Last week was a slow one for the federal courts, as the steady drip of turkey-produced tryptophan prevented them from providing us with a full complement of the ERISA-related decisions we all know and love. As a result, there was no notable decision for us to recap. Nonetheless, a handful of brave judges and clerks heroically waded through the gravy-laden mashed potatoes and stuffing to issue a few orders, and in their honor we are reporting on those rulings below.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Arbitration
Second Circuit
Duke v. Luxottica U.S. Holdings Corp., No. 2:21-cv-6072 (NJC) (AYS), 2024 WL 4904509 (E.D.N.Y. Nov. 27, 2024) (Judge Nusrat J. Choudhury). Just over a year ago, Your ERISA Watch summarized this court’s decision dismissing in part and otherwise compelling arbitration of a putative class action alleging that fiduciaries of the Luxottica Group Pension Plan violated ERISA’s actuarial equivalence, anti-forfeiture, and joint and survivor annuity requirements. In that order, the court dismissed plaintiff Janet Duke’s Section 409 and 502(a)(2) claims on behalf of the plan for lack of Article III standing, and compelled arbitration of Ms. Duke’s Section 502(a)(3) claims. Because the court dismissed the Section 409 and 502(a)(2) claims, it did not address plaintiff’s argument that the arbitration agreement’s class action waiver was unenforceable under the “effective vindication” doctrine because it takes away certain statutory rights (a topic Your ERISA Watch has covered regularly). Finally, the court’s order last year stayed the case pending arbitration. Two things have happened since then. First, after the case was assigned to a new judge, plaintiff moved for reconsideration of the prior ruling. The new judge granted her motion in part. To begin, the court granted reconsideration of last year’s order dismissing plaintiff’s Section 502(a)(2) and 409 claims on behalf of the plan for plan-wide remedies. The court held that the complaint plausibly alleges that Ms. Duke suffers from a concrete and particularized injury in the form of lower joint and survivor annuity payments stemming from the alleged use of outdated actuarial assumptions and calculations. Moreover, the court found that these same allegations concerning defendants’ actuarial conduct applied to the wider class, causing losses to the plan as a whole. Judicial recourse, the court found, would also remedy and redress these alleged injuries to both the plan and Ms. Duke. The court identified three errors in the previous ruling: (1) the previous order incorrectly reasoned that the complaint failed to allege how defendants’ conduct caused any losses to the plan or how to remedy them; (2) the order overlooked the complaint’s request for specific forms of plan-wide equitable relief to remedy the alleged harms; and (3) the order incorrectly interpreted the Supreme Court’s decision in Thole v. U.S. Bank and misunderstood the distinctions between this case and Thole, equating them for no other reason than they both involve defined benefit pension plans. However, the decision did not grant plaintiff’s motion in its entirety. The court denied reconsideration of last year’s decision’s grant of defendants’ motion to compel arbitration of the Section 502(a)(3) claims. It rejected Ms. Duke’s assertion that the previous order erroneously required her to administratively exhaust her Section 502(a)(3) claims before bringing them in federal court. The court found no clear error or manifest injustice in the previous ruling compelling Ms. Duke to arbitrate her individual Section 502(a)(3) claims, and therefore upheld that portion of the order. Next, the court addressed an issue not taken up in the previous decision, whether the arbitration provision could be enforced with respect to the representative plan-wide claims asserted under ERISA Section 502(a)(2). Here, the court was persuaded that it could not, as Ms. Duke’s arbitration agreement with Luxottica bars class and representative actions and therefore requires her to forego her statutory rights under Sections 409 and 502(a)(2) to bring representative claims on behalf of the plan and to seek plan-wide remedies for these alleged harms. The court held that the class action waiver was “squarely contrary to Second Circuit precedent prohibiting arbitration provisions that fail to permit individuals to pursue statutory rights, including the right to bring representative claims and secure Plan-wide relief under Sections 409 and 502(a)(2).” The court therefore agreed with plaintiff that the arbitration provision was unenforceable as to the plan-wide causes of action. Notably, the court did not reach Ms. Duke’s arguments as to the enforceability of the class action waiver with respect to her Section 502(a)(3) claims “because she did not timely raise them in the Motion for Reconsideration.” Finally, the court denied defendants’ request to stay adjudication of the plan-wide claims pending the arbitration of the Section 502(a)(3) claims “because Defendants fail to argue, much less demonstrate, that they have met their heavy burden to secure such a stay.” Thus, while Ms. Duke pursues her Section 502(a)(3) claims in arbitration on an individual basis, the plan-wide claims will proceed concurrently in federal court.
Attorneys’ Fees
Ninth Circuit
Downes v. Unum Life Ins. Co. of Am., No. 23-cv-01643-RS, 2024 WL 4876940 (N.D. Cal. Nov. 20, 2024) (Judge Richard Seeborg). After securing a judgment in her favor of her ERISA claim against defendant Unum Life Insurance Company of America in this long-term disability benefit action, plaintiff Maureen Downes moved for an award of $97,965 in attorneys’ fees and $625.07 in costs. The court granted Ms. Downes’ motion in this decision. Ms. Downes sought attorneys’ fees based on the lodestar approach with an hourly rate of $900 for her counsel reflecting 108.85 hours of work over the course of this litigation. The court was confident that the hourly rate sought was fair and reasonable in the Northern District of California and rejected defendant’s “bald” and “unfounded” assertion that ERISA clients are not actually paying a $900 per hour rate. Moreover, the court exercised its discretion to compensate counsel at current rates for all hours billed during the course of the litigation, particularly as the majority of the time spent on the case occurred this year. Finally, the court was satisfied with plaintiff’s submitted evidence and documentation supporting the number of hours worked. Accordingly, Ms. Downes was awarded unreduced attorneys’ fees. Although Unum did not contest the costs, the court independently reviewed them and determined that the $625.07 in costs were recoverable and appropriate here. Ms. Downes was therefore awarded her full requested costs as well.
Breach of Fiduciary Duty
Second Circuit
Sacerdote v. Cammack Larhette Advisors, LLC, No. 17 Civ. 8834 (AT), 2024 WL 4882173 (S.D.N.Y. Nov. 22, 2024) (Judge Analisa Torres). Back in 2016, faculty at New York University (“NYU”) who participate in two retirement plans offered by the school filed an ERISA action against NYU alleging that it breached its fiduciary duties to ensure that the investments and expenses in the plan were reasonable and prudent. That action, Sacerdote I, did not end favorably for the plaintiffs. Many of their causes of action were dismissed when NYU challenged the pleadings, and in 2018, the court found in favor of NYU on all remaining claims following a bench trial. This backdrop is pertinent here in Sacerdote II because defendant Cammack Larhette Advisors, LLC filed a motion for judgment on the pleadings, arguing that plaintiffs are collaterally estopped from relitigating issues previously decided in Sacerdote I. After giving the matter some thought, the court agreed in part. Although both causes of action – a claim for breach of fiduciary duty and a claim for breach of co-fiduciary duty – survived in some form, the court narrowed the scope of both, finding many issues were indeed precluded from litigation in this case because of the prior proceedings. First, the court addressed plaintiffs’ allegations that Cammack violated its duty of prudence by using inappropriate benchmarks to evaluate plan fees, improperly selecting and retaining expensive investment options with poor performance histories, failing to engage in a prudent monitoring process, including poorly performing proprietary TIAA and CREF stock and real estate accounts in the plan, and accepting an imprudent locked in arrangement whereby the plans were obligated to keep these proprietary investment products, whatever their performance. The court found that allegations regarding inappropriate benchmarks and the investment monitoring process “never arose in Sacerdote I,” and as a result were neither addressed nor precluded. Although they may be closely related to topics which were litigated, the court stated that “daylight exists between the” issues, and Cammack and NYU had distinct duties with respect to the plan as co-fiduciaries. Therefore, the court declined to deprive the participants of their opportunity to litigate these claims against Cammack. Nevertheless, the court found that the “lock-up” allegations regarding NYU’s agreement with TIAA-CREF was precluded given the court’s definitive holdings about these agreements in Sacerdote I. The court next addressed plaintiffs’ claim that defendant acted disloyally when it failed to consider recommending investment options that were not the proprietary funds of the plans’ two recordkeepers, concluding that these claims were likewise precluded by Sacerdote I. Turning to the co-fiduciary duty claim, the court dismissed the portions of this cause of action that were tied to cross-selling and share class claims that “were either dismissed or disposed of at trial” in Sacerdote I. The court was less receptive to Cammack’s argument that many of the alleged breaches were outside of its scope of fiduciary duties. Drawing inferences in favor of plaintiffs, the court could not definitively define the scope of Cammack’s duties and stated it was plausible that they extended to providing advice concerning the recordkeepers’ use of participants’ data. The court was therefore unwilling to dismiss this aspect of plaintiffs’ second cause of action. Based on the foregoing, Cammack’s motion for judgment on the pleadings was granted in part and denied in part, and at least some of the case will move forward.
Discovery
Second Circuit
Cleary v. Kaleida Health, No. 1:22-cv-00026(LJV)(JJM), 2024 WL 4901952 (W.D.N.Y. Nov. 27, 2024) (Magistrate Judge Jeremiah J. McCarthy). Pension plans are a little like stars in that what we see today is really a story of the past. We experience here and now the effects of what happened long ago. This particular story of Kaleida Health’s pension plan takes us back a few decades to the 1990s, when several hospitals were consolidated, their retirement plans were combined, and their traditional defined benefit pension plans were transformed into cash balance plans. Plaintiffs in this class action are seeking discovery into the past, to unveil what took place at that time. The fiduciaries of the plan cross-moved to compel production of a privilege log, and also moved to preclude plaintiffs’ requested discovery. The court exercised its wide discretion to manage discovery in this decision granting in part and denying in part each parties’ respective motion. To begin, the court granted defendants’ motion seeking a privilege log from plaintiffs in compliance with local requirements. The court then addressed plaintiffs’ meatier discovery issues, denying many of plaintiffs’ requests for information and documents that the court deemed unnecessary to plaintiffs’ pending class certification motion. This included data necessary to calculate losses and contact information for each putative class member, as well as a number of requests by plaintiffs for documents relating to plan administration, plan operation, oversight, and management. The court also denied plaintiffs’ motion seeking production of Form 5500s and pension benefit statements. However, the court found that information and documents relating to actuarial evaluations and assumptions from 1998 through present were relevant to class certification because this information relates to whether class members reasonably believed that their cash balance benefit growth equaled the growth in their pension benefits based on defendants’ communications. The court thus ordered the defendants to produce this information. Plaintiffs were also permitted to re-serve two subpoenas, and defendants were ordered to produce withheld documents that were not subject to work-product privilege, and to serve unredacted copies of documents defendants marked “non-responsive.” Accordingly, the discovery decision was a mixed bag for both parties.
ERISA Preemption
Fairmount Ins. Brokers, Ltd. v. HR Serv. Grp., No. 23-CV-8654 (NGG) (LB), 2024 WL 4871421 (E.D.N.Y. Nov. 22, 2024) (Judge Nicholas G. Garaufis). Plaintiff Fairmount Insurance Brokers Ltd. and defendant HR Service Group d/b/a Infiniti HR entered into a client service agreement in 2021 in which Infiniti agreed to provide professional employment services and entered into a shared employment relationship with Fairmount. As part of this agreement, Infiniti was responsible for managing and administering health insurance benefits for Fairmont’s employees. In accordance with this responsibility, Infiniti arranged with NuAxess 2, Inc. to create and provide a health insurance plan for Fairmont’s employees. Things went south eventually. Fairmont’s employees began complaining of non-payments, declined treatments, and baseless denials of claims for healthcare benefits. Employees were suddenly on the hook for large medical bills, which went unpaid and began accruing interest. Fairmount took legal action to address and rectify these issues. It sued Infiniti in state court alleging breach of contract, breach of fiduciary duties, and negligence, and sought declaratory relief and a court order mandating Infiniti to provide compensation to the employees for all financial harm stemming from the health care coverage fiasco. Infiniti removed the lawsuit to federal court on the basis of federal question jurisdiction, asserting that the action arises under ERISA and the state law causes of action are preempted by ERISA. It then moved to dismiss the complaint in its entirety on ERISA preemption grounds. In this decision the court discussed ERISA preemption and ultimately concluded that ERISA does not completely preempt this action and by extension that it lacks jurisdiction over the matter. Accordingly, the court remanded the action to state court. Though broad, ERISA preemption is not absolute, and as the court noted, there is a critical “though sometimes overlooked” difference between express and complete preemption. Here, the court found the parties’ discussion of complete preemption and the application of the Supreme Court’s Davila test wanting. Nevertheless, the court independently took the reins and investigated whether Fairmount could have brought its action under ERISA Section 502(a). It found it could not, reasoning that employers like Fairmount are neither functional nor named fiduciaries and therefore may only pursue claims under three subsections of the statute: Section 502(a)(8), Section 502(a)(10), and Section 502(a)(11). The court found that Fairmount was not a fiduciary because the healthcare plan only names NuAxess 2 as a fiduciary, and because Fairmount did not act with any discretion with respect to the plan. As for the three subsections of ERISA under which non-fiduciary employers may sue, the court concluded “that Fairmount’s claims for breach of contract, breach of fiduciary duties, negligence, and a declaratory judgment cannot be construed as a colorable claim for relief under any of these subsections,” as they related to funding, contributions, and withdrawals. Thus, the court concluded that Fairmount could not have brought its action under ERISA and that its state law claims accordingly were not completely preempted. Without jurisdiction over the matter, the court stated it was required to remand the action back to state court, where issues over express preemption can be addressed. The court therefore denied Infiniti’s motion to dismiss, and the case will proceed in state court.
Pleading Issues & Procedure
Third Circuit
Akopian v. Inserra Supermarkets, Inc., No. 2:23-cv-00519, 2024 WL 4894620 (D.N.J. Nov. 26, 2024) (Judge Claire C. Cecchi). Plaintiff Andrei Akopian was terminated from his position as a clerk in a New Jersey grocery store after he made threatening comments to the assistant store manager in early 2022. Mr. Akopian suffers from a mental disability, and he believes that his rights were violated under the Americans with Disabilities Act (“ADA”). Accordingly, Mr. Akopian filed a charge with the EEOC and then brought this lawsuit after receiving a right to sue letter. In his action Mr. Akopian asserts causes of action under the ADA, ERISA, the National Labor Relations Act (“NLRA”), and the Labor Management Reporting and Disclosure Act (“LMRDA”) against his former employer, Inserra Supermarkets, Inc., and his union, United Food and Commercial Workers Local 1262. Defendants moved for dismissal. Their motion was granted without prejudice in this decision. The court agreed with defendants that Mr. Akopian’s ADA claims must be dismissed for failure to exhaust administrative remedies, that his NLRA claims are not only time-barred but also are based on conclusory allegations that lack plausibility, that his LMRDA claims were “mere recitations of legal provisions,” insufficient to establish plausible causes of action, and that the allegations of his ERISA claims relating his health care coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) were mere labels and recitations of the elements of COBRA claims. The court also found problematic the fact that the ERISA claims were evidently not brought against the entities with any control over his insurance benefits, as the exhibits submitted with the complaint demonstrate that health and welfare benefits were not provided by either defendant.
Standard of Review
Second Circuit
Rappaport v. Guardian Life Ins. Co. of Am., No. 1:22-cv-08100 (JLR), 2024 WL 4872736 (S.D.N.Y. Nov. 22, 2024) (Judge Jennifer L. Rochon). Plaintiff Jason Rappaport formed Industrial Credit of Canada along with his business partner in 1994 and served as its secretary and treasurer. A decade later, his company, through its insurance broker, applied for group disability insurance coverage from Guardian Life Insurance Company of America. For its owners and business managers, including Mr. Rappaport, the company specified that it wished to purchase coverage which included bonuses and commissions in its earnings definition. Guardian hand-wrote on the application election form to change the earnings definition, correcting the word “excluding” to the word “including.” Notwithstanding these communications, Guardian ultimately issued the long-term disability policy with an earnings definition that excluded bonuses and commissions. Many years later, Mr. Rappaport got sick with leukemia. Following his diagnosis, Mr. Rappaport sought long-term disability benefits under the plan. Guardian approved the claim in 2016, and began paying monthly benefits calculated at $18,333.33. Then, in August 2020, Guardian terminated Mr. Rappaport’s benefits, concluding that Mr. Rappaport no longer qualified for benefits because he was capable of earning more than the maximum allowed while disabled. Mr. Rappaport appealed the adverse determination. Guardian ultimately upheld its denial, though it did so outside of the Department of Labor’s 45-day window for deciding benefit appeals. On September 22, 2022, Mr. Rappaport filed this ERISA action to challenge the termination of benefits, as well as seeking to reform the plan so that “insured earnings” includes bonuses and commissions, as his company intended all along. Guardian responded to the complaint by filing counterclaims related to alleged overpayments. Following discovery, the parties cross-moved for partial summary judgment. Specifically, Guardian moved for summary judgment on Mr. Rappaport’s claim for reformation of the plan under Section 502(a)(3), while Mr. Rappaport sought summary judgment on the standard of review and on Guardian’s two counterclaims. The court began with Guardian’s motion, which raised three arguments in support of summary judgment on Mr. Rappaport’s reformation claim: (1) the claim for reformation is time barred because the claim accrued as of the date the policy was issued in 2005, meaning the six-year statute of limitations had passed before the lawsuit was filed; (2) Mr. Rappaport failed to meet the Rule 9(b) pleading standard by failing to allege with particularity facts constituting mistake or fraud underlying his reformation claim; and (3) Mr. Rappaport failed to present clear and convincing evidence that the parties agreed to anything other than what was reflected in the policy. The court addressed the arguments in turn, and ultimately disagreed with each. First, the court held that the six-year statute of limitations began running not when the policy was issued, but when there was clear repudiation of the benefits that Mr. Rappaport either knew or should have known about. Even if that date was September 21, 2016, when Mr. Rappaport was first approved for long-term disability benefits and informed of his monthly benefit amount, the court stated that the lawsuit was timely. Therefore, the court denied the motion for partial summary judgment on this basis. The court next held that Mr. Rappaport sufficiently pleaded his claim for reformation under the heightened standard of Rule 9(b). Finally, the court concluded that there remain genuine issues of material fact over whether a mutual mistake occurred when Guardian neglected to issue the policy to cover insured earnings with a definition including bonuses and commissions. Accordingly, the court denied Guardian’s partial motion for summary judgment. The court then considered Mr. Rappaport’s motion for summary judgment on the standard of review, and explained why it agreed with Mr. Rappaport that the default de novo standard of review applies, despite the policy’s grant of discretionary authority, because Guardian’s appeal decision was untimely. As a preliminary matter, the court noted that the Second Circuit had already decided in Halo v. Yale Health Plan, 819 F.3d 42 (2d Cir. 2016), that courts must generally review benefit denials de novo when the plan decisionmaker does not comply with the Department of Labor’s claims regulation. Guardian argued that the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo calls Halo into question because the claims regulation exceeded the Secretary of Labor’s grant of delegated authority and impermissibly dictates judicial review standards. We’ve seen this argument raised and rejected before in Cogdell v. Reliance Standard Life Ins. Co., No. 1:23-CV-01343 (AJT/JFA), __ F. Supp. 3d __, 2024 WL 4182589 (E.D. Va. Sept. 11, 2024) (Judge Anthony J. Trenga), which we featured as our case of the week in our September 18, 2024 edition. Contrary to Guardian’s ambitious reading of Loper Bright, the court here likewise held that “Loper Bright does not call into question, or address, deference to agency interpretations of their regulations, instead focusing on Congress’s command that reviewing courts ‘interpret…statutory provisions.’” The court then found that no special circumstances justified Guardian’s extension beyond the 45-day window to render its decision on appeal. Nor did Guardian demonstrate that its lack of compliance with the regulation was both inadvertent and harmless. The decision wrapped up with a determination that there was no equitable relief available under ERISA for Guardian’s counterclaims. Guardian’s first counterclaim seeks repayment of more than $300,000 it claims it allegedly overpaid Mr. Rappaport. The court determined that Guardian failed to adequately and specifically identify funds within Mr. Rappaport’s possession that were recoverable under this claim. The court thus concluded that this did not present a claim for equitable relief under ERISA and entered summary judgment in favor of Mr. Rappaport on the first counterclaim, denying Guardian’s request for leave to amend. With respect to the second counterclaim, which sought a set-off of the allegedly overpaid amounts to “the extent this Court determines that Mr. Rappaport is owed any additional LTD benefits under the Plan,” the court found that there was insufficient briefing on this claim. For these reasons, the court denied Guardian’s partial summary judgment motion and granted in part and denied in part Mr. Rappaport’s motion for partial summary judgment.