1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 Case No. 8:20-cv-00821-SB-GJSx 11 IRINA MORRIS,

12 FINDINGS OF FACT AND

CONCLUSIONS OF LAW

13 Plaintiff,

14 v. Trial: June 4, 2021 8:00 AM

15

AETNA LIFE INSURANCE

16 COMPANY

17 Defendants. 18

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28 1 INTRODUCTION 2 Plaintiff Irina Morris brings this action arising under the Employee Retirement 3 Income Security Act (ERISA) of 1974 against Defendant Aetna Life Insurance 4 Company. The parties filed an administrative record and concurrently submitted trial 5 briefs. Dkt. Nos. 30 (AR), 32 (Pltf. Brief), 33 (Def. Brief), 40 (Plt. Reply), 41 (Def. 6 Reply). Upon request of the Court, the parties submitted proposed findings of fact 7 and conclusions of law. Dkt. Nos. 45-1, 46-1. The parties tried this case to the Court 8 on June 4, 2021. Having reviewed the administrative record, the parties’ timely 9 filings, and counsel’s argument at trial, the Court grants judgment in Aetna’s favor 10 and makes the findings of fact and conclusions of law below. 11 12 FINDINGS OF FACT1 13 1. Irina Morris was an employee of Callidus Software, where she served as 14 a principal consultant for software implementation. Dkt. No. 32-1, Declaration of 15 Irina Morris (Morris Decl.) ¶ 2. Morris received a salary of $115,000 per year and 16 was not paid on an hourly basis. See AR 421-30, 437; see Morris Decl. ¶ 2. 17 2. Through her employment, she enrolled in a plan administered by Aetna 18 Life Insurance Company that provided long-term disability (LTD) benefits. Id. at ¶ 3. 19 3. Callidus’s policy covered disability benefits for employees who became 20 unable to perform their occupation due to sickness or injury for the first twenty-four 21 months of their disability. After twenty-four months, to remain eligible for benefits, 22 the employee must have been disabled from performing any occupation for which 23 they were reasonably qualified. AR 2338-2431. 24 25

26 1 The characterization of a finding as one of “fact” or “law” is not controlling. To the 27 extent that a finding is characterized as one of “law” but is more properly characterized as one of “fact” (or vice versa), substance shall prevail over form. 28 1 4. The total long-term disability benefit under the plan was based on 60% of 2 the insured’s Monthly Predisability Earnings minus applicable offsets. AR 2420. 3 5. “Predisability Earnings” are defined as follows:

4 This is the amount of salary or wages you were receiving from an employer participating in this Plan on the day before a period of 5 disability started, calculated on a monthly basis.

6 It will be figured from the rule below that applies to you.

7 If you are paid on an annual contract basis, your monthly salary is 1/12th of your annual contract salary. 8 If you are paid on an hourly basis, the calculation of your monthly wages 9 is based on your hourly pay rate multiplied by the number of hours you are regularly scheduled to work per month; but not more than 173 hours 10 per month.

11 If you do not have regular work hours, the calculation of your monthly salary or wages is based on the average number of hours you worked per 12 month during the last 12 calendar months (or during your period of employment if fewer than 12 months); but not more than 173 hours per 13 month. 14 AR 2412-13. 15 6. The terms of the plan allowed Aetna to recover overpayments:

16 If payments are made in amounts greater than the benefits that you are 17 entitled to receive, Aetna has the right to do any one or all of the following: 18

19 • to require you to return the overpayment on request; • to stop payment of benefits until the overpayment is recovered; 20 • to take any legal action needed to recover the overpayment; and 21 • to place a lien, if not prohibited by law, in the amount of the overpayment on the proceeds of any other income, whether on a 22 periodic or lump sum basis . . . 23 AR 2409.

24 7. In February 2009, Morris took sick leave and underwent surgery and 25 chemotherapy for cancer. Morris submitted an LTD claim to Aetna indicating that she 26 could not return to work for at least three months because she was still completing 27 chemotherapy. AR 447-49, 456. 28 1 8. Aetna subsequently approved Morris’s claim and noted that her 2 chemotherapy treatment was sufficiently debilitating to her cognitive and physical 3 functionality (fatigue, weakness, nausea), which prevented her from performing the 4 material duties of her own occupation as a consultant for her employer. AR 34, 42-44. 5 9. Two years later, on May 27, 2011, Aetna wrote to Ms. Morris, indicating 6 that upon a complete review of her claim, it was determined that she had met the 7 plan’s definition of being totally disabled from performing any gainful occupation. 8 AR 2181-82. Thus, according to the plan’s requirements, she would continue to 9 receive LTD benefits in the above-stated amount of $4,113.17 per month if she 10 continued to meet the plan’s definition of “disability.” AR 2182. 11 10. In calculating that benefit, it appears that the Aetna claim representative 12 conducted the calculation based on the assumption that Morris was paid bi-weekly, 13 meaning that she received 26 paychecks a year. See AR 34 (“$4791.67 bi-weekly x 14 26 = 124583.4”). In reality, Morris was paid semi-monthly, which amounts to 24 15 paychecks a year. 16 11. In September 2011, Morris applied for a home mortgage and asked Aetna 17 to confirm her net benefits in the amount of $4,113.17 per month in order to verify her 18 income. Morris Decl. ¶ 4. Aetna confirmed her benefit and that this income could 19 continue through October 2024, subject to the terms and conditions of the plan. AR 20 154. 21 12. In the subsequent years, Morris included the benefit amount in her 22 income when filing her taxes, participating in a divorce mediation, and refinancing her 23 home. Morris Decl. ¶¶ 5-6. She again confirmed her benefit amount with Aetna in 24 order to verify her income for the 2012 refinance of her home. AR 26. 25 13. In late 2018, Morris was diagnosed with a growth in her right lung, and 26 underwent a wedge resection to remove the growth. AR 5. Aetna then recommended 27 the claim be transferred to their “extended duration unit.” Id. The original 28 miscalculation was discovered upon the transfer. 1 14. On February 25, 2019, Aetna wrote another letter to Morris concerning 2 repayment of the overpaid benefits. AR 356. Aetna confirmed Morris’s monthly pre- 3 disability earnings were in fact $9,583.34, and informed Morris that she owed 4 $56,478.17, the amount of overpayment as a result of the calculation error. Id. Aetna 5 began reducing and withholding Morris’s monthly benefits to recoup the 6 overpayment, recovering a sum of approximately $56,063. See AR 2432-33, Morris 7 Decl. ¶ 13. 8 15. On April 12, 2019, Morris appealed Aetna’s decision to reduce her LTD 9 benefits based upon its miscalculation. AR 1929-31. Morris argued that she had 10 detrimentally relied upon Aetna’s overpayment for nearly a decade. Id. at 1931. 11 Morris ultimately demanded that Aetna review her claim and reverse its decision to 12 withhold or reduce benefits. Id. 13 16. On April 18, 2019, Aetna wrote to Morris that it had completed its 14 review of her appeal and would proceed with its original decision to correct the pre- 15 disability monthly earnings and recover the overpayment. AR 361-63. 16 17. On April 29, 2020, Morris filed a Complaint in this Court, asserting a 17 cause of action for ERISA benefits under § 502(a)(1)(B) and a second cause of action 18 seeking equitable relief for an alleged breach of fiduciary duty under Section 19 502(a)(3). Dkt. No. 1 (Compl.).

20 CONCLUSIONS OF LAW

21 18. This case is governed by the Employee Retirement Income Security Act, 22 29 U.S.C. Section 1001, et seq. because it involves an employee welfare benefit plan 23 within the meaning of that statute. 24

25 Standard of review 26 19. A Court reviews a denial of ERISA benefits de novo unless “the benefit 27 plan gives the administrator or fiduciary discretionary authority to determine 28 eligibility for benefits or to construe the terms of the plan.” Firestone Tire & Rubber 1 Co. v. Bruch, 489 U.S. 101, 115 (1989). “When a benefits claim is subject to de novo 2 review, a Court must review the claim by interpreting the governing plan documents 3 without deferring to any party’s interpretation.” Flynn v. Sun Life Assur. Co. of 4 Canada, 809 F. Supp. 2d 1175, 1183 (C.D. Cal. 2011). 5 20. Here, the plan contains a discretionary clause, which Aetna seeks to 6 invoke. However, Morris argues that the provision providing discretion to Aetna is 7 “void under California law.” Nagy v. Grp. Long Term Disability Plan for Emps. of 8 Oracle Am., Inc., 183 F. Supp. 3d 1015, 1026 (N.D. Cal. 2016), aff'd, 739 F. App'x 9 366 (9th Cir. 2018); see Cal. Ins. Code § 10110.6(a) (“If a policy, contract, certificate, 10 or agreement offered, issued, delivered, or renewed, whether or not in California, that 11 provides or funds life insurance or disability insurance coverage for any California 12 resident contains a provision that reserves discretionary authority to the insurer, or an 13 agent of the insurer, to determine eligibility for benefits or coverage, to interpret the 14 terms of the policy, contract, certificate, or agreement, or to provide standards of 15 interpretation or review that are inconsistent with the laws of this state, that provision 16 is void and unenforceable.”). 17 21. The Court need not definitively resolve the applicable standard of review 18 because Aetna prevails even under the less deferential de novo standard. 19 ERISA § 502(a)(1)(B) claim 20 22. Morris brings a claim according to ERISA §502(a)(1)(B). Pltf. Brief 10. 21 That provision allos a participant to bring an action “to recover benefits due to him 22 under the terms of his plan, to enforce his rights under the terms of the plan, or to 23 clarify his rights to future benefits under the terms of the plan.” Morris argues that 24 she is entitled to the high amount of benefits originally calculated by Aetna according 25 to the plan. Pltf. Brief 10. 26 23. Here, the terms of the plan provide that the amount of benefits are 27 dependent on “the amount of salary or wages you were receiving from an employer 28 participating in this Plan on the day before a period of disability started, calculated on 1 a monthly basis.” AR 2412-13. It does not appear to be meaningfully disputed that 2 Morris’s salary prior to her disability was $115,000 a year (or $9,583.33 per month). 3 Because Morris was insured for 60% of her predisability monthly earnings, the plan 4 unambiguously provides that her gross monthly benefit should be $5,750—not the 5 gross benefit of $6,229.17 that she did receive and seeks here. At the hearing, 6 Morris’s counsel argued that Morris was also compensated in other ways, such as 7 bonuses. But there is nothing in the record that shows what additional amounts, if 8 any, were ever paid to Morris. Indeed, Morris’s counsel conceded that he could not 9 provide a specific calculation that would result in the higher amount of benefits that 10 Morris is claiming. 11 24. Morris also argues that Aetna’s calculation under the plan is incorrect 12 because she lacked a formal annual contract and thus did not work on “an annual 13 contract basis.” Pltf. Brief 11. At the hearing, Morris’s counsel argued that she was 14 merely an “exempt employee,” and that the plan is ambiguous because it does not 15 contemplate such a category. But the plan’s purpose is to provide benefits based on a 16 worker’s “salary or wages . . . calculated on a monthly basis.” AR 2412-13. And it 17 seems plain that Morris had a contract with her employer that paid her an annual 18 salary, such that the only proper way to calculate her monthly benefits was to divide 19 her annual salary by twelve—i.e., the method provided for workers “paid on an annual 20 contract basis.” Id. (“your monthly salary is 1/12th of your annual contract salary”). 21 The Court thus finds that the plan unambiguously treats Morris as an individual paid 22 on an annual contract basis. 23 25. Finally, Morris points to the contra proferentum rule of construction, 24 which instructs that “if, after applying the normal principles of contractual 25 construction, the insurance contract is fairly susceptible of two different 26 interpretations, another rule of construction will be applied: the interpretation that is 27 most favorable to the insured will be adopted.” Blankenship v. Liberty Life Assur. Co. 28 of Bos., 486 F.3d 620, 625 (9th Cir. 2007). But the plan is not ambiguous; indeed, 1 Morris has not explained how the plan is reasonably susceptible of an interpretation 2 that would justify the higher payment she received. 3 26. Thus, the record evidence shows that, under the clear terms of this plan, 4 Morris is not entitled to the benefits she seeks. The Court therefore concludes that 5 Morris is not entitled to relief under her ERISA § 502(a)(1)(B) claim.

6 ERISA § 502(a)(3) claim 7 27. Morris alternatively argues that she is “entitled to the equitable remedies 8 of estoppel, surcharge, waiver and reformation because Aetna breached its fiduciary 9 duties” to her. Pltf. Brief 13. She brings this claim under ERISA § 502(a)(3), 29 10 U.S.C. § 1132(a)(3), which provides: “A civil action may be brought . . . by a 11 participant . . . (A) to enjoin any act or practice which violates any provision of this 12 title or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to 13 redress such violations or (ii) to enforce any provisions of this title or the terms of the 14 plan . . . .” 15 28. The § 502(a)(3) claim, as alleged, requires a finding that Aetna breached 16 a fiduciary duty owed to Morris. In particular, Morris asserts that Aetna breached its 17 fiduciary duty to her by miscalculating her benefits and then affirming her entitlement 18 to those benefits, failing to inform Morris within a reasonable time of the 19 miscalculation, and failing to conduct routine audits meant to catch overpayments. 20 Compl. ¶ 69.2 “In every case charging breach of ERISA fiduciary duty . . ., the 21 threshold question is not whether the actions of some person employed to provide 22 services under a plan adversely affected a plan beneficiary's interest, but whether that 23 person was acting as a fiduciary (that is, was performing a fiduciary function) when 24 25

26 2 Morris also argues that Aetna breached its fiduciary duties by calculating her benefits based on “an interpretation of ambiguous or non-existent Plan terms.” 27 Compl. ¶ 69. But as discussed, the plan unambiguously provides that Morris was not entitled to her initial benefits amount and has always been entitled to Aetna’s current 28 1 taking the action subject to complaint. Pegram v. Herdrich, 530 U.S. 211, 226 2 (2000). 3 29. In the midst of the briefing in this case, the Ninth Circuit issued Bafford 4 v. Northrop Grumman Corp., 994 F.3d 1020, 1028 (9th Cir. 2021), which held that the 5 calculation of benefits according to a pre-set formula was not a fiduciary function 6 under ERISA. There, the sponsor of an ERISA pension plan delegated plan 7 administration to a committee, who in turn contracted with a third-party plan 8 administrator. The third-party administrator generated statements showing 9 participants their anticipated monthly pension benefits when they retired. Prior to 10 retirement, two participants requested such statements and received responses that 11 “grossly overestimated the benefits” to which they would be entitled. Id. at 1024 12 (“Instead of the approximately $2,000 and $1,600 per month benefit Hewitt 13 previously estimated, Bafford and Wilson were only entitled to receive $807 and $823 14 per month, respectively.”). After the participants retired, they were notified that a 15 mistake had occurred and that they were entitled to a much lower benefit. 16 30. The participants sued, alleging (among other things) that the sponsor, the 17 committee, and the third-party administrator had breached their fiduciary duties. The 18 Ninth Circuit affirmed the dismissal of the breach of fiduciary duty claims, holding 19 that no fiduciary duty had been breached. Id. at 1028-29. The court emphasized the 20 “fundamental precept that discretion is one of the central touchstones for a fiduciary 21 role” and reasoned that calculating a benefit within a preset framework “does not 22 involve the requisite discretion or control to constitute a fiduciary function.” Id. at 23 1028. Consequently, the third-party administrator was not “performing a fiduciary 24 function in miscalculating retirement benefits” and the sponsor and committee “did 25 not breach a fiduciary duty by failing to ensure that [the administrator] correctly 26 calculated Plaintiffs’ benefits.” Id. 27 31. The holding in Bafford defeats Morris’s § 502(a)(3) claim. The alleged 28 breach of fiduciary duties—resulting from the miscalculation, the repeated affirmation 1 of the miscalculation, and the failure to audit to catch miscalculations—all are 2 inextricably entwined with the “calculation of . . . benefits,” which is “a ministerial 3 function that does not have a fiduciary duty attached to it.” The actions of Aetna do 4 not involve the sort of discretionary decision-making that typifies the fiduciary role. 5 That fact defeats Morris’s claim, which is contingent on the existence of a breach of a 6 fiduciary duty. 7 32. Morris did not discuss Bafford in her briefing but her counsel addressed it 8 at the bench trial. Counsel argued that Bafford is distinguishable because this case 9 does not just involve a miscalculation but the ongoing payment of benefits according 10 to that miscalculation for several years. But Bafford rejected the participants’ 11 argument the third-party administrator breached its fiduciary duty by “repeatedly 12 providing Plaintiffs and the Class members with inaccurate information regarding the 13 amounts of their pension.” 994 F.3d at 1028 (emphasis added). At bottom, what 14 matters is not the quantity of a defendant’s acts but the nature of those acts. Id. (“the 15 operative fact is that the function being performed was not fiduciary in nature”). 16 Under Bafford, calculating benefits according to a formula is an act entirely 17 ministerial in nature, and the Court does not find that such an act transforms it into a 18 fiduciary function by mere repetition. 19 33. Morris’s claims for estoppel and waiver fail for another reason. “The 20 concepts of waiver or estoppel cannot be used to create coverage beyond that actually 21 provided by an employee benefit plan.” Flynn v. Sun Life Assur. Co. of Canada, 809 22 F. Supp. 2d 1175, 1187 (C.D. Cal. 2011). Here, there is no reasonable construction of 23 the plan’s language that results in the benefits that Morris seeks. Benefits not actually 24 provided by the plan cannot be waived or estopped into existence. 25 34. The Court therefore concludes that Morris is not entitled to relief under 26 her ERISA § 502(a)(3) claim.

27 28 1 DISPOSITION 2 35. Accordingly, in light of the above-state findings of fact and conclusions 3 of law, the Court finds in favor of Aetna and orders that judgment be entered in favor 4 of Aetna. Aetna is to provide a separate judgment by August 16, 2021. All objections 5 are overruled. 6 7 Dated: August 9, 2021 8 ______________________________________ Stanley Blumenfeld, Jr. 9 United States District Judge 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28