Berkelhammer v. ADP TotalSource Grp., No. 22-1618, __ F. 4th __, 2023 WL 4554581 (3d Cir. Jul. 17, 2023) (Before Circuit Judges Shwartz, Matey, and Fuentes)
For the second time in less than three weeks, the Third Circuit has addressed whether to enforce an arbitration agreement in a lawsuit brought by plan participants under ERISA Section 502(a)(2), 29 U.S.C. § 1132(a)(2). In last week’s edition of Your ERISA Watch, we featured a Third Circuit decision in which the court refused to enforce an agreement that included a provision barring plan-wide relief. Knowing that this would not be the last we would see of important arbitration issues in ERISA cases, we promised to update readers on future developments in this area. So here we are, true to our word but a little sooner than expected. This week, addressing an arbitration agreement between a pension plan and its investment advisor that did not contain a limitation on plan-wide relief, the Third Circuit has concluded that the agreement is binding on the plan participants asserting fiduciary breach claims under Section 502(a)(2).
The decision is not a lengthy one. As the court describes it, the “short story” is that the plaintiffs, Beth Berkelhammer and Naomi Ruiz, participated in the ADP TotalSource Retirement Savings Plan (“Plan”), the investment portfolio of which was managed by NFP Retirement, Inc. The Plan’s sponsor, ADP TotalSource, created a committee to handle Plan administration, which in turn entered into an Investment Advisory Agreement with NFP. This agreement included a provision mandating arbitration of “[a]ll disputes and controversies relating to the interpretation, construction, performance, or breach of” the agreement and further providing that “[f]inal resolution of any dispute through arbitration may include any remedy or relief that the arbitrator deems just and equitable.”
Unhappy with the management of the Plan and the performance of its investments, plaintiffs brought suit on behalf of the Plan under ERISA Section 502(a)(2) against both the committee and NFP alleging fiduciary breaches and other violations of ERISA. NFP moved to compel arbitration. The district court granted its motion.
On appeal, the court began with the congressional command placing arbitration agreements on the same footing as other contracts. “Consent,” the court reasoned, “is the key.” The inquiry into consent entails answering two threshold questions: (1) whether there is a valid arbitration agreement between the parties; and (2) whether the dispute falls within the language of the agreement.
As the court of appeals saw it, neither question was “much disputed here” because the agreement was a contract requiring arbitration of the kind of claims brought by the plaintiffs. Relying on a line of Supreme Court decisions holding that claims brought under Section 502(a)(2) are plan claims, and its own analysis that the statute makes the plan, and not the participants and beneficiaries, the entity to which fiduciary duties are owed, the Third Circuit concluded that the plan, and not the participants, was the relevant contracting party.
The court looked to other ERISA arbitration decisions – such as Hawkins v. Cintas Corp., 32 F.4th 625 (6th Cir. 2022) and Munro v. University of Southern Cal., 896 F.3d 1088 (9th Cir. 2018) – as confirming that “the presence or absence of the individual claimants’ consent to arbitration is irrelevant; what counts is the contract created by the plan.” In those cases, the courts concluded that agreements by individual participants to arbitrate could not bind the plan.
The Third Circuit concluded that, despite the different factual context, the same “proposition holds here.” The court recognized that “in Munro and Hawkins the plaintiffs had agreed to arbitrate and the plans had not, [whereas] here the Plan agreed to arbitrate, not Appellants.” Nevertheless, the Third Circuit concluded that “[t]he difference in direction does not change the result: the Plan’s agreement to arbitrate is what matters, and that agreement applies to Appellants’ claims on the Plan’s behalf.”
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
SiriusPoint Ltd. v. Davis, No. 22-CV-7955 (JPO), 2023 WL 4447098 (S.D.N.Y. Jul. 11, 2023) (Judge J. Paul Oetken). Defendant Jeffrey Davis served as the Executive Vice President, Chief Risk Officer, and Chief Actuary to the insurance company Sirius Internal Insurance Group, Ltd. In early 2021, Sirius Internal Insurance Group, Ltd. merged with Third Point Reinsurance, Ltd., forming a new company, SiriusPoint Ltd, the plaintiff in this lawsuit. Following that change in control, Mr. Davis believed that his position and job requirements were materially altered at the new organization. As a result, Mr. Davis initiated the “Good Reason Process” under both his Retention Award Agreement (“RAA”) and his ERISA-governed Group Severance Plan with the company. He then resigned and initiated arbitration with the American Arbitration Association. “The crux of Davis’s theory of liability is that he resigned for Good Reason, complied with the Good Reason Process, and so is entitled to the contractual benefits associated with the ERISA provisions in the Severance Plan as well as the full retention award he had been paid under the RAA. Davis argued, among other things, that the merger was a ‘Change in Control’ within the meaning of the Severance Plan.” In response to Mr. Davis’s actions, SiriusPoint initiated this action for breach of contract. It seeks a refund of the payment it made to Mr. Davis under the RAA. In addition, SiriusPoint has moved for a preliminary and permanent injunction against Mr. Davis’s arbitration of his claim related to the RAA payments. Mr. Davis opposed SiriusPoint’s motion and argued that the arbitration clause between the parties unambiguously delegates jurisdiction to the arbitrators to determine arbitrability. In this decision the court agreed with Mr. Davis, denied SiriusPoint’s motion for a preliminary injunction enjoining the arbitration of the RAA claim, and compelled arbitration on the threshold question of arbitrability of the dispute. The court concluded that the parties agreed to arbitrate the issue of arbitrability. “[T]he dispositive fact is that the arbitration clause expressly adopted the AAA rules, which the Second Circuit has found both necessary and sufficient, as a matter of law, to ‘provide clear and unmistakable evidence of the parties’ intent to arbitrate issues of arbitrability.’” Accordingly, the court determined that SiriusPoint did not show a likelihood of success on its motion, and therefore denied the motion and stayed proceedings until after the arbitration panel determines the issue of arbitrability.
Coleman v. Brozen, No. 3:20-CV-01358-E, 2023 WL 4498506 (N.D. Tex. Jul. 12, 2023) (Judge Ada Brown). Following on the coattails of last week’s case of the week, Henry v. Wilmington Trust NA, No. 21-2801, __ F.4th __, 2023 WL 4281813 (3d Cir. June 30, 2023), the court in this putative ESOP class action denied the fiduciary defendants’ motion to compel individual arbitration, concluding that the plan’s arbitration provision’s Class Action Waiver section was unenforceable under the effective vindication exception to the Federal Arbitration Act as it conflicts with plaintiffs’ statutory rights under Section 502(a)(2) by prohibiting participants from seeking or obtaining plan-wide relief. Furthermore, the court agreed with the plaintiffs that the Class Action Waiver was non-severable from the arbitration procedure as a whole and therefore concluded that the arbitration provision in the plan was unenforceable. Thus, the court jointed the Third, Seventh, and Tenth Circuits and their conclusions that language such as that found in this ESOP’s Class Action Waiver improperly forecloses statutory “remedies that ERISA expressly authorizes,” and that such language therefore invalidates these arbitration agreements under the effective vindication exception. Having so decided, the court did not address plaintiffs’ other arguments as to whether they assented to the arbitration procedure in the first place, or whether the Class Action Waiver also violates other “rights, remedies, and standards under ERISA,” Sections 204(g), 410(a), 404(a), and 502(g).
Estate of Dick v. Desert Mut. Benefit Adm’rs, No. 2:21-cv-01194-HL, 2023 WL 4535163 (D. Or. Jul. 13, 2023) (Magistrate Judge Andrew Hallman). Plaintiff, the Estate of Susan K. Dick, moved for an award of attorney’s fees and costs pursuant to ERISA Section 502(g)(1). The Estate requested an award of $40,950 in fees, and costs of $402 for reimbursement of the filing fee in this action. Defendant Desert Mutual Benefit Administrators filed only a limited objection to the request, asking the court to preserve its rights in the event of an appeal. However, defendant did not object to the underlying fee award. That underlying fee award was based on a lodestar of counsel’s time spent litigating the case multiplied by an hourly rate of $300. Plaintiff did not request a multiplier. The court agreed with the Estate that it is entitled to attorney’s fees in the amount requested based on the Ninth Circuit’s Hummell factors. In light of defendant’s objection, the court stated that it “may reconsider this award of fees and costs” if the judgment is reversed on appeal. Other than this caveat, the court awarded plaintiff’s motion in its entirety, finding the requests for fees and costs reasonable and warranted.
Disability Benefit Claims
Graziano v. First Unum Life Ins. Co., No. 21-CV-2708 (PAC), 2023 WL 4530274 (S.D.N.Y. Jul. 12, 2023) (Judge Paul A. Crotty). Plaintiff Michael Graziano commenced this action to challenge defendant First Unum Life Insurance Company’s termination of his long-term disability benefits and life insurance premium waiver benefits. The parties agreed to have the court resolve their dispute pursuant to Federal Rule of Civil Procedure 52 and were also in agreement that the plan did not grant discretionary authority, making the appropriate standard of review de novo. In this decision the court issued its ruling and entered judgment in favor of Mr. Graziano, finding him disabled within the meaning of both the long-term disability plan and the waiver plan through the date of the close of the administrative record. The court then remanded to Unum to determine whether Mr. Graziano qualifies for continued benefits under the plans after that date. Upon review of the administrative record, the court concluded that Mr. Graziano, who suffers from “persistent (and deteriorating)” back, shoulder, and hip pain, including osteoarthritis and lumbar radiculopathy, was unable to perform the material duties of his sedentary occupation because Mr. Graziano cannot perform the sitting requirements of his regular occupation or any similar sedentary desk job. The court stated that it found Mr. Graziano’s treating physician, a board-certified pain management specialist, to be more credible than Unum’s reviewers, who did not specialize in rehabilitation or pain management and who never personally examined Mr. Graziano. Additionally, the court concluded that Unum had inappropriately characterized Mr. Graziano’s attempts to treat his conditions as “conservative.” To the contrary, the court found the record demonstrated that Mr. Graziano underwent extensive and varied treatments to improve his conditions, including physical therapy, medical branch injections, steroid injections, and lumbar radiofrequency ablation treatments. Finally, the court wrote that Unum’s “policy reversal in light of Graziano’s worsening lumbar conditions ‘weighs against the administrator and in favor of the claimant.’” Thus, the court held that Mr. Graziano was disabled as defined by his ERISA plans. However, the court declined to award Mr. Graziano benefits past the date when the administrative record ended because it has not had the opportunity to review additional medical documentation beyond that date. The court therefore remanded to Unum to make a determination of continued disability and entitlement of benefits from the date when the administrative record ended onward.
L.P. v. Crunchy Data Sols., No. 22-2004 (RK), 2023 WL 4457888 (D.N.J. Jul. 10, 2023) (Magistrate Judge Tonianne J. Bongiovanni). Plaintiff L.P. sought authorization from his ERISA healthcare plan’s administrator, Cigna Health and Life Insurance Company, to approve a phrenic nerve reconstructive surgery by an out-of-network provider. Cigna originally denied the pre-authorization request, but later revoked its original decision and authorized the surgery, agreeing that it was “medically necessary.” However, rather than abide by the terms of the plan, which call for reimbursement of approved out-of-network claims at the “Maximum Reimbursable Charge” rate, otherwise known as the “usual, customary, and reasonable” rate, Cigna required payment for the surgery be based on its in-network rate, a lower amount. L.P. and his surgeon appealed this determination, arguing that “Cigna’s approval of the Surgery, but refusal to negotiate, was tantamount to a denial of medically necessary treatment covered by the Plan.” Cigna did not respond to plaintiff or the surgeon regarding their appeal. In this action, L.P. seeks an injunctive order requiring his plan and Cigna to pay the usual, customary, and reasonable charges for his approved medically necessary surgery pursuant to Section 502(a)(1)(B). L.P. maintains that Cigna’s failure to respond to his appeal amounts to noncompliance with the plan’s internal appeals procedures and therefore is “tantamount to a denial to provide medical services as covered by the Plan.” At this point, the parties have reached an impasse over discovery. Both parties object to all requests by the other regarding all documents beyond the administrative record. L.P. subsequently moved to compel discovery. He argued that he is entitled to discovery beyond the administrative record because of procedural irregularities which he maintains have given him reasons to doubt the neutrality of Cigna’s actions and whether its decisions were affected by a conflict of interest. Cigna opposed L.P.’s motion, asserting that L.P. did not establish a reasonable suspicion of procedural irregularity that would justify extra-record discovery, and that the discovery L.P. seeks is overly broad and not truly “conflict” discovery, but rather discovery to challenge the merits of its decision. The court agreed with Cigna on all points, and denied L.P.’s discovery motion, holding, “[i]n this case, even if Plaintiff’s allegations signify a procedural irregularity, Plaintiff has failed to demonstrate: (1) a reasonable suspicion of Cigna’s misconduct or bias, and (2) that extra-record discovery would aid in the court’s evaluation of the alleged abnormality.”
Life Insurance & AD&D Benefit Claims
United of Omaha Life Ins. Co. v. Freeman, No. 2:22-cv-1492, 2023 WL 4533708 (S.D. Ohio Jul. 13, 2023) (Judge Sarah D. Morrison). United of Omaha Life Insurance Company brought this interpleader action to determine the proper beneficiary of the life insurance benefits under two ERISA-governed life insurance policies provided to decedent Donald R. Morrison. The two defendants, the individuals with the competing claims for the benefits, were Mr. Morrison’s ex-wife, Shana Seufer, and Mr. Morrison’s only child, Amy K. Freeman. The defendants filed cross-motions for judgment. In this order the court granted judgment for Ms. Freeman. The court found that there was no evidence Mr. Morrison ever named a beneficiary under the policies. “Accordingly, by the plain language of the Policies, the benefits must be paid to Mr. Morrison’s surviving child – Ms. Freeman.” Therefore, the court found that Ms. Freeman was entitled to judgment in her favor and ordered the benefits from the policies, plus interest, be paid to her.
Medical Benefit Claims
L.R. v. Cigna Health & Life Ins. Co., No. 6:22-cv-1819-RBD-DCI, 2023 WL 4532672 (M.D. Fla. Jul. 11, 2023) (Magistrate Judge Daniel C. Irick). Plaintiff L.R. sued Cigna Health and Life Insurance Company for violations of ERISA and the Mental Health Parity and Addiction Equity Act after her claims for reimbursement of her mental health treatment at a residential treatment facility were denied by her healthcare plan. In a previous order, the court dismissed L.R.’s Parity Act violation and simultaneously directed L.R. to show cause why she should be allowed to proceed under her initials rather than appear with her full name. L.R. responded by arguing that her privacy outweighs the presumption of openness, as her lawsuit is about a sensitive topic regarding her private health information. L.R. made the point that issues of mental healthcare are stigmatized and that proceeding under her full name would have a negative health effects for her, which she stated “would make her progress backwards.” Additionally, L.R. argued that the public has no interest in and is not served by requiring her to proceed without a pseudonym. Notably, Cigna did not object to L.R. proceeding under a pseudonym. Nevertheless, in this order the court denied L.R.’s motion. The court stated that it was opposed to the presumption that “all plaintiffs in ERISA cases involving mental health can proceed anonymously. That type of blanket rule,” the court held, “is inappropriate.” The court cited a similar decision, which Your ERISA Watch covered last week, L.L. v. MedCost Benefits Servs., No. 1:21-cv-00265-MR, 2023 WL 4393748 (W.D.N.C. Jul. 5, 2023),in support of its stance against allowing plaintiffs in these types of intimate and sensitive mental healthcare ERISA cases to proceed anonymously. Much like the court in L.L. v. MedCost, the court here held that it prefers to seal the medical information rather than allow the plaintiff to proceed under a pseudonym. Such a trend against allowing plaintiffs this type of privacy, if it continues, may serve as an alarming deterrent function to patients suffering from mental health disorders who wish to challenge benefit denials. Contrary to the court’s position, individuals facing mental health problems are stigmatized and discriminated against in society, and allowing even the most pared-back details about their treatment to be made public may be harmful to them, both psychically and socially. Furthermore, as we here at Your ERISA Watch argued in our summary of the L.L. decision, we believe that the public’s interest in cases like L.R.’s is actually served when individuals are permitted to proceed anonymously with the fuller medical and claims denial record included openly for the public’s scrutiny. It is only when the public has access to this type of granular detail that changes can begin to take place in mental health policy and treatment. It is for this reason that we hope this trend is nipped in the bud, especially as it is antithetical to ERISA, which intends for plan participants to be able to vindicate their rights, and to mental health parity laws, which recognize that society has a long way to go in overcoming the stigma associated with mental illness.
Pension Benefit Claims
Howmet Aerospace, Inc. v. Corrigan, No. 1:22-cv-713, 2023 WL 4540342 (W.D. Mich. Jul. 14, 2023) (Judge Hala Y. Jarbou). Plaintiff Howmet Aerospace, Inc. terminated a nonqualified deferred compensation top hat plan on July 28, 2020. Howmet believes that it properly discharged all of its obligations under the plan by paying the executives the balances of their deferred compensation accounts. The executives, however, dispute Howmet’s termination of the plan and believe that Howmet had a duty to pay out death benefits to their beneficiaries upon their deaths pursuant to Section 7.3 of the plan. Howmet commenced this action seeking a court declaration finding that it properly discharged its termination obligations to the executives and appropriately paid them what was due. The executive defendants brought counterclaims against Howmet for breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty. Before the court were two motions brought by Howmet: a motion to dismiss the counterclaims and a motion for judgment on the pleadings. In this decision the court granted both motions. As a preliminary matter, defendants did not timely respond to Howmet’s motions. Thus, the court expressed that it would examine plaintiff’s motions to evaluate whether it met its burden for the requested relief but stated that defendants had waived any right to counterarguments. The decision began with the motion to dismiss the counterclaims. The court found that the claims were preempted by ERISA as the relief the claims sought was the amount of benefits the executives believed they were entitled to under the plan. The court then assessed Howmet’s motion for judgment on the pleadings on its claim for declaratory judgment. The court granted the motion and declared that Howmet properly terminated the plan because Section 7.3 did not survive the termination of the plan pursuant to the plan language. Under the terms of the plan, the court agreed with Howmet that “no payment shall be made under (Section 7.3) following” a termination pursuant to the terms of another Section, 9.2, of the plan. Thus, the court found that no payment was owed to the executives’ beneficiaries upon the participant’s death, and as such the declaratory relief Howmet sought was proper.
Pleading Issues & Procedure
Martin v. Sedgwick Claims Mgmt. Servs., No. SA-23-CV-00169-XR, 2023 WL 4535719 (W.D. Tex. Jul. 12, 2023) (Judge Xavier Rodriguez). Plaintiff Shantyry Martin brought this breach of contract lawsuit against her former employer, General Electric Company, and the claims manager of GE’s Salary Continuation Program, Sedgwick Claims Management Services, Inc. Ms. Martin alleges in her complaint that defendants violated the terms of the non-ERISA pay-roll practice by denying her claim for benefits after she became disabled due to lupus and related auto-immune disorders. In addition to denying her claim under the non-ERISA salary continuation program, defendants also denied Ms. Martin’s claim under the company’s ERISA-governed long-term disability plan. Eligibility under that plan was dependent on a successful application for benefits under the salary continuation program, which functions essentially as a short-term disability plan. Defendants moved to dismiss for failure to state a claim. They argued that Ms. Martin’s breach of contract claim was untimely under the three-year contractual limitations period outlined in the Administrative Handbook, which they argued governs both the payroll practice and the ERISA disability plan. Ms. Martin disagreed, claiming the Handbook only applied to the ERISA long-term disability plan. However, the court found that reading the Handbook as a whole, it is clear that its terms “apply to the GE Salary Continuation Program,” as well as the long-term disability plan, and that Ms. Martin’s claims for short-term disability benefits under the non-ERISA plan are governed by the terms of the Handbook and therefore subject to the limitation period within it. Accordingly, the court agreed with defendants that Ms. Martin’s action was untimely and thus granted their motion to dismiss.
Keister v. American Ass’n of Retired Persons, No. 22-7002, __ F. App’x __, 2023 WL 4541023 (D.C. Cir. Jul. 14, 2023) (Before Circuit Judges Srinivasan, Wilkins, and Randolph). While employed at the American Association of Retired Persons (“AARP”), Kim Keister suffered a stroke. As a result of the stroke, Mr. Keister lost certain language and cognitive skills and became unable to function in his position as AARP’s news and policy executive editor. Mr. Keister subsequently applied for and received short-term disability benefits, and once they had expired submitted a claim for long-term disability benefits. While Mr. Keister’s claim for long-term disability benefits was pending, AARP presented Mr. Keister with a severance agreement. Mr. Keister signed the agreement and released all rights to “any other legal or equitable claim of any kind, whether based upon statute, contract, tort, common law, ordinance, regulation or public policy” in exchange for the severance pay. Aetna eventually denied Mr. Keister’s long-term disability benefit claim, and then upheld its denial following the internal appeals process. Shortly after the final denial was issued, Mr. Keister filed an ERISA benefits lawsuit against both Aetna and the AARP Benefits Committee, alleging they wrongfully denied him disability benefits under the plan. Mr. Keister alleged that he was misled and misinformed by AARP and its representatives when he signed the severance benefits release waiver. Defendants moved for summary judgment. They argued that Mr. Keister’s claim was barred because he waived his right to bring lawsuits when he signed the severance agreement. The district court granted summary judgment in favor of both AARP Benefits Committee and Aetna, agreeing that by signing the separation agreement Mr. Keister had waived his rights to bring his claim as a matter of law. The court also noted that it found no evidence of “fraudulent misrepresentation.” Mr. Keister then brought this second lawsuit, against AARP, arguing that his former employer misrepresented the effect of the severance agreement with respect to the long-term disability benefits and that it intentionally interfered with his attainment of those benefits. AARP moved to dismiss Keister II, arguing that Mr. Keister’s claims were barred by the doctrines of claim and issue preclusion. The district court agreed with AARP and dismissed the second lawsuit. Mr. Keister appealed the dismissal of the second action to the D.C. Court of Appeals. In this decision the appeals court affirmed the district court’s dismissal, concluding that Mr. Keister’s second lawsuit was barred by res judicata. Specifically, the court of appeals found that Keister I and II shared the same common nucleus of facts and allegations, as Mr. Keister had raised the same arguments in both his first and second actions. The D.C. Circuit also determined that AARP and the AARP Benefits Committee are in privity. For these reasons, the appeals court affirmed the district court’s grant of the motion to dismiss as it agreed that the lawsuit was barred by claim preclusion.
Board of Trs. of the Sw. Carpenters Health & Welfare Tr. v. Jackson, No. CV-22-01781-PHX-SMM, 2023 WL 4488978 (D. Ariz. Jul. 12, 2023) (Judge Stephen M. McNamee). This subrogation action begins with a tragedy, which occurred on February 9, 2020, when a young girl, a beneficiary of the Southwest Carpenters Health and Welfare Plan for Active Carpenters, Cyndi Jackson, died at Phoenix Children’s Hospital after being admitted for gastrointestinal distress. Following the girl’s death, her parents, defendants Darwin and Veloria Jackson, sued the hospital for medical malpractice in state court in Arizona. In 2022, the parents settled the claims alleged in the lawsuit for a confidential amount and signed a Memorandum of Settlement Agreement. Two months later, the Board of Trustees of the Southwest Carpenters Health and Welfare Trust, the administrator of the healthcare plan, sued the family under ERISA pursuant to the plan’s subrogation and reimbursement provision seeking repayment of the $105,569.44 that the plan paid on behalf of Cyndi for the medical treatment she received at Phoenix Children’s Hospital. The Jacksons have moved to dismiss pursuant to Rule 12(b)(6). Their principal argument was that Arizona’s Wrongful Death Act precludes the plan administrator from seeking recovery from the settlement funds. They argued that they did not recover money because of injuries sustained by Cyndi, but that their damages and the recovery was for their own injuries. Plaintiff responded that it is entitled to recover under the plain language of the plan and that the Wrongful Death Act is preempted by ERISA. Contrary to the Jacksons’ assertions, plaintiff stated that some of the claims were Cyndi’s, brought under a survivorship action, and that the Jacksons also explicitly brought and settled claims for medical expenses, and that this recovery falls easily under the remit of the plan’s subrogation and reimbursement provisions. The court agreed and denied the motion to dismiss. It concluded that the Board of Trustees had stated non-frivolous claims to enforce its right to reimbursement and thus allowed the action to proceed.