David Hager v. Todd G. Rowan

Case: 17-11147 Document: 00514631609 Page: 1 Date Filed: 09/06/2018
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 17-11147
United States Court of Appeals
Fifth Circuit
FILED
DAVID L. HAGER, September 6, 2018
Lyle W. Cayce
Plaintiff - Appellant Clerk
v.
DBG PARTNERS, INCORPORATED,
Defendant - Appellee
Appeals from the United States District Court
for the Northern District of Texas
Before STEWART, Chief Judge, and WIENER and HIGGINSON, Circuit Judges.
WIENER, Circuit Judge:
After Plaintiff-Appellant David Hager was fired by Defendant-Appellee
DBG Partners, Inc (“DBG”), he obtained continuation coverage under DBG’s
ERISA health care plan through the Consolidated Omnibus Budget Recovery
Act (“COBRA”). Hager later filed this suit, alleging that DBG had discontinued
its health plan without notifying him, violating COBRA’s notice requirements.
The district court sua sponte dismissed Hager’s claim on the eve of trial,
concluding that ERISA did not provide Hager with a remedy. Hager appeals,
and we reverse.
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I. FACTS AND PROCEEDINGS
Hager was DBG’s Chief Financial Officer until August 15, 2014. By a
letter hand-delivered to Hager’s home address that day, DBG’s Chief Executive
Officer, Todd Rowan, notified Hager that he was fired. Various sections of
COBRA allow a former employee to continue receiving health insurance
through the former employer’s ERISA health insurance plan. 1 Hager elected
to continue his enrollment in DBG’s health plan with Blue Cross Blue Shield
through COBRA.
In May 2015, DBG decided to terminate its Blue Cross Blue Shield
health plan. DBG has produced a letter addressed to Hager’s former address—
not the address where it sent Hager’s termination letter—stating that it was
terminating that coverage effective June 1, 2015. Hager contends he never
received this letter. He continued paying his insurance premiums to DBG
through August 2015, and DBG deposited his checks. From June to August
2015, Hager underwent colon cancer treatment. In August 2015, Hager
learned that he had not been covered during those months.
In February 2016, Hager sued DBG, seeking reimbursement of his
medical expenses for the period he was without coverage. 2 He alleged that DBG
had committed statutory violations of COBRA by failing to notify him of (1) his
right to COBRA coverage and (2) the termination of the insurance plan. Hager
also alleged fraudulent conversion of his insurance premiums for the period
after the health plan was cancelled. In May 2017, DBG refunded Hager’s
insurance premiums for June to August 2015.
On August 8, 2017, the district court held a pretrial conference, at which
Hager, through counsel, acknowledged that he had received notice of his
1 29 U.S.C. 1161 et seq.; see Geissal v. Moore Med. Corp., 524 U.S. 74, 79–80 (1998).
2 Hager also alleged causes of action against Rowan, but the court dismissed Rowan
from the suit in July 2017, which Hager does not appeal.
2
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eligibility for COBRA coverage. Hager therefore elected to proceed only on his
claim that DBG had failed to notify him that the plan coverage was being
terminated. At the pretrial conference, the district court expressed uncertainty
that DBG had any obligation to notify Hager that coverage was being
terminated. At the hearing, the court asked for citations to the statute or
regulation that imposed such a notice requirement.
Two days later, Hager’s counsel filed a status report on the parties’
unsuccessful settlement discussions. He drew the court’s attention to the
provision of the Code of Federal Regulations that requires a plan administrator
to give notice if COBRA coverage is terminated prematurely. 3
On August 16, the parties again met for a settlement conference, which
again proved unsuccessful. After the conference, the parties reported to the
courtroom; the proceeding that followed is not in the record. The court
apparently expressed its concern that, even if DBG did have a notice obligation,
ERISA (of which the relevant sections of COBRA are a part 4) did not allow
monetary damages. The court specifically highlighted a case from the Ninth
Circuit which suggested that remedy was unavailable. 5 The court nevertheless
determined to proceed to trial the following week.
The parties appeared before the court several days later to dispose of the
remaining pretrial matters. The district court reiterated its concern that Hager
lacked a remedy and ordered the parties to reconvene in a few hours for Hager
to present authority that supported the availability of his remedy. When they
reconvened, Hager’s attorney directed the court to several district court cases,
but the court rejected them as factually dissimilar. The court then sua sponte
3 29 C.F.R. § 2590.606-4(d). Hager had cited this regulation in his pretrial
memorandum, but it contained a typographical error.
4 See Geissal, 524 U.S. at 79–80.
5 See Peralta v. Hispanic Bus., Inc., 419 F.3d 1064, 1076 (9th Cir. 2005).
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dismissed Hager’s COBRA claims with prejudice. Hager elected not to pursue
his fraudulent conversion claim, which the court dismissed without prejudice.
Hager appeals only the dismissal of his COBRA claim.
II. STANDARD OF REVIEW
“Our review of the district court’s dismissal for failure to state a claim
for relief is de novo.” 6 A district court may consider the sufficiency of a
complaint on its own initiative, “as long as the procedure employed is fair.” 7
“[F]airness in this context requires both notice of the court’s intention and an
opportunity to respond.” 8 Hager was aware of the court’s concern about the
viability of his claim and that the defendant had asked the court to dismiss the
case with prejudice, albeit in a perfunctory filing. Moreover, Hager had the
opportunity to make his case for a remedy to the district court. In any event,
Hager has forfeited any challenge to the district court’s sua sponte dismissal
by failing to raise the issue on appeal. 9
III. ANALYSIS
We note that DBG has elected not to file a brief in this matter, but that
does not preclude our consideration of the merits. 10 Hager contends that DBG
violated COBRA’s notice provision and that the district court erred in
determining that he could not recover money damages for this violation.
Because COBRA is a part of ERISA, any remedy is limited to ERISA’s
“carefully crafted and detailed enforcement scheme.” 11 That enforcement
6First Gibraltar Bank, FSB v. Smith, 62 F.3d 133, 135 (5th Cir. 1995).
7Davoodi v. Austin Indep. Sch. Dist., 755 F.3d 307, 310 (5th Cir. 2014) (quoting Lozano
v. Ocwen Fed. Bank, FSB, 489 F.3d 636, 642 (5th Cir. 2007)).
8 Id. (quoting Lozano, 489 F.3d at 643).
9 See Celanese Corp. v. Martin K. Eby Const. Co., 620 F.3d 529, 531 (5th Cir. 2010).
10 Cf. FED. R. APP. P. 31(c) (an appellee who does not file a brief forfeits the right to
appear at oral argument).
11 Great–West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 209 (2002) (quoting
Mertens v. Hewitt Assocs., 508 U.S. 248, 254 (1993)).
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scheme is embodied in 29 U.S.C. § 1132. So, we first examine whether Hager
has standing to bring an action under that statute. 12 If we conclude that he
does, we consider whether a COBRA notice violation can sustain a cause of
action. If it can, we determine what remedy, if any, would be available for such
a violation.
A. ERISA Standing
To bring a suit under ERISA, Hager must be a plan “participant.” 13 A
participant may be a former employee who “is . . . eligible to receive a benefit
of any type from an employee benefit plan which covers employees of such
employer[.]” 14 At least one court has suggested that termination of COBRA
coverage eliminates a former employee’s status as a participant. 15 And, the
Supreme Court has stated that an employee must have a “‘colorable claim’ to
vested benefits” to be a participant. 16 As noted below, though, Hager has no
claim for benefits under the plan, because the plan no longer exists.
More recently, however, the Supreme Court decided Varity Corp. v.
Howe, in which employees were persuaded to transfer from an employer’s old
benefit plan to a new benefit plan, but later lost their benefits when the
company under which the new plan was formed went into receivership. 17 The
employees brought a suit for benefits they would have been owed under the old
plan, and the Court noted that they were “participants or beneficiaries.” 18
12 Cobb v. Cent. States, 461 F.3d 632, 635 (5th Cir. 2006) (explaining that standing
under ERISA is a jurisdictional matter); see Howery v. Allstate Ins. Co., 243 F.3d 912, 919
(5th Cir. 2001) (when necessary, the court “must consider jurisdiction sua sponte”).
13 See 29 U.S.C. § 1132(a).
14 Id. § 1002(7).
15 Nechis v. Oxford Health Plans, Inc., 421 F.3d 96, 101 (2d Cir. 2005).
16 Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 117 (1989) (citation omitted).
17 516 U.S. 489, 494 (1996).
18 Id. at 494, 508 (“Varity concedes that the plaintiffs . . . are plan ‘participants’ or
‘beneficiaries[.]’”)); see also Heimann v. Nat’l Elevator Indus. Pension Fund, 187 F.3d 493,
498–99, 504 (5th Cir. 1999), overruled on other grounds by Arana v. Ochsner Health Plan,
338 F.3d 433 (5th Cir. 2003) (former employee whose health benefits were terminated by
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Similarly, the Eleventh Circuit has determined that an employee whose
health plan was suspended without notice was a plan participant because, as
an employee, he was nevertheless eligible for benefits. 19 Here, although DBG
had discontinued the plan, Hager himself, though no longer an employee,
remained eligible for benefits. The Sixth Circuit recently determined that two
former employees were entitled to bring a class action as participants, even
though they initiated the lawsuit after their employment had ended. 20 That
court’s analysis hinged on the fact that the plaintiffs had been employees at
the time of the alleged ERISA violation. 21 Hager was a participant when DBG
decided to discontinue its health plan, but allegedly failed to notify him.
Several courts have allowed ERISA civil actions when a defendant failed
to give COBRA notice, and thus the plaintiff did not elect COBRA coverage.
The courts in those cases did not examine ERISA standing, suggesting that
there was no jurisdictional bar. 22 Finally, this circuit has suggested that a
plaintiff has ERISA standing if he would be a plan participant “but for the
employer’s conduct alleged to be in violation of ERISA.” 23
former employer was a “participant” in plan). The plaintiffs in Varity still could not bring suit
under § 1132(a)(1)(B) for the same reason Hager cannot here. See Varity, 516 U.S. at 515.
19 Willett v. Blue Cross & Blue Shield of Ala., 953 F.2d 1335, 1338, 1342 (11th Cir.
1992).
20 See Hitchcock v. Cumberland Univ. 403(b) DC Plan, 851 F.3d 552, 556, 561 (6th Cir.
2017).
21 Id. at 561.
22 See Geissal, 524 U.S. at 77–80 & n.3 (examining Article III standing, but not ERISA
standing, for action seeking a civil penalty when plaintiff never obtained COBRA coverage);
Bixler v. Cent. Pa. Teamsters Health & Welfare Fund, 12 F.3d 1292, 1296–300 (3d Cir. 1993)
(concluding that plaintiff who did not obtain COBRA coverage because of employer’s alleged
misconduct could bring an action under § 1132(a)(3); see also Peralta, 419 F.3d at 1073
(implicitly characterizing plaintiff as a participant when evaluating availability of remedy,
even though plaintiff was not covered at the time she brought suit).
23 Christopher v. Mobil Oil Corp., 950 F.2d 1209, 1221 (5th Cir. 1992); see Adamson v.
Armco, Inc., 44 F.3d 650, 654–55 (8th Cir. 1995) (listing circuits that have adopted this rule).
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Taking all of this together, we conclude that Hager is a participant
entitled to bring this action. Otherwise, employers would be able to avoid
ERISA lawsuits simply by terminating their employees’ health benefits. 24
B. COBRA Notice Violation
There was uncertainty in the district court whether DBG even had notice
obligations under COBRA, so we begin there.
1. Notice of Continuation Coverage
First, the parties do not dispute that DBG is the plan administrator. 25
29 U.S.C. § 1166(a)(4) commands plan administrators to inform former
employees of their COBRA rights. 26 Explaining this statute, 29 C.F.R.
§ 2590.606-4(b) details the content of the required notice to a former employee
of his right to continuation health coverage under COBRA. 27
Hager complains that he had no notice of his right to coverage, but as
noted above, he acknowledged in the district court that DBG had given this
notice. Because no copy of the notice itself is in the record, we cannot tell
whether it complies with the requirements of 29 C.F.R. § 2590.606-4(b). But,
because Hager acknowledged in the district court that he received some notice
and fails to explain on appeal why that notice was inadequate, we consider this
issue forfeited.
24 Cf. Fin. Insts. Ret. Fund v. Office of Thrift Supervision, 964 F.2d 142, 149 (2d Cir.
1992) (noting the “broad view of participant standing under ERISA”).
25 An administrator is either the plan sponsor (in this case DBG) or a person
designated in the terms of the plan. 29 U.S.C. § 1002(16)(A). Because the terms of the plan
are not in the record, we rely on Hager’s statement that DBG was the plan administrator.
26 29 U.S.C. § 1166(a)(4).
27 29 C.F.R. § 2590.606-4(b); see 29 U.S.C. § 1168. These notice requirements apply to
“qualified beneficiaries,” which includes an employee who is terminated, so the notice
requirements of 29 C.F.R. § 2590.606-4 also apply to terminated employees. See 29
U.S.C.§§ 1167(3)(B), 1163(2).
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2. Notice of Continuation Coverage Termination
Another subsection of that regulation requires a plan administrator to
inform qualified beneficiaries “of any termination of continuation coverage that
takes effect earlier than the end of the maximum period of continuation
coverage applicable to [the] qualifying event.” 28 On its face, this commanded
DBG to notify Hager that the coverage was being terminated. The district court
suggested this was not the case because DBG’s termination of the plan
established “the end of the maximum period of continuation coverage.”
According to the district court, “the maximum period of continuation coverage”
cannot be longer than the plan’s existence.
We disagree. Section 2590.606-4(d) requires notice if the termination
occurs earlier than “the end of the maximum period of continuation coverage
applicable to [the] qualifying event.” 29 The “maximum period of continuation
coverage” is defined by the qualifying event at issue. Different qualifying
events—those that allow a plan participant to obtain coverage under COBRA—
have different maximum periods of coverage. A terminated employee is eligible
for coverage for a period of 18 months after the termination, but other
qualifying events allow coverage for 36 months. 30 In fact, the subsection of
COBRA describing the allowable period of coverage for different qualifying
events is titled “maximum required period.” 31
Moreover, if the “maximum period of continuation coverage” were
defined by the lifespan of the plan, termination of coverage would never be
earlier than the “maximum” period of coverage. Under the district court’s
28 29 C.F.R. § 2590.606-4(d).
29 Id. (emphasis added).
30 29 U.S.C. §§ 1162(2)(A), 1163(2).
31 Id. § 1162(2)(A) (emphasis added).
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interpretation, an administrator would never have to give notice of coverage
termination. We are disinclined to find § 2590.606-4(d) superfluous. 32
DBG discontinued its health plan earlier than 18 months after Hager
was fired. It therefore had an obligation to notify Hager “as soon as practicable”
that it was discontinuing coverage. 33 Hager adequately alleged that DBG did
not fulfill its notice obligations under COBRA.
C. Disputes of Fact Concerning Notice
In the district court, DBG contended that it did provide such notice. It
allegedly produced an unsigned letter, addressed to Hager’s former address,
informing him that DBG was terminating its Blue Cross health plan. DBG
contended in the district court that this showed that it fulfilled its notice
obligations. DBG has forfeited such a contention before this court by failing to
file a brief, but even if it had not, this contention would not merit dismissal of
Hager’s case.
In Degruise v. Sprint Corp., we noted that the Secretary of Labor had not
promulgated regulations describing the notice requirements for COBRA and
concluded that employers were “‘required to operate in good faith compliance
with a reasonable interpretation’ of what adequate notice entails.” 34 Two years
later, the Secretary of Labor did promulgate such regulations, viz., § 2590.606-
32 Cf. Howard Hughes Co., L.L.C. v. C.I.R., 805 F.3d 175, 183 (5th Cir. 2015) (“[I]n
statutory interpretation we generally follow ‘the rule against superfluities, [which] instructs
courts to interpret a statute to effectuate all its provisions, so that no part is rendered
superfluous.’” (citation omitted) (second alteration in original)).
33 29 C.F.R. § 2590.606-4(d)(3).
34 279 F.3d 333, 336 (5th Cir. 2002) (quoting Kidder v. H & B Marine, Inc., 734 F.
Supp. 724, 730 n. 6 (E.D. La. 1990)).
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4(d), discussed above. 35 It is unclear whether Degruise’s statement that a good
faith attempt to satisfy the notice requirement is sufficient 36 is still good law.
Even if DBG only needed to show good faith compliance, whether it did
so here is a question of fact more appropriate for summary judgment or trial
and does not implicate a failure to state a claim. In fact, we are skeptical that
DBG’s evidence would even be sufficient to obtain summary judgment. This
court has typically required evidence that a letter was actually mailed to meet
the good faith standard. 37 But DBG has produced no such evidence; it produced
only the letter itself. 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 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. We conclude that,
alone, DBG’s letter is insufficient to support dismissal of Hager’s claim.
D. Availability of a Remedy
Hager has stated a claim that DBG violated its COBRA notice
obligations, so the question becomes whether he is entitled to the compensatory
damages—his medical costs—that he has requested. The availability of a
35 See 29 C.F.R. § 2590.606-4(h); Health Care Continuation Coverage, 69 Fed. Reg.
30097, 30104 (May 26, 2004).
36 See Degruise, 279 F.3d at 337 (“[T]he law requires only that the employer make a
good faith attempt to comply with [COBRA’s] notification provision.” (quoting DeGruise v.
Sprint Corp., No. Civ.A 99-0383, 1999 WL 486887, at *2 (E.D. La. July 8, 1999)) (second
alteration in original)).
37 See id. at 337 (finding good faith when the defendant mailed a COBRA notice via
certified mail, “a special type of first class mail whose primary purpose is to provide evidence
of an individual’s receipt of delivery”); cf. Custer v. Murphy Oil USA, Inc., 503 F.3d 415, 421
(5th Cir. 2007) (genuine dispute of material fact remained on issue of mailing, despite
testimony that the defendant business typically used first-class mailing procedures).
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remedy for a COBRA notice violation is an issue of first impression for this
court. Hager cites numerous district court cases that have noted that
“compensatory damages in an amount equal to medical expenses minus
deductibles and premiums that the beneficiary would have had to pay for
COBRA coverage” are available for COBRA notice violations. 38 Each of these
cases involved a defendant’s failure to provide notice of a former employee’s
eligibility for COBRA benefits, not notice of the termination of a plan. The
district court, in contrast, relied heavily on Peralta v. Hispanic Business, Inc.,
in which the Ninth Circuit held that money damages were not available for a
claim based on allegations that the defendant breached its fiduciary duty to a
plaintiff by failing to inform her that its disability insurance policy was
discontinued. 39 We examine Hager’s potential avenues for enforcement under
29 U.S.C. § 1132(a), the ERISA civil enforcement statute.
1. Section 1132(a)(1)(B)
Section 1132(a)(1)(B) allows a plaintiff to bring a civil action “to recover
benefits due to him under the terms of his plan, to enforce his rights under the
terms of the plan, or to clarify his rights to future benefits under the terms of
the plan.” 40 “When a beneficiary simply wants what was supposed to have been
distributed under the plan, the appropriate remedy is [§ 1132](a)(1)(B).” 41 The
Peralta court determined that this remedy was unavailable to a plaintiff whose
employer’s plan had been discontinued, reasoning that if the plan is defunct, a
38 Miles-Hickman v. David Powers Homes, Inc., 589 F. Supp. 2d 849, 882 (S.D. Tex.
2008); see Fisher v. Trutech, Inc., No. 5:04-CV-109(CAR), 2006 WL 3791977, at *3 (M.D. Ga.
Nov. 17, 2006); Hamilton v. Mecca, Inc., 930 F. Supp. 1540, 1554 (S.D. Ga. 1996).
39 419 F.3d at 1068, 1076.
40 29 U.S.C. § 1132(a)(1)(B).
41 Corcoran v. United HealthCare, Inc., 965 F.2d 1321, 1335 (5th Cir. 1992), abrogated
on other grounds by Mertens, 508 U.S. 248.
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plaintiff cannot recover benefits due under the plan’s terms. 42 Other courts
have reached the same conclusion. 43 We agree that this remedy is foreclosed.
2. Section 1132(a)(3)
We next examine whether § 1132(a)(3) allows monetary damages. 44
Section 1132(a)(3) allows a civil action
by a participant, beneficiary, or fiduciary (A) to enjoin any act or
practice which violates any provision of this subchapter 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
subchapter or the terms of the plan. 45
The Supreme Court has made clear that this section allows only “those
categories of relief that were typically available in equity.” 46 Consequently,
money damages are not available under § 1132(a)(3)(A). 47
As for § 1132(a)(3)(B), which allows for “other appropriate equitable
relief,” Hager’s claim could arguably be characterized as seeking restitution, 48
although he has not characterized it as such. Even if it were, restitution in the
form of money is not equitable relief unless it was traditionally available in
equity, such as a via constructive trust or equitable lien. 49 These examples do
42 Peralta, 419 F.3d at 1073.
43 See McCormack v. Comput. Scis. Corp., 99 F. App’x 458, 463 (4th Cir. 2004) (holding
that a plaintiff had no remedy under § 1132(a)(1)(B) when “the plan no longer existed and
could no longer function”); Hawk v. Consol. Rest. Operations, Inc., No. 3:03-CV-0399-B, 2007
WL 9711656, at *11 (N.D. Tex. Feb. 22, 2007) (noting that because an employer offered no
benefit plans, “a claim to recover those benefits under § 1132(a)(1)(B) is foreclosed”); cf.
Varity, 516 U.S. at 515 (“The plaintiffs in this case could not proceed under [§ 1132(a)(1)]
because they were no longer members of the Massey-Ferguson plan[.]”).
44 We note that § 1132(a)(2) provides no remedy because Hager does not bring this
action on behalf of the plan. See Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 140–44
(1985); Langbecker v. Elec. Data Sys. Corp., 476 F.3d 299, 307 (5th Cir. 2007).
45 29 U.S.C. § 1132(a)(3).
46 Knudson, 534 U.S. at 210 (quoting Mertens, 508 U.S. at 256).
47 Id. at 210–12.
48 See RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 1 (AM. LAW
INST. 2011) (defining restitution).
49 Knudson, 534 U.S. at 213.
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not “exhaust[] the universe” of equitable relief, 50 but a remedy that only seeks
to impose liability and require the defendant to pay the plaintiff a sum of
money is a legal remedy, not an equitable one. 51
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].” 52 He effectively acknowledges that his medical expenses would be
compensatory damages. Section 1132(a)(3) does not allow such a recovery.
3. Section 1132(a)(1)(A) and 1132(c)(1)
Section 1132(a)(1)(A) allows a participant or beneficiary to bring an
action for the civil penalty described in § 1132(c). 53 That section, in turn, allows
the court to award a discretionary penalty against an administrator that does
not comply with the COBRA notice requirements of 29 U.S.C. § 1166(a)(4), 54
on which 29 C.F.R. § 2950.606-4 elaborates. 55 Consequently, § 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. 56 Peralta, on which
the district court relied, also noted that this civil penalty was available. 57
50 ACS Recovery Servs., Inc. v. Griffin, 723 F.3d 518, 526 (5th Cir. 2013).
51 Knudson, 534 U.S. at 213–15; Cent. States, Se. & Sw. Areas Health & Welfare Fund
ex rel. Bunte v. Health Special Risk, Inc., 756 F.3d 356, 362, 366 (5th Cir. 2014).
52 Bunte, 756 F.3d at 366.
53 29 U.S.C. § 1132(a)(1)(A).
54 Id. § 1132(c)(1); see Burton v. Banta Glob. Turnkey Ltd., 170 F. App’x 918, 922 (5th
Cir. 2006).
55 29 C.F.R. § 2590.606-4(a); see Health Care Continuation Coverage, 69 Fed. Reg.
30097 (May 26, 2004).
56 See Lopez ex rel. Gutierrez v. Premium Auto Acceptance Corp., 389 F.3d 504, 509
(5th Cir. 2004).
57 Peralta, 419 F.3d at 1073 n.13.
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Such a penalty can be “up to $100 a day from the date of such failure,”
and “such other relief as [the court] deems proper.” 58 Hager maintained in the
district court that he was entitled to such a penalty. Ordinarily we would
review the district court’s refusal to award a penalty under § 1132(c)(1) for
abuse of discretion. 59 But here, the court did not merely decline to award a
penalty; it held that Hager was ineligible for any remedy, although it never
specifically addressed whether a penalty was available. “[T]he abuse of
discretion standard includes review to determine that the discretion was not
guided by erroneous legal conclusions.” 60 The district court abused its
discretion when it ruled that Hager was legally barred from obtaining a
penalty award.
Whether to award a civil penalty and the amount of any such award
remain discretionary. We have suggested that prejudice is one factor to
consider, 61 and it likely weighs in Hager’s favor. 62 But other than that, we have
offered district courts limited guidance on this issue. Arguably, the availability
of other remedies could also be a factor in deciding whether to award a
penalty. 63 Other courts have considered “bad faith or intentional conduct on
the part of the administrator,” and “the length of the delay.” 64 Courts have also
explained that the penalty “is meant to be in the nature of punitive damages,
58 29 U.S.C. § 1132(c)(1).
59 See Godwin v. Sun Life Assurance Co. of Can., 980 F.2d 323, 327 (5th Cir. 1992); 29
U.S.C. § 1132(c)(1).
60 Kane v. Nat’l Union Fire Ins. Co., 535 F.3d 380, 384 (5th Cir. 2008) (quoting In re
Coastal Plains, Inc., 179 F.3d 197, 205 (5th Cir. 1999)).
61 See Godwin, 980 F.2d at 327; Paris v. Profit Sharing Plan for Emp. of Howard B.
Wolf, Inc., 637 F.2d 357, 362 (5th Cir. 1981).
62 Hager allegedly incurred $36,000 for his cancer treatment before he learned the
plan was canceled.
63 Cf. Knudson, 534 U.S. at 220 (noting that petitioner may have other remedies
available, despite having none under § 1132(a)(3)).
64 Fama v. Design Assistance Corp., 520 F. App’x 119, 123 (3d Cir. 2013) (quoting
Romero v. SmithKline Beecham, 309 F.3d 113, 120 (3d Cir. 2002)).
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designed more for the purpose of punishing the violator than compensating the
participant or beneficiary.” 65 When an administrator fails to provide notice of
COBRA eligibility, courts have stated that “the aim is to place the plaintiff ‘in
the same position [he] would have been in had full continuation coverage been
provided,’” and to “induce compliance by plan administrators.” 66
In this vein, some district courts have “deemed [it] proper” to award
medical expenses as a penalty under § 1132(c). 67 We can discern no barrier to
the court awarding the amount of Hager’s medical expenses as a penalty. But
the appropriateness of a penalty, and the amount of such penalty, if
appropriate, will require factual findings concerning DBG’s good faith, 68 which,
as noted above, is disputed. And there is limited evidence in the record on that
subject. We therefore remand the case to the district court to determine
whether, in light of the foregoing analysis, to award a penalty, and if it does,
the amount of such penalty.
E. Attorneys Fees
Hager also renews his request for attorneys fees. A court “in its
discretion may allow a reasonable attorney’s fee and costs of action to either
party.” 69 This inquiry is case-specific and involves consideration of a number
65 Scott v. Suncoast Beverage Sales, Ltd., 295 F.3d 1223, 1232 (11th Cir. 2002).
66 Phillips v. Riverside, Inc., 796 F. Supp. 403, 411 (E.D. Ark. 1992) (quoting Gaskell
v. Harvard Co-op Society, 762 F. Supp. 1539, 1543 (D. Mass. 1991)).
67 See Chenoweth v. Wal-Mart Stores, Inc., 159 F. Supp. 2d 1032, 1042 (S.D. Ohio
2001); cf. Sonnichsen v. Aries Marine Corp., 673 F. Supp. 2d 466, 473–74 & n.5 (W.D. La.
2009) (finding that the plaintiff was not entitled to the daily statutory penalty, but that
medical expenses were proper as “other relief” under § 1132(c)); see also Jones v. Officemax,
Inc., 38 F. Supp. 2d 957, 961 (D. Utah 1999) (“[A]ctual damages suffered from the loss of
insurance coverage . . . . could be considered by a court in determining whether to assess a
penalty against an employer under § 1132.”).
68 60A AM. JUR. 2D Pensions § 757 (listing factors).
69 29 U.S.C. § 1132(g).
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of factors. 70 We leave this issue for the district court to consider on remand, if
applicable.
IV. CONCLUSION
We REVERSE the dismissal of Hager’s COBRA claim and REMAND this
case to the district court for further proceedings consistent with this opinion.
70 See Wegner v. Standard Ins. Co., 129 F.3d 814, 821 (5th Cir. 1997).
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