Prolow v. Aetna Life Ins. Co., No. 20-80545-CIV-MARRA, 2022 WL 263165 (S.D. Fla. Jan. 27, 2022) (Judge Kenneth A. Marra).
This week’s notable decision represents a significant victory – one of the first of its kind – in emerging litigation challenging denials of coverage for Proton Bean Radiation Therapy for cancer patients. Tim Rozelle of Kantor & Kantor has been at the forefront of this effort and he and my colleagues Anna Martin and Elizabeth Green provided ERISA consulting for the attorneys from Colson Hicks Eidson and Kozyak Tropin & Throckmorton who represent Plaintiffs Sharon Prolow and Mark Lemmerman in this matter.
Ms. Prolow and Mr. Lemmerman are cancer patients who are participants in ERISA healthcare plans insured by defendant Aetna Life Insurance Co. They brought this case both as one for individual benefits under their plans and as a putative class action alleging that Aetna wrongfully denied them and other similarly situated plan participants coverage for Proton Beam Radiation Therapy.
In this type of radiation therapy, small protons are deposited on a targeted area of the tumor with no radiation going beyond that point onto healthy tissue. As Mr. Lemmerman’s treating oncologist put it, “radiation is a known toxin and there is no benefit whatsoever to depositing radiation in tissue uninvolved with cancer.” Given that Proton Beam Radiation Therapy avoids this problem by more precisely targeting the radiation, it is recommended and used to treat tumors located near vital organs. The United States Food and Drug Administration approved the treatment in 1988. In contrast to traditional radiation therapy, patients receiving Proton Beam Radiation Therapy can “tolerate higher total doses of radiotherapy,” and also suffer from fewer heart-related and other side effects.
Despite the treatment’s great advantages and long standing FDA approval, Aetna considers Proton Beam Radiation Therapy “experimental and investigational” for the treatments of most cancers, including breast cancer, from which Ms. Prolow suffers, and only considers it to be a “medically necessary” treatment for children under 21 with tumors of the brain, spine, and eye. With regard to prostate cancer, from which Mr. Lemmerman suffers, Aetna stated in its denial letter that Proton Beam Radiation Therapy “not medically necessary … because it has not been proven to be more effective than other radiotherapy modalities,” even more frankly noting, “it is not considered medically necessary per plan language because it is more costly compared to (traditional radiation therapy).”
Before the court was plaintiffs’ motion for partial summary judgment. Plaintiffs argued that a de novo standard of review was applicable, because the plans do not confer discretionary decision making authority to Aetna. In addition, plaintiffs argued that under either de novo or arbitrary and capricious review, the conclusion should be the same: Aetna’s denials of their claims were unreasonable and not supported by substantial evidence. Aetna also moved for summary judgment seeking a determination that the deferential arbitrary and capricious review standard applies, and that, under this standard, the denials were reasonable and supported by evidence in the administrative record. The court granted plaintiffs’ summary judgment motion and denied Aetna’s.
First, the court found the benefit denials de novo wrong. The court found Aetna acted improperly in relying on its own guidelines instead of applying the plan’s simple requirement that coverage be “medically necessary.” As to whether Proton Beam therapy should be considered medically necessary, the court wrote, “there is no meaningful dispute that recommendations of Drs. Fagundes and Gasoriek [plaintiffs’ treating physicians] reflected prudent and reasonable clinical judgments which were consistent with ‘generally accepted standards of medical practice’ as that concept is defined in both Plans.” Limiting its consideration to the rationale offered by Aetna in the denial letters, the court held in Mr. Lemmerman’s case that Aetna’s reliance on “superior efficacy” over “medically necessity” was de novo wrong. In Ms. Prolow’s case, the court held that Aetna could not include additional reasons to deny her coverage beyond the reason given in the initial denial letter, which simply stated that “clinical studies have not proven that the procedure is effective for treatment of member’s condition.” In fact, studies, including those provided by Ms. Prolow’s oncologist during the internal appeals process, establish that Proton Beam Radiation Therapy is effective for the treatment of breast cancer. Therefore, Ms. Prolow’s denial was also found to be de novo wrong.
Under the somewhat counterintuitive method mandated by the Eleventh Circuit, the court then addressed the applicable standard of review, an issue that turned on whether the governing plan documents gave Aetna discretionary decision making authority. The court first determined that administrative service agreements between the plans and Aetna did not qualify as plan documents for purposes of the analysis because these documents were neither intended to govern participant rights nor were they available to plan participants. The court then found that the actual plan documents did not grant discretion to Aetna, rejecting Aetna’s argument that the mere conferral of decision making authority was enough to warrant deferential review under Firestone. The court therefore concluded that de novo review was warranted and, having already determined that the denials were de novo wrong, ordered that damages be paid to the two named plaintiffs and the case proceed to the class certification stage and trial on the remaining issues.
An excellent decision to start the year of the tiger off with a roar.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Johnson Controls Sec. Sols. v. Int’l Bhd. of Elec. Workers, Local 103, No. 21-1460, __ F. 4th __, 2022 WL 262963 (1st Cir. Jan. 28, 2022) (Before Circuit Judges Lynch, Kayatta, and Barron). In April of 2020, Johnson Controls Security Solutions, LLC reduced the matching contributions to its 401(k) Plan it was required to make under a collective bargaining agreement with the International Brotherhood of Electrical Workers, Local 103 Union, which represents Johnson Controls employees. Also included in the collective bargaining agreement is an arbitration clause. Per the clause, grievances involving the Union and the employer, “limited to the interpretation and application of any specific provision of this Agreement … may be submitted, by the Union to arbitration.” After Johnson Control denied the Union’s submitted grievance, the Union filed a demand for arbitration with the American Arbitration Association. An arbitrator was appointed and declined to stay the arbitration absent a court order. Johnson Controls then filed an instant lawsuit in the District of Massachusetts seeking judgment that the dispute is not arbitrable under the collective bargaining agreement. The district court found just that, prompting the Union to appeal that judgment. On appeal, the First Circuit reversed. The court of appeals held that because the collective bargaining agreement contained an arbitration clause there was a presumption of arbitrability. The court reasoned that “Johnson Controls has presented no evidence at all to rebut the presumption of arbitrability. Nothing in the record ‘shows the parties intended to exclude this type of dispute’ over the meaning of a provision in the CBA ‘from the scope of the arbitration clause.’” Accordingly, First Circuit found the dispute arbitrable and reversed the district court’s decision holding to the contrary.
Breach of Fiduciary Duty
Walsh v. Allen, No. 3:17-cv-784-BJB, 2022 WL 256312 (W.D. Ky. Jan. 26, 2022) (Judge Benjamin Beaton). The Secretary of Labor filed suit against Sypris Solutions ,Inc. for violating the terms of its retirement plans and breaching fiduciary duties with regards to the treatment of forfeitures. Problems arose when Sypris began using forfeitures from the accounts associated with departed employees to offset the matching contributions Sypris pledged to the accounts of covered plan participants. Thus, “rather than the company paying the plans’ expenses, Sypris deducted the expenses from the participants’ accounts.” After the parties filed cross motions for summary judgment, the Magistrate Judge filed a report and recommendation granting defendants’ motion for summary judgment and denying the Secretary’s. The Secretary objected to the findings that: “(1) the forfeiture provisions are ambiguous; (2) the Plans gave the Administrator discretion to interpret those ambiguous provisions; and (3) – (4) the Court should review the Administrator’s discretionary interpretation under an arbitrary-and-capricious standard of review.” The district court agreed with the Secretary that the forfeiture provisions were not ambiguous. According to the relevant provision “Forfeitures will be used to pay Plan expenses.” The court agreed with the Secretary that “will” here is an unambiguous mandatory commitment.” The court went on to ask the rhetorical question, “why have a forfeiture provision at all, if the employer still can do whatever it wants with these sums?” The court held the remaining objections for resolution after a hearing to clarify the parties’ positions in order to resolve the underlying ERISA claims and decide if Sypris’ actions were a breach of fiduciary duties.
Hensiek v. Bd. of Dirs. of Casino Queen Holding Co., No. 3:20-cv-377-DWD, 2022 WL 263321 (S.D. Ill. Jan. 28, 2022) (Judge David W. Dugan). Plaintiffs are former Casino Queen Hotel & Casino employees. Throughout 2012 and 2013, the owners of this riverboat gambling house sold the casino and its assets via a shady ESOP deal that plaintiffs alleged breached fiduciary duties and constituted a prohibited transaction. To effectuate the deal, the owners created a holding company and then an ESOP to purchase 100% of the holding company’s stock. The ESOP did just that for the sum of $170 million, which plaintiffs claimed was an intentionally inflated price based on exaggerated financial projections. Then the ESOP sold Casino Queen’s real property for $140 million to Gaming and Leisure Properties (“GLPI”). “The Holding Company then agreed to enter into a ‘triple net lease agreement’ to lease the same property back from GLPI for $210 million over 15 years.” According to the complaint, the real property’s tax-assessed value when it was sold to GLPI was approximately $12.1 million. None of these transactions are what the expression, “the house always wins” is meant to describe. Plaintiffs also alleged that defendants engaged in a concerted effort to conceal this wrongdoing by misrepresenting the terms of the ESOP transaction in annual filings with the Department of Labor and by providing the ESOP participants with these inaccurate annual statements. Defendants moved to dismiss. In moving to dismiss the complaint, defendants first argued that plaintiffs’ claims were time-barred by ERISA’s statute of limitations. The court disagreed, finding the “fraud or concealment” exception applicable based on plaintiffs’ complaint. Accordingly, the six-year clock only began to run in 2019, when plaintiffs first discovered defendants’ breaches. Defendants next argued that plaintiffs did not plausibly allege the ESOP paid more than adequate consideration for the holding company’s stock. This argument was deemed appropriate for resolution at a later state of litigation, not as appropriate grounds for dismissing a complaint. Finally, defendants argued that they cannot be liable under ERISA for the real property transaction because it did not involve their roles as fiduciaries. To the contrary, the court found that the actions alleged in the complaint were fiduciary duties and that plaintiffs appropriately stated a claim for breach of fiduciary duties in relation to the real property transaction. Accordingly, the court found that plaintiffs’ complaint satisfied notice-pleading standards, and denied the motion to dismiss.
Disability Benefit Claims
Johnson v. Ballad Health & Reliance Standard Life Ins. Co., No. 2:21-cv-50, 2022 WL 214488 (E.D. Tenn. Jan. 24, 2022) (Judge Travis R. McDonough). This action was brought by plaintiff Alicia Johnson against Reliance Standard Insurance Co. and her former employer, Ballad Health, for wrongful denial of long-term disability benefits. Ms. Johnson worked for Ballad as a physical therapist and was a participant in an ERISA long-term disability benefits plan administered by Reliance. On January 14, 2020, Ms. Johnson filed for disability benefits due to loss of vision caused by Stargardt’s Disease. Ms. Johnson was granted benefits, but Reliance determined that her gross monthly benefit was for sixty percent of her covered monthly earnings. Ms. Johnson appealed this amount, claiming she was entitled to payments equaling 100% of her monthly earnings under the plan terms as she had selected. Reliance denied Ms. Johnson’s appeal, leading to this suit. All parties filed motions for judgment on the administrative record. The court granted Reliance’s motion, denied Ballad’s motion, and granted in part Ms. Johnson’s motion. Under an arbitrary and capricious review standard, the court determined that although Ms. Johnson’s reading of the plan options was by no means unreasonable, Reliance did not act arbitrarily and capriciously in deciding she was only entitled to long-term disability benefits worth sixty percent of her monthly earnings. Ms. Johnson, however, fared better with regard to her breach of fiduciary duty claim against Ballad. The court held, “the plan description in this case included language that misled Johnson into reasonably believing that by selecting buy-up coverage she would be entitled to long-term disability benefits calculated based on 100% of her covered monthly earnings.” Through this misleading language, a participant could not sufficiently understand their benefit options. Thus, regardless of whether the confusing representations were made intentionally, Ballad was determined to have breached its duty under ERISA. Therefore, Ballard’s motion for judgment was denied. On this count, Ms. Johnson’s motion was granted, and the court entered judgment requiring Ballad to pay Ms. Johnson disability benefits equaling 100% of covered monthly earnings from March 14, 2020 to January 24, 2022.
McCurry v. Kenco Logistics Servs., No. 19-cv-4067, 2022 WL 198889 (N.D. Ill. Jan. 21, 2022) (Judge Sharon Johnson Coleman). Plaintiff Edith McCurry, acting pro se, brought suit against her former employer Kenco Logistics Services, LLC alleging ERISA violations, and employment discrimination in relation to the delay and ultimate termination of her disability benefits. Ms. McCurry was a participant in both short-term and long-term disability policies through Kenco, which were administered by Hartford Life & Accident Insurance Company. In January of 2015, Ms. McCurry claims she was unable to return to work due to medical conditions and began receiving disability benefits. Although her benefits continued, “well after her employment ended with Kenco in March 2015,” Ms. McCurry alleges that she experienced interruptions in her benefits. According to the plans, Hartford Life was the plan’s fiduciary and had the sole discretion to determine eligibility for benefits and interpret the terms of the policies. Defendant Kenco moved for summary judgment, which the court granted. First, as there was unrebutted evidence that Kenco did not influence Hartford’s decisions pertaining to Ms. McCurry’s disability benefits, and as Hartford was the sole decisionmaker and plan administrator, the court held that Kenco could not be held liable for any improper decisions Hartford made in relation to Ms. McCurry’s benefits. Thus, Ms. McCurry’s Section 502(a)(1)(B) claim against Kenco failed. The same was true for Ms. McCurry’s employment discrimination claims. As the court did not hold Kenco responsible for the disruption and delay of Ms. McCurry’s disability benefits, and because no other adverse employment actions were taken against Ms. McCurry, the court found Ms. McCurry’s discrimination claims “untenable.” Accordingly, the court granted Kenco was granted summary judgment on all claims, and terminated the case.
In re G.E. ERISA Litig., No. 1:17-cv-12123-IT, 2022 WL 247719 (D. Mass. Jan. 26, 2022) (Judge Indira Talwani). Participants in the General Electric Company’s (“G.E.”) 401(k) plan brought suit alleging breaches of fiduciary duties and prohibited transactions committed by G.E. and related entities and individuals. Plaintiffs moved to compel documents relating to G.E.’s sale of GE Asset Management Inc. (“G.E.A.M.”), which G.E. withheld citing attorney-client privilege. Plaintiffs argued that defendants failed to meet their burden of demonstrating that the documents pertain to legal advice rather than business advice. They also argued that defendants waived any privilege by sharing the documents with a third-party Credit Suisse financial advisor. Finally, plaintiffs contend that documents relating to plan administration fall within the fiduciary exception to attorney-client privilege. Defendants asserted that all documents were properly withheld and are attorney-client privileged, and that the involvement of the third-party advisor was necessary for the legal advice and thus did not waive said privilege. Defendants’ final argument was that all withheld documents fall outside the fiduciary exception as they involved advice and activities that are settlor in nature. As a whole, the court found defendants’ attorney-client privilege exception log overly vague with pertinent details omitted. Therefore, the court granted plaintiffs’ motion in part and ordered defendants to comply with plaintiffs’ requests and/or to revise their privilege log clarifying and expanding on the bases for withholding the documents.
King v. Glenn O. Hawbaker, Inc., No. 4:21-CV-01033, 2022 WL 264877 (M.D. Pa. Jan. 27, 2022) (Judge Matthew W. Brann). Plaintiff James C. King filed a complaint in 2021 in Pennsylvania state court against his employer Glenn O. Hawbaker, Inc. alleging the company did not pay wages owned to King and other employees from 2015 to 2018. Hawbaker promised its employees that they would comply with the Pennsylvania Prevailing Wage Act by paying them a set amount in wages and fringe benefits, Mr. King alleged that in fact the company, “concocted a grossly exaggerated health and welfare hourly credit by including inflated health insurance costs and nonqualifying expenses in its health and welfare credit calculation (and) the pension amount listed on the on the fringe benefit letter per employee per hour was put into one big pot and then used to fund all employees’, executives’, and owners’ pension accounts.” On this basis, Mr. King brought suit in state court alleging that Hawbaker violated the state wage law by paying its employees was far less than what was required to pay. Hawbaker promptly removed the case to the federal district court citing ERISA preemption. In response, Mr. King filed a motion to remand, arguing that his claims derive from state and common law and are not based on the terms of ERISA plans but instead arise from contractual promises to pay the mandated wages. The court agreed with Mr. King and remanded the case.
Exhaustion of Administrative Remedies
Ruderman v. Liberty Mut. Grp., No. 21-817, __ F. App’x __, 2022 WL 244086 (2d Cir. Jan. 27, 2022) (Before Circuit Judges Livingston and Sack, and District Judge Cogan). Jennifer Ruderman appealed from a district court order dismissing her long-term disability benefit complaint as preempted by ERISA and denying her leave to amend her complaint to assert a claim under ERISA. On appeal, Ms. Ruderman did not challenge the district court’s dismissal of her state-law causes of action as preempted by ERISA. Rather, she argued that the district court erred in denying leave to amend her complaint based on her failure to exhaust administrative remedies. Ms. Ruderman cited two exemptions to exhaustion. First, that administratively exhausting would have been futile, and second, that defendants’ regulatory noncompliance excused the requirement to exhaust. Neither argument was persuasive to the Second Circuit. The court of appeals concluded that a reasonable person in Ms. Ruderman’s position might have pursued administrative review even if success on appeal would have been unlikely in this case. Accordingly, the court of appeals held that this district court did not err in rejecting Ms. Ruderman’s futility argument. The Second Circuit also rejected Ms. Ruderman’s assertion that defendants failed to comply with regulatory obligations because of a letter “stating she was entitled to benefits under a different classification of disability,” which Ms. Ruderman believed qualified as an adverse benefit determination triggering notice requirements. Ms. Ruderman also pointed to a second letter which, she said “did not present or identify any new information or justification for (the benefits) determination.” The Second Circuit again disagreed. The court concluded that the first letter was not a termination of benefits requiring notice of the right to appeal, and the arguments surrounding the second letter pertained only to the merits of the determination rather than regulatory noncompliance, especially as that letter did notify Ms. Ruderman of her right to appeal the determination. For these reasons the judgement of the district court was affirmed.
Berube v. Rockwell Automation Inc., No. 20-C-1783, 2022 WL 227237 (E.D. Wis. Jan. 26, 2022) (Judge Lynn Adelman). Plaintiff Mark Berube commenced this action against Rockwell Automation Inc. alleging that the Rockwell Automation Pension Plan improperly uses outdated actuarial assumptions in its formulas for calculating actuarially equivalent benefits. Mr. Berube brought claims under ERISA Sections 502(a)(1)(B) and (a)(3) and a claim of breach of fiduciary duty under Section 404(a)(1)(D). According to plaintiff’s complaint, had his benefits been calculated using up-to-date actuarial assumptions, his monthly annuity amount would be about $50 greater than what he currently receives. Defendants filed a motion for summary judgment based on plaintiff’s failure to exhaust administrative remedies. Mr. Berube admitted that he did not file a claim under the plan’s internal review process, but argued that exhaustion should not be required in this case for three reasons. First, he argued that exhaustion would be futile. Second, he argued that internal review process would be unable to provide him with the appropriate relief and the remedies provided via the administrative process would thus be inadequate. Third, Mr. Berube claimed that exhaustion would not serve any useful purpose. The court did not agree with Mr. Berube’s futility argument because it was not persuaded that exhaustion would necessarily be futile simply because defendants were aware of a prior suit similar lawsuit and had failed to make changes to the plan’s actuarial calculations. Nevertheless, plaintiff’s other two arguments against requiring exhaustion were persuasive to the court. The court agreed with Mr. Berube that an administrative claim would not have been able to provide him with the relief that he sought or an adequate remedy. Because of this, the court also stated, “based on the Plan language and the discovery on file, I conclude that exhaustion would likely not serve any useful purpose.” For these reasons, the court denied defendants’ motion for summary judgment for failure to exhaust.
Life Insurance & AD&D Benefit Claims
USAble Life v. White, No. 4:21-cv-00049-KGB, 2022 WL 201207 (E.D. Ark. Jan. 21, 2022) (Judge Kristine G. Baker). Katherine Anne White died nearly two years ago on March 20, 2020. Ms. White was a participant in two life insurance policies, an AD&D policy and the policy which is the subject of this litigation, the Voluntary Group Term Life Insurance Policy (“VGTL”). USAble Life, which issued the policies, initiated this suit in interpleader to determine the rightful beneficiary of the second policy. The two possible beneficiaries are Samantha Taylor, Ms. White’s adult daughter, and Robert Joe White, Ms. White’s surviving spouse. These two individuals agree on nothing: “they disagree about the validity of the unsigned, unwitnessed, and undated VGTL beneficiary form … they even dispute whether Mr. White is among the living.” According to Ms. Taylor, Mr. White “is now deceased.” This peculiar detail was never further clarified. On the VGTL policy, Mr. White is the named primary beneficiary, and Ms. Taylor is the secondary beneficiary. According to Ms. Taylor, Ms. White executed a form in 2019 that made her the primary beneficiary of both policies, although she admits that the form did not expressly identify the VGTL policy. Mr. White argues that because the change of beneficiary form did not name the VGTL policy it does not apply to it, and as he was the named primary beneficiary of the VGTL policy, he is entitled to the $40,000 in benefits. Believing strongly in his position, Mr. White moved for summary judgment. The motion was denied by the court. The validity and intention behind Ms. White’s 2019 change of beneficiary form created a genuine issue of material fact that the court was uncomfortable brushing aside. Applying the substantial compliance doctrine outlined in Phoenix Mutual Life Insurance Co. v. Adams 30 F.3d 554, 558-64 (4th Cir. 1994), the court held there was ambiguity over Ms. White’s intent behind and steps taken to change the beneficiary. As the case currently lacks the factual record to answer the question of intent, Mr. White’s motion was denied.
Medical Benefit Claims
Buford v. Gen. Motors, No. 4:16-CV-14465-TGB-MKM, 2022 WL 258453 (E.D. Mich. Jan. 26, 2022) (Judge Terrence G. Berg). This case centers around a General Motors (“GM”) engineer who worked at the company from 1997 to 2014. While employed at GM, Charles Stanton Fraley, was a participant in numerous ERISA benefits plans including disability, healthcare, pension, and life insurance plans. In 2013, Mr. Fraley began receiving disability benefits resulting from lupus, Reynaud’s syndrome, and chronic obstructive pulmonary disease. At the age of 55, Mr. Fraley took disability retirement from the company with a commencement date of January 1, 2014. Per GM’s plans, once an employee retires, his salaried health care benefits are terminated and the employee is defaulted into another health care plan which requires participants to make monthly contributions in order to continue receiving health care benefits. Therefore, Mr. Fraley’s healthcare coverage should have terminated on His January 1, 2014 retirement date. However, due to a clerical mix-up and delay, Mr. Fraley’s salaried active healthcare coverage wasn’t terminated until February 28, 2014. This delay also caused problems for Mr. Fraley with respect to signing up for COBRA coverage. Mr. Fraley received a letter in March informing him of his ability to elect COBRA coverage and informing him he had 60 days from the date of notice to enroll in continuation coverage. Mr. Fraley signed up for COBRA coverage on March 31st. Shortly after, he was informed that he wasn’t covered under COBRA because his 60 days to elect had expired 60 days after his retirement date of January 1, 2014. Sometime later that same year, Mr. Fraley became Medicare eligible, which disqualified him from the GM retiree health care plan. He continued to seek retroactive COBRA coverage to no avail. This suit followed. At some point, unspecified in the decision, Mr. Fraley died, and his estate continued the suit against GM, claiming that Mr. Fraley was entitled to GM paid life insurance, GM paid health insurance, COBRA continuation coverage, and access to requested documents. The parties filed cross motions for summary judgment. Under arbitrary and capricious review standard, the court held that the unambiguous language of the plans makes clear that upon retiring Mr. Fraley was not entitled to company-paid life insurance or healthcare insurance. Thus, summary judgment was granted to GM on these two counts. However, with regard to COBRA coverage, the court found GM’s behavior and denial arbitrary and capricious. In particular, GM’s failure to correct Mr. Fraley’s eligibility date for coverage was found by the court to be improper. Even if GM could have been correct in applying the retirement date as the qualifying event under COBRA, its failure to provide Mr. Fraley with the requisite 60-day period to enroll in COBRA rendered its COBRA notice procedurally defective. So too was GM’s appeals process, which the court described as, “at best evasive and at worst exasperatingly dismissive.” Accordingly, the court granted summary judgment to the estate on the COBRA claims. The court found Mr. Fraley entitled to retroactive reinstatement of COBRA coverage and, so long as the estate pays the COBRA premiums of $492.47 per month from March 1, 2014, until the date when he became Medicare eligible, ordered GM to pay any medical expenses incurred by Mr. Fraley during that period. The court also awarded statutory penalties in the amount of $100 per day for 13 days totaling $1,300. Moreover, Finally, the court gave the estate 21 days to submit a memorandum addressing attorneys’ fees, including supporting documentation, from which the court will award appropriate fees and costs.
Advanced Reimbursement Sols. v. Aetna Life Ins. Co., No. CV-19-05395-PHX-DLR, 2022 WL 220490 (D. Ariz. Jan. 25, 2022) (Judge Douglas L. Rayes). Advanced Reimbursement Solutions, LLC brought suit on behalf of 513 Aetna insureds who received non-surgical services at outpatient treatment centers. Prior to receiving treatment, these centers contacted Aetna to authorize the treatments. Each time, Aetna either authorized the centers to provide the services or said that pre-authorization was unnecessary. Advanced Reimbursement Solutions, which functions as a contracted billing services company, was hired by these outpatient treatment centers to bill Aetna for the services. Aetna denied payment on the bills, claiming that, despite paying these same centers for these same services in the past and having thus authorized these very patients for the same treatment, the treatment centers did not meet its provider requirements. Advanced Reimbursement Solutions then filed this action alleging that Aetna violated ERISA plan provisions by denying payment, breached its contracts by refusing to pay for the services rendered by the treatment centers, and was unjustly enriched through its refusal to pay for treatments provided. Defendants moved to dismiss arguing that Advanced Reimbursement Solutions lacks standing to bring claims on behalf of patient plaintiffs. Although the patients each assigned benefits to the outpatient treatment centers and then signed documents authorizing Advanced Reimbursement Solutions to bring legal actions on their behalf, the court held that derivative standing does not extend “to allow further assignments from healthcare providers to non-providers.” The court further reasoned that, if the allegations in the complaint are true, the treatment centers would be the real parties-in-interest and Advanced Reimbursement Solutions “would need to bring these claims on behalf of the OTCs, not on behalf of the Patient Plaintiffs.” The other possibility, according to the court, is that patients did not validly assign their claims to the treatment centers, as Aetna argued. If this were true, the patients remain the true parties-in-interest and Advanced Reimbursement Solutions lacks authorization to sue for them. “Both roads, however, lead to the same conclusion: (Advanced Reimbursement Solution’s) complaint is defective.” Therefore, the court granted the motion to dismiss, allowing Advanced Reimbursement Solutions the opportunity to amend.
Pleading Issues & Procedure
Shaw v. Quad/Graphics Inc., No. 20-cv-1645-pp, 2022 WL 227502 (E.D. Wis. Jan. 26, 2022) (Judge Pamela Pepper). Plaintiffs filed this class action alleging defendants breached their fiduciary duties of loyalty and prudence by failing to monitor excessive fees, failing to select prudent investments, and failing to disclose administrative fees to plan participants in an ERISA governed defined-contribution pension plan. Defendants filed a motion to dismiss in which they relied heavily on Divane v. Northwestern University, 953 F.3d 980 (2020), in which the Seventh Circuit affirmed the district court’s pleading dismissal in a similar breach of fiduciary duty pension mismanagement case. However, as ERISA nerds and Your ERISA Watch readers are aware, last week the Supreme Court issued its own decision in Northwestern decision vacating the Seventh Circuit’s order and remanding the case for further proceedings. Hughes v. Northwestern University, No. 19-1401, 2022 WL 199351 (2022). The Supreme Court unanimously decided that the Seventh Circuit’s decision could not be reconciled with its 2015 decision in Tibble v. Edison Int’l, 575 U.S. 523, 530 (2015) requiring plan fiduciaries to conduct evaluations to ensure a plan has a prudent menu of options for participants to select from. Thus, in this case, given defendants’ reliance on Northwestern, the court denied defendants’ motion to dismiss.
Bangalore v. Froedtert Health Inc., No. 20-cv-893-pp, 2022 WL 227236 (E.D. Wis. Jan. 26, 2022) (Judge Pamela Pepper). This is Judge Pepper’s second decision this week and its remarkably similar to the first. Here too plaintiffs filed a class action alleging defendants violated duties of prudence and loyalty, as well as engaged in prohibited transactions, in another defined-contribution plan with allegedly excessive fees and an imprudent investment menu. Once again, the Supreme Court’s ruling in the Hughes case last week has swiftly moved the court to deny defendants’ motion to dismiss.
Goodman v. Columbus Reg’l Healthcare Sys., No. 4:21-CV-15 (CDL), 2022 WL 228764 (M.D. Ga. Jan. 25, 2022) (Judge Clay D. Land). This case represents the third decision this week in which the Supreme Court’s decision in Hughes is having an impact. Plan participants in Columbus Regional Healthcare System Inc.’s defined contribution retirement plan brought this putative class action alleging defendants breached their fiduciary duties by not providing participants with an investment menu comprised of prudent investment options, and by failing to reign in recordkeeping fees. Thanks to the new precedent from the Supreme Court, Columbus Regional’s motion to dismiss was denied.
Diagnostic Affiliates v. United Healthcare Servs., Inc., No. 2:21-CV-00131, 2022 WL 214101 (S.D. Tex. Jan. 18, 2022) (Judge Nelva Gonzales Ramos). Diagnostic Affiliates of Northeast Hou, LLC filed this suit to recover payments for COVID-19 testing against defendants UnitedHealth Group, Inc., several ERISA healthcare plans, and against the plan administrators, all of whom are subsidiaries under UnitedHealth. Plaintiff alleges, (1) violations of the emergency COVID-related FFCRA and Cares Act, (2) violations of ERISA for failure to pay provider charges and (3) for failing to provide a full and fair claims review, (4) RICO violations, and (5) a violation of the Texas Prompt Payment of Claims Act, as well as a request for (6) declaratory judgment, and claims for (7) unjust enrichment, (8) quantum meruit, (9) promissory estoppel, and (10) injunctive relief. Defendants filed a Rule 12(b)(6) motion to dismiss, which the court granted in part and denied in part. Broadly, Diagnostic Affiliates alleged that defendants engaged in improper delay and denial tactics to not pay for or to underpay for the $900 per test COVID-19 testing that Diagnostic Affiliates provided to patients, which insurance plans and insurance providers are required to pay for under the FFCRA and Cares Act. Defendants challenged the FFCRA and Cares Act claims on the basis that there is no private right of action to enforce them. The court disagreed. According to the court, plaintiff, “is among the class of providers for whose benefit the payment provisions were included.” Additionally, plaintiff has an implied private right of action to enforce the right to reimbursement for COVID testing against United. On top of that, the court concluded, “a private right of action to recover the mandated reimbursement is fully consistent with the legislative scheme.” Finally, the court held there are no state concerns against recognizing and implied private right of action because federal ERISA regulation already supersedes state regulation of group health care plans. Thus, the court denied the motion to dismiss the FFCRA and Cares Act claims. The court also denied the motion to dismiss the ERISA violation of failure to pay. Diagnostic Affiliates was found to have standing. As for Diagnostic’s failure to exhaust administrative remedies for all of the claims, the court agreed that exhausting the claim process would have been futile, writing that, “futility would not represent an exception to exhaustion if every single claim had to be exhausted in order to show the certainty of an adverse result.” However, plaintiff’s full and fair review claim was dismissed. Here, the court concluded that binding precedent in both the Fifth Circuit and the Supreme Court holds that a claim for declaratory and equitable relief is not appropriate in ERISA when the claimant also has a Section 502(a)(1)(B) benefits claim. As for the remaining claims, the court granted United’s motion to dismiss with regard to the declaratory judgment, unjust enrichment, quantum meruit, and Texas Prompt Pay act. All the remaining claims were allowed to proceed. The claims that were dismissed were without prejudice.
Emergency Servs. of Oklahoma v. Aetna Health, No. CIV-17-600-J, 2022 WL 265880 (W.D. Okla. Jan. 17, 2022) (Judge Bernard M. Jones). Plaintiffs are out-of-network emergency medical providers who have provided medical care to Aetna insureds. Aetna paid the claims plaintiffs submitted, but at “impermissibly low rates,” according to plaintiffs. Plaintiffs then brought this suit. Defendants turned the tables and asserted counterclaims alleging that, in fact the claims were overpaid due to, “systematic overcharging for emergency services by Plaintiffs.” Plaintiffs moved for summary judgment on these counterclaims. Plaintiffs were granted summary judgment with respect to defendants’ counterclaims of fraud and constructive fraud. According to the court, defendants’ evidence on the fraud claims fell short of proving a “natural and irresistible inference of fraud.” In fact, the only “proof” defendants could point to in order to demonstrate systematic overcharging were upcoding rates of about 36%. Such a rate was described by their own expert as fairly typical for an audit of non-Medicare emergency billing. Defendants’ other assertion, that plaintiffs’ clinicians were instructed to alter their documentation methods to support higher bills, was entirely unsubstantiated by the record. Defendants’ assertion of the right to punitive damages premised on fraud claims was also dismissed. However, the remainder of defendants’ claims – for equitable relief under ERISA, unjust enrichment, and quantum meruit – all survived plaintiffs’ motion for summary judgment. First, as defendants and plaintiffs were in dispute over the identification of ERISA plans, defendants’ ERISA counterclaim survived plaintiffs’ motion. Finally, plaintiffs argued that defendants’ quasi-contractual counterclaims were governed by the plan documents, which were actually express contracts. The court disagreed, holding the plan documents do not represent an agreement between the insurance company and the medical providers and thus claims sounding in quasi-contract were not precluded. Thus, the court granted in part and denied in part plaintiffs’ summary judgment motion.
Severance Benefit Claims
Callas v. S&P Glob., No. 19 Civ. 1478 (PGG), 2022 WL 255114 (S.D.N.Y. Jan. 26, 2022) (Judge Paul G. Gardephe). Plaintiffs William Callas, Thomas Cassese, and Natalie Ferd brought suit against S&P Global, Inc. challenging the denial of their claims for severance benefits. Defendant S&P argued that plaintiffs were not entitled to severance benefits under the Separation Pay Plan, because their terminations were not “Involuntary Terminations” as defined by the plan. The court agreed with S&P in a March 31, 2021 order granting S&P’s motion for summary judgment. This memorandum opinion, issued almost a year later, “is to explain the Court’s reasoning.” All three plaintiffs were terminated due to “poor performance” in 2016, or in the case of Ms. Ferd, January 2017, despite all having received exemplary end of year reviews in 2015. Plaintiffs alleged that they were fired as part of a company restructuring and were “given pretextual poor performance reviews (in 2016) in an attempt by S&P to terminate employees without needing to adhere to the terms of The Plan.” Under arbitrary and capricious review standard, however, the court held that plaintiffs could not meet their burden of demonstrating that they were not terminated due to poor performance but were terminated as part of a company restructuring. The court also held that the internal review process was full and fair and considered plaintiffs’ arguments and performance reviews when upholding the denials. Nor did plaintiffs, according to the court, demonstrate they were deprived of relevant documents and records in connection with their appeals. Further, the court was not persuaded that plaintiffs produced evidence suggesting that the denials were influenced by conflicts of interest requiring the court to give less deference to the plan administrator and reviewers’ decisions. For these reasons, the court granted defendant’s motion for summary judgment.
Withdrawal Liability & Unpaid Contributions
Accosta v. Lorelei Events Grp., No. 17-cv-07804 (NSR), 2022 WL 195514 (S.D.N.Y. Jan. 21, 2022) (Judge Nelson S. Roman). Plaintiffs Frank Accosta and David Rosenstock filed suit against their employer, Lorelei Events Group, and boss, Lorraine Totaro, for violations of the Fair Labor Standards Act (“FLSA”), the New York Labor Law (“NYLL”), unjust enrichment, and ERISA. Problems began for plaintiffs in 2016. Throughout that year their pay was sporadic, with over $70,000 of their annual $85,000 salary paid late. Then in early 2017, plaintiffs alleged they were not paid at all for their work. In April of 2017, their boss, Ms. Totaro, drafted agreements with both plaintiffs stating that the company was indebted to them to the tune of tens of thousands of dollars in gross salary and thousands of dollars in contributions to their 401(k) plans. In these agreements, the company agreed to pay monthly payments from May through December. None of these payments were ever made. Also in April of 2017, Ms. Totaro changed plaintiffs’ job titles from “employees” to “independent contractors.” This change was expressly made for the purposes of internal bookkeeping and billing, and in no way altered plaintiffs’ actual roles in the company or the labor they were expected to perform. Plaintiffs then sued, alleging they were not paid, they were untimely paid, they were not provided wage statements, the company failed to pay their 401(k) contributions, and improperly classified them as independent contractors, all of which unjustly enriched defendants. Plaintiffs moved for summary judgment. The motion was granted in part and denied in part. As there was no dispute that plaintiffs were not paid any wages during 2017, both plaintiffs were granted summary judgment on their unpaid wage claims under FLSA and NYLL. The court further awarded summary judgment to Mr. Accosta on his untimely wage claim, but not to Mr. Rosenstock, because his late wages were not clearly delayed for over two weeks. Plaintiffs’ final claim under FLSA and NYLL pertaining to failure to provide wage statements, the court held there were genuine disputes of material facts on this issue and denied both plaintiffs summary judgment on the claim. With regards to the unjust enrichment claim, the court agreed that the company, Lorelei, was unjustly enriched by plaintiffs’ free labor. However, according to the court, plaintiffs failed to demonstrate that Ms. Totaro was personally enriched through that same labor. Accordingly, plaintiffs were awarded summary judgment for the unjust enrichment claim for unpaid wages against only the company. Plaintiffs also argued that defendants had misclassified them as independent contractors. The court held that on this issue, plaintiffs failed to provide sufficient evidence showing that they were misclassified or that defendants were enriched by changing their work classification. Thus, they were denied summary judgment on the misclassification claim. Finally, plaintiffs were granted summary judgment on their ERISA Section 502(a)(1)(B) claim against the company. They were able to demonstrate that the 401(k) plan is governed by ERISA, they were both plan participants, and Lorelei Events failed to make required contributions to the plan.
N.Y. State Teamsters Conference Pension & Ret. Fund v. C&S Wholesale Grocers, Inc., No. 20-1185-cv, __ F. 4th __, 2022 WL 244144 (2d Cir. Jan. 27, 2022) (Before Circuit Judges Cabranes, Raggi, and Carney). The New York State Teamsters Pension Fund brought suit against C&S Wholesale Grocers, Inc. after the company bought another company, Penn Traffic’s, “wholesale distribution contracts, customers, equipment, files, records, goodwill, intellectual property accounts receivable, and employees … who were not members of Teamsters Local 317.” C&S also intentionally did not purchase Penn Traffic’s warehouse where the Teamsters members worked. This complicated partial buy-out was designed in such a way as to circumvent any withdrawal liability contributions that Penn Traffic would have to make if it ceased making contributions to the multiemployer ERISA plan. After C&S bought part of Penn Traffic, the warehouse continued to be run by Penn Traffic until 2009, when Penn Traffic filed for bankruptcy causing the warehouse that employed the union members to close and triggering the withdrawal liability of $63.6 million. The bankruptcy estate was only able to pay $5 million. The Fund, through this action, sought payment of the remaining $58 million from C&S. The Fund had four theories about C&S’s liability: (1) C&S was subject to the liability as successor to Penn Traffic; (2) C&S was subject to the withdrawal liability because it had common control over the warehouse; (3) C&S had structured its partial buy-out of Penn Traffic to intentionally avoid the withdrawal liability, triggering a statutory provision designed to prevent companies from evading liability; and (4) C&S was the joint employer of the warehouse and therefore had joint employer liability. The district court granted summary judgment to defendant C&S on all claims. On appeal, the Fund challenged the district court’s findings. The Second Circuit, relying heavily on the lower court’s factual finding, concluded the district court had not erred in its reasoning and affirmed its judgment.