Free Motion for Summary Judgment - District Court of Arizona - Arizona

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40 North Central Avenue Phoenix, Arizona 85004-4429 Ann-Martha Andrews, State Bar No. 012616 Direct Dial: (602) 262-5707 Direct Fax: (602) 734-3764 EMail: [email protected] Thomas Klinkel, State Bar No. 010955 Direct Dial: (520) 629-4428 Direct Fax: (520) 879-4712 EMail: [email protected] Scott M. Bennett, State Bar No. 022350 Direct Dial: (602) 262-5338 Direct Fax: (602) 734-3816 EMail: [email protected] Attorneys for Defendants

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA David L. Mazet, ) ) Plaintiff, ) ) vs. ) ) Halliburton Company Long-Term Disability ) Plan; Hartford Life & Accident Insurance ) Company, ) ) Defendants. ) ) )

No. CV04-00493-PHX-FJM DEFENDANTS' RESPONSE TO PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT and CROSS-MOTION FOR SUMMARY JUDGMENT

Hartford did not abuse its discretion in calculating Mazet's pre-disability earnings. In fact, the new information that his former employer has provided further supports Hartford's decision. This Court should therefore deny Mazet's motion for summary judgment, and should instead grant judgment for the defendants, Hartford and the Plan. This response and cross-motion are supported by the separately filed statement of facts ("SOF"), and the following memorandum of points and authorities. MEMORANDUM OF POINTS AND AUTHORITIES 1. Factual background. This case involves a dispute over long-term disability ("LTD") benefits under an employee-benefit plan. The plaintiff's claim for benefits is governed by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001-1461. The plaintiff, David Mazet, was injured on the job in August of 2000. (SOF ¶ 1) He later made a claim for LTD benefits under the employee-benefit plan of his employer,
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Halliburton. (SOF ¶ 2) Halliburton funded its LTD benefits by purchasing a group insurance policy from Hartford. (SOF ¶ 3) The Hartford policy provides monthly benefits if a participant becomes "disabled." The definition of "disabled" changes over time. During the 180-day elimination period (waiting period) and then the first 24 months of benefit payments, "Disability or Disabled means that . . . you are prevented by . . . accidental bodily injury . . . from performing one or more of the Essential Duties of your Own Occupation, and as a result your Current Monthly Earnings are no more than 80% of your Indexed PreDisability Earnings." After a plan participant has received 24 months of benefits, the definition changes from an "own occupation" standard to an "any occupation" standard: "Thereafter, you must be so prevented from performing one or more of the Essential Duties of Any Occupation." (SOF ¶ 4) In this case, Hartford accepted Mazet's claim. It started paying him benefits on February 26, 2001, after the expiration of the policy's 180-day elimination period. (SOF ¶ 5) The policy's monthly benefit is 60% of a participant's pre-disability earnings. (SOF ¶ 6) Halliburton had informed Hartford that Mazet's pre-disability earnings were $4,524.09. (SOF ¶ 7) Hartford therefore paid Mazet a monthly benefit of 60% of that-- $2,714.45. (SOF ¶ 8) Hartford continued to pay benefits for the entire 24-month, "own occupation" period. But the company discontinued benefits effective February 26, 2003 because it determined that Mazet did not qualify under the more restrictive, "any occupation" definition of disability that went into effect at that point. (SOF ¶ 9) Mazet then brought this lawsuit. (SOF ¶ 10) The parties filed cross motions for judgment on the administrative record. (SOF ¶ 11) This Court held, in an initial order, that the abuse-of-discretion standard of review applies. (SOF ¶ 12) Approximately one month later, this Court granted judgment on the administrative record in favor of the defendants, Hartford and the Plan. (SOF ¶ 13) In that second order, this Court held that Hartford did not abuse its discretion by deciding that Mazet did not qualify for benefits
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under the "any occupation" standard. (Id.) The Court also remanded an issue that Mazet had raised for the first time in his motion: Whether Hartford "properly calculated Mazet's predisability earnings when determining his benefits during the initial 24 month disability period [the "own occupation" period]." (SOF ¶ 14) Mazet appealed this Court's decision to the Ninth Circuit. Upon the defendants' motion, that Court dismissed the appeal for lack of a final order because of the remanded issue. (SOF ¶ 15) This Court subsequently issued an order that stated, in relevant part: "This entire case is remanded to the plan administrator [Hartford] to determine if plaintiff's pre-disability wages were properly determined and if he was underpaid during the initial twenty-four month period." (SOF ¶ 16) Mazet did not submit any new material for Hartford to consider on remand. But rather than simply relying on the documents contained in the administrative record, Hartford sent a letter to Halliburton that asked for Mazet's monthly rate of basic earnings. To assist Halliburton, the letter provided the relevant policy provisions:

(SOF ¶ 17)

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In response, Halliburton informed Hartford that on the relevant date (October 1, 1999), Mazet's monthly rate of basic earnings was $4,228:

(SOF ¶ 18) This monthly rate of basic earnings ($4,228) is actually lower than the monthly rate that Hartford used during the claim process ($4,524.09). (SOF ¶ 19) The higher figure was provided by Halliburton during the claim. (Id.) There is no readily apparent explanation for the discrepancy. One possibility is that, during the claim, Halliburton provided Mazet's rate of earnings as of the day he stopped working, rather than his rate as of the previous October 1, as the policy requires. The monthly rate of basic earnings provided by Halliburton does not appear to include Mazet's "deferred compensation." (SOF ¶ 20) Mazet's W-2 wage and tax statement for 1999 (which he did not provide to Hartford, either during the claim or on remand) indicates a "Code D" amount of $8,785.65. (Id.) The 1999 form gives no indication what "Code D" is. (Id.) But Mazet's W-2 wage and tax statement from the previous year indicates that "Code D" includes "DEF COMP 401(k)." (SOF ¶ 21) Presumably "DEF COMP" is an abbreviation for deferred compensation. But Mazet's wage and tax statement gives no indication exactly what his deferred compensation includes. (Id.) And, according to Black's Law Dictionary, the phrase deferred compensation has a number of possible meanings:
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deferred compensation. 1. Payment for work performed, to be paid in the future or when some future event occurs. 2. An employee's earnings that are taxed when received or distributed rather than when earned, such as contributions to a qualified pension or profit-sharing plan. (SOF ¶ 22) On remand, Hartford considered Mazet's argument that his deferred compensation should count as part of his monthly rate of basic earnings. (SOF ¶ 23) (Mazet had made this argument in his briefing to this Court; he submitted no letter or other documents to Hartford for the remand.) (Id.) Applying the policy's definition of Monthly Rate of Basic Earnings, Hartford determined that deferred compensation does not count because it is not "regular monthly pay from the Employer . . . ." (Id.) Mazet then filed a motion for summary judgment, which challenges Hartford's decision. (SOF ¶ 24) This Court should deny that motion. Based on the most recent information supplied by Halliburton, Mazet's monthly rate of basic earnings was lower than Hartford had understood during the claim process. Consequently, Hartford did not underpay Mazet during the initial, 24 month, "own occupation" period. It actually overpaid him. And the new, lower rate of earnings strengthens this Court's earlier grant of summary judgment to the defendants. The Court should therefore deny Mazet's pending motion for summary judgment, and grant judgment for the defendants. 2. The abuse-of-discretion standard of review applies. This Court previously held that, because the Plan document unambiguously grants Hartford discretion in making claim decisions, the abuse-of-discretion standard applies. (SOF ¶ 25) Thus, this Court must affirm Hartford's decisions on Mazet's claim unless Hartford made those decisions "without any explanation, or in a way that conflicts with the plain language of the plan, or that is based on clearly erroneous findings of fact." Atwood v. Newmont Gold Co., 45 F.3d 1317, 1323-24 (9th Cir. 1995), overruled on other grounds by Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955 (9th Cir. 2006) (en banc).

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3.

Hartford did not abuse its discretion in calculating Mazet's benefits during the initial, 24-month benefit period. Hartford did not abuse its discretion in calculating Mazet's benefits during the

initial, "own occupation" period. Its decision was correct. And the new information provided by Halliburton further supports Hartford's decision. Using the most recent monthly earnings figure supplied by Halliburton--$4,228-- Hartford overpaid Mazet during the "own occupation" period. For 24 months, Hartford paid Mazet a monthly benefit of $2,714.45--60% of $4,524.09. But the information provided by Halliburton on remand demonstrates that Mazet's pre-disability earnings were not that high. As a result, Hartford should have paid Mazet monthly benefits of just $2,536.80--60% of $4,228. Thus, over the initial 24 months, Hartford overpaid Mazet by $4,263.60. If Hartford made an error, it was actually in Mazet's favor. Mazet now contends that Hartford should have included his deferred compensation in the calculation of his pre-disability earnings. He asserts--with no citation to the record--that what his W-2 forms list as "DEF COMP 401(k)" represents "fully self-funded and voluntary contributions from his salary into his 401(k) retirement plan . . . ." (Mazet MSJ at 2, lines 3-4) In other words, Mazet's position is that, because deferred compensation is nothing more than regular salary that he elected to funnel to his 401(k) rather than receiving in his paycheck, it should still be counted as part of his predisability earnings. One fatal flaw in this argument is that Mazet has no evidence to support it. The only documents that Mazet points to in support are his W-2 forms. But those forms, as this Court has already ruled, are not part of the administrative record, and therefore may not be considered in this lawsuit. See Order dated August 18, 2005 (docket No. 40) at 56 (striking several of Mazet's exhibits to his motion for judgment as the administrative record, including exhibit 5, which included his W-2 forms for 1998, 1999, and 2000). Even after remand, the W-2 forms are not part of the administrative record because

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Mazet did not submit them to Hartford for its consideration.1 Another problem with Mazet's argument--that deferred compensation includes only his voluntary 401(k) contributions--is that this is the very first time that he has made it. Mazet did not raise this argument during the original claim process, the litigation, or the recent remand to Hartford. He has failed to exhaust his administrative remedies on this argument. This Court should therefore disregard it. See Amato v. Bernard, 618 F.2d 559, 568 (9th Cir. 1980) ("[W]e conclude that the federal courts have the authority to enforce the exhaustion requirement in suits under ERISA, and that as a matter of sound policy they should usually do so."). And even if this Court were permitted to consider the W-2 forms, and were willing to excuse Mazet's failure to raise this argument during the administrative process, the W2 forms shed no light on exactly what Mazet's deferred compensation includes. He contends that it includes only his own, voluntary 401(k) contributions. But he cites no evidence at all--let alone anything in the administrative record--to support that contention. In light of the complete lack of evidence on this point, it is equally possible that Mazet's deferred compensation actually represents Halliburton's contributions to Mazet's 401(k), or some form of bonus, commission, or extra compensation that was deposited into that account. Whatever Mazet's deferred compensation includes, his own former employer, Halliburton, has taken the position that it is not part of his basic rate of monthly earnings. There is no dispute that the monthly earnings figure that Halliburton supplied Hartford on
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Mazet argues in his motion that Hartford "ignored" his W-2 forms. (MSJ at 5, lines 1115) That is false. Despite the fact that he was represented by counsel during the original claim, and then on the recent remand, Mazet never submitted the W-2 forms to Hartford. Hartford could not have "ignored" documents that it never received. On a related matter, Mazet also argues that "Hartford and the Plan are required to determine the appropriate `predisability earnings' based upon the W-2 wage statements provided to the claimant by his employer." As the defendants explain in their separately filed Response to Plaintiff's Statement of Facts (paragraph 6), "[n]either the Hartford policy (aka the plan document) nor the SPD even mentions W-2 forms, much less requires Hartford to use them when calculating Mazet's LTD benefits."
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remand--$4,228--does not include deferred compensation. Based on this information from Halliburton, Hartford reasonably resolved the factual uncertainty about what Mazet's deferred compensation includes by concluding that it is not part of his basic earnings. That was not an abuse of discretion. Mazet argues that the policy is ambiguous. (MSJ at 4, lines 4-11) But he does not even specify which language is susceptible to more than one reasonable meaning. And that is because the uncertainty in this case does not involve the text of the Hartford policy, but the facts. The uncertainty is what is included in Mazet's deferred compensation. Hartford resolved this factual uncertainty by exercising its discretion and agreeing with Halliburton's conclusion that deferred compensation is not part of Mazet's basic earnings. Mazet next argues that the policy's offset provisions support his argument that deferred compensation should be considered part of his pre-disability earnings. The policy states that certain benefits are offset against (deducted from) LTD benefits. Among the benefits that are offset are any "retirement benefit from a Retirement Plan that is wholly or partially funded by employer contributions . . . ." But any portion of retirement benefits "that was funded by your after-tax contributions" is not offset.2 (SOF ¶ 26) The offset provision does not support Mazet's argument, for two reasons. First, the offset provision is completely distinct from the policy's definition of Monthly Rate of Basic Earnings, which is the provision that is at issue here. The fact that a particular source of income is not subject to an offset does not mean that it must be included in the participant's basic earnings. For example, suppose a plan participant purchases an individual disability insurance policy in order to supplement the LTD benefits available under the Halliburton plan. And suppose that employee becomes disabled and collects benefits under both the Halliburton plan and the private policy. The
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In Mazet's motion and statement of facts, he cites the offset language in the summary plan description, rather than the policy. Although the exact language of the offset provisions in the two documents differs slightly, the provisions appear to be materially the same.
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private insurance benefits are not subject to an offset under the Halliburton plan. (SOF ¶ 27) But that does not mean that they qualify as part of a participant's basic earnings. The second flaw in Mazet's argument is that it assumes, once again, that his deferred compensation includes only his own, voluntary contributions to his 401(k) account. As discussed above, the record contains no support for that argument. Based on the record, it is equally possible that all of Mazet's deferred compensation came from Halliburton, and Mazet could not have chosen to receive it in his paycheck instead. And if that were the case, then the deferred compensation, when ultimately paid out to Mazet, would be offset against plan LTD benefits. (SOF ¶ 28) 4. Any error in calculating benefits does not impact this Court's previous grant of summary judgment in favor of Hartford and the Plan. Mazet next urges this Court to revisit its previous grant of judgment for the defendants. He argues that Hartford undercalculated his pre-disability earnings, and that Hartford's mistake not only led to an underpayment of benefits during the initial, 24month period, but also calls into question the company's decision that Mazet is not entitled to benefits under the "any occupation" standard that went into effect on February 26, 2003. This argument is based on the fact that the "any occupation" standard has an income component--Mazet is entitled to benefits after February 26, 2003 if he cannot perform any occupation that he is qualified for, and that has an earnings potential of more than 60% of his pre-disability earnings. During the claim process, Hartford identified a number of occupations that Mazet was qualified for, and that offered an adequate earnings potential. Mazet now argues that, if Hartford undercalculated his pre-disability earnings, that could mean that the occupations Hartford previously identified would not have adequate earnings potential. There are two flaws in this argument. Mazet's argument depends on the assumption that Hartford undercalculated his pre-disability earnings. But as the previous section demonstrates, Hartford actually overcalculated that figure. Mazet's pre-disability earnings were lower than Hartford
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previously understood. This strengthens the defendants' position. It means that, not only do the occupations previously identified by Hartford offer adequate earnings potential, but there are likely additional occupations that Mazet could perform and that have an earnings potential of 60% of his pre-disability earnings. Even if this Court were to determine that Hartford abused its discretion in calculating Mazet's pre-disability earnings, that still would not be grounds for setting aside the previous grant of judgment for the defendants. Mazet contends that his monthly pre-disability earnings were $4,954.29. (Mazet SOF ¶ 7) To qualify for benefits under the "any occupation" standard, he would have to prove that he was unable to perform any occupation with an earnings potential of 60% of that, which is $2,972.57. During the claim process, however, Hartford determined that Mazet is capable of performing at least five occupations, all of which have a monthly earnings potential of $3,103.03.3 (SOF ¶ 29) Even if the required earnings potential were raised to $2,972.57, as Mazet urges, those five occupations would still satisfy the required earnings potential. The Court should not revisit its grant of summary judgment to the defendants. The new earnings information supplied by Halliburton strengthens the defendants' position. And even if the Court were to adopt Mazet's proposed earnings figure, that still would not affect his eligibility for benefits under the "any occupation" standard. But if the Court agrees with Mazet and decides that it is appropriate to re-open the issue of Mazet's eligibility for benefits from February 26, 2003 forward, then the proper course is to remand this case to Hartford once again. The administrative record, as it currently exists, is not sufficient to make that determination. The most recent labor market information in the record is from January of 2003; the most recent medical
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During the briefing on the parties' original motions for judgment on the administrative record, Mazet attempted to attack Hartford's figures on the monthly earnings potential of these occupations. To do this, Mazet presented documents that are not part of the administrative record. The Court struck these documents based on the Ninth Circuit's rule that, in an ERISA case that is subject to the abuse-of-discretion standard, courts may not consider evidence outside of the administrative record. See Order dated August 18, 2005 (docket No. 40) at 5-6.
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information is from December of 2002. The Court would therefore need to remand the case so that the parties could collect the necessary evidence, and Hartford could make a decision about Mazet's eligibility for benefits in the first instance. See Patterson v. Hughes Aircraft Co., 11 F.3d 948 (9th Cir. 1993) (instructing the district court to remand the case to the insurer so that it could consider, in the first instance, whether the participant was disabled under the Ninth Circuit's interpretation of the policy). RESPECTFULLY SUBMITTED this 13th day of August, 2007. LEWIS AND ROCA LLP

s/ Scott M. Bennett Ann-Martha Andrews Thomas Klinkel Scott M. Bennett Attorneys for Defendants CERTIFICATE OF SERVICE I hereby certify that on August 13, 2007, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing of the following CM/ECF registrants: Randolph G. Bachrach, Esq. Law Offices of Randolph G. Bachrach 5103 East Thomas Road Phoenix, Arizona 85018 Attorneys for Plaintiff s/ Michelle T. Gallegos

By

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