Haley v. Teachers Ins. & Annuity Ass’n of Am., No. 21-805-cv, __ F.4th __, 2022 WL 17347244 (2d Cir. Dec. 1, 2022) (Before Circuit Judges Newman, Walker, and Sullivan)
In large class actions, predominance of common issues among the class members is often a thorny issue, requiring careful scrutiny by the district court tasked with deciding whether to certify the class. It is no less true in ERISA class actions, as this decision demonstrates.
Plaintiff Melissa Haley is a participant in a Section 403(b) defined contribution plan sponsored by her employer, Washington University (“WashU”). She brought a putative class action asserting that a collateralized loan program offered to participants by Defendant Teachers Insurance and Annuity Association of America constituted a prohibited transaction under ERISA.
The loan program, which TIAA offers to 8,000 pension plans, allows plan participants to borrow from TIAA’s general account rather than their own individual accounts. TIAA then charges interest on these loans, at various rates dependent on state law and the particular contract at issue, which the participants then pay (along with the principal). These loans are collateralized with funds in the participants’ accounts, equal to the amount of the loan plus an additional 10%, which TIAA then invests in its own products. TIAA thus received compensation for these loans from two sources: the interest paid on the loans and the amount earned on the collateral investments.
Ms. Hart took out four such loans before filing suit against TIAA for violating ERISA’s prohibited transaction rules. Interesting, she took out a fifth loan in 2019 while her suit was pending. Also of interest is the fact that Ms. Hart did not sue her employer, WashU, the entity that entered into the prohibited transaction with TIAA.
The district court determined that a prohibited transaction suit could proceed against TIAA even though it was not a fiduciary, denying TIAA’s motion to dismiss on this basis. The court then certified a class of the thousands of pension plans that contracted with TIAA to offer loans that were secured by participant pension benefits. TIAA filed an interlocutory appeal challenging this certification decision.
On appeal, the court began by explaining that the rather unique and broadly worded prohibited transaction provision contained in ERISA Section 406(a), the only prohibition at issue on appeal, bans most transactions with service providers, such as TIAA. However, by the terms of Section 406(a), this broad prohibition is limited by the exemptions contained in ERISA Section 408.
The court of appeals saw two exemptions as potentially relevant here. “First, § 408(b)(1) exempts loans to participants provided that, among other things, they are made in accordance with specific provisions of the plan document, ‘bear a reasonable rate of interest,’ and are ‘adequately secured.’ Second, § 408(b)(17) permits transactions prohibited by § 406(a)(1)(B) and (D) as long as the plan pays no more and receives no less than ‘adequate consideration.’”
The court then turned to what it saw as the relevant issue on appeal: the requirement in Rule 23 that there are questions common to the class and these questions predominate. The appellate court had no trouble concluding that the district court did not abuse its discretion in concluding that there were such common issues. But the Second Circuit faulted the district court for what it saw as that court’s complete failure to factor in ERISA’s prohibited transaction exemptions into its predominance analysis.
Recognizing that the Section 408 exemptions constitute affirmative defenses, the court nevertheless pointed out that the predominance inquiry requires the court to give careful scrutiny to all legal issues, including affirmative defenses.
With respect to the § 408(b)(17) “adequate consideration” exemption, the court pointed out that the “adequacy” determination is based on the fiduciaries’ conduct in determining the consideration, not the amount actually paid. Even if adequate consideration is measured under an objective test, the court concluded that the facts pertaining to the determination by the fiduciaries for each plan might well entail individualized rather than common proof. But, according to the Second Circuit, the district court failed to analyze this issue at all, merely indicating that “determining whether the plans received adequate compensation ‘is not quite as easy’ to resolve with common proof.”
With respect to the § 408(b)(1) exemption, the court noted that the parties disputed whether the inquiry required the court to look at the terms of individual plans and the individual loans made to participants in those plans, as TIAA insisted, or whether the inquiry was not fact- and plan-specific, as the plaintiff argued, because the exemption was inapplicable to the loans at issue. Without resolving that dispute, the court of appeals found that the district court simply failed to analyze the exemptions and thus did not take “the requisite ‘close look at whether the common legal issues predominate over individual ones.’”
With that, the court of appeals vacated the district court’s class certification and remanded to the court to make the careful determination of predominance required under Rule 23. Whether the district court will again certify the class after doing so remains to be seen.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Hursh v. DST Sys., No. 21-3554, __ F. 4th __, 2022 WL 17246315 (8th Cir. Nov. 28, 2022) (Before Circuit Judges Loken, Arnold, and Kelly). Last fall and winter, Your ERISA Watch summarized a series of related decisions from the Western District of Missouri confirming arbitration awards won by participants in a 401(k) profit sharing plan challenging the actions of DST Systems, Inc., their plan’s fiduciary, for failing to monitor and ensure the rebalancing of the plan’s overly concentrated investments in a single stock. In those orders, the court confirmed plaintiffs’ arbitration awards under Section 9 of the Federal Arbitration Act (“FAA”) and granted plaintiffs’ requests for attorneys’ fees and costs. Defendants appealed. Then, on March 31, 2022, while briefing was underway in the Eighth Circuit, the Supreme Court issued its decision in Badgerow v. Walters, 142 S. Ct. 1310 (2022), “dramatically limiting federal jurisdiction to confirm or vacate arbitration awards under Sections 9-10 of the FAA.” This new precedent factored heavily in the Eighth Circuit’s ruling. The court of appeals did not agree with plaintiffs’ assertion that the district court had federal question jurisdiction because their motions to confirm the arbitration awards under Section 9 “implicated significant federal issues,” namely the “dispute resolution relating to an ERISA Plan.” To the contrary, the court understood plaintiffs’ actions, seeking relief under the DST Arbitration Agreement in their employment contracts, as not falling under ERISA preemption, and therefore not conferring federal question jurisdiction. “Although the arbitration awards at issue were based upon breach of DST’s fiduciary duties under ERISA, without a look-through to this underlying ERISA controversy that is foreclosed by Badgerow, Plaintiffs’ Section 9 applications only concern ‘the contractual rights provided in the arbitration agreement, generally governed by state law.’” Thus, the Eighth Circuit concluded that the lower court lacked federal question subject matter jurisdiction and therefore vacated each of the district court’s confirmation orders, including the attorneys’ fee awards, and remanded with instructions to the district court to determine whether it has diversity jurisdiction in each individual circumstance. Finally, although the court stated that it could not address most of the remainder of either party’s arguments until the district court had finished with its diversity jurisdiction analysis “on a case-by-case basis,” the appeals court did identify one additional issue that it could consider even with the district court’s jurisdiction in doubt – whether the district court erred in not addressing defendants’ motion to transfer these cases to the Southern District of New York (where a parallel ERISA class action is underway against DST.) The Eighth Circuit cleverly reasoned that transferring these cases to the ongoing proceedings in New York may “provide the parties a transferee court with subject matter jurisdiction that can resolve the entire controversy, including the transferred claims, by settlement or otherwise, in a manner that is fair and more efficient than keeping some Plaintiffs’ claims pending in the Eighth Circuit and leaving the remaining arbitration claimants to seek confirmation in state court.” Accordingly, the circuit court also included instructions to the district court to determine the issue of whether to transfer the cases congruent with its case-by-case diversity jurisdiction analysis. Unfortunately, for the participants in the plan who have suffered financial losses through no fault of their own, and have already waded through arbitration proceedings, civil suits, and class actions, this decision by the Eighth Circuit leaves them once again in limbo, caught between a rock, a hard place, and at least three court systems.
MacNaughton v. The Paul Revere Life Ins. Co., No. 4:19-40016-TSH, 2022 WL 17253701 (D. Mass. Nov. 28, 2022) (Judge Timothy S. Hillman). Plaintiff Dr. Mary MacNaughton was awarded summary judgment in this action challenging the termination of her long-term disability benefits by defendants The Paul Revere Life Insurance Company and Unum Group. Under abuse of discretion review, the court found that Dr. MacNaughton was prejudiced by defendants’ failure to disclose the medical opinions on which they relied to deny the benefits. Rather than award benefits to Dr. MacNaughton, the court chose to remand the matter to defendants for reconsideration. Following her summary judgment win, Dr. MacNaughton filed a motion for attorneys’ fees and costs pursuant to Section 502(g)(1). Given the presumption that remand to plan administrators in ERISA benefit disputes constitutes “some degree of success on the merits” to warrant an award of fees, the court held that Dr. MacNaughton was eligible for such an award. Furthermore, the court explained that an award of fees would encourage defendants “to proactively disclose relevant reports in other ERISA disputes” and would benefit other plan participants. Lastly, the court held that defendants are unquestionably able to satisfy an award. Weighing these factors, the court concluded that Dr. MacNaughton’s motion should be granted. The decision thus moved on to determining the precise award. Dr. MacNaughton was represented in her action by counsels Feigenbaum and Ravis, both “experienced ERISA litigators and partner-level lawyers.” Counsel sought hourly rates of $800 an hour for Feigenbaum and $550 an hour for Ravis. “[T]his Court, considering its knowledge of local rates, finds a lodestar of $600 an hour appropriate for this locality.” The requested 97.65 hours for counsel Feigenbaum and 78.3 hours for counsel Ravis was also reduced by the court. The court eliminated the requested hours for reimbursement of plaintiffs’ unsuccessful discovery motions and reduced the requested hours for time spent working on the summary judgment motion by 55% to reflect the fact the court chose to remand rather than award benefits. After these reductions, the court was left with lodestar amounts totaling $23,694 for counsel Feigenbaum and $13,299 for counsel Ravis. Attorneys’ fees were awarded in these amounts. Finally, Dr. MacNaughton’s motion to recover her $400 filing fee was granted.
Int’l Union v. Honeywell Int’l Inc., No. 11-14036, 2022 WL 17259028 (E.D. Mich. Nov. 28, 2022) (Magistrate Judge David R. Grand). The International Union, United Automobile, Aerospace and Agricultural Implement Workers of America along with individual retirees brought this suit against an employer, Honeywell International, Inc., arguing that, under collective bargaining agreements between the parties, Honeywell was obligated to pay the retirees lifetime health insurance benefits. On April 3, 2020, the Sixth Circuit ruled in favor of Honeywell, concluding that the collective bargaining agreements, which contained “durational clauses,” did not and could not promise lifetime benefits past those durations under which Honeywell was obligated. As a result, the court of appeals concluded that the lifetime healthcare benefits were not disconnected from the durational clauses and therefore could not extend the benefit beyond the end dates. Notably, this decision was not unanimous. Judge Jane B. Stranch dissented from her colleagues, finding that the collective bargaining agreements did vest minimum lifetime “floor-level” healthcare benefits for the retirees based on the ordinary principles of contract law. In fact, Judge Stranch wrote that such a reading of the collective bargaining agreements was the “only reasonable interpretation.” Judge Stranch’s dissent played a significant role in this report and recommendation by Magistrate Judge David R. Grand, wherein Judge Grand recommended the court deny Honeywell’s motion for attorneys’ fees under ERISA’s fee and cost provision, Section 502(g)(1). Magistrate Grand, relying on Judge Stranch’s opinion, concluded that plaintiffs’ position, although ultimately unsuccessful, was not meritless nor made in bad faith. Furthermore, the Magistrate’s report stressed that “there is nothing untoward to deter” in this instance to justify an award of fees to an ERISA defendant, especially when factoring in a potential “chilling effect such an award might create for other ERISA plaintiffs.” For these reasons, it was Judge Grand’s opinion that the court should deny Honeywell’s motion for attorney’s fees.
Breach of Fiduciary Duty
Lauderdale v. NFP Retirement, Inc., No. 8:21-cv-00301-JVS-KES, 2022 WL 17259050 (C.D. Cal. Nov. 17, 2022) (Judge James V. Selna). This week, the court issued three pre-trial rulings in this class action brought by participants of the multi-employer Wood Group U.S. Holdings, Inc. 401(k) plan. Plaintiffs’ lawsuit challenges the actions of the plan’s sponsor, advisor, and manager in selecting, monitoring, and maintaining an investment portfolio that included proprietary target-date funds and collective investment trusts despite their high costs and untested performance histories. In fact, once these funds were adopted as investment options within the plan, plaintiffs allege they performed poorly when compared to other available options. The decision to include these proprietary investments was made, according to plaintiffs, in order to financially benefit the plan administrators, thereby putting their business incentives ahead of the best interest of the participants. In addition, plaintiffs faulted the fiduciaries for failing to negotiate lower-cost share classes, failing to monitor their co-fiduciaries, and engaging in prohibited transactions. In this first order, the court ruled on the motion of defendants NFP Retirement, Inc., flexPATH Strategies, LLC, Wood Group Management Services Inc., Wood Group U.S. Holdings, Inc., and the plan’s committee to strike plaintiffs’ jury demand. As ERISA fanatics are aware, courts are typically of the view that there is no right to a jury trial in ERISA cases. Here, the court was unwilling to adopt such an absolutist position, and therefore approached its decision-making by evaluating whether the “action would have been deemed legal or equitable in the eighteenth century” and whether the relief sought was legal or equitable in nature. Ultimately, while the analysis was more involved than standard motions to strike jury demands in ERISA actions, the decision reached was no different. The court held that this ERISA breach of fiduciary duty action would historically have been decided in the courts of equity, and the nature of the relief plaintiffs sought was likewise equitable. Thus, the court held that plaintiffs are not entitled to a jury trial under the Seventh Amendment. Accordingly, the motion to strike the jury demand was granted.
Lauderdale v. NFP Retirement, Inc., No. 8:21-cv-301-JVS-KES, 2022 WL 17260510 (C.D. Cal. Nov. 17, 2022) (Judge James V. Selna). In the second order, the court ruled on defendants’ motions for summary judgment on plaintiffs’ five counts: (1) breach of fiduciary duties related to the flexPATH target-date funds; (2) breach of fiduciary duties related to the use higher-cost share classes of plan investments; (3) prohibited transaction related to the flexPATH funds; (4) failure to monitor fiduciaries asserted against the Wood Defendants; and (5) breach of the duty of prudence against the Wood Defendants related to the selection of flexPATH as the plan’s discretionary investment manager. The court broke the defendants up into three groups: flexPATH, NFP, and the Wood Defendants. The court granted NFP’s summary judgment motion, denied flexPATH’s motion, and granted in part the Wood Defendants’ motion. To begin, the court addressed the breach of fiduciary duty claims and found that there were genuine disputes of material fact that precluded it from granting defendants’ summary judgment motions. Nevertheless, upon addressing the arguments pertaining to the causation link between the selection of the funds as investment options and the losses to the plaintiffs, the court wrote that it could not “be the case that there is always presumption of causation,” and the court found the conduct of two of the defendants, NFP and the Wood Defendants, did not cause the losses. With respect to the share class claims, the court stated, “Plaintiffs’ arguments rest largely on speculation and hindsight.” Defendants were also successful in the arguments they made asserting that fiduciaries don’t engage in prohibited transactions by entering into a contract “that makes that counterparty a ‘party in interest.’” However, the court denied the Wood Defendants’ motion to dismiss both the failure to monitor fiduciaries claim and the breach of duty of prudence claim based on the decision to select flexPATH as the plan’s monitor, concluding that a factfinder could find in favor of plaintiffs in both instances based on the evidence. Finally, viewing the evidence in the light most favorable to plaintiffs, the court held that it could not grant defendant flexPATH’s motion to dismiss. Thus, defendants achieved mixed results in their summary judgment motions, leaving much of the case to proceed to trial.
Lauderdale v. NFP Retirement, Inc., No. 8:21-cv-00301-JVS-KES, 2022 WL 17324416 (C.D. Cal. Nov. 17, 2022) (Judge James V. Selna). Finally, the court’s third decision ruled on defendants’ motion to exclude the testimony of plaintiffs’ four experts. In large part, the motions were denied, as the court concluded that defendants’ arguments in favor of excluding testimony mostly went to the weight and not the reliability of the testimony, and further concluded that differences of opinion could be properly addressed during cross-examination. However, to the extent that the court concluded that plaintiffs’ experts offered legal opinions or gave opinions that were “legally irrelevant,” the court granted the motions. Despite these few instances where the court struck small portions of plaintiffs’ experts’ testimony, the court otherwise denied the motions, concluding the experts were qualified and suitably offered testimony on issues within their fields of expertise.
Disability Benefit Claims
Niemuth v. The Epic Life Ins. Co., No. 20-cv-629-jdp, 2022 WL 17359886 (W.D. Wis. Dec. 1, 2022) (Judge James D. Peterson). In the summer of 2018, plaintiff Lori Niemuth’s fibromyalgia became disabling, and she stopped working. Ms. Niemuth filed a claim for long-term disability benefits under her employer’s policy, which defendant The EPIC Life Insurance Company approved. EPIC paid Ms. Niemuth’s claim for one year and then terminated her benefits. EPIC informed Ms. Niemuth that its reviewing physicians had evaluated her medical records and concluded that “[b]ased on the totality of the evidence provided in the medical records…you are capable of working full time without restriction.” Ms. Niemuth commenced legal action following an unsuccessful administrative appeal. The parties cross-moved for summary judgment, agreeing that the plan granted discretionary authority to EPIC and thus abuse of discretion review was applicable. The court quoted a Seventh Circuit decision from 1996, Sarchet v. Chater, 78 F.3d 305 (7th Cir. 1996), which stated that while some people may have a severe enough case of fibromyalgia as to be disabled, “most do not.” The court understood EPIC’s role then as distinguishing whether Ms. Niemuth was a person with fibromyalgia who could not work or if she belonged to that larger group of people with the illness who could. In the view of the court, Ms. Niemuth’s treating physician’s statement explaining how the severity of a person’s fibromyalgia is nearly impossible to quantify with objective medical measures, was an admission by Ms. Niemuth’s doctors that they “could not offer any objective support for the limitations endorsed on their functional assessments and that they were merely parroting Niemuth’s subjective complaints.” Thus, the court agreed with EPIC that Ms. Niemuth failed to offer objective evidence demonstrating the severity of her disability as required by the plan. In response to Ms. Niemuth’s argument that the court should reject EPIC’s lack of objective evidence defense because it was adopted during legal proceedings rather than as the basis for the denial, the court wrote, “Niemuth did not develop this argument until her reply, so she has forfeited it.” In sum, the court felt that EPIC had a reasonable basis for terminating the benefits that was supported by the record, and it had no significant conflict of interest because its reviewing physicians were independent third parties. Therefore, the court denied Ms. Niemuth’s motion for summary judgment, and granted EPIC Life’s summary judgment motion.
Raines v. Subway Dev. of W.V., No. 2:22-cv-00338, 2022 WL 17324446 (S.D.W. Va. Nov. 29, 2022) (Judge Joseph R. Goodwin). Plaintiff Lyndon Raines worked for defendant Subway Development of W.V. for 23 years and had a close personal relationship with the company’s owner, defendant Gregory Hammond. Sadly, in May 2020, Mr. Raines became very ill. He was hospitalized and then informed that he needed a heart transplant. Mr. Raines and his wife informed Mr. Hammond and his wife about Mr. Raines’s illness, as the families were very close. Then, shortly after Mr. Raines was released from the hospital, Mr. Hammond fired him. Following the termination, Mr. Raines began requesting information about his pension. He requested documents, which were not provided, and was given different numbers about the value of his pension benefit. Mr. Raines simultaneously took two steps: executing the documents to obtain his lump-sum pension benefit, and commencing this legal action. Mr. Raines filed his complaint in state court alleging both ERISA and state law causes of action. Defendants removed the case to federal court. Following the removal, Mr. Raines moved for remand of the non-ERISA state law claims, and defendants moved to dismiss the two state law claims they believed were related to the ERISA plan and therefore were preempted by ERISA. The court granted both motions. First, the court dismissed the state law negligent administration of a pension plan claim, which Mr. Raines himself conceded was preempted by ERISA. Next, the court dismissed the state law breach of fiduciary duty claim, which also pertained to the administration of and actions around the pension plan. Although the court will retain jurisdiction over the ERISA benefits claim and the ERISA breach of fiduciary duty claim, the court nevertheless granted Mr. Raines’ motion to remand the remaining state law claims. Some of these claims pertained to state law disability discrimination and unlawful termination, others arguably shared more facts in common with the ERISA claims. “Even with this minimal factual overlap, I am not convinced the ERISA claims and Counts III and IX are so closely related that they share a common nucleus of operative fact. I need not decide that question, however, because even assuming they did, I would decline to exercise supplemental jurisdiction over it. It is most sensible, then, to remand all the state law claims to be disposed of together in state court.” Thus, both motions before the court were granted.
Life Insurance & AD&D Benefit Claims
N.Y. Life Ins. Co. of NY v. Maxwell, No. 1:21-CV-00346 (LEK/ATB), 2022 WL 17403465 (N.D.N.Y. Dec. 2, 2022) (Judge Lawrence E. Kahn). Plaintiff New York Life Group Insurance Company of NY filed this interpleader action seeking a court order determining the proper beneficiary of the life insurance benefits of decedent Dreena Verhagen. New York Life deposited the plan benefit amount plus interest in the Court Registry Investment System. Seeking discharge from liability in connection with the issuance of benefits, New York Life moved for interpleader relief discharging it from liability, as well as for injunctive relief seeking to have defendants “enjoined from commencing or prosecuting any action related to the Plan.” In this order, the court granted New York Life’s motion for discharge but denied its request for injunctive relief. The court found that the interpleader action was appropriate due to the competing claims for the benefits and the risk that New York Life could face multiple liabilities if it were to distribute the benefits. Given this, the court concluded it was appropriate to discharge New York Life and its associated entities from further liability under the plan with respect to decedent Verhagen’s benefits. However, the court held that New York Life did not show “irreparable harm” in order to meet the standard required for granting its request to obtain a permanent injunction. Should New York Life face a separate lawsuit, the court stated that “money damages could ultimately compensate any injury” New York Life were to suffer. In light of these findings, the court discharged New York and dismissed it with prejudice from the case.
Wegner v. Tetra Pak, Inc., No. 4:20-CV-608-SDJ, 2022 WL 17347151 (E.D. Tex. Nov. 30, 2022) (Judge Sean D. Jordan). Plaintiff Patricia Wegner sued her late husband’s employer, Tetra Pak, Inc., and the insurer of his supplemental life insurance policy, Hartford Life & Accident Insurance Company, for the difference between the amount of benefits she was paid (“the Guaranteed Issue Amount”) and the amount of additional coverage her husband elected and paid premiums on. In addition to suing for benefits under Section 502(a)(1)(B), Ms. Wegner also brought a claim for failure to follow claims procedures in violation of Section 503, failure to provide plan information in violation of Section 104(b)(4), and for breaches of fiduciary duties under Sections 502(a)(2) and (a)(3). Defendants moved for judgment. Applying de novo review, the court brushed aside the fact that the original explanation for denial of benefits was altered from Mr. Wegner not being actively at work at the time of his death, which proved inaccurate, to Mr. Wegner’s failure to provide a completed Evidence of Insurability form. Because Mr. Wegner never completed this form and the plan’s online benefits portal had information about this requirement, the court affirmed that the correct amount of benefits was paid to Ms. Wegner and she was not entitled to the higher amount her husband had elected. As for the premiums that Mr. Wegner paid on that higher amount, the court concluded that the “only remedy for Troy Wegner’s overpayment in premiums is refund of the premiums, which has already occurred.” Accordingly, defendants were granted judgment on the claim for benefits. The court then turned to the Section 503 claim. The court wrote that even if it were to agree with Ms. Wegner that defendants failed to fulfill procedural requirements, the proper remedy would be remand to the plan administrator, which in this case the court stated was inappropriate because Ms. Wegner was already paid the correct amount in benefits. Regarding the Section 104(b)(4) claim, the court was satisfied that the online benefit portal contained all of the documents identified in Section 104(b)(4), and these documents were therefore available to the Wegners for viewing. Ms. Wegner’s Section 502(a)(2) claim was dismissed by the court as individuals may not sue under that provision for personal damages. Finally, the court understood Ms. Wegner’s Section 502(a)(3) claim as seeking the same relief as her Section 502(a)(1)(B) claim, and stated that under Fifth Circuit precedent a claimant “whose injury creates a cause of action under ERISA §502(a)(1)(B) may not proceed with a claim under ERISA §502(a)(3).” Having so found, the court granted defendants’ requests for judgment under Rule 52(a) and dismissed Ms. Wegner’s claims with prejudice.
Pleading Issues & Procedure
Clancy v. United Healthcare Ins. Co., No. 3:21cv535(DJN), 2022 WL 17342604 (E.D. Va. Nov. 30, 2022) (Judge David J. Novak). In his capacity as Liquidating Trustee for the New England Motor Freight (“NEMF”) Liquidating Trust, plaintiff Kevin P. Clancy sued United Healthcare Insurance Company and HPHC Insurance Company Inc. for breaches of fiduciary duties under ERISA and concealment and spoilation of evidence under New Jersey state law in connection with alleged overpayments from the self-funded NEMF health benefit plan. Defendants moved to dismiss both causes of action. They argued that Mr. Clancy as Liquidating Trustee did not have standing to bring his ERISA claims. Because of this lack of standing, they argued, he also lacked the ability to bring his derivative state law claim. In response, plaintiff argued that the Bankruptcy Plan granted him the power to pursue this legal action as the successor fiduciary of the NEMF Plan. The court agreed. Because New England Motor Freight operated as the plan administrator, and the Bankruptcy Plan transferred the fiduciary status to Mr. Clancy, the court stated that Mr. Clancy had the right to sue for the alleged overpayments. This remained true, the court went on, even though the plan has since been terminated, because the overpayments occurred during the plan’s existence and operation. Finally, the court held that the Trustee was appropriately bringing his action on behalf of the NEMF Plan. For these reasons, the court was satisfied that Mr. Clancy has standing under ERISA to bring his complaint. As the second count relied on the first, the court also allowed the state law spoilation and concealment claim to proceed. Accordingly, the motion to dismiss was denied.
Carte v. Am. Elec. Power Serv. Corp., No. 2:21-cv-5651, 2022 WL 17351529 (S.D. Ohio Dec. 1, 2022) (Judge Michael H. Watson). Participants of the American Electric Power System Retirement Plan moved under Federal Rules of Civil Procedure 59(e) and 60(b) for relief from judgment and for leave to file an amended complaint following a court order dismissing their ERISA class action without prejudice. In that order, the court held that plaintiffs’ complaint, centering around the plan’s 2001 transition from a defined benefit plan to a cash balance plan, “failed to provide sufficient factual allegations to support the claims.” Specifically, the court stated that plaintiffs could have been able to provide calculations demonstrating the difference between younger participants not experiencing “wear away” periods from plaintiffs who were allegedly harmed by the stagnant accrual periods. “Without such calculations – even in the absence of discovery about any actual younger participants – the Court might have been able to discern whether Plaintiffs have plausibly alleged a claim under their legal theory.” The court also stated that plaintiffs failed to allege their backloading and insufficient notice claims. In their current motions, plaintiffs argued that they only recently discovered new evidence, the plan’s actuarial statements from the years 2000 to 2011, which they claim are important pieces of evidence they did not have in their possession until after the court’s order dismissing their action. The court stated that even assuming plaintiffs did only discover this evidence after its order, “Plaintiffs have not shown they are entitled to relief under Rules 50(e) and 60(b)” because “information about contributions contained within the plan itself provided the necessary information for Plaintiffs to calculate contributions for hypothetical participants,” meaning there was nothing “actually new” for the court to consider. Accordingly, the court denied plaintiffs’ motions but reminded the plaintiffs that, because their claims were dismissed without prejudice, they remained “free to file a new complaint in a new action.”
Statute of Limitations
Sauls v. Coastal Bridge Co., No. 21-302-SDD-RLB, 2022 WL 17330834 (M.D. La. Nov. 29, 2022) (Judge Shelly D. Dick). Plaintiffs Joe Sauls and Luis Nieves-Rivera are employees of defendant Coastal Bridge Company, LLC. Through their employment, plaintiffs were covered by a group health insurance plan. In this action, plaintiffs allege that medical expenses they each incurred in late 2019, for a heart procedure and medical care following a motorcycle accident, respectively, should have been paid by their ERISA health plan. Plaintiffs believe, through information they received from a letter sent by Blue Cross, as well as through the actions of the defendants which discouraged them from timely appealing their claims and pursuing legal action, that the plan has been either terminated and/or defunded. Given the scenario they find themselves in, plaintiffs alleged alternative causes of action for monetary and equitable relief under Sections 502(a)(1)(B) and (a)(3). Defendants moved to dismiss. Defendants offered three reasons they believed the action should be dismissed. First, defendants argued that plaintiffs’ lawsuit was untimely under the plan’s one-year statute of limitations. “Without considering the applicability of ERISA-estoppel, the Court finds the instant action is timely. The Court finds that under prevailing Supreme Court and Fifth Circuit law, the Plan’s 1-year deadline to bring suit is unreasonably short and is therefore unenforceable.” The court reasoned that if a mainstream benefits claim takes just about a year to be resolved, a claimant would be left “on average, zero time to seek judicial review.” The court was unwilling to endorse a 1-year limitation period that it construed as “all but designed to expire close to or concurrently with the accrual of a cause of action,” and so refused to enforce it. As plaintiffs diligently pursued their rights, commencing this action only a few months after the unreasonable 1-year limitation period had expired, the court held that their lawsuit is timely. Defendants next argued that dismissal is warranted because plaintiffs have failed to exhaust administrative remedies. As exhaustion of administrative remedies is an affirmative defense, the court agreed with plaintiffs that dismissal at the pleading stage would be unjust, particularly in light of compelling evidence which supports the inference that completing the review process would have been futile. Thus, the court stated that parties needed to conduct discovery on the issue of exhaustion, and informed defendants that they could raise the issue again at the summary judgment stage. Finally, defendants asserted that plaintiffs are not permitted to pursue claims for both monetary and equitable relief under Fifth Circuit precedent. Although the court agreed that plaintiffs may not ultimately recover both benefits under Section 502(a)(1)(B) and equitable relief under Section 502(a)(3), the court stated that it would permit plaintiffs to simultaneously plead claims under the different subsections for Section 502(a) “to preserve alternative grounds for relief until a later stage in the litigation.” In a scenario where plaintiffs’ claims for benefits prove not viable, the court expressed that they would be permitted to rely on the safety net of Section 502(a)(3) as an adequate remedy. For these reasons, defendants’ motion to dismiss was denied.