It has been a slow week here in ERISA World. Slow does not mean boring, however. Interestingly, in two of the cases we report on this week, courts refused to award attorneys’ fees to plaintiffs despite their partial or total success on the merits. In two other cases, courts rejected arguments that plaintiffs had failed to exhaust their plan administrative remedies prior to filing suit. And, in another decision, defendants prevailed after a nine-day bench trial in a case challenging the prudence and loyalty of fiduciaries in the selection of target date funds for a 401(k) plan. Plaintiffs, on the other hand, survived motions to dismiss in a case presenting numerous fiduciary and prohibited transaction challenges to a series of ESOP transactions. One plaintiff also won medical benefits after getting kicked by a bull calf. Finally, did you know that demolishing a structure and removing its asbestos counts as “building and construction” under ERISA? In short, there is something for everyone this week.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Harris v. Paredes, No. 3:23-CV-50231, 2024 WL 774874 (N.D. Ill. Feb. 26, 2024) (Judge Iain D. Johnston). Plaintiff Nichole Harris brought this putative class action against various defendants engaged in administering the Suter Company Employee Stock Ownership Plan. She alleges that the plan vastly overpaid when it bought 100,000 shares of stock from the Suter family for a price exceeding $63 million, which resulted in breaches of fiduciary duties and prohibited transactions under ERISA. Defendants filed a motion to compel arbitration. Curiously, the plan had amended its arbitration clause in August of 2023, just after Harris filed suit. The court concluded that the amended arbitration clause was valid and binding, and that it covered Harris’ ERISA Section 502(a)(2) claim, noting that the Federal Arbitration Act “explicitly contemplates the enforceability of agreements to arbitrate ‘existing controvers[ies].’” The court further ruled that the “effective vindication” doctrine, which “forbids compulsory arbitration when the statute authorizing a claim allows a given remedy, but the arbitration agreement disallows it,” did not apply. This was so because the arbitration clause, which required that claims be brought “in an individual capacity and not on a class, collective, or group basis,” did not forbid Harris from pursuing her 502(a)(2) claim in arbitration. In so ruling, the court rejected defendants’ argument that Harris could only recover in arbitration for injuries to her individual account, because Section 502(a)(2) allows for plan-wide remedies. The court thus granted defendants’ motion to compel arbitration, but not on the terms they desired.
Ramos v. Schlumberger Grp. Welfare Ben. Plan, No. 22-CV-0061-CVE-JFJ, 2024 WL 729220 (N.D. Okla. Feb. 22, 2024) (Judge Claire V. Egan). Previously, the court remanded this action for ERISA-governed short-term disability benefits to Cigna Group Insurance, the defendant plan’s claim administrator, because Cigna “did not explain the rationale or reasoning for the denial of plaintiff’s claim” during his second voluntary appeal. Plaintiff Ramon Ramos moved for attorney’s fees, which the court ruled on in this order. The court agreed that “a remand order can qualify as ‘some degree of success on the merits’ in some cases,” which would meet the Supreme Court’s test for awarding fees, but here “the remand order in this case was strictly a procedural ruling that cannot support an award of attorney fees[.]” Ramos argued that the court’s remand order was a “substantive ruling that substantially increases his chances of receiving benefits,” and also allowed him to introduce additional information and evidence in support of his claim. The court rejected these arguments, however, stating that it “simply identified the plan administrator’s failure to provide a sufficient explanation…and remanded the case to supply the missing rationale and reasoning. The Court expressed no opinion on the merits of plaintiff’s ERISA claim and nothing in the Court’s ruling makes it more or less likely that the plan administrator will award plaintiff STD benefits on remand.” Furthermore, “the consideration of additional evidence was merely an incidental side-effect of the Court’s remand order, and it is unclear whether this evidence will have an impact on a judicial review of plaintiff’s ERISA claim.” The court also ruled that Ramos had not met the Tenth Circuit’s test for awarding fees because there was no bad faith, no deterrent effect because the plan had been amended to avoid a repeat occurrence (the right to a second voluntary appeal had been eliminated), and there was no ruling on the merits. Thus, the court denied Ramos’ motion. However, the court noted that Ramos was not forever foreclosed from seeking fees. If Ramos is ultimately successful on remand, “he may file a motion to recover all of the attorney fees he has incurred in this case.”
Breach of Fiduciary Duty
Spence v. American Airlines, Inc., No. 4:23-CV-00552-O, 2024 WL 733640 (N.D. Tex. Feb. 21, 2024) (Judge Reed O’Connor). Plaintiff Bryan Spence is an American Airlines pilot and a participant in American’s 401(k) plan. He alleges that the defendants, fiduciaries of the plan, have violated ERISA by breaching their duties of loyalty and prudence, and their duty to monitor. Spence contends that defendants are investing plan assets in environmental, social, and governance (ESG) funds which “pursue non-financial and nonpecuniary ESG policy goals through proxy voting and shareholder activism[.]” These funds “focus on socio-political outcomes instead of exclusively on financial returns,” and thus defendants “violated their fiduciary duties to act in the Plan participants’ financial interests[.]” Defendants filed a motion to dismiss, which was decided in this order. The court ruled that Spence had plausibly alleged a claim for breach of the duties of prudence and monitoring because he had pleaded that ESG funds had underperformed other funds in the market yet were retained by defendants in the plan. Defendants contended that Spence had not provided a “meaningful benchmark” for comparison, but the court noted that the Fifth Circuit had not yet imposed a “performance-benchmark requirement,” and ruled that “requiring a benchmark for measuring performance is not required at this stage given the inherent fact questions such a comparison involves.” As for Spence’s duty of loyalty claim, defendants acknowledged that American was committed to ESG initiatives, but only under its “corporate hat” which was different from its “fiduciary hat.” Defendants further argued that there was “no plausible basis for suggesting that investment managers were motivated by anything but financial aims.” The court rejected this argument, however, ruling that this issue was “a fact question that is not appropriate to resolve at this stage.” Furthermore, according to the court, Spence had “articulate[d] a plausible story: Defendants’ public commitment to ESG initiatives motivated the disloyal decision to invest Plan assets with managers who pursue non-economic ESG objectives through select investments that underperform relative to non-ESG investments, all while failing to faithfully investigate the availability of other investment managers whose exclusive focus would maximize financial benefits for Plan participants.” Thus, the court denied defendants’ motion in its entirety.
Hormel Foods Corp. Hourly Employees’ Pension Plan v. Perez, No. 1:22-CV-00879-JLT-EPG, 2024 WL 773153 (E.D. Cal. Feb. 26, 2024) (Judge Jennifer L. Thurston). Hormel’s pension plan for hourly employees paid $20,000 in pension benefits to a woman named Marie E. Perez. Perez signed a form certifying her name, attesting that she was not currently employed by Hormel, and including the last four digits of her Social Security number. There was only one problem: it was the wrong Marie E. Perez. Hormel asked for the money back, and when Perez refused, it sued Perez under ERISA Sections 502(a)(2) and (a)(3). Hormel then moved for default judgment on its (a)(3) claim when Perez failed to answer. The magistrate judge recommended denying the motion, concluding that Perez was not a fiduciary under ERISA and thus could not be held liable. (Your ERISA Watch reported on this decision in its October 18, 2023 edition.) Hormel objected, but in this order the district court judge adopted the magistrate’s recommendation in full. Hormel argued that “the proper focus should be on whether the defendant knowingly accepted and retained plan money the defendant was not entitled to recover,” but the court did not accept this framing: “Defendant was not a Plan participant and had no reason to know of or understand the Plan’s benefits or restrictions, nor did she have any reason to believe or understand that she might be considered a fiduciary.” Thus, because she was not a fiduciary, she could not have breached any fiduciary duties under Section 502(a)(3). Hormel contended that if the magistrate’s recommendation was accepted, “a criminal could knowingly and intentionally hack into an ERISA pension plan’s bank account, steal billions, and face no ERISA liability,” but the court was unimpressed: “the determination that Perez is not subject to ERISA remedies, ignores the existence of non-ERISA remedies and criminal sanctions available under these circumstances.” The court thus denied Hormel’s motion and dismissed the action.
Lauderdale v. NFP Retirement, Inc., No. 8:21-CV-00301-JVS-KES, 2024 WL 751005 (C.D. Cal. Feb. 23, 2024) (Judge James V. Selna). This is a class action by participants of a multi-employer 401(k) retirement plan who allege that the plan sponsor, Wood Group U.S. Holdings, and its investment manager, flexPATH Strategies, LLC, breached their fiduciary duties under ERISA by imprudently investing in flexPATH’s “target-date funds” (TDFs). The court held a nine-day bench trial in March of 2023, and this lengthy ruling represents the court’s findings of fact and conclusions of law. The court first addressed the duty of loyalty, finding that flexPATH’s witnesses were credible, that they genuinely believed that their investment decisions were in the best interests of plan participants, and that flexPATH did not benefit financially from its TDF fund selection. While it was true that flexPATH viewed the Wood plan as a “$900 million opportunity,” the court stated that a “profit motive is not unlawful in and of itself…. There is nothing disloyal about an investment manager trying to obtain new business.” Second, the court addressed the duty of prudence. Plaintiffs complained that flexPATH implemented its funds without “conduct[ing] a quantitative and qualitative evaluation of available TDFs,” but the court ruled that flexPATH’s previous research and investigation was sufficient to demonstrate that the funds were appropriate for the Wood plan. flexPATH also “continually reviewed and analyzed the structure, design, and performance” of the TDFs. The court did not agree that the TDFs underperformed compared to other funds, but to the extent they did, the court ruled that this was because they were designed to be risk-averse, and in any event such underperformance only lasted a brief period, which was insufficient to warrant a change. As for Wood, the court found that its choice of flexPATH and its TDFs was reasonable because the funds “provided broad exposure to low-cost, BlackRock Index funds, their diversified holdings helped mitigate risk in fluctuating market conditions over a long period of time, and they had naming conventions that were easy for Plan participants to understand.” Third, the court ruled that no prohibited transactions had occurred. The court found that flexPATH did not choose its own TDFs for “marketability” or “seed money” purposes, as plaintiffs claimed, or that any increase in its assets after Wood selected it led to such self-dealing. Finally, the court ruled that Wood’s duty to monitor was derivative of its duty of prudence, and thus Wood prevailed on that claim as well. In any event, the court ruled that Wood acted reasonably because the TDFs “were performing as expected given the inflation period” and Wood “appropriately considered and evaluated the reasoning behind the underperformance.” The court thus found in favor of defendants on all of plaintiffs’ claims, and requested a proposed judgment from defendants.
Disability Benefit Claims
Aisenberg v. Reliance Standard Life Ins. Co., No. 1:22cv125 (DJN), 2024 WL 711608 (E.D. Va. Feb. 22, 2024) (Judge David J. Novak). This decision awarding disability benefits to an attorney who underwent a double bypass to treat his heart disease demonstrates two things that likely will come as no surprise to our audience: (1) attorneys, particularly those who work in the cyber-security department of a defense contractor, have stressful jobs; and (2) it doesn’t take a brain surgeon (or even a cardiologist) to know that high stress is dangerous for those suffering from serious heart disease. This case was previously before another judge in the Eastern District of Virginia who determined that Reliance Standard Life Ins. Co. (“Reliance”) abused its discretion in not considering Mr. Aisenberg’s risk of future harm if he were to return to work in his high stress job at the defense contractor, MITRE Corp., but agreed with Reliance that his normal occupation was that of a general “attorney,” rather than a cyber-security counsel, as Mr. Aisenberg had argued. In light of these holdings, the prior judge remanded the case to Reliance to determine whether there were less stressful jobs as an attorney available in the economy and, if not, the risk of future harm if Mr. Aisenberg were to return to a high stress job. Strangely, on remand, Reliance arranged for a labor market study on the job demands not of a general attorney, the category it had previously and successfully fought for, but for a business and financial counsel. This study described such stressful things as “crisis management” protecting “classified information,” and giving advice about terrorism, as among the material job duties of such a position. Concluding that Reliance was bound by its own study, the court had no problem concluding that any such position would be at least as stressful as the job Mr. Aisenberg held at the time of his bypass surgery. The court likewise had no trouble concluding, as Mr. Aisenberg’s own doctors had, and as supported by four studies he submitted, that working in a high stress job would be risky for him, despite two medical opinions submitted by Reliance that seemed to suggest that the science was out on the effects of stress on those suffering from serious heart conditions. In light of these findings, the court concluded that Reliance abused its discretion by ignoring the medical opinions of Mr. Aisenberg’s three treating physicians, not engaging with multiple studies supporting the risk to plaintiff, and failing to consider the risk of future harm despite the prior judge’s remand for just that purpose. The court therefore awarded benefits. However, despite Mr. Aisenberg’s resounding victory on the merits, the court declined to award him attorneys’ fees, concluding that only the “ability to pay” factor had been met.
Exhaustion of Administrative Remedies
Ayres v. Life Ins. Co. of N. Am., No. 3:23-CV-05376-DGE, 2024 WL 707454 (W.D. Wash. Feb. 21, 2024) (Judge David G. Estudillo). This is an action for long-term disability benefits under an ERISA-governed benefit plan. Defendant LINA responded to Jesse Ayres’ complaint by filing a motion for judgment on the pleadings. LINA contended in its motion that Mr. Ayres had failed to exhaust his administrative remedies under the plan and thus was barred from bringing his action. However, the court, quoting the Ninth Circuit, noted that “a claimant need not exhaust [administrative remedies] when the plan does not require it.” Because LINA could “not identify any language in the LTD Plan requiring Plaintiff to exhaust administrative remedies prior to filing a lawsuit,” its motion on this ground was denied. LINA also raised a second argument, which was that Ayres “failed to cooperate in the claim process.” Ayres denied this, and further responded that LINA failed to timely issue a decision on his claim under ERISA’s claim procedures. The court examined the pleadings and documents incorporated by reference in the pleadings “in the light most favorable to plaintiff,” as required by the Federal Rules of Civil Procedure. Under this standard, the court stated, “Arguably, the pleadings indicate Plaintiff did provide medical records and continued to provide supplemental records over the course of his communications with Defendant.” Thus, because there were “factual disputes as to the information Plaintiff allegedly failed to provide,” the court denied LINA’s motion on this ground as well. The court ordered the parties to meet and confer and file a stipulated order regarding a briefing schedule for the case.
Witt v. Intel Corp. Long-Term Disability Plan, No. 3:23-CV-01087-AN, 2024 WL 687928 (D. Or. Feb. 16, 2024) (Judge Adrienne Nelson). Plaintiff Randy Witt submitted a claim for benefits under Intel Corporation’s long-term disability employee benefit plan. Intel approved the claim for about three months and then terminated it on the ground that he no longer met the plan definition of disability. The Intel LTD plan has two mandatory appeals after a benefit denial. Witt submitted his first-level appeal to Intel through his attorney. Intel informed Witt that it needed an extension of time because it had referred his claim for independent physician review. Witt challenged this assertion, contending that this was not an “special circumstance” warranting an extension, and further contended that Intel had requested the extension too late and blown its deadline to respond under ERISA’s claim regulations. Intel responded by informing Witt that it had received the medical review reports, but they “had to be corrected based on the Plan provisions for medical evidence.” Intel provided the reports to Witt for a review and response, but Witt chose to file this action instead. Intel responded by filing a motion to stay the action and compel Witt to complete the appeal process under the plan. The court found that because Witt had submitted his appeal on May 25, 2023, Intel’s deadline was 45 days later, or July 9, 2023. Because Intel did not request an extension until July 12, 2023, its request was late and thus, under ERISA regulations, Witt’s appeal was “deemed denied” and he was not required to exhaust all the appeals ordinarily required by the plan. Intel contended that its extension was timely because Witt’s appeal was not actually complete until May 31, 2023, when Intel received additional materials from Witt. However, the court ruled that this did not toll the deadline because Intel did not request the additional information from Witt, nor did it indicate that it needed an extension because of Witt’s failure to provide necessary information. The court further ruled that Intel’s extension was not justified by “special circumstances” because it was dilatory; it failed to initiate its review process for almost a month after receiving Witt’s appeal. The court also addressed a second argument by Witt, which was that Intel could not enforce its appeal requirements because it “committed a procedural violation by failing to obtain medical reviews from appropriate medical professionals.” The court disagreed with this argument, finding that Intel “relied on reviews by medical professionals with appropriate training and experience in the field of medicine related to plaintiff’s claim.” As for the appropriate remedy, the court concluded that Intel’s failure to respond in a timely fashion to Witt’s appeal was not a “de minimis” violation, and thus the appropriate ruling was to deny Intel’s motion to compel Witt to exhaust his appeals.
Medical Benefit Claims
Stover v. CareFactor, No. 2:22-CV-1789, 2024 WL 770071 (S.D. Ohio Feb. 26, 2024) (Judge Sarah D. Morrison). This is an action for medical benefits by plaintiff Richard Stover, who was covered under an employee benefit plan as an HVAC Division Manager. Stover “lived on a working cattle farm and sold freezer beef under the trade name Buckeye Country Angus.” In March of 2021 Stover was kicked in the leg by a bull calf, which required medical treatment, including a hospital stay. The claim administrator for the plan, defendant CareFactor, denied Stover’s claim for benefits relating to the incident under the plan’s occupational exclusion. Stover filed suit and CareFactor moved for judgment. The court first ruled that the proper standard of review was de novo because, while the plan contained a grant of discretionary authority, that grant was to the plan administrator and not to CareFactor. Under this standard of review, the court ruled that defendants “failed to shoulder the burden of proving that a coverage exclusion applied.” The court noted that Stover “has consistently asserted that he was kicked by a bull calf being raised for personal consumption,” not as part of any business operations, and that he provided statements and documents in support of this assertion. The court found that defendants ignored this evidence and “failed to develop any evidence to the contrary” by not following up on the information Stover had provided. As a result, the court denied defendants’ motion and directed that judgment be entered in Stover’s favor.
Pension Benefit Claims
Randall v. GreatBanc Tr. Co., No. 22-cv-2354 (ECT/DJF), 2024 WL 713997 (D. Minn. Feb. 21, 2024) (Judge Eric C. Tostrud). Participants in a 401(k) plan with an employer stock ownership plan (ESOP) component sponsored by their employer, Well Fargo, survived motions to dismiss under both Federal Rule of Civil Procedure 12(b)(1) and Rule 12(b)(6) in this decision. Wells Fargo used the ESOP to meet its mandatory matching and discretionary profit sharing contributions under the 401(k) plan. As alleged, and as is typical with ESOPs, Wells Fargo lent money to the ESOP which the ESOP use to purchase shares of stock from the company, in this case preferred stock. This preferred stock is held in a reserve account until principal payments are made on the loan, at which point the preferred stock is, according to plan terms, required to be converted to $1,000 of common stock at the prevailing market rate and allocated to individual participants’ accounts. Plaintiffs filed a putative class action against Wells Fargo, its former CEO Timothy Sloan, and GreatBanc Trust Company, a fiduciary for the plan, alleging that this did not happen because the ESOP overpaid for preferred stock by calculating its value at more than $1,000. They asserted claims against all three defendants for breach of fiduciary and co-fiduciary duties, and prohibited transactions. Defendants moved to dismiss under Rule 12(b)(1), asserting that plaintiffs had suffered no cognizable injury sufficient to establish Article III standing, and under 12(b)(6) asserting that plaintiffs had failed to state plausible claims for relief. Addressing the Article III issue first, the court agreed with defendants that the overpayment for the preferred stock, without more, did not establish an injury because the preferred stock was never allocated to the accounts of the plaintiffs. Nevertheless, the court concluded that plaintiffs had alleged a “second injury theory” by contending that “‘if Wells Fargo had not misappropriated the ESOP’s preferred stock dividends and used them to subsidize its employer matching contributions,’ Wells Fargo ‘would have contributed additional shares of common stock to meet its employer matching contribution obligation, and the preferred dividends would have been used to make additional payments on the ESOP loans, converting more preferred stock to common stock for allocation to Plan participants.’” This was sufficient at the pleading stage to establish jurisdiction, despite what the court saw as Wells Fargo’s essentially merits-based arguments to the contrary. On the 12(b)(6) motions, the court turned first to the prohibited transaction claims, noting that the exemptions in 29 U.S.C. § 1108 are defenses and that to establish a party-in-interest prohibited transaction under Section 1106(a), plaintiffs were required only to plead that a fiduciary caused the specified (prohibited) transaction to occur between a plan and a party-in-interest. Concluding that they had done so, the court denied the motions to dismiss these claims. Likewise, with respect to the asserted Section 1106(b)(1) violations, the court concluded that plaintiffs plausibly alleged that Wells Fargo, acting in a fiduciary capacity, used preferred stock dividends in its own interest to meet its contribution obligations and that Sloan and GreatBanc knowingly participated in these actions. Similar factual allegations led the court to conclude that plaintiffs had plausibly alleged violations of ERISA’s loyalty provisions. While the court was not convinced that the imprudence claims were stated in a sufficiently non-conclusory manner, the court ultimately concluded that the allegations related to disloyalty were enough to allow the prudence claims to also survive at the pleading stage. The court’s denial of the motions to dismiss the remaining claims – for breach of the duty to follow plan documents, violations of ERISA anti-inurement provisions, and failure to monitor and for co-fiduciary breaches – flowed from these prior conclusions. All in all, a great decision for the plaintiffs, represented by my colleagues and friends (and loyal Your ERISA Watch readers) Dan Feinberg, Nina Wasow, and Todd Jackson at Feinberg, Jackson, Worthman & Wasow.
Jones v. AT&T, Inc., No. CV 20-2337, 2024 WL 772496 (E.D. La. Feb. 26, 2024) (Judge Greg Gerard Guidry). Plaintiff William Jones, serving as the executor and administrator of an estate, brought this action against AT&T alleging that AT&T failed to produce plan documents in violation of ERISA. The court entered judgment in AT&T’s favor, and Jones brought a motion for reconsideration. Jones contended that the court erred by (1) only addressing two of the three documents he claimed should have been produced, and (2) crediting testimony from AT&T that it had “produced everything they had in their possession to Plaintiff.” The court denied Jones’ motion. The court admitted that it had not expressly named one of the plan documents in its order, but ruled that its order encompassed that document by reference, so there was no error. As for AT&T’s testimony, the court stated that Jones “presented no evidence at trial to controvert that testimony,” and had not demonstrated that there were other relevant unproduced documents. Thus, the court denied Jones’ motion.
Withdrawal Liability & Unpaid Contributions
Walker Specialty Constr., Inc. v. Board of Trs. of the Constr. Indus. & Laborers Joint Pension Tr. for S. Nev., No. 2:23-CV-00281-APG-MDC, 2024 WL 756078 (D. Nev. Feb. 22, 2024) (Judge Andrew P. Gordon). The Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) amended ERISA to create “withdrawal liability.” Under the MPPAA, if an employer withdraws from a multiemployer pension plan, it is liable for its share of the fund’s unfunded vested benefits. However, there is an important exception: no withdrawal liability is owed for “building and construction industry” employees. In this case the plaintiff, Walker, performed asbestos removal, lead removal, and demolition work. It ceased operating in Nevada but contended that it did not owe $2.8 million in withdrawal liability because its employees fit this exception. It took the pension trust to arbitration, and lost, and then challenged the arbitrator’s decision in this action. The parties filed cross-motions for summary judgment which were decided in this order. The court reviewed the arbitration decision de novo because there were “no factual disputes about the work Walker’s employees performed” and “[t]he proper interpretation of the statutory term ‘building and construction industry’ is a question of law.” The court noted that the term is undefined in the MPPAA and the Ninth Circuit had not interpreted its meaning. The trust argued that Walker did not fit the building and construction exception because its employees only removed or demolished structures, and did not make or build anything. However, the court relied on the National Labor Relations Board (NLRB) and its interpretations of the 1947 Taft-Hartley Act, which uses the same language, and ruled that the exception was not “confine[d]…to literal erecting of structures.” Specifically, the NLRB had ruled in a post-MPPAA decision that asbestos removal met the Taft-Hartley Act’s definition. Furthermore, “courts have understood the definition…to encompass more than just work that forms, makes, or builds a structure in the literal sense.” Thus, the court ruled, “By encapsulating and removing component parts of fixtures attached to buildings, and by demolishing buildings for future repair, remodeling, or construction, Walker engaged in work in the building and construction industry,” thereby satisfying the MPPAA’s withdrawal liability exception. The court thus granted Walker’s summary judgment motion and denied the trust’s.