No atmospheric river of ERISA cases this week, just a slow trickle as the year winds to an end. But keep reading for a number of interesting ERISA decisions, mostly concerning medical benefits, including the latest discovery decision in the Chippewa Tribe’s longstanding dispute with Blue Cross Blue Shield of Michigan.

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

Discovery

Sixth Circuit

Saginaw Chippewa Indian Tribe of Mich. v. Blue Cross Blue Shield of Mich., No. 1:16-cv-10317, 2023 WL 8313270 (E.D. Mich. Dec. 1, 2023) (Judge Thomas L. Ludington). Fatigue has set in for the court in this action brought by the Saginaw Chippewa Indian Tribe of Michigan challenging Blue Cross’s hidden fee system in which the insurer has been found to inflate the fees it charged to its clients through undisclosed markups for hospital charges. “And, as the Sixth Circuit has explained in this case, had the Tribe only alleged that BCBSM inflated the Tribe’s medical bills with undisclosed administrative fees, ‘this would be a relatively simple case.’ But this case has become anything but,” according to the court. A year and a half since the Sixth Circuit’s most recent ruling and remand in this action – its second – and over seven years since this litigation began, things have ground to a standstill. The parties have been engaged in an ongoing discovery dispute over whether the Tribe’s contract health service program, funded at least in part by the Indian Health Service and Congressional appropriations, entitles the Tribe to pay only Medicare-like rates. On remand, the parties are trying to parse out who is entitled to Medicare-like rates under the Tribe’s ERISA plan because although the employee plan is actionable under ERISA, only Tribal members within the plan may be eligible for Medicare-like rates. “Resolution has proved tedious,” and “this parsing out has proved difficult.” The Tribe moved for default judgment arguing that Blue Cross failed to produce all claims data it is required to under the court’s previous discovery orders. This motion was nearly identical to a default judgment motion the Tribe filed four months ago which was denied by the court. Once again, the Tribe’s renewed motion for default judgment was denied without prejudice. Much like its previous decision four months ago, the court highlighted that the Tribe had a duty to identify its members in the ERISA plan in order to allow Blue Cross to produce the claims data for these individuals and “at the core of the discovery dispute were birthdates needed to conduct the most accurate searches for the claims data.” Without the Tribe providing this information, Blue Cross was not able to accurately search its database for the pertinent claims, the court found. The court still feels that the parties have exchanged most of the information necessary pertaining to liability, rather than damages. More to the point, the court felt that the Tribe’s renewed motion failed to show that Blue Cross’s failure to comply with discovery was motivated by willfulness, fault, or bad faith, and it stated that the renewed motion raised most of the same arguments already addressed and rejected by the court in the first. Thus, the court denied the Tribe’s motion.

ERISA Preemption

Seventh Circuit

Hanson v. Mid Cent. Operating Eng’rs Health & Welfare Fund, No. 3:23-CV-2343-MAB, 2023 WL 8252229 (S.D. Ill. Nov. 29, 2023) (Magistrate Judge Mark A. Beatty). In April of 2022, plaintiffs Deborah and Timothy Hanson and their attorney, John Womick, sued Mid Central Operating Engineers Health & Welfare Fund in state court in Illinois asking the court to adjudicate a lien of an at-fault driver settlement under the Illinois common fund doctrine. The parties then stayed the proceedings and explored settlement. Settlement negotiations ultimately faltered the following April when plaintiffs rejected the Fund’s settlement offer. Plaintiffs subsequently amended their complaint to include new allegations of breaches of fiduciary duties. The amended complaint challenged the amount of benefits paid by the Fund to the healthcare providers as unreasonable and excessive. In response to these new allegations the Fund removed the lawsuit to federal court, arguing that the new claims were preempted by ERISA. Plaintiffs moved to remand their action back to Illinois state court. In this order their motion for remand was denied. The court held that the removal was timely as the case was not removable until the new claims were added. The original complaint, it said, “essentially asked the court to apportion the settlement between Womick and the Fund,” and “claims for lien adjudication are not completely preempted by ERISA and therefore not removeable.” The court concluded that the nature of plaintiffs’ complaint changed between the original complaint and the amended complaint. It held that the new allegations and causes of action in the amended complaint, which challenge the amount the Fund paid in benefits and its compliance with payment provisions in the healthcare plan, altered the complaint in such a way as to transform it from one not falling within the scope of ERISA Section 502(a) to a complaint which is completely preempted. “Plaintiffs are thus seeking to enforce their rights under an ERISA plan, if not complaining about a breach of fiduciary duty, both of which fall within the scope of § 502(a). Accordingly, the claims are completely preempted and properly removable to federal court.”

Exhaustion of Administrative Remedies

Second Circuit

Cheeks v. Montefiore Med. Ctr., No. 23-CV-2170 (JMF), 2023 WL 8235755 (S.D.N.Y. Nov. 27, 2023) (Judge Jesse M. Furman). Pro se plaintiff Leslie Cheeks sued her former employer, Montefiore Medical Center, her healthcare workers union, and the fund that administered her ERISA-governed welfare benefit plan after she was fired in 2021 for failing to comply with a state-mandated COVID-19 vaccine requirement for healthcare workers following her employer’s denial of her requests for a religious exemption to the mandate. Construing Ms. Cheeks’ complaint liberally, the court understood her lawsuit as alleging claims under the First Amendment’s Free Exercise of Religion Clause, Title VII of the Civil Rights Act for religious discrimination, a claim against the fund for ERISA benefits, and a claim against the union for breach of fair representation under the National Labor Relations Act. Defendants filed motions to dismiss for failure to state a claim. Their motions were granted in this decision. The court held that Ms. Cheeks could not state a First Amendment claim because defendants are not state actors, that she failed to allege exhaustion of her Title VII and ERISA claims, and that her duty of fair representation claim against the union was untimely. Regarding ERISA specifically, the court held that the complaint did not allege that Ms. Cheeks submitted a claim for benefits and then pursued the appeals process of any adverse claims decision under her plan before filing a civil suit. Accordingly, the court concluded that the ERISA claim should be dismissed for failure to exhaust administrative remedies. Finally, to the extent Ms. Cheeks alleged any state law cause of action, the court declined to exercise supplemental jurisdiction over such claims. Dismissal of the federal causes of action was with prejudice.

Life Insurance & AD&D Benefit Claims

Third Circuit

Anderson v. Reliance Standard Life Ins. Co., No. 22-4654 (RK) (DEA), 2023 WL 8271931 (D.N.J. Nov. 30, 2023) (Judge Robert Kirsch). Plaintiff Cathy Anderson alleges that Reliance Standard Life Insurance Company, Matrix Absence Management, Inc., and K. Hovnanian Companies, LLC never advised her late husband of the lapse of, or any issues regarding, his group life insurance policies, and that their failure to do so during his battle with bladder cancer resulted in the termination of the policies and a subsequent denial of benefits she would otherwise have been entitled to as the policies’ named beneficiary. On December 7, 2022, the court granted Reliance and Matrix’s motion to dismiss count one of Ms. Anderson’s complaint, a claim of breach of fiduciary duty under Sections 502(a)(2) and 502(a)(3) of ERISA. In that order, the court found that Ms. Anderson could not state a claim under Section 502(a)(2) because she was not bringing any claims on behalf of the Plan but was instead bringing an individual claim. In addition, the court dismissed count one under Section 502(a)(3). It concluded that Section 502 provided an appropriate remedy elsewhere, and that Ms. Anderson was not seeking any available equitable form of relief. Thus, the court held that the relief Ms. Anderson was seeking fell outside the category of recoverable equitable restitution and therefore dismissed the claim against Matrix and Reliance. In response to that order, defendant K. Hovnanian moved for dismissal of count one of Ms. Anderson’s complaint as asserted against it. In addition, defendant K. Hovnanian also moved to amend its answer to assert a crossclaim of negligence against Reliance. Beginning with the partial motion to dismiss, the court held that the analysis of count one was exactly the same for K. Hovnanian as it was for Matrix and Reliance last December, and as a result, “the law of case doctrine applies with respect to the Court’s prior decision finding that Plaintiffs’ claims fail under Sections 502(a)(2) and 502(a)(3).” The court therefore dismissed count one against K. Hovnanian. Dismissal of count one was without prejudice. The decision then addressed the motion to assert a crossclaim against Reliance Standard Life Insurance Company. There, it held that the claim was completely preempted by ERISA as its resolution depends on the existence and interpretation of the ERISA plan. Specifically, K. Hovnanian’s claim alleged that Reliance misrepresented the life insurance policy to Ms. Anderson, and the court determined that in order to decide whether decedent was in fact eligible for and entitled to benefits under the life insurance plans would require analyzing and scrutinizing the terms of the policy. As a result, the court agreed with Reliance that ERISA preempted the proposed state-law negligence claim, and amendment would be futile. The court therefore denied K. Hovnanian’s request to amend its answer.

Ninth Circuit

Brock v. Wells Fargo & Co., No. EDCV 21-0532JGB (SHKx), 2023 WL 8275970 (C.D. Cal. Nov. 29, 2023) (Judge Jesus G. Bernal). Plaintiff Isalliah Brock filed this civil action to challenge MetLife’s denial of her claim for Accidental Death and Dismemberment benefits under her deceased fiancée’s ERISA-governed plan. Decedent Ronnie R. Allmond Jr. died on June 22, 2019, of blunt force trauma from injuries sustained during a car crash. Blood taken from Mr. Allmond at the time was tested to determine his blood alcohol levels. Those results showed that Mr. Allmond’s blood alcohol level was 0.083%, which is above the legal limit for operating a vehicle in the state of Nevada of 0.08%. Upon evaluating Ms. Brock’s benefit claim, MetLife concluded that because Mr. Allmond was intoxicated while driving at the time of the crash, the plan’s intoxication exclusion provision applied, meaning benefits were not payable to Ms. Brock. During the internal appeals process and throughout this litigation, Ms. Brock has challenged the integrity of the blood sample analyzed, including its chain of custody. She maintained that the results were unreliable and insufficient and that they could not be used as evidence to support the denial or to conclude Mr. Allmond’s blood alcohol level was over the legal limit. In this decision the court issued its findings of fact and conclusions of law under the de novo review standard. It ultimately rejected Ms. Brock’s arguments about the veracity of the blood results and concluded that MetLife met its burden of proving that Mr. Allmond’s injuries were sustained while driving his car under the influence of alcohol. Further, the court held that MetLife’s reliance on the “toxicology report was justified and appropriate based on the facts of this claim and that MetLife correctly applied the Exclusion Provision.” Thus, based on its review of all the available evidence, the court was convinced that the denial was proper. As a result, the denial was affirmed.

Medical Benefit Claims

Second Circuit

M.R. v. United Healthcare Ins. Co., No. 23 Civ. 04748 (GHW) (GS), 2023 WL 8178646 (S.D.N.Y. Nov. 20, 2023) (Magistrate Judge Gary Stein). After his ERISA-governed healthcare plan denied his claim for health insurance benefits for his minor stepdaughter’s stay at a wilderness therapy program in 2020, plaintiff M.R. commenced this action against United Healthcare Insurance Company, United Behavioral Health, and Pfizer Inc. In his complaint M.R. brings claims for benefits, breach of fiduciary duty, violation of the Mental Health Parity and Addiction Equity Act, and for statutory penalties for failure to provide documents upon request. Defendants moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). They argued that M.R.’s lawsuit was untimely under the plan’s one-year contractual limitations period to bring legal actions. In the alternative, defendants argued that M.R. failed to state his claims. In this report and recommendation Magistrate Judge Gary Stein recommended the court deny the motion to dismiss, except insofar as the statutory penalties claim was asserted against any defendant other than the plan administrator, Pfizer Inc. To begin, the court addressed whether the action was timely brought. M.R. contended that the one-year statute of limitations in the governing plan document did not apply because United failed to provide written notice of it in its claim denial letters as required under the Department of Labor’s governing regulation, 29 C.F.R. § 2560.503-1(g)(1)(iv). Plaintiff argued that the appropriate remedy for defendants’ violation of this regulation is to find the contractual limitations period was waived. The Magistrate Judge agreed. Judge Stein stated that the “overwhelming weight of authority” supports a reading of the regulation holding that it requires plan administrators to inform claimants of plan-imposed time limits for bringing ERISA civil suits in any adverse benefit determination letter. Not only does the DOL maintain that this was its intent in implementing the regulation, but reading the statute in this manner also promotes the underlying statutory purpose of the regulation “to provide ‘adequate notice in writing’ of claim denials and afford claimants the opportunity for a ‘full and fair review’ of their claim.’” On the other hand, allowing plan administrators to bury limitations periods in plan documents would strongly disadvantage plan participants and “obstruct access to the courts.” Moreover, the Magistrate agreed with M.R. that the appropriate remedy for defendants’ failure to comply with the regulation is to find the plan-imposed time limit unenforceable. Finally, under the analogous state law statutes of limitations for breach of contract claims, Magistrate Stein concluded that M.R.’s action was timely brought. The report then turned to whether plaintiff’s complaint stated claims upon which relief could be granted. It began its analysis with the Parity Act violation. The Magistrate found that the complaint’s allegation of a categorial exclusion of coverage for wilderness therapy programs under the plan’s experimental or investigational exclusion, which does not exist for analogous forms of sub-acute inpatient medical and surgical settings, taken as true, plausibly states a claim for equitable relief under ERISA. He found that at the pleading stage, when ERISA claimants do not have easy access to the process their insurer “uses to evaluate analogous medical claims’ absent an opportunity for discovery,” such an allegation is sufficient to establish a Parity Act violation. Additionally, the report stated that the complaint plausibly alleges Pfizer did not comply with document requests that M.R. sent to it, and that M.R. therefore stated a statutory penalty claim against Pfizer. However, because statutory penalty claims under Section 1132(c) claims may only be imposed against a plan administrator, Magistrate Judge Stein clarified that M.R. could only bring this cause of action against Pfizer and not against the United defendants. All other claims were found to satisfy Rule 8’s pleading requirements, and left undisturbed. As a result, the report recommended defendants’ motion to dismiss be denied, and plaintiff’s complaint be allowed to proceed past the pleading stage.

Pension Benefit Claims

Third Circuit

Carr v. Abington Mem’l Hosp., No. 23-1822, 2023 WL 8237253 (E.D. Pa. Nov. 28, 2023) (Judge Harvey Bartle III). Plaintiff Alice M. Carr commenced this ERISA action against her former employer, Abington Memorial Hospital, the Pension Plan of Abington Memorial Hospital, the Jefferson Defined Benefit Plan, which merged with the Abington pension plan, and Thomas Jefferson University seeking denied pension benefits. In her complaint Ms. Carr alleges that her claim for benefits was denied after defendants concluded that she did not have five years of vested service and therefore did not qualify for pension benefits. According to defendants’ calculations, Ms. Carr was a mere 50 hours short of her pension vesting. Their records allegedly show that while Ms. Carr worked more than the 1,000 hours required per year for four service years, she only worked 950 hours in 1997. Ms. Carr disagrees with this calculation and alleges she worked 1,009 hours in 1997, qualifying that year as a service year and making her fully vested in the merged Jefferson Plan. During the administrative appeals process, defendants did not produce documentation about Ms. Carr’s payroll records and hours worked to support their calculations, despite requests from Ms. Carr for them to do so. Moreover, she claims that defendants breached their fiduciary obligations by misrepresenting her vesting status over the years. In her action, Ms. Carr asserted a claim to recover benefits, enforce her rights under the plan, and clarify her rights to future benefits pursuant to Section 502(a)(1)(B). Additionally, she brought claims for statutory penalties for failure to produce plan documents upon request, and an equitable relief claim for breach of fiduciary duty. Defendants moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Their motion was granted in part. First, the court dismissed the benefit claim against Abington Memorial Hospital and the Abington pension plan. It held that Ms. Carr did not allege that her previous employer “had any discretion to deny her benefits or determine her eligibility,” and that the old plan “which no longer exists as a separate entity, had no role in the denial of benefits.” However, count I was not dismissed against either Thomas Jefferson University or its pension plan. Next, the court noted that Section 105(a)(1)(B)(ii) statutory penalty claims apply only to benefit plan administrators, in this case, Thomas Jefferson University. The court concluded that “Ms. Carr sufficiently alleges she made a specific request for an accounting from Jefferson, the plan administrator. Therefore, she has successfully alleged a violation of Section 105 against Jefferson.” However, the court dismissed this claim as to the other three defendants. Finally, the court entirely dismissed Ms. Carr’s equitable relief claim pursuant to Section 502t(a)(3) against all defendants. It found that her claim for injunctive relief was truly a claim for benefits “dressed in the cloak of equity,” as the “requested relief simply focuses on resolving Ms. Carr’s adverse benefits determination.” Accordingly, the court concluded that the Section 502(a)(3) claim was not distinct from the Section 502(a)(1)(B) claim and the complaint thus failed to plead an equitable relief claim upon which relief could be granted.

Provider Claims

Third Circuit

Minisohn Chiropractic & Acupuncture Ctr. v. Horizon Blue Cross Blue Shield of N.J., No. 23-01341 (GC) (TJB), 2023 WL 8253088 (D.N.J. Nov. 29, 2023) (Judge Georgette Castner). A chiropractic and acupuncture center and the estate of the late doctor who ran the practice have sued Horizon Blue Cross Blue Shield of New Jersey under ERISA and state law for systematically denying claims for health benefits stemming from their services. Plaintiffs asserted claims for reimbursement of benefits and breach of fiduciary duty under ERISA, and a state law breach of contract claim. They allege that they are owed over $250,000 plus interest in claims that were wrongfully denied for care they provided between 2019 and 2022. Blue Cross moved to dismiss the complaint for failure to state a claim. Defendant argued that the healthcare providers lacked derivative standing to bring their claims under ERISA. The court agreed. Following precedent in the circuit, the court concluded that the complaint’s single sentence asserting that the practice “has entered written assignment of benefit agreement[s] with… [Horizon] subscribers of their contractual rights under the policy of group health insurance issued by [Horizon],” was conclusory and insufficient to establish standing. Instead, to establish derivative standing, the court expressed that plaintiffs need to identify specific patients who assigned their claims to them and include “factual detail as to the terms, limitations, or specifics of alleged assignments.” Without these particular details, or the actual benefit assignments attached to the complaint, the court was clear that plaintiffs could not plausibly demonstrate standing to sue under ERISA. And although the court dismissed the ERISA causes of action for lack of standing, the decision also addressed further shortcomings with the ERISA claims as currently pled. It held that the benefit claims asserted under Section 502(a)(1)(B) failed to identify the plan provisions that were violated which entitle plaintiffs to the payments they seek. Additionally, the court expressed skepticism about whether the breach of fiduciary duty Section 502(a)(3) claim, pled in the alternative to the claim for benefits, truly differed from the Section 502(a)(1)(B) claim. The court also expressed “concern about Plaintiff’s failure to specify what alleged conduct breached Horizon’s fiduciary duties.” Because the court’s dismissal was without prejudice, plaintiffs were instructed to consider and remedy these pleading defects in their amended complaint. Finally, because the federal causes of action were dismissed, the court declined to exercise supplemental jurisdiction over the state law breach of contract claim.

Retaliation Claims

Tenth Circuit

Chappell v. SkyWest Airlines, Inc., No. 4:21-cv-00083-DN-PK, 2023 WL 8261667 (D. Utah Nov. 29, 2023) (Judge David Nuffer). Plaintiff Randy T. Chappell brought this lawsuit against his former employer, defendant SkyWest Airlines, Inc., after his employment as a SkyWest pilot was terminated in 2020. In his action Mr. Chappell asserts six counts; (1) a claim for discrimination in violation of the Americans with Disabilities Act; (2) a claim for discrimination in violation of the Age Discrimination in Employment Act; (3) a claim for retaliation under ERISA Section 510; (4) a claim for violation of the Rehabilitation Act; (5) a state law breach of contract claim; and (6) a state law negligence claim. SkyWest moved for summary judgment on all claims arguing that Mr. Chappell cannot establish a prima facie case for any of his causes of action because the reasons for his termination were legitimate and non-discriminatory. According to SkyWest, Mr. Chappell’s termination stemmed from a serious safety incident in which he was involved while flying a plane on March 24, 2020. Mr. Chappell drove the airplane off the tarmac into the dirt. Later, when questioned about what had occurred, Mr. Chappell was found to be dishonest, as his testimony did not match that of his co-pilot or the other contemporaneous pieces of evidence. SkyWest maintains that Mr. Chappell’s safety failures and his lies about them violated company policies and that immediate termination was therefore the proper course of action. The court agreed with SkyWest in this decision and granted its summary judgment motion. It wrote, “even if Mr. Chappell had established a prima facie case, the undisputed material facts demonstrate that SkyWest had a legitimate, non-discriminatory reason for terminating Mr. Chappell’s employment and Mr. Chappell cannot establish pretext.” With regard to Mr. Chappell’s ERISA Section 510 claim, the court disagreed with his speculation that his firing was in any way connected to his family’s high healthcare costs. For one, the court noted that the costs of Mr. Chappell’s wife’s heart surgery were paid by SkyWest even though the surgery took place after the termination. Furthermore, SkyWest paid for Mr. Chappell’s son’s diabetes treatments for fourteen years without incident and there was no evidence produced that anyone involved in the termination decision had any access to information about Mr. Chappell’s benefit use. In sum, the court held, “Mr. Chappell cannot identify anything that changed around the time of the Occurrence such that SkyWest would no longer be willing to pay for his insurance, and he admits that it is just his assumption… Mr. Chappell’s bald assumptions are insufficient to establish SkyWest’s intent.”

Cunningham v. Cornell Univ., Nos. 21-88-cv, 21-96-cv, 21-114-cv, __ F. 4th __, 2023 WL 7504142 (2d Cir. Nov. 14, 2023) (Before Circuit Judges Livingston, Kearse, and Park)

The case law governing excessive fee cases continues to develop in unpredictable ways, as this decision from the Second Circuit demonstrates.

A class of participants and beneficiaries of two 403(b) retirement plans administered by Cornell University sued the college and its appointed fiduciaries under ERISA alleging that defendants breached their duties of prudence, loyalty, and monitoring and engaged in prohibited transactions by failing to adequately oversee the plans to ensure they were not retaining underperforming and costly investment options and that the fees paid to service providers were not excessive for the services rendered.

The complaint alleged that defendants violated these duties by (1) offering investment products that had high fees and poor performance histories; (2) not selecting available institutional share classes of mutual funds; (3) failing to control recordkeeping and investment management fees; and (4) hiring party-in-interest service providers to furnish recordkeeping and administrative services to the plan in a manner not exempted under ERISA’s prohibited transaction statute.

The plaintiffs have faced significant hurdles throughout the course of their litigation. First, on September 29, 2017, the district court granted a large portion of defendants’ motion to dismiss. It dismissed all but plaintiffs’ imprudence and monitoring claims predicated on defendants’ failure to monitor recordkeeping fees and those premised on the retention of certain investments in underperforming funds and in retail share-classes. The duty of loyalty claims, the prohibited transaction claims, and the remainder of the imprudence allegations were all dismissed.

Two years later, in September of 2019, the district court granted summary judgment in favor of the fiduciaries on nearly all of the remaining claims. It held then that plaintiffs failed to present evidence of loss resulting from the allegedly high recordkeeping fees. Regarding the claims based on the retention of the remaining investment options, the district court concluded that no reasonable trier of fact could determine that defendants’ monitoring process was so flawed that it violated its duty of prudence. Finally, with regard to the retail share classes, the district court awarded judgment in favor of defendants for all but one of the mutual funds.

All that remained after the district court’s summary judgment decision was the duty of prudence and derivative monitoring claim related to the failure to adopt a lower cost share class of one target date fund. That claim settled. This appeal followed, and plaintiffs’ difficulties have continued.

The appellant class of participants challenged the district court’s rulings on summary judgment and at the pleadings. The Second Circuit in this order affirmed, while at the same time setting out a new pleading standard for prohibited transaction claims.

The court of appeals held that to state a prohibited transaction claim an ERISA plaintiff needs to include allegations that the transaction with a service provider was either unnecessary or involved unreasonable compensation. Differentiating itself from some of its sister circuits, the Second Circuit did not find that a prohibited transaction claim requires explicit allegations of self-dealing or disloyal conduct, as these elements are not part of the statute and would require a more expansive reading of the text. Nevertheless, the appeals court disagreed with plaintiffs that exceptions to prohibited transactions are an affirmative defense to be raised by the plan sponsor, even though a number of other courts, including the Eighth Circuit, have found that the text of ERISA supports treating the Section 408 exemptions as such. Rather, the Second Circuit understood the exceptions spelled out in Section 408 as necessary elements of a prohibited transaction claim under ERISA Section 406, stating that “the exception should be understood as part of the definition of the prohibited conducted – and thus its inapplicability must be pled.” Moreover, the court of appeals agreed with the lower court that plaintiffs had not met this standard when pleading their prohibited transaction claim, and thus affirmed its dismissal.

The court also affirmed the remainder of the dismissal decision. The appellate court agreed with the district court that defendants’ alleged wrongdoing and disloyalty could not be inferred from the allegations of the complaint and that they therefore did not give rise to a cause of action for fiduciary breach.

Having upheld the claims eliminated at the motion to dismiss stage, the decision moved on to scrutinizing the summary judgment decision. In this portion, the court held that plaintiffs’ fee claims failed because they did not establish or provide evidence of a suitable benchmark “against which loss could be measured.” In the court’s estimation, the testimony of plaintiffs’ experts did not satisfy this requirement, and neither did their numerical pricing data because this evidence was insufficient to “lead a reasonable juror to conclude that Cornell could have achieved lower fees,” and thus did not establish a “‘prudent alternative’ fee…or otherwise establish loss.” Thus, the Second Circuit affirmed the summary judgment decision regarding the administrative fee claims.

With regard to the investment option claims, the court of appeals agreed with the district court that defendants’ monitoring process was not flawed given the context of the relevant time period, although by today’s standards it would likely fall below expectations for ERISA fiduciaries. Finally, the Second Circuit took a look at the share class claims, pointing to evidence in the record which demonstrated that defendants had tried to lobby TIAA to allow the plan to transition to the cheaper share classes but were rebuffed by TIAA. “Given this evidence, a reasonable finder of fact could not conclude that Cornell could have forced, or should have tried harder to force, TIAA to offer the Plans the lower-cost share funds at an earlier date.” Thus, the grant of summary judgment for defendants on this claim too was affirmed. Accordingly, the court of appeals found no basis for reversal of any of the district court’s decisions, and therefore affirmed its judgment entirely.

The plaintiffs have filed a petition for panel or en banc rehearing. They argue that the panel’s holding that the plaintiff bears the burden of pleading that a prohibited transaction exemption does not apply conflicts with the Eighth Circuit’s decision in Braden v. Wal-Mart. In this regard, the plaintiffs contend that the Second Circuit improperly imported the self-dealing standard set forth in the Investment Company Act, rather than applying the reasonableness standard expressly set forth in ERISA Section 408. They also argue that the panel’s conclusion that the plaintiff failed to adequately allege unreasonable compensation conflicts with decisions from the Third and Seventh Circuit reversing dismissals of fiduciary breach claims alleging substantively identical facts. We will of course keep our readers apprised of any developments. 

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

Arbitration

Second Circuit

Shafer v. Stanley, No. 20 Civ. 11047 (PGG), 2023 WL 8100717 (S.D.N.Y. Nov. 21, 2023) (Judge Paul G. Gardephe). Twelve former financial advisors at Morgan Stanley bring this putative class action against Morgan Stanley Smith Barney LLC and the fiduciaries of the company’s two deferred compensation programs for violations of ERISA by allegedly illegally forfeiting deferred compensation benefits. Plaintiffs assert claims for equitable relief under Section 502(a)(3), reformation of the plan under Sections 502(a)(1) and (3), and breach of fiduciary duty under Sections 502(a)(2) and (3). Defendants moved to compel individual arbitration of the benefit disputes and to stay these proceedings. Their motion was granted in this decision. Although the court agreed with plaintiffs that the plans at issue are ERISA-governed retirement plans, it nevertheless disagreed with their basic assertion that their claims are not arbitrable because the arbitration provisions’ class action waivers eliminate their right under ERISA “to remediate the plans as a whole via a representative action.” The court held that defendants presented clear evidence that the plaintiffs agreed to arbitrate and that the arbitration provisions were valid. As to their enforceability and applicability to the claims at issue, the court adopted defendants’ position that the plaintiffs were not actually bringing their claims in a representative capacity to restore any losses to the plan, but were instead using artful pleading to seek to recover benefits allegedly not paid to them. The court found that plaintiffs’ claims truly fall within the scope of Section 502(a)(1)(B) and that they could therefore be resolved individually through arbitration. “Having failed to allege a true § 502(a)(2) claim, Plaintiffs will not be heard to complain that claims under § 502(a)(2) are non-arbitrable.” The court went on to state that “case law indicates that plaintiffs who bring putative class actions alleging 502(a)(3) claims may nevertheless be required to arbitrate their claims individually…Plaintiffs cite no case demonstrating that 502(a)(3) claims are non-arbitrable.” Finally, the court disagreed with plaintiffs that arbitration would void statutory rights under the prospective waiver doctrine. It wrote, “[p]rohibiting class treatment does not inherently limit statutory remedies, however, because class treatment is a procedural matter, and not a substantive right.” For these reasons, the court held that plaintiffs’ claims were within the scope of the arbitration provisions they agreed to and thus granted the motion to compel arbitration. The case will be stayed pending the arbitration proceedings. 

Breach of Fiduciary Duty

Fifth Circuit

Harmon v. Shell Oil Co., No. 3:20-cv-00021, 2023 WL 8014235 (S.D. Tex. Nov. 9, 2023) (Magistrate Judge Andrew M. Edison). Plaintiffs are current and former employees of Shell Oil Co. and participants of its 401(k) retirement plan. In this class action they allege that that the plan’s fiduciaries breached their duties to the participants and beneficiaries by failing to control the plan’s recordkeeping and managed account fees, maintaining more than 300 investment options in the plan, “contrary to prudent investment practices,” leading to ballooning costs for the participants, and by engaging in prohibited transactions. Plaintiffs moved for partial summary judgment on their fiduciary breach claims related to the 300-plus investment options. Defendants meanwhile moved for summary judgment on all counts. In his report and recommendation Magistrate Judge Andrew M. Edison recommended that both motions be denied. Beginning with plaintiffs’ partial summary judgment motion, Magistrate Judge Edison expressed that he believed it was the most prudent course of action to deny the partial summary judgment motion as its resolution would not simplify the trial or “ultimately advance the…resolution of the case.” In Magistrate Edison’s view the best approach is to allow the parties to present their positions at trial and let the presiding district court judge hear the testimony, consider the evidence and exhibits, and “enter a well-reasoned decision – both on the merits of the claims and, if necessary, the appropriate damages to be awarded.” Therefore, Magistrate Edison felt it was unnecessary to even consider whether genuine issues of material fact concerning the investments exist. Instead, he recommended that the court exercise its discretion to deny plaintiffs’ motion for partial summary judgment and leave the questions around the investments for resolution by the judge in the context of the trial. The report then addressed defendants’ summary judgment motion. There, the judge found that genuine issues of material fact were present which preclude summary judgment. Magistrate Judge Edison wrote that he could not conclude as a matter of law that defendants’ actions and process for overseeing the plan were prudent nor that the prohibited transactions were necessary for the operation of the plan and qualified as reasonable compensation for the services rendered. For these reasons, it was Magistrate Edison’s opinion that the district court should deny both summary judgment motions and resolve their disputes and all factual and legal issues following the trial.

Medical Benefit Claims

Third Circuit

Doe v. Indep. Blue Cross, No. 23-1530, 2023 WL 8050471 (E.D. Pa. Nov. 21, 2023) (Judge Timothy J. Savage). Plaintiff Jane Doe, a transgender woman, sued her health insurance provider, defendant Independence Blue Cross, under the Affordable Care Act (“ACA”), the Americans with Disabilities Act (“ADA”), ERISA, and Pennsylvania’s insurance bad faith statute after she was denied coverage for facial feminization surgeries as a treatment for her gender dysphoria. Blue Cross maintains that the surgeries were cosmetic rather than medically necessary and therefore not covered under her ERISA-governed healthcare plan. Ms. Doe believes that the benefit denial was both factually inaccurate and discriminatory. Blue Cross moved to dismiss the complaint for failure to state a claim. It argued that Ms. Doe failed to plead intentional acts of discrimination based on sex or disability to support her ACA and ADA claims, that her ERISA breach of fiduciary duty claim was a repackaged benefits claim, and that her state law bad faith insurance claim was preempted by ERISA. The court granted in part the motion to dismiss. It concluded that Ms. Doe plausibly alleged a violation of Title IX to state a claim of sex discrimination under the ACA. The court agreed with Ms. Doe that for the purposes of pleading she alleged facts demonstrating intentional discrimination and that the denial “depended on ‘whether or not [Ms. Doe] conforms to society’s expected standard for a cisgender female.’” The guidelines in the policy and the claim determination, the court held, considered gender stereotypes and based coverage on the extent to which a claimant conforms to those norms. It wrote that the plan “does not categorically exclude facial reconstructive surgeries… On the contrary, the policy covers these procedures for insureds who establish ‘medical necessity demonstrating a functional impairment.’ There is no question that this language is gender-neutral on its face. But, as alleged in this case, [Blue Cross’s] application of the policy depended on subjective determinations based on gender stereotypes and Ms. Doe’s conformity to them.” If these allegations prove true, the court stated that these considerations of stereotypes are prohibited under anti-sex discrimination laws and that Ms. Doe therefore stated a claim under the ACA for discrimination on the basis of sex. However, it found that she had not stated a disability discrimination claim to support either an ACA or ADA claim on the basis of disability discrimination. In addition, the court agreed with Blue Cross that Ms. Doe’s breach of fiduciary duty ERISA claim was impermissibly duplicative of her claim for benefit reimbursement. It held that Ms. Doe’s Section 502(a)(1)(B) benefit claim can provide the remedy for her injuries and that she therefore cannot proceed with an independent Section 502(a)(3) claim. Finally, the court found that the state law bad faith claim arising from an ERISA-governed plan was indeed preempted by ERISA under both conflict and express preemption. As a result, following this decision Ms. Doe was left with her ERISA benefits claim and her ACA claim. The remainder of her causes of action were dismissed.

Tenth Circuit

E.W. v. Health Net Life Ins. Co., No. 21-4110, __ F. 4th __, 2023 WL 8042746 (10th Cir. Nov. 21, 2023) (Before Circuit Judges Holmes, McHugh, and Eid). Plaintiff-appellant E.W. is a participant in an ERISA-governed healthcare plan. He sued the plan’s insurance providers, Health Net Insurance Company and Health Net of Arizona, Inc., after the plan denied his daughter’s coverage for sub-acute residential treatment of her mental health conditions, including eating disorders which developed when the girl was just eleven years old. The denials at issue were based on the McKesson InterQual Behavioral Health Child and Adolescent Psychiatry Criteria. Under these criteria, continued care at inpatient residential treatment facilities is considered medically necessary only if the insured has displayed certain acute symptoms of an eating disorder or a “serious emotional disturbance” within the past week. Health Net denied the claim for benefits after it determined that E.W.’s daughter did not experience suicidal or homicidal ideation, psychotic symptoms, or severe agitation within the past seven days. However, the denial letters did not address the InterQual criteria pertaining to an eating disorder, which had its own set of acute symptoms, including pronounced body image distortion, restrictive eating, and other behaviors to prevent prescribed weight gain including failing to consume prescribed calories and gaining “less than two pounds per week.” In his complaint, E.W. alleged that Health Net violated ERISA by failing to comply with its fiduciary obligations, failing to conduct a full and fair review, and improperly denying medically necessary healthcare benefits. Additionally, plaintiff alleged that Health Net violated the Mental Health Parity and Addiction Equity Act by imposing limitations on the coverage of mental health treatment that it did not apply to analogous medical or surgical treatments. The district court dismissed E.W.’s Parity Act claim on the pleadings. Later, the court granted summary judgment to Health Net on the remaining ERISA claims. E.W. appealed both decisions in the Tenth Circuit. In this order the court of appeals affirmed the granting of summary judgment on the ERISA claims, but reversed and remanded the district court’s finding that plaintiff failed to state a claim under the Parity Act. Starting there, the Tenth Circuit wrote that E.W. had “plausibly alleged that the InterQual Criteria capture acute conditions while residential treatment centers…provide subacute care.” Moreover, the appellate court found plaintiff plausibly alleged that inpatient skilled nursing facilities and mental health residential treatment centers are analogues for the purposes of Mental Health Parity claims. Finally, the Tenth Circuit stated that plaintiff plausibly alleged a disparity between the limitations placed on benefits for mental health and substance abuse treatments compared to those for medical and surgical care, which under the plan are not dependent on week by week symptoms. It also stressed, “[t]he allegation that Health Net applied subacute criteria to analogous medical or surgical care…is a factual allegation that we must accept as true on Health Net’s motion to dismiss.” Based on the foregoing, the appeals court concluded that E.W. plausibly stated a claim under the Mental Health Parity and Addition Equity Act and therefore reversed the lower court’s dismissal of this claim at the pleadings. However, as mentioned above, the Tenth Circuit did not disturb the district court’s summary judgment holdings. It found that Health Net did not fail to conduct a full and fair review by denying coverage of the stay at the treatment facility. As for the denial itself, the Tenth Circuit agreed with the district court that Health Net had not acted arbitrarily and capriciously in denying the claim. On appeal, E.W. argued that the district court erroneously failed to address his argument that Health Net had abused its discretion by not considering the InterQual Criteria pertaining to an eating disorder. The district court found that E.W. could not raise this argument during litigation because he had failed to raise it with Health Net during the internal administrative appeals process. The Tenth Circuit concurred with the lower court. It agreed that because the family had specifically requested the claims reviewer not utilize the InterQual Criteria, they could not argue throughout litigation that it was an abuse of discretion to have ignored this criteria pertaining to eating disorders. Next, the court of appeals found, contrary to plaintiff’s position, Health Net had provided a reasoned explanation for its denials, and appropriately engaged with the medical record. The Tenth Circuit held, “it is clear to us that the reviewers summarized rather than cherrypicked from the InterQual criteria associated with a serious emotional disturbance,” and “Health Net’s denial letters demonstrate that it did in fact consider all criteria relevant to a serious emotional disturbance even if it did not recite each criterion verbatim.” Having so found, the court of appeals held that Health Net did not abuse its discretion when denying the claim for benefits and that the district court did not err in granting summary judgment to Health Net on the ERISA claims.

Pension Benefit Claims

Second Circuit

Guzman v. Bldg. Serv. 32BJ Pension Fund, No. 22 CIVIL 1916 (LJL), 2023 WL 8039261 (S.D.N.Y. Nov. 20, 2023) (Judge Lewis J. Liman). The Building Service 32BJ Pension Fund, its executive director, its employer trustees, and its union trustees (“collectively defendants”) moved to dismiss the amended complaint of pro se plaintiff Carlos J. Guzman. Defendants’ motion was granted in this order. Mr. Guzman sued the plan and its trustees under ERISA alleging that they underpaid his retirement benefits by denying him an actuarial increase in his benefits, denied him a full and fair review, failed to send out a suspension notice, and breached their fiduciary duties. The court agreed with defendants that Mr. Guzman could not state his claims for relief. It held that it was clear from the face of the complaint that Mr. Guzman’s benefits were calculated properly under the terms of the governing plan documents. “The language of the 2018 SPD is clear and unambiguous. A plan participant is entitled to an actuarial increase for each month after reaching the normal retirement age of sixty-five during which the employee does not receive a pension except for those months in which the employee is engaged for more than forty hours in Disqualifying Employment. Plaintiff was engaged in Covered Employment which is a subset of Disqualifying Employment. The Plan properly denied him the actuarial increase.” The court further concluded that amending the SPD did not give rise to a claim for fiduciary breach because the amendment didn’t change Mr. Guzman’s entitlement to an actuarial increase “and there was therefore no need to notify him of the non-change.” In addition, the court stressed that the essence of Mr. Guzman’s Section 502(a)(3) fiduciary breach claim was an alleged underpayment of benefits, which made his (a)(3) claim duplicative of his Section 502(a)(1)(B) claim. Finally, it found that defendants’ technical noncompliance through its failure to mail a suspension notice to Mr. Guzman did not give rise to a substantive claim for withheld benefits. Accordingly, defendants’ motion to dismiss was granted and Mr. Guzman’s amended complaint was dismissed with prejudice.

Cockerill v. Corteva, Inc., No. 21-3966, __ F.R.D. __, 2023 WL 7986364 (E.D. Pa. Nov. 17, 2023) (Judge Michael M. Baylson)

For the second week in a row, we have chosen a Kantor & Kantor victory as the case of the week. In this week’s featured decision, a district court in Pennsylvania has certified two classes of workers who are participants in one of the oldest pension plans in the United States sponsored by the venerable chemical company E.I. DuPont de Nemours Company (“Historical DuPont”).

Two plan participants (later joined by two others) brought a putative class action suit in 2019, claiming that they were improperly denied the ability to qualify for early and optional retirement benefits they had long been promised following the merger of Historical DuPont and Dow Chemical Company to form the biggest chemical conglomerate in the world, and the subsequent spin-off of three companies: Dow Inc., Corteva, and DuPont de Nemours, Inc. (“New DuPont”). Both before and after the split, the plaintiffs worked at the same workplace for a company called DuPont, but because of corporate maneuvering which placed the pension plan (but not the workers) with Corteva, the participants were told that they had lost the ability to age into early retirement benefits and qualify for optional retirement benefits under the plan.   

The plaintiffs assert multiple claims on which they sought class certification. In Counts I and II, they seek clarification under ERISA Section 502(a)(1)(B) of their rights to early and optional retirement benefits under the terms of the plan. In Count IV, they allege that defendants breached their fiduciary duties in miscommunicating and failing to fully and clearly communicate the effect of the spin-off on their benefits. In Count V, they allege that by “splitting employees from Historical DuPont,” defendants acted to prevent them from attaining benefits in violation of ERISA Section 510. And in Count VI, plaintiffs allege that the defendants “retroactively applied an amendment to the Optional Retirement Benefits” in violation of ERISA’s anti-cutback provision, ERISA Section 205.    

The district court previously denied motions to dismiss and allowed plaintiffs to amend their complaint, among other things to expand the class definition to include workers both over and under the age of 50 who had at least 15 years of employment at the time of the spinoff on June 1, 2019. In this order, the judge certified two classes encompassing both age groups.

The court found that the plaintiffs had met all four requirements of Rule 23(a) with respect Counts I, II, IV, V and VI. The court reasoned that the plaintiffs established numerosity for both classes by showing 584 participants within the first class and thousands who met the second class definition. With respect to commonality, the court reasoned that “[b]oth classes share multiple common questions, that, when answered, will advance the litigation for all class members.” The court reasoned that “[b]ecause the claims center on how the Employers acted toward the classes as a whole, their disposition is common to all class members.” This held true with respect to all of the claims on which Plaintiffs sought class certification, including the fiduciary breach claim, which the court held did not depend on misrepresentations that were individualized in nature or require that plaintiffs show detrimental reliance.

Applying similar reasoning, the court also concluded that the typicality requirement was met by all plaintiffs except for Mr. Newton, whose circumstances the court found somewhat unique given that he was fired at age 49. With respect to the adequacy of the class representatives, the court found that the interests of Mr. Cockerill, Mr. Major, and Mr. Benson were sufficiently aligned with those of the class members and that they had a sufficient degree of understanding of the case to adequately represent the class. Likewise, the court concluded that class counsel were adequate to represent the class.

Turning to the requirements of Rule 23(b), the court found certification appropriate under subsection (b)(1) for both classes, reasoning that “for each count, both classes prevail based not on individual members’ circumstances,” but on whether defendants improperly interpreted Plan documents, misrepresented or failed to inform participants how the spin-off would affect their benefits, whether they were improperly motivated in their placement of the Plan, and whether they unlawfully cut-back benefits through a retroactive amendment. The court also found certification appropriate under Rule 23(b)(2), stressing that the relief sought would apply to all class members, the material facts were largely uniform, and while the declaratory or injunctive relief would likely be a mere “prelude” to damages, that was not problematic since the damages would be “easily computed by objective standards.”  

Defendants argued that certification was inappropriate given the failure of class members to exhaust their administrative remedies. The court rejected this on multiple grounds, concluding that the fiduciary breach and Section 510 claims did not require exhaustion, the Plan itself did not mandate that workers exhaust an internal review process before filing suit, exhaustion would be futile given defendants’ application of a uniform interpretation that precluded grating the benefits, and unnamed class members should not be required to exhaust or should be given a flexible time frame in which to do so.

The court also rejected defendants’ “speculative defense” with respect to statutes of limitations, noting that the defendants failed to explain “with specificity, how statute of limitations issues would unwind the bundle of common issues” for the early retirement class. And even with respect to the optional retirement class, the court would simply be required to decide either one or two statute of limitations questions, thus bolstering commonality and adequacy rather than defeating it.

Finally, the court addressed and rejected defendants’ argument that typicality was defeated because one of the plaintiffs, Mr. Major, signed a release. Instead, because Mr. Benson has not signed a release, the court found the “mixed representatives typical of the mixed class they will represent,” which defendants say includes between 100 and 389 participants who have signed releases. Moreover, the court noted a number of reasons that led it to conclude that the releases were not likely to become a “major focus” of the litigation.

Thus, the court was satisfied that it was appropriate to certify two classes. First, it certified an “early retirement class” represented by Plaintiff Robert Cockerill consisting of “all Plan participants who were less than age 50, with at least 15 years of service under Title I of the Plan, and who were employed by Historical DuPont or any other participating employer of Title I of the Plan, and who continued to be employed post spin-off by New DuPont or one of its subsidiaries that did not participate in the Plan until they reached age 50, and beneficiaries and estates of such participants.”

Second, the court certified an “optional retirement class” represented by Plaintiffs Oliver Major and Derrell Benson, consisting of “all Plan participants who were over age 50, with at least 15 years of service under Title I of the Plan, and who were employed by Historical DuPont or any other participating employer of Title I of the Plan, and who continued to be employed post spin-off by New DuPont or one of its subsidiaries that did not participate in the Plan until they reached age 50, and beneficiaries and estates of such participants.” The court carved out from this second class “anyone who received or was eligible for unreduced Early Retirement Benefits…[and] whose Early Retirement Benefits, at spin-off or through present, would be equal to, or greater than their Optional Retirement Benefit.” 

The class is represented by Susan Meter and your editor Elizabeth Hopkins of Kantor & Kantor LLP, along with Edward Stone of Edward S. Stone Law P.C., and Daniel Feinberg and Nina Wasow of Feinberg Jackson Werthman & Wasow.

Next week, we will cover another important pension decision issued this week from the Second Circuit – Cunningham v. Cornell University – so stay tuned. In the meantime, we wish all of you a wonderful Thanksgiving with your families and friends.

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

Breach of Fiduciary Duty

Second Circuit

Boyette v. Montefiore Med. Ctr., No. 22-cv-5280 (JGK), 2023 WL 7612391 (S.D.N.Y. Nov. 14, 2023) (Judge John G. Koeltl). Former employees of Montefiore Medical Center who are participants in its 403(b) retirement plan have sued Montefiore and the other plan fiduciaries under ERISA in this putative breach of fiduciary class action. Plaintiffs alleged in their complaint that the recordkeeping costs for the plan were much higher than those paid by similarly sized comparable peer plans contracting with the same and similar service providers. “From 2017 to 2020, the Plan’s recordkeeping cost per participant is alleged to have ranged from $136.51 to $230.25 with revenue sharing, and $136.51 to $172.70 without revenue sharing.” For comparison, plaintiffs contend that other plans with at least 15,000 participants and $300 million in assets had per-participant recordkeeping costs ranging from $23 to $30. In addition to their fee claims, plaintiffs also challenged the plan’s investments. First, they allege that the plan failed to identify and invest in lower-cost share classes of five funds in the plan. The participants maintain that the share classes chosen by the fiduciaries were the same in every respect other than their cost to these less expensive and available counterparts, and that defendants failed to prudently monitor the plan to invest the lowest-cost share classes for its funds. Second, plaintiffs allege that the plan retained high-cost and underperforming funds as investment options. They identified comparator funds in their complaint with superior returns and lower costs, and argued that prudent fiduciaries would have made themselves aware of these investment options and switched to them. Defendants moved to dismiss the complaint for lack of standing pursuant to Federal Rule of Civil Procedure 12(b)(1) and for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). The court granted the motion to dismiss in this order. “At the outset, the Court notes that it recently dismissed a substantially similar case alleging a breach of fiduciary duty of prudence in violation of ERISA.” This action, the court held, was not distinguishable from the one it recently dismissed, “and many of the reasons that required dismissal in [Singh v. Deloitte LLP, 650 F. Supp. 3d 259 (S.D.N.Y. 2023)] require dismissal of this case.” Like the Singh decision, the court ruled here that plaintiffs lacked Article III standing to bring claims related to the lower-cost share classes of the five individual funds at issue in which they did not invest. The court wrote, “plaintiffs lack standing with respect to their claims challenging the funds that charged excessive expense ratios, because plaintiffs did not invest in these funds.” The same was true for the underperforming funds as well, as the named plaintiffs did not personally invest in these options either and therefore could not show that they were harmed by their low returns and high costs. Moreover, the court concluded that plaintiffs could not assert their recordkeeping fee claims because they filed to plead the recordkeeping fees they individually paid each year. The court found that the complaint’s comparison between the average per-participant fee and reasonable fees charged by similarly sized plans did not satisfy Article III’s requirement of a cognizable injury. Thus the court dismissed all of plaintiffs’ claims, those based on fees and those based on funds, due to lack of standing. Although unnecessary, the decision then discussed why the court also would hold that plaintiffs failed to state their claims pursuant to Rule 12(b)(6). In addition to the injury-in-fact issues the court identified, it also stated that plaintiffs’ fee claims failed because they did not plausibly allege that the costs incurred “were excessive relative to the services rendered.” The court expressed that plaintiffs had the same problem with their share-class claims. “The existence of a cheaper fund does not mean that a particular fund is too expensive in the market generally or that it is otherwise an imprudent choice.” Ignoring the fact that plaintiffs’ complaint alleged the share-classes were identical in all ways other than cost, the court provided its own rationale for investing in the more expensive funds “the Plan received revenue sharing from four of the five more expensive class shares and…such proceeds were credited back to participants investing in those funds,” meaning “the plaintiffs received a benefit from the higher cost share classes.” Finally, the court stated that it would dismiss the underperforming fund claims because the complaint’s allegations about their poor results alone are insufficient to sufficiently state a claim for a fiduciary breach. Accordingly, the court expressed that it would dismiss the complaint based on both Rules 12(b)(1) and (b)(6), and granted defendants’ motion. However, dismissal was without prejudice, and the court held that plaintiffs may move for leave to file an amended complaint.

Fourth Circuit

Martone Constr. Mgmt. v. Thomas A. Barrett, Inc., No. DKC 23-450, 2023 WL 7489951 (D. Md. Nov. 13, 2023) (Judge Deborah K. Chasanow). As administrator of ERISA-governed defined benefit and 401(k) profit sharing plans, plaintiff Martone Construction Management, Inc., brought this ERISA breach of fiduciary duty action against the plans’ former service providers, defendants Thomas F. Barrett, Inc., National Employers Retirement Trust, Sandy Spring Bank, and Acorn Financial Advisory Services. In its complaint, Martone alleges that defendants breached their duties to the plan by (1) charging undisclosed investment fees without providing investment advisory services; (2) failing to follow Martone’s instructions with respect to the trading of plan assets; (3) improperly limiting the investment options available to the plan; (4) not following Martone’s instructions when it wished to change service providers; and (5) liquidating and transferring plan assets in ways not authorized by Martone and contrary to its instructions. As a result of these actions, plaintiff alleges that the plan incurred losses in the form of decreased value of plan assets and improper payments out of plan assets. In this action it seeks to remedy these financial harms. Martone asserted breach of fiduciary duty claims under ERISA, co-fiduciary liability claims, an equitable relief claim under ERISA Section 502(a)(3), and common law claims of breach of fiduciary duty, unjust enrichment, and negligence. Defendants moved to dismiss the action for failure to state a claim. Their motion was granted in part and denied in part. First, the court dismissed National Employers Retirement Trust as a defendant in this lawsuit because it is a trust, not a person or entity capable of being sued. However, all the ERISA claims against the remaining defendants were allowed to proceed past the pleadings. Accepting the allegations in the complaint as true, the court found that Martone properly alleged that defendants were functional fiduciaries under ERISA, that they breached their duties to the plan, and that those breaches caused losses to the plan. It also determined that defendants were subject to co-fiduciary duty for their participation in each other’s alleged breaches, and that Martone had not engaged in improper group pleading of the defendants. The court was also satisfied that each of the ERISA claims were unique and not duplicative of one another. With regard to the three common law claims, the court dismissed the claims for breach of fiduciary duty and negligence, concluding these two claims were alternative enforcement mechanisms to ERISA and therefore preempted by ERISA. However, the court found that the common law unjust enrichment claim did not relate to the ERISA plans but was instead alleging “that Martone conferred a benefit upon…Defendants for services [they] did not provide.” This claim was therefore not dismissed. Thus, most of plaintiff’s complaint was left intact following this decision, with the majority of its claims remaining in place.

Tenth Circuit

Jones v. Dish Network Corp., No. 22-cv-00167-CMA-STV, 2023 WL 7458377 (D. Colo. Nov. 6, 2023) (Magistrate Judge Scott T. Varholak). A group of former Dish Network Corporation employees who participate in its 401(k) plan have sued the plan’s fiduciaries for breaching their duties under ERISA in this putative class action. The court previously dismissed plaintiffs’ complaint without prejudice. Plaintiffs timely amended their complaint to add information about the fiduciaries’ conduct retaining a suite of Freedom Target Date Funds as the plan’s default investment option, which they maintain was an imprudent and disloyal action. In particular, plaintiffs outlined the ways in which the fiduciaries failed to follow the plan’s investment policy statement (“IPS”) with regard to the funds, which they argue were costly, risky, and significantly underperformed other available target date funds. They contended that the defendants engaged in a faulty monitoring process to oversee the default investment options and argued that had defendants complied with the process outlined in the IPS they would have replaced the funds and prevented the major losses the plan ultimately incurred. Defendants moved to dismiss the amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). In this report and recommendation, Magistrate Judge Varholak recommended that the court grant the motion to dismiss the duty of loyalty claim, but otherwise deny the motion to dismiss the claims of imprudence, failure to monitor, co-fiduciary breaches, and knowing breach of trust. The court agreed with plaintiffs that their amended complaint cured the deficiencies the court previously identified and demonstrated the ways in which defendants “ignored their own selected criteria for evaluating and monitoring the prudence of the Plan investments.” Despite the existence of the IPS, the amended complaint alleges that defendants did not follow the process it outlined to critically assess the challenged target date funds’ performance and that this procedural failure by defendants led to the imprudent retention of these funds as the plan’s default investments. Accordingly, viewing the complaint in the light most favorable to the participants, the Magistrate was satisfied that they stated their claims arising from the duty of prudence. However, Magistrate Varholak found that the amended complaint did not include any new factual allegations that defendants’ actions were self-serving and done for their own benefit. As a result, he recommended the court grant the motion to dismiss the breach of duty of loyalty claim. 

Disability Benefit Claims

Eighth Circuit

Cortez v. General Mills, No. 22-cv-1552 (ECT/JFD), 2023 WL 7489998 (D. Minn. Nov. 13, 2023) (Judge Eric C. Tostrud). Plaintiff Enrique Cortez filed a one-count complaint seeking to recover terminated long-term disability benefits pursuant to ERISA. Mr. Cortez began receiving benefits in 2017 under an ERISA-governed plan sponsored and administered by his former employer, defendant General Mills. Mr. Cortez received disability benefits for a combination of health conditions including back and leg pain, neuropathy, major depressive disorder, and cognitive conditions which were the result of side effects of his prescription medications. After paying benefits for approximately four years, the plan determined that Mr. Cortez’s physical and mental health conditions no longer disabled him from performing full-time work and therefore issued a decision denying benefits going forward. Mr. Cortez appealed internally. He filed this case following the appeal committee’s decision affirming the termination of benefits during the administrative process. Now the parties have cross-moved for judgment on the administrative record. Before the court could reach a conclusion on the benefits decision, it needed to resolve the parties’ dispute over the appropriate review standard. Mr. Cortez argued that de novo review should apply because General Mills failed to strictly adhere to the Department of Labor’s regulation requiring plans to issue benefit determinations within a 45-day deadline. The court disagreed with Mr. Cortez on this point. It stressed that the DOL’s regulation did not apply because Mr. Cortez began receiving disability benefits before April 1, 2018. Under the relevant case law, the court stated that it was irrelevant that the challenged termination of benefits at issue in this lawsuit occurred after the regulation’s effective date. Accordingly, it determined that the plan’s arbitrary and capricious review standard remained in effect regardless of the untimely benefit determination. Applying this deferential review standard, the court ruled that substantial evidence supported the decision to terminate the long-term disability benefits. It pointed to several strong pieces of evidence in the administrative record which supported the idea that Mr. Cortez could return to full-time work with his medical conditions, including the opinions of some of Mr. Cortez’s own treating physicians. Although the court acknowledged that the administrative record also included evidence supporting Mr. Cortez’s position that his health conditions were disabling, it held that this evidence did not demonstrate an abuse of discretion as it did not substantially undermine the credibility “of the evidence on which the Appeal Committee based its decision.” Furthermore, the court disagreed with Mr. Cortez that General Mills was required to show an improvement of his conditions from when it approved benefits to when it terminated them. As General Mills always operated under a degree of skepticism about whether to continue approving Mr. Cortez’s claim, the court stated that it was not unreasonable for it to terminate benefits when it was presented with significant new pieces of information in the medical records, even if the underlying health conditions remained fairly consistent. Finally, the court was unpersuaded that the Social Security Administration’s grant of disability benefits was proof that the committee’s decision to terminate benefits was an abuse of discretion. Based on the forgoing, the court entered judgment in favor of General Mills.

Ninth Circuit

Perez v. Unum Life Ins. Co. of Am., No. 22-16652, __ F. App’x __, 2023 WL 7675458 (9th Cir. Nov. 15, 2023) (Before Circuit Judges Graber, Paez, and Friedland). In a concise, unpublished, and unanimous decision, the Ninth Circuit affirmed judgment in favor of defendant Unum Life Insurance Company in this ERISA disability claim lawsuit. Plaintif-appellant Robert Perez’s long-term disability benefits were terminated after Unum concluded he was no longer totally disabled from performing any sedentary occupation. The district court found that Mr. Perez could not prove his entitlement to continued benefits as his musculoskeletal conditions had improved when Unum terminated the benefits, and because it agreed with Unum’s vocational expert that Mr. Perez could perform the sedentary occupations identified in the termination letter. On appeal Mr. Perez argued that the lower court had committed a clear error by allowing Unum to adopt new rationales to support its decision in litigation. The Ninth Circuit disagreed. “All of the challenged portions of the district court’s order reflect reasoning on which Unum relied in its denial letters.” It stated that Mr. Perez was not up against any rationales adopted or advanced only in litigation, and therefore would not overturn the decision on this basis. The court of appeals was also unwilling to adopt Mr. Perez’s argument in favor of adding on a contract term interpreting pre-disability earnings ability under a sliding definition based on the claimant’s “station in life.” Finally, the court concluded that policy at issue allowed the vocational expert to consider alternative occupations that require minimal on the job training. The Ninth Circuit declined to adopt Mr. Perez’s position that Unum could only consider jobs he could do right away without training. Thus, having considered all of Mr. Perez’s contentions on appeal and finding no basis to reverse the district court’s findings of fact, the Ninth Circuit affirmed. 

Discovery

Ninth Circuit

Lundstrom v. Young, No. 18cv2856-GPC (MSB), 2023 WL 7713579 (S.D. Cal. Nov. 15, 2023) (Magistrate Judge Michael S. Berg). Plaintiff Brian Lundstrom does not want his ex-wife to receive his pension benefits. For years he has sought and failed to undermine their Qualified Domestic Relations Order (“QDRO”). In this action he has sued his former employer, Ligand Pharmaceuticals Incorporated, and its 401(k) plan under ERISA in an attempt to keep the benefits for himself. He has three causes of action against Ligand. The first is a claim that Ligand has distributed the benefits in the plan account in violation of plan terms. The second is a claim for failure to promptly provide him with a copy of the plan’s procedures for determining the qualified status of domestic relations orders and failing to send written notice that his QDRO met the requirements under the plan and the Internal Revenue Code. Finally, Mr. Lundstrom asserts an anti-retaliation claim under Section 510 for retaliating against him for exercising his rights under ERISA. In this decision Magistrate Judge Berg ruled on a discovery dispute among the parties. Mr. Lundstrom moved to compel Ligand’s Chief People Officer, its General Counsel, and its person most knowledgeable to answer questions regarding email communications Ligand had with outside counsel related to Mr. Lundstrom’s QDRO. Ligand opposes, invoking attorney-client privilege. Defendants maintain that Ligand’s communications with outside counsel involved discussions over potential civil liability in the face of competing demands from Mr. Lundstrom and his ex-wife and that these emails are therefore privileged from discovery. The court agreed: “[T]he advice was given in anticipation of litigation and was not related to plan administration, so the communications are protected by the attorney-client privilege and not subject to the fiduciary exception.” Furthermore, the court agreed with Ligand that it was reasonable for it to “understand that ‘trouble was in the air,’” and that there was likely an imminent threat of litigation. In sum, the Magistrate concluded, “Ligand’s reasons for seeking legal advice on its own behalf were well-founded given Plaintiff’s statements, Plaintiff’s hiring outside counsel, and Ligand’s history of litigation involving Plaintiff and [his ex-wife].” Accordingly, Magistrate Judge Berg found that the communications were protected and thus denied Mr. Lundstrom’s motion to compel further deposition testimony regarding them.

Life Insurance & AD&D Benefit Claims

Eighth Circuit

Geiser v. Securian Life Ins. Co., No. 21-cv-2247 (WMW/DTS), 2023 WL 7923781 (D. Minn. Nov. 15, 2023) (Judge Wilhelmina M. Wright). On March 28, 2020, decedent Cynthia Litzau accessed her employer’s online portal and modified her beneficiary designations for life insurance benefits under an ERISA-governed group policy provided by defendant Securian Life Insurance Company. Ms. Litzau changed the designation from 100% of the benefits to her spouse, Timothy Litzau, to 50% going to her husband, 13% going to her daughter Selena Geiser, 13% going to her daughter Jennifer Heldt, and 12% each to two of her grandchildren. The story doesn’t end there though. A couple of months later, on May 12, 2020, Ms. Litzau revisited the online portal and reverted her designation back to restore her husband as the sole 100% beneficiary of the benefits. Thus, after Ms. Litzau died on May 23, 2020, Securian was informed by the employer that Mr. Litzau was the 100% beneficiary, and in accordance with that most recent beneficiary designation, Securian paid Mr. Litzau 100% of the life insurance benefits. In this action, Ms. Litzau’s daughters contest the last beneficiary designation and the payment of the life benefits to Timothy Litzau. They allege that Securian breached its fiduciary duties under ERISA. Securian moved for summary judgment in its favor. Its motion was granted in this order. The court found that there was no genuine issue of material fact that Ms. Litzau’s beneficiary designation changed on May 12, 2020 and that Securian properly paid Mr. Litzau the benefits based on the most recent beneficiary designation. “Securian did not breach a fiduciary duty by following the plan documents. Even if Plaintiff’s allegations as to Decedent’s intended beneficiaries were true, Securian would not have abused its discretion by paying Additional Life Benefits to Timothy Litzau, the named beneficiary on the plan documents. Pursuant to ERISA, Saurian must act in accordance with plan documents and instruments governing the plan.” Additionally, the court agreed with Securian that it did not have any control or discretionary authority or fiduciary function over the employer’s benefit portal and the beneficiary designations, meaning “Securian is not liable under ERISA for the alleged failure of the online portal to register Decedent’s intended changes to her beneficiary designations.” Finally, the court determined that plaintiffs’ allegations of fraud regarding the events surrounding the last beneficiary designation change were “too speculative and insufficient to meet the high threshold for reformation under ERISA.” Based on these findings, the court determined that summary judgment in favor of Securian was warranted for all claims and therefore granted its motion for judgment.

Pension Benefit Claims

Sixth Circuit

Gragg v. UPS Pension Plan, No. 2:20-cv-5708, 2023 WL 7525743 (S.D. Ohio Nov. 14, 2023) (Judge Algenon L. Marbley). Plaintiff Ralph Gragg worked for the company Overnite Transportation Co. from 1979 until it was purchased by United Parcel Service (“UPS”) in 2005. From 2005 until his retirement in 2010, Mr. Gragg worked for UPS. Following UPS’s acquisition of Overnite, and based on his positions at both companies, Mr. Gragg became a participant in two separate retirement plans and earned benefits under both plans. With his retirement approaching, Mr. Gragg reviewed and considered his election options under the plans. Based on the information he was provided, he ultimately selected the Social Security Leveling Option – Age 65 for both plans. In this action Mr. Gragg is challenging what he believes to be a miscalculation of his benefits for the options he selected. In essence, he is arguing that his monthly payments are improperly being reduced by twice the amount of his Social Security benefit, with each plan reducing his monthly benefit payments by the full amount of his Social Security retirement benefit. “Plaintiff alleges that Defendant miscalculated his benefits because it failed to consider, that although he was receiving his pension from two plans, he only received one Social Security retirement check.” In response, UPS maintains that Mr. Gragg’s “request is not permitted by law according to the Internal Revenue Code,” as the Internal Revenue Code prohibits any retirement benefit option being greater than the qualified joint and survivor annuity options. The parties cross-moved for judgment. The court wrote that it was “not convinced by [defendant’s] all-or-nothing approach,” and stressed that the “anti-cutback rule of ERISA prohibits Defendant from enforcing an interpretation of plan language that reduces that value of Plaintiff’s accrued benefit owing to his Overnite service.” It went on to state, “[t]echnical constructions of the plan’s language which defeat a reasonable expectation of coverage would run against the interests of justice, depriving the Plaintiff of the retirement benefits which he rightly earned.” That being said, the court also held that Mr. Gragg’s evidence was “not so overwhelming that a reasonable jury” could not rule against him, as UPS is correct that Mr. Gragg’s interpretation of the plan language would violate the Internal Revenue Code. Given the strengths and weaknesses of each party’s arguments and the weird situation presented here, the court denied both motions for judgment. But the court concluded that Mr. Gragg should not be left without any remedy. It found the proper remedy here to be to order UPS to recalculate Mr. Gragg’s post-65 benefit amount “in a manner that prorates his Social Security benefit amount, while taking care not to exceed the Qualified Joint & Survivor Annuity options under 26 C.F.R. §1.401(a)-11(b)(2).” Accordingly, this resolution was the creative solution the court arrived at.