Hughes v. Northwestern Univ., No. 18-2569, __ F. 4th __, 2023 WL 2607921 (7th Cir. Mar. 23, 2023) (Before Circuit Judges Sykes, Hamilton, and Brennan)

Last year we reported on the Supreme Court’s decision in Hughes v. Northwestern University, No. 19-1401, 142 S. Ct. 737, 2022 WL 199351 (U.S. Jan. 24, 2022), which also made our list of best decisions of 2022. Despite the Supreme Court’s unanimous ruling that “even in a defined-contribution plan where participants choose their investments, plan fiduciaries are required to conduct their own independent evaluation to determine which investments may be prudently included in the plan’s menu of options,” ERISA fiduciaries have sometimes touted the decision as supporting a stringent pleading standard in investment fee cases. The Seventh Circuit’s decision this week on remand makes such assertions highly suspect.

Plan participants in two defined contribution plans sponsored by Northwestern University brought a putative class action. Among other things, they alleged that Northwestern breached its fiduciary duties under ERISA by allowing the plans to pay four to five times a reasonable per participant recordkeeping fee through an uncapped revenue-sharing arrangement and by employing two recordkeepers for each plan. They also alleged that Northwestern breached its fiduciary duties by placing too many investment options in the plans, which caused investor confusion and added expense, and by failing to replace otherwise identical retail-class mutual fund investments with lower cost institutional-class shares.

The district court granted Northwestern’s motion to dismiss without leave to amend and the Seventh Circuit affirmed. On grant of certiorari, the Supreme Court rejected the Seventh Circuit’s reliance on a “categorical rule” that imprudent investment options in a plan line-up are neutralized by prudent, lower cost options, holding that this rule could not be squared with the Supreme Court’s recognition in Tibble v. Edison Int’l, 575 U.S. 523, 530 (2015), that ERISA’s fiduciary duties are context-specific and require plan fiduciaries to monitor plan investments and remove imprudent ones. On this basis, the Supreme Court vacated the judgment and remanded for reconsideration.

The Seventh Circuit recognized that the Supreme Court’s decision “says that providing a diverse menu of investments alone is not dispositive that a plan fiduciary has fulfilled the duty of prudence.” But, as the Seventh Circuit saw it, the Supreme Court’s decision left untouched three principles from earlier Seventh Circuit cases: (1) revenue sharing for plan expenses is not a per se breach of fiduciary duty; (2) plan fiduciaries are not required to “scour the market” to offer the cheapest investment options; and (3) offering a wide array of investment options is generally not a breach of fiduciary duty. These principles, however, did not answer the “context specific” question of whether plaintiffs had plausibly pled that Northwestern had breached its fiduciary duties to prudently select investment options, periodically review those options and remove the ones that were no longer appropriate, and incur only appropriate costs.

Before addressing that issue, however, the court turned to two last preliminary matters. First, the court addressed and rejected the application of the higher pleading standard articulated in Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014). The Seventh Circuit concluded that the Dudenhoeffer standard was limited to fiduciary breach claims concerning employee stock ownership plans, where there are “difficult tradeoffs” for a fiduciary attempting to make decisions based on insider information with respect to the company stock.

Second, the court addressed principles applicable in determining whether an ERISA plaintiff has pled a cause of action for fiduciary breach where there are alternative inferences that might be drawn with respect to the fiduciary’s actions. In this regard, the court flatly rejected Northwestern’s contention that a plaintiff was required to rule out every possible innocent explanation for a fiduciary’s conduct.Moreover, in a “newly formulated pleading standard,” the court held that where “alternative inferences are in equipoise” in the sense that they are equally reasonable, the court must resolve the matter in favor of the plaintiffs. This means that it is enough if the plaintiffs plead that a prudent course of action might have been available rather than proving it actually was.

Aided by these principles, the court had little trouble concluding that plaintiffs had plausibly stated the remaining claims in the case, which were: (1) Northwestern had allowed the plans to incur unreasonable recordkeeping fees; (2) Northwestern had acted imprudently in selecting and retaining retail share-classes for certain mutual funds and insurance company variable annuities; and (3) Northwestern acted imprudently by maintaining multiple duplicative investment options.

With respect to the recordkeeping fees, the court reasoned that one of its previous rationales for dismissal – that plan participants themselves could keep recordkeeping fees low by selecting low-cost investment options – was foreclosed by the Supreme Court’s decision in Hughes.  

The court next concluded that its previous holding that ERISA does not require a flat-fee structure did not answer whether plaintiffs had nevertheless sufficiently pled that the fiduciaries had allowed the plans to overpay for recordkeeping services. The court concluded that they had, because under Hughes “a fiduciary who fails to monitor the reasonableness of plan fess and to take action to mitigate excessive fees may violate the duty of prudence.” Moreover, the plaintiffs had expressly asserted that the fees were excessive in relation to the services provided, thus distinguishing the case from earlier cases in which the Seventh Circuit had affirmed dismissal of recordkeeping claims.

Furthermore, the court concluded that, under its new pleading standard, the plaintiffs could not be required to show that a single recordkeeper that would have charged lower fees was available. Nor was the court convinced, as Northwestern argued, that encouraging small participant investment was worth charging four to five times as much as could have been charged in recordkeeping fees. Instead, the court found it equally if not more plausible that Northwestern had simply failed to keep the plans’ recordkeeping fees at a reasonable level.    

The court had even less trouble concluding that the plaintiffs had plausibly alleged imprudence based on the selected share classes. Again, the court stressed that plaintiffs need not plead that lower cost, institutional-class shares of the challenged investments were actually available to the plans, only that they were plausibly available given the large size and bargaining power of the plans, as the complaint had done. Nor could Northwestern’s contention that retail-share classes had advantages be resolved on the pleadings given that plaintiffs had pled that the “institutional shares were identical to the retail shares” except for the higher fees associated with the retail shares. The court thus joined with the five other circuits that have upheld “similar share-class claims against dismissal.”

Finally, the court declined to affirm the dismissal of the duplicative fund claim. Although the court was not convinced that the multiplicity of funds would cause confusion and thereby harm plan participants, the court remanded for the district court to consider whether the plaintiffs had plausibly alleged that consolidating the duplicative investments would have saved the plans money.

The court thus reversed the district court’s dismissal of the claims that the plaintiffs persevered on their trip to the Supreme Court and affirmed the district court’s dismissal of the other counts in the complaint and the denial of plaintiffs’ requests to amend the complaint and for a jury trial.

It seems likely to this editor that the Seventh Circuit’s new pleading standard will have a significant plaintiff-friendly impact far beyond fee cases.

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

Attorneys’ Fees

Ninth Circuit

Price v. Reliance Standard Life Ins. Co., No. 3:22-cv-04300-JD, 2023 WL 2600453 (N.D. Cal. Mar. 22, 2023) (Judge James Donato). Plaintiff Robin Price initiated this civil action after his long-term disability benefits were terminated by defendant Reliance Standard Life Insurance Company. After Mr. Price filed this lawsuit, Reliance Standard reinstated his benefits. The disputes between the parties have thus been resolved in all respects except for the matter of an award of reasonable attorneys’ fees pursuant to ERISA Section 502(g)(1). Plaintiff moved for an award of $76,545 in attorneys’ fees for his counsel, attorneys Glenn Kantor and Sally Mermelstein of Kantor & Kantor LLP. The requested fee award was based on a lodestar comprised of hourly rates for founding partner Glenn Kantor of $850 and for Sally Mermelstein, of counsel, of $700. As an initial matter, the court was satisfied that counsels’ time records, declarations regarding hourly rates provided other ERISA attorneys not involved in this action, and evidence of the prevailing market rates were all materials which “amply satisfy a claimant’s burden of submitting evidence supporting the reasonableness of hourly rates, time use, and overall bills.” Nevertheless, the court agreed with Reliance Standard that some trimming was warranted. First, the court reduced Mr. Price’s attorneys’ hourly rates each by $50, resulting in hourly rates for Mr. Kantor of $800 and for Ms. Mermelstein of $650. Additionally, the court eliminated the time spent on the reply brief and applied a 25% overall reduction. Following this final reduction, the court was left with a fee award of $48,120. This amount, the court was satisfied, was reasonable and warranted under the Ninth Circuit’s Hummell factors, as the fee award reflected both the degree of bad faith on behalf of Reliance Standard and the success achieved by Mr. Price, and because the award would serve a deterrent purpose to discourage Reliance Standard from engaging in similar conduct handling claims going forward.

Breach of Fiduciary Duty

Seventh Circuit

Gaines v. BDO U.S., LLP, No. 22 C 1878, 2023 WL 2587811 (N.D. Ill. Mar. 21, 2023) (Judge Matthew F. Kennelly). Three plaintiffs sued BDO USA, LLP, the company’s board, and its retirement plan committee on behalf of a class of participants and beneficiaries of the plan for breaches of fiduciary duties. In their action, plaintiffs challenged defendants’ use of paying for the plan’s recordkeeping and administrative services through revenue sharing. They argued that this practice resulted in exorbitant costs compared to an approach charging a flat rate per participant for the same services. Additionally, because BDO’s plan qualifies as a mega defined contribution plan, with over 11,000 participants and net assets exceeding $1.24 billion, plaintiffs argued that the plan fiduciaries could have leveraged the plan’s size to reduce its overall costs and control the fees paid. The complaint alleged an imprudent process could be inferred through the plan’s expense ratio which was “over 50% higher than the ICI median,” and by defendants’ failure to select the lowest cost available share classes for funds. Finally, plaintiffs challenged defendants’ selection and retention of funds with excessive investment management fees which they aver underperformed their peers during the relevant period and therefore ought to have been removed. Defendants moved to dismiss for failure to state a claim. The motion to dismiss was denied in part and granted in part in this order. The court broke down plaintiffs’ complaint into four categories; (1) the selection of retail share classes; (2) the failure to remove underperforming funds; (3) failure to control recordkeeping fees; and (4) the selection of funds with excessive management fees. In the end, the court dismissed the claims based on “allegations that BDO selected and retained funds with excessive investment management fees or failed to monitor and control recordkeeping fees.” However, the claims of imprudence and failure to monitor based on the selection of retail rather than available institutional share classes, and the claims based on the failure to remove underperforming funds, were allowed to proceed. To the court, the difference between the fee claims and the fund claims turned on the benchmarks provided by the plaintiffs. Simply put, the court was convinced that plaintiffs had appropriate benchmarks for their funds but not for their fees. In the context of the administrative and recordkeeping fees, the court held that cheaper did not necessarily mean better. Thus, as currently alleged, the court stated that it could not infer a breach based on the fees paid. Accordingly, this decision left both defendants and plaintiffs with a decidedly mixed result.

Class Actions

Third Circuit

Wolff v. Aetna Life Ins. Co., No. 4:19-CV-01596, 2023 WL 2589228 (M.D. Pa. Mar. 21, 2023) (Judge Matthew W. Brann). On May 25, 2022, the court granted plaintiff Joanne Wolff’s motion to certify a class of similarly situated individuals who had disability plans insured by Aetna Life Insurance Company who received disability benefits as a result of an injury from whom Aetna later sought reimbursement of settlement proceeds through the use of the plans’ “Other Income Benefits” provisions rather than through explicit subrogation or reimbursement clauses, which the plans at issue did not have. The court found the proposed class was sufficiently united in their experiences, the language of their plans, and in their situations to satisfy Rule 23(a)’s commonality and typicality requirements. The court also concluded that the requirements of Rule 23(b)(3) were met because class certification was a superior method of adjudication than individual civil actions and the single issue uniting the class members was more significant than any non-common issue. Unsatisfied with this ruling, Aetna moved for reconsideration. On November 22, 2022, the court denied Aetna’s motion. Although the court clarified its prior order, it did not expand, reduce, or in any material way alter its previous findings and conclusions. To the contrary, the court rejected each of Aetna’s reexamined arguments, and other than taking the opportunity to slightly redefine the class, the court maintained the status quo in its November 22 order. Following that decision, Aetna filed a Federal Rule of Civil Procedure 23(f) petition with the Third Circuit Court of Appeals seeking permission to appeal the court’s November 22 decision. Aetna simultaneously filed a motion with the district court to stay its order granting class certification pending the Third Circuit’s ruling on the Rule 23(f) petition. Ms. Wolff opposed the stay, arguing it would be inappropriate and unnecessary. In ruling on Aetna’s motion, the court found that Aetna did not make a strong showing of a likelihood of success on the merits of its appeal to the Third Circuit, based on both procedural reasons and on the strength of its legal position, which the court had already analyzed and rejected twice before. Procedurally, the court concluded that Aetna’s petition was untimely as the court’s motion denying reconsideration did not alter the status quo of its original motion granting class certification. Furthermore, the court stated that Aetna was not truly challenging the reconsideration order, but rather contesting the validity of the original order granting certification. Accordingly, the court stated that Aetna was attempting to improperly “circumvent the Rule 23(f) time limitations,” and that the Third Circuit would therefore likely not entertain Aetna’s motion. Finally, the court found that Aetna would not be irreparably harmed absent a stay, because the allegations of wrongdoing are already “publicly available, and anyone in the country may readily access the complaint in this matter – a complaint that levies more substantial accusations against Aetna than those noted in the class notice – even without having received a class notice.” For these reasons, the court found that factors weighed against granting Aetna’s motion to stay proceedings. Accordingly, the motion to stay was denied.

Disability Benefit Claims

First Circuit

MacNaughton v. The Paul Revere Ins. Co., No. 4:19-40016-TSH, 2023 WL 2601624 (D. Mass. Mar. 22, 2023) (Judge Timothy S. Hillman). Plaintiff Dr. Mary MacNaughton, a diagnostic radiologist, submitted a claim for long-term disability benefits after a pregnancy complication left her with permanent electrical damage in her left eye. Dr. MacNaughton’s attending physician diagnosed her with ischemic optic neuropathy. Unable to see properly, Dr. MacNaughton was therefore unable to perform the essential functions of her profession. And for ten years, from 2007 to 2017, defendant The Paul Revere Insurance Company approved and paid Dr. MacNaughton’s long-term disability benefits. Things changed when Dr. MacNaughton began working part-time in a supervisory non-diagnostic position. It was at this time, when Paul Revere contacted her, that Dr. MacNaughton mentioned in an off-hand comment that in her current work she did not have any restrictions and limitations. Paul Revere swiftly transferred Dr. MacNaughton’s claim to a disability benefits specialist, and then terminated her benefits. In the words of the court, “Paul Revere’s behavior suggests that the decision (to terminate benefits) was preordained.” Dr. MacNaughton then commenced this action to challenge Paul Revere’s adverse benefit decision. On March 7, 2022, the court concluded that Paul Revere denied Dr. MacNaughton the opportunity for a full and fair review by failing to give her the opportunity to rebut its examining doctor’s report and conclusions. The court then granted summary judgment to Dr. MacNaughton and remanded to Paul Revere to allow Dr. MacNaughton to refute the report and submit additional evidence. It also found that the standard of review would be arbitrary and capricious given the plan language granting Paul Revere discretionary authority. On remand, Paul Revere denied the claim for a second time. In this order, that denial was upheld under deferential review. The court agreed that Paul Revere’s treating physician engaged in a point-by-point dialogue with Dr. MacNaughton’s attending physician, and that Paul Revere was under no obligation to favor the views of Dr. MacNaughton’s doctor over its own doctor. Although the court ultimately would not engage with one of Paul Revere’s grounds for denial – “that the inability to use one eye does not render a diagnostic radiologist disabled” – the court nevertheless found that there was substantial evidence in the record to support its other reason for denial – “that Dr. MacNaughton has sufficient use of both of her eyes.” Accordingly, while the court did have issues with Paul Revere’s conduct throughout this case, the end result was ultimately the same regardless of the means. Thus, Paul Revere’s motion for summary judgment was granted, and Dr. MacNaughton’s motion for judgment was denied.

Fifth Circuit

Moore v. Unum Life Ins. Co. of Am., No. 3:21-CV-253-SA-JMV, 2023 WL 2587484 (N.D. Miss. Mar. 21, 2023) (Judge Sharion Aycock). In the summer of 2016, plaintiff Sherry Moore stopped working after she was hospitalized for a serious bacterial skin infection and other problems, including a loss of sensation in her feet, related to uncontrolled diabetes. After briefly attempting to return to work, Ms. Moore ended up hospitalized for a second time. After her second hospitalization, Ms. Moore applied for long-term disability benefits under her plan insured by defendant Unum Insurance Company of America. Unum approved the claim, and paid Ms. Moore monthly benefits for 24 months under her plan’s “regular occupation” definition of disability. However, after her plan’s definition of disability changed to “unable to perform the duties of any gainful occupation for which you are reasonably fitted,” Unum terminated Ms. Moore’s benefits, determining she would be able to perform the duties of a more sedentary occupation. In this action, Ms. Moore alleged that Unum wrongfully terminated her long-term disability benefits and challenged the denial under ERISA Section 502(a)(1)(B). The parties cross-moved for summary judgment. In this order the court applied de novo review, as no plan provision explicitly granted Unum discretionary authority to interpret the policy. However, even under the more favorable review standard, Ms. Moore was ultimately unable to prove to the court that she was disabled within the meaning of her policy. The court concluded that Ms. Moore’s inability to walk or stand for periods of any length would not preclude her from performing certain full-time sedentary work that she meets the qualifications for, and which therefore satisfy the policy’s definition of “gainful occupation.” This finding was bolstered by the Administrative Law Judge’s ruling on Ms. Moore’s Social Security Disability Insurance application claim, who likewise concluded that Ms. Moore “has the residual functional capacity to perform sedentary work.” The court therefore affirmed Unum’s decision to terminate Ms. Moore’s disability benefits, and thus granted summary judgment in favor of defendant.

Freeman v. Hartford Life & Accident Ins. Co., No. 21-342-SDD-RLB, 2023 WL 2597893 (M.D. La. Mar. 22, 2023) (Judge Shelly D. Dick). In June of 2016, plaintiff Kurt Freeman injured his left shoulder and arm. This injury was then surgically repaired, however even following the surgery Mr. Freeman experiences pain and limitations as a result of that injury. In this action, Mr. Freeman sought a court order overturning defendant Hartford Life & Accident Insurance Company’s termination of his long-term disability benefits under his policy’s “any reasonable occupation” definition of disability. Mr. Freeman argued that Hartford disregarded key evidence supporting a finding of disability and notes from the doctor who performed his independent medical examination which found that Mr. Freeman’s “physical capacity is ‘less than sedentary.’” Hartford, for its part, moved for judgment in its favor, arguing that under deferential review its determination should not be disturbed because substantial evidence in the record supported its conclusion. The court agreed with Hartford. It held that there was no evidence that Hartford’s conflict of interest adversely or even directly affected Mr. Freeman, and that the “record demonstrates that Plaintiff’s own physicians, Drs. Boussert and Waggenspack, support Hartford’s claim determination. Dr. Boussert concluded that Plaintiff can perform sedentary work and that his pain is well-controlled by medication that does not cognitively impair his ability to work.” Finally, the court agreed with Hartford that subjective evidence within the record contradicted Mr. Freeman’s subjective complaints of pain, and that it was therefore reasonable for Hartford to consider but ultimately disagree with Mr. Freeman’s testimony in reaching its decision. For these reasons, the court granted Hartford’s motion for judgment and denied Mr. Freeman’s motion for judgment.

Sixth Circuit

Snowden v. Hartford Life & Accident Ins. Co., No. 5:21-144-KKC, 2023 WL 2586132 (E.D. Ky. Mar. 21, 2023) (Judge Karen K. Caldwell). Plaintiff Crystal Snowden sued Hartford Life & Accident Insurance Company to challenge its denial of her claim for long-term disability benefits for her mysterious symptoms she finds disabling caused by a yet undiagnosed medical condition. The parties each moved for judgment on the administrative record under arbitrary and capricious review. Unsurprisingly, given the deferential review standard and Ms. Snowden’s lack of any formal diagnosis, the court granted judgment in favor of Hartford in this order. It found Hartford’s interpretation of Ms. Snowden’s medical records and its conclusion that she was not disabled as defined by the policy supported by substantial evidence within the record, including by the various objective test results which all came back unremarkable and nonconclusive. The court held that it was not unreasonable for Hartford to disagree with Ms. Snowden’s treating physician’s conclusion that her symptoms were disabling because Ms. Snowden’s treating specialists were unable to identify the cause of those symptoms and the objective evidence in the record supported the opposite conclusion, that Ms. Snowden was not disabled. Accordingly, the court concluded that it could not disturb Hartford’s decision in the absence of evidence that the decision was the result of an unprincipled or flawed reasoning process, which Ms. Snowden had not provided. Finally, the court disagreed with Ms. Snowden that Hartford’s denial was the result of her lack of a formal diagnosis. Instead, the court found that Hartford had reasonably concluded that there was not enough evidence of a disability based on Ms. Snowden’s pain and auto-immune disorder-like symptoms to support an award of benefits. Thus, the court affirmed Hartford’s denial.

McEachin v. Reliance Standard Life Ins. Co., No. 2:21-CV-12819-TGB-EAS, 2023 WL 2611719 (E.D. Mich. Mar. 23, 2023) (Judge Terrence G. Berg). From February 2017 to October 2019 plaintiff Annette McEachin experienced a series of tragic events that would have a major impact on her life. First, Ms. McEachin was in a car accident, the result of which left her with musculoskeletal problems, pains, and post-concussive headaches. Then, less than a year later, Ms. McEachin was in a second car accident, only exacerbating her physical problems. Finally, the most tragic event occurred in the fall of 2019, when Ms. McEachin’s son committed suicide. Following his death, Ms. McEachin was diagnosed with mental health conditions, including severe symptoms from depression and anxiety. While all of this was happening, Ms. McEachin had been receiving long-term disability benefits for her physical disabilities caused by the car crash. Then, on April 1, 2021, Reliance terminated Ms. McEachin’s benefits. It concluded that her physical symptoms had improved since 2017, and although she was now disabled for mental health reasons, she could not receive disability benefits for her psychiatric health problems because she had already received more than 24 months of disability benefits, which was her policy’s maximum allowance for disabilities due to mental health conditions. Ms. McEachin appealed, and when her appeal proved unsuccessful, commenced this action. The parties then filed cross-motions for summary judgment. The court referred the cross-motions to Magistrate Judge Elizabeth A. Stafford for a report and recommendation. Magistrate Stafford issued a report recommending the court grant summary judgment in favor of Reliance. Ms. McEachin timely filed objections to the report. In this order, the court adopted in part and rejected in part Magistrate Stafford’s report. Specifically, the court agreed with Magistrate Stafford’s conclusion that Ms. McEachin was not disabled by her physical conditions as of April 1, 2021, the date of the termination, despite the fact that Ms. McEachin’s physical conditions subsequently took a turn for the worse. The court focused on Sixth Circuit precedent which mandates that judicial review be limited to the medical record prior to the date of the benefit denial. In the Sixth Circuit, deterioration in health status following the date coverage is denied is not relevant, and the court therefore found that “Judge Stafford analyzed the appropriate time period and correctly concluded that, during that time, McEachin’s symptoms improved.” However, the court rejected Magistrate Stafford’s report to the extent that it concluded Ms. McEachin exhausted her policy’s 24-month limit on benefits for mental conditions as of April 1, 2021. The court held that Reliance clearly granted Ms. McEachin’s claim for disability benefits based on her physical conditions, actively concluding at the time that Ms. McEachin’s “medical records reflected no ‘evidence of disabling psychiatric symptoms or resulting functional impairments,’” and that it could not now retroactively apply the mental health limitation exclusion to that same period. As a result, the court found that Ms. McEachin did not exhaust her 24-month cap on mental health disability benefits, and because Reliance decided that Ms. McEachin “was totally disabled from full-time work because of a mental impairment” when it terminated her benefits in April 2021, the court ordered Reliance to pay Ms. McEachin her benefits until the two-year period is exhausted “so long as McEachin has been and continues to be totally disabled from work because of a mental impairment.”

Berg v. Unum Life Ins. Co. of Am., No. 2:21-CV-11737-TGB-DRG, 2023 WL 2619015 (E.D. Mich. Mar. 23, 2023) (Judge Terrence G. Berg). Plaintiff Dr. Paula Berg, a cardiothoracic anesthesiologist, filed this action seeking judicial review of her long-term disability benefit denial. Defendant Unum Life Insurance Company of America agrees that Dr. Berg is disabled from her occupation. However, Unum asserts that Dr. Berg’s disabling symptoms are the result of a psychological condition and that she exhausted her policy’s 12-month limitation on benefits for mental health conditions. Dr. Berg maintains that she is disabled due a physical condition, cancer, and that she is therefore eligible for the full 48 months of disability benefits available to her under her policy. In resolving the parties cross-motions for judgment on the record, the court agreed with Dr. Berg and consequently granted her motion for judgment. The court found that Dr. Berg was disabled due to breast cancer, which was diagnosed in her right breast, and not, as Unum contended, from general anxiety disorder. Although Dr. Berg continued to be treated with regular therapy sessions throughout her cancer treatment, the court held that Dr. Berg was ultimately unable to continue her work “due to the affects and issues related to having cancer,” including from the cognitive side effects and the fatigue she experienced as a result of the cancer treatments and medications prescribed by her oncologist which left her unable to practice medicine. For this reason, the court rejected Unum’s position that Dr. Berg’s symptoms were the result of a psychiatric condition. Accordingly, under de novo review, the court concluded that Dr. Berg met her burden of proving entitlement to benefits and ordered Unum to reinstate Dr. Berg’s benefits and to retroactively pay her claim.

ERISA Preemption

Fifth Circuit

Labat v. Shell Pipeline Co., No. 21-690-JWD-EWD, 2023 WL 2561778 (M.D. La. Mar. 17, 2023) (Judge John W. deGravelles). From September 1992 until September 2006, plaintiff Richard Labat was employed by LOOP, LLC, a joint venture in which a Shell-affiliated entity participated. Then, on September 18, 2006, Mr. Labat began working directly for Shell. In 2020, like a lot of other employers at the beginning of the global pandemic, Shell needed to reduce its workforce. To do this, Shell gave its employees an opportunity to participate in a Special Severance Plan. Before deciding whether he would accept the severance on offer, Mr. Labat sought to clarify with Shell, its HR representative, and Fidelity that his hire date was September 29, 1992, for the purposes of his retirement benefits, including the Shell sponsored medical plan. Mr. Labat got confirmation in writing that Shell and Fidelity had confirmed his understanding that he had a 1992 effective date of service. Based on these written representations, Mr. Labat executed a Waiver, Release, Promise, and Settlement Agreement with Shell on September 30, 2020, and was given a severance payment of $202,650. After he executed the special severance plan, Shell determined that Mr. Labat’s hire date was actually September 18, 2006, which was a determination that critically affected the way his healthcare benefit contributions were calculated because of a 2006 amendment to the healthcare plan that only applied to participants with a hire date after January 1, 2006. As a result of this change, Mr. Labat pleads, “there was a $93,000 shortfall for what I had budgeted for my future health insurance based upon the…promises of Shell.” Thus, seeking the application of the pre-2006 amendment to the way the healthcare plan calculates the method of subsidizing premiums for retiree medical coverage, Mr. Labat filed this civil action, pleading state law claims for detrimental reliance, promissory estoppel, and fraud. Shell moved for summary judgment. It argued that Mr. Labat’s state law claims were preempted by ERISA. The court agreed that both complete preemption and conflict preemption applied to Mr. Labat’s claims and therefore granted Shell’s summary judgment motion. Specifically, the court agreed with Shell that Mr. Labat was seeking to recover benefits under an ERISA-governed plan and that his complaint therefore falls within ERISA Section 502(a). Further, the court held that the claims require interpreting the terms of the ERISA plan and that “regardless of how his claim is phrased, it falls under ERISA’s civil enforcement provision and is thus preempted.” The court disagreed with Mr. Labat that Shell’s conduct implicated any independent legal duty. Simply put, the court concluded that resolution of the dispute among the parties, including about whether Shell made a misrepresentation regarding Mr. Labat’s years of service, would necessarily require interpreting the terms of the plan, and referring to the plan “to assess Labat’s damages.” Accordingly, the court found the state law claims preempted by ERISA, and Shell was granted summary judgment. However, Mr. Labat was given leave to amend his complaint to allege causes of action under ERISA.

Life Insurance & AD&D Benefit Claims

Sixth Circuit

Bailey v. United of Omaha Life Ins. Co., No. 2:21-cv-5164, 2023 WL 2599979 (S.D. Ohio Mar. 22, 2023) (Judge James L. Graham). Plaintiff Griffin Bailey brought this action against his late father’s former employer, defendant Hirschvogel Incorporated, and defendant United of Omaha Life Insurance Company, the insurer of life insurance policies belonging to decedent, seeking life insurance benefits from the policies under ERISA. Mr. Bailey was the sole beneficiary of the proceeds from both policies. His father died in late 2019 in a car accident “less than two months after terminating his employment with Hirschvogel.” Due to a glitch in its system, Hirschvogel never informed United about the terminations of several of their employees, including decedent. As a result, the life insurance policies were not canceled at the end of the employment, the premiums continued to be paid, and Mr. Bailey’s father was never notified of the possibility that his life insurance could be canceled. After discovering the issue, Hirschvogel retroactively terminated the insurance policies, with an effective date shortly before the date of the car accident. Thus, when Mr. Bailey submitted a claim for benefits under the plans, his claim was denied with the explanation that the policies were terminated prior to his father’s death. In his complaint, Mr. Bailey asserted two causes of action: a claim for benefits against United under ERISA Section 502(a)(1)(B), and a claim for other remedies under ERISA Section 502(a)(3) for breaches of fiduciary duties against both defendants. Defendant Hirschvogel moved to dismiss the claim against it. In this order the court denied the motion to dismiss. The court held Mr. Bailey had stated a claim upon which relief could be granted against the employer based on the facts alleged. In particular, the court found that Mr. Bailey’s claim for benefits and his claim under Section 502(a)(3) could be pursued in parallel as they were each “premised on a ‘separate and distinct injury.’” Finally, the court found that Section 502(a)(1)(B) could not adequately remedy the alleged mishandling and breaches of fiduciary duties that the complaint outlines. Accordingly, the court found that Mr. Bailey had adequately asserted his second cause of action against defendant Hirschvogel.

Medical Benefit Claims

Third Circuit

Skorupski v. Local 464A United Food, No. 22-3804 (SDW) (JBC), 2023 WL 2570167 (D.N.J. Mar. 20, 2023) (Judge Susan D. Wigenton). After several hospitalizations for severe abdominal pain, plaintiff Stacy Skorupski was eventually diagnosed with pancreatic duct disruption. Ms. Skorupski then underwent surgery to repair the torn duct. All these medical procedures did not come cheap. Ms. Skorupski, who has been healthy since the surgery, racked up medical bills of nearly $600,000. Her husband’s ERISA plan, Local 464A United Food and Commercial Workers Welfare Service Benefit Fund, of which she is a beneficiary, has refused to cover the cost of this medical care under the plan’s exclusion for treatment of medical conditions provided in connection with alcohol use including “any treatment for any condition that is related to such a primary, secondary or tertiary diagnosis or any other condition resulting therefrom.” In the hospital, doctors suggested that Ms. Skorupski’s pancreatitis was connected, at least in part, to her consumption of a nightly cocktail. After the plan upheld its decision on appeal, Ms. Skorupski and her husband filed this civil action, alleging claims under ERISA Sections 502(a)(1)(B), and (a)(3). Defendants moved to dismiss. The court converted their motion into one for summary judgment under Rule 56, and in this order granted judgment in favor of defendants. First, applying deferential review, the court found the board’s interpretation of the alcohol use clause not arbitrary and capricious. “The Board broadly interprets that exclusion to bar coverage when ‘alcohol use, along with other factors, is a contributing factor or cause of the condition.’ That interpretation of the unambiguous Plan terms is ‘reasonably consistent’ with the ‘Plan’s text.’” Although Ms. Skorupski included opinions from her treating physicians who called into question whether her pancreatitis was indeed connected to alcohol consumption, she was ultimately unable to refute the board’s determination as “none of those supplemental letters stated that her conditions were not caused, at least in part, by alcohol use or misuse.” Accordingly, the court granted judgment to defendants on the claim for benefits. Next, the court held that Ms. Skorupski’s breach of fiduciary duty claim was a repackaged claim for benefits “indistinguishable” from her Section 502(a)(1)(B) claim. Additionally, the court concluded that Ms. Skorupski was seeking “a past due monetary obligation” which the court held is not an appropriate form of equitable relief under Section 502(a)(3). Thus, defendants were also granted summary judgment on the breach of fiduciary duty claim, and the Skorupskis will now be left to cover the hundreds of thousands of dollars of unpaid medical bills without the benefit of their health insurance policy. 

Plan Status

Sixth Circuit

In re AME Church Emp. Ret. Fund Litig., No. 1:22-md-03035-STA-jay, 2023 WL 2562784 (W.D. Tenn. Mar. 17, 2023) (Judge S. Thomas Anderson). Clergy members and other employees of the African Methodist Episcopal Church, who are participants and beneficiaries of the church’s retirement plan, the Ministerial Annuity Plan of the African Methodist Episcopal Church, brought this class action against the church, its officials, the plan’s third-party service providers, and other fiduciaries for plan mismanagement, including embezzlement of plan funds by its former Executive Director, which resulted in at least $90 million in losses to the plan. Plaintiffs asserted seventeen causes of action, pled in the alternative, under both Tennessee law and ERISA. Tellingly, the court’s order begins, “This multidistrict litigation concerns losses to a non-ERISA retirement plan…” Accordingly, in ruling on the motions to dismiss before it, the court dismissed the ERISA causes of action, agreeing with the church that its plan qualifies as a church plan exempt from ERISA. The court concluded that the complaint did not allege that the plan elected to be an ERISA plan. Nevertheless, many of defendants’ other arguments in favor of dismissal were rejected by the court in this lengthy decision, which left the retirees with much of their complaint intact. Notably, the court concluded that venue was proper in the federal judicial system under diversity jurisdiction as the amount in controversy far exceeds $5 million and the named plaintiffs of the putative class are all citizens of states different from any defendant. Additionally, the court found that plaintiffs had Article III standing, as they suffered concrete particularized injuries, namely the loss of as much as 80% of the money in their retirement accounts, and that those injuries were traceable to defendants’ alleged actions and could be remedied through this litigation. With regard to the remaining state law claims, the court dismissed the contract, fraud, and Tennessee Trust Code claims without prejudice, but significantly, let plaintiffs go forward with their breach of fiduciary duty and negligence claims, including against the plan’s third-party service providers, Symetra and Newport.

Pleading Issues & Procedure

Third Circuit

Wright v. Elton Corp., No. C. A. 17-286-JFB, 2023 WL 2563178 (D. Del. Mar. 17, 2023) (Judge Joseph F. Bataillon). On January 25, 2023, the court issued a post-trial order ruling in favor of plaintiff T. Kimberly Williams in this action alleging longstanding mismanagement and breaches of fiduciary duties in connection with the administration of the Mary Chichester duPont Clark Pension Trust, an ERISA-governed pension plan. In its January 25 Findings of Fact and Conclusions of Law, the court ordered “equitable relief to be determined after proceedings before a Special Master.” Following that order, the duPont employers jointly moved for permissive appeal. In their motion, the duPont defendants sought certification from the court on a legal issue –  regarding the application of an ERISA safe-harbor provision – for an immediate interlocutory appeal. Defendants argued that whether the safe harbor exemption is applicable to the plan “is a controlling ‘pure question of law the reviewing court could decide quickly and cleanly without reviewing the record.’” In addition, the moving parties sought to stay the work of the Special Master, arguing “a permissive appeal will avoid the complicated process of trying to undo after a reversal from a final judgment the Special Master’s and this Court’s efforts to bring the Trust in line with ERISA.” Ms. Williams opposed the motion. She argued that the duPont defendants were engaged in tactics designed to further delay the proceedings, and resolution of the question of whether the safe harbor provision applies to the trust would not affect the court’s other findings of fiduciary breaches. Ultimately, the court focused on “the procedural posture of the case,” including the upcoming task by the Special Master of implementing the remedy, which will be difficult and time-consuming. Given these circumstances, the court found the moving parties established the need for immediate review of the issue of the applicability of the safe harbor provision. Thus, the court found the employers adequately showed there is a difference of opinion and an absence of controlling authority on the application of the provision at issue and therefore agreed with them that an immediate appeal would “materially advance the litigation by giving guidance to the Special Master in implementing the remedies.” Accordingly, the court granted the motion for certification of appealability and stayed proceedings before the Special Master until the resolution of the appeal.

Provider Claims

Second Circuit

Murphy Medical Associates, LLC v. Yale University, No. 3:22-cv-33 (KAD), 2023 WL 2631798 (D. Conn. Mar. 24, 2023) (Judge Kari A. Dooley). Murphy Medical Associates, LLC v.1199SEIU National Benefit Fund, No. 3:22-cv-00064 (KAD), 2023 WL 2631811 (D. Conn. Mar. 24, 2023) (Judge Kari A. Dooley). Plaintiff Murphy Medical Associates, LLC is seeking reimbursement for COVID-19 diagnostic tests it provided to insured patients throughout the global pandemic. In an attempt to receive payments for these tests, plaintiff has filed several related lawsuits against different entities. In all of its actions, Murphy Medical asserted causes of action under the Families First Coronavirus Response Act (“FFCRA”), the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), the Affordable Care Act (“ACA”), ERISA, and several state laws including breach of contract, unjust enrichment, and two Connecticut insurance laws. In these two decisions Judge Dooley granted motions to dismiss, by defendant Yale University in the first action, and by defendant 1199SEIU National Benefit Fund in the second. In both decisions the court agreed with the “reasoning and conclusions” of its sister circuits that neither FFCRA, the Cares Act, nor the ACA creates an express private right of action for a healthcare provider to sue. Accordingly, Murphy Medical’s claims asserted under those statutes were dismissed with prejudice. Next, the court evaluated plaintiff’s ERISA benefit claims. Yale challenged Murphy Medical’s standing, and both defendants argued for dismissal as plaintiff has not exhausted administrative remedies prior to bringing suit. Regarding standing, the court agreed with Yale that the complaint did not satisfy Rule 8 pleading, as the language regarding assignments of benefits was entirely conclusory. Regarding Murphy Medical’s failure to exhaust, the court agreed with defendants that the healthcare provider failed to plead particular details about the relevant plan’s exhaustion requirements and whether Murphy Medical took the steps required by those exhaustion procedures. Murphy Medical’s language asserting that it “appealed every claim submitted,” was therefore found to be insufficient to withstand a Federal Rule of Civil Procedure 12(b)(6) motion to dismiss. However, dismissal of the ERISA Section 502(a)(1)(B) claims was without prejudice, and Murphy Medical may amend its complaints to address these identified deficiencies. The same was not true for its equitable relief claims under ERISA Section 502(a)(3). The court viewed plaintiff’s equitable relief claims as falling “comfortably within the scope of § 502(a)(1)(B),” and therefore viewed the 502(a)(3) claims as duplicative. Thus, dismissal of the equitable relief claims under ERISA was with prejudice. Finally, the court dismissed plaintiff’s state law claims, concluding they were preempted by ERISA § 514. To the extent the state law claims were not preempted, the court highlighted further reasons the state law claims failed. Accordingly, these claims were also dismissed with prejudice. As these two decisions from Judge Dooley demonstrate, healthcare providers seeking reimbursement of COVID-19 testing face significant hurdles in the legal system, despite federal legislation seemingly designed to assist them.

Seventh Circuit

Advanced Physical Medicine of Yorkville, LTD v. Cigna Health & Life Ins. Co., No. 22-cv-02991, 2023 WL 2631725 (N.D. Ill. Mar. 24, 2023) (Judge John F. Kness). Advanced Physical Medicine of Yorkville, LTD v. Allied Benefit Systems, Inc., No. 22-cv-02972, 2023 WL 2631723 (N.D. Ill. Mar. 24, 2023) (Judge John F. Kness). Plaintiff Advanced Physical Medicine of Yorkville, Ltd. commenced two lawsuits, one filed on June 7, 2022, against defendants Allied Benefits Systems, Inc. and Paramedic Services of Illinois Inc., and the second filed the following day against defendants Cigna Health and Life Insurance Company and American Specialty Health Group, each asserting causes of action under ERISA seeking benefits for healthcare services it provided to insured patients. Defendants in both lawsuits moved for dismissal. In each action the defendants’ argument was the same – Advanced Physical could not bring an ERISA civil action as the plans at issue contained valid and unambiguous anti-assignment clauses. The court agreed with defendants in both instances. Accordingly, the plans’ anti-assignment provisions rendered invalid any assignment to the healthcare provider that the patients signed, and therefore barred plaintiff’s right to sue under ERISA. For this reason, the court dismissed with prejudice both complaints.

Venue

Tenth Circuit

F.F. v. Capital Bluecross, No. 2:22-cv-494-RJS-JCB, 2023 WL 2574367 (D. Utah Mar. 20, 2023) (Judge Robert J. Shelby). Plaintiff F.F. sued Capital Blue Cross after the insurance provider refused to cover his minor son’s stay at a residential treatment center. F.F. asserted two causes of action: a claim for benefits under ERISA Section 502(a)(1)(B), and a claim for violation of the Mental Health Parity and Addiction Equity Act under ERISA Section 502(a)(3). Capital Blue Cross moved to dismiss or in the alternative to transfer venue to Pennsylvania. In this order, the court denied the motion to dismiss, but granted the motion to transfer based on the plan’s forum selection clause, despite the fact that F.F. and his son are residents of Summit County, Utah. The court concluded that the clause was valid and that F.F. did not meet his burden to demonstrate “why the court should not transfer the case to the forum to which the parties agreed.” Moreover, the court disagreed with F.F. that the forum selection clause violates ERISA’s venue provisions and its goal of providing plan participants with easy access to the federal courts. Instead, the court agreed with the majority of its sister courts to conclude that forum selection clauses are not fundamentally at odds with ERISA. Thus, the court held that this was not the unusual circumstance necessary to invalidate a forum selection clause, and so enforced the clause and granted the motion to transfer the case to the Middle District of Pennsylvania.