Reetz v. Aon Hewitt Inv. Consulting, Inc., No. 21-2267, __ F. 4th __, 2023 WL 4552593 (4th Cir. Jul. 17, 2023) (Before Circuit Judges King, Richardson, and Keenan)
The October 20, 2021 edition of Your ERISA Watch covered the district court decision in this case as a “surprising loss for participants in Lowe’s 401(k) pension plan against the plan’s investment manager, Aon Hewitt Investment Consulting, following class certification, success on summary judgment, and a multi-million-dollar, court-approved settlement with Lowe’s inside fiduciaries.” Last week’s Fourth Circuit decision upholding Aon’s victory may be a little less surprising, but it is far more consequential and troubling for ERISA pension plan participants seeking to challenge bad investment advice and plan fiduciaries giving that advice.
Aon was a fiduciary to Lowe’s massive 401(k) plan in its dual roles as both the plan’s investment advisor and its investment manager. The Plaintiff, Benjamin Reetz, a former Lowe’s employee and plan participant, brought suit against Lowe’s, the administrative committee of the plan, and Aon, claiming numerous breaches of fiduciary duty with respect to Aon’s design and implementation of a new investment strategy and line-up for the plan. At the center of this investment strategy were Aon’s newly-formed proprietary funds that, as it turned out, significantly underperformed benchmarks, leading to total plan losses of between $70 and $277 million. After settling with Lowe’s, the case against Aon proceeded to a five-day bench trial. The district court issued a 120-page decision concluding that Aon had acted consistently with its fiduciary duties of prudence and loyalty.
The Fourth Circuit agreed. With respect to the duty of loyalty, Mr. Reetz argued that Aon breached its duty in two ways. First, he argued that Aon acted disloyally in pitching its investment management services, essentially cross-selling these services through its role as an investment advisor to the plan. The Fourth Circuit, however, concluded that Aon did not act as a fiduciary in attempting to sell or cross-sell its services.
Second, Mr. Reetz argued that Aon acted disloyally when it “gave its advice to streamline the investment menu to advance its own interest in selling” its own proprietary funds. Again, the court of appeals disagreed. Quite surprisingly, the court reasoned that ERISA’s duty of loyalty “does not mean a fiduciary is disqualified whenever it has a conflict of interest,” but instead merely requires “that a fiduciary must act as if it is free of any conflict.” Acknowledging that some evidence in the record supported that Aon had self-interest in promoting its “streamlined investment strategy,” the appellate court nevertheless reasoned that the district court properly concluded that Aon had acted as if it was free of any conflict and that any benefit to itself from its recommendation was simply incidental.
Mr. Reetz also challenged Aon’s selection and retention of its own proprietary Growth Fund as an investment vehicle for the plan as violative of ERISA’s duty of prudence. The court of appeals, however, stressed that prudence is not concerned with results and does not require clairvoyance. Instead, viewing prudence as primarily requiring a reasoned process to investigate the merits of a decision, the court found the record clear that Aon “considered” and employed a reasoned process to reject “other potential investment funds and strategies.” That, in the court’s view, was sufficient “to clear the prudence bar” in Aon’s selection of the Growth Fund, even if, as it turned out, Aon was wrong about the strategy it chose. Moreover, because the record evidence showed that Aon continued to monitor the fund’s performance after it selected the Growth Fund, even if it never again considered another growth vehicle, the Fourth Circuit held that Aon met its duty of prudence in this respect as well.
With respect to the duty of loyalty, Judge King, in dissent, saw things differently. Citing the axiomatic principle that an ERISA fiduciary “must act ‘solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits . . . and defraying reasonable expenses,'” Judge King was unsatisfied that Aon had acted “ with an eye single to the interests of the . . . [plan] participants” in making its investment decisions. Indeed, the dissent focused on the district court’s own factual findings that the Aon employee in charge of the Lowe’s account was not simply focused on the 401(k) plan, but was also “‘focus[ed] on encouraging, arranging and participating’ in cross-selling delegated services ‘to burnish his candidacy to become a Partner at Aon.’” These circumstances, the dissent concluded, established that the investment advice given by Aon was designed “at least in part to enhance [Aon’s] position,” thereby failing to meet “ERISA’s exacting duty of loyalty.”
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Attorneys’ Fees
Eighth Circuit
Flosdorf v. Reliance Standard Life Ins. Co., No. 22-cv-00091 (SRN/ECW), 2023 WL 4580828 (D. Minn. Jul. 18, 2023) (Judge Susan Richard Nelson). Following a court order granting judgment in his favor, plaintiff Andrew Flosdorf moved for a benefits award, prejudgment interest, attorney’s fees, and costs. Defendant Reliance Standard filed a brief in opposition to Mr. Flosdorf’s benefit and interest calculations. However, it did not object to Mr. Flosdorf’s requested fees or costs. The court began by assessing the appropriate award of long-term disability benefits. Mr. Flosdorf requested a total benefit award of $609,094.99, which reflected his monthly $600 disability benefits from the date of termination through December 11, 2036. Reliance Standard stated that this period was inappropriately lengthy, and requested the court only award benefits through September 20, 2021, the end of the “any occupation” standard for benefits eligibility, and then remand to it for a determination under the “own occupation standard.” Reliance calculated that based on this end date, Mr. Flosdorf was entitled to an award of just $29,088.88. The court agreed with Reliance that it only made a determination that a preponderance of the evidence demonstrated that Mr. Flosdorf was disabled from performing the material duties of his own occupation. It also held that remand to Reliance for a determination under the “any occupation” standard was appropriate and in line with Seventh Circuit precedent on the issue. However, when it came to determining the proper amount of damages, the court stated that it would award benefits through the date of the court’s order granting judgment on May 31, 2023. “To conclude otherwise would be to reward Reliance Standard for its error in denying Mr. Flosdorf’s claim,” the court stated, especially as disability benefits do not automatically end when eligibility for benefits shifts from one standard to the other. Thus, the court awarded Mr. Flosdorf benefits through the date of its order, which totaled $88,865.32. The court next addressed prejudgment interest and found “an award of prejudgment interest…appropriate equitable relief here.” It determined that interest at a rate equal to the weekly average 1-year constant maturity Treasury yield, which in this case was 4.91%, was appropriate. Using this rate, the court reached an amount of prejudgment interest of $6,030.61. It then instructed the parties to submit a declaration if either or both of them disagreed with this calculation. Finally, as noted above, Reliance did not contest Mr. Flosdorf’s requested $22,578.25 in fees for 79.85 hours of work, nor his $708.08 in costs. As a result, the court awarded fees and costs in these requested amounts.
Ninth Circuit
Beryl v. Navient Corp., No. 20-cv-05920-LB, 2023 WL 4570626 (N.D. Cal. Jul. 13, 2023) (Magistrate Judge Laurel Beeler). A successful plaintiff, Louis Beryl, moved for an award of attorneys’ fees, costs, and prejudgment interest after a jury awarded him over $2 million in damages on his contract and estoppel claims, and the court awarded him just under $1 million for benefits due under an ERISA-governed severance plan and waiting-time penalties under a California state labor law. In his motion, Mr. Beryl sought attorneys’ fees totaling $1,180,128, prejudgment interest of $1,649,991.54, and costs of $32,581.25. Defendant Navient Corporation did not challenge Mr. Beryl’s entitlement to fees or costs but challenged the amounts Mr. Beryl requested. In addition, defendant argued that Mr. Beryl’s counsel did not confer to resolve the fee dispute as required by the local rules. As an initial matter, the court disagreed on this point, finding no procedural default under the local rules. The court then proceeded to examine the requested fee award. Plaintiff sought a 1.6 multiplier of a lodestar totaling $737,580. The lodestar was comprised of hourly rates of $600 per hour for two of the attorneys, and an hourly rate of $1,200 an hour for the most senior attorney, Jonathan Sack, an experienced practitioner with thirty-four years of experience in cases like Mr. Beryl’s who is based in New York. Navient challenged Mr. Sack’s hourly rate but did not challenge the $600 per hour charged by the other two attorneys. The court found Mr. Sack’s rate “supported by the declarations, similar cases, and the court’s experience,” and therefore did not reduce it. Additionally, the court held that Mr. Beryl’s attorneys had not engaged in “block billing” and that the hours they spent on each task were “appropriate to the needs of the litigation.” Accordingly, the underlying lodestar of $737,580 was not disturbed by the court. Nevertheless, the court found a 1.6 multiplier too high, and instead applied a 1.2 multiplier, as it has done in similar litigation. Thus, the court was left with a fee award of $885,096. Furthermore, the court awarded the full amount of requested costs, including those associated with travel and electronic research, concluding that all of the costs were “reasonable and the type billed to clients.” Finally, the court held off on awarding prejudgment interest, and instead directed the parties to recalculate the prejudgment interest and then submit a new proposal on the revised amounts.
Breach of Fiduciary Duty
Seventh Circuit
Luckett v. Wintrust Fin. Corp., No. 22-cv-03968, 2023 WL 4549620 (N.D. Ill. Jul. 14, 2023) (Judge Mary M. Rowland). Plaintiff Lynetta Luckett sued the Wintrust Financial Corporation and the other fiduciaries of the company’s Retirement Savings Plan individually, on behalf of the plan, and on behalf of a putative class of similarly-situated participants and beneficiaries, for breaches of fiduciary duties. Ms. Luckett argues in her complaint that defendants imprudently and disloyally retained underperforming funds in the plan. Wintrust moved to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and (b)(6). Additionally, several amicus parties – American Benefits Council, the ERISA Industry Committee, American Retirement Association, Committee on Investment of Employee Benefit Assets, Inc., and the Chamber of Commerce of the United States of America – moved for leave to file amicus briefs. As an initial matter, the court used its discretion to grant the motions for leave to file the amicus briefs. However, it stated that it did not rely on the information provided by the amici parties to resolve the motion to dismiss. With regard to the motion to dismiss, the court agreed with Wintrust that Ms. Luckett did not provide sound comparators for the challenged suite of BlackRock Target Date Funds, as her comparators included actively managed funds in contrast to the challenged passively managed funds and some of the comparator funds also had different retirement strategies from that of the challenged funds. Thus, the court stated that Ms. Luckett’s claims did not move from possible to plausible, and it therefore could not infer from the allegations as currently pled that Wintrust breached its duties of loyalty, prudence, and monitoring. Because the court dismissed the causes of action for failure to state a claim, it did not address the issue of whether Ms. Luckett, a former plan participant, has standing to bring claims of injunctive relief. It also did not meaningfully discuss whether Wintrust was acting as a fiduciary in the course of the challenged activity, although the court did note that “this is a fact-intensive inquiry” probably not appropriate for resolution at the motion to dismiss stage. Finally, the court allowed Ms. Luckett the opportunity to replead her claims and amend her complaint.
Disability Benefit Claims
First Circuit
Leif v. Hartford Life & Accident Ins. Co., No. 22-cv-10085-DJC, 2023 WL 4601967 (D. Mass. Jul. 18, 2023) (Judge Denise J. Casper). Plaintiff Lisa Leif commenced this action against Hartford Life and Accident Insurance Company seeking judicial review of Hartford’s denial of her claim for long-term disability benefits based on her heart disease, angina, and medical history of two myocardial infractions. Ms. Leif moved for judgment on the administrative record. The parties agreed that the plan granted Hartford with discretionary authority and as a result the applicable standard of review here was abuse of discretion. Under this deferential review, the court denied Ms. Leif’s motion for judgment, concluding that Hartford’s determination that Ms. Leif was not disabled from performing the duties of her own occupation was reasonable and supported by substantial evidence. Despite Ms. Leif’s arguments to the contrary, the court held that Hartford had not arbitrarily focused on whether she could perform any sedentary occupation rather than the duties of her specific work, that the insurer had not discounted the impact of occupational stress on her heart conditions, and that it had substantially complied with ERISA’s requirements to review Ms. Leif’s submitted materials, including the printout she included in her appeal from the Occupational Information Network outlining the job responsibilities for her occupation, a bill and account collector. Finally, the court found that the procedural issues with Hartford’s denial letters, including Hartford’s failure to initially provide Ms. Leif with information about her appeal rights, did not prejudice Ms. Leif. For these reasons, Hartford’s denial was upheld and Ms. Leif’s motion for judgment was denied.
Seventh Circuit
Lane v. Structural Iron Workers Local No. 1 Pension Tr. Fund, No. 22-1149, __ F. 4th __, 2023 WL 4554097 (7th Cir. Jul. 17, 2023) (Before Circuit Judges Flaum, Scudder, and Kirsch). Former iron worker Jeffery Lane applied for disability payments under a multiemployer benefits fund established by the structural Iron Workers Local No. 1 union which was established “to provide financial support to disabled members.” Under the terms of the plan, eligibility for disability benefits is dependent on the claimant’s total and permanent disability being “the result of an accident sustained while on the job and employed by a Contributing Employer as an Iron Worker.” Although Mr. Lane was awarded disability benefits by the Social Security Administration, Mr. Lane’s application for benefits under the fund was denied because the trustees tasked with reviewing the claim concluded that Mr. Lane’s disability could not be tied to his workplace injury based on the evidence he provided in his application or on the additional evidence he provided during the appeals process. Mr. Lane challenged this decision in court, bringing an action under ERISA against the fund. The district court ultimately concluded that the fund’s denial of Mr. Lane’s claim was not downright unreasonable under deferential review, and thus granted judgment to defendant. Mr. Lane appealed. On appeal the Seventh Circuit affirmed, agreeing with the lower court that the trustees’ denial was reasonable and they acted within their discretion. Although Mr. Lane did convince the court of appeals that he was denied a full and fair review under the Department of Labor’s regulations because he was never provided a copy of the independent medical examiner’s report before the denial of his claim was affirmed on appeal, the court of appeals held this was ultimately a moot point because Mr. Lane never advanced such an argument in the district court. Because of this, the Seventh Circuit agreed with the fund that Mr. Lane had waived his procedural error argument. Therefore, looking only at the substance of the decision itself, the appeals court found no flaw in the district court’s findings and agreed that the denial was rational, supported by substantial evidence, and that the trustees had not overlooked any piece of crucial evidence favorable to Mr. Lane. For these reasons, the district court’s entry of summary judgment for the fund was affirmed.
Eighth Circuit
McIntyre v. Reliance Standard Life Ins. Co., No. 21-3063, __ F. 4th __, 2023 WL 4673615 (8th Cir. Jul. 21, 2023) (Before Circuit Judges Colloton, Melloy, and Gruender). Plaintiff-appellee Melissa McIntyre, a former nurse for the Mayo Clinic, stopped working in 2011 after her symptoms from a degenerative neurological disorder, Charcot-Marie-Tooth disease, left her unable to continue working. Under the Mayo Clinic’s long-term disability benefit plan Ms. McIntyre was awarded benefits and paid disability benefits from 2011 until 2016, at which time defendant-appellant Reliance Standard Life Insurance Company terminated them. Ms. McIntyre appealed the decision. 205 days later, Reliance Standard upheld its denial, concluding that there were sedentary occupations Ms. McIntyre could perform even with her limitations from the disease. Ms. McIntyre responded by suing Reliance pursuant to ERISA Section 502(a)(1)(B). Both parties then moved for summary judgment. The district court reviewed the denial under de novo review given the egregious procedural irregularities during the appeals process, including the lengthy delay in Reliance’s issuance of its final denial. The Eighth Circuit vacated that decision and remanded to the district court instructing it to apply “sliding scale” deferential review “under which a procedural irregularity is one of many factors that a court should evaluate in determining whether there was an abuse of discretion.” The district court then did so, and once again awarded Ms. McIntyre long-term disability benefits. It found that Reliance’s lengthy delay “violated ERISA’s clear statutory mandates,” and gave this factor significant weight in its abuse of discretion analysis. It found that Reliance’s decision to terminate benefits was not supported by substantial evidence and that the insurer ignored evidence in the record favorable to Ms. McIntyre which indicated her disease was worsening overtime. Moreover, the district court found that Reliance had a history of biased claims administration and also factored this conflict of interest into its decision making. Reliance again appealed to the Eighth Circuit. It argued that its decision was supported by substantial evidence “and that neither its decisional delay nor conflict of interest show an abuse of discretion.” The Eighth Circuit agreed and reversed, ordering the district court to vacant its summary judgment decision and fee award, and enter judgment in favor of Reliance. The court of appeals found that it was reasonable for Reliance to determine that Ms. McIntyre could perform certain sedentary fulltime work and that evidence to the contrary in the administrative record “does not negate the substantial evidence supporting Reliance’s decision.” The Eighth Circuit also declined to give Reliance’s procedural irregulates or conflict of interest much weigh on the “sliding scale.” For those reasons the court of appeals found that Reliance’s termination of benefits was not the product of an arbitrary decision. Circuit Judge Melloy, however, dissented, disagreeing that Reliance’s decision to terminate benefits was based on substantial evidence, especially factoring in its unreasonable delay in issuing its final decision during the appeal process. Judge Melloy considered Reliance’s evidence to support its conclusion that Ms. McIntyre could work full-time “weak.” Along these same lines, Judge Melloy outlined how Reliance failed to rebut Ms. McIntyre’s treating physician’s finding that Ms. McIntyre could not perform a task for longer than 30 minutes at a time, and stated that this too was in violation of ERISA’s requirements, which mandate that plan administrators engage with relevant evidence. Finally, Judge Melloy wrote that Reliance’s “finding that McIntyre can work full time at a computer does not ‘logically follow’ from a report which found McIntyre did not have the ability to continuously utilize fine motor skills, reach at desk level, or use other upper body mobility on a regular basis in an 8-hour workday.” Accordingly, Judge Melloy held that he would have affirmed the lower court’s summary judgment decision and would not have rubber stamped Reliance’s denial even under deferential review.
Ninth Circuit
Sutton v. Metropolitan Life Ins. Co., No. 2:22-cv-00732-KJM-CKD, 2023 WL 4669994 (E.D. Cal. Jul. 19, 2023) (Judge Kimberly J. Mueller). Plaintiff Keith Sutton was paid long-term disability benefits under his ERISA-governed plan for 24 months. At the end of that period his benefits were terminated pursuant to his policy’s two-year limitation for disabilities caused by neuromuscular or musculoskeletal conditions. However, this policy exclusion has an exception. Benefits remain payable beyond two years if the claimant has one of six listed conditions. Two of those six conditions are relevant to Mr. Sutton: Myelopathies (a type of spinal cord injury caused by severe compression) and Spinal Cord Damage. In this Section 502(a)(1)(B) lawsuit, Mr. Sutton maintained that he qualifies for continued benefits under this exception and therefore has challenged the decision of the plan and its administrator, MetLife, to terminate his benefits. The parties agree that Mr. Sutton is disabled under the terms of the plan and that the cause of his disability is musculoskeletal in nature. They also agree that this is a case of de novo review. The court held a bench trial on the administrative record. In this decision the court held that Mr. Sutton met his burden of demonstrating “that MetLife erroneously denied benefits under the plan.” First, the court found that the plan language requiring the disability to have “objective evidence” of “Myelopathies” or “Spinal Cord Damage” to be confusing, ambiguous, and open to several possible interpretations. The court stated that it would apply settled interpretive rules requiring courts to interpret ambiguities in favor of the plan participant and construe exclusions in favor of continued coverage. The court therefore construed “the disputed policy phrase as requiring objective evidence of myelopathy or spinal cord damage among the evidence offered to support the conclusion that a plan participant is disabled,” and clarified that this objective evidence tending to establish these conditions need not exclude other potential causes of the back pain or definitively “prove” that Mr. Sutton suffers from these conditions. Working off of this understanding of the policy requirements, the court found that the administrative record indeed included clinical observations and imaging reports that supported and suggested myelopathy and spinal cord damage. It also held that MetLife’s attempts to minimize this favorable evidence were unpersuasive, as MetLife based its conclusions off of a hired doctor who did examine or speak to Mr. Sutton or any of his treating physicians, and because its denial was based on “negative inferences.” Accordingly, the court was satisfied that Mr. Sutton proved his entitlement to benefits and therefore granted judgment in his favor.
ERISA Preemption
Fourth Circuit
Risdorfer v. Ascentage Pharma Grp., No. ELH-23-987, 2023 WL 4664036 (D. Md. Jul. 19, 2023) (Judge Ellen L. Hollander). Plaintiff Albert Risdorfer filed suit in Maryland state court against his former employer, Ascentage Pharma Group, Inc., for violations of state retaliation and wrongful termination laws. Mr. Risdorfer argues in his complaint that he was wrongfully terminated for engaging in a protected activity when he disclosed that Ascentage’s hiring practices were discriminatory, it was failing to comply with ERISA, it was breaking tax laws, it was not complying with federal pharmaceutical company regulations, and it was violating HIPAA by sharing employees’ personal health information with its Chinese parent company. Ascentage removed the case to federal court based on federal question jurisdiction. Ascentage then moved to dismiss the action pursuant to ERISA preemption. Mr. Risdorfer opposed the motion to dismiss and moved to remand his action back to state court. The court issued this order granting the motion to remand and denying, without prejudice, the motion to dismiss. The court wrote, “Risorfer’s claims of retaliation and unlawful termination are not founded on the particulars of an employee benefit plan, nor were they made in the context of an inquiry or proceeding or a required report. Rather, plaintiff merely referenced ERISA violations to his supervisor as one of multiple examples of his belief that defendant was engaged in wrongdoing.” Based on this, the court concluded that Mr. Risorfer’s mentions of ERISA in his complaint were too unsubstantial for his claims to be completely preempted by the statute. As a result, the court found removal improper and therefore granted the motion to remand the action to Maryland state court.
Eleventh Circuit
Surgery Ctr. of Viera v. UnitedHealthCare Ins. Co., No. 6:22-cv-793-PGB-DAB, 2023 WL 4549634 (M.D. Fla. Jul. 14, 2023) (Judge Paul G. Byron). In the fall of 2018, plaintiff Surgery Center of Viera, LLC obtained pre-surgery authorization from UnitedHealthcare Insurance Company to perform a medically necessary cervical spinal surgery on a patient insured under an ERISA-governed healthcare plan administered by United. As part of this pre-authorization, plaintiff alleges that non-party Preferred Medical Claims Solutions secured a repricing agreement from the surgery center on behalf of United setting out a reimbursement rate formula. The surgery center then performed the approved surgery and subsequently billed United for the care. United paid a fraction of the billed charges, which it maintains was the correct payment under the terms of the ERISA plan. Disputing this payment amount, plaintiff commenced this lawsuit against United asserting claims for breach of contract, unjust enrichment, and quantum meruit, arguing that the payment was in violation of the terms of the repricing agreement between the parties. United moved to dismiss the second amended complaint, arguing that the state law causes of action were preempted by ERISA as they relate to the terms of the ERISA plan. The court granted that motion and dismissed the second amended complaint without prejudice, holding that the repricing agreement was not truly distinct from the terms of the ERISA plan as the repricing agreement’s rate of payment “squares with” the reasonable and customary charges analysis under the terms of the plan. The surgery center repleaded its claims and submitted a third amended complaint attempting to address the court’s identified deficiencies. United once again moved to dismiss. In this order the court granted the motion to dismiss and dismissed the claims with prejudice. The court held that the third amended complaint essentially retold the same story with the same flaws, and that once again even viewing this in the light most favorable to the healthcare provider, the state law causes of action necessarily relate to the administration of the healthcare plan. Here, the court found that the repricing agreement itself “does not provide a method to determine the ‘non-covered amounts.’ Instead, the only way to determine what a ‘non-covered amount’ is by reference to…the terms of the Plan…the Plan makes clear that out-of-network charges or claims will be limited to a ‘Reasonable & Customary’ adjustment. As such, the Court finds that, as pled, the Repricing Agreements are not plausibility ‘separate and distinct’ from an ERISA-governed agreement and accordingly ‘relate to’ the Plan.” As a result, the court agreed with United that the claims were preempted.
Life Insurance & AD&D Benefit Claims
Fifth Circuit
Krishna v. Life Ins. Co. of N. Am., No. 22-20516, __ F. App’x __, 2023 WL 4676822 (5th Cir. Jul. 21, 2023) (Before Circuit Judges Wiener, Southwick, and Duncan). Plaintiff-appellant Deepa Krishna brought an ERISA lawsuit after her husband died in a plane crash while a passenger of a small private airplane and her claim for accidental death and dismemberment benefits was denied. In her action, Ms. Krishna sued her husband’s former employer, Honeywell International Inc., the benefit plan, and the plan’s insurance provider, Life Insurance Company of North America (“LINA”). Ms. Krishna originally brought claims under ERISA Sections 502(a)(3) and 502(a)(1)(B). However, she voluntarily dismissed her claim pursuant to Section 502(a)(3), leaving her only with her benefits claim. The district court granted judgment to defendants and denied Ms. Krishna’s motion for summary judgment, holding that the denial was not an abuse of discretion and it was a reasonable interpretation of the policy’s exclusion for deaths caused by private aircraft flights. Ms. Krishna appealed the district court’s summary judgment rulings to the Fifth Circuit. She argued that LINA did not have discretionary authority under the policy, that the summary plan description defendants relied on was not operable at the time of her husband’s death, that the interpretation of the exclusion was an abuse of discretion, and that defendants violated ERISA regulations during the claims process which deprived her of a full and fair review. The Fifth Circuit affirmed the district court’s ruling in this decision under de novo review. It found that the 2019 SPD was an operative plan document at the time of decedent’s death and that the SPD vested LINA with discretionary authority triggering deferential review. Furthermore, the court of appeals concluded that LINA’s interpretation of the flight exclusion was “consistent with a fair reading of the Plan.” Moreover, the Fifth Circuit pointed out that that federal courts have at least twice “upheld LINA’s interpretation of substantially similar flight exclusions,” and wrote that it saw “no reason to depart from this well-founded view.” Thus, the appeals court held that LINA’s interpretation was legally correct and therefore not an abuse of discretion. Finally, the court of appeals held that Ms. Krishna had waived her arguments regarding the violation of ERISA regulations by voluntarily dismissing her Section 502(a)(3) claim. For these reasons, the Fifth Circuit affirmed the district court’s summary judgment decision.
Seventh Circuit
Burkett v. The Heritage Corp., No. 1:22-CV-405-HAB, 2023 WL 4579953 (N.D. Ind. Jul. 18, 2023) (Judge Holly A. Brady). While plaintiff Therese Burkett’s husband, Norman Burkett, was hospitalized with brain cancer in December 2019, his group life insurance policy coverage ended, at which time he had 90 days to convert the policy to an individual whole life insurance policy. During his hospitalization, the plan administrator, defendant Unum Life Insurance Company of America, sent Mr. Burkett a letter informing him of this news. Mr. Burkett never received this letter due to his hospitalization. Instead, a month later, when he was out of the hospital, Mr. Burkett followed the instructions of the plan’s SPD and contacted his former employer, defendant The Heritage Group, to inquire about his life insurance coverage. An HR administrator from the company responded to Mr. Burkett’s emails and informed him that he needed to contact Unum. In addition, the HR administrator from the Heritage Group provided inaccurate information to Mr. Burkett about how long he had to convert his policy, although that misinformation was corrected in a follow up email sent shortly after. Ultimately, Mr. Burkett died from his brain tumor in April of 2020 without successfully completing his conversion process. In this lawsuit, his widow has sued both The Heritage Group and Unum for breaches of their fiduciary duties, arguing that defendants were responsible for her husband’s inability to maintain his life insurance coverage. The Heritage Group moved to dismiss for failure to state a claim. It argued that it did not breach any fiduciary duty and that Ms. Burkett did not suffer any harm based on the alleged wrongdoing in the complaint. Ms. Burkett advanced several rationales in her complaint as bases for her fiduciary breach claim. First, she argued that the HR representative for the company provided misleading information to her husband, including that the conversion process deadline had already expired when it had not yet done so. Second, Ms. Burkett maintained that The Heritage Group had a duty to initiate the conversion process on behalf of Mr. Burkett after he inquired about the process and because the employer knew he was suffering from brain cancer. Finally, Ms. Burkett argued that the conversion process itself was confusing and unreasonable. The court dismissed the breach of fiduciary duty claim based on the first theory about the emails but denied the motion to dismiss based on Ms. Burkett’s second two theories. Specifically, the court agreed with defendant that the Seventh Circuit requires an intent to deceive for a breach of fiduciary duty claim premised on a misstatement. Here, the allegations did not demonstrate any intent to actively deceive Mr. Burkett. Nevertheless, the court was satisfied that Ms. Burkett pleaded a plausible fiduciary breach claim based on both The Heritage Group’s failure to obtain the conversion application and based on the confusion of the overall process to convert, including the discrepancies between the plan documents and the way the process unfolded for the family. “The Court cannot say, then, that [The Heritage Group] fulfilled its fiduciary duty when it sought to shuffle [Mr. Burkett] off to Unum.” Finally, the court held that Ms. Burkett’s inability to obtain life insurance benefits was proximately caused by the alleged breach, and that she therefore satisfied the elements necessary to state a fiduciary breach claim. Accordingly, the motion to dismiss was granted in part and denied in part as described above.
Pleading Issues & Procedure
Third Circuit
Knudsen v. Metlife Grp., No. 2:23-cv-00426 (WJM), 2023 WL 4580406 (D.N.J. Jul. 18, 2023) (Judge William J. Martini). Former participants of the MetLife Options & Choices Plan, a health and welfare benefits plan governed by ERISA, sued MetLife Group, Inc. for breaches of fiduciary duties, prohibited transactions, and establishment of trust and anti-inurement after $65 million in drug rebates MetLife received from its pharmacy benefits manager, Express Scripts, were not allocated as Plan assets and were instead paid to MetLife itself for its own benefit. MetLife moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1), for lack of Article III standing, and 12(b)(6) for failure to state a claim. In this order the court granted the motion to dismiss for lack of constitutional standing. MetLife’s other grounds for dismissal were not discussed and the 12(b)(6) motion was denied as moot. Regarding standing, the court found that that plan here “is analogous to a defined benefit plan that was at issue in Thole [v. U.S. Bank, N.A.] Here, the Plan is a self-funded healthcare plan… Consistent with a defined benefit plan, MetLife, as the employer, is responsible for paying claims out of the employee’s contributions and bears the financial risk of any shortfall… Thus, even if Plaintiffs are correct that the drug rebates should have been allocated as Plan assets, Plan participants here have no legal right to the general pool of Plan assets just like the plaintiffs in Thole were not entitled to any additional money in the retirement plan beyond the monthly payments that they were ‘legally and contractually’ entitled to receive.” The court therefore determined that the injury to the plan, if it exists, is not an injury to the individual participants themselves. Moreover, the court found plaintiffs’ theory that absent the mismanagement alleged they may have received the benefit of lower co-pays, deductibles, or co-insurance, to be “conjecture.” Accordingly, the court agreed with MetLife that plaintiffs did not have a concrete stake in the outcome of the lawsuit and that they thus lacked standing to assert their claims.