Cedeno v. Sasson, No. 21-2891-cv, __ F.4th __, 2024 WL 1895053 (2d Cir. May. 1, 2024) (Before Circuit Judges Lohier, Menashi, and Robinson)

The Federal Arbitration Act is famously broad and generally requires courts to treat arbitration agreements as “valid, irrevocable, and enforceable.” Courts have ruled that the FAA establishes a liberal federal policy favoring arbitration agreements. As a result, while litigants often try to find ways to evade the FAA, they are seldom successful.

However, if you are a loyal reader of Your ERISA Watch, you know about the “effective vindication” doctrine. This doctrine was created by the Supreme Court as a possible exception to the FAA’s mandate. In a series of decisions, culminating in American Express Co. v. Italian Colors Restaurant (2013), the Supreme Court has repeatedly held that if an arbitration provision prevents a prospective litigant from vindicating a statutory right in arbitration, the litigant may be able to escape arbitration’s clutches.

The problem with this doctrine is that although the Supreme Court has recognized it, the Court has never used it to invalidate an arbitration provision, prompting some observers to wonder whether it is real or merely hypothetical.

According to several Circuit Courts of Appeal, the doctrine is very much alive in the ERISA context. In the past few years, the Third, Seventh, and Tenth Circuits have all examined arbitration provisions and invalidated them based on the effective vindication doctrine. These cases examined claims brought by plaintiffs under Section 502(a)(2) of ERISA, which allows suits for breach of fiduciary duty. The courts concluded that because these actions were brought on behalf of the plan, and sought plan-wide relief, arbitration provisions that only allowed for individual relief prevented the plaintiffs from “effectively vindicating” their rights under ERISA and thus were invalid.

With this background in mind, the Second Circuit examined the effective vindication doctrine in this week’s notable decision. The plaintiff, Ramon Dejesus Cedeno, is a former employee of defendant Strategic Financial Solutions. In 2017 Strategic established an ERISA-governed employee stock ownership plan. Cedeno contends that defendants, which include the trustee of the ESOP and several company officers who sold their shares to the ESOP, violated their fiduciary duties to the ESOP by allowing the ESOP to purchase shares for more than fair market value. Cedeno sought relief under ERISA, including Section 502(a)(2), and requested plan-wide relief in the form of “restoration of Plan-wide losses, surcharge, accounting, constructive trust on wrongfully held funds, disgorgement of profits gained from the transaction, and further equitable relief as the court deems necessary.”

However, as you have surely guessed, the ESOP had an arbitration provision. This provision required claimants to arbitrate, only allowed claims brought in an individual capacity, and prohibited any remedy to any party other than the claimant.

Defendants moved to compel pursuant to the FAA, but the district court denied their motion. (Your ERISA Watch covered this decision in our November 10, 2021 issue.) The court concluded that the effective vindication doctrine applied: “Because the arbitration provision limited Cedeno to recovering losses within his individual plan account, the provision would impermissibly limit the availability of Plan-wide remedies explicitly authorized by ERISA, and thus was unenforceable.” Defendants appealed to the Second Circuit.

The Second Circuit began by noting that the “core concern of the FAA is protecting the enforceability of agreements to vindicate substantive rights[.]” Thus, if an arbitration provision waives substantive rights and remedies, “courts will invalidate provisions that prevent parties from effectively vindicating their statutory rights.” The court noted that it had used this effective vindication doctrine in 2020 to invalidate an arbitration provision in a payday loan agreement that required the application of Chippewa Cree tribal law instead of allowing for the full range of remedies under state and federal law.

With this introduction, the rest of the decision was a foregone conclusion. The court, invoking the Supreme Court’s decision in Massachusetts Mut. Life Ins. Co. v. Russell (1985), noted that while Section 502(a)(2) claims may be asserted by an individual, they are brought in a representative capacity on behalf of the plan and seek plan-wide relief. Thus, with his Section 502(a)(2) claim, Cedeno was not simply seeking a remedy for losses in his particular account; he was seeking a remedy on behalf of the plan that would affect the accounts of others as well and perhaps lead to non-monetary equitable relief.

However, the ESOP arbitration provision “requires claimants like Cedeno to bring their claims solely in their ‘individual capacity and not in a representative capacity,’ and prohibits them from seeking or receiving ‘any remedy that has the purpose or effect of providing additional benefits or monetary or other relief to any Employee, Participant or Beneficiary other than the Claimant.’” Furthermore, the arbitration provision “limits a claimant’s remedy to recovering for the alleged losses to the claimant’s accounts,” as well as other relief “as long as it ‘does not include or result in the provision of additional benefits or monetary relief to any Employee, Participant, or Beneficiary other than the Claimant[.]’”

The Second Circuit flatly stated, “These restrictions effectively preclude Cedeno from pursuing the remedies available to him under Section 502(a)(2)” and thus “effectively prevent him from vindicating his substantive statutory rights[.]”

The court then turned to three arguments raised by defendants. Defendants first argued that the FAA allows for waiver of rights, and thus there is “no unwaivable right to proceed through collective action.” The court stated that this argument “missed the mark for at least two reasons.” First, Cedeno was not asserting a “free-floating right to proceed through collective action for its own sake; he is asserting a right to pursue the full range of statutory remedies to enforce his substantive statutory rights” under ERISA. The arbitration provision did not allow for an “alternative path” to obtain these remedies. If enforced, it “would leave claimants like Cedeno without any means of securing the full range of statutory remedies available to him.” Second, defendants’ argument ignored that Cedeno’s claims were “inherently representational.” He was litigating on behalf of “an absent principal,” i.e., the plan, and thus could not be compelled to waive the rights of that principal.

Defendants’ second argument was that ERISA contains no “clearly expressed Congressional intention” to prohibit agreements to engage in individualized arbitration. In other words, in a battle between ERISA and the FAA, there was no reason ERISA should prevail. The Second Circuit, however, explained that Cedeno was not arguing that there was a conflict between the two statutes, and noted that the Supreme Court had already rejected this type of oppositional analysis in Italian Colors.

Third, defendants argued that Cedeno could effectively vindicate his substantive rights under the arbitration provision. The Second Circuit rejected this contention, explaining that even if Cedeno could individually be made whole through arbitration, the provision still prevented him from obtaining the plan-wide relief guaranteed to him through Section 502(a)(2). The court stated there was no way to “slice and dice” the relief under this section in a way that made Cedeno whole without affecting the rest of the plan. Furthermore, there was no way to apportion the equitable relief Cedeno sought, such as an accounting, imposition of a constructive trust, and disgorgement, among other remedies.

Finally, the Second Circuit cited the decisions of the Third, Seventh, and Tenth Circuits, which all agreed and “reinforce our conclusion that [the arbitration provisions] are unenforceable with respect to Cedeno’s Section 502(a)(2) claims.” In short, “Because Cedeno’s avenue for relief under ERISA is to seek a plan-wide remedy, and the specific terms of the arbitration agreement seek to prevent Cedeno from doing so, the agreement is unenforceable.”

The court was not unanimous, however. Judge Menashi dissented, rejecting Cedeno’s “tendentious reading of ERISA” which created a “manufactured conflict” between ERISA and the arbitration clause.

Judge Menashi offered three criticisms of the majority decision. First, the effective vindication doctrine “is a questionable principle of uncertain legal status” and thus courts should hesitate before applying it. Second, “neither Section 502(a)(2) nor Section 409(a) of ERISA requires Cedeno to act in a representative capacity on behalf of the plan.” Judge Menashi contended instead that “an ERISA plaintiff represents his own individual interest,” and attempted to distinguish Russell and other cases suggesting the contrary with respect to Section 502(a)(2). Third, Judge Menashi argued that “the arbitration clause allows Cedeno to obtain any legal or equitable relief that is necessary to make him whole.” Judge Menashi acknowledged the majority’s concern that equitable relief that only applied to Cedeno would be confusing because it would be unclear how that relief would affect other plan participants, but he shrugged this off, concluding, “that is how equitable remedies work.”

Judge Menashi is clearly in the minority on this issue, but his dissent may give defendants the boost they need to get this issue reheard en banc, or possibly in front of the Supreme Court. Stay tuned to Your ERISA Watch for future developments.

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

Arbitration

Fifth Circuit

Aramark Servs. v. Aetna Life Ins. Co., No. 2:23-CV-00446-JRG, 2024 WL 1839465 (E.D. Tex. Apr. 26, 2024) (Judge Rodney Gilstrap). Aramark Services, Inc. sponsors group health plans governed by ERISA. Since 2018, Aramark has hired Aetna Life Insurance Company to provide the plans with third-party administrative services, including evaluating claims for payments submitted by providers. The parties’ relationship is governed by a master services agreement which contains an arbitration provision. That provision requires disputes among the parties to be settled by binding arbitration in accordance with the American Arbitration Association rules except for “temporary, preliminary, or permanent injunctive relief or any other form of equitable relief.” Aramark has sued Aetna under ERISA Sections 502(a)(2) and 502(a)(3) for breaches of fiduciary duties as third-party plan administrator. In response, Aetna filed a petition to compel arbitration and moved to stay proceedings pending arbitration. Thus, the question before the court was whether the claims asserted by Aramark are subject to mandatory arbitration. However, before the court could make that assessment, it needed to address the threshold issue of whether the parties delegated to the arbitrator the exclusive power to decide whether a particular claim is arbitrable. The court ultimately agreed with Aramark that they had not: “the Court finds that the parties did not clearly and unmistakably delegate all threshold issues of arbitrability to the arbitrator… The plain language and most natural reading of the Arbitration Provision is that the parties agreed to delegate arbitrability to the arbitrator in accordance with the AAA rules for all disputes except those seeking any form of equitable relief, which are carved out in the same sentence.” The court thus found that it should decide the threshold issue of arbitrability and therefore turned to its discussion of whether Aramark’s ERISA claims are properly subject to mandatory arbitration. Relying on the Supreme Court’s analysis in Cigna v. Amara, the court agreed with Aramark that its Sections 1132(a)(2) and (a)(3) claims under ERISA for monetary damages are properly equitable and not subject to mandatory arbitration under the arbitration provision. “In the Court’s view, the critical question in Amara was whether a surcharge remedy against an ERISA fiduciary was equitable. Nothing in Amara suggests that the Supreme Court’s reasoning is limited only to § 1132(a)(3).” For the court, it was critical that Aetna is a fiduciary and therefore “analogous to a trustee.” Importantly, Aetna itself has previously taken the position that ERISA claims seeking money damages, including under Section 502(a)(2), are equitable. “ERISA claims seeking money damages are either equitable or they are not, and Aetna should not be able to take inconsistent positions on this issue across different cases.” For these reasons, the court concluded that Aramark’s claims all fall within the equitable relief carve-out of the arbitration provision and are therefore not subject to mandatory arbitration. Accordingly, the court denied the motion to stay the case pending arbitration.

Discovery

Ninth Circuit

Stambaugh v. Reliance Standard Life Ins. Co., No. CV-23-08140-PCT-DLR, 2024 WL 1854499 (D. Ariz. Apr. 22, 2024) (Judge Douglas L. Rayes). Plaintiff Laura Stambaugh worked as a medical technologist for over 15 years, until 2019, when she stopped working and submitted a claim for disability benefits. Ms. Stambaugh suffers from Type 2 diabetes which has led to diabetic neuropathy. Although Ms. Stambaugh’s claim for short-term disability benefits was approved, her claim for long-term disability benefits was denied by defendant Reliance Standard Life Insurance Company. Reliance Standard originally retained a non-doctor “clinical consultant” to review Ms. Stambaugh’s claim. When Ms. Stambaugh appealed the denial, Reliance Standard then retained a third-party medical records review vendor called Medical Consultants Network to hire a doctor to render an opinion of Ms. Stambaugh’s medical records. The doctor the vendor hired was not a neurologist, but an endocrinologist who opined that he could not speak to the neuropathy and would “defer to a neurologist to determine the extent to which it may be causing limitations.” Nevertheless, the endocrinologist concluded that Ms. Stambaugh was not disabled. At no point did Reliance Standard communicate with either of Ms. Stambaugh’s treating physicians, nor engage in a vocational assessment of the duties and physical requirements of Ms. Stambaugh’s occupation. In this ERISA action, Ms. Stambaugh is challenging the adverse benefit decision. Before the court here was Ms. Stambaugh’s motion for discovery in which she sought information pertaining to Reliance Standard’s conflicts of interest, claims handling practices, and the particulars of how her claim was handled. The court granted the discovery motion in its entirety. The court stated that it cannot determine the weight, if any, to assign to the conflict of interest here “without extrinsic evidence of bias obtained through discovery.” On the allegations of the complaint alone, the court was suspicious of Reliance Standard’s handling of Ms. Stambaugh’s claim, saying it appears to raise red flags about whether the conflict had in fact influenced the decision to deny benefits. “Defendant’s actions in administering the claim appear to be inconsistent with an unconflicted fiduciary earnestly acting as an ERISA fiduciary.” Moreover, the court was aware that it is Ms. Stambaugh’s burden to prove how egregious Reliance Standard’s conflicts of interest were and what effect they had on its decision to deny the claim. Therefore, the court held that Ms. Stambaugh would be disadvantaged if she did not have the chance to conduct discovery into these topics. “Facts involving the Defendant’s processing and investigation of the claim – including the history of the outside expert’s opinions for insurance companies, the relationship of Defendant with the outside vendor and outside expert, and the reasons given for the denial of the claim – are relevant to the inquiry.” As a result, the court stressed the need for discovery, including all of the requested depositions, interrogatories, and requests for productions. The scope of Ms. Stambaugh’s requested information, the court held, was not disproportionate to the needs of the case nor unduly burdensome for the insurance company. “Although the value of the LTD benefits may seem negligible to Defendant, they are not negligible to the Plaintiff, who purportedly is unemployed.” Thanks to this decision, Ms. Stambaugh will receive the discovery she wished for and through it perhaps glean a better understanding into why Reliance Standard acted the way it did.

ERISA Preemption

Ninth Circuit

Vernon v. Metropolitan Life Ins. Co., No. 2:23-cv-01829 DJC AC PS, 2024 WL 1857438 (E.D. Cal. Apr. 26, 2024) (Magistrate Judge Allison Claire). A pro se plaintiff, Jimmy Lee Vernon Jr., brought this action against Metropolitan Life Insurance Company (“MetLife”) asserting state law causes of action arising from MetLife’s failure to pay life insurance benefits to him from a life insurance policy belonging to his deceased father. Mr. Vernon asserted state law claims for breach of contract, breach of fiduciary duties, breach of implied obligation/covenant of good faith and fair dealing, breach of contractual duty to pay a covered claim, intentional misrepresentation, concealment, and negligence. MetLife moved to dismiss all claims as completely preempted by ERISA. The court in this order agreed with MetLife that the claims are preempted and granted the motion to dismiss. However, particularly in light of the fact that Mr. Vernon is without legal representation, the court dismissed the complaint without prejudice and allowed Mr. Vernon to file an amended complaint asserting causes of action under ERISA. As an initial matter, the court took judicial notice of the policy and the summary plan description. Relying on the plan documents, the court stated that it was clear the plan is governed by ERISA as it is a welfare benefit plan established by an employer, General Motors, for the purpose of providing benefits to its employees. Having determined the plan is an ERISA plan, the court agreed with MetLife that ERISA preempts the state law claims asserted because “ERISA provides the exclusive remedial scheme for any claims that relate to a plan [and] preempts any claims for extracontractual damages.” Therefore, the question of whether Mr. Vernon is entitled to proceeds from his father’s life insurance policy is governed by federal law. In order to state a claim, Mr. Vernon will have to amend his complaint to allege claims for benefits and/or breaches of fiduciary duties under ERISA, and has 30 days to do so.

Medical Benefit Claims

Tenth Circuit

L.L. v. Anthem Blue Cross Life & Health Ins. Co., No. 2:22-CV-00208-DAK, 2024 WL 1937900 (D. Utah May. 2, 2024) (Judge Dale A. Kimball). Plaintiff L.L. initiated this action to challenge his healthcare plan’s denial of claims for his teenage daughter J.L.’s stay at a sub-acute outdoor behavioral health facility in 2019. The family’s claim for benefits was denied under the plan’s exclusion for experimental and investigative treatment, although the plan terms did not expressly exclude wilderness therapy or other outdoor behavioral health programs. During the family’s appeal of the denial, they offered evidence from an expert in outdoor behavioral therapy, Dr. Michael Gass, who has devoted his career to the study of this type of care. Dr. Gass provided studies contradicting the plan’s conclusion that the efficacy of wilderness therapy programs for the treatment of mental health disorders is questionable and “there is no proof or not enough proof it improves medical outcomes.” Nevertheless, the denial was upheld during the administrative appeal process, and defendants reiterated that their internal policy considers outdoor behavioral health therapy investigative and experimental. In response to Dr. Gass, the denial letter stated only that the reviewers had “reviewed all the information that was given [to them by the family] with the first request for coverage.” L.L. sued the administrator of his plan, his former employer DLA Piper LLP, and the claims administrator, Anthem Blue Cross Life and Health Insurance, challenging the adverse benefit decision. The parties filed cross-motions for summary judgment. Before the court addressed the merits of the denial, it needed to resolve the parties’ dispute over the appropriate standard of review. The plan did not contain an express discretionary clause. Instead, it was peppered with phrases such as the claims administrator shall “evaluate the claim information and determine the accuracy and appropriateness of the procedure,” and medically necessary procedures are those which the “claims administrator determines to be…appropriate and necessary for the diagnosis or treatment of the medical condition.” The family argued that this language only outlined how decisions were made under the plan, which fell short of granting clear discretionary authority. The court disagreed. It held that the plan language confers authority to the claims administrator and allows it to determine medical necessity. “It is well established that language such as this is sufficient to grant discretionary authority.” Accordingly, the court concluded that the appropriate standard of review is arbitrary and capricious. Plaintiffs argued that under either standard of review, defendants’ decision was not reasonable because it was based on an internal policy rather than the plan itself, the care J.L. received was not investigational, and defendants did not engage in a meaningful dialogue with the family during the internal appeals process. The court disagreed with the plaintiffs on the first matter. It found that the internal policy was incorporated into the plan and defendants were allowed to rely on the policy to aid in their coverage determination. However, the court agreed strongly with plaintiffs on their second two points. The court found that defendants failed to engage in a meaningful dialogue with the family and failed to dispute their assertion that the care was not investigational as defined by the plan. The court thus found that defendants acted arbitrarily and capriciously because the denial failed to “contain a reasoned analysis for its unexplained conclusions.” In short, the court stated that “[i]nsurers cannot just say something is investigational because of a policy and refuse to engage in meaningful dialogue when plaintiffs present contradictory information.” Thus, the court granted summary judgment in favor of plaintiffs and denied defendants’ cross-motion for summary judgment. The decision ended with the court concluding that remand was the proper remedy where, as here, defendants failed to engage with plaintiffs and adequately consider the evidence. Defendants were accordingly ordered to review the claim anew in light of this decision.

S.B. v. Bluecross Blueshield of Tex., No. 4:22-CV-00091, 2024 WL 1912224 (D. Utah May. 1, 2024) (Judge David Nuffer). Plaintiff R.B. started treatment at a licensed residential treatment center, Solacium Sunrise, on June 29, 2021 to treat mental health conditions. R.B. is a beneficiary of the American Heart Association Managed Healthcare Plan. In this action, R.B. and her father, S.B., seek reimbursement of the more than $330,000 in healthcare costs the family incurred from R.B.’s treatment. They assert ERISA claims for benefits, denial of a full and fair review, and for violation of the Mental Health Parity and Addiction Equity Act. AHA moved for dismissal of the complaint, arguing the claims are not plausible. It argued that plaintiffs cannot state a plausible claim for benefits because the plan requires residential treatment centers to have 24-hour onsite nursing in order to be covered, and it is undisputed that Solacium Sunrise does not meet this requirement. In addition, AHA argued that plaintiffs were not prejudiced by a lack of full and fair review because they were not entitled to benefits under the terms of the plan. Finally, AHA argued that plaintiffs failed to plead a plausible Parity Act claim and that their Parity Act claim lacks a sufficient nexus to the adverse benefit determination. In this decision the court granted the motion to dismiss the wrongful denial of benefits and the full and fair review claims, but denied the motion to dismiss the Parity Act violation claim. The court agreed with AHA that the plan unambiguously requires all residential treatment centers to have a 24-hour onsite nurse, including for residential treatment centers for children and adolescents. The court concluded that the plan’s definition of residential treatment centers for children and adolescents “does not limit or modify” the plan’s broader definition for all residential treatment centers, which requires licensed nursing all hours of the day. Because the plan unambiguously does not provide for R.B.’s care at Solacium Sunrise, the court dismissed both the claim for benefits and full and fair review claim. The court agreed with the family that their complaint plausibly alleged they were denied a full and fair review. However, it ruled that they could not sustain this claim because its remedy would be to order a remand, which was pointless because they were not entitled to benefits under the plan and thus there was no prejudice. However, the court’s determination that the benefits were not covered under the plan terms did not undermine plaintiffs’ Parity Act claim. In this claim, the family alleges that the Plan used generally accepted standards of care to draft the plan’s treatment limitations and that only the 24-hour onsite nursing requirement for mental health residential treatment centers exceeds the generally accepted standards of care, while comparable medical and surgical facilities do not contain such additional requirements. For pleading purposes, the court was satisfied that these allegations plausibly allege a violation of the Parity Act. The court further held that other cases similarly challenging Blue Cross’s 24-hour onsite nursing requirement under the Parity Act which were dismissed were distinguishable because of the ways they framed their allegations. Moreover, the court agreed with the family that their Parity Act claim has a nexus to the adverse benefit determination because the provision in the plan that caused the residential treatment centers to exceed their generally accepted care standards was the same 24-hour onsite nursing requirement that foreclosed their claims for benefits. Finally, the court declined to take judicial notice of a document provided by AHA because the plaintiffs challenged the authenticity of the document and their complaint did not incorporate it by reference. Accordingly, R.B. and S.B. may move forward with their Parity Act violation claim.

S.F. v. Cigna Health & Life Ins. Co., No. 2:23-CV-213-DAK-JCB, 2024 WL 1912359 (D. Utah May. 1, 2024) (Judge Dale A. Kimball). In the past, Your ERISA Watch has reported on a health insurance practice called “step therapy,” sometimes referred to as “fail first,” which requires patients to fail at lower levels of treatment before qualifying for the higher level care their providers have recommended. These policies are often present in mental healthcare cases, and also in claims for prescription drugs, and they are often a barrier to patients getting prescribed healthcare. In this action we get a look at the reverse, when patients step down from residential treatment centers to a lower “intermediate behavioral health” level of care, and how these claims too run into insurance roadblocks. At issue here are wilderness therapy and outdoor youth programs, which the two Cigna-administered self-funded healthcare plans at issue excluded from coverage both expressly and implicitly as “experimental, investigational, or unproven services.” Because of these categorical exclusions, the two patients and their families were denied reimbursement of their claims for the treatment they received at outdoor behavioral health facilities in Utah. The patients’ denial letters stated that their claims were denied because of a “lack of peer reviewed, evidence-based scientific support for the effectiveness of wilderness therapy or outdoor youth programs.” In this action, the two families of participants and beneficiaries sued their ERISA-governed plans and Cigna, the third-party administrator who issued the denials. All three defendants moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Cigna also moved to dismiss one family’s claims pursuant to Federal Rule of Civil Procedure 12(b)(1). The motions to dismiss were entirely granted in this order. To begin, the court agreed with Cigna that one of the families, plaintiffs S.F. and E.F., should have their claims dismissed for lack of Article III standing because Cigna is no longer the claim administrator for the Slalom Plan. Plaintiffs disagreed, arguing that Cigna’s lack of a current role shouldn’t shield it from liability or absolve its responsibilities arising from its prior role during the relevant time period. Relying on a decision from the Eighth Circuit, the court concluded that a former claims administrator is not in a position to make current or future claims determinations and no longer has access to plan funds to pay claims, meaning it cannot provide the relief the F. family plaintiffs seek in any of their counts. “Because there is no question of fact as to whether Cigna can provide any redress to S.F. and E.F. under the Slalom Plan, the court dismisses S.F. and E.F.’s claims against Cigna for lack of standing under Federal Rule of Civil Procedure 12(b)(1).” The court then addressed exhaustion, and defendants’ arguments that all of the plaintiffs’ ERISA benefit claims should be dismissed because neither set of plaintiffs did a second-level appeal required under their plans and permitted under ERISA. Plaintiffs argued that the plans use the language “may” for the second-level appeal to an independent review organization, which indicates that the appeal was voluntary. The court did not agree. “Even though the text states that members may file an appeal if they are unsatisfied with the decision on their first appeal, it does not state that members can simply skip the step before bringing an ERISA claim in court. A member does not need to pursue any appeal. But if they want to file a lawsuit, they need to exhaust the two levels of appeals in the plan. Both Plans state that a plaintiff should only ‘bring a civil action under section 502(a) of ERISA if [they] are not satisfied with the outcome of the ‘Appeals Procedure.’ The Plan makes clear that the ‘Appeals Procedure’ includes both levels of appeal. Therefore, while the Plans do not require a member to file a second level appeal, if the member wants to bring a lawsuit, the member must complete both levels of appeals.” Accordingly, the court agreed with defendants that plaintiffs could not sustain their ERISA benefit claims because they failed to exhaust administrative remedies prior to suing. Finally, the court dismissed the Mental Health Parity and Addiction Equity Act claim. It determined that this claim failed because plaintiffs did not plausibly allege a non-speculative disparity between an exclusion for mental health benefits and that for analogous medical/surgical benefits. The experimental exclusion, the court concluded, “broadly excludes wilderness therapy programs and outdoor youth programs, whether to treat medical, surgical, or mental health care.” Thus, the court dismissed the whole of plaintiffs’ action and closed the case.

Pension Benefit Claims

Third Circuit

The Procter & Gamble U.S. Bus. Servs. Co. v. Estate of Rolison, No. 3:17-CV-00762, 2024 WL 1861537 (M.D. Pa. Apr. 29, 2024) (Judge Karoline Mehalchick). Long ago, in the 1980s, decedent Jeffrey Rolison and Margaret M. Sjostedt were a cohabitating couple. Mr. Rolison was employed by Procter & Gamble and was enrolled in The Procter & Gamble Profit-Sharing Trust and Employee Stock Ownership Plan. In 1987, Mr. Rolison designated Ms. Sjostedt as his beneficiary. Years went by and circumstances changed. The couple broke up; Ms. Sjostedt married someone else and became Ms. Losinger while Mr. Rolison married someone else and had two children. What did not change was the beneficiary designation. Over the years Procter & Gamble routinely informed Mr. Rolison of his option to designate a new beneficiary, but he never did so. This continued even after Procter & Gamble switched to an online beneficiary designation system, which Mr. Rolison logged onto several times. Accordingly, when Mr. Rolison died in 2015, Procter & Gamble was ready to pay benefits to Ms. Losinger as the named beneficiary. The Estate of Mr. Rolison intervened, believing that Mr. Rolison would never have maintained Ms. Losinger as his beneficiary intentionally. Presented with conflicting claims for the plan funds, Procter & Gamble filed this lawsuit to determine the proper beneficiary entitled to the proceeds. The case has a long and complicated procedural history. The court’s final rulings were made in this decision, in which it entered judgment in favor of Ms. Losinger and Procter & Gamble and denied the Estate’s motion for summary judgment. Oversight or not, Mr. Rolison never changed his beneficiary designation. The court noted that it “already established multiple times that P&G adequately informed Rolison of the status of and how to change his beneficiary designation.” The court found that Procter & Gamble was not in violation of any fiduciary duty and affirmatively and consistently notified Mr. Rolison that his online benefit account lacked a designation of beneficiary and without a new online beneficiary designation his 1987 paper beneficiary designation remained valid. In particular, the court wrote the Estate failed to establish detrimental reliance by Mr. Rolison. “There is no record evidence in this case that supports the Estate’s position that Rolison failed to change his beneficiary status because of any misrepresentation or omission on P&G’s part… Further, the Estate has not come forward with evidence that Rolison’s failure to change his designation beneficiary is attributable to Rolison’s misguided belief that Losinger was not his beneficiary.” Holding that no reasonable fact-finder could conclude that Mr. Rolison detrimentally relied on Procter & Gamble omissions, the court determined there was no breach of fiduciary duty. Therefore, the court granted judgment to Procter & Gamble. Finally, the court granted judgment in favor of Ms. Losinger and against the Estate on the Estate’s claim for a constructive trust. The court agreed with Ms. Losinger that the Estate failed to produce any clear and convincing evidence that Ms. Losinger’s continued designation as beneficiary of the plan was a mistake to justify the imposition of the equitable remedy of a constructive trust. Thus, Ms. Losinger, as named beneficiary, was found to be entitled to the plan funds, and the Estate’s motion for summary judgment was denied. As for the mind of the deceased, that we’ll never know.

Pleading Issues & Procedure

Sixth Circuit

Diederichs v. FCA US, LLC, No. 23-11287, 2024 WL 1957328, 2024 WL 1960617 (E.D. Mich. Apr. 30, 2024) (Magistrate Judge Curtis Ivy, Jr.). Plaintiff Karen Diederichs, as guardian and conservator of her husband, Mark Diederichs, who suffers from early onset Alzheimer’s disease, filed this action against her husband’s former employer, defendant FCA US LLC, asserting claims under Michigan law and ERISA seeking disability benefits. Defendant moved to dismiss. The assigned magistrate judge issued this report and recommendation recommending the motion be granted. First, the magistrate agreed with defendant that its Disability Absence Program was a payroll practice, not an ERISA plan, as it pays disability benefits for a set period out of the company’s general assets. As a result, the magistrate recommended that the ERISA claim for benefits under the program be denied, and stated that to the extent Ms. Diederichs intends to raise a breach of contract claim under the program, that claim too should be dismissed because the Disability Absence Program is not an enforceable contract. The report then progressed to the ERISA claims relating to the long-term disability policy for breach of contract. Once again the judge agreed with defendants, this time because the claims were untimely under ERISA’s statute of limitations for breach of fiduciary duty claims. “The plans disclosed in September 2019 provided the information necessary to alert Plaintiff that she may have been harmed – the documents included the LTD Plan which made clear that exhaustion of the DAP benefits was a prerequisite to LTD benefits, and the documents disclosed the time constraints for filing a claim for DAP benefits. Thus, Defendant contends that this lawsuit should have been filed no later than September 2022, not May 2023.” The magistrate therefore agreed that the breach of fiduciary duty claims should be dismissed as time-barred. Finally, the report recommended dismissing the ERISA claim for benefits for benefits under the long-term disability policy. It stated, “Plaintiff/Mr. Diederichs was not eligible for benefits on the face of the complaint and the documents, so the claim for benefits should be dismissed.” Moreover, the magistrate agreed with defendants that this claim too was untimely, as the plan contains a one-year limitation. “If Plaintiff filed the claim on December 18, 2019, and Defendant failed to respond within 45 days, the denial is deemed to be February 1, 2020. The latest date to bring a claim contesting that denial is February 1, 2021. The May 2023 lawsuit falls outside that time.” Finally, because the report found all the underlying claims should be dismissed, it also recommended dismissing the requests for interest, costs, and attorneys’ fees. For these reasons, the report determined that none of Ms. Diederichs’ claims could go forward and therefore recommended the motion to dismiss be granted. In the second decision issued this week by the magistrate in this case, cited above, the court ruled on Ms. Diederichs’ motion for leave to file an amended complaint. That decision ruled that amendment for all ERISA claims would be futile for the reasons incorporated in the report and recommendation, i.e., that the claims were untimely and not sustainable on the face of the complaint. Further, the magistrate ruled that any state law claims for disability benefits under the long-term disability plan would be preempted by ERISA. Finally, for reasons stated in the magistrate’s report recommending dismissal, he also concluded the Disability Absence Program was not an enforceable contract and no breach of contract claim could survive a motion to dismiss. Thus, Ms. Diederichs’ motion for leave to amend was denied.

Provider Claims

Third Circuit

Abira Med. Labs. v. National Ass’n of Letter Carriers Health Benefit Plan, No. 23-05142 (GC) (DEA), 2024 WL 1928680 (D.N.J. Apr. 30, 2024) (Judge Georgette Castner). A medical testing laboratory business, plaintiff Abira Medical Laboratories, LLC, filed more than 40 cases in both state and federal court suing for reimbursement of laboratory testing, including COVID-19 viral testing. In this particular matter, Abira has sued the National Association of Letter Carriers Health Benefit Plan asserting eight state law causes of action. Defendant moved to dismiss for failure to state a claim. Its motion was granted, without prejudice, by the court in this decision. The court agreed with the plan that the breach of contract and breach of implied covenant of good faith and fair dealing claims were speculative because “Plaintiff has not adequately pleaded the existence of a contract or its breach.” Next, the fraudulent misrepresentation, negligent misrepresentation, promissory estoppel, and equitable estoppel claims premised on the allegation that “Defendants’ representatives communicated to Abira that Defendants would pay Abira for performing subsequent testing services to Defendants’ insureds,” were all dismissed for lacking requisite details about the substance of what promises were made, how, and by whom. The court dismissed the quantum meruit/unjust enrichment claim, concluding plaintiff did not plausibly establish the existence and terms of any plan which would “allow this Court to infer that Defendant unjustly retained a benefit under any plan without payment.” The decision ended with a discussion of the complaints “references to various statutes,” including ERISA, the Families First Coronavirus Response Act, and the CARES Act. Without setting forth a claim under ERISA, the complaint repeatedly references it. The plan argued that even if the complaint actively alleged a claim under ERISA it would fail because the plan is not governed by ERISA, and is instead governed by the Federal Employees Health Benefits Act (FEHBA). The court wrote that even if ERISA were applicable, Abira would still not have plausibly stated a claim because it did not provide information about assignments of benefits necessary to confer derivative standing. As for the CARES Act and the Families First Coronavirus Response Act claims, the court agreed with its sister courts that “neither statue provides a private right of action.” Finally, the court declined to respond to defendant’s argument that FEHBA preempts plaintiff’s state law claims to the extent they seek payment for COVID-19 testing, as the claims were already dismissed and because Abira did not distinguish between claims for COVID testing and other lab work.

University Spine Ctr. v. Cigna Health & Life Ins. Co., No. 23-02912 (SDW)(CLW), 2024 WL 1855066 (D.N.J. Apr. 29, 2024) (Judge Susan D. Wigenton). Plaintiff University Spine Center and two of its surgeons performed spinal surgery on a patient enrolled in a health insurance plan through his employer, L3 Harris, administered by Cigna Health and Life Insurance Company. At the time of the surgery in March 2022, the provider was out-of-network, “thereby making the surgery an out-of-network medical procedure pursuant to the terms of the Plan’s Summary Plan Description (‘SPD’).” Under the terms of the SPD, the maximum reimbursement charge for out-of-network claims is the lowest of either (1) the provider’s normal charge for the service, (2) the amount agreed upon by Cigna and the provider, or (3) a charge representing a percentage of an ordinary payment for the same or similar service in the geographic area. Plaintiff billed Cigna $400,212 for the cost of the surgery. Cigna issued a payment of just $3,400 as reimbursement. University Spine Center believes that the $3,400 payment was not in keeping with the terms of the plan and therefore sued under ERISA Section 502(a)(1)(B) to recover additional reimbursement equaling the difference in the billed and paid amount. L3 Harris and Cigna moved to dismiss for failure to state a claim. They argued that the complaint fails to allege or explain how the reimbursement calculation was incorrect under the terms of the plan or whether the amount the provider is seeking in additional reimbursement is required to be paid pursuant to the SPD. The court agreed with defendants that the complaint did not satisfy Rule 8 pleading and the standards set forth in the Supreme Court’s Twombly and Iqbal decisions. While the court acknowledged that the complaint cites the definition of the maximum reimbursement rates for out-of-network services in the plan, it stated that this alone was “not enough to satisfy the requirements of Rule 8” without additional information. As currently pled, the court understood the complaint to contain “little more than an assertion that Plaintiff is owed more than it was paid for the services it provided and must be dismissed for failure to state a claim under Rule 8.” Accordingly, the motion to dismiss was granted, without prejudice, and University Spine Center has 30 days to file a second amended complaint.

Statutory Penalties

Eleventh Circuit

Griffin v. United HealthCare Servs., No. 23-13429, __ F. App’x __, 2024 WL 1855456 (11th Cir. Apr. 29, 2024) (Before Circuit Judges Pryor, Newsom, and Anderson). A dermatologist proceeding pro se, plaintiff-appellant W.A. Griffin, appealed the district court’s order dismissing her ERISA claims for statutory penalties against United Healthcare Services. The district court concluded that Griffin did not have the right to sue for statutory penalties because the assignment of rights her patients signed did not confer an independent right to Griffin to pursue a Section 502(c)(1) claim for failure to timely furnish documents upon request. In this order, the Eleventh Circuit affirmed. “When scrutinizing such assignments, we have emphasized that the transfer of the general right to recover benefits provided by an ERISA plan does not necessarily transfer the right to pursue non-payment claims, including statutory penalties.” In this particular instance, the appeals court agreed with the lower court that the assignments lacked specific language evidencing the patients’ intent to transfer their right to assign ERISA claims for statutory penalties, and instead contained only general language about the conferral of “rights and benefits” to their provider. In the absence of more specific language in the assignments, the Eleventh Circuit concluded the district court properly held that Griffin lacked standing to bring her statutory penalties claims on behalf of her patients. Accordingly, the court of appeals affirmed the district court’s dismissal.