FILED
NOT FOR PUBLICATION JAN 17 2013
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
JENNIFER LUKAS; JOYCE WATTERS, No. 11-16051
Plaintiffs - Appellants, D.C. No. 2:09-cv-02423-WBS-
DAD
v.
UNITED BEHAVIORAL HEALTH; IBM MEMORANDUM *
MEDICAL AND DENTAL EMPLOYEE
WELFARE BENEFIT PLANS,
Defendants - Appellees.
Appeal from the United States District Court
for the Eastern District of California
William B. Shubb, District Judge, Presiding
Argued November 7, 2012
Submitted January17, 2013
San Francisco, California
Before: BERZON and FERNANDEZ, Circuit Judges, and SMITH, District
Judge.**
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
**
The Honorable William E. Smith, District Judge for the U.S. District
Court for the District of Rhode Island, sitting by designation.
Appellants Jennifer Lukas and Joyce Watters appeal the district court’s
judgment in favor of Appellees United Behavioral Health (UBH) and IBM Medical
and Dental Employee Welfare Benefit Plans (Plan) in Appellants’ suit under the
Employee Retirement Income Security Act of 1974 (ERISA) for improperly denied
benefits. Appellants allege that Appellees abused their discretion in denying their
claim for benefits for Lukas’s residential treatment for an eating disorder and co-
morbid conditions at Alta Mira Treatment Center (Alta Mira) on the ground that
her treatment was not medically necessary. We review de novo the district court’s
choice and application of the standard of review to Appellees’ decision to deny
benefits, Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 962 (9th Cir. 2006)
(en banc), and we reverse.
While the parties agree that the district court correctly reviewed the denial of
benefits under an abuse of discretion standard, the court erred in holding that
Appellees did not abuse their discretion in this case. Because of IBM’s dual role as
evaluator and payor of claims, the Plan Administrator operated under a conflict of
interest. See id. at 965. This conflict “must be weighed as a facto[r] in
determining whether there is an abuse of discretion.” Id. (quoting Firestone Tire &
Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989)) (internal quotation marks omitted)
(alteration in original). The importance of a conflict in the abuse of discretion
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analysis depends upon the facts of the particular case. Here, we must weigh the
conflict “heavily” for two reasons. First, Appellees failed to adequately investigate
Appellants’ claim and failed to ask Appellants for necessary evidence. See id. at
968. Each of Appellants’ two appeals was denied based on a supposed lack of
documentation of Lukas’s condition at the time of her treatment at Alta Mira.
Despite this apparent absence of necessary information, at no point in the appeals
process did Appellees request additional medical records from Appellants.
Second, when Appellants nonetheless did submit reliable evidence, Appellees gave
insufficient credit to that evidence. See id. In support of their second appeal,
Appellants submitted a letter from Victoria Green, a member of the Alta Mira staff.
Green’s letter outlined several specific reasons why residential treatment was
medically necessary for Lukas. While the reviewing physician hired by the Plan
Administrator nominally considered Green’s letter, neither the physician nor the
Administrator even attempted to explain why that letter failed to substantiate
Appellants’ claim.
“A procedural irregularity, like a conflict of interest, is a matter to be
weighed in deciding whether an administrator’s decision was an abuse of
discretion.” Id. at 972. In the present case, serious procedural violations plagued
every level of Appellees’ review process. Most troubling among these violations is
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Appellees’ repeated failure to explain the rationale behind the denial of Appellants’
claim. UBH failed to issue any written denial of its initial adverse benefit
determination. This was a clear violation of ERISA regulations. See 29 C.F.R. §
2560.503-1(g)(1).
In denying Appellants’ first appeal, UBH’s reviewing physician succinctly
stated, “it is my determination that Medical Necessity Requirements for the
Residential Treatment Level of Care are not met. Care could have occurred with
Outpatient providers.” This conclusory statement did not constitute the
“meaningful dialogue” required by ERISA. See Booton v. Lockheed Med. Benefit
Plan, 110 F.3d 1461, 1463 (9th Cir. 1997); see also 29 C.F.R. § 2560.503-1(j)(1),
(j)(5)(ii). Appellees’ failure to provide any comprehensible explanation for
denying Appellants’ claim is rendered even more problematic by the fact that they
had in their possession internal notes containing a much more complete articulation
of their rationale. Appellees failed to provide Appellants with these notes even
after Appellants specifically requested a complete copy of UBH’s case file on
Lukas. This constituted yet another violation of ERISA regulations. See 29 C.F.R.
§ 2560.503-1(h)(2)(iii). Additionally, despite the fact that UBH’s denial was
expressly based on its level of care guidelines, at least one version of the letter
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denying the first appeal did not contain the criteria set forth in those guidelines, as
required by ERISA regulations.1 See id. § 2560.503-1(j)(5)(i).
More procedural irregularities occurred during the course of the second
appeal. First, the Plan Administrator failed to identify the reviewing physician
whose advice it obtained in connection with that appeal. See id. § 2560.503-
1(h)(3)(iv). Second, Appellees once again failed to explain the denial of
Appellants’ claim. The denial letter stated only that “[t]here was not enough
current justification in the documentation presented to meet medical necessity
criteria for residential level of care.”
In light of the Plan Administrator’s conflict of interest and the serious
procedural violations committed by Appellees, the decision to deny benefits for
Lukas’s treatment at Alta Mira constituted an abuse of discretion. In the seven
months leading up to her arrival at Alta Mira, Lukas repeatedly failed in intensive
outpatient treatment and even residential treatment. Victoria Green, in a letter
1
There are two versions of the denial of the first appeal in the record, one of
which contains the guidelines criteria and one of which does not. While it appears
that Appellants received the version containing the guidelines criteria at some
point, it is unclear when and how they received it. The district court made no
factual finding on this point. In any case, given the various other significant
procedural violations committed by Appellees, this particular irregularity is not
crucial to the result reached by this court.
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submitted to the Plan Administrator, provided specific reasons why residential
treatment was medically necessary for Lukas. While at Alta Mira, Lukas required
monitoring during and after meals, monitoring of her exercise, and daily blind
weigh-ins. Appellees never gave any indication as to why this letter was
insufficient to substantiate Appellants’ claim, instead falling back on the purported
lack of documentation of Lukas’s condition when she began treatment at Alta Mira
and any eating disorder symptoms or other issues she experienced during
treatment. Reliance upon a lack of documentation was unreasonable because it
was not supported by the record and because Appellees’ numerous procedural
violations deprived Appellants of the opportunity to provide additional relevant
records. Moreover, the fact that Lukas’s treatment, which included close
monitoring of her eating and related behaviors, was ultimately successful does not
indicate that the treatment was not medically necessary at the outset. Because the
Plan Administrator was obligated to award benefits on the administrative record,
we reverse and remand with instructions to the district court to direct an award of
benefits to Appellants and to conduct any further proceedings consistent with this
order. See Salomaa v. Honda Long Term Disability Plan, 642 F.3d 666, 681 (9th
Cir. 2011).
REVERSED.
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