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Hodges v. Life Insurance Co. of North America

United States Court of Appeals, Tenth Circuit

April 2, 2019

LOU HODGES, Plaintiff - Appellee,
LIFE INSURANCE COMPANY OF NORTH AMERICA, a Pennsylvania insurance company, Defendant-Appellant.

          Appeal from the United States District Court for the District of Colorado (D.C. No. 1:14-CV-00958-WYD-NYW)

          Jack M. Englert, Jr., Holland and Hart LLP, Greenwood Village, Colorado, for Appellant.

          David Lichtenstein (Matthew Molinaro, with him on the brief), Law Office of David Lichtenstein, LLC, Denver, Colorado, for Appellee.

          Before MATHESON, PHILLIPS, and EID, Circuit Judges.


         Lou Hodges submitted a claim for long-term-disability (LTD) benefits to Life Insurance Company of North America (LINA) through his employer's group-insurance plan. Although LINA approved his claim, Hodges asserted that LINA should have classified him as a "sales" employee under the group-insurance policy, which would have entitled him to more benefits. This led Hodges to sue LINA. The district court remanded for further factfinding, but LINA once again reached the same result. The district court then reversed LINA's decision, concluding that Hodges qualified as a salesperson under the policy. LINA now appeals that ruling. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.


         Until 2012, Hodges worked for Endo Pharmaceuticals, Inc. as a cryotherapy technician. That year a degenerative eye condition forced him to retire. He participated in Endo's employee-welfare-benefit plan, for which Endo had appointed LINA as the administrator. In 2011, LINA issued to Endo a group LTD insurance policy (the Policy), governed by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1000-1461. Under "Claims Procedures," the Policy names LINA the fiduciary for deciding claims as well as appeals of denied claims. Appellant's App. vol. 2 at 312. The Policy allows LINA "45 days from the date it receives a claim for disability benefits . . . to determine whether or not benefits are payable in accordance with the terms of the Policy." Id.

         The Policy divides employees into two classes: Class 1, which includes "[a]ll active, Full-time and part-time Employees of the Employer, excluding Sales personnel, regularly working a minimum of 20 hours per week"; and Class 2, which includes "[a]ll active, Full-time Employees of the Employer classified as Sales Personnel regularly working a minimum of 20 hours per week." Id. at 290. The Policy entitles all covered employees to monthly disability payments worth 60% of their average pre-disability earnings, but it defines the pay of sales personnel more broadly than that of non-sales personnel. Specifically, the Class 2 definition of earnings includes payments "received from bonuses or target incentive compensation bonus[es]," but the Class 1 definition "does not include amounts received as bonus[es]."[1] Id. Despite favoring sales personnel in the provision of benefits, however, the Policy defines neither "sales" nor "sales personnel."

         Before leaving the company, Hodges submitted a claim under the Policy. After granting him short-term-disability benefits, LINA informed Hodges that it would begin evaluating his eligibility for LTD benefits. LINA eventually concluded that Hodges was medically eligible for LTD benefits, but later sought information from Hodges and Endo about Hodges's job description and duties to determine whether he qualified as "sales personnel" under the Policy. In a telephone interview, Hodges explained to a LINA claim manager that "he was a technician, but often times did things to sell the compan[y']s products." Id. at 516. And in an e-mail to another LINA claim manager, an Endo representative "confirmed" that Hodges "received monthly sales bonuses based on the number of cases he treated," which totaled "$9[, ]800 for the nine months he worked in 2011." Id. vol. 5 at 1226. But the representative also stated, "These earnings are not part of the overall bonus or [incentive compensation] program at Endo and were not included in the premium calculation." Id.

         On March 21, 2012, LINA informed Hodges that it had approved his claim for LTD benefits but that it deemed him a Class 1 employee, not a Class 2 salesperson. Hodges objected to this classification, arguing that he "sold products while out in the field" and that the classification would significantly reduce his benefits.[2] Id. vol. 2 at 494. About 70% of Hodges's earnings came from his base salary, and about 30% came from sales-driven compensation, including bonuses.

         In November 2012, Hodges filed an administrative appeal asking LINA to reconsider its decision to classify him as a Class 1 employee. Hodges attached several supporting documents to his appeal. First, he submitted e-mails from two senior Endo officials referring to the "bonuses" that Hodges and other cryotherapy technicians had earned selling the company's products and services. Id. vol. 4 at 1044-46. Second, he submitted e-mails from senior Endo staff emphasizing the importance of marketing the company's products. In one such e-mail, Allyn Chung, Endo's Senior Director of Cryo Operations, wrote to Hodges and other employees, "I cannot stress enough the importance of making regular visits to your physician[s'] offices and helping to market the technology." Id. at 1039. In another e-mail (subject: "job descriptions and 2011 goals"), Chung declared that cryotherapy technicians' goals for the year included a "requirement to submit a minimum of [one] lead a month for new cryo[therapy] users, new applications for existing cryo[therapy] users, or any other lead for any of our business lines." Id. at 1042. Third, Hodges submitted pay stubs withholding a higher rate of the payments for federal taxes than for his regular income.[3] Finally, Hodges submitted the company's official job description of a cryotherapy technician. The job description's "summary of purpose" requires cryotherapy technicians to "[a]ssist in the growth and development of existing and new business lines," though none of the job's "essential functions" involve sales responsibilities. Id. at 1035-36. Based on this evidence, Hodges complained to LINA that "Endo appears to have recharacterized . . . [his bonus] compensation as commissions solely for the purpose of reducing [LINA's] exposure, and presumably reducing Endo's indirect exposure . . . ." Id. at 1032.

         Before deciding the appeal, LINA asked Endo for more information about Hodges's job classification and duties. Lori Capozzi, Endo's benefits consultant, responded that "Hodges was not classified as 'sales, '" that "[h]e worked in a mobile unit that permitted him to perform medical tests at doctor[s'] offices based on a predetermined schedule," and that "he was paid a 'bonus' for those additional tests." Id. at 949, 1008. On January 7, 2013, LINA affirmed its initial decision. LINA acknowledged that the Policy did not define "sales personnel" but explained:

The Employer has confirmed Mr. Hodges['s] occupation as a CryoTherapy Technician is not classified as a sales position with the employer. According [to] the Employer, Mr. Hodges worked in a mobile unit that permitted him to perform medical tests at doctor[s'] offices based on a pre-determined schedule. If he was able to incorporate and schedule a few more tests during his work week, he was paid a bonus for those additional tests. According to the [d]efinition of Covered Earnings under Class 1, earnings do not include bonus[es], commissions, overtime pay or extra compensation, [and] therefore would not be considered as part of the Disability Benefits Calculation.

Id. vol. 3 at 833.

         On March 28, 2013, Hodges sent LINA a letter requesting further reconsideration of his Class 1 classification and protesting that "the extent of [LINA's] consideration" of his first appeal "involved a single e-mail to Endo's benefits consultant Lori Capozzi inquiring into whether the company classified Mr. Hodges's position as a sales position." Id. vol. 4 at 948. LINA responded that it "w[ould] accept two (2) appeals from a claimant for any single denial" but that "the second request for appeal is a voluntary level of appeal" and requires "additional information that has not previously been reviewed." Id. vol. 3 at 606. So Hodges wrote back, attaching several more documents. Among these were various e-mails from Endo supervisors to cryotherapy technicians, including one mentioning plans to discuss "the development of [their] specific geographic territory" and another about the protocol for questions regarding "marketing materials." Id. vol. 4 at 875, 888. Hodges also submitted a company PowerPoint presentation with a slide instructing cryotherapy technicians to "help growth" by (1) "[a]sk[ing] [their] partners if they know of any other doc[tor] that might be interested in performing cryo[therapy]," (2)"[v]isit[ing] offices of former users and doctors who seldom do cases," (3)"[m]ak[ing] sure that [they] always have literature," and (4) "[b]e[ing] persistent [because] they might say no a couple of times." Id. at 879. But LINA replied that the PowerPoint presentation and e-mails "ha[d] already been reviewed" and would "not be considered new evidence." Id. vol. 3 at 836. As such, LINA denied Hodges a second appeal.

         In April 2014, Hodges filed suit in the United States District Court for the District of Colorado. In February 2017, the district court, having concluded that the Policy failed to reserve to LINA discretion to decide employee-classification questions, reviewed LINA's decision de novo and ruled that LINA had breached its fiduciary duty to Hodges by "accept[ing] Endo's bare assertion that Hodges was not 'Sales personnel' without requiring documentation or a justification for that assertion." Id. vol. 1 at 181-82. The court remanded the case for LINA to conduct "further factfinding" on Hodges's employment classification. Id. at 183.

         On remand, Hodges submitted three additional documents, which governed Endo's "Incentive Compensation Plan" for cryotherapy technicians. Id. vol. 6 at 1423-34. Meanwhile, LINA requested that Endo submit further information showing that Hodges was not a salesperson. Douglas ...

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