Tekmen v. Reliance Standard Life Ins. Co., No. 20-1510, __ F.4th __, 2022 WL 17725720 (4th Cir. Dec. 16, 2022) (Before Circuit Judges Wynn, Harris, and Keenan)
ERISA is famously vague on a great number of issues, and one of those is how benefit disputes should be resolved. Fortunately, the Department of Labor has issued regulations that explain in detail how claims and appeals must be handled by plan administrators, but when that process is over, and the claimant remains unhappy, the only recourse is litigation. ERISA tells us that plan participants have a right to sue under ERISA, but doesn’t tell us anything about how those cases should be handled by the courts. One recurring issue, which was addressed by the Fourth Circuit Court of Appeals in this week’s notable decision, is whether such cases should be decided by summary judgment under Federal Rule of Civil Procedure 56, or by trial under Federal Rule of Civil Procedure 52.
The plaintiff in this case, represented by Kantor & Kantor on appeal, was Anita Tekmen. Ms. Tekmen was working as a financial analyst when she was involved in a car accident in October of 2013. After the accident, she suffered from significant symptoms such as dizziness, sensitivity to light and noise, difficulty concentrating, and vestibular issues such as unsteadiness and difficulty with balance.
Ms. Tekmen’s symptoms gradually improved in 2014, and she was able to return to work. However, in 2015, her condition dramatically worsened. Ms. Tekmen’s doctor noted that she had “an episode involving slurred speech, unstable gait, and problems with motor function, among other symptoms.” Ms. Tekmen stopped working and filed a claim for disability benefits with Reliance Standard Life Insurance Company, the insurer of her employer’s disability benefit plan. Reliance paid short-term disability benefits, but denied Ms. Tekmen’s claim for long-term benefits, contending that she did not have an impairment that prevented her from continuing work in her regular occupation.
Ms. Tekmen filed suit in the Eastern District of Virginia and the parties filed cross-motions for summary judgment. The district court denied both motions and instead awarded judgment to Ms. Tekmen on the merits after conducting a bench trial pursuant to Federal Rule of Civil Procedure 52. Reliance appealed to the Fourth Circuit.
The Fourth Circuit first addressed “two interrelated questions: the method a district court uses to resolve an ERISA denial-of-benefits case, like this one, and the standard of review we employ on appeal.” In its appeal, Reliance contended that district courts are required to resolve ERISA benefit disputes via summary judgment, and that any findings made by the district court are subject to de novo review on appeal.
The Fourth Circuit rejected both of these arguments. It first conducted a survey of case law from other circuits, noting that “some have concluded that, although summary judgment may be appropriate when there is no genuine issue as to any material fact, a bench trial is appropriate when fact-finding is required,” “one has concluded that neither summary judgment nor a bench trial is appropriate in ERISA denial-of-benefits cases and that an alternative form of review unique to ERISA cases is appropriate,” and “still others provide that a modified, quasi-summary-judgment procedure is appropriate.”
The Fourth Circuit concluded that summary judgment procedures are typically improper in ERISA benefit cases because summary judgment can only be granted in the absence of disputed issues of material fact. The court observed that this is rarely the case; for example, Ms. Tekmen’s doctors strongly disagreed with the conclusions of Reliance’s doctors. In such cases, “we see no alternative to the district court making findings of fact. And where such findings implicate material issues, summary judgment simply is not appropriate.”
The Fourth Circuit further noted that “if the district court were to resolve a denial-of-benefits case involving disputed facts at summary judgment but without the attendant summary-judgment presumptions, it would effectively be engaging in factfinding that is subject to a de novo standard of appellate review.” The court stated that this would be unproductive, as “district courts are institutionally assigned the role of finder of fact.” District courts would have “little reason to invest the time in factfinding” if they knew those findings would be entitled to no deference on appeal. Trial court litigation would merely be a “tryout on the road” and the district court’s findings would be “essentially superfluous.”
Reliance argued that this conclusion was foreclosed by Fourth Circuit precedent, which Reliance contended mandated de novo review on appeal in ERISA benefit cases. However, the Fourth Circuit distinguished Reliance’s authorities, explaining that its prior decisions only indicated that it reviewed legal conclusions de novo, not factual findings. “If we can review factual findings for clear error – which, as noted, is the typical rule for our review of a Rule 52 judgment – then there is no contradiction between our prior case law and the clear-error standard of review we apply to factual findings made in bench trials.”
The court also rejected two other arguments made by Reliance about the standard of review. First, Reliance contended that because the district court, when presented with competing summary judgment motions, did not decide the case pursuant to summary judgment procedures, the district court violated the “party presentation principle.” However, the Fourth Circuit found no party presentation violation because the district court “did not reshape the legal question presented by the parties; it simply adjusted the procedural mechanism it would use to address the correctness of Reliance’s decision.”
Second, Reliance argued that the district court “ignored” deemed admissions by Ms. Tekmen during summary judgment briefing. However, the Fourth Circuit found no error because the case was not decided on summary judgment, and in any event the local rule allegedly violated by Ms. Tekmen was “plainly permissive, not mandatory.”
Having resolved the preliminary issue of how ERISA benefit cases should be decided, the court then turned to the merits of Ms. Tekmen’s claim, stating, “we will review the court’s factual findings for clear error…and review de novo its legal conclusion that Tekmen was entitled to benefits.”
As the court noted, “the district court’s most consequential factual determination was its decision to give more weight to the reports of the two physicians who repeatedly treated Tekmen…than to the physicians hired by Reliance who merely reviewed Tekmen’s file.” Reliance argued that the district court improperly favored Ms. Tekmen’s doctors because the Supreme Court’s decision in Black & Decker Disability Plan v. Nord, 538 U.S. 822 (2003), allegedly “prohibits [courts] from giving more weight to the opinions of treating physicians than those of non-treating physicians.”
However, as the Fourth Circuit explained, Nord “did not create such a rule.” Nord only held that administrators and courts are not required to give more weight to treating physicians. Giving greater weight is still permissible if “the accounts of treating physicians are more persuasive than those of physicians who only examined a paper record.”
Under this rule, the Fourth Circuit found no clear error in the district court’s findings of fact. The court found it compelling that “most physicians who treated Tekmen believed her to have legitimate impairment in functioning, even in the face of normal test results,” and “the two physicians who consistently examined and treated Tekmen,” including a neurologist, “believed that her symptoms were legitimate and disabling.”
The court discounted Reliance’s argument that Ms. Tekmen was able to work for a time after her accident, noting that the record showed that her symptoms “significantly worsened” in 2015, and that claimants should not be punished for “heroic efforts to work” in the face of such symptoms.
The Fourth Circuit also found no error in the district court’s legal conclusion that Ms. Tekmen was entitled to plan benefits, stating, “Tekmen submitted ample evidence demonstrating that she was totally impaired under the terms of the plan.” Reliance challenged two of the district court’s rulings in this regard, arguing that Ms. Tekmen did not submit objective evidence, and that the district court misinterpreted the plan definition of “regular occupation.”
The Fourth Circuit quickly dismissed these arguments. The court, distinguishing its prior ruling in Gallagher v. Reliance Standard, 305 F.3d 264 (4th Cir. 2002), explained that the plan did not include an objective evidence requirement, and thus Ms. Tekmen could not be faulted for not submitting such evidence. The Fourth Circuit further ruled that the district court properly interpreted the “regular occupation” definition, because there was no evidence that Ms. Tekmen’s disability was “limited to a specific ‘locale,’” as argued by Reliance.
As a result, because (1) the district court properly decided the case under Federal Rule of Civil Procedure 52, (2) the district court’s factual findings were not clearly erroneous, and (3) the district court properly concluded that Ms. Tekmen was entitled to benefits, the Fourth Circuit affirmed the decision awarding benefits to Ms. Tekmen in its entirety.
Ms. Tekmen was represented by Richard D. Carter and Kantor & Kantor attorneys Glenn R. Kantor and Sally Mermelstein.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Howmet Aerospace Inc. v. Corrigan, No. 1:22-cv-713, 2022 WL 17592322 (W.D. Mich. Dec. 13, 2022) (Judge Hala Y. Jarbou). On July 28, 2020, plaintiff Howmet Aerospace, Inc., the successor to another company, the Pechiney Corporation, elected to terminate the Pechiney top hat plan. Plaintiff paid the participants of the plan, former Pechiney executives, the balances of the deferred compensation they were each entitled to. However, these executives claim that they were entitled not only to their deferred compensation amounts, “but that their beneficiaries were also entitled to a gratuity upon their death.” Based on this conviction, two actions occurred. First, Howmet Aerospace filed this action seeking a declaration that it properly discharged its termination obligations and appropriately paid the participants. Second, the executives served Aerospace notice of intent to arbitrate in New York, based on the arbitration provision of the plan. In response, Howmet Aerospace filed a motion to stay arbitration, and defendants, three of the participants of the plan, filed a motion to compel arbitration and either stay or dismiss the case under the Federal Arbitration Act (“FAA”). As a preliminary matter, the court stated that in this instance the motion to compel arbitration strictly presented questions of law rather than any factual dispute, and as such the court held that resolution on the motion without a hearing was appropriate. After examining the arbitration provision within the plan, the court concluded that the action was not arbitrable. In particular, the court highlighted the fact that the contract expired, and the plan did not contain a survival clause. Without such a clause, the presumption of arbitrability exists only when one of three conditions are met: (1) the events at issue occurred mostly before expiration, (2) the action infringes upon rights that accrued or vested under the agreement, or (3) under principles of contract law the disputed right survives expiration of the rest of the agreement. Howmet Aerospace was able to show the court that none of these were conditions were met. First, most of the material events transpired after the termination of the plan, including defendants cashing their distribution checks. Second, the court stated that no express language vested the payment-upon-death benefit, and in fact this benefit “could only vest if certain contingencies arose,” including the condition of a participant’s death. The court thus stated that as “none of Defendants died while the plan was operative…the death benefit did not vest.” Finally, the court ruled that the contract indicates by its language that “the parties did not intend for the payment upon death benefit to survive termination of the plan.” Therefore, the court found the presumption of arbitrability inapplicable, denied defendants’ motion to compel arbitration, and granted Howmet Aerospace’s motion to stay arbitration.
Breach of Fiduciary Duty
Browe v. CTC Corp., No. 2:15-cv-267, 2022 WL 17729645 (D. Vt. Dec. 16, 2022) (Judge Christina Reiss). Participants of the CTC Corporation deferred compensation plan brought a breach of fiduciary duty class action challenging gross mismanagement of the plan and seeking plan benefits they were wrongfully denied. In its June 22, 2018 order and findings of fact following a bench trial, the court found defendants and the plan were not in compliance with ERISA. Among other things, the court held that defendants failed to comply with ERISA’s regulations governing benefit denials by not providing written notice identifying specific reasons for the denials or the appeals procedures available to claimants with which to challenge the determinations. The court also stated that the plan never provided participants with information regarding their account balances, nor other plan documents and statements mandated under ERISA. Instead, the managers of CTC were selectively choosing to whom to award benefits and in what amounts. It was further revealed that “CTC’s management was using CTC retirement benefits to pay operating expenses between 2004 and 2008.” CTC appealed the 2018 order to the Second Circuit. The Second Circuit remanded to the district court, instructing it to craft a remedial scheme outlining the vested rights of participants. In addition to requiring the creation of such a scheme, the Second Circuit also directed the lower court to assess whether one of the plaintiffs was liable for her participation in the breaches. This plaintiff had engaged in a side-deal with the plan’s fiduciaries seeking payment of benefits that she knew others were not receiving and only brought her complaint once her original attempts to create a side-deal proved fruitless. The appeals court thus established that this plaintiff should not “escape liability entirely.” (Your ERISA Watch examined the Second Circuit’s ruling in our October 6, 2021 issue.) In this order, the court adopted the instructions of the Second Circuit, drafting the restoration award, outlining how the award was to be paid to each participant, and ordering the plan’s termination following distributions of the payments in full. Additionally, the court entered judgment in favor of the plaintiffs who were not liable for any wrongdoing with respect to their breach of fiduciary duty claim. As for the liability of the plaintiff who had acted in her own self-interest, the court found defendants “entitled to contribution from Plaintiff Launderville for one half of the Restoration Award paid to Plan Participants and are entitled to compel Plaintiff Launderville to join them in paying the Restoration Award.” Finally, the court expressed that any party could request an award of attorneys’ fees, but that it would offer no opinion “at this time as to whether attorneys’ fees are available.”
Fritton v. Taylor Corp., No. 22-cv-00415 (ECT/TNL), 2022 WL 17584416 (D. Minn. Dec. 12, 2022) (Judge Eric C. Tostrud). Participants in the Taylor Corporation 401(k) and Profit Sharing Plan sued the plan’s fiduciaries, the Taylor Corporation, its Board of Directors, the Investment Committee, and the committee’s members, alleging these fiduciaries breached their duties of prudence and monitoring by allowing the plan to pay unreasonable recordkeeping and management fees, failing to remove an underperforming fund, and including expensive individual share classes in its investment portfolio rather than negotiate for cheaper institutional share classes for which the large plan could have qualified. Defendants moved to dismiss the complaint. They argued that plaintiffs lacked standing by failing to plausibly allege an injury in fact resulting from the alleged ERISA violations. Defendants further argued that plaintiffs failed to state claims upon which relief could be granted. The court started its analysis by addressing whether plaintiffs plausibly alleged an Article III injury to confer standing. The court was critical of plaintiffs’ barebones assertion that “each of them participated in the Plan and were injured by Defendants’ unlawful conduct.” Instead, the court pointed out that “[s]eemingly important facts are not alleged…when any Plaintiff began participating in the Plan, whether any Plaintiff continues to invest in the Plan today, whether or when any Plaintiff ceased to invest in the Plan, the specific fund in which any Plaintiff ever invested, and the period during which any Plaintiff invest in any funds or funds.” Accordingly, the court found that, with respect to most of their claims, plaintiffs had not included details from which they could plausibly allege an injury in fact. Only plaintiffs’ recordkeeping expenses claim was found to be “straightforward” enough to infer each of the plan’s participants necessarily experienced and was charged these plan-wide fees. In all other respects, the court dismissed plaintiffs’ allegations for lack of constitutional standing. And, as for the remaining recordkeeping expenses claim, the court concluded that it failed on the merits because “Plaintiffs do not allege facts plausibly showing that the amount of the Plan’s recordkeeping fees are unreasonably high.” Accordingly, the court granted the motion to dismiss in its entirety. However, dismissal was without prejudice, so plaintiffs were given an opportunity to replead should they wish to do so.
Pessin v. JPMorgan Chase U.S. Benefits Exec., No. 22cv2436 (DLC), 2022 WL 17551993 (S.D.N.Y. Dec. 9, 2022) (Judge Denise Cote). Plaintiff Joseph Pessin, on behalf of himself and a class of similarly situated individuals, brought this action against his former employer, JP Morgan Chase & Company, its board of directors, and the administrator of the Morgan Pension Plan, the JPMorgan Chase U.S. Benefits Executive, for violating ERISA by failing to effectively communicate, disclose, and inform participants of the wear-away phenomenon caused by the plan’s transition in 1998 from a traditional defined benefit plan to a cash balance plan. Mr. Pessin’s complaint asserted four claims under three sections of ERISA. Claims one and two were brought under Section 404(a) for breaches of fiduciary duties. Claim one was brought was against the JPMorgan Chase Benefits Executive for failing to sufficiently disclose the wear-away problem and claim two was brought against the JP Morgan Chase Board for failing to monitor the plan’s administrator. Mr. Pessin’s third cause of action was brought against the Benefits Executive for violation of Section 102, for failure to provide summary plan descriptions written in a manner to be understood by the participants. Finally, Mr. Morgan brought a claim against the plan administrator under Section 105 for failure to provide pension benefit statements listing the participant’s total accrued benefits. Defendants moved to dismiss for failure to state a claim. The court granted their motion. The court concluded that the summary plan descriptions, the plan statements, and other disclosures made by defendants to participants sufficiently explained the mechanisms of how the cash balance plan operated and outlined how participants would receive the greater of either their benefits under the final average pay formula of the old plan or their benefits under the cash balance formula. Thus, the court distinguished the allegations made here from those made in Cigna v. Amara, where defendants had “intentionally withheld details that would provide employees with a direct comparison of their benefits under the two benefits calculations.” As a result, the court found the information provided to be accurate, not deceptive or misleading, and therefore it satisfied the “fiduciary duty (defendants) had to provide complete and accurate information about plaintiff’s pension plan.” Additionally, as the court found no underlying fiduciary breach, it also dismissed the derivative claim for failure to monitor a co-fiduciary. Next, the court dismissed the Section 102 claim for largely the same reason as the Section 404(a) claims – that the summary plan descriptions accurately explained the calculations of benefits without anything “excessively technical or complex such that the Benefit Statement could not be understood by an average plan participant.” Finally, the court dismissed the Section 105 claim, writing, “[t]he fact the statements did not also expressly list the minimum benefit is immaterial.” Counterintuitively, the court reasoned that had JP Morgan included the amount of the minimum benefit on the statements in addition to the cash balance amount, it would have been engaging in inappropriate action because it would have confused “an average plan participant,” and potentially would have “incorrectly suggested that participants would receive both amounts.” For these reasons, the motion to dismiss was granted.
Glynn v. Maine Oxy-Acetylene Supply Co., No. 2:19-cv-00176-NT, 2022 WL 17617138 (D. Me. Dec. 13, 2022) (Judge Nancy Torresen). On September 14, 2022, the court granted a motion for preliminary approval of class action settlement in this litigation between participants of the Main Oxy-Acetylene Supply Company Employee Stock Ownership Plan (“ESOP”), along with Secretary of Labor Walsh, against the plan’s fiduciaries in connection with series of stock transactions involving the ESOP. (A summary of that decision is found in Your ERISA Watch’s September 21, 2022 edition.) Following distribution of settlement notice to participants and a final fairness hearing during which no objections were made, plaintiffs moved for final approval of settlement and for attorneys’ fees, expense reimbursement, and incentive awards for the four class representatives. In this order the court granted the motions. Here, the court reaffirmed its position that the $6,330,000 settlement was adequate, fair, and reasonable, especially as the figure reflected a stock valuation on the high end of the range estimated by plaintiffs’ expert. Once again, the court found the requested attorneys’ fees and costs, 19% of the settlement total or $1,200,000, to be exceedingly fair and in fact a “below-average recovery for counsel in class actions, as contingent fee awards usually are within the range of twenty to thirty percent.” Finally, the court granted the motion for $30,000 in total incentive awards, a distribution of $7,500 to each of the four class representatives, finding it just compensation for their efforts in this action. Thus, with this final stamp of approval from the court, this breach of fiduciary duty ESOP litigation has reached its conclusion.
Neurosurgical Care of N.J. v. United Healthcare Ins. Co., No. 22-1333, 2022 WL 17585882 (D.N.J. Dec. 12, 2022) (Judge John Michael Vazquez). A neurosurgeon and a healthcare service provider sued United Healthcare Insurance Company in state court challenging its denial of a benefits claim for surgery performed on a patient who was a beneficiary of an employee welfare plan governed by ERISA. United removed the action to the federal district court and subsequently moved to dismiss the complaint arguing the state law causes of action relate to the plan and are therefore preempted by ERISA. As the court understood it, “Plaintiffs’ overarching theory appears to be that they are owed payment under the Plan. Accordingly, Plaintiffs’ claims are predicated on the Plan and its administration.” This was especially true, the court found, because plaintiffs rely on the plan’s definition of medical necessity in their assertions that the denial was improper. Given this, the court felt it could not decide plaintiffs’ claims without relying on or interpreting the plan. Thus, the court agreed with United that plaintiffs’ claims were expressly preempted and so granted the motion to dismiss.
PMH Lab v. Cigna Healthcare of Cal., No. 2:22-cv-06716-SPG (PLAx), 2022 WL 17604437 (C.D. Cal. Dec. 12, 2022) (Judge Sherilyn Peace Garnett). Plaintiff PMH Laboratory, Inc. filed an action in state court against Cigna Healthcare of California and Cigna Health and Life Insurance Company seeking payment of outstanding claims for reimbursement for Covid-19 testing it provided to individuals insured by defendants. In state court PMH Lab asserted claims for violation of California’s Health and Safety code, violation of California Business and Professions code, negligence, unjust enrichment, quantum meruit, and several other state common law causes of action. Defendants removed the action to federal court, claiming the lawsuit naturally implicates ERISA, creating a federal question. PMH Lab subsequently moved to remand the action to state court. The court granted plaintiff’s motion in this order. Applying the two prongs of the Davila test, the court stated that PMH Lab “could not have brought its claims under ERISA § 502(a)(1)(B),” as plaintiff made clear that it does not have any assignments of benefits from any of the patients at issue, and therefore concluded that the first prong of Davila was not met. Accordingly, the court stated it need not analyze whether an independent legal duty was implicated by the allegations and accompanying state law claims. Thus, the court held Cigna failed to meet its burden to prove complete ERISA preemption, and the court concluded the appropriate course of action was therefore to remand the case back to state court.
Life Insurance & AD&D Benefit Claims
Rizzo v. First Reliance Standard Life Ins. Co., No. 20-1144, __ F. App’x __, 2022 WL 17729430 (3d Cir. Dec. 16, 2022) (Before Circuit Judges Jordan, Hardiman, and Smith). In late 2012, decedent Angelo Rizzo stopped working and filed a claim for disability benefits with his insurer, First Reliance Standard Life Insurance Company. Then, in early 2013, Mr. Rizzo filed an application for a waiver of premium (“WOP”) under his life insurance policy, also insured by First Reliance. It would be 203 days later, on October 9, 2013, that First Reliance would finally send a curt denial letter, rejecting Mr. Rizzo’s application for waiver of premium and finding him “capable of sedentary work exertion.” As the Third Circuit put it, “the decision, though already late, was inexplicably rushed out the door, with no indication that it relied on anything but a stale medical opinion from a nurse or a non-response from a non-treating cardiologist.” The denial did inform Mr. Rizzo of his ability to request a review and of the possibility to convert his group life insurance policy to an individual policy. These actions would not happen because shortly after receiving the denial, Mr. Rizzo, who was just 42 years old, died. His widow, plaintiff Jody Rizzo, subsequently sued First Reliance, seeking benefits under ERISA Section 502(a)(1)(B). In ruling on cross-motions for summary judgment, the court concluded that Mrs. Rizzo should be deemed to have met the exhaustion requirement because First Reliance’s denial was at least 98 days late according to the relevant ERISA regulation. The court further ruled that Frist Reliance’s denial was arbitrary and capricious, and not the result of principled or reasoned decision-making process. Thus, the district court granted summary judgment in favor of Mrs. Rizzo and concluded that she was entitled to the $188,000 provided by Mr. Rizzo’s life insurance policy, and pre- and post-judgment interest. First Reliance appealed. The Third Circuit affirmed. First, the appeals court strongly agreed with the lower court that 29 C.F.R. § 2560.503-1 unambiguously “instructs that, when a claimant files suit to challenge an untimely benefits denial pursuant to 29 U.S.C. § 1132(a), the court is not free to use the prudential exhaustion doctrine to usher the claimant out the door.” Furthermore, the Third Circuit stressed that the denial here was “not just mildly noncompliant; it was grossly so,” and the Department of Labor’s regulation was expressly intended to protect claimants in situations just like this one. Next, the Third Circuit turned to the denial of the waiver of premium benefit, and again affirmed the conclusions drawn by the lower court. In total, the court of appeals found the process by which First Reliance made its decision to be flawed: “the denial letter was the product of an arbitrary process.” For these reasons, the Third Circuit affirmed, ruling the district court “appropriately awarded Mrs. Rizzo $188,000 under Mr. Rizzo’s life insurance policy.”
Turner v. Allstate Ins. Co., No. 2:13-cv-685-RAH-KFP [WO], 2022 WL 17640165 (M.D. Ala. Dec. 13, 2022) (Judge R. Austin Huffaker, Jr.). Retirees of the Allstate Insurance Company initiated a class action after the company decided it would stop paying insurance premiums on life insurance policies for its former employees who retired after 1990. This action was in direct conflict with oral and written promises Allstate made to its employees and retirees informing them that their life insurance benefits were paid up for life. Nevertheless, these promises were undermined by the summary plan descriptions which consistently included a “no vesting rights” provision and reserved for Allstate the right to terminate benefit plans or modify terms. Originally, this case was before Judge W. Keith Watkins. However, a few years into litigation, and while Allstate’s motion for summary judgment and plaintiffs’ motion for class certification were fully briefed and set for hearing, the case was reassigned to newly sworn-in Judge Emily C. Marks. About a month later, on September 30, 2020, Judge Marks issued an opinion granting summary judgment in favor of Allstate on all claims, concluding that Allstate had the unambiguous power to cease paying premiums on the life insurance policies, and that plaintiffs’ breach of fiduciary duty claims were time-barred by ERISA’s six-year statute of limitations. Plaintiff then filed an appeal to the Eleventh Circuit. Just weeks before the Eleventh Circuit was scheduled to hold oral argument, plaintiffs were informed by the Clerk of Court for the Middle District of Alabama that while Judge Marks was presiding over their case, she owned shares in the Allstate Corporation in a managed account. Under the code of conduct for federal judges, this stock ownership required recusal. Plaintiffs were understandably alarmed by this information and moved to stay argument before the Eleventh Circuit and remand the case to the district court to allow them to move under Federal Rule of Civil Procedure 60 to vacate Judge Marks’ order. The Eleventh Circuit denied plaintiffs’ motion and subsequently issued its own decision unanimously affirming Judge Marks’s summary judgment order. Your ERISA Watch’s summary of that decision was one of two notable decisions in our January 5, 2022 edition. Following the Eleventh Circuit’s ruling, plaintiffs filed for a writ of certiorari with the Supreme Court, which was ultimately denied. Pending before the court here was plaintiffs’ motion pursuant to Federal Rule of Civil Procedure 62.1 for an order vacating Judge Marks’ summary judgment decision and an additional motion for leave to conduct discovery on Judge Marks’ stock ownership in Allstate. Plaintiffs’ motions were firmly denied by the court, which held at bottom that “Judge Marks’s failure to recuse was harmless.” The court disregarded what it characterized as plaintiffs’ theory that “Judge Marks could only be wrong because she had a financial interest in Allstate,” concluding such a theory fell flat because the neutral three-judge panel on the Eleventh Circuit unanimously affirmed the decision on de novo review. Accordingly, the court held that there was “no risk of injustice to the Plaintiffs from Judge Marks’ failure to recuse, especially when the Plaintiffs can point to no other action by Judge Marks that impacted the summary judgment record that both she and the Eleventh Circuit reviewed.” Finally, it was the view of the court that denying plaintiffs’ requested relief would not “undermine the public’s confidence in the judicial process.” However, when one takes a moment to look at a broader context, for instance the revelations revealed in the Wall Street Journal’s large-scale investigative piece entitled “131 Federal Judges Broke the Law by Hearing Cases Where They Had a Financial Interest,” or when one considers the series of extremely political decisions issued last term by the Supreme Court, most notably in Dobbs v. Jackson Women’s Health Organization, this court’s dismissive comments regarding the public’s confidence in the judicial process seem questionable.
Medical Benefit Claims
K.D. v. Harvard Pilgrim Health Care, Inc., No. 20-11964-DPW, 2022 WL 17586091 (D. Mass. Dec. 12, 2022) (Judge Douglas P. Woodlock). A beneficiary of a self-insured ERISA healthcare plan, the Harvard Pilgrim – Lahey Health Select HMO, brought this lawsuit challenging the denial of her claims for out-of-network mental health benefits, asserting the denials were a violation of ERISA and the Mental Health Parity and Addiction Equity Act. Plaintiff K.D. sued the plan’s sponsor, Lahey Clinic Foundation, Inc., along with its third-party administrator, Harvard Pilgrim Health Care, Inc. (“HPHC”) after the plan refused to pay for her stay at an inpatient treatment center, Sierra Tucson, and for her time at a partial hospitalization program, the Cambridge Eating Disorder Center. HPHC contracted Optum United Behavioral Health to handle its mental health and substance abuse benefit claims under the Plan. Under the terms of the Plan, participants and beneficiaries can only receive care from out-of-network providers after establishing that the professional services required could not be provided by any in-network professional. K.D. and her father contended that none of the facilities included as in-network providers were appropriate because they did not specialize in depression and eating disorders but were instead substance abuse programs. Thus, the central dispute between the parties during the court’s analysis of their cross-motions for summary judgment was whether the in-network provider identified by defendants in their denials, Walden Behavioral Care, had the expertise and ability to provide the particularized mental health care treatment that K.D. needed and received from Sierra Tucson and the Cambridge Eating Disorder Center. To begin, as the plan grants HPHC discretionary authority, the court stated that deferential review was applicable. However, the court stressed that deferential review was not “without some bite” and stated that the First Circuit makes clear “there is a sharp distinction between deferential review and no review at all.” Because defendants focused on a single in-network provider that it believed could have provided the care for K.D., the court stated that it would also focus its analysis on this provider and that it would not allow defendants to “expand the playing field by the move of demanding an analysis of all providers, in contrast to their own reviews, denials, and arguments that focused on Walden.” On review, the court held that “Walden’s psychiatric treatment facilities were inappropriate for the level of care that K.D. needed.” The court found that the denials were not supported by substantial evidence. Furthermore, the denials themselves were found by the court to be lacking adequate analysis to fully provide K.D. with a fair review sufficient “to meet ERISA’s requirement that specific and understandable reasons for denial be communicated to the claimant.” However, the court decided remand to the plan administrator for further proceedings was the appropriate remedy for defendants’ inadequate review, as the court found that “the record does not compel the finding that K.D. is entitled to benefits.” Nevertheless, the court expressed that remand to the claims administrator makes K.D. eligible for an award of attorneys’ fees, and upon review of the Cottrill factors the court determined that K.D. is entitled to a fee award pursuant to Section 502(g)(1). Finally, regarding K.D.’s Mental Health Parity violation claim, the court held that K.D. did not provide requisite facts for comparison to demonstrate that the Plan’s network of residential mental health treatment centers was inadequate. Accordingly, defendants were granted summary judgment on that count.
Pension Benefit Claims
Mahoney v. iProcess Online, Inc., No. JKB-22-0127, 2022 WL 17585160 (D. Md. Dec. 12, 2022) (Judge James K. Bredar). Plaintiffs Brian Mahoney, Meghan DeMeio, and Christina Reed were employed by defendant iProcess Online Inc. Throughout their employment with iProcess, the company was required to transfer earned wages and matching contributions into plaintiffs’ 401(k) accounts. However, plaintiffs claim that iProcess and its chief operating officer, defendant Michelle LeachBard, failed to do so. In their complaint, plaintiffs asserted ERISA violations and state law claims of fraud, breach of contract, conversion, and negligent misrepresentation. Defendants have been served but have never appeared in the action. Accordingly, plaintiffs moved for entry of default, which was granted. Subsequently, plaintiffs filed a motion for default judgment. The court granted in part and denied in part plaintiffs’ motion. Specifically, the court denied the motion with respect to the ERISA and conversion claims and directed plaintiffs to perform an accounting of their compensatory damages and provide further briefing on the total amount of damages they are seeking. Regarding ERISA, the court expressed confusion regarding which subsection of ERISA supported plaintiffs’ claims, and therefore also whether they adequately stated claims upon which relief could be granted. Furthermore, to the extent plaintiffs were asserting a claim for breach of fiduciary duty under ERISA, the court stated that “Plaintiffs do not sufficiently allege that Defendants are fiduciaries.” The court also identified shortcomings with plaintiffs’ state law conversion claim, stating plaintiffs failed to distinguish whether they were seeking the return of “the actual, identical money,” rather than “a specific amount of money.” Nevertheless, the court refused to grant the motion to dismiss with respect to plaintiffs’ remaining state law claims. However, as the court felt it could not determine the proper award of judgment on the information currently before it, it directed plaintiffs to provide detailed accounting of the damages and information on any additional relief they seek.
Pleading Issues & Procedure
Miller v. Campbell Soup Co. Ret. & Pension Plan Admin. Comm., No. 19-11397 (RBK/EAP), 2022 WL 17555302 (D.N.J. Dec. 9, 2022) (Magistrate Judge Elizabeth A. Pascal). Pro se plaintiff Sherry Miller brought an ERISA action against the administrative committee of the Campbell Soup Company Retirement & Pension Plan for breaches of fiduciary duties and equitable estoppel based on misrepresentations the committee made about the methodology the plan used to calculate accrued pension benefits. In her action, Ms. Miller seeks the difference between the benefits she received and the benefits to which she believed she was entitled based on the alleged promises made by defendant. This summer, Ms. Miller served her first set of requests for production of documents on defendant, seeking, among other things, the documents and communications relating to her hire and her rehire with the company. While responding to Ms. Miller’s production request, the committee claims it obtained Ms. Miller’s personnel file, which included a copy of an executed Voluntary Separation Agreement and General Release. This form included terms stating that the release waived the signatory’s rights to bring claims under ERISA, although it also expressly carved out claims for vested benefits under the pension plan. During a 10-day period last August, defendant discovered this agreement, sent it to Ms. Miller, consulted their counsel and confirmed that they had not asserted the affirmative defense of release, sought Ms. Miller’s consent to their filing an amended answer, and then when Ms. Miller declined to consent, moved for leave to file an amended answer to include the release as an affirmative defense. Taking the liberal approach adopted by the Third Circuit, the court granted defendant’s motion, finding the committee satisfied Federal Rule of Civil Procedure 16’s good cause standard, and that under Rule 15, granting the motion to allow for the proposed amendment would not be futile or prejudice Ms. Miller. In particular, the court was satisfied that defendant acted speedily, without undue delay, and that defendant had a good explanation of why it was unaware of the agreement prior to its discovery production. As to whether the release bans Ms. Miller’s action, the court stated that it would not decide this merits issue during its analysis of whether to grant a motion for leave to amend answer. Finally, in addition to granting defendant’s motion, the court granted Ms. Miller one week to request discovery from defendant regarding the release.
Atlantic Neurosurgical Specialists P.A. v. United Healthcare Grp., No. Civ. 20-13834 (KM) (JBC), 2022 WL 17582546 (D.N.J. Dec. 12, 2022) (Judge Kevin McNulty). Two medical providers and three individual physicians brought this ERISA action on behalf of patients with healthcare plans insured by United Healthcare Insurance Company and its related entities after the patients received emergency medical treatment by the providers and United rendered adverse benefit determinations on the submitted claims for reimbursement. Both Atlantic Neurosurgical Specialists and American Surgical attempted to pursue administrative appeals contesting the amounts paid by United. However, United refused to process the appeals, rejecting plaintiffs’ designation of authorized representative forms. Thus, in plaintiffs’ complaint, the medical professionals allege that “United consistently and systematically refuses to recognize a duly-executed (designation of authorized representative form) submitted by its beneficiaries, particularly when those DAR Forms are executed in favor of the beneficiary’s health care provider.” This practice, including United’s use of a form claim denial letter, plaintiffs claim, violates ERISA’s minimum requirements for claims and appeals procedures under ERISA’s claims procedure regulation, 29 C.F.R. § 2560.503-1. In a prior order, the court dismissed plaintiffs’ initial complaint for failing to establish standing under Article III. The court stated that although plaintiffs alleged the procedures were inadequate, they failed to allege that the denial of benefits was improper under the terms of the plans “and that a proper review process would therefore have resulted in the payment of further benefits.” Since that decision, plaintiffs have moved for leave to amend their complaint. Their motion was accompanied by their proposed second amended complaint, which they averred includes the information the court previously concluded was required to allege an injury in fact to confer them with standing, i.e., specific references to the portions of the plans that entitle the patients to the benefits they are asserting they are entitled to. In this order, the court found the proposed amendments did indeed cure the deficiencies it previously identified. Additionally, the court was satisfied that the claims as to the reasonableness of the procedures were “sufficient to survive a motion to dismiss.” The court also declined to dismiss the complaint for failure to exhaust, as exhaustion is an affirmative defense and plaintiffs presented arguments that they should be deemed to have exhausted their remedies given United’s failure to follow the claims procedures, and that exhausting their remedies would have been futile. Finally, the court allowed plaintiffs to assert claims under both Sections 502(a)(1)(B) and 502(a)(3)(A), permitting them to plead their claims in the alternative as alternate routes to relief. For these reasons, the court granted plaintiffs’ motion.
Koman v. Reliance Standard Life Ins. Co., No. 1:22CV595, 2022 WL 17607056 (M.D.N.C. Dec. 13, 2022) (Judge Loretta C. Biggs). Plaintiff Kristen Mann Koman sued her long-term disability plan, Unifi, Inc. Employee Welfare Benefit Plan, and its claims administrator, Reliance Standard Insurance Company, alleging that Reliance reversed its decision to approve her claim for benefits despite any change in Ms. Koman’s conditions or her ability to perform work. In her action, Ms. Koman asserted three ERISA claims: (1) a claim for benefits under Section 502(a)(1)(B); (2) a claim for breach of fiduciary duty; and (3) a claim for failure to comply with ERISA’s claims procedures regulations. Defendants moved to dismiss Ms. Koman’s second and third claims under Federal Rule of Civil Procedure 12(b)(6). Defendants argued that Ms. Koman could not pursue her two claims seeking equitable remedies because they were duplicative of an adequate remedy available to Ms. Koman that she is pursing in her claim for recovery of benefits. Thus, “Defendants argue that Counts II and III should therefore be dismissed pursuant to Varity Corp v. Howe, 516 U.S. 489 (1996), and Korotynska v. Metropolitan Life Insurance Co., 474 F.3d 101 (4th Cir. 2006).” The court agreed with defendants, determining that “all three counts allege only a single injury: that Plaintiff was wrongfully denied benefits.” Thus, in accordance with the interpretation of Varity adopted by many other courts, the court concluded that a claimant with a valid cause of action under Section 502(a)(1)(B) may not also proceed with a claim under Section 502(a)(3). For this reason, the court granted defendants’ motion and dismissed Ms. Koman’s equitable relief claims, leaving her with only her claim for benefits.
Ledet v. Bd. of Trs., No. 22-3697, 2022 WL 17581716 (E.D. La. Dec. 12, 2022) (Judge Susie Morgan). Plaintiff Mary Ledet sued the Board of Trustees of Transit Management of Southeast Louisiana, Inc. Retirement Plan in Louisiana state court asserting six state law claims, and two ERISA claims under Sections 502(a)(1)(B) and (a)(3). A couple of months after Ms. Ledet served the Board of Trustees, it filed a notice of removal. Subsequently, Ms. Ledet filed a motion to remand on the basis that the Board’s notice of removal was untimely. Although the court agreed that the Board’s removal was untimely, it ultimately found the issue of timeliness irrelevant because the federal district court has exclusive jurisdiction over Ms. Ledet’s claim for equitable relief under ERISA Section 502(a)(3), and remanding to state court would therefore “be fruitless.” In addition to its exclusive jurisdiction over Ms. Ledet’s ERISA breach of fiduciary duty claim, the court also found that it had concurrent jurisdiction on Ms. Ledet’s claim for unpaid benefits under ERISA Section 502(a)(1)(B), and that the interest of judicial economy would be served by it exercising its supplemental jurisdiction over the state law claims that pertain to the same case or controversy as the ERISA claims. Accordingly, the court denied Ms. Ledet’s motion to remand.
Hager v. Harland Clarke Corp., No. 2:21-cv-1358, 2022 WL 17724430 (W.D. Pa. Dec. 15, 2022) (Judge Cathy Bissoon). Plaintiff Mark Hager was an employee of defendant Harland Clark Corporation. Mr. Hager asserts in his complaint that Harland Clark Corp. terminated his employment to interfere with his receipt of health insurance benefits under the company’s group health insurance plan in violation of ERISA Sections 502 and 510. Defendant moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). It argued that Mr. Hager did not plausibly allege facts suggesting that the company had the specific intent to interfere with his attainment of employee benefits and that his claims therefore fail. The court agreed. “[T]he Amended Complaint is devoid of factual allegations – such as unusual timing, misrepresentation of benefits or costly medical condition or diagnosis – specific to Plaintiff that differentiate him from other Plan participants or otherwise suggest specific intent. Indeed, the only assertions the Amended Complaint adds are generalized suspicious about Defendant’s motivations based on a theory that older employees generally incur higher health benefit expenses.” Finding Mr. Hager had failed to meet pleading requirements, the court granted the motion and dismissed the complaint without prejudice.
Statute of Limitations
Gragg v. UPS Pension Plan, No. 22-3379, __ F. 4th __, 2022 WL 17729625 (6th Cir. Dec. 16, 2022) (Before Circuit Judges Batchelder, Griffin, and Kethledge). “The limitations period for an ERISA claim ‘to recover benefits due’ under a plan does not expire before the alleged underpayment on which the claim is based.” So began the Sixth Circuit’s reversal of a district court decision dismissing a retiree’s suit seeking pension payments under the UPS Pension Plan. The district court had concluded that plaintiff Ralph Gragg’s action was untimely because he brought it eight years after he received a letter from his pension plan, the particulars of which contradicted the plan’s descriptions of Social Security offsets, and the monthly payments retirees would receive after turning 65. This letter was certainly a “dispute” among the parties, but the Sixth Circuit would conclude it was not the “injury.” The court of appeals emphasized, under common law, that an ERISA benefit claim accrues, and its six-year statute of limitations begins to run, “when the plaintiff discovers, or with due diligence should have discovered, the injury that is the basis of the action.” The Sixth Circuit disagreed with the lower court’s interpretation of when Mr. Gragg’s injury occurred, stating, “the letters did not cause the injury upon which Gragg sued; the underpayments did. And before that injury his claim had not accrued.” Applying this understanding, the court of appeals concluded that Mr. Gragg “had no injury to discover until August 1, 2018 – when the Plan first paid him $1,754 less than the monthly amount to which he says he was entitled. That claimed underpayment is what first injured him; before then, the Plan paid him every penny he was owed.” Furthermore, it was the view of the court that Mr. Gragg could not have commenced legal action after receiving the letter. At that time, he did not have a ripe controversy “justiciable under Article III.” Accordingly, the Sixth Circuit found the claim timely, and reversed the lower court’s holding concluding otherwise.
R.J. v. Optima Health, No. 1:21-00172-DBP, 2022 WL 17690147 (D. Utah Dec. 15, 2022) (Magistrate Judge Dustin B. Pead). Plaintiffs are a family who have sued Optima Health seeking judicial review of the insurer’s failure to pay for residential mental health and substance use treatment, claiming the denial violates ERISA and the Mental Health Parity and Addiction Equity Act. Optima moved to dismiss or to transfer venue. The court denied the motion to dismiss, concluding venue was proper in Utah, but granted the motion to transfer. As the plaintiffs are residents of Virginia and Optima is headquartered in Virginia, the court concluded that the Eastern District of Virginia was a more convenient forum. This was especially true, the court stated, because the only connection to Utah was the location of the treatment facility. As a final note, the court compared the dockets of District of Utah to the Eastern District of Virginia, and found the latter district less congested, which favored transfer. For these reasons, the case will be moved.
Withdrawal Liability & Unpaid Contributions
Plumbers’ Pension Fund Local v. Only Plumbing 2 Inc., No. 21-cv-1342, 2022 WL 17668607 (N.D. Ill. Dec. 14, 2022) (Judge Steven C. Seeger). Multi-employer pension funds sued two plumbing companies, Only Plumbing and G&N Plumbing, and their owners, husband and wife Joe and Gina Geraghty, for failure to pay contributions to the plans. These two plumbing companies shared “family ties,” funds, and the same workforce. The only thing they didn’t share was an obligation to union workers under a collective bargaining agreement. As the court noted, “[t]his case is the third lawsuit alleging that (Joe Geraghty) formed a new company to avoid paying union contributions.” Given Mr. Geraghty’s familiarity with ERISA civil actions, he and his two companies “capitulated,” acknowledging that the court should pierce the corporate veil between them and admitting that the purpose of the second company was to avoid paying fund contributions the first was obligated to pay. However, Gina Geraghty did not join the other defendants in this concession. Thus, the issue before the court was to decide whether to pierce the corporate veil between Gina Geraghty and the companies. Viewing the record, the court stated that there was a unity of interest and ownership between Gina Geraghty and the plumbing companies. The court further stated that “fairness requires holding Gina Geraghty accountable for the company’s liabilities.” If the corporate veil were not pierced, the court concluded the funds and their participants would be the ones to suffer, by losing out to contributions they were entitled to and rely on. “Without piercing the corporate veil, Gina Geraghty would reap the benefits of a scheme to scam the unions.” Accordingly, the court granted summary judgment in favor of plaintiffs and found Mrs. Geraghty has an obligation to pay the contributions alongside her husband and their businesses.