carefully “crafted” statute that strikes a balance

between these competing interests. Mass. Mut. Life. Ins. Co. v. Russell, 473 U.S.

134, 146–47 (1985).

The statute contemplated that the rights of employees would be enforced on

two levels. First and foremost, the statute contemplates civil litigation in federal

court to remedy violations of ERISA or the terms of an ERISA plan. As the statute

declares: “It is . . . the policy of [ERISA] to protect . . . the interests of participants

in employee benefit plans and their beneficiaries[] . . . by providing for appropriate

remedies, sanctions, and ready access to the Federal courts.” 29 U.S.C. § 1001.

Corporation, Introduction to Multiemployer Plans (last visited Sept. 20, 2014),

http://www.pbgc.gov/prac/multiemployer/introduction-tomultiemployerplans.html.


7

Through the process of adjudicating claims under ERISA, “Congress intended for

the courts to develop a body of federal substantive law that would address issues

involving rights and obligations under pension plans.” Stephens v. PBGC, 755 F.3d

959, 966 (D.C. Cir. 2014).

Second, ERISA contemplates administrative proceedings and review of

routine benefit claims, which are to be conducted by a private-sector plan

administrator selected by the plan. See 29 U.S.C. § 1133 (mandating that plans

provide adequate notice and full and fair review of benefit denials). Such a procedure

“promotes the consistent treatment of claims and . . . minimizes the burden on the

courts and all parties.” Stephens, 755 F.3d at 966.

Civil Enforcement. ERISA gives employers enormous discretion to

determine the substantive content of the employee benefit plans that they offer.

Spink, 517 U.S. at 887 (“ERISA does not mandate “what kind of benefits employers

must provide . . . .”). The parties (i.e., the employer and employee) may strike

whatever bargain they desire or no bargain at all. Once a decision is made to offer

benefits, however, ERISA imposes a series of “higher-than-marketplace” procedural

safeguards, coupled with a set of enforcement mechanisms. Metro. Life Ins. Co. v.

Glenn, 554 U.S. 105, 115 (2008); see also Black & Decker Disability Plan v. Nord,

538 U.S. 822, 830 (2003).


8

The primary enforcement mechanism contemplated by ERISA is private civil

litigation.2 29 U.S.C. § 1132(a) contains ten subsections authorizing civil actions,

but nearly all litigation brought by participants and beneficiaries is pursuant to

sections 1132(a)(1), (a)(2), and (a)(3). See John H. Langbein, What ERISA Means by

“Equitable”: The Supreme Court’s Trail of Error in Russell, Mertens, and Great-

West, 103 COLUM. L. REV. 1317, 1334–36 (2003).

Section 1132(a)(1) is best known for conferring the right upon a participant or

beneficiary to sue: “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). 3 Pursuant to section

1132(a)(1)(B), a claimant may bring a claim asserting the entitlement to benefits in

federal court. Actions to “recover benefits due . . . under [the] plan” or “enforce . . .

rights under . . . the plan” are akin to suits for breach of contract. Similarly, actions

to “clarify . . . rights to future benefits under . . . the plan” are akin to suits seeking

declaratory or injunctive relief based on the terms of a contract.

2 ERISA authorizes criminal enforcement under 29 U.S.C. §§ 1111, 1131, and

1141. But criminal prosecutions are rare because the government must prove willful

or intentional conduct.

3 Section 1132(a)(1)(A) permits a participant or beneficiary to sue “for the

relief provided for in [section 1132(c)].” Section 1132(c), in turn, establishes

penalties which apply if an administrator fails or refuses to furnish documents

required by ERISA.


9

Unlike section 1132(a)(1), civil actions pursuant to sections 1132(a)(2) and

1132(a)(3) are primarily brought to remedy statutory violations of ERISA. Section

1132(a)(2) permits an action to enforce 29 U.S.C. § 1109, which makes a fiduciary

personally liable whenever it, as a result of a breach of duty, causes “loss[] to the

plan” or a gain to the fiduciary. A section 1132(a)(2) suit is a derivative action on

behalf of the plan for damages and/or disgorgement arising from the fiduciary’s

breach of duty. See id.

Section 1132(a)(3) consists of two operative provisions. The first provision

permits a civil action brought by a participant, beneficiary, or fiduciary “to enjoin

any act or practice which violates [ERISA].” 29 U.S.C. § 1132(a)(3)(A). The second

provision authorizes the court to grant a participant or beneficiary “other appropriate

equitable relief.” 29 U.S.C. § 1132(a)(3)(B). When suing under 1132(a)(3), a litigant

is limited to those remedies that “were typically available at equity.” CIGNA Corp.

v. Amara, 131 S. Ct. 1866, 1878 (2011) (“Amara”) (quoting Sereboff v. Mid Atl. Med.

Servs., Inc., 547 U.S. 356, 361 (2006) (“Sereboff”); Mertens v. Hewitt, 508 U.S. 248,

256 (1993) (“Mertens”)). Those remedies include restitution, mandamus, and

injunctions, see Mertens, 508 U.S. at 256; the equitable lien by agreement, see US

Airways, Inc. v. McCutchen, 133 S. Ct. 1537, 1546 (2013) (“McCutchen”); Sereboff,

547 U.S. at 361; and, as the Supreme Court recently made clear, reformation,

surcharge, and estoppel, Amara, 131 S. Ct. at 1866.


10

Administrative Review. Although the focus of ERISA was to allow

employees to sue in federal court for violations of the statute or the terms of a plan,

in order to address the processing of routine benefit claims, the statute requires plans

to provide an internal administrative review procedure. Specifically, 29 U.S.C.

§ 1133 requires every employee benefit plan to give “adequate notice” and “full and

fair review” of any claim denial in accordance with ERISA and any regulations

which may be established by the Department of Labor (“DOL”). The DOL has

established lengthy, detailed regulations, which govern nearly every aspect of the

ERISA-mandated notice and review process. See Federal Register, Vol. 65, No. 225,

Rules and Regulations at 70265–70271 (November 21, 2000) (promulgating

29 C.F.R. § 2560.503-1, a regulation which spans seven pages of the Federal

Register). As relevant here, the regulations provide that every claim denial must be

accompanied by written notice setting forth, “in a manner calculated to be

understood by the claimant:”

(i) the specific reason or reasons for the adverse determination;

(ii) reference to the specific plan provisions on which the

determination is based;

(iii) a description of any additional material or information necessary

for the claimant to perfect the claim and an explanation of why

such material or information is necessary; and

(iv) a description of the plan’s review procedures and applicable time

limits, including a statement of the claimant’s right to bring a

civil action under ERISA Section 502(a) following exhaustion of

the plan’s administrative remedies . . . .

29 C.F.R. § 2560.503-1(g)(i)–(iv).


11

Nothing in the text of ERISA requires participants to utilize the administrative

review process described above. See Amato v. Bernard, 618 F.2d 559, 566 (9th Cir.

1980) (“Amato”) (“ERISA nowhere mentions the exhaustion doctrine.”). In a well-

established judicial gloss, however, virtually every circuit has held that an ERISA

claimant must pursue, and then exhaust, her claim for benefits through a plan’s own

internal procedures before filing suit under section 1132(a)(1)(B). See LaRue v.

DeWolff, Boberg & Assocs., Inc., 552 U.S. 248, 258 (2008) (Roberts, C.J.,

concurring) (discussing the “requirement, recognized by almost all the Courts of

Appeals, see Fallick v. Nationwide Mut. Ins. Co., 162 F. 3d 410, 418, n.4 (CA6 Cir.

1998) (citing cases), that a participant exhaust the administrative remedies mandated

by ERISA § 503, 29 U.S.C. § 1133, before filing suit under § [1132](a)(1)(B)”). See

also Stephens, 755 F.3d at 964 (observing that “courts have universally applied the

[administrative exhaustion] requirement as a matter of judicial discretion.”).

As courts have reasoned, administrative review of benefits claims serves

several important purposes. Administrative exhaustion “reduce[s] the number of

frivolous law-suits under ERISA; . . . promote[s] the consistent treatment of claims

for benefits; . . . provide[s] a nonadversarial method of claims settlement; and . . .

minimize[s] the cost of claims settlement for all concerned.” Harrow v. Prudential

Ins. Co. of Am., 279 F.3d 244, 249 (3d Cir. 2002) (“Harrow”) (quoting Amato v.

Bernard, 618 F.2d 559, 567 (9th Cir. 1980)). See also Stephens, 755 F.3d at 965;


12

Schorsch v. Reliance Standard Life Ins. Co., 693 F.3d 734, 739 (7th Cir. 2012);

Kennedy v. Empire Blue Cross & Blue Shield, 989 F.2d 588, 594 (2d Cir. 1993). In

addition, administrative review “enables plan administrators to apply their expertise

and exercise their discretion to manage the plan’s funds, correct errors, make

considered interpretations of plan provisions, and assemble a factual record that will

assist the court reviewing the administrators’ actions.” Stephens, 755 F.3d at 965.

See also Amato, 618 F.2d at 568.

B. Factual Background

The Parties. Plaintiff participates in a multi-employer health and welfare plan

governed by ERISA. App. 30 (¶ 2). According to its ERISA and Internal Revenue

Code disclosures, the Plan – during the period of time relevant to this dispute – was

funded by insurance and not by the “general assets of the plan sponsor.”4 App. 33 (¶

7), 44 (¶ 44), 85. The Plan purchased insurance from five carriers, including

Defendant Independence Blue Cross (“IBX”), the leading health insurance company

in Southeastern Pennsylvania. App. 88.

Defendant QCC Insurance Company (“QCC”), a subsidiary of IBX,

administers claims for the Plan. App. 30 (¶ 2), 38–39 (¶¶ 17, 18). QCC is a purveyor

4 Under “Plan funding arrangement,” the Plan checked the box indicating

funding by a “trust” and not the “general assets of the sponsor.” App. 85. Ms. Mallon

understands that the multi-employer trust purchases insurance pursuant to collective

bargaining agreements. Dkt. No. 22, at 6–7.


13

of insured (i.e., not self-funded) preferred provider organization (“PPO”) plans. App.

44 (¶ 37). 5 QCC engages Defendant Trover Solutions, Inc. d/b/a Healthcare

Recoveries (“Trover”) to assert and collect reimbursement claims on behalf of the

Plan. App. 30 (¶ 2), 35 (¶ 10). Trover’s main business consists of providing

subrogation/reimbursement services to insurance companies and plans, typically in

exchange for a percentage of any recovery. App. 35 (¶ 10), 47 (¶ 48). It maintains an

in-house law firm to facilitate these services. App. 38 (¶ 16).6 Trover is the largest

subrogation/reimbursement vendor in the country. App. 47 (¶ 48).

On November 2, 2006, Ms. Mallon was seriously injured in a car accident in

Pennsylvania. App. 59 (¶ 84), 117–18 (describing injuries). The Plan paid about

$4,000 of her medical bills. App. 30 (¶ 2), 59 (¶ 85). Ms. Mallon retained Steven

Gillman, Esq. (“Mr. Gillman”) as counsel and sued the driver who struck her vehicle

in the Court of Common Pleas of Bucks County, Pennsylvania. App. 30 (¶ 2), 115–

18. That action settled on December 17, 2009. App. 122.

5 AmeriHealth Administrators, another subsidiary of IBX, typically

administers its self-funded plans. App. 43–44 (¶ 36).

6 See also Trover Solutions, Inc., Subrogation Services (last visited Sept. 22,

2014), http://www.troversolutions.com/healthcare/subrogation (“[W]hen necessary,

Trover Solutions engages its dedicated legal team. Trover provides comprehensive

litigation management services for its clients through Gibson & Sharps, PSC.”).


14

The Dispute. This lawsuit arises from Defendants’ efforts to seek

reimbursement from Ms. Mallon’s personal injury settlement for medical benefits

paid by the Plan. From October 2007 through December 2009, Trover sent Mr.

Gillman a series of collection letters asserting that Ms. Mallon was required to

reimburse the Plan if she received any compensation for her injuries. App. 123, 125–

31, 133, 215, 218–25, 227–30. After Mr. Gillman notified Trover that the Plan did

not have an enforceable subrogation/reimbursement right based on the information

that Trover had provided, App. 232–37, Trover contacted Ms. Mallon directly and

threatened to disrupt her health coverage if she did not pay. App. 238–40. She paid

under protest. App. 241. This section summarizes the relevant correspondence

among the parties.

Trover’s collection efforts began well before Ms. Mallon’s personal injury

lawsuit was even filed. On October 11, 2007, Trover representative Melissa Wright

(“Ms. Wright”) sent Mr. Gillman a one-page form letter stating that the Plan had

engaged Trover to exercise its reimbursement rights under the Plan and that Ms.

Mallon was required to reimburse the Plan if she received funds from a third party.

App. 123. The letter stated:

You should be aware that this Health Plan is a self-funded plan

governed by the Employee Retirement Income Security Act of 1974

(ERISA), as amended. As such, any recovery language in the Health

Plan is generally enforceable as written. The Health Plan, therefore, has


15

the right to be reimbursed by your client for benefits it has provided in

the event that any compensation is received from another source.

Id. The letter did not reference the specific plan provisions under which the Plan

determined it was entitled to reimbursement, provide a copy of the Plan or its

summary plan description, provide information concerning Ms. Mallon’s right to

appeal the decision, state that Ms. Mallon had the right to bring a civil action under

502(a) of ERISA, or otherwise indicate Ms. Mallon had the ability to dispute the

decision to seek reimbursement.

The very same day, Mr. Gillman responded to Trover’s letter, advising the

company that if it is “satisfactorily proven that the plan has a valid right of recovery,

[Mr. Gillman’s] office will protect the plan’s lien from any settlement or verdict

entered in [Ms. Mallon’s] case . . . .” App. 124. Mr. Gillman requested appropriate

proof in the form of “a full and complete copy of the Summary Plan Description for

the health plan and the Form 5500 filed with the Internal Revenue Service for the

last calendar/fiscal year.” App. 124. The Form 5500 was important because it would

indicate whether the Plan was self-insured and thus exempt from certain limitations

on subrogation. Trover did not respond to Mr. Gillman’s request. Instead, it began

sending him additional one-page form letters requesting status updates on Ms.

Mallon’s personal injury suit. App. 125–27, 131.

On January 15, 2009, in response to Trover’s request for a case status update,

Mr. Gillman informed Trover that “Ms. Mallon’s personal injury case is in litigation”


16

and that although “[t]he health plan’s subrogation interest has been noted, . . . we

have not been provided with proof that the plan is entitled to reimbursement.” App.

132. Mr. Gillman referred Trover to his October 11, 2007 letter and again requested

that Trover “[p]lease provide the appropriate proofs.” App. 132.

On January 20, 2009, over 15 months after Mr. Gillman originally requested

proof of the Plan’s right to reimbursement, Trover mailed Mr. Gillman a copy of the

entire 77-page Plan. App 134–214. In its accompanying letter, it asserted: “As you

can see, INDEPENDENCE BLUE CROSS FAMILY OF COMPANIES has a

contractual right to pursue its recovery interest (through subrogation,

reimbursement, or otherwise) in this claim.” App. 133.7 Once again, Trover did not

indicate that Ms. Mallon could appeal the Plan’s decision to assert a “contractual

right” to reimbursement against any personal injury recovery she might obtain.

Indeed, a review of the Plan proved that she had no such appeal right. The Plan

enumerates three specific types of appeals:

A. Administrative Appeal – an appeal by or on behalf of a Covered

Person that focuses on unresolved disputes or objections regarding

coverage terms such as contract exclusions and non-covered

benefits. Administrative appeal may present issues related to

Medical Necessity or Medical Appropriateness, but these are not the

primary issues that affect the outcome of the appeal.

7 Trover never provided the Plan’s Form 5500 or any other evidence of the

Plan’s purported self-funded status. App. 35 (¶ 10), 43–44 (¶ 36), 55 (¶ 75(b)), 60 (¶

90(b)), 232 (Letter of Mr. Gillman, dated February 11, 2010).


17

B. Medical Necessity Appeal – request for the Claims Administrator to

change its decision, based primarily on Medical Necessity and

Appropriateness, to deny or limit the provision of a Covered

Service.

C. Expedited Appeal – a faster review of a Medical Necessity Appeal,

conducted when the Claims Administrator determines that a delay

in decision making would seriously jeopardize the Covered Person’s

life, health, or ability to regain maximum function.

App. 140–41. As these provisions make clear, a participant or beneficiary of the Plan

may only pursue an appeal associated with a denial of medical coverage.

Shortly after Ms. Mallon settled her personal injury action, Mr. Gillman

notified Trover that the Plan did not have an enforceable reimbursement right under

its terms. App. 232–33. Mr. Gillman explained that the terms of the Plan precluded

reimbursement “when prohibited by law,” and Pennsylvania’s Motor Vehicle

Financial Responsibility Law (“MVFRL”) expressly prohibits hospital plan

corporations like IBX from pursuing reimbursement claims against motor vehicle

accident victims. App. 233–35. Mr. Gillman offered to reconsider if Trover

submitted proof of the Plan’s self-funded status. App. 235–36. 8 He also requested

8 Mr. Gillman made clear that he was formally asserting Ms. Mallon’s right to

this information under ERISA: “In the event that you intend to prove self-funded

status within the time frame in question, please consider this letter as a formal

request, pursuant to ERISA, to provide the following: (a) The Plan’s IRS Form 5500,

(b) A complete, certified true copy of the entire self-funded plan, (c) The summary

plan description in effect at the time of injury as well as subsequent SPDs issued

since; (d) The complete bargaining agreement, trust agreement, contract or other

instrument under which the Plan is established, together with any amendments

subsequent thereto, (e) The certification from the U.S. Department of Labor that the


18

“specific legal citations” in support of any assertion that the Plan was not required

to pay a pro rata share of his fees out of any recovery. App. 236. Mr. Gillman advised

Trover that he would place the amount of the lien into escrow for thirty days to allow

Trover to provide the information requested. App. 236.

Mr. Gillman concluded his letter by referencing a telephone conversation with

Ms. Wright in which she told him “that it was not [Trover’s] responsibility to obtain

and provide the requested proofs entitling IB[X] to subrogation but that [Mr.

Gillman’s] office should have written directly to the Plan for this information.” App.

236. Ms. Wright also advised him “that in view of the fact that [Mr. Gillman’s] office

was questioning IB[X]’s subrogation rights that [Ms. Wright] would immediately

refer this matter to counsel to address [Mr. Gillman’s] concerns.” App. 237.

aforementioned plan is an approved self-funded and 100% self-insured ERISA plan;

(f) Complete copies of each and every check or other negotiable instrument or proof

of delivery of wire transfer for each payment purportedly made to each and every

provider.” App. 236.

In addition, Mr. Gillman notified Trover that its failure to provide this

information could subject it to the penalties prescribed by ERISA: “Please be

advised that since you are acting as the claims administrator’s agent, we view this

request as sufficient under the terms of ERISA, and accordingly advise that the

failure to provide such plan documents can result in a penalty of up to $100.00 per

day payable to the plan participant under 29 U.S.C. § 1132(c). Indeed, it would

appear that since we requested proof of self-funded status as early as October 4,

2007, it is likely that those penalties have already been accruing since that date.”

App. 236.


19

Rather than responding to Mr. Gillman’s legitimate concerns, unbelievably,

Trover began sending debt collection letters directly to Ms. Mallon. App. 238–40.

See also App. 35 (¶ 10), 55 (¶ 75(c)), 60 (¶ 90(c)). These letters asserted that the

Plan was entitled to reimbursement and demanded that Ms. Mallon remit $4,078.42.

App. 238 (“The Health Plan has the right to recover the benefits it has provided on

your behalf as a result of this accident or injury. Therefore, your plan is making a

formal request for reimbursement of medical benefits totaling $4078.42.”); App. 239

(“We contacted you previously regarding [IBX], and its right of recovery for claims

that relate to your accident or injury.”); App. 240 (“As representatives of your Health

Plan, we have previously contacted you requesting reimbursement of $4078.42 for

benefits provided . . . .”).

In its third collection letter to Ms. Mallon, stamped “THIRD AND FINAL

NOTICE,” Trover threatened: “If we do not hear from you within the next ten (10)

days we will have no choice but to notify your Health Plan that you have failed to

comply with our requests.” App. 240. See also App. 56 (¶ 75(d)), 60 (¶ 90(d)).

On May 5, 2010, Mr. Gillman sent Trover a final letter enclosing a check for

$4,078.42 and indicating that the asserted lien was being paid under protest. App.

241. In Mr. Gillman’s own words:

It has come to our attention that since our last letter to you, in which we

required substantiation of your asserted lien, you have contacted our

client directly on a number of occasions. As a result of the most recent

such communication, dated April 14, 2010, Ms. Mallon is concerned


20

that you may take action to interrupt her health care coverage. As such,

she has directed us to direct payment to you, although we have advised

her we do not believe that the asserted lien is valid. Accordingly,

pursuant to her instructions, we are enclosing our draft in the amount

of Four Thousand Seventy Eight Dollars and Forty Two Cents

($4,078.42) representing payment of this disputed lien.

App. 241 (emphasis added).

C. Procedural History

On January 20, 2011, Ms. Mallon filed this lawsuit on behalf of herself and

all others similarly situated. App. 24. On June 3, 2011, she filed the operative

pleading in this dispute – a Second Amended Complaint for Injunctive and

Declaratory Relief and Damages (the “SAC”). App. 29–109. The SAC began by

explaining, in general terms, Ms. Mallon’s core grievance:

Plaintiff is a participant in a multi-employer health and welfare plan

which provides her with medical benefits. She was involved in a motor

vehicle accident in Pennsylvania and subsequently received medical

benefits through her health care plan to pay for some of her medical

bills. As a result of her accident, she had a claim against the negligent

tortfeasor, and during the pendency of that claim was contacted by . . .

an agent of her health care plan’s claim administrator, which sought

reimbursement from her tort recovery. Plaintiff asserts in this case that

this claim was improperly asserted against her.

App. 30 (¶ 2).

Plaintiff Alleges Two Categories of Wrongdoing. Broadly speaking, the

SAC alleged that Defendants “improperly asserted” their reimbursement claim in

two different ways:


21

First, the SAC contains many allegations about Defendants’ wrongful conduct

in pursuing reimbursement against Ms. Mallon and other Class Members. That

allegedly wrongful conduct includes:

“Falsely representing . . . that the plan is a ‘self funded ERISA plan’

even when it is known or reasonably ascertainable that the plan is not

self-funded . . . .” App. 55 (¶ 75(a)).

“Failing and refusing, despite repeated requests, to provide

documentation to plan beneficiaries and/or their attorneys

substantiating self-funded ERISA status when the same is asserted as a

basis for subrogation rights . . . .” App. 55 (¶ 75(b)).

“Stating or implying to plan beneficiaries, by telephone communication

and through the mail, that their health care benefits could be interrupted

or canceled if the Defendants’ subrogation claim was not paid . . . .”

App. 56 (¶ 75(d)).

“Asserting and collecting . . . sums greater than were actually paid by

the insurer Defendants for the medical care which forms the basis of

the Defendants’ subrogation claims . . . .” App. 56 (¶ 75(e)).

“Mak[ing] direct contact in [] collection efforts with individuals known

to be represented by counsel . . . notwithstanding the fact that [Trover]

maintains a captive law firm as part of its business, is affirmatively

engaged in the practice of law, and is prohibited from such contacts by

attorney ethical rules.” App. 35 (¶ 10).

See also App. 55–57 (¶¶ 74–80) (grouped under the heading: “The Unlawful Acts

Taken in Pursuit of the Prohibited Claims”).9

9 Such conduct-based allegations can be found throughout the SAC. See, e.g.,

App. 31–32 (¶ 5) (alleging that Defendants “often [] mak[e] the false assertion that

the plan is a ‘self funded’ ERISA plan . . . .”); App. 33 (¶ 7) (alleging that “[t]he

Defendants have failed and refused to provide any documentation of plan funding

status which indicates that her plan is self-funded . . . .”); App. 35 (¶ 10) (alleging


22

As a remedy for Defendant’s allegedly unlawful conduct, the SAC made clear

that “[Plaintiff] seeks to enjoin the deceptive practices alleged herein pursuant to

section 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3) [as well as] damages and/or

disgorgement of unlawfully obtained funds obtained through these practices . . . .”

App. 33 (¶ 7).

Second, the SAC contains many allegations about Defendants’ wrongful legal

position of asserting a “first-dollar” reimbursement right against Ms. Mallon and

other Class Members. Specifically, Plaintiff alleged that Defendants’ legal position

was incorrect for the following reasons:

Any right of reimbursement asserted by Defendants is barred by a

Pennsylvania statute which, as a generally applicable insurance

regulation, is not preempted because Ms. Mallon’s plan is not self-

insured. App. 32 (¶ 6), 33–34 (¶ 8), 43–44 (¶ 35–37), 46–47 (¶ 41–45),

App. 49 (¶ 54).

Any right of reimbursement asserted by Defendants is subject to

“traditional equitable limitations on the availability of subrogation as a

remedy, including the ‘make whole’ and ‘common fund’ doctrines

. . . .” App. 33–34 (¶ 8).

See also App. 47–50 (¶¶ 46–58) (grouped under the heading: “Defendants’

Subrogation Practices”); App. 50–52 (¶¶ 59–64) (grouped under the heading: “The

Legal Prohibition Against Defendants’ Subrogation Claims”).

that Defendant “Trover regularly and aggressively asserts that the plans it represents

are self-funded and entitled to overcome any impediment to subrogation, but

uniformly fails and refuses to provide any documentation of self-funded status.”).


23

As a remedy for Defendants’ allegedly unlawful legal position, the SAC made

clear that Plaintiff was asking the district court, again pursuant to 29 U.S.C.

§ 1132(a)(3), to “[e]njoin[] the Defendants from attempting to assert any current

and/or prospective subrogation claims with respect to motor vehicle accident-related

tort recoveries by Plaintiff and the Class Members;” App. 69 (¶ 144(e)), and to

“[r]equir[e] the Defendants to disgorge all funds obtained through the exercise of

subrogation claims which the court has deemed to be improper in whole or in part,”

App. 71–71 (¶ 114(k)).

Plaintiff Includes Five “Counts.” The SAC sought relief in five “counts.”

Count I was asserted against all three Defendants. App. 44–46 (¶¶ 38–43). It

reiterated, at length, the two categories of wrongdoing described above. App. 44–46

(¶¶ 38–43). And as a remedy for such wrongdoing (which constitute fiduciary

violations under ERISA), it sought “declaratory and injunctive relief” as well as

“restitution of wrongfully obtained and retained funds.” App. 71.

The heading of Count I purported to seek such relief pursuant to “ERISA

Sections 502(a)(1)(B) and 502(a)(3).” App. 66. As explained below, however, the

relief sought by Plaintiff is only available under Section 502(a)(3) of ERISA, 29

U.S.C. § 1132(a)(3). See infra pages 31–36 (Argument Section I). Plaintiff’s trial

counsel realized that fact and informed the district court throughout the course of

briefing associated with Defendants’ motion to dismiss the SAC (or, alternatively,


24

for summary judgment), Dkt. No. 20-1 (the “MTD”). See, e.g., Plaintiff’s Sur-Reply,

Dkt No. 27, at 2 (“Plaintiff’s claims, at their heart, allege breaches of the fiduciary

duties owed to plan beneficiaries under section 404(a) of ERISA, 29 U.S.C. §

1104(a) [and a]s such, plaintiff’s claims for declaratory and injunctive relief are by

necessity claims which assert statutory rights.”). See also Plaintiff’s Response, Dkt.

No. 22, at 11 (Plaintiff’s “claims are not claims for benefits but rather fiduciary duty

claims.”). See also App. 70 (¶ 114(i)) (specifically alleging that Defendants’ conduct

“constitutes a breach of fiduciary duty”).10

Counts II, III, and V were asserted against only Defendant Trover. Count II

alleged violations of the Fair Debt Collection Practices Act (“FDCPA”) and

Pennsylvania debt collection laws. App. 71. Count III alleged tortious interference

with contract. App. 75. And Count V sought a remedy under an unjust enrichment

theory. App. 79. Count IV was asserted against only Defendants IBX and QCC. App.

78. It sought relief under Section 502(a)(2) of ERISA, 29 U.S.C. § 1132(a)(2), for

some of the fiduciary violations described in Count I. App. 79.

10 Defendants themselves expressly recognized that this case does not involve

any claims under 29 U.S.C. § 1132(a)(1)(B). See Defendant’s Third Brief, Dkt. No.

32, at 2 (“Mallon’s admission that she is trying to preclude [not enforce] the Plan’s

provisions also confirms that she has no claim under [29 U.S.C. § 1132(a)(1)(B).]

While ERISA § 502 (a)(1)(B) allows a plan participant to ‘recover benefits,’ ‘enforce

[her] rights,’ or ‘clarify [her] rights to future benefits,’ each of these remedies is

limited to obtaining relief ‘under the terms of the plan.’”).


25

Defendants Move to Dismiss All Counts. On June 24, 2011, Defendants filed

the MTD. In the MTD, Defendants’ primary argument was that the entire SAC

should be dismissed under Federal Rule of Civil Procedure 12 because Ms. Mallon

failed to exhaust administrative remedies under ERISA before filing her lawsuit. See

Dkt. No. 20-1, at 18–25.

In the alternative, Defendants argued that the entire SAC should be dismissed

under Federal Rule of Civil Procedure 12 because each of the five Counts failed to

state a claim on which relief may be granted. See Dkt. No. 20-1, at 25–38.

Defendants made the following specific arguments with regard to each Count in the

SAC:

Defendants argued that Count I of the SAC should be dismissed

because Defendant QCC’s interpretation of the plan’s subrogation

provision is reasonable, see Dkt. No. 20-1, at 25–30, and Plaintiff’s

arguments about the illegality of the provision are without merit, see Dkt. No. 20-1, at 31–32.

Defendants argued that “Count II (FDCPA And FCEUA Claims Against

Trover) Should Be Dismissed Because Trover Is Not A ‘Debt

Collector.’” Dkt. No. 20-1, at 34–35.

Defendants argued that “Count III (Tortious Interference With Contract

Claim Against Trover) Should Be Dismissed Because The Plan Was

Entitled To Subrogation And Mallon Failed To Allege Any Actual Legal

Damage.” Dkt. No. 20-1, at 36–37.

Defendants argued that Count IV of the SAC should be dismissed

because “she seeks relief under ERISA § 502(a)(2), 29 U.S.C.

§ 1132(a)(2). However, individual relief is not authorized under this

section of ERISA which provides a remedy only for ERISA plans and

not individual plan participants.” Dkt. No. 20-1, at 34.


26

And Defendants argued that “Count V (Unjust Enrichment Claim

Against Trover) Should Be Dismissed Because The Plan’s Rights To

Subrogation Were Provided In A Written Document.” Dkt. No. 20-1, at

38–39.

In a final section of the MTD, Defendants argued at length that “THE

PENNSYLVANIA ANTI-SUBROGATION STATUTE IS PREEMPTED” and that,

insofar as any Count of the SAC was predicated on that state law, it must fail. Dkt.

No. 20-1, at 39–43.

Plaintiff Voluntarily Dismisses Counts II, III, IV, and V. After the MTD

was filed, extensive briefing ensued. See Plaintiff’s Response, Dkt. No. 22 (Aug. 12,

2011); Defendants’ Reply, Dkt. No. 25 (Sept. 15, 2011); Plaintiff’s Sur-Reply, Dkt.

No. 29 (Sept. 26, 2011); Defendants’ Third Brief, Dkt. No. 32 (Oct. 17, 2011). After

the Supreme Court decided McCutchen, 133 S. Ct. 1537, on April 16, 2013, Plaintiff

voluntarily dismissed Counts II, III, IV, and V of the SAC choosing to litigate only

her claims under 29 U.S.C. § 1132(a)(3) seeking injunctive and other equitable

relief. See Dkt No. 39 (notice of voluntary dismissal); Dkt. No. 39-1 (letter to court

explaining decision). Immediately thereafter, Defendants filed a Motion for Leave

to File Notice of Supplemental Authority in Support of Defendants’ MTD, Dkt. No.

34 (May 1, 2013), alerting the district court to the Supreme Court’s McCutchen

decision. Plaintiff filed a Response in Opposition. Dkt. No. 37 (May 9, 2013).

The District Court Dismisses Count I for Failure to Exhaust. On June 4,

2014, the district court granted the MTD and dismissed the SAC in its entirety.


27

App. 3 (Order); App. 21 (“[T]he Motion to Dismiss of Defendants’ Independence

Blue Cross, QCC, and Trover Solutions will be granted.”).

The sole basis on which the court predicated its dismissal was Ms. Mallon’s

alleged failure to exhaust administrative remedies. The court did not reach any other

argument advanced by Defendants in their MTD. And to be clear: the district court’s

opinion was comprised of two core holdings.

First, the district court held that “subrogation disputes are claims for benefits

due. As such, Plaintiff was required to exhaust her Plan’s administrative remedies

prior to initiating this lawsuit.” App. 13–14. As explained below, that holding

constitutes reversible error. See infra pages 31–46 (Argument Section I).

Second, the district court held that Ms. Mallon failed to satisfy ERISA’s

exhaustion requirement prior to filing this case. See, e.g., App. 14–15 (rejecting

Plaintiff’s arguments that “even if the exhaustion doctrine does apply, she was never

informed of an adverse benefit determination as required by ERISA” and “‘that there

was no administrative process or remedy available to her with which to resolve

subrogation disputes. . .”) (emphasis in original). As explained below, that holding

also constitutes reversible error. See infra pages 46–52 (Argument Section II).


28

STATEMENT OF THE STANDARD OF REVIEW

This Court has plenary review over legal questions. Lazorko v. Pennsylvania

Hospital, 237 F.3d 242, 247 (3d Cir. 2000); Gavalik v. Cont’l Can Co., 812 F.2d 834,

850 (3d Cir. 1987). Issues concerning the applicability of exhaustion principles in

cases brought under 29 U.S.C. § 1132(a) are questions of law. Harrow, 279 F.3d at

248. A district court’s decision to grant or decline an exception to exhaustion is

reviewed for abuse of discretion. Id.

Moreover, “a district court’s decision granting a motion to dismiss [is

reviewed] under a plenary standard.” Fowler v. UPMC Shadyside, 578 F.3d 203, 206

(3d Cir. 2009). A plaintiff “need only set forth sufficient facts to support plausible

claims” to survive a motion to dismiss. Id. at 212 (citing Bell Atlantic Corp. v.

Twombly, 550 U.S. 544 (2007); Ashcroft v. Iqbal, 556 U.S. 662 (2009)).

SUMMARY OF THE ARGUMENT

The district court erred in granting Defendants’ MTD for two reasons.

I. The SAC alleges sufficient facts to support plausible claims for relief that

are not subject to an exhaustion requirement. Specifically, the SAC alleges facts

entitling Ms. Mallon to injunctive relief and “other appropriate equitable relief”

under 29 U.S.C. § 1132(a)(3) because the SAC alleges facts that, if true, would

constitute violations of Defendants’ fiduciary duties imposed by two different


29

statutory provisions in ERISA: 29 U.S.C. §§ 1104(a)(1)(A) and 1104(a)(1)(D). As

such, the entire complaint should not have been dismissed for failure to exhaust.

Defendants violated section 1104(a)(1)(A) by engaging in conduct that is

inconsistent with their statutorily-imposed duty of loyalty. While it is true that their

behavior was inspired by the desire to obtain money that was once paid to Ms.

Mallon as a benefit, Ms. Mallon’s section 1132(a)(3) claim is nonetheless an

independent statutory claim, not a section 1132(a)(1)(B) claim for benefits (or an

artfully pled claim for benefits). Thus, Ms. Mallon was not required to exhaust

administrative remedies before filing a lawsuit seeking relief on the basis of facts

that plausibly entitle her to relief for violations of section 1104(a)(1)(A).

Defendants violated section 1104(a)(1)(D) by failing to implement the plan as

written and also by asserting a right of reimbursement that is inconsistent with

ERISA, and these violations entitle Ms. Mallon to injunctive and equitable relief

under section 1132(a)(3). Like Defendants’ violations of section 1104(a)(1)(A),

Defendants’ violations of section 1104(a)(1)(D) are inspired by their desire to obtain

money that was once paid to Ms. Mallon as a benefit. But this fact alone does not

transform Ms. Mallon’s claim under section 1132(a)(3) into a claim for benefits due

under section 1132(a)(1)(B). Nor does it render her claim one that is artfully pled to

avoid exhaustion requirements.


30

When a plaintiff seeks to challenge a Plan’s demand for reimbursement, the

plain language of section 1132(a)(1)(B) does not create the Plaintiff’s cause of

action; the plaintiff must proceed under section 1132(a)(3). The Third Circuit

opinions in Wirth v. Aetna U.S. Healthcare, 469 F.3d 305 (3d Cir. 2006) (“Wirth”),

and Levine v. United Healthcare Corp., 402 F.3d 156 (3d Cir. 2005) (“Levine”), do

not compel a contrary conclusion. The issue in those cases was not whether a claim

like Ms. Mallon’s is more properly construed as an section 1132(a)(3) claim or an

section 1132(a)(1)(B) claim. It was instead whether a claim like Ms. Mallon’s is

remediable under section 1132(a) at all. Thus, the language in those opinions about

the applicability of section 1132(a)(1)(B) is dicta and is not binding upon this Court.

II. Even if the administrative exhaustion requirement would generally apply

to the type of claims asserted by Ms. Mallon, it would not bar the present suit.

29 U.S.C. § 1133 requires plans to provide “adequate notice” and “full and fair”

review of any adverse benefit determination in conformity with regulations

promulgated by the DOL. The DOL’s regulations require plans to engage in specific

conduct following any adverse benefits determination. See 29 C.F.R. § 2560.503-

1(g)(i)–(iv).

If Defendants’ decision to pursue a reimbursement claim against Ms. Mallon

constitutes an adverse benefits determination, then Defendants failed to comply with

ERISA and the pertinent DOL regulations in two critical ways. First, Defendants


31

failed entirely to apprise Ms. Mallon of their expectation that she exhaust the

administrative remedies available under the Plan. Under the DOL’s deemed

exhausted rule, such behavior excuses any purported failure on Ms. Mallon’s part to

exhaust administrative remedies. Second, Defendants failed entirely to establish an

administrative process that would permit review of the Plan’s decision to exercise

its reimbursement rights. As a result of this failure as well, Ms. Mallon is deemed to

have exhausted her administrative remedies. The district court abused its discretion

in holding otherwise.

ARGUMENT

I. Plaintiff Was Not Required to Exhaust the Claims in Count I of the SAC

Because They Seek Relief for Violations of Duties Imposed by ERISA.

In seeking reversal of the district court’s order granting Defendants’ MTD,

Plaintiff does not ask that the Court fashion new law. Indeed, the law of this Circuit

is clear and well settled. First, “the [administrative] exhaustion doctrine applies to

benefits claims under ERISA.” App. 11 (emphasis added). Second, the

administrative exhaustion doctrine does not apply to statutory claims under ERISA.

App. 11–12 (quoting D’Amico v. CBS Corp., 297 F.3d 287, 291 (3d Cir. 2002)). The

district court stated these simple and uncontroversial principles. But it misapplied

them to the facts of this case. It erroneously lumped Ms. Mallon’s allegations into

the category of “subrogation disputes,” and characterized all such disputes –


32

regardless of whether they arise under the statute – as “claims for benefits due,”

subject to ERISA’s exhaustion requirement. App. 13. That was reversible error.

A claim seeking relief under 29 U.S.C. § 1132(a)(3) to remedy an alleged

fiduciary violation is clearly a statutory claim. App. 12 (noting that “the exhaustion

doctrine will apply unless the facts alleged ‘present a breach of fiduciary duty claim

that is independent of a claim for benefits . . . .’”) (quoting Harrow, 279 F.3d at 253).

And in this lawsuit, Plaintiff unquestionably seeks injunctive and equitable relief

under section 1132(a)(3) to remedy Defendants breaches of fiduciary duties. Indeed,

the SAC alleges facts giving rise to violations of two distinct provisions of ERISA

that impose statutory fiduciary duties on Defendants. See infra pages 33–34

(Argument Section I.A) (fiduciary duties imposed by 29 U.S.C. § 1104(a)(1)(A));

infra pages 34–38 (Argument Section I.B) (fiduciary duties imposed by 29 U.S.C. §

1104(a)(1)(D)).

The district court failed to appreciate these facts. It mistakenly believed that

because Plaintiff voluntarily dismissed her section 29 U.S.C. § 1132(a)(2) claim

(which, as discussed above, is a type of ERISA action seeking relief on behalf of the

plan), she was asserting no breach of fiduciary duty claim against Defendants. See

App. 12 n.5 (“Although Plaintiff originally claimed that Defendants breached their

fiduciary duties under section 404(a) of ERISA, that claim has since been

withdrawn.”). Then, thinking there was no longer a fiduciary breach claim, the court


33

cited two inapposite district court opinions from within the Second Circuit and

seized on dicta from two Third Circuit preemption cases to reach the mistaken

conclusion “that subrogation disputes are claims for benefits due.” App. 13. And

from that incorrect premise, the court summarily concluded that “Plaintiff was

required to exhaust her Plan’s administrative remedies prior to initiating this

lawsuit.” App. 13–14. Because Ms. Mallon has alleged that Defendants, as

fiduciaries, committed statutory breaches of ERISA, her claims were not subject to

an exhaustion requirement and should not have been dismissed.

A. Plaintiff Is Seeking Relief Under 29 U.S.C. § 1132(a)(3) for

Defendants’ Statutory Violations.

In Count I of the SAC, Ms. Mallon sought injunctive relief and “other

equitable relief” under 29 U.S.C. § 1132(a)(3). App. 66–71. To be sure: section

1132(a)(3) may address either (i) a statutory violation of a provision found in ERISA

or (ii) a term of the participant’s ERISA plan that has been violated or needs

enforcement. But Ms. Mallon did not seek relief under section 1132(a)(3) to enforce

a term found in her ERISA plan. The reason is simple: no plan term would have

entitled her to relief. As her counsel explained to the district court:

Plaintiff does not seek to enforce any term of the benefit plan. Indeed,

she seeks declaratory and injunctive relief under section 502(a)(3) to

preclude the enforcement of the subrogation clause against her and

others similarly situated, and to establish the applicability of the state

law “common fund” doctrine under the clause in question.

Dkt. No. 29, at 1–2 (emphasis in original).


34

As explained in detail below, Plaintiff is seeking relief to remedy statutory

violations by Defendants of two different ERISA provisions: 29 U.S.C.

§ 1104(a)(1)(A) and 29 U.S.C. § 1104(a)(1)(D). The district court failed to

appreciate this critical distinction. Indeed, without any examination of the SAC or

Plaintiff’s specific allegations, the district court summarily decided that Plaintiff was

seeking injunctive and equitable relief to enforce terms in her ERISA plan. See, e.g.,

App. 13 (“subrogation disputes are claims for benefits due”); id. (“resolution. . .

requires a court to determine entitlement to a benefit under the lawfully applied terms

of an ERISA plan . . . .”) (quoting Singh v. Prudential Health Care Plan, 335 F.3d

278, 291 (4th Cir. 2003)) (emphasis in original). Had the district court examined the

SAC, it would have seen that Ms. Mallon’s allegations state a claim for statutory

violations that are not subject to ERISA’s exhaustion requirement.

B. Plaintiff Has Pleaded a 29 U.S.C. § 1132(a)(3) Claim for

Defendants’ Violations of 29 U.S.C. § 1104(a)(1)(A).

29 U.S.C. § 1104(a)(1)(A) of ERISA requires a plan fiduciary to “discharge

his duties . . . for the exclusive purpose of (i) providing benefits . . . and (ii)

defraying reasonable expenses of administering the plan.” It is commonly

understood to impose a strict duty of loyalty upon fiduciaries. See, e.g., Reich v.

Compton, 57 F.3d 270, 290 (3d Cir. 1995), amended (Sept. 8, 1995). In the SAC,

Ms. Mallon alleges that Defendants engaged in at least three affirmative acts of

conduct that would violate section 1104(a)(1)(A).


35

1. Ms. Mallon alleges that Defendants misrepresented the funding status of

her Plan in order to argue that Pennsylvania anti-subrogation law is preempted. See

supra page 21 (discussing Plaintiff’s misrepresentation allegations). Only through

such misrepresentation were Defendants able to induce Ms. Mallon to pay the

disputed funds to the Plan.

2. Ms. Mallon alleges that (even if her plan is self-funded) Defendants

refused to provide timely proof of plan funding which, in turn, limited the amount

of money that she was able to recover in her underlying tort litigation. See supra

page 21 (discussing Plaintiff’s document withholding allegations). Indeed, Ms.

Mallon goes so far as to allege that Defendants have engaged in a pattern and practice

of such misconduct. See, e.g., App. 68 (¶ 112) (“In instances where self-funded

ERISA status was asserted as a basis for the subrogation claims at issue, the

Defendants ignored and/or refused reasonable requests for proof and documentation

of plan funding. . .”); Dkt. No. 22, at 2 (“To further these improper practices, the

defendants universally fail to provide documents supporting their claimed self-

funded status, causing further harm by prejudicing beneficiaries’ ability to recover

on the assert lien amounts in their tort claims.”).

3. Ms. Mallon alleges that Defendant Trover improperly contacted her

directly, and thus pressured her to pay money that she would not have otherwise

paid. See supra page 21 (discussing Plaintiff’s improper contact allegations). See


36

also Dkt. No. 22, at 5 (“Although Trover knew that Mallon was represented by

counsel, it began to contact her directly once her attorneys disputed the lien, causing

her to fear the loss of her health benefits. This in turn led her to instruct her attorneys

to issue payment for the full amount asserted by Trover from the amount they had

retained in escrow pending resolution of the lien.”) (citing SAC at ¶¶ 90–92).

If proven, any of these allegations would unquestionably constitute a violation

of section 1104(a)(1)(A) that is remediable under section 1132(a)(3). See, e.g.,

Edmonson v. Liberty Nat’l Life Insurance Co., 725 F.3d 406, 418 (3d Cir. 2013)

(“[A]n ERISA beneficiary suffers an injury-in-fact sufficient to bring a disgorgement

claim when a defendant allegedly breaches its fiduciary duty, profits from the breach,

and the beneficiary, as opposed to the plan, has an individual right to the profit”).

And the above three examples are not the only allegations of this type of fiduciary

breach. Paragraphs 74–80 of the SAC describe “the unlawful acts taken in pursuit of

the prohibited claims,” such as overstating the amount of money owed by insureds

and threatening insureds with the loss of their health benefits for failure to reimburse

the Plan. App. 56 (¶ 75(d)–(e)).

These allegations provide the basis for a statutory breach of fiduciary duty

claim that is clearly independent of any benefits claim. Any of the alleged violations

of ERISA’s duty of loyalty would entitle Ms. Mallon to an equitable remedy

regardless of whether the Plan would otherwise – i.e. in the absence of their fiduciary


37

breaches – have been entitled to reimbursement out of Ms. Mallon’s tort settlement.

Put differently, even if Ms. Mallon conceded that the Plan contains a valid

reimbursement provision, she would be entitled to repayment of the $4,078.42 in

this particular case because defendants obtained those funds through a breach of

duty. And so long as there exists an independent breach of fiduciary duty, Ms.

Mallon’s statutory claims are not subject to exhaustion. Cf. Harrow, 279 F.3d at 254–

55 (plaintiff may not “attach a ‘statutory violation’ sticker” to ordinary claim denial).

The district court’s failure to appreciate that Ms. Mallon was alleging

violations of section 1104(a)(1)(A) is significant because none of the cases that it

relied upon in dismissing the SAC – Wurtz v. Rawlings Co., LLC, 933 F. Supp. 2d

480 (E.D.N.Y. 2013) (“Wurtz”); Kesselman v. Rawlings Co., 668 F. Supp. 2d 604

(S.D.N.Y. 2009) (“Kesselman”); Wirth v. Aetna U.S. Healthcare, 469 F.3d 305 (3d

Cir. 2006); and Levine v. United Healthcare Corp., 402 F.3d 156 (3d Cir. 2005) –

imposes an exhaustion requirement upon a plaintiff who seeks relief for fiduciary

breaches that are akin to those pleaded by Ms. Mallon. Nor would doing so make

any sense: Ms. Mallon’s entitlement to relief depends entirely on whether

Defendants’ behavior violated their statutorily-imposed duty of loyalty, a matter that

is within the “peculiar expertise” of the courts. Zipf v. American Tel. & Tel. Co., 799

F.2d 889, 893 (3d Cir. 1986) (“Zipf”). In asserting that Defendants’ violated section

1104(a)(1)(A), Ms. Mallon does not challenge the validity of the Plan’s


38

reimbursement right as a matter of plan interpretation. Rather, she seeks redress for

Defendants’ statutorily prohibited misconduct. There were no similar allegations in

Wurtz, Kesselman, Wirth, and Levine.

C. Plaintiff Has Also Pleaded a 29 U.S.C. § 1132(a)(3) Claim for

Defendants’ Violations of 29 U.S.C. § 1104(a)(1)(D).

A different provision of ERISA, 29 U.S.C. § 1104(a)(1)(D), gives rise to

Plaintiff’s other independent breach of fiduciary duty claim. Section 1104(a)(1)(D)

requires a plan fiduciary to act “in accordance with the documents and instruments

governing the plan insofar as such documents and instruments are consistent with

the provisions of [ERISA].” As a corollary, a plan fiduciary cannot act pursuant to

the plan documents and instruments in a manner that is illegal under ERISA. This is

often referred to as the “plan documents rule.” Kennedy v. Plan Adm’r for DuPont

Sav. & Inv. Plan, 555 U.S. 285, 303 (2009).

In this case, Plaintiff alleged that Defendants violated the plan documents rule

in several important ways. See, e.g., App. 47–50 (¶¶ 46–58). To take just one

example, Plaintiff alleged that Defendants wrongfully administered the Plan by

seeking subrogation/reimbursement in a manner that violated the common fund

doctrine. Under the common fund doctrine “a litigant or a lawyer who recovers a

common fund for the benefit of persons other than himself or his client is entitled to

a reasonable attorney’s fee from the fund as a whole.” McCutchen, 133 S. Ct. at 1545.

Yet, in administering the Plan, Defendants refused to contribute to the common fund,


39

seeking full reimbursement against the Plan’s participants and beneficiaries. App.

33–34 (¶ 8).

As explained in McCutchen, that was wrongful. Unless the common fund is

expressly disclaimed by the terms of the Plan, the Plan “is properly read to retain the

common-fund doctrine.” McCutchen, 133 S. Ct. at 1551. And such a disclaimer – in

Defendants’ Plan – can nowhere be found:

Subrogation

In the event any service is provided or any payment is made to you or

your covered Dependent under this Plan, the Claims Administrator shall

be subrogated and succeed to your rights of recovery against any

person, firm, corporation, or organization except against insurers on

policies of insurance issued to your and in your name. You or your

covered Dependent shall execute and deliver such instruments and take

such other reasonable action as the Claims Administrator may require

to secure your rights. You or your covered Dependent may do nothing

to prejudice the rights given the Claims Administrator without the

Claims Administrator’s consent.

You or your covered Dependent shall pay the Claims Administrator all

amounts recovered by suit, settlement, or otherwise from any third

party or his insurer to the extent of the benefits provided or paid under

this Claims Administrator and as permitted by law.

The Claims Administrator’s right of subrogation shall be unenforceable

when prohibited by law.

App. 200. Thus, Defendants rejection of the common fund doctrine not only violates

the plan document rule because it is inconsistent with the Plan documents, it also

violates the plan document rule because it is inconsistent with ERISA.


40

To be clear: a lawsuit such as this one seeking relief under section 1132(a)(3)

to remedy a violation of section 1104(a)(1)(D) is not merely a disguised claim for

“benefits due” under section 1132(a)(1)(B). To the contrary, section 1132(a)(3) is

often the only way for a beneficiary who believes that a plan administrator has

wrongly obtained reimbursement to affirmatively challenge that act. Consider the

choice a beneficiary faces when a plan administrator makes a demand for

reimbursement:

One option is to refuse the demand like the beneficiary in McCutchen, 133 S.

Ct. 1537. That choice would force the plan fiduciary to file suit “under [29 U.S.C.]

§ [1132](a)(3), seeking ‘appropriate equitable relief’ to enforce the plan’s

reimbursement provisions.” McCutchen, 133 S. Ct. at 1543. No court, case, or

commentator has ever suggested that such an action would be subject to

administrative exhaustion requirements and for good reason: It is not a claim for

benefits. It is a claim asserting a contractual lien on benefits already paid.

But what if, when faced with a demand for reimbursement that is not

authorized by her plan, the beneficiary wants to avoid being sued (potentially along

with her lawyer) in a federal lawsuit brought by her plan? Her other option is to pay

the demand in protest and then bring suit herself under section 1132(a)(3) alleging

that the plan fiduciary breached its obligations to act in accordance with the plan –

a violation of section 1104(a)(1)(D). See, e.g., Varity, 516 U.S. at 507–15


41

(confirming that section 1132(a)(3) is an appropriate vehicle for remedying a breach

of the fiduciary obligations owed to plan participants). That is exactly what happened

here.

If a plan administrator’s section 1132(a)(3) action for reimbursement is not

required to proceed first through internal exhaustion, why must a beneficiary’s?

After all, both claims involve precisely the same issue – whether the plan is properly

able to obtain reimbursement. While such a dispute will likely involve some issues

of plan interpretation, that interpretation will almost certainly require adjudication

of extra-contractual legal questions, such as whether a plan’s reimbursement

provision can survive state law or whether such state law is preempted, whether a

plan’s reimbursement provision is consistent with Supreme Court jurisprudence

governing subrogation, and whether there is conflict between the Plan and the

Summary Plan Description that renders a reimbursement provision invalid. These

questions involve application of legal doctrines that “plan fiduciaries have no

expertise in interpreting.” Zipf, 799 F.2d at 893.

Accordingly, one of the primary justifications for an exhaustion

requirement in other contexts, deference to administrative expertise, is

simply absent. Indeed, there is a strong interest in judicial resolution of

these claims, for the purpose of providing a consistent source of law to

help plan fiduciaries and participants predict the legality of proposed

actions.

Id. Like the claim in Zipf, reimbursement disputes are unlikely to “present complex

issues of plan interpretation,” id. at 894, and even if such issues do present


42

themselves, that “possibility” should not “justify an across-the-board barrier to

judicial relief.” Id.

One might wonder whether another option for the beneficiary who is facing

an improper reimbursement demand would be to file a claim under

section 1132(a)(1)(B). The answer is no. By its plain terms, that provision authorizes

no relief because claims for reimbursement are claims over “equitable relief” for

which section 1132(a)(1)(B) has no sway. See Great Great–West Life & Annuity Ins.

Co. v. Knudson, 534 U.S. 204 (2002).

To be sure: there has been confusion on this point. Even Plaintiff’s trial

counsel were confused and, in an abundance of caution, initially requested

declaratory relief pursuant to section 1132(a)(1)(B). But nothing in this lawsuit seeks

“benefits due” (either now or in the future) “under the terms of the plan.” 29 U.S.C.

§ 1132(a)(1)(B). Nor does anything in this lawsuit seek “to enforce [Plaintiff’s]

rights under the terms of the plan.” Id. Put simply, there is no term of Plaintiff’s plan

that entitles her to restitution of an improperly asserted lien that she happens to have

paid under protest. That right comes from ERISA itself – the fiduciary duty found in

section 1104(a)(1)(D).

The district court understandably but mistakenly relied on Levine and Wirth

to conclude that “subrogation disputes are claims for benefits due.” App. 13. This

Court’s opinions in Wirtz and Levine, however, do not support the conclusion that


43

Ms. Mallon’s allegations about Defendants’ violations of section 1104(a)(1)(D) are

properly understood as claims under section 1132(a)(1)(B).

Those cases both characterized plaintiffs’ challenges to reimbursement

provisions as claims for benefits due under section 1132(a)(1)(B). But those cases

involved complete preemption, and the panels were concerned only with whether

the plaintiffs’ claims were remediable under state law or under ERISA. Neither

opinion reached – or even considered – the issue of whether the plaintiffs’ claims in

those cases were more properly considered claims for benefits under section

1132(a)(1)(B) or claims for equitable relief under section 1132(a)(3).

To be clear: there was absolutely no need for either opinion to consider such

a distinction because the plaintiffs’ claims in those cases would have been preempted

regardless of whether they were under one provision or another of section 1132(a).

Moreover, the parties never argued that the plaintiffs’ claims were section 1132(a)(3)

claims. Instead the parties and district court all assumed that the plaintiffs’ claims –

if they were remediable under ERISA at all – were remediable under section

1132(a)(1)(B).

The doctrine of complete preemption allows a defendant to remove a case that

asserts only state-law claims on the grounds that these claims are “in essence” federal

claims. Levine, 402 F.3d at 162. Specifically, if a lawsuit asserts state-law claims

“seeking relief within the scope of section 502(a) of ERISA,” 29 U.S.C. § 1132(a),


44

it will be completely preempted and can be removed to federal court. Id. This is true

regardless of whether the state-law claims are remediable under section 1132(a)(3)

or 1132(a)(1)(B).

In both Levine and Wirth, the plaintiffs were participants who sued to recover

money that they had paid to their plans after their plans demanded reimbursement

from the plaintiffs’ settlements with third-party tortfeasors. Levine, 402 F.3d at 159–

60; Wirth, 469 F.3d at 307. The plaintiffs in both cases asserted various state law

claims. Levine, 402 F.3d at 162; Wirth, 469 F.3d at 307. The defendants in both cases

removed on the grounds of complete preemption. Levine, 402 F.3d at 160; Wirth,

469 F.3d at 307. In each case, this Court held that plaintiffs’ state law claims were

completely preempted because they were remediable under section 1132(a). Levine,

402 F.3d at 163; Wirth, 469 F.3d at 309. Neither opinion considered – much less

rejected – the possibility that the plaintiffs’ state law claims were remediable under

section 1132(a)(3). Instead, the opinions discussed only the question of whether the

claims could be pursued under section 1132(a)(1)(B). Levine, 402 F.3d at 160, 162–

63; Wirth, 469 F.3d at 308–09. But the outcome of both cases would have been

exactly the same if the opinions had concluded that the plaintiffs’ state law claims

could have been brought pursuant to section 1132(a)(3). All that mattered to the

outcome of these cases was that plaintiffs’ state law claims were “in essence” federal


45

claims under section 1132(a). The courts’ discussion of whether the claims fit within

section 1132(a)(1)(B) was therefore dicta that is not binding on this court.

Moreover, the panels in Levine and Wirth did not have the benefit of briefing

on the issue of whether plaintiffs’ state law claims were more properly understood

as section 1132(a)(1)(B) claims or section 1132(a)(3) claims. The issue was not

raised in any of the briefs on appeal, and it was not considered by any of the courts

below. See Carducci v. Aetna U.S. Healthcare, 247 F. Supp. 2d 596, 606 (D.N.J.

2003), rev’d sub nom. Levine v. United Healthcare Corp., 402 F.3d 156 (3d Cir.

2005); Carducci v. Aetna U.S. Healthcare, 204 F. Supp. 2d 796, 797 (D.N.J. 2002),

aff’d sub nom. Levine v. United Healthcare Corp., 402 F.3d 156 (3d Cir. 2005); Wirth

v. Aetna U.S. Healthcare, CIV.A. 03-5406, 2004 WL 253525 (E.D. Pa. Feb. 10,

2004), aff’d 137 F. App’x 455 (3d Cir. 2005), certified question answered, 904 A.2d

858 (2006). And this is entirely understandable – the plaintiffs in those cases had no

incentive whatsoever to argue that their claims were more properly construed as

section 1132(a)(3) claims rather than section 1132(a)(1)(B) claims. They were

opposing removal on the grounds that their state law claims did not fall within the

scope of section 1132(a) at all. It would have made no sense for them to quibble with

the particular subsection of section 1132(a) or to even have mentioned section

1132(a)(3). That would have invited a fight on two fronts, rather than just one. Thus,

the parties, the district courts, and this Court’s panels confined themselves to


46

determining the applicability of section 1132(a)(1)(B), rather than determining

whether plaintiffs’ claims were more properly understood as claims under section

1132(a)(3) or 1132(a)(1)(B).

II. Insofar as Plaintiff Had Any Obligation to Exhaust, That Obligation Was

Satisfied in This Case.

If Ms. Mallon was obligated to exhaust administrative remedies prior to filing

this lawsuit, that obligation was satisfied for two independent reasons. First, as

Plaintiff argued below, Trover’s communications failed to comply with ERISA’s

notice requirements following its alleged “adverse benefits determination.” App. 14.

Second, as Plaintiff also argued below, “there was no administrative process or

remedy available to her with which to resolve subrogation disputes with an outside

vendor such as Trover.” App. 14 (emphasis in original). Either of these arguments,

if accepted, requires that Ms. Mallon be deemed to have exhausted her

administrative remedies. See 29 C.F.R. § 2560.503-1(l) (“In the case of the failure

of a plan to establish or follow claims procedures consistent with the requirements

of this section, a claimant shall be deemed to have exhausted the administrative

remedies available under the plan and shall be entitled to pursue any available

remedies under section 502(a) of [ERISA] . . . .”).

1. As explained above, the DOL has promulgated regulations regarding

notice that must be provided to participants following any adverse benefits

determination. See supra page 10 (discussing regulations). The district court


47

acknowledged the existence of those regulations. In fact, it quoted the relevant

provisions from the Code of Federal Regulations:

“ERISA requires that every employee benefit plan ‘provide adequate

notice in writing to any participant . . . whose claim for benefits under

the plan has been denied, setting forth the specific reasons for such

denial, written in a manner calculated to be understood by the

participant.”‘ Brown v. First Reliance Standard Life Ins. Co., No. 10-

486, 2011 WL 1044664, at *8 (W.D. Pa. Mar. 18, 2011) (quoting 29

U.S.C. § 1133(1)). Specifically, the notification must set forth:

(i) The specific reason or reasons for the adverse determination;

(ii) Reference to the specific plan provisions on which the

determination is based;

(iii) A description of any additional material or information

necessary for the claimant to perfect the claim and an explanation

of why such material or information is necessary;

(iv) A description of the plan’s review procedures and the time

limits applicable to such procedures, including a statement of the

claimant’s right to bring a civil action under section 502(a) of the

Act following an adverse benefit determination on review[.]

29 C.F.R. § 2560.503-1(g)(i)-(iv).

App. 14–15. As explained below, however, the district court abused its discretion in

finding that Defendants’ substantially complied with such regulations.

In their MTD, Defendants argued that “the assertion of a subrogation claim is

itself an adverse benefit determination under Third Circuit law.” Dkt. No. 25, at 4.

If that is true, then Defendants’ adverse benefit determination occurred on October

11, 2007 when Trover mailed a letter to Ms. Mallon’s attorney asserting the Plan’s

“interest in any settlements in [Ms. Mallon’s personal injury] matter.” App. 123. And

that letter unquestionably failed to provide notice to Ms. Mallon in a manner that


48

would comply with the relevant regulations. Arguably, the letter complies with

subsection (i) (requiring the notice to state “[t]he specific reason or reasons for the

adverse determination”) because it asserts that the “Plan has subrogation and/or

recovery rights.” App. 123. But it clearly fails to comply with subsections (ii)-(iv).

The letter makes no mention of any particular plan provision nor does it attach any

plan document. The letter makes no mention of any material that Plaintiff would

need to provide to have her “claim for benefits” perfected. And the letter makes no

mention of the plan’s review procedures, the time limits applicable to such review,

or claimant’s right to bring a civil action under 29 U.S.C. § 1132(a).

Absent compliance with these notice regulations, a participant like Ms.

Mallon cannot possibly be expected to appreciate the need to pursue an appeal, the

manner in which an appeal may be pursued, and the deadline to do so. As such, the

consequence of non-compliance is that “a claimant shall be deemed to have

exhausted the administrative remedies available under the plan and shall be entitled

to pursue any available remedies under [29 U.S.C. § 1132(a)] . . . .” 29 C.F.R.

§ 2560.503-1(l) .

In holding that Defendants’ substantially complied with ERISA’s notice

requirements, the district court found significance in the fact that 15 months later,

Trover mailed a copy of the Plan to Ms. Mallon’s attorney. App. 15–16. That act

arguably satisfied 29 C.F.R. § 2560.503-1(g)(i) and (ii). But neither the Plan nor the


49

letter that accompanied it can possibly be viewed as providing notice sufficient to

meet the requirements of 29 C.F.R. § 2560.503-1(g)(iii)-(iv).

Nothing received by Ms. Mallon or her counsel describes “any additional

material or information necessary for [her] to perfect the claim” that she had,

according to Defendants, made for benefits. Id. Few, if any, people in the position of

Ms. Mallon or her counsel would even think they had filed a claim. Without some

explanation of what Plaintiff was required to “do next,” it is unreasonable to suggest

that she had sufficient notice of the administrative process to expect that she

understood how, when, and why to use it.

Similarly, nothing received by Ms. Mallon or her counsel describes “the plan’s

review procedures and the time limits applicable to such procedures . . . .” Id. It is

of no consequence that the Plan, according to Defendants, contained review

procedures that were available to Ms. Mallon. See, e.g., Epright v. Environmental

Res. Mgmt., Inc. Health & Welfare Plan, 81 F.3d 335, 342 (3d Cir. 1996) (“The fact

that [Plaintiff’s] attorney had a copy of the Plan, and thus the means to ascertain the

proper steps for requesting review, in no way excuses [Defendant’s] failure to

comply with the Department of Labor’s regulations.”). By failing to identify and

describe the plan’s review procedures (including time limits), it is unreasonable for

Defendants to suggest that Ms. Mallon had sufficient notice of the administrative

process to participate in any meaningful fashion.


50

The consequence of such notice violations is well settled. “[A] claimant shall

be deemed to have exhausted the administrative remedies available under the plan

and shall be entitled to pursue any available remedies under [29 U.S.C. § 1132(a)]

. . . .” 29 C.F.R. § 2560.503-1(l); Conley v. Pitney Bowes, 34 F.3d 714 (8th Cir. 1994)

(a plan’s duty to inform the plaintiff of the appeals procedure is a condition precedent

to invoking a defense of failure to exhaust) (applying older and less demanding

claims regulations).

2. A claimant is deemed to have exhausted administrative remedies not only

if administrators failed to provide adequate notice of an adverse benefit

determination but also if the plan does not establish reasonable claims procedures.

See 29 C.F.R. § 2560.503-1(l). See also Eastman Kodak Co. v. STWB, Inc., 452 F.3d

214, 221 (2d Cir. 2006) (“The ‘deemed exhausted’ provision was plainly designed

to give claimants faced with inadequate claims procedures a fast track into court.”)

(emphasis added). That occurred in this case. The district court’s contrary conclusion

was another abuse of discretion.

Even a cursory review of the Plan reveals that it fails to provide any

administrative review procedures that could have been used by Ms. Mallon. As

described above, the Plan does include procedures for appealing some adverse

benefit determinations. See supra pages 16–17 (discussing the Plan’s internal

appeals process). But those procedures do not apply to the circumstances of this case.


51

Take, for example, the language relied on by Defendants. It provides as

follows:

Administrative Appeal Issues – An appeal by or on behalf of a Member

that focuses on unresolved Member disputes or objections regarding a

Claims Administrator decision that concerns coverage terms such as

contract exclusions and non-covered benefits, exhausted benefits, and

claims payment issues.

App. 211. Such “Administrative Appeal Issues” must “concern[] coverage.” And a

coverage “dispute” or “objection” relates to whether a benefit is available to a

participant. Indeed, the examples provided in the above provision are illustrative:

“contract exclusions and non-covered benefits, exhausted benefits, and claims

payment issues.” App. 211.

It is difficult to conceive of how the parties’ reimbursement dispute could

possibly concern coverage. Defendants have never suggested that Ms. Mallon’s

medical bills were not covered; rather they argued that she must reimburse the Plan

specifically because they were covered. App. 123 (October 11, 2007 Letter of Ms.

Wright, stating that the “Plan has provided various medical benefits to your client in

connection with his or her injury.”). Indeed, the language of the reimbursement

provision confirms this reality: “You or your covered Dependent shall pay the

Claims Administrator all amounts recovered by suit, settlement, or otherwise from

any third party or his insurer to the extent of the benefits provided or paid under this

Claims Administrator and as permitted by law.” App. 200 (emphasis added).


52

As with the notice violation discussed above, the consequence of have

unreasonable/unavailable plan procedures is well settled. “[A] claimant shall be

deemed to have exhausted the administrative remedies available under the plan and

shall be entitled to pursue any available remedies under [29 U.S.C. § 1132(a)] . . . .”

29 C.F.R. § 2560.503-1(l). Reversal is warranted.

CONCLUSION

The order of the district court should be reversed.

Respectfully submitted,

/s/ Peter K. Stris

Peter K. Stris

Victor O’Connell

STRIS & MAHER LLP

19210 S. Vermont Ave., Bldg. E

Gardena, CA 90248

(424) 212-7090

September 23, 2014 Counsel for Plaintiff-Appellant


53

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brief complies with the type-volume limitations of Federal Rule of Appellate

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program, Microsoft Word) contains 12,721 words, excluding those portions

excluded under Rule 32(a)(7)(B)(iii). I also certify that this brief complies with the

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because this brief has been prepared in the proportionally spaced typeface of 14-

point Times New Roman.

3. Service: I certify that on this date I caused this brief to be filed

electronically via this Court’s CM/ECF system, which will automatically serve all

counsel of record in this case.

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identical to the text of the paper copies that will be delivered to the Court.

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Dated: September 23, 2014 /s/ Peter K. Stris

Peter K. Stris


RECORD NO. 14-3189

THE LEX GROUP 1108 East Main Street Suite 1400 Richmond, VA 23219 (804) 644-4419 (800) 856-4419 Fax: (804) 644-3660 www.thelexgroup.com

In The

United States Court of Appeals For The Third Circuit

LYDIA MALLON, on behalf of herself and all other similarly situated,

Plaintiff – Appellant,

v.

TROVER SOLUTIONS INC., D/B/A HEALTHCARE RECOVERIES, INC., INDEPENDENCE BLUE CROSS;

QCC INSURANCE COMPANY,

Defendants – Appellees.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

JOINT APPENDIX VOLUME I OF II

(Pages 1 – 21)

Victor A. O’Connell M. Duncan Grant Peter K. Stris PEPPER HAMILTON STRIS & MAHER 1313 Market Street, Suite 5100 19210 South Vermont, Building E Wilmington, Deleware 19899 Gardena, California 90248 (215) 981-4343 (657) 464-0464

Counsel for Appellant Counsel for Appellee Trover Solutions, Inc

Shawn J. Rabin E. Thomas Henefer SUSMAN GODFREY STEVENS & LEE 560 Lexington Avenue, 15th Floor 111 North Sixth Street New York, New York 10022 Reading, Pennsylvania 19603 (212) 336-8330 (610) 478-2223

Counsel for Appellee Counsel for Appellees Trover Solutions, Inc Independence Blue Cross and QCC Insurance Co.


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TABLE OF CONTENTSVOLUME I OF II

Appendix Page

Plaintiff’s Notice of Appeal(Docket Entry 43)

filed July 2, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Order of The Honorable R. Barclay Surrick, J.Re: Granting Motion to Dismiss(Docket Entry 42)

filed June 4, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Memorandum Opinion of The Honorable R. Barclay Surrick, J.Re: Granting Motion to Dismiss(Docket Entry 41)

filed June 4, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4


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TABLE OF CONTENTSVOLUME II OF II

Appendix Page

Docket Entries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Plaintiff’s Second Amended Compliant(Docket Entry 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Attachment to Joint Motion to Dismissfiled June 24, 2011:

Attachment:

Appendix in Support of Defendant’s Motion to Dismiss or, Alternatively, for Summary Judgment(Docket Entry 20-2 through 20-6)

filed June 24, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

Exhibit to Defendants’ Motion for Leave to File Notice of Supplemental Authority

filed May 1, 2013:

Exhibit:

A. Defendants’ Notice of Supplemental Authority,With Exhibits,(Docket Entry 34-1)

dated April 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448


Case 2:11-cv-00326-RBS Document 43 Filed 07/02/14 Page 1 of 2

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IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

LYDIA MALLON : : CIVIL ACTION v. : : NO. 11-326 TROVER SOLUTIONS, INC. ET AL. : SURRICK, J. JUNE _4_, 2014

O R D E R

AND NOW, this 4th day of June , 2014, upon consideration of the

Joint Motion to Dismiss or, Alternatively, for Summary Judgment of Defendants Independence

Blue Cross, QCC, and Trover Solutions, Inc. (ECF No. 20), and all papers submitted in support

thereof and in opposition thereto, it is ORDERED that the Motion is GRANTED. Plaintiff’s

Complaint is DISMISSED, and the Clerk of Court is directed to mark this case CLOSED.

IT IS SO ORDERED.

BY THE COURT:

________________________ R. BARCLAY SURRICK, J.


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IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

LYDIA MALLON : : CIVIL ACTION v. : : NO. 11-326 TROVER SOLUTIONS, INC. ET AL. : SURRICK, J. JUNE 4 , 2014

MEMORANDUM

Presently before the Court is the Joint Motion to Dismiss or, Alternatively, for Summary

Judgment of Defendants Independence Blue Cross, QCC, and Trover Solutions, Inc. (ECF No.

20). For the following reasons, Defendants’ Motion will be granted.

I. BACKGROUND

A. Factual History1

Plaintiff Lydia Mallon is a participant in a multi-employer health and welfare plan (the

“Plan”) which provides her with medical benefits. (Sec. Am. Compl. ¶ 2, ECF No. 19.)

Defendant QCC Insurance Company (“QCC”), a subsidiary of Independence Blue Cross

(“IBX”), is the Claims Administrator for the Plan. (Id. at ¶¶ 2, 17, 18.) Defendant Trover

Solutions, Inc., d/b/a Healthcare Recoveries (“Trover”) is a third-party vendor engaged in the

business of asserting and collecting subrogation claims on behalf of QCC. (Id. at ¶¶ 2, 10.)

Plaintiff was injured in a car accident in 2006 and received benefits from the Plan to pay

for some of her medical bills. (Id. at ¶ 2; Pl.’s Resp. 4, ECF No. 22.) Following the accident, 1 Pursuant to Federal Rule of Civil Procedure 12(b)(6), ‘“we accept all factual allegations as true [and] construe the complaint in the light most favorable to the plaintiff.’” DelRio-Mocci v. Connolly Props., Inc., 672 F.3d 241, 245 (3d Cir. 2012) (quoting Warren Gen. Hosp. v. Amgen, Inc., 643 F.3d 77, 84 (3d Cir. 2011)).


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Plaintiff initiated a lawsuit against the driver of the other motor vehicle. (Sec. Am. Compl. ¶ 2.)

On or about October 11, 2007, during the pendency of that action, Trover sent Plaintiff’s

attorney, Steven Gillman, Esquire (“Gillman”), a letter. (Id.; Oct. 11, 2007 Trover Ltr., Defs.’

Mot. App. 11, ECF No. 20.) The letter stated that the Plan was self-funded and governed by the

Employee Retirement Income Security Act of 1974 (“ERISA”). (Oct. 11 Trover Ltr.) The letter

explained that the Plan had the right “to be reimbursed by [Plaintiff] for benefits it has provided

in the event that any compensation is received from another source.” (Id.)

Gillman responded to Trover’s letter by requesting a consolidated statement of benefits

paid by the Plan on behalf of Plaintiff. (Defs.’ Mot. App. 12.) Gillman also requested a

complete copy of the Summary Plan Description and the Form 5500 filed with the Internal

Revenue Service for the last fiscal year as proof of the Plan’s right of recovery. (Id.; see Sec.

Am. Compl. ¶ 37 n.7.) Gillman stated that “[i]f it is satisfactorily proven that the [Plan] has a

valid right of recovery, this office will protect the [P]lan’s lien from any settlement or verdict

entered in [Plaintiff’s] case less the [P]lan’s proportionate share of expenses incurred in

[Plaintiff’s] case.” (Defs.’ Mot. App. 12.)

Trover’s response, on or about August 4, 2008, included a consolidated statement

showing that the Plan had provided Plaintiff with benefits in the amount of $4,078.42. (Defs.’

Mot. App. 15-18.) The letter also stated that as a self-funded plan governed by ERISA, “any

recovery language in the Plan is generally enforceable as written.” (Id.) Therefore, the Plan

“has the right to be reimbursed for benefits it has provided in the event that any compensation is

received from another source.” (Id.; see Sec. Am. Compl. ¶ 75(a).)

On or about January 15, 2009, Gillman responded to Trover stating that the Plan’s

subrogation interest had been noted, but that “we have not been provided with proof that the


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[P]lan is entitled to reimbursement.” (Defs.’ Mot. App. 20.) Gillman again requested “the

appropriate proofs.” (Id.) Trover responded on or about January 20, 2009, and enclosed a copy

of the Plan’s benefit booklet (“Benefit Booklet”). (Defs.’ Mot. App. 21.) The Benefit Booklet

provides, in pertinent part:

You or your covered Dependent shall pay the Claims Administrator all amounts recovered by suit, settlement, or otherwise from any third party or his insurer to the extent of the benefits provided or paid under this Claims Administrator and as permitted by law[.] The Claims Administrator’s right of subrogation shall be unenforceable when prohibited by law[.]

(Sec. Am. Comp. Ex. A; Benefit Booklet 3 2-63, Defs.’ Mot. App. 88.) The Benefit Booklet also

sets forth the complaint and appeals process for Plan members. (Benefit Booklet 3 2-74.)

Members who wish to register a complaint are instructed to “call the Member Services

Department number at the telephone number on the back of their identification card or write to

the Claims Administrator [at the address provided].” (Id.) Members may also pursue an appeal

by calling or writing the Claims Administrator within 180 days of an adverse benefit

determination and requesting a change of the previous decision. (Id.) The two types of member

appeals described in the Benefit Booklet are “Medical Necessity Appeal Issues” and

“Administrative Appeal Issues.” (Id.)

Gillman responded by letter on or about April 16, 2009, and informed Trover that “the

health insurance subrogation lien of $4,078.42 has been noted and we will contact you at the

conclusion of [Plaintiff’s] case to discuss repayment arrangements.” (Apr. 16, 2009 Gillman

Ltr., Defs.’ Mot. App. 104.) Gillman sent Trover a letter seeking confirmation of the lien

amount on or about June 26, 2009. (Defs.’ Mot. App. 105.) Trover responded by letters on

December 7, 2009 and December 15, 2009. (Defs.’ Mot. App. 106-113.)


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On or about December 15, 2009, Gillman offered Trover 50% of the lien amount as

repayment in full. (Defs.’ Mot. App. 114.) On December 17, 2009, Plaintiff settled the

negligence lawsuit. (Defs.’ Mot. App. 10.) On or about February 1, 2010, Gillman made an

offer to Trover to repay two-thirds of the lien amount. (Defs.’ Mot. App. 119.) Trover rejected

the offer by telephone. (Defs.’ Mot 8.)

On or about February 11, 2010, Gillman sent a letter to Trover stating that IBX had failed

to provide any documentation in support of its claim that the Plan is self-funded and that the

Benefit Booklet was insufficient to support the Plan’s subrogation rights. (Feb. 11, 2010

Gillman Ltr., Defs.’ Mot. App. 120-125.) The letter acknowledged a telephone conversation in

which Trover stated that “it was not [their] responsibility to obtain and provide the requested

proofs entitling [IBX] to subrogation,” that Plaintiff “should have written directly to the Plan for

this information,” and that “the address of the Plan to which [Plaintiff’s] request should have

been directed was contained in [Trover’s January 20th Letter].” (Defs.’ Mot. App. 124-25.)

On or about March 17, 2010, March 31, 2010, and April 14, 2010, Trover sent letters

directly to Plaintiff requesting reimbursement for benefits provided. (Defs.’ Mot. App. 126-28;

see Sec. Am. Compl. ¶ 75(c).) On or about May 5, 2010, Gillman submitted a draft in the

amount of $4,078.42 representing payment of the disputed lien, although he advised Plaintiff that

he did not believe that the lien was valid. (Defs.’ Mot. App. 129.)

B. Procedural History

On January 20, 2011, Plaintiff filed this lawsuit on behalf of herself and all others

similarly situated. (ECF No. 1.) On June 3, 2011, Plaintiff filed a Second Amended Complaint.

(Sec. Am. Comp.) Plaintiff brings this ERISA class action alleging claims for declaratory and/or

injunctive relief pursuant to ERISA sections 502(a)(1) and 502(a)(3) (Count I), violations of the


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5

Fair Debt Collection Practices Act and the Pennsylvania Debt Collection Laws (Count II),

tortious interference with contract (Count III), breach of fiduciary duty (Count IV), and unjust

enrichment (Count V). (Id.)2

On June 24, 2011, Defendants filed this Motion to Dismiss or, Alternatively, for

Summary Judgment. (Defs.’ Mot.) On August 12, 2011, Plaintiff filed a Response in

opposition. (Pl.’s Resp.) On September 15, 2011, Defendants filed a Reply. (Defs.’ Reply, ECF

No. 25.) On September 26, 2011, Plaintiff filed a Sur-Reply. (Pl.’s Sur-Reply, ECF No. 29.)

On October 17, 2011, Defendants filed a Third Brief in support of their Motion. (ECF No. 32.)

On May 1, 2013, Defendants filed a motion for leave to file notice of supplemental authority.

(ECF No. 34.) On May 9, 2013, Plaintiff filed a response. (ECF No. 37.) On May 24, 2013, we

granted Defendants’ Motion to file a notice of supplemental authority. (ECF No. 38.)

II. LEGAL STANDARD

Defendants move to dismiss the Second Amended Complaint under Federal Rule of Civil

Procedure 12(b)(6) or, in the alternative, for summary judgment under Rule 56.3 Under Federal

Rule 8(a)(2), “[a] pleading that states a claim for relief must contain a short and plain statement

2 Plaintiff has voluntarily dismissed Counts II, III, IV, and V. (ECF No. 40.) 3 When extrinsic documents are “presented to and not excluded by the court, the [12(b)(6)] motion must be treated as one for summary judgment under Rule 56.” Fed. R. Civ. P. 12(d). However, when considering a motion to dismiss, the district court may consider documents that are attached to the complaint as well as “undisputedly authentic document[s] that a defendant attaches as . . . exhibit[s] to a motion to dismiss if the plaintiff’s claims are based on th[ose] document[s].” Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993). Courts may also consider “matters incorporated by reference.” Siwulec v. J.M. Adjustment Servs., LLC, 465 F. App’x 200, 202 (3d Cir. 2012) (quotation omitted). The documents relied upon by Defendants in this case are both referenced in Plaintiff’s Complaint and integral to her claim. See Smith v. Pallman, 420 F. App’x 208, 213 (3d Cir. 2011) (finding that the district court properly considered letters attached to the defendant’s motion to dismiss because the letters established that the plaintiff had failed to exhaust her administrative remedies). Thus, we will rule upon Defendants’ Motion under Federal Rule 12(b)(6).


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6

of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Rule 12(b)(6)

provides for the dismissal of a complaint, in whole or in part, for failure to state a claim upon

which relief can be granted. See Fed. R. Civ. P. 12(b)(6). A motion under Rule 12(b)(6),

therefore, tests the sufficiency of the complaint against the pleading requirements of Rule 8(a).

“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as

true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A complaint that merely

alleges entitlement to relief, without alleging facts that show entitlement, must be dismissed. See

Fowler v. UPMC Shadyside, 578 F.3d 203, 211 (3d Cir. 2009). Courts need not accept

“[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory

statements . . . .” Iqbal, 556 U.S. at 678. “While legal conclusions can provide the framework of

a complaint, they must be supported by factual allegations.” Id. at 679. This “‘does not impose

a probability requirement at the pleading stage,’ but instead ‘simply calls for enough facts to

raise a reasonable expectation that discovery will reveal evidence of’ the necessary element.”

Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly, 550 U.S. at

556).

In determining whether dismissal of the complaint is appropriate, courts use a two-part

analysis. Fowler, 578 F.3d at 210. First, courts separate the factual and legal elements of the

claim and accept all of the complaint’s well-pleaded facts as true. Id. at 210-11. Next, courts

determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a

“‘plausible claim for relief.’” Id. at 211 (quoting Iqbal, 556 U.S. at 679). Given the nature of

the two-part analysis, “‘[d]etermining whether a complaint states a plausible claim for relief will

. . . be a context-specific task that requires the reviewing court to draw on its judicial experience


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and common sense.’” McTernan v. City of York, 577 F.3d 521, 530 (3d Cir. 2009) (quoting

Iqbal, 556 U.S. at 679).

III. DISCUSSION

Plaintiff argues that Defendants have no valid subrogation rights under the Plan. (Sec.

Am. Compl. ¶ 5.) Specifically, Plaintiff contends that the Plan is subject to Pennsylvania’s

Motor Vehicle Financial Responsibility Law, 75 Pa. Cons. Stat. § 1720 (the “MVFRL”), which

prohibits subrogation claims in motor vehicle accidents. (Id.) Plaintiff alleges that Defendants

falsely represented the Plan’s status as self-funded in an effort to evade the MVFRL. (Id.)4 In

the alternative, Plaintiff argues that even if the Plan is self-funded, its terms are “self-limiting”

and expressly subordinate the Plan’s subrogation rights to the MVFRL. (Sec. Am. Compl. ¶ 8.)

Finally, Plaintiff maintains that even if the Plan is entitled to subrogation, its recovery is subject

to equitable limitation under the “make whole” and “common fund” doctrines. (Id. at ¶¶ 8, 69,

77, 78.)

Defendants argue that Plaintiff failed to exhaust the Plan’s administrative remedies and

that, as a result, her Complaint must be dismissed. (Defs.’ Mot. 2.) In addition, Defendants

contest Plaintiff’s claim that the Plan explicitly subordinates its subrogation rights to the

MVFRL. (Id. at 3.) Instead, Defendants argue that because the Plan is self-funded, the MVFRL

is pre-empted by ERISA, and Plaintiff’s claim fails as a matter of law. (Id.)

4 A self-funded plan “does not purchase an insurance policy from any insurance company in order to satisfy its obligations to its participants.” FMC Corp v. Holliday, 498 U.S. 52, 54 (1990). Such plans are not subject to Pennsylvania’s MVFRL. Id. at 65. “On the other hand, employee benefit plans that are insured are subject to indirect state insurance regulation,” such as Pennsylvania’s MVFRL. Id. at 61.


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A. Exhaustion

1. Claim for Benefits

Defendants argue that subrogation disputes are subject to the exhaustion doctrine and that

because Plaintiff failed to comply with the Plan’s administrative remedies, her Complaint should

be dismissed. (Id. at 19-21.) Plaintiff counters that “the claims in this case are not the type of

claims to which the ‘exhaustion’ doctrine applies.” (Pl.’s Resp. 10.) Specifically, Plaintiff

argues that the exhaustion of administrative remedies “is only required if the claim is for denied

benefits.” (Id. (emphasis in original).) Where “the claims asserted are independent of a claim

for benefits, a plaintiff is not required to exhaust administrative remedies.” (Id. (emphasis in

original).)

The exhaustion doctrine is not referenced within the statutory provisions of ERISA.

Metro. Life. Ins. Co. v. Price, 501 F.3d 271, 279 (3d Cir. 2007). Rather, “[i]t is a judicial

innovation fashioned with an eye toward sound policy.” Id. (internal quotation marks omitted).

Its purpose is to “reduce the number of frivolous lawsuits under ERISA; to promote the

consistent treatment of claims for benefits; to provide a nonadversarial method of claims

settlement; and to minimize the costs of claims settlement for all concerned.” Harrow v.

Prudential Ins. Co. of Am., 279 F.3d 244, 249 (3d Cir. 2002) (internal quotation marks omitted).

It is well established that the exhaustion doctrine applies to benefit claims under ERISA, id. at

252, and that in the context of a class action, the named plaintiff must establish that she has

exhausted her administrative remedies, see Thomas v. SmithKline Beechman Corp., 201 F.R.D.

386, 395 (E.D. Pa. 2001); Matz v. Household Int’l Tax Reduction Inv. Plan, 232 F.R.D. 593, 597

(N.D. Ill. 2005); Williams v. Rohm & Haas Pension Plan, No. 02-123, 2003 WL 22271111, at

*4-5 (S.D. Ind. Sept. 26, 2003). However, exhaustion is not required where the claimant seeks


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“to assert rights established by the ERISA statute.” D’Amico v. CBS Corp., 297 F.3d 287, 291

(3d Cir. 2002).5

The question of whether subrogation disputes are subject to the exhaustion doctrine was

addressed in Kesselman v. Rawlings Co., LLC, 668 F. Supp. 2d 604 (S.D.N.Y 2009). The

plaintiffs in that putative class action were individuals who had been injured in car accidents and

who had a portion of their medical bills paid by their health plans. Id. at 605-06. Following the

accidents, the plaintiffs recovered damages from the negligent drivers and “were subjected to

claims for reimbursement by the [d]efendants.” Id. at 606. After making payment to a

subrogation agent, one of the plaintiffs filed a lawsuit seeking reimbursement of her benefits. Id.

at 607-08. The plaintiff also sought a declaratory judgment finding that ERISA laws prohibit

benefit plans from pursuing reimbursements from plaintiffs’ third-party personal injury

settlements. Id. at 609-10. The court granted the defendants’ motion to dismiss after concluding

that the plaintiff had failed to exhaust her plan’s administrative remedies. Id.; see also Wurtz v.

Rawlings Co., LLC, 933 F. Supp. 2d 480, 507-08 (E.D.N.Y. 2013) (questioning whether the

plaintiffs, whose ERISA claims were based upon subrogation disputes, had exhausted their

administrative remedies).

5 Exceptions to this generally fall into two categories: “(1) discrimination claims under § 510 of ERISA, or (2) failure to provide plaintiffs with summary plan descriptions, as required by ERISA.” Harrow, 279 F.3d at 253 (internal quotation marks omitted). Claims for breach of fiduciary duty, under sections 404-406 of ERISA, might also fall within this exception because they are statutory in nature. Id. However, “[p]laintiffs cannot circumvent the exhaustion requirement by artfully pleading benefit claims as breach of fiduciary duty claims.” Id. Thus, the exhaustion doctrine will apply unless the facts alleged “present a breach of fiduciary duty claim that is independent of a claim for benefits . . . .” Id.; see also D’Amico, 297 F.3d at 291 (“[W]e still require exhaustion in cases where the alleged statutory violation - a breach of fiduciary duty under section 404 - is actually a claim based on denial of benefits under the terms of a plan.”). Although Plaintiff originally claimed that Defendants breached their fiduciary duties under section 404(a) of ERISA, that claim has since been withdrawn.


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Plaintiff attempts to distinguish the court’s decision in Kesselman by arguing that the

Second Circuit does not recognize a distinction between claims for benefits and claims to enforce

rights conferred by statute. (Pl.’s Sur-Reply 2.) However, this distinction is of little

consequence given the Third Circuit’s decision in Levine v. United Healthcare Corp., 402 F.3d

156 (3d Cir. 2005). In Levine, the Court held that “[w]here . . . plaintiffs claim that their ERISA

plan wrongfully sought reimbursement of previously paid health benefits, the claim is for

‘benefits due’ . . . .” Id. at 163. This holding was reaffirmed by the Third Circuit in Wirth v.

Aetna U.S. Healthcare, 469 F.3d 305 (3d Cir. 2006). In Wirth, the plaintiff’s health plan pursued

a subrogation lien to recover monies that the plaintiff received from a third party negligence

action. Id. at 306-307. The plaintiff made a payment to the plan to release its lien and then filed

a lawsuit claiming that the lien was in violation of the MVFRL. Id. at 307. On appeal, the Third

Circuit determined that Levine precluded the plaintiff’s argument that his claim was “not

tantamount to seeking recovery of ‘benefits due’ to him.” Id. at 309.6

We are not persuaded by Plaintiff’s argument that Wirth and Levine are inapplicable

because they arose from jurisdictional disputes and did not address the issue of exhaustion. The

Third Circuit’s language leaves little doubt that subrogation disputes are claims for benefits due.

As such, Plaintiff was required to exhaust her Plan’s administrative remedies prior to initiating

6 The reasoning of the Third Circuit in Levine and Wirth is consistent with that of the Fourth and Fifth Circuits. See Singh v. Prudential Health Care Plan Inc., 335 F.3d 278, 291 (4th Cir. 2003); Arana v. Ochsner, 338 F.3d 433, 437 (5th Cir. 2003). In Singh, the Court explained:

[A] claimant who is denied a benefit is no different than a claimant who is faced with an invoice from the insurer for the return of a benefit paid or a claimant who has paid such an invoice, because resolution in each case requires a court to determine entitlement to a benefit under the lawfully applied terms of an ERISA plan.

Singh, 335 F.3d at 291 (emphasis in original).


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this lawsuit. This view is shared by a number of courts that have addressed the issue under the

same or similar circumstances. Wurtz, 933 F. Supp. 2d at 507-08; Kesselman, 668 F. Supp. 2d at

609; see Barnes v. Humana, Inc., No. 13-68, 2013 WL 4434391, at *2 (W.D. Mo. Aug. 14,

2013) (finding that subrogation dispute was a claim for benefits under the Federal Employee’s

Health Benefits Act and dismissing the plaintiff’s claim because he failed to exhaust his

administrative remedies); see also Potts v. Rawlings Co., LLC, 897 F. Supp. 2d 185, 193

(S.D.N.Y. 2012) (collecting cases in which courts have held that subrogation disputes under the

Medicare Secondary Payer Act must be exhausted at the administrative level).

2. Notice of Adverse Benefit Determination and Administrative Appeal Procedure Plaintiff argues that even if the exhaustion doctrine does apply, she was never informed

of an adverse benefit determination as required by ERISA. (Pl.’s Resp. 13.) Specifically,

Plaintiff claims that she never received any correspondence relating to the subrogation claim

from QCC and that the communications from Trover did not contain any of the information

required by ERISA. (Id. at 14.) In addition, Plaintiff argues “that there was no administrative

process or remedy available to her with which to resolve subrogation disputes with an outside

vendor such as Trover.” (Id. at 10 (emphasis in original).)

“ERISA requires that every employee benefit plan ‘provide adequate notice in writing to

any participant . . . whose claim for benefits under the plan has been denied, setting forth the

specific reasons for such denial, written in a manner calculated to be understood by the

participant.”’ Brown v. First Reliance Standard Life Ins. Co., No. 10-486, 2011 WL 1044664, at

*8 (W.D. Pa. Mar. 18, 2011) (quoting 29 U.S.C. § 1133(1)). Specifically, the notification must

set forth:


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(i) The specific reason or reasons for the adverse determination; (ii) Reference to the specific plan provisions on which the determination is based; (iii) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; (iv) A description of the plan’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under section 502(a) of the Act following an adverse benefit determination on review[.]

29 C.F.R. § 2560.503-1(g)(i)-(iv). Courts in the Third Circuit have found that notice can be

sufficient if it “is ‘in substantial compliance with the governing regulation.”’ Morningred v.

Delta Family-Care & Survivorship Plan, 790 F. Supp. 2d 177, 194 (D. Del. 2011) aff’d, 526 F.

App’x 217 (3d Cir. 2013) (quoting Brown, 2011 WL 1044664, at *9). Substantial compliance is

achieved when the denial letter sets forth a ‘“sufficiently clear understanding of the

administrator’s position to permit effective review.”’ Id. (quoting Brogan v. Holland, 105 F.3d

158, 165 (4th Cir. 1997)). “[C]ourts may ‘consider all communications’ between the parties ‘to

determine whether the information provided was sufficient under the circumstances.’” Sutley v.

Int’l Paper Co., No. 07-105, 2009 WL 703555, at *13 n.11 (W.D. Pa. Mar. 16, 2009) (quoting

Moore v. LaFayette Life Ins. Co., 458 F.3d 416, 436 (6th Cir. 2006)).

Trover’s October 11, 2007 letter to Gillman notified Plaintiff of an adverse benefit

determination. See Medlar v. Regence Grp., No. 04-2762, 2005 WL 1241881, at *3, 8 (E.D. Pa.

May 23, 2005) (finding that the plaintiff’s receipt of a trust agreement granting the plaintiff’s

insurer a right to subrogation was “the action giving rise to the grievance”). The letter explained

that the Plan was entitled to pursue subrogation and that this right was based upon the Plan’s

self-funded status under ERISA. On January 20, 2009, Trover sent Gillman a copy of the

Benefit Booklet, which set forth the subrogation rights of the Claims Administrator. The Benefit

Booklet also described the procedures that members must follow when pursuing an


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administrative appeal and the deadline by which these procedures must be completed. Plaintiff

concedes that the Plan’s Administrative Appeals Procedure governs claims for benefits. (Pl.’s

Resp. 14; see Benefit Booklet 3 2-74.) Considering all of the communications between Trover

and Gillman, we find that there was an appeals process available and that Plaintiff was provided

with a “sufficiently clear understanding of the administrator’s position to permit effective

review.” Morningred, 790 F. Supp. 2d at 194; see Zarringhalam v. United Food & Commercial

Workers Int’l Union Local 1500 Welfare Fund, 906 F. Supp. 2d 140, 153-54 (E.D.N.Y. 2012)

(finding that the plaintiff could not claim that “the [f]und failed to adequately notify him of its

available administrative remedies” where the fund sent the plaintiff a summary plan description

outlining the appeals process); see also Zahl v. Local 641 Teamsters Welfare Fund, No. 09-1100,

2010 WL 3724520, at *3 (D.N.J. Sept. 14, 2010) (finding that even if the plaintiff did not receive

a denial letter, the appeal procedures were set forth in the plan document).

We reject Plaintiff’s argument that Gillman’s communications to Trover satisfied

Plaintiff’s exhaustion requirement. (Pl.’s Sur-Reply 4.) The case cited by Plaintiff in support of

this argument, Medlar, 2005 WL 1241881, at *1, is easily distinguished. In Medlar, the

defendant required the plaintiffs to sign an agreement that granted the defendant a right to

subrogation. Id. The agreement was forwarded to the plaintiffs from the defendants subrogation

department. Id. at *3. The plaintiffs responded within two months by sending two objection

letters to the subrogation department. Id. The plaintiffs then initiated a lawsuit seeking a

declaratory judgment that their health insurance policy was subject to the MVFRL. Id. at *1. In

denying the defendant’s motion to dismiss, the court rejected the argument that the plaintiffs had

failed to exhaust their administrative remedies by addressing their letters to the wrong

department within the defendant’s company. Id. at *3. The Court determined that it was


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reasonable for the plaintiffs to direct their objections to the same department that had forwarded

them the trust agreement. Id. The court further explained that it would not fault the plaintiffs for

failing to direct their complaint to an appellate unit that was never mentioned in the plan’s

procedures. Id.

Unlike Medlar, Plaintiff did not object to Defendants’ subrogation lien. Instead, Plaintiff

requested proof of the Plan’s self-funded status. Plaintiff did not object after receiving a copy of

the Benefit Booklet, which provided the procedural steps and contact information necessary for

an appeal. Nor does Plaintiff allege that she made any subsequent requests for additional proof

of the Plan’s self-funded status. Instead, Plaintiff informed Trover that “[t]he health insurance

subrogation lien of $4,078.42 has been noted and we will contact you at the conclusion of

[Plaintiff’s] case to discuss repayment arrangements.” (Apr. 16 Gillman Ltr.) Plaintiff then sent

Trover two letters offering partial repayment of the lien before ultimately submitting full

payment. It was not until February 11, 2010, nearly two-and-a-half years after being contacted

by Trover and over a year after receiving the Benefit Booklet, that Gillman informed Trover of

his belief “that the Plan has no enforceable subrogation rights.” (Feb. 11 Gillman Ltr.) Plaintiff

did not file a complaint, objection, or appeal within the Plan’s limitations period. Clearly,

Plaintiff failed to exhaust her administrative remedies. See Kesselman, 668 F. Supp. 2d at 609

(rejecting the plaintiff’s argument that counsel’s letters “disputing the claims and citing legal

authority and requesting documentation from said [d]efendants to justify the claims should be

considered sufficient exhaustion of remedies”) (internal quotation marks omitted).7

7 Plaintiff argues that “[n]either QCC nor Trover (nor, indeed, the [Plan’s Administrator]) ever provided any Form 5500s or other financial disclosures, since those disclosures - required under ERISA and executed under penalty of perjury - did not support their subrogation claim.” (Pl.’s Sur-Reply 4.) Accepting this assertion as true, it is insufficient to support Plaintiff’s claim that she exhausted her administrative remedies. Although 29 U.S.C. § 1024(b)(4) imposes a duty


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3. Futility

Plaintiff argues that even if her subrogation dispute is subject to the exhaustion doctrine,

Defendants’ “fixed and inflexible policy with respect to subrogation claims . . . would have

rendered any administrative appeal futile.” (Sec. Am. Compl. ¶ 94; Pl.’s Resp. 15.) Specifically,

Plaintiff cites the following provision from the Plan’s Administrative Services Agreement

(“ASA”):

Except as set forth in the Benefit Program, the Claims Administrator will not apply any state law that, in its view, relates to the Benefit Program, regulates insurance, affects self-insured plans, and mandates that self-insured plans provide certain benefits to persons insured by the plans.

(Pl.’s Resp. 16; Defs.’ Mot. App. 301.) Given this language, Plaintiff argues that any challenge

to the Plan’s subrogation rights under the MVFRL was predetermined as a matter of policy.

(Pl.’s Resp. 16.) Defendants counter that the ASA provision cited by Plaintiff “is hardly a

‘fixed’ policy concerning subrogation claims.” (Defs.’ Reply 8.) Rather, “it is nothing more

than an observation that the Claims Administrator will not apply state laws that, in its view, do

not apply to self-funded plans (such as laws that regulate insurance) to the Plan.” (Id. at 8

(emphasis in original).) Defendants also argue that Plaintiff’s futility argument is inconsistent

with her position that Defendants’ actions were in violation of Pennsylvania law and established

Supreme Court precedent. (Id. at 23.)

“Although the exhaustion requirement is strictly enforced, courts have recognized an

exception when resort to the administrative process would be futile.” Berger v. Edgewater Steel

Co., 911 F.2d 911, 916 (3d Cir. 1990). To “merit waiver of the exhaustion requirement,”

upon plan administrators to provide participants with certain information upon request, neither Trover nor QCC is the Plan Administrator. 29 U.S.C. § 1024(b)(4). Moreover, Plaintiff has made clear that her claims in this lawsuit “are not dependent on the source of funding for her plan.” (Pl.’s Resp 3, 6; Pl.’s Sur-Reply 5.)


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plaintiffs must set forth a “clear and positive showing of futility.” Harrow, 279 F.3d at 249

(quotation omitted). Courts weigh several factors in determining whether to excuse exhaustion

on futility grounds. Those factors include:

(1) whether plaintiff diligently pursued administrative relief; (2) whether plaintiff acted reasonably in seeking immediate judicial review under the circumstances; (3) existence of a fixed policy denying benefits; (4) failure of the insurance company to comply with its own internal administrative procedures; and (5) testimony of plan administrators that any administrative appeal was futile.

Id. at 250. These factors need not be weighed equally in evaluating whether pursuit of

administrative remedies would have been futile. Id.

Plaintiff’s futility argument is based solely upon the fixed policy factor set forth in

Harrow. Similar arguments have been rejected by courts under comparable circumstances. In

Gatti v. W. Pa. Teamsters & Emp’rs Welfare Fund, No. 07-1178, 2008 WL 794516, at *2 (W.D.

Pa. 2008), the plaintiff was involved in a motor vehicle accident and sought benefits from his

health plan. The plan declined to pay the requested benefits because the plaintiff refused to sign

a subrogation agreement. Id. Counsel for the fund sent a letter to the plaintiff’s attorney stating

that the fund was confident that it had the right to subrogation, “pursuant to the language of the

plan.” Id. Based upon that letter, the plaintiff’s attorney determined that an appeals hearing

would be a “sham” and instead filed a lawsuit. Id. at *3. The court held that because the

plaintiff had failed to submit evidence of a fixed policy, he could not establish futility and

therefore granted the defendant’s motion for judgment on the pleadings. Id. at *5.

Similarly, the plaintiff in Barnes relied upon a letter that instructed his insurer to “pursue

reimbursement without regard to a state’s anti-subrogation law.” Barnes, 2013 WL 4434391, at

*4. The letter also stated that this position would be maintained in the future. Id. In granting the

defendant’s motion to dismiss, the court concluded that the defendant’s position that “federal


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regulations and the [p]lan require[d] subrogation [was] not enough to demonstrate futility.” Id.;

see also Wurtz, 933 F. Supp. 2d at 508 (granting the defendant’s motion to dismiss where the

plaintiff argued that the defendant would have ignored New York’s anti-subrogation law even if

the plaintiff had brought it to the defendant’s attention).

The Plan’s policy with respect to subrogation claims is less fixed than in Barnes and

Gatti. The directives set forth in the ASA are made expressly contingent upon any instructions

set forth by the Plan. In fact, the Plan limits its subrogation rights by stating that such rights

“shall be unenforceable when prohibited by law.” (Benefit Booklet 3 2-63.) This fact is not only

acknowledged by Plaintiff, it serves as the very basis of her Complaint. (Sec. Am. Comp. ¶¶ 5,

6, 8, 35, 36, 37, 40, 64, 70; Pl.’s Resp. 16 n.8.) Specifically, Plaintiff argues that the language

contained within the Benefit Booklet “is self-limiting” and expressly subordinates the Plan’s

subrogation rights to the MVFRL, as well as Pennsylvania’s “make whole” and “common fund

doctrines.” (Sec. Am. Compl. ¶¶ 8, 69, 77.) This argument is not supportive of Plaintiff’s claim

that the Plan has a fixed and inflexible policy with respect to subrogation claims. Moreover, as

in Wurtz, any claim that Defendants would have ignored the MVFRL is insufficient to establish

futility.

Furthermore, even if the Plan did have a fixed and inflexible policy, courts are reluctant

to apply the futility exception where plaintiffs fail to make a request for benefits. Churchill v.

Cigna Corp., No. 10-6911, 2011 WL 3563489, at *7 (E.D. Pa. Aug. 12, 2011) (“The Third

Circuit has denied use of the futility exception, however, when an ERISA plaintiff did not

request the contested benefit, even when the plan has a blanket policy of denying all such

requests.”); see also Balmat v. Certain Teed Corp., No. 04-2505, 2004 WL 2861873, at *3 (E.D.

Pa. Dec. 9, 2004) (rejecting the plaintiff’s claim of futility where the plaintiff “without ever


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trying to engage the administrative appeals process, simply cite[d] a section of the [p]lan and

claim[ed] that it establishe[d] a fixed policy without providing any example or further

explanation”). In the instant case, Plaintiff did not make a request for benefits within 180 days

of receiving notice of the adverse benefit determination as required by the Plan. Although

Plaintiff initially requested additional proof in support of the Plan’s right to subrogation, she later

acknowledged the lien, made two offers of partial repayment, and ultimately instructed Gillman

to satisfy the lien in full. Plaintiff did not object until nearly a year and a half after receiving a

copy of the Benefit Booklet. Given Plaintiff’s failure to file a request for benefits and failure to

engage in the administrative appeals process, we decline to apply the futility exception. See

D’Amico, 297 F.3d at 293 (“Plaintiffs who fail to make known their desire for benefits to a

responsible company official are precluded from seeking judicial relief.”).

IV. CONCLUSION

For the foregoing reasons, the Motion to Dismiss of Defendants’ Independence Blue

Cross, QCC, and Trover Solutions will be granted.

An appropriate Order follows.

BY THE COURT:

_________________________ R. BARCLAY SURRICK, J.


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