Winsor v. Sequoia Benefits & Ins. Servs., LLC, No. 21-16992, __ F.4th __, 2023 WL 2397497 (9th Cir. Mar. 8, 2023) (Before Circuit Judges Bress and VanDyke, and Judge Jane A. Restani (Ct. Int’l Trade))

Standing has always been an important issue in ERISA class actions, and has become even more important since the Supreme Court’s decision in Thole v. U.S. Bank N.A., 140 S. Ct. 1615, 207 L. Ed. 2d 85 (2020). The big question after Thole has been whether and how that ruling would be extended to prevent benefit plan participants from challenging the actions of plan fiduciaries. In this week’s notable decision, the Ninth Circuit addressed this issue in the context of a Multiple Employer Welfare Arrangement (MEWA).

The plaintiffs were current and former employees of tech company RingCentral who participated in RingCentral’s welfare benefits plan. The RingCentral plan participated in a “Tech Benefits Program,” which was a MEWA administered by defendant Sequoia Benefits and Insurance Services. The Program “pools assets from more than 180 employer-sponsored plans into a trust fund for the purpose of obtaining insurance benefits for employees at large-group rates that may otherwise be unattainable for individual employer plans.”

The RingCentral plan was funded by contributions from both RingCentral and its employees. RingCentral decided which benefits to offer and how much employees would contribute toward each benefit. These funds were then sent to Sequoia, which “selected the insurance benefits that would be made available to employers, negotiated the cost of any given benefit with the insurance provider, and determined how much each employer plan must contribute to the Tech Benefits Program’s trust fund in exchange for the plan participants’ selected benefits.”

Sequoia paid the insurance costs and fees out of the trust fund, maintained in the name of the Program, which was funded by contributions from the RingCentral plan. In turn, Sequoia received commissions from the companies from which it purchased insurance for participating plan participants.

Plaintiffs challenged this arrangement in their putative class action. They alleged that Sequoia breached its fiduciary duties under ERISA to the RingCentral plan “in two ways: (1) by receiving and retaining commission payments from insurers, which plaintiffs regard as kickbacks; and (2) by negotiating allegedly excessive administrative fees with insurers, which led to higher commissions for Sequoia.” In an amended complaint, plaintiffs argued that these breaches “injured them by requiring plaintiffs to pay higher contributions toward their benefits and by allegedly interfering with plaintiffs’ purported equitable ownership interest in the Tech Benefits Program trust fund.” Plaintiffs requested that Sequoia’s “improper profits” be disgorged to the plan participants, or alternatively reimbursed to the RingCentral plan.

The district court dismissed the action, “concluding that plaintiffs had not alleged sufficient facts indicating that Sequoia’s conduct led plaintiffs to pay higher contributions or to receive fewer benefits.” Thus, plaintiffs lacked Article III standing to bring their suit in the first place. Plaintiffs appealed.

The Ninth Circuit separated plaintiffs’ arguments into two theories of recovery. The first theory was that “Sequoia’s actions allegedly caused plaintiffs to pay higher contributions for their insurance, and that eliminating Sequoia’s commissions and reducing administrative fees would therefore have lowered plaintiffs’ payments.”

However, the Ninth Circuit held, “The problem with plaintiffs’ theory is that plaintiffs have not pleaded facts tending to show that Sequoia’s alleged breach of fiduciary duty led to plaintiffs paying higher contributions.” The court noted that RingCentral made all decisions regarding which benefits would be offered to employees, and what contributions would be required for those benefits.            Plaintiffs were required to establish a connection between Sequoia’s actions and their contributions, but RingCentral’s intermediary actions broke that connection: “Plaintiffs have not alleged that RingCentral has changed or would change employee contribution rates based on Sequoia’s alleged breaches of fiduciary duty, or that employee contribution rates are tied to overall premiums.”

The Ninth Circuit further rejected plaintiffs’ argument that such a connection could be inferred. There was no “specific formula or set of factors” used by RingCentral to determine what contributions would be required, and in fact some benefits did not require any employee contributions at all. As a result, plaintiffs were unable to prove the causation element of Article III standing.

For similar reasons, the Ninth Circuit further ruled that plaintiffs’ two theories of redressability were also inadequate. Even assuming that ERISA permitted plaintiffs’ theory of constructive trust relief, “plaintiffs do not explain how a court could place Sequoia’s ‘ill-gotten profits’ directly into plaintiffs’ pockets when plaintiffs have not alleged how a court could identify the discrete ‘profits’ supposedly owed to them, given RingCentral’s discretion in setting employee contribution amounts and the manner in which RingCentral exercised this discretion.”

The court also rejected plaintiffs’ other theory of redressability – awarding damages to the plan itself – because it was foreclosed by the court’s prior decision in Glanton ex rel. ALCOA Prescription Drug Plan v. AdvancePCS Inc., 465 F.3d 1123 (9th Cir. 2006). In Glanton, the court held that “any one-time award to the plans for past overpayments [would not] inure to the benefit of participants” because employers “would be free to reduce their contributions or cease funding the plans altogether until any such funds were exhausted.” The court stated, “That same logic applies here…. There is thus no basis for plaintiffs’ assertion that, if the RingCentral plan received money from Sequoia, the plan would ‘likely’ remit that money to plaintiffs.”

The Ninth Circuit then turned to plaintiffs’ second standing theory, which was that they retained an equitable ownership interest in the Tech Benefits Program’s trust fund, and thus, as beneficiaries of that fund, they had “standing to pursue relief such as surcharge or disgorgement, even if they suffered no tangible out-of-pocket loss.”

The court held that this argument ran afoul of the Supreme Court’s decision in Thole. In Thole, the plaintiffs “had pointed to trust law principles and contended that ‘an ERISA defined-benefit plan participant possesses an equitable or property interest in the plan.’” Thus, a fiduciary duty breach “itself harms ERISA defined-benefit plan participants, even if the participants themselves have not suffered (and will not suffer) any monetary losses.” The Supreme Court rejected this theory, holding that “plan participants possess no equitable or property interest in the plan,” and thus they were required to show how the alleged breach concretely affected them.

The Ninth Circuit found Thole analogous. “Although the Tech Benefits Program is not a defined-benefit pension plan, it similarly provides a fixed set of benefits as promised in plan documents.” The plaintiffs’ benefits do not “increase or decrease depending on the management of trust assets.” The plaintiffs were not “entitled to receive the funds held by the program,” and instead were only “contractually entitled to the insurance benefits that Sequoia agreed to purchase for them with the program’s funds – benefits that plaintiffs have received.” Because the plaintiffs had received all of the benefits to which they were entitled, the court found that they had not suffered a concrete harm. As a result, the district court’s order granting Sequoia’s motion to dismiss was affirmed in its entirety.

It is unclear what impact this case will have. As the Ninth Circuit noted, this case is unusual because the plaintiffs did not sue RingCentral, or even the RingCentral benefit plan. Instead, “This case is less typical because the plaintiffs are leapfrogging the RingCentral plan and seeking to recover directly from Sequoia, a management and insurance brokerage company that is a step removed from the contributions plaintiffs pay and the benefits they receive.” Furthermore, in a footnote the Ninth Circuit dodged the issue of whether Sequoia was even a fiduciary under ERISA. One thing is clear, however: the fallout from Thole continues, and this decision will likely be cited by plan administrators and fiduciaries in future cases seeking to escape liability on standing grounds.

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


Third Circuit

Burnett v. Prudent Fiduciary Servs., No. 22-270-RGA, 2023 WL 2401707 (D. Del. Mar. 8, 2023) (Judge Richard G. Andrews). On January 25, 2023, Magistrate Judge Jennifer L. Hall issued a report and recommendation in this breach of fiduciary duty class action brought by the participants of the Western Global Airlines, Inc. Employee Stock Ownership Plan recommending the court deny defendants’ motion to compel arbitration. Magistrate Hall reasoned that the arbitration provision contained a clause improperly banning participants from exercising their ERISA-protected right to seek plan-wide relief, and because this clause was non-severable, Magistrate Hall found the arbitration provision itself unenforceable. Very shortly after the recommendation was issued, the Tenth Circuit “on a complaint alleging the same theories as in the instant case, and with essentially the same arbitration agreement, thoroughly analyzed the same issues and came to the same conclusion as the Magistrate Judge did,” in Harris v. Envision Mgmt. Holding, Inc. Bd. of Directors. (Harris was the notable decision in our February 15, 2023 issue.) Defendants filed objections to the Magistrate’s recommendation. The court reviewed the Magistrate’s recommendation de novo and found it “persuasive” and “prescient,” given the Tenth Circuit’s ruling in Harris. Accordingly, the objections were overruled, the report and recommendation was adopted in full, and the motion to compel arbitration was denied.

Breach of Fiduciary Duty

First Circuit

Brown v. The MITRE Corp., No. 22-cv-10976-DJC, 2023 WL 2383772 (D. Mass. Mar. 6, 2023) (Judge Denise J. Casper). Six plan participants, on behalf of themselves and a putative class, filed a two-count complaint against The MITRE Corporation, its board of trustees, and the investment advisory committee for breaches of the duties of prudence and monitoring in connection with its two “jumbo plans,” the Tax Sheltered Annuity Plan and the Qualified Retirement Plan, which combined had at least $3.5 billion in assets and over 20,000 participants during the relevant period. Plaintiffs alleged that defendants breached their duty of prudence by adopting a revenue sharing approach to plan fees, which resulted in per participant fees of up to $80. In addition, plaintiffs challenged defendants’ retention of two recordkeepers, TIAA and Fidelity, for at least 14 years despite the allegedly unnecessary costs of doing so, and also argued that the committee was imprudent by failing to regularly solicit or conduct requests for proposals at reasonable intervals throughout the class period. Finally, plaintiffs alleged that the plans’ use of three higher cost share classes of funds that had otherwise identical institutional options available also constituted a breach of the duty of prudence. In addition to these imprudent actions, the plan participants also argued that the board breached its fiduciary duty to monitor by failing to evaluate or scrutinize the performance of the investment committee, to the participants’ detriment. Defendants moved to dismiss the complaint. The court declined to dismiss either cause of action. It was satisfied that plaintiffs were sufficiently comparing the fees of the challenged plans with those of at least ten other similarly sized plans. Given this, the court stated that it could infer imprudence and a derivative breach of the duty of monitoring, especially as the complaint focused on defendants’ failure to leverage the substantial size and bargaining power of the plan to obtain the same services and investments for lower costs. However, the court did grant defendants’ motion to dismiss with regard to one of the six named plaintiffs, whom the court agreed was barred from filing this action against these defendants by the doctrine of issue preclusion, as he had previously filed a similar lawsuit which was dismissed for lack of subject matter jurisdiction. Nevertheless, defendants’ motion to dismiss was denied in all other respects, and this fiduciary breach action will carry on.

Sixth Circuit

Sigetich v. The Kroger Co., No. 1:21-cv-697, 2023 WL 2431667 (S.D. Ohio Mar. 9, 2023) (Judge Timothy S. Black). Plaintiff Lisa Sigetich, on behalf of a proposed class of plan participants, sued the fiduciaries of The Kroger Co. 401(k) retirement Savings Accounts Plan for breaching their fiduciary duties by overpaying and failing to negotiate for lower fees to be paid to the plan’s service provider, Merrill Lynch. Ms. Sigetich maintained that the per participant recordkeeping fee was excessive when compared to other similarly sized plans and included information in her complaint to suggest that Merrill Lynch provided a standard package of bundled administrative and recordkeeping services comparable to all other packages of plan administration services. Defendants moved to dismiss, and the Chamber of Commerce of the United States of America filed an amicus curiae brief in support of the fiduciaries of this mega defined contribution plan. To begin, the court held that Ms. Sigetich plausibly alleged standing to assert her two claims, breach of the fiduciary duty of prudence and breach of the duty to monitor. Viewing all plausible inferences in favor of Ms. Sigetich, the court concluded that her excessive fee allegations were adequate to infer an injury-in-fact traceable to the alleged misconduct. Next, the court took a look at the sufficiency of the complaint’s pleading of the fiduciary breach claims. Giving due regard to all of the range of possible reasonable judgments a plan fiduciary could make, the court concluded that Ms. Sigetich failed to plausibly state claims for relief. Moreover, the court agreed with defendants that Ms. Sigetich’s comparisons were “handpicked plans from one single year,” and therefore inapt benchmarks to determine the appropriateness of the plan’s costs. The court also took issue with Ms. Sigetich’s position that the services rendered by Merrill Lynch were typical of the level and quality of all recordkeeping and administrative services provided by service providers to a plan of this size. “[W]hen the Court takes a careful, context-sensitive scrutiny of the comparable plans, Plaintiff’s suggestion that minor variations are immaterial is not plausible.” For these reasons, the court concluded that it could not infer imprudence, a flawed oversight process, or mismanagement on behalf of the plan’s fiduciaries. Accordingly, the motion to dismiss was granted, and the action was dismissed with prejudice.

Seventh Circuit

Hensiek v. Bd. of Dirs. of Casino Queen Holding Co., No. 20-cv-377-DWD, 2023 WL 2374371 (S.D. Ill. Mar. 6, 2023) (Judge David W. Dugan); Hesiek v. Bd. of Dirs. of Casino Queen Holding Co., No. 20-cv-377-DWD, 2023 WL 2411143 (S.D. Ill. Mar. 8, 2023) (Judge David W. Dugan). In two decisions this week, the court denied a collection of motions to dismiss, motions for judgment on the pleadings, and summary judgment motions filed by the defendants in this breach of fiduciary duty and prohibited transaction litigation involving the sale of a riverboat gambling company’s stock to its Employee Stock Ownership Plan (ESOP). Specifically, plaintiffs outlined several interrelated activities which they aver constituted violations of ERISA. First, plaintiffs alleged that the selling shareholders attempted to sell Casino Queen to various third parties from 2005 to 2011, but were unsuccessful due to the casino’s declining success and rising competition in the geographic area. Unable to go this route, the defendants undertook another path to accomplish their goals. To begin, in October 2012, the selling shareholders created a holding company for Casino Queen. Then, the selling shareholders exchanged their Casino Queen Stock for the holding company’s stock and placed themselves on the newly formed board of the holding company. Subsequently, in December 2012, the shareholders and the holding company established the Casino Queen ESOP and facilitated the terms of the ESOP stock purchase of the holding company’s outstanding stock for $170 million. In order to finance this transaction, the ESOP borrowed $130 million from Wells Fargo, $15 million from an unnamed third party, and $25 million from the defendants at the “draconian interest rate” of 17.5%. Following the 2012 stock purchase, the ESOP proceeded to sell all of the Casino Queen’s real estate to a third party gambling company, Gaming and Leisure Properties, Inc., for $140 million. Plaintiffs alleged that the real value of these assets totaled only about $12.1 million. Then, and perhaps most astoundingly, Casino Queen leased back the property it had just sold for $140 million at the price of $210 million, to be paid over 15 years (more annually than what plaintiffs claimed the properties were worth). Defendants argued the purpose of this sale was to pay off the ESOP’s outstanding loans owed to the selling shareholders, and that once the selling shareholders’ loans were fully repaid in 2014, two of the defendants relinquished their board memberships. Finally, plaintiffs provided examples of the ways in which defendants took actions to obscure the truth from them and the Department of Labor. Thus, they claim it was not until 2019 that they learned what had occurred. They filed their lawsuit shortly after. Regarding the motions before the court, the court took the broad position that inferences needed to be drawn in favor of the plaintiffs at this early junction in the case. In doing so, the court determined that plaintiffs adequately stated claims and that those claims were timely. The court did not take kindly to defendants’ gamesmanship. Accordingly, this may not be an instance where the house always wins, or at least not before the benefit of discovery.

Lucero v. Credit Union Ret. Plan Ass’n, No. 22-cv-208-jdp, 2023 WL 2424787 (W.D. Wis. Mar. 9, 2023) (Judge James D. Peterson). Participants in a jumbo multi-employer pension plan, the Credit Union Retirement Plan Association 401(k) Plan, have sued the plan’s fiduciaries for breaching their fiduciary duties. In particular, they contend that defendants failed to control the plan’s costs. Defendants moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Concluding that plaintiffs stated plausible claims, the court denied the motion to dismiss. As a preliminary matter, the court concluded that defendants’ arguments that each participant only had standing limited to the fees directly charged to them was premature, expressing, “Courts do not dismiss parts of claims at the pleading stage.” Next, the court evaluated whether plaintiffs put defendants on notice of their claims and whether they alleged plausible facts which suggest they are entitled to relief. It concluded they had on both their breach of duty of prudence claim and their derivative breach of duty to monitor claim. This was especially true, because “plaintiffs don’t know the process the fiduciary used to determine the fees paid for recordkeeping and administration, so plaintiffs must rely on circumstantial allegations to support a plausible claim.” The fact that the plan’s per participant fees were as high as $271 during the class period suggested to the court that the fiduciary process defendants engaged in was flawed and potentially imprudent. Additionally, the court was satisfied that plaintiffs provided adequate benchmarks and comparisons needed in order to state their claims. It stated, “the plaintiffs allege in this case that defendants’ recordkeeping fees are approximately 10 times higher than the fees of plans with a similar number of participants. That difference is much larger than the disparity alleged in Albert. A cheaper plan isn’t necessarily better…but the difference is so significant that it provides some basis for inferring that defendants are using an imprudent process to choose investments.” Accordingly, this class action will proceed past the pleading stage.

Disability Benefit Claims

Second Circuit

Israel v. Unum Life Ins. Co. of Am., No. 1:21-cv-4335-GHW, 2023 WL 2390873 (S.D.N.Y. Mar. 7, 2023) (Judge Gregory H. Woods). On January 27, 2023, Magistrate Judge James L. Cott issued a report recommending the court grant in part and deny in part Unum Life Insurance Company of America’s motion to dismiss plaintiff Jessica Israel’s complaint for failure to exhaust administrative remedies. Specifically, Magistrate Cott found in favor of Ms. Israel on her long-term disability benefit claim, concluding that she had effectively exhausted and taken the proper steps to appeal, while Unum failed to comply with ERISA’s regulations in its review of the disability claim. To rectify this, the Magistrate recommended that the long-term disability decision be remanded to Unum for a full and fair review. However, the report also recommended that Ms. Israel’s claim for waiver of premium benefit be dismissed because “nothing in the record suggests that Israel… attempted to appeal the May 21 decision with respect to WOP benefits.” The Magistrate also recommended that Ms. Israel’s claim for attorney’s fees be considered at a later point in the case. Both parties timely objected to portions of the report. Unum argued that the report erred as the record demonstrated that Ms. Israel failed to exhaust her administrative remedies under the long-term disability plan and Ms. Israel’s counsel’s letter to Unum did not constitute an adequate notice of appeal and should not be treated as one. Ms. Israel objected “to the Report’s determination that an application for attorney’s fees would be premature at this time.” She argued that remand was enough success on the merits to warrant an award of fees under ERISA Section 502(g)(1). The Court reviewed the report and recommendation de novo and agreed “with Judge Cott’s thoughtful and well-reasoned analysis and conclusions in full and therefore adopt[ed] the Report in its entirety.” Regarding Unum’s objection, the court wrote that the “appropriate question is not whether Unum might have considered the June 1, 2018, letter as an administrative appeal, but whether Unum was required to consider it an administration appeal.” As for Ms. Israel’s objection, the court stated that it did not understand the report to suggest that the remedy of remand was the reason that fees were premature. Instead, it wrote that because the case is being remanded to Unum for further consideration “the full degree of Plaintiff’s success will turn on the outcome of the appeal process on remand. It is in the interest of judicial economy to resolve any fee application after Defendant has completed its review.” Thus, for the foregoing reasons the report was adopted in full.

Schuyler v. Sun Life Assurance Co. of Can., No. 20 CIVIL 10905 (RA), 2023 WL 2388757 (S.D.N.Y. Mar. 7, 2023) (Judge Ronnie Abrams). Plaintiff Kristen Schuyler was employed by Benco Dental Supply Company from May 2011 until May 2019, when she stopped working due to disabling symptoms from a traumatic brain injury she sustained in 2015. Ms. Schuyler applied for long-term disability benefits under the company’s ERISA-governed benefit plan insured by Sun Life Assurance Company of Canada. Her claim was denied by Sun Life which determined that she was not totally disabled from performing the duties of her own occupation as defined by the plan. Ms. Schuyler began the process of administratively appealing the denial of her claim, which is presently worth approximately $1.2 million. Meanwhile, on December 12, 2019, Ms. Schuyler signed a separation agreement and release with Benco Dental. Before signing the document, Ms. Schuyler sought clarification that signing would not interfere with her ability to appeal her long-term disability denial with Sun Life. She attests that Benco Dental’s answers to her questions on this point assured her that signing the agreement would not limit her ability to receive long-term disability benefits from Sun Life. However, Ms. Schuyler did sign the agreement, which included the following statement: “Employee of her…own free will, voluntarily releases…any and all known and unknown actions…arising out of or limited to, any alleged violation of…the Employee Retirement Income Security Act of 1974 (‘ERISA’).” By signing the document and receiving a payment of $25,000, the court ruled that Ms. Schuyler had lost her ability to bring this civil action against non-signatory Sun Life to challenge her denial. The court concluded that contrary to Ms. Schuyler’s “self-serving statements made after the fact,” she knowingly and voluntarily waived her right to bring an ERISA civil suit, against not only Benco Dental but also against Sun Life, by signing the separation agreement. Accordingly, the court granted summary judgment in favor of Sun Life.

ERISA Preemption

First Circuit

Medicaid & Medicare Advantage Prods. Ass’n of P.R. v. Hernandez, No. 20-1760 (DRD), 2023 WL 2399713 (D.P.R. Mar. 8, 2023) (Judge Daniel R. Domínguez). A collection of health insurance companies and Medicaid and Medicare Advantage products providers sued Puerto Rico’s Attorney General and Insurance Commissioner seeking declaratory and injunctive relief against the enforcement of two Acts passed in 2020, which set new and more protective standards for healthcare plans throughout Puerto Rico, including ERISA, Medicare, Medicaid, and Federal Employees Health Benefit (“FEHB”) plans. Specifically, the Acts impose obligations on the insurance companies relating to the timing of the reimbursement of submitted medical claims, prohibiting providers from altering medical criteria regarding patients’ treatments, mandating insurers provide continuing coverage for prescribed prescription drugs, and setting standards for payments to pharmacies. In essence these Acts were designed to prohibit health insurance providers from having ultimate control over how medicine is practiced in Puerto Rico, including by defining “medical necessity” as being determined exclusively by the professional judgment of the treating physicians “as long as providers conform with generally accepted standards of medical practice.” Plaintiffs argued that the Acts interfere with healthcare plan operation and are therefore preempted by the federal programs’ preemption clauses, and moved for judgment on the pleadings. The attorney general and the insurance commissioner opposed the motion. It was their position that the federal legislations’ preemption clauses do not preempt either Act because “the Government is exercising its historic and traditional police power to ensure the health and safety of the citizens and residents of Puerto Rico.” Accordingly, the court’s role was to determine whether the preemption clauses of FEHB, ERISA, Medicare Advantage, and Medicare Part D apply to and preempt “the Commonwealth’s attempts to regulate how these plans operate.” In this order, it concluded that they did and granted plaintiffs’ motion for judgment. In particular, the court found that Acts would necessarily regulate the operations of the plans governed by these federal programs and that they were precisely the types of state laws that were directly encompassed by each preemption provision. Further, the court disagreed with defendants that the Acts only had a tenuous or tangential connection with ERISA and FEHB plan administration. The court focused on the Supreme Court’s decision in Gobeille v. Liberty Mut. Ins. Co. and found instructive its conclusion that “requiring ERISA administrators to master the relevant laws of 50 States and to contend with litigation would undermine the congressional goal of ‘minimizing the administrative and financial burdens’ on plan administrators – burdens ultimately borne by the beneficiaries.” Accordingly, the court agreed with the challengers that these Acts relate to and interfere with plan administration. Thus, the court granted the motion and entered declaratory judgment that the Acts in the Puerto Rico Insurance Code were expressly preempted by the Medicare Advantage program, Medicare Part D, FEHB, and ERISA.

Hussey v. E. Coast Slurry Co., No. 20-11511-MPK[1], 2023 WL 2384018 (D. Mass. Mar. 6, 2023) (Magistrate Judge M. Page Kelley). Plaintiff Virginia Hussey sued her former employer, East Coast Slurry Co, LLC, her former union, International Operating Engineers Local 4, and her former apprenticeship school, Hoisting and Portable Engineers Apprenticeship and Training Program, for gender discrimination, sexual harassment, and retaliation. Defendants previously argued that the school is governed by ERISA and that ERISA accordingly preempts Ms. Hussey’s state law claims. On summary judgment the court rejected these arguments. The School subsequently moved in limine to dismiss. Its motion was again premised on ERISA preemption. Further, even in the absence of ERISA preemption, it argued that the 180-day statute of limitation applied to Ms. Hussey’s Title VII claim. The motion was denied in this order “except that the School may renew its ERISA preemption argument, if renewal is supported by the evidence and verdict.” The court otherwise declined to revisit the issue of ERISA preemption pre-trial.

Ninth Circuit

Russell v. S. Cal. Permanente Med. Grp., No. 22-cv-1930-W-JLB, 2023 WL 2436005 (S.D. Cal. Mar. 9, 2023) (Judge Thomas J. Whelan). Last August, plaintiff Laura Russell sued her former employer, Kaiser Permanente, in San Diego Superior Court asserting 13 causes of action including wage and hour and overtime violations and a claim under California’s labor code for forced patronage, alleging that Kaiser forced employees to partake in its own health benefits program. The Kaiser defendants removed the action to federal district court. They argued that Ms. Russell’s state law claims were preempted by the Labor Management Relations Act (“LMRA”) and ERISA. Ms. Russell held the opposite view, and moved to remand the case back to state court on the ground that the federal laws do not preempt her claims and the court therefore lacks federal-question jurisdiction. The court agreed with Ms. Russell and granted her motion. First, the court stated that contrary to Kaiser’s position, resolution of Ms. Russell’s state law claims would not require interpretation of the terms of the Collective Bargaining Agreement. Second, the court held that Ms. Russell’s forced patronage claim was not preempted by ERISA. The text of California Labor Code 450(a), the court stated, “does not act immediately and exclusively upon ERISA plans and the law could operate even if ERISA plans did not exist.” Furthermore, the court wrote that “whether the Aggrieved Employees were unlawfully forced to purchase insurance under section 450(a) is not related to ‘a fundamental ERISA function,’” and therefore would not interfere with plan administration. At most, the court felt that resolution of the state labor law claim had a tenuous connection to an ERISA plan. Thus, the court concluded that ERISA did not preempt the claim, and as the court concluded that LMRA also did not preempt Ms. Russell’s causes of action, the court found there was no basis for federal subject matter jurisdiction over the complaint.

Pleading Issues & Procedure

Ninth Circuit

Zavala v. Kruse, No. 1:19-cv-00239-ADA-SKO, 2023 WL 2387513 (E.D. Cal. Mar. 7, 2023) (Judge Ana de Alba). Plaintiff Armando Zavala filed this putative class action in early 2019 alleging that defendants GreatBanc Trust Company, Western Milling, LLC, Kruse-Western Inc., Kruse-Western’s board of directors, the company’s administration committee, and individual Doe defendants violated ERISA by manipulating the value of Kruse Western stock and orchestrating the sale of the stock to the company’s Employee Stock Ownership Plan (“ESOP”) for a price that far exceeded fair market value. Since filing his complaint, Mr. Zavala filed a first amended complaint, and then moved to file a second amended complaint. In his second amended complaint, Mr. Zavala sought to add defendants he had previously referred to only as Doe defendants, and to add claims pertaining to the restructuring of Western Milling which occurred less than a week before the ESOP transaction. Mr. Zavala argued that these activities were directly related to one another and could be viewed as steps of a larger interrelated scheme. In addition to Mr. Zavala’s motion to file a second amended complaint, the company defendants moved to seal information they maintained was confidential and proprietary. These two motions were referred to the Magistrate Judge, who issued a report and recommendation advising the court to grant both motions. The Kruse-Western defendants objected to the portion of the Magistrate’s recommendation recommending the court grant Mr. Zavala’s motion. In this order, the court overruled defendants’ motion and adopted the Magistrate’s recommendation in full. Specifically, the court agreed that the new allegations were directly tied to the ESOP transaction set out in the original pleading. These events, the court expressed, were unified as part of “a multi-step integrated transaction that took place in 2015.” Thus, the court held that Mr. Zavala adequately demonstrated that the second amended complaint directly relates back to the original pleading and therefore satisfied the requirements of Federal Rule of Civil Procedure 15(c). Additionally, the court held that the new defendants received timely notice of the action and should have known that they were the flagged Doe individuals the action was asserted against “but for a mistake concerning the proper party’s identity.” Accordingly, the court held that the newly identified board members and selling shareholders were not prejudiced. Finally, the remainder of defendants’ arguments were viewed by the court as a premature motion to dismiss the complaint. The court stated that “any factual disputes are not appropriately resolved at this stage of the proceedings.” For these reasons, the court concluded that it would allow amendment of the complaint.

Provider Claims

Second Circuit

Murphy Med. Assocs. v. Centene Corp., No. 3:22-cv-504-VLB, 2023 WL 2384143 (D. Conn. Mar. 6, 2023) (Judge Vanessa L. Bryant). An out-of-network healthcare provider, Murphy Medical Associates, LLC d/b/a Diagnostic and Medical Specialists of Greenwich, LLC sued two insurance providers, WellCare Health Insurance of Connecticut, Inc. and New York Quality Healthcare Corporation, and their parent company, Centene Corporation, for failing to reimburse it for COVID-19 diagnostic testing. In its complaint, Murphy Medical alleges that from the time it began providing COVID-19 testing in March 2020 to the filing of this action, it provided services to over 35,000 patients for whom it has received very little or no reimbursement from defendants. Murphy Medical asserted eight causes of action under ERISA, state law, the Affordable Care Act (“ACA”), the Families First Coronavirus Response Act (“FFCRA”) and the Coronavirus, Aid, Relief, and Economic Security Act (the “CARES Act”). Defendants moved to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and (b)(6). Defendants’ motion was granted without prejudice in this decision. To begin, the court found that Murphy Medical did not satisfy the pleading standard to present evidence that it was an assignee of benefits, because it did not present any of the “contracts upon which the Court could determine whether there was a valid assignment of benefits.” Furthermore, the court concluded that plaintiff failed to establish a prima facie showing that the court has personal jurisdiction over defendants New York Quality Healthcare Corporation or Centene Corporation (both foreign corporations without a principal place of business in the state of Connecticut) under Connecticut’s long-arm statute. The court therefore dismissed the claims against these two defendants pursuant to Federal Rule of Civil Procedure 12(b)(1). With those initial matters out of the way, the court proceeded to evaluate the sufficiency of the claims. It first addressed the claim brought under the CARES Act and FFCRA. Agreeing with “virtually every district court that addressed” the issue, the court concluded that neither Act provides a private right of action. The court wrote that Murphy Medical’s “criticism of the conclusion reached by the vast majority of district courts that have addressed this question focuses on strained in between-the-lines reading of the Acts.” Thus, taking the path more traveled, the court found plaintiff failed to state a claim under FFCRA and the CARES Act. The court similarly concluded that Congress did not create a private right of action under the ACA provision requiring health insurance providers to cover emergency services without pre-authorization. “District courts that have addressed whether this provision of the ACA provides a private right of action have all concluded it does not.” This claim too was dismissed. With regard to plaintiff’s claims asserted under ERISA, the court agreed with defendants that Murphy Medical’s claims under ERISA had to be dismissed because it “failed to set forth specific factual allegations that the coverage claims at issue arise under health plans subject to ERISA.” Accordingly, the court agreed with defendants that the complaint did not put them on notice of what claims were and were not violations of ERISA. Finally, having dismissed the federal causes of action, the court declined to exercise supplemental jurisdiction over the state law causes of action. However, because dismissal was without prejudice, plaintiff was given 42 days from the date of this decision to amend their complaint and replead in a manner which addresses and rectifies these identified deficiencies.

Third Circuit

Genesis Lab. Mgmt. v. United Health Grp., No. 21cv12057 (EP) (JSA), 2023 WL 2387400 (D.N.J. Mar. 6, 2023) (Judge Evelyn Padin). In this action, a diagnostic laboratory, plaintiff Genesis Laboratory Management LLC, sued UnitedHealth Group, Inc., United Healthcare Services, Inc., and Oxford Health Plans, Inc. for failing to reimburse it for COVID-19 and other testing services it provided to 51,000 individuals who are participants or beneficiaries of defendants’ health benefit plans. In its six-count complaint, Genesis asserted causes of action under the Families First Coronavirus Response Act (“FFCRA”), the CARES Act, breach of implied contract, breach of the covenant of good faith and fair dealing, unjust enrichment, quantum meruit, promissory estoppel, and two New Jersey insurance and healthcare laws. Defendants moved to dismiss, challenging the sufficiency of Genesis’s complaint. Their motion was granted, in part with prejudice and in part without prejudice, in this order. The court held that Genesis’s first cause of action asserted under the CARES Act and FFCRA could not survive the motion to dismiss, agreeing with its sister courts’ conclusion that neither CARES nor FFCRA creates a private right of action for a healthcare provider to sue. The court rejected Genesis’s argument that the Acts create an implied private right of action and disagreed that “it would be ‘illogical’ for Congress to give providers a personal right to payment without also giving them a remedy to enforce that right.” Without any direct substantive evidence that Congress intended to create a private remedy, the court stated it would not infer one. For this reason, the court dismissed without prejudice count one of the complaint. Next, the court found Genesis’s remaining state law claims, based on defendants’ failure to fully reimburse it for the testing services, were preempted by ERISA. The court agreed with defendants that these claims were “aimed at recovering ERISA-governed benefits,” and that “ERISA would provide the only available remedy.” It disagreed with Genesis that this was a lawsuit where defendants’ obligation to reimburse it was set by the terms of FFCRA and the CARES Act, rather than the terms of the ERISA plans. At the very least, the court stated that the coronavirus relief laws were “intended to interlock with ERISA,” and therefore fall under the board umbrella of “relating to” ERISA plans. Thus, “this Court finds that Section 6001 of the FFCRA and Section 3202 of the CARES Act must be considered together with ERISA because they impose legal requirements on ERISA plans.” However, the court wrote that to the extent plaintiffs’ state law claims relate to non-ERISA plans, those claims are not preempted. Nevertheless, the court concluded that the current complaint does not adequately distinguish between ERISA and non-ERISA plans and therefore currently fails to state claims. For this reason, dismissal of the state law causes of action was without prejudice, and Genesis may replead these claims with regard to any non-ERISA plan.

Withdrawal Liability & Unpaid Contributions

Third Circuit

Allied Painting & Decorating, Inc. v. Int’l Painters & Allied Trades Indus. Pension Fund, No. 3:21-cv-13310, 2023 WL 2384150 (D.N.J. Mar. 1, 2023) (Judge Peter G. Sheridan). In 2017, twelve years after plaintiff Allied Painting & Decorating, Inc.’s obligation to contribute to the International Painters and Allied Trades Industry Pension Fund ended, the Fund sent the contributing employer a demand letter for withdrawal liability. Allied challenged this demand and argued that the withdrawal liability demand was barred by laches “after an approximate 10-year delay between the resumption of work after withdrawal by Allied, and the time of notification by the Fund to Allied that it is subject to withdrawal liability.” The parties thus engaged in arbitration over this dispute, and on June 4, 2021, the arbitrator issued a final award in the amount of $427,195.00 in favor of the Fund and against the employer. The arbitrator concluded that the employer’s destruction of documents constituted a failure to diligently search for records and found that the delay on behalf of the Fund did not prejudice it, especially as Allied likely financially benefitted from the delay in making the payments. Thus, the laches objection was denied. Unsatisfied with this ruling, Allied commenced this lawsuit. The Fund sought to confirm the award and Allied sought to vacate the award. In this order, the award was vacated. The court concluded that the arbitrator minimized the employer’s testimony, and improperly concluded that the employer was not prejudiced by the Fund’s unreasonable delay. In addition, the court stated that the arbitrator provided no authority to support its conclusion that prejudice could be mitigated by financial advantages or economic benefits for the employer. Further, the court stated that the arbitrator clearly erred by finding Allied’s harm “entirely hypothetical,” which was a standard the court found to be again “contrary to case law.” Finally, the court questioned the authenticity of the collectively bargained agreement the arbitrator relied upon. Accordingly, the court found that “[t]he cumulation of the above… amounts to a reasonable appearance of bias against Allied and results in deprivation of a fair hearing.” The arbitration award was thus vacated.