Appvion, Inc. Ret. Sav. & Emp. Stock Ownership Plan v. Buth, No. 23-1073, __ F.4th __, 2024 WL 1739032 (7th Cir. Apr. 23, 2024) (Before Circuit Judges Wood, St. Eve, and Lee)

Appvion, Inc., which has been around since 1907 and used to be called The Appleton Coated Paper Company, is a Wisconsin-based corporation that specializes in producing carbonless paper and thermal paper. The march of digital technology has not been kind to paper companies, and Appvion is no exception. Its French owners tried to sell the company to third parties in the 1990s, but without success, and thus they ultimately sold Appvion to its employees in 2001 in the form of an employee stock ownership plan, or ESOP.

Loyal readers of Your ERISA Watch likely know what happened next. The company continued its downward spiral and eventually went bankrupt in 2017, devastating the retirement plans of hundreds of employees. The bankruptcy court appointed Grant Lyon to act on behalf of the plan, and after conducting an investigation he was not happy with what he discovered. He eventually brought “an avalanche of claims” under various laws, including ERISA, alleging that various defendants fraudulently inflated Appvion’s price when it was sold to the ESOP, and that these defendants continued artificially inflating the company’s value to the detriment of the plan and its participants.

The defendants all filed motions to dismiss, and the district court granted almost all of the relief they requested. (Two ERISA claims against the most recent plan trustee, Argent Trust Company, survived.) Lyon appealed, raising arguments under three legal categories: ERISA, securities fraud, and state law. The Seventh Circuit addressed each in order in this published opinion.

The court began its discussion of the ERISA claims with ERISA’s statute of repose, which generally bars claims older than six years. Lyon filed his complaint on behalf of the plan in 2018, which would ordinarily prevent him from recovering for any pre-2012 activity.

Lyon contended that ERISA’s “fraud or concealment” exception applied, which would allow him to challenge pre-2012 actions, but the Seventh Circuit rejected this argument. The court held that in order for the exception to apply Lyon was required to show that the defendants engaged in some “trick or contrivance” to cover up their wrongdoing; the underlying fraud itself was not enough. The court ruled that Lyon had not satisfied this requirement: his “allegations of fraud are the same as his allegations of fraudulent concealment.” In other words, when the defendants allegedly made misleading representations about Appvion’s valuation in 2001, and continued to approve inflated prices for Appvion, these were “the identical actions constituting the underlying fraud” and thus could not constitute an independent “trick or contrivance.”

The court further ruled that the defendants’ submission of regulatory forms to the government reporting the inflated values was an insufficient “trick or contrivance” because “the doctrine of fraudulent concealment requires ‘positive acts,’ not ‘[c]oncealment by mere silence.’” In the court’s view, “Lyon’s approach would make the exception to ERISA’s statute of repose apply whenever the defendants failed to come clean about their fraud. ERISA requires more.”

Having established a temporal line in the sand in 2012, the Seventh Circuit examined Lyon’s allegations regarding conduct after that date, starting with his breach of fiduciary duty claims. The court agreed that Lyon had proved that the defendants in these claims were fiduciaries, but was confused about which standard the district court had used in determining whether they had committed any breaches. Did the district court impose a “heightened pleading standard” under Federal Rule of Civil Procedure 9(b) because Lyon’s allegations sounded in fraud, or did it apply the more lenient default standard set forth by Federal Rule of Civil Procedure 8?

The Seventh Circuit concluded that the district court had gotten it wrong three ways, regardless of which standard it had applied. First, the appellate court agreed with Lyon that he had pleaded fraudulent intent with particularity because he provided the “who, what, when, where, and how” elements of the alleged fraud. The district court had criticized Lyon for not also pleading “why,” wondering why some of the defendants would commit fraud when they had nothing to gain from it, but the Seventh Circuit ruled that this was not required under Rule 9(b).

Second, the Seventh Circuit ruled that the district court had erred by only evaluating Lyon’s claims under the heightened standard imposed by Rule 9(b) without also considering whether his claims properly alleged a breach of fiduciary duty for non-fraudulent violations of ERISA under the more lenient Rule 8 standard.

Third, the Seventh Circuit ruled that the district court had “raised the bar too high” in evaluating “plausibility.” The court noted that while Rule 9(b) requires heightened particularity in pleading, it does not require heightened plausibility: “[a]ll it does is call for more than a ‘short and plain statement’ of the claim; it leaves the requirement of plausibility untouched.”

With these three clarifications, the Seventh Circuit ruled that Lyon had met his pleading burden. Lyon had alleged that Appvion’s directors and officers artificially boosted Appvion’s price so that they would receive increased bonuses, and did so by providing exaggerated projections, adding a fraudulent control premium, and excluding relevant pension debt. Lyon also alleged that the plan’s trustees and administrators were incentivized to accept these representations in order to keep Appvion’s business. Furthermore, Lyon had alleged that Appvion’s leadership had repeatedly tried and failed to sell Appvion, thus suggesting that their evaluations of the company’s value were faulty.

These “red flags” were sufficient for the Seventh Circuit to conclude that Lyon had plausibly alleged a breach of fiduciary duty. The court noted that it “takes no position” on the merits of the case, and “[p]erhaps Lyon will have trouble proving those allegations,” but at the pleading stage Lyon’s allegations were sufficient.

As for Lyon’s prohibited transactions claims against Appvion’s officers, the court found that Lyon’s arguments were “even stronger.” The Seventh Circuit ruled that the district court had inappropriately grouped these claims with its fraud discussion and again imposed a too-strict pleading standard. The Seventh Circuit noted that under these claims Lyon only needed to allege that the officers exercised the power to direct trustees to purchase Appvion stock, and that the trustees did so. The question of whether the purchases were for adequate consideration was not an issue Lyon had to address because that issue is an affirmative defense Lyon had no duty to negate in his complaint.

The Seventh Circuit also allowed Lyon’s co-fiduciary liability claims to proceed because he had properly alleged that defendants, by failing to comply with their duties under ERISA, enabled breaches by their co-defendants. This was true regardless of whether the defendants affirmatively knew that their co-defendants were also breaching their duties.

Next, the court tackled the dismissal of Lyon’s securities fraud claims, which it affirmed for reasons better evaluated by Your Securities Fraud Watch.

Finally, the court addressed Lyon’s state law claims. The court found that Lyon had waived arguments on some of these claims and that the remainder were properly dismissed because they were preempted by ERISA. Lyon’s state law claims against Appvion’s directors and officers “arise entirely from the Plan participants’ ERISA-governed ownership of Appvion,” and thus were “little more than an ‘alternative enforcement mechanism,’” which is not allowed under ERISA’s preemption provision.

As for Lyon’s state law claims against the plan’s independent appraiser, the Seventh Circuit found these preempted as well because they sought money damages, which were not available to Lyon under ERISA, as ERISA only allows equitable relief against non-fiduciaries. The court ruled that these claims “therefore seem to us an ‘end run around ERISA’s more limited remedial scheme.’”

In short, the decision was a qualified win for Lyon and the Appvion plan participants. Although many of their claims remain dismissed, they will be able to proceed on their core claims that the defendants breached their fiduciary duties in overvaluing the company.

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

Breach of Fiduciary Duty

Second Circuit

Trustees of the Int’l Union of Bricklayers & Allied Craftworkers Local 1 Conn. Health Fund v. Elevance, Inc., No. 3:22-CV-1541 (VDO), 2024 WL 1707223 (D. Conn. Apr. 22, 2024) (Judge Vernon D. Oliver). The trustees of two multi-employer welfare benefit plans have sued Anthem Blue Cross/Elevance, Inc. for breaches of fiduciary duties under ERISA after they discovered that the insurance company was repricing healthcare claims and paying more than the negotiated in-network rates for medical services. These overpayments, according to the complaint, have caused the plans to pay hundreds of millions of dollars over and above the contracted discount rates for in-network providers. The Trustees suspect that these higher than contracted amounts may not simply be going to the providers. It is their theory that Anthem may be compensating itself with some portion of the “allowed amount.” As a result of the shortfalls from the alleged overpayments the funds have begun to take away benefits from participants. One fund has begun requiring participants to pay a $4,000 deductible to reduce expenses, while the other has diverted $2 of contributions per participant per hour earmarked for the pension fund to the healthcare plan “thus reducing the retirement income available to participants when they retire.” In this action, the Trustees want information about what has been paid and to whom, and for restitution of the financial losses incurred. The Anthem defendants moved to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). The court denied the motion to dismiss for lack of Article III standing pursuant to Rule 12(b)(1). It stated plainly that plaintiffs suffered a particularized and concrete injury in fact traceable to defendants’ alleged conduct. This victory was short-lived, however, because the court granted the motion to dismiss for failure to state a claim. Its decision boiled down to a finding that the complaint failed to plausibly allege that defendants are ERISA fiduciaries. The court relied on Second Circuit and First Circuit caselaw to hold that the theories of liability and alleged misconduct here are related to a contract by which Anthem is bound. “Much like the complaints dismissed by Second Circuit and First Circuit, the claims here are ‘fundamentally premised on the notion that there were ‘correct’ rates to be applied to each submitted claim, but that [Defendants] failed to apply them.’” Importantly, the court distinguished this case from cases alleging defendants set their own compensation. “Plaintiffs do not plausibly allege that Defendants are able to set their own compensation. To the contrary, Plaintiffs allege that they have brought this lawsuit ‘to ensure that [Anthem is] not paying itself compensation in excess of the contracted rates and fees, and [Anthem is] not keeping compensation that is required to be returned under the [contracts].’” The court did note that plaintiffs are alleging that Anthem is exercising discretion in setting its own compensation if it is taking any amount above the contractually agreed-upon percentages and fees and that it has a fiduciary obligation to disclose that compensation. Nevertheless, the court determined that these allegations as currently pled are speculative, not affirmative. Finally, to the extent plaintiffs are challenging Anthem’s contracts with network providers, the court wrote “those actions seem to be ‘business decisions’ that do not fall under the purview of ERISA.”  Accordingly, despite Anthem’s access to the funds’ large pools of money, the court could not plausibly infer that defendants were acting as fiduciaries when spending that money. Therefore, the court granted the Rule 12(b)(6) motion to dismiss, although all claims were dismissed without prejudice, and the court specified that plaintiffs may move to file an amended complaint in light of its decision.

Fourth Circuit

Franklin v. Duke Univ., No. 1:23-CV-833, 2024 WL 1740479 (M.D.N.C. Apr. 23, 2024) (Judge Catherine C. Eagles). Plaintiff Joy Franklin, on behalf of herself and a group of similarly situated retirees and beneficiaries, commenced this action against the fiduciaries of the Duke University retirement plan. In her complaint Ms. Franklin alleges defendants are violating ERISA’s actuarial equivalence, anti-forfeiture, and fiduciary duty provisions by improperly calculating joint and survivor annuity and qualified joint and survivor annuity benefits and as a result are shortchanging retirees by millions of dollars. Defendants moved to dismiss all claims made on behalf of the plan pursuant to Section 502(a)(2). The court denied the motion to dismiss in this decision. It held that the complaint plausibly alleges that the defendants are not calculating the benefits in compliance with ERISA’s statutory requirements, and expressed that it could infer from the complaint that the joint and survivor annuity benefits offered by the plan are not the actuarial equivalent of the single life annuity benefits because the joint survivor annuities use unreasonable and outdated formulas in their calculations. In their motion defendants pointed out ERISA’s actuarial equivalence statute does not use the word “reasonable.” The court acknowledged that this is factually correct, but it nevertheless held that the “implementing regulations include a reasonableness component…and many courts have applied a ‘reasonable assumptions’ standard at the motion to dismiss stage.” Defendants’ position, the court said, “would make the statutorily-imposed actuarial equivalence requirement meaningless.” Additionally, the court ruled that Ms. Franklin adequately alleged that the inputs defendants used reduced her benefits as compared to the default benefit and that she therefore sufficiently pled an anti-forfeiture claim. Thus, at least at this early posture, the court was satisfied that the complaint alleges defendants’ accrual practices “breach [the] outer bounds” of permissibility and may constitute forfeitures under the statute. Finally, the court found Ms. Franklin adequately pled her fiduciary breach claims alleging the board and board members breached their duties by administering the plan in violation of ERISA’s actuarial equivalence requirements and that the university breached its duty to monitor the actions of the board and board members to ensure they complied with ERISA and its requirements. Accordingly, Ms. Franklin’s class action complaint was left undisturbed by the court’s decision.

D.C. Circuit

Wilcox v. Georgetown Univ., No. 23-7059, __ F. App’x __, 2024 WL 1739266 (D.C. Cir. Apr. 23, 2024) (Before Circuit Judges Childs, Garcia, and Ginsburg). On March 31, 2023, the district court issued an order denying plaintiffs’ motion for leave to amend a dismissed putative class action complaint brought by the participants of Georgetown University’s retirement plans against the plan’s fiduciaries for breaches of their duties. Your ERISA Watch covered the decision in our April 12, 2023 newsletter. The district court held that the proposed amended complaint did not add to the original pleading nor cure the deficiencies which had led to dismissal. It stated, “Plaintiffs identify ways in which plan management could be different, or even improved, but they have not alleged facts to support a plausible inference that defendants have failed as fiduciaries.” The participants appealed the decision to the D.C. Circuit Court of Appeals. In this no-frills unpublished order the D.C. Circuit affirmed the lower court’s holding, agreeing that amendment “would be futile because it did not cure any of the earlier-identified deficiencies.” Additionally, the court of appeals agreed with the district court’s standing analysis, concurring that the named plaintiffs could not bring claims for funds they did not personally invest in, as they suffered no direct injury.

Class Actions

Eighth Circuit

Fritton v. Taylor Corp., No. 22-CV-415 (JMB/TNL), 2024 WL 1757170 (D. Minn. Apr. 24, 2024) (Judge Jeffrey M. Bryan). The plaintiff participants of the Taylor Corporation 401(k) Plan moved for preliminary approval of a class action settlement. In this order the court granted the motion and preliminarily certified the settlement class. The court found for the purposes of the settlement that the requirements of Federal Rule of Civil Procedure 23 have been met. It concluded that the class is ascertainable and so numerous as to make joinder impracticable, that common questions of fact and law about the fiduciaries’ actions unite the class members, that the named plaintiffs are typical of others in the class, and that the plaintiffs and their counsel are adequate representatives to act in the interests of the members of the settlement class. The court also concluded that certification under Rule 23(b)(1) is proper because prosecutions of separate actions by individual members of the class would create a risk of inconsistent adjudications that would establish incompatible standards of conduct for the management of the plan. Finally, with regard to class certification, the court determined preliminarily that this action may proceed as a non-opt-out class action where members of the class are bound by any judgment concerning the settlement in the action. Having so found, the court preliminarily certified the class of plan participants and beneficiaries, and appointed Edelson Lechtzin LLP and Capozzi Alder P.C. as co-lead counsel and Gustafson Gluek PLLC as local counsel, and the five named plaintiffs as the representatives of the settlement class. The decision then turned to its preliminary approval of the settlement, finding that the proposed settlement appears to be fair and reasonable and the result of a fair arm’s-length negotiation. The same was true for the plan of allocation, which the court once again found to be fair, reasonable, and adequate. Satisfied that the proposed settlement terms comply with the Class Action Fairness Act, the decision progressed to more granular details: scheduling the fairness hearing; setting the mode of class notice via U.S. Mail; approving the form and content of the notice to be sent; structuring the ways and means for filing objections; and informing plaintiffs about how and when to file a motion for an award of attorneys’ fees and expenses. If there are no surprises, this class action will reach its conclusion by as early as this summer. But, should there be some surprise, we’ll be sure to cover it in an upcoming newsletter.

ERISA Preemption

First Circuit

Morales v. Junta De Sindicos Del Royalty Fund Mechanized Cargo Local 1674 ILA, No. 24-cv-01096 (GMM), 2024 WL 1763763 (D.P.R. Apr. 24, 2024) (Judge Gina R. Méndez-Miró). Local 1575 is a branch of the International Longshoremen’s Association Union which serves as a collective bargaining representative for its union members in negotiations with contributing employers. In 2010, the union and the contributing employers created a trust for the benefit of the employees. The governing deed provides that the trust is a welfare and pension benefit plan to be governed by Section 302(c) of the Taft-Hartley Act and ERISA. The trust is administered by a board of trustees comprised of an equal number of union and employer representatives. Currently, all contributing employers have ceased their operations and all but one of the trustees is deceased. Defendant Francisco González Ríos is the sole remaining trustee and trust administrator. Plaintiff Francisco Díaz Morales filed a civil action in state court in Puerto Rico against the board of trustees and Mr. González Ríos alleging that defendants are violating Puerto Rico’s Trust Act. The complaint requests the removal of Mr. González Ríos as trustee and trust administrator, the appointment of a new trustee to administer and liquidate the trust, reward appropriate remedies for breaches of fiduciary duties, terminate the trust, issue declaratory judgment, and award attorneys’ fees. Defendants removed the action to federal court. They maintain that the trust is governed by ERISA and the Taft-Hartley Act, and thus the claims in the complaint are completely preempted by federal law. Mr. Díaz Morales filed a motion for remand. In this order the court denied the motion to remand, concluding that removal was proper. It held that the trust’s Form 5500s clearly indicate that the trust is a welfare benefit plan governed by ERISA. The complaint, it stated, “essentially seeks to exercise Plaintiff’s rights under the Trust in accord with the provisions of Deed Number One. Thus, the dispute falls within the auspices of Section 502(a) of ERISA.” Given this determination, the court agreed with defendants that complete preemption applies. As a result, the court clarified that it has exclusive federal jurisdiction over the action and therefore denied the motion to send the lawsuit back to San Juan Superior Court.

Pension Benefit Claims

Eighth Circuit

Abrahams Kaslow & Cassman, LLP v. Kinnison, No. 8:23-CV-328, 2024 WL 1742139 (D. Neb. Apr. 23, 2024) (Judge Joseph F. Bataillon). Plaintiff Abrahams, Kaslow & Cassman LLP (“AKC”), a law practice in Nebraska, filed this interpleader action to deposit with the court the funds remaining in decedent Ronald Craig Fry’s 401(k) profit sharing plan account. Plaintiff requests the court resolve competing claims for the benefits among potential beneficiaries, who consist of decedent’s surviving spouse, defendant Julie Kinnison, and decedent’s son, defendant Tyler Fry (who is also the representative of his father’s estate.) Ms. Kinnison moved to dismiss the complaint with prejudice, arguing the funds the law firm seeks to interplead are not in dispute. Ms. Kinnison has sought a portion of the funds in the pension account in a related state court probate action. Ms. Kinnison argued in her motion to dismiss that the related case does not seek money from the 401(k) account and “there is no actual controversy as to who is entitled to those funds.” However, the court disagreed. It stated, “this argument makes little sense as Kinnison does not identify another source of funds to which she may be entitled and her argument is premised on AKC allegedly impairing her ability to obtain the full benefit as a beneficiary to the R.C. Fry Plan, not to any other source of money. Because a plaintiff is limited to equitable relief on ERISA claims, Kinnison’s remedy in the related case must seek recovery from a specifically identifiable fund, not AKC’s ‘assets generally.’” Therefore, the court held that Ms. Kinnison cannot seek compensatory damages from the law firm, only equitable damages, meaning the funds in question from the pension fund are subject to claims by multiple adverse parties and the firm “is permitted to interplead the funds.” Accordingly, the court denied Ms. Kinnison’s motion to dismiss. Finally, the court also denied Abrahams, Kaslow & Cassman LLP’s request for dismissal as a party. It determined that dismissal of the law firm and a ruling on its request for declaratory relief was premature.

Plan Status

Sixth Circuit

Mynarski v. First Reliance Standard Life Ins. Co., No. 3:23-cv-00075-GFVT, 2024 WL 1811342 (E.D. Ky. Apr. 25, 2024) (Judge Gregory F. Van Tatenhove). Plaintiff Adam Mynarski sued First Reliance Standard Life Insurance Company in Kentucky court to challenge an adverse benefit determination under a long-term disability policy. Mr. Mynarski twice attempted to serve First Reliance at the address listed on the policy. First Reliance did not appear. Mr. Mynarski then mailed a copy of the amended complaint and summons to First Reliance at its registered address in New York. This attempt was more successful. Thirty days after service at its correct address, First Reliance removed the action to federal court. It argued that the policy is governed by ERISA. Mr. Mynarski moved to remand to state court. The remand motion was originally granted by the court, which found that First Reliance was responsible for the confusion because it failed to keep an up-to-date and accurate address on the policy. Therefore, the court equitably estopped First Reliance from benefitting from its own negligence by asserting timely removal pursuant to its actual date of receipt. First Reliance moved to reconsider the court’s remand order. In this decision the motion to reconsider was granted, as First Reliance persuaded the court that its earlier reasoning rested on a material factual error. The court agreed with First Reliance that it was never obligated to register in Kentucky to begin with because the policy is a group disability policy delivered to Mr. Mynarski’s employer in New York. First Reliance attached proof that it was properly registered in New York. The court thus found that its prior decision was in error and therefore concluded that reconsideration was necessary “to prevent a miscarriage of justice in this case.” Accordingly, the court held that First Reliance’s removal was timely. Having so found, the court then analyzed where ERISA applies to the policy and whether it has federal jurisdiction over the action. It found it did. The court determined that there was a plan, and that “[t]he intended benefits, beneficiaries, source of financing, and procedures for receipt are manifest upon review of the policy.” Moreover, the court found that the plan was maintained by Mr. Mynarski’s employer and was established with the intent of providing benefits to the employees. Finally, the court found that the policy did not fall under the safe harbor exclusion because the employer contributes to the policy and participation is not voluntary. Accordingly, the court found ERISA governs the plan and confers federal jurisdiction. Thus, the court granted the motion to reconsider and vacated its prior remand order.

Provider Claims

Second Circuit

Jenkins v. Aetna Health Inc., No. 23 Civ. 9470 (KPF), 2024 WL 1795488 (S.D.N.Y. Apr. 25, 2024) (Judge Katherine Polk Failla). Dr. Arthur Jenkins III, M.D. and his neurospine practice initiated this action in New York state court against Aetna Health Inc. and its subsidiaries seeking to enforce payment promises the insurance company allegedly made to the provider regarding the amounts it would reimburse for surgical procedures performed on patients insured under Aetna health plans. Defendants removed the action based on federal jurisdiction, asserting that the state law causes of action are completely preempted by ERISA. The Aetna defendants alternatively claim that the federal court has jurisdiction over the claims to the extent they are preempted by the Medicare Act. Dr. Jenkins disagreed, and argued that removal of the action was without a valid legal basis. Accordingly, the provider moved to remand his action back to state court for lack of federal subject matter jurisdiction. The court agreed with Dr. Jenkins and granted his motion. It determined that ERISA did not preempt this action because the promises for payment amounts were independent of the terms of the ERISA-governed plans. “Similar to McCulloch [Orthopadeic Surgical Services, PLLC v. Aetna Inc.], each of Plaintiffs’ causes of action concerns Aetna’s promise of payment at a specified rate, not ‘established by any benefit plan.’” The court disagreed with defendants that it must interpret plan terms because the plan incorporates usual and customary rates. It stated that under Second Circuit precedent an insurance company’s promise to reimburse a physician at a usual and customary rate does “not implicate the actual coverage terms of the health plan or require a determination as to whether those terms were properly applied by Aetna.” For this reason, the court concluded that the state law claims are not within the scope of ERISA Section 502 and thus there was no preemption. Finally, the court held that the Medicare Act did not completely preempt the state law claims because “Medicare contains no civil enforcement scheme analogous to ERISA.” The court thus concluded it lacks jurisdiction over this matter and therefore granted the motion to remand.

Third Circuit

Atlantic Shore Surgical Associates v. UnitedHealth Grp., No. 23-2359 (MAS) (RLS), 2024 WL 1704696 (D.N.J. Apr. 19, 2024) (Judge Michael A. Shipp). Plaintiff Atlantic Shore Surgical Associates, a surgical treatment center in New Jersey, is suing UnitedHealth Group and its subsidiaries in order to challenge the amounts paid by United for 55 surgeries it performed on patients covered under health insurance plans underwritten and administered by United. Atlantic Shore is an out-of-network healthcare provider, meaning it does not have contracts with United establishing payment rates. Instead, Atlantic Shore sets its own fees for the treatment it provides. Atlantic Shore billed United a total of $2,404,430.51 for the surgeries, but United paid only $125,362.90 of that amount. Atlantic Shore filed this action in state court seeking the difference between the billed and paid amounts. Atlantic Shore argues that for emergency surgeries United has an implied obligation to pay a reasonable rate under New Jersey’s insurance laws, and for non-emergency surgeries it contends that it relied on United’s representations regarding preauthorization before going ahead with the procedures, and United has an obligation to honor its reimbursement agreements. United removed the case to federal court, arguing that Atlantic Shore’s claims are governed by ERISA and completely preempted. Atlantic Shore disagreed and filed a motion to remand accompanied by a request for attorneys’ fees. United simultaneously moved to dismiss the complaint. In this decision, the court concluded that Atlantic Shore’s claims are not preempted by ERISA and therefore granted the motion to remand. The fee motion and the motion to dismiss were both denied. As an initial matter, the parties agreed that Atlantic Shore had valid assignments for benefits for some but not all of the patients, meaning it had standing to bring a Section 502 ERISA claim. However, as the court noted, standing alone does not convert a state law cause of action into a federal claim automatically. Rather, what matters for preemption is whether the obligation to pay would exist independent of the ERISA plans. Here, the court was convinced it would, and that United’s obligations are not “derived from, or conditioned upon” the terms of the plan. Instead, the right to recovery here stems from state law requiring reasonable payments of emergency medical services and United’s failure to uphold its representations that it would pay reasonable rates when pre-authorizing surgeries. Essentially, the court agreed with Atlantic Shore that its claims were a classic example of a challenge to the rate of payment not the right to payment, which falls outside of ERISA’s grasp. “In short, Plaintiff seeks reimbursement from United based on state law, and the parties’ alleged course of dealing and implied contractual relationship. This Court has made clear that ERISA does not preempt these claims.” Given this holding, the court concluded it lacks jurisdiction over the action and therefore remanded the complaint back to state court. Nevertheless, the court declined to award Atlantic Shore attorneys’ fees. The court noted that federal district courts in New Jersey have cautioned United against habitually removing cases on preemption grounds where it is inappropriate to do so and have threatened fees in past decisions. However, the court ruled United had a “colorable enough” reason for removal in this case to avoid the imposition of fees.

Emami v. Aetna Life Ins. Co., No. 23-03878, 2024 WL 1715288 (D.N.J. Apr. 22, 2024) (Judge Jamel K. Semper). Dr. Arash Emami originally filed this action in state court against Aetna Life Insurance Company and the TIAA Health & Welfare Benefits Plan seeking reimbursement for surgery he performed on patient “Brian J.” Defendants removed Dr. Emami’s action to federal court, at which time he amended his complaint to assert claims under ERISA. The TIAA plan at issue has an anti-assignment provision prohibiting patients from assigning their rights to health care providers. Dr. Emami has attempted to circumvent this prohibition by asserting his claims on behalf of Brian J. pursuant to an executed power of attorney. In this decision ruling on defendants’ motion to dismiss, the court disagreed with Dr. Emami that his power of attorney was sufficient to confer standing under ERISA. The court observed that the individual who notarized the document acted “as both officer and witness.” There were other problems too. The court noted that it is Dr. Emami’s burden to prove the sufficiency of the document, and many relevant details about the power of attorney document and its execution were notably missing from the complaint. Therefore, as currently pled, the court held that Dr. Emami has not demonstrated or established that the power of attorney was sufficient to confer standing under New Jersey law. The complaint was accordingly dismissed. Dismissal was without prejudice, however, and Dr. Emami may file an amended pleading consistent with this order in an attempt to overcome the court’s identified shortcomings and demonstrate standing.

Milione v. United Healthcare, No. 23-1743 (ZNQ) (RLS), 2024 WL 1827756 (D.N.J. Apr. 26, 2024) (Judge Zahid N. Quraishi). Dr. Donald Milione is a chiropractor working in New York, New Jersey, and Connecticut. He has sued United Healthcare and OptumHealth Care Solutions LLC under ERISA for wrongful denial of benefits, breach of the fiduciary duty to act in accordance with the terms of the plan, and failure to provide a full and fair review in connection with chiropractic services he provided to six patients insured with United Healthcare plans. Defendants moved to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). The court granted the motion and dismissed the ERISA claims without prejudice in this order. For four of the six patients, the court agreed with United that Dr. Milione lacked standing in light of their plans’ valid and unambiguous anti-assignment provisions. Moreover, the court stated that defendants had not waived the anti-assignment clauses based on their failure to raise their existence prior to Dr. Milione filing his complaint. Accordingly, the court dismissed the claims pertaining to these four patients for lack of standing pursuant to Rule 12(b)(1). It then went on to dismiss the claims pertaining to the other two patients pursuant to Rule 12(b)(6) for failure to state a claim. The court agreed with defendants that Dr. Milione failed to refer to any plan terms entitling him to the benefit rates he sought. “As Defendants note, the Complaint ‘fails to cite a single provision from any of the ERISA-governed Plans supporting Milione’s claims or otherwise requiring reimbursement at Milione’s claimed amount.’” Thus, the court held that even viewing the complaint in the light most favorable to Dr. Milione, the complaint fails to plead plausible claims under ERISA for benefits or for breach of fiduciary duty for failure to adhere to plan terms. However, the court dismissed the complaint without prejudice, and granted Dr. Milione leave to amend within 30 days of this order. 

Retaliation Claims

Fifth Circuit

Mason v. RBC Capital Mkts., No. 4:22-cv-3454, 2024 WL 1808634 (S.D. Tex. Apr. 25, 2024) (Judge Andrew S. Hanen). Plaintiff Todd Mason sued his former employer, RBC Capital Markets, LLC (“RBC”), for retaliation and racial discrimination, including under ERISA’s anti-retaliation provision, Section 510, related to his diagnoses of heart disease and gout. RBC moved for summary judgment on all claims. Its motion was granted by the court. RBC provided evidence cutting against Mr. Mason’s allegations, including documents demonstrating that he consistently received high ratings in his performance reviews and also received salary raises and bonuses. The employer also provided convincing evidence that Mr. Mason’s termination was for cause and therefore legitimate and non-discriminatory. Specifically, RBC documented charges on a company credit card that Mr. Mason made which appeared to be personal non-business-related spending. RBC maintains that Mr. Mason was fired because he had used the corporate purchasing card for personal expenses. With regard to the ERISA claim, RBC averred it had no knowledge of Mr. Mason’s health conditions and thus argued that Mr. Mason could not meet his prima facie burden. The court agreed. Mr. Mason’s own affidavit was the sole piece of evidence he provided in response to RBC’s summary judgment motion. Relying on the affidavit alone, the court stated that it could not find a “specific discriminatory intent.” To the contrary, the court agreed with RBC that nothing Mr. Mason alleged raised a genuine issue of fact that his termination was intended to interfere with his medical benefits. For the foregoing reasons, the court granted RBC’s summary judgment motion.

Statute of Limitations

Eleventh Circuit

Unum Life Ins. Co. of Am. v. Reynolds, No. 3:23-cv-512-RAH-JTA[WO], 2024 WL 1748428 (M.D. Ala. Apr. 23, 2024) (Judge R. Austin Huffaker, Jr.). Unum Life Insurance Company of America commenced this action against defendant Donna Reynolds seeking restitution under ERISA for overpayments made to Ms. Reynolds under a group long-term disability policy. Unum alleges that Ms. Reynolds fraudulently represented information about her sources of income on disability status update forms over the years, as she failed to disclose that she had been receiving pension benefits since April 2009. Unum maintains that had it known about Ms. Reynolds’ pension income, the terms of her policy would have required her disability benefits to be offset by the amount of the pension and thus would have been substantially less. Unum claims that it has therefore overpaid Ms. Reynolds by $188,877.85, and filed this lawsuit seeking equitable relief under Section 502(a)(3), equitable restitution, and an equitable lien. Ms. Reynolds moved for judgment on the pleadings. In response to Ms. Reynolds’ motion, Unum agreed to dismiss its claims for equitable restitution and an equitable lien. Those two counts were thus dismissed, without prejudice. However, in this order the court denied the motion to dismiss the ERISA equitable relief claim on statute of limitations grounds. The court disagreed with Ms. Reynolds that the complaint was untimely under either the three-year statute of limitations set forth in the policy or under Alabama’s six-year statute of limitations for analogous contract claims. Regarding the three-year statute in the policy, the court agreed with Unum that the relevant provision applied only to benefit claims made by Ms. Reynolds, i.e., “you.” Accordingly, the court stated that Ms. Reynolds was not entitled to dismissal of the case under the policy’s limitation. The court further held that the complaint sufficiently pled fraudulent concealment to toll the six-year statute of limitations. “As the Complaint makes clear, on no fewer than four occasions, Reynolds certified in writing that she was not receiving pension benefits when in fact she was and that Unum relied upon these certifications in making payments under the policy. That is enough to plead a plausible fraudulent concealment theory to invoke tolling, at least at this stage.” Thus, Unum’s Section 502(a)(3) claim against Ms. Reynolds will proceed.