It has been a slow week here in ERISA World. Slow does not mean boring, however. Interestingly, in two of the cases we report on this week, courts refused to award attorneys’ fees to plaintiffs despite their partial or total success on the merits. In two other cases, courts rejected arguments that plaintiffs had failed to exhaust their plan administrative remedies prior to filing suit. And, in another decision, defendants prevailed after a nine-day bench trial in a case challenging the prudence and loyalty of fiduciaries in the selection of target date funds for a 401(k) plan. Plaintiffs, on the other hand, survived motions to dismiss in a case presenting numerous fiduciary and prohibited transaction challenges to a series of ESOP transactions. One plaintiff also won medical benefits after getting kicked by a bull calf. Finally, did you know that demolishing a structure and removing its asbestos counts as “building and construction” under ERISA? In short, there is something for everyone this week.

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

Arbitration

Seventh Circuit

Harris v. Paredes, No. 3:23-CV-50231, 2024 WL 774874 (N.D. Ill. Feb. 26, 2024) (Judge Iain D. Johnston). Plaintiff Nichole Harris brought this putative class action against various defendants engaged in administering the Suter Company Employee Stock Ownership Plan. She alleges that the plan vastly overpaid when it bought 100,000 shares of stock from the Suter family for a price exceeding $63 million, which resulted in breaches of fiduciary duties and prohibited transactions under ERISA. Defendants filed a motion to compel arbitration. Curiously, the plan had amended its arbitration clause in August of 2023, just after Harris filed suit. The court concluded that the amended arbitration clause was valid and binding, and that it covered Harris’ ERISA Section 502(a)(2) claim, noting that the Federal Arbitration Act “explicitly contemplates the enforceability of agreements to arbitrate ‘existing controvers[ies].’” The court further ruled that the “effective vindication” doctrine, which “forbids compulsory arbitration when the statute authorizing a claim allows a given remedy, but the arbitration agreement disallows it,” did not apply. This was so because the arbitration clause, which required that claims be brought “in an individual capacity and not on a class, collective, or group basis,” did not forbid Harris from pursuing her 502(a)(2) claim in arbitration. In so ruling, the court rejected defendants’ argument that Harris could only recover in arbitration for injuries to her individual account, because Section 502(a)(2) allows for plan-wide remedies. The court thus granted defendants’ motion to compel arbitration, but not on the terms they desired.

Attorneys’ Fees

Tenth Circuit

Ramos v. Schlumberger Grp. Welfare Ben. Plan, No. 22-CV-0061-CVE-JFJ, 2024 WL 729220 (N.D. Okla. Feb. 22, 2024) (Judge Claire V. Egan). Previously, the court remanded this action for ERISA-governed short-term disability benefits to Cigna Group Insurance, the defendant plan’s claim administrator, because Cigna “did not explain the rationale or reasoning for the denial of plaintiff’s claim” during his second voluntary appeal. Plaintiff Ramon Ramos moved for attorney’s fees, which the court ruled on in this order. The court agreed that “a remand order can qualify as ‘some degree of success on the merits’ in some cases,” which would meet the Supreme Court’s test for awarding fees, but here “the remand order in this case was strictly a procedural ruling that cannot support an award of attorney fees[.]” Ramos argued that the court’s remand order was a “substantive ruling that substantially increases his chances of receiving benefits,” and also allowed him to introduce additional information and evidence in support of his claim. The court rejected these arguments, however, stating that it “simply identified the plan administrator’s failure to provide a sufficient explanation…and remanded the case to supply the missing rationale and reasoning. The Court expressed no opinion on the merits of plaintiff’s ERISA claim and nothing in the Court’s ruling makes it more or less likely that the plan administrator will award plaintiff STD benefits on remand.” Furthermore, “the consideration of additional evidence was merely an incidental side-effect of the Court’s remand order, and it is unclear whether this evidence will have an impact on a judicial review of plaintiff’s ERISA claim.” The court also ruled that Ramos had not met the Tenth Circuit’s test for awarding fees because there was no bad faith, no deterrent effect because the plan had been amended to avoid a repeat occurrence (the right to a second voluntary appeal had been eliminated), and there was no ruling on the merits. Thus, the court denied Ramos’ motion. However, the court noted that Ramos was not forever foreclosed from seeking fees. If Ramos is ultimately successful on remand, “he may file a motion to recover all of the attorney fees he has incurred in this case.”

Breach of Fiduciary Duty

Fifth Circuit

Spence v. American Airlines, Inc., No. 4:23-CV-00552-O, 2024 WL 733640 (N.D. Tex. Feb. 21, 2024) (Judge Reed O’Connor). Plaintiff Bryan Spence is an American Airlines pilot and a participant in American’s 401(k) plan. He alleges that the defendants, fiduciaries of the plan, have violated ERISA by breaching their duties of loyalty and prudence, and their duty to monitor. Spence contends that defendants are investing plan assets in environmental, social, and governance (ESG) funds which “pursue non-financial and nonpecuniary ESG policy goals through proxy voting and shareholder activism[.]” These funds “focus[] on socio-political outcomes instead of exclusively on financial returns,” and thus defendants “violated their fiduciary duties to act in the Plan participants’ financial interests[.]” Defendants filed a motion to dismiss, which was decided in this order. The court ruled that Spence had plausibly alleged a claim for breach of the duties of prudence and monitoring because he had pleaded that ESG funds had underperformed other funds in the market yet were retained by defendants in the plan. Defendants contended that Spence had not provided a “meaningful benchmark” for comparison, but the court noted that the Fifth Circuit had not yet imposed a “performance-benchmark requirement,” and ruled that “requiring a benchmark for measuring performance is not required at this stage given the inherent fact questions such a comparison involves.” As for Spence’s duty of loyalty claim, defendants acknowledged that American was committed to ESG initiatives, but only under its “corporate hat” which was different from its “fiduciary hat.” Defendants further argued that there was “no plausible basis for suggesting that investment managers were motivated by anything but financial aims.” The court rejected this argument, however, ruling that this issue was “a fact question that is not appropriate to resolve at this stage.” Furthermore, according to the court, Spence had “articulate[d] a plausible story: Defendants’ public commitment to ESG initiatives motivated the disloyal decision to invest Plan assets with managers who pursue non-economic ESG objectives through select investments that underperform relative to non-ESG investments, all while failing to faithfully investigate the availability of other investment managers whose exclusive focus would maximize financial benefits for Plan participants.” Thus, the court denied defendants’ motion in its entirety.

Ninth Circuit

Hormel Foods Corp. Hourly Employees’ Pension Plan v. Perez, No. 1:22-CV-00879-JLT-EPG, 2024 WL 773153 (E.D. Cal. Feb. 26, 2024) (Judge Jennifer L. Thurston). Hormel’s pension plan for hourly employees paid $20,000 in pension benefits to a woman named Marie E. Perez. Perez signed a form certifying her name, attesting that she was not currently employed by Hormel, and including the last four digits of her Social Security number. There was only one problem: it was the wrong Marie E. Perez. Hormel asked for the money back, and when Perez refused, it sued Perez under ERISA Sections 502(a)(2) and (a)(3). Hormel then moved for default judgment on its (a)(3) claim when Perez failed to answer. The magistrate judge recommended denying the motion, concluding that Perez was not a fiduciary under ERISA and thus could not be held liable. (Your ERISA Watch reported on this decision in its October 18, 2023 edition.) Hormel objected, but in this order the district court judge adopted the magistrate’s recommendation in full. Hormel argued that “the proper focus should be on whether the defendant knowingly accepted and retained plan money the defendant was not entitled to recover,” but the court did not accept this framing: “Defendant was not a Plan participant and had no reason to know of or understand the Plan’s benefits or restrictions, nor did she have any reason to believe or understand that she might be considered a fiduciary.” Thus, because she was not a fiduciary, she could not have breached any fiduciary duties under Section 502(a)(3). Hormel contended that if the magistrate’s recommendation was accepted, “a criminal could knowingly and intentionally hack into an ERISA pension plan’s bank account, steal billions, and face no ERISA liability,” but the court was unimpressed: “the determination that Perez is not subject to ERISA remedies, ignores the existence of non-ERISA remedies and criminal sanctions available under these circumstances.” The court thus denied Hormel’s motion and dismissed the action.

Lauderdale v. NFP Retirement, Inc., No. 8:21-CV-00301-JVS-KES, 2024 WL 751005 (C.D. Cal. Feb. 23, 2024) (Judge James V. Selna). This is a class action by participants of a multi-employer 401(k) retirement plan who allege that the plan sponsor, Wood Group U.S. Holdings, and its investment manager, flexPATH Strategies, LLC, breached their fiduciary duties under ERISA by imprudently investing in flexPATH’s “target-date funds” (TDFs). The court held a nine-day bench trial in March of 2023, and this lengthy ruling represents the court’s findings of fact and conclusions of law. The court first addressed the duty of loyalty, finding that flexPATH’s witnesses were credible, that they genuinely believed that their investment decisions were in the best interests of plan participants, and that flexPATH did not benefit financially from its TDF fund selection. While it was true that flexPATH viewed the Wood plan as a “$900 million opportunity,” the court stated that a “profit motive is not unlawful in and of itself…. There is nothing disloyal about an investment manager trying to obtain new business.” Second, the court addressed the duty of prudence. Plaintiffs complained that flexPATH implemented its funds without “conduct[ing] a quantitative and qualitative evaluation of available TDFs,” but the court ruled that flexPATH’s previous research and investigation was sufficient to demonstrate that the funds were appropriate for the Wood plan. flexPATH also “continually reviewed and analyzed the structure, design, and performance” of the TDFs. The court did not agree that the TDFs underperformed compared to other funds, but to the extent they did, the court ruled that this was because they were designed to be risk-averse, and in any event such underperformance only lasted a brief period, which was insufficient to warrant a change. As for Wood, the court found that its choice of flexPATH and its TDFs was reasonable because the funds “provided broad exposure to low-cost, BlackRock Index funds, their diversified holdings helped mitigate risk in fluctuating market conditions over a long period of time, and they had naming conventions that were easy for Plan participants to understand.” Third, the court ruled that no prohibited transactions had occurred. The court found that flexPATH did not choose its own TDFs for “marketability” or “seed money” purposes, as plaintiffs claimed, or that any increase in its assets after Wood selected it led to such self-dealing. Finally, the court ruled that Wood’s duty to monitor was derivative of its duty of prudence, and thus Wood prevailed on that claim as well. In any event, the court ruled that Wood acted reasonably because the TDFs “were performing as expected given the inflation period” and Wood “appropriately considered and evaluated the reasoning behind the underperformance.” The court thus found in favor of defendants on all of plaintiffs’ claims, and requested a proposed judgment from defendants.

Disability Benefit Claims

Fourth Circuit

Aisenberg v. Reliance Standard Life Ins. Co., No. 1:22cv125 (DJN), 2024 WL 711608 (E.D. Va. Feb. 22, 2024) (Judge David J. Novak). This decision awarding disability benefits to an attorney who underwent a double bypass to treat his heart disease demonstrates two things that likely will come as no surprise to our audience: (1) attorneys, particularly those who work in the cyber-security department of a defense contractor, have stressful jobs; and (2) it doesn’t take a brain surgeon (or even a cardiologist) to know that high stress is dangerous for those suffering from serious heart disease. This case was previously before another judge in the Eastern District of Virginia who determined that Reliance Standard Life Ins. Co. (“Reliance”) abused its discretion in not considering Mr. Aisenberg’s risk of future harm if he were to return to work in his high stress job at the defense contractor, MITRE Corp., but agreed with Reliance that his normal occupation was that of a general “attorney,” rather than a cyber-security counsel, as Mr. Aisenberg had argued. In light of these holdings, the prior judge remanded the case to Reliance to determine whether there were less stressful jobs as an attorney available in the economy and, if not, the risk of future harm if Mr. Aisenberg were to return to a high stress job. Strangely, on remand, Reliance arranged for a labor market study on the job demands not of a general attorney, the category it had previously and successfully fought for, but for a business and financial counsel. This study described such stressful things as “crisis management” protecting “classified information,” and giving advice about terrorism, as among the material job duties of such a position. Concluding that Reliance was bound by its own study, the court had no problem concluding that any such position would be at least as stressful as the job Mr. Aisenberg held at the time of his bypass surgery. The court likewise had no trouble concluding, as Mr. Aisenberg’s own doctors had, and as supported by four studies he submitted, that working in a high stress job would be risky for him, despite two medical opinions submitted by Reliance that seemed to suggest that the science was out on the effects of stress on those suffering from serious heart conditions. In light of these findings, the court concluded that Reliance abused its discretion by ignoring the medical opinions of Mr. Aisenberg’s three treating physicians, not engaging with multiple studies supporting the risk to plaintiff, and failing to consider the risk of future harm despite the prior judge’s remand for just that purpose. The court therefore awarded benefits. However, despite Mr. Aisenberg’s resounding victory on the merits, the court declined to award him attorneys’ fees, concluding that only the “ability to pay” factor had been met.          

Exhaustion of Administrative Remedies

Ninth Circuit

Ayres v. Life Ins. Co. of N. Am., No. 3:23-CV-05376-DGE, 2024 WL 707454 (W.D. Wash. Feb. 21, 2024) (Judge David G. Estudillo). This is an action for long-term disability benefits under an ERISA-governed benefit plan. Defendant LINA responded to Jesse Ayres’ complaint by filing a motion for judgment on the pleadings. LINA contended in its motion that Mr. Ayres had failed to exhaust his administrative remedies under the plan and thus was barred from bringing his action. However, the court, quoting the Ninth Circuit, noted that “a claimant need not exhaust [administrative remedies] when the plan does not require it.” Because LINA could “not identify any language in the LTD Plan requiring Plaintiff to exhaust administrative remedies prior to filing a lawsuit,” its motion on this ground was denied. LINA also raised a second argument, which was that Ayres “failed to cooperate in the claim process.” Ayres denied this, and further responded that LINA failed to timely issue a decision on his claim under ERISA’s claim procedures. The court examined the pleadings and documents incorporated by reference in the pleadings “in the light most favorable to plaintiff,” as required by the Federal Rules of Civil Procedure. Under this standard, the court stated, “Arguably, the pleadings indicate Plaintiff did provide medical records and continued to provide supplemental records over the course of his communications with Defendant.” Thus, because there were “factual disputes as to the information Plaintiff allegedly failed to provide,” the court denied LINA’s motion on this ground as well. The court ordered the parties to meet and confer and file a stipulated order regarding a briefing schedule for the case.

Witt v. Intel Corp. Long-Term Disability Plan, No. 3:23-CV-01087-AN, 2024 WL 687928 (D. Or. Feb. 16, 2024) (Judge Adrienne Nelson). Plaintiff Randy Witt submitted a claim for benefits under Intel Corporation’s long-term disability employee benefit plan. Intel approved the claim for about three months and then terminated it on the ground that he no longer met the plan definition of disability. The Intel LTD plan has two mandatory appeals after a benefit denial. Witt submitted his first-level appeal to Intel through his attorney. Intel informed Witt that it needed an extension of time because it had referred his claim for independent physician review. Witt challenged this assertion, contending that this was not an “special circumstance” warranting an extension, and further contended that Intel had requested the extension too late and blown its deadline to respond under ERISA’s claim regulations. Intel responded by informing Witt that it had received the medical review reports, but they “had to be corrected based on the Plan provisions for medical evidence.” Intel provided the reports to Witt for a review and response, but Witt chose to file this action instead. Intel responded by filing a motion to stay the action and compel Witt to complete the appeal process under the plan. The court found that because Witt had submitted his appeal on May 25, 2023, Intel’s deadline was 45 days later, or July 9, 2023. Because Intel did not request an extension until July 12, 2023, its request was late and thus, under ERISA regulations, Witt’s appeal was “deemed denied” and he was not required to exhaust all the appeals ordinarily required by the plan. Intel contended that its extension was timely because Witt’s appeal was not actually complete until May 31, 2023, when Intel received additional materials from Witt. However, the court ruled that this did not toll the deadline because Intel did not request the additional information from Witt, nor did it indicate that it needed an extension because of Witt’s failure to provide necessary information. The court further ruled that Intel’s extension was not justified by “special circumstances” because it was dilatory; it failed to initiate its review process for almost a month after receiving Witt’s appeal. The court also addressed a second argument by Witt, which was that Intel could not enforce its appeal requirements because it “committed a procedural violation by failing to obtain medical reviews from appropriate medical professionals.” The court disagreed with this argument, finding that Intel “relied on reviews by medical professionals with appropriate training and experience in the field of medicine related to plaintiff’s claim.” As for the appropriate remedy, the court concluded that Intel’s failure to respond in a timely fashion to Witt’s appeal was not a “de minimis” violation, and thus the appropriate ruling was to deny Intel’s motion to compel Witt to exhaust his appeals.

Medical Benefit Claims

Sixth Circuit

Stover v. CareFactor, No. 2:22-CV-1789, 2024 WL 770071 (S.D. Ohio Feb. 26, 2024) (Judge Sarah D. Morrison). This is an action for medical benefits by plaintiff Richard Stover, who was covered under an employee benefit plan as an HVAC Division Manager. Stover “lived on a working cattle farm and sold freezer beef under the trade name Buckeye Country Angus.” In March of 2021 Stover was kicked in the leg by a bull calf, which required medical treatment, including a hospital stay. The claim administrator for the plan, defendant CareFactor, denied Stover’s claim for benefits relating to the incident under the plan’s occupational exclusion. Stover filed suit and CareFactor moved for judgment. The court first ruled that the proper standard of review was de novo because, while the plan contained a grant of discretionary authority, that grant was to the plan administrator and not to CareFactor. Under this standard of review, the court ruled that defendants “failed to shoulder the burden of proving that a coverage exclusion applied.” The court noted that Stover “has consistently asserted that he was kicked by a bull calf being raised for personal consumption,” not as part of any business operations, and that he provided statements and documents in support of this assertion. The court found that defendants ignored this evidence and “failed to develop any evidence to the contrary” by not following up on the information Stover had provided. As a result, the court denied defendants’ motion and directed that judgment be entered in Stover’s favor.

Pension Benefit Claims

Eighth Circuit

Randall v. GreatBanc Tr. Co., No. 22-cv-2354 (ECT/DJF), 2024 WL 713997 (D. Minn. Feb. 21, 2024) (Judge Eric C. Tostrud). Participants in a 401(k) plan with an employer stock ownership plan (ESOP) component sponsored by their employer, Well Fargo, survived motions to dismiss under both Federal Rule of Civil Procedure 12(b)(1) and Rule 12(b)(6) in this decision. Wells Fargo used the ESOP to meet its mandatory matching and discretionary profit sharing contributions under the 401(k) plan. As alleged, and as is typical with ESOPs, Wells Fargo lent money to the ESOP which the ESOP use to purchase shares of stock from the company, in this case preferred stock. This preferred stock is held in a reserve account until principal payments are made on the loan, at which point the preferred stock is, according to plan terms, required to be converted to $1,000 of common stock at the prevailing market rate and allocated to individual participants’ accounts. Plaintiffs filed a putative class action against Wells Fargo, its former CEO Timothy Sloan, and GreatBanc Trust Company, a fiduciary for the plan, alleging that this did not happen because the ESOP overpaid for preferred stock by calculating its value at more than $1,000. They asserted claims against all three defendants for breach of fiduciary and co-fiduciary duties, and prohibited transactions. Defendants moved to dismiss under Rule 12(b)(1), asserting that plaintiffs had suffered no cognizable injury sufficient to establish Article III standing, and under 12(b)(6) asserting that plaintiffs had failed to state plausible claims for relief. Addressing the Article III issue first, the court agreed with defendants that the overpayment for the preferred stock, without more, did not establish an injury because the preferred stock was never allocated to the accounts of the plaintiffs. Nevertheless, the court concluded that plaintiffs had alleged a “second injury theory” by contending that “‘if Wells Fargo had not misappropriated the ESOP’s preferred stock dividends and used them to subsidize its employer matching contributions,’ Wells Fargo ‘would have contributed additional shares of common stock to meet its employer matching contribution obligation, and the preferred dividends would have been used to make additional payments on the ESOP loans, converting more preferred stock to common stock for allocation to Plan participants.’” This was sufficient at the pleading stage to establish jurisdiction, despite what the court saw as Wells Fargo’s essentially merits-based arguments to the contrary. On the 12(b)(6) motions, the court turned first to the prohibited transaction claims, noting that the exemptions in 29 U.S.C. § 1108 are defenses and that to establish a party-in-interest prohibited transaction under Section 1106(a), plaintiffs were required only to plead that a fiduciary caused the specified (prohibited) transaction to occur between a plan and a party-in-interest. Concluding that they had done so, the court denied the motions to dismiss these claims. Likewise, with respect to the asserted Section 1106(b)(1) violations, the court concluded that plaintiffs plausibly alleged that Wells Fargo, acting in a fiduciary capacity, used preferred stock dividends in its own interest to meet its contribution obligations and that Sloan and GreatBanc knowingly participated in these actions. Similar factual allegations led the court to conclude that plaintiffs had plausibly alleged violations of ERISA’s loyalty provisions. While the court was not convinced that the imprudence claims were stated in a sufficiently non-conclusory manner, the court ultimately concluded that the allegations related to disloyalty were enough to allow the prudence claims to also survive at the pleading stage. The court’s denial of the motions to dismiss the remaining claims – for breach of the duty to follow plan documents, violations of ERISA anti-inurement provisions, and failure to monitor and for co-fiduciary breaches – flowed from these prior conclusions. All in all, a great decision for the plaintiffs, represented by my colleagues and friends (and loyal Your ERISA Watch readers) Dan Feinberg, Nina Wasow, and Todd Jackson at Feinberg, Jackson, Worthman & Wasow.

Statutory Penalties

Fifth Circuit

Jones v. AT&T, Inc., No. CV 20-2337, 2024 WL 772496 (E.D. La. Feb. 26, 2024) (Judge Greg Gerard Guidry). Plaintiff William Jones, serving as the executor and administrator of an estate, brought this action against AT&T alleging that AT&T failed to produce plan documents in violation of ERISA. The court entered judgment in AT&T’s favor, and Jones brought a motion for reconsideration. Jones contended that the court erred by (1) only addressing two of the three documents he claimed should have been produced, and (2) crediting testimony from AT&T that it had “produced everything they had in their possession to Plaintiff.” The court denied Jones’ motion. The court admitted that it had not expressly named one of the plan documents in its order, but ruled that its order encompassed that document by reference, so there was no error. As for AT&T’s testimony, the court stated that Jones “presented no evidence at trial to controvert that testimony,” and had not demonstrated that there were other relevant unproduced documents. Thus, the court denied Jones’ motion.

Withdrawal Liability & Unpaid Contributions

Ninth Circuit

Walker Specialty Constr., Inc. v. Board of Trs. of the Constr. Indus. & Laborers Joint Pension Tr. for S. Nev., No. 2:23-CV-00281-APG-MDC, 2024 WL 756078 (D. Nev. Feb. 22, 2024) (Judge Andrew P. Gordon). The Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) amended ERISA to create “withdrawal liability.” Under the MPPAA, if an employer withdraws from a multiemployer pension plan, it is liable for its share of the fund’s unfunded vested benefits. However, there is an important exception: no withdrawal liability is owed for “building and construction industry” employees. In this case the plaintiff, Walker, performed asbestos removal, lead removal, and demolition work. It ceased operating in Nevada but contended that it did not owe $2.8 million in withdrawal liability because its employees fit this exception. It took the pension trust to arbitration, and lost, and then challenged the arbitrator’s decision in this action. The parties filed cross-motions for summary judgment which were decided in this order. The court reviewed the arbitration decision de novo because there were “no factual disputes about the work Walker’s employees performed” and “[t]he proper interpretation of the statutory term ‘building and construction industry’ is a question of law.” The court noted that the term is undefined in the MPPAA and the Ninth Circuit had not interpreted its meaning. The trust argued that Walker did not fit the building and construction exception because its employees only removed or demolished structures, and did not make or build anything. However, the court relied on the National Labor Relations Board (NLRB) and its interpretations of the 1947 Taft-Hartley Act, which uses the same language, and ruled that the exception was not “confine[d]…to literal erecting of structures.” Specifically, the NLRB had ruled in a post-MPPAA decision that asbestos removal met the Taft-Hartley Act’s definition. Furthermore, “courts have understood the definition…to encompass more than just work that forms, makes, or builds a structure in the literal sense.” Thus, the court ruled, “By encapsulating and removing component parts of fixtures attached to buildings, and by demolishing buildings for future repair, remodeling, or construction, Walker engaged in work in the building and construction industry,” thereby satisfying the MPPAA’s withdrawal liability exception. The court thus granted Walker’s summary judgment motion and denied the trust’s.

Parmenter v. The Prudential Ins. Co. of Am., No. 22-1614, __ F. 4th __, 2024 WL 613959 (1st Cir. Feb. 14, 2024) (Before Circuit Judges Montecalvo and Thompson, and District Judge Silvia Carreño-Coll)

With a rapidly aging population in the United States, coupled with increasing numbers of people suffering from chronic and debilitating illness, long-term care is in the spotlight like never before. Because very few people can afford to pay for the cost of such care themselves, more and more employers are now offering long-term care insurance through ERISA plans as a benefit to their employees and their families. Given these trends, it should not be surprising that we are beginning to see an uptick in litigation about long-term care benefits, as this week’s case of the week exemplifies.

The case originated when Barbara Parmenter, an employee of Tufts University, sued Tufts and Prudential Insurance Company in a putative class action after Prudential twice raised its premium rates for her long-term care coverage. She alleges that she was informed during an in-person presentation she attended before enrolling that any increase in premiums would have to be approved by the Massachusetts Commissioner of Insurance before becoming effective, and the group contract covering the policy likewise made such increases “subject to” approval by the Commissioner. Ms. Parmenter further alleges, and neither Prudential nor Tufts disputes, that Prudential did not obtain approval from the Commissioner before raising her premiums (and those of others in the class). Nevertheless, Prudential asserts that it was not in fact possible to get approval from the Commissioner because, as it turns out, the Commissioner has never exercised its regulatory authority over group contracts and thus has not set up a rate approval mechanism with respect to policies issued under such contracts.

The district court agreed with the defendants that Ms. Parmenter had not plausibly stated a claim for breach of fiduciary duty because the court interpreted that group contract’s “subject to” language to only apply in the event that the Commissioner exercised its regulatory authority with respect to such contracts. The court of appeals in this decision disagreed that this was the only way to read the contractual language, concluding instead that the language was ambiguous and could not be resolved on the current record.

To get there, the court first addressed whether Prudential was a fiduciary with respect to raising the premiums. Noting that “[i]n the plan documents, Prudential held itself out to the plan participants as owing them a fiduciary duty of prudence,” the court rejected Prudential’s assertion that raising premiums rates was a business decision falling outside the ambit of any of its duties as an admitted plan fiduciary. On this basis, the court held that “at the very least Prudential owed Parmenter a fiduciary duty of prudence to manage the plan in accordance with the documents governing the plan…however it is ultimately interpreted.”

This brought the court to the crux of the issue: “the plausibility of the breach allegations against Prudential.” Applying federal common law principles of contract interpretation – which the court saw as incorporating common-sense principles and canons drawn from state law – the court concluded that the term “subject to” as used in the group contract was ambiguous. The court thus disagreed with both sides of the dispute, who each asserted that the phrase had a different plain and unambiguous meaning.

The court started with dictionary definitions of the phrase “subject to,” which varied from an absolute to a possibility, and thus could support both the plaintiff’s and the defendants’ proposed interpretations. Nor did consideration of the policy as a whole, which elsewhere simply stated that Prudential reserves the right to increase premiums, clear up the matter. Instead, these and other contract interpretation principles led the court “to conclude that ‘subject to’ is ‘reasonably susceptible of’ different interpretations,” and thus ambiguous.

The court of appeals then determined, as is usually the case with respect to contractual ambiguities, that it was not possible to resolve the ambiguity in the contract language on the pleadings, with only the contract before it. The court thus reversed the judgment as to Prudential and remanded for further proceedings.

Ms. Parmenter did not fare so well with respect to her ancillary claim for co-fiduciary breach under 29 U.S.C. § 1105(a) against Tufts. Ms. Parmenter based this claim on Tufts’ failure to prevent Prudential from raising premiums and its alleged failure to monitor Prudential. The court read the text of Section 1105(a) to “contemplate[] active steps in furtherance of the breach whereas Parmenter alleges Tufts stood by and did nothing.” Because the complaint does not allege that “Tufts knowingly participated in, concealed, enabled, or failed to intercede in any way to influence Prudential’s decision to increase the premium rates which affected Parmenter’s premium payments,” the court of appeals affirmed the district court’s judgment dismissing the complaint as to Tufts.         

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

Attorneys’ Fees

Tenth Circuit

Huff v. BP Corp. N. Am., No. 22-CV-00044-GKF-JFJ, 2024 WL 551886 (N.D. Okla. Feb. 12, 2024) (Judge Gregory Y. Frizzell). In this case, Ronald Huff, a former employee of BP Corporation of North America, repeatedly and, according to the court, erroneously, filed complaints and motions asserting state-law claims insisting that a group life insurance policy was not an ERISA-governed plan. After the Tenth Circuit affirmed the district court’s decision concluding that the policy was governed by ERISA and dismissing the complaint, BP sought an award of attorney’s fees against Mr. Huff under ERISA’s fee-shifting provision, 29 U.S.C. § 1132(g)(1), as well as an award against Mr. Huff’s attorney under 28 U.S.C. § 1927 for vexatious litigation. Despite the unusual circumstances of the case, the court refused to assess an attorney fee award against Mr. Huff under ERISA’s fee provision. Applying the Tenth Circuit’s five-factor test, the district court concluded that only the fifth factor, which looks to the relative merits of the parties’ positions, weighed in favor of a fee award because Mr. Huff repeatedly ignored court orders and consistently failed to assert an ERISA claim despite being given the opportunity to do so. With regard to the other four factors, the court held that: (1) there was no evidence that Mr. Huff asserted his claims in bad faith or to confuse or mislead the court; (2) Mr. Huff, as a retiree in his eighties, did not have the ability to satisfy an award; (3) an award would not serve a deterrent purpose because any fault with regard to the claims lay with Mr. Huff’s attorney; and (4) the fourth factor, which considers whether the plaintiff sought to benefit other plan participants, is only relevant when a plaintiff seeks a fee award. Thus, the court concluded that “although Mr. Huff’s claims lacked merit, on balance, the relevant factors weigh against imposing attorney’s fees against Mr. Huff under” ERISA’s fee provision. The court’s calculus was different, however, regarding a fee award against Mr. Huff’s attorney under 28 U.S.C. § 1927. In rather quaint language, this statutory provision allows a court to assess fees against an attorney who “so multiplies the proceedings in any case unreasonably and vexatiously.” The court concluded that Mr. Huff’s attorney did so by acting in an objectively unreasonable manner in continuing to press the state-law claims after being told by two different courts that ERISA governed the matter and preempted these claims. The court found that although the attorney did not act in bad faith, sanctioning the attorney under Section 1927 was warranted because he “continu[ed] to pursue claims after a reasonable attorney would realize they lacked merit.” The court therefore ordered BP to submit itemized bills so that the court could award “the excess costs incurred by BP as a result of the sanctionable conduct – that is, Mr. Martin’s response in opposition to BP’s January 31, 2022 motion to dismiss and the two motions to reconsider directed to ERISA’s applicability.”       

Breach of Fiduciary Duty

Second Circuit

Falberg v. The Goldman Sachs Grp., Inc., No. 22-2689-CV, __ F. App’x __, 2024 WL 619297 (2d Cir. Feb. 14, 2024) (Before Circuit Judges Lynch, Nardini, and Merriam). In Your ERISA Watch’s September 21, 2022 edition, our case of the week was the district court’s ruling in this matter. The plaintiffs, participants in Goldman Sachs’ 401(k) retirement plan, brought a putative class action alleging that Goldman and other defendants involved in managing the plan breached their fiduciary duties under ERISA by belatedly removing underperforming Goldman investment funds as plan investment options, failing to consider lower-cost alternatives, and failing to claim “fee rebates” that were allegedly available. The district court disagreed and granted defendants’ motion for summary judgment on all of plaintiffs’ claims. Plaintiffs appealed to the Second Circuit, who weighed in with this unpublished decision. First, the court agreed with the district court that defendants did not breach their fiduciary duty of loyalty. Plaintiffs “failed to introduce evidence that Defendants retained the Challenged Funds in the Plan for the purpose of advancing their interests; indeed, the evidence in the record suggests otherwise.” Defendants “employed a robust process to manage potential conflicts of interest,” “required [Committee] members to participate in fiduciary training sessions,” and “retained an investment consultant to act as an independent advisor and provide unbiased advice[.]” Plaintiffs contended that defendants removed the funds at issue too late, but the court ruled that “a fiduciary does not breach its duty of loyalty by choosing to retain an investment that, in the fiduciary’s reasonable assessment, may perform well in the long term despite short-term underperformance.” As for the duty of prudence, the court agreed with the district court that defendants’ decision not to adopt a formal investment policy statement, by itself, was insufficient to demonstrate a breach. Furthermore, the record showed that “the Committee followed a deliberative and rigorous process when selecting and monitoring investments.” The Committee’s independent advisor “continually monitored and evaluated the Plan’s investment options, and provided the Committee members with detailed information,” which they reviewed before attending meetings. Next, the Second Circuit rejected plaintiffs’ prohibited transactions claim involving the alleged failure to collect fee rebates. The court agreed with the district court that the Goldman plan “was treated no less favorably than other retirement plans” because it was subject to the same fee rebate eligibility requirements as other plans that used the plan’s recordkeeper. Finally, the court ruled that plaintiffs could not maintain their claim for breach of the duty to monitor because it hinged on their breach of fiduciary duty claim, which the court had already rejected. The Second Circuit thus affirmed the district court’s summary judgment ruling in defendants’ favor in all respects.

Disability Benefit Claims

Sixth Circuit

Smith v. Reliance Standard Ins. Co., No. 4:21-CV-128-RGJ, 2024 WL 647395 (W.D. Ky. Feb. 15, 2024) (Judge Rebecca Grady Jennings). Plaintiff Jessica Smith was a retail center manager for Old National Bank and a participant in Old National’s employee long-term disability benefit plan, insured by defendant Reliance Standard. She stopped working in 2020 due to symptoms from several medical conditions, including breast cancer treatment, chronic pain, and fibromyalgia, and applied to Reliance for benefits. Reliance approved Smith’s claim for a short period, but then terminated it, contending that Smith did not meet the plan definition of disability. Smith brought this action and the parties filed cross-motions for judgment. The court first addressed the standard of review. The plan gave Reliance discretionary authority to determine benefit eligibility, but the denial decision was made by Reliance’s sister company, Matrix Absence Management, Inc. Thus, because Reliance did not actually exercise its discretion, the court determined that the default de novo standard of review applied. Under this standard, the court agreed that the medical records “consistently demonstrated Smith was experiencing frequent, debilitating pain in multiple areas.” The court noted that Reliance had previously approved benefits but did not cite any information supporting its change of heart. Reliance complained that there was no objective evidence to support Smith’s claim, such as a functional capacity evaluation, but the court observed that the plan gave Reliance the right to request such an examination at any time, and noted that “pain is inherently subjective.” As a result, the court granted Smith’s motion for summary judgment and ordered Reliance to reinstate her benefits. The court also remanded Smith’s claim for waiver of life insurance premium benefits because Reliance had not made a decision on that benefit and the disability definition was different. Finally, the court denied Smith’s claim for prejudgment interest at the state law rate, ruling that interest should be awarded pursuant to 28 U.S.C. § 1961, and gave her leave to file a motion for attorney’s fees.

Ninth Circuit

Burris v. First Reliance Standard Life Ins. Co., 2:20-CV-00999-CDS-BNW, 2024 WL 551937 (D. Nev. Feb. 9, 2024) (Judge Cristina D. Silva). Plaintiff John Scott Burris, formerly an attorney and non-equity partner with Wilson Elser Moskowitz Edelman & Dicker LLP, filed this action against defendant First Reliance. He alleged that First Reliance unlawfully denied his claim for long-term disability benefits under Wilson Elser’s employee disability benefit plan. First Reliance filed a motion for judgment on the record, which the court decided in this order. The court first ruled that its standard review was deferential because the plan granted First Reliance discretionary authority to interpret the plan and determine benefit eligibility. Under this standard, the court ruled that Burris had not met his burden of proof. The court found that there was “nothing in the record indicating that he could no longer perform the material duties of his regular occupation as a result of his chronic fatigue syndrome diagnosis, other than his own subjective self-assessment and support letters from his wife and mother.” Furthermore, his doctor’s diagnosis was “entirely based on Burris’ self-reported symptoms.” Thus, First Reliance’s denial was not “illogical, implausible, or without support in inferences that may be drawn from the facts in the record.” The court further ruled that First Reliance had “engage[d] in meaningful dialogue” with Burris in its denial letter by outlining the eligibility requirements and providing a six-page explanation of how it had arrived at its determination. Because “the denial letter clearly informed Burris in plain language of the reason for the denial,” First Reliance “met its duty to engage in meaningful dialogue.” Thus, the court granted First Reliance’s motion for judgment, making this the unusual case where an attorney plaintiff was not able to prevail on a disability claim.

Tenth Circuit

Joseph K. v. Foley Indus. Emp. Benefit Plan – Plan No. 501, No. 2:23-CV-2054-EFM-ADM, 2024 WL 624005 (D. Kan. Feb. 14, 2024) (Judge Eric F. Melgren). Plaintiff Joseph K. was a network services manager for Foley Industries who was terminated on January 17, 2022. At the time Joseph was suffering from several medical issues, including ankylosing spondylitis, chronic iridocyclitis, arthropathic psoriasis, and memory issues. He submitted claims for short-term and long-term disability benefits to Prudential Insurance Company of America, the insurer of Foley’s employee disability benefit plan, informing Prudential that his medical conditions predated his termination and that he had been terminated because of them. However, Prudential denied both claims. Prudential contended that Joseph’s disability began on January 18, 2022, and he was not covered under the plan at that time because he had been terminated the previous day and did not have an “earnings loss” as required by the plan prior to that date. Joseph filed suit, alleging a number of causes of action, including under ERISA. The parties agreed to file cross-motions for summary judgment on Joseph’s ERISA claims, which were decided in this order. The court, to put it mildly, was not pleased with Prudential: “Defendants’ argument borders on the frivolous… Such an unreasonably narrow interpretation, resulting in a Catch 22 situation, is the epitome of arbitrary and capricious decision-making.” The court noted that similar arguments “advocating that employees cannot be eligible for benefits or considered disabled while working, have been soundly rejected by the circuits to have considered them.” The court further found that the plan “clearly contemplates situations where an employee loses his job because of a disability,” and that Prudential’s argument to the contrary was “legally indefensible.” Prudential argued in the alternative that the court should remand the case for a determination regarding whether Joseph met the plan definition of disability because Prudential had not yet decided that issue. The court rejected this as well, ruling that Prudential’s letters conceded that Joseph had a disability, and that because Prudential did not raise the disability definition as a rationale for denying Joseph’s claims, it would not be permitted to do so on remand. The court further determined that Joseph was entitled to attorney’s fees, costs, and prejudgment interest and directed him to file a motion regarding those issues.

Discovery

Sixth Circuit

Dotson v. Metropolitan Life Ins. Co., No. CR 5:23-178-DCR, 2024 WL 532301 (E.D. Ky. Feb. 9, 2024) (Judge Danny C. Reeves). Plaintiff Gary Dotson filed this action challenging defendant MetLife’s denial of his claim for long-term disability benefits under a benefit plan sponsored by his employer, CTI Food Holdings, Co. Dotson served interrogatories and requests for production of documents on MetLife, but MetLife objected, contending that Dotson was not entitled to any discovery. Dotson filed a motion to compel, which the court decided in this order. The court acknowledged that “it is well established that plaintiffs in ERISA cases generally are not entitled to obtain discovery outside of the administrative record.” However, “limited discovery is available if a claimant makes a satisfactory allegation of a violation of due process or bias by the plan administrator.” The court noted that several decisions in the Eastern and Western Districts of Kentucky had “routinely permitted limited discovery” when an “inherent conflict of interest” was present, and that such a conflict “is, in and of itself, some evidence of bias.” It was undisputed that MetLife had a conflict in this case because “there is a per se conflict of interest when a plan administrator is responsible for both evaluating and paying benefits on a claim.” The court concluded by noting that there was “no practical way to determine the extent of the administrator’s conflict of interest without looking beyond the administrative record.” Thus, it allowed Dotson’s discovery to proceed and granted his motion to compel.

ERISA Preemption

Fifth Circuit

Smith v. The Lincoln Nat’l Life Ins. Co., No. 4:23-CV-01036-P, 2024 WL 583488 (N.D. Tex. Feb. 13, 2024) (Judge Mark T. Pittman). Plaintiff Danielle Smith brought this action against defendant Lincoln, alleging that Lincoln wrongfully denied her claim for accidental death benefits after her father passed away. Lincoln filed a motion to dismiss, contending that Smith’s state law claim for breach of contract is preempted by ERISA. Smith did not file a response. In this brief order, the court agreed with Lincoln: “Here, it is clear from Plaintiff’s Amended Complaint and from the insurance plan itself that the insurance plan in question is an ERISA plan…the only conduct at issue is Defendant’s denial of the plan…Plaintiff’s claim is thus preempted by ERISA.” The court also struck from Smith’s complaint her requests for compensatory damages and a jury trial, as neither is available under ERISA.

Medical Benefit Claims

Sixth Circuit

Churches v. Administration Sys. Research Corp., Int’l, No. CV 22-13041, 2024 WL 643139 (E.D. Mich. Feb. 15, 2024) (Magistrate Judge David R. Grand). Plaintiff Levi Churches crashed a Honda CRF 450R motorcycle on private property and sustained serious injuries. He submitted a claim for benefits under an employee medical benefit plan sponsored by his employer, The CSM Group, Inc. CSM denied his claim, citing an exclusion in the plan for accidents involving motorcycles. Churches brought this action and the parties filed cross-motions for summary judgment. In his briefing, Churches acknowledged the motorcycle exclusion but relied on an exception to the exclusion which stated, “A vehicle that is commonly recognized as an ‘off-road vehicle’ (ORV) or ‘all-terrain vehicle’ (ATV) shall not be deemed to be a Motorcycle, nor will the off-road operation of a Motorcycle cause it to be deemed instead an ORV or ATV.” The court first addressed the standard of review, and gave up the game by stating that the issue “is not critical…because CSM’s decision to deny benefits fails to pass muster even under the more deferential arbitrary and capricious standard.” The court criticized the plan for not even addressing the ORV exception in its denial letter, even though Churches had raised the issue in his appeal. Instead, CSM focused solely on whether the vehicle Churches was riding was a “motorcycle,” using a “flawed interpretation that the Motorcycle Definition trumps the ORV Exception.” The court further found that the Honda vehicle at issue was a motocross motorcycle designed for off-road riding, and thus was an ORV under the plan’s exception. The court thus overturned CSM’s decision, granted Churches’ motion, and awarded him benefits. The court also invited him to file a motion for attorney’s fees.

Ninth Circuit

Arnold v. United Healthcare Ins. Co., No. CV 23-3974 PA (AGRx), 2024 WL 549032 (C.D. Cal. Feb. 12, 2024) (Judge Percy Anderson). Plaintiff Linda Arnold brought suit after United Healthcare denied her claim for coverage under her health care plan for an endoscopy done in preparation for bariatric weight loss surgery and a hiatal hernia repair performed during the surgery. As many plans do, Ms. Arnold’s plan excluded bariatric surgery, so United denied her claims. As an initial matter, the court held that de novo review applied. But even under this ostensibly more plaintiff-friendly standard, based on the administrative claim record and trial briefs and arguments submitted by counsel, the district court held that “United’s decision to deny reimbursement for the endoscopy and the hiatal hernia repair was consistent with the terms of the Plan.” With respect to the endoscopy, the court agreed with United that Ms. Arnold failed to provide complete medical records to support this claim. With respect to the hernia repair surgery, the court noted that “both surgeons used the same incision point for the two procedures, suggesting that the surgeries were related, and that the hernia surgery was ‘incidental’ to the gastric sleeve procedure.” The court also noted that both the surgeon who performed the gastric sleeve procedure and the assistant surgeon who performed the hiatal hernia repair charged the same amount, “suggesting that the two surgeons ‘double billed’ for the hernia repair in an attempt to circumvent the policy exclusion.”

Mejia v. United Healthcare Ins. Co., No. 2:23-CV-02032-SVW-E, 2024 WL 637261 (C.D. Cal. Feb. 14, 2024) (Judge Stephen V. Wilson). Plaintiff Oscar Mejia brought this action in California state court against defendant United, the insurer of his employer’s health benefit plan, alleging that United underpaid for his out-of-network surgery. Mr. Mejia’s primary argument was that “United failed to fulfill its obligation under the plan to either ‘engage in a negotiation or at least attempt a negotiation to reduce the amount Mr. Mejia is responsible for paying Medical Providers.’” United removed the case to federal court based on ERISA preemption and the parties filed cross-motions for judgment. The court noted that Mr. Mejia’s claim was unusual because he was not arguing that United miscalculated his benefits under the terms of the plan, that it miscategorized the treatment he received, or that it did not apply negotiated rates. Instead, he argued that ERISA required United, as a fiduciary, “to at least attempt a negotiation of Medical Providers’ bills for services provided by Medical Providers to Mr. Mejia[.]” Because the plan provided United with discretionary authority to determine benefits, the court employed the abuse of discretion standard of review. Under this standard, the court ruled that United had acted reasonably. The court agreed with United that it had followed the plan, which requires it to use negotiated rates if they exist, and if not, to use Medicare rates. The court observed that “there is no obligation for United to negotiate with out-of-network providers under the terms of the plan,” and that Mejia’s argument to the contrary “overstretches United’s obligation as a fiduciary… [A]s a fiduciary, United must enforce the language of the plan with the fair-mindedness of the fiduciary of a trust; United is not required (nor would it be permitted) to rewrite the plan language to secure Plaintiff a better outcome.” The court thus granted United’s motion for judgment and denied Mejia’s. The court also denied Mejia’s motion for leave to conduct limited discovery.

Tenth Circuit

K.Z. v. United Healthcare Ins. Co., No. 2:21-CV-00206-DBB, 2024 WL 664801 (D. Utah Feb. 16, 2024) (Judge David Barlow). Plaintiff K.Z. is a participant in an ERISA-governed medical benefit plan whose son, E.Z., received behavioral health treatment at a residential treatment facility. Defendant United approved benefits for some of E.Z.’s treatment, but ultimately denied further coverage on the ground that his treatment was no longer medically necessary. Plaintiffs brought this action and the parties filed cross-motions for summary judgment. The court first determined that the appropriate standard of review was deferential because the plan gave United discretionary authority to determine benefit eligibility. However, United failed to meet this standard. The court determined that United failed to engage with the recommendations of E.Z.’s providers and the facts that could have confirmed his coverage, including alarming episodes of violence, suicidality, and inappropriate sexual behavior. United’s reviewers also “failed to explain how they arrived at [their] conclusions and how each conclusion applied to their guidelines.” The court thus overturned United’s decisions. The court then reviewed the four time periods of treatment at issue, and determined that benefits should be paid for two of those periods because the record “clearly showed” that plaintiffs were entitled to benefits. For the third time period, the court remanded to United for further review because the record was inconclusive and United had failed to make adequate factual findings. For the fourth time period, the court determined there was an incomplete record due to United’s confusing correspondence, so it remanded to United for this period as well.

Pension Benefit Claims

First Circuit

Bowers v. Russell, No. 22-10457, 2024 WL 637442 (D. Mass. Feb. 15, 2024) (Judge Patti B. Saris). This suit brought by participants in an employee stock ownership plan (“ESOP”) alleges that plan fiduciaries committed numerous prohibited transaction and fiduciary breaches when shares of the company that had not yet been allocated to the ESOP reverted to the company after the founder died, and the ESOP was later terminated. The factual background is complicated and involves maneuvering by the heirs and spouse of the deceased founder and a succession at the company worthy of the television show of the same name. Suffice it to say that plaintiffs alleged that the unallocated shares of the company were deliberately and significantly undervalued at the time of the termination and that the company owners therefore got a windfall at the expense of the participants. The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), arguing that “Plaintiffs lack standing because they only had an interest in the allocated shares,” and that they failed to plead sufficient facts to show that the unallocated shares were undervalued. The court disagreed. Because the plan stated that the unallocated shares were to be used upon termination to repay the note that secured the ESOP and that “any amount remaining after the ESOP Note ha[d] been paid in full [would] be allocated to the participants of the Plan,” plaintiffs “had an interest in the value of the unallocated shares less the remaining debt owed by the ESOP to the Company.” Nor was the court convinced that dismissal was warranted based on waivers and releases signed by the plaintiffs. The court noted that waiver and release is an affirmative defense on which the defendants bear the burden of proof, and plaintiffs plausibly asserted that the waivers were not signed knowingly and voluntarily. Next, rejecting defendants’ argument that the prohibited transaction claims were precluded on the basis of ERISA’s three-year statute of limitations, the court concluded that the complaint plausibly alleges that plaintiffs lacked actual knowledge of the prohibited transaction more than three years prior to filing suit. Finally, the court concluded that the complaint plausibly alleges that the Board defendants committed fiduciary breaches both in orchestrating the prohibited transaction and in failing to monitor the conduct of the trust company which the Board appointed.

Eighth Circuit

Hankins v. Crain Auto. Holdings, LLC, No. 4:23-CV-01040-BSM, 2024 WL 664815 (E.D. Ark. Feb. 16, 2024) (Judge Brian S. Miller). Plaintiff Barton Hankins is the former Chief Operating Officer of Crain Automotive Holdings and a participant in Crain’s deferred compensation benefit plan. He resigned in January of 2023 and requested that Crain pay him the vested portion of his benefit under the plan, which totaled a whopping $4,977,209.02. Crain refused to pay, contending that the plan was “unenforceable because it contemplates separately signed employment and confidentiality agreements that were never entered,” and further arguing that Hankins had defrauded Crain. In this brief order the court rejected both arguments. The court ruled that the two agreements Crain cited were not necessary in order for the plan to be enforced; Hankins’ separation from service triggered the payment regardless of the existence of any other agreements. The court noted that Crain failed to procure these agreements for four years after Hankins joined the plan, and only raised the issue when Crain resigned, thus indicating that “Crain is simply looking for a way to avoid its obligation to Hankins.” As for Crain’s fraud accusations, the court deemed them “unsubstantiated” because “Crain has failed to disclose the facts and documents upon which these allegations rest.” The court thus ruled that Crain’s decision was an abuse of discretion and ordered it to pay Hankins the requested benefits plus prejudgment interest.

Pleading Issues & Procedure

Ninth Circuit

LeBarron v. Interstate Grp., LLC, No. 22-16332, __ F. App’x __, 2024 WL 575223 (9th Cir. Feb. 13, 2024) (Before Circuit Judges Rawlinson and Owens and District Judge Dean D. Pregerson). Plaintiff Russell LeBarron brought this action against his employer, alleging violation of the ADA and unlawful retaliation under ERISA Section 510, among other claims. Defendant Interstate counterclaimed against LeBarron for conversion and civil theft, and filed a motion to dismiss LeBarron’s claims. The district court granted Interstate’s motion (as chronicled in Your ERISA Watch’s April 7, 2021 edition), after which Interstate made an offer of judgment to LeBarron in the amount of $10,000 pursuant to Federal Rule of Civil Procedure 68. LeBarron accepted and the district court entered judgment against Interstate in that amount, plus costs. However, LeBarron was not satisfied. He then appealed the district court’s dismissal of his ERISA claim to the Ninth Circuit. In this brief memorandum disposition, the appellate court rebuffed LeBarron, ruling that it had no jurisdiction to hear his appeal: “Here, the Rule 68 offer did not carve out Appellant’s ERISA claim, nor did Appellant’s Notice of Acceptance of that offer reserve any right to appeal. Accordingly, any interlocutory order regarding the ERISA claim merged into the final judgment, to which Appellant consented. Having so consented, Appellant has waived any right to bring the instant appeal, and we lack jurisdiction to hear it.”

Provider Claims

Second Circuit

Bianco v. ADP TotalSource, Inc., No. 23-CV-01054 (HG), 2024 WL 524378 (E.D.N.Y. Feb. 9, 2024) (Judge Hector Gonzalez). This suit involves approximately $160,000 in unreimbursed medical expenses for the cost of emergency brain surgery performed on Michael Bianco, a plan participant, by Dr. Miguel Litao. However, as the court notes, Mr. Bianco did not file suit. Instead, Dr. Farkas, the owner of the medical practice where Dr. Litao works, brought suit for plan benefits after the plan paid only $28,217.58 on a $190,000 claim. Dr. Farkas claimed he was Mr. Bianco’s attorney-in-fact pursuant to a power of attorney, despite the fact that the governing plan contained an anti-assignment clause. Under a line of cases in the Second Circuit, the court noted that “a physician who seeks to stand in the shoes of a patient of his practice is not a participant nor a beneficiary under the patient’s plan, and therefore has no cause of action under ERISA Section 502(a)(1)(B).” The court concluded that the reasoning of these cases was fully applicable in the circumstances presented. Therefore, the court held that because Dr. Farkas was using a power of attorney “to circumvent the plan’s unambiguous anti-assignment provision,” he lacked standing to bring suit for benefits. The court therefore granted defendants’ motion to dismiss.

Statute of Limitations

Second Circuit

Perlman v. General Elec., No. 22 CIV. 9823 (PAE), 2024 WL 664968  (S.D.N.Y. Feb. 16, 2024) (Judge Paul A. Engelmayer). Plaintiff Carol Perlman, a former employee of defendant GE, sued GE under New York state law and ERISA for wrongfully denying her claim for pension benefits and failing to produce documents regarding those benefits. The court granted GE’s first motion to dismiss and gave Perlman leave to amend. After she filed her amended complaint, GE moved to dismiss again. In this order the court granted GE’s motion and dismissed the case with prejudice. The court reiterated its ruling from the first motion that Perlman’s claim for benefits accrued in 2003-2004, when she was terminated by GE, and thus her suit was time-barred. Furthermore, Perlman’s amended allegations did not show that she was entitled to equitable tolling because GE did not make any misrepresentations to her about her benefits and her “inaction for well more than a decade is the antithesis of reasonable diligence.” As for Perlman’s statutory penalty claim, the court ruled that because Perlman did not personally request the documents (she alleged that a former colleague had done so), and because the documents at issue – her personnel file – were not covered by the statute, her claim lacked merit.

Venue

Ninth Circuit

Plan Adm’r of the Chevron Corp. Ret. Restoration Plan v. Minvielle, No. 20-CV-07063-TSH, 2024 WL 536277 (N.D. Cal. Feb. 9, 2024) (Magistrate Judge Thomas S. Hixson). Chevron initiated this interpleader action in the Northern District of California in order to determine the proper beneficiary under two Chevron employee benefit plans for one of its deceased employees. On one side are Anne Minvielle, the decedent’s sister, and her husband, who live in Louisiana. On the other is Martin Byrnes, who lives in France and contends that he is the surviving spouse of the decedent. The Minvielles filed a motion to transfer venue to the Western District of Louisiana, which was opposed by Byrnes. In this order, the court discussed the various factors involved. It noted that “neither party has any affiliation with California,” which “slightly favors transfer.” The convenience of witnesses (“often the most important factor”), however, weighed against transfer because Byrnes had identified ten witnesses in California. Furthermore, Chevron is headquartered in California, and even though it had been dismissed, “it may still be required to produce documentary evidence and provide testimony.” As for ease of access to evidence, the court noted that “relevant evidence is likely found in at least this District, London, and Louisiana,” and thus, this factor was neutral. Finally, the court noted that Byrnes had filed another action pending before it regarding the Chevron plans, and that the litigation had been pending for some time because of a stay related to the probate case in Louisiana. As a result, the court was more familiar with, and better situated to handle, the case than a new judge in Louisiana. The court conceded that granting the Minvielles’ motion would be more convenient for them, but “the possible inconvenience the Minvielles may suffer by continuing to litigate this case in California is not sufficiently strong to overcome the interests of justice that weigh against transferring this case.”

Watson v. EMC Corp., No. 22-1356, __ F. App’x __, 2024 WL 501610 (10th Cir. Feb. 9, 2024) (Before Circuit Judges Matheson, Kelly, and Eid)

Individual benefit plan participants and beneficiaries seeking relief under ERISA typically look to two different provisions in deciding what claims to bring. One section, 29 U.S.C. § 1132(a)(1)(B), allows a plaintiff to “recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan[.]” Another, Section 1132(a)(3), allows a participant to “obtain other appropriate equitable relief…to enforce any provisions of this subchapter or the terms of the plan[.]”

Since ERISA’s enactment 50 years ago, the courts have wrestled with these two provisions. What is the difference between these two claims? When can a plaintiff bring each kind of claim? If a plaintiff cannot recover plan benefits under the first provision, what kind of equitable relief is “appropriate” under the second provision?

This week’s notable decision is the latest installment in this ongoing debate. The plaintiff is Marie Watson, widow of Thayne Watson. (Shameless self-promotion disclosure: Ms. Watson was represented on appeal by Kantor & Kantor attorneys Glenn R. Kantor and Your ERISA Watch co-editor Peter S. Sessions.) Mr. Watson worked for defendant EMC Corporation and participated in its various benefit plans, including its group life insurance plan, which was insured by MetLife. When Dell, Inc. acquired EMC, Mr. Watson entered into a voluntary separation agreement which resulted in the termination of his employment on November 24, 2016.

Under the separation agreement, Mr. Watson was eligible for continued group health benefits after termination and had the right to convert his life insurance from group coverage to an individual policy. Upon termination, Mr. Watson emailed EMC and asked, “How do I start paying for my benefits at the employee rate for the next year?” An EMC benefits representative told him he would be receiving bills from ADP, EMC’s payroll administrator, “to continue paying for your benefits. Benefits remain active during the transition.”

Mr. and Ms. Watson interpreted this email to mean that Mr. Watson’s life insurance benefit would continue so long as he paid the bills he received from ADP, which he did. However, when Mr. Watson died in 2017, and Ms. Watson submitted a claim for benefits, MetLife denied her claim on the ground that Mr. Watson had never converted his insurance to an individual policy as required by the plan, and thus his coverage ended upon his job termination.

Ms. Watson brought this action in the District Court of Colorado against various defendants, and after vigorous litigation one claim remained: a claim for breach of fiduciary duty against EMC under Section 1132(a)(3) seeking equitable relief in the form of surcharge. (Traditionally, surcharge is a monetary remedy that can be awarded to compensate for a loss resulting from a trustee’s breach.)

In this claim, Ms. Watson asserted that even if she was not entitled to plan benefits pursuant to Section 1132(a)(1)(B) – because Mr. Watson had not converted his coverage – she should still be entitled to some equitable remedy from EMC under Section 1132(a)(3) because the only reason Mr. Watson had not converted was because EMC had misled him into thinking he did not need to do so.

The district court resolved this claim in an unusual fashion. Instead of deciding whether a breach of fiduciary duty had occurred, and then devising an equitable remedy in the case of a breach, the court assumed for the purposes of its decision that a breach had occurred. However, even assuming such a breach, the district court ruled that it would not award any equitable relief. The district court’s rationale was that because Mr. Watson never converted his coverage, or paid any premiums on the life insurance coverage under which he sought benefits, he could not recover surcharge based on those lost benefits.

Ms. Watson appealed this decision to the Tenth Circuit. In a brief ruling, the appellate court agreed with Ms. Watson that the district court “committed legal error and therefore abused its discretion because it treated Ms. Watson’s § 1132(a)(3) claim for fiduciary breach as a § 1132(a)(1)(B) claim to recover under the plan.”

In so doing, the Tenth Circuit emphasized the distinction between (a)(1)(B) and (a)(3) claims. The court explained that Section 1132(a)(1)(B) allows suits for benefits that are “due…under the terms of [a] plan.” Because Mr. Watson had not converted his coverage according to the plan terms, no benefits were “due under the plan” and thus Ms. Watson could not bring an (a)(1)(B) claim. As a result, Ms. Watson’s only alternative was Section 1132(a)(3), which the Supreme Court has ruled acts as “catch-all” relief “for injuries caused by violations that [ERISA] does not elsewhere adequately remedy.”

The Tenth Circuit ruled that the district court had conflated these two sections. By imposing (a)(1)(B) requirements, i.e., complying with the plan’s conversion rules, to Ms. Watson’s (a)(3) claim, a backstop that does not require plan compliance, the district court “legally erred” and thus reversal was required.

Although Ms. Watson achieved a reversal, her victory was not complete. The Tenth Circuit dodged two issues in arriving at its decision. First, the court expressed no opinion as to whether EMC had in fact breached a fiduciary duty, noting that because the district court had not ruled on the issue, “we decline to address it.” Thus, the district court will have to revisit this issue on remand.

More importantly, the court declined to address an issue raised by EMC on appeal, which was whether surcharge is even a valid remedy under Section 1132(a)(3). EMC argued that it is not, relying on a recent controversial decision by the Fourth Circuit, Rose v. PSA Airlines, Inc., which held that ERISA plaintiffs cannot seek “merely personal liability upon the defendants to pay a sum of money” under Section 1132(a)(3) because such a remedy is purely “legal,” not “equitable.” (Your ERISA Watch discussed Rose in detail in its September 13, 2023 edition, a decision that will undoubtedly have far-reaching consequences in courts in the Fourth Circuit and beyond, as demonstrated in the Suchin v. Fresenius Med. Care Holdings decision discussed below.)

In a footnote, the Tenth Circuit responded by asserting that EMC “has not adequately developed an argument in its response brief that a surcharge is never appropriate under § 1132(a)(3)(B).” Thus, “without the benefit of full briefing (here or in district court) and district court analysis on whether Rose, a nonbinding out-of-circuit case, should affect the surcharge issue here, we do not consider EMC’s suggestion.” The court noted that “EMC may, however, ask the district court to consider its Rose argument on remand.”

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

Attorneys’ Fees

Ninth Circuit

Oksana B. v. Premera Blue Cross, No. C22-1517 MJP, 2024 WL 518897 (W.D. Wash. Feb. 9, 2024) (Judge Marsha J. Pechman). Plaintiff Oksana B. prevailed in this action for medical benefits when the court ruled that defendant Premera Blue Cross abused its discretion in denying her claims for plan benefits arising from her stay at two different mental health treatment facilities. In this order the court ruled that she was entitled to an award of attorney’s fees under ERISA because she had “achieved a high degree of success” and had satisfied the Ninth Circuit’s Hummell factors. Specifically, the court found that (1) Premera had acted unreasonably and in bad faith, (2) Premera could satisfy a fee award, (3) Premera would be deterred in similar future circumstances by a fee award, (4) plaintiff’s success might benefit other participants, and (5) the relative merits favored plaintiff. The court further found that the $49,552.50 fee request was reasonable. This calculation was based on 119.1 hours of work by three attorneys, who requested and were awarded hourly rates of $600 (Brian S. King), $500 (local counsel John Wood), and $250/$200 (law clerk/new attorney Andrew Sommers). Premera did not object to the hours or rates requested. The court also awarded plaintiff prejudgment interest at 5.01%, based on the weekly average 1-year constant maturity Treasury yield at the time of judgment, as well as $400 in costs.

Class Actions

Fifth Circuit

Pedersen v. Kinder Morgan Inc., No. 4:21-CV-03590, 2024 WL 495267 (S.D. Tex. Feb. 8, 2024) (Judge Keith P. Ellison). The district court certified a class action (with a number of subclasses) in this suit concerning changes in early and normal retirement pension benefits “brought on by a series of corporate mergers and acquisitions.” Claim I challenges certain benefit calculation changes in normal retirement benefits as violating ERISA’s prohibition on “backloading” or concentrating benefit accruals in employees’ later years of employment. Claim II challenges certain changes in normal retirement benefits as violative of ERISA’s anti-cutback provision. Claim III alleges that relevant summary plan descriptions failed to alert plan participants who started work with the company before the age of 35 that the changes would decrease their monthly retirement benefits. With respect to these counts, the plaintiffs sought certification of a normal retirement/benefit accrual subclass of participants affected by the changes. Count IV alleges that a 2007 change with respect to early retirement eligibility violated ERISA’s anti-cutback provision, and Count V alleges, in the alternative, that employees who were not yet 53 when the 2007 notice came out are still entitled to unreduced early retirement benefits. Plaintiffs sought certification of an early retirement subclass with respect to these claims. Finally, plaintiffs sought certification of an actuarial equivalence subclass with respect to Count VI, which claims that the unreduced early retirement benefits the plan offered were not the actuarial equivalence of benefits that the employees would receive on normal retirement benefits. The court concluded that all three proposed subclasses met the four requirements of Rule 23(a). Likewise, the court concluded that plaintiffs met the requirements of Rule 23(b)(2) for each subclass and therefore declined to assess whether they also met the requirements of 23(b)(1)(A) or 23(b)(3). The court therefore certified the proposed general class and subclasses exactly as proposed and declined to allow defendants further discovery with respect to a proposed additional plaintiff, finding that because the current plaintiff was adequate, discovery was unnecessary.

Disability Benefit Claims

Fourth Circuit

Paulson v. Guardian Life Ins. Co. of Am., No. 1:22-cv-877 (RDA/IDD), 2024 WL 422664 (E.D. Va. Feb. 5, 2024) (Judge Rossie D. Alston, Jr.). Plaintiff Linda Paulson brought suit for disability benefits and penalties after Guardian Life Insurance Co. of America, the insurer and claims administrator of her disability plan, cut off her benefits based on a plan provision limiting benefits to 24 months for certain enumerated conditions. Applying a deferential standard of review based on the plan’s grant to Guardian of “final discretionary authority” to decide claims. the court granted partial summary judgment in favor of Guardian on the claim for benefits. As an initial matter, the court considered Ms. Paulson’s argument that she was not given proper notice of the basis for the termination of her benefits because Guardian raised two new bases for its decision – that her migraines were subject to the 24-month limitations provision and that her cervical radiculopathy was not disabling – in its final denial letter. With respect to her claim based on migraines, the court held that Ms. Paulson was on notice of this basis for denial and indeed submitted additional evidence addressing this issue. However, the court agreed with Ms. Paulson that Guardian presented shifting grounds for denial of benefits with respect to her radiculopathy. Rather than granting summary judgment in her favor on this issue, the proper remedy in the Fourth Circuit was to remand to Guardian for “full and fair” administrative review of this aspect of her claim. With regard to the merits of her claim based on her migraines, the court held that Guardian acted reasonably in concluding that migraines are a type of “headache” and, as such, were expressly limited under the terms of the plan to a 24-month benefit period. Finally, with respect to Ms. Paulson’s claim for penalties, the court requested further briefing on the issue, and likewise held off determination of Ms. Paulson’s claim for attorney’s fees pending its determination of the penalty claim.

ERISA Preemption

Ninth Circuit

Sanjiv Goel, M.D., Inc. v. United Healthcare Servs., Inc., No. 2:23-CV-10065-SPG-E, 2024 WL 515438 (C.D. Cal. Feb. 8, 2024) (Judge Sherilyn Peace Garnett). Dr. Sanjiv Goel is a medical provider who filed this suit against health insurer United in California court alleging state law claims of breach of implied-in-law contract, unjust enrichment, breach of the implied covenant of good faith and fair dealing, quantum meruit, estoppel, violation of California’s Unfair Competition Law, and declaratory relief. United removed the case to federal court, and Goel filed a motion to remand. United opposed on three grounds: (1) diversity jurisdiction existed; (2) Goel’s implied-in-law claim arose under the federal Emergency Medical Treatment and Active Labor Act (“EMTALA”), and (3) Goel’s state law claims were preempted by ERISA. Although the parties were diverse, Goel asserted that he was not seeking more than $75,000 in damages, so the court ruled that diversity jurisdiction did not exist. The court also ruled that because Goel’s claims arose both under state law and EMTALA, the federal issue of EMTALA’s application was not “necessarily raised,” and thus federal jurisdiction did not attach. As for ERISA preemption, the court noted that “health care providers are not ‘beneficiaries’ within the meaning of ERISA’s enforcement provisions,” and thus Goel could not bring his claims under ERISA. Thus, his claims were not preempted. The court declined to award attorney’s fees to Goel, but granted his motion to remand the case to state court.

Eleventh Circuit

Small v. Blue Cross & Blue Shield of Fla., Inc., No. 3:23-cv-603-MMH-PDB, 2024 WL 482802 (M.D. Fla. Feb. 2, 2024) (Magistrate Judge Patricia D. Barksdale). Similar to the case just discussed, this decision involves the application of ERISA’s preemption provision to claims by an out-of-network medical provider against Blue Cross and Blue Shield of Florida and other related Blue Cross entities. These claims relate to four reconstructive surgeries performed by Dr. Small on breast cancer patients who were participants in ERISA plans insured and administered by Blue Cross for which Blue Cross reimbursed Dr. Small only $5,204.32 on $200,062.50 in billed charges (or 2.67%). Not surprisingly, Dr. Small sued asserting two state-law claims: a claim for breach of implied-in-fact contract/quantum meruit and a claim for breach of implied-in-law contract/unjust enrichment. Blue Cross moved to dismiss and strike these claims, citing ERISA’s express preemption provision. Relying on cases from the Third and Fifth Circuits, the magistrate judge concluded that ERISA preempts Dr. Small’s claims under state law because, as the magistrate saw it, both claims were premised on the existence of an ERISA plan, unlike claims for breach of contract or promissory estoppel, or claims based on state statutory violations, which could exist separate from an ERISA plan. The court thus recommended that the district court enter an order dismissing the case on the basis of preemption and denying as moot Blue Cross’ motion to strike these claims and Dr. Small’s jury demand.  

Life Insurance & AD&D Benefit Claims

Tenth Circuit

Metropolitan Life Ins. Co. v. Badali, No. 1:22-CV-00158-TC-JCB, 2024 WL 418118 (D. Utah Feb. 5, 2024) (Judge Tena Campbell). Plaintiff MetLife brought this interpleader action, asserting that it was unable to determine the proper beneficiary of life insurance proceeds payable after the death of Delta Air Lines pilot Boyd Badali. The potential beneficiaries were Mr. Badali’s former wife, Diann Badali, and his wife at the time of his death, Renata Badali. Both defendants filed motions for summary judgment, which were decided in this order. The court determined that because ERISA governed the operation of the benefit plan at issue, “determining the proper payee is relatively simple.” The plan stated that if there was “no Beneficiary designated or no surviving Beneficiary at Your death, We will determine the Beneficiary according to the following order: 1. Your Spouse or Domestic Partner[.]” It was undisputed that Mr. Badali had not completed a beneficiary designation form. Diann, his former wife, argued that an agreement between her and Mr. Badali clarifying their divorce decree specified that Mr. Badali would “keep Diann as beneficiary on the Delta provided life insurance policy.” Diann also presented a declaration from a MetLife employee stating that that it did not handle complete recordkeeping for the plan and that a third-party administrator handled eligibility/coverage information for Delta. The court ruled that this evidence did not overcome the fact that Mr. Badali had not designated a beneficiary pursuant to plan procedures, and thus the plan dictated that benefits be paid to his current spouse, i.e., Renata. The court also rejected Diann’s argument that equity supported awarding her the benefits, noting that her cited state law cases did not involve ERISA, “which does not allow the court to consider equitable arguments when a plan’s language is clear.” Furthermore, Diann could not bring an equitable claim for unjust enrichment against Renata because she had not conferred a benefit on Renata. As a result, the court granted Renata’s motion for summary judgment, denied Diann’s, and awarded the life insurance benefits to Renata.

Medical Benefit Claims

Ninth Circuit

Archer v. UnitedHealthcare Servs, No. CV-20-02458-PHX-JJT, 2024 WL 492230 (D. Ariz. Feb. 8, 2024) (Judge John J. Tuchi). After receiving plasma injections for chronic back pain, undergoing back surgery, and receiving treatment for an infection, plaintiff Scott Archer entered inpatient rehabilitative care. Defendant United denied benefits for most of Archer’s rehabilitation treatment, contending that he had stopped making medical progress, and thus his care was custodial and not “medically necessary” under the terms of his employee medical benefit plan. Archer filed suit and the case proceeded to motions for judgment. The court first concluded that the abuse of discretion standard of review applied. Archer argued that a de novo standard was appropriate because of delays in United’s handling of his claim, but the court ruled that any such delays occurred during voluntary review after Archer’s appeals had concluded, and did not mandate de novo review in any event. Under a deferential standard of review, the court concluded that United did not abuse its discretion. The court stated that United had reasonably found that Archer’s progress had plateaued and that he was self-sufficient in some areas. United also “explained why many aspects of Plaintiff’s care could have been accomplished at a lower level of care or in an out-patient facility.” The court thus entered judgment in favor of defendants.

Remedies

Fourth Circuit

Suchin v. Fresenius Med. Care Holdings, No. Civ. JKB-23-01243, 2024 WL 449322 (D. Md. Feb. 6, 2024) (Judge James K. Bredar). Dr. Suchin, a terminally ill radiologist, brought suit for fiduciary breach under Section 1132(a)(3) against his former employer (and the administrator of the plans in question) after receiving far less in disability benefits, and learning that his wife would receive far less in life insurance proceeds after he died, than he had been led to believe. Specifically, Dr. Suchin alleged that Fresenius provided him with misleading and inaccurate information indicating that he would receive 60% of his salary in disability benefits and his widow would receive twice his annual salary upon his death in life insurance benefits when, in fact, both amounts were capped at a much lower level and subject to offsets. Furthermore, Fresenius failed to provide him with summary plan descriptions (SPDs) and plan documents which would have clarified the matter. Fresenius moved to dismiss. The court rejected Fresenius’ argument that Dr. Suchin’s life insurance claim was unripe while he was still alive, and concluded, similarly to the Tenth Circuit in Watson v. EMC Corp., our case of the week above, that Dr. Suchin could seek relief under Section 1132(a)(3) precisely because he was not entitled to benefits under the terms of the plan. The court then addressed whether Dr. Suchin had stated a claim for fiduciary breach. The court again ruled in Dr. Suchin’s favor, concluding that Dr. Suchin adequately alleged that Fresenius was an ERISA fiduciary that breached its duties in providing him with incomplete and misleading information about his benefits and failing to provide him with statutorily-required SPDs. Dr. Suchin did not fare as well with respect to his request for relief. With respect to his request that both plans be reformed to reflect the benefits he thought he and his family would receive, the court concluded that he was required but failed to adequately allege that Fresenius had acted fraudulently even as an equitable matter and failed to join New York Life Insurance Co., one of the parties to the contract. With respect to Dr. Suchin’s request for equitable estoppel, the court concluded that Dr. Suchin failed to allege that his belief about the extent of his benefits based on alleged misrepresentations was reasonable, suggesting that Dr. Suchin was required to meet a “who, what and when” pleading standard applicable to fraud allegations. Finally, the district court held that the Fourth Circuit’s Rose v. PSA Airlines, Inc. decision (addressed above in our discussion of Watson) foreclosed the availability of the surcharge remedy sought by Dr. Suchin. Thus, the court concluded “that Suchin has plausibly alleged a breach of fiduciary duty, but nevertheless is not entitled to the three remedies at issue in the present Motion to Dismiss.” It dismissed, “albeit without prejudice with respect to Suchin’s claims for reformation and equitable estoppel.”  

Retaliation Claims

Fourth Circuit

Johns v. Morris, No. 5:23-CV-324-D, 2024 WL 457766 (E.D.N.C. Feb. 6, 2024) (Judge James C. Dever III). Plaintiff Bryan Johns was the company president and chief operating officer for Morris & Associates for many years. As a result, he was both a participant in, and a fiduciary trustee of, the Morris & Associates Employee Stock Ownership Plan. Johns contends that defendants, which included the company, trustees of the plan, and the board, terminated him in 2023 “after he questioned the reasonableness of the market valuations given for the ESOP’s stock holdings in the Company.” In this action he has alleged four claims under ERISA: three for breach of fiduciary duty and a fourth for retaliation under ERISA Section 510 for “interfering with his protected rights under ERISA and the Plan to investigate and manage the ESOP stock valuations[.]” Defendants moved to dismiss, arguing first that Johns did not have standing to bring his breach of duty claims because he no longer served as a fiduciary for the plan. (The defendants had voted to remove him.) The court rejected this argument, noting that even if Johns was no longer a fiduciary for the plan, he still had standing because he was a participant in the plan. As for Johns’ Section 510 claim, defendants argued that his objections were simply an “internal complaint” that did not give rise to liability. The court disagreed, ruling that Johns had “anchored” his claim in the statutory language of Section 510 by pleading that he was exercising a right to which he was entitled under the terms and conditions of the plan. The court thus denied defendants’ motion in its entirety.

Fifth Circuit

Coleman v. Chevron Phillips Chem. Co., No. CV H-23-350, 2024 WL 460248 (S.D. Tex. Feb. 6, 2024) (Judge Lee H. Rosenthal). Plaintiff Ronnie Coleman contends in this action that his former employer, CPChem, discriminated against him based on his race and age, and terminated him in violation of ERISA because it wanted to avoid paying medical benefits for his gout condition. CPChem filed a motion for summary judgment, which the court granted in this order. The court ruled that Coleman had presented a prima facie case of race discrimination, but because Coleman had failed a “walkthrough test,” CPChem had articulated a legitimate, non-discriminatory reason for his termination. Coleman argued that CPChem’s test was biased, but the court ruled that he had not presented sufficient evidence to support that argument. The court likewise ruled in CPChem’s favor on Coleman’s age discrimination claim because Coleman could not present any evidence of pretext by CPChem. As for Coleman’s ERISA claim, the court stated that he “relies on the temporal proximity between his informing CPChem that he needed a liver transplant and CPChem’s decision the next day to terminate Coleman.” However, citing a Fifth Circuit decision, the court ruled that “reliance on temporal proximity alone is insufficient to raise a genuine issue of fact material to determining whether CPChem terminated Coleman with the specific intent of violating ERISA.” The court thus granted CPChem summary judgment on all of Coleman’s claims.

Eleventh Circuit

Monte v. City of Tampa, No. 8:23-CV-855-JLB-SPF, 2024 WL 449634 (M.D. Fla. Feb. 6, 2024) (Judge John L. Badalamenti). Plaintiff Anthony Monte was a Tampa, Florida police officer from 2009 to 2022, when he was discharged due to medical disability. He filed suit in 2023, contending that his pension benefit was artificially low because he should have been offered overtime in his final year of work, which would have increased his benefit substantially. He asserted claims of disability discrimination in violation of the Americans with Disabilities Act and the Florida Civil Rights Act of 1992, as well as a claim for interference with benefits in violation of ERISA. Tampa filed a motion to dismiss. At the outset, the court rejected Tampa’s argument that Monte was not a “qualified individual” under the ADA and FCRA, and let those claims proceed. As for Monte’s ERISA claims, Tampa contended that “refusal to offer overtime work and pay is not actionable under ERISA,” and Monte did not allege that he had a statutory or contractual right to overtime. The court disagreed with these arguments, ruling that Monte plausibly pled a claim for interference with benefits because he alleged that Tampa intentionally prohibited him from working overtime in order to reduce his retirement pension. The court further rejected Tampa’s argument that Monte did not exhaust his administrative remedies under ERISA because Tampa failed to identify what procedure he was required to participate in. Finally, the court ruled that Monte’s ADA claim was not preempted by ERISA because ERISA provides that “[n]othing in this subchapter shall be construed to alter, amend, modify, invalidate, impair, or supersede any law of the United States…or any rule or regulation issued under any such law.” Because Monte’s FCRA claim tracked his ADA claim, the court ruled that it was saved from preemption as well. As a result, Tampa’s motion to dismiss was denied.

Severance Benefit Claims

Sixth Circuit

Kramer v. American Elec. Power Exec. Severance Plan, No. 2:21-CV-5501, 2024 WL 418979 (S.D. Ohio Feb. 5, 2024) (Judge Sarah D. Morrison). Plaintiff Derek Kramer, a former Vice President and Chief Digital Officer for American Electric Power, seeks benefits under AEP’s Executive Severance Plan pursuant to his termination. AEP filed a motion for summary judgment, contending that it properly denied Kramer’s benefit claim because an internal investigation revealed that he had facilitated the misuse of a company credit card. AEP also contended that during its investigation Kramer acted suspiciously by remotely wiping his company-issued phone after AEP retrieved it from him. The court began its analysis with the standard of review. The plan provided that employees are ineligible for benefits if they are terminated “for Cause,” and that the plan’s committee, “in its sole and absolute discretion, shall determine Cause.” Kramer argued that this language did not properly confer discretionary authority because the court had previously determined that the plan was a “top hat” plan. (Your ERISA Watch covered this ruling in its April 19, 2023 edition.) The court stated, however, that the standard of review analysis was the same regardless of whether the plan was a top hat plan, and thus the appropriate standard of review was abuse of discretion. Under this deferential review, the court upheld AEP’s decision to deny Kramer’s claim for severance benefits, ruling that AEP and its committee had “offered a reasonable explanation, based on evidence, for their conclusion that Mr. Kramer was terminated for Cause. As such, the adverse benefit determination was neither arbitrary nor capricious. The Court will not disturb it.” In doing so, the court rejected Kramer’s arguments that (a) the plan had a conflict of interest, (b) he was not given a written explanation for his termination, (c) his claim was denied based on ex post facto evidence, (d) the court should draw a negative inference from AEP’s use of attorneys, and (e) the plan’s reasons for his suspension and termination changed over time. The court also ruled that Kramer could not bring an interference claim under ERISA because he “does not allege that AEP engaged in any conduct beyond denying his claim for Plan benefits.” Thus, the court granted AEP’s motion for summary judgment.

Statute of Limitations

Third Circuit

Verizon Employee Benefits Comm. v. Irizarry, No. CV-23-1708-MAS-DEA, 2024 WL 415692  (D.N.J. Feb. 5, 2024) (Judge Michael A. Shipp). Defendant Edgar Irizarry is a former employee of Verizon who participated in Verizon’s pension plan. When he divorced cross-claimant Sara Irizarry in 1999, a New Jersey court issued a qualified domestic relations order (“QDRO”) to divide their assets, which entitled Ms. Irizarry to a portion of Mr. Irizarry’s pension benefit. Verizon was provided with a copy of the QDRO. Mr. Irizarry retired in 2011 and requested that his pension be paid in a lump sum. On his request form he falsely certified that his pension was not subject to a QDRO, and Verizon erroneously paid him the entirety of the pension fund. Eleven years later, in 2022, Ms. Irizarry contacted Verizon to find out why she had not received her portion of the pension. In response, Verizon filed this action seeking equitable relief under ERISA § 1132(a)(3), hoping to recover from Mr. Irizarry the funds that should have been paid to Ms. Irizarry. Ms. Irizarry also filed a cross-claim against Mr. Irizarry. Mr. Irizarry filed a motion to dismiss, which was decided in this order. He first claimed that Verizon’s claim was time-barred. The parties agreed that Verizon’s claim was analogous to an equitable claim for unjust enrichment, and thus the court borrowed New Jersey’s six-year statute of limitations for that cause of action to decide the issue. The parties did not agree about when the six-year limit began to accrue, however. Mr. Irizarry contended that it accrued in 2011 when he requested his pension, while Verizon contended that it accrued in 2022 when it was contacted by Ms. Irizarry. The court concluded that ERISA’s “discovery rule” applied, and that it could not decide based on the pleadings when Verizon should have discovered the mistaken payment with reasonable diligence. For the same reason, the court declined to grant Mr. Irizarry’s motion based on a laches defense. As for Mr. Irizarry’s motion to dismiss Ms. Irizarry’s cross-claim, the court granted it without prejudice because Ms. Irizarry did not respond to the motion and it was unclear what provision under ERISA she was invoking to justify her claim. Finally, Mr. Irizarry asked the court to stay the proceedings so that a New Jersey court could resolve the issue of Ms. Irizarry’s entitlement to payments under the QDRO due to a potential ambiguity in the QDRO. The court rejected this request, ruling that it had jurisdiction over the relevant claims and was obligated by ERISA to adjudicate the issue of declaratory relief over a beneficiary’s rights.

Venue

Sixth Circuit

Valentine v. Line Constr. Ben. Fund, No. 2:23-CV-4175, 2024 WL 488048 (S.D. Ohio Feb. 8, 2024) (Magistrate Judge Chelsey M. Vascura). Plaintiff Nicholas Valentine filed this action in state court seeking benefits under an employee health insurance plan. Defendant removed the case to federal court on ERISA preemption grounds and filed a motion to transfer venue to the Northern District of Illinois, citing the plan’s forum-selection clause. Mr. Valentine did not respond to the motion. Relying on Sixth Circuit precedent, the court concluded that the clause was valid and enforceable, and agreed that the case should be transferred because the case was “not one of the ‘most exceptional cases’ in which the public-interest factors outweigh the parties’ agreement to litigate in the Northern District of Illinois.” The court thus granted defendant’s motion to transfer.

Withdrawal Liability & Unpaid Contributions

D.C. Circuit

Trustees of the IAM Nat’l Pension Fund v. M&K Emp. Sols., No. 22-7157, __ F. 4th __, 2024 WL 501826 (D.C. Cir. Feb. 9, 2024) (Before Circuit Judges Rao, Walker, and Childs). This opinion consolidated two cases which fall in the relatively rare category of withdrawal liability disputes that raise complicated and interesting issues worthy of our beloved and complex statute. In these cases, the district court vacated arbitration decisions based on a determination that Cheiron, Inc., an actuarial consulting firm employed by the IAM National Pension Fund (the “Fund”) to assess liability, had erred in assessing the amount of withdrawal liability for employers participating in the Fund. The court of appeals held that the district court correctly found that the arbitrator erred in concluding that the actuary must use the assumptions and methods in effect on the relevant measurement date in calculating the employer’s proportionate share of the Fund’s unfunded vested benefits. Instead, the relevant statutory provisions are best “read to allow later adoption of actuarial assumptions, so long as those assumptions are ‘as of’ the measurement date – that is, the assumptions must be based on the body of knowledge available up to the measurement date.” This meant that it was it is “permissible for the Fund to assess withdrawal liability for the Companies, which withdrew in 2018, based on actuarial assumptions adopted in January 2018,” and that Cheiron was not required as a matter of law to use assumptions that had been adopted prior to December 31, 2017. Any other approach would be contrary to the statutory “requirement that an actuary use its ‘best estimate’ of the plan’s anticipated experience as of the measurement date to require an actuary to determine what assumptions to use before the close of business on the measurement date.” The decision was not a complete victory for the Fund, however. The court of appeals also concluded that the employer in one of the cases, M&K, was entitled to something referred to as the “free-look exception,” which “allows an employer to withdraw from a plan within a specified period after joining without incurring withdrawal liability.” Because M&K “had an obligation of fewer than five years at the time” it partially withdrew from the plan in 2017, it “met the free-look exception requirements.” On this basis, the appellate court affirmed the district court’s decision vacating the arbitrator’s decision to the contrary.