Seguro Medico, LLC v. Suffolk Admin. Servs., No. 5:23-cv-2495, 2024 WL 1621343 (E.D. Pa. Apr. 15, 2024) (Judge Joseph F. Leeson, Jr.)

There’s a lot happening with healthcare right now. This week’s notable decision touches on several issues worth paying attention to, including healthcare data mining, “junk” health insurance plans, and health plan marketing practices.

Interestingly, the case is not at heart an ERISA case, although it presents ERISA preemption issues and involves healthcare plans that are potentially governed by ERISA. The parties are a healthcare enrollment center/insurance broker (plaintiff Quick Health), a data-mining company (defendant Data Marketing Partnership), a group of healthcare plans (defendant Providence Plans), and the sponsors and administrators of those plans (defendants Hawaii Mainland Administrators, LLC and Suffolk Administrative Services, LLC).

The parties were players in a complicated scheme to bring group health plans to market. Their business relationships soured and this litigation arose after participants of the plans became unhappy with their coverage and cancelled their insurance. According to Quick Health’s complaint, defendants banded together to unfairly lay the blame on Quick Health for the breakdown of the arrangement. In its suit, Quick Health is seeking to recover the financial losses it incurred from defendants’ representations.

A little background information is helpful in order to understand the parties’ interconnected relationships and their endeavors to bring the Providence Plans to market. Defendant Data Marketing Partnership has what the court describes as “a unique business model,” offering lower cost health insurance coverage in exchange for agreements by the participants to track their internet and cellphone data. The data is then aggregated and sold to marketing firms and group health insurance plans. This data-for-health insurance scheme requires individuals to join a limited non-equity “partnership” with the company and download proprietary tracking software on personal devices in order to purchase group health insurance through plans such as Providence.

Quick Health acted as the health insurance broker, selling and facilitating the purchases of insurance by the “limited partners” through the Providence Plans by collecting the healthcare data from Data Marketing Partnership at a price and then transferring premium funds to a third-party administrator which handled premium payments. Quick Health earned a commission on these transactions. From there, the customer enrollment data and premium payments were sent to the claims administrator and the plan sponsor.

Among the problems with this scheme was that Quick Health sold bad insurance products. Customers, the ostensible “partners,” began complaining that the plans they had enrolled in were risky “junk” healthcare plans, which provided very skimpy and in some cases no coverage. The participants of these plans were not afforded the protections or basic coverage of the Affordable Care Act and ended up on the hook for costly medical bills. Some complained that their premiums were not even forwarded and paid, which resulted in lapses in coverage. Others complained their claims were never processed and that coverage was illusory. As the problems intensified, the plan participants were understandably frustrated with what they had bought.

In response to these complaints, the administrators of the plans informed the participants that Quick Health was to blame. One told customers that “Quick Health was a scam, filed bankruptcy every two years, sold junk plans and were taking customer’s [sic] money and not giving them a plan.” Ultimately defendants walked back these statements implying Quick Health had defrauded its customers, but by then more than 6,200 of the customers had cancelled their Providence Plans purchased through Data Marketing Partnership and Quick Health, resulting in millions in lost profits for the companies.

In this action, Quick Health asserts state law claims for breach of implied contract, promissory estoppel, defamation, and commercial disparagement. Defendants moved to dismiss, arguing that Quick Health failed to state claims, that its claims are preempted by ERISA, and that the court lacks jurisdiction over Data Marketing Partnership.

The court began by assessing the sufficiency of the stated claims. First, the court dismissed the breach of implied contract count. The court concluded that because Quick Health’s implied contract allegations were based on the terms of the plans, it could not sue because it was not a party to or a third-party beneficiary of those plans.

Second, the court analyzed the promissory estoppel claim and concluded that defendants’ alleged promise to provide regular accounting to Quick Health was definite enough to determine the existence of a broken promise. The court therefore declined to dismiss the count.

As for the defamation claim, the court dismissed it as asserted against Suffolk Administrative Services, but not against Hawaii Mainland Administrators. The court distinguished the two defendants because the complaint alleged only that Hawaii Mainland Administrators told customers that Quick Health was running a scam. The court found that the statements the complaint attributed to Suffolk were not “capable of defamatory meaning.”

Finally, the court declined to dismiss Quick Health’s commercial disparagement claim, which the court understood as alleging defendants wrongly attributed the lapses in coverage and denials of benefits to Quick Health, despite the fact that Quick Health alleged that its role was limited to passing enrollment data and payment information to the third-party administrators. The court was satisfied this was enough to state a claim for commercial disparagement.

With its task of reviewing the sufficiency of the claims finished, the court moved on to addressing whether it had personal jurisdiction over Data Marketing Partnership. Data Marketing Partnership argued that the court lacked jurisdiction over it because it is not incorporated in Pennsylvania, does not conduct business in the state, and has no relationship to the Providence Plans. The court ultimately deferred resolution of this issue until jurisdictional discovery concludes.

Finally, the decision found its way to the ERISA preemption issues. Defendants directed the court to a related case that Data Marketing Partnership brought against the Department of Labor in which a district court in Texas ruled in 2020 that its plans were governed by ERISA. Data Mktg. P’ship LP v. United States Dep’t of Labor, 490 F. Supp. 3d 1048 (N.D. Tex. 2020). In that case, Data Marketing Partnership challenged the Department’s advisory opinion that the program was not governed by ERISA. The district court in Texas ruled that the Department of Labor was arbitrary in issuing its advisory opinion.

As the court in this case noted, however, the Texas court’s decision was reversed in part by the Fifth Circuit, which remanded to the district court in 2022 to consider whether the “limited partners” were working owners or bona-fide partners within the meaning of ERISA. (That case is still pending.) In the court’s view in this case, the defendants’ preemption arguments improperly presupposed that the underlying Providence Plans were without doubt ERISA plans. But, according to the court, this was not clear from the face of the complaint. Whether the Plans are ERISA-governed plans, the court stressed, is a question of fact not properly resolved at this juncture. 

The court’s decision therefore left most of Quick Health’s complaint intact when all was said and done. But more than that, the decision also offered an interesting peek behind the scenes into the inner workings of a game created by some of healthcare’s slickest players. Any way you slice it, the scheme cooked up by the parties in this action was a lousy proposition for individuals who needed health insurance – sell us your data and we’ll give you deficient or even illusory coverage. Even Faust got a better deal than that.

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

Attorneys’ Fees

Second Circuit

Carrigan v. Xerox Corp., No. 3:21-CV-1085 (SVN), 2024 WL 1639535 (D. Conn. Apr. 16, 2024) (Judge Sarala V. Nagala). On February 6, 2024 the court gave its final approval of a $4.1 million settlement in this breach of fiduciary duty action brought on behalf of the employees of the Xerox Corporation. All that was left for the court to do was to determine the proper compensation for class counsel and class representatives, and to assess reimbursement amounts for expenses. These figures were addressed and resolved in the present decision. Class counsel, the law firms of Nicholas Kaster, PLLP and Garrison, Levin-Epstein, Fitzgerald & Pirrotti, P.C., sought attorneys’ fees in the amount of one-third of the settlement fund ($1,366,666). In addition, they moved for reimbursement of $48,980.72 in litigation expenses, $106,895.23 in settlement administration expenses, and $5,000 in service awards for each of the three class representatives. The court awarded the litigation expenses, settlement administration expenses, and service awards in the full requested amounts. For attorneys’ fees, however, it was the opinion of the court that 25% of the settlement fund ($1,025,000) was an appropriate award. The court reached this figure using a three-step approach. In step one the court determined that fees representing one fourth of a settlement fund was a reasonable baseline to other common fund settlements in similarly sized complex ERISA litigation matters. In the second step the court analyzed the risk of litigation, quality of representation, and public policy concerns, and concluded that none of these factors warranted deviating from the standard. Although the court acknowledged that ERISA actions are risky and complex, it stated that it had already accounted for these factors when comparing settlements to the 25% baseline. The court also took time to acknowledge the quality of class counsel’s work, and their expertise, but again stated that this factor did not necessitate diverging from the baseline. As for public policy concerns, the court was satisfied that an award equaling 25% of the fund would fairly compensate the attorneys and encourage private civil enforcement in pension cases. Finally, in the third step, the court applied the lodestar method to cross-check the reasonableness of the percentage-based fee award. To reach a lodestar, the court accepted in whole counsel’s 839.4 billable hours but reduced significantly their typical hourly rates. Counsel presented billing rates ranging from $725 to $950 per hour for senior attorneys, $425 to $500 per hour for less experienced attorneys, and $250 per hour for support staff. The court held that these rates were out of line for attorneys practicing ERISA litigation in Connecticut. As a result, it significantly reduced the hourly rates to $400 per hour for senior attorneys, $250 per hour for more junior associates, and $150 per hour for support staff, and then calculated a lodestar based on these new inputs. This resulted in a lodestar equaling $231,750. With a 25% fee award, the multiplier of the court’s lodestar was 4.423, which it felt confirmed the reasonableness of the underlying amount. Accordingly, the court felt satisfied that steps two and three warranted no adjustment from the norm and therefore awarded a one-fourth attorneys’ fee award to class counsel.

Breach of Fiduciary Duty

First Circuit

Brookins v. Northeastern Univ., No. 22-11053-NMG, 2024 WL 1659507 (D. Mass. Apr. 17, 2024) (Judge Nathaniel M. Gorton). A participant of the Northeastern University 403(b) Retirement Plan has sued the university and the plan’s investment committee on behalf of himself and a putative class of plan participants to challenge the management of the plan. The complaint alleges that defendants acted imprudently by failing to control excessive recordkeeping and investment management fees, investing in costlier retail share classes of funds, investing in and retaining underperforming target date and real estate funds, and maintaining TIAA as a plan custodian after the Securities and Exchange Commission and New York attorney general joint investigation into TIAA revealed that TIAA engaged in deceptive marketing practices to cross-sell services to clients in TIAA-administered ERISA-governed retirement plans. In addition to allegations of imprudence, plaintiff alleges that Northwestern violated its duty to monitor plan fiduciaries. Defendants filed a motion to dismiss for failure to state claims. At the outset, the court rejected the so-called “meaningful benchmark” standard at the motion to dismiss stage. “To engage in meaningful benchmark analysis, this Court would be required to consider the merits substantively in a manner that would conflict with the Court’s obligation to draw all reasonable inferences in favor of the plaintiff.” The court therefore stressed its opposition to factfinding at the motion to dismiss stage. Moreover, the court was cognizant of the fact that ERISA plaintiffs do not have access to critical non-public data when they file their complaints, and that this information remains for the time being within defendants’ possession, putting the parties in unequal positions at this early stage of litigation. Applying these principles, the court looked to what plaintiff was alleging: that defendants failed to conduct requests for proposals, that the revenue sharing fee model was resulting in excessive fees, that funds were chronically underperforming, and that there were identical cheaper class shares available for funds that defendants failed to take advantage of, all to the detriment of plan participants. The court concluded that this circumstantial evidence led to a plausible inference of wrongdoing. Accordingly, the court denied the motion to dismiss the breach of prudence and monitoring claims related to the challenged fees and funds. The decision was not a complete victory for the plaintiff, though, as the court did dismiss one aspect of his complaint: “the Court will allow the motion to dismiss to the extent that plaintiff seeks to hold defendants liable for maintaining TIAA as a custodian in light of the investigation.” The court reached this conclusion because the plaintiff did not allege that any cross-selling occurred to him or any other plan participant. As a result, the court stated that the complaint failed to allege a plausible connection between the governmental investigation and TIAA as a custodian of the Northeastern University plan. In all other respects, the motion to dismiss was denied.

Daggett v. Waters Corp., No. 23-11527-JGD, __ F. Supp. 3d __, 2024 WL 1677421 (D. Mass. Apr. 18, 2024) (Magistrate Judge Judith Gail Dein). This decision is a nice companion to the Northeastern University case above. Here, another district court in the District of Massachusetts has declined to adopt a strict pleading standard unique to ERISA breach of fiduciary duty actions. The plan participant in this case is David Daggett, the plan is the Waters Employee Investment 401(k) Plan, and the defendants are the Waters Technologies Corporation, its board of directors, and its benefits administration committee. Mr. Daggett alleges in his putative class action complaint that the fiduciaries of the Waters Plan breached their duties of prudence and monitoring by failing to shop around and consider third-party options other than Fidelity to operate the plan’s recordkeeping and administration. Maintaining Fidelity throughout the class period caused recordkeeping and administrative operating expenses to balloon. Mr. Daggett estimates that the plan overpaid a total minimum amount of $1,327,297 between 2017 and 2022 in unreasonable fees. Mr. Daggett further alleges that this estimated figure does not take into account compounding percentages and lost market investment opportunities, which would push the figure “in excess of $1,958,407 in total RKA fees.” In addition, Mr. Daggett avers that even more financial harm was done to participants because the fiduciaries improperly maintained an underperforming actively managed suite of Fidelity Freeform Funds in the plan for over twelve years, depriving plan participants of millions of dollars of higher returns on their investments. In sum, Mr. Daggett argues that the Plan, with $1.219 billion in assets, had an obligation to leverage its size and power in the marketplace to ensure fees paid and funds invested in were prudent and reasonable and that the fiduciaries in charge of the plan failed in their duties to do so. Those fiduciaries disagreed and moved for dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6). In their motion, and in the over 350 pages of attached exhibits they included, the fiduciaries interpreted the investment performance reports, plan documents, and annual disclosures differently from Mr. Daggett and offered their own explanations for why their choices were sound. The court declined defendants’ offer to favor their explanations over Mr. Daggett’s at this early stage, and instead read the allegations and material favorably to the non-moving party. In doing so, the court was satisfied that Mr. Daggett’s theories of wrongdoing were well-pleaded and “present a plausible narrative of imprudence.” Accordingly, defendants’ motion to dismiss was denied in its entirety. The decision boiled down to this: arguments on the merits “are better suited for discussion after further development of the record.”

Ninth Circuit

Construction Laborers Pension Tr. for S. Cal. v. Meketa Inv. Grp., No. 2:23-cv-07726-CAS (PVCx), 2024 WL 1656261 (C.D. Cal. Apr. 15, 2024) (Judge Christina A. Snyder). A Taft-Hartley pension fund, the Construction Laborers Pension Trust for Southern California, and its Board of Trustees filed this action against Meketa Investment Group, Inc. and its managing principal, Judy Chambers. Plaintiffs asserted breach of fiduciary claims under ERISA, as well as state law breach of contract and breach of fiduciary duty claims pled in the alternative. In their complaint, the trustees allege that Meketa and Ms. Chambers violated ERISA and the terms of their limited partnership agreement by convincing the plan to invest tens of millions of dollars in Onset Capital Partners, LLC, a brand-new investment management company directly created by Ms. Chambers and her friend from business school. Plaintiffs maintain that they did not know of Ms. Chambers’ connection to Onset, nor other relevant information about the company which would have affected their decision-making. According to plaintiffs, Onset mismanaged the plan assets it was tasked with investing by failing to do basic due diligence. The trustees fault Maketa and Ms. Chambers for failing to supervise Onset, providing misleading data about the performance of the investments under Onset’s management, and failing to remove the firm after repeated violations of investment policy. Through these failures, plaintiffs contend that the plan has “suffered large, avoidable losses.” Defendants moved for dismissal. It was their position that (1) the claims were untimely under ERISA’s six-year statute of repose; (2) they did not breach any fiduciary duty in recommending Onset; (3) Onset was not required to comply with the investment policy under either ERISA or the terms of their partnership; (4) the trust and trustees lack standing under ERISA, and (5) ERISA preempts the state law claims. In this decision the court considered the impact of ERISA’s statute of limitations, tested the sufficiency of the asserted claims, and addressed standing and preemption. First, the court agreed in part with defendants that aspects of plaintiffs’ allegations of fiduciary mismanagement were untimely. “Based on the parties’ agreement that March 2, 2016 is the last date on which claims could accrue that fall within both the statute of limitations and the confines of the 2023 Tolling Agreements, the Court concludes that statements made and conduct by defendants earlier than March 2, 2016 are barred by the statute of limitations, unless tolling applies.” It then determined that tolling was not appropriate given that the basis for fraud and concealment were the underlying facts constituting the claim for the fiduciary breach, and the Ninth Circuit does not allow “the exception [to] swallow the rule.” However, the court was satisfied that plaintiffs had standing to sue under ERISA and that they sufficiently pled the remainder of their ERISA breach of fiduciary duty claim for actions which occurred after March 2, 2016. As for the state law claims, the court agreed once again with defendants. It found all three of plaintiffs’ non-ERISA claims preempted, as they concern an ERISA-regulated relationship between the plan and defendants in their capacity as ERISA fiduciaries of the pension fund.

Disability Benefit Claims

Ninth Circuit

Roeder v. Guardian Life Ins. Co., No. 22-56226, __ F. App’x __, 2024 WL 1612256 (9th Cir. Apr. 15, 2024) (Before Circuit Judges Rawlinson, Melloy, and Thomas). Plaintiff-appellant Jacqueline Roeder sued Guardian Life Insurance Company after her claim for long-term disability benefits under an ERISA-governed policy was denied pursuant to the plan’s pre-existing conditions exclusion. Ms. Roeder became disabled in 2020 from a degenerative cervical spine condition. Her policy excludes coverage for any disability presenting during the first year of employment if the claimant suffered from those same symptoms during a three-month look-back period. In reviewing Ms. Roeder’s claim, Guardian examined the fall and winter of 2019 and 2020 and denied coverage based on medical records from a January 2020 urgent care visit where Ms. Roeder complained of neck pain. The district court reviewed the denial de novo and found that although Ms. Roeder’s degenerative cervical spine condition was not diagnosed during the look-back period, it was the undiagnosed cause of the neck pain symptoms for which she sought medical care during that time. Thus, the district court upheld the denial. On appeal Ms. Roeder argued that the district court erred because the urgent care visit did not demonstrate a specific diagnosis. She maintained that her neck pain may have been related to an acute infection she had at the time which she was treating with antibiotics. According to Ms. Roeder, the record as a whole failed to prove that her neck pain in early 2020 was related or caused by her later-diagnosed spine condition. The Ninth Circuit found Ms. Roeder’s arguments unavailing. It determined that the lower court’s factfinding was not clearly erroneous because the exclusion did not require a diagnosis during the look-back period, and was instead “framed in terms of symptoms for which a prudent person would seek treatment.” While the Ninth Circuit agreed with Ms. Roeder that the medical records from the urgent care visit weren’t “a model of clarity,” it nevertheless viewed the district court’s conclusion that the neck pain was caused by the later-diagnosed degenerative cervical spine condition as a permissible and reasonable interpretation of the evidence. For these reasons, the court of appeals upheld the district court’s rulings and affirmed.

Life Insurance & AD&D Benefit Claims

Eleventh Circuit

Morales v. CoAdvantage Corp., No. 6:24-cv-117-JA-DCI, 2024 WL 1678250 (M.D. Fla. Apr. 18, 2024) (Judge Mark A. Goldsmith). A widow and her children, the survivors of Francisco Estrada, sued Mr. Estrada’s former employers, CoAdvantage Corporation and CoAdvantage Resources, Inc., and the insurer of his life insurance policy, Unum Life Insurance Company of America, for failure to pay life insurance and accidental death and dismemberment (“AD&D”) benefits under ERISA Section 502(a)(1)(B), and for breach of fiduciary duty under Section 502(a)(3). The family alleges that Mr. Estrada was insured under a life insurance and AD&D policy in the amount of $250,000, under which they were the beneficiaries. They maintain that Mr. Estrada paid monthly premiums on this policy. In their complaint the family included a benefit confirmation statement which names the ERISA plan as the CoAdvantage Resources, Inc. Welfare Benefit Plan, identifies the plan administrator as CoAdvantage Resources, and states that the plan is funded and insured by Unum. In sum, the attached document supported the family’s assertions that Mr. Estrada was covered under the policy. Nevertheless, plaintiffs’ claim for benefits was denied on the ground that Mr. Estrada was never insured. Before the court was defendants’ motion to dismiss. They argued that (1) CoAdvantage Corporation is not a proper party to this action; (2) Unum did not owe fiduciary duties as it was not the plan administrator; (3) plaintiffs failed to allege facts to reasonably suggest that a policy was issued to Mr. Estrada; and (4) the breach of fiduciary duty claim is duplicative of the failure to pay claim as they both seek to recover benefits due under the plan. The court addressed each of these issues. First, the court held that the complaint plausibly alleges that Unum issued a life insurance policy to Mr. Estrada. It therefore denied the motion to dismiss the claim for benefits under Section 502(a)(1)(B). Next, the court addressed CoAdvantage Corporation’s motion seeking dismissal as a party. Plaintiffs consented to this motion, but requested that the court dismiss the company without prejudice should discovery uncover that it functioned as a fiduciary and played some role in the harm alleged. The court did as plaintiffs requested, dismissing CoAdvantage Corp. without prejudice. “Given the business relationship between CoAdvantage Corp. and the plan’s designated administrator, CoAdvantage Resources, the Court is not convinced that Plaintiffs could not add facts to their complaint to make plausible that CoAdvantage Corp. oversaw the plan’s administrator.” The decision then considered the breach of fiduciary duty claim, which it dismissed. This ruling was premised on the fact that plaintiffs alleged that a valid life insurance policy existed “and incorporate these allegations into every count.” The court was careful to dismiss the fiduciary breach claim without prejudice, however, “because Plaintiffs could rewrite the breach-of-fiduciary-duty counts consistent with the nonexistence of a valid policy and bring counts in the alterative.” Assuming plaintiffs are likely to heed this advice and rework their fiduciary breach claim, the court went on to address defendants’ remaining arguments. The court rejected defendants’ argument that plaintiffs cannot recover the value of benefits due under the plan through a claim under Section 502(a)(3). To the contrary, the Eleventh Circuit has found that beneficiaries may seek monetary relief equivalent to lost benefits under Section 1132(a)(3) under just the scenario alleged here (which readers of Your ERISA Watch know happens routinely). Moreover, the court disagreed with Unum that the family failed to allege fiduciary duties with respect to Unum. The court was offended by the notion that insurance companies could sit back and collect premiums without investigating the source of the premium payments, all while avoiding fiduciary responsibility. Thus, the court stated it would not permit Unum to “rely on a compartmentalized system to escape responsibilities,” and wrote that it would not dismiss the fiduciary duty claim against Unum based on a failure to allege Unum’s fiduciary duties. Accordingly, the motion to dismiss was granted in part as outlined above. However, the family may amend their complaint to address these shortcomings and shore up alternative paths to recovery and restitution.

Pension Benefit Claims

Fifth Circuit

Lavergne v. Westlake Corp., No. 2:23-CV-00941, 2024 WL 1664757 (W.D. La. Apr. 17, 2024) (Judge James D. Cain, Jr.). Widow Sylvia Thibodeaux sued her late husband’s former employer, the Westlake Corporation, in state court alleging she was wrongly denied post-retirement death benefits as the surviving spouse. Westlake removed the suit to federal court and showed that the plan at issue was established pursuant to ERISA. The court then issued an ERISA case order, and subsequently ordered briefing from the parties. Ms. Lavergne has not filed a motion or memorandum, and the time to do so pursuant to the court’s order has passed. Now Westlake has moved for judgment in its favor based on a review of the administrative record and requested attorneys’ fees and costs. In this decision the court granted judgment in favor of Westlake but denied its fee motion. Applying abuse of discretion review, the court reviewed an unambiguous form presented by defendant, which Ms. Lavergne signed, waiving the qualified joint and survivor annuity benefit. The waiver provided that as a surviving spouse Ms. Lavergne would “not receive a surviving spouse benefit from the pension plan upon the death of the applicant,” and in exchange Mr. Lavergne was paid a higher pension during his lifetime. In the absence of evidence that the waiver was completed by anyone other than the couple, the court concluded that the decision to deny surviving spouse pension benefits was legally correct and not an abuse of discretion. Nevertheless, the court was unwilling to award Westlake attorneys’ fees, as Ms. Lavergne “is an elderly widow who appears to be of limited means,” without any pattern of filing lawsuits with frivolous claims. On the other hand, Westlake was “not significantly inconvenienced in defending this claim.” For these reasons, the court did not find a fee award appropriate and ordered each party to bear its own costs.

Pleading Issues & Procedure

Eighth Circuit

Dickson v. AT&T Umbrella Benefit Sedgwick Claims Mgmt. Servs., No. 4:23-cv-00456-DGK, 2024 WL 1624698 (W.D. Mo. Apr. 15, 2024) (Judge Greg Kays). Plaintiff Kevin Dickson sued his ERISA-governed disability benefit plan, the AT&T Umbrella Benefit Plan No. 3, and its claims administrator, Sedgwick Claims Management Services, Inc., for wrongful denial of benefits and breach of fiduciary duty. Defendants moved for dismissal. They argued the denial of benefits claim could only be asserted against the plan, not defendant Sedgwick. In addition, defendants argued for dismissal of the fiduciary breach claim because the Eighth Circuit bars ERISA plaintiffs from obtaining duplicative recoveries. Finding both arguments unavailing, the court denied the motion to dismiss. To start, the court agreed with Mr. Dickson that Sedgwick was a proper defendant in the Section 502(a)(1)(B) wrongful denial of benefits claim because the complaint alleges Sedgwick had discretion to determine benefit eligibility. Next, the court found the fiduciary breach claim was not duplicative of the claim for benefits as the two claims “make meaningfully different factual allegations.” The complaint outlines that defendants breached their fiduciary duties by failing to comply with internal procedures, operating under a conflict of interest, ignoring medical and vocational evidence, and by failing to produce a complete copy of the claim file. The court stated that these allegations were fundamentally different from the benefits claim which alleges that the denial was not based on substantial evidence rendering it arbitrary and capricious. Furthermore, the court ruled that plaintiff’s two counts were seeking different forms of relief. As a result, the court determined that the allegations as pled were sufficient to survive the motion to dismiss.

Severance Benefit Claims

Eighth Circuit

Williams v. Ascension Med. Group-Se. Wis., No. 4:23-cv-01155-AGF, 2024 WL 1655411 (E.D. Mo. Apr. 17, 2024) (Judge Audrey G. Fleissig). Plaintiff O’Rell R. Williams worked as a physician at St. Joseph Hospital from 2008 to 2022. For the last six years of his employment Mr. Williams worked under Ascension Medical Group, which acquired the hospital in 2015. His employment ended in August of 2022 when Ascension closed St. Joseph. The closure of the hospital was part of Ascension’s private equity strategy. (According to a STAT health news investigation, Ascension, America’s largest Catholic hospital system, has built a private equity operation worth over a billion dollars.) Mr. Williams filed this civil action against Ascension for severance benefits and bonuses promised under various ERISA and non-ERISA plans and agreements. The action was originally filed in state court in Wisconsin. However, Ascension removed the action to federal court arguing that the state law causes of action were preempted by ERISA and the federal court had subject matter jurisdiction over the case. Ascension has since moved for dismissal of the complaint for failure to state a claim. It argued that to the extent Mr. Williams seeks severance benefits, the state law claims are preempted by ERISA, and to the extent he seeks bonuses under the Short-Term At-Risk Compensation Plan (“STARP”), those claims are not preempted by ERISA but are nevertheless insufficiently pled. Mr. Williams opposed the motion and separately moved for leave to amend his complaint. In this order the court granted in part and denied in part the motion to dismiss. The court dismissed the severance claims, which it agreed were preempted by ERISA. It held that all promises of severance benefits either came directly from the terms of the ERISA-governed severance plan or from either the Employment Agreement or the Workforce Transition Position Elimination Policy, both of which explicitly premise any promise of severance benefits on the applicable ERISA benefit plan. Therefore, the court agreed with Ascension that it has subject matter jurisdiction over the severance benefit claims as they are completely preempted. These state law claims were thus dismissed. However, the court denied the motion to dismiss the STARP bonus claims. Nevertheless, the court declined to exercise supplemental jurisdiction over the STARP claims, and chose instead to remand that portion of Mr. Williams’ action to state court. Finally, the court denied the motion for leave to amend, but did so without prejudice, should Mr. Williams wish to amend his complaint in light of these rulings to assert ERISA severance benefit claims, or should he wish to amend his bonus claims in state court. Accordingly, the court’s ruling left Mr. Williams with avenues with which to pursue both his claims for severance benefits and his claims for bonuses.

Withdrawal Liability & Unpaid Contributions

Second Circuit

Dycom Indus. v. Pension, Hospitalization & Benefit Plan of the Elec. Indus., No. 23-647-cv, __ F.4th __, 2024 WL 1608657 (2d Cir. Apr. 15, 2024) (Before Circuit Judges Sack, Bianco, and Park). Dycom Industries, Inc. and its predecessor Midtown Express, LLC were contractors whose employees installed, serviced, and disconnected telecommunications cables for cable, television, internet, and phone services. Midtown entered into collective bargaining agreements with Local Union No. 3 of the International Brotherhood of Electrical Workers, and was required to contribute to the electrician union’s Pension, Hospitalization & Benefit Plan. When Midtown permanently shut down its operations, it notified the plan that it would cease making contributions. In response, the fund notified Midtown that its dissolution constituted a complete withdrawal under ERISA and assessed a withdrawal liability against Midtown and its successor, Dycom. Dycom demanded arbitration, arguing that it qualified for an exemption from withdrawal liability under 29 U.S.C. § 1383(b) because substantially all of its employees were performing work in the building and construction industry. The arbitrator disagreed. The arbitrator concluded that Midtown’s employees “worked almost exclusively in existing buildings that were prewired for their purposes” and that the employees mostly did not make “repairs and/or alterations to an existing building or other structures.” Accordingly, the arbitrator found Midtown and Dycom did not qualify for the exemption and therefore upheld the withdrawal liability assessment. Dycom sued to vacate the arbitrator’s award. The magistrate judge issued a report and recommendation agreeing with the conclusions of the arbitrator, to which Dycom objected. Its objections were overruled by the district court, which adopted the magistrate’s report and confirmed the arbitrator’s award. Dycom appealed to the Second Circuit. In this published per curiam decision the Second Circuit made swift work affirming the district court’s ruling. It agreed with all the fact-finders below – the arbitrator, the magistrate judge, and the district court judge – that the work performed by Midtown’s employees was not in the building and construction industry and Midtown and Dycom were not exempt from withdrawal liability. The Second Circuit applied the definition of “building and construction industry” used by the National Labor Relations Board for the purposes of the Taft-Hartley Act, which provides that building and construction involves “the provision of labor whereby materials and constituent parts may be combined on the building site to form, make or build a structure.” Using that definition, the appeals court concluded that the arbitrator correctly determined that “‘Midtown almost never worked on new construction projects,’ but rather ‘provided cable service for homes or apartment houses that were prewired for that service.’” The Second Circuit determined that these duties were not consistent with the concept of making or building a structure, and the exemption thus was not applicable. Finally, the court of appeals rejected Dycom’s use of an economic non-labor law source to support its classification of cable installation contractors as a building and construction industry job. “We find this non-labor law source, which classifies economic activities for statistical purposes completely unrelated to the purpose of the exemption at issue here, not to be dispositive as to the scope of the building and construction exemption under Section 1383(b).” For the foregoing reasons, the court of appeals concluded that Midtown’s work did not qualify for the exemption and therefore affirmed the judgment of the district court.