Reetz v. Lowe’s Companies, Inc., No. 5:18-CV-00075-KDB-DCK, 2021 WL 4771535 (W.D.N.C. Oct. 12, 2021) (Judge Kenneth D. Bell). 

This week’s notable decision is a surprising loss for participants in Lowe’s 401(k) pension plan against the plan’s investment manager, Aon Hewitt Investment Consulting, following class certification, success on summary judgment, and a multi-million-dollar, court-approved settlement with Lowe’s inside fiduciaries.   

Plaintiff Benjamin Reetz, a former Lowe’s employee and 401(k) plan participant, brought suit against Lowe’s, the administrative committee of the plan, and Aon, claiming numerous breaches of fiduciary duty with respect to Aon’s design and implementation of a new investment strategy and line-up for the plan. Following class certification, plaintiff’s claims against Lowe’s and the administrative committee were resolved through a class action settlement totaling $12.5 million. But the claims against Aon proceeded to a bench trial.

Lowe’s 401(k) plan is massive; with assets totaling $6.6 billion, and over 260,000 participants, it is among the largest plans in the country. Aon Hewitt, which succeeded its corporate predecessor, Hewitt Associates, had dual positions as both the plan’s investment consulting fiduciary and its investment manager. From 2009 to October 1, 2015, the plan’s investment menu consisted of twelve investment options, which included Lowe’s company stock, a series of target date funds, a stable value fund, a fixed income fund, and eight equity options. In October 2015, this all changed when Aon, with Lowe’s approval, restructured the investment menu, eliminated the eight equity options, and replaced them with its own brand-new Aon Growth Fund. All eight of the equity options were performing well when they were eliminated. Plaintiff argued that Aon breached its fiduciary duties by reducing the options available to participants, recommending and implementing a self-serving “cross-selling” effort, including and then failing to remove the Aon Growth Fund, which performed extremely poorly since its inception in 2015, and failing to ever consider selecting funds with a proven track record that were not affiliated with Aon. 

It was undisputed that Aon cross-sold its delegated investment management services to Aon’s existing consulting clients, including Lowe’s, by leveraging the Aon Hewitt brand. An internal presentation from December 2013 listed Aon’s direct contribution client base as one of the sales channels for Aon’s new funds and described defined contribution plans as a “new asset pool.” It was also established that Aon never considered any option other than the use of its own collective trust funds prior to making its investment decision. Aon’s entire strategy for growing its Growth Fund was to go after the larger clients first for the “many pluses” offered by these well-funded plans. Documents revealed that Lowe’s was listed as one of Aon’s “top opportunities.” Alongside the implementation of the Aon Growth Fund in October 2015, Aon also replaced the trustee for the plan’s collective trust with Aon Trust Company, an Aon affiliate. Both parties agreed that the Aon Growth Fund performed very poorly and that it was ranked at the bottom of its peer group based on returns since inception. Plaintiff’s damages expert, Dr. Becker, calculated four different loss models and calculated the losses to be between $58.9 to $277.1 million. Neither Aon nor the court challenged the accuracy of these findings. However, how the mostly undisputed facts were interpreted by all involved, including the court, was central to the resolution of the case. 

As an initial matter, the court concluded that Aon acted as a fiduciary in all its dealings with the plan. Thus, the court agreed with the plaintiff that Aon was subject to ERISA’s fiduciary duties of prudence and loyalty, not only in its role as an investment manager for the plan but also in its attempts to cross-sell its additional services to Lowe’s. The court nevertheless concluded that none of Aon’s conduct was either imprudent or disloyal. The court reasoned that ERISA doesn’t require plans to offer a large number of investment options or demand that plans offer any particular type of investment. The court also found that Aon’s advice to the administrative committee to change and limit the number of investment options was based on substantial research about participant confusion when presented with a large number of choices and therefore satisfied ERISA’s duty of prudence. Additionally, the court took no issue with Aon’s cross-selling conduct. To the judge, what mattered most was why Aon acted as it did. Given what the court referred to as the “totality of the circumstances,” the judge found that Aon did not have a disloyal operative motive in cross-selling its services. 

Aon’s selection and retention of its own Growth Fund gave the court more pause. With respect to plaintiff’s claims that Aon acted disloyally in using “the Lowe’s plan to ‘seed’ and legitimize its relatively new Growth Fund,” the court found that “[t]here can be little doubt that Aon was pleased to see a billion dollars of Lowe’s assets going into the Aon Growth Fund, which in turn allowed Aon sales employees and others to promote the fund more effectively to potential clients.”

However, the court concluded that these were simply the “inherent effects” of the selection of the fund, not the reason that Aon selected it. Instead, crediting testimony presented by Aon, the court concluded that Aon used the fund for the plan because it “believed it was the best long-term investment option for the plan.” The court likewise concluded that Aon did not act imprudently by selecting the fund, reasoning that it had principled reasons for believing the fund to be an appropriate investment for the retirement plan even as it did very poorly year after year, a troubling fact which the court dismissed as “hindsight.”

With respect to the prudence of retaining the fund in light of its poor performance, the court found it most significant that Lowe’s itself concluded that the fund would eventually prove itself. This finding is curious in light of the penultimate section of the decision in which the court assessed Aon’s comparative fault and “found that Lowe’s bears substantial responsibility for any damages” and “fell short of its responsibility to protect the Plan (which, of course, may well be reflected in the settlement of Plaintiff’s claims against Lowe’s and the Committee).” 

In the end, the court entered judgment in favor of Aon on all of plaintiff’s claims, but finding that there was support for plaintiff’s positions, the court ordered the parties to bear their own attorney’s fees and costs. A long and winding path to a puzzling conclusion. 

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


Eighth Circuit

Eisenberger v. DST Sys., No. 4:21-cv-09022, 2021 WL 4710820 (W.D. Mo. Oct. 8, 2021) (Judge Nanette K. Laughrey). If this decision seems familiar to any regular ERISA Watch readers, it’s because it is a duplicate of the notable decision from last week, this time with different plaintiffs. As with last week’s decision, the underlying dispute arose from DST’s failure to monitor and ensure the rebalancing of overly concentrated investments in its 401(k) plan, resulting in lawsuits from plan participants in Missouri. In these suits DST successfully argued in favor of compulsory arbitrations. Following that decision, DST sent out notices to all plan participants bound by the arbitration clause of the plan, explaining that each individual may initiate an arbitration proceeding by submitting a written request. Hundreds did so. A few years later, in the Southern District of New York, other DST beneficiaries brought their own suit. Unlike in Missouri, the New York court determined that the arbitration clause did not apply, and instead certified a class action of harmed participants. After years of arguing in favor of mandatory individual arbitrations, DST jumped ship and argued in favor of certifying mandatory class actions in ERISA fiduciary duty actions with the purpose of halting the arbitrations already underway. The plaintiffs in this case moved to confirm their arbitration awards, and did not wish to be part of the mandatory class certified in New York. Because of DST’s contradictory stances, the judge found judicial estoppel applied clearly in this case. Under the Federal Arbitration Act, the court is required to confirm the awards unless DST can make compelling arguments to the contrary. The judge determined DST made no such arguments. To the extent that this decision created a conflict with the Southern District of New York, the judge found this to be the fault of DST’s contradictory stances, not judicial error. Therefore, the judge once again granted the plaintiffs’ motion to confirm the arbitration awards.

Attorneys’ Fees

Ninth Circuit

Lewis v. Unum Life Ins. Co., No. CV-18-02191-PHX-SMB, 2021 WL 4726518 (D. Ariz. Oct. 8, 2021) (Judge Susan M. Brnovich). Plaintiff Larry Lewis filed suit after the denial of his long-term disability benefits by defendant Unum Life Insurance Company of America. Although the court rejected eleven of the twelve arguments alleging procedural irregularities in plaintiff’s earlier motion for summary judgment, Mr. Lewis did succeed in obtaining a remand, and on his motion to supplement the record, as Unum had failed to disclose a reviewing physician’s report after Mr. Lewis had requested it and had also failed to consider Mr. Lewis’ conditions in the aggregate. With this success, plaintiff moved for attorneys’ fees and costs. The judge found that plaintiff’s success to date entitled Mr. Lewis to an award of fees under Section 1132(g)(1). The judge next examined the five factors of: culpability, ability to satisfy an award, general deterrence, significant legal question, and relative success of the merits of each side. The court found that Unum did not act in bad faith, that Unum is able to satisfy a fee award, that an award of fees may deter Unum from failing to provide a physician report when requested, that this case does not resolve a significant ERISA question, and that the issues resolved in favor of plaintiff were significant. Weighing these factors, the judge found they favor an award of fees. As for the fees themselves, the judge examined their reasonableness as requested. First, the judge determined that plaintiff’s counsel should be awarded the hourly rates in their contract with the client of $450 per hour and $100 per hour respectively, not the higher $550 per hour and $175 per hour rates they sought to be awarded. As a result, the fee award was reduced by $44,721. For what the judge determined to be an unreasonable need for briefing a motion to strike, the judge further reduced the award by $3,861, and for clerical work performed the judge reduced the award by $3,412.50. Finally, plaintiff requested fees that amounted to 95% of the maximum payout, which the judge determined to be excessive. As a result, the judge further reduced the total by $50,000. In the end, plaintiff was awarded $259,276.50 in attorneys’ fees.

Breach of Fiduciary Duty

Tenth Circuit

Snider v. Administrative Committee, No. CIV-20-977-D, 2021 WL 4711691 (W.D. Okla. Oct. 8, 2021) (Judge Timothy D. DeGiusti). Plan participants of a defined contribution plan brought this ERISA suit against the administrators and fiduciaries of the Seventy Seven Energy Inc. Retirement & Savings Plan. Plaintiffs claim that defendants breached their fiduciary duty of prudence, duty to diversify stocks, and duty to monitor investments. Seventy Seven Energy was formed in a spinoff from Chesapeake Energy Corporation and was initially funded by a transfer of assets from Chesapeake’s plan including a substantial amount of Chesapeake common stock. In fact, the plan increased its investment of Chesapeake stock over the next three years, until the plan merged into another retirement plan with different fiduciaries. Essentially, the corporate spinoff caused the new pension plan to be heavily invested in the Chesapeake stock because it had effectively converted the former Chesapeake ESOP into the Seventy Seven Energy 401(k) plan. Plaintiffs alleged that the Chesapeake stock was risky and declining in value because Chesapeake shared the same business sector and maintained close ties to Seventy Seven Energy, and that no single-stock fund, even one performing well, is a prudent investment for a 401(k) plan. Defendants first argued that plaintiffs’ action was time-barred under the three-year actual knowledge standard. However, the judge disagreed, and found that unless discovery later proves otherwise there was no reason to believe plaintiffs had actual knowledge of the mismanagement. Defendants also moved to dismiss for failure to state a claim. Examining the first claim, breach of fiduciary duty of prudence, the judge was persuaded by plaintiffs’ argument that a defined contribution plan which only has the option for diversified investments, is not prudent in the way of a truly diversified plan. It should not be up to an individual intervening plan participant to make prudent investments and relieve a fiduciary of liability. Plaintiffs’ next claim, that defendant breached their duty to diversify investments, was also persuasive to the judge. In particular, the judge agreed with plaintiffs that the interplay between two single-stock funds, the legacy stock fund and the ESOP, which are in the same sector and are rising and falling together, supports a claim for breach of duty of diversification. The judge was further persuaded by the fact that more than 40% of the plan’s total assets were invested in Chesapeake stock, and that the plan’s investment in Chesapeake was greater even than the combined total of the plan’s next five largest holdings. Therefore, the judge denied the motion to dismiss the breach of duty of diversification claim. Finally, plaintiffs alleged that defendants breached a duty to monitor investments and remove the imprudent Chesapeake stock. The judge found that the duty to monitor claim is included in the duty of prudence claim as it is basically an extension of the duty to investigate. For this reason, the judge found that plaintiffs failed to state this claim independently, and defendants’ motion to dismiss the duty to monitor claim was granted. 

Disability Benefit Claims

Seventh Circuit

Nazifi v. Aurora Health Care Long Term Disability Plan, No. 15-cv-1464-bhl, 2021 WL 4710514 (E.D. Wis. Oct. 8, 2021) (Judge Brett H. Ludwig). Plaintiff Sedaet Nazifi was denied disability benefits by the claim administrator for defendant Aurora Health Care Long Term Disability Plan. After exhausting the administrative appeals process, Ms. Nazifi brought this suit under Section 502(a)(1)(B) of ERISA seeking judicial review of the claim administrator’s denial. Both parties moved for summary judgment. Ms. Nazifi suffered from severe lumbar problems. Her treating physician wrote, “Patient is, in my opinion, completely disabled from any meaningful employment because of the necessity to lay down for 15-30 minutes every hour in order to prevent severe and disabling back pain.” Along with doctors’ notes and a questionnaire, Ms. Nazifi included x-rays and a lumbar spine MRI in her disability application. Initially, under the 24 month “own occupation” definition of disability, Ms. Nazifi was granted long-term disability benefits. However, once the initial two years had passed and the definition of disabled under the plan became “any occupation,” Ms. Nazifi’s benefits were terminated. The claim administrator determined that Ms. Nazifi would be able to perform certain sedentary jobs. Her doctors disagreed, and wrote they believed she would “never” be able to return to any type of work. Under arbitrary and capricious review, the judge examined the reasonableness of the decision, whether the decision was based on relevant plan documents, and whether the administrator based the decision on a consideration of relevant factors. Ms. Nazifi argued that the claim administrator’s decision to terminate benefits was arbitrary and capricious because the record did not rationally support the denial, that she was not properly provided notice of the denial, and because she alleged a structural conflict of interest. Defendant countered that the claim administrator’s decision was supported by the objective medical evidence, and that they conducted a full review of the record. This, defendant claimed, was sufficient to satisfy the claim administrator’s burden, and that the denial was not “downright unreasonable.” The judge agreed with defendant that no one was arguing Ms. Nazifi was not disabled, only that she was not entitled to benefits under the “any occupation” definition of the plan, and that the claim administrator took all objective medical information into account when examining the claim. Also, the judge was not persuaded by Ms. Nazifi’s argument that the claim administrator failed to give due weight to her subjective pain symptoms. The judge found that because the plan makes clear that self-reported symptoms are not considered objective and do not establish eligibility, there was no negligence on the part of the claim administrator. Additionally, the judge determined that the claim administrator had provided Ms. Nazifi with proper written notice of the denial. Finally, the judge said that to the extent a structural conflict of interest does exist, it is irrelevant in determining whether a decision was arbitrary and capricious. Given all of this, the judge denied plaintiff’s motion for summary judgment and granted defendant’s motion for summary judgment. 

Ninth Circuit

Kopicko v. Anthem Life Ins. Co., No. 3:20-cv-01524-DMS-MDD, 2021 WL 4739281 (S.D. Cal. Oct. 5, 2021) (Judge Dana M. Sabraw). Plaintiff Jeffrey Kopicko filed this lawsuit against Anthem Life Insurance Company seeking an award of disability benefits from May 8, 2018 to March 24, 2019, as well as pre-judgment interest and attorneys’ fees and costs. Anthem argued that its benefit denial during the timeframe at issue was correct and moved for judgment in its favor. Mr. Kopicko sought long-term disability benefits for his mental health disorders including generalized anxiety disorder, major depressive disorder, and post-traumatic stress disorder. After originally denying Mr. Kopicko’s claim outright, Mr. Kopicko appealed and Anthem overturned its denial for the period of November 9, 2017, through May 7, 2018. For the period of May 8, 2018 through March 24, 2019, Anthem found that plaintiff was not disabled. However, Anthem found that Mr. Kopicko was once again disabled as of March 25, 2019, but that he did not have coverage at that time because he was not “actively at work” as defined by the plan. The judge found problematic Anthem’s opinion that Mr. Kopicko was not disabled from May 8, 2018, to March 24, 2019, but was again disabled on March 25, 2019. Comparing plaintiff’s mental status exams during his first period of disability, when he was awarded benefits, and the period in question here, when he was denied benefits, the judge found significant similarities. Where differences did appear, the judge determined Mr. Kopicko’s conditions appeared to be worsening throughout the later period. The judge was also unpersuaded by defendant’s argument that a lack of objective psychological testing suggested Mr. Kopicko was not disabled during this time, as psychiatric impairments are not measured in the same was as physical ailments. Considering all of this, the judge found plaintiff met his burden to show he was disabled under the policy from May 8, 2018, to March 24, 2019, and is entitled to an award of benefits. However, the judge felt she needed more clarity on whether plaintiff was entitled to recover benefits beyond March 24, 2019, and also on the amount of benefits plaintiff is owed and the rate of any prejudgment interest. The judge therefore requested supplemental briefing on these issues to clear up the uncertainties. 

ERISA Preemption

Ninth Circuit

Gabrielino-Tongva Tribe v. Stein, No. 2:21-cv-05871-MCS-DFM, 2021 WL 4811204 (C.D. Cal. Oct. 14, 2021) (Judge Mark C. Scarsi). The story of this case first began in 2006, when plaintiff, the Gabrielino-Tongva Tribe, filed a lawsuit against Johnathan Stein in state court for theft and defrauding the Tribe out of more than $20,000,000. Thirteen years later, in 2019, the Tribe obtained a judgment of $20,411,067.23 in compensatory damages and $7,000,000 in punitive damages against defendants. In addition, the court issued a 138-page statement of decision concluding that defendants had committed “many incidences of fraud,” which were “extensive.” The Tribe attested that since the trial, Stein engaged in a wide range of misconduct in order to avoid enforcement of the judgment, including suing the Tribe in this case in July of 2021. Plaintiff moved to remand this action to the Los Angeles County Superior Court, where the previous case and decision occurred. Defendants opposed the motion to transfer and filed a motion to consolidate this and the earlier related case before the court. Defendants claimed that the Tribe could not enforce the state court judgment via written levy instructions to the Los Angeles County Sheriff’s Department, invoking federal question jurisdiction concerning ERISA preemption. Defendants claimed that the levies located and restricted ERISA-protected plans, triggering preemption. They also claimed that California’s Enforcement of Judgments Law created irreconcilable conflicts with ERISA and Section 1132. The Tribe disagreed and asserted that the claims against defendants arose under state law causes of action, and the levies at issue were simply seeking to enforce the judgment on the state law claims. Therefore, they argued, the levies cannot confer federal jurisdiction under the well-pleaded complaint rule. The judge agreed with the Tribe that defendants’ argument about the levies facially asserting a federal claim under the well-pleaded complaint rule is “procedurally and factually improper.” Furthermore, the judge concluded that the Tribe’s complaint implicated neither part of the Davila test, as the Tribe was not an ERISA beneficiary, and the Tribe could not have brought any of their claims under ERISA. The Tribe’s request for remand was therefore granted by the judge. In addition, because the court found that defendants’ actions to date had been objectively unreasonable and that defendants had engaged in post-judgment misconduct, the court granted the Tribe’s request for attorney’s fees. Finally, the court denied as moot defendants’ alternative request to consolidate the Tribe I and Tribe II cases alleging that the wrongdoing in both actions relating to the levies reached the same ERISA-protected accounts and triggered the same federal questions. 

Exhaustion of Administrative Remedies

Eighth Circuit

Neering v. AT&T Umbrella Benefit Plan, No. 4:21-00057-CV-RK, 2021 WL 4760378 (W.D. Mo. Oct. 12, 2021) (Judge Roseann A. Ketchmark). Plaintiff Keri Wills Neering brought suit against defendant AT&T Umbrella Benefit Plan for denying her claim for short-term disability benefits. In plaintiff’s amended complaint, Ms. Neering added that she seeks “to secure all disability benefits, whether they be described as short term, long term and/or waiver of premium claims to which Plaintiff is entitled under a disability insurance policy underwritten and administered by Defendant.” Defendant moved to partially dismiss plaintiff’s amended complaint for failure to exhaust administrative remedies as required under an ERISA benefits plan for these additional benefits. The judge agreed that Ms. Neering failed to exhaust administrative remedies before asserting the unexhausted claims in federal court. Therefore, the judge approved defendant’s unopposed Rule 12(b)(6) motion to dismiss the allegations and claims for benefits from the plan other than the short-term disability benefit claims.

Life Insurance & AD&D Benefit Claims

Eleventh Circuit

Pottayil v. Thyssenkrupp Elevator Corp., No. 1:17-CV-4431-RWS, 2021 WL 4804361 (N.D. Ga. Oct. 12, 2021) (Judge Richard W. Story). Plaintiffs Farzana Shihabudheen and her children Faheem and Sameeh Pottayil seek supplemental life insurance benefits from defendants Thyssenkrupp Elevator Corporation and Hartford Life and Accident Insurance Company. From February 2009 until his death in April 2016 Mr. Pottayil was an employee of Thyssenkrupp. In March 2009, Mr. Pottayil enrolled in the supplemental group life insurance plan and designated his wife and children as his beneficiaries under the plan. Originally, Mr. Pottayil selected supplemental life insurance coverage in an amount equal to his annual earnings. In 2013, during open enrollment, Mr. Pottayil upgraded his supplemental life insurance coverage to an amount equal to five times his annual earnings. From 2013 until his death, Thyssenkrupp deducted the higher premiums from Mr. Pottayil’s salary every month for the supplemental life insurance coverage for this upgraded policy equaling five times the annual salary. Following Mr. Pottayil’s death, plaintiffs made a claim for $848,000, the amount equal to five times the annual earnings. Hartford approved the claim, but only for $170,000 – equal to the amount of Mr. Pottayil’s annual earnings. The remaining $678,000 in benefits was denied on the ground that plan documents required Mr. Pottayil to submit evidence of insurability to increase his supplemental life insurance coverage. The plan also stated, “if Your Evidence of Insurability is not satisfactory to Us, the Amount of Life Insurance You had in effect on the date immediately prior to the date You requested the increase will not change.” It was also clearly written that Hartford has “full discretion and authority to determine eligibility for benefits.” Defendants moved for summary judgment. Plaintiffs argued the denial was improper and that Thyssenkrupp failed to supply required plan documents. Although Thyssenkrupp’s document production was 58 days late, the judge did not find this delay warranted the imposition of a penalty as Thyssenkrupp acted in good faith, plaintiffs sought a wide-ranging request of documents, and Thyssenkrupp’s action did not prejudice plaintiffs. Applying the de novo standard, the court also found that Hartford’s benefits denial was not wrong as the plan language unambiguously required Mr. Pottayil to submit an evidence of insurability form to apply for an increase in supplemental life insurance coverage. As there was no evidence that Mr. Pottayil submitted this required document, no additional plan benefits were payable. Therefore, defendant Thyssenkrupp’s motion for summary judgment and defendant Hartford’s motion for judgment were granted. 

Medical Benefit Claims

Fourth Circuit

Blenko v. Cabell Huntington Hospital Inc., No. 3:21-0315, 2021 WL 4721067 (S.D.W.V. Oct. 8, 2021) (Judge Robert C. Chambers). Plaintiffs are retired employees of Cabell Huntington Hospital who were participants in a health care plan that was recently terminated. Plaintiffs claim that oral promises of lifetime benefits meant that these benefits vested. Defendant argued that because the governing plan document contained an unambiguous reservation of rights clause, it was entitled to change or eliminate benefits under the plan at any time. Plaintiffs moved for a class-wide preliminary injunction to prevent the elimination of the plan. The judge reasoned that the plaintiffs were not likely to succeed on the merits because oral promises cannot overcome unambiguous written terms. This was despite the fact that plaintiffs had no access to the governing plan documents and were never given summary plan descriptions. Because the court concluded that there was no likelihood of success on the merits the judge denied the motion for preliminary injunction. 

Lowery v. American Roller Group Health Plan, No. 0:21-1567-MGL, 2021 WL 4806502 (D.S.C. Oct. 14, 2021) (Judge Mary Geiger Lewis). Plaintiff Carlton Lowery was employed by American Roller Company and was provided health insurance coverage through the American Roller Group Health Plan. In September and October of 2019 Lowery received medical treatment and submitted the claims to the plan administrator. The denial Lowery received failed to include the specific reasons for the denial, failed to cite the specific plan terms that were the basis for the denial, and failed to advise Lowery of what he needed to do or needed to submit to appeal his denial. Lowery then filed this ERISA suit against defendant American Roller Group Health Plan for this denial which violated his rights and to receive the medical benefits he was denied. Defendant failed to file an answer to the complaint. The judge found Lowery established his claim under ERISA and that his arguments were well-pleaded and supported the relief sought. American was found to be liable to Lowery for damages caused by its ERISA violation. Further, through Lowery’s supplemental filing detailing his damages, the judge ascertained the sum to be $156,351.85 and found American liable for that amount. Lowery was also found to be entitled to an award of attorney’s fees and costs, which will be addressed in a separate future order.

Ninth Circuit

N.F. v. Premera Blue Cross, No. C20-0956-JCC, 2021 WL 4804594 (W.D. Wash. Oct. 14, 2021) (Judge John C. Coughenour). Plaintiff M.R. brought this ERISA suit against her employer Microsoft Corporation, its employee welfare plan, and its administrator, Premera Blue Cross, for denying her daughter N.F.’s coverage for in-patient treatment at the Solacium Sunrise Residential Treatment Center for her mental health and substance use disorders. Premera based its denial on the definition of “medically necessary” provided in the employee welfare plan. According to the plan language, treatment is “medically necessary” if it is “appropriate for the medical condition as specified in accordance with authoritative medical or scientific literature and generally accepted standard of medical practice…(which) are based on credible scientific evidence published in peer-reviewed medical literature that is generally recognized by the medical community.” In its denial, Premera relied on the InterQual Child and Adolescent Psychiatry review criteria. According to these criteria, for residential care to be medically necessary, patients need to display symptoms of disruptive behavior, self-harming behavior, and additionally display a lack of function. Facilities needed to provide a suite of therapeutic services at regular intervals, have weekly psychiatric evaluations, daily clinical assessments, and therapy sessions at least three times per week. N.F. did not display the obligatory symptoms and Sunrise did not provide all the required services. Plaintiff argued that Premera’s use of the InterQual criteria was an abuse of discretion, as it was not explicitly incorporated into the plan. Disagreeing, the judge found the summary plan document’s refences to “evidence-based guidelines” sufficient to incorporate the InterQual criteria into the plan. Plaintiff also argued that the medically necessary standard provided by the InterQual criteria was more stringent than what was provided in the plan language. The judge again disagreed and found the criteria to be more specific but not more stringent. Lastly, plaintiff argued that the denial failed to consider N.F.’s dual diagnosis of mental health disorders and substance use disorder. The judge pointed to a psychological report which indicated that N.F. stated she now wants “nothing to do with” drugs as evidence that Premera considered N.F.’s substance use disorder in its denial. For these reasons, the judge found the continued care at Sunrise was not medically necessary as defined by the plan and it was not arbitrary or capricious for Premera to deny coverage. Also, because the case involves the medical information of a minor, the judge granted defendants’ motion to seal. Defendants’ motion for summary judgment on all of the claims contained in plaintiff’s complaint was granted, and plaintiff’s motion for summary judgment was denied. 

Tenth Circuit

Christine S. v. Blue Cross Blue Shield, No. 2:18-cv-00874-JNP-DBP, 2021 WL 4805136 (D. Utah Oct. 14, 2021) (Judge Jill N. Parrish). Plaintiffs are Christine S. and James A., the parents of their minor son T.A. Plaintiffs sought care for T.A.’s severe mental health conditions at two successive residential treatment centers, Elevations in Utah and Cherry Gulch in Idaho, following several suicide attempts and other violent self-harming behaviors. Defendants denied much of the coverage of benefits under the group health benefit plan. Plaintiffs seek to recover medical benefits totaling $234,000 for T.A.’s treatment and claim that defendants, Blue Cross Blue Shield of New Mexico and the Los Alamos Security Health Plan, violated the Mental Health Parity and Addiction Equity Act in denying the claims. Both parties moved for summary judgment. Blue Cross authorized coverage for eighty-one days of treatment at Elevations and denied benefits for the remaining sixty-three days of T.A.’s stay there. Blue Cross also paid for the first eight days of treatment at Cherry Gulch, then denied benefits for the remainder of that stay. Blue Cross used the Milliman Care Guidelines in its benefit determinations. Throughout T.A.’s stays at both facilities, treating physicians were concerned with his “head banging, serious suicide attempts, cutting behaviors, and behavioral disturbance.” In fact, while at the second in-patient treatment facility, Cherry Gulch, T.A. attempted to jump off a bridge and was subsequently placed on 24-hour suicide watch. This occurred during a period of time Blue Cross deemed T.A. fit for lower levels of care and denied benefit payments. Also problematic with the denial is the undisputed fact that Blue Cross failed to consider the letters written by T.A.’s treating physicians submitted by the family. However, the judge was satisfied that during the denial periods, T.A. was “adequately stabilized…(and) T.A.’s functional status was acceptable” for T.A. to receive lower levels of less-expensive care. Even under de novo standard of review, the judge upheld the denials as appropriate and found plaintiffs failed to carry their burden of proving the treatment outside the covered periods was medically necessary. As for the Mental Health Parity Act violation, the judge agreed with plaintiffs that Blue Cross had different standards for medical necessity for mental health care and other medical care. Medical/surgical care had to be the “most appropriate” whereas mental health care had to be provided “at the least restrictive level of care” and medical/surgical care had to be “known to be effective in improving health outcomes” whereas mental health care had to be “expected to result in significant and sustained improvement.” The judge agreed with plaintiffs that these differences ran afoul of the Parity Act, but brushed aside this violation by concluding that there was no issue of material fact as to whether the violative language contributed to the benefit denial. Accordingly, the court granted defendants’ motion for summary judgment and denied plaintiffs’ motion for summary judgment.  

Pension Benefit Claims

Fourth Circuit

Clark v. Stanley Furniture Co., No. 4:20-cv-00063, 2021 WL 4787280 (W.D. Va. Oct. 14, 2021) (Judge Thomas T. Cullen). Plaintiffs are retired Stanley Furniture Company business executives. Decades ago, Stanley Furniture allowed executives to defer compensation. These deferrals accrued high interest on beneficial tax terms. Stanley Furniture and Stone & Leigh, which owns an interest in Stanley and is responsible for some of these deferred compensation payments, began missing payments, and ultimately stopped payments. Plaintiffs requested that payments resume, and when that failed, brought this ERISA suit demanding benefit payments, as well as declaratory judgment ensuring their future payments, prejudgment interest, and attorney’s fees. The parties agreed that plaintiffs are each entitled to deferred compensation under the plans and the parties agreed on how much each plan owed its respective beneficiaries. Payments individually owed to date range from $10,000 to $82,150 and total $603,940.61. However, Defendants argued that the plain language of the plans empowers them to curb benefits during finically stressed times, and further argued that the COVID-19 pandemic has made it impossible for them to perform their contractual obligations under the plans. According to unambiguous plan language, the judge concluded that payments could be stopped or delayed only under bankruptcy or changes of tax policy, and not for the period of downturn caused by COVID-19. Defendants also argued that Virginia’s COVID shut-down orders limited their business opportunities and made payments of the deferred compensation impossible. Virginia’s orders made performance more difficult but did not excuse performance, and thus the judge found there to be no genuine dispute of material fact with regard to defendants’ impossibility defense. Summary judgment in favor of the plaintiffs on their benefits claims was therefore granted. In addition, the judge found this an appropriate case for declaratory relief to ensure plaintiffs’ future monthly benefits will be paid going forward. The judge was also persuaded by plaintiffs’ argument that prejudgment interest was appropriate because defendants had deferred income precisely to take advantage of interest rates in the meantime. The court awarded plaintiffs Virginia’s set prejudgment interest rate of 6%. However, the judge denied plaintiffs’ request for attorney’s fees, as only one of the five Quesinberry factors – the relative success on the merits – weighed in favor of the plaintiffs.

Seventh Circuit

Nelson v. North Central States Regional Council of Carpenters Pension Fund, No. 20-cv-585-wmc, 2021 WL 4775424 (W.D. Wis. Oct. 13, 2021) (Judge William M. Conley). On September 16, 2021, the judge entered an order finding that Todd Nelson was entitled to unreduced early retirement benefits. North Central moved for reconsideration. First, North Central argued that the court should remand the case to the plan trustees to interpret the plan language and change the standard of review from de novo to arbitrary and capricious. The judge decided that de novo review was warranted here because defendant never made a timely decision on plaintiff’s right to unreduced early retirement benefits, and the review panel failed to act on his claim when appealed. This, the judge determined, was a clear-cut case where “the record contains more than sufficient information to confirm that Nelson meets all of the Plan’s substantive requirements for benefits,” and a direct award of those benefits was therefore warranted. Defendant’s next argument, that plaintiff needed to complete an additional fill-in-the-blank form in his application for benefits, was also rejected by the judge who found it to be unworthy of a fiduciary and a rehash of a previously rejected argument. Defendant finally argued that the unreduced early retirement benefits should be limited to the time period beginning in October 2019, rather than August 2017. The judge ruled that this argument was waived because defendant never raised it before. Defendant’s motion for reconsideration was denied for these reasons and final judgment was entered against it. 

Pleading Issues & Procedure

Second Circuit

Thompson v. Morris Heights Health Center, No. 21-CV-1886 (LTS), 2021 WL 4776236 (S.D.N.Y. Oct. 12, 2021) (Judge Laura Taylor Swain). Plaintiff Dionne Thompson brought this suit under ERISA and Title II of the Americans with Disabilities Act. Plaintiff claims that defendants wrongfully terminated her long-term disability benefits and failed to comply with plaintiff’s document requests. Plaintiff had previously sued many of these same defendants in 2011, alleging that they violated ERISA in determining benefits eligibility. The judge found plaintiff’s new claims and issues to be precluded because plaintiff had brought identical claims unsuccessfully in 2011. Therefore, the court dismissed plaintiff’s complaint for failure to state a claim and declined to grant plaintiff leave to amend.

Sixth Circuit

Aldrige v. Regions Bank, No. 3:21-CV-00082-DCLC-DCP, 2021 WL 4718489 (E.D. Tenn. Oct. 8, 2021) (Judge Clifton L. Corker). Plaintiffs are former Ruby Tuesday employees and beneficiaries of Ruby Tuesday’s nonqualified retirement benefits plan, executive supplemental pension plan, and management retirement plan, who brought this ERISA suit, including state law claims, against defendant Regions Bank. In 2017, NRD Capital purchased Ruby Tuesday, triggering a “change of control” clause in the trust agreement, which allowed Regions Bank to “exercise its own independent judgment and take certain actions independent of direction from Ruby Tuesday.” The trust agreement also required Ruby Tuesday to fund the plans fully, and empowered Regions Bank, as trustee, to take any legal action to enforce Ruby Tuesday’s obligations under the agreement. Plaintiffs alleged that Ruby Tuesday never funded the trust after the change of control and Regions Bank failed to enforce the terms of the trust agreement requiring Ruby Tuesday to fund the trust. They also alleged that Regions Bank failed to distribute the trust’s assets in lump sum distributions to the participants and failed to notify members of the plans of their rights to said distributions. Then, in fall of 2020, Ruby Tuesday filed for bankruptcy. Plaintiffs asserted that, through Regions Bank’s actions, they did not receive the benefits to which they were entitled under the plans before the liquidation and termination of the trust. Regions Bank moved to transfer this case to the District of Delaware for referral to the bankruptcy court in that district. It argued that the bankruptcy court exercised jurisdiction over the present suit because this case is related to Ruby Tuesday’s bankruptcy proceeding in Delaware. Plaintiffs countered that venue is proper in Tennessee because Regions Bank’s actions occurred in Tennessee, and that this suit is not sufficiently related to the bankruptcy proceeding in Delaware to confer subject matter jurisdiction on that court. The judge denied the motion to change venue because plaintiff’s ERISA claim arises under Title 29 rather than under Title 11, and thus Section 1412 does not apply. Regions Bank also moved to dismiss plaintiff’s state-law claims, arguing ERISA preemption. Plaintiffs asserted that their state-law claims do not fall within categories of claims that are preempted because the trust is a funding mechanism and not an “employee benefit plan” as defined by ERISA. They also argued that the plans are not subject to the fiduciary provision of ERISA because they are top-hat plans. Finally, they argued that their state-law claims do not seek benefits under an ERISA plan, and there is no need to scrutinize the terms of the plans for any of their state-law claims. The judge disagreed with plaintiffs’ arguments. The state-law claims, the judge determined, are related to ERISA, and relief provided by ERISA is the only relief available to plaintiffs. Because the state-law claims would create an alternative enforcement mechanism they were determined by the judge to be expressly preempted under Section 1144. Thus, Regions Bank’s partial motion to dismiss was granted and plaintiff’s state-law claims were dismissed with prejudice.

Hundley v. Henry Ford Health System, No. 21-11023, 2021 WL 4775356 (E.D. Mich. Oct. 13, 2021) (Judge Sean F. Cox). In this putative class action, plan participants allege that Henry Ford Health System and related defendants breached their fiduciary duties of loyalty and prudence and failed to adequately monitor other fiduciaries in their retirement plan. Defendants moved to stay proceedings until after the Supreme Court decides Hughes v. Northwestern University. The Hughes decision will address the pleading standard plaintiffs must satisfy to state a cognizable claim in an ERISA class action alleging excessive fees. The Supreme Court is scheduled to hear Hughes on December 6, 2021 and will issue its decision before the end of the term in June 2022. Plaintiffs argued that they would be prejudiced by a lengthy stay and that the stay would prevent them from moving the case past the initial pleadings and severely delay securing evidence needed to procced to trial. Plaintiffs also argued that they will continue to incur excessive fees throughout the duration of the stay. Defendants contend that Hughes will settle a key issue that has direct bearing on this case and that entering a stay would promote judicial economy and reduce litigation costs. The judge found that even if the stay motion were denied, it would be unlikely that the court would issue a decision on defendant’s motion to dismiss, which has not even been filed yet, before the Supreme Court issued its decision in Hughes. Thus, the judge was unpersuaded that a stay would cause overly burdensome delays for plaintiffs. In addition, the judge found plaintiffs’ second argument about continuing to incur excess fees unpersuasive as damages to each participant would only be hundreds of dollars and if plaintiffs ultimately succeed in their case, they can recover any additional losses accrued during the stay through a greater judgment. Consequently, the judge concluded that any delay caused by the stay is outweighed by the inequity of litigating issues soon to be decided by the Supreme Court. For this reason, the motion was granted and proceedings in this case are stayed pending the Hughes decision.