Kairys v. S. Pines Trucking, Inc., No. 22-1783, __ F. 4th __, 2023 WL 4718509 (3d Cir. Jul. 25, 2023) (Before Circuit Judges Hardiman, Porter, and Fisher).

This week’s case of the week is a rare bird: an ERISA Section 510 trial ending in a favorable decision for the plan participant. Plaintiff Thomas J. Kairys sued his former employer, Southern Pines Trucking, Inc. challenging the company’s decision to fire him four months after he took time off work to undergo a costly surgery. Believing his termination discriminatory and retaliatory, Mr. Kairys sued Southern Pines alleging violations of the Americans with Disabilities Act (“ADA”), the Age Discrimination in Employment Act (“ADEA”), ERISA Section 510, and also asserting state-law claims for breach of contract, violation of Pennsylvania’s Wage Payment and Collection Law, and discrimination under Pennsylvania Human Relations Act (“PHRA”).

A jury trial was held in the case simultaneously with a bench trial on the ERISA retaliation claim. The jury returned a verdict finding that Southern Pines had not violated ADA, ADEA, and PHRA, but that Southern Pines had violated the state wage law. In addition, the jury also returned an advisory verdict on Mr. Kairys’ ERISA Section 510 claim, finding that Mr. Kairys’ failed to prove by a preponderance of the evidence that the company’s decision to fire him was motivated by retaliation for his use of costly healthcare benefits from the self-funded ERISA welfare benefit plan, or by an intent to interfere with his rights to use future healthcare benefits for potential upcoming surgeries.

The district court, however, did not adopt this advisory view. Instead, it independently considered the evidence, evaluated the ERISA claim, and determined that Southern Pines had retaliated against Mr. Kairys for using his ERISA-protected healthcare benefits and interfered with his right to future protected benefits. The district court awarded Mr. Kairys $67,500 in front pay and $111,981.79 in attorneys’ fees and costs under ERISA Section 502(g).

Southern Pines appealed the court’s judgment on the ERISA claim (and resulting fee award), and the Third Circuit affirmed.

Although the Third Circuit noted that advisory jury verdicts are generally not binding on a trial court, the district court was required to “accept[ ] the jury’s findings on common facts.”  Nevertheless, the court of appeals held that the district court’s judgment on the ERISA claim “was neither inconsistent with the jury’s verdict on his other claims, nor unsupported by the trial evidence.” Although the “jury made no specific findings of fact,” the court of appeals reasoned that “ADA, ADEA, PHRA, and ERISA claims have distinct elements of proof,” and the jury’s finding that Mr. Kairys’ disability and his age were not a determining factor in his termination, did not necessarily mean that his exercise of ERISA benefits “also must not have been a determinative factor.”

Turning to the merits, the appeals court was satisfied that there was sufficient evidence to support the district court’s verdict on the ERISA claim and that its conclusions with respect to this claim were not clearly erroneous. As an initial matter, the court disagreed with Mr. Kairys that Southern Pine had waived this issue, noting that the company raised the same issues with the sufficiency of the evidence in the district court as it raised on appeal.  Nevertheless, the Third Circuit was satisfied that the evidence in the record could be construed to support a finding that Southern Pines’ decision to terminate Mr. Kairys’ employment was motivated by a discriminatory, rather than a legitimate, reason.

In this regard, the Third Circuit noted that the district court credited Mr. Kairys’ testimony that he was told by his supervisor to “lay low” after his surgery over the contrary testimony of that supervisor and another manager. Moreover, the company’s assertion that it had simply eliminated Mr. Kairys’ position was undermined by the fact that it soon “borrowed” a replacement employee from a sister company. Furthermore, there was evidence that supported that the company was aware of the costs of Mr. Kairys’ surgery and indeed had highlighted the invoices for the surgery and terminated him after reviewing the health insurance records and considering the financial impact of the surgery.

Finally, the Third Circuit held that the lower court had not abused its discretion in calculating a reasonable award of attorneys’ fees and costs. It viewed the district court’s 25% reduction in fees, to account for the claims on which Kairys did not prevail, to be reasonable. Moreover, the Third Circuit found no error in Kairys’ counsel’s time entries.

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


Ninth Circuit

Platt v. Sodexo, No. 8:22-CV-02211-DOC-ADS, 2023 WL 4832660 (C.D. Cal. Jul. 25, 2023) (Judge David O. Carter). Plaintiff Robert Platt is an employee of defendant Sodexo, Inc. and a participant in its medical plan. He brings this action against his employer on behalf of himself and all similarly situated plan participants and beneficiaries for violation of ERISA in connection with the plan’s yearly nicotine surcharge. Mr. Platt argues in his complaint that the nicotine surcharge violates ERISA because there is no alternative to the surcharge, like a smoking cessation program, offered to plan participants. Moreover, Mr. Platt maintains that Sodexo is required to give participants notice of a reasonable alternative standard, which the company is also failing to do. Mr. Platt contends that Sodexo is breaching its fiduciary duties to participants by discriminating against participants based on a health-status related factor and that the collection of the surcharges is contrary to the terms of the plan itself. Sodexo moved to compel arbitration of Mr. Platt’s claims, arguing that the arbitration provision it included to the plan in 2021 covers Mr. Platt’s claims. Mr. Platt opposed the arbitration motion. He argued that the provision lacked mutual assent, as it was buried on page 153 of a 170-page summary plan description that was sent to participants as a hyperlink in an email which did not mention arbitration or in any way put recipients on notice that they would be relinquishing their rights to sue or subject to binding arbitration. Mr. Platt never clicked on the hyperlink to the summary plan description, let alone signed the document, checked a box, clicked a button, or took any action to manifest his knowledge of the provision or his agreement to its terms. In this decision the court denied the motion to compel arbitration, agreeing with Mr. Platt that he had not accepted the agreement to arbitrate. It held that employers “may not unilaterally modify an ERISA plan to include arbitration provisions.” Without conspicuous notice, the court wrote, “it is difficult to see how Plaintiff could have agreed to the provision, be it by silence or by continued participation in the plan. While there is a presumption in favor of arbitration, such a presumption does not override the principle that a court may submit to arbitration ‘only those disputes…the parties have agreed to submit,’…nor that courts may use policy considerations as a substitute for party agreement.” Therefore, the court found no agreement to arbitrate and denied defendant’s motion. Because the court denied the motion to compel arbitration on this ground, it did not reach other issues including those regarding the scope of the provision or its class action waiver.

Attorneys’ Fees

Tenth Circuit

Theo M. v. Beacon Health Options, Inc., No. 2:19-cv-00364-JNP-DBP, 2023 WL 4826771 (D. Utah Jul. 27, 2023) (Judge Jill N. Parrish). Plaintiffs Theo M. and M.M. brought this ERISA mental healthcare action seeking payment from their ERISA-governed mental health and substance abuse plan for reimbursement of medical costs incurred by the family from treatment M.M. received at two residential treatment centers. Parties cross-moved for summary judgment and the court entered judgment in favor of plaintiffs, concluding that defendant Beacon Health Options, Inc.’s denial of benefits was arbitrary and capricious as it failed to explain its reasons for denying the claims despite having “several opportunities to provide Plaintiffs with a coherent reason for denying their claims,” and because it disregarded the opinions of the treating physicians. Given what the court called these “egregious” violations of ERISA’s procedural requirements, the court concluded that reversal of the denials and remanding to Beacon Health for reconsideration was the proper course of action. Now plaintiffs have moved for an award of attorney’s fees and costs pursuant to ERISA Section 502(g)(1). The court granted their motion and ordered defendants pay plaintiffs $51,460 in fees and $400 in costs. Specifically, the court found the fee award appropriate given defendants’ “culpability for failing to properly assess Plaintiffs’ claims,” their abuse of discretion, and the fact that a fee award “would encourage (defendants) to follow ERISA’s regulations and requirements.” The court was also satisfied plaintiffs met the threshold requirement of “success on the merits,” and were thus eligible for a fee award. However, when it came to the amounts of the awards, the court did reduce the requested $63,800 plaintiffs sought in attorney fees. The court agreed with defendants that attorney Brian King’s hourly rate of $600 per hour was excessive and reduced the rate to $500 per hour. Attorneys Brent Newton and Samuel Hall’s hourly rates of $320 and $250 per hour respectively were not altered by the court. Additionally, the court reduced Mr. King’s hours from 87.5 hours down to 80.2 hours, reflecting a reduction in the hours billed preparing the fee motion. The court once again did not disturb the hours of the attorneys Newton and Hall who worked 15.5 hours and 25.6 hours on the case. After these alterations the court was left with its ultimate fee award of $51,460, and declined to reduce this amount as defendants requested to reflect what they viewed as  plaintiffs’ “limited success.” Finally, the court awarded plaintiffs their requested $400 in costs, “attributable to the filing fee.”

Breach of Fiduciary Duty

Tenth Circuit

Teodosio v. Davita, Inc., No. 22-cv-0712-WJM-MDB, 2023 WL 4761621 (D. Colo. Jul. 26, 2023) (Judge William J. Martinez). In this fee case, former employees of DaVita, Inc. and participants of its defined contribution retirement savings plan have brought a putative class action against the plan’s fiduciaries for breaches of their duties of prudence and monitoring in connection with the plan’s administrative management and recordkeeping fees. Plaintiffs allege that these fees were unreasonably high when compared to those associated with similar plan investment options and recordkeepers, and that defendants failed to engage in a prudent process, including by leveraging the bargaining power of their large plan, to select funds and recordkeeping services with lower costs. Defendants moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Their motion was granted in part and denied in part in this order. Scrutinizing plaintiff’s complaint, the court agreed with defendants that plaintiffs had a problem with standing. None of the four named plaintiffs personally invested in any of the challenged funds. Adopting, what it “determined to be the majority position of courts that have considered this issue,” the court held “that for Plaintiffs to have standing to sue on behalf of absent putative class members, they do not need to have invested in each of the allegedly imprudent funds; however, they must have elected to invest in at least one such fund, and the absent putative class members’ injuries must be ‘rooted in Defendants’ conduct in managing all the funds as a group.’” Since plaintiffs did not meet this threshold qualification, the court concluded that they lacked standing to bring their fiduciary breach claim premised on their management fee theory. The court therefore dismissed this portion of their allegations, however it did so without prejudice. Turning to the recordkeeping fee claims, the court found that plaintiffs have suffered a particularized injury-in-fact and that the court thus has subject-matter jurisdiction over these claims. The court then evaluated whether plaintiffs had stated their recordkeeping fee claims under Rule 8 pleading standards and concluded that they had. While the court stated that defendants’ arguments about insufficient comparators were “generally well-taken,” it also held that the “fact-intensive” nature of these arguments make them inappropriate at this stage of the litigation. Accordingly, the 12(b)(6) motion to dismiss the recordkeeping fee imprudence and monitoring claims was denied.

Disability Benefit Claims

Third Circuit

Avery v. Sedgwick Claims Mgmt. Servs., No. 22-1960, __ F. App’x __, 2023 WL 4703865 (6th Cir. Jul. 24, 2023) (Before Circuit Judges McKeague, Griffin, and Murphy). For two years following an accident in which she fractured her ankle, Plaintiff Jacqueline Avery received long-term disability benefits for “advance peripheral deyelinatibe and axonal polyneuropathy [of the] lower legs,” under the plan sponsored by her employer, Chrysler Group LLC. The third-party claims administrator for the Plan, Sedgwick Claims Management Services, then terminated those benefits and Ms. Avery sued for the reinstatement of those benefits. The district court granted judgment in favor of Sedgwick on the administrative record and the Sixth Circuit affirmed on appeal, despite an extensive challenge by Ms. Avery both with respect to numerous perceived procedural deficiencies and with respect to the merits of the decision. With respect to the procedural challenges, the court concluded that Sedgwick substantially complied with ERISA’s statutory and regulatory requirements with respect to notice of the basis for the denial and an opportunity to appeal, did not deny Ms. Avery an opportunity to supplement the administrative record in support of her claim, did not violate the claims regulation by having a non-specialist examine her because two board-certified neurologists then conducted record reviews of the medical evidence, and did not omit any relevant documents from the administrative record. ON the merits, the court concluded that Sedwick’s decision was not arbitrary and capricious, a standard that the Sixth Circuit referred to as “extremely deferential” and “the least demanding form of judicial review.” Applying this standard, the court determined that “Sedgwick engaged in a deliberate, principled reasoning process when it decided to terminate Avery’s long-term disability benefit,” and that the record “contained more than adequate evidence for Sedgwick to conclude that Avery was no longer totally disabled under the terms of the Plan,” supported by “no fewer than four physicians [who] concluded that Avery is no longer totally disabled.”      


Fourth Circuit

Taekman v. Unum Life Ins. Co. of Am., No. 1:22cv605, 2023 WL 4763724 (M.D.N.C. Jul. 26, 2023) (Magistrate Judge L. Patrick Auld). Plaintiff Dr. Jeffrey Taekman, MD, a board certified anesthesiologist who has leukemia, brought this ERISA action seeking to recover long-term disability benefits under an ERISA-governed disability plan insured and administered by defendant Unum Life Insurance Company of America. After an unsuccessful mediation, Dr. Taekman served interrogatories, requests for admission, and requests for production of documents on Unum. Unum responded to Dr. Taekman’s discovery requests, answering some and objecting to most others. Stuck in a discovery dispute, the parties sought resolution in the court. Unum moved for an expansive protective order limiting the court’s review to what Unum views as the complete administrative record and prohibiting parties to engage in written discovery, depositions, and all further production of documents. Dr. Taekman took issue with Unum’s protective order request and its broad assertion that no exceptional circumstances, difficult medical questions, conflicts of interest, or issues regarding the credibility of medical experts are at play here, as well as Unum’s belief that the administrative record is complete. Dr. Taekman not only opposed Unum’s protective order motion, but also moved to compel further discovery. Unum additionally moved to seal “Exhibit C,” which it considered to be the complete administrative record in the case. Dr. Taekman did not object to filing Exhibit C under seal. The court addressed each of these motions in this decision. First, with regard to the protective order sought by Unum, the court agreed with Dr. Taekman that Unum “has not established good cause” to justify such relief. Not only did the court hold that Unum’s discovery responses fell short in many respects, but it also concluded that its general assertions about discovery and the lack of specifics to the particulars of this litigation, meant that Unum failed to demonstrate that closing off further discovery entirely is appropriate here. Accordingly, the court denied Unum’s requested protective order. Nevertheless, the court also found that Dr. Taekman did not satisfy the perquisites for compelled production of further discovery including its conferral obligations. Because of this, the court denied, without prejudice Dr. Taekman’s discovery motion. Dr. Taekman was instructed by the court to file any renewed discovery motion in a more careful and considered manner, and to “clearly address why permitting such discovery, including any requested deposition, qualifies as proportional given the ‘significant restraints on the district court’s ability to allow evidence beyond what was presented to the administrator’ and the need to ‘provide prompt resolution of ERISA claims.’” Finally, the motion to seal was granted. The court found sealing Exhibit C justifiable given the good cause of protecting private medical information.

Eighth Circuit

Hardy v. UNUM Life Ins. Co. of Am., No. 23-cv-563 (JRT/JFD), 2023 WL 4841952 (D. Minn. Jul. 28, 2023) (Magistrate Judge John F. Docherty). Plaintiff Mark W. Hardy, an attorney who became disabled in 2016 from a tumor, sued Unum Life Insurance Company of America after his long-term disability benefits were terminated in late 2020. Mr. Hardy has moved to conduct discovery beyond the administrative record and additionally moved to compel Unum to produce privilege log documents based on the fiduciary exception to attorney-client privilege. The court in this order denied the discovery motion and granted the motion to compel the production of the privilege log documents. To begin, the court stressed the general presumption against extra-record discovery in ERISA disability benefits, particularly those, as here, where the denial will be reviewed under de novo review standard. Mr. Hardy suggested that the administrative record Unum produced was not complete, and that its decision to terminate his benefits “was tainted by bias or bad faith.” With regard to the completeness of the record, the court held that Mr. Hardy failed “to allege or show that any medical evidence or records are missing from the administrative record provided by Unum.” Regarding Unum’s intent while processing Mr. Hardy’s claim, the court stated that such information is irrelevant when analyzing the administrative record de novo. Accordingly, the court held that Mr. Hardy did not satisfy the good cause standard to conduct additional discovery, as it has everything it will need to review the denial on the record as is. However, concerning the motion to compel the privilege log, the court agreed with Mr. Hardy that he was entitled to these documents based on the fiduciary exception to attorney-client privilege. The court expressed that it was unpersuaded by Unum’s position that there was an adversarial relationship between the parties prior to litigation and therefore held that the liability exception-to-the-exception did not apply here.

Medical Benefit Claims

Third Circuit

Univ. Spine Ctr. v. Edward Don & Co., No. 22-3389, 2023 WL 4841885  (D.N.J. Jul. 28, 2023) (Judge John Michael Vazquez). Plaintiff University Spine Center, acting as attorney-in-fact to an insured patient, has sued Edward Don & Company, LLC and Cigna Health and Life Insurance seeking unpaid medical benefits. The healthcare provider’s original complaint was dismissed for failure to state a claim pursuant to Rule 12(b)(6). University Spine Center filed a second amended complaint, and defendants once again moved for dismissal. In this order the court granted the renewed motion to dismiss. Once again, the court held that plaintiff failed to allege that Cigna inaccurately calculated and paid benefits given Cigna’s discretionary authority to interpret the plan’s reimbursement language and its ability to “override” a conflict between two billing codes. Instead, the court found that plaintiff had merely asserted in the complaint that it “disagrees with Cigna’s determinations.” Because the court concluded that University Spine Center had not plausibility alleged that defendants acted in contravention to the terms of the plan, the court found that it had not demonstrated that it was entitled to the relief it sought. The court’s dismissal, however, was without prejudice, and the medical center was given 30 days to file another amended complaint should it choose to do so.

Pension Benefit Claims

Second Circuit

Aracich v. The Bd. of Trs. of the Emp. Benefit Funds of Heat & Frost Insulators Local 12, No. 22-2544, __ F. App’x __, 2023 WL 4692316 (2d Cir. Jul. 24, 2023) (Before Circuit Judges Kearse, Jacobs, and Menashi). In early 2021, plaintiff-appellant Matthew Aracich’s employer, the Building and Construction Trades Council of Nassau & Suffolk Counties, AFL-CIO, terminated its agreement with the International Association of Heat and Frost Insulators Local No. 12 union and ceased making contributions to its pension and welfare plans. At this time, Mr. Aracich announced that he would be retiring from Local Union No. 12, although he remained in his position working for the Trades Council.  Under the terms of the two ERISA plans, Mr. Aracich considered himself retired given that he was no longer employed by a covered employer, and so he applied for early retirement benefits under the plans. The Trustees of the plans denied Mr. Aracich’s benefit claims, interpreting the plan language as requiring him to cease working altogether in order to have “retired” and therefore be eligible for benefits. After unsuccessfully appealing the denial, Mr. Aracich sued the Board of Trustees in a five count ERISA complaint, bringing claims for benefits, retaliation, anti-cutback, breach of fiduciary duty, and breach of contract. The Trustees moved to dismiss the complaint for failure to state a claim. The district court granted their motion and dismissed the action on September 20, 2022. A summary of that decision can be found in Your ERISA Watch’s September 28, 2022 edition. Mr. Aracich appealed the dismissal in the Second Circuit. In this unpublished decision, the Second Circuit affirmed the lower court’s holdings. First, the court of appeals concluded that the Trustees appropriately exercised their discretionary authority in interpreting the ambiguous definition of “retire,” including the term “contributing employer,” under the plans and that their interpretation “was neither ‘without reason’ nor ‘erroneous as a matter of law.’” Accordingly, the Second Circuit held that the Trustees had not violated ERISA in denying the benefit claims. Next, the court of appeals agreed with the district court that Mr. Aracich failed to state a claim under Section 510 because he suffered no adverse employment action and his allegations of disparate treatment compared to similarly situated employees who retired before him were found to be “conclusory.” Additionally, the Second Circuit disagreed with Mr. Aracich that the Trustees’ new interpretation of the term “retire” – to require cessation of all employment – was in direct conflict to the plans’ language which contemplate separation from covered employment, or that this re-interpretation could be considered a plan amendment for the purposes of ERISA’s anti-cutback rule. The Second Circuit wrote that Mr. Aracich “remains entitled to his pension, which he can collect when he retires.” Regarding Mr. Aracich’s breach of contract claim, the appeals court found it duplicative of his claims for benefits. Finally, the appellate court concluded that Mr. Aracich had not stated a claim for breach of fiduciary duty, and that his arguments to the contrary were without merit. For the forgoing reasons, the Second Circuit affirmed the dismissal.

Third Circuit

Luciano v. Teachers Ins. & Annuity Ass’n of Am., No. 15-6726 (RK) (DEA), 2023 WL 4760578 (D.N.J. Jul. 26, 2023) (Judge Robert Kirsch). Plaintiff Lorraine H. Luciano is the surviving spouse of a former employee of defendant Educational Testing Service (“ETS”). After her husband died, Ms. Luciano filed a claim with defendants Teachers Insurance and Annuity Association of America and the College Retirement Equities Fund seeking to recover 100% of her deceased husband’s Qualified Preretirement Survivor Annuity (“QPSA”) under ETS’s 401(a) Plan and its 403(b) Match Plan. Defendants paid Ms. Luciano only 50% of the QPSA benefit. Ms. Luciano then commenced this lawsuit, on behalf of a putative class, challenging the 50% QPSA determination under the plans. The court compelled arbitration as to the 401(a) Plan and stayed the 403(b) claims pending resolution of the arbitration. Ms. Luciano was successful during arbitration, and on April 30, 2020, the arbitrator held that the terms of the 401(a) Plan unambiguously required payment to Ms. Luciano of a “benefit based upon the full Account Balance value of (decedent’s) account,” and issued an award to that effect. Thereafter, Ms. Luciano moved to confirm the arbitration award and reopen the case. Defendants opposed her motion, and also requested permission to renew a motion for equitable reformation of the plans. The court then granted plaintiff’s motions, fully confirming the award entered by the arbitrator and reopening the remainder of the case. The court also granted defendants’ request to renew their motion for equitable reformation. Defendants subsequently moved to amend the ETS 401(a) Plan, to correct a scrivener’s error that occurred in 2002, which they say they discovered during this action, and which they argued resulted in the 401(a) plan accidently eliminating the 50% QPSA benefit.  In this decision the court granted the motion to reform based on Third Circuit precedent which allows “the scrivener’s error doctrine (to) be invoked to modify ERISA plans under certain limited circumstances.” As a preliminary matter, the court rejected Ms. Luciano’s argument that defendants’ motion was untimely under New Jersey’s six-year statute of limitations for reformation of contract claims, as well as her argument that defendants waived their ability to argue for equitable reformation. The court held that defendants’ motion was timely as they did not have actual knowledge of the error until 2014 at the earliest, the date when Ms. Luciano first sent defendants a letter contesting the 50% benefit amount. With regard to waiver, the court did not agree with Ms. Luciano that defendants were required to raise the argument during either the administrative proceedings or during arbitration. With these challenges overruled, the court turned the merits of defendants’ motion. It held that the evidence clearly and convincingly showed that the 2002 amendment never intended to provide for a 100% QPSA benefit, especially as all Plan documents both before and after the 2002 restatement of the plan “consistently presented a 50% QPSA benefit.” Furthermore, the court stated that it appeared no participant or beneficiary ever saw the Plan language containing the error. “Rather, it appears that all participants construed the benefits through communications which consistently provided for a 50% QPSA benefit. Accordingly, allowing reformation of the scrivener’s error would not thwart ERISA’s statutory purpose of ensuring that plan participants can rely on their expected entitlement.” Thus, the court was satisfied that defendants met their burden of showing that the 2002 drafting error was unintentional and therefore allowed them to equitably reform the Plan “to more clearly reflect an intent to provide a 50% QPSA benefit.” However, the court was careful to specify that this decision will not disturb the confirmed arbitration award or Ms. Luciano’s 100% QPSA benefit under the 401(a) Plan.

Provider Claims

Fifth Circuit

Windmill Wellness Ranch, L.L.C. v. Blue Cross & Blue Shield of Ala., No. SA-19-CV-1211-OLG (HJB), 2023 WL 4842453 (W.D. Tex. Jul. 28, 2023) (Magistrate Judge Henry J. Bemporad). An out-of-network mental health and substance use treatment center in Texas, plaintiff Windmill Wellness Ranch, LLC, has sued a series of Blue Cross and Blue Shield entities under ERISA Section 502(a)(1)(B) and state law seeking to recover payment of numerous medical claims for treatment it provided to insureds and beneficiaries from 2017 – 2019. Defendants moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(2), 12(b)(3) and 12(b)(6), based on numerous grounds including lack of standing, lack of personal jurisdiction, failure to exhaust administrative remedies, and failure to state a claim. Magistrate Judge Bemporad issued this report and recommendation recommending the court grant in part and deny in part the motions to dismiss. First, with regard to standing, because the patients have been added as plaintiffs to the case, Magistrate Bemporad stated that “either Patients or Windmill have standing to assert he claims. Accordingly, Defendants’ motions to dismiss for lack of standing should be denied.” As for personal jurisdiction, the Magistrate found that ERISA provides for nationwide personal jurisdiction over the defendants. Things were different with respect to the breach of contract claim though. The report highlighted the complaint’s failure to identify which Blue Cross defendants contracted with Windmill. Due to this lack of information the court will not be able to determine whether personal jurisdiction exists for each of the defendants regarding the breach of contract claim. Thus, the report recommended the court grant the motion to dismiss for lack of personal jurisdiction over the state law claims, but to do so without prejudice allowing Windmill leave to amend and cure this deficiency. The report then moved to the issue of exhaustion. Magistrate Bemporad wrote that “because exhaustion of administrative remedies is an affirmative defense and not a jurisdictional bar,” the topic is not properly addressed at the motion to dismiss stage and should instead be raised during summary judgment. Therefore, the report recommended the court deny the motions to dismiss for failure to exhaust. Finally, the Magistrate Judge held that plaintiffs stated their claims as they identified language from the plan documents in their possession and allege a good faith effort to obtain those not in their possession. Furthermore, the provider and patients allege sufficient facts to infer that defendants breached the contracts and violated the reimbursement language of the plans. As a result, viewing the allegations in the light most favorable to plaintiffs, the report expressed that it was satisfied the complaint sufficiently states claims for relief to survive a 12(b)(6) challenge.

Seventh Circuit

John Muir Health v. Health Care Serv. Corp., No. 22-cv-6963, 2023 WL 4707430 (N.D. Ill. Jul. 24, 2023) (Judge Steven C. Seeger). In 2013, a non-profit healthcare corporation, plaintiff John Muir Health, entered into a contract with non-party Anthem Blue Cross. That contract required plaintiff to treat individuals insured both by Anthem Blue Cross health plans and by non-Anthem Blue Cross health plans “financed, sponsored, and/or administered by members of companies belonging to the national Blue Cross Blue Shield Association.” Defendant Health Care Service Corporation, although a non-signatory to the contract, is a member of the Blue Cross Blue Shield Association. John Muir alleges that it provided medically necessary treatment to individuals who were participants and beneficiaries of Health Care Service Corp.’s plans and that Health Care Service Corp. authorized those services. Nevertheless, John Muir maintains that it was never paid for the services it provided, leaving it with unpaid bills totaling $177,559.38. Seeking payment, John Muir Health sued Health Care Service Corp. and Blue Cross and Blue Shield of Texas in state court asserting claims of breach of implied-in-fact contract and quantum meruit. Defendants removed the case to the federal court system pursuant to federal question jurisdiction based on ERISA preemption. Defendants then moved to dismiss the action for failure to state a claim. In this order the court denied the motion to dismiss, although it agreed with defendants that the state law claims are completely preempted, at least to the extent they involve beneficiaries of ERISA-governed healthcare plans. To the extent that any of the patients are not insured under ERISA plans, the court stated that it would exercise supplemental jurisdiction over the state law claims. With regard to preemption, the court stated that this was a straightforward benefit payment dispute, and it is clear that John Muir has derivative standing to bring ERISA benefit claims as it has been assigned benefits by the patients. Accordingly, the court held that John Muir may replead its complaint under ERISA, and that dismissal here is inappropriate.


Eighth Circuit

Kellum v. Nationwide Ins. Co. of Am., No. 1:20-cv-23-SNLJ, 2023 WL 4824540 (E.D. Mo. Jul. 27, 2023) (Judge Stephen N. Limbaugh, Jr.). In this case involving a subrogation claim to recover medical costs from uninsured motorist coverage proceeds that would have otherwise been payable to the decedent’s family, an ERISA-governed health plan, the Glister-Mary Lee Corporation Group Health Benefit Plan, has been awarded judgment in its favor. Defendant/interpleader plaintiff Nationwide Insurance Company of America filed a motion objecting to the health plan’s proposed judgment, specifically its inclusion of prejudgment interest. Nationwide’s objection to the remedy of prejudgment interest and its position that such relief is not allowed, were rejected by the court in this order. The court wrote, that to the contrary, “ERISA specifically authorizes the Health Plan, as a fiduciary, to obtain all appropriate equitable relief,” and that Eighth Circuit case law going back to the early 1980s makes clear that awards of prejudgment interest are permitted in ERISA actions like this one as a form of make whole relief and that Missouri statutory interest rate applies. Accordingly, the court awarded prejudgment interest at Missouri’s rate of 9% from the date when the claim accrued in 2018, and ordered Nationwide pay the plan $21,750 in prejudgment interest, and then applied a 5.35% post-judgment interest rate to that sum. The decision ended with the court granting the health plan’s motion to dismiss the remaining counterclaims and crossclaims.

Withdrawal Liability & Unpaid Contributions

Fourth Circuit

Int’l Painters & Allied Trades Indus. Pension Fund v. Watters Painting Inc., No. JRR-22-2571, 2023 WL 4759289 (D. Md. Jul. 26, 2023) (Magistrate Judge A. David Copperthite). Multiemployer funds, the International Painters and Allied Trades Pension Plan and the International Painters and Allied Trades Industry Annuity Plan, sued a contributing employer, Watters Painting, Inc., and its owner and executive, Scott Watters, for failure to accurately remit required contributions under a Collective Bargaining Agreement (“CBA”), failure to pay liquidated damages and interest on these delinquent contributions, and failure to produce required records necessary to conduct an audit, as well as a claim for breach of fiduciary duty for misappropriating and diverting plan assets. Plaintiffs moved for default judgment, to which defendants did not timely respond. The matter was assigned to Magistrate Judge Copperthite who issued this report and recommendation recommending the court grant plaintiffs’ motion in its entirety. Magistrate Copperthite held that, accepting the factual allegations in plaintiffs’ complaint as true, plaintiffs sufficiently stated their claims and established liability. Accordingly, he recommended the court enter a default judgment in favor of plaintiffs and against the company and Mr. Watters. As for damages, plaintiffs requested a total amount of $102,884.40, comprised of $66,065.10 in unpaid contributions, $7,977.59 in interest, $14,981.21 in liquidated damages, and $13,860.50 in attorneys’ fees and costs. Each of these amounts was determined by Magistrate Judge Copperthite to be properly calculated pursuant to the terms of the CBA. He thus recommended the court award damages in the full amounts requested. Regarding attorneys’ fees, the court concluded the requested hourly rates ranging from $185 per hour to $325 per hour for each attorney based on their respective years of experience to be appropriate and well within the norms of frequently awarded rates for attorneys in the Pittsburgh, Pennsylvania region. Moreover, Judge Copperthite concluded the 60 hours of total time spent on this action “warranted given the extent and sporadic nature of the delinquent contributions, Defendants’ refusal to comply with mandated audit procedures, and the difficulty of calculating interest and liquidated damages across such a long period of time.” Thus, the requested lodestar was found to be reasonable, and he advised the court to award the full amount of fees requested. Additionally, the requested $437.00 in costs, representing the filing fees and messenger service fees, were also determined fair and to be the type of typical expenses incurred during litigation and thus recoverable. Finally, the Magistrate recommended the court grant plaintiffs’ requested injunctive relief ordering defendants produce documents necessary to complete the audit of its payroll records.

Eighth Circuit

Painters Dist. Council No. 58 v. MJ Interior Finishes & Constr. Mgmt., No. 4:22 CV 405 CDP, 2023 WL 4824564 (E.D. Mo. Jul. 27, 2023) (Judge Catherine D. Perry). The Painters District Council 58 union, its four ERISA employee benefit plans, and the plans’ trustees and fiduciaries sued a company, MJ Interior Finishes and Construction Management LLC, and its owner, Michael Parran, to recover unpaid benefit contributions. Plaintiffs moved for default judgment seeking payment of the delinquent contributions plus liquidated damages, attorneys’ fees and costs. In their motion, plaintiffs sought to recover $15,052.73 comprised of $3,901 in unpaid contributions, $780.20 in liquidated damages, $9,790 in attorneys’ fees, and $581.53 in costs. The court denied the motion for default judgment in this order, without prejudice, concluding that “the evidence submitted within the motion does not support the requested amount of judgment.” Plaintiffs were directed to file a new motion that cures the deficiencies identified by the court in this order. In particular, the court stated that based on its review of the reports, the face value for the unpaid contributions is actually about $100 less – $3,800.65. The order went on to identify other errors in plaintiffs’ calculations, both stemming and not stemming from the underlying flaw of the unpaid contribution arithmetic. Based on these math mistakes the court found that “the affidavits and evidence submitted in the case” do not “support the amount(s)” plaintiffs requested. Thus, the court requested plaintiffs resubmit their motion and take a second crack at their figures.