Haley v. Teachers Ins. & Annuity Ass’n of Am., No. 21-805-cv, __ F.4th __, 2022 WL  17347244 (2d Cir. Dec. 1, 2022) (Before Circuit Judges Newman, Walker, and Sullivan)

In large class actions, predominance of common issues among the class members is often a thorny issue, requiring careful scrutiny by the district court tasked with deciding whether to certify the class. It is no less true in ERISA class actions, as this decision demonstrates.

Plaintiff Melissa Haley is a participant in a Section 403(b) defined contribution plan sponsored by her employer, Washington University (“WashU”). She brought a putative class action asserting that a collateralized loan program offered to participants by Defendant Teachers Insurance and Annuity Association of America constituted a prohibited transaction under ERISA.

The loan program, which TIAA offers to 8,000 pension plans, allows plan participants to borrow from TIAA’s general account rather than their own individual accounts. TIAA then charges interest on these loans, at various rates dependent on state law and the particular contract at issue, which the participants then pay (along with the principal). These loans are collateralized with funds in the participants’ accounts, equal to the amount of the loan plus an additional 10%, which TIAA then invests in its own products. TIAA thus received compensation for these loans from two sources: the interest paid on the loans and the amount earned on the collateral investments.

Ms. Hart took out four such loans before filing suit against TIAA for violating ERISA’s prohibited transaction rules. Interesting, she took out a fifth loan in 2019 while her suit was pending. Also of interest is the fact that Ms. Hart did not sue her employer, WashU, the entity that entered into the prohibited transaction with TIAA.

The district court determined that a prohibited transaction suit could proceed against TIAA even though it was not a fiduciary, denying TIAA’s motion to dismiss on this basis. The court then certified a class of the thousands of pension plans that contracted with TIAA to offer loans that were secured by participant pension benefits. TIAA filed an interlocutory appeal challenging this certification decision.

On appeal, the court began by explaining that the rather unique and broadly worded prohibited transaction provision contained in ERISA Section 406(a), the only prohibition at issue on appeal, bans most transactions with service providers, such as TIAA. However, by the terms of Section 406(a), this broad prohibition is limited by the exemptions contained in ERISA Section 408.

The court of appeals saw two exemptions as potentially relevant here. “First, § 408(b)(1) exempts loans to participants provided that, among other things, they are made in accordance with specific provisions of the plan document, ‘bear a reasonable rate of interest,’ and are ‘adequately secured.’ Second, § 408(b)(17) permits transactions prohibited by § 406(a)(1)(B) and (D) as long as the plan pays no more and receives no less than ‘adequate consideration.’”

The court then turned to what it saw as the relevant issue on appeal: the requirement in Rule 23 that there are questions common to the class and these questions predominate. The appellate court had no trouble concluding that the district court did not abuse its discretion in concluding that there were such common issues. But the Second Circuit faulted the district court for what it saw as that court’s complete failure to factor in ERISA’s prohibited transaction exemptions into its predominance analysis.

Recognizing that the Section 408 exemptions constitute affirmative defenses, the court nevertheless pointed out that the predominance inquiry requires the court to give careful scrutiny to all legal issues, including affirmative defenses.

With respect to the § 408(b)(17) “adequate consideration” exemption, the court pointed out that the “adequacy” determination is based on the fiduciaries’ conduct in determining the consideration, not the amount actually paid. Even if adequate consideration is measured under an objective test, the court concluded that the facts pertaining to the determination by the fiduciaries for each plan might well entail individualized rather than common proof. But, according to the Second Circuit, the district court failed to analyze this issue at all, merely indicating that “determining whether the plans received adequate compensation ‘is not quite as easy’ to resolve with common proof.”

With respect to the § 408(b)(1) exemption, the court noted that the parties disputed whether the inquiry required the court to look at the terms of individual plans and the individual loans made to participants in those plans, as TIAA insisted, or whether the inquiry was not fact- and plan-specific, as the plaintiff argued, because the exemption was inapplicable to the loans at issue. Without resolving that dispute, the court of appeals found that the district court simply failed to analyze the exemptions and thus did not take “the requisite ‘close look at whether the common legal issues predominate over individual ones.’”

With that, the court of appeals vacated the district court’s class certification and remanded to the court to make the careful determination of predominance required under Rule 23. Whether the district court will again certify the class after doing so remains to be seen.

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

Arbitration

Eighth Circuit

Hursh v. DST Sys., No. 21-3554, __ F. 4th __, 2022 WL 17246315 (8th Cir. Nov. 28, 2022) (Before Circuit Judges Loken, Arnold, and Kelly). Last fall and winter, Your ERISA Watch summarized a series of related decisions from the Western District of Missouri confirming arbitration awards won by participants in a 401(k) profit sharing plan challenging the actions of DST Systems, Inc., their plan’s fiduciary, for failing to monitor and ensure the rebalancing of the plan’s overly concentrated investments in a single stock. In those orders, the court confirmed plaintiffs’ arbitration awards under Section 9 of the Federal Arbitration Act (“FAA”) and granted plaintiffs’ requests for attorneys’ fees and costs. Defendants appealed. Then, on March 31, 2022, while briefing was underway in the Eighth Circuit, the Supreme Court issued its decision in Badgerow v. Walters, 142 S. Ct. 1310 (2022), “dramatically limiting federal jurisdiction to confirm or vacate arbitration awards under Sections 9-10 of the FAA.” This new precedent factored heavily in the Eighth Circuit’s ruling. The court of appeals did not agree with plaintiffs’ assertion that the district court had federal question jurisdiction because their motions to confirm the arbitration awards under Section 9 “implicated significant federal issues,” namely the “dispute resolution relating to an ERISA Plan.” To the contrary, the court understood plaintiffs’ actions, seeking relief under the DST Arbitration Agreement in their employment contracts, as not falling under ERISA preemption, and therefore not conferring federal question jurisdiction. “Although the arbitration awards at issue were based upon breach of DST’s fiduciary duties under ERISA, without a look-through to this underlying ERISA controversy that is foreclosed by Badgerow, Plaintiffs’ Section 9 applications only concern ‘the contractual rights provided in the arbitration agreement, generally governed by state law.’” Thus, the Eighth Circuit concluded that the lower court lacked federal question subject matter jurisdiction and therefore vacated each of the district court’s confirmation orders, including the attorneys’ fee awards, and remanded with instructions to the district court to determine whether it has diversity jurisdiction in each individual circumstance. Finally, although the court stated that it could not address most of the remainder of either party’s arguments until the district court had finished with its diversity jurisdiction analysis “on a case-by-case basis,” the appeals court did identify one additional issue that it could consider even with the district court’s jurisdiction in doubt – whether the district court erred in not addressing defendants’ motion to transfer these cases to the Southern District of New York (where a parallel ERISA class action is underway against DST.) The Eighth Circuit cleverly reasoned that transferring these cases to the ongoing proceedings in New York may “provide the parties a transferee court with subject matter jurisdiction that can resolve the entire controversy, including the transferred claims, by settlement or otherwise, in a manner that is fair and more efficient than keeping some Plaintiffs’ claims pending in the Eighth Circuit and leaving the remaining arbitration claimants to seek confirmation in state court.” Accordingly, the circuit court also included instructions to the district court to determine the issue of whether to transfer the cases congruent with its case-by-case diversity jurisdiction analysis. Unfortunately, for the participants in the plan who have suffered financial losses through no fault of their own, and have already waded through arbitration proceedings, civil suits, and class actions, this decision by the Eighth Circuit leaves them once again in limbo, caught between a rock, a hard place, and at least three court systems.

Attorneys’ Fees

First Circuit

MacNaughton v. The Paul Revere Life Ins. Co., No. 4:19-40016-TSH, 2022 WL 17253701 (D. Mass. Nov. 28, 2022) (Judge Timothy S. Hillman). Plaintiff Dr. Mary MacNaughton was awarded summary judgment in this action challenging the termination of her long-term disability benefits by defendants The Paul Revere Life Insurance Company and Unum Group. Under abuse of discretion review, the court found that Dr. MacNaughton was prejudiced by defendants’ failure to disclose the medical opinions on which they relied to deny the benefits. Rather than award benefits to Dr. MacNaughton, the court chose to remand the matter to defendants for reconsideration. Following her summary judgment win, Dr. MacNaughton filed a motion for attorneys’ fees and costs pursuant to Section 502(g)(1). Given the presumption that remand to plan administrators in ERISA benefit disputes constitutes “some degree of success on the merits” to warrant an award of fees, the court held that Dr. MacNaughton was eligible for such an award. Furthermore, the court explained that an award of fees would encourage defendants “to proactively disclose relevant reports in other ERISA disputes” and would benefit other plan participants. Lastly, the court held that defendants are unquestionably able to satisfy an award. Weighing these factors, the court concluded that Dr. MacNaughton’s motion should be granted. The decision thus moved on to determining the precise award. Dr. MacNaughton was represented in her action by counsels Feigenbaum and Ravis, both “experienced ERISA litigators and partner-level lawyers.” Counsel sought hourly rates of $800 an hour for Feigenbaum and $550 an hour for Ravis. “[T]his Court, considering its knowledge of local rates, finds a lodestar of $600 an hour appropriate for this locality.” The requested 97.65 hours for counsel Feigenbaum and 78.3 hours for counsel Ravis was also reduced by the court. The court eliminated the requested hours for reimbursement of plaintiffs’ unsuccessful discovery motions and reduced the requested hours for time spent working on the summary judgment motion by 55% to reflect the fact the court chose to remand rather than award benefits. After these reductions, the court was left with lodestar amounts totaling $23,694 for counsel Feigenbaum and $13,299 for counsel Ravis. Attorneys’ fees were awarded in these amounts. Finally, Dr. MacNaughton’s motion to recover her $400 filing fee was granted.

Sixth Circuit

Int’l Union v. Honeywell Int’l Inc., No. 11-14036, 2022 WL 17259028 (E.D. Mich. Nov. 28, 2022) (Magistrate Judge David R. Grand). The International Union, United Automobile, Aerospace and Agricultural Implement Workers of America along with individual retirees brought this suit against an employer, Honeywell International, Inc., arguing that, under collective bargaining agreements between the parties, Honeywell was obligated to pay the retirees lifetime health insurance benefits. On April 3, 2020, the Sixth Circuit ruled in favor of Honeywell, concluding that the collective bargaining agreements, which contained “durational clauses,” did not and could not promise lifetime benefits past those durations under which Honeywell was obligated. As a result, the court of appeals concluded that the lifetime healthcare benefits were not disconnected from the durational clauses and therefore could not extend the benefit beyond the end dates. Notably, this decision was not unanimous. Judge Jane B. Stranch dissented from her colleagues, finding that the collective bargaining agreements did vest minimum lifetime “floor-level” healthcare benefits for the retirees based on the ordinary principles of contract law. In fact, Judge Stranch wrote that such a reading of the collective bargaining agreements was the “only reasonable interpretation.” Judge Stranch’s dissent played a significant role in this report and recommendation by Magistrate Judge David R. Grand, wherein Judge Grand recommended the court deny Honeywell’s motion for attorneys’ fees under ERISA’s fee and cost provision, Section 502(g)(1). Magistrate Grand, relying on Judge Stranch’s opinion, concluded that plaintiffs’ position, although ultimately unsuccessful, was not meritless nor made in bad faith. Furthermore, the Magistrate’s report stressed that “there is nothing untoward to deter” in this instance to justify an award of fees to an ERISA defendant, especially when factoring in a potential “chilling effect such an award might create for other ERISA plaintiffs.” For these reasons, it was Judge Grand’s opinion that the court should deny Honeywell’s motion for attorney’s fees.

Breach of Fiduciary Duty

Ninth Circuit

Lauderdale v. NFP Retirement, Inc., No. 8:21-cv-00301-JVS-KES, 2022 WL 17259050 (C.D. Cal. Nov. 17, 2022) (Judge James V. Selna). This week, the court issued three pre-trial rulings in this class action brought by participants of the multi-employer Wood Group U.S. Holdings, Inc. 401(k) plan. Plaintiffs’ lawsuit challenges the actions of the plan’s sponsor, advisor, and manager in selecting, monitoring, and maintaining an investment portfolio that included proprietary target-date funds and collective investment trusts despite their high costs and untested performance histories. In fact, once these funds were adopted as investment options within the plan, plaintiffs allege they performed poorly when compared to other available options. The decision to include these proprietary investments was made, according to plaintiffs, in order to financially benefit the plan administrators, thereby putting their business incentives ahead of the best interest of the participants. In addition, plaintiffs faulted the fiduciaries for failing to negotiate lower-cost share classes, failing to monitor their co-fiduciaries, and engaging in prohibited transactions. In this first order, the court ruled on the motion of defendants NFP Retirement, Inc., flexPATH Strategies, LLC, Wood Group Management Services Inc., Wood Group U.S. Holdings, Inc., and the plan’s committee to strike plaintiffs’ jury demand. As ERISA fanatics are aware, courts are typically of the view that there is no right to a jury trial in ERISA cases. Here, the court was unwilling to adopt such an absolutist position, and therefore approached its decision-making by evaluating whether the “action would have been deemed legal or equitable in the eighteenth century” and whether the relief sought was legal or equitable in nature. Ultimately, while the analysis was more involved than standard motions to strike jury demands in ERISA actions, the decision reached was no different. The court held that this ERISA breach of fiduciary duty action would historically have been decided in the courts of equity, and the nature of the relief plaintiffs sought was likewise equitable. Thus, the court held that plaintiffs are not entitled to a jury trial under the Seventh Amendment. Accordingly, the motion to strike the jury demand was granted.

Lauderdale v. NFP Retirement, Inc., No. 8:21-cv-301-JVS-KES, 2022 WL 17260510 (C.D. Cal. Nov. 17, 2022) (Judge James V. Selna). In the second order, the court ruled on defendants’ motions for summary judgment on plaintiffs’ five counts: (1) breach of fiduciary duties related to the flexPATH target-date funds; (2) breach of fiduciary duties related to the use higher-cost share classes of plan investments; (3) prohibited transaction related to the flexPATH funds; (4) failure to monitor fiduciaries asserted against the Wood Defendants; and (5) breach of the duty of prudence against the Wood Defendants related to the selection of flexPATH as the plan’s discretionary investment manager. The court broke the defendants up into three groups: flexPATH, NFP, and the Wood Defendants. The court granted NFP’s summary judgment motion, denied flexPATH’s motion, and granted in part the Wood Defendants’ motion. To begin, the court addressed the breach of fiduciary duty claims and found that there were genuine disputes of material fact that precluded it from granting defendants’ summary judgment motions. Nevertheless, upon addressing the arguments pertaining to the causation link between the selection of the funds as investment options and the losses to the plaintiffs, the court wrote that it could not “be the case that there is always presumption of causation,” and the court found the conduct of two of the defendants, NFP and the Wood Defendants, did not cause the losses. With respect to the share class claims, the court stated, “Plaintiffs’ arguments rest largely on speculation and hindsight.” Defendants were also successful in the arguments they made asserting that fiduciaries don’t engage in prohibited transactions by entering into a contract “that makes that counterparty a ‘party in interest.’” However, the court denied the Wood Defendants’ motion to dismiss both the failure to monitor fiduciaries claim and the breach of duty of prudence claim based on the decision to select flexPATH as the plan’s monitor, concluding that a factfinder could find in favor of plaintiffs in both instances based on the evidence. Finally, viewing the evidence in the light most favorable to plaintiffs, the court held that it could not grant defendant flexPATH’s motion to dismiss. Thus, defendants achieved mixed results in their summary judgment motions, leaving much of the case to proceed to trial.

Lauderdale v. NFP Retirement, Inc., No. 8:21-cv-00301-JVS-KES, 2022 WL 17324416 (C.D. Cal. Nov. 17, 2022) (Judge James V. Selna). Finally, the court’s third decision ruled on defendants’ motion to exclude the testimony of plaintiffs’ four experts. In large part, the motions were denied, as the court concluded that defendants’ arguments in favor of excluding testimony mostly went to the weight and not the reliability of the testimony, and further concluded that differences of opinion could be properly addressed during cross-examination. However, to the extent that the court concluded that plaintiffs’ experts offered legal opinions or gave opinions that were “legally irrelevant,” the court granted the motions. Despite these few instances where the court struck small portions of plaintiffs’ experts’ testimony, the court otherwise denied the motions, concluding the experts were qualified and suitably offered testimony on issues within their fields of expertise.

Disability Benefit Claims

Seventh Circuit

Niemuth v. The Epic Life Ins. Co., No. 20-cv-629-jdp, 2022 WL 17359886 (W.D. Wis. Dec. 1, 2022) (Judge James D. Peterson). In the summer of 2018, plaintiff Lori Niemuth’s fibromyalgia became disabling, and she stopped working. Ms. Niemuth filed a claim for long-term disability benefits under her employer’s policy, which defendant The EPIC Life Insurance Company approved. EPIC paid Ms. Niemuth’s claim for one year and then terminated her benefits. EPIC informed Ms. Niemuth that its reviewing physicians had evaluated her medical records and concluded that “[b]ased on the totality of the evidence provided in the medical records…you are capable of working full time without restriction.” Ms. Niemuth commenced legal action following an unsuccessful administrative appeal. The parties cross-moved for summary judgment, agreeing that the plan granted discretionary authority to EPIC and thus abuse of discretion review was applicable. The court quoted a Seventh Circuit decision from 1996, Sarchet v. Chater, 78 F.3d 305 (7th Cir. 1996), which stated that while some people may have a severe enough case of fibromyalgia as to be disabled, “most do not.” The court understood EPIC’s role then as distinguishing whether Ms. Niemuth was a person with fibromyalgia who could not work or if she belonged to that larger group of people with the illness who could. In the view of the court, Ms. Niemuth’s treating physician’s statement explaining how the severity of a person’s fibromyalgia is nearly impossible to quantify with objective medical measures, was an admission by Ms. Niemuth’s doctors that they “could not offer any objective support for the limitations endorsed on their functional assessments and that they were merely parroting Niemuth’s subjective complaints.” Thus, the court agreed with EPIC that Ms. Niemuth failed to offer objective evidence demonstrating the severity of her disability as required by the plan. In response to Ms. Niemuth’s argument that the court should reject EPIC’s lack of objective evidence defense because it was adopted during legal proceedings rather than as the basis for the denial, the court wrote, “Niemuth did not develop this argument until her reply, so she has forfeited it.” In sum, the court felt that EPIC had a reasonable basis for terminating the benefits that was supported by the record, and it had no significant conflict of interest because its reviewing physicians were independent third parties. Therefore, the court denied Ms. Niemuth’s motion for summary judgment, and granted EPIC Life’s summary judgment motion.

ERISA Preemption

Fourth Circuit

Raines v. Subway Dev. of W.V., No. 2:22-cv-00338, 2022 WL 17324446 (S.D.W. Va. Nov. 29, 2022) (Judge Joseph R. Goodwin). Plaintiff Lyndon Raines worked for defendant Subway Development of W.V. for 23 years and had a close personal relationship with the company’s owner, defendant Gregory Hammond. Sadly, in May 2020, Mr. Raines became very ill. He was hospitalized and then informed that he needed a heart transplant. Mr. Raines and his wife informed Mr. Hammond and his wife about Mr. Raines’s illness, as the families were very close. Then, shortly after Mr. Raines was released from the hospital, Mr. Hammond fired him. Following the termination, Mr. Raines began requesting information about his pension. He requested documents, which were not provided, and was given different numbers about the value of his pension benefit. Mr. Raines simultaneously took two steps: executing the documents to obtain his lump-sum pension benefit, and commencing this legal action. Mr. Raines filed his complaint in state court alleging both ERISA and state law causes of action. Defendants removed the case to federal court. Following the removal, Mr. Raines moved for remand of the non-ERISA state law claims, and defendants moved to dismiss the two state law claims they believed were related to the ERISA plan and therefore were preempted by ERISA. The court granted both motions. First, the court dismissed the state law negligent administration of a pension plan claim, which Mr. Raines himself conceded was preempted by ERISA. Next, the court dismissed the state law breach of fiduciary duty claim, which also pertained to the administration of and actions around the pension plan. Although the court will retain jurisdiction over the ERISA benefits claim and the ERISA breach of fiduciary duty claim, the court nevertheless granted Mr. Raines’ motion to remand the remaining state law claims. Some of these claims pertained to state law disability discrimination and unlawful termination, others arguably shared more facts in common with the ERISA claims. “Even with this minimal factual overlap, I am not convinced the ERISA claims and Counts III and IX are so closely related that they share a common nucleus of operative fact. I need not decide that question, however, because even assuming they did, I would decline to exercise supplemental jurisdiction over it. It is most sensible, then, to remand all the state law claims to be disposed of together in state court.” Thus, both motions before the court were granted.

Life Insurance & AD&D Benefit Claims

Second Circuit

N.Y. Life Ins. Co. of NY v. Maxwell, No. 1:21-CV-00346 (LEK/ATB), 2022 WL 17403465 (N.D.N.Y. Dec. 2, 2022) (Judge Lawrence E. Kahn). Plaintiff New York Life Group Insurance Company of NY filed this interpleader action seeking a court order determining the proper beneficiary of the life insurance benefits of decedent Dreena Verhagen. New York Life deposited the plan benefit amount plus interest in the Court Registry Investment System. Seeking discharge from liability in connection with the issuance of benefits, New York Life moved for interpleader relief discharging it from liability, as well as for injunctive relief seeking to have defendants “enjoined from commencing or prosecuting any action related to the Plan.” In this order, the court granted New York Life’s motion for discharge but denied its request for injunctive relief. The court found that the interpleader action was appropriate due to the competing claims for the benefits and the risk that New York Life could face multiple liabilities if it were to distribute the benefits. Given this, the court concluded it was appropriate to discharge New York Life and its associated entities from further liability under the plan with respect to decedent Verhagen’s benefits. However, the court held that New York Life did not show “irreparable harm” in order to meet the standard required for granting its request to obtain a permanent injunction. Should New York Life face a separate lawsuit, the court stated that “money damages could ultimately compensate any injury” New York Life were to suffer. In light of these findings, the court discharged New York and dismissed it with prejudice from the case.

Fifth Circuit

Wegner v. Tetra Pak, Inc., No. 4:20-CV-608-SDJ, 2022 WL 17347151 (E.D. Tex. Nov. 30, 2022) (Judge Sean D. Jordan). Plaintiff Patricia Wegner sued her late husband’s employer, Tetra Pak, Inc., and the insurer of his supplemental life insurance policy, Hartford Life & Accident Insurance Company, for the difference between the amount of benefits she was paid (“the Guaranteed Issue Amount”) and the amount of additional coverage her husband elected and paid premiums on. In addition to suing for benefits under Section 502(a)(1)(B), Ms. Wegner also brought a claim for failure to follow claims procedures in violation of Section 503, failure to provide plan information in violation of Section 104(b)(4), and for breaches of fiduciary duties under Sections 502(a)(2) and (a)(3). Defendants moved for judgment. Applying de novo review, the court brushed aside the fact that the original explanation for denial of benefits was altered from Mr. Wegner not being actively at work at the time of his death, which proved inaccurate, to Mr. Wegner’s failure to provide a completed Evidence of Insurability form. Because Mr. Wegner never completed this form and the plan’s online benefits portal had information about this requirement, the court affirmed that the correct amount of benefits was paid to Ms. Wegner and she was not entitled to the higher amount her husband had elected. As for the premiums that Mr. Wegner paid on that higher amount, the court concluded that the “only remedy for Troy Wegner’s overpayment in premiums is refund of the premiums, which has already occurred.” Accordingly, defendants were granted judgment on the claim for benefits. The court then turned to the Section 503 claim. The court wrote that even if it were to agree with Ms. Wegner that defendants failed to fulfill procedural requirements, the proper remedy would be remand to the plan administrator, which in this case the court stated was inappropriate because Ms. Wegner was already paid the correct amount in benefits. Regarding the Section 104(b)(4) claim, the court was satisfied that the online benefit portal contained all of the documents identified in Section 104(b)(4), and these documents were therefore available to the Wegners for viewing. Ms. Wegner’s Section 502(a)(2) claim was dismissed by the court as individuals may not sue under that provision for personal damages. Finally, the court understood Ms. Wegner’s Section 502(a)(3) claim as seeking the same relief as her Section 502(a)(1)(B) claim, and stated that under Fifth Circuit precedent a claimant “whose injury creates a cause of action under ERISA §502(a)(1)(B) may not proceed with a claim under ERISA §502(a)(3).” Having so found, the court granted defendants’ requests for judgment under Rule 52(a) and dismissed Ms. Wegner’s claims with prejudice.

Pleading Issues & Procedure

Fourth Circuit

Clancy v. United Healthcare Ins. Co., No. 3:21cv535(DJN), 2022 WL 17342604 (E.D. Va. Nov. 30, 2022) (Judge David J. Novak). In his capacity as Liquidating Trustee for the New England Motor Freight (“NEMF”) Liquidating Trust, plaintiff Kevin P. Clancy sued United Healthcare Insurance Company and HPHC Insurance Company Inc. for breaches of fiduciary duties under ERISA and concealment and spoilation of evidence under New Jersey state law in connection with alleged overpayments from the self-funded NEMF health benefit plan. Defendants moved to dismiss both causes of action. They argued that Mr. Clancy as Liquidating Trustee did not have standing to bring his ERISA claims. Because of this lack of standing, they argued, he also lacked the ability to bring his derivative state law claim. In response, plaintiff argued that the Bankruptcy Plan granted him the power to pursue this legal action as the successor fiduciary of the NEMF Plan. The court agreed. Because New England Motor Freight operated as the plan administrator, and the Bankruptcy Plan transferred the fiduciary status to Mr. Clancy, the court stated that Mr. Clancy had the right to sue for the alleged overpayments. This remained true, the court went on, even though the plan has since been terminated, because the overpayments occurred during the plan’s existence and operation. Finally, the court held that the Trustee was appropriately bringing his action on behalf of the NEMF Plan. For these reasons, the court was satisfied that Mr. Clancy has standing under ERISA to bring his complaint. As the second count relied on the first, the court also allowed the state law spoilation and concealment claim to proceed. Accordingly, the motion to dismiss was denied.

Sixth Circuit

Carte v. Am. Elec. Power Serv. Corp., No. 2:21-cv-5651, 2022 WL 17351529 (S.D. Ohio Dec. 1, 2022) (Judge Michael H. Watson). Participants of the American Electric Power System Retirement Plan moved under Federal Rules of Civil Procedure 59(e) and 60(b) for relief from judgment and for leave to file an amended complaint following a court order dismissing their ERISA class action without prejudice. In that order, the court held that plaintiffs’ complaint, centering around the plan’s 2001 transition from a defined benefit plan to a cash balance plan, “failed to provide sufficient factual allegations to support the claims.” Specifically, the court stated that plaintiffs could have been able to provide calculations demonstrating the difference between younger participants not experiencing “wear away” periods from plaintiffs who were allegedly harmed by the stagnant accrual periods. “Without such calculations – even in the absence of discovery about any actual younger participants – the Court might have been able to discern whether Plaintiffs have plausibly alleged a claim under their legal theory.” The court also stated that plaintiffs failed to allege their backloading and insufficient notice claims. In their current motions, plaintiffs argued that they only recently discovered new evidence, the plan’s actuarial statements from the years 2000 to 2011, which they claim are important pieces of evidence they did not have in their possession until after the court’s order dismissing their action. The court stated that even assuming plaintiffs did only discover this evidence after its order, “Plaintiffs have not shown they are entitled to relief under Rules 50(e) and 60(b)” because “information about contributions contained within the plan itself provided the necessary information for Plaintiffs to calculate contributions for hypothetical participants,” meaning there was nothing “actually new” for the court to consider. Accordingly, the court denied plaintiffs’ motions but reminded the plaintiffs that, because their claims were dismissed without prejudice, they remained “free to file a new complaint in a new action.”

Statute of Limitations

Fifth Circuit

Sauls v. Coastal Bridge Co., No. 21-302-SDD-RLB, 2022 WL 17330834 (M.D. La. Nov. 29, 2022) (Judge Shelly D. Dick). Plaintiffs Joe Sauls and Luis Nieves-Rivera are employees of defendant Coastal Bridge Company, LLC. Through their employment, plaintiffs were covered by a group health insurance plan. In this action, plaintiffs allege that medical expenses they each incurred in late 2019, for a heart procedure and medical care following a motorcycle accident, respectively, should have been paid by their ERISA health plan. Plaintiffs believe, through information they received from a letter sent by Blue Cross, as well as through the actions of the defendants which discouraged them from timely appealing their claims and pursuing legal action, that the plan has been either terminated and/or defunded. Given the scenario they find themselves in, plaintiffs alleged alternative causes of action for monetary and equitable relief under Sections 502(a)(1)(B) and (a)(3). Defendants moved to dismiss. Defendants offered three reasons they believed the action should be dismissed. First, defendants argued that plaintiffs’ lawsuit was untimely under the plan’s one-year statute of limitations. “Without considering the applicability of ERISA-estoppel, the Court finds the instant action is timely. The Court finds that under prevailing Supreme Court and Fifth Circuit law, the Plan’s 1-year deadline to bring suit is unreasonably short and is therefore unenforceable.” The court reasoned that if a mainstream benefits claim takes just about a year to be resolved, a claimant would be left “on average, zero time to seek judicial review.” The court was unwilling to endorse a 1-year limitation period that it construed as “all but designed to expire close to or concurrently with the accrual of a cause of action,” and so refused to enforce it. As plaintiffs diligently pursued their rights, commencing this action only a few months after the unreasonable 1-year limitation period had expired, the court held that their lawsuit is timely. Defendants next argued that dismissal is warranted because plaintiffs have failed to exhaust administrative remedies. As exhaustion of administrative remedies is an affirmative defense, the court agreed with plaintiffs that dismissal at the pleading stage would be unjust, particularly in light of compelling evidence which supports the inference that completing the review process would have been futile. Thus, the court stated that parties needed to conduct discovery on the issue of exhaustion, and informed defendants that they could raise the issue again at the summary judgment stage. Finally, defendants asserted that plaintiffs are not permitted to pursue claims for both monetary and equitable relief under Fifth Circuit precedent. Although the court agreed that plaintiffs may not ultimately recover both benefits under Section 502(a)(1)(B) and equitable relief under Section 502(a)(3), the court stated that it would permit plaintiffs to simultaneously plead claims under the different subsections for Section 502(a) “to preserve alternative grounds for relief until a later stage in the litigation.” In a scenario where plaintiffs’ claims for benefits prove not viable, the court expressed that they would be permitted to rely on the safety net of Section 502(a)(3) as an adequate remedy. For these reasons, defendants’ motion to dismiss was denied.

This week, no single case jumped out at us as an obvious candidate for case of the week. But keep reading for many interesting decisions, including one awarding costs to Hartford Life Insurance Company in a disability benefit case, Davis v. Hartford Life & Accident Ins. Co., and a fascinating family drama just in time for the holidays, Ben Hill Griffin, Inc. v. Adam “AJ” Anderson.

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

Attorneys’ Fees

Sixth Circuit

Davis v. Hartford Life & Accident Ins. Co., No. 3:14-CV-507-CHB, 2022 WL 17083403 (W.D. Ky. Nov. 18, 2022) (Judge Claria Horn Boom). As Your ERISA Watch has been reporting lately, successful defendants in ERISA benefit suits have been moving for awards of attorney’s fees and costs with increasing frequency over the past couple of years. With few exceptions these motions pursuant to ERISA’s fee and cost provision, Section 502(g)(1), have been denied by courts. In this motion defendant Hartford Life & Accident Insurance Company took a less direct and more incremental approach, moving for reimbursement of costs only under Federal Rule of Civil Procedure 54(d) and/or ERISA Section 502(g)(1). Hartford sought reimbursement of $1,644.25 for deposition transcripts, but more subtlety and perhaps more significantly, Hartford sought a district court decision granting such a motion. In this decision Hartford got just that. Overruling the objections of plaintiff Richard Davis, the court granted Hartford’s motion and awarded the requested costs. To begin, the court stated that it need not reach a conclusion on whether Section 502(g)(1) supplants Rule 54(d) “because under either…an award of costs would be appropriate.” As Hartford ultimately succeeded on its summary judgment claims in this disability benefit action, the court stated that it had the discretionary authority to award costs to Hartford. The court decided to side-step the Sixth Circuit’s King multi-factor test to determine whether to award costs under Section 502(g)(1), finding application of the factors “add[s] little to the Court’s analysis.” Instead, the court decided the deposition transcript costs, at a price of about $3 per page, were necessary, reasonable, and sufficiently detailed. Thus, the court granted the motion and ordered an ERISA plaintiff who was unsuccessful in his legal challenge of the termination of his disability benefits to cover Hartford’s bill of costs.

Breach of Fiduciary Duty

Second Circuit

Plutzer v. Bankers Tr. Co. of S. Dakota, No. 22-561-cv, __ F. App’x __, 2022 WL 17086483 (2d Cir. Nov. 21, 2022) (Before Circuit Judges Newman, Nardini, and Robinson). Plaintiff/appellant Edward Plutzer appealed a judgment from the Southern District of New York dismissing his breach of fiduciary duty and prohibited transaction complaint for lack of Article III standing. Mr. Plutzer is a former employee of Tharanco Group, Inc., and a participant in its Employee Stock Ownership Plan (“ESOP”). In his complaint, Mr. Plutzer alleged that the plan’s trustee, Bankers Trust Company of South Dakota, LLC, as well as the senior officials at Tharanco, caused the plan to overpay for the purchase of 100% of Tharanco’s stock during a transaction that occurred in 2015. The district court dismissed the complaint on March 1, 2022, concluding that the complaint lacked sufficient allegations of an injury in fact traceable to defendants’ actions surrounding the transaction. Upon de novo of the district court’s judgment, the Second Circuit concluded that it could not infer that the plan overpaid for the stock based on the allegations in the complaint. First, the appeals court disagreed with Mr. Plutzer that the steep decline in the valuation of the Tharanco stock following the transaction, as published in the company’s Form 5500s, was factual support for his theory of injury. Rather than focus on the downward turn of the price of the stocks from the $133,430,000 paid by the plan at the sale in 2015 to the $9,800,000 value in 2019, the Second Circuit focussed on the fact that the 2017 and 2018 valuations of the stock were actually higher than the 2015 valuation. The various ups and downs of the valuations following the stock transaction, the Second Circuit held, could not lead a factfinder to draw a reasonable inference in Mr. Plutzer’s favor, and therefore could not bolster his claim of a concrete and particularized injury. Furthermore, the court of appeals found Mr. Plutzer’s claims that defendants utilized unreasonable financial projections to be “speculative and conclusory.” Finally, the court felt that Mr. Plutzer’s complaint did not allege any facts suggesting the Plan paid a control premium, instead “all he actually alleges is that the Plan did not obtain control over Tharanco.” For these reasons, the Second Circuit agreed with the conclusions of the district court and as such affirmed its dismissal.

Sixth Circuit

Blackburn v. Reliance-Standard Life Ins. Co., No. 4:22-CV-00095-JHM, 2022 WL 17082673 (W.D. Ky. Nov. 18, 2022) (Judge Joseph H. McKinley Jr.). Plaintiff Ashley Blackburn and her late husband, Ray Blackburn, were both employees of defendant Baptist Healthcare System. The Blackburns each had life insurance policies through their employment that were provided to all Baptist employees and insured by defendant Reliance-Standard Life Insurance Company. The Blackburns also wanted to obtain supplemental life insurance for each other. Reliance-Standard had a policy against allowing Baptist employees from obtaining spousal supplemental life insurance coverage for a spouse that was also a Baptist employee. Nevertheless, Baptist “continuously represented to Mrs. Blackburn that she could maintain $100,000 of supplemental life insurance coverage on her husband,” and collected premiums for this amount of coverage from Mrs. Blackburn for over 10 years. Then in 2019, Mr. Blackburn developed cancer and Mrs. Blackburn stopped working to take care of her husband. Mrs. Blackburn sought to port her supplemental life insurance policy. Reliance-Standard and Baptist helped her to do this, and again Reliance-Standard collected premiums on the new whole life insurance policy. Mr. Blackburn died in March 2020. Mrs. Blackburn submitted a claim for the $100,000 in supplemental life insurance benefits due under the policy. The claim was denied. Reliance-Standard refunded the premiums for the new policy but not for the original supplemental life insurance policy that the Blackburns had paid for 10 years. Following an unsuccessful administrative appeals process, Mrs. Blackburn commenced this suit under Section 502(a)(3) alleging defendants breached their fiduciary duties by misleading her into believing that she was insured. Mrs. Blackburn also seeks statutory penalties under Section 1132(c) for defendants failing to timely disclose plan documents upon request. Defendant Baptist moved to dismiss. The court denied the motion, holding that Mrs. Blackburn’s action was analogous to the particulars of Varity Corp. v. Howe, 516 U.S. 489, 512 (1996), wherein the Supreme Court held that beneficiaries could sue under Section 502(a)(3) when they could not receive make whole relief through Section 502(a)(1)(B). The court also held that Mrs. Blackburn had sufficiently alleged that she had detrimentally relied on defendants’ written and oral misrepresentations in believing she was fully insured under the supplemental life insurance policy and that she would receive the benefits she “elected and paid for.” Finally, the court did not dismiss the claim for statutory penalties for failure to provide plan documents stating, “[f]acts could come to light during discovery that could convince the Court that Mrs. Blackburn is entitled to statutory penalties. In any event, Mrs. Blackburn was not required to plead prejudice or bad faith to state her claim for them, so the Court has no grounds for dismissing it.” For these reasons, none of Mrs. Blackburn’s claims against Baptist Healthcare were dismissed.

Class Actions

Third Circuit

Wolff v. Aetna Life Ins. Co., No. 4:19-CV-01596, 2022 WL 17156911 (M.D. Pa. Nov. 22, 2022) (Judge Matthew W. Brann). On May 25, 2022, the court issued an order granting plaintiff Joanne Wolff’s motion for class certification in this action challenging defendant Aetna Life Insurance Company’s use of plans’ “Other Income Benefits” provisions to obtain reimbursement of settlement proceeds when no subrogation or reimbursement provision existed in a plan. A summary of that decision can be found in Your ERISA Watch’s June 1, 2022 newsletter. After the issuance of the order granting class certification, Aetna filed a motion for reconsideration asserting that new case law from the Third Circuit requires the court to decertify the class. “Aetna notes that, one month after this Court certified the class, the Third Circuit issued its opinion in Allen v. Ollie’s Bargain Outlet, wherein the court held that, when deciding issues of commonality, court’s ‘must resolve all factual or legal disputes relevant to class certification.’” Relying on this precedent, Aetna argued that the court left a major factual issue unresolved, namely, “whether the language contained in the different plans permits reimbursement of personal injury recoveries.” Additionally, Aetna claimed the court also failed to address what representations were made by Aetna to the class members, and to parse out what effect this has on Ms. Wolff’s misrepresentation-based claim. Last, Aetna argued that the class definition created an impermissible fail-safe class. Ms. Wolff responded that the court analyzed the necessary criteria and answered the critical issues in order to properly certify the class. In Ms. Wolff’s view Aetna was improperly attempting to litigate the merits of the underlying claims, and the Allen decision does not constitute a change in controlling law. The court agreed with Ms. Wolff that Allen “broke no new ground” and therefore denied the motion to the extent that it relied on Allen. Furthermore, the court reiterated that it had already addressed the issues Aetna claimed were left unresolved in its order certifying the class. However, the court stated that, to the extent it failed to use definitive language, it wished to take the opportunity to clarify and eliminate any ambiguity, writing that “nothing in the relevant plans lead the Court to conclude that variations in the plan language prevents certification.” As for Aetna’s argument around misrepresentations the court expressed, “Wolff’s essential averments are that Aetna allegedly misrepresented – by making a request for reimbursement of personal injury recoveries in the first instance – that it was permitted to recover such funds, and that Aetna allegedly failed to disclose to class members that it was not permitted to recover such funds. These facts are common for every class member.” Accordingly, Aetna’s merit’s arguments in favor of decertifying the class were rejected. Nevertheless, Aetna found success in its stance that the class definition created a fail-safe class by defining the class so that membership depended on whether the member has a valid claim. The court agreed, stating that, through its references to the validity of the claim of the potential members, it had indeed created a fail-safe class. To remedy this problem. the court amended the class definition to remove this language, a change to which Ms. Wolff agreed. Aetna’s motion for reconsideration was thus granted to this limited extent, and the class definition was slightly revised.

Ninth Circuit

C.P. v. Blue Cross Blue Shield of Ill., No. 3:20-cv-06145-RJB, 2022 WL 17092846 (W.D. Wash. Nov. 21, 2022) (Judge Robert J. Bryan). In this class action, plaintiffs are challenging defendant Blue Cross Blue Shield of Illinois’s practice of administering exclusions for gender-affirming medical care for transgender individuals in self-funded ERISA healthcare plans. Plaintiffs argue these policy exclusions violate the anti-discrimination provision, Section 1557, of the Affordable Care Act. Pending before the court were motions from both parties to exclude each other’s expert testimony pursuant to Federal Rule of Civil Procedure 702 as well as Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993). Plaintiffs offered testimony of several medical professionals, Doctors Ettner, Karasic, and Schechter, who each opined that gender-affirming care is important and medically necessary for individuals diagnosed with gender dysphoria. Additionally, plaintiffs’ expert, Dr. Fox, provided information to the court estimating the size of the class. In contrast to plaintiffs’ experts, Blue Cross relied on experts holding the opposite view, that gender-affirming care is not medically necessary, and that medical consensus on its effectiveness as treatment is split. Furthermore, Blue Cross’s experts offered testimony outlining how requiring plans to pay for this type of care would be a costly burden for employers. Finally, Blue Cross’s expert, Dr. Carr, put forth evidence that contested the number of class members estimated by Dr. Fox. The court denied Blue Cross’s Daubert motion without prejudice and denied without prejudice in part and granted in part plaintiffs’ motion. Specifically, the court was unwilling to exclude the testimony of either party’s expert witnesses to the extent they spoke to the medical necessity of the healthcare at issue. The court found all of the doctors to be sufficiently qualified and appropriately providing testimony on their areas of expertise based on sufficient facts and data as to make their contributions to case relevant and reliable. The court also stated that the opinions of each party’s experts on this topic was central to answering the question of whether there is medical consensus regarding the value of these treatments for people with gender dysphoria and gender variance, the answer to which goes to the heart of the dispute at the center of this action – whether Blue Cross and the plans it administered were discriminating on the basis of sex. Blue Cross’s motion to exclude Dr. Fox’s opinions about the number of class members was also denied, as the court felt Blue Cross’s arguments about the reliability of Dr. Fox’s testimony did not go to admissibility. The court also allowed Blue Cross’s expert testimony pertaining to the economic impact of gender-affirming treatment to proceed because their expert is a qualified professor of healthcare management and his testimony is relevant. Lastly, the court excluded as untimely the response of Dr. Carr, Blue Cross’s expert, to Dr. Fox’s estimate of the number of class members. In all other respects, the expert testimony will proceed, but as the motions were denied without prejudice the court’s rulings may be revisited at trial.

ERISA Preemption

Fourth Circuit

Vigdor v. UnitedHealthcare Ins. Co., No. 3:21-CV-517-MOC-DCK, 2022 WL 17095211 (W.D.N.C. Nov. 21, 2022) (Magistrate Judge David C. Keesler). A group of patient plaintiffs alongside a provider plaintiff, Providence Anesthesiology Associates, P.A., filed a putative class action in North Carolina state court against UnitedHealthcare Insurance Company and related entities alleging that through targeted network terminations with providers, the insurers have violated the North Carolina Patient Protection Act, a state law that prohibits insurers from “subjecting an insured to the out-of-network benefit levels offered under the insured’s approved health benefit plan when they have an insufficient network.” Plaintiffs also asserted claims for breach of contract and unfair and deceptive trade practices. UnitedHealthcare removed the action to the district court based on federal question jurisdiction, arguing plaintiffs’ claims arise under and are preempted by ERISA. Plaintiffs moved to remand. Their motion was referred to Magistrate Judge David C. Keeler, who in this report and recommendation recommended the motion for remand be granted. Magistrate Judge Keeler agreed with plaintiffs that the court lacks subject matter jurisdiction and ERISA preemption is not implicated by the complaint, which pertains to a state law that regulates insurance providers by dictating the rate of payments rather than the right to payment.

Ninth Circuit

Alders v. Yum! Brands, Inc., No. CV 22-1303 PSG (DFMx), 2022 WL 17184561 (C.D. Cal. Nov. 23, 2022) (Judge Phillip S. Gutierrez). Plaintiff Tim Alders worked for defendant Yum! Brands Inc. and Taco Bell Corp. for 25 years from 1995 to 2020. Throughout that time, Mr. Alders alleges, his employer misclassified him as an independent contractor rather than an employee in order to make him ineligible to participate in the companies’ benefit plans. Mr. Alders originally filed a lawsuit against defendants in federal court on July 9, 2021, alleging both ERISA and state law claims. Defendants moved to dismiss the complaint. The court issued an order dismissing Mr. Alders’ ERISA claims for lack of standing as he was not a plan participant and thus “did not have a colorable claim to vested benefits.” When the court dismissed the ERISA claims, it elected not to exercise supplemental jurisdiction over the remaining state law claims. After the dismissal, Mr. Alders filed this present second action (“Alders II”) in state court alleging only claims for violations California state labor laws. Defendants then removed Alders II to federal court on the basis of ERISA preemption. Mr. Alders subsequently moved to remand the action back to state court and moved for attorney’s fees incurred as a result of the removal. Defendants moved for dismissal or alternatively to transfer venue. The court granted Mr. Alders’ motion for remand, denied his motion for attorney’s fees, and denied defendants’ motions. The court stated that removal was not proper, stressing that “[t]he Court’s analysis remains unchanged – Plaintiff still lacks statutory standing to bring his claims under ERISA as he was not a plan participant.” Because Mr. Alders was never a plan participant, the court held once again that he could not have brought a claim under ERISA and therefore the first prong of the Davila test was unsatisfied. However, although the court agreed with Mr. Alders that defendants lacked a reasonable basis for removal, it declined to award fees because Mr. Alders failed to comply with Local Rule 7-3’s meet-and-confer mandate.

Medical Benefit Claims

Sixth Circuit

Zucca v. First Energy Serv. Co., No. 5:21-CV-01345-CEH, 2022 WL 17092803 (N.D. Ohio Nov. 21, 2022) (Magistrate Judge Carmen E. Henderson). Plaintiff Mark Zucca, a participant in the First Energy Healthcare Plan, sued First Energy Service Company and Anthem Blue Cross and Blue Shield after his claim to obtain authorization for his son’s specialized targeted narrative language autism treatment provided by an out-of-network speech/language pathologist was denied by defendants. In the denial letters defendants stated that “in-network doctors…can provide this service.” The parties filed cross-motions for judgment on the administrative record under abuse of discretion review. Although the court agreed with defendants that they had a principled and deliberate review process in place, the court stated that “[a]t no point in the appeals process did Anthem identify any in-network providers that could provide the services that Mr. Zucca requested and that the determination to deny the claim was therefore not supported by substantial evidence.” The court held that Mr. Zucca’s son requires specialized advanced therapies and defendants failed to prove that any in-network provider offered these necessary treatments. Thus, the court found that defendants’ determination was abuse of discretion and Mr. Zucca was awarded summary judgment. In addition, the court held that Mr. Zucca is clearly entitled to an award of benefits. The court concluded that remanding to Anthem, providing it with a second chance to deny benefits, when it failed repeatedly to locate an in-network provider who could provide the services the Zucca family requires would not be in the interest of justice. As for an award of interest, costs and attorney’s fees, the court provided Mr. Zucca sixty days from the date of the order to file briefing on the matter.

Pension Benefit Claims

Eleventh Circuit

Ben Hill Griffin, Inc. v. Adam “AJ” Anderson, No. 8:21-cv-2311-VMC-TGW, 2022 WL 17177038 (M.D. Fla. Nov. 23, 2022) (Judge Virginia M. Hernandez Covington). In the strangest and most factually complicated case this week, plaintiff/employer Ben Hill Griffin, Inc. sought a declaratory judgment as to the distribution of decedent Adam Anderson’s pension plans: the Ben Hill Griffin, Inc. Employees’ Profit-Sharing Plan and Trust Agreement and the Ben Hill Griffin Inc. Management Security Plan. This single case involved a murder, a suicide, two ERISA plans, ten claimants comprised of an ex-wife with a Qualified Domestic Relation’s Order (“QDRO”) and a blended family of nine children, both biological and adopted, the applicability of Florida’s slayer statute, DNA testing, and one would presume, a partridge in a pear tree. At its simplest, the case revolved around the deaths of husband and wife Adam and Eva Anderson on July 19, 2021. Based on the evidence found at the couple’s home alongside the conclusions of the autopsy reports, it was determined that Eva was shot to death by Adam, who then committed suicide. As Adam died after his wife, his death certificate indicated his marital status at the time of death as “widowed.” The court broke the defendants up into two camps. The first group of defendants were labeled the “Anderson Defendants.” This group was comprised of Adam’s ex-wife, Michelle Anderson, and all of Adam’s biological and adopted children. The second group of defendants were called the “Wilkerson Defendants.” This group was made up of Eva’s children from a previous marriage, whose claims to the pension benefits were predicated on their mother’s claim as the named beneficiary and Adam’s spouse. The Anderson Defendants moved for summary judgment. Their motion was granted by the court. Tuning out all the noise, the court found its answer to how to distribute the benefits in the language of plans themselves. First, the court addressed the profit-sharing plan. The court held that the designation listing Eva as the sole beneficiary did not control, as the language of the plan required a named beneficiary to be alive at the time of the participant’s death, and Eva predeceased her husband. Thus, the court said, at the time of Adam’s death “he neither had a named beneficiary nor a ‘surviving spouse.’” The court also held that Florida’s slayer statute was inapplicable, because Adam, the murderer, did not stand to benefit in anyway. Because of this, Eva’s children were determined to not be entitled to a portion of the benefits. However, Michelle Anderson’s QDRO was found to be valid and applicable, and the court therefore incorporated its terms into the division of benefits. Finally, the court accepted the results of a DNA test which proved that one of the claimants, defendant Candice Luke, was Adam’s biological child and therefore qualified as a beneficiary.  Working through these details, the court ultimately decreed, “$35,578.81…is to be set aside for Michelle Anderson pursuant to the family Court’s Qualified Domestic Relations Order. The remainder of the death benefit payable under the Profit-Sharing Plan is to be distributed to Adam Anderson’s children, including Candice Luke, per stripes.” Turning to the Management Security Plan, the court once again read the language of the plan and of the beneficiary designation form closely and ruled that Michelle Anderson and defendant A.W.A., the minor child of Adam and Eva, were each entitled to a portion of the benefits. Thus, having worked out the details and cleaned up the mess, the court granted the Anderson Defendants’ motion for summary judgment, figured out who got what from each plan, and closed the case.

Pleading Issues & Procedure

Third Circuit

Applebaum v. Fabian, No. 22-1049, __ F. App’x __, 2022 WL 17090172 (3d Cir. Nov. 21, 2022) (Before Circuit Judges Ambro, Krause, and Bibas). Plaintiff/appellant Edita Applebaum brought suit in the district of New Jersey challenging things that occurred during probate court proceedings of her late husband’s estate. Ms. Applebaum asserted claims under ERISA, the Racketeer Influenced and Corrupt Organizations Act (“RICO”), and state common law. Ms. Applebaum’s complaint was dismissed in the district court. The district court held the RICO claims were untimely, the ERISA claim was barred by the probate exception, and the state law claims were not properly pled. On appeal, the Third Circuit affirmed. Regarding the ERISA claim, the decision stated, “while Applebaum argues that she was the valid beneficiary of her husband’s 401(k) plan and that its proceeds should have bypassed the probate system, Applebaum’s beneficiary designation, and thus her right to estate property, is precisely what is disputed here. As a result, this claim falls squarely within the ‘probate exception’ to our jurisdiction.” Thus, dismissal of the ERISA claim, along with the rest of the district court’s ruling, was affirmed by the court of appeals.

Fourth Circuit

UFG Holdings, LLC v. Demayo Law Offices, L., No. 3:21-CV-375-GCM-DCK, 2022 WL 17095210 (W.D.N.C. Nov. 21, 2022) (Judge Graham C. Mullen). On September 19, 2022, Magistrate Judge David C. Keesler issued a report and recommendation recommending the court deny defendant Demayo Law Offices’ motion to dismiss the Section 502(a)(3) claim against it. Defendant timely objected to the report. The court conducted a review of the Magistrate’s report and concluded that “the recommendation to deny the Defendants’ Motion to Dismiss is correct and in accordance with law.” However, because the issue of the applicability of Section 502(a)(3) to attorneys of ERISA beneficiaries is an area of “substantial difference of opinion…among district courts in this circuit,” the court granted defendant’s alterative request for certification of the order for interlocutory appeal.

Ninth Circuit

Regenold v. RELX Inc., No. 22-CV-04419-RS, 2022 WL 17096162 (N.D. Cal. Nov. 21, 2022) (Judge Richard Seeborg). Plaintiff Todd Regenold was an employee of defendant RELX, Inc. for over five years. In March 2022, Mr. Regenold was informed that his position was being eliminated. Mr. Regenold was provided notification of his severance package including 26 weeks of severance pay and six months of paid membership to an executive outplacement service. However, shortly before Mr. Regenold’s final day at the company he was informed that he was under investigation for misconduct. RELX then informed Mr. Regenold that he was not an “employee in good standing” and therefore was ineligible for his previously promised severance benefits. Rather than appeal this decision, Mr. Regenold sued RELX in state court for breach of contract. RELX removed the matter to the federal district court on ERISA preemption grounds. Mr. Regenold moved to remand, arguing the plan was not ERISA governed because it did not require an ongoing administrative scheme. RELX moved to dismiss the complaint as being preempted by ERISA, and for failure to exhaust administrative remedies. Concluding that the plan in fact qualified as an ERISA severance pay plan under the Department of Labor regulations, the court denied Mr. Regenold’s motion to remand and granted without prejudice RELX’s motion to dismiss, allowing Mr. Regenold the opportunity “to bring a new action upon exhausting administrative remedies.”

Venue

Eleventh Circuit

Brannigan v. Anthem Ins. Co., No. 8:21-cv-2353-KKM-SPF, 2022 WL 17175845 (M.D. Fla. Nov. 23, 2022) (Judge Tom Barber). In this very brief order, the court adopted a Magistrate’s report and recommendation which recommended denying defendant Anthem Insurance Company’s motion to dismiss but granting its alternative motion to transfer. The court agreed with the Magistrate that Anthem had an insignificant connection to the middle district of Florida to warrant it as the proper venue, whereas Anthem’s headquarters in Indianapolis, which was the location where it made the relevant decision to deny coverage, factored in favor of transferring the case to the southern district of Indiana. Thus, without any fanfare, the court ordered the action to be transferred.

Withdrawal Liability & Unpaid Contributions

Ninth Circuit

Bd. of Trs. of IBEW Local 100 Pension Tr. Fund v. Cole, No. 1:21-CV-0750 AWI EPG, 2022 WL 17156147 (E.D. Cal. Nov. 22, 2022) (Judge Anthony W. Ishii). Plaintiffs the Board of Trustees of IBEW Local 100 Pension Trust Fund and the Joint Electrical Industry Trailing Trust Fund sued an employer, defendant Michael Cole d/b/a Michael Cole Electric for failure to conduct audits from 2016 to 2019. Plaintiffs moved for partial summary judgment on the issue of whether Michael Cole Electric is bound by a collective bargaining agreement. Plaintiffs argued that Michael Cole Electric is the successor of Cole Electric Repair Services, the electrical company that Michael Cole ran until 2006, which had signed the collective bargaining agreement governing the ERISA plans. Plaintiffs went on to express that even if the court were to conclude that Michael Cole Electric was not the successor of Cole Electric Repair Services, Michael Cole and Michael Cole Electric manifested an intent to abide by the terms of the collective bargaining agreement. To begin, the court held that the evidence did not demonstrate that Mr. Cole’s second electrical company was the successor to his first as Mr. Cole himself was the only “the only employee common to both.” Accordingly, the court did not grant summary judgment in favor of plaintiffs on their successor theory. However, regarding the actions of Mr. Cole and Michael Cole Electric and whether those actions bound them to the collective bargaining agreement, the court acknowledged that evidence cut both ways. Because of this conflict, the court stated that in viewing the evidence in the light most favorable to Mr. Cole it could not say as a matter of law that Michael Cole Electric adopted the collective bargaining agreement or was bound by its terms. Thus, this issue remained unresolved, and plaintiffs’ partial summary judgment motion was denied.

Collier v. Lincoln Life Assurance Co. of Bos., No. 21-55465, __ F.4th __, 2022 WL 17087828 (9th Cir. Nov. 21, 2022) (Before Circuit Judges Paez and Watford, and District Judge Richard D. Bennett)

This week’s notable decision is a Kantor & Kantor victory in the Ninth Circuit addressing what arguments ERISA plan administrators and judges are allowed to make in considering whether a benefit claim was decided properly.

The plaintiff is Vicki Collier, an insurance sales agent who started working for the Automobile Club of Southern California in 2013. Unfortunately, Ms. Collier experienced “persistent pain in her neck, shoulders, upper extremities, and lower back, which limited her ability to type and sit for long periods of time.”

Ms. Collier was eventually diagnosed with several orthopedic impairments which affected her mobility. She underwent a variety of treatments, including surgery, and tried ergonomic accommodations, but her pain continued, and she was forced to stop working in 2018.

Ms. Collier submitted a claim for benefits to Lincoln Life, the insurer of the Auto Club’s long-term disability benefit plan. Lincoln denied her claim based on a report by a reviewing physician that concluded she did not meet the plan’s definition of disability. Neither the report nor the denial letter mentioned Ms. Collier’s credibility or alleged that Ms. Collier had not submitted objective medical evidence.

Ms. Collier appealed and submitted additional evidence to support her claim. In response, Lincoln arranged for an independent medical examination by a physician who concluded that while Ms. Collier had limitations, she still had the capability to work full-time. Based on this report, Lincoln denied Ms. Collier’s appeal on the same ground as its original denial, i.e., that she did not satisfy the plan’s disability definition. Lincoln added that “ergonomic equipment [was] readily available,” but “without specifying what equipment was available or how it would be implemented to accommodate Collier’s restrictions.”

Having exhausted her appeals, Ms. Collier brought this action. In court, Lincoln raised three arguments in support of the denial, all of which were accepted by the district court in ruling for Lincoln. The district court “determined that Collier was not disabled for three intertwined reasons: (1) Collier was not credible in her reporting of pain symptoms; (2) Collier’s medical providers relied on her pain symptom reports, so their opinions were less credible and the remaining objective medical evidence did not support her allegations; and (3) even if the court believed Collier’s reports of pain, her typing restrictions could be readily accommodated with ergonomic equipment, such as voice-activated software.”

Ms. Collier contended that the district court should reject Lincoln’s objective evidence and credibility arguments because Lincoln did not raise those arguments in its denial letters. However, the district court concluded that because “a court must ‘evaluate the persuasiveness of conflicting testimony and decide which is more likely true,’” credibility determinations were inherently part of its review. Ms. Collier appealed to the Ninth Circuit.

The Ninth Circuit began by reviewing the purpose of ERISA and its administrative procedures. The court noted that ERISA was “remedial legislation” designed to protect plan beneficiaries by giving them a “full and fair review” of their claims for benefits. As a result, ERISA has thorough claim administration rules that are “procedurally robust.” Among these rules is a requirement that denial letters contain the “specific reason or reasons for the denial.” Furthermore, “[i]f a plan administrator relies on a new or additional rationale during the review process, the administrator must provide the rationale to the claimant and ‘give [her] a reasonable opportunity to respond.’”

Because of these rules, the Ninth Circuit observed that it had already held that “a plan administrator undermines ERISA and its implementing regulations when it presents a new rationale to the district court that was not presented to the claimant as a specific reason for denying benefits during the administrative process.” The court also explained that it had previously “expressed disapproval of post hoc arguments advanced by a plan administrator for the first time in litigation.” (In doing so, the court cited three successful appeals litigated by Kantor & Kantor: Mitchell v. CB Richard Ellis Long Term Disability Plan (2010), Harlick v. Blue Shield of Cal. (2012), and Wolf v. Life Ins. Co. of N. America (2022), which ERISA Watch examined earlier this year.)

In response to Ms. Collier’s arguments that Lincoln violated these rules, the court concluded, “We agree.” The court noted that Lincoln “did not cite Collier’s lack of credibility or the lack of objective evidence when it denied her claim initially and on review.” Instead, it only argued in its denial letters that she did not meet the plan’s definition of disability. “Lincoln did not specify that it found Collier not credible, that she failed to present objective medical evidence, or that such evidence was required under the Plan.” Instead, Lincoln waited until litigation to make these arguments, which “effectively ‘sandbagged’ Collier with new rationales at a stage in the proceedings where she could not meaningfully respond.”

The Ninth Circuit noted that it had tackled the issues raised above before, but this case presented a new wrinkle: “Although we have held that a plan administrator may not hold in reserve a new rationale to present in litigation, we have not clarified whether the district court clearly errs by adopting a newly presented rationale when applying de novo review. We do so now.”

The Ninth Circuit emphasized that when a court is conducting a de novo review of a benefit denial, “it evaluates the plan administrator’s reasons for denying benefits without giving deference to its conclusions or opinions.” This meant that if Lincoln had questioned Ms. Collier’s credibility in its denial letters, “the district court would have been within its province to review the administrative record and determine whether the evidence supported that decision.”

However, a district court “cannot adopt post-hoc rationalizations that were not presented to the claimant, including credibility-based rationalizations, during the administrative process.” The Ninth Circuit rejected the idea that credibility determinations are “inherently part of the de novo review…. If the denial was not based on the claimant’s credibility, the district court has no reason to make a credibility determination.” In short, “[t]he court must refrain from fashioning entirely new rationales to support the administrator’s decision.”

The Ninth Circuit noted that a contrary conclusion “would evade ERISA’s protections for the same reasons a plan administrator undermines ERISA’s protections when asserting new arguments for the first time in litigation.” A contrary conclusion would also undermine the goals of ERISA to “reduce the number of frivolous lawsuits under ERISA; to promote the consistent treatment of claims for benefits; to provide a nonadversarial method of claims settlement; and to minimize the costs of claims settlement for all concerned.”

The only remaining question was what remedy was appropriate. Ms. Collier urged the court to reach the merits of her benefit claim, but the Ninth Circuit demurred and remanded to the district court “with directions to reconsider its decision in light of our opinion.” This meant “review[ing] the administrative record afresh to determine whether Lincoln correctly denied Collier’s claim,” without “rely[ing] on rationales that Lincoln did not raise in the administrative process to deny benefits.”

This published decision is important because it clarifies the scope of a trial court’s authority in reviewing a benefit denial. Ultimately, the Ninth Circuit concluded that “[t]he district court’s task is to determine whether the plan administrator’s decision is supported by the record, not to engage in a new determination of whether the claimant is disabled.” It is also a big victory for plan participants, who too often are surprised at trial with arguments the plan administrator never raised – and sometimes never even considered – during the claim process. It sends a message to plan administrators to be more careful and thorough when deciding claims, which of course is their duty as fiduciaries. Stay tuned to ERISA Watch to see if administrators take this lesson to heart.

Ms. Collier was represented by Kantor & Kantor attorneys Glenn Kantor, Sally Mermelstein, and Zoya Yarnykh. Thanksgiving has come early here in the Ninth Circuit.

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

Attorneys’ Fees

Ninth Circuit

Metaxas v. Gateway Bank F.S.B., No. 20-cv-01184-EMC, 2022 WL 16949939 (N.D. Cal. Nov. 15, 2022) (Judge Edward M. Chen). This August, the court granted plaintiff Poppi Metaxas’s summary judgment motion on her claim for termination benefits, and granted defendants’ cross-motion for summary judgment on her claim for disability benefits. A summary of that decision can be found in Your ERISA Watch’s August 31, 2022 edition. After her partial summary judgment win, Ms. Metaxas moved for an award of attorney’s fees totaling $316,880 pursuant to ERISA Section 502(g)(1). The court began its decision by expressing that Ms. Metaxas met the threshold condition of “some degree of success” on the merits to be eligible for an award of fees. The court then considered whether an award of fees was warranted under the Ninth Circuit’s Hummell factors. First, the court agreed with Ms. Metaxas that her employer’s actions were an abuse of discretion constituting culpability and bad faith. The court also found that Gateway Bank is able to satisfy an award of fees. However, the court found that the deterrent factor of a fee award was a neutral factor as the particulars of the case were idiosyncratic. The fourth factor, whether the action resolved a significant legal question regarding ERISA or whether the fee award will have a benefit to other participants and beneficiaries, weighed against Ms. Metaxas, as again the case was very individualized. Finally, the court evaluated the relative merits of the parties’ positions and found that its ruling that defendants abused their discretion regarding the termination benefits meant that Ms. Metaxas had greater ultimate success in the case and this factor should be weighed in her favor. Because three of the five factors weighed in favor of awarding fees, with only one factor weighing against, the court concluded an award of attorney’s fees was appropriate. Thus, the court went on to determine the proper amount of the award. To begin, the court adjusted the rate of Ms. Metaxas’s attorney, Scott Kalkin, from $850 per hour to $800 per hour. The more drastic reduction involved the number of billed hours. The court reduced the requested 372.8 billed hours down to 236.55 total hours. This reduction was for duplicative or unnecessary hours, time spent on unsuccessful arguments, as well as the court’s way of reflecting Ms. Metaxas’s mixed success overall. With this new lodestar created, the court awarded Ms. Metaxas fees in the amount of $189,240. Lastly, the court granted Ms. Metaxas’s motion for reimbursement of her $400 filing fee.

Breach of Fiduciary Duty

Third Circuit

Krutchen v. Ricoh U.S., Inc., No. 22-678, 2022 WL 16950264 (E.D. Pa. Nov. 15, 2022) (Judge Juan R. Sanchez). Former employees of defendant Ricoh U.S. Inc. initiated this putative class action on behalf of themselves, the Ricoh Retirement Savings Plan, and similarly situated participants against the company, the administrative committee, the board, and individual Doe defendants for breaching their fiduciary duty of prudence by failing to control the plan’s administrative costs and fees, and for failing to monitor co-fiduciaries. Defendants moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). The court agreed with defendants that it could not infer that fiduciary breaches were committed given plaintiffs’ “apples to oranges” fee comparisons within the complaint. “A meaningful benchmark must include both the quality and type of recordkeeping services provided by comparator plans to show that identically situated plans received the same services for less.” Because plaintiffs’ complaint did not provide detailed outlines of the services received for the prices paid, providing instead that the services “fell within the broad range” of services all recordkeepers provide, the court held that it could not adequately make decisions about what similarly situated fiduciaries would do, and plaintiffs therefore failed to state a claim. Furthermore, as the court held there was no valid breach of prudence claim, it also dismissed the derivative failure to monitor claim. For this reason, the court granted the motion to dismiss. The court did, however, allow plaintiffs the opportunity to amend their complaint to address its current shortcomings.

Ninth Circuit

Gomo v. NetApp, Inc., No. 17-cv-02990-BLF, 2022 WL 16972492 (N.D. Cal. Nov. 16, 2022) (Judge Beth Labson Freeman). Plaintiff Daniel Warmenhoven, the CEO of defendant NetApp, Inc., along with other executives of the company, filed this lawsuit in 2017 asserting a claim for plan benefits against NetApp and the Executive Medical Retirement Plan under Section 502(a)(1)(B), and an alternative claim for breach of fiduciary duty against NetApp under Section 502(a)(3), in connection with NetApp’s termination of the plan, which had been represented to the participants as providing guaranteed lifetime health insurance benefits. On September 9, 2019, the court granted summary judgment to defendants. Plaintiff Warmenhoven appealed that ruling in Warmenhoven v. NetApp, Inc., 13 F.4th 717 (9th Cir. 2021). On appeal, the Ninth Circuit affirmed the judgment pertaining to the Section 502(a)(1)(B) claim. However, the judgment as to the alternative breach of fiduciary duty claim was vacated and remanded to the district court for further proceedings. The appeals court held that there was a genuine dispute as to whether NetApp breached its duties by representing to the plan participants that the plan provided them with lifetime health insurance benefits. The district court had not addressed whether there was appropriate equitable relief available to plaintiffs on the Section 502(a)(3) claim. Thus, the Ninth Circuit remanded to the district court “to consider in the first instance the merits of NetApp’s argument for summary judgment based on the remedy prong.” (The decision was Your ERISA Watch’s case of the week in our September 22, 2021 newsletter.) And so that’s exactly where this decision, ruling on NetApp’s revised summary judgment motion, picked up. The decision evaluated the claim with respect to the two remedies Mr. Warmenhoven sought, reformation and surcharge. First, the court concluded that reformation was not an appropriate equitable remedy in the case because Mr. Warmenhoven failed to present evidence that NetApp’s true intent was to give up its legal right to amend the plan at any time. However, the court stated that Mr. Warmenhoven could pursue the remedy of surcharge under a breach of duty theory because NetApp’s representations about lifetime health insurance caused Mr. Warmenhoven actual harm. “Warmenhoven stayed at NetApp under the mistaken impression that he and his wife would be provided lifetime health insurance benefits. Since termination of the Plan, Warmenhoven has incurred more than $4,000 a year in out-of-pocket expenses to purchase replacement health insurance.” Because a reasonable fact finder could determine that NetApp’s misrepresentations regarding the terms of the plan caused this harm, the court found that Mr. Warmenhoven may be able to recover surcharge as an appropriate remedy for the breach of fiduciary duty claim. Having so concluded, the court denied NetApp’s motion for summary judgment.

Class Actions

Fourth Circuit

Stegemann v. Gannett Co., No. 1:18-cv-325 (AJT/JFA), 2022 WL 17067496 (E.D. Va. Nov. 17, 2022) (Judge Anthony J. Trenga). Participants of The New Gannett 401(k) Savings Plan commenced this putative class action against Gannett Co. Inc. and the plan’s benefit committee for breaches of fiduciary duties of prudence and diversification based on defendants’ decision to include, maintain, and not close earlier a single stock fund, “the TEGNA Stock Fund,” despite its high risk. In the words of the court, “Plaintiffs claims rest on the premise that offering the TEGNA Stock Fund was imprudent for want of diversification and overconcentration; and that the Defendants breached their duties of prudence and diversification by failing to recognize and/or remediate the problem sooner.” Defendants moved for summary judgment, while plaintiffs moved for class certification. Defendants’ primary argument for summary judgment, as well as their principal argument against class certification, was that plaintiffs’ claims are precluded by the safe harbor provision contained in ERISA Section 404(c). Plaintiffs and the court disagreed. The court concluded that the safe harbor provision doesn’t shield fiduciaries from their decisions over which investment options to offer plan participants in investment menus, nor does it absolve fiduciaries of their duties to observe, evaluate, and adjust the investment menus over time. ERISA fiduciaries, the court held, cannot rely on participants’ choices as absolving them of responsibility when the choices those participants make are comprised of options provided to them by those with ultimate control over the investment portfolio. Additionally, the court stated that defendants were not otherwise entitled to summary judgment at this stage while material facts and conflicting expert opinions remain unresolved. For these reasons, the court denied defendants’ summary judgment motion. The court then segued to evaluating the motion to certify the class of participants whose accounts included investments in the TEGNA Stock Fund during the class period. The class of 12,000 potential members easily satisfied the numerosity requirement. As for commonality, the court held that common questions over defendants’ actions regarding the TEGNA Stock Fund united the members. Furthermore, the court stated that the named plaintiff’s claims arise from the same events and conduct as the other members and were therefore typical. Finally, it was uncontested that the named plaintiff and her counsel were adequate representatives of the class. Certification under Rule 23(a) was therefore satisfied. As for certification under Rule 23(b)(1), the court concluded that certification was warranted and appropriate to avoid inconsistent adjudications establishing incompatible standards of conduct for defendants, and because individual adjudications could impair the ability to protect the interests of the other members. Thus, the motion for class certification was granted.

Discovery

Eighth Circuit

Bjordal v. Hartford Life & Accident Ins. Co., No. 21-2540 (JRT/LIB), 2022 WL 16966711 (D. Minn. Nov. 16, 2022) (Judge John R. Tunheim). Plaintiff Marit R. Bjordal commenced this action challenging the denial of her claim for long-term disability benefits by defendant Hartford Life & Accident Insurance Company. Ms. Bjordal moved to compel discovery seeking to identify the complete plan documents that apply to her claim to establish the correct standard of review. Specifically, Ms. Bjordal believed that the policy may have been renewed or updated after a Minnesota state law banning discretionary language went into effect, and that de novo review would therefore be applicable to her suit. Magistrate Judge Leo Brisbois denied the discovery motion, holding that the accurate plan documents were already before the court, and they establish that the plan includes a discretionary clause predating the Minnesota law making abuse of discretion standard of review applicable. Ms. Bjordal appealed Magistrate Brisbois’s order. In this decision, the court affirmed the Magistrate’s order, concluding that “the Magistrate Judge did not clearly err in finding that the Court’s review of Hartford’s denial was limited to abuse of discretion and Bjordal failed to meet an exception that would permit her to obtain discovery beyond the administrative record.” Thus, the court’s review will be limited to the evidence contained in the administrative record to conclude whether the denial was arbitrary and capricious.

ERISA Preemption

Fifth Circuit

Abraham v. Blue Cross & Blue Shield of Tex., No. 1:22-CV-00538-RP, 2022 WL 16985065 (W.D. Tex. Nov. 16, 2022) (Magistrate Judge Susan Hightower). Plaintiff Robert Abraham filed suit in state court in Texas against Blue Cross & Blue Shield of Texas alleging Blue Cross mishandled his claim for reimbursement of psychotherapy sessions and that the insurer’s actions constituted bad faith under Texas law. Blue Cross removed the case to federal district court on the basis of federal question jurisdiction premised on ERISA preemption. Mr. Abraham moved to remand, arguing his insurance plan isn’t governed by ERISA “because it is fully insured.” Mr. Abraham additionally requested Rule 11 sanctions. Blue Cross in turn moved to dismiss. Blue Cross responded that the plan, regardless of being fully insured, is governed by ERISA because it is an employer-sponsored group welfare benefit plan. Accordingly, Blue Cross argued that Mr. Abraham needed to bring a claim under Section 502(a)(1)(B), and his bad faith claim was therefore preempted. Magistrate Judge Hightower agreed, concluding that the plan, established by employer Salem Abraham, LLC and Salem Trading, was purchased for its employees, was financed by Salem Trading, and was therefore governed by ERISA. Thus, Judge Hightower recommended that both the motion for remand and the request for sanctions be denied. Regarding the motion to dismiss premised on complete preemption, Judge Hightower agreed that both prongs of the Davila test were met as Mr. Abraham could have brought a claim under ERISA and no independent legal duty could be identified in the complaint. The claim was therefore found to be completely preempted. Because Mr. Abraham did not respond to the motion to dismiss or request leave to amend, the Magistrate recommended the appropriate course of action was to dismiss the complaint without prejudice to replead under ERISA.

Exhaustion of Administrative Remedies

Fourth Circuit

Moore v. Verizon Commc’ns, No. 1:22-cv-51 (RDA/IDD), 2022 WL 16963245 (E.D. Va. Nov. 15, 2022) (Judge Rossie D. Alston). Plaintiff Sylvia Moore worked for defendant Verizon Communications, Inc. from 1989 until she resigned in 2017. After her resignation, Ms. Moore learned that some of her earned pension credit was being reduced due to maternity leave she took in late 1992 and early 1993. Ms. Moore subsequently filed a claim in December of 2017 relating to this reduction of benefits. Verizon denied the claim and informed Ms. Moore that her credited service was not reduced for her maternity leave. In the denial letter, Verizon informed Ms. Moore of her appeal options and notified her that she had to submit an appeal within two months of the denial. Ms. Moore did not appeal the denial of her claim within that time period. Instead, she next communicated with Verizon in June of 2020, informing the company that she was seeking legal assistance. Then, on January 18, 2022, Ms. Moore filed this action, within which she alleged ERISA claims under Section 502(a)(1)(B) and (a)(3), a breach of contract state law claim, discrimination claims under Title VII, the Pregnancy Discrimination Act, the Equal Pay Act, and the Civil Rights Act, and finally a claim for violating a consent decree relating to an EEOC class action similarly premised on unlawful denial of service credit to female employees who took pregnancy leave. Verizon moved to dismiss, which the court converted to a motion for summary judgment under Rule 56. First, the court dismissed the state law breach of contract claim, the gravamen of which was an allegation that Ms. Moore was deprived pension credit, as being preempted by ERISA. Next, the court evaluated the ERISA claims themselves. Ms. Moore’s claim under Section 502(a)(1)(B) was dismissed for failure to exhaust administrative remedies. The court agreed with Verizon that the undisputed facts demonstrate that Ms. Moore never exhausted the appeals process and that she was therefore barred from bringing her claim. As for Ms. Moore’s breach of fiduciary duty claim under Section 502(a)(3), the court stated that Verizon’s actions, including “explaining plan benefits and processing Plaintiff’s claim,” were ministerial acts rather than fiduciary duties and that the Section 502(a)(3) claim therefore failed. Moving to the non-ERISA claims, the court stated Ms. Moore was not a part of the class covered by the EEOC settlement because her maternity leave occurred after the class period, which spanned from 1965 to 1983. Finally, the discrimination claims were found to be untimely because Ms. Moore did not bring them after her receipt of her right-to-sue notice from the EEOC. Accordingly, Verizon’s motion was granted, and Ms. Moore’s action was dismissed.

Life Insurance & AD&D Benefit Claims

Sixth Circuit

Phillips v. Sun Life Assurance Co. of Can., No. 1:20-cv-937, 2022 WL 16964176 (S.D. Ohio Nov. 16, 2022) (Judge Douglas R. Cole). Siblings Paris Phillips and his sister, M.A., were the named beneficiaries of their late mother’s life insurance policy. Their mother, Nicole Powell, tragically died at the age of 33 in April 2014. Both Paris and M.A. were minors at the time. The policy proceeds were paid unconditionally to the siblings’ grandmother, Adlen Silas. In the intervening years since Ms. Powell’s death the following events occurred: the money never reached the children, Ms. Silas passed away, and Paris Phillips reached adulthood. After turning 18, Mr. Phillips submitted a claim to defendant Sun Life Assurance Company of Canada on behalf of himself and his sister, seeking the proceeds from their mother’s policy. Sun Life never responded, prompting Mr. Phillips to file this action seeking the money he and his sister are owed under the plan. Sun Life moved for dismissal, or in the alternative for joinder, arguing that Silas’s estate is a necessary party under Federal Rule of Civil Procedure 19(a). The court denied this motion, concluding that Sun Life did not meet its burden of establishing that Ms. Silas’s estate was a necessary party. Specifically, it was the court’s view that it could provide complete relief without Ms. Silas’s estate and “proceeding without Silas’s estate will not impair its claimed interests, as the estate has claimed no interest.” Finally, and perhaps most importantly, the court emphasized that Ms. Silas was not a named plan beneficiary and “Sun Life has failed to put forward any evidence showing that Silas ever claimed, or had any basis for claiming, that she was the rightful beneficiary of the policy proceeds.” If Sun Life ends up being ordered to pay life insurance proceeds it already paid once before, that will be because of Sun Life’s own actions mistakenly paying Ms. Silas and not because Sun Life had a risk of inconsistent obligations to both the children and Ms. Silas. For these reasons, Sun Life’s motions for dismissal or joinder were both denied.

Subrogation/Reimbursement Claims

Third Circuit

Freitas v. Geisinger Health Plan, No. 4:20-CV-01236, 2022 WL 16964006 (M.D. Pa. Nov. 16, 2022) (Judge Matthew W. Brann). Plaintiffs Lori Freitas and Kaylee McWilliams filed this putative class action against Geisinger Health Plan and its subrogation agent, Socrates, Inc., alleging violations of ERISA Sections 502(a)(1)(B) and (a)(3) in connection with defendants’ demands for reimbursement from their ERISA welfare benefits plans (“the Employer Plans”) that included health insurance from the Geisinger Health Plan. In a prior order the court denied defendants’ motion to dismiss the complaint. At that time, the court held that the only plan document before it, “the Certificate,” did not contain an explicit right to subrogation or reimbursement and without a reimbursement clause defendants’ arguments for dismissal were unavailing.” Since then, discovery began in the case, during which plaintiffs produced their Employer Plans to defendants. After receiving those documents, defendants broadened their view of what constituted the governing documents of the plan to include not only the Certificate but also the Employer Plans, which included explicit reimbursement clauses. Plaintiffs strongly disagreed with this expansion of the relevant plan documents. Thus, this dispute between the parties over the governing plan documents was the central focus of the decision, which ruled on several motions: defendants’ motion to dismiss or alternatively for summary judgment, plaintiffs’ motion to strike defendants’ motion to dismiss, and plaintiffs’ motion to compel documents relevant to their putative class. The court began by denying plaintiffs’ motion to strike. The court rejected their argument that defendants’ motion was untimely, as well as their assertion that defendants were taking a second bite of the apple re-litigating the same issues addressed in their previous motion to dismiss. In addition to not striking the motion to dismiss, the court also converted it into a Rule 56 summary judgment motion. The most critical decision for the court was resolution of the dispute over what constituted the relevant plan documents and by extension whether the plan included subrogation clauses. The court reasoned that as welfare benefit plans the Employer Plans were “on their face…part of Plaintiffs’ overall ERISA plans,” and should therefore be included alongside the Certificate as the governing documents. The court rejected plaintiffs’ arguments for why the Certificate alone should govern, including (1) their contention that “the Certificate expressly excludes the Employer Plans,” (2) the fact that the Employer Plans provide that the Certificate controls if there are any inconsistencies among the documents, and (3) plaintiffs’ argument that defendants had relied on the Certificate “as the basis for their authority for reimbursement.” Ultimately, because the court concluded the plan documents included both the Certificate and the Employer Plans, plaintiffs’ entire complaint, premised on defendants’ unfounded reimbursement claims, was undermined. Accordingly, the court made quick work of the remainder of the summary judgment motion and held that defendants were entitled to reimbursement and had not breached any fiduciary duty through their reimbursement demands. For these reasons, defendants were granted summary judgment, and plaintiffs’ motion to compel was denied.