Mass. Laborers’ Health & Welfare Fund v. Blue Cross Blue Shield of Mass., No. 22-1317, __ F. 4th __, 2023 WL 3069637 (1st Cir. Apr. 25, 2023) (Before Circuit Judges Gelpi, Lynch, and Thompson)

The Massachusetts Health & Welfare Fund, a self-funded multiemployer group health plan, sued its former third-party administrator, Blue Cross & Blue Shield of Massachusetts, after an audit uncovered that Blue Cross had made overpayments of more than $1.4 million in over 5,000 medical claims. These overpayments were usually followed by recoupment efforts which, if successful, resulted in Blue Cross retaining a significant percentage of the recovered amounts as “savings” to the plan. The audit also revealed that, despite negotiated payment rates in its contracts, Blue Cross would “reprice” the amounts it would pay to the medical providers in its networks and pocket the difference.  

Surprisingly, the First Circuit concluded that ERISA’s fiduciary and prohibited transaction provisions did not govern these practices because Blue Cross was not acting as a fiduciary in enriching itself (at the expense of the plan and its participants) in this manner. Even more surprisingly, the court ended its discussion by proclaiming that this result was more in keeping with ERISA’s policies and goals than requiring Blue Cross to act in accordance with ERISA, because affording fiduciary status to Blue Cross would interfere with its cost-saving business model and come at a sharp price to plan participants (who already appear to be paying the price).

But back to the beginning. Following the audit conducted at the Fund’s direction in 2018, the Fund sued Blue Cross in the U.S. District Court for the District of Massachusetts in 2021 under both ERISA and state law. The complaint alleged that the audit uncovered a pattern of Blue Cross overpaying providers, including by repeatedly paying significantly more than the providers billed. The complaint also alleged that Blue Cross engaged in disloyal and self-dealing behavior at the expense of the Fund, principally by retaining wrongful and excessive recovery fees, including when Blue Cross itself caused the overpayments. Among other things, the Fund alleged that Blue Cross increased its recovery percentage fee from 20% to 30% and began imposing a 19% fee on certain purported savings, all without authorization.

Blue Cross moved to dismiss under Federal Rule of Civil Procedure 12(b)(6). The court granted the motion, concluding that Blue Cross was not a fiduciary because it did not exercise discretion in failing to correctly apply the negotiated rates. The district court also held that the working capital account from which Blue Cross paid claims did not constitute an asset of the plan and, in any event, Blue Cross did not exercise sufficient authority or control over this account to be a fiduciary for purposes of the lawsuit. The district court then declined to exercise supplemental jurisdiction over the state law claims and dismissed the entire suit.

The First Circuit agreed. First, the court noted that both the Fund’s administrative services agreement (ASA) with Blue Cross and the summary plan description (SPD) for the plan required Blue Cross to pay providers according to rates it had already negotiated with the providers. Moreover, under the ASA, the Fund retained the authority to review and approve the amounts before Blue Cross would pay the providers. According to the court, the allegations that Blue Cross did not pay its network providers according to these rates “may buttress a claim that [Blue Cross] breached its contractual obligation under the ASA and SPD to price claims according to its negotiated schedules, but they do not support an inference that [Blue Cross] had discretion on whether to do so.”

With respect to the Fund’s claims that Blue Cross exercised discretionary medical judgment in repricing the claims, the court reasoned that “[m]ost of the factual allegations presented by the Fund in its complaint, however, do not reflect an exercise of significant medical judgment” by Blue Cross. The court concluded that the Fund failed to allege fiduciary status because the complaint alleged that Blue Cross “failed to reach the ‘correct’ outcome when pricing claims, not that it had the discretion to reach different conclusions.” 

The court applied the same reasoning with respect to the Fund’s argument that Blue Cross acted as a fiduciary when recovering and settling overpayments. In other words, the court concluded that the Fund was alleging that Blue Cross was violating contractual obligations in taking these actions, not that it had discretionary authority to do so. The one exception to this was the Fund’s allegation that Blue Cross exercised discretion in deciding whether to apply one or two-day rates in some instances and whether and how to settle these claims. But the court concluded that the Fund failed to allege that these actions involved plan management by Blue Cross. Pointing to a Department of Labor interpretive bulletin explaining that a person who performs certain ministerial functions under a framework made by others is not acting as a fiduciary, the court concluded that the Fund itself created in the ASA the framework mandating that Blue Cross apply its provider rates and specifying in detail how Blue Cross should pursue recoveries and settlements.

The court likewise rejected the Fund’s argument that Blue Cross was acting as a fiduciary because the Fund sent working capital on a weekly basis to Blue Cross with which to pay claims, and this working capital constituted a plan asset over which Blue Cross had authority and control. The court declined to resolve the parties’ dispute as to whether the working capital constituted a plan asset. Furthermore, the court conceded that, under the plain terms of ERISA, “‘discretionary’ control or authority is not required with respect to the management or disposition of plan assets.” 

Nevertheless, the court held that mere physical control over plan assets does not equate to “exercis[ing]…authority or control respecting management or disposition of [plan] assets”  within the meaning of ERISA’s definition of fiduciary. The court then determined that the repricing of the claims was not itself an exercise of authority over plan assets because it was “was separate from and antecedent to the act of payment.” And with respect to the actual payment of claims to the providers, the court found that the Fund “failed to plausibly allege that [Blue Cross] exercised any authority or control over the payment process beyond the ‘mere exercise of physical control or the performance of mechanical administrative tasks.’”

Indeed, the court stressed that “[t]he fact that [Blue Cross] could make claim payments only with the Fund’s authorization, along with the fact that the Fund retained full control over the appeals process, weighs toward finding that [Blue Cross] lacked authority respecting the disposition of the working capital amount.” The court then stated that its holding that Blue Cross was not a fiduciary was a “limited one” tethered to the specific facts as alleged and arguments made by the Fund.

The court concluded by addressing the competing arguments of the two sides and their amici with respect to the “practical implications” of the court’s ruling. The court came out on the Blue Cross side of the equation, concluding that “[i]f [Blue Cross] were required here to adhere to strict fiduciary duties in the interests of individual plans, it arguably would need to restructure its networks and procedures based on the needs of each plan, undermining its ability to act in the overall interest of its book of business” to the likely detriment of plan participants. The court was unpersuaded by the arguments of the Fund and its amici (including the Department of Labor) that finding Blue Cross to be a nonfiduciary would lead to anticompetitive practices that concededly could harm plans and their participants, which it concluded were trumped by statutory language.

Thus, based on ERISA’s far from pellucid statutory definition of fiduciary, the First Circuit allowed Blue Cross to evade fiduciary responsibility to the tune of $1.4 million in plan losses caused by its questionable and unauthorized medical claims pricing and payment practices.

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

Breach of Fiduciary Duty

Ninth Circuit

Beldock v. Microsoft Corp., No. C22-1082JLR, 2023 WL 3058016 (W.D. Wash. Apr. 24, 2023) (Judge James L. Robart). Two plaintiffs on behalf of themselves, the Microsoft Corporation Savings Plus 401(k) Plan, and a proposed class sued Microsoft Corporation, the Board of Trustees of the 401(k) Plan, and its Committee for breaches of fiduciary duties. On February 7, 2023, the court granted defendants’ motion to dismiss the complaint for failure to state a claim. A summary of that decision was included in Your ERISA Watch’s February 15th edition. Since then, plaintiffs have amended their complaint, and defendants have renewed their motion to dismiss. Once again, the court granted the motion to dismiss, but this time with prejudice. The court reaffirmed its earlier conclusion that the underperformance of the challenged Black Rock LifePath Index Funds, the suite of target date funds at the center of this putative class action, is insufficient on its own to create an inference that defendants breached any duty under ERISA. The court stated that plaintiffs “alleged nothing that would ‘tend to exclude the possibility’ that Defendants had reasons consistent with their fiduciary duties to retain the BlackRock TDFs as an investment option in the Plan.” In an attempt to cure the deficiencies the court previously identified, plaintiffs added new metrics from which to compare the challenged suite’s performance. These included S&P Target Date Indices and the Sharpe ratio. Plaintiffs asserted that these new benchmarks provided “further plausible comparators and quantitative metrics that would have provided real-time signals to Defendants of the need to investigate and replace Plan investments.” The court, however, did not agree. Simply adding new measures of investment performance, the court held, was not enough “to raise Plaintiffs’ claim(s) above the level of speculation and into plausibility.” Accordingly, the court dismissed the claims of imprudence and disloyalty, and the derivative claims of failure to monitor, co-fiduciary breaches, and knowing breaches of trust.

Eleventh Circuit

Huang v. Trinet HR III, Inc., No. 8:20-cv-2293-VMC-TGW, 2023 WL 3092626 (M.D. Fla. Apr. 26, 2023) (Judge Virginia M. Hernandez Covington). A class of participants of the TriNet Select 401(k) Plan, a multiple employer plan with more than 1,200 participating employers, challenged the actions of the fiduciaries of the plan in this litigation. They argued that TriNet, Inc., its board of directors, and the plan’s investment committee breached their fiduciary duties under ERISA by selecting costly and poorly performing investment options and by causing the participants to pay excessive recordkeeping expenses. Defendants brought two motions before the court: a Daubert motion to exclude the testimony of plaintiffs’ expert and a motion for summary judgment. The court granted both motions in this decision. First, it agreed with defendants that the testimony of plaintiffs’ expert, Frances Vitagliano, an expert in the field of asset management and plan administration, did not satisfy either the qualification or the reliability requirements under Rule 702. First, regarding qualification, the court relied on Mr. Vitagliano’s replies during cross-examination to conclude that he was not qualified to testify competently on the topic of the plan’s process in soliciting requests for proposals for the plan’s recordkeeping services. Second, the court took issue with the methodology Mr. Vitagliano used to reach his conclusion that the plan’s fees were excessive. Mr. Vitagliano, the court found, did not compare the multiple employer plan to similar multiple employer plans of similar size, and instead provided inapt comparisons of plans with different sizes and structures to the plan at issue. Accordingly, the motion to exclude Mr. Vitagliano’s expert opinion was granted. The court then turned to defendants’ summary judgment motion. On the whole the court found that the uncontroverted evidence demonstrated that defendants’ process was consistent with best fiduciary practices and that the committee regularly engaged in competitive searches for recordkeepers during the class period. Moreover, defendants’ expert offered testimony suggesting that the challenged fees were not excessive and were to the contrary “some of the lowest recordkeeping fees of any (multiple employer plan) in the market.” Finally, regarding plaintiffs’ investment-related theories, the court held that substantial evidence demonstrated that “Defendants prudently monitored the Plan during the class period,” and that plaintiffs offered no compelling evidence to the contrary, effectively abandoning this topic. In fact, plaintiffs “acknowledged that they ‘never submitted an expert report to calculate damages with respect to its investment-related theories,’ and state that they are not seeking damages with respect to their investment-related theories.” For these reasons, defendants were granted summary judgment on all claims.

Disability Benefit Claims

Sixth Circuit

Walker v. Reliance Standard Life Ins. Co., No. 2:22-cv-109, 2023 WL 3066708 (E.D. Tenn. Apr. 24, 2023) (Judge Travis R. McDonough). Plaintiff Kevin Walker brought this action against Reliance Standard Life Insurance Company seeking judicial review of Reliance’s calculation of his long-term disability benefits. The parties agreed that Mr. Walker is disabled under the plan due to symptoms he experiences from post-concussive syndrome. However, Mr. Walker maintains that Reliance miscalculated his benefits by improperly interpreting the plan’s “lump sum payments” provision, a subsection of its “other income benefits” provision, to prorate his benefit payment and offset the amount by a lump sum payment he received from his employer sponsored pension plan over a 60-month period. “Walker contends that Reliance incorrectly interpreted the Plan’s Lump Sum Payments provision-specifically the phrase ‘period of time’…[and] argues that, under the unambiguous terms of the Plan, the offset for other income received as a lump sum should be applied to the time period from his retirement until his death.” The parties cross-moved for summary judgment on this issue. The court granted judgment to Reliance. It concluded that “Walker’s interpretation is contrary to the unambiguous language of the Plan…[which] provides for a fixed, definite length of time – sixty months – if no period of time is given. Any contrary interpretation would render the provision’s application impossible. Prorating requires dividing an amount proportionally over a set number of periods. Reliance could not prorate Walker’s pension payment form the time of his retirement until his death because this time is an unknown length.” Because of this unknown variable, the court concluded that it would be impossible for Reliance to prorate the lump-sum payment, and that it was therefore correct to prorate the pension payment for sixty months, as outlined in the plan. Additionally, the court determined that Mr. Walker’s interpretation was inappropriate because he is only eligible for disability benefits until his retirement age, meaning the lump sum payment could not be prorated after his retirement without making the plan’s offset provisions on retirement benefits and lump sum payments a surplusage. Accordingly, the court affirmed Reliance’s interpretation of the plan and its accompanying calculation of Mr. Walker’s benefits.

Seventh Circuit

Murch v. Sun Life Assurance Co. of Can., No. 20-cv-3900, 2023 WL 3058780 (N.D. Ill. Apr. 24, 2023) (Judge Sharon Johnson Coleman). Plaintiff Trent Murch sued defendant Sun Life Assurance Company of Canada seeking a court order overturning its denial of his application for long-term disability benefits under his ERISA-governed plan. The parties filed cross-motions for summary judgment. The court granted in part Mr. Murch’s motion and denied Sun Life’s motion entirely. Mr. Murch maintained that his physical and cognitive symptoms left him unable to perform the material duties of his work as an attorney. In support of his position, Mr. Murch provided documents from his treating physicians, including his neurologist, family doctor, psychiatrist, neuropsychologist, and sleep medicine specialist. Under the deferential review standard, the court concluded that although the factual record “clearly demonstrates that Murch faces several health issues and the Court recognizes that his ailments have had great impact on his livelihood and wellbeing,” it held that it was ultimately not the role of the court to decide whether Mr. Murch qualifies for disability benefits. Instead, its job was “restricted to determining whether Sun Life’s decision to deny his disability insurance benefits was arbitrary and capricious.” Furthermore, the court stated that it would not consider extraneous materials beyond the administrative record to make this determination. First, the court concluded that Sun Life did not deny the claim because Mr. Murch does not have a definitive diagnosis for his symptoms. The court also disagreed with Mr. Murch that Sun Life disregarded the policy’s “own occupation” disability standard. Nor was it the court’s opinion that Sun Life abused its discretion by failing to undertake a holistic review of Mr. Murch’s claims file. However, these findings favorable to Sun Life were undercut by the court’s conclusion that the insurer had acted arbitrarily and capriciously by disregarding and refusing to credit evidence of Mr. Murch’s psychiatric and cognitive disabilities. The court found that Sun Life failed to fully consider the medical record regarding these impairments, and that its failure to do so deprived Mr. Murch of a full and fair review of his claim. Additionally, the court held that it was unreasonable for Sun Life not to inform Mr. Murch “that it would no longer investigate certain portions of his claim.” Lastly, the court decided that Sun Life’s conflict of interest “justifies a finding that Sun Life’s disregard of Murch’s psychiatric and cognitive complaints was arbitrary and capricious.” Because of this flaw in the claims and review process, the court refused to “uphold Sun Life’s disability determination.” Instead, the court determined that the proper course of action was to remand to Sun Life for reconsideration consistent with this order. Finally, the court declined to award either party summary judgment on the question regarding Mr. Murch’s waiver of premium benefit for life insurance because a genuine issue of material fact on this topic still exists.

Ninth Circuit

Waldrip v. Reliance Standard Life Ins. Co., No. 3:21-cv-05602-JHC, 2023 WL 3090837 (W.D. Wash. Apr. 26, 2023) (Judge John H. Chun). In its findings of fact and conclusions of law and decision on cross-motions under Rule 52 under de novo review, the court concluded that plaintiff Christa Waldrip met her burden to prove that her relapsing/remitting multiple sclerosis and its effects “preclude her from reliability working in a full-time capacity.” The court agreed with Ms. Waldrip that her medical records demonstrate that she was unable to sit for at least four hours a day, that her physical symptoms including gastrointestinal problems, chronic pain, and falling which prevent her from performing even sedentary work, and that her policy does not require “objective” medical evidence rather than “subjective” complaints. Under Ninth Circuit precedent governing ERISA disability benefit cases, such symptoms and findings entitle a claimant to benefits under “any occupation” disability definitions. Therefore, the court concluded that Ms. Waldrip is entitled to continued long-term disability benefits, and judgment was granted in her favor.

Discovery

Sixth Circuit

Sweeney v. Nationwide Mut. Ins. Co., No. 2:20-cv-1569, 2023 WL 3051229 (S.D. Ohio Apr. 24, 2023) (Magistrate Judge Chelsey M. Vascura). In this putative class action, two participants of the Nationwide Mutual Insurance Company defined contribution pension plan seek to represent a class of similarly situated participants and beneficiaries who invested in the Plan’s Guaranteed Investment Fund, its most popular investment vehicle, from 2014 through the date of final judgment in this action. Plaintiffs have sued Nationwide Mutual and its subsidiary Nationwide Life Insurance Company for breaches of fiduciary duties, prohibited transactions, self-dealing, and inurement of plan benefits to the employer. The parties are engaged in a discovery dispute, which led to an informal conference with the court to discuss the disagreement between the parties. Following that conference, plaintiffs subsequently filed a motion to compel discovery. In this order, the court mostly granted plaintiffs’ discovery requests. In their motion, plaintiffs sought further production of documents and interrogatory answers related to (1) compensation received by Nationwide Life in connection with the Guaranteed Investment Fund, including information about the expenses it charges through both direct and indirect avenues; (2) the assets in Nationwide Life’s general account where the Fund assets become pooled together with unrelated assets; and (3) documents and information about defendants’ group annuity contracts with other institutions and retirement plans from which to compare. Defendants opposed the motion to compel. They argued that the requested discovery is not relevant to either plaintiffs’ claims or their defenses in this action. Moreover, defendants argued the production requests were not proportional to the needs of the case. The court broadly disagreed. It wrote that defendants “put the cart before the horse,” regarding their overarching position that “they are not liable, and therefore should not be forced to participate in discovery.” In fact, the court concluded that defendants’ affirmative defenses not only do “not foreclose otherwise permissible discovery,” but actively underscored the relevance of plaintiff’s requested information, including on the topics of the prices paid to defendants and the process by which those amounts were determined. A fee by any other name – here a “consideration” – remains discoverable and relevant, the court found. Thus, the court agreed with plaintiffs that their requests were pertinent to the issues and disputes at hand in this action, and therefore granted their document and interrogatory requests, albeit in narrowed forms, both in terms of timeframe and scope. Defendants were then ordered to supplement their responses to plaintiffs’ discovery requests in the manner outlined by the court under the terms it crafted in this decision.

Iannone v. AutoZone Inc., No. 19-cv-2779-MSN-tmp, 2023 WL 3083436 (W.D. Tenn. Apr. 25, 2023) (Magistrate Judge Tu M. Pham). Participants in the AutoZone 401(k) Plan allege in this action that defendants AutoZone, Inc., members of the AutoZone investment committee, and the investment fiduciaries of the plan breached their duties under ERISA by failing to monitor and control the plan’s fees and to maintain a lineup of adequately performing investment options in the plan’s investment portfolio. Defendants, along with non-parties Willis Towers Watson U.S. LLC, a former investment advisor for the plan, and Prudential Retirement Insurance and Annuity Company, the insurance company receiving the administrative and services fees from the plan, jointly moved to maintain confidentiality of challenged documents. Their motion was granted in part and denied in part in this order. Defendants’ general position was that public disclosure of these documents would put them at a competitive disadvantage. Plaintiffs, on the other hand, maintained that defendants did not meet their burden to overcome the strong presumption in favor of public judicial records, particularly because the documents at issue do not involve trade secrets. The court aligned itself more with defendants’ viewpoint. It agreed that internal communications between defendants and the non-parties, their contracts, invoices, and other reports reflected “proprietary methodology” closely analogous to trade secrets. Should this information be made available to the public, the court agreed that it would increase the risk of competitive harm. This, the court concluded, justified keeping the reports, invoices, contracts, and internal communications sealed. Moreover, the public’s interest in accessing the information, the court stressed, did not outweigh the movants’ potential commercial harm. This was particularly true for the non-parties, according to the court, because they “could not have anticipated that their confidential documents ‘would eventually become matter of public record.’” However, 408b-2 disclosures were not allowed to be sealed because these documents are “subject to mandatory disclosure under ERISA.” Additionally, the court declined to seal the reports of three expert witnesses. The court found that, unlike the documents, the expert reports “do not contain proprietary methodology that resembles a trade secret,” and that no harm to movants’ competitive standing would come from their public availability. Thus, the court sided with the plaintiffs and unsealed the expert reports.

Mercer v. Unum Life Ins. Co. of Am., No. 3:22-CV-00337, 2023 WL 3131989 (M.D. Tenn. Apr. 27, 2023) (Magistrate Judge Alistair E. Newbern). Nurse practitioner Nicole Mercer commenced this action against Unum Life Insurance Company of America and Unum Group to challenge its decision to terminate the long-term disability benefits she was receiving for her autoimmune-related disorders. In her action, Ms. Mercer contends that Unum operated under a conflict of interest which tainted its decision. She argued that Unum “incentivizes its claim handlers to terminate a specified number of claims every month” through the use of “claim-closure targets.” Thus, Ms. Mercer maintains that Unum’s adverse benefit decision of her claim was arbitrary and capricious. In order to support this position, Ms. Mercer filed a motion requesting the court compel Unum to produce discovery. Specifically, Ms. Mercer sought statistical data on the three claim reviewers pertinent to her case and all of the claims those individuals evaluated for the health conditions she suffers from. Through this information, Ms. Mercer wishes to compile averages and percentages of the claim reviewers in order to demonstrate that Unum was indeed operating under a conflict of interest and that the review process was not neutral. The Unum defendants opposed. They argued that the court should reject the discovery request and limit the action to the administrative record considered during the internal appeals process only. In its decision, the court acknowledged that fellow “courts are split as to whether such information is discoverable in an ERISA action,” and the “Sixth Circuit has not yet weighed in on the propriety of ‘batting average’ discovery.” However, the court stated that it would deny Ms. Mercer’s motion because her request was too broad. Rather than purely statistical data, Ms. Mercer wanted Unum to produce “each evaluative file or ‘written review’ for claims reviewed by the identified doctors during the relevant time period.” This, the court held, would be “unduly burdensome and the information minimally relevant.” Thus, the court was not persuaded that the information Ms. Mercer requested was “appropriate or proportional” and so declined to order Unum to produce these documents.

Seventh Circuit

Cutrone v. The Allstate Corp., No. 20 C 6463, 2023 WL 3074677 (N.D. Ill. Apr. 25, 2023) (Magistrate Judge M. David Weisman). In this putative class action, former participants of the Allstate 401(k) Savings Plan have sued the Allstate Corporation and the other plan fiduciaries for breaches of their duties and prohibited transactions under ERISA. Plaintiffs filed a motion to take more than ten depositions pursuant to Rule 23(b)(1) and (2). In particular, plaintiffs argued in favor of 26 depositions. They contend that this number of depositions is necessary and proportionate considering the complexities of the topics at issue and the broad scope of the case. Defendants, however, argued that the request was unreasonable, premature, overly burdensome, and would result in duplicative testimony. The court took a compromise position, permitting plaintiffs a total of 20 initial depositions. “Indeed, the sprawling nature of this case weighs greatly in favor of allowing more than ten depositions…[T]here is agreement that the stakes are high in this litigation: the alleged breach of fiduciary duty caused the loss of millions of dollars in Plaintiffs’ retirement savings. Further, the benefit of additional depositions outweighs the burden on Defendants in light of the case’s scale and importance.” However, the court reduced the requested number from 26 down to 20 in order to balance the position of the defendants and help alleviate some of their burden. Nevertheless, after the completion of these initial 20 depositions, the court left the door open for plaintiffs to seek leave to conduct further depositions if necessary.

Life Insurance & AD&D Benefit Claims

Second Circuit

Maxwell v. Lynch, No. 1:21-CV-00346 (LEK/ATB), 2023 WL 3055542 (N.D.N.Y. Apr. 24, 2023) (Judge Lawrence E. Kahn). Plaintiff New York Life Group Insurance Company of New York commenced this interpleader action requesting that the court determine the proper beneficiary of the life insurance coverage issued to decedent Dreena Verhagen. The court previously discharged New York Life from this action. In this order, it denied motions for judgment on the pleadings pursuant to Rule 12(c) filed by seven of the nine interpleader defendants, the potential claimants to the plan’s proceeds. As an initial matter, the court declined to take judicial notice of documents and other materials outside the pleadings. The court wrote that, “[t]he Moving Defendants’ representation that NY Life already determined ‘that Decedent’s siblings are the only eligible recipients of the life insurance benefits’ is…plainly incorrect.” Rather than an action where an insurance company has made an adverse benefits determination, this action is an interpleader action where no determination has yet been reached. Instead, the court held that the central issue in this action is whether the decedent’s signature on the beneficiary designation form was forged, and relying on materials outside the pleadings would therefore be improper in this instance. Moreover, the court held that because this issue cannot be resolved without considering the extrinsic materials offered by the moving defendants, their motion could not be granted. Finally, the court declined to convert their motion for judgment on the pleadings into a summary judgment motion, as there has yet to be discovery in this action.

Medical Benefit Claims

Fourth Circuit

Albert S. v. Blue Cross & Blue Shield of N.C., No. 1:22-cv-235-MOC-WCM, 2023 WL 3111768 (W.D.N.C. Apr. 26, 2023) (Judge Max O. Cogburn Jr.). Albert S. and his daughter S.S. sued their ERISA healthcare plan administrator and plan sponsor, defendants Blue Cross and Blue Shield of North Carolina and North Carolina Bar Association Health Benefit Trust, seeking payment of claims from S.S.’s stay at a residential mental healthcare treatment facility. Specifically, plaintiffs asserted two causes of action in their complaint, a claim for benefits and a claim for violating the Mental Health Parity and Addiction Equity Act. Defendants moved to dismiss the Parity Act claim. The court granted their motion here. It agreed with defendants that plaintiffs failed to state a claim under the Parity Act because it found their allegations of unequal limitations for mental health care as compared to medical or surgical care to be lacking in sufficient facts or details. The court concluded that plaintiffs’ complaint did not include details about what acute criteria were imposed on mental health care coverage that were not imposed on analogous medical coverage or even what the allegedly violative criteria was. Therefore, plaintiffs’ broad assertions about the Magellan Care Guidelines criteria and its treatment limitations for mental healthcare were found by the court to not meet the pleading standards of Rule 8. Thus, plaintiffs’ claim for relief under the Parity Act was dismissed, and they will proceed going forward with their benefits claim only.

Pension Benefit Claims

Federal Circuit

King v. United States, No. 18-1115, 2023 WL 3141796 (Fed. Cl. Apr. 28, 2023) (Judge Richard A. Hertling). Vested participants in a Taft-Hartley pension plan, the New York State Teamsters Conference Pension and Retirement Fund, sued the United States in this certified class action arguing that the Department of Treasury, the Labor Department, and the Pension Benefit Guaranty Corporation (“PBGC”) violated the takings clause of the Fifth Amendment by authorizing a 29% cut to their pension benefits under the Multiemployer Pension Reform Act of 2014 (“MPRA”). The plaintiff class members who were still alive last December “saw their pension benefits restored under the American Rescue Plan Act of 2021 (“ARPA”) and received lump-sum make-up payments without interest in the amount that had been withheld from them. The plaintiffs maintained their suit for interest on the amounts withheld while the benefit cuts were in effect, and payment to the estates of the participants who died prior to December 2022, as those individuals received no money from ARPA. The parties cross-moved for summary judgment under Rule 56. To resolve the cross-motions, the court stated that it needed to address two issues. First, it needed to decide whether plaintiffs’ claims were “more appropriately resolved as classic physical taking or under the more flexible regulatory-takings test provided in Penn Central Transportation Co. v. City of New York, 438 U.S. 104, 98 S. Ct. 2646, 57 L.Ed.2d 631 (1978).” The court concluded that the physical takings test was not applicable here because the federal government had neither appropriated plaintiffs’ property nor occupied it. It stated that although contractual rights are recognized as property interests under the takings clause, “the modification of those contract rights and the accompanying financial loss do not automatically justify the application of the physical-takings test.” The “crucial element in determining whether the physical-takings test applies” is whether the government seized, confiscated, appropriated, or occupied the property of the plaintiffs, and because the plaintiffs here did not meet their burden of demonstrating the government had done so, the court concluded that the regulatory-takings test was the measure it would use for plaintiffs’ claims. This brought the court to the second half of its decision, in which it analyzed the Penn Central factors. Those three key factors are the economic impact of the regulation, the extent of the regulation’s impact and interference with “distinct investment-backed expectations,” and the nature or character of the action the government took. The court acknowledged that this case would have “important implications for the constitutional limits on the ability of Congress and regulators to address the problem of multiemployer-pension-plan insolvency.” The court also considered the financial situations of the plaintiffs, both those still living and estates of those who died following ARPA and the issuance of the make-up payments. The court then looked at the economic impact of the regulation on the plaintiffs. It concluded that the impact of the MPRA suspension and ARPA preclude a finding of regulatory taking because the 29% reduction over the six-year period was mostly negated by the eventual make-up lump-sum payments for the withheld amounts. Under the second factor – the interference with investment-backed expectations – the court held that plaintiffs had reasonable investment-backed expectations to receive their unreduced, vested pension benefits, and that they could not have foreseen they would bear the financial cost of keeping the Teamsters Fund afloat during a period when the plan approached insolvency. Nevertheless, when factoring in the degree of interference with those expectations, the court found that plaintiffs did not present compelling evidence that the government unduly interfered with those reasonable expectations to give rise to a regulatory taking. Finally, the court weighed the character of the government’s action and concluded that “Congress was acting within its constitutional authority to amend ERISA and adjust reasonably the benefits and burdens of the regulatory scheme in an attempt to preserved funds’ financial stability.” On balance, although the suspension of benefits under the MPRA was a drastic step, the court concluded that it was an appropriate tool in the government’s tool-box to be used in a “a last-ditch effort to maintain the solvency of pension plans.” As a result, the court found the Penn Central factors did not tilt in plaintiffs’ favor and instead leaned toward a finding that the federal government had not violated the takings clause of the Fifth Amendment. Accordingly, the court denied plaintiffs’ summary judgment motion, and granted defendant’s motion for summary judgment.

Pleading Issues & Procedure

Second Circuit

Fitzsimons v. N.Y.C. Dist. Council of Carpenters & Joiners of Am., No. 21 Civ. 11151 (AT), 2023 WL 3061852 (S.D.N.Y. Apr. 24, 2023) (Judge Analisa Torres). Plaintiff Peter Fitzsimons and his family members sued the New York City District Council of Carpenters Pension Fund, the New York City District Council of Carpenters Welfare Fund, and the plan’s trustees and fiduciaries, including the New York District Council of Carpenters and Joiners of America union. The Fitzsimons asserted causes of action under the Labor-Management Reporting and Disclosure Act (“LMRDA”) and ERISA for breaches of fiduciary duties and claims for benefits. In essence, plaintiffs allege in their complaint that defendants improperly concluded that Mr. Fitzsimons was working as a carpenter for a non-union company, and ceased payments of all future pension benefits and stripped the family of their health insurance benefits. Defendants moved to dismiss the complaint for failure to state a claim pursuant to Rule 12(b)(6). The Court granted the motion in this decision. It held that the complaint did not contain sufficient factual allegations to state a claim for breach of fiduciary duty under ERISA and that it was based only on “conclusory allegations” insufficient to meet Rule 8 pleading standards. In addition, the court found plaintiffs’ claims for benefits under Section 502(a)(1)(B) time-barred because the relevant plans set a limitations period of one year and the action was not brought until after that time had run. The court disagreed with plaintiffs that a one-year contractual statute of limitation was unreasonably short. Furthermore, the court agreed with defendants that plaintiffs could not assert their claims for benefits under the welfare plan because they failed to exhaust internal appeals procedures prior to commencing their lawsuit. In addition, the court stated that even putting the issues of exhaustion and untimeliness aside the benefit claims would have failed under arbitrary and capricious review because the allegations themselves do not “establish that the Fund Defendants’ actions were arbitrary and capricious.” Finally, the court dismissed the LMRDA claim because it found the complaint itself contradicted plaintiffs’ arguments that Mr. Fitzsimons was not afforded a full and fair hearing under LMRDA § 101(a)(5)(C). For these reasons the complaint was dismissed in its entirety with prejudice.

Provider Claims

Third Circuit

Lipani v. Aetna Life Ins. Co., No. 22-2634 (ZNQ) (DEA), 2023 WL 3092197 (D.N.J. Apr. 26, 2023) (Judge Zahid N. Quraishi). Brain and spinal surgeon Dr. John Lipani, M.D., sued Aetna Life Insurance Company in a one-count complaint seeking reimbursement for surgery he performed on an ERISA plan beneficiary, patient A.T., pursuant to ERISA Section 502(a)(1)(B). A.T. assigned her rights to bring this action to Dr. Lipani, and granted him a limited power of attorney for the same purpose. Aetna moved to dismiss the complaint for failure to state a claim. Specifically, Aetna argued that the plan includes an unambiguous anti-assignment provision, meaning that Dr. Lipani does not have standing to bring his action. The court agreed and granted the motion to dismiss the complaint. Dr. Lipani’s power of attorney did not alter the consideration either, as the court wrote that the healthcare provider “cannot circumvent [an] anti-assignment clause by claiming he is A.T.’s attorney-in-fact.” Accordingly, the court found that Dr. Lipani could not bring his ERISA claim.

Standard of Review

Second Circuit

Rhodes v. First Reliance Standard Life Ins. Co., No. 22 Civ. 5264 (AKH), 2023 WL 3099294 (S.D.N.Y. Apr. 26, 2023) (Judge Alvin K. Hellerstein). Plaintiff William Rhodes sued First Reliance Standard Life Insurance Company under ERISA to challenge its termination of his long-term disability benefits which he was receiving after a traumatic brain injury. Mr. Rhodes moved the court to apply the de novo standard of review. He argued that Frist Reliance violated ERISA claims procedure regulations in three ways, and that this failure to adhere to the regulations should trigger the less stringent review standard. First, Mr. Rhodes argued that the claims administrator failed to consult with an appropriately qualified healthcare professional on appeal in violation of 29 C.F.R. § 2560.503-1(h)(3)(iii) and (4). Second, he claimed that First Reliance failed to give him the opportunity to respond to the reviewer’s addendum report in violation of 29 C.F.R. § 2560.503-1(h)(4)(i). Lastly, Mr. Rhodes argued that First Reliance was untimely in reaching its final determination during the appeals process in violation of 29 C.F.R. § 2560.503-1(i)(1)(i), (i)(3)(i). The court agreed with Mr. Rhodes on all three points and granted his motion. To begin, the court held that a psychologist was not a sufficiently qualified medical professional to opine on Mr. Rhodes’ neurological conditions or to review and analyze his medical records. “First Reliance offers no precedent that would support a finding that a neuropsychologist or any other individual who is not a medical doctor would be sufficiently qualified to satisfy the full and fair review requirement.” Next, the court agreed with Mr. Rhodes that First Reliance failed to comply with the claims procedure regulations by not providing Mr. Rhodes with a copy of the psychologist’s addendum report. The court stated that the report at issue “was a medical opinion regarding new medical evidence, and it was ‘considered’ and ‘generated’ by First Reliance” during the appeals process. Thus, the court concluded that defendants’ failure to give Mr. Rhodes the report and by extension an opportunity to respond to it prior to the final benefits determination, constituted a violation of the claims procedure regulations. Finally, the court found that First Reliance violated its obligation to render a final determination on appeal within 45 days of Mr. Rhodes’ submission. It was the court’s view that “neither awaiting receipt of the IME report nor awaiting the ‘additional information from Plaintiff’ provided a valid basis for First Reliance to stay their review.” These events, the court concluded, were not “special circumstances” warranting an extension. Moreover, the court held that First Reliance had not adequately advised Mr. Rhodes that it intended to invoke the extension, nor did it provide him with a date by which it would render its final decision. Accordingly, here too defendant was found to have violated the claims regulations. For these reasons, the court concluded that the de novo review standard should apply to its review of First Reliance’s denial of Mr. Rhodes’ claim.