Zall v. Standard Ins. Co., No. 22-1096, __ F. 4th __, 2023 WL 312368 (7th Cir. Jan. 19, 2023) (Before Circuit Judges Hamilton, St. Eve, and Kirsch)
ERISA Section 503 requires that plan fiduciaries decide benefit claims under a “full and fair” claims review procedure. 29 U.S.C. § 1133. The Department of Labor has fleshed out what this means in regulations that it periodically updates, generally to impose additional and more stringent claims processing requirements. Which version of these regulations applies to a given case is a question that frequently arises in the disability context, where benefits are often terminated years after a plan participant first applied for and was awarded benefits. Here, the Seventh Circuit answers that question in the participant’s favor, holding that the regulations in effect at the time of the termination govern.
Eric Zall worked as a dentist for more than two decades until chronic pain in his neck and right arm made it impossible to continue doing so. In 2013, he filed a claim for long-term disability benefits with Standard Insurance Company, which insured and administered an ERISA-governed disability plan in which Mr. Zall was a participant. At that time, the governing regulations, which were promulgated in 2000 with an effective date of January 1, 2002, required the claims administrator to give copies of all document and records which it considered, generated, or relied upon in denying benefits to the claimant “upon request.” Standard approved Mr. Zall’s claim and paid benefits for six years.
Then, in 2019, Standard terminated Mr. Zall’s benefits based on a determination that his claim was subject to a 24-month benefit limit for disabilities “caused or contributed to by…carpal tunnel or repetitive motion syndrome.” By that time new regulations were in effect, which now require that administrators provide claimants with pertinent information whether they ask for it or not. Despite this requirement, Standard issued a final decision upholding the initial termination of benefits that relied substantially on the report of a physician Standard consulted during the administrative review process, Dr. Michelle Albert, which it did not provide to Mr. Zall.
Mr. Zall sued, arguing, among other things, that Standard denied him “full and fair review” of his benefit claim by failing to give him Dr. Albert’s report, and that Standard’s decision to terminate his benefits was not rationally supported by the evidence. The district court disagreed on both counts. It held that the new regulations were inapplicable because they applied only to claims that were “filed” after April 2018. The district court also concluded that Standard’s determination that Mr. Zall’s condition fell within the 24-month limitation was not “arbitrary and capricious” and was supported by substantial evidence in the form of Dr. Albert’s report.
The Seventh Circuit saw things differently on the “full and fair review” issue, which turned on whether the 2002 or the 2018 regulations applied. The court found the answer in the plain language of the 2018 regulations, which state that, subject to a few inapplicable exceptions, they apply to claims filed after January 1, 2002. The court then rejected each of Standard’s arguments seeking to avoid “this straightforward reading of the controlling text.”
First, the court considered Standard’s argument that a summary of the regulations prepared by the Department of Labor stated that the applicability date of the regulations was April 1, 2018, and this should control. As an initial matter, the court noted that where the text of a regulation is clear, there is no need to consult extratextual evidence on its meaning. Moreover, the court saw no conflict between the summary statement and the effective date of January 1, 2018 set forth in the regulations, reasoning that this simply meant that once the regulations became operative in 2018, they applied to all active claims so long as they were filed after January 1, 2002.
Second, the court rejected Standard’s argument that Mr. Zall waived his “full and fair review” argument by not raising it during the administrative review. The problem with Standard’s waiver argument, the court reasoned, is that “Standard committed the procedural error at the very last stage of Zall’s administrative appeal.”
Standard also argued that Mr. Zall waived the argument about the 2018 regulations “by failing to allege it in his complaint.” According to the court, “[t]his argument reflects a deep and all-too-common misunderstanding of federal pleading requirements.” In fact, the federal rules do not require plaintiffs to plead legal theories, and even when they do so, those theories may be altered or refined.
Finally, the court rejected Standard’s argument that applying the 2018 regulations to Mr. Zall’s claim would violate general principles disfavoring retroactivity and construing statutory grants of rulemaking authority not to authorize retroactive rulemaking unless they do so expressly. But these rules disfavoring retroactivity apply only to substantive rules, and changes in procedural rules do not raise concerns about retroactivity. The court concluded that the “Claims procedure” regulations at issue were “purely procedural” and could therefore be applied to disputes arising before their enactment. The court ended this discussion of retroactivity by noting that it “would have been easy for Standard to comply with the new procedural requirement without any prejudice to its interests” by simply providing Mr. Zall with a copy of, and a chance to respond to, Dr. Albert’s report “sufficiently in advance” of its final determination.
Although the court agreed with Mr. Zall that he was prejudiced by Standard’s failure to provide him with Dr. Albert’s report while Mr. Zall’s claim was still undergoing administrative review, the court concluded that it “could not reliably say whether Standard acted arbitrarily and capriciously in terminating” his benefits. The court therefore declined to review Standard’s substantive decision to terminate benefits and instead remanded the case to Standard to allow Mr. Zall the opportunity to make additional arguments and submit additional evidence during a full and fair review of his claim.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Gary v. Unum Life Ins. Co. of Am., No. 3:17-cv-01414-HZ, 2023 WL 196172 (D. Or. Jan. 17, 2023) (Judge Marco A. Hernandez). Plaintiff Alison Gary found success in the Ninth Circuit when it determined that Unum Life Insurance Company of America abused its discretion by failing to provide her long-term disability benefits. Subsequently, more than five years after commencing legal action, Ms. Gary has moved for an award of attorneys’ fees and costs pursuant to ERISA Section 502(g)(1). Ms. Gary was represented in this matter by six attorneys and one paralegal. For their years of work in the case, counsel sought a total fee award of $683,644.20, including a requested 1.2 multiplier. As an initial matter, the court stated that Ms. Gary was entitled to an award of fees and costs under the Ninth Circuit’s Hummell test because she succeeded on the merits, Unum can satisfy a fee award, and as a fee award will serve a deterrent purpose discouraging Unum from engaging in the same conduct in the future. Satisfied that Ms. Gary was entitled to an award of fees and costs, the court assessed the lodestar. Counsel sought the following hourly rates: for lead counsel Arden J. Olson, an experienced ERISA attorney practicing for over 4 decades – $540; for appellate counsel Sharon A. Rudnick, an experienced ERISA practitioner with 49 years of experience – $550; for appellate counsel Susan Marmaduke, an experienced appellate lawyer practicing for 35 years – $540; for attorney Aaron Landau, a civil rights and ERISA practitioner with 12 years of experience – $410; for attorney Aaron Crockett – $290; for attorney Julian Marrs, a former clerk of the Alaska Supreme Court and a litigator with years of experience – $305; and for paralegal Ginger Fullerton – $150. The court adjusted the hourly rate only of attorney Landau, whose rate was lowered to $362 per hour, which the court felt was an appropriate rate for an attorney of his skill and experience in Oregon during the relevant period. The remainder of the requested hourly rates were awarded unadjusted. Then the court addressed the reasonableness of the hours billed. Counsel sought compensation for a total of 1,288 hours of work performed by all the attorneys and the paralegal. The court reduced these down to about 900 hours. Of note was the court’s reduction of counsel’s 24.7 hours drafting the complaint down to a mere 8 hours. Also notable was the fact that the court awarded no hours whatsoever to counsel Susan Marmaduke, and only a half-hour to counsel Julian Marrs. These hundreds of billed hours were cut for being excessive, duplicative, clerical, and because the fee claim exceeded the damages that were awarded. The court also declined to apply the requested 1.2 multiplier, concluding “an enhanced award is neither appropriate nor justified in the case.” Accordingly, the court awarded fees comprised of its crafted lodestar: $416,749.05. Finally, as mandated by the court of appeals, Ms. Gary was awarded $171 in costs.
Breach of Fiduciary Duty
Singh v. Deloitte LLP, No. 21-CV-8458 (JGK), 2023 WL 186679 (S.D.N.Y. Jan. 13, 2023) (Judge John G. Koeltl). Former employees of a financial services firm, Deloitte LLP, commenced a putative class action alleging breaches of fiduciary duties in connection with Deloitte’s two defined-contribution retirement plans, a profit-sharing plan and a 401(k) plan. In their complaint, these participants allege the plan’s fiduciaries fell short of their obligations under ERISA by not ensuring the investments within the plans were “appropriate, had no more expense than reasonable and performed well as compared to their peers.” Defendants moved to dismiss for lack of Article III standing pursuant to Federal Rule of Civil Procedure 12(b)(1), and for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). To begin, the court addressed whether plaintiffs had constitutional standing to assert their class-wide claims. Defendants argued that because none of the named plaintiffs were participants in the Profit Sharing Plan, they lack standing with respect to the claims involving that plan. The court agreed. In addition, the court dismissed plaintiffs’ claims pertaining to four of the six challenged funds in the 401(k) Plan, because none of the plaintiffs invested in those four funds and so were not personally financially harmed by their performance, expense ratios, or fees. The court then analyzed whether plaintiffs stated their remaining claims. The court concluded they had not. The court viewed plaintiffs’ allegations that the fees and expense ratios were astronomically high as being inappropriately focused on the outcome. Instead, the court emphasized that its role in analyzing a breach of fiduciary duty allegation is to determine whether a fiduciary’s process and decision-making was flawed, which is a context-specific endeavor. In the context provided by plaintiffs, the court could not determine that the fiduciaries had breached any duty. This was especially true, the court stated, because plaintiffs’ comparisons and benchmarks were “disingenuous” amalgamations of direct and indirect costs, which the court felt lacked sufficient detail on the services provided for the fees. “Because the plaintiffs’ comparison does not compare apples to apples, the comparison fails to indicate plausibly imprudence on the part of the defendants.” For these reasons, the court granted the motion to dismiss without prejudice.
Locascio v. Fluor Corp., No. 3:22-CV-0154-X, 2023 WL 320000 (N.D. Tex. Jan. 18, 2023) (Judge Brantley Starr). Two participants of the Fluor Corporation Employees’ Savings Investment Plan, plaintiffs Deborah Locascio and David Summers, commenced a putative class action lawsuit against the Fluor Corporation, the plan’s administrative and investment committees, and the plan’s consulting firm, Mercer Investments, LLC, for breaches of fiduciary duties of prudence, loyalty, and monitoring. Defendants moved to dismiss for lack of Article III standing under Rule 12(b)(1), and for failure to state a claim under Rule 12(b)(6). Their motion was granted by the court in this order. To begin, the court granted the motion to dismiss Ms. Locascio’s claims for lack of standing because she did not personally invest in any of the challenged funds and thus suffered no personal injury in fact traceable to defendants’ actions. Mr. Summers, the court held, also lacked Article III standing to bring all claims involving nine out of twelve plan options in which he did not invest. Accordingly, the court dismissed all claims involving those nine investment funds. The court next turned to evaluating the claims under Rule 12(b)(6). At bottom, the court found the complaint conclusory, thanks to its focus on the underperformance of the highlighted portfolio options, and its lack of plausible allegations about a flawed process used to reach those undesirable results. The court came close to stating outright that performance results are immaterial to pleading breaches of fiduciary duties. “Summers must demonstrate ‘conduct, not results,’” the court wrote. By focusing on the results, the court stated the complaint failed to provide details which could lead it to infer an imprudent or disloyal process. “Put bluntly, a flawed fiduciary process can result in great returns while a diligent and complete fiduciary process can result in underperformance.” As to whether the fiduciaries were disloyal, the court held that more was needed in the complaint to infer a disloyalty beyond the existence of the corporate relationship between Mercer and BlackRock. Finally, the court stated that the complaint’s allegations around Fluor’s failure to question Mercer’s actions and investment choices was “so threadbare that the Court cannot infer Fluor’s failure to monitor.” For the foregoing reasons, the court dismissed the putative class action. However, dismissal was without prejudice, allowing plaintiffs the opportunity to revise and shore up their claims to address the identified deficiencies. Perhaps this summary should end where the court’s decision began: “sometimes stocks underperform.”
Central States v. Wingra Redi-Mix, Inc., No. 21 C 3684, 2023 WL 199360 (N.D. Ill. Jan. 17, 2023) (Judge Virginia M. Kendall). After the financial downturn of the 2008 great recession, an employer, defendant Wingra Redi-Mix, Inc., and a multi-employer plan, the Central, States, Southeast, and Southwest Areas Pension Fund, found themselves at odds. A disagreement arose between the two as to whether the employer, whose was experiencing decreased revenue and in turn paying fewer dues to union members, was in violation of an adverse selection rule contained in the governing Trust Agreement. That dispute was eventually resolved, in 2017, by a settlement agreement. One of the provisions of the 2017 settlement agreement imposed a $58 million withdrawal liability on the company if it withdrew from the plan before January 1, 2021. On November 1, 2020, two months before the hefty withdrawal liability provision was set to expire, Central States expelled the company from the plan. Sure enough, two weeks later, Central States requested the $58 million withdrawal liability from Wingra. The Fund then sued Wingra, in this action, seeking a court order imposing the withdrawal liability because Wingra was now no longer part of the fund. Wingra then counterclaimed for breach of settlement agreement. Now the parties are engaged in a discovery dispute. The employer has moved to compel discovery from the Fund. Specifically, Wingra seeks to compel Central States to produce internal emails and text messages from 2017 to 2020 about Wingra, to interview witnesses about what Wingra refers to as Central States’ “scheme,” to audit files Central States kept on Wingra during the relevant period, and other related relevant communications and documents. Central States opposed production, arguing that Wingra waived its right to defenses and counterclaims by not initiating arbitration, and the discovery requests extend beyond the administrative record. On the topic of mandatory arbitration, the court concluded that the relevant statute within MPPAA mandating arbitration “applies only when an employer decides to leave a pension plan, and therefore, an employer’s expulsion falls outside the statute. Therefore, Wingra did not need to initiate arbitration within the prescribed statutory period.” Regarding Central States’ argument about the administrative record, the court stated that “the question is not whether the information sought is part of the administrative record but whether it could conceivably be.” The information Wingra sought, the court held, could conceivably be part of the administrative record, and is therefore discoverable. Furthermore, the particulars of this lawsuit potentially indicate “bad faith by Central States.” Although Wingra may not be able to ultimately prove its narrative of Central States’ “scheme” to enrich itself, the court concluded the allegations themselves “warrant limited discovery into the fund’s decision-making.” Accordingly, Wingra’s discovery request was granted.
Anne A. v. United HealthCare Ins. Co., No. 2:20-cv-00814, 2023 WL 197301 (D. Utah Jan. 17, 2023) (Magistrate Judge Daphne A. Oberg). “The risk of economic injury to defendants outweighs plaintiff’s interest in disclosure,” concludes Magistrate Judge Oberg in this order maintaining the confidentiality designation of documents falling under the disclosure provisions of ERISA and the Mental Health Parity Act, including United Behavioral Health’s MCG healthcare guidelines. The tension at the center of the dispute over the party’s opposing views about the confidentiality of these documents was whether plan information should be available to the public. To the court, the answer was no. Magistrate Oberg interpreted the disclosure provisions in the Parity Act and ERISA, which lack confidentiality language, as unambiguously intending plan documents to be “available only to an exclusive and definable group of people – potential and current plan participants and beneficiaries.” Put another way, the court stated that plan information, which is discoverable, can nevertheless be designated as confidential. Plaintiffs did not sway the court away from this position with their argument that the underlying goal of the Parity Act, raising awareness of mental health and substance use treatment, was proof of congressional intent to promote public disclosure. With that threshold determination made, the court transitioned to conducting a more straightforward evaluation of (1) whether the documents at issue contained confidential business/commercial information; (2) whether the insurance company, United, and healthcare network guidelines and technology company, MCG, would suffer potential financial harm from the disclosure; and (3) whether plaintiffs’ interest in disclosure outweighs any potential business harm. First, the court agreed with defendants that the guidelines and other briefly alluded-to disputed documents contain proprietary secrets. Next, the court held that defendants may be financially harmed by public disclosure of the information. Finally, the court concluded that plaintiffs have no interest in disclosure because designating the documents as confidential will not “impair Plaintiffs’ prosecution of claims.” As for the public’s interest in the information, the court wrote only that Plaintiffs “have shown no other need for public disclosure of the documents.” Accordingly, defendants’ motion was granted.
Bowser v. Cree, Inc., No. 5:22-CV-134-BO, 2023 WL 307453 (E.D.N.C. Jan. 17, 2023) (Judge Terrance W. Boyle). On July 12, 2019, plaintiff Robert Bowser filed a complaint in North Carolina state court alleging that his former employer, defendant Cree, Inc., violated North Carolina wage-and-hour laws and seeking unpaid wages, liquidated damages, and attorneys’ fees in connection with the terms of a severance agreement between the parties. Mr. Bowser further alleged state law breach of contract and unjust enrichment claims. Cree answered the complaint and raised complete ERISA preemption as a defense. It also brought counterclaims against Mr. Bowser. The state law case then proceeded through discovery and the parties moved for summary judgment based on ERISA preemption. The state court held that both Mr. Bowser’s state law claims and Cree’s ERISA preemption defense should proceed to trial. Then, with the court’s permission, Mr. Bowser amended his complaint to assert claims, pled in the alternative, under ERISA, which included a claim for benefits under Section 502(a)(1)(B), and a claim for failing to comply with ERISA notice, record-keeping, and reporting requirements under Section 502(c)(1)(B). Cree subsequently removed Mr. Bowser’s action to federal court based on federal question jurisdiction. Before the court here were two motions; a motion by Cree to dismiss Mr. Bowser’s Section 502(c)(1)(B) claim and a motion by Mr. Bowser to remand. First, the parties stipulated to the dismissal of the Section 502(c)(1)(B) claim. Accordingly, Cree’s motion to dismiss was denied as moot. Second, the court held that “Cree waived its right to removal by demonstrating a clear, unequivocal intent to remain in state court.” Removal, the court held, was untimely in this instance. Initial pleading in 2019 “put Cree on notice that the case was removable.” Mr. Bowser’s amendment to the complaint years later did not restart the clock and therefore “did not provide Cree with a new opportunity to remove the case.” Accordingly, the court found Cree’s removal improper and so granted Mr. Bowser’s motion to remand.
Exhaustion of Administrative Remedies
Campbell v. Cargill, Inc., No. 1:22-CV-70-SA-DAS, 2023 WL 242388 (N.D. Miss. Jan. 17, 2023) (Judge Sharion Aycock). In 2021, Cargill, Inc. sent its former employee, plaintiff Kenneth Campbell, paperwork informing him his pension benefits had fully vested. Mr. Campbell subsequently contacted Cargill and its HR department to ask questions about his pension benefits. These communications were verbal. Mr. Campbell never submitted a written claim for benefits. However, in 2022, Mr. Campbell did receive a written denial letter, which informed him that his benefits had been fully paid in 1986 in a $3,500 lump-sum payment. Afterwards Mr. Campbell commenced this action challenging that determination. Cargill moved to dismiss, or alternatively, for summary judgment. As a preliminary matter, the court decided to convert Cargill’s motion to one for summary judgment under Rule 56, concluding that both parties relied on material outside the pleadings. Next, the court denied Mr. Campbell’s request for time to conduct discovery. The court stated that Mr. Campbell’s assertion that he was not provided a copy of the plan was irrelevant to the issue of whether he could be excused from exhausting administrative remedies, and was not a disputed fact in any event as Cargill confirmed that it did not give Mr. Campbell the plan. Thus, the court saw no reason to delay its ruling. The court ultimately held that there was not a genuine dispute around the issue of exhaustion, as it was undisputed that Mr. Campbell did not submit a claim for benefits in writing as required under the plan. Therefore, the court held Mr. Campbell did not exhaust the claims procedure before engaging in litigation. Under Fifth Circuit precedent, the court concluded that Mr. Campbell’s informal communication with the HR team could not substitute for the plan’s formal written claims procedure requirement. Allowing such circumvention, the court reasoned, would frustrate the principles of the exhaustion requirement, “including the need for creation of a clear administrative record prior to litigation.” Finally, the court highlighted another Fifth Circuit decision, Meza v. General Battery Corp.,908 F.2d at 1279, where the Fifth Circuit found that exhaustion could not be excused even when participants were never informed of the applicable procedures. Consequently, the court decided that the administrator’s failure to provide plan documents to Mr. Campbell did not excuse Mr. Campbell’s failure to comply with the requirement to exhaust. For these reasons, the court granted Cargill’s summary judgment motion.
Pension Benefit Claims
Kanefsky v. Ford Motor Co. Gen. Ret. Plan, No. 22-cv-10548, 2023 WL 186800 (E.D. Mich. Jan. 13, 2023) (Judge Sean F. Cox). Plaintiff Peter Kanefsky worked for the Ford Motor Company for 38 years, in both England and America. After being laid off in 2019, Mr. Kanefsky contacted the Ford Motor Company General Retirement Plan and requested a retirement benefits estimate. He was given a calculation and a benefits kit. Based on the information provided Mr. Kanefsky and his wife, plaintiff Jennifer Kanefsky, elected a pension plan entitling Mr. Kanefsky to $6,225.24 per month for the remainder of his life, and $4,046.41 per month for Ms. Kanefsky’s life should he predecease her. The Plan approved the Kanefskys’ benefit application, and for two years paid Mr. Kanefsky the amount he elected. Then, in 2021, the Plan informed the Kanefskys that it had incorrectly overpaid their benefits due to an error offsetting the benefits from the time working in America with the benefits accrued from the time working in the UK. The Ford retirement plan’s newly determined monthly benefit rate was about half the amount Mr. Kanefsky had been previously receiving. The plan also informed plaintiffs that it had overpaid them more than $50,000 in the two years since they began receiving the retirement payments. The Plan then unilaterally reduced Mr. Kanefsky’s monthly benefit payment to $1,898.73 per month until it recovered the overpayment amount. Mr. Kanefsky filed a claim with the plan challenging the change, and after his claim was rejected on appeal the Kanefskys commenced this ERISA equitable estoppel action seeking a court order estopping Ford from permanently reducing the monthly payments and from recouping the alleged overpayment. Defendants moved to dismiss for failure to state a claim. Their motion was granted. The court stated that under Sixth Circuit precedent plaintiffs are required to demonstrate “an intention on the part of the party to be estopped that the representation be acted on, or conduct toward the party asserting the estoppel such that the latter has a right to believe the former’s conduct is so intended.” The court agreed with defendants that the Kanefskys could not satisfy this requirement and that their complaint accordingly was legally insufficient. This was true, the court reasoned, because plaintiffs provided no evidence that Ford intended the Kanefskys to act based on the representations it made in the benefits kit and calculations documents. Although the company made a mistake in responding to Mr. Kanefsky’s inquiry, the court wrote that Ford “stood to gain no benefit regardless of when [he] started to receive benefits.” Thus, the court ruled that the complaint did not adequately state an estoppel claim and dismissed the case.
Steigleman v. Symetra Life Ins. Co., No. CV-19-08060-PCT-ROS, 2023 WL 345924 (D. Ariz. Jan. 20, 2023) (Judge Roslyn O. Silver). On March 29, 2022, the Ninth Circuit reversed the district court’s order in this case granting summary judgment in favor of defendant Symetra Life Insurance Company on plaintiff Jill Steigleman’s state law breach of contract and bad faith claims challenging the denial of her long-term disability benefits. In that order, the appeals court concluded that there was a genuine dispute of material fact about the application of ERISA preemption and that the district court erred by holding that the policy was an employee welfare plan governed by ERISA. Ms. Steigleman has since moved for summary judgment that ERISA does not preempt her state law claims for breach of contract and bad faith. Symetra, meanwhile, has cross-moved for summary judgment in favor of the opposite view. In this decision, the court denied the motions of both parties and set a bench trial on the issue of ERISA applicability. Recognizing that it is Symetra’s burden to establish the plan is governed by ERISA, the court stated that the insurance company will need to prove certain facts such as the existence of a selected package of benefits, a unique eligibility requirement set by Ms. Steigleman, that Ms. Steigleman paid the entirety of the employees’ premiums, or that employees were only offered a subset of the benefits offered. If Symetra can prove these facts, the court wrote “it will be difficult to conclude ERISA does not apply.” However, to decide the issue, the court articulated that it would need to make credibility determinations about what to believe, which cannot be done during summary judgment. Thus, “[a] bench trial is necessary.”
Pleading Issues & Procedure
Trustees of the Painters Union Deposit Fund v. Eugenio Painting Co., No. 22-12416, 2023 WL 273996 (E.D. Mich. Jan. 18, 2023) (Judge Robert H. Cleland). In this action, a union and its Taft-Hartley plan have sued a contributing employee under ERISA for violating the terms of their collective bargaining agreement. Specifically, plaintiffs allege that the company, Eugenio Painting Co., failed to permit an audit as required under the terms of their agreement. Furthermore, the union stated that it was informed that the employer was using non-union contractors to perform labor and was taking other steps to avoid paying requisite benefit contributions. Accordingly, plaintiffs brought a two-count complaint: count one for refusal to comply with the audit and count two for unpaid contributions/breach of collective bargaining agreement. Eugenio Painting moved to dismiss. The motion was denied. Defendant first argued that plaintiffs are only entitled to an audit that is time-limited to the term of the current operative collective bargaining agreement. Therefore, defendant stated that the collective bargaining agreement does not authorize the six-year audit plaintiffs seek. The court disagreed. The court stated that plaintiffs plausibly alleged that the audit provision and its terms are an “evergreen” clause of the collective bargaining agreement that renews annually unless a signatory gives notice of its termination. Because Eugenio Painting has always been bound by the same audit provision, which expressly states that it extends the obligations of the agreement, the court stated that plaintiffs adequately alleged count one. Next, defendant sought dismissal of count two of the complaint. Defendant stated that plaintiffs’ use of the term “upon information and belief” meant that their claim for breach of contract was hypothetical. The court said this was not so. Particularly because plaintiffs do not yet have all of the documents within their possession to say with certainty what violations the employer has committed, the court stated that they have for now sufficiently stated their claim for unpaid contributions and breach of contract. Thus, the court held plaintiffs satisfied notice pleading under Federal Rule of Civil Procedure 8, and so declined to dismiss either cause of action.
Withdrawal Liability & Unpaid Contributions
Plumbers’ Pension Fund v. Pellegrini Plumbing, LLC, No. 20-cv-5024, 2023 WL 264392 (N.D. Ill. Jan. 18, 2023) (Judge Steven C. Seeger). In 2014, a group of related multi-employer pension funds sued a contributing employer, Pellegrini Plumbing, LLC, to recover unpaid contributions. Two years later, the funds won their case and judgment was entered against Pellegrini Plumbing for over $700,000. Some of that money was paid by Pellegrini Plumbing, but hundreds of thousands of dollars of the judgment were not. “The owner of the company, Daniel Pellegrini, turned over a new leaf (or, depending on your perspective, maybe he turned over the same leaf.) In 2019, Daniel Pellegrini created a new company: Daniel Pellegrini Pluming, LLC.” In response, the funds brought this action seeking to hold both companies and their owner responsible for the unpaid contributions they owe as both alter egos and successors. Defendants moved to dismiss for lack of subject matter jurisdiction. They argued that Seventh Circuit precedent holds that federal district courts lack jurisdiction over standalone claims for successor liability to enforce a prior ERISA judgment. However, as the court pointed out, defendants did not address the remainder of plaintiffs’ claims which alleged alter ego liability for unpaid contributions, breach of collective bargaining agreement, successor-in-interest under state law, and successor liability under the collective bargaining agreement. All of these claims, the court expressed, do not have jurisdictional issues as they each sufficiently allege that defendants violated a federal statute or a state law sharing common facts. Thus, the court dismissed only one of plaintiffs’ causes of action to the extent that it alleged successor liability under ERISA to enforce the 2016 judgment “without an ongoing violation of the collective bargaining agreement by Daniel Pellegrini Plumbing, LLC.” Otherwise, the motion to dismiss was denied.