Eighth Circuit Court of Appeals reverses $300K verdict for breach of ERISA fiduciary duty and $110K attorney fee award from U.S.district Court Nebraska; it looks like the lion's share of this verdict is at risk for the Plaintiffs and their counsel 043676P.pdf 12/23/05 John Delcastillo v. Odyssey Resource Case No. 04-3676 District of Nebraska See the Thompson publication for background on the District Court decision last year. The Plaintiffs were an injured employee and his wife who received health benefits from a coemployerorganization Odyssey. After the disabling accident another company bought out the plaintiff's employer and switched health plans,no doubt with an eye toward getting rid of costly health plan beneficiaries, like the plaintiffs. The eighth circuit decision mentions that the husband had a severe work accident, but nothing more about whether the employer's worker comp continued to pay work related medical expenses, hope he and his lawyers didnt lump out too quickly! The new health plan gave the Plaintiffs notice that it was terminating coverage. The article on the District Court case mentions that the succeeding health plan tried to "buy out"the terminated plaintiffs with retroactive coverage whichthey refused. The sympathetic district court found that the new plan violated the Plaintiff's fiduciary duty rights and COBRA rights because it failed tonotify the Plaintiffs that they were under a new plan. Then the distrct court awarded penalties for breach of fiduciary duty, failure to comply with COBRA and failure to pay covered medical expenses. The Eighth circuit basically reverses the entire damage verdict and remands for what is likely to be a substantially lower award.

The court awarded a total of $306,866.11 for COBRA statutory penalties and compensatory damages and$109,317.50 in attorneys’ fees and costs. Delcastillo v. Odyssey Resource Mgmt.,Inc., 320 F. Supp. 2d 889, 901 (D. Neb. 2004). The Odyssey defendants appeal. Weconclude that the Delcastillos were covered by the Reliance plan at its inception.Therefore, they may be entitled to recover unreimbursed medical expenses underERISA but are not entitled to recover statutory penalties under COBRA.

While the eighth circuit agrees that the new plan is a fiduciary,it findsthat an intial COBRA notice was not required because the Plaintiffs were immediately covered by the new plan. The new plan gave proper termination notices. The Plaintiffs thus lose their verdict for cobra violations, there are none now. The Plaintiffs also lose much of their $300K verdict because the eighth circuit finds that damages are limited to lost medical bills, if the Plaintiffs can recover them. The Plaintiffs pleadings charged a breach of fiduciary duty rather than the cause of action for specific losses of benefits.

ERISA expressly provides a plan participant or beneficiary such as the Delcastillos a cause of action “to recover benefits due to him under the terms of his plan.” 29 U.S.C. § 1132(a)(1)(B). The Delcastillos asserted no claim under § 1132(a)(1)(B). Instead, they sought to recover denied benefits on the theory, as explained in their brief on appeal, that “[b]y failing to provide coverage, Odyssey violated their statutory fiduciary duty.”

Therefore the Plaintiffs might have lost their case for specific losses unless on remand the District Court finds that the Defendants waived the defense of 1132a1B:

Therecord on appeal does not reveal whether Odyssey also argued to the district court thatthe Delcastillos may not recover wrongfully denied benefits under a breach of fiduciary duty theory because the remedy under § 1132(a)(1)(B) is exclusive. Thus,there may be an issue whether that defense has been waived. In addition, the districtcourt’s decision did not explain either the nature or the amount of the “specialdamages” being awarded. Accordingly, we remand to the district court for furtherconsideration of whether the Delcastillos are entitled to recover damages equal to theirunreimbursed covered medical expenses during the period from February 1, 1999, toJune 30, 2000. However, we reverse the court’s alternative award of statutorypenalties for “breach of fiduciary duty,” 320 F. Supp. 2d at 901, because “the SupremeCourt has stressed that ERISA does not create compensatory or punitive damageremedies where an administrator of a plan fails to provide the benefits due under thatplan.” Turner v. Fallon Community Health Plan, Inc., 127 F.3d 196, 198 (1st Cir.1997), cert. denied, 523 U.S. 1072 (1998), citing Massachusetts Mut. Life Ins. Co. v.Russell, 473 U.S. 134 (1985).

On attorney fees the appeals court reverses the $110K award for redtermination since muchof the $300kverdict isgoing to go away: Applying our decision in Lawrence v. Westerhaus, 749 F.2d 494, 495 (8th Cir. 1984), as modifiedby our en banc decision in Martin v. Arkansas Blue Cross & Blue Shield, 299 F.3d966 (8th Cir. 2002), cert. denied, 537 U.S. 1159 (2003), the district court awardedattorney’s fees and costs in the amount of $109,317.50. We have reversed the court’sdecision on the COBRA notice claims and the bulk of the court’s damage and penalties award, and we have remanded for further consideration of whether the Delcastillos may prevail on their claim for recovery of unreimbursed covered medical expenses. Accordingly, we vacate the attorney’s fee award. On remand, if the Delcastillos prevail on their remaining claim, the district court should redetermine whether to exercise its discretion to award an attorney’s fee, bearing in mind that “[a]reduced fee award is appropriate if the relief, however significant, is limited incomparison to the scope of the litiation as a whole.” Hensley v. Eckerhart, 461 U.S.424, 440 (1983)