The U.S. Court of Appeals for the Second Circuit recently reminded ERISA plaintiffs that they must exhaust administrative remedies before filing suit, when it affirmed the Southern District of New York’s dismissal of a putative class action in Quigley v. Citigroup Supplemental Plan for Shearson Transfers, No. 12-613-cv.
Plaintiffs initially brought suit claiming that the top-hat plan at issue used an excessively high interest rate to calculate their benefits. The district court dismissed the amended complaint without prejudice in March 2011 for failure to exhaust. On appeal, the plaintiffs argued that lower court’s dismissal was improper, because they should not have been required to exhaust the plan’s administrative procedures.
Plaintiffs floated two arguments for this proposition, neither of which carried much weight the Second Circuit. First, plaintiffs contended that a release of claims exempted them from the claims procedures. The plan required participants to sign release forms before receiving benefits. The releases were to be signed and returned by November 5, 2009. Plaintiffs argued that this forced them to exhaust administrative remedies and file a lawsuit before this date, but that they were unable to do so because the claims review process would not have been completed by then. In rejecting plaintiffs’ argument, the court first found that any bar from filing suit at a later time was not due to the release deadline, but rather, due to the plaintiffs’ own actions in challenging the plan’s decision.
Second, plaintiffs cited to ERISA enabling regulations and claimed that the unreasonableness of the administrative procedures excused them from exhausting. Rehashing their argument about the release, plaintiffs asserted that it unreasonably required them exhaust and file suit by the signing deadline. The court rejected this argument under the same reasoning as plaintiffs’ first contention. It also noted that the regulation addresses only the reasonableness of the claims procedure itself and “does not address post-administrative review litigation.” In short, nothing excused plaintiffs’ failure to exhaust the administrative remedies provided by the plan.
This opinion, while not venturing into uncharted legal territory, reiterates the importance of exhaustion of administrative remedies as an ERISA concept. Often, courts are loath to consider appeals that have yet to work themselves through the plan’s proper channels first. This case provides a reminder of that unwillingness and reiterates the burden on plan participants to follow the proper procedures.