Pension & Benefits News ‘Distant corporate relatives’ off hook for disabled doctor’s ERISA, ADA claims
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Thursday, October 17, 2019

‘Distant corporate relatives’ off hook for disabled doctor’s ERISA, ADA claims

By Pension and Benefits Editorial Staff

A disabled surgeon, who had been initially denied long-term disability benefits and accommodations by his employer, failed to plead sufficient facts to hold liable the parent companies of his direct employer for alleged violations of federal laws protecting employee benefits and employment, a federal court in New Mexico ruled.

A general surgeon had been employed by Lovelace Health System, Inc., and was eligible for long-term disability (LTD) benefits as part of his employment. Lovelace operated as the sponsor and plan administrator of the LTD plan, while Reliance Standard Life Insurance Company was the claims administrator. In 2016, the surgeon had received short-term disability coverage and applied for but was denied LTD coverage after requesting coverage that March.

He attempted to obtain ADA accommodations from Lovelace to allow him to continue working, but Lovelace did not make the accommodations and asked for "more and more information" over several months, ultimately terminating his employment on July 1, 2016 with no notice.

The surgeon lost an appeal for LTD coverage in February 2017, and a year later, he was notified that his medical privileges with Lovelace had been terminated.

However, in September 2018, Reliance determined that the surgeon was totally disabled and qualified for LTD coverage to be paid by Lovelace. The surgeon filed a claim with the EEOC with respect to Lovelace’s refusal of his request for accommodation, and he received a right to sue letter in October 2018. The surgeon named 13 defendants in his lawsuit, including several entities tangentially connected to Lovelace "through a web of corporate ownership."

In the present motion, the AHS entities (AHS Management Company, Inc., AHS New Mexico Holdings, Inc., AHS Albuquerque Holdings, LLC, and AHS Medical Holdings, LLC) and BHC Management Services of New Mexico, LLC (BHC), sought to dismiss the claims for failure to state a valid claim.

ERISA claim. According to ERISA, employee benefit plan participants such as the surgeon are allowed to seek recovery of benefits owed under the terms of the plan. Case law holds that plan administrators are the primary defendants in ERISA lawsuits, but another entity may be named if that entity exercises actual control over the administration of the plan.

The surgeon did not plead facts showing that either AHS or BHC exerted any administrative control over the plan or draw any distinction between them and Lovelace as to how AHS or BHC violated ERISA. The court remarked that the lack of detail vis-a-vis the parent entities was in contrast to the detail the surgeon provided describing his relationship with Reliance. The court in a prior ruling had sorted through much of the confusion around the ownership hierarchy among the AHS and Lovelace parties, finding that Lovelace was a subsidiary of AHS New Mexico Holdings, Inc.

In the case at bar, the court described the relationship between Lovelace and BHC as being "even more opaque," and classified those parties as "distant," especially as the surgeon made no assertion that either AHS or BHC served as a plan administrator or otherwise had a role in making coverage determinations. Without pleading facts directly involving AHS or BHC in the coverage denial, the surgeon failed to state a valid claim under ERISA.

ADA claim. Similar to ERISA, courts deciding ADA violation suits generally do not hold parent companies liable for a subsidiary’s actions unless it could be shown that the parent and subsidiary effectively operated as a single employer. Despite the lack of a specific reference to an ADA provision, the court held that the surgeon articulated enough in his complaint to support a claim under the statute with respect to his direct employer, Lovelace. However, the court stated that the surgeon did not proffer any description of how BHC violated the ADA beyond its corporate connection to Lovelace and, thus, the surgeon’s claim on this issue failed.

With respect to AHS, although it did not adhere to the court’s request for efficiency, AHS’ separate motion to dismiss for lack of proof that it participated in the alleged ADA-violation provided the surgeon with sufficient notice. Because the surgeon failed to plead that AHS controlled Lovelace to the degree necessary to establish that they operated as a single entity, the ADA claim against AHS also failed. Moreover, the state law claims against AHS and BHC, as "distant corporate relatives," failed "for the same logic" that they had been dismissed against Lovelace. Therefore, AHS and BHC’s motions to dismiss were granted.

SOURCE: Cruz v. Lovelace Health System Inc., (D.N.M.), No. 1:18-cv-974-RB-SCY, September 12, 2019.

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