For the second week in a row, no single decision struck us as worthy of the spotlight. Perhaps the courts, like much of the rest of America, were too exhausted by the heatwave to set any precedents or make any rash decisions. Still, ERISA enthusiasts should read on to learn about the use of proprietary investments in retirement plans, “a novel question” about forfeited employer contributions, the discriminatory termination of a CEO with Parkinson’s disease, and whether an underpaid healthcare provider can bring a single lawsuit involving 126 of its patients covered under 72 different health insurance plans relating to 291 different medical claims (spoiler: no).

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

Attorneys’ Fees

Eleventh Circuit

Ferguson v. PNC Fin. Servs. Grp., No. 2:19-cv-01135-MHH, 2024 WL 3015751 (N.D. Ala. Jun. 14, 2024) (Judge Madeline Hughes Haikala). In this decision the court ruled on class counsel’s requested attorneys’ fees of $2,033,332.13, which represented an award of one-third of the $6.1 million settlement fund. The decision began with the court noting that it received no objections to the requested fees and that defendant PNC did not take a position regarding the fee award. Nevertheless, the court stated that the absence of objections did not release it from its duty to assess the reasonableness of the fees or from its obligation to serve as a fiduciary for the class plaintiffs. Therefore, the court evaluated the reasonableness of the requested fee recovery pursuant to Federal Rule of Civil Procedure 23(h). Class counsel asserted that they devoted nearly 6,000 hours working on this action and “that the claims in this case concern complicated ERISA issues.” Moreover, the attorneys attested that they took the case on a contingency basis, and therefore assumed significant risk litigating this matter. Finally, counsel focused on their expertise, knowledge, and “considerable experience handling complex ERISA class litigation.” Factoring all of this in, the court concluded that “30% is a reasonable percentage to apply to the Common Fund to assess Class Counsel’s fee in this case.” Accordingly, the court awarded fees in the amount of $1,830,000.

Breach of Fiduciary Duty

Ninth Circuit

Hutchins v. HP Inc., No. 23-cv-05875-BLF, 2024 WL 3049456 (N.D. Cal. Jun. 17, 2024) (Judge Beth Labson Freeman). Recently, Your ERISA Watch has spotted a new species of cases centering on the use – or is it the misuse? – of forfeited employer contributions. We covered two such cases (Yagy v. Tetra Tech, Inc. and Perez-Cruet v. Qualcomm Inc.) in our June 5, 2024 newsletter. These lawsuits ask “a novel question: Whether and under what circumstances is a plan administrator’s decision to use ‘forfeited’ employer contributions to a retirement plan to reduce employer contributions rather than to pay administrative costs” a violation of ERISA? Here, plaintiff Paul Hutchins, a participant of the HP Inc. 401(k) plan, alleges that defendants HP and the HP Inc. Plan Committee have used forfeited matching contributions solely to reduce the expense of company contributions to the plan. He maintains that this decision is a violation of ERISA. On November 14, 2023, Mr. Hutchins, on behalf of a putative class of plan participants and beneficiaries, commenced this action challenging defendants’ use of the forfeited assets. In his lawsuit Mr. Hutchins asserts six causes of action under ERISA; (1) breach of the fiduciary duty of loyalty; (2) breach of the fiduciary duty of prudence; (3) breach of ERISA’s anti-inurement provision; (4) prohibited transactions with parties in interest; (5) prohibited transactions by the fiduciary dealing in plan assets in its own interest; and (6) failure to monitor fiduciaries. Defendants moved to dismiss the complaint. Their motion was granted, without prejudice, in this order. To begin, the court considered defendants’ argument that settled law expressly allows the use of forfeited employer contributions to reduce future employer contributions. First, the court agreed with Mr. Hutchins that IRS code Section 1.401-7(a) does not apply to defined contribution pension plans under ERISA, “a point that the Treasury Department has made clear in a subsequent revenue ruling.” Second, the court said that a proposed non-binding regulation from the Treasury Department did not foreclose Mr. Hutchins’ theory of liability as a matter of law. Next, the court found that defendants were acting as fiduciaries, rather than settlors, when deciding how to utilize the forfeited funds in the plan. The court understood this to be an implementation decision exercising control over plan assets, rather than a question of plan design, and therefore fiduciary in nature. Mr. Hutchins began running into problems when the court began evaluating his claims. It started with the breach of fiduciary duty claims. The parties agreed that the plan terms allow defendants to reduce employer contributions by using forfeited contributions. However, Mr. Hutchins avers that the use of these funds in this way is a breach under ERISA, meaning the plan terms are themselves in violation of the statute. The court noted that there is no binding authority addressing this theory, and nodded to Perez-Cruet as the only decision addressing a similar theory. To the court, the problem with Mr. Hutchins’ theory of liability was its “broad reach.” As the Supreme Court has stressed, ERISA fiduciary breach actions are “context specific.” Here, the court saw the allegations as “not limited to any particular circumstances that may be present in this case.” The court went on, “As pled, Plaintiff’s theory would require any fiduciary to use forfeited amounts to pay administrative costs regardless of any such context or circumstances. This broad allegation is implausible because it would improperly extend ERISA beyond its bounds and would be contrary to the settled understanding of Congress and the Treasury Department regarding defined contribution plans like the one at issue in this case.” The court noted that such a ruling would require in essence the creation of a benefit, i.e. payment of administrative costs, that the plan does not provide, which is beyond the scope of ERISA and not essential to its goal of protecting benefits. In sum, the court found “it is neither disloyal nor imprudent under ERISA to fail to maximize pecuniary benefits.” In the decision’s next section the court outlined why it does not believe the use of surplus plan assets is a violation of ERISA’s anti-inurement provision. The court did not feel that, even assuming participants in defined contribution plans have a right to contributions, they also have a right to forfeited amounts from the accounts of other participants. Thus, the court broadly rejected the idea that the forfeited contributions were plan assets to which “any participant is entitled.” Importantly, Mr. Hutchins did not allege that HP failed to meet its obligations to provide matching contributions to the plan. Therefore, the court found it implausible that the forfeited amounts inured to the benefit of HP. The court also dismissed the prohibited transaction claim because the Supreme Court has held that the payment of benefits is not a transaction under the prohibited transaction provision. Finally, the court dismissed the derivative duty to monitor claim. However, because of the novel nature of this action, the court stated that amendment may not be futile, and therefore granted Mr. Hutchinson leave to amend his complaint to address the deficiencies it identified in this order.

Mattson v. Milliman Inc., No. C22-0037 TSZ, 2024 WL 3024875 (W.D. Wash. Jun. 17, 2024) (Judge Thomas S. Zilly). Plaintiff Joanna Mattson, individually and on behalf of a class of participants of the Milliman, Inc. Profit Sharing and Retirement Plan, alleges that Milliman, Inc., its board of directors, and the plan’s committee breached their duties of prudence, loyalty, and monitoring under ERISA by including three proprietary funds in the plan: the Unified Trust Wealth Preservation Strategy Target Growth Fund, the Unified Trust Wealth Preservation Strategy Target Moderate Fund, and the Unified Trust Wealth Preservation Strategy Target Conservative Fund. The court held a bench trial in April, and in this order it entered its findings of fact and conclusions of law. The Wealth Preservation Strategy (WPS) Funds “are a suite of investment funds that seek to preserve capital and guarantee investors specified levels of risk through the application of a hedging strategy known as the Milliman Managed Risk Strategy.” The WPS Funds began underperforming in the fourth quarter of 2014, when the markets experienced a quick downturn, followed precipitously by an upturn (referred to as a “v-shaped market”). The v-shaped market caused things to go pear-shaped. The funds’ proprietary hedging strategies lagged behind the market recovery, meaning the WPS Funds stayed at the bottom of the v longer than their peers. While the markets were rebounding quickly, the WPS Funds had lower net equity positions because it took time for their hedging strategies to be removed. They therefore experienced “less upside capture.” This was particularly true of the growth fund. It was affected more by the recovery lag than moderate and conservative funds “because its equity allocation is higher.” And at that time, the growth fund was the default investment option in the plan. Thanks to the underperformance of the funds, which would continue for the next five years, the committee placed the funds on a watchlist and, after some time, changed the plan’s default investment option. The WPS Funds, however, were never removed from the plan, although they were eventually removed from the watchlist. Importantly, not only were the WPS Funds proprietary Milliman offerings, but both the trustee and the fund advisor were wholly-owned subsidiaries of Milliman. Ms. Mattson’s expert estimated that retaining the funds in the plan caused losses of over $54 million throughout the class period. Ultimately, the court disagreed. It concluded “the record simply does not support Mattson’s contention that the WPS Funds caused the Plan to suffer losses.” For a number of reasons, the court found that Ms. Mattson failed to establish either a procedural or substantive breach of the duty of prudence as “she has not shown that Milliman’s processes were unreasonable or that the WPS Funds were imprudent investments.” Ms. Mattson argued that the board did not engage in a prudent process to oversee and monitor the funds because it chose to delegate monitoring responsibilities to the committee while retaining for itself decision-making authority for the plan. But the court saw the advantages to the separation of responsibilities between the board and the committee. It wrote that defendants’ chosen structuring of assignments “enabled a group dedicated to monitoring tasks, i.e., the Committee, to engage in more careful, detailed, and frequent analyses than was possible for the Board.” Further still, the court noted that limiting the committee’s power afforded checks and balances “lest the Committee…have too myopic a view.” Therefore, the court held that this division of labor between the committee and board was consistent with, if not above and beyond, industry standards, and thus concluded that “the hallmarks of procedural prudence are present.” Additionally, the court was satisfied that a hypothetical prudent fiduciary would have reached the same decisions to retain the WPS Funds despite their five-year underperformance because that decision was “consistent with their long-term investment strategies designed to limit volatility and provide protection against losses in down markets.” As the court noted, “amidst the market downturns in 2020 and 2022, the WPS Funds have proven that they serve the purposes for which they were added to the Plan, protecting investors from experiencing large losses during periods of high volatility, while outpacing or closely tracking the performance of peer group funds.” Accordingly, the court concluded that Ms. Mattson failed to prove that retaining the funds was imprudent. Turning to the claims of disloyalty, the court found that Ms. Mattson could not establish that “Milliman acted with anything other than the best interests of Plan participants in mind.” It highlighted defendants’ choice to waive fees for the WPS Funds, the steps defendants took to mitigate conflicts, and the fact that the committee “did not hesitate” to designate a new investment option as the plan’s qualified default investment but did hesitate to remove the WPS Funds from the watchlist. Taken together, the court found these facts dispositive. Finally, because the court determined that Ms. Mattson failed to show any imprudence or disloyalty, it concluded that her derivative failure to monitor claim likewise failed. Thus, Ms. Mattson was unsuccessful and judgment was entered in favor of defendants on all claims.

Discovery

Sixth Circuit

First v. J&C Ambulance Servs., No. Civil Action 2:22-cv-3296, 2024 WL 3082640 (S.D. Ohio Jun. 21, 2024) (Magistrate Judge Kimberly A. Jolson). This is a Consolidated Omnibus Budget Reconciliation Act (COBRA) case revolving around a gap in the plaintiffs’ health insurance coverage. The plaintiffs bring claims under ERISA, FMLA, and Ohio disability discrimination law. At issue here was a discovery dispute between the parties. Specifically, defendant J&C Ambulance Services, Inc. moved to compel full and complete discovery responses and to compel plaintiffs to provide signed authorizations for the release of medical and billing records, as well as records related to any workers’ compensation claims. Although the plaintiffs acknowledge that much of the information J&C seeks is discoverable, they broadly opposed signing the releases and authorization forms, and argued that being compelled to provide signed authorizations is not required by the Federal Rules of Civil Procedure. The court began its discussion with the relevance of the records J&C sought. It went through each topic of documents – medical records, billing information, insurance records, and workers’ compensation records – and found the requests sufficiently narrow and the records relevant and discoverable under Rule 26. However, on certain matters the court was unclear whether plaintiffs had already produced all of the relevant documents and therefore instructed the parties to meet and confer on these issues. The court then addressed plaintiffs’ argument against the signed authorizations themselves. It noted that although plaintiffs are correct that the Federal Rules of Civil Procedure do not specifically authorize such relief, it stated that just because Rule 34 does not mandate releases does not preclude them altogether. Indeed, in some cases, this one included, the court viewed the use of releases to obtain medical records directly from healthcare providers to be “the most efficient and economical way…to obtain those records.” The court viewed plaintiffs’ proposed six-step solution as impractical and overly time consuming, particularly in light of the fact that they have failed to produce the records to date and the case has been pending for almost two years already. “It is clear the parties cannot make progress until J&C is in possession of the discoverable records. An efficient and economical solution is necessary and urgent at this point.” Accordingly, the court granted defendant’s motion to compel plaintiffs to sign the authorization forms. Nevertheless, the court was open to putting certain guardrails in place to protect the plaintiffs. It ordered the parties to discuss conditions such as defendants giving plaintiffs notice when they use the authorizations, producing copies of every document and record they receive from the healthcare providers, and certifying they are not withholding any documents received by the use of the authorizations.

Life Insurance & AD&D Benefit Claims

Second Circuit

Kyi v. 4C Food Corp., No. 22-CV-6301 (PKC) (LB), 2024 WL 3028954 (E.D.N.Y. Jun. 17, 2024) (Judge Pamela K. Chen). This case presents a series of very unfortunate circumstances beginning in 2019 when decedent Tun Win was diagnosed with severe early onset dementia and major neurocognitive disorder at just 51 years old. His wife, plaintiff Khin San Kyi, is a Burmese immigrant with limited English proficiency. In the midst of dealing with this terrible illness, Mr. Win requested Family and Medical Leave Act (FMLA) leave with his employer, 4C Foods Corp. 4C approved the FMLA leave. While Mr. Win while still on FMLA leave, his employer wrongly informed the Teamsters Local 277 Welfare Fund that Mr. Win “recently resigned.” Things went from bad to worse when the Fund sent a letter to the family informing Mr. Win that his employee benefits were cancelled and that he had 60 days to convert his group life insurance policy to an individual policy. This letter was mailed to an old address. Mr. Win and Ms. Kyi never received it. Ms. Kyi learned in the coming months that her husband’s illness was terminal. She then attempted to communicate with the Fund to inquire about Mr. Win’s benefits, but the Fund could not provide her with an interpreter who spoke her language. Months later, Ms. Kyi found a social worker who could translate for her and at this time she finally learned that Mr. Win’s benefits under the Fund had already been terminated months before. In response, Ms. Kyi hired an attorney to assist her in retaining life insurance coverage through the Fund in accordance with a waiver of premium total disability benefits. These benefits were denied because they required continuous disability benefits for nine months, and Mr. Win’s benefits had been cancelled before he had been totally disabled for nine continuous months. In April 2020 Mr. Win died. Ms. Kyi applied for life insurance benefits, but her claim was denied. She completed the administrative appeals process before bringing this pro se action on October 14, 2022 against 4C Foods, the Fund, and Amalgamated Life Insurance Company alleging claims for wrongful denial of benefits and breach of fiduciary duty under ERISA, promissory estoppel, interference with FMLA rights, and breach of contract. Defendants moved to dismiss. First, the Fund moved to dismiss for lack of subject matter jurisdiction. It argued that Ms. Kyi lacked Article III standing to sustain her claims. The court disagreed in part: “Though the Welfare Fund was not the entity responsible for paying out death benefits pursuant to the Policy, the Welfare Fund’s actions were fairly traceable to Plaintiff’s injury.” However, the court ultimately agreed with the Fund that Ms. Kyi did not have standing to bring claims against it because it cannot redress her injury due to insolvency. “As the Complaint itself alleges, due to ‘serious cashflow problems,’ the Welfare Fund ceased providing benefits as of June 2019. And on December 31, 2021, the Welfare Fund and the trust agreement that initially created it were both fully and finally dissolved.” Accordingly, the court recognized that the Fund has no money to pay a judgment even if the court issued one. Thus, the court concluded Ms. Kyi’s injuries could not be redressed by a favorable decision. As a result, all claims against the Fund were dismissed. This meant that Ms. Kyi’s benefits claim and her breach of fiduciary duty claim under ERISA were both dismissed, as they were only asserted against the Fund. The promissory estoppel claim asserted against the insurance company was also dismissed because the complaint did not allege that the insurer ever made any promise or engaged in any intentional inducement or deception. The FMLA interference claims were dismissed as well because Mr. Win received the maximum twelve weeks of leave allowed. Finally, the breach of contract claim was found to be preempted by ERISA. Accordingly, the court dismissed the entirety of Ms. Kyi’s action.

Medical Benefit Claims

Second Circuit

Kwasnik v. Oxford Health Ins., No. 22-CV-4767 (VEC), 2024 WL 3027924 (S.D.N.Y. Jun. 17, 2024) (Judge Valerie Caproni). In 2017, when she was 37 years old, plaintiff Fiana Kwasnik froze her eggs. She paid for the procedure herself. Years later, in 2021, Ms. Kwasnik wanted to get pregnant. At this time, she was a participant in an ERISA-governed healthcare plan insured by defendant Oxford Health Insurance, Inc. Ms. Kwasnik sought coverage for three procedures: (1) retrieval of more eggs (2021 retrieval); (2) fertilization of both oocytes that had been retrieved in 2017 and in 2021 through a process called intracytoplasmic sperm injection (ICSI); and (3) genetic testing on any resulting embryos. The plan expressly provides coverage for three cycles per lifetime of in vitro fertilization (IVF) and embryo storage for the treatment of infertility. In addition, New York law mandates that health insurance plans cover three rounds of IVF. Ms. Kwasnik’s claims for all three services were denied by Oxford. Oxford determined that none were medically necessary under the terms of the plan. It concluded that a new round of egg retrieval was not medically necessary at that time because Ms. Kwasnik had viable eggs from 2017. The denial specified that Ms. Kwasnik could undergo new egg retrievals (a maximum of three) if she could not successfully become pregnant from implantation of the 2017 eggs. In addition, the plan denied coverage for the ICSI method of implantation of the 2017 embryos and the genetic testing of the embryos because neither Ms. Kwasnik nor her partner had a genetic condition or abnormal genes. Ms. Kwasnik challenged the denial of benefits for her fertility treatments in this action. The parties filed cross-motions on the one remaining cause of action under Section 502(a)(1)(B). In this decision the court granted judgment to Oxford under arbitrary and capricious review. At the outset, the court disagreed with Ms. Kwasnik that the denial of her claims should be reviewed de novo because Oxford violated the Department of Labor’s claims procedures. First, the court stated that Ms. Kwasnik did not include the letter she claims she sent Oxford requesting documents in the administrative record. “Because there is no evidence in the record that Plaintiff ever requested her claim file, Plaintiff has not made an initial showing that Oxford violated this regulation.” Second, the court concluded that Ms. Kwasnik’s assertions that Oxford failed to consider information she submitted in support of her appeal, and that it retained the same doctors to review the appeal as those who denied the claim, were factually inaccurate. For these reasons, the court reviewed the denials under the abuse of discretion standard in light of the grant of discretionary authority. Under the highly deferential review standard, the court could not say that the denials were an abuse of discretion. It found that the plan was not violating ERISA’s or New York’s mandates by denying coverage of a fresh egg retrieval while viable eggs existed from the 2017 retrieval. In addition, the court agreed with Oxford that substantial evidence supported its medical necessity conclusions with regard to the ICSI implantation and genetic testing of the embryos. Accordingly, the court upheld the denials and granted judgment in favor of Oxford.

Pension Benefit Claims

Second Circuit

Purcell v. Scient Fed. Credit Union, No. 3:22-CV-961 (VDO), 2024 WL 3059640 (D. Conn. Jun. 20, 2024) (Judge Vernon D. Oliver). Plaintiff David Purcell was the Chief Executive Officer of Scient Federal Credit Union (SFCU) from June 2015 to March 2020. Because of his employment and position, Mr. Purcell participated in a “split dollar” retirement plan. Mr. Purcell was the sole participant in the plan, and SFCU’s board of directors was the plan’s designated administrator and fiduciary. How the plan works is a bit complicated. SFCU took out a life insurance policy on Mr. Purcell and paid premiums on the policy. SFCU will be paid back out of the death benefit for the premiums it paid plus interest when the proceeds are eventually paid. Mr. Purcell is entitled to borrow under the plan upon reaching retirement age or, as relevant here, in the event Purcell is terminated due to a disability. The plan defines disability as the Social Security Administration determining that Mr. Purcell is totally disabled. Finally, the plan outlines its vesting schedule and the dates the benefits vest, increasing in 33% intervals from 0-100%. In 2017, Mr. Purcell disclosed to the company that he had been diagnosed with Parkinson’s disease. Over the next three years his disease progressed with “increasing expression of the symptoms,” evident to those around him. SFCU began looking for a successor CEO while Mr. Purcell’s disorder progressed. On March 16, 2020, SFCU terminated Mr. Purcell, stating, “We are going in a different direction.” Mr. Purcell applied for benefits under the plan. He maintained that he is entitled to 100% of vested benefits, as he was fired as a result of his disability. SFCU denied the claim, asserting that Mr. Purcell was only vested in one-third of the annual borrowing cap. Notably, SFCU’s termination occurred shortly before Mr. Purcell’s vesting, regardless of disability, was scheduled to rise from 33% to 67%. Mr. Purcell received a diagnosis of total disability from the Social Security Administration, and with the help of his attorney, appealed the adverse benefit determination. Although it had ample opportunity to do so, SFCU did not respond to Mr. Purcell’s notice of claim by the due date. In this action, Mr. Purcell seeks a court order overturning SFCU’s decision. He asserted claims under Sections 502(a)(1)(B) and (a)(3). On July 21, 2023, Mr. Purcell moved for summary judgment on his benefits claim. His motion was granted in this order. Before doing anything else, the court decided that de novo review was applicable. It stated that the plan did not clearly grant discretionary authority and defendants failed to comply with the Department of Labor’s claims procedure regulations. The court then found that the administrative record showed that Mr. Purcell’s employment was terminated because of his disability. Under the McDonnell Douglas burden-shifting framework, the court was satisfied that Mr. Purcell established a prima facie case of unlawful termination. The court held that Mr. Purcell had a disability as defined by the plan, that he was qualified for his position, and that the sequence of events leading up to and the timing of Mr. Purcell’s termination gave rise to an inference of discrimination. In light of the fact that Mr. Purcell was terminated while his disease was progressing, and given the timing of the termination just months before benefits would have vested, resulting in substantial cost savings for the company, the court was satisfied that Mr. Purcell showed discriminatory intent. Further, the court held that SFCU failed to produce any admissible evidence to articulate a legitimate non-discriminatory explanation for the decision to terminate Mr. Purcell. Thus, the court said, “there is no basis in the administrative record for a factfinder to conclude that there was any other reason for the termination.” Accordingly, the court granted Mr. Purcell judgment in his favor, and as a result, the denial of his benefit claim was vacated and Mr. Purcell was awarded benefits, plus prejudgment interest.

Pleading Issues & Procedure

Third Circuit

Carr v. Abington Mem’l Hosp., No. Civil Action 23-1822, 2024 WL 3032893 (E.D. Pa. Jun. 17, 2024) (Judge Harvey Bartle III). Plaintiff Alice Carr filed this action alleging she is due pension benefits under the Thomas Jefferson University Defined Benefit Plan pursuant to Section 502(a)(1)(B), and that Thomas Jefferson University, as administrator of the plan, withheld documents from her in violation of Section 502(c)(1). Thomas Jefferson did not file an answer to Ms. Carr’s complaint until five-and-a-half months after it was due under the court’s scheduling order. Given this delay, Ms. Carr moved to strike Thomas Jefferson’s untimely answer to her complaint. In this decision the court denied her motion. It concluded that the tardiness in filing was the result of excusable neglect. “Defendants’ untimely filing, as candidly stated by their attorney, was a result of his honest oversight. At the time the answer was due, he was out of the office because he was recovering from COVID-19. When he returned to the office, he neglected to follow up. There was certainly no bad faith.” Moreover, the court found that Ms. Carr was not prejudiced by the delay, that the delay had little judicial impact, and no costs were incurred as a result of it. Based on the foregoing, the court did not feel it was right to grant the motion to strike defendants’ untimely answer to the complaint.

Tenth Circuit

Finley v. Reliance Standard Life Ins. Co., No. CIV-23-967-PRW, 2024 WL 3013841 (W.D. Okla. Jun. 14, 2024) (Judge Patrick R. Wyrick). In 2007, plaintiff Jill Finley suffered a hypoxic brain injury and was in a coma for several weeks. Miraculously, Ms. Finley regained consciousness, but the brain injury caused lasting and likely permanent effects. As a result, Ms. Finley has been receiving long-term disability benefits ever since under a policy provided by Reliance Standard Life Insurance Company. This action arises from events that occurred in 2022 and 2023. First, on April 14, 2022 Reliance Standard terminated Ms. Finley’ benefits. In response, Ms. Finley hired the law firm of Durbin, Larimore & Bialick to assist her in overturning this decision. The law firm did just that. In January 2023, Reliance reversed its decision and reinstated Ms. Finley’s benefits. Counsel requested that Reliance pay attorneys’ fees and costs associated with preparing and filing a request for review of the termination decision. Reliance declined to do so. Then in April 2023, Ms. Finley filed a request for financial hardship relief under the plan, requesting reimbursement of deductions made by Reliance Standard based on her receipt of Social Security disability benefits. Reliance denied that request as well, prompting this action wherein Ms. Finley alleged claims under ERISA Sections 502(a)(1)(B) and (a)(3) stemming from the harm of Reliance’s refusal to pay attorneys’ fees and its deductions of Social Security disability benefits from her monthly long-term disability payments. Reliance moved to dismiss for failure to state a claim. Its motion was granted and the action was dismissed with prejudice. First, the court concluded that Ms. Finley’s request for attorneys’ fees relating to pre-litigation administrative appeals proceedings “are not compensable under ERISA, even in the form of an equitable surcharge.” The court emphasized that Section 1132(g) omits any reference to fees incurred during administrative proceedings, and stated that “legislative choice must be given effect.” Therefore, the court held that Ms. Finley could not state a claim for relief under either Section 502(a)(1)(B) or (a)(3) for attorneys’ fees and costs associated with pre-litigation work. Next, the court concluded that Ms. Finley could not sustain her claims based on the deductions because Reliance’s deduction of Social Security disability benefits from Ms. Finley’s monthly long-term disability payments “was and is in accord with the terms of the benefit plan, not a breach of fiduciary duty.” Therefore, the court agreed with Reliance that Ms. Finley failed to plausibly plead a claim relating to the benefit deductions. Finally, the court dismissed claims based on Reliance’s failure to provide requested documents in the course of the administrative appeal because “no concrete harms result[ed] from these alleged breaches.” The action was therefore dismissed, and because the court concluded that amendment would be futile, dismissal was with prejudice.

Provider Claims

Second Circuit

Gordon Surgical Grp. v. Empire Healthchoice HMO, Inc., No. 1:21-cv-4796-GHW, 2024 WL 3012637 (S.D.N.Y. Jun. 12, 2024) (Judge Gregory H. Woods). The plaintiffs in this action are three small affiliated surgery practices which provided healthcare services to 126 patients covered under 72 different health insurance plans insured by defendant Empire Healthchoice HMO, Inc. In their lawsuit, the providers allege federal and state law causes of action, including claims under ERISA, seeking over $1 million in reimbursement of charges for 291 medical claims. The imbalance between the parties is striking. The plaintiff providers are now out of active practice, “in part, due to Empire’s failure to make payment for their services,” while Empire is “a multi-billion dollar company.” The surgery practices argued that Empire’s denials and nonpayment for claims were done broadly and commonly, and that many of the plans at issue “include substantially similar or identical boilerplate provisions utilized by Empire nationwide.” They therefore contend that their claims are properly joined together into this single action. However, as our readers likely know, ERISA was not designed with healthcare providers in mind, and it has therefore never functioned particularly well for them. It is unsurprising then that the plaintiffs here have faced difficulties in proceeding with their action. Their case was dismissed previously by the court without prejudice. When the court granted plaintiffs’ motion for leave to amend, it was concerned that plaintiffs’ claims had been improperly joined into a single action. Therefore, the court issued an order to show cause why it “should not dismiss all claims except those by a single plaintiff involving one singular ERISA healthcare plan, without prejudice to refiling each of Plaintiffs’ claims involving different health insurance plans in separate civil actions.” Plaintiffs responded and argued why they believed misjoinder of parties did not apply and why filing new lawsuits would frustrate them and not promote judicial economy. The matter was assigned to a magistrate judge who issued a report and recommendation recommending plaintiffs be permitted to replead and include claims with common plan terms and overlapping witnesses. Empire objected to the magistrate’s report and proposed narrowing it further to apply only to plans of the same employer/plan sponsor issued the same year. In this decision the court agreed with Empire and narrowed the subset accordingly. It concluded that permitting joinder of only claims involving one singular ERISA healthcare plan in a singular year “will better serve the interests of judicial economy, as well as ensuring that the surviving claims are logically related – involving the same transaction or occurrence, or common questions of law or fact.” The court acknowledged the burden its decision will place on the plaintiffs, including the fact it will force them to file nearly 50 different lawsuits, but nevertheless stressed that civil litigants are not permitted “to glom together numerous disparate claims just because it saves them money. The Federal Rules of Civil Procedure apply notwithstanding any party’s financial means.” While the court noted that it viewed the magistrate’s proposal as thoughtful, considered, and well-reasoned, it nevertheless agreed with Empire that the report rested on a faulty assumption that “the plan terms would remain the same from year to year.” The court further feared that adopting the magistrate’s proposed approach would prolong litigation and determined that narrowing the scope of the joined claims further would permit it to adequately examine questions of exhaustion, standing, and timeliness. Thus, the court concluded that plaintiffs could not consolidate their 291 claims into a single federal action and stated that any fallout from the ruling is fundamentally a result of their own “strategic decision to improperly join disparate claims – not the fact that their effort was uncovered.”

Ninth Circuit

The Discovery House LLC v. Cigna Corp., No. 2:22-CV-1418-DOC-JDE, 2024 WL 3086554 (C.D. Cal. Jun. 12, 2024) (Judge David O. Carter). Four out-of-network substance use disorder treatment providers and clinical laboratories bring this action against Multiplan Inc., Viant, Inc., Cigna Corporation, Cigna Health and Life Insurance Company, Connecticut General Life Insurance Company, Cigna Behavioral Health, Inc., and Cigna Health Management, Inc. for failure to fully reimburse claims for healthcare treatment. In the operative complaint plaintiffs assert seven causes of action; (1) claims for plan benefits under ERISA Section 502(a)(1)(B); (2) breach of written contract; (3) breach of implied covenant of good faith and fair dealing; (4) breach of implied contract; (5) breach of oral contract; (6) promissory estoppel; and (7) unfair competition. Defendants moved to dismiss. Their motion was granted in part and denied in part in this order. The court began with the ERISA benefit claims. It held that plaintiffs have standing as assignees of their patients, that Multiplan is a proper ERISA defendant because plaintiffs alleged that it was exercising fiduciary authority over benefit determinations, that plaintiffs properly alleged breach of plan terms and that they were underpaid benefits owed under the plan, and that exhaustion would be futile. The court therefore entirely denied the motion to dismiss the ERISA claims. Next, the court concluded that plaintiffs plausibly alleged their breach of express written contract claim. It stated the complaint plausibly alleges that a contract existed, the providers performed and honored the terms of the contract, the defendants breached the contract by not paying according to the promised rates, and that the providers suffered a loss as a result of the alleged breach. However, the court dismissed the claims for breach of the implied covenant of good faith and fair dealing, breach of implied contract, and breach of oral contract, finding them redundant of, and overlapping, the breach of contract claim. As for the promissory estoppel claim, the court found that plaintiffs adequately alleged a clear and unambiguous promise and assurance that defendants would pay. Therefore, the court denied the motion to dismiss the promissory estoppel claim. Plaintiffs’ last claim for violation of California’s Unfair Competition Law was dismissed, however, as the court determined that the equitable relief plaintiff sought is “secured through [their] other causes of action.” Finally, to the extent plaintiffs’ state law claims relate to health insurance plans governed by ERISA, the court noted plainly that they are preempted by ERISA and thus dismissed them with prejudice.