Goldfarb v. Reliance Standard Life Ins. Co., No. 23-10309, __ F.4th __, 2024 WL 3271012 (11th Cir. July 2, 2024) (Before Circuit Judges William Pryor, Jill Pryor, and Marcus)

Of all the types of ERISA welfare benefit disputes, accidental death cases are perhaps the most fascinating. In these cases, everyone agrees that the insured person has expired. The central issue typically is whether the death was an “accident” under the terms and conditions of the benefit plan.

But what is an “accident”? Many benefit plans do not even define the term while others use ambiguous or even circuitous language that confuses more than it edifies. Over the years different courts have used different approaches, satisfying no one. Supreme Court Justice Benjamin Cardozo once famously stated that arguments over how to define the term risked “plung[ing] this branch of the law into a Serbonian Bog.”

The Eleventh Circuit boldly waded into this bog in this week’s notable decision. The plaintiffs were Levi and Benjamin Goldfarb, whose father was Dr. Alexander Goldfarb-Rumyantzev. Dr. Goldfarb, an experienced mountain climber, traveled to Pakistan in 2020 where he joined up with his climbing partner, Zoltan Szlanko. Szlanko was also an accomplished mountaineer who had been a certified climbing instructor and professional climber for nearly 30 years.

In January of 2021 Szlanko and Dr. Goldfarb began ascending 6,209-meter-high Pastore Peak. However, Szlanko, who had scouted ahead, determined that the conditions were too dangerous to keep going. He returned to Dr. Goldfarb and told him that the route was unsafe because of “a labyrinth of hidden crevasses either covered with loose snow or stones” and “black ice” that was “dangerously breaking” and “provid[ed] no grip.”

Szlanko headed back down the mountain. Dr. Goldfarb told Szlanko that he would stay at base camp and follow Szlanko down the next day. However, the next morning Dr. Goldfarb called Szlanko and said that he wanted to continue on up the mountain. Szlanko warned Dr. Goldfarb against it and told him that he could not “take responsibility” if Dr. Goldfarb continued.

Dr. Goldfarb ignored the warnings and proceeded to try to summit Pastore Peak. When he stopped communicating and did not return, a search was conducted. His body, although identified from the air by Szlanko, was never recovered.

Dr. Goldfarb was insured under an ERISA-governed accidental death benefit plan for $500,000. However, when the Goldfarb brothers, as beneficiaries under the plan, submitted a claim to the plan’s insurer, defendant Reliance Standard Life Insurance Company, Reliance Standard denied the claim on the ground that the cause of Dr. Goldfarb’s death was “unknown.” According to Reliance Standard, the brothers could not establish that the death was an “accident,” and thus the claim was not payable.

The brothers sued in federal district court and prevailed. The district court determined that Dr. Goldfarb’s death was an accident, ruled that Reliance Standard’s protestations to the contrary were arbitrary and capricious, and granted summary judgment to the brothers. Reliance Standard appealed.

On appeal the Eleventh Circuit, like the district court, found that the plan gave Reliance Standard discretionary authority to determine benefit eligibility, and thus reviewed Reliance Standard’s denial to see if it was “supported by reasonable grounds.”

The Eleventh Circuit then examined the plan and noted that, like many such plans, it did not define the word “accident.” As a result, the court adopted the test used by the district court and the parties in determining whether Dr. Goldfarb’s death was an “accident.” This test was created by the First Circuit in Wickman v. Northwestern Nat’l  Ins. Co., has been adopted by six other circuits, and is comprised of two parts.

First, the court “considers the subjective expectations of the insured about the likelihood of injury from engaging in the conduct that resulted in the loss.” If the decedent’s subjective expectations are unknowable, the court then considers “an objective analysis of the insured’s expectations.” Under this analysis, the court considers “whether a reasonable person, with background and characteristics similar to the insured, would have viewed [injury or death] as highly likely to occur as a result of the insured’s intentional conduct.” If so, the death is not an “accident.”

Dr. Goldfarb’s subjective expectations were unknown because he did not express them. Thus, the court proceeded to the second part of the Wickman test and discussed whether a reasonable person in Dr. Goldfarb’s situation would have considered death “highly likely to occur” if he had proceeded up the mountain.

The court acknowledged that Dr. Goldfarb was “an experienced mountain climber in excellent physical condition.”  However, it concluded that, even with those characteristics in mind, “the known facts about his climb up Pastore Peak lead us to conclude that a reasonable mountain climber would have recognized a high likelihood of injury or death.”

The court stressed that Dr. Goldfarb had been warned by Szlanko about the dangerousness of the route, that he had traveled alone with a limited cache of supplies, and that he had not only followed the route that Szlanko had determined was too risky, but had pushed on even further where conditions were worse.

The court admitted that insurers face “a high bar” in cases like this one, and that another decisionmaker might arrive at a different conclusion. However, under deferential review the court stated that it could not declare that Reliance Standard’s decision was “unsupported by reasonable grounds,” and thus upheld it.

In doing so, the court rejected the Goldfarb brothers’ arguments, which mostly revolved around the burden of proof. The brothers argued that the burden was on Reliance Standard to prove that Dr. Goldfarb’s death was not an accident because Reliance Standard had conceded that the death was not a suicide, the cause of death was inconclusive, and there was no mountain-climbing exclusion in the benefit plan. However, the court ruled that the burden remained with the brothers at all times, as they were the claimants and plaintiffs in the case. Furthermore, because Reliance Standard did not rely on an exclusion to deny their claim, the burden did not shift to Reliance Standard.

Finally, the Eleventh Circuit considered Reliance Standard’s conflict of interest. The court acknowledged that a structural conflict existed because Reliance Standard both evaluated and paid claims. However, “[t]he Goldfarbs have offered no evidence suggesting that Reliance Standard’s structural conflict of interest had significant inherent or case-specific importance. Nor have they provided any evidence that the conflict influenced Reliance Standard’s denial of their claim.” As a result, the court ruled that this minimal evidence of conflict of interest did not justify overturning Reliance Standard’s decision.

In short, the Eleventh Circuit determined that Dr. Goldfarb’s mountain-climbing accident was not actually an “accident” at all. Thus, it reversed the district court and remanded with instructions to enter judgment in Reliance Standard’s favor. Meanwhile, the Serbonian Bog claims yet more victims.

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

Breach of Fiduciary Duty

Second Circuit

Kistler v. Stanley Black & Decker Inc., No. 3:22-cv-966 (SRU), 2024 WL 3292543 (D. Conn. Jul. 3, 2024) (Judge Stefan R. Underhill). Two participants of the Stanley Black & Decker Retirement Account Plan commenced this action on behalf of a putative class of participants and beneficiaries against Stanley Black & Decker, Inc. and the plan’s committee for breaching their fiduciary duties under ERISA. Plaintiffs asserted claims challenging the plan’s excessive recordkeeping and administrative costs as well as the plan’s investment in a suite of underperforming target date funds. Specifically, plaintiffs challenge the selection and retention of the BlackRock LifePath Index Funds, which were designated as the plan’s qualified default investments and the index in which 39% of the plan’s assets were invested. They allege that a prudent fiduciary would have kept a close watch on these target date funds, and had defendants done so they would have seen sustained underperformance for years on end. “Despite what the plaintiffs contend is obvious underperformance, the plaintiffs allege that the ‘minutes of meetings of the Committee from March 27, 2017 through September 27, 2022 do not reflect a single instance where the Committee so much as independently discussed the performance woes of the BlackRock TDFs.” And with regard to the recordkeeping and administrative fees, plaintiffs allege that the plan paid nearly twice as much per participant when compared to plans of similar or even smaller sizes. Plaintiffs claim these high fees were the result of a deficient process contracting recordkeeping services, and highlighted that throughout the relevant period defendants did not conduct any competitive bidding or any investigation into the appropriateness of the fees “apart from a singular, flawed benchmarking study in 2022,” wherein it failed to compare the recordkeeping fees to those paid by other plans with a similar number of participants. Accordingly, plaintiffs argued that defendants’ actions resulted in participants being overcharged for recordkeeping and administrative services, resulting in the loss of millions of dollars in their retirement savings. Stanley Black & Decker moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). The motion was denied in this decision. To begin, the court was satisfied that plaintiffs alleged that they were participants in the plan, who invested in at least one of the challenged target date funds, and who were harmed by the allegedly costly fees. Thus, at the pleading stage, the court concluded that plaintiffs established standing to bring all of their claims. In addition, the court found that plaintiffs sufficiently stated claims upon which relief can be granted, concluding they met “the pleading standards established in Twombly and Iqbal.” The court stated that it would “defer deciding the question of whether two funds are proper comparators until after discovery,” and that for now plaintiffs’ complaint offers enough factual material to establish the plausibility of its claims. “Considering their allegations in totality, the plaintiffs have plausibly alleged the adequacy of their comparators sufficient for this stage of the litigation.” The court further concluded that plaintiffs told a plausible narrative of an imprudent monitoring process. The sole exception to the ruling favoring plaintiffs regarded their duty of loyalty claim. The court emphasized that plaintiffs did not allege facts that supported an inference of self-dealing or that the fiduciaries acted in the interest of anyone other than the participants and beneficiaries. Thus, to the extent plaintiffs alleged that defendants breached their duty of loyalty, that claim was dismissed. However, beyond the disloyalty claim, the court denied the motion to dismiss, and allowed the plaintiffs to proceed.

Sixth Circuit

Chelf v. Prudential Ins. Co. of Am., No. 3:17-CV-00736-GNS-RSE, 2024 WL 3246088 (W.D. Ky. Jun. 27, 2024) (Judge Greg N. Stivers). Widow Ruth Mae Chelf commenced this fiduciary breach litigation to challenge the actions of defendants Wal-Mart Associates, Inc. and the Administrative Committee for the Associates’ Health and Welfare Plan which allegedly resulted in unpaid life insurance premiums, causing Ms. Chelf to lose optional life insurance benefits she otherwise would have received following her husband’s death. Ms. Chelf alleged that defendants improperly deducted excess premiums from her husband’s disability benefits, failed to apply paid time off to his past-due optional life insurance premiums, failed to inform the family that premiums were past due, and failed to let them know the optional life insurance plan had been terminated and that the family could convert optional life insurance to an individual policy. Defendants filed a motion to dismiss, which the court granted. Ms. Chelf appealed, and the Sixth Circuit reversed most of the district court’s dismissal, affirming only to the extent the dismissal was based on defendants’ failure to inform the family of conversion rights. Now the parties have filed cross-motions for summary judgment. In addition, Ms. Chelf moved to strike one of defendants’ declarations. The court denied the motion to strike, concluding that the challenged declaration was unnecessary and immaterial to its resolution of the motions, which was in favor of defendants. The court found: (1) there was no error with defendants’ short-term disability premium deductions; (2) although defendants improperly deduced $5.80 in premium payments under the long-term disability policy, this error did not in and of itself result in the family’s loss of optional life insurance coverage; (3) evidence did not support the conclusion that defendants’ actions regarding paid time off were improper; and (4) defendants did not breach any fiduciary duty by failing to disclose information to the family because they had not provided any false, inaccurate, or misleading answers in response to the family’s questions. Accordingly, the court concluded that defendants had not breached their fiduciary duties and therefore entered judgment in their favor.

Seventh Circuit

Remied v. NorthShore Univ. Health Sys., No. 22-cv-2578, 2024 WL 3251331 (N.D. Ill. Jul. 1, 2024) (Judge Steven C. Seeger). In this putative class action, plaintiff Jamison Remied, a participant in the NorthShore University HealthSystem Tax Deferred Annuity 403(b) Plan, alleges that the plan’s fiduciaries breached their duties of prudence and monitoring imposed by ERISA by paying excessive fees for recordkeeping services and selecting high-cost funds as the plan’s investment options. In the operative complaint Mr. Remied alleges that NorthShore University HealthSystem, its CEO, and the plan’s administrative and investment committees failed to leverage the large size of the plan (with nearly 12,000 participants and almost $1.8 billion in assets) to reduce recordkeeping costs. As alleged, the plan paid $107 per participant annually to its recordkeeper, Voya, which in percentage terms was a fee rate of 0.0772% of its assets. The complaint stated that “[u]nder either comparison model, Defendants could have offered the exact same RKA services, at the same level and quality, at a more reasonable cost by using a different recordkeeper but did not do so.” Additionally, the complaint asserts that the plan imprudently selected higher expense ratios when nearly identical, cheaper funds existed. Finally, Mr. Remied contends that NorthShore University HealthSystem and the company’s CEO did not live up to their duty to monitor the committees. Defendants moved to dismiss the complaint for failure to state a claim. In this decision the court granted in part and denied in part defendants’ motion. Beginning with the recordkeeping fee allegations, the court concluded that Mr. Remied “pleaded enough factual content to plausibly allege that a prudent fiduciary would have taken steps to reduce fees.” Given the complaint’s detailed and “granular” allegations about the recordkeeping fees paid by this plan and by the seven comparator plans, as well as the fact that “Remied alleged that recordkeeping services are like a commodity, and that all service providers provide a similar quality of service,” the court concluded that the complaint was “more similar to the complaint in Hughes II (surviving a motion to dismiss) than the complaint in Albert (which did not).” Accordingly, the motion to dismiss the fiduciary breach claims premised on excessive recordkeeping fees was denied. However, the court reached a different conclusion with regard to the high-cost investment option claims. There, it found that the complaint contained little more than a “raw allegation that the other investments have the ‘same investment approach and similar investment histories,’” and that this alone wasn’t “good enough” to survive defendants’ challenge. As currently alleged, the court concluded that the complaint failed to make “apples to apples” comparisons, and implied that it would not endorse the broad assumption that cheaper equates to better, emphasizing that ERISA doesn’t require fiduciaries to select the cheapest available fund. Therefore, the court found that the complaint failed to provide a sound basis for comparison for its expense ratio claims and thus granted the motion to dismiss them.

Ninth Circuit

Phillips v. Cobham Advanced Elec. Sols., No. 23-cv-03785-EJD, 2024 WL 3228097 (N.D. Cal. Jun. 28, 2024) (Judge Edward J. Davila). Three participants of the Cobham Advanced Electronic Solutions, Inc. (CAES) 401(k) Plan commenced this action on behalf of a potential class alleging CAES, its board, and the plan’s committee are violating their fiduciary duties under ERISA. In count one of their complaint, plaintiffs allege that the committee violated its fiduciary duty of prudence by engaging in a failed process selecting and overseeing funds which saddled the plan and its participants with a suite of chronically underperforming target date funds that needlessly deprived the participants of millions of dollars in retirement savings. In count two, plaintiffs assert a derivative claim against the company and its board for failing to monitor the committee. Defendants moved to dismiss both causes of action pursuant to Federal Rules of Civil Procedure 12(b)(1) and (b)(6). Their motion was granted, without prejudice, in this decision. To begin, the court disagreed with defendants’ position that plaintiffs had a problem with Article III standing. To the contrary, the court found that plaintiffs each sufficiently alleged that they participated and invested in at least one of the challenged target date funds and that they suffered injury to their accounts by way of the high costs and low returns. “The Court finds that these allegations sufficiently demonstrate individualized injury for Article III standing.” With the threshold question of standing resolved, the court turned to defendants’ arguments challenging the sufficiency of the stated fiduciary breach claims, and concluded that the complaint as currently alleged has some problems. Chief among these was that plaintiffs alleged only that the target date funds performed poorly, “which may not be the basis for an ERISA claim for imprudence.” The court cautioned plaintiffs that what they were characterizing as allegations of process flaws were in fact “mere restatements of…underperformance.” “Plaintiffs do not point to any process failure allegations beyond the conclusory and circular statement that ‘Defendants did not engage in a prudent process in evaluating the investment management fees and the prudence of the Plan’s funds,’ as evidenced by the poor performance of the funds.” Even the sheer length and extent of the alleged underperformance, the court held, is not enough without more to state a plausible claim that the fiduciaries acted imprudently. Accordingly, the court dismissed both of plaintiffs’ claims. However, the court said it did not find amendment futile, and therefore granted the motion to dismiss without prejudice so that plaintiffs may address their complaint’s shortcomings with an amended pleading.

Disability Benefit Claims

Seventh Circuit

Slaughter v. Hartford Life & Accident Ins. Co., No. 22 CV 5787, 2024 WL 3251371 (N.D. Ill. Jul. 1, 2024) (Judge Jeremy C. Daniel). On August 27, 2020, plaintiff Kenneth Slaughter, a cybersecurity systems engineer at Boeing, was taken to the emergency room complaining of chest pain and shortness of breath. He was admitted to the hospital after an echocardiogram resulted in a finding of “VERY SEVERE left ventricular systolic dysfunction.” On September 1, Mr. Slaughter underwent surgery. The procedure improved Mr. Slaughter’s condition somewhat, although his heart remained weak and was still not pumping blood anywhere near as well as a healthy person’s. By September 4, Mr. Slaughter was discharged from the hospital. However, as is often the case in these types of situations, several things started to go wrong at once with Mr. Slaughter’s health. In addition to his heart condition, Mr. Slaughter simultaneously experienced the onset of sleep disorders, gastrointestinal problems, anxiety, and dizziness, as well as a reduced ability to focus, concentrate, and think deeply. Unwell, Mr. Slaughter stopped working and applied for disability benefits. In this Section 502(a)(1)(B) ERISA action, Mr. Slaughter appeals Hartford Life & Accident Insurance Company’s decision to deny his application for long-term disability benefits. Mr. Slaughter maintains that he is unable to perform his own occupation as a systems engineer because of his ongoing health issues. In this decision the court issued its final judgment. Mr. Slaughter styled his motion as one for summary judgment under Federal Rule of Civil Procedure 56, while Hartford had moved for judgment on the administrative record under Rule 52. As a preliminary matter, the court determined that Rule 52 was the appropriate mechanism for resolution of the case, and thus treated both parties’ motions as motions for judgment. The court also clarified that the plan does not grant discretionary authority, making the de novo standard of review applicable. Unfortunately for Mr. Slaughter, the court’s fresh eyes did not result in a favorable decision. Ultimately, the court concluded that he could not satisfy his burden of proving entitlement to disability benefits under the plan and that he separately failed to establish he was under the regular care of physicians for the duration of the benefit period. As to the former, the court stated that “the total mix of facts in [this] particular case,” including Mr. Slaughter’s vocational evaluation, his independent medical evaluation, the award of Social Security disability benefits, and the totality of the medical records, simply did not add up to establish entitlement to benefits. The court spent time independently explaining why each factor was not dispositive. And regarding the latter, the court was not convinced based on the documents within the administrative record that Mr. Slaughter was under the regular care of a physician beyond January 26, 2021. As continuity of care was required under the plan, the court determined that the insufficient evidence of continued and ongoing medical care provided separate grounds to affirm the denial. Accordingly, the court entered judgment in favor of Hartford.

ERISA Preemption

Seventh Circuit

Mercy Hospital of Folsom v. Health Care Service Corp., No. 24 CV 2749, 2024 WL 3275509 (N.D. Ill. Jul. 2, 2024) (Judge Lindsay C. Jenkins). Plaintiff Mercy Hospital of Folsom has sued Health Care Service Corporation in Illinois state court for failing to adequately compensate it for medical services it provided to eight patients with healthcare plans sponsored by Health Care Service Corp. Defendant removed the action, arguing federal question and supplemental jurisdiction exists because one of the patients (Patient No. 5) has a health plan governed by ERISA and ERISA preempts the state law causes of action. Mercy Hospital moved to remand. The court denied the motion to remand with respect to the claim involving Patient No. 5, but declined to exercise supplemental jurisdiction over the claims related to the seven remaining patients and the disputes involving them. As for the patient insured under the ERISA plan, the court evaluated Mercy Hospital’s claims under the two-prong Davila preemption test. First, the court concluded that Mercy Hospital had a valid assignment of benefits from the patient and that it could bring a cause of action under ERISA Section 502. Second, the court stated that because the insurance company refused to pay for any treatment Mercy Hospital provided to Patient No. 5 on the basis that it was not medically necessary, this action was one implicating the “right to payment” as opposed to a “rate of payment” dispute. “In this case, the only way to determine whether HCSC is required to pay Mercy for the treatment it provided the Patient is to analyze whether the treatments were Medically Necessary as that term is defined in the ERISA plan. Put differently, ‘whether [Mercy] is entitled to damages depends on what benefits and payments are owned under the relevant ERISA plans.’” Thus, the court found that this case was fundamentally about failure to pay medical benefits under a healthcare plan. This is “precisely” what ERISA Section 502(a) covers, meaning no other independent legal duty was implicated and ERISA completely preempts Mercy Hospital’s action. Nonetheless, the court declined to exercise supplemental jurisdiction, as it did not feel that Mercy Hospital’s claims relating to the seven other patients was in any way relevant to the resolution of Patient No. 5’s ERISA claim. As a result, the motion to remand was granted in part and denied in part, and Mercy Hospital was ordered to file an amended complaint asserting causes of action under ERISA pertaining to Patient No. 5.

Exhaustion of Administrative Remedies

Eleventh Circuit

Molla v. Gerdau Ameristeel, U.S., Inc., No. 8:22-cv-2094-VMC-SPF, 2024 WL 3277101 (M.D. Fla. Jul. 2, 2024) (Judge Virginia M. Hernandez Covington). A participant of the Gerdau Ameristeel U.S. 401(k) Retirement Plan, plaintiff Grant Molla, filed this suit on behalf of himself, the plan, and a putative class of similarly situated individuals against the company and the benefits plan administrative committee. Mr. Molla contends that defendants breached their fiduciary duties under ERISA Sections 409 and 502 by mismanaging the plan, causing it to pay unreasonable and excessive recordkeeping and administrative fees. After the complaint was filed, the parties jointly agreed to stay the proceedings pending exhaustion of administrative remedies. Defendants considered and denied Mr. Molla’s claim and upheld the denial on appeal. When they were through with the exhaustion exercise, the parties jointly moved to lift the stay. The court granted the motion and reopened the case. Defendants then filed the instant motion to dismiss. Their motion was premised on a single argument – the complaint must be dismissed because it does not allege that Mr. Molla exhausted his administrative remedies or that his claim was denied. In this decision the court agreed with defendants and granted their motion, but did so without prejudice so that Mr. Molla may simply amend his complaint to plead exhaustion of administrative remedies. The fact that the parties do not dispute that Mr. Molla exhausted his administrative remedies made the decision a little odd, particularly as this is not a benefits action but a plan-wide fiduciary breach case. Nevertheless, the court stressed the Eleventh Circuit’s long-standing requirement that ERISA plaintiffs plead that they have exhausted administrative remedies “before pursuing a claim for either benefits under ERISA or statutory violations of ERISA, unless use of the administrative claims procedures would be futile.” While the court acknowledged that it could not find “caselaw that explicitly addresses whether a plaintiff must amend their complaint to plead exhaustion of administrative remedies in this situation,” it was nevertheless convinced that a plaintiff in an ERISA action must still plead exhaustion of administrative remedies even if it is a fact that the parties do not dispute. Thus, the court is requiring Mr. Molla to file an amended complaint that pleads he exhausted the administrative appeals process in order to proceed with his action.

Pleading Issues & Procedure

Third Circuit

James v. McManus, No. 24-2232, 2024 WL 3238131 (E.D. Pa. Jun. 27, 2024) (Judge Mark A. Kearney). Several years ago, plaintiff Mojirade James obtained a judgment from a jury in Philadelphia, Pennsylvania against defendant Ginette McManus for failing to disclose structural defects in a home Ms. James bought from Ms. McManus. Ms. James then sued Ms. McManus, as well as Baxter Credit Union, Citadel Credit Union, Lincoln Investment, and Teachers Insurance and Annuity Association in the Montgomery County Court of Common Pleas for violations of Pennsylvania’s Uniform Voidable Transactions Act, conversion, and unjust enrichment, seeking to collect on her judgment won in the earlier action. Ms. James claims that Ms. McManus is fraudulently transferring funds subject to the judgment to retirement and pension accounts to make herself appear insolvent and avoid paying. In addition, Ms. James alleges that “the financial institutions converted the money when it accepted Ms. McManus’s funds.” Defendants removed the action to federal court, arguing that ERISA preempts the state law claims. Ms. James responded by moving to remand, and for sanctions and attorneys’ fees. She believes defendants lacked an objectively reasonable basis for removal. Defendants conceded that complete preemption does not apply, but nevertheless maintain that the action is properly before the federal district court because of the “arising under” federal law basis for subject matter jurisdiction. They argue that Ms. James’s state law causes of action cannot be resolved without the court considering ERISA’s anti-alienation provision. In this order the court concluded defendants failed to meet their heavy burden of satisfying the court’s subject matter jurisdiction, which is “reserved for a special and small category of cases ‘arising under’ federal law. Ms. James’s state law claims do not require us to resolve significant federal issues creating ‘arising under’ jurisdiction.” The court stated that it does not need to consult ERISA’s anti-alienation provision to define the term “asset” under Pennsylvania’s Uniform Voidable Transactions Act. Although the court agreed with defendants that Ms. James will have to prove the transfer of assets, it disagreed that a federal question is necessarily raised because of this. “Ms. James appears to be claiming a transfer of available assets under Pennsylvania law to an ERISA plan. The question is whether those funds allegedly transferred to exempt plans are subject to execution under Pennsylvania law mindful federal law bars collection of assets in ERISA plans managed by Lincoln Investment and Teachers Insurance. This issue does not arise under federal law.” Thus, the court concluded defendants did not meet their burden of establishing jurisdiction, and stressed that any uncertainty should be resolved in favor of remand. Ms. James’s motion to remand her action back to state court was accordingly granted. However, the court denied her motion to sanction defendants for their removal, finding that defendants removed the action based on fairly presented arguments that the state law claims arise under federal law. The court emphasized that the parties’ dispute over federal jurisdiction was complex and difficult.

Withdrawal Liability & Unpaid Contributions

Seventh Circuit

Painters District Council #58 v. Plant Maintenance Services, LLC, No. 3:24-CV-00697-SPM, 2024 WL 3273290 (S.D. Ill. Jul. 2, 2024) (Judge Stephen P. McGlynn). A union, Painters District Council #58, and an employee welfare benefit plan, the Illinois State Painters Welfare Fund, brought this action pursuant to ERISA seeking damages from defendant Plant Maintenance Services, Inc. for audit liability, liquidated damages, pre-judgment and post-judgment interest, audit costs, and attorneys’ fees and costs. During the audit, the auditor discovered that Plant Maintenance Services made overpayments to the fund in the amount of $132,577.51 and that the fund did not give any credit to the employer for the overpayments nor did it offer a refund. ERISA Section 403(c)(2)(A)(ii) states that it “shall not prohibit the return of [contributions or payment made by an employer to a multiemployer plan by a mistake] to the employer within 6 months after the plan administrator determines that the contribution was made by such a mistake.” After learning of the mistaken overpayments through the audit, the employer asserted a counterclaim, arguing it is entitled to either a credit from the fund for its overpayment or a refund in the amount of the overpayments. Plaintiffs moved to dismiss the counterclaim. They argued that ERISA does not require them to automatically refund overpaid contributions because Section 403(c)(2)(A)(ii) “merely allows the Funds to do so when the Funds determine a refund to be appropriate.” It is their position that ERISA requires employers to monitor contribution payments and to timely request a refund when appropriate. They maintain that Plant Maintenance Services is attempting to shift the responsibility on them resulting in a counterclaim “which is not cognizable, and therefore must be dismissed.” They further highlighted that the six-month window in Section 403(c)(2)(A)(ii) has passed, requiring dismissal of the counterclaim. The court disagreed with plaintiffs, and signaled some sympathy for the employer. Quoting from a 1993 Seventh Circuit decision, UIU Severance Pay Trust Fund v. Local Union No. 18-U, United Steelworkers, the court stated, “absent a judicially-crafted cause of action, employers are left to the mercy of plan trustees who have no financial incentive to return mistaken payments. Employers are already penalized for failing to make required contributions.” In UIU Severance Pay Trust Fund the Seventh Circuit established a “federal common law cause of action…to ‘effectuate the statutory pattern enacted in the large by Congress.’” Relying on this, the court held that while Section 403(c)(2)(A)(ii) does not itself establish a cause of action for restitution of overpayments, Plant Maintenance Services nevertheless stated a claim for restitution under federal common law. This remained true, the court said, despite the fact that the employer did not request a refund within the six-month window. However, the court did note that it will be the employer’s burden “to prove that their restitution claim comports with the four factors discussed by the Seventh Circuit.” These four factors are: (1) are the contributions the sort of mistaken payments that equity demands be refunded; (2) has the employer delayed in bringing its claim for so long that equitable defenses bar recovery; (3) has the employer by continuing payments somehow ratified past payments; and (4) can the employer demonstrate that the fund would be unjustly enriched if recovery were denied? For now, though, the court noted that consideration of the four-factor test for restitution under UIU Severance Pay Trust Fund was premature at this stage. Plaintiffs’ motion to dismiss the counterclaim was thus denied.