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James Killian, As Independent Administrator of the Estate of Susan v. Concert Health Plan

December 17, 2010


The opinion of the court was delivered by: Judge Feinerman


James Killian, as administrator of his wife Susan Killian's estate, brought this action against Concert Health Plan Insurance Company ("CHPIC"), Concert Health Plan ("CHP"), Royal Management Corporation ("RMC"), and Royal Management Corporation Health Insurance Plan ("Royal Plan"), alleging violations of the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. ("ERISA"). RMC entered into an agreement with CHPIC to provide health insurance coverage to RMC employees. Susan, an RMC employee, enrolled in the Royal Plan, which was administered by RMC. After being diagnosed with cancer, Susan obtained treatment at Rush University Hospital, an out-of-network facility, and was denied coverage for her medical bills. James sued, claiming that Defendants wrongly denied benefits, breached their fiduciary duties, and failed to disclose plan documents.

Earlier decisions, familiarity with which is assumed, have resolved all claims against CHP, CHPIC, and the Royal Plan, and some claims against RMC. See 651 F. Supp. 2d 770 (N.D. Ill. 2009) (Aspen, J.) (dismissing claims against CHPIC and CHP for penalties under 28 U.S.C. § 1132(c)(1), and dismissing portion of claim against RMC for penalties under 28 U.S.C. § 1132(c)(1)); Doc. 232 (dismissing all remaining claims against CHP) (Aspen, J.); 2010 WL 2681107 (N.D. Ill. July 6, 2010) (Aspen, J.) (dismissing claims against CHPIC, the Royal Plan, and RMCfor breach of fiduciary duty and for wrongful denial of ERISA benefits); 2010 WL 3000205 (N.D. Ill. July 28, 2010) (Aspen, J.) (denying Killian's motion to reconsider order of July 6, 2010). Remaining for decision is whether RMC must pay James a statutory penalty under 29 U.S.C. § 1132(c)(1) due to RMC's violation of its duty under 29 U.S.C. § 1024(b)(4) to provide an adequate summary plan description ("SPD") within thirty days of James' April 28, 2008 request. See 2010 WL 2681107, at *4. Also before the court are two motions filed by CHPIC, one for attorney fees under 29 U.S.C. § 1132(g)(1), and the other for leave to re-file an earlier motion seeking sanctions under Fed. R. Civ. P. 11 and 28 U.S.C. § 1927.

For the following reasons, RMC shall pay Killian a statutory penalty of $5,880, reflecting a $10 per day assessment for the duration of RMC's § 1024(b)(4) violation. CHPIC's motion for attorney fees under § 1132(g)(1) is denied. CHPIC is granted leave to re-file its sanctions motion, but the motion itself is denied.

I. James' Claim for Statutory Penalties Against RMC

Section 1024(b)(4) of Title 29 provides that an ERISA plan administrator "shall, upon written request of any participant or beneficiary, furnish a copy of the latest updated [SPD]." 29 U.S.C. § 1024(b)(4). Section 1132(c)(1) provides that a court may impose statutory penalties against a plan administrator "who fails or refuses to comply with a request for any information which such administrator is required . to furnish to a participant or beneficiary . within 30 days after such request." Id. § 1132(c)(1). Section 1132(c)(1) further provides that the penalty can reach up to "$100 a day from the date of such failure or refusal"-the Secretary of Labor promulgated regulations increasing the maximum daily penalty to $110, see 29 C.F.R. § 2575.502c-1-but the actual amount and even whether to impose a penalty at all are issues left to the court's "discretion." 29 U.S.C. § 1132(c)(1); see Neuma, Inc. v. AMP, Inc., 2002 WL 264898, at *4 (N.D. Ill. Feb. 22, 2002).

Here, RMC responded within thirty days to James' request for an SPD, but rather than provide an actual SPD, RMC tendered a copy of the Certificate of Insurance for Susan's S035 Open Access Plan ("COI") and of RMC's Employee Benefits Summary ("EBS"). Judge Aspen rejected RMC's submission that the COI and EBS, considered together, constitute an ERISA-compliant SPD, held that RMC thus violated § 1024(b)(4), but reserved the question whether to impose a statutory penalty under § 1132(c)(1). See 2010 WL 2681107, at *3-4. RMC contends that no penalty should be imposed because it did not act in bad faith, and also because James suffered no harm and labored under no confusion from RMC's failure to provide a technically compliant SPD.

Where the plan administrator timely responds to a request for documents, but the documents provided fail to satisfy ERISA, a penalty may be imposed. See Kasireddy v. Bank of Am. Corp. Corporate Benefits Comm., 2010 WL 4168512 (N.D. Ill. Oct. 13, 2010); Jackson v. E.J. Brach Corp., 937 F. Supp. 735, 740 (N.D. Ill. 1996). Section 1132(c)(1) creates an incentive for plan administrators to draft, maintain, and timely disclose plan documents, thus ensuring that participants are informed of available benefits and the procedures necessary to obtain such benefits. See Jacobs v. Xerox Corp. Long Term Disability Income Plan, 520 F. Supp. 2d 1022, 1030 (N.D. Ill. 2007)("The purpose of Section 1132(c)(1) of ERISA is not so much to penalize as it is to induce plan administrators to comply with the notice requirements and a participant's request for information.") (internal quotation marks omitted). "In deciding whether to assess penalties for untimely responses, appropriate factors to be considered include the length of the delay, the number of requests made and documents withheld, whether there is evidence the administrator acted in bad faith, and whether assessing a fine would further any purpose of ERISA." Id. at 1044. Thus, while bad faith and prejudice are relevant to whether a penalty should be imposed, the absence of either or both does not categorically foreclose a penalty. See Daughtrey v. Honeywell, Inc., 3 F.3d 1488, 1494 (11th Cir. 1993); Jackson, 937 F. Supp. at 741-42; Piggot v. Livingston Co., 1989 WL 111845, at *3 (N.D. Ill. Sept. 21, 1989); Mitchell v. Am. Hardware Mfrs. Ass'n, 1985 WL 2559, at *11 (N.D. Ill. Sept. 16, 1985); Paris v. F. Korbel & Bros., Inc., 751 F. Supp. 834, 839-40 (N.D. Cal. 1990); see also Ziaee v. Vest, 916 F.2d 1204, 1210 (7th Cir. 1990) (court may, but need not, consider provable injury when deciding whether to impose penalty).

The facts of this case are comparable to those in which the plan administrator clearly failed to produce appropriate documentation, but did not act in bad faith and caused little or no actual harm to the plaintiff. James had at his disposal all the necessary information about Susan's plan, and makes no showing that he was harmed by RMC's failure to tender an ERISA-compliant SPD. At the same time, as Judge Aspen found, the COI and EBS provided by RMC fell short of its disclosure obligations in several significant respects. See 2010 WL 2681107, at *3-4. Moreover, RMC should have been aware of ERISA's requirements for SPDs.

Under the facts and circumstances of this case, the court finds that a penalty is appropriate, but that its magnitude should be modest, amounting to ten dollars per day. See Jackson, 937 F. Supp. at 742 (ten dollars per day); Piggot, 1989 WL 111845, at *3 (two dollars per day); Mitchell, 1985 WL 2559, at *11 ($1000 total); Paris, 751 F. Supp. at 839-40 (ten dollars per day). The penalty runs from May 28, 2009 (the thirty-first day following James' April 28, 2008, request) until January 7, 2010, the end-date suggested by James. See Doc. 296-2 at 3. At ten dollars per day for 588 days, that amounts to a $5,880 statutory penalty that RMC must pay James.

II. CHPIC's Request for Sanctions under Rule 11 and 28 U.S.C. § 1927

Earlier in this litigation, CHPIC and CHP filed two sanctions motions against James under Rule 11 and 28 U.S.C. § 1927. See Docs. 200, 203. The parties briefed the motions, and Judge Aspen denied them without prejudice, "with leave to refile at the end of the case." Doc. 261. Now that all substantive issues regarding CHPIC and CHP have been resolved, CHPIC (but not CHP) has moved for leave to re-file one of the sanctions motions. See Doc. 302. James moved the postpone consideration of the sanctions motion until the conclusion of any appeal or until the time for appeal expires (Doc. 305), but the court can resolve the sanctions motion now and elects to do so given the advanced age of this litigation.

Rule 11 provides that an attorney's signature on a filing certifies that "the claims, defenses, and other legal contentions are warranted by existing law or by non-frivolous argument for extending, modifying, or reversing existing law or for establishing new law," and that "the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after reasonable opportunity for further investigation or discovery." Fed. R. Civ. P. 11(b)(2), (3). As the Seventh Circuit has noted, Rule 11 asks "whether the party or attorney made a reasonable inquiry into the facts, and whether the party or attorney made a reasonable inquiry into the law." Ins. Benefit Adm'rs, Inc. v. Martin, 871 F.2d 1354, 1358 (7th Cir. 1989).

Section 1927 of Title 28 permits a party to recover attorney fees from an opposing counsel who "multiplies the proceedings in any case unreasonably and vexatiously." 28 U.S.C. § 1927. Analysis under § 1927 turns on whether the attorney's conduct was objectively unreasonable and vexatious: "If the lawyer pursues the path that a reasonably careful attorney would have known, after appropriate inquiry, to be unsound, the conduct is objectively unreasonable and vexatious. To put this a little differently, a lawyer engages in bad faith by acting recklessly or with indifference to the law, as well as by acting in the teeth of what he knows to be the law." In re TCI Ltd., 769 F.2d 441, 445 (7th Cir. 1985). Sanctions are appropriate when the attorney "has acted in an ...

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