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CERASOLI v. XOMED

April 30, 1999

DON A. CERASOLI, PLAINTIFF,
v.
XOMED, INC., A SUBSIDIARY OF XOMED SURGICAL PRODUCTS, MEROCEL/XOMED HOLDING, INC., DEFENDANTS.



The opinion of the court was delivered by: Larimer, Chief Judge.

DECISION AND ORDER

In this action brought under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq., plaintiff Don A. Cerasoli alleges that his employer, Xomed, Inc., misrepresented to him that his coverage under Xomed's long-term disability plan ("the plan") would commence immediately upon his employment with Xomed, whereas in fact coverage did not begin until ninety days after he began working for Xomed. Plaintiff was seriously injured during that ninety-day period, and was denied benefits as a result.*fn1 Defendants are Xomed and its parent corporations, Xomed Surgical Products, Inc., and Merocel/Xomed Holding, Inc.

On July 23, 1997, I issued a Decision and Order granting in part defendants' motion for summary judgment. Cerasoli v. Xomed, Inc., 972 F. Supp. 175 (W.D.N.Y. 1997) ("Cerasoli II"). I dismissed the plaintiff's fourth cause of action, which alleged that defendants had, through certain words and actions, created a second plan separate from the one at issue here, and the seventh cause of action, which purported to state a claim for punitive damages and attorney's fees.

Five causes of action remain. The first is a claim for benefits under the plan pursuant to 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. The fifth cause of action alleges that Xomed violated its fiduciary duty to plaintiff under 29 U.S.C. § 1109 by representing to him that benefits were available upon employment. In the sixth cause of action, plaintiff contends that Xomed should be estopped from denying benefits to him because of Xomed's alleged misrepresentations.

Both sides have moved for summary judgment. Defendants' motion seeks dismissal of the entire complaint. Plaintiff requests summary judgment on his fifth and sixth causes of action. Plaintiff has also moved for an award of attorney's fees.

DISCUSSION

I. Claim for Benefits Under 29 U.S.C. § 1132(a)(1)

In count one of the amended complaint, plaintiff alleges that he is entitled to benefits under the plan. In their previous motion for summary judgment, defendants contended that this claim should be dismissed because plaintiff is barred from receiving benefits due to the ninety-day waiting period. I denied defendants' motion at that time primarily because there had been no discovery yet. Noting that apart from an insurance contract between Xomed and Paul Revere Life Insurance Company ("Paul Revere"), as well as a Summary Plan Description ("SPD"), no formal written plan appeared in the record, I stated that "[i]f no formal written plan does exist, the terms of the plan may be interpreted by reference to such factors as the parties' intent, understanding, and past practice. . . . If after discovery plaintiff is unable to present any evidence in support of this claim, . . . summary judgment will then be appropriate." Cerasoli II, 972 F. Supp. at 181-82.

Plaintiff has not presented any additional evidence to show that he is actually entitled to benefits under the plan itself. All of the evidence that he has presented in support of his claims relates to theories of relief that depend upon actions or statements outside of the terms of the insurance policy and the SPD, which do appear to be the only documents that set forth the terms of eligibility for long-term disability benefits. To the extent that plaintiff may attempt to show that the parties' intent, understanding, or past practice supports his request for relief, any evidence concerning those matters would appear to relate more to those other theories (e.g. estoppel) than to his claim under § 1132(a)(1). Given the facts presented to the court, then, no rational finder of fact could reasonably conclude that plaintiff is entitled to benefits under the plan. Any possible basis for relief here would fall under one of plaintiff's other claims, and accordingly count one must be dismissed.

II. Modification of the Plan

Both the second and third causes of action are based on allegations that Xomed modified the plan, and then violated the terms of the plan as modified. The second cause of action is based on representations that Xomed allegedly made to plaintiff and other employees that benefits were available immediately upon employment. The third cause of action is based on Xomed's written employment offer to plaintiff stating that disability benefits would be available as soon as he began his employment.

In my July 23, 1997 Decision and Order, I denied Xomed's motions to dismiss these claims primarily because there had been no discovery in the case at that point. Though recognizing the rule that "absent a showing tantamount to proof of fraud, an ERISA welfare plan is not subject to amendment as a result of informal communications between an employer and plan beneficiaries," Moore v. Metropolitan Life Ins. Co., 856 F.2d 488, 492 (2d Cir. 1988), I stated that, there having been no discovery, I was not prepared at that juncture to hold that under no set of facts could plaintiff establish these claims. Cerasoli II, 972 F. Supp. at 181.

In response to defendants' summary judgment motion, plaintiff has added nothing in the way of either facts or argument regarding these claims. Remarkably, his papers filed in opposition to defendants' summary judgment motion do not even address these claims. Since plaintiff has not submitted any evidence tending to show acts by Xomed tantamount to fraud, these claims must be dismissed.

Plaintiff has simply not carried his burden in opposing defendants' motion with respect to these claims. A party opposing a well-founded motion for summary judgment "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Rather, "the non-moving party must come forward with `specific facts showing that there is a genuine issue for trial.'" Id. at 587, 106 S.Ct. 1348 (quoting Fed.R.Civ.P. 56(e)). Plaintiff has presented no facts tending to show conduct tantamount to fraud on defendants' part. Although plaintiff's former attorney*fn2 states in a declaration that "Xomed has conducted a campaign to defeat Mr. Cerasoli's claims, including lying [and] trickery . . .," Declaration of Craig L. McGrain (Item 46) ¶ 24, those allegations relate to Xomed's actions during this litigation; there is no evidence that Xomed's acts or omissions that gave rise to this lawsuit were egregious enough to effect a modification of the plan under the standard enunciated in Moore.

I do note that in his prior brief in opposition to the motion to dismiss, plaintiff contended that the court could consider oral representations and written documents outside the plan itself because defendants had submitted no formal written "plan" as such. The fact remains, however, that ERISA requires every employee benefit plan to "be established and maintained pursuant to a written instrument," 29 U.S.C. § 1102(a)(1),*fn3 and a plan cannot be modified by informal communications, oral or otherwise, "absent a showing tantamount to proof of fraud." Moore, 856 F.2d at 492; Green v. First Reliance Std. Life Ins. Co., No. 96 Civ. 6859, 1997 WL 249967 *3 (S.D.N.Y. May 12, 1997). Plaintiff has not made such a showing. Although he does rely on various statements and documents with respect to his claims for estoppel and breach of fiduciary duty, he has not met the stringent standard of Moore to show modification of the plan. In fact, in discussing his claim for breach of fiduciary duty, plaintiff states that Xomed's alleged misrepresentations "were made in blatant ignorance of the true facts of the availability of disability insurance" and that "[n]obody at Xomed had seen the Paul Revere policy and Xomed had absolutely no idea of the true facts during the time Mr. Cerasoli was applying for employment there." Plaintiff's Memorandum of Law in Support of His Motion for Summary Judgment at 19 (emphasis added). Accordingly, counts two and three must be dismissed.

III. Breach of Fiduciary Duty

Plaintiff's fifth cause of action alleges that Xomed violated it fiduciary duty to him under 29 U.S.C. § 1109 by falsely representing to him that benefits would be available immediately upon his employment. Both sides have moved for summary judgment on this claim.

To establish a claim for breach of fiduciary duty based on alleged misrepresentations concerning coverage under a plan, the plaintiff must show: (1) that the defendant was acting in a fiduciary capacity when it made the alleged misrepresentations; (2) that the defendant made a material misrepresentation; and (3) that the plaintiff relied on that misrepresentation to his detriment. Varity Corp. v. Howe, 516 U.S. 489, 116 S.Ct. 1065, 1071, 134 L.Ed.2d 130 (1996); Ballone v. Eastman Kodak Co., 109 F.3d 117, 122, 126 (2d Cir. 1997).

The first issue, then, is whether Xomed was acting in a fiduciary capacity when it allegedly informed plaintiff that he would be covered under the long-term disability plan as soon as he began his employment. In support of its assertion that it was not acting in a fiduciary capacity, Xomed relies in part on a regulation promulgated by the Department of Labor stating that "persons who have no power to make any decisions as to plan policy, interpretations, practices or procedures," but who perform various administrative functions for an employee benefit plan, including "[o]rientation of new participants and advising participants of their rights and options under the plan," are not fiduciaries with respect to the plan. 29 C.F.R. § 2509.75-8. Xomed contends that since plaintiff's fiduciary-duty claim arises out of Xomed's advising plaintiff of his rights under the plan, Xomed was not acting in a fiduciary capacity.

At first blush, neither the regulation nor Varity provides a clear, obvious answer to the question of whether Xomed acted as a fiduciary in informing plaintiff about the commencement of his disability coverage. For one thing, Varity did not announce a broad, general rule that informing employees of their rights or options under a plan automatically gives rise to a fiduciary relationship. The decision in Varity was expressly limited to the "factual context" of that case. Id. Even assuming the truth of all of plaintiff's factual allegations, Xomed's actions were not as egregious as Varity's, which amounted to deliberate deception of its employees in order to save money by eliminating the employees' nonpension benefits. While § 2509.75-8 must be read against the backdrop of Varity, then, Varity did not overrule that regulation's inclusion of "[o]rientation of new participants and advising participants of their rights and options under the plan" among its list of activities that do not give rise to a fiduciary relationship.

The regulation's applicability to this case also is not entirely clear, for it speaks of "persons who have no power to make any decisions as to plan policy, interpretations, practices or procedures. . . ." 29 C.F.R. ยง 2509.75-8 (emphasis added). Defendants concede that Xomed is the plan administrator, and the "blanket" SPD covering all of Xomed's employee benefit plans states that "[i]n carrying out their respective responsibilities under the Plan, the Plan Administrator and other Plan fiduciaries shall have discretionary authority to interpret the terms of the Plan and to determine eligibility for and entitlement to Plan benefits in accordance with the terms of the Plan." McGrain Declaration Ex. K. This seems to suggest ...


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