Second Court: District Court Did Not Err Denying Leave to Amend ERISA Complaint Due to Failure to Exhaust Administrative Remedies

In Ruderman v. Liberty Mutual Group, Inc., et al., No. 21-817, 2022 WL 244086 (2d Cir. Jan. 27, 2022), Plaintiff-Appellant Jennifer Ruderman filed state law claims against Liberty Mutual for its denial of her long-term disability benefits. The district court dismissed her complaint based on ERISA preemption and denied her cross-motion for leave to amend her complaint to plead an ERISA claim because she did not exhaust her administrative remedies. On appeal, Ruderman argued that the district court erred in denying her leave to amend her complaint because exhaustion would have been futile and because Liberty Mutual’s regulatory noncompliance excused the requirement to exhaust administrative remedies.

The Second Circuit affirmed the judgment of the district court. Even though Ruderman did not appeal the preemption issue, the Second Circuit found that the district court correctly concluded that ERISA preempted her claims. On the exhaustion issue, the court reaffirmed the “established federal policy favoring exhaustion of administrative remedies in ERISA cases.” Ruderman’s allegations fall short of the “clear and positive showing” that exhaustion would be futile. Ruderman had appealed a benefit determination to Liberty Mutual, and in response, Liberty Mutual reclassified her disability and informed her of a future benefit termination based on the reclassification. Because Ruderman successfully appealed once, the court found that the administrative rejection of her challenge was not a foregone conclusion. The court also found that Liberty Mutual did not violate ERISA’s regulations by failing to include appeal rights in its decision letter involving reclassification. The reclassification determination was not an adverse benefit determination even though it informed her of a termination date for benefits based on her disability. Liberty Mutual sent another letter informing her of the impending termination of benefits and of her right to appeal. Ruderman did not appeal. Even though failure to exhaust administrative remedies is an affirmative defense rather than a jurisdictional requirement, the district court had good reason to deny leave to amend.