FRIEDRICH v INTEL, 9716623
U.S. 9th Circuit Court of Appeals
FRIEDRICH v INTEL
9716623
JOSEPH H. FRIEDRICH,Plaintiff-Appellee,No. 97-16623v.D.C. No.INTEL CORPORATION; INTELCV 94-01613-GEBCORPORATION LONG TERMDISABILITY BENEFIT PLAN,Defendants-Appellants.JOSEPH H. FRIEDRICH,Plaintiff-Appellee,No. 97-17183v.D.C. No.INTEL CORPORATION; INTELCV 94-01613-GEBCORPORATION LONG TERMOPINIONDISABILITY BENEFIT PLAN,Defendants-Appellants.
Appeals from the United States District Courtfor the Eastern District of California, SacramentoGarland E. Burrell, District Judge, PresidingArgued and SubmittedDecember 8, 1998--San Francisco, CaliforniaFiled June 29, 1999Before: Myron H. Bright,* Betty B. Fletcher, andDavid R. Thompson, Circuit Judges.Opinion by Judge Bright
_____________________________COUNSEL George M. Kraw (Argued), Sarah Kenyon Kraw, JeanineDeBacker of Kraw & Kraw, San Jose, California, for thedefendants-appellants.Andrea M. Miller (Argued), Nageley & Meredith, Sacra-mento, California, for the plaintiff-appellee.
_____________________________OPINION BRIGHT, Senior Circuit Judge:Intel Corporation and Intel Corporation Long Term Dis-ability Benefit Plan (collectively "Intel") appeal the districtcourt's judgment in favor of plaintiff-appellee Joseph Frie-drich, following a bench trial. The district court concludedthat Intel failed to comply with the Employee RetirementIncome Security Act of 1974 ("ERISA") when it denied Frie-drich's claim for long term disability benefits. Intel arguesthat the district court erred in reviewing Friedrich's claim denovo and awarding Friedrich benefits and attorneys' fees. Weaffirm the district court in all respects.I. BACKGROUNDIntel maintains a short-term and long-term disability plan.The short-term plan, funded by employee contributions, pro-vides up to fifty-two weeks of benefits for disabilities causedby any physical or mental illness, injury, or condition. Intelfunds the long-term disability plan ("LTD Plan") directlyfrom its general corporate assets and serves as the namedfiduciary and administrator of the plan. The LTD Plan givesIntel discretion to determine benefit eligibility and to construeplan terms. Maureen Shiells administered Intel's LTD Plan inits risk management department which also manages Intel'scorporate liabilities. Employees may appeal adverse decisionsto a Disability Appeals Board.Section 2.05 of the LTD Plan defines "Disability " as fol-lows: "Disability" shall mean any illness or injury that is recognized by the American Medical Association, substantiated by objective medical findings and which renders a Participant incapable of performing work. During the first eighteen (18) months of Dis- ability, a Participant must be unable to perform the work of his or her regular occupation or any reason- ably related occupation. After eighteen (18) months of Disability, a Participant must be unable to per- form the work of any occupation for which he or she is or becomes reasonably qualified for by training, education or experience.LTD Plan S 2.14 defines "Objective Medical Findings" as: a measurable abnormality which is evidenced by one or more standard medical diagnostic procedures including laboratory tests, physical examination findings, X-rays, MRI's, EEG's, ECG's, "Catscans" or similar tests. Objective medical findings do not include physicians' opinions or other third party opinions based solely on the acceptance of subjec- tive complaints.The LTD Plan excludes from coverage any disability that"arises out of, relates to, is caused by or results from . . . men-tal, emotional or psychiatric illness or disorder of any type. . ." LTD Plan S 4.03.Joseph Friedrich worked for Intel as a managing engineerfrom 1971 until he became disabled, resulting in his termina-tion by Intel on October 5, 1993. After suffering flu-likesymptoms, which included fatigue, headache, sore throat,general shakiness, and cognitive difficulties, Friedrich con-sulted with his primary care physician, Dr. Roy Greenberg.Dr. Greenberg referred Friedrich to Dr. Charles Schaffer, thepsychiatrist with whom Friedrich had maintained a doctor-patient relationship since 1986. In June 1992, Dr. Schafferreferred Friedrich to Dr. Monice Kwok, an internist. Afterexamination and laboratory tests, Dr. Kwok advised Dr.Schaffer that Friedrich should be treated for Chronic FatigueSyndrome ("CFS").1 Friedrich returned to Dr. Greenberg fortreatment of CFS and discontinued treatment with Dr. Schaf-fer. A specialist, Dr. Jay Goldstein concurred in the diagnosisof CFS after performing a SPECT scan. After returning to aprevious primary care physician, Friedrich began treatmentwith a specialist, Dr. Jeffrey Anderson, who identified CFSand chemical/pesticide toxicity to be responsible for Frie-drich's disability.In May 1992, Dr. Schaffer provided a diagnosis of "MajorDepression" on Friedrich's application for short-term disabil-ity benefits from Intel.2 Dr. Schaffer stated that he considered"major depression" to be the most appropriate diagnosis at thetime. In August 1992, Friedrich submitted a new diagnosis ofCFS to Intel.On February 19, 1993, Intel notified Friedrich that it foundFriedrich ineligible for LTD benefits and that his short-termbenefits would end on May 13, 1993. Intel had requestedmedical records and progress reports from Dr. Greenberg andDr. Schaffer. Based on Friedrich's records, Shiells deniedFriedrich's claim for LTD benefits on two independentgrounds: Friedrich lacked objective medical evidence thatsubstantiated a disability, and his symptoms stemmed frompsychiatric disorders.Shiells rejected Friedrich's LTD claim out of hand withoutnotifying Friedrich of the right to present medical evidenceand the criteria utilized by Intel in LTD benefits determina-tions. In March 1993, Friedrich submitted an appeal from thedenial of benefits and included a report from Dr. Andersoncontaining a new diagnosis that Friedrich suffered from CFSand chemical/pesticide toxicity. Intel scheduled five medicalexaminations by physicians it selected. Intel received reportsfrom these physicians stating in pertinent part that Friedrichexhibited psychiatric health problems but not a physicalhealth problem. In addition, an Intel physician claimed thatCFS is not a "true physical disease." According to Intel'sdenial of Friedrich's appeal, the five medical examiners failedto identify any objective medical findings to substantiate a"disability" as defined by the LTD Plan. Before denial of theappeal, Intel failed to notify Friedrich that it had receivedmedical reports that could be made available for review andcomment by Friedrich.Friedrich requested reconsideration of his claim, and sub-mitted additional documentation, including EEG examinationresults and a neuropsychological exam by an expert in testingfor cognitive effects of CFS. Intel responded that the LTDPlan did not provide for reconsideration of the Intel DisabilityAppeals Committee decision. Friedrich submitted anotherrequest for reconsideration two weeks later based upon aSocial Security Disability finding of disability. 3 After Intelrefused to reconsider the claim, Friedrich filed this lawsuit inOctober 1994.The district court initially dismissed Friedrich's claim forbreach of fiduciary duty on December 14, 1994. On October5, 1995, the district court denied cross-motions for summaryjudgment and ruled that the 1991 LTD Plan controlled andthat the LTD Plan grants the administrator discretionaryauthority to determine eligibility for benefits and to construethe terms of the LTD Plan. After a bench trial, on July 9,1997, the district judge entered judgment in favor of Frie-drich. On October 16, 1997, the district court awarded Frie-drich attorneys' fees.4 Intel timely appeals the final judgment.The district court exercised jurisdiction pursuant to 28 U.S.C.S 1331 (1993) (federal question) and we have appellate juris-diction pursuant to 28 U.S.C. S 1291 (1993) to review thefinal judgment.II. STANDARD OF REVIEWThis court reviews de novo the district court's choice of thestandard of review applicable to decisions by fiduciaries.Snow v. Standard Ins. Co., 87 F.3d 327, 331 (9th Cir. 1996).This court reviews underlying findings of fact for clear error.Id.[1] When an ERISA plan administrator is given discretionto determine benefits eligibility, courts must review the deci-sion denying benefits under the deferential abuse of discretionstandard. Firestone Tire and Rubber Co. v. Bruch , 489 U.S.101, 115 (1989). Because Intel serves as the plan administra-tor and funds the plan from its own general assets, Intel actsas a fiduciary in apparent conflict with its beneficiaries,including Friedrich. See Atwood v. Newmont Gold Co., 45F.3d 1317, 1322 (9th Cir. 1995). We follow a two-part test todetermine whether to invoke heightened scrutiny of a benefitsdecision made by fiduciaries with apparent conflicts. Id. at1323. First, the beneficiary needs to shoulder the burden ofproviding "material, probative evidence, beyond the mere factof the apparent conflict, tending to show that the fiduciary'sself-interest caused a breach of the administrator's fiduciaryobligations to the beneficiary." Id. If the beneficiary comesforward with such evidence, "the plan bears the burden ofproducing evidence to show that the conflict of interest didnot affect the decision to deny benefits." Id. If the plan doesnot meet its burden, courts review the decision to deny bene-fits de novo. Id.[2] Intel argues that the district court erred by reviewingIntel's decision de novo rather than for an abuse of discretion.The district court concluded that "Friedrich presented materialprobative evidence beyond the mere fact of the apparent con-flict, tending to show that Intel's self-interest caused a breachof its fiduciary obligations to him." The district court furtherdetermined that Intel failed to produce sufficient evidence todemonstrate the conflict of interest did not affect their deci-sion to deny benefits. We conclude that the district court didnot clearly err in its findings of fact underlying its decision toreview Intel's benefits decision de novo and accordingly, thedistrict court properly reviewed Intel's decision to deny bene-fits under the de novo standard.[3] After a thorough review, we conclude that the trialrecord supports the district court's findings. Specifically, therecord reflects that Intel failed to follow its internal procedureof providing a LTD claim packet that would have given Frie-drich notice that he must apply for benefits and the criteria forbenefits determinations. Friedrich did not know Intel wasreviewing his LTD claim and did not submit anything regard-ing his LTD claim until Intel had already denied his claim. Inaddition, the record supports the district court's findings thatIntel provided Friedrich with insufficient notice of the denialof his claim, an unfair review procedure and inadequate dia-logue regarding his claim. Moreover, the trial testimony sup-ports the district court's determination that LTD Plan claimsadministrator Shiells administered Friedrich's claim as anadversary "bent on denying his claim" and "oblivious to herfiduciary obligations as administrator of the LTD Plan."[4] The evidence also demonstrates that the district courtproperly concluded that Intel failed to provide a "full and fair"appeals procedure as required by ERISA. See 29 U.S.C.S 1133(2) (1985). Intel's Appeals Committee had access onlyto disorganized and unexplained raw data from Friedrich'streating physicians to counter carefully drafted opinions byexamining physicians selected by the administrator. WhileFriedrich's medical records did not address Intel's disabilitycriteria and were often incomprehensible and illegible, thetyped reports from Intel's examining physicians specificallyaddressed the objective medical evidence requirement and themental illness exclusion of the LTD Plan. In essence, theclaims process utilized by Intel denied Friedrich the opportu-nity to demonstrate disability on the basis of CFS.[5] The district court did not err in finding procedural irreg-ularities in the initial claims process and an unfair appealsprocess that demonstrate Intel's apparent conflict of interestresulted in a breach of fiduciary duty. Intel did not meet its"burden of producing evidence to show that the conflict ofinterest did not affect the decision to deny benefits." SeeAtwood, 45 F.3d at 1323. Intel argues that it met its burdenby presenting evidence that it acted in the interests of LTDPlan participants by objectively reviewing Friedrich's claim.The record establishes a dispute on this issue, and the evi-dence supports the findings of the district court. Thus, the dis-trict court properly reviewed Intel's decision to deny benefitsde novo.5III. MERITS OF FRIEDRICH'S CLAIMA. Admission of New Evidence[6] This court reviews the decision to admit or exclude evi-dence for an abuse of discretion. Jauregui v. City of Glendale,852 F.2d 1128, 1132 (9th Cir. 1988). A district court, whenexercising de novo review of an ERISA benefits denial deci-sion, may admit additional evidence when " `circumstancesclearly establish that additional evidence is necessary to con-duct an adequate de novo review of the benefit decision.' "Mongeluzo v. Baxter Travenol Long Term Disability BenefitPlan, 46 F.3d 938, 944 (9th Cir. 1995) (quoting Quesinberryv. Life Ins. Co. of N. Am., 987 F.2d 1017, 1025 (4th Cir. 1993)(en banc)).[7] The district court admitted additional evidence fromFriedrich after concluding that Intel prevented Friedrich fromproviding medical evidence to support his claim during Intel'sadministrative review. The evidence supports the districtcourt's determination that Intel limited Friedrich to an admin-istrative record that included only some of Friedrich's medicalrecords and those records were illegible and disorganized.The district court required additional evidence to conduct anindependent de novo review of the benefit claim denial and,therefore, did not abuse its discretion when it admitted furtherevidence.Intel argues that the district court abused its discretion inrefusing to admit new evidence from Intel. Intel asserts thatin order for the district court to do an adequate de novoreview, the district court should have heard additional testi-mony from Intel. We disagree.[8] The detailed, written reports from Intel's expertsaddressed whether objective medical evidence supported adiagnosis of CFS and whether the mental illness exclusionapplied to Friedrich's claim. Intel's reports made it unneces-sary for the district court to hear additional testimony fromIntel's consultants. Friedrich's additional evidence did notraise any new theories not presented to Intel during the claimsprocess. With the addition of Friedrich's trial evidence toIntel's evidence already in the administrative record, the dis-trict court had a complete record that allowed the court tomake an adequate, independent de novo review of the benefitsdecision. Thus, the district court did not abuse its discretionwhen it allowed Friedrich to introduce additional evidenceand refused Intel's request to do the same.B. Friedrich's Entitlement to Long-Term Disability BenefitsIntel argues that the district court clearly erred when it con-cluded that Friedrich had shown disability from CFS and eli-gibility for benefits under the LTD Plan. Intel contends thatFriedrich did not present objective medical evidence substan-tiating a disability and that Friedrich's claim falls underexclusions to the LTD Plan. We reject both contentions.[9] Friedrich introduced at trial objective medical evidenceto support his treating physicians' diagnoses that he suffersfrom disabling CFS. Specifically, Dr. Isaac Silberman's testi-mony explained the objective medical tests indicating CFSfound in Friedrich's medical records,6 the EEGs (electroen-cephalograms) he performed, and Friedrich's symptoms. Dr.Sheila Bastien described in her testimony neuropsychologicaltests she performed on Friedrich specifically designed to mea-sure cognitive functions which produced results consistentwith both immune deficiencies and CFS. Dr. Bastien also crit-icized the testing administered by one of Intel's doctorsbecause the doctor did not test motor functioning. Dr. Bastienindicated that in examining for CFS and multiple chemicalsensitivities, the examining physician should test motor func-tioning. The testimony of Dr. Bastien and Dr. Silberman fullysupport the findings of Friedrich's treating physicians, all ofwhom diagnosed Friedrich to have disabling CFS. Thesediagnoses in part rested upon objective medical tests.[10] The district court had the best position for determiningthe credibility and persuasiveness of Friedrich's expertsregarding whether Friedrich suffered from CFS. We concludethat the district court did not clearly err in finding that Frie-drich presented objective medical findings of disability as aresult of CFS.7Intel argues that three exclusions contained in the LTDPlan bar Friedrich's claim: the psychiatric exclusion, the con-trolled substance exclusion, and the nonconventional methodsexclusion. We conclude that the district court did not clearlyerr in determining that none of the exclusions applied to Frie-drich's claim.Intel contends, based on their medical examiners' reportsand Friedrich's medical records, that Friedrich suffers from apsychiatric condition, not a physical disability. The adminis-trative and trial records support rejection of Intel's conten-tions. Dr. Schaffer, who provided treatment to Friedrich fordepression and anxiety since 1987, testified that Friedrich'shealth problems in 1992 did not stem from psychiatric or psy-chological disorders. Dr. Silberman and Dr. Bastien also testi-fied that Friedrich's psychiatric problems were secondary tohis physical problem of CFS. The record reflects that Frie-drich's physical problem of CFS caused his psychiatric symp-toms in 1992 and that those differed from previous psychiatricsymptoms exhibited in 1987.Intel next asserts that Friedrich's claim fell under a narcot-ics exclusion, contending that Friedrich's symptoms resultedfrom anti-depressants prescribed by his doctors. Section 4.03of the LTD Plan excludes from coverage any disability that"arises out of, relates to, is caused by or results from . . . con-ditions arising from the use of or dependency upon a. . . con-trolled substance . . . ." We reject this assertion. Friedrich'sdisability from CFS did not result from his use of medica-tions. Instead, Friedrich's doctors prescribed the medicationsto treat his CFS symptoms. Intel's exclusion clearly does notbar claims for disabilities treated with the use of medicationsconsidered controlled substances. In addition, Friedrich'streating physicians and consultants considered Friedrich'sprescription medications when diagnosing Friedrich's condi-tion.Finally, Intel contends that Friedrich's claim falls under theexclusion for illnesses diagnosed using non-conventionalmethods not generally accepted by the American MedicalAssociation. See LTD Plan S 4.03. We reject this contentionas the evidence demonstrates that Friedrich's doctors utilizeddiagnostic methods considered "standard" for CFS. The stan-dard diagnosis technique for CFS includes testing, comparingsymptoms to a detailed Centers for Disease Control list ofsymptoms, excluding other possible disorders, and reviewingthoroughly the patient's medical history. As a relatively newdisease, CFS does not have a generally accepted "dipstick"test. Friedrich's doctors employed the standard diagnosistechnique for CFS accepted by the American Medical Associ-ation which included various blood tests, motor testing, andEEGs.The evidence presented in the administrative and trialrecords support the district court's determination that Frie-drich deserved benefits under Intel's LTD Plan. The districtcourt did not clearly err in finding Friedrich suffered from dis-abling CFS, and his disability did not fall under any exclu-sions to the LTD Plan.C. Attorneys' Fees This court reviews a district court's decision to award ordeny attorneys' fees pursuant to ERISA for an abuse of dis-cretion. Operating Eng'rs Pension Trust v. Beck Eng'g &Surveying Co., 746 F.2d 557, 569 (9th Cir. 1984). Intel arguesthat the district court erred in granting Friedrich attorneys'fees, contending that Friedrich should not have prevailed inthe district court. We have rejected Intel's arguments that thedistrict court erred in awarding Friedrich benefits and con-clude that the district court did not abuse its discretion ingranting Friedrich's motion for attorneys' fees. Moreover,Friedrich is entitled to reasonable attorneys' fees incurred inthis appeal.IV. CONCLUSIONWe conclude that the district court properly reviewed Frie-drich's claim de novo. The district court did not clearly err infinding that under Intel's LTD Plan, Friedrich was entitled tobenefits. Accordingly, the judgment of the district court isAFFIRMED. the end
___________________________FOOTNOTES *The Honorable Myron H. Bright, Senior United States Circuit Judge,Eighth Circuit Court of Appeals, sitting by designation.1 Dorland's Medical Dictionary defines CFS as a "persistent debilitatingfatigue of recent onset, with reduction of physical activity to less than halfof usual, accompanied by some combination of muscle weakness, sorethroat, mild fever, tender lymph nodes, headaches, and depression, withthe symptoms not attributable to any other known causes." Dorland'sIllustrated Medical Dictionary 1627 (28th ed. 1994).2 As part of his short-term disability application, Friedrich authorized therelease of his medical records to Intel. The release form recited that therecords may be used as part of an application for LTD Plan benefits.3 Friedrich collects Social Security benefits based on a primary diagnosisof generalized anxiety disorder, chemical toxicity, immune dysregulation,chronic fatigue syndrome and depression.4 On October 24, 1997, the district court revised the attorney fee awardto include fees for litigating the original award.5 This court's recent en banc decision in Kearney v. Standard Ins. Co.,1999 WL 246485 (9th Cir. Apr. 28, 1999) does not impact the above anal-ysis. In Kearney, this court evaluated the plan language to determinewhether the plan administrator exercised discretionary authority. Afterconcluding that the plan did not grant the administrator discretionaryauthority, this court concluded that the district court properly reviewed theclaim de novo. Id. at *3-6. In this case, S 8.01 of Intel's LTD Plan statesthat Intel "shall have the sole discretion to interpret the terms of the Planand to determine eligibility for benefits." This language grants the admin-istrator discretionary authority which requires abuse of discretion reviewunless Intel has a conflict of interest resulting in a breach of its fiduciaryobligations to Friedrich. See Atwood, 45 F.3d at 1323.6 Dr. Silberman testified that blood tests called ANA (antinuclear anti-body) readings and liver enzyme tests called GGT indicated liver dysfunc-tion and a physical health problem that correlated with the symptomsreported by Friedrich. Dr. Silberman also explained that Friedrich's signif-icantly abnormal Epstein-Barr tests reflected an inflammatory response. Inaddition, Dr. Silberman discussed an abnormal SPECT scan study. Frie-drich's treating physician Dr. Jay Goldstein had previously concluded thatFriedrich's abnormal SPECT scan was a characteristic finding in patientswith CFS.7 Intel also argues that the district court erred in finding that Friedrichsuffers from an illness that renders him incapable of working. This argu-ment has no merit. Two of Intel's own physicians found Friedrich disabledfrom a psychiatric condition and incapable of working.