William Reed Smathers v. Multi-Tool, Inc., et al.

William Reed Smathers brought this suit against Multi-

Tool, Inc./Multi-Plastics, Inc. and Multi-Tool, Inc./Multi-

Plastics, Inc. Employee Health and Welfare Plan (together

"Multi-Tool") in the Western District of Pennsylvania
seeking payment of medical claims in excess of $81,000

arising from an accident that occurred while he was driving

his motorcycle under the influence of alcohol and which

resulted in the amputation of his leg. The District Court

granted summary judgment in favor of Multi-Tool. While

the District Court was correct to apply an arbitrary and

capricious standard of review to the administrator's denial

of benefits, that standard should have been heightened due

to Multi-Tool's conflict of interest. Because we find that the

administrator's denial was arbitrary under the applicable

standard, we conclude that the District Court erred in

affirming its denial. Accordingly, we reverse the District

Court's grant of summary judgment in favor of Multi-Tool,

and will remand to the District Court with instructions to

remand to the Administrator.

I.

On August 24, 1997, around 1:15 a.m., Smathers was

driving his motorcycle on Route 19 in West Mead Township,
Crawford County, Pennsylvania. At the same time,

eighteen-year old Jeffrey S. Southworth was backing out of

a driveway onto Route 19. Southworth admitted that he

saw the lights of Smathers' motorcycle coming down the

road, but thought that he had the necessary time to back

out. Southworth backed out of the driveway across one lane

and into the lane down which Smathers was traveling.

Once he had backed into the roadway, Southworth saw

Smathers' bike in his rearview mirror, but as he attempted

to put the car into gear, it stalled. He then heard tires

squealing and Smathers smashed into the side bumper of

the car. Smathers explained that in response to coming

upon the stalled car he hit both his front and rear brakes

which caused his rear wheel to begin spinning to the left.

Afraid that he would lose control of the bike if he continued

to brake, Smathers attempted to drive around the car. He

explained:

[B]ecause of the skid caused by the braking, I had to

try to [drive around the car] to the right, which meant

going off the road surface because the Southworth

vehicle was all the way to the edge of the road surface.

As I attempted to drive around the Southworth vehicle

to the right, my left leg struck it's [sic] bumper and I

believe it caused me to fly off the motorcycle. At that

point I lost consciousness . . . .

After investigating the scene, the police provided a similar

description of the accident, reporting that it appeared that

Smathers had attempted to steer to the right of the car, but

was unsuccessful and struck the car. A fifty-four foot

skidmark was found leading to the site of the impact.

Smathers was seriously injured in the accident,

necessitating the amputation of his leg.

Both Smathers and Southworth were charged with
violations arising from the accident. Southworth was

charged with illegal backing pursuant to Pennsylvania

Vehicle Code, 75 Pa. C.S.A. S 3702, which provides: "No

driver shall back a vehicle unless the movement can be

made with safety and without interfering with other traffic

and then only after yielding the right-of-way to moving

traffic and pedestrians." Southworth pled guilty and paid

the accompanying fine. After Smathers' blood alcohol
content ("BAC") was found to be 0.2521 he was charged

with driving under the influence in violation of 75 Pa. C.S.

S 3731(a)(1).2 Smathers was admitted into an Accelerated

Rehabilitative Disposition ("ARD") program overseen by the

Crawford County Probation/Parole Department. His

completion of the program resulted in a dismissal of the

charges against him.

Multi-Tool refused to pay Smathers' medical expenses

arising from the accident under a provision which excludes

coverage for "any charge for care, supplies, or services

which are . . . 8. Caused or contributed to by the Covered

Person's commission or attempted commission of a felony,

misdemeanor, or being engaged in an illegal occupation or

activity." Multi-Tool refused Smathers' claims because the

accident occurred while he was driving while intoxicated --

an admittedly illegal activity. In February 1998, while the

claim was pending, Multi-Tool amended its plan to

incorporate a provision giving the administrator

discretionary authority in making benefits determinations.

Smathers subsequently brought suit under the Employees

Retirement Income Security Act ("ERISA"), 29 U.S.C.

S 1132, in an effort to collect benefits which he argued were

due to him under the plan.4 Multi-Tool filed a motion to

dismiss, which was treated by the court as a motion for

summary judgment because Multi-Tool relied on material
outside the pleadings. Smathers filed a provisional motion

for summary judgment.

The District Court determined that the administrator's

decision not to provide Smathers' benefits was governed by

the discretionary authority provided under the 1998 plan,

and, accordingly, considered only whether that decision

was arbitrary and capricious. Applying that deferential

standard, the District Court granted summary judgment in

favor of Multi-Tool finding that the determination by Multi-

Tool, as plan administrator, was not, as a matter of law,

arbitrary and capricious, and that there were no issues of

material fact remaining to be considered.

II.

As Smathers' claim for recovery of plan benefits rests on

the rights provided by ERISA, the District Court had

jurisdiction under 28 U.S.C. S 1331 and 29 U.S.C.

S 1132(e). We exercise jurisdiction pursuant to 28 U.S.C.

S 1291. We subject the District Court's grant of summary

judgment to plenary review, and we apply the same

standard that the lower court should have applied. Farrell

v. Planters Lifesavers Co., 206 F.3d 271, 278 (3d Cir. 2000).

Summary judgment is proper if there is no genuine issue of

material fact and if, viewing the facts in the light most

favorable to the non-moving party, the moving party is

entitled to judgment as a matter of law. F.R.C.P. 56(c);

Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

* * *

Click the case caption above for the full text of the Court's opinion.

For these reasons, we conclude that the District Court

erred in granting summary judgment in favor of Multi-Tool,

and its judgment will be REVERSED and the case

REMANDED to the District Court to be remanded to the

Administrator for further proceedings consistent with this

opinion.

Unavailable

Unavailable

None