Galvan v. SBC Pension Benefit Plan

United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
FIFTH CIRCUIT August 23, 2006
Charles R. Fulbruge III
Clerk
No. 04-51214
LAURA GALVAN,
Plaintiff-Appellant,
versus
SBC PENSION BENEFIT PLAN; SBC COMMUNICATIONS, INC.;
UNIDENTIFIED CLAIMS ADMINISTRATOR FOR THE
SBC PENSION BENEFIT PLAN; UNIDENTIFIED FIDUCIARIES
OF THE SBC PENSION BENEFIT PLAN, each individually;
MELLON FINANCIAL CORPORATION,
Defendants-Appellees.
Appeal from the United States District Court
for the Western District of Texas
(5:04-CV-333)
Before BARKSDALE, DEMOSS, and PRADO, Circuit Judges.
PER CURIAM:*
Laura Galvan appeals the dismissal, for failure to exhaust
administrative remedies, of her claims arising under the Employee
Retirement and Income Security Act of 1974, 29 U.S.C. § 1101 et
seq. (ERISA). She contends: SBC Pension Benefit Plan, SBC
Communications, Inc. (the Plan’s sponsor and coordinator), and
Mellon Financial Corporation (the Plan’s outside claims
administrator) wrongfully deprived her of Plan benefits; and the
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
Plan’s fiduciaries breached their fiduciary duties toward the Plan
when, inter alia, they misallocated under a qualified domestic
relations order (QDRO). VACATED and REMANDED.
I.
Galvan and Stanley Davis, an SBC employee and Plan
participant, divorced in 1995. As part of that process, Galvan
acquired an interest in Davis’ Plan benefits pursuant to a QDRO,
entitling her to fifty percent of his accrued benefits as of 16
March 1995.
In November 2000, Davis accepted an early-retirement payment
from SBC. Galvan contacted SBC in February 2001, requesting
information about that payment and how the QDRO affected its
distribution. SBC replied that April, stating, inter alia, the
amount it determined Galvan was due under the QDRO, based on Davis’
accrued benefits under the Plan, and offering her a single life
annuity, payable over Davis’ lifetime, of $ 639.91 a month, with a
lump-sum amount of $ 106,921.74. This distribution did not include
part of Davis’ early-retirement payment.
Because Galvan and defendants disagreed whether the QDRO
entitles Galvan to a portion of that payment, she requested from
SBC more information about the payment, including an accounting.
SBC did not reply to Galvan’s satisfaction, and further
communication between them failed to resolve her concerns. (Among
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other things, Galvan filed an action in state court, but dismissed
the Plan in order to exhaust administrative remedies.)
Therefore, as an alternate payee under the Plan, Galvan filed
a benefits claim with SBC, which it received on 22 March 2004,
approximately three years after Galvan’s initial 2001 contact with
SBC. In this administrative claim, Galvan asserted: the QDRO
entitled her to part of Davis’ early-retirement payment; and the
Plan’s fiduciaries breached various duties in their communications
with her and in their transaction with Davis. Galvan requested
benefits under the QDRO, as well as for the fiduciaries, inter
alia, to reimburse the Plan the amount allegedly misallocated to
Davis.
Pursuant to ERISA regulation, SBC had 90 days from the 22
March receipt of Galvan’s administrative claim in which to respond.
See 29 C.F.R. § 2560.503-1(f)(1). Nevertheless, Galvan filed her
original complaint in this action on 20 April, approximately 60
days before defendants’ 90-day response window had closed and
without resolution of her administrative claim. Her complaint
presented claims for benefits and breach of fiduciary duty. The
prompt filing of her complaint was to preserve her fiduciary claims
in the face of potential expiration of the limitations period; she
did not, however, serve defendants with that complaint.
On 22 June 2004, two days after defendants’ 90-day
administrative-response period had ended, SBC sent a letter (dated
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15 June) notifying Galvan it needed more time to process her
administrative claim. See id. (“If the plan administrator
determines that an extension of time for processing is required,
written notice of the extension shall be furnished to the claimant
prior to the termination of the initial 90-day period.”). Galvan
received this extension notice on 25 June 2004.
One day earlier (24 June), however, Galvan had concluded her
administrative claims were exhausted because the 90-day period had
expired without a response from defendants. Accordingly, on 24
June, she filed an amended complaint and moved the district court
to either: rule she had exhausted administrative remedies; abate
her claims until her administrative remedies were exhausted; or
toll the limitations period for her fiduciary claims. In so
moving, she contended: because SBC did not respond to her
administrative claim within 90 days, her administrative remedies
should be deemed exhausted under 29 C.F.R. § 2560.503-1(l), which
states a party shall “be deemed to have exhausted the
administrative remedies available under the plan and shall be
entitled to pursue any available remedies” under ERISA, 29 U.S.C.
§ 1132(a), if the plan fails to “follow claims procedures
consistent with the requirements of this section”. 29 C.F.R. §
2560.503-1(l). Galvan served defendants with the amended complaint
and motions.
4
Galvan’s amended complaint reiterated the claims in her
original complaint. She presented two claims for benefits under
the QDRO. She also raised, inter alia, three breach-of-fiduciary-
duty claims for: causing the Plan to lose money by distributing to
Davis sums due Galvan under the QDRO; negligence and imprudence in
making a lump-sum distribution to Davis without Galvan’s
authorization; and not disclosing the identity of the fiduciary
responsible for determining Galvan’s benefits claims.
Defendants moved to dismiss pursuant to Federal Rule of Civil
Procedure 12(b), asserting Galvan had not exhausted her
administrative remedies for her benefits and fiduciary claims.
Defendants contended Galvan’s administrative remedies should not be
deemed exhausted based on the late notice of administrative
continuance because that notice substantially complied with ERISA
regulations. Alternatively, defendants moved to stay the
proceedings until administrative remedies had been exhausted.
On 30 September 2004, the district court granted defendants’
motion to dismiss, concluding they had acted in substantial
compliance with ERISA regulations in responding to Galvan’s
administrative claim; therefore, her administrative remedies had
not been exhausted. It held: tolling did not apply to her
fiduciary claims under Radford v. General Dynamics Corp., 151 F.3d
396, 400 (5th Cir. 1998) (holding the ERISA limitations period is
not tolled while administrative remedies are being exhausted),
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cert. denied, 525 U.S. 1105 (1999); and dismissal without
prejudice, not abatement, was the proper disposition.
Galvan moved to reconsider, asking the court to find her
administrative remedies exhausted because of defendants’ failure to
comply strictly with ERISA regulations concerning the timing and
content of the extension notice. Galvan acknowledged SBC had
denied her administrative claim and declared it exhausted during
the district court proceedings (the final administrative ruling was
rendered on 29 September 2004, the day before the district court’s
dismissal order). Notwithstanding her administrative remedies
therefore being exhausted, Galvan asserted the exhaustion issue was
not moot because whether the district court would defer to the
Plan’s denial of her administrative claim remained at issue. She
contended: the applicable ERISA regulations abolished the
substantial-compliance doctrine relied upon by the district court;
and defendants’ administrative-compliance failures, taken in the
aggregate, deprived her of adequate notice of the initial denial of
her administrative claim and of full and fair review of that claim.
Defendants responded that Galvan failed to establish
justifiable grounds for reconsideration. The district court denied
the motion for reconsideration, holding: the ERISA regulations did
not abolish the substantial-compliance doctrine; and the later
exhaustion of Galvan’s claims did not affect their lack of
exhaustion at the time she filed her complaint.
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II.
Although Galvan contends fiduciary claims need not be
exhausted, she acknowledges that benefits claims must be. Galvan
asserts the district court erred by: (1) dismissing her benefits
and fiduciary claims for lack of exhaustion; (2) declining to abate
her fiduciary claims, pending exhaustion of her benefits claims;
(3) declining to toll the limitations period for her fiduciary
claims, pending any required exhaustion of her administrative
claim; and (4) ruling SBC substantially complied with ERISA
regulations in responding to Galvan’s benefits claims two days
outside the 90-day window.
A.
Galvan maintains her claims were wrongly dismissed for failure
to exhaust administrative remedies. Such a dismissal is reviewed
de novo. E.g., Bombardier Aerospace Employee Welfare Benefits Plan
v. Ferrer, Poirot & Wansbrough, 354 F.3d 348, 351 (5th Cir. 2003),
cert. denied, 541 U.S. 1072 (2004); see also Nichols v. Prudential
Ins. Co. of Am., 406 F.3d 98, 105 (2d Cir. 2005) (A district
court’s dismissal of a claim for failure to exhaust administrative
remedies is reviewed de novo.); D’Amico v. CBS Corp., 297 F.3d 287,
290 (3d Cir. 2002) (“[W]e review de novo the applicability of
exhaustion principles to plaintiffs’ claims”.).
The district court ruled generally: Galvan’s claims were
“barred by the requirement of exhaustion of administrative
7
remedies”, but erroneously specified: “failure to exhaust
administrative remedies under ERISA causes a court to lose
jurisdiction”, Galvan v. SBC Pension Benefit Plan, No. SA-04-CA-
033-XR, slip op. at 6 (W.D. Tex. 30 Sept. 2004); and it was
“without jurisdiction” because Galvan had failed to exhaust
administrative remedies before she filed her complaint, Galvan v.
SBC Pension Benefit Plan, No. SA-04-CA-0333-XR, slip op. at 2 (W.D.
Tex. 21 Oct. 2004) (order denying motion for reconsideration).
Our court has held ERISA exhaustion is not a prerequisite to
federal court jurisdiction. See Hager v. NationsBank N.A., 167
F.3d 245, 248 n.3 (5th Cir. 1999); Chailland v. Brown & Root, Inc.,
45 F.3d 947, 950 n.6 (5th Cir. 1995). Furthermore, the district
court erred in ruling on Galvan’s contentions pertaining to her
fiduciary-duty claims without factual development of whether she
properly stated a breach-of-fiduciary-duty claim, or whether her
asserted fiduciary claims are instead disguised benefits claims.
The court’s not factually developing this fundamental issue before
dismissing both her fiduciary and benefits claims for failure to
exhaust was significant because, although benefits claims require
administrative exhaustion, fiduciary claims do not. Compare
Milofsky v. Am. Airlines, Inc., 442 F.3d 311, 313 (5th Cir. 2006)
(en banc) (holding “fiduciary breach claims [do] not requir[e]
exhaustion of administrative remedies”) (citing Smith v. Sydnor,
184 F.3d 356, 365 (4th Cir. 1999), cert. denied, 528 U.S. 1116
8
(2000) and Molnar v. Wibbelt, 789 F.2d 244, 250 n.3 (3d Cir.
1986)), with Chailland, 45 F.3d at 950 n.6 (holding administrative
remedies must be exhausted before bringing a benefits claim), and
Denton v. First Nat’l Bank of Waco, Tex., 765 F.2d 1295, 1301-02
(5th Cir. 1985) (same).
In dismissing Galvan’s claims, the district court erroneously
stated breach-of-fiduciary-duty claims are subject to the
exhaustion requirement, citing Simmons v. Willcox, 911 F.2d 1077
(5th Cir. 1990). Simmons, however, held the exhaustion requirement
applies to fiduciary claims that are instead disguised benefits
claims, not to true breach-of-fiduciary-duty claims. Id. at 1081;
see Smith, 184 F.3d at 362 (interpreting Simmons as requiring
administrative exhaustion where a fiduciary claim is based on
either the denial of benefits or a similar decision regarding a
benefits claim, in which case “such a claim is a naked attempt to
circumvent the exhaustion requirement”).
Because the district court did not consider whether Galvan’s
fiduciary claims for misallocation of Plan assets are disguised
benefits claims, thus subject to exhaustion, we remand for factual
development of whether Galvan is pursuing a fiduciary claim, which
does not require administrative exhaustion, or a disguised benefits
claim. See Milofsky, 442 F.3d at 313; see also D’Amico, 297 F.3d
at 291 (Fiduciary claims amount to benefits claims when “resolution
of the claims rests upon an interpretation and application of an
9
ERISA-regulated plan rather than on an interpretation and
application of ERISA”. (Internal quotation omitted.)); Harrow v.
Prudential Ins. Co. of Am., 279 F.3d 244, 253 (3d Cir. 2002)
(“Plaintiffs cannot circumvent the exhaustion requirement by
artfully pleading benefit claims as breach of fiduciary duty
claims.”).
Because we remand for factual development and determination of
whether Galvan has properly raised a breach-of-fiduciary-duty
claim, we need not consider her assertion regarding the district
court’s refusal to abate her fiduciary claims pending exhaustion of
her benefits claims. Likewise, until it is determined whether
Galvan properly raised a fiduciary claim, it would be premature to
determine whether the court erred in declining to toll the
limitations period for her fiduciary claims, pending exhaustion of
her administrative claim.
B.
On remand, in the event the district court rules Galvan is
indeed pursuing breach-of-fiduciary-duty claims, as discussed
supra, no exhaustion was required for those claims. If, however,
the court rules those claims are disguised benefits claims and,
thus, subject to exhaustion, then it correctly dismissed her
claims, including those she identified as benefits claims, without
prejudice, for failure to exhaust.
10
The dismissal of a complaint for failure to exhaust is
reviewed for abuse of discretion. See Zhou v. Guardian Life Ins.
Co. of Am., 295 F.3d 677, 678 (7th Cir. 2002). Galvan asserts:
her administrative remedies were exhausted after she filed her
original complaint; therefore, the district court erred in
dismissing this action.
SBC responds: the district court properly dismissed Galvan’s
claims because exhaustion of administrative remedies is a
prerequisite to pursuing claims in district court; and she had not
exhausted those remedies when she filed her original complaint on
20 April 2004. Along this line, SBC maintains: a party cannot
pursue administrative and federal remedies concurrently; and
prohibiting this practice better meets the efficiency goals of the
ERISA exhaustion doctrine. Also, dismissing premature claims
without prejudice allows litigants to cure their mistakes. SBC
analogizes ERISA exhaustion requirements to those of the Prison
Litigation Reform Act, 42 U.S.C. § 1997e (PLRA), which prohibit a
prisoner from filing a claim in federal court while attempting to
exhaust administrative remedies.
Galvan replies: a plaintiff may exhaust administrative
remedies after a federal action has been filed; the analogy between
the PLRA and ERISA exhaustion requirements fails because the PLRA’s
exhaustion requirement is mandated by statute, while ERISA’s is a
matter of common law; and, in this instance, dismissal of Galvan’s
11
claims will result in harm because the limitations period on her
fiduciary claims may have run by the time she re-files her (now
exhausted) claims.
It appears the district court’s dismissal for failure to
exhaust was based on Galvan’s not having exhausted her
administrative remedies when she filed her amended complaint (see
infra concerning the operative filing date being that of the
original, not the amended, complaint). Consequently, Galvan’s
appeal highlights SBC’s failure to respond timely to her claims;
she contends this failure triggered 29 C.F.R. § 2560.503-1(l),
which, as discussed supra, dictates a claim be deemed exhausted if
a plan does not comply with those regulations concerning
administrative remedies. Because SBC did not comply with those
regulations, Galvan asserts, her administrative remedies
were exhausted at the time she filed her amended complaint.
A claim arising under ERISA does not accrue until an
administrative claim has been denied. Paris v. Profit Sharing Plan
for Emp. of Howard B. Wolf, Inc., 637 F.2d 357, 361 (5th Cir.),
cert. denied, 454 U.S. 836 (1981). SBC received Galvan’s claim on
22 March 2004; Galvan filed her original complaint on 20 April,
less than a month later.
Further, our court “fully endorse[s] the prerequisite of
exhaustion of administrative remedies in the ERISA context”.
Medina v. Anthem Life Ins. Co., 983 F.2d 29, 33 (5th Cir.) (citing
12
Simmons, 911 F.2d at 1081, and Meza v. Gen. Battery Corp., 908 F.2d
1262, 1279 (5th Cir. 1990)) (emphasis added), cert. denied, 510
U.S. 816 (1993). “A civil action is commenced by filing a
complaint with the court.” FED. R. CIV. P. 3. The filing date of
Galvan’s original complaint (20 April), not that of her amended
complaint (24 June), is the operative date for this analysis.
Galvan did not satisfy the exhaustion requirement when she
filed her original complaint. Further, she admits she planned to
pursue administrative remedies after filing; and she waited to
serve defendants until after she both concluded her claims had been
exhausted due to defendants’ failure to respond and filed an
amended complaint. In short, Galvan acted in precisely the manner
the exhaustion requirement was designed to avoid. The district
court did not err in dismissing her benefits claims without
prejudice for lack of exhaustion. (Our conclusion that the
district court properly dismissed these claims because they were
not exhausted when Galvan filed her original complaint obviates
reaching the substantial-compliance issue.)
III.
For the foregoing reasons, the judgment is VACATED and this
matter is REMANDED for further proceedings consistent with this
opinion.
VACATED AND REMANDED
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