John O'Brien Jan. 1, 2013, 12:49pm
RICHMOND, Va. – A federal appeals court has affirmed U.S. District Judge Joseph Goodwin’s ruling in a case over the termination of an employee’s health insurance coverage.
The U.S. Court of Appeals for the Fourth Circuit ruled Dec. 28 that Relational Management Services, of Alderson, employed less than 20 individuals and thus, Sandra Feamster was not owed health care coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985.
Feamster claimed RMS and Solacium Holdings, of Orem, Utah, should have been considered a single employer in the year in question, 2007.
Even if RMS and Solacium were a single employer for a portion of 2007, they were not a single employer on a “typical business day” during that year.
“The Feamsters cite no authority inferring from the word ‘all’ that the inquiry should include employees of an entity that maintains constructive ownership of the direct employer for just a few months of the relevant calendar year; if that were so, a large company’s purchase of a small one on Dec. 31 would render the small company’s employees eligible for COBRA continuation coverage in the following year as if they had worked for the large employer for all of the prior year,” Judge Andre Davis wrote.
“Such a situation would lead to the absurd result that a small company acquired on Dec. 31 would be treated differently from a single company that merely expands and increases the number of its employees throughout the year, such that it has 19 employees for six months and a day, and 20 or more for the remainder of the year.”
RMS was formed in 2005 to operate a therapeutic boarding school for teenagers, called the Greenbrier Academy for Girls. It opened in September 2007.
Solacium is a holding company for entities that operate schools for troubled youth.
On Sept. 1, 2007, Solacium and RMS entered into an agreement in which Solacium agreed to provide administrative services to RMS. The agreement also gave Solacium an option to purchase RMS’s assets during the one-year period beginning on Sept. 1, 2011.
However, the agreement was terminated on Jan. 1, 2008. Solacium had no further involvement with the academy.
Feamster was hired in September 2007, and she and her husband received health insurance through RMS’s group plan.
In March 2008, she took a medical leave of absence, and her health insurance coverage ended on June 1, 2008. She then sought COBRA coverage, but RMS told her that it did not provide such coverage because it had less than 20 employees.
The Feamsters ended up with hundreds of thousands of dollars in medical expenses. They were represented by Jeffrey Mehalic of Charleston and Harmon & Major of Greenville, S.C.
The central question of the appeal, the opinion says, is whether RMS and Solacium should have been considered a single employer because of Solacium’s option to purchase RMS’s assets. Under the COBRA statute, RMS needed to have more than 20 employees on a typical business day.
“Assuming without deciding that the option gave Solacium constructive ownership of RMS, we conclude that such ownership existed for fewer than half of the employer’s typical business days in 2007,” the opinion says.
Also on the three-judge panel that heard the case was Fourth Circuit Judge Henry Franklin Floyd and District Judge Catherine Eagles of North Carolina, who was sitting by designation.