D.K. v. United Behavioral Health, No. 21-4088, __ F. 4th __, 2023 WL 3443353 (10th Cir. May. 15, 2023) (Before Circuit Judges Carson, Lucero, and Rossman)

Good news this week for healthcare claimants in the Tenth Circuit. This case, in which a family successfully challenged a denial by United Behavioral Health of residential mental health treatment for a very young minor, engendered a surprising amount of controversy and competing amicus curiae briefs. Or perhaps the controversy here is not so surprising given the Ninth Circuit’s recent decisions, and the pending rehearing petition in Wit v. United Behavioral Health.

The history of this young person’s mental health struggles is heartbreaking. Suffice it to say that by the time A.K. was in middle school, she had a long history of anxiety, depression, and self-harm, including multiple suicide attempts.

The history of her parents’ attempts to get her treatment covered under her father’s healthcare plan is nearly as heartbreaking. According to the court, during a 20 month period in 2012 and 2013, “A.K. moved between emergency rooms, inpatient facilities, and day programs. …[and] United repeatedly scaled down A.K.’s treatment.” And, as the court saw it, “[b]ecause she was moved to lower-level care upon stabilization or slight improvement, she lacked the stability necessary to develop the skills to succeed outside of a 24-hour care setting.” Thus, in late 2013, on the advice of her doctors that she needed long-term residential treatment, A.K.’s parents applied for a “case exception” for approval of 12 months of residential treatment. Despite the “strong recommendations” of her physicians and other treatment providers, United issued five denials of the family’s claim with five different explanations.

The family filed suit, asserting that United acted arbitrarily and capriciously in denying A.K.’s benefit claim and breached its fiduciary duty by failing to provide full and fair review. The district court agreed, finding that United abused its discretion in numerous ways, including by failing to engage with the opinions of her doctors, failing to include reasoned analysis or specific citations to the medical records, and offering inconsistent and shifting rationales for its denial. Bucking the trend in many recent decisions, the district court simply ordered United to pay for this treatment rather than remanding for further review.

United appealed. Joined by the ERISA Industry Committee as amicus curiae, United first argued that, in reviewing A.K.’s claims, it was not required to engage with the opinions of  her doctors because the claims regulation applicable to healthcare claims does not expressly include this requirement. The Tenth Circuit sensibly rejected this argument, holding, as A.K. and the Department of Labor (DOL) urged, that United could not simply “shut its eyes” to the opinions of four of A.K.’s treating physicians by failing to provide any explanation for its rejection of these opinions. The court agreed with DOL that the newer regulations applicable to disability claims were merely clarifying and making explicit a requirement already in ERISA and could not be read to preclude such a requirement for healthcare claims. Indeed, the court concluded that the regulations were merely minimum guidelines or baseline requirements, and that higher fiduciary standards were applicable to administrators reviewing claims.         

The Tenth Circuit likewise rejected United’s argument that its notes proved that it did engage with the medical opinions of A.K.’s doctors and that it was not required to do so in its denial letters. The court pointed out that “ERISA denial letters play a particular role in ensuring full and fair review,” and thus required United to engage in a “meaningful dialogue” by addressing the opinions of A.K.’s physicians in its denials.  

The appellate court next agreed with the district court that United’s failure to cite any facts in the medical record demonstrated conclusory reasoning, thus rendering United’s actions arbitrary and capricious. To the extent that the denials contained four references to A.K.’s specific condition, these references were unsupported by citation and, in the court’s view, could have just as easily supported a finding that A.K. needed further residential treatment. And again, the court stressed that any reasoning supporting denial must be contained in the denial letters themselves.

Finally, the Tenth Circuit concluded that the district court was justified and acted within its discretion in awarding benefits outright rather than remanding to United to take a “second bite at the apple” (or in this case, a sixth). The Tenth Circuit sided with courts that have found that a remand is inappropriate where a plan administrator has not acted consistently with its fiduciary role. The court concluded that in light of “the administrator’s clear and repeated procedural errors in denying this claim, it would be contrary to ERISA fiduciary principles to mandate a remand.”

It is hard to imagine how an ERISA fiduciary could expect to win an argument that it need not engage with the opinions of numerous treating physicians that unambiguously supported a young girl’s claim for lifesaving mental health treatment, that it need not put its reasoning in its denial letters, and that a district court lacked the authority to award benefits in these circumstances. It is gratifying that the Tenth Circuit soundly rejected these arguments.

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

Breach of Fiduciary Duty

Seventh Circuit

Tolomeo v. R.R. Donnelley & Sons, Inc., No. 20-cv-7158, 2023 WL 3455301 (N.D. Ill. May. 15, 2023) (Judge Mary M. Rowland). Two former employees of R.R. Donnelley & Sons Company and participants of its “mega” 401(k) plan, the R.R. Donnelley Savings Plan, sued their former employer, its board of directors, and its benefits committee, individually and on behalf of a putative class, for breaches of fiduciary duties under ERISA. Plaintiffs alleged that defendants breached their duty of prudence by allowing the plan to pay excessive recordkeeping fees to the plan’s recordkeeper, Great-West Life & Annuity Insurance, LLC. They also maintained that R.R. Donnelley and the board of directors breached their duty to monitor the benefits committee and ensure the plan was in compliance with ERISA. Defendants moved to dismiss the action. The court denied their motion in this decision. The court concluded that it could reasonably infer fiduciary breaches from the allegations set forth in plaintiffs’ complaint. In particular, the court disagreed with defendants’ statement that Hughes v. Northwestern Univ., 63 F.4th 615 (7th Cir. 2023), “did not announce a ‘new pleading standard.’” To the contrary, the court held that Hughes “itself described its ‘newly formed pleading standard.’” The Hughes standard states that “where alternative inferences are in equipoise…the plaintiff is to prevail on a motion to dismiss. This is because, at the pleadings stage, we must accept all well-pleaded facts as true and draw reasonable inferences in the plaintiff’s favor. A court’s role in evaluating pleadings is to decide whether plaintiff’s allegations are plausible – not which side’s version is more probable.” Under the new standard outlined in Hughes, the court found that plaintiffs plausibly alleged that the fees paid by the plan were excessive, as they were nearly three times as high as what other plans of similar sizes were paying for a standard package of services offered by all other comparable recordkeepers of “nearly identical level and quality.” Thus, accepting plaintiffs’ allegations as true and relying on their provided benchmarks, the court agreed that the fees could suggest an imprudent decision-making process. Finally, because the court declined to dismiss the breach of fiduciary duty claim it also denied the motion to dismiss the derivative failure to monitor claim. Accordingly, the court allowed plaintiffs’ complaint to proceed and denied the motion to dismiss for failure to state a claim.

Mazza v. Pactiv Evergreen Servs., No. 22 C 5052, 2023 WL 3558156 (N.D. Ill. May. 18, 2023) (Judge Sara L. Ellis). For the second time this week, the Seventh Circuit’s decision in Hughes v. Northwestern Univ. had a material impact on a putative breach of fiduciary duty class action. Here, plaintiff Michael Mazza, a former participant in the Pactiv Evergreen Services Inc. Employee Savings Plan, sued Pactiv Evergreen Services Inc. and its board of directors for breaching their duties of prudence and monitoring in connection with allegedly high recordkeeping and administrative fees paid per participant of the plan. Much like the Tolomeo lawsuit and its decision denying a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) (summarized above), the court here found that Mr. Mazza had pled enough facts to infer that the fees paid were excessive when compared to the bundled recordkeeping and administrative services offered to all mega defined contribution plans and that defendants failed to monitor the reasonableness of the fees or regularly solicit bids for cheaper service providers. Therefore, drawing inferences in favor of plaintiff, the court denied defendants’ motion to dismiss the complaint. The court wrote, “Mazza’s allegations align more closely with those the Seventh Circuit allowed to proceed in Hughes than those it rejected in Albert.” Finally, with regard to the alternative explanations that defendants offered to explain the reasonableness of the fees paid for the services rendered, the court stated that defendants’ accounts “warrant exploration during discovery, [but] they are not so obvious that they require dismissal of Mazza’s claim at the pleading stage, particularly given Mazza’s allegations that [recordkeeping and administrative] services are commoditized and that recordkeepers quote fees on a per participant basis without regard for individual differences in the services requested.” As a result, in a post-Hughes world plaintiffs are having a much easier time surviving in these types of actions in the Seventh Circuit. The court concluded that Mr. Mazza’s complaint sufficiently alleged breaches of the duty of prudence and monitoring and therefore allowed the entirety of the complaint to carry on to further stages of litigation.

Disability Benefit Claims

Sixth Circuit

Tranbarger v. Lincoln Life & Annuity Co. of N.Y., No. 22-3369, __ F. 4th __, 2023 WL 3527418 (6th Cir. May. 18, 2023) (Before Circuit Judges Cole, Nalbandian, and Readler). After an operation to remove her gallbladder, plaintiff-appellant Vickie Tranbarger became increasingly unwell and started suffering from chronic pain and fatigue. Although she attempted to continue working in her position as an accounts receivable manager, her physical condition eventually worsened to the point where she felt she could no longer work. She subsequently resigned from her job and applied for long-term disability benefits under her ERISA-governed insurance policy with Lincoln Life & Annuity Company of New York. Her claim for benefits was denied by Lincoln, which concluded that Ms. Tranbarger was not continuously disabled during the six-month elimination period following her resignation and therefore not entitled to benefits under the terms of her policy. In response, Ms. Tranbarger commenced this lawsuit seeking judicial review of the adverse decision. The district court granted judgment on the administrative record to Lincoln under the de novo review standard, concluding that Ms. Tranbarger failed to prove that she was in fact continuously disabled during the relevant timeframe. Left once again with an adverse decision regarding her disability benefits, Ms. Tranbarger appealed the district court’s decision to the Sixth Circuit Court of Appeals. In this order the Sixth Circuit found that under either clear error review or de novo review of the district court’s decision and factfinding its conclusion would be the same – that Ms. Tranbarger could not meet her burden of demonstrating that she was continuously unable to perform the duties of her occupation during the half-year period immediately after her resignation. “The bar set by the plan’s requirement of ‘continuous’ disability, it bears mentioning, is a high one. Even one day of partial work ability during the Elimination Period is enough to defeat Tranbarger’s claim.” Unfortunately for Ms. Tranbarger, the Sixth Circuit concluded that the evidence in her medical record could not overcome such a high bar, as her pain and fatigue levels fluctuated as did her work capabilities on any given day during the timeframe at issue. Although there was plenty of evidence that Ms. Tranbarger was not in good health at the time, the court of appeals ultimately concluded that “[a]mple evidence suggests [Ms. Tranbarger] could perform some work in some instances.” Accordingly, the Sixth Circuit affirmed the district court’s decision. Despite the court’s decision to sidestep the question of what standard of review to apply to the district court’s factfinding in this decision, Circuit Judge Nalbandian took the opportunity on his own to address the topic in his concurring opinion. It was Judge Nalbandian’s view that relevant case law in the circuit requires de novo review not only of the district court’s legal opinions but also of its factfinding. Nevertheless, Judge Nalbandian expressed in his opinion that if given a clean slate he would do things differently and would adopt clear error review to a district court’s factfinding in ERISA cases, “even when the district court is not taking new evidence but instead simply review the administrative record that was before the plan administrator,” because the district court is the trier of the facts, not the appeals court. Moreover, in his concurrence, Judge Nalbandian argued that the approach established to review ERISA benefits claims, including all of its unique carve-outs, like those for abuse of discretion review, seem to be in direct conflict with both the Federal Rules of Civil Procedure and Supreme Court precedent established in United States v. Tsarnaev, 142 S. Ct. 1024 (2022). He stated that if the Federal Rules of Civil Procedure were applied under their plain language to ERISA cases as they are to all other civil actions, “we would allow parties to build up a record with discovery under Rule 26, move for summary judgment under Rule 56, and conduct a bench trial under Rule 52.” Judge Nalbandian maintained that the way ERISA cases are currently handled do not follow the contours of the Federal Rules of Civil Procedure, and because of this, he contended that ERISA cases are potentially in conflict with the Supreme Court’s decision Tsarnaev which “prevents lower courts from creating prophylactic rules that contradict federal statutes or rules – like the Federal Rules of Civil Procedure.” Nevertheless, at the end of the day Judge Nalbandian’s concurrence, regardless of the interesting the points he made in it, did not alter the outcome in this matter, as he agreed with his fellow judges that the right outcome was reached in Ms. Tranbarger’s case.

Laake v. Benefits Comm., No. 21-4178, __ F. 4th __, 2023 WL 3559602 (6th Cir. May. 19, 2023) (Before Circuit Judges Siler, Nalbandian, and Readler). Plaintiff Sherry Laake brought an ERISA Section 502(a)(1)(B) action against the Western & Southern (“W&S”) Financial Group Flexible Benefits Plan and its benefits committee, hoping for a court order in her favor on her long-term disability benefit claim. After many years of litigation and a remand in 2019, Ms. Laake got just that in a 2022 district court judgment in favor, wherein she was awarded benefits, statutory penalties, attorneys’ fees, and costs. Defendants appealed the decision. The Sixth Circuit affirmed in this order. It began with defendants’ challenge to the district court’s 2019 remand decision. The court of appeals concluded that the district court had not erred in finding that Ms. Laake was denied a full and fair review, and that W&S acted arbitrarily and capriciously in determining that Ms. Laake was disabled for a mental health condition, namely chronic pain syndrome. The Sixth Circuit agreed with the lower court that nothing in Ms. Laake’s medical record supported defendants’ conclusion that she was disabled for a mental illness. Rather, both the district court and the appeals court agreed that Ms. Laake’s medical records established she suffered from chronic pain, arthritis, osteoporosis, sinus conditions, gastrointestinal problems, and chronic fatigue syndrome. Having addressed the district court’s 2019 remand order, the Sixth Circuit proceeded to analyze the district court’s 2022 judgment in favor of Ms. Laake. Here too it agreed with the conclusions of the district court. To begin, the Sixth Circuit stated that the district court appropriately altered the standard of review from abuse of discretion to de novo following the denial on remand because the benefits department rather than the benefits committee improperly adjudicated the claim, and the benefits department did not have the same grant of discretionary authority in the plan. Furthermore, under de novo review, the Sixth Circuit agreed that Ms. Laake sufficiently met her burden of proof through both subjective and objective evidence that she was disabled as defined by her plan, as all of her treating physicians agreed that her symptoms were disabling. In addition, the appeals court agreed with the lower court that Ms. Laake was disabled under the Department of Labor guidelines for “sedentary work.” “We are also mindful of the district court’s finding that W&S engaged in particularly ‘egregious conduct throughout the course of this litigation’ and its ‘potential’ conflict of interest in this matter, which may have impacted Laake’s benefits determination.” Thus, given the weight of the evidence in favor of a finding that Ms. Laake was disabled, the Sixth Circuit affirmed the district court’s conclusion that she satisfied her plan’s definition and was therefore entitled to benefits. This left the Sixth Circuit with only a few more matters to address: the awards of penalties, fees, and costs. First, regarding the district court’s imposition of statutory penalties under § 1132(c), the court of appeals found that the district court had not abused its discretion by awarding the maximum $110 per day penalty for W&S’s failure to provide Ms. Laake with plan documents upon written request. It agreed that the evidence established Ms. Laake requested these documents, including the plan, the summary plan documents, and the trust agreement, but was not provided them for the period covered by the district court’s imposed penalties. The Sixth Circuit also agreed with the district court that W&S’s delay in producing these documents prejudiced Ms. Laake. Finally, under ERISA Section 502(g)(1), the court of appeals disagreed with defendants that the Hardt factors did not justify an award of attorneys’ fees and costs. “Based on our review of the record and given the district court’s careful application of each pertinent factor, the court did not abuse its discretion in awarding Laake attorneys’ fees and costs.” For these reasons, the district court’s judgment was affirmed. However, Circuit Judge Readler dissented in part from his colleagues. It was Judge Readler’s opinion that defendants should have retained their abuse of discretion review standard following the 2019 remand as the benefits department and the benefits committee were essentially the same group of people. In addition, under abuse of discretion review, Judge Readler stated that W&S’s decision on remand should have been affirmed, as it was reasonable and supported by substantial evidence.

Ninth Circuit

Walker v. AT&T Benefit Plan No. 3, No. 22-55450, __ F. App’x __, 2023 WL 3451684 (9th Cir. May. 15, 2023) (Before Circuit Judges Murguia, Friedland, and Bennett). Plaintiff Kevin Walker appealed a summary judgment award from the District Court for the Central District of California in favor of the AT&T Umbrella Benefit Plan No. 3 and AT&T Services, Inc. in this ERISA long-term disability benefit action. Under the terms of the plan a participant is eligible to receive long-term disability benefits if an illness, injury, or other medical condition renders them unable to perform the duties of “any occupation or employment for which [they] are qualified or may reasonably become qualified, based on training, education or experience.” Although Mr. Walker was awarded Social Security Disability benefits, the district court concluded that the plan and the Social Security Act had different disability requirements. Specifically, only the plan’s definition of disability included work that Mr. Walker could become qualified for given reasonable training, whereas Social Security Disability benefits only require that a claimant is precluded from work that he or she is already qualified to perform. On appeal, the Ninth Circuit affirmed the denial of long-term disability benefits. First, the appellate court agreed with the district court that de novo standard of review applied given AT&T’s failure to provide Mr. Walker with a full and fair review thanks to the actions it took which violated several of ERISA’s procedural claims handling requirements. However, even under the less rigorous review standard, the Ninth Circuit and the district court agreed that Mr. Walker could not prove his entitlement to benefits under the terms of the plan as none of his treating doctors opined that his chronic pain left him unable to perform any work. Rather, “the record shows that Walker could work with some restrictions.” The Ninth Circuit also found that AT&T appropriately provided a list of jobs available in the market that Mr. Walker could have become qualified to perform even with his physical limitations and work restrictions. Accordingly, the court of appeals concluded that the district court had made no clear error and therefore affirmed its decision. Finally, the Ninth Circuit rejected Mr. Walker’s assertion that the district court had erred by concluding that he lacked standing to bring a claim for injunctive relief to prevent AT&T from placing an equitable lien on certain funds received as an offset to any long-term disability benefits that may have been overpaid. The Ninth Circuit again agreed with the lower court and found that any injury was entirely hypothetical and therefore insufficient to state a claim.

Medical Benefit Claims

Sixth Circuit

Davita Inc. v. Marietta Mem’l Hosp. Emp. Health Benefit Plan, No. 2:18-cv-1739, 2023 WL 3452353 (S.D. Ohio May. 15, 2023) (Judge Sarah D. Morrison). A dialysis care provider, DaVita, Inc., sued Marietta Memorial Hospital, its employee benefits plan, and the plan’s medical benefits manager alleging that the plan’s terms which dictate the reimbursement scheme for dialysis treatments are unlawful. This case was originally brought in December of 2018. Initially, DaVita asserted claims for a violation of the Medicare Secondary Payer Act, benefits under ERISA Section 502(a)(1)(B), several breach of fiduciary duty claims under ERISA, a co-fiduciary liability claim, a claim for knowing participation in a fiduciary breach, and a claim for violation of 29 U.S.C. § 1182(a)(1) for discriminating against plan participants and beneficiaries who need dialysis treatment. Defendants moved to dismiss the action. Their motion was granted in its entirety on September 20, 2019. DaVita then appealed. On appeal, the Sixth Circuit reversed in part and remanded to the district court for further proceedings on the ERISA benefits claim, the Section 1182 claim, and the Medicare Secondary Payer Act claim. Defendants then filed a petition for writ of certiorari with the Supreme Court. The Supreme Court granted cert, heard the case, and entered a decision in defendants’ favor. Now, with this case back in front of the district court, defendants have moved for judgment on the pleadings of the amended complaint based on the Supreme Court’s decision. Their motion was granted in part and denied in part in this order. First, the court granted the motion with regard to the Medicare Secondary Payer Act claim. It concluded that the Supreme Court’s decision clearly entitled defendants to judgment on this claim. The Supreme Court expressly held that the plan terms did not violate the Act as they were applied uniformly to all enrollees and because the plan did not “differentiate in the benefits it provides” to individuals requiring dialysis or take into account whether any individual participant or beneficiary was entitled to or eligible for Medicare. Further, to the extent the ERISA benefits claims were based on a violation of the Medicare Secondary Payer Act, defendants were also granted judgment on that claim as well. But the court specifically stated that the claims for benefits may proceed because they were also premised on the § 1182 claim and the assertion that “Defendants’ conduct constitutes a breach of the ERISA plans at issue.” Lastly, with regard to the claim for violation of 29 U.S.C. § 1182(a)(1), the court denied defendants’ motion. It concluded that the Supreme Court “neither discussed nor disturbed” the Sixth Circuit’s finding that DaVita stated a claim under § 1182, and that the Supreme Court’s finding with regard to the Medicare Secondary Payer Act did not foreclose the § 1182 claim. In fact, the court stated that the Supreme Court’s decision underscored the difference between the two statutes because it held that the Medicare Secondary Payer Act is a coordination of benefits statute and not an antidiscrimination statute like Section 1182. Accordingly, defendants were not granted judgment on this claim, and it was also allowed to proceed.

Eleventh Circuit

L.R. v. Cigna Health & Life Ins. Co., No. 6:22-cv-1819-RBD-DCI, 2023 WL 3479064 (M.D. Fla. May. 16, 2023) (Magistrate Judge Daniel C. Irick). Plaintiff L.R. sued Cigna Health & Life Insurance Company under ERISA Section 502(a)(1)(B) seeking judicial review of a healthcare claim. In this order the court denied L.R.’s motion to request judicial notice of a ProPublica article published this year titled How Cigna Saves Millions by Having Its Doctors Reject Claims Without Reading Them written by Patrick Rucker, Maya Miller, and David Armstrong. This fascinating investigative piece outlines the ways in which Cigna designed and utilized an algorithm and review process known as “PXDX” to automatically deny thousands of healthcare claims “on medical grounds without opening the patient file.” As one of the eighteen million people insured by Cigna, L.R. believed that the information in this article was “relevant to the facts and issues which are the subject of this proceeding.” The court, however, did not agree. In its strongly worded denial of L.R.’s motion, the court disagreed with plaintiff that the article established facts, or that it was relevant to the matters at hand. The court went so far as to imply that the ProPublica article was not a well-researched piece of journalism but rather a matter of opinion from a “business website,” the type of source whose accuracy had to be reasonably questioned. Finally, the court stated that Eleventh Circuit precedent does not allow courts to take judicial notice of newspaper articles “to determine the truth of the matters asserted in the article.”

For these reasons, the court was unwilling to take notice of the ProPublica piece and found that L.R. was not entitled to the requested relief.

Plan Status

Fifth Circuit

Anderson v. HMO La., Inc., No. 23-971, 2023 WL 3477325 (E.D. La. May. 16, 2023) (Judge Carl J. Barbier). Plaintiffs Charles Anderson and Tania Nicole Anderson, a husband and wife, sued their health insurance provider, defendant HMO Louisiana, Inc., in state court alleging that it wrongly declined to pay for and failed to justify its denial of benefits for gastric surgeries that Ms. Anderson required. Defendant removed the action to the federal court system. It argued that the healthcare plan at issue is a group benefit plan governed by ERISA. Thus, HMO Louisiana maintained that the court has federal question jurisdiction over the matter. The Andersons moved to remand their lawsuit. They argued that the insurance policy, which covers only the two co-owners of an LLC and not any employees, is not an ERISA plan. Defendant responded that the LLC is actually a partnership, and that Mr. Anderson is a bona fide partner making him an employee and the plan an ERISA plan under the relevant statutes. Applying the relevant ERISA regulation and Fifth Circuit precedent on the topic, the court sided with HMO Louisiana in this decision and denied the motion to remand. It found that the company, regardless of its title as an LLC, is a 50/50 joint partnership among the two co-owners, meaning that Mr. Anderson and his business partners are employees as defined under ERISA. In addition, the court concluded that because the two owners perform services on behalf of the company, they qualify as bona fide partners. “Therefore, the HMO Louisiana benefit arrangement in this case qualifies as an ERISA plan that provided medical care for the bona fide partners and their dependents, and this case was properly removed to this court.” Accordingly, the court maintained jurisdiction over the action and denied the motion to remand.