This week’s notable decision, Rutledge v. Pharm. Care Mgmt., Case No. 18-540, —S.Ct.—, 2020 WL 7250098 (U.S. Dec. 10, 2020), is a major win for consumers and pharmacies clearing the way for states to pass laws and implement regulations regulating pharmacy benefit managers (“PBMs”), third party companies hired by insurers to adjudicate and reimburse pharmacies (many of them small) for the cost of drugs covered by prescription-drug plans. At issue before the Court was an Arkansas state law, Act 900, which sought to regulate PBM reimbursement prices to pharmacies for the drugs that ERISA beneficiaries and participants obtained as part of their health plan coverage. The question presented to the Court was whether Act 900 was preempted by ERISA.
PBMs act as intermediaries between pharmacies and prescription-drug plans. In that role, they reimburse pharmacies for the cost of drugs covered by prescription-drug plans. In 2015, Arkansas passed Act 900, which effectively required PBMs to reimburse Arkansas pharmacies at a price equal to or higher than the pharmacy’s wholesale cost. Respondent Pharmaceutical Care Management Association (PCMA), representing the 11 largest PBMs in the country, sued, alleging that Act 900 was preempted by ERISA. Following Circuit precedent in a case involving a similar Iowa statute, the district court held that ERISA preempted Act 900. The Eighth Circuit affirmed.
In an opinion authored by Justice Sonya Sotomayor and joined by all the justices except Justice Amy Coney Barrett, who sat out from considering the case, the Court clarified that ERISA does not preempt a regulation simply because it can increase a benefit plan’s operating costs. The regulation must affect the way the plan works to trigger ERISA’s preemption provision. Justice Sotomayor articulated this preemption analysis in the following very elegant and simple manner: “As a shorthand for these considerations, this Court asks whether a state law ‘governs a central matter of plan administration or interferes with nationally uniform plan administration.’ If it does, it is pre-empted.” The imposition of costs alone on an ERISA plan does not trigger an “impermissible connection” between a state’s regulation and an ERISA plan. Rather, “ERISA does not pre-empt state rate regulations that merely increase costs or alter incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive coverage.”
The Opinion analogized Act 900 to a New York law addressed in New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U. S. 645 (1995). In Travelers, the Supreme Court analyzed a New York law that imposed surcharges of up to 13% on hospital billing rates for patients covered by insurers other than Blue Cross/Blue Shield (Blues). Plans that bought insurance from the Blues therefore paid less for New York hospital services than plans that did not. The Court, Sotomayor wrote, presumed that the surcharges would be passed on to insurance buyers, including ERISA plans, which in turn would incentivize ERISA plans to choose the Blues over other alternatives in New York. (citation omitted). The Travelers Court held that such an “indirect economic influence” did not create an impermissible connection between the New York law and ERISA plans because it did not “bind plan administrators to any particular choice.”
PCMA disagreed that Act 900 amounted to nothing more than cost regulation. It contended that Act 900 had an impermissible connection with an ERISA plan because its enforcement mechanisms both directly affected central matters of plan administration and interfered with nationally uniform plan administration. PCMA claimed that Act 900 affected plan design by mandating a particular pricing methodology for pharmacy benefits. PCMA also argued that Act 900 interfered with central matters of plan administration by allowing pharmacies to decline to dispense a prescription if the PBM’s reimbursement will be less than the pharmacy’s cost of acquisition. Finally, PCMA argued that Act 900’s enforcement mechanisms interfered with nationally uniform plan administration by creating “operational inefficiencies.” The Court rejected all these arguments.
In sum, the Court’s 8-0 decision concluded that Act 900 amounted to nothing more than cost regulation not bearing an impermissible connection with or reference to ERISA. Of some note, Justice Thomas authored a concurring opinion, saying he favored more of a textualist approach to applying ERISA’s preemption provision—Section 1144. “I write separately because I continue to doubt our ERISA preemption jurisprudence. The plain text of ERISA suggests a two-part preemption test … but our precedents have veered from the text, transforming §1144 into a vague and potentially boundless … preemption clause,” Justice Thomas wrote. “That approach … offers little guidance or predictability. We should instead apply the law as written.”
This week’s notable decision summary was prepared by Kantor & Kantor associate, Timothy J. Rozelle. Tim is thankful to focus his career on helping patients obtain health benefits for a range of health conditions and more recently has focused specifically on denials of life-saving cancer treatment.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Class Actions
Sixth Circuit
International Union, United Automobile, Aerospace, And Agricultural Implement Workers of America (UAW) et al. v. Kelsey-Hayes Company, et al., No. 11-CV-14434, 2020 WL 7260029 (E.D. Mich. Dec. 9, 2020) (Judge George Caram Steeh). Two class actions were filed to address disputes related to the duration of collectively bargained retiree healthcare. The issue before the court was the final fairness hearing to determine whether to grant final approval of the class action settlement. The court addressed the fairness of the settlement and four objections made by individual class members. The court noted that the objectors did not account for the change in the legal landscape. At the time of filing, the parties’ disputes were governed by Yard-man and its progeny. The Supreme Court overturned the Yard-man line of cases in 2015 and rejected any Yard-man inference in 2018. Because the law governing the parties’ disputes is much less favorable to the retirees, the court overruled the objections to the settlement and approved the settlement so that it could be implemented without delay.
Disability Benefit Claims
Fifth Circuit
McQuaig v. Provident Life & Accident Ins. Co., No. CV 20-23, 2020 WL 7129885 (E.D. La. Dec. 4, 2020) (Judge Martin L.C. Feldman). Plaintiff obtained a disability insurance policy from Provident in 1991. Plaintiff takes the position that it was an individual disability policy not subject to ERISA. Provident takes the position that several policies were sold to attorneys in Plaintiff’s firm as part of a risk group, which makes the policy subject to ERISA. The deposition of the agent who sold the policy did not clarify the situation. The court denied motions for summary judgment in the case based on the unresolved question of fact, which was a question for a jury.
Sixth Circuit
Malik v. Unum Life Ins. Co. Of Am., No. 18-13628, 2020 WL 7024866 (E.D. Mich. Nov. 30, 2020) (Judge Stephanie Dawkins Davis). Under de novo review, the court concluded that Plaintiff failed to meet her burden of proving entitlement to LTD benefits. Specifically, it noted that her social media activity significantly undermined the veracity of her stated limitations, as did the fact that her treating physician refused to continue certifying disability. The court also noted that UNUM was not required to conduct an in-person examination of Plaintiff prior to terminating her benefits, nor was it required to document an improvement in her condition in order to support its benefits determination.
Eighth Circuit
Harris v. Fed. Express Corp. Long Term Disability Plan, No. 4:19-CV-02948 JCH, 2020 WL 7227264 (E.D. Mo. Dec. 8, 2020) (Judge Jean C. Hamilton). Plaintiff was a delivery driver who was paid LTD benefits for two years under the plan’s “own occupation” definition of disability. He was also awarded social security disability benefits by an ALJ. Aetna, the FedEx plan administrator, denied his claim for benefits under the plan’s stringent “any occupation” definition of disability—that required significant objective findings of disability and required an inability to work 25 hours a week. Plaintiff argued that requiring him to show that he could not perform “any compensable employment” would require him to prove that he was utterly helpless, thus rendering the protections afforded by the Plan meaningless, and violating the underlying policy of ERISA. Citing multiple cases, including ones with more stringent definitions, the court was not persuaded the definition was inherently unreasonable. Additionally, Plaintiff pointed to no particular sedentary job for which he was unqualified, and he presented no evidence that any such job pays a less than a reasonable wage. Furthermore, there is no requirement under ERISA that the insurer identify a specific job for a claimant or ensure the availability of an alternate job before terminating benefits. Distinguishing the SSA award, the court noted SSA guidelines allow pain alone to be sufficient evidence of disability and that more than one expert testified at Plaintiff’s SSA hearing that he was able to perform sedentary work and that such work was available in the national economy. Thus, while it was undeniable that the record indicated Plaintiff suffered from painful lower back conditions, the Plan documents made it clear that Plaintiff carried the burden of submitting significant objective findings that he was incapable of engaging in any compensable employment for twenty-five hours per week, and the court found Aetna’s decision in finding Plaintiff failed to meet this burden was reasonable.
Ninth Circuit
Rios v. Unum Life Insurance Company, et al, No. SA CV-19-04100-DOC-(SKx), 2020 WL 7311343 (C.D. Cal. Dec. 10, 2020) (Judge David O. Carter). In this dispute over disability benefits, the parties stipulated to de novo review. Plaintiff’s primary disabling condition, as supported by her x-ray, MRI, and clinical findings, is back and leg pain (sciatica) related to multi-level degenerative lumbar disc disease, stenosis, radiculopathy, and severe disc narrowing at L4/5. While Unum correctly averred that Rios’ assertion that her self-reported symptoms rose to the level of disability should not have been taken at face value, when pain complaints are associated with a medically demonstrable impairment, credible pain testimony should have contributed to a determination of disability. An adjudicator who rejects a claimant’s allegations of the severity of pain may do so only when properly supported by the record and may not arbitrarily discredit a claimant’s testimony regarding pain. An insurer’s decision not to perform an independent medical examination, when the plan or policy allowed it, raises questions about the thoroughness and accuracy of its benefits determination. When disability is based on a diagnosis of chronic pain and its functional impairments, as here, the disability opinions from non-examining physicians paid by the insurance company are entitled to skepticism when physicians who actually examined Plaintiff were entirely one-sided in favor of Plaintiff’s claim. Plaintiff has proved by a preponderance of the evidence that she was entitled to benefits under both “own” and “any” occupation standards.
Discovery
First Circuit
Waldron v. Massachusetts Institute of Technology, Case No. 20-cv-30006, 2020 WL 7055969 (D. Mass Dec. 2, 2020) (Magistrate Judge Katherine A. Robertson). Before the court was Plaintiff’s motion to augment the administrative record and to conduct discovery. By way of background, Plaintiff had been awarded LTD benefits in February 1999 and his benefits were terminated in March of 2019. In 2009, the majority of claims administered by MIT were transferred to Prudential for handling, but MIT kept a few claims including Plaintiff’s. In 2016, MIT transferred Plaintiff’s claim to Prudential for handling. In 2017, Prudential began investigating Plaintiff’s claim which ultimately led to the termination of benefits. Plaintiff sought to augment the administrative record with the following: (1) Documents that existed before Plaintiff’s claim was transferred to Prudential (i.e., MIT’s claim file, not Prudential’s); (2) MIT’s decision to refer Plaintiff’s claim to Prudential in 2016; and, (3) Prudential’s Claim Standards, Manuals and/or Guidelines and vocational resources used. The court granted in part and denied in part Plaintiff’s motion. The court determined that MIT’s claim file was irrelevant because it had not been before Prudential at the time it rendered its decision and the decision to transfer Plaintiff’s claim to Prudential was likewise irrelevant to the substantive issues. The court determined that Prudential’s standards in reaching its decision to terminate benefits and the vocational resources are relevant and directed Defendants to produce such documents.
Ninth Circuit
Scalia v. Saakvitne, No. CV 18-00155 SOM-WRP, 2020 WL 7233342 (D. Haw. Dec. 8, 2020) (Judge Susan Molloway). Defendants Bowers and Kubota created an ESOP and sold 100% of their ownership of their two-person consulting firm to the ESOP. They were sued by the Secretary of Labor, who alleged the sale was overvalued and the two defendants improperly benefited. Discovery has been contentious, and recently the Magistrate Judge in the case issued a protective order limiting Defendants’ ability to propound discovery about a previous issue the government had investigated regarding a different ESOP the consulting firm’s law firm had been involved with. The court denied the request, finding that Defendants had not objected in a timely manner and had not shown the Magistrate Judge’s order was erroneous or contrary to the law.
ERISA Preemption
U.S. Supreme Court
Rutledge v. Pharm. Care Mgmt. Ass’n, No. 18-540, 2020 WL 7250098 (U.S. Dec. 10, 2020) (decision by Justice Sonia Sotomayor, with concurring opinion by Justice Clarence Thomas). See Notable Decision summary above.
Third Circuit
Newkirk, et al. v. Sentman, et al., Case No. 1:20-cv-03055, 2020 WL 7310671 (D.N.J Dec. 11, 2020) (Judge Noel L. Hillman). Defendant Cigna Health and Life Insurance Company filed motions to dismiss Plaintiff’s complaint on the basis of ERISA preemption and Defendants’ cross-claims for failure to allege facts establishing any claims for relief. Amber Newkirk (“Amber”) was involved in a motor vehicle accident caused by defendant Sentman who was driving defendant Mulvaney’s car with her permission. Amber made a claim for health benefits and Cigna failed to pay all benefits sought by her. Amber and her husband filed a complaint in state court and Amber alleged breach of contract against Cigna and her husband alleged loss of consortium against all Defendants, Cigna, Sentman and Mulvaney. Sentman and Mulvaney answered and filed cross-claims against Cigna for contribution and indemnity. Cigna filed motions to dismiss the complaint and cross-complaint. The court held that Amber’s breach of contract claim is preempted by ERISA Section 502(a)(4) and ERISA Section 514(a). The court further held that her husband’s loss of consortium claim had no other basis or underlying factual allegations related to Cigna besides the denial of Amber’s benefit claim and is similarly preempted as well by ERISA 514(a). Finally, the court held that Sentman and Mulvaney’s cross-claims against Cigna were dismissed because they did not allege any facts in support of their claims. Plaintiffs were granted leave to file an amended complaint.
Seventh Circuit
GCS Credit Union v. Am. United Life Ins. Co., No. 3:20-CV-00937, 2020 WL 7263284 (S.D. Ill. Dec. 10, 2020) (Judge Nancy Rosenstengel). Plaintiff brought a claim for professional negligence and breach of contract against Defendant alleging that Defendant failed to fulfill its duties regarding the design, administration, and documentation of an employee profit sharing plan. Defendant filed a Motion to Dismiss arguing that these state-law claims are preempted by ERISA. The court granted the (unopposed) motion, finding that in light of ERISA’s “Exceptionally broad” preemptive power, Plaintiff could have brought an enforcement action under ERISA. As such, the court dismissed the action without prejudice in order to allow Plaintiff to bring claims under ERISA.
Medical Benefit Claims
Eighth Circuit
Shafer v. Zimmerman Transfer, Inc., et al., No. 1:20-CV-00023, 2020 WL 7260034 (S.D. Iowa Dec. 10, 2020) (Judge Robert W. Pratt). Plaintiff had bariatric surgery in 2015, and then changed jobs to work for Zimmerman. In 2017, he developed a blockage and had surgery to address it, which included an exploratory laparotomy and repair of a hernia. His new medical insurance refused to cover it, saying it was caused by his 2015 surgery. He appealed and was told that his surgery had not been medically necessary. Plaintiff brought suit under ERISA. Defendants moved to dismiss. The court agreed that Plaintiff’s cause of action of intentional interference and his request for punitive damages should be dismissed. The Phia Group administrated the claim, but Plaintiff failed to allege facts sufficient to make a claim that it was a fiduciary and so dismissed the cause of action against Phia. Plaintiff was given leave to amend its claim against Phia.
Ninth Circuit
Doe v. CVS Pharmacy, Inc., Case No. 19-15074, __F.3d__, 2020 WL 7234694 (9th Cir. Dec. 9, 2020) (Before District Judge Timothy M. Burgess, Circuit Judges Milan D. Smith, Jr., and Andrew D. Hurwitz). This is a putative class action alleging that CVS Pharmacy’s drug mail program discriminates against HIV/AIDS patients. The putative class alleges several claims under various federal and state statutes, including the Affordable Care Act, the Americans with Disabilities Act and ERISA. The Ninth Circuit panel vacated the district court’s dismissal of the Doe plaintiffs’ ACA and Unfair Competition Law (UCL) claims to the extent they were predicated on a violation of the ACA. The panel agreed that the five Doe plaintiffs with HIV and AIDS adequately alleged that the structure of the CVS program was discriminatory because it prevented them from receiving the same level of care that non-HIV/AIDS patients regularly obtain when filling non-specialty prescriptions. As it relates to the Does’ ERISA claims, the district court dismissed their claims for benefits because Does failed to identify a specific term in their health care plans that conferred the benefits they claimed were denied. Does did not challenge this holding on appeal, instead raising for the first time on appeal the argument that their plans were not “validly amended” to implement the Program, and that the Program’s corresponding changes to the procedures by which Does must obtain their HIV/AIDS drugs “caused a reduction in or elimination of benefits without a change in actual coverage.” The panel held that this argument was waived and upheld the district court’s dismissal of the ERISA claims.
Pension Benefit Claims
Ninth Circuit
Sobh v. Phoenix Graphix Inc., No. CV-19-05277-PHX-ROS, 2020 WL 7230699 (D. Ariz. Dec. 8, 2020) (J. Roslyn O. Silver). Plaintiff, a former employee, applied for a “hardship withdrawal” from his account in his former employer’s ERISA-governed pension plan. The company denied his request, contending that the 2016 version of the plan applied and only allowed such distributions for current employees. Plaintiff sued, contending that the 2001 version of the plan applied and permitted hardship withdrawals to any participant in the plan regardless of employment status. On summary judgment, the court agreed that the circumstances were “unusual” because of miscommunication between the parties that might have led Plaintiff to believe the 2001 plan applied. However, the court found that the 2016 plan was the applicable plan because Plaintiff had no vested rights under the 2001 plan. The court applied de novo review, despite language in the plan giving the employer discretionary authority to determine benefit eligibility, because the employer had failed to communicate properly with Plaintiff about his benefits. However, even under this stricter standard of review the court still found that Plaintiff was not eligible for a hardship withdrawal because the 2016 plan unambiguously did not allow such withdrawals by non-employees.
Pleading Issues & Procedure
Second Circuit
Dylan 140 LLC v. Figueroa, No. 20-461-CV, 2020 WL 7251003, __ F.3d __ (2d Cir. Dec. 10, 2020) (Before Circuit Judges Livingston, Kearse, and Lynch). Plaintiff, which owns and operates a residential rental apartment building in New York, sued Defendants, a multi-employer ERISA-governed benefit plan and its trustees, over alleged unpaid contributions by Plaintiff to the plan. The dispute concerned whether Plaintiff owed contributions to the plan for one of its part-time employees under the collective bargaining agreement (CBA) establishing the plan. Defendants filed a motion to dismiss, arguing that they had already initiated arbitration proceedings against Plaintiff. Plaintiff responded that the CBA gave it the right to file a civil action regardless of whether Defendants had initiated such proceedings. The district court converted Defendants’ motion into a motion to compel arbitration and granted it; Plaintiff appealed. On appeal, the Second Circuit affirmed. The court examined the CBA and determined that its terms “require[d] Dylan to arbitrate disputes regarding benefit fund contributions if and when the Trustees of the Funds choose to initiate arbitration against it. Once the Funds initiate arbitration…Dylan must arbitrate.” The court rejected Plaintiff’s argument that because it filed its action first, it should be allowed to proceed, noting that the facts did not support this argument, and in any event there is no “first to file” rule in the context of simultaneous litigation and arbitration disputes. The court added a note that the Federal Arbitration Act does not directly apply to lawsuits such as this one, although the district court did not err by looking to it for guidance.
Fourth Circuit
Colburn v. Hickory Springs Mfg. Co. Supp. Exec. Ret. Plan, et.al., No. 5:19-CV-139-FL, 2020 WL 7129935 (E.D.N.C. Dec. 4, 2020) (Judge Louis Flanagan). Plaintiff is a former employee of the defendant employer. Upon retirement he began receiving benefits under a top-hat plan, but those benefits were discontinued after one year because Defendant determined he was no longer eligible to receive those benefits. Plaintiff filed a motion for summary judgment, which was denied by the court because there was not enough information before the court to analyze whether Defendant’s decision was reasonable or not in light using the eight-factor test articulated by the Fourth Circuit in Booth v. Walmart Stores, Inc. Assocs. Health & Welfare Plan, 201 F.3d 335 (4th Cir. 2000). Plaintiff’s motion was denied because the record before the court was inadequate.
Statute of Limitations
Ninth Circuit
Reed v. GEP Administrative Services, Inc. Employee Stock Ownership Plan, No. 19-CV-9854 DDP (SSX), 2020 WL 7315466 (C.D. Cal. Dec. 4, 2020) (Judge Dean D. Pregerson). GEP operated an ESOP Plan. GEP employed Plaintiff from 1989 to 2004. Plaintiff resigned in 2004. She was re-employed by GEP in 2006. In 2007, Plaintiff emailed GEP and asked “Was my ESOP interrupted? Did I start over?” In response, the GEP “treated your inquiry as a claim for benefits under the Plan” and issued a denial of benefits letter with appeal rights. Plaintiff took no action in response. In 2019, Plaintiff submitted a formal claim for benefits. It was denied, Plaintiff appealed, and the appeal was upheld. After Plaintiff sued, GEP moved for summary judgment. It argued Plaintiff’s claim was barred by the four-year statute of limitations (derived from California’s closest statute of limitations). The court held that Plaintiff’s two questions in 2007 did not constitute a claim, but rather in inquiry that met none of ERISA’s claim requirements. That GEP considered it a claim for benefits did not make it so. Because the actual denial of the formal claim was within the statute of limitations, the court denied GEP’s motion.
Venue
Eighth Circuit
Rula A.-S. and M.Q. v. Aurora Health Care, et al., No. 2:19-cv-00982-DAO 2020 WL 7230119 (D. Utah Dec. 8, 2020) (Judge Daphne A. Oberg). Plaintiffs filed suit in response to Defendants’ refusal to provide compensation for health care treatment received at a residential treatment program in Utah. In response, Defendants filed a Motion to Dismiss under 12(b)(6), as well as a Motion to Transfer Venue from Utah, where the treatment was provided, to Wisconsin, where the Plaintiffs reside, and Defendants are headquartered. The court granted the Motion to Transfer, finding that 1) Plaintiff’s interest in having its choice of forum was minimal compared to the other relevant factors, 2) The convenience of Plaintiff’s witnesses is not as important in ERISA cases as non-ERISA cases, “since the court’s view is generally limited to the administrative record.” Accordingly, as relevant evidence such as documents and witnesses related to abuse of discretion would be in Wisconsin, this factor weighs toward Defendant, and 3) “Under a practical consideration of all of the facts, the Eastern District of Wisconsin is the forum with the greatest connection to the operative facts of this case and is the most appropriate forum. That district is where the Plan is administered, where the decision to deny the claim was made, and where the relevant witnesses and documents are located. The court finds practical considerations and the interest of justice weigh in favor of transferring the case to the Eastern District of Wisconsin.” The Court refused to issue a determination on the motion to dismiss, instead deferring to the Eastern District of Wisconsin.
Withdrawal Liability & Unpaid Contributions
Seventh Circuit
Central States, Southeast and Southwest Areas Pension Fund And Charles Whobrey, Tr. v. Vanguard Services, Inc., et al., No. 09 C 4721, 2020 WL 7260796 (N.D. Ill. Dec. 10, 2020) (Judge Thomas M. Durkin). The court denied the Pension Fund’s motion to reconsider the court’s order dismissing without prejudice the citation to discover the assets of Bridgestone Americas Tire Operations, LLC, successor in interest to Bridgestone/Firestone, Inc. (“BATO”) “but the citation to discover BATO’s assets may be reissued so that the Pension Fund can pursue the indemnification claims.”
Trustees of The N.E.C.A./Local 145 I.B.E.W. Pension Plan, As Collection Agent for All Fringe Benefits v. Mausser, No. 418CV04045SLDJEH, 2020 WL 7249024 (C.D. Ill. Dec. 9, 2020) (Judge Sara Darrow). “To the extent that Plaintiff seeks summary judgment on the issue of Defendant’s obligation to pay contributions between January 2015 and the present, the motion is GRANTED. To the extent that Plaintiff seeks summary judgment on the issue of Defendant’s failure to pay any required contributions, the motion is DENIED. Defendant is ordered to comply with an audit.”
Ninth Circuit
Board of Trustees of The Western States Office and Professional Employees Pension Fund v. International Brotherhood of Electrical Workers Local 483, No. 3:20-CV-00156-IM, 2020 WL 7318131 (D. Or. Dec. 11, 2020) (Judge Karin J. Immergut). “The Ironworkers arbitrator correctly determined that pre-MPRA rehabilitation contribution rates included in CBAs are included in withdrawal liability calculations. The IBEW arbitrator was incorrect to conclude otherwise. The Court GRANTS the Fund’s Motion for Summary Judgment, ECF 27, and DENIES the Employers’ Motion for Summary Judgment, ECF 23.”
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