Chavez v. Plan Benefit Servs., No. 22-50368, __ F. 4th __, 2023 WL 5160393 (5th Cir. Aug. 11, 2023) (Before Circuit Judges Wiener, Stewart, and Engelhardt)

Judicial decisions in ERISA cases usually do not have repercussions in the larger legal world, but this case presents a potential exception. The issue addressed by the Fifth Circuit here was the interplay between standing and class certification rules.

A plaintiff seeking class certification often wishes to represent other class members who may have suffered similar, but not identical, harms. When evaluating this issue, should a court decide whether the plaintiff has standing to assert claims relating to those other class members at the outset? Or should it decide this issue at the class certification stage in addressing the scope of the proposed class?

The plaintiffs here were employees of the Training, Rehabilitation & Development Institute, Inc. (TRDI). TRDI contracted with the defendants, collectively known as Fringe Benefit Group (FBG), for various services connected with its employees’ benefits.

Under TRDI’s arrangement with FBG, TRDI disbursed benefits to its employees through two trusts, one which covered retirement benefits (the Contractors and Employee Retirement Trust, or CERT), and one which covered health and welfare benefits (the Contractors Plan Trust, or CPT). FBG managed the trusts and had the power to enter into contracts imposing fees and charges on the trusts and plans it administered. The plaintiffs each had accounts into which TRDI paid contributions, out of which FBG retained a percentage for administration services.

In their complaint, the plaintiffs alleged that these fees were unreasonably high and that FBG mismanaged TRDI’s plan, as well as other benefit plans covered by the CERT and CPT trusts, in violation of ERISA.

The plaintiffs filed a motion for class certification, which presented a problem for the district court. In order to grant the motion, the district court had to find that the plaintiffs had “standing to sue FBG on behalf of unnamed class members from different contribution plans.” The district court ultimately ruled that the plaintiffs had both constitutional and statutory standing to sue.

The Fifth Circuit reversed, concluding that the district court’s class action analysis was not sufficiently rigorous. On remand, the district court certified two classes which were tailored more narrowly than before, but still represented participants from different plans. FBG appealed once again, maintaining its argument that the plaintiffs lacked standing to bring their claims.

In this decision, the Fifth Circuit opened by noting that there was a circuit split over how courts should analyze standing issues in class actions. If a class representative wants to litigate over harms that other class members suffered but were not identical to the ones the representative suffered, when should courts address the “disjuncture between the harm that the plaintiff suffered and the relief that she seeks”?

Some courts have simply ruled that plaintiffs have standing as to their own individual claims and then addressed the disjuncture during the class certification stage. Other courts have addressed the disjuncture at the pleading stage, deciding whether the plaintiffs have standing to pursue the claims of others. The Fifth Circuit called the first approach the “class certification approach” and the second the “standing approach.”

Ultimately, the Fifth Circuit dodged the issue of which approach was correct. Instead, it used both approaches in addressing the facts of the case, and ruled that the plaintiffs could proceed under either.

Under the “class certification approach,” the Fifth Circuit ruled that plaintiffs easily cleared the standing bar. The court found that the plaintiffs had demonstrated injury in fact by alleging that “FBG abused its authority under the Master Trust Agreement by hiring itself to perform services paid with funds from the CERT and CPT trusts, effectively devaluing the trusts and retirement benefits that Plaintiffs otherwise would have accrued with their employer.” They also established that their injury was traceable to FBG’s conduct because FBG had direct control over the trusts and the agreement with their employer. Also, their injury would be redressable by an award of monetary damages or other relief.

Under the “standing approach,” the Fifth Circuit also found that the plaintiffs could proceed. The court found that the plaintiffs “have undeniably suffered the same kind of loss as the unnamed class members because of FBG’s alleged misconduct,” and thus the “set of concerns here are identical between Plaintiffs and the unnamed class members: the return of trust funds that each plaintiff would otherwise have been entitled to if FBG had not violated ERISA.” In other words, the plaintiffs and the proposed class “have the same interest and suffer[ed] the same injury.” The court found that even if the other class members had different agreements with different employers, the harm was the same because it “occurred directly from FBG’s misconduct pertaining to the trusts that it required participation in[.]”

Having concluded that the plaintiffs had standing, the Fifth Circuit then turned to the district court’s class certification order. FBG did not challenge whether the plaintiffs could adequately represent the class under Federal Rule of Civil Procedure 23(a), but did challenge the district court’s certification under Rules 23(b)(1) and (b)(3).

Under Rule 23(b)(1), FBG argued that the proposed class “involves vastly different plans and fees” and that an accounting for the plaintiffs’ claims would not be dispositive of the claims of other plan members. The Fifth Circuit disagreed, noting that FBG’s pricing scheme was either “uniform or amenable to a pricing grid,” and that the plaintiffs were seeking not only monetary relief, but also equitable remedies, which “undoubtedly involves the entire class – or any other members of the CERT and CPT trusts[.]”

Under Rule 23(b)(3), the Fifth Circuit agreed with the district court that there were “common questions of law and fact as to whether FBG owed fiduciary duties to the Plaintiffs and the other class members by virtue of their role in managing the CERT and CPT trusts.” FBG argued that “individualized issues of fee excessiveness predominate this dispute,” and thus because of the “wide variety of different fees and plans,” the case would turn into “a series of mini-trials” regarding FBG’s fiduciary status as to each plan.

The Fifth Circuit rejected this argument, noting that “each plaintiff would certainly produce that plaintiff’s own contract, which expressly makes FBG a fiduciary by incorporating the Master Trust Agreement.” The court further rejected FBG’s argument that class certification would deprive it of due process rights, noting that the district court acted well within its discretion “by acknowledging Plaintiffs’ plan to establish FBG’s liability using an arithmetic, formulaic method.”

As a result, the second time was the charm, as the Fifth Circuit affirmed the district court’s class certification order in its entirety. In doing so, the court may not have resolved the “disjuncture” between standing and class certification, but it has flagged the issue once again for those seeking to take the issue up to the Supreme Court.

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

Breach of Fiduciary Duty

Third Circuit

Seibert v. Nokia of Am. Corp., No. 21-20478 (ES) (AME), 2023 WL 5035026 (D.N.J. Aug. 8, 2023) (Judge Esther Salas). Seven participants of the Nokia Savings/401(k) Plan bring this putative class action against Nokia of America Corporation, its board of directors, and the 401(k) committee for breaches of their fiduciary duties of prudence and monitoring under ERISA. Specifically, plaintiffs allege that defendants breached their duty of prudence by failing to review the plan’s investment portfolio to ensure that the options were prudent in terms of their expense ratios. Plaintiffs pointed to seventeen funds offered by the plan that had excessive cost and management fees. Additionally, plaintiffs allege that the participants were subjected to excessive recordkeeping and administrative costs. In their complaint, plaintiffs calculated that the per participant fees charged during the relevant period ranged from $76.59 to $116.26. They maintain that similar mega plans with billions of dollars in assets under management and tens of thousands of plan participants charged participants only around $20-30 in fees. Finally, plaintiffs believe that Nokia and the board failed to monitor the other fiduciaries. Defendants moved to dismiss the complaint. In this order, the court granted in part and denied in part the motion to dismiss. It began with the excessive expense ratio claims. The court agreed with defendants that it could not infer that the process to review the investment portfolio was flawed and imprudent because the comparators plaintiffs used did not constitute a meaningful benchmark. “In effect, Plaintiffs have done little more than allege that cheaper alternative investments existed in the marketplace. This is not sufficient to adequately plead a claim for breach of the duty of prudence.” Applying a “context-specific inquiry,” the court stated that more information about the comparator plans’ investment styles, performance, and returns would be necessary in order to infer that cheaper was indeed better. Accordingly, the court dismissed the imprudence and monitoring claims premised on the failure to adequately review the investment portfolio to ensure the investments were prudent in terms of cost. However, these claims were dismissed without prejudice, and plaintiffs were allowed to amend their complaint to address these deficiencies. Next, the court turned to the recordkeeping and administrative fee claims. Unlike the expense ratio claims, the court was satisfied that plaintiffs plausibly alleged that the fees were excessive, astronomical even, particularly when considering plaintiffs’ lack of access to full plan data. Viewing the complaint in the light most favorable to plaintiffs, the court was unwilling to scrutinize plaintiffs’ calculations or determine whether the comparator plans were inappropriately cherry-picked as defendants argued. The court also stated that plaintiffs sufficiently alleged that defendants failed to regularly solicit bids for lower cost administrative services, and while competitive bidding is not required under ERISA, failure to do so is often indicative of imprudence. Thus, defendants’ motion to dismiss the recordkeeping and administrative fee imprudence and monitoring claims was denied.

Fourth Circuit

Reed v. MedStar Health, Inc., No. JKB-20-1984, 2023 WL 5154507 (D. Md. Aug. 9, 2023) (Judge James K. Bredar). Plaintiff Elsa Reed, individually and on behalf of the MedStar Health, Inc. Savings 403(b) Plan and a certified class of participants and beneficiaries of the plan, brings this action against the plan’s fiduciaries for breaches of their duties under ERISA. Ms. Reed claims that the participants of the plan suffered losses as a result of defendants’ imprudent inclusion of a series of challenged target date funds as investment options in the plan, which were risky, performed poorly, and had high fees and costs associated with them and their active management. Several pre-trial motions were before the court here. Defendants moved to strike plaintiff’s jury demand, and also filed motions to exclude the opinions and testimony of plaintiff’s two experts. In addition, plaintiff moved for leave to file a second amended complaint to include additional factual allegations she obtained through the discovery process. In this order the court granted the motion to strike the jury demand, granted in part and denied in part the Daubert motions, and granted the motion for leave to file an amended complaint. The court agreed with defendants and “the overwhelming weight of authority” of the courts nationwide that ERISA breach of fiduciary duty claims like those asserted here are equitable in nature and therefore not within the purview of the Seventh Amendment’s right to a jury trial. As for the expert testimonies, the court denied defendants’ motion to exclude the testimony of plaintiff’s expert Gerald Buetow, whose report concerns the calculation of losses suffered by the plan as a result of the inclusion of the challenged funds. The court found that Mr. Buetow used a reliable method and applied said method to the facts at issue to reach his calculations. Thus, the court denied the motion to exclude Mr. Buetow’s testimony and stated that defendants’ “various challenges to Buetow’s damages calculation methodology are more properly resolved on cross-examination.” However, the court reached a different result with regard to plaintiff’s other expert, Michael Geist. Mr. Geist’s report testified about the reasonable market rates for fees and calculated the plan’s losses incurred as a result of the allegedly excessive fees. The court excluded the portions of Mr. Geist’s report that concerned specific calculations of the losses. It held that Mr. Geist did not cite the necessary “data, scholarly publication, or other source[s]” relied on to make his calculations, instead basing his assessments on his own experience. The court found this assertion of expertise falls short of the necessary standards for expert reports and that it could not adequately review or scrutinize the pricing information relied on. As a consequence, the court found that Mr. Geist’s “specific calculation of losses amounts to no more than conjecture or speculation.” Nevertheless, the court did not exclude Mr. Geist’s opinions as to the standard industry practices for obtaining reasonable fees. Finally, the court concluded that Ms. Reed satisfied the “good cause” standard to grant her motion to amend her complaint beyond the original deadline set forth in the scheduling order, because the information she sought to add only became available to her after the deadline ended during the discovery process. Moreover, the court agreed with plaintiff that these additional facts she seeks to add to her complaint support her existing claims asserted in the action from the beginning regarding the recordkeeping fees. The court disagreed with defendants that granting Ms. Reed’s motion would prejudice them in any material way. Therefore, the court granted the motion to amend and allowed Ms. Reed to add the additional factual allegations she sought to include.

Seventh Circuit

Lysengen v. Argent Tr. Co., No. 20-1177, 2023 WL 5158078 (C.D. Ill. Aug. 10, 2023) (Judge Michael M. Mihm). In this employee stock ownership plan (“ESOP”) litigation, a former employee of Morton Buildings, Incorporated and a participant in its ESOP, as well as an older 401(k) plan that had an ESOP option (“KSOP”), sued Argent Trust Company and the selling shareholders for breaches of fiduciary duties and prohibited transactions under ERISA, asserting that the ESOP overpaid for the stock it purchased. Originally, plaintiff sought to represent a class under Rule 23. However, her motion for certification was denied by the court, which held that there were irreconcilable conflicts between the ESOP participants which made certification of the class impossible. Specifically, the court identified at least three sub-groups with conflicting interests – members of the company’s old KSOP who had protected stock price status, members of the KSOP who did not have protected stock price status, and members of the ESOP who were never members of the KSOP plan. As a result, the court concluded that the proposed class members were not identically situated due to these complicating factors and that their interests were not completely aligned. Accordingly, the court declined to certify the class, and upheld its decision when plaintiff moved for reconsideration. Following the certification ruling, defendants moved for summary judgment. They argued that because plaintiff cannot proceed on a class-wide basis, she also could not proceed in a representative capacity under ERISA Section 502(a)(2). Plaintiff moved for partial summary judgment, seeking a judgment to the contrary – that notwithstanding the court’s decision regarding certification, she may still proceed with her claims for plan-wide relief including seeking a potential judgment to recover losses to the plan, to disgorge profits earned by defendants, and other forms of equitable relief available in a representative capacity. The court heard oral argument on the topic. In this written order it granted plaintiff’s partial summary judgement motion and denied defendants’ competing summary judgment motion. “While the Court recognizes its class certification findings, it is important to note that at this juncture, the Plaintiff is seeking a payment for potential losses to the ESOP as a whole that result from the alleged overpayment of stock. If the Court found in favor of the Plaintiff, the requested relief would maximize the value of the entire ESOP, and therefore, benefit all ESOP participants within the meaning of Section 502(a)(2).” The court expressed that it would not issue any judgment or relief that distinguishes between the ESOP and KSOP participants or their individual interests and injuries. Accordingly, the problems that existed for the purposes of certifying the class were resolved by the court’s decision here to allow the plaintiff to proceed with plan-wide claims in a representative capacity on the issue of whether the stock purchased during the ESOP transaction was purchased for fair market value. To further protect the other plan participants, the court ordered plaintiff to inform the ESOP participants of this litigation and to keep them updated on its progress via a website. Moreover, should the parties reach a settlement, the court noted that it would likely employ additional safeguards to protect the absent plan beneficiaries and their interests.

Su v. Fensler, No. 22-cv-01030, 2023 WL 5152640 (N.D. Ill. Aug. 10, 2023) (Judge Nancy L. Maldonado). Secretary of the United States Department of Labor, Julie A. Su, has sued the trustees and fiduciaries of the United Employee Benefit Fund Trust for breaching their fiduciary duties and using the fund assets in prohibited transactions that were against the interests of the plan and its beneficiaries, causing millions of dollars of losses to the fund. In addition to this lawsuit, several other federal and state actions are pending that relate to the fund’s operations and include the same essential underlying facts and challenged conduct at issue here. The Secretary has moved for a temporary restraining order and preliminary injunction, requesting that the court issue an order removing defendants from their position as trustees and appointing an independent fiduciary to take over the fund’s management during the pendency of this lawsuit. Ms. Su alleges that the assets in the fund are dwindling at an alarming rate, and that irreparable harm will result absent this relief. Specifically, she contends that the fund’s assets have reduced from $22 million in 2018, when she first became aware of the conduct at issue here, to approximately $6 million today. She argues there is a substantial risk that the fund’s money will be drained completely if no intervention is taken, as defendants are using the assets as their own piggy-bank to cover the costs of litigating the aforementioned actions against them. The court agreed with the Secretary that simple math supports her “well-founded” position that there is a high risk the fund’s assets will be depleted if defendants retain control over the plan in the interim. The court stated that it “agrees with the Secretary that, at a minimum, the Trustee Defendants’ conduct suggest they are prioritizing the Fund’s payment of substantial legal and administrative fees, which, given the precarious nature of the Fund’s assets, creates a risk of irreparable harm to the Fund’s participants.” Not only did the court agree that a risk of irreparable harm exists, it also found that because the Secretary is only seeking equitable relief, no traditional legal remedy exists that would be adequate in place of issuing the requested injunction. Additionally, the court was satisfied that Ms. Su meets the “low threshold” necessary to demonstrate a likelihood of success on the merits of her action. Finally, the court concluded that the issuance of an injunction appointing an independent fiduciary would serve both the public interest and the congressional goals of ERISA. For the foregoing reasons, the Secretary’s motions were granted by the court.

Eighth Circuit

Fitzpatrick v. Neb. Methodist Health Sys., No. 8:23CV27, 2023 WL 5105362 (D. Neb. Aug. 9, 2023) (Judge Robert F. Rossiter, Jr.). Former employees of Nebraska Methodist Health System, Inc. have sued the fiduciaries of Nebraska Health’s ERISA-governed defined contribution retirement plan for breaches of their fiduciary duties of prudence and monitoring. Plaintiffs allege that defendants failed to engage in an appropriate process managing the plan because they selected imprudent, underperforming investment options and failed to replace these options over time despite their continued underperformance. Because of these improper investment options, plaintiffs maintain that they suffered millions of dollars in losses in their retirement savings. Defendants moved to dismiss for lack of standing and for failure to state a claim. The court began by addressing Article III standing first. It agreed with plaintiffs that they alleged sufficient injuries to their own plans to assert plan-wide claims even with respect to funds they did not personally invest in. The court concluded that the Supreme Court’s decision in Thole v. U.S. Bank N.A. was distinguishable from the facts here because this plan is a defined contribution rather than a defined benefit plan and this “present challenge is more akin to the trust-based theory of standing discussed in Thole, rather than the defined-benefit plan actually decided.” However, the court did identify an issue with plaintiffs’ standing regarding prospective injunctive relief. As plaintiffs are former plan participants, the court concluded that they lack standing to pursue injunctive relief as any injunctive relief would not affect them. With the standing issues addressed, the court moved on to the merits and sufficiency of plaintiffs’ breach of fiduciary duty claims. Despite rejecting “the defendants’ bright-line rule that allegations of underperformance alone cannot state a claim,” the court agreed with defendants that plaintiffs needed to provide meaningful benchmarks for the alleged underperformance in order to state colorable claims. The court found that plaintiffs had not done so here. Instead, it found plaintiffs’ comparable Morningstar and S&P Indexes to be insufficient benchmarks as the complaint did not specify what the asset allocations, investment strategies, or risk profiles were for each of the funds it used to compare. Without such details, the court stated that plaintiffs’ allegations of imprudence, while possible, were not plausible. Accordingly, the court granted the motion to dismiss the imprudence claims, as well as the wholly derivative monitoring claims and did so with prejudice.

Discovery

Second Circuit

Berkelhammer v. Voya Institutional Plan Servs., No. 3:22-mc-00099-MEG, 2023 WL 5042526 (D. Conn. Aug. 8, 2023) (Magistrate Judge Maria E. Garcia). A class of participants and beneficiaries of a 401(k) plan have sued the plan’s sponsor, Automatic Data Processing, Inc., and several related entities for breaches of their fiduciary duties under ERISA. Automatic Data Processing hired Voya Retirement Advisors, LLC to provide services to the plan. Those parties entered into an Advisory and Data Services Agreement. Plaintiffs moved to compel Voya Retirement Advisors to produce this agreement and all documents describing the payments it made to a subcontractor that it hired as a subadvisor for the plan’s managed accounts. Voya opposed producing these documents. Plaintiffs argued that these documents were relevant to their claims and that they are not shielded by trade secret protections. The court disagreed on both counts. It found that these subcontracting documents and the agreement itself are removed and irrelevant to plaintiffs’ claims against the plan. “[T]he relevant comparative information to Plaintiffs is what [Voya Retirement Advisors] charged the Plan relative to the market, relative to its competitors.” The court also found that the documents are confidential and proprietary in nature as they describe sensitive financial terms. “In light of the confidential nature of the documents and what can be considered most favorably to Plaintiffs as marginal relevance, almost any burden is undue. The burden of producing the irrelevant, confidential information at issue certainly is,” the court held. Thus, the court concluded that the requested documents were not discoverable and therefore denied the motion to compel their production.

ERISA Preemption

Fourth Circuit

C Evans Consulting LLC v. Sortino Fin., No. GLR-21-2493, 2023 WL 5103725 (D. Md. Aug. 8, 2023) (Judge George L. Russell, III). Plaintiffs Cecelia Evans Laray and her company C Evans Consulting LLC have sued a series of related financial services institutions as well as several individuals employed at those firms for negligence, unjust enrichment, and declaratory judgment. Plaintiffs allege in the operative complaint that defendants recommended and sold an inappropriate 412(e)(3) ERISA plan to them without disclosing relevant information. They claim that this misleading sales pitch left them in financial strain leaving them unable to properly fund the plan in order to terminate it, which has caused problems with the IRS. Plaintiffs further allege that defendants benefitted greatly financially by selling them the plan under false pretenses. Plaintiffs seek hundreds of thousands of dollars in compensatory damages and for defendants to disgorge all fees and commissions they earned in relation to the plan. Defendants moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Defendants argued that the complaint must be dismissed because the state law causes of action are preempted by ERISA. The court agreed. It concluded that plaintiffs have standing to sue under ERISA, that their claims could have been brought as equitable relief claims under Section 502(a)(3), and that the state law claims are not capable of resolution without interpreting the ERISA plan. “Despite Plaintiffs’ contention that their claims do not relate to the administration of the Plan, but rather to the marketing and sale of the Plan before it was implemented, the [complaint] still includes allegations regarding the Plan’s specific deficiencies and how those deficiencies have caused Plaintiffs substantial monetary harm. There is no way for a court to resolve whether Plaintiffs are correct about the Plan’s alleged deficiencies – or whether the Plan’s issues were prompted by or resulted in negligence or unjust enrichment – without interpreting the Plan.” Accordingly, the court concluded that ERISA preempts the claims because they challenge the administration of the ERISA-governed plan. Thus, the court granted the motions to dismiss.

Ninth Circuit

Cal. Spine & Neurosurgery Inst. v. Fresenius U.S., Inc., No. 21-cv-03107-EMC, 2023 WL 5021782 (N.D. Cal. Aug. 7, 2023) (Judge Edward M. Chen). Before performing complex spinal surgery on an insured patient, plaintiff California Spine and Neurosurgery Institute sought pre-approval of the surgery and coverage from the Fresenius Medical Care Holdings, Inc. ERISA-governed healthcare plan, and its administrator, United Healthcare. On a phone call between a United representative and a staff member at the surgery center, United promised that it would pay for the medically necessary surgery at the usual and customary reimbursement rate, the rate for the customary charges for similar services in the geographic area. Given this preapproval and payment promise, California Spine went ahead and performed the surgery. It then billed the plan what it believes is the usual and customary rate for this type of complex spinal surgery –  $83,000. The plan ultimately paid plaintiff only $7,320.44 for the treatment. California Spine maintains that this amount is far below average rates for this medical service in the geographic area and therefore holds that the payment is a violation of the plan’s promise to pay it the usual and customary rates for its services. As a result, California Spine sued Fresenius Medical for promissory estoppel to recover damages for the underpayment. Defendant moved for judgment on the pleadings, contending that the promissory estoppel claim is preempted by ERISA. In this decision the court denied defendant’s motion and laid out why it believes the claim is based on an independent legal duty and thus not preempted. “Whether a claim is premised on an ERISA plan turns on whether the source of the plaintiff’s claim is predicated on the ERISA plan. In other words, the inquiry is whether the defendant’s alleged obligation – as asserted by the plaintiff – is (1) based on the ERISA plan or (2) based on some legal duty independent of the plan.” Here, the court found the source of the legal duty to be the administrator’s promise, not the plan itself. The fact that the plan states that it allows for usual and customary payments for out-of-network providers did not change this calculation. The court reasoned that the term “usual and customary rates” is widely used in the healthcare and insurance industry and that someone could therefore make a compelling argument that the use of this term does not in and of itself incorporate the terms of the plan. However, even assuming the promising of payment at the usual and customary rate did incorporate the plan terms, the court found that this connection to the plan was too tenuous to invoke ERISA preemption because it would necessitate nothing more than a cursory examination of the plan. The court expressed caution at applying ERISA’s broad preemption powers to cases like this for fear of creating a Catch-22 situation where providers have no way of challenging underpayments or denials when they lack standing to bring ERISA claims and their state law claims are preempted by ERISA. The court stated that its approach is “consistent with ERISA’s goals of protecting plan participants” and encouraging doctors to provide care to patients. Accordingly, the court allowed the provider’s promissory estoppel claim to proceed and denied defendant’s motion for judgment on the pleadings.

Life Insurance & AD&D Benefit Claims

Second Circuit

LePino v. Anthem Blue Cross Life & Health Ins. Co., No. 22-cv-4400 (NSR), 2023 WL 5001439 (S.D.N.Y. Aug. 4, 2023) (Judge Nelson S. Roman). Plaintiff Tricia LePino’s husband, John Capotorto, III, died on February 22, 2022, from acute intoxication due the combined effects of heroin, fentanyl, and xylazine (a non-opioid horse tranquilizer, commonly referred to as Tranq, sometimes cut into street drugs). Following her husband’s overdose, Ms. LePino submitted a claim for life insurance benefits under Mr. Capotorto’s ERISA-governed policy. Her claim was denied by defendant Anthem Blue Cross Life and Health Insurance Company pursuant to the plan’s broad exclusion for deaths resulting from, either wholly or partly, the influence of any controlled substance. In this action, Ms. LePino seeks to recover benefits under the plan. Anthem moved to dismiss for failure to state a claim based on the theory that no benefit is owed to Ms. LePino because of the unambiguous language of the plan’s exclusion for payment of benefits for drug-related deaths. Anthem’s motion was granted, without prejudice, by the court in this decision. It agreed with defendant that the insured’s death falls squarely within the plain meaning of the unambiguous exclusionary provision. The court concluded that “a natural reading of the Exclusionary Provision indicates that it applies to any death caused by an incident which the Insured was affected by drugs.” Ms. LePino’s preferred reading of the exclusion – applying the language only to deaths resulting from accidents that occur while a person is under the influence of drugs – was viewed by the court as “overly narrow.” Moreover, the court stated that the exclusion covered decedent’s death despite the fact that it does not expressly use the term “overdose.” Finally, the court found the language of the policy exclusion here distinguishable from other ERISA life insurance cases that similarly involved narcotic overdoses and drug exclusions where plaintiffs’ claims were found to have met Rule 8 pleading standards, because “Defendant’s Policy plainly excludes deaths, caused, even in any part, for being under the influence of drugs.” Accordingly, the court found the exclusion applies here and therefore granted the motion to dismiss. Ms. LePino was given one month to file an amended complaint should she wish to do so.

Medical Benefit Claims

Second Circuit

Kwasnik v. Oxford Health Ins., No. 22-CV-4767 (VEC), 2023 WL 5050952 (S.D.N.Y. Aug. 8, 2023) (Judge Valerie Caproni). Plaintiff Fiana Kwasnik is covered under an ERISA healthcare policy insured by defendant Oxford Health Insurance, Inc. Ms. Kwasnik sought IVF treatment for infertility issues and submitted a claim to her plan to cover her round of fertility treatments which included hormone injections, an egg retrieval, genetic testing, and egg fertilization. Her plan expressly covers infertility treatments. However, her claim for IVF treatment was denied by the plan because Ms. Kwasnik had previously retrieved and fertilized eggs which had resulted in preserved frozen embryos, called oocytes. The plan insisted that Ms. Kwasnik could use these oocytes, rather than undergo a new round of treatments. Ms. Kwasnik had paid for this previous treatment herself, without the benefit of her health insurance plan. She maintains that the plan was not allowed to rely on the existence of her previous fertility treatments to deny a claim for her current treatment on medical necessity grounds. She appealed the adverse benefit determination. After the denial was upheld, Ms. Kwasnik sought an external review of the denial under New York state law. Her review was assigned to Island Peer Review Organization, Inc. Island Peer upheld the denial. Ms. Kwasnik then commenced this ERISA action, asserting claims against both Oxford and Island Peer. In essence, she argues that the denial of her IVF treatment was improper, and the external review wrongfully upheld the denial. Ms. Kwasnik brings claims pursuant to Sections 502(a)(1)(B) and 502(c) seeking money damages, declaratory judgment, injunctive relief, and attorneys’ fees. Defendants filed separate motions to dismiss for failure to state a claim. Oxford sought dismissal of Ms. Kwasnik’s Section 502(c) and declaratory judgment claims (but not the claim for benefits). Island Peer sought dismissal of all of the claims asserted against it. The motions to dismiss were granted in this order. The court began with Oxford’s motion to dismiss the claim for failure to provide plan documents upon request. The court found that Ms. Kwasnik could not state this claim against Oxford because Section 502(c) applies only to plan administrators, or alternatively plan sponsors, and Oxford by definition is not a plan administrator under ERISA. Therefore, even assuming, as the court must at the pleadings, that Oxford failed to provide Ms. Kwasnik with the requested documents, the court found that it cannot be held liable for that inaction. Next, the court dismissed the declaratory judgment claim against Oxford, concluding that it was duplicative of her claim for benefits. Accordingly, Ms. Kwasnik was left with only her benefits claim against Oxford. The court then turned to Island Peer’s motion to dismiss. There, it found that the statutory language of New York’s external review insurance law shields Island Peer from lawsuits unless it was grossly negligent or acted in bad faith. Because Ms. Kwasnik did not allege either gross negligence or bad faith, the court agreed with Island Peer that her claims against it could not be sustained. Therefore, its motion too was granted.

Fourth Circuit

T.S. v. Anthem Blue Cross Blue Shield, No. 1:23-cv-60-MOC, 2023 WL 5004499 (W.D.N.C. Aug. 3, 2023) (Judge Max O. Cogburn Jr.). Plaintiffs T.S. and J.S. sued their self-funded ERISA welfare benefits plan, and the plan’s claims administrator, Anthem Blue Cross Blue Shield, after the family’s claim for J.S.’s stay at a residential treatment center was denied. Plaintiffs asserted two causes of action, a claim for benefits under Section 502(a)(1)(B), and a claim for equitable relief under Section 502(a)(3) for violation of the Mental Health Parity Addiction Equity Act. With regard to their Parity Act claim, plaintiffs averred that Anthem’s clinical criteria for coverage of mental health residential programs are more stringent than its analogous medical or surgical benefits because their mental health policies require patients to “fail-first” by attempting treatment at lower levels of care. They argued that these guidelines violate generally accepted standards of mental healthcare best practice. Anthem moved to dismiss the Parity Act claim. Its motion for partial dismissal was granted by the court in this order. The court agreed with defendant that Fourth Circuit precedent does not allow for simultaneous pleading of claims under Sections 502(a)(3) and 502(a)(1)(B) where, as here, plaintiffs have an adequate legal remedy through their benefits claim and the two claims are premised on the same injury. “Plaintiffs’ underlying injury is the same – Defendants’ denial of benefits under the plan. Plaintiffs have a cause of action against the Plan directly under § 1132(a)(1)(B). ‘Thus, relief through the application of Section 1132(a)(3) would be inappropriate.’” Accordingly, the court granted the motion to dismiss the equitable relief claim.

Pension Benefit Claims

Ninth Circuit

Iannacone v. Int’l Bhd. of Elec. Workers Pension Benefit Fund, No. CV-22-01599-PHX-DWL, 2023 WL 5017008 (D. Ariz. Aug. 4, 2023) (Judge Dominic W. Lanza). Pro se plaintiff Quido Iannacone brought suit against the International Brotherhood of Electrical Workers Pension Benefit Fund to challenge the termination of his monthly pension benefits. Defendant ceased issuing the payments after it learned that Mr. Iannacone was continuing to pay his union dues. It informed him that he could not have his pension benefits reinstated while he continued to pay these dues. Mr. Iannacone maintained that he kept paying his dues to allow him to speak at local union meetings and to run for union office, things that were important to him. However, Mr. Iannacone had ceased working in the electrical trade, and because he never violated the plan’s prohibition on work, he believed that he qualified for continued monthly payments under the terms of the plan. Nevertheless, the union steadfastly disagreed. It argued that it had a long-standing policy of precluding active dues-paying union members from receiving pensions, and that retirees have always been precluded from participating in the affairs of the local unions. The pension fund moved for summary judgment. The court resolved the dispute in favor of defendant, granted its motion for judgment, and affirmed the adverse benefit decision. It concluded that under abuse of discretion review the termination was reasonable and consistent with the fund’s long held eligibility rules, which themselves were a reasonable reading of the plan language. Further, the court agreed with defendant that “there was no ‘wholesale and flagrant’ procedural violation that deprived Plaintiff of a full and fair review,” despite the fact that the denial letter did not notify Mr. Iannacone of his right to sue under ERISA Section 502. The court found that because the letter “was not the final step in the claim process – any violation was relatively minor.” This was particularly true here, the court stated, because Mr. Iannacone “was successful in timely filing this action.” Therefore, the court declined to alter the standard of review to de novo. In sum, the court expressed that it was sympathetic to Mr. Iannacone over the plan’s requirement that union members cease working and stop actively participating in local union activities in order to obtain pension benefits, but that the terms of the plan and the union’s practice were clear that these actions were prerequisites for benefit eligibility, and until he met the requirements Mr. Iannacone was not entitled to benefits. Accordingly, the court affirmed the fund’s decision.

Plan Status

Fifth Circuit

Edwards v. Guardian Life Ins. of Am., No. 1:22-CV-145-KHJ-MTP, 2023 WL 5120246 (N.D. Miss. Aug. 9, 2023) (Judge Kristi H. Johnson). In 2022, Pam Edwards died from terminal cancer. After her death, her widower, James Edwards, was informed by the family’s attorney that his wife was insured under a group life insurance policy she had purchased in 2007 for the hair salon she owned and operated with Guardian Life Insurance of America. Mr. Edwards subsequently submitted a claim for benefits under the $85,000 policy. His claim was denied. Guardian maintained that unrelated to her terminal cancer diagnosis, it had very recently cancelled the hair salon’s ERISA plan because not enough of the salon’s employees maintained insurance and the company had therefore fallen below its required participation level. Guardian claims that it sent letters to the salon informing it of the termination. The salon and the attorney could find no record of said letters. Believing that the termination of the life insurance policy was a false justification to deny the claim for benefits, Mr. Edwards commenced this action against Guardian. He asserted a claim for benefits under ERISA and also a claim under Mississippi state law. Guardian moved for partial summary judgment on the issue of the plan’s status as an ERISA-governed plan. It requested declaratory judgment from the court holding that the plan is governed by ERISA and that the state law contract claim was therefore preempted by ERISA. The court granted the partial summary judgment motion. It agreed that the plan qualified as an ERISA plan, and that the salon’s employees did not qualify as independent contractors because Ms. Edwards controlled their hours and pay, and owned the salon and its equipment. Moreover, the court found that because the salon paid 100% of the policy’s premiums, the plan did not qualify for ERISA’s safe-harbor exemption. As the court determined that the policy falls under ERISA, it then turned to whether the state law claim related to the plan, or whether it could be considered a state insurance regulating law exempted from preemption under ERISA’s savings clause. Mr. Edwards maintains that Mississippi common law prohibits cancelling an insurance policy after an insured becomes uninsurable from a fatal or terminal illness. The court found that this common law was really a breach of an insurance contract claim, and while the law has a bearing on insurers, it is not a law specifically directed towards the insurance industry and therefore not covered under the savings clause. Thus, the court held that the law-regulating-insurance exception did not apply here, and the contract claim was therefore preempted. The court therefore dismissed the state law claim with prejudice. Accordingly, Mr. Edwards was left with only his ERISA benefits claim.

Pleading Issues & Procedure

Seventh Circuit

Bledsoe v. Continental Cas. Co., No. 22-cv-02170, 2023 WL 5018000 (N.D. Ill. Aug. 7, 2023) (Judge Sharon Johnson Coleman). Pro se plaintiff Letra Bledsoe sued her former employer, Continental Casualty Co., and its HR representative, Elizabeth Aquinaga, under Title VII of the Civil Rights Act, ERISA, and for libel. In her three-page complaint, Ms. Bledsoe argues that Continental Casualty violated ERISA by failing to permit a lump sum payment of her pension benefits. She also claimed that defendants discriminated against her and that she faced harassment in the workplace. Defendants moved to dismiss for failure to state a claim. The court granted the motion to dismiss without prejudice. The court found the complaint failed to allege that the ERISA plan allows for lump sum payments, and therefore concluded that Ms. Bledsoe failed to plausibly state a claim that she is entitled to any such payment. It similarly concluded that the complaint was deficient in its allegations of Title VII discrimination, and that Ms. Bledsoe gave no indication she exhausted her administrative remedies by filing a claim with the EEOC after the alleged violation occurred. Finally, the court dismissed the state law libel claim for lack of subject matter jurisdiction.

Provider Claims

Third Circuit

Univ. Spine Ctr. v. Cigna Health & Life Ins. Co., No. 22-02051 (SDW) (LDW), 2023 WL 5125443 (D.N.J. Aug. 10, 2023) (Judge Susan D. Wigenton). Plaintiff University Spine Center provided treatment to a patient insured under an ERISA health benefit plan administered and insured by Cigna Health & Life Insurance Company. After it was assigned benefits from the patient, the provider submitted a claim for reimbursement to Cigna. Cigna issued a payment, but not for the nearly $400,000 for which the provider sought reimbursement. Instead, it paid just over $8,000. Disputing this calculation, University Spine sued Cigna under ERISA Section 502(a)(1)(B) seeking reimbursement. Cigna moved for dismissal pursuant to the plan’s anti-assignment provision. The court granted the motion to dismiss for lack of derivative standing on February 21, 2023. University Spine moved to alter or amend that judgment and also moved for leave to amend its complaint. It argued that it received a valid power of attorney (“POA”) from the patient, and that it can therefore bring an ERISA claim on behalf of the patient for reimbursement of the medical costs. The court did not agree. “Plaintiff seeks to use the POA to circumvent the anti-assignment provision for the apparent benefit of Plaintiff, rather than to serve as an attorney-in-fact to benefit the Patient. Such a scheme constitutes improper use of a POA in this context.” Consequently, the court found that plaintiff’s motion to alter or amend its judgment presented insufficient grounds to cure its fatal jurisdictional deficiency and therefore denied the motion. It also found that because the provider cannot establish standing, any further amendment to the complaint would be futile. Thus, the court also denied the motion for leave to amend.

Venue

Fourth Circuit

Kovach v. LHC Grp., No. 3:23-0051, 2023 WL 5002457 (S.D.W. Va. Aug. 4, 2023) (Judge Robert C. Chambers). Two former employees of LHC Group, Inc. who are participants in the company’s 401(k) plan have sued LHC, the plan’s committee, and the individual committee members for breaches of their fiduciary duties under ERISA. Plaintiffs alleged that defendants mismanaged the plan by failing to monitor its fees and investments. Defendants moved to transfer venue from the Southern District of West Virginia to the Western District of Louisiana. The court ultimately granted the motion to transfer, concluding that the action could have been filed in Louisiana and the balance of factors strongly favored transfer. In particular, the court focused on the fact that the plan is administered in Lafayette, Louisiana, that all administrative decision-making occurred there, and all of the defendants are located in the state. These facts, the court determined, meant that the case has a greater connection to the Western District of Louisiana than it does to the Southern District of West Virginia, where the plaintiffs worked, lived, and contributed to the plan. Thus, the court determined that “nearly all discovery related to the Committee members’ decisions and actions regarding the alleged mismanagement and breaches of fiduciary duties occurred within the Western District of Louisiana.” Additionally, the court noted that plaintiffs’ participation in the ligation will most likely be less than defendants’ involvement will be. Therefore, the court gave greater consideration to the defendants’ forum non conveniens argument. “Under these circumstances, the Court has no difficulty finding the inefficiencies of litigating this matter in the Southern District of West Virginia are overwhelmingly evident and the considerations of convenience, fairness, and interest of justice strongly favor transferring this action to the Western District of Louisiana.” Thus, the court granted defendants’ motion and ordered the case to be transferred.

Tenth Circuit

Shani N. v. Gillette Childrens Specialty Healthcare Med. Benefit Plan, No. 4:22-cv-00070-RJS-PK, 2023 WL 5046818 (D. Utah Aug. 8, 2023) (Judge Robert J. Shelby). Mother and daughter plaintiffs Shani N. and J.G. sued their self-funded ERISA welfare plan, the Gillette Children’s Specialty Healthcare Medical Benefit Plan, after J.G.’s claims for stays at two out-of-network residential treatment programs in Utah and Arizona were denied. One of the residential treatment centers was found by the plan to be a wilderness therapy program expressly excluded from coverage under its language. J.G.’s treatment at the other facility was approved up until she turned 18, at which point the plan ceased paying for treatment as its terms only provide for such care for minors. Seeking payment of benefits and challenging the plan’s limitations for mental healthcare, plaintiffs sued the plan for violating ERISA Section 502(a)(1)(B), and also intend to state a claim under Section 502(a)(3). Defendant moved to dismiss the complaint for lack of personal jurisdiction, improper venue, and failure to state a claim. In the alternative, defendant moved to transfer venue from Utah to Minnesota. Plaintiffs opposed. The court began its discussion with defendant’s challenge to personal jurisdiction and improper venue. It found that the plan failed to meet its burden to demonstrate that litigating in Utah violates the principles of due process and therefore denied the motion to dismiss on either basis. Having concluded that venue is proper in Utah, the court proceeded to analyze whether Minnesota would be a more convenient forum and, as a result, whether the interests of justice would be served by transferring. The court answered in the affirmative. Because all parties are located in Minnesota, the court dockets are less congested in Minnesota, and all relevant events occurred in Minnesota aside from J.G.’s treatment, the court held that transferring was in the best interest of justice. Thus, it granted the motion to transfer. Last, the court denied without prejudice defendant’s motion to dismiss pursuant to Rule 12(b)(6). The court decided not to resolve the substantive issues raised in the motion to dismiss for failure to state a claim. Instead, the court prompted the plan to refile the motion before the court in Minnesota.