This week’s notable decision, Perrone v. Johnson & Johnson, et al., No. CV 19-00923 (FLW), 2020 WL 2060324 (D.N.J. Apr. 29, 2020), is a case involving allegations of investing in company stock when corporate insiders knew, and actively concealed, its talc powder (baby powder) contains asbestos. This is yet another case dismissed for failing to meet the high pleading standard set by the Supreme Court in Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014).

Plaintiffs filed this as a purported class action against Johnson & Johnson, Peter Fasolo and Dominic Caruso, senior executives of the company and members of the benefits committee. Plaintiffs complaint alleges that as early as 1957, Johnson & Johnson knew its talc powder contains asbestos and not only concealed its knowledge for decades but engaged in an active campaign of providing misinformation and misleading statements about the safety of its product. However, in December 2018, Reuters published an article revealing the long history of actively hiding the presence of asbestos in its talc powder. The news article caused Johnson & Johnson’s stock to decline by more than 10%. 

Plaintiffs filed this suit on behalf of all participants in the retirement plans who invested in Johnson & Johnson stock between April 11, 2017 and December 14, 2018 alleging breaches of fiduciary duties of prudence and loyalty as well as breaches of co-fiduciary duties. The allegations are based on Johnson & Johnson’s failure to make truthful and timely disclosures of the facts revealed in the 2018 Reuters article, claiming that had they done so before the article was published it would have avoided the severe loss in stock value.

Defendants responded to the case by bringing this motion to dismiss arguing Plaintiffs failed to state a claim because 1) Defendants could not have issued a corrective disclosure as an alternative action, 2) even if Defendants could have issued a corrective statement it would have caused the retirement plans more harm than good, 3) Johnson & Johnson is not a fiduciary to the plans, and 4) the co-fiduciary claims are derivative and conclusory.

The court first analyzed whether Johnson & Johnson is a fiduciary to the plans. The plans’ named fiduciary is the Pension Benefits Committee, on which Defendants Fasolo and Caruso serve. Johnson & Johnson, however, is not the named administrator. Plaintiffs’ theory is that Johnson & Johnson employed the individuals who serve on the Committee. Plaintiffs argued Johnson & Johnson is a fiduciary based on a respondeat superior theory. Defendants argued this theory fails because the case law relied upon is limited to cases involving plan funding. The court disagreed explaining that circuit courts who had addressed this issue have found that respondeat superior can be a source of liability and that under certain circumstances, employers can be vicariously liable for the acts of their employees and agents. The court held that applying the doctrine of respondeat superior would serve to further ERISA’s protective purpose and Plaintiffs’ complaint alleges sufficient facts to avoid dismissal on this basis.

Plaintiffs also argued a control theory of liability in that Johnson & Johnson exercised control of the Plans’ assets, i.e. Johnson & Johnson stock, but the court declined to entertain this theory because it was not alleged in the complaint.

The court then analyzed whether Plaintiffs alleged sufficient facts to state a claim for breaches of fiduciary duties in accordance with the standard set forth in Fifth Third Bancorp v. Dudenhoeffer, that is, a complaint must allege an alternative action Defendants could have taken that would not do more harm than good. Plaintiffs argue Defendants Fasolo and Caruso could and should have made public disclosures about the asbestos in talc power. The court engaged in a lengthy discussion on this issue, ultimately concluding Plaintiffs’ alternative action would require Defendants to make public disclosures in their corporate capacities and that ERISA liability can only arise from actions taken while acting in a fiduciary capacity.

Finally, even though the court concluded Plaintiffs failed to allege an alternative action, it discussed whether the corrective disclosures would not do more harm than good. Defendants argued disclosure of asbestos in its talc powder would have created a large stock price reduction and potential future reductions due to anticipated product liability cases. Plaintiffs counter that an earlier disclosure would have caused less damage. The court disagreed finding no indication that the timing of the disclosures makes a difference and Plaintiffs’ allegations are conclusory. The complaint was dismissed in its entirety, with leave to amend.

This week’s notable decision was prepared by Kantor & Kantor attorney, Susan L. Meter. 

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

Breach of Fiduciary Duty

Third Circuit

Perrone v. Johnson & Johnson, et al., No. CV 19-00923 (FLW), 2020 WL 2060324 (D.N.J. Apr. 29, 2020) (U.S. Chief District Judge Freda L. Wolfson). See Notable Decision summary above.

Seventh Circuit

Senior Lifestyle Corp. v. Key Benefit Administrators, Inc., Case No. 1:17-CV-02457-JMS-MJD, 2020 WL 2039928 (S.D. Ind. Apr. 28, 2020) (Judge Jane Magnus-Stinson). Senior Lifestyle Corporation (“SLC”) established a self-funded healthcare plan for its employees. In 2015, SLC contracted with Key Benefits Administrators (“KBA”) to administer that plan. KBA was also responsible for obtaining and maintaining stop-loss insurance related to the health benefits. KBA purchased the stop-loss insurance from an insurance company closely related to itself—causing the potential for a conflict of interest. KBA did not inform SLC the insurance was going to end before the insurance was triggered. The stop-loss policy insured SLC, not the plan. SLC terminated the third-party administrator contract with KBA effective 2016. SLC then sued KBA alleging a breach of fiduciary duty that resulted in SLC incurring extra expenses up to $1,000,000. The court granted KBA’s motion for summary judgment because SLC failed to establish that KBA’s alleged fiduciary breach resulted in a cognizable loss to the plan. Rather, SLC’s evidence showed a loss to SLC, not the plan. Citing to controlling Seventh Circuit precedent requiring a loss to the plan, the court held “the damages that form the basis of SLC’s Complaint are the termination of its stop-loss policy and money SLC had to expend as a result. These are clearly damages incurred by SLC, not the Plan.” The court also rejected SLC’s argument that KBA’s 99.73% accuracy rate in claims administration was actionable because “a few erroneous claims does not automatically constitute a breach of fiduciary duty.”

Class Actions

Fifth Circuit 

Chavez, et al v. Pan Benefit Srvs., Case No. 19-50904, __F.3d__, 2020 WL 2046545 (5th Cir. Apr. 29, 2020) (Before Smith, Graves, and Ho, Circuit Judges, Jerry E. Smith, Circuit Judge). The panel overturned the district court’s certification of a 90,000-member class in a suit accusing plan administrator, the Fringe Benefit Group, of accepting excessive compensations for services and self-dealing at the expense of 401(k) investors. In a particularly pointed decision, the panel observed that Judge Sparks’s consideration of whether the “huge putative class” met Rule 23’s commonality condition was “fleeting,” noting that the judge failed to identify any specific common questions in the case. Additionally, the panel held that the district court’s reasoning for certifying the class under Rule 23(b)(1)(B) needed “more facts and fewer generalizations,” calling the analysis of the class type “breezy.” In its ruling, the panel vacated the district court’s order without expressing an opinion about whether a class should be certified. The panel stated that it was not placing any limitations on what the lower court could consider in further proceedings.

ERISA Preemption

Third Circuit

Newton v. S. Jersey Paper Prod. Co., Inc., No. 119CV17289NLHKMW, 2020 WL 2059954 (D.N.J. Apr. 29, 2020) (Judge Hillman). Newton was an employee of SJPPC from 1975 to 2018. Newton was under the impression she was enrolled in a long-term disability plan through SJPPC, which deducted premiums for this coverage from her paychecks. But when Newton became disabled and attempted to make a claim for benefits, she was informed the policy had been canceled two years prior to her becoming disabled. Newton sued SJPPC in state court for conversion, breach of contract, fraud, and breach of fiduciary duty. SJPPC removed the case to federal court, claiming Newton’s state law claims were preempted by ERISA. Newton filed a motion to remove the case back to state court. The court granted Newton’s motion because SJPPC has asserted that the plan no longer exists, and Newton is not a participant in any benefit plan. “It is simply nonsensical for Defendant to assert that Plaintiff seeks to enforce her rights under a policy that does exist.” The case was remanded back to state court.

Seventh Circuit

Beattie v. Kohler Co., No. 20-C-290, 2020 WL 2064092 (E.D. Wis. Apr. 29, 2020) (Judge William C. Griesbach). Plaintiff brought an action again her former employer in state court, alleging that it wrongfully withheld severance payments owed to her under the terms of severance agreement as well as a “Pay Protection Coverage” employee benefit Plan provided by the Defendant Employer. Specifically, Defendant recovered an overpayment due under the terms of the Long Term Disability Plan by withholding benefits owed under the terms of the Severance Agreement and Protection Plan. Defendant removed to federal court and moved to dismiss arguing that her state law claims are preempted by ERISA. In response, Plaintiff filed an action to remanding back to state court, challenging Defendant’s preemption claim and asserting that the district court did not have jurisdiction over Plaintiff’s state law claims. In finding for Defendant, the Court noted 1) Plaintiff could have brought her state law claims under ERISA’s civil enforcement provision, 2) her claim is more properly classified as a misapplication of employee benefits due rather than a pure breach of contract or theft action, as Plaintiff had alleged, and 3) Plaintiff’s claims did not implicate a legal duty independent of ERISA. Specifically, “plaintiff’s state law claims are not ‘entirely independent of’ ERISA because, if there was no ERISA plan and if Defendant as the plan administrator had not administered the Plan as it did, Plaintiff would have no claim.” As such, the Court concluded that Plaintiff’s state law claims fall within the scope of ERISA section 502(a) and are thus completely preempted; accordingly, Plaintiff’s claims required dismissal.

Exhaustion of Administrative Remedies

Sixth Circuit

Pridy, et al. v. Piedmont Natural Gas Company, Inc., et al., No. 3:19-Cv-00468, 2020 WL 2098238 (M.D. Tenn. May 1, 2020) (Judge Aleta A. Trauger). Plaintiffs bring suit against Piedmont Natural Gas Company, Inc. (“Piedmont Gas” or “Piedmont”) and Duke Energy Corporation (“Duke Energy”) under ERISA Section 502, claiming that Defendants violated ERISA by wrongfully denying accrued and nonforfeitable rights to banked sick and disability leave benefits. Defendants move to dismiss Plaintiff’s Second Amended Complaint (SAC), arguing that Plaintiff’s claim fails because the program was a payroll practice, not an ERISA-governed welfare plan, and in any event the benefits were not vested. In addition, Defendants alleged that Plaintiffs failed to exhaust administrative remedies. Plaintiffs argued, in turn, that exhaustion was excused because they brought class claims. The court granted Defendants’ motion to dismiss the SAC, holding that there was no exception to exhaustion, and that arbitration applied. The court explained that class claims was not a recognized exception to the exhaustion requirement, and Plaintiffs’ ERISA claim was subject to dismissal on that basis. 

Pleading Issues & Procedure

Third Circuit

Emergency Physicians of St. Clare’s, LLC v. Horizon Blue Cross Blue Shield of New Jersey, No. CV 19-12112, 2020 WL 2079286 (D.N.J. Apr. 30, 2020) (Judge Claire C. Cecchi). The plaintiff hospital alleges Defendants underpaid for emergency medical services for hospital patients. Plaintiff asserts the claims on behalf of patients under assignments. Defendants move to dismiss the complaint as preempted by ERISA and lack of standing. The court found Plaintiffs have not adequately alleged the existence of valid assignments from the patients and have not adequately alleged how Defendants’ payments violate specific terms of the patients’ ERISA plans. The court further found that the complaint fails to properly state and ERISA claim and ERISA is the sole basis for the court’s jurisdiction. The court granted the motion dismiss and granted plaintiff leave to amend. 

Ninth Circuit

Thondukolam v. Corteva, Inc., No. 19-CV-03857-YGR, 2020 WL 1984303 (N.D. Cal. Apr. 27, 2020) (Judge Yvonne Gonzalez Rogers). The court dismissed this purported class action case that alleges Defendants E.I. du Pont de Nemours and Company (Historical DuPont) and The Dow Chemical Company breached their fiduciary duties by engaging in company restructuring that left Historical DuPont as a subsidiary of a newly formed entity, Corteva, while forming New DuPont and New Dow as entities outside of the controlled group that previously participated in the pension plan. In addition to removing these entities from the controlled group, New DuPont and New Dow maintained most of the existing assets and business lines, whereas newly formed Corteva was left undercapitalized and burdened with uncapped indemnification obligations for New DuPont and New Dow for environmental liability lawsuits. Plaintiffs allege, inter alia, the breakup of the controlled group violates the terms of the plan and leaves Historical DuPont unable to make required contributions; the plan has not been adequately funded as seen by the precipitous decline in the funding status; and the annual funding notices are misleading because Corteva and Historical DuPont intend to leave the Plan underfunded. Defendants argue the corporate restructuring was not a fiduciary act, funding of the plan is not a fiduciary act and the funding notices follow the Department of Labor model notice. The court agreed finding the company restructuring allegations failed because these were corporate, not fiduciary, decisions. However, the court left open the possibility Plaintiffs can plead that the implementation of the spin-off is a fiduciary act. The court also found that plan funding is not a fiduciary act but stated the allocation of the funding is a fiduciary act. The court ultimately dismissed this claim because Defendants have met the technical duty of “minimum funding” requirements. The court dismissed the allegation the breakup of the controlled group is not a fiduciary act and does not involved fiduciary obligations to follow the plan document. Finally, the court dismissed Plaintiffs’ allegation that the disclosures failed to advise participants of the true funding status because Plaintiff have not alleged that Plan is underfunded. The court granted Plaintiffs leave to amend.

Provider Claims

Third Circuit

Somerset Orthopedic Assocs., P.A. v. Horizon Healthcare Servs., Inc., No. CV 19-8783, 2020 WL 1983693 (D.N.J. Apr. 27, 2020) (Judge John Michael Vazquez). Plaintiffs, a group of medical providers, sued several health insurers for alleged underpayment of benefits under various medical benefit plans. The insurers filed a motion to dismiss, arguing that (1) some of the relevant benefit plans were not governed by ERISA, (2) Plaintiffs’ state law claims brought under ERISA-governed plans were preempted by ERISA, (3) Plaintiffs lacked standing to bring their ERISA claims, and (4) Plaintiffs’ claims failed on the merits. The court granted Defendants’ motion in part and denied it in part. The court agreed with Defendants that several of the plans were not governed by ERISA, and thus any ERISA claims related to those plans should be dismissed. The court also agreed that Plaintiffs’ state law claims under the ERISA-governed plans were preempted by ERISA because they sought payment of benefits, which is an express remedy under ERISA. The court further found that some of Plaintiffs’ claims should be dismissed for lack of standing because the relevant plans had anti-assignment provisions that prohibited patients from assigning their rights to Plaintiffs. However, some of the plans did not have explicit anti-assignment language, so the court denied Defendants’ motion as to those plans. The court also agreed with Defendants that they had not waived the right to raise their anti-assignment defense through their routine processing of claims, and that Plaintiffs could not create standing by acting as “attorneys-in-fact” because only individuals or banking institutions are allowed to be attorneys-in-fact under New Jersey law. As to the merits, the court found that Plaintiffs had not pointed to any specific provision in the plans that required Defendants to pay the “usual customary and reasonable” rates Plaintiffs asserted they were owed. The court also found that Plaintiffs’ claim for statutory penalties based on Defendants’ failure to provide plan documents failed because Defendants were not plan administrators. However, the court denied Defendants’ motion to dismiss Plaintiffs’ quantum meruit claim for benefits under the non-ERISA plans because Plaintiffs properly pled the claim in the alternative to its breach of contract claim.

Seventh Circuit

OSF Healthcare Sys. v. Bd. Of Trs. Of SEIU Healthcare Ill. Home Care & Child Care Fund, et al., Case No. 19-1341-MMM, 2020 WL 1983257 (C.D. Ill. Apr. 27, 2020) (Judge Michael M. Mihm). Between January and March 2017, Plaintiff OSF Healthcare System, an Illinois healthcare provider, provided medical care to an individual who was insured by the Personal Assistant Health Fund for the SEIU Healthcare IL Home Care Health Plan (“the Plan”). The total cost of care was over $500,000. The Plan is administered by the Board of Trustees of the SEIU Healthcare Illinois Home Care & Child Care Fund (“the Fund”). The Plan contains a comprehensive anti-assignment provision. The question before the court on Defendants’ motion for leave to file a reply in response to Plaintiff’s response to Defendants’ amended motion to dismiss is as follows: Does the fact that Defendants made $44,000 in direct payments to Plaintiff—despite the existence of the valid assignment provision—confer beneficiary status on Plaintiff under ERISA? The court held that the answer to this question was “No.” Therefore, Plaintiff’s assignment of benefits could not confer such status and was therefore ineffectual. Defendants’ motion to dismiss was granted in its entirety.

Withdrawal Liability & Unpaid Contributions

Second Circuit

Trustees of the New York City Dist. Council of Carpenters Pension Fund, et al. v. Manny P. Concrete Co., No. 18-CV-4111 (AJN), 2020 WL 2087678 (S.D.N.Y. Apr. 30, 2020) (Judge Alison J. Nathan). In this dispute to recover unpaid contributions, the court granted Plaintiffs’ motion for summary judgment and ordered Defendant to pay Plaintiffs $22,477.77 and their reasonable attorneys’ fees and costs. The court admonished Defendant’s counsel for attaching emails with Plaintiffs’ counsel that contained unprofessional attacks against opposing counsel.

Third Circuit

GCIU-Employer Ret. Fund v. Harvard Press, Inc., No. CV 16-1074, 2020 WL 2060291 (D.N.J. Apr. 28, 2020) (Judge Arleo). This withdrawal liability case was before the court on Plaintiff’s motion for summary judgment. Harvard was a printing company that ceased business in 2009. It had been bound by a collective bargaining with Plaintiff, a multi-employer pension plan. GCIU notified Harvard that the cessation of business was a withdrawal under the terms of the plan and demanded payment of the withdrawal liability principal. Harvard did not pay the withdrawal liability. The owners of Harvard owned and operated another entity called Wilrick. Plaintiff argued that Harvard and Wilrick under “common control” so Plaintiffs can collect payment from Wilrick. The court denied summary judgment because there was too much conflicting evidence which created many questions of fact.

Your ERISA Watch is made possible by the collaboration of the following Kantor & Kantor attorneys:  Brent Dorian Brehm, Sarah DemersElizabeth GreenAndrew Kantor, Susan Meter, Michelle RobertsTim Rozelle, Peter Sessions, and Zoya Yarnykh.