Spence v. American Airlines, Inc., No. 4:23-CV-00552-O, 2025 WL 225127 (N.D. Tex. Jan. 10, 2025) (Judge Reed O’Connor)

In this much-anticipated ruling, Judge Reed O’Connor of the Northern District of Texas became the first judge to render a decision on the merits regarding the interaction between corporate environmental, social, and governance (“ESG”) initiatives and employee benefit plans.

Your ERISA Watch reported on two previous decisions in the case – one denying the plan fiduciaries’ motion to dismiss (in our February 28, 2024 newsletter) and the second denying their motion for summary judgment (our case of the week in our July 3, 2024 edition). The case subsequently went to a four-day bench trial and this decision represented the court’s findings of fact and conclusions of law.

The named plaintiff in the case was Bryan Spence, a pilot for American Airlines who objected to American’s ESG policies. He represented a certified class of American employees who were participants in two of American’s 401(k) defined contribution retirement plans. On behalf of the class, he alleged that American violated ERISA by breaching its duties of loyalty and prudence to plan participants.

Specifically, plaintiff argued that American violated its fiduciary duties by using BlackRock Institutional Trust Company, Inc. as an investment manager, and that BlackRock “pursu[ed] non-financial and nonpecuniary ESG policy goals through proxy voting and shareholder activism.” Plaintiff contended that BlackRock had an “ESG agenda” that “covertly converts the [retirement] [p]lan’s core index portfolios to ESG funds.” Plaintiff argued that this focus on social and political goals harmed plan participants’ financial interests because it ignored “exclusively financial returns.”

On plaintiff’s first claim for relief, the court concluded that American did not breach its duty of prudence in designing and monitoring the plan. The court stressed that “the prudence standard is inherently comparative,” and thus American’s conduct had to be evaluated in light of “prevailing industry standards.”

The court found that American “offered credible and unrefuted testimony that American’s process here comports with prevailing fiduciary practice and standards.” The court further accepted that American’s procedures sometimes exceeded those of other large-plan fiduciaries, and that plaintiff had not been able to point to any other fiduciaries that had “a more rigorous monitoring process.”

Plaintiff argued that American breached its duty of prudence by inadequately monitoring BlackRock’s proxy voting activities. However, the court agreed with American that benefit committees rarely directly consider proxy voting issues, and it is commonplace in benefit plan administration to outsource such evaluation to investment advisors. In this case, that advisor was Aon Investments, USA, which the court found was “a leading industry consultant” that was “well-qualified.” As a result, American’s approach was not “out of line with normal fiduciary practice.”

The court further found that even if American had been fully informed of all of BlackRock’s proxy voting activities, “the trial record does not permit the conclusion that Defendants failed to take any meaningful intervention action that a prudent fiduciary would have taken following a thorough investigation.” The court noted that “[t]he prudence inquiry is focused on conduct, not results,” and because American “did not act out of conformity with the prevailing industry standard,” it did not breach its duty. The court noted that there was no evidence that any other plan fiduciaries had removed BlackRock as an investment manager over ESG concerns.

The court emphasized that it considered this result “problematic.” “It is clear that the ‘incestuous’ nature of the retirement plan industry makes a finding of imprudence essentially impossible in certain situations… To be sure, this is a shocking result given that the evidence revealed ESG investing is not in the best financial interests of a retirement plan.”

However, the court was constrained to rule for American because it “oversaw and monitored the Plan consistent with prevailing industry standards, even though the result is due to the incestuous industry comprised of powerful repeat players who rig the standard of care to escape fiduciary liability.” The court implored Congress to “change ERISA’s legal landscape to avoid future unconscionable results like those here.”

One might think that because the court ruled for American regarding the duty of prudence, albeit reluctantly, it would rule similarly regarding American’s duty of loyalty. However, the court’s impassioned statements signaled that its decision regarding the duty of loyalty would be different. The court concluded that American “acted disloyally by failing to keep American’s own corporate interests separate from their fiduciary responsibilities, resulting in impermissible cross-pollination of interests and influence on the management of the Plan.”

Specifically, the court ruled that American “did not sufficiently monitor, evaluate, and address the potential impact of BlackRock’s non-pecuniary ESG investing.” The court emphasized BlackRock’s significant ties to American; BlackRock was one of American’s largest shareholders and had “financed approximately $400 million of American’s corporate debt at a time when American was experiencing financing difficulties.” Thus, it was “no wonder” that American “repeatedly attempted to signal alignment with BlackRock,” including BlackRock’s ESG emphasis.

The court stated that while there was no prohibition on American pursuing ESG objectives, American could only do so if there was “clear separation between corporate goals and fiduciary obligations.” The court cited comments from plan fiduciaries who stressed the importance of American’s financial relationship with BlackRock, thus indicating that “officials tasked with wearing both corporate and fiduciary hats failed to maintain the appropriate level of separation in their dual roles.” The court also noted that American “turned a blind eye to BlackRock’s obligation to submit quarterly attestations on proxy voting,” which BlackRock repeatedly failed to do.

Because of this connection between American and BlackRock, the court found that it was “no surprise that [American] utterly failed to loyally investigate BlackRock’s ESG investment activities,” even though American clearly knew about them. Furthermore, American “did not explore – let alone raise – any concerns that BlackRock’s ESG investing, including via proxy voting, could harm the Plan despite multiple indications that such harm was possible.”

In the end, the court concluded that American approved of BlackRock’s proxy voting activities either “because of the shared belief that ESG is a noble pursuit or because of the ‘circular’ relationship with a large shareholder.” Neither reason was acceptable because “such considerations are not ‘solely in the interest of the participants and beneficiaries’ and for the ‘exclusive purpose’ of providing benefits…thereby violating the duty of loyalty.”

Thus, even though American escaped liability for allegedly breaching its duty of prudence, the court still found that it had breached its duty of loyalty. This was because “[e]ven if [American] acted in the same manner as other fiduciaries in the industry, such conformity is not enough to fend off a breach of loyalty challenge because the focus is on what the fiduciary considered when acting (or not acting) – not what others did.”

As for remedies, the court deferred that issue for another day, requesting briefing from the parties.

The decision raises a host of questions and concerns and certainly complicates the jobs of employers and their benefit plan administrators. It is worth noting that the plans in this case did not offer ESG investment options; none of its funds were actually “ESG funds.” Furthermore, BlackRock’s role in the plan was limited to managing passive index funds under only one of the plan’s tiers. Moreover, the court did not evaluate whether the plans underperformed, or whether any plan participants experienced actual losses or reduced returns.

Nonetheless, the court still found American culpable for its connection to BlackRock’s ESG-related proxy voting. The decision thus opens up potentially significant liability both for companies that have ESG initiatives and those (like most) that do not closely monitor proxy voting.

As a result, an appeal is highly likely, and of course we will keep you up to date on any future developments in the case.

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

Attorneys’ Fees

Second Circuit

Hammell v. Pilot Prods., No. 21-cv-0803 (BMC), 2025 WL 71705 (E.D.N.Y. Jan. 9, 2025) (Judge Brian Cogan). Following the court’s order entering judgment in her favor and awarding her $1,780,321.23 in damages for defendants’ breaches of their fiduciary duties in this ERISA pension action, plaintiff Elizabeth Hammell moved for attorneys’ fees, costs, sanctions, and awards of pre- and post-judgment interest. Her motions were granted in part by the court in this order. To begin, the court was unpersuaded by defendants’ argument that a fee award would constitute a windfall to plaintiff. The court was equally unconvinced by defendants’ position that Ms. Hammell should not receive attorneys’ fees because she only prevailed on one of her four asserted claims. Rather, the court stated that Ms. Hammell was “overwhelmingly successful,” as “she recovered over 92% of the damages she sought.” The court further expressed that all four causes of action were inextricably intertwined and based on defendants’ conduct as fiduciaries, “explicitly pled as an alternative theory of relief.” The court therefore determined that Ms. Hammell was entitled to an award of fees. It then calculated an appropriate lodestar. First, the court held that plaintiff’s “voluminous billing records” adequately detailed the hours worked on this matter, and that these hours were reasonable given the requirements of the case and in no way overbilled. That being said, the court took a closer look at the hourly rates plaintiff’s counsel requested. Citing a case from the Eastern District of New York from 2018, the court set out the prevailing hourly rates for ERISA cases in the district – a range from $200 to $450 per hour for partners, $100 to $300 per hour for associates, and $70 to $100 per hour for paralegals. Here, plaintiff requested rates for her legal representation “that approximately double the upper bound of the Eastern District rate.” The court weighed its instinct not to diverge from the norm with its acknowledgment that “this was no run-of-the-mill ERISA case,” and decided that the proposed rates were reasonable when reduced by 15%. These modified rates ranged from $935 per hour for a partner at King & Spalding to $170 per hour for the litigation fellows at Stris & Maher. The court stated that these adjusted rates were “much closer to rates approved in recently decided, comparably complex cases in the Eastern District,” and thus appropriate. With this overall 15% reduction, the court was left with a lodestar yielding attorneys’ fees of $1,065,145.29 and awarded fees in this sum. Next, the court awarded plaintiff full recovery of her requested $45,030.30 in costs and out-of-pocket expenses, which it found to be routinely compensable and recoverable. The court was unwilling, however, to sanction the defendants for alleged discovery violations because it awarded these associated fees and costs to plaintiffs in the section above, which it said rendered the sanctions request moot. Finally, the court awarded plaintiff post-judgment interest under 28 U.S.C. § 1961(a), and pre-judgment interest at a rate of 5.25%, for a total of $387,695.43 in pre-judgment interest. Adding up the court’s judgment, fee award, costs, and interest resulted in a total judgment against defendants to the tune of $3,278,192.25.

Fifth Circuit

Cloud v. The Bert Bell/Pete Rozelle NFL Player Ret. Plan, No. 3:20-CV-1277-S, 2025 WL 82450 (N.D. Tex. Jan. 13, 2025) (Judge Karen Gren Scholer). We here at Your ERISA Watch have looked at the Cloud lawsuit from both sides now and have seen the case go from ice cream castles in the air to raining and snowing on everyone. This week, we got a glimmer of Joni Mitchell’s feather canyons as the shape of Cloud once again transformed before our eyes. For those among us who require a “previously on Cloud” refresher of the case’s long and winding procedural history, we begin by taking a look back. This case involves a claim by a former National Football League running back, plaintiff Michael Cloud, who suffers from debilitating neurological impairments, for the highest level of disability benefits under the NFL’s retirement benefit plan. Unlike in many ERISA cases, the district court allowed plaintiff major discovery through which the inner workings of The Bert Bell/Pete Rozelle NFL Player Retirement Plan were revealed to be alarmingly deficient. For instance, the board in charge of deciding Mr. Cloud’s appeal made its decision to do so at a ten-minute-long “pre-meeting” during which it claims to have reviewed 100 other appeals. For context, each appeal involved claims with hundreds or thousands of pages of documents. All that was uncovered left the district court more than a little uncomfortable with what took place. Thus, on October 6, 2023, following a bench trial, the court excoriated the plan and its fiduciaries for their gross mishandling of Mr. Cloud’s benefit claim. In its decision the court found the “Board’s review process, its interpretation and application of the Plan language, and overall factual context all suggest an intent to deny Plaintiff’s reclassification appeal regardless of the evidence,” which led the court to conclude that Mr. Cloud did not receive anything close to a full and fair review of his claim for the highest level of disability benefits under the plan. Based on its review of this evidence, the court concluded that Mr. Cloud was entitled to those benefits. The district court also entered a decision awarding attorney’s fees and costs, including a provisional award of appellate fees. But the sky took a dark turn for Mr. Cloud on appeal, and rain broke out once the Fifth Circuit got involved. Although the Fifth Circuit commended the lower court for exposing in devastating detail “the disturbing lack of safeguards to ensure fair and meaningful review of the disability claims brought by former players,” and for “chronicling a lopsided system aggressively stacked against disabled players,” it nevertheless ruled that Mr. Cloud was not entitled to reclassified higher-level benefits because the plan required “changed circumstances,” and he did not demonstrate that his circumstances had changed. Notably, this conclusion was not unanimous, and Circuit Court Judge Graves dissented, disagreeing with his colleagues “that Cloud ‘did not’ and ‘cannot’ demonstrated changed circumstances.” But the story does not end with the court of appeals. Although the Fifth Circuit reversed the district court’s ruling “on narrow grounds,” it did not, as mentioned above, disturb the lower court’s findings of fact. Therefore, jumping on the Fifth Circuit’s agreement that the NFL Plan mishandled Mr. Cloud’s claim, the district court once again exercised its power to hold the defendants to account and granted plaintiff’s motion to confirm its pre-reversal attorney’s fees and costs award, awarding counsel $1,232,058.75 in attorneys’ fees and costs totaling $30,074.72. As in its decisions before, the court took the opportunity here to chronicle once again the defendants’ processes and strategies designed and handled in such a way “to ensure that former NFL players suffering from the devastating effects of severe head trauma incurred while playing for the NFL were denied the highest level of benefits.” Because not one of the findings of fact was reversed, the court held that plaintiff, despite the outcome of the appeal, nevertheless showed some degree of success on the merits as those findings of fact “constitute a declaration from this Court vindicating at least some of the relief Plaintiff sought.” And because those facts are what they are, the court decided to exercise its discretion to maintain its prior award of attorneys’ fees and costs and grant Mr. Cloud’s motion. The court stressed that its decision is not unprecedented as other courts in the district have awarded attorneys’ fees and costs “when the Fifth Circuit is critical of a beneficiary plan.” Moreover, “in Hardt, the Supreme Court held that the facts could support attorneys’ fees despite the movant not receiving a judgment in her favor.” Nor was the court aware of any “binding case law that would prohibit” its finding that Mr. Cloud achieved success sufficient on the merits to justify an award of attorneys’ fees and costs. Finally, the court stressed its view that there was no cause to reduce the amount of fees and costs that it had previously awarded based on the Fifth Circuit’s decision: if anything, the court expressed it “could only increase those amounts based on evidence.” However, because the motion here did not include any new evidence or declaration of additional time justifying an increased award, the court concluded that the fees should remain the same, including “the maximum appellate fees and costs” in its provisional award of appellate fees. Thus, the court tacked on awards of $250,000 for appellate attorneys’ fees to the Fifth Circuit, and $350,000 for appellate attorneys’ fees to the United States Supreme Court. Should plaintiff’s appellate attorneys’ fee exceed either of these amounts, the court directed Mr. Cloud to submit evidence of his reasonable fees and stated then it would then consider whether to increase the appellate fee award amounts. Clearly, the court was intent on achieving “rough justice,” as the injustice perpetrated by the board has weighed on it considerably. Although Mr. Cloud will not be receiving the highest level disability benefits, the court pointed out that he certainly accomplished his goals of clarifying his rights and revealing the NFL Plan’s inconsistent practices. “By bringing to light Defendant’s mishandling of his case,” the court reasoned that “the outcome of this litigation produced more than ‘trivial success on the merits’ or a ‘purely procedural victory’ for Plaintiff.” The court concluded that denying plaintiff’s motion here “would indeed be unjust” and “do nothing to discourage Defendant – and Groom Law Group, who served as its advisors – from wrongfully denying appropriate disability benefits to other former players suffering from traumatic brain injuries incurred while playing for the NFL.” The court was therefore unwilling to “place a chilling effect on former players, such as Michael Cloud, and the lawyers who rightfully take up the cause on their behalf, to take a stand against Defendant’s egregious practice of denying benefits to otherwise qualified applicants.” The court further pointed out that the Fifth Circuit itself had bluntly stated, “Cloud is probably entitled to the highest level of disability pay.” Defendants may not have been required to pay those benefits, but they did not get off scot-free. The shape of Cloud, like the shapes of all clouds, seems to be in the eye of the beholder. We “really don’t know clouds at all.”

Breach of Fiduciary Duty

First Circuit

Bowers v. Russell, No. 22-cv-10457-PBS, __ F. Supp. 3d __, 2025 WL 211528 (D. Mass. Jan. 16, 2025) (Judge Patti B. Saris). The employees of Russelectric Inc. allege that financial shenanigans took place in the selling of company stock in an Employee Stock Ownership Plan after the founder of the company died and the board of directors terminated the plan. As they tell it, the fiduciaries and selling shareholders improperly subtracted $65 million in bonuses from the net share price after the company was sold to Siemens, which deprived the participants of $7 million under the plan’s clawback provision. On February 15, 2024, the court denied prior motions by defendants to dismiss this action at the pleadings. Discovery has since taken place and plaintiffs learned for the first time of the discrepancy between the actual price Siemens paid for Russelectric and the “net purchase price” used to calculate payments to the ESOP participants. With this new information in hand, plaintiffs amended their complaint to add four new counts relating to the clawback provision. Defendants moved to dismiss these new causes of action. Their motion was denied in this decision. To start, the court summarized that the pleading standard under Rule 8 is not overly complicated, requiring only “a plausible entitlement to relief,” not “detailed factual allegations.” Here, the court concluded that it could reasonably infer that defendants were liable for the misconduct plaintiffs allege. As an initial matter, the court disagreed with defendants that plaintiffs released their ERISA claims when they accepted their clawback payments. Contrary to defendants’ assertion, the court found that the language of the contract explicitly excludes claims related to the clawback provision from the scope of release. Defendants next argued that the plaintiffs had no rights under ERISA because the plan was terminated. The court said this was not so. “Despite Defendants’ contention, ERISA governs post-termination activities when a terminated plan retains assets.” The court ruled that plaintiffs retained an interest in the clawback payments contingent on the subsequent sale of the company and that this retained interest clearly qualifies as a plan asset under ERISA. “Since the terminated Plan retained assets, ERISA governs Defendants’ actions related to the clawback payments.” The court also rejected defendants’ argument that the director defendants were not fiduciaries within the meaning of ERISA because they did not act with discretion but instead employed “an exact formula” provided within the clawback provision. Because defendants controlled and handled plan assets, the court found they functioned as fiduciaries. Critically, the complaint alleges that “Defendants exercised discretion in determining the key input: the net share price of the Siemens sale.” The court viewed this as a clear allegation that the director defendants used their discretion to allocate $65 million in bonuses to members of the family and executives which directly reduced the net share price used in the calculation by that amount. Accordingly, the court found that plaintiffs sufficiently alleged defendants functioned as fiduciaries. The court also permitted plaintiffs to plead simultaneous claims for failure to pay benefits owed as well as a claim on behalf of the ESOP for the same injury. “Seeking relief under one ERISA provision does not preclude relief under another so long as both claims are adequately pled,” the court stated. The court thus rejected defendants’ proposition that the two claims under Sections 502(a)(1)(B) and (a)(2) have an untenable dichotomy and are mutually exclusive. Finally, the court held that plaintiffs were not required to exhaust administrative remedies as the detailed claims procedures in the plan would not have been available to plaintiffs since the plan was terminated and the company was sold. Thus, the court found plaintiffs need not exhaust these functionally non-existent procedures, and under the circumstances exhaustion would have been futile. Accordingly, the court denied defendants’ motion to dismiss these new claims, and for now the alleged mischief has yet to be managed.

Fourth Circuit

Hanigan v. Bechtel Glob. Corp., No. 1:24-cv-00875 (AJT/LRV), 2025 WL 77389 (E.D. Va. Jan. 10, 2025) (Judge Anthony J. Trenga). Plaintiff Debra Hanigan sued her former employer, Bechtel Global Corporation, the company’s board of directors, the Bechtel Trust & Thrift Plan, and the plan’s committee for breaches of fiduciary duties under ERISA. In her putative class action Ms. Hanigan alleged that the fiduciaries of the plan violated ERISA by failing to control the plan’s excessive costs. According to her complaint, the participants in the plan who invested in its qualified default investment option – a managed account titled the Professional Management Program – paid an average of approximately $940 per year in combined investment, administrative, and recordkeeping fees. This was far more, she alleged, than the fees paid by participants in other similarly sized defined contribution plans. Her complaint asserts claims for breach of the duty of prudence for these excessive fees and for breach of the duty to adequately monitor. Before the court were two motions. Ms. Hanigan moved to certify a class of approximately 7,000 plan members who invested in the default managed account, while the defendants moved to dismiss the action. In this order the court granted the motion to dismiss with prejudice, entered final judgment in favor of defendants, and denied as moot Ms. Hanigan’s motion to certify. In a decision free of any excess, the court held that Ms. Hanigan failed to state viable claims for breaches of fiduciary duties as her amended complaint does not compare the challenged fees to meaningful benchmarks. Specifically, the court outlined its view that a target date fund is not a meaningful benchmark to a managed account as the two investment options function differently in terms of management style, risk, tolerance, and asset allocation considerations. In short, the court was unpersuaded that a target date fund and a managed account are sufficiently similar to plausibly use one as a benchmark for the other in order to support the claims of excessive fees. Finally, the court stated, “the fact that some of the participants did not provide personalized information” does not change its thinking or analysis. As it found that the amended complaint failed to allege plausible and meaningful benchmarks, the court dismissed both the claim for breach of the duty of prudence and the derivative failure to monitor claim, and entered judgment in favor of the fiduciaries.

Class Actions

Second Circuit

Kohari v. MetLife Grp., No. 21-cv-6146 (KHP), 2025 WL 100898 (S.D.N.Y. Jan. 15, 2025) (Magistrate Judge Katharine H. Parker). In this class action lawsuit, the participants of the MetLife 401(k) Plan alleged that its fiduciaries breached their duties by imprudently and disloyally preferencing MetLife’s own proprietary index fund products and failing to monitor the other fiduciaries. While their motion for class certification was still pending, the plaintiff participants reached a settlement with the fiduciary defendants and the parties agreed to settlement terms on a class-wide basis. On November 20, 2023, the plaintiffs moved for preliminary approval of the settlement, which was granted less than a month later. Class notices were sent to the approximately 48,817 current and former plan participants and beneficiaries. The terms of the settlement and the gross settlement amount of $4,500,000 were then submitted to an independent fiduciary, Newport Trust, for review. On December 5, 2024, Newport Trust submitted a report letter concluding that the terms of the settlement, including the release and the monetary relief, were reasonable and that it was recommending approval of the settlement. Following the fairness hearing, plaintiffs moved unopposed for final approval of the proposed class action settlement, and for awards of attorneys’ fees, costs, administrative expenses, and class representatives. Plaintiffs’ counsel requested the court approve an award of attorneys’ fees in the amount of 33.333% of the settlement ($1,500,000), plus litigation expenses of $212,031.12, administrative expenses of $160,000, and $15,000 service awards for each of the three lead plaintiffs. In this decision the court granted plaintiffs’ unopposed motions. To begin, the court concluded that the proposed class easily satisfies Rule 23’s prerequisites for certification, as it is numerous, there are common questions of law, the named plaintiffs are adequate representatives whose claims are typical of the class, and that individual prosecution of separate actions would create the risk of inconsistent and incompatible adjudications. As for the settlement, the court determined it was procedurally fair, the result of informed arm’s-length negotiations handled by experienced counsel, and that its terms were substantively fair, reasonable, and adequate to the class and to the plan. Furthermore, the court stated that the costs, risk, and factors of delay and uncertainty warrant approval of the settlement as well. The court therefore granted final approval of the class action settlement. Turning to the matters of fees, the court looked first at plaintiffs’ proposed attorneys’ fee award. In the Second Circuit, the court stated that the trend is toward the percentage method, as plaintiffs sought here. Moreover, the court determined that a one-third recovery was standard in these types of complex ERISA fiduciary breach class actions, and that this percentage was routinely approved by courts within the circuit. Additionally, the court expressed that the claimed fees were also reasonable under the lodestar method as plaintiffs’ counsel spent approximately 2,600 hours working on this litigation. The court also briefly noted that public policy favors a one-third attorneys’ fee award given the importance of private enforcement actions and the corresponding need to financially incentive lawyers to pursue these cases on a contingency fee basis. Accordingly, the court did not deviate from the trend and approved the 33.333% attorneys’ fee award. Plaintiffs’ requested recovery of costs and expenses was also fully approved by the court. Finally, the decision ended with the court granting approval of the $45,000 worth of incentive awards for the plaintiffs, which it concluded was fair compensation for their time and effort and either in line with or below incentive awards approved by other courts in the circuit. Having so ruled, the court terminated this fiduciary breach class action.

Disability Benefit Claims

Third Circuit

Clyburn v. Lincoln Nat’l Life Ins. Co., No. 24cv7109 (EP) (JRA), 2025 WL 209697 (D.N.J. Jan. 16, 2025) (Judge Evelyn Padin). Plaintiff Alexis Clyburn initiated this ERISA action against Lincoln National Life Insurance Company to challenge its denial of her short-term disability benefit claim. Prior to commencing this litigation, Ms. Clyburn signed a Confidential Separation Agreement and General Release with her former employer, Brother International Corporation (“Brother”). As part of that agreement Ms. Clyburn agreed to “voluntarily, irrevocably, and unconditionally release” Brother and its agents from “any and all claims,” including those brought under ERISA. In exchange for her signature, Brother forgave the repayment of advance payments it made to her in connection with her short-term disability benefits application. Relying on this agreement and waiver, Lincoln moved for dismissal, or in the alternative for summary judgment pursuant to Rule 56, arguing that Ms. Clyburn released the ERISA claims brought here against it. Ms. Clyburn opposed Lincoln’s motion and argued in response that Lincoln may not rely on the agreement as a post hoc justification for its denial of payment. As a preliminary matter, the court converted Lincoln’s motion into one for summary judgment as its motion relies on the agreement, which is a document that is neither “referenced nor integral to Plaintiff’s Complaint.” The court considered the document and found it valid and enforceable. The court was convinced that Ms. Clyburn entered into the agreement knowingly and willingly, as she herself admits that she released Brother and its agents from ERISA claims. The court noted that she does not substantively address this point in her briefing in opposition, but instead advances a “red herring” argument that ERISA administrative records may not be supplemented with post hoc explanations. The court said that Ms. Clyburn’s argument was true enough as a general principle but was beside the point as the agreement at issue here “neither supplements the administrative record nor is used to justify the merits of the decision to deny payment.” Rather, its use is to quash ERISA lawsuits against Brother and its agents altogether. The court then expressly found that the agreement applies to Lincoln, acting as Brother’s agent, because the Plan language tasks the company with providing “non-fiduciary claim processing services to the Plan,” and an agency relationship “is created when one party consents to have another act on its behalf, with the principal controlling and directing the acts of the agent.” As Lincoln clearly had the authority to act on behalf of Brother and the Plan, the court found that it is unquestionably an agent of Brother and thus concluded that Ms. Clyburn is precluded from bringing ERISA claims against Lincoln. On the way out, the court briefly noted that it was declining to award attorneys’ fees against Ms. Clyburn pursuant to the agreement which states that parties in breach of it shall be liable for fees and costs “incurred by the other party in bringing and prosecuting an action for breach of the Agreement.” The court reminded Lincoln that it was not seeking relief for breach of contract, but rather moving to dismiss Ms. Clyburn’s ERISA action, which is not contemplated by the language of the agreement. Despite this silver lining for Ms. Clyburn, the decision was otherwise a success for Lincoln and the court entered summary judgment in its favor.

Sixth Circuit

Higgins v. Lincoln Elec. Co., No. 23-5862, __ F. App’x __, 2025 WL 213846 (6th Cir. Jan. 16, 2025) (Before Circuit Judges Siler, Clay, and Readler). Under ERISA, the plan’s the thing. But sometimes the language of the plan is directly contradicted by the promises of its fiduciaries. What then? According to the Sixth Circuit in this decision, the Plan language controls, unfortunate as that may be, as “ERISA requires courts to enforce plan documents as written, and established precedent demands that a plaintiff meet a heightened standard to prevail on an ERISA-estoppel claim when plan terms are unambiguous.” In the present action, although unlucky for plaintiff-appellant Jerry Higgins, the court of appeals agreed with the district court below that the terms of the benefit election form sent to him by defendant-appellee Lincoln Electric Company Inc. stating that annual long-term disability benefits would total $92,260.80 could not overrule the plan documents, which unambiguously cap those benefits at $60,000. The Sixth Circuit thus agreed with Lincoln and the district court that Mr. Higgins could not meet the requirements for establishing an ERISA estoppel claim. In particular, given the clear plan terms, the court of appeals found that plaintiff was missing several critical elements of an estoppel claim, namely “that Lincoln knew the true facts and intended to deceive him or acted with gross negligence akin to constructive fraud,” or that it “intended him to rely on the misstatement or that Lincoln stood to gain from such reliance.” In addition, the court of appeals stated that Mr. Higgins failed to show that he was unaware of the true facts as he had access to the plan documents establishing the $60,000 annual cap for long-term disability benefits to establish detrimental and justifiable reliance on the benefit election form. Therefore, the court of appeals affirmed the dismissal of the action pursuant to Federal Rule of Civil Procedure 12(b)(6).

Discovery

Tenth Circuit

Harrison v. Envision Mgmt. Holding, No. 21-cv-00304-CNS-MDB, 2025 WL 81360 (D. Colo. Jan. 13, 2025) (Judge Charlotte N. Sweeney). This putative class action lawsuit concerns the alleged mismanagement of the Envision Management Holding Employee Stock Ownership Plan (“ESOP”). Plaintiffs are two former employees of Envision who are seeking plan-wide relief to restore losses to the plan. The plan participants are not the only ones who want to know more about the goings-on of the Envision ESOP. The Department of Labor (“DOL”) has also been investigating the plan. As part of its investigation, the DOL has conducted interviews with several of the individual defendants in this action and has prepared summaries of those interviews which it has shared with plaintiffs. Plaintiffs object to the disclosure of these documents given to them by the DOL and argue that they should not be required to produce them because the DOL’s investigative materials were shared with them under a common interest agreement. Given this discovery dispute, the court ordered plaintiffs to file a motion on whether the common interest doctrine applies to their information-sharing agreement with the DOL. The matter was referred to Magistrate Judge Dominguez Braswell for determination. Judge Braswell issued an order finding no common legal interest between the DOL and plaintiffs and that the DOL cannot rely on the common interest agreement to protect against waiver. The Labor Department did not object to the Magistrate’s ruling. However, the participant plaintiffs did. In this order the court overruled their objections and affirmed the holdings of the Magistrate’s “thorough and well-reasoned decision.” As an initial matter, the court stated its inclination to agree with defendants that the DOL’s decision not to challenge Judge Braswell’s order ends the issue as plaintiffs lack standing to object on the DOL’s behalf. However, out of a desire to be thorough, the court stated that it would briefly address plaintiffs’ objections, all of which it found unconvincing. First, the court agreed with the Magistrate that plaintiffs and the DOL do not have a common legal strategy here as the DOL is not a party to this case, its investigation is still open, it is still considering whether to participate in this litigation, and it has expressly chosen to take no position on the merits of this case. The court agreed with Judge Braswell that the DOL and plaintiffs cannot make a showing that they are clearly working towards a common legal strategy. Furthermore, the court stated that there was no clear error in Judge Braswell’s determination that the DOL and plaintiffs do not share a common legal interest. Finally, the court addressed the caselaw cited by plaintiffs and concluded that none of the cases they presented had “facts analogous to those presented here.” Declining plaintiffs’ stay request, the court concluded that the Magistrate’s order was not clearly erroneous or contrary to law and therefore ordered plaintiffs to comply with it and produce the DOL interview reports.

Exhaustion of Administrative Remedies

Eighth Circuit

Frederick v. Life Ins. Co. of N. Am., No. 4:24-cv-00367-SRC, 2025 WL 71705 (E.D. Mo. Jan. 10, 2025) (Judge Stephen R. Clark). 29 C.F.R. Section 2560.503-1(i) sets out the time frame allotted for a plan to decide a disability benefits appeal. It provides that a plan must issue a decision on appeal “not later than 45 days after receipt of the claimant’s request for review by the plan.” However, this deadline can be extended by an additional 45 days under special circumstances. Further complicating these deadlines is Section 2560.503-1(i)(4), which allows tolling in limited circumstances. As the court put it in this ruling, “tolling occurs only if (1) the plan administrator extended its initial 45-day deadline under paragraph (i)(1), (i)(2)(iii)(B), or (i)(3), and (2) the plan administrator premised that extension on the claimant’s failure to submit information necessary to decide a claim.” In order to reach its ultimate exhaustion decision, the court was required to consider whether defendant Life Insurance Company of North America (“LINA”) invoked an extension to the default 45-day window, if so, whether LINA’s deadline was tolled at any point, and whether plaintiff Denice Frederick exhausted her administrative remedies before filing this lawsuit to challenge LINA’s denial of her claim for disability benefits. Needless to say, the only undisputed fact for the purposes of LINA’s summary judgment motion was that when Ms. Frederick filed her lawsuit on March 11, 2024, LINA had not issued a decision on appeal. The parties otherwise had two different interpretations of this fact. In Ms. Frederick’s telling, LINA failed to timely decide her appeal, and her administrative remedies should be deemed exhausted. In LINA’s view, however, Ms. Frederick jumped the gun by filing a civil action more than a month before its deadline to decide her appeal, which it stated was April 18, 2024. Upon consideration, the court agreed with LINA. First, the court held that LINA complied with the requirements to invoke the regulation’s special circumstances extension, “namely that LINA needed additional information from Frederick and the Social Security Administration before it could decide Frederick’s appeal.” Beyond that, the court concluded that LINA’s deadline was tolled for an additional five days from the date on which the notification of the extension was sent to Ms. Frederick until the date on which she responded. By drawing these conclusions, the court reached the same place as LINA and determined that its deadline for issuing a decision on appeal was April 18,^, 2024. Thus, the court held that Ms. Frederick failed to exhaust her administrative remedies prior to seeking judicial review of her benefits claim. It therefore granted summary judgment to LINA on Ms. Frederick’s claim for wrongful denial of benefits. Additionally, the court granted LINA’s motion for summary judgment on Ms. Frederick’s fiduciary breach claim as this cause of action was premised on LINA’s alleged failure to timely render a decision on appeal. “The undisputed facts…do not support Frederick’s allegations. As explained above…LINA has not violated the claims procedures set forth in section 2560.503-1.” Thus, the court granted LINA’s summary judgment motion in whole. As a result, it was Ms. Frederick, and not LINA, that suffered the consequences of the insurer’s delay.

Medical Benefit Claims

Seventh Circuit

Estate of Gifford v. Operating Eng’rs 139 Health Benefit Fund, No. 23-3356, __ F. 4th __, 2025 WL 79102 (7th Cir. Jan. 13, 2025) (Before Circuit Judges Easterbrook, Jackson-Akiwumi, and Kolar). On the Fourth of July in 2021, beneficiary Michael Gifford experienced a stroke and was admitted to an emergency room which was out-of-network with his self-insured employee benefit plan of the Operating Engineers 139 Union. In the hospital, doctors discovered a brain aneurysm, and on July 6 an out-of-network neurosurgeon at the hospital evaluated Mr. Gifford and concluded that surgery was necessary to stop the bleeding in the brain. The neurosurgeon, Dr. Ahuja, stated that the surgery was necessary because of a narrowing of the brain blood vessel. On the advice of his surgeon, Mr. Gifford underwent the surgery. Sadly, the surgery turned out to be more complicated than predicted – the aneurysm was larger than expected, the bleeding worse, and there was evidence of prior bleeding as well. These complications made the surgery very challenging. Sadly, Mr. Gifford died in the hospital following the surgery on July 18, 2021. Everything that happened afterwards only compounded the family’s tragedy. The family and the healthcare providers submitted a claim for reimbursement of Mr. Gifford’s medical expenses to the Health Benefit Fund. The Fund concluded that the surgery was not medically necessary, not an emergency, and not payable under the terms of the plan. Mr. Gifford’s wife, Suzanne Gifford, appealed the denial, arguing that “a stroke with a ruptured brain aneurysm is a clear emergency.” On appeal the Fund contracted with two medical review firms to review the records and determine whether the surgery performed was medically necessary and whether it took place in the event of an emergency. The two reviewing neurosurgeons concluded that the surgery was not covered under the plan as it was in their opinion neither medically necessary nor performed on an emergency basis. Having exhausted its administrative appeals process, Michael Gifford’s Estate filed suit under ERISA to challenge the denial asserting a claim for benefits under Section 502(a)(1)(B), as well as a claim for statutory violations under Section 502(a)(3). The district court denied the Estate’s motion for discovery, granted the Fund’s motion for protective order, and entered summary judgment in favor of the Fund on both claims under an abuse of discretion review standard. The Estate appealed these decisions. On appeal, the Seventh Circuit, while moved by the “tragic” nature of the case, was unmoved by the Estate’s arguments to overturn the district court’s decisions. The appeals court focused not on the end result of the Fund’s procedures, but on the procedures themselves and concluded that “the Trustee’s interpretation of ‘emergency,’ as well as their application of ‘Medical Necessity,’ were reasonably derived from not only the Plan’s terms and the Trustees’ analysis of Gifford’s hospital records, but also two independent medical reviewers’ conclusions – reviewers explicitly authorized by the Trustees to interpret the Plan.” While the court of appeals was willing to conclude that the treating neurosurgeon’s opinion that the bleeding required emergency surgery was reasonable, it nevertheless stressed that the Fund was within its rights to rely on the reasonable but conflicting opinions of its own doctors. As a result, the Seventh Circuit could not find that the denial of benefits was clearly unreasonable under the arbitrary and capricious standard of review and concluded that the district court’s grant of summary judgment for the Fund on the Estate’s wrongful denial of benefits claim was appropriate and without any clear error. Moreover, the court of appeals agreed with the lower court that the equitable relief claim was really a repackaged benefits claim. The Seventh Circuit elaborated that the Trustees appropriately exercised their broad discretion to interpret plan language and did not abuse that discretion with their ultimate conclusions, which it stated were “within the range of reasonable interpretations” and generally “compatible with the language and the structure of the Plan.” The appeals court therefore affirmed the district court’s grant of summary judgment to the Fund on the Estate’s equitable relief claim as well. Before turning to the grant of protective order, the court of appeals took a moment to wash its hands of any mess. It wished to convey to the readers of its decision that even if they viewed the ultimate result as a miscarriage of justice given the family’s “gut-wrenching Hobbesian choice of mulling over dense plan provisions or scheduling services in accordance with a treating physicians’ concern that delay would be catastrophic,” that fault lies elsewhere and is the unfortunate result of the language of the Plan, the decisions of Congress, and the statutory language of ERISA. It suggested that plan participants and beneficiaries would be better served if ERISA required “a common-sense provision stating that a treating physician’s belief that a plan participant requires emergency services is due significant weight or creates a rebuttable presumption in favor of granting benefits.” Finally, the court of appeals affirmed the district court’s decision granting the Fund’s motion for protective order and denying the Estate’s request for discovery, as discovery “is normally disfavored in ERISA denial of benefits cases.” The Seventh Circuit was unconvinced that the Trustees’ decision was tainted by any conflict of interest, especially as the Estate was unable to present evidence of misconduct which might justify discovery outside the administrative record. Thus, here too the court of appeals determined that the district court properly exercised its discretion and refused to reverse the lower court’s decisions. For these reasons, the Seventh Circuit affirmed the entirety of the district court’s rulings, and the Estate of Mr. Gifford is left on the hook for the medical procedures he received in the last days of his life.

Provider Claims

Ninth Circuit

Feder v. Nestle U.S. Inc., No. 2:24-cv-06817-CAS(BFMx), 2025 WL 211972 (C.D. Cal. Jan. 13, 2025) (Judge Christina A. Snyder). Healthcare provider Keith Feder M.D., Inc. filed this action in California state court against Nestle USA, Inc. and ten Doe defendants asserting claims for negligent misrepresentation, promissory estoppel, and benefits under ERISA Section 502(a)(1)(B) in connection with allegedly underpaid medical bills. Defendants removed the action to federal court on the basis of federal question jurisdiction and diversity jurisdiction. Plaintiff subsequently amended his complaint to remove the ERISA cause of action and then moved to remand his action back to state court. Defendants opposed. Although they conceded that Dr. Feder’s removal of his ERISA claim took away federal question jurisdiction, as ERISA does not completely preempt his remaining state law claims, they nevertheless argued that the amount in controversy exceeds $75,000, thus establishing diversity jurisdiction. Moreover, defendants averred the court should electively exercise supplemental jurisdiction over the state law claims and decide the issue of conflict preemption under ERISA. The court in this order sided with Dr. Feder and remanded the action back to state court. It agreed with both parties that well settled caselaw in the Ninth Circuit establishes that ERISA does not completely preempt claims like Dr. Feder’s brought by a medical provider against an ERISA healthcare plan and/or its administrators for failure to make proper payments of medical payments based on oral promises of usual and customary payments. Thus, the court stated that there was no open issue of federal question jurisdiction. Regarding diversity jurisdiction, the court concluded that Nestle could not provide sufficient evidence to establish that the amount in controversy threshold was satisfied because the original complaint only states damages of $25,000. The court also concluded that exercising supplemental jurisdiction over the remaining state law claims would be inappropriate because courts rarely exercise supplemental jurisdiction over state law claims when all federal claims have been dismissed before trial. Further, the court noted that the Ninth Circuit has signed off on a plaintiff’s ability to amend his or her complaint to eliminate federal claims in order to avoid the federal judicial forum and that it “does not deem such a decision unfair.” Even more on point, the Ninth Circuit has established that state courts should retain jurisdiction over cases where ERISA preemption has been raised as an affirmative defense under Section 514. Thus, the “Ninth Circuit has determined that the state court is [the] proper form for the determination of the preemption issue.” Based on the foregoing, the court decided that it lacks jurisdiction over this matter and therefore granted plaintiff’s motion to remand its action to state court for further proceedings.

Standard of Review

Eleventh Circuit

Andrews v. Reliance Standard Life Ins. Co., No. 1:23-cv-415-TFM-N, 2025 WL 93001 (S.D. Ala. Jan. 14, 2025) (Judge Terry F. Moorer). On July 23, 2024, the Magistrate Judge assigned to this ERISA disability benefits action entered a report and recommendation concluding that the issue over the applicable standard of review was premature for resolution. Although the plan at issue does not vest defendant Reliance Standard Life Insurance Company with discretionary authority to apply and interpret its terms, the Magistrate declined to rule on the applicable standard of review, concluding that it was unnecessary at the time because the real issue is whether Reliance complied with ERISA’s statutory requirements to provide plaintiff Tanya Andrews with a full and fair review. The Magistrate therefore recommended the court deny both parties’ cross-motions for partial summary judgment establishing their desired standard of review. Reliance Standard promptly objected to these recommendations. In this decision the court adopted the position of the Magistrate Judge and overruled Reliance Standard’s objections. The court found “the Report and Recommendation’s citation to Melich v. Life Ins. Co. of N. Am., 739 F.3d 663, 672 (11th Cir. 2014) to be directly on point.” In particular, the court highlighted a passage from Melich which stresses that courts cannot evaluate the ultimate decision of a plan administrator without considering whether the record before the plan administrator was complete. Thus, after due consideration the court adopted the recommendations of the Magistrate Judge and denied each party’s motion for partial summary judgment establishing the standard of review. The court then directed the parties to meet and file an updated report on the matter of discovery.

Statutory Penalties

Second Circuit

Savino v. Joint Indus. Bd. of the Elec. Indus., No. 22-cv-682 (CBA) (PK), 2025 WL 90242 (E.D.N.Y. Jan. 14, 2025) (Judge Carol Bagley Amon). Plaintiff Michael Savino brought an ERISA action against his multi-employer welfare plan and its fiduciaries seeking judicial review of his denied disability benefits. In addition to his disability benefit related causes of action Mr. Savino also alleged that defendants failed to provide him with a timely and adequate COBRA notice to extend his healthcare coverage. On April 6, 2023, the court granted summary judgment in favor of defendants on all of the claims related to defendants’ denial of Mr. Savino’s disability benefits, leaving only his COBRA notice claim. Defendants subsequently moved for summary judgment in their favor on this claim as well. In this decision the court granted their summary judgment motion on the one remaining cause of action. Although the parties disputed whether or not defendants sent Mr. Savino a COBRA notice, and defendants were unable to provide any record that a notice was mailed, the court ultimately granted summary judgment in their favor and declined to award Mr. Savino any penalties as it concluded that the record contains no evidence of either bad faith or prejudice. Speaking to the lack of bad faith, the court noted that Mr. Savino did not allege that defendants failed to send him the COBRA notice on purpose. As for prejudice, the court wrote that there was none “because the COBRA premiums the plaintiff would have had to pay exceeded the medical bills he incurred.” Specifically, Mr. Savino incurred $8,462.89 in out-of-pocket medical expenses as a result of not having health insurance coverage, whereas he would have had to pay $30,000 annually in premiums if he had elected to maintain his coverage. Having found no evidence of bad faith or prejudice, the court decided to dismiss Mr. Savino’s claim for statutory penalties and granted summary judgment in favor of defendants on the COBRA notice claim.