
Chavez v. Plan Benefit Servs., Inc., No. 22-50368, __ F.4th __, 2024 WL 3409147 (5th Cir. July 15, 2024) (Before Circuit Judges Wiener, Stewart, and Engelhardt)
This published opinion is the third by the Fifth Circuit in this class action challenging the imposition of excessive fees in the administration of ERISA-governed retirement and welfare benefit plans, with the potential of more to come.
The plaintiffs are Heriberto Chavez, Evangelina Escarcega, and Jorge Moreno, who were employees of the Training, Rehabilitation & Development Institute, Inc. (“TRDI”). TRDI contracted with defendants Plan Benefit Services, Fringe Insurance Benefits, and Fringe Benefit Group (collectively “FBG”) to set up various benefits for TRDI employees. TRDI distributed the benefits through FBG via two trusts, the Contractors and Employee Retirement Trust (“CERT”), which covers retirement plans, and the Contractors Plan Trust (“CPT”), which covers health and welfare benefits.
TRDI’s contract with FBG gave FBG significant control over how the trusts were operated and how benefits were paid. FBG was allowed to determine the fees deducted from CERT and direct “banks and other entities holding Trust funds to pay those fees, including to FBG itself.” Meanwhile, CPT authorized FBG to “calculate and deduct its own fees from employer contributions before remitting premium payments to the carriers.”
Plaintiffs contended that FBG abused this power by collecting excessive fees in violation of ERISA, such as charging an excessive base fee and charging different rates for identical services on top of that. They alleged examples in which FBG charged as much as 10-17%, depending on the benefit, which they contended was unreasonable.
FBG moved to dismiss, but its motion was denied. The district court also granted plaintiffs’ motion for class certification. In doing so, the court “encountered a question of first impression: whether Plaintiffs had standing to sue FBG on behalf of unnamed class members from different contribution plans.” The court ultimately concluded that plaintiffs had standing and certified a class.
FBG appealed and the Fifth Circuit reversed in a 2020 decision. It ruled that the district court did not engage in a sufficiently “rigorous analysis” necessary for certifying a class action and remanded. On remand, the court conducted a more thorough analysis and again granted plaintiffs’ class certification motion.
FBG again appealed. In August of last year, the Fifth Circuit affirmed this new decision in its entirety. (Your ERISA Watch covered this ruling as the case of the week in our August 16, 2023 edition.)
In that ruling, the Fifth Circuit tackled a thorny issue that often arises in class actions. As we wrote last August:
If a class representative wants to litigate over harms that other class members suffered but were not identical to the ones the representative suffered, when should courts address the “disjuncture between the harm that the plaintiff suffered and the relief that she seeks”?
Some courts have simply ruled that plaintiffs have standing as to their own individual claims and then addressed the disjuncture during the class certification stage. Other courts have addressed the disjuncture at the pleading stage, deciding whether the plaintiffs have standing to pursue the claims of others. The Fifth Circuit called the first approach the “class certification approach” and the second the “standing approach.”
The Fifth Circuit punted on this issue, ultimately ruling that plaintiffs could proceed under either approach. It affirmed the class certification order and remanded.
But wait! FBG, backed by an amicus brief from the Chamber of Commerce, filed a motion for rehearing, which the Fifth Circuit granted. It withdrew the August 2023 decision and last week issued a new decision replacing it.
Would the Fifth Circuit bravely step forward and take this opportunity to decide which framework – the class certification approach or the standing approach – is correct? Sadly, the answer was no. On this issue the court’s new decision was identical to its old one, concluding that plaintiffs had standing under either approach.
However, the court whistled a different tune on the issue of class certification. It agreed with its previous ruling that plaintiffs satisfied Federal Rules of Civil Procedure 23(a) and 23(b)(3). Where it differed was on Rule 23(b)(1).
Rule 23(b)(1) allows for a class action when separate actions would create a risk of disposing of or impairing the claims, interests, or rights of absent class members. The essence of FBG’s argument on this point was that the “district court’s analysis completely fails to account for the central fact that this proposed class involves vastly different plans and fees.” FBG also argued that “the district court incorrectly assumed that an accounting for Plaintiffs’ claim would be dispositive in any way for any other plan members.”
Last August the Fifth Circuit dismissed these concerns, concluding that FBG’s pricing scheme was either “uniform or amenable to a pricing grid,” and that plaintiffs were seeking not only monetary relief, but also equitable remedies, which “undoubtedly involves the entire class – or any other members of the CERT and CPT trusts[.]” Thus, Rule 23(b)(1) was satisfied.
The Fifth Circuit changed its mind in its new ruling. The court concluded that “mandatory class status under Rule 23(b)(1) is inappropriate because this is primarily an action for damages and it is not evident that individual adjudications would substantially impair the interests of members not parties to the individual adjudications.”
The appellate court noted that even though plaintiffs sought equitable relief, that relief was in the form of disgorgement of “ill-gotten profits,” which was monetary in nature. Thus, “[t]he inclusion of claims for injunctive and declaratory relief does not change the nature of this action.” The “class claims are primarily for damages” and therefore Rule 23(b)(3) “is the appropriate vehicle for such class actions.”
Next, in an addition from last year’s ruling, the Fifth Circuit addressed the district court’s “cursory” Rule 23(c) analysis “to provide guidance on remand” because “in its certification order, the district court did not indicate that it had seriously considered the administration of the trial.”
Specifically, the appellate court ruled that the district court “failed to sufficiently address concerns regarding the variability of individualized damages in the suit.” The district court “abused its discretion” in “failing to adequately analyze and determine whether liability and damages should be bifurcated in certifying the class.”
The court further instructed the trial court to consider whether some of the distinctions alleged by FBG “could be handled via certification of specific issues or subclasses.” As for what procedures or mechanisms the district court could employ, the Fifth Circuit was agnostic: “We express no view on the district court’s ultimate decision whether to divide this large, complex litigation into smaller, more manageable pieces in light of today’s opinion, nor do we opine on the ultimate merits of the substantive claims.”
In short, the Fifth Circuit’s new decision backtracked slightly from its ruling last year, but in the end it arrived at a similar place. The plaintiffs’ class action remains certified, although narrowed in basis to Rule 23(b)(3) only. Furthermore, on remand the district court will have to dot its I’s and cross its T’s on the procedural details in order to avoid a third trip back to the Fifth Circuit.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Class Actions
First Circuit
Turner v. Liberty Mut. Ret. Benefit Plan, No. 20-11530-FDS, 2024 WL 3416070 (D. Mass. Jul. 15, 2024) (Judge F. Dennis Saylor IV). In 2008, Liberty Mutual Insurance Company acquired Safeco Insurance Company. Plaintiff Thomas Turner was an employee at Safeco. He first began working for the company in 1980 and continued working for the company after its acquisition by Liberty Mutual. Liberty Mutual promised transitioning employees that they would begin participating in its benefit programs and that the years they worked at Safeco would be counted towards their benefits. At issue in this putative class action is Liberty Mutual’s calculation of cost-share obligations for post-retirement medical benefits. Mr. Turner alleges that after the Safeco acquisition, he was advised repeatedly that his post-retirement healthcare cost-sharing credits would be calculated based on both his pre-merger years of employment at Safeco and his later years working for Liberty Mutual. Following two summary judgment decisions in 2022 and 2023, this issue over misrepresentations is the one remaining cause of action in Mr. Turner’s lawsuit. In this remaining claim, Mr. Turner seeks equitable relief under Section 502(a)(3) and asks the court “to reform the plan in accordance with representations Defendants made to Plaintiff and the Class and to provide complete credit for years they were employed by Safeco for purposes of benefits under the [Liberty Mutual Retirement Benefit Plan.]” He now seeks to certify a class of similarly situated employees under Rule 23. However, his motion to certify was denied without prejudice in this order. The problem for Mr. Turner was his class definition. Mr. Turner defined his class as: “Former grandfathered employees of Safeco corporation and subsidiaries transitioning to Liberty Mutual on January 1, 2009 who were not or will not be given both: (A) credit for purposes of eligibility and cost sharing for their grandfathered age and service points as of 12/31/2004 (their ‘Safeco Grandfathered Credit’) and (B) credited service for employment with Liberty Mutual (their ‘Liberty Mutual Credit.’).” To the court, this class definition is based in part on a claim that is not part of Mr. Turner’s complaint –that Safeco employees were denied benefits they earned under the Safeco plan prior to the Liberty Mutual acquisition, in addition to the benefits they earned under the Liberty Mutual plan. The Liberty Mutual defendants took issue with this too, and they characterized it as a workaround “that subtly, but critically, broadens the nature of the remaining claim at issue.” The court and defendants agreed that this “combined benefits” aspect of the proposed definition, where Mr. Turner appears to assert that he was denied benefits earned under both the Safeco plan and the Liberty Mutual plan, is not plaintiff’s heretofore theory of his case. Instead, Mr. Turner’s theory has always been that he was denied benefits he was owed under the Liberty Mutual plan based on his years of employment at both Safeco and Liberty Mutual. The court concluded therefore that certification of this proposed class encompassing the combined-benefit claim is impermissible. “Here, because the pleaded claim is founded on a broader range of allegedly unlawful conduct than that raised in plaintiff’s motion, the complaint did not provide adequate notice of the legal theory animating the proposed class definition.” Accordingly, the court denied the motion to certify this class, but stated that whether a class with a different definition more narrowly focused on Mr. Turner’s actual theory around the Liberty Mutual plan could be certified remained an open question and therefore denied the motion without prejudice.
Discovery
First Circuit
Germana v. Hartford Life & Accident Ins. Co., No. 3:23-cv-30065-MGM, 2024 WL 3416026 (D. Mass. Jul. 15, 2024) (Magistrate Judge Katherine A. Robertson). Plaintiff Scott Germana brings this action against Hartford Life and Accident Insurance Company seeking to recover long-term disability benefits under ERISA. Presently before the court was a motion for discovery filed by Mr. Germana requesting a one-hour Rule 30(b)(6) deposition of Hartford, along with certain written discovery mainly regarding Hartford’s policy of not considering documents submitted after the date when it determines the record is closed, as well as its practice of relying on medical opinions of physicians not licensed to practice medicine in the state of Massachusetts. Mr. Germana maintains that the discovery he seeks will show procedural irregularities and will speak to Hartford’s bias. He argued that he is entitled to this limited discovery in order to bolster his arguments in favor of reversing the termination of benefits. The court did not agree, and in this decision denied Mr. Germana’s discovery motion. The court was not persuaded that Mr. Germana had presented convincing evidence of implicit bias or anything other than bare allegations of a structural conflict of interest to warrant deviating from the presumption against discovery in ERISA benefit denial cases such as this one. It broadly rejected Mr. Germana’s argument that Hartford’s policy of refusing to credit materials once it has closed the claims record prevents a full and fair review under ERISA. Mr. Germana’s assertions, the court stated, were in direct conflict with First Circuit holdings where “the final administrative decision acts as a temporal cut off point.” As a result, the court concluded that evidence arising beyond the final administrative decision is inadmissible, and stated that it would not add these documents into the administrative record. In addition, the court stressed it could find no case law supporting Mr. Germana’s proposition that an insurance company is required to have doctors licensed in a claimant’s state review the claimant’s medical records. Accordingly, the court declined to open up discovery on this basis. The rest of Mr. Germana’s remaining rationales for discovery were also rejected by the court, including his arguments that defendant failed to consider the cognitive effects of his disability and that Hartford did not offer a plausible explanation for disregarding the Social Security Administration’s finding of disability. The court summed up its views as follows: “[t]he bald fact that Defendant made an adverse benefits determination is not evidence of bias or unfair claims processing… If it were, almost every plaintiff in an ERISA benefit denial case would be entitled to discovery, and the First Circuit has made clear that discovery is the exception not the rule.” Mr. Germana was therefore not permitted to take the limited discovery he requested or add any documents to the administrative record.
Disability Benefit Claims
Eighth Circuit
Covill v. Unum Life Ins. Co. of Am., No. 23-cv-19-LTS-MAR, 2024 WL 3443916 (N.D. Iowa Jul. 16, 2024) (Magistrate Judge Mark A. Roberts). Plaintiff Kendra Covill stopped working as a dental hygienist in 2019 after the onset of randomly occurring but severe pelvic and gynecological pain. To treat her symptoms Ms. Covill underwent several surgeries in August and September of 2019, including a hysterectomy. Nevertheless, the pain persisted, prompting Ms. Covill to submit a claim for long-term disability benefits under an ERISA-governed policy insured by defendant Unum Life Insurance Company of America. Unum denied Ms. Covill’s claim, concluding that Ms. Covill exaggerated the severity of her pain and that her complaints of ongoing chronic pain were of “unclear etiology.” In this action, Ms. Covill challenges Unum’s denial of benefits. She argued that Unum’s decision was arbitrary and capricious as it was based primarily on a lack of a documented single unifying diagnosis accounting for the pain. Ms. Covill contends that “reliance on her subjective severe pain reports, her exam records documenting severe pain, and the intensive therapy she received confirm the severity of her pain reports,” making Unum’s decision to deny her claim for benefits unreasonable. Further, Ms. Covill maintained that Unum improperly rejected her treating OBGYN’s assessment of her functional limitations, including her doctor’s position that her pain was at times so severe that it is “not safe to work on patients while using sharp instruments in their mouths.” Finally, Ms. Covill asserted that Unum wrongfully discredited her vocational consultant’s report and instead imposed its own definition of “light work” to include frequent sitting, which she contends is inconsistent with both the definitions under the Dictionary of Occupational Titles (“DOT”) and the Enhanced Dictionary of Occupational Titles (“eDOT”). It was this last argument which proved most persuasive to Magistrate Judge Mark Roberts, who issued this report and recommendation taking issue with Unum’s definition of “light work.” The Magistrate recommended that the court remand the matter to Unum for further consideration and development on issues related to this definition, “including whether such designation includes frequent sitting, and to further address why and how the eDOT definition applies to Covill.” The Magistrate’s report noted that Unum did not meaningfully address this subject in its briefing and failed to supply the eDOT’s definition of “light work” as it pertains to sitting requirements. Without this critical information, the Magistrate believed that the court could not adequately review Unum’s decision. The report also questioned the fact that Unum’s vocational rehabilitation consultant deferred any restrictions and limitations to the reviewing physician, stating, “[a]t best, it is difficult to understand how a vocational consultant can provide an accurate opinion without knowing the claimant’s functional restrictions.” Finally, the Magistrate recognized that Unum has a conflict of interest as it is both decision-maker and insurer. For these reasons, the report stated that remanding to Unum for further development of the record “is appropriate and necessary” and therefore recommended this course of action.
Wessberg v. Unum Life Ins. Co. of Am., No. 22-94 (JRT/DLM), 2024 WL 3444044 (D. Minn. Jul. 15, 2024) (Judge John R. Tunheim). Plaintiff Ann Wessberg became disabled following a diagnosis of bilateral invasive breast cancer in late 2018, at which time she stopped working as an attorney and began cancer treatments including radiation, chemotherapy, and surgeries. In March of 2019 Unum Life Insurance Company of America approved Ms. Wessberg’s claim for long-term disability benefits. Unum continued paying monthly benefits until July 2020, when it terminated benefits, after Ms. Wessberg’s treating oncologist attested that she had improved. In this ERISA action, Ms. Wessberg challenges Unum’s decision, alleging that the insurer improperly terminated benefits and seeking a court order reinstating her long-term disability benefits. In this decision the court issued its ruling under de novo standard of review on the parties’ cross-motions for judgment pursuant to Rule 52. It found that Unum improperly terminated Ms. Wessberg’s benefits and ordered it to pay back benefits, reinstate benefits and resume paying ongoing benefits, and pay Ms. Wessberg reasonable attorneys’ fees, costs, and pre-judgment interest. The decision highlighted several flaws with Unum’s denial of benefits. First, the court expressed that it was an error for Unum to focus overwhelmingly on the physical demands of Ms. Wessberg’s work as an attorney, and not consider the cognitive demands of the job. As evidence of this, the court pointed out that the occupation description Unum provided to Ms. Wessberg’s treating doctors “completely omitted cognitive demands.” Moreover, the court stated that Unum’s failure to consider Ms. Wessberg’s cognitive impairment was not due to Ms. Wessberg failing to submit evidence supporting her assertion of a cognitive disability. “For instance, in March 2019 Wessberg reported to her oncology provider that she was experiencing vertigo/dizziness and fatigue. In May 2019 she reported to her mental health provider that she struggled with concentration and memory, was fatigued and tired, and had decreased stamina.” The court concluded that its own careful review of the entire medical record demonstrated Ms. Wessberg was experiencing disabling cognitive symptoms, including fatigue, dizziness, concentration issues, and fainting, which prevented her from performing the essential duties of her career, and that “Unum, did not present any evidence contradicting Wessberg’s symptoms.” In fact, all of Ms. Wessberg’s treating providers stated they believed she was credible and could not resume full time work. In addition, the court noted that Unum neither required Ms. Wessberg to submit to an independent medical evaluation nor referred her for any cognitive testing, despite the Policy allowing it to do so. Meanwhile, the court reasoned that it would not defer to Unum’s reviewing physicians, as neither of the two doctors “had treated a patient in more than a decade,” other courts have found them not credible, and neither doctor “specializes in oncology or cognitive disabilities.” Finally, the court stated it was improper for Unum to state that Ms. Wessberg failed to corroborate her disabling symptoms with abnormal test results because it rejected her attempts to submit such test results after the date when it terminated benefits. In sum, the court said, “Unum had a duty to engage with Wessberg’s evidence and make an adequate determination of whether Wessberg was disabled; its failure to do so was erroneous.” For these reasons, the court concluded Unum wrongfully terminated Ms. Wessberg’s benefits, reinstated them, awarded her payment of back benefits, interest, and attorneys’ fees, and entered judgment in her favor.
Life Insurance & AD&D Benefit Claims
Fifth Circuit
Edwards v. Guardian Life Ins. of Am., No. 1:22-CV-145-KHJ-MTP, 2024 WL 3404606 (N.D. Miss. Jul. 12, 2024) (Judge Kristi H. Johnson). Plaintiff James Emmett Edwards brought this action against Guardian Life Insurance of America seeking to recover life insurance benefits following the death of his wife. Mrs. Edwards was the owner-operator of a hair salon in Mississippi. In 2007, Guardian issued the salon a group life insurance policy. One of the terms of the policy granted Guardian the right to cancel the plan if “less than two employees are insured.” In 2019, Mrs. Edwards was diagnosed with cancer. By November of 2019, Mrs. Edwards became the only participating employee under the group plan. She nevertheless continued to maintain the plan and pay monthly premiums. Before the policy was eligible for cancellation, the COVID-19 pandemic occurred, at which time Guardian suspended its practice of terminating plans that had dropped to one participant. Its suspension practice ended in October of 2021, at which time Guardian mailed a letter to Mrs. Edwards informing her that the salon’s group life insurance policy was being cancelled effective January 15, 2022 because of low participation. After the policy was cancelled Guardian received no additional premium payments. Then, on May 27, 2022, Mrs. Edwards died from complications of her cancer. Mr. Edwards’ claim for proceeds under the policy was denied by Guardian, prompting this litigation. The only remaining claim in Mr. Edwards’ action is a claim for recovery of plan benefits under ERISA Section 502(a)(1)(B). Guardian moved for summary judgment on the benefits claim. Its motion was granted in this decision. The court concluded that there was no genuine dispute of material fact that Guardian had the authority to cancel the policy and that it did so before Mrs. Edwards died and before Mr. Edwards made a claim under the policy. “Without a plan in existence,” the court stated, “Edwards ‘has no claim for benefits under the plan.’” The court rejected both of Mr. Edwards’ arguments for why he remained entitled to benefits even after Guardian cancelled the policy – that Guardian (1) waived its right to cancel, and (2) failed to provide proper notice to Mrs. Edwards or give her the right to convert the policy. The court addressed waiver first. It distinguished a Fifth Circuit case where the court of appeals found an insurer had waived its right to terminate a group health insurance policy when the participation levels dropped because in that instance the insurer had tried to cancel the policy after an employee filed a claim for healthcare benefits. The court stated that those circumstances were fundamentally different because Guardian canceled the policy at issue here months before Mrs. Edwards died. “When confronted with a similar issue…the Fifth Circuit rejected the plaintiff’s ‘attempt to expand the scope of its waiver analysis to include the defendants’ actions made before the plaintiff…made a claim for benefits.’” Turning to the issue of notice, the court stated that there was no genuine issue that Guardian had mailed a cancellation notice to Mrs. Edwards. “Indeed, the record overwhelmingly supports a presumption that Guardian mailed the cancellation notice.” Accordingly, the court affirmed Guardian’s denial of Mr. Edwards’ claim for benefits and entered judgment in its favor.
Pension Benefit Claims
Ninth Circuit
Rodriguez v. Profit Sharing Plan II Admin. Comm., No. 23-CV-2236 JLS (JLB), 2024 WL 3447521 (S.D. Cal. Jul. 17, 2024) (Judge Janis L. Sammartino). Two former employees of a tractor company, Torrence’s Farm Implements, accuse the administrative committee and two individual committee members of the Torrence’s Farm Implements Profit Sharing Plan II of failing to comply with ERISA. Specifically, plaintiffs allege in counts one and two that defendants violated Section 1025 by failing to provide automatic annual pension benefit statements and by failing to provide profit sharing account statements upon written request. In addition, plaintiffs assert a claim under Section 1133 based on defendants’ failure to provide a written decision responding to a claim submitted by one of the plaintiffs to obtain a loan under the plan. They seek statutory penalties on claims one and two, review of claim three’s loan request, and requested all benefits due, as well as attorneys’ fees and costs. Defendants moved to dismiss the claims for failure to provide requested documents and for failure to respond to a request for benefits. Defendants argued that the second cause of action was untimely, that it improperly relied on requests made by third-party attorneys, that it is duplicative of count one, and that it impermissibly targets individual committee members who are not the named plan administrator. Regarding plaintiffs’ third claim, defendants argued that Section 1133 does not contain a private right of action, the claim should be dismissed for failure to exhaust administrative remedies, and a loan request does not qualify for a claim for benefits under ERISA. The court addressed defendants’ arguments and ultimately granted the motion to dismiss count two and denied the motion to dismiss count three. First, the court agreed with defendants that claims based on requests made more than three years before the action was filed were untimely. However, the court declined to dismiss claims stemming from later requests for information, even though they were associated with the earlier requests, seeing “little reason to immunize a plan administrator from its continuing statutory obligation merely because it neglected that obligation in the past.” Nevertheless, the court dismissed count two “because it relies on a theory belied by the relevant statutory language,” i.e, that plan administrators are required to provide pension benefit statements whenever requested. Under the language of the statute, the court concluded that plan participants are only entitled “to a pension benefit statement once annually,” not whenever they request one. Thus, the court dismissed the second cause of action for failure to state a claim. The court also agreed with defendants that the individual committee members could not be held liable under Section 1132(c), but declined to dismiss the individual defendants from the action because the third cause of action pursuant to Section 1132(a)(3) does not limit liability to administrators. The remainder of defendants’ arguments were far less successful. The court denied the motion to dismiss the improper denial of benefits claim. It found that plaintiffs may sue to require defendants to comply with the requirements of Section 1133, that plaintiffs were not required to exhaust administrative remedies, and that a loan may be a benefit under ERISA and the complaint plausibly alleges the plan provides for loans. Finally, the court specified that its dismissal of count two was without prejudice should plaintiffs believe they can amend their complaint to state a claim.
Pleading Issues & Procedure
Fifth Circuit
Utah v. Su, No. 23-11097, __ F. 4th __, 2024 WL 3451820 (5th Cir. Jul. 18, 2024) (Before Circuit Judges Haynes, Willett, and Oldham). The administrations of Presidents Donald Trump and Joe Biden were obviously very different. Among the countless examples of this is the difference between the Trump-era 2020 “Financial Factors in Selecting Plan Investments” regulation which forbade ERISA fiduciaries from considering “non-pecuniary” environmental social and governance factors in their investment selections, and the 2022 Biden-era Department of Labor (“DOL”) “Investment Duties” rule permitting ERISA fiduciaries to consider “the economic effects of climate change and other environmental, social, or governance factors” among competing investment options so long as the potential investment choices they are selecting from “equally serve the financial interests of the plan.” These flip-flopping regulations under the two administrations are at the center of this litigation brought by 26 States, private interest parties, and trade associations challenging the 2022 Department of Labor Biden-era rule under the Administrative Procedure Act (“APA”) and ERISA. Your ERISA Watch covered the district court’s decision in this case as our notable decision the week of October 4, 2023. In that decision the district court dismissed plaintiffs’ challenge by deferring to the DOL’s interpretation of ERISA pursuant to the Supreme Court’s guidance in Chevron v. NRDC and concluded that the DOL’s 2022 Rule was not “manifestly contrary to the statute.” But keen court followers are surely aware that things have since changed. The Supreme Court made headlines this term by overturning Chevron and paring back federal agencies’ freedom to interpret statutes in its landmark decision in Loper Bright Enterprises v. Raimondo. As a result of “the upended legal landscape,” the Fifth Circuit vacated and remanded the district court’s ruling from last September so that the lower court “can reassess the merits.” The Fifth Circuit took multiple opportunities to state that appellate courts such as itself are “courts of review, not first view,” and relied on this principle to decline to answer any “legal question in the first instance,” especially because the disputed issue here is “one of national significance.” Instead, the court of appeals concluded that the prudent course of action is to follow the “[o]orderly observation of the appellate process” to allow the lower court to interpret the law and issue its reasoned judgment to address the important statutory issue before it and answer the question of whether ERISA allows its fiduciaries to consider factors that are not first and foremost centered on financial performance. Thus, the Fifth Circuit instructed the district court to answer whether the DOL’s 2022 “rule can be squared with either ERISA or the APA,” and stated that when the time comes this same Fifth Circuit panel, “already acquainted with the briefs and arguments of counsel,” can once again weigh in. For now it will be up to the district court to reconsider plaintiffs’ challenge in light of Loper Bright.
Sixth Circuit
Oliver-Smith v. Lincoln Nat’l Ins. Co., No. 1:23-cv-276, 2024 WL 3443004 (S.D. Ohio Jul. 17, 2024) (Judge Jeffery P. Hopkins). The parties jointly moved to file the entire administrative record under seal in this ERISA long-term disability benefits dispute. The parties argued that the administrative record contains sensitive medical and financial information that would subject the plaintiff “to potential harm, embarrassment, or humiliation,” and that sealing the whole of the record makes sense given that it is “replete with sensitive information” and “redaction would present a high risk of inadvertent disclosure of confidential information, would be extremely time consuming and burdensome, and would leave little of value to the public’s interest.” Finally, the parties reasoned that the public would still have access to all pleadings, briefs, and court decisions throughout the litigation which would mitigate the public’s lack of access to the documents within the administrative record itself. The court was persuaded by these arguments and granted the motion to file the administrative record under seal. It expressed that filing the record under seal was justifiable given the strong federal and state policies in favor of protecting private health information, which it agreed outweighs the public’s interest in accessing these records and documents. In sum, the court wrote that although “the parties seek to file the entire Administrative Record under seal, the circumstances demonstrate that the request is in fact no broader than necessary.”
Provider Claims
Third Circuit
Samra Plastic & Reconstructive Surgery v. Cigna Health & Life Ins. Co., No. 23-22521 (MAS) (TJB), 2024 WL 3444273 (D.N.J. Jul. 17, 2024) (Judge Michael A. Shipp). Plaintiff Samra Plastic and Reconstructive Surgery is an out-of-network provider with Cigna Health & Life Insurance Company. In this action, Samra seeks payment of 70% of its billed charges for complex reconstructive breast surgery it provided to a patient insured under an ERISA plan covered by Cigna. Samra asserts seven causes of action. The first three are state law claims for breach of contract, promissory estoppel, and account stated, and the last four are ERISA claims for benefits, failure to establish a summary plan description, failure to establish and maintain claims procedures, and fiduciary breach. Cigna moved to dismiss the action. Its motion was granted in part and denied in part in this order. The court began its analysis with the ERISA claims. First, the court discussed standing. As the plan at issue here contains an unambiguous anti-assignment provision, the court agreed with Cigna that Samra lacks derivative standing under ERISA to assert claims through an assignment of benefits. Nevertheless, Samra contends that it may maintain its ERISA claims through a valid power of attorney conveyed to it from the patient. The court noted, however, that Samra only raised the issue of the power of attorney in its opposition brief and that the complaint was silent on the facts establishing the validity of the power of attorney. It therefore stated that it would not consider these factual allegations which were absent from the complaint and thus granted the motion to dismiss the ERISA claims asserted on the patient’s behalf. The court dismissed the failure to establish and maintain reasonable claims procedure claim with prejudice, but otherwise dismissed the ERISA causes of action without prejudice. Next, the court addressed Cigna’s preemption arguments. It was Cigna’s contention that the three state law claims were preempted by ERISA Sections 502(a) and 514. The court disagreed. With regard to complete preemption under Section 502(a), the court stated, “in the absence of a valid assignment of benefits or power of attorney, as outlined above, Samra cannot bring a claim for benefits under § 502(a) and thus its state law claims are not preempted by § 502(a).” In addition, the court determined that the state law claims fell outside the scope of ERISA’s express preemption provision, Section 514, as they “arose precisely because there was no coverage under the plans for services performed by an out-of-network provider,” and absent the separate agreement between the parties there was no obligation for Samra to provide healthcare or for Cigna to pay for the services. Thus, the court agreed with Samra that the plan was not a critical factor in establishing liability, and the breach of contract, promissory estoppel, and account stated claims were not found to be preempted by ERISA. Finally, the court denied the motion to dismiss the three state law claims, concluding that the complaint’s allegations were sufficient to allege all three under Rule 8 pleading.
Remedies
Tenth Circuit
Ian C. v. United HealthCare Ins., No. 2:19-cv-474-HCN, 2024 WL 3415890 (D. Utah Jul. 15, 2024) (Judge Howard C. Nielson, Jr.). On December 5, 2023, the Tenth Circuit reversed and remanded the district court’s entry of summary judgment in favor of defendant United HealthCare in this medical benefits action involving the residential mental health and substance use treatment of a minor. In that decision (which Your ERISA Watch featured as our case of the week on December 13, 2023) the Tenth Circuit determined that United had arbitrarily and capriciously denied the benefits because it failed to explicitly address plaintiff A.C.’s substance use disorder during the claim administrator and appeals process. The question before the court on remand here was whether to award benefits or to remand the case to the plan administrator for renewed evaluation of the claim. In this instance, as per usual, the court determined that the appropriate remedy was remanding to United given its flawed handling of the claim and its failure to consider addiction as an independent ground for coverage in its denial letters. The court stated that awarding benefits in ERISA actions is only proper where there is “no evidence in the record to support the administrator’s” denial of benefits or under limited circumstances where the insurance company engaged in “clear and repeated procedural errors” when it denied the claim. The court stated that neither circumstance applied here. It stressed that the administrative and medical records contain “evidence that both supports and undermines the conclusion that A.C. no longer qualified for benefits under the Substance-Related Guidelines.” Moreover, the court was unconvinced that the record here reflected “anything like the repeated, clear, and egregious procedural errors that justified the award of benefits in D.K.” Under these circumstances, the court ruled that remand was the only appropriate remedy.
Statute of Limitations
Fifth Circuit
Bailey v. United Healthcare Ins. Co., No. 4:22-CV-02733, 2024 WL 3418003 (S.D. Tex. Jul. 15, 2024) (Judge Kenneth M. Hoyt). Plaintiffs Keith Lemon and Dr. Jason Bailey sued United Healthcare Insurance Company under ERISA seeking greater reimbursement for surgery Dr. Bailey performed on Mr. Lemon under the terms of a health insurance policy. The parties filed cross-motions for summary judgment. Important for the present discussion was the timing of plaintiffs’ lawsuit. United issued its final adverse decision on April 26, 2019. This action was brought on June 29, 2022, over three years later. According to the terms of the policy’s limitations provision, legal actions against United must be brought “after the 61st day of written proof of loss is filed or within three years of the date we notified you of our final decision on your appeal or you lose any rights to bring such an action against us.” United thus argued that plaintiffs’ action was time-barred. The court agreed. To begin, the court stated that plaintiffs could not use Section 1132(c)(1) to toll the plan’s limitations period based on an argument that United failed to produce plan documents upon request. The court was not convinced that plaintiffs diligently pursued their rights as required for equitable tolling to apply. Rather, the court found that United presented a compelling excuse for not providing the documents directly to the healthcare provider, while it could not say that plaintiffs did their best to respond to United’s arguments regarding the medical provider authorization form. Next, plaintiffs argued that Untied violated ERISA by failing to disclose the limitations period. The court, however, read 29 C.F.R. § 2560.503-1(g)(1)(iv) differently. “While the statute explicitly requires that UHIC describe the time limits applicable to the plan’s procedures, it is silent regarding the time limits to bring a civil action. Thus, the Court determines that no disclosure is required.” Finally, the court rejected plaintiffs’ preferred reading of the contractual text. Plaintiffs maintained that the use of the word “or” instead of the word “and” permits them to file suit either after the 61st day of written proof of loss is filed or within three years of the final adverse decision on appeal. But the court did not agree that the word or is “always disjunctive.” In fact, in this instance, the court stated that the better reading of the limitations provision was to understand or as having an inclusive sense. The court viewed plaintiffs’ preferred reading as leading to an absurd result. “The absurdity of the plaintiffs’ interpretation is straightforward: the limitations provision would leave the plaintiff free to sue UHIC in perpetuity, providing no limitation at all.” Unlike plaintiffs’ interpretation, the court viewed United’s interpretation requiring plaintiffs to sue within three years of its final appeal decision as logical, in line with ordinary rules of contract interpretation, and unambiguously making sense. For these reasons, the court found that plaintiffs’ claims are time-barred under the contractual limitations period and entered summary judgment in favor of United without reaching the parties’ arguments on the merits.
Venue
Seventh Circuit
Cline v. The Prudential Ins. Co. of Am., No. 23-cv-15091, 2024 WL 3455089 (N.D. Ill. Jul. 18, 2024) (Judge Sharon Johnson Coleman). Defendant Prudential Insurance Company of America moved to transfer venue in this long-term disability benefit action filed by plaintiff Donald Cline. The parties do not dispute that venue is proper in both the Northern District of Illinois, the venue Mr. Cline chose, and the Middle District of Tennessee, where Prudential seeks to move the action. Instead, the parties disputed whether transferring the case was in the interest of justice and which venue was more convenient. Mr. Cline argued that his choice of forum should be given substantial deference. However, the court agreed with Prudential that Mr. Cline’s venue choice should be given little deference because Mr. Cline lives in the proposed transfer district. In addition, the court found that other private and public factors weighed in favor of transferring venue. The court highlighted the fact that the events occurred in the Middle District of Tennessee where Mr. Cline applied for and received his denial of benefits. Given this, the court was receptive to Prudential’s argument that there will be relative ease and convenience favoring the parties in Tennessee, where Mr. Cline lives, worked, and received medical treatment. On the other hand, the court was not convinced that, as Mr. Cline suggested, this case will be tried on the administrative record without discovery, document production, or witnesses. Instead, it stated that neither party can know for certain “what the outcome of the case will be.” Considering “the desirability of resolving controversies in their locale,” the court concluded that there are significant enough connections between this case and the Middle District of Tennessee to warrant transfer. Thus, Prudential’s motion to transfer was granted.