Bafford v. Northrop Grumman Corporation, No. 20-55222, __ F.3d ___, 2021 WL 1419055 (9th Cir.  2021) (Before Boggs, Smith, and Murguia, Circuit Judges).

This week’s notable decision is a significant Ninth Circuit victory for pension plan participants represented by attorneys from Kantor & Kantor, LLP, and Renaker Hasselman and Scott LLP.  In this published decision, the Ninth Circuit clarified that ERISA does not preempt state-law negligence claims against the plan’s third-party administrator, Hewitt, for its carelessness in miscalculating plan benefits. The court also ruled that online requests for pension benefit statements may constitute “written requests” for benefit statements for purposes of ERISA Section 105, 29 U.S.C. § 1025. The decision was not a complete victory for the participants, however, as the Ninth Circuit also concluded that the miscalculation of benefits by Hewitt involved ministerial and not fiduciary functions, and therefore none of the defendants could be held liable for fiduciary breach under ERISA based on Hewitt’s miscalculations.

The plaintiffs, Stephen Bafford and Evelyn Wilson, were employees of Northrop Grumman, who then went to work for TRW corporation, and then once again became employees of Northrop Grumman in 2002 when Northrop acquired TRW. These participants had earned vested benefits under the Northrop Grumman pension plan during their first period of employment and earned benefit additional benefits under the plan during their second period of employment. The two named plaintiffs requested pension benefit statements, which were prepared by Hewitt (now Alight Solutions), on numerous occasions during their employment as they planned for their eventual retirement. Each of those pension benefit statements incorrectly calculated the pension benefit using the earnings from the most recent three years of employment, i.e., during the second period of employment with Northrop Grumman. Both plaintiffs retired and began receiving the amounts that had been promised in the benefit statements for numerous years. Ms. Wilson received her monthly pension for over three years and Mr. Bafford received his monthly pension for three months, when Alight Solutions sent a notice of recalculation slashing their anticipated pension benefits by more than half.

The plaintiffs brought separate suits, which were later consolidated and re-pled as a putative class action. Their amended complaint asserted: (1) a breach of fiduciary duty claim against Northrop and the Administrative Committee for the plan, which was the named plan administrator, for failure to ensure participants are provided with complete  and accurate information about their benefits, a fundamental purpose of ERISA; (2) a breach of fiduciary duty claim against Hewitt for failing to apply the correct provisions of the plan when calculating and preparing benefit statements; (3) alternative state law claims against Hewitt for professional negligence and negligent misrepresentation; and (4) a claim against the Administrative Committee for violation of ERISA Section 105, which requires plan administrators to provide pension benefit statements to plan participants.  The district court dismissed the complaint in its entirety. 

The Ninth Circuit affirmed in part and vacated in part. Relying heavily on a Department of Labor interpretive bulletin from 1974, the court affirmed dismissal of the breach of fiduciary claims against the Northrop defendants and Hewitt, finding that calculation of pension benefits pursuant to a formula is not a fiduciary function. 

The court noted, however, that “the Committee’s escape from liability on the fiduciary duty claim does not necessarily exonerate it from its other statutory obligations.” In a major win for plaintiffs, the court held that a written request for pension benefit statements under ERISA Section 105 can be made electronically. Before this, no circuit court had addressed whether a request for a pension benefit statement through an online platform would constitute a “written” request under ERISA, and a number of district courts had concluded that an online request was not sufficient. Disagreeing with this analysis, the Ninth Circuit explained that “the statute does not limit adequate requests to only those written by hand on a piece of paper and conveyed in the postal system.” Although the court concluded that plaintiffs did not plead sufficient facts to state whether they had made written requests under this standard, the court reasoned that they might be able to do so and directed the district court to allow the plaintiffs to file an amended complaint. 

In a second major win for plaintiffs, the court vacated the district court’s determination that ERISA preempted plaintiffs’ state law claims against Hewitt. Relying on an earlier Ninth Circuit decision, Paulsen v. CNF, Inc., the court concluded that the state law claims were not preempted by ERISA because they do not act immediately and exclusively on an ERISA plan, they do not depend on the existence of an ERISA plan, and they have no bearing on an ERISA regulated relationship.  More broadly, the court concluded that “[h]olding both that Hewitt’s calculations were not a fiduciary function and that state-law claims are preempted would deprive Plaintiffs of a remedy for the wrong they allege without an examination of the merits of their claim,” a result the court deemed “inconsistent with ERISA’s purpose.”  

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

Breach of Fiduciary Duty

Third Circuit

McGowan v. Barnabas Health, Inc., et al., No. 20-13119, 2021 WL 1399870 (D.N.J., 2021) (Judge Kevin McNulty). This putative class action involves allegations of breach of fiduciary duty for offering investments with high costs where lower cost investments were available and allowing the plan to unreasonable recordkeeping fees under a revenue sharing arrangement. Defendants moved to dismiss arguing plaintiffs lacked standing and failed to state a claim. Defendants argued plaintiffs did not have standing because they did not invest in all of the funds they alleged had high costs. The court denied the motion to dismiss finding that plaintiffs have standing to bring claims on behalf of the plan even if the named plaintiffs were not invested in all of the funds at issue. The court also found plaintiffs’ prudence allegations sufficient because they alleged the fund expenses were higher than comparable funds. The court further found the duty of loyalty claim regarding Fidelity’s revenue sharing arrangement sufficient because plaintiffs alleged that the plan could have saved costs by using a different recordkeeper or compensation arrangement. Finally, the court found plaintiffs sufficiently alleged the duty to monitor because they adequately alleged breach of fiduciary duty claims. 

Ninth Circuit

Davis v., Inc., No. 20-CV-01753-MMC, 2021 WL 1428259 (N.D. Cal. Apr. 15, 2021) (Judge Maxine M. Chesney). Plaintiffs alleged breach of fiduciary duty by defendants related to a 401(k) Plan. Specifically, they alleged imprudence in selecting and retaining investment options with high costs relative to other, comparable investments, as well as by failing to investigate the availability of lower-cost share classes of certain mutual funds in the Plan. The court had previously granted defendants’ motion to dismiss, but had allowed plaintiffs to file an amended complaint.  Defendants again moved to dismiss, and the court again granted the motion, but without leave to amend. The court concluded, as it had previously that plaintiffs continued to improperly measure underperformance, and thus imprudence, by comparing the cost of actively managed funds to passively managed funds or by comparing collective trusts with mutual funds. The court stated, “passively managed funds are not ‘meaningful benchmarks’ for actively managed funds.” It made similar findings regarding with respect to other challenged investments. The court also noted that using one-year, three-year, and five-year returns was not sufficiently long-term to state a plausible claim of imprudence with respect to these investments. Other cases had asserted ten-year underperformance may support a duty of prudence claim. Finally, based on the returns alleged in the complaint, the noted that the biggest differential in performance was 0.55%. A difference of less than one percentage point in average annual return was insufficient to support a claim of imprudence. 

Disability Benefit Claims

Fourth Circuit

Skinder v. Fed. Express Long Term Disability Plan, No. 5:19-CV-00153-KDB-DCK, 2021 WL 1377982, (W.D.N.C., Apr. 11, 2021) (Judge Kenneth D. Bell). Plaintiff stopped working due to diagnoses of post-laminectomy syndrome, degenerative disc disease and several other conditions with symptoms including back pain, myofascial pain, and neuropathy. Plaintiff received disability benefits from 2001 until Aetna terminated her benefits in 2018. The court found that Aetna’s termination was an abuse of discretion and failed to satisfy the core requirements for a full and fair review because Aetna failed to consider relevant supporting documentation. On cross motions for summary judgment, the court remanded the matter for full and fair review for plaintiff to have a reasonable opportunity to provide further information.

Ninth Circuit

Kay v. Hartford Life and Accident Insurance Company, No. 19-CV-209-MMA (AHG), 2021 WL 1378742 (S.D. Cal. Apr. 12, 2021) (Judge Michael M. Anello). Because of some back issues and chronic pain syndrome, plaintiff filed a disability claim. However, the definition of “own occupation” used a “general workplace” standard to determine the demands of her own occupation. Under this standard, Plaintiff’s occupation was a hybrid of light and medium work. This mattered because some of the physical job requirements of the occupation in the general workplace were less demanding than how plaintiff’s actual job was performed. After reviewing the evidence under the de novo standard, the court credited Plaintiff’s complaints and all of the medical records but concluded that this evidence did not explain how—and importantly, to what extent—her diagnoses impair her. On the other hand, one of Hartford’s paper reviewing doctors did opine on this point. His opinion was the only direct evidence on this issue in the record. And he determined that Plaintiff was capable of meeting the medium duty level, including occasionally lifting, carrying, pushing, and pulling up to 50 pounds. Therefore, the court concluded that plaintiff had not met her burden of demonstrating that she was disabled under the terms of the policy. 

ERISA Preemption

Third Circuit

Atlantic Shore Surgical Assocs., PC v. Aetna Life Ins. Co., et al., No. 20-15622 (MCA) (MAH), 2021 WL 1381256 (D.N.J. Apr. 12, 2021) (Magistrate Judge Michael A. Hammer). Atlantic Shore is a medical practice in New Jersey, specializing in general and bariatric surgery. Atlantic Shore alleges that at all relevant times, it was an out-of-network, or non-participating, healthcare provider that provided emergency and pre-approved medically necessary services to fifteen patients who were insured by defendants in ERISA-covered healthcare plans. Atlantic Shore filed an action in state court alleging eight causes of action based solely on New Jersey state law. Aetna removed to federal court based on federal question jurisdiction, arguing that Atlantic Shore’s state law claims are completely preempted by ERISA. Section 502(a) completely preempts state law claims where: (1) the plaintiff could have brought the action under § 502(a); and (2) no independent legal duty supports the plaintiff’s claims. Because there was no dispute that Atlantic Shore is neither a plan participant nor a beneficiary, the federal magistrate judge concluded that Atlantic Shore did not have standing in its own right to bring a claim pursuant to Section 502(a). In addition, the court determined that because plaintiff alleged that it had engaged in a course of dealing with defendants for a certain reimbursement rate that established an implied contract, and the insurer-defendants breached that implied contract by failing to remit reimbursement at the proper rate, plaintiff’s claims did “not challenge the type, scope or provision of benefits under” an ERISA plan. The magistrate therefore recommended remand to state court.

Seventh Circuit

MK Communications, Inc. v. Karel-Gordon & Associates & Marc Gordon, No. 21 C 333, 2021 WL 1426886 (N.D. Ill. Apr. 15, 2021) (Judge Gary Feinerman). MK Communications, Inc. sought to hold Karel-Gordon & Associates and Marc Gordon liable under state law for providing deficient actuarial services in connection with a pension plan for MK employees that MK sponsors. Defendants removed the suit based on federal question jurisdiction, arguing that the case was completely preempted under ERISA. Defendants then moved to dismiss the complaint, and MK responded with a motion to remand. The court grated MK’s motion to remand. The court reasoned that MK satisfied the applicable two-prong test, which looks to whether the claim could have been brought under ERISA and whether there is an independent legal duty implicated by that claim. Because the court concluded that MK could not possibly have brought the claim under ERISA and the parties were not diverse, there was no basis for federal court jurisdiction.

Exhaustion of Administrative Remedies

Ninth Circuit

Dioquino v. United of Omaha Life Ins. Co., No. 20-CV-00167-BAS-RBB, 2021 WL 1378747 (S.D. Cal Apr. 12, 2021) (Judge Cynthia Bashant). On motion for partial summary judgment, the court determined that the plan participant’s claim for short-term disability benefits was moot because the payment she received from defendant at the end of mediation was all the relief she “could receive on the claim through further litigation.” The court disagreed with defendant that the participant lacked standing to assert a claim for long-term disability (LTD) benefits because she did not file a LTD claim and thus failed to exhaust her administrative remedies under the plan. The court concluded that, although plaintiff failed to exhaust her administrative remedies, the Ninth Circuit’s “futility” exception applied.

Pleading Issues & Procedure

Second Circuit

Int’l Union of Painters & Allied Trades, et al. v. Hosek Contractors, Inc., et al., No. 519CV1406FJSML, 2021 WL 1375649 (N.D.N.Y. Apr. 12, 2021) (Judge Miroslav Lovric). The court considered a motion to substitute the estate of a defendant due to that defendants’ death. The court found a motion to substitute a party cannot be made until after a form written statement of death has been filed with the court and served. Plaintiffs satisfied that requirement. The court also considered whether the motion was filed with the court within 90 days after service of the statement of death as required by FRCP 25(a)(1). Plaintiffs satisfied the timing requirement. The court found additionally found that plaintiffs’ claims under ERISA were not extinguished by the defendants’ death. The court granted the motion to substitute. 

Sixth Circuit

Hawkins v. Cintas Corp., No. 1:19-CV-1062, 2021 WL 1424320 (S.D. Ohio Apr. 15, 2021) (Judge Timothy S. Black). Plaintiffs, participants in a pension plan, filed suit under ERISA sections 409 and 502(a) against their employer, Cintas Corp, the plan sponsor, as well as other fiduciaries. After defendants moved to compel arbitration and stay the proceedings, the court denied the motion, finding that plaintiffs were bringing the action on behalf of the plan, and that the plan had not agreed to arbitrate claims against the employer. Defendants then filed an interlocutory appeal and moved to stay all proceedings in the district court pending the appeal. The court found concluded that, although the appeal divested it of jurisdiction, it had discretionary authority to grant a stay pending appeal and that such a stay was warranted.

Standard of Review

Fifth Circuit

Slane v. Reliance Standard Life Ins. Co. No. CV 20-3250, 2021 WL 1401761 (E.D. La. Apr. 14, 2021) (Judge Martin L. C. Feldman). Plaintiff submitted an appeal from the denial of her long-term disability benefits. When she did not receive a response to her appeal, she brought a lawsuit for wrongful denial of benefits. On motion for partial summary judgment on the standard of review, defendant asked for the court to apply an abuse of discretion standard to plaintiff’s claims. Plaintiff asked that the court apply de novo review despite the disability plan containing discretion granting language because Reliance Standard had not sent her a denial letter. Reliance Standard provided a statement from the appeals analyst stating he had uploaded the letter to be mailed, but no other statements were provided. The court ruled that evidence of the actual mailing of the letter was required for the mailbox rule to apply, therefore an issue of material fact existed as to plaintiff’s receipt of the letter. Summary judgment was denied. 


Second Circuit

Carlisle v. Board of Trs. of Am. Fed. of N.Y. St. Teamsters Conf. Pension & Ret. Fund, No. 20-CV-8793 (PKC), 2021 WL 1512702 (S.D.N.Y. Apr. 16, 2021) (Judge P. Kevin Castel). Carlisle, a participant in a union pension plan, sued the plan’s board of trustees and related defendants, arguing that they breached their fiduciary duties under ERISA by investing in risky assets, which resulted in benefit cuts to Carlisle and other plan participants. The defendants moved to transfer venue to the Northern District of New York based on a forum-selection clause located in an agreement between the plan, Carlisle’s former employer, and his union. The court granted the motion to transfer. The court noted that forum selection clauses are prima facie valid and favored by public policy. The court then applied a four-factor test to determine if the clause was enforceable. The court found that (1) although the plan itself did not contain the forum selection clause, the summary plan description did, and thus Carlisle was on notice; (2) the clause was mandatory, not permissive; (3) Carlisle’s claims fell within the clause; and (4) it was not unreasonable or unjust to apply the clause to Carlisle.

Withdrawal Liability & Unpaid Contributions

Second Circuit

Trs. of N.Y.C. Dist. Council of Carpenters Pension Fund v. Abalene Decorating Inc., No. 20-CV-2559 (PKC), 2021 WL 1393455, (S.D.N.Y., Apr. 13, 2021) (Judge P. Kevin Castel). The court denied motions by defendants Abalene Decorating and City View Blinds to have the default judgment against them vacated under Rule 60(b)(1). Plaintiff brought claims under ERISA and federal labor law for unpaid employer contributions, and the court entered a default judgment against defendants jointly and severally after they did not answer the complaint or otherwise appear in the action. The court determined Abalene willfully defaulted and did not present a meritorious defense. The court determined City View’s conduct was grossly negligent and rejected City View’s argument that it was not an alter ego of Abalene.