This week’s notable decision threads the fine line between ERISA and state law preemption. In Halperin v. Richards, No. 20-2793, 2021 WL 3184305 (7th Cir. July 28, 2021) (Circuit Judges Kanne, Rovner, and Hamilton), the Seventh Circuit considered bankruptcy creditors’ claims against a company’s directors and officers for inflating stock value to conceal the company’s decline. 

The creditor plaintiffs alleged the company, Appvion, Inc., was in a “financial freefall” from 2012 to 2016 as revenues declined sharply. Appvion repeatedly missed financial projections but defendants continued to project unrealistic success when valuing the company’s stock – wholly owned by an Employee Stock Ownership Plan (ESOP). Plaintiffs alleged that defendants fraudulently inflated stock value to line the pockets of directors and officers whose pay was tied to ESOP valuations. 

In 2017, Appvion filed for bankruptcy protection. This action was originally filed by creditors in bankruptcy court in Delaware and was transferred to federal court in Wisconsin. 

Defendants moved to dismiss all claims on the theory that defendants’ roles in Appvion’s ESOP valuations were governed by ERISA, which preempted state corporation law liability. The district court agreed and dismissed the case.

But the Seventh Circuit court disagreed. The court found the plaintiffs’ claims are not preempted because ERISA contemplates parallel state-law liability against directors and officers serving dual roles as both corporate and ERISA fiduciaries and ERISA explicitly allows corporate insiders to serve as ERISA fiduciaries. The court found that if dual-hat fiduciaries were not allowed, employers that established ERISA plans would be “assuming financial liabilities without effective controls” and “Employers tend not to write blank checks.” The court found little circuit-level precedent regarding ERISA preemption of corporate law claims against dual-hat directors and officers but mostly agreed with the Fifth Circuit’s analysis in Sommers Drug Stores Co. Emp. Profit Sharing Tr. v. Corrigan Enterprises, Inc., 793 F.2d 1456 (5th Cir. 1986). 

The court did find claims against two other defendants, Argent Trust Company and Stout Risius Ross preempted, because unlike the company’s directors and officers, Argent and Stout are “single-hat” ERISA fiduciaries and have no state-law duty of loyalty to the corporation. 

The court remanded to the district court. 

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

Attorneys’ Fees

Ninth Circuit

Connor v. Unum Life Insurance Company of America, No. 4:19-CV-06552-YGR, 2021 WL 3141193 (N.D. Cal. July 26, 2021) (Judge Yvonne Gonzalez Rogers). After the court granted plaintiff’s motion for summary judgment against Unum, finding that plaintiff qualified as an eligible employee for disability benefits under a long-term disability plan, plaintiff moved for an award of attorneys’ fees and costs. He asked for $218,900 in attorneys’ fees and $5,430.66 in costs. The court reviewed the familiar five-factor test and found an award of attorneys’ fees appropriate. It then turned to the reasonableness of the hourly rates. In evaluating an attorney in practice for 29 years and having handled no less than 850 ERISA matters, the court deemed reasonable the request for $700 per hour for work done in 2019 and 2020 and $800 in 2021. The same rates were reasonable for an attorney practicing for 21 years and having handled hundreds of ERISA matters. The court deemed the $100 rate increase reasonable considering the rising cost of litigation. It then evaluated the hours expended and reduced those by small amounts due to inadequacies in the billing records. In the end, the court awarded $202,490 in attorneys’ fees and $3,130.66 in costs. The court did not award the $2,300 mediation fee because plaintiff “has not provided any binding authority that mediation fees are recoverable.” 

Disability Benefit Claims

First Circuit

Femino v. Sedgwick Claims Management Services, Inc., No. CV 20-11373-FDS, 2021 WL 3190817 (D. Mass. July 28, 2021) (Judge Dennis Saylor). Plaintiff filed an action alleging his disability benefits were terminated early. While the Plan language stated benefits ended at age 65, he alleged he was informed orally on several occasions, and once in writing, that his benefits would extend for an additional year. After his benefits were indeed terminated on his 65th birthday, he filed suit under both Section 502(b) and 502(a)(3), alleging detrimental reliance under 502(a)(3). Defendants filed motions to dismiss, which the court granted. It held that the alleged communications must constitute an amendment to Plan terms in order to be operative, and none of the alleged communications met such a standard. Further, it ejected plaintiff’s argument about detrimental reliance, finding that plaintiff’s reliance was not reasonable, a requirement for maintaining such an allegation.

Fourth Circuit

Paramount Shaw, Plaintiff, v. United Mut. of Omaha Life Ins. Co. of N. Am., Defendant., No. 6:19-CV-3537-JD, 2021 WL 3131653 (D.S.C. July 23, 2021) (Judge Joseph Dawson). Plaintiff filed an action seeking long-term disability benefits under ERISA. Defendant moved for judgement on the pleadings. The court granted defendant’s motion finding that defendant’s decision to uphold the denial of benefits was not an abuse of discretion, as it was supported by substantial evidence, based on the consideration of adequate materials, and was the result of a deliberate, principled process not influenced by conflict of interest. Further, the evidence relied upon by plaintiff failed to show  that defendant’s application of the pre-existing condition exclusion and subsequent denial was unreasonable in light of the language of the plan.

Adams v. United of Omaha Life Insurance Co., C. A. 6:20-3879-HMH 2021 WL 3163777 (D.S.C. Jul. 27, 2021) (Judge Henry Herlong). Plaintiff was a construction superintendent who developed hepatitis and mental health issues.  His disability claim was approved.  While receiving benefits, his liver issues resolved, but he was diagnosed with ADHD, depression, anxiety, panic disorder, mild cognitive disorder, and memory loss. Plaintiff was deemed unable to multitask, concentrate, or function in a stressful environment. A neuropsychologist evaluation confirmed this, although it also noted that his liver issues seemed to have caused his mental health issues and that his mental health issues might improve given that his liver issues had resolved. A neurologist concluded that plaintiff also had post-concussion syndrome from his years of playing football in school.  After a peer review from a psychiatrist concluded that plaintiff was improving, United of Omaha terminated his benefits. On appeal, his doctors sent in letters disputing the basis for the termination. United of Omaha denied the appeal based on three peer reviews, each concluding that plaintiff was not so disabled by his issues that he could not work. Because the policy was subject to Oregon law and Oregon has banned discretionary clauses, the denial was reviewed de novo. The court chastised the peer reviewers for focusing on a lack of objective evidence, which is not required by the policy.  The court concluded that plaintiff was disabled and reinstated benefits.

Ninth Circuit

Flores v. Life Insurance Company of North America, No. SACV2000897DOCJDEX, 2021 WL 3206793 (C.D. Cal. July 29, 2021) (Judge David O. Carter). Plaintiff, a registered nurse, suffered from Cushing’s Disease, a disorder that has the potential to cause debilitating symptoms including muscle pain, joint pain, headaches, vertigo, fatigue, lightheadedness, insomnia, brain fog and memory loss. Plaintiff argued that LINA wrongfully denied her claim for short-term disability (“STD”) benefits, and improperly failed to open and approve a claim for long-term disability (“LTD”) benefits because her Cushing’s Disease and accompanying symptoms made it impossible for her to perform the material duties of her job as a nurse. Applying the de novo standard of review, the court found that LINA issued an improper denial, and the weight of the evidence supported a finding of disability under the STD Policy. Ms. Flores and her attending physicians demonstrated that she was unable to perform the material duties necessary to pursue her own usual occupation in the usual and customary way. LINA’s decision to deny plaintiff’s claim for STD benefits was incorrect because LINA selectively reviewed her medical records by improperly relying on less credible “paper reviews” by nurse consultants, when other more qualified attending physicians, including a board-certified medical doctor who had treated plaintiff regularly for years, each repeatedly concluded she was disabled based on their examination findings of and discussions with plaintiff. The court did not award LTD benefits, however, because plaintiff had failed to comply with the LTD policy’s proof of loss provision. It found LINA had also been prejudiced by plaintiff’s failure in multiple respects. Plaintiff’s failure to provide notice and proof of loss impaired LINA’s ability to investigate and evaluate her LTD claim. When LINA attempted to evaluate plaintiff’s claim, her counsel declined and stated that Plaintiff would pursue benefits through litigation. LINA also had a contractual right to have a claimant physically examined in order to evaluate the claimant’s physical condition, which it lost entirely due to plaintiff’s refusal to submit a claim. Similarly, LINA has not been able to investigate whether plaintiff submitted other disability claims, such as to the Social Security Administration, or to assess whether those claims have been denied based on a reason material to LINA’s disability analysis.” The court also found the futility exception to the requirement that an ERISA plaintiff exhaust administrative remedies did not apply. 

ERISA Preemption

Fourth Circuit

Shrago v. Unum Life Ins. Co. of Amer., 8:20-cv-01097-PX 2021 WL 3188320 (D. Md. July 28, 2021) (Judge Paula Xinis). On cross-motions for partial summary judgment, the court held that ERISA did not preempt plaintiff’s state-law contract claims because the policy at issue was not a plan established or maintained by the employer under the Department of Labor’s “safe harbor” regulation. The court noted that the Fourth Circuit has held that ERISA applies only to “(1) a plan, fund or program, (2) established or maintained (3) by an employer, . . . (4) for the purpose of providing a benefit, (5) to employees or their beneficiaries.” The court noted the “safe harbor” regulation that aims to define when employer involvement in a plan is so minimal that the employer cannot be said to have “established or maintained” it. Where the party seeking to escape ERISA’s reach demonstrates the applicability of the safe-harbor provision, then the employer has not “established or maintained” the plan as a matter of law. The Court found that no record evidence shows the employer was involved in negotiating, securing, administering, or overseeing the policy. And no employer involvement logically meant that it did not establish any “ongoing administrative scheme” in connection with the policy. Accordingly, the Court found, as a matter of law, that ERISA does not apply to Plaintiff’s individual policy and ERISA did not preempt plaintiff’s contract claims with respect to that policy. It therefore denied Defendant’s motion for partial summary judgment, granted Plaintiff’s cross-motion for partial summary judgment.

Medical Benefit Claims

Fifth Circuit

Bergeron v. HMO Louisiana, Inc., Case No. 20-1450, 2021 WL 3164156 (E.D. La. July 27, 2021) (Judge Nannette Jolivette Brown). Plaintiff brought an ERISA action for review of the denial of her health benefits. Plaintiff was diagnosed with multiple psychiatric disorders: Delusional Disorder, Bipolar Disorder, Psychoactive Substance Abuse, Paranoid Personality Disorder, Narcissistic Personality Disorder with Negativistic (Passive-Aggressive) Personality Traits and Sadistic Personality. Plaintiff alleged that beginning in January 2019, his health became an “emergency.” Despite working with his doctor to find an in-network provider for mental health and substance use disorders, plaintiff alleged that he was denied treatment by in-network facilities because they did not have the personnel capable of addressing his complex medical conditions. Ultimately, plaintiff was admitted to an out-of-network inpatient facility in Mississippi. Prior to starting treatment, plaintiff submitted his claims to defendant for authorization, but defendant denied coverage. The court found that the plan at issue was a straight HMO plan that generally provided benefits only when services were obtained from an in-network provider, with two exceptions. The first is when the services are not available from an in-network provided within a 75-mile radius of Plaintiff’s home and Defendant issues written approval to Plaintiff to obtain the out-of-network services. The second is when plaintiff has an Emergency Medical Service and is unable to obtain care from an in-network provider. Under the first exception, the plan stated that defendant will approve out-of-network treatment “only if [defendant] determine[s] that the services cannot be provided by a Network Provider within a seventy-five (75) mile radius of the Member’s home.” The Plan further stated that “if [defendant] does not approve the use of the Non-Network Provider and issue any required Authorization before services are rendered, no Benefits will be paid and the Member may be responsible for all charges.” The court found that, given that out-of-network care is the exception, the plain reading of the plan supported the notion that some evidence would need to be provided by plaintiff to defendant to justify this out-of-network care and to break from the Plan’s general rule that only in-network services are covered. While plaintiff alleged that he provided to defendant the name of an in-network facility that refused to treat plaintiff, there was nothing in the record showing that plaintiff provided this information to defendant prior to beginning treatment at the out-of-network facility, at the time of defendant’s initial denial of coverage. Moreover, the court found that one name was insufficient to prove that plaintiff could not have obtained treatment from any in-network provider. Accordingly, the court affirmed the denial of benefits and dismissed plaintiff’s case with prejudice.

Pleading Issues & Procedure

Ninth Circuit

Physicians Surgery Center of Chandler v. Cigna Healtchare Inc., CV-20-02007-PHX-MTL, 2021 WL 3130336 (D. Ariz. July 23, 2021) (Judge Michael T. Liburdi). Plaintiff Physicians Surgery Center of Chandler (“PSCC”) filed suit against Cigna for withholding payments owed to PSCC. Cigna had sent a letter to PSCC alleging that PSCC was engaging in “fee forgiveness” by not consistently billing Cigna subscribers their full out-of-network cost share responsibility and that, as a consequence, Cigna had placed a flag to deny all claims until Cigna could verify customers had paid their cost share balances. PSCC filed suit on multiple counts including three counts for violation of ERISA on behalf of Cigna subscribers as their alleged assignee: (1) failure to properly pay benefits pursuant to ERISA Section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), (2) breach of fiduciary duties under ERISA Section 502(a)(3), 29 U.S.C. § 1132(a)(3), and (3) failure to provide a full and fair review under ERISA. The court agreed that as a threshold matter, PSCC had standing to bring derivative claims, but the court granted Cigna’s motion to dismiss with regard to all three ERISA allegations, granting PSCC leave to amend. The court explained that PSCC had not pleaded specific plan language that could show its entitlement to plan benefits. The court stated that PSCC must plead any representative plan language that would help it state a plausible claim for relief, noting that if Cigna did not provide any plan documents, PSCC would be permitted to make these allegations on “information and belief.”

Krause v. Meyer Corporation, U.S., No. 20-cv-06088, –F. Supp 3d –, 2021 WL 3160866, (N.D. Cal. July 20, 2021) (Judge Jeffrey S. White).  The issue before the court on defendant’s motion to dismiss was whether the Meyer Corporation Golden Executive Bonus Arrangement (the “Plan”) was an ERISA plan. In the complaint, plaintiff alleged that the Plan’s purpose was to provide retirement benefits to select employees by allowing deferral of current income into an annuity to facilitate savings for retirement. This deferred income purpose was further demonstrated because the Plan’s repayment obligations cease at age 65 and those employees offered early retirement are likewise released from repayment obligations. Plaintiff also alleged that a representative advised him that the Plan was intended for retirement saving and he encouraged other executives to participate in the Plan as a retirement vehicle.  Finally, plaintiff alleged that the Plan created and imposed an ongoing discretionary administrative scheme. The court did not find plaintiff’s allegations to be sufficient to establish an ERISA plan and granted defendant’s motion to dismiss with prejudice. The court explained that the primary purpose of the agreement was to reward executives for past service and provide incentives to retain them. The court explained that the Plan operated by allowing plaintiff to elect to withhold a portion of his paycheck to be paid into an annuity, which plaintiff owned. Plaintiff received annual bonuses which were paid to the authorities to cover taxes. The court claimed that there were numerous provisions which linked the repayment of any bonuses to the length of time employment was maintained. The court found that access to the funds was only restricted if plaintiff was terminated for cause or repayment obligations had not been satisfied. Although plaintiff may have personally intended to use the funds in his annuity to provide retirement income, the Plan did not require him to do so. The court therefore concluded that plaintiff failed to allege that the Plan is an employee pension benefit plan under ERISA and dismissed the case.

Eleventh Circuit

Schwartz v. ADP, LLC, 2:21-cv-283-SPC-MRM 2021WL 3172029 (M.D. Fla. July 26, 2021) (Judge Sheri Polster Chappell). Among many claims, plaintiff also sued defendants for violating ERISA by failing to provide him with COBRA-eligibility notification. Plaintiff alleged that he was a participant entitled to notice, even after being fired. At that time, Plaintiff was eligible for benefits-COBRA coverage. The court, however, held that there was nothing to suggest that plaintiff was a participant on the date he filed suit and ERISA does not provide a cause of action to former participants. Because plaintiff sued nearly three years after his firing (i.e., the qualifying event), plaintiff’s COBRA benefits expired. Without those, plaintiff had to identify a colorable claim to some other current or future vested benefit. Because the court concluded that plaintiff failed to do so, the court found that he lacked standing to bring his ERISA claim. Accordingly, the court granted defendants’ motion to dismiss without prejudice, noting that plaintiff could replead this claim to remedy the defect, so long as he did so in good faith.

Tenth Circuit

C.C. v. Cal. Physicians’ Serv., Case No. 4:21-cv-00010-DN-PK, (D. Utah Jul. 29, 2021) (Judge David Nuffer). Plaintiffs brought suit against their health care insurer, Blue Shield, for failing to cover needed mental health treatment.  Plaintiffs are California residents, and Blue Shield is based in California. Plaintiffs received treatment at a residential treatment facility in Utah.  Blue Shield moved to transfer the litigation to the Northern District of California, where Blue Shield was located. Because all parties were located in California, and the decisions made regarding coverage were made in California, the court granted the motion to transfer.

Provider Claims

Third Circuit

Anand v. Independence Blue Cross, No. CV 20-6246, 2021 WL 3128690 (E.D. Pa. July 23, 2021) (Judge Chad F. Kenney). Plaintiff, Dr. Neil Anand, a medical provider brought a pro se action against an insurance company, Defendant Independent Blue Cross, LLC (“IBC”). Anand’s amended complaint was more than one thousand paragraphs long and included sixty-four claims against IBC. The court granted IBC’s motion to dismiss, without prejudice, concluding that Anand did not show that he was a participant or beneficiary in a qualifying insurance plan or an assignee of such a participant or beneficiary. Anand supported this element of his claim with conclusory and vague statements that, for example, some of the claims he submitted to IBC were “covered under Employee Retirement Income Security Act (ERISA) plans while other members were covered with non-ERISA plans.”  The court concluded that because the amended complaint did not identify the patient-beneficiaries, and also failed to plausibly allege that Anand’s patients assigned their benefits to him, as an individual provider, rather than to Anand’s medical practice, Anand failed to state a claim under ERISA.

Ninth Circuit

Komarnisky v. Cigna Healthcare of Arizona, No. CV-20-01034-PHX-DJH, 2021 WL 3190725 (D. Ariz., July 28, 2021). Pro se plaintiff Dr. Komarnisky had filed multiple small claims in county court alleging Cigna wrongfully declined to cover payment for treatment of patients with Cigna health plans. Cigna removed these cases to federal court and moved for summary judgment, arguing that ERISA preempts any other state law claims and Dr. Komarnisky did not have standing to bring ERISA claims. The court granted Cigna’s motion to dismiss, confirming that state law was preempted by ERISA. The court also concluded that Dr. Komarinsky did not have standing to assert ERISA claims because Komarnisky had failed to provide any evidence that any patient had assigned the claim to him and certain patient plans contained anti-assignment clauses. The court explained that Cigna had not legally injured Dr. Komarinsky by declining to pay benefits and that the law is clear that only a plan participant, beneficiary, fiduciary or valid assignee may bring an ERISA claim. The court clarified that being a health care provider does not automatically entitle Dr. Komarinsky to bring an ERISA claim.

Statutory Penalties

Fifth Circuit

Jones v. AT&T, Inc., CV 20-2337, 2021 WL 3021921 (E.D. La. July 16, 2021)(Magistrate Judge Donna Phillips Currault). Plaintiff filed suit as the executor of the state of a deceased plan participant, who had died after a car accident, seeking statutory penalties for defendants’ failure to produce the requested ERISA plan documents, in violation of 29 U.S.C. § 1024(b)(4). Plaintiff filed a motion to compel defendants to provide substantive responses to plaintiff’s interrogatories and requests for production, and to respond to the areas of inquiry in his proposed Rule 30(b)(6) deposition notice. Specifically, plaintiff sought to compel production of a complete copy of the 1998 Collective Bargaining Agreement between Bellsouth and the Communication Workers of America and a variety of other plan documents, noting that defendants had not even produced the relevant medical benefit plans. The court held that a proper Rule 37 conference was required to sort out the factual dispute over whether any of the documents were actually produced, and because such a conference had not taken place, the court denied the motion without prejudice to allow the parties to hold the required conference. 


Tenth Circuit

Scott M., et al. v. Cigna Health & Life Insurance Company, et al., No. 4:21-CV-00007-DN-PK, 2021 WL 3194732 (D. Utah July 28, 2021) (Judge David Nuffer). Plaintiff Scott M. brought suit under ERISA on behalf of his minor child, seeking to recover expenses incurred for the medical care and treatment of J.M. at the Red Cliff Ascent and Telos treatment facilities located in Utah. Defendants move for transfer of venue to the District of Vermont under 28 U.S.C. § 1404(a). Plaintiff argued that Utah was a proper venue under 29 U.S.C. § 1132(e)(2) and 28 U.S.C. § 1391(c), asserting that Cigna does business in Utah, J.M.’s treatment took place in Utah, and litigation in Utah would serve the privacy interests of plaintiff. Defendants moved for transfer, asserting that “the interests of justice mandate that the District Court of Vermont resolve this dispute.” The court granted defendants’ motion, explaining that plaintiff resides in Vermont, the breach occurred in Vermont, the ERISA plan was established and administered in Vermont, and that the plan was administered by Cigna, which is headquartered in Connecticut. The Court concluded that “[b]ecause there is no other connection to Utah” other than the location of treatment, “[p]laintiff[’s] choice of forum is entitled to less deference in this case.”