LD v. United Behavioral Health, No. 20-cv-02254-YGR (JCS), 2022 WL 17408010 (N.D. Cal. Dec. 2, 2022) (Magistrate Judge Joseph C. Spero)

This week’s notable decision ended a longstanding discovery clash between the parties in this ERISA and Racketeer Influenced and Corrupt Organizations Act (“RICO”) class action brought by participants of ERISA-governed healthcare plans challenging an alleged scheme between United Behavioral Health and MultiPlan Inc. to systematically reprice and reduce claims paid to out-of-network mental healthcare providers.

On October 3, 2022, Magistrate Judge Joseph C. Spero issued a discovery order identifying many shortcomings in defendant MultiPlan’s privilege log. In that order, the court “rejected MultiPlan’s blanket assertion that it was not a fiduciary and therefore, that the fiduciary exception to attorney-client privilege did not apply to any of the documents it withheld on the basis of attorney-client privilege.” Thus, concluding that MultiPlan had not met its burden of asserting privilege nor of making the required showing that the documents had been properly withheld, the court ordered MultiPlan to revise its privilege log to take into account the court’s guidance, narrow its disputes, and submit a sampling of documents for an in-camera review. Your ERISA Watch’s summary of that decision can be found in our October 12, 2022 newsletter.

Rather than comply with the court’s ruling, MultiPlan filed “an unsolicited supplemental brief” informing plaintiffs that it believed a recent ruling by Judge Selna in the Central District of California, In re: Out of Network Substance Use Disorder Claims Against UnitedHealthCare, No. 8:19-cv-02075 JVS(DFMx) (C.D. Cal. Oct. 14, 2022), conclusively decided the issue that MultiPlan is not an ERISA fiduciary and that Magistrate Spero therefore erred in finding the fiduciary exception might be applicable to MultiPlan in this action. Furthermore, MultiPlan also interpreted the Supreme Court’s recent grant of certiorari in In re Grand Jury, 23 F.4th 1088 (9th Cir. 2021), as additionally undermining Judge Spero’s order because Judge Spero had relied on that case in determining that MultiPlan’s privilege assertions were insufficient.

In this decision, the court addressed MultiPlan’s challenge to its October 3^rd order, revisited the question of whether MultiPlan waived its right to assert privilege on the protections claimed in its log as grounds for withholding the documents, and ruled on whether MultiPlan’s privilege log should be filed under seal.

First, the court found MultiPlan’s challenges to its October 3^rd ruling to be without merit. Regarding Judge Selna’s ruling, the court stated that “Judge Selna did not conclude, as a matter of law, that MultiPlan and Viant could never be found to be fiduciaries based on the facts alleged in In re: OON SUD Claims. To the contrary…he recognized that with proper evidentiary support, they could.” In this present action, the court found it plausible that MultiPlan was acting as a fiduciary in connection with its repricing of United claims, and therefore would not “adopt the conclusion of a different judge on a different record to reach the opposite conclusion.” In addition, the court pointed out that the issue of MultiPlan’s fiduciary status goes right to the heart of this case and it would therefore be inappropriate to decide a major merits issue during a discovery dispute. Nevertheless, the court found that depriving plaintiffs of discovery to which they are entitled from plan fiduciaries would not be fair and therefore reaffirmed its prior position that “MultiPlan should be considered a plan fiduciary as to conduct that relates to the fiduciary duties owed to plan participants, namely, the repricing of plan members’ claims.” Finally with regard to MultiPlan’s reliance on the Supreme Court’s grant of cert. in In re Grand Jury, the court stated that the Ninth Circuit’s decision in “In re Grand Jury continues to be binding in this Circuit.”

The court then proceeded to decide whether MultiPlan waived its right to assert privilege. Although the court had declined to find a blanket waiver of privilege in its prior ruling, the court changed its mind here. MultiPlan’s “overall response (to) largely ignore the Court’s guidance” by improperly filing a brief challenging the validity of the court’s rulings, failing to revise its privilege log to update the assertions that were flagged by the court, and its continued reliance on vague privilege assertions, demonstrated to the court that waiver is now appropriate. In fact, the court viewed MultiPlan’s actions, which caused significant delay, as prejudicing plaintiffs by engaging “in the sort of ‘tactical manipulation of the rules and the discovery process’ that warrants a finding of waiver.”

The court also went through the sampling of documents it reviewed in camera and explained how they were improperly withheld in contravention of the court’s previous rulings. The court highlighted communications that fell squarely within the fiduciary exception to the attorney-client privilege, that were not primarily for legal purposes, and that were improperly or misleadingly described by MultiPlan in its log. Based on its review, the court concluded that “the vast majority of the sample documents reviewed by the Court were improperly withheld or should have been produced in redacted form.”

Finally, the court ruled on MultiPlan’s motion to seal its revised privilege log, which plaintiffs had filed in the public record. The court concluded that MultiPlan had failed to demonstrate that it would face irreparable harm if the log remained unsealed, especially in light of the court’s ruling that MultiPlan waived attorney-client privilege and work product protection for the underlying documents. Additionally, MultiPlan had failed to designate any portion of the log as confidential before producing it to plaintiffs, which Section 5.2 of the operative protective order required. For these reasons the court denied the motion to seal.

In class actions like this one, it is not uncommon for defendants to engage in tactics designed to stall or test the limits of what they can keep from plaintiffs. Here, MultiPlan’s gamesmanship backfired, and plaintiffs will now get to see those documents to which MultiPlan had been gripping tightly. In the wonderful words of James Joyce, “mistakes are the portals of discovery.”

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

Arbitration

Second Circuit

Lloyd v. Argent Tr. Co., No. 22cv4129 (DLC), 2022 WL 17542071 (S.D.N.Y. Dec. 6, 2022) (Judge Denise Cote). Participants of the WBBQ Holdings, Inc. Employee Stock Ownership Plan (“ESOP”) sued Argent Trust Co. and three individual “seller defendants” for breaches of fiduciary duties in connection with the sale of company stock to the ESOP. According to plaintiffs’ complaint, Argent’s valuation process was flawed as it relied on the inflated projections provided to it by the seller defendants to reach a purchase stock price of just under $250 per share. Thus, plaintiffs claim, by failing to do due diligence, by allowing the plan to pay this unreasonably high price, and by agreeing to a loan with unreasonable interest rates, the sale saddled the plan and its participants with unjustifiable debt and caused them great financial harm. Plaintiffs further allege that following the sale, which took place on January 1, 2016, the stock consistently declined due to “factors that were foreseeable at the time,” and by December 2020 the stock was valued at only $18.52 per share. Defendants moved to compel arbitration and stay the case, or in the alternative, to dismiss the case for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1). The court addressed dismissal first, along with defendants’ arguments that plaintiffs lacked Article III standing. First, the court stated that it would not adopt defendants’ perspective of plaintiffs’ financial situation when considering a Rule 12(b)(1) motion on the pleadings. Drawing reasonable inferences in favor of the plaintiffs, the court agreed that they alleged facts sufficient to support an injury-in-fact to confer them with standing. Thus, the court denied defendants’ motion to dismiss. Next, the court evaluated the motion to compel arbitration under the Federal Arbitration Act. Both the Second and Seventh Circuits have concluded that arbitration provisions with non-severable terms that limit statutory rights or prohibit claimants from receiving statutory remedies cannot be enforced. Based on this caselaw, the court held that the ESOP’s arbitration provision was unenforceable because it prohibits representative actions seeking plan-wide relief that ERISA expressly provides, and limits equitable remedies available under and authorized by ERISA, including removal of a fiduciary, and these terms were non-severable. The defendants’ motion to compel arbitration was thus denied.

Attorneys’ Fees

Second Circuit

Oriska Corp. v. Highgate LTC Mgmt., No. 1:21-CV-104 (MAD/DJS), 2022 WL 17475599 (N.D.N.Y. Dec. 6, 2022) (Judge Mae A. D’Agostino). Plaintiff Oriska Corporation initially brought 26 cases in New York courts against employers concerning workers compensation insurance policies Oriska Corp issued. Three of those cases were removed to the Northern District of New York. Plaintiff filed an amended complaint alleging additional causes of action under ERISA and adding additional defendants to the case, the “class defendants.” The class defendants and plaintiff were represented by the same attorney, James Kernan. The old defendants, the “employer defendants,” filed a motion to remand the actions to state court. “[B]efore a decision was rendered on that motion, the Class Defendants filed a motion with this Court and the Judicial Panel on Multidistrict Litigation (“JPMDL”) to transfer the case to the Eastern District of New York and consolidate all three actions. The JPMDL ultimately denied transfer.” After that, plaintiff announced its decision to discontinue the action. The employer defendants, left in a bad place by this unusual series of events, subsequently moved for an award of attorneys’ fees to compensate them for the time and resources spent litigating these actions. The court granted the employer defendants’ motion for attorneys’ fees in this order, not under ERISA’s fee provision, but under the provision for costs and fees in the federal removal statute, 28 U.S.C. § 1447(c), agreeing that the actions of both the class defendants and plaintiff were unjustifiable and objectively unreasonable. Specifically, the court held that the class defendants failed to comply with the Rule of Unanimity because the basis for removal “was an amended complaint filed in state court in which the Class Defendants were incomprehensibly included as parties to this matter and these new Class Defendants were represented by Plaintiffs’ counsel.” Attorneys Christopher E. Buckey, with over 21 years of experience, and Timothy A. Chorba, who has been practicing law for five years, were awarded $350 per hour and $200 per hour respectively. Their paralegal was awarded an hourly rate of $90. Counsel’s requested hours, 4 hours for Mr. Buckey, 8.9 hours for Mr. Chorba, and 2.5 hours for their paralegal, were found to be reasonable and well documented by the court. Thus, the court granted the motion and awarded $3,405 in attorneys’ fees.

D.C. Circuit

Trs. of the Iam Nat’l Pension Fund v. M & K Emp. Sols., No. 1:20-cv-433-RCL, 2022 WL 17415063 (D.D.C. Dec. 5, 2022) (Judge Royce C. Lamberth). Plaintiffs are the Trustees of the multiemployer IAM National Pension Fund. The Trustees have sued M & K Employee Solutions, LLC, its related corporate entities, and Laborforce, LLC, seeking a court order requiring the employers to pay the withdrawal liabilities the Fund assessed against them. A year after the Trustees commenced this action, an arbitrator determined that the Fund had improperly assessed the amount of defendants’ withdrawal liability and ordered the Fund to recalculate the amount owed. In response to the arbitrator’s decision, defendants canceled their depositions, which were scheduled to take place the next two days. The Trustees then filed a motion to compel. In a memorandum opinion on February 28, 2022, the court ordered defendants to reschedule their depositions and indicated that it would sanction defendants pursuant to Federal Rules of Civil Procedure 37 by granting an award of attorneys’ fees and costs “incurred in preparing for and taking the depositions, but not those incurred in preparing the motion to compel.” The court instructed the Trustees to submit briefs on the amounts of attorneys’ fees expended in preparing for the aborted depositions. Trustees filed that briefing, formally moving for award of fees and costs in connection with those abruptly canceled depositions, both for their hours spent preparing for those depositions, and for the costs incurred and time spent in taking them. In this order, the court revised its earlier position, rethinking what the real harm caused by defendants’ actions was. Rather than recover fees associated with preparing and taking the depositions, the court concluded instead “that the Trustees are entitled to an award of attorneys’ fees under Rule 37(d)(3) for (1) expenses incurred in litigating the motion to compel and (2) any other incidental expenses that were caused by the cancelation and rescheduling of the depositions rather than preparing for and taking them in general.” Thus, the court stated that it would deny the motions presently before it without prejudice and that it would entertain motions for attorneys’ fees and costs on these newly outlined grounds. In order to save a bit of future time, the court also addressed the reasonableness of the requested hourly rates of counsel. Trustees are represented by counsel at Proskauer Rose LLP. Their attorneys sought the following hourly rates: Anthony S. Cacace (Partner): $795 per hour, Neil V. Shah (Senior Associate): $695 per hour; and Anastasia S. Gellman (Staff Attorney): $525 per hour. The court felt these rates were appropriate and reasonable. However, the court adjusted the requested hourly rate for Megan K. Cutaia (Senior Labor Paralegal) from $375 per hour to $208 per hour, which the court held was the appropriate rate for a paralegal in the DC area as listed on the Laffey Matrix.

Breach of Fiduciary Duty

Second Circuit

Garthwait v. Eversource Energy Co., No. 3:20-CV-00902 (JCH), 2022 WL 17484817 (D. Conn. Dec. 7, 2022) (Judge Janet C. Hall). Participants of the Eversource 401(k) Plan are challenging the actions of the plan’s fiduciaries in this class action lawsuit. Plaintiffs assert three claims: (1) a claim for breach of fiduciary duty pursuant to ERISA Sections 409(a) and 502(a)(2); (2) failure to monitor fiduciaries and co-fiduciaries pursuant to Sections 405(a), 409(a), and 502(a)(2); and (3) liability for knowing breach of trust, pursuant to Section 502(a)(3), pled in the alternative. Plaintiffs request their class action be tried before a jury. Defendants moved to strike plaintiffs’ jury demand. Plaintiffs opposed defendants’ motion to strike, and relying on the Supreme Court’s decision in Great-West Life & Annuity Ins. Co. v. Knudson, 543 U.S. 204 (2002), argued that the relief they seek is legal rather than equitable because it demands compensation from defendants’ general assets. In this order, the court mostly agreed. Despite the fact that a trustee dispute analogous to this ERISA breach of fiduciary duty class action would have fallen under the jurisdiction of the courts of equity in 18^th century England, the court considered the evaluation of the remedy requested, and whether the remedy is either legal or equitable, to be the more consequential question. Although the court concluded that the relief under plaintiffs’ third cause of action, pled in the alternative pursuant to Section 502(a)(3), was “explicitly equitable in nature,” the court ultimately concluded that the relief contemplated in plaintiffs’ two “make good” claims, counts one and two, entitles them to a jury trial under Great-West. Thus, the court granted the request to strike the jury demand with regard to count three but denied the motion as to the first two counts. As a result, this ERISA breach of fiduciary duty class action will, at least in part it seems, be tried before a jury.

Class Actions

Sixth Circuit

Iannone v. AutoZone, Inc., No. 2:19-cv-02779-MSN-tmp, 2022 WL 17485953 (W.D. Tenn. Dec. 7, 2022) (Judge Mark S. Norris). Participants of the AutoZone 401(k) Plan moved to certify a class of all the participants and beneficiaries of the plan in their litigation challenging the actions of the plan’s fiduciaries who failed to control excessive fees or adequately monitor the performance of the plan’s investments, particularly the “GoalMaker program.” On August 12, 2022, the assigned Magistrate Judge issued a report and recommendation recommending plaintiffs’ motion to certify their class be granted in part. The Magistrate recommended the court narrow the class definition from the broadly proposed group of all the plan’s participants and beneficiaries during the class period to only those plan participants who invested in the GoalMaker funds. Defendants filed objections to the report. In this order, the court overruled defendants’ objections and adopted the report, certifying the class as proposed by the Magistrate. First, the court took defendants’ objections “to all but three of the Chief Magistrate Judge’s Proposed Findings of Fact” as being a “blanket objection.” The court agreed with plaintiffs that defendants’ objections were inadequate and perhaps even disingenuous, and therefore adopted the Magistrate’s findings of fact. Then, the court evaluated defendants’ position that plaintiffs lacked Article III standing because not every class member invested in all of the funds included within the GoalMaker program. Under relevant Sixth Circuit case law, the court disagreed with defendants’ argument, writing, “Plaintiffs’ allegations of excessive investment management and recordkeeping fees went to defendants’ ‘practices’ rather than specific funds, and that allegations concerning defendants’ selection and monitoring of funds applied to all of the funds.” Thus, the plaintiffs have constitutional standing even though they were not invested in every single fund within the program. Furthermore, the court was satisfied that the questions about whether defendants breached their fiduciary duties at the plan level were common to all class members, and the damage and harm the participants invested in the GoalMaker program suffered were common to them all regardless of whether they were each “injured to the exact same extent.” The court stated that it agreed with the Magistrate’s analysis of certification under Rules 23(a) and (b), and therefore took the Magistrate’s advice, and certified the class of plan participants who had invested in any of the funds of the GoalMaker program during the relevant period. As such, plaintiffs’ motion for certification was granted in part.

Disability Benefit Claims

Tenth Circuit

Serrano v. Standard Ins. Co., No. 20-cv-02364-TC, 2022 WL 17415483 (D. Kan. Dec. 5, 2022) (Judge Toby Crouse). Plaintiff Erasmo Serrano, M.D. sued Standard Life Insurance Company under ERISA Section 502(a)(1)(B) challenging the insurer’s termination of his long-term disability benefits after two years under his plan’s 24-month limitation period for disabilities caused by mental health disorders and/or substance abuse. The parties filed cross-motions for summary judgment under abuse of discretion review. Dr. Serrano argued that Standard’s decision to terminate the benefits was an abuse of discretion because the insurer failed to account for all of his disabling medical conditions, including those unrelated to his mental health issues of depression, anxiety, and opioid dependence. Dr. Serrano offered evidence that his chronic fatigue, hypoxemia, adrenal insufficiency, and orthopedic conditions resulting from physical injuries were themselves disabling and prevented him from practicing medicine. This evidence ultimately proved unconvincing to the court under deferential review. The court concluded that Standard’s decision “was made on a reasoned basis” and its conclusion that Dr. Serrano could perform his work if not for his mental health conditions or the side effects caused by his use of opioids was supported by the medical evidence. Accordingly, the court affirmed Standard’s decision to close Dr. Serrano’s disability claim and granted summary judgment in favor of the insurance company.

Life Insurance & AD&D Benefit Claims

Third Circuit

Anderson v. Reliance Standard Life Ins. Co., No. 22-4654 (MAS) (DEA), 2022 WL 17490542 (D.N.J. Dec. 7, 2022) (Judge Michael A. Shipp). Plaintiffs Cathy Anderson and the Estate of John P. Anderson sued Reliance Standard Life Insurance Company, Matrix Absence Management, Inc., and decedent John Anderson’s former employer, K. Hovnanian Companies, LLC, for breaches of fiduciary duties under ERISA Section 502(a)(2) and (a)(3), and for estoppel and discrimination under Section 510, in connection with defendants’ actions which left Ms. Anderson unable to obtain her husband’s life insurance benefits. “The heart of Plaintiffs’ Complaint is that at no time prior to John’s death did Defendants…inform John that his life insurance coverage had lapsed or been impaired in any capacity.” Defendants Reliance Standard and Matrix moved to dismiss the complaint for failure to state a claim upon which relief could be granted. The court granted their motion in this order. To begin, the court agreed with defendants that plaintiffs could not bring a claim for individual relief under Section 502(a)(2), and so dismissed the breach of fiduciary duty claim brought under that provision. Next, the court concluded that Matrix, which acted as a third-party administrator with no discretion, was not a fiduciary based on the facts alleged in plaintiffs’ complaint. Thus, the court dismissed the Section 502(a)(3) breach of fiduciary duty claim against Matrix. As for Reliance Standard, the court concluded that it was a fiduciary under ERISA, and therefore did not dismiss the claim on this ground. However, the court ultimately concluded that plaintiffs’ Section 502(a)(3) claim should be dismissed because the relief they seek, “nothing other than compensatory damages,” doesn’t fall within the appropriate category of “equitable restitution.” The court was left with the Section 510 claim asserted against Matrix, which it dismissed, stating that Section 510 claims are “limited to actions affecting the employer-employee relationship” and Matrix was not decedent’s employer. For these reasons, Reliance Standard’s and Matrix’s motion to dismiss was granted.

Fourth Circuit

Metropolitan Life Ins. Co. v. Burgess, No. 7:21-cv-00521, 2022 WL 17477576 (W.D. Va. Dec. 6, 2022) (Judge Elizabeth K. Dillon). MetLife filed this interpleader action to determine the proper beneficiary of the $17,860.00 in life insurance benefits of decedent Robert James Shively. The two defendants, Amber Burgess and Toby Wayne Shively, were each served. However, only Mr. Shively, decedent’s brother, filed an answer or in any way appeared in the action. Accordingly, Mr. Shively moved for entry of default against Ms. Burgess, which the court entered on July 13, 2022. In this order, the court granted Mr. Shively’s motion for default judgment and his request that out of the policy amount, MetLife be paid $4,200 in attorneys’ fees and costs. MetLife did not oppose the motion. The court stated that as Ms. Burgess has not responded to the interpleader action, she has forfeited any claim or entitlement she may otherwise have had to the contested fund. Because Mr. Shively was left as the only remaining claimant, the court held that he was entitled to the benefits.

Pleading Issues & Procedure

First Circuit

Bd. of Trs. of the IUOE Local 4 Pension Fund v. Alongi, No. 21-cv-10163-FDS, 2022 WL 17541936 (D. Mass. Dec. 7, 2022) (Judge F. Dennis Saylor IV). The Board of Trustees of several multiemployer plans, along with a union, a labor-management trust fund, and a social-action committee, sued the plans’ former administrator, Gina Alongi, for breaches of fiduciary duties during her tenure. The Funds allege that Ms. Alongi diverted plan assets, failed to perform her required work, and failed to act in accordance with the plan documents and policies. Before this lawsuit was filed, Ms. Alongi had filed a complaint with the Massachusetts Commission Against Discrimination against the fund and the chairman of the board of trustees alleging hostile work environment, unlawful retaliation, sexual harassment, and disability discrimination. After this lawsuit was filed, Ms. Alongi filed suit in Massachusetts state court with these same allegations. Now, Ms. Alongi has moved for leave to file an amended answer to assert counterclaims against the Funds and add the chairman as a counterclaim defendant. These proposed counterclaims are essentially the same claims Ms. Alongi asserted in the pending state court action. Although the motion was filed after the deadline for amendment of the pleadings and Ms. Alongi did not act diligently in seeking to add these counterclaims, the court nevertheless granted Ms. Alongi’s motion, concluding that “the proposed amendment would help rationalize this litigation by having all related claims resolved in a single proceeding.” This was especially true, the court held, because the Funds will not be prejudiced by granting the motion. Finally, the court stated that it would exercise jurisdiction over the state law claims, as they relate to the same case or controversy, the facts being intertwined, and resolving these claims alongside the ERISA claim would therefore promote “efficiency, judicial consistency, and judicial economy.” However, the court’s decision to grant Ms. Alongi’s motion did come with the condition that she dismiss her claims in state court with prejudice. Failure to do so, the court held, “may result in the vacating of this order.”

Ninth Circuit

Kopelev v. The Boeing Co., No. 21-55937, __ F. App’x __, 2022 WL 17547807 (9th Cir. Dec. 9, 2022) (Before Circuit Judges Wallace, Fernandez, and Silverman). Plaintiff-appellant Galina Kopelev appealed the district court’s dismissal of her breach of fiduciary duty claim against The Boeing Co., its ERISA plan, and the plan’s committee. The Ninth Circuit affirmed the district court’s dismissal with prejudice, finding that “Kopelev does not adequately allege facts to establish that the Appellees violated ERISA or the terms of the plan or that the Appellees breached their fiduciary duty by failing to inform her affirmatively of the December 2018 distribution, or by withholding taxes from the distribution.” Furthermore, because Ms. Kopelev did not present the district court with new evidence or an intervening change in controlling precedent, the panel also unanimously affirmed the district court’s denial of plaintiff’s motion for reconsideration.

Withdrawal Liability & Unpaid Contributions

Eighth Circuit

Greater St. Louis Constr. Laborers Welfare Fund v. RoadSafe Traffic Sys., No. 22-1050, __ F. 4th __, 2022 WL 17544675 (8th Cir. Dec. 9, 2022) (Before Circuit Judges Loken, Benton, and Kobes). Greater St. Louis Construction Laborers Welfare Fund sued a contributing employer, RoadSafe Traffic Systems, Inc., for unpaid contributions for hours worked by covered employees that RoadSafe had considered “shop hours,” i.e., non-construction, non-highway work which was nonreportable. The district court interpreted the terms of the collective bargaining agreement as expressly limiting the contributions to specified categories of work and agreed with RoadSafe that it was not required to pay fringe-benefit contributions or supplemental dues. Accordingly, the district court granted summary judgment in favor of the employer. On appeal, the Eighth Circuit agreed with the lower court’s reading of the collective bargaining agreement and its interpretation that RoadSafe was not contractually obligated to pay for all hours worked by covered employees. “By its plain language, Article V of the CBA limits RoadSafe’s contribution obligations to ‘Building Construction’ and ‘Highway/Heavy’ categories of work. Because work coded as NON or ‘shop hours’ is not within the definitions of either…. the CBA does not require RoadSafe to make contributions for the coded work.” Therefore, the court of appeals affirmed.