Ryan S. v. UnitedHealth Grp., No. 22-55761, __ F. 4th __, 2024 WL 1561668 (9th Cir. Apr. 11, 2024) (Before Circuit Judges Clifton and Sanchez and District Judge Edward R. Korman)

ERISA does not require employers to offer health insurance to their employees. If they do, however, they must comply with a host of requirements. Many people are familiar with COBRA and HIPAA, but fewer are aware of the requirements embodied in the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (the “Parity Act”) and its implementing regulations. This law provides that any limitations on benefits for mental health or substance use disorder (“MH/SUD”) treatment must be “no more restrictive” than limitations on benefits for medical and surgical treatment.

In enacting the Parity Act, Congress clearly recognized that MH/SUD claims were being treated less favorably than medical/surgical claims and that as a result patients were being denied access to necessary treatment. It passed the Parity Act and incorporated its provisions into ERISA with the intention of addressing and ameliorating discriminatory insurance practices. Unfortunately, sixteen years later, despite the passage of the Parity Act, the unfairness targeted by it still exists. All too often patients seeking MH/SUD treatment still find barriers to getting their benefit plans to pay for that treatment.

There are numerous reasons why, but one important obstacle is the Parity Act itself. The courts have struggled to interpret and enforce the Parity Act’s broad language. Some parity violations are easy to spot, such as higher costs or fewer allowed visits for mental health services. But other violations are more difficult to identify – Parity Act regulations call these “Non-Quantitative Treatment Limitations,” or NQTLs – and the courts have had difficulty articulating legal standards for evaluating them. As a result, plaintiffs have often been left wondering what they need to do to properly plead a violation.

In this week’s notable decision, the Ninth Circuit offered a bit of needed guidance, crafting a new pleading standard and reviving for the second time a putative class action against UnitedHealthcare.

The named plaintiff in the action is Ryan S., a resident of California and a participant in an ERISA healthcare benefit plan insured, administered, and managed by United. Ryan received substance use disorder treatment from 2017-19, but when he submitted claims to United for this treatment, United mostly denied them. Ryan was variously told that his claims were not payable because “no documentation was submitted,” “your plan does not cover the services you received,” or “the information submitted does not contain sufficient detail.”

Ryan suspected something fishy was going on, and he was not the only one. During this same period, the California Department of Managed Health Care (“DMHC”) began investigating United’s claims handling. The agency uncovered the existence of United’s ominous-sounding Algorithms for Effective Reporting and Treatment, or ALERT, which United used as an additional layer of scrutiny in processing MH/SUD claims. A report issued by the DMHC in 2018 concluded that ALERT was applied solely to MH/SUD claims, and that no comparable additional review process was used in evaluating medical/surgical claims.

Armed with this report, Ryan sued UnitedHealth Group, Inc. and eight of its wholly owned subsidiaries on behalf of a group of similarly situated individuals alleging claims under ERISA and seeking relief under Section 502(a)(3). Specifically, Ryan alleged that United violated three of ERISA’s requirements: (1) the Parity Act; (2) the fiduciary duty of loyalty; and (3) the duty to follow contractual terms of ERISA-governed plans.

Given the difficulty courts have had with the Parity Act, you will not be surprised to learn that even though Ryan filed his suit in 2019, the case is still stuck in the pleading stage. First, the district court dismissed Ryan’s complaint for lack of standing. Ryan appealed, and the Ninth Circuit reversed, holding Ryan had standing to pursue claims based on United’s practices of refusing to cover outpatient MH/SUD treatment, refusing to pay for auxiliary treatments, and refusing to cover laboratory claims. (This decision was one of Your ERISA Watch’s cases of the week in our March 30, 2022 edition.)

On remand, United renewed its motion to dismiss, this time arguing that Ryan could not state a claim under Federal Rule of Civil Procedure 12(b)(6). Once again, the district court granted United’s motion. It concluded that Ryan failed to allege that his claims had been “categorically” denied and that he had insufficiently identified analogous medical or surgical claims that he had personally submitted which were processed more favorably.

Ryan appealed for a second time, and in this published opinion the Ninth Circuit again reversed. The court addressed Ryan’s three claims for relief in order, and thus began with the Parity Act. It opened with an apology for the state of Parity Act jurisprudence. The court acknowledged that its guidance in this area was “limited,” there was “no clear law” on how to plead a Parity Act violation, and district courts had been forced to “improvis[e]…often with inconsistent results.”

The Ninth Circuit attempted to rectify the situation by identifying three distinct types of Parity Act violations, which it called “facial exclusions,” “as-applied” violations, and “internal process” violations. In the first category, a plaintiff alleges a plan exclusion “is discriminatory on its face.” In the second category, a plan might contain a facially neutral term, but an administrator would violate parity by applying it in a discriminatory manner. In the last category, a plan administrator would violate parity by using “an improper internal process that results in the exclusion” of some mental health treatment.

The Ninth Circuit noted that the third, “internal process” violation was what Ryan was alleging in this action, and endeavored to outline the pleading requirements for such a claim. The court began by clarifying that Ryan did not need to allege a categorical denial practice, or the “uniform denial of his benefits,” which the district court appeared to require. Simply handling MH/SUD claims more stringently constitutes a Parity Act violation, regardless of whether it leads to uniform denial decisions.

The Ninth Circuit further held that Parity Act claimants need not “identify an analogous category of claims with precision.” While the court acknowledged that the concept of parity requires some comparison between MH/SUD claims and medical/surgical claims, it ruled that “the plaintiff can define that analogous category quite broadly.” The Parity Act only requires a comparison between treatment “within the same ‘classification’ – in this case, outpatient, out-of-network treatment.” Thus, “[a]ny other medical/surgical treatment within that classification can be a sufficient comparator.”

Importantly, the Ninth Circuit also observed that Parity Act plaintiffs suffer from an asymmetry of information. After all, MH/SUD patients typically have not received analogous medical/surgical treatment in a similar classification, and thus “would have no basis to determine the process used for those analogous claims.” Thus, plaintiffs alleging an improper internal process “need not specify the different process that allegedly applies to the analogous category of medical/surgical benefits.” Instead, the plaintiff only needs to allege facts sufficient to suggest that the challenged process is specific to MH/SUD claims.

This, of course, is more easily said than done. “Simply alleging the denial of a plaintiff’s claims for behavioral health benefits is unlikely by itself to support a plausible inference that a defendant employed policies in violation of the Parity Act.” Ryan’s complaint did not suffer from this flaw, however, because he “pleads something more.” Specifically, Ryan’s complaint included allegations regarding the DMHC’s investigation into United’s ALERT system, which United had conceded it only applied to MH/SUD claims. The court stressed that simply using the ALERT system could amount to a Parity Act violation, even if the claims flagged by the system were ultimately denied correctly: “Even if all those denials were independently valid, the mere fact that the reasons to deny coverage were identified only because the MH/SUD claims were subjected to an additional layer of scrutiny could violate the Parity Act.”

United contended that Ryan had not shown a sufficient nexus between his claim denials and the ALERT system. However, the DMHC’s report found that at the relevant time United subjected all of its MH/SUD outpatient claims to a more restrictive review process, and thus for the court this was “enough to connect the report’s findings to Ryan S.’s denial of benefits and is therefore sufficient to place Ryan S.’s allegations ‘in a context that raises a suggestion of’ wrongdoing.” Indeed, if Ryan’s allegations, which were supported by the findings of a state agency after a comprehensive investigation, were insufficient, it “would make it inordinately difficult for a plaintiff to challenge an internal process, given the likelihood that an individual claimant’s own administrative record would not shed light on the internal processes to which the claims were subjected. The plausibility pleading standard is not that unreachable.”

Accordingly, the Ninth Circuit reversed the district court’s dismissal of Ryan’s Parity Act claim. The court similarly reversed the district court’s dismissal of Ryan’s breach of fiduciary duty claim. Because Ryan had plausibly alleged that United violated the Parity Act, the court concluded that this violation constituted a breach of fiduciary duty as well.

The Ninth Circuit’s opinion was not a complete win for Ryan, however. Unlike Ryan’s Parity Act and fiduciary breach claims, the court affirmed the district court’s dismissal of Ryan’s violation of plan terms claim. The Ninth Circuit held that even though Ryan had plausibly alleged the existence of a more stringent review process, “such a process would not automatically violate the terms of his plan.” The court ruled that Ryan “must identify a term of his plan that Defendants violated,” and that he had failed to do so.

In sum, this decision represents a major victory for patients in California whose access to MH/SUD treatment has been thwarted by the internal guidelines and processes of health insurers. Presumably the remanded action will now proceed to discovery for a deeper dive into precisely what United’s practices were during the relevant period, who was affected by them, and how those individuals were potentially harmed.

Ryan S. is represented by Your ERISA Watch co-editor Elizabeth Hopkins, along with Lisa S. Kantor, as well as by Richard T. Collins and Damon D. Eisenbrey of Arnoll Golden Gregory LLP.

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

Breach of Fiduciary Duty

First Circuit

Sellers v. Trustees of Bos. Coll., No. 22-10912-WGY, 2024 WL 1586755 (D. Mass. Apr. 11, 2024) (Judge William G. Young). A class of former and current participants in Boston College’s two 401(k) plans are challenging the administration of the retirement plans with respect to the plan’s investments and fees. They have asserted claims for breaches of the fiduciary duties of prudence and monitoring, and for failure to comply with the plans’ investment policy statement. Specifically, the participants allege that the plans’ fiduciaries improperly maintained an actively managed variable annuity stock account and a real estate account despite being aware of their chronic and sustained underperformance. In addition, plaintiffs challenged the retention of the plans’ two third-party administrators, TIAA and Fidelity, and argued that they were charging excessive fees for the services rendered. Boston College moved for summary judgment on all three of plaintiffs’ causes of action. In an exhaustive 126-page decision, the court compressively broke down plaintiffs’ claims and ultimately denied Boston College’s motion for summary judgment as it related to the duty of prudence recordkeeping fees and challenged investment claims, and granted the motion on the claims that it violated plan documents and that it failed to prudently monitor the fiduciaries. First, the court ruled that there are genuine disputes of material fact as to (1) whether Boston College acted prudently when it chose not to consolidate the plans to a single recordkeeper; (2) whether the committee was aware of the true cost of the fees including the distinction between the unique participant fee and the per participant fee; and (3) whether some committee members had conflicts of interest that warranted recusal. The potential conflicts of interest between Committee members and the incumbent recordkeepers was perhaps the most compelling and direct evidence of fiduciary wrongdoing. These conflicts included personal benefits from both TIAA and Fidelity that ran the gamut from the petty (sporting event tickets) to the professional (one committee member was on the TIAA investment council). The court therefore held that there is a genuine dispute as to whether the conflicted committee members “acted imprudently by failing to recuse themselves from voting during the 2018 [request for proposals], as they failed to remove themselves from a position where their personal interest may have come into conflict with the Participants’. A reasonable factfinder could find that this failure to recuse demonstrated a process failure. Thus, this Court rules that there is a genuine dispute of material fact as to breach on the Recordkeeping Fees’ claim.” The court also identified genuine disputes of material fact as to whether the Committee breached its fiduciary duties when it retained the challenged investments. The court found it noteworthy that the challenged investments were placed on watch lists due to their sustained underperformance, but were not removed by the fiduciaries. Thus, it determined that a reasonable factfinder could conclude that retention of the funds was imprudent and accordingly held that summary judgment was not the appropriate means of resolution. However, the court held that no reasonable finder of fact could determine that Boston College violated the terms of the plans’ documents because the “plain language of the IPS does not require the Committee to use certain monitoring criteria and gives the Committee significant discretion to whether to change investments.” While the court’s reasoning behind the Section 404(a)(1)(D) violation of plan terms claim was logical and straightforward, its holding on the failure to monitor claim was somewhat odder. Typically, courts view the fiduciary duty to monitor as derivative of the underlying duties of prudence and loyalty. Here, the court denied the summary judgment motion on the underlying imprudence claim. Therefore, it would have been reasonable to expect that it would have also denied summary judgment on the duty to monitor claim. But that was not the case. Instead, the court said that it found no evidence to suggest that defendants’ monitoring was deficient or that the trustees were not properly kept apprised to the Committee’s actions. “Thus, even though the underlying duty of prudence claim survives summary judgment, this Court GRANTS summary judgment to Trustees on the duty to monitor claim.” Accordingly, following this order the remaining duty of prudence fee and fund claims will proceed to trial. Finally, no summary of this decision would be complete without a brief note on the court’s charming “Epilogue” on summary judgment, detailing why summary judgment was not the proper tool for the determination of this case. “In short, this entire summary judgment exercise has been a monumental waste of time.” But, at the end of the day, the court did acknowledge that ultimate responsibility rested with the court itself, and that it is useless “to rail against the overuse of summary judgment.” The better use of the court’s time, it concluded, would be to simply “prioritize trial as the more apt means of dispute resolution.” It seems the court here put its money where its mouth was, and a trial is indeed coming.

Fifth Circuit

Perkins v. United Surgical Partners Int’l, No. 23-10375, __ F. App’x __, 2024 WL 1574342 (5th Cir. Apr. 11, 2024) (Before Circuit Judges Jones, Barksdale, and Elrod). Participants of the United Surgical Partners International 401(k) pension plan sued United and the plan’s administrative committee for mismanaging investments and failing to control costs in violation of their fiduciary duties under ERISA. The district court dismissed the complaint for failure to state claims pursuant to Federal Rule of Civil Procedure 12(b)(6), determining that plaintiffs’ allegations failed to support plausible duty of prudence of duty to monitor claims. The participants appealed the dismissal to the Fifth Circuit in the wake of the Supreme Court’s decision in Hughes v. Northwestern University, 595 U.S. 170, 142 S.Ct. 737 (2022). The Fifth Circuit agreed with the participants’ reading of Hughes and accordingly reversed the district court’s dismissal and remanded to it for further proceedings in accordance with this decision. At the pleading stage, the court of appeals agreed, plaintiffs’ complaint sufficiently alleged that funds identical to those offered by the plan existed which had lower share costs. These allegations were enough under Hughes, the appellate court found, to infer that the committee breached its duties to the participants. It also clarified that district courts may not favor the fiduciaries’ explanations or justifications for their decisions at this stage of litigation. The Fifth Circuit expressly stated, “defraying recordkeeping costs is not the only plausible explanation for United’s decision to include retail shares. Indeed, another plausible explanation is that the Committee included retail shares in the Plan due to mismanagement.” Moreover, the court of appeals disagreed with defendants that plaintiffs’ allegations about comparative recordkeeping costs and services were insufficient to survive dismissal. This was especially true where, as here, plaintiffs compared the recordkeeping costs for similar services provided to plans of a similar size. Based on the foregoing, the Fifth Circuit concluded that the district court erred in dismissing the complaint at this early stage of litigation.

Eighth Circuit

Lacrosse v. Jack Henry & Associates, Inc., No. 23-CV-05088-SRB, 2024 WL 1578899 (W.D. Mo. Apr. 10, 2024) (Judge Stephen R. Bough). Plaintiff Guy Lacrosse, an employee of Jack Henry & Associates, Inc. and a participant in its 401(k) retirement savings plan, initiated this putative class action against the plan’s fiduciaries for failing to prudently monitor and control the recordkeeping and administrative service fees of the third-party service providers to ensure they were objectively reasonable. Defendants moved to dismiss the class action complaint for failure to state a claim. Their motion was wholly denied by the court in this order. The court’s conversation began with a discussion on the appropriate pleading standard in the Eighth Circuit. In Braden v. Wal-Mart Stores, Inc. the Eighth Circuit explained that district courts should be cognizant of the fact that ERISA plaintiffs lack inside information until discovery commences, and consider their limited access to crucial information. “If plaintiffs cannot state a claim without pleading facts which tend systemically to be in the sole possession of defendants, the remedial scheme of the statute will fail, and the crucial rights secured by ERISA will suffer. These considerations counsel careful and holistic evaluation of an ERISA complaint’s factual allegations before concluding hey do not support a plausible inference that the plaintiff is entitled to relief.” Taking this guidance to heart, the court here evaluated the complaint and concluded that it was sufficient to infer the alleged wrongdoing. Specifically, the court was satisfied that at the motion to dismiss stage the allegations plausibly allege the plan and the comparator plans provided the same recordkeeping and administrative services with the sole difference being cost, that the comparator plans were sufficiently similar to the plan at issue in terms of assets and their numbers of participants, and that defendants did not engage in completive bidding or proper oversight. It therefore declined to dismiss either the duty of prudence or the derivative duty to monitor claims, leaving the putative class action complaint intact.

Class Actions

Tenth Circuit

McFadden v. Spring Commc’ns, No. 22-2464-DDC-GEB, 2024 WL 1533897 (D. Kan. Apr. 8, 2024) (Judge Daniel D. Crabtree). Three retiree participants of the Sprint Retirement Pension Plan sued Sprint Communications, LLC and the Sprint Communications Employee Benefits Committee on behalf of themselves and similarly situated individuals for violations of ERISA. Plaintiffs allege defendants caused them to lose their vested retirement benefits through their calculations for joint and survivor annuity benefits using outdated actuarial mortality assumptions, interest rates, and an unreasonable seven-year setback period. They maintain that these inputs meant the joint and survivor annuity benefits were not equivalent to the single life annuity benefits offered to plan participants in violation of ERISA’s actuarial equivalency and anti-forfeiture statutes. On September 6, 2023, the parties participated in mediation and reached an agreement in principle to a $3.5 million settlement. Plaintiffs here moved unopposed for preliminary settlement approval and preliminary certification of the settlement class. The court granted the Rule 23 preliminary settlement motion in this order. It began with Rule 23 class certification of the class of participants and beneficiaries of the plan “who began receiving a 50%, 75%, or 100% JSA or a GPSA on or after November 11, 2016.” The court first analyzed the settlement class under Rule 23(a). It determined that the 1,009 class members satisfied numerosity, common questions of law and fact around the joint and survivor annuity formulas unite the class members, the named plaintiffs were harmed in the same way as the other class members and were therefore typical of the class, and the named plaintiffs and their counsel were adequate representatives to serve the interest of the absent class members. The court then scrutinized the class under Rule 23(b)(1)(A). It ultimately agreed with plaintiffs that serial actions could produce contradictory obligations and “such an outcome is particularly troubling in the ERISA context given that the statute requires like treatment of the class.” Thus, the court found certification under Rule 23(b)(1)(A) appropriate, and granted the motion for class certification for settlement purposes. Next, the court turned to its evaluation of the fairness and adequacy of the proposed settlement itself. It ruled (1) the parties fairly, honestly, and in good faith negotiated the terms of the settlement; (2) the ultimate outcome of the litigation is not certain; (3) the value of the settlement recovery is proportional and appropriate when weighing the potential “for future relief after protracted and expensive litigation”; and (4) the parties agree that the settlement is fair and reasonable. Weighing these factors together the court was satisfied that the settlement should be preliminarily approved. In addition, the court found the proposed notice itself to be informative, clear, and easily understood. It also accepted the proposed manner of notice, particularly as each class member is already receiving pension benefits and is therefore easy to contact and inform. Finally, the court set the settlement schedule, outlined the procedures to submit objections to the settlement, and stayed the pending litigation.

Disability Benefit Claims

Fourth Circuit

Wonsang v. Reliance Standard Life Ins. Co., No. 1:23-cv-1 (RDA/IDD), 2024 WL 1559292 (E.D. Va. Apr. 10, 2024) (Judge Rossie D. Alston, Jr.). At the time of her disability onset, plaintiff Rebecca Wonsang was employed as a physical therapist. Ms. Wonsang stopped working on May 13, 2016 due to symptoms from fibromyalgia, chronic fatigue, Epstein-Barr virus, IBS, migraines, and joint, back, and neck pain from cervical herniated discs. Defendant Reliance Standard Life Insurance Company approved Ms. Wonsang’s short-term disability benefits, and later, on September 29, 2016, approved her claim for long-term disability benefits. Reliance’s in-house reviewing nurse confirmed that Ms. Wonsang was totally disabled from her own occupation because she is precluded from engaging in sustained physical activity and because she was experiencing poor cognitive abilities and mental fogginess. Reliance paid Ms. Wonsang’s long-term disability claim through the duration of the “regular occupation” period of the policy. However, once benefit eligibility transitioned to the “any occupation” period, Reliance terminated Ms. Wonsang’s benefits, concluding there was insufficient evidence to support a finding that Ms. Wonsang was impaired to the point of holding down any job. Ms. Wonsang challenges that decision in this action. The court in this decision ruled on the parties’ cross-motions for summary judgment, entering judgment in favor of Ms. Wonsang and restoring her benefits. Before it reached a discussion of the merits, the court resolved two preliminary disputes – the timeliness of Ms. Wonsang’s action and the applicable standard of review. First, it concluded that the action was timely. It was in fact Reliance that the court found to be untimely with its review. The court reiterated that ERISA imposes a 45-day window for a claim administrator to issue a benefit decision. Here, Reliance did not provide an appeal decision within the applicable time period nor provide notice of the need for an extension. Accordingly, the court determined that the lawsuit was not premature, even though Reliance failed to conduct its requested independent medical exam. Second, the court ruled that Reliance’s failure to render a timely appeal decision transformed the applicable review standard from abuse of discretion to de novo. “Reliance’s failure to issue a benefits decision within the 45-day period does not constitute a minor irregularity or ‘substantial compliance with the required procedures’…Rather, Reliance failed to comply with the required procedures such that de novo review is appropriate.” Having settled these preliminary issues, the court addressed the relevant merits of each party’s positions. The court determined that Reliance’s “minimalist approach” to processing its decision, basing its denial exclusively on its reviewing nurse’s opinions on the papers, was unpersuasive and inappropriate. Rather, the court felt it was Ms. Wonsang who had the stronger arguments and evidence to support her position. In the end the court agreed with her that her cumulative symptoms left her unable to sustain any work. This was especially true, the court added, because Reliance relied on post-hoc denial rationales including a new argument in court based on the plan’s limitation period for mental health disorders. The remaining issue was the appropriate remedy. “Here, Reliance has failed to live up to its fiduciary duty as mandated under ERISA. Further, the Court does not find Reliance’s failure to timely issue an appeals decision or its failure to include the Limitation prior to this litigation to be ‘procedural.’…Therefore, without deciding the specific amount due, the appropriate remedy is to award benefits to Wonsang from March 26, 2022 to present day.” Finally, Ms. Wong was instructed to file a motion for attorney’s fees and costs.

Discovery

Tenth Circuit

Macias v. Sisters of Charity of Leavenworth Health Sys., No. 1:23-cv-01496-DDD-SBP, 2024 WL 1555061 (D. Colo. Apr. 10, 2024) (Magistrate Judge Susan Prose). Participants of ERISA-governed defined contribution pension plans filed this putative class action against the plans’ fiduciaries for breaches of their duties managing the plans and their funds. Before the court was defendants’ Rule 26(c) motion to hold discovery in abeyance during the pendency of their motion to dismiss. Magistrate Judge Susan Prose granted the motion to stay. The Magistrate ruled that staying discovery would not burden plaintiffs, while allowing discovery to continue would unduly burden defendants and the court. In particular, the court stressed “that discovery in a matter where class claims encompass a years’ long period would be broad and complex.” And while the court acknowledged that discovery does not ordinarily pose an undue burden on defendants, it distinguished class action lawsuits, finding them fundamentally different due to “the breadth of class action discovery” and their “elevated burden” should a stay not be granted. Additionally, it was the court’s opinion that staying discovery would be to its benefit by making its docket more predictable and manageable. Thus, the motion was granted, and discovery is stayed until the court resolves the pending motion to dismiss.

ERISA Preemption

First Circuit

Tutungian v. Massachusetts Elec. Co., No. 24-10228-FDS, 2024 WL 1541094 (D. Mass. Apr. 9, 2024) (Judge F. Dennis Saylor IV). After his supplemental life insurance policy was cancelled, plaintiff Daniel Tutungian filed a state law civil action against Massachusetts Electric Company seeking to regain coverage. Assuming the life insurance policy is an ERISA-governed plan, defendant removed the action to federal court on the basis of ERISA complete preemption. Mr. Tutungian moved to remand the action to state court. His motion was denied in this decision. The court held that under the Supreme Court’s Davila test, Mr. Tutungian’s claims could have been brought under ERISA and there is no independent legal duty. It stressed that the complaint is in essence a judicial challenge seeking restoration of ERISA life insurance benefits. The court ruled that restoration of coverage is a remedy provided by ERISA’s remedial scheme. It also agreed with defendant that the life insurance policy did not fall under ERISA’s voluntary plan safe harbor exemption because all the MetLife life insurance policies were treated as one unit with one certificate and group number. “As the First Circuit has explained, it is ‘both impractical and illogical to segment insurance benefits that are treated as a single group and managed together, potentially placing some under ERISA and some outside the statute’s scope.’” Thus, because the court held that ERISA preempts the state law claims and the safe harbor exemption does not apply, it concluded that it has exclusive subject matter jurisdiction over this dispute and therefore denied the motion to remand.

Second Circuit

Brian & Spine Surgery, P.C. v. Int’l Union of Operating Eng’rs Local 137 Welfare Fund, No. 23-CV-6145 (ARR) (LGD), 2024 WL 1550411 (E.D.N.Y. Apr. 10, 2024) (Judge Allyne R. Ross). Plaintiff Brain and Spine Surgery, P.C. provided successful surgery on a patient covered under an ERISA-governed healthcare plan, the International Union of Operating Engineers Local 137 Welfare Fund. Each of the two surgeons billed over $350,000 for the medical services provided. The Fund faxed over two payment proposals, one for $80,760 for one of the surgeons and one for $24,228 for the other surgeon’s services. Each agreement stated that these amounts were the maximums allowed under the plan. Brain and Spine Surgery received these proposals and executed and returned the two agreements. However, the Fund has yet to pay the amounts it offered in the agreements. In this action, Brain and Spine Surgery has sued the Fund and its administrator in New York state court for breach of contract and unjust enrichment, seeking payment for its services. Defendants removed the action to federal court, arguing ERISA preempts plaintiff’s claims. The provider moved to remand its action. Here, the court denied the motion to remand, and determined that the unjust enrichment claim was completely preempted by ERISA. Under the doctrine of complete preemption, the court employed the two-part Davila test to determine that Brain and Spine Surgery had derivative standing to sue under ERISA, the unjust enrichment claim, as framed in the complaint, is a colorable claim for benefits, and it does not implicate an independent legal duty. Overall, the court concluded that the unjust enrichment claim is dependent on the ERISA plan, as the obligation to pay the claims arises from the plan. In this case, the court understood the complaint as fundamentally seeking a right to a payment tied to services covered under an ERISA-governed plan. “As such, plaintiff’s claim for the reasonable value of its services does not involve a mere cursory review of an ERISA plan to determine the applicable rate of pay for a given medical service.” Accordingly, the court agreed with defendants that the unjust enrichment claim was completely preempted. It then declined to decide whether the breach of contract claims were preempted too, and instead opted to exercise supplemental jurisdiction over them. For these reasons, the court maintained jurisdiction over the action and denied the motion to remand.

Medical Benefit Claims

Third Circuit

DeMarinis v. Anthem Ins. Co., No. 3:20-CV-713, 2024 WL 1557379 (M.D. Pa. Apr. 10, 2024) (Judge Robert D. Mariani). Plaintiff Chris DeMarinis sued the administrator of his ERISA-governed healthcare plan, Anthem Insurance Companies, Inc., to challenge the plan’s denial of his teenage son’s stay at an inpatient neurobehavioral unit. The boy, D.D., has non-verbal autism and a severe intellectual disability. In the spring of 2019, D.D. was hospitalized following violent behavior and then sent to the inpatient neurobehavioral center for intensive rehabilitative treatment. Mr. DeMarinis contends that Anthem should cover the cost of D.D.’s treatment from May 8, 2019 to October 24, 2019 in the amount of $459,318, plus reasonable attorneys’ fees and costs. The parties filed cross-motions for summary judgment under arbitrary and capricious review. In this order the court denied Anthem’s summary judgment motion, and granted in part plaintiff’s motion for summary judgment. The court ruled that Anthem’s position that D.D. was not at risk of harming himself or others as of May 8, 2019 was simply inaccurate and not supported by the medical records. Moreover, Anthem’s own medical reviewers contradicted themselves by acknowledging in their notes that there was no change in D.D.’s condition from the time he was admitted to the hospital to May 8, 2019. The court also found that Anthem failed to adequately consider the opinions of D.D.’s team of treating physicians, Anthem failed to consider all relevant diagnoses and aspects of D.D.’s complicated medical situation, and the reviewer Anthem hired was not in fact independent or neutral. To the court, the medical records did not substantially support Anthem’s denial. Instead, they demonstrated clearly that D.D. continued to be at risk of serious harm without the proper medically necessary intervention. “For the foregoing reasons, the Court concludes that Anthem’s decision to deny coverage from May 8, 2019, forward exhibits an irregularity that suggests its decision was arbitrary and capricious.” After viewing everything as a whole, including the procedural failings of the denial letters, the court entered judgment in favor of Mr. DeMarinis on his benefit claim. Further, the court determined that an award of benefits was the appropriate remedy for Anthem’s denial. The court further agreed with plaintiff that he had properly administratively exhausted the denials before bringing suit and that he did not need to submit continuous bills for the already denied treatment ad nauseam. Thus, the court found Mr. DeMarinis had diligently pursued administrative relief and further efforts to do so would have been futile because the benefits determination was fixed. In all likelihood, “Anthem would have continued to improperly find a lack of serious harm.” However, despite the court’s conclusion that the family was entitled to an award of benefits for some period beyond the date when they stopped submitting bills to Anthem, it ultimately determined that it needed to remand to Anthem to determine the extent to which coverage should have been extended. Therefore, for coverage beyond July 7, 2019, plaintiff was directed to resubmit relevant medical records for Anthem’s review and Anthem was ordered to expeditiously conduct a medical necessity evaluation of those records consistent with this decision. Mr. DeMarinis was also instructed by the court to file a motion for attorneys’ fees and costs.

Ninth Circuit

Dan C. v. Anthem Blue Cross Life and Health Ins. Co., No. 2:22-cv-03647-FLA (AJRx), 2024 WL 1533636 (C.D. Cal. Apr. 9, 2024) (Judge Fernando L. Aenlle-Rocha). This is a particularly harrowing mental healthcare action involving denied claims for residential treatment benefits of an adopted nine-year old Haitian boy who was orphaned following the death of his biological mother. This trauma in early age left the child with severe behavioral and mental health problems, including violent behaviors that could only be safely treated in a residential setting. The child’s father, Dan. C., a participant of the Director’s Guild of America welfare plan, sued the Director’s Guild and Anthem Blue Cross, the claim administrator, for wrongful denial of benefits and breach of fiduciary duty for failure to provide a full and fair review. On January 3, 2024, the court held a bench trial in this case. In this decision it issued its findings of fact and conclusions of law and entered judgment on both counts in favor of Dan C. under de novo review. The court agreed with plaintiff that defendants were guilty of cherry-picking favorable treatment notes from the records while ignoring the sometimes shocking evidence in the record demonstrating the child’s “risky and dangerous behavior, impaired judgment, and emotional difficulties that could not have been managed without residential treatment, due to his violent and threatening nature and impaired daily functioning.” As the court noted, many of these violent events continued long after the denial. It was therefore the court’s opinion that continued residential treatment was medically necessary for the boy because he posed a risk of danger to himself and others without this intervention and because he was unable to function outside of the residential setting. Accordingly, the court determined that the father was entitled to full benefits. Moreover, the court found for the father on his full and fair review claim. It stated that defendants disregarded relevant medical evidence, failed to engage with the voluminous medical records, failed to consult the treatment providers, and, perhaps most egregiously, engaged the same doctor for both the first and second-level review. “Even more troubling is that Dr. Holmes certified in his second report that he had ‘not had any prior involvement in the denial/appeal process for the case,’ …when he had authored a report…in the same case less than one month prior.” The court further observed that the benefits committee acted improperly when they denied the claim because they were not in possession of Dr. Holmes’ medical credentials. For these reasons, the court found that the denial was not a full and fair review of plaintiff’s claim for benefits. Thus, the court entered judgment in plaintiff’s favor and informed him that he may bring a motion for attorney’s fees pursuant to Section 502(g)(1).

Pension Benefit Claims

Fourth Circuit

Hudson v. Plumbers & Steamfitters Local No. 150 Pension Fund, No. 8:23-cv-6422-JDA, 2024 WL 1526609 (D.S.C. Apr. 5, 2024) (Judge Jacquelyn D. Austin). Plaintiff Allen B. Hudson, a retired and disabled member of the Plumbers and Steamfitters Local Union No. 150, brought this action challenging the union’s denial of his full pension benefits. Mr. Hudson alleges that the union, its pension fund, and the plan’s claims administrator violated ERISA by altering his employment records and failing to credit military service years in order to reduce his vested pension benefits, despite previously confirming “that he had fully and irrevocably vested in the Plan.” The union moved to dismiss the complaint for failure to state a claim. Specifically, the union argued that its motion should be granted because it is not the pension fund or plan administrator and therefore not a proper defendant in a Section 502(a)(1)(B) action, and that it was not acting in a fiduciary capacity with respect to any of the activity alleged in Mr. Hudson’s complaint, meaning his Sections 502(a)(2) and (a)(3) fiduciary duty claims should likewise be dismissed. The court disagreed. At this juncture, the court accepted the allegations in the complaint that the union had fiduciary control over the plan’s administrator. By contrast, the court noted that the union presented no countervailing evidence to undermine Mr. Hudson’s allegations. Through this lens, the court found that Mr. Hudson had pled enough to withstand the union’s motion to dismiss. 

Pleading Issues & Procedure

Fourth Circuit

Penland v. Metropolitan Life Ins. Co., No. No. 22-1720, __ F. App’x __, 2024 WL 1528957 (4th Cir. Apr. 9, 2024) (Before Circuit Judges Wynn, Harris, and Benjamin). Plaintiff-appellant Tracy W. Penland sued Metropolitan Life Insurance Company (“MetLife”) to challenge its termination of his long-term disability benefits. Employing a “quasi-summary-judgment” approach and reviewing the termination decision de novo, the court made factual findings to affirm MetLife’s determination that Mr. Penland’s conditions not subject to the plan’s “neuromuscular, musculoskeletal and soft tissue” 24-month limitation were not disabling. Importantly, the district court did not state, indicate, or suggest in its decision that it was making its factual findings pursuant to a bench trial under Federal Rule of Civil Procedure 52. “Nor did it style its opinion to comport with the requirements of that rule.” However, after the district court issued its ruling in this action there was an intervening change in controlling law in the Fourth Circuit. That change came from the appeals court’s decision in Tekmen v. Reliance Standard Life Ins. Co., 55 F.4th 951 (4th Cir. 2022), wherein the court rejected the quasi-summary-judgment procedure and clarified the need for a bench trial pursuant to Rule 52 in ERISA benefit disputes. (Kantor & Kantor LLP was appellate counsel for plaintiff in the Tekmen case, which Your ERISA Watch covered as the week’s notable decision in our December 21, 2022 newsletter.) The Fourth Circuit explained that summary judgment “is reserved for cases in which there is no genuine issue of material fact.” Where a district court must make factual findings that implicate a genuine material issue, summary judgment is not appropriate and a Rule 52 trial is required. The court of appeals reasoned that “a district court’s fact-finding in the guise of summary judgment would be subject, like other summary judgment rulings, to de novo review on appeal – requiring ‘redundant factfinding by the appellate courts’ and giving ‘district courts little reason to invest the time in factfinding necessary in cases with genuine disputes of material fact.’” The appellate court observed that because “this court’s important clarification in Tekmen came only after the district court’s ruling here,” the district court “through no fault of its own” issued a decision “bearing the hallmarks of the modified summary judgment approach” in conflict with the rules established in Tekmen. The Fourth Circuit was unwilling to assume for the sake of efficiency that the district court’s summary judgment fact-finding exercises weighing the evidence and making credibility judgments amounted to a Rule 52 bench trial. Rather, it concluded that reviewing the district court’s decision “would entail review under a deferential ‘clearly erroneous’ standard that neither the parties nor the court would have anticipated while this case was before the district court.” Thus, it ruled that the appropriate approach to ensure fairness under the circumstances was to vacate the district court’s judgment and remand to it for a Rule 52 bench trial consistent with Tekmen.

Standard of Review

Ninth Circuit

K.G. v. University of S.F. Welfare Benefit Plan, No. 23-cv-00299-JSC, 2024 WL 1589980 (N.D. Cal. Apr. 11, 2024) (Judge Jacqueline Scott Corley). The court ruled on the appropriate standard of review in this healthcare benefit case. Of the four potentially relevant documents presented by defendant University of San Francisco Welfare Benefit Plan, the court determined that two, the Master Document and the 2020 Benefit Booklet, made up the written plan document during the relevant period. With regard to the Master Document, the court determined that it failed to unambiguously delegate Anthem discretion to determine benefit eligibility or interpret plan terms. As for the Benefit Booklet, the court wrote that it “simply does not clearly indicate that Anthem has discretion to grant or deny benefits.” Without a clear and unambiguous delegation of discretionary authority, the court ruled that the documents failed to warrant departure from the default de novo standard of review.

Venue

Fourth Circuit

Hudson v. Plumbers & Steamfitters Local No. 150 Pension Fund, No. C. A. 8:23-cv-6422-JDA, 2024 WL 1506776 (D.S.C. Apr. 5, 2024) (Judge Jacquelyn D. Austin). This is the second decision this week in this case; see above (under “Pension Benefit Claims”) regarding the court’s denial of the defendant union’s motion to dismiss. To recap, a retired disabled welder, plaintiff Allen B. Hudson, sued his former union, the Plumbers & Steamfitters Local No. 150, its Pension Fund, and Southern Benefits Administrators, Inc., challenging the fund’s decision to deny him full pension benefits. According to his complaint, defendants altered his punch cards from 1967, 1975, and 1976 to reflect 9.875 years of vested service rather than the proper ten years of vested service which is needed to receive full pension benefits. Mr. Hudson also argues that the union is in violation of federal law as well as the terms of the plan because it failed to credit him with three years of military service. In this decision the court ruled on defendants’ motion to transfer venue to the Middle District of Tennessee, the venue where the plan in administered. The motion to transfer was denied. Of note, the court found the judicial economy factor and Mr. Hudson’s choice of forum both significantly weighed against transfer. As to the former, the court stressed that is “has spent time considering [pending discovery and pleading] motions, and it would be inefficient for another court to have to duplicate that work.” Regarding the latter, the court highlighted that plaintiff’s choice of forum, particularly when it is his or her home forum, must be given strong weight under ERISA’s liberal venue provision. This was particularly true in the present action where Mr. Hudson contended that he “is a 73-year-old retiree and Army veteran with substantial health issues…disabled due to his exposure to beryllium throughout his career…Additionally, his resources are limited, particularly in light of the denial of his pension benefits…By contrast, the[] Defendants are well-funded organizations who have each already hired counsel in the [District of South Carolina], all of whom practice in South Carolina or have been admitted pro hac vice.” Under these circumstances, the court did not find it in the interest of justice to transfer Mr. Hudson’s action to Tennessee.