Smith v. Board of Directors of Triad Mfg., Inc., No. 20-2708, __ F.4th __, 2021 WL 4129456 (7th Cir. Sept. 10, 2021) (Before Circuit Judges Kanne, Brennan, and Scudder).

Arbitration is a hot issue in ERISA. Can claims for relief under ERISA be forced into arbitration, and if so, when? In this case the Seventh Circuit has good news and bad news for litigants on both sides.

The case is a putative class action brought by James Smith, an employee of Triad Manufacturing, Inc., alleging that in 2015 Triad and related defendants mismanaged Triad’s ERISA-governed employee stock ownership plan. Specifically, Smith alleged that three members of the board of directors created the plan and sold all of Triad’s stock to the plan, which then plummeted in value. The directors, however, profited from the transaction by providing loans to the plan that required repayment, regardless of Triad’s financial situation. In 2018, defendants amended the plan to include an arbitration provision with a class action waiver that prohibited claimants from seeking a remedy “which has the purpose or effect of providing additional benefits or monetary or other relief to any Eligible Employee, Participant or Beneficiary other than the Claimant.”

Smith filed suit in 2020, alleging claims under 29 U.S.C. § 1132(a)(2) and (a)(3) and seeking wide-ranging equitable relief. Defendants responded by moving to compel arbitration or, in the alternative, to dismiss Smith’s claims. The district court denied defendants’ motion on two grounds. First, assuming that ERISA claims are generally arbitrable and applying Missouri law, the district court held that because Smith had not consented to the arbitration provision, it was not binding. Second, the district court held that the arbitration provision was unenforceable because it prospectively waived Smith’s right to statutory remedies provided by ERISA. Defendants appealed.

On appeal, the Seventh Circuit first tackled the question of whether ERISA claims are arbitrable. The court noted that the Federal Arbitration Act provides that any written contract containing an arbitration provision “shall be valid, irrevocable, and enforceable,” and thus the FAA “establishes a liberal federal policy favoring arbitration agreements.” This mandate can be overridden by “contrary Congressional command,” but the court did not find such a command in ERISA. Citing analogous areas of law in which the courts had applied the FAA, such as the Securities Exchange Act, the Seventh Circuit joined “every other circuit to consider the issue” and recognized that “ERISA claims are generally arbitrable.”

This did not end the discussion, however, because “[t]he pivotal question here is whether this ERISA arbitration provision is enforceable.” The Seventh Circuit concluded that answer was no with respect to Smith’s (a)(2) claim. While the court agreed that most statutory claims can be arbitrated, it also noted a judicially-created exception to this rule when enforcement of the arbitration provision would bar “effective vindication” of a plaintiff’s rights. The court stated that such exceptions are “rare,” but concluded “that is what happened here.”

Specifically, Smith contended he was entitled to plan-wide remedies pursuant to ERISA because of defendants’ fiduciary breaches, including equitable relief that removed the fiduciaries. These remedies “would go beyond just Smith and extend to the entire plan, falling exactly within the ambit of relief forbidden under the plan.” In short, the “plain text” of ERISA, which allows for plan-wide remedies, “cannot be reconciled” with the terms of the arbitration provision, which acted as an improper “prospective waiver of a party’s right to pursue statutory remedies.” Thus, the provision prevented Smith from “effectively vindicating” his rights under ERISA and was unenforceable. The court took pains to note that the class-action bar was not the problem: “the problem with the plan’s arbitration provision is its prohibition on certain plan-wide remedies, not plan-wide representation.”

The Seventh Circuit dodged a number of other issues in reaching this conclusion. The court “express[ed] no view on whether Smith consented to the arbitration provision, whether he received notice of that provision, or even whether a plan’s sponsor can unilaterally amend the plan to include such a provision.” The court also noted that “[w]hether Smith’s claims, and those of other plan participants, under § 1132(a)(3) are barred is a question best left for another day.”

In sum, although the court called this a “complex ERISA case,” it held that the “correct resolution here is straightforward[.]” Because the arbitration provision “prohibits relief that ERISA expressly permits, we affirm the district court’s denial of Triad’s motion to compel arbitration or, in the alternative, to dismiss.”

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

Breach of Fiduciary Duty

Third Circuit

Koshnick v. Alight Solutions, et al., No. 21CV00618JXNESK, 2021 WL 4077564 (D.N.J. Sept. 8, 2021) (Judge Julien Xavier Neals). Plaintiff alleges that his deceased father, Robert Koshnick (“Robert” or “Decedent”), was an employee of Defendant Public Service Enterprise Group (“PSEG”) between 1962 until his retirement in 1997. As a PSEG employee, Robert was a participant in a life insurance plan for retired employees. On May 26, 2003, Robert’s wife, Lorna Koshnick, was added as his primary beneficiary under the plan. After Robert’s death, MetLife paid benefits to Lorna. Plaintiff alleged that MetLife breached its fiduciary duties by paying benefits to Robert’s widow, and MetLife moved to dismiss arguing that: (1) plaintiff had no standing as he was neither a participant nor a beneficiary of the plan; (2) MetLife was not the plan’s record-keeper, and consequently, had no fiduciary obligations with respect to the record-keeping of the plan; and (3) compensatory and punitive damages are not recoverable under ERISA’s exclusive remedy scheme. The court held that plaintiff did not have standing to bring suit against MetLife, and granted MetLife’s motion to dismiss.

Sixth Circuit

Smith v. CommonSpirit Health, No. CV 20-95-DLB-EBA, 2021 WL 4097052 (E.D. Ky. Sept. 8, 2021) (Judge David L. Bunning). The court granted Defendants’ motion to dismiss this purported class action alleging breach of fiduciary duty for imprudent investment options and unreasonable plan administration expenses with respect to her 401(k) pension plan. Defendants challenged plaintiff’s standing with respect to the imprudent investment claim. The court found plaintiff had standing to sue on behalf of the plan participants even though she was only invested in one of the challenged investment options. However, the court dismissed the imprudence claim because it was not reasonable to compare actively managed funds to passive funds. The court explained that even if it were an apples-to-apples comparison there was no showing that the actively managed funds substantially underperformed the index funds. The court likewise found plaintiff failed to state a claim that the American Beacon Fund was imprudent because the only comparator cites by plaintiff was not a “meaningful benchmark” for comparison. The court likewise dismissed plaintiff’s claim that defendants failed to timely replace the underperforming AllianzGI Small Cap Value Fund because that fund was removed in 2018, showing defendants were reasonably monitoring its performance. Finally, the court also dismissed the imprudent administrative fees claim because allegations that the fees were higher than average was insufficient to state a claim.

Class Actions

Sixth Circuit

Nixon v. Anthem, Inc., No. 3:19-cv-00076-GFVT, 2021 WL 4037824 (E.D. Ky. September 3, 2021) (Judge Gregory F. Van Tatenhove).  This case was brought as a putative class action alleging defendants improperly denied medical coverage for minimally invasive sacroiliac joint fusion surgery. The court denied defendants’ motion to strike the class allegations, rejecting defendants’ arguments pertaining to putative class standing, class definition, commonality under Rule 23(a) and satisfaction of provisions of Rule 23(b).

Disability Benefit Claims

First Circuit

Estate of Chambers v. Blue Cross and Blue Shield of Mass., Inc., No. 20-10492-PBS, 2021 WL 4079794 (D. Mass. September 8, 2021) (Judge Patti B. Saris). Plaintiff alleged that defendant abused its discretion under ERISA by denying long-term acute care benefits for an approximately three-month time period. Plaintifff alleged that defendant’s review process was flawed and in violation of ERISA Section 503 because defendants failed to provide adequate reasons for its denial of benefits, among other procedural issues. The court agreed and granted plaintiff’s motion for summary judgment, remanding the case to defendant plan administrator to begin the review process anew. 

Ninth Circuit

Maulolo v. Billings Clinic & Sun Life Assurance Company of Canada, No. CV 19-69-BLG-SPW, 2021 WL 4129515 (D. Mont. Sept. 9, 2021) (Judge Susan P. Watters). After years of trying work accommodations to continue working through back pain, plaintiff was unable to find lasting relief, resigned, and made a disability claim to Sun Life. After the claim was denied on appeal, she filed suit. The court found the medical records documented that chronic pain clearly adversely affected plaintiff’s ability to work, especially when accommodations in the workplace were no longer helpful or feasible. It also found Sun Life had disregarded a favorable Social Security Administration disability determination and had offered no evidence to contradict its own private investigator’s finding that plaintiff transformed from a “very active and health-conscious individual” to someone with back issues requiring disability (Sun Life’s PI had interviewed a neighbor). Finally, the court concluded that Sun Life’s proposition that plaintiff’s records were devoid of any objective evidence of functional impairment and instead consisted entirely of self-reported pain, which her physicians then adopted to support her claim of disability, was unconvincing and ran contrary to Ninth Circuit precedent. “[A] disability insurer cannot condition coverage on proof by objective indicators where the condition is recognized yet no such proof is possible.” Holmgren v. Sun Life & Health Ins. Co., 354 F. Supp. 3d 1018, 1028 (N.D. Cal. 2018). Indeed, the court found Sun Life’s reliance on objective evidence to deny benefits for a claimant with chronic pain was roundly rejected in Holmgren and was no more convincing here. In Holmgren, the court noted that “[t]he Ninth Circuit has found that chronic pain, like that of which plaintiff complains, ‘is an inherently subjective condition’” that does not require objective evidence. Further, the Ninth Circuit has also repeatedly held that “the lack of objective physical findings” is in and of itself insufficient to justify denial of disability benefits. On these bases, the court reversed Sun Life’s denial of benefits. 

Quezada v. Liberty Life Assur. Co. of Boston, C 20-07515 WHA WL 4079161 (N.D. Ca. Sept. 8, 2021) (Judge William Alsup). The matter was before the court on defendant’s motion for summary judgment. Plaintiff became disabled due to back pain and sought disability benefits. Defendant approved the claim and paid benefits for several years – 2015 through early 2020 – but then denied the claim, concluding that there was no support for impairment that would result in restrictions and limitations and the inability to perform the duties of any occupation. The court reviewed the matter under the abuse of discretion standard without heightened skepticism. Even under this deferential standard, the court found in favor of plaintiff. The court held that defendant abused its discretion because it failed to provide a full and fair review for the following reasons: (1) defendant did not have a meaningful dialog with Plaintiff; (2) defendant did not adequately consider subjective reports of pain; (3) defendant could not argue that plaintiff’s condition had improved; and (4) the Social Security Administration’s denial of disability benefits was entitled to no evidentiary weight because defendant’s own denial letter explicitly stated that its determination was not contingent on determinations by the SSA or others. Accordingly, the court denied defendant’s motion for summary judgment and remanded the claim to defendant for reconsideration.

Elam v. Anthem Life Insurance Company, No. 5:19-CV-04269-EJD, 2021 WL 4061701 (N.D. Cal. Sept. 7, 2021) (Judge Edward J. Davila). In 2016, plaintiff suffered a concussion when she fell while mountain biking, struck the side of her head and tumbled down a small ravine. In the aftermath, she experienced fatigue, dizziness, poor balance, headaches, difficulty concentrating, sensitivity to light, and blurry vision. Claiming an inability to work as a marketing director for Overland, plaintiff made a disability claim to Anthem and the SSA. Both initially denied the claim. On reconsideration, Anthem upheld the denial and the SSA approved benefits. Plaintiff sued Anthem, claiming its decision was in error because it was required to accept her self-reported symptoms, had failed to obtain her job description, had failed to conduct a physical examination, and had relied upon five board-certified independent reviews that each “passed the buck” regarding her disabling symptoms. The court rejected these arguments, but, on de novo review, it did find plaintiff’s evidence established her disability for about a year after the accident. This finding was based on the medical records, the SSA award, plaintiff’s repeated attempts to find treatment that might help her recover, and the observations of third parties. As a result, the court found that until July 4, 2017, the preponderance of the evidence showed plaintiff was disabled under the terms of the plan, and that the evidence failed to establish disability thereafter. The court asked the parties to confer and submit a stipulated proposed judgment. 


Ninth Circuit

Burris v. First Reliance Standard Life Ins. Co., No. 220CV00999APGBNW, 2021 WL 4129423 (D. Nev. Sept. 8, 2021) (Magistrate Judge Brenda Weksler). Although discovery is typically limited in ERISA cases, particularly those in which abuse of discretion review is applicable, a court may, in its discretion, consider evidence outside the administrative record to decide the nature, extent, and effect on the decision-making process of any conflict of interest. Under that standard, the court had previously issued a discovery order requiring Defendant First Reliance Standard (FRS) to respond to 58 out of 203 requests for admissions (RFA) and 10 out of 48 requests for production (RFP) propounded by plaintiff. FRS moved for reconsideration with respect to some of the RFAs. The court agreed with FRS’s position and ruled that several RFAs did not have to be answered as they would not have shed light on the absence or presence of a conflict of interest.

Exhaustion of Administrative Remedies

Fifth Circuit

Williams v. City of Childress, No. 2:21-CV-007-Z, 2021 WL 4037584 (N.D. Tex. Sept. 3, 2021) (Judge Matthew J. Kacsmaryk). Plaintiff Williams, a former employee of the city of Childress, Texas, filed suit alleging claims under the Americans with Disabilities Act, the Age Discrimination in Employment Act for retaliation, ERISA, the Texas Whistleblower Act, the Family and Medical Leave Act of 1993, and 42 U.S.C. § 1983. With respect to her ERISA claim, Williams conceded she was sent appropriate COBRA notices, but she argued she did not receive them or elect coverage. The court found, “[b]ecause Plaintiff does not allege, and the facts do not indicate, that Defendant withheld information regarding her benefits, Plaintiff has no justifiable excuse for her failure to exhaust administrative remedies.” The court thus dismissed Williams’ ERISA claim with prejudice for failure to exhaust.

Medical Benefit Claims

Sixth Circuit

McKenna v. Zo Skin Health, Inc., et al., Case No. 4:20CV0783, 2021 WL 4078291 (N.D. Ohio Sept. 8, 2021) (Benita Y. Pearson, U.S.D.J.). Plaintiff had been enrolled in her former employer’s COBRA coverage. She thereafter began employment with Zo Skin Health, but resigned after 15 days. Zo Skin Health’s benefit services company, Infinisource, informed plaintiff that she was eligible for COBRA continuing coverage through Zo Skin Health’s plan. Based on that representation, plaintiff informed her former employer’s benefit plan administrator, Triton, that she was terminating her former employer’s continuing insurance coverage. However, after that insurance was terminated, she was advised that Infinisource had misinformed her and she was not eligible for continuing insurance under Zo Skin Health’s plan. When plaintiff requested that Triton reinstate her coverage, it refused. Plaintiff sued Triton for breach of fiduciary duty under ERISA and sought an injunction or other equitable relief reinstating her coverage under her former employer’s health plan. Triton filed a motion to dismiss the complaint. In granting the motion, the court found that plaintiff did not suffer any damages as a result of alleged unlawful conduct on the part of Triton. The complaint failed to allege how the lack of notice of termination of her COBRA coverage caused her damage considering that plaintiff herself voluntarily terminated the continuing insurance coverage. Furthermore, the court held that Triton’s future liability was not ripe for adjudication. Plaintiff’s fear that Triton may seek reimbursement for all or some of her claims was insufficient. Plaintiff did not allege that the insurance provider gave any indication that it sought repayment of these claims in the future. Having concluded that plaintiff did not suffer any damages as a result of any alleged unlawful conduct on the part of Triton, and the issue of Triton’s potential future liability was not ripe for adjudication, the court granted Triton’s motion to dismiss.

Pension Benefit Claims

Seventh Circuit

Thorpe v. Ind. Elec. Workers Pension Tr. Fund, No. 1:19-CV-2988 RLM-MPB, 2021 WL 4081628, (S.D. Ind. Sept. 8, 2021)(Judge Robert L. Miller) Plaintiff sued the pension fund when it began recouping pension benefits it had paid to him. The court determined that the plan documents did not allow recoupment and therefore the plan was wrong to have done so. The court was also not persuaded that ERISA allows all plans to practice equitable recoupment, or that the plan’s fiduciary duty to act in the interest of participants authorized it to recoup the overpaid funds. The court concluded that there was no compelling equitable argument for recoupment when recoupment was clearly contrary to the language of the plans. The court therefore concluded that the decision to recoup was an abuse of discretion, and granted plaintiff’s motion for summary judgment and ordered the plan to pay him all withheld benefits due to him.

D.C. Circuit

Anthony v. Int’l. Assoc. of Machinists, 20-7036 — Fed. Appx. — WL 4056297 (D.C. Cir. Sept. 3, 2021) (Before Rogers, Pillard, and Walker). Appellant Anthony discovered in 2016 that he was not a participant in his union’s pension plan, contrary to what he believed. He filed an appeal with the plan administrator over the non-contribution of funds by his employer to the plan. Appellees denied the administrative appeal. Anthony filed suit alleging failure to make contributions and breach of fiduciary duty. The district court dismissed Anthony’s fiduciary duty claim because it found that he failed to plausibly allege that the union was a fiduciary under ERISA. The court then granted summary judgment to the defendants on the remaining claims. On appeal, Anthony argued that the district court erred in holding that the Fund’s denial of benefits was reasonable and that the Fund delegated the decision in breach of its fiduciary duty. Under de novo review, the Court of Appeals found that there was no record evidence of any contract or communication offering or promising Anthony a pension or that any funds had been remitted on his behalf and that all available evidence (discussed below) showed that the contracting parties understood the agreements to cover jobs other than his. The court held that based on that record evidence, that the Fund reasonably concluded that Anthony was not a Fund participant and thus not due benefits under the terms of the Plan. As for the breach of fiduciary duty claim, the court found that because contributions were not required by a collective bargaining agreement, the employer itself decides which classifications of its employees to cover; unlike in the collective bargaining context, whether to offer any particular benefit “is an employment matter between [the employee] and [their] employer.” The question for the Appeals Committee was thus whether Anthony’s employer had committed itself to providing Anthony a pension. Because the participation agreements did not establish that it had, the Committee permissibly relied on other evidence to answer that question, including evidence from the employer. In so doing, it did not sub-delegate to the employer its decision of Anthony’s appeal and there was no breach of any fiduciary duty. Thus, the Court of Appeals affirmed the decision of the district court.

Pleading Issues & Procedure

Second Circuit

Kennedy v. Aegis Media Americas, Inc., No. 1:20-CV-3624-GHW, 2021 WL 4077946 (S.D.N.Y. Sept. 7, 2021) (Judge Gregory H. Woods). Plaintiffs, participants in a 401(k) defined contribution employee benefit plan, filed this putative class action alleging that defendants violated their duty of prudence under ERISA in managing the plan. Specifically, they alleged that defendants “maintain[ed] certain funds in the Plan despite the availability of identical or similar investment options with lower costs and/or better performance histories.” Defendants filed a motion to stay the case pending the Supreme Court’s decision in Hughes v. Northwestern University, No. 19-1401 (2021). Because the question presented in Hughes is “[w]hether allegations that a defined-contribution retirement plan paid or charged its participants fees that substantially exceeded fees for alternative available investment products or services are sufficient to state a claim against plan fiduciaries for breach of the duty of prudence under ERISA,” the court granted defendants’ motion. The court found that the issues in the two cases were similar and that plaintiffs would not suffer significant prejudice from a stay because the harm on an individual basis was small, defendants could satisfy any judgment for damages, and litigation holds would mitigate any concern over evidence spoliation.

Third Circuit

Fischer v. Cigna Health & Life Ins. Co., No. 20-16587, 2021 WL 4059854 (D.N.J. Sept. 3, 2021) (Judge Susan D. Wigenton). Plaintiff, a medical provider, sought payment from defendant for three emergency surgeries performed on three separate patients. The defendant is a health insurance company. Plaintiff submitted claims to defendant.  In response, defendant provided some payments to plaintiff, at a fraction of what was owed for the surgeries. Each of EOBs explained that the patients did not owe any further amounts on the claims. The patients assigned each of their applicable health insurance rights and benefits to Plaintiff.  Plaintiff filed a complaint for breach of fiduciary duty under ERISA.  Defendant filed a motion to dismiss claiming that it had fulfilled its payment obligations under the Plan. In opposition, plaintiff revised his claim to argue that defendant had an obligation to reissue the EOBs stating that the patients owed the money. The court noted that the briefs may not amend the complaint. Even if the court assumed that the briefs did amend the complaint, it concluded that plaintiff had no claim. Plaintiff, as an assignee, stands in the shoes of the patients and has no more or less rights than the patients have.  As plaintiff conceded that defendant had met its payment obligations, then the crux of plaintiff’s lawsuit is a desire to receive more money from the patients and a lawsuit against the insurer is not the proper vehicle for doing so.

Sixth Circuit

Phillips v. Sun Life Assur. Co. of Canada, No. 1:20-CV-937, 2021 WL 4066807 (S.D. Ohio Sept. 7, 2021) (Judge Douglas R. Cole). Plaintiff Phillips filed suit in state court, alleging state law causes of action to recover benefits from a group life insurance policy. Sun Life removed the case to federal court and moved to dismiss on the ground that Phillips’ claims were preempted by ERISA. Phillips agreed to amend his complaint to only assert ERISA claims for relief, but he also requested a jury trial. Sun Life moved to strike the jury demand. The court noted that “this appears, at least at initial glance, to be a difficult issue on which the law is anything but settled.” Noting the arguments made on both sides, and citing unclear Sixth Circuit precedent, the court declined to reach the issue, and reserved judgment for a time closer to trial.

Statute of Limitations

Second Circuit

Tilley v. Shelton, No. 20-CV-10638 (JSR), 2021 WL 4125105 (S.D.N.Y. Sept. 9, 2021) (Judge Jed S. Rakoff). The two plaintiffs in this case were fired in 2015 by Verizon. They filed suit in 2021 against their union and other related defendants alleging, among other claims for relief, breach of the duty of fair representation and interference with pension benefits under ERISA. Defendants filed a motion to dismiss based on the applicable statutes of limitations. Plaintiffs contended that their claims were timely under the fraudulent concealment doctrine because they had learned new evidence in 2020. The court rejected this argument, finding that the plaintiffs knew sufficient information about their firing and thus had adequate notice to bring their claims during the regular limitations period. The court thus granted defendants’ motion and dismissed the complaint with prejudice.