Today’s notable decision is the D.C. Circuit decision in Lewis, et al. v. Pension Benefit Guaranty Corporation, No. 17-5068, __F.3d__, 2018 WL 4000484 (D.C. Cir. Aug. 21, 2018).
The gist is that Delta and the PBGC agreed to terminate the Delta Pilots Retirement Plan (“the Plan”) because the Plan had insufficient assets to support the retirement benefits promised to the pilots. The PBGC became the statutory trustee to collect the Plan’s remaining assets and make the promised payments according to a list of statutory priorities. Unfortunately, it took six years for the Corporation to finish making final benefit determinations. The pilots claim that the PBGC breached its fiduciary duties in a number of ways which enabled it to control Plan assets for a longer period and collect massive investment returns.
The pilots claim that 29 U.S.C. § 1303(f)(1) authorizes individual equitable relief against the PBGC to disgorge itself of the unjust enrichment. The PBGC moved to dismiss this claim on the basis that 29 U.S.C. § 1344(c) prevents disgorgement in this case because it would impermissibly redirect to the pilots the post-termination increase in the value of plan assets. The district court denied the PBGC’s motion to dismiss because of the likelihood that such a remedy was not prohibited by § 1344(c). It did resolve all other issues in favor of the PBGC.
On interlocutory appeal, the D.C. Circuit was presented with four controlling questions of law: “First, can individuals bring a fiduciary breach claim against the Corporation under § 1303(f) in addition to requesting judicial review of the Corporation’s post-termination benefit determinations? Second, can plan participants in such a lawsuit recover more than their statutorily defined benefits under Title IV of ERISA? Third, can plan participants in such a lawsuit recover individual, as opposed to plan-wide, relief for the alleged fiduciary breach? And fourth, does § 1344(c) preclude the remedy of disgorgement of post-termination investment gains derived as a result of the alleged fiduciary breach?”
All very interesting questions but the court only addressed the last one. 29 U.S.C. § 1344(c) provides in full:
Any increase or decrease in the value of the assets of a single-employer plan occurring during the period beginning on the later of (1) the date a trustee is appointed under section 1342(b) of this title or (2) the date on which the plan is terminated is to be allocated between the plan and the [C]orporation in the manner determined by the court (in the case of a court-appointed trustee) or as agreed upon by the [C]orporation and the plan administrator in any other case. Any increase or decrease in the value of the assets of a single-employer plan occurring after the date on which the plan is terminated shall be credited to, or suffered by, the [C]orporation.
29 U.S.C. § 1344(c). The court found that the second half of § 1344(c) applies because it expressly governs the allocation of post-termination gains at issue in this case. The court agreed with the PBGC that it is entitled to any post-termination increase in the value of pension assets because Congress has already decided who benefits or suffers the loss from a change in the value of plan assets once the plan has been terminated. It concluded that disgorgement is not an available remedy in this case because 29 U.S.C. § 1344(c) prevents the pilots from recovering any post-termination increase in the value of Delta Plan assets in the same way it shields plan participants from additional loss by the PBGC. The court is reluctant to expand the scope of remedies in a way that would impose trustee liability on the PBGC in its role as guarantor. The court noted, however, that a remedy that includes removal of the PBGC as statutory trustee of the terminated plan is available as a form of equitable relief.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Attorneys’ Fees
Third Circuit
U.S. Renal Care Inc. v. Wellspan Health, et al., No. 1:14-CV-2257, 2018 WL 3973191 (M.D. Pa. Aug. 20, 2018) (Judge Sylvia H. Rambo). In this dispute by a provider against a self-funded health plan over the recoupment of money based on the overpayment of services for a plan participant, where the plan ultimately prevailed on summary judgment, the court granted Defendants’ motion for attorneys’ fees in part and awarded a total of $394,120.00 to WellSpan. Though that amount “far exceeds the judgement of $159,706.39 entered in favor of WellSpan in the underlying litigation. … the Third Circuit has held that there is no requirement under ERISA that an award of attorney’s fees be proportional to the amount of the underlying award.” The awarded rates ranged from $370/hour to $695/hour.
Sixth Circuit
Harrison v. The PNC Financial Services Group, et al., No. 3:17-CV-75, 2018 WL 3970914 (S.D. Ohio Aug. 20, 2018) (Judge Walter H. Rice). Here, Plaintiff achieved a remand to the Plan Administrator and success on the issue of whether he was a Participant in the Severance Plan. Though Plaintiff ultimately lost on the merits of his entitlement to severance benefits, the court found that he was entitled to “reasonable attorney fees and costs under 29 U.S.C. § 1132(g)(1), Article 5.6 of the Plan, or both, despite the Court’s finding that he is not entitled to severance benefits under the Plan.” The court instructed Plaintiff to file a Motion for Attorney Fees and Costs, along with itemized billing statements.
Breach of Fiduciary Duty
Second Circuit
Dezelan v. Voya Retirement Insurance and Annuity Company, No. 3:16-CV-01251 (VAB), 2018 WL 3962924 (D. Conn. Aug. 17, 2018) (Judge Victor A. Bolden). The court agreed with Defendant that Plaintiff’s Section 404(a) claim should be dismissed because she failed to plausibly allege that Voya took “Spread” (the difference between the guaranteed Credited Rate and the Internal Rate of Return) on the Separate Account assets in the Cedars-Sinai Medical Center 403(b) Retirement Plan. The court also dismissed Plaintiff’s unreasonable compensation claims under Section 406(a)(1) and 406(b)(1).
Fourth Circuit
Feinberg v. T. Rowe Price Group, Inc. et al., No. CV MJG-17-0427, 2018 WL 3970470 (D. Md. Aug. 20, 2018) (Judge James K. Bredar). In this purported class action alleging violations of ERISA’s fiduciary duty and prohibited transaction provisions under 29 U.S.C. §§ 1132(a)(2) and (a)(3), the court denied dismissal of all seven counts. The court found that Plaintiffs have sufficiently alleged a plausible inference that the Trustees breached their duties of loyalty and prudence in their selection and monitoring of investments for the 401(k) Plan; the failure to monitor claim against the Appointing Fiduciary Defendants is plausible; the imprudent investment advice claim against the T. Rowe Price Investment Affiliates is adequately supported; Plaintiff’s adequately stated a claim for co-fiduciary liability; the allegations against the current Trustees for failure to remedy predecessor breaches are sufficient to survive dismissal; Plaintiffs include allegations under § 1106(b) regarding transactions between the Plan and the fiduciary, which are not exempted under § 1108 and there is a plausible claim of prohibited transactions that are not barred by limitations; and disgorgement as a form of equitable relief is available under 29 U.S.C. § 1132(a)(3).
Disability Benefit Claims
Sixth Circuit
Brown v. Hartford Life Ins., Co., No. 17-CV-10868, 2018 WL 3972195 (E.D. Mich. Aug. 20, 2018) (Judge George Caram Steeh). Plaintiff, a former Registered Nurse who stopped working due to orthopedic spine problems she suffered after several domestic assaults following fusion surgery, challenged Hartford’s termination of her long-term disability benefits. The court granted Hartford’s motion for judgment since “Brown has failed to come forward with objective medical evidence to support her claim of total disability which is contradicted by surveillance evidence, an independent medical examination (‘IME’), and the conclusions of five physicians who performed Independent Medical Reviews (‘IMRs’).” With respect to the surveillance, Hartford previously found that the activities seen were not sufficient to impact her claim and closed the investigation. Nonetheless, the court relied on the surveillance evidence to show that she exaggerated her limitations.
ERISA Preemption
Ninth Circuit
Sharp Mem’l Hosp. v. Regence BlueCross BlueShield of Utah, No. 16CV2493 JM (RNB), 2018 WL 3993359 (S.D. Cal. Aug. 21, 2018) (Judge Jeffrey T. Miller). The court granted “judgment as a matter of law in favor of Regence and against Sharp on all claims except Sharp’s breach of implied-in-fact contract claim based on communications between Regence and Sharp.” Even if authorizing seven days of treatment created an implied-in-fact contract, the court noted “the likelihood that the breach of implied-in-fact contract claim is expressly preempted by ERISA.”
Pension Benefit Claims
D.C. Circuit
Lewis, et al. v. Pension Benefit Guaranty Corporation, No. 17-5068, __F.3d__, 2018 WL 4000484 (D.C. Cir. Aug. 21, 2018) (Before: GRIFFITH and PILLARD, Circuit Judges, and WILLIAMS, Senior Circuit Judge). See Notable Decision summary above.
Provider Claims
Third Circuit
University Spine Center v. Highmark, Inc., No. CV1713660JMVCLW, 2018 WL 3993457 (D.N.J. Aug. 21, 2018) (Judge John Michael Vazquez). The court granted Defendant’s motion to dismiss because an anti-assignment clause prevents Plaintiff from bringing claims for reimbursement.
Fifth Circuit
Cell Science Systems Corporation v. Louisiana Health Service and Indemnity Company, No. CV 17-1658-SDD-RLB, 2018 WL 3978361 (M.D. La. Aug. 20, 2018) (Judge Shelly D. Dick). The court granted Defendant’s motion to dismiss because the provider lacks standing to bring any claims asserted in this lawsuit due to an unambiguous anti-assignment provision in the plan at issue. The court rejected the provider’s “blanket assertion that ‘the Fifth Circuit has held that anti-assignment clauses apply only to unrelated third party creditors.’” The court also found no allegation, argument or evidence that would support a finding of extraordinary circumstances to estop Defendant from asserting the anti-assignment provisions to defeat the provider’s standing in this case.
Weiner v. Blue Cross and Blue Shield of Louisiana, No. 3:17-CV-949-BN, 2018 WL 3956431 (N.D. Tex. Aug. 17, 2018) (Magistrate Judge David L. Horan). The court granted Defendant’s motion for summary judgment. It determined that Plaintiff is not authorized to sue Defendant for improper recoupment because the right to sue is limited to ERISA plan participants and he is not a participant. He is also not a beneficiary because the Plan’s anti-assignment clause bars the purported assignment by his patient and recoupment claims are outside the scope of the purported assignments. Also, the Plan administrator did not abuse its discretion in denying the claim because the Plan excludes a procedure for a molded shoe insert and Plaintiff was informed as such when he sought preapproval. The court also determined that Defendant did not violate ERISA’s notice and appeal requirements.
Eleventh Circuit
Griffin, Md v. Verizon Communications Inc., Anthem Insurance Companies, Inc., No. 17-14761, __F.App’x__, 2018 WL 3993631 (11th Cir. Aug. 20, 2018) (Before MARCUS, MARTIN, and ROSENBAUM, Circuit Judges). The district court dismissed Plaintiff’s lawsuit against Verizon on the basis that it selectively enforces the anti-assignment provision in its health plan against female and minority healthcare providers in violation of Section 1557 of the Patient Protection and Affordable Care Act, 42 U.S.C. § 18116, which prohibits health plan providers who receive federal funds from discriminating based on sex or race. On appeal, Plaintiff argued that the district court erred by finding she failed to allege discrimination, and by failing to rule that Verizon’s plan was subject to Section 1557. The Eleventh Circuit affirmed because Plaintiff failed to plausibly allege discrimination in the enforcement of the anti-assignment provision or a discriminatory litigation strategy.
Severance Benefit Claims
Sixth Circuit
Harrison v. The PNC Financial Services Group, et al., No. 3:17-CV-75, 2018 WL 3970914 (S.D. Ohio Aug. 20, 2018) (Judge Walter H. Rice). Plaintiff, Mortgage Origination Regional Manager for Southwest Ohio and Central Ohio, voluntarily resigned and sought $500k in severance benefits under the Plan provision which provides severance due to voluntary resignation if the participant is required to have his principal location of work changed to any location in excess of 50 miles of the location of work just prior to the Change in Control. After the change in control Plaintiff’s assigned geographic region was expanded to encompass several states. The court found in favor of Defendant because the “the Plan Administrator’s interpretation of Article 3.2(b) cannot be deemed irrational. As explained, there can be only one ‘principal location of work.’ Given that Harrison cannot identify any other single location where he spends more time than at Miamisburg, it is difficult to say that there has been a change in his ‘principal location of work.’ Moreover, as the Plan Administrator noted, under the 2005 Plan, additional travel requirements would have triggered eligibility for severance benefits. The omission of this ‘trigger’ in the 2008 Plan gives rise to a strong inference that the drafters intended to narrow the scope of Participants who would be eligible for severance benefits.”