McCutcheon v. Colgate-Palmolive Co., No. 20-3225, __ F. 4th __, 2023 WL 2467367 (2d Cir. Mar. 13, 2023) (Before Circuit Judges Livingston and Sack, and District Judge Brian M. Cogan)

ERISA can be complicated. In part this is because ERISA and ERISA plans have their own intentionally obscure and technical language, especially when applied to cash balance pension plans. The Second Circuit in this case refers to this as the “argot of federal law governing employee retirement income plans.” Argot is an interesting word in this context, as its original meaning is “the jargon of Paris rogues and thieves for the purposes of disguise and concealment.”

Here, the court refused to allow this jargon to “obscure” what it saw as “a simple question of contract interpretation.” Thus, after years of “extensive litigation,” the appellate court determined that the interpretation of the Colgate retirement plan propounded by the plaintiffs, a class of former employees, was “unambiguously correct.” On this seemingly simple basis, the Second Circuit affirmed the final judgment and order of the district court granting summary judgment to plaintiffs on their claim for greater benefits.  

This case originated in 1989 when Colgate converted an ordinary defined benefit pension plan that based pension benefits on employees’ final average pay to a cash balance plan that uses a hypothetical account and an automatic fixed interest rate to calculate benefits. In 2005, Colgate amended the plan to account for participants who were entitled to a greater benefit under the cash balance plan than their accrued benefit under the old final average pay plan, and who elected to receive a lump sum payment of their accrued benefit. This amendment, referred to in the decision a Residual Annuity Amendment (“RAA”), was not discovered by counsel for plan participants until 2010.

In the meantime, in 2007, participants in the Plan filed a class action lawsuit against Colgate for cutting back on the accrued benefits of its employees in numerous other respects in converting to a cash balance plan. When the participants discovered the 2005 amendment, settlement discussions were already underway. Ultimately, most of the case settled with approval from the district court for $45 million (Colgate I), but with a carve-out for claims based upon the RAA.

As relevant here, after two years of discovery, plaintiffs filed for and ultimately won summary judgment on their claim that Colgate made two errors in calculating the RAA benefit, leading to an improper forfeiture of benefits. First, the district court agreed with plaintiffs that Colgate erred in determining eligibility and the amount of the residual annuity based on a comparison of the lump sum already paid to the participants to the grandfathered annuity. Instead, under what the district court referred to, without irony, as the “plain reading of the RAA,” it determined that “the amount of the Residual Annuity is determined by comparing the Age 65 [actuarial equivalent of the lump sum]…with the greater of the Grandfathered Benefit or the Member’s Accrued Benefit…plus Employee Contributions.” 

Second, the district court held that Colgate erred in applying a pre-retirement mortality discount in calculating the residual annuities because applying such a discount to a retirement benefit that “does not decrease if the participant dies” before reaching age 65 is obviously not proper.  

Finally, the district court ordered Colgate to use the 20-year Treasury bill rate plus 1% (20+1%) to project the equivalent annuity amount of the cash balance of a below-retirement age participant, and then to use the PBGC interest rate as the discount factor to convert that annuity amount to its present value.

The Second Circuit affirmed. With respect to the first calculation error, the appellate court agreed with the district court and the plaintiffs that the plan language “unambiguously” supported their interpretation. Luckily for the reader, I will not belabor that language. Suffice it to say that the court determined that the clear and unambiguous text of the plan provided that a residual annuity for participants such as the plaintiff is calculated by the difference between the amount of the lump sum payment expressed as an annuity and the larger of the grandfathered annuity and the cash balance annuity. In reaching this conclusion, the court rejected Colgate’s alternative reading of the plan language as unreasonable.

The court likewise was not persuaded that “ any allegedly unusual effects flowing from the RAA’s plain meaning” should change the “ambiguity analysis.” In fact, the court noted “that certain effects of our interpretation, which may seem odd at first, may not be so confounding upon closer review.” To the court, whatever Colgate’s preferred construction of the RAA, both when it settled Colgate I and during the RAA litigation, it made “perfectly good sense to conclude that while Colgate was in the process of fixing an issue relating to the forfeiture of grandfathered benefits, it would use the same mechanism to partially remedy a contemporaneous whipsaw violation [at issue in Colgate I], inflicted upon those same grandfathered participants.”

The court then turned to the interest rate issues. The Second Circuit agreed with the district court that Colgate was required to use the PBGC rate as the discount rate to calculate the actuarial equivalent of the lump sum payment expressed as an annuity, not because that interest rate was required under the Internal Revenue Code, but because it was required under the plan itself. In this regard, the Second Circuit noted that Colgate, through a committee that determined benefits under the plan, adopted a resolution to apply the PBGC rate in calculating residual annuities. This resolution was a binding part of the plan.

The court next concluded that the 20+1% rate was applicable for the purpose of projecting a participant’s cash balance account forward and converting it to an age 65 annuity. Again, the court found this was required under “the plain text of the plan,” which contained a section requiring the use of the 20+1% rate “for purposes of converting a Member’s Account into a single life annuity payable for the life of the Member starting at Normal Retirement Date.” The court noted that, even if it were to determine that this provision was ambiguous, Colgate’s reading had to be rejected because it would mean that the plan did not state how to project a cash balance account to age 65, thus rendering the benefit not “definitely determinable” and making the plan illegal. 

Finally, the court turned to the question of whether a pre-retirement mortality discount could be applied to calculate the residual annuity, as required under the plan. In this instance, the court did not simply follow the plan language, Instead, the court agreed with the logic of a number of other court decisions that had concluded that it would be an impermissible forfeiture to apply such a mortality discount to reduce the present value of a lump sum distribution when the death benefit is not reduced but is equal to the participant’s accrued benefit. The court was not persuaded that the supposedly “incidental” nature of the death benefit permitted application of such a discount, or that a proposed but never adopted IRS regulation required application of a pre-retirement mortality discount in this context.

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

Breach of Fiduciary Duty

Seventh Circuit

Daly v. West Monroe Partners, Inc., No. 21 C 6805, 2023 WL 2525362 (N.D. Ill. Mar. 15, 2023) (Judge Ronald A. Guzman). A participant of the West Monroe Partners Employee Stock Ownership Plan (“ESOP”), plaintiff Matthew Daly, filed a breach of fiduciary duty class action complaint outlining the ways in which he believed a series of related stock transactions violated ERISA. First, in September of 2021, West Monroe bought approximately 28,000 shares of the company stock from the plan at a price of $515.18 per share. According to Mr. Daly, this price was “grossly undervalued.” Then, about three weeks later, West Monroe took what it had just bought low and sold high, selling a 50% stake in the Company to a third-party investor, MSD, at a price per share over three times higher than what it had just paid to the plan participants. “According to Plaintiff, the share price paid to MSD ‘did not come out of thin air’ and ‘long before the sale [to MSD], the West Monroe Defendants had received bids from potential buyers and reviewed more recent valuations’ but did not disclose them to Plaintiff or the putative class members prior to buying their shares in September 2021.” Thus, by allegedly manipulating the valuations in this way, Mr. Daly argued that the selling shareholders were able to enrich themselves to the detriment of the participants of the plan. Defendants moved to dismiss. The court denied the motion, except with regard to the claims asserted against the individual board or committee members. Those claims were dismissed without prejudice. Specifically, the court declined to resolve the issue over whether Mr. Daly’s failure to exhaust administrative remedies precludes his ability to bring suit. Mr. Daly argued that an administrative appeal under these circumstances would have been futile. For pleading purposes this was deemed sufficient to withstand dismissal on exhaustion grounds. Next, the court held that it could infer from the complaint that defendants breached their duties, engaged in a prohibited transaction, failed to monitor co-fiduciaries, and failed to produce plan documents. However, with regard to the individual committee and board members, the court held that Mr. Daly failed to make allegations as to these specific individual members sufficient to establish they were acting as fiduciaries, meaning “none are currently implicated in the breach-of-fiduciary-duty claim.” In all other respects, the motion to dismiss was denied and plaintiff’s claims were found to be plausible.

Ninth Circuit

Thomson v. Caesars Holdings Inc., No. 2:21-cv-00961-CDS-BNW, 2023 WL 2480673 (D. Nev. Mar. 13, 2023) (Judge Cristina D. Silva). Participants of the Caesars Entertainment Corporation Savings & Retirement Plan, on behalf of a proposed class, filed this breach of fiduciary duty action against Caesars Holdings Inc., the plan’s committees, and Russell Investments Trust Company in connection with alleged self-serving actions which resulted in an investment portfolio made up of costly and underperforming proprietary funds. According to the complaint, after Russell assumed control of the plan’s investment menu in 2017, it replaced all of the plan’s old investment options with its own proprietary collective investment trusts and thus three-quarters of the plan’s $1.6 billion in assets ended up invested in Russell’s age-based funds. Plaintiffs alleged that this outsourcing of control over the administration of the plan was the result of a leveraged buyout of Caesars Palace by private equity firms following the 2008 financial crisis. Plaintiffs compared the plan’s prior investment options with the Russell replacement funds to demonstrate the disparity between the old funds’ consistent track record of success and the new funds’ underperformance. Finally, plaintiffs contend that the decision to replace the old investment menu with the proprietary funds was made to offset the losses that Russell was experiencing outside the plan in the open market and that the decision was therefore made to benefit Russell because it provided Russell with a direct infusion of much needed cash. Defendants moved to dismiss. The court began its analysis by stressing that the “‘crucible of congressional concern was misuse and mismanagement of plan assets by plan administrators,’ and ‘ERISA was designed to prevent these abuses.’” To that end, the court drew inferences in favor of the participants and was satisfied that their allegations were facially plausible violations of imprudence and disloyalty. However, the court held that co-fiduciary claims against the Caesars defendants could not proceed because “§ 1105(d) extinguishes bases for their liability for [Russell’s] alleged breaches, except to the extent that the Caesars defendants were aware of such breaches but failed to take reasonable efforts to remedy them.” Nevertheless, the court concluded that plaintiffs’ claim against the Caesars defendants for imprudent selection of Russell and failure to survey the proprietary investment lineup could proceed. Thus, only the co-fiduciary claim against Caesars defendants was dismissed, and in all other respects the motions to dismiss were denied.

Class Actions

Second Circuit

Vellali v. Yale University, No. 3:16-cv-1345(AWT), 2023 WL 2552719 (D. Conn. Mar. 17, 2023) (Judge Alvin W. Thompson). Three participants of the Yale University 403(b) Retirement Account Plan, individually and on behalf of a class of plan participants and beneficiaries, brought this action on behalf of the plan against Yale University, Michael A. Peel, and the retirement plan committee for breaches of fiduciary duties and prohibited transactions. Defendants moved to strike plaintiff’s jury demand. Their motion was denied in this order. Although the court found that breach of fiduciary duty claims would have historically been within the jurisdiction of equity courts in 18th century England, it stated that the greater matter of importance to its analysis was whether the remedy sought is legal or equitable in nature. And on this point, the court held the prayer for relief in the complaint included not only requests that were equitable, but also a request for make whole relief, a claim for compensatory damages for which defendants will be personally liable that is therefore legal in nature. When, as here, a legal claim is joined among equitable claims, the court stated that the right to the jury trial “remains intact.” Accordingly, the court permitted plaintiffs to proceed with their action in front of a jury because all of their claims seek legal money damages.

Eleventh Circuit

Roll v. Enhanced Recovery Co., No. 6:20-cv-212-RBD-EJK, 2023 WL 2535081 (M.D. Fla. Mar. 16, 2023) (Judge Roy B. Dalton Jr.). In this class action a group of terminated employees sued their former employer, Enhanced Recovery Co., alleging that it failed to notify them of their right to continued healthcare coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”). The parties agreed to settle the claims on a class-wide basis. The court previously issued an order preliminarily approving the settlement agreement. Now plaintiffs have moved for attorneys’ fees and final approval of class action settlement. The court granted the motion for final settlement approval and granted in part the fee motion. As a preliminary matter, the court reaffirmed its earlier findings, concluding that “there is no question that the Rule 23(e)(2) and Bennett factors are met,” and the settlement was fair, reasonable, and adequate given the equitable treatment of the class and the developed record post-discovery. The court then continued by scrutinizing the requested fee award of $65,000 “which is 49% of the settlement fund,” and the $2,500 requested to cover the costs. Magistrate Judge Kidd issued a report recommending the awards be reduced to a total of $61,987.50 for attorneys’ fees, or 45% of the settlement fund, and $472.85 for costs. The court adopted Magistrate Kidd’s recommendation, agreeing that it was a more reasonable fee recovery and a fairer percentage of the common fund. The court ended its decision by acknowledging the complexity of the novel issues in the case. Due to that complexity, the court agreed with plaintiffs that this case may have been viewed by other attorneys as undesirable, and there was undoubtably a risk of no recovery. Accordingly, “class counsel achieved a significant settlement providing monetary relief to all class members despite the inherent risk of no recovery.” Thus, with the class and settlement granted final approval, and with the fee award designated, the action was dismissed.

Disability Benefit Claims

Second Circuit

Nall v. Hartford Co., No. 22-49, __ F. App’x __, 2023 WL 2530456 (2d Cir. Mar. 16, 2023) (Before Circuit Judges Raggi, Wesley, and Menashi). Plaintiff-appellant Ashley Nall filed for long-term disability benefits in 2019 based on her allegedly disabling symptoms of Meniere’s disease. The plan’s insurance provider, Hartford Life and Accident Insurance Company, denied the claim, finding Ms. Nall’s symptoms not so severe as to render her unable to perform the essential functions of her occupation as an intake coordinator. In the district court, summary judgment was granted to Hartford under arbitrary and capricious standard of review. Ms. Nall subsequently appealed that ruling to the Second Circuit. In this unpublished decision the Second Circuit affirmed the ruling of the district court. The court of appeals concluded that “Hartford’s denial of Nall’s claim for benefits under the Plan was not without reason, was supported by substantial evidence, and was not erroneous as a matter of law.” In particular, the Second Circuit highlighted how Hartford relied on medical records of at least five medical professionals, including Nall’s own treating physician, to reach its conclusions. Even Ms. Nall’s own testimony regarding her symptoms, the court found, could be construed as bolstering Hartford’s position that she could perform sedentary tasks. The appeals court also held that objective test results further supported a finding that Ms. Nall was not totally disabled as defined by the plan. Finally, the Second Circuit disagreed with Ms. Nall’s position that Hartford failed to consider the episodic character of the vertigo her disease caused. In sum, the court of appeals felt that it could not disturb Hartford’s conclusions because the insurance company had reasonable bases for its conclusion, regardless of whether evidence in the record supported the conclusion that Ms. Nall is disabled, and for that reason the district court’s order was affirmed.

Third Circuit

Stein v. Paul Revere Life Ins. Co., No. 21-3546, 2023 WL 2539004 (E.D. Pa. Mar. 16, 2023) (Judge Juan R. Sanchez). Dr. Eric Stein is a physician who specialized in interventional radiology. Given the nature of his practice, Dr. Stein wore heavy leaded personal protective apparel daily. Either as a result of donning these weighted lead vests, or at least exacerbated by them, Dr. Stein began experiencing pain in his back and legs and started having severe mobility issues. Although he had been experiencing back pains and spinal problems since 2009, he did not seek treatment for these issues until 2011. From that time on, Dr. Stein’s physical ailments progressively worsened. By summer 2018, Dr. Stein was left unable to continue working. His treating physicians scheduled spinal surgery and diagnosed him with permanent musculoskeletal conditions. These doctors highlighted the occupational hazard of the lead vests he had worn throughout his career. Dr. Stein applied for disability benefits under his ERISA plan insured by defendant Paul Revere Life Insurance Company. Paul Revere approved the benefits for losses due to sickness and began issuing Dr. Stein monthly benefits of $6,480. Importantly, by designating Dr. Stein’s disability the result of illness, rather than injury, Paul Revere was able to decrease the benefits on October 15, 2020, to a monthly benefit of $648 under the policy’s lifetime payment of benefits rider which entitled claimants to only 10% of their original benefit for a sickness after an initial 30-month period. Under this same rider, disability caused by an injury allows for the full monthly disability benefits for life. Dr. Stein appealed this decision, and ultimately filed this action seeking a court order reversing Paul Revere’s classification. He got just that in this decision wherein the court granted summary judgment in his favor and determined that the cause of his permanent disability “was an accidental bodily injury.” The court agreed with Dr. Stein that his spinal conditions were the result of repetitive stress injuries from wearing the lead apron during procedures for over 30 years, and that “Paul Revere’s interpretation of the LTD policy (was) fundamentally flawed because it excludes repetitive trauma injuries from the definition of ‘injury.’” Finally, the court denied Dr. Stein’s request for attorneys’ fees under Section 502(g)(1). It determined, “The merits of the parties’ positions here were relatively balanced and the Court recognizes other courts, including in the Third Circuit, may disagree with this decision.” As the other factors it analyzed did “not counsel in favor of an award of attorneys’ fees and costs,” the fee request was denied.

Fourth Circuit

Krysztofiak v. Boston Mut. Life Ins. Co., No. DKC 19-879, 2023 WL 2537537 (D. Md. Mar. 16, 2023) (Judge Deborah K. Chasanow). Last September, the court issued an order and opinion granting in part defendant Boston Mutual Life Insurance Company’s motion for summary judgment in this ERISA disability benefits action. The court relied on precedent in the Fourth Circuit in Gagliano v. Reliance Standard Life Ins. Co., 547 F.3d 230 (4th Cir. 2008), to decide that Boston Mutual may rely on a basis other than the one it initially applied to the denial when evaluating plaintiff Dana Krysztofiak’s long-term disability benefit claim on remand. Here, that new basis was a Special Conditions Limitation Rider, which did not even exist at the time of the benefit termination. Nevertheless, the court held that under Gagliano ERISA’s focus on the written plan document requires a remand to the insurance company so that a plaintiff may not obtain benefits through the judicial system that he or she would otherwise not be entitled to under the terms of the policy. Represented by new counsel from Kantor & Kantor following the death of her previous legal representative in this action, Ms. Krysztofiak moved for reconsideration under Rule 54(b). Her motion was denied in this order, under much the same reasoning as used in the court’s September 16th order. Once again, the court concluded that it was bound by Gagliano, no matter how many bites at the apple the insurance company has taken to date. Simply put, a court may not order an insurance company to pay benefits under an ERISA plan if that payment is contrary to the terms of the plan, even as here, when those terms are shifting. Accordingly, Boston Mutual will now once again evaluate Ms. Krysztofiak’s claim for disability benefits on remand.

Sixth Circuit

Masevice v. Life Ins. Co. of N. Am., No. 1:22CV223, 2023 WL 2534042 (N.D. Ohio Mar. 16, 2023) (Judge Christopher A. Boyko). Plaintiff Rebecca Masevice filed this action after defendant Life Insurance Company of North America (“LINA”) terminated her long-term disability benefits when her policy’s definition of disability transitioned from unable to perform the essential functions of her own occupation to any occupation. Ms. Masevice is disabled from neurological and cardiological conditions, including postural orthostatic tachycardia syndrome (“POTS”), migraine, and cluster headaches. The parties filed cross-motions for judgment on the administrative record. Ultimately, the court denied both motions and remanded to LINA for additional fact-finding. In particular, the court concluded that an in-person independent medical examination (“IME”) needed to be conducted and that an IME was crucial in order to fully develop the record and to establish whether Ms. Masevice remains disabled under the policy’s broader definition of “any occupation” disability. This was true, the court emphasized, because the review standard here was de novo under which “a court’s review is limited to the administrative record as it existed when the plan administrator made its final decision.” Simply put, the court found the record currently underdeveloped for Ms. Masevice to be able to prove by a preponderance of evidence that she met her plan’s definition of disabled. “The Court is not a medical specialist and the disability determination is not the Court’s to make.”

Seventh Circuit

Snapper v. Unum Life Ins. Co. of Am., No. 1:21-cv-02116, 2023 WL 2539242 (N.D. Ill. Mar. 16, 2023) (Judge Elaine E. Bucklo). Although plaintiff Joseph Snapper had a history of back and leg problems dating back to as early as 2008, a car accident in 2016 was really the straw that broke his already strained back. Two years later, Mr. Snapper, an attorney at Mayer Brown LLP, started taking leaves of absence from work to try and address his pain, and by the following year, 2019, Mr. Snapper stopped working altogether and applied for disability benefits under his plan administered by Unum Life Insurance Company of America. Unum initially granted the claim and began issuing monthly benefits in August 2019. Meanwhile, Mr. Snapper underwent an exhaustive series of spinal surgeries, pain treatments, physical therapy sessions, and medical testing and exams. Nothing improved his condition, and several of the attempted treatments had the opposite effect. However, looking at this same medical history, Unum’s hired reviewer, a family medicine doctor, concluded that Mr. Snapper could meet the essential requirements of his occupation, and on July 17, 2020, Unum terminated Mr. Snapper’s benefits. This litigation followed an unsuccessful administrative appeal. With the record fully developed, the parties cross-moved for summary judgment. In this order the court granted Mr. Snapper’s summary judgment motion and denied Unum’s cross-motion under de novo review. The court found the medical record proved by a preponderance of evidence that Mr. Snapper was disabled from performing the functions of his legal career and was therefore disabled as defined by his plan. The court particularly focused on the cognitive abilities necessary to practice law and wrote, “Unum devotes virtually no attention to the evidence pertaining to Snapper’s inability vel non to perform the cognitive aspects of his occupation.” Regardless, the court found “ample evidence in the record supporting the conclusion that Snapper’s pain prevented him from performing the cognitive functions listed in Mayer Brown’s job description.” The court also held that substantial evidence within the medical record demonstrated that Mr. Snapper could not perform the physical aspects of his work as an attorney, including “sitting, standing, and walking to the degree demanded by his work.” In sum, the court found the record painted a clear and consistent picture of a man whose quality of life was upended by his pain. Thus, the court granted summary judgment in Mr. Snapper’s favor and restored the status quo by reinstating benefits.

Eighth Circuit

Radle v. Unum Life Ins. Co. of Am., No. 4:21CV1039 HEA, 2023 WL 2474509 (E.D. Mo. Mar. 13, 2023) (Judge Henry Edward Autrey). On May 4, 2016, plaintiff Michael Radle suffered a head injury when he fell while he was out running and hit his head on a concrete sidewalk. As is often the case with traumatic brain injuries, Mr. Radle did not really begin to suffer any adverse neurological symptoms or effects from the fall until a few days later, on May 8, at which time he went to the emergency room. At the ER Mr. Radle was diagnosed with “conversion disorder,” a psychological condition, which the court noted is “most often seen in women and people who had a previous psychiatric diagnosis.” Mr. Radle’s symptoms would only worsen over the coming year, and his original diagnosis was determined to be a mis-diagnosis. Several neurologists treating Mr. Radle would later attest that Mr. Radle’s neurological and cognitive symptoms were the result of post-concussive syndrome from his traumatic brain injury caused by his May 2016 fall. By August 15, 2017, Mr. Radle was disabled to the extent that he could no longer work, and on August 25, 2017, he submitted a claim for long-term disability benefits with Unum. His claim was approved by Unum on March 12, 2018. However, Unum limited Mr. Radle’s benefits to 24 months under his plan’s limitation for mental illnesses, and on May 12, 2020, Unum terminated Mr. Radle’s benefits for exhausting the payable benefits under the mental illness limitation. Mr. Radle appealed. During the appeals process, Unum relied on information that was not provided to Mr. Radle and upheld its determination. Mr. Radle subsequently initiated this lawsuit, asserting claims under ERISA Sections 502(a)(1)(B) and (a)(3). Unum moved for partial summary judgment on Mr. Radle’s breach of fiduciary duty claim pursuant to Section 502(a)(3), in which Mr. Radle argued he was denied a full and fair review under the Department of Labor’s updated 2018 regulation mandating that insurers provide claimants with the materials and evidence used to make the determination so that they may comment on the documents relied upon. Unum argued that “these subsections of the Regulations cannot provide the basis for Plaintiff’s breach of fiduciary duty claim since they were not in effect at the time Plaintiff filed his claim for benefits.” The court agreed, writing, “[u]nder ERISA, the date that a claimant requests benefits is the applicable date to determine what procedures apply.” Thus, the court held that the pre-2018 regulations were applicable to Mr. Radle’s appeal of his benefit denial, and under those he “was not entitled to receive, and be given an opportunity to comment on, the additional evidence considered in the appeal.” Accordingly, the court found that Unum was entitled to judgment on the claim.

Discovery

Sixth Circuit

Sweeney v. Nationwide Mut. Ins. Co., No. 2:20-cv-1569, 2023 WL 2549549 (S.D. Ohio Mar. 17, 2023) (Judge James L. Graham). Participants of the Nationwide Mutual Insurance Company’s defined contribution plan brought this ERISA action alleging breach of fiduciary duty, prohibited transaction, and inurement of plan assets against Nationwide Mutual and other plan fiduciaries. The parties have been actively engaged in a discovery dispute. Although they were continuing to meet and confer, the parties informed the Magistrate Judge during a conference that they were at an impasse regarding three proposed Electronically Stored Information (“ESI”) search strings relating to the method by which defendants make determinations about the crediting rate for the challenged Nationwide guaranteed investment fund (“GIF”), the fund at the center of the action. Following briefing on the topic, and after hearing from the parties on the conference call, “the Magistrate Judge found that Plaintiffs satisfied the necessary threshold showing of relevance because the information related to the method by which Defendants determine the crediting rate of the GIF is relevant to Plaintiffs’ claims.” Accordingly, the court granted plaintiffs’ motion and ordered the parties to engage in the ESI process with these search strings. Defendants timely objected. In this order, the court overruled the objections and left the Magistrate’s discovery order undisturbed. It found nothing clearly erroneous in the Magistrate’s factual findings, and that defendants’ objections “lack[ed] merit.” The court found the requirements of Federal Rule of Civil Procedure 7(b)(1)(A), including its requirement that a motion be made in writing unless made during a hearing, “amply satisfied.” Finally, the court agreed with the Magistrate Judge that the proposed searches were relevant to the breach of duty of loyalty claims and Defendants’ statutory defenses.

ERISA Preemption

Second Circuit

Park Ave. Podiatric Care, PLLC v. Cigna Health & Life Ins. Co., No. 22 Civ. 10312 (AKH), 2023 WL 2478642 (S.D.N.Y. Mar. 13, 2023) (Judge Alvin K. Hellerstein). Plaintiff Park Avenue Podiatric Care, P.L.L.C., sued Cigna Health and Life Insurance Company asserting state law claims for breach of contract, unjust enrichment, promissory estoppel, and violation of New York’s prompt payment law seeking payment for foot surgeries it provided to a patient who was a beneficiary of an ERISA plan insured by Cigna. Cigna moved to dismiss the complaint. It argued that the state law claims were expressly preempted by ERISA section 514(a). The court agreed and granted the motion. Specifically, the court concluded that Park Ave. Podiatric Care’s right to converge derived directly from the terms of the ERISA plan, as Cigna informed the provider that under the plan it would pay 80% of the usual and customary rate. Moreover, the court held the $7,199 payment that was made to Park Ave. Podiatric Care was adjudicated under the terms of the plan and that it was therefore “clear on the face of the Complaint that Plaintiff’s claims derive from coverage determinations made pursuant to a health benefit plan regulated by ERISA.” Thus, the court ruled that the state law claims could not be decided without consulting and referencing the plan, and therefore fell within ERISA preemption’s broad borders.

Ninth Circuit

Stoddart v. Heavy Metal Iron, Inc., No. 2:22-cv-01532-DAD-DB, 2023 WL 2524313 (E.D. Cal. Mar. 14, 2023) (Judge Dale A. Drozd). Last May, plaintiff Michael Stoddard filed a lawsuit in state court against his former employer, Heavy Metal Iron, Inc., and several individual defendants for violations of California labor laws and the Private Attorneys General Act of 2004 (“PAGA”) on behalf of himself, the Labor Workforce Development Agency, and other employees employed by defendants who worked in non-exempt positions and also suffered a wage and hour violation. Based on the PAGA causes of action, defendants removed the complaint to federal court arguing that the Labor Management Rights Act (“LMRA”) and ERISA preempt the claims. Specifically, defendants argued that although Mr. Stoddard’s employment was not covered by a collective bargaining agreement, some of the employees he asserts these claims on behalf of are. Additionally, defendants argued that some of these employees were also part of a joint apprenticeship program which was governed by ERISA. Mr. Stoddard disagreed with defendants’ preemption arguments and moved to remand his action back to state court. The court agreed with Mr. Stoddard that it did not have federal jurisdiction over the complaint and granted the motion to remand. It found defendants’ preemption arguments misplaced as neither LMRA nor ERISA applied directly to Mr. Stoddard, especially as Mr. Stoddard was not subject to a qualifying collective bargaining agreement and because defendants did not “argue that plaintiff was a participant or beneficiary of an employee benefit plan.”

Medical Benefit Claims

Tenth Circuit

L.L. v. Anthem Blue Cross Life, No. 2:22CV208-DAK, 2023 WL 2480053 (D. Utah Mar. 13, 2023) (Judge Dale A. Kimball). Plaintiff L.L., on behalf of his minor daughter, filed this action against his employer, DLA Piper LLP, his healthcare plan, the DLA Piper Welfare Benefit Plan, and the plan’s claims administrator, Anthem Blue Cross Life and Health Insurance Company, after his daughter’s stay at a residential treatment program was denied as “investigational” under the plan’s policy addressing wilderness programs. In his complaint, L.L. asserted three causes of action: a claim for recovery of benefits under Section 502(a)(1)(B), a violation of the Mental Health Parity and Addiction Equity Act under Section 502(a)(3), and a claim for statutory penalties under Sections 502(a)(1)(A) and (c). Defendants moved to dismiss L.L.’s second and third causes of action. The court granted their motion in this order. First, the court concluded that L.L. had failed to plead a Parity Act violation because the policy designating wilderness programs investigational specifically applied to both medical conditions and behavioral health/mental health disorders. L.L.’s other theories about disparities within the plan between mental health exclusions and permitted analogous medical treatments were determined by the court to be irrelevant here because they were “not the basis for the denial of benefits in this case.” Finally, the court dismissed the claim for statutory penalties for failure to provide documents upon request because L.L. requested documents from Anthem, the claims administrator, and not from DLA Piper, the plan administrator. The court held that Anthem and DLA Piper are separate legal entities and Anthem is therefore not the agent of DLA Piper and not required to honor document requests from claimants. Accordingly, following these dismissals, plaintiff is left only with his claim for benefits.

Pension Benefit Claims

Second Circuit

Guzman v. Bldg. Serv. 32BJ Pension Fund, No. 22-cv-01916 (LJL), 2023 WL 2526093 (S.D.N.Y. Mar. 14, 2023) (Judge Lewis J. Liman). In this decision the court granted the motion of Building Service 32BJ Pension Fund and the other individual defendants to dismiss pro se plaintiff Carlos Guzman’s ERISA lawsuit for failure to state a claim for relief. The court agreed with defendants that Mr. Guzman’s monthly pension benefits were calculated properly under defendants’ interpretation of terms of the plan. Furthermore, the court concluded that Mr. Guzman was given a full and fair administrative appeal hearing. Because he was given a full and fair review and the plan grants defendants discretionary authority, the court held that the abuse of discretion review standard applied here. Under deferential review, the court found that defendants’ calculation of benefits was based on a reasonable interpretation of plan language and therefore it could not be disturbed. This was true, the court concluded, because there “is no dispute here that Plaintiff continued to work in Disqualifying Employment after his Normal Retirement Age of sixty-five prior to the Required Beginning Date.” Accordingly, the motion to dismiss was granted.

Pleading Issues & Procedure

Fifth Circuit

Harmon v. Shell Oil Co., No. 3:20-cv-00021, 2023 WL 2474503 (S.D. Tex. Mar. 13, 2023) (Magistrate Judge Andrew M. Edison). Three current or former employees of Shell Oil Company who are participants of Shell’s defined contribution plan, the Shell Provident Fund 401(k) Plan, brought this lawsuit alleging breaches of fiduciary duties. As part of their action, plaintiffs demanded a jury trial. Shell moved to strike the jury demand. It argued that plaintiffs are not entitled to a jury trial under the Seventh Amendment because their claims and remedies are equitable in nature. Plaintiffs opposed the motion to strike. They argued that although their claims would have historically been decided in the courts of equity in 18th century England, they nevertheless have a right to a jury trial because their claim under Section 1132(a)(2) involves compensatory damages, which they asserted are “the classic form of legal relief.” Furthermore, plaintiffs argued that 29 U.S.C. § 1109(a) allows for appropriate “equitable or remedial relief,” which they argued meant that relief is not limited to equitable relief but also may include the “traditional legal remedy of ‘losses to the plan.’” The court, however, disagreed. It interpreted Supreme Court precedent to conclude that plaintiffs’ request for surcharge “(i.e., make-whole) relief” is equitable in nature. Thus, the court aligned itself with the majority of district courts who have weighed in on this issue and held that monetary remedies to remedy a breach of a fiduciary duty are equitable and not legal in nature. The court therefore granted Shell’s motion and struck plaintiffs’ jury demand.

Sixth Circuit

McClure v. K&K Ins., No. 6:22-CV-092-CHB-HAI, 2023 WL 2480728 (E.D. Ky. Mar. 13, 2023) (Judge Claria Horn Boom). At the beginning of the school year in 2016, former high school student Martina McClure was “assaulted by another student on school grounds, which caused her to ‘suffer severe and permanent injuries, including traumatic brain injuries.’” Martina incurred and continues to incur significant medical bills because of the assault. Her treatments were covered by her father’s ERISA-governed health insurance plan established by Central States Health & Welfare Fund. Plaintiff Donna McClure is a guardian for Martina. Attempting to hold the school responsible, Ms. McClure sued several school employees for the assault. Her claims were settled through payment by a casualty insurer. Central States then asserted a statutory lien against the settlement proceeds under the plan’s subrogation provision. Under the Central States plan, “any other policy providing specific risk coverage bears primary responsibility for the insured’s losses.” At the time of the assault, the school was insured by Zurich American Insurance Group through a blanket accident policy administered by K&K Insurance Group. Ms. McClure directed healthcare providers to bill K&K Insurance Group for the medical treatments they provided to Martina. However, K&K has not paid these costs, and has denied the claims. On April 28, 2022, Ms. McClure filed her complaint against Zurich and K&K under ERISA and state law. Defendants subsequently filed motions to dismiss the complaint. They argued that the state law claims are preempted by ERISA, that the claims are time-barred by a contractual limitations period, and that Ms. McClure otherwise failed to state her claims. To begin, the court disagreed with defendants that Ms. McClure’s state law claims were preempted by ERISA. The court wrote that while it was true that Ms. McClure referenced the Central States plan in her complaint in the counts other than her ERISA claim, she was “really challenging Zurich’s actions under the insurance policy…meaning the first step of the preemption test is not satisfied.” Additionally, the court stated that defendants could not show that no other independent legal duty existed because “Plaintiff alleges that the Defendants ‘breached a duty that stems from the insurance contract, not from the ERISA plan.’” Regardless, the court agreed with defendants that Ms. McClure’s claims were untimely. It observed that the complaint affirmatively showed that the claims were time-barred. The court stated that the insurance policy referenced in the complaint provided it with the relevant information necessary to determine that the claims were untimely. In other words, the court disagreed with Ms. McClure that it was premature to address whether the complaint was time-barred based on a contractual limitation provision, because the unambiguous terms of that provision made clear that she only had three years to bring a complaint. “Martina’s injury occurred on September 16, 2016, and because Plaintiff did not file in this Court until April 28, 2022, her claims are untimely.” Finally, the court found Ms. McClure’s dispute of the validity of the provision cursory, perfunctory, and “too underdeveloped to constitute a real challenge to the enforceability of the limitations period.” For this reason, the motions to dismiss were granted, and the complaint was dismissed with prejudice.

Retaliation Claims

Sixth Circuit

Murray v. City of Elizabethton, No. 2:21-CV-123-TAV-CRW, 2023 WL 2530936 (E.D. Tenn. Mar. 15, 2023) (Judge Thomas A. Varlan). At the end of 2020 and in early 2021 COVID-19 vaccines were a rare commodity. As a result, when the City of Elizabethton in Tennessee held a mass vaccination event on December 23, 2020, for eligible individuals employed by Carter County, Tennessee, there was a lot of tension over who received a vaccine that day. That tension is the center of this retaliation lawsuit wherein former Deputy Chief of Elizabethton’s fire department, plaintiff Aubrey Murray, alleges he was demoted and then forced to retire after he received criticism for his wife and son getting vaccinated at the event. Mr. Murray argued that his family did not receive preferential status to get vaccinated, as his son was also an employee of the county, and because he did not create or influence the list of eligible employees. Mr. Murray suspected his wife’s name got on the list as she had done years of volunteer work for the county. Regardless, he argued the adverse employment actions against him were motivated at least in part by a desire to interfere with and reduce his generous pension and was a violation of ERISA Section 510. Finally, Mr. Murray argued that his employer’s actions violated his First and Fourteenth Amendment rights, and that Elizabethton’s actions constituted common law retaliatory discharge. Defendants moved to dismiss and for summary judgment. Their motions were granted in part and denied in part. First, the court denied the motion to dismiss Mr. Murray’s First and Fourteenth Amendment claims. The court agreed with Mr. Murray that the public had an interest “as to how employers were investigating employees accused of wrongdoing in connection to the vaccines,” and construing the allegations as true the court stated that it could infer that Elizabethton’s actions violated Mr. Murray’s freedoms of speech and intimate association. However, Mr. Murray’s ERISA retaliation claim was dismissed because his pension plan is an exempt governmental plan and therefore not governed by ERISA. His common law retaliatory discharge claim was also dismissed. Finally, one of the individual defendants, Mr. Murray’s supervisor, was granted summary judgment because of qualified immunity.

Subrogation/Reimbursement Claims

First Circuit

Verizon Sickness & Accident Disability Benefit Plan for New Eng. Assocs. v. Rogers, No. 1:21-CV-00110-MSM-PAS, 2023 WL 2525208 (D.R.I. Mar. 15, 2023) (Judge Mary S. McElroy). A participant of Verizon, Inc.’s disability benefits plan, non-party Jacqueline Rogers, was struck in an automobile accident leaving her too injured to continue working. Ms. Rogers went on disability leave and was paid $44,962.50 in disability benefits. After she had been paid these benefits, Ms. Rogers settled with the insurer of the at-fault driver for a lump sum of $100,000. She was represented by attorney Richard M. Sands, and the settlement proceeds were disbursed to the Sands firm. Verizon filed this action against Mr. Sands seeking reimbursement of the disability benefits paid to Ms. Rogers pursuant to the summary plan description’s subrogation clause. In response, Mr. Rogers filed counterclaims against Verizon. The parties cross-moved for summary judgment. The court began by evaluating plaintiff’s Section 502(a)(3) claim against Mr. Sands. As a preliminary matter, the court was satisfied that the summary plan description was a part of the plan and that the subrogation clause within it created an automatic equitable lien. This was particularly true, the court held, because the clause was “written in language as intelligible to laypersons as insurance policies get.” Furthermore, the court agreed with plaintiff that the lien could be enforced against a non-participant attorney who collected settlements from a third party for the plan beneficiary who had received benefits. However, the court ultimately did not grant summary judgment in favor of either party on this claim because the issue of whether this action is an equitable or legal one can only be resolved by answering a question of fact, i.e., whether the settlement proceeds have been completely disbursed on nontraceable items. Therefore, both the plaintiff’s and defendant’s motions for summary judgment on this cause of action were denied. The court then analyzed Mr. Sands’ counterclaims for violation of § 1024(b)(4) and tortious interference with contract. It granted summary judgment in favor of Verizon on both counts, holding that “§ 1024 on its face does not require production of ‘employment records,’ which is what the Sands request sought,” and what both claims were ultimately premised on.

Winsor v. Sequoia Benefits & Ins. Servs., LLC, No. 21-16992, __ F.4th __, 2023 WL 2397497 (9th Cir. Mar. 8, 2023) (Before Circuit Judges Bress and VanDyke, and Judge Jane A. Restani (Ct. Int’l Trade))

Standing has always been an important issue in ERISA class actions, and has become even more important since the Supreme Court’s decision in Thole v. U.S. Bank N.A., 140 S. Ct. 1615, 207 L. Ed. 2d 85 (2020). The big question after Thole has been whether and how that ruling would be extended to prevent benefit plan participants from challenging the actions of plan fiduciaries. In this week’s notable decision, the Ninth Circuit addressed this issue in the context of a Multiple Employer Welfare Arrangement (MEWA).

The plaintiffs were current and former employees of tech company RingCentral who participated in RingCentral’s welfare benefits plan. The RingCentral plan participated in a “Tech Benefits Program,” which was a MEWA administered by defendant Sequoia Benefits and Insurance Services. The Program “pools assets from more than 180 employer-sponsored plans into a trust fund for the purpose of obtaining insurance benefits for employees at large-group rates that may otherwise be unattainable for individual employer plans.”

The RingCentral plan was funded by contributions from both RingCentral and its employees. RingCentral decided which benefits to offer and how much employees would contribute toward each benefit. These funds were then sent to Sequoia, which “selected the insurance benefits that would be made available to employers, negotiated the cost of any given benefit with the insurance provider, and determined how much each employer plan must contribute to the Tech Benefits Program’s trust fund in exchange for the plan participants’ selected benefits.”

Sequoia paid the insurance costs and fees out of the trust fund, maintained in the name of the Program, which was funded by contributions from the RingCentral plan. In turn, Sequoia received commissions from the companies from which it purchased insurance for participating plan participants.

Plaintiffs challenged this arrangement in their putative class action. They alleged that Sequoia breached its fiduciary duties under ERISA to the RingCentral plan “in two ways: (1) by receiving and retaining commission payments from insurers, which plaintiffs regard as kickbacks; and (2) by negotiating allegedly excessive administrative fees with insurers, which led to higher commissions for Sequoia.” In an amended complaint, plaintiffs argued that these breaches “injured them by requiring plaintiffs to pay higher contributions toward their benefits and by allegedly interfering with plaintiffs’ purported equitable ownership interest in the Tech Benefits Program trust fund.” Plaintiffs requested that Sequoia’s “improper profits” be disgorged to the plan participants, or alternatively reimbursed to the RingCentral plan.

The district court dismissed the action, “concluding that plaintiffs had not alleged sufficient facts indicating that Sequoia’s conduct led plaintiffs to pay higher contributions or to receive fewer benefits.” Thus, plaintiffs lacked Article III standing to bring their suit in the first place. Plaintiffs appealed.

The Ninth Circuit separated plaintiffs’ arguments into two theories of recovery. The first theory was that “Sequoia’s actions allegedly caused plaintiffs to pay higher contributions for their insurance, and that eliminating Sequoia’s commissions and reducing administrative fees would therefore have lowered plaintiffs’ payments.”

However, the Ninth Circuit held, “The problem with plaintiffs’ theory is that plaintiffs have not pleaded facts tending to show that Sequoia’s alleged breach of fiduciary duty led to plaintiffs paying higher contributions.” The court noted that RingCentral made all decisions regarding which benefits would be offered to employees, and what contributions would be required for those benefits.            Plaintiffs were required to establish a connection between Sequoia’s actions and their contributions, but RingCentral’s intermediary actions broke that connection: “Plaintiffs have not alleged that RingCentral has changed or would change employee contribution rates based on Sequoia’s alleged breaches of fiduciary duty, or that employee contribution rates are tied to overall premiums.”

The Ninth Circuit further rejected plaintiffs’ argument that such a connection could be inferred. There was no “specific formula or set of factors” used by RingCentral to determine what contributions would be required, and in fact some benefits did not require any employee contributions at all. As a result, plaintiffs were unable to prove the causation element of Article III standing.

For similar reasons, the Ninth Circuit further ruled that plaintiffs’ two theories of redressability were also inadequate. Even assuming that ERISA permitted plaintiffs’ theory of constructive trust relief, “plaintiffs do not explain how a court could place Sequoia’s ‘ill-gotten profits’ directly into plaintiffs’ pockets when plaintiffs have not alleged how a court could identify the discrete ‘profits’ supposedly owed to them, given RingCentral’s discretion in setting employee contribution amounts and the manner in which RingCentral exercised this discretion.”

The court also rejected plaintiffs’ other theory of redressability – awarding damages to the plan itself – because it was foreclosed by the court’s prior decision in Glanton ex rel. ALCOA Prescription Drug Plan v. AdvancePCS Inc., 465 F.3d 1123 (9th Cir. 2006). In Glanton, the court held that “any one-time award to the plans for past overpayments [would not] inure to the benefit of participants” because employers “would be free to reduce their contributions or cease funding the plans altogether until any such funds were exhausted.” The court stated, “That same logic applies here…. There is thus no basis for plaintiffs’ assertion that, if the RingCentral plan received money from Sequoia, the plan would ‘likely’ remit that money to plaintiffs.”

The Ninth Circuit then turned to plaintiffs’ second standing theory, which was that they retained an equitable ownership interest in the Tech Benefits Program’s trust fund, and thus, as beneficiaries of that fund, they had “standing to pursue relief such as surcharge or disgorgement, even if they suffered no tangible out-of-pocket loss.”

The court held that this argument ran afoul of the Supreme Court’s decision in Thole. In Thole, the plaintiffs “had pointed to trust law principles and contended that ‘an ERISA defined-benefit plan participant possesses an equitable or property interest in the plan.’” Thus, a fiduciary duty breach “itself harms ERISA defined-benefit plan participants, even if the participants themselves have not suffered (and will not suffer) any monetary losses.” The Supreme Court rejected this theory, holding that “plan participants possess no equitable or property interest in the plan,” and thus they were required to show how the alleged breach concretely affected them.

The Ninth Circuit found Thole analogous. “Although the Tech Benefits Program is not a defined-benefit pension plan, it similarly provides a fixed set of benefits as promised in plan documents.” The plaintiffs’ benefits do not “increase or decrease depending on the management of trust assets.” The plaintiffs were not “entitled to receive the funds held by the program,” and instead were only “contractually entitled to the insurance benefits that Sequoia agreed to purchase for them with the program’s funds – benefits that plaintiffs have received.” Because the plaintiffs had received all of the benefits to which they were entitled, the court found that they had not suffered a concrete harm. As a result, the district court’s order granting Sequoia’s motion to dismiss was affirmed in its entirety.

It is unclear what impact this case will have. As the Ninth Circuit noted, this case is unusual because the plaintiffs did not sue RingCentral, or even the RingCentral benefit plan. Instead, “This case is less typical because the plaintiffs are leapfrogging the RingCentral plan and seeking to recover directly from Sequoia, a management and insurance brokerage company that is a step removed from the contributions plaintiffs pay and the benefits they receive.” Furthermore, in a footnote the Ninth Circuit dodged the issue of whether Sequoia was even a fiduciary under ERISA. One thing is clear, however: the fallout from Thole continues, and this decision will likely be cited by plan administrators and fiduciaries in future cases seeking to escape liability on standing grounds.

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

Arbitration

Third Circuit

Burnett v. Prudent Fiduciary Servs., No. 22-270-RGA, 2023 WL 2401707 (D. Del. Mar. 8, 2023) (Judge Richard G. Andrews). On January 25, 2023, Magistrate Judge Jennifer L. Hall issued a report and recommendation in this breach of fiduciary duty class action brought by the participants of the Western Global Airlines, Inc. Employee Stock Ownership Plan recommending the court deny defendants’ motion to compel arbitration. Magistrate Hall reasoned that the arbitration provision contained a clause improperly banning participants from exercising their ERISA-protected right to seek plan-wide relief, and because this clause was non-severable, Magistrate Hall found the arbitration provision itself unenforceable. Very shortly after the recommendation was issued, the Tenth Circuit “on a complaint alleging the same theories as in the instant case, and with essentially the same arbitration agreement, thoroughly analyzed the same issues and came to the same conclusion as the Magistrate Judge did,” in Harris v. Envision Mgmt. Holding, Inc. Bd. of Directors. (Harris was the notable decision in our February 15, 2023 issue.) Defendants filed objections to the Magistrate’s recommendation. The court reviewed the Magistrate’s recommendation de novo and found it “persuasive” and “prescient,” given the Tenth Circuit’s ruling in Harris. Accordingly, the objections were overruled, the report and recommendation was adopted in full, and the motion to compel arbitration was denied.

Breach of Fiduciary Duty

First Circuit

Brown v. The MITRE Corp., No. 22-cv-10976-DJC, 2023 WL 2383772 (D. Mass. Mar. 6, 2023) (Judge Denise J. Casper). Six plan participants, on behalf of themselves and a putative class, filed a two-count complaint against The MITRE Corporation, its board of trustees, and the investment advisory committee for breaches of the duties of prudence and monitoring in connection with its two “jumbo plans,” the Tax Sheltered Annuity Plan and the Qualified Retirement Plan, which combined had at least $3.5 billion in assets and over 20,000 participants during the relevant period. Plaintiffs alleged that defendants breached their duty of prudence by adopting a revenue sharing approach to plan fees, which resulted in per participant fees of up to $80. In addition, plaintiffs challenged defendants’ retention of two recordkeepers, TIAA and Fidelity, for at least 14 years despite the allegedly unnecessary costs of doing so, and also argued that the committee was imprudent by failing to regularly solicit or conduct requests for proposals at reasonable intervals throughout the class period. Finally, plaintiffs alleged that the plans’ use of three higher cost share classes of funds that had otherwise identical institutional options available also constituted a breach of the duty of prudence. In addition to these imprudent actions, the plan participants also argued that the board breached its fiduciary duty to monitor by failing to evaluate or scrutinize the performance of the investment committee, to the participants’ detriment. Defendants moved to dismiss the complaint. The court declined to dismiss either cause of action. It was satisfied that plaintiffs were sufficiently comparing the fees of the challenged plans with those of at least ten other similarly sized plans. Given this, the court stated that it could infer imprudence and a derivative breach of the duty of monitoring, especially as the complaint focused on defendants’ failure to leverage the substantial size and bargaining power of the plan to obtain the same services and investments for lower costs. However, the court did grant defendants’ motion to dismiss with regard to one of the six named plaintiffs, whom the court agreed was barred from filing this action against these defendants by the doctrine of issue preclusion, as he had previously filed a similar lawsuit which was dismissed for lack of subject matter jurisdiction. Nevertheless, defendants’ motion to dismiss was denied in all other respects, and this fiduciary breach action will carry on.

Sixth Circuit

Sigetich v. The Kroger Co., No. 1:21-cv-697, 2023 WL 2431667 (S.D. Ohio Mar. 9, 2023) (Judge Timothy S. Black). Plaintiff Lisa Sigetich, on behalf of a proposed class of plan participants, sued the fiduciaries of The Kroger Co. 401(k) retirement Savings Accounts Plan for breaching their fiduciary duties by overpaying and failing to negotiate for lower fees to be paid to the plan’s service provider, Merrill Lynch. Ms. Sigetich maintained that the per participant recordkeeping fee was excessive when compared to other similarly sized plans and included information in her complaint to suggest that Merrill Lynch provided a standard package of bundled administrative and recordkeeping services comparable to all other packages of plan administration services. Defendants moved to dismiss, and the Chamber of Commerce of the United States of America filed an amicus curiae brief in support of the fiduciaries of this mega defined contribution plan. To begin, the court held that Ms. Sigetich plausibly alleged standing to assert her two claims, breach of the fiduciary duty of prudence and breach of the duty to monitor. Viewing all plausible inferences in favor of Ms. Sigetich, the court concluded that her excessive fee allegations were adequate to infer an injury-in-fact traceable to the alleged misconduct. Next, the court took a look at the sufficiency of the complaint’s pleading of the fiduciary breach claims. Giving due regard to all of the range of possible reasonable judgments a plan fiduciary could make, the court concluded that Ms. Sigetich failed to plausibly state claims for relief. Moreover, the court agreed with defendants that Ms. Sigetich’s comparisons were “handpicked plans from one single year,” and therefore inapt benchmarks to determine the appropriateness of the plan’s costs. The court also took issue with Ms. Sigetich’s position that the services rendered by Merrill Lynch were typical of the level and quality of all recordkeeping and administrative services provided by service providers to a plan of this size. “[W]hen the Court takes a careful, context-sensitive scrutiny of the comparable plans, Plaintiff’s suggestion that minor variations are immaterial is not plausible.” For these reasons, the court concluded that it could not infer imprudence, a flawed oversight process, or mismanagement on behalf of the plan’s fiduciaries. Accordingly, the motion to dismiss was granted, and the action was dismissed with prejudice.

Seventh Circuit

Hensiek v. Bd. of Dirs. of Casino Queen Holding Co., No. 20-cv-377-DWD, 2023 WL 2374371 (S.D. Ill. Mar. 6, 2023) (Judge David W. Dugan); Hesiek v. Bd. of Dirs. of Casino Queen Holding Co., No. 20-cv-377-DWD, 2023 WL 2411143 (S.D. Ill. Mar. 8, 2023) (Judge David W. Dugan). In two decisions this week, the court denied a collection of motions to dismiss, motions for judgment on the pleadings, and summary judgment motions filed by the defendants in this breach of fiduciary duty and prohibited transaction litigation involving the sale of a riverboat gambling company’s stock to its Employee Stock Ownership Plan (ESOP). Specifically, plaintiffs outlined several interrelated activities which they aver constituted violations of ERISA. First, plaintiffs alleged that the selling shareholders attempted to sell Casino Queen to various third parties from 2005 to 2011, but were unsuccessful due to the casino’s declining success and rising competition in the geographic area. Unable to go this route, the defendants undertook another path to accomplish their goals. To begin, in October 2012, the selling shareholders created a holding company for Casino Queen. Then, the selling shareholders exchanged their Casino Queen Stock for the holding company’s stock and placed themselves on the newly formed board of the holding company. Subsequently, in December 2012, the shareholders and the holding company established the Casino Queen ESOP and facilitated the terms of the ESOP stock purchase of the holding company’s outstanding stock for $170 million. In order to finance this transaction, the ESOP borrowed $130 million from Wells Fargo, $15 million from an unnamed third party, and $25 million from the defendants at the “draconian interest rate” of 17.5%. Following the 2012 stock purchase, the ESOP proceeded to sell all of the Casino Queen’s real estate to a third party gambling company, Gaming and Leisure Properties, Inc., for $140 million. Plaintiffs alleged that the real value of these assets totaled only about $12.1 million. Then, and perhaps most astoundingly, Casino Queen leased back the property it had just sold for $140 million at the price of $210 million, to be paid over 15 years (more annually than what plaintiffs claimed the properties were worth). Defendants argued the purpose of this sale was to pay off the ESOP’s outstanding loans owed to the selling shareholders, and that once the selling shareholders’ loans were fully repaid in 2014, two of the defendants relinquished their board memberships. Finally, plaintiffs provided examples of the ways in which defendants took actions to obscure the truth from them and the Department of Labor. Thus, they claim it was not until 2019 that they learned what had occurred. They filed their lawsuit shortly after. Regarding the motions before the court, the court took the broad position that inferences needed to be drawn in favor of the plaintiffs at this early junction in the case. In doing so, the court determined that plaintiffs adequately stated claims and that those claims were timely. The court did not take kindly to defendants’ gamesmanship. Accordingly, this may not be an instance where the house always wins, or at least not before the benefit of discovery.

Lucero v. Credit Union Ret. Plan Ass’n, No. 22-cv-208-jdp, 2023 WL 2424787 (W.D. Wis. Mar. 9, 2023) (Judge James D. Peterson). Participants in a jumbo multi-employer pension plan, the Credit Union Retirement Plan Association 401(k) Plan, have sued the plan’s fiduciaries for breaching their fiduciary duties. In particular, they contend that defendants failed to control the plan’s costs. Defendants moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Concluding that plaintiffs stated plausible claims, the court denied the motion to dismiss. As a preliminary matter, the court concluded that defendants’ arguments that each participant only had standing limited to the fees directly charged to them was premature, expressing, “Courts do not dismiss parts of claims at the pleading stage.” Next, the court evaluated whether plaintiffs put defendants on notice of their claims and whether they alleged plausible facts which suggest they are entitled to relief. It concluded they had on both their breach of duty of prudence claim and their derivative breach of duty to monitor claim. This was especially true, because “plaintiffs don’t know the process the fiduciary used to determine the fees paid for recordkeeping and administration, so plaintiffs must rely on circumstantial allegations to support a plausible claim.” The fact that the plan’s per participant fees were as high as $271 during the class period suggested to the court that the fiduciary process defendants engaged in was flawed and potentially imprudent. Additionally, the court was satisfied that plaintiffs provided adequate benchmarks and comparisons needed in order to state their claims. It stated, “the plaintiffs allege in this case that defendants’ recordkeeping fees are approximately 10 times higher than the fees of plans with a similar number of participants. That difference is much larger than the disparity alleged in Albert. A cheaper plan isn’t necessarily better…but the difference is so significant that it provides some basis for inferring that defendants are using an imprudent process to choose investments.” Accordingly, this class action will proceed past the pleading stage.

Disability Benefit Claims

Second Circuit

Israel v. Unum Life Ins. Co. of Am., No. 1:21-cv-4335-GHW, 2023 WL 2390873 (S.D.N.Y. Mar. 7, 2023) (Judge Gregory H. Woods). On January 27, 2023, Magistrate Judge James L. Cott issued a report recommending the court grant in part and deny in part Unum Life Insurance Company of America’s motion to dismiss plaintiff Jessica Israel’s complaint for failure to exhaust administrative remedies. Specifically, Magistrate Cott found in favor of Ms. Israel on her long-term disability benefit claim, concluding that she had effectively exhausted and taken the proper steps to appeal, while Unum failed to comply with ERISA’s regulations in its review of the disability claim. To rectify this, the Magistrate recommended that the long-term disability decision be remanded to Unum for a full and fair review. However, the report also recommended that Ms. Israel’s claim for waiver of premium benefit be dismissed because “nothing in the record suggests that Israel… attempted to appeal the May 21 decision with respect to WOP benefits.” The Magistrate also recommended that Ms. Israel’s claim for attorney’s fees be considered at a later point in the case. Both parties timely objected to portions of the report. Unum argued that the report erred as the record demonstrated that Ms. Israel failed to exhaust her administrative remedies under the long-term disability plan and Ms. Israel’s counsel’s letter to Unum did not constitute an adequate notice of appeal and should not be treated as one. Ms. Israel objected “to the Report’s determination that an application for attorney’s fees would be premature at this time.” She argued that remand was enough success on the merits to warrant an award of fees under ERISA Section 502(g)(1). The Court reviewed the report and recommendation de novo and agreed “with Judge Cott’s thoughtful and well-reasoned analysis and conclusions in full and therefore adopt[ed] the Report in its entirety.” Regarding Unum’s objection, the court wrote that the “appropriate question is not whether Unum might have considered the June 1, 2018, letter as an administrative appeal, but whether Unum was required to consider it an administration appeal.” As for Ms. Israel’s objection, the court stated that it did not understand the report to suggest that the remedy of remand was the reason that fees were premature. Instead, it wrote that because the case is being remanded to Unum for further consideration “the full degree of Plaintiff’s success will turn on the outcome of the appeal process on remand. It is in the interest of judicial economy to resolve any fee application after Defendant has completed its review.” Thus, for the foregoing reasons the report was adopted in full.

Schuyler v. Sun Life Assurance Co. of Can., No. 20 CIVIL 10905 (RA), 2023 WL 2388757 (S.D.N.Y. Mar. 7, 2023) (Judge Ronnie Abrams). Plaintiff Kristen Schuyler was employed by Benco Dental Supply Company from May 2011 until May 2019, when she stopped working due to disabling symptoms from a traumatic brain injury she sustained in 2015. Ms. Schuyler applied for long-term disability benefits under the company’s ERISA-governed benefit plan insured by Sun Life Assurance Company of Canada. Her claim was denied by Sun Life which determined that she was not totally disabled from performing the duties of her own occupation as defined by the plan. Ms. Schuyler began the process of administratively appealing the denial of her claim, which is presently worth approximately $1.2 million. Meanwhile, on December 12, 2019, Ms. Schuyler signed a separation agreement and release with Benco Dental. Before signing the document, Ms. Schuyler sought clarification that signing would not interfere with her ability to appeal her long-term disability denial with Sun Life. She attests that Benco Dental’s answers to her questions on this point assured her that signing the agreement would not limit her ability to receive long-term disability benefits from Sun Life. However, Ms. Schuyler did sign the agreement, which included the following statement: “Employee of her…own free will, voluntarily releases…any and all known and unknown actions…arising out of or limited to, any alleged violation of…the Employee Retirement Income Security Act of 1974 (‘ERISA’).” By signing the document and receiving a payment of $25,000, the court ruled that Ms. Schuyler had lost her ability to bring this civil action against non-signatory Sun Life to challenge her denial. The court concluded that contrary to Ms. Schuyler’s “self-serving statements made after the fact,” she knowingly and voluntarily waived her right to bring an ERISA civil suit, against not only Benco Dental but also against Sun Life, by signing the separation agreement. Accordingly, the court granted summary judgment in favor of Sun Life.

ERISA Preemption

First Circuit

Medicaid & Medicare Advantage Prods. Ass’n of P.R. v. Hernandez, No. 20-1760 (DRD), 2023 WL 2399713 (D.P.R. Mar. 8, 2023) (Judge Daniel R. Domínguez). A collection of health insurance companies and Medicaid and Medicare Advantage products providers sued Puerto Rico’s Attorney General and Insurance Commissioner seeking declaratory and injunctive relief against the enforcement of two Acts passed in 2020, which set new and more protective standards for healthcare plans throughout Puerto Rico, including ERISA, Medicare, Medicaid, and Federal Employees Health Benefit (“FEHB”) plans. Specifically, the Acts impose obligations on the insurance companies relating to the timing of the reimbursement of submitted medical claims, prohibiting providers from altering medical criteria regarding patients’ treatments, mandating insurers provide continuing coverage for prescribed prescription drugs, and setting standards for payments to pharmacies. In essence these Acts were designed to prohibit health insurance providers from having ultimate control over how medicine is practiced in Puerto Rico, including by defining “medical necessity” as being determined exclusively by the professional judgment of the treating physicians “as long as providers conform with generally accepted standards of medical practice.” Plaintiffs argued that the Acts interfere with healthcare plan operation and are therefore preempted by the federal programs’ preemption clauses, and moved for judgment on the pleadings. The attorney general and the insurance commissioner opposed the motion. It was their position that the federal legislations’ preemption clauses do not preempt either Act because “the Government is exercising its historic and traditional police power to ensure the health and safety of the citizens and residents of Puerto Rico.” Accordingly, the court’s role was to determine whether the preemption clauses of FEHB, ERISA, Medicare Advantage, and Medicare Part D apply to and preempt “the Commonwealth’s attempts to regulate how these plans operate.” In this order, it concluded that they did and granted plaintiffs’ motion for judgment. In particular, the court found that Acts would necessarily regulate the operations of the plans governed by these federal programs and that they were precisely the types of state laws that were directly encompassed by each preemption provision. Further, the court disagreed with defendants that the Acts only had a tenuous or tangential connection with ERISA and FEHB plan administration. The court focused on the Supreme Court’s decision in Gobeille v. Liberty Mut. Ins. Co. and found instructive its conclusion that “requiring ERISA administrators to master the relevant laws of 50 States and to contend with litigation would undermine the congressional goal of ‘minimizing the administrative and financial burdens’ on plan administrators – burdens ultimately borne by the beneficiaries.” Accordingly, the court agreed with the challengers that these Acts relate to and interfere with plan administration. Thus, the court granted the motion and entered declaratory judgment that the Acts in the Puerto Rico Insurance Code were expressly preempted by the Medicare Advantage program, Medicare Part D, FEHB, and ERISA.

Hussey v. E. Coast Slurry Co., No. 20-11511-MPK[1], 2023 WL 2384018 (D. Mass. Mar. 6, 2023) (Magistrate Judge M. Page Kelley). Plaintiff Virginia Hussey sued her former employer, East Coast Slurry Co, LLC, her former union, International Operating Engineers Local 4, and her former apprenticeship school, Hoisting and Portable Engineers Apprenticeship and Training Program, for gender discrimination, sexual harassment, and retaliation. Defendants previously argued that the school is governed by ERISA and that ERISA accordingly preempts Ms. Hussey’s state law claims. On summary judgment the court rejected these arguments. The School subsequently moved in limine to dismiss. Its motion was again premised on ERISA preemption. Further, even in the absence of ERISA preemption, it argued that the 180-day statute of limitation applied to Ms. Hussey’s Title VII claim. The motion was denied in this order “except that the School may renew its ERISA preemption argument, if renewal is supported by the evidence and verdict.” The court otherwise declined to revisit the issue of ERISA preemption pre-trial.

Ninth Circuit

Russell v. S. Cal. Permanente Med. Grp., No. 22-cv-1930-W-JLB, 2023 WL 2436005 (S.D. Cal. Mar. 9, 2023) (Judge Thomas J. Whelan). Last August, plaintiff Laura Russell sued her former employer, Kaiser Permanente, in San Diego Superior Court asserting 13 causes of action including wage and hour and overtime violations and a claim under California’s labor code for forced patronage, alleging that Kaiser forced employees to partake in its own health benefits program. The Kaiser defendants removed the action to federal district court. They argued that Ms. Russell’s state law claims were preempted by the Labor Management Relations Act (“LMRA”) and ERISA. Ms. Russell held the opposite view, and moved to remand the case back to state court on the ground that the federal laws do not preempt her claims and the court therefore lacks federal-question jurisdiction. The court agreed with Ms. Russell and granted her motion. First, the court stated that contrary to Kaiser’s position, resolution of Ms. Russell’s state law claims would not require interpretation of the terms of the Collective Bargaining Agreement. Second, the court held that Ms. Russell’s forced patronage claim was not preempted by ERISA. The text of California Labor Code 450(a), the court stated, “does not act immediately and exclusively upon ERISA plans and the law could operate even if ERISA plans did not exist.” Furthermore, the court wrote that “whether the Aggrieved Employees were unlawfully forced to purchase insurance under section 450(a) is not related to ‘a fundamental ERISA function,’” and therefore would not interfere with plan administration. At most, the court felt that resolution of the state labor law claim had a tenuous connection to an ERISA plan. Thus, the court concluded that ERISA did not preempt the claim, and as the court concluded that LMRA also did not preempt Ms. Russell’s causes of action, the court found there was no basis for federal subject matter jurisdiction over the complaint.

Pleading Issues & Procedure

Ninth Circuit

Zavala v. Kruse, No. 1:19-cv-00239-ADA-SKO, 2023 WL 2387513 (E.D. Cal. Mar. 7, 2023) (Judge Ana de Alba). Plaintiff Armando Zavala filed this putative class action in early 2019 alleging that defendants GreatBanc Trust Company, Western Milling, LLC, Kruse-Western Inc., Kruse-Western’s board of directors, the company’s administration committee, and individual Doe defendants violated ERISA by manipulating the value of Kruse Western stock and orchestrating the sale of the stock to the company’s Employee Stock Ownership Plan (“ESOP”) for a price that far exceeded fair market value. Since filing his complaint, Mr. Zavala filed a first amended complaint, and then moved to file a second amended complaint. In his second amended complaint, Mr. Zavala sought to add defendants he had previously referred to only as Doe defendants, and to add claims pertaining to the restructuring of Western Milling which occurred less than a week before the ESOP transaction. Mr. Zavala argued that these activities were directly related to one another and could be viewed as steps of a larger interrelated scheme. In addition to Mr. Zavala’s motion to file a second amended complaint, the company defendants moved to seal information they maintained was confidential and proprietary. These two motions were referred to the Magistrate Judge, who issued a report and recommendation advising the court to grant both motions. The Kruse-Western defendants objected to the portion of the Magistrate’s recommendation recommending the court grant Mr. Zavala’s motion. In this order, the court overruled defendants’ motion and adopted the Magistrate’s recommendation in full. Specifically, the court agreed that the new allegations were directly tied to the ESOP transaction set out in the original pleading. These events, the court expressed, were unified as part of “a multi-step integrated transaction that took place in 2015.” Thus, the court held that Mr. Zavala adequately demonstrated that the second amended complaint directly relates back to the original pleading and therefore satisfied the requirements of Federal Rule of Civil Procedure 15(c). Additionally, the court held that the new defendants received timely notice of the action and should have known that they were the flagged Doe individuals the action was asserted against “but for a mistake concerning the proper party’s identity.” Accordingly, the court held that the newly identified board members and selling shareholders were not prejudiced. Finally, the remainder of defendants’ arguments were viewed by the court as a premature motion to dismiss the complaint. The court stated that “any factual disputes are not appropriately resolved at this stage of the proceedings.” For these reasons, the court concluded that it would allow amendment of the complaint.

Provider Claims

Second Circuit

Murphy Med. Assocs. v. Centene Corp., No. 3:22-cv-504-VLB, 2023 WL 2384143 (D. Conn. Mar. 6, 2023) (Judge Vanessa L. Bryant). An out-of-network healthcare provider, Murphy Medical Associates, LLC d/b/a Diagnostic and Medical Specialists of Greenwich, LLC sued two insurance providers, WellCare Health Insurance of Connecticut, Inc. and New York Quality Healthcare Corporation, and their parent company, Centene Corporation, for failing to reimburse it for COVID-19 diagnostic testing. In its complaint, Murphy Medical alleges that from the time it began providing COVID-19 testing in March 2020 to the filing of this action, it provided services to over 35,000 patients for whom it has received very little or no reimbursement from defendants. Murphy Medical asserted eight causes of action under ERISA, state law, the Affordable Care Act (“ACA”), the Families First Coronavirus Response Act (“FFCRA”) and the Coronavirus, Aid, Relief, and Economic Security Act (the “CARES Act”). Defendants moved to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and (b)(6). Defendants’ motion was granted without prejudice in this decision. To begin, the court found that Murphy Medical did not satisfy the pleading standard to present evidence that it was an assignee of benefits, because it did not present any of the “contracts upon which the Court could determine whether there was a valid assignment of benefits.” Furthermore, the court concluded that plaintiff failed to establish a prima facie showing that the court has personal jurisdiction over defendants New York Quality Healthcare Corporation or Centene Corporation (both foreign corporations without a principal place of business in the state of Connecticut) under Connecticut’s long-arm statute. The court therefore dismissed the claims against these two defendants pursuant to Federal Rule of Civil Procedure 12(b)(1). With those initial matters out of the way, the court proceeded to evaluate the sufficiency of the claims. It first addressed the claim brought under the CARES Act and FFCRA. Agreeing with “virtually every district court that addressed” the issue, the court concluded that neither Act provides a private right of action. The court wrote that Murphy Medical’s “criticism of the conclusion reached by the vast majority of district courts that have addressed this question focuses on strained in between-the-lines reading of the Acts.” Thus, taking the path more traveled, the court found plaintiff failed to state a claim under FFCRA and the CARES Act. The court similarly concluded that Congress did not create a private right of action under the ACA provision requiring health insurance providers to cover emergency services without pre-authorization. “District courts that have addressed whether this provision of the ACA provides a private right of action have all concluded it does not.” This claim too was dismissed. With regard to plaintiff’s claims asserted under ERISA, the court agreed with defendants that Murphy Medical’s claims under ERISA had to be dismissed because it “failed to set forth specific factual allegations that the coverage claims at issue arise under health plans subject to ERISA.” Accordingly, the court agreed with defendants that the complaint did not put them on notice of what claims were and were not violations of ERISA. Finally, having dismissed the federal causes of action, the court declined to exercise supplemental jurisdiction over the state law causes of action. However, because dismissal was without prejudice, plaintiff was given 42 days from the date of this decision to amend their complaint and replead in a manner which addresses and rectifies these identified deficiencies.

Third Circuit

Genesis Lab. Mgmt. v. United Health Grp., No. 21cv12057 (EP) (JSA), 2023 WL 2387400 (D.N.J. Mar. 6, 2023) (Judge Evelyn Padin). In this action, a diagnostic laboratory, plaintiff Genesis Laboratory Management LLC, sued UnitedHealth Group, Inc., United Healthcare Services, Inc., and Oxford Health Plans, Inc. for failing to reimburse it for COVID-19 and other testing services it provided to 51,000 individuals who are participants or beneficiaries of defendants’ health benefit plans. In its six-count complaint, Genesis asserted causes of action under the Families First Coronavirus Response Act (“FFCRA”), the CARES Act, breach of implied contract, breach of the covenant of good faith and fair dealing, unjust enrichment, quantum meruit, promissory estoppel, and two New Jersey insurance and healthcare laws. Defendants moved to dismiss, challenging the sufficiency of Genesis’s complaint. Their motion was granted, in part with prejudice and in part without prejudice, in this order. The court held that Genesis’s first cause of action asserted under the CARES Act and FFCRA could not survive the motion to dismiss, agreeing with its sister courts’ conclusion that neither CARES nor FFCRA creates a private right of action for a healthcare provider to sue. The court rejected Genesis’s argument that the Acts create an implied private right of action and disagreed that “it would be ‘illogical’ for Congress to give providers a personal right to payment without also giving them a remedy to enforce that right.” Without any direct substantive evidence that Congress intended to create a private remedy, the court stated it would not infer one. For this reason, the court dismissed without prejudice count one of the complaint. Next, the court found Genesis’s remaining state law claims, based on defendants’ failure to fully reimburse it for the testing services, were preempted by ERISA. The court agreed with defendants that these claims were “aimed at recovering ERISA-governed benefits,” and that “ERISA would provide the only available remedy.” It disagreed with Genesis that this was a lawsuit where defendants’ obligation to reimburse it was set by the terms of FFCRA and the CARES Act, rather than the terms of the ERISA plans. At the very least, the court stated that the coronavirus relief laws were “intended to interlock with ERISA,” and therefore fall under the board umbrella of “relating to” ERISA plans. Thus, “this Court finds that Section 6001 of the FFCRA and Section 3202 of the CARES Act must be considered together with ERISA because they impose legal requirements on ERISA plans.” However, the court wrote that to the extent plaintiffs’ state law claims relate to non-ERISA plans, those claims are not preempted. Nevertheless, the court concluded that the current complaint does not adequately distinguish between ERISA and non-ERISA plans and therefore currently fails to state claims. For this reason, dismissal of the state law causes of action was without prejudice, and Genesis may replead these claims with regard to any non-ERISA plan.

Withdrawal Liability & Unpaid Contributions

Third Circuit

Allied Painting & Decorating, Inc. v. Int’l Painters & Allied Trades Indus. Pension Fund, No. 3:21-cv-13310, 2023 WL 2384150 (D.N.J. Mar. 1, 2023) (Judge Peter G. Sheridan). In 2017, twelve years after plaintiff Allied Painting & Decorating, Inc.’s obligation to contribute to the International Painters and Allied Trades Industry Pension Fund ended, the Fund sent the contributing employer a demand letter for withdrawal liability. Allied challenged this demand and argued that the withdrawal liability demand was barred by laches “after an approximate 10-year delay between the resumption of work after withdrawal by Allied, and the time of notification by the Fund to Allied that it is subject to withdrawal liability.” The parties thus engaged in arbitration over this dispute, and on June 4, 2021, the arbitrator issued a final award in the amount of $427,195.00 in favor of the Fund and against the employer. The arbitrator concluded that the employer’s destruction of documents constituted a failure to diligently search for records and found that the delay on behalf of the Fund did not prejudice it, especially as Allied likely financially benefitted from the delay in making the payments. Thus, the laches objection was denied. Unsatisfied with this ruling, Allied commenced this lawsuit. The Fund sought to confirm the award and Allied sought to vacate the award. In this order, the award was vacated. The court concluded that the arbitrator minimized the employer’s testimony, and improperly concluded that the employer was not prejudiced by the Fund’s unreasonable delay. In addition, the court stated that the arbitrator provided no authority to support its conclusion that prejudice could be mitigated by financial advantages or economic benefits for the employer. Further, the court stated that the arbitrator clearly erred by finding Allied’s harm “entirely hypothetical,” which was a standard the court found to be again “contrary to case law.” Finally, the court questioned the authenticity of the collectively bargained agreement the arbitrator relied upon. Accordingly, the court found that “[t]he cumulation of the above… amounts to a reasonable appearance of bias against Allied and results in deprivation of a fair hearing.” The arbitration award was thus vacated.

This week we could not play favorites among the many interesting ERISA decisions. Keep reading to hear about two “meritless goat” decisions, the latest update in the du Pont family pension saga, and a case in which fiduciaries to a multi-employer pension plan allegedly engaged in much wrongdoing, including charging for services after they were terminated. 

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

Attorneys’ Fees

Ninth Circuit

Abrams v. Unum Life Ins. Co. of Am., No. C21-0980 TSZ, 2023 WL 2241996 (W.D. Wash. Feb. 27, 2023) (Judge Thomas S. Zilly). A successful disability plaintiff, William Abrams, moved for an award of attorneys’ fees and costs pursuant to ERISA Section 502(g)(1). The court granted in part Mr. Abrams’ motion in this decision. As an initial matter, the court wrote that Mr. Abrams “has achieved considerable success on the merits,” and thus was eligible for an award of fees. The court then weighed the Ninth Circuit’s Hummell factors. Although the court agreed with Unum that it did not act in bad faith, it nevertheless felt that “an award of fees could deter other plan administrators from denying coverage based on a lack of a unifying diagnosis, rather than focusing on the question of whether the plaintiff is sick.” Further supporting an award of fees were Mr. Abrams’ success on the merits and Unum’s ability to satisfy a fee award. Thus, the court concluded that on balance Mr. Abrams deserved an award of attorneys’ fees, especially given ERISA’s remedial purposes designed to protect participants of employee benefit plans. Nevertheless, the court did decide to give the fee award a slight “haircut,” finding the trim appropriate here given Unum’s lack of bad faith and the fact that Mr. Abrams “only carried his burden by a small margin.” With these preliminary conclusions out of the way, the court proceeded to analyze Mr. Abrams’ requested lodestar. Mr. Abrams sought a fee award of $243,958 based on an hourly rate of $715 and 314.5 hours spent. The court felt an hourly rate of $715 was too high and rejected the arguments of Mr. Abrams’ counsel that this rate was justifiable given Unum’s counsel’s hourly rate of $930. Instead, the court concluded that an hourly rate of $550 was reasonable for experienced ERISA practitioners in the Seattle area. However, the court did not reduce the requested 314.5 hours. It stated that the complexities of the case justified the time spent. After applying the reduced hourly rate and the 10% overall trim, the court reached a fee award totaling $166,650 and awarded Mr. Abrams this amount. It also awarded him his requested $2,353.75 in costs. Finally, the court granted Unum’s request to stay the fee award pending appeal upon its filing of a supersedeas bond of 125% of the total fee and cost award.

Breach of Fiduciary Duty

Second Circuit

Ruilova v. Yale-New Haven Hosp., No. 3:22-cv-00111-MPS, 2023 WL 2301962 (D. Conn. Mar. 1, 2023) (Judge Michael P. Shea). Two participants of a 403(b) defined contribution plan – the Yale-New Haven Hospital and Tax Exempt Affiliates Tax Sheltered Annuity Plan – have brought this action against the Yale-New Haven Hospital, the hospital’s board of trustees, plan’s committees, and individual Doe defendants for breaches of fiduciary duties of loyalty, prudence, and monitoring in connection with the administration of the plan. Specifically, plaintiffs alleged that the fiduciaries of the plan violated their duties by paying excessively high administrative and recordkeeping fees, maintaining an imprudent suite of actively managed target date funds and other imprudent investment options, offering an overall excessively expensive investment menu, and not acting in the exclusive and best interest of the plan participants. Defendants moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). They challenged plaintiffs’ standing as well as the sufficiency of their asserted claims. As an initial matter, the court concluded that the named plaintiffs had Article III standing to assert their claims, even with regard to the specific investment vehicles they never personally invested in. “Regardless of whether they would have standing on their own to assert claims about funds in which they did not invest, they may assert class claims regarding such funds on behalf of absent class members if the conduct that injured them implicates the same set of concerns as the conduct that injured the members of the proposed class.” The court was satisfied that plaintiffs had alleged that they were harmed by the same conduct as all of the proposed members of the class, and that requiring more in an ERISA class action would stymie participants’ ability to exercise ERISA-protected rights to challenge fiduciary misconduct. Having established that plaintiffs had standing to bring their claims, the court turned to analyzing whether plaintiffs had sufficiently stated their claims. The court came to a mixed conclusion. First, it found that plaintiffs had not stated a claim for breach of prudence related to the plan investments. It agreed with defendants that plaintiffs took the position that actively managed funds were per se imprudent based on their higher associated costs and greater associated risks. Active management, the court stressed, does not create an inference of imprudence. And because plaintiffs’ comparisons were for relatively short periods of time and were comparisons of passively managed funds to the challenged actively managed ones, the court concluded that even accepting plaintiffs’ allegations it could not decipher what defendants knew when or whether similarly situated fiduciaries would have acted differently. For much the same reason, plaintiffs’ claims predicated on the plan’s overall expense ratios were also determined by the court to be insufficiently pled. “As noted above, ERISA plans may offer actively or passively managed funds… Plaintiffs have failed to plead any facts supporting their allegation that the Plan’s (total plan cost) resulted from an imprudent process and is not just a consequence of its investment in actively managed funds.” However, plaintiffs’ claims of imprudence based on the excessive fees for services were not dismissed. There, the court held plaintiffs plausibly alleged that defendants paid too much for the services it received when compared to similar sized plans receiving similar services, stating that “[c]ourts in this Circuit have consistently found that allegations of this kind are sufficient to state a claim.” Nevertheless, the court did dismiss plaintiffs’ breach of duty of loyalty claim also premised on the same fees. In that regard it found that plaintiffs had not alleged facts indicating that defendants were acting in their own self-interest, but rather that defendants were negligent. Lastly, the court denied the motion to dismiss the derivative claims to the extent that it denied the dismissal of the underlying claims but granted the motion to dismiss all claims pled in the alterative. For these reasons, defendants’ motion was granted in part, and plaintiffs will be allowed to proceed with at least some of their class action.

Third Circuit

Wright v. Elton Corp., No. C.A. 17-286-JFB, 2023 WL 2351822 (D. Del. Mar. 3, 2023) (Judge Joseph F. Bataillon). The trustees and qualified employers of the Mary Chichester duPont Clark Pension Trust filed motions to reconsider the court’s January 5, 2023 decision in which it determined that the plan was severely underfunded and was not being operated in compliance with ERISA. Plaintiff T. Kimberly Williams opposed the motions, and the trustees and the qualified employers each opposed the other’s motion. The qualified employers argued that they should not be deemed fiduciaries of the plan and that the court erred by defining them as plan sponsors. The trustees in their motion argued that the court erred by determining that they were plan administrators, and challenged that they could be held liable for the underfunding “because the legal obligation under ERISA to make minimum required contributions to the trust belongs to the employers, not the trustee of the trust.” Moreover, the trustees argued that they could not be held liable for failing to send ERISA-mandated notices to beneficiaries. In opposing, Ms. Williams argued that both the employers and the trustees could be deemed plan administrators based on their actions administering the plan. Further, she argued that because the plan did not designate an administrator, all entities that performed plan administration functions can be held liable for penalties as the plan administrator. Finally, Ms. Williams maintained that there was no clear error that the trustees were jointly and severally liable along with the qualified employers for the underfunding “because that holding is a straightforward application of two of ERISA’s civil enforcement provisions,” Sections 502(a)(2) and (a)(3). As an initial matter, the court expressed that “[f]or the most part, the issues raised in the reconsideration motions were exhaustively briefed by the parties previously and…addressed and rejected by the Court in earlier orders.” Additionally, the court stated that it need not adopt defendants’ “hyper-technical application of ERISA concepts and standards to the pension trust at issue as if the instrument at issue were originally set up as an ERISA plan. Rather, in this action, the Court has endeavored to observe and follow the spirit and structure of ERISA in fashioning an equitable remedy, in light of ERISA and common law duties and powers of trustees and employers.” In that spirit, the court stood by its previous findings of fact and conclusions of law. Thus, the court remained resolute in its previous positions, and disagreed with defendants that there were any clear errors in its earlier holdings. Accordingly, the motions for reconsideration were both denied.

Fourth Circuit

Tullgren v. Hamilton, No. 1:22-cv-00856-MSN-IDD, 2023 WL 2307615 (E.D. Va. Mar. 1, 2023) (Judge Michael S. Nachmanoff). In this decision the court concluded that a plan participant’s amended complaint in a putative breach of fiduciary duty class action was a “meritless goat,” and granted the fiduciaries’ motion to dismiss before it with prejudice. Plaintiff Michael Tullgren filed this action on August 1, 2022. He alleged that the fiduciaries of the Booz Allen Hamilton Inc. Employees’ Capital Accumulation Plan – defendants Booz Allen Hamilton Inc., the board of trustees of Booz Allen Hamilton Inc., and the administrative committee of the plan – employed a flawed process overseeing and managing the plan by selecting, retaining, and failing to monitor or remove a suite of costly and poorly performing BlackRock Target Date Funds, to the detriment of the participants. The case was dismissed by the court last October. It held then that the complaint was circumstantial and conclusory, and lacking in meaningful comparisons “from which the Court may reasonably infer that the decision to retain BlackRock was the product of a flawed decisionmaking process.” Mr. Tullgren was then given the opportunity to amend his complaint to address the identified deficiencies. Mr. Tullgren subsequently filed an amended complaint, adding the S&P Target Date Indices and Sharpe ratio as additional benchmarks demonstrating the target date fund suite’s severe underperformance. Defendants once again moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). The court then heard oral argument on the motion on February 3, 2023. In this order the court dismissed the action. It stated that all Mr. Tullgren alleged was underperformance of the funds. “Plaintiff has provided no factual allegations from which the Court may reasonably infer that the choice of the BlackRock TDFs was imprudent from the moment the administrator selected it, that the BlackRock TDFs became imprudent over time, or that the BlackRock TDFs were otherwise clearly unsuitable for the goals of the fund based on ongoing performance. The addition of the Sharpe ratio and S&P Index to the Amended Complaint does not alter this analysis, as these are merely additional measurements of investment performance. That the Sharpe ratio is alleged to analyze performance on a risk-adjusted basis is therefore immaterial. ERISA simply does not provide a cause of action for fiduciary breaches based solely on a fund participant’s disappointment in the fund’s performance.” Thus, the court concluded that selecting and maintaining the challenged suite fell within the range of reasonable judgments that a fiduciary overseeing a plan may make, and accordingly found that Mr. Tullgren had not stated any facially plausible claims of imprudence, disloyalty, failure to monitor, or knowing participation in a breach of trust.

Hall v. Capital One Fin. Corp., No. 1:22-cv-00857-MSN-JFA, 2023 WL 2333304 (E.D. Va. Mar. 1, 2023) (Judge Michael S. Nachmanoff). In a nearly identical decision to the one he issued in Tullgren v. Hamilton above, Judge Nachmanoff likewise dismissed with prejudice a suit by two participants in another plan challenging the selection and retention of the BlackRock Target Date Fund suite in the Capital One Financial Corporation Savings Plan. Here, exactly like in Tullgren, the court concluded that it could not infer a breach of any fiduciary duty and that this amended complaint too was conclusory, circumstantial, and premised solely on the BlackRock suite’s underperformance. Accordingly, with the same words and same logic as Tullgren, this putative class action was not allowed to proceed past the pleading stage.

Seventh Circuit

Dale v. NFP Corp., No. 20-CV-02942, 2023 WL 2306825 (N.D. Ill. Mar. 1, 2023) (Judge John F. Kness). A defined contribution multi-employer pension plan, The Northern Illinois Annuity Fund and Plan, and its board of trustees on behalf of the Plan and its participants, sued NFP Corporation, the plan’s service provider until late 2017, and other related individuals and entities for breaching their fiduciary duties under ERISA during the time when they exercised control over the plan and its assets. Among other things, the trustees alleged that defendants engaged in so-called “churning” of bonds, a process referring to excessively trading bonds at a high volume for mark-ups, including by selling bonds before they mature, at losses. According to their complaint, defendants were identified by the Securities and Exchange Commission “as financial advisors who were selling structured products before maturity.” In addition to this practice, the plaintiffs allege that defendants failed to reveal and disclose relevant information about fees they were receiving and other financial incentives they had when recommending the plan invest in certain options. Nor did defendants adequately issue reports on investment performance, and according to the trustees, defendants actively misled them about whether some of the investments were liquid. In all, plaintiffs pled thirteen separate counts of breach of fiduciary duty against the defendants. Defendants moved to dismiss. They argued that many of the claims were barred by ERISA’s statute of limitations. Defendants also challenged the sufficiency of the claims. Finally, defendants argued that they were not fiduciaries or not acting as fiduciaries with regard to several of plaintiffs’ claims. Mostly, the court declined to dismiss the complaint as untimely. With a few small exceptions, the court adopted the Seventh Circuit’s “continuing-violation theory,” and found that the injuries were the result of repeated decisions each causing harm independent of one another. However, plaintiffs’ claims regarding defendants’ initial investment recommendations, which occurred between 2004 and 2009, were found to be untimely. For the remaining claims, the court evaluated whether they were sufficiently stated in a manner in which it could infer fiduciary breaches. The court dismissed some, but not all, of plaintiffs’ claims of fiduciary wrongdoing. Some claims, including those relating to related share classes, undisclosed fee arrangements with third parties, and the selection of multiple money managers, were dismissed because the court viewed them to be “bald assertions” without adequate comparisons or necessary establishing facts and details. However, the court found many of plaintiffs’ other allegations allowed it to infer imprudence, disloyalty, and prohibited transactions. These included plaintiffs’ claims relating to the bond churning, the false statements and material omissions about the investments, the fees defendants charged the plan after the trustees had terminated their relationship, and defendants’ alleged failure to properly maintain records relating to the plan and the plan participants. Finally, the court declined to partake in the fact-finding necessary to determine whether the defendants were fiduciaries, and if so at what times and for what actions. At the pleading stage, the court was satisfied that plaintiffs had sufficiently alleged that defendants were fiduciaries and their actions during the alleged breaches were fiduciary in nature. Thus, as explained above, the motion to dismiss was granted in part and denied in part.

Class Actions

Sixth Circuit

Dover v. Yanfeng US Auto. Interior Sys. I, No. 2:20-CV-11643-TGB-DRG, 2023 WL 2309762 (E.D. Mich. Mar. 1, 2023) (Judge Terrence G. Berg). In Your ERISA Watch’s November 2, 2022 newsletter, we summarized Judge Berg’s October 25 decision granting preliminary approval of a class action settlement in this case alleging breaches of fiduciary duties regarding the management of the Yanfeng Automotive Interior Systems Savings and Investment 401(k) Plan. “The specific breaches of duties Plaintiff complained of included selection and retention of imprudent investment options; failure to investigate more prudent investment options; failure to prevent excessive record-keeping fees; failure to ensure that other fiduciaries managing the funds were qualified; failure to ensure the other fiduciaries had adequate resources; and failure to maintain adequate records.” In this decision, the court granted final approval of $990,000 class action settlement and dismissed the case. Relying on its previous analysis and following the class action settlement fairness hearing held last month, the court reaffirmed its holdings that the class satisfied the requirements of Rule 23. And once again, the court found the settlement itself was the product of informed good faith negotiations and was fair, adequate, and reasonable. In this instance, the court stated that not only were no objections voiced to the settlement, but dozens of class members “expressed approval of the settlement.” Additionally, the court found the requested attorneys’ fees in the amount of $330,000 or one third of the common fund, costs of just under $30,000, and incentive awards of $7,500 for each of the three named plaintiffs, to be standard, just, and fair compensation for the work done in this complex ERISA litigation undertaken on a contingent fee basis. The court also found that the settlement notice and distribution procedures were proper and compliant with all relevant regulations. Finally, the court approved the plan of allocation, and ordered the settlement administration to calculate and distribute the settlement proceeds in proportion to each class members’ balances as laid out in the agreement. In sum, the court wrote, “the settlement is in the best interest of the class as a whole.”

Disability Benefit Claims

First Circuit

Moseley v. Unum Life Ins. Co. of Am., No. 22-40079-RGS, 2023 WL 2324771 (D. Mass. Mar. 2, 2023) (Judge Richard G. Stearns). In this case Plaintiff Susan Moseley challenged Unum Life Insurance Company of America’s termination of her long-term disability benefits pursuant to her plan’s mental illness limitation. The court granted summary judgment to Ms. Moseley, concluding that Unum’s failure to provide Ms. Moseley with an independent medical examination upon her request was an abuse of discretion. The court referred to a regulatory settlement agreement between Unum and several states, including Massachusetts, which states that “an IME…should be sought whenever…the claimant or the AP requests an IME, either directly or through the claimant’s representative,” and concluded that Unum’s denial of Ms. Moseley’s request “constituted procedural error and rendered Unum’s benefits determination inherently arbitrary and capricious.” This was especially true because Unum did not contest that Ms. Moseley was disabled, but only that her disabling symptoms were not psychological in nature and not, as she claimed, a result of Lyme disease. For this reason, the court reversed the denial and remanded to Unum for further proceedings in light of this decision. Finally, the court allowed Ms. Moseley to move for an award of attorneys’ fees and costs.

Sixth Circuit

Caudill v. The Hartford Life & Accident Ins. Co., No. 1:19-cv-963, 2023 WL 2306666 (S.D. Ohio Mar. 1, 2023) (Judge Susan J. Dlott). Plaintiff David Caudill sued the Hartford Life & Accident Insurance Company after the long-term disability benefits he was receiving were terminated. Mr. Caudill argued that Hartford’s decision was arbitrary and capricious. He also argued that he was denied a full and fair review because he was not provided with a copy of the medical reviewer’s report that Hartford relied upon in its 2019 termination. In this decision the court issued its judgment on the administrative record, granting judgment in favor of Mr. Caudill. First, the court held that the new amendment to the Department of Labor regulations, § 2560.503-1(h)(4)(i), was in effect at the time of the benefit termination and therefore governed the manner in which Hartford was required to handle Mr. Caudill’s claim. Thus, the court held that Mr. Caudill was entitled to a copy of the reviewer’s report and because Hartford did not automatically provide it to him, he was denied a full and fair review. Additionally, the court concluded that the termination itself was arbitrary and capricious. The court stated that Hartford’s disregard of information in the administrative record favorable to Mr. Caudill, including the results of a functional capacity examination, and notes of his treating physicians, coupled with Hartford’s conflict of interest, meant its “determination that Caudill could work in a sedentary capacity despite his respiratory issues [was] arbitrary and capricious.” Finally, the court wrote that in this case, because Hartford did not properly terminate Mr. Caudill’s benefits, the proper remedy was retroactive reinstatement of benefits, and because he “should have continued to receive these benefits, they were wrongly withheld.” Moreover, the court stated that an award of prejudgment interest was also appropriate. For these reasons, Mr. Caudill’s motion for judgment was granted, and Hartford’s motion for judgment on the record was denied. 

ERISA Preemption

Second Circuit

Paparella v. Liddle & Robinson, LLP, No. 1:18-cv-09267 (JLR), 2023 WL 2344725 (S.D.N.Y. Mar. 3, 2023) (Judge Jennifer L. Rochon). Plaintiff Andrea Paparella commenced this action in state court in New York against her former employer, Liddle & Robinson, LLP, and individual defendants who were attorneys at Liddle & Robinson, alleging sex discrimination in connection with her time employed at the firm. Ms. Paparella asserted thirteen state law causes of action. Relying on a reference in Ms. Paparella’s complaint to Liddle & Robinson’s profit sharing plan, defendants removed the action to federal court, and argued that ERISA preempts Ms. Paparella’s state law claims. Defendants subsequently moved to dismiss. In response, Ms. Paparella said her brief allusion to the profit sharing plan was included only as an example of one of the myriad ways in which she claims to have experienced discrimination. She then amended her complaint, removing the reference. In light of Ms. Paparella’s amendment to her complaint, the court denied as moot defendants’ motion for dismissal. Ms. Paparella moved to remand the case to state court. She argued that removal was improper, and also requested that she be awarded attorney’s fees. In support of her position, Ms. Paparella argued that ERISA does not preempt her complaint because the claims could not be construed as colorable claims for benefits under the ERISA plan, and instead they implicate independent legal duties. “The Court agree[d] with Plaintiff on both points.” The court underscored that it was clear from the complaint that Ms. Paparella was not seeking relief in the form of plan benefits, but was instead seeking “several other forms of relief,” including “back pay, reinstatement of front pay, liquidated damages, and compensatory damages for severe emotional distress.” Ms. Paparella’s claims, the court stressed, “‘seek to do none of the things’ that an ERISA claim would seek to do.” Finally, the court held that liability for Ms. Paparella’s claims turn on state law “rather than rights and obligations established by the terms of the profit sharing plan.” For these reasons, the court agreed with Ms. Paparella that her causes of action were not preempted by ERISA. Thus, the court granted her motion for remand. However, the court declined to award attorney’s fees. It held that defendants’ basis for removal was not objectively unreasonable and that these circumstances did not warrant a fee award.

Third Circuit

Princeton Neurological Surgery, P.C. v. Aetna, Inc., No. 3:22-cv-01414 (GC) (DEA), 2023 WL 2307425 (D.N.J. Feb. 28, 2023) (Judge Georgette Castner). An out-of-network healthcare provider, plaintiff Princeton Neurological Surgery, P.C., brought this suit to recover payment from defendants Aetna, Inc. and Aetna Life Insurance Company for cervical spinal surgery it provided to a patient insured under an ERISA-governed plan administered by defendants. Aetna paid only approximately $3,000 for the surgery, leaving an unpaid bill of over $300,000. Princeton Neurological asserted state law claims against defendants for breach of implied contract, breach of warranty of good faith, promissory estoppel, unjust enrichment, and negligent misrepresentation. Defendants moved to dismiss the complaint for failure to state a claim. Their motion was granted without prejudice in this order. The court held that the provider’s state law causes of action were preempted by ERISA Section 514. In particular, the court concluded that no “specific representations or express promises to pay Plaintiff [existed] that were independent of the terms of [the patient’s] Plan.” Thus, as the court saw it, Princeton Neurological’s claim for reimbursement was essentially a claim for benefits due under the ERISA plan. Relying on a transcript of the pre-authorization phone call between the parties, the court held that the Aetna representative made promises to Princeton Neurological which expressly referenced the terms of the patient’s ERISA plan. Accordingly, the court dismissed the state law causes of action. However, dismissal was without prejudice, and Princeton Neurological may replead its complaint under ERISA.

Eleventh Circuit

Vanguard Plastic Surgery, PLLC v. UnitedHealthcare Ins. Co., No. 22-60488-CIV-ALTMAN/Hunt, 2023 WL 2257961 (S.D. Fla. Feb. 27, 2023) (Judge Roy K. Altman). Plaintiff Vanguard Plastic Surgery, PLLC is a healthcare provider in a “shared savings network,” the Three Rivers Provider Network, which allows insurance companies including defendant UnitedHealthcare Insurance Co. to access these out-of-network providers and pay them a discounted rate of reimbursement, specifically outlined within the terms of the network agreement. However, according to Vanguard’s complaint in this action, United violated Florida law by reimbursing it only 1.98% of the billed charges for the treatment it provided to one of United’s insured patients. According to Vanguard, the charges it billed to United were what it was entitled to under the terms of the network agreement. Thus, it asserted claims of breach of implied-in-fact contract, unjust enrichment, and promissory estoppel against United in an attempt to receive reimbursement for the full amount of the billed charges. United moved to dismiss. It argued that the state law claims relate to an ERISA-governed plan and are therefore preempted. It further challenged the sufficiency of the state law claims pled. Magistrate Judge Patrick M. Hunt issued a report and recommendation recommending the motion to dismiss be granted in part and denied in part. Specifically, Magistrate Hunt concluded that ERISA did not preempt the state law claims. Magistrate Hunt, however, stated that for other reasons Vanguard did not sufficiently state a claim for breach of implied-in-law contract and as a result recommended that the unjust enrichment claim be dismissed. Untied filed objections to the Magistrate’s report, hoping to dismiss all of Vanguard’s claims, and once again stressing its conviction that ERISA preempts Vanguard’s causes of action. In this decision, the court overruled United’s objections, and adopted the report in full. As a result, Vanguard’s unjust enrichment claim was the only cause of action dismissed. Regarding ERISA preemption, the court wrote, “the question at the heart of the complaint is whether Defendant has contracted with (the Three Rivers Provider Network) to pay rates per the arrangement between plaintiff and (the network.)” Thus, in the court’s view, the complaint had nothing but a “tangential relationship” with the ERISA plan. “Indeed, in Vanguard’s view, the Defendant’s contractual obligation to (the patient) is entirely separate from its obligations to Vanguard.” This, the court held, was a classic example of a case where a healthcare provider was challenging the rate at which it was reimbursed by an insurance company and how that reimbursement was calculated, and not an instance where a provider was “challenging the scope or application of the ERISA policy’s benefit at all.” Simply put, the court wrote “the ‘mere fact’ that Vanguard treated a patient who happens to have an ERISA plan doesn’t mean that every legal issue concerning that treatment is now ‘related’ to that plan.” For these reasons then, the court agreed with Magistrate Hunt that ERISA did not preempt Vanguard’s state-law claims.

Exhaustion of Administrative Remedies

Third Circuit

Stampone v. Walker, No. 15-cv-6956, 2023 WL 2263596 (D.N.J. Feb. 28, 2023) (Judge Claire C. Cecchi). Pro se Plaintiff Frederick Stampone first initiated this action in 2015. At its simplest, this case revolves around a dispute between Mr. Stampone and his Taft-Hartley pension plan over how his pension credits were calculated. Mr. Stampone believes that vesting credits should have been calculated on a cumulative basis and that he should have earned credits for all of the total hours he worked while participating in the plan for over two decades. The Plan conversely maintained that calculations were computed annually, and that credits did not vest per the terms of the plan if a participant worked less than 300 hours in a single year. Furthermore, the Plan stated that participants did not earn full vesting credits until they met an 870-hour threshold within a calendar year. Since the commencement of this lawsuit, a lot has happened. First, the case was dismissed. However, the dismissal was then overturned by the Third Circuit. Then, following remand from the circuit court, the Plan provided Mr. Stampone with a pension application. And in spring of 2022 Mr. Stampone elected and subsequently began receiving monthly pension benefits. Nevertheless, Mr. Stampone continued pursuing his legal action. He still maintains that his benefits have not been calculated properly, and rather than engage in the administrative appeals process he has kept his civil suit alive. The parties subsequently cross-moved for summary judgment. Mr. Stampone moved for judgement in his favor on his claim under ERISA Section 502(a)(1)(B). The Plan moved for summary judgment, arguing both that Mr. Stampone’s claim required dismissal for failure to exhaust and that the benefit amount was correctly calculated under the written terms of the plan. The court found in favor of the Plan on both issues. It concluded that Mr. Stampone had improperly refused to exhaust his administrative appeals process following his first pension payment in May 2022, and that he could not demonstrate that exhaustion would have been futile. In addition, the court agreed with the Plan that its interpretation of the vesting credits calculation was not arbitrary and capricious, writing, “Defendant has undisputedly shown that it correctly applied the written terms of the Plan.” Thus, finding that Mr. Stampone offered no support for his position that his benefits were miscalculated, the court concluded there was no genuine issue of material fact to preclude awarding judgment in favor of the Plan.

Ninth Circuit

Stout v. Liberty Life Assurance Co. of Bos., No. 8:20-cv-01675-FLA (KESx), 2023 WL 2266110 (C.D. Cal. Feb. 28, 2023) (Judge Fernando L. Aenlle-Rocha). Plaintiff Julie Stout worked for Dassault Systemes Americas Corp. for one year, until medical issues including multiple sclerosis left her unable to continue working and she submitted a claim for short-term disability benefits under Dassault’s self-insured short-term disability plan, administered by defendant Liberty Life Assurance Company of Boston. Liberty denied Ms. Stout’s claim for short-term disability benefits. Ms. Stout never submitted a claim for long-term disability benefits under the long-term disability plan, which was fully insured unlike the short-term disability plan. Also different from the short-term disability plan, the long-term disability plan included a pre-existing conditions exclusion. In 2020, Ms. Stout commenced two different lawsuits, one against Dassault for wrongful termination of her employment, and this present action against Liberty Life under ERISA Section 502(a)(1)(B) seeking a court order finding her entitled to short-term and long-term disability benefits. Ms. Stout’s action against Dassault ended in settlement. Under the terms of the settlement agreement, Ms. Stout agreed to a general release of all claims against Dassault including pertaining to the disability policies. However, the settlement agreement explicitly excluded Liberty Life from the released parties. On August 2, 2022, the court in this action held a bench trial. In this decision, the court issued its findings of fact and conclusions of law. It began with addressing the short-term disability benefit claim. The court found that Ms. Stout’s short-term disability benefit claim against Liberty failed because the plan is self-funded, meaning Liberty “is not obligated to pay STD benefits.” Thus, the court concluded that Ms. Stout settled and released her short-term disability benefit claim against the party responsible for paying benefits, Dassault. The court then addressed Ms. Stout’s claim for long-term disability benefits. That claim failed because Ms. Stout did not exhaust administrative remedies. Ms. Stout never applied for the benefits “as required, before filing the subject action… Because Plaintiff did not pursue a claim for LTD benefits through the plan, Liberty never evaluated whether she was disabled under the LTD benefit plan and did not issue a denial of LTD benefits. Without the benefit of an initial evaluation or administrative review, Plaintiff cannot establish she is entitled to LTD benefits. Likewise, the court is without a factual record it can evaluate in connection with a LTD claim. Thus, Plaintiff’s claim for LTD benefits fails.” Finally, the court was not persuaded that it would have been futile for Ms. Stout to pursue a long-term disability benefit claim because her short-term disability claim had already been denied. For these reasons, the court found both of Ms. Stout’s claims for disability benefits failed.

Pension Benefit Claims

Second Circuit

Ford v. Pension Hospitalization & Benefit Plan of the Elec. Indus. Pension Tr. Fund Plan, No. 21-3142, __ F. App’x __, 2023 WL 2230280 (2d Cir. Feb. 27, 2023) (Before Circuit Judges Sack and Nathan, and District Judge Brown). In 2009, plaintiff-appellant Bernard Ford sent an application to the Pension Trust Fund of the Pension, Hospitalization and Benefit Plan of the Electrical Industry seeking a disability pension. The plan’s pension committee awarded Mr. Ford benefits with an effective date of October 1, 2006, concluding that Mr. Ford was ineligible for earlier benefits because he continued to work at least intermittently until that date. Mr. Ford appealed this determination, arguing that he had become disabled in 2002. He maintained that since the onset of his disability in 2002 he had only worked intermittently and therefore had not secured “gainful employment” in that time. The committee upheld its decision, which prompted Mr. Ford to take legal action. In the district court Mr. Ford alleged that the decision denying him earlier pension benefits was arbitrary and capricious under the plan language which states that eligibility for disability benefits requires a participant be “permanently incapacitated or disabled to such an extent that he can no longer secure gainful employment in the electrical industry, or any other line of business.” The district court did not agree with Mr. Ford on this point. It concluded that the decision could not be disturbed given the committee’s discretionary authority to interpret the relevant provision and the reasonableness of their interpretation. Accordingly, the district court granted summary judgment in favor of the defendants. The lower court’s holding was affirmed in this decision from the Second Circuit. The court of appeals stated that the committee’s determination that Mr. Ford was engaged in gainful employment until fall of 2006 “was neither ‘without reason’ nor ‘unsupported by substantial evidence.’” The Second Circuit also stated that Mr. Ford did not provide any support within the plan language or through any past practice for his interpretation of the plan provision. Thus, under the deferential review standard the Second Circuit would not overturn the benefits decision. Finally, the circuit court declined to give any weight to the conflict of interest present because there was no evidence “that the conflict actually affected the administrator’s decision.”

Plan Status

Tenth Circuit

Huff v. BP Corp. N. Am., No. 22-CV-00044-GKF-JFJ, 2023 WL 2317291 (N.D. Okla. Mar. 1, 2023) (Judge Gregory K. Frizzell). On December 14, 2021, plaintiff Ronald Huff sued BP Corporation North America, Inc. in state court over a group life insurance policy. BP removed the case to federal court, contending the policy is governed by ERISA and that the state law claims were accordingly preempted. The court agreed with BP. It concluded that the policy was an ERISA plan, that it did not fall under ERISA’s safe harbor provision, and that the policy was never converted to an individual policy. Mr. Huff moved the court to reconsider. The court then “issued a fourteen-page Opinion and Order all entirely devoted to this single issue.” In that order it once again concluded that the group policy is governed by ERISA. Mr. Huff moved to vacate judgment and reconsider whether the insurance policy is subject to ERISA. Here, the court held that although Mr. Huff put greater emphasis on certain arguments, he was simply rehashing arguments he already raised in the prior briefing. The court denied the motion and reaffirmed its earlier conclusion. In sum, the court disagreed with Mr. Huff that there was clear error in its previous analysis or any manifest injustice. Thus, the court again concluded the policy is a qualifying employee benefit plan subject to ERISA.

Pleading Issues & Procedure

Fourth Circuit

Williams v. Sedgwick Claims Mgmt. Servs., No. 1:22CV570, 2023 WL 2329698 (M.D.N.C. Mar. 2, 2023) (Judge Loretta C. Biggs). Pro se plaintiff Latonia Williams sued Sedgwick Claims Management Services, Inc. and UnitedHealth Group Inc. alleging discrimination under the Americans with Disabilities Act (“ADA”) and wrongful denial of a disability benefit claim under ERISA relating to both prenatal and postpartum pregnancy complications. Defendants moved to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and (b)(6). Their motion was granted in this decision. The court held that Ms. Williams could not state an ADA claim as she failed to exhaust her administrative remedies by not timely filing a charge with the Equal Employment Opportunity Commission. The court additionally expressed that it was unclear from Ms. Williams’ complaint whether she “was discharged or suffered any adverse employment action.” With regard to ERISA, the court did not dismiss for failure to exhaust administrative remedies prior to commencing legal action, pointing out that exhaustion is an affirmative defense, “making a Rule 12(b)(6) motion the improper vehicle for Defendants’ challenge.” Nevertheless, the court dismissed the ERISA claim for another reason: “Plaintiff has failed to state a claim.” The court found the complaint lacked details required to establish what the ERISA plan was, what the basis for the denial was, or what was wrong about the denial.

Juric v. USALCO, LLC, No. JKB-22-0179, 2023 WL 2332352 (D. Md. Mar. 2, 2023) (Judge James K. Bredar). In 2014, plaintiff John Juric was employed by USALCO, LLC as its chief financial officer. After a Florida corporation, H.I.G. Capital, LLC, acquired ownership in USALCO, Mr. Juric began to identify and raise legal and ethical issues relating to the company. In his lawsuit, Mr. Juric alleges that he was wrongfully terminated in 2021 in retaliation for his whistleblowing. He also asserts that his termination was motivated, at least in part, by a desire to interfere with his attainment of soon to be vested stock in the Project Aero Management, LLC Equity Incentive Plan, which he claims is an ERISA plan designed to defer compensation. Finally, following his termination, Mr. Juric claims that he was meant to continue as an enrolled participant in the company’s ERISA-governed health plan. He also maintains that he was never given plan documents upon request. Thus, in this action, Mr. Juric sued USALCO and H.I.G. Capital, along with individuals high up at USALCO, asserting claims under Maryland common law and wage and hour laws, and ERISA Sections 502(a)(1)(B), (a)(3), (a)(c), and 510. Defendants moved to dismiss. Their motion was granted by the court, which agreed that Mr. Juric did not adequately state his claims. To begin, the court concluded that Mr. Juric did not have a viable claim for benefits under the health plan, because the language of the plan clearly states that eligibility ends following an employee’s termination. Mr. Juric’s equitable estoppel claim similarly failed, as the court viewed it as a repackaging of his unsuccessful and nonviable claim for benefits. Next, the court stated that Mr. Juric did not allege a breach of fiduciary duty committed by defendants’ alleged misrepresentations about post-termination eligibility, because “Juric provides no allegations that USALCO was acting as a fiduciary in making any alleged misrepresentations.” Even more fundamentally, the court held that the complaint was devoid of facts establishing what the alleged misrepresentations were, who made them, when they occurred, or why Mr. Juric could have reasonably believed he was entitled to coverage post-termination. Regarding Mr. Juric’s Section 510 interference claim, the court expressed that upon review of the equity incentive plan it was clear that the plan does not qualify as an ERISA plan. The court reached this conclusion despite the fact the plan “could potentially result in post-termination income,” and “creates an ongoing administrative scheme or practice.” Finally, the court dismissed Mr. Juric’s claim for failure to provide plan documents, concluding that he was not a plan participant or a former participant with a valid claim, and therefore not entitled to the documents. For these reasons the court dismissed all of Mr. Juric’s ERISA causes of action. The remaining state law claims were also dismissed, as the court declined to exercise supplemental jurisdiction over them.

Severance Benefit Claims

Seventh Circuit

Smith v. Lutheran Life Ministries, No. 21 C 2066, 2023 WL 2266144 (N.D. Ill. Feb. 28, 2023) (Judge Joan H. Lefkow). Plaintiff Lori Smith sued her former employer, Lutheran Life Ministries, and the company’s board of directors under state law and ERISA Sections 502(a)(1)(B), and (a)(3), alleging that defendants owe her severance payments. Specifically, Ms. Smith contends that Lutheran Life Ministries’ change of CEO and President constituted a “transition period” at the company, and that the new CEO’s decision to take away Ms. Smith’s managerial responsibilities constituted a “constructive termination” making her eligible for the 18-month severance pay outlined in the terms of her agreement with Lutheran Life. Additionally, Ms. Smith argued that she reasonably relied, to her determent, on the representations in her offer letter and severance agreement when deciding to accept employment with Lutheran Life, and that defendants are therefore equitably estopped from denying her the promised benefits now. Defendants moved to dismiss Ms. Smith’s claims pursuant to Federal Rule of Civil Procedure 12(b)(6). Their motion was granted in this decision. First, with regard to Ms. Smith’s claim under Section 502(a)(1)(B), the court stated that it would not dismiss Ms. Smith’s claim for failure to exhaust, as there were genuine issues of material fact about whether a claims procedure even existed at the time when Ms. Smith’s severance benefit claim was denied. However, the court found that Ms. Smith’s benefit claim failed for another reason. It concluded that she was not eligible for severance benefits under the severance agreement. The court decided, on the basis of the complaint alone, that the term “transition period” was meant to relate to a change of control. Further, the court stated that “[a]lthough the offer letter provides no definition of ‘change of control,’ such term is only capable of supporting one reasonable definition: a change in who has legal authority to manage and govern LLM.” Under this definition, the court held that that control ultimately resides with the board. Through this line of the thinking, the court held that the term “transition period” here could not be read to mean a change in Lutheran Life’s president and CEO. “In short, the complaint as written alleges that LLM acquired a new supervisor to oversee its operations but experienced no change of control. Absent any allegations that LLM experienced a change of control, Smith cannot satisfy the ‘during a Transition Period’ element of her claim for severance benefits. Accordingly, the court grants LLM’s motion to dismiss Smith’s ERISA enforcement count for failure to state a claim on which relief can be granted.” This same logic also ultimately doomed Ms. Smith’s ERISA estoppel claim. With regard to that claim, the court stated that because no transition period took place, “Smith cannot claim that LLM misrepresented what conditions would trigger the payment of severance benefits in the offer letter and Severance Agreement.” Thus, without a knowing misrepresentation, the court concluded that Ms. Smith could not state her promissory estoppel claim. Finally, the court declined to exercise supplemental jurisdiction over Ms. Smith’s state-law claim. Thus, Ms. Smith’s complaint was dismissed in its entirety.

Statute of Limitations

Third Circuit

Trustees of the Nat’l Elevator Indus. Pension Fund v. CEMD Elevator Corp., No. 22-2304, 2023 WL 2309764 (E.D. Pa. Mar. 1, 2023) (Judge Harvey Bartle III). Trustees of three multiemployer Taft-Hartley plans and a labor-management cooperation committee sued an elevator contractor in New York and its owner for unpaid contributions and mishandling of plan assets. This is not the first legal action between these parties. Twice before, the plans have sued CEMD Elevator Corporation and its owner for similar allegations of problematic contribution practices. Those lawsuits “were both dismissed by joint stipulations and voluntary dismissal on May 22, 2019.” The stipulation also required defendants to submit to a payroll audit. That audit took place in 2021, and it revealed the problems which are the basis of this action. Defendants moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). They argued that plaintiffs’ claims are time-barred by the governing statutes of limitations. For the most part, the court disagreed, at least at the pleading stage. Until further progress has taken place in this action, including the benefit of discovery, the court held that all of plaintiffs’ claims are plausibly timely with the exception of the unpaid contributions for the months of May, June, and July 2016. That information, the court stated, was clearly available to plaintiffs and they were obviously aware of those unpaid contributions “because they previously sought damages in connection with these months” in the two earlier lawsuits. However, defendants’ motion was otherwise denied. The court stated that it would not find the claims untimely due to plaintiffs’ request for an audit of the months in question. The fact that plaintiffs sought an audit, the court stated, does not prove that they were aware of unpaid contributions, because plaintiffs have the right to demand an audit regardless of whether they think there is wrongdoing on the behalf of a contributing employer. “Defendants have cited no authority to the contrary. To hold otherwise would lead to absurd results. If a labor fund’s audit requested always demonstrated that it was aware of an underpaid contribution, then every audit request would end the tolling of the respective statute of limitations. An employer could simply delay its compliance with the efforts of the auditor until the statute of limitations ends, thereby avoiding liability.” And here, at least in this early stage of litigation, defendants could not use the statute of limitations to do just that.