Hartford Life & Accident Ins. Co. v. Valois, No. 23-3286, __ F. App’x __, 2024 WL 4678055 (9th Cir. Nov. 5, 2024) (Before Circuit Judges Owens, Sung, and Sanchez)

One of ERISA’s goals is to simplify benefit plan administration and ensure that administrators are not subject to multiple conflicting claims or instructions. ERISA endeavors to do this in a number of ways. First, it requires plan administrators to strictly follow the written terms of the plan in distributing benefits. Second, it has an “anti-alienation” provision which generally prohibits plan participants from transferring their benefits to others. Third, it has a famously broad preemption provision which negates all state laws “relating to” employee benefit plans – a provision so broad that Supreme Court Justice Clarence Thomas has said it “may be the most expansive express pre-emption provision in any federal statute.”

However, divorcing couples quickly realized that these provisions were problematic. After ERISA was enacted, many federal courts began ruling that state court domestic relations orders which purported to divide ERISA-governed assets, such as pension or life insurance benefits, were unenforceable because of ERISA’s anti-alienation and preemption rules.

Congress attempted to fix this with the Retirement Equity Act of 1984. The REA created an exception to ERISA’s anti-assignment and preemption provisions for “qualified domestic relations orders,” or “QDROs.” In authorizing QDROs, Congress recognized that ERISA’s goals in achieving uniformity and specificity must sometimes give way to the competing goal of protecting the welfare rights of ex-spouses and their children.

The central question in this week’s notable decision was how to interpret the Q in QDRO. In the REA, Congress listed a number of criteria that a domestic relations order must satisfy in order to become “ERISA-qualified.” The two criteria at issue in this case were: (1) the order must “clearly specify…the plan to which the order applies”; and (2) the order must “not require the plan to provide increased benefits.” 29 U.S.C. § 1056(d)(3).

The order in the case was a Santa Clara County Superior Court order confirming a legal separation agreement between Marc Kowalski and his wife Haili Kowalski. When the Kowalskis separated in 2010, one of their primary objectives was protecting their son. As a result, the Kowalskis agreed that, as a condition of their divorce, Mr. Kowalski would “carry and maintain a policy of life insurance in the amount of $800,000 and shall name [the son] as sole beneficiary.”

Ten years later, Mr. Kowalski began a new job with Micron Technology, Inc. and became a participant in Micron’s Group Life and Supplemental Life Plan, which was insured by Hartford Life and Accident Insurance Company. Under the plan, Mr. Kowalski had $493,000 in life insurance coverage. In contravention of his separation agreement with Ms. Kowalski, Mr. Kowalski did not designate his son as his beneficiary. Instead, he designated Marilyne Valois, his girlfriend at the time. Then, only two months after beginning work at Micron, Mr. Kowalski passed away. Both Ms. Kowalski and Ms. Valois submitted benefit claims to Hartford, and Hartford responded by filing an interpleader action in federal court.

Hartford deposited the life insurance benefits with the court, and was dismissed, while Ms. Kowalski and Ms. Valois briefed the issue of who should be entitled to the funds. Ms. Valois contended that the Kowalskis’ separation agreement was invalid because it did not “clearly identify” the Micron benefit plan, or any plan whatsoever, and merely required Mr. Kowalski to “carry and maintain a policy of life insurance.” Ms. Valois also argued that because Mr. Kowalski was only eligible for $493,000 in life insurance coverage, the separation agreement’s $800,000 requirement “required the plan to provide increased benefits.”

The district court disagreed with both of these arguments, ruled that the separation agreement was an enforceable QDRO, and issued judgment in Ms. Kowalski’s favor. Ms. Valois appealed.

On appeal, the Ninth Circuit began by noting that, pursuant to its previous case law, it only requires “substantial compliance” with ERISA’s QDRO criteria. Under this loose approach, it affirmed the district court’s judgment in favor of Ms. Kowalski.

The court first addressed Ms. Valois’ “plan specificity” argument. The court stated that the purpose of the QDRO criteria is to “spar[e] plan administrators the grief they experience” due to “uncertainty concerning the identity of the beneficiary.” However, “Here, there is no uncertainty.” Although the separation agreement was vague as to the source of the life insurance covering the son, mentioning only “a policy of life insurance,” the court emphasized that there was only one policy in effect at the time of Mr. Kowalski’s death – the Micron policy. As a result, it was “clear which plan is implicated[.]”

As for Ms. Valois’ argument that the agreement “required the plan to provide increased benefits,” the Ninth Circuit observed that the Kowalskis’ separation agreement was “an agreement between the decedent and Kowalski, not between Kowalski and Hartford.” Thus, “Nothing in the [agreement] requires Hartford to provide an amount greater than $493,000.” Indeed, the court noted that Hartford had already “deposited the proceeds and has been dismissed from the underlying action,” and thus it could not be compelled to pay more. Furthermore, no party in the case, including Ms. Kowalski, was seeking more than $493,000 in benefits from the plan. As a result, the court ruled that the agreement “does not require the Hartford Plan to provide increased benefits.”

In short, the Ninth Circuit’s “substantial compliance” doctrine performed some heavy lifting in this case. The separation agreement lacked significant detail but the district court and the Ninth Circuit enforced it nonetheless because it was clear what the Kowalskis intended and there was only one insurance policy in existence at the time of Mr. Kowalski’s death.

However, the Ninth Circuit took pains to limit the scope of its ruling; its decision is unpublished and it emphasized “the unique facts of this case.” As a result, future divorcing couples should be careful, or else they may find themselves on what the Ninth Circuit has previously called “the treacherous shoals of ERISA.”

Ms. Kowalski was represented on appeal by Kantor & Kantor attorneys Glenn R. Kantor and Your ERISA Watch co-editor Peter S. Sessions.

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

Breach of Fiduciary Duty

Second Circuit

Humphries v. Mitsubishi Chem. Am., No. 1:23-cv-06214 (JLR), 2024 WL 4711296 (S.D.N.Y. Nov. 7, 2024) (Judge Jennifer L. Rochon). Plaintiff Robert Humphries is a participant in the Mitsubishi Chemical America Employees’ Savings Plan. He brings this representative putative class action on behalf of the plan and its participants against his former employer, Mitsubishi Chemical America, Inc., as well as the members of its board of directors and the members of the plan’s administrative committee for breaches of fiduciary duties. Mr. Humphries alleges that defendants mismanaged the plan and violated ERISA by failing to select the lowest cost available retail share classes for seven mutual fund investment options in the plan, by selecting and maintaining a stable value fund, the plan’s single largest asset, with a crediting rate of just 3%, and by incurring annual per-participant administrative fees and expenses ranging from $175 to $375. In his complaint, Mr. Humphries alleges that plan was eligible for lower cost share classes, that other stable value funds offered crediting rates that were a percent or two higher than the one the plan invested in, and that reasonable annual plan costs should have been no more than $70 per participant during the class period. Defendants moved to dismiss. They argued primarily that they did not breach any fiduciary duty. Additionally, defendants raised Mr. Humphries’ purported lack of standing with respect to his share class and stable value fund claims. The court granted the motion to dismiss, with leave to amend, in this decision. As a threshold matter, the court agreed with defendants that the complaint does not currently demonstrate that Mr. Humphries has Article III standing to assert his share class and stable value fund claims, as he does not allege that he personally invested in any of these challenged investment vehicles. The court rejected Mr. Humphries’ argument that he has standing to assert all of his claims as a participant of the plan acting in a representative capacity. Left only with Mr. Humphries’ excessive fee claims, the court considered whether it could plausibly infer from the allegations of the complaint that defendants violated ERISA. It stated that it could not. The court held that close inspection of Mr. Humphries’ chosen comparator figures revealed nothing about what administrative services were provided for each of the plans he purportedly compares. Without this level of specificity, the court found the totals meaningless. “The omission is significant because administrative services can vary greatly among different plans.” For the reasons mentioned above, the court granted defendants’ motion to dismiss. Nevertheless, because Mr. Humphries “has not yet amended his complaint, and it is not obvious that amendment would be futile,” the court granted him leave to file an amended complaint addressing these deficiencies.

Ninth Circuit

Su v. Alerus Fin., No. 1:23-cv-00537-DCN, 2024 WL 4681323 (D. Idaho Nov. 4, 2024) (Judge David C. Nye). This case involves a 2015 employee stock ownership plan (“ESOP”) transaction in which the ESOP purchased the stock of a privately held medical and industrial supply company, Norco. Inc. Acting Secretary of the United States Department of Labor, Julie A. Su, brings this fiduciary breach and prohibited transaction action against the ESOP’s trustee, Alerus Financial, N.A., and the company’s former CEO and chairman of its board of directors, James A. Kissler. The two defendants filed separate motions to dismiss the claims against them, and Alerus also filed a motion to seal the entirety of several documents it relied upon in support of its motion to dismiss. In broad strokes, the Secretary’s complaint alleges that the ESOP transaction at issue was rushed, as it took place over a truncated six-week timeline, that Alerus failed to investigate the discrepancy between the outside valuation it received and the terms it agreed to, that the transaction suffered from procedural irregularities which compromised the reliability of the internal stock valuation, resulting in at best overly rosy assumptions of the company’s projected growth, and that this failure to negotiate in good faith resulted in the ESOP overpaying Mr. Kissler for the shares it purchased. The Secretary asserts claims against Alerus for breach of fiduciary duty and engaging in a prohibited transaction, and claims against Mr. Kissler for breach of fiduciary duty and co-fiduciary liability, or alternatively, knowing participation in Alerus’s fiduciary breaches. The court began its discussion with Mr. Kissler’s motion to dismiss. The court was not convinced by the Secretary’s allegations that he was familiar enough with ESOP transactions to understand that something may have been amiss. While the court acknowledged that he is an experienced businessman, the court nevertheless was hesitant to adopt the Secretary’s logic that he should have known the valuation figures were unreasonable, that the transaction happened too quickly, or that there were procedural irregularities that should have caused him to raise an eyebrow and question whether the trustee was truly negotiating in good faith. Because of these concerns, the court did not feel that the complaint currently states plausible claims against Mr. Kissler. Nevertheless, the court was careful to recognize that these shortcomings could be addressed through amendment and therefore dismissed the claims with leave to amend. But matters were very different when it came to Alerus. Unlike Mr. Kissler, the court stated that it could reasonably infer that Alerus knew, or certainly should have known, that the price the ESOP paid for Mr. Kissler’s shares “was inflated beyond adequacy.” Among other things, the court said Alerus could not explain why a medical supply company’s growth could “reasonably be expected to outpace the U.S. economy as a whole,” nor understand why Alerus would assign a 45% weight to Norco’s cost of debt, which was based not on the company’s actual capital structure, but on its “optimal” cash structure. As these facts were seemingly without explanation, the court found that it could reasonably infer that Alerus breached its fiduciary duties to the ESOP and entered into a prohibited transaction. Having determined that the Secretary stated her claims against Alerus, the court quickly dispatched Alerus’s Rule 12(b)(1) arguments. It stated that “the Secretary has clearly alleged that Alerus’s failures caused the plan to overpay for Kissler’s shares,” and a “favorable decision in the case would remedy the overpayment.” As a result, the court found the Secretary had standing to bring her claims. For these reasons, the court denied Alerus’s motion to dismiss the claims against it. Finally, the court denied its motion to seal, as it found Alerus’s assertion of confidentiality fell “well short of the specificity required” to outweigh the public’s right to inspect the documents.

Class Actions

Eleventh Circuit

Pettway v. R.L. Zigler Co., No. 7:23-CV-00047-LSC, 2024 WL 4683657 (N.D. Ala. Nov. 5, 2024) (Judge L. Scott Coogler). On August 2, 2024, the court conditionally certified the proposed class of participants in the R.L. Zigler Co., Inc. Money Purchase Pension Plan and granted preliminary approval of the $253,700 proposed class settlement and separate $265,000 attorneys’ fee fund in this statutory penalty action for failure to provide annual pension benefit statements. Following that decision, notice was sent to the class, and on November 4, 2024, the court held a fairness hearing. Plaintiffs then filed two unopposed motions: a motion for final approval of class settlement, certification, and entry of final judgment, and a motion for attorneys’ fees and costs. The court wholly granted both motions in this order. The court reaffirmed its “extensively considered” preliminary holdings from last August. The court found that nothing had materially changed since it made its conditional findings, and therefore adopted its earlier logic certifying the class under Rule 23(b)(3), and approving the fair and adequate settlement. As for the attorneys’ fees and costs motion, the court found that counsel was entitled to fees under ERISA Section 502(g)(1) given the obtained economic relief for the class members. Furthermore, the court stated that it was ready to award plaintiffs their full $332,400 lodestar based on 554 hours of work at a rate of $600 per hour. Given that plaintiffs requested even less – $265,000 – the court found the request exceedingly reasonable, and awarded fees in this amount. Finally, the court awarded plaintiffs their full request of $11,439.62 for costs, consisting of travel expenses, court fees, and administration fees.

Disability Benefit Claims

Second Circuit

Aobad v. Bldg. Serv. 32BJ Pension Fund, No. 23-CV-1730 (JPO), 2024 WL 4665790 (S.D.N.Y. Nov. 4, 2024) (Judge J. Paul Oetken). Pro se plaintiff Saeed S. Aobad worked as a porter for Temco Service Industries, Inc. for a decade from 2011 to 2021, until on-the-job injuries left him disabled. Mr. Aobad is a member of the SEIU Local 32BJ union and a participant in two Taft-Hartley disability benefit plans, a long-term disability policy and a disability pension plan (collectively “the Fund”). Mr. Aobad’s claim for benefits under both plans was denied. The Fund denied the claim for disability pension benefits pursuant to the plan’s requirement that the Social Security Administration (“SSA”) set an employee’s review period at 5 or more years in order for the employee to qualify as permanently disabled and receive a disability pension. In Mr. Aobad’s case, the SSA approved his claim for Social Security Disability Insurance benefits but set his review schedule for “at least once every 3 years.” As for Mr. Aobad’s long-term disability claim, the Fund’s denial rationale was inconsistent. At first, the Fund denied the claim for benefits stating it did not have evidence that Mr. Aobad had eligibility from September 9, 2017 through February 15, 2018. However, on appeal, these dates changed. The Fund stated that its records indicated that Mr. Aobad was on workers’ compensation for a total of seven months from July 11, 2017 through February 15, 2018, and that he did not satisfy the eligibility requirements because the Fund only counts up to six months of short-term disability toward satisfaction of its 36-month eligibility requirement. The Fund did not explain or acknowledge this change. After he exhausted his administrative remedies, Mr. Aobad filed this lawsuit against the Fund asserting claims under the Americans with Disabilities Act (“ADA”). The Fund moved for summary judgment. To begin, the court disagreed with defendant that it did not qualify as an employer under the ADA. Nevertheless, the court agreed with the Fund on its broader point that the ADA is not the proper vehicle for pursuing a claim of wrongly denied disability benefits. Rather, the court expressed, “such a claim is better brought under ERISA.” Although, Mr. Aobad did not expressly assert an ERISA cause of action, the court liberally construed his complaint as alleging one. Therefore, the court considered whether Mr. Aobad’s allegations could plausibly state a claim for relief under ERISA. Here, it reached two distinct conclusions. First, that it was clear from the face of the complaint that the denial of disability pension benefits was correct, and therefore not plausibly an abuse of discretion. Second, a reasonable finder of fact could conclude that the Fund abused its discretion in denying Mr. Aobad’s long-term disability benefit claim based on the discrepancies alleged. Accordingly, the court granted defendants’ motion for summary judgment on the claim for disability pension benefits, but denied it with respect to the denial of long-term disability benefits.

Third Circuit

Rieger v. Reliance Standard Life Ins. Co., No. Civ. 2:23-03714 (WJM), 2024 WL 4664180 (D.N.J. Nov. 4, 2024) (Judge William J. Martini). In September 2020, plaintiff Gerard Rieger stopped working for his employer Allergan, Inc. due to severe chronic migraines. Although he had suffered from migraines since age 7, Mr. Rieger began complaining of sensitivity to light, smells, and other stimulus, and started experiencing unbearable radiating pain, vomiting, sleep disturbance, and overall functional impairments in the fall of 2020. He complained of more than 15 migraine days per month, each lasting more than 4 hours. This level of severity affected Mr. Rieger’s ability to sustain employment, and defendant Reliance Standard Life Insurance Company approved his claim for long-term disability benefits on May 25, 2021. This litigation stems from Reliance’s termination of Mr. Rieger’s benefits less than one year later. Mr. Rieger and Reliance each moved for summary judgment pursuant to Federal Rule of Civil Procedure 56. Under an arbitrary and capricious review standard the court could not say that the denial was unreasonable or unsupported by the medical record and therefore affirmed the denial and entered judgment in favor of defendant. The court stated that it was simply not true that Mr. Rieger’s medical record showed no change from the time Reliance approved the claim to the point at which it terminated benefits. To the contrary, the court found that while much of Mr. Rieger’s medical condition remained the same or similar, there were significant indications of improvement which could reasonably be understood as supporting Reliance’s finding that Mr. Rieger no longer suffered from an ongoing total disability. The court highlighted, among other things, a gap in treatment between October 21, 2021 and February 15, 2022, as well as notes from Mr. Rieger’s pain management specialist documenting improvements in his day to day condition. Furthermore, to the extent that Reliance’s reviewing doctors and Mr. Rieger’s treating doctors disagreed over the severity of his neurological condition, the court stated that this professional disagreement did not amount “to an arbitrary refusal to credit” evidence favorable to Mr. Rieger. The court next rejected plaintiff’s argument that Reliance arbitrarily demanded objective proof of an inherently subjective condition. “In denying disability benefits, Reliance did not require objective proof of the undisputed migraines, but rather, reviewed additional medical records as well as the opinions of two independent physicians and found that ‘objective clinical examination does not support migraines at a level of severity to prevent or impair consistent light work function.’” Finally, the court was satisfied that Reliance’s denial letter complied with ERISA’s notice requirement and adequately informed Mr. Rieger of the reason for the termination decision, as well as what information he would need to submit in order to perfect his claim for benefits. For the foregoing reasons, the court concluded that Reliance’s decision was not an abuse of discretion. The court thus denied plaintiff’s motion for summary judgment and granted defendant’s cross-motion for summary judgment.

Discovery

Second Circuit

Harris v. Sheet Metal Workers Nat’l Pension Fund, No. 24-CV-1219 (JMF), 2024 WL 4697447 (S.D.N.Y. Nov. 6, 2024) (Judge Jesse M. Furman). Plaintiff Jeffrey Harris brings this ERISA Section 502(a)(1)(B) action against the Sheet Metal Workers’ National Pension Fund seeking judicial review of the Fund’s denial of his claim for early retirement pension benefits. Before the court were two preliminary matters – the right to a jury trial and whether to permit discovery beyond the administrative record. The Fund moved to strike the jury demand, while Mr. Harris moved for discovery. The court ruled unfavorably to Mr. Harris on both matters. To begin, the court cited the long and unbroken string of Second Circuit decisions unambiguously holding that “there is no right to a jury trial in a suit brought to recover ERISA benefits.” Given this precedent, and the fact the Second Circuit has expressly rejected Mr. Harris’s argument that he has a right to a jury trial because cases involving ERISA benefits are contractual, the court was compelled to grant the Fund’s motion to strike Mr. Harris’s demand for a jury trial. Next, the court denied Mr. Harris’s motion for discovery beyond the administrative record. It expressed that it would not permit any extra-record evidence in this ERISA benefit action because the “sole issue in dispute is ‘the reasonableness of the administrator’s decision’ to deny ERISA benefits.” As the court put it, “Harris’s challenge is to the reasonableness of the decision to deny him pension benefits, which turns on a review of the administrative record alone.” Thus, the court concluded that there are no circumstances which justify any further discovery in the present matter. Accordingly, the court adhered to the common practice of denying ERISA plaintiffs jury trials and discovery beyond the administrative record in cases like this one challenging benefit decisions.

Medical Benefit Claims

Ninth Circuit

Jill T. v. California Physicians Serv., No. 23-CV-01065-WHO, 2024 WL 4654265 (N.D. Cal. Oct. 31, 2024) (Judge William H. Orrick). Plaintiff Jill T. sued Blue Shield of California, Magellan Health Services of California, Inc., and Human Affairs International of California seeking reimbursement of more than two years’ worth of residential mental health treatment that her minor son underwent to treat his mental health conditions. The parties filed competing motions for judgment. While “sympathetic with the situation Jill T. faced in providing the best care for her son,” and acknowledging the “errors” Blue Shield made in handling her claim, including a denial letter referring to radiology care and a $10,811.54 payment Blue Shield says was a mistake, the court nevertheless affirmed the denial of coverage under de novo review and entered judgment in favor of defendants in this decision. The court ultimately agreed with defendants that the son’s treatment did not meet the plan’s “medically necessary” criteria, and that Jill T. failed to seek prior authorization before her son began receiving the residential treatment at issue. Specifically, the court agreed with defendants that the medical records did not reflect ongoing self-harming and aggressive behaviors or suicidal or homicidal ideation upon admission to the program, or reflect that he became suicidal or homicidal while in treatment. Given these factors, the court concurred that there was not a compelling reason that the boy needed 24-hour residential mental healthcare, and that he could have been safely treated at a lower level of care. The court also found that defendants properly considered the child’s comorbid conditions “as evidenced by his neurodevelopmental disorders including autism and ADHD, as well as psychiatric disorders, disruptive mood dysregulation disorder and depression.” The court further reiterated that the record was clear that Jill T. did not obtain prior authorization before her son was admitted to the residential treatment program and that she was required to do so under the terms of the plan. The court also distinguished this case from Harlick v. Blue Shield because Blue Shield informed Jill T. that she needed to get prior authorization and was told that her failure to do so was one of the reasons her claim was being denied. Taken together, the court concluded that Blue Shield’s denial of coverage was justified. The court therefore entered judgment in favor of defendants on the claim for benefits. Moreover, the court denied plaintiff’s claim for breach of fiduciary duty, stating that although “Blue Shield’s claim handling process was sloppy at times,” it didn’t “rise to the level of a breach of fiduciary duty,” particularly because despite the mistakes the denial was correct and Blue Shield never sought to recoup its mistaken payment. The court concluded its decision by stating that de novo “review of the administrative record confirms that Blue Shield made the correct coverage decisions in this case” and entering judgment in favor of defendants on both of plaintiff’s claims.

Plan Status

Second Circuit

Garan v. New York Presbyterian Hosp., No. 24-cv-6978 (AS), 2024 WL 4691079 (S.D.N.Y. Nov. 5, 2024) (Judge Arun Subramanian). Pro se plaintiff Jozef Garan sued New York Presbyterian Hospital in New York state court, asserting that he was denied benefits he is owed under the hospital’s pension plan. New York Presbyterian removed the action to federal court, arguing that federal jurisdiction was proper because the pension plan at issue is governed by ERISA. Mr. Garan moved to remand his action. The court denied the motion to remand, and after receiving a letter from Mr. Garan notifying the court that he never received a copy of that order, issued this one reattaching it. The court held that there was no question from the face of the complaint that the pension plan at issue “is a plan maintained by an employer to provide retirement income to employees,” which falls within ERISA’s scope. As such, the court informed Mr. Garan that his lawsuit is an ERISA Section 502(a)(1)(B) action to recover benefits due to him under the terms of the hospital’s pension plan. Moreover, the court stated that because “there is federal jurisdiction for Garan’s claim, removal was proper.” The motion to remand was therefore denied. The court also took a moment to inform Mr. Garan of potential resources available to pro se plaintiffs like him should he desire some form of legal assistance.

Shafer v. Morgan Stanley, No. 20 Civ. 11047 (PGG), 2024 WL 4697235 (S.D.N.Y. Nov. 5, 2024) (Judge Paul G. Gardephe). In this putative class action, a group of former financial advisors at Morgan Stanley allege that the investment banking company and the other fiduciaries of its two deferred compensation plans, the Morgan Stanley Financial Advisor Compensation Plan and the Morgan Stanley Equity Incentive Plan, have breached their fiduciary duties by not paying them all of their deferred compensation when they left their positions. Plaintiffs assert causes of action under ERISA Sections 502(a)(1), (a)(2), and (a)(3). On November 21, 2023, the court issued a decision granting a motion to compel arbitration. (You can find a summary of this order in our November 29, 2023 newsletter). As part of the court’s findings, the court addressed and resolved the parties’ dispute over the plan status of the two deferred compensation programs. In granting the motion to compel arbitration, the court ruled that Morgan Stanley’s deferred compensation programs fit completely within ERISA’s definition of employee benefit plans as their express terms result “in a deferral of income by employees for periods extending to the termination of covered employment or beyond.” The court went on to find that the programs were not exempted “bonus programs” because the financial advisors’ deferred compensation was premised on revenue they generate not on any payments “over and above normal compensation.” The court highlighted that the financial advisors were paid separate year-end bonuses which were “distinct from the Compensation Incentive Plan and Equity Incentive Plan.” Despite prevailing on their motion to compel, defendants were unhappy with the court’s November 21, 2023 order. In response to it, they moved for reconsideration and/or clarification of the court’s determination that the two programs are covered by ERISA. They advanced four arguments in their briefing. First, they argued that the applicability of ERISA was unnecessary to the court’s decision. Second, they argued that the court’s resolution of the issue violated the principle of party presentation, because they did not ask for a ruling on the issue. Third, defendants maintained that the issue regarding the applicability of ERISA was beyond the court’s authority under the Federal Arbitration Act (“FAA”). Finally, defendants contend that the issue of plan status is “fact-specific” and that it was improperly decided based on a record that was not fully developed. The court disagreed with each point and denied defendants’ motion in this decision. As an initial matter, the court stated that there was “no ambiguity to ‘clarify’” here. “After an extensive discussion of the relevant language in the plan documents and the applicable case law, this Court concluded that ‘Morgan Stanley’s deferred compensation programs are ERISA Plans.’” Accordingly, the court denied the motion for clarification. It took more time delving into the motion for reconsideration and addressed each of defendants’ four arguments. To begin, the court stated that it was necessary for it to resolve the ERISA coverage issue in order to rule on the enforceability of the arbitration provisions. Next, the court rebuked defendants for their “disingenuous and incorrect” argument that the court violated the principle of party presentation. Indeed, the court stressed that defendants robustly argued at length that the programs were not covered by ERISA, and as such the court’s decision to reach the issue of whether the programs were governed by ERISA in no way violated the principle of party presentation. Moving on, the court stated that resolution of the ERISA coverage issue was inextricably intertwined with the court’s arbitrability decision and that it did not err in reaching the issue nor violate the FAA. Finally, the court disagreed with defendants that it decided the issue of ERISA coverage without an adequately developed record. Not only did the court find that defendants were improperly attempting to submit new evidence at this juncture, it stated that even if it were to consider this newly submitted testimony it would not change any of its previous conclusions, as “the testimony cited by Defendants does not shed light on the meaning of the plan documents that this Court previously analyzed, and Defendants have not shown that this Court erred in decided the ERISA coverage issue that the Defendants chose to litigate, on the record that they laid before the Court.” Accordingly, the court disagreed that it made any clear error, and thus denied defendants’ motion for reconsideration.

Pleading Issues & Procedure

Sixth Circuit

Gibson v. Unum Life Ins. Co. of Am., No. 1:23-cv-000695-JPH, 2024 WL 4694106 (S.D. Ohio Nov. 6, 2024) (Judge Jeffery P. Hopkins). Plaintiff Bruce Gibson filed this action against Unum Life Insurance Company of America to challenge its termination of his long-term disability and waiver of life insurance premiums benefits. Before the court was Unum’s unopposed motion to file the administrative record under seal. Unum, and tacitly Mr. Gibson, argued that the administrative record contains sensitive and private medical information which warrants sealing the requested record and outweighs the presumption of the public’s access to it. The court was receptive to this argument, and granted the unopposed motion in this decision. It held that Mr. Gibson’s privacy rights provided a clear and compelling reason to protect the administrative record and file it under seal. Moreover, the court said that this is a private dispute regarding individual disability benefits and waiver of life insurance premiums, the nature of which does not concern the public to any degree that should outweigh Mr. Gibson’s interest in keeping his medical information private. Finally, the court agreed with Unum that its request to seal the whole of the administrative record is narrowly tailored because partial redactions could end up rendering the documents meaningless or possibly “obfuscate an understanding of Unum’s policies and procedures.” Thus, the motion to seal the entire administrative record was considered by the court “no broader than necessary.” Thus, the court granted the motion to seal.

Provider Claims

Second Circuit

Murphy Med. Assocs. v. Yale Univ., No. 24-944, __ F. 4th __, 2024 WL 4656321 (2d Cir. Nov. 4, 2024) (Before Circuit Judges Kearse, Sullivan, and Robinson). During the height of the COVID-19 pandemic, healthcare providers across the country set up drive-through and walk-through diagnostic testing sites, reassured that they would be reimbursed for their services under recently passed Congressional legislation, including the Families First Coronavirus Response Act (the “FFCRA”) and the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). This did not always turn out to be true. In the present dispute, plaintiff Murphy Medical Associates alleges that it provided 1,500 diagnostic tests from the beginning of the outbreak through the end of 2020 to patients insured under Yale University Health Plans, but Yale denied reimbursement of these claims worth $1,100,784.00. Murphy Medical sued for reimbursement. It asserted claims under the FFCRA, the CARES Act, ERISA, and various state laws. The district court dismissed its action. The court concluded that the FFCRA and the CARES Act do not provide private causes of action for reimbursement, Murphy Medical lacked derivative standing to bring ERISA claims, the provider failed to allege exhaustion of administrative remedies, and its state law causes of action were preempted by ERISA. Murphy Medical appealed the dismissal of its action. In this per curiam Second Circuit decision, the appellate court affirmed the district court’s dismissal. The court of appeals agreed with the district court that neither the FFCRA nor the CARES Act creates an express or implied private right of action to sue for reimbursement. Instead, it found Congress only “contemplated agency enforcement.” Additionally, the Second Circuit held that the district court properly dismissed Murphy Medical’s claims under ERISA for lack of standing in light of the Yale Plans’ clear and unambiguous anti-assignment provisions. The court of appeals flat-out rejected plaintiff’s argument that the FFCRA and CARES Act should override anti-assignment provisions because such a policy would serve the goals of the Acts. The appeals court wrote that it would “not lightly infer congressional intent to override ERISA’s standing requirements, as Murphy asks us to do.” Accordingly, the court of appeals affirmed the district court’s dismissal of the ERISA causes of action, without even addressing its separate position on plaintiffs’ failure to exhaust. Finally, the Second Circuit held that the state law claims seeking recovery of benefits owed under ERISA-governed health plans were preempted by ERISA Section 514(a), and even assuming there were any non-ERISA plans, Murphy Medical could not sustain these claims either because Yale never agreed to reimburse it pursuant to any verbal or written contract. For these reasons, the court of appeals affirmed the district court’s dismissal of the provider’s action. It also briefly noted that the district court’s dismissal with prejudice was appropriate given the fact that plaintiff’s claims fail as a matter of law, and it appeared without doubt that no amendment could cure these fundamental deficiencies.

Third Circuit

Atlantic Spine Ctr., L.L.C. v. Deloitte, LLP Grp. Ins. Plan, No. 2:23-cv-00614 (BRM) (JBC), 2024 WL 4678399 (D.N.J. Nov. 5, 2024) (Judge Brian R. Martinotti). Atlantic Spine Center, LLC is a surgical practice based in New Jersey. On July 17, 2020, the provider performed spinal surgery on a patient insured by one of defendant Deloitte, LLP Group Insurance Plan’s health and welfare benefit plans. Acting as an assignee with derivative standing to sue under ERISA, Atlantic Spine filed this action pursuant to Section 502(a)(1)(B) on February 3, 2023, seeking the $155,893.90 difference between the standard cost of the surgery it performed and the $4,106.10 it was paid by the Deloitte plan. In an opinion from last March, the court granted Deloitte’s motion to dismiss Atlantic Spine’s complaint for failure to state a claim. The court held that Atlantic Spine had obtained derivative standing through a valid assignment of benefits from the patient prior to the surgery, but that the complaint failed to adequately state an entitlement to reimbursement under the plan terms. That same order permitted Atlantic Spine leave to amend, and instructed the provider that in order to state a plausible claim for relief it would need to cure this deficiency by specifying data sources “suggesting its fees are similar to other providers in the geographic area, and thereby show how its demand for reimbursement is covered under the terms of the plan – with enough facts plausibly showing additional benefits are due.” Atlantic Spine heeded this advice, and amended its complaint adding two illustrative data points, the FAIR Health and Optum Fee Analyzer indices, which each demonstrate that $160,000 is a competitive and fair charge for the type of surgery at issue performed in the same geographic location. Deloitte once again moved for dismissal. This time its motion was unsuccessful. The court found Atlantic Spine adequately followed its guidance and that its second amended complaint met the pleading burden of showing that additional benefits are due, and that Deloitte did not fully reimburse Atlantic Spine at the reasonable rate required under the terms of the plan. “Taking these and other factual allegations in the Second Amended Complaint as true, Atlantic Spine has ‘raised a right to relief above the speculative level.’” Deloitte’s arguments to the contrary were rejected by the court, which expressed that adopting them would fundamentally alter the Supreme Court’s pleading standards in the Twombly and Iqbal cases. Accordingly, the court denied defendant’s 12(b)(6) motion to dismiss.

Retaliation Claims

Ninth Circuit

Agrawal v. Musk, No. 24-cv-01304-MMC, 2024 WL 4654442 (N.D. Cal. Nov. 1, 2024) (Judge Maxine M. Chesney); Caldwell v. Musk, No. 24-cv-02022-MMC, 2024 WL 4654272 (N.D. Cal. Nov. 1, 2024) (Judge Maxine M. Chesney). The world’s sometimes richest man, Elon Musk, cannot escape the news lately. He’s made recent headlines for his private conversations with Russian president Vladimir Putin, his $130 million-plus contributions to Donald Trump’s successful presidential bid, his interest in advancing federal government budget cuts, his companies’ government contracts, and for the ways he advanced the speech of individuals who share his personal worldviews on his social network, X (formerly and still colloquially “Twitter”). It was in fact through his Twitter acquisition that Elon found his way into the world of ERISA litigation and within our field of vision here at Your ERISA Watch. Mr. Musk’s acquisition of Twitter was a headline-making story in its own right. It started tepidly when he began speaking publicly of his fondness for the platform, which he viewed as “the world’s watercooler.”  In January 2022, Mr. Musk began quietly purchasing shares of Twitter, and by early April 2022, he disclosed that he owned more than 9% of Twitter’s shares on the open market and wished for a seat on its board. That plan fell through. Twitter responded with a strategy to resist a hostile takeover by Mr. Musk. Things took another turn when Mr. Musk offered to buy out Twitter for $44 billion. At the end of April 2022, Twitter enthusiastically accepted Mr. Musk’s terms. By all accounts, Mr. Musk’s $44 billion offer, well above the company’s stock price at the time, was overly enthusiastic. Musk’s own enthusiasm waned, and in May he tried to pull out of the deal. Twitter responded with legal action in the Delaware Court of Chancery to enforce the $44 billion deal. Just days before the trial date, Mr. Musk once again reversed course, and announced he would move forward with the acquisition under the original terms of his $44 billion bid. The merger transaction formally closed on October 27, 2022, at which time Mr. Musk not only became the Chairman, Sole Director, and controlling shareholder of the company, but also the administrator of its ERISA plans. Mr. Musk had at least two alleged desires. The first desire, which is well documented and undisputed, was his wish to lay off half the company’s workforce, including all of the company’s most senior officers. The second alleged desire was to fire these individuals in such a way as to avoid paying the hefty price tag under the company’s existing severance and stock incentive plans. Ten minutes after the contracts were formally signed completing the Twitter merger, Mr. Musk sent emails terminating Twitter’s Chief Executive Officer, Chief Financial Officer, Chief Legal Officer, and General Counsel, the plaintiffs in the first of two ERISA lawsuits we’re covering this week. According to their complaint, Mr. Musk falsely asserted that these terminations were “for cause,” proving no factual basis to back up this assertion. The second of the two lawsuits was brought by Plaintiff Nicholas Caldwell, who was employed by Twitter as its General Manager of Core Tech, working directly under the CEO. After his boss was fired on October 27, 2022, Mr. Caldwell resigned from the company, claiming his resignation was for “Good Reason pursuant to the Plan” because he no longer reported to the CEO of a publicly traded company and that he was entitled to an incentive stock unit payout. His claim, like those of the executives for severance benefits, was denied. The key executive severance plan claims were denied on the basis that each plaintiff engaged in “gross negligence and willful misconduct.” Mr. Caldwell’s resignation was deemed “not effective,” and he was informed that he was “terminated for Cause,” and told that, like the executives, he too engaged in “gross negligence and willful misconduct.” After all of their appeals were denied, these parallel lawsuits ensued. The executives assert six causes of action against Mr. Musk, Twitter/the X Corporation, and the Plans for wrongful denial of severance benefits, for failure to timely provide materials upon request, and for unlawful discharge for the purpose of interfering with plaintiffs’ rights to severance benefits under ERISA Section 510. Mr. Caldwell asserts five causes of action under ERISA and state law, including a retaliation and interference claim under Section 510. Defendants moved to dismiss the 510 claims in both lawsuits and the court denied both motions. As a preliminary matter, the court rejected defendants’ assertion that the Section 510 claims are foreclosed in the event plaintiffs establish they are entitled to benefits under the plans. “The Court need not determine whether circumstances exist under which plaintiffs’ § 510 claim would not be foreclosed by the determination of their claims for benefits at the pleading stage; a plaintiff is allowed to plead inconsistent claims.” The court then explained why it found the Section 510 claims in both actions plausible: “the factual allegations in the Complaint, assumed true, support a finding that Musk fired the plaintiffs for reasons related to the Plans. Plaintiffs allege, for example, their respective termination letters stated they were being terminated for ‘cause’… and that Musk had the letters sent ‘to avoid paying [plaintiffs] benefits they are owed under the Plans.’” The court thus concluded that plaintiffs’ complaints contained plausible factual allegations of wrongful termination and therefore found that neither action’s 510 claim was subject to dismissal for failure to state a claim.

Severance Benefit Claims

Fifth Circuit

Gift v. Anadarko Petroleum Corp. Change of Control Severance Plan, No. 23-50862, __ F. App’x __, 2024 WL 4689051 (5th Cir. Nov. 6, 2024) (Before Circuit Judges Southwick, Haynes, and Douglas). This case arises from the Anadarko Petroleum Corporation Change of Control Severance Plan’s denial of plaintiff-appellant Jerry Clayton Gift’s claim for benefits. Mr. Gift sued the Plan and its committee, the plan administrator, under ERISA to challenge the denial of his claim for benefits. Defendants determined that Mr. Gift did not qualify for benefits because he did not need any additional training in order to perform his newly assigned tasks at the company post-merger because his assigned position at the operations control center was voluntary. For this reason, the committee concluded that the post-merger work assignment did not permit Mr. Gift to resign for “Good Reason” under the Plan and qualify for benefits. Under an abuse of discretion standard of review the district court affirmed the denial and entered judgment in favor of defendants. Mr. Gift appealed. In this unpublished per curiam decision, the Fifth Circuit affirmed. The court of appeals agreed with the district court that the Plan and its administrator did not abuse their discretion because their interpretation of the plan language was legally correct. The Fifth Circuit fundamentally understood this action as an interpretation dispute pertaining to the meaning of “Good Reason.” Further, the court of appeals stressed that Mr. Gift offered and identified no “evidence in the administrative record challenging the Committee’s ‘main conclusion’ that [his] work in the [operations control center] was voluntary. Nor does he dispute that the Committee’s denial of his claim was ‘legally correct.’” As a result, the Fifth Circuit agreed with the lower court that there was no material fact dispute that the denial was legally correct and as such could not have been an abuse of discretion. Finally, the appeals court disagreed with Mr. Gift that defendants denied him a full and fair review of his claim by using a “bait-and-switch tactic.” Rather, the Fifth Circuit agreed with defendants that they stuck with their original reason for denial, and simply added additional reasoning in order to fully address all of Mr. Gift’s arguments presented on appeal. For the reasons provided above, the court of appeals affirmed the district court’s grant of summary judgment in favor of the committee and the Plan. 

Venue

Tenth Circuit

Patrick S. v. United Healthcare Ins. Co., No. 2:24-cv-307-TS-DAO, 2024 WL 4666670 (D. Utah Nov. 4, 2024) (Judge Ted Stewart). From August 2022 through January 2024, a minor child, P.S., received medical care at a residential treatment center located in Utah. In this action, P.S.’s father, Patrick S., seeks to challenge United Healthcare Insurance Company’s denial of his claim for coverage of P.S.’s residential mental health treatment under ERISA. Defendant moved to transfer venue to the Western District of Texas, the forum where the family resides and where the plan was administered. In this brief decision the court granted the motion, concluding that the relevant factors weigh in favor of transfer. In particular, the court agreed with defendant that the Western District of Texas is a more convenient forum, and that it has a greater connection to the parties than the District of Utah. As we’ve been covering at Your ERISA Watch for some time now, the District of Utah declines to defer to plaintiff’s choice of forum “where the location of the plaintiff’s treatment was the only connection to the forum.” This pattern remained unbroken here. The court was not persuaded that there was a “material relationship between Plaintiffs’ choice of forum and the case at hand.” On the other hand, the court was convinced that the Western District of Texas was the forum with the greatest connection to this lawsuit and therefore the most appropriate forum to oversee it. Accordingly, the court determined that the interests of justice are served by transferring the case. It therefore granted defendants’ motion to do so.