American Sec. Ass’n v. United States Dep’t of Labor, No. 8:22-cv-330-VMC-CPT, 2023 WL 1967573 (M.D. Fla. Feb. 13, 2023) (Judge Virginia M. Hernandez Covington)
It makes sense that a court may vacate an ERISA regulation that it determines is an arbitrary and capricious exercise of the Department of Labor’s authority. But does it make sense, and is a court empowered, to invalidate and enjoin interpretive guidance from the Department of Labor where the court determines that the agency’s interpretation is misguided? In this week’s notable decision, a district court in Florida answers in the affirmative.
This case involves an interpretation of a regulation first enacted in 1975, shortly after ERISA became law. 29 C.F.R. § 2510-21(c)(1). This regulation set forth a five-part test for when a person who renders investment advice to a plan becomes a fiduciary under 29 U.S.C. § 1002(21)(A).
In 2016, the Department of Labor promulgated a new regulation that, in an attempt to capture within the definition of an investment advisor fiduciary those who advised on one-time IRA rollovers, eliminated two of the prongs of the 1975 test: the requirement that the advice given on a “regular basis,” and the requirement that the advice be the “primary basis” for investment decisions. The Department also promulgated some related prohibited transaction exemptions.
In 2018, however, the Fifth Circuit invalidated this new fiduciary regulation. Because of this ruling, the Department proposed new class exemptions and clarified that all five prongs of the original 1975 test needed to be satisfied in order for a person to be considered a fiduciary based on investment advice. The Department also promulgated a technical amendment to the Code of Federal Regulations reinstating the 1975 regulation.
During the notice and comment period for the proposed new class exemption, the American Securities Association (ASA) requested that that Department clarify that the five-part test governs and commented that requiring broker-dealers to disclose their fiduciary status during rollover transaction would lead to undesirable effects.
The Department published its final prohibited transaction exemption (PTE) on December 18, 2020. The exemption permits financial institutions and professionals to receive prohibited compensation for prohibited fiduciary investment advice, including with respect to IRA rollovers, so long as they meet specified requirements designed to ensure that they are acting impartially, including that they explain the “specific reasons” why a rollover recommendation is in the best interests of the investor. Furthermore, in the preamble, the Department explained that although the five-part test still applied, it was possible that the rollover advice could be on a “regular basis” when the parties reasonably expected an ongoing investment relationship.
All of this is prelude to what happened in April of 2021, when the Department issued some Frequently Asked Questions (FAQs) about these exemptions. Two are at issue here. FAQ 7 explains that advice about an IRA rollover can be considered to meet the “on a regular basis” prong of the five-part test both when the advisor has been giving advice on that basis and also when the advisor expects to give regular advice in the future to the IRA investor. FAQ 15 sets forth in some detail what investment advisors should consider and document in their disclosure of the reasons that a rollover recommendation is in a retirement investor’s best interest.
The ASA and two of its members sued the Department of Labor under the Administrative Procedures Act (APA) claiming injury from these two FAQs.
The Department moved to dismiss on Article III standing grounds. The court, however, denied the motion, concluding that at least one ACA member had suffered a concrete injury in fact as a result of each of the two FAQs. The court reasoned that the ASA members are the objects of the FAQs (which the court referred to as the “regulations”), and that the members sufficiently alleged that they were injured because they either no longer provided rollover advice or because they had increased compliance costs due to the policies reflected in the FAQs. The court also concluded that the members’ injuries were traceable to the policies referenced in the FAQs and would be redressed by a court order enjoining the Department from enforcing those policies and vacating and setting those policies aside. Thus, the ACA, its members, and the court made it clear that the challenge was not to the FAQs but to the policies reflected in them.
The court next rejected arguments by the ACA that the publication of the FAQs violated the ACA by improperly amending the 1975 regulation and 2020 PTE without notice and comment. The court agreed with the Department that the FAQs were not legislative rules, but were interpretive rules, without the force of law. The court therefore granted summary judgment in favor of the Department on this Count.
This did not answer, in the court’s view, whether the agency’s action in publishing the FAQs was arbitrary and capricious and should be enjoined and set aside on that basis. Although the court recognized that the arbitrary and capricious standard is extremely deferential to the agency, and an agency’s permissible interpretation of its own regulations is binding, an agency nevertheless may not act contrary to its own clear and unambiguous regulations.
Applying these principles, the court concluded that FAQ 7 was not a reasonable interpretation of either the 1975 regulation or the 2020 PTE because it included, by way of example of ongoing advice, the provision of future advice on the performance of non-ERISA assets. Because such advice would not be tethered to a plan’s investment decision, it could not form the basis of a determination that an advisor was acting as an ERISA fiduciary. The court rejected the Department’s argument that this would lead to absurd results because the five-part test in the 1975 regulation applies to ERISA and non-ERISA plans alike, noting that “an absurdity is not a mere oddity.” The court concluded that there was nothing absurd about subjecting an investment advisor to fiduciary liability under the Internal Revenue Code while not triggering fiduciary obligations under Title I of ERISA. The court therefore granted summary judgment in favor of the ASA on Count II of the complaint.
The court reached a different conclusion with respect to FAQ 15. The court first looked to the 2020 PTE and concluded that its requirement that the advisor document the specific reasons that the rollover was in the best interest of the investor requires the advisor to make an explicit record of the factors, with a certain “degree of granularity” that led the advisor to its best interest conclusion. On this reading, the court found nothing in the policy embodied in FAQ 15 that was at odds with this requirement. Indeed, the court noted that “the type of documentation that FAQ 15 requires is precisely of the nature that a prudent investment advisor would undertake.” The court therefore granted summary judgment in favor of the Department with respect to this count in the complaint.
Finally, the court determined that vacatur without remand was appropriate with respect to the substantive challenge to FAQ 7. The court reasoned that policy reflected in FAQ 7 inherently conflicted with the “regular basis” requirement of the 1975 regulation, and there would be no disruptive consequences to vacating the policy.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Breach of Fiduciary Duty
Manuel v. Turner Indus. Grp., No. 14-599-SDD-RLB, 2023 WL 1978900 (M.D. La. Feb. 13, 2023) (Judge Shelly D. Dick). Plaintiff Michael N. Manuel began working for Turner Industries Group, LLC in December 2011. Upon employment, Mr. Manuel enrolled in Turner’s short-term and long-term disability plans. These plans contained provisions excluding coverage of pre-existing conditions during a 12-month lookback period. The plan documents were accompanied by a summary plan description. Notably, the summary plan description did not contain information about the lookback provision or about the pre-existing conditions exclusion. Mr. Manuel, who claims he did not know about the effect of the lookback provision, underwent surgery on October 22, 2012. In his complaint, Mr. Manuel alleged that had he been informed of the lookback provision and the plan’s pre-existing conditions exclusion he would have put off the surgery for a few more months. Regardless, it is undisputed he underwent the surgery and then had complications from it. Following the surgery, Mr. Manuel applied for short-term disability benefits. The short-term disability benefits were approved and paid. Then, Mr. Manuel applied for long-term disability benefits. Not only was Mr. Manuel’s application for long-term disability benefits denied, but the plan’s insurance company, Prudential, also determined that the short-term disability benefits had been paid in error and demanded repayment in full. In response, Mr. Manuel demanded a copy of the full plan document pursuant to ERISA Section 502(c). Turner provided Mr. Manuel with a copy of both the summary plan description and the plan document within 30 days of the request. Upon examining this information, Mr. Manuel noticed discrepancies between the plan document that Turner produced and another version that was produced by Prudential. Mr. Manuel appealed internally to no avail and then brought this action asserting two claims against Turner: a claim pursuant to Section 502(a)(3) for failure to provide an adequate summary plan description, and a claim pursuant to Section 502(c) for failing to provide the full plan document. The district court dismissed both claims. It found that Mr. Manuel could not recover under Section 502(a)(3) for a deficient summary plan description. It also concluded that Mr. Manuel had received all of the documents he was entitled to under Section 502(c). Mr. Manuel appealed. On appeal, the Fifth Circuit reversed and remanded as to both claims. The court of appeals held that a deficient summary plan description could indeed be the basis for a claim of breach of fiduciary duty under ERISA Section 502(a)(3). Additionally, it remanded Mr. Manuel’s Section 502(c) claim to the district court to address Mr. Manuel’s assertion “that the plan documents in the administrative record contain a plan amendment not included in the Turner production.” The Fifth Circuit also instructed the lower court to reconsider discovery requests in light of Mr. Manuel’s surviving claims. The district court followed the guidance of the Fifth Circuit, and discovery was conducted and completed. Before the court here were two summary judgment motions. Mr. Manuel moved for partial summary judgment, seeking judgment in his favor on his Section 502(a)(3) breach of fiduciary duty claim. Turner, in turn, moved for summary judgment on both claims asserted against it. In this order the court granted Mr. Manuel’s motion and granted in part and denied in part Turner’s motion. To begin, the court found that the summary plan description Turner provided to Mr. Manuel “was deficient as a matter of law,” as it was “beyond dispute that Turner did not include the Lookback Provision in the SPD,” and under the relevant regulations summary plan descriptions must provide participants with “circumstances which may result in disqualification, ineligibility, or denial or loss of benefits.” The court also held that Turner was liable for the deficiencies of the summary plan description. “Although Turner points the finger at Prudential, arguing that Prudential, as the drafter of the SPD, is solely responsible for its deficiencies, the Fifth Circuit has pointed its (much larger) finger at Turner.” Because the plan administrator has the duty to provide an accurate summary plan description, the court agreed with the appeals court that Turner was responsible for the deficient summary plan description, and accordingly granted Mr. Manuel’s partial motion for summary judgment. The court then stated that the matters of “equitable relief, actual harm, and damages,” would be reserved for trial. Thus, Turner’s cross-motion on the breach of fiduciary duty claim was denied. However, its motion for summary judgment on Mr. Manuel’s 502(c)(1) claim was granted. The court found it indisputable that Turner complied with ERISA when it provided the entire plan document upon Mr. Manuel’s request. The amendments or riders identified by the Fifth Circuit as potentially problematic turned out to pre-date the policy and were thus applicable only to earlier and different versions of the plan. “Because there is no genuine issue of material fact as to whether Turner produced the entire plan document, including the amendments at issue, Turner is entitled to summary judgment on the 502(c) claim.”
Walsh v. Reliance Tr. Co., No. CV-19-03178-PHX-ROS, 2023 WL 1966921 (D. Ariz. Feb. 13, 2023) (Judge Roslyn O. Silver). Secretary of Labor Martin J. Walsh initiated this litigation, alleging that the individuals and entities behind the 2014 RVR, Inc. Employee Stock Ownership Plan (“ESOP”) transaction violated ERISA and caused a prohibited transaction by overvaluing the stock. Specifically, the Secretary argues that Reliance Trust Company should not have agreed to purchase 100% of the RVR stock for $105 million, as the stock was worth only approximately $15 million at the time of the transaction, especially as the price paid was for a non-controlling interest. Following the completion of discovery in this action, the parties filed cross-motions for summary judgment along with several additional motions in limine. In this order the court concluded that most of the issues disputed by the parties were issues of material fact that preclude summary judgment. Accordingly, “the bulk of the motions” were denied and the court set a trial. To begin, the court stressed that resolution of this action comes down to the factual dispute regarding the correct value of the stock at the time of the transaction. “If, as the Secretary believes, RVR’s stock was not worth anything close to $105 million, the defendants will face significant difficulty in avoiding liability. If, as the defendants believe, RVR’s stock was worth $105 million, the Secretary’s claims likely will fail. This is a greatly simplified view of things but the basic disagreement about the value of RVR’s stock is why there will be a trial.” However, certain other matters were addressed and resolved pre-trial. Chief among them, the court granted the Secretary’s motion for summary judgment insofar as it established as a matter of law that the defendants were fiduciaries and the transaction qualified as a prohibited transaction under ERISA. Whether that transaction constituted an exempt prohibited transaction will be decided post-trial. However, the Secretary’s motion for summary judgment was denied to the extent that it sought an order finding the indemnification provisions in the plan document, Reliance engagement letter, and the trust agreement to be void as against public policy and attempt an indemnification of an ERISA fiduciary by the plan itself. The court stated that the current record did not entitle the Secretary to summary judgment on the issue and that it therefore must await resolution on the merits. Furthermore, the court stated that it would deny the Secretary’s summary judgment motion regarding the issue of the exact date the director defendants became co-fiduciaries. Reliance’s motion for summary judgment seeking an order from the court finding the Secretary’s complaint insufficient to state a claim for breach of fiduciary duty of loyalty was denied. The court wrote, “The Secretary has ample evidence to proceed to trial that Reliance breached the duty of prudence… (and) much of that same evidence could be viewed as supporting a breach of duty of loyalty.” The director defendants’ motion for summary judgment fared no better. The court noted that obvious disputes of material fact precluded granting summary judgment in favor of the director defendants, because viewing the allegations favorably to the Secretary the court could conclude that these defendants breached the duties alleged. In addition to these rulings on the summary judgment motions before it, the court also ruled on six evidentiary motions and on defendants’ motion to seal documents they alleged contained confidential business information. First, the court denied the motion to seal. It held that the present record does not establish compelling reasons to seal the requested documents in their entirety as they contain information that is not confidential, and which goes to the heart of the Secretary’s claims. Under the circumstances, the court guided the parties to try and reach an agreement over which portions of the disputed documents may reasonably be sealed, or to file renewed motions for the court to rule on if no agreement can be reached. Finally, all of the party’s evidentiary motions, which included motions to exclude evidence and Daubert motions to exclude expert testimony, were denied by the court, which took the position that it is better to err in favor of admitting excess information and testimony. If necessary, the court noted, it could always cull any excess after the trial.
Disability Benefit Claims
Johnson v. NFL Player Disability, No. 22-10327, 2023 WL 2059033 (E.D. Mich. Feb. 16, 2023) (Judge Mark A. Goldsmith). Former NFL football player Kelley Johnson sued the NFL Player Disability, Neurocognitive & Death Benefit Plan, the plan’s board, the Detroit Lions, the NFL Management Council, and the NFL Players Association after his 2021 claim for disability benefits was denied. Mr. Johnson played for the NFL in the late 1980s. In August of 1989, Mr. Johnson was injured while playing as a wide receiver for the Lions when another player landed on his left knee. Mr. Johnson subsequently underwent surgery, and then retired due to disability, unable to continue his football career. Many years passed, and then in October 2018, Mr. Johnson received a letter stating that he would start receiving certain benefits from the Pro Football Retired Players Association. Mr. Johnson was flabbergasted. According to his complaint, this letter was the first time he heard of any NFL employee benefits. No information about NFL disability benefits were included in that letter. Thus, even in 2018, Mr. Johnson was unaware of the Disability Plan. That changed in February 2021. At that time, Mr. Johnson received a disability plan booklet outlining disability benefits available to players, including former players. The following month, Mr. Johnson submitted a claim for benefits under the Disability Plan in relation to his disabling knee injury from 1989. His claim was denied as untimely. The denial was then upheld on appeal. Having exhausted his administrative remedies, Mr. Johnson commenced legal action suing defendants for breaches of fiduciary duties and bringing a claim for benefits pursuant to ERISA Section 502(a)(1)(B). In particular, Mr. Johnson alleged that defendants breached their duties by not informing him of the existence of plan, his eligibility under the plan, or the extent of benefits under the plan, which he alleged were material omissions that caused him to miss the opportunity to timely enroll in the plan. Defendants moved to dismiss the complaint. They argued that Mr. Johnson could not sufficiently state breach of fiduciary duty claims against them, and that they were entitled to dismissal of the claim for benefits because the application was untimely under the unambiguous terms of the plan outlining the statute of limitations for applications. The court addressed each issue. It began by evaluating the sufficiency of the breach of fiduciary duty claim pursuant to ERISA Section 502(a)(3). Under Sixth Circuit precedent, the court understood ERISA’s concept of functional fiduciary status as limiting rather than expanding a fiduciary’s liability. That is, the court concluded that the relevant inquiry was not whether the defendants were fiduciaries but whether they were acting as fiduciaries during the actions alleged in the complaint. The court answered in the negative concluding that it was “not plausible that the (defendants) would owe Johnson a duty to inform him of the existence of a Plan or benefits under a Plan that did not exist when he retired from the NFL and that offered benefits decades after he retired.” The court rejected Mr. Johnson’s response that there were factual questions about whether the disability benefits for former players actually did exist when he was injured as well as factual issues about whether he was entitled to them. The court replied that discovery was not warranted because the evidence provided by defendants established that the plan was created after Mr. Johnson retired and the line-of-duty injury disability benefits for retired players was not offered until 25 years following Mr. Johnson’s retirement. In addition, the court stressed that breach of fiduciary duty for failing to disclose plan information can take place only under certain circumstances. Under Sixth Circuit precedent the court stressed that a breach of fiduciary duty occurs only when one of the following circumstances occurs, “(1) an early retiree asks a plan provider about the possibility of the plan changing and receives a misleading or inaccurate answer or (2) a plan provider on its own initiative provides misleading or inaccurate information about the future of the plan or (3) ERISA or its implementing regulations required the employer to forecast the future and the employer failed to do so.” As none of those events allegedly happened here, the court stated that Mr. Johnson could not state a claim to support the idea that defendants breached their fiduciary obligation to disclose plan information. The court then moved to analyzing the claim for benefits. That claim, the court held, could not survive a Rule 12(b)(6) challenge “because the allegations establish that Johnson’s application for benefits was untimely under the terms of the Disability Plan.” Because Mr. Johnson’s application was submitted decades past the 48-month window after he ceased being an active player, the court held that he could not state a plausible claim. For these reasons, defendants’ motion to dismiss was granted.
Robinson v. Aetna Life Ins. Co., No. 20-CV-4670, 2023 WL 2058310 (N.D. Ill. Feb. 16, 2023) (Judge Rebecca R. Pallmeyer). Plaintiff Laverne Robinson, who suffers from serious cardiac conditions, sued Aetna Life Insurance Company and the Mondelez Global LLC Employee-Paid Group Benefits Plan for long-term disability benefits pursuant to ERISA Section 502(a)(1)(B). Ms. Robinson’s long-term disability benefits were terminated solely because she had not met her plan’s precondition of an award of Social Security Disability Insurance (“SSDI”) benefits by the date when the plan’s definition of disability changed from “own occupation” to “any occupation.” Ms. Robinson doggedly pursued simultaneous appeals with Aetna and with the Social Security Administration. Only one would prove fruitful, when, on March 27, 2020, the Social Security Administration informed Ms. Robinson that she was entitled to SSDI benefits “with a retroactive effective date of October 1, 2016.” Upon learning of Ms. Robinson’s success with the Social Security Administration, Aetna did two things. First, it “turned a blind eye to her retroactive SSDI award for the purposes of finding her eligible for LTD under the ‘Any Occupation’ definition of disability.” At the same time, as it upheld its termination of Ms. Robinson’s disability benefits, “Aetna nevertheless (chose) to recognize the award for the purposes of recouping overpayment of benefits it had paid to Robinson.” Thus, as the court would come to characterize it in this decision, Aetna applied two incompatible interpretations to the effect of the Social Security Administration’s retroactive award of benefits, consistent to one another only in their benefit to Aetna. Ms. Robinson saw things in a similar light, and “having exhausted all pre-litigation appeals… filed this suit.” The parties filed cross-motions for summary judgment. In this order, the court concluded that the undisputed facts showed that Aetna abused its discretion. To begin, the court held that Ms. Robinson’s suit was timely. “In the end, Robinson did not receive clarification that Aetna would take no further action on her appeal until March 4, 2020… Even looking to the facts in the light most favorable to Aetna, it is clear that Robinson diligently pursued her internal appeal rights up until March 4, 2020. The court therefore finds that the limitations period began to run on March 4, 2020. This suit – filed in July 2020, within six months of the date on which Aetna clarified that she had exhausted her appeal rights – is therefore timely.” The court then transitioned to evaluating the merits of the parties’ respective positions about the reasonableness of Aetna’s interpretation. Common sense, the court felt, required it to find Aetna’s determination arbitrary and capricious. “Aetna’s interpretation conditions a claimant’s long-term eligibility on whether the SSA renders a favorable determination in an arbitrary timeframe, but permits Aetna to recoup an overpayment for retroactive SSDI awards received at any later date…. Aetna’s interpretation – which effectively assigns different meanings to the effect of retroactive SSDI awards in two different parts of the Plan – appears to be arbitrary and capricious.” The court went on to express that Aetna’s failure to help Ms. Robinson with her application for SSDI benefits, coupled with its disregard of “her later-obtained favorable SSDI award, constituted a failure on the part of Aetna to discharge its duties “solely in the interests of the participants and beneficiaries.” For these reasons, the court entered summary judgment in favor of Ms. Robinson, emphasizing that deferential review is not a “rubber stamp.” However, because Aetna, by its own actions, never considered whether Ms. Robinson was unable to engage in any occupation due to her heart conditions as of October 2018, the court felt that remanding to Aetna to make this assessment was necessary. Accordingly, Aetna has an additional 120 days from the date of this decision to “grant or deny Robinson’s application on the merits.”
Wagoner v. UnitedHealthCare, No. CV-22-00827-PHX-DJH, 2023 WL 1966916 (D. Ariz. Feb. 13, 2023) (Judge Diane J. Humetewa). An out-of-network healthcare provider, Gary L. Wagoner, initiated this action pro se against United Healthcare asserting claims for breach of contract and unjust enrichment after he was denied reimbursement for anesthesia services he provided to a patient insured by United under an ERISA welfare benefit plan. Mr. Wagoner alleged that he was assigned benefits and power of attorney, and that he therefore was able to bring this action to assert rights under the policy. United moved to dismiss, arguing the state law claims were preempted by ERISA Section 514(a), and that Mr. Wagoner lacked standing to assert ERISA claims due to the plan’s anti-assignment provision. Mr. Wagoner opposed United’s motion to dismiss and moved for default judgment. As a preliminary matter, the court agreed with United that Mr. Wagoner’s state law claims have a connection with the ERISA plan as the denial letter declares that the coverage determinations were based on the terms of the ERISA plan. “Plaintiff’s actions will therefore have an impact on an ERISA-regulated relationship, namely the plan and plan member. Plaintiff’s state law claims are thus preempted under the ‘connection with’ prong of Section 514(a).” Nevertheless, the court held that Mr. Wagoner is not without recourse as he may replead under ERISA Section 502(a)(1)(B). The court stated that Mr. Wagoner sufficiently provided evidence that he was assigned rights by the insured patient. On the other hand, the court expressed that United failed to cite to the plan’s anti-assignment provision, if indeed it has one. Thus, United’s contention that Mr. Wagoner lacks Article III standing to sue was, at least for the present, insufficient under 12(b)(6) standards. Accordingly, United’s motion to dismiss was granted, but without prejudice, and Mr. Wagoner may seek leave to amend his complaint and replead it as an ERISA action. Finally, Mr. Wagoner’s motion for default judgment was denied.
Exhaustion of Administrative Remedies
Sickman v. Standard Ins. Co., No. 22-3009, 2023 WL 1993675 (E.D. Pa. Feb. 14, 2023) (Judge Juan R. Sanchez). Plaintiff Margaret Sickman sued her husband’s former employer, Flowers Food, along with the insurance provider of the life insurance policy covering her late husband, Standard Insurance Company, for negligence, breach of contract, promissory estoppel, and breach of fiduciary duty under ERISA after her claim for benefits was denied. Defendants moved to dismiss the action pursuant to Federal Rule of Civil Procedure 12(b)(6). They argued that the state law claims were preempted by ERISA, and that her ERISA claim was barred for failure to exhaust administrative remedies. Defendants’ motion was granted by the court in this decision. First, the court held that the state law causes of action fell within the scope of ERISA and were therefore completely preempted. Ms. Sickman’s state law claims, the court stated could have been brought under ERISA given their clear connection to the administration of benefits under an ERISA plan and because no other independent legal duty supported them. Second, the court wrote that it was “undisputed that Sickman never followed (the internal review) process to appeal her denial of benefits.” Ms. Sickman’s argument that exhaustion would have been futile did not persuade the court to excuse her failure to exhaust. Instead, it found that she did not provide a clear showing that appealing the denial would have obliviously been futile, particularly in light of the fact that “she waited almost five years-from her claim denial on October 16, 2017, to her state court complaint on July 12, 2022 to seek any sort of review of the denial.” Finally, the court declined to permit Ms. Sickman leave to amend. Amendment, unlike exhaustion, the court found would be futile here, as no facts could cure the flaw of Ms. Sickman’s failure to exhaust the appeals procedure 5 years ago, to permit her to properly state ERISA claims now. Accordingly, dismissal was with prejudice.
Life Insurance & AD&D Benefit Claims
Colone v. Securian Life Ins. Co., No. 1:20-cv-18354, 2023 WL 2063337 (D.N.J. Feb. 17, 2023) (Judge Christine P. O’Hearn). Plaintiff Janyce Colone sued her late husband’s former employer, E.I. du Pont de Nemours & Company now doing business as Corteva Agriscience (“Corteva”) after her claim for supplemental life insurance benefits under her husband’s life insurance policy was denied. That denial, premised on Mr. Colone’s failure to pay necessary premiums, was weighed, under arbitrary and capricious review, in this order granting Corteva’s motion for summary judgment. Ultimately, although the court described Corteva’s actions both during its internal process making, investigating, and affirming its claims decision, and in its submission of its summary judgment motion in this action as “sloppy,” it was “ERISA’s forgiving standard,” which resulted in the court granting the motion. In particular, the court questioned the transmission method of the two letters sent to the Colones informing them of the upcoming lapse of the supplemental life insurance coverage. The declaration Corteva attached to its motion stated that the letters were not mailed but “delivered electronically to Mr. Colone’s… Secure Participant Mailbox.” However, the court found that Ms. Colone failed to create any issue of material fact by not pressing this point in her reply briefing. Accordingly, the court held that Ms. Colone was without recourse due to her admission that, by some means, notice was delivered to her and her husband, and Corteva was therefore in compliance with ERISA’s regulations. Because there was no genuine dispute that notice of the upcoming material modification of the policy was sent to the Colones, the court upheld the denial under abuse of discretion review.
Sun Life Assurance Co. of Can. v. Persinger, No. 2:22-cv-00204, 2023 WL 2054279 (S.D.W. Va. Feb. 16, 2023) (Judge Irene C. Berger). Sun Life Assurance Company of Canada filed this interpleader action to absolve itself of any potential liability over the distribution of the life insurance benefits of decedent Billy Joe Persinger. Mr. Persinger’s death has been categorized by the West Virginia State Police as “suspicious.” Mr. Persinger died of exsanguination caused by a puncture wound to his neck. Since the case was brought, Sun Life has distributed the benefits to the registry of the court, the police investigation has made significant progress, and the two defendants, the named beneficiaries, have moved for judgment and disbursement of benefits. In this order the court held that there was no reason to support a finding of suicide give the “blood trail of more than 4,000 feet long,” making disbursement of benefits appropriate. Additionally, the court was satisfied that the police investigation “establishes that neither Defendant is suspected of the felonious killing of the Decedent.” Both of the beneficiaries’ alibies “panned out,” and the officers in the investigation have identified other suspects who were with decedent prior to his death and had “the proper motive.” Accordingly, nothing in the record allowed the court to conclude that either defendant committed a felonious killing of Mr. Persinger to make them ineligible to be paid the benefits, the court felt that judgment and disbursement were appropriate. Thus, each of the defendants were awarded a 50% share of the life insurance benefits pursuant to the terms benefit designation form.
The Lincoln Nat’l Life Ins. Co. v. Subramaniam, No. 21-cv-12984, 2023 WL 1965430 (E.D. Mich. Feb. 13, 2023) (Judge Judith E. Levy). Defendant Brindha Periyasamy objected to the Magistrate Judge’s report and recommendation in this interpleader action recommending her motion for summary judgment be denied. In this decision the court overruled Ms. Periyasamy’s objections and adopted the Magistrate’s recommendations, thereby denying her motion for summary judgment. First, the court wrote that it was “undisputed that this litigation arose because decedent ‘did not complete a new enrollment form to designate his new spouse, Periyasamy, as his life insurance beneficiary.’” Without evidence of fraud, misrepresentation, or concealment, the court overruled Ms. Periyasamy’s first objection that the Magistrate erred by declining to impose a constructive trust. There is no authority, the court stated, that a constructive trust should be imposed because the decedent and his ex-wife, the named beneficiary, did not maintain a relationship following their divorce. Next, the court said that Ms. Periyasamy was mistaken in her conviction that ERISA no longer applies to life insurance proceeds deposited into the registry of the court. The court clarified that the proceeds were placed into its registry “pursuant to Federal Rule of Civil Procedure 22 while this ERISA action is pending.” Her arguments based on this theory were thus found to be inapplicable and off base. Accordingly, the court found no mistake in the report and recommendation and as such decided to adopt it and to deny Ms. Periyasamy’s summary judgment motion.
Metro. Life Ins. Co. v. Asbell, No. 21-CV-00332-RAW, 2023 WL 1967299 (E.D. Okla. Feb. 13, 2023) (Judge Ronald A. White). To resolve competing claims for the life insurance benefits of two policies belonging to decedent Ronald Asbell, Metropolitan Life Insurance Company (“MetLife”) filed this a complaint in interpleader. Two motions were before the court. First, MetLife moved to deposit funds and for dismissal from the action. Also before the court was defendants Linda Poteet, Christopher Stewart, and Pearlie Ann Hill’s motion for default judgment, seeking an order of their entitlement each to a third of the proceeds per the most recent beneficiary designation forms. The court granted the motions in this order. As an initial matter, the court stated that MetLife “threated with double or multiple liability,’ given the competing claims filed by (the defendants) …. has properly invoked interpleader under Fed.R.Civ.P.22.” Furthermore, the court found that “as a disinterested stakeholder,” MetLife was entitled to its requested reimbursement of costs and attorneys’ fees in the amount of $10,367.50 from the funds deposited. As the defendants did not object, the court granted MetLife’s motion as proposed, and dismissed it from the action. Next, the court addressed the three defendants’ joint motion for default judgment. Because the other defendant in this action with the conflicted interest in the proceeds, Keith Asbell, never appeared or responded in any manner despite proof of service, the court held that the three defendants’ motion should be granted and ordered that Mr. Asbell “shall recover none of the benefits due under the Metropolitan Life Insurance company’s aforementioned policy.”
Medical Benefit Claims
L.C. v. Blue Cross & Blue Shield of Tex., No. 2:21-cv-00319-DBB-JCB, 2023 WL 1930227 (D. Utah Feb. 10, 2023) (Judge David Barlow). Plaintiffs L.C. and F.C., a participant and beneficiary of a self-funded ERISA healthcare plan, sued the plan’s insurer and administrator, Blue Cross and Blue Shield of Texas, under ERISA and the Mental Health Parity and Addiction Equity Act contending that Blue Cross wrongly denied claims for coverage of most of F.C.’s two-year stay at a residential treatment center. In this action the plaintiffs challenged Blue Cross’s use of its Milliman Care Guidelines to evaluate medical necessity for inpatient mental healthcare. In particular, they challenged the guidelines focus on acute crisis care. However, even under the guideline’s criteria, F.C., who was exhibiting self-harming and violent behaviors during parts of her stay at the residential facility and who had a history of cycling in and out of psychiatric emergency rooms following suicide attempts, should have seemingly qualified for the higher levels of more intensive inpatient mental healthcare treatment, which plaintiffs pointed out was “not only effective, but also life-changing.” Accordingly, both in their internal appeals and throughout litigation, plaintiffs argued that Blue Cross was wrong to deny continued coverage because F.C. required the long-term inpatient treatment to address her health issues. They further argued that medical records contradicted Blue Cross’s stance that F.C. was not a danger to herself at the time of the denial. Blue Cross maintained that its denial was appropriate under its guidelines which expressly allow for lower levels of care even under certain circumstances where a patient is presenting suicidal behaviors, and that the guidelines did not impose any nonquantitative treatment limitation on mental healthcare that violates the Parity Act. The parties cross-moved for summary judgment under de novo review. The court in this order granted Blue Cross’s motion and denied plaintiffs’ motion. It held that the medical record supported the decision to deny coverage, as F.C. was adequately stabilized at the time of the denial in August of 2018, and her risk status to herself was sufficiently reduced to justify lower her level of care. The court wrote, “F.C.’s improvement was marked, but not linear or free from problematic behavior. From February to early May 2019, there are a number of negative incidents, including some homicidal and suicidal ideations. But these incidents occurred after (the facility) removed F.C.’s access to Midas, her canine therapy dog…and they were apparently at least partly in reaction to the loss…. Additionally, F.C.’s therapist stated on March 14 that F.C. had been untruthful and manipulative.” Thus, the court appeared to penalize F.C. for her periods of improvement. At the same time, it seemingly attributed her periods of much poorer health to either sadness over the loss of a therapy dog or as manipulative attention seeking behaviors. Therefore, under these rationales the court agreed with Blue Cross that the record supported a finding that F.C. could have been appropriately treated under a stepped-down level of care. Finally, the court stated that plaintiffs failed to prove that the guidelines and their applications were a violation of the Parity Act. “Plaintiffs’ claims ‘are merely conclusory allegations devoid of factual support.’ And so their ‘as-applied challenged necessarily fails.’”
Pension Benefit Claims
Williamson v. Travelport, LP, No. 1:17-CV-00406-JPB, 2023 WL 1973220 (N.D. Ga. Feb. 13, 2023) (Judge J.P. Boulee). Following an alleged miscalculation of pension benefits from her tenure working at one of United Airlines’ successors, plaintiff Angela Henderson Williamson filed an ERISA action asserting claims for breaches of fiduciary duties, improperly withheld pension benefits, and statutory penalties for failure to provide and disclose documents. In essence, Ms. Williamson contended that her benefits were miscalculated because she was not appropriately awarded months of service for her years working at United Airlines and its first successor, Covia. Defendants Travelport, LP and Galileo & Worldspan U.S. Legacy Pension Plan moved to dismiss the action. The court granted the motion and dismissed the action entirely. Then M. Williamson appealed. On appeal, the Eleventh Circuit affirmed the dismissal of the claims for breaches of fiduciary duties and statutory penalties. However, the appeals court reversed Ms. Williamson’s Section 502(a)(1)(B) claim for pension benefits and remanded to the district court for resolution. Following the circuit court’s partial reversal, the defendants produced the administrative record and the court held oral argument. Subsequently the parties cross-moved for judgment on the administrative record pursuant to Federal Rule of Civil Procedure 52. The court began its conclusions by finding that defendant Travelport, the plan’s named administrator, was not a proper party as it delegated its discretionary control to the employee benefit committee (“EBC”). “These plan provisions make clear that the EBC is responsible for decisions regarding benefits. As such, Travelport-which, although the Plan administrator in other respects, does not exercise decisional control over the award or denial of benefits-is not liable for any money judgment under ERISA and is therefore not a proper party.” Thus, the court dismissed defendant Travelport from the action and granted its motion on the administrative record. Left with only defendant Galileo, the court addressed the merits regarding the calculation of benefits. There, defendant Galileo proved successful. Upon review of the record, the court found that the benefits committee’s decision to not award Ms. Williamson benefits based on her additional months of service “was not de novo wrong,” under what the court viewed as the unambiguous plan language, not in conflict with the summary plan description or benefit estimate statements. Accordingly, the court affirmed defendants’ calculation and entered judgment in their favor.
Pleading Issues & Procedure
The ERISA Indus. Comm. v. Asaro-Angelo, No. 20-10094 (ZNQ)(TJB), 2023 WL 2034460 (D.N.J. Feb. 16, 2023) (Judge Zahid N. Quraishi). A Washington, D.C. lobbying group representing the interests of large employers with ERISA plans, the ERISA Industry Committee, sued the Commissioner of the New Jersey Department of Labor and Workforce Development, Mr. Robert Asaro-Angelo, seeking a court declaration finding New Jersey’s Senate Bill 3170 preempted by ERISA. SB3170 amended and expanded the New Jersey WARN Act – a law mandating 60-days’ notice of any mass layoff – to include new regulations which included a requirement that employers pay statutorily mandated severance to employees entitled to severance benefits under collective bargaining agreements. Plaintiff moved for summary judgment pursuant to Federal Rule of Civil Procedure 56. Mr. Asaro-Angelo opposed. He argued that discovery is needed to properly respond to plaintiff’s motion in order to “properly determine whether Plaintiff has standing to bring this lawsuit.” The court agreed with Mr. Asaro-Angelo, concluding that discovery was necessary, and plaintiff’s summary judgment motion was premature. Contrary to plaintiff’s assertion, the court stated that its presumption of Article III standing for purposes of ruling on Mr. Asaro-Angelo’s motion to dismiss, was not a finding of fact sufficient confer it with standing at the summary judgment stage. “While the Court indicated that Plaintiff’s allegations of expenditures and diversion of recourses to address S3170 implications were sufficient at the motion to dismiss stage to establish standing, the court finds here that Plaintiff has not met its burden at the summary judgment stage.” For this reason, plaintiff’s motion for summary judgement was denied without prejudice and Mr. Asaro-Angelo’s motion for limited discovery on the issue of standing was granted.
Advanced Physical Med. of Yorkville v. Allied Benefit Sys., No. 22 CV 2969, 2023 WL 2058315 (N.D. Ill. Feb. 16, 2023) (Magistrate Judge Young B. Kim). A chiropractic service provider, plaintiff Advanced Physical Medicine of Yorkville, Ltd. sued an ERISA plan’s administrator and it claims processor asserting claims under ERISA and state law seeking reimbursement of promised rates for services. Defendants moved to dismiss the two ERISA claims. They argued that Advanced Physical Medicine could not state its ERISA claims as it lacked standing to sue pursuant to the unambiguous terms of the plan’s anti-assignment provision. The court agreed and dismissed the ERISA claims without prejudice in this order. In light of the clause prohibiting beneficiaries from assigning medical providers the right to bring ERISA civil lawsuits, the court stated that “the complaint fails to show that Plaintiff has standing to bring the ERISA claims.” Thus, the ERISA causes of action were dismissed, and Advanced Physical Medicine will proceed going forward with only its state law claims.
Saloojas, Inc. v. Aetna Health of Cal., Inc., No. 22-cv-02887-JSC, 2023 WL 1975248 (N.D. Cal. Feb. 13, 2023) (Judge Jacqueline Scott Corley). Last week, Your ERISA Watch covered a decision granting a motion to dismiss in a related action brought by plaintiff Saloojas, Inc. against a different insurance company, CIGNA. Saloojas’ action here asserted against Aetna did not yield a different result. Once again, this healthcare provider seeking reimbursement of COVID-19 diagnostic testing services was told by the federal courts that its action could not hold. In much the same vein as last week’s decision, the court here granted Aetna’s motion to dismiss Saloojas Inc.’s amended complaint. The court found, as it found last October, that Saloojas did not have standing to bring its ERISA benefits claims because it lacked assignments of benefits, that the CARES Act does not provide a private right of action for providers to sue to enforce its provisions, and Saloojas’ claims based on fraud did not meet the heighted pleading requirements necessary to state claims of fraud. All of these identify deficiencies, the court felt, remained in Saloojas’ amended complaint. Finally, Saloojas’ new claim of insurance bad faith and fraud was dismissed for lack of standing as the amended complaint did not plausibly allege that the provider was party to a contract with Aetna or that it was “an intended beneficiary of the contracts between Defendant and its insureds.” For these reasons, Aetna’s motion to dismiss was granted.