ERISA-DC Court of Appeals Rules That The Defendants Short-Term Disability Plan Is A Payroll Practice And Thus Exempt From ERISA, And That The Plan Administrator’s Denial of Long-Term Disability Benefits Is Subject To A Deferential Review

In Foster v. Sedgwick Claims Management Services, Inc., No. 15-7150  (DC Cir. 2016), the appeal before the District of Columbia Court of Appeals (the “Court”) involved two issues under ERISA, with respect to private benefit plans. The first issue concerns the definition of “payroll practices” that are exempt from ERISA. The second addresses whether terms of the ERISA plan at issue in this case gives discretion to the plan administrator sufficient to warrant deferential review of the administrator’s benefit determinations.

In this case, in July 2014, Plaintiff  Kelly Foster sued Sedgwick Claims Management Services, Inc. (“Sedgwick”) and Sun Trust Bank Short and Long Term Disability Plans (together “Defendants”) under ERISA, to enforce her rights to benefits under short-term and long-term disability benefit plans that had been adopted by her employer, Sun Trust Bank (“SunTrust”). The district court found that the short-term plan was a “payroll practice” exempted from ERISA’s ambit by a Department of Labor regulation. Plaintiff  initially conceded this point. Because Plaintiff’s sole cause of action with respect to the short-term plan rested on ERISA, the District Court rejected Plaintiff’s claim. The District Court additionally found that the long-term plan gave Sedgwick, the plan administrator, sole discretion to “evaluate” an employee’s medical evidence and “determine” if the employee’s condition meets the plan’s definition of disability. The district court accordingly applied a deferential standard of review to Sedgwick’s denial of long-term disability benefits sought by Plaintiff and concluded that the administrator had neither abused its discretion nor acted arbitrarily or capriciously in assessing Plaintiff’s claim for benefits. The district court granted summary judgment to Defendants and dismissed Plaintiff’s complaint.

Plaintiff then filed a motion for reconsideration. She admitted she had conceded that the short-term disability plan was exempt from ERISA during summary judgment, but argued that the district court’s embrace of this position constituted an error of law. The district court rejected Plaintiff’s attempt to raise a new legal theory in a motion for reconsideration when the same claim could have been asserted during summary judgment. The district court denied the motion for reconsideration.

Upon reviewing the case, the Court affirmed the district court’s rulings. First, the Court affirmed the district court’s finding that the short-term disability plan is an ERISA-exempt “payroll practice” under Department of Labor regulations. Second, the Court held that the district court appropriately applied a deferential standard of review to the administrator’s denial of benefits under the long-term disability plan because the terms of the plan unambiguously grant the administrator, and the administrator alone, the power to construe critical terms of the plan and to decide an employee’s eligibility for benefits. Finally, the Court held that the district court did not abuse its discretion in denying Plaintiff’s motion for reconsideration.

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