HIV AIDS Resource Guide/HIV-AIDS Resource Guide.iso/STAT/CASES/MCGANN.ASC

Text File | 1993-01-14 | 25KB | 473 lines

/* This case is reported in 946 F.2d 401 (5th Cir. 1991). In one
of the most significant HIV cases, the U.S. Fifth Circuit Court
of Appeals found that an employer may consistent with ERISA
change its health plan to eliminate or to vastly decrease
benefits JUST for HIV. This case was described in the media as a
struggle between the survival of a small business, who was
essentially self-insured and claimed it could not afford to pay
out $1,000,000 (its former limit) or even a great part of that
for its single, HIV positive employee. Note that other laws may
change this result in future cases. */

McGann, Plaintiff-Appellant

v.

H & H Music Company et al., Defendants-Appellees.

United States Court of Appeals, Fifth Circuit.

November 4, 1991. (946 F2d



Appeal from the United States District Court for the Southern
District of Texas. Affirmed.



Before GARWOOD, JONES, and BARKSDALE, Circuit Judges.


GARWOOD, C. J.: Plaintiff-appellant John McGann (McGann) filed
this suit under section 510 of the Employee Retirement income
Security Act of 1974, Pub.L. No. 93406, 88 Stat. 832 (29 U.S.C.
1001-1461) (ERISA), against defendants-appellees H & H Music
Company (H & H Music), Brook Mays Music Company (Brook Mays) and
General American Life Insurance Company (General American)
(collectively defendants) claiming that they discriminated
against McGann, an employee of H & H Music, by reducing benefits
available to H & H Music's group medical plan beneficiaries for
treatment for acquired immune deficiency syndrome (AIDS) and
related illnesses. The district court granted defendants' motion
for summary judgment on the ground that an employer has an
absolute right to alter the terms of medical coverage available
to plan beneficiaries. 742 F.Supp. 392. We affirm.

Facts and Proceedings Below

McGann, an employee of H & H Music, discovered that he was
afflicted with AIDS in December 1987. Soon thereafter, McGann
submitted his first claims for reimbursement under H & H Music's
group medical plan, provided through Brook Mays, the plan
administrator, and issued by General American, the plan insurer,
and informed his employer that he had AIDS. McCann met with
officials of H & H Music in March 1988, at which time they
discussed McGann's illness. Before the change in the terms of the
plan, it provided for lifetime medical benefits of up to
$1,000,000 to all employees.


In July 1988, H & H Music informed its employees that, effective
August 1, 1988, changes would be made in their medical coverage.
These changes included, but were not limited to, limitation of
benefits payable for AIDS-related claims to a life time maximum
of $5,000. [1] No limitation was placed on any other catastrophic
illness. H & H Music became self-insured under the new plan and
General American became the plan's administrator. By January
1990, McGann had exhausted the $5,000 limit on coverage for his
illness.

In August 1989, McGann sued H & H Music, Brook Mays and General
American under section 510 of ERISA, which provides, in part, as
follows:

It shall be unlawful for any person to discharge, fine, suspend,
expel discipline, or discriminate against a participant or
beneficiary for exercising any right to which he is entitled
under the provisions of an employee benefit plan,... or for the
purpose of interfering with the attainment of any right to which
such participant may become entitled under the plan. 29 U.S.C.
1140.

McCann claimed that defendants discriminated against him in
violation of both prohibitions of section 510.2 He claimed that
the provision limiting coverage for AIDS-related expenses was
directed specifically at him in retaliation for exercising his
rights under the medical plan and for the purpose of interfering
with his attainment of a right to which he may become entitled
under the plan.

Defendants, conceding the factual allegations of McGann's
complaint, moved for summary judgment.[3] These factual allega
tions include no assertion that the reduction of AIDS benefits
was intended to deny benefits to McGann for any reason which
would not be applicable to other beneficiaries who might then or
thereafter have AIDS, but rather that the reduction was prompted
by the knowledge of McGanns illness, and that McGann was the only
beneficiary then known to have AIDS.[5] On June 26, 1990, the
district court granted defendants' motion on the ground that they
had an absolute right to alter the terms of the plan, regardless
of their intent in making the alterations. The district court
also held that even if the issue of discriminatory motive were
relevant, summary judgment would still be proper be-cause the
defendants' motive was to ensure the future existence of the plan
and not specifically to retaliate against McGann or to interfere
with his exercise of future rights under the plan.

Discussion

McGann contends that defendants violated both clauses of section
510 by discriminating against him for two purposes: (1) "for
exercising any right to which [the beneficiary] is entitled," and
(2) "for the purpose of interfering with the attainment of any
right to which such participant may become entitled" In order to
preclude summary judgment in defendants' favor, McGann must make
a showing sufficient to establish the existence of a genuine
issue of material fact with respect to each material element on
which he would carry the burden of proof at trial. Celotex Corp.
v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 2552,91 L.Ed.2d
265(1986).

At trial, McGann would bear the burden of proving the existence
of defendants' specific discriminatory intent as an essential
element of either of his claims. Kimbro v. Atlantic Richfield Co.
[52 EPD  39,495), 889 F.2d 869, 881(9th Cir. 1989) (employee
must prove employer's specific intent to retaliate for employee's
exercise of rights under plan), cert. denied, - U.S. -, 111 S.Ct.
53, 112 L.Ed.2d 28 (1990); Clark v. Resistor Flex Co., a Div. of
Unidynamics Corp., 854 F.2d 762, 770 (5th Cir. 1988) (employee
must prove specific intent to interfere with employee's pension
rights); Dister v. Continental Group, Inc., 859 F.2d 1108, 1111
(2d Cir.1988) (section 510 claimant must prove specific intent to
engage in activity prohibited by section 510); Gavalik v.
Continental Can Co.. 812 F.2d 834, 851 (3d Cir.) (claimant must
prove specific intent to violate ERISA), cert. denied, 484 U.S.
979, 108 S.Ct. 495, 98 L.Ed.2d 492 (1987). Thus, in order to
survive summary judgment McCann must make a showing sufficient to
establish that a genuine issue exists as to defendants' specific
intent to retaliate against McCann for filing claims for AIDS-
related treatment or to interfere with McGann's attainment of any
right to which he may have become entitled.

Although we assume there was a connection between the benefits
reduction and either McGann's filing of claims or his revelations
about his illness, there is nothing in the record to suggest that
defendants' motivation was other than as they asserted, namely to
avoid the expense of paying for AIDS treatment (if not, indeed,
also for other treatment), no more for McCann than for any other
present or future plan beneficiary who might suffer from AIDS.
McGann concedes that the reduction in AIDS benefits will apply
equally to all employees filing AIDS related claims and that the
effect of the reduction will not necessarily be felt only by him.
He fails to allege that the coverage reduction was otherwise
specifically intended to deny him particularly medical coverage
except "in effect." He does not challenge defendants' assertion
that their purpose in reducing AIDS benefits was to reduce costs.

Furthermore, McCann has failed to adduce evidence of the
existence of "any right to which [he] may become entitled under
the plan." The right referred to in the second clause of section
510 is not simply any right to which an employee may conceivably
become entitled, but rather any right to which an employee may
become entitled pursuant to an existing, enforceable obligation
assumed by the employer. "Congress viewed [section 510] as a
crucial part of ERISA because, without it, employers would be
able to circumvent the provision of promised benefits." Ingersoll-
Rand Co. v. McClendon, - U.S.-, 111 S.Ct. 478, 485, 112 L.Ed.2d
474(1990).

McGann's allegations show no promised benefit, for there is
nothing to indicate that defendants  ever  promised  that  the
$1,000,000 coverage limit was permanent. The H & H Music plan
expressly provides: "Termination or Amendment of Plan: The Plan
Sponsor may terminate or amend the Plan at any time or terminate
any benefit under the Plan at any time." There is no allegation
or evidence that any oral or written representations were made to
McGann that the $1,000,000 coverage limit would never be lowered.
Defendants broke no promise to McGann. The continued availability
of the $1,000,000 limit was not a right to which McGann may have
become entitled for the purposes of section 510. To adopt
McGann's contrary construction of this portion of section 510
would mean that an employer could not effectively reserve the
right to amend a medical plan to reduce benefits respecting
subsequently incurred medical expenses, as H & H Music did here,
because such an amendment would obviously have as a purpose
preventing participants from attaining the right to such future
benefits as they otherwise might do under the existing plan
absent the amendment. But this is plainly not the law, and ERISA
does not require such "vesting" of the right to a continued level
of the same medical benefits once those are ever included in a
welfare plan. See Moore v. Metropolitan Life Insurance Co., 856
F.2d 488, 492 (2d Cir.1988).

McGann appears to contend that the reduction in AIDS benefits
alone supports an inference of specific intent to retaliate
against him or to interfere with his future exercise of rights
under the plan. McCann characterizes as evidence of an individual
ized intent to discriminate the fact that AIDS was the only
catastrophic illness to which the $5,000 limit was applied and
the fact that McCann was the only employee known to have AIDS. He
contends that if defendants reduced AIDS coverage because they
learned of McGann's illness through his exercising of his rights
under the plan by filing claims, the coverage reduction therefore
could be "retaliation" for McCann's filing of the claims. [6]
Under McCann's theory, any reduction in employee benefits would
be impermissibly discriminatory if motivated by a desire to avoid
the anticipated costs of continuing to provide coverage for a
particular beneficiary. McCann would find an implied promise not
to discriminate for this purpose; it is the breaking of this
promise that McCann appears to contend constitutes interference
with a future entitlement.

McCann cites only one case in which a court has ruled that a
change in the terms and conditions of an employee-benefits plan
could constitute illegal discrimination under section 510. Vogel
v. Independence Federal Sav. Bank, 728 F.Supp. 1210 (D.Md. 1990).
In Vogel, however, the plan change at issue resulted in the
plaintiff and only the plaintiff being excluded from coverage.
McCann asserts that the Vogel court rejected the defendant's
contention that mere termination of benefits could not constitute
unlawful discrimination under section 510, but in fact the court
rejected this claim not because it found that mere termination of
coverage could constitute discrimination under section 510, but
rather because the termination at issue affected only the
beneficiary. Id. at 1225. Nothing in Vogel suggests that the
change there had the potential to then or thereafter exclude any
present or possible future plan beneficiary other than the
plaintiff. Vogel therefore provides no support for the
proposition that the alteration or termination of a medical plan
could alone sustain a section 510 claim. Without necessarily
approving of the holding in Vogel, we note that it is
inapplicable to the instant case. The post-August 1, 1988 $5,000
AIDS coverage limit applies to any and all employees. [8]

/* Would the court countenance a plan which changed from a
$1,000,000 limit for Sickle Cell anemia or other disease which
affect only some portions of society. */

McCann effectively contends that section 510 was intended to
prohibit any discrimination in the alteration of an employee bene
fits plan that results in an identifiable employee or group of
employees being treated differently from other employees. The
First Circuit rejected a somewhat similar contention in Aronson
v. Servus Rubber, Div. of Chromalloy, 730 F.2d 12 (1st Cir.),
cert. denied, 469 U.S. 1017, 105 S.Ct. 431, 83 L.Ed.2d 357
(1984). In Aronson, an employer eliminated a profit sharing plan
with respect to employees at only one of two plants. The
disenfranchised employees sued their employer under section 510,
claiming that partial termination of the plan with respect to
employees at one plant and not at the other constituted illegal
discrimination. The court rejected the employees' discrimination
claim, stating in part:

[Section 510] relates to discriminatory conduct directed against
individuals, not to actions involving the plan in general. The
problem is with the word 'discriminate.' An overly literal
interpretation of this section would make illegal any partial
termination, since such terminations obviously interfere with the
attainment of benefits by the terminated group, and, indeed, are
expressly intended so to interfere This is not to say that a plan
could not be discriminatorily modified, intentionally benefiting,
or injuring, certain identified employees or a certain group of
employees, but a partial termination can-not constitute
discrimination per se. A termination that cuts along
independently established lines-here separate division and that
has a readily apparent business justification, demonstrates no in
vidious intent. Id. at 16 (citation omitted).

The Supreme Court has observed in dictum: "ERISA does not mandate
that employers provide any particular benefits, and does not
itself proscribe discrimination in the provision of employee
benefits." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 103 S.Ct.
2890, 2897, 77 L.Ed.2d 490 (1983). See also Sejman v. Warner-
Lambert Co., 889 F.2d 1346, 1348-49 (4th Cir. 1989), cert.
denied, - U.S. -, 111 S.Ct. 43, 112 L.Ed.2d 19 (1990); Young v.
Standard Oil (Indiana), 849 F.2d 1039, 1045 (7th Cir.), cert.
denied, 488 U.S. 981,109 S.Ct. 529, 102 L.Ed.2d 561(1988);
Phillips v. Amoco Oil Co., 799 F.2d 1464, 1471(11th Cir. 1986),
cert. denied, 481 U.S. 1016,107 S.Ct. 1893, 95 L.Ed.2d 500
(1987); Hamilton v. Travelers Ins. Co., 752 F.2d 1350,1351-52
(8th Cir. 1985); Moore v. Reynolds Metals Co. Retirement Program
for Salaried Employees, 740 F.2d 454, 456 (6th Cir. 1984)
(Reynolds Metals), cert. denied, 469 U.S. 1109, 105 S.Ct. 786, 83
L.Ed.2d 780 (1985). To interpret "discrimination" broadly to
include defendants' conduct would clearly conflict with
Congress's intent that employers remain free to create, modify
and terminate the terms and conditions of employee benefits
plans without governmental interference.

The Sixth Circuit, in rejecting a challenge to an employer's
freedom to choose the terms of its employee pension plan, stated
that

[i]n enacting ERISA, Congress continued its reliance on voluntary
action by employers by granting substantial tax advantages for
the creation of qualified retirement programs. Neither Congress
nor the courts are involved in either the decision to establish a
plan or in the decision concerning which benefits a plan should
provide. In particular, courts have no authority to decide which
benefits employers must confer upon their employees; these are
decisions which are more appropriately influenced by forces in
the marketplace and, when appropriate, by federal legislation.
Absent a violation of federal or state law, a federal court may
not modify a substantive provision of a pension plan. Id.
(citation omitted).

The Sixth Circuit has subsequently declared that "the principle
articulated in [Reynolds Metals applies with at least as much
force to welfare plans ..." Musto v. American General Corp., 861
F.2d 897, 912 (6th Cir.1988), cert denied, 490 U.S. 1020, 109
S.Ct. 1745, 104 L.Ed.2d 182 (1989). [9]

As persuasively explained by the Second Circuit, the policy of
allowing employers freedom to amend or eliminate employee
benefits is particularly compelling with respect to medical
plans:

With regard to an employer's right to change medical plans,
Congress evidenced its recognition of the need for flexibility in
rejecting the automatic vesting of welfare plans. Automatic
vesting was rejected because the costs of such plans are subject
to fluctuating and unpredictable variables. Actuarial decisions
concerning fixed annuities are based on fairly stable data, and
vesting is appropriate. In contrast, medical insurance must take
account of inflation, changes in medical practice and technology,
and increases in the costs of treatment independent of inflation.
These unstable variables prevent accurate predictions of future
needs and costs. Moore v. Metropolitan Life Ins. Co., 856 F.2d
488, 492 (2d Cir.1988) (Metropolitan Life).

In Metropolitan Life, the court rejected an ERISA claim by
retirees that their employer could not change the level of their
medical benefits without their consent. The court stated that
limiting an employer's right to change medical plans increased
the risk of "decreas[ing] protection for future employees and
retirees." Id. at 492; see also Reynolds Metals, 740 F.2d at 457
("judicial interference into the establishment of pension plan
provisions... would serve only to discourage employers from
creating voluntarily pension plans") (footnote omitted).

McCann's claim cannot be reconciled with the well-settled
principle that Congress did not intend that ERISA circumscribe em
ployers' control over the content of benefits plans they offered
to their employees. McGann interprets section 510 to prevent an
employer from reducing or eliminating coverage for a particular
illness in response to the escalating costs of covering an
employee suffering from that illness. Such an interpretation
would, in effect, change the terms of H & H Music's plan. Instead
of making the $1,000,000 limit available for medical expenses on
an as-incurred basis only as long as the limit remained in
effect, the policy would make the limit permanently available for
all medical expenses as they might thereafter be incurred because
of a single event, such as the contracting of AIDS. Under Mc
Gann's theory, defendants would be effectively proscribed from
reducing coverage for AIDS once McCann had contracted that ill
ness and filed claims for AIDS-related expenses. If a federal
court could prevent an employer from reducing an employee's cov
erage limits for AIDS treatment once that employee contracted
AIDS, the boundaries of judicial involvement in the creation, al
teration or termination of ERISA plans would be sorely tested.

As noted, McGann has failed to adduce any evidence of defendants'
specific intent to engage in conduct proscribed by section 510. A
party against whom summary judgment is ordered cannot raise a
fact issue simply by stating a cause of action where defendants'
state of mind is a material element. Clark, 854 F.2d at 771.
"'There must be some indication that he can produce the requisite
quantum of evidence to enable him to reach the jury with his
claim.' " Id. at 771 (quoting Hahn v. Sargent, 523 F.2d 461, 468
(1st Cir.1975), cert denied, 425 U.S. 904, 96 S.Ct. 1495, 47
L.Ed.2d 754 (1976)).

Proof of defendants' specific intent to discriminate among plan
beneficiaries on grounds not proscribed by section 510 does not
enable McCann to avoid summary judgment. ERISA does not broadly
prevent an employer from "discriminating" in the creation,
alteration or termination of employee benefits plans; thus,
evidence of such intentional discrimination cannot alone sustain
a claim under section 510. That section does not prohibit welfare
plan discrimination between or among categories of diseases.
Section 510 does not mandate that if some, or most, or virtually
all catastrophic illnesses are covered, AIDS (or any other
particular catastrophic illness) must be among them. It does not
prohibit an employer from electing not to cover or continue to
cover AIDS, while covering or continuing to cover other
catastrophic illnesses, even though the employer's decision in
this respect may stem from some "prejudice" against AIDS or its
victims generally. The same, of course, is true of any other
disease and its victims. That sort of "discrimination" is simply
not addressed by section 510. Under section 510, the asserted
discrimination is illegal only if it is motivated by a desire to
retaliate against an employee or to deprive an employee of an
existing right to which he may be entitled. The district court's
decision to grant summary judgment therefore was proper. Its
judgment is accordingly

Affirmed.

The U.S. Supreme court denied a Writ of Certiorari by order dated
November 9, 1992.

[1]Other changes included increased individual and family
deductibles, elimination of coverage for chemical dependency
treatment, adoption of a preferred provider plan and increased
contribution requirements.

[2] McCann also asserted various state law claims which the
district court dismissed without discussion. McCann's brief in
this court states that he "does not appeal from that part of the
district court's order."

[3]General American claimed that the district court should have
dismissed it as a defendant with respect to McCann's ERISA claim
because ERISA does not create a cause of action against a non
employer and McCann has never been employed by General American.
Because of our disposition of this appeal on alternative grounds,
we do not find it necessary' to address this issue.

[4]We assume, for purposes of this appeal that the defendants'
knowledge of McCann's illness was a motivating factor in their
decision to reduce coverage for AIDS related expenses, that this
knowledge was obtained either through McCann's filing of claims
or his meetings with defendants, and that McCann was the only
plan beneficiary then known to have AIDS.

[5]McCann does not claim that he was not fully reimbursed for all
claimed medical expenses incurred on or prior to August 1, 1988;
or that the full $5,000 has not been made available to him in
respect to AIDS related medical expenses incurred by him on or
after July 1,1988.

[6]We assume that discovery of McCann's condition-and realization
of the attendant, long-term costs of caring for McCann did in
fact prompt defendants to reconsider the $1,000,000 limit with
respect to AIDS-related expenses and to reduce the limit for
future such expenses to $5,000.

[7] Additionally, McCann relies on three cases involving wrongful
termination claims brought under section 510. Fitzgerald v. Codex
Corp., 882 F.2d 586 (1st Cir.1989); Kross v. Western Electric Co.
701 F.2d 1238 (7th Cir. 1983); Flooz v. Marriott Corp., 594
F.Supp. 1007 (W.D.Mo. 1984). in none of these cases, however, did
the employer alter the terms or conditions of the plan at issue.
Nor did any one of the three suggest that the changing of the
terms of the plan might constitute a violation of section 510.

[8] As noted, the district court stated as one ground for its
decision that an employer has an absolute right to alter the
terms of an employee benefits plan, barring contractual
provisions to the contrary. See Deeming v. American Standard,
Inc., 905 F.2d 1124. 1127 (7th Cir.1990) ("allegation that the
employer employee relationship, and not merely the pension plan,
was changed in some discriminatory or wrongful way" is a
fundamental prerequisite to a  510 action"); Owens v Storehouse,
Inc., 773 F.Supp. 416. 418 (N.D.Ga.1991) (relying on Deeming in
rejecting claim that employer violated section 510 by reducing
AIDS benefits from $1,000,000 to $25,000 under employee health
plan on ground that "510 was designed to protect the 'employment
relationship,' not the integrity of specific plans.") We do not
find it necessary to decide this question.

[9]  Musto involved an ERISA claim by retirees that their former
employer violated contractual and fiduciary duties by changing
the terms of their medical coverage. 'The court rejected
plaintiffs' claim that they had a vested interest in the terms of
their medical coverage. Musto, like Reynolds Metals, noted that
"[t]here is a world of difference between administering a welfare
plan in accordance with its terms and deciding what those terms
are to be. A company acts as a fiduciary in performing the first
task, but not the second." Id. at 911.