This was a slow week in the courts. Out of the handful of ERISA decisions, none stood out as the case of the week. But, as always, we have summarized each one for your reading pleasure.

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

Breach of Fiduciary Duty

Ninth Circuit

Hormel Foods Corp. Hourly Emps’ Pension Plan v. Perez, No. 1:22-cv-00879-JLT-EPG, 2023 WL 6626121 (E.D. Cal. Oct. 11, 2023) (Magistrate Judge Erica P. Grosjean). This action centers around rather unusual circumstances. Plaintiff Hormel Foods Corporation Hourly Employees’ Pension Plan, along with the Hormel Foods Corporation, commenced this lawsuit against a woman to whom they mistakenly paid plan benefits. That woman, defendant Marie E. Perez, shares the same name as a former Hormel employee. As the complaint outlines, Hormel sent a form to Ms. Perez, believing she was the plan participant of the same name, informing her that she was entitled to an approximately $20,000 lump-sum cash payment, and that to receive the payment she needed to sign the document, certify that she was the person named above, attest that “I am not currently employed by Hormel Foods or an affiliate of Hormel foods,” and provide the last four digits of her social security number. Ms. Perez signed the form, including the last four digits of her own social security number and her telephone number, and returned the form to Hormel. She was then paid the lump sum payment. Hormel later realized its mistake and asked Ms. Perez to return the money. When she refused to do so, the company and the plan commenced this action, bringing ERISA breach of fiduciary duty claims asserted under Section 502(a)(2) and (a)(3) against her. Hormel Foods has since moved for a default judgment under Rule 55(b)(2) on the Section 502(a)(2) claim. Its motion was denied by the court in this order. Although fiduciary status is often a tricky issue in the ERISA contest, the court here did not particularly struggle to conclude that Ms. Perez does not qualify as a fiduciary. “Defendant was not an employee of Hormel. She was never designated as a fiduciary of the Plan. She was not informed of any responsibilities, obligations, or duties imposed upon her by the Plan. She did not have control over any assets in the plan. The form sent to her did not indicate that she was a fiduciary, inform her of any duties related to the Plan, or ask her to undertake any responsibilities by returning the form.” The court was not persuaded by Hormel that by returning the form and keeping the payment, Ms. Perez became a fiduciary under the plan. Instead, it came to the opposite conclusion: “a defendant does not become a fiduciary under the statute by simply retaining funds mistakenly deposited in her account.” Thus, even assuming the allegations in the complaint are true, the court held that Hormel cannot state a claim against Ms. Perez for breach of fiduciary duty under Section 502(a)(2). Thus, the court denied Hormel’s motion for default judgment and dismissed the case in its entirety for failure to state a claim.

Class Actions

Second Circuit

Lutz v. Kaleida Health, No. 1:18-CV-01112 EAW, 2023 WL 6617737 (W.D.N.Y. Oct. 11, 2023) (Judge Elizabeth A. Wolford). In this putative ERISA class action, plaintiffs have appealed Magistrate Judge Jeremiah J. McCarthy’s order granting defendants’ motions to strike the report and rebuttal report of their expert witness, James M. Garber. Plaintiffs argued that the Magistrate’s determination that the entire report and rebuttal should be stricken in their entirety as unreliable is contrary to Second Circuit precedent which cautions against striking entire witness reports “when the unreliable portion of an opinion can easily be distinguished from testimony that could help the jury,” adding that “it may be an abuse of discretion to throw the good out with the bad.” Here, however, the court agreed with Magistrate McCarthy that the witness report was all bad. It seconded the Magistrate’s finding “that the errors in Garber’s analysis were so significant that they rendered the entirety of his reports unreliable and inadmissible.” Moreover, the court found the scale and “magnitude” of Mr. Garber’s flaws to be of such great degree, and so fundamental, that they rendered the entirety of his report unusable and defective. “In other words…the pervasive errors made by Garber were so significant – and cast such a pall on his overall reliability – that it was not appropriate to attempt to parse out any unproblematic aspects of his opinions.” The court thus found that the Magistrate’s order was fully consistent with the Second Circuit precedent plaintiffs cited as undermining the reasonableness of the Magistrate’s decision. Accordingly, the court found no abuse of discretion in the Magistrate’s decision and concurred that Mr. Garber’s analysis rendered his report inadmissible. Plaintiffs’ appeal was therefore denied.

Ninth Circuit

Mills v. Molina Healthcare, Inc., No. 2:22-cv-01813-SB-GJS, 2023 WL 6538381 (C.D. Cal. Sep. 27, 2023) (Judge Stanley Blumenfeld, Jr.). A certified class of participants of the Molina Salary Savings Plan claim in this action that their former employer, Molina Healthcare, Inc., the plan’s former investment advisor, flexPATH Strategies, LLC, the plan’s investment committee, and the Molina board of directors violated their fiduciary duties of prudence, loyalty, and monitoring, and engaged in prohibited transactions by selecting a suite of flexPATH target date funds as the plan’s default investment options despite these funds being untested and ultimately proving to be inferior and more expensive when compared to other target date funds available. Plaintiffs allege that the decision to include these funds in the plan was motivated by self-interest, that the individuals who advocated for their implementation in the plan were financially incentivized to do so, and that defendants were not acting in compliance with the plan’s investment policy statement either when they selected the funds or when they evaluated their performance over time. Eventually the plan replaced flexPATH as the investment advisor. The new company selected by the plan recommended the removal of the flexPATH funds given the costs of the revenue sharing to flexPATH and concerns that there was “a significant conflict of interest” present. According to plaintiffs’ experts, the flexPATH target date funds were nothing more than BlackRock’s target date funds, dressed up with an additional layer of fees. Their damages expert calculates that the plan’s assets would have increased by as much as $26.7 million during the relevant period if the plan had used other target date funds instead of the flexPATH funds. Defendants moved for summary judgment on all claims. Their motion was mostly denied by the court, with a couple of narrow exceptions as applied to three subparts of plaintiffs’ prohibited transaction claim asserted against flexPATH. For the most part, the court found that the record contained evidence from which a reasonable factfinder could find for plaintiffs. In particular, the court highlighted evidence that “raises questions about the adequacy of [defendants’] decision-making process.” This evidence included, among other things, a document purporting to be minutes of the meeting when flexPATH was selected to serve as the plans’ fiduciary and the flexPATH funds were implemented as the default investment options. The document’s metadata revealed that it was in fact created many years later, after defendants became concerned about the flexPATH funds and their potential liability under ERISA. On the voluminous record before it, the court listed many issues of genuine fact as to whether defendants breached their duties of loyalty, prudence, and monitoring, and therefore denied their motion for summary judgment entirely on the breach of fiduciary duty claims. However, the court granted, in part, defendant flexPATH’s motion for summary judgment on plaintiffs’ prohibited transaction claim. It granted the motion for the claims against flexPATH asserted under Sections 1106(a)(1)(A), (a)(1)(C), and (b)(3), holding that plaintiffs’ claims did not fit the criteria of these subsections. It did not, however, dismiss the prohibited transaction claims asserted against flexPATH under Sections 1106(a)(1)(D), (b)(2), or (b)(8), nor did the court dismiss any of the prohibited transaction claims brought against the Molina defendants. Thus, most of plaintiffs’ claims remain following the court’s decision here, and all of the genuine issues of fact identified by the court in this order remain for it to decide following a bench trial.

Disability Benefit Claims

Ninth Circuit

Reynolds v. Life Ins. Co. of N. Am., No. C21-1424 TSZ, 2023 WL 6541328 (W.D. Wash. Oct. 6, 2023) (Judge Thomas S. Zilly). Plaintiff Lucy Reynolds commenced this lawsuit against Life Insurance Company of North America (“LINA”) to challenge its denial of her claim for long-term disability benefits under an ERISA-governed policy. Ms. Reynolds has been diagnosed with multiple sclerosis, fibromyalgia, migraine headache, hypothyroidism, asthma, depression, anxiety, and post-traumatic stress disorder. Ms. Reynolds leaned heavily on the decision of the Social Security Administration approving her claim for Social Security disability benefits, in which the SSA determined that Ms. Reynolds’ conditions “significantly limit [her] ability to perform work activities on a regular and continuing basis,” and that she is “unable to perform any past relevant work.” The parties filed cross-motions for judgment under Federal Rule of Civil Procedure 52. They agreed on de novo review as the appropriate review standard. The court ruled in this decision that Ms. Reynolds was entitled to judgment in her favor and payment of benefits under both the 24-month “own occupation” and subsequent “any occupation” standards of the disability policy. It wrote, “LINA’s correspondence with Plaintiff…demonstrates that LINA approved Plaintiff’s claim for STD benefits because Plaintiff satisfied the terms of the Policy. Because the Policy required Plaintiff to meet the same definition of disabled to receive the first 24 months of LTD benefits, LINA’s approval of Plaintiff’s claim for STD benefits must be construed as a determination that Plaintiff was disabled as defined by the Policy for the purposes of the first 24 months of LTD benefits. Thus, LINA incorrectly denied Plaintiff’s claim for LTD benefits.” With regard to the long-term disability benefits after 24 months, the court was persuaded that Ms. Reynolds’ medical conditions have not improved, and she continues to suffer from ongoing disabling illnesses. It also found that although the SSA’s disability finding is “not dispositive,” it was nevertheless convincing evidence that Ms. Reynolds’ numerous impairments leave her unable to perform the duties of “any occupation.” For these reasons, Ms. Reynolds met her burden of establishing entitlement to benefits, and the court ordered LINA to pay her long-term disability benefits to date, and to continue paying them until the policy’s maximum benefit duration absent a showing that she is no longer disabled within the meaning of the policy should there be some improvement in her medical conditions.

ERISA Preemption

Eleventh Circuit

S. Broward Hosp. Dist. v. Elap Servs., No. 20-61007-CIV-SINGHAL/VALLE, 2023 WL 6547748 (S.D. Fla. Sep. 30, 2023) (Judge Raag Singhal). A nonprofit hospital system, plaintiff South Broward Hospital District d/b/a Memorial Healthcare System, brought this putative class action against defendants ELAP Services, LLC and Group and Pension Administrators, Inc. alleging defendants engaged in systematic practices designed to underpay hospital services. According to information gleaned through the discovery process, plaintiff estimates that it has incurred $2 million in damages as a result of defendants’ allegedly flawed reimbursement formulas. Plaintiff challenged these actions under Florida’s Deceptive and Unfair Trade Practices Act and under common law unjust enrichment. Defendants moved for summary judgment, arguing that the claims relating to underpayment and inaccurate appeals are preempted by ERISA, and that plaintiff’s other claims fail because their billing practices are fair, do not result in consumer harm, have not caused the hospital system any damages, and have not conferred any direct benefit onto them. The court granted the motion for summary judgment in this order. Although the court was skeptical of defendants’ arguments that their actions did not constitute deceptive or unfair practices and that the actions did not cause damages to plaintiff, it nevertheless agreed that plaintiff failed to demonstrate consumer harm. Thus, the court entered judgment in favor of defendants on the state law claim for deceptive trade practices. The court also faulted plaintiff’s unjust enrichment claim. It concluded that Memorial Healthcare failed to present evidence that there was any direct benefit conferred to defendants. However, defendants’ ERISA preemption arguments were unsuccessful. The court disagreed with defendants that plaintiff’s claims in any way related to or relied upon ERISA plans. Instead, it agreed with plaintiff, which is a non-ERISA entity, that its allegations were based on the challenged metrics and billing formulas which exist outside the ERISA plans and plan language. Nevertheless, although the claims were not found to be ERISA-preempted, as discussed above, the court identified other shortcomings in the state law claims and therefore granted defendants’ motion for summary judgment. 

Pension Benefit Claims

Ninth Circuit

Munger v. Intel Corp., No. 3:22-cv-00263-HZ, 2023 WL 6540052 (D. Or. Oct. 5, 2023) (Judge Marco A. Hernandez). Plaintiff Ruth Ann Munger, individually and in her capacity as the representative of the estate of Philip Cloud, filed this ERISA action seeking payment of Mr. Cloud’s life insurance benefits to the estate. Ms. Munger argued that the named beneficiary of the plans, Mr. Cloud’s widow, defendant Tracy Lampron Cloud, has been convicted of second degree murder, and is therefore not entitled to any plan benefits under both Oregon’s state slayer statute and federal common law. The court previously granted Ms. Munger’s partial motion for summary judgment in which she requested that the court estop Ms. Cloud from relitigating the question of whether she murdered her husband. Ms. Munger subsequently moved for summary judgment requesting distribution of the ERISA plan benefits to the estate. In response to Ms. Munger’s summary judgment motion, Ms. Cloud filed a cross-motion for summary judgment and additionally moved for leave to file a counterclaim alleging that Ms. Munger and the Intel defendants breached a global settlement agreement that she claims the parties entered into during state court proceedings. In this order the court granted Ms. Munger’s summary judgment motion and denied Ms. Cloud’s motions. It held that under either Oregon, California, or federal law, Ms. Munger has established that Ms. Cloud is a slayer and therefore not entitled to recover benefits. Under the unambiguous terms of the plans, the court determined that the estate is entitled to benefits of the 401(k) and the retirement contribution plan, and that no person or entity is entitled to benefits under the minimum pension plan, the retiree medical plan, and the retirement medical account plan. As for Ms. Cloud’s request for leave to assert her counterclaim, the court not only found that Ms. Cloud unduly delayed in asserting a counterclaim, but also concluded that it lacked jurisdiction to enforce the settlement agreement that the state court had rescinded.