Pension Protection Act Blog

As defined contribution prototype and volume submitter plans begin to restate for EGTRRA later this year, and electronic storage of the old plan documents and amendments becomes more prevalent, this case is worth remembering before designing an electronic storage system. Even though the Court found no rational basis for the TPA firm’s storage system, and it found that retrieving records from that system was burdensome, the Court still ordered the TPA firm to produce the electronically stored records. With the TPA firm now retrieving those records pursuant to a Court order, it probably wishes that their electronic storage system was more rational and less burdensome.

It is a common occurrence for a district court to deny a motion for reconsideration, especially when it is a motion for reconsideration of a court’s order relating to discovery of business records. In early 2007, the District Court of Massachusetts denied a motion for reconsideration of the Court’s order related to medical bills in W.E. Aubuchon Co., Inc. v. BeneFirst, LLC, No. 05-40159 (Feb. 6, 2007).

What makes this case interesting from a plan aspect is that this decision involved producing records in a larger dispute between the plan sponsor of an employee medical benefit plan, and the TPA firm which the plan sponsor hired to administer the plan. The larger dispute is a lawsuit brought by the plan sponsor against the TPA firm, alleging that the TPA firm failed to perform its duties in a reasonably prudent manner, thereby breaching its fiduciary duties, and that the TPA firm breached the underlying contract with the plan sponsor by failing to provide services accurately and completely.

In order to prove its allegations, the plan sponsor required medical records which were under the custody or control of the TPA firm as part of its duties in administering the plan. The plan sponsor filed a motion with the Court to compel the TPA firm to produce all medical claims files, including the actual medical bills within the TPA firm’s custody or control. The Court granted that motion, and the TPA firm filed a motion asking the Court to reconsider this decision.

One of the reasons the TPA firm gave for not producing the records was the high cost and large amount of time it would take them to retrieve the records. The records had been electronically stored by the TPA firm according to the year of processing, then by the claims examiner, then by the month of processing, and finally by the actual processing date with no index of the images and no ability for a wholesale retrieval of claim images on a group by group basis. The TPA firm provided the Court with an estimate of $80,000 and almost 4,000 hours to retrieve the 34,112 claims initially requested by the plan sponsor. The plan sponsor narrowed their request to 3,000 records but the TPA firm did not provide the Court with an estimate of the time or cost of producing those records.

The date the case was filed was also the date that Federal Rule of Civil Procedure 26(b)(2)(B) was amended to provide that:

A party need not provide discovery of electronically stored information from sources that the party identifies as not reasonably accessible because of undue burden or cost. On motion to compel discovery or for a protective order, the party from whom discovery is sought must show that the information is not reasonably accessible because of undue burden or cost. If that showing is made, the court may nonetheless order discovery from such sources if the requesting party shows good cause, considering the limitations of Rule 26(b)(2)(C). The court may specify conditions for the discovery.

The Court, following the analysis of whether information stored electronically is reasonably accessible as stated in Zubulake v. UBS Warburg, 217 F.R.D. 309 (2003), found that the claims were electronically stored in a reasonably accessible manner because they are stored on a server in the TPA firm’s office. According to the Court, electronic data is considered “accessible” if it is stored through (1) active on-line data, such as hard drives; (2) near-line data, such as robotic storage devices such as optical disks; and (3) offline storage/archives, such as removable optical disks or magnetic tape media which can be labeled and stored in a shelf or rack. Electronic data could be considered not reasonably accessible if it is: (1) stored through backup tapes, such as devices like tape recorders that read data from and write it to a tape, or sequential access devices which are typically not organized for retrieval of individual documents or files; or (2) erased, fragmented or damaged data, where such data can only be accessed after significant processing.

Once the Court determined that the records requested by the plan sponsor were stored in a reasonably accessible manner, the Court then needed to make a determination on whether the retrieval of the records involved an undue burden or cost. The Court found that the retrieval of the records was costly and retrieval would involve undue burden or cost, so for the purposes of Fed.R.Civ.P. 26(b)(2)(B), the images were not reasonably accessible. The Court stated:

I am hard pressed to understand the rationale behind having a system that is only searchable by year of processing, then claims examiner, then the month of processing, and finally the claims date. None of these search criteria reflect the name of the individual claimant, the date that the claimant received the medical service, who the provider was, or even the company that employed the benefit holder. It would seem that such a system would only serve to discourage audits and the type of inquiries that have led to the instant litigation.

With the Court’s determination that the requested images were not reasonably accessible for the purposes of Fed.R.Civ.P. 26(b)(2)(B), the Court was not finished. The Court was then required to determine if there was good cause for ordering the production of the records since they were not reasonably accessible. After applying a multiple-pronged test, the Court found that the plan sponsor had met their burden to establish good cause for the TPA firm to produce the requested information, and denied the motion to reconsider.

One factor in making the determination in favor of the plan sponsor was the Service Agreement between the TPA firm and the plan sponsor, which stated that “The Records are the property of the Plan Sponsor. The Plan Sponsor has the right of continuing access to their records…”. The Court decided this meant that, although the TPA firm had custody and control of the records, the records remained the property of the plan sponsor.

Hat tip to Roy F. Harmon III of the Health Plan Law blog, who also wrote an analysis of this case in TPA Ordered to Assimilate Claims Data Demanded by Employer at TPA’s Expense. The Health Plan Law blog provides an excellent discussion of this case, and raises two interesting points -

“what would the effect be if the TPA returned the data (assuming this practical and possible) or if the administrative agreement addressed the records ownership and/or disposition more specifically?”

Technorati Tags: Pension Protection Act, plan sponsor, TPA, third party administration, BeneFirst, Aubuchon, Zubulake, ppa, discovery, 26(b)(2), ERISA