Peer v. Liberty Life Assurance Co. of Bos., No. 19-13974, 2021 WL 1257440, __ F.3d __ (11th Cir. Apr. 6, 2021) (Before Circuit Judges Wilson, Lagoa, and Brasher).

This week the Eleventh Circuit tackled one of the issues nearest and dearest to attorneys’ hearts: fees. Specifically, when a court awards fees under ERISA, against whom can they be awarded? The party, the attorney, or both? The Eleventh Circuit noted that this was “a question of first impression that has split the district courts within and without this circuit.”

In this case, Peer sued Liberty for denying her claim for a disability waiver of premium benefit under an ERISA-governed life insurance plan. Five months after she filed suit, Liberty capitulated and reinstated her benefit. As a result, the district court found that Peer’s pending summary judgment motion was moot, and asked Peer to identify which issues remained to be litigated. Peer filed a “confusing” response, so the district court closed the case but granted Peer leave to amend her complaint. Peer filed an amended complaint, which the district court dismissed because it was largely duplicative of her first complaint, and the count she had added sought an impermissible advisory opinion about her rights if Liberty were to deny her claim in the future. Peer appealed this decision, and the Eleventh Circuit affirmed, agreeing that the case was moot.

On remand, both sides moved for attorney’s fees. The district court granted both motions in part – it awarded fees to Peer for work done prior to the reinstatement, and fees to Liberty for work done after the reinstatement, including the appeal. Crucially, the court awarded Liberty fees against Peer’s attorney, and not against Peer herself, finding that the attorney (1) had kept the court in a “systemic state of confusion,” (2) had caused Liberty to expend “considerable resources,” and (3) should have known that the case had been mooted given his 30 years of ERISA experience.

Peer appealed again, this time arguing that fees in ERISA benefit cases cannot be assessed against attorneys, only against parties. The Eleventh Circuit agreed. The court identified five reasons for its holding. First, this result was consistent with the judicial interpretation of fee statutes in other contexts, in which courts consistently ruled that awards against attorneys are not permitted absent explicit Congressional intent. Second, the court stated that this result was consistent with the goals and purposes of ERISA, because allowing fee awards against attorneys might deter them from taking on ERISA cases. Third, the ruling “minimizes disruption to the lawyer-client relationship” by avoiding “spinoff fee litigation” that could place attorneys “in an ethical quagmire.” Fourth, the ruling was consistent with the rule that “clients are responsible for the actions of their lawyers.” Fifth, allowing fees against lawyers under ERISA would circumvent procedures already in place to sanction attorney misconduct in general.

For these reasons, the Eleventh Circuit reversed. However, Peer and her attorney are still in jeopardy. The court identified other ways fees could have been imposed against them, including under Federal Rule of Civil Procedure 11 and the district court’s inherent authority. The court therefore reversed to allow the district court to consider these other theories of recovery.

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

Attorneys’ Fees

Seventh Circuit

Laux v. American Axle & Manufacturing Inc., No. 20-C-270, 2021 WL 1311430 (E.D. Wis. Apr. 8, 2021) (Judge William C. Griesbach). After overturning the denial of short-term disability benefits under the arbitrary and capricious standard of review, the claimant moved for $27,800 in attorney’s fees and $445 in costs. The hourly rates sought included $400.00 for Attorney Danielle M. Schroder, $300.00 for Attorney Jessa L. Victor, and $100.00 for Law Clerk Naomi Smith. Attorney Schroder claimed 28.3 hours, Attorney Victor 51.1 hours, and Law Clerk Smith 11.5 hours. The court found the rates and time reasonable. In doing so, the court noted actual billing rates for comparable work created the presumptive market rate. It also found that multiple attorneys collaborating on a case was not, by itself, an indication of duplicative work. Rather, citing another case, it observed the consultation among counsel “is often significantly more efficient than one attorney’s trying to wade through [an] issue alone.” The court found the description of the work performed, like “case status meeting,” was not vague; “counsel met to discuss the status of the case.” However, the court agreed with defendant that $45 in costs were not recoverable because plaintiff’s counsel had not asked for a waiver of service under FRCP 4(d). 

Ninth Circuit

Michael v. Conagra Brandas Inc., No. 4:18-CV-00277-DCN, 2021 WL 1294781 (D. Idaho Apr. 7, 2021) (Judge David Nye). After being granted summary judgment in this pension benefits case, defendant Conagra filed a motion for attorney’s fees against the plaintiffs who were plan participants. The court denied the motion, finding that plaintiffs’ lawsuit was not in bad faith and that Ninth Circuit precedent disfavors awards of attorney’s fees against plaintiff employees in ERISA cases.

Breach of Fiduciary Duty

Third Circuit

I.U.P.A.T. Dist. Coun. No. 57 Comb. Funds et al. v. Hawranko et al., No. 20-21513-TPA, 2021 WL 1305639214833 (U.S.B.C. W.D. Penn. Apr. 6, 2021) (Judge Thomas P. Agresti). At issue in this bankruptcy case was whether unpaid fringe benefit contributions constituted plan assets and whether Debtors were ERISA fiduciaries. Plaintiff sought to have the funds excepted from discharge based on the debtors’ defalcation while acting in a fiduciary capacity. Plaintiff argued that unpaid funds were “plan assets,” that Debtors exercised discretionary control over these unpaid contributions and thus, they were fiduciaries under ERISA. Debtors argued that fiduciary status for purposes of Section 523(a)(4) is a separate and narrower concept. They also argued that the unpaid contributions were not “plan assets” under ERISA and were therefore not part of any trust. The court noted that The Bankruptcy Code does not define the term “fiduciary,” nor does ERISA define the term “plan asset.” The court, looking at precedent, held that it is at the moment the benefit contributions become due that they become “plan assets.” Thus, the court found that the unpaid contributions involved in the present case were plan assets and became so at the time they became due under the Trust Agreements, and that this is the trigger for the Debtors to thereafter be found to be acting in a fiduciary capacity for purposes of ERISA. Nevertheless, the court held that: (1) the unpaid contributions did not become plan assets until they came due; (2) any fiduciary status that the Debtors may have come under pursuant to ERISA did not arise until the unpaid contributions became plan assets; and, (3) any such fiduciary status of the Debtors under ERISA would not fall within the scope of “fiduciary capacity” within the meaning of Section 523(a)(4) because it would have sprung from and not preexisted the act of not paying the contributions. Accordingly, the Court granted the Debtors’ Motions and denied the Plaintiff’s Motion.

Disability Benefit Claims

Eighth Circuit

Bernard v. Kansas City Life Ins. Co., No. 20-1593, __ F.3d __, 2021 WL 1244403 (8th Cir. Apr. 5, 2021) (Before Circuit Judges Colloton, Wollman, and Shepherd). Plaintiff was terminated from his position as an anesthesiologist after admitting to using fentanyl at work. He thereafter submitted claims for short and long-term disability through his employer sponsored plan. Defendant denied both claims, concluding he was not disabled under the terms of the policy. After plaintiff filed suit challenging the denial, the district court concluded that defendant had abused its discretion in denying benefits. The Eight Circuit affirmed, finding that the denial of benefits was not supported by substantial evidence, as “a reasonable mind could not reconcile defendant’s position that plaintiff was unable to safely administer anesthesia on October 6, 2017, with its position that he had safely administered anesthesia while under the influence of fentanyl during the time period between his relapse and termination.” 

ERISA Preemption

Sixth Circuit

Robinson v. Alorica, Inc., No. 20-12762, 2021 WL 1313353, (E.D. Mich. Apr. 8, 2021) (Judge Sean F. Cox). Plaintiff filed this action against his former employer, Defendant Alorica, Inc., asserting both ERISA and state-law claims. The state-law claims included breach of contract and promissory estoppel claims based upon an alleged failure to make payments to Plaintiff under Defendant’s Severance Pay Plan, an employee benefit plan specifically covered under ERISA. Plaintiff also brings a separate count asserting violations of ERISA, for failing to pay Plaintiff benefits under the Severance Pay Plan. Court granted defendant’s motion and: 1) dismissed with prejudice the promissory estoppel count, and that portion of Plaintiff’s breach of contract count that is based upon an alleged failure to pay benefits under the Severance Pay Plan, because those claims are preempted by ERISA; and 2) dismissed Plaintiff’s ERISA count without prejudice, because Plaintiff has failed to exhaust his administrative remedies.

Ninth Circuit

Trs. Of Roofers Local 49 Welfare Fund v. JIC Constr. LLC, No. 3:20-CV-00259-IM, 2021 WL 1298919 (D. Or. Apr. 7, 2021) (Judge Karin J. Immergut). Plaintiffs are trustees of three ERISA welfare benefit plans seeking contributions from employer JIC Construction. The employer brought a third-party claim against Bond as an individual trustee for fraud in connection with representations he made about to the employer about its obligations under the governing collective bargaining agreement. The court determined the state-law claim of fraud was not preempted by ERISA because the fraud claim did not have a connection to or refer to an ERISA plan. The court then dismissed the employer’s third-party claim for fraud under 12(b)(6), finding the allegations lacked specificity regarding what representation Bolt made that was fraudulent.  

Trustees of the Roofers Local 49 Welfare Fund, Trustees of the Pacific Coast Roofers Pension Trust, and Trustees of the Greater Portland Apprenticeship and Training Trust Fund v. JIC Construction, LLC, D/B/A Sterling-Pacific, v. Robert Bolt, Case No. 3:20-cv-00259, 2021 WL1298919, (D. Oregon April 7, 2021) (Judge Karin J. Immergut). Before the court was third party defendant Robert Bolt’s motion to dismiss Sterling Pacific’s fraud claim as alleged in its third party complaint. Sterling Pacific, acting as an employer as defined in 29 U.S.C. §152(2), paid fringe benefit contributions to various multiemployer plans and Bolt, a trustee, advised Sterling Pacific to terminate the Collective Bargaining Agreement early. The court held that Sterling Pacific’s fraud claim was not preempted by ERISA. The court explained fraud concerns a traditional area of state regulation that Congress did not intend to supplant, and ERISA does not provide blanket immunity from garden variety torts. Nonetheless, the court further held that Sterling Pacific’s fraud claim was not plausibly alleged.  As a result, Sterling Pacific failed to state a claim under Rule 12(b)(6) and Rule 9(b). Sterling Pacific was granted leave to amend. 

Hartford Life Ins. Co. v. Lecou, CV 19-17-BLG-SPW, 2021 WL 1312516 (D. Mont. Apr. 8, 2021) (Judge Susan P. Watters). Hartford filed an interpleader action to confirm that it did not need to pay benefits on a life insurance policy to the beneficiary, who was convicted of killing his wife, the insured.  The plan at issue was a group plan subject to ERISA. At issue was whether the benefits were controlled by Montana’s slayer statute, or if that statute is preempted by ERISA. Noting that the Ninth Circuit had never ruled on the issue, the court followed the Seventh Circuit, which had determined that Congress could not have intended ERISA to preempt state slayer statutes. The court therefore held that the Montana law was not preempted by ERISA.

Fast Access Specialty Therapeutics, LLC, v. UnitedHealth Group, Inc., et al., Case No.: 20-cv-1953, 2021 WL 1238869 (S.D. Cal. Apr. 2, 2021) (Judge Jeffrey T. Miller). Plaintiff, an out-of-network pharmacy, filed several non-ERISA claims against UnitedHealth for failure to reimburse the pharmacy for prescriptions including breach of express contract, breach of implied contract, promissory estoppel, quantum meruit, intentional interference with prospective economic relations. Defendants moved to dismiss this amended complaint based on ERISA preemption. Plaintiff argued the claims are not preempted because the promises were made in the preapproval letters and other oral assurances of coverage, and the claims were therefore not related to the plan. The court first discussed whether Defendants had waived their right to bring a motion to dismiss based on preemption because they did not raise the argument when it moved to dismiss the original complaint. The court concluded Rule 12(b)(6) motions are not subject to the waiver provisions in Rule 12(h)(1)(A). The court dismissed all claims as preempted by ERISA and granted leave to amend. 

Exhaustion of Administrative Remedies

Ninth Circuit

Langemo v. Blue Cross of Idaho Health Serv., No. 1:19-CV-370 WBS, 2021 WL 1238370 (D. Idaho Mar. 30, 2021) (Judge William B. Shubb). In this matter, a plan participant filed suit to recover from defendants for charges she incurred when she was transported via air ambulance. The parties agreed that a portion of the cost was paid but Plaintiff alleges that her claim was underpaid in violation of ERISA. Valley Flight spent much of the appeals period pursuing payment from the wrong BCBS (North Dakota) and making procedural missteps such as failing to state in its demand that it was proceeding on behalf of plaintiff, and neither Valley Flight nor the plaintiff provided an “Appointment of Authorized Representative” form signed by plaintiff. Valley Flight continued to seek payment a year later but by then, it had missed the 180-day appeal deadline. Defendants moved for summary judgment on “failure to exhaust administrative remedies.” The court agreed that the plan participant failed to exhaust, but nevertheless concluded that the Ninth Circuit exception to this doctrine, “futility,” applied because BCBS Idaho had responded to one of Valley Flight’s deficient letters stating that after a review, the maximum benefit was already paid. Accordingly, the court denied defendants’ limited motion for summary judgment. With regard to defendants’ motion to dismiss Plaintiff’s claims for equitable relief and breach of fiduciary duty, the court denied the motion as premature, holding that it should be raised at the remedies stage. Finally, the court granted the motion to dismiss the breach of fiduciary duty claim, finding that plaintiff had not adequately pled the claim.

Life Insurance & AD&D Benefit Claims

Eighth Circuit

Boyer v. Schneider Electric Holdings, Inc., No. 19-3144, 2021 WL 1244397 (8th Cir., Apr. 5, 2021). (Before Colloton, Arnold, and Kelly, Circuit Judges). Eric Boyer died in a single-vehicle crash and his sister sought accidental death benefits under his insurance plan. Unum paid life insurance benefits but denied accidental death benefits, concluding that Boyer committed a crime that had contributed to the crash by speeding and passing vehicles in a no-passing zone. The district court ruled that Unum’s interpretation of the plan’s crime exclusion was an abuse of discretion and granted summary judgment to plaintiff. The Eight Circuit reversed the judgment. Even though the crime was a misdemeanor traffic violation and Unum’s claims manual stated that the “crime” exclusion was not intended to apply to traffic violations, the Eighth Circuit determined that Unum’s conclusion was reasonable, considering that Boyer’s actions were punishable with jail time in Missouri, met the dictionary definition of “crime,” and were distinguishable from other types of traffic infractions.

Plan Status

Seventh Circuit

McCoy v. EMS Auto Repair, No. 20 CV 6898, 2021 WL 1253453 (N.D. Ill. Apr. 5, 2021) (District Judge Manish S. Shah). Defendant agreed to provide plaintiff with a pension. Defendant eventually fired plaintiff. Plaintiff believed he was entitled to the cash value of the life insurance policy purchased as his pension and filed suit against defendants for violations of ERISA, breach of contract, fraud, and breach of fiduciary duty. Defendants moved to dismiss based on lack of subject matter jurisdiction. The court granted the motion without prejudice, finding that plaintiff failed to properly allege the existence of an ERISA plan.

Pleading Issues & Procedure

Third Circuit

The Procter & Gamble U.S. Business Services Co. v. Estate of Jeffrey Rolison, et al., Case No. 3:17-CV-762, 2021 WL 1269899 (M.D. Pa. April 6, 2021) (Judge Robert D. Mariani). Defendant Estate sought to have the district court certify an interlocutory appeal after the court determined that Margaret Losinger was decedent Jeffrey Rolison’s proper beneficiary of the funds contained in The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan and The Procter & Gamble Savings Plan. The court held that, assuming arguendo that the appeal could resolve controlling questions of law, defendant had not shown that there was a “substantial ground for difference of opinion” on the controlling law. The court found that the controlling law at issue was the substantial compliance doctrine under Pennsylvania law, which states that when the insured’s intent and attempted compliance is clear, a court will exercise its equitable power to carry out the manifested intent and not permit the intent to be frustrated. Under Pennsylvania law, even following a divorce or similar life event, failure to actually change a beneficiary under a policy or take a “positive, unequivocal” step to change the beneficiary will not constitute substantial compliance and will result in the named beneficiary remaining entitled to the funds on a policy. The court found that the defendant estate had not presented any evidence that the deceased either took any “positive, unequivocal” steps to change his beneficiary or made “every reasonable effort” to do such. The court therefore held that there was no basis to conclude that the case presented a substantial ground for difference of opinion on the controlling law which would warrant certification of an interlocutory appeal.

Standard of Review

Ninth Circuit

Steven M. v. United Behavioral Health, No. 20-CV-01513-PJH, 2021 WL 1238302 (N.D. Cal. Apr. 2, 2021) (Judge Phyllis J. Hamilton). The court denied defendant’s motion for summary adjudication to establish the standard of review as an abuse of discretion. The court found the plan’s benefits were self-funded and United Behavioral Health (“UBH”) denied claims and appeals by issuing several denial letters using UBH letterhead. The plan granted United Healthcare Services (“United”), the claims administrator, with discretion to make factual determinations and interpretations related to the plan. The employer delegated that discretionary authority to United Healthcare Insurance Company in an Administrative Services Agreement. The court found that none of the documents included a clear and ambiguous delegation of authority from United to UBH. The court found that the plan allowing United’s entities to utilize its affiliates to perform services on its behalf does not amount to a clear and ambiguous delegation of discretionary authority. The court found that even if there was a delegation of discretionary authority from United to UBH, it could not be clear and ambiguous if it could only be discerned through assessment of two confidential documents withheld from plan participants. Because there was no valid delegation of discretionary authority, the court therefore concluded that the applicable standard of review is de novo.

Tenth Circuit

Lyn M. v. Premera Blue Cross, No. 18-4098, 2021 WL 1257239 (10th Cir. Apr. 5, 2021) (Circuit Judges Briscoe, Lucero, Hartz, Holmes, Bacharach, Phillips, Moritz, Eid, Carson). On a Petition for Panel Rehearing and Rehearing En Banc filed by Premera Blue Cross, the majority of the panel members denied Premera’s request for panel rehearing on a question of whether Premera had been properly granted discretionary authority. A majority of active judges likewise denied the petition for en banc review. In concurrence, Judge Bacharach, joined by Judges Briscoe and Lucero, wrote that regarding discretion, the plan administrator “packed discretion” into the plan document for the Microsoft Corporation Welfare Plan but this document “was never mentioned in any of the materials supplied to participants” who “had no way of knowing that this document existed.” The concurring judges found that the participant would not know to ask for such a document because its existence is not mentioned in the summary plan description. The concurring judges reasoned that the panel opinion does not conflict with the Second Circuit’s opinion in Thurber v. Aetna because the issue of whether a plan administrator could provide notice of discretion through a secret document did not exist in Thurber. The concurring judges wrote that the panel opinion does not create a slippery slope as contended by the dissent. In dissent, Judge Eid, joined by Judges Hartz and Carson, wrote that the panel created a new notification requirement which is “wholly divorced from the text of ERISA.” Relying on Thurber, the dissenting judges wrote that the caselaw does not support the panel’s notice requirement, and that the panel’s opinion violates a core tenet of ERISA to impose uniform and clear duties upon plan administrators. 

Withdrawal Liability & Unpaid Contributions

Third Circuit

Wise Foods, Inc. v. UFCW Health and Welfare Fund of Northeastern Pa., Case No. 21-1261, 2021 WL 1253546 (E.D. Pa. April 5, 2021) (Goldberg, J., U.S.D.J.). Plaintiff Wise Foods, Inc. (“Wise”) brought a declaratory judgment action to resolve whether it had failed to make required contributions to a multi-employer welfare benefit trust known as the UFCW Health and Welfare Fund of Northeastern Pennsylvania (the “Fund”). The Fund, through its trustees, had unilaterally scheduled an arbitration on this issue, prompting Wise to file the action and Motion to Stay Arbitration. The court denied Wise’s motion to stay, holding that the collective bargaining agreement, which required Wise to make contributions to the Fund, was silent as to how to handle disputes over such contributions. However, the Fund itself was governed by a Trust Agreement, which bound Wise and permitted the trustees to demand arbitration. Considering the provisions of the Trust Agreement in conjunction with the presumption in favor of arbitration, the court found no basis to stay the arbitration hearing.