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Administrative Law: Under ERISA, a district court abuses its discretion in dismissing a claim for failure to exhaust administrative remedies where the claimant “acted reasonably in light of [a plan fiduciary’s] ambiguous communications and failure to engage in a meaningful dialogue.”

Leah Bilyeu received health insurance through her employer, Discover Financial Services. Morgan Stanley provided long term disability (“LTD”) benefits, and First Unum Life Insurance Company (“Unum”) was the plan administrator. Bilyeu filed an LTD claim as a result of several illnesses. Contrary to the opinion of Bilyeu’s doctor, Unum determined that Bilyeu’s LTD claim was subject to a 24-month limitation. The letter that Unum sent advising Bilyeu of this decision provided Bilyeu with the option of challenging the determination by submitting a written appeal within 180 days. Bilyeu’s doctor submitted an appeal on her behalf, to which Unum allegedly did not acknowledge or reply. Bilyeu filed suit under the Employee Retirement Income Security Act (“ERISA”), alleging wrongful termination of her LTD benefits. Unum counterclaimed, claiming that Bilyeu failed to exhaust her administrative remedies before filing suit, as required by ERISA, and seeking restitution of overpaid benefits. The district court held in favor of Unum, barring Bilyeu’s claim for failure to exhaust administrative remedies. The Ninth Circuit found that the district court abused its discretion in dismissing Bilyeu’s claim. The district court should have excused the exhaustion requirement, because Bilyeu “acted reasonably in light of Unum’s ambiguous communications and failure to engage in meaningful dialogue.” The Court also reversed the district court’s award of damages to Unum for overpaid benefits. Unum argued that it was seeking an equitable lien by agreement. The Court held that, under ERISA, a plan fiduciary (Unum) may only seek equitable relief against a plan beneficiary. Unum failed to show that it was seeking equitable relief, because it could not prove that Bilyeu still possessed the fund upon which Unum sought to place a lien. VACATED and REMANDED.