Bafford v. Admin. Comm. of the Northrop Grumman Pension Plan, No. 22-55634, __ F. 4th __, 2024 WL 2067884 (9th Cir. May 9, 2024) (Before Circuit Judges Christen, Desai, and Johnstone)

For the second time in close to as many years, the Ninth Circuit reversed the district court’s dismissal of this action brought by two participants and one beneficiary of the Northrop Grumman Pension Plan, an ERISA-governed defined benefit plan, against the administrator of that plan.

In this decision, the Ninth Circuit recognized the harm that is done to employees planning their retirement when they receive inaccurate pension information. As the Ninth Circuit put it, “[u]nlike a participant who does not receive any pension benefit statement and therefore does not know their retirement benefit, a participant who receives a significantly inaccurate statement may be affirmatively misled into believing that their pension will be greater than it is and make inadvisable decisions as a result.”

The plaintiffs allege they did not automatically receive benefit statements from the plan. Instead, they requested such statements from the plan’s administrative committee while they were working at Northrop in order to plan their retirements.

However, the responses they received grossly overstated their benefits. The mistake apparently resulted from the erroneous treatment of plaintiffs’ salaries during their two periods of employment with Northrop, the second of which was for a company that was eventually acquired by Northrop. The retirement benefit statements plaintiffs received used salary data from their second period of employment following the acquisition, leading to monthly benefit calculations that were more than twice the amount to which plaintiffs were actually entitled.

Unfortunately, plaintiffs only learned of these miscalculations in 2017 after they had already retired and begun receiving their pensions at the much higher rates. In this action, plaintiffs are seeking to redress the committee’s violations of ERISA’s disclosure requirements.

The Ninth Circuit addressed four issues in resolving the appeal: (1) whether plaintiffs adequately alleged that the committee failed to send triennial pension benefit statements or annual notices of the availability of such statements under § 1025(a)(1)(B)(i); (2) whether allegations that the committee furnished inaccurate pension benefit statements state a cognizable cause of action under § 1025(a)(1)(B)(ii); (3) whether plaintiffs sufficiently alleged they made written requests for benefit statements; and (4) whether remedies are available for the committee’s alleged failure to provide pension benefit statements in compliance with ERISA.

First, the panel held that plaintiffs adequately alleged their claim under § 1025(a)(1)(B)(i). The court of appeals stated, “[T]his record does not establish that Plaintiffs received an SPD or Annual Funding Notice at least once each year that they were employed at Northrop and participating in the Plan… The record before us shows only that the Committee provided an SPD in 2014 and Annual Funding Notices in 2014, 2015, and 2016; Plaintiffs each worked for Northrop for over a decade after they returned to the company in 2002. At this stage of the litigation, we cannot conclude that the Committee satisfied § 1025(a)(3)(A).”

The Ninth Circuit then turned to the claim under § 1025(a)(1)(B)(ii), and adopted the logical proposition that ERISA requires accurate benefit statements. The appeals court concluded that the language of the statute requiring participants be furnished with statements informing them of their “total benefits accrued” under § 1025(a)(2)(A) has the same meaning as “accrued benefit” in 29 U.S.C. § 1002(23)(A), and therefore requires statements be accurate. The panel further held that this reading was consistent with the core purpose of ERISA to protect the interests of employees and their beneficiaries. This goal, the court wrote, “would be entirely frustrated if plan administrators could satisfy their disclosure duties by providing grossly inaccurate pension benefit statements.” Accordingly, the Ninth Circuit was satisfied that plaintiffs adequately alleged the committee violated § 1025(a)(1)(B)(ii) by not providing them with pension benefit statements in accordance with the plan’s formula and “grossly overstat[ing] their benefits.”

In the decision’s next section, the Ninth Circuit held that plaintiffs sufficiently alleged they made written requests for benefit statements. “The Committee’s argument that Plaintiffs did not make written requests because they ‘conveyed their requests via the telephone’ is not well taken,” the Ninth Circuit stated. Plaintiffs alleged that they diligently followed the directions of the SPD and Annual Funding Notices to input data electronically, thereby satisfying the statute’s requirement that participants make written requests for pension benefit statements. According to the court, this was sufficient to trigger the duty to produce the benefit statements.

In so ruling, the appeals court was unpersuaded by the committee’s contention that plaintiffs were not requesting statements, but only pension “estimates.” The Ninth Circuit held that the committee’s argument presented a factual dispute not appropriate for resolution on a motion to dismiss “because it requires making factual findings concerning the type of documents Plaintiffs requested, which is not possible on the present record.”

Finally, the decision closed with a discussion of remedies. The court rejected the committee’s argument that there were no remedies available for the alleged ERISA violations. To the contrary, the panel determined that daily statutory penalties under § 1132(c)(1), for failure to furnish documents under § 1025(a), is an available and appropriate remedy. Furthermore, this remedy does not require allegations of bad faith. The court was convinced, under the plain text of the statute, that a colorable claim alleging grossly inaccurate pension benefit statements “falls within the scope of ERISA’s penalty provision.” The Ninth Circuit, however, declined to address whether equitable remedies under § 1132 were available because the district court did not consider the issue below.

Accordingly, the Ninth Circuit reversed the district court’s dismissal of plaintiffs’ claims and remanded for further proceedings.

Plaintiffs are represented by Your ERISA Watch’s own co-editor, Elizabeth Hopkins, along with her colleague and partner Susan L. Meter of Kantor & Kantor LLP, and Teresa S. Renaker and Kirsten G. Scott of Renaker Scott LLP.

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

Breach of Fiduciary Duty

Sixth Circuit

Bonds v. Heeter, No. 23-12045, 2024 WL 2059721 (E.D. Mich. May. 8, 2024) (Judge George Caram Steeh). In this action a participant of an employee stock ownership plan, the Flat Rock Metal and Bar Processing Stock Ownership Plan (“the ESOP”), brings claims for breaches of fiduciary duties and prohibited transactions against the ESOP’s trustee and selling shareholders in connection with a 2020 transaction wherein the plan purchased one hundred percent of outstanding shares of SAC Ventures Inc. for $60 million. Plaintiff alleges the company was revalued one month later at $3,649,046, signaling that the plan grossly overpaid for its assets. Plaintiff contends that the $60 million figure was the result of unrealistic growth projections and comparisons. “The complaint alleges that the sale was financed by the sellers because they were unable to arrange for bank financing, which would have required due diligence to ensure that the stock was worth the price paid.” The complaint further alleges that the purchase price was not properly discounted to reflect that the selling shareholders retained control of the company. Defendants moved to dismiss the complaint. To begin, the court addressed standing. It held that allegations in the complaint that the plan overpaid for stock, injuring plan participants, satisfied the standing elements of injury in fact, causation, and redressability. The court disagreed with defendants’ proposition that the nature of a leveraged transaction inherently precludes a finding of injury. “Plaintiff makes no allegation about the equity value of the stock immediately after the transaction; rather, he contends that post-transaction valuations, along with flaws in the initial valuation methodology, raise an inference that the ESOP overpaid.” Having determined plaintiff has standing, the court turned to the merits of the prohibited transaction claims. It determined that “the face of the complaint does not conclusively demonstrate that [exemptions] appl[y],” and that it is not an ERISA plaintiff’s burden to plead the absence of exemptions to prohibited transactions. Accordingly, the court denied the motion to dismiss the prohibited transaction claims under Sections 406(a)(1)(A) and (B). However, the court did find the claim under Section 406(a)(1)(D) subject to dismissal, as subsection (D) requires a complaint to create a reasonable inference showing that the trustee had a “subjective intent” to benefit a party in interest by transferring plan assets under Sixth Circuit precedent. Next, the court analyzed the claims for breach of the fiduciary duties of prudence and loyalty. Plaintiff contends that the trustee breached these duties by failing to thoroughly investigate the company stock and was financially incentivized to please the selling shareholders, as ongoing fees and future business was tied to approving the ESOP transaction. “These allegations,” the court wrote, “are sufficient to state a claim for breach of the duties of loyalty and prudence.” The court also denied the motion to dismiss the knowing participation and co-fiduciary liability claims asserted against the selling shareholders. It agreed with plaintiff that the shareholders knew or should have known the true stock valuation as well as other relevant facts surrounding the allegedly prohibited transaction. For these reasons, the court held the complaint satisfied Rule 8 notice pleading and denied the motion to dismiss the claims asserted against the selling shareholders. Accordingly, with the narrow exception of the prohibited transaction claim under Section 406(a)(1)(D), the court denied the motion to dismiss and allowed the action to proceed.

Disability Benefit Claims

Seventh Circuit

Artz v. Hartford Life & Accident Ins. Co., No. 23-2269, __ F. 4th __, 2024 WL 1986000 (7th Cir. May. 6, 2024) (Before Circuit Judges Scudder, Jackson-Akiwumi, and Pryor). Plaintiff-appellant Donald Artz worked at an electric utility company for over two decades. In 2019 symptoms of his longstanding multiple sclerosis left him feeling unable to continue working the arduous 12-hour shifts of his job as an electric distribution controller. Mr. Artz therefore applied for short-term disability benefits, as well as disability benefits from the Social Security Administration. He was granted these benefits and stopped working. When his short-term disability benefits ended, Mr. Artz applied for long-term disability benefits under his ERISA-governed policy. The plan administrator, Hartford Life & Accident Insurance Company, denied the claim. It concluded that Mr. Artz was not totally disabled due to his fatigue and cognitive impairments to the point of being unable to perform one or more of the essential duties of his job. Mr. Artz challenged the denial through an internal appeal, and when that proved unsuccessful, in litigation. Ultimately, the district court ruled that Hartford had not abused its discretion in denying the claim. It concluded that Mr. Artz was placing too much emphasis on the duties of his specific position, i.e. the 12-hour shifts, rather than the essential duties of his job in the general workplace as required by the policy. In particular, the district court latched onto the fact that one of Mr. Artz’s treating neurologists opined that he could perform regular 8-hour-a-day 5-day-a-week work in his current condition. Hartford’s reviewing doctors agreed with the neurologist’s conclusion when they reviewed the medical records. Accordingly, the district court held that Harford’s reading of the medical records was reasonable and substantial evidence supported the benefits denial. Furthermore, the district court rejected Mr. Artz’s contention that approval of both short-term disability and Social Security Administration benefits entitled him to benefits under the long-term disability plan. Mr. Artz appealed the unfavorable ruling, but the Seventh Circuit affirmed in this decision. Given the arbitrary and capricious review standard, the court of appeals could not find evidence that the district court erred in concluding that the denial was reasonable. “Several physicians concluded that [Mr. Artz] did not present enough objective evidence to show ‘severity and frequency’ of symptoms ‘such that functional impairment was established.’ This evidentiary record leaves us no choice but to AFFIRM.”

Ninth Circuit

Kim v. The Guardian Life Ins. Co. of Am., No. 8:23-cv-01579-DOC-ADS, 2024 WL 2106240 (C.D. Cal. May. 9, 2024) (Judge David O. Carter). Plaintiff Jason Kim commenced this ERISA benefits action to challenge The Guardian Life Insurance Company of America’s adverse decision on his claim for long-term disability benefits. Mr. Kim was employed as an art director at Dreamhaven, Inc. when on January 4, 2021, he became symptomatic for COVID-19 and subsequently developed sudden and severe physical, cognitive, and mental health symptoms, including psychosis. Mr. Kim’s psychological symptoms became profound and escalated. As the court noted, while it is uncommon, the COVID-19 virus has been documented to cause psychosis, as well as a variety of other mental health problems. The onset of these symptoms was debilitating. “He started showing signs of altered cognition, affect, and behavior, including pacing all night.” A neurologist diagnosed Mr. Kim with tardive dyskinesia and tardive akathisia. By March 2021, Mr. Kim’s condition was so severe that he attempted suicide and spent two months hospitalized. It was in fact while Mr. Kim was in the hospital, on March 25, 2021, that he submitted his claim for long-term disability benefits. Guardian denied the claim, concluding that while Mr. Kim was disabled, his disability was caused by pre-existing conditions excluded under the policy. Guardian cited Mr. Kim’s medical history of depression, anxiety, and ADHD. The court disagreed and held that Mr. Kim’s pre-COVID-onset mental health conditions were minor and non-disabling. “The Record contains sufficient evidence to establish that Plaintiff’s condition had subsequently changed from common anxiety and depression to something far more severe and unconnected to his documented prior conditions.” Accordingly, the court found that the pre-existing condition exclusion did not apply. The court stated that Mr. Kim’s “minimal prior anxiety and depression were categorically different than the symptoms he suffered beginning in early 2021, such that any preexisting condition did not substantially contribute to his disability.” Moreover, the court concluded that Mr. Kim met the policy’s definition of total disability and that he was entitled to benefits under the plan. The court thus overturned Guardian’s decision and awarded benefits, pre-judgment interest, and attorneys’ fees and costs.

Medical Benefit Claims

Ninth Circuit

Craig H. v. Blue Cross of Idaho, No. 1:23-cv-00221-DCN, 2024 WL 1975507 (D. Idaho May. 2, 2024) (Judge David C. Nye). In this action a family seeks benefit payments for their son’s residential mental healthcare treatment. Plaintiffs asserted four causes of action against the plan sponsor, Micron Technology, Inc., and the plan administrator, Blue Cross of Idaho: (1) recovery of benefits; (2) failure to provide a full and fair review; (3) violation of the Mental Health Parity and Addiction Equity Act; and (4) a request for statutory penalties for failure to supply documents upon request. Defendants moved to dismiss all the claims except the first for plan benefits. As a preliminary matter, the court took judicial notice of the plan document, concluding it was incorporated by reference into the complaint. However, the court declined to consider emails defendants attached to their motion to dismiss. The decision then addressed the full and fair review claim asserted under Section 502(a)(1)(B). While the court disagreed with defendants that the family is foreclosed from bringing a separate cause of action for violation of a full and fair review of the benefit claims, it nevertheless concluded that the family could not sustain this cause of action as currently pled under Section 502(a)(1)(B) because the requested relief, recovery of benefits due, is duplicative of their first cause of action. Accordingly, the court granted the motion to dismiss count two. Nevertheless, the court recognized that plaintiffs may cure this deficiency through amendment, and therefore informed plaintiffs they may replead to request some kind of equitable relief under Section 502(a)(3). The court addressed the Parity Act claim next. It stated that it would not entertain defendants’ arguments about treatment limitations, non-quantitative treatment limitations, and medical necessity, as these issues required factual discussions inappropriate for consideration on a motion to dismiss. The court therefore only addressed defendants’ argument that the family lacks standing to bring its Parity Act claim because there is no nexus between plan terms and the stated reasons for denial. Because the family “clearly alleges that it was Defendants’ use of the medical necessity criteria that created the disparity between mental health requirements and requirements for other coverage,” the court ruled that plaintiffs presented a plausible cause of action that defendants violated the Parity Act. As a result, the count was not dismissed. Finally, the court declined to consider the statutory penalties claim at this juncture, as questions over whether defendants acted in compliance with ERISA’s disclosure requirements “are very fact driven.” Thus, the court denied the motion to dismiss count four. For these reasons, the motion to dismiss was granted in part and denied in part.

Pension Benefit Claims

Seventh Circuit

Urlaub v. Citgo Petroleum Corp., No. 21 C 4133, 2024 WL 2019958 (N.D. Ill. May. 6, 2024) (Judge Matthew F. Kennelly). Three participants of the CITGO Petroleum Corporation’s two defined benefit plans sued CITGO, the plans, and the Benefits Committee on behalf of a putative class of similarly situated individuals for violations of ERISA in connection with the plans’ use of the 1971 Mortality Table to calculate joint and survivor annuity benefits. Plaintiffs assert four causes of action centering on the use of this allegedly outdated table. Count one alleges that use of the table reduced their benefits to less than the actuarial equivalent value of single life annuity benefits in violation of Section 1055. Similarly, count two alleges that the use of the table reduced the value of joint annuities below that of similarly situated single life annuities in violation of Section 1054(c). Count three alleges defendants violated ERISA’s anti-forfeiture provision, Section 1053. Finally, count four alleges the Benefits Committee breached its fiduciary duties of loyalty and prudence by providing inaccurate information to class members and failing to prudently make benefit determinations. Defendants moved for summary judgment. In their motion, defendants argued that the claims are untimely, plaintiffs failed to exhaust available internal appeals processes prior to filing suit, and plaintiffs cannot sustain their claims. The court mostly disagreed. It began by addressing the timeliness of the claims. The parties agreed that the analogous four-year statute of limitation under Texas law applies to counts one through three asserted under ERISA Sections 1055, 1054, and 1053. However, the parties dispute when plaintiffs’ claims accrued and thus when the clock started. The court ruled that there is a genuine question of fact about whether the plaintiffs knew or should have known the relevant facts of their claims regarding the mortality table more than four years prior to suing. “The Court cannot say that defendants have shown that no reasonable factfinder could conclude that the packets were insufficient to appraise participants that their [joint and survivor annuity] benefits might be less than the actuarial equivalent of their hypothetical [single life annuity] benefits.” The court then scrutinized the breach of fiduciary duty claim under ERISA’s six-year statute of repose. It concluded that two of the named plaintiffs’ fiduciary breach claims were timely under the six-year statute, but the third plaintiff’s claim was not because he received his first benefit check seven years before the lawsuit commenced. The court rejected plaintiffs’ “continuing breach” theory that the Committee continues to underpay the plaintiffs monthly in repeated violation of their fiduciary duties under ERISA. The court stated this was an instance “where a single decision has lasting effects.” Moreover, the court noted that plaintiffs pointed to no steps the Committee took to “cover their tracks” or “to hide the fact of the breach” to trigger the fraud or concealment exception. Therefore, the court concluded that plaintiff Pellegrini’s claim for breach of fiduciary duty was barred by ERISA’s statute of repose and granted summary judgment to the Committee on this narrow matter. Next, the court held that it would not require exhaustion in this case as it was not persuaded doing so “would serve any useful purpose,” and was reasonably convinced exhaustion would have been futile in any event. Finally, with regard to all four claims, the court agreed with plaintiffs that there are genuine disputes of material facts which render summary judgment inappropriate. Whether the Committee’s assumptions were reasonable and whether defendants violated ERISA will be resolved at trial. The remainder of defendants’ summary judgment motion was therefore denied.

Ninth Circuit

Lundstrom v. Young, No. 18-cv-2856-GPC-MSB, 2024 WL 2097900 (S.D. Cal. May. 9, 2024) (Judge Gonzalo P. Curiel). In compliance with a qualified domestic relations order (“QDRO”) signed by a state court judge in Texas, defendants Ligand Pharmaceuticals, Inc. and the Ligand Pharmaceuticals, Inc. 401(k) Plan distributed plaintiff Brian Lundstrom’s entire 401(k) account balance to his ex-wife, defendant Carla Young. Mr. Lundstrom brought this ERISA action to challenge that decision. In this order the court granted the motion for summary judgment brought by Ligand and the Plan. The court ruled that Mr. Lundstrom could not sustain his premature distribution claim as he failed “to adequately identify how premature distribution harms him,” as the 401(k) assets under the QDRO no longer belonged to Mr. Lundstrom “and thus the Court fails to see how Plaintiff may have been harmed.” Further, the court stated that even assuming Mr. Lundstrom could demonstrate harm, the claim would fail on the merits because the distribution was consistent with both ERISA and the terms of the Plan. Second, the court ruled on Mr. Lundstrom’s claim for failure to provide written procedures for determining the qualified status of a domestic relations order. “Again, Plaintiff must identify ‘downstream consequences’ of that violation…Again, Plaintiff has failed.” As Mr. Lundstrom could not prove he was injured by Ligand’s failure to promptly provide him procedures in writing, the court granted the Ligand defendants’ motion for summary judgment. Finally, the court addressed Mr. Lundstrom’s retaliation claim. Mr. Lundstrom alleges that Ligand retaliated against him for filing this lawsuit by reducing his bonus, limiting his merit increase, and eventually terminating his employment. Ligand insisted that Mr. Lundstrom waived his retaliation claim pursuant to a release in the parties’ written settlement agreements. The court agreed with Ligand that the negotiated confidential settlement agreements’ releases “explicitly released claims for wrongful discharge and claims brought under ERISA arising from Plaintiff’s termination,” and that these claims did not fall within the releases’ carveouts for the ongoing litigation claims. Accordingly, the court granted judgment to Ligand and the Plan on all of the claims asserted against them.

Pleading Issues & Procedure

Fifth Circuit

Thomas v. Group 1 Auto., No. H-23-1416, 2024 WL 1962890 (S.D. Tex. May. 3, 2024) (Judge Lee H. Rosenthal). Plaintiff Craig Thomas brought a wrongful termination lawsuit against his former employer, Group 1 Automotive, Inc. alleging race and age discrimination. Mr. Thomas’ action was filed on April 17, 2023. Almost a year later, and seven months after the deadline to amend pleadings ended, Mr. Thomas moved for leave to amend his pleadings to add a new cause of action under ERISA, presumably under Section 510. Mr. Thomas seeks to plead that he was fired in connection with a serious medical condition. He speculates that his employer terminated him in part to interfere with his right to employee medical benefits. In this order the court scrutinized the motion under Federal Rules of Civil Procedure 15(a) and 16(b). It stressed that Mr. Thomas’ motion was silent about the year-long delay in seeking to amend, and offered no explanation for failing to include an ERISA claim earlier. “Thomas’s counsel offers no excuse for the omission or the delay.” The court went on to express that it could not assess the importance of the amendment as the complaint does not plead a specific section of ERISA that was allegedly violated. Finally, the court found that defendant would be prejudiced if the motion were granted because it would have to consider adopting a new strategy and approach with changes in its motions. It stated, “[t]he prejudice is neither minimal nor easily curable, even with a short continuance.” Accordingly, the court found the one-year wait to add an amended cause of action “dilatory and unexplained” and therefore concluded that Mr. Thomas did not meet his burden of establishing good cause to justify granting the motion. For these reasons, the motion for leave to file an amended complaint was denied.

Seventh Circuit

Lysengen v. Argent Tr. Co., No. 20-1177, 2024 WL 2032927 (C.D. Ill. May. 6, 2024) (Judge Michael M. Mihm). This action involves the sale of Morton, Buildings, Inc. stock to an employee stock ownership plan and the concerns of participant-plaintiff Jackie Lysengen that the stock price was artificially inflated above its fair market value to the detriment of the plan and its participants. Ms. Lysengen, in a representative capacity, seeks plan-wide relief against defendant Argent Trust Company under ERISA Sections 409 and 502(a)(2). Early on, the court denied Ms. Lysengen’s motion for class certification. It based its denial “on certain conflicts that existed between [Ms. Lysengen] and the proposed class members, which the Court found benefitted differently from the ESOP transaction and its valuation.” However, the motion to deny class certification was not a death knell, as the court later ruled that Ms. Lysengen may proceed in a representative capacity under Section 502(a)(2), notwithstanding its denial of class certification. It reasoned that the conflicts it identified which precluded Rule 23 certification were not implicated as “any benefits would inure to the Plan as a whole, not individual members.” The court further noted in that decision that Section 502(a)(2) does not expressly require a plaintiff to proceed under Federal Rule of Civil Procedure 23. Now, Argent has moved to certify for interlocutory appeal the court’s order permitting Ms. Lysengen to proceed on behalf of the plan. In this order the court determined that the applicable conditions for certifying its decision for interlocutory appeal were met. The court therefore granted Argent’s motion. As a threshold matter, the court concluded the motion to certify was timely. It also agreed with Argent that the issue of “whether an individually named Plaintiff may seek plan-wide relief in a representative capacity under ERISA Section 502(a)(2), without doing so on behalf of a certified class,” is a contestable, difficult, and central question of law, appropriate for interlocutory resolution by the Seventh Circuit. On top of that, the court stated that “the question of law is dispositive of the litigation because Plaintiff seeks relief only in a representative capacity under Section 502(a)(2), and not on an individual basis…Thus, if the Court’s Order and Opinion was reversed on appeal, the outcome would be determinative of the litigation. The question of law, therefore, is vital to the future of this litigation[.]” Accordingly, the court granted Argent’s motion, certified the order for interlocutory appeal, and stayed the case pending appeal.  

Ninth Circuit

Plan Adm’r of the Chevron Corp. Retirement Restoration Plan v. Minvielle, No. 20-cv-07063-TSH, 2024 WL 1974544 (N.D. Cal. May. 3, 2024) (Magistrate Judge Thomas S. Hixson). Two ERISA actions have stemmed from the death of Margaret Broussard. In the first, the Chevron Corporation interpleads benefits from two benefit plans held by Ms. Broussard, the Retirement Restoration Plan and the Long-Term Incentive Plan. In the second, Ms. Broussard’s ex-husband, Martin Byrnes, asserts twelve causes of action under ERISA and state law seeking benefits under a defined benefit plan, The Chevron Corporation Retirement Plan, and a defined contribution plan, The Chevron Corporation Employee Savings Investment Plan. The combined benefits under the four plans are worth many millions of dollars. Mr. Byrnes moved to consolidate the two cases pursuant to Federal Rule of Civil Procedure 42. The motion to combine the actions was denied in this order. Although there is significant overlap in the parties and some of the factual and legal issues in the two cases, the court ultimately felt that the existence of the common issues did not weigh in favor of consolidation. In particular, the court carefully noted that benefits under each of the four plans “are provided and governed by written documents with their own terms,” meaning to the extent either case is decided on the terms of the relevant plan documents, those determinations are not relevant to the other case. Further, the court disagreed with Mr. Byrnes that questions over Ms. Broussard’s competence are entirely common to both cases, as her health and mental status deteriorated over time and her mental acuity was therefore not fixed. Accordingly, the court held, “a finding as to competence at one moment in time would [not] govern competence at a later time.” Therefore, the court found that critical differences weigh against consolidation. Additionally, the court ruled that consolidation posed the risk of being both prejudicial and confusing. Finally, the court held that there is no risk of inconsistent judgments and that consolidating the two lawsuits would “frustrate, rather than promote, judicial economy.” For these reasons, the court declined to consolidate the two actions and denied Mr. Byrnes’ motion.

Truong v. KPC Healthcare, Inc. Emp. Stock Ownership Plan Comm., No. 8:23-cv-01384-SB-BFM, 2024 WL 1984569 (C.D. Cal. May 3, 2024) (Judge Stanley Blumenfeld, Jr.). In 2020, participants of the KPC Healthcare Inc. Employee Stock Ownership Plan (“ESOP”) filed a class action lawsuit alleging breaches of fiduciary duties and prohibited transactions for violations surrounding a 2015 debt-leveraged purchase of KPC stock by the ESOP. That action ended in March 2023 when this court approved a class settlement of the claims. But the story doesn’t end there. Unbeknownst to the plan participants, in late December 2021, while the class action challenging the 2015 transaction was still pending, the ESOP leadership, through its trustee, Alerus Financial, N.A., sold the entirety of its KPC stock to Victor Valley Hospital Acquisition, Inc. and converted the ESOP into a profit-sharing plan. It turns out that Victory Valley Hospital was by no means unaffiliated with KPC Healthcare. To the contrary, the two companies were owned by the exact same individuals; two of the individual defendants were the sole owners of Victor Valley and its only board members. Defendants did not disclose the 2021 sale until eight months later, on August 24, 2022, and even then the notification did not disclose the sale price, or defendants’ interest in the purchasing company, to the ESOP participants. Upon learning of the December 2021 sale, plaintiff Sandra Truong, a plan participant, submitted a written request to the ESOP committee for information she believes she is entitled to under ERISA, including the valuation reports used to determine the sale price of the KPC stock. One month later, the ESOP committee responded and sent most of the requested documents, but maintained that Ms. Truong was not entitled to valuation reports under ERISA and refused to provide them. The committee also stated that it could not provide the valuation documents because they were in the sole possession of Alerus, which refused to produce the documents to either the ESOP committee or Ms. Truong. In this action, Ms. Truong has sued the KPC defendants and Alerus alleging violations of disclosure and reporting requirements under ERISA and seeking to obtain the information about the stock valuation as well as statutory penalties and attorneys’ fees. Defendants moved to dismiss on jurisdictional grounds pursuant to Federal Rule of Civil Procedure 12(b)(1), and also for failure to state a claim under Rule 12(b)(6). Their motions were granted in part and denied in part in the court’s meaty decision. Ms. Truong’s first three causes of action are asserted against the KPC defendants for (1) failure to update the SPD, (2) failure to timely file the annual Form 5500 report for the 2022 plan year, and (3) failure to provide the requested valuation documents. Claims four and five are asserted against Alerus. Claim 4 alleges Alerus breached its fiduciary duties by failing to provide the valuation reports. Claim 5 alleges Alerus knowingly participated in the KPC defendants’ breach of fiduciary duty by refusing to provide the valuation report to the KPC defendants. The decision started, logically, with the KPC defendants’ Article III challenge to the complaint. The court agreed with the KPC defendants that Counts 1 and 2 were moot because they eventually provided an updated SPD to Ms. Truong and filed the Form 5500. Under these circumstances, the court agreed that there remains no justiciable dispute over the SPD or the Form 5500. Accordingly, counts 1 and 2 were dismissed. Nevertheless, the court was unpersuaded by the KPC defendants’ position that Ms. Truong lacked standing to assert her valuation documents claim based on lack of redressability. “Plaintiff identifies authority holding that a plan administrator was not relieved of its obligation under ERISA to produce documents in a third party’s possession even when the third party (the claims administrator) refused a request to turn them over to the plan administrator.” Thus, the court found that Ms. Truong’s alleged injury in Count 3 could be redressed by a favorable decision and therefore she has standing to pursue the claim. However, the court was not finished with its analysis of Count 3, as defendants challenged it on the merits as well. They argued that valuation reports do not fall within the category of documents that ERISA § 104(b)(4) requires. At the pleading stage at least, the court was not convinced, and relied on Ninth Circuit case law to conclude that under certain circumstances valuation reports “can…be categorized as instruments under which the plan was operated, especially when requested by participants…who question the accuracy of the computation of their benefits.” The court thus rejected defendants’ position that valuation reports categorically are not encompassed by § 104(b)(4), and denied the motion to dismiss Count 3. The decision then segued to the two counts asserted against Alerus. To begin, the court once again established that Ms. Truong has standing and that she plausibly alleges that she has requested information to which she is, or at least may, be statutorily entitled (the valuation reports) and has been unable to obtain to date. “Plaintiff has adequately alleged an injury in fact – namely, that the withholding of the requested valuation report in violation of ERISA prevents her from fully understanding the benefits to which she is entitled under the plan.” The court then turned to the merits of Counts 4 and 5. First, Ms. Truong failed to convince the court that the valuation reports were plan assets, such that Alerus refusing to produce the report makes it an ongoing fiduciary even now when it no longer acts as trustee. “Plaintiff relies on general trust principles about a trustee’s duty to maintain records, which belong to the trust, but she does not cite a single case – binding or otherwise – holding or suggesting that an ERISA plan has a property interest in a valuation report commissioned by a trustee.” The court thus declined to adopt this novel interpretation of plan assets. Further, the court disagreed with Ms. Truong that Alerus had a duty to produce the valuation report to the committee during its time as the ESOP’s trustee under the terms of their trust agreement. The court held that Ms. Truong’s reading of the trust agreement was “incomplete and unclear.” Accordingly, the court determined that Ms. Truong could not sustain her breach of fiduciary duty claim against Alerus and therefore dismissed Count 4. The same was not true of Count 5, which alleged knowing participation in a breach of fiduciary duty. The court was satisfied that the complaint pled facts sufficient to show that there was a remedial wrong, that the relief sought is appropriate equitable relief under Section 502(a)(3), and that Alerus had actual knowledge of the alleged breach because it knew of Ms. Truong’s request for production from the KPC defendants and still refused to provide the valuation reports. For these reasons, the court denied the motion to dismiss Count 5. Finally, the court clarified that the dismissed claims were all dismissed without prejudice, and granted Ms. Truong the opportunity to move for leave to amend her complaint, should she wish to address the identified deficiencies and restore her complaint back to its fuller form.


Second Circuit

Amara v. Cigna Corp., No. 3:01-CV-02361 (SVN), 2024 WL 1985904 (D. Conn. May. 6, 2024) (Judge Sarala V. Nagala). For twenty-three years the participants of the Cigna cash balance plan have been litigating the way Cigna calculated benefits after its traditional pension plan transitioned to the cash balance plan. Plaintiffs successfully argued that Cigna did not provide them with honest and appropriate disclosures regarding the new plan. ERISA aficionados are familiar with this lawsuit and its many twists and turns, including most notably its time before the Supreme Court in 2011. By 2014, the plan participants had prevailed, after their success in the district court was affirmed in the Second Circuit. Nevertheless, thirteen years of litigation had only established that wrongdoing had occurred, and that equitable remedies were available and appropriate. Implementing the relief has presented its own set of obstacles. That relief, called the “Amara benefit,” is a remedy reforming the plan to provide class members all accrued benefits from the defined benefit pension plan (“Part A”), plus all accrued cash balance plan benefits (“Part B”). A+B it turns out is not elementary. Adding two sums together sounds simple enough, until you consider how each of the two sums are calculated. The court spent five more years of work adopting a methodology to measure Parts A and B, which is complex, in part, because the two sums are not entirely independent. As the court noted, “the benefits class members accrued under Part A prior to the Plan transition in 1998 had been rolled over as a lump sum to form the opening cash balance (the ‘Initial Retirement Account’) of the Part B accounts… After years of accumulating interest and benefit credits in the Part B account, the piece of the Part B account that appropriately represented the Part A benefit was difficult to ascertain.” This was especially true because Cigna did not maintain records of the amounts each class member accrued under Part A. Further complicating matters was the fact that Cigna was entitled to credit itself for the Part A benefits through offsetting. Particularly important to the present matter was the court’s 2017 decision on the use of “floor rates” in offset calculations of the A+B remedy. Under the terms of the cash balance plan, the annuity paid under Part B is calculated using the annual rate of interest on 30-year Treasury securities for November the year before benefits are commenced. However, Cigna would not use the 30-year Treasury security rate if that rate is lower than the applicable interest rate in effect on July 1, 2009 – the floor rate. The court ruled previously that Cigna could not use floor rates to calculate offsets on lump sum Part B benefits because those rates fixed interests rates at an artificial floor “which was not actually representative of the value received by class members who had received their Part B benefits as a lump sum; in other words, Cigna could not receive credit for an amount that was greater than that actually provided.” Plaintiffs believe Cigna has been disobeying the court’s orders by using the floor rates to calculate the offsets for participants who elected to receive their Part B benefits in annuity form, leading to a greater offset and thus a decrease in the A+B relief. They also contend that the notices provided to class members are in violation of previous court orders. Plaintiffs therefore moved for an accounting or post-judgment discovery based on their belief that defendants are improperly calculating award payments in violation of court orders. Defendants responded that they are not using floor rates in an inappropriate manner and that they are implementing relief in compliance with all court orders. The court agreed with the Cigna defendants. It held that plaintiffs did not raise significant questions regarding noncompliance with previous orders to justify granting their motions. Broadly, the court stressed that its previous orders addressing the use of floor rates was carefully constricted within the narrow bounds of offsets for participants already paid lump sums, and was silent about the use of floor rates to calculate Part B annuity payments. Accordingly, the court did not find that Cigna was in violation of its orders and did not determine that class members were receiving payments that were lower than they ought to have been. Nor did the court identify any obvious problems with the notices themselves. “Given the numerous ways plaintiffs have challenged Cigna’s calculations over time…the Court finds that Plaintiffs’ suggestion that a fundamental aspect of this methodology (using the Part B payment to calculate the offset) is somehow inappropriate is too little, too late.” Thus, within the court’s narrow scope focused on whether there were significant questions regarding Cigna’s compliance with its prior orders, it did not feel that there was enough to go on to grant the motion for accounting or post-judgment discovery. Plaintiffs’ motion was therefore denied.

Retaliation Claims

Third Circuit

Prolenski v. Transtar, LLC, No. 21-545, 2024 WL 1973495 (W.D. Pa. May. 3, 2024) (Judge W. Scott Hardy). Two trainmen, plaintiffs Joshua Prolenski and Dennis Paceley, on behalf of themselves and similarly situated individuals, have sued their former employers, Union Railroad Company and Gary Railway Company, and their corporate owner Transtar, LLC, for violation of ERISA Section 510 by systematically terminating employees who are participants in the Carnegie Pension plan. According to the complaint, the pension plan has become unsustainably expensive and is underfunded by approximately $1.24 billion. Plaintiffs aver that defendants are looking for ways to reduce their contribution obligations, which cost defendants hundreds of millions of dollars annually. Plaintiffs allege defendants have undertaken a cost-cutting scheme targeting pension plan participants by manipulating disciplinary policies and dispensing “demerits” to plan participants to either terminate them before they vest or to force them into signing last chance agreements in a way that affects their pension rights. “Plaintiffs allege that as a result of this unlawful targeting of [plan participants] their number was dramatically reduced from 77,452 employees to just 51,800 employees between 2013 and 2019.” The allegations regarding Mr. Prolenski’s termination are particularly striking. The complaint alleges that Mr. Prolenski was issued 100 demerits for lateness after he was given permission to take time off to care for his wife who had cancer. Sadly, Mr. Prolenski was later diagnosed with cancer himself and was fired immediately after he returned from FMLA leave, shortly before his vesting period. The rail companies moved to dismiss. Their motion was granted, without prejudice, in this order. To begin, the court held that plaintiffs’ claims are not precluded by the Railway Labor Act. It held that plaintiffs are seeking to assert a right that stems from ERISA, not the terms of the collective bargaining agreement, and that interpretation of the collective bargaining agreement is not required. Thus, the court concluded that it has jurisdiction to consider the alleged ERISA claims. However, it found that those claims currently do not satisfy Rule 8 pleading, as it found the allegations conclusory and speculative. In order to plead their causes of action, the court advised plaintiffs to plausibly link the cost-saving strategy alleged “with the purposeful interference with pension benefits, particularly in relation to the two plaintiffs here.” Because plaintiffs may cure this shortcoming through an amended complaint, the court granted the motion to dismiss without prejudice.


Ninth Circuit

Higuera v. The Lincoln Nat’l Life Ins. Co., No. 24-cv-744-MMA-KSC, 2024 WL 2031666 (S.D. Cal. May. 7, 2024) (Judge Michael M. Anello). Plaintiff Jose Higuera commenced this ERISA action against The Lincoln National Life Insurance Company seeking judicial review of his claim for disability benefits. On April 25, 2024, the court ordered Mr. Higuera to show cause why his case should not be dismissed or transferred for improper venue. Pursuant to the court order, Mr. Higuera had until May 3, 2024, to respond in writing. To date, he has not done so. Accordingly, the court issued this order dismissing the case on the ground that venue in the Southern District of California was improper. The court based its decision on the fact that Mr. Higuera is a resident of Tulare, California, which is located within the geographic limits of the Eastern District of California. The court stated that “a substantial portion of the events giving rise to Plaintiff’s claim arose in the Eastern District… And Plaintiff does not plead that The Lincoln National Life Insurance Company’s presence within this District is such that it can be deemed a resident here.” Therefore, the court concluded that Mr. Higuera failed to allege facts suggesting venue is proper in the Southern District of California, and because the case is in its infancy, the court decided to dismiss it, without prejudice, rather than transfer the action.