It seems the courts had summer holiday plans this week, and as a result no decision stood out to us as particularly notable. There were, however, several cases worthy of a light beach read, including one involving an ex-wife seeking to garnish her ex-husband’s 401(k) plan account based on a defamation judgment against him, a titillating discussion of modifying clauses in a severance benefit action (“Syntacticians, grab your popcorn”), and the tale of a court significantly reducing an already piddly statutory benefit award down to peanuts. We hope you enjoy these summaries, and all the rest, along with any Juneteenth and summer solstice celebrations.

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

Breach of Fiduciary Duty

Seventh Circuit

Russell v. Illinois Tool Works, Inc., No. 22 C 2492, 2024 WL 2892837 (N.D. Ill. Jun. 10, 2024) (Judge Sunil R. Harjani). Retirement plan participants brought this action alleging Illinois Tool Works, Inc., its board of directors, and the employee benefits investment committee breached their duties of prudence and monitoring by mismanaging the plan, investing in chronically underperforming target date funds, and paying excessive costs for standard recordkeeping services. Defendants moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and (6). Defendants argued that one of the named plaintiffs’ claims should be dismissed for lack of subject-matter jurisdiction due to a release in his employment separation agreement. In addition, they challenged the sufficiency of the pleading of what they characterized as “Plaintiff’s generic recordkeeping, generic investment, and derivative monitoring claims.” The court rejected all of defendants’ arguments. First, the court elucidated, “[a] release is not a challenge to subject-matter jurisdiction, but instead an affirmative defense.” It expanded upon this by saying that analyzing whether the release covers the asserted claims, whether it is valid, and whether the plaintiff knowingly and voluntarily entered into it are all factual determinations not properly resolved on a motion to dismiss. Next, the court probed the sufficiency of plaintiffs’ claims. Broadly, it found that plaintiffs’ fee and fund allegations align closely with those alleged in Hughes v. Northwestern University, which were blessed by the Seventh Circuit. As in Hughes, the court found the complaint alleged “enough facts to show that a prudent alternative action was plausibly available.” Thus, the court was satisfied that plaintiffs did enough to lay out plausible imprudence claims. Finally, the derivative duty to monitor claim, which was predicated on the breach of fiduciary duty of prudence claim, also survived the motion to dismiss.

Class Actions

Eleventh Circuit

Goodman v. Columbus Reg’l Healthcare Sys., No. 4:21-cv-00015-CDL, 2024 WL 2963441 (M.D. Ga. Jun. 12, 2024) (Judge Clay D. Land). Participants of the Columbus Regional Healthcare System Retirement Savings Plan brought this class action alleging that the plan’s fiduciaries breached their fiduciary duties and engaged in prohibited transactions by failing to control and properly monitor the plan’s investment options, investment costs, and administrative expenses. For the past two-and-a-half years, this case has been “vigorously litigated.” Plaintiffs survived two motions to dismiss, the parties engaged in extensive discovery, the class was certified by the court, and the experts produced and exchanged their reports. All of this effort led to a mediation “conducted by an experienced trial lawyer and mediator,” which resulted in agreed terms to settle the action for $2 million. The court previously issued an order preliminarily approving the parties’ proposed settlement. Notices were then distributed to the 6,789 class members, and a fairness hearing was held. Pending before the court here were the parties’ joint motion for final approval of the settlement, and plaintiffs’ unopposed motion for attorneys’ fees, costs, and class representative service awards. In this order, the court granted final approval to the settlement, and awarded plaintiffs their requested fee award of one-third of the fund, as well as $175,315.29 in costs. However, the court denied the motion for service awards to the class representatives pursuant to binding precedent from the Eleventh Circuit prohibiting incentive awards to compensate class representatives for their time and effort bringing a lawsuit. With regard to the settlement itself, the court found that each core concern of Rule 23(e)(2) was satisfied. It determined that the $2 million fund was adequate, fair, and reasonable, and the result of informed good faith and arms-length negotiations. The court noted the work done to date on this complex ERISA matter, the uncertainty of the results ahead should the proposed settlement not go through, and found the pro rata distribution to the class members equitable, efficient, and rational. Further, the court accepted the $55,000 in settlement administration fees and the creation of a charitable fund for any unclaimed settlement funds “provided the unclaimed funds do not exceed $75,000.” Finally, the court was satisfied that attorneys’ fees totaling $666,666.66 (one-third of the gross settlement amount) were appropriate and in line with comparable awards in similar cases, especially given the more than two thousand hours class counsel spent on this complex ERISA class action, the attorneys’ specialized skills and expertise, and the fact that they accepted the case on a contingency. For these reasons, the court granted final approval to the settlement and awarded the attorneys their requested fees and costs.

Disability Benefit Claims

First Circuit

Demeritt v. Unum Life Ins. Co. of Am., No. 23-cv-00035-JL, 2024 WL 2990553 (D.N.H. Jun. 7, 2024) (Judge Joseph N. Laplante). Plaintiff Jay Demeritt commenced this action to challenge Unum Life Insurance Company’s denial of his claim for long-term disability benefits. Unum determined that Mr. Demeritt did not qualify for benefits after its reviewing neurologist concluded that his “self-report of narcolepsy was not consistent with the medical evidence.” The parties filed cross-motions for judgment on the administrative record. As an initial matter, the parties disagreed about the appropriate standard of review. The court declined to rule on which position was correct, as it determined that even under the more plaintiff-friendly de novo standard the record does not support that Mr. Demeritt satisfied the policy’s definition of disability to prove he was unable to perform his sedentary profession. Importantly, the court disagreed with Mr. Demeritt that his job as a systems administrator/network engineer in the national economy requires either driving or climbing ladders and lifts, and thus concluded that these were therefore not material and substantial duties of his work. Further, the court noted that Mr. Demeritt was first diagnosed with narcolepsy in 1999 and that he has been taking the same medication on the same dose as early as 2018, all while employed and performing the same job. In addition, the court agreed with Unum’ reviewing neurologist that it was significant that Mr. Demeritt’s medical record lacked “formal mental status testing, as might be seen when cognitive complaints are a significant clinical concern.” The court was thus persuaded that Mr. Demeritt’s symptoms did not warrant the work restrictions recommended by his treating doctors. Therefore, the court concluded Mr. Demeritt did not establish his entitlement to long-term disability benefits by a preponderance of the evidence. For these reasons, the court entered judgment in favor of Unum and affirmed its denial of benefits.

Ninth Circuit

Drake v. Lincoln Nat’l Corp., No. CV-22-08230-PCT-SPL, 2024 WL 2942695 (D. Ariz. Jun. 10, 2024) (Judge Steven P. Logan). Plaintiff Susan Drake stopped working and went on long-term disability benefits in the summer of 2020 due to a foot injury. Lincoln National Corporation, the administrator of Ms. Drake’s long-term disability policy, approved her claim for benefits and began issuing her payments. She then underwent foot surgery to treat the injury. Following the procedure, her surgeon concluded that the torn tendons had healed, and that Ms. Drake had recovered well and could return to work. At the same time, the surgeon noted that Ms. Drake had an underlying foot deformity which had likely caused the injury in the first place, and opined that the deformity may cause her continued pain and disability. Although the surgeon discussed additional surgery to correct the foot deformity, Ms. Drake declined to proceed with the reconstructive surgery at that time. Based on the treating doctor’s statements that the surgery was successful and Ms. Drake could resume work, Lincoln terminated her disability benefits. Ms. Drake initiated this action seeking a court review of Lincoln’s decision. In this ruling, the court reviewed the denial and upheld it under deferential review of the administrative record. The court commented on Lincoln’s structural conflict of interest and on certain procedural errors, including its failure to provide Ms. Drake with the correct phone number and its failure to wait for a response from her surgeon. However, the court only applied “a moderate amount of additional skepticism required by Defendants’ structural conflict of interest,” and expressed that it did not view the procedural violations to be wholesale, flagrant, or egregious. As for the denial itself, the court concluded that the medical record reflected improvement, given Ms. Drake’s post-surgery visit and the opinions of her surgeon that she had healed and was ready to resume working. Although the treating surgeon later clarified that he believed Ms. Drake remained disabled due to her foot deformity, the court nevertheless agreed with Lincoln that the doctor’s change in opinion without any support in the medical records or further visits did not require a finding of ongoing disability. Accordingly, the court found Lincoln’s denial reasonable and supported by substantial evidence. The court therefore affirmed Lincoln’s determination. Finally, the court addressed Ms. Drake’s statutory penalties claim for failure to provide a copy of her claim file. The court concluded that a claim file is not considered a plan document for the purposes of the relevant statute and therefore rejected Ms. Drake’s request for statutory damages.

ERISA Preemption

Third Circuit

Burns v. Cooper, No. 23-5090, 2024 WL 2980220 (E.D. Pa. Jun. 13, 2024) (Judge Juan R. Sanchez). In 2019, plaintiff Jamiylah Burns obtained a $75,000 judgment in Pennsylvania state court against her ex-husband, defendant Blakely Cooper, in a defamation action. Mr. Cooper has not paid anything on the judgment, and has claimed he is unable to do so. Mr. Cooper is a participant in the Pfizer Inc. 401(k) plan, so Ms. Burns brought this garnishment action to collect money held in the plan belonging to Mr. Cooper. Pfizer moved to dismiss the action for failure to state a claim upon which relief can be granted. The company argued that the funds are exempt from garnishment and execution under ERISA’s anti-alienation provision, Section 206(d)(1). The court agreed and granted the motion. While the court acknowledged that there are limited exceptions to the anti-alienation provision, it wrote, “the Supreme Court has made clear that approval of any generalized equitable exceptions to the anti-alienation provision are not appropriate.” Ms. Burns argued that Mr. Cooper’s 401(k) contributions were part of a fraudulent scheme to hinder payment to her, his creditor, and therefore a violation of Pennsylvania’s Uniform Voidable Transactions Act. The court however, stated that the Act defines “transfer” as modes of disposing or parting with assets or an interest in assets, and even assuming for argument’s sake the Act is not preempted by ERISA, Ms. Burns misunderstands the Act because Mr. Cooper is not parting or disposing of any assets, but rather transferring his own money from one place to another. Accordingly, the court concluded that Ms. Burns could not state a claim. “Nor does Burns qualify for relief under the Pennsylvania state provision governing exemptions of property of a judgment debtor from garnishment and attachment,” because, “in addition to the protection against garnishment and execution provided under ERISA, Cooper’s Pfizer 401(k) account is similarly exempt under § 8124 of Pennsylvania’s Title 42.” Based on the foregoing, the court agreed with Pfizer that Ms. Burns could not sustain any of her claims, and therefore granted its motion to dismiss. Finally, the court permitted Pfizer to file a motion for attorneys’ fees under ERISA Section 502(g)(1) and granted it leave to do so.

Sixth Circuit

Roberts v. Life Ins. Co. of N. Am., No. 24-27-DLB-CJS, 2024 WL 2980780 (E.D. Ky. Jun. 13, 2024) (Judge David L. Bunning). Plaintiff Patricia Roberts purchased life insurance policies for herself and her husband through her employer, Madonna Manor. The policies were insured by Life Insurance Company of North America (LINA). Ms. Roberts’ husband died in 2022, after which LINA paid only a fraction of the amount of benefits that Ms. Roberts thought she should receive. Ms. Roberts filed an action in Kentucky state court (Roberts I) alleging that LINA, Madonna Manor, and its parent company, CHI Living Communities, violated Kentucky state law. Defendants removed that action to federal court asserting ERISA preemption and federal question jurisdiction. Ms. Roberts argued that the plan is a church plan, exempted from ERISA. The presiding judge disagreed, found that the plan is governed by ERISA, and that the state law claims were preempted. However, because Ms. Roberts did not include ERISA claims in her original complaint, the court dismissed the action without prejudice, should she wish to amend her complaint to plead claims under ERISA. Instead, Ms. Roberts filed the instant action, again in state court. Defendants removed the action to federal court. Now they move to dismiss the state law claims and to strike Ms. Roberts’ jury trial demand. Both motions were granted in this order. First, the court agreed with defendants that the issue of whether the policy qualified for ERISA’s church plan exemption was already decided and re-litigation is barred under the doctrine of issue preclusion. It stressed that the court in Roberts I reached the merits of the issue of ERISA preemption in its order on the motions to dismiss and that the dismissal of the state law claims in Roberts I “constituted a final judgment on the issue of whether the church plan exemption applies to Plaintiff’s claims,” adding, “[t]his is a legal question, and no further amendments to the complaint would change this outcome.” Accordingly, the court reaffirmed the Roberts I rulings and dismissed the state law claims as preempted by ERISA. Thus, Ms. Roberts may proceed only on her ERISA causes of action. The decision ended with the court quickly granting the motion to strike the demand for a jury trial as Sixth Circuit precedent forecloses jury trials in ERISA benefit cases.

Ninth Circuit

Emsurgcare v. United Healthcare Ins. Co., No. 2:24-cv-03654-SB-E, 2024 WL 2892319 (C.D. Cal. Jun. 7, 2024) (Judge Stanley Blumenfeld, Jr.). Two emergency healthcare providers, plaintiffs Emsurgcare and Emergency Surgical Assistant (ESA), provided emergency healthcare in June of 2020 to a patient insured by defendant United Healthcare Insurance Company. Emsurgcare billed $60,000 for its services, and ESA billed $59,000 for the medical services it provided. United paid less than $1,700 on Emsurgcare’s claim, and nothing at all on ESA’s claim. The providers have been challenging United’s reimbursement determination ever since. In an earlier case, the two providers, along with the insured patient, filed a complaint in state court against the insured’s employer alleging claims for failure to pay benefits under ERISA and for quantum meruit. The employer removed that case to federal court. After removal, plaintiffs amended their complaint bringing the same two claims against United rather than the employer. The court then dismissed the amended complaint and gave plaintiffs another opportunity to amend. Rather than amend their complaint, plaintiffs voluntarily dismissed their claims without prejudice and then filed this new action in state court, without the patient, alleging only the state law quantum meruit claims against United. The new action was removed to federal court by United, which invoked both diversity and federal-question jurisdiction. The providers then moved to remand, and United moved to dismiss. In this decision the court granted plaintiffs’ motion to remand, concluding United failed to meet its heavy burden to show that the court has jurisdiction. First, the court concluded that it lacked diversity jurisdiction because the amount of damages for each plaintiff is less than $75,000. The court declined to aggregate the amounts of plaintiffs’ claims, stating that although they are closely related, they are distinct and independent of one another. Second, the court determined that the quantum meruit claims are not completely preempted, finding the second prong of the Davila preemption test dispositive. The court held that plaintiffs’ claims “unambiguously assert an entitlement to recovery that is based on an independent legal duty – namely, the obligation imposed by California’s Knox-Keene Act on ‘health care service plans’…to reimburse medical providers for the reasonable costs of emergency medical services.” This was true, the court held, notwithstanding the fact that plaintiffs could have also asserted their assigned ERISA rights. Thus, the court agreed with the providers that their complaint invokes a right to recovery based on an independent legal duty, meaning their quantum meruit claims are not completely preempted by ERISA. Accordingly, the court granted their motion to remand.

Exhaustion of Administrative Remedies

Second Circuit

Murphy Med. Assocs. v. 1199SEIU Nat’l Benefit Fund, No. 23 Civ. 6237 (DEH), 2024 WL 2978306 (S.D.N.Y. Jun. 12, 2024) (Judge Dale E. Ho). Plaintiffs Murphy Medical Associates, LLC, Diagnostic and Medical Specialists of Greenwich, LLC, and Steven A.R. Murphy initiated this action against the 1199SEIU National Benefit Fund seeking payment for COVID-19 testing. Originally filed in the District of Connecticut, this action was transferred to the Southern District of New York by virtue of the plan’s forum selection provision. After successfully obtaining a transfer, the benefit fund moved to dismiss the action, arguing among other things that the providers failed to exhaust administrative remedies before filing suit. The fund’s motion was granted by the court, without prejudice. Plaintiffs subsequently amended their complaint, and defendant once again moved for dismissal. In this decision the court granted the motion to dismiss, and this time dismissed plaintiffs’ action without leave to amend. The court agreed with the fund that plaintiffs failed to plausibly allege that they followed the plan’s procedures to exhaust administrative remedies prior to filing suit. While the court recognized that the failure to exhaust is an affirmative defense, it nevertheless found it clear, both from the face of the complaint and from plaintiffs’ arguments in response to defendants’ motion, that plaintiffs simply did not do so. Moreover, the court concluded that plaintiffs failed to make a clear and positive showing that exhaustion would be futile, particularly in light of the fact that many of their claims were in fact approved and reimbursed by the Fund. Given these circumstances, the court held that plaintiffs’ failure to follow the plan’s administrative appeals process prior to commencing civil litigation warrants dismissal. Finally, the court declined to permit the providers to amend their pleadings a second time, as it felt they failed to cure the original complaint’s deficiencies and because the providers “decline to explain how they intend to cure any deficiencies with their pleadings.” Therefore, the court did not see any value in permitting further opportunities to amend and concluded that doing so “is unlikely to be productive.” Accordingly, the case was dismissed with prejudice.

Medical Benefit Claims

Ninth Circuit

Oneto v. Watson, No. 22-cv-05206-AMO, 2024 WL 2925310 (N.D. Cal. Jun. 10, 2024) (Judge Araceli Martinez-Olguin). Plaintiff Roy J. Oneto is a former employee of a winery in Napa, California. While employed at the winery Mr. Oneto was a participant in his employer’s self-funded health benefit plan. Mr. Oneto was reliant on his health insurance to pay for two surgeries he needed to treat an esophageal medical condition called Zenker’s diverticulum. Defendant Cigna Health and Life Insurance Company administered the medical benefits for the welfare plan. Cigna covered the cost of Mr. Oneto’s first surgery. But when Mr. Oneto required a second surgery to treat the pouch remaining in his throat he encountered issues. Cigna declined the surgeon’s preauthorization request, concluding that the surgical procedure was not medically necessary and was experimental/investigational. Because medical coverage for the surgery was not approved prior to the date it was scheduled, Mr. Oneto had to cancel his procedure. Shortly thereafter, his employment at the winery ended. Eight months later, Oneto eventually underwent the revision surgery, with coverage for the procedure provided under a plan established by his new employer. In this action, Mr. Oneto brings claims arising from the denial of the surgery against Cigna, its affiliated management services company, Cigna Health Management, Inc., and the medical director for Cigna, Dr. Melvin Watson. In the operative complaint, Mr. Oneto includes ERISA claims for breach of fiduciary duties and failure to discharge duties under the plan, and state law claims for non-fiduciary violations under California insurance laws, as well as a state law medical negligence claim against Dr. Watson. Defendants moved to dismiss all the non-ERISA claims pursuant to Federal Rule of Civil Procedure 12(b)(6). Their motion was granted in this decision. The court first discussed the medical negligence claim. Mr. Oneto alleged that Dr. Watson negligently determined that his surgery was experimental and not medically necessary, which directly led to the determination that the surgery was not covered under the plan. Defendants argued that these allegations are completely preempted by ERISA. The court agreed. First, it found that Mr. Oneto could have brought a claim seeking benefits under the plan under ERISA Section 502(a)(1)(B) to challenge the denial. Second, the court determined that the medical negligence claim flowed directly from the plan as “Dr. Watson was a Cigna employee and was acting in that capacity when he asked to evaluate Cigna’s coverage position with respect to Oneto’s surgery.” Accordingly, the court disagreed with Mr. Oneto that his medical negligence claim arose independently of ERISA or the terms of his benefit plan, and therefore found that Mr. Oneto’s medical negligence claim satisfies both prongs of the Davila preemption test. The court then evaluated Mr. Oneto’s claims alleging non-fiduciary violations of California’s Health and Safety Code. It found that defendants are not subject to the sections of the Health and Safety Code that Mr. Oneto cites as the Cigna defendants are neither health maintenance organizations nor managed care organizations. The court noted that the plan is fully self-funded by the employer, and Cigna’s role in the plan is to administer the benefits. Accordingly, the court agreed with defendants that Mr. Oneto could not sustain his claims for violations of obligations arising under the Health and Safety Code because that code does not apply to them. Based on the foregoing, the court granted defendants’ motion to dismiss the non-ERISA causes of action.

Pleading Issues & Procedure

Third Circuit

Kayal v. Cigna Health & Life Ins. Co., No. 23-03808, 2024 WL 2954283 (D.N.J. Jun. 12, 2024) (Judge Jamel K. Semper). On June 28, 2022, patient John D. underwent surgery at Hudson Regional Hospital. The surgery was performed by one of Kayal Medical Group, LLC’s surgeons. At the time of the surgery John D. was insured through his employer, PMI Global Services, Inc., which sponsored a group healthcare plan administered by Cigna Health and Life Insurance Company. Kayal Medical Group billed Cigna $140,600 for the cost of the procedure, but Cigna reimbursed only $1,759.17. The provider appealed the reimbursement decision and then eventually initiated this action in state court. Cigna removed the case to federal court, and the provider filed an amended complaint as attorney-in-fact for John D. to recover the unpaid benefits under ERISA. Cigna moved to dismiss. It was undisputed that the plan contains an unambiguous anti-assignment provision foreclosing derivative standing. Nevertheless, plaintiff Robert Kayal contended that he has standing because John D. executed a valid power of attorney. However, the court ruled that Mr. Kayal’s standing argument failed because he did not provide evidence that the power of attorney was sufficient to confer standing, as the complaint “does not provide further details regarding the document, its execution, or relevant witnesses.” The court was further concerned that the individual who notarized the power of attorney was acting as both officer and witness. Finally, to the extent that the power of attorney purports to appoint Mr. Kayal the individual and Kayal Orthopedic Center as attorneys-in-fact, the court held that medical practices are not permitted to act as attorneys-in-fact as they are neither individuals nor qualified banks. Therefore, the court granted the motion to dismiss, but did so without prejudice.

Ninth Circuit

Duarte v. Russell Inv. Tr. Co., No. 2:21-cv-00961-CDS-BNW, 2024 WL 2957039 (D. Nev. Jun. 12, 2024) (Magistrate Judge Brenda Weksler). This is a breach of fiduciary duty class action challenging the investment strategies of a retirement plan. Before the court was plaintiffs’ motion for leave to file an amended complaint to reassert a previously dismissed co-fiduciary claim and to add two more plan participants as plaintiffs. The assigned magistrate judge recommended the motion be granted with respect to the addition of the two plaintiffs, but denied as to the co-fiduciary claim. The magistrate judge explained that the co-fiduciary claim was dismissed with prejudice and stated, “the Court plainly stated that under the statute, the ‘Caesars Defendant cannot be held liable for breaches of co-fiduciary duty.’” Accordingly, the magistrate concluded that the proper mechanism for seeking leave to amend the co-fiduciary claim is through a motion for reconsideration. The magistrate thus recommended denying the motion insofar as it sought to reinstate the co-fiduciary claim. However, the court saw no major prejudice to defendants in allowing plaintiffs to add two more plan members to their rank, given that their amendment was sought within the discovery period. The magistrate stated that adding the new plaintiffs would not burden defendants beyond requiring them to depose the two individuals. Thus, the magistrate recommended granting plaintiffs’ request to add the new plaintiffs.

Robertson v. Argent Tr. Co., No. CV-21-01711-PHX-DWL, 2024 WL 2977663 (D. Ariz. Jun. 13, 2024) (Judge Dominic W. Lanza). This putative class action alleges that Argent Trust Company violated ERISA in its administration of an employee stock ownership plan. In a previous order, the court granted defendants’ motion to compel arbitration and stayed the action during arbitration proceedings. Since then, the parties have provided the court with regular status reports and arbitration proceedings have commenced. Through the course of these proceedings, plaintiff Shana Robertson claims she has discovered the existence of eight additional defendants that she now wishes to sue. Her claims are governed by ERISA’s statute of repose, “must be asserted by June 14, 2024 or they will be time-barred,” and “although her initial plan was to wait until the conclusion of the arbitration proceedings to amend her complaint, unexpected delays in the arbitration process…have rendered that plan untenable, such that she must seek relief from the stay now.” Accordingly, two motions were before the court. Ms. Robertson moved to temporarily lift the stay and to file an amended complaint. The court granted both motions in this order. First, the court stated that other courts have granted requests to lift stays under very similar circumstances. Second, the court found that there was no bad faith or undue delay on Ms. Robertson’s part. Given these facts, the court concluded that leave to amend should be freely granted and that doing so serves the interest of justice. Finally, the court declined to engage with defendants’ futility arguments because Ms. Robertson has not yet had a chance to respond to them. Furthermore, she seeks to add new defendants, not new claims, and it is therefore “debatable whether the existing defendants even have standing to raise futility arguments in this scenario.” Accordingly, the court temporarily lifted its stay and granted Ms. Robertson’s motion for leave to file an amended complaint.

Tenth Circuit

R.L. v. Aetna Life Ins. Co., No. 2:23-cv-00494, 2024 WL 2941844 (D. Utah Jun. 11, 2024) (Magistrate Judge Daphne A. Oberg). In this action plaintiff R.L. and his son M.L. challenge Aetna Life Insurance Company’s denial of their claim for medical benefits under ERISA Section 502(a)(1)(B) and allege violations of the Mental Health Parity and Addiction Equity Act. R.L. is a participant of, and M.L. is a beneficiary of, a fully-insured group health plan administered by R.L.’s employer Justworks Employment Group LLC. Plaintiffs moved to amend their complaint to add Justworks as a defendant and to assert a new statutory penalties claim against it. Aetna opposed the motion, arguing that plaintiffs unduly delayed filing their new claim in order to increase statutory penalties. In addition, Aetna argued that the new claim is futile, and that plaintiffs failed to comply with local rules by not filing a redlined version of their proposed amended complaint. The court disagreed, and concluded that granting plaintiffs’ motion serves the interest of justice. First, the court differed with Aetna’s characterization of events. Rather than seeing plaintiffs’ delay as being motivated by bad faith, the court was receptive to plaintiffs’ argument that any delay in seeking amendment resulted from ongoing and good faith efforts to obtain all of the plan documents from Aetna and Justworks by other means. Therefore, the court held that Aetna did “not demonstrate undue delay, bad faith, or improper motive.” In addition, the court stated that it found “Aetna’s futility arguments more appropriately addressed in the context of dispositive motions.” Further, the court did not feel that Aetna would be prejudiced by amendment. On top of that, it was not clear to the court that amendment would cause any significant delay. Based on these factors, the court concluded that there was no justification to deny leave to amend. The court thus granted plaintiffs’ motion. Finally, the court stressed that the circumstances of plaintiffs’ noncompliance with the local rules did not justify deviating from its above conclusions, as plaintiffs quickly corrected their error by attaching a redlined version to their reply.

Severance Benefit Claims

Fifth Circuit

Ferris v. Blucora, Inc., No. CIVIL 4:23-CV-1018-SDJ, 2024 WL 2922401 (E.D. Tex. Jun. 10, 2024) (Judge Sean D. Jordan). Corporate shakeups are rattling for employees. Thus, companies will frequently create “change of control” severance plans in order to try to steady their workers through these types of turbulent situations. Such plans are designed to pay terminated employees severance benefits in the event of corporate changes, and incentivize them to stay with the company. In response to concerns about a potential hostile takeover, Blucora, Inc. enacted just such a plan, the Blucora, Inc. Key Leadership Change of Control Severance Plan. Plaintiff Charles W. Ferris III was the former vice president of strategy for the company. “As foreshadowed by the Plan, Blucora eventually experienced a Change of Control when it sold its tax-focused subsidiaries – TaxAct Holdings, Inc., TaxAct Admin Services LLC (‘New LLC’), and TaxSmart Research, LLC – to Franklin Cedar Bidco, LLC.” Mr. Ferris was given a new position at the new company. He alleges that this new position was not substantially comparable to his previous one with Blucora, because of what he viewed as the degradation of his role and a reduction in his compensation and benefits. Mr. Ferris claims that he is entitled to severance benefits pursuant to the plan. His claim for benefits was denied after the plan administrator disagreed that he had experienced a qualifying termination. After exhausting his administrative appeal, Mr. Ferris initiated this action pursuant to ERISA Sections 502(a)(1)(B) and (a)(3) seeking severance benefits under the plan. Defendants moved to dismiss. They argued that they did not abuse their discretion in denying the benefits and that their interpretation of the plan language was legally correct. The court agreed and granted the motion to dismiss with prejudice. “This case turns on whether the phrase ‘on terms and conditions substantially comparable’ modifies both ‘employment or reemployment’ and ‘an offer of employment.’” Ultimately, the court agreed with defendants that the qualification only applied “where an offer of employment was made – but not where employment occurred,” and “that the Plan Administrator correctly read the Plan to exclude from the definition of ‘Qualifying Termination’ instances where the Participant’s termination was ‘followed by employment…with the purchaser,’ regardless of whether the subsequent employment was ‘on terms and conditions substantially comparable’ to his or her previous employment. This reading accords with ordinary grammar usage and the canons of construction, and it is the most plausible interpretation of the provision.” Accordingly, the court dismissed the claim for wrongful denial of benefits. It likewise dismissed Mr. Ferris’ Section 502(a)(3) claim, as it found that Mr. Ferris abandoned his argument that Section 502(a)(1)(B) was inadequate to provide him relief. Therefore, the court agreed with defendants that the two claims were duplicative. Finally, the court denied Mr. Ferris leave to amend, writing that “no amendment could change the fact that the Plan Administrator correctly interpreted the Plan and that Section 502(a)(1)(B) provided an adequate remedy for Ferris’ only injury – not receiving benefits.”

Statutory Penalties

Ninth Circuit

Zavislak v. Netflix, Inc., No. 5:21-cv-01811-EJD, 2024 WL 2882564 (N.D. Cal. Jun. 7, 2024) (Judge Edward J. Davila). Plaintiff Mark Zavislak is a beneficiary of Netflix Inc.’s ERISA health benefit plan. This action arose after Netflix failed to furnish documents Mr. Zavislak requested in a satisfactory or timely fashion. Mr. Zavislak brought his case alleging Netflix violated various sections of ERISA, including, as relevant here, a claim under Section 104 for failure to produce plan documents. In his Section 104 claim, Mr. Zavislak requested penalties of $110 per day beginning on February 26, 2021, the date Netflix refused to furnish additional documents in response to his original January 2021 written request, up to the date of the court’s order. “Zavislak’s requested penalties would have been measured by approximately 1,069 days, resulting in an award of $117,590.” The case proceeded to trial. On January 31, 2024, the court issued its final decision. (Your ERISA Watch reported on this ruling in its February 7, 2024 edition.) The court ruled that Netflix was not required to furnish the additional documents related to plan administration that Mr. Zavislak requested, that when Netflix furnished the summary plan descriptions to Mr. Zavislak it furnished the most up-to-date versions, and that Netflix was indeed untimely in responding to and furnishing the requested documents within 30 days of January 4, 2021. However, the penalties awarded by the court for this violation did not come close to Mr. Zavislak’s request. The court exercised its discretion to award Mr. Zavislak $15 per day from January 4, 2021 to the date Netflix furnished the required plan documents on March 11, 2022, totaling 431 days, and an award of $6,465. The court reached this decision due in part to the exceptional circumstances of the COVID-19 pandemic. Netflix responded to the court’s order by filing a motion to amend the final order or for relief from judgment and a motion for leave to file a motion for reconsideration. The court denied Netflix’s motion for leave to file a motion for reconsideration because its findings of fact and conclusions of law were not an interlocutory order. Instead, the court considered Netflix’s motion to amend pursuant to Federal Rule of Civil Procedure 60. Netflix argued that the court erred in calculating penalties from January 4, 2021 to March 11, 2022, because the court found that Netflix supplied all documents required under ERISA on February 24, 2021. Thus, Netflix argued that if penalties are to be awarded, they should run from January 4, 2021 through February 24, 2021. The court agreed with Netflix on this identified inconsistency. “Although the crux of this case is Zavislak’s claim that the documents he received on February 24, 2021, were incomplete and out of date, the Court ultimately found that all documents furnished on February 24, 2021 were the most up to date versions in Netflix’s possession, and Netflix was not required to furnish the additional documents requested by Zavislak…In other words, the Court found that Netflix discharged its statutory duty regarding Zavislak’s January 2021 Request on February 24, 2021…While this date is still untimely…the correction of this error decreases the penalties calculations for 431 to 51 days.” Accordingly, the court amended its judgment to correct this error and recalculated damages to account for it. The new calculation of damages of $15 per day for these 51 days resulted in total damages of $765, down significantly from the court’s already modest $6,465 penalty. Netflix also advanced arguments for why it believed the award of penalties itself was erroneous, but the court rejected these arguments for various reasons. Accordingly, beyond amending the award of penalties, all other findings of fact and conclusions of law remained unchanged. One can only wonder how much time and money has been expended in the three years this case has been pending, all for $765.