ForUsAll, Inc. v. United States Dep’t of Labor, No. 22-cv-1551 (CRC), 2023 WL 5559682 (D.D.C. Aug. 29, 2023) (Judge Christopher R. Cooper)
Concerned about the rise in and volatility of cryptocurrency investments, the Department of Labor (“DOL”) issued a Compliance Assistance Release last year entitled “401(k) Plan Investments in ‘Cryptocurrencies’” which cautioned fiduciaries that defined-contribution retirement plan investments in digital assets may constitute breaches of the fiduciary duty of prudence under ERISA.
The Release warned that investments in crypto are concerning given “the many uncertainties associated with valuing these assets, speculative conduct, the amount of fictitious trading reported, [and] widely published incidents of theft and fraud.” It also worried that many market participants were “operating outside of existing regulatory frameworks or not complying with them.”
The DOL’s concerns have largely been vindicated. Since the DOL issued the Release, the Securities and Exchange Commission has filed charges against several large cryptocurrency exchanges alleging that they misled investors and operated as unregulated securities exchanges. The value of many cryptocurrencies has also plummeted from their high in 2021. Additionally, Sam Bankman-Fried, the founder of the collapsed crypto exchange FTX, is facing criminal charges for securities and commodities fraud and money laundering.
Nevertheless, despite the current turmoil and instability in the world of cryptocurrencies, they remain popular with the public and investors alike. Companies like the administrative service provider ForUsAll, Inc., the plaintiff in this matter, have every intention of providing access to cryptocurrency investment options to those who are interested. Which is why ForUsAll was none too happy when it learned of the DOL’s Release questioning whether cryptocurrencies are sound and prudent 401(k) investments.
As a result, ForUsAll commenced this action against the DOL under the Administrative Procedure Act (“APA”), seeking a declaration that the Department’s Release was unlawful and an order vacating it and preventing its application in any manner. The complaint asserts that the Department violated the APA by issuing the Release without first going through the notice and comment process. ForUsAll further alleges that the DOL acted in an arbitrary and capricious manner by jettisoning ERISA’s duty of prudence “in favor of a special ‘extreme care’ standard” unique to cryptocurrency investments.
In response, the DOL moved to dismiss this action pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Its motion was granted in this decision.
First, the court agreed with the DOL that ForUsAll’s alleged injury – that retirement plans were backing out of discussions to invest with the company in cryptocurrency options – would not be addressed by the requested relief. The court was skeptical that an order barring the application of the Release would suddenly prompt ERISA-plan fiduciaries “to renew their discussions or enter into the contemplated partnerships.” As a result, the court found that ForUsAll did not have standing and granted the DOL’s motion to dismiss pursuant to Rule 12(b)(1) for lack of subject matter jurisdiction.
Even more to the point, the court held that the Release is not a final agency action under 5 U.S.C. § 704 subject to judicial review. It stated that the Release “neither marks the consummation of the Department’s decisionmaking nor determines any entities’ legal rights or obligations,” thereby failing to meet the two conditions necessary for an agency action to be final. In the words of the court, the Release “was only the opening act, not the grand finale, of the Department’s process of regulating the burgeoning cryptocurrency market.” Simply put, the court found that nothing in the Release binds regulated entities and no “legal consequences flow from the Release.” Instead, the Release functions as a warning, one that companies can chose to heed or not. Thus, regardless of ForUsAll’s failure to demonstrate standing, the court found that it had not stated a cognizable claim and therefore dismissed the suit.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Disability Benefit Claims
Flowers v. Hartford Life & Accident Ins. Co., No. 1:21-cv-05388-MKV, 2023 WL 5628763 (S.D.N.Y. Aug. 31, 2023) (Judge Mary Kay Vyskocil). In this decision ruling on parties’ cross-motions for summary judgment, the court entered judgment in favor of defendant Hartford Life and Accident Insurance Company and denied plaintiff Kerri Flowers’ motion for judgment. It concluded that substantial evidence supported Hartford’s decision to terminate Ms. Flowers’ long-term disability benefits and that the insurance company’s decision was therefore rational, not arbitrary and capricious. In doing so, the court relied on an independent medical examination report, statements from Ms. Flowers’ treating physicians attesting to improvements in her conditions, the opinions of Harford’s reviewing doctors, and the result of the vocational assessment Hartford ordered. Taken together, the court agreed with Hartford that these pieces of evidence clearly amounted to “more than a scintilla” of evidence in support of Harford’s denial of continued benefits. The court also concluded that no evidence in the administrative record unequivocally cut against Harford’s findings to “alter the conclusion that Hartford’s claim determination was not arbitrary and capricious.” To the extent that evidence could be viewed favorably to Ms. Flowers because her treating physicians disagreed with the opinions of Harford’s reviewers, the court stated that Hartford did not abuse its discretion by resolving this conflict against a finding of disability and crediting certain pieces of evidence over others. Finally, the court was unpersuaded that Hartford abused its discretion by terminating Ms. Flowers’ benefits after over a decade of paying her claim. It pointed to evidence of meaningful improvement in Ms. Flowers’ conditions, and also stressed that “the insured always has the burden to demonstrate an entitlement to benefits.” Based on the foregoing, the court granted Hartford’s motion for summary judgment and denied Ms. Flowers’ cross-motion for summary judgment.
Scanlon v. Life Ins. Co. of N. Am., No. 22-1121, __ F. 4th __, 2023 WL 5617127 (7th Cir. Aug. 31, 2023) (Before Circuit Judges Rovner, Jackson-Akiwumi, and Lee). In his appeal to the Seventh Circuit, plaintiff-appellant Scott Scanlon argued that the district court erred in finding him not entitled to long-term disability benefits under de novo review. In its decision, the appellate court agreed and therefore vacated and remanded. It held that the district court failed to appropriately consider how Mr. Scanlon’s symptoms from his sleep disorders and chronic pain affect his ability to perform the material duties of his work as a systems analyst. First, the court of appeals stated that the lower court had failed to consider Mr. Scanlon’s inability to sit for extended periods of time, which is a requirement of his occupation. “The district court found Scanlon could earn 80% or more of his normal earnings even with his diminished capacity for sedentary work. We are puzzled by this conclusion; Scanlon’s ability to sit does not appear to come close to 80% of his full workday.” On remand, the Seventh Circuit required the district court to provide such an explanation and analyze Mr. Scanlon’s inability to sit for prolonged periods when considering the physical demands of his job. Further, the appeals court held that the district court failed to support its findings that Mr. Scanlon’s reports of pain were not reliable. The appellate court therefore also directed the district court to “consider the degree to which the opinions of Scanlon’s medical providers are consistent with the results of the functional capacity evaluation.” Regarding the cognitive requirements of Mr. Scanlon’s profession, the court of appeals wrote that the lower court “described the evidence” of the impact of sleep and pain disorders on Mr. Scanlon’s cognition, but “did not consider the effect [the symptoms] had on his ability to perform the requirements of a Systems Analyst job.” The court of appeals found that this was a clear error, especially as Mr. Scanlon’s job requires critical and analytical thinking, as well as technical computer skills and high-level verbal and written communication abilities. It held that “there is record evidence that Scanlon suffers cognitive and communicative impairments due to chronic sleep disorders that affect his ability to perform these duties during regular work hours.” The district court was therefore directed to specifically address the cognitive aspects of Mr. Scanlon’s work and the limitations he has as a result of his medical conditions. In sum, the Seventh Circuit agreed with Mr. Scanlon that his illnesses are affecting his daily life and that the district court committed clear error by failing to fully consider these physical and cognitive effects. Thus, the Seventh Circuit vacated the district court’s ruling and remanded the case for further proceedings consistent with its opinion.
Medical Benefit Claims
McDonough v. UFCW Nat’l Health & Welfare Fund, No. 3:22-CV-01209, 2023 WL 5596254 (M.D. Pa. Aug. 29, 2023) (Magistrate Judge Karoline Mehalchick). Plaintiff Matthew W. McDonough filed this action against the UFCW National Health and Welfare Fund to recover benefits under the plan. Mr. McDonough sustained injuries, including broken bones, bleeding, and bruising, after accidentally falling twelve feet from the back of a neighbor’s porch while at a party. At the time of the accident, Mr. McDonough was drinking and taking prescription medications, including prescription marijuana. He was hospitalized, received successful surgical procedures, and was then discharged. Mr. McDonough’s claim for reimbursement of his medical benefits under the plan was denied by the Fund pursuant to its intoxication exclusion. Believing that this denial was not arbitrary and capricious, defendant moved for summary judgment. The court granted its motion. It agreed that substantial evidence supported defendant’s conclusion that Mr. McDonough’s alcohol level was a contributing cause of his accident and resulting injuries. Given the unambiguous plan language which excludes recovery from injuries sustained while voluntarily intoxicated, the court upheld the denial. It disagreed with Mr. McDonough that he needed to intend to injure or harm himself pursuant to the terms of the exclusion, holding “the alcohol exclusion at issue in this case is included in a separate sentence from the suicide provision, [and the] exclusion plainly provides that no benefit will be paid under the Plan for any voluntary act of alcoholic intoxication.” Furthermore, the court stressed that injuries do not “have to result solely from intoxication but only that the injuries be a result of intoxication.” The court also found Mr. McDonough’s argument that the average plan participant could not reasonably be expected read or understand the terms of the exclusion to be “unavailing.” Accordingly, the court found that the Fund correctly applied the intoxication exclusion to deny Mr. McDonough benefits and therefore held that it was entitled to judgment in its favor.
K.G. v. Univ. of S.F. Welfare Benefit Plan, No. 23-cv-00299-JSC, 2023 WL 5599009 (N.D. Cal. Aug. 28, 2023) (Judge Jacqueline Scott Corley). Plaintiff J.G., father of son K.G., sued his ERISA-governed healthcare plan, defendant University of San Francisco Welfare Benefit Plan, for denial of healthcare benefits and for equitable relief for violating the Mental Health Parity and Addiction Equity Act. Defendant moved to dismiss or alternatively for judgment on the pleadings. As an initial matter, the parties agreed to substitute K.G. as the plaintiff. As a result, defendant’s motion to dismiss for lack of Article III standing was a moot issue. Thus, the court spent the decision discussing whether plaintiff stated a Mental Health Parity Act claim for equitable relief under ERISA Section 502(a)(3). K.G. maintained that the plan violates the Parity Act by imposing an accreditation requirement for mental health residential treatment centers which it does not require for skilled medical nursing facilities. Specifically, the plan requires that residential treatment centers be fully accredited by either The Joint Commission, the Commission on Accreditation of Rehabilitation Facilities, the National Integrated Accreditation for Healthcare Organizations, or the Council on Accreditation. Meanwhile, the plan requires nursing facilities to have “recognition under Medicare.” As alleged, the court found that plaintiff plausibly stated a claim that these two requirements are not equal, and the plan is discriminatorily imposing a more restrictive limitation for mental healthcare benefits than it is applying to physical health benefits. Defendant’s argument that the accreditation requirement for residential treatment centers is not more onerous than the Medicare recognition requirement for skilled nursing centers was viewed by the court as question that cannot be answered at the pleading stage and “is instead a factual question requiring discovery.” Accordingly, the court denied defendant’s motion for judgment on the pleadings of the Section 502(a)(3) claim. Finally, the decision ended with the court declining to resolve the appropriate review standard for some of the benefit denials at issue. It held that further briefing on the issue was necessary. Plaintiff K.G. is represented in this matter by Kantor & Kantor attorney Elizabeth Green.
J.S. v. United Healthcare Ins. Co., No. 2:21-cv-00483, 2023 WL 5532237 (D. Utah Aug. 28, 2023) (Magistrate Judge Daphne A. Oberg). Father and daughter J.S. and S.S. initiated this lawsuit against defendants United Healthcare Insurance Company and United Behavioral Health to dispute denials of medical benefits for the care S.S. received at a residential treatment center and seeking a court order requiring the United defendants to pay more than $100,000 in medical expenses the family incurred. In this memorandum decision and order Magistrate Judge Daphne A. Oberg granted plaintiffs’ motion for summary judgment and denied defendants’ motion for summary judgment. The court held that under de novo review a preponderance of the evidence showed that S.S.’s treatment was medically necessary as defined by the plan from the date when the claims were first denied on August 10, 2018 “at least through May 31, 2019.” As for the claims for benefits after that date, the court remanded to United for further consideration. In particular, the court agreed with plaintiffs that the care was medically necessary under the Optum Guidelines because S.S. was “an extreme danger to herself and danger to others,” as there were at least 48 incidents during the relevant time period where S.S.’s “mental health disorders manifested in alarming ways that would likely have compromised her safety had [the residential treatment center] staff not caught and addressed them.” United’s assertion that S.S. had improved when it denied her benefits was therefore belied by the medical record. The court accordingly concluded that S.S.’s continued care was medically necessary under the plan “based on her continued dysregulation risking harm to herself or others, the turbulent nature of her family relationships, her participation [and struggles] in therapy, and the opinion of her treating therapist.” The decision ended with the court declining to consider an award of prejudgment interest or attorneys’ fees at this time.
Pension Benefit Claims
McGlynn v. Ford-UAW Ret. Plan, No. 22-12462, 2023 WL 5511194 (E.D. Mich. Aug. 25, 2023) (Judge Linda V. Parker). Plaintiff Louis Edward McGlynn, an employee of the Ford Motor Company, has sued his employer, its ERISA-governed retirement plan, and the plan’s retirement board under ERISA Sections 502(a)(1)(B), 502(a)(3), and 503 on the belief that his pension benefits have been miscalculated under the terms of the plan which govern service credit. Specifically, Mr. McGlynn brings a claim for benefits, violations of fiduciary duties, a claim for violation of ERISA’s claim procedure requirements, and a claim for violation of ERISA’s requirements to disclose plan documents upon request. Defendants moved pursuant to Federal Rule of Civil Procedure 12(b)(6) for dismissal of Mr. McGlynn’s claims alleging fiduciary breach and violation of ERISA’s claims procedure requirements. The court granted in part and denied this motion. To begin, the court denied the motion to dismiss the fiduciary breach claims. It concluded that these claims, alleging systematic improper handling of claims and failure to disclose material terms of the plan and/or misrepresentation the terms of the plan, were not simply “repackaged” versions of Mr. McGlynn’s Section 502(a)(1)(B) claim. The court found that Mr. McGlynn’s injuries were separate and distinct from one another in his Section 502(a)(1)(B) and his Section 502(a)(3) claims, and that his fiduciary breach claims were therefore not precluded by the denial of benefits. Moreover, the court agreed with Mr. McGlynn that in light of the Supreme Court’s ruling in Amara, he is not required to demonstrate or plead detrimental reliance on the plan misrepresentations under ERISA. “As the Supreme Court noted in Amara, ‘it is not difficult to image how the failure to provide proper summary information, in violation of the statute, injured employees [because] plan changes would likely prove harmful…Congress would [not] have wanted to bar those employees from relief.’” However, the court granted the motion to dismiss Mr. McGlynn’s claim for violation of ERISA’s claims procedure requirements. The court agreed with defendants that these regulations do not provide an independent cause of action under these circumstances, especially as the court felt the claim was duplicative of the benefits claim and was seeking to redress the same injury. Because this claim was found to be “subsumed within” Mr. McGlynn’s denial of benefits claim the court found that it is properly pursued as part of the Section 502(a)(1)(B) claim and therefore dismissed the claims procedure count as an independent cause of action.
Pleading Issues & Procedure
Bryant v. Walgreen Co., No. 23 CV 1294, 2023 WL 5580415 (N.D. Ill. Aug. 29, 2023) (Judge Manish S. Shah). Four former employees of defendant Walgreen Co. have sued the company in connection with two COBRA notices it sent to them after termination from their employment, which they believe were deficient under 29 U.S.C. § 1166. They claim that Walgreens failed to meet regulatory requirements by sending two notices, rather than a single notice, and because neither notice complied with the regulation. In particular they maintain that Walgreens failed to provide the address to which payments should be sent, failed to identify the plan administrator, failed to explain how to enroll in COBRA coverage, failed to include a physical election form, failed to provide the correct election date, and failed to provide notice in manner which could be understood by the average plan participant. Without this information, plaintiffs aver that they could not make informed decisions about health insurance coverage and therefore suffered injuries in the form of lost health insurance coverage and prescription benefits, and by incurring out-of-pocket medical expenses. In their complaint, the former employees assert two causes of action, a claim for statutory penalties under Section 1166 and a claim in the alternative for recovery of benefits and a declaration of rights clarifying benefits under Section 502(a)(1)(B). Walgreens moved to dismiss. The decision began by addressing plaintiffs’ standing. It concluded that plaintiffs had sufficiently alleged concrete injuries-in-fact traceable to the deficient COBRA notices and therefore met the low bar of showing a “causal connection between the injury and the conduct complained of.” Next, the court declined to dismiss either of plaintiffs’ causes of actions as untimely. Regarding the Section 1166 claim, the court agreed with Walgreens that Illinois’ two-year statute of limitations for actions against insurance providers concerning renewal of insurance was applicable to this action. However, the court expressed that it could not determine at present when the clock on that two-year limitation period began to run because COBRA notice claims accrue “when the plaintiff either knows or should have known the facts necessary to bring an improper-notice claim: specifically, that his former employer has failed to provide him with the required notice of his continuation right.” The court found that it could not determine when plaintiffs reasonably knew their notification rights were violated and thus stated that their § 1166 claim could not be dismissed as time-barred at this stage in litigation. Regarding the benefits claim, the court held that plaintiffs were well within the analogous ten-year state statute of limitation, and that this claim was thus timely. After these initial holdings, the court moved on to evaluating the motion to dismiss for failure to state a claim. It started with plaintiffs’ Section 1166 claim, which the court mostly dismissed. The court determined that (1) Walgreens named the plan administrator in its notices; (2) physical election forms are not required and that directions to call a phone number for an explanation of the plan’s procedures for electing coverage is compliant with the regulation; (3) the notices were written in a manner that participants could understand; and (4) the regulation does not require a single notification or expressly prohibit multiple notices. The only piece of plaintiffs’ Section 1166 claim which remained was their allegation that Walgreens sent inaccurate enrollment deadlines during the pandemic when the government had extended COBRA enrollment deadlines. The court then examined plaintiffs’ Section 502(a)(1)(B) claim. It found this claim conclusory and vague because “plaintiffs have not alleged any details regarding the Walgreens Health Plan nor how the allegedly deficient notices relate to benefits under the terms of the plan. Further, plaintiffs make no allegations regarding what benefits are due to them or what rights they are entitled to enforce under the plan.” As a result, the court also dismissed the Section 502(a)(1)(B) cause of action. However, dismissal was without prejudice, and plaintiffs may amend their complaint to attempt to cure the above identified deficiencies.
Ensor v. Clearfield Prof’l Grp., No. 3:22-cv-00216, 2023 WL 5515976 (W.D. Pa. Aug. 25, 2023) (Judge Stephanie L. Haines). Plaintiff Jonelle Ensor sued her former employer, Clearfield Professional Group, Ltd., asserting claims for breach of contract, interference with benefits under ERISA, and violation of state wage laws. Clearfield moved to dismiss all of Ms. Ensor’s breach of contract claims as well as her ERISA Section 510 claim pursuant to Rule 12(b)(6). Clearfield’s motion was granted in part and denied in part in this decision. The court granted the employer’s motion to dismiss some, but not all, of the breach of contract claims. The breach of contract claims that were dismissed were determined by the court to be lacking in detail necessary to state the claims. Dismissal of these claims was without prejudice. With regard to the ERISA retaliation claim, the court held it was clear from the face of the complaint that Clearfield did not fire Ms. Ensor for the purpose of interfering with her medical and retirement benefits. To the contrary, Clearfield wanted Ms. Ensor to sign a new employment contract “thereby indicating it wanted Ensor to continue with employment at Clearfield.” Ms. Ensor declined to sign the contract, because its terms were less favorable than her governing contract, and she was then terminated. Accordingly, the court concluded that the facts of Ms. Ensor’s situation “are not congruent with her assertions claiming Clearfield desired to stymie [her] pension eligibility when they discharged her from her duties. There is no plausible claim that Clearfield intentionally interfered with Ensor’s benefits and the ERISA claim will be dismissed with prejudice.”
Standard of Review
White v. Guardian Life Ins. Co., No. 22-cv-1788-L-KSC, 2023 WL 5519315 (S.D. Cal. Aug. 25, 2023) (Judge M. James Lorenz). Plaintiff William White moved to establish de novo review as the applicable review standard in his action challenging Guardian Life Insurance Company’s denial of his claim for accidental death and dismemberment benefits. Guardian opposed Mr. White’s motion and argued that abuse of discretion review applies. As an initial matter, the parties agreed that the plan grants discretionary authority to Guardian to determine benefit eligibility and construe plan terms. However, Mr. White argued that this discretionary clause does not trigger abuse of discretion review as California law prohibits insurance policies from assigning discretion to insurers and administrators. In opposition, Guardian responded that the policy designates Florida law as the state law governing the policy, and in Florida no such statute bans discretionary clauses. The court stated that its role in resolving the dispute was determining whether the choice of law provision in the plan was fair. It concluded that application of Florida law to the policy was not fundamentally unfair nor unreasonable. “Indeed, Plaintiff’s employer…is a corporation headquartered in Florida, and a majority of its employees are located in Florida.” Moreover, the court noted that the California insurance law had not gone into effect at the time when the policy was issued, meaning that the plan had not chosen “Florida law to avoid banning discretionary clauses.” Finally, the court held that Mr. White failed to make any compelling argument to meaningfully establish that application of Florida rather than California law would be unreasonable or unfair. Accordingly, the court concluded that the policy’s choice of Florida law applied, and the applicable review standard was abuse of discretion. Mr. White’s motion for de novo review was thus denied.