Smith v. UnitedHealth Grp., No. 23-2369, __ F. 4th __, 2024 WL 3321646 (8th Cir. Jul. 8, 2024) (Before Circuit Judges Colloton, Erickson, and Kobes)

Cross-plan offsetting is a controversial practice – sometimes referred to as “self-help” for third-party administrators of healthcare plans and, alternatively, “robbing Peter to pay Paul” – to which plan participants, healthcare providers, and the Department of Labor alike have objected. It is in the spotlight this week in an Eighth Circuit decision giving the green light to UnitedHealth Group Inc. (“United”) to utilize this practice, at least where it is expressly contemplated by the plan.

According to the Eighth Circuit, United administers both fully insured healthcare plans and self-funded plans and utilizes cross-plan offsetting with respect to both types of plans to recoup claimed overpayments to medical providers. It does so by offsetting the amount due to that provider after a participant in any United-administered healthcare plan obtains services from that medical provider. In other words, if United later decides that it as overpaid a provider with respect to medical benefits for a participant in Plan A, it reduces the amount it pays that provider for medical services to a participant in Plan B.  

Plaintiffs Rebecca Smith and Cristine Ghanim were participants in two separate self-funded healthcare plans, each of which had provisions in the governing summary plan description expressly permitting United to recoup overpayments through cross-plan offsets and delegating to United discretion in deciding how to implement cross-plan offsets. After both plaintiffs underwent medical procedures covered under their plans, United decreased the amount it paid to the providers for these procedures by several thousand dollars, claiming that it had previously overpaid these providers for services to other participants in other plans. Ms. Smith and Ms. Ghanim claimed they were liable to their providers for the unpaid amounts and that decreasing the amount it paid to their providers benefited United in a direct financial sense. They brought suit claiming that United violated its duties of prudence and loyalty as an ERISA fiduciary through these cross-plan offsets.    

The district court determined that neither plaintiff had suffered a concrete injury from the cross-plan offsets, and that both therefore lacked constitutional standing to assert the ERISA fiduciary breach claims. The Eighth Circuit agreed in a decision as short as it is hard to follow.

Citing an earlier Eighth Circuit decision, Mitchell v. Blue Cross Blue Shield of North Dakota, 953 F.3d 529 (8th Cir. 2020), Ms. Smith and Ms. Ghanim asserted that they suffered a similar concrete injury. In Mitchell, the Eighth Circuit held that healthcare plan participants had a constitutionally-cognizable injury when their providers were underpaid plan benefits to which the participants were contractually entitled regardless of whether the healthcare provider charges the participants for the balance of the bill. The court, however, found Mitchell distinguishable because unlike the plaintiffs in Mitchell, Ms. Smith and Ms. Ghanim “do not allege a breach of contract as they are not contractually entitled to having a payment of approved benefits be made in cash.” To the contrary, according to the court, Ms. Smith and Ms. Ghanim “recognize that their plans explicitly delegate to United the discretion to implement cross-plan offsetting.”

The court similarly distinguished Carlsen v. GameStop, Inc., 833 F.3d 903 (8th Cir. 2016), reasoning that “in that case there was a breach of contract while the plans here specifically allow for cross-plan offsetting.” In the court’s view, the plaintiffs’ claim that the plan language must be read consistently with ERISA asserted only a statutory claim and not a breach of contract and, as such, was not sufficient to establish an injury for Article III purposes.

Finally, the court rejected the plaintiffs’ argument that their liability to their providers for the unpaid balance of their bills constituted a sufficient injury for Article III purposes. In the court’s view, plaintiffs’ asserted liability amounted to a mere risk of future harm. Because the injunctive relief plaintiffs sought against United would not prevent the medical providers from collecting on their unpaid debts, the Eighth Circuit held that this claimed basis for constitutional standing also failed.    

Breach of Fiduciary Duty

Eighth Circuit

Shipp v. Cent. States Mfg., No. 5:23-CV-5215, 2024 WL 3316303 (W.D. Ark. Jul. 5, 2024) (Judge Timothy L. Brooks). Three retired employees of Central States Manufacturing who participate in the company’s Employee Stock Ownership Plan (ESOP) accuse the company, its board of directors, and GreatBanc Trust Company of breaching their fiduciary duties owed to the plan and its participants under ERISA in this putative class action lawsuit. Plaintiffs allege that defendants conducted two transactions that collectively negatively impacted the value of their ESOP shares. The first event occurred in August 2020, when Central States took out a bank loan for $40 million, which it then spent to redeem 2.2 million shares of company stock owned by retired ESOP participants. Instead of retiring these shares after redeeming them, the company placed them back into circulation to fund future contributions to employee retirement accounts. In December 2020, the company conveyed the 2.2 million redeemed shares to the ESOP in exchange for the plan issuing the company a promissory note of $40 million to be repaid over 30 years. These shares received by the ESOP were then retained in a suspense account and would gradually be released and made available for the ESOP retirement accounts as the loan was repaid overtime. Plaintiffs allege that this second transaction significantly diluted and diminished the value of the plan’s existing stock and saddled the plan with unnecessary debt, causing major financial harm. Central States justifies these transactions by arguing that they were done because of legitimate business concerns over “a looming financial crisis” from the payoff process to retirees which they projected could create a cashflow problem for the company or even cause it to go into bankruptcy. Central States argued that under Eight Circuit precedent a company need not make normal business decisions in the interest of plan participants even when those decisions have a collateral effect on employee benefits. Plaintiffs, however, suggest that defendants could have taken many other alternative paths to address their alleged financial concerns which would not have harmed plan participants in the same way. The path defendants did take, plaintiffs allege, was imprudent, disloyal, and put their own interests ahead of those of the plan participants, in violation of ERISA. Defendants moved to dismiss the action, for lack of standing and for failure to state claims. Their motions were denied by the court. First, the court concluded that plaintiffs plausibly alleged that the ESOP overpaid for the new shares it purchased, causing an injury to the plan and to its participants whose shares were diluted. Accordingly, it found plaintiffs had standing to assert their claims. Second, the court disagreed with defendants that plaintiffs needed to exhaust their administrative remedies before bringing suit, declaring plaintiffs’ claims were ripe for adjudication. Finally, the court was satisfied that the complaint plausibly stated claims for breaches of fiduciary duties under ERISA, and expressed that defendants’ arguments to the contrary were fact questions not properly resolved under Rule 12(b) analysis. “Though Defendants contend that the price of shares and the value of the promissory note were both properly calculated and clearly in the best interests of the ESOP and its participants, the Amended Complaint plausibly alleges otherwise.” For these reasons, the court denied both motions to dismiss and ordered defendants to file their answers to the amended complaint.

Class Actions

Fourth Circuit

Frankenstein v. Host Int’l, No. 20-1100-PJM, 2024 WL 3362435 (D. Md. Jul. 10, 2024) (Judge Peter J. Messitte). One of the many benefits of 401(k) plans to employees is that plan participants may make pretax retirement contributions. One of the downsides of 401(k) plans though, especially for low-wage employees, is that they require individuals to prioritize future savings over cash income today, a tradeoff that many people are simply not in the financial position to make. These two truths about defined-contribution retirement plans were in conflict with one another in this interesting putative ERISA class action. Your ERISA Watch has not covered this case in some time. Our last reporting on this lawsuit was in March, 2021, when we summarized the court’s order denying defendants’ motion to dismiss. To refresh your memories, this action involves the HMSHost 401K Retirement Savings Plan. Plaintiff Dan Frankenstein is a participant in the plan and an employee of Host International, Inc. Specifically, Mr. Frankenstein is a bartender at an airport in California, who works for both wages and tips. The plan includes participants who work for tips as well as those who do not. It also has some participants who are union members and some who do not belong to a union. As relevant here, Host’s policy around tips, due to its practice paying tipped employees their credit card tips in cash at the end of each workday, prevents employees from deferring these earnings on a pretax basis. The court expressed its understanding of the dilemma as follows, “[f]or a two week pay period, assume that Plaintiff earned $500 in regular wages, received $500 in reported tips, has $200 in tax withholdings, and elected to defer 75% of his Compensation into his 401(k) account. His compensation for the two-week pay period would be $1,000 and his 401(k) deferral would be $750. However, since he [already] received $500 of his Compensation in tips…his paycheck includes $500 in regular wages only. Deduct from that amount $200 in taxes, which leaves only $300 to be deferred to Plaintiff’s 401(k) account. The remaining $450 would have to be contributed after-tax [through an arrears contribution] if Plaintiff chose to do so.” In this action, Mr. Frankenstein alleges that defendants’ refusal to permit tipped employees to defer their credit card tips on a pretax basis violates the terms of the plan and constitutes breaches of their fiduciary duties under ERISA Section 502. He further contends that defendants’ refusal to permit employees to defer credit card tips amounts to discrimination against tipped-employee plan participants in violation of Section 501(a), and that defendants’ decision to prevent pre-tax credit card tip deferrals is an arbitrary and capricious violation of Section 502(a)(1)(B). On March 11, 2022, Mr. Frankenstein filed the present motion to certify the proposed class of all current and former participants in the plan who received reported credit card tips as compensation outside their paycheck and had a deferral election in place at the time he or she received the reported tips. It’s taken over two years for the court to issue its decision on the motion. In this order the court denied the motion to certify. The problem is a class, like a union, needs to be united. And here, it seemed Mr. Frankenstein may be the only worker who desires the relief this litigation seeks. Pointedly, Mr. Frankenstein failed to identify a single individual other than himself who wants what he does. The court was broadly concerned about evidence and testimony that defendants supplied over widespread opposition, from both the workers and unions, about the company’s attempts to change tip payments to make them eligible for contribution to their retirement accounts on a pretax basis, and it found that defendants offered compelling evidence “that many of the members of Frankenstein’s proposed class are in fact ardently opposed to the relief he seeks.” This opposition ultimately posed a commonality issue, “since people are in different situations and some feel they’d be harmed by a modification that might go the way plaintiff would want to go.” It was this fundamental intraclass conflict which left the court unable to certify the class under Rule 23(a). Mr. Frankenstein for his part accused the defendants of “manufacturing” non-existent intraclass conflicts, and said that what the putative class members opposed was not the opportunity to make pretax deferrals with credit card tips, so much as defendants’ paycard system which took away their day-of cash wages, which many of the workers rely upon to make ends meet. But the court was not so convinced. In the court’s view, Mr. Frankenstein turned the class-certification inquiry “upside down” because “it is the plaintiff’s burden to prove that intraclass conflicts do not exist.” “To that end, the Court granted the parties leave to conduct class discovery until the future contemplated class-certification hearing might take place…which was held more than a year later. But when the time came for Frankenstein to present other ‘class proponents,’ quite simply, he brought forth none.” In light of this conflict, the court determined that defendants defeated Mr. Frankenstein’s bid for certification under Rule 23, and accordingly denied his motion to certify.

Disability Benefit Claims

Fourth Circuit

Penland v. Metro. Life Ins. Co., No. C. A. 8:21-3000-HMH, 2024 WL 3327366 (D.S.C. Jul. 8, 2024) (Judge Henry M. Herlong, Jr.). This disability benefits action was back before the district court on remand from the Fourth Circuit Court of Appeals after the appellate court reversed the district court’s June 22, 2022 summary judgment order affirming MetLife’s termination of long-term disability benefits to plaintiff Tracy Penland. The Fourth Circuit vacated that decision because of an intervening change in controlling law, which came about in its decision in Tekmen v. Reliance Standard Life Ins. Co., 55.4th 951 (4th Cir. 2022), favoring resolution of ERISA benefit disputes pursuant to Federal Rule of Civil Procedure 52 over summary judgment. Consistent with the instructions from the Fourth Circuit, the district court issued its findings of fact and conclusions of law pursuant to Rule 52 in this decision. Mr. Penland left his position as a procurement specialist for an automotive company in August 2015 and subsequently began receiving disability benefits. Mr. Penland suffers from many health conditions including gastrointestinal diseases, musculoskeletal ailments, a liver condition, mental health disorders, and chronic pain and sleep problems. Pursuant to the terms of the disability policy, several of Mr. Penland’s conditions were limited to maximum benefit payments of 24-months. MetLife maintains that non-limited conditions do not render Mr. Penland unable to earn more than 60% of his pre-disability earnings from any occupation to which he is reasonably qualified, and based its decision to discontinue benefits on this conviction. Ultimately, the court agreed with MetLife. Before it got there though, the court needed to resolve the parties’ dispute over the appropriate standard of review. MetLife argued that it was entitled to abuse of discretion review, while Mr. Penland contended that de novo review applies. The court sided with Mr. Penland, as the plan’s language requiring proof of disability satisfactory to MetLife was nearly identical to language that the Fourth Circuit found insufficient to unambiguously confer discretionary authority in a case before it in 2013, Cosey v. Prudential Ins. Co. of Am., 735 F.3d 161 (4th Cir. 2013). However, under de novo review the court was not convinced that Mr. Penland met his burden of proving his disability. The court found that Mr. Penland did not present objective evidence of radiculopathy, and that there was insufficient proof that his non-limited conditions prevent him from earning more than 60% of his pre-disability salary. The court stressed that it would not consider the effects of Mr. Penland’s limited conditions, rejecting the approach Mr. Penland argued in favor of considering the cumulative effects of both his limited and non-limited conditions. Thus, after having considered the entirety of the administrative record, the court found that Mr. Penland no longer satisfied the plan’s definition of disability as of the date of MetLife’s termination, and therefore affirmed MetLife’s decision. Accordingly, the court reached the same conclusion as it had in 2022, and entered judgment in favor of MetLife.

Eleventh Circuit

Rosenberg v. Reliance Standard Life Ins. Co., No. 23-13761, __ F. App’x __, 2024 WL 3385678 (11th Cir. Jul. 12, 2024) (Before Circuit Judges Wilson, Luck, and Anderson). Dr. Krista Rosenberg was part of a medical practice that provided disability insurance through an ERISA policy insured by Reliance Standard Life Insurance Company. The practice did not pay Dr. Rosenberg directly, but instead made payments to her Chapter S corporation. Sadly, Dr. Rosenberg developed a permanent and total disability and could no longer continue working. As a result, she filed a claim for disability benefits with Reliance. Reliance, however, denied her claim because Dr. Rosenberg’s income was paid to her corporation and not directly to her. In a denial letter that both the district court and the Eleventh Circuit would later say “borders on the absurd,” Reliance Standard determined that Dr. Rosenberg had no eligible earnings upon which to base a benefit in accordance with the plan and that she was therefore not entitled to disability benefits. Simply, and unsurprisingly, the district court and the Eleventh Circuit in this decision on appeal, agreed that “the only reasonable interpretation of the Policy is that Rosenberg’s ‘Covered Monthly Earnings’ includes her ‘compensation from the partnership’ notwithstanding the fact that it took the form of payments to her closely held pass-through corporation. We agree with the district court that Reliance cannot deny benefits to Rosenberg solely on the basis that she has no ‘Covered Monthly Earnings’ because her compensation from the partnership was paid to her closely held pass-through corporation rather than paid directly to her. Accordingly, we affirm the judgment of the district court without the necessity of addressing the alternate theory for affirmance urged by Rosenberg.” In this way, the Eleventh Circuit, in its brief unpublished per curiam decision, concluded Reliance’s interpretation was illogical and undermined the intent of the policy as a whole, and that its denial of Dr. Rosenberg’s disability benefits was arbitrary and capricious.

ERISA Preemption

Ninth Circuit

Dedicato Treatment Ctr. v. Aetna Life Ins. Co., No. 2:24-cv-03136-CAS-PDx, 2024 WL 3346241 (C.D. Cal. Jul. 8, 2024) (Judge Christina A. Snyder). An out-of-network drug and alcohol treatment center, plaintiff Dedicato Treatment Center, Inc., filed a six count state law complaint in state court against defendant Aetna Life Insurance Company seeking the difference between the billed and paid amounts for healthcare it provided to three patients insured with ERISA welfare plans administered by Aetna. Aetna removed the matter to the federal judicial system and then filed a motion to dismiss it arguing the claims are preempted under ERISA Section 514(a). Shortly after filing its motion to dismiss, Aetna filed a notice of supplemental authority flagging the Ninth Circuit’s opinion in Bristol SL Holdings, Inc. v. Cigna Health & Life Ins. Co., 103 F.4th 597 (9th Cir. 2024). (Your ERISA Watch featured the decision as our case of the week on June 5, 2024.) Relying on the Bristol decision and its reasoning, the court agreed with Aetna that Dedicato’s state law claims relate to the ERISA plans and that they are therefore barred by conflict preemption. Like the Ninth Circuit recognized in Bristol, the court found that the healthcare provider was seeking to obtain through state law claims an alternative mechanism to secure plan-covered payments the parties discussed on the phone to verify benefits and coverage. The court noted that plaintiff concedes “the existence of the plan is what caused [it] to contact Aetna and see if Aetna would agree to pay…for the treatment of Aetna’s plan participants.” Thus, the court stated that the gravamen of the complaint is an assertion that Aetna paid less to the provider than the value of the services rendered, and that payment is therefore contingent on the existence of the terms of the patient’s ERISA-governed healthcare plans. Finally, the court expressed that the state law claims also have an impermissible connection with the ERISA plan. “Permitting plaintiff to pursue such claims would force courts to adjudicate whether all payments made to out-of-network providers are ‘reasonable,’ regardless of the terms and rates set forth in patients’ plans. Accordingly, plaintiff’s claims are barred because they bear an impermissible ‘connection with’ ERISA plans.” For these reasons, the court granted Aetna’s motion to dismiss. Dismissal was without prejudice and the provider was given the opportunity to file an amended complaint should it wish.

Medical Benefit Claims

Third Circuit

Palazzi v. Cigna Health and Life Ins. Co., No. 2:23-cv-06278 (BRM) (AME), 2024 WL 3361615 (D.N.J. Jul. 8, 2024) (Judge Brian R. Martinotti). Plaintiff Pierangela Bonelli was referred to a back surgeon, Dr. Roger Hartl, after she began experiencing intense back pain. Dr. Hartl recommended surgery to treat Ms. Bonelli. Ms. Bonelli has health insurance coverage through an employer sponsored health plan administered by defendant Cigna Health and Life Insurance Company. Dr. Hartl is an out-of-network provider. Before he would perform the surgery, Dr. Hartl needed to receive pre-authorization from Cigna. He followed the plan’s requirements to obtain the necessary pre-authorization and received a letter from Cigna approving the pre-authorization request for Ms. Bonelli’s surgery. Based on the approval, Ms. Bonelli underwent the back surgery. In the end though Cigna denied coverage for the surgery, stating that the plan does not provide for out-of-network benefits. The insurance provider maintains that the authorization letter specifically approving the surgery “was sent in error.” In this action, Ms. Bonelli and her family member, plaintiff Marco Palazzi, challenge Cigna’s denial. This case was originally brought as a state law action, but Cigna removed it to federal court arguing ERISA preempted the state law causes of action. Plaintiffs then amended their complaint to assert an ERISA claim instead. Cigna responded to the ERISA complaint by filing a motion to dismiss. On August 25, 2023, the court granted the motion to dismiss, finding that the complaint failed to articulate how the plan entitles plaintiffs to the benefits they seek. Dismissal was without prejudice, and plaintiffs timely amended their complaint. Cigna once again moved for this dismissal. This time, its motion to dismiss was denied. “Here, the Court finds Plaintiffs have sufficiently alleged an ERISA claim for unpaid benefits in the SAC because they have plausibly alleged that the Plan, through its ‘Medical Management Program’ provision, provides coverage for Bonelli’s surgery with an out-of-network provider and that they are entitled to reimbursement under the Plan.” The court noted that the plan “does not say that it will not cover any out-of-network providers under any circumstance.” In fact, the plan specifically provides for a process, which plaintiffs and their healthcare provider followed, for pre-authorizing out-of-network claims. The court said it was reasonable to infer that this process exists because the plan in some circumstances covers healthcare with providers who are not in network. Therefore, the court found that plaintiffs plausibly alleged an ERISA Section 502(a)(1)(B) claim for recovery of benefits and thus denied the motion to dismiss the second amended complaint. 

Tenth Circuit

K.S. v. Cigna Health & Life Ins. Co., No. 1:22-cv-00004-TC-DBP, 2024 WL 3358653 (D. Utah Jul. 8, 2024) (Judge Tena Campbell). In this action mother and son K.S. and Z.S. seek judicial review of Cigna Health and Life Insurance Company’s denial of their claim for coverage under the Accenture LLP Benefit Plan for the residential mental healthcare treatment Z.S. received in 2019 and 2020 at a facility in Utah to stabilize him during a severe mental health crisis. Before seeking the treatment at issue in the instant action, Z.S. had cycled out of hospitals, partial hospitalization programs, intensive outpatient facilities, and several other forms of psychiatric healthcare, and had attempted suicide on at least four occasions. The long-term residential care the family seeks coverage of in this action was strongly recommended to them by Z.S.’s treating providers given his long history of other treatment options which had failed to stabilize him or improve his health. The family asserted two causes of action, a claim for recovery of benefits and a claim for violation of the Mental Health Parity and Addiction Equity Act. The parties filed cross-motions for summary judgment on the denial of benefits claim under arbitrary and capricious standard of review. The court ruled that Cigna’s denial was an abuse of discretion and entered judgment in favor of the family. Specifically, the court found that Cigna did not engage in a meaningful dialogue with the family or the opinions of Z.S.’s healthcare providers, that its denials were cursory and often contradicted by the medical record, and that it applied the medical necessity criteria inconsistently. The court further criticized Cigna’s failure to discuss Z.S.’s prior treatment history and his attempts to receive lower-levels of psychiatric care which had been ineffective. “Moreover, Cigna essentially conceded at the hearing on the motions for summary judgment that there is evidence in the record showing that at various points throughout his stay at Elevations, Z.S.’s treatment may have met the ‘medical necessity’ criteria. But Cigna’s letters fail to address this evidence or explain why coverage for those dates was denied…In sum, Cigna failed to meet the minimum requirements for explaining why it deemed that Z.S.’s treatment at Elevations was not ‘medically necessary’ in its denial letters. Cigna’s denial of coverage warrants reversal on this basis.” For these reasons, the court granted plaintiffs’ motion for summary judgment and denied defendants’ motion. However, the court declined to award the family benefits. In line with other recent decisions from the District of Utah, the court here concluded that remand was the proper remedy to rectify Cigna’s procedural errors handling the claim for benefits, as the “Tenth Circuit has found that remand was appropriate where the plan administrator committed procedural errors similar to those Cigna made here.” The court further justified its decision to remand to Cigna by stating that it “cannot say that there was no evidence in the record to support Cigna’s denial of benefits, or that the Plaintiff was clearly entitled to the claimed benefits.” As a result, the court remanded to Cigna for further considerations of the family’s claim. However, it cautioned the insurance company that it may not adopt any new rationale to deny the claim “not previously conveyed to the Plaintiffs.”

Pleading Issues & Procedure

Third Circuit

Harper v. United Airlines, No. 23-22329 (ZNQ) (JBD), 2024 WL 3371404 (D.N.J. Jul. 11, 2024) (Judge Zahid Quraishi). Pro se plaintiff Daniel Harper filed a complaint in New Jersey state court alleging United Airlines of wrongfully refusing to cancel his health insurance coverage and improperly continuing to deduct monthly premium payments, causing him $15,000 in damages. United Airlines removed the case to federal court. The district court in turn found that its jurisdiction was proper, as the health insurance plan at issue is governed by ERISA and the sole legal basis for the relief Mr. Harper seeks is under ERISA’s civil enforcement mechanism. United Airlines has since moved to dismiss the action for failure to state a claim. Its core argument was that Mr. Harper cannot plausibly plead a claim for any relief under ERISA because he “has already received the principal relief that his Complaint seeks – namely cancellation of coverage for his dependent effective February 1, 2023 and a refund on the premiums paid for that coverage.” Mr. Harper concedes this fact. United contends further that Mr. Harper is not entitled to any additional relief, and that there is no longer an active controversy in dispute. In its decision, the court was unsure about this. It stated, “a few questions remain regarding Plaintiff’s claims. First, Plaintiff seeks $15,000 in damages but does not explain, in either the Complaint or his Opposition, what the $15,000 damages amount relates to. Second, Plaintiff argues that his ‘family continues to suffer and incur damages due to the action of Defendant and attaches a bill he received on June 5, 2024…for services rendered in October 2023 to support his position. Finally, Plaintiff argues that Defendant granted his appeal only after [he] filed the Complaint because Defendant ‘could not explain their negligence or blatant disregard of the court order.” However, the court highlighted that Mr. Harper raised these facts for the first time in his opposition, and stressed that they were absent from the complaint itself. Therefore, the court said it would not consider “the June 2024 Bill or Plaintiff’s conclusory and unsubstantiated assertions that Defendant was negligent in evaluating the sufficiency of Plaintiff’s claims.” Accordingly, the court found that Mr. Harper failed to successfully plead a claim for relief under ERISA Section 502 and therefore granted the motion to dismiss, though the complaint was dismissed without prejudice.

Fourth Circuit

Doe v. Blue Cross & Blue Shield of N.C., No. 3:23-cv-750-MOC-WCM, 2024 WL 3346319 (W.D.N.C. Jul. 8, 2024) (Judge Max O. Cogburn, Jr.). Plaintiffs John Doe and Mary Doe brought this suit against Blue Cross and Blue Shield of North Carolina to challenge its denial of their claim for benefits relating to Mary Doe’s stay at a treatment center. Plaintiffs asserted two causes of action under ERISA, a claim for benefits and an equitable relief claim for violation of the Mental Health Parity and Addiction Equity Act. Blue Cross moved to strike the complaint or alternatively dismiss for failure to state a claim. Blue Cross supplied three reasons why it believed the court should strike or dismiss the complaint. First, it argued that the complaint violates Federal Rule of Civil Procedure 10(a) because the title of the complaint does not include the names of the parties. Second, it contended that the Section 502(a)(3) claim was improperly duplicative of the claim for benefits under Section 502(a)(1)(B). Finally, Blue Cross asserts that the action should be dismissed as untimely filed under the terms of the plan. In this decision, the court only engaged with the Blue Cross’s last argument. The terms of the plan state that “[a]ny civil action you may choose to bring under ERISA must be filed within one year of the end of the plan’ first level internal claim and appeal procedure,” unless the claimant pursues the plan’s external review and appeal procedure. This action was brought “214 days after the one-year period of limitations ran from the March 18, 2022 First Level Denial.” Thus, plaintiffs’ action was only timely if they could establish that their complaint satisfies the second limitations period for parties who elect to pursue the plan’s external review claim and appeal procedure.” The court concluded that plaintiffs did not do so. “While Plaintiffs did pursue a second level appeal, they failed to pursue the Plan’s external review claim procedure, which required Plaintiffs to file a request for external review with the North Carolina Department of Insurance.” Further, the court stated that even if it tolled the limitations period during the 47 days between plaintiffs’ submission of their second level appeal and defendant’s denial of that appeal, the lawsuit remains untimely. Accordingly, the court dismissed plaintiffs’ complaint as time-barred, and therefore did not address Blue Cross’s alternative grounds for dismissal. The action was dismissed with prejudice.

Withdrawal Liability & Unpaid Contributions

Third Circuit

Allied Painting & Decorating, Inc. v. Int’l Painters & Allied Trades Indus. Pension Fund, No. 23-1537, __ F. 4th __, 2024 WL 3366492 (3d Cir. Jul. 11, 2024) (Before Circuit Judges Hardiman, Matey, and Phipps). In 2005, the employer Allied Painting & Decorating, Inc. closed its operations and stopped contributing to the International Painters and Allied Trades Industry Pension Fund. Less than five years later, the owner of Allied, Robert Smith, created a new painting company called Allied Construction Management. The Multiemployer Pension Plan Amendments Act (MPPAA) kicked it once Allied returned to the painting industry, triggering withdrawal liability. But the Fund dragged its feet, and twelve years would go by before the Fund did anything about this. The Fund did not send its demand to Allied for $427,195 until 2017. Given the great delay since it last contributed to the fund, the employer objected to the assessed withdrawal liability assessment on the basis of laches. The dispute went into arbitration. The arbitrator found that the Fund did not act “as soon as practicable” in issuing a notice and demand to Allied. Nevertheless, the arbitrator concluded that Allied was not prejudiced by this delay, which doomed its laches defense. Accordingly, arbitration ended with the arbitrator concluding that Allied owed the $427,195 to the Fund for its withdrawal. The employer appealed this decision in federal court. The district court concluded that Allied was indeed prejudiced by the delay and vacated the award. The Fund appealed. The Third Circuit issued this decision affirming the district court’s order vacating the arbitration award, though it did so on different grounds. “Much is made of whether Allied suffered prejudice from this lengthy delay. But diligence is what the Multiemployer Pension Plan Amendments Act of 1980 requires, and all agree that the Fund did not send Allied the bill ‘as soon as practicable’ after Allied’s withdrawal…As a result, the Fund cannot recover the claimed withdrawal liability, and we affirm the District Court’s order vacating the Arbitrator’s Award.” The Third Circuit was adamant that the only coherent reading of the statute is to understand the “as soon as practicable” requirement as an essential element for a plan to recover a withdrawal liability. “That a fund provide notice of its withdrawal-liability assessment and demand payment from the employer ‘as soon as practicable’ following the employer’s withdrawal is a requirement of § 1399(b)(1). If this statutory requirement is not met, the fund’s claim for the employer’s withdrawal liability must fail.” Having concluded that this “independent statutory requirement” was not met here, the Third Circuit concluded that the Fund could not recover the withdrawal liability amount from Allied under MPPAA. Thus, the court of appeals affirmed the lower court’s order vacating the arbitrator’s award.

Goldfarb v. Reliance Standard Life Ins. Co., No. 23-10309, __ F.4th __, 2024 WL 3271012 (11th Cir. July 2, 2024) (Before Circuit Judges William Pryor, Jill Pryor, and Marcus)

Of all the types of ERISA welfare benefit disputes, accidental death cases are perhaps the most fascinating. In these cases, everyone agrees that the insured person has expired. The central issue typically is whether the death was an “accident” under the terms and conditions of the benefit plan.

But what is an “accident”? Many benefit plans do not even define the term while others use ambiguous or even circuitous language that confuses more than it edifies. Over the years different courts have used different approaches, satisfying no one. Supreme Court Justice Benjamin Cardozo once famously stated that arguments over how to define the term risked “plung[ing] this branch of the law into a Serbonian Bog.”

The Eleventh Circuit boldly waded into this bog in this week’s notable decision. The plaintiffs were Levi and Benjamin Goldfarb, whose father was Dr. Alexander Goldfarb-Rumyantzev. Dr. Goldfarb, an experienced mountain climber, traveled to Pakistan in 2020 where he joined up with his climbing partner, Zoltan Szlanko. Szlanko was also an accomplished mountaineer who had been a certified climbing instructor and professional climber for nearly 30 years.

In January of 2021 Szlanko and Dr. Goldfarb began ascending 6,209-meter-high Pastore Peak. However, Szlanko, who had scouted ahead, determined that the conditions were too dangerous to keep going. He returned to Dr. Goldfarb and told him that the route was unsafe because of “a labyrinth of hidden crevasses either covered with loose snow or stones” and “black ice” that was “dangerously breaking” and “provid[ed] no grip.”

Szlanko headed back down the mountain. Dr. Goldfarb told Szlanko that he would stay at base camp and follow Szlanko down the next day. However, the next morning Dr. Goldfarb called Szlanko and said that he wanted to continue on up the mountain. Szlanko warned Dr. Goldfarb against it and told him that he could not “take responsibility” if Dr. Goldfarb continued.

Dr. Goldfarb ignored the warnings and proceeded to try to summit Pastore Peak. When he stopped communicating and did not return, a search was conducted. His body, although identified from the air by Szlanko, was never recovered.

Dr. Goldfarb was insured under an ERISA-governed accidental death benefit plan for $500,000. However, when the Goldfarb brothers, as beneficiaries under the plan, submitted a claim to the plan’s insurer, defendant Reliance Standard Life Insurance Company, Reliance Standard denied the claim on the ground that the cause of Dr. Goldfarb’s death was “unknown.” According to Reliance Standard, the brothers could not establish that the death was an “accident,” and thus the claim was not payable.

The brothers sued in federal district court and prevailed. The district court determined that Dr. Goldfarb’s death was an accident, ruled that Reliance Standard’s protestations to the contrary were arbitrary and capricious, and granted summary judgment to the brothers. Reliance Standard appealed.

On appeal the Eleventh Circuit, like the district court, found that the plan gave Reliance Standard discretionary authority to determine benefit eligibility, and thus reviewed Reliance Standard’s denial to see if it was “supported by reasonable grounds.”

The Eleventh Circuit then examined the plan and noted that, like many such plans, it did not define the word “accident.” As a result, the court adopted the test used by the district court and the parties in determining whether Dr. Goldfarb’s death was an “accident.” This test was created by the First Circuit in Wickman v. Northwestern Nat’l  Ins. Co., has been adopted by six other circuits, and is comprised of two parts.

First, the court “considers the subjective expectations of the insured about the likelihood of injury from engaging in the conduct that resulted in the loss.” If the decedent’s subjective expectations are unknowable, the court then considers “an objective analysis of the insured’s expectations.” Under this analysis, the court considers “whether a reasonable person, with background and characteristics similar to the insured, would have viewed [injury or death] as highly likely to occur as a result of the insured’s intentional conduct.” If so, the death is not an “accident.”

Dr. Goldfarb’s subjective expectations were unknown because he did not express them. Thus, the court proceeded to the second part of the Wickman test and discussed whether a reasonable person in Dr. Goldfarb’s situation would have considered death “highly likely to occur” if he had proceeded up the mountain.

The court acknowledged that Dr. Goldfarb was “an experienced mountain climber in excellent physical condition.”  However, it concluded that, even with those characteristics in mind, “the known facts about his climb up Pastore Peak lead us to conclude that a reasonable mountain climber would have recognized a high likelihood of injury or death.”

The court stressed that Dr. Goldfarb had been warned by Szlanko about the dangerousness of the route, that he had traveled alone with a limited cache of supplies, and that he had not only followed the route that Szlanko had determined was too risky, but had pushed on even further where conditions were worse.

The court admitted that insurers face “a high bar” in cases like this one, and that another decisionmaker might arrive at a different conclusion. However, under deferential review the court stated that it could not declare that Reliance Standard’s decision was “unsupported by reasonable grounds,” and thus upheld it.

In doing so, the court rejected the Goldfarb brothers’ arguments, which mostly revolved around the burden of proof. The brothers argued that the burden was on Reliance Standard to prove that Dr. Goldfarb’s death was not an accident because Reliance Standard had conceded that the death was not a suicide, the cause of death was inconclusive, and there was no mountain-climbing exclusion in the benefit plan. However, the court ruled that the burden remained with the brothers at all times, as they were the claimants and plaintiffs in the case. Furthermore, because Reliance Standard did not rely on an exclusion to deny their claim, the burden did not shift to Reliance Standard.

Finally, the Eleventh Circuit considered Reliance Standard’s conflict of interest. The court acknowledged that a structural conflict existed because Reliance Standard both evaluated and paid claims. However, “[t]he Goldfarbs have offered no evidence suggesting that Reliance Standard’s structural conflict of interest had significant inherent or case-specific importance. Nor have they provided any evidence that the conflict influenced Reliance Standard’s denial of their claim.” As a result, the court ruled that this minimal evidence of conflict of interest did not justify overturning Reliance Standard’s decision.

In short, the Eleventh Circuit determined that Dr. Goldfarb’s mountain-climbing accident was not actually an “accident” at all. Thus, it reversed the district court and remanded with instructions to enter judgment in Reliance Standard’s favor. Meanwhile, the Serbonian Bog claims yet more victims.

Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.

Breach of Fiduciary Duty

Second Circuit

Kistler v. Stanley Black & Decker Inc., No. 3:22-cv-966 (SRU), 2024 WL 3292543 (D. Conn. Jul. 3, 2024) (Judge Stefan R. Underhill). Two participants of the Stanley Black & Decker Retirement Account Plan commenced this action on behalf of a putative class of participants and beneficiaries against Stanley Black & Decker, Inc. and the plan’s committee for breaching their fiduciary duties under ERISA. Plaintiffs asserted claims challenging the plan’s excessive recordkeeping and administrative costs as well as the plan’s investment in a suite of underperforming target date funds. Specifically, plaintiffs challenge the selection and retention of the BlackRock LifePath Index Funds, which were designated as the plan’s qualified default investments and the index in which 39% of the plan’s assets were invested. They allege that a prudent fiduciary would have kept a close watch on these target date funds, and had defendants done so they would have seen sustained underperformance for years on end. “Despite what the plaintiffs contend is obvious underperformance, the plaintiffs allege that the ‘minutes of meetings of the Committee from March 27, 2017 through September 27, 2022 do not reflect a single instance where the Committee so much as independently discussed the performance woes of the BlackRock TDFs.” And with regard to the recordkeeping and administrative fees, plaintiffs allege that the plan paid nearly twice as much per participant when compared to plans of similar or even smaller sizes. Plaintiffs claim these high fees were the result of a deficient process contracting recordkeeping services, and highlighted that throughout the relevant period defendants did not conduct any competitive bidding or any investigation into the appropriateness of the fees “apart from a singular, flawed benchmarking study in 2022,” wherein it failed to compare the recordkeeping fees to those paid by other plans with a similar number of participants. Accordingly, plaintiffs argued that defendants’ actions resulted in participants being overcharged for recordkeeping and administrative services, resulting in the loss of millions of dollars in their retirement savings. Stanley Black & Decker moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). The motion was denied in this decision. To begin, the court was satisfied that plaintiffs alleged that they were participants in the plan, who invested in at least one of the challenged target date funds, and who were harmed by the allegedly costly fees. Thus, at the pleading stage, the court concluded that plaintiffs established standing to bring all of their claims. In addition, the court found that plaintiffs sufficiently stated claims upon which relief can be granted, concluding they met “the pleading standards established in Twombly and Iqbal.” The court stated that it would “defer deciding the question of whether two funds are proper comparators until after discovery,” and that for now plaintiffs’ complaint offers enough factual material to establish the plausibility of its claims. “Considering their allegations in totality, the plaintiffs have plausibly alleged the adequacy of their comparators sufficient for this stage of the litigation.” The court further concluded that plaintiffs told a plausible narrative of an imprudent monitoring process. The sole exception to the ruling favoring plaintiffs regarded their duty of loyalty claim. The court emphasized that plaintiffs did not allege facts that supported an inference of self-dealing or that the fiduciaries acted in the interest of anyone other than the participants and beneficiaries. Thus, to the extent plaintiffs alleged that defendants breached their duty of loyalty, that claim was dismissed. However, beyond the disloyalty claim, the court denied the motion to dismiss, and allowed the plaintiffs to proceed.

Sixth Circuit

Chelf v. Prudential Ins. Co. of Am., No. 3:17-CV-00736-GNS-RSE, 2024 WL 3246088 (W.D. Ky. Jun. 27, 2024) (Judge Greg N. Stivers). Widow Ruth Mae Chelf commenced this fiduciary breach litigation to challenge the actions of defendants Wal-Mart Associates, Inc. and the Administrative Committee for the Associates’ Health and Welfare Plan which allegedly resulted in unpaid life insurance premiums, causing Ms. Chelf to lose optional life insurance benefits she otherwise would have received following her husband’s death. Ms. Chelf alleged that defendants improperly deducted excess premiums from her husband’s disability benefits, failed to apply paid time off to his past-due optional life insurance premiums, failed to inform the family that premiums were past due, and failed to let them know the optional life insurance plan had been terminated and that the family could convert optional life insurance to an individual policy. Defendants filed a motion to dismiss, which the court granted. Ms. Chelf appealed, and the Sixth Circuit reversed most of the district court’s dismissal, affirming only to the extent the dismissal was based on defendants’ failure to inform the family of conversion rights. Now the parties have filed cross-motions for summary judgment. In addition, Ms. Chelf moved to strike one of defendants’ declarations. The court denied the motion to strike, concluding that the challenged declaration was unnecessary and immaterial to its resolution of the motions, which was in favor of defendants. The court found: (1) there was no error with defendants’ short-term disability premium deductions; (2) although defendants improperly deduced $5.80 in premium payments under the long-term disability policy, this error did not in and of itself result in the family’s loss of optional life insurance coverage; (3) evidence did not support the conclusion that defendants’ actions regarding paid time off were improper; and (4) defendants did not breach any fiduciary duty by failing to disclose information to the family because they had not provided any false, inaccurate, or misleading answers in response to the family’s questions. Accordingly, the court concluded that defendants had not breached their fiduciary duties and therefore entered judgment in their favor.

Seventh Circuit

Remied v. NorthShore Univ. Health Sys., No. 22-cv-2578, 2024 WL 3251331 (N.D. Ill. Jul. 1, 2024) (Judge Steven C. Seeger). In this putative class action, plaintiff Jamison Remied, a participant in the NorthShore University HealthSystem Tax Deferred Annuity 403(b) Plan, alleges that the plan’s fiduciaries breached their duties of prudence and monitoring imposed by ERISA by paying excessive fees for recordkeeping services and selecting high-cost funds as the plan’s investment options. In the operative complaint Mr. Remied alleges that NorthShore University HealthSystem, its CEO, and the plan’s administrative and investment committees failed to leverage the large size of the plan (with nearly 12,000 participants and almost $1.8 billion in assets) to reduce recordkeeping costs. As alleged, the plan paid $107 per participant annually to its recordkeeper, Voya, which in percentage terms was a fee rate of 0.0772% of its assets. The complaint stated that “[u]nder either comparison model, Defendants could have offered the exact same RKA services, at the same level and quality, at a more reasonable cost by using a different recordkeeper but did not do so.” Additionally, the complaint asserts that the plan imprudently selected higher expense ratios when nearly identical, cheaper funds existed. Finally, Mr. Remied contends that NorthShore University HealthSystem and the company’s CEO did not live up to their duty to monitor the committees. Defendants moved to dismiss the complaint for failure to state a claim. In this decision the court granted in part and denied in part defendants’ motion. Beginning with the recordkeeping fee allegations, the court concluded that Mr. Remied “pleaded enough factual content to plausibly allege that a prudent fiduciary would have taken steps to reduce fees.” Given the complaint’s detailed and “granular” allegations about the recordkeeping fees paid by this plan and by the seven comparator plans, as well as the fact that “Remied alleged that recordkeeping services are like a commodity, and that all service providers provide a similar quality of service,” the court concluded that the complaint was “more similar to the complaint in Hughes II (surviving a motion to dismiss) than the complaint in Albert (which did not).” Accordingly, the motion to dismiss the fiduciary breach claims premised on excessive recordkeeping fees was denied. However, the court reached a different conclusion with regard to the high-cost investment option claims. There, it found that the complaint contained little more than a “raw allegation that the other investments have the ‘same investment approach and similar investment histories,’” and that this alone wasn’t “good enough” to survive defendants’ challenge. As currently alleged, the court concluded that the complaint failed to make “apples to apples” comparisons, and implied that it would not endorse the broad assumption that cheaper equates to better, emphasizing that ERISA doesn’t require fiduciaries to select the cheapest available fund. Therefore, the court found that the complaint failed to provide a sound basis for comparison for its expense ratio claims and thus granted the motion to dismiss them.

Ninth Circuit

Phillips v. Cobham Advanced Elec. Sols., No. 23-cv-03785-EJD, 2024 WL 3228097 (N.D. Cal. Jun. 28, 2024) (Judge Edward J. Davila). Three participants of the Cobham Advanced Electronic Solutions, Inc. (CAES) 401(k) Plan commenced this action on behalf of a potential class alleging CAES, its board, and the plan’s committee are violating their fiduciary duties under ERISA. In count one of their complaint, plaintiffs allege that the committee violated its fiduciary duty of prudence by engaging in a failed process selecting and overseeing funds which saddled the plan and its participants with a suite of chronically underperforming target date funds that needlessly deprived the participants of millions of dollars in retirement savings. In count two, plaintiffs assert a derivative claim against the company and its board for failing to monitor the committee. Defendants moved to dismiss both causes of action pursuant to Federal Rules of Civil Procedure 12(b)(1) and (b)(6). Their motion was granted, without prejudice, in this decision. To begin, the court disagreed with defendants’ position that plaintiffs had a problem with Article III standing. To the contrary, the court found that plaintiffs each sufficiently alleged that they participated and invested in at least one of the challenged target date funds and that they suffered injury to their accounts by way of the high costs and low returns. “The Court finds that these allegations sufficiently demonstrate individualized injury for Article III standing.” With the threshold question of standing resolved, the court turned to defendants’ arguments challenging the sufficiency of the stated fiduciary breach claims, and concluded that the complaint as currently alleged has some problems. Chief among these was that plaintiffs alleged only that the target date funds performed poorly, “which may not be the basis for an ERISA claim for imprudence.” The court cautioned plaintiffs that what they were characterizing as allegations of process flaws were in fact “mere restatements of…underperformance.” “Plaintiffs do not point to any process failure allegations beyond the conclusory and circular statement that ‘Defendants did not engage in a prudent process in evaluating the investment management fees and the prudence of the Plan’s funds,’ as evidenced by the poor performance of the funds.” Even the sheer length and extent of the alleged underperformance, the court held, is not enough without more to state a plausible claim that the fiduciaries acted imprudently. Accordingly, the court dismissed both of plaintiffs’ claims. However, the court said it did not find amendment futile, and therefore granted the motion to dismiss without prejudice so that plaintiffs may address their complaint’s shortcomings with an amended pleading.

Disability Benefit Claims

Seventh Circuit

Slaughter v. Hartford Life & Accident Ins. Co., No. 22 CV 5787, 2024 WL 3251371 (N.D. Ill. Jul. 1, 2024) (Judge Jeremy C. Daniel). On August 27, 2020, plaintiff Kenneth Slaughter, a cybersecurity systems engineer at Boeing, was taken to the emergency room complaining of chest pain and shortness of breath. He was admitted to the hospital after an echocardiogram resulted in a finding of “VERY SEVERE left ventricular systolic dysfunction.” On September 1, Mr. Slaughter underwent surgery. The procedure improved Mr. Slaughter’s condition somewhat, although his heart remained weak and was still not pumping blood anywhere near as well as a healthy person’s. By September 4, Mr. Slaughter was discharged from the hospital. However, as is often the case in these types of situations, several things started to go wrong at once with Mr. Slaughter’s health. In addition to his heart condition, Mr. Slaughter simultaneously experienced the onset of sleep disorders, gastrointestinal problems, anxiety, and dizziness, as well as a reduced ability to focus, concentrate, and think deeply. Unwell, Mr. Slaughter stopped working and applied for disability benefits. In this Section 502(a)(1)(B) ERISA action, Mr. Slaughter appeals Hartford Life & Accident Insurance Company’s decision to deny his application for long-term disability benefits. Mr. Slaughter maintains that he is unable to perform his own occupation as a systems engineer because of his ongoing health issues. In this decision the court issued its final judgment. Mr. Slaughter styled his motion as one for summary judgment under Federal Rule of Civil Procedure 56, while Hartford had moved for judgment on the administrative record under Rule 52. As a preliminary matter, the court determined that Rule 52 was the appropriate mechanism for resolution of the case, and thus treated both parties’ motions as motions for judgment. The court also clarified that the plan does not grant discretionary authority, making the de novo standard of review applicable. Unfortunately for Mr. Slaughter, the court’s fresh eyes did not result in a favorable decision. Ultimately, the court concluded that he could not satisfy his burden of proving entitlement to disability benefits under the plan and that he separately failed to establish he was under the regular care of physicians for the duration of the benefit period. As to the former, the court stated that “the total mix of facts in [this] particular case,” including Mr. Slaughter’s vocational evaluation, his independent medical evaluation, the award of Social Security disability benefits, and the totality of the medical records, simply did not add up to establish entitlement to benefits. The court spent time independently explaining why each factor was not dispositive. And regarding the latter, the court was not convinced based on the documents within the administrative record that Mr. Slaughter was under the regular care of a physician beyond January 26, 2021. As continuity of care was required under the plan, the court determined that the insufficient evidence of continued and ongoing medical care provided separate grounds to affirm the denial. Accordingly, the court entered judgment in favor of Hartford.

ERISA Preemption

Seventh Circuit

Mercy Hospital of Folsom v. Health Care Service Corp., No. 24 CV 2749, 2024 WL 3275509 (N.D. Ill. Jul. 2, 2024) (Judge Lindsay C. Jenkins). Plaintiff Mercy Hospital of Folsom has sued Health Care Service Corporation in Illinois state court for failing to adequately compensate it for medical services it provided to eight patients with healthcare plans sponsored by Health Care Service Corp. Defendant removed the action, arguing federal question and supplemental jurisdiction exists because one of the patients (Patient No. 5) has a health plan governed by ERISA and ERISA preempts the state law causes of action. Mercy Hospital moved to remand. The court denied the motion to remand with respect to the claim involving Patient No. 5, but declined to exercise supplemental jurisdiction over the claims related to the seven remaining patients and the disputes involving them. As for the patient insured under the ERISA plan, the court evaluated Mercy Hospital’s claims under the two-prong Davila preemption test. First, the court concluded that Mercy Hospital had a valid assignment of benefits from the patient and that it could bring a cause of action under ERISA Section 502. Second, the court stated that because the insurance company refused to pay for any treatment Mercy Hospital provided to Patient No. 5 on the basis that it was not medically necessary, this action was one implicating the “right to payment” as opposed to a “rate of payment” dispute. “In this case, the only way to determine whether HCSC is required to pay Mercy for the treatment it provided the Patient is to analyze whether the treatments were Medically Necessary as that term is defined in the ERISA plan. Put differently, ‘whether [Mercy] is entitled to damages depends on what benefits and payments are owned under the relevant ERISA plans.’” Thus, the court found that this case was fundamentally about failure to pay medical benefits under a healthcare plan. This is “precisely” what ERISA Section 502(a) covers, meaning no other independent legal duty was implicated and ERISA completely preempts Mercy Hospital’s action. Nonetheless, the court declined to exercise supplemental jurisdiction, as it did not feel that Mercy Hospital’s claims relating to the seven other patients was in any way relevant to the resolution of Patient No. 5’s ERISA claim. As a result, the motion to remand was granted in part and denied in part, and Mercy Hospital was ordered to file an amended complaint asserting causes of action under ERISA pertaining to Patient No. 5.

Exhaustion of Administrative Remedies

Eleventh Circuit

Molla v. Gerdau Ameristeel, U.S., Inc., No. 8:22-cv-2094-VMC-SPF, 2024 WL 3277101 (M.D. Fla. Jul. 2, 2024) (Judge Virginia M. Hernandez Covington). A participant of the Gerdau Ameristeel U.S. 401(k) Retirement Plan, plaintiff Grant Molla, filed this suit on behalf of himself, the plan, and a putative class of similarly situated individuals against the company and the benefits plan administrative committee. Mr. Molla contends that defendants breached their fiduciary duties under ERISA Sections 409 and 502 by mismanaging the plan, causing it to pay unreasonable and excessive recordkeeping and administrative fees. After the complaint was filed, the parties jointly agreed to stay the proceedings pending exhaustion of administrative remedies. Defendants considered and denied Mr. Molla’s claim and upheld the denial on appeal. When they were through with the exhaustion exercise, the parties jointly moved to lift the stay. The court granted the motion and reopened the case. Defendants then filed the instant motion to dismiss. Their motion was premised on a single argument – the complaint must be dismissed because it does not allege that Mr. Molla exhausted his administrative remedies or that his claim was denied. In this decision the court agreed with defendants and granted their motion, but did so without prejudice so that Mr. Molla may simply amend his complaint to plead exhaustion of administrative remedies. The fact that the parties do not dispute that Mr. Molla exhausted his administrative remedies made the decision a little odd, particularly as this is not a benefits action but a plan-wide fiduciary breach case. Nevertheless, the court stressed the Eleventh Circuit’s long-standing requirement that ERISA plaintiffs plead that they have exhausted administrative remedies “before pursuing a claim for either benefits under ERISA or statutory violations of ERISA, unless use of the administrative claims procedures would be futile.” While the court acknowledged that it could not find “caselaw that explicitly addresses whether a plaintiff must amend their complaint to plead exhaustion of administrative remedies in this situation,” it was nevertheless convinced that a plaintiff in an ERISA action must still plead exhaustion of administrative remedies even if it is a fact that the parties do not dispute. Thus, the court is requiring Mr. Molla to file an amended complaint that pleads he exhausted the administrative appeals process in order to proceed with his action.

Pleading Issues & Procedure

Third Circuit

James v. McManus, No. 24-2232, 2024 WL 3238131 (E.D. Pa. Jun. 27, 2024) (Judge Mark A. Kearney). Several years ago, plaintiff Mojirade James obtained a judgment from a jury in Philadelphia, Pennsylvania against defendant Ginette McManus for failing to disclose structural defects in a home Ms. James bought from Ms. McManus. Ms. James then sued Ms. McManus, as well as Baxter Credit Union, Citadel Credit Union, Lincoln Investment, and Teachers Insurance and Annuity Association in the Montgomery County Court of Common Pleas for violations of Pennsylvania’s Uniform Voidable Transactions Act, conversion, and unjust enrichment, seeking to collect on her judgment won in the earlier action. Ms. James claims that Ms. McManus is fraudulently transferring funds subject to the judgment to retirement and pension accounts to make herself appear insolvent and avoid paying. In addition, Ms. James alleges that “the financial institutions converted the money when it accepted Ms. McManus’s funds.” Defendants removed the action to federal court, arguing that ERISA preempts the state law claims. Ms. James responded by moving to remand, and for sanctions and attorneys’ fees. She believes defendants lacked an objectively reasonable basis for removal. Defendants conceded that complete preemption does not apply, but nevertheless maintain that the action is properly before the federal district court because of the “arising under” federal law basis for subject matter jurisdiction. They argue that Ms. James’s state law causes of action cannot be resolved without the court considering ERISA’s anti-alienation provision. In this order the court concluded defendants failed to meet their heavy burden of satisfying the court’s subject matter jurisdiction, which is “reserved for a special and small category of cases ‘arising under’ federal law. Ms. James’s state law claims do not require us to resolve significant federal issues creating ‘arising under’ jurisdiction.” The court stated that it does not need to consult ERISA’s anti-alienation provision to define the term “asset” under Pennsylvania’s Uniform Voidable Transactions Act. Although the court agreed with defendants that Ms. James will have to prove the transfer of assets, it disagreed that a federal question is necessarily raised because of this. “Ms. James appears to be claiming a transfer of available assets under Pennsylvania law to an ERISA plan. The question is whether those funds allegedly transferred to exempt plans are subject to execution under Pennsylvania law mindful federal law bars collection of assets in ERISA plans managed by Lincoln Investment and Teachers Insurance. This issue does not arise under federal law.” Thus, the court concluded defendants did not meet their burden of establishing jurisdiction, and stressed that any uncertainty should be resolved in favor of remand. Ms. James’s motion to remand her action back to state court was accordingly granted. However, the court denied her motion to sanction defendants for their removal, finding that defendants removed the action based on fairly presented arguments that the state law claims arise under federal law. The court emphasized that the parties’ dispute over federal jurisdiction was complex and difficult.

Withdrawal Liability & Unpaid Contributions

Seventh Circuit

Painters District Council #58 v. Plant Maintenance Services, LLC, No. 3:24-CV-00697-SPM, 2024 WL 3273290 (S.D. Ill. Jul. 2, 2024) (Judge Stephen P. McGlynn). A union, Painters District Council #58, and an employee welfare benefit plan, the Illinois State Painters Welfare Fund, brought this action pursuant to ERISA seeking damages from defendant Plant Maintenance Services, Inc. for audit liability, liquidated damages, pre-judgment and post-judgment interest, audit costs, and attorneys’ fees and costs. During the audit, the auditor discovered that Plant Maintenance Services made overpayments to the fund in the amount of $132,577.51 and that the fund did not give any credit to the employer for the overpayments nor did it offer a refund. ERISA Section 403(c)(2)(A)(ii) states that it “shall not prohibit the return of [contributions or payment made by an employer to a multiemployer plan by a mistake] to the employer within 6 months after the plan administrator determines that the contribution was made by such a mistake.” After learning of the mistaken overpayments through the audit, the employer asserted a counterclaim, arguing it is entitled to either a credit from the fund for its overpayment or a refund in the amount of the overpayments. Plaintiffs moved to dismiss the counterclaim. They argued that ERISA does not require them to automatically refund overpaid contributions because Section 403(c)(2)(A)(ii) “merely allows the Funds to do so when the Funds determine a refund to be appropriate.” It is their position that ERISA requires employers to monitor contribution payments and to timely request a refund when appropriate. They maintain that Plant Maintenance Services is attempting to shift the responsibility on them resulting in a counterclaim “which is not cognizable, and therefore must be dismissed.” They further highlighted that the six-month window in Section 403(c)(2)(A)(ii) has passed, requiring dismissal of the counterclaim. The court disagreed with plaintiffs, and signaled some sympathy for the employer. Quoting from a 1993 Seventh Circuit decision, UIU Severance Pay Trust Fund v. Local Union No. 18-U, United Steelworkers, the court stated, “absent a judicially-crafted cause of action, employers are left to the mercy of plan trustees who have no financial incentive to return mistaken payments. Employers are already penalized for failing to make required contributions.” In UIU Severance Pay Trust Fund the Seventh Circuit established a “federal common law cause of action…to ‘effectuate the statutory pattern enacted in the large by Congress.’” Relying on this, the court held that while Section 403(c)(2)(A)(ii) does not itself establish a cause of action for restitution of overpayments, Plant Maintenance Services nevertheless stated a claim for restitution under federal common law. This remained true, the court said, despite the fact that the employer did not request a refund within the six-month window. However, the court did note that it will be the employer’s burden “to prove that their restitution claim comports with the four factors discussed by the Seventh Circuit.” These four factors are: (1) are the contributions the sort of mistaken payments that equity demands be refunded; (2) has the employer delayed in bringing its claim for so long that equitable defenses bar recovery; (3) has the employer by continuing payments somehow ratified past payments; and (4) can the employer demonstrate that the fund would be unjustly enriched if recovery were denied? For now, though, the court noted that consideration of the four-factor test for restitution under UIU Severance Pay Trust Fund was premature at this stage. Plaintiffs’ motion to dismiss the counterclaim was thus denied.

Spence v. American Airlines, Inc., No. 4:23-cv-00552-O, 2024 WL 3092453 (N.D. Tex. Jun. 20, 2024) (Judge Reed O’Connor)

There has been a great deal of controversy engendered by corporate environmental, social, and governance (ESG) initiatives, and ERISA-governed benefit plans are becoming a big part of that debate. Corporations have increasingly focused not only on financial goals, but also on how their decisions affect climate change, social justice, and equity. Thanks to this recent decision denying one corporation’s motion for summary judgment, a first-of-its-kind trial has just concluded in a lawsuit challenging one such plan.

This class action was brought by an American Airlines pilot, Bryan Spence, who is a participant in an American Airlines-sponsored 401(k) plan. He sued the fiduciaries of the plan for breaches of their duties of prudence, loyalty, and monitoring under ERISA, alleging that they mismanaged the plan by including funds that pursue “non-financial and nonpecuniary ESG policy goals through proxy voting and shareholder activism.”

Your ERISA Watch reported on an earlier decision in this case denying the fiduciaries’ motion to dismiss in our February 28, 2024 newsletter, and the district court subsequently certified a class. Defendants then moved for summary judgment, which the district court denied in this lengthy decision.

Throughout the decision, the court signaled that it was receptive to plaintiffs’ theory of liability – that defendants violated their fiduciary obligations by failing to act exclusively in the plan participants’ financial interests because of their personal interest in utilizing financial managers, including BlackRock, committed to ESG goals. “Put simply, Plaintiff’s theory is one of mismanagement due to ESG activism.” The court viewed this theory of liability as “broad and straightforward.” 

Against this backdrop, it was not clear to the court that defendants acted prudently in their administration and management of the plan. “At the outset, Plaintiff points to evidence that Defendants never reviewed or monitored proxy voting by any of the Plan’s investment managers. This lack of review and monitoring even appears to have taken place after Defendants learned that the largest investment manager of Plan assets, BlackRock, voted proxies in support of ESG objectives rather than exclusively in the financial best interests of the Plan.” To the court, the lack of discussion about ESG investment strategies raised a material factual dispute as to whether defendants acted in accordance with prudent fiduciary standards. Importantly, the court focused on the fact that the first time defendants ever discussed ESG-related proxy voting was “after Plaintiff filed this lawsuit.” Based on this, the court found that a reasonable fact finder could conclude that defendants acted “unreasonably under ERISA’s fiduciary duties of prudence and monitoring.”

The court also declined to decide before trial “whether alternative funds and benchmark evidence are necessary for Plaintiff to succeed on the breach of prudence claim or if the mere demonstration that Defendants disregarded, or otherwise failed to act regarding, the established record of ESG underperformance is sufficient on its own without comparators.” This stands in rather stark contrast to most ERISA class action litigation, where courts have required plaintiffs to point to and describe comparators (with greater and lesser degrees of detail depending on the court) in order to even survive a motion to dismiss.

Additionally, the court found it unclear whether defendants violated their duty of loyalty. Here, the court highlighted that senior officials at American Airlines had communications with one another expressing their support for BlackRock’s ESG objectives. The court said these conversations were potential “evidence of corporate ESG goals influencing the administration of the Plan,” which the court viewed as creating genuine questions about whether defendants acted disloyally.

Finally, the court disagreed with defendants that the class could not prove financial loss resulting from the ESG investment decisions. The court found that plaintiff offered sufficient prima facie evidence of losses, while it found that defendants failed to demonstrate “that any losses were not caused by their fiduciary breaches.”

In the court’s view, a reasonable finder of fact could conclude that they “did not take all necessary and timely steps to ensure that the Plan’s assets remained protected. Therefore, at a minimum, there is a factual dispute as to whether Defendants could have taken steps to prevent losses to the Plan.”

For these reasons, the court denied defendants’ motion for summary judgment, and a bench trial was completed on June 27, 2024. Stay tuned for coverage of that decision.

At a minimum, regardless of the outcome of the trial, this action demonstrates the potential risk plans may face if they are committed to ESG principles, and could cause fiduciaries of ERISA plans to pause before pursuing ESG strategies or even invest in vehicles that utilize ESG.

Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.

Attorneys’ Fees

Sixth Circuit

Davita Inc. v. Marietta Mem’l Hosp. Emp. Health Benefit Plan, No. 2:18-cv-1739, 2024 WL 3226114 (S.D. Ohio Jun. 28, 2024) (Magistrate Judge Kimberly A. Jolson). This action, brought by dialysis providers, concerns terms of the Marietta Memorial Hospital Employee Benefit Plan that “reimburses dialysis services at a depressed rate,” which plaintiffs allege discriminates against participants suffering from illnesses requiring dialysis treatment and by extension, exposes participants to higher costs. The parties fiercely disputed discovery in this action. Eventually, both the district court and the Sixth Circuit weighed in on the dispute. Both ended up finding that plaintiffs were entitled to further discovery and the Sixth Circuit acknowledged that “discovery may yield evidence of Defendants’ motive for instituting unique reimbursement terms for dialysis services.” Defendants continued to resist discovery demands after these rulings, forcing plaintiffs to move to compel discovery. Their motion was granted in part, and the court ordered the parties to do more to resolve their dispute. In the end, defendants agreed to produce nearly everything subject to the motion to compel. Plaintiffs then moved for attorneys’ fees under Rule 37(a)(5)(A) for defendants’ failure to engage in discovery and for their efforts to frustrate discovery proceedings. The court granted plaintiffs’ motion for attorneys’ fees in part in this decision. First, the court held that because it granted the motion to compel only in part, “Rule 37(a)(5)(C) fits better here. And the decision whether to order Defendants to pay plaintiffs’ reasonable expenses is soundly within the Court’s discretion.” The court began its analysis with defendant Medical Benefits Mutual Life Insurance Company (MedBen). It found that MedBen made valid objections about the scope and burden of plaintiffs’ requested discovery and made reasonable arguments for why it viewed plaintiffs’ requests as beyond ERISA’s typical narrow discovery scope. Although the court stated that it was sympathetic to the healthcare providers and the delay they faced as a result of MedBen’s objections, it nevertheless stressed that MedBen ultimately complied with all discovery orders and mounted arguments against production that were not baseless. Accordingly, the court concluded that MedBen’s action did not warrant payment of plaintiffs’ expenses and thus declined their request as it related to MedBen. Next, the court analyzed plaintiffs’ motion as it related to defendants Marietta Memorial Hospital and its plan. The court faulted these defendants for their actions regarding electronic discovery. It stated that they were in the wrong for deleting important emails after plaintiffs moved for discovery, for producing only a small number of documents, and for their unwillingness to share basic information with the plaintiffs and to meet and confer further. These actions, the court concluded, were not done in good faith and were “unreasonable.” “Put simply, Defendants Marietta and the Plan refused to confer with Plaintiffs as ordered until the threat of sanctions and an in-person hearing weighed over their head.” As a result, the court found that an award of fees and expenses was justified, and ordered Marietta and the plan to pay plaintiffs’ reasonable expenses and fees incurred after the court ordered the parties to confer and until May 8, 2024, when they finally did so and resolved the disputes.

Breach of Fiduciary Duty

Third Circuit

McCauley v. The PNC Fin. Servs. Grp., No. 2:20-CV-01493-CCW, 2024 WL 3091754 (W.D. Pa. Jun. 21, 2024) (Judge Christy Criswell Wiegand). In this action plaintiff John McCauley alleges that PNC Financial Services Group, Inc. and PNC Financial Services Group, Inc. Incentive Savings Plan Administrative Committee violated ERISA’s fiduciary duties of prudence and monitoring when they paid excessive recordkeeping fees to the plan’s recordkeeper, Alight. Defendants moved for summary judgment on all three claims: (1) breach of the duty of prudence; (2) failure to monitor fiduciaries and co-fiduciary breaches; and (3) knowing participation in the breach of fiduciary duties. In addition, defendants moved to exclude the testimony and opinions of plaintiff’s expert witness, Ty Minnich. Both motions were granted by the court in this order. First, the court agreed with PNC that Mr. Minnich’s expert testimony was not reliable because it was based solely on his subjective beliefs and experience, and not on “any reproducible or traceable process” or other reliable methodology. “In his Report, Mr. Minnich describes three important factors when calculating a reasonable fee, but he does not indicate how – aside from his experience – he used these to arrive at a reasonable fee.” It was noteworthy to the court that Mr. Minnich “did not create a pricing curve – despite indicating this is the industry norm…to calculate his reasonable fees.” Moreover, it struck the court that Mr. Minnich did not use his four comparator plans as part of his pricing analytic opinions, and instead only provided these comparator plans “as supporting documents to illustrate examples of other plans.” The court saw this as an example of “cherry-picking” the comparators, selecting them only after the fact in order to support the calculations. Therefore, the court found Mr. Minnich’s methodology unreliable and therefore excluded his expert opinion regarding reasonable market fees. In addition, the court further found Mr. Minnich’s opinion as to the amount of damages unreliable, as it was derived from the very assumptions the court took issue with regarding reasonable fee amounts. Accordingly, Mr. Minnich’s testimony was wholly excluded. Without this testimony, the court forged ahead with defendants’ summary judgment motion.  “Here, the Court need not address whether PNC breached its duty of prudence because the Court finds that Mr. McCauley has failed to point to sufficient evidence from which a factfinder could conclude that a breach of fiduciary duties caused a loss to the Plan.” As Mr. McCauley relied on Mr. Minnich’s expert report to establish a prima facie case of loss, and because the court ruled that the expert opinion was inadmissible, it held that Mr. McCauley could not establish loss. As a result, the court granted summary judgment to defendants on count one, as well as on counts two and three which were dependent on the claims in count one.

Ninth Circuit

Paieri v. Western Conference of Teamsters Pension Tr., No. 2:23-cv-00922-LK, 2024 WL 3091495 (W.D. Wash. Jun. 21, 2024) (Judge Lauren King). Plaintiff Michael Paieri commenced this action on behalf of himself and three proposed classes of similarly situated individuals against the Western Conference of Teamsters Pension Trust and its fiduciaries. Mr. Paieri alleges that defendants violated several provisions of ERISA including: (1) its requirement that joint and survivor annuities be actuarially equivalent to single life annuity benefits; (2) its prohibition on cutting back vested accrued benefits; (3) its requirement that participants be provided with necessary information to compare various pension benefit options; (4) its mandate that documents be provided upon written request; and (5) its fiduciary duty standards. Defendants moved to dismiss the action. They argued that the claims were time-barred, that Mr. Paieri did not allege a concrete harm to confer him with Article III standing, and that the claims themselves failed because ERISA does not impose a reasonableness standard for actuarial assumptions, and they were not acting in a fiduciary capacity when they engaged in the conduct alleged. The court denied defendants’ motion to dismiss and concluded that Mr. Paieri has standing to assert his causes of action, that the claims are not time-barred on the face of the complaint, and that Mr. Paieri plausibly stated his claims for relief. First, the court discussed standing. It stated that by asserting defendants failed to fully disclose the relative value of different forms of pension benefits, “the Plan prevented him and other participants ‘from electing the more valuable form of benefit.’” The court stated that these allegations were enough to plead a concrete harm and therefore “sufficient to allege a cognizable informational injury.” Next, the court disagreed with defendants that Mr. Paieri’s causes of action were untimely. It concluded that Washington’s six-year statute of limitations for contract claims is the most analogous to Mr. Paieri’s claims seeking to recover benefits under the plan and thus applicable. In addition, the court said it was “unclear at best whether any statute of limitations began running more than six years prior to his lawsuit.” Thus, the court concluded that defendants could not satisfy their burden of showing on the face of the complaint that any of the claims were untimely, under either Washington’s statute of limitations or ERISA’s fiduciary breach statute of limitations. Defendants’ request to dismiss the claims for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6) was also denied. The court stated “that the plain meaning of ‘actuarial equivalence’ requires reasonable actuarial assumptions,” and determined that Mr. Paieri plausibly alleged the plan is using mortality tables that do not reflect current longevity improvements. Thus, he sufficiently stated a claim for violation of ERISA Sections 1053 and 1055. Additionally, the court found that the complaint does not focus solely on settlor functions of plan design or amendments, but affirmatively alleges that defendants functioned as fiduciaries. Based on the foregoing, the court denied the motion to dismiss in its entirety. In addition to their motion to dismiss, defendants moved to bifurcate the action into two phases – liability and damages. This motion was granted by the court. The court determined that phasing discovery and bifurcating the action will preserve resources, promote efficiency, and advance the interest of judicial economy without prejudicing either party.

Tenth Circuit

Su v. Ascent Constr., No. 23-4114, __ F. 4th __, 2024 WL 3093647 (10th Cir. Jun. 24, 2024) (Before Circuit Judges Phillips, Kelly, and Moritz). In 2022, the Department of Labor (DOL) began investigating Ascent Construction, Inc. and its president and CEO, Bradley Knowlton, to determine whether they violated their fiduciary duties under ERISA in handling the company’s Employee Stock Ownership Plan. That investigation revealed that Mr. Knowlton had engaged in self-dealing and deposited hundreds of thousands of dollars of the plan’s assets into the company’s checking account to pay business expenses. In addition, the investigation discovered that a former employee requested a distribution from his retirement account that he never received even though the plan’s custodian issued a distribution check at Mr. Knowlton’s request. It also became clear to the DOL that the company was experiencing financial distress. The DOL learned that Ascent Construction and Mr. Knowlton were being sued by an insurance company. (That action ended with the insurance company receiving a $26 million judgment against Ascent and Mr. Knowlton.) Eventually, the DOL froze the plan’s funds and filed this lawsuit alleging Ascent and Mr. Knowlton were violating ERISA’s fiduciary duties and prohibited transaction rules. As part of its complaint, the Labor Department sought a permanent injunction removing Mr. Knowlton and Ascent from their respective positions as trustee and administrator of the plan and appointing a new independent administrator in their places, as well as an order offsetting Mr. Knowlton’s individual account balance against any amounts owed to the plan participants for the breaches of defendants’ duties. Shortly after it filed its complaint, the DOL moved for a preliminary injunction removing defendants as plan fiduciaries and appointing an independent fiduciary to prevent further violations of ERISA and dissipation of plan assets. The district court granted the preliminary injunction motion. (Your ERISA Watch covered the decision in our July 12, 2023 issue.) Defendants responded by filing this interlocutory appeal to the Tenth Circuit Court of Appeals. While the appeal was pending, the case proceeded in the district court. In late January 2024, the district court ordered defendants to show cause for their failure to timely answer the Department’s amended complaint and warned that further failure to comply with court orders could result in default judgment against them. “In a later order, the district court concluded that defendants willfully failed to engage in the litigation process and comply with the court’s orders, prejudicing the DOL and interfering with the judicial process. And as warned, it entered a default judgment against defendants under Federal Rules of Civil Procedure 16(f)(1)(C) and 37(b)(2)(A)(vi) in the amount of $288,873.64. It also entered a permanent injunction that superseded the preliminary injunction at issue in this appeal, permanently barring Knowlton and Ascent from serving, respectively, as trustee and administrator of the Plan and authorizing the appointed fiduciary to terminate the Plan and commence a claim-submission process.” Because of the district court’s holdings, the DOL responded to the pending interlocutory appeal by moving to dismiss it as moot. In this decision the Tenth Circuit agreed and concluded that the district court’s issuing of the permanent injunction and entering final judgment rendered the appeal moot. As the court of appeals plainly put it: “A preliminary injunction dissolves automatically with the entry of final judgment.” This was true, even as here, where the district court entered a default judgment rather than a final adjudication on the merits of the claims. The court broadly rejected defendants’ application of the Supreme Court’s decision in Grupo Mexicano v. Alliance Bond Fund. Inc. and explained why it was distinguishable. “We agree with the DOL that Grupo Mexicano does not preserve our subject matter jurisdiction over this appeal. Unlike the preliminary injunction in Grupo Mexicano, which sought to preserve the holding company’s assets in case of final judgment against it on the breach-of-contract claim, the preliminary injunction here sought ‘to enjoin, pending the outcome of the litigation, action that [the DOL] claims is unlawful.’” Accordingly, the appeals court agreed with DOL that the aim of the underlying litigation, unlike in Grupo Mexicano, aligned with the effects of both the preliminary and later the permanent injunctions. Consequently, the Tenth Circuit concluded that granting defendants’ requested relief vacating the preliminary injunction would not have a real world effect, thus rendering the appeal moot. Therefore, the Tenth Circuit dismissed the appeal for lack of subject-matter jurisdiction.

Disability Benefit Claims

First Circuit

Bernitz v. USAble Life, No. 22-cv-10712-DJC, 2024 WL 3106249 (D. Mass. Jun. 24, 2024) (Judge Denise J. Casper). In this action plaintiff Steven Bernitz alleges defendants USAble Life and Fullscope RMS wrongfully terminated his long-term disability benefits. In December 2013, Mr. Bernitz was hired by Synta Pharmaceuticals as its senior vice president of corporate development. Unfortunately, he stopped working not long after. In June 2014, Mr. Bernitz applied for disability benefits after he experienced a sudden onset of severe back pain in late April of that same year, which left him unable to sit for extended periods of time. Mr. Bernitz’s claim for benefits included a statement from his treating doctor noting that MRI results showed “severe degenerative disc disease and neuroimpingement.” He was later diagnosed with spondylosis with radiculopathy. In March 2015, USAble Life approved his claim for long-term disability benefits. Over the coming years, Mr. Bernitz underwent multiple extensive spinal surgeries. Ultimately, his treating physicians noted to USAble Life that his condition was “permanent and irreversible,” and that the surgeries had only “resulted in very minor symptom improvement.” In addition to the physical symptoms, Mr. Bernitz also suffered from cognitive concentration problems resulting from side effects from his pain medication. Despite the seeming severity of Mr. Bernitz’s condition, in late 2018, an administrative law judge for the Social Security Administration denied Mr. Bernitz’s application for Social Security disability benefits, and shortly after, in 2019, USAble Life terminated Mr. Bernitz’s long-term disability benefits. The medical reviewer for the insurance company concluded that Mr. Bernitz’s condition had improved, as he had recently lost about 70 pounds and hip surgery had been performed with good results and the combination appeared to be having a positive effect on Mr. Bernitz’s physical condition. Thus, defendants informed Mr. Bernitz that he was no longer impaired from performing a full-time sedentary occupation. Under arbitrary and capricious review, the court affirmed the termination decision in this decision ruling on the parties’ cross-motions for summary judgment. The court agreed with defendants that their decision to deny benefits was supported by substantial evidence in the record of medical improvement and therefore reasonable. “At base, USAble Life rooted its determination that Bernitz’s condition had improved in substantial evidence, including, inter alia, the ALJ’s denial of Bernitz’s application for SSDI benefits (and the Social Security Appeals Council’s affirmance of same), his significant weight loss and the medical benefits of same, his travel to domestic and international destinations, and the personal observations of investigators.” Accordingly, the court expressed that it could not discern any error with respect to USAble Life’s termination of Mr. Bernitz’s long-term disability benefits. Moreover, the court did not take issue with defendants’ handling of his administrative appeal and stressed that defendants simply decided to afford greater weight to their own doctors than to the opinions of Mr. Bernitz’s treating providers, which was not arbitrary and capricious. Thus, the court granted defendants’ motion for summary judgment, and denied Mr. Bernitz’s motion for summary judgment.

Fourth Circuit

Ward v. Reliance Standard Life Ins. Co., No. SAG-23-2147, 2024 WL 3206709 (D. Md. Jun. 21, 2024) (Judge Stephanie A. Gallagher). Plaintiff Christine Ward filed this action under ERISA Section 502 against defendant Reliance Standard Life Insurance Company after Reliance Standard terminated her long-term disability benefits under an ERISA-governed benefit plan. In this decision the court decided the parties’ cross-motions under Federal Rule of Civil Procedure 52, and ruled in favor of Ms. Ward. Ms. Ward became disabled in 2021 after she became one of the millions of Americans to suffer from post-acute COVID or long-COVID syndrome. This illness left Ms. Ward unable to continue working in her high-level position as a senior systems engineer at the MITRE Corporation on work related to Medicare, Medicaid, and the Defense Department. Before it began analyzing the termination decision, the court addressed the parties’ dispute about the appropriate mechanism for the court’s review. Although both parties agreed that Reliance Standard’s decision is subject to abuse of discretion review, Ms. Ward argued that regardless of the review standard the court should conduct a bench trial on the record under Rule 52 rather than issue a ruling on summary judgment. Citing recent Fourth Circuit precedent, the court agreed with Ms. Ward. The court rejected Reliance Standard’s argument “that the Fourth Circuit did not opine that Rule 52 is the proper mechanism to use in a case, like this one, which is subject to abuse of discretion review instead of de novo review.” The court stated that it did not view either Rule 52 or Rule 56 as proving “an ideal mechanism for resolution of this case,” but that on balance “a Rule 52 trial conducted on the papers, while carefully adhering to the abuse of discretion standard, is the better course.” Having settled on Rule 52 review, the court turned to the merits. The court stressed at the outset that Reliance Standard failed to consider the cognitive effects of Ms. Ward’s illness, and focused merely on the physical requirements of her regular occupation. It took issue with this.  “Sedentary occupations’ run the gamut from jobs with very few cognitive requirements…to very extensive cognitive requirements, which can only be performed by a person with the appropriate physical plus cognitive capabilities. Plaintiff’s senior engineering position is certainly on the higher end of that wide range. The logical fallacy in Reliance Standard’s reasoning compounded its failure to confront the evidence of Plaintiff’s continuing cognitive dysfunction and resulted in a determination unsupported by substantial evidence.” The court went on to state that the records did not reflect sustained improvement in Ms. Ward’s cognitive functioning. To the contrary, “records from Plaintiff’s visit to Dr. Pressman in July, 2022 reflect ongoing issues with cognitive functioning.” Thus, the court broadly held that Reliance Standard disregarded the plan language requiring it to evaluate Ms. Ward’s ability to perform the material duties of her own regular occupation, and failed to adequately consider the materials Ms. Ward submitted throughout her administrative appeals process. Accordingly, the court concluded that the decision to terminate benefits was not the result of a reasoned and principled decision making process and was not supported by substantial evidence in the record. Judgment was therefore granted in favor of Ms. Ward. However, because the court concluded that Reliance Standard failed to appropriately address Ms. Ward’s cognitive symptoms in its assessment, the court did not believe it was appropriate to decide for itself whether Ms. Ward is disabled from her occupation. Instead, the court concluded that remanding to Reliance Standard was the appropriate remedy here, and ended its decision by taking this course of action.

Sixth Circuit

Jackson v. Hartford Life & Accident Ins. Co., No. 2:22-cv-3955, 2024 WL 3218236 (S.D. Ohio Jun. 28, 2024) (Judge Sarah D. Morrison). Plaintiff Diana Jackson commenced this action to challenge defendant Hartford Life & Accident Insurance Company’s decision to terminate her long-term disability and waiver of life insurance premium benefits. Hartford had been paying Ms. Jackson monthly benefit payments over the past 19 years, since the onset of her disability in 2002. In this decision the court ruled on the administrative record and granted judgment in favor of Hartford. As a preliminary matter, the court proceeded under arbitrary and capricious standard of review as both the long-term disability and the life insurance policy grant Hartford full discretion. Under this deferential review standard, the court agreed with Hartford that the opinions of its medical reviewers and those of the medical examiner who personally examined Ms. Jackson support its conclusion that by 2021 Ms. Jackson’s physical disabilities had improved to the point where she “is now able to work certain sedentary, unskilled jobs.” Although the court recognized that some evidence in the administrative record “cut[s] in the other direction,” it nevertheless clarified that it did not find the evidence supporting a finding of disability so overwhelming as to “establish that Hartford’s decision to terminate benefits is unsupported by substantial evidence.” Moreover, the court stated that evidence in the record belied Ms. Jackson’s assertion that her decades-long condition had not improved when Hartford terminated benefits. The court additionally disagreed with Ms. Jackson that Hartford was guilty of “cherry-picking” evidence in her medical history to support its desired outcome. Finally, the court expressed that Hartford’s employability assessment reports were acceptable irrespective of the fact that the identified occupations would require Ms. Jackson to undergo some training to perform them. Accordingly, the court granted Hartford’s motion for judgment on the administrative record and affirmed its decision to terminate Ms. Jackson’s benefits.

Medical Benefit Claims

Tenth Circuit

H.R. v. United Healthcare Ins. Co., No. 2:21-cv-00386-RJS-DBP, 2024 WL 3106468 (D. Utah Jun. 24, 2024) (Judge Robert J. Shelby). This case involves the denial of benefits for the mental healthcare treatment of a child, and like all of these actions of a similar nature it is distressing but important. This particular action revolves around father and son, H.R. and D.R., and tells the R. family’s frustrating story about their ERISA healthcare plan’s refusal to cover D.R.’s much-needed residential treatment. “After being sexually abused by a babysitter when he was seven years old, D.R. began receiving therapy.” D.R.’s outpatient psychiatric healthcare providers recommended D.R. receive more intensive treatment in a residential treatment program setting, as they were concerned about his aggressive and violent behaviors, including suicidal ideology and self-harm. The R. family agreed with this treatment recommendation, and subsequently admitted D.R. to two adolescent treatment programs seeking therapeutic care for their son. On the bright side, this care was very helpful to D.R., who made great progress. Nevertheless, this healthcare was expensive, and this litigation of course stems from the refusal of their healthcare plan, the Corning Medical Welfare-Health Plan, to cover the treatment. The plan’s administrator, defendant United Behavioral Health (UBH), provided shifting denials to the family, including that the treatment was investigational, that it was not medically necessary, and that the treatment centers themselves did not meet certain staffing criteria. The family alleged that UBH did not meaningfully engage with D.R.’s medical records or the family’s arguments on appeal, and also failed to supply plan documents to the family despite letters sent requesting them. After exhausting the administrative appeals process, the family commenced this action seeking a court order overturning the denials. Plaintiffs asserted three causes of action; (1) a claim for wrongful denial of benefits under Section 502(a)(1)(B); (2) equitable relief claims for violating the Mental Health Parity and Addiction Equity Act under Section 502(a)(3); and (3) a claim for statutory penalties under Sections 502(a)(1)(A) and (c) for failure to produce plan documents upon written request. The parties filed cross-motions for summary judgment, which the court ruled on in this decision. As an initial matter, the parties agreed that arbitrary and capricious standard of review was appropriate for the denial of benefits claim. The court did not hold back in its discussion on why it believed the denials were an abuse of discretion under ERISA. In one particularly noteworthy paragraph the court wrote, “The fact Defendants’ level two appeal decision acknowledged without explanation that D.R. could have received inpatient treatment at a qualifying RTC does not absolve [the] deficiencies. In fact, it underscores the arbitrariness of Defendants’ determinations. When Defendants’ own reviewers come to inconsistent conclusions and fail to provide any explanation for the shift in rationale, it is unclear how these determinations offer any clarifying information to Plaintiffs or could be anything but arbitrary and capricious. One purpose of ERISA’s full and fair review is the ‘consistent treatment of claims.’ Defendants’ inconsistency here – particularly in view of Defendants’ subsequent denial of D.R.’s residential treatment at Maple Lake for lack of medical necessity – does not advance this objective, nor does it suggest to the court their determinations were ‘made on a reasoned basis.” Defendants’ principal argument in response was that other courts have upheld substantially similar denials under arbitrary and capricious review. The court did not mince words in stating that it did not find this, or any other argument offered by defendants, compelling. The court consistently reprimanded UBH and the plan for not engaging with the family and issuing denials that were conclusory, inaccurate, and ever shifting. Accordingly, the court overturned the denial of benefits for both residential treatment centers and granted summary judgment to plaintiffs on their claims for benefits. However, rather than award benefits outright, the court followed Tenth Circuit guidance, and determined that remand to defendants was the appropriate course of action here. Nevertheless, the court imposed guardrails on defendants’ power during remand, and stipulated that defendants may only consider whether one treatment center met plan criteria for covered residential treatment centers, and for the second treatment facility that they may only consider whether the treatment there was medically necessary. Additionally, because the court reversed and remanded the benefit determinations, it concluded that the Parity Act claim was not ripe and declined to resolve it at this stage. Finally, the court agreed with plaintiffs that they were entitled to statutory penalties for defendants’ failure to provide the requested plan documents. The court awarded a penalty of $95 per day for 824 days, which resulted in a not insignificant sum of $78,280 payable to the R. family. The decision ended with the court postponing a final decision on attorneys’ fees and costs, but reassuring the family that they “have achieved some degree of success on the merits” already.

Pension Benefit Claims

Seventh Circuit

Haynes v. Kone Emps. Ret. Plan, No. 21 C 6647, 2024 WL 3201271 (N.D. Ill. Jun. 27, 2024) (Judge Elaine E. Bucklo). Plaintiff Robert Haynes was employed by KONE, Inc. from 1976 until his retirement in 2021 and was a participant in the KONE Inc. Employees’ Retirement Plan, a defined benefit pension plan. From August 2011 through the middle of 2015, Mr. Hayes was on an international assignment and worked at KONE’s Canadian office. At issue in this lawsuit was KONE’s decision to interpret the term “compensation” in the plan to exclude amounts paid to Canadian tax authorities to calculate Mr. Haynes’ pension benefit attributable to his foreign assignment. This interpretation and application of the term resulted in a reduction of tens of thousands of dollars of pension benefits. As the plan did not contain any language warning of this result, and because he believed his foreign assignment contracts with the company cut against this reading and resulting calculation, Mr. Haynes’ challenged the benefit decision, first through an administrative appeal, and later in this civil litigation. The parties each filed competing motions for summary judgment under arbitrary and capricious review. In this order the court granted judgment in favor of Mr. Haynes. It held that KONE’s decision was arbitrary and capricious. “For time spent working in the United States, KONE interpreted ‘Compensation’ to include Haynes’ gross salary and bonuses; but for his time on foreign assignment, KONE interpreted this same provision to include only net salary and bonuses.” The court stated, “Having so interpreted the Plan, KONE was not free to change course without an explanation.” To do so, the court expressed, was fundamentally an abuse of discretion as it resulted in Mr. Haynes being unfairly and “heavily penalized by way of a reduction in pension benefits.” Thus, even under deferential review, the court concluded that KONE’s explanation did not pass muster, stating that it lacked support in the record, that it was expressly contradicted by the plan language, and so “withers even under the deferential scrutiny applicable here.” Accordingly, the court ruled that Mr. Haynes was entitled to summary judgment. However, the court did not award benefits outright. Instead, it remanded to KONE to determine whether Mr. Haynes’ benefits should be calculated based on compensation using gross earnings he received in Canada converted to USD or to calculate benefits using Mr. Haynes’ “home base salary.” “I cannot say with certainty what the proper calculation is, so…remand to the administrator to calculate Haynes’ pension benefit consistent with this opinion is the right course here.”

Ninth Circuit

Liu v. Kaiser Permanente Emps. Pension Plan for the Permanente Med. Grp., No. 23-cv-03109-AMO, 2024 WL 3090483 (N.D. Cal. Jun. 20, 2024) (Judge Araceli Martinez-Olguin). Plaintiff Sherry Yali Liu applied for pension benefits under Kaiser Permanente’s defined benefit plan after her sister, a participant in the plan, died. Ms. Liu’s claim for benefits was denied. The denial letter explained that benefits were not payable to Ms. Liu because she was never designated as a beneficiary and the plan had never been provided with any information that her sister had any qualified dependent. Following an unsuccessful administrative appeal, Ms. Liu initiated this ERISA action asserting claims under Sections 502(a)(1)(B) and (a)(3) seeking payment of the pension benefits. Defendants moved to dismiss. The court granted their motion, with prejudice, in this decision. It agreed with defendants that Ms. Liu could not sustain her claim for benefits as the face of the complaint made clear that her late sister never completed a valid benefit election form designating Ms. Liu as her beneficiary before her death. Thus, the court concluded Ms. Liu was not entitled to benefits under the plain reading of the plan. Moreover, the court stated that even if the “substantial compliance doctrine” applied to the circumstances here, as Ms. Liu was arguing, the only step her sister took – initiating the online beneficiary process – fell well short of substantial compliance. As for Mr. Liu’s argument that she was entitled to her sister’s pension benefits as a matter of law under IRS Section 401(a)(9)(E), the court succinctly disagreed, noting “Code § 401(a)(9)(E)(ii) does not apply here, as it applies only to defined contribution plans not defined benefit plans such as the Plan.” Even assuming it did apply, the court went on to state that it would not render Ms. Liu her sister’s designated beneficiary; “it might at most make her eligible for designation as a beneficiary.” For these reasons the court dismissed Ms. Liu’s claim under Section 502(a)(1)(B). Finally, the court addressed Ms. Liu’s breach of fiduciary duty claim under Section 502(a)(3). Here, the court held that the (a)(3) claim did not arise from a separate injury or seek a different remedy of the (a)(1)(B) claim, rendering it duplicative. Further, the court held that Ms. Liu’s complaint failed to allege a breach of fiduciary duty, as the record demonstrated that Kaiser complied with the plan terms. Thus, the court concluded that the complaint failed to state claims for relief and therefore granted the motion to dismiss.

Provider Claims

Second Circuit

Biodiagnostic Labs v. Aetna Health Inc., No. 23-cv-9571 (BMC), 2024 WL 3106169 (E.D.N.Y. Jun. 23, 2024) (Judge Brian Cogan). Plaintiff Biodiagnostic Labs, Inc. brought eight actions against a variety of health insurance companies and benefit managers. In them, the lab seeks payment to reimburse it for COVID-19 diagnostic testing it provided to insured patients throughout the pandemic. Some, but not all, of the healthcare plans at issue are governed by ERISA. The patients assigned their rights to the provider for the tests. Plaintiff is suing on behalf of the assigned patients. All eight of the actions were consolidated for this decision ruling on defendants’ motions to dismiss, “since those motions raise the same legal issues.” First, all defendants sought dismissal of the claim for relief under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. They argued, and the court agreed, that the CARES Act does not include a private right of action to sue. Next, the court concluded that to the extent plaintiff’s breach of contract claims fall under ERISA-governed healthcare plans, they are preempted by ERISA “and plaintiff must pursue the dispute resolution procedures set forth in ERISA and in those plans.” Finally, the court declined to exercise supplemental jurisdiction of the state law claims for any of the non-ERISA policies. However, the court noted that dismissal of these claims was without prejudice to recommencement in state court. For these reasons, the court granted defendants’ motions to dismiss.

Third Circuit

Advanced Gynecology & Laparascopy of N. Jersey v. Cigna Health & Life Ins. Co., No. 19-22234 (ES) (MAH), 2024 WL 3159414 (D.N.J. Jun. 25, 2024) (Judge Esther Salas). Plaintiffs in this action are out-of-network New Jersey-based healthcare providers. In this lawsuit asserting claims under ERISA, RICO, and state law, the providers accuse Cigna Health and Life Insurance Company and its subsidiaries of systematically underpaying emergency and elective healthcare services through a series of complex and fraudulent processes and procedures. The complaint further alleges that rather than reimbursing the providers in the amounts they assert they are entitled to under the plans, federal and state law, and by Cigna’s promises, Cigna utilizes a tangled repricing web to enrich itself at their expense, as well as at the expense of patients and healthcare plans. Overall, the providers allege they were underpaid 1,677 times for different claims they submitted to Cigna. Plaintiffs have faced difficulties getting their action past defendants’ challenges to their pleadings. In a previous order the court granted Cigna’s motion to dismiss. In response, plaintiffs filed their third amended complaint alleging violations of ERISA for breach of fiduciary duties and failure to pay benefits, RICO conspiracy violations, and state law breach of contract and breach of the covenant of good faith and fair dealing. Once again the Cigna defendants moved to dismiss. This time their motion was granted by the court with prejudice. To begin, the court agreed with defendants that “Plaintiffs have once more failed to sufficiently allege that they were underpaid in violation of Plan terms.” The court stressed its view that “it is inappropriate to conflate billed charges with normal charges,” and that plaintiffs’ underpayment claims for both elective and emergency services hinge on allegations that improperly conflated normal and full-billed charges. This was especially true, the court said, where “we are dealing with twenty-three different healthcare providers, thousands of different patients, and various different procedures.” Accordingly, the court deemed plaintiffs’ Section 502(a)(1)(B) ERISA claim insufficient to put defendants on notice that they failed to reimburse the provider’s normal charges for each of the medical procedures at issue. Moreover, the court explained that dismissal was with prejudice because “Plaintiffs have had four chances to plead a proper § 502(a)(1)(B) claim (with clear instructions from the Court on how to do so that went unfollowed), and thus further amendment appears futile.” In the next section, the court dismissed plaintiffs’ ERISA fiduciary breach causes of action. It ruled that the providers lacked standing to allege their fiduciary duty claims for disgorgement of profits, agreeing with defendants that the only direct victims of the alleged embezzlement scheme are the plan sponsors. “There is no indication in the Third Amended Complaint that [the cost-containment fees described by Plaintiffs] would have gone to Plaintiffs if Defendants had acted as Plaintiffs allege they should have and paid Plaintiffs their full normal charges – such an argument is simply speculative.” Thus, the court found that plaintiffs failed to sufficiently allege an injury to themselves stemming from defendants’ alleged breach of fiduciary duties. Additionally, the court further noted, “Plaintiffs’ ERISA-based claims of breach of fiduciary duties of loyalty and due care necessarily fail because these claims derive from the allegation that Defendants underpaid Plaintiffs in violation of the relevant Plans, and Plaintiffs have not, as described above, ‘plausibly pleaded that Cigna wrongfully withheld benefits.’” Thus, the court dismissed the fiduciary breach claims. The court similarly dismissed plaintiffs’ RICO claims for failure to allege RICO injury or causation. “Plaintiffs have once more failed to sufficiently allege that they were underpaid under the Plans…They have thus also failed to allege an injury caused by Defendants’ RICO violations.” Finally, the court declined to exercise supplemental jurisdiction over the remaining state law causes of action. For these reasons, the court granted defendants’ motion to dismiss in its entirety, and plaintiffs were denied leave to amend their complaint further.

Abira Med. Labs. v. Blue Cross & Blue Shield of Mont., No. 23-20755 (GC) (JBD), 2024 WL 3199967  (D.N.J. Jun. 26, 2024) (Judge Georgette Castner). As Your ERISA Watch has reported, Abira Medical Laboratories, LLC filed more than forty actions against insurance companies, welfare funds, healthcare plans, and third-party administrators for failure to pay for laboratory testing, including for COVID-19 tests. We have selected this decision as an exemplar, but several other Abira decisions were also issued this week with similar rulings. Much like previous Abira decisions Your ERISA Watch has covered, the court here held that Abira could not invoke ERISA’s jurisdictional provisions without asserting a cause of action under ERISA. Instead, the laboratory asserted seven state law causes of action for breach of contract, breach of the covenant of good faith and fair dealing, fraudulent misrepresentation, negligent misrepresentation, promissory estoppel, equitable estoppel, and quantum meruit/unjust enrichment. Because Abira did not assert a cause of action under ERISA, or even allege that the plans at issue are governed by ERISA, this court, like others in the Third Circuit have done, held that ERISA was irrelevant to the jurisdictional analysis. “As to Defendants’ communications with Plaintiffs about alleged claims, district courts in the Third Circuit also repeatedly rejected nearly identical allegations as creating specific jurisdiction. These courts have found that a physician’s unilateral choice to send a patient’s specimen to a laboratory for testing does not create personal jurisdiction over the patient’s insurer in the laboratory’s home state when the insurer simply pays the resulting claims or communicates with the laboratory about the claims.” Thus, like those other cases, the court here also held that Abira failed to establish that Blue Cross & Blue Shield of Montana had the requisite minimum contacts with New Jersey to avail itself of the forum. Accordingly, the court concluded that it lacks specific jurisdiction over defendant in this matter. In addition, the court determined that Abira failed to establish that general jurisdiction exists over Blue Cross & Blue Shield of Montana in New Jersey as its only argument in favor of general jurisdiction was that Blue Cross of Montana did business with it and it is a New Jersey corporate citizen. Finding that it lacks both specific and general jurisdiction in this action, the court dismissed the case without prejudice.

Subrogation/Reimbursement Claims

Eleventh Circuit

Spain v. Bice, No. 7:23-cv-1681-RDP, 2024 WL 3106898 (N.D. Ala. Jun. 24, 2024) (Judge R. David Proctor). This action stems from a 2019 multi-car accident where a minor child, Hunter Bice, was injured. Plaintiffs Pamela Spain, Jack Kendrick, Calera Industrial Supply, LLC, Sentry Insurance, and Alfa Mutual Insurance filed this interpleader action in state court in Alabama, naming Hunter and Shannon Bice, Royce McKinney, United Healthcare Insurance, and Optum Corporation as defendants. The ERISA-governed employee benefit plan then got involved. It answered the bill of interpleader and asserted that it provided healthcare coverage to Hunter Bice and that it had a subrogation interest under the plan’s reimbursement clause. Plaintiffs subsequently added the plan as a defendant in their action. Over the next three years, the interpleader action “sat dormant” as the Bices pursued a personal injury suit related to the car crash. Once that case settled, the interpleader once again became active, and plaintiffs dismissed Royce McKinney as a defendant. They also paid the entirety of the insurance proceeds that were the focal point of the interpleader action to Hunter Bice. Then the Bice family filed a crossclaim against United for compensatory and punitive damages and a third party claim against UAB hospital to invalidate its lien related to Hunter Bice’s medical treatment. Shortly after, the Bice family added the plan as a crossclaim defendant seeking a declaratory judgment requiring either United or the plan to pay the remaining medical bills. United and Plan responded to the crossclaims by filing a notice of removal, asserting that the claims are subject to ERISA and establish federal question jurisdiction. The Bices did not consent to removal and filed this instant motion to remand their action back to state court. They argued that a crossclaim cannot serve as the basis for removal to federal court and that removal was improper as it was both untimely and violated the unanimity rule, which requires all defendants who have been properly serve to consent to the removal. The court agreed, and granted the motion to remand. “The court finds that a crossclaim cannot authorize removal, and, even if it could, United and the Plan’s Notice of Removal violates the unanimity rule.” The court flatly rejected the idea that a crossclaim creates a separate removable civil action. Further, the court declined to “bypass procedural requirements” to realign the parties. It stated, “here, based on the Bill of Interpleader, the parties are already properly aligned according to their interests.” Thus, the court expressed that it could not, and was not inclined to, realign plaintiffs and defendants. Absent the consent to removal of all of the defendants, and in light of the fact that a crossclaim cannot authorize removal, the court granted the motion to remand.