This week’s notable decision is Rudel v. Hawai’i Management Alliance Association, No. 17-17395, __F.3d__, 2019 WL 4302895 (9th Cir. Sept. 11, 2019), where the Ninth Circuit made three significant determinations with respect to ERISA preemption of state laws regulating insurance.  The first is that ERISA § 502(a) completely preempts two Hawai‘i Statutes prohibiting insurers from seeking reimbursement for general damages from third-party settlements, which allowed the case to be removed to federal court.  Second, the Hawai‘i Statutes are saved from preemption pursuant to ERISA § 514.  Lastly, the Hawai‘i Statutes provide the rule of decision for the restated federal ERISA action.

What started this dispute was an unfortunate motorcycle accident whereby Rudel sustained severe injuries, including partial amputations of two limbs.  Defendant, the provider of health insurance for an ERISA-governed plan, paid over $400k for Rudel’s medical expenses.  He then received a $1.5 million tort settlement from the driver who hit him.  The ERISA Plan provides it the right of reimbursement from any third-party recovery, including from general damages from third-party settlements.  But, Hawai‘i Revised Statutes (“HRS”) §§ 431:13-103(a)(10) and 663-10 prohibit insurers from doing just that.  They only permit special damages to be reimbursed if a state court determines there is a valid lien.

Rudel filed his action in state court to prevent Defendant from seeking reimbursement.  Defendant removed the case to federal district court.  The district court denied Rudel’s motion to remand because it found that the action is really one for benefits under ERISA § 502(a)(1)(B).  Subsequently, the district court ruled that the Hawai‘i Statutes were saved from preemption under ERISA § 514, and that § 514 also provided the relevant rule of decision.  Defendant appealed and Rudel cross-appealed the denial of his motion to remand.

First, the Ninth Circuit determined that the district court did properly exercise federal jurisdiction over Rudel’s state law claims under ERISA § 502(a).  Federal jurisdiction exists under § 502(a) because Rudel could have brought his claim under ERISA § 502(a)(1)(B).  In substance he seeks to determine his entitlement to retain the benefits based on the plan terms.  There is also no independent legal duty to provide benefits outside of the ERISA plan.

Second, the Ninth Circuit determined that the Hawai‘i Statutes are saved from preemption under ERISA’s saving clause in § 514, which saves from preemption any state law which regulates insurance, banking, or securities.  This is because the laws are specifically directed toward entities engaged in insurance and they substantially affect the risk pooling arrangement between the insurer and the insured.  

Lastly, the Ninth Circuit determined that the statutes supply the rule of decision for Rudel’s reconfigured ERISA claim.  This is because they are saved from preemption under § 514 and they do not impermissibly expand the scope of liability under § 502(a).  In other words, Rudel does not get a remedy that could not be awarded under § 502(a).  The statutes do not create a method for Rudel to collect additional benefits nor do they require the insurer to assume any additional liability.  The statutes only impact the insurer’s subrogation rights against a third party settlement fund.

It’s important to note, as the court did, that just because the state statutes were completely preempted under § 502(a), that does not mean they cannot provide the basis for decision.  There is a difference between complete preemption for jurisdictional purposes and conflict preemption.

If there are similar state laws on subrogation and reimbursement in your jurisdiction, send me a note.  I’ll share any responses in next week’s newsletter.

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

Attorneys’ Fees

Second Circuit

Solnin v. Sun Life & Health Ins. Co., No. 18-3042-CV, __F.App’x__, 2019 WL 4267409 (2d Cir. Sept. 10, 2019) (Circuit Judges Poller, Parker, Raggi).  The district court did not abuse its discretion by declining to award Plaintiff’s attorney higher rates typically awarded in the Southern District of New York when the forum was the Eastern District of New York.  Further, Plaintiff’s counsel did not offer evidence that he has ERISA litigants in E.D.N.Y paying his hourly rate or that ERISA litigants would be willing to pay the requested hourly rates.  The court explained that, “[t]he rates requested by counsel would have resulted in a $502,456.50 fee, which greatly exceeds the $188,936.77 judgment awarded to Solnin. We are not convinced that a ‘reasonable, paying client’ in an ERISA litigation would be willing to pay an hourly rate resulting in attorneys’ fees so far in excess of the amount of recovery, even considering the successful procurement of future benefits in this case.”

Eleventh Circuit

Lesser v. Reliance Standard Life Ins. Co., 1:18-cv-00824 JBP (N.D. Ga. Aug. 20, 2019) (Judge J.P. Boulee). After the court granted Plaintiff’s motion for judgment (“MJ”) on the administrative record (“AR”) and determined that Defendant wrongfully denied benefits to Plaintiff, Plaintiff filed a motion for attorney’s fees and costs, seeking $95,060 for 271.6 hours at a rate of $350 per hour. Defendant objected to the alleged number of hours as unreasonable. The court concluded that the following hours were reasonable: 23.3 hours to review the AR, 18.9 hours for communication between counsel and Plaintiff, and 28 hours to reply to Defendant’s opposition to the MJ. The court, however, reduced hours spent on researching idiopathic hypersomnolence and narcolepsy from 37.9 to 18, because Plaintiff’s pleadings relied on only a basic understanding of these conditions and information already provided in the AR. The court further reduced the time Plaintiff’s counsel sought for responding to Defendant’s motion from 76.2 hours to just 2 hours, because the response was nearly duplicative of Plaintiff’s own motion. In sum, the court reduced claimed hours to 179.4 and awarded $62,790 as a reasonable fee.  The court ordered prejudgment interest at a rate of 8.25% under O.C.G.A. Section 7-4-12(a), compounded annually.

Breach of Fiduciary Duty

Ninth Circuit

Gomo v. NetApp, Inc., No. 17-CV-02990-BLF, 2019 WL 4346581 (N.D. Cal. Sept. 12, 2019) (Judge Beth Labson Freeman).  The court determined that Plaintiffs, former NetApp senior executives, are not entitled to lifetime medical benefits under the NetApp, Inc. Executive Retiree Health Plan.  The court granted Defendants’ request for judicial notice of SEC filings and a DOL fact sheet since they are published by a government agency, are relevant to Defendants’ position that the Plan was terminated in response to changing economic conditions, and they do not unduly prejudice Plaintiffs.  The court also overruled Plaintiffs’ objections to the expert report of Curtis Donley, finding that his opinions regarding industry practice with respect to documentation for fully-insured employer-sponsored health plans are appropriate and within his expertise.  With respect to the plan, the court determined that 29 U.S.C. § 1102(b) controls, not 29 U.S.C. § 1002(1).  For this reason, Power Points which explained the benefits to the executives do not meet the requirements of Plan documents.  Rather, the Certificates of Coverage constitute the Plan because they satisfy all four requirements of 29 U.S.C. § 1102(b).  These Certificates do not guarantee lifetime medical benefits; they contain an express provision permitting amendment or termination.  The court rejected Defendants’ theory that the plan is a top-hat plan because there is no authority for the position that welfare benefit plans provide “deferred compensation.”  The court also determined that Defendants did not breach their fiduciary duties by misrepresenting the terms of the Plan and Plaintiffs are not entitled to equitable relief.  “An employer’s honest statements of present intention to provide benefits at a particular level do not give rise to liability for breach of fiduciary duties, simply because the employer later changes the benefits.”  The court found that no reasonable trier of fact could conclude that NetApp misled Plaintiffs regarding the nature of the benefits offered.  

Class Actions

Second Circuit

The Medical Society of the State of New York v. Unitedhealth Group Inc., et al., No. 16-CV-5265 (JPO), 2019 WL 4291811 (S.D.N.Y. Sept. 11, 2019) (Judge J. Paul Oetken).  In this lawsuit challenging the benefits provided under United’s plans for outpatient surgery, the court granted in part and denied in part Plaintiffs’ motion for class certification.  The court granted certification of the following class seeking declaratory and injunctive relief:  “any United Plan member, or member’s valid assignee, whose claim for facility fees for services rendered by an out-of-network [office-based surgery] provider accredited under Section 230-d was denied.”  The Court appointed Columbia, Medical Society of the State of New York, and the Society of New York Office Based Surgery Facilities—as representatives of the certified class, and appointed Zuckerman Spaeder LLP and Buttaci Leardi & Werner LLC as co-lead class counsel.

Fifth Circuit

Chavez v. Plan Benefit Services, Inc., No. AU-17-CA-00659-SS, 2019 WL 4254627 (W.D. Tex. Aug. 30, 2019) (Judge Sam Sparks).  In this class action alleging that Defendants engaged in prohibited self-dealing in violation of 29 U.S.C. § 1106(b) and breached fiduciary duties owed to plan participants and beneficiaries in violation of 29 U.S.C. § 1109(a). The court granted Plaintiffs’ motion for certification under Rule 23(b)(1)(B) and certified the following class:  “all participants in and beneficiaries of employee benefit plans that provide benefits through CPT and CERT, other than officers and directors of the Defendants and their immediate family members, from July 6, 2011 until the time of trial.”  The court appointed the law firm of Feinberg, Jackson, Worthman & Wasow LLP and Altshuler Berzon LLP as Class Counsel.

Ninth Circuit

Foster, et al. v. Adams and Associates, Inc., et al., No. 18-CV-02723-JSC, 2019 WL 4305538 (N.D. Cal. Sept. 11, 2019) (Magistrate Judge Jacqueline Scott Corley).  The court issued an amended order on Plaintiffs’ motion for class certification, which it first granted on September 3, 2019.  The court rejected Defendants’ only opposition to the motion that Carol Foster is not an adequate class representative.  The court found that Ms. Foster’s disputes she had as an employee, including regarding “her performance evaluations and her allegations of discrimination and retaliation—are unrelated to the issues in this ERISA action regarding Defendants’ alleged breach of fiduciary duty, prohibited transactions, and failure to make required disclosures.”  The court also found that “Ms. Foster’s reference to exercising her constitutional rights by reporting a supervisor—not named as a defendant in this action—to federal agencies and the media for allegedly discriminatory and retaliatory conduct is not evidence of animus that relates to the claims at issue here.”  The certified class includes:  all participants in the Adams and Associates ESOP from October 25, 2012 or any time thereafter who vested under the terms of the ESOP and their beneficiaries. The class definition excludes Defendants and their immediate family, any fiduciary of the ESOP, the officers and directors of Adams and Associates, Inc. or of any entity in which a Defendant has a controlling interest, and legal representatives, successors, and assigns of any such excluded persons.  Feinberg, Jackson, Worthman & Wasow LLP and Block & Leviton LLP are appointed as Co-Lead Counsel for the Class.

Tenth Circuit

O’Dowd v. Anthem, Inc., No. 14-CV-02787-KLM-NYW, 2019 WL 4279123 (D. Colo. Sept. 9, 2019) (Magistrate Judge Kristen L. Mix). The court granted Plaintiff’s unopposed motions for final approval of the class action settlement and for attorneys’ fees and costs. “[T]he proposed Settlement Agreement has three primary components: (1) a change to Anthem Colorado’s business practices requiring it to use its RBRVS Reimbursement Methodology for covered Out-of-Network Behavioral Health Services for a period of three years; (2) payment by Defendants of a Settlement Amount of $380,000 that will be allocated among members of the proposed Settlement Class according to the proposed Plan of Allocation, subject to a De Minimis Threshold of $2.00; and (3) a release of claims against Defendants and Related Entities.” The Settlement Class is: [A]ll Plan Members who received Out-of-Network Behavioral Health Services with dates of service during the Settlement Class Period that were allowed at or below the provider’s billed charges. The court approved Plaintiff’s request for a fee award of $60,000, which represents 16% of the common fund and 8.6% of the total lodestar.

Disability Benefit Claims

Sixth Circuit

Rossiter v. Life Insurance Company of North America, No. 5:18-CV-01421, 2019 WL 4305770 (N.D. Ohio Sept. 11, 2019) (Judge Pamela A. Barker) Plaintiff, after being initially approved for LTD benefits, was terminated and reinstated repeatedly, despite her condition remaining the same. The court held that LINA’s denial of Plaintiff’s claim was arbitrary and capricious because, in light of the medical evidence, the decision was not a result of a deliberate principled reasoning process or supported by substantial evidence. The court noted that neither LINA nor the peer reviewer provided explanations for disregarding opinions of treating physicians who opined that Plaintiff could not work, the results of the FCEs that determined that Plaintiff could not work, and criticized LINA’s reliance on the peer review in lieu of conducting a physical exam. The court took issue with the transferable skills analysis and the jobs the vocational expert found that Plaintiff was capable of performing, which were inconsistent with the restrictions and limitations that the peer reviewer assigned to Plaintiff. In addition, the court criticized LINA’s failure to consider Plaintiff’s Social Security award, noting that, though certainly not binding, such an award was far from meaningless. In particular, the court held that simply stating that the criteria used by Social Security were “different” from the requirements of the policy did not constitute an adequate explanation.

Tenth Circuit

Cruz v. Lovelace Health Sys., Inc., No. 1:18-CV-974-RB-SCY, 2019 WL 4345971 (D.N.M. Sept. 12, 2019) (Judge Robert C. Brack).  Plaintiff was employed by Lovelace as a general surgeon and claimed disability benefits under a disability plan sponsored by Lovelace and insured and administered by Reliance Standard.  The court dismissed the ERISA claim for benefits against HS Albuquerque Holdings, LLC, AHS Medical Holdings, LLC and BHC Management Services of New Mexico, LLC because even if they own Lovelace as Plaintiff pleads, he offers no facts supporting that they exerted administrative control over his ERISA claim or otherwise violated ERISA.


Second Circuit

La Barbera v. R. Rio Trucking, No. CV031508JBWAKT, 2019 WL 4385792 (E.D.N.Y. Sept. 12, 2019) (Magistrate Judge A. Kathleen Tomlinson).  In this dispute over unpaid contributions, the court issued a substantive written decision of its short-form order granting in part Defendants’ motion to take a deposition of Plaintiff’s auditors.  The court explained that the district court previously found that it was not possible to determine the amount of contributions owed and that the evidence in the case should be re-opened so that a damages inquest could be conducted.  

ERISA Preemption

Fifth Circuit

Crescent City Surgical Centre v. Humana Health Benefit Plan of Louisiana, Inc., et al., No. CV 19-9540, 2019 WL 4387152 (E.D. La. Sept. 13, 2019) (Judge Carl J. Barbier).  The court granted Plaintiff’s motion for remand to state court, finding that its state law claims are not preempted by ERISA.  Though Plaintiff is the assignee of its patients’ ERISA benefits, and likely could have brought those derivative claims, it chose to assert its state law claims based on its pre-treatment reimbursement verification with Humana via Humana’s web portal.  “Numerous courts have held that a pre-treatment reimbursement verification procedure like the one described is sufficient to give rise to state law claims for negligent representation, breach of contract, and detrimental reliance.” Also crucial to the court’s determination is the fact that Plaintiff is disputing the rate of payment rather than the right to payment.  

Bufkin v. The Prudential Insurance Company of America, et al., 2019 WL 4261872 (S.D. Miss. Sept. 8, 2019) (Judge Henry T. Wingate). Plaintiffs were named beneficiaries under a life insurance policy issued to a Prudential employee, who at the end of her employment with Prudential, elected to continue her coverage under the Group Plan. Prudential denied payment of death benefits to Plaintiffs because of the nonpayment of premium. In granting Defendant’s motion to dismiss Plaintiffs’ state law claims based on “complete preemption,” the court found that the state law claims relate to an ERISA plan. First, it found that an ERISA plan existed because there were intended benefits, a class of beneficiaries, a source of financing, and procedures for applying and receiving benefits. Second, the court found that the plan was not subject to the safe harbor provisions because the benefits under the plan were funded, in part, by employer payments, Prudential was the Plan Sponsor and Plan Administrator, and also had the right to terminate the Group Plan under its own auspices. Finally, the court determined that the plan satisfied the primary elements of an ERISA employee benefit plan because it was established and maintained by Prudential with a purpose of providing benefits. Because the state law claims “relate to” the ERISA plan, they are preempted. 

Dialysis Newco, Inc. v. Cmty. Health Sys. Grp. Health Plan, No. 18-40863, __F.3d__, 2019 WL 4296698 (5th Cir. Sept. 11, 2019) (Before: Jennifer Walker Elrod, James E. Graves, Jr., and Andrew S. Oldham, Circuit Judges). This case involved a contract dispute over whether the ERISA administrator and the third-party processor underpaid the provider for hemodialysis treatments. The Circuit court reversed the district court’s holding, and determined that the anti-assignment clause of the ERISA benefits plan at issue was unambiguous and that the Tennessee statute purporting to invalidate any such anti-assignment clauses is itself preempted by ERISA. Accordingly, the court reversed the district court’s judgment on the issue of whether the appellee had standing to bring the lawsuit, vacated the district court’s subsequent judgments in the case, and rendered judgment in the case shall be dismissed for lack of jurisdiction.

Ninth Circuit

Rudel v. Hawai’i Management Alliance Association, No. 17-17395, __F.3d__, 2019 WL 4302895 (9th Cir. Sept. 11, 2019) (Before: Sidney R. Thomas, Chief Judge, and Consuelo M. Callahan and Morgan Christen, Circuit Judges).  See Notable Decision summary.

Pleading Issues & Procedure

Ninth Circuit

Phillips 66 Company, et al. v. Sacks, No. C19-0174JLR, 2019 WL 4276610 (W.D. Wash. Sept. 10, 2019) (Judge James L. Robart). This dispute involves Phillips 66 Company’s disability leave and benefit plans and its compliance with the Washington Family Care Act. The court granted the Director of the State of Washington Department of Labor and Industries’ and USW Local’s motions to dismiss the complaint with prejudice. The court found that it has subject matter jurisdiction. “[N]othing in ERISA states that the existence of an ERISA plan is a jurisdictional pre-requisite for a § 1132 claim. Instead, as a growing number of courts have concluded, that question goes to the merits of an ERISA plaintiff’s claim.”  The court concluded that issue preclusion applies to the Director’s decision that the Plan is an ERISA plan. Even if the Director’s order was not preclusive, dismissal would still be warranted under the Younger abstention doctrine and the Anti-Injunction Act, 28 U.S.C. § 2283.  

Provider Claims

Eleventh Circuit

Columna, Inc. v. Aetna Health, Inc., No. 9:19-CV-80522, 2019 WL 4345675 (S.D. Fla. Sept. 12, 2019) (Judge Robin L. Rosenberg).  Where Plaintiff has adequately alleged that it is continuing to provide spinal surgeries to Aetna members, and a determination of Columna’s rights under the ERISA-based plans is necessary to resolve the ongoing dispute between Columna and Aetna over Columna’s compensation for those surgeries, Plaintiff has shown there is a substantial controversy warranting declaratory judgment.  The court denied dismissal of Count II of the Complaint seeking a declaratory judgment clarifying the parties’ rights and obligations under Defendant’s ERISA Plans.

Statutory Penalties

Sixth Circuit

Morehouse v. Steak N Shake, No. 18-4186, __F.3d__, 2019 WL 4383931 (6th Cir. Sept. 13, 2019) (Before: Boggs, Batchelder, and Bush, Circuit Judges).  Plaintiff contends that a qualifying event triggering SNS’s COBRA notice obligation occurred when her hours were reduced following an injury which led her to leave of absence.  Prior to her injury, her premiums were deducted from her paychecks, and then later from her workers’ compensation checks.  The company terminated her coverage after it informed her that a premium payment was due, and she did not pay the premium.  The court explained that a reduction in hours alone is not a qualifying event if it does not lead to a loss in insurance coverage.  Here, Plaintiff lost coverage because she failed to pay premiums, it was not because of her FMLA leave or accompanying change in the payment method of premiums. The company’s deduction of premiums from Plaintiff’s workers’ compensation checks does not inherently change the terms and conditions of coverage and does not produce a loss in coverage.  The court reversed the district court’s judgment finding that Defendant failed to give COBRA notice and awarding damages because the court determined “the terms and conditions of Mrs. Morehouse’s insurance coverage did not change upon her taking a leave of absence and therefore no ‘qualifying event’ occurred that would have obligated SNS to send her a COBRA notification.”   

Withdrawal Liability & Unpaid Contributions

Second Circuit

Trustees For The Mason Tenders District Council Welfare Fund, Pension Fund, Annuity Fund, & Training Program Fund V. Citywide Construction Works, Inc., No. 18 CIV. 9024 (PAE), 2019 WL 4292672 (S.D.N.Y. Sept. 11, 2019) (Judge Paul A. Engelmayer).  “[T]he Court confirms the Award in favor of petitioners and issues judgment in the amount of $101,743.73, plus post-judgment interest pursuant to 28 U.S.C. § 1961(a).”

Mason Tenders District Council Welfare Fund, Pension Fund, Annuity Fund, Training Fund, Health and Safety Fund v. LJC Dismantling Corp., No. 17-CV-4493 (VSB), 2019 WL 4303345 (S.D.N.Y. Sept. 11, 2019) (Judge Vernon S. Broderick). Plaintiffs alleged that Defendant LJC Dismantling Corp. failed to remit fringe benefits, dues checkoffs, and Political Action Committee contributions to the Funds pursuant to a collective bargaining agreement. The court granted Plaintiffs’ motion for summary judgment “[b]ecause LJC Dismantling Corp. stipulated to the majority of Plaintiffs’ deficiency calculations and because [the court found] that there is no genuine issue of material fact as to Plaintiffs’ remaining calculations.”

Trustees of The New York City District Council of Carpenters Pension Fund, Welfare Fund, Annuity Fund, & Apprenticeship, Journeyman Retraining, Educational and Industry Fund v. Platinum Specialty Services, Inc., No. 19 CIV. 7417 (PAE), 2019 WL 4267519 (S.D.N.Y. Sept. 10, 2019) (Judge Paul A. Engelmayer).  The Court confirmed the Award in favor of petitioners and issued judgment in the amount of $28,284.34 plus post-judgment interest pursuant to 28 U.S.C. § 1961(a).

Fourth Circuit

International Painters and Allied Trades Industry Pension Fund, et al., v. K & K. Painting, Inc., 2019 WL 4291677 (D. Md. Sept. 11, 2019) (Magistrate Judge Stephanie A. Gallagher). Plaintiffs alleged that Defendant failed to make contributions required under ERISA and governing contracts. Defendants failed to respond to the complaint and Plaintiffs filed a motion for default judgment. The court recommended to grant the motion, finding that Defendants violated ERISA §515 due to their failure to make required contributions to the multiemployer plan under the collective bargaining agreement. Because an employer who fails to make contributions required by §515 is liable for unpaid contributions, interest thereon, liquidated damages of up to 20% of the amount of unpaid contributions, and reasonable attorney’s fees and costs, the court also recommended award of the following damages: $199,881.05 in unpaid contributions; $19,432.24 in interest; $39,976.20 as liquidated damages; $3,590.25 as cost of the audit; $633.42 as costs; and $7,642.50 in attorney’s fees.

Ninth Circuit

Board of Trustees of IBEW Local 100, et al., v. Power Design Electric, Inc., 2019 WL 4274093 (E.D. Cal. Sept. 10, 2019) (Magistrate Judge Erica P. Grosjean). Plaintiffs alleged that Defendant breached two collective bargaining agreements (“CBA”) by failing to submit fringe benefit contribution reports and remit fringe benefit contributions. Plaintiff also sought an audit or accounting of the records of Defendant regarding those contributions. The court granted Plaintiffs’ motion for summary judgment, finding that Defendant breached the CBAs because Plaintiffs demonstrated that they are multiemployer plans, that Defendant was obligated to pay contributions under the terms of the plans, and that Defendant failed to do so. Based on these findings, the court also allowed Plaintiffs to conduct and audit or accounting of Defendant’s records during the relevant time period.

D.C. Circuit

Serv. Employees Int’l Union Nat’l Indus. Pension Fund v. Hebrew Homes Health Network, Inc., No. 1:17-CV-01215 (TNM), 2019 WL 4346325 (D.D.C. Sept. 12, 2019) (Judge Trevor N. McFadden).  The court adopted in full the Magistrate Judge’s report and recommendation.  The Magistrate Judge recommended that the Court enter judgment for Plaintiff against each Defendant in the following amounts, to include all delinquent contributions, testing fees, liquidated damages, and interest calculated through July 21, 2018:  (1) $120,927.27 against Arch Plaza, Inc.; (2) $106,832.58 against Hebrew Homes South, Inc.; (3) $112,116.18 against Aventura Plaza, Inc.; (4) $268,105.91 against Jackson Plaza, Inc.; and (5) $240,218.59 against Hebrew Home Sinai, Inc.