Smith v. UnitedHealth Grp., No. 23-2369, __ F. 4th __, 2024 WL 3321646 (8th Cir. Jul. 8, 2024) (Before Circuit Judges Colloton, Erickson, and Kobes)

Cross-plan offsetting is a controversial practice – sometimes referred to as “self-help” for third-party administrators of healthcare plans and, alternatively, “robbing Peter to pay Paul” – to which plan participants, healthcare providers, and the Department of Labor alike have objected. It is in the spotlight this week in an Eighth Circuit decision giving the green light to UnitedHealth Group Inc. (“United”) to utilize this practice, at least where it is expressly contemplated by the plan.

According to the Eighth Circuit, United administers both fully insured healthcare plans and self-funded plans and utilizes cross-plan offsetting with respect to both types of plans to recoup claimed overpayments to medical providers. It does so by offsetting the amount due to that provider after a participant in any United-administered healthcare plan obtains services from that medical provider. In other words, if United later decides that it as overpaid a provider with respect to medical benefits for a participant in Plan A, it reduces the amount it pays that provider for medical services to a participant in Plan B.  

Plaintiffs Rebecca Smith and Cristine Ghanim were participants in two separate self-funded healthcare plans, each of which had provisions in the governing summary plan description expressly permitting United to recoup overpayments through cross-plan offsets and delegating to United discretion in deciding how to implement cross-plan offsets. After both plaintiffs underwent medical procedures covered under their plans, United decreased the amount it paid to the providers for these procedures by several thousand dollars, claiming that it had previously overpaid these providers for services to other participants in other plans. Ms. Smith and Ms. Ghanim claimed they were liable to their providers for the unpaid amounts and that decreasing the amount it paid to their providers benefited United in a direct financial sense. They brought suit claiming that United violated its duties of prudence and loyalty as an ERISA fiduciary through these cross-plan offsets.    

The district court determined that neither plaintiff had suffered a concrete injury from the cross-plan offsets, and that both therefore lacked constitutional standing to assert the ERISA fiduciary breach claims. The Eighth Circuit agreed in a decision as short as it is hard to follow.

Citing an earlier Eighth Circuit decision, Mitchell v. Blue Cross Blue Shield of North Dakota, 953 F.3d 529 (8th Cir. 2020), Ms. Smith and Ms. Ghanim asserted that they suffered a similar concrete injury. In Mitchell, the Eighth Circuit held that healthcare plan participants had a constitutionally-cognizable injury when their providers were underpaid plan benefits to which the participants were contractually entitled regardless of whether the healthcare provider charges the participants for the balance of the bill. The court, however, found Mitchell distinguishable because unlike the plaintiffs in Mitchell, Ms. Smith and Ms. Ghanim “do not allege a breach of contract as they are not contractually entitled to having a payment of approved benefits be made in cash.” To the contrary, according to the court, Ms. Smith and Ms. Ghanim “recognize that their plans explicitly delegate to United the discretion to implement cross-plan offsetting.”

The court similarly distinguished Carlsen v. GameStop, Inc., 833 F.3d 903 (8th Cir. 2016), reasoning that “in that case there was a breach of contract while the plans here specifically allow for cross-plan offsetting.” In the court’s view, the plaintiffs’ claim that the plan language must be read consistently with ERISA asserted only a statutory claim and not a breach of contract and, as such, was not sufficient to establish an injury for Article III purposes.

Finally, the court rejected the plaintiffs’ argument that their liability to their providers for the unpaid balance of their bills constituted a sufficient injury for Article III purposes. In the court’s view, plaintiffs’ asserted liability amounted to a mere risk of future harm. Because the injunctive relief plaintiffs sought against United would not prevent the medical providers from collecting on their unpaid debts, the Eighth Circuit held that this claimed basis for constitutional standing also failed.    

Breach of Fiduciary Duty

Eighth Circuit

Shipp v. Cent. States Mfg., No. 5:23-CV-5215, 2024 WL 3316303 (W.D. Ark. Jul. 5, 2024) (Judge Timothy L. Brooks). Three retired employees of Central States Manufacturing who participate in the company’s Employee Stock Ownership Plan (ESOP) accuse the company, its board of directors, and GreatBanc Trust Company of breaching their fiduciary duties owed to the plan and its participants under ERISA in this putative class action lawsuit. Plaintiffs allege that defendants conducted two transactions that collectively negatively impacted the value of their ESOP shares. The first event occurred in August 2020, when Central States took out a bank loan for $40 million, which it then spent to redeem 2.2 million shares of company stock owned by retired ESOP participants. Instead of retiring these shares after redeeming them, the company placed them back into circulation to fund future contributions to employee retirement accounts. In December 2020, the company conveyed the 2.2 million redeemed shares to the ESOP in exchange for the plan issuing the company a promissory note of $40 million to be repaid over 30 years. These shares received by the ESOP were then retained in a suspense account and would gradually be released and made available for the ESOP retirement accounts as the loan was repaid overtime. Plaintiffs allege that this second transaction significantly diluted and diminished the value of the plan’s existing stock and saddled the plan with unnecessary debt, causing major financial harm. Central States justifies these transactions by arguing that they were done because of legitimate business concerns over “a looming financial crisis” from the payoff process to retirees which they projected could create a cashflow problem for the company or even cause it to go into bankruptcy. Central States argued that under Eight Circuit precedent a company need not make normal business decisions in the interest of plan participants even when those decisions have a collateral effect on employee benefits. Plaintiffs, however, suggest that defendants could have taken many other alternative paths to address their alleged financial concerns which would not have harmed plan participants in the same way. The path defendants did take, plaintiffs allege, was imprudent, disloyal, and put their own interests ahead of those of the plan participants, in violation of ERISA. Defendants moved to dismiss the action, for lack of standing and for failure to state claims. Their motions were denied by the court. First, the court concluded that plaintiffs plausibly alleged that the ESOP overpaid for the new shares it purchased, causing an injury to the plan and to its participants whose shares were diluted. Accordingly, it found plaintiffs had standing to assert their claims. Second, the court disagreed with defendants that plaintiffs needed to exhaust their administrative remedies before bringing suit, declaring plaintiffs’ claims were ripe for adjudication. Finally, the court was satisfied that the complaint plausibly stated claims for breaches of fiduciary duties under ERISA, and expressed that defendants’ arguments to the contrary were fact questions not properly resolved under Rule 12(b) analysis. “Though Defendants contend that the price of shares and the value of the promissory note were both properly calculated and clearly in the best interests of the ESOP and its participants, the Amended Complaint plausibly alleges otherwise.” For these reasons, the court denied both motions to dismiss and ordered defendants to file their answers to the amended complaint.

Class Actions

Fourth Circuit

Frankenstein v. Host Int’l, No. 20-1100-PJM, 2024 WL 3362435 (D. Md. Jul. 10, 2024) (Judge Peter J. Messitte). One of the many benefits of 401(k) plans to employees is that plan participants may make pretax retirement contributions. One of the downsides of 401(k) plans though, especially for low-wage employees, is that they require individuals to prioritize future savings over cash income today, a tradeoff that many people are simply not in the financial position to make. These two truths about defined-contribution retirement plans were in conflict with one another in this interesting putative ERISA class action. Your ERISA Watch has not covered this case in some time. Our last reporting on this lawsuit was in March, 2021, when we summarized the court’s order denying defendants’ motion to dismiss. To refresh your memories, this action involves the HMSHost 401K Retirement Savings Plan. Plaintiff Dan Frankenstein is a participant in the plan and an employee of Host International, Inc. Specifically, Mr. Frankenstein is a bartender at an airport in California, who works for both wages and tips. The plan includes participants who work for tips as well as those who do not. It also has some participants who are union members and some who do not belong to a union. As relevant here, Host’s policy around tips, due to its practice paying tipped employees their credit card tips in cash at the end of each workday, prevents employees from deferring these earnings on a pretax basis. The court expressed its understanding of the dilemma as follows, “[f]or a two week pay period, assume that Plaintiff earned $500 in regular wages, received $500 in reported tips, has $200 in tax withholdings, and elected to defer 75% of his Compensation into his 401(k) account. His compensation for the two-week pay period would be $1,000 and his 401(k) deferral would be $750. However, since he [already] received $500 of his Compensation in tips…his paycheck includes $500 in regular wages only. Deduct from that amount $200 in taxes, which leaves only $300 to be deferred to Plaintiff’s 401(k) account. The remaining $450 would have to be contributed after-tax [through an arrears contribution] if Plaintiff chose to do so.” In this action, Mr. Frankenstein alleges that defendants’ refusal to permit tipped employees to defer their credit card tips on a pretax basis violates the terms of the plan and constitutes breaches of their fiduciary duties under ERISA Section 502. He further contends that defendants’ refusal to permit employees to defer credit card tips amounts to discrimination against tipped-employee plan participants in violation of Section 501(a), and that defendants’ decision to prevent pre-tax credit card tip deferrals is an arbitrary and capricious violation of Section 502(a)(1)(B). On March 11, 2022, Mr. Frankenstein filed the present motion to certify the proposed class of all current and former participants in the plan who received reported credit card tips as compensation outside their paycheck and had a deferral election in place at the time he or she received the reported tips. It’s taken over two years for the court to issue its decision on the motion. In this order the court denied the motion to certify. The problem is a class, like a union, needs to be united. And here, it seemed Mr. Frankenstein may be the only worker who desires the relief this litigation seeks. Pointedly, Mr. Frankenstein failed to identify a single individual other than himself who wants what he does. The court was broadly concerned about evidence and testimony that defendants supplied over widespread opposition, from both the workers and unions, about the company’s attempts to change tip payments to make them eligible for contribution to their retirement accounts on a pretax basis, and it found that defendants offered compelling evidence “that many of the members of Frankenstein’s proposed class are in fact ardently opposed to the relief he seeks.” This opposition ultimately posed a commonality issue, “since people are in different situations and some feel they’d be harmed by a modification that might go the way plaintiff would want to go.” It was this fundamental intraclass conflict which left the court unable to certify the class under Rule 23(a). Mr. Frankenstein for his part accused the defendants of “manufacturing” non-existent intraclass conflicts, and said that what the putative class members opposed was not the opportunity to make pretax deferrals with credit card tips, so much as defendants’ paycard system which took away their day-of cash wages, which many of the workers rely upon to make ends meet. But the court was not so convinced. In the court’s view, Mr. Frankenstein turned the class-certification inquiry “upside down” because “it is the plaintiff’s burden to prove that intraclass conflicts do not exist.” “To that end, the Court granted the parties leave to conduct class discovery until the future contemplated class-certification hearing might take place…which was held more than a year later. But when the time came for Frankenstein to present other ‘class proponents,’ quite simply, he brought forth none.” In light of this conflict, the court determined that defendants defeated Mr. Frankenstein’s bid for certification under Rule 23, and accordingly denied his motion to certify.

Disability Benefit Claims

Fourth Circuit

Penland v. Metro. Life Ins. Co., No. C. A. 8:21-3000-HMH, 2024 WL 3327366 (D.S.C. Jul. 8, 2024) (Judge Henry M. Herlong, Jr.). This disability benefits action was back before the district court on remand from the Fourth Circuit Court of Appeals after the appellate court reversed the district court’s June 22, 2022 summary judgment order affirming MetLife’s termination of long-term disability benefits to plaintiff Tracy Penland. The Fourth Circuit vacated that decision because of an intervening change in controlling law, which came about in its decision in Tekmen v. Reliance Standard Life Ins. Co., 55.4th 951 (4th Cir. 2022), favoring resolution of ERISA benefit disputes pursuant to Federal Rule of Civil Procedure 52 over summary judgment. Consistent with the instructions from the Fourth Circuit, the district court issued its findings of fact and conclusions of law pursuant to Rule 52 in this decision. Mr. Penland left his position as a procurement specialist for an automotive company in August 2015 and subsequently began receiving disability benefits. Mr. Penland suffers from many health conditions including gastrointestinal diseases, musculoskeletal ailments, a liver condition, mental health disorders, and chronic pain and sleep problems. Pursuant to the terms of the disability policy, several of Mr. Penland’s conditions were limited to maximum benefit payments of 24-months. MetLife maintains that non-limited conditions do not render Mr. Penland unable to earn more than 60% of his pre-disability earnings from any occupation to which he is reasonably qualified, and based its decision to discontinue benefits on this conviction. Ultimately, the court agreed with MetLife. Before it got there though, the court needed to resolve the parties’ dispute over the appropriate standard of review. MetLife argued that it was entitled to abuse of discretion review, while Mr. Penland contended that de novo review applies. The court sided with Mr. Penland, as the plan’s language requiring proof of disability satisfactory to MetLife was nearly identical to language that the Fourth Circuit found insufficient to unambiguously confer discretionary authority in a case before it in 2013, Cosey v. Prudential Ins. Co. of Am., 735 F.3d 161 (4th Cir. 2013). However, under de novo review the court was not convinced that Mr. Penland met his burden of proving his disability. The court found that Mr. Penland did not present objective evidence of radiculopathy, and that there was insufficient proof that his non-limited conditions prevent him from earning more than 60% of his pre-disability salary. The court stressed that it would not consider the effects of Mr. Penland’s limited conditions, rejecting the approach Mr. Penland argued in favor of considering the cumulative effects of both his limited and non-limited conditions. Thus, after having considered the entirety of the administrative record, the court found that Mr. Penland no longer satisfied the plan’s definition of disability as of the date of MetLife’s termination, and therefore affirmed MetLife’s decision. Accordingly, the court reached the same conclusion as it had in 2022, and entered judgment in favor of MetLife.

Eleventh Circuit

Rosenberg v. Reliance Standard Life Ins. Co., No. 23-13761, __ F. App’x __, 2024 WL 3385678 (11th Cir. Jul. 12, 2024) (Before Circuit Judges Wilson, Luck, and Anderson). Dr. Krista Rosenberg was part of a medical practice that provided disability insurance through an ERISA policy insured by Reliance Standard Life Insurance Company. The practice did not pay Dr. Rosenberg directly, but instead made payments to her Chapter S corporation. Sadly, Dr. Rosenberg developed a permanent and total disability and could no longer continue working. As a result, she filed a claim for disability benefits with Reliance. Reliance, however, denied her claim because Dr. Rosenberg’s income was paid to her corporation and not directly to her. In a denial letter that both the district court and the Eleventh Circuit would later say “borders on the absurd,” Reliance Standard determined that Dr. Rosenberg had no eligible earnings upon which to base a benefit in accordance with the plan and that she was therefore not entitled to disability benefits. Simply, and unsurprisingly, the district court and the Eleventh Circuit in this decision on appeal, agreed that “the only reasonable interpretation of the Policy is that Rosenberg’s ‘Covered Monthly Earnings’ includes her ‘compensation from the partnership’ notwithstanding the fact that it took the form of payments to her closely held pass-through corporation. We agree with the district court that Reliance cannot deny benefits to Rosenberg solely on the basis that she has no ‘Covered Monthly Earnings’ because her compensation from the partnership was paid to her closely held pass-through corporation rather than paid directly to her. Accordingly, we affirm the judgment of the district court without the necessity of addressing the alternate theory for affirmance urged by Rosenberg.” In this way, the Eleventh Circuit, in its brief unpublished per curiam decision, concluded Reliance’s interpretation was illogical and undermined the intent of the policy as a whole, and that its denial of Dr. Rosenberg’s disability benefits was arbitrary and capricious.

ERISA Preemption

Ninth Circuit

Dedicato Treatment Ctr. v. Aetna Life Ins. Co., No. 2:24-cv-03136-CAS-PDx, 2024 WL 3346241 (C.D. Cal. Jul. 8, 2024) (Judge Christina A. Snyder). An out-of-network drug and alcohol treatment center, plaintiff Dedicato Treatment Center, Inc., filed a six count state law complaint in state court against defendant Aetna Life Insurance Company seeking the difference between the billed and paid amounts for healthcare it provided to three patients insured with ERISA welfare plans administered by Aetna. Aetna removed the matter to the federal judicial system and then filed a motion to dismiss it arguing the claims are preempted under ERISA Section 514(a). Shortly after filing its motion to dismiss, Aetna filed a notice of supplemental authority flagging the Ninth Circuit’s opinion in Bristol SL Holdings, Inc. v. Cigna Health & Life Ins. Co., 103 F.4th 597 (9th Cir. 2024). (Your ERISA Watch featured the decision as our case of the week on June 5, 2024.) Relying on the Bristol decision and its reasoning, the court agreed with Aetna that Dedicato’s state law claims relate to the ERISA plans and that they are therefore barred by conflict preemption. Like the Ninth Circuit recognized in Bristol, the court found that the healthcare provider was seeking to obtain through state law claims an alternative mechanism to secure plan-covered payments the parties discussed on the phone to verify benefits and coverage. The court noted that plaintiff concedes “the existence of the plan is what caused [it] to contact Aetna and see if Aetna would agree to pay…for the treatment of Aetna’s plan participants.” Thus, the court stated that the gravamen of the complaint is an assertion that Aetna paid less to the provider than the value of the services rendered, and that payment is therefore contingent on the existence of the terms of the patient’s ERISA-governed healthcare plans. Finally, the court expressed that the state law claims also have an impermissible connection with the ERISA plan. “Permitting plaintiff to pursue such claims would force courts to adjudicate whether all payments made to out-of-network providers are ‘reasonable,’ regardless of the terms and rates set forth in patients’ plans. Accordingly, plaintiff’s claims are barred because they bear an impermissible ‘connection with’ ERISA plans.” For these reasons, the court granted Aetna’s motion to dismiss. Dismissal was without prejudice and the provider was given the opportunity to file an amended complaint should it wish.

Medical Benefit Claims

Third Circuit

Palazzi v. Cigna Health and Life Ins. Co., No. 2:23-cv-06278 (BRM) (AME), 2024 WL 3361615 (D.N.J. Jul. 8, 2024) (Judge Brian R. Martinotti). Plaintiff Pierangela Bonelli was referred to a back surgeon, Dr. Roger Hartl, after she began experiencing intense back pain. Dr. Hartl recommended surgery to treat Ms. Bonelli. Ms. Bonelli has health insurance coverage through an employer sponsored health plan administered by defendant Cigna Health and Life Insurance Company. Dr. Hartl is an out-of-network provider. Before he would perform the surgery, Dr. Hartl needed to receive pre-authorization from Cigna. He followed the plan’s requirements to obtain the necessary pre-authorization and received a letter from Cigna approving the pre-authorization request for Ms. Bonelli’s surgery. Based on the approval, Ms. Bonelli underwent the back surgery. In the end though Cigna denied coverage for the surgery, stating that the plan does not provide for out-of-network benefits. The insurance provider maintains that the authorization letter specifically approving the surgery “was sent in error.” In this action, Ms. Bonelli and her family member, plaintiff Marco Palazzi, challenge Cigna’s denial. This case was originally brought as a state law action, but Cigna removed it to federal court arguing ERISA preempted the state law causes of action. Plaintiffs then amended their complaint to assert an ERISA claim instead. Cigna responded to the ERISA complaint by filing a motion to dismiss. On August 25, 2023, the court granted the motion to dismiss, finding that the complaint failed to articulate how the plan entitles plaintiffs to the benefits they seek. Dismissal was without prejudice, and plaintiffs timely amended their complaint. Cigna once again moved for this dismissal. This time, its motion to dismiss was denied. “Here, the Court finds Plaintiffs have sufficiently alleged an ERISA claim for unpaid benefits in the SAC because they have plausibly alleged that the Plan, through its ‘Medical Management Program’ provision, provides coverage for Bonelli’s surgery with an out-of-network provider and that they are entitled to reimbursement under the Plan.” The court noted that the plan “does not say that it will not cover any out-of-network providers under any circumstance.” In fact, the plan specifically provides for a process, which plaintiffs and their healthcare provider followed, for pre-authorizing out-of-network claims. The court said it was reasonable to infer that this process exists because the plan in some circumstances covers healthcare with providers who are not in network. Therefore, the court found that plaintiffs plausibly alleged an ERISA Section 502(a)(1)(B) claim for recovery of benefits and thus denied the motion to dismiss the second amended complaint. 

Tenth Circuit

K.S. v. Cigna Health & Life Ins. Co., No. 1:22-cv-00004-TC-DBP, 2024 WL 3358653 (D. Utah Jul. 8, 2024) (Judge Tena Campbell). In this action mother and son K.S. and Z.S. seek judicial review of Cigna Health and Life Insurance Company’s denial of their claim for coverage under the Accenture LLP Benefit Plan for the residential mental healthcare treatment Z.S. received in 2019 and 2020 at a facility in Utah to stabilize him during a severe mental health crisis. Before seeking the treatment at issue in the instant action, Z.S. had cycled out of hospitals, partial hospitalization programs, intensive outpatient facilities, and several other forms of psychiatric healthcare, and had attempted suicide on at least four occasions. The long-term residential care the family seeks coverage of in this action was strongly recommended to them by Z.S.’s treating providers given his long history of other treatment options which had failed to stabilize him or improve his health. The family asserted two causes of action, a claim for recovery of benefits and a claim for violation of the Mental Health Parity and Addiction Equity Act. The parties filed cross-motions for summary judgment on the denial of benefits claim under arbitrary and capricious standard of review. The court ruled that Cigna’s denial was an abuse of discretion and entered judgment in favor of the family. Specifically, the court found that Cigna did not engage in a meaningful dialogue with the family or the opinions of Z.S.’s healthcare providers, that its denials were cursory and often contradicted by the medical record, and that it applied the medical necessity criteria inconsistently. The court further criticized Cigna’s failure to discuss Z.S.’s prior treatment history and his attempts to receive lower-levels of psychiatric care which had been ineffective. “Moreover, Cigna essentially conceded at the hearing on the motions for summary judgment that there is evidence in the record showing that at various points throughout his stay at Elevations, Z.S.’s treatment may have met the ‘medical necessity’ criteria. But Cigna’s letters fail to address this evidence or explain why coverage for those dates was denied…In sum, Cigna failed to meet the minimum requirements for explaining why it deemed that Z.S.’s treatment at Elevations was not ‘medically necessary’ in its denial letters. Cigna’s denial of coverage warrants reversal on this basis.” For these reasons, the court granted plaintiffs’ motion for summary judgment and denied defendants’ motion. However, the court declined to award the family benefits. In line with other recent decisions from the District of Utah, the court here concluded that remand was the proper remedy to rectify Cigna’s procedural errors handling the claim for benefits, as the “Tenth Circuit has found that remand was appropriate where the plan administrator committed procedural errors similar to those Cigna made here.” The court further justified its decision to remand to Cigna by stating that it “cannot say that there was no evidence in the record to support Cigna’s denial of benefits, or that the Plaintiff was clearly entitled to the claimed benefits.” As a result, the court remanded to Cigna for further considerations of the family’s claim. However, it cautioned the insurance company that it may not adopt any new rationale to deny the claim “not previously conveyed to the Plaintiffs.”

Pleading Issues & Procedure

Third Circuit

Harper v. United Airlines, No. 23-22329 (ZNQ) (JBD), 2024 WL 3371404 (D.N.J. Jul. 11, 2024) (Judge Zahid Quraishi). Pro se plaintiff Daniel Harper filed a complaint in New Jersey state court alleging United Airlines of wrongfully refusing to cancel his health insurance coverage and improperly continuing to deduct monthly premium payments, causing him $15,000 in damages. United Airlines removed the case to federal court. The district court in turn found that its jurisdiction was proper, as the health insurance plan at issue is governed by ERISA and the sole legal basis for the relief Mr. Harper seeks is under ERISA’s civil enforcement mechanism. United Airlines has since moved to dismiss the action for failure to state a claim. Its core argument was that Mr. Harper cannot plausibly plead a claim for any relief under ERISA because he “has already received the principal relief that his Complaint seeks – namely cancellation of coverage for his dependent effective February 1, 2023 and a refund on the premiums paid for that coverage.” Mr. Harper concedes this fact. United contends further that Mr. Harper is not entitled to any additional relief, and that there is no longer an active controversy in dispute. In its decision, the court was unsure about this. It stated, “a few questions remain regarding Plaintiff’s claims. First, Plaintiff seeks $15,000 in damages but does not explain, in either the Complaint or his Opposition, what the $15,000 damages amount relates to. Second, Plaintiff argues that his ‘family continues to suffer and incur damages due to the action of Defendant and attaches a bill he received on June 5, 2024…for services rendered in October 2023 to support his position. Finally, Plaintiff argues that Defendant granted his appeal only after [he] filed the Complaint because Defendant ‘could not explain their negligence or blatant disregard of the court order.” However, the court highlighted that Mr. Harper raised these facts for the first time in his opposition, and stressed that they were absent from the complaint itself. Therefore, the court said it would not consider “the June 2024 Bill or Plaintiff’s conclusory and unsubstantiated assertions that Defendant was negligent in evaluating the sufficiency of Plaintiff’s claims.” Accordingly, the court found that Mr. Harper failed to successfully plead a claim for relief under ERISA Section 502 and therefore granted the motion to dismiss, though the complaint was dismissed without prejudice.

Fourth Circuit

Doe v. Blue Cross & Blue Shield of N.C., No. 3:23-cv-750-MOC-WCM, 2024 WL 3346319 (W.D.N.C. Jul. 8, 2024) (Judge Max O. Cogburn, Jr.). Plaintiffs John Doe and Mary Doe brought this suit against Blue Cross and Blue Shield of North Carolina to challenge its denial of their claim for benefits relating to Mary Doe’s stay at a treatment center. Plaintiffs asserted two causes of action under ERISA, a claim for benefits and an equitable relief claim for violation of the Mental Health Parity and Addiction Equity Act. Blue Cross moved to strike the complaint or alternatively dismiss for failure to state a claim. Blue Cross supplied three reasons why it believed the court should strike or dismiss the complaint. First, it argued that the complaint violates Federal Rule of Civil Procedure 10(a) because the title of the complaint does not include the names of the parties. Second, it contended that the Section 502(a)(3) claim was improperly duplicative of the claim for benefits under Section 502(a)(1)(B). Finally, Blue Cross asserts that the action should be dismissed as untimely filed under the terms of the plan. In this decision, the court only engaged with the Blue Cross’s last argument. The terms of the plan state that “[a]ny civil action you may choose to bring under ERISA must be filed within one year of the end of the plan’ first level internal claim and appeal procedure,” unless the claimant pursues the plan’s external review and appeal procedure. This action was brought “214 days after the one-year period of limitations ran from the March 18, 2022 First Level Denial.” Thus, plaintiffs’ action was only timely if they could establish that their complaint satisfies the second limitations period for parties who elect to pursue the plan’s external review claim and appeal procedure.” The court concluded that plaintiffs did not do so. “While Plaintiffs did pursue a second level appeal, they failed to pursue the Plan’s external review claim procedure, which required Plaintiffs to file a request for external review with the North Carolina Department of Insurance.” Further, the court stated that even if it tolled the limitations period during the 47 days between plaintiffs’ submission of their second level appeal and defendant’s denial of that appeal, the lawsuit remains untimely. Accordingly, the court dismissed plaintiffs’ complaint as time-barred, and therefore did not address Blue Cross’s alternative grounds for dismissal. The action was dismissed with prejudice.

Withdrawal Liability & Unpaid Contributions

Third Circuit

Allied Painting & Decorating, Inc. v. Int’l Painters & Allied Trades Indus. Pension Fund, No. 23-1537, __ F. 4th __, 2024 WL 3366492 (3d Cir. Jul. 11, 2024) (Before Circuit Judges Hardiman, Matey, and Phipps). In 2005, the employer Allied Painting & Decorating, Inc. closed its operations and stopped contributing to the International Painters and Allied Trades Industry Pension Fund. Less than five years later, the owner of Allied, Robert Smith, created a new painting company called Allied Construction Management. The Multiemployer Pension Plan Amendments Act (MPPAA) kicked it once Allied returned to the painting industry, triggering withdrawal liability. But the Fund dragged its feet, and twelve years would go by before the Fund did anything about this. The Fund did not send its demand to Allied for $427,195 until 2017. Given the great delay since it last contributed to the fund, the employer objected to the assessed withdrawal liability assessment on the basis of laches. The dispute went into arbitration. The arbitrator found that the Fund did not act “as soon as practicable” in issuing a notice and demand to Allied. Nevertheless, the arbitrator concluded that Allied was not prejudiced by this delay, which doomed its laches defense. Accordingly, arbitration ended with the arbitrator concluding that Allied owed the $427,195 to the Fund for its withdrawal. The employer appealed this decision in federal court. The district court concluded that Allied was indeed prejudiced by the delay and vacated the award. The Fund appealed. The Third Circuit issued this decision affirming the district court’s order vacating the arbitration award, though it did so on different grounds. “Much is made of whether Allied suffered prejudice from this lengthy delay. But diligence is what the Multiemployer Pension Plan Amendments Act of 1980 requires, and all agree that the Fund did not send Allied the bill ‘as soon as practicable’ after Allied’s withdrawal…As a result, the Fund cannot recover the claimed withdrawal liability, and we affirm the District Court’s order vacating the Arbitrator’s Award.” The Third Circuit was adamant that the only coherent reading of the statute is to understand the “as soon as practicable” requirement as an essential element for a plan to recover a withdrawal liability. “That a fund provide notice of its withdrawal-liability assessment and demand payment from the employer ‘as soon as practicable’ following the employer’s withdrawal is a requirement of § 1399(b)(1). If this statutory requirement is not met, the fund’s claim for the employer’s withdrawal liability must fail.” Having concluded that this “independent statutory requirement” was not met here, the Third Circuit concluded that the Fund could not recover the withdrawal liability amount from Allied under MPPAA. Thus, the court of appeals affirmed the lower court’s order vacating the arbitrator’s award.