It was a slow week in ERISA-land, as the courts presumably continue to recover from December and January vacations.

Read on for summaries of this week’s cases, which include a potential class action challenge to Hartford’s disability benefit claims handling (McQuillin v. Hartford), another skirmish in the battle between employees and employers over whether plan-wide claims should be arbitrated (Best v. James), and a cow’s powerful $100,000 kick (Stover v. CareFactor).

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

Arbitration

Sixth Circuit

Best v. James, No. 3:20-cv-299-RGJ, 2023 WL 145007 (W.D. Ky. Jan. 10, 2023) (Judge Rebecca Grady Jennings). In early 2020, a putative class of participants of the ISCO Employee Stock Ownership Plan (“ESOP”) filed a breach of fiduciary duty and prohibited transaction class action against ISCO Industries, Inc. and its executives under ERISA Sections 502(a)(2) and (a)(3). Defendants moved to dismiss in favor of enforcing arbitration agreements plaintiffs signed when they were hired. On September 22, 2022, the court granted defendants’ motion. A summary of that decision can be found in the September 28, 2022 edition of Your ERISA Watch. Plaintiffs moved pursuant to Rule 59 for reconsideration. Defendants moved for leave to file a surreply to plaintiffs’ motion for reconsideration. To begin, the court granted defendants’ motion. Defendants argued that plaintiffs were incorrect in their interpretation of federal law regarding arbitration agreements prohibiting plan-wide relief in ERISA actions and their view that class waiver is unenforceable because Section 502(a)(2) mandates proceeding on a class basis. Furthermore, defendants argued that plaintiffs “recharacterized their manifest injustice argument in reply.” The court found these arguments worthy of consideration and thus felt the surreply should be permitted. Next, the court analyzed plaintiffs’ motion for reconsideration. Regarding plaintiffs’ Section 502(a)(3) claims seeking individual monetary relief, the court held that its original analysis concluding that the employment agreements, which contained express references to ERISA actions, bound their Section 502(a)(3) claims to arbitration “remains appropriate.” With regard to plaintiffs’ plan-wide claims brought under Section 502(a)(2), the court concluded that the ESOP’s arbitration amendment, which was signed by ISCO representatives, constituted a valid consent to arbitrate by the plan. “Plaintiffs’ ERISA claims are within the scope of the ESOP Amended Agreement, as it explicitly includes an ‘ERISA Arbitration and Class Action Waiver.’ Under this agreement, Plaintiffs must arbitrate their claims.” Thus, the court denied plaintiffs’ motion to reconsider.

Attorneys’ Fees

First Circuit

Cutway v. Hartford Life & Accident Co., No. 2:22-cv-0113-LEW, 2023 WL 156863 (D. Me. Jan. 10, 2023) (Judge Lance E. Walker). Plaintiff Kevin Cutway sued Hartford Life & Accident Company, the administrator of his long-term disability plan, after the insurer ceased monthly benefit payments to Mr. Cutaway to recover overpayments it says it paid to him through its own recently discovered error. In his action, Mr. Cutway seeks a court order requiring Hartford to stop offsetting his benefits and for reimbursement of the amount withheld to date. Mr. Cutway filed a motion for temporary restraining order or preliminary injunction requesting the court keep Hartford from withholding his monthly benefits during the duration of this litigation. On August 29, 2022, the court issued an order granting Mr. Cutway’s motion, as we summarized in our September 7, 2022 edition. Following that order, Mr. Cutway subsequently moved for attorneys’ fees under ERISA Section 502(g)(1). In this order, the court denied without prejudice Mr. Cutway’s motion. At bottom, the court reasoned that while the outcome of its August 29 ruling “absolutely constituted ‘some meaningful benefit for the fee-seeker,’” that success was ultimately not derived from “delving into meritorious issues.” Rather, the court came to its conclusion “largely upon considering the irreparable harm that Mr. Cutway would face if such relief was not granted.” As the application of a preliminary injunction is not a final factual determination but a protection put in place “to prevent a threatened wrong or any further perpetration of injury,” the court stated that it was only ruling in order to preserve the status quo until the merits of the parties’ arguments have been litigated and decided. Thus, the court concluded the time to explore a fee award will come at a later date when a party “is able to show some degree of success on the merits.”

Breach of Fiduciary Duty

Second Circuit

McQuillin v. Hartford Life & Accident Ins. Co., No. 20-CV-2353 (JS) (ARL), __ F. Supp. 3d __, 2023 WL 177909 (E.D.N.Y. Jan. 13, 2023) (Magistrate Judge Arlene R. Lindsay). Plaintiff John McQuillin sued Hartford Life and Accident Insurance Company under ERISA after his long-term disability benefit claim was denied. Mr. McQuillin’s complaint was dismissed on May 25, 2021, for failure to exhaust administrative remedies. That decision was overturned by the Second Circuit on June 7, 2022, which was the case of the week in our June 15, 2022 edition. The court of appeals concluded that Mr. McQuillin’s administrative remedies were deemed exhausted because Hartford was in violation of ERISA’s regulation requiring a final benefit decision be reached within 45 days of a claimant’s administrative appeal. Following the reversal, Mr. McQuillin filed a motion to amend his complaint. The amended complaint seeks to add a breach of fiduciary duty claim and equitable relief ordering defendant be removed as claim administrator from the plan. The new allegation claims that “Hartford’s unwritten protocols for remanding administrative appeals to its claim department, and relying on the EBSA COVID notice to delay rendering timely benefits decisions, breach Hartford [sic] fiduciary duty to all LTD Plan participants.” Magistrate Judge Lindsay found Mr. McQuillin’s allegations about a systematic claim administration practice in violation of fiduciary duties plausible. However, Magistrate Lindsay conditioned granting Mr. McQuillin’s motion to amend to add the breach of fiduciary duty claim on Mr. McQuillin taking steps to proceed with this claim on behalf of all plan participants. Accordingly, the motion to amend was granted.

Disability Benefit Claims

Seventh Circuit

Arenson v. First Unum Life Ins. Co., No. 20-cv-02800, 2023 WL 184233 (N.D. Ill. Jan. 13, 2023) (Judge John J. Tharp, Jr.). Plaintiff Gregg Arenson, a former executive futures and options trade broker, sued Unum Life Insurance Company challenging its decisions denying his claims for long-term disability benefits and waiver of life insurance premiums. Mr. Arenson, who suffered a stroke caused by the heart condition atrial fibrillation, alleged that Unum improperly discounted the severity of his cognitive disabilities when making its decisions. The parties cross-moved for summary judgment. Upon review of the administrative record, the court held that the medical reports and test results “revealed no severe cognitive difficulties.” The court cited to one of Mr. Arenson’s own neurologists, who discounted that his cognitive difficulties were the result of the stroke and responded to Unum’s inquiries that he believed Mr. Arenson could perform occupational demands and return to work. Unum’s reviewing physicians agreed and explained why they believed Mr. Arenson’s cognitive impairments were not severe or disabling. Based on this information, the court could not conclude that “Unum’s decision was irrational.” Thus, the court affirmed both denials and granted Unum’s motion for summary judgment.

Medical Benefit Claims

Sixth Circuit

Stover v. CareFactor, No. 2:22-cv-1789, 2023 WL 130709 (S.D. Ohio Jan. 9, 2023) (Judge Sarah D. Morrison). In 2021, in an accident which could have been taken straight from the plot of a Thomas Hardy novel, plaintiff Richard Stover was injured by a cow. The cow’s kick caused a severe ankle break which required immediate surgery. As a result of the injury, Mr. Stover incurred more than $100,000 in medical expenses. In this Section 502(a)(1)(B) action, Mr. Stover seeks to overturn his ERISA health plan’s denial of benefits made by the plan’s third-party claims administrator, defendant CareFactor. CareFactor denied the claims for coverage under the plan’s “Occupational Exclusion,” which excludes injuries resulting from work of all kinds including self-employment. In his complaint, Mr. Stover, an employee of a plumbing company, argued that he raises and butchers cattle for personal consumption, and that his injury therefore did not arise from work. CareFactor moved to dismiss the complaint and requested attorneys’ fees. It argued that it was not a proper defendant under Section 502 because it “is simply a non-fiduciary claims administrator.” The court, in a brief and straightforward decision, disagreed with CareFactor’s argument. Referring to the Supreme Court’s decision in Harris Trust & Savings Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (2000), the court wrote, “Like §502(a)(3), §502(a)(1)(B) identifies the possible plaintiffs in a claim for benefits, but ‘admits no universe of the limit of possible defendants.’” The complaint, the court held, sufficiently alleged that CareFactor exercised control over the benefits denial and subsequent appeals and is therefore a proper defendant to support a Section 502 claim against it. Drawing this conclusion, the court denied both CareFactor’s motion to dismiss and its concurrent motion for attorneys’ fees.

Pleading Issues & Procedure

Tenth Circuit

Smith v. Aetna, No. 22-cv-00426-RMR-KLM, 2023 WL 143025 (D. Colo. Jan. 10, 2023) (Magistrate Judge Kristen L. Mix). Pro se plaintiff Matthew Smith sued Aetna in small claims court challenging its denial of his claim for disability benefits under plans governed by ERISA. Aetna removed the action to federal district court and subsequently moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. Magistrate Judge Mix in this order recommended that Aetna’s motion to dismiss be granted, with leave to amend. The Magistrate Judge stated that Mr. Smith’s complaint “clearly falls short of Rule 12(b)(6),” because other than stating that Mr. Smith was not approved for disability benefits, the complaint is silent about Aetna’s actions, the harm that resulted from those actions, “and what specific legal right the plaintiff believes the defendant violated.” Accordingly, the Magistrate viewed Mr. Smith’s allegations as underdeveloped and devoid of necessary facts to meet the pleading standards of Federal Rule of Civil Procedure 8(a).

Eleventh Circuit

Blessinger v. Wells Fargo & Co., No. 8:22-cv-1029-TPB-SPF, 2023 WL 145449 (M.D. Fla. Jan. 10, 2023) (Judge Tom Barber). Last May, plaintiffs Guy Blessinger, Audra Niski, and Nelson Ferreira sued Wells Fargo & Company under ERISA, as amended by the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), for failing to provide notice of rights of eligibility to continued health plan coverage in a manner understood by an average plan participant. Plaintiffs, who elected not to continue health plan coverage based on Wells Fargo’s notice, each incurred medical expenses. They argued that the notices they were given discouraged them and others similarly situated from electing COBRA coverage “because they contained misstatements of law related to criminal and civil penalties and IRS penalties.” Wells Fargo moved to dismiss the complaint. First, the court denied the motion to dismiss based on defendant’s argument that the language within the notices was “neither confusing nor legally incorrect.” Such an argument, the court stressed, directly challenges the merits of plaintiffs’ complaint, and is therefore not appropriate for resolution at the pleading stage. However, Wells Fargo’s motion was granted to the extent plaintiffs’ claims related to the notices’ failure to identify the plan administrator. Wells Fargo argued, and plaintiffs conceded, that COBRA notices are not required to identify the plan administrator. Accordingly, the motion to dismiss was granted only with regard to this aspect of plaintiffs’ complaint.

Severance Benefit Claims

Third Circuit

Cope v. Hudson Bay Co. Severance Pay Plan for Emps. Amended & Restated, No. 20-6490, 2023 WL 174960 (E.D. Pa. Jan. 12, 2023) (Judge Chad F. Kenney). On May 25, 2017, Hudson Bay Company, the owner of many clothing and department stores, including Lord & Taylor, enacted a severance plan governed by ERISA to give a sense of security to employees should their positions be eliminated following a merger and acquisition or the sale of one of Hudson Bay’s companies. Such a sale did occur, in the fall of 2019, when Hudson Bay Company sold Lord & Taylor to Le Tote. In swift fashion, Hudson Bay amended the severance plan to remove Lord & Taylor from the list of entities defined as an “Employer.” Just three days after the amendment, plaintiff Roxanne Cope, a sales staffing coordinator at Lord & Taylor, was terminated. Following an unsuccessful attempt at applying for benefits under the severance plan, Ms. Cope commenced this putative class action against the plan, Hudson Bay Company, and the plan’s administrator. In her complaint, Ms. Cope asserted four causes of action; (1) wrongful denial of benefits under Section 502(a)(1)(B); breach of fiduciary duty under Section 502(a)(3); interference with attainment of benefits under Section 510; and violations of Pennsylvania Wage Payment and Collection Law. Defendants moved for dismissal for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). Their motion was granted by the court in this order, which dismissed Ms. Cope’s complaint with prejudice. First, the court interpreted the plan language to evaluate whether Ms. Cope stated a valid claim under Section 502(a)(1)(B). To be eligible for benefits, the severance plan states that a claimant must be an eligible employee of an employer who incurs a covered termination of employment. The court concluded that Ms. Cope did not allege facts in her complaint demonstrating that Lord & Taylor was an employer, because it was not an “Affiliate” of Hudson Bay Company, as defined by the IRS, at the time of her termination. To draw this conclusion, the court mostly ignored Ms. Cope’s allegations that Le Tote and Hudson Bay were affiliated companies under common control. Thus, the court concluded that the complaint failed to state a claim under Section 502(a)(1)(B). Next, the court applied much the same logic to the breach of fiduciary duty claim, holding that fiduciaries, who are required to apply the terms of the plan when making benefit determinations, did not breach any duty by finding Ms. Cope ineligible for benefits under the plan. Furthermore, the court stated that under Supreme Court precedent amending a plan is not a fiduciary action, and defendants therefore did not breach any duty by amending the plan after the sale of Lord & Taylor to Le Tote. Lastly, the court stated that defendants did not breach any duty by failing to inform Ms. Cope of the amendment to the plan, writing, “there was no obligation for Defendants to disclose information to Plaintiff about potential changes to the Plan that did not apply to her.” Regarding Ms. Cope’s Section 510 claim, the court stated that “amending a plan does not violate Section 510,” and Ms. Cope’s complaint therefore “does not allege any prohibited employer conduct.”  Finally, Ms. Cope’s state law claim, which sought benefits under the severance plan, was dismissed as being preempted by ERISA. The decision ended with the court’s conclusion that amendment to the complaint would be futile. In its view, no allegation could overcome the identified deficiencies.

Withdrawal Liability & Unpaid Contributions

Sixth Circuit

Thrower v. Global Team Elec., No. 3:20-cv-00392, 2023 WL 149994 (M.D. Tenn. Jan. 10, 2023) (Magistrate Judge Jeffery S. Frensley). Two Taft-Hartley funds, a multi-employer pension plan and a multi-employer welfare benefits plan, sued an employer, defendant Global Team Electric, LLC, and its co-owners, defendants Calvin Godwin and Darmelleon Lee, for delinquent contributions and fiduciary breaches. The Funds moved for summary judgment, entry of judgment, and an award of attorneys’ fees under ERISA. Magistrate Judge Frensley recommended in this order that plaintiffs’ motions be granted. Ultimately, the Magistrate concluded that there was no genuine issue of material fact. It was undisputed that the employer was obligated to pay contributions to the Funds on behalf of covered employees per the terms of the governing collective bargaining agreements. Evidence proved that the employer and its owners skirted their duty to make the contributions by using plan assets for personal and business expenses, underreporting the hours worked by covered employees, and falsifying the owners’ own hours of covered employment. Finally, the Magistrate concluded that defendants were fiduciaries under ERISA because of their authority to control management of assets, and that they were responsible fiduciaries and co-fiduciaries for the breaches committed. Thus, it was the Magistrate’s opinion that the Funds’ motion for summary judgment be granted. As for their request for awarded damages in the total amount of $193,112.70, comprised of $176,126.62 in delinquent contributions, statutory penalties, and interest, plus attorneys’ fees and costs in the amount of $16,986.08, Magistrate Frensley also recommended it be granted as the amount of damages was uncontroverted and the attorneys’ fee amount was based on a reasonable lodestar.