Rehabilitation Institute, Inc. v. Michigan United Food & Commercial Workers Health & Welfare Funds

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 06a0269n.06
Filed: April 18, 2006
No. 05-1534
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
REHABILITATION INSTITUTE, INC., D/B/A
REHABILITATION INSTITUTE OF MICHIGAN,
Plaintiff-Appellant,
On Appeal from the
v. United States District Court for
the Eastern District of Michigan
MICHIGAN UNITED FOOD AND COMMERCIAL
WORKERS HEALTH AND WELFARE FUNDS,
Defendant-Appellee.
______________________________
Before: KENNEDY, MOORE, and SUTTON, Circuit Judges
KENNEDY, J. Rehabilitation Institute of Michigan (“plaintiff”) seeks to recover from the
Michigan United Food and Commercial Workers Health and Welfare Funds (“defendant”) the costs
of providing rehabilitation services for Terence D. Williams, Jr. (“Williams, Jr.”), the 17-year old
son of Terence B. Williams (“Mr. Williams”) and Stephanie Williams. For the following reasons,
we hold that the district court incorrectly interpreted the portion of defendant’s Employee
Retirement Income Security Act of 1974 (“ERISA”) plan that defines eligible dependents, and we
REVERSE the decision of the district court and REMAND for further proceedings.
BACKGROUND
Mr. Williams’ employer contributed to defendant on behalf of Mr. Williams for 2003, the
year in which plaintiff provided services to Williams, Jr. Mr. Williams listed Williams, Jr. on his
benefit enrollment form in 1999 and a subsequent dependent enrollment update form on August 2,
2002. Stipulated Factual Record (“S.F.R.”) at 0000202-03. Defendant does not dispute that Mr.
Williams was an eligible employee of a contributing employer during 2003.
Williams, Jr. was born on June 26, 1986. His parents were married on November 28, 1998.
Williams, Jr. has had difficulty interacting with his parents and siblings. On June 22, 2002,
Williams, Jr. attacked his father with a knife. Id. at 0001179. He was in custody for that crime from
June 24, 2002 until August 2, 2002. Id. at 0001184-86. On August 2, 2002, the Family Division
of the Wayne County Third Judicial Circuit Court took Williams, Jr. into the temporary custody of
the court. He was released into the community, and he continued living in his parents’ home. Id.
He was assigned to a family service agency and received individual and group counseling. On April
11, 2003, Williams, Jr. was taken into custody as a result of assaults against his sister’s boyfriend
and his suspensions from school. Id. at 0001198. Escalation to a secure facility was recommended
after a hearing, and on May 16, 2003, Williams, Jr. was placed at the Bradley Behavioral Mental
Health Center (“Boysville”) for in-patient treatment. Id. at 0001208. He remained at Boysville
during the week, but was released to his parents’ home on several weekends. Id. at 0000858.
On August 17, 2003 (a Sunday), Williams, Jr. was released by Boysville on an apparently
unauthorized home pass. Id. at 0001217. During this unauthorized release, Williams, Jr. was a
passenger in a car fleeing the police, was shot by the police, and paralyzed from the neck down.1
Id. at 0000223. He was hospitalized at Children’s Hospital in Detroit from August 17, 2003 until
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Williams, Jr. was reported to have been tampering with cars. Police officers investigated
the report by stopping the car in which Williams, Jr. was riding at an intersection. The officers
blocked the car on both sides by using their police cruisers. As an officer approached the car, the
driver of the car in which Williams, Jr. was riding backed the car up in an attempt to get away. The
driver then accelerated the vehicle forward and knocked over one of the officers. One of the officers
fired four shots at the vehicle. One of the shots hit Williams, Jr. in the neck.
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November 6, 2003. He was then moved to plaintiff’s facility for rehabilitation. On December 5,
2003, after he completed his rehabilitation, he was released back into the custody of his parents. Id.
at 0000313. The Wayne County Family Court terminated its temporary wardship over him in
January of 2004.
Plaintiff, after receiving an assignment of benefits from the Williams, sought payment from
defendant for the period Williams, Jr. had spent in its care (November 6, 2003 until December 5,
2003). In a letter to Mr. Williams dated January 22, 2004, Defendant responded stating:
It is unclear whether your son was dependent on you for his primary support and
maintenance at the time of his injury. To qualify as an “eligible dependent” over half
of his support and maintenance would have to be provided by you. To verify his
status please forward a copy of your 2002 and 2003 federal income tax returns. If
you have not yet filed for 2003, please provide other evidence of your obligation.
Evidence that you are that primary source of shelter, food, clothing, education and
the like may include copies of checks, money orders, receipts or other proof that you
paid for his care.”
Id. at 0000226.
Though defendant apparently determined that Williams, Jr. was not primarily dependent on
Mr. Williams for his support and maintenance during 2003, and refused to pay plaintiff’s claim, it
did not specifically deny the claim, provide reasons for its denial, or state the mechanism for an
appeal. Plaintiff filed suit in Wayne County Circuit Court on May 24, 2004. Defendant removed
that action to federal district court.
After some discovery efforts and pretrial conferences, the district court issued an order,
which included the following language:
Both parties further agreed that the court should examine the issue of whether the
claimant Terence D. Williams, Jr. was “primarily dependent” on his father Terence
B. Williams (a covered individual under the ERISA plan at issue) for support and
maintenance de novo, and that it should also consider evidence outside of the
original administrative record. The parties agreed that, if the court concludes that
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Terence D. Williams, Jr. was not primarily dependent on his father under the ERISA
plan’s language, the case would end. On the other hand, if the court concludes by
a preponderance that Terence D. Williams, Jr. was “primarily dependent” on Terence
B. Williams, Sr. under the ERISA plan language, the court intends to remand the
case for the plan administrator to determine which benefits and expenses of the claim
are payable under the plan.
Joint Appendix (“J.A.”) at 181-82. After both parties had offered their additional exhibits and filed
their briefs, the district court found that Williams, Jr. was not an eligible dependent under the plan
language because Mr. Williams did not provide a copy of his income tax return and, therefore, had
not claimed Williams, Jr. as a dependent on his income tax. This income tax return, the district court
held, was required under the plain language.
ANALYSIS
Under our precedent, this court reviews the district court’s determinations, both factual and
legal, under the de novo standard of review. Wilkins v. Baptist Healthcare System, Inc., 150 F.3d
609, 613 (6th Cir. 1998); Rowan v. Unum Life Ins. Co. of America, 119 F.3d 433, 435 (6th Cir.
1997) (interpreting Firestone Tire and Rubber Co. v. Bruch, 389 U.S. 101, 115 (1989)).
Plaintiff first argues that because defendant did not comply with certain time requirements
under its plan, and because it did not seek further evidence from Mr. Williams regarding Williams,
Jr.’s status as an eligible dependent in a timely manner, that fact alone should be determinative of
this lawsuit. Defendant responds that its failure to request information regarding Williams, Jr.’s
status as an eligible dependent in a timely fashion has the sole side-effect of allowing the district
court to make a de novo determination with regards to plaintiff’s eligible dependent status.
Defendant cites VanderKlok v. Provident Life & Acc. Ins. Co., 956 F.2d 610, 615 (6th Cir. 1992) in
support of its view. We are unable to agree with the position of either party.
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In its scheduling order, the district court set out what it understood to be a stipulation by both
parties as to the relevant issues in this case. The district court believed and neither party disputed
that it was to make a de novo finding by a preponderance of the evidence as to whether Williams,
Jr. was an eligible dependent under the plan. See J.A. at 181-82. Because both plaintiff and
defendant stipulated that the district court was to decide the issue of whether Williams, Jr. qualified
as an eligible dependent, plaintiff cannot now argue that the district court should have relied on
defendant’s procedural failings in granting it the relief it requested. Defendant is not correct either,
because this court has never held that a failure of a defendant to comply with its obligations under
an ERISA plan merely changes the standard of review in the district court. See Univ. Hosp. of
Cleveland v. S. Lorain Merchs. Ass’n Health & Welfare Benefit Plan and Trust, No. 04-4067, 2006
WL 700882, at *4 (6th Cir. March 21, 2006) (interpreting VanderKlok as not changing the standard
of review in ERISA cases). In this case, however, defendant stipulated to a different standard of
review, and we can see no reason to reject that stipulation.
We now turn to plaintiff’s second argument that the district court did not accurately interpret
the language of the plan, and that it should have considered the evidence as to whether Williams,
Jr. was primarily dependent on his father in 2003, and thus, an eligible dependent, with out regard
to whether he was claimed on his father’s income tax return or whether an income tax return existed.
This argument requires this court to interpret a term of an ERISA plan. “Though comprehensive in
many respects, ERISA is silent on matters of contract interpretation. The courts have thus produced
a body of federal common law providing such guidance.” Dixon v. Life Ins. Co. Of North America,
389 F.3d 1179, 1183 (11th Cir. 2004); Horton v. Reliance Standard Life Ins. Co., 141 F.3d 1038,
1041 (11th Cir.1998) (“Courts have the authority ‘to develop a body of federal common law to
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govern issues in ERISA actions not covered by the act itself.’ “) (citation omitted). This is an
ERISA case and, as such, federal law applies, but this court takes direction from state law and
general principles of contract interpretation. Perez v. Aetna Life Ins. Co., 150 F.3d 550, 556 (6th
Cir. 1998) (“In developing federal common law rules of contract interpretation, we take direction
from both state law and general contract law principles.” (citing Regents of the Univ. of Michigan
v. Agency Rent-A-Car, 122 F.3d 336, 339 (6th Cir.1997)).
The district court determined that “it is an explicit requirement of the ERISA Plan that the
dependent child be claimed on the eligible employee’s federal income tax return to be considered
an eligible dependent.” J.A. at 0000153. We find that the district court erred in its construction of
the plain language.
Section 12 of the plan, on which this claim is predicated, reads as follows:
Section 12. Eligible Dependent.
Any or all of the following individuals:
(a) the Eligible Employee’s spouse;
(b) those children of the Eligible Employee who are unmarried, who
have not reached their 19th birthday and who are primarily dependent
on the Eligible Employee for support and maintenance. For this
purpose “children” shall include:
(i) the Eligible Employee’s natural children, provided the child
is claimed as a dependent on the Eligible Employee’s federal
income tax return;
(ii) stepchildren who are financially dependent on the Eligible
Employee and who reside with the Eligible Employee in a
regular parent-child relationship, provided that there is no
court order or agreement in existence whereby the obligation
to provide primary support or medical coverage for a
stepchild is the obligation of an individual other than that
Eligible Employee’s spouse; and
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(iii) legally adopted children or those for whom adoption proceedings
have been started and the children are placed in the Eligible
Employee’s home by a licensed placement agency for the purpose of
adoption or, if the children have been living in the Eligible
Employee’s home as foster children for whom foster care payments
are being made and petition for adoption has been filed;
S.F.R. at 0000286-87 (the plan goes on to include several other groups of people including
grandchildren of an eligible employee for whom the eligible employee has been appointed as legal
guardian, brothers and sisters of the eligible employee who are wards of the eligible employee, etc.).
The district court held that because Section 12, subsection(b)(1) of the plan required that “natural
children”2 be claimed on an income tax return, all dependents of the eligible employee had to be
2
The plan does not explicitly define the term “natural children,” and the term is susceptible
to two different definitions. See BLACK’S LAW DICTIONARY 255 (8th ed. 2004). The term natural
children can mean all biological children. See id. (definitions one and two). Alternately, the term
natural children can refer specifically to illegitimate children. See id. (definitions three and four).
Black’s Law Dictionary does note that this second definition of the term is “archaic.” Id.
Nevertheless, we believe that in light of the way in which the term is used in the plan, it is entirely
possible that the drafters of the plan intended to use this latter definition.
If the drafters of the plan did intend the term natural children to refer to illegitimate children,
it is not even clear if the term would apply to Williams, Jr. Michigan law may no longer recognize
any difference between legitimate children and illegitimate children in light of the fact that no
notation of whether the child is legitimate appears on a Michigan birth certificate. See MICH. COMP.
LAWS § 333.2824(7) (2001) (“After May 30, 1979, a birth certificate shall not contain a reference
to the legitimacy or illegitimacy of a child.”). Furthermore, it appears that Michigan law long
recognized that illegitimate children became legitimate when their biological parents married. See
MICH. COMP. LAWS § 13443 (1929) (“When after the birth of an illegitimate child, his parents shall
intermarry . . . such child shall be considered legitimate for all intents and purposes.”); Mich. Comp.
Laws § 702.83 (1948) (repealed 1978 Mich. Pub. Acts 2585).
Because Williams, Jr. was born to unwed parents who later wed, we believe, then, that
insofar as Michigan law still recognizes a difference between legitimate and illegitimate children,
a Michigan court would likely consider Williams, Jr. to be a legitimate child as of the date of his
parent’s marriage.
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claimed on the eligible employee’s tax return to be eligible for benefits. Such an interpretation
cannot be correct in light of the plain wording of the plan.
In construing a contract, we look to its plain language. Vision Information Services, LLC.
v. C.I.R. 419 F.3d 554, 558 (6th Cir. 2005) (“We have explained that ‘[t]he intent of the parties is
best determined by the plain language of the contract.’”) (citing United States v. Donovan, 348 F.3d
509, 512 (6th Cir. 2003) and 11 Samuel Williston & Richard A. Lord, A Treatise on the Law of
Contracts § 31:4 (4th Ed.1999)). Section 12 begins with the language “[a]ny or all of the following
individuals.” S.F.R. at 0000286. Here, subsection (b) defines eligible dependents as “those children
of the Eligible Employee who are unmarried, who have not reached their 19th birthday and who are
primarily dependent on the Eligible Employee for support and maintenance.” Id. Nothing more is
required. The contract then enlarges on that definition through the language: “[f]or this purpose
‘children’ shall include:” (1) all natural children if claimed on the employee’s income tax return,
which provides an easy method of establishing primary dependency; (2) step children who reside
in the employee’s household with certain exceptions; (3) legally adopted children or whose adoption
is proceeding.
The plan clearly defines step-children and adopted children as eligible dependents under the
plan, and does not require that step-children or adopted children be claimed on an income tax return.
Under the terms of the plan, the income tax return requirement only applies to natural children. In
our view, the language “[f]or this purpose Children shall include:” broadens the definition of
children in subdivision (b) by including children that might not otherwise be covered, such as step-
children, children in the adoption process, and perhaps a child for whom a support order has been
entered.
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Requiring parents to file income tax returns in order to be entitled to claim coverage for their
dependents who are natural children when it does not deny benefits to parents that provide support
to step-children or adopted children, even if the eligible employee failed to claim those children on
the eligible employee’s tax return under the plan’s plain language seems illogical. Not only would
such a requirement be curious at best, such a requirement appears irrational as it would force parents
of natural children, who under the biological child definition of the term are, undoubtedly, the
largest class of eligible dependent children, to comply with one more step than would be required
if the eligible employee’s children had been adopted or were step-children.
Furthermore, if natural children must be claimed on an income tax return, the plan could
avoid paying benefits for a newborn that has not yet been claimed until the parents filed an income
tax return that listed the newborn as a dependent. In such a way, a baby born early in one year
would not be covered by the plan until the parents filed the tax return for that year the following
April. The drafters of the plan cannot have intended such a result.
In contrast, if the purpose of subsection (i) is to broaden the definition of children to include
any natural child, rather than a means of limiting the definition of children, or to provide an easy
method of establishing whether a child is primarily dependent on an employee, the plan structure
makes sense. Subsections (i), (ii), and (iii) of section 12, subsection (b) could then be viewed as
expansions to the definition of children as that term had been previously defined in section 12,
subsection (b). Viewed in such a way, the plan would define eligible dependents broadly, rather
than simply limiting the coverage. In light of the fact that subsection (ii) expands the definition of
children to include dependents of eligible employees who are step-children, and that subsection (iii)
expands the definition of children to include dependents of eligible employees in the adoption
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process, we view subsection (i), (ii), and (iii) as terms that broaden the definition of children under
subsection (b), giving effect to the language “shall include,” rather than as terms that limit the
definition of children.
The income tax requirement, properly read, becomes a means by which parents of natural
children can meet the primary dependent requirement by proving that the parents claimed the child
in question on an income tax return. If the parents cannot or will not provide an income tax return,
they may still prove that the child meets the primary dependency on an eligible employee test by
proving support and maintenance.
At oral argument, counsel admitted that the plan has not, in the past, required eligible
employees to provide an income tax form if the eligible employee can prove that a child is an
eligible dependent through other means. Indeed, in this case, the record indicates that the plan asked
Mr. Williams for a tax return, or, in the alternative for other evidence proving that he was the
primary source of Williams Jr.’s support, such as“copies of checks, money orders, receipts or other
proof that you paid for his care.” S.F.R. at 0000226. If the plan’s general practice is to not require
an income tax return to prove that a child is an eligible dependent, it would be odd for this court to
contradict that past practice with a narrower reading of defendant’s own plan. Cf. City of Wyandotte
v. Consolidated Rail Corp., 262 F.3d 581, 586 (6th Cir. 2001) (“We may properly look . . . to how
the parties' actions during the pendency of the agreement have reflected an understanding of the
term.”) (citing William C. Roney & Co. v. Fed. Ins. Co., 674 F.2d 587, 590 (6th Cir.1982).
Because Mr. Williams did not need to prove that he claimed Williams, Jr. on an income tax
return, in order to qualify as an eligible dependent, under Section 12, subsection (b), plaintiff must
only show that Williams, Jr. was (1) unmarried, (2) had not reached his 19th birthday, and (3) that
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he was primarily dependent on Mr. Williams for his support and maintenance during the year in
question. The district court did not make a finding as to whether Williams, Jr. was an eligible
dependent under these criteria. In the last paragraph of its opinion the district court wrote:
Even assuming, arguendo, that Plaintiff can show that Williams Sr. did claim
Williams Jr. on his income tax returns, it is not clear that Plaintiff can fulfill the first
requirement of proving eligible dependence, which involves showing that Williams
Jr. was primarily dependent on Williams Sr. for maintenance and support. The fact
that Williams Jr. did not live at his parents’ home for at least seven and a half months
during 2003 casts some doubt on his eligible status. He was in the custody of the
State for four months while at Boysville and the court records do not indicate who
shouldered the cost.
J.A. at 156. While this language certainly expresses skepticism with respect to whether Williams,
Jr. was an eligible dependent, it cannot be read as being an explicit finding that he was not. The
district court’s findings of fact, however, do indicate that it would be inclined to find that Williams,
Jr. was not an eligible dependent.
The district court found that Williams, Jr. did not live at his parents’ home for seven and a
half months during 2003, the four months in Boysville, plus the three months at Children’s Hospital.
While we generally agree with those findings, we disagree with the relevancy of these facts to the
issue of whether Williams, Jr. was primarily dependent on his father for the year 2003.
By our calculations, Williams, Jr. was in his parents’ home for approximately four months,
from January 1, 2003 until April 11, 2003, and again from December 5, 2003 until the end of the
year. He was either in custody or in the in-patient treatment facility, Boysville, for approximately
four months, from April 11, 2003 until August 17, 2003. He was in the Children’s Hospital for
approximately three months, from August 17, 2003 until November 6, 2003. He was in plaintiff’s
care for rehabilitation for approximately one month, from November 6, 2003 until December 5,
2003.
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While it is indisputable that Williams, Jr. did not physically reside in his parents’ home for
eight months of 2003, the amount of time that he spent in the physical home of his parents, under
these facts, is not the sole measure of who was primarily responsible for his support. The record
does not provide any evidence as to who paid for Williams, Jr.’s care when he was in the in-patient
treatment facility (Boysville). Plaintiff does not claim that Mr. Williams was responsible for that
time; thus, we will assume the state supported Williams, Jr. during that time. Further, Williams, Jr.
still lived in his parents’ home for four months, and defendant does not appear to dispute that they
provided him support during that time.
M-Child, a program for the state of Michigan to provide medical care for minors whose
parents lack medical insurance and meet certain income requirements, paid for Williams, Jr.’s care
while he was in Children’s Hospital. Under M-Child eligibility rules, it should not have paid for the
care if a parent had insurance. But even if M-Child properly covered Williams, Jr.’s time in the
hospital, that fact would not indicate who provided his primary support for that time. Defendant
argues that tax-exempt monies received by Williams, Jr. in the form of government benefits,
including medical benefits, are included as part of the support test for dependency. Defendant cites
I.R.S. Publication 17, Your Federal Income Tax, Part One, § 3 pages 28-36 in support of this claim.
See J.A. at 133-44. That publication, however contradicts defendant’s position. On page 33 of that
publication, the I.R.S. states that “Medical insurance benefits, including basic and supplementary
Medicare benefits, are not part of support.” Typically, a parent may still claim a child as a
dependent when they spend a large amount of time in a hospital.3 If, according to a fair reading of
3
As a parent of a minor, Mr. Williams is liable under Michigan law for the services rendered
by plaintiff. Cf. Scholten v. Rhoades, 242 N.W.2d 509, 513 (Mich. Ct. App. 1976) (addressing the
dram shop law, but noting that “[a] parent is legally responsible for the medical bills of his minor
12
an IRS publication, medical insurance benefits are not figured into the support test, it would seem
that this general rule regarding parental support should not be disturbed, even when Medicaid or
some other government program pays for the hospitalization. Absent further evidence, the parents
should be credited with providing Williams, Jr.’s support during this time. We would, therefore,
include the months in Children’s Hospital as months for which Mr. Williams provided support and
maintenance. The evidence then would indicate that Williams, Jr. was supported by his parents for
at least eight months of 2003.
We would also note that Mr. Williams listed Williams, Jr. on his enrollment form twice in
the past, including for the year in question,4 and that some evidence in the record would seem to
indicate that Medicaid has declined coverage for some of his claims. S.F.R. S0000809-S0000818.
Though the amounts listed in those claims are small, they do provide some support that Medicaid
has made a determination that it is not the primary liability carrier for Williams, Jr.
Furthermore, while defendant makes much of the fact that Williams, Jr. was a temporary
ward of the court during the year of 2003, we do not see how that fact alone proves who was
responsible for his support, and defendant does not explain how it does. Williams, Jr. became a
temporary ward of the court pursuant to a family court order on August 2, 2002. But, he lived at
home with both of his parents until April 11, 2003 and again in December of 2003. Under these
facts, during the majority of his year-and-a-half wardship, Williams, Jr. lived at home (from August
child . . . .”), superseded by statute on other grounds, as recognized in LaGuire v. Kain, 487 N.W.2d
389 (Mich. 1992).
4
We are unpersuaded by the fact that after Williams, Jr. was shot, Mr. Williams declined to
return yet another form identifying his dependents that he allegedly received on or around November
26, 2003. S.F.R. at 0000840. If Mr. Williams had returned the form without listing Williams, Jr.,
we might draw a different conclusion, but we are not inclined to do so based on his inaction alone.
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of 2002 until April of 2003 and again in December of 2003), and was presumably being supported
by his parents. In addition, this court has already indicated that, absent further evidence, the time
that he was in the hospital and rehabilitation should be counted as time that his parents provided him
support. Thus, the fact that he was a temporary ward of the court does not significantly aid this court
in determining who was responsible for his support during 2003.
Though we review the district court’s factual determinations de novo, where the district court
has not yet made the definitive factual determinations, we remand the case to that court to make the
determinations in the first instance. We believe that this course is the appropriate one in light of the
fact that the district court can more easily take further evidence, hold evidentiary hearings, and, in
general, find facts than can this court. In addition, though our standard of review would permit us
to make a definitive ruling on the record, that procedure would limit each party’s ability to have
factual errors corrected on appeal.
CONCLUSION
For the foregoing reasons, we REVERSE the district court’s judgment and REMAND
for further proceedings.
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