Hursh v. DST Systems, Inc., No. 4:21-mc-09017, 2021 WL 4526849 (W.D. Mo. Oct. 4, 2021) (Judge Nanette K. Laughrey).

It is no secret that employers like arbitration provisions, and ERISA case law generally allows them to include such provisions in their employee benefit plans. However, this case is an object lesson in being careful what you ask for – because you just might get it.

DST, a large business services company, offered a 401(k) profit sharing plan to its employees, but several of those employees became concerned that the plan was insufficiently monitored and its investments were overly concentrated. Lawsuits followed in the Western District of Missouri, where DST is headquartered. DST successfully convinced the Missouri court that the breach of fiduciary duty claims brought in those suits were subject to the plan’s compulsory arbitration clause.

Pursuant to this decision, in 2018 DST sent notices to all of its 401(k) participants, explaining that they had the right to initiate arbitration proceedings. Hundreds did so, and throughout the past three years these arbitrations have progressed. To date 342 claims have been tried, 214 claims have received awards in their favor, and 61 other claims are awaiting awards. All of these proceedings took place (albeit virtually) in Missouri.

Meanwhile, in New York, other DST employees also filed lawsuits. Unlike the Missouri court, the Second Circuit ruled that DST’s arbitration agreement did not cover breach of fiduciary claims. As a result, the Southern District of New York has now certified a class action against DST.

With this backdrop, several of the plaintiffs in this Missouri case moved the court to confirm the results of their arbitrations. DST, which had urged the Missouri court for years to shift cases into arbitration, and had participated in hundreds of those arbitrations without complaint, suddenly opposed the motion. DST argued that the claims were not arbitrable at all, and that the claimants were now bound by the class action pending in New York.

It is fair to say that the Missouri court was not impressed by this about-face. The court rejected DST’s argument that “the task before the Court [is] one that is complex and merits forbearance,” and instead found that “the obligation of the Court is plain and unavoidable.” According to the court, the Federal Arbitration Act required it to issue an order confirming the arbitration awards, and DST had advanced no arguments that contravened that rule.

Even if DST had a cognizable argument against arbitration, the court found that it had waived that argument due to judicial estoppel. The court noted that DST’s position was “clearly inconsistent” with its prior position, it had created the perception that it had misled the court, and if successful, its new position would unfairly prejudice plaintiffs: “Now that hundreds of Plan Participants have accepted DST’s offer to arbitrate, and secured awards after engaging in good faith, perhaps for years, in the arbitration process, it would be patently unfair to permit DST to revoke its consent to arbitration, vacate the arbitration awards, and require the Arbitration Claimants to start over.”

The court minced no words in applying judicial estoppel: “DST’s post hoc suggestion that…this court should sweep aside final arbitration awards in hundreds of cases is anathema. … DST was not dragged into arbitration against its will. It initiated these arbitrations. The only thing that would be unfair would be to let DST escape the consequences of the arbitration proceedings in which it voluntarily participated because they did not turn out as DST hoped they would.”

Finally, the court discussed the pending New York action. The court noted that plaintiffs and DST had initiated the arbitrations in this case before the class was certified, and in fact, many of the claims at issue were already resolved before the class was certified. The court indicated there was no conflict because it was not attacking the New York court’s rulings, and was only confirming arbitration awards, which was “effectively a ministerial task.” To the extent there was any conflict between the Missouri court rulings and the New York court rulings, the court stated that this was “the product of DST’s blatantly contradictory positions, not any judicial error.”

Accordingly, the court granted the plaintiffs’ motions to confirm their arbitration awards. DST got what it originally asked for, as well as an unpleasant judicial rebuke.

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

Attorneys’ Fees

Eighth Circuit

Lundgren v. Country Life Ins. Co., No. 20-CV-2467 (PJS/KMM), 2021 WL 4705186 (D. Minn. Oct. 8, 2021) (Judge Patrick J. Schiltz). Plaintiff Cindy Lundgren filed this ERISA lawsuit against defendant Country Life Insurance Company (“CLIC”) after CLIC denied her claim for long-term disability benefits. In July of this year, the court denied CLIC’s motion for summary judgement, granted in part Lundgren’s motion for summary judgement, and remanded the case to CLIC to reconsider Lundgren’s claim. The court thought it was “clear” the Lundgren was disabled under the terms of the policy, and when remanding the case cautioned CLIC that if it were to stick with its original position that Lundgren was not disabled it had to do a better job on the remand than it did the first time around. Lundgren has now moved for attorney’s fees pursuant to ERISA Section 1132(g)(1). The judge found Lundgren eligible for attorney’s fees as plaintiff’s success before the court to date has been “more than trivial” and Lundgren has demonstrated “some degree of success” with respect to her motion for summary judgment. After establishing eligibility, the judge examined whether awarding fees was warranted. First, based on CLIC’s poor handling of Lundgren’s claim, the court found that CLIC was culpable. Second, the judge determined that CLIC was able to satisfy an award, something CLIC itself did not dispute. Third, the judge concluded that awarding fees to Lundgren would serve a deterrent purpose and may provide an incentive to CLIC to handle disability claims with greater care going forward. Fourth, in looking at the scope of relief, the judge acknowledged the lawsuit was for the benefit of one person and did not raise a significant legal ERISA question. Finally, as discussed earlier, it was clear that the plaintiff succeeded on the merits. Having weighed these factors and having found four of the five weighed in favor of Lundgren, the court awarded costs and fees. Based on the success on the merits, the hours worked, and factoring in clerical tasks and administrative proceedings, the judge awarded Lundgren’s legal team a total amount of $21,112.88 in fees and $402 in costs for the filing fee.

Breach of Fiduciary Duty

Third Circuit

Mator v. Wesco Distribution Inc., No. 2:21-CV-00403-MJH, 2021 WL 4523491 (W.D. Pa. Oct. 4, 2021) (Judge Marilyn J. Horan). Plaintiffs Robert Mator and Nancy Mator represent a putative class of participants and beneficiaries of the Wesco Distribution Inc. Retirement Savings Plan, in their suit against Wesco alleging breach of fiduciary duties of prudence and loyalty and failure to adequately monitor other fiduciaries. Defendants moved to dismiss for lack of standing and for failure to state a claim. The judge found that plaintiffs do have Article III standing and therefore defendants’ 12(b)(1) motion to dismiss was denied. However, the judge found that plaintiffs’ allegations were strictly conclusory and that plaintiffs failed to provide a meaningful benchmark for performance comparison. In addition, the judge found the plaintiffs’ complaint alleged no facts about the level of services provided in exchange for the fees paid. The judge therefore agreed with defendants that plaintiffs failed to state a breach of fiduciary duty claim. Furthermore, because the judge determined plaintiffs’ underlying fiduciary duty claim failed, the judge determined their failure to monitor claim which derived from the fiduciary duty claim also failed. Therefore, defendants’ motion to dismiss pursuant to 12(b)(6) was granted, with plaintiffs granted leave to amend.

Class Actions

Third Circuit

Scanlan v. American Airlines Group, No. 18-4040, 2021 WL 4704708 (E.D. Pa. Oct. 8, 2021) (Judge Harvey Bartle III). Plaintiff Scanlan is a commercial airline pilot and a Major General in the U.S. Air Force Reserve. He brought suit against defendants for violation of the Uniformed Services Employment and Reemployment Rights Act (“USERRA”), and for breach of contract. Scanlan moved to certify three classes pursuant to Rule 23 of the Federal Rules of Civil Procedure. At issue is time taken as leave by Mr. Scanlan and similarly situated individuals for military service. American does not pay its pilots when they take military leave, no matter how long or short it is. Importantly, American does pay its employees for leave they take for jury duty and for leave taken for bereavement. Under American’s profit sharing plan, American pays profit sharing awards annually to plan participants that total five percent of American’s pre-tax earnings from the preceding year. Plan participants receive their award as a lump sum payment, which they may contribute entirely or in part to their retirement plans. American calculates these awards by dividing the 5% by the aggregate amount of all participants’ earnings, which are based on compensation as defined by each individual’s 401(k) plan. Earnings from paid leave are credited to the plan participants for purposes of this allocation, which means leave from jury duty or bereavement are included, but leave for military service is not. This results in participants like Mr. Scanlan receiving lower profit sharing awards. This, plaintiff alleges, is in direct conflict with USERRA, a federal law designed to minimize the disadvantages of civilian careers resulting from military service and to prohibit discrimination against persons because of their service in the uniformed services. Plaintiff alleges that this practice is specifically in violation of Section 4316 of USERRA, which allows employees on military leave to receive paid leave and requires employers to treat employees on military leave the same as they treat other employees on paid leave. Plaintiff seeks to certify three classes, the first of which is a profit sharing class of current and former employees of American and its affiliates who have participated in the plan and will be harmed as a result of the violation of Section 4316 of USERRA. The second class is limited to American pilots who are or were eligible to participate in the 401(k) plan and who have been harmed as a result of breach of contractual provisions in the profit sharing plan. The final group plaintiff wishes to certify is a group of American employees who are harmed as a result of the violation of Section 4316 because of American’s failure to pay them for their military service leave. Finding the numerosity, commonality, typicality, and adequacy of representation requirements of Rule 23(a) sufficiently satisfied, the judge further found that the injunctive relief class under Rule 23(b)(2) is proper. In addition, the judge determined that plaintiff and the rest of the class need not provide individualized evidence for their claims to profit share awards and compensation for leave, rather they will automatically be entitled to this relief if American is found to have violated USERRA and required to treat military leave the same as American treats jury duty and bereavement leave. Such relief could also be calculated by a computer on an objective basis. Additionally, the judge found that defendants’ actions were applicable to the whole class and could therefore be addressed on a class-wide basis. Finally, the judge decided that the proposed class could be readily determined based on records, some of which have already been produced, which made the members of the proposed classes readily ascertainable. As plaintiff met the requirements of Rule 23(a) and (b)(2) for class certification, the judge granted the motion and divided the approved class into subclasses for each of plaintiff’s three claims, as proposed.


Sixth Circuit

Comau LLC v. Blue Cross Blue Shield, No. 19-12623, 2021 WL 4635910 (E.D. Mich. Oct. 7, 2021) (Judge Curtis Ivy Jr.). Plaintiff Comau, a customer of defendant Blue Cross Blue Shield of Michigan that sponsored a healthcare plan, brought suit alleging Blue Cross breached its fiduciary duties by mismanaging plan assets and overpaying healthcare claims. Plaintiff had previously filed a motion to compel seeking production of documents relating to an investigation conducted by Blue Cross. The judge ruled that Blue Cross must produce discovery related to non-Comau overpayments generally, with the identities of other customers redacted. Shortly after this decision, plaintiff served document subpoenas on three current Blue Cross customers and two entities that serve as the plan consultants. Plaintiff also sought communications related to Blue Cross’s processing and payment of healthcare claims in the past five years and all documents related to any refund received from Blue Cross in the past five years. Blue Cross moved to quash or in the alternative moved for a protective order for these subpoenas and also moved for a protective order to maintain confidentiality of its document production pertaining to documents required by the earlier court order. Blue Cross argued that plaintiff is attempting to make an end-run around the judge’s earlier order by seeking these subpoenas. Blue Cross also asserted that it has already produced all the data plaintiff needs to identify overpayments, but that the documents from other customers are irrelevant and confidential. Plaintiff, on the other hand, stated that it issued the subpoenas to gather evidence to prove the allegation that Blue Cross was aware of the claims processing problem but failed to correct it and even actively concealed the problem. Plaintiff argued that Blue Cross does not have standing to quash the subpoenas, and that the subpoenas are not an attempt to evade the court’s order, as the previous order did not limit it from seeking a broader scope of discovery than the documents at issue in the prior motion to compel. The judge agreed with the plaintiff that Blue Cross does not have standing to quash the subpoenas as it offered only the conclusory statement that documents may contain proprietary business information and did not explain how the documents would harm it or be unduly burdensome. Nor did the judge find that Blue Cross demonstrated good cause for a protective order as it made no showing of undue burden or expense related to the subpoenas demonstrating a clearly defined or serious injury that would result from producing the documents. Therefore, the motion to quash or for protective order was denied. In attempting to evaluate Blue Cross’s second motion for a protective order to maintain confidentiality of its document production, the judge was not prepared to find that Blue Cross met its burden of demonstrating this need, but was also concerned that denying the motion could result in de-designating documents that should not be made public. Therefore, this motion was held in abeyance and the parties were directed to confer on this dispute to narrow the number of documents at issue and to review the propriety of the designations of those documents.

ERISA Preemption

Second Circuit

Epic Reference Labs v. Cigna, No. 3:19-cv-1326, 2021 WL 4502836 (D. Conn. Sept. 30, 2021) (Judge Stefan R. Underhill). Three laboratories in Florida brought suit against Cigna for failure to pay over $32 million for the laboratories’ testing services. Plaintiffs alleged four causes of action against Cigna: failure to promptly pay as required by Florida state laws; promissory estoppel; quantum meruit; and unjust enrichment. Defendants moved to dismiss, arguing that ERISA preempted the claims and that plaintiffs failed to state a claim. Important here, the laboratories were solely seeking payment for services to which they do not have a valid assignment of benefits from ERISA plan beneficiaries. The judge found that the state law prompt payment statutes were in conflict with ERISA’s purpose of uniformity. Therefore, the judge decided that the laboratories’ state-law statutory claims which arise from service provided to beneficiaries of non-ERISA plans may proceed, but those which arise from services provided to beneficiaries of ERISA plans, even where the out-of-network providers were not assignees, as here, were preempted. The court therefore dismissed the claims with prejudice. For the rest of the laboratories’ claims, the judge found they did not have an impermissible connection with ERISA and were not preempted. Accordingly, the judge concluded that, to the extent that the laboratories’ common law claims arose from obligations independent of the express terms of ERISA plans, those claims may proceed. The court therefore denied defendants’ 12(b)(6) motion to dismiss plaintiffs’ quantum meruit and third-party beneficiary claims.

Plan Status

Second Circuit

Pasciutti v. LiquidPiston Inc., No. 3:20-cv-01243, 2021 WL 4502950 (D. Conn. Sept. 30, 2021) (Judge Robert N. Chatigny). Plaintiff Pasciutti brought this ERISA and state-law suit against his former employer, LiquidPiston, Inc (“LPI”). LPI offered Mr. Pasciutti a Stock Option and Grant Plan, which consisted of a “base grant” of 10,000 shares of common stock in LPI, 25% of which vest after year one, with the shares fully vesting after four years of continuous employment. The plan also granted to Mr. Pasciutti additional options to purchase 208 shares of common stock per month, that would fully vest on a monthly basis. The complaint alleged that LPI unlawfully fired Mr. Pasciutti two days before his stocks, which had greatly appreciated since his employment began, had vested. At issue was whether the plan defers payments for periods extending to the termination of covered employ or beyond and therefore constitutes a pension plan within the meaning of ERISA. Defendants argued that the plan was not governed by ERISA because its purpose is to provide incentives and bonuses rather than to defer compensation or provide retirement benefits. Mr. Pasciutti argued that the plan is an ERISA pension plan because it resulted in a deferral of his income for periods extending to the termination of his covered employment. Referring to the purpose of the plan, which states that it is meant “to encourage and enable the officers, employees, directors, consultants and other key persons of LiquidPiston, Inc upon whose judgment, initiative, and efforts the company largely depends for the successful conduct of its business, to acquire a proprietary interest in the company,” and to a provision of the plan which prohibits employees from exercising their options more than ten years after the grant date and provides that all unvested options are null and void at an employee’s termination, the judge determined the plan not to be an ERISA-governed pension plan. Consequently, the judge dismissed the ERISA claims with prejudice. Also, in keeping with the limits of supplemental jurisdiction, the judge dismissed the state law claims, without prejudice.

Pleading Issues & Procedure

Fifth Circuit

Martinez v. Standard Ins. Co., No. 20-10475, __ F. App’x__, 2021 WL 4592430 (5th Cir. Oct. 5, 2021) (Before Circuit Judges Jones, Southwick, and Engelhardt). Plaintiff Jose Chavez filed an ERISA suit against Standard Insurance Company after his long-term disability benefits were terminated prematurely. In 2016, Mr. Chavez had to have four hand surgeries and was diagnosed with cellulitis, septic arthritis, and abscess. Mr. Chavez filed a claim for long-term disability benefits in June 2016. Standard determined that Mr. Chavez was eligible for benefits under the “own occupation” standard, which ran from September 2016 to September 2018. Before the expiration of those 24 months, however, Standard determined that a provision in the plan limited Mr. Chavez’s benefits to only 12 months, and subsequently terminated his benefits in September 2017. This provision was called the “Other Limited Conditions Limitation.” Benefits for conditions which were included in this policy were limited to a maximum of 12 months. Included conditions were carpal tunnel, arthritis, and joint/muscle strains. The district court held that Mr. Chavez’s wrist condition did not fall within the plan’s limitation. The court concluded that the plain meaning of “arthritis” did not include the infection-caused damage to Mr. Chavez’s wrist, although it was a type of arthritis. The court found that the average plan participant would understand arthritis to mean the degenerative joint disease osteoarthritis. Therefore, the district court found that Mr. Chavez was entitled to disability benefits, and that he was entitled to “any occupation” benefits through the month of the final judgment. The district court also decided that Standard had waived its right to a retroactive administrative determination and could not request evidence to determine whether Mr. Chavez met the “any occupation” disability criteria. The district court determined that because Standard never gave notice to Mr. Chavez that it was denying benefits because he didn’t meet the definition of “any occupation” disability it couldn’t now assert that basis for denial. It further concluded that ERISA’s written notice requirement supported its waiver holding. Standard appealed only this “any-occupation” benefits holding, arguing that the court could award benefits only through the “own-occupation” period, but that it should remand back to the administrator to decide whether Chavez met the “any occupation” definition of disability. In early 2021, while the case was on appeal, Mr. Chavez died. His widow, Melinda Martinez, was substituted as a party to the appeal. The Fifth Circuit disagreed with the lower court’s determination in not letting Standard review the benefits under the “any occupation” definition. The circuit judges found that Standard’s limitation policy determination made analysis of entitlement to “any occupation” benefits at the time unnecessary, and reasoned that requiring administrators denying benefits under the “any occupation” standard solely in anticipation of a possible reversal on the “own occupation” denial was an “unworkable” approach. The judges do not think Standard should be punished retroactively now that its initial denial was overturned and therefore reversed the district court’s waiver holding, vacated the district court’s award of “any-occupation” benefits, and remanded to the district court with instructions to remand to the administrator to make an initial determination of Mr. Chavez’s “any-occupation” benefits.

Ninth Circuit

Laiacona v. Lincoln Life Assurance Co., No. 2:21-cv-00222-JAM-DMC, 2021 WL 4690759 (E.D. Cal. Oct. 7, 2021) (Judge John Mendez). Plaintiff Frank Laiacona applied for long-term disability benefits under a policy issued by defendant Lincoln Life Assurance Company of Boston, after the retinas in both his eyes became detached. Lincoln initially responded to Mr. Laiacona’s application for benefits by saying that it determined he was not insured under the policy. Mr. Laiacona continued to follow up and appeal. A year later, Lincoln informed Mr. Laiacona had it had made an error in denying his claim. Seven months after this, and nineteen months after he first applied for benefits, Lincoln made a lump sum payment to Mr. Laiacona for the payments that were due. Mr. Laiacona alleges that this delay in receiving benefits meant that he was unable to pay for his living expenses in the interim. As a result, he was forced to rely on credit cards to support himself and incurred high interest charges on his unpaid balances. In addition, the lump sum payment he received put him at a higher federal income tax bracket than he would have been under had he received his monthly benefit payments on time. He therefore brought this suit against Lincoln alleging breach of contract, bad faith, malicious misrepresentation, gross negligence, and violation of ERISA. Defendant moved to dismiss all of plaintiff’s claims. First, Lincoln argued that all of plaintiff’s state law claims were preempted by ERISA, which plaintiff conceded. Accordingly, the judge dismissed the state law claims as preempted. As for the ERISA claims, the judge evaluated the motion to dismiss for each individually. First, the Section 1132(a)(1)(B) claim was dismissed with prejudice, as the judge found that plaintiff had already recovered the benefits due to him under the terms of the plan. Next, the Section 1132(a)(2) claim was also dismissed with prejudice, as the judge found that plaintiff did not allege any injury to the plan as a whole, but instead sought extra-contractual damages caused by the improper and untimely processing of his claim for benefits. Finally, the judge denied the motion to dismiss the Section 1132(a)(3) claim, reasoning that its safety net function affords adequate relief for injuries caused by violations of ERISA that Mr. Laiacona could not bring under Section 1132(a)(1)(B).

Statute of Limitations

Sixth Circuit

Copeland v. Custom Packaging, No. 3:21-cv-00732, 2021 WL 4552955 (M.D. Tenn. Oct. 5, 2021) (Judge Aleta A. Trauger). Plaintiff Grayland Copeland filed a pro se suit against defendants Custom Packaging and U.S. District Court. Reviewing the complaint filed in forma pauperis, the judge evaluated it by applying the standards of Federal Rule of Civil Procedure 12(b)(6). The plaintiff was attempting to reopen a prior case against Custom Packaging that was dismissed in 2002. Plaintiff’s complaint alleged that between 2002 and 2013, the court failed to provide Mr. Copeland with notice of certain filings in the 2002 case. The judge determined that the complaint didn’t allege that the court engaged in any wrongdoing that violated Mr. Copeland’s rights or caused him any injury. As for the ERISA allegations against Custom Packaging, wherein the plaintiff alleged that Custom Packaging breached the terms of the plaintiff’s retirement plan, the judge found the claim time-barred because Mr. Copeland alleged this breach occurred in 2002 and he has been aware of the violation since that time. Consequently, the six-year statute of limitations expired more than a decade ago, so plaintiff’s ERISA claims were barred. The judge further found that the complaint suggested no basis for equitable tolling of the limitations period, as it conceded that the alleged circumstances ended in 2013, and contained no claim that the plaintiff pursued his rights under ERISA with diligence between 2013 and the present. As the plaintiff failed to state a claim against either defendant, the judge dismissed the case with prejudice.