Vaught v. Scottsdale Healthcare

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

RAYMOND VAUGHT, 

Plaintiff-Appellant, No. 06-15507

v.

 D.C. No.

CV-05-00718-DGC

SCOTTSDALE HEALTHCARE

CORPORATION HEALTH PLAN, OPINION

Defendant-Appellee.



Appeal from the United States District Court

for the District of Arizona

David G. Campbell, District Judge, Presiding

Argued and Submitted

January 15, 2008—San Francisco, California

Filed September 29, 2008

Before: William A. Fletcher, Carlos T. Bea, and

Sandra S. Ikuta, Circuit Judges.

Opinion by Judge Ikuta;

Partial Concurrence and Partial Dissent by Judge Bea

13847

13850 VAUGHT v. SCOTTSDALE HEALTHCARE CORP.

COUNSEL

Randolph G. Bachrach, Phoenix, Arizona, for the plaintiff-

appellant.

Lawrence J. Rosenfeld, Greenberg Traurig, LLP, Phoenix,

Arizona, for the defendant-appellee.

VAUGHT v. SCOTTSDALE HEALTHCARE CORP. 13851

OPINION

IKUTA, Circuit Judge:

Plaintiff-appellant Raymond Vaught appeals the district

court’s grant of summary judgment in favor of defendant-

appellee Scottsdale Healthcare Corp. Health Plan (the Plan),

Vaught’s health plan. The Plan is governed by the Employee

Retirement Income Security Act of 1974 (ERISA). After

denying Vaught’s claim for benefits, the Plan declined to

grant Vaught’s requests for internal review of that denial.

Vaught then challenged the Plan’s denial of benefits in district

court based on a new theory. Because Vaught had not previ-

ously raised this theory to the Plan in his requests for internal

review, the district court held that Vaught had failed to

exhaust his administrative remedies. The district court granted

the Plan’s motion for summary judgment and dismissed

Vaught’s ERISA claim.

On appeal, we must consider whether Vaught effectively

exhausted his administrative remedies, and, if not, whether he

was excused from such exhaustion. We must also consider

whether ERISA claimants are subject to an issue-exhaustion

requirement. We have jurisdiction under 28 U.S.C. § 1291,

and we affirm in part, reverse in part, and remand for further

proceedings.

I

Raymond Vaught was injured when his motorcycle col-

lided with an automobile on July 26, 2003. The police report

from the accident stated that, “pending the outcome of the

blood results from the Scottsdale Police Laboratory, Vaught

will be charged via long form for driving under the influence

of alcohol.” The results from the blood tests (taken at the hos-

pital after the accident) revealed that Vaught’s blood alcohol

content was .2618 percent, which is more than three times

13852 VAUGHT v. SCOTTSDALE HEALTHCARE CORP.

Arizona’s legal limit for an individual operating a motor vehi-

cle.

Vaught sought reimbursement of his accident-related medi-

cal costs from the Plan, a health plan established by Vaught’s

wife’s employer, Scottsdale Health Care Corporation. This

health plan is deemed to be an “employee benefit plan,” as

defined in ERISA, 29 U.S.C. § 1002(3). As such, it is gov-

erned by ERISA, which sets minimum substantive and proce-

dural requirements for employee benefit plans. Id. § 1003(a).

Under ERISA, the Plan is a separate legal entity that can sue

and be sued. Id. § 1132(d)(1). A private company that elects

to establish such a plan is referred to as the “plan sponsor.”

Id. § 1002(16)(B). The fiduciary responsible for administering

such a plan is referred to as the plan “administrator.” Id.

§ 1002(16)(A). Here, Scottsdale Health Care Corporation is

both the plan sponsor and the plan administrator. Scottsdale

Health Care Corporation retained Professional Benefit Ser-

vices (PBS) to serve as the claims administrator for the Plan.

Kathy Vaught, Raymond Vaught’s wife and primary bene-

ficiary of the Plan, received an explanation of benefits (EOB)

from PBS on August 15, 2003. The EOB denied Raymond

Vaught’s claim, stating: “INJURY DETAILS NEEDED:

MUST INCLUDE HOW, WHEN & WHERE INJURY

OCCURRED.” In response, Kathy Vaught sent the claims

administrator a copy of the police report indicating that her

husband would be charged for driving under the influence of

alcohol. A second EOB followed, again denying Raymond

Vaught’s claim and directing him to “REFER TO THE BEN-

EFITS BOOKLET UNDER EXCLUSIONS AND WHAT

THE PLAN DOES NOT COVER REGARDING MOTOR

VEHICLE RELATED CHARGES.”

The reverse side of this EOB stated that the EOB “is an ini-

tial determination of your claim.” It informed the claimant:

you “may request a copy of the documents governing the Plan

and any internal rule, guideline or protocol used in the deter-

VAUGHT v. SCOTTSDALE HEALTHCARE CORP. 13853

mination of your claim.” In a section entitled “Review Pro-

cess,” the EOB noted a claimant’s right to appeal any

determination, and described the appeal process:

If your claim is denied in whole or in part or if you

disagree with the decision, you have a right to appeal

the claim determination.

This Plan maintains a two-level appeals process for

post-service claims. You have 180 days from the

date of this initial claim determination to file an

appeal to the Claims Administrator. You can review

documents relevant to the claim and submit written

comments and evidence supporting your claim. You

may appoint a provider or other person as your

authorized representative by filing a written authori-

zation with the Claims Administrator. Your appeal

must be sent in writing to the Administrative Office

and clearly explain that you are appealing a claim

denial and the reason why you think the Claims

Administrator should reconsider your claim.

If still dissatisfied with the initial appeal level deter-

mination you have 90 calendar days from receipt of

the first level determination to request a second level

appeal review by writing to the Plan Administrator.

Following an adverse benefit determination after

both levels of review, you have a right to bring a

civil action under ERISA Section 502(a).

During the appeal process, the Claims Administrator

and the Plan Administrator will conduct a full and

fair review, consider all the evidence and exercise

their fiduciary discretion to interpret the Plan and

decide the appeal. They will consult with any appro-

priate health care professional in deciding an appeal

involving medical judgment. The decision on review

of your claim will state the specific reason for the

13854 VAUGHT v. SCOTTSDALE HEALTHCARE CORP.

determination, reference the specific Plan provision

upon which the decision was based and provide you

with the right to request copies of all documents rel-

evant to the review.

Vaught sent a letter to the Claims Administrator on January

22, 2004, stating that “[a]s per the plan agreement I am going

to file an appeal within the 180 day time frame from the

receipt of your claim denial,” and designating the Rocco Law

Firm as his representative for the appeal. The letter was

stamped “RECEIVED” by the Claims Administrator on Janu-

ary 26, 2004.

On February 19, 2004, Joseph Rocco, an attorney with the

Rocco Law Firm, sent a letter to the Claims Administrator

explaining that his office represented the Vaughts, and that on

their behalf (and pursuant to the Vaughts’ January 22nd letter)

his office was appealing the adverse determination of benefits

under the plan. The letter listed seven grounds for the appeal:

1. The specific reason or reasons for the adverse

benefit determination have not been provided;

2. References to the specific plan provisions on

which the adverse benefit determination is based

have not been provided;

3. No description of additional material or infor-

mation necessary to complete the claim has been

requested;

4. No description of the plan’s appeal procedures,

including applicable time limits, plus a statement of

the right to bring suit under § 502 of ERISA with

respect to any adverse benefit determination has

been provided;

5. No statement that the Vaughts are entitled to

receive on request and free of charge, reasonable

VAUGHT v. SCOTTSDALE HEALTHCARE CORP. 13855

access to and copies of all documents, records and

other information relevant to the claim has been pro-

vided;

6. No description of adverse benefit determination

based upon an internal rule, guideline, protocol or

similar criteria, if so based, has been provided;

7. The sole description provided, “AM refer to the

benefits booklet under exclusions and what the plan

does not recover [sic] regarding motor vehicle

related charges” is vague and ambiguous, fails to

meet the requirements for a claim denial as outlined

at page 37 of the “Flex Choice — Medical Benefit

Summary Plan Description.”

The letter was stamped “RECEIVED” by the Claims Admin-

istrator on February 24, 2004.

On March 16, 2004, Mitchell Melamed replied to Rocco

regarding the February letter to the Claims Administrator.1 In

the letter, Melamed acknowledged receipt of Rocco’s letter

“requesting an appeal” of the adverse benefits determination,

and explained that Vaught’s claim was denied because the

Plan does not cover “expenses incurred related to ‘driving

under the influence of alcohol or drugs.’ ” Apparently

unaware that the Claims Administrator had already received

Vaught’s written authorization designating Rocco as his rep-

resentative, Melamed asked Rocco to provide such authoriza-

tion, adding “[i]f you have already forwarded that written

authorization to the Plan, please forward a copy for my file.”

In response to Rocco’s letter, Melamed stated that “[t]he spe-

1

Melamed subsequently identified himself as an attorney representing

the Plan, and therefore the Claims Administrator did not directly respond

to Vaught’s appeal, although the EOB indicated that the Claims Adminis-

trator was the decisionmaker for the first-level appeal. However, neither

party places any weight on this procedural irregularity.

13856 VAUGHT v. SCOTTSDALE HEALTHCARE CORP.

cific reason for denial of coverage is driving under the influ-

ence of alcohol or drugs, your client having an indicated

blood alcohol level of 0.261.” Melamed further advised that

“[n]o additional material or information was necessary to

complete the claim.” Finally, Melamed stated that, “based on

this apparently being the first formal notification, I would rec-

ommend that you now have 180 days within which to submit

your appeal as set forth on page 37 of the Summary Plan

Description.”

On March 29, 2004, Rocco responded to Melamed by rais-

ing additional questions, and requesting a list of all documents

reviewed by the Claims Administrator in order to reach its

determination to deny coverage to Vaught because of his

blood alcohol level, as well as copies of “any other documents

or testimony of whatsoever kind” on which the Claims

Administrator intended to rely. Instead of including a copy of

Vaught’s signed authorization, as Melamed requested in the

March 16 letter, Rocco asked Melamed to confirm that the

Plan had received Vaught’s earlier authorization.

Melamed responded on April 28, 2004, noting that hospital

records indicated that Vaught was driving with a blood alco-

hol level that was over three times the legal limit for Arizona.

However, Melamed did not provide copies of the records or

other documents on which the Claims Administrator was rely-

ing. Melamed sent subsequent letters to Rocco requesting a

copy of Vaught’s signed authorization.

On September 2, 2004, Randolph Bachrach (Vaught’s

attorney in the district court, and on appeal) sent a letter to the

Plan Administrator, with copies to Melamed and the Claims

Administrator, explaining that Vaught had retained Bachrach

to appeal the denial of benefits. Bachrach stated that “Mr.

Vaught appeals the denial of his claim, dated March 16,

2004,” and requested copies of “all relevant claim and Plan

documents” relating to the denial of benefits.

VAUGHT v. SCOTTSDALE HEALTHCARE CORP. 13857

On September 14, 2004, Melamed replied to Bachrach in

a letter which recited Melamed’s understanding of the history

of the denial of benefits. Melamed noted that Rocco had for-

warded a letter to the Claims Administrator “stating in part

that he was appealing the notice of declination of coverage

and the basis of the alleged appeal.” Melamed also recounted

his repeated requests that Vaught provide a written authoriza-

tion appointing a representative, and concluded that “[t]o the

best of [Melamed’s] knowledge, this was never done.”

Finally, Melamed concluded:

The fact remains that the Covered Person [Raymond

Vaught] or that Covered Person’s authorized agent,

being authorized in writing and sent to the Claims

Administrator, has 180 days from the date of the

original post-service denial to file an appeal to the

Claims Administrator, and this has not been done.

As a result, the original denial of benefits as set forth

on the Explanation of Benefits must stand.

Bachrach replied on September 20, stating his “understanding

of the Plan’s position is that Mr. Vaught’s appeal will not be

accepted or acted upon for the reasons set forth in Mr.

Melamed’s letter,” and that he assumes “the same to be true

with respect to his request for claim and Plan documents.”

Vaught filed a complaint in the United States District Court

for the District of Arizona on March 7, 2005, alleging that the

Plan had violated ERISA and the terms of the Plan in han-

dling Vaught’s claim. The complaint requested (1) Plan bene-

fits, (2) penalties for non-disclosure of Plan documents under

29 U.S.C. § 1132(c)(1), and (3) attorney’s fees and costs

under 29 U.S.C. § 1132(g)(1). On July 27, 2005, the parties

submitted a joint case management report, in which Vaught

first raised his theory that his “injuries were not ‘caused,’

either directly or indirectly, by alcohol,” and instead “were

the direct result of and proximately caused by an automobile/

motorcycle collision.” In the same report, the Plan contended

13858 VAUGHT v. SCOTTSDALE HEALTHCARE CORP.

that this claim was unexhausted because Vaught had never

explained to the Plan why the alcohol-related exclusion did

not apply to him.

Recognizing that exhaustion could be a dispositive issue,

the district court ordered both parties to brief whether Vaught

had exhausted the Plan’s appeal procedures, and whether fail-

ure to exhaust would preclude him from pursuing his claim in

district court. In lieu of simply briefing the issue, however,

the Plan filed a motion for summary judgment.

On January 23, 2006, the district court granted the Plan’s

motion for summary judgment on the ground that Vaught had

failed to exhaust the Plan’s internal remedies. The district

court stated that Vaught’s communications with the Claims

Administrator and Melamed had failed “to administratively

challenge Defendant’s determination that the accident was a

result of his driving under the influence.” The court noted that

Vaught raised his “first substantive challenge” to the Plan’s

determination in court. Because Vaught had not previously

presented these arguments to the plan administrator, the court

ruled that Vaught had failed to exhaust his administrative

remedies, and could not raise his substantive challenges to the

denial of benefits in federal court. Vaught timely appealed.

II

We review the district court’s grant of summary judgment

de novo. Viewing the evidence in the light most favorable to

the nonmoving party, we must determine whether there are

any genuine issues of material fact and whether the district

court correctly applied the relevant substantive law.

BankAmerica Pension Plan v. McMath, 206 F.3d 821, 824

(9th Cir. 2000). “We also review de novo the district court’s

interpretation of an ERISA insurance policy’s language.”

Metro. Life Ins. Co. v. Parker, 436 F.3d 1109, 1113 (9th Cir.

2006); see also Welch v. UNUM Life Ins. Co. of Am., 382

F.3d 1078, 1082 (10th Cir. 2004) (“In interpreting the terms

VAUGHT v. SCOTTSDALE HEALTHCARE CORP. 13859

of an ERISA plan[,] we examine the plan documents as a

whole and, if unambiguous, we construe them as a matter of

law.” (Internal quotation marks omitted, alteration in origi-

nal.)).

On appeal, Vaught contends that the district court erred in

granting the Plan’s summary judgment motion because

Vaught had exhausted the Plan’s administrative remedies and,

alternatively, that he was excused from exhausting them.

A

[1] ERISA itself does not require a participant or benefi-

ciary to exhaust administrative remedies in order to bring an

action under § 502 of ERISA, 29 U.S.C. § 1132. Section 502

allows an ERISA plan participant or beneficiary to bring an

action in district court “to recover benefits due to him under

the terms of his plan, to enforce his rights under the terms of

the plan, or to clarify his rights to future benefits under the

terms of the plan.” § 1132(a)(1)(B). However, based on both

the text of ERISA and its legislative history, we long ago con-

cluded that “federal courts have the authority to enforce the

exhaustion requirement in suits under ERISA, and that as a

matter of sound policy they should usually do so.” Amato v.

Bernard, 618 F.2d 559, 568 (9th Cir. 1980). Accordingly, we

have consistently held that before bringing suit under § 502,

an ERISA plaintiff claiming a denial of benefits “must avail

himself or herself of a plan’s own internal review procedures

before bringing suit in federal court.” Diaz v. United Agric.

Employee Welfare Benefit Plan & Trust, 50 F.3d 1478, 1483

(9th Cir. 1995).

[2] We have also recognized exceptions to our prudential

exhaustion requirement.2 For example, we noted “that despite

2

While recognizing exceptions to the exhaustion requirement, Amato

and some of its progeny confusingly suggest that a district court lacks

jurisdiction to review a plan’s denial of benefits where the participant has

13860 VAUGHT v. SCOTTSDALE HEALTHCARE CORP.

the usual applicability of the exhaustion requirement, there

are occasions when a court is obliged to exercise its jurisdic-

tion and is guilty of an abuse of discretion if it does not, the

most familiar examples perhaps being when resort to the

administrative route is futile or the remedy inadequate.”

Amato, 618 F.2d at 568 (internal quotation marks omitted);

see also Diaz, 50 F.3d at 1483. Likewise, the current regula-

tions implementing ERISA create an exception to the judge-

made exhaustion requirement. Under 29 C.F.R. § 2560.503-

1(l), where a plan fails to establish or follow “reasonable”

claims procedures as required by ERISA, “a claimant shall be

deemed to have exhausted the administrative remedies avail-

able under the plan and shall be entitled to pursue any avail-

able remedies under section 502(a) of [ERISA] on the basis

that the plan has failed to provide a reasonable claims proce-

dure that would yield a decision on the merits of the claim.”

Cf. Gatti v. Reliance Standard Life Ins. Co., 415 F.3d 978,

981-82 & n.1 (9th Cir. 2005) (discussing the predecessor of

current § 2560.503-1(l), which used the phrase “deemed

denied”); Eastman Kodak Co. v. STWB, Inc., 452 F.3d 215,

223 (2d Cir. 2006) (discussing § 2560.503-1(l)).

failed to exhaust the internal remedies. See, e.g., Dishman v. UNUM Life

Ins. Co. of Am., 269 F.3d 974, 984 n.41 (9th Cir. 2001) (quoting Amato,

618 F.2d at 658); White v. Jacobs Eng’g Group Long Term Disability Ben-

efit Plan, 896 F.2d 344, 352 (9th Cir. 1990); Amato, 618 F.2d at 566, 568.

However, Bowles v. Russell, 127 S. Ct. 2360 (2007), clarified that court-

promulgated rules are not jurisdictional: “[o]nly Congress may determine

a lower federal court’s subject-matter jurisdiction.” Id. at 2364 (internal

quotation marks omitted) (alteration in original). Because Bowles super-

cedes our prior decisions, we must clarify that the exhaustion requirement

set forth in Amato is not a jurisdictional requirement. See Miller v. Gam-

mie, 335 F.3d 889, 893 (9th Cir. 2003) (en banc). We agree with the rea-

soning of our sister circuit in Metropolitan Life Insurance Co. v. Price,

501 F.3d 271 (3rd Cir. 2007), on this issue. See id. at 278-279; see also

Pension Benefit Guar. Corp. v. Carter & Tillery Enters., 133 F.3d 1183,

1187 (9th Cir. 1998) (recognizing that where Congress has not clearly

required exhaustion, failure to follow such procedures does not create a

jurisdictional bar).

VAUGHT v. SCOTTSDALE HEALTHCARE CORP. 13861

B

[3] The parties disagree whether Vaught availed himself of

the Plan’s internal review procedures and thus exhausted his

administrative remedies for purposes of bringing an action in

district court. Under ERISA, an employee benefit plan’s inter-

nal review procedures must be included in the plan’s written

documents, which include the plan instrument, see 29 U.S.C.

§ 1102(a)(1), and a summary of the plan instrument, called

the “summary plan description.” 29 U.S.C. § 1022. The sum-

mary plan description must be “written in a manner calculated

to be understood by the average plan participant,” and must

be “sufficiently accurate and comprehensive to reasonably

apprise such participants and beneficiaries of their rights and

obligations under the plan.” Id. § 1022(a). Among other

things, the summary plan description must contain “the reme-

dies available under the plan for the redress of claims which

are denied in whole or in part.” Id. § 1022(b).

[4] In this case, the Plan set forth the details of its internal

review procedures in the EOB. The Plan’s summary plan

description, “FlexChoice Medical Benefit Summary Plan

Description,” stated that “a description of the plan’s appeal

procedures” would be included in the notices denying benefits

(i.e., the EOBs). The summary plan description is part of the

contract between the plan and the plan participants, see Bergt

v. Ret. Plan for Pilots Employed by Mark Air, Inc., 293 F.3d

1139, 1143 (9th Cir. 2002), which we interpret based on “con-

tract principles derived from state law . . . guided by the poli-

cies expressed in ERISA and other federal labor laws.”

Gilliam v. Nev. Power Co., 488 F.3d 1189, 1194 (9th Cir.

2007) (internal quotation marks omitted) (ellipsis in original).

Based on general rules of contract interpretation, we interpret

the Plan’s summary plan description as incorporating the

EOB’s review procedures by reference. See Parker, 436 F.3d

at 1115 (“We see nothing in ERISA that precludes incorpora-

tion by reference . . . .”); see also Seborowski v. Pittsburgh

Press Co., 188 F.3d 163, 169-70 (3d Cir. 1999) (upholding

13862 VAUGHT v. SCOTTSDALE HEALTHCARE CORP.

arbitrator’s determination that an employee benefit plan incor-

porated by reference provisions of another written agree-

ment). As a result, the EOB internal review procedures were

part of the contract between the Plan and the participants and

beneficiaries, and were therefore applicable to Vaught.

According to the EOB, a claimant must first file an appeal

to the Claims Administrator. This first-level appeal must: (1)

be made within 180 days of a claim denial; (2) be in writing;

(3) “clearly explain” that it is an appeal; (4) “clearly explain

. . . the reason why you think the Claims Administrator should

reconsider your claim”; and (5) be authorized by the claimant

in writing, if the claimant has appointed a representative to

file the appeal. If dissatisfied with the Claims Administrator’s

“initial appeal level determination,” the claimant may then

request a second level appeal review by writing to the Plan

Administrator. The claimant then has a right to bring a civil

action under ERISA Section 502(a) if there is “an adverse

benefit determination after both levels of review.”

The parties do not dispute that Rocco’s February 19, 2004

letter satisfies three of these five requirements: it was timely,

in writing, and clearly explained that it was an appeal.

Although Melamed previously took the position that Vaught

had failed to file a written authorization to appoint a represen-

tative (the fifth requirement), the record establishes that

Vaught did submit a written authorization to the Claims

Administrator. The Plan did not rely on this rationale in the

district court or on appeal, and therefore this fifth requirement

is no longer in dispute.

Instead, the Plan contended before the district court, and

now on appeal, that Vaught failed to exhaust administrative

remedies because he did not discharge the fourth EOB

requirement: Rocco’s letter did not “clearly explain . . . the

reason why you think the Claims Administrator should recon-

sider your claim.” The Plan interprets this EOB language as

requiring claimants to provide a substantive basis for their

VAUGHT v. SCOTTSDALE HEALTHCARE CORP. 13863

appeals,—that is, to explain “why the initial determination

was supposedly incorrect.” Although Rocco’s letter set forth

seven procedural reasons why the Claims Administrator

should reconsider Vaught’s claim, the Plan contends that

Vaught did not effectively invoke the Plan’s internal review

procedures as required by the EOB because he did not chal-

lenge the basis on which the Plan denied his claim or the

Plan’s interpretation of the relevant coverage exclusion. The

district court accepted this interpretation of the EOB require-

ment, and agreed with the Plan that Vaught raised his “first

substantive challenge” in the district court.

[5] We must consider this interpretation of the EOB in light

of our principle that “terms in an ERISA plan should be inter-

preted in an ordinary and popular sense as would a [person]

of average intelligence and experience.” Gilliam, 488 F.3d at

1194 (internal quotation marks omitted) (alteration in origi-

nal). Where a plan instrument does not define a term, we may

“look to the dictionary definition to determine the ordinary

and popular meaning.” Id. at 1195. Here, the EOB’s plain lan-

guage does not support the Plan’s interpretation of the EOB

requirement that a claimant provide “the reason why” the

Claims Administrator should reconsider the claimant’s claim.

We first note that the phrase “the reason why” is not defined

in the Plan, and that we therefore must interpret it “in an ordi-

nary and popular sense.” The dictionary definition of the word

“reason” includes any “explanation or justification of an act.”

Webster’s New World College Dictionary 1194 (4th ed.

2005). A claimant asked to explain the “reason why” a deci-

sion should be reviewed could respond, consistent with this

definition, that the decision was flawed by procedural errors.

Such a response constitutes a reasonable “explanation or justi-

fication” of the claimant’s request for reconsideration for sev-

eral reasons. For example, a claimant may be entitled to relief

if the plan’s procedural errors were so significant that the

plan’s initial denial of benefits was simply arbitrary. See Aba-

tie v. Alta Health & Life Ins. Co., 458 F.3d 955, 973-74 (9th

Cir. 2006) (en banc). A plan may also want the opportunity

13864 VAUGHT v. SCOTTSDALE HEALTHCARE CORP.

to reconsider a procedurally flawed decision in order to cor-

rect its own procedural errors and avoid de novo review by

the district court. See id. at 973 (“[I]f the plan administrator’s

procedural defalcations are flagrant, de novo review

applies.”); see also Amato, 618 F.2d at 568 (“[P]rior fully con-

sidered actions by pension plan trustees interpreting their

plans . . . may well assist the courts when they are called upon

to resolve the controversies.” (Emphasis added.)). In sum, a

person of “average intelligence and experience” could reason-

ably conclude that a claimant could explain “the reason why”

the Claims Administrator should reconsider a claim by point-

ing to procedural errors.

[6] We conclude that the seven procedural reasons offered

by Rocco in his initial letter to the Claims Administrator satis-

fied the EOB’s requirement that the plan participant “clearly

explain . . . the reason why you think the Claims Administra-

tor should reconsider your claim.” The Claims Administrator

therefore erred in determining that Vaught had not effectively

invoked the Plan’s internal review procedures. Due to this

mistake, the Plan erroneously declined to hear Vaught’s

appeal, and thus did not give Vaught an initial appeal-level

determination. Instead, the Plan let the initial denial of bene-

fits stand and made clear that it had completed its decision-

making process. Because Vaught did not receive the initial

appeal-level determination, he could not have requested a

second-level review or have taken any further steps within the

Plan to obtain further review of his claim; the original denial

of benefits was the Plan’s final decision.3 Therefore, contrary

to the Plan’s argument that Vaught failed to avail himself of

the Plan’s internal review process, Vaught’s initial assertion

of procedural errors was sufficient to invoke this process and

—because the Plan declined to hear his appeal—to exhaust

his administrative remedies.

3

In light of this conclusion, we need not consider whether § 2560.503-

1(l) or an exception to Amato’s prudential exhaustion requirement is appli-

cable. Diaz, 50 F.3d at 1483.

VAUGHT v. SCOTTSDALE HEALTHCARE CORP. 13865

C

Our conclusion that Vaught exhausted his administrative

remedies does not end our analysis, however, because the

Plan also argues that Vaught failed to avail himself of the

Plan’s internal review procedures by failing to raise all his

reasons for contesting the Plan’s denial of benefits in his ini-

tial appeal. The Plan notes that Vaught’s claim for benefits in

district court was based on a legal theory (that his injuries

were caused by a collision, not by alcohol) that was not raised

in his initial letter to the Claims Administrator, or in any of

the further correspondence with Melamed. The Plan argued,

and the district court held, that Vaught’s failure to identify

this new theory to the plan administrator within the appeal

time frame prevented him from bringing it before the district

court.

The dissent similarly argues that Vaught failed to exhaust

his administrative remedies because his initial letter of appeal

failed to identify all his reasons for contesting the Plan’s

denial of benefits. Dis. Op. at 13880-81. The dissent bases

this conclusion on the following analysis: As noted above, the

EOB requires a plan participant filing a first-level appeal to

“clearly explain . . . the reason why you think the Claims

Administrator should reconsider your claim.” According to

the dissent, the EOB’s use of the words “the reason” means

that a plan participant must identify the main reason or rea-

sons for the participant’s challenge to the denial of benefits in

the participant’s initial appeal. Dis. Op. at 13879. In the dis-

sent’s view, a plan participant cannot raise a new reason for

challenging a denial of benefits before the district court unless

the court exercises its equitable discretion to “excuse compli-

ance with the plan’s requirement.” Dis. Op. at 13879 n.10.

[7] Both the Plan and dissent seem to assume that the

requirement they advocate (i.e., the requirement that a plan

participant must raise all reasons for challenging a denial of

benefits during the initial appeal process) is part of the long-

13866 VAUGHT v. SCOTTSDALE HEALTHCARE CORP.

established duty under ERISA to exhaust administrative rem-

edies. But this requirement is actually an issue exhaustion

requirement, not a remedy-exhaustion requirement. In Sims v.

Apfel, the Supreme Court explained the difference between

the two: the requirement that a claimant “obtain a final deci-

sion on his claim” is a remedy-exhaustion requirement, while

the requirement that a claimant must also “specify that issue

in his request for review” by the agency is an issue-exhaustion

requirement. 530 U.S. 103, 107 (2000). By arguing that

Vaught not only needed to obtain the Plan’s final decision on

his claim that benefits were wrongfully denied (remedy

exhaustion) but also needed to raise each of his specific theo-

ries or issues in his internal appeal to the Plan in order to

obtain judicial review of those theories or issues, Dis. Op. at

13880-81, the dissent and Plan are effectively arguing that

Vaught was subject to an issue-exhaustion requirement.

[8] In considering whether a district court may impose an

issue-exhaustion requirement on an ERISA claimant, we are

guided by the framework of analysis set forth by the Supreme

Court. See Sims, 530 U.S. at 107-08. As explained in Sims,

issue exhaustion is typically a creature of statute or agency

regulation. For example, a statute may deprive a court of

jurisdiction to hear specific issues or objections not raised

before the agency. Id. at 107-08 (noting that “the Court of

Appeals lacked jurisdiction to review objections not raised

before the National Labor Relations Board” because “a statute

provided that ‘no objection that has not been urged before the

Board . . . shall be considered by the court’ ”) (alterations in

original)). An agency’s regulations also require issue exhaus-

tion in administrative appeals when they provide that a peti-

tion for review must “ ‘list the specific issues to be considered

on appeal.’ ” Id. at 108 (quoting 20 C.F.R. § 802.211(a)).

And, when regulations impose such a requirement, “courts

reviewing agency action regularly ensure against the bypass-

ing of that requirement by refusing to consider unexhausted

issues.” Id.

VAUGHT v. SCOTTSDALE HEALTHCARE CORP. 13867

[9] But neither issue-exhaustion situation identified in Sims

is present here. No ERISA statute precludes courts from hear-

ing objections not previously raised to the Plan, nor does any

ERISA statute or regulation require claimants to identify all

issues they wish to have considered on appeal. Nor has the

Plan instituted issue exhaustion as a matter of contract.

Instead of requiring claimants to “list the specific issues to be

considered on appeal,” Sims, 530 U.S. at 108 (internal quota-

tion marks omitted), the Plan’s appeal procedures on their

face limit a claimant to a single reason: the EOB directs the

claimant to provide “the reason why you think the Claims

Administrator should reconsider your claim” (emphasis

added).

In the absence of a statute or regulation, issue exhaustion

may be required as “an analogy to the rule that appellate

courts will not consider arguments not raised before trial

courts.” Id. at 108-09. However, Sims noted that issue exhaus-

tion is “not necessarily” a corollary of exhaustion of remedies

and declined to require issue exhaustion in the Social Security

Act context. Id. at 107-08. In a non-adversarial proceeding,

“the reasons for a court to require issue exhaustion are much

weaker.” Id. at 110. A plurality of justices concluded that

issue exhaustion was not appropriate because the Social

Security agency proceedings were “inquisitorial rather than

adversarial.” Id. at 111. In a concurring opinion, Justice

O’Connor noted that, “[i]n most cases, an issue not presented

to an administrative decisionmaker cannot be argued for the

first time in federal court,” but opined that it would be inap-

propriate to impose an issue-exhaustion requirement where

the agency had failed to notify claimants of such a require-

ment. Id. at 112-14 (O’Connor, J., concurring). Because the

Social Security Act regulations affirmatively suggested that

issue exhaustion was not required, Justice O’Connor con-

cluded that “[r]equiring issue exhaustion is particularly inap-

propriate here.” Id. at 113.

[10] Sims leads to the conclusion that issue exhaustion is

not applicable in the ERISA context. First, the internal review

13868 VAUGHT v. SCOTTSDALE HEALTHCARE CORP.

process mandated by ERISA and set forth in the EOB pro-

vides for an inquisitorial process, in which the plan must pro-

vide the opportunity for “a full and fair review” of any claim

denial. See 29 U.S.C. § 1133(2). While the ERISA statute and

regulations do not explicitly describe these procedures as non-

adversarial, we recognized in Amato that the institution of

these review procedures “was apparently intended by Con-

gress to,” among other things, “provide a nonadversarial

method of claims settlement.” 618 F.2d at 567 (emphasis

added).

ERISA’s internal review procedures share the nonadver-

sarial characteristics of the Social Security Act procedures.

Both contemplate that a claimant’s appeal will be heard by an

impartial decisionmaker who may review new information in

addition to information from the previous denial. Compare 29

C.F.R. § 2560.503-1(h)(iv) (requiring that an ERISA plan

“[p]rovide for a review that takes into account all comments,

documents, records, and other information submitted by the

claimant relating to the claim, without regard to whether such

information was submitted or considered in the initial benefit

determination”), with 20 C.F.R. §§ 404.900(b), 404.970(b)

(describing the similarly expansive scope of the Social Secur-

ity Act administrative review process). ERISA’s regulations

require an even less deferential appellate review of the initial

denial of benefits than is required by the Social Security Act

review process. Compare 29 C.F.R. § 2560.503-1(h)(3)(ii)

(requiring that a plan’s appeal procedures “[p]rovide for a

review that does not afford deference to the initial adverse

benefit determination and that is conducted by an appropriate

named fiduciary of the plan who is neither the individual who

made the adverse benefit determination that is the subject of

the appeal, nor the subordinate of such individual”), with 20

C.F.R. § 404.970(a) (describing the Appeals Council’s stan-

dards of review). Both schemes contemplate that many claim-

ants will not be represented by attorneys, and neither requires

claimants to provide formal briefing. See Sims, 530 U.S. at

112; Cann v. Carpenters’ Pension Trust Fund, 989 F.2d 313,

VAUGHT v. SCOTTSDALE HEALTHCARE CORP. 13869

317 (9th Cir. 1993) (noting that “some claimants and some

plans may use informal internal review procedures, accom-

plished by nonlawyers, perhaps union or other employee rep-

resentatives and plan representatives”). Most significant,

neither scheme contemplates that the claimant will face an

adversary opposing the claim for benefits in the review pro-

cess. See Sims, 530 U.S. at 111 (“The Commissioner has no

representative before the ALJ to oppose the claim for benefits,

and we have found no indication that he opposes claimants

before the Council.”). To the extent issue exhaustion may be

imposed as “an analogy to the rule that appellate courts will

not consider arguments not raised before trial courts,” id. at

108-09, such an analogy is even less apt in the ERISA con-

text, because ERISA’s “administrative” proceedings are “part

of a private, albeit regulated, claims process.” See Cann, 989

F.2d at 317. The non-adversarial nature of the ERISA pro-

ceeding weighs against imposing an issue-exhaustion require-

ment. See Sims, 530 U.S. at 109-10.

[11] The Plan’s failure to notify claimants of any issue-

exhaustion requirement also weighs against imposing one. See

id. at 113 (O’Connor, J., concurring). Justice O’Connor’s con-

cern that Social Security claimants could be misled is equally

applicable in this case, where the Plan’s internal appeal proce-

dures suggested that issue exhaustion was not required. The

EOB directed claimants to use the Plan’s internal review pro-

cedures in order to “have a right to bring a civil action under

ERISA Section 502(a),” but did not provide notice that claim-

ants must raise specific issues to preserve them for future

actions. See Sims, 530 U.S. at 113. Similar to the Social

Security requirements, the EOB provided for an informal

appeal process in which decisionmakers would provide “a full

and fair review, consider all the evidence and exercise their

fiduciary discretion to interpret the Plan and decide the

appeal.” The EOB suggested that decisionmakers would fur-

ther develop the record by consulting “any appropriate health

care professional in deciding an appeal involving medical

judgment.” Because the EOB does not require issue exhaus-

13870 VAUGHT v. SCOTTSDALE HEALTHCARE CORP.

tion, but rather suggests that a claimant need not raise all

issues to the Plan in order to preserve them for further review,

issue exhaustion would be particularly inappropriate in this

case. See Sims, 530 U.S. at 113.4

[12] Because ERISA and its implementing regulations

create an inquisitorial, rather than adversarial process, and

because the EOB does not notify a claimant that issue exhaus-

tion is required, Sims leads us to conclude that Vaught was

not required to exhaust his issues or theories in the context of

this case. Accord Wolf v. Nat’l Shopmen Pension Fund, 728

F.2d 182, 186 (3d Cir. 1984) (“Section 502(a) of ERISA does

not require either issue or theory exhaustion; it requires only

claim exhaustion.”). Our conclusion here is consistent with

our decision in Smith v. Retirement Fund Trust, 857 F.2d 587

(9th Cir. 1988), where we cited Wolf with approval in reject-

ing a plan’s argument that a claimant did not exhaust avail-

able administrative remedies because he presented new

evidence supporting his claim to the district court. Id. at 591-

92. Here, as in Sims, Vaught exhausted his administrative

remedies by requesting review of his claim denial and obtain-

ing the Plan’s final decision on his claim. His subsequent

decision to raise a new issue before the district court did not

retroactively erase his prior effective exhaustion of adminis-

trative remedies.

4

Sims suggests that the analysis would be different if the Summary Plan

Description or EOB required issue exhaustion at some stage in the admin-

istrative proceedings. 530 U.S. at 108 (noting that where agency regula-

tions require issue exhaustion in administrative appeals, “courts reviewing

agency action regularly ensure against the bypassing of that requirement

by refusing to consider unexhausted issues”). Moreover, such a require-

ment would put the claimant on notice of an issue-exhaustion requirement.

Id. at 113 (O’Connor, J., concurring). We do not reach this issue, because

we conclude that the summary plan description and EOB in this case do

not contain an issue-exhaustion requirement.

VAUGHT v. SCOTTSDALE HEALTHCARE CORP. 13871

D

We conclude that Vaught exhausted his administrative rem-

edies and was not precluded from raising his new theory to

the district court. The district court therefore erred in granting

the Plan’s summary judgment motion. Accordingly, we

remand to the district court to review the plan administrator’s

decision to deny Vaught’s claim for benefits. The district

court should decide in the first instance whether allowing

additional evidence outside the administrative record is appro-

priate in this case, and whether de novo or deferential review

applies to the Plan’s decision. See Metropolitan Life Ins. Co.

v. Glenn, 128 S.Ct. 2343, 2351-52 (2008); Abatie, 458 F.3d

at 973.

III

Vaught also argues that the district court’s summary judg-

ment order improperly dismissed his claim against the Plan

under § 502(c), 29 U.S.C. § 1132(c), for failure to disclose

plan documents. Although the district court did not expressly

address this issue in its order granting summary judgment, we

affirm the district court’s dismissal of Vaught’s § 1132(c)(1)

claim because the claim fails as a matter of law. See, e.g.,

Moreno v. Baca, 431 F.3d 633, 638 (9th Cir. 2005) (“We may

affirm the district court on any basis supported by the

record.”).

Section 1132(c)(1) allows the district court to impose sanc-

tions for a plan administrator’s failure or refusal to comply

with document requests. “Under 29 U.S.C. § 1132(c), only the

plan ‘administrator’ can be held liable for failing to comply

with the reporting and disclosure requirements.” Cline v.

Indus. Maint. Eng’g & Contracting Co., 200 F.3d 1223, 1234

(9th Cir. 2000). It is undisputed that Scottsdale Health Care

Corporation is the “plan administrator.” The Plan is not an

“administrator” and therefore not a proper defendant under

§ 1132(c)(1). See Cline, 200 F.3d at 1234; Moran v. Aetna

13872 VAUGHT v. SCOTTSDALE HEALTHCARE CORP.

Life Ins. Co., 872 F.2d 296, 299-300 (9th Cir. 1989). Because

Vaught brought his action against the Plan, not the plan

administrator, his claim fails as a matter of law.

IV

[13] In sum, we hold that Vaught exhausted the Plan’s

internal remedies and was not required to exhaust issues.

Accordingly, we reverse the district court’s grant of summary

judgment to the Plan and remand for further proceedings. We

affirm the district court’s dismissal of Vaught’s claim for pen-

alties for nondisclosure of documents because the Plan is not

the proper defendant under § 1132(c).

Affirmed in part, reversed in part, and remanded.

BEA, Circuit Judge, concurring in part and dissenting in part:

Raymond Vaught crashed his motorcycle into a stopped

vehicle. Vaught was driving drunk, extremely so—his blood

alcohol content was three times Arizona’s legal limit. Vaught

lived, but was hospitalized with serious injuries.1 Unfortu-

nately for Vaught, his ERISA health plan (the “Plan”) con-

tains an express exclusion of coverage for medical care

expenses “relating to . . . [d]riving under the influence of alco-

hol or drugs” (the “DUI exclusion”). Accordingly, the Plan

denied his claim, based on this DUI exclusion.

Vaught appealed the Plan’s denial to the Plan’s Claims

Administrator. For such an appeal, the plain language of the

Plan’s internal review procedures required Vaught to state in

his written appeal “the reason” he thought the Claims Admin-

istrator should reconsider the denial of coverage. In his writ-

ten appeal, Vaught gave seven procedural reasons he claimed

1

The driver of the car with which Vaught collided was not injured.

VAUGHT v. SCOTTSDALE HEALTHCARE CORP. 13873

the Claims Administrator should reconsider its denial of cover-

age.2 Not a single one of these seven reasons challenged the

applicability of the DUI exclusion.

The Plan rejected Vaught’s appeal, and he brought an

action in district court. There, for the first time, he raised the

cockamanie claim that the DUI exclusion did not apply

because the collision, not the alcohol, caused his injuries.

Because he had never presented this “reason” to the Plan, as

was required by his policy, the district court found he had not

satisfied the policy requirement that he present “the reason”

2

The seven procedural reasons—lifted almost verbatim from 29 C.F.R.

§ 2560.503-1 with no earthly relation to the reality of Vaught’s case and

no support in the record—were:

1. The specific reason or reasons for the adverse benefit deter-

mination have not been provided;

2. References to the specific plan provisions on which the

adverse benefit determination is based have not been provided;

3. No description of additional material or information neces-

sary to complete the claim has been requested;

4. No description of the plan’s appeal procedures, including

applicable time limits, plus a statement of the right to bring suit

under § 502 of ERISA with respect to any adverse benefit deter-

mination has been provided;

5. No statement that the Vaughts are entitled to receive on

request and free of charge, reasonable access to and copies of all

documents, records and other information relevant to the claim

has been provided;

6. No description of adverse benefit determination based upon

an internal rule, guideline, protocol, or similar criteria, if so

based, has been provided;

7. The sole description provided, “AM refer to the benefits

booklet under exclusions and what the plan does not recover [sic]

regarding motor vehicle related charges” is vague and ambigu-

ous, fails to meet the requirements for a claim denial as outlined

at page 37 of the “Flex Choice — Medical Benefit Summary Plan

Description.”

13874 VAUGHT v. SCOTTSDALE HEALTHCARE CORP.

he thought the denial of coverage was in error first to the

Plan.

The majority reads the policy as requiring only that a

claimant give the Administrator any old reason he thinks ben-

efits should not have been denied, whether or not later aban-

doned. The majority transforms the Plan’s requirement that

Vaught state “the reason” he is challenging the denial of cov-

erage into a requirement that can be satisfied if he states “a

reason” or “any reason” for his challenge.

By transforming the Plan’s review requirement in this man-

ner, however, the majority allows an ERISA claimant to

engage in a court-sanctioned game of Texas Hold ‘Em against

a Plan playing with all of its cards face up. An ERISA claim-

ant challenging his plan’s denial of coverage can keep his

cards close during the administrative appeals process, rolling

the throw-aways, and waiting until his action in district court

and after the Plan Administrator has stopped playing, to play

his trump card: the real reason he challenges his plan’s denial

of coverage. An action challenging an ERISA plan’s denial of

benefits, however, should not be a game of poker. Indeed, a

primary purpose of the exhaustion requirement is to give an

ERISA fiduciary the first opportunity to interpret its plan and

fully to consider its determination before a claimant seeks

court intervention.3 Requiring an ERISA claimant to present

to the ERISA fiduciary the reasons upon which he claims

error for the Plan’s denial of coverage—at least where, as

here, the policy itself contains this express requirement—is

critical to effectuate this purpose.

3

See Amato v. Bernard, 618 F.2d 559, 568 (9th Cir. 1980) (“[A] primary

reason for the exhaustion requirement, here as elsewhere, is that prior fully

considered actions by pension plan trustees interpreting their plans and

perhaps also further refining and defining the problem in given cases, may

well assist the courts when they are called upon to resolve the controver-

sies.”).

VAUGHT v. SCOTTSDALE HEALTHCARE CORP. 13875

Vaught, whether deliberately or not, failed to comply with

his plan’s internal review procedures and failed to ask the dis-

trict court to excuse him from that failure. Accordingly, I

would affirm the district court’s order dismissing Vaught’s

claim for failure to exhaust his administrative remedies.4

As the majority recognizes, Vaught was required first to

exhaust his Plan’s internal review procedures before challeng-

ing the denial of coverage in district court. See Diaz v. United

Agric. Employee Welfare Benefit Plan & Trust, 50 F.3d 1478,

1483 (9th Cir. 1995) (“Quite early in ERISA’s history, we

announced as the general rule governing ERISA claims that

a claimant must avail himself or herself of a plan’s own inter-

nal review procedures before bringing suit in federal court.”).

When determining whether a party has exhausted his plan’s

internal review procedures, we look to the requirements of the

plan’s procedures and determine whether the party has com-

plied with them. See, e.g., Chappel v. Lab. Corp. of Am., 232

F.3d 719, 724 (9th Cir. 2000).

The parties dispute whether Vaught exhausted the Plan’s

internal review procedures. Thus, we are required to deter-

mine (1) what are the requirements of the Plan’s review pro-

cedures, and (2) whether Vaught complied with them. Our

task when determining this issue is a fairly straightforward

one.

The majority correctly notes we “interpret terms in ERISA

insurance policies in an ordinary and popular sense as would

a person of average intelligence and experience.” Babikian v.

Paul Revere Life Ins. Co., 63 F.3d 837, 840 (9th Cir. 1995)

(citation omitted). Our analysis of the Plan’s requirements

begins and ends with the Plan’s plain language. Indeed, the

language could not be any more plain: the Explanation of

Benefits form (“EOB”) states the claimant must, in writing,

4

I concur in the majority’s judgment affirming the dismissal of Vaught’s

claim for failure to disclose plan documents under 29 U.S.C. § 1132(c).

13876 VAUGHT v. SCOTTSDALE HEALTHCARE CORP.

“clearly explain that you are appealing a claim denial and the

reason why you think the Claims Administrator should recon-

sider your claim.” (emphases added).

The “ordinary and popular sense” of the Plan’s requirement

the claimant “clearly explain . . . the reason why you think the

Claims Administrator should reconsider your claim” is that

the claimant is required to tell the Claims Administrator why

its initial denial of coverage was in error. Such a requirement

makes sense. ERISA “requires covered benefit plans to pro-

vide administrative remedies for persons whose claims for

benefits have been denied.” Amato, 618 F.2d at 567 (citing 29

U.S.C. § 1133). ERISA requires plans to afford a reasonable

opportunity for a “full and fair review” by the ERISA fidu-

ciary of the denial of benefits. 29 U.S.C. § 1133.5 To be able

to provide a full and fair review of the denial of Vaught’s

claim, the Plan quite reasonably required Vaught to state in

his appeal the issue or issues upon which he claims error. By

failing to tell the Plan the reason he now claims the Plan erred

in denying his claim, however, Vaught thwarted the Plan’s

ability to provide such a review. In effect, he is “sandbag-

ging” the Plan by submitting all sorts of “reasons,” save the

real reason he held close until filing his complaint.

The reason Vaught thinks the Plan erred in denying his

claim is that the alcohol exclusion does not apply to him. Spe-

cifically, he contends the alcohol exclusion does not apply

because his “injuries were not ‘caused[,]’ either directly or

indirectly, by alcohol. Rather, [Vaught’s] injuries were the

direct result of and proximately caused by an automobile/

motorcycle collision.”6 Vaught, however, never told the

5

By imposing this requirement, Congress sought “to help reduce the

number of frivolous lawsuits under ERISA; to promote the consistent

treatment of claims for benefits; to provide a nonadversarial method of

claims settlement; and to minimize the costs of claims settlement for all

concerned.” Amato, 618 F.2d at 567.

6

This contention fails on the face of the policy. The policy does not

exclude only expenses for injuries “proximately caused” by alcohol; it

broadly excludes “all expenses incurred for services, supplies, medical

care, or treatment relating to, arising out of, or given in connection with

. . . [d]riving under the influence of alcohol or drugs.”

VAUGHT v. SCOTTSDALE HEALTHCARE CORP. 13877

Claims Administrator this was the reason it should reconsider

his claim.

Vaught submitted two appeals of the Plan’s denial. The

first was his attorney’s February 19, 2004 letter, which listed

the seven grounds for the appeal noted at footnote 2, supra.

The majority aptly describes these seven grounds as “proce-

dural,” since none of the grounds challenged the basis of the

denial on the merits. Not a single one of the seven reasons

gave the Plan notice that Vaught thought the alcohol exclu-

sion did not apply to him, let alone inform the Plan the spe-

cific reason he thought the alcohol exclusion did not apply.

The Plan, through counsel, responded by letter on March

16, 2004. The letter spelled out again, in even clearer terms,

the reason for the denial of Vaught’s claim: the “Plan does not

cover any expenses incurred related to ‘driving under the

influence of alcohol or drugs . . . . The specific reason for

denial of coverage is driving under the influence of alcohol or

drugs, your client having an indicated blood alcohol level of

0.261.”7 The Plan responded, point by point, to each of the

seven procedural challenges Vaught raised in his September

2004 appeal.8 Finally, the Plan, in an abundance of caution

(“based on this apparently being the first formal notifica-

tion”), gave Vaught another 180 days in which to file an

appeal in accordance with the Plan’s procedures.

Yet, Vaught missed his second chance to do so. Vaught’s

first attorney responded to the Plan’s March 16, 2004 letter

with a letter of his own on March 29, 2004, asking several ques-

tions9 and requesting a list of documents the Plan Administra-

7

Arizona state law proscribes driving with a blood alcohol content of

0.08 parts alcohol/blood. Ariz. Rev. Stat. § 28-1381(A)(2) (2003). Hence,

Vaught was more than three times (300%) over the limit.

8

The merits of the Plan’s responses to Vaught’s procedural contentions

are not at issue on appeal, nor did Vaught challenge them in the district

court.

9

These included questions such as “whether the Plan would refuse to

cover an individual driving under the ‘influence’ of drugs if the drugs

13878 VAUGHT v. SCOTTSDALE HEALTHCARE CORP.

tor relied upon to reach its determination. The letter once

again failed to state “the reason” Vaught thought the Plan

erred in denying his claim ; i.e., the alcohol exclusion does

not apply to Vaught because his injuries were “caused” by the

collision, not alcohol.

On September 2, 2004, represented by new counsel,

Vaught filed his second appeal of the denial of benefits. Yet

again, he failed to state “the reason” why he now thinks the

Claims Administrator should have reconsidered his claim.

The September 2, 2004 letter states it is an appeal, requests

all documents relevant to the denial, and notes that “ERISA

provides for imposition of substantial monetary penalties for

the failure of a Plan Administrator to make timely disclosures

as required by law.” Yet, nowhere in such appeal letter does

Vaught’s attorney state a single reason he thinks the Plan

erred when it denied Vaught’s claim. In neither of his appeals

to the Plan did Vaught comply with the Plan’s express

requirement he state “the reason” the Claims Administrator

should reconsider his claim. In neither of his appeals did he

take issue with the Plan’s determination the alcohol exclusion

applied to him.

Vaught held his cards close until his action in district court.

There, for the first time in the joint case management report,

Vaught set forth the reason he thinks the Plan erred in deny-

ing benefits; i.e., the alcohol exclusion did not apply to him.

By then, however, it was too late. He had failed to comply

with the Plan’s internal review procedures, and failed to give

the Plan the opportunity to consider the merits of his chal-

lenge. Having failed to do so, he is barred from bringing an

action challenging the denial of coverage on this basis. See

Diaz, 50 F.3d at 1483.

were mis-prescribed by a Plan physician”—perhaps in preparation for that

well-known DUI defense: “the bartender gave me the wrong drink!”—and

how the Plan would prove Vaught received notice of the Plan’s “driving

under the influence” exclusion.

VAUGHT v. SCOTTSDALE HEALTHCARE CORP. 13879

The majority, however, holds Vaught exhausted the Plan’s

internal review procedures because Vaught’s February 19,

2004 appeal stated seven “procedural” reasons the Plan erred

in denying coverage, although none of these purported proce-

dural defects are related to the reason Vaught now challenges

the denial, the applicability of the alcohol exclusion. In effect,

the majority interprets the Plan’s requirement to state “the

reason why” the Claims Administrator should reconsider the

claim as a requirement the claimant state “a” reason why or

“any” reason why. According to the majority, once Vaught

stated a reason—any reason—he “effectively invoked the

Plan’s internal review procedures.” I respectfully disagree.

Under no “ordinary and popular sense” of the term does “the

reason” mean “a reason” or “any reason.” See The Random

House Dictionary of the English Language 1965 (2d ed.

1987) (the: “used, esp. before a noun, with a specifying or

particularizing effect, as opposed to the indefinite or general-

izing force of the indefinite article a or an.”).

The majority goes wrong in its definition of “the reason” by

concentrating on the noun to the exclusion of the restrictive

article. “The reason” does not include any “explanation or jus-

tification.” It may be a claimant has more than one reason for

appealing the Plan’s decision, and I do not interpret the Plan’s

requirement to limit a claimant to a singular reason to the

exclusion of all other legitimate reasons.10 But when requiring

10

Indeed, if an ERISA plan attempted to limit a claimant to presentation

of a singular reason for his appeal although the claimant may have multi-

ple legitimate reasons, I have no doubt a court would excuse compliance

with the plan’s requirement and permit the claimant to raise the additional

reasons in district court. See Amato, 618 F.2d at 568 (stating a district

court would abuse its discretion if it failed to excuse exhaustion where “re-

sort to the administrative route is futile or the remedy inadequate.”). Nor

could a plan require a claimant to state any and all reasons in the initial

appeal, on pain of never being able to raise other reasons before the dis-

trict court, no matter what equitable grounds there may be for failure to

comply with the requirement. See id. The point is that, where possible, the

Plan must be given the first opportunity to consider the errors a plaintiff

claims, before the district court gets involved.

13880 VAUGHT v. SCOTTSDALE HEALTHCARE CORP.

“the reason,” the ordinary and popular meaning is certainly to

include the main reason on which one relies. If there are two

or more equally important, or at least substantial, reasons,

they should be presented to the Claims Administrator, so the

Plan has the first opportunity to evaluate, accept, or reject the

contentions. “The reason” certainly does not mean “any rea-

son but not necessarily the reason on which I intend to rely

in court.”

If one were to recur to the “purpose” of the provision

requiring the insured to state the reason he thinks the Plan’s

denial erroneous, it clearly is to allow the Claims Administra-

tor first to consider the basis upon which the insured claims

he was improperly denied his claim. Exhaustion of the

claimed bases of error should precede judicial action. Other-

wise, we destroy the purpose of exhaustion and allow plaintiff

to play bait and switch. Plaintiff could have laid out as a “rea-

son” that the right to payment is a right guaranteed him as a

right retained by the People under the Ninth Amendment to

the United States Constitution. That would be “a” or “any rea-

son.” But that would not engage the Claims Administrator to

consider plaintiff’s novel interpretation of the DUI exclusion:

damages due to drinking are excluded only in the case of

alcohol-induced cirrhosis of the liver, but not when the wasted

motorcyclist wipes himself out.

It may be that a plan requirement that the claimant state the

reason he challenges a benefit denial is unfair in certain cir-

cumstances; where, for example, the reason develops during

the appeals process and the claimant could not have raised the

reason earlier. If “the reason,” or reasons, a plaintiff claims in

court that he was erroneously denied benefits was not put

before the Claims Administrator, and there are equitable

grounds for excusing that failure, the district must consider

those equitable grounds. In such a circumstance, the district

court may exercise its discretion to excuse the claimant from

the exhaustion requirement. See Amato, 618 F.2d at 568

(“[T]here are occasions when a court is obliged to exercise its

VAUGHT v. SCOTTSDALE HEALTHCARE CORP. 13881

jurisdiction and is guilty of an abuse of discretion if it does

not, the most familiar examples perhaps being when resort to

the administrative route is futile or the remedy inadequate.”)

(citation omitted).

This, however, is not such a case. Vaught never asked the

district court to excuse his failure to raise in his administrative

appeal the reason he now claims the Plan erred when it denied

coverage based on the DUI exclusion. Had Vaught presented

some evidence to the district court that he could not have

challenged the applicability of the DUI exclusion in his initial

appeal to the Claims Administrator, this might be a different

case.11 He did not, nor did he request the district court excuse

him from the exhaustion requirement for any other reason.

Accordingly, I would hold that Vaught failed to exhaust his

plan’s remedies, because he failed to comply with the Plan’s

requirement he state “the reason” he thinks the Claims

Administrator should have reconsidered his claim, namely,

the alcohol exclusion did not apply to him.12 Thus, I would

affirm the district court’s dismissal of Vaught’s claim chal-

lenging the Plan’s denial of benefits, and I dissent from the

majority’s opinion reversing and remanding that claim.

11

It may be that Vaught’s novel interpretation of the DUI exclusion

clause had not occurred to him and his attorney until just before filing his

district court action, because neither had achieved another 0.2618 blood

alcohol level since the accident. However, I doubt that would be an

acceptable reason for his earlier failure.

12

Because we should affirm the dismissal for failure to exhaust the

Plan’s internal review procedures, we should not reach the novel issue

whether the judicially-created ERISA exhaustion requirement includes an

“issue exhaustion” requirement independent of the requirements of a par-

ticular plan’s internal review procedures.