The Fifth Circuit becomes the first federal court of appeals to recognize a remedy for a plan's failure to notify a COBRA participant of the termination of a health-care plan under 29 U.S.C. § 1166(a)(4): award of a civil penalty under 29 U.S.C. §§ 1132(a)(1)(A) and 1132(c)(1).
Hager v. DBG Partners, Inc., No. 17-11147 (5th Cir. Sept. 6, 2018): The district court in this case, days away from a bench trial, sua sponte dismissed this case because in concluded that the participant had no remedy against a defunct plan.
Hager, a one-time CFO of the defendant, was terminated and elected to receive COBRA continuation coverage from his former employer. Not quite a year into the coverage, the employer terminated the plan and supposedly sent notice to the participants. But Hager claims never to have received the notice, and the record suggested that it might possibly have been delivered to a different address. Thus Hager paid premiums (which DBG inexplicably deposited) and racked up medical bills while uncovered by insurance.
Hager sued for the failure to receive notice, seeking to be compensated for accrued medical bills. But the district court, relying on a Ninth Circuit decision (Peralta v. Hispanic Bus., Inc., 419 F.3d 1064 (9th Cir. 2005)) held that no section of ERISA gave Hager a remedy.
The Fifth Circuit reverses. It first holds that Hager had statutory standing to bring the claim. It notes that while Hager was no longer an employee and had "no claim for benefits under the plan, because the plan no longer exists," he remained a participant for purposes of challenging an ERISA violation.
Second, the panel finds that there is a colorable violation. While holding that Hager forfeited any claim that his original notice of continuation coverage was invalid under 29 C.F.R. § 2590.606-4(b), it finds that the defendant may have failed to provide notice of continuation coverage termination. Notice is due, under the regulation, at "the end of the maximum period of continuation coverage applicable to [the] qualifying event." The defendant argued below that "the end of the maximum period of continuation coverage" was the date when the plan expired. But this ignored that "[d]ifferent qualifying events-those that allow a plan participant to obtain coverage under COBRA-have different maximum periods of coverage." If the defendant were right, then there would never have to to be termination notice.
Moreover, because the defendant presented no evidence that notice was in fact mailed (it only filed a copy of the notice itself), there was a genuine dispute of fact about whether the plan complied with its obligations. Also, "Hager also points to evidence suggesting that DBG did not act in good faith: (1) DBG sent Hager's employment termination notice, which was hand-delivered earlier than the health plan termination notice, to the correct address; (2) Hager exchanged text messages with [defendant's CEO] Rowan about health insurance, during which Rowan failed to mention the plan's discontinuation; and (3) DBG deposited Hager's premiums when it received them, and refused to refund them for almost two years."
Finally, the panel ticked through the various theories for relief. It rejected two. Hager could not recover benefits due under 29 U.S.C. § 1132(a)(1)(B) because the plan was terminated, and thus no benefits wre "due." And there was no "appropriate equitable relief" under 29 U.S.C. § 1132(a)(1)(B), either. "The remedy Hager seeks is not equitable. Aside from the fact that he does not explicitly ask for restitution, Hager seeks money damages for all medical expenses, which is a claim for money that is in 'the general assets of [DBG], which were not received from, and have not been promised to, [Hager].'"
Still, the panel holds that "§ 1132(c)'s civil penalty is available for failure to provide notice of the termination of the relevant health plan to a COBRA-covered former employee." That relief, awardable through 29 U.S.C. §§ 1132(a)(1)(A), could be "up to $100 a day from the date of such failure," and "such other relief as [the court] deems proper." The court also notes that it may be "proper" to award medical expenses as a penalty under § 1132(c). "But the appropriateness of a penalty, and the amount of such penalty, if appropriate, will require factual findings concerning DBG's good faith, which, as noted above, is disputed."
The court remands for factual development and consideration of attorney's fees.
(As a curious and portentious aside, the defendant filed no brief on the appeal.)