Good morning, ERISA Watchers! It’s been a beautiful sunny weekend here in San Francisco. Unfortunately, it hasn’t been so sunny for participants investing in SunEdison stock. This week’s notable decision is Usenko v. MEMC LLC, No. 18-1626, __F.3d__, 2019 WL 2344827 (8th Cir. June 4, 2019), where the Eighth Circuit affirmed the district court’s dismissal of this putative class action alleging that Defendants breached their duty of prudence with respect to keeping SunEdison stock in the defined-contribution retirement savings plan. Plaintiffs alleged that Defendants knew, or should have known, that between July 20, 2015 and April 21, 2016 that SunEdison was in poor financial condition and they should have removed SunEdison stock from the plan’s assets.
The court found that the allegations in this case are insufficient to plausibly state a breach of the duty of prudence based on the standard articulated in Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409, 134 S.Ct. 2459, 189 L.Ed.2d 457 (2014). Plaintiffs’ position is that Defendants should have acted on publicly available information to investigate and determine that divesting from SunEdison stock would be prudent as of July 20, 2015. But the complaint does not contain allegations that the circumstances indicated to Defendants that they could not rely on the market’s valuation of the stock. Defendants are not required to outperform the market based solely on their analysis of publicly available information to determine that the SunEdison stock was excessively risky. Further, Tibble v. Edison’s requirement that a fiduciary has a continuing duty to monitor trust investments and remove imprudent ones does not exempt Plaintiff from the requirement of meeting Dudenhoeffer’s pleading requirements. Lastly, the court affirmed the denial of Plaintiff’s motion for leave to amend his complaint because he did not submit a proposed amended complaint with his motion.
In a separate action, the Second Circuit in O’day v. Chatila, et al, No. 18-2621-CV(L), __F.App’x__, 2019 WL 2404660 (2d Cir. June 7, 2019) affirmed the district court’s dismissal of the complaint alleging that Defendants breached their fiduciary duties by giving ESOP participants the opportunity to invest in publicly traded shares of SunEdison stock when they knew, or should have known, SunEdison was on the verge of bankruptcy. The district court was correct in holding that Plaintiffs failed to allege any “special circumstances” that would affect the reliability of the market price as a reflection of the value of SunEdison shares. Unlike Jander v. Retirement Plans Committee of IBM, Plaintiffs here have not alleged that an earlier disclosure of SunEdison’s financial problems might have caused less damage than a later disclosure. The court found that this case was analogous to Rinehart v. Lehman Bros. Holdings Inc., 817 F.3d 56, 65–67 (2d Cir. 2016), where the court held that a prudent fiduciary could have concluded that divesting or stopping the purchasing of stock would have done more harm than good. Lastly, with respect to Plaintiffs’ allegation that Defendants’ compensation structure caused them to pursue a growth strategy that led to SunEdison’s demise, the court found that they fail to allege that the compensation structure caused Defendants to breach their fiduciary duties.
In cases to watch, on June 3, 2019, the U.S. Supreme Court granted certiorari in Ret. Plans Comm. of IBM v. Jander, No. 18-1165, 2019 WL 1100213 (U.S. June 3, 2019). This is a class action case where the Second Circuit held that the plan participants stated a plausible ERISA claim for breach of duty to manage ESOP assets prudently. Read the Second Circuit decision here. Also, UnitedHealth recently petitioned the high court to review the Eighth Circuit decision finding that the insurer was not authorized to keep payments from providers for services rendered under one plan to recoup what it believed to be overpayments for services they provided under another plan. You can read the petition here. My partner, Elizabeth Hopkins, also had a few words to say about the subject, which you can read here.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Breach of Fiduciary Duty
O’day v. Chatila, et al, No. 18-2621-CV(L), __F.App’x__, 2019 WL 2404660 (2d Cir. June 7, 2019) (Present: Gerard E. Lynch, Raymond J. Lohier, Jr., Circuit Judges, Brian M. Cogan, District Judge). See Notable Decision summary.
Usenko v. MEMC LLC, No. 18-1626, __F.3d__, 2019 WL 2344827 (8th Cir. June 4, 2019) (Before Benton, Melloy, and Kelly, Circuit Judges). See Notable Decision summary.
Josef K. v. California Physicians’ Serv., No. 18-CV-06385-YGR, 2019 WL 2342245 (N.D. Cal. June 3, 2019) (Judge Yvonne Gonzalez Rogers). In this dispute over the payment of mental health treatment programs, Plaintiffs allege that, Maximus Federal Services, Inc.—who was selected to perform the independent medical review (“IMR”) and ultimately concluded that the treatment was not medically necessary—breached its fiduciary duty pursuant to Section 502(a)(3). The ERISA plan provides for an IMR and states that Maximus’ decision is binding on Blue Shield. The court found that the Plan bestowed Maximus with final authority over whether the claim would be paid or not, that this indicates Maximus exercised at least some control over the disposition of the Plan’s assets, and that this is sufficient to establish functional fiduciary status. With respect to the relief available, the court found that Plaintiff’s request for modifications to Maximus’ review process is not available based on the allegations in the FAC which do not support a claim for plan-wide relief. However, the court found that Plaintiffs have pleaded a plausible entitlement to surcharge relief where Plaintiffs assert that Maximus’ breach caused Plaintiffs to incur various costs in connection with the investigation of the benefits claim. Plaintiffs may also be entitled to individualized disgorgement of profits relating to revenue earned by Maximus in the course of reviewing Plaintiff’s claim depending on how it was compensated for performing the IMR.
Del Sesto v. Prospect CharterCARE, LLC, et al., No. CV 18-328 WES, 2019 WL 2394251 (D.R.I. June 6, 2019) (Judge William E. Smith). The court granted preliminary approval of the class action settlement which provides an initial payment of at least $11,150,000 to the Receiver, and assignment of RHW’s interest in an escrow account held by the Rhode Island Department of Labor and Training with a current balance of $750,000. Non-settling parties raised objections that the terms of the Settlement suggest collusion, including admission of liability and a statement that their proportionate fault in tort, if any, in causing the alleged damages is small compared to the proportionate fault of the other defendants. The court found that some of the proposed terms “raise an eyebrow” and further investigation is warranted but that the settlement on its face appears fair, reasonable, and adequate.
Disability Benefit Claims
Di Joseph v. Standard Insurance Company & Unitedhealth Group, No. 18-2178, __F.App’x__, 2019 WL 2406629 (7th Cir. June 7, 2019) (Before Circuit Judges Joel M. Flaum, Michael S. Kanne, and David F. Hamilton). In this dispute over long-term disability benefits provided by Standard through Plaintiff’s employer, the court affirmed the dismissal of Plaintiff’s state-law claims because they are preempted by ERISA. The court also found that any ERISA claim was time-barred by the contractual limitations period and there is no support for equitable tolling (see more about this in “Statute of Limitations” below). Lastly, the court found that the RICO claim has been waived on appeal.
Hatton v. Ingersoll Rand Co. Ltd. Benefits Admin. Comm., No. 2:18-CV-2120, 2019 WL 2330896 (W.D. Ark. May 31, 2019) (Judge P.K. Holmes, III). The court found that it was reasonable for the Benefits Administration Committee (“BAC”) to interpret the Pension Plan’s disability definition to require that Plaintiff could not perform further work in an occupation that would pay him a living wage. The court also found that the BAC fully investigated his claim for benefits, provided a detailed explanation as to why it was according more weight to one FCE over another, considered medical records reviews from multiple board-certified physicians and a vocational employability assessment report. The BAC found 49 occupations in the national economy that would pay Plaintiff an amount equal to or greater than his base salary. The court granted summary judgment in favor of Defendant.
Mickel v. Unum Group, No. 18-35178, __F.App’x__, 2019 WL 2333982 (9th Cir. May 31, 2019) (Before: W. Fletcher and Bennett, Circuit Judges, and Silver,** District Judge). The court found that the district court did not clearly err in determining that Plaintiff failed to meet his burden in establishing his entitlement to long-term disability benefits. “The district court relied on a combination of Dr. Peter Mohai’s independent medical evaluation, the surveillance footage, and an independent review of Mickel’s medical records. These sources contain sufficient evidence that Mickel’s medical conditions are not totally disabling within the meaning of the plan such that we are not ‘left with the definite and firm conviction that a mistake has been committed.’”
Roma Concrete Corp. v. Pension Associates, No. CV 19-1123, 2019 WL 2343640, (E.D. Pa. June 3, 2019) (Judge Michael M. Baylson). Plaintiffs allege that Defendant failed in its role as the TPA for Roma’s Defined Benefit Plan by making material misrepresentations and calculation errors in reports and accountings regarding the DB Plan, which allegedly caused a shortfall in benefits in excess of $400,000. The court found that the professional negligence, breach of contract, and breach of fiduciary duty claims are preempted by ERISA. They are completely preempted under ERISA Section 502(a) because the claims could have been brought under ERISA and rest on legal duties dependent upon the existence of the DB Plan. The claims are also expressly preempted under ERISA Section 514 because they relate to the provisions of the DB Plan and involve interpreting plan provisions. “Accordingly, to the extent that Scarduzio seeks to recoup a loss in pension benefits to which he was entitled under the DB Plan, Scarduzio’s claims are preempted by § 514(a).”
Josef K. v. California Physicians’ Serv., No. 18-CV-06385-YGR, 2019 WL 2342245 (N.D. Cal. June 3, 2019) (Judge Yvonne Gonzalez Rogers). In this dispute over the payment of mental health treatment programs, Plaintiffs allege that, Maximus Federal Services, Inc.—who was selected to perform the independent medical review (“IMR”) and ultimately concluded that the treatment was not medically necessary—intentionally interfered with the contract arising out of Maximus’ review of Blue Shield’s denial of plaintiffs’ claim. The court found that the interference with contract claim is preempted by ERISA under the conflict preemption doctrine because it is intertwined with Defendants’ denial of benefits under the ERISA plan. For purposes of complete preemption, the court found that the first prong of Davila was satisfied because the contact claim is premised on Maximum’ upholding of the denial of benefits which falls into the scope of ERISA Section 502(a)(1)(B). However, the second prong of Davila is not satisfied because the Court could determine whether Maximums violated its duties under the California Health and Safety Code and Insurance Code without interpreting the term “medical necessity” as used in the Plan. But, since the claim is subject to conflict preemption, the court found the interference claim subject to dismissal.
Medical Benefit Claims
Jenkinson v. Highmark W. Virginia, Inc., No. 3:19-CV-83, 2019 WL 2341668 (N.D.W. Va. June 3, 2019) (Judge Gina M. Groh). The court granted Plaintiff’s motion for preliminary injunction requiring Defendant to pay for his coverage for high level rehabilitation in an acute rehabilitation facility such as Magee Rehabilitation Center. Plaintiff is a paraplegic who underwent rotator cuff surgery which necessitated placement in a rehabilitation center that specializes in spinal cord injuries. The court found that he met all the elements for a preliminary injunction. Specifically, the court found that: (1) Plaintiff made a clear showing that his placement at Magee is medically necessary under the terms of the Plan and Highmark’s denial is a violation of the Plan terms; (2) Plaintiff is likely to suffer irreparable harm in the absence of preliminary relief because damages involving his safety and health are immeasurable and irreparable; (3) the balance of equities tip in his favor because if his left shoulder does not heal properly he may not be able to care for himself alone but Highmark can seek monetary damages to fully recover the cost of his care if it prevails at trial; and (4) an injunction is in the public interest because the public has a strong interest in health insurance companies providing medically necessary treatment on a timely basis.
Kerry W. v. Anthem Blue Cross and Blue Shield, No. 2:19CV67, 2019 WL 2393802 (D. Utah June 6, 2019) (Judge Dee Benson). In this dispute over payment of mental health, behavioral, and substance abuse treatment, the court granted Defendant’s motion to dismiss Plaintiffs’ second cause of action alleging a violation of the Mental Health Parity and Addiction Equality Act. “Although Plaintiffs have alleged specific facts suggesting that Anthem committed errors during the claims and appeals process, these allegations do not support Plaintiffs’ MHPAEA claim because they do not relate to an analogous treatment in the medical or surgical setting.” Specifically, there is insufficient factual basis that Defendant handled the claim for treatment at Elevations disparately from the way they handle claims for treatment at skill nursing facilities and inpatient rehabilitation facilities.
Mike G. v. BlueCross BlueShield of Texas, No. 2:17-CV-347 TS, 2019 WL 2357380 (D. Utah June 4, 2019) (Judge Ted Stewart). This is a dispute over coverage for residential treatment services provided to a minor with serious behavioral issues. The court applied de novo review. The court found that services provided at Outback Therapeutic Expeditions, an outdoor wilderness therapy program, are not covered since there is no evidence that it is a Residential Treatment Center for Children and Adolescents as defined by the Plan. With respect to the minor’s treatment at Uinta Academy, the court found that residential treatment was medically necessary beyond the time approved by Blue Cross. She resided at Uinta from April 13, 2014 to December 6, 2105. Blue Cross approved the claim through May 12, 2014, and even though she had not improved, Blue Cross denied the claim seven days later. The court found this to be internally inconsistent. The court did find that Plaintiff failed to show continued residential treatment was medically necessary after November 21, 2014. The evidence shows that the minor demonstrated an ability to generalize her skills in her home environment, her condition had improved, and there were no more instances of self-harm or being out of instructional control. The court found that attorneys’ fees are not warranted because there is no evidence of bad faith or that a fee award would deter others. The court did award prejudgment interest to compensate Plaintiffs for the hardship of paying for the treatment that should have been covered.
Pension Benefit Claims
Cohen v. Retail, Wholesale & Dep’t Store Int’l Union & Indus. Pension Plan, No. CV 18-1430, 2019 WL 2357584 (E.D. Pa. June 4, 2019) (Judge Wendy Beetlestone). Plaintiff worked as a bakery manager for Pathmark Stores and participated in the Defendant Pension Plan as a union member. When Pathmark’s bankruptcy led to the closure of his store, Plaintiff began working as an assistant bakery manager for Giant Supermarkets, making less money than he was before. He applied for and was denied early retirement benefits, and later applied for and was denied normal retirement benefits due to his current employment. The court found that the decision to deny his benefits was not arbitrary and capricious based upon the Trust terms and his disqualifying employment in the jurisdiction of the Union and in the same, trade, craft or occupation. The fact that Pathmark filed for bankruptcy is irrelevant to the analysis. The purpose of reemployment suspension clauses is not intended to prohibit competition with the former employer. If Plaintiff could collect retirement benefits in addition to his wages from Giant, that would subsidize Giant’s low-wage hiring practices and suppress wages for other plan participants. The court also found that the Board’s structural conflict and the procedural irregularity of making a late decision did not make their decision arbitrary and capricious.
Meakin v. California Field Ironworkers Pension Trust, No. 18-15216, __F.App’x__, 2019 WL 2375194 (9th Cir. June 5, 2019) (Before: McKEOWN and GOULD, Circuit Judges, and BASTIAN,** District Judge). In 2018, the Trustees approved Plaintiff’s “Golden 85” pension application as well as his work application to continue working for the same employer in a different position. In 2011, the Trustees entered into a voluntary compliance plan with the IRS and adopted procedures that would cease improper distributions to putative retirees who never actually retired. Thereafter, the Trustees denied Meakin’s pension because he had not completely refrained from employment or activity in the construction industry. Meakin challenged the denial of benefits, arguing that the denial was unlawful as an impermissible cutback of an accrued benefit or because of equitable estoppel. The court affirmed the decision of the district court granting summary judgment to Defendants. It determined that the new interpretation was not unreasonable; “administrators are shackled to original interpretations.” The interpretation did not constitute a cutback because it did not involve a new condition, rather enforcement of an existing condition. Equitable estoppel does not apply because there are no “extraordinary circumstances” and such relief would contradict written plan provisions since Plaintiff never retired and payment of the pension would contradict written terms of the Plan.
Wright v. Elton Corp., No. CV 17-286-JFB, 2019 WL 2344039 (D. Del. June 3, 2019) (Judge Joseph F. Bataillon). The court determined that the Mary Chichester DuPont Clark Employee Pension Trust (the “Trust”)—which was established by Mary Chichester DuPont, initially funded with 50 shares of common stock of Christiana Securities Company, and provides qualified beneficiaries with an annual pension for life or during the continuance of the Trust—is an ERISA plan that is governed by ERISA. The Court can ascertain the intended benefits and procedures for receiving benefits from the terms of the Trust itself, a reasonable person could ascertain the source of funding for the plan, and establishing the Trust was not a single, aberrational occurrence. “The Trust expressly provides a framework for administration of the Trust. The circumstances surrounding the Trust clearly demonstrate an intent to provide such pensions on a long-term basis.”
Pleading Issues & Procedure
Raymond A. Semente D.C., P.C. v. Empire HealthChoice Assurance, Inc., No. 14CV5823DRHSIL, 2019 WL 2326091 (E.D.N.Y. May 31, 2019) (Judge Denis R. Hurley). Plaintiff in this case did not want to settle with two of the three defendants unless the court would handle this case to its conclusion on what would be a solely state-based action against the remaining defendant. The court explained that the issue of whether to retain supplemental jurisdiction over the pending case or to remand it to a state tribunal rests in its discretion with a determinative factor being the state of the litigation undertaken thus far. But the court found that its being asked to render an advisory opinion on hypothetical facts which it declined to do based on the lack of case law or statutory authority.
Morris v. S. Intermodal Xpress, No. CV 16-632-CG-N, 2019 WL 2330276 (S.D. Ala. May 30, 2019) (Judge Callie V.S. Granade). In this action seeking death benefits by a pro se plaintiff, the court denied Plaintiff’s motion for relief from judgment pursuant to FRCP 60(b)(6) and denied Defendant’s motion for sanctions, “but Plaintiff is warned that continued filings of frivolous or scurrilous motions or documents in this case will result in the imposition of sanctions.”
Aetna Life Ins. Co. v. Yi, No. CV H-14-900, 2019 WL 2355543 (S.D. Tex. June 3, 2019) (Judge Lynn N. Hughes). The court found that Defendants, providers of mobile anesthesia, “submitted wholly dishonest claims” to Aetna and are jointly and severally liable to Aetna for $1,740,672.42 in overpaid claims and $347,972.02 for facility fees that Aetna paid but should not have. The court rejected Defendants argument that Aetna violated ERISA.
Statute of Limitations
PricewaterhouseCoopers LLP Health and Welfare Benefits Plan v. Mayer, No. 3:18-CV-526 (VAB), 2019 WL 2329240 (D. Conn. May 31, 2019) (Judge Victor A. Bolden). In this subrogation action, the court found Defendants’ civil penalty claims to be time-barred where Defendants last sent a Form 5500 request letter on April 26, 2017, the statute of limitations began to accrue, at the latest, on May 26, 2017, and Defendants’ counterclaim for a civil penalty was not filed within one year of that date.
Di Joseph v. Standard Insurance Company & Unitedhealth Group, No. 18-2178, __F.App’x__, 2019 WL 2406629 (7th Cir. June 7, 2019) (Before Circuit Judges Joel M. Flaum, Michael S. Kanne, and David F. Hamilton). Standard’s long-term disability policy provides that any legal action most be brought within three years after Proof of Loss was received by the insurer. Here, Standard received Proof of Loss on July 12, 2013 and Plaintiff exhausted her administrative remedies on April 30, 2015. By that time, she had more than a year left to file suit within the three-year filing period. The Court previously found seven months from the exhaustion of administrative remedies to a contractual deadline to be reasonable. Because Plaintiff filed her complaint almost ten months after the deadline, her ERISA claim is time-barred. The court also found that equitable tolling was not appropriate here where Plaintiff did not raise a plausible argument for mental incapacity. She admitted that she was always able to manage her affairs, actively participated in the appeals process, and through an attorney, initiated an unrelated legal proceeding during the time she claims to be incapacitated.
Reed v. Nike, Inc., et al., No. 17 CIV. 7575 (LGS), 2019 WL 2327519 (S.D.N.Y. May 31, 2019) (Judge Lorna G. Schofield). The court denied Nike summary judgment on Plaintiff’s COBRA notification claim because a reasonable jury could find that Nike failed to update Plaintiff’s address on file and send her notice by means reasonably calculated to reach her. The court also denied dismissal of Plaintiff’s claim for denial of continuing health coverage for failure to exhaust administrative remedies because a reasonable jury could find that Plaintiff was not given adequate notice of her right to appeal.
Cohen v. Retail, Wholesale & Dep’t Store Int’l Union & Indus. Pension Plan, No. CV 18-1430, 2019 WL 2357584 (E.D. Pa. June 4, 2019) (Judge Wendy Beetlestone). In this dispute over the payment of early and normal retirement benefits due to disqualifying employment, Plaintiff sought a document penalty for the Board’s failure to produce the A&P CBAs. The court found that the Board’s failure to produce the CBAs constituted a violation of Section 1024(b)(4) because the Trust Agreement provides that any employer may participate in the Trust and the Plan by executing a copy of the CBA. Thus, the CBAs are instruments that establish the Plan. The court rejected Defendants argument that it only had to produce the Trust Agreement and that it cannot be held liable for failing to produce the CBAs because they do not have those documents. Though Defendants did not act in bad faith, the court found that Plaintiff was prejudiced at least up until the point that litigation began. After litigation started, he had access to the tools of discovery and could have used those tools to obtain copies of the CBAs via third-party subpoenas. The court imposed a document penalty of $16,700, which is $100/day for the 167 days between the failure to produce and the start of the litigation.
PricewaterhouseCoopers LLP Health and Welfare Benefits Plan v. Mayer, No. 3:18-CV-526 (VAB), 2019 WL 2329240 (D. Conn. May 31, 2019) (Judge Victor A. Bolden). The court granted summary judgment to the defendant self-funded health plan, finding that the Plan’s lawsuit to enforce a subrogation provision properly seeks equitable relief under ERISA. Further, the Plan gave PricewaterhouseCoopers “the right to attach an equitable lien to Defendants’ settlement funds, when they obtained title to that fund, making the nature of PricewaterhouseCoopers’s underlying remedy equitable and immediately enforceable.” The court found that the attorney fee offset under the common-fund doctrine does not apply to this case because the Plan’s unambiguous language states that attorneys’ fees would not apply to medical payment reimbursements.
Withdrawal Liability & Unpaid Contributions
Cent. States, Se. & Sw. Areas Pension Fund v. Rail Terminal Servs. LLC, No. 18 C 2372, 2019 WL 2326002 (N.D. Ill. May 31, 2019) (Judge Virginia M. Kendall). The court denied the parties’ Cross-Motions for Summary Judgment and dismissed Plaintiffs’ delinquent contribution claims without prejudice pending the resolution of the withdrawal liability questions in the proper forum—arbitration.
Dominick’s Finer Foods, LLC v. UFCW Unions & Employers Midwest Pension Fund, No. 18 C 6879, 2019 WL 2391697 (N.D. Ill. June 6, 2019) (Judge Elaine E. Bucklo). As a withdrawn employer with no ongoing obligation to contribute to the Fund, Dominick’s is outside the scope of parties authorized to bring suit under Section 502(a)(10).
Bigham v. McDougall Co. Inc., No. 18-CV-706 (NEB/ECW), 2019 WL 2337396 (D. Minn. June 3, 2019) (Judge Nancy E. Brasel). The court granted Plaintiffs’ motion for default judgment and awarded $66,534.35 for delinquent contributions and liquidated damages, and $7,090.04 for attorneys’ fees and costs related to the collection of delinquent contributions.
Richards v. C&C Sheet Metal, No. 2:18-CV-00448-JNP, 2019 WL 2329502 (D. Utah May 31, 2019) (Judge Jill N. Parrish). The court found Plaintiffs are entitled to a default judgment against C&C Sheet Metal and Jones for the following sums: (1) unpaid contributions in the amount of $2,477.30, (2) prejudgment interest in the amount of $297.28, (3) liquidated damages in the amount of $495.46, (4) attorney fees in the amount of $4,500, and (5) costs in the amount of $525. The also awarded Plaintiffs $2,595 for administrative fees.