On Appeal from the United States District Court for the Middle District of Pennsylvania (D.C. Civ. No. 82-0745).
Sloviter and Becker, Circuit Judges, and Fullam, District Judge*fn*
Opinion OF THE COURT*fn**
This appeal, arising from a dispute between two employee benefit plans existing under the Employee Retirement Income Security Act, 29 U.S.C. §§ 1002(1) & (3) (ERISA), presents two difficult questions. The first concerns the existence of federal subject matter jurisdiction. The second, a classic insurance coverage question, requires us to determine which of the two ERISA plans, the Northeast Department International Ladies Garment Workers Union Health and Welfare Fund (ILGWU Fund) plan or the Teamsters Local Union No. 229 Welfare Fund (Teamsters Fund) plan, each of which contains "other insurance" provisions, is responsible for the medical bills of a woman who is a participant of the former and a beneficiary of the latter.
We conclude that the district court properly exercised subject matter jurisdiction over this suit.*fn1 We also conclude that trustees of an employee benefit plan have the power to incorporate into the plan "other insurance" provisions unless in doing so they violate ERISA's fiduciary duty standard, 29 U.S.C. § 1104, by acting in an arbitrary and capricious manner. Finally, we conclude that the decision of trustees to incorporate an escape clause in a benefit plan--through which the plan attempts to escape all liability if a participant or beneficiary is covered by another plan, regardless of the level of benefits provided by the other plan--constitutes arbitrary and capricious conduct. We will therefore reverse the judgment of the district court that enforced the escape provision in the ILGWU plan and assigned liability for the benefits in question to the Teamsters Fund.
I. BACKGROUND FACTS AND PROCEDURAL HISTORY
A. Events Leading to the Present Suit and Contentions of the Parties
Ruth Fazio is an employee in the garment industry and a participant in the ILGWU plan, an employee benefit plan within the meaning of ERISA, 29 U.S.C. §§ 1002(1) & (3), Mrs. Fazio's husband, Nicholas Fazio, is a participant in the Teamsters plan, which is likewise an employee benefit plan within the meaning of ERISA. Both plans pay for medical care for their respective employees. In addition, the Teamsters Fund provides medical coverage for the spouse and children of covered employees, and Mrs. Fazio is thus a beneficiary of the Teamsters Fund.
In March 1981, Mrs. Fazio underwent medical treatment and subsequently submitted her medical bills to the ILGWU Fund. The ILGWU Fund advised Mrs. Fazio that she was not eligible for benefits under its plan because she was covered by the Teamsters' plan. Mr. Fazio thereupon submitted a claim for his wife's medical bills to the Teamsters Fund, but that fund advised Mrs. Fazio that it would not pay these bills because she was covered by the ILGWU plan.
Faced with one set of medical bills and two insurers who refused to pay, Mrs. Fazio filed suit in the United States District Court for the Middle District of Pennsylvania, naming both funds as defendants. Federal jurisdiction was grounded on 29 U.S.C. § 1132 (a)(1)(B). From the outset, it was clear that Mrs. Fazio was entitled to reimbursement for her medical expenses from one of the funds. The district court thus thought it unfair for Mrs. Fazio to incur counsel fees and to wait for payment while the court decided which of the funds was liable for her bills. The court therefore suggested, and defendants agreed, that (1) the ILGWU Fund would pay Mrs. Fazio's claim, (2) the action brought by Mrs. Fazio would then be dismissed, and (3) the ILGWU Fund would file, contemporaneously with the dismissal, a complaint in federal court against the Teamsters Fund seeking a declaration of the rights and obligations of the two funds regarding Mrs. Fazio and persons similarly situated.
This agreement was promptly carried out, Federal jurisdiction over the new suit was predicated on two provisions of ERISA, 29 U.S.C. §§ 1132(a)(1)(B) and 1132(a)(3). In addition to the ILGWU Fund, Sol Hoffman, Chairman of the Trustees of the ILGWU Fund, was added as a party-plaintiff. The parties stipulated to the facts and cross-moved for summary judgment. Each fund contended that its applicable "other insurance" provision, that is, the language in its benefits plan purporting to exclude from coverage persons in Mrs. Fazio's position, was controlling. In addition, the Teamsters Fund argued that, if the ILGWU Fund's provision operated as the ILGWU trustees contended, those trustees were acting in an arbitrary and capricious manner, in violation of their fiduciary duties as set out in ERISA at 29 U.S.C. § 1104, because they were discriminating among participants on the basis of sex and marital status.
B. Relevant Terms of the Plans
Both the ILGWU and the Teamsters plans have "other insurance" clauses providing for situations in which a participant or beneficiary is covered by another insurance policy or plan. Specifically, each plan has a coordination of benefits ("COB") section that sets out when the plan intends to be the primary insurer of a participant or beneficiary and when it intends to be a secondary or excess insurer. See infra notes 9 & 10. The Teamsters Fund's COB provision states that "a[nother] plan covering the patient directly, rather than as an employee's dependent, is primary." The ILGWU Fund COB provision does not apply to the situation in which a participant is also a potential beneficiary of a spouse's plan. Instead, the ILGWU plan has a separate section labeled "Exception to Eligibility," which states:
Exception to Eligibility - You are not eligible for hospital, medical-surgical, or Major Medical benefits under this plan if there exists at your spouse's place of employment a group plan which provides for family coverage of these types of benefits so long as 50% or more of the cost of such family coverage is paid for by other than you or a member of your family.
Id. at 54a. The Teamsters plan does not have any provision comparable to the ILGWU plan's "Exception to Eligibility" clause.
C. District Court Opinion and Judgment
The district court granted summary judgment for ILGWU, holding the Teamsters Fund liable for Mrs. Fazio's medical bills. The court predicated its judgment on the fact that the "Exception to Eligibility" language in the ILGWU plan excludes coverage for employees if there exists at their spouse's place of employment a group plan that provides for family coverage, whereas the Teamsters plan provides that it will be an excess insurer only if a beneficiary is covered by another plan. The court concluded that, since the Teamsters Fund exists, Mrs. Fazio is not covered by the ILGWU plan. The court further concluded that, because the Teamsters Fund purports to provide excess coverage only where a participant's spouse is covered by another plan and provides primary coverage otherwise, the Teamsters Fund is liable for all of Mrs. Fazio's medical expenses. Influencing the court's analysis was its concern that the ILGWU Fund ought to be able to protect its "limited financial resources" by shifting liability to the wealthier Teamsters Fund. See Appellant's Appendix at 130a n.6 ("The court recognizes the fact that generally members of the ILGWU have lower salaries than members of the Teamsters Union. It therefore follows that the ILGWU Fund has more limited financial resources from which to draw in distributing.") Finally, the court rejected the Teamsters Fund's argument that the ILGWU Fund provision is discriminatory and in violation of § 1104 of ERISA.
The Teamsters Fund appeals. Although both funds maintain that we have jurisdiction over this suit, we expressed concern about this issue at oral argument and requested that the funds file supplemental briefs on this point. In addition to supporting the allegation in its complaint that jurisdiction properly rests on § 1132 of ERISA, the ILGWU Fund contended in its supplemental brief that federal jurisdiction also can be based on 28 U.S.C. § 1331.
The first question we must address is whether this action is cognizable in federal court. Although the panel is unanimous that the district court acted properly in exercising jurisdiction, it is divided as to the basis for this conclusion. Part IIA reflects the view of Judges Sloviter and Becker that jurisdiction over this suit cannot be obtained through the express grant of ERISA, 29 U.S.C. § 1132. Part IIB reflects Judge Becker's theory that jurisdiction can be founded upon the federal question statute, 28 U.S.C. § 1331, because the case arises under federal common law. Judge Sloviter agrees that § 1331 provides subject matter jurisdiction, but sets forth her theory of federal question jurisdiction in a separate statement. In his separate concurrence, Judge Fullman expresses the view that this suit is cognizable under § 1132(a)(3).
A. ERISA Jurisdictional Provisions
Federal jurisdiction over Mrs. Fazio's original suit was unassailable. ERISA, at 29 U.S.C. § 1132, provides, in pertinent part, that:
(a) A civil action may be brought --
(1) by a participant or beneficiary -- . . .
(B) to recover benefits due to him under the terms of the plan, to enforce his right under the terms of the plan, or to clarify his rights to future benefits under the plan . . .
Mrs. Fazio is a beneficiary of the Teamsters plan and a participant of the ILGWU plan,*fn2 and her suit was brought to recover benefits, to enforce rights, and to clarify rights to future benefits under the terms of these plans. Thus, if Mrs. Fazio had remained a party to this action, the district court unquestionably could have exercised jurisdiction pursuant to 29 U.S.C. § 1132(a)(1)(B).
Jurisdiction over the present suit between the ILGWU and Teamsters Funds, in the absence of the participation of Mrs. Fazio, is much more problematic. Neither the ILGWU Fund, its trustee Hoffman, nor the Teamsters Fund is a participant or beneficiary under the terms of either benefits plan. See supra note 2 (definitions). The parties argue that the district court had jurisdiction under § 1132(a)(1)(b) nevertheless. According to both the ILGWU and Teamsters Funds, the ILGWU Fund has the capacity to sue under this provision as a representative of all the participants and beneficiaries of the ILGWU Fund who are also beneficiaries of the Teamsters Fund and who are being harmed or who will be harmed in the future by the operation of the Teamsters Fund's interpretation of its plan. In essence, the parties argue that, although Mrs. Fazio no longer has a claim, and although the procedure is not expressly authorized by ERISA, the trustees of one fund can "stand in the shoes" of certain aggrieved beneficiaries of another fund and sue on their behalf.
Two cases from other circuits lend some support to this contention. In International Association of Bridge, Structural and Ornamental Iron Workers Local No. 111 v. Douglas, 646 F.2d 1211 (7th Cir. 1981), the Seventh Circuit held that a union has standing to sue under § 1132(a)(1)(B) on behalf of its members in order to clarify their future rights to benefits under a pension plan. The court did not, however, attempt to reconcile this result with the express words of the statutory provision -- which do not include unions among the persons or entities that may bring suit. The other case relied upon by the ILGWU and Teamsters Funds is Fentron Industries v. National Shopmen Pension Fund, 674 F.2d 1300 (9th Cir. 1982). In Fentron, the Ninth Circuit, relying on Association of Data Processing Service Organizations, Inc. v. Camp, 397 U.S. 150, 25 L. Ed. 2d 184, 90 S. Ct. 827 (1970), determined that a party has standing to sue under a federal statute if his alleged injury "fall[s] arguably within the zone of interests protected by the statute allegedly violated," so long as "the statute itself does not preclude the suit." Id. at 1304. Using this test, the court decided that an employer suing a pension plan on behalf of aggrieved employees has standing under ERISA. The court stated that the "omission of employers from 29 U.S.C. § 1132 is not significant in this regard." id. at 1305, holding that since "there is nothing in the legislative history to suggest that . . . the list of parties to sue under this section is exclusive[,] . . . the statute does not prohibit employers from suing to enforce [ERISA's] provisions." Id.
During the pendency of this appeal, another panel of this court rejected a liberal reading of § 1132(a)(1)(B). In New Jersey State AFL-CIO v. New Jersey, 747 F.2d 891 (3d Cir. 1984), a labor union sued the State of New Jersey in federal court for a declaratory judgment that four New Jersey statutes were invalid because they were preempted by ERISA. The panel held that this case did not arise under the jurisdictional provisions of ERISA because:
only participants and beneficiaries may bring suit (in either state or federal court) to clarify rights to future benefits under the terms of the plan. 29 U.S.C. § 1132(a)(1)(B). The statute defines "participants" as employees or former employees who are, or may be, eligible to receive benefits . . . and "beneficiaries" as people designated by a participant who may become eligible to receive benefits . . . It is clear from the statute that labor unions are neither participants nor beneficiaries, and consequently plaintiff does not fall within this provision.
Id., slip op. at 4. Although AFL-CIO does not directly control the question whether a benefit fund (as opposed to a labor union) can sue under § 1132(a)(1)(B), we believe that the case implicitly adopted the view that § 1132 must be read narrowly and literally.*fn3 Such a reading precludes the interpretation that a pension fund or a trustee (fiduciary) of a fund can sue under § 1132(a)(1)(B) on behalf of participants or beneficiaries. Accordingly, we hold that jurisdiction over this suit cannot be predicated on 29 U.S.C. § 1132(a)(1)(B). The Second Circuit, also faced with a suit brought by an employee benefit fund, reached this same conclusion.*fn4
The parties argue in the alternative that federal jurisdiction over this action may be predicated on 29 U.S.C. § 1132(a)(3). This section of ERISA provides that a civil action may be brought:
(3) 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 . . . .
According to the ILGWU and Teamsters Funds, this suit can be characterized as one being brought by ILGWU trustee Hoffman, who is a fiduciary under the terms of ERISA, "to enforce" the terms of the ILGWU plan against the Teamsters Fund, thereby bringing it within the scope of this statutory provision. This analysis, although perhaps superficially appealing, is based on an untenable legal fiction. The Teamsters Fund is not a party to the ILGWU plan, and it has not violated or threatened to violate the terms of that plan. Thus, it cannot be said that the terms of the ILGWU plan are being "enforced" against the Teamsters Fund through this lawsuit. The persons who have the power and the duty ...