Mlsna v. Unitel
(United States Court of Appeals for the Seventh Circuit, LEXIS 33722)
After more than five years of litigation and two appeals, Eileen Mlsna
was awarded more than $130,000 in fines. Theodore and Eileen Mlsna were covered under
Unitel Communications, Inc.’s group health plan at the time Theodore submitted
his letter of resignation to Paul Mallin, the President of Unitel, on January 23, 1989.
On January 25, 1989, Mallin relieved Theodore of his duties, effective immediately.
Neither Theodore nor Eileen were notified of their right to COBRA continuation coverage.
Sometime shortly after the coverage under the Unitel plan ended, Eileen incurred a significant
amount of medical bills. She subsequently filed suit, seeking COBRA continuation coverage.
DISTRICT COURT RULING
Among the defenses put forth by Unitel was the claim that Theodore’s
termination was for gross misconduct; it (Unitel) had no obligation to provide continuation
coverage to either Theodore or Eileen Mlsna. The court dismissed that argument, ruling
that Theodore had resigned. The court ruled in Eileen Mlsna’s favor in regard
to the claims incurred. The lower court awarded an ERISA penalty, attorneys’ fees
and costs to the Mlsnas.
In a commentary that provides employers insight on how the courts
view COBRA as remedial legislation, Judge Zagel wrote the following:
“Unitel argues it terminated Theodore Mlsna for gross misconduct,
so no Qualifying Event took place to trigger plaintiff’s [Eileen’s] COBRA
notification. Although a plain reading of [COBRA] seems to support defendant’s
contention, this interpretation is problematic. There is no
Case Law
to support the
conclusion that when an employer terminates an employee for gross misconduct, the employer’s
duty to provide the employee’s spouse with COBRA notification is excused. This
interpretation seems unlikely in the context of the legislative history. Congress wanted
to protect spouses and dependents of employees from abruptly losing health care coverage.
It appears unreasonable that the action of the employee could excuse the COBRA protection
of the spouse.”
APPELLATE COURT RULING
In Unitel’s appeal, the appellate court made note of the fact
that turning in a letter of resignation with notice is not a Qualifying Event. The last
day worked would be the date of the Qualifying Event, and the appeals court ruled that
the lower court must determine when, and under what circumstances, Theodore left Unitel,
and whether a Qualifying Event occurred. The appellate court’s contention was
that, since this was now a case potentially involving involuntary termination instead
of voluntary termination, the gross misconduct exception could apply to both Theodore
and Eileen Mlsna. The appellate court disagreed with Judge Zagel’s commentary
on Congressional intent. The higher court found that this line of reasoning conflicted
with the plain language of the statute.
FINAL RULING
The district court’s second decision concurred that Theodore
Mlsna was not fired for gross misconduct and that a Qualifying Event had occurred on
the date that Mlsna was fired. The court awarded Eileen Mlsna $23,916.45 for her uninsured
medical bills, $1,759.98 for costs, and $59,800.90
for attorneys’ fees. A fee of $20 per day was also awarded for the period from
March 9, 1989, to May 9, 1995, for a total fine of $45,040 for COBRA
notification violation. Unitel challenged the award of fees, maintaining that the district
court abused its discretion in awarding the enhanced fees under COBRA and attorneys’
fees. The court of appeals found that although the award was significant, the COBRA
statute allows fines up to $100 per day and that a $20
per day fine was not an abuse of discretion on the part of the district court. The award
of over $130,000 would stand.