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CERASOLI v. XOMED

July 23, 1997

DON A. CERASOLI, Plaintiff,
v.
XOMED, INC., a subsidiary of Xomed Surgical Products, Defendant.



The opinion of the court was delivered by: LARIMER

 BACKGROUND

 On January 15, 1997, I granted defendants' motion to dismiss the complaint on the ground that all the claims were preempted by ERISA. I also granted plaintiff's motion for leave to amend the complaint to state a claim under ERISA. On January 30, 1997, plaintiff filed an amended complaint asserting seven causes of action under ERISA. Defendants have now moved to dismiss the amended complaint under Fed. R. Civ.P. 12(b)(6), or in the alternative for summary judgment under Rule 56. Because defendants have submitted materials outside the pleadings, I will treat the motion as one for summary judgment. *fn1"

 The facts of this case are set forth in my January 30 Decision and Order, and will not be repeated at length here. In short, plaintiff alleges that when he accepted employment with Xomed, he was told that he would immediately be covered by Xomed's long-term disability plan ("the plan"). Shortly after he began working for Xomed, plaintiff was seriously injured during a business trip. His claim for long-term benefits was denied because his injury occurred fewer than ninety days after his employment began. Xomed's long-term disability insurance contract provides that coverage does not begin for new employees until the expiration of a ninety-day waiting period. Plaintiff alleges that Xomed misrepresented the availability of benefits to him, and that as a consequence, he did not obtain interim coverage.

 The amended complaint asserts seven causes of action. The first claim alleges that plaintiff "was entitled to benefits under an ERISA plan sponsored by defendant Xomed" and that Xomed's failure to pay plaintiff benefits violates 29 U.S.C. § 1132(a)(1). The second cause of action alleges that Xomed's representations to plaintiff and other employees that benefits were available immediately upon employment effected a modification of the plan, and that Xomed's failure to pay benefits to plaintiff violates the plan as modified. The third cause of action alleges that Xomed gave plaintiff a written employment offer stating that disability benefits would be available immediately upon employment. Plaintiff alleges that this offer also modified the plan, and that Xomed violated the plan as modified by denying him benefits.

 In the fourth cause of action, plaintiff alleges that his employment contract, combined with certain letters from Xomed to plaintiff and oral statements made by Xomed representatives to plaintiff, constitute a separate and distinct ERISA plan, which Xomed has violated. The fifth cause of action alleges that when Xomed represented to plaintiff that benefits were available upon employment, Xomed violated its fiduciary duty to him under 29 U.S.C. § 1109.

 The sixth cause of action is based upon an estoppel theory. Plaintiff contends that Xomed should be estopped from denying benefits to him because of Xomed's alleged misrepresentations. In the seventh cause of action, plaintiff requests attorney's fees and punitive damages.

 Based upon these causes of action, plaintiff requests the following relief: "the full measure of benefits due under the plan"; equitable relief directing defendants "to take appropriate steps to fully compensate the plaintiff'; an order estopping defendants "from not providing plaintiff with the benefits under the plan"; attorney's fees and costs; and punitive damages.

 I. Breach of Fiduciary Duty and Equitable Estoppel Claims

 Section 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3), permits a plan participant or beneficiary to bring a civil action "(A) to enjoin any act or practice which violates any provision of this title 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 title or the terms of the plan ..." In cases involving alleged misrepresentations about plan benefits or the terms of a plan, courts have interpreted this provision to authorize suits under theories of both equitable estoppel and breach of fiduciary duty. See, e.g., Varity Corp. v. Howe, 516 U.S. 489, 134 L. Ed. 2d 130, 116 S. Ct. 1065, 1075-76 (1996) (fiduciary duty); In re Unisys Corp., 57 F.3d 1255, 1268-69 (3d Cir. 1995) (fiduciary duty), cert. denied, 134 L. Ed. 2d 470, 116 S. Ct. 1316 (1996); Curcio v. John Hancock Mut. Life Ins. Co., 33 F.3d 226, 235 (3d Cir. 1994) (fiduciary duty and estoppel); Center v. First Int'l Life Ins. Co., 1997 U.S. Dist. LEXIS 3480, No. 94-11596, 1997 WL 136473 *13-14 (D.Mass. Mar. 13, 1997) (fiduciary duty and estoppel); Fortune v. Medical Associates of Woodhull, P.C., 803 F. Supp. 636, 641-42 (E.D.N.Y. 1992) (fiduciary duty and estoppel). Construing the allegations of the complaint most favorably to plaintiff, and keeping in mind that there has been no discovery in this case, I find that plaintiff has stated causes of action under both these theories.

 A. Breach of Fiduciary Duty

 As the Supreme Court observed in Varity, "'lying is inconsistent with the duty of loyalty owed by all fiduciaries and codified in section 404(a)(1) of ERISA.'" Varity, 116 S. Ct. at 1074 (quoting Peoria Union Stock Yards Co. v. Penn Mutual Life Ins. Co., 698 F.2d 320, 326 (7th Cir. 1983)). The Second Circuit has very recently joined courts of appeals in several other circuits in holding that "ERISA fiduciaries must provide complete and accurate information in response to beneficiaries' questions about plan terms and/or benefits." Becker v. Eastman Kodak Co., 120 F.3d 5, 1997 U.S. App. LEXIS 17937, 1997 WL 400787 *4 (2d Cir. 1997). Therefore, "when a plan administrator speaks, it must speak truthfully." Mullins v. Pfizer, Inc., 23 F.3d 663, 669 (2d Cir. 1994) (quoting Fischer v. Philadelphia Elec. Co., 994 F.2d 130, 135 (3d Cir.), cert. denied, 510 U.S. 1020, 126 L. Ed. 2d 586, 114 S. Ct. 622 (1993)). Accordingly, material misrepresentations about future benefits are actionable under ERISA. Ballone v. Eastman Kodak Co., 109 F.3d 117, 122 (2d Cir. 1997).

 In the case at bar, plaintiff alleges that defendants affirmatively misrepresented to him that he would be eligible for long-term disability benefits as soon as he began his employment with Xomed. In order to prevail under the theory of breach of fiduciary duty, plaintiff will have to show: (1) that Xomed made a material misrepresentation; (2) that Xomed was acting in a fiduciary capacity when it made the misrepresentation; and (3) that plaintiff relied on that misrepresentation to his detriment. Varity, 116 S. Ct. at 1071; Ballone, 109 F.3d at 122, 126.

 Defendants contend that Xomed is not a fiduciary with respect to the plan because it has no discretionary authority under the plan. Defendants maintain that the fiduciary is the Paul Revere Life Insurance Company ("Paul Revere"). According to defendants, Paul Revere has complete discretion to approve or deny claims for benefits, and Xomed is simply a conduit between Paul Revere and Xomed's employees. Defendants state that Xomed's duties with respect to the plan are purely clerical and ministerial.

 In pertinent part, ERISA defines the term "fiduciary" as anyone who "exercises any discretionary authority or discretionary control respecting management of [a] plan or exercises any authority or control respecting management or disposition of its assets, ... or [who] has any discretionary authority or discretionary responsibility in the administration of such plan." 29 U.S.C. § 1002(21)(A). Thus, "the linchpin of fiduciary status under ERISA is discretion." Curcio, 33 F.3d at 233.


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