Bugielski v. AT&T Servs., Inc., No. 21-56196, __ F.4th __, 2023 WL 4986499 (9th Cir. Aug. 4, 2023) (Before Circuit Judges Paez and Bade and District Judge Raner C. Collins)
Section 406(a) of ERISA prohibits benefit plan fiduciaries from entering into certain transactions with “parties in interest.” Prohibited transactions include the sale of property, lending of money, transfer of interest in plan assets, and any “furnishing of goods, services, or facilities.” Parties in interest include any plan fiduciary, the employer, employees, and any third-party service providers. Because the statute is so broadly written, plan fiduciaries and beneficiaries often battle over how far it reaches, and this case is yet another example.
The plaintiffs were Robert Bugielski and Chad Simecek, former AT&T employees who contributed to AT&T’s retirement plan. Recordkeeping duties were performed by Fidelity Workplace Services. The plaintiffs filed a class action lawsuit against AT&T centered around the services performed by Fidelity.
Fidelity had been the plan’s recordkeeper since 2005, but in 2012, AT&T amended its contract with Fidelity to provide plan participants with access to Fidelity’s brokerage account platform, called BrokerageLink. Fidelity charged fees to participants for investing with BrokerageLink, and also received “revenue-sharing fees” from the mutual funds in which participants invested using BrokerageLink. Fidelity earned millions of dollars through this revenue sharing.
Following this, in 2014, AT&T contracted with Financial Engines Advisors, LLC to provide optional investment advisory services to plan participants. In order to advise participants, Financial Engines needed access to participant accounts, which it obtained when AT&T amended its contract with Fidelity to provide Financial Engines with the access it needed. Financial Engines and Fidelity also entered into a separate contract through which Fidelity received a portion of the fees Financial Engines earned from managing participant investments. Again, this was highly lucrative for Fidelity, which received millions of dollars through this agreement.
The plaintiffs criticized these arrangements and contended that AT&T violated ERISA in three ways. First, they argued that AT&T’s failure to consider Fidelity’s compensation rendered its contract with Fidelity a prohibited transaction under ERISA. Second, they contended that AT&T breached its duty of prudence to plan participants by failing to consider this compensation. Third, plaintiffs argued that AT&T failed to disclose this compensation in its annual Form 5500 report to the Department of Labor.
The district court granted summary judgment to AT&T on all counts, and the plaintiffs appealed.
The Ninth Circuit first tackled the prohibited transaction claim. The court quickly found that AT&T’s contract amendment with Fidelity was a prohibited transaction under ERISA’s “plain and unambiguous statutory text.” Fidelity was clearly a “party in interest” because it “provided services to the plan,” and the amendment constituted a “furnishing of services” between AT&T and Fidelity.
AT&T contended that ERISA’s prohibited transactions provision was not intended to include “arm’s-length service transactions,” but the Ninth Circuit was unmoved. The court emphasized that the statute was broadly written, and thus must be broadly interpreted. The statute “contains no language limiting its application to non-arm’s-length transactions, and accepting AT&T’s ‘statutory intent’ argument would undermine the scheme Congress enacted.”
The court further noted that its interpretation was supported by the Department of Labor, which had issued an advisory opinion involving “remarkably similar” facts. The Department had observed that arrangements like the one in this case “could lead to potential conflicts of interest” and thus constituted prohibited transactions.
Undeterred, AT&T cited three cases which supported its theory that arm’s-length transactions should not be included in ERISA’s definition of prohibited transactions: Lockheed Corp. v. Spink, 517 U.S. 882 (1996), Sweda v. University of Penn., 923 F.3d 320 (3d Cir. 2019), and Albert v. Oshkosh Corp., 47 F.4th 570 (7th Cir. 2022). (Your ERISA Watch discussed the latter two rulings in its May 5, 2019 and September 7, 2022 issues.)
The court found that Lockheed was inapposite, partly because it was not even clear that the arrangement in that case was a “transaction” in the first place, and furthermore, it did not “have the potential to be harmful,” whereas here the fees involved “could ‘significantly reduce’ participants’ assets.” As for Sweda and Albert, the Ninth Circuit found them “unpersuasive” and “disagreed with [their] analysis” because they did “not follow the statutory text.” The Ninth Circuit noted that neither case considered the Department of Labor’s thoughts on the issue, which strongly supported the court’s conclusion that the transactions at issue were statutorily prohibited.
Thus, the Ninth Circuit squarely ruled that the transactions at issue were prohibited. However, this was not the end of the story. Even if a transaction is prohibited, ERISA allows for an exemption if (1) the contract or arrangement is “reasonable,” (2) the services are “necessary for the establishment or operation of the plan,” and (3) no more than “reasonable compensation is paid” for the services.
The Ninth Circuit bypassed the first two requirements and focused on the third. AT&T argued that “reasonable compensation” only referred to what Fidelity received directly from the plan and its participants, while the plaintiffs contended that “reasonable compensation” included the compensation Fidelity received from Financial Engines and BrokerageLink.
The Ninth Circuit again agreed with the plaintiffs, and in doing so again relied on the Department of Labor, which had stated in its amendment of regulations that “responsible plan fiduciaries have a duty to consider compensation that will be received by a [party in interest] from all sources in connection with the services it provides to a covered plan pursuant to the [party in interest’s] contract or arrangement.”
The court particularly noted the Department’s concern regarding “third-party fees.” The Department observed that these fees involved “special risks” because they can “create conflicts of interest between service providers and their clients.” The Department also noted that these payments have “been largely hidden from view,” thereby preventing fiduciaries “from assessing the reasonableness of the costs for plan services.”
Because the district court did not consider the compensation Fidelity received from Financial Engines and BrokerageLink in evaluating whether “reasonable compensation” was paid for its services, the Ninth Circuit remanded for the district court to engage in that analysis in the first instance.
For the same reasons, the Ninth Circuit reversed the district court’s ruling in AT&T’s favor on plaintiffs’ second claim for violation of the duty of prudence. The court noted that fiduciaries such as AT&T “must have information about the compensation – direct and indirect – received by service providers like Fidelity ‘to satisfy their fiduciary obligations under ERISA[.]’” However, a fiduciary cannot satisfy these obligations “if he or she is unaware of how and to what extent a service provider is compensated.”
This left only one claim, plaintiffs’ argument that AT&T incorrectly reported Fidelity’s compensation to the Department of Labor in its Form 5500. The Ninth Circuit upheld the district court’s ruling that AT&T correctly reported Fidelity’s compensation from BrokerageLink. However, it reversed as to Financial Engines, holding that its fees were not “eligible indirect compensation,” and thus should have been reported.
As a result, the Ninth Circuit reversed and remanded for further evaluation by the district court. The court’s unvarnished criticism of the Third Circuit’s decision in Sweda and the Seventh Circuit’s decision in Albert is noteworthy, and thus Your ERISA Watch will be keeping a close eye on this case to see if it receives en banc review or perhaps even the attention of the Supreme Court.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
The Trs. of the N.Y. State Nurses Ass’n Pension Plan v. Hakkak, No. 22-cv-5672 (ER), 2023 WL 4967071 (S.D.N.Y. Aug. 2, 2023) (Judge Edgardo Ramos). The relationship between the Trustees of the New York State Nurses Association Pension Plan and the private equity firm, White Oak, began in 2013. After pitching their funds to the plan, defendants Andre Hakkak and Barbara McKee, the co-founders of the firm, were able to convince the Trustees to enter into an Investment Management Agreement with White Oak. They did so on December 31, 2013. The Agreement included an arbitration clause with broad language requiring any dispute arising from the agreement be resolved by arbitration. Without the input of the Trustees, White Oak executed a Limited Partnership Agreement (“LPA”), which included “irrevocably committing the investments to White Oak since the LPAs ‘locked up’ the Funds.” In 2015, the Investment Management Agreement was set to expire. “Around the same time, unknown to the Trustees, Defendants courted the Plan’s chief investment officer…to join White Oak.” Operating under that conflict of interest, the investment manager of the plan recommended to the Trustees that they renew the agreement for another two years. Based on that advice, the Trustees signed a new Investment Management Agreement with White Oak, and this renewed agreement contained the same broad arbitration provision as the original agreement. One month after the new agreement was signed, White Oak hired the plan’s chief investment officer as their new Vice Chairman. The Trustees, now aware of the relationship between their own investment manager and White Oak, tasked the plan’s new chief investment officer with closely inspecting White Oak. What he found became the basis of a 2017 arbitration proceeding between the parties, wherein the Trustees alleged that White Oak breached its fiduciary duties by never returning money owed to the plan, unilaterally “locking-up” the funds in the LPAs, charging the plan retroactive fees, and committing the plan to indemnify it against losses and claims caused by its conduct. The arbitrator found that White Oak had violated ERISA by engaging in numerous prohibited transactions. The arbitrator removed White Oak as the plan’s investment manager, ordered disgorgement of profits, and awarded fees and costs to the Trustees. That arbitration award was then confirmed in court. Defendants however “continue to hold the Plan’s money, and the Trustees claim that Defendants engaged and are engaging in prohibited transactions contrary to their fiduciary duties.” Thus, the Trustees brought this ERISA action against the co-founders. Defendants then filed a motion to compel arbitration as non-parties to the Investment Management Agreement on the basis of equitable estoppel because of their close relationship with White Oak and as the Trustees’ claims fall under the broad language of the arbitration clause. In this order the court agreed with defendants and granted their motion to compel arbitration. It stated that the defendants may equitably estop the Trustees as they are sufficiently intertwined with White Oak and the claims fall under the agreement. Moreover, the court found that unmistakable evidence existed that the parties intended to submit the threshold question of arbitrability to the arbitrator, because the arbitration clause invokes the American Arbitration Association and its rules. Accordingly, the court ordered a stay of the case until the arbitrator decides this threshold issue.
Harrison v. Envision Mgmt. Holding Inc., No. 21-cv-00304-CNS-MDB, 2023 WL 4945841 (D. Colo. Aug. 3, 2023) (Magistrate Judge Maritza Dominguez Braswell). In early 2021, plaintiff Robert Harrison filed this class action involving an ERISA-governed ESOP, the Envision Management Holding, Inc. Employee Stock Ownership Plan. Defendants – the selling shareholders, Argent Trust Company, the company’s board of directors, and the plan’s committee – moved to compel arbitration. That motion was denied. The court found the arbitration provision invalid because it disallowed plan-wide relief “expressly contemplated by ERISA.” Defendants appealed to the the Tenth Circuit and moved to stay the order while the appeal was pending. The motion to stay was granted. The Tenth Circuit Court of Appeals then affirmed the order denying the motion to compel arbitration. A summary of that decision was Your ERISA Watch’s case of the week in our February 15, 2023 newsletter. Defendants filed a petition for rehearing, which the Tenth Circuit denied. Jurisdiction then returned to the district court. Defendants subsequently filed a petition to the U.S. Supreme Court and argued in the district court in favor of keeping the stay pending resolution of their petition. The court “decided to lift the stay, but stage discovery to account for the…petition to the Supreme Court.” In response, defendants renewed their motion to stay pending appeal in light of an intervening Supreme Court decision in Coinbase, Inc. v. Bielski, 143 S. Ct. 1915 (2023). Defendants argued that the Coinbase decision requires an automatic stay until resolution of appeals, including petitions to the Supreme Court, in cases involving disputes over arbitration. Mr. Harrison disagreed with this reading of the decision and instead argued that Coinbase decided a narrow issue, resolving a circuit split over whether the statutory right to appeal under 9 U.S.C. § 16(a) comes with an automatic stay while an appeal is pending in the court of appeals. He maintained that the automatic stay does not extend through resolution of a petition in the Supreme Court. In this decision, the court agreed with plaintiff. “Nowhere in Coinbase does the majority discuss the application of this automatic stay beyond the court of appeals process.” Not only did the court conclude that Coinbase does not require an automatic stay, but it also declined to reinstate the stay. Doing so, the court found, would prejudice plaintiff as a continued delay could make it harder to litigate the claims. Based on the foregoing, the court denied defendants’ motion, and ordered the discovery process to continue pursuant to the court’s staggered discovery schedule.
Breach of Fiduciary Duty
McDonald v. Laboratory Corp. of Am., No. 1:22CV680, 2023 WL 4850693 (M.D.N.C. Jul. 28, 2023) (Judge Loretta C. Biggs). In this putative class action, plan participant Damian McDonald seeks to represent a class of the participants and beneficiaries of the LabCorp 401(k) Plan “to protect the retirement savings” of those invested in the plan. Mr. McDonald alleges that the Laboratory Corporation of America (“LabCorp”) breached its fiduciary duty of prudence in violation of ERISA. He specifically alleges that LabCorp acted imprudently by allowing the plan to pay excessive recordkeeping fees and by causing the plan to invest in high-cost retail share classes of mutual funds when lower-cost institutional share classes were available to the plan. LabCorp moved to dismiss the complaint for failure to state a claim. In this order the court granted in small part, but mostly denied, the motion to dismiss. The court concluded that plaintiff adequately stated his claim based on excessive recordkeeping fees. Because the complaint alleged that the plan paid over $43 per participant during the class period “when it could have paid $25 or less per participant” and included comparator plans with similar services, the court found the allegations sufficient to withstand a motion to dismiss. LabCorp’s arguments to the contrary were unpersuasive to the court, which considered them inappropriate as they would have required viewing the allegations in a less favorable light to the non-moving party by interpreting and scrutinizing the data provided. Accordingly, the court found that Mr. McDonald identified sufficient benchmarks against which to compare LabCorp’s plan and adequately alleged that the company failed to track how much it was paying for recordkeeping services or to solicit competing bids for cheaper services. Thus, the court allowed the fee claim to continue. However, with regard to the share class claim, the court held that LabCorp made “a meritorious objection to one of Plaintiff’s fourteen proposed high-cost-to-low-cost substitutions. The issue is that the challenged allegedly high-cost fund is a mutual fund, and the proposed lower-cost alternative is a collective investment trust.” The court agreed with LabCorp that mutual funds and collective investment trusts are too dissimilar to compare based solely on price. Thus, the court dismissed this one share class. Nevertheless, the court held that Mr. McDonald stated an imprudence claim based on the remaining thirteen challenged funds.
Patterson v. United Healthcare Ins. Co., No. 22-3167, __ F. 4th __, 2023 WL 4882436 (6th Cir. Aug. 1, 2023) (Before Circuit Judges Siler, Nalbandian, and Readler). Plaintiff-appellant Eric Patterson was injured in a car accident involving a tractor trailer. His medical expenses were covered under his ERISA-governed healthcare plan and paid by United Healthcare Insurance Company. Mr. Patterson later sued the other driver in state court for his injuries. In the lawsuit, Mr. Patterson joined his ERISA plan to obtain a declaratory judgment that it had no right to reimbursement of any potential recovery. During discovery, United maintained that no plan document beyond the summary plan description existed, and that the summary plan description included a right to reimbursement. That lawsuit ended with Mr. Patterson recovering a settlement from the other driver’s employer, and Mr. Patterson agreeing to pay United $25,000 as reimbursement for the medical expenses. But as luck would have it, the story did not end there. In a strange twist of fate, a couple of months later, Mr. Patterson’s wife was unfortunately hurt in a second traffic accident. United once again paid the medical bills, and once again informed the family that it would seek reimbursement from any potential recovery from the other driver. Ms. Patterson did sue the other driver, and again sought a declaratory judgment in state court that United had no reimbursement right. “After initially denying the existence of a plan document, as they did in the first state court case, the plan’s attorneys produced one. The tendered plan document stated that it took precedence over the summary plan document in the event of a discrepancy between the two. And while the summary plan document included a reimbursement right, the plan document did not.” The second state court action ended with the court awarding judgment in favor of Ms. Patterson, including on her declaratory judgment claim against the plan. Having discovered that he was never obligated to reimburse United under the governing document, Mr. Patterson took to the courts once again, filing this action under ERISA against the United entities and the plan’s attorneys, seeking the return of his $25,000. Mr. Patterson also sought to represent a class of similarly situated participants and beneficiaries, believing that what happened to him and his wife was part of a larger practice by defendants of swindling reimbursements out of third-party recoveries. Defendants moved to dismiss, and Mr. Patterson moved to amend his complaint. The district court dismissed the complaint. It found that Mr. Patterson did not have standing to represent a class. As to his individual claim for the return of the money he paid as reimbursement, the district court found that Mr. Patterson had not stated a viable claim under ERISA. Finally, based on futility grounds, the district court denied Mr. Patterson’s motion for leave to amend. This appeal to the Sixth Circuit followed, and in this decision the court of appeals reversed in part and affirmed in part. The decision began by addressing the threshold issue of standing. The Sixth Circuit agreed with the lower court that Mr. Patterson has standing to sue for return of his $25,000 settlement payment, but that he did not plausibly allege any future injury entitling him to prospective injunctive relief. Additionally, the court of appeals agreed that Mr. Patterson does not have standing to pursue class claims because he could not point to any other insured with a similar story to his and his wife’s where United sought an improper reimbursement from a third-party recovery. Thus, the appeals court found that he failed to state facts to show a plausible injury to other participants and beneficiaries. It also concluded that Mr. Patterson had failed to claim that defendants’ actions caused harm to the plan itself in any way, including in the form of inadequate funding. Accordingly, the court of appeals affirmed the district court’s standing conclusions and agreed that Mr. Patterson’s only injury-in-fact was the $25,000 he lost when he settled and paid reimbursement to defendants under false pretenses. Next, the Sixth Circuit addressed defendants’ arguments related to the Rooker-Feldman doctrine. Defendants argued that “this lawsuit is an impermissible attempt to end-run the unsuccessful declaratory judgment claim Patterson brought against United and the plan in state court.” The Sixth Circuit disagreed. Instead, it concluded that Mr. Patterson had properly brought a suit challenging defendants’ actions before and during litigation which he believes were a breach of fiduciary duties they owe him under the plan and ERISA. “Accordingly, this case falls comfortably outside Rooker-Feldman’s purview.” With these threshold matters addressed, the Sixth Circuit proceeded to the merits, and analyzed whether Mr. Patterson could state valid claims for breach of fiduciary duty and prohibited transaction against defendants based on their actions claiming rights to recover reimbursement when they had none. The appeals court began with Mr. Patterson’s equitable relief claims pursuant to Section 502(a)(3). Not only did the court find that the breach of fiduciary duty claim had an equitable basis, but it also found the prohibited transaction claim did too, as the facts underlying both claims are identical and United therefore allegedly used the plan assets for its own purposes violating both duties. “Because both theories Patterson puts forth rest on an equitable basis, they may proceed.” Further, the Sixth Circuit found that disgorgement of the $25,000 and equitable restitution were both forms of equitable relief that may be pursued through Section 502(a)(3). It also held that Mr. Patterson adequately pleaded the tracing requirement to state a disgorgement claim. The Sixth Circuit then evaluated whether Mr. Patterson could sue for relief under ERISA Section 1109. It concluded that he could not because he did not plausibly allege harm to the plan. As for the attorney defendants, the court of appeals held that Mr. Patterson could not state a viable claim under Section 502(a)(3) against them as they were only “implicated through implausible contentions that they participated in a large-scale scheme.” Finally, the Sixth Circuit expressed that it found no error in the district court’s denial of leave to amend the complaint to pursue the putative class claims. As stated earlier, the Sixth Circuit found flaws in Mr. Patterson’s class-based theories and therefore agreed with the district court that a class action here is not viable and amendment therefore is futile. In sum, the court of appeals found that Mr. Patterson had colorable claims for breach of fiduciary duty and prohibited transactions against the United defendants, and therefore reversed this aspect of the lower court’s dismissal. In all other respects, the remainder of the district court’s decision was affirmed.
England v. DENSO Int’l Am., No. 22-11129, 2023 WL 4851878 (E.D. Mich. Jul. 28, 2023) (Judge Mark A. Goldsmith). Participants of the DENSO International America, Inc. 401(k) Plan have sued the plan’s fiduciaries in this putative class action for breaches of their duties of prudence and monitoring. Plaintiffs allege that defendants allowed the plan to pay excessive amounts of recordkeeping and management fees, that the plan retained a higher cost share class for one of the funds offered in the plan, and that defendants selected and retained an underperforming stable value fund in the plan. Defendants moved to dismiss plaintiffs’ complaint for failure to state a claim. The court agreed with defendants that plaintiffs failed to allege sufficient facts from which it could plausibly infer that defendants breached their duties “based on the circumstances that existed at the time defendants acted.” This was especially true for plaintiffs’ claims premised on the underperforming fund. Below-average performance in and of itself, the court found, does not a plausible ERISA violation make. Moreover, the court was not convinced by the allegations in the complaint that defendants paid excessive fees relative to the services received. It found plaintiffs’ blanket assertion that the plan’s recordkeeper “did not provide any services at any higher level that were not also part of the standard package of RKA services provided by all recordkeepers to mega plans” to be conclusory and insufficient to state a plausible claim. For all of plaintiffs’ fee based claims, the court held that they had not provided sufficient benchmarks with which to measure the reasonableness of the costs incurred. Finally, the court rejected plaintiffs’ novel “net expense ratio theory.” Plaintiffs argued that the plan should have offered a retail share class rather than an institutional share class because the particulars of the two funds meant that the retail share class had a greater revenue sharing credit which would have offset the higher cost of the share class, making the net expense actually less than that of the institutional share class the plan invested in. The court stated that these facts did not necessarily indicate imprudence and that plaintiffs therefore failed to state a claim centered on this theory. Thus, the court granted the motion to dismiss.
Hendricks v. Aetna Life Ins. Co., No. CV 19-06840-CJC (MRWx), 2023 WL 4853418 (C.D. Cal. Jul. 25, 2023) (Judge Cormac J. Carney). Plaintiffs Brian Hendricks and Andrew Sagalongos brought this class action against Aetna Life Insurance Company to challenge its uniform policy of denying coverage for Lumbar Artificial Disc Replacement (“Lumbar ADR”) surgery as “experimental or investigational.” On June 11, 2021, the court certified a class of all persons covered by ERISA-governed plans insured by Aetna whose requests for Lumbar ADR were denied on experimental or investigational grounds, and whose denials are subject to abuse of discretion review. A summary of that decision was Your ERISA Watch’s case of the week in our June 23, 2021 newsletter. Before the court here was a motion filed by Aetna to decertify the class in light of the Ninth Circuit’s decision in Wit v. United Behavioral Health, 58 F.4th 1080 (9th Cir. 2023). In this order the court denied the motion. The court reached its decision by distinguishing the facts from Wit. In particular, the court agreed with plaintiffs that “commonality under Rule 23(a)(2), as well as the requirements under Rule 23(b)(1)(A) through (b)(2), remain satisfied notwithstanding Wit’s holdings on the ‘reprocessing’ remedy.” When the court previously found the commonality requirement satisfied, it concluded that this action raised a common question of whether the surgery “has been proven safe and effective for treating degenerative disc disease. If the answer is yes, then Aetna cannot deny requests for Lumbar ADR on the ground that it is experimental or investigational.” To the court, “nothing in Wit…undermines this conclusion.” Furthermore, the court held that the class members do not need to demonstrate entitlement to a positive benefits determination in order to succeed on their claim for breach of fiduciary duty. Moreover, because Aetna’s denials were systematic and made on a common basis, the court stated that it could determine whether Aetna abused its discretion in denying coverage “[i]n one fell swoop.” In addition, the court also held that although “Wit clarified that when exhaustion is required as a matter of contract, the rules governing prudential exhaustion have no place,” this clarification does not disturb the well-settled contract principle of repudiation. In this instance, the court held that Aetna’s denials of coverage for the surgery were systematic and automatic “regardless of whether Plaintiffs exhausted their appeals.” Thus, the court once again found that plaintiffs were typical of the class regardless of their failure to exhaust administrative appeals. Finally, the court held that although Aetna has revised its policy on Lumbar ADR, plaintiffs’ requests for an injunction are not moot. “Nothing prevents Aetna from returning to its old ways, so the injunction is still viable notwithstanding Aetna’s change of heart,” the court wrote. For these reasons, the court was unwilling to decertify the class even in light of the Ninth Circuit’s holding in Wit, and it therefore denied Aetna’s motion.
Goodman v. Columbus Reg’l Healthcare Sys., No. 4:21-CV-15 (CDL), 2023 WL 4935004 (M.D. Ga. Aug. 2, 2023) (Judge Clay D. Land). Participants of Columbus Regional Healthcare System, Inc.’s defined contribution plan filed this putative class action alleging that Columbus Regional breached its fiduciary duties under ERISA by failing to monitor the plan’s investment options and expenses. Plaintiffs amended their complaint to add a prohibited transaction claim under Section 406 of ERISA. Two motions were before the court here. First, Columbus Regional moved to dismiss the new prohibited transaction claim. Second, plaintiffs moved to certify their class under Federal Rule of Civil Procedure 23(b)(1). In this order, the court denied the partial motion to dismiss, and granted the motion to certify. Regarding the motion to dismiss, the court was satisfied that at this pleading stage plaintiffs adequately alleged that the agreements with the service providers constituted prohibited transactions under ERISA, and that they therefore stated their claim. Turning to the motion to certify, the court was convinced the class of participants and beneficiaries of the plan met the requirements of Rule 23(a) and (b)(1). Even Columbus Regional acknowledged “that ERISA actions alleging breach of fiduciary duty are routinely certified under Rule 23(b)(1),” because prosecuting separate actions would run the risk of creating inconsistent adjudications or establishing incompatible standards of conduct for the plan. Columbus Regional also did not dispute that the class was numerous or that representation was adequate. Instead, it challenged plaintiffs’ standing, commonality, and typicality. The court found that plaintiffs had standing to assert their class-wide claims, as “the named Plaintiffs assert that their accounts were negatively affected by each of the three types of alleged fiduciary duty breaches by Columbus Regional.” The court also found that there are common issues of law and fact for plaintiffs’ investment, fee, and prohibited transaction claims. Moreover, the court stated that plaintiffs’ allegations sufficiently imply that Columbus Regional employed flawed practices which were common across the plan and affected all participants. Thus, the court was convinced that plaintiffs’ claims were capable of class-wide resolution, and found plaintiffs met their burden of establishing that their proposed class should be certified.
Park Ave. Podiatric Care v. Cigna Health & Life Ins. Co., No. 22 Civ. 10312 (AKH), 2023 WL 4866045 (S.D.N.Y. Jul. 31, 2023) (Judge Alvin K. Hellerstein). An out-of-network podiatric center, Park Avenue Podiatric Care, P.L.L.C., sued Cigna Health and Life Insurance Company challenging a payment of benefits for care it provided to a patient covered under an ERISA plan insured by Cigna. Park Avenue Podiatric brought state law claims for breach of oral contract, unjust enrichment, promissory estoppel, and a violation of New York’s Prompt Pay Law. On March 13, 2023, the court dismissed the complaint as preempted by ERISA. Park Avenue Podiatric moved for reconsideration. The court denied the motion. It stated that plaintiff had not identified any change in controlling law or facts nor clear error in the original order. Reiterating its prior position, the court maintained that Cigna’s coverage determinations could not be evaluated without consulting and analyzing the language of the ERISA plan, meaning the state law causes of action are preempted. As it had done before, the court rejected Park Avenue Podiatric’s argument that the conversations it had with Cigna created an oral contract and independent legal duty unrelated to the terms of the plan. Consequently, the court viewed the motion for reconsideration as a simple disagreement with its previous conclusions and reading of the complaint. Accordingly, the court’s view that “Cigna’s commitment to pay is inextricable from the terms of the Plan,” remained unaltered and plaintiff’s motion was denied.
Medical Benefit Claims
Hatch v. Wolters Kluwer United States, Inc., No. 20 C 7168, 2023 WL 4930286 (N.D. Ill. Aug. 1, 2023) (Judge Matthew F. Kennelly). A mother and daughter who are a participant and beneficiary of the mother’s employer-provided health plan, the Wolters Kluwer United States, Inc. Health Plan, brought suit against the plan and its administrator seeking judicial review of the plan’s denials of coverage for residential treatment the daughter received for mental health issues during a two-year period from 2018 to 2020. The parties cross-moved for summary judgment. Having evaluated the 9,000-page administrative record, the parties’ briefing, and the denials, the court was left with the opinion that defendants’ “disregard of the relevant evidence,” their “near-verbatim repetition” of findings throughout the many denial letters, those letters’ “use of boilerplate language,” and defendants’ “selective view of the medical evidence,” were all “classic arbitrary and capricious behavior.” Accordingly, the court granted judgment in favor of plaintiffs and denied defendants’ motion for summary judgment. The court also found that plaintiffs’ suit was not time-barred as defendants never informed plaintiffs of the plan’s contractual limitations period, an action which the court found violated the Department of Labor’s regulations. Additionally, the court determined that even if defendants were right that plaintiffs had failed to exhaust administrative remedies for the daughter’s treatment at one of the residential facilities, such a failure would be excusable here because the plaintiffs had a lack of meaningful access to the review procedures. Regarding remedies, the court awarded benefits in part and reversed and remanded in part. The court directed reinstatement of the benefits for the claims where it found “the record indicates that the plaintiff’s condition has either remained constant or worsened,” from the time when benefits were paid to when they were arbitrarily terminated. It reversed and remanded the benefit determinations that it viewed as based on inadequate findings or explanations, but where the record did not definitively show that the benefits were medically necessary. Finally, the court directed plaintiffs to submit briefing on the amount of monetary recovery, interest, attorney’s fees, and costs. Overall, this decision, with its language unequivocally finding the denials arbitrary and capricious, was a significant victory for the plaintiffs.
L.D. v. UnitedHealthcare Ins., No. 1:21-cv-00121-RJS-DBP, 2023 WL 4847421 (D. Utah Jul. 28, 2023) (Judge Robert J. Shelby). Plaintiff L.D., on behalf of her minor daughter, K.D., sued her ERISA-governed welfare plan, The Insperity Group Health Plan, and its plan administrator, UnitedHealthcare Insurance, after the plan stopped paying for her daughter’s stay at a residential treatment center. L.D. brought a claim for recovery of benefits pursuant to Section 502(a)(1)(B), as well as a claim for violation of the Mental Health Parity and Addiction Equity Act. The parties filed competing motions for summary judgment. In this decision the court granted both motions in part and denied both motions in part. First, because the appropriate review standard here was de novo, the court stated that it would not consider defendants’ procedural shortcomings and whether their inconsistencies in the denial letters or even the “cursory nature” of the letters denied plaintiff a full and fair review. Instead, the court evaluated whether a preponderance of the evidence supported a finding that K.D.’s continued stay at the residential treatment center was medically necessary as defined by the plan. The court found that K.D.’s mental health and behavioral problems had not stabilized, and that treatment therefore was medically necessary from February 11 to March 15, 2019, and ordered defendants to pay for K.D.’s treatment at the residential treatment center for these dates. However, from March 16 to August 6, 2019, the court found that the evidence established that K.D. had improved enough to uphold defendants’ denial during this period. Utilizing Optum’s level of care guidelines, the court agreed with defendants that K.D. no longer qualified for benefits during this time period as she exhibited no episodes of violence towards herself or others. “K.D.’s ongoing behavioral problems may indicate she needed additional treatment. But they do not demonstrate by a preponderance of the evidence that K.D. needed 24-hour care. K.D. had no self-harm for almost five months and successfully participated in off-campus activities, demonstrating K.D.’s symptoms had stabilized, and she no longer required 24-hour care.” Finally, the court concluded that remand was appropriate to determine the claim from August 7, 2019, to November 4, 2019, agreeing with plaintiff that the record was not developed enough for this time frame because the denial rationales only applied to the claims before August 7, 2019. Thus, the court remanded to defendants to provide a specific rationale for why coverage was denied beyond August 6. The court then turned to plaintiff’s Parity Act claim. Ultimately, the court determined that the plan’s medical necessity limitation applicable to mental health benefits was not more restrictive than the limitation it applied to coverage for skilled nursing facilities or impatient rehabilitation facilities. Although the guidelines for the two were not identical, the court was satisfied they were comparable and that one was not more restrictive or applied in a more restrictive way than the other. Accordingly, defendants were granted judgment on the Parity Act claim. Last, the court allowed plaintiff to submit briefing on prejudgment interest, attorney’s fees, and costs on the portion of the denial of benefits claim for which she was successful.
Pleading Issues & Procedure
Sacerdote v. N.Y. Univ., No. 16 Civ. 6284 (AT) (VF), 2023 WL 4894909 (S.D.N.Y. Aug. 1, 2023) (Judge Analisa Torres). This action began in 2016, when participants and beneficiaries on behalf of two ERISA-governed New York University retirement plans sued NYU to challenge its management of the plans. Plaintiffs brought fiduciary breach claims related the plan’s fees and share classes. NYU moved to dismiss the action, and on August 25, 2017, the court granted in part the motion to dismiss. Plaintiffs responded by moving for leave to amend their complaint to add the individual Retirement Plan Committee members as defendants and to replead the dismissed claims. Their motion was denied. The case then proceeded to an eight-day bench trial held in the spring of 2018, and that summer, the court issued a written decision finding in favor of NYU on all remaining claims. Plaintiffs moved for amended or additional trial findings under Federal Rule of Civil Procedure 52(b) and to alter or amend the judgment under Rule 59(e). The court denied the post-trial motions. Plaintiffs then appealed the final entry of judgment and the denial of their post-trial motions to the Second Circuit Court of Appeals. On appeal, the Second Circuit found that the court erred in denying leave to amend by applying the wrong legal standard to plaintiff’s 2017 motion. This error, the court wrote, was not “harmless because the resulting denial of leave to amend may have affected plaintiffs’ post-trial motions.” Moreover, the appeals court found that had plaintiffs been allowed to add the individual committee members as defendants “the district court would have had to enter judgements specific to each of them after trial, finding whether each had breached her fiduciary duty as an individual member of the Committee.” The Second Circuit accordingly vacated the denial of leave to amend and remanded plaintiffs’ motion for consideration under the correct legal standard. The Second Circuit also vacated the denial of plaintiffs’ Rule 52(b) and 59(e) post-trial motions. When the case was back before the district court, Magistrate Judge Valerie Figueredo granted plaintiffs’ motion for leave to file a second amended complaint. In that order the Magistrate concluded that naming the individual committee members as defendants would not be futile and was in line with the Second Circuit’s rulings. NYU filed objections and moved to vacate the Magistrate’s order. In this decision, the court overruled the objections and denied the request to vacate. “Instead of identifying errors in the Order, NYU speculates about Plaintiffs’ intentions in this action,” the court said. It held that Magistrate Figueredo’s conclusions were grounded in the text of the Second Circuit’s decision, and after careful review of the order and the Second Circuit decision, the court expressed that it was not “left with the definite and firm conviction that a mistake has been committed.” Mostly, the court viewed NYU’s objections as reiterated arguments already presented to Judge Figueredo. Having found no clear error in the order, the court denied NYU’s motion and directed plaintiffs to file their amended complaint.
Falwell v. Liberty Univ., No. 6:23-cv-11, 2023 WL 4867432 (W.D. Va. Jul. 31, 2023) (Judge Robert S. Ballou). Son of famous televangelist Jerry Falwell, Jerry Falwell, Jr., brings this ERISA action seeking payment of Supplemental Executive Retirement (“SERP”) benefits from his former employer, defendant Liberty University, Inc. following his resignation from Liberty which he alleges was “without cause” and for “good reason” as defined by the plan. Since accepting Mr. Falwell’s resignation in August of 2020, circumstances between the employer and its former employee have soured. One year later, in 2021, Liberty filed suit against Mr. Falwell in state court for claims arising out of alleged actions Mr. Falwell took both during and after his employment. Liberty asserts claims of breach of contract, breach of employment contract, breach of fiduciary duty, conspiracy, and unjust enrichment. “Particularly relevant to this case, Liberty alleges that Falwell breached his fiduciary duty to Liberty by negotiating the ‘walkaway’ severance and [SERP] benefits in 2019 and 2020 while withholding pertinent information from Liberty.” By the time Mr. Falwell submitted his claim for SERP benefits in 2022, the state court action was already underway and his claim for benefits was denied because the committee stated that it could not properly construe the terms of the plan or Mr. Falwell’s eligibility for benefits while the state court action was pending. After a final denial was issued, Mr. Falwell commenced this federal action against Liberty and the Executive Committee of the Board of Trustees of the university seeking payment of his benefits under Section 502(a)(1)(B). Liberty responded by requesting the court apply the Colorado River abstention doctrine and either dismiss or stay this action pending the Virginia state court proceeding. The Colorado River doctrine allows a court to exercise its discretion to stay or dismiss a federal suit “in exceptional and limited circumstances where there is a substantially similar suit pending in state court.” Here, the court did not find that such circumstances existed and therefore denied defendant’s motion. Although Liberty asserted that abstention was warranted because rescission of the ERISA plan is a remedy it is seeking in state court and in direct conflict with Mr. Falwell’s request for an order of payment of benefits by the court in this action, the court found this argument “insufficient to warrant abstention.” Overall, it agreed with Mr. Falwell that the factors used to assess the appropriateness of abstention were not met and the state and federal actions were “not sufficiently similar to constitute parallel proceedings.” Moreover, the court stated that resolution of the state court action “will not necessarily resolve the claims in this federal ERISA case.” In perhaps the most interesting section of the decision the court found fault with Liberty’s “unabashed” attempt “to use the state court discovery process to conduct fact-finding outside the administrative record in an effort to unwind the [SERP] contract and avoid paying benefits under an ERISA plan. Liberty’s request that this court abstain to allow it to engage in discovery in state court conflicts with the clear congressional intent of the ERISA statute to permit the nationally uniform administration of employee benefit plans through the federal courts.” The court stressed that this use of a state court proceeding’s discovery process is not the proper use of Colorado River abstention and is moreover antithetical to ERISA’s claims handling procedures. For these reasons, the court declined to exercise its discretion to stay proceedings or dismiss the action.
Karkare v. Meritain Health, No. 22-CV-3697 (FB) (AYS), 2023 WL 4904754 (E.D.N.Y. Aug. 1, 2023) (Judge Frederic Block). Surgeon Nakul Karkare sued Meritain Health under ERISA as an attorney-in-fact on behalf of a patient on whom he performed surgery at a hospital. Dr. Karkare seeks payment of benefits for the surgery for which the patient is otherwise responsible. Meritain Health moved to dismiss the action, which the court granted in this order. The court stated that in the Second Circuit a power of attorney is insufficient for a provider to bring a suit on behalf of a patient under ERISA. As Dr. Karkare did not allege that he was assigned benefits, the court found that he lacked derivative standing to sue for benefits, and because he lacked statutory standing under ERISA, the court dismissed the complaint with prejudice.
Withdrawal Liability & Unpaid Contributions
Greater St. Louis Constr. Laborers Welfare Fund v. B.F.W. Contracting, LLC, No. 22-2138, __ F. 4th __, 2023 WL 4940260 (8th Cir. Aug. 3, 2023) (Before Circuit Judges Smith, Stras, and Kobes). Two labor unions, four employee benefit funds, and the trustees of those funds sued construction companies B.F.W. Contracting, LLC and B.F.W. Contractors, LLC to compel an audit and recover unpaid contributions pursuant to a collective bargaining agreement. The district court found that the contractors were bound by the collective bargaining agreement, that they could not unilaterally terminate the agreement, and that they had violated its terms. It granted summary judgment in favor of plaintiffs and found they had incurred $30,368.22 in damages for the unreported covered work. “This sum included fringe benefit contributions, supplemental dues, liquidated damages, and interest.” Additionally, the district court awarded plaintiffs $4,792 to cover the cost of the audit, $11,015 in attorneys’ fees, and $2,393.54 in court costs. The contractors appealed to the Eighth Circuit. They advanced several arguments, but the court of appeals did not consider most of them because it found a genuine issue of material fact that made the award of summary judgment inappropriate – “whether the Contractors had a duty to pay supplemental dues under the [collective bargaining agreement].” Under the terms of the agreement, supplemental dues are only deducted from employees’ wages at “such time as the Employer has physically in his possession an authorization card signed by the employee providing for such deduction and payment to the respective Local Unions.” The Eighth Circuit concluded that pursuant to this clear language the Board was required to provide evidence that the authorization cards were actually supplied to the contractors in order to show that they breached the collective bargaining agreement and had a duty to pay the supplemental dues. Furthermore, the court of appeals found that the contractors had raised this issue below and therefore had not forfeited the argument. Thus, as this fact issue remains, the Eighth Circuit reversed the summary judgment order and remanded to the district court for further proceedings.