Henry v. Wilmington Trust NA, No. 21-2801, __ F.4th __, 2023 WL 4281813 (3d Cir. June 30, 2023) (Before Circuit Judges Chagares, Jordan, and Scirica)
Your ERISA Watch is cheating a little bit, as the case of the week is actually from two weeks ago. However, Your ERISA Watch was on vacation last week celebrating our nation’s birthday, and this published decision from the Third Circuit is notable enough that it deserves to be highlighted, even if in an ever-so-slightly untimely fashion.
The case addressed the oft-recurring interplay between ERISA and arbitration. The plaintiff was Marlow Henry, who was a participant in an ERISA-governed employee stock ownership plan (“ESOP”) sponsored by his employer, BSC Ventures Holdings, Inc., and administered by Wilmington Trust.
In 2016, the ESOP purchased $50 million in BSC stock. Henry believed that Wilmington, as the ESOP’s trustee, had overvalued the stock, which resulted in the ESOP overpaying to the detriment of all the ESOP participants. Henry contended that Wilmington “improperly relied on flawed financial projections” which were provided by self-interested BSC executives from whom much of the stock was being purchased.
Henry, on behalf of a putative class of ESOP participants, filed suit against Wilmington and two BSC executives. He alleged that the defendants breached their fiduciary duties to the ESOP and engaged in transactions prohibited by ERISA. Henry sought several forms of relief, including declaratory relief, disgorgement, attorneys’ fees, and “other appropriate equitable relief to the [ESOP] and its participants and beneficiaries.”
The defendants moved to dismiss, arguing that the plan contained a provision which required Henry to pursue any claims he might have in arbitration. That provision also contained a class action waiver which prohibited Henry from pursuing any plan-wide relief.
Henry made two arguments in response. First, he contended that the arbitration clause was not binding on him because it had been unilaterally added to the plan and he had not consented to it. Second, Henry argued that the arbitration clause was invalid because the class action waiver forced him to waive his rights to pursue plan-wide relief authorized by ERISA.
The district court denied the defendants’ motion to dismiss, agreeing with Henry on his first argument that he had not “manifested his assent” to BSC’s addition of an arbitration provision to the plan. Thus, the district court did not reach Henry’s second argument, although in a footnote the court indicated that it was skeptical of its merit.
The defendants appealed to the Third Circuit. Henry responded first with a jurisdictional argument. He conceded that Congress had authorized circuit courts to exercise jurisdiction over orders denying a petition to compel arbitration. However, Henry argued that the defendants’ motion in this case was a motion to dismiss, not a motion to compel arbitration, and thus it was non-appealable.
The Third Circuit disagreed, essentially concluding that if an order looks like a duck, walks like a duck, and quacks like a duck, then it’s a duck. The court ruled that the motion, even if not styled as a motion to compel arbitration, “was substantively a motion to compel arbitration, and the District Court’s order denying the motion to dismiss was substantively an order denying a motion to compel arbitration.” Thus, the Third Circuit concluded that it had jurisdiction to hear the appeal.
The court then turned to addressing the merits of the district court’s arbitration ruling. The Third Circuit agreed with the district court that it only needed to address one of Henry’s two arguments, but surprisingly, it did not choose the issue on which the district court had ruled (i.e., whether Henry had consented to the plan’s addition of the arbitration provision).
Instead, the Third Circuit discussed the broader issue of “whether the class action waiver amounts to an illegal waiver of statutory remedies.” The court noted that while federal law favors arbitration, “arbitration agreements are not enforceable in some cases.” This is because arbitration is intended to be an alternate venue where the claimant can pursue his statutory rights. If a provision “prohibits a litigant from pursuing his statutory rights in the arbitral forum, the arbitration provision operates as a forbidden prospective waiver and is not enforceable.”
The court concluded that the class action waiver in this case ran afoul of that rule. The court noted that Henry had brought his suit under 29 U.S.C. § 1132(a)(2) and 29 U.S.C. § 1109, and thus his claim was “brought in a representative capacity on behalf of the plan as a whole.” The court explained that any relief Henry might win under those provisions would necessarily accrue to the plan as a whole, including such remedies as reimbursement to the plan, removal of fiduciaries, and “such other equitable or remedial relief as the court may deem appropriate.”
However, the class action waiver in the ESOP’s arbitration provision barred Henry from pursuing any of these remedies. Specifically, the waiver sought to prohibit participants such as Henry from bringing a lawsuit that “seek[s] or receive[s] any remedy which has the purpose or effect of providing additional benefits or monetary or other relief” to any third party. The court observed that it was impossible for an arbitrator to provide the kind of relief authorized by 29 U.S.C. § 1109 solely to Henry. For example, a court could not remove a plan fiduciary only for Henry, or order restitution to the plan only for Henry. “Restitution of ‘all plan losses’ would necessarily result in monetary relief to non-party plan participants.”
In short, “Because the class action waiver purports to prohibit statutorily authorized remedies, the class action waiver and the statute cannot be reconciled.” The Third Circuit thus concluded that the class action waiver could not be enforced. Furthermore, because the ESOP explicitly provided that the class action waiver was non-severable from the rest of the arbitration provision, the entire arbitration provision was “void in its entirety” and unenforceable against Henry.
Thus, the Third Circuit affirmed the district court’s order denying the defendants’ motion to dismiss, albeit on an entirely different ground. In so ruling, the Third Circuit agreed with two recent decisions by the Seventh and Tenth Circuits that arrived at similar conclusions. Your ERISA Watch comprehensively covered both of those prior opinions – Smith v. Board of Directors of Triad Mfg., Inc., 13 F.4th 613 (7th Cir. 2021), and Harrison v. Envision Mgmt. Holding, Inc., 59 F.4th 1090 (10th Cir. 2023) – when they were decided. Your ERISA Watch has also discussed two similar recent district court orders: Burnett v. Prudent Fiduciary Servs., No. 22-270-RGA, 2023 WL 2401707 (D. Del. Mar. 8, 2023), and Lloyd v. Argent Tr. Co., No. 22cv4129 (DLC), 2022 WL 17542071 (S.D.N.Y. Dec. 6, 2022). If you want to learn more about this issue, feel free to follow the links and keep reading Your ERISA Watch, which will cover the inevitable future developments in this area.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Breach of Fiduciary Duty
Singh v. Deloitte LLP, No. 21-CV-8458 (JGK), 2023 WL 4350650 (S.D.N.Y. Jul. 5, 2023) (Judge John G. Koeltl). Participants in Deloitte LLP’s two defined-contribution retirement plans, its profit-sharing plan and its 401(k) plan, sued the plans’ fiduciaries for breaches of their duties to ensure the investments in the plan and fees paid by the plan were reasonable and prudent. The court previously granted defendants’ motion to dismiss. Plaintiffs subsequently moved for leave to file an amended complaint. In their amended complaint, plaintiffs attempted to cure the deficiencies the court identified previously regarding the administrative and recordkeeping fees charged. The amended complaint, however, did not address the previously dismissed expense ratio fund claims, focusing only on the cost claims. In this order the court concluded that plaintiffs failed to rectify the defects it identified in the original complaint and thus denied their motion. In particular, the court held that the amended complaint failed to address what services were received for the fees charged or whether those services were of a higher quality than those received by the plans which paid less. The court rejected plaintiffs’ position that defined-contribution plan fees are based solely on the number of participants. This “economy of scale” argument was considered implausible by the court and nothing more than a conclusory allegation. In sum, the court found that the proposed amended complaint “suffers from the same pleading deficiencies as the original complaint,” and therefore its reaction to it remained unchanged.
Su v. Ascent Constr., No. 1:23-cv-0047-TS-DAO, 2023 WL 4315762 (D. Utah Jul. 3, 2023) (Judge Ted Stewart). Acting Secretary of Labor Julie A. Su sued the plan sponsor and the sole trustee of the Ascent Construction, Inc. Employee Stock Ownership Plan for breaches of fiduciary duties and prohibited transactions. The Department of Labor alleges that defendants withdrew plan assets and engaged in self-dealing, using the funds for their own benefit, to the detriment of the plan participants. Because of concerns regarding this unlawful handling of the plan’s funds, coupled with the financial distress Ascent Construction is currently facing, the DOL moved for a preliminary injunction to prevent further ERISA violations, seeking a court order removing defendants from their fiduciary positions as administrator and trustee, and appointing a new independent fiduciary to manage the plan. In this decision the court granted the motion. To begin, the court held that the DOL’s motion sought to alter the status quo by seeking to remove defendants and appoint a new fiduciary to oversee plan administration. Therefore, the court articulated that it would only grant the motion and disturb the status quo if the DOL could make a strong showing with regard to both the balance of harm and the likelihood of success on the merits. Here, the court was satisfied that the DOL had done so. Regarding harm, the court concluded that irreparable harm exists here as the money may not be collectible in the future if the injunction were not issued given the precarious financial situation the plan and the defendants are currently facing. Because of “Defendants’ alleged use of the Plan assets for personal benefit and the importance of protecting the Plan from future harm,” the court found the balance of harm weighed in favor of granting the injunction. With regard to the likelihood of success on the merits, the court was persuaded that the DOL presented strong evidence showing a substantial likelihood of success on all of the claims asserted. Finally, the court agreed with the DOL that the public interest would be served by issuing the preliminary injunction, as there is a national public interest in protecting ERISA plans. Based on the foregoing, the court held that the DOL established that injunctive relief here is necessary, and thus granted the motion and issued a preliminary injunction removing defendants as plan fiduciaries and appointing an independent fiduciary to manage the plan.
Neufeld v. Cigna Health & Life Ins. Co., No. 3:17-cv-01693 (KAD), 2023 WL 4366137 (D. Conn. Jul. 6, 2023) (Judge Kari A. Dooley). Participants and beneficiaries of ERISA healthcare plans insured and administered by Cigna Health and Life Insurance Company commenced this putative class action against the company for violations of ERISA alleging that Cigna engaged in a scheme of artificially over-charging patients for medical services, supplies, and equipment. Specifically, the plaintiffs allege that Cigna violated the terms of the plans and breached its fiduciary duties by charging patients the rate paid to its billing vendor, CareCentrix, rather than the actual cost of the care, or the “Provider Rate.” In this lawsuit, plaintiffs challenged these practices which they alleged Cigna designed to inflate healthcare costs to patients. Following years of discovery, plaintiffs moved for class certification. As plaintiffs framed it, the question of whether Cigna violated ERISA by charging the CareCentrix rate to those receiving healthcare benefits through the ERISA plans is the singular class-wide legal issue uniting the class members. The court, however, did not see the situation as plaintiffs did, and in this decision denied their motion for certification. The court disagreed with plaintiffs that they were united by the common behavior of Cigna irrespective of the differences that exist among their healthcare plans. This was a strong sticking point for the court. In the court’s view, the variations in the healthcare plans and the plans’ language on a variety of topics, from discretionary authority to differing obligations outlined within Cigna’s agreements with self-funded plan sponsors, defeated commonality. Put simply, the court agreed with Cigna that the number of variations among the plans at issue would require individualized analysis “that must be taken into consideration in adjudicating each Plaintiff’s ERISA claims.” Moreover, beyond the court’s issues with commonality, which precluded certification under Rule 23(a), the court went on to outline the ways in which it found certification under the subsections of Rule 23(b) even more problematic. First, under Rule 23(b)(1), the court stated that rather than individual adjudications being unworkable, “it is the class-wide adjudication of Plaintiffs’ claims that would be unworkable, if not impossible,” given these differences among the class members and the ERISA plans. “As indicated, the possibility for variations in the applicable standard of review and the potential effects of plan variations could yield an array of differing outcomes across the class.” Similarly, evaluating the potential class under Rule 23(b)(2) would also, the court said, result in a variety of inconsistent outcomes across the class which would preclude “the imposition of singular injunctive relief for the class as a whole.” Furthermore, the court expressed doubts over whether reprocessing is in fact injunctive rather than monetary relief, although it said it need not, and would not, resolve the issue here. Finally, under Rule 23(b)(3), the court said that it could not certify the class because common questions do not predominate over individual ones, for all of the reasons it defined in its commonality analysis. Accordingly, plaintiffs’ motion for class certification was denied.
Shapiro v. Aetna Inc., No. 22-cv-1958 (ES) (AME), 2023 WL 4348601 (D.N.J. Jul. 5, 2023) (Judge Esther Salas). Three women who receive health insurance benefits through self-funded ERISA plans administered by defendants Aetna, Inc. and Aetna Life Insurance Company have sued the Aetna defendants under ERISA for benefits, breaches of fiduciary duties, and unjust enrichment in this putative class action. The three named plaintiffs each underwent breast reconstruction surgeries which were performed by out-of-network providers at in-network facilities, circumstances their plans refer to as “Involuntary Services.” According to the complaint, the plaintiffs’ benefit claims should have been processed as “Involuntary Services,” meaning they should have been calculated “in the same way as we would if you received services from a network provider.” However, plaintiffs argue this is not how their claims were processed. Instead, plaintiffs allege that Aetna underpaid benefits under the terms of the plans in order to enrich itself through charging the plans its National Advantage Program Access Fee. They outlined in their complaint how Aetna routinely pays these claims at artificially low rates calculated through MultiPlan’s Data iSight algorithm. Thus, plaintiff claim that Aetna violated ERISA by paying the claims in a manner that contradicted the terms of their plans, and that defendants breached their fiduciary duties and enriched themselves by doing so. Defendants moved to dismiss pursuant to Rule 12(b)(6). They argued that plaintiffs’ claims did not constitute “Involuntary Services” under their plans, and that they therefore could not state claims for benefits under Section 502(a)(1)(B). The court disagreed, concluding that, especially at this early stage of litigation, plaintiffs’ benefit claims should be allowed to proceed. However, the court dismissed with prejudice plaintiffs’ breach of fiduciary duty claims to the extent that they were asserted under Section 502(a)(1)(B), concluding that the Third Circuit does not recognize Section 502(a)(1)(B) as creating a private cause of action for breach of fiduciary duty. On the other hand, the court refused to dismiss plaintiffs’ fiduciary breach claims asserted under Section 502(a)(3)(A), agreeing with plaintiffs that they could plead claims in the alternative under Sections 502(a)(1) and (a)(3). Furthermore, the court was satisfied that plaintiffs were seeking appropriate forms of equitable relief, namely a declaratory injunction, a reprocessing order, and a permanent injunction. Defendants were successful in dismissing plaintiffs’ unjust enrichment claim under Section 502(a)(3)(B), however. Here, the court dismissed the claim without prejudice because the court could not infer from the complaint as currently alleged whether defendants received the access fees in connection with their claims for benefits. Plaintiffs were permitted to file an amended complaint to address this shortcoming. Finally, the court rejected Aetna Inc.’s motion to dismiss it as a defendant in this action. Aetna, Inc. argued that it is only a holding company and therefore an improper defendant. The court agreed with plaintiffs that their complaint alleges ways in which Aetna. Inc. controlled the administration of the benefits under their healthcare plans, and accepting these allegations as true found that Aetna is a proper defendant at this stage of the proceedings. Moreover, the court did not agree with the Aetna defendants that plaintiffs had failed to distinguish between Aetna, Inc. and Aetna Life Insurance Company, and found that plaintiffs did not engage in group pleading. To the contrary, the court was satisfied that the complaint adequately put each defendant on notice of the claims against it, satisfying the pleading requirements of Rule 8.
Disability Benefit Claims
Neumiller v. Hartford Life & Accident Ins. Co., No. 22-35688, __ F. App’x __, 2023 WL 4173022 (9th Cir. Jun. 26, 2023) (Before Circuit Judges Bea and Bress, and District Judge Ohta). Plaintiff Julie Neumiller appealed a district court order entering judgment under Rule 52 against her and in favor of defendant Hartford Life and Accident Insurance Company in this long-term disability benefit dispute. Ms. Neumiller argued on appeal that she is entitled to long-term disability benefits under the terms of her plan which state that benefits terminate when a claimant’s “Current Monthly Earnings” exceed 60% of his or her “PreDisability Earnings.” Ms. Neumiller claims that Hartford misinterpreted the plan terms and prematurely terminated her benefits thanks to the manner it used to determine her current monthly earnings. She maintained that Hartford inappropriately included her pre-tax contributions and trimester bonuses in its calculation of her monthly earnings. On appeal, Ms. Neumiller advanced three arguments in support of this position: “that (1) pre-tax contributions and Trimester Bonuses are not ‘earnings,’ (2) pre-tax contributions are not ‘received,’ and (3) Trimester Bonuses are not ‘monthly earnings.’” The Ninth Circuit rejected the first two arguments but agreed with Ms. Neumiller on the third. Specifically, the court of appeals held that pre-tax contributions and trimester bonuses are unambiguously “earnings” as defined by the policy. Additionally, the court found that Ms. Neumiller received her pre-tax contributions despite placing that salary into a 401(k) account. However, the Ninth Circuit disagreed with the lower court’s decision to treat all of Ms. Neumiller’s trimester bonus amounts paid out to her in a given month as “monthly earnings.” Instead, it concluded that under the doctrine of contra proferentem the district court was required to construe the ambiguity of the term “monthly earnings” as it applied here against Hartford, particularly as the Ninth Circuit held Ms. Neumiller’s interpretation favoring prorating “is ultimately the stronger one anyway.” The appeals court found this interpretation particularly persuasive given the way the policy averages bonuses across 24 months instead of counting all bonuses toward the single month at the end of the year in which they are distributed. To construe the term “monthly earnings” otherwise, the court held, “would unexpectedly attach enormous consequences (terminating disability benefits) to an employer’s decision to distribute a bonus in a lump sum, instead of spreading it out across the several months in which it is earned.” Accordingly, the Ninth Circuit vacated the district court’s ruling. However, because the effect of the Ninth Circuit’s conclusion finding that Hartford erroneously credited Ms. Neumiller’s entire trimester bonus payment toward one month’s “monthly earnings,” rather than prorating the amount over a four-month period of time, was not apparent from the record, the Ninth Circuit remanded to the district court for further proceedings consistent with its decision.
Waggeh v. Guardian Life Ins. Co. of Am., No. 22-11800-FDS, 2023 WL 4373897 (D. Mass. Jul. 6, 2023) (Judge F. Dennis Saylor IV). In 2019, decedent Alpha Sowe applied for a life insurance policy through his employment with Berkshire Healthcare Systems, Inc. Guardian Life Insurance Company of America approved the application, issued the policy, and began collecting premiums. Several months later, on July 28, 2019, Mr. Sowe died. Following his death, his widow, plaintiff Suntu Waggeh, filed a claim for life insurance benefits with Guardian. Guardian allegedly issued a small partial payment, including a return of the premiums, but mostly denied the claim, stating that Mr. Sowe “misrepresented his medical condition” on his application. In response, Ms. Waggeh filed a lawsuit seeking the proceeds from the life insurance policy in state court in Massachusetts, asserting four state law causes of action. Guardian removed the action to federal court. It then moved to dismiss the complaint for failure to state a claim, arguing that the state law claims are all preempted by ERISA. Guardian’s motion was granted in this order. The court agreed with Guardian that the complaint on its face seemed to indicate that the life-insurance policy is part of an ERISA-governed employee welfare benefit plan, as Mr. Sowe applied for the policy through his employer. Moreover, the court found that Ms. Waggeh’s state law causes of action seek to recover benefits due under the plan, and therefore fall under ERISA Section 502(a)(1)(B). “The state law claims therefore appear to be preempted by ERISA.” Ms. Waggeh attempted to advance two arguments for why her claims fall within ERISA’s safe-harbor provision and therefore are not governed by ERISA and not preempted. First, she asserted that Berkshire did not make any contributions to the plan, that Mr. Sowe’s participation was voluntary, that Berkshire acted only as a conduit between Mr. Sowe and Guardian, and that Berkshire received no consideration from Guardian in connection with the plan. Second, Ms. Waggeh argued that the life insurance benefit was a “payroll practice” under 29 C.F.R. § 2510.3-1(b). Both of these arguments were viewed by the court as unsubstantiated and conclusory. Because of this, the court concluded that Ms. Waggeh did not meet her burden of plausibly demonstrating that ERISA preemption does not apply. Thus, the court found her state law claims preempted and granted the motion to dismiss.
Medical Benefit Claims
L.L. v. MedCost Benefits Servs., No. 1:21-cv-00265-MR, 2023 WL 4393748 (W.D.N.C. Jul. 5, 2023) (Judge Martin Reidinger); L.L. v. MedCost Benefits Servs., No. 1:21-cv-00265-MR, 2023 WL 4375663 (W.D.N.C. Jul. 5, 2023) (Judge Martin Reidinger). This action began in 2021 when plaintiff L.L., individually and on behalf of her minor daughter, E.R., sued their self-funded healthcare plan and its third-party claims administrator for benefits and violating the Mental Health Parity and Addiction Equity Act in connection with denied benefit claims for treatment E.R. received at a residential treatment facility. Since the case was initially filed, E.R. has reached the age of majority. Earlier this year, the court entered an order granting in part defendants’ motion to dismiss, dismissing the Parity Act claim asserted pursuant to Section 502(a)(3). In that order the court ordered L.L. and E.R. to show cause why they should be allowed to proceed under pseudonyms, and, because E.R. is now an adult, to add her as a plaintiff and show cause why she cannot prosecute the action on her own. In response to that order, L.L. and E.R. moved to proceed anonymously and to add E.R. as a plaintiff. In addition, mother and daughter moved for reconsideration of the court’s order dismissing their MHPAEA claim. The court ruled on the two motions in separate decisions. In the first decision, it denied plaintiffs’ motion to proceed anonymously and granted their motion to add E.R. as a plaintiff. The court held that ERISA cases, even involving sensitive medical information, are not “private proceedings where claimants can come to a public court under a general cloak of anonymity.” Although the court did not dispute that E.R.’s medical history, which occurred while she was a minor suffering from a mental health crisis, is in and of itself “sensitive and highly personal” information, the court fundamentally disagreed that a denial of medical benefits allegedly covered under the terms of an ERISA plan is a sensitive topic. To the contrary, the court stated that requiring E.R. and L.L. to use their full names would not “reveal anything more than the general fact that E.R. struggles with her mental health. To the extent more detailed information about E.R.’s mental health and severity of her struggles must be considered during these proceedings, that personal information can be redacted and records detailing sensitive information can be filed under seal if appropriate.” Your ERISA Watch believes that the court’s position here fundamentally misunderstands the public’s interest in issues of mental health policy and treatment. People interested in improving the law for individuals suffering from mental illness want the details to be part of the public record, so that people can understand the seriousness of the symptoms sometimes associated with mental illness. However, that doesn’t mean that the public has an interest in giving up the right to privacy of individuals, particularly minors, suffering from these issues. Clearly their privacy can be protected through the age-old use of pseudonyms. The public’s “strong interest in the openness of these proceedings” should have therefore led the court to reach the exact opposite result, allowing plaintiffs to proceed anonymously while including information regarding the specifics of what happened and why disputes over mental health coverage matter in the first place. Nevertheless, the court denied the motion and ordered plaintiffs to file an amended complaint that incudes their full names. The court then addressed whether L.L. should be dismissed as a plaintiff for lack of standing. At all times, L.L. was a participant of the healthcare plan and E.R. was a plan beneficiary. L.L. alleges that she paid out of pocket for E.R.’s treatment at the facility. Thus, plaintiffs argued that L.L. has suffered an injury as a result of the plan’s denial of benefits, and she therefore has standing to remain a plaintiff in this litigation. The court agreed. It granted plaintiffs’ motion to add E.R. as a plaintiff, and allowed L.L. to remain a plaintiff as well. In the second decision, the court ruled on plaintiffs’ motion for reconsideration. Plaintiffs argued that a recent Fourth Circuit decision, Hayes v. Prudential Ins. Co. of Am., No. 21-2406, __ F. 4th __, 2023 WL 2175736(4th Cir. 2023), clarifies the Fourth Circuit’s stance on pleading ERISA claims in the alternative. In the Hayes decision, the court wrote, “a plaintiff who prevails in a claim for benefits under Subsection (a)(1)(B) may not also obtain other relief under Subsection (a)(3). But Federal Rule of Civil Procedure 8(a)(3) specifically permits pleading ‘in the alternative,’ so nothing would have prevented plaintiff from suing under both provisions.” Plaintiffs maintained these sentences clearly allow them to plead both of their causes of action. The court remained steadfast that its previous reasoning dismissing the Parity Act claim, and the precedent it relied on, remained unchanged after Hayes. Because Section 502(a)(1)(B) affords plaintiffs adequate relief, the court held that “a cause of action under § 1132(a)(3) is ‘not appropriate.’” Therefore, the court denied the motion for reconsideration, finding plaintiffs’ second cause of action impermissibly duplicative of their benefits claim.
BlueCross BlueShield of Tenn. Inc. v. Nicolopoulos, No. 1:21-CV-00271-JRG-CHS, 2023 WL 4191413 (E.D. Tenn. Jun. 26, 2023) (Judge J. Ronnie Greer). A participant of an ERISA-governed healthcare plan, the PhyNet Dermatology, LLC group health insurance plan, underwent what she believed were medically necessary fertility treatments. Although her plan is based in Tennessee and insured by Bluecross Blueshield of Tennessee, she is a resident of New Hampshire. New Hampshire and Tennessee have differing state insurance laws governing fertility treatments. New Hampshire requires insurance companies doing business in the state to provide coverage for medically necessary fertility treatments, while Tennessee has no such mandate. The plan states that it is governed by Tennessee law and expressly excludes coverage for fertility treatments. After the participant’s claims for reimbursement of her fertility treatments were denied by BCBS under the terms of the plan, she contacted the New Hampshire Insurance Department to complain about the denials, which she believes are in violation of her state’s insurance laws. In response to the participant’s complaint, the New Hampshire Insurance Department issued an Order to Show Cause and Notice of Hearing to BCBS demanding the insurance provider appear for a hearing to determine whether it violated New Hampshire insurance laws, and if so, to pay a fine and to cease and desist from offering health insurance in New Hampshire. The hearing was stayed after BCBS initiated this ERISA lawsuit against the Commissioner of the New Hampshire Insurance Department. BCBS argues in this action that this is a choice-of-law dispute involving an ERISA plan whose terms rely on Tennessee law. BCBS maintains that applying New Hampshire insurance law would violate the terms of the plan, interfere with ERISA’s exclusive remedy for wrongful denial of benefits, and violate its fiduciary duties. BCBS moved for summary judgment on these claims. Its motion was denied, and the court gave notice of its intent to grant judgment to the Commissioner. The court expressed that it disagreed with BCBS’ characterization and understanding of the issues present. “This case is not about [BCBS’] duties…under the PhyNet Plans; thus, choice-of-law under the Plans is irrelevant, much less dispositive. Rather, this case concerns New Hampshire’s authority to regulate the business of insurance within its borders. ERISA’s ‘Saving Clause’ specifically preserves that authority even when such regulation is contrary to an ERISA-covered plan’s terms.” Stated differently, the court found that BCBS could not shield itself from the New Hampshire Insurance Department’s regulatory authority by relying on plan terms that run contrary to the state’s insurance laws. “In short, insurers cannot contract their way out of state regulation.” Thus, viewing BCBS’ lawsuit here as an attempt to do just that, the court denied its motion for judgment and stated that it intends to grant summary judgment to the Commissioner of New Hampshire’s Insurance Department.
Pleading Issues & Procedure
Dabney v. Hughes Hubbard & Reed LLP, No. 1:23-mc-78 (MKV), 2023 WL 4399048 (S.D.N.Y. Jul. 6, 2023) (Judge Mary Kay Vyskocil). Former equity partner James Dabney has initiated arbitration proceedings pursuant to his Partnership Agreement with his former law firm, Hughes Hubbard & Reed LLP. The parties have agreed to arbitrate various claims that Mr. Dabney has asserted following his retirement. “The overarching dispute between Dabney and Hughes Hubbard revolves around pension benefits and whether (and in what amount) Dabney was entitled to such benefits while he continued to practice law at the Firm.” In his demand for arbitration, Mr. Dabney asserted claims under ERISA, the Age Discrimination in Employment Act, and state law. No arbitrator has yet been appointed to hear these claims. Mr. Dabney is continuing to use the law firm’s name and resources for work purposes. In this action, Mr. Dabney is seeking injunctive relief in aid of arbitration. He seeks to enjoin the law firm from disabling his access to their systems, including his telephone number and email address, pending arbitration of his claims. The court stated that it would retain jurisdiction over this matter “in order to maintain the viability of the arbitration and protect against irreparable harm.” In this order the court denied Mr. Dabney’s motion for preliminary injunction. The court held that Mr. Dabney is not likely to succeed on the merits of his claims, that he will not suffer an irreparable harm absent an injunction, and that the balance of hardships tips in favor of the law firm. Regarding likelihood of success, the court agreed with Hughes Hubbard that as an equity partner, Mr. Dabney likely does not fit the definition of “employee” as the word is used in the context of either ADEA or ERISA. As for irreparable harm, the court stated that while there “may be inconveniences associated with” retiring from the firm or altering his relationship from the firm, these circumstances “are too minor and routine to constitute irreparable harm.” Thus, the court concluded that Mr. Dabney does not need to maintain access to the law firm’s systems and therefore denied his motion.
Severance Benefit Claims
Wilson v. Taronis Fuels Inc., No. CV-22-00229-PHX-SPL, 2023 WL 4353193 (D. Ariz. Jul. 5, 2023) (Judge Steven P. Logan); Wilson v. Taronis Fuels Inc., No. CV-22-00229-PHX-SPL, 2023 WL 4353198 (D. Ariz. Jul. 5, 2023) (Judge Steven P. Logan). In two wide-ranging decisions this week the court ruled on a series of motions and entered judgment in this severance benefit litigation. Plaintiff Tyler B. Wilson is the former Chief Financial Officer, Secretary, and General Counsel of defendant Taronis Fuels Incorporated. Mr. Wilson alleged in this lawsuit that his job titles and responsibilities were materially reduced in early 2021 during a corporate shakeup at the company and a battle over control of the Board. As a result, Mr. Wilson delivered a notice of good reason to the company pursuant to the terms of his severance plan alleging that he had sustained material reduction in his job responsibilities and that the company had breached his employment agreement by ceasing the monthly payments of his 2020 year-end bonus. Mr. Wilson contends that these conditions amounted to “good reason” under his severance plan, and that he was therefore entitled to benefits. Accordingly, the major dispute between the parties here was whether Mr. Wilson resigned of his own volition with or without good reason under the plan, and therefore whether he was entitled to severance benefits. However, before the court could address those issues, it first needed to rule on three preliminary motions filed by defendant – (1) a partial objection to the administrative record, (2) a motion for leave to supplement response brief, and (3) a motion to stay proceedings pending the resolution of a lawsuit involving the Securities and Exchange Commission in the Middle District of Florida. The court denied all three motions. First, the court stated that it found “no reason to excise” certain documents from the administrative record, namely a letter and a series of emails, because these documents were submitted and generated in the course of making the benefit determination and concerned the company’s compliance with claims handling practices. Second, the court denied defendant’s motion to supplement its response briefing with details from the SEC lawsuit. The court concluded that the company had not clearly established that consideration of this lawsuit was necessary for the court to conduct its review of the severance benefit denial. Rather, the court said that it was equipped to conduct a full and fair review of Mr. Wilson’s claim “based solely on the evidence contained in the administrative record and on the parties’ briefing.” Third, the court declined to stay proceedings pending resolution of the SEC action. It held that a stay would pose some level of harm to Mr. Wilson, albeit fairly minimal harm, the harm posed to defendant absent a stay was highly speculative and dependent on the outcomes of the two independent legal actions, and the SEC’s allegations had only a minor relation to the factual and legal issues before the court in this action, making resolution of the SEC litigation unnecessary to resolve the ERISA benefits claim. Thus, defendant’s motions were denied, and the court moved on to reviewing the record as a de novo matter. After conducting this review, the court ultimately concluded that Mr. Wilson did not resign with good reason. It agreed with defendant that Mr. Wilson’s job responsibilities were not materially and substantially reduced. Although Mr. Wilson was cut off from dealing with an outside firm, the court found that this exclusion related to Mr. Wilson’s own potential involvement in financial misconduct, and therefore did not amount to any material reduction of Mr. Wilson’s duties “because Plaintiff could not have had any expectation that he would be involved in investigations of and communications about his own employment.” Moreover, another example provided by Mr. Wilson of a ten-day long reduction in his work responsibilities was determined by the court to have been too short a period to qualify as a good reason under the plan. On top of the court’s conclusion that Mr. Wilson did not suffer a material sustained reduction in his work responsibilities, the court further found that the company had not breached its employment agreement by issuing Mr. Wilson’s 2020 bonus payments as monthly installments rather than a lump sum or by terminating those payments altogether. Accordingly, the court ruled that Mr. Wilson failed to demonstrate “good reason” sufficient to qualify him for benefits under his severance plan. Thus, the court entered judgment in favor of Taronis Fuels Inc.