Judge William Acker Jr., of the Northern District of Alabama, has been a longstanding critic of Employee Retirement Income Security Act (ERISA). He wrote in a law review article titled, "Can the Courts Rescue ERISA?" 29 Cumb.L.Rev. 285 (1999), the following words:
Occasionally, a statute comes along that is so poorly contemplated by the drafts people that it cannot be saved by judicial interpretation, innovation or manipulation. It becomes a litigant's plaything and a judge's nightmare. ERISA falls into this category. In Florence Nightingale Nursing Service Inc. v. Blue Cross and Blue Shield, 832 F. Supp. 1456 (N.D. Ala. 1993), aff'd, 41 F.2d 1476 (11th Cir. 1995) the opinion started with these three sentences:
A hyperbolic wag is reputed to have said that ERISA stands for "Everything Ridiculous Imagined Since Adam." This court does not take so dim a view of the Employee Retirement Income Security Act of 1974. Instead, this court is willing to believe that ERISA has lurking somewhere in it a redeeming feature.
In his latest opinion, Edgar v. Disability Reinsurance Management Services, Inc., 2010 U.S.Dist.LEXIS 104736 (N.D.Ala. Sept. 17, 2010), Acker continues to challenge accepted wisdom and point out the mistaken path that ERISA litigation has taken. Edgar focuses on the procedural vehicle most often used to resolve ERISA benefit disputes, Rule 56 of the Federal Rules of Civil Procedure – summary judgment. The opinion notes that ERISA authorizes aggrieved benefit claimants to bring a "civil action" seeking benefits due. 29 U.S.C. § 1132(a). That plain language, according to the court's ruling, "simply provides a trial de novo in all cases in which an application for benefits under an ERISA plan is finally turned down by the plan functionary."
Instead, the courts have substituted for the trial de novo unequivocally mandated by Congress a procedure akin to, and borrowed from, the review of an administrative law "judge's decision on a Social Security disability benefits claim." The words "judicial review" nowhere appear in ERISA. "Judicial review" is expressly provided for in a section of the Social Security Act, 42 U.S.C. § 405(g), which is itself titled "Judicial Review." ERISA complaints and Social Security appeals are different animals.
The court further explained the problem — if one party attempts to file a motion for summary judgment — but the other party does not agree to submit the case on a stipulated record, how is the court to apply Rule 56 that demands an adjudication based on admissible evidence and the absence of a genuine issue of material fact? Noting the absence of any appellate or Supreme Court case altering the applicability of Rule 56 to ERISA actions, the court found it could not proceed under that rule. Instead, the court turned to Krolnik v. Prudential Ins. Co., 570 U.S. 841, 843 (7th Cir. 2009), which explained that in a de novo proceeding under ERISA, the court is not conducting a "review" of any kind; it is an independent decision rather than "review" that Firestone contemplates." (Emphasis in original.) Comparing ERISA cases adjudicated under the de novo standard to breach of contract actions, Krolnik further pointed out: "Evidence is essential if the court is to fulfill its fact-finding function. Just so in ERISA litigation." Id.
The ruling in Krolnik thus led the court in Edgar to a solution — in the face of a legitimate dispute of material fact, there must be a trial. As the court noted:
Rule 56 does not lend itself to making credibility determinations or decisions about ambiguous language when witnesses disagree about crucial facts, such as the conflicting medical findings in this case …
This court does not pretend to have the right, much less the ability, to decide a controversy based upon unsworn opinions and unseen, uncross-examined witnesses …
Believability is something that cannot be fairly determined on a cold record that is made up of disputed renditions of the evidence upon which differing conclusions can reasonably be reached.
Consequently, the court found a trial necessary, and concluded by again pointing out: "ERISA badly needs revision, but this court is not Congress and is neither authorized to rewrite ERISA nor to amend the Federal Rules of Civil Procedure."
In a short opinion, Acker exposed the most glaring flaw in ERISA litigation, but also bemoaned the absence of a judicial solution. Rule 2 of the Federal Rules of Civil Procedure explicitly states: "There is one form of action — the civil action." ERISA cases are not enumerated as an exception; and Rule 1 makes the rules applicable to all civil actions. The Federal Rules of Evidence are also universal in their applicability — Rule 1101(b) — without any exception for ERISA cases.
Yet ERISA cases have been taken out of the Rules of Civil Procedure and Rules of Evidence and given a unique procedure that flagrantly ignores the fact that insurance company claim files (the inaptly named "administrative record" in ERISA proceedings) are filled with inadmissible hearsay. Just because an author of a report is a doctor does not mean the report is automatically admissible according to Georgia-Pacific Corp. v. McLaurin, 370 So. 2d 1359, 1362 (Miss. 1979), which valued cross-examination as a necessity in evaluating physician opinions.
Likewise, in Gehin v. Wisconsin Group Insurance Board, 692 N.W.2d 572, 590 (Wis. 2005), the court recognized a problem in state administrative proceedings that is inherent in ERISA cases as well. Yet no court adjudicating an ERISA case has yet identified the blatant violation of the "legal residuum rule," a longstanding evidentiary principle that precludes admission of hearsay in administrative proceedings both as a matter of procedural due process as well as fundamental fairness. See Leonard M. Simon, "The Weight To Be Given Hearsay Evidence By Administrative Agencies: The 'Legal Residuum' Rule," 26 Brook. L. Rev. 265, 267 (1959-60); see also B. Schwartz, "Administrative Law Treatise" § 7.4 at 376 (3d ed. 1991) (stating "the rules of evidence cannot be so relaxed in administrative proceedings as to disregard due process and fundamental rights. There is a fundamental distinction between the admission of incompetent evidence and reliance upon it in reaching a decision.") (Emphasis in original.)
The Supreme Court wisely hit on a solution to the issue in Richardson v. Perales, 402 U.S. 389 (1971), a Social Security disability benefit case that focused on whether a doctor's report was admissible in a hearing conducted by an administrative law judge. The court permitted the admissibility of the report, but only because it was prepared by a doctor who had examined the claimant and who was subject to cross-examination if the claimant had sought a subpoena. Without discovery or trials in ERISA cases, the same indicia of reliability is absent and due process is nonexistent, thus denying ERISA claimants the guarantees inherent in a civil action that Congress authorized when it enacted the law.
Note: Acker and I both recently testified before the Senate Finance Committee at a hearing on the subject of "Do Private Long-Term Disability Policies Provide the Protection They Promise?" available at finance.senate.gov/hearings/hearing/?id=1c1bd578-5056-a032-5237-4dd9283 e52ed.
