There is no one case that stood out as Case of the Week. However, this week’s batch of decisions highlights several interesting trends. First, healthcare continues to dominate the ERISA litigation scene. Second, as a sign perhaps of tough economic times, we are seeing an increasing number of suits for severance benefits. Finally, collectively-bargained pension plans continue to change and tighten their rules about post-retirement employment and covered participants who counted on their ability to collect pensions while working continue to challenge this.  

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

Breach of Fiduciary Duty

Ninth Circuit

Diaz v. Westco Chems., Inc., No. 22-55823, __ F. App’x __, 2023 WL 3615663 (9th Cir. May. 24, 2023) (Before Circuit Judges Christen and Bress, and District Judge Antoon). In a very concise unpublished decision, the Ninth Circuit affirmed a district court’s summary judgment order in favor of Westco Chemicals, Inc., and the other plan fiduciaries in this breach of fiduciary duty class action involving a defined benefit pension plan. Relying on the Supreme Court’s decision in Thole v. U.S. Bank N.A., 140 S. Ct. 1615 (2020), the Ninth Circuit agreed with the district court that appellants could not satisfy the requirements of Article III standing either individually or on behalf of the plan because the “undisputed evidence in the record shows that the plan is not currently at risk of default,” and the participants were paid the benefits to which they were entitled. Accordingly, whatever misconduct the administrators of the defined benefit plan may have engaged in, the court of appeals concluded that the participants lacked standing to state their claims. Thus, the Ninth Circuit affirmed, concluding the district court correctly granted summary judgment to the fiduciaries.

Hagins v. Knight-Swift Transp. Holdings, No. CV-22-01835-PHX-ROS, 2023 WL 3627478 (D. Ariz. May. 24, 2023) (Judge Roslyn O. Silver). In this putative class action complaint participants of the defined contribution Knight-Swift Transportations Holdings, Inc. Retirement Plan sued Knight-Swift Transportations Holdings, Inc., the plan sponsor, and plan administrator, for breaching its fiduciary duties of prudence and monitoring. Plaintiffs allege that Knight-Swift mismanaged the plan by allowing the plan’s administrative and recordkeeping expenses to expand to imprudent levels through both direct and indirect fees, by failing to invest in available lower cost institutional share classes of otherwise identical funds, and by not properly overseeing and monitoring the performance of the plan’s administrative committee. Knight-Swift moved to dismiss the complaint. Plaintiffs opposed the motion to dismiss and moved to strike twelve exhibits that Knight-Swift filed with its motion to dismiss. The court began its decision by deciding whether to take judicial notice of the disputed documents. It mostly granted plaintiffs’ motion to strike, as plaintiffs challenged the authenticity and accuracy of the exhibits. However, the court did take judicial notice of a Form 5500 of the Knight-Swift Plan and a Form 5500 for another plan that plaintiffs used as a comparator in their complaint. With this matter addressed, the court proceeded with its analysis of the motion to dismiss. To begin, it found that plaintiffs adequately alleged their breach of duty of prudence claims based on both the fees and share classes. Defendants’ arguments, the court ruled, could not properly be addressed or resolved at the pleadings stage. Instead, the court determined that Swift-Knight’s interpretations could not be favored over plaintiffs’, and that plaintiffs’ allegations were enough to state a claim. Lastly, the court denied the motion to dismiss the derivative failure to monitor claim, again concluding that plaintiffs had alleged sufficient details to infer that defendant did not do enough to monitor the actions of the committee. For these reasons, Knight-Swift’s motion to dismiss was denied.

Disability Benefit Claims

Sixth Circuit

Bombassei v. The Lincoln Nat’l Life Ins. Co., No. 22-10593, 2023 WL 3605968 (E.D. Mich. May. 23, 2023) (Judge Denise Page Hood). On March 5, 2021, at the end of the “own occupation” period, plaintiff Cheryl Bombassei’s long-term disability coverage was terminated by defendant Lincoln National Life Insurance Company. Ms. Bombassei, a nurse and nurse practitioner who has been diagnosed with type 2 narcolepsy with extreme daytime sleepiness and rheumatoid arthritis, appealed Lincoln’s decision. After the denial was upheld by Lincoln, Ms. Bombassei commenced this lawsuit. The parties cross-moved for judgment under de novo review. In this order the court awarded judgment in favor of Ms. Bombassei and reinstated her disability benefits. The court was persuaded by the conclusions of Ms. Bombassei’s treating physicians, the Administrative Law Judge who awarded her Social Security Disability benefits, and the testimony of Ms. Bombassei and her family members, that she would be unable to perform any occupation in the economy given her severe impairments. In particular, the fact that Ms. Bombassei must nap for two hours in the middle of the workday in order to control her narcolepsy was proof to the court that “she is inhibited from performing the Main Duties for pretty much any occupation, as one fundamental condition for performing an occupation is being awake.” The court also found “it notable that the reports and opinions of physicians Defendant identifies lack any in-depth analysis regarding Plaintiff’s narcolepsy; in fact, most fail to even acknowledge or discuss Plaintiff’s narcolepsy.” For these reasons, the court was satisfied that Ms. Bombassei is totally disabled under the terms of her policy and that she was therefore entitled to judgment in her favor. Finally, the court reversed the benefits decision outright and ordered Lincoln to “honor Plaintiff’s award of benefits, including the award of past due benefits and interest on past due benefits, as well as pay Plaintiff for future benefits as long as she continues to meet the definition of Total Disability under the policy.” And in this case, the court implied Ms. Bombassei would likely continue to qualify for benefits under the plan’s definition of total disability, as there is no evidence that narcolepsy is curable or that it goes into remission.

Discovery

Tenth Circuit

M.A. v. United Behavioral Health, No. 2:20-cv-00894-DAK-JCB, 2023 WL 3604420 (D. Utah May. 23, 2023) (Magistrate Judge Jared C. Bennett). In this lawsuit a family of participants and beneficiaries of the Motion Picture Industry Health Plan have sued their plan, United Behavioral Health, and OptumHealth Behavioral Solutions, Inc. under ERISA and the Mental Health Parity and Addiction Equity Act stemming from denials the family received of coverage for mental healthcare services. During discovery in this action defendants produced documents but designated many of them as confidential. Plaintiffs challenged the confidentiality designations of three documents: “(1) a Mental Health Parity Comparison conducted by Defendants; (2) the Milliman Care Guidelines for Subacute/Skilled Nursing Facility Care…; and (3) UBH Clinical Technology Assessments.” Defendants filed a motion for protective order with the court to maintain the confidentiality designations of these disputed documents. Plaintiffs opposed defendants’ motion. The court reviewed the documents during an in camera review and then heard oral argument on the motion. In this order, it issued its decision. As an initial matter, the court held that ERISA’s mandatory disclosure provisions do not automatically require documents to be publicly available. Rather, although the documents are discoverable, it held that that does not mean they cannot also be kept confidential. Instead, the court decided the appropriate course of action would be to apply the traditional balancing test to decide whether the documents at issue should maintain their confidential designations. Upon applying the balancing test, the court permitted defendants to retain the confidentiality designations on the disputed documents. It found that the documents contain confidential, sensitive, and proprietary commercial business information, and that unrestricted disclosure of the documents would result in economic harm to defendants. Regarding plaintiffs’ interest in disclosure, the court wrote only one line, “Plaintiffs, on the other hand, have not demonstrated that the confidentiality designations placed on the Disputed Documents – which have already been produced for use in this case – will any way prevent or unduly burden the prosecution of their claims.” As a result, the court found that defendants’ risk of harm outweighed plaintiffs’ interest in public disclosure and availability of the documents, and therefore granted defendants’ motion to keep the documents designated as confidential.

ERISA Preemption

Third Circuit

Thompson v. Command Alkon Inc., No. 22-344, 2023 WL 3594178 (E.D. Pa. May. 22, 2023) (Judge Gene E.K. Pratter). Plaintiff Linda Thompson sued her former employer Command Alkon, Inc. in state court seeking benefits under her severance plan. Both parties have now moved for summary judgment. Command Alkon argued that the plan is an ERISA-governed plan, and the state law causes of action are therefore preempted. In this decision the court granted Command Alkon’s motion for summary judgment as to the issue of preemption and ordered the parties to provide supplemental briefing on the application of ERISA to this action. To begin, the court agreed with defendant that the plan creates an administrative scheme because Ms. Thompson’s eligibility turns on whether she was terminated for or without cause, a decision which requires “her employer (to) exercise managerial discretion in categorizing the circumstances of Ms. Thompson’s termination.” Moreover, the plan contemplates installments of payments over a maximum of five years, rather than a lump sum. The court felt this too required ongoing administration, meaning the plan qualifies as an ERISA plan. Finally, the court concluded that the employment and severance contract can constitute an ERISA plan even though it only covers one employee, Ms. Thompson. Having established that the plan is indeed governed by ERISA, the court concluded that Ms. Thompson’s state law claims, for breach of contract and violation of Pennsylvania’s Wage Payment and Collection Law, are preempted by ERISA as they “are both premised on the argument that Command Alkon denied her severance benefits owed under her employment agreement,” and because they require review of the plan. For these reasons, the court granted defendant’s summary judgment motion on the issue of ERISA preemption. However, the court did not feel comfortable proceeding on the remainder of the summary judgment motions. Instead, it instructed the parties to submit a joint status update detailing their views on whether Ms. Thompson should be granted leave to amend her complaint to replead her claims under ERISA.

Medical Benefit Claims

Fourth Circuit

Hainey v. SAG-AFTRA Health Plan, No. 8:21-cv-02618-PX, 2023 WL 3645514 (D. Md. May. 24, 2023) (Judge Paula Xinis). Husband and wife Robert and Rosemary Hainey were participants of the SAG-AFTRA Health Plan from January 1, 2017, through December 31, 2020. The healthcare plan changed in 2021. At that time, the plan eliminated supplemental Medicare coverage to retirees and instead allowed enrollees the option to purchase individual insurance on a private exchange and a monthly subsidy through a health reimbursement account. Mr. Hainey sent letters of grievance to the plan when he learned of these and other plan changes. Mr. Hainey believed the changes were not legal. He argued that from 1974 to 1995 his employers contributed deferred income into his Taft-Hartley Fund and that he had a balance of more than $244,000 in a welfare benefit trust. Mr. Hainey maintained that the 2021 plan therefore divested him of his earlier contributions and vested benefits. As part of his communications with the plan at this time, Mr. Hainey requested plan documents and other information required under ERISA Section 502(c)(1)(B). These documents were not provided until after the lawsuit commenced, and one document, the 2020 SPD, was never provided to Mr. Hainey. Upset about the new changes to the plan, Mr. Hainey did not attempt to enroll in the 2021 plan. His wife, however, did, and paid premiums for her enrollment. Ultimately, the plan concluded that Ms. Hainey was not eligible to participate in the plan unless her husband was enrolled in the plan. However, the plan never reimbursed Ms. Hainey for her premiums. Finally, Mr. Hainey underwent certain medical procedures in late 2020. These procedures were never covered by the plan. The plan maintained that because Mr. Hainey was no longer a participant in 2021, it would not pay for these claims. In response to these events, the Haineys brought this lawsuit against SAG-AFTRA, the plan, and its board of trustees, alleging six wide-ranging causes of action; (1) breach of implied contract/unjust enrichment; (2) failure to take up appeal; (3) wrongful cancellation of spousal coverage; (4) breach of fiduciary duty for coverage cancellation and failure to reimburse premium payments; (5) failure to furnish requested documents; and (6) breach of fiduciary duty for mismanagement of plan funds. Defendants moved to dismiss. Their motion was almost entirely granted in this order, with only two small exceptions. The court allowed plaintiffs’ claims relating to defendants’ failure to provide documents and failure to reimburse premiums to proceed. The remainder of the complaint was dismissed, as the court agreed with defendants that the claims failed as a matter of law. On the whole, the court found that plaintiffs could not support their theory that their healthcare benefits vested. To the contrary, it stated that “Defendants were free to change the Plan terms and conditions from year to year. Simply because Plaintiffs were dissatisfied with the changes does not give rise to a cause of action.” Additionally, the claims that were dismissed were dismissed with prejudice, as the court found that amendment would be futile. Finally, the court held that remaining claims will not be tried before a jury.

Fifth Circuit

William J. v. BlueCross BlueShield of Tex., No. 3:22-CV-1919-G, 2023 WL 3635640 (N.D. Tex. May. 24, 2023) (Judge Allen Joe Fish). A father and his minor child sued the father’s employer, Texas Instruments Incorporated, their ERISA welfare plan, the Texas Instruments Incorporated Welfare Benefits Plan, and the plan’s insurance company and third party claims administrator, Blue Cross and Blue Shield of Texas, under ERISA Sections 502(a)(1)(B) and (a)(3) for benefits, failure to provide a full and fair review, and violation of the Mental Health Parity and Addiction Equity Act after the family was denied coverage for the child’s stay at an inpatient treatment center. Defendants moved pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss plaintiffs’ complaint. Their motions were granted in part and denied in part in this decision. The court began with plaintiffs’ claims asserted under Section 502(a)(1)(B). As a preliminary matter, the court would not rely on terms in the Summary Plan Description as a basis to dismiss the claim for benefits. Rather, relying on Supreme Court precedent, the court quoted language explaining that SPDs are “communication with beneficiaries about the plan, but that their statements do not themselves constitute the terms of the plan for purposes of §[1132](a)(1)(B).” In addition, the court concluded that plaintiffs’ complaint sufficiently alleged facts to plausibly infer that they were entitled to the benefits that were denied by the plan. Accordingly, the court did not dismiss the claim for benefits. However, plaintiffs also asserted a claim under Section 502(a)(1)(B) for denial of a full and fair review, and the court did dismiss this portion of that claim. It concluded that regardless of defendants’ actions, a possible lack of a full and fair review process does not provide an independent basis to recover benefits. Additionally, the court agreed with defendants that plaintiffs failed to engage with this argument in their reply briefing and therefore had abandoned the issue. This left the court with the Section 502(a)(3) claim for violation of the Parity Act. The court once again agreed with defendants and concluded that the “catchall” provision in (a)(3) “is appropriate when there are no other available avenues for remedy.” Thus, the court concluded that plaintiffs’ Section 502(a)(3) claim was duplicative of their Section 502(a)(1)(B) claim, as the relief they sought for both claims was the same make-whole relief stemming from defendants’ refusal to cover the child’s treatment. Therefore, the court dismissed this claim as well, leaving plaintiffs only with their claim for benefits. Finally, the court denied plaintiffs’ request for leave to amend. The court stated that amendment of the full and fair review claim would prejudice defendants as plaintiffs “wholly omitted it from their pleading.” With regard to the Parity Act claim, the court stated that amendment would be futile because Section 502(a)(1)(B) affords the plaintiffs with adequate relief.

Sixth Circuit

Mark Z. v. Priority Health Managed Benefits, Inc., No. 22-10007, 2023 WL 3587536 (E.D. Mich. May. 22, 2023) (Judge Denise Page Hood). Plaintiff Mark Z. and his daughter M.Z. sued their self-funded employee welfare benefit plan, The Michigan Dental Association Health Plan, and its third-party administrator, Priority Health Managed Benefit, Inc., under ERISA and the Mental Health Parity and Addiction Equity Act after their claims for M.Z.’s stay at two residential treatment programs were denied by the plan. Defendant Priority Health moved to dismiss the claims against it. Its motion was granted in this decision. The court agreed with Priority Health that as a third party administrator its role was to process the claims and to “strictly follow the terms of the Plan.” As a result, the court concluded that Priority Health, despite issuing the denials at issue in this lawsuit, was not a fiduciary with discretionary control or authority. “As the Agreement does not afford (Priority Health) discretion, the Court finds (Michigan Dental Association) ‘did no more than rent the claims processing department of (Priority Health) to review claims and determine the amount payable in accordance with the terms and conditions of the Plan.’” The court also disagreed with plaintiffs that Priority Health asserted authority and control over Plan assets by issuing the final adverse benefit decision. Instead, the court found that there was no evidence that Priority Health handled the plan’s money, and therefore concluded that it did not have control over plan assets. For these reasons, the court dismissed the ERISA Section 502(a)(1)(B) claim against Priority Health. It then went on to dismiss the Parity Act claim as well. Here the court not only found that Priority Health did not have any role in drafting the terms and conditions of the plan, but the court also stated that it did not view the plan terms themselves to be in violation of Mental Health Parity. Additionally, because the court concluded that Priority Health is not a fiduciary, it held it could not be liable for breaches of fiduciary duties under Section 502(a)(3). Accordingly, Priority Health’s motion to dismiss was fully granted.

Pension Benefit Claims

Third Circuit

Schlear v. Carpenters Pension & Annuity Fund of Phil. & Vicinity, No. 22-1843, 2023 WL 3569971 (E.D. Pa. May. 18, 2023) (Judge Mitchell S. Goldberg). In 2021, plaintiff Robert Schlear spoke with a representative from the Carpenters Pension & Annuity Fund of Philadelphia and was informed that he could apply for a Waiver of Suspension of Benefits, which would allow him to collect early pension benefits while maintaining his employment in a non-union managerial role with his employer. However, once he applied, Mr. Schlear’s application for benefits was denied. The plan cited a provision which prohibits applicants from receiving early retirement benefits if they perform union work for a contributing employer. Mr. Schlear appealed the denial, at which time the fund added an additional reason for its denial, that granting Mr. Schlear’s benefits would violate a section of the Internal Revue Code which excludes the payment of retirement benefits to retirees who continue to work for their prior employers, which could potentially cause the plan to lose its tax-exempt status. The denial prompted Mr. Schlear to commence this action under ERISA Section 502(a)(1)(B). He maintains that the fund’s decision to deny his benefits was arbitrary and capricious “because he has not worked as a carpenter during his current employment and would not be performing any carpentry-related work going forward.” In addition, Mr. Schlear argued that other similarly situated plan participants were granted benefits under almost identical circumstances to his in the past. Finally, he contends that defendant actually denied his claim, at least in part, as retaliation against him because of prior disputes he has had with the union and with his employer. Defendant moved to dismiss the complaint, arguing that as a matter of law Mr. Schlear cannot show that the denial was an abuse of discretion. Its motion was denied in this order. The court disagreed that summary judgment decisions in similar cases decided after review of the administrative record and discovery meant that this case ought to be dismissed at the pleadings. To the contrary, the court stated that “Plaintiff’s Complaint creates a plausible inference that Defendant’s decision was not necessarily premised on the IRS considerations,” especially when factoring in the disparate treatment of similarly situated individuals by the plan in the past. Taking all of Mr. Schlear’s allegations as true, the court found that it could infer the denial was unreasonable and based on pretextual reasons. As a result the court was satisfied that Mr. Schlear stated his claim, and therefore declined to dismiss it “at this juncture.”

Pleading Issues & Procedure

Fourth Circuit

Harris v. Johns Hopkins Health Sys. Corp., No. ELH-23-701, 2023 WL 3624733 (D. Md. May. 23, 2023) (Judge Ellen L. Hollander). Plaintiff Tina Harris sued the Johns Hopkins Health System School of Medicine and the Johns Hopkins Health System Corporation in state court in Maryland alleging that her former employer took retaliatory actions against her which deprived her of her vested pension benefits. Johns Hopkins removed the case to federal court on the basis of federal question jurisdiction pursuant to ERISA. Now Johns Hopkins has moved to dismiss the lawsuit pursuant to Federal Rules of Civil Procedure 12(b)(5) and (b)(6). The court construed the Rule 12(b)(5) motion as a motion to quash service. Johns Hopkins challenged the sufficiency of Ms. Harris’ service of process and argued that Ms. Harris did not comply with local rules. The court agreed. However, it decided the proper recourse was not dismissal because Johns Hopkins was not “prejudiced by the insufficient service; the case is in its infancy; and JHHS learned of the suit because it received the summons.” Thus, the court allowed Ms. Harris the opportunity to cure this deficiency and serve an amended complaint in accordance with applicable rules to defendants. The court then addressed Johns Hopkins’ motion to dismiss pursuant to Rule 12(b)(6). Although the court agreed with Johns Hopkins that Ms. Harris’ state law claims could have been brought under ERISA Section 510 and were therefore completely preempted, the court once again declined to dismiss the complaint at the pleadings. Instead, the court allowed Ms. Harris the opportunity to replead and submit an amended complaint under ERISA. As a result, the court denied as moot defendants’ motion to dismiss for failure to state a claim.

Provider Claims

Third Circuit

AHS Hosp. Corp. v. Aetna Health, Inc., No. 22-6601, 2023 WL 3585265 (D.N.J. May. 22, 2023) (Judge John Michael Vazquez). Plaintiff AHS Hospital Corp. sued Aetna Health, Inc. in state court after it was denied reimbursement for care it provided to a plan beneficiary. Aetna removed the action based on the court’s diversity jurisdiction. After the case was removed to federal court, AHS added two causes of action under ERISA Section 502(a)(1)(B), pled in the alternative to its three original state law claims, unsure of whether the plan at issue is governed by ERISA. Aetna subsequently moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Aetna first argued that the three state law claims are expressly preempted by Section 514. The hospital responded that the record does not yet establish whether the plan is governed by ERISA. However, the court relied on language in plaintiff’s complaint that “upon information and belief” the plan is “a self-funded plan under ERISA,” to find that the hospital “adequately alleges that the plan is governed by ERISA.” Operating under this conclusion, then, the court found that the state law claims, which seek payment for healthcare services pursuant to the plan, relate to the plan and are therefore preempted. In the second half of the decision, the court agreed with Aetna that the hospital could not bring its ERISA claims for benefits because it failed to identify the relevant plan language establishing Aetna “is responsible for [the beneficiary’s] medical care.” Accordingly, the court dismissed the ERISA causes of action as well. Thus, Aetna’s motion to dismiss was granted, and the complaint was dismissed without prejudice.

Severance Benefit Claims

Seventh Circuit

Smith v. Lutheran Life Ministries, No. 21 C 2066, 2023 WL 3602679 (N.D. Ill. May. 23, 2023) (Judge John H. Lefkow). Plaintiff Lori Smith brought this action against her former employer, Lutheran Life Ministries, and its board of directors under state law and ERISA seeking payments of severance benefits under an employment contract. On February 28, 2023, the court issued an order, summarized in Your ERISA Watch’s March 8th newsletter, granting defendants’ motion to dismiss Ms. Smith’s complaint. In that decision the court concluded that an undefined term in the agreement, “transition period,” referred to a change in control at Lutheran Life. The court interpreted a change of control to mean a change in the board of directors, a change that did not occur. Instead, the change Ms. Smith interpreted as a transition period was a change in the CEO and President of Lutheran Life. Ms. Smith therefore believed that this change, coupled with the CEO’s decision to alter Ms. Smith’s managerial position with the company, constituted a constructive termination entitling her to benefits under the plan. In response to the court’s dismissal in February, Ms. Smith asked the court to reconsider its dismissal of her ERISA claims and her breach of contract claim and sought to file a third amended complaint including these previously dismissed claims. The court bifurcated Ms. Smith’s motion into a motion for reconsideration under Rule 54, and a motion for leave to amend. It tackled the motion for reconsideration first. First, the court found the motion seeking reinstatement of the breach of contract claim to be moot because Ms. Smith had abandoned the claim in her second amended complaint. Thus, the court wrote that it would address the breach of contract claim only in the motion for leave to amend. Regarding the ERISA claims, the court disagreed with Ms. Smith had it had made any clear error in its previous ruling, including with regard to its discussion and interpretation of the undefined term “transition period.” Accordingly, the court did not grant Ms. Smith’s motion for reconsideration. However, the court did grant in part Ms. Smith’s motion for leave to amend. The court allowed Ms. Smith to amend her state law promissory estoppel claim as it related to Lutheran Life’s promise of executive housing. Nevertheless, the court found Ms. Smith’s breach of contract and promissory estoppel claims preempted by ERISA insofar as they sought benefits under the plan. Next, regarding the ERISA claims for benefits and promissory estoppel, the court split the baby. Specifically, it allowed Ms. Smith to amend her complaint to include factual allegations regarding the meaning of the terms “transition period” and “change in control,” finding that the proposed changes affected whether she could plausibly state her claim for benefits. However, the court denied Ms. Smith’s motion to amend her promissory estoppel ERISA claim. It concluded that her amended complaint did not cure the previously identified deficiencies or satisfy the elements to state such a claim. For these reasons, Ms. Smith’s motion was granted in part and denied in part as discussed above. 

Eleventh Circuit

Martinez v. Miami Children’s Health Sys., No. 21-cv-22700-BLOOM/Otazo-Reyes, 2023 WL 3686777 (S.D. Fla. May. 25, 2023) (Judge Beth Bloom). Plaintiff Eddy Martinez was employed by Miami Children’s Health System from 2009 to 2019, at which point he held the position of Chief Information Officer and Senior Vice President. Mr. Martinez would lose this position and be terminated on July 2, 2019, one day after a new interim CEO was appointed to head the company. The newly appointed acting CEO claimed he fired Mr. Martinez “for cause.” Mr. Martinez did not agree, challenged his termination, and applied for severance benefits under his ERISA severance plan. His claim for benefits was denied. In fact, as the uncontroverted evidence of this lawsuit uncovered, Miami Children’s determined that Martinez was not entitled to severance pay before even beginning to formally adjudicate his claim. In fact, anticipating litigation, the company hired a law firm to handle Mr. Martinez’s claim and defend Miami Children’s decision to deny Mr. Martinez severance benefits. In this decision, the court resolved cross-motions for summary judgment, and concluded that “the adjudication process in this case was replete with ‘procedural unfairness.’” Specifically, the court agreed with Mr. Martinez that nothing about the review of his severance claim was neutral or unaffected by the conflict of interest. Rather, the court held that every indication in the record supported the conclusion that “the procedurally deficient claim review in this case led to a deficient investigation, an incomplete administrative record, and a one-sided analysis.” The court wrote that it was “revealing that every factual issue is resolved against Martinez,” and gave several examples of the adversarial and one-sided investigation the claim reviewers engaged in. Accordingly, the court found that Mr. Martinez was denied a full and fair review process and granted judgment in his favor. However, under Eleventh Circuit precedent, the court found the proper course of action was “not to ‘evaluate the merits’ of the Administrator’s decision,” but instead to remand to defendants to re-evaluate the claim and conduct a full and fair review. Thus, despite the egregious manner in which the claim was handled, Mr. Martinez was not awarded benefits by the court.

D.K. v. United Behavioral Health, No. 21-4088, __ F. 4th __, 2023 WL 3443353 (10th Cir. May. 15, 2023) (Before Circuit Judges Carson, Lucero, and Rossman)

Good news this week for healthcare claimants in the Tenth Circuit. This case, in which a family successfully challenged a denial by United Behavioral Health of residential mental health treatment for a very young minor, engendered a surprising amount of controversy and competing amicus curiae briefs. Or perhaps the controversy here is not so surprising given the Ninth Circuit’s recent decisions, and the pending rehearing petition in Wit v. United Behavioral Health.

The history of this young person’s mental health struggles is heartbreaking. Suffice it to say that by the time A.K. was in middle school, she had a long history of anxiety, depression, and self-harm, including multiple suicide attempts.

The history of her parents’ attempts to get her treatment covered under her father’s healthcare plan is nearly as heartbreaking. According to the court, during a 20 month period in 2012 and 2013, “A.K. moved between emergency rooms, inpatient facilities, and day programs. …[and] United repeatedly scaled down A.K.’s treatment.” And, as the court saw it, “[b]ecause she was moved to lower-level care upon stabilization or slight improvement, she lacked the stability necessary to develop the skills to succeed outside of a 24-hour care setting.” Thus, in late 2013, on the advice of her doctors that she needed long-term residential treatment, A.K.’s parents applied for a “case exception” for approval of 12 months of residential treatment. Despite the “strong recommendations” of her physicians and other treatment providers, United issued five denials of the family’s claim with five different explanations.

The family filed suit, asserting that United acted arbitrarily and capriciously in denying A.K.’s benefit claim and breached its fiduciary duty by failing to provide full and fair review. The district court agreed, finding that United abused its discretion in numerous ways, including by failing to engage with the opinions of her doctors, failing to include reasoned analysis or specific citations to the medical records, and offering inconsistent and shifting rationales for its denial. Bucking the trend in many recent decisions, the district court simply ordered United to pay for this treatment rather than remanding for further review.

United appealed. Joined by the ERISA Industry Committee as amicus curiae, United first argued that, in reviewing A.K.’s claims, it was not required to engage with the opinions of  her doctors because the claims regulation applicable to healthcare claims does not expressly include this requirement. The Tenth Circuit sensibly rejected this argument, holding, as A.K. and the Department of Labor (DOL) urged, that United could not simply “shut its eyes” to the opinions of four of A.K.’s treating physicians by failing to provide any explanation for its rejection of these opinions. The court agreed with DOL that the newer regulations applicable to disability claims were merely clarifying and making explicit a requirement already in ERISA and could not be read to preclude such a requirement for healthcare claims. Indeed, the court concluded that the regulations were merely minimum guidelines or baseline requirements, and that higher fiduciary standards were applicable to administrators reviewing claims.         

The Tenth Circuit likewise rejected United’s argument that its notes proved that it did engage with the medical opinions of A.K.’s doctors and that it was not required to do so in its denial letters. The court pointed out that “ERISA denial letters play a particular role in ensuring full and fair review,” and thus required United to engage in a “meaningful dialogue” by addressing the opinions of A.K.’s physicians in its denials.  

The appellate court next agreed with the district court that United’s failure to cite any facts in the medical record demonstrated conclusory reasoning, thus rendering United’s actions arbitrary and capricious. To the extent that the denials contained four references to A.K.’s specific condition, these references were unsupported by citation and, in the court’s view, could have just as easily supported a finding that A.K. needed further residential treatment. And again, the court stressed that any reasoning supporting denial must be contained in the denial letters themselves.

Finally, the Tenth Circuit concluded that the district court was justified and acted within its discretion in awarding benefits outright rather than remanding to United to take a “second bite at the apple” (or in this case, a sixth). The Tenth Circuit sided with courts that have found that a remand is inappropriate where a plan administrator has not acted consistently with its fiduciary role. The court concluded that in light of “the administrator’s clear and repeated procedural errors in denying this claim, it would be contrary to ERISA fiduciary principles to mandate a remand.”

It is hard to imagine how an ERISA fiduciary could expect to win an argument that it need not engage with the opinions of numerous treating physicians that unambiguously supported a young girl’s claim for lifesaving mental health treatment, that it need not put its reasoning in its denial letters, and that a district court lacked the authority to award benefits in these circumstances. It is gratifying that the Tenth Circuit soundly rejected these arguments.

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

Breach of Fiduciary Duty

Seventh Circuit

Tolomeo v. R.R. Donnelley & Sons, Inc., No. 20-cv-7158, 2023 WL 3455301 (N.D. Ill. May. 15, 2023) (Judge Mary M. Rowland). Two former employees of R.R. Donnelley & Sons Company and participants of its “mega” 401(k) plan, the R.R. Donnelley Savings Plan, sued their former employer, its board of directors, and its benefits committee, individually and on behalf of a putative class, for breaches of fiduciary duties under ERISA. Plaintiffs alleged that defendants breached their duty of prudence by allowing the plan to pay excessive recordkeeping fees to the plan’s recordkeeper, Great-West Life & Annuity Insurance, LLC. They also maintained that R.R. Donnelley and the board of directors breached their duty to monitor the benefits committee and ensure the plan was in compliance with ERISA. Defendants moved to dismiss the action. The court denied their motion in this decision. The court concluded that it could reasonably infer fiduciary breaches from the allegations set forth in plaintiffs’ complaint. In particular, the court disagreed with defendants’ statement that Hughes v. Northwestern Univ., 63 F.4th 615 (7th Cir. 2023), “did not announce a ‘new pleading standard.’” To the contrary, the court held that Hughes “itself described its ‘newly formed pleading standard.’” The Hughes standard states that “where alternative inferences are in equipoise…the plaintiff is to prevail on a motion to dismiss. This is because, at the pleadings stage, we must accept all well-pleaded facts as true and draw reasonable inferences in the plaintiff’s favor. A court’s role in evaluating pleadings is to decide whether plaintiff’s allegations are plausible – not which side’s version is more probable.” Under the new standard outlined in Hughes, the court found that plaintiffs plausibly alleged that the fees paid by the plan were excessive, as they were nearly three times as high as what other plans of similar sizes were paying for a standard package of services offered by all other comparable recordkeepers of “nearly identical level and quality.” Thus, accepting plaintiffs’ allegations as true and relying on their provided benchmarks, the court agreed that the fees could suggest an imprudent decision-making process. Finally, because the court declined to dismiss the breach of fiduciary duty claim it also denied the motion to dismiss the derivative failure to monitor claim. Accordingly, the court allowed plaintiffs’ complaint to proceed and denied the motion to dismiss for failure to state a claim.

Mazza v. Pactiv Evergreen Servs., No. 22 C 5052, 2023 WL 3558156 (N.D. Ill. May. 18, 2023) (Judge Sara L. Ellis). For the second time this week, the Seventh Circuit’s decision in Hughes v. Northwestern Univ. had a material impact on a putative breach of fiduciary duty class action. Here, plaintiff Michael Mazza, a former participant in the Pactiv Evergreen Services Inc. Employee Savings Plan, sued Pactiv Evergreen Services Inc. and its board of directors for breaching their duties of prudence and monitoring in connection with allegedly high recordkeeping and administrative fees paid per participant of the plan. Much like the Tolomeo lawsuit and its decision denying a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) (summarized above), the court here found that Mr. Mazza had pled enough facts to infer that the fees paid were excessive when compared to the bundled recordkeeping and administrative services offered to all mega defined contribution plans and that defendants failed to monitor the reasonableness of the fees or regularly solicit bids for cheaper service providers. Therefore, drawing inferences in favor of plaintiff, the court denied defendants’ motion to dismiss the complaint. The court wrote, “Mazza’s allegations align more closely with those the Seventh Circuit allowed to proceed in Hughes than those it rejected in Albert.” Finally, with regard to the alternative explanations that defendants offered to explain the reasonableness of the fees paid for the services rendered, the court stated that defendants’ accounts “warrant exploration during discovery, [but] they are not so obvious that they require dismissal of Mazza’s claim at the pleading stage, particularly given Mazza’s allegations that [recordkeeping and administrative] services are commoditized and that recordkeepers quote fees on a per participant basis without regard for individual differences in the services requested.” As a result, in a post-Hughes world plaintiffs are having a much easier time surviving in these types of actions in the Seventh Circuit. The court concluded that Mr. Mazza’s complaint sufficiently alleged breaches of the duty of prudence and monitoring and therefore allowed the entirety of the complaint to carry on to further stages of litigation.

Disability Benefit Claims

Sixth Circuit

Tranbarger v. Lincoln Life & Annuity Co. of N.Y., No. 22-3369, __ F. 4th __, 2023 WL 3527418 (6th Cir. May. 18, 2023) (Before Circuit Judges Cole, Nalbandian, and Readler). After an operation to remove her gallbladder, plaintiff-appellant Vickie Tranbarger became increasingly unwell and started suffering from chronic pain and fatigue. Although she attempted to continue working in her position as an accounts receivable manager, her physical condition eventually worsened to the point where she felt she could no longer work. She subsequently resigned from her job and applied for long-term disability benefits under her ERISA-governed insurance policy with Lincoln Life & Annuity Company of New York. Her claim for benefits was denied by Lincoln, which concluded that Ms. Tranbarger was not continuously disabled during the six-month elimination period following her resignation and therefore not entitled to benefits under the terms of her policy. In response, Ms. Tranbarger commenced this lawsuit seeking judicial review of the adverse decision. The district court granted judgment on the administrative record to Lincoln under the de novo review standard, concluding that Ms. Tranbarger failed to prove that she was in fact continuously disabled during the relevant timeframe. Left once again with an adverse decision regarding her disability benefits, Ms. Tranbarger appealed the district court’s decision to the Sixth Circuit Court of Appeals. In this order the Sixth Circuit found that under either clear error review or de novo review of the district court’s decision and factfinding its conclusion would be the same – that Ms. Tranbarger could not meet her burden of demonstrating that she was continuously unable to perform the duties of her occupation during the half-year period immediately after her resignation. “The bar set by the plan’s requirement of ‘continuous’ disability, it bears mentioning, is a high one. Even one day of partial work ability during the Elimination Period is enough to defeat Tranbarger’s claim.” Unfortunately for Ms. Tranbarger, the Sixth Circuit concluded that the evidence in her medical record could not overcome such a high bar, as her pain and fatigue levels fluctuated as did her work capabilities on any given day during the timeframe at issue. Although there was plenty of evidence that Ms. Tranbarger was not in good health at the time, the court of appeals ultimately concluded that “[a]mple evidence suggests [Ms. Tranbarger] could perform some work in some instances.” Accordingly, the Sixth Circuit affirmed the district court’s decision. Despite the court’s decision to sidestep the question of what standard of review to apply to the district court’s factfinding in this decision, Circuit Judge Nalbandian took the opportunity on his own to address the topic in his concurring opinion. It was Judge Nalbandian’s view that relevant case law in the circuit requires de novo review not only of the district court’s legal opinions but also of its factfinding. Nevertheless, Judge Nalbandian expressed in his opinion that if given a clean slate he would do things differently and would adopt clear error review to a district court’s factfinding in ERISA cases, “even when the district court is not taking new evidence but instead simply review the administrative record that was before the plan administrator,” because the district court is the trier of the facts, not the appeals court. Moreover, in his concurrence, Judge Nalbandian argued that the approach established to review ERISA benefits claims, including all of its unique carve-outs, like those for abuse of discretion review, seem to be in direct conflict with both the Federal Rules of Civil Procedure and Supreme Court precedent established in United States v. Tsarnaev, 142 S. Ct. 1024 (2022). He stated that if the Federal Rules of Civil Procedure were applied under their plain language to ERISA cases as they are to all other civil actions, “we would allow parties to build up a record with discovery under Rule 26, move for summary judgment under Rule 56, and conduct a bench trial under Rule 52.” Judge Nalbandian maintained that the way ERISA cases are currently handled do not follow the contours of the Federal Rules of Civil Procedure, and because of this, he contended that ERISA cases are potentially in conflict with the Supreme Court’s decision Tsarnaev which “prevents lower courts from creating prophylactic rules that contradict federal statutes or rules – like the Federal Rules of Civil Procedure.” Nevertheless, at the end of the day Judge Nalbandian’s concurrence, regardless of the interesting the points he made in it, did not alter the outcome in this matter, as he agreed with his fellow judges that the right outcome was reached in Ms. Tranbarger’s case.

Laake v. Benefits Comm., No. 21-4178, __ F. 4th __, 2023 WL 3559602 (6th Cir. May. 19, 2023) (Before Circuit Judges Siler, Nalbandian, and Readler). Plaintiff Sherry Laake brought an ERISA Section 502(a)(1)(B) action against the Western & Southern (“W&S”) Financial Group Flexible Benefits Plan and its benefits committee, hoping for a court order in her favor on her long-term disability benefit claim. After many years of litigation and a remand in 2019, Ms. Laake got just that in a 2022 district court judgment in favor, wherein she was awarded benefits, statutory penalties, attorneys’ fees, and costs. Defendants appealed the decision. The Sixth Circuit affirmed in this order. It began with defendants’ challenge to the district court’s 2019 remand decision. The court of appeals concluded that the district court had not erred in finding that Ms. Laake was denied a full and fair review, and that W&S acted arbitrarily and capriciously in determining that Ms. Laake was disabled for a mental health condition, namely chronic pain syndrome. The Sixth Circuit agreed with the lower court that nothing in Ms. Laake’s medical record supported defendants’ conclusion that she was disabled for a mental illness. Rather, both the district court and the appeals court agreed that Ms. Laake’s medical records established she suffered from chronic pain, arthritis, osteoporosis, sinus conditions, gastrointestinal problems, and chronic fatigue syndrome. Having addressed the district court’s 2019 remand order, the Sixth Circuit proceeded to analyze the district court’s 2022 judgment in favor of Ms. Laake. Here too it agreed with the conclusions of the district court. To begin, the Sixth Circuit stated that the district court appropriately altered the standard of review from abuse of discretion to de novo following the denial on remand because the benefits department rather than the benefits committee improperly adjudicated the claim, and the benefits department did not have the same grant of discretionary authority in the plan. Furthermore, under de novo review, the Sixth Circuit agreed that Ms. Laake sufficiently met her burden of proof through both subjective and objective evidence that she was disabled as defined by her plan, as all of her treating physicians agreed that her symptoms were disabling. In addition, the appeals court agreed with the lower court that Ms. Laake was disabled under the Department of Labor guidelines for “sedentary work.” “We are also mindful of the district court’s finding that W&S engaged in particularly ‘egregious conduct throughout the course of this litigation’ and its ‘potential’ conflict of interest in this matter, which may have impacted Laake’s benefits determination.” Thus, given the weight of the evidence in favor of a finding that Ms. Laake was disabled, the Sixth Circuit affirmed the district court’s conclusion that she satisfied her plan’s definition and was therefore entitled to benefits. This left the Sixth Circuit with only a few more matters to address: the awards of penalties, fees, and costs. First, regarding the district court’s imposition of statutory penalties under § 1132(c), the court of appeals found that the district court had not abused its discretion by awarding the maximum $110 per day penalty for W&S’s failure to provide Ms. Laake with plan documents upon written request. It agreed that the evidence established Ms. Laake requested these documents, including the plan, the summary plan documents, and the trust agreement, but was not provided them for the period covered by the district court’s imposed penalties. The Sixth Circuit also agreed with the district court that W&S’s delay in producing these documents prejudiced Ms. Laake. Finally, under ERISA Section 502(g)(1), the court of appeals disagreed with defendants that the Hardt factors did not justify an award of attorneys’ fees and costs. “Based on our review of the record and given the district court’s careful application of each pertinent factor, the court did not abuse its discretion in awarding Laake attorneys’ fees and costs.” For these reasons, the district court’s judgment was affirmed. However, Circuit Judge Readler dissented in part from his colleagues. It was Judge Readler’s opinion that defendants should have retained their abuse of discretion review standard following the 2019 remand as the benefits department and the benefits committee were essentially the same group of people. In addition, under abuse of discretion review, Judge Readler stated that W&S’s decision on remand should have been affirmed, as it was reasonable and supported by substantial evidence.

Ninth Circuit

Walker v. AT&T Benefit Plan No. 3, No. 22-55450, __ F. App’x __, 2023 WL 3451684 (9th Cir. May. 15, 2023) (Before Circuit Judges Murguia, Friedland, and Bennett). Plaintiff Kevin Walker appealed a summary judgment award from the District Court for the Central District of California in favor of the AT&T Umbrella Benefit Plan No. 3 and AT&T Services, Inc. in this ERISA long-term disability benefit action. Under the terms of the plan a participant is eligible to receive long-term disability benefits if an illness, injury, or other medical condition renders them unable to perform the duties of “any occupation or employment for which [they] are qualified or may reasonably become qualified, based on training, education or experience.” Although Mr. Walker was awarded Social Security Disability benefits, the district court concluded that the plan and the Social Security Act had different disability requirements. Specifically, only the plan’s definition of disability included work that Mr. Walker could become qualified for given reasonable training, whereas Social Security Disability benefits only require that a claimant is precluded from work that he or she is already qualified to perform. On appeal, the Ninth Circuit affirmed the denial of long-term disability benefits. First, the appellate court agreed with the district court that de novo standard of review applied given AT&T’s failure to provide Mr. Walker with a full and fair review thanks to the actions it took which violated several of ERISA’s procedural claims handling requirements. However, even under the less rigorous review standard, the Ninth Circuit and the district court agreed that Mr. Walker could not prove his entitlement to benefits under the terms of the plan as none of his treating doctors opined that his chronic pain left him unable to perform any work. Rather, “the record shows that Walker could work with some restrictions.” The Ninth Circuit also found that AT&T appropriately provided a list of jobs available in the market that Mr. Walker could have become qualified to perform even with his physical limitations and work restrictions. Accordingly, the court of appeals concluded that the district court had made no clear error and therefore affirmed its decision. Finally, the Ninth Circuit rejected Mr. Walker’s assertion that the district court had erred by concluding that he lacked standing to bring a claim for injunctive relief to prevent AT&T from placing an equitable lien on certain funds received as an offset to any long-term disability benefits that may have been overpaid. The Ninth Circuit again agreed with the lower court and found that any injury was entirely hypothetical and therefore insufficient to state a claim.

Medical Benefit Claims

Sixth Circuit

Davita Inc. v. Marietta Mem’l Hosp. Emp. Health Benefit Plan, No. 2:18-cv-1739, 2023 WL 3452353 (S.D. Ohio May. 15, 2023) (Judge Sarah D. Morrison). A dialysis care provider, DaVita, Inc., sued Marietta Memorial Hospital, its employee benefits plan, and the plan’s medical benefits manager alleging that the plan’s terms which dictate the reimbursement scheme for dialysis treatments are unlawful. This case was originally brought in December of 2018. Initially, DaVita asserted claims for a violation of the Medicare Secondary Payer Act, benefits under ERISA Section 502(a)(1)(B), several breach of fiduciary duty claims under ERISA, a co-fiduciary liability claim, a claim for knowing participation in a fiduciary breach, and a claim for violation of 29 U.S.C. § 1182(a)(1) for discriminating against plan participants and beneficiaries who need dialysis treatment. Defendants moved to dismiss the action. Their motion was granted in its entirety on September 20, 2019. DaVita then appealed. On appeal, the Sixth Circuit reversed in part and remanded to the district court for further proceedings on the ERISA benefits claim, the Section 1182 claim, and the Medicare Secondary Payer Act claim. Defendants then filed a petition for writ of certiorari with the Supreme Court. The Supreme Court granted cert, heard the case, and entered a decision in defendants’ favor. Now, with this case back in front of the district court, defendants have moved for judgment on the pleadings of the amended complaint based on the Supreme Court’s decision. Their motion was granted in part and denied in part in this order. First, the court granted the motion with regard to the Medicare Secondary Payer Act claim. It concluded that the Supreme Court’s decision clearly entitled defendants to judgment on this claim. The Supreme Court expressly held that the plan terms did not violate the Act as they were applied uniformly to all enrollees and because the plan did not “differentiate in the benefits it provides” to individuals requiring dialysis or take into account whether any individual participant or beneficiary was entitled to or eligible for Medicare. Further, to the extent the ERISA benefits claims were based on a violation of the Medicare Secondary Payer Act, defendants were also granted judgment on that claim as well. But the court specifically stated that the claims for benefits may proceed because they were also premised on the § 1182 claim and the assertion that “Defendants’ conduct constitutes a breach of the ERISA plans at issue.” Lastly, with regard to the claim for violation of 29 U.S.C. § 1182(a)(1), the court denied defendants’ motion. It concluded that the Supreme Court “neither discussed nor disturbed” the Sixth Circuit’s finding that DaVita stated a claim under § 1182, and that the Supreme Court’s finding with regard to the Medicare Secondary Payer Act did not foreclose the § 1182 claim. In fact, the court stated that the Supreme Court’s decision underscored the difference between the two statutes because it held that the Medicare Secondary Payer Act is a coordination of benefits statute and not an antidiscrimination statute like Section 1182. Accordingly, defendants were not granted judgment on this claim, and it was also allowed to proceed.

Eleventh Circuit

L.R. v. Cigna Health & Life Ins. Co., No. 6:22-cv-1819-RBD-DCI, 2023 WL 3479064 (M.D. Fla. May. 16, 2023) (Magistrate Judge Daniel C. Irick). Plaintiff L.R. sued Cigna Health & Life Insurance Company under ERISA Section 502(a)(1)(B) seeking judicial review of a healthcare claim. In this order the court denied L.R.’s motion to request judicial notice of a ProPublica article published this year titled How Cigna Saves Millions by Having Its Doctors Reject Claims Without Reading Them written by Patrick Rucker, Maya Miller, and David Armstrong. This fascinating investigative piece outlines the ways in which Cigna designed and utilized an algorithm and review process known as “PXDX” to automatically deny thousands of healthcare claims “on medical grounds without opening the patient file.” As one of the eighteen million people insured by Cigna, L.R. believed that the information in this article was “relevant to the facts and issues which are the subject of this proceeding.” The court, however, did not agree. In its strongly worded denial of L.R.’s motion, the court disagreed with plaintiff that the article established facts, or that it was relevant to the matters at hand. The court went so far as to imply that the ProPublica article was not a well-researched piece of journalism but rather a matter of opinion from a “business website,” the type of source whose accuracy had to be reasonably questioned. Finally, the court stated that Eleventh Circuit precedent does not allow courts to take judicial notice of newspaper articles “to determine the truth of the matters asserted in the article.”

For these reasons, the court was unwilling to take notice of the ProPublica piece and found that L.R. was not entitled to the requested relief.

Plan Status

Fifth Circuit

Anderson v. HMO La., Inc., No. 23-971, 2023 WL 3477325 (E.D. La. May. 16, 2023) (Judge Carl J. Barbier). Plaintiffs Charles Anderson and Tania Nicole Anderson, a husband and wife, sued their health insurance provider, defendant HMO Louisiana, Inc., in state court alleging that it wrongly declined to pay for and failed to justify its denial of benefits for gastric surgeries that Ms. Anderson required. Defendant removed the action to the federal court system. It argued that the healthcare plan at issue is a group benefit plan governed by ERISA. Thus, HMO Louisiana maintained that the court has federal question jurisdiction over the matter. The Andersons moved to remand their lawsuit. They argued that the insurance policy, which covers only the two co-owners of an LLC and not any employees, is not an ERISA plan. Defendant responded that the LLC is actually a partnership, and that Mr. Anderson is a bona fide partner making him an employee and the plan an ERISA plan under the relevant statutes. Applying the relevant ERISA regulation and Fifth Circuit precedent on the topic, the court sided with HMO Louisiana in this decision and denied the motion to remand. It found that the company, regardless of its title as an LLC, is a 50/50 joint partnership among the two co-owners, meaning that Mr. Anderson and his business partners are employees as defined under ERISA. In addition, the court concluded that because the two owners perform services on behalf of the company, they qualify as bona fide partners. “Therefore, the HMO Louisiana benefit arrangement in this case qualifies as an ERISA plan that provided medical care for the bona fide partners and their dependents, and this case was properly removed to this court.” Accordingly, the court maintained jurisdiction over the action and denied the motion to remand.

Carlson v. Northrop Grumman Severance Plan, No. 22-1764, __ F. 4th __, 2023 WL 3299703 (7th Cir. May. 8, 2023) (Before Circuit Judges Easterbrook, Hamilton, and Lee)

In this certified class action, former Northrop Grumman employees filed suit against the Northrop Grumman Severance Plan, contending that its refusal to pay severance benefits to them after their termination in a 2012 layoff violated ERISA.

Northrop contended that the plaintiffs were not entitled to severance benefits because the plan provided that a laid-off employee regularly scheduled to work at least 20 hours a week would only receive severance benefits if that employee “received a cover memo, signed by a Vice President of Human Resources (or his/her designee), with this document addressed to you individually by name.” According to Northrop, the plaintiffs did not receive the “HR Memo,” and thus they were not entitled to benefits.

Plaintiffs responded that this document was not a prerequisite for eligibility to receive benefits, but rather a ministerial document, the purpose of which was to verify eligibility for all employees who were scheduled to work at least 20 hours per week. In addition, they maintained that it had always been Northrop’s policy to provide an HR Memo to every laid-off employee who met the work hour requirements. This change, plaintiffs argued, interfered with their rights to receive benefits to which they were otherwise entitled. Accordingly, in this class action plaintiffs asserted three causes of action, under ERISA Sections 502(a)(1)(B), 510, and 502(a)(3), for benefits, retaliation, and breach of fiduciary duty.

When this suit was originally filed, the parties mutually agreed to have a magistrate judge preside over it and resolve the case. However, after the magistrate certified the class, Northrop had a change of heart. “[O]nce the suit was certified as a class action (on behalf of all laid-off employees who did not receive a HR Memo), and the stakes multiplied, Northrop Grumman asked the district judge to resume control. The judge obliged.”

Northrop’s strategy paid off. The district judge granted summary judgment in favor of Northrop, holding that the plan language granted the HR Department the discretion to selectively pick which employees, if any, would receive severance benefits upon termination. Moreover, the court agreed with Northrop that the plan language required participants to be designated as eligible for the plan by the HR Department and that receipt of the HR Memo was required to be eligible for benefits. Finally, the court found that ERISA does not prevent any welfare benefit plan from selectively determining recipients.

The plaintiffs appealed to the Seventh Circuit, which in this published decision affirmed the district court’s rulings in their entirety.

As an initial matter, the Seventh Circuit disagreed with plaintiffs that the district court’s decision to take over the case from the magistrate was an abuse of discretion. The Seventh Circuit agreed that class certification qualified as “good cause” to rescind the previously agreed-upon assignment. “We do not see any abuse of discretion. Class certification complicated and prolonged the litigation…Withdrawing a reference in order to make a simple legal decision that ends the suit has much to be said for it.” The Seventh Circuit stated that it made no difference who resolved the suit at the district court level because the “meaning of the Plan – like the meaning of ERISA – is a question of law.”

With that preliminary matter settled, the court proceeded to the merits of plaintiffs’ claims, “which do not require extended discussion.” The court held simply that plaintiffs’ claims failed because the plan made the receipt of severance benefits contingent on receipt of the HR Memo. Because plaintiffs and the other members of the class did not get an HR Memo, they were not eligible for benefits. And even assuming Northrop’s actions were self-serving, the Seventh Circuit stated that “the terms of welfare-benefit plans are entirely in the control of the entities that establish them. When making design decisions, employers may act in their own interests.” Given the discretionary authority spelled out in the plan, the Seventh Circuit found Northrop was acting well within its powers to pick and choose who received severance benefits.

The Seventh Circuit further ruled that Northrop’s alleged past actions in which it sent automatic HR Memos to all laid-off employees were irrelevant. “A person possessing discretion may change the way that discretion is exercised. So even if Northrop Grumman had announced the universal-severance-benefits norm that plaintiffs believe it had until October 2011, this would not prevent it from changing that approach.” Along these same lines, the Seventh Circuit concluded that past behavior did not create legal entitlement to the benefits and that “[r]ights under ERISA are not subject to estoppel[.]”

In sum, the appeals court concluded that the plaintiffs never qualified for benefits under the severance plan and thus they could not prevail on any of their ERISA claims. For these reasons the judgment of the district court was affirmed.

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

Arbitration

Eighth Circuit

Hursh et al. v. DST Sys., No. 4:21-9184-NKL, 2023 WL 3331799 (W.D. Mo. May. 8, 2023) (Judge Nanette K. Laughrey). Longtime readers of Your ERISA Watch may remember a series of decisions we summarized in 2021 and 2022 in which this court confirmed arbitration awards won by participants of DST Systems, Inc.’s 401(k) profit sharing plan arising from DST’s failure to monitor or rebalance the plan’s overly concentrated investments in a single stock. DST attempted to thwart confirmation of these awards at every step of the way. First, it attempted to transfer these cases to the Southern District of New York, arguing that the plaintiffs should be part of a mandatory class certified in New York. The court denied the motion to transfer, and, as stated above, approved the arbitration awards under the Federal Arbitration Act. DST then appealed these decisions to the Eighth Circuit. There, DST found some success. The arbitration awards were vacated. The Circuit Court concluded that the district court lacked federal question subject matter jurisdiction because the plaintiffs were seeking relief under an arbitration agreement, meaning their motions to confirm these awards did not implicate ERISA without a “look-through” approach, which is considered impermissible in the Eighth Circuit. The appeals court then remanded to the district court with instructions to determine whether it had diversity jurisdiction over each arbitration award by applying a case-by-case analysis. On remand from the Eighth Circuit this court entered a judgment confirming arbitration awards in favor of 55 plaintiffs over which it found it had diversity jurisdiction. These awards included attorneys’ fees, costs, and expenses. Now, the New York class action has reared its head once again. This time DST is attempting a workaround to this court’s judgments by settling the class action in New York under terms which would deprive the plaintiffs here of their judgments. Specifically, if approved, the settlement would eliminate the award of fees and costs, which is substantial, as the court pointed out, “the attorneys’ fees awards in the 55 judgments combined are almost twice as high as the damages awards combined.” In response, the court issued a preliminary injunction against DST to protect its judgments and enjoined DST or the attorneys acting on its behalf from entering into an agreement “that settles, disposes of, interferes with, invalidates…or otherwise compromises each such judgment, without the express written consent of each Confirmation Plaintiff in whose favor judgment was entered by this Court.” DST subsequently filed a motion to stay the injunction. An oral argument was held on the topic, after which the court issued this order denying DST’s motion. It concluded that DST failed to demonstrate any irreparable harm absent a stay, while the confirmation plaintiffs would be substantially injured if the injunction were to be stayed. The court held that DST’s intent was to deprive the court of jurisdiction over the cases despite its previous decision denying DST’s motion to transfer the cases. “Indeed, DST’s position that a lawyer, appointed by a court to represent a class, can give away a class member’s judgment to achieve class-wide settlement is both novel, and frankly, shocking to this Court.” Finally, it was the court’s position that allowing DST to strip a substantial portion of the value of plaintiff’s judgment in this way “would undermine public confidence in the predictability and reliability of the judicial system. Further…to allow DST to ignore orders of this Court would bless forum-shopping and undermine the Federal Arbitration Act and the judiciary’s role in enforcing arbitration agreements and awards.” Accordingly, the court would not sign off on DST’s proposed course of action and thus left its injunction in place.

Breach of Fiduciary Duty

Seventh Circuit

Su v. Johnson, No. 22-2204, __ F. 4th __, 2023 WL 3335733 (7th Cir. May. 10, 2023) (Before Circuit Judges Hamilton, Brennan, and Kirsch). The Secretary of Labor commenced this civil enforcement lawsuit against two ERISA fiduciaries, Shirley T. Sherrod and Leroy Johnson, for breaches of their fiduciary duties. In essence the Secretary argued that through a series of self-dealing transactions “Sherrod gave herself the keys to the bank vault, and Johnson let her use them,” including by paying a quarter of a million dollar bond from plan assets in a state lawsuit and through 123 individual transactions in which Ms. Sherrod withdrew $825,000 in plan assets over a five-year period. The district court granted judgment in favor of the Secretary and entered a permanent injunction against the defendants to remove them as fiduciaries. Additionally, the district court appointed an independent fiduciary to terminate the plan, evaluate all previous distributions and transactions, and to issue distributions to the eligible participants and beneficiaries. Defendants appealed. In this order the Seventh Circuit affirmed. Simply put, the court of appeals concluded that the undisputed facts proved that the defendants were plan fiduciaries, that they breached their duties of care, loyalty, prudence, and to act in accordance with plan documents, and that these breaches caused harm to the plan. Moreover, the Seventh Circuit stated that the district court was well within its powers in awarding the injunctive relief it did, stating that defendants “are fortunate that the relief against them has thus far been relatively modest.” Finally, the Circuit Court concluded that the district court’s denial of defendants’ motion for leave to amend to bring a statute of limitations argument was not a reversible error. It held that the Secretary did not have actual knowledge of the breaches at issue that would have triggered the three-year statute of limitations and that defendants’ documents in support of their position did not prove otherwise. Accordingly, the district court’s grant of summary judgment and the equitable relief it awarded were affirmed.

ERISA Preemption

Sixth Circuit

Lawrence E. Moon Funeral Home v. Metropolitan Life Ins. Co., No. 22-13116, 2023 WL 3431226 (E.D. Mich. May. 12, 2023) (Judge Judith E. Levy). The Lawrence E. Moon Funeral Home sued Metropolitan Life Insurance Company (“MetLife”) in state court seeking payment for funeral services it provided out of proceeds from an ERISA-governed life insurance plan. MetLife removed the action to federal court. It argued that the state law claims were preempted by ERISA. On March 27, 2023, the court ordered MetLife to show cause why this case should not be remanded back to state court for lack of subject matter jurisdiction. MetLife filed its response in opposition to remand, voicing its preemption arguments. However, the court was not persuaded by MetLife’s arguments, concluded in this order that it lacks subject matter jurisdiction, and remanded the case. First, regarding express preemption, the court stated that under Sixth Circuit precedent “preemption under § 1144(a) cannot provide a basis for removal to federal court,” and that MetLife did not meet its burden to overcome the well-pleaded complaint rule. The court stated that preemption was not evident on the face of the complaint itself. “Defendant’s own brief makes clear that § 1144(a) provides the basis for its defense, not the basis of Plaintiffs’ complaint.” Next, the court found that the complaint was not completely preempted by ERISA because the funeral home is not a beneficiary with a colorable claim and therefore would have been unable to assert a cause of action under Section 502(a)(1)(B).  “Moreover, Plaintiffs’ complaint requests that the Court prevent distribution of any proceeds directly to the beneficiaries.” Thus, the court concluded that it lacked jurisdiction over the lawsuit and found that remanding to state court for further proceedings was therefore the appropriate course of action.

Seventh Circuit

King v. King, No. 3:23-CV-355-NJR, 2023 WL 3346974 (S.D. Ill. May. 10, 2023) (Judge Nancy J. Rosenstengel). Following the death of Shaun King, Lincoln National Life Insurance Company distributed benefits from his ERISA group life insurance policy to the named beneficiary, Mr. King’s ex-wife, Angela King. Mr. King’s daughter and the administrator of his estate, Shaunice King, sued both Angela and Lincoln in state court believing the benefit distribution was in direct conflict with the terms of Shaun and Angela’s divorce decree. Shaunice King asserted two causes of action: a claim of unjust enrichment and a claim under Illinois’ Marriage and Dissolution of Marriage Act. Angela and Lincoln removed the action to federal court, arguing the claims against them, which in effect challenge the distribution of life insurance proceeds under an ERISA plan, are preempted by ERISA. In response, Shaunice moved to remand her action back to state court. Defendants then moved to dismiss the action. Both motions were denied in this decision. First, the court agreed with defendants that Shaunice’s claims were preempted under the two-step Davila test. It held that Shaunice was an ERISA beneficiary with a colorable claim for benefits who therefore could have brought her claims under ERISA Section 502(a)(1)(B). Furthermore, it found that both state law claims were premised on the existence of the group life insurance policy and sought proceeds under the policy. Thus, the court stated that no independent legal duty was implicated by Shaunice’s complaint. Nor did the court find that the probate exception applied here as the insurance benefits are not now and never were in the custody of state probate court. For these reasons, the court concluded that ERISA completely preempts Shaunice’s claims and therefore stated that it has jurisdiction over the lawsuit. Accordingly, the court denied the motion to remand. Finally, the court found defendants’ arguments in favor of dismissal to be premature and “better presented and resolved at summary judgment.” Therefore, the court also denied the motion to dismiss.

Medical Benefit Claims

Second Circuit

Tindel v. Excellus Blue Cross & Blue Shield, No. 5:22-cv-971 (BKS/ATB), 2023 WL 3318489 (N.D.N.Y. May. 9, 2023) (Judge Brenda K. Sannes). An ERISA plan beneficiary, Kevin Heffernan, and the two out-of-network orthopedic and neurosurgeons who performed emergency spinal surgery on him, sued Excellus BlueCross & BlueShield asserting claims under ERISA and state law seeking payment of the outstanding 99% of the billed charges which were not paid by the insurance company following the procedure. Defendant moved to dismiss the ERISA causes of action brought by the healthcare provider plaintiffs, and the state law claims brought by all three plaintiffs. First, regarding the healthcare providers, Blue Cross argued that the surgeons lacked standing to bring their claims because the plan contains an anti-assignment provision. To bolster this assertion, Blue Cross attempted to include a document which it claimed was the summary plan description whose terms were incorporated into the ERISA plan. However, the plaintiffs argued that the summary plan descriptions are not themselves the terms of the plan, and they therefore challenged the authenticity and applicability of the document and by extension its anti-assignment clause. In light of this dispute regarding the plan terms, the court declined to consider the document and because it would not consider the outside document and as the complaint itself did not allege the plan contains a provision banning assignments of benefits, the court held that Blue Cross did not meet its burden of demonstrating that the provider’s ERISA claims had to be dismissed for lack of standing. According, the court denied this aspect of Blue Cross’s motion. Nevertheless, the court agreed with Blue Cross that some of plaintiffs’ state law claims were preempted by ERISA as they related to the plan. These causes of action were plaintiffs’ unjust enrichment, breach of contract as intended beneficiaries, and tortious interference claims, all of which were dismissed. However, Plaintiffs were successful in their argument that their claim of breach of implied-in-fact contract involved a “rate of payment” dispute rather than a “right to payment” and that they detrimentally relied on a promise from Blue Cross’s representative that they would be paid for the procedures at the “local usual and customary rates.” Thus, the court found that this claim was not expressly preempted and allowed it to proceed. For these reasons, the motion to dismiss was granted in part and denied in part as described above.

Seventh Circuit

Midthun-Hensen v. Group Health Coop. of S. Cent. Wis., No. 21-cv-608-slc, 2023 WL 3303865 (W.D. Wis. May. 8, 2023) (Magistrate Judge Stephen L. Crocker). Two parents representing their minor daughter who has been diagnosed with Autism Spectrum Disorder filed this putative class action against Group Health Cooperative of South Central Wisconsin, Inc. to challenge its denial of coverage for speech and sensory integration occupation therapies as unproven/experimental treatments. Plaintiffs brought claims for benefits under Section 502(a)(1)(B), a claim under the Mental Health Parity and Addiction Equity Act, and a claim for violation of a Wisconsin state law mandating health insurance providers provide coverage for evidence-based Autism treatments. Group Health moved for summary judgment on all claims. Its motion was granted in this decision. Beginning with the benefits claims, the court held that the denials were not an abuse of discretion and were supported by substantial evidence. Specifically, although the guidelines Group Health relied on at the time of the denial have all since been modified and updated to hold that the treatments at issue are evidenced-based and generally accepted standards of care, the court wrote that “plaintiffs fail[ed] to show that GHC abused its discretion or acted downright unreasonably in determining that the line between experimental and generally accepted had not yet been crossed at the time of the challenged denials in this case.” Thus, under deferential review, the court granted summary judgment to Group Health on all of plaintiffs’ claims asserted under § 1132(a)(1)(B). Having made this determination, the court then moved on to its discussion of the Parity Act claim. Plaintiffs claimed that Group Health applied more stringent limitations regarding non-experimental treatments in the context of Autism treatments than it did for physical chiropractic care. Although the court acknowledged that there was a disparity in coverage for some of the mental health treatments as opposed to the chiropractic treatments, it found that they “arose not from GHC applying a more restrictive strategy or process to mental health benefits, but from a difference in the status of acceptance of those treatments by the medical community at large.” Accordingly, the court held that Group Health had not violated the Mental Health Parity and Addiction Equity Act. Finally, plaintiffs’ state law claim failed for the same reasons as their denials for benefits, i.e., that at the time of the denials there was not a medical consensus that the treatments at issue were considered evidence-based services. For these reasons, Group Health’s summary judgment motion was fully granted.

Pension Benefit Claims

D.C. Circuit

Ljubicic v. Int’l Bhd. of Elec. Workers, No. 22-7124, __ F. App’x __, 2023 WL 3295539 (D.C. Cir. May. 8, 2023) (Before Circuit Judges Millett, Wilkins, and Katsas). An ERISA claimant, Ante Ljubicic, sued the International Brotherhood of Electrical Workers after his claim for pension benefits was denied when the plan trustees determined that Mr. Ljubicic was engaged in disqualifying employment that precluded him from receiving retirement benefits. The district court granted judgment to the union. It concluded that the denial of the application for pension benefits was supported by substantial evidence and that Mr. Ljubicic was afforded a full and fair review process as required under ERISA’s provisions. Mr. Ljubicic appealed the district court’s adverse decision. In this order the D.C. Circuit Court affirmed the district court’s order granting summary judgment to the union. First, the appeals court stated that Mr. Ljubicic forfeited his ability to raise any argument regarding his fraudulent misrepresentation claim because he had failed to do so in his briefs. Second, the court of appeals agreed with the lower court that Mr. Ljubicic could not succeed on his claim for benefits, as well as with its conclusion “that the denial of his application for pension benefits was the result of deliberate and reasoned process and supported by substantial evidence.” Finally, the Circuit Court rejected Mr. Ljubicic’s position that the district court erred by declining to consider materials beyond those presented to the plan administrators at the time they conducted their review. 

Pleading Issues & Procedure

Eleventh Circuit

Schramm v. Metropolitan Life Ins. Co., No. 5:23-cv-163-JSM-PRL, 2023 WL 3320086 (M.D. Fla. May. 9, 2023) (Magistrate Judge Philip R. Lammens). Plaintiff Charles Schramm brought this long-term disability benefit action against Metropolitan Life Insurance Company on March 9, 2023. Less than two months later, he moved to seal his complaint, arguing that he is not comfortable with his private health information being made public in this lawsuit. The court denied the motion to seal in this decision. It found that Mr. Schramm’s wish for medical privacy was not a compelling justification to grant the motion. “By filing this action seeking an award of long-term disability benefits, Plaintiff has placed his own medical condition squarely at issue. ‘Courts have routinely held that, by putting one’s medical condition at issue in a lawsuit, a plaintiff waives any privilege to which he may have otherwise been entitled as to his privacy interests in his medical records.’”