Singh v. Deloitte LLP, No. 23-1108, __ F.4th __, 2024 WL 5049345 (2d Cir. Dec. 10, 2024) (Before Circuit Judges Livingston, Nardini, and Robinson)

One of the mainstays of ERISA litigation in recent years has been class actions against employers for allegedly breaching their fiduciary duties in the management of employee retirement plans. Large companies are frequently a target of such actions because of the massive size of their plans; any misstep by a plan fiduciary can lead to millions of dollars in losses by plan participants. As a result, the federal courts have increasingly been called on to set the ground rules for how such claims should be pleaded.

This week’s notable decision is yet another example. The plaintiffs were all participants in Deloitte LLP’s 401(k) retirement plan, which as of 2020 had tens of thousands of participants with more than $7 billion in assets. The plaintiffs sued Deloitte, its board of directors, and its retirement plan committee, alleging that they violated their duty of prudence under ERISA by failing to manage the plan’s recordkeeping and administrative fees.

According to plaintiffs, for a “jumbo plan” like Deloitte’s, “[n]early all recordkeepers in the marketplace offer the same range of services and can provide the services at very little cost.” Such recordkeepers provide services “for one price (typically at a per capita price), regardless of the services chosen or utilized by the plan.” As a result, recordkeeping fees for large plans should be largely the same.

However, plaintiffs contended that Deloitte’s fees were higher than those for comparable plans. They alleged that “the Plan’s recordkeeping cost per participant ranged from $59.58 to $70.31, as compared to six other plans with at least 30,000 participants, for which the cost per participant in 2019 ranged from $21 to $34.” Plaintiffs alleged that the plan’s fiduciaries should have negotiated more favorable rates or conducted a request for proposal in order to correct this discrepancy. Plaintiffs suggested that the fiduciaries did not do so because they had inappropriately relied on the plan’s recordkeeper, Vanguard, who had performed that role for the plan since 2004.

Plaintiffs did not get far, however. The district court granted defendants’ motion to dismiss, ruling that plaintiffs failed to plausibly allege that the plan’s fees “were excessive relative to the services rendered.” The district court stated that plaintiffs did not allege specifically what services Vanguard provided, or what services the comparator plans provided, and thus “plaintiffs’ comparison does not compare apples to apples.” The district court also criticized plaintiffs for comparing the plan’s combined direct and indirect costs for recordkeeping with only the direct costs of the comparator plans. (Your ERISA Watch covered this decision in our January 25, 2023 edition.)

Plaintiffs amended their complaint, adding comparisons of the direct costs of the relevant plans, and including an expert declaration explaining how the plan’s recordkeeping and administrative fees were excessive. Plaintiffs also noted that the defendants had “sole possession of relevant Plan disclosures,” which limited their ability to allege malfeasance.

This was insufficient for the district court, however. The district court acknowledged the more specific pleading regarding direct costs, but stated that “plaintiffs’ allegations highlight that a plan’s indirect costs may range widely from year-to-year.” Furthermore, according to the district court, the complaint “still lacked sufficient factual allegations regarding the type and quality of recordkeeping services provided by the Plan and its allegedly less-expensive comparators.” Plaintiffs’ general allegations regarding the fungible nature of recordkeeping services for jumbo plans such as Deloitte’s were not enough. (Your ERISA Watch covered this ruling in our July 12, 2023 edition.)

Plaintiffs appealed, and in this ruling the Second Circuit affirmed. “[W]e agree with the district court that the [first amended complaint] fails to do more than allege conclusorily that the Plan’s recordkeeping fees exceeded those of a select handful among the many other plans available on the market.”

The court explained that in order to survive a motion to dismiss, a plaintiff must specifically allege how the fees at issue are excessive in relation to the services rendered. After all, a higher-than-average fee might still be prudent if the plan receives additional services that warrant a higher fee. As a result, a plaintiff cannot simply compare price; an examination of the services being purchased for that price must also be conducted.

The court ruled that plaintiffs “allege next to nothing about the recordkeeping services provided by the Plan or by the six other large plans that the [first amended complaint] cites as allegedly lower-priced comparators. Nor do they provide allegations as to ‘other factors…relevant to determining whether a fee is excessive under the circumstances.’” Specifically, the complaint was “silent on the number of services actually provided by either the Plan or its alleged comparators.”

The court did not accept plaintiffs’ arguments regarding the fungibility of large plan services. The court acknowledged that plaintiffs had alleged that “[n]umerous recordkeepers in the marketplace are capable of providing a high level of service,” but plaintiffs did “not allege what level of service the Plan provided,” nor “whether less expensive comparator plans provided a similar quality of service.”

The court was also skeptical that the services provided to large plans were truly the same: “[T]he [first amended complaint’s] own allegations, however sparse, show a range of recordkeeping fees even among the six large comparator plans, belying the implication that the allegation of a cost disparity alone, without some consideration of the surrounding context, categorically suggests imprudence.”

The court also rejected the specific comparisons alleged by plaintiffs. The Second Circuit acknowledged plaintiffs’ allegations regarding direct costs, but agreed with the district court that plaintiffs omitted indirect costs from their amended complaint, thereby failing to compare total costs. The court further noted that plaintiffs cited only costs from 2019 when the time period at issue in their complaint ranged from 2015 to 2019. Also, plaintiffs’ allegations regarding the fees charged in other situations by other companies, and the results of a market survey, were unhelpful because once again they did not provide sufficient information regarding the services provided.

Plaintiffs attempted to equate their complaint with those upheld by other Circuit Courts of Appeal, but the Second Circuit distinguished them. The court held that those cases contained far more specific and robust allegations, while plaintiffs’ allegations were “sparse” and “simply not comparable.” In short, “Absent greater specificity as to the type and quality of services provided by the Plan and its comparators – or absent other allegations providing the context that might move this recordkeeping claim “from possible to plausible[]”– Plaintiffs fail to state a claim for breach of the duty of prudence.”

As a result, the Second Circuit affirmed the district court’s dismissal of all of plaintiffs’ claims, including their derivative claim against Deloitte and its board of trustees for failing to monitor the plan’s fiduciaries.

The decision was not unanimous, however. Judge Beth Robinson penned a concurrence in which she agreed with the majority that market comparisons of plans must be “apples to apples,” and that plaintiffs had not satisfied their burden because they inappropriately compared only direct costs without considering indirect costs.

However, she parted ways with the majority regarding “the scope and quality of services provided to the respective comparator plans.” Judge Robinson pointed to plaintiffs’ expert declaration, which listed the specific services provided to large nationwide plans like Deloitte’s, which “include the same suite of essential services.” Because “they’ve told us what those services are,” and “have alleged that the actual price these large recordkeepers charge a Plan does not depend on the specific services elected,” plaintiffs had plausibly alleged that “significant pricing differences in recordkeeping fees in plans at this level cannot be attributed to variations in the bundles of services accepted by a given plan[.]”.

As a result, Judge Robinson concluded that plaintiffs’ allegations were “far from the kind of ‘labels and conclusions’ or ‘naked assertions’ that we can properly disregard in assessing the sufficiency of a complaint.” She emphasized that “there is not a heightened pleading standard for these kinds of ERISA claims,” and reminded the court that it was evaluating the case at the pleading stage, where all reasonable inferences should be drawn in the plaintiffs’ favor.

Judge Robinson also noted that ERISA is a remedial statute and that its terms should be construed liberally. As a result, she was concerned that the majority was “impos[ing] an unwarranted burden at the pleadings stage on plaintiffs seeking to protect their rights under ERISA[.]” Thus, while Judge Robinson concurred in the judgment, she was clearly concerned that the majority had raised the bar too high for future litigants alleging similar claims.

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

Attorneys’ Fees

Second Circuit

Purcell v. Scient Fed. Credit Union, No. 3:22-CV-961 (VDO), __ F. Supp. 3d __, 2024 WL 5102829 (D. Conn. Dec. 13, 2024) (Judge Vernon D. Oliver). Plaintiff David Purcell was successful in his ERISA disability pension benefit action. In June of 2024 the court granted summary judgment in his favor on his claim brought under Section 502(a)(1)(B). Before the court here was Mr. Purcell’s motion for attorney’s fees and costs. Mr. Purcell sought $51,810 in attorney’s fees, as well as recovery of $429.60 in costs. Referring to Congress’s intended purpose with respect to ERISA’s fee provision to encourage beneficiaries to enforce their statutory rights, the court granted Mr. Purcell’s motion with one slightly nitpicky modification, denying his request for $29.60 in costs for postage. The court batted away defendants’ attempts to argue that Mr. Purcell acted in bad faith, and that he was therefore ineligible for fees. To the contrary, the court stated, “the record reveals that Plaintiff worked diligently to simplify this action by moving to dismiss the counterclaims and opposing Defendants’ motion to expand discovery beyond the underlying administrative record. In contrast, Defendants defended themselves through ignoring deadlines…and attempted to expand this litigation with improper counterclaims and discovery.” There was, to the court, simply no justification for denying the motion wholesale. Taking a closer look at the specific requested amount, the court found the lodestar comprising 94.2 hours of work at a $550 hourly rate “to be reasonable, in light of attorney David S. Rintoul’s more than thirty years of experience in employee benefits and ERISA matters,” the declarations of fellow attorneys in the field, and Mr. Rintoul’s billing records. However, when it came to the matter of costs, the court only awarded plaintiff $400 in court filing fees, taking off the less than $30 in postage which Mr. Rintoul did not provide receipts for. Nevertheless, following this decision Mr. Purcell has not only achieved success on the merits of his ERISA claim, but also compensation for his legal counsel who facilitated that success. Thus, Section 502(g)(1) functioned here just as Congress intended.

Class Actions

Seventh Circuit

Holloway v. Kohler Co., No. 23-CV-1242-JPS, 2024 WL 5088316 (E.D. Wis. Dec. 12, 2024) (Judge J.P. Stadtmueller). Four retirees who opted for joint and survivor annuity pension benefits sued the Kohler Company and its pension plan on behalf of a putative class alleging that the plan was in violation of ERISA’s actuarial equivalence requirements. The parties reached a settlement in April of 2024, and on July 24, 2024, the court issued an order preliminarily approving the class and the proposed $2.45 million settlement fund. (You can find our summary of that decision in Your ERISA Watch’s July 31, 2024 edition.) In the intervening months, notice was sent to the 500 class members, the objection deadline passed without the court receiving any objections, a fairness hearing was held, and plaintiffs moved for final approval of class settlement, for an award of attorneys’ fees and costs, and for service awards to the four named plaintiffs. In this decision granting plaintiffs’ motions the court ticked through the requirements of Class Action Fairness Act and found that final approval of the class certification and class settlement were appropriate. The court affirmed that its earlier conclusions from its preliminary approval decision stand and therefore declined to disturb or elaborate on them, stating simply “that the negotiated outcome in this case is favorable to the class.” Taking a look at the requested $735,000 in attorneys’ fees for class counsel, the court ruled that the amount was reasonable in light of the achieved results “in this complex and cutting-edge case.” Moreover, the fee award, which represented a contingent fee of 30% of the common fund and a lodestar multiplier of 2.23, was found by the court to be well within the acceptable range in ERISA cases within the Seventh Circuit. The court therefore approved plaintiffs’ counsel’s proposed fee award. Furthermore, the court saw “no barrier” to approving the requested reimbursement of $18,015.24 in costs and the requested $2,500 each in service awards to the four named plaintiffs, and accordingly approved these amounts too. As a result, plaintiffs’ motions were granted unaltered, distribution procedures were set in motion, plaintiffs released their claims, and this class action is quickly approaching its final days, as the year also draws to a close.

ERISA Preemption

Ninth Circuit

R & R Surgical Inst. v. Luminare Health Benefits, Inc., No. CV 24-08310-MWF (AGRx), 2024 WL 5077751 (C.D. Cal. Dec. 10, 2024) (Judge Michael W. Fitzgerald). Cases involving fully self-insured employer-sponsored healthcare plans have been trending recently. These types of welfare plans depend on third-party claims administrators and processors to administer the benefits. In this action, a healthcare provider, plaintiff R&R Surgical Institute, claims that it rendered services to a patient who is a member of one such fully-insured employer-sponsored plan for which defendant Luminare Health Benefits Inc. serves as the claims processor. After the provider submitted its claim for reimbursement, Luminare issued an Evidence of Payment (“EOP”) agreeing to pay $235,306.22 with a prepaid credit card subject to a 5% merchant processing fee. To avoid paying that 5% processing fee, plaintiff requested that Luminare issue the payment in the form of a paper check. Luminare agreed to do so, but then reduced the payment amount to $4,100.70 and issued a new EOP. It claims that the original EOP was an error. R&R Surgical seeks recovery of the remaining $231,205.52 from the original EOP plus interest. It filed an action in state court in California asserting claims for account stated, violation of California’s unfair competition law, and violation of California penal code sections for larceny, grand theft, and receiving stolen property. Luminare removed the action on the basis of diversity jurisdiction. The provider responded by moving to remand its action back to state court, and also to add the employer as a defendant. Luminare opposed remand, and moved to dismiss the case entirely, basing its motion to dismiss on arguments of ERISA preemption. The court sided with the provider in this decision, and granted its motions. Defendant’s motion to dismiss was accordingly denied as moot. With regard to ERISA preemption, the court found the Ninth Circuit’s decision in Marin Gen. Hosp. v. Modesto & Empire Traction Co., 581 F.3d 941 (9th Cir. 2009), instructive to its analysis of both prongs of the Davila preemption test. As in Marin, the court found that plaintiff’s claims here failed both prongs of the preemption test as its causes of action do not seek additional payment under the patient’s ERISA plan, but are based on duties and obligations that arise beyond ERISA. The court noted that complaint expressly states that the provider is seeking the amount “due from Defendant by virtue of the Defendant’s EOP,” which is not dependent on the terms of the healthcare plan. Moreover, the court concluded that plaintiff’s state law claims arise from defendant’s alleged failure to timely and fully pay it pursuant to the written EOP which implicates independent legal duties imposed by state law, not by ERISA. Accordingly, the court found that neither prong of the Davila test supports preemption, and that it does not have federal question jurisdiction over plaintiff’s state law claims. Additionally, the court found that the employer is a necessary party, that it is a citizen of the state of California, and that remanding the action back to state court is appropriate. For these reasons, the court granted plaintiff’s motions and denied defendant’s motion to dismiss.

Eleventh Circuit

Brown v. TitleMax of Ga., Inc., No. 4:24-cv-225, 2024 WL 5046312 (S.D. Ga. Dec. 10, 2024) (Judge Lisa Godbey Wood). Plaintiff Cordelius Brown did not have a good experience working for Titlemax. She complains that the money lending company’s business practices caused harm to its workers and customers alike, and filed a state law action in Georgia court asserting claims of misrepresentation of employment, fraudulent inducement and deceit, negligence, discrimination on the basis of disability, retaliation, wrongful termination, defamation, breach of fiduciary duty, intentional infliction of emotional distress, and civil conspiracy. As part of her breach of fiduciary duty claim, Ms. Brown sued not only her former employer, but also Fidelity Investments, alleging that the two defendants improperly decreased her 401(k) contributions and dividends. Because this cause of action sought to recover benefits under an ERISA-governed 401(k) plan, Fidelity removed the case to federal court on the basis of federal question jurisdiction. Recognizing the implications of ERISA preemption, Ms. Brown voluntarily dismissed all of her claims against Fidelity, as well as her breach of fiduciary duty claim, “thereby dismissing her ERISA claim upon which federal subject matter jurisdiction was based.” After making these changes to her complaint, Ms. Brown moved to remand her case to state court. In this brief decision, the court granted the motion to remand. Although it noted that removal was proper because Ms. Brown’s claim for 401(k) benefits certainly fell within ERISA’s domain, the court nevertheless agreed with Ms. Brown that her voluntary dismissals took away its federal subject matter jurisdiction over the action and that no other federal statute governs this “commonplace” employment action now. Accordingly, the court found that the revised complaint no longer presents a federal question and that the lawsuit “must be remanded to the Court from which it came.”

Pleading Issues & Procedure

Fourth Circuit

Paul v. Blue Cross Blue Shield of N.C., No. 5:23-CV-354-FL, 2024 WL 5096205 (E.D.N.C. Dec. 12, 2024) (Judge Louise W. Flanagan). Sorting actions into ERISA and non-ERISA categories is not always a simple binary exercise. This case involves a class action lawsuit against both ERISA-governed healthcare plans administered by Blue Cross and Blue Shield of North Carolina and a non-ERISA state healthcare plan likewise administered by Blue Cross. In broad strokes the plaintiffs are challenging Blue Cross’s alleged blanket policy to deny coverage of proton beam radiation therapy for the treatment of prostate cancer. There are both ERISA claims as well as state law claims. The North Carolina State Health Plan for Teachers and State Employees moved for dismissal of the claims against it for lack of subject matter jurisdiction, lack of personal jurisdiction, and failure to state a claim upon which relief can be granted. The court granted its motion in this decision, concluding that it does not have jurisdiction over the claims due to the State Plan’s sovereign immunity. The court clarified that the standard for determining whether a State has waived its immunity from federal court jurisdiction is stringent and requires proof of express language that the State intends to subject itself to lawsuits in federal court. Here, the court found that the plaintiffs could not meet this high threshold of proof. Finding that sovereign immunity bars the claims against the State Plan and deprives the federal court of jurisdiction over the matter, the court did not address the State Plan’s standing arguments nor its failure to state a claim arguments. Accordingly, the court dismissed causes of action against the State Plan, without prejudice. Finally, the court lifted the stays it had imposed on the parties’ scheduling conference activities and prior pleading challenge now that it has resolved the State Plan’s motion.

Remedies

Ninth Circuit

Sommer v. Regence Bluecross Blueshield of Or., No. 3:23-cv-01140-SB, 2024 WL 5047849 (D. Or. Dec. 9, 2024) (Magistrate Judge Stacie F. Beckerman). Plaintiff Brian Sommer is a participant in a medical benefit plan insured by Regence BlueCross BlueShield of Oregon. In this action, Mr. Sommer challenges the insurer’s determination that treatment he received for obstructive sleep apnea and temporomandibular joints (“TMJ”) dysfunction were not covered under a dental exclusion within the policy. Mr. Sommer contends that BlueCross erroneously relied on this inapplicable policy exclusion and seeks reimbursement of $75,000 in out-of-pocket medical expenses. In his complaint, Mr. Sommer asserts two causes of action: (1) a claim for benefits under Section 502(a)(1)(B); and (2) a claim for make-whole equitable relief under Section 502(a)(3). Defendant moved for partial summary judgment. Mr. Sommer opposed defendant’s motion and moved for leave to file an amended complaint to try to shore up any shortcomings. In this order, the court denied defendant’s motion for summary judgment, and further denied Mr. Sommer’s request to amend his complaint as redundant and unnecessary given its denial of BlueCross’s motion. The court broke Mr. Sommer’s claims into two categories of filed and unfiled claims. BlueCross sought to preclude Mr. Sommer from recovering on the unfiled claims both for failure to exhaust administrative procedures, and for failure to give notice by not alleging them in the complaint. The court disagreed. It stated that BlueCross was provided adequate notice of the claims and services generally related to this care, and that Mr. Sommer “was seeking broader relief than his Benefits Claim.” Specifically, the court held that the complaint clearly challenges BlueCross’s denial of coverage for all of the treatment related to his TMJ disorder based on the policy exclusion and that Mr. Sommer is also seeking “the full range of equitable relief for harm resulting from [defendant’s] reliance on the policy exclusion.” The court elaborated that the medical expenses incurred in connection with the TMJ surgery necessarily and logically include anesthesia, medication, a hospital stay, and both pre- and post-operative care. Accordingly, the court found that the complaint puts BlueCross on fair notice that Mr. Sommer is seeking relief beyond his filed claim for benefits, and includes a claim for equitable relief relating to the unfiled claims. Moreover, the court determined that a reasonable factfinder could conclude that the unfiled claims were “demonstrably doomed to fail,” and that it would have been futile for Mr. Sommer to submit them all individually and exhaust the administrative processes for each before filing suit. The court thus declined to grant defendant summary judgment on exhaustion grounds. Furthermore, the court allowed Mr. Sommer to proceed with simultaneous 502(a)(1)(B) and 502(a)(3) claims for his filed benefit claims because he is not seeking duplicative relief. The court clarified that Mr. Sommer may be able to recover amounts over and above the allowed amount under the policy to compensate him for his losses resulting from BlueCross’s claim denial. The court was persuaded, at least for the purposes of this summary judgment decision, that Mr. Sommer’s out-of-pocket expenses may be recoverable through the remedy of surcharge as equitable relief. The court was also open to Mr. Sommer’s arguments that by denying his surgery claim, BlueCross deprived him of a real-time opportunity to seek in-network care or challenge BlueCross’s coverage rate determination. “Viewing the facts in the light most favorable to Sommer, and drawing all reasonable inferences in his favor, the Court finds that Sommer’s requested relief for his Equitable Claim is ‘more than a repackaged claim for benefits wrongfully denied.’” Thus, the court was satisfied Mr. Sommer is seeking make-whole relief to redress his injuries which is not available solely through Section 502(a)(1)(B). For these reasons, the court denied BlueCross’s motion for partial summary judgment seeking to limit Mr. Sommer’s available avenues of recovery.

Statute of Limitations

Second Circuit

Cooper v. International Bus. Machs. Corp., No. 3:24-cv-656 (VAB), 2024 WL 5010488 (D. Conn. Dec. 6, 2024) (Judge Victor A. Bolden). Pro se plaintiff Simon J. Cooper was employed at IBM, in some manner, from the early 1980s until May of 2020, when he was notified in writing his employment would be terminated. From 1984 until 1997, Mr. Cooper was employed by IBM U.K., a British subsidiary of IBM U.S. Because of this period of overseas employment, Mr. Cooper’s pension crediting under IBM’s cash balance plan was complicated. Mr. Cooper, a retiree as of June 2020, was entitled to the greater of either his U.S. pension subject to a foreign service offset or a U.S. pension based on his U.S. only service. Although Mr. Cooper’s complaint contains many allegations that his pension election was mishandled, it notably does not include allegations that he exhausted the administrative claims processes prior to bringing his lawsuit. Even more problematic for Mr. Cooper was the date when he commenced legal action, nearly four years after these events, on March 14, 2024. IBM accordingly moved to dismiss Mr. Cooper’s suit. It argued that his claim under a European Union privacy law does not apply to this case because neither party is a European Union citizen now that the United Kingdom has left the EU. As for Mr. Cooper’s ERISA claims for benefits, statutory penalties, and breach of fiduciary duties, IBM argued that Mr. Cooper could not sustain these claims because they are time-barred, and because he failed to exhaust administrative remedies. IBM argued, and the court agreed in this decision, that Mr. Cooper’s action fell outside of the applicable and analogous statutes of limitations for all of his ERISA causes of action. Beginning with the claim for benefits, the court found the plan’s two-year statute of limitations reasonable. “But Mr. Cooper did not bring suit until March 14, 2024…well after the statute of limitations period expired and after his first benefit payment was allegedly due on September 30, 2020.” As for Mr. Cooper’s claim for penalties under ERISA, the Second Circuit has held that Connecticut’s one-year limitations period for civil forfeitures claims is the most closely analogous to ERISA Section 502(c)(1) claims for penalties, such that it is the applicable limitations period for litigants from the State. Because Mr. Cooper filed the lawsuit nearly four years after IBM should have begun paying his benefits, the action was well past the one-year statute of limitations period, making this claim untimely as well. With regard to Mr. Cooper’s breach of fiduciary duty claim, the court found that he had actual knowledge of IBM’s failure to calculate his foreign service offset by October 25, 2020, but failed to file his lawsuit until more than three years later. Moreover, the court concluded that Mr. Cooper could have brought his lawsuit earlier, and it was only through his own lack of diligence that his civil suit fell outside of the statutes of limitations. As a result, the court concluded that all three ERISA causes of action were time-barred. Independently, the court agreed with IBM that Mr. Cooper’s ERISA claims fail for lack of exhaustion of administrative remedies and could be dismissed on that basis too. Next, the court briefly agreed with IBM that the European Union General Data Protection Regulations were inapplicable to the present matter, and dismissed Mr. Cooper’s cause of action under the EU law. Finally, the court explained that it was denying Mr. Cooper any further opportunities to amend his complaint because he already did so once, and any further amendments would not cure the fact that his ERISA claims are time-barred, he failed to exhaust ERISA administrative remedies, and the EU data privacy law is inapplicable to two non-European Union citizen parties. Mr. Cooper’s complaint was thus dismissed with prejudice.