How They Hide the Ball: A story of compounding judicial error and the squelching of pre-trial discovery

Discovery, the pretrial measures whereby the parties obtain information from each other, is a critical part of the litigation process. Each party gets documents from the other; each gets to take depositions of the other’s witnesses; each can compel the other to answer written questions under oath. As Ninth Circuit Judge Carlos Bea said in a case called Rivera v. NIBCO, Inc., “the broad right of discovery is based on the general principle that litigants have a right to every man’s evidence, and that wide access to relevant facts serves the integrity and fairness of the judicial process by prompting the search for truth” (the citation for that is 5 F.3d 1289 (9th Cir. 1993)).

Now, with concepts such as “integrity,” “fairness” and “truth” involved, as you may expect this doesn’t apply very much in an ERISA case. Instead, insurance companies argue, and judges often agree, that the only evidence a court may consider is the claim file assembled by the insurance company, and discovery into other evidence is not allowed, or is to be very severely restricted.

How did this come to pass? Back in the early 70’s, when Congress was debating the law which was to become ERISA, they considered for a time an adjudicatory process, for disputed pension claims, which would bypass the courts entirely. What they had in mind was a streamlined administrative proceeding run by the Department of Labor. A House Report (No. 93-533, if you want to look it up) referred to that contemplated process as providing “an opportunity to resolve any controversy over … retirement benefits under qualified plans in an inexpensive and expeditious manner.” Ultimately, that process was never enacted, and Congress decided that disputes should be resolved in the courts (where you get to, you know, conduct discovery) after all. But remember that phrase from the House Report: “inexpensive and expeditious.”

Fast forward to Perry v. Simplicity Engineering, which you can find at 900 F.2d 963 (6th Cir. 1990). The insurance company in that case argued that no evidence other than the claim file should be considered, because ERISA cases were supposed to be “inexpensive and expeditious,” conveniently failing to mention that the administrative process that goal referred to was never enacted. The Sixth Circuit fell for it, and stated “A primary goal of ERISA was to provide a method for workers and beneficiaries to resolve disputes over benefits inexpensively and expeditiously,” and that “permitting or requiring district courts to consider evidence from both parties that was not before the plan administrator would seriously impair the achievement of that goal.” The court went on to say, in a breathtaking non sequitur, “If district courts heard evidence not presented to plan administrators, employees and their beneficiaries would receive less protection than Congress intended.” (!)

Even though it was demonstrably incorrect about what “Congress intended,” other courts soon began taking Perry’s statement at face value, and uncritically stating as if it were beyond dispute that a “primary goal” of ERISA was this “inexpensive and expeditious” business, and that this was somehow more important than minor concerns like justice and accurate adjudications.

By 1997, the court in a case called Palmer v. University Medical Group (the citation is 973 F.Supp. 1179 (D.Oregon 1997)) was saying, in disallowing pretrial discovery, “The sums expended on attorney fees to conduct extensive discovery, litigate discovery disputes, and try the action could easily exceed the amount in dispute [as if in cases where that was true the parties themselves would not limit their own activities accordingly]. This vision of the future of ERISA litigation belies the Ninth Circuit’s admonition that a ‘primary goal of ERISA was to provide a method for workers and beneficiaries to resolve disputes over benefits inexpensively and expeditiously.’”

Funny thing about that “primary goal” – you can’t find it anywhere in the statute. The statute says the primary goal of ERISA is to “to protect … the interests of participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts.” That’s right there in section 1001 of Title 29 of the United States Code.

But, by quoting from a House Report about a proposed provision that was never enacted, the insurance industry convinced the courts that the “primary goal” was to always do things on the cheap, never mind justice, and to shield the conduct of insurance companies from the light of day.

And so it goes.