PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 10-3936
_____________
ROBERT FUNK
v.
CIGNA GROUP INSURANCE; LUCENT
TECHNOLOGIES, INC.; LUCENT TECHNOLIGIES INC.,
LONG TERM DISABILITY PLAN FOR MANAGEMENT
EMPLOYEES,
CONNECTICUT GENERAL LIFE INSURANCE
COMPANY, improperly pleaded as “CIGNA Group
Insurance”; ALCATEL-LUCENT USA, INC., formerly
known as Lucent Technologies, Inc.; THE LUCENT
TECHNOLOGIES INC., LONG TERM DISABILITY PLAN
FOR MANAGEMENT OR LBA EMPLOYEES, improperly
pleaded as “Lucent Technologies, Inc. Long Term Disability
Plan for Management Employees,”
Appellants.
_______________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 2-08-cv-05208)
District Judge: Hon. Faith S. Hochberg
_______________
Argued
June 21, 2011
Before: CHAGARES, JORDAN and GREENAWAY, JR.,
Circuit Judges.
(Filed: August 4, 2011)
_______________
Robert P. Lesko [ARGUED]
Karen Denise Peck
Wilson, Elser, Moskowitz, Edelman & Dicker
33 Washington Street, 17th Floor
Newark, NJ 07102
Jay P. Symonds
Wilson, Elser, Moskowitz, Edelman & Dicker
260 Franklin Street, 14th Floor
Boston, MA 02110
Counsel for Appellants
Steven Gaechter [ARGUED]
McCarter & Gaechter
58 Main Street
Hackensack, NJ 07601
Counsel for Appellee
_______________
OPINION OF THE COURT
_______________
2
JORDAN, Circuit Judge.
This case arises out of a decision by Connecticut
General Life Insurance Company (“CIGNA”), as the third-
party administrator of “The Lucent Technologies, Inc. Long
Term Disability Plan for Management or LBA Employees”
(the “Plan”), 1 to deny Alcatel-Lucent USA, Inc. (“Lucent”)
employee Robert Funk’s claim for long-term disability
benefits under the Plan. Funk challenged that decision in the
United States District Court for the District of New Jersey
pursuant to the Employee Retirement Income Security Act of
1974 (“ERISA”). The District Court granted summary
judgment for Funk on both his claim for long-term disability
benefits and on CIGNA’s counterclaim under ERISA to
recover overpaid benefits.
CIGNA and the other appellants appeal from that
decision and order. 2 For the following reasons, we will
vacate the District Court’s order and remand with respect to
CIGNA’s denial of benefits, and we will reverse the District
Court’s order with respect to CIGNA’s counterclaim for
overpaid benefits.
1
In their briefs, the parties identify CIGNA Group
Insurance as the Plan administrator. (See Appellants’
Opening Brief at 3; Appellee’s Answering Brief at 1.) The
Plan itself, however, states that the “Administrator for the
Plan is Connecticut General Life Insurance Company
(CIGNA).” (App. 2 at 178.)
2
For ease of reference, we will refer to all of the
appellants collectively as “CIGNA.”
3
I. Background
A. The Parties And The ERISA Plan At Issue
Funk worked as a member of Lucent’s technical staff.3
At all times relevant to this appeal, he was a participant in
Lucent’s Plan, which was governed by ERISA and self-
funded by Lucent through a trust. CIGNA administered the
Plan. As Plan administrator, CIGNA had “full discretionary
authority and power to … determine eligibility for [Plan]
benefits [and] to interpret and construe the terms and
provisions of the [Plan].” (App. 2 at 585.)
Pursuant to the Plan, a participant could be eligible to
receive long-term disability (“LTD”) benefits after he had
received short-term disability benefits for 26 weeks. The
Plan provided LTD benefits in two phases. Phase one began
immediately after the 26-week short-term disability period
and ran for one year. To receive LTD benefits for that one-
year period, the putatively disabled participant had to show
that he was
prevented by reason of such disability, other
than accidental injury arising out of and in the
course of employment of the Company, from
engaging in his … occupation or employment at
the Company, for which the Eligible Employee
is qualified, based on training, education or
experience.
3
Funk’s job involved testing computer software and
hardware as part of product development.
4
(App. 2 at 167.) However, for a Plan participant to receive
LTD benefits beyond the one-year period, i.e., to move on to
phase two, CIGNA, “in [its] sole opinion [as] the [Plan]
Administrator,” had to be persuaded that the participant was
incapable of performing the requirements of any
job for any employer for which the individual is
qualified or may reasonably become qualified
by training, education or experience, other than
a job that pays less than 60 percent of the
Eligible Employee’s Eligible Pay that would
have been in effect on the day preceding the day
that the Eligible Employee’s Short Term
Disability Benefits ceased.
(Id.)
The Plan also provided that LTD benefits could be
reduced by certain offsets, including Social Security disability
benefits. Pursuant to the Plan, “[a]ny retroactive award of
Social Security benefits which covers any portion of the
period for which Plan benefits have been paid shall be
considered as an offset of such Plan benefits and be payable
to [CIGNA] by the recipient.” (App. 2 at 172.)
B. CIGNA’s Denial Of Funk’s Claim For Phase
Two LTD Benefits
On December 7, 2004, Funk began a leave of absence
due to depression and related disorders. In August 2005, after
receiving short-term disability benefits for 26 weeks, Funk
5
applied to CIGNA for LTD benefits. 4 In support of his
application, Funk submitted a claim form and the treatment
records from his mental healthcare providers, Dr. Pinchuck,
his psychiatrist, and Mr. Libby, his psychotherapist. 5 Funk’s
submissions indicated that he had a history of alcohol abuse
and had been experiencing stress from his financial situation
and his relationship with his wife. Pinchuck’s and Libby’s
treatment notes described Funk as suffering from, among
other things, depression, anxiety, and paranoia. The notes
indicated that Funk had difficulty concentrating, making
decisions, and otherwise performing daily tasks. Both
Pinchuck and Libby opined that Funk was unable at that time
to return to work in his former position.
CIGNA forwarded Funk’s treatment records to Dr.
Mohsin Qayyum for independent review. Qayyum opined
that the information provided to him supported the conclusion
that, “due to severe psychiatric symptoms[,]” Funk could not
return to work. (App. 2 at 436.) Accordingly, Funk was
awarded LTD benefits for a one-year period retroactive to
June 28, 2005.
4
It is undisputed that Funk was an “Eligible
Employee” under the Plan and that his eligible pay prior to
the date of his disability was $78,100.
5
Funk also listed Drs. Katz and Lederich as treating
physicians, but they treated, respectively, chronic headaches
and sleep difficulties, and neither provided information that
the parties treat as significant to Funk’s claim that he was
unable to work.
6
In June 2005, Funk executed an agreement providing
that his LTD benefits under the Plan were to be reduced by
any Social Security benefits he ultimately received and that
he would reimburse CIGNA “for any LTD overpayment …
that may occur as a result of” having received Social Security
benefits. (App. 2 at 566.) In August 2005, he executed a
similar agreement (together with the June 2005 agreement,
the “Reimbursement Agreements”).
In January 2006, CIGNA notified Funk that it would
again be reviewing his case to determine if he would remain
eligible for benefits beyond the phase one period. The review
required Funk to complete a disability questionnaire and to
provide current treatment information from his mental
healthcare providers.
Funk submitted the questionnaire, listing bad tremors,
lack of concentration, tiredness, short-term memory loss,
aggression, depression, and paranoia as reasons why he could
not return to work. Libby provided notes from therapy
sessions, including observations that Funk’s relationship with
his wife had improved, that he was “communicating his
feelings much clearer,” that he had “been able to use the skills
learned in session to manage his depression – which is now
under control,” and that he had “continue[d] to improve but
need[ed] regular sessions [and] proper med[ication] to avoid
regression.” (App. 2 at 426.) Libby also reported that Funk
was still suffering from confusion, depression, helplessness,
and hopelessness and could not at that time return to work.
Pinchuck did not provide updated treatment notes, stating that
they were “sent before” and that “you can’t read my
handwriting anyway.” (App. 2 at 374.) He instead provided
an updated evaluation of Funk, which indicated that Funk was
7
not abusing substances and that he exhibited fair judgment
and insight along with “grossly intact” cognition. (Id. at 375.)
However, Pinchuck also indicated that Funk still suffered
from depression and anxiety, scored a 40 on the Global
Assessment of Functioning (“GAF”) 6, exhibited limited
capacity to socialize and perform daily tasks, and was unable
to return to work.
CIGNA again enlisted Qayyum to independently
review Funk’s claim. On August 15, 2006, after reviewing
Funk’s supplemental information, Qayyum issued a report
concluding that, while the records showed Funk to be
suffering from psychiatric symptoms, they did not show that
those symptoms were severe or that he had “severe functional
limitations in … psychosocial domains.” (Id. at 367.) Given
that, and considering Funk’s “fair insight and judgment,”
“grossly intact” cognition, and within-normal-limits “thought
process and content,” (id.) Qayyum opined that the “entirety
… of [the] available information [did] not provide evidence
6
The GAF is a numeric rating used by mental health
practitioners to measure the functional impairment of a
patient on a 0-100 scale in accordance with the Diagnostic
and Statistical Manual of Mental Disorders. See AM.
PSYCHIATRIC ASSOC., DIAGNOSTIC AND STATISTICAL
MANUAL OF MENTAL DISORDERS 34 (4th ed., 2000). A score
of 40 represents “[s]ome impairment in reality testing or
communication (e.g., speech is at times illogical, obscure, or
irrelevant) OR major impairment in several areas, such as
work or school, family relations, judgment, thinking, or mood
(e.g., depressed man avoids friends, neglects family, and is
unable to work …).” Id.
8
of psychiatric functional impairment to preclude” (id. at 368)
Funk from working.
On August 16, 2006, the day after issuing his report,
and after having made several unsuccessful attempts to
contact Pinchuck for a peer-to-peer discussion about Funk,
Qayyum finally spoke with Pinchuck. During that
conversation, which Qayyum later memorialized in notes,
Pinchuck suggested that Funk might be able to work in a
“menial job, such as mopping floors or working at a post
office at night.” (Id. at 363.) Qayyum declined to speculate
as to a suitable vocation but responded, echoing his report,
that Funk was not “functionally impaired from working in a
supportive, low stress, low cognitive demand environment,”
as evidenced by, inter alia, his ability to use a computer and
daily check his email. (Id.)
Also during that conversation, Pinchuck revealed that
he had referred Funk to a neuropsychologist, Dr. Robert
Pancza, for an evaluation in March 2006. Pancza’s
evaluation, the results of which Pinchuck later faxed to
Qayyum, consisted of a battery of tests administered over two
days. From that evaluation, Pancza observed:
[Funk] was pleasant and cooperative throughout
th[e] examination. An appropriate amount of
effort was applied to all tasks, without any signs
of frustration. There was no noted tendency
toward mental fatigue, distractibility,
impulsivity, or lapses in concentration. All
instructions were understood without difficulty.
There were no indications that any affective
factors, including anxiety or depression, were
9
present at a level sufficient to diminish his
functional level during the course of th[e]
examination. Mood was noted to be normal and
affect was well modulated throughout th[e]
examination.
(Id. at 355.) The test results indicated that Funk enjoyed
average to high function in most cognitive areas.
Summarizing the evaluation, Pancza stated:
[T]here is a disparity between [Mr. Funk’s] self-
report of everyday cognitive functioning and the
objective results of this examination. There is a
growing body of research that has indicated that
individuals who are depressed often
significantly underestimate the quality of their
cognitive functioning. Such appears to be the
case for Mr. Funk. … [I] … reassured [Mr.
Funk] about being capable of performing
occupational activities based solely upon his
current cognitive abilities.
(Id. at 357.)
On August 22, 2006, CIGNA notified Funk via letter
that he was no longer disabled as defined under the Plan and
so would not receive further LTD benefits. Explaining its
decision, CIGNA acknowledged Pinchuck’s opinion that
Funk still suffered from depression, bi-polar disorder,
anxiety, and paranoia and so was unable to work. However,
it noted Pinchuck’s observations that, as of July 25, 2006,
Funk was “alert and oriented” and exhibiting “good”
behavior, that he had thought process and content “within
normal limits,” had “fair” judgment and insight and “grossly
10
intact” cognition, and had stopped drinking alcohol. (Id. at
358-59.) Echoing Pinchuck’s opinion, CIGNA noted that
Funk’s “ongoing severe depressive symptoms” made it
difficult to get “a clear picture of [Funk’s] cognitive
problems” but noted too that Panzca’s testing revealed “no
gross cognitive defects.” (Id. at 359.) Finally, CIGNA noted
that Funk was able daily to use a computer to check email.
From the foregoing, CIGNA concluded that “there is no
clinical evidence to support that [Funk] would be unable to
work in a supportive, low stress, low cognitive demand
environment.” (Id.) CIGNA closed the letter by informing
Funk of his right to administratively appeal the decision and
to include additional information for CIGNA to consider. 7
Funk appealed to CIGNA for further review of his
case. He contended that Qayyum’s report and notes, which
CIGNA cited in denying benefits, were at odds with the
medical documentation provided by Pinchuck and Libby.
Funk also noted that CIGNA failed to perform any sort of
vocational assessment to determine whether he could, in his
mental condition, “reasonably become qualified by training,
education or experience, and earn 60% of his pre-disability
pay,” (id. at 316) which, Funk contended, not only made
hollow CIGNA’s conclusion that he “[was] not functionally
impaired from working in a supportive, low stress, low
cognitive demand environment,” but also constituted
noncompliance with the terms of the Plan, since “disability”
7
It appears that CIGNA, in denying benefits, had
reviewed Qayyum’s summary of his conversation with
Pinchuck, in which the Pancza evaluation was discussed, but
had not reviewed the Pancza evaluation itself.
11
under the Plan could only be determined in light of a
vocational assessment (id. at 315).
Funk included as additional information in support of
his appeal a letter from the Social Security Administration
that indicated that his application for disability benefits was
being reviewed and that, based on the submitted information,
Funk appeared to “need help managing [his] money and
meeting [his] daily needs.” (Id. at 317.) Funk subsequently
supplied a medical questionnaire completed by Libby on
February 11, 2007, indicating that Funk’s GAF score was
45/50, 8 that his response to treatment over the last three years
had been “fair to poor,” that his decision-making, stress
tolerance, and performance were hindered by confusion,
fatigue, dysphoric mood, and depression, that he had
“marked” functional limitation in daily activities, social
functioning, and concentrating, and that “at present [his]
depressive symptoms hinder sustained, gainful employment.”
(Id. at 304, 306-07, 309.) Nevertheless, Libby also indicated
in the questionnaire that, contrary to the Social Security
Administration’s opinion, Funk “[could] … manage benefits
in his … own best interest.” (Id. at 309.)
8
That GAF score represents “[s]erious symptoms
(e.g., suicidal ideation, severe obsessional rituals, frequent
shoplifting) OR any serious impairment in social,
occupational or school functioning (e.g., no friends, unable to
keep a job).” AM. PSYCHIATRIC ASSOC., DIAGNOSTIC AND
STATISTICAL MANUAL OF MENTAL DISORDERS 34 (4th ed.,
2000).
12
In January 2007, while his appeal to CIGNA was
pending, Funk was awarded Social Security disability
benefits, retroactive to June 1, 2005. That retroactive Social
Security award created a period in which Funk received both
Social Security and LTD benefits, meaning that, under the
Plan, he had been overpaid and was obligated to reimburse
CIGNA the overpaid amount, which was $24,817. Funk paid
CIGNA $18,500, but spent the remaining $6,317 on ordinary
living expenses. Despite notice from CIGNA, Funk did not
pay the balance owed.
Having received Funk’s additional submissions in
support of his appeal, CIGNA forwarded all of the medical
documentation that had previously been submitted with
Funk’s claim to Dr. Stuart Shipko for an independent review.
After reviewing those records, Shipko concluded that Funk’s
medical history did not support any restrictions or limitations
on his working. Shipko opined that Pinchuck’s assessment
“lack[ed] credibility,” citing two reasons. (Id. at 299.) First,
Shipko believed that Pinchuck had, in his phone conversation
with Qayyum, mischaracterized Pancza’s neuropsychological
testing. In particular, Shipko was troubled that Pinchuck had
said the test results did “not provide a clear assessment of
[Funk’s] cognitive problems due to [Funk’s] ongoing severe
depressive symptoms” and that follow-up testing was needed,
despite Pancza having stated in his report that “emotional
factors were not causing any cognitive impairment … [or]
interfering with effort or testing of cognition in any manner.”
(Id. at 298.) Second, according to Shipko, Pinchuck had
“indicate[d] that [Funk] ha[d] marginal cognitive abilities,”
had “poor grooming and hygiene,” and was “still severely
depressed,” though Pancza had stated in his report that Funk
“was pleasant and cooperative throughout his examination,”
13
“had a normal mood and affect,” and applied “an appropriate
amount of effort … [without a] tendency toward mental
fatigue, distractibility, impulsivity or lapses in concentration.”
(Id. at 298-99.)
Shipko similarly criticized Libby’s opinion that Funk
could not work, observing that it was at odds with Libby’s
own treatment notes, which, Shipko said, “indicate[d] that
depression is under control and d[id] not indicate that [Funk]
[was] reporting any problems with cognition or serious
symptoms of depression.” (Id. at 299.) Shipko also noted
that Libby conducted no formal cognition tests and that his
report was inconsistent with Pancza’s evaluation. Shipko
closed his review thusly: “Available information does not
support an inability to work in any occupation for which he is
suited.” (Id. at 300.)
CIGNA subsequently denied Funk’s appeal. Citing
Shipko’s and Pancza’s evaluations, and giving no “deference
to prior reviews,” CIGNA noted that Pinchuck’s and Libby’s
opinions were at odds with their own treatment notes and
Pancza’s evaluation. (Id. at 289.) CIGNA concluded that it
had “not received medical information demonstrating a
severity in [Funk’s] condition supporting restrictions
preventing [him] from performing [his] own or any
occupation.” (Id.)
Funk again appealed within CIGNA, this time
submitting a copy of Shipko’s report marked up with Libby’s
handwritten comments. Libby noted errors he believed
Shipko had made in chronicling Funk’s treatment and opined
that Pancza’s evaluation was misleading because it was done
in a controlled environment and that Funk’s then-current
14
status did not support Shipko’s conclusion that Funk was able
to work.
On February 6, 2008, CIGNA issued a final decision
denying Funk’s LTD claim. Noting in particular a lack of
clinical evidence or documentation to support Libby’s
opinion, CIGNA stated that it “had not been provided with
the clinical evidence to support a physical or psychiatric
functional loss which would preclude [Funk] from performing
his regular occupation.” (Id. at 186.)
C. Proceedings In The District Court
On October 22, 2008, having exhausted his
administrative appeals, Funk sued CIGNA pursuant to 29
U.S.C. § 1132(a)(1)(B), seeking under ERISA to overturn
CIGNA’s denial of LTD benefits. CIGNA countersued
pursuant to 29 U.S.C. § 1132(a)(3), seeking under ERISA to
recover from Funk the remaining $6,317 of overpaid LTD
benefits. The parties filed cross motions for summary
judgment, and, on August 30, 2010, the District Court granted
Funk’s motion and denied CIGNA’s. With respect to the
denial of benefits, the Court held that CIGNA had acted
arbitrarily and capriciously because, as an initial matter, it had
failed to assess whether Funk was disabled as defined under
the Plan; that is, it had failed to assess whether Funk could
work in a job that would pay him 60% of his former wage (a
“60% job”), given the restrictions identified in CIGNA’s
initial denial (low stress environment, etc.). In the alternative,
the Court held that CIGNA’s denial of benefits was not
supported by substantial evidence as set forth in Metropolitan
Life Insurance Co. v. Glenn, 554 U.S. 105 (2008), because
CIGNA had (1) failed to reconcile its decision with the Social
15
Security Administration’s award of disability benefits; (2)
given greater weight to non-treating physicians’ opinions
without explanation; (3) issued the initial denial without
having reviewed Pancza’s report; (4) confused cognition with
mental illness in determining Funk’s ability to be productive
at work; and (5) exhibited a financial conflict of interest in
administering the Plan. With respect to CIGNA’s
counterclaim for recoupment of overpaid benefits, the Court
held that an equitable lien over the Social Security funds,
which is the relief CIGNA sought, was not possible here since
those funds had been dissipated prior to suit and could not be
traced.
CIGNA’s timely appeal to us followed.
II. Standard of Review 9
“Summary judgment is proper if there is no genuine
issue of material fact and if, viewing the facts in the light
most favorable to the non-moving party, the moving party is
entitled to judgment as a matter of law.” Smathers v. Multi-
Tool, Inc./Multi-Plastics, Inc. Emp. Health & Welfare Plan,
298 F.3d 191, 194 (3d Cir. 2002). Applying that standard, we
exercise plenary review of a district court’s grant of summary
judgment. Id.
In determining whether benefits under a plan governed
by 29 U.S.C. § 1132(a)(1)(B) were properly denied, we
9
The District Court had jurisdiction pursuant to 28
U.S.C. § 1331 and 29 U.S.C. § 1132(e). We have jurisdiction
pursuant to 28 U.S.C. § 1291.
16
review for abuse of discretion. 10 Firestone Tire & Rubber
Co. v. Bruch, 489 U.S. 101, 115 (1989); Glenn, 554 U.S. at
115-17. Because “benefits determinations arise in many
different contexts and circumstances, … the factors to be
considered [in reviewing a plan administrator’s exercise of
discretion] will be varied and case-specific.” Estate of
Schwing v. The Lilly Health Plan, 562 F.3d 522, 526 (3d Cir.
2009) (internal quotation marks omitted). While a plan
administrator’s potential conflict of interest may be among
those case-specific factors, courts should not give that factor
undue weight but should instead treat it as one of the several
factors that may be relevant in the case. See id. (instructing
that courts should “take account of several different
considerations of which a conflict of interest is one, and reach
a result by weighing all of those considerations” (internal
quotation marks omitted)). A court may overturn a plan
administrator’s determination “if it is without reason,
unsupported by substantial evidence or erroneous as a matter
of law.” Doroshow v. Hartford Life & Accident Ins. Co., 574
F.3d 230, 234 (3d Cir. 2009). A decision is also subject to
judicial correction when the plan administrator has failed to
comply with the procedures required by the plan. Abnathya
v. Hoffman-La Roche, Inc., 2 F.3d 40, 41 (3d Cir. 1993),
abrogated in part on other grounds by Glenn, 554 U.S. at
112.
10
“In the ERISA context, the arbitrary and capricious
and abuse of discretion standards of review are essentially
identical.” Miller v. Am. Airlines, Inc., 632 F.3d 837, 845 n.2
(3d Cir. 2011).
17
III. Discussion
This appeal raises the question of whether CIGNA
complied with its own Plan and relied on substantial evidence
in denying LTD benefits to Funk. It also requires us to
address whether CIGNA may assert an equitable lien on
Funk’s Social Security benefits such that it may recoup an
overpayment of benefits. We discuss each of those issues in
turn.
A. CIGNA’s Denial Of LTD Benefits
The District Court held that CIGNA abused its
discretion in denying Funk phase two LTD benefits because
CIGNA failed to comply with the Plan in determining
“disability” and because its decision, which did not give
proper consideration to the evidence and was infected by a
conflict of interest, was not supported by substantial
evidence. We disagree with the former conclusion and
cannot accept the District Court’s analysis as to the latter.
1. Whether CIGNA Complied With the Plan
The District Court concluded that, because CIGNA’s
decision did not explicitly address salary or provide examples
of suitable alternative 60% jobs, CIGNA failed to comply
with the Plan provision requiring it to determine whether
Funk was “incapable of performing the requirements of any
job for any employer … for which the individual is qualified
or may reasonably become qualified … , other than a job that
18
pays less than 60 percent [of his former pay].” 11 (App. 2 at
167.) CIGNA argues that it was not required to explicitly
11
The District Court’s opinion appears to focus on
CIGNA’s initial decision rather than its final decision. For
example, the District Court, in holding that CIGNA had failed
to comply with the Plan, highlighted CIGNA’s failure to
identify a 60% job that Funk could do, given his work
limitations, even though the final decision indicates that Funk
has no work limitations. Similarly, the District Court
criticized CIGNA for basing its decision on Funk’s “intact
computational skills” without explaining how those skills
qualify him for a 60% job, even though the final decision
made no mention of those skills. The Court’s emphasis was
misplaced.
A plan administrator’s final, post-appeal decision
should be the focus of review. See, e.g., 29 C.F.R.
§ 2560.503-1(h) (requiring that claimants subject to adverse
benefit determinations be provided with a “reasonable
opportunity” to appeal that adverse decision); 29 C.F.R.
§ 2560.503-1(h)(2)(i)-(ii) (requiring that claimant be provided
appropriate notice and an opportunity to submit
documentation and evidence supporting his or her claim); 29
C.F.R. § 2560.503-1(h)(2)(iv) & (3)(ii) (requiring that the
plan administrator’s review must “take[] into account all
[additional information] … without regard to whether such
information was submitted or considered in the initial benefit
determination,” “not afford deference to the initial adverse
benefit determination,” and be “conducted by an appropriate
named fiduciary of the plan who is neither the individual who
made the adverse benefit determination that is the subject of
the appeal, nor the subordinate of such individual”). To focus
elsewhere would be inconsistent with ERISA’s exhaustion
19
discuss salary and alternative 60% jobs because it had
authority under the Plan to reasonably interpret Plan
provisions, and it was reasonable to interpret the Plan as not
requiring an analysis of alternative 60% jobs when it had
determined that Funk could return to his former job.
ERISA plans commonly grant authority to plan
administrators to interpret the plan’s terms. Goldstein v.
Johnson & Johnson, 251 F.3d 433, 441 (3d Cir. 2001). Even
so, plan administrators do not have unfettered discretion in
undertaking that task.
requirement. See LaRue v. DeWolff, Boberg & Assocs., Inc.,
552 U.S. 248, 258-259 (2008) (noting that claimants must
“exhaust the administrative remedies mandated by ERISA
§ 503, 29 U.S.C. § 1133, before filing suit under
§ 502(a)(1)(B)”); Metropolitan Life Ins. Co. v. Price, 501
F.3d 271, 280 (3d Cir. 2007) (similar).
A court may of course consider a plan administrator’s
pre-final decisions as evidence of the decision-making
process that yielded the final decision, and it may be that
questionable aspects of or inconsistencies among those pre-
final decisions will prove significant in determining whether a
plan administrator abused its discretion. See, e.g., Miller, 632
F.3d at 855-56 (considering unexplained inconsistencies
between a plan administrator’s initial and final disability
determinations as a factor suggesting an abuse of discretion).
In those instances, however, the pre-final decisions ought
merely to inform a court’s review of the final decision. See
generally id.
20
If the terms are unambiguous, then any actions
taken by the plan administrator inconsistent
with the terms of the document are arbitrary.
But actions reasonably consistent with
unambiguous plan language are not arbitrary. If
the reviewing court determines the terms of a
plan document are ambiguous, it must take the
additional step and analyze whether the plan
administrator’s interpretation of the document is
reasonable.
Bill Gray Enters., Inc. Emp. Health & Welfare Plan v.
Gourley, 248 F.3d 206, 218 (3d Cir. 2001); see also McElroy
v. SmithKline Beecham Health & Welfare Benefits Trust Plan
for U.S. Emps., 340 F.3d 139, 143 (3d Cir. 2003) (holding
that plan administrator was authorized to interpret plan
language that was “equivocal”).
Regardless of CIGNA’s characterization of what it did
here, it does not appear that it interpreted ambiguous Plan
terms. Indeed, the Plan’s requirements for determining phase
two disability appear to be clear and thus unsuited to any
further interpretation. The issue, then, is whether CIGNA
acted “reasonably consistent with” those requirements.
Gourley, 248 F.3d at 218. In our view, it did. The Plan
required CIGNA to determine whether Funk was capable of
working in any job that would pay him 60% of his former
pay. CIGNA literally complied with that requirement when it
determined that Funk could, without restrictions, “perform[]
his regular occupation” (id. at 186), i.e., his former job at
Lucent. It went without saying that his former job could be
understood to pay 100% of his former wage. Moreover,
because CIGNA’s determination that Funk was not disabled
21
did not turn on the existence of an alternative 60% job, it was
unnecessary to discuss in its decision any alternative 60%
jobs. CIGNA’s decision was therefore reasonably consistent
with the Plan, and the District Court’s contrary holding was in
error. 12
2. Whether Substantial Evidence Supported
CIGNA’s Decision
In the alternative, the District Court concluded that
CIGNA’s decision was not supported by substantial evidence
because it did not give proper consideration to the evidence
and was infected by a conflict of interest. Regarding the
latter point, the Court stated that CIGNA “exhibited a
financial conflict of interest in the way that the plan for
Lucent was administered.” (App. 1 at 11.) The Court
reasoned that because CIGNA was a claim administrator
operating in a competitive market, it labored under a conflict.
Citing Glenn, the District Court said, “if a company is a claim
administrator that offers itself to self-funded plans in a
competitive market, then its incentive is to keep claims down
to be more attractive to potential plans,” which incentivizes
the claim administrator to “over-deny claims.” (Id. at 11-12
n.12.)
That analysis, however, does not take full account of
the Supreme Court’s instructions in Glenn. A party’s status
12
Even if we were to consider CIGNA as having
engaged in Plan interpretation, rather than straightforward
Plan execution, the same rationale supports the conclusion
that CIGNA’s interpretation was reasonable.
22
as a third-party plan administrator does not automatically
encumber it with a material conflict of interest. While the
Supreme Court in Glenn did say that, “for ERISA purposes a
conflict exists” when a third-party plan administrator operates
in a competitive market for the delivery of such services, 13
the Court also acknowledged that the conflict may be of little
or no practical significance. See 554 U.S. at 114-15
(explaining that, while a plan administrator may have a
conflict of interest by virtue of its participation in a
competitive market, a court “can nonetheless take account of
the circumstances … which … diminish[] the significance or
severity of the conflict in individual cases” (emphasis
original)).
Here, as even Funk rightly and frankly acknowledged
at oral argument, there is nothing to suggest that CIGNA was
laboring under a meaningful conflict of interest. Thus, the
District Court should not have given the significant weight it
appeared to give to a largely hypothetical conflict. Because
we cannot be sure of the extent to which the District Court’s
weighing of that factor affected the Court’s holding, we will
remand the case for a reevaluation of CIGNA’s claim
13
“For one thing,” the Glenn Court said, “the
employer’s own conflict may extend to its selection of an
insurance company to administer its plan. An employer
choosing an administrator in effect buys insurance for others
and consequently (when compared to the marketplace
customer who buys for himself) may be more interested in an
insurance company with low rates than in one with accurate
claims processing.” Glenn, 554 U.S. at 114.
23
decision in light of the other factors cited by the District
Court.
B. Recouping Overpayment
We now turn our attention to CIGNA’s counterclaim
seeking recoupment of overpaid LTD benefits. Under
ERISA, a fiduciary may bring a civil action “(A) to enjoin
any act or practice which violates any provision of this
subchapter or the terms of the plan, or (B) to obtain other
appropriate equitable relief (i) to redress such violations or
(ii) to enforce any provisions of this subchapter or the terms
of the plan.” 29 U.S.C. § 1132(a)(3). However, a fiduciary
may only seek relief under § 1132(a)(3) if the relief sought
falls within “those categories of relief that were typically
available in equity,” Sereboff v. Mid Atlantic Med. Servs.,
Inc., 547 U.S. 356, 361 (2006) (internal quotation marks
omitted) (emphasis original), and “the basis for its claims is
equitable,” id. at 363. CIGNA here seeks equitable relief to
enforce provisions of the Plan and the related Reimbursement
Agreements.
In Great-West Life & Annuity Ins. Co. v. Knudson, 534
U.S. 204 (2002), an insurer that had paid medical bills for an
insured who had been injured in a car accident sought,
pursuant to a plan provision that reserved “a first lien upon
any recovery … that the beneficiary receives from [a] third
party,” id. at 207 (internal quotation marks omitted),
reimbursement from the insured after she recovered in tort for
her injuries, id. at 207-09. The Supreme Court rejected the
insurer’s claim, explaining that the relief sought could not be
categorized as equitable unless the insured possessed the
particular property to which the lien would attach at the time
24
relief was sought. Because the settlement funds over which
the insurer sought to impose a lien were in a trust, not in the
insured’s possession, the insurer’s claim failed. Id. at 213-14.
In those circumstances, the Court explained, the insurer was
effectively seeking recovery from the insured’s general
assets, which made the relief sought legal, not equitable, and
thus impermissible under § 1132(a)(3). Id. at 214.
Subsequently, in Sereboff, the Supreme Court held an
insurer’s claim for reimbursement was permissible under
§ 1132(a)(3), despite quite similar facts. As in Knudson, the
insurer in Sereboff sought to recoup medical expenses from
an insured who had received a tort settlement. Sereboff, 547
U.S. at 359. The insurer relied on a plan provision requiring
the insured to “‘reimburse [the insurer]’ for [medical] benefits
from ‘[a]ll recoveries from a third party (whether by lawsuit,
settlement, or otherwise).” Id. In Sereboff, though, the funds
upon which the insurer sought to impose a lien were in the
insured’s investment accounts, and so were still in the
insured’s possession. Id. at 362-63. The Court identified that
fact as a meaningful basis for distinguishing Knudson,
explaining that the “impediment to characterizing the relief in
Knudson as equitable [was] not present,” id. at 362, because
the insurer in Sereboff was seeking “to recover a particular
fund from the [insured],” id. at 363.
The Court in Sereboff described the insurer’s claim as
reflecting an equitable lien “by agreement” – that is, a lien
arising out of an agreement to convey ownership of specific
property to one party as soon as the counterparty gets title to
the property. Id. at 363-65 (citing Barnes v. Alexander, 232
U.S. 117, 121 (1914)). The insurance plan provision
requiring reimbursement gave rise to such a lien. Id. When
25
there is an equitable lien by agreement, the Court said, the
lien “follow[s]” the contracted-for property “into the
[counterparty’s] hands,” i.e., it attaches to the specified
property “as soon as [the property] [is] identified.” Id. at 364.
Consistent with that operation, the Court observed, “the fund
over which [an equitable] lien [by agreement] is asserted need
not be in existence when the contract containing the lien
provision is executed.” Id. at 366. Moreover, the Court said,
there is no “tracing requirement” for an equitable lien by
agreement. Id. at 365. Property to which the lien attached
may be converted into other property without affecting the
efficacy of the lien. See id. (observing that the property at
issue in Barnes had been converted into other property
without disturbing the equitable lien by agreement). 14
In the present case, Funk argues that, because the
funds upon which CIGNA sought to impose the lien – the
Social Security award – were no longer in his possession, the
District Court correctly followed Knudson and rejected
14
The Supreme Court’s description of equitable liens
by agreement in Sereboff as laying claim to property not yet
in possession and remaining valid even if the later acquired-
property is converted strongly implies that, in that context and
contrary to the Court’s discussion in Knudson, the defendant
need not possess the property at the time relief is sought in
order for the relief to be equitable – any post-agreement
possession will suffice. See generally Sereboff, 547 U.S. at
361-366 (recognizing that equitable liens by agreement
operate where property is not yet in defendant’s possession
and where property was in defendant’s possession and then
converted).
26
CIGNA’s claim for an equitable lien. If, however, there was
an equitable lien by agreement that attached to the Social
Security award as soon as Funk received it, dissipation of the
funds was immaterial. CIGNA asserts that it has an equitable
lien by agreement, citing the Plan and the Reimbursement
Agreements as agreements identifying specific funds (the
Social Security award) and a particular share of those funds
(the amount of overpayment) to which its lien attached.
Considering the Plan and the Reimbursement
Agreements, we believe that CIGNA has the better of those
arguments. The Plan provides that a Social Security offset
“shall be … payable … by the recipient.” (App. 2 at 172.)
Likewise, the Reimbursement Agreements provide,
respectively, for “reimburse[ment] … for any LTD
overpayment” (id. at 566 (June 22, 2005 agreement)) and
“reimburse[ment of] the full amount of any overpayment” (id.
at 531 (August 13, 2005 agreement)). The Supreme Court in
Sereboff held that language specifying a right to
reimbursement from “[a]ll recoveries from a third party
(whether by lawsuit, settlement, or otherwise)” was sufficient
to create an equitable lien by agreement. 547 U.S. at 359,
369 (internal quotation marks omitted). Because the Plan
and Reimbursement Agreements at issue here likewise
specify the receipt of Social Security benefits as the particular
fund from which reimbursement is to be made, they give rise
to an equitable lien by agreement over those Social Security
funds that are overpayments under the Plan. 15 Thus, the relief
15
We acknowledge that the Plan and the
Reimbursement Agreements, beyond providing that receipt of
a Social Security award triggers the obligation to reimburse
the amount of any overpayment, could have been clearer in
27
CIGNA seeks is appropriate under § 1132(a)(3), and Funk
must reimburse the $6,317 yet due and owing to CIGNA from
the overpayment.
IV. Conclusion
For the foregoing reasons, we will vacate the District
Court’s order with respect to CIGNA’s denial of benefits,
reverse the District Court’s order with respect to CIGNA’s
counterclaim, and remand the case to the District Court for
further proceedings consistent with this opinion.
specifying that reimbursement must come out of or from the
Social Security award. However, in light of the language
found sufficient in Sereboff, we have little trouble concluding
that the language here was sufficiently specific regarding
Social Security awards to create an equitable lien by
agreement.
28