The Trustees of the N.Y. St. Nurses Ass’n Pension Plan v. White Oak Glob. Advisors, LLC, No. 22-1783, __ F.4th __, 2024 WL 2280632 (2d Cir. May 21, 2024) (Before Circuit Judges Lynch and Park, and District Judge Jessica G.L. Clarke)

Arbitration has been a hot topic in ERISA litigation lately. Just three weeks ago we covered the decision in Cedeno v. Sasson, in which the Second Circuit used the “effective vindication” doctrine to void an arbitration provision in a case asserting claims under ERISA Section 502(a)(2). As we discussed, the ThirdSeventh, and Tenth Circuits have also invalidated similar arbitration provisions based on that doctrine.

However, these rulings all focused on whether a case can be forced into arbitration at the outset. What about cases that have already been through arbitration? What power do federal courts have over petitions regarding the decisions made there?

This question is tricky because the Federal Arbitration Act, although it expansively regulates the arbitration process, does not by itself confer subject matter jurisdiction on the federal courts. As a result, up until recently, most courts, including the Second Circuit, have used a “look-through” approach to determine whether they have jurisdiction over post-arbitration disputes.

Under this approach, the court examines an arbitration award to see if it resolves federal claims, and if it does, the court can exercise federal question jurisdiction over a petition regarding that award. This approach had the benefit of being the same one used to determine whether arbitration can be compelled in the first place, thus creating a “consistent jurisdictional principle.”

However, the Supreme Court upended this approach two years ago in Badgerow v. Walters. In Badgerow, the court rejected the “look-through” approach and ruled that federal jurisdiction exists over a post-arbitration petition only if the “face of the application” shows that federal law entitles the applicant to relief. The practical effect of this ruling is that many post-arbitration petitions must now be adjudicated in state court.

But what does this mean for ERISA cases? The Second Circuit addressed this question in this week’s notable decision. Plaintiff, Trustees of New York State Nurses Association Pension Plan, filed a demand for arbitration after it became concerned that defendant White Oak Global Advisors, LLC, which served as the investment manager for the Plan, had breached its fiduciary duties to the Plan and was violating the investment management agreement (“IMA”) between it and the Plan.

After a week-long hearing, the arbitrator largely found in the Trustees’ favor, and the Trustees filed a petition to confirm the award in federal court. White Oak cross-petitioned to vacate the award in part, but did not raise any jurisdictional issues. The district court modified the award slightly but otherwise granted the Trustees’ petition. The court also awarded the Trustees attorney’s fees pursuant to its inherent authority based on White Oak’s “meritless, ‘entirely unpersuasive,’ and even ‘borderline sanctionable’ positions throughout this litigation.”

After judgment was entered, the Supreme Court issued its ruling in Badgerow. Relying on Badgerow, White Oak filed a motion to vacate the judgment, contending that the district court lacked jurisdiction to confirm the arbitration award. The court rejected this argument and White Oak appealed.

On appeal, the Second Circuit acknowledged that the legal landscape had shifted because of Badgerow, and that the district court’s original basis for jurisdiction – that the underlying ERISA claims were federal in nature – was no longer valid.

However, this was not the death-knell for jurisdiction. The Second Circuit interpreted Badgerow to mean that “subject matter jurisdiction over a petition to confirm an award turns on the law governing the contractual rights created by the arbitration agreement, rather than the laws asserted in the underlying claims or the non-existent ‘freestanding’ rights created solely by the award.” Because contracts are typically governed by state law, this means that post-arbitration petitions should generally end up in state court.

However, as the Second Circuit explained, ERISA is different. The court noted that “the arbitration agreement that the Trustees seek to enforce is not some separate instrument governed by an entirely different body of state contract law, but rather is an integral part of the documents governing the Plan and is governed by ERISA.” Furthermore, “ERISA imposed a fiduciary obligation upon White Oak to comply with the IMA’s arbitration terms and the FAA review for which it provided.”

The Second Circuit also observed that ERISA has an expansive preemption clause and thus it “preempts state law as to the enforcement of arbitration agreements between core ERISA entities contained within plan documents or terms.” The court acknowledged that this “express preemption” does not by itself grant federal jurisdiction. In order “for jurisdiction to be proper, the petition to confirm must state a cause of action contained within ERISA or another federal statute.”

The Second Circuit found such a cause of action in ERISA Section 502(a)(3), which allows for equitable relief. The court noted that the Trustees’ petition sought “‘disgorgement’ of management fees, return of the Plan’s assets held by White Oak, and ‘[r]emoval of White Oak as the plan’s fiduciary and investment manager.’” The court held that these were classic equitable remedies, even if some of the relief sought was monetary in nature. The court further held that even if the central dispute concerned an arbitration agreement, it was effectively a suit to enforce an ERISA-governed trust, and such suits have always been equitable in nature, especially where “the Trustee’s petition seeks enforcement of an arbitral award that itself grants equitable relief.”

Moreover, even if the Trustees had “styled their petition as a contract action controlled by state law,” it could not evade federal jurisdiction because of ERISA’s “complete preemption” doctrine. The Trustees’ petition “easily satisfied” the Davila complete preemption test because “[t]he Trustees are a party authorized to sue under § 502(a)(3), and the petition to enforce the arbitration agreement, through confirmation of the award, is an action to enforce a plan term or document.” In short, because the Trustees’ petition “is cognizable as an ERISA § 502(a)(3) action,” state law could not apply and federal question jurisdiction was inescapable.

As a result, the Second Circuit determined that the rule announced by the Supreme Court in Badgerow did not divest it of jurisdiction over the matter, and it turned to the merits. White Oak did not challenge the arbitrator’s underlying factual findings or legal conclusions. Instead, it argued that the district court “exceeded its confirmation authority by entering judgment in favor of the Trustees on (1) prejudgment interest on the disgorgement of its assets, (2) the return of the ‘Day One fees,’ and (3) ‘profits.’”

The court affirmed the ruling that the Trustees were entitled to prejudgment interest on the disgorgement of assets, finding that the arbitrator’s final award was unambiguous on this issue and the intent of the arbitrator was clear. The court further affirmed the ruling that such interest began accruing as of the date the IMA expired.

The court also affirmed the district court’s ruling that White Oak was required to disgorge its “Day One fees.” These were retroactive fees White Oak imposed when the Plan joined White Oak’s investment fund, and which the arbitrator concluded were not permitted by the IMA. The Second Circuit ruled that the arbitrator’s award clearly required White Oak to return these fees and the district court did not err by enforcing it.

However, White Oak prevailed on its third issue regarding the disgorgement of “profits.” The Second Circuit agreed that “the Award’s failure to identify or calculate ‘profits’ renders this item of relief sufficiently ambiguous that we cannot discern how to enforce it. Accordingly, the Award must be remanded to the arbitrator for clarification.” The court ruled that the calculations involved were not “ministerial” and involved “numerous legal and factual questions” that the court could not resolve without further guidance.

Finally, the court agreed with White Oak that the district court’s award of attorney’s fees to the Trustees, which was based on White Oak’s litigation conduct, should be reversed. The Second Circuit ruled that the district court’s findings supporting that award lacked sufficient detail, and thus remanded for the court to “make more specific findings.”

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

Breach of Fiduciary Duty

Sixth Circuit

Moore v. Humana Inc., No. 3:21-cv-232-RGJ, 2024 WL 2402118 (W.D. Ky. May. 23, 2024) (Judge Rebecca Grady Jennings). In this class action participants of the Humana Retirement Savings Plan allege Humana Inc. and the Humana Retirement Plans Committee breached their duties under ERISA by failing to leverage plan assets and participant size to ensure that recordkeeping fees paid were prudent and reasonable. During a relatively short period of time –just seven years – the Plan grew tremendously. Its assets nearly doubled from $3.5 billion to roughly $6.5 billion and the number of participants increased by nearly 10,000 individuals. However, the yearly participant fee paid for recordkeeping services decreased in that same time period only minimally, from $37 per participant down to $28. Plaintiffs aver that $9 was not appropriate given the plan’s growth, and that a reasonable per-participant recordkeeping fee range is between $12 to $20 for a plan of this size. Defendants do not dispute that they never attempted to negotiate with their recordkeeper, Charles Schwab, for lower fees during this period as plaintiffs allege they should have. However, defendants contend that they nevertheless engaged in a prudent process by conducting a request for proposal wherein they considered more than 125 vendors, and by retaining a third-party consultant to perform annual benchmarking for the plan. Moreover, defendants argue that the fees themselves were reasonable throughout the class period. The parties each moved to exclude the other’s expert’s testimony, and also cross-moved for summary judgment. The court in this decision granted defendants’ motion to exclude as well as their motion for summary judgment, and denied plaintiffs’ motion to exclude and their summary judgment motion. The decision began with plaintiffs’ motion to exclude defendants’ expert, Pete Swisher. Somewhat surprisingly, Mr. Swisher holds a B.A. in Linguistics from the University of Virginia. However, he is a certified financial planner who has spent his career in the retirement plan industry advising on both ERISA and non-ERISA governed plans. Mr. Swisher was retained to evaluate defendants’ processes overseeing and monitoring the recordkeeping services and plan fees, and to speak to the reasonableness of the fees paid by the plan during the class period. Mr. Swisher opines that Humana implemented a prudent process to monitor recordkeeping fees and services and that the fees remained reasonable throughout. Plaintiffs challenged what they viewed as Mr. Swisher’s circular reasoning. They wrote, “Swisher is essentially saying, ‘The fiduciary process was prudent because fees were reasonable and the fees were reasonable because the fiduciaries followed a prudent process.’” The court saw it differently. It stated, “that is the nature of the inquiry – a prudent process involving competitive bidding (the RFPs), coupled with the Roland Criss reports and an independent comparison to NEPC surveys which Swisher used to show median recordkeeping fees, could form a basis for concluding that the fees were reasonable.” Essentially, the court said it viewed plaintiffs’ motion to exclude Mr. Swisher’s testimony as arguments amounting to attacks on his conclusions rather than challenges to his foundation or methodology. Accordingly, plaintiffs’ motion to exclude was denied. Next, the court analyzed defendants’ motion to exclude plaintiffs’ expert, Veronica Bray. Ms. Bray holds a B.S. in Business Administration from the University of North Carolina and, like Mr. Swisher, has spent her career in the retirement plan industry assisting plan sponsors. Ms. Bray was retained to provide expert analysis and opinions on defendants’ actions and to answer the question of whether those actions were consistent with the standards of care practiced by a prudent fiduciary acting in the best interest of the plan. Her opinion was that they were not, and that they resulted in unreasonably high plan fees. Defendants challenged Ms. Bray’s comparisons, methodology, and the reliability of her opinion in addressing the dispositive question of this case. While the court stated it is “true that Bray is generally qualified by knowledge and experience in the field, with over two decades of professional involvement within the industry in various roles,” and “Bray’s testimony may even help the trier of fact understand how the Plan’s fees generally compare to smaller plans, such as the ones she cites in her report,” the court nevertheless concluded that “Bray’s opinion applies no reliable methodology to the pertinent question in this litigation: whether Defendants’ process was prudent and whether recordkeeping fees were ultimately ‘excessive relative to the services rendered’… Bray’s method – essentially, reasoning by inference that, because the six smaller plans were able to achieve a fee in the $12-$20 range, it follows that Humana should have also been able to negotiate for fees in that range – is not a reliable basis for concluding the fees were unreasonably high.” The court therefore excluded Ms. Bray’s testimony. Left with one expert’s version of events, the court evaluated the cross-motions for summary judgment and granted judgment in favor of defendants. The court concluded that defendants used a prudent process “consistent with industry practice” and the recordkeeping fees were not excessive relative to the services rendered.

Ninth Circuit

Bracalente v. Cisco Sys., No. 22-cv-04417-EJD, 2024 WL 2274523 (N.D. Cal. May. 20, 2024) (Judge Edward J. Davila). In this putative class action participants of the Cisco 401(k) plan have sued Cisco and the plan’s committee for breaches of fiduciary duties under ERISA. Plaintiffs allege defendants breached their duties of prudence and monitoring by mismanaging the plan and retaining a suite of underperforming BlackRock LifePath Index Target Date Funds as the plan’s designated default investment options. According to the complaint, Cisco and the committee failed to engage in a prudent monitoring process to oversee the funds and to ensure that they were suitable in terms of their performance and returns. By retaining these funds, plaintiffs claim that the participants lost out on millions of dollars in retirement savings’ growth. They say that part of the alleged failure to monitor the funds stems from the committee’s failure to adhere to the plan’s investment policy statement (IPS) and also from the committee’s use of custom benchmarks. Plaintiffs allege that these bespoke benchmarks amounted to little more than “a reflection of the TDF portfolio,” which they argue is “akin to looking in a mirror.” Instead, plaintiffs contend that the fiduciaries should have compared the BlackRock Target Date Funds to other available options and had they done so they would have observed the obvious and unacceptable underperformance of the investments. Additionally, plaintiffs aver that the committee improperly characterized the challenged funds as “passive” rather than “actively” managed. Pursuant to the IPS, passively managed funds were subject to less scrutiny. “For passive investments, the Committee was required to ensure only that those investments ‘meet’ the results of their benchmark; for actively managed investments the IPS required that the Committee ensure the investments ‘exceed’ the results of the relevant benchmark or appropriate peer group.” Finally, plaintiffs alleged that the meeting minutes “reflect no discussion of the performance of the BlackRock TDFs, even though the BlackRock TDFs were obviously the Plan’s most important investment.” Taken together, plaintiffs were confident their allegations demonstrate a plausible inference that defendants fell short of their fiduciary obligations. Unfortunately for the participants, the court did not agree and in this decision granted defendants’ motion to dismiss the second amended complaint. The court parsed through each bit of circumstantial evidence individually. It held that neither the process allegations nor the underperformance allegations plausibly establish claims of imprudence and failure to monitor co-fiduciaries. The court was not convinced that defendants’ use of custom benchmarks was inappropriate. Nor was it persuaded that, to the extent the target date funds were mischaracterized as passive, defendants were violating the IPS. As for plaintiffs’ chosen comparators, the court concluded that all four were inapposite, two because they were composed of actively managed funds, and two because they employed a “through retirement” rather than “to retirement” glide path strategy. Left with allegations of underperformance alone, the court determined these allegations were based on hindsight, and under relevant case law therefore do not plausibly state claims for breaches of fiduciary duties under ERISA. Accordingly, the court once again concluded that the complaint did not meet its pleading burden and therefore granted the motion to dismiss. However, the court’s dismissal under Rule 12(b)(6) was granted with leave to amend as it believes plaintiffs may be able to cure the identified deficiencies and shore up their allegations.

ERISA Preemption

Ninth Circuit

Morton v. Rocky Mountain Hosp. & Med. Serv., No. 2:23-cv-01320-GMN-DJA, 2024 WL 2329129 (D. Nev. May. 21, 2024) (Judge Gloria M. Navarro). Plaintiff Michael Morton submitted a request for authorization to his medical insurance provider, Anthem Blue Cross and Blue Shield, for total disc arthroplasty neck surgery. Anthem denied the preauthorization request, concluding the surgery was not medically necessary. Despite the preauthorization denial, Mr. Morton went ahead with the surgery, and was left with medical expenses of more than $50,000. Mr. Morton sued Anthem in state court asserting six state law claims. Anthem removed the action to the federal system, insisting the claims are preempted by ERISA. It then moved to dismiss. In this order the court agreed with Anthem that the state law claims are preempted by federal law and granted the motion to dismiss them. As an initial matter, the court held that ERISA governs the health plan, as it is sponsored by Mr. Morton’s employer and the employer contributes to the premium payments. Thus, the court stated that the plan meets ERISA’s statutory definition of an “employee welfare benefit plan.” Having established that the plan is governed by ERISA, the court turned to assessing the impact of ERISA preemption on the state law claims. It began with complete preemption. The court concluded that Mr. Morton is a plan participant with a colorable claim for benefits under Section 502 of ERISA, and that his claims of breach of contract and contractual breach of implied covenant of good faith and fair dealing do not implicate any independent legal duty as they are based solely on Anthem’s failure to provide insurance coverage benefits under the plan. Therefore, the court found claims one and two completely preempted. It also concluded that plaintiff’s third claim, tortious breach of the implied covenant of good faith and fair dealing, was likewise based on Anthem’s failure to provide insurance benefits and pay for the surgery, and that it too was completely preempted by ERISA. Further, the court found Mr. Morton’s state law breach of fiduciary duty claim preempted, as alleged breaches of fiduciary duties “while administering the benefit plan is conduct covered by ERISA.” With regard to the claim under Nevada’s Unfair Claims Practices Act, the court relied on Nevada Supreme Court case law which has found that ERISA preempts a private right of action for violation of the act when, as here, it is based on the denial of plan benefits. Finally, the court determined that Mr. Morton’s last claim for declaratory relief “is not independent of his claim for benefits under his plan and is therefore preempted.” In sum, the court wrote that Mr. Morton’s “claims do not simply have a connection to the Group Health Plan; they are entirely based on Anthem’s denial of benefits under the Plan.” Accordingly, all six state law causes of action were dismissed. However, the court provided Mr. Morton leave to amend his complaint to replead his causes of action under ERISA.

Ninth Circuit

Alaska v. Express Scripts, Inc., No. 3:23-cv-00233-JMK, 2024 WL 2321210 (D. Alaska May 21, 2024) (Judge Joshua M. Kindred). The State of Alaska initiated this action on behalf of its citizens against Express Scripts, Inc. and its affiliated companies for fueling the opioid epidemic in Alaska in Express Scripts’ capacity as a Pharmacy Benefits Manager (PBM), mail-order pharmacy, and research provider. Originally, the State filed its suit in Alaska Superior Court and brought two state law causes of action, a claim for public nuisance and a claim for violations of the Alaska Unfair Trade Practices and Consumer Protection Act. Express Scripts removed the action to federal court. Following removal, the State moved to remand the case. However, it has since had a change of heart, and subsequently moved for leave to amend its complaint to add a federal claim for violation of the Racketeer-Influenced and Corrupt Organization Act. In a separate order this week, unrelated to ERISA, the court granted the State’s motion to amend its complaint. In this decision, the court ruled on Express Scripts’ motion to dismiss the two state law causes of action as preempted by Medicare Part D and ERISA. The court ruled that the State’s claims are partially preempted by Medicare Part D, but not ERISA. It stated that the claims are not dependent on the ERISA-governed plans, because existence of the plans is not critical in establishing or determining liability. The state’s causes of action, the court ruled, “would persist with or without ERISA-covered plans as they would proceed with respect to Express Scripts’ formularies adopted by plans offered by government or religious entities, Medicare and Medicaid plans, and individual plans offered by insurers, such as ACA exchange plans.” The court found the particulars of this lawsuit comparable to Rutledge v. Pharmaceutical Care Management Association, wherein the Supreme Court decided that an Arkansas law regulating reimbursement prices for pharmaceuticals and prescription drug coverage “does not act immediately and exclusively upon ERISA plans because it applies to PBMs whether or not they manage an ERISA plan.” Moreover, the court held that the state law claims do not have an impermissible “connection with” ERISA plans as “they do not dictate any particular scheme of substantive coverage,” even though they “target Express Scripts’ plan administration.” If the State of Alaska succeeds on its claims, the court concluded that injunctive relief barring Express Scripts from engaging in further deceptive acts, practices, and conduct would not require it to structure its formularies and benefit plans in any particular way. “That is because the State’s CPA and public nuisance claims are not merely based on the structure of the formularies, but on the manner in which Express Scripts arrived at their structure: allegedly by ignoring evidence that suggested the need for utilization management due to its financial agreements with manufacturers and desire for profits.” Accordingly, the court determined that ERISA does not preempt either state law cause of action. However, as noted, the court dismissed the public nuisance and consumer protection act claims insofar as they implicate Medicare Part D plans.

Pension Benefit Claims

Second Circuit

Estate of Hichez-Zapata v. Emerecia, No. 21 CIVIL 4261 (PKC), 2024 WL 2304704 (S.D.N.Y. May. 22, 2024) (Judge P. Kevin Castel). The children of Confessor Hichez-Zapata filed this action seeking to recover proceeds of their late father’s ERISA-governed annuity fund, which they allege were wrongfully distributed to his ex-wife. Plaintiffs sued the ex-wife, as well as the pension benefit plan, the IUOE Local Annuity Fund. The Plan moved for summary judgment on the claim asserted against it, a claim for breach of fiduciary duty. The court granted the Plan’s motion in this order. First, the court concluded that none of the children had statutory standing to sue under ERISA as no plaintiff was designated as a beneficiary. “Plaintiffs’ contention that Decedent intentionally listed his descendants as beneficiaries in one form but mistakenly omitted them in a second is unsupported conjecture and speculation that would not permit a reasonable trier of fact to conclude that he intended to list plaintiffs as beneficiaries of the annuity account.” Moreover, the court wrote, “[e]ven if Decedent erred in his paperwork, however, his subjective intention would not permit a trier of fact to find that plaintiffs are Plan beneficiaries.” Therefore, the court concluded that none of the individual plaintiffs had standing to bring a claim against the plan under ERISA. Additionally, the court held that plaintiffs provided no evidence, despite repeated court orders to do so, that plaintiff Robert Hichez is the lawful estate administrator. As Mr. Hichez made no showing that he may properly act on behalf of the estate, the estate’s claim against the plan was dismissed by the court. Issues of standing aside, the court took the time to explain that plaintiffs’ claim of fiduciary breach would also fail on the merits. They argued that the Plan breached its duties by failing to investigate Mr. Hichez-Zapata’s marital status and by failing to clarify his choice of designated beneficiaries across different plan documents. The court stated simply, “[n]either the text of ERISA nor the Plan’s governing documents create such a duty. Therefore, in addition to plaintiffs’ lack of statutory standing and inability to proceed on behalf of the Estate, summary judgment is separately granted to the Plan because plaintiffs have not identified an actionable duty breached by the Plan.” As the Plan distributed proceeds in accordance with the written beneficiary designation, the court concluded that it had not erred under ERISA. Its motion for summary judgment was accordingly granted.

Mombrun v. The N.Y. Hotel Pension Fund, No. 22-CV-4970 (PGG) (JLC), 2024 WL 2494577 (S.D.N.Y. May 23, 2024) (Magistrate Judge James L. Cott). Pro se plaintiff Marie S. Mombrun sued the New York Hotel Trades Council and the Hotel Association of New York City, Inc. Pension Fund to challenge pension benefit calculations. Ms. Mombrun alleges that she is entitled to additional pension benefits based on hours she worked in 2019 and 2020. Ms. Mombrun contends that she earned more pension credits than defendants calculated she accrued and that she is entitled to higher per credit benefits following the plan’s 2019 amendment. Further, Ms. Mombrun claims that she was entitled to begin receiving benefits two years earlier, beginning in 2020, because she had applied for Social Security Disability benefits and was therefore eligible for disability pension benefits. Accordingly, Ms. Mombrun asserts that she is entitled to back pay as well as higher monthly payments. Defendants maintain that their benefit calculations were correct and moved for summary judgment. In this report and recommendation, the magistrate judge recommended defendants’ summary judgment motion be granted. As an initial matter, the magistrate agreed with defendants that their decision was entitled to deference as the plan documents grant the Trustees discretionary authority. Under deferential review, the magistrate could not say that the decision to deny additional pension benefits was arbitrary and capricious, particularly in light of the fact that Ms. Mombrun does not dispute that she did not work the requisite 500 hours to receive pension credit in 2019 and 2020, nor even in those years combined, or any year thereafter. Therefore, the magistrate agreed with defendants’ calculations of benefits under the terms of the plan and concluded that Ms. Mombrun is not entitled to either more credits or higher rates per credit. Finally, the magistrate stated that Ms. Mombrun was not entitled to an earlier pension start date because she needed to work a combined 500 hours between 2019 and 2021 to be eligible for a disability pension. “Because defendants’ denial of Mombrun’s benefits application is supported by the plain text of the Plan documents, the denial was not arbitrary and capricious.” For these reasons, the magistrate recommended defendants’ motion for summary judgment be granted and Ms. Mombrun’s complaint be dismissed.

Tenth Circuit

Crawford v. The Guar. State Bank & Tr. Co., No. 22-2542-JAR-GEB, 2024 WL 2700668 (D. Kan. May. 23, 2024) (Judge Julie A. Robinson). Plaintiff David Crawford sued his former employer, The Guaranty State Bank & Trust Company, and the board of directors of the Executive Salary Continuation Plan for the bank under ERISA to challenge defendants’ decision to deny him benefits under the plan. Mr. Crawford worked for the bank for three decades. His work involved cattle financing and issuing agricultural loans. By the end of his tenure at the bank Mr. Crawford was wrapped up in legal trouble involving the Kansas Bureau of Investigation (KBI) and was criminally charged with two felonies for impairing a security interest and making false statements. Mr. Crawford resigned from his position as senior vice president in 2020. One year later the KBI investigation concluded and the bank was provided with the agency’s report. After receiving the KBI report, defendants determined that Mr. Crawford was ineligible for benefits under the plan pursuant to the plan’s “for cause” forfeiture exclusion for actions constituting gross negligence or neglect, willful violation of law, and breach of fiduciary duties. Mr. Crawford challenges the termination of his benefits in this action under Section 502(a)(1)(B). Both parties moved for judgment in their favor. In addition, defendants moved to strike extra-record evidence. The motion to strike was mostly denied and judgment was entered in favor of Mr. Crawford under arbitrary and capricious review. The court found that most of the exhibits challenged by defendants were either part of the administrative record or relevant to issues of defendants’ conflict of interest. However, the court did strike Mr. Crawford’s testimony and also certain documents which it agreed with defendants were properly withheld pursuant to the work product doctrine because they were communications with lawyers in anticipation of litigation. The court then addressed the merits of the board’s decision. Mr. Crawford argued that the decision to terminate his benefits was an abuse of discretion because “(1) it incorrectly interpreted the Plan when it determined that it could terminate [his] benefits based on a retroactive determination that grounds ‘for cause’ existed at the time he voluntarily resigned; (2) the initial termination decision and review of the denials contained several procedural irregularities; (3) the Board’s conflict of interest; and (4) the decision was not based on substantial evidence.” First, the court disagreed with Mr. Crawford that defendants’ interpretation of the plan language was unreasonable. The court stated that a reasonable person would read the forfeiture exclusion to apply in this instance. Second, the court found that the initial adverse determination letter complied with ERISA’s statutory requirements. Nevertheless, the court agreed with Mr. Crawford that he was denied a full and fair review during his internal appeal. The court concluded that the board ignored evidence, failed to conduct a sufficient independent investigation of the underlying facts, and failed to provide Mr. Crawford with all of the documents it considered during the appeal process. Moreover, it found these failures consequential and likely the result of defendants’ conflict of interest including their potential desire “to shift the blame for the cattle deaths and bank losses to Plaintiff.” Accordingly, the court determined that the decision to terminate benefits was arbitrary and capricious and not supported by substantial evidence. Judgment was therefore entered in favor of Mr. Crawford. The decision ended with the court concluding that remanding to defendants to conduct a full and fair review was the proper remedy because defendants’ failure to do so the first time interfered with the court’s ability to review the record for reasonableness. Finally, Mr. Crawford’s requests for interest and attorneys’ fees were determined to be premature and denied without prejudice.

Plan Status

Fifth Circuit

Chocheles v. Heller, No. 24-647, 2024 WL 2350709 (E.D. La. May. 2, 2024) (Judge Eldon E. Fallon). This action is a life insurance dispute between a widow and her late husband’s life insurance carrier, Unum Life Insurance Company of America. Plaintiff Josephine Chocheles is the surviving wife of Christopher Thomas Chocheles. Mr. Chocheles was a partner at the law firm Sher Garner Cahill Richter Klein & Hilbert, LLC. The firm committed to guarantee life insurance benefits amounting to $1 million to its partners. The firm contracted with Unum to provide this coverage, but Unum declined and instead only provided the firm with guaranteed per-partner benefits of $750,000 with no need for any evidence of insurability. The law firm accepted this proposal and then contracted separately through another insurer to provide the additional $250,000 coverage per partner, so that each partner would still receive the promised $1 million. After her husband’s death, Ms. Chocheles submitted a claim for the full $750,000 in benefits from Unum. Unum tendered only $500,000. Unum maintained that additional evidence of insurability was required for the full $750,000 coverage. Ms. Chocheles filed suit in Louisiana state court alleging violations of state law to challenge Unum’s decision, seeking damages in the amount of $250,000 and prejudgment interest. Unum removed the action on ERISA preemption grounds. In response Ms. Chocheles moved to remand. She argued that removal was improper, as it did not satisfy the Federal Rules of Civil Procedure, and because the policy is not governed by ERISA. The court disagreed on both matters and thus denied the motion to remand. First, it concluded that defendants properly and timely removed the action in compliance with federal rules. Second, the court found that the plan was not exempt from ERISA as it was a group policy that covered employees of the law firm as well as its partners. “The group policy at issue here includes three classes…where one class comprises of partners (owners) and another includes staff of the law firm (employees)…The group policy is a single package bearing one single policy number…bargained and paid for as a package by the firm.” Accordingly, the court determined that the plan is governed by ERISA, thus making removal proper. Ms. Chocheles’s motion to remand was therefore denied. 

Pleading Issues & Procedure

Third Circuit

Seibert v. Nokia of Am. Corp., No. 21-20478, 2024 WL 2316551 (D.N.J. May. 22, 2024) (Judge Jamel K. Semper). Participants of the Nokia Savings/401(k) Plan have sued the plan sponsor, Nokia of America Corporation, as well as the Board of Directors of Nokia, and the Nokia 401(k) Committee, for breaches of ERISA’s fiduciary duties of prudence and monitoring. Plaintiffs allege that defendants breached these duties by failing to control plan costs and fees. On August 8, 2023, the court granted in part and denied in part a motion to dismiss by defendants. It held that plaintiffs adequately pled their recordkeeping and administrative cost claims, but that their claims premised on imprudent expense ratios were insufficiently pled because the complaint lacked meaningful benchmarks for comparison. (Your ERISA Watch covered the decision in our August 16, 2023 edition.) The court’s dismissal of the imprudence and monitoring claims premised on the cost of the challenged funds was without prejudice. Accordingly, plaintiffs amended their complaint to address the court’s identified deficiencies. They bolstered support for the expense ratio allegations by including two target date funds in the same Morningstar categories as the challenged funds for comparison and to demonstrate the plan’s underperformance. Now, defendants are once again moving to dismiss the complaint for failure to state a claim. To begin, the court stressed that it would not disturb its previous holding that the complaint sufficiently states claims of imprudence and failure to monitor co-fiduciaries based on allegations that defendants subjected the plan to excessive recordkeeping and administrative costs. The court therefore limited its review here to scrutinizing the previously dismissed claims as they relate to allegations that defendants failed to adequately review the plan’s investment portfolio to ensure that each option was prudent in terms of cost. Thanks to plaintiffs’ amendments, the court held that it can now plausibly infer that defendants’ process was flawed. “The Court accepts Plaintiffs’ new support for their claim[s] at the pleading stage and determines that the FAC sufficiently alleges that Defendants failed to adequately review the Plan’s investment portfolio with due care to ensure the prudence of the cost of each option.” Therefore, the court denied the motion to dismiss both the breach of the duty of prudence claim and the derivative failure to monitor claim.


Sixth Circuit

Canter v. Alkermes Blue Care Elect Preferred Provider Plan, No. 1:17-cv-399, 2024 WL 2698405 (S.D. Ohio May. 24, 2024) (Judge Douglas R. Cole). This litigation arose after plaintiff Keith Canter’s claim for spinal surgery was denied by his healthcare plan, the Alkermes Blue Care Elect Preferred Provider Plan, and its administrator, Blue Cross Blue Shield of Massachusetts, Inc. In a previous decision the court concluded that defendants’ “reliance on an incomplete administrative record and failure to accord sufficient weight to all relevant medical factors listed in the Plan violated Canter’s procedural rights under the Plan.” The court remanded to Blue Cross for reconsideration of its decision, and held off on awarding any damages or monetary relief. (Your ERISA Watch covered this decision in our March 30, 2022 edition.) On remand, Blue Cross changed its decision and awarded Mr. Canter benefits, although not the full amount of the cost of his surgery. Believing he is entitled to more – the full cost of the surgery, plus interest, and attorneys’ fees and costs – Mr. Canter moved to reopen the case. In this order the court agreed with Mr. Canter that he is entitled to benefits equaling the full cost of his surgery plus interest to represent make-whole relief and “receive full satisfaction for his ERISA claim.” Furthermore, the court awarded Mr. Canter attorneys’ fees and costs under ERISA’s fee provision. The court stated that Mr. Canter “is entitled to prejudgment interest on his claim in this action under standard common law principles.” It clarified that because Blue Cross provided coverage for the surgery by awarding Mr. Canter benefits and paying him directly, “the legal effect of Canter’s entitlement to a sum certain amount of benefits is that he equally enjoys a right to prejudgment interest of the delay in payment of those funds.” The court determined that an appropriate award of interest would be interest calculated using the blended prejudgment interest rate pursuant to 28 U.S.C. § 1961. Agreeing with Mr. Canter that he is entitled to the full cost of his surgery plus the prejudgment interest, the court awarded Mr. Canter $100,289.01 in total, to be offset by the amount already paid on remand by Blue Cross. As for attorneys’ fees, the court found that Mr. Canter is entitled to a fee award as he had success on the merits and because a fee award is supported by the five factors laid out by the Sixth Circuit. Moreover, the court found the proposed $490 hourly rate of counsel reasonable and in line with ERISA practitioners in the area. The court also declined to reduce Mr. Canter’s counsel’s number of hours. Accordingly, the court awarded Mr. Canter the full requested amount of $204,771 in fees. His request for reimbursement of $622.75 was also granted in full, as the court found it “quite a reasonable amount after five years of litigation.” Judgment was thus entered in these amounts and the case was terminated.


Seventh Circuit

Lobodocky v. Medxcel Facilities Management, LLC, No. 1:23-cv-00767-JPH-MG, 2024 WL 2320006 (S.D. Ind. May. 22, 2024) (Judge James Patrick Hanlon). Plaintiff Vicki Lobodocky filed duplicate lawsuits, one in the Eastern District of Missouri, and this action in the Southern District of Indiana, alleging she was wrongfully denied life insurance proceeds from her husband’s ERISA-governed policy following his death. Ms. Lobodocky has sued her husband’s former employer, Medxcel, and the joint plan administrators, Prudential Insurance Company of America and Ascension Health Alliance. The three defendants moved to dismiss the action for improper venue, or in the alternative to transfer venue to the Eastern District of Missouri pursuant to the plan’s forum selection clause. In this decision the court denied the motion to dismiss for improper venue under Rule 12(b)(3), but granted the motion to transfer. As a preliminary matter, the court held that defendants failed to show that the Southern District of Indiana was a wrong or improper venue. Nevertheless, the court agreed with defendants that the plan’s forum selection clause was broad, unambiguous, applicable, and controlling. It found that Ms. Lobodocky failed to demonstrate that this was that “most unusual case” where the interest of justice could not be served by holding the parties to the terms of the clause, particularly as Ms. Lobodocky is already litigating the same matter in the Eastern District of Missouri. Therefore, the court granted the motion to transfer venue, and relocated the action to the Eastern District of Missouri.