Sixth Circuit Holds Exhaustion of Administrative Remedies Not Required Where Plan Document Is Silent on Claims Review Process

By Peter Sessions on April 8, 2020

Posted in Exhaustion of Administrative Remedies

Good morning, ERISA Watchers! I hope this finds you well and in good spirits. This week’s notable decision, Wallace v. Oakwood Healthcare, Inc., No. 18-2316, __F.3d__, 2020 WL 1522833 (6th Cir. Mar. 31, 2020), involves something we might all be feeling these days: exhaustion.

Wallace involves a challenge to a denied long-term disability benefit claim. Plaintiff was a registered nurse who was a participant in an ERISA-governed employee welfare benefit plan sponsored by her employer (“the Plan”). She stopped working in 2012 while the Plan was insured by Hartford Life & Accident Insurance Company. On January 1, 2013, the Plan shifted its contract to Reliance Standard. Plaintiff tried to return to work in 2013, but quickly went back on medical leave. She subsequently submitted a claim for benefits to Reliance, who denied it on the ground that she had a pre-existing condition that barred coverage. Plaintiff also submitted a claim to Hartford, who denied that as well. She appealed the Hartford denial, but did not appeal the Reliance denial before filing suit against Reliance.

The parties filed cross-motions for judgment. The district court granted Wallace’s motion, denied Reliance’s motion, and awarded back benefits, post-judgment interest, and attorney’s fees to Wallace. Reliance appealed.

The Sixth Circuit tackled four issues on appeal, discussing whether (1) Wallace exhausted her administrative appeals; (2) the district court erred in awarding benefits; (3) the district court miscalculated benefits; and (4) the district court abused its discretion in awarding fees.

First, the court found that because the plan document did not describe an internal claims review process or any remedies, it was procedurally deficient under the ERISA regulations, and thus Wallace’s claim with Reliance was “deemed exhausted.” In doing so, the court rejected Reliance’s argument that the denial letter was sufficient because it set forth appeal procedures. The court also rejected the argument that Defendants had “substantially complied” with ERISA. The court questioned whether plan documents could even be subject to a “substantial compliance” test, as the test is typically only applied to decisions made by administrators. However, the court did not reach the issue because in this case the Plan was “wholly non-compliant.”

Second, the court found that the district court’s fact-finding was incomplete regarding whether Wallace was covered under the transfer of insurance provision from Hartford to Reliance, and whether her condition was subject to Reliance’s pre-existing condition provision. The court identified a number of unresolved factual issues that affected how these two provisions should be interpreted, and remanded to the district court to address them.

Because the court remanded on this second issue, it also vacated the district court’s rulings on the third and fourth issues regarding benefit calculations and fees. However, the court took pains to note that its opinion was “not necessarily inconsistent with an award of attorney’s fees.” The court further found that if the district court was inclined to award fees on remand, the calculations it had used regarding hours and rates were reasonable.

Finally, it is worth noting an interesting concurrence penned by Judge Thapar, in which he took aim at the exhaustion doctrine in general, finding it “troubling to have no better reason for a rule of law than that the courts made it up for policy reasons.” Judge Thapar contended that the doctrine is not found in ERISA itself, and in this case, it could not even be found in the plan document. As a result, “we should think twice about whether requiring exhaustion is legitimate.” In doing so, Judge Thapar advocated for a more textualist approach: “[W]hen courts stray from the texts of these laws or the terms of these contracts, they wield power that is not rightly theirs.”

This week’s notable decision was prepared by Kantor & Kantor attorney Peter Sessions.

This was a very busy week for ERISA decisions, so feel free to pause here for a quarantini and come back to read about 39 other decisions from this past week.

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

Attorneys’ Fees

Third Circuit

Bd. of Trustees of Greater Pennsylvania Carpenters’ Med. Plan v. Clouser, No. CV 19-165, 2020 WL 1508698 (W.D. Pa. Mar. 30, 2020) (Judge Cathy Bissoon). Plaintiff filed its motions seeking damages of $19,422, representing the cost to Plaintiff of providing health insurance coverage to Ms. Clouser while she was ineligible for coverage due to her divorce from Mr. Clouser. Plaintiff also sought to recover $5,053.75 in attorneys’ fees and $1,278.00 in costs. In analyzing the factors related to award of attorneys’ fees, the court reached to the following conclusions: (1) Defendants’ alleged fraudulent actions weigh in favor of a fee award; (2) As Defendants have not answered or filed any motions, the court is unable to determine whether they can satisfy an award of fees; (3) The court finds that imposing fees would deter parties from attempting to defraud plans by fraudulently concealing or misrepresenting information; (4) Restoring the cost of attorneys’ fees would benefit the members of the pension plan as a whole, as these are funds “that should not have been diverted in the first place.”; (5) As Plaintiff’s position “has merit, while [Defendant] has not advanced any position” the relative merits of Plaintiff’s position weighs in favor of a fee. As to reasonableness, the court found that the number of hours expended on this litigation (28.75 hours), and the hourly rate of counsel involved ($175.00 for associates and $225.00 for lead counsel), to be reasonable, noting that the billable time was predominantly conducted by associates (28.3 hours).

Breach of Fiduciary Duty

Second Circuit

Hudson v. Nat’l Football League Mgmt. Council, No. 1:18-CV-4483-GHW, 2020 WL 1547467 (S.D.N.Y. Mar. 31, 2020) (Judge Gregory H. Woods). The court dismissed Plaintiff’s amended complaint seeking to certify a class of “[a]ll participants of the Plan who filed a claim seeking total and permanent disability benefits prior to January 1, 2015 and the beneficiaries of such persons.” Plaintiff alleges two new claims that the Retirement Board of the NFL Player Retirement Plan “should have known that its failure to disclose its interpretation of ‘changed circumstances’ would harm plan participants like Hudson. The second relates to Hudson’s argument that the [the National Football League Management Council and the National Football League Players Association] should have known about the Board’s alleged breach of fiduciary duty.” The court found that Plaintiff has not demonstrated that he was deprived of an ERISA right since the Board had no affirmative duty to inform Plaintiff about its interpretation of “changed circumstances,” nor did it make any misleading representations. The claims against the Council and the Association cannot proceed because Plaintiff failed to state an underlying claim for breach of fiduciary duty against the Board. Even assuming that the scope of the duty to monitor as described in single employer plan cases is the same in the multi-employer plan context, that duty is limited. “Put simply, the duty to monitor extends only to ensuring that appointing fiduciaries are performing their duties, not how they are performing those duties. Indeed, the rationale for creating the Board and granting it primary responsibility for administering the plan is so that the appointing fiduciaries such as the Council and the Association do not have to conduct an in-depth review of its decisions.”

Cates v. Trustees of Columbia Univ. in the City of New York, No. 16CIV6524GBDSDA, 2020 WL 1528124 (S.D.N.Y. Mar. 30, 2020) (Judge George B. Daniels). “Plaintiffs assert that Columbia breached its duty of prudence concerning recordkeeping fees by failing to: (1) analyze or negotiate recordkeeping fees on a per participant basis; (2) conduct competitive bidding for the Plans’ recordkeeper; and (3) consolidate to a single recordkeeper—all of which resulted in excessive recordkeeping fees.” Plaintiffs also “claim that Columbia breached its fiduciary duty by failing to monitor and remove certain investment options—including, the CREF Stock Account and the TIAA Real Estate Account—despite excessive fees and poor performance.” The court reviewed the Magistrate Judge’s recommendations and found that he properly recommended denial of Columbia’s motion for summary judgment. Plaintiffs have adduced evidence which a reasonable jury could find that Defendant’s alleged breaches caused a loss to the Plans and that a prudent fiduciary would have removed the investments at an earlier date.

Third Circuit

Pinnell, et al. v. Teva Pharmaceuticals USA, Inc., et al., No. CV 19-5738, 2020 WL 1531870 (E.D. Pa. Mar. 31, 2020) (Judge Kearney). The court denied Defendants’ motion to dismiss this lawsuit alleging that the 401(k) plan and employer fiduciaries’ choice of plan options for participants were too costly and a breach of fiduciary duty. The court found the following allegations sufficient to state a claim for breach of fiduciary duty. “The participants allege the Plan fiduciaries maintained expensive investments despite the availability of identical but lower-cost alternatives, including, but not limited to, investments in retail class shares instead of lower-cost institutional class shares. They included three tables comparing investment options offered by the Plan to similar or identical lower-fee alternatives and comparing expense ratios to median fees in the same category. They also alleged Defendants failed to monitor or control the Plan’s recordkeeping expenses, citing to case law demonstrating per-participant fees for a jumbo plan should peak at less than $50.” Further, “the participants plead under Rule 11 a table listing at least twelve investment options for which the Plan fiduciaries could have switched to lower-fee share classes, in addition to numerous other comparisons. They also plead the Plan fiduciaries failed to prudently manage and control the Plan’s recordkeeping fees, citing case law to support their fact allegation jumbo plans can leverage their size to minimize recordkeeping fees.” Finally, “the participants plausibly alleged Defendants failed to adequately review the Plan’s investment portfolio to ensure prudence of investment options, maintaining expensive investments despite the availability of ‘virtually identical’ lower-cost alternatives. The participants did not levy conclusory allegations of failing to select the lowest-cost investment options in every instance; they included specific comparisons to demonstrate Plan fiduciaries should have considered virtually identical or similar, lower-cost options such as collective trusts and separately managed accounts, passively managed index funds, and institutional class shares. The participants also alleged excessive recordkeeping fees, a plausible allegation despite the participants’ initial miscalculation based on lack of information. Under the totality of the circumstances approach, the participants plead substantial circumstantial evidence from which we can reasonably infer a breach might have occurred.”

Sixth Circuit

Secretary of The Department of Labor v. United Transportation Union, et al., No. 1:17 CV 923, 2020 WL 1611789 (N.D. Ohio Mar. 30, 2020) (Judge Solomon Oliver, Jr.). “In its Motion, the Secretary asks the court to grant summary judgment in its favor with respect to: (1) Defendants’ alleged status as fiduciaries under ERISA § 3(21)(A); (2) Defendants’ alleged violations of ERISA §§ 406(b)(1) and (2); (3) Defendants’ alleged violations of ERISA § 404(a)(1)(A); (4) Previsich’s alleged co-fiduciary liability under ERISA §§ 405(a)(2) and (3); and (5) the amount of damages Defendants are responsible for under ERISA § 409 based on their alleged violations of ERISA § 406(b).” The court granted “summary judgment in favor of the Secretary and against: (1) the Union for its violations of ERISA §§ 404(a)(1)(A), 406(b)(1) and (2) from January 1, 2010 through May 31, 2015; (2) Trustee-Defendant Previsich for his violations of ERISA §§ 404(a)(1)(A), 406(b)(1) and (2) from April 29, 2013 through the present; (3) Trustee-Defendant Previsich for his co-fiduciary liability under ERISA § 405(a)(2) for the Union’s violations of ERISA between April 29, 2013 through January 1, 2014; (4) Trustee-Defendant Sellers for his violations of ERISA §§ 404(a)(1)(A), 406(b)(1) and (2) from January 14, 2014 through the present; and (5) Trustee-Defendant McClees for his violations of ERISA §§ 404(a)(1)(A), 406(b)(1) and (2) from January 14, 2014 through the present.”

Class Actions

First Circuit

Moitoso v. FMR LLC, et al. No. 18-12122-WGY, 2020 WL 1495938 (D. Mass. Mar. 27, 2020) (Judge William Young). In this class-action litigation, participants in the Fidelity 401(k) plan allege Fidelity breached its fiduciary duties of loyalty and prudence by failing to monitor the mutual fund options in the Fidelity 401(k) and failing to monitor recordkeeping fees. As a threshold issue, the Plan Fiduciaries had been sued in 2014 for breaching their fiduciary duties. That case settled, and Defendants argue the settlement agreement barred Plaintiff’s current claims. Plaintiffs counter that the current claims stem from Fidelity’s continuing duty to act in the interests of plan members after the settlement was signed. The court agreed the two cases “do not arise from a common nucleus of operative facts,” so the settlement agreement did not release Plaintiffs’ claims. The court examined whether Fidelity breached its fiduciary duties by offering its own proprietary mutual funds as investment options. The proprietary funds were offered on the internal Fidelity benefits platform, not the brokerage platform where they would have been one of hundreds of options. A fiduciary does not have to monitor funds in a brokerage platform because there are too many, but “Fidelity was not offering its funds in the equivalent of a brokerage window, it can face fiduciary liability for its lack of monitoring…” Next, the court determined there is no fiduciary duty to investigate non-mutual fund investment options like stable value funds, separate accounts, or collective trusts. The options are too dissimilar to compare – some might outperform mutual funds but have less regulation and transparency. Last, the court found Fidelity had failed to monitor recordkeeping costs, thereby breaching its duty of prudence. Plaintiffs’ will be able to recover under surcharge.

Disability Benefit Claims

Fifth Circuit

Chisholm v. The Guardian Life Insurance Company of America, No. CV 18-00728-BAJ-RLB, 2020 WL 1521747 (M.D. La. Mar. 30, 2020) (Judge Brian A. Jackson). Plaintiff was a Medical Assistant for Delta Career Education Corporation, which sponsored an employee welfare benefit plan which included a group disability benefits policy, funded and administered by the Guardian. In 2009, Plaintiff was diagnosed with Dercum’s disease, a painful disease that causes multiple tumors to grow on and impinge upon peripheral nerve endings. The Guardian found Plaintiff disabled from May 7, 2009 through January 5, 2018. It terminated benefits after sending Plaintiff to a functional capacity evaluation (FCE). The FCE determined Plaintiff had sedentary work capacity. Plaintiff’s treatment provider agreed with the FCE findings. Plaintiff appealed and the Guardian sent her to an independent medical examination (IME). The IME concluded she was capable of working. Plaintiff’s treatment providers agreed with the IME findings. After the Guardian upheld the termination of benefits on appeal, Plaintiff filed suit. Applying the abuse of discretion standard of review, the court ruled in favor of the Guardian. It determined that, although Plaintiff pointed to medical opinions from 2015 that she could not return to work, this was outweighed by the more recent medical evidence supporting the finding of work capabilities. However, in denying the Guardian’s request for attorneys’ fees, the court noted Plaintiff’s arguments were “non-frivolous.”

Hernandez v. Life Insurance Company of North America, et al., No. SA-19-CV-00022-FB, 2020 WL 1557802 (W.D. Tex. Apr. 1, 2020) (Magistrate Judge Elizabeth S. “Betsy” Chestney). The court issued a Report & Recommendation that Defendant’s motion for summary judgment be granted based on its determination that Defendant did not abuse its discretion in denying Plaintiff’s claims for short-term and long-term disability based on anxiety, depressive, and stress disorders. The court found that Plaintiff did not regularly see treatment providers and that none of his doctors provided additional information in response to LINA’s requests. “It could be error for a claims administrator to discount detailed findings of specific impairments and disability by demanding objective tests that are not available. But that is simply not the case here. . . . Whereas here, we have a treating and examining physician, Dr. Gutierrez, who did complete a psychological evaluation, including objective mental health tests, such as the Beck Anxiety Inventory and Beck Depression Inventory, but did not provide any detailed description of how Hernandez’s depressed mood and impaired concentration rendered him unable to perform his job duties. And we have a medical record that is extremely scant. It is not unreasonable for the claims administrator to require support for the diagnoses and conclusions of medical providers, where such objective tests do exist (such as the anxiety and depression inventories performed on Hernandez) and there could be a more detailed explanation as to the nature of the functional impairments caused by various mental health conditions. LINA was not required to accept Hernandez’s diagnoses of depression and anxiety, without more, as indicative of disability as defined in the Plan.”

Sixth Circuit

Wallace v. Oakwood Healthcare, Inc., No. 18-2316, __F.3d__, 2020 WL 1522833 (6th Cir. Mar. 31, 2020) (Before: Clay, Thapar, and Nalbandian, Circuit Judges). See Notable Decision summary.

Outward v. Eaton Corp. Disability Plan for U.S. Employees, No. 19-3365, 2020 WL 1514852, ___Fed. App’x___ (6th Cir. Mar. 30, 2020) (Before Daughtrey, Clay, and Griffin, Circuit Judges). On appeal, Plaintiff challenges a number of rulings by the district court upholding the denial of long-term disability benefits. Although the court found no merit to Outward’s claims regarding changes in the Plan’s definition of “disability,” the denial of the motion for further discovery, the alleged breach of fiduciary duty, or the claim of unconscionability, it concluded that the district court erred in upholding the determination that Outward was not entitled to long-term disability benefits based on the record before the Plan Administrator. Because the administrative decision-maker failed to consider certain objective findings regarding Outward’s debilitating conditions, the denial of benefits must be considered arbitrary and capricious. The court reversed the decision of the district court and remanded the matter with instructions to return the case to the Plan Administrator for a full and fair review of all relevant evidence. Here, the Plan Administrator denied Outward’s request for continued long-term disability benefits despite noting that some physicians—including Outward’s treating physician—found the claimant to be totally disabled and unable to perform even part-time work. “The Plan Administrator discounted those opinions supporting a grant of benefits, however, concluding that the diagnoses of disabling conditions were not supported by what the Plan Administrator considered objective medical findings.” It is this rationale for its decision and the failure to consider the quality of certain contrary evidence that makes the administrative finding arbitrary and capricious.

Tenth Circuit

Foster v. Sedgwick Claims Management Services; & VMware, Inc., No. 19-CV-02077-LTB-NRN, 2020 WL 1643447 (D. Colo. Apr. 2, 2020) (Judge Lewis T. Babcock). Plaintiff brought claims against her employer and its third-party administrator alleging that she was improperly denied short-term disability benefits and that, as fiduciaries, they failed to advise her of other available options, including the right or ability to use paid time off as needed. The court denied Defendants’ partial motion to dismiss. It found that based on dicta in Geddes, and the Supreme Court’s decision in Harris Trust, “it is likely that the Tenth Circuit would consider VMware a proper defendant based solely on the allegations in the Complaint that it is the Plan sponsor and administrator.” Thus, it denied the motion to dismiss VMware from the lawsuit. The court also found that Plaintiff adequately stated a claim for breach of fiduciary duty under either § 502(a)(2) or § 502(a)(3) that is plausible on its face, where Plaintiff “is seeking a remedy on behalf of the Plan, including retraining of employees and/or providing notice to employees a full statement of available rights under the Plan, and because the remedy sought is equitable in nature.”

Eleventh Circuit

Harris v. Savannah River Remediation Disability Short & Long Term Disability Plan, No. CV 118-152, 2020 WL 1509454, (S.D. Ga. Mar. 26, 2020) (Judge Randal Hall). Plaintiff filed suit against her employer’s disability benefit plan after his claims and subsequent appeals under the plan were denied. After the parties filed cross-motions for summary judgement, the court denied Plaintiff’s motion and granted Defendant’s. The Court concluded that, under an abuse of discretion review, Defendant’s decision was “neither wrong nor unreasonable.” Specifically, the court found that, despite the existence of a conflict of interest, there was sufficient evidence to support the administrator’s decision. The court found persuasive the fact that Plaintiff’s treating physician concluded that Plaintiff would only “sometimes” miss work. The court also rejected Plaintiff’s argument that the Plan Administrator utilized the wrong standard, partially because the court’s review is limited to the Plan Administrator’s final claims decision; as such, unreasonable or biased conduct reflected in prior determinations is not relevant to the court’s analysis.

Discovery

Second Circuit

Glickman, M.D. v. First UNUM Life Ins. Co., No. 119CV05908VSBSDA, 2020 WL 1643395 (S.D.N.Y. Apr. 2, 2020) (Magistrate Judge Stewart D. Aaron). This matter involves a dispute over the proper calculation of long-term disability benefits. The court found that Unum did not have to answer the interrogatory requesting “the amount of the reserve placed on Dr. Glickman’s claim” because it “is outside the scope of those permitted under Local Rule 33.3, inasmuch as the interrogatory does not seek any of the categories of information permitted under the Local Rule (i.e., identities of witnesses or ‘the computation of each category of damage alleged’).” The court found that some discovery is appropriate as it relates to Plaintiff’s attorney fee claim (to show Unum’s culpability or bad faith). The court denied depositions of two Unum witnesses, Pamela Fox and Lisa Montelongo-Connor, but permitted the Rule 30(b)(6) deposition of Unum “regarding (1) the processing, investigation and review of Plaintiff’s claim for LTD benefits, and (2) the application to Plaintiff of any amendment of, change to or revision of the LTD Plan.”

Third Circuit

McCann, M.D. v. Unum Provident & Hartford Life and Accident Insurance Company, No. CV113241MASTJB, 2020 WL 1517071 (D.N.J. Mar. 30, 2020) (Judge Michael A. Shipp). Defendant sought district court review of the Magistrate Judge’s order finding that no additional discovery was needed on Plaintiff’s total disability and residual disability claim. “The crux of Defendant’s argument is that implicit in the Third Circuit’s remand is the need for additional discovery. Defendant argues that the existing paper record was insufficient for the Third Circuit to decide the two issues on remand: (1) whether Plaintiff’s medical conditions prevent him from performing substantial and material duties of his specialty and (2) Plaintiff’s claim for Residual Disability. Therefore, according to Defendant, the Discovery Order is clearly erroneous.” The court found that the Third Circuit did not expressly provide guidance on the need for additional discovery so the order denying discovery on this issue is neither clearly erroneous nor contrary to the law. Prior orders finding that the litigation record is not limited to the Administrative Record is not the law of the case that must be applied to discovery issues or limit the court’s discretion to manage discovery.

ERISA Preemption

Third Circuit

Wolff v. Aetna Life Insurance Company & The Rawlings Company LLC, No. 4:19-CV-01596, 2020 WL 1637938 (M.D. Pa. Apr. 2, 2020) (Judge Matthew W. Brann). In this case where Plaintiff alleges that Aetna (long-term disability insurer) and Rawlings (a third-party service provider) improperly demanded subrogation from a tort settlement she received, the court found that her state law claims are preempted by ERISA because they relate to the terms of an ERISA plan. The court also found that Rawlings is not a proper party to Plaintiff’s ERISA benefit claim because it had no control over the administration of benefits.

Fourth Circuit

Lifebrite Hosp. Group of Stokes v. Blue Cross & Blue Shield of N. Carolina, No. 1:18CV293, 2020 WL 1516337 (M.D.N.C. Mar. 30, 2020) (J. William L. Osteen, Jr.). Plaintiff, a health care company, entered into a network participation agreement with defendant Blue Cross. Plaintiff contended that Blue Cross violated this agreement by denying reimbursement for certain laboratory tests, and filed suit against Blue Cross in North Carolina state court. Blue Cross removed the case to federal court, after which Plaintiff filed a motion to remand the case back to state court. Blue Cross argued that the federal court properly had jurisdiction pursuant to ERISA preemption and the federal officer removal statute. Under the latter authority, Blue Cross contended that some of the payments at issue were for treatment for either Medicare beneficiaries or federal employees, which meant that Blue Cross was acting as a federal agent in directing payments from federal coffers. The court disagreed with both arguments and granted Plaintiff’s motion to remand. First, the court found that the contracts at issue contained anti-assignment clauses which prohibited Plaintiff from asserting ERISA rights on behalf of its patients. As a result, Plaintiff did not have derivative standing under ERISA and there could be no jurisdiction based on ERISA preemption. Second, the court found that while Blue Cross arguably met two of the elements of the federal officer removal test, it did not meet the third element because it did not “act under color of office” in adjudicating claims. The court found there was no evidence that Blue Cross was acting as an agent at the sole discretion of the government, or that there was close governmental control or oversight over any of its decisions in the case.

Fifth Circuit

Crescent City Surgical Centre v. CIGNA, No. CV 18-11385, 2020 WL 1503534 (E.D. La. Mar. 30, 2020) (Judge Greg Gerard Guidry). This is a dispute between a medical care provider and the insurance company, CIGNA, because CIGNA stopped making any payments to Plaintiff. Plaintiff sued for breach of contract – it does not represent the patients/insureds. The complaint states that there was no assignment of benefits, repudiates federal law claims, and brought all state law claims. The court determined the state law claims asserted are not preempted by ERISA or any other federal law.

Exhaustion of Administrative Remedies

Fourth Circuit

Demastes, et al. v. Midwest Diversified Mgmt. Corp., et al., Case No. 19-cv-00065, 2020 WL 1490741 (W.D.N.C. Mar. 24, 2020) (Judge Robert J. Conrad, Jr.). In this matter, Plaintiff alleges among numerous allegations that she was allegedly denied health benefits under the Plan because of Midwest’s failure to make premium payments to Blue Cross Blue Shield. Plaintiff’s third claim for relief under ERISA for wrongful denial of benefits alleges that pursuit of administrative remedies “would have been futile since the denial of benefits was due to Midwest’s failure to remit payment of premiums to the Plan.” The court disagreed specifically because of the allegations Plaintiff made in the Complaint that “[a]fter Plaintiff notified Midwest of this issue, Midwest paid past-due premiums, Plaintiff’s coverage was reinstated, and the Plan paid Plaintiff’s medical expenses that were incurred while she was without coverage.” The court held that on its face these allegations were insufficient to invoke the futility exception to the exhaustion requirement and this claim was dismissed.

Fifth Circuit

Bennett v. Louisiana Health Service & Indemnity Company, No. 19-185, 2020 WL 1536342 (M.D. La. Mar. 31, 2020) (Magistrate Judge Richard L. Bourgeois, Jr.). In this lawsuit alleging that Defendant overcharged participants for medically-necessary prescription drugs, the court denied Defendant’s motion to dismiss under Rule 12(b)(6) on the basis that Plaintiffs failed to exhaust their administrative remedies. “The Court’s analysis is focused on whether Plaintiffs plead a denial of benefits. The issue of Defendant’s affirmative defense, exhaustion of administrative remedies, will then be left for discovery and subsequent briefing on summary judgment, if appropriate.” The court also rejected Defendant’s argument that Plaintiffs failed to exhaust their administrative remedies for their Section 502(a)(2) & (3) claims since exhaustion is only required under Section 502(a)(3) when the claims are merely “disguised benefits claims,” which is not the scenario here.

Tenth Circuit

Severine v. Anthem Blue Cross Life and Health Insurance Company, No. 19-CV-03301-RM-MEH, 2020 WL 1529187 (D. Colo. Mar. 31, 2020) (Magistrate Judge Michael E. Hegarty). In this dispute over the payment of denied coverage for surgery, the Magistrate Judge recommended that Defendant’s motion to dismiss for failure to plead exhaustion of administrative remedies be denied. The court agreed with Defendant that Plaintiff did not explicitly plead exhaustion of the June 28, 2017 decision as she did Defendant’s earlier denial, but exhaustion as a matter of judicial discretion, unlike statutory exhaustion, is not jurisdictional. In the Tenth Circuit a plaintiff is not required to plead facts that overcome an affirmative defense in order to avoid Rule 12(b)(6) dismissal. Thought it is possible that, in a case involving an affirmative defense, the complaint pleads facts confessing the affirmative defense, the Complaint here does not plead facts ruling out exhaustion. The court found it not appropriate to decide this factual dispute under a Rule 12(b)(6) analysis.

Life Insurance & AD&D Benefit Claims

Second Circuit

Campbell v. WE Transp., Inc., No. 18-CV-5354 (MKB) (LB), 2020 WL 1528057 (E.D.N.Y. Mar. 31, 2020) (Judge Margo K. Brodie). Plaintiff is the sister of Willie Campbell, now deceased, who was an employee of WE Transport. Willie was enrolled in a Plan providing life insurance benefits insured by Unimerica. Willie died without naming a beneficiary for the $15,000 in benefits. Unimerica contacted Plaintiff to identify his heirs. She provided the information but did not specify Willie had a will. Under a Plan provision stating whom to pay if there was no named beneficiary, Unimerica was to pay benefits to surviving children or the estate, at its option. Unimerica paid Willie’s four adopted children. Plaintiff sued, pro se, claiming this was an abuse of discretion and a violation of nearly every provision of ERISA. Following a report and recommendation by a magistrate judge, which Plaintiff objected to, the court granted judgment in Unimerica’s failure finding it was not an abuse of discretion for Unimerica to pick one proper payee under the Plan over another as the Plan stated it should do.

Tenth Circuit

Harper v. Aetna Life Insurance Company, No. 18-CV-0668-CVE-JFJ, 2020 WL 1546455 (N.D. Okla. Apr. 1, 2020) (Judge Claire V. Eagan). Plaintiff brought a claim for accidental death benefits against Aetna and a claim for breach of fiduciary duty against Donna Matlock and Integrated Service Company (“Inserv”) for wrongfully managing the employee benefit plan. The court found that Aetna did not abuse its discretion in denying Plaintiff’s claim for accidental death benefits due to the policy’s exclusion for losses caused or contributed to by the use of alcohol, intoxicants or drugs while operating a motor vehicle. The decedent died in a single motor accident where there were no witnesses. “Aetna relied on the toxicology report showing that decedent tested positive for 0.35 mcg/mL of amphetamine and 2.2 mcg/mL of methamphetamine post mortem when it denied benefits.” Aetna also advised Plaintiff that no premium deductions were made for Plaintiff in 2017. The court did permit the supplementation of the record with the deposition testimony of Matlock since it is relevant to the de facto or functional fiduciary issue. The court found that Matlock and Inserv were not fiduciaries because they assumed no fiduciary obligations and they did not make the decision to deny benefits. That they determined eligibility for enrollment is not enough to make them functional fiduciaries. The court also found that Plaintiff’s equitable argument—that Aetna should be equitably estopped from denying her benefits because Inserv and Matlock accepted her payments even though she did not qualify for benefits in decedent’s name—fails.

Stachmus v. The Guardian Life Insurance Company of America, No. CIV-19-071-RAW, 2020 WL 1528168 (E.D. Okla. Mar. 30, 2020) (Judge Ronald A. White). This case involves a claim for life insurance benefits by competing beneficiaries. Guardian paid the benefits to the beneficiaries on the most recent beneficiary designation form, which was executed just before the decedent stopped working but not submitted to the employer. The court disagreed with Plaintiff (the former beneficiary) that the designation did not take effect because the employer was not given written confirmation as the policy requires. The claim form was signed by the employer, recommending payment on the claim, which the court found to be adequate indication that the employer had knowledge. Based on these facts, Guardian’s decision was not arbitrary and capricious. The court concluded Plaintiff failed to demonstrate either entitlement to recovery of benefits under § 1132(a)(1)(B) or entitlement to equitable relief pursuant to § 1132(a)(3). The court entered judgment in favor of Defendant.

Medical Benefit Claims

Second Circuit

Med. Soc’y of State of New York v. UnitedHealth Grp. Inc., No. 16-CV-5265 (JPO), 2020 WL 1489800 (S.D.N.Y. Mar. 26, 2020) (Judge J. Paul Oetken). In an action regarding the accuracy of United’s automatic benefit claims adjudication system, United moved to strike an expert report and moved for summary judgment. The court found that the experts report did not lack in foundation, particularly when there will be no jury, and denied the motion to strike. The court found that Plaintiffs raise factual disputes regarding Plaintiff’s injunctive claims and therefore the court denied summary judgment as to the injunctive claims. The court granted summary judgment as to several benefit claims because the pertinent plans contain anti-assignment claims and the provider plaintiff does not have standing. The court found that there is a genuine dispute of fact regarding whether United interpreted the plan terms in the first instance and there is a dispute regarding whether plan documents were consulted when United made its benefit decisions. Therefore, the court denied summary judgment because it cannot be determined on summary judgment whether the plan terms are part of the administrative record.

Ninth Circuit

Eric P. v. Directors Guild of America, et al., No. 19-CV-00361-WHO, 2020 WL 1531339 (N.D. Cal. Mar. 30, 2020) (Judge William H. Orrick). “Eric argues that the Plan abused its discretion in denying his claim for benefits on behalf of his daughter. I am sympathetic to his decision to have his daughter treated in what he thought was the most effective way, and if my review was de novo and not abuse of discretion, I might well have concluded that the Plan should have made a different decision. However, his legal arguments rely largely upon an interpretation of the facts that is not supported by the record. He has failed to identify any procedural violations in the Plan’s handling of his claim that would affect the standard of review for abuse of discretion. I find that the Plan did not abuse its discretion in its denial of his claims; it was reasonable to conclude that treatment less intensive than residential treatment was appropriate and medically necessary given Eric’s daughter’s prior eight-week stay in a residential treatment facility.”

Tenth Circuit

Tracy O. v. Anthem Blue Cross Life and Health Insurance, No. 17-4135, __F.App’x__, 2020 WL 1650649 (10th Cir. Apr. 3, 2020) (Before Briscoe, Baldock, and Eid, Circuit Judges). In this dispute over residential treatment coverage for a minor with significant mental health problems, the court held that this language was sufficient to confer discretionary authority to Anthem: “THE BENEFITS OF THIS PLAN ARE PROVIDED ONLY FOR THOSE SERVICES THAT WE DETERMINE TO BE MEDICALLY NECESSARY.” The court also agreed with the district court that the Group Benefit Agreement, and by incorporation the Evidence of Coverage form, “constitute the plan documents in this case.” Applying abuse of discretion review, Anthem’s decision was grounded on any reasonable basis where it was supported by four doctors who reviewed the claim for medical necessity and found that residential treatment was not medically necessary.

Jeff N. v. United Healthcare Insurance, No. 218CV00710DBBCMR, 2020 WL 1644199 (D. Utah Apr. 2, 2020) (Judge David Barlow). The court denied dismissal of Plaintiffs’ claim alleging Defendant’s liability for pre-2017 claims, which Defendant denies on the basis that it was not the insurer. “Plaintiffs have sufficiently pled Defendant’s liability for denied benefits incurred prior to January 1, 2017. Plaintiffs allege ‘United … was the insurer and claims administrator for the insurance plan providing coverage for [Plaintiffs] … during the treatment at issue.’ Under the circumstances, this is sufficient to avoid dismissal for failure to state a claim. The court did dismiss Plaintiffs’ Parity Act claim because “Plaintiffs present facts about their own mental health treatment coverage experience but offer only conclusory statements or legal conclusions about alleged analogous medical/surgical comparators. … Without some facts about actual, as-applied, analogous medical treatment coverage, other than labels and conclusions, there can be no comparison and hence no claim.”

Pension Benefit Claims

Fourth Circuit

Chavis v. Plumbers & Steamfitters Local 486 Pension Plan, No. CV ELH-17-2729, __ F. Supp. 3d __, 2020 WL 1503679 (D. Md. Mar. 27, 2020) (J. Ellen L. Hollander). The two plaintiffs in this case retired from their union positions but continued working for the same employer in non-union management positions. Plaintiffs successfully applied for and began receiving service pensions under the plan, but the trustees for the plan subsequently suspended those benefits, contending that Plaintiffs had not experienced bona fide retirements qualifying them for benefits. On summary judgment, the court noted that the trustees had violated several procedural rules, which counseled in favor of applying de novo review. More importantly, the central issue in the case was one of law, which required de novo review. Under de novo review, the court found that the trustees’ first decision to approve benefits was not binding and that they had the power to revisit their decision and suspend Plaintiffs’ benefits. The court further found that the plan was ambiguous. However, the court resolved that ambiguity in favor of the plan’s intent to remain tax-qualified under Internal Revenue Code and ERISA rules. Those rules provide that a plan cannot pay pension benefits to an employee under age 62 and remain tax-qualified unless the employee has stopped working for his or her employer. In this case, both plaintiffs were under age 62 when they applied for and began receiving benefits, and both continued working for the same employer. As a result, the court found that the plan’s decision to suspend benefits was correct.

Eighth Circuit

Duffy v. Anheuser-Busch Companies, LLC, No. 4:19-CV-01189-SRC, 2020 WL 1493558 (E.D. Mo. Mar. 27, 2020) (Judge Stephen R. Clark). Defendants moved to dismiss this putative class action alleging the Pension Plan benefit payments were not the actuarial equivalent of a single-life annuity because the Plan uses outdated mortality tables and interest rates which results in a reduction of the monthly annuity payment. Defendant asserted five arguments in support of its motion and the court denied them all. The court found that at this stage, the complaint sufficiently alleges the use of outdated mortality tables and other assumptions used by the Plan to calculate the actuarial equivalent of a single-life annuity were unreasonable.

Magruder Construction Co., Inc. v. Gali, No. 4:18-CV-00286 JAR, 2020 WL 1512478 (E.D. Mo. Mar. 30, 2020) (Judge John A. Ross). In this dispute over the payment of deferred compensation benefits, the court found that de novo review applies. The standard of review in a top hat plan case is de novo, even when the plan grants discretionary authority, because a top hat administrator has no fiduciary responsibilities under ERISA. The court concluded that the Board’s decision to deny Defendant’s claim for deferred compensation was supported by substantial evidence since he released his claim to deferred compensation benefits by executing a settlement agreement which unambiguously released this claim. Even if the release is ambiguous, the parties’ intent can be discerned from their settlement negotiations.

Plan Status

Fourth Circuit

Colburn v. Hickory Springs Mfg. Co., No. 5:19-CV-139-FL, 2020 WL 1490703 (E.D.N.C. Mar. 24, 2020) (Judge Louise W. Flanagan). At issue on cross-motions was a determination of whether a Supplemental Executive Retirement Plan (“SERP”) qualifies as “top hat” plan, thereby exempting it from ERISA’s fiduciary, participation, vesting, and funding provisions (but not other ERISA provisions such as claims for benefits). Plaintiff, who was the former president and CEO of Hickory Springs, alleged the SERP was an ERISA plan because it was funded by life insurance policies and the SERP was not limited to only a select group of management or highly compensated employees. The court discussed what constitutes an “unfunded” plan, stating ERISA does not define the term. Plaintiff argued the life insurance was the funding for the benefit payments. The court disagreed engaging in a lengthy analysis of several cases from other circuits where life insurance was procured to offset payments under top hat plans, ultimately concluding that if benefits are paid out the company’s general assets and the participants have no greater rights to payment than unsecured credits then the plan is considered unfunded. Here, Plaintiff had no right to insurance policy funds and his rights were equal to unsecured creditors. The court then analyzed whether the requirement of whether the SERP was limited to a select group of management or highly compensated employees. The court found the fact that two former employees were granted benefits was not dispositive and the two former employees were high ranking employees with enough inside information about the company to know their rights and obligations and, therefore, do not need ERISA’s protection. The court then moved on to Defendants’ motion to dismiss Plaintiff’s claims for unpaid wages as preempted by ERISA. Plaintiff’s claim was made under ERISA § 502 and the court concluded ERISA preempts Plaintiff’s claims because he is seeking payment of the SERP benefits. The court also found Defendants’ counterclaims against Plaintiff for rescission of the benefits and constructive fraud were also preempted by ERISA. Plaintiff’s claim for benefits will move forward.

Pleading Issues & Procedure

First Circuit

Steve C. v. Blue Cross & Blue Shield of Massachusetts, Inc., No. 1:18-CV-12278-ADB, 2020 WL 1514545 (D. Mass. Mar. 30, 2020) (Judge Allison D. Burroughs). In a class action claiming systemic denial residential treatment benefits and violations of the Parity Act, Blue Cross claims Plaintiffs lack standing because Blue Cross did not have control over the medical necessity or benefit decisions and therefore Plaintiffs’ alleged injury is not traceable to Blue Cross. Blue Cross claims HMO Blue is the only proper defendant because it administered the policy. The court found that Plaintiffs have standing because they also claim that the Blue Cross policy itself violates the Parity Act by its exclusion for residential treatment and Blue Cross, not HMO Blue, was responsible for the exclusion. The court denied the motion as to the first cause of action for benefits because it requires a factual determination on the record regarding whether the treatment facility qualifies as a residential treatment provider. The court denied the motion as to the second cause of action for violation of the Parity Act because the complaint effectively pled that Defendants provide coverage for subacute medical and surgical treatment but deny coverage for comparable mental health treatments. The court held that Plaintiffs are entitled to discovery regarding whether Defendants covered analogous medical and surgical treatment. The court denied the motion as to Plaintiffs’ injunctive relief claims because the court cannot determine whether Plaintiffs can recover on their 1132(a)(1)(B) claims and therefore it would be premature to dismiss Plaintiffs’ 1132(a)(3) claims. The court also found that Plaintiffs’ attorney’s fees request is contingent on its success on first two causes of action.

Fifth Circuit

Bennett v. Louisiana Health Service & Indemnity Company, No. 19-185, 2020 WL 1536342 (M.D. La. Mar. 31, 2020) (Magistrate Judge Richard L. Bourgeois, Jr.). In this lawsuit alleging that Defendant overcharged participants for medically necessary prescription drugs, the court denied Defendant’s motion to dismiss the breach of fiduciary duty claims. “This Court agrees with the more expansive approach taken by many courts, which allows plaintiffs, at this stage of litigation, to simultaneously plead claims under several subsections of Section 502(a). This rule allows Plaintiffs time for discovery, to develop their trial strategy, and to preserve alternative grounds for relief until a later stage in the litigation. Indeed, in the event that Plaintiffs’ 502(a)(1)(B) claims prove not to be viable, they should be permitted to rely on their 502(a)(2)&(3) claims as a ‘safety net, offering appropriate equitable relief for injuries caused by violations that Section 502 does not elsewhere adequately remedy.’”

Eighth Circuit

Sanzone v. Mercy Health, No. 18-3574, __F.3d__, 2020 WL 1492432 (8th Cir. Mar. 27, 2020) (Before Chief Judge Smith, Wollman and Erickson, Circuit Judges). The central issue before the court is whether Mercy Health, a multibillion dollar, religiously affiliated hospital’s plan falls within ERISA’s exemption for certain religiously affiliated nonprofits. The court affirmed the lower court’s decision that held that that the plan at issue falls within the exemption. However, the court remanded in part asking the lower court to determine whether retired nurse, Sally Sanzone, has standing under ERISA to sue Mercy for underfunding the pension plan, failing to insure it and for failure to follow notice requirements. The court specifically stated that the central inquiry for the lower court to determine “is whether the deprivation of the specified ERISA protections constitutes a sufficient injury to confer standing.” The court determined that if the lower court does find standing then it must consider Sanzone’s claim that the church plan exemption violates the Establishment Clause of the Constitution and that Sanzone’s state law claims should be reinstated.

Retaliation Claims

Seventh Circuit

Washington v. Hughes Cocol Piers Resnick & DYM, Ltd., No. 18-CV-05162, 2020 WL 1503652 (N.D. Ill. Mar. 29, 2020) (District Judge Edmond Chang). In this ERISA Section 510 dispute, Plaintiff sued the law firm that she had originally hired to represent her in a wrongful termination suit against her employer, CPS, alleging that the firm conspired with CPS while representing her, and violated ERISA by helping CPS prevent her from obtaining certain retirement benefits. Specifically, she alleged that the attorney assigned to her by the firm was married to a CPS employee, members of the firm communicated with CPS agents without informing Plaintiff, and that CPS and the firm worked together to force out African-American women over 40 years of age. The court concluded that these facts were not sufficient to support a plausible inference that the firm conspired with CPS to have her fired, as this information did not provide any link between these alleged conflicts and how they lend support to Plaintiff’s allegations.

Standard of Review

Fifth Circuit

Hernandez v. Life Insurance Company of North America, et al., No. SA-19-CV-00022-FB, 2020 WL 1557802 (W.D. Tex. Apr. 1, 2020) (Magistrate Judge Elizabeth S. “Betsy” Chestney). The court found that abuse of discretion review applies to the court’s review of the denial of Plaintiff’s short-term and long-term disability claims. Plaintiff argued that the court should apply a de novo standard of review because Texas prohibits discretionary clauses of the type contained in the Plan by statute. See Tex. Ins. Code. § 1701.062(a). The court disagreed because the Plan here is a self-funded welfare-benefit plan, not a policy of insurance. “Moreover, even if Section 1701.062 would theoretically apply to render the discretionary clause in the Plan unenforceable, the undersigned agrees with Defendants that ERISA likely preempts this Texas law in the context of a self-funded plan. The Fifth Circuit has noted this possibility but has not yet decided the issue. See Ariana M. v. Humana Health Plan of Texas, Inc., 884 F.3d 246, 250 (5th Cir. 2018) (noting the growing trend in state laws banning insurers’ use of delegation clauses, and Section 1701.062(a) specifically, and raising the possibility of preemption).” The court also found that even if this law fell under ERISA’s savings clause, under the deemer clause, a self-funded employee benefit plan is not an insurance company.

Statute of Limitations

Tenth Circuit

Withdrawal Liability & Unpaid Contributions

Second Circuit

Irving v. G. & G. Instrument Corp., No. 19CV1597JMAARL, 2020 WL 1536325 (E.D.N.Y. Mar. 31, 2020) (Judge Joan M. Azrack). The court ordered entry of default judgment as follows: $274,633.91 in withdrawal liability principal, $38,422.65 in interest, $38,422.65 in liquidated damages, $6,448.50 in attorneys’ fees, and $831.00 in costs.

Sullivan v. Prestige Stone & Pavers Corp., No. 16CIV3348ATDCF, 2020 WL 1528117 (S.D.N.Y. Mar. 30, 2020) (Judge Analisa Torres). The court adopted the Report & Recommendation in its entirety and granted Plaintiff’s motion for summary judgment. The court awarded $23,248.42, representing costs related to the audit, liquidated damages, and interest on the delinquent Fund contributions and dues running up until the date when the principal was fully repaid; $119,130.75 in attorney’s fees; and $3,502.59 in litigation costs.

Sixth Circuit

GCIU – Employer Ret. Fund v. Novelty Advert. Co., No. 2:19-CV-1542, 2020 WL 1553204 (S.D. Ohio Apr. 1, 2020) (Magistrate Judge Elizabeth A. Preston Deavers). The court granted summary judgment in favor of the Fund and awarded: “(a) $44,558.00 in unpaid contributions, interest, rehabilitation plan increases and audit costs; (b) $16,047.85 in reasonable attorneys’ fees and costs; (c) $6,509.88 in liquidated damages; (d) $5.86 in daily interest beginning March 3, 2020 and continuing until Novelty satisfies the judgment entered on behalf of the Pension Fund; and (e) post-judgment interest pursuant to 28 U.S.C. § 1961.”

Directors of Ohio Conference of Plasterers v. S & S Plastering LLC, No. 1:18-CV-188, 2020 WL 1526719 (S.D. Ohio Mar. 31, 2020) (Magistrate Judge Stephanie K. Bowman). The court recommended that the Court adopt the R&R as supplemented and amended. The court recommends that Defendant and Steven R. Doyle be in civil contempt for violating both the July 9, 2019 “show cause” order and the August 14, 2019 Audit Order; Defendant to pay Plaintiffs’ reasonable expenses including attorney’s fees, incurred in connection with its efforts to reduce the existing default judgment to an amount certain; and Defendant to pay Plaintiffs’ reasonable attorney’s fees in the amount of $10,137.00.

Seventh Circuit

Local 705 International Brotherhood of Teamsters Pension Fund v. Gradei’s Express Co., Inc., No. 18 CV 6893, 2020 WL 1530737 (N.D. Ill. Mar. 31, 2020) (Judge Joan H. Lefkow). In this case, the Fund “requests damages in the form of (1) assessed withdrawal liability of $221,932.55; (2) interest on the assessed withdrawal liability calculated at 8% per year from May 2, 2018 forward9 ; (3) liquidated damages calculated at 20% of the balance due on the assessed withdrawal liability of $44,386.51; and (4) costs and attorneys’ fees.” The court granted the Fund’s motion for summary judgment with respect to all Defendants and ordered the parties to confer and present appropriate figures for interest and costs.

Eighth Circuit

Greater St. Louis Construction Laborers Welfare Fund, et al. v. Gateway Design and Construction Services, LLC, No. 4:19CV437 HEA, 2020 WL 1557172 (E.D. Mo. Apr. 1, 2020) (Judge Henry Edward Autrey). In this dispute over unpaid contributions, the court found that “the Benefit Funds and Union are entitled to judgment against defendant in the total amount of $18,980.24. The Funds are also entitled to an order requiring the defendant to submit its currently outstanding employee benefit reports, contributions, liquidated damages, and interest per the requirements of the collective bargaining agreement.”

Your ERISA Watch is made possible by the collaboration of the following Kantor & Kantor attorneys: Brent Dorian Brehm, Beth Davis, Sarah Demers, Elizabeth Green, Andrew Kantor, Susan Meter, Michelle Roberts, Tim Rozelle, Peter Sessions, and Zoya Yarnykh.