Stewart v. Hartford Life & Accident Ins. Co., No. 21-11919, __ F.4th __, 2022 WL 3221296 (11th Cir. Aug. 10, 2022) (Before Circuit Judges Newsom, Tjoflat, and Hull).
Courts typically review ERISA benefit decisions under one of two standards: either de novo, i.e., with no deference to the benefit claim administrator, or for abuse of discretion, i.e., deferring to the administrator so long as its decision was reasonable. But ERISA practitioners often wonder: how much difference does the standard of review really make? Does it actually affect the way a judge decides a benefit case?
For the Eleventh Circuit in this week’s notable decision, it made a significant difference. The plaintiff was Carol Stewart, a prominent attorney in Birmingham, Alabama whose “professional accomplishments are impressive.” In 2007, she was diagnosed with Parkinson’s disease. She submitted a claim to Sun Life, the insurer of her firm’s disability benefit plan, which began paying benefits.
In 2010, however, Ms. Stewart’s firm switched the administration of its plan from Sun Life to Hartford. The new Hartford policy insuring the plan contained an exclusion which stated that a plan participant was ineligible for benefits if she was receiving “benefits for a Disability under a prior disability plan that: 1) was sponsored by [her] Employer; and 2) was terminated before the Effective Date of The Policy.” Hartford concluded that because the Sun Life coverage had terminated before the Hartford coverage began, and Ms. Stewart was receiving benefits from Sun Life, the exclusion applied, and thus it denied her benefit claim.
Ms. Stewart sued, and the district court granted Hartford summary judgment. She appealed.
On appeal, the Eleventh Circuit applied its unique six-step test to determine if it should uphold Hartford’s decision. First, it asked whether the decision was wrong under a de novo standard of review. The court stated that it was “inclined to think that Stewart may have the better reading of the policy’s disability-insurance provision and that Hartford’s interpretation is de novo ‘wrong[.]’” The court disagreed with Hartford’s argument that “prior disability plan” referred to the old Sun Life policy, because plans are different from policies under ERISA. Furthermore, Hartford used the two terms in different ways in other policy provisions, and in its answer to Ms. Stewart’s complaint, which suggested that even Hartford did not think the terms should be interpreted interchangeably.
At this point the casual observer might be concerned about Hartford’s chances. However, as the Eleventh Circuit helpfully reminds us, “because this is an ERISA-benefits case, our analysis isn’t finished—there are still five steps to go.” The court observed that under step two, Hartford had been vested with discretionary authority by the policy, which meant that under step three, the court’s role was to determine if Hartford’s interpretation of the policy exclusion, even if it was “de novo wrong,” was nevertheless “reasonable.”
The Eleventh Circuit determined that it was: “Although it might not be the best reading of the policy exclusion, it was reasonable for Hartford to interpret the phrase ‘prior disability plan’ as referring to the Sun Life policy.” The court conceded that “different words are usually presumed to have different meanings,” but that interpretive canon “assumes a perfection of drafting that, as an empirical matter, is not often achieved.” Thus, citing the Oxford Dictionary of English, the court concluded that through “unfortunate imprecision, the words ‘plan’ and ‘policy’ can be interchangeable.” The court concluded that “although we might have read the provision differently, we can’t say that Hartford’s interpretation was unreasonable.”
The Eleventh Circuit quickly disposed of the rest of the steps, which concerned whether Hartford had a conflict of interest and whether that conflict affected its decision, concluding that “Hartford had discretion to determine whether Stewart was eligible for benefits under its policy, and it exercised that discretion reasonably. Accordingly, we affirm the district court’s decision rejecting Stewart’s claim to disability benefits.”
The court then addressed Ms. Stewart’s claim for a disability waiver of premium under her life insurance benefit plan, and upheld Hartford’s denial of that claim as well. The court found that “the record shows that Stewart could sit for a couple of hours, stand for half an hour, and walk for half an hour. It also shows that while Stewart suffered from mild cognitive impairment, she retained the ability to perform less demanding tasks that didn’t require high-level analytical or organizational ability.” Thus, the court determined that Hartford was not “de novo wrong” when it concluded that Ms. Stewart could “perform less demanding sedentary work,” even if that work was only part-time.
This case serves as a stark reminder of the uphill battle ERISA claimants face when confronted with the abuse of discretion standard of review. Ms. Stewart proved to a federal appellate court’s satisfaction that her claim administrator had misread the policy, but that wasn’t enough. It is no surprise that state legislatures across the country have increasingly reacted to cases like this by prohibiting insurers from including discretionary authority provisions in their policies.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Breach of Fiduciary Duty
Second Circuit
Krohnengold v. N.Y. Life Ins. Co., No. 21-CV-1778 (JMF), 2022 WL 3227812 (S.D.N.Y. Aug. 9, 2022) (Judge Jesse M. Furman). Participants of two 401(k) plans sponsored by New York Life Insurance Company filed this putative class action against New York Life and its investment committee, alleging defendants “breached their fiduciary duties, engaged in prohibited transactions, and violated ERISA’s anti-inurement provision.” Specifically, plaintiffs alleged that the plans’ stable value fund default investment option and their inclusion of proprietary funds was improper given the challenged funds’ comparative underperformance and high costs. In their complaint, plaintiffs asserted that defendants’ mismanagement caused the plans to lose over $930 million. Defendants moved to dismiss under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). In this order, the court granted in part and denied in part the motion. The court agreed with defendants that four of the seven named plaintiffs lacked standing to bring their claims pertaining to the default investment option, because defendants were able to prove that those plaintiffs affirmatively selected to invest in the default investment option. Thus, the court dismissed, without prejudice, the claims of those four plaintiffs with respect to the default investment option. The remaining three plaintiffs’ contributions were instead automatically invested in the plan’s default investment option, conferring them with constitutional standing. Next, the court addressed whether plaintiffs adequately stated claims under Rule 12(b)(6) for breach of fiduciary duties, self-dealing, prohibited transactions, failure to monitor co-fiduciaries, and for a violation of ERISA Section 403(c)(1), the anti-inurement provision. While the court mostly found plaintiffs stated valid claims, the court dismissed plaintiffs’ claims with regard to the default investment option, finding they were time-barred because the plaintiffs who had standing to challenge the investment were defaulted into it more than six years prior to joining the lawsuit. The court also held that plaintiffs failed to plausibly allege a fiduciary duty claim based on one of their nine challenged proprietary funds because the allegations with respect to that one fund and its performance were determined to be too spare thus insufficient to state a claim. Finally, the court found the plaintiffs failed to state a plausible claim for violation of the anti-inurement provision. Second Circuit precedent holds that indirect benefits inuring to an employer are not sufficient to state a claim under Section 403(c)(1). As the complaint failed to allege more, including failing to allege any reversion or diversion of plan assets, the court held that plaintiffs did not plausibly state a claim under this provision. For all the claims that were dismissed, dismissal was without prejudice, and plaintiffs were granted leave to file an amended complaint to address the shortcomings.
Seventh Circuit
Placht v. Argent Trs. Co., No. 21 C 5783, 2022 WL 3226809 (N.D. Ill. Aug. 10, 2022) (Judge Ronald A. Guzmán). Plaintiff Carolyn Placht commenced this ERISA action individually and on behalf of a putative class of participants of the Symbria Inc. Employee Stock Ownership Plan in connection with the ESOP’s transaction in which all issued and outstanding shares of Symbria stock were purchased by the Plan and its Trust. Defendants are the ESOP’s trustee, Argent Trust Company, and the Selling Shareholders, which the court divided into two categories: the “management shareholders” and the “organizational shareholders.” In the transaction, the Plan paid $66.5 million for the Symbria shares “using the proceeds of a loan guaranteed by Symbria and a loan at 2.64% interest rate, from the Management Shareholders and Organizational Shareholders.” In her complaint, Ms. Placht asserted that the stock, which was not publicly traded, was revalued after the transaction as being worth between $7.8 million and $11 million. Therefore, Ms. Placht argued that defendants engaged in a prohibited transaction and breached their fiduciary duties failing to perform necessary due diligence in valuing the stock, by significantly overpaying for the stock, and by paying a control premium for Symbria without gaining control over the Board of Directors. Defendants filed three motions to dismiss. For all the motions, dismissal pursuant to Federal Rule of Civil Procedure 12(b)(1) was denied. The court, especially at this early stage of litigation, was satisfied that Ms. Placht alleged an injury in fact to confer her with standing. The court also denied defendant Argent Trust Company’s and the Management Shareholder defendants’ motions to dismiss pursuant to Rule 12(b)(6). The complaint with regard to these defendants was found to be facially plausible, to properly allege these defendants were fiduciaries, and sufficiently allege breaches of fiduciary duties and a prohibited transaction. However, the court granted the Organizational Shareholders’ motion to dismiss under Rule 12(b)(6). For these defendants, the court was not satisfied that the complaint sufficiently alleged facts indicating that the Organizational Shareholders were in fact fiduciaries during the ESOP transaction. Ms. Placht’s allegations that these defendants had the authority to appoint and remove the Trustee of the plan (the Board of Directors), because each was permitted to appoint a single board member, were not enough for the court to reasonably infer the Organization Shareholders were fiduciaries with discretionary authority or discretionary responsibilities, especially because these defendants were not themselves members of the board. The dismissal of the claims against the Organizational Shareholder defendants was granted without prejudice.
Class Actions
Fourth Circuit
Blenko v. Cabell Huntington Hosp., No. 3:21-0315, 2022 WL 3229968 (S.D.W.V. Aug. 10, 2022) (Judge Robert C. Chambers). The parties reached a settlement agreement totaling $5,694,500 in this class action pertaining to defendant Cabell Huntington Hospital, Inc.’s decision to curtail or terminate retiree health benefits. The parties jointly moved to certify a class for settlement purposes, approve the proposed class notice, primarily approve the settlement, and set the date for the fairness hearing. In this order the court did just that. First, the court examined the proposed class of 211 non-union retirees of Cabell Huntington Hospital whose healthcare benefits were reduced or cut under Federal Rule of Civil Procedure 23. Under Rule 23(a) the court was satisfied that the class is sufficiently numerous, defendant’s termination of the retirement medical benefits constitutes a common fact and creates common legal issues among the class, the named plaintiffs are typical of the other class members and were affected in the same way suffering the same injuries, and plaintiffs and their counsel (Sam B. Petsonk of Petsonk PLLC and Bren Pomponio and Laura Davidson of Mountain State Justice, Inc.) will adequately and fairly protect the class’s interests. Under Rule 23(b)(3) the court was convinced that “the class wide settlement provides a uniform resolution to the common claims in this matter regarding the same healthcare benefit plan.” For these reasons, the court granted the motion to certify class. Next, the court preliminarily approved of the settlement, finding it fair, reasonable, and adequate, and the product of informed arm’s length negotiations, which properly factored in the risk factors for each of the parties in continued litigation. The court also found the proposed attorneys’ fees of $994,900 (20% of the recovery) to be reasonable, especially as it means a recovery of nearly $19,000 for each class member. Finally, the court determined the proposed form of class notice (two rounds of individualized documents sent by U.S. Mail) to properly inform the class members of the essential information of the case and settlement and give each member the opportunity to appear at the hearing and to be excluded from the class should they choose. Thus, the motions before the court were granted and a date for the final approval hearing was set.
Fifth Circuit
Blackmon v. Zachary Holdings, Inc., No. SA-20-CV-00988-ESC, 2022 WL 3142362 (W.D. Tex. Aug. 5, 2022) (Magistrate Judge Elizabeth S. Chestney). Following a fairness hearing that took place in July, the court in this order granted final approval of a class action settlement. The class, defined as participants and beneficiaries of the Zachary Holdings, Inc. 401(k) Retirement Savings Plan during the class period, was found to satisfy the requirements of Rules 23(a) and (b)(1). Specifically, the court held that the class is sufficiently numerous, that common questions of law exist for the class as a whole, the claims of the class representatives are typical of the class, the class representatives adequately represented the interest of the class, and prosecution of separate actions would run the risk of inconsistent adjudications establishing incompatible requirements of conduct for the defendants. Thus, the court granted final approval to the class, and appointed Mr. Blackmon, Mr. Rozelle, Mr. Myers, and Mr. Munson as class representatives, and Capozzi Adler, P.C. and Miller Shah LLP as class counsel. Additionally, the court was satisfied that the class received proper notice of the settlement, the fairness hearing, and plaintiffs’ applications for attorneys’ fees, costs, and incentive awards. The amount of the settlement, $1,875,000, was found to be fair, reasonable, and adequate, and the result of an informed arm’s-length negotiation made in good faith. Allocation of the settlement was determined to be appropriate and reasonable. Finally, the court concluded that the requirements of the Class Action Fairness Act were all met. Accordingly, the causes of action in the suit were dismissed with prejudice in accordance with the releases and covenants not to sue outlined in the agreement, and the court entered final approval of the settlement.
Sixth Circuit
Green v. FCA U.S. LLC, No. 20-13079, 2022 WL 3153777 (E.D. Mich. Aug. 8, 2022) (Judge George Caram Steeh). This class action suit was brought by plaintiffs Gabriel Green and Valerie Hall-Green against their former employer FCA U.S. LLC and alleged that FCA failed to provide them and other similarly situated individuals with adequate notice of their rights under COBRA to continued health care coverage. The COBRA notices they did receive, they alleged, were not written in a manner that could be understood by the average plan participate in violation of ERISA. The parties engaged in mediation, reached a settlement totaling $600,000, and received the court’s preliminary approval of their proposed settlement. Notice of the proposed settlement was mailed to the 27,000 class members, reaching 98% of them. In this order, the court granted final approval of the class action settlement, and awarded attorneys’ fees, costs, and incentive awards. First, the court concluded that the class satisfies the requirements of Rule 23(a) and (b)(3). As nothing has changed since the court granted preliminary class certification, the court did not hesitate to grant final class certification. The court also concluded the settlement itself was fair, reasonable, and adequate. Turning to the award of class representative incentive awards, the court expressed its hesitancy at awarding the requested $5,000 to each of the two named plaintiffs. Because the remaining class members are expected to receive a net payment of only $10.40 each, the court decided that an award of $1,000 to each of the named plaintiffs more fairly aligns their interests with those of the rest of the class, while still adequately compensating them for their time and effort. The court did not, however, reduce the requested $200,000 in attorneys’ fees, representing one third of the total settlement, nor the $6,549 in litigation costs. The court was satisfied that plaintiffs’ counsel, who took the case on a contingent fee basis, demonstrated skill and expertise warranting the full award of the requested fees. As for the costs, which consisted of the mediator’s fee, filing fee, and service fees, the court found that they were reasonable and sufficiently documented.
Ninth Circuit
Draney v. Westco Chemicals, Inc., No. 2:19-cv-01405-ODW (AGRx), 2022 WL 3227849 (C.D. Cal. Aug. 10, 2022) (Judge Otis D. Wright, II). In this order the court denied the parties’ amended motion for preliminary approval of a $500,000 settlement and certification of class in this case pertaining to breaches of fiduciary duties and other violations of ERISA in connection with the Westco Chemicals Inc. 401(k) Plan. In denying the motion the court homed in on a perceived central problem – the proposal lacks a way to provide class members the option of opting out of the class, and the “non-opt-out nature of the settlement generates due process concerns.” To begin, the court expressed in strong tones that the class as proposed without the opportunity for members to opt out does not satisfy the requirements of Rule 23(b)(3), and certification under Rule 23(b)(1) or (b)(2) is not appropriate given the individualized monetary nature of the settlement as opposed to monetary relief for the plan as a whole. The court was not persuaded by plaintiffs’ argument that class certification under 23(b)(1) is appropriate because it prevents the risk of multiple judgments creating incompatible standards of conduct for defendants. “The risk of establishing incompatible standards of conduct refers to more than the chance that one individual’s claim might have precedential effect on another individual’s claim.” To the court, the incompatible standards of conduct principle refers instead to a situation where different rulings from different courts “impair the opposing party’s ability to pursue a uniform continuing course of conduct.” Ordering a party to pay monetary damages to one plan participant but not to another does not create such a conflict, and not all class actions “are categorically appropriate for Rule 23(b)(1)(A) certification.” In the next section of the decision, the court expressed its concerns over requiring class members to accept the settlement because “an individual employee whose account lost tens of thousands of dollars over the years might not be satisfied with a settlement that is around 30% lower than what the employee might have obtained individually.” Finding that the current non-opt out class fails “to comport with both the Rules and constitutional dues process,” the court rejected the settlement and denied the motion for preliminary approval.
Discovery
Seventh Circuit
Walsh v. Alight Sols., No. 21-3290, __ F. 4th __, 2022 WL 3334450 (7th Cir. Aug. 12, 2022) (Before Circuit Judges Easterbrook, Rovner, and Brennan). The U.S. Department of Labor opened an investigation of defendant Alight Solutions, one of the country’s top third-party plan administrators, after discovering cybersecurity breaches at the company which resulted in unauthorized distributions of plan assets. The Department is looking into whether Alight failed to report, disclose, and restore those unauthorized distributions. As part of the Department’s investigation, it issued an administrative subpoena. Although Alight has produced some of the documents in relation to the subpoena, it has objected to much of the subpoena’s requests. In the district court, the Department’s motion to enforce the subpoena was granted, with some modifications. Alight appealed that decision, arguing that the Department lacks the authority to investigate it as it is not a fiduciary under ERISA. Alight argued the Department also lacks the authority to investigate cybersecurity breaches in general. Alight further argued that the subpoena’s demands are unduly burdensome and compliance with the subpoena would take “thousands of hours of work.” Finally, Alight argued that the district court erred when it denied Alight’s request for a protective order on certain documents it considers sensitive. The Seventh Circuit rejected Alight’s arguments and affirmed the position of the lower court. In reaching that decision, the Seventh Circuit was disinclined to issue a ruling that would undermine the Department’s “regulatory oversight.” It stated that Alight’s interpretation of the Department’s investigatory powers as being limited only to fiduciaries would create a loophole through which fiduciaries could “avoid liability altogether by outsourcing recordkeeping and administrative functions to non-fiduciary third-parties.” Accordingly, the appeals court agreed with the lower court that DOL has the power to investigate these cybersecurity breaches, whether or not a violation has occurred, and whether or not Alight is a fiduciary under ERISA with respect to those breaches. In response to Alight’s arguments over what it finds to be the overly burdensome and indefinite nature of the subpoena, the court expressed that the subpoena’s terms are clear, not indefinite, that Alight did not argue the documents lack reasonable relevancy to the investigation, and that Alight failed to provide necessary detail to support its burden argument. With regard to the thousands of hours of work Alight believes compliance will require, the court stated that if it were to believe Alight’s estimate, compliance would be “an admittedly cumbersome task,” but then theorized that “Alight’s estimates may be high because it increased its own burden of production by redacting many documents it produced – a practice the district court later disallowed.” In the order’s final section, the Seventh Circuit concluded the district court did not abuse its discretion in denying Alight’s request for a protective order and the lower court’s logic in favor of transparency under the guidance of the Freedom of Information Act was not in error. Though the Seventh Circuit agreed with Alight that the information in question is sensitive, it found Alight failed to show how disclosure to the Department “would result in the information being revealed to a third party.” Finally, the Seventh Circuit stressed that “the Department’s cybersecurity investigation directly implicates this information.” For these reasons, Alight’s appeal was unsuccessful.
Ninth Circuit
L.D. v. United Behavioral Health, No. 20-cv-02254-YGR (JCS), 2022 WL 3139520 (N.D. Cal. Aug. 5, 2022) (Magistrate Judge Joseph C. Spero). Plaintiffs are participants in ERISA-governed healthcare plans insured and administered by defendants UnitedHealthcare Insurance Company and United Behavioral Health who brought this putative class action asserting claims under ERISA and RICO. In their complaint, plaintiffs allege that United utilized defendant MultiPlan, Inc., a cost-management company, to fraudulently reprice and reduce claims they pay to providers, specifically out-of-network behavioral health providers. The parties have filed joint discovery and supplemental discovery letters in which they outlined their privilege disputes. A hearing on plaintiffs’ motion to compel was held, and in this order the court ruled on legal issues related to the disagreement over privilege both for documents United sought to “claw back” and documents that United withheld. The parties disputed whether United properly sought to retrieve these documents under attorney-client privilege, or whether the fiduciary exception applies to the documents requiring the court to come to the opposite conclusion. Plaintiffs characterized the documents United sought to claw back as not seeking or supplying legal advice, arguing instead that “they are primarily for the purpose of giving or receiving business advice.” Plaintiffs objected to United’s assertion “that the process of underpaying claims does not implicate plan administration or their fiduciary duties.” United argued that the documents at issue avoid the fiduciary exception because they discuss the possibility of litigation. In response, plaintiffs stressed that the heart of the litigation centers around allegations of fraudulent underpayments and the programs “that are the basis for United’s privilege assertions are the subject of their RICO claims and fall under the crime-fraud exception to attorney-client privilege,” and none of the documents “were prepared specifically for litigation.” With regard to the privilege logs of the withheld documents, plaintiffs felt the assertions of privilege were lacking required details and descriptions. In plaintiffs view, United was using pretextual attorney-client privilege claims “to shield business discussions from discovery.” Plaintiffs also claimed that documents were mislabeled and misrepresented as privileged. The court for its part agreed that the privilege logs were insufficient for it “to determine, even on a general level, the type of legal advice being sought,” and the generic term “strategic legal planning” used by United was wanting. The court quoted itself from its earlier Wit decision, stating, “in the class action context…an approach that focuses too heavily on litigation exposure without requiring a showing that advise was actually sought for defensive purposes undermines the principles that the fiduciary exception is designed to protect.” Recognizing that “virtually any policy or guideline may, at some point, be the subject of litigation” the court was unwilling to allow United to invoke the possibility of litigation as a way to avoid the fiduciary exception altogether. Thus, the court ordered United to review all the documents in dispute, produce all non-privileged documents under the court’s issued guidance, and produce new privilege log and supplemental declarations in support of privilege for the documents it still believes to be properly withheld. The court also reviewed the clawback documents, and with a few minor exceptions concluded that they could not properly be withheld on the basis of privilege.
Ninth Circuit
Zimmerman v. The Guardian Life Ins. Co. of Am., No. 21-cv-03346-YGR (TSH), 2022 WL 3223980 (N.D. Cal. Aug. 10, 2022) (Magistrate Judge Thomas S. Hixson). Federal law of privilege and state laws of privilege are often at odds. So “what is a litigant supposed to do when a given document is not privileged under federal law and thus seems to be discoverable with respect to the federal claims, but is privileged under state law and thus seems to be nondiscoverable as to the state claims,” which is the situation in this case. What indeed? In this decision, the court found its answer under Ninth Circuit law: because defendant The Guardian Life Insurance Company of America conceded that the information in dispute (communications between Guardian’s in-house counsel and its claims department) is relevant to both the federal ERISA claims as well as the state law claims, “federal privilege law – and only federal privilege law – applies.” Holding otherwise would create a impractical and paradoxical situation in which documents are “both privileged and nonprivileged at the same time in the same lawsuit.” Thus, the fiduciary exception to attorney-client privilege compelled the court to order Guardian to produce the disputed communications in unredacted form.
ERISA Preemption
Ninth Circuit
Wagoner v. First Fleet Inc., No. CV-22-00990-PHX-JAT, 2022 WL 3213266 (D. Ariz. Aug. 8, 2022) (Judge James A. Teilborg). Plaintiff Gary L. Wagoner is a chiropractor who has been assigned benefits from a patient covered under an ERISA-governed healthcare plan. Mr. Wagoner sued the insurance company First Fleet Inc. in state court asserting state law claims of breach of contract, unjust enrichment, and a violation of Arizona insurance law seeking payment for medical services provided. The case was removed to the District of Arizona. First Fleet has now moved to dismiss for failure to state a claim, arguing the state law causes of action are preempted by ERISA. The court granted the motion and agreed with First Fleet that the claims relate to and affect the administration of the ERISA-governed plan. Despite finding the claims preempted, the court granted Mr. Wagoner leave to amend his complaint to replead his claims under ERISA. Additionally, First Fleet moved to strike Mr. Wagoner’s responsive briefing, which referenced settlement negotiations. The court denied the motion to strike given the Ninth Circuit’s preference in favor of public records, and the lack of any compelling reasons to seal the information from the record. However, the court agreed with First Fleet that the settlement negotiations could not be a part of its consideration of the merits of the motion to dismiss and clarified that it did not consider the negotiations in that capacity.
Exhaustion of Administrative Remedies
Eleventh Circuit
Baker v. Am. Teleconferencing Servs., No. 1:22-CV-30-TWT, 2022 WL 3212335 (N.D. Ga. Aug. 8, 2022) (Judge Thomas W. Thrash, Jr.). Plaintiffs are employees of defendant Premiere Global Services, Inc. who were involuntarily laid off last September. Plaintiffs brought this ERISA suit seeking among other things payment of severance benefits they assert they were eligible for and entitled to upon termination. The Premiere defendants moved to dismiss plaintiffs’ claim for benefits. Plaintiffs requested that the court find defendants’ motion to dismiss moot. Both motions were granted in part and denied in part. Arguing in favor of dismissal, defendants stated that plaintiffs’ claim for unpaid severance benefits was premature for failure to exhaust administrative remedies. Plaintiffs, arguing in favor of their motion, attached a letter from the HR Resources Officer of Premiere explaining that defendants “construed a settlement demand letter sent by Plaintiff’s counsel as initiating the administrative claims process for severance benefits,” and which went on to conclude that all but one of the named plaintiffs “are entitled to severance benefits.” Despite receiving an extension of time to respond to plaintiff’s motion, the Premiere Defendants never responded. Thus, the court concluded that the motion to dismiss was moot with respect to each of the named plaintiffs apart from Paula Reese, the only named plaintiff not found to be entitled to severance benefits in the HR representative’s letter. Because it is clear that Ms. Reese has not fully exhausted her administrative appeals process, the motion to dismiss was granted regarding Ms. Reese. The court did, however, allow Ms. Reese leave to amend her complaint to plead exhaustion, should she wish to do so.
Medical Benefit Claims
Ninth Circuit
Doe v. Blue Shield of Cal., No. 21-cv-02138-RS, 2022 WL 3155158 (N.D. Cal. Aug. 8, 2022) (Judge Richard Seeborg). Plaintiff John Doe sued Blue Shield of California under ERISA seeking payment of benefits for his daughter’s stay at an in-network residential treatment center, Avalon Hills, for care of her eating disorder which was denied by the insurer as not “medically necessary.” In this order, the court concluded that the denial of benefits for Ms. Doe at the program for her stay beyond the four-week period that Blue Shield paid for was an abuse of discretion. Before Ms. Doe’s stay at Avalon Hills, she had been treated in intensive outpatient, partial hospitalization, and inpatient hospitalization settings, and had experienced suicidal and other self-harm thoughts. Her providers at Avalon Hills upon speaking with Blue Shield expressed that Ms. Doe required continued care at the inpatient treatment level because she could not at the time “manage the most basic person need, eating” and “left to herself, (Ms. Doe) would return to restrictive eating.” Ms. Doe’s treating nurse practitioner outlined the potential dangers of reducing Ms. Doe’s care at the time and stated that “there is a high likelihood of relapse with potential associated morbidity and/or mortality.” Despite this, Blue Shield’s denial letter expressly stated that Ms. Doe was “not a danger to (herself) or others.” In outlining why the denial was an abuse of discretion, the court began by stating that the denial letter was inappropriately “barebones,” as it failed to discuss or reference the medical records and “provided no basis for its conclusion such that Jane was ‘not a danger’ to herself or others and that Jane was ‘cooperative’ in her treatment.” The court saw the denial letter as little more than “a recitation of conclusions, with next to no information about how it arrived at those conclusions.” Beyond the problems with the denial letter, the court also objected to Blue Shield ignoring and failing to have a dialogue with the opinions of Ms. Doe’s treating providers. The record, the court stated, appeared to contradict the denial letter, because as described above the providers believed that Ms. Doe was potentially in danger at lower levels of care. Blue Shield seemed also to ignore Ms. Doe’s past medical history including her stays at other inpatient and outpatient programs. Finally, the court’s decision addressed Blue Shield’s conflict of interest which it viewed as “draped over this entire landscape of errors and omissions.” Given that conflict, the court weighed the fundamental problems within the denial “even more heavily.” For these reasons, the court granted judgment in favor of plaintiff for the period of time assessed in Blue Shield’s denial and remanded to Blue Shield for determination of benefits for the remaining period of Ms. Doe’s stay that was paid for out of pocket. Plaintiff was represented in this suit by our colleague Elizabeth Green at Kantor & Kantor.
Tenth Circuit
Ian C. v. United Healthcare Ins., Co., No. 2:19-cv-474, 2022 WL 3279860 (D. Utah Aug. 11, 2022) (Judge Howard C. Nielson, Jr.). Plaintiffs Ian C. and A.C. sued United Healthcare Insurance seeking benefits for mental health and substance abuse disorder treatment at a residential treatment center. The parties cross-moved for summary judgment on the claim for benefits. To begin, the court addressed the appropriate standard of review. Concluding that United substantially complied with ERISA’s requirements in its denial letters, and because of the plan’s discretionary clause, the court reviewed the denial under the deferential arbitrary and capricious standard. For several reasons, the court was convinced that the denial was not an abuse of discretion. First, the court held that the record contradicts plaintiffs’ argument that the denial only addressed A.C.’s mental health disorders and not A.C.’s substance abuse. Contrary to plaintiffs’ assertion, United had substantial evidence that A.C.’s substance abuse had improved by the time of the denial, and United’s reviewer expressly noted A.C.’s substance abuse during the review. Next, the court found that substantial evidence within the record supported United’s conclusion that A.C.’s treatment was not medically necessary as defined by the plan and United’s guidelines of “generally accepted standards of medical practice.” Nor did the court find that United disregarded the opinions of A.C.’s treating providers or failed to engage in a meaningful dialogue with those providers. To the court, the record indicated the opposite. Finally, the court was satisfied that United appropriately articulated how it applied the plan terms and the medical guidelines it utilized in the denial letters it sent to plaintiffs. Thus, the court granted summary judgment in favor of United and denied summary judgment to plaintiffs.
Pleading Issues & Procedure
First Circuit
Diaz v. MCS Life Ins. Co., No. 21-1376 (ADC), 2022 WL 3227806 (D.P.R. Aug. 10, 2022) (Judge Aida M. Delgado-Colon). Plaintiffs are a family who had health insurance through a plan provided by Pep Boys, the employer of the father, plaintiff Carlos M. Suarez Diaz. One of the plaintiffs, Karelis Suarez-Colon, Carlos’s daughter, was diagnosed with a cancerous tumor in her head which required surgery. Before the surgery could take place, Carlos was informed that his insurance coverage was cancelled. Eventually all the members of the family except for Karelis had their insurance coverage reactivated, meaning her surgery had to be postponed. After Carlos obtained another health plan for his daughter, the surgery eventually took place. Plaintiffs commenced this suit in the Commonwealth of Puerto Rico Court of First Instance, asserting claims of contractual and tort damages under Puerto Rico law. Defendants removed the case to federal court, claiming the causes of action asserted in the complaint are preempted by ERISA. Plaintiffs never appeared before the federal district court. Defendants have now moved to dismiss. Agreeing that the claims are preempted by ERISA and given the fact that the motions to dismiss were unopposed, the court granted the motions. In particular, the court found that the plan is governed by ERISA and the state law claims naturally relate to the plan and its administration. Additionally, the court agreed with defendant Pep Boys that the complaint fails to address whether plaintiffs failed to exhaust administrative remedies prior to filing suit, and also fails to allege that exhaustion would have been futile. Finally, the court expressed that even reading the complaint in plaintiffs’ favor it could not find that plaintiffs stated a plausible claim under ERISA against defendant MCS Life Insurance Company. For these reasons the complaint was dismissed. Dismissal was without prejudice.
Fifth Circuit
Theriot v. Bldg. Trades United Pension Tr. Fund, No. 18-10250, 2022 WL 3214451 (E.D. La. Aug. 8, 2022) (Judge Lance M. Africk). In this suit plaintiff Deborah Theriot sued The Building Trades United Pension Trust Fund after the fund refused to honor her mother’s request to convert her pension payments from monthly installments to a lump-sum shortly before her death. After giving Ms. Theriot an opportunity to address defendant’s arguments in favor of dismissing her Section 510 retaliation claim, the court in this order granted defendant’s motion and dismissed the claim with prejudice. The court stated that it could not discern an appropriate basis for monetary equitable relief with respect to the retaliation claim, and thus agreed with defendants that Ms. Theriot had failed properly state a claim upon which relief could be granted under Rule 12(b)(6).
Seventh Circuit
Walsh v. Fensler, No. 22 C 1030, 2022 WL 3154182 (N.D. Ill. Aug. 8, 2022) (Judge Elaine E. Bucklo). Secretary of Labor Martin J. Walsh brought this suit against fiduciaries of the United Employee Benefit Fund Trust for breaches of their duties and participating in prohibited transactions by using Fund assets inappropriately and in a self-dealing manner, resulting in losses to the Fund. Defendants moved to dismiss in three motions before the court. Secretary Walsh moved to strike the affirmative defenses of two of the non-moving defendants. In this order the court denied all the motions to dismiss and granted the motion to strike. To begin, the court held that it has sufficient subject matter jurisdiction over the case. The court rejected defendants’ arguments that the Fund at issue is excluded from ERISA’s definition of a multi-employer welfare arrangement on the basis that it was established pursuant to a collective bargaining agreement. In fact, the court stated that the complaint makes clear that although the Fund “holds itself out as a voluntary employees’ beneficiary association trust under a collectively bargained, multi-employer plan,” the Fund in fact operates as a multi-employer plan comprising ERISA-governed participating plans. The court went on to express that the complaint sufficiently alleges that defendants are functional fiduciaries who had knowledge of the wrongdoing alleged. Finally, the court concluded that under the Twombly/Iqbal pleading standard, the Secretary’s complaint adequately states actionable ERISA claims. As for the Secretary’s motion to strike the affirmative defenses, the court concluded that the Secretary’s actions were timely filed under the limitation periods that defendants cited, and agreed with the Secretary that defendants’ contention that superseding/intervening causes caused the losses to the Fund was not an affirmative defense at all, but instead a merits argument. For these reasons, the motions to dismiss were denied and the motion to strike was granted.
Ninth Circuit
Raya v. Barka, No. 19-cv-2295-WQH-AHG, 2022 WL 3161680 (S.D. Cal. Aug. 8, 2022) (Judge William Q. Hayes). In July, Your ERISA Watch summarized the court’s decision in this case denying plaintiff Robert Raya’s motion for reconsideration in which Mr. Raya argued that he was a plan participant with standing to sue under ERISA. Mr. Raya moved for a second time for the court to reconsider its earlier position. Once again, the court held that the existence of a plan amendment executed in 2008 excludes Mr. Raya from the class of employees eligible for participation in the plan, and that no new evidence or manifest injustice compels it to overturn its summary judgment order in favor of defendant.
Eleventh Circuit
Perras v. The Coca-Cola Co. of N. Am., No. 21-13908, __ F. App’x __, 2022 WL 3269970 (11th Cir. Aug. 11, 2022) (Before Circuit Judges Wilson, Brasher, and Anderson). In a summary judgment ruling, the district court entered judgment in favor of the Coca-Cola Company on pro se plaintiff/appellant David Perras’s Section 502(a)(3) breach of fiduciary duty claim. Mr. Perras argued that the Coca-Cola Company fraudulently represented that Mr. Perras was no longer entitled to long-term disability benefits due to an administrative error. In front of the district court and on appeal, Mr. Perras argued that under the terms of the plan he was entitled to continued benefits and sought relief from the judgment under Federal Rule of Civil Procedure 60(b)(3). The district court in its order “concluded that Perras had provided ‘nothing’ in support of the fraud allegations” and denied his motion for relief from the judgment. On appeal, Mr. Perras sought to overturn that ruling, and claimed that relief from judgment was warranted under Rule 60(a) because he failed to upload several exhibits into the district court record which he claimed proved that he was entitled to benefits. The Eleventh Circuit affirmed the lower court’s decision because Mr. Perras failed to raise this clerical mistake issue with the court, and because the court had not abused its discretion. The Eleventh Circuit agreed with the district court that none of Mr. Perras’s arguments proved that Coca-Cola’s explanation of what had occurred was fraudulent or that its explanation “prevented Perras from fully presenting his case.”
Remedies
Tenth Circuit
Jonathan Z. v. Oxford Health Plans, No. 2:18-cv-00383-JNP-JCB, 2022 WL 3227909 (D. Utah Aug. 9, 2022) (Judge Jill N. Parrish). On July 7, the court ruled on the parties’ cross-motions for summary judgment in this suit for mental health care benefits. As Your ERISA Watch summarized at the time, the court found the denial of benefits was not de novo wrong and granted summary judgment in favor of defendant Oxford Health Plans on the Section 502(a)(1)(B) claim. However, the court also concluded that the plan was in violation of the Mental Health Parity and Addiction Equity Act by applying more stringent qualifications for coverage of mental health care than for analogous physical medical care. That decision ended with the court ordering the parties to submit supplemental briefing on equitable relief related to those violations. The parties did so, and in this order the court weighed in on their arguments. Although the court recognized the difficulties plaintiffs face obtaining relief from Parity Act violations, and the fact that Congress’s intent in passing the Parity Act was to address discriminatory practices in plan design and achieving parity between mental health and physical/surgical healthcare, the court ultimately concluded that the “basic legal principles regarding standing and mootness prohibit the court from entering a declaratory judgment here.” At the end of the day, plaintiffs could not overcome their lack of Article III standing. The court concluded that plaintiffs did not sustain a concrete injury as a result of the violations because the two portions of the Plan that were not in compliance with the Parity Act “did not control Oxford’s decision to deny benefits to Daniel Z.” Additionally, plaintiffs could not point to a credible threat of injury to establish standing for prospective relief either as plaintiff Jonathan Z. is no longer enrolled in any Oxford health plan, and plaintiff Daniel Z. is enrolled in a different Oxford health plan that is not subject to the violative language. For substantially the same reasons that plaintiffs could not establish standing for prospective relief, they also failed to prove that declaratory relief would settle the “controversy or determine any future rights or obligations.” Given these shortcomings, the court ultimately granted defendant’s motion for summary judgment on plaintiffs’ Parity Act claims and denied plaintiffs’ motion.
Retaliation Claims
Fourth Circuit
Duvall v. Novant Health Inc., No. 3:19-CV-00624-DSC, 2022 WL 3331263 (W.D.N.C. Aug. 11, 2022) (Judge David S. Cayer). Stemming from his termination in 2018, plaintiff David Duvall brought three claims against his former employer, Novant Health: (1) a claim under Title VII; (2) a claim for wrongful termination under North Carolina law; and (3) an ERISA interference claim under Section 510. A trial took place, with the jury returning a verdict in favor of Mr. Duvall and awarding him $10 million in punitive damages for Novant’s Title VII and state law violations. The parties filed a series of post-trial motions. In this order the court addressed the ERISA claim, not decided during the jury trial, and adjusted Mr. Duvall’s monetary awards. As for the Section 510 claim, the court denied Mr. Duvall’s summary judgment motion. Mr. Duvall’s interference claim was based on a severance policy from 2013. Mr. Duvall was a participant in Novant’s severance plan, and under the 2013 version of the plan participants’ tenure factored into their resulting benefits. Mr. Duvall was fired only a few days before his fifth year at Novant. The 2013 policy included a significant fifth-year severance enhancement and Mr. Duvall argued that his termination prevented him from receiving those enhanced benefits. However, there was a fundamental flaw in Mr. Duvall’s argument. Novant was able to prove that it had in fact amended the plan in writing in 2015, and under the 2015 version tenure was immaterial to Mr. Duvall’s entitlement to severance benefits. “The fact that Plaintiff was covered under Defendant’s 2013 Policy does not entitle him to benefits when it was supplanted by the 2015 Policy. Plaintiff’s claim that Defendant acted unlawfully to deprive him of benefits is (thus) unsupported by the written terms of the 2015 Policy.” In addition to denying Mr. Duvall’s ERISA claim, the court also reduced the award of putative damages from the $10 million awarded by the jury to the $300,000 cap under Title VII, finding Mr. Duvall had not met the heightened standards for an award of punitive damages under North Carolina law. Finally, the court awarded Mr. Duvall $3,666,561 in backpay and $1,078,066 in front pay, concluding reinstatement would be inappropriate in this case given the parties’ hostility to one another.
Venue
Ninth Circuit
Fred G. v. Anthem Blue Cross Life & Health Ins. Co., No. 22-cv-01259-RS, 2022 WL 3227127 (N.D. Cal. Aug. 10, 2022) (Judge Richard Seeborg). Plaintiff Fred G. is a participant of the Directors Guild of America Producer Health Plan, who has sued the Plan and Anthem Blue Cross Life & Health Insurance Company for payment of claims for his son’s stay at a residential treatment center for mental health care and for breach of fiduciary duties. The Plan filed a motion to dismiss, or in the alternative, to transfer venue. Anthem remained neutral on the motion to transfer, not weighing in one way or another. In this order, the court granted the motion to transfer the case to the Central District of California, concluding that the Northern District of California is not a proper venue under ERISA Section 502(e), and the litigation has little connection with the Northern District of California. Specifically, the court held (1) that there was little evidence that the Plan “purposefully conducted activities in the Northern District,” (2) fewer than 1% of plan participants live in the Northern District of California, (3) the claim does not arise out of or result from the Plan’s “forum-related activities,” (4) plaintiff does not live in the Northern District, and (5) the absence of connection between the suit and the Northern District means the reasonableness prong of specific jurisdiction is not satisfied. Finding outright dismissal not warranted in this instance, especially because venue is proper for the other defendant in the case, Anthem, the court instead transferred venue for the case as a whole to the district in which the case should have been brought. Accordingly, the case will proceed in the Central District of California.
Withdrawal Liability & Unpaid Contributions
Sixth Circuit
Operating Engrs’ Local 324 Fringe Benefit Funds v. Rieth-Riley Constr. Co., No. 21-1229, __ F. 4th __, 2022 WL 3147929 (6th Cir. Aug. 8, 2022) (Before Circuit Judges Clay, Donald, and Nalbandian). Operating Engineers Local 324 Fringe Benefit Funds sued a construction contractor, Rieth-Riley Construction Company, under Section 515 of ERISA and Section 301 of the Labor Management Relations Act after the employer missed required contributions, seeking an order from the district court compelling an audit and requiring the employer to pay any delinquent contributions. In the district court, Rieth-Riley argued that the court lacked subject-matter jurisdiction because no live contract bound the parties after the collective bargaining agreement (“CBA”) between them had expired. Reith-Riley therefore argued that the National Labor Relations Board had exclusive jurisdiction to resolve the dispute. The Funds held the opposite opinion, arguing their claim was rooted in contract, not statute, as “the parties implicitly had agreed to revive the expired CBA…(and) even if they hadn’t…independent agreements continued to bind the parties.” Finally, the Funds expressed that in its view whether or not a live contract existed is a merits issue, not one that went to the district court’s subject-matter jurisdiction. In the district court, Rieth-Riley’s arguments prevailed. The court agreed that the source of the contribution obligation was “an essential jurisdictional fact.” Since the CBA had expired and parties had not entered into a new contract, the lower court concluded that Rieth-Riley’s duty arose solely from its statutory status quo obligation found in the National Labor Relations Act. The court accordingly dismissed the case without prejudice. The Funds appealed to the Sixth Circuit. On appeal, the Sixth Circuit concluded that district court had erred in holding that it lacked jurisdiction to hear the case. Instead, the appeals court agreed with the Funds that the question of whether a live contract between the parties exists goes to the merits not jurisdiction. Accordingly, Rieth-Riley’s factual attack on the district court’s jurisdiction was reversed. “In the end, the Funds’ contract claims may fall flat for the reasons the district court gave,” but thanks to the Sixth Circuit, the end has not yet come.