Carlson v. Northrop Grumman Severance Plan, No. 22-1764, __ F. 4th __, 2023 WL 3299703 (7th Cir. May. 8, 2023) (Before Circuit Judges Easterbrook, Hamilton, and Lee)

In this certified class action, former Northrop Grumman employees filed suit against the Northrop Grumman Severance Plan, contending that its refusal to pay severance benefits to them after their termination in a 2012 layoff violated ERISA.

Northrop contended that the plaintiffs were not entitled to severance benefits because the plan provided that a laid-off employee regularly scheduled to work at least 20 hours a week would only receive severance benefits if that employee “received a cover memo, signed by a Vice President of Human Resources (or his/her designee), with this document addressed to you individually by name.” According to Northrop, the plaintiffs did not receive the “HR Memo,” and thus they were not entitled to benefits.

Plaintiffs responded that this document was not a prerequisite for eligibility to receive benefits, but rather a ministerial document, the purpose of which was to verify eligibility for all employees who were scheduled to work at least 20 hours per week. In addition, they maintained that it had always been Northrop’s policy to provide an HR Memo to every laid-off employee who met the work hour requirements. This change, plaintiffs argued, interfered with their rights to receive benefits to which they were otherwise entitled. Accordingly, in this class action plaintiffs asserted three causes of action, under ERISA Sections 502(a)(1)(B), 510, and 502(a)(3), for benefits, retaliation, and breach of fiduciary duty.

When this suit was originally filed, the parties mutually agreed to have a magistrate judge preside over it and resolve the case. However, after the magistrate certified the class, Northrop had a change of heart. “[O]nce the suit was certified as a class action (on behalf of all laid-off employees who did not receive a HR Memo), and the stakes multiplied, Northrop Grumman asked the district judge to resume control. The judge obliged.”

Northrop’s strategy paid off. The district judge granted summary judgment in favor of Northrop, holding that the plan language granted the HR Department the discretion to selectively pick which employees, if any, would receive severance benefits upon termination. Moreover, the court agreed with Northrop that the plan language required participants to be designated as eligible for the plan by the HR Department and that receipt of the HR Memo was required to be eligible for benefits. Finally, the court found that ERISA does not prevent any welfare benefit plan from selectively determining recipients.

The plaintiffs appealed to the Seventh Circuit, which in this published decision affirmed the district court’s rulings in their entirety.

As an initial matter, the Seventh Circuit disagreed with plaintiffs that the district court’s decision to take over the case from the magistrate was an abuse of discretion. The Seventh Circuit agreed that class certification qualified as “good cause” to rescind the previously agreed-upon assignment. “We do not see any abuse of discretion. Class certification complicated and prolonged the litigation…Withdrawing a reference in order to make a simple legal decision that ends the suit has much to be said for it.” The Seventh Circuit stated that it made no difference who resolved the suit at the district court level because the “meaning of the Plan – like the meaning of ERISA – is a question of law.”

With that preliminary matter settled, the court proceeded to the merits of plaintiffs’ claims, “which do not require extended discussion.” The court held simply that plaintiffs’ claims failed because the plan made the receipt of severance benefits contingent on receipt of the HR Memo. Because plaintiffs and the other members of the class did not get an HR Memo, they were not eligible for benefits. And even assuming Northrop’s actions were self-serving, the Seventh Circuit stated that “the terms of welfare-benefit plans are entirely in the control of the entities that establish them. When making design decisions, employers may act in their own interests.” Given the discretionary authority spelled out in the plan, the Seventh Circuit found Northrop was acting well within its powers to pick and choose who received severance benefits.

The Seventh Circuit further ruled that Northrop’s alleged past actions in which it sent automatic HR Memos to all laid-off employees were irrelevant. “A person possessing discretion may change the way that discretion is exercised. So even if Northrop Grumman had announced the universal-severance-benefits norm that plaintiffs believe it had until October 2011, this would not prevent it from changing that approach.” Along these same lines, the Seventh Circuit concluded that past behavior did not create legal entitlement to the benefits and that “[r]ights under ERISA are not subject to estoppel[.]”

In sum, the appeals court concluded that the plaintiffs never qualified for benefits under the severance plan and thus they could not prevail on any of their ERISA claims. For these reasons the judgment of the district court was affirmed.

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


Eighth Circuit

Hursh et al. v. DST Sys., No. 4:21-9184-NKL, 2023 WL 3331799 (W.D. Mo. May. 8, 2023) (Judge Nanette K. Laughrey). Longtime readers of Your ERISA Watch may remember a series of decisions we summarized in 2021 and 2022 in which this court confirmed arbitration awards won by participants of DST Systems, Inc.’s 401(k) profit sharing plan arising from DST’s failure to monitor or rebalance the plan’s overly concentrated investments in a single stock. DST attempted to thwart confirmation of these awards at every step of the way. First, it attempted to transfer these cases to the Southern District of New York, arguing that the plaintiffs should be part of a mandatory class certified in New York. The court denied the motion to transfer, and, as stated above, approved the arbitration awards under the Federal Arbitration Act. DST then appealed these decisions to the Eighth Circuit. There, DST found some success. The arbitration awards were vacated. The Circuit Court concluded that the district court lacked federal question subject matter jurisdiction because the plaintiffs were seeking relief under an arbitration agreement, meaning their motions to confirm these awards did not implicate ERISA without a “look-through” approach, which is considered impermissible in the Eighth Circuit. The appeals court then remanded to the district court with instructions to determine whether it had diversity jurisdiction over each arbitration award by applying a case-by-case analysis. On remand from the Eighth Circuit this court entered a judgment confirming arbitration awards in favor of 55 plaintiffs over which it found it had diversity jurisdiction. These awards included attorneys’ fees, costs, and expenses. Now, the New York class action has reared its head once again. This time DST is attempting a workaround to this court’s judgments by settling the class action in New York under terms which would deprive the plaintiffs here of their judgments. Specifically, if approved, the settlement would eliminate the award of fees and costs, which is substantial, as the court pointed out, “the attorneys’ fees awards in the 55 judgments combined are almost twice as high as the damages awards combined.” In response, the court issued a preliminary injunction against DST to protect its judgments and enjoined DST or the attorneys acting on its behalf from entering into an agreement “that settles, disposes of, interferes with, invalidates…or otherwise compromises each such judgment, without the express written consent of each Confirmation Plaintiff in whose favor judgment was entered by this Court.” DST subsequently filed a motion to stay the injunction. An oral argument was held on the topic, after which the court issued this order denying DST’s motion. It concluded that DST failed to demonstrate any irreparable harm absent a stay, while the confirmation plaintiffs would be substantially injured if the injunction were to be stayed. The court held that DST’s intent was to deprive the court of jurisdiction over the cases despite its previous decision denying DST’s motion to transfer the cases. “Indeed, DST’s position that a lawyer, appointed by a court to represent a class, can give away a class member’s judgment to achieve class-wide settlement is both novel, and frankly, shocking to this Court.” Finally, it was the court’s position that allowing DST to strip a substantial portion of the value of plaintiff’s judgment in this way “would undermine public confidence in the predictability and reliability of the judicial system. Further…to allow DST to ignore orders of this Court would bless forum-shopping and undermine the Federal Arbitration Act and the judiciary’s role in enforcing arbitration agreements and awards.” Accordingly, the court would not sign off on DST’s proposed course of action and thus left its injunction in place.

Breach of Fiduciary Duty

Seventh Circuit

Su v. Johnson, No. 22-2204, __ F. 4th __, 2023 WL 3335733 (7th Cir. May. 10, 2023) (Before Circuit Judges Hamilton, Brennan, and Kirsch). The Secretary of Labor commenced this civil enforcement lawsuit against two ERISA fiduciaries, Shirley T. Sherrod and Leroy Johnson, for breaches of their fiduciary duties. In essence the Secretary argued that through a series of self-dealing transactions “Sherrod gave herself the keys to the bank vault, and Johnson let her use them,” including by paying a quarter of a million dollar bond from plan assets in a state lawsuit and through 123 individual transactions in which Ms. Sherrod withdrew $825,000 in plan assets over a five-year period. The district court granted judgment in favor of the Secretary and entered a permanent injunction against the defendants to remove them as fiduciaries. Additionally, the district court appointed an independent fiduciary to terminate the plan, evaluate all previous distributions and transactions, and to issue distributions to the eligible participants and beneficiaries. Defendants appealed. In this order the Seventh Circuit affirmed. Simply put, the court of appeals concluded that the undisputed facts proved that the defendants were plan fiduciaries, that they breached their duties of care, loyalty, prudence, and to act in accordance with plan documents, and that these breaches caused harm to the plan. Moreover, the Seventh Circuit stated that the district court was well within its powers in awarding the injunctive relief it did, stating that defendants “are fortunate that the relief against them has thus far been relatively modest.” Finally, the Circuit Court concluded that the district court’s denial of defendants’ motion for leave to amend to bring a statute of limitations argument was not a reversible error. It held that the Secretary did not have actual knowledge of the breaches at issue that would have triggered the three-year statute of limitations and that defendants’ documents in support of their position did not prove otherwise. Accordingly, the district court’s grant of summary judgment and the equitable relief it awarded were affirmed.

ERISA Preemption

Sixth Circuit

Lawrence E. Moon Funeral Home v. Metropolitan Life Ins. Co., No. 22-13116, 2023 WL 3431226 (E.D. Mich. May. 12, 2023) (Judge Judith E. Levy). The Lawrence E. Moon Funeral Home sued Metropolitan Life Insurance Company (“MetLife”) in state court seeking payment for funeral services it provided out of proceeds from an ERISA-governed life insurance plan. MetLife removed the action to federal court. It argued that the state law claims were preempted by ERISA. On March 27, 2023, the court ordered MetLife to show cause why this case should not be remanded back to state court for lack of subject matter jurisdiction. MetLife filed its response in opposition to remand, voicing its preemption arguments. However, the court was not persuaded by MetLife’s arguments, concluded in this order that it lacks subject matter jurisdiction, and remanded the case. First, regarding express preemption, the court stated that under Sixth Circuit precedent “preemption under § 1144(a) cannot provide a basis for removal to federal court,” and that MetLife did not meet its burden to overcome the well-pleaded complaint rule. The court stated that preemption was not evident on the face of the complaint itself. “Defendant’s own brief makes clear that § 1144(a) provides the basis for its defense, not the basis of Plaintiffs’ complaint.” Next, the court found that the complaint was not completely preempted by ERISA because the funeral home is not a beneficiary with a colorable claim and therefore would have been unable to assert a cause of action under Section 502(a)(1)(B).  “Moreover, Plaintiffs’ complaint requests that the Court prevent distribution of any proceeds directly to the beneficiaries.” Thus, the court concluded that it lacked jurisdiction over the lawsuit and found that remanding to state court for further proceedings was therefore the appropriate course of action.

Seventh Circuit

King v. King, No. 3:23-CV-355-NJR, 2023 WL 3346974 (S.D. Ill. May. 10, 2023) (Judge Nancy J. Rosenstengel). Following the death of Shaun King, Lincoln National Life Insurance Company distributed benefits from his ERISA group life insurance policy to the named beneficiary, Mr. King’s ex-wife, Angela King. Mr. King’s daughter and the administrator of his estate, Shaunice King, sued both Angela and Lincoln in state court believing the benefit distribution was in direct conflict with the terms of Shaun and Angela’s divorce decree. Shaunice King asserted two causes of action: a claim of unjust enrichment and a claim under Illinois’ Marriage and Dissolution of Marriage Act. Angela and Lincoln removed the action to federal court, arguing the claims against them, which in effect challenge the distribution of life insurance proceeds under an ERISA plan, are preempted by ERISA. In response, Shaunice moved to remand her action back to state court. Defendants then moved to dismiss the action. Both motions were denied in this decision. First, the court agreed with defendants that Shaunice’s claims were preempted under the two-step Davila test. It held that Shaunice was an ERISA beneficiary with a colorable claim for benefits who therefore could have brought her claims under ERISA Section 502(a)(1)(B). Furthermore, it found that both state law claims were premised on the existence of the group life insurance policy and sought proceeds under the policy. Thus, the court stated that no independent legal duty was implicated by Shaunice’s complaint. Nor did the court find that the probate exception applied here as the insurance benefits are not now and never were in the custody of state probate court. For these reasons, the court concluded that ERISA completely preempts Shaunice’s claims and therefore stated that it has jurisdiction over the lawsuit. Accordingly, the court denied the motion to remand. Finally, the court found defendants’ arguments in favor of dismissal to be premature and “better presented and resolved at summary judgment.” Therefore, the court also denied the motion to dismiss.

Medical Benefit Claims

Second Circuit

Tindel v. Excellus Blue Cross & Blue Shield, No. 5:22-cv-971 (BKS/ATB), 2023 WL 3318489 (N.D.N.Y. May. 9, 2023) (Judge Brenda K. Sannes). An ERISA plan beneficiary, Kevin Heffernan, and the two out-of-network orthopedic and neurosurgeons who performed emergency spinal surgery on him, sued Excellus BlueCross & BlueShield asserting claims under ERISA and state law seeking payment of the outstanding 99% of the billed charges which were not paid by the insurance company following the procedure. Defendant moved to dismiss the ERISA causes of action brought by the healthcare provider plaintiffs, and the state law claims brought by all three plaintiffs. First, regarding the healthcare providers, Blue Cross argued that the surgeons lacked standing to bring their claims because the plan contains an anti-assignment provision. To bolster this assertion, Blue Cross attempted to include a document which it claimed was the summary plan description whose terms were incorporated into the ERISA plan. However, the plaintiffs argued that the summary plan descriptions are not themselves the terms of the plan, and they therefore challenged the authenticity and applicability of the document and by extension its anti-assignment clause. In light of this dispute regarding the plan terms, the court declined to consider the document and because it would not consider the outside document and as the complaint itself did not allege the plan contains a provision banning assignments of benefits, the court held that Blue Cross did not meet its burden of demonstrating that the provider’s ERISA claims had to be dismissed for lack of standing. According, the court denied this aspect of Blue Cross’s motion. Nevertheless, the court agreed with Blue Cross that some of plaintiffs’ state law claims were preempted by ERISA as they related to the plan. These causes of action were plaintiffs’ unjust enrichment, breach of contract as intended beneficiaries, and tortious interference claims, all of which were dismissed. However, Plaintiffs were successful in their argument that their claim of breach of implied-in-fact contract involved a “rate of payment” dispute rather than a “right to payment” and that they detrimentally relied on a promise from Blue Cross’s representative that they would be paid for the procedures at the “local usual and customary rates.” Thus, the court found that this claim was not expressly preempted and allowed it to proceed. For these reasons, the motion to dismiss was granted in part and denied in part as described above.

Seventh Circuit

Midthun-Hensen v. Group Health Coop. of S. Cent. Wis., No. 21-cv-608-slc, 2023 WL 3303865 (W.D. Wis. May. 8, 2023) (Magistrate Judge Stephen L. Crocker). Two parents representing their minor daughter who has been diagnosed with Autism Spectrum Disorder filed this putative class action against Group Health Cooperative of South Central Wisconsin, Inc. to challenge its denial of coverage for speech and sensory integration occupation therapies as unproven/experimental treatments. Plaintiffs brought claims for benefits under Section 502(a)(1)(B), a claim under the Mental Health Parity and Addiction Equity Act, and a claim for violation of a Wisconsin state law mandating health insurance providers provide coverage for evidence-based Autism treatments. Group Health moved for summary judgment on all claims. Its motion was granted in this decision. Beginning with the benefits claims, the court held that the denials were not an abuse of discretion and were supported by substantial evidence. Specifically, although the guidelines Group Health relied on at the time of the denial have all since been modified and updated to hold that the treatments at issue are evidenced-based and generally accepted standards of care, the court wrote that “plaintiffs fail[ed] to show that GHC abused its discretion or acted downright unreasonably in determining that the line between experimental and generally accepted had not yet been crossed at the time of the challenged denials in this case.” Thus, under deferential review, the court granted summary judgment to Group Health on all of plaintiffs’ claims asserted under § 1132(a)(1)(B). Having made this determination, the court then moved on to its discussion of the Parity Act claim. Plaintiffs claimed that Group Health applied more stringent limitations regarding non-experimental treatments in the context of Autism treatments than it did for physical chiropractic care. Although the court acknowledged that there was a disparity in coverage for some of the mental health treatments as opposed to the chiropractic treatments, it found that they “arose not from GHC applying a more restrictive strategy or process to mental health benefits, but from a difference in the status of acceptance of those treatments by the medical community at large.” Accordingly, the court held that Group Health had not violated the Mental Health Parity and Addiction Equity Act. Finally, plaintiffs’ state law claim failed for the same reasons as their denials for benefits, i.e., that at the time of the denials there was not a medical consensus that the treatments at issue were considered evidence-based services. For these reasons, Group Health’s summary judgment motion was fully granted.

Pension Benefit Claims

D.C. Circuit

Ljubicic v. Int’l Bhd. of Elec. Workers, No. 22-7124, __ F. App’x __, 2023 WL 3295539 (D.C. Cir. May. 8, 2023) (Before Circuit Judges Millett, Wilkins, and Katsas). An ERISA claimant, Ante Ljubicic, sued the International Brotherhood of Electrical Workers after his claim for pension benefits was denied when the plan trustees determined that Mr. Ljubicic was engaged in disqualifying employment that precluded him from receiving retirement benefits. The district court granted judgment to the union. It concluded that the denial of the application for pension benefits was supported by substantial evidence and that Mr. Ljubicic was afforded a full and fair review process as required under ERISA’s provisions. Mr. Ljubicic appealed the district court’s adverse decision. In this order the D.C. Circuit Court affirmed the district court’s order granting summary judgment to the union. First, the appeals court stated that Mr. Ljubicic forfeited his ability to raise any argument regarding his fraudulent misrepresentation claim because he had failed to do so in his briefs. Second, the court of appeals agreed with the lower court that Mr. Ljubicic could not succeed on his claim for benefits, as well as with its conclusion “that the denial of his application for pension benefits was the result of deliberate and reasoned process and supported by substantial evidence.” Finally, the Circuit Court rejected Mr. Ljubicic’s position that the district court erred by declining to consider materials beyond those presented to the plan administrators at the time they conducted their review. 

Pleading Issues & Procedure

Eleventh Circuit

Schramm v. Metropolitan Life Ins. Co., No. 5:23-cv-163-JSM-PRL, 2023 WL 3320086 (M.D. Fla. May. 9, 2023) (Magistrate Judge Philip R. Lammens). Plaintiff Charles Schramm brought this long-term disability benefit action against Metropolitan Life Insurance Company on March 9, 2023. Less than two months later, he moved to seal his complaint, arguing that he is not comfortable with his private health information being made public in this lawsuit. The court denied the motion to seal in this decision. It found that Mr. Schramm’s wish for medical privacy was not a compelling justification to grant the motion. “By filing this action seeking an award of long-term disability benefits, Plaintiff has placed his own medical condition squarely at issue. ‘Courts have routinely held that, by putting one’s medical condition at issue in a lawsuit, a plaintiff waives any privilege to which he may have otherwise been entitled as to his privacy interests in his medical records.’”