ERISA-Ninth Circuit Rules That Ant-Assignment Provision In The Plan Prevents The Service Provider From Bringing Suit.

In Eden Surgical Center v. Cognizant Technology Solutions Corp., No. 16-56422 (9th Cir.2018) (Unpublished), the plaintiff, Eden Surgical Center (“Eden”), was appealing the district court’s grant of summary judgment for the defendants on Eden’s claims under ERISA.

The Ninth Circuit Court of Appeals (the “Court”) analyzed the case as follows.  Eden-seeking payment for surgical services provided- concedes that its sole basis for standing to claim such payment is as an assignee.  It also concedes that the benefit plan, the potential payor here, contained a valid anti-assignment provision, which, if enforceable, would bar Eden’s suit. Eden argues, however, that the doctrines of equitable estoppel and waiver render the provision unenforceable.

As to the equitable estoppel argument, the Court said that reasonable reliance on a material misrepresentation is one of the requirements necessary to establish an equitable estoppel claim.   Eden contends that Aetna, the claims administrator, made two misrepresentations: First, a week or so before the surgery, Aetna incorrectly advised Eden regarding the applicable reimbursement rate; and second, roughly four months after the surgery, Aetna mistakenly told Eden that the benefit plan did not contain an anti-assignment provision.

The Court assumed that Eden can invoke equitable estoppel as to the first misrepresentation.  But that first misrepresentation is irrelevant to the standing analysis, the dispositive issue here, because a misrepresentation concerning the reimbursement rate has no impact on whether the anti-assignment provision is enforceable or not.  As to the second misrepresentation, it is at least potentially relevant to whether the anti-assignment provision can be enforced.  But Eden’s equitable estoppel claim fails because Eden could not have reasonably relied on Aetna’s misrepresentation in deciding to file suit.  Eden could have—and should have—attempted to obtain the plan documents from the purported assignor to verify whether the plan contained an anti-assignment provision, if knowledge of that fact was indeed critical to its decision to file suit.  The undisputed facts establish, however, that Eden did not attempt to obtain the plan documents from its purported assignor until after it had already filed this action. In these circumstances, any reliance Eden placed on Aetna’s misrepresentation concerning the existence of an anti-assignment provision was unreasonable.

The Court also found that Eden’s waiver argument is likewise unavailing. While it is true that a plan administrator may not fail to give a reason for a benefits denial during the administrative process and then raise that reason for the first time when the denial is challenged in federal court, that is not what happened here. Defendants raised the anti-assignment provision after the suit commenced to contest Eden’s standing to sue, not as a reason to deny benefits.  In fact, as the district court properly noted, no benefits were payable here because the beneficiary’s deductible had not been met.  In addition, although Eden takes issue with Defendants’ pre-litigation conduct—in particular, its silence in response to Eden’s administrative appeals—Eden cites no authority for the proposition that Defendants had an affirmative duty to make it aware of the anti-assignment provision.  For these reasons, waiver is inapplicable.

As such, the Court ruled that, because the anti-assignment provision is valid and enforceable, Eden lacks derivative standing to sue.  Accordingly, the district court’s ruling was affirmed.

 

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